Strategy and the Risk of Opportunity Lost

Join the supply chain conversation at Think Supply ChainConsumer package goods (CPG) companies, such as Unilever and Procter & Gamble, have earned a special kind of admiration in the supply chain world. They are targeting emerging middle class markets and it is their supply chain strategy that makes this a profitable—and enviable—business. Supply chain leaders across a variety of industries and marketplaces want insight into CPGs supply chain strategy.

A.G. Lafley, former CEO of Procter & Gamble (P&G), has recently co-written a book on strategy with colleague Roger L. Martin, dean of the Rotman School of Management at the University of Toronto. In Playing to Win: How Strategy Really Works, the authors define strategy as a series of choices: What is winning? Where are we going to play? How are we going to win? Do we have the core competencies and capabilities to win? How will we manage and measure strategic process? Although Lafley and Martin do not specifically call it out with these questions, risk is inherent.

Risk management is a core supply chain competency that goes hand-in-hand with supply chain strategy. Greg Schlegel, CPIM, CSCP, and  risk and resiliency subject matter expert, recently shared with me an article published in Risk Management magazine. In the article, Lafley states that “fundamentally, your risk management choices, capabilities, programs, and processes come directly out of your strategy.” He goes on to say “you make your risk management bed when you make your strategy choices.”

But what about the risk of opportunity lost? Companies who boldly go where other companies do not are making a strategic choice to engage risk at a higher level than others. Taking hold of an opportunity that is high risk has the potential for high reward. Lafley makes the point that pushing into China to serve the emerging consumer class drove P&G’s supply chain decisions, such as manufacturing locally to keep distribution costs low. Although this introduced a good deal of risk at the time, it was an opportunity P&G leaders did not want to pass up.

What levels of risk do you address when creating supply chain strategy? Does your company evaluate loss of opportunity as a risk at the same level as other more tangible risks? What process do you employ to evaluate whether decisions made related to risk contribute to the success or failure of your strategy?

10 thoughts on “Strategy and the Risk of Opportunity Lost

  1. Lafley contends that strategy answers the fundamental questions “What is winning? Where are we going to play? How are we going to win? Do we have the core competencies and capabilities to win?”

    Michael Porter, on the other hand, would disagree without further elaboration from Lafley that “winning” is the end game of strategy.  Porter contends "The real point of competition is not to beat your rivals. It’s not about winning a sale. The point is to earn profits. Competing for profits is more complex. It’s a struggle involving multiple players, not just rivals, over who will capture the value an industry creates.”

    Winning, or beating your rivals, in the context of Porter’s 5 forces framework, is too narrow.  In addition to competing for profits with their rivals, firms are also engaged in a struggle for profits with their:

    *  customers, who would always be happier to pay less and get more.
    *  suppliers, who would always be  happier to be paid more and deliver less.
    *  producers who make substitutes with relatively low switching costs
    *  potential rivals as well as existing ones, because even the threat of new entrants places limits on how much they can charge their customers.


    For more details, please see Magretta, Joan (2011-11-22). Understanding Michael Porter: The Essential Guide to Competition and Strategy. Perseus Books Group.

  2. Greetings……I felt the article was interesting in terms of aligning strategy with risk. We, in the risk arena, especially the new Supply Chain Risk Management landscape, tend to work with companies to Identify, Assess, Mitigate & Manage their existing risks. And many of our clients focus solely on the RISK thread……which normally is construed as negative downside. BUT, as Lafley pointed out, there is an upside lever of risk and that’s what we call Opportunity Management.

    Tying Business Plans with Supply Chain Strategy and then evaluating the Risks associated with those plans and strategies is truly novel. With a robust Risk Assessment and Valuation process a company can then plot those risks against their “Risk Appetite” and make an informed decision, as P&G did in China.

  3. The risk of opportunities lost is an interesting conversation thread. One key to recognizing an opportunity is understanding the real business a corporation is in, and its core competence. If there isn’t that recognition, there will be major opportunities lost and significant risk. A few examples:

    1. The early railroad industry didn’t understand it was in the transportation business in the broadest sense; it believed it was exclusively a rail transportation industry. One opportunity lost is the automotive industry, and the associated road infrastructure industry. Another lost opportunity is the air travel industry and the whole eco system that supports it. Railroads had unique opportunities with a possible domino effect, but missed and it has paid a price. Yes, USA anti-trust laws would have broken-up this transportation conglomerate, but what remained would have been bigger than the original parent would.

    2. The same could be said of the automotive industry and the potential follow-on aircraft industry possibility. The overall technology in a car and aircraft today isn’t that dissimilar.

    3. Another example is the USA Post Office, it doesn’t deliver mail, and it delivers information. Why isn’t it the Internet orchestrator? DARPA the developer of the Internet and the USPO are similar in that they both have government oversight.

    I guess that not knowing who you are is the gateway to opportunities lost, and the risks incurred are best exemplified by the current blight
    of the USPO.

  4. The co-author of Playing to Win, Roger L. Martin, spent some of his career at Monitor Company. Michael Porter is cited in the book as an influence on how P&G developed strategy. The point Joe raises is really interesting and is a postmortem topic of conversation subsequent to the recent demise of the Monitor Group. A rather biting analysis by Forbes contributor Steven Denning can be found here.

    I would be interested in hearing thoughts on this analysis.

  5. Sharon,

    You outline the recognition amongst thought leaders and progressive companies that risk is a component of business strategy and planning, one that if ignored especially with global supply chains, puts the future at risk. We use scenario planning to address supply chain and business risk in actionable ways. Some critical components to the scenario approach:

    1. Its something the requires a good degree of supply chain capability and IBP/Advanced S&OP maturity, Gartner Stage II moving toward Stage III, Oliver Wight above a 3.0 score.

    2. The ability to quantify “value at risk” to a reasonable degree (even if its using consensus estimates that are consistent) and use assumptions related to your strategy with planning.

    3. Recognizing two basic types of risk 1. low to moderate impact with a high degree of probability – these should be part of your planning, managing processes and be reflected in your end to end KPIs. 2. High impact, low probability risk that could significantly impact your ability to operate or affect major areas of business continuity, these require good scenario planning. In both cases they need to be tied to actionable steps that are planned with “trigger points” to indicate when to do something differently.

    Great subject – thank you for highlighting

  6. The valuation of risk that was mentioned by Peter Murrary is the key here, I believe. The ability to measure VaR or inability to do so will play a major role in how organizations conduct their supply chains. What is an opportunity lost? Can it be defined or meassured? Scenarios appear to be very useful utllizing subjective as well as objective evaluation.


    Porter & colleagues evaluating “the product”…In “Ahread of the Curve”, Broughton (the author) relates complaining as the customer about content of a Harvard MBA course…his stern rebuke from the instructor (paraphrasing” — you are the product, not the customer….now they’re seeing the “disconnect”, how many years later?…

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