The Upside of the Downside

Opportunities in Managing Risk

November 12, 2016

You will find risk everywhere you look, if you look for it. Every time we get into a car, as a driver or passenger, there is the risk of an accident. Every time we burn a candle, there is a risk of causing a fire. And every time we get on a ladder to replace a light bulb, there is a risk we can fall.

Business risk is everywhere, too. Finance, human resources, marketing, strategy, project management, entrepreneurship, and all kinds of business endeavors involve risk.

There are well-known business risks, such as financial risk, environmental risk, business industry risk, and strategic risk. But there are new, emerging risks that will be critical going forward in our globalized, digitalized era.

What are these new risks? According to Gunjan Sinha, a Silicon Valley entrepreneur and expert on risk, the main emerging risks are the introduction of left field disruptions (unexpected competitive threats), the risks and opportunities of global business ecosystems (partners, suppliers, and freelancers), and the rise of the digital universe, including advances such as drones, robots, and driverless cars.

An example of a left field disruptor has been the prolonged drop in the price of oil. Most economists did not expect or forecast that oil prices would remain so low for so long. In 2015 the government’s Energy Information Association lowered its 2016 forecast from $71 a barrel to $50.89. And yet prices in 2016 have averaged lower than that, and have been as low as $29. In an interview with the Wall Street Journal, Miranda Davis, managing director at Quintium Advisors LLC, said “We haven’t seen a lot of the supply-driven oil-price declines in recent history. I don’t think the world was prepared for that.”

And in another field, an unexpected competitive threat has been the increased popularity and sophistication of smartphones. This has happened in the digital camera market. The demand for digital cameras has declined as the quality of cameras in smartphones has improved. The sales of digital cameras surged and reached their peak in 2010 when 121.463 million units were sold worldwide.  But in 2015, only 35.395 million digital cameras were sold.

Emerging risks like these are not always easy to predict, and the need for people who know how to think about and assess risk has never been greater. But a focus on risk, and risk alone, can miss opportunity. To take advantage of the flip side of risk, businesses need to identify opportunity when they outline their risks.

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