How to Manage Competitive Risk

Risk management in many companies is more like risk avoidance; the logic being that avoiding risky projects is the best way to avoid your losses. With increasing competition, conditions today are such that every company faces some level of competitive risk--one that can prove crucial in deciding the fortunes of a business. Managing this risk is not just about waiting for the alarm bells to go off; it’s more about being prepared to tackle the resulting situations. It is also about being proactive enough to convert a risk into your lucky break.

Set up a team. Select key people from each of your company departments--risk management, marketing, human resources, finance, IT and legal. Invite external experts and your suppliers. Form a competitive-risk assessment team that works to help the company to comprehend the extent of competitive risks it faces.

Identify your competitors. Locate other businesses in the same segment. Gather information regarding their products and future from information available in the public domain. Study the areas of their research and how much they have invested. Evaluate whether these competitors pose a threat to your market position.

Develop new technology. Invest more in research and development activities. Keep track of developments taking place in your primary field and in other closely associated areas. Anticipate where the future is headed. Develop newer products with significant value addition over the competition.

Focus on customers. Develop feedback mechanisms to keep track of customer expectations. Before you decide on a new product to develop, check if it’s going to satisfy consumers’ needs. View your product through the eyes of the person who’s going to buy it. Determine what you need to include in order to make sure people prefer your product over your competitor’s. Maintain balance between technological development and customer comfort.

Monitor market dynamics. Be on the lookout for risks that can translate into business opportunities. In most cases, the more profitable the activity, greater the level of risk. Get your team to brainstorm and come up with ideas to turn risk into profit. Discuss worst-case scenarios and come up with strategies to handle them.


  • Not all competitive risk situations can translate into a profitable opportunity. Use discretion to decide when to back off.

    Smaller businesses that cannot afford large investments in R&D can begin by making customer focus their main strategy to manage competitive risk.