Can You Manage External Influences on Business?

It seems that a lack of predictability has become the economic norm in recent years. Many outside factors, over which we have no control, have an impact on our businesses. Norm or not, the unknowns associated with external – sometimes referred to as environmental – factors can be unnerving and shake your confidence, even when you’ve carefully built your company for success.

Even though they are out of your control, environmental factors are not unforeseeable. There are steps you can take to eliminate blind spots, become aware of, and even prepare for changes that will occur externally – not all of which are detrimental!

 

Most common external influences on business

  • The global economy – no business, industry or market stands alone.
  • Market fluctuations resulting from politics, wars, and currency devaluation.
  • Interest rates/availability of credit related to stock markets, bank solvency, inflation.
  • Changes in local infrastructure and development.
  • Changes to local, state, or federal laws and regulations.
  • Advances and trends in technology and communications.
  • Demographic and cultural shifts – impacts customer base or target audience.
  • Severe weather and other natural disasters – includes impact on supply chains.

Temporary or permanent changes within an industry can be tied to any of the external factors mentioned above but may have a broader impact within a particular economic or business sector and on particular categories of consumers. An awareness of these environmental influences, whether positive or negative, help prepare you to meet them head-on when they come. And they will come! But it’s possible to do some forecasting and take a proactive approach to external elements.

Don’t be blindsided – expand your focus.

The focus of most businesses is primarily internal – on those elements of business that are within its control such as staff, processes, finances, and company culture. But all aspects of your business – from your strategic plan to day-to-day operations – can be impacted if you are blindsided by unanticipated external changes. Stability and profitability are dependent on how you respond.

Conducting an environmental scan can prepare your business to not only roll with external disruptions but to be in a position to take advantage of unexpected opportunities.

The Environmental Scan

An environmental scan is a process of gathering, analyzing, and interpreting data about the outside world – the broad environmental context within which your business operates – that enables you to forecast threats or opportunities. One of the most widely used methods is the PESTEL, or PESTLE, analysis which focuses on six categories of data.

  • (P)olitical: Government policy, actions, and political stability often influence the economy and impact organizations within a certain industry or business in general.
  • (E)conomic: Economic growth or decline, changes in interest and inflation rates, or shifts in other economic conditions may impact supply and demand for a company’s or industry’s product of service.
  • (S)ocial: Emerging trends, demographic and population shifts, and other changes in the socio-cultural market environment can change consumers’ needs and wants.
  • (T)echnological: Technological innovation, new products or services, and rates of adoption of change can quickly evolve and impact particular markets or industries.
  • (E)nvironmental: Ecological and environmental factors can affect many aspects of a company’s or industry’s operations. Examples include access to renewable resources, weather events and climate change, corporate/social responsibility initiatives, and consumer demand for sustainable products and environmentally-sound practices.
  • (L)egal: Changes to labor laws, consumer protection regulations, health and safety requirements, and other legal requirements at local, state or federal levels can impact business practices and costs.

Steps for conducting a PESTEL analysis.

1) Identify the factors within each PESTEL category that may impact your business. This will likely require some brainstorming, perhaps a look back at the history of what has affected your business, or even consulting an expert in some of these six areas.

2) Determine the likely implications to your business of the external factors you’ve identified. Assess the impact of each by asking and answering some questions.

  • How will these factors affect my business specifically?
  • Will the impact be positive or negative?
  • Will the business be affected short- or long-term?
  • What is the significance to the business overall – will it increase, decrease, or maintain staff needs, operations, revenues, etc?
  • Will the effects of these external factors likely require a modification to the strategic plan?

3) Rate from low to high the probability that the identified risks or opportunities may occur. And rate the potential impact on your business – whether positive or negative – from low to high.

What’s next?

Once you’ve completed the PESTEL analysis, take additional action by further analyzing and interpreting the results of your environmental scan with a SWOT assessment. Determine and list the specific Strengths, Weaknesses, Opportunities, and Threats that apply to your business, relative to the findings of your environmental scan. Then put plans in place, including adjusting your strategic plan if appropriate, to better prepare your business to respond to and manage changes in the external world in which it operates.

It’s recommended that organizations conduct environmental scans at least annually to stay current on relevant external elements, empower your company to weather threats, and position your business to take advantage of opportunities. It’s also a great step to include when developing or revising your strategic plan. This process is not just for large corporations. Small to medium-sized businesses, without the revenue, brand recognition, or resources of larger companies may be more susceptible to the effects of outside factors.

I’d welcome the opportunity to help you assess the external factors that may impact your business success and develop a proactive approach to addressing them. Contact me to schedule a one-hour, complimentary review of your unique situation.

Written by

Rick Arthur is a CFO whose expertise is built on Financial Intelligence and 35 years in senior financial roles. Coupled with a CEO’s perspective and the experience of building his own $20 million company, he brings a unique depth of insight into business from the top down. Wired to get to know people, Rick works hand-in-hand with business owners of intentional, growth-oriented companies, solidifying relationships as a trusted advisor and confidant to his clients. He leverages his experience to help business owners gain traction and stay laser-focused on the company’s vision, cash flow, and profitability – all while creating big picture solutions for strategic planning, growth and sustainable success.