The external environment: Part 1

In planning for future success, it’s important to consider your organisation within the context of a wider environment. It can be helpful to break this down into two levels: the near and far environments.

This article explores the far environment.

The six main external influences on organisations are represented by the acronym PESTLE which stands for:

Political factors. Government policies can have both positive and negative implications for organisations, e.g. the introduction of certain corporate governance requirements, or the passing of new employment legislation.

Economic factors. The state of the national and international economy will have a considerable impact on all types of organisations. For example, when bank interest rates are low, people have more disposable income to spend on a range of goods and services; but when interest rates are high, consumer spending is reduced.

Social factors. Large-scale or long-term changes in the organisation’s social environment can both create opportunities and present challenges. It is therefore important to take account of demographic trends such as an ageing population, the changing nature of family units and the increase in part-time and flexible working.

Technological factors. The impact on organisations of developments in technology is perhaps the most readily apparent. The growth of access to the internet, mobile communications, electronic payment systems and banking, and the use of computer technology to replace many traditional production methods all have wide-reaching effects on organisations and their customers. Again, these may present both opportunities and challenges, but whichever, organisations must maintain a close watch on the ways in which such developments are likely to impact upon them.

Legal factors. Regulatory changes can impact directly or indirectly on an organisation. Changes to employment or health and safety legislation, for example, may require an organisation to make immediate changes to the way they operate. For some businesses, such as those offering personal protection equipment or health and safety training, HR consultants and lawyers, these changes may provide opportunities to extend their product or service offer and grow their business.

Environmental factors. These are increasingly significant for all types of organisations. Targets and regulations to reduce environmental impact of both businesses and consumers again create the need to change ways of working, policies and investment decisions in a wide range of areas including transport, heating and power, waste management and recycling. Once again, these very changes that create challenges for many organisations also provide opportunities for businesses specialising in these areas.

Thinking about how these factors might affect your business, or specific products and services, is an important part of planning for future success and can help to identify specific opportunities or threats you need to address. Taking a longer-term view and planning for future developments could just give you the edge over your competitors and help your business to thrive while others are ill-prepared.

Part 2 of this article will explore the near environment.