Have you ever thought you had the ideal business plan and the perfect strategy, but you didn’t? There are various external factors of a company that can paralyze your strategic plan (or open new opportunities).
The controllable and uncontrollable aspects that affect a company can be categorized as internal and external factors respectively. From setting company goals to daily operations, it can be an easy task for an organization. However, it is essential not to overlook the uncontrollable external factors that impact a business.
What are the external factors of a company?
Unlike the internal factors of a company, external factors are those that affect the outside and are not under the control of the organization.
There are numerous criteria considered as external elements that can affect your strategic planning. Among them, some of the most significant are the current economic situation, laws, the environment or customer demand.
Among the external factors that you should consider are:
- The clients
- Inputs or suppliers
- Marketing and media
- The economy
- Policies and legal issues
- Social and natural aspects
- Economic conditions : For example, employment rates and trends, interest rates, etc.
- Technological advances : For example, the way consumers use and buy products/services, and the way companies source and supply goods using technology.
- Cultural and social aspects: For example, the increase in the number of women working has had a positive effect on online shopping.
- Political and legal factors: For example, changes in occupational health and safety laws and regulations can impact the way companies conduct their business.
- Seasonal/climatic factors : Businesses that sell seasonal items, such as ski clothing or swimwear, may be affected by weather conditions.
- Environmental factors: For example, consumers may search for information and compare options to choose alternative energy.
Examples of external factors that can affect a company
These are some examples of factors that can affect an organization:
For example, there are companies like Apple that manufacture products in other countries, for example, China. If there is an increase in labor costs where you make your products, it means there are fewer profits for your business. You can’t stop this from happening, so it’s external, but you can choose how to approach the challenge.
Companies like Nestlé are dealing with retailers introducing own-brand products and promoting them in their own supermarket chains in increasing numbers. Nestlé cannot stop these companies from doing this, which makes it an external factor.
How to do an analysis of external factors
While external factors for a business, such as changes in government policies, are sometimes unexpected, that doesn’t mean you can’t prepare for them. The most effective way for a company to prepare is to be flexible and adapt.
An environmental analysis is the process of methodically gathering, analyzing, and interpreting data about external opportunities and threats. It is a mechanism for collecting information and doing relevant data analysis about the outside world, your competitors and indeed, about your own company.
One of the most popular methods used to perform an external factor analysis is PESTEL analysis . This model evaluates factors focused on six data spheres:
Policy : The extent to which a government can influence the economy and therefore have an impact on organizations within a given industry. This includes government policy, political stability, and trade and tax policy.
Economics : How economic conditions change supply and demand to directly affect a business. This includes economic growth or decline and changes in interest rates and inflation.
Social : Refers to changes in the sociocultural market environment that illustrate customer needs and desires. This includes emerging trends, demographic analysis and demographics.
Technological : Refers to how innovation and development evolve in a market or industry. This includes automation, technological awareness, and adoption rates for new products and services.
Environmental : Another external factor that can affect a company is the ecological and environmental aspects that affect a company’s operations or consumer demand. This includes access to renewable resources, climate change and corporate responsibility initiatives.
Legal – refers to current legal assignments or requirements within the countries or territories in which an organization operates. This includes health and safety requirements, labor laws and consumer protection laws.
After completing a PESTEL analysis, sometimes also known as a PESTLE analysis, you will have a comprehensive analysis ready that will identify external factors that cannot be controlled and be prepared for.
It is appropriate to have an action plan for what you think could happen or have an impact on your business. After your analysis is ready, you can look internally and continue with other strategic planning activities such as a SWOT analysis.
Instituting an effective method for identifying external factors is a valuable exercise. You can help your organization seize opportunities before your competition detects threats and they become a major problem. This way, you will also be able to create a strategic plan to meet the changing demands of the market.