In addition to understanding the details of your business operations, it is imperative that you also make time to understand what is happening in the market and economy around you. It is often very easy to get caught up in the latest customer issue, or repair, or production requirements that you don’t necessary have (or make!) time to think about some of the things that are influencing the environment around you.
Financial and business results depend not only on the actions that firm leaders take, they depend also on what is happening in the industry, in the market overall, with business cycles…or other variances that can take place. These external factors can account for up to 45% of the results that businesses experience! For this reason, taking time to understand the impacts that external factors have on your organization can be a good investment of your time.
As organizations master their current environment, they can also tend to get stuck doing what has made them successful in the past. This is a form of inertia. Inertia doesn’t only represent standing still, it also represents moving at the same speed as you have in the past. Meanwhile, changes are happening in your environment, as well as inside of your business, that will require you to adapt. Growth and change will be required as you seek to remain relevant and competitive over time. Below are listed several approaches that you can use to maintain an eye on your external environment and the potential impacts that it has on your organization.
Approach #1 – PESTEL Analysis
A PESTEL analysis is an organized way to assess the market, and is done so by viewing the Political, Economic, Sociocultural, Technological, Environmental and Legal influences on an industry or an organization. This type of analysis is useful for a variety of scenarios, whether in strategic planning, determining a potential acquisition, business development activities, or how to respond to a competitive move. The main benefit of a PESTEL analysis is that it aids executive decision making.
Approach #2 – Porter’s Five Forces
Porter’s Five Forces is another helpful tool that can aid analysis of your external environment. It helps business leaders assess the profit potential of an industry, and how they might sustain and advantage in a context that is broader than viewing competitors alone. The five forces that are analyzed through this process include:
- The threat of new entrants in your market
- The power of suppliers in your industry
- The power of buyers (customers) in your industry
- The threat of substitute products that you likely face
- The intensity of rivalry among competitors in this industry
- Complementary products that are available
Approach #3 – Non-Customer Analysis
Assessing your non-customers is also a valuable approach when considering your external environment. These are the people who choose not to purchase your product. They might be unexplored customers, those who aren’t close to the technology or market that you are in. They might be refusing customers, those who have other preferences besides what your organization offers. They also might be customers who are in your sales queue but who have not yet purchased. Analyzing current customer preferences is usually part of internal business analysis, which is why that process is not listed here. Each of your non-customer profiles, however, have valuable information to offer the organization in terms of what they are looking for, what their hesitations are, what other products they engage with, and more. This insight may be valuable in helping you to get a forward looking perspective on how to develop and evolve in your niche.
Transition Designs is dedicated to helping organizations and individuals create a strategy in the midst of uncertainty. We help you assess your current situation, create a plan that is congruent with your goals, and manage the “in between place” along the way. Clients typically work with us to design a custom plan tailored to their unique situation and goals. To learn more or subscribe to our articles, please fill out the information below.