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The External Factors That Could Be Impacting Your Business

We list the possible factors to consider when assessing what external impacts your business faces... 🖼️

  • Lucidity
  • 7 min read

Simply put, you cannot be successful and achieve your business goals and vision if you're operating in a bubble, only looking inward at your own organisation and not considering the impacts on your business from the wider world. It is essential to have a good understanding of what is happening outside of your business so your strategic planning takes this into account and you don't end up being blind-sided by something that derails your plan and therefore your success . Many of the external factors that impact your business will ultimately determine what will work and not work for your business, so you need to know them to build the right strategy.

It’s important for the whole leadership team to have this external awareness. It's fundamental to ensuring good decision making and it'll give you the best chance of achieving your full potential. Often leaders in sales, marketing and product are naturally outward looking, whilst operations and finance can be more inward focused. This is no bad thing – it’s important to consider both in and out – but the whole team is stronger if they’re aware of all issues.

As you read through our list of external factors to consider, you might think some seem unlikely, but if you turn the clock back to 2019 and someone suggested “global pandemic forces everyone to work from home”, that would probably have been parcelled alongside zombies and aliens landing…👽

So, it's important to discuss and understand everything we've listed here and think about the impact each could have. Considering all eventualities makes you a better planner.

External factors can fall broadly into two categories, those which are environmental and those which are specific to your own market. Both are key.

We’re going to run through some example factors today that may be impacting your business. To structure it, we’ll broadly use the PESTLE model, which stands for Political, Economic, Societal, Technical, Legal and Environmental. If you’ve not encountered this framework before and you wish to complete your own PESTLE Analysis, then check out our Guide to PESTLE.

This isn’t an exhaustive list, but it’s enough to kick-start the process and get you thinking about your own business!

Political Factors Impacting Your Business

Government Stability & Elections

The stability of the government has huge impacts on business, as do elections. Anyone who witnessed the events in the US early 2021 will know that the disruption to business, and more importantly society itself, can be serious.

In normal times, elections can mean changes of policy or direction, both of which can change how you do business.

Political Leaning

Left leaning and right leaning governments are better for certain types of business or industry. Understanding the political leaning and how it may impact your sector is therefore important. Over in the UK we’ve seen a predominantly right leaning government deliver Brexit, for example.

Regulation

Regulation and deregulation may make it easier or harder to do business with your partners and consumers.

Political Activism

Activism can take many forms, from boycotts to vandalism to supportive promotion. There are many examples around environmental concerns or animal rights, both of which are emotive and important topics.

Corruption

Corruption within political establishments can result in bids being lost unfairly, pressure on certain decisions being made, or action taken within a market to help a particular individual. Corruption is a very difficult consideration to plan against but if present in a market you operate in, it’s best to have your eyes open and it be discussed.

Economic Factors Impacting Your Business

Interest Rates

If you’re a business that deals overseas and between currencies, interest rates can have an impact on your margins. You may incur all of your costs in USD, but have a proportion of your revenue come in from GBP. In this scenario the weaker the pound is against the dollar, the less your revenue will be when compared to your costs.

Inflation

Inflation can mean an increase in costs for production, pressure on profit, and a reduction in consumer spending.

Access to Debt

As you plan your strategy you may find a requirement for investment. This can take many forms, one of which is taking on debt in the form of a loan. Access to that debt will differ depending on the economic climate and region, and it may not even be an option for you.

Unemployment

Local unemployment impacts your company in a number of ways. While unemployment is never a positive attribute of a society, there may be some upsides for a business. Access to talent may become easier or it may result in you pushing to employ more and help your local area. The negatives of unemployment are many, not least your end customer may have less money to spend.

Societal Factors Impacting Your Business

Demographics

The demographics of society will impact your business in different ways. For example, if you’re producing anti-aging cream, then an aging population may suggest a bigger potential market. If you’re providing student bank accounts and less people are heading to university, then you may see a decline.

Birth and Death Rates

There are certain businesses that sit at both sides of life – birth and death. Undertakers will be busier with a higher death rate, whereas baby clothes will boom with increasing birth rates. The reasons behind these changing rates may also have wider implications. For example, a decline in birth rate may be an indication of a higher demand for contraception, whereas Covid-19 saw an increase in death rate but itself had many other implications for companies.

Life Expectancy

Life expectancy is a big one that has many implications for businesses. It links to the aging population concept. Imagine a potential world where more time is spent retired than working, and what impact does that have for your potential customers? Equally, and perhaps more likely, people could work for much longer until a much later age.

Population Size

Population size ultimately contributes to both the supply and demand in your business. It impacts talent, potential market size, and overall economic growth. This one takes many years though – it’s not a short-term impact.

Ethical Attitudes

Attitudes evolve with every generation in different ways across geographies. Compare a US based business in the 1970s to a US based business in 2020. Gender pay gaps, attitude to women in work place, LGBTQ, environmental concerns, are all examples of huge differences. How you conduct yourself will impact your team, your customers, and your successes.

Technical Factors Impacting Your Business

Artificial Intelligence

It’s a huge subject to condense to a small paragraph, but let’s give it a shot. Increasingly the use of computer systems to interpret data and aid or make decisions is changing the way the world works. Medical scanning, home social care help, companion chat bots, customer support, market analysis… all of these and more are areas being transformed by AI. It’s unlikely therefore that your market won't change in some way, shape or form from it.

Automation

The use of machine and technology to automate processes and jobs can result in a greater efficiency and higher margins, but also sparks some understandable worker concerns around being replaced by machines. How can automation help your business to achieve more and redeploy your talented team in other areas?

Data Analysis

Computers are really good at the analysis of huge volumes of data. It’s often impossible for humans to wade through the data looking for patterns. What data does your business sit on and utilise, is there information buried in it that could help you move forward?

Access to Connectivity

As of 2020 only around 60% of the world is connected to the internet. The rollout is still very much happening, with moves to provide faster access to all areas of the globe meaning new opportunities for your business.

Smart Devices/Internet of Things

Smart fridge, smart plugs, smart kettles, smart doorbells, smart tables… the list goes on. The home and office is becoming increasingly automated and secure via technology.

Employment Laws

If you have an employee then you’re impacted by the employment laws of your country. The rights the employee has, the requirements you as the employer has, and the interaction between you both is crucial for a functioning, successful business.

Privacy Laws

One of the hottest topics in recent years is around Privacy. We’ve seen the cookie notifications prompt, GDPR, and a rise of ‘private’ messaging systems. How you conduct your marketing and interaction with customers, prospects, and each other, is guided by these laws.

Consumer Protection Laws

Consumer protection laws range greatly per country but will govern how your customers are protected and the requirements you have around subjects such as cancellation, refunds and problem correction.

Safeguarding Laws

Safeguarding is a really important part of many organisations, such as those who deal with the more vulnerable parts of society. In addition to laws around this topic, it is also common to have a set of internal policies and training on the subject. This helps protect all parties involved.

Health and Safety Laws

Possibly one of the most famous set of business laws, Health & Safety laws are designed to ensure the protection of both the employees and also the employer.

Environmental Factors Impacting Your Business

Climate Change

One of the greatest challenges in this time is that of climate change. This impacts businesses on many levels. The requirement for all to make efforts to reduce the change, the severity of new weather, the warmer climate. Supply chains, logistics, demand and margins are all potentially impacted by this topic.

Carbon Footprint

Businesses are under pressure to reduce their carbon footprint. This comes in the form of political pressure but also the consumer expectation is increasingly high. More buyers are choosing products based on the environmental impact and more brands are showcasing their approach to their carbon footprint.

Summary

Ok, so this is a big topic! There are hundreds of potential external factors that can impact your business and it's very tempting to go quite high level (such as some of the above). The trick to doing a good external analysis is knowing that balance, being aware of these broad topics, but focusing in on the particular area of impact to you.

Your ultimate aim here is to prepare for any threats and take advantage of potential incoming opportunities. Using a good external analysis enables you to discuss and unlock those and you'll be a better business for it. Plus you'll be ready if those aliens do arrive. 🛸

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