I often wonder if people really understand the basic tenets of risk management. The reason for my wonder came when I was having discussions with a professional preparing for Agile Certification that they don't do risk management in their organizations because the product management only does SWOT analysis and that they participate in blue ocean thinking. Only after some of my explanations was the learner able to see the tenets of risk management in SWOT and Blue Ocean Leadership. In my book on Organized Common Sense, I mention that if we don't take care of risks, risks will care of us! All strategies and every execution are loaded with risk! In my humble opinion, quality is a function of risk!
Let me elaborate on my discussion with this learner for the benefit of many! When we discuss SWOT, we have to understand that it is a summary framework to capture our research and findings by applying other frameworks. For instance, the internal strengths and weaknesses can be evaluate by VRIO framework (Valuable, Rare, Imitable, Organized) and external opportunities and threats can be assessed by PESTLE* (Political, Economical, Societal, Technical, Legal, Environmental) framework.
When you look at the summary captured in SWOT, risk management concepts is spread all over it! In Risk Management, positive risks are called opportunities and negative risks are called threats. Companies often have their own strengths based on years of experience in that field or the accumulated knowhow, intellectual property, and access to human capital, subject matter expertise, and domain knowledge. This is why we say, lead with your strengths to maximize opportunities (SO) or minimize threats (ST). While one may want to address their weaknesses with complementary opportunities (WO), no one wants to venture out into an area of expertise where not only they have weaknesses (example: not organized to deliver value or their product/services is not rare and imitable) but also other competitors have a winning edge (WT). This combination of creating strategic areas based on internal and external factors is called the TOWS approach (Weihrich, 1982).
So, how does this connect with Blue Ocean? According to Kim & Mauborgne (2005), the overarching concept of Blue Ocean strategy is that companies are seeing an uncontested market where they can gain significant first-movers advantage. But, in order to create opportunities in this market, they will have to consciously decide to eliminate working in some areas, raise their strengths (ways of working) to leverage internal strengths to tap into new customer base and reduce some ways of working that add more to waste than value. Hence, Blue Ocean frames these four approaches as ERRC (or CRRE). You can see how the "create" corresponds to SO, "raise" aligns with ST, "reduce" maps to WO and "eliminate" associates with "WT".
Now, what does risk management framework (Project Management Institute, 2017) suggest as risk treatment options? For negative risks, the expectation is that one first avoids risks. If the risk can not be avoided, one transfers to someone more qualified to manage the risks. Despite transferring some risks, there may be risks that one may have to absorb. The guideline is that one takes proactive measures to mitigate the risks before accepting the remaining part of the risk. For positive risks, the reverse is true. One exploits where one has both the strengths and opportunities, shares or enhances strengths to address threats.
Given below is the synthesis. Now, the risk treatment options identified here may swap places depending upon the degree to which one has internal strengths and weaknesses and the extent to which they want to address external factors to maintain a competitive edge.
*Based on discussions with one of my friends, Kalash Upadhyay, we have extended this to include ethical and demographic considerations calling it PESTLEED.
References
Kim, W. C. & Mauborgne, R. (2005). Blue Ocean Strategy: From Theory to Practice. California Management Review, 47(3), 105–121. https://doi.org/10.1177/000812560504700301
Project Management Institute. (2017). A Guide to the project management body of knowledge. Newtown Square, PA: Project Management Institute.
Weihrich, H. (1982). The TOWS matrix - A tool for situational analysis. Long Range Planning, 15(2):54-66.
