Ansoff Matrix

Previously, I discussed risk management and industry competitive analysis. I will now extend those earlier discussions in this article by focusing on the ways in which a business can consider its options for its growth. Specifically, 'growth' relates to securing more sales revenue and or volume. Since businesses exist within a competitive landscape, this growth must usually occur after capturing market share from competition while managing the associated competitive risks.

Uses for the Ansoff Matrix

• Ansoff's Matrix is a marketing & corporate strategy tool. It can be used to formulate your business plan's growth-oriented mission statement. Businesses with strong growth ambitions often consult these strategies. 
• Third parties reviewing a business plan, especially investors who will suffer loss if your business' ventures fail like venture capitalists are particularly interested in your choice of strategy for enhancing revenue. Growth strategies therefore provide a very strong indication of the level of risk associated with your business' vision. 
• Defining your business strategies according to the Ansoff Matrix provides a systematic way of  integrating risk management into the marketing strategic plan. Specifically, it allows marketers to easily identify risks, rank those risks and then plan tailored responses for each risk, according to its intensity.

Types of Growth Strategy, Defining 'Product' and 'Market' & Gradations

The 4 strategies in ascending order of risk are as follows. It is worth noting that any of these strategies may be used in conjunction with another. 

1. Market Penetration
2. New Product Development (NPD)
3. New Market Development
4. Diversification

Each of these 4 strategies is graphically represented by a quadrant in the Ansoff matrix. The axes of the matrix represent strategies involving the 1) product and 2) market. Each axis is divided into either 1) current or 2) new. In other words, a strategy can involve either a pre-existing product or a new one. Similarly, the strategy can involve either a pre-existing market or a new one. Each strategy can therefore be plotted within the matrix to simultaneously consider the nature of the product and market in these ways.

As strategies involve newer products and or markets, the risk of loss and faillure increases. In other words, the level of risk increases as a business moves further away from what it already knows and into something new whether new markets and or new products. Since market research and product research & development (R&D) required to engage in something new do not guarantee success (ie sales), there is always a likelihood that your financial investment into these activities can be lost. In fact, non financial losses are also looming probabilities. As discussed below, the least risky strategy is market penetration while the most risky one is diversification

Given the potential for different definitions for 'product' and 'market', managers should communicate the interpretation that should apply to their organization. For instance, in my practice, a 'product' is any unique item for sale. It usually has its unique barcode (a digital fingerprint that hopefully conveys my message of its individuality and uniqueness). In other words, if I sold polo shirts, color variations or other items within a product line can not be collectively called a product. Instead, I select the standard or original version as a single 'product'. As will become apparent below, the decision to introduce newness like variations in color, size and so on requires some specific consideration regarding associated risks.

For my purposes, a 'market' usually consists of members who qualify for the product and can probably be served through sales channels available to their market. If the shirts are sold in City A stores and City B stores but shoppers from either city do not access the other city, I can say that I have 2 markets that are defined in terms of geographic location. I may name them the City A market and City B market. In reality however, markets may also be separated psychographically, socioeconomically and otherwise. The key point is that a 'market' is specifically defined and separate from others. For instance, Stores A and B may be feet away from each other on the same street but belong to different markets. If the stores have extremely different prices; one very high to be exclusive and the other very low to cater to budget conscious shoppers, members of one socioeconomic market are unlikely to ever visit the store of which they are not members, even if the other store is nearer to their homes.

In some organizations, quadrants contain gradients that represent different levels of newness or deviation from the current product or market. Gradation reflects varying levels of risk within a single quadrant. For instance, imagine that you decide to sell your shirts to a new market, ie the middle socioeconomic market but within the same town. The level of risk will be different if you sell the same shirts in a different city whose commercial environment is entirely new to you. The risk increases even further if you sell in a different country. 

As you might have suspected, the same gradation can apply to products. For instance, if you offered polo shirts that were extra small and pink (ie rather than the standard navy blue), you run the risk that your market will not buy them. Has your market consisted of men whose machismo will prevent them from buying pink, even for their sons? Knowing the qwirks of your market, you will also need to decide whether offering a dress shirt of linen (ie rather than a polo shirt made of jersey material) is marginally or considerably more risky. Each of these new items may appear on a different gradient. These differences are clearer if you started to offer products that are: add-ons like belts and hats that complement the main product; upsells like fancier polo shirts or; products in completely different industries like daycare services which drastically deviate from clothing.

Needless to say, while considering the gradations of product newness, you must simultaneously do this for markets. For instance, considering the qwirks of your market, do you need to treat the pink shirts as 'new' products in a 'new' market because, up until this point, your store has only attracted men, but women and their daughters are the only likely buyers? If you are thinking about the daycare services which, in addition to being a different product, also caters to a different market, its riskiness transcends pink polo shirts for women despite the fact that daycare services exists within the same quadrant for both new product and new market.

This post will now explain each of the 4 strategies in turn. However, in the cases of new product and new market development, there is additional discussion about the associated risks.

1. Market Penetration - LOW Risk
This strategy involves a 

• current product  AND
• current market

Aim: To increase market share by increasing dollar value of revenue. Within your current market, you have the option of targeting either:

• customers from competitors (direct and indirect)      --OR--
• YOUR current users to consume more

This applies to cases in which you are already serving a particular market but wish to deepen your hold on that market, ie expand market share. See examples below this strategy. When using this strategy, you likely need either very little to no market research to achieve this successfully because there are no new markets to be researched, nor products to be developed and tested. The market is already like your familiar 'home base'. NB. This strategy is not ideal if you are in an already crowded market and your product is in its mature stage.

• Example(s): forms of this strategy.
• If a brand called Kopa-Cola already sold its drink in City X (ie a pre-existing product and market) but 
• now tries to increase sales by introducing a 6-pack, perhaps pricing it so that the last bottle is free. With this approach, the brand is targeting its own customers ... OR
• now offers the drink as part of a bundle that includes tickets to movie theatres that cater to the competition's drink. With this approach, the brand is targeting the competition's customers.
• Opening new channels and or making existing channels easier to use within the existing market with new physical retail outlets, new websites, new social media, live chat, etc
• Loyalty programs encourage your current customers to continue buying. Consequently, they meet the objective of this strategy, ie to increase sales. (As a side note, loyalty has the added benefit of raising switching costs as per Porter's Five Forces).
• Market-appropriate tentpole promotions like Mother's Day special, Christmas sales, etc. These promotions may include sales like buy 1, get 1 free or earn double rewards.
• Competitions that encourage the engagement of current customers using social media features like questions in Instagram Stories.
• Shout-outs with strategic alliances, ie other businesses with non-competing offerings but the same market. You may use tools like Instagram @tags. 

2. New Product Development (NPD) - MEDIUM Risk

This strategy involves a:

• new product - a source of cost and therefore risk
• current market

This strategy is the 2nd least risky. It evolves naturally from product penetration because it is easier to sell to existing customers that you already know well than to acquire new customers. It relies very heavily on pre-existing deep insight into customer needs and successful innovation. In short, costs that cause risk relate only to new product development (NOT market research).

Uses & benefits:

• to recapture your customers who are being lured away by the competition (essentially a counter attack)
• to exploit opportunities to sell a new product. 

Example(s):

• If the abovementioned Kopa-Cola brand (that already sells its drink in City X) now tries to offer a product variation to its pre-existing market. It might offer a 'light' variation, to prevent customers from having a wondering eye when they notice that the competition and social media is talking about lowering sugar consumption.
• In the personal care cleaning industry, large synthetic detergent (syndet) bar companies began to receive a lot of competition from cottage industry makers of all-natural soap. In response, syndet makers created 'green' ingredients to their syndet bars and took advantage of the facts that there is no regulation over the word 'natural' and the average consumer does not understand the science. However, to attempt to raise entry barriers to soap makers and secure their competitive advantage, they began to push the idea of pH-neutral products as being superior and safer for human skin. They did this knowing that soap by its nature can never achieve pH balance.
• New features on the current product
• Special editions, which are variations of the current product
• New product updates.
• Case study: Apple does this very well with new  innnovative operating systems, each with existing new names.
• Market extension using strategic alliances with other companies.
• Tentpole-specific variations
• Glocal variations

Risks asssociated with new product development include the following.

• Missed opportunities due to inflexible pursuit of and faith in the original plan. This can result in tunnel vision that does not adapt to changing market needs.
• Delays due to over-stretching (human and other) resources. Allow the R&D team and equipment to focus exclusively on their task. In other words, avoid the temptation to assign these resources over too many projects and normal-business tasks because they will be less equipped to handle the unpredictable nature of R&D. In short, the solution is to have a 'capacity buffer'. A capacity buffer includes not rushing into new projects before properly completing ongoing ones and dedicating teams and equipment to a single project.
• New products that become unpopular in the market due to being too complicated with an excessive amount of features. This is very applicable to products that are technical and whose method of use needs to be learnt (like software, equipment and information). I will also add that this applies to even consumer goods whose number of components should likely be kept at a minimum to help consumers better identify what they like and consider effective. Rather than make a toothpaste that is for removing tobacco stains but also ideal for sensitivity is confusing. You are better off creating segments. Besides, your production team will have less chance of total work stoppage due to running out of one among numerous components.
• Product failure due to zero-tolerance for design failures during development process. This can result in entering the market prematurely with sub-standard products that can hurt your brand. The solution is to not only be clear on objectives based on market needs but also willingness to alter the plan and re-design the product as needed during the process. Allowing the R&D process to endure failures prevent designers from only selecting the least-risky options. Enduring the failures in-house early saved the brand from public product failure.

3. New Market Development - MEDIUM RISK

• current product
• new market - a source of cost and therefore risk

A new market can be defined by any grouping such as geographic location, psychographic segment and income level segment. Re R&D, since you are targeting new leads with the same product, you only need to perform market research (and NO new product development). You already know your product has a potential to be liked. Since the elements of newness is limited to only or mainly one between product and market, this strategy is considered to carry medium risk. (However, you might still need to follow trends of the target market's evolving needs and desires). 

Case Studies:

• Some of your high end clothes can not be sold as normal in your usual outlet, possibly due to overproduction, returns, slight defects and so on, you find alternate 'off-price' retail outlets like TJ Maxx. TJ Maxx is a different market segment in that it is renowned for appealing to people who want high quality but at a discounted price. Consequently, your high end buyers are unlikely to shop there. If TJ Maxx is also unable to sell those products, they may pass those products on to thrift stores.
• Unlike numerous Western companies attempting FDI in China, Starbucks' foreign direct investment (FDI) entry into China was successful after some initial floundering. The success is possibly due to several reasons. For starters, its entry represented the first time a coffee culture was introduced to such an extent in China when the middle class was growing and demanding new experiences. Despite the Chinese culture that is traditionally geared towards tea, the experience was appealing to Chinese. To some extent, the aesthetics are considered glocalized with Chinese wall art, mugs and so on. Senior management admitted that their task was helped significantly by having Chinese 'friends'. My impression is that this success might involve luck because of timing. In contrast, Starbucks failed in Israel. This was due to not appropriately adapting to the  Israeli coffee culture. For instance, Israelis prefer to lounge around with ceramic cups. Carrying away Starbucks' paper cup made some Israelis feel rushed which was therefore unappealing. Since Starbucks charges a premium for the Starbucks experience, it would be understandably hard to justify paying more for an experience people did not value. The brand failed in Australia to the extent that it closed 2/3 of its locations in 2008 (only 8 years after starting its FDI there) and after sustaining over USD 100 million in losses. This occurred despite the fact that the Australia coffee market is among the largest in the world. Its failure appears to have occurred through an attempt to quickly reproduce the same US product, ie as opposed to slowly or organically becoming integrated into the new market. The Australia market is used to a more intimate experience in cafes and also has its own coffee preferences. Starbucks' menu did not adapt from more sugary drinks to what Australians would consider more sophisticated tastes. Furthermore, the high number of locations arguably made the brand appear too mass produced or commoditized and available for a premium brand. Ultimately, the premium price could therefore not be justified by consumers who found the experience below par. This case illustrates that success in one location does not naturally translate to other markets. To be clear, it is not simply a matter of american companies being incapable of globalizing. Afterall, another american company, Gloria Jean's Coffee was successful at glocalizing with over 400 outlets in Australia. Gloria Jean used Australian franchise to accomplish this success but with a menu that is adapted to the Australian taste.
• The failure experienced by Walmart in Germany is a case in point that shows the risk involved in failing to adjust an incompatible business model to the demands of local markets. Specifically, Walmart did not alter its American model before setting up stores in Germany. It was voted as the "worst supermarket" for several years and lost hundreds of millions of dollars. At the core of this problem is the fact that Walmart's value proposition is competitive price while the German market does not focus heavily on price. In general, Europeans do not even care to know the price of items while shopping.  

Example(s):

• Brand awareness promotions
• You want to target not just Gen X and Y as per your norm but now also Baby Boomers.
• You want to overcome a recession or low-income profile in your country and want to enter a different country's more affluent market. 

Risks associated with new market development may be divided into internal, external and legal. Identify risks by considering the following related factors. In all instances, seeking advice and working closely with locals (like staff, lawyers and other stakeholders) help to manage these risks. These relationships must also be maintained since the rules change. Needless to say, research your market as heavily as possible and without making assumptions.

• Internal (ie within your business)
• Cultural differences: segmentation based on demographics &/ psychographics; language; social perceptions regarding matters like race and gender; systems of measurement.
• Goals that are unclear, inadequately communicated or integrated into the functional processes throughout the organization.
• Lack of coordination, especially among virtual team members.
• Cash flow. Given the unpredicatable nature of how things can go wrong, businesses need extra emergency sources of cash.
• External
• Conversions across (volatile) foreign exchange rates, foreign business practices.
• Logistics, especially in developing countries.
• Technological networks in the location. 
• Social unrest and trends. Businesses should learn the significance of the social climate, the reasons for protests, riots, labor strikes, revolutions, wars, sudden changes in governments and so on. This is key for planning accordingly, showing appropriate solidarity and avoiding the perception of insensitivity.
• Physical environmental factors. These involve  issues as insidious as the mold that develops in highly humid climates to the raging nature of hurricanes, earthquakes, floods and so on.
• Legal
• Compliance with the regulations and laws of the new market. Consider for instance that, selling marijuana was legal in some US states but carried a severe penalty in others.

4. Diversification - HIGH Risk

This corporate strategy involves:

• new product - a source of cost and therefore risk  AND
• new market - a source of cost and therefore risk

Diversification is the single most risky strategy because it involves entering into new markets with new products. Sometimes, this strategy is used as a last resort for survival when a company's product life cycle is in decline in its market or when there is no other foreseeable means for growth (because all other strategies have been exhausted). However, it can also be used by healthy companies that simply want to grow to please its shareholders, like Amazon. I also consider new business ventures as starting in this way. Regardless of the circumstances that lead to diversification, businesses should consider cultural differences when moving internationally. If you lack sufficiently deep knowledge of your product, tread cautiously. You might be better off with another growth strategy. Also consider minimizing the high risk with strategies like franchising.

Case studies

• Amazon has used diversification simply to grow to please its shareholders. Regarding new markets, it uses strategic alliances in this globalization process. Regarding new products, it leveraged its well known name to diversify into drastically different fields in some instances like the Amazon Web Services (AWS). Unlike the original retail Amazon, this business provides server, storage, networking, remote computing, email and mobile development and security services. In fact, this product has even become Amazon's leading revenue generator. Ultimately, this case is the classic example of the enormous rewards that can come with enormous risk.
• When a car brand needed a plastic manufacturer to make some of its parts (fairing panels), Swatch, a business that specialized in making plastic watches took the risk of making this new product (fairings) for a new market (the automobile market), both elements (product and market) with which Swatch had no experience. 
• Alphabet is a case of a highly successfully diversified business. 

Example(s):

• Mergers & acquisition can give you access to your competitors' customers. 

Sustainability of Growth Strategies

Beware however that these strategies are not always sustainable. For instance, strategies reliant on giving more for less, product variations, new sales channels, new market segments, etc can often be easily imitated by the competition and or deliver diminishing returns over time. Consequently, they are best considered as relatively short-term growth strategies for quick results. As to be expected, the most risky growth strategy, diversification has the greatest potential for more sustainable growth.

CONTENT RELATED TO THE ANSOFF MATRIX

• New Product Development 101
• Business Plan
• Risk Management 101 
• Franchising can be a means of reducing the high (financial) risks associated with new market development.
• Consignment agreements can reduce risks associated with new market development.
• Corporate strategy
1. PESTLE 
• Create SWOT (using PESTLE tool)
2. Porter's 5 Forces
• Create SWOT analysis (using Porter's 5 Forces)
• Gap analysis
3. Ansoff Matrix 
4. Boston Matrix
• Operations management 101 for productivity
• Abovementioned case studies in other content
• Amazon
• Apple
• Gloria Jean's Coffee
• Instagram
• Personal care (cleaning) industry
• Starbucks
• Swatch
• TJ Maxx
• WalMart

Porter's Five Forces of Competitive Threats within an Industry

If your industry's competitive landscape were a chessboard, the Porter's 5 Forces Model would be how you size up your opponents relative to yourself. Being able to measure the intensity of competitive risk, relative to your internal strengths and weaknesses will help you to plan strategically. In short, the Porter's 5 Forces Model is a tool for developing your corporate strategy.

Uses & Benefits

• to help in creating items for a SWOT analysis.
• to determine whether you want to enter into an industry
• to continually evaluate the intensity level of competition in their current industry
• to adjust and then justify strategic decisions in presentations
• business plan 
• corporate strategy risk management plan
• annual reports

Using Porter's 5 Forces involves systematically answering 5 set of questions about the industry. It can therefore be converted into an internal survey requiring managers to rank each item, optionally on a Likert interval scale like 1 - low, 2 - medium and 3 - high. The lower the overall risk, the better the chance of dominance within an industry. I can not stress enough how important it is to customize your responses according to your particular business. Even businesses within a single industry can likely have very different outcomes because of their unique brand positioning strategy.

0. List industry leaders and other key competitors. 

Is the market concentrated? (ie do the top 4 players account for at least 80% of all industry sales?) Do your competitors compete on the basis of differentiation thereby asking premium prices? What is customers' perception of quality among your competitors?

1. The threat of new entrants.

Are you in or thinking of entering into an industry and wonder what type of competitive threats you will or can potentially face? These questions focus on how difficult it is to enter the industry, ie 'entry barriers'.

• Entry barriers
• Scale economies. If current players already enjoy scale economies, they are likely to have a considerable cost advantage over new entrants who can not achieve these scale economies.
• Relative Differentiation. What is your and or competitor's level of differentiation? The higher the differentiation, the harder it is for others to compete directly. For instance, if you have highly innovative products, they will be harder to immitate and therefore give you relatively low levels of risks. Equally, if your competitor is the one with highly differentiated products, your competitive risk is high.
• Customers' switching costs. How easily can customers switch between you and your competitor? The concept of 'costs' should not be perceived only in terms of product price. Instead, consider switching costs from the customer perspective regarding how customers perceive value and costs. For instance, common ways in which businesses raise switching costs include legally binding purchase contracts; emotionally binding loyalty rewards programs that motivate FOMO; superior benefits like convenient distribution channels or hassle free guarantees with more accessible and empowered customer support.
• Entry costs. Do new entrants need to hire research and development teams, gain specialty competencies, buy factory space and so on?
• PESTLE factors. Do you and or your compeititors face restrictions and or permissions that make entry relatively harder? Examples include trade agreements, Customs regulations, embargos and so on.

If you wish to enter into a market with very large and intimidating players, avoid trying to compete in attack against them. This is too costly and futile. Your best approach will be to enter the market within a specialized niche.

2. Bargaining Power of Suppliers. Are you in a buyer's or seller's market for your supplies? Specifically, if you have multiple options for your necessary supplies, you have more power. However, the converse is true. The ideal is to have multiple suppliers. Afterall, if one supplier raises prices, your business has low switching cost, perhaps you are not contractually bound.

Case study: 

While otherwise very strong in its industry, Tesla faced 'high' risk in this area because they depended on their suppliers because they had only one supplier for the majority their components. Ironically, this might have occurred because of their highly differentiated product which gives them relatively low risk regarding differentiation. 

3. Bargaining Power of Buyers. As in the previous point, the lower the relative bargaining power of buyers to switch to competitors, the lower your risk. 

Case study:

Interestingly, while Tesla faced 'high' risk as a buyer with its suppliers, its sheer contribution to those suppliers is so considerable that they are not that badly off overall because they also have relatively low risk as a significant customer, possibly the largest of that supplier. However, if this question were being analyzed from the perspective of those suppliers, they would suffer high risk of Tesla's relatively high bargaining power. 

4. Threat of Substitution. Are there alternatives to your product? Such alternatives need not only be precisely the same. However, they should be considered. For instance, a movie theater should not only consider other movie theaters as substitutes. Since their customers are ultimately buying entertainment, the substitutes can range from video games, parks, board games and so on. 

5. Rivalry among Competitors. This final question should consider all of the previous ones. To answer this question, consider signals of rivalry like price discounting. 

 

CONTENT RELATED TO PORTER'S 5 FORCES OF COMPETITIVE THREAT

• Business plan
• Corporate strategy
1. Porter's 5 Forces
1. Create SWOT analysis (using Porter's 5 Forces). Create subsections that address each unique product at a time.
2. Ansoff Matrix
3. Boston Matrix
• Risk management 101
• Abovementioned case studies in other content
• Tesla

Cause & Effect Diagrams for Quality Management

The Cause & Effect Diagram, aka Fishbone diagram, Ishiwaka diagram or Why Why Tool is a tool most commonly used in Quality Management and Risk Management. Its design merges brainstorming (often based on incident reports) and mind mapping techniques to help mangers to identify all possible root causes and potential risks. The most common applications include identiying the following.

• Potential causes of problems in new product design
• Quality defects and their causes that can be prevented
• Symptoms of the cause

How to use the Cause & Effect Diagram

The "head" of the fish's skeleton represents the problem or "effect" as described in a risk register usually appears on the right. The "bones" extend to the left of the head to display various causes. However, to better organize the exercise, each rib denotes a category or classification of these causes. Smaller bones can therefore branch out into causes and even sub-causes. The branching depends on the levels required under each classification.

The "ribs" or classifications can and should vary according to your industry and or functional objectives. For instance, manufacturers often use the '6Ms', which are a group of "ribs" or classifications that have been become a manufacturers' standard after the automobile company Toyota popularized it. 

Brainstorm. Ideally, seek different perspectives from persons in different functional areas. Also inspect the site for hazards. Keep in mind that, while risks relate to the 'effect' end of situations, 'hazards' relate to the 'cause' end. Consequently, you can improve this root cause analysis by appropriately matching hazards (like a lion) with corresponding risks (like injury or death of human beings).

6Ms

1. Man

2. Machine

3. Material

4. Method

5. Measurement

6. Mother Nature/ Milieu (Environment)

7. Management (used by some managers) 

8. Maintenance (used by some managers)

Example using Toyota's 6Ms. (Illustration video also included below)

1. MAN. Includes: skills, job assignment. (HRM; SCM; target/non-target). 

• A risk may involve not using the best practices for interviewing and selecting appropriate candidates; failing to properly onboard candidates, etc.

2. MACHINE. Includes: tools; equipment, condition of ~, etc. 

3. MATERIAL. Includes. production inputs 

4. METHOD: Includes efficiency, complication, existence of procedure. 

5. MOTHER NATURE & MILIEU (ie social environment). Includes weather conditions, culture.

6. MEASUREMENT. Includes variable frequency or levels like temperature, time, quality, adequacy, number of people, etc.  NB. This is sometimes excluded for redundancy if there is a preference to include measurement in the other categories.

Symptom(s): Aids to identifying cause(s).

Other Common Classifications 

1. Marketing professionals commonly use the following 7Ps.

1. Product 

2. Price

3. Place

4. Promotion

5. People

6. Positioning

7. Packaging

 

Service industry professionals commonly use the Service 5Ss:

1. Surroundings

2. Suppliers

3. Systems

4. Skills

5. Safety

 

CONTENT RELATED TO CAUSE & EFFECT DIAGRAMS FOR QUALITY MANAGEMENT & RISK MANAGEMENT

• Hazards 101
• Illustration of the manufacturer's 6Ms fishbone diagram. 

                 

• Simplified illustration of the fishbone diagram method for a resolving a problem (inadequate handwashing) 
• More complex illustration of resolving the problem of patient falls in a Nevada Division of Public and Behavioral Health facility (video starts from relevant section @17:31)
• Incident reports can help to find causes when completing the fishbone diagram.  
• Product Liability Insurance is a planned risk response that proactively transfers risk to a third party. Read about it to find ways to improve production and risk management plan accordingly.
• Risk management is an essential part of a Research & Development (R&D) project.

Incident Reports for Risk Management

What is an incident report & why is it necessary?

An incident report is a formal record of the facts related to an accident, near miss or injury. This document is an integral part of risk management, (particularly the management's response and monitoring & control stages of risk management). Its primary purpose is root cause analysis (aka fishbone diagram analysis), ie to discover the circumstances that led to the occurence of a risk so as to prevent future incidents.  

Incident reporting is NOT intended for comparisons. For instance, if different reporting units are compared for safety based on incident reporting volume, a unit with more reports of adverse events may be incorrectly marked down when, in reality, the converse may be true. For instance, that unit may simply be more vigilant, have a better culture regarding safety-consciousness and preparedness for submitting reports. That unit may well be conducting more double checks than its counterparts.

Incident reporting is NOT intended for measuring performance (like safety, brand awareness, etc) like number of medication errors issued by a hospital to determine that hospital's safety. As seen from the earlier example that highlighted why a high volume of incident reports is not necessarily the sign of bad performance, incident reports are much better for identifying risks and root cause analysis. Besides, statistics show that just over 5% of all adverse events in health care are reported at all. In other words, units with more reports of adverse events are possibly more worthy of one's trust.  

Incident reporting is NOT intended for tracking the changes over time of reporting. This is due to reporting bias. For instance, the healthcare industry sometimes saw very significant increases in reports after its communities implemented improved reporting systems. As the earlier discussions already illustrated, a higher number of reports does not necessarily denote higher risk levels.

The contents of an incident report

As recommended by SafeSite Solutions, EVERY incident report should have the following as a minimum.

• Type of incident 
• Events with an undesirable outcome: injury, property damage or theft
• Events with no undesirable outcome, this time (because a hazard was exposed): near miss
• Location of the incident (and or any other context-specific detail that might determine liability. While 'location' is useful for OSHA-type reporting for protecting workers in the workplace, conditions in which products and services are used may require other customized fields.)
• temperature (if it is a factor that ensures and determines safe use, like temperature logs of meat storage facility where meat went bad and caused illness) 
• Date of incident
• Time of incident
• Name of an affected individual * (Also include qualifying details related to individual's membership in a population, segment, etc of at-risk individuals)
• Jane Donut, aged 5 (if age is important to segment definition) 
• A narrative description of the incident, including the sequence of events, results of the incident and response.* (Considering the definition of 'risk' where a deviation occurs from the expectation and the concept of an 'inciting event' that changes the normal business as usual course of any story that would have been otherwise too uneventful to tell, describe the event from which the deviation occurred.) 
• Example: Hazel's X-blade scissors fell from her desk onto her lap (the 'inciting event' described plainly and objectively) while she was stitching an item A25 (the normal story that would have been too uneventful to tell otherwise). Suspecting a deep lap wound, her boss (Jackie Mason) called 911 (business representative's response). Hazel reported feeling a sudden and overwhelming feeling of exhaustion that made her "nod" for a second. (The version of the injured party). 
• Description of Injuries, if any & severity in terms of the business context. 
• Example: broken right index finger. Injury will require at least x weeks for recovery, resulting in downtime in the typing role for that period.
• Example: Bruised forehead. Jim returned to work within 5 minutes. 
• Treatments required, if any
• Witness name(s)
• Witness statements
• Other workers involved
• Video and/or 360-degree photographs of the scene

Add contextually relevant items like the following.

• Whether or not proper personal protective equipment (PPE) was being used
• The root cause(s) of the incident
• Associated hazards raised and resolved following the event
• The affected individual’s version of the events
• Actions taken by concerned individuals after the incident

Key Considerations

*Create a separate report for each individual even if more than one person is injured. While it is acceptable to duplicate general details across reports of this nature, each report will need details specific to each individual, like the event from their point of view or medical records.

*Include quantifiable measurements where possible. Example: The ladder capacity is 250 lbs and the victim was hoisting 300 lbs.

Review good samples of incident reports on SafeSite Solution's website.

Best Practices for Implementing an Incident Report System

• Design the reporting system to provide value to risk management. The system should be able to generate in-depth analysis and result in strong interventions to reduce risk. A very well designed system has several versions of the incident report. For instance, one version is specifically designed for near misses, falls, behavior incidents, specific types of injury, etc. 
• Encourage all persons to report all incidents, however small, even if "nothing happened!" (aka a near miss). 
• Make the process meaningful to the reporter (as a means to incentivize their best use). Allow the process to give reporters a sense of empowerment. Really stress appreciation for the reports. Follow up on reports to show that the reporter's time was not wasted.
• For instance, allow incident reporters to recognize that they are contributing to the improvement of the product or service they sell.
• Foster a no-blame approach to reporting. Where that is difficult, consider making the reporting process anonymous.
• Make the process as simple and convenient as possible. 
• Some templates offer electronic contact forms. 
• Electronic forms have become popular. The OSHA offers Excel spreadsheets with fields that can be filled in over time.
• Consider your reporters. If they are the type of people that will be turned off of completing incident forms, consider another medium they are more likely to use, perhaps a telephone number they call so that someone else completes the form. 
• Define the event as well as possible.
• Injury, near miss, etc  
• Define the at-risk population as well as possible. Example: A market has segments like children below 5 that are at risk of injury for products with certain features like harsh chemicals. 
• Consistently monitor the at-risk population, especially if it exhibits risk-inducing behavior.
• Encourage persons writing reports to be objective and to avoid blame games. Mangement's response should show gratitude for the chance to implement measures to prevent similar events in the future.

Integrate Incident Reports into your Risk Management

• Identify and assess the hazard(s) 
• Identify the risk(s) whose occurrance it is a possible or even probable cause (using root cause analysis example using a fishbone diagrams)
• Considering the level of exposure of the hazard and the consequent probability of the risk, (re)assess the risk rank.
• Adopt the appropriate risk response.

CONTENT RELATED TO INCIDENT REPORTS FOR RISK MANAGEMENT

• Risk management 101
• Hazards 101
• Other types of risk management risk documents include checklists.
• SafeSite allows you to signup for a free or paid account. They offer many resources that promote worksite safety like incident report examples, templates, checklists, workflows, inspections and so on.
• Free downloadable and customizable templates (SafeSite)
• A near miss aka close call, near accident, accident precursor or injury-free event is an event that could have been an accident had things played out differently. It occurs because of exposure to a hazard like a nut-flavored snack, a hazard (for those with nut allergies) is unlabeled and provided as free samples to the public. Thinking the item is nut-free, the public is exposed to the hazard and persons prone to anaphylaxis begin to sample it, thereby running the risk of anaphylaxis. A near miss report should lead to hazard resolution and preventative measures. In this example, the hazard resolution involves labeling the snacks or removing them from the reach of the public. However, if the event isn’t reported or addressed, a serious injury could easily result, possibly only hours later from the same or similar circumstances. Other examples include nearly getting Covid-19 by wearing inadequate protective personal equipment (PPE).

   

Notes:

Occupational Safety and Health Administration (OSHA). With the Occupational Safety and Health Act of 1970, the US Congress created the Occupational Safety and Health Administration (OSHA) to ensure safe and healthful working conditions by setting and enforcing standards and by providing training, outreach, education and assistance.

Hazards in Risk Management 101

This post extends my earlier discussion on risk management, specifically as it relates to hazards, aka dangers.

A hazard is anything, a situation or object that has the potential to cause harm, damage or adverse effects (to people, the environment, assets or reputation). While risks may represent negative or positive outcomes, hazards relate only to negative outcomes. Consequently, they deserve special attention when there is a preference for a higher-than-usual level of risk aversion as with medicine, public meeting places, workplaces and other area that can affect human health and life.

For the most part, a hazard is always inherently dangerous. However, an interesting characteristic of a hazard is how its danger can remain latent under certain circumstances. Specifically, a hazard requires 'exposure', ie some behavior or condition to activate its potential for causing the risk to occur.  In other words, IF handled appropriately, hazards are acceptable like a menace contained within pandora's box as they pose only possible (NOT probable) danger. The probability of an undesirable outcome is 'minor & remote'. Conversely, if a hazard is not handled in the prescribed way, the risk rating changes. the undesirable outcome is 'probable & imminent'.

Example(s)

• Negative Risk: Chemical burn (effect)
• Hazard: dry sodium hydroxide (possible cause)
• Exposure: Adding water to sodium hydroxide.
• Control: Avoid the risk by never adding water or moisture to the sodium hydroxide.
• Control: Use Personal protective equipment like gloves, long sleeves, long pants when pouring the water

• Negative Risk: Death (effect)
• Hazard: lion (possible cause)
• Exposure: Breached barriers in a zoo.
• Control: Barricade the lion with moats or cages.
• Control: Barricade humans within their cars.

• Negative Risk: Skin irritation (effect)
• Hazard: perfumes (possible cause)
• Exposure: Using fragrance oils.
• Control: Substitution with safer, naturally extracted aromatic alternatives.

Identifying Hazards

Since a hazard is on the 'cause' end of a risk, it is helpful in the root cause analysis techniques like analysis by Fishbone diagram. As can be appreciated from the examples above, its level of 'exposure' or 'being controlled' is useful in the risk risk assessment process. Specifically, if a hazard is controlled, the probability score that the risk will occur is largely minimized. Conversely, hazards that are poorly controlled and to which there is exposure raise the probability score of the risk occurring considerably.

Although hazards are often identified within the context of predetermined risks (Fishbone diagram), hazards are also identified by site, task, tools, machine, substances, specific types of human interaction, etc. It may therefore also be useful to consider how hazards are formally categorized ... for the sake of checklisting during an inspection. Formal categorizations include WHMIS 2015. As with anything else, a highly customized approach is suggested for whatever your area. For instance, if you are concerned specifically with the staff selection process, you may use your checklist that may include core values, hard skills, soft skills and so on. 

Here are some other examples of hazard categorizations.  

• Physical. Example(s): Tangled wires in a walkway, slippery floors, loud noise, inappropriately used machinery, flammable materials, poor lighting, 
• Chemical. Example(s): leaking gas, dust clouds, noxious fumes, strong acidic liquids, strong alkaline liquids. 
• "Physical health hazards" may include: highly toxic agents; carcinogens; corrosives; sensitizers; irritants; hepatotoxins; nephrotoxins; neurotoxins; agents that damage the lungs, skin, eyes or mucous membranes    
• Ergonoomic. Example(s): Poor design of workspace, poor design of equipment, 
• Radiation. Example(s): ultraviolet rays, x-rays, microwaves, infra-red
• Psychological. Example(s): work overload, harasssment, discrimination, sabotage, threat of danger, stress   
• Biological. Example(s): infection (by bacteria, virus) through cuts, contact with contaminated objects 

Hazard Inspection Best Practices

Dealing with Hazards

As mentioned previously, hazards may exist without ever posing a real threat. After all and as seen above, they are inherently different to risks. Furthermore, they are causal while risks are the effects or the (negative) event. When tending to an incident, regardless of whether that event involved a negative event (like injury or other damage or loss) or a near miss which did not result in a negative event, this time, the cause or hazard should be identified.

• Ask witnesses and affected persons for their supposition of the hazard. Different interpretations of situation may arise at multiple causes or hazards. Assess all of them.
• Figure how to control the hazard. This varies across industries and will need research within the field. 
• Example(s): Compliance with Globally Harmonized System (GHS) of Classification and Labelling of Chemicals has a short list of 6 categories for chemical consumer products (flammability, acute toxicity, skin corrosion / irritations, serious eye ddamage / irritation, skin / dermal sensitixation, acute & chronic aquatic hazards) along with required label information (like product identifiers, supplier identification, signal words, pictograms, statements and precautionary statements).

• Assign tasks for controling the risk
• Reviews of performance of those tasks
• Routinely review whether the hazards has a different rate of potentiality.

CONTENT RELATED TO HAZARDS MANAGEMENT

• Risk management 101
• Incident reports
• Just to recap Risk VS Hazard