There are many variables that operate within an organisations environment that have a direct or indirect influence on their strategy. A successful organisation is one which understands and can anticipate and take advantage off changes within their environment.
An organisations operating environment can be analysed by looking at:
External forces (those factors that an organisation has no control over),
Internal forces (factors that an organisation has direct control over)
The external environment of an organisation can be analysed by conducting a P.E.S.T analysis. This is a simple analysis of an organisation Political, Economical Social and Technological environment.
Political factors can have a direct impact on the way business operates. Decisions made by government affect our every day lives and can come in the form of policy or legislation. The governments introduction of a statutory minimum wage affects all businesses, as do consumer and health and safety laws and so on. The current increase in global petrol prices is having a profound impact on major economies, it is estimated that £200bn has been added to the global fuel bill since the price increases started (BBC news 19/9/00).
The political decision as to whether the UK signs up to the Single European Currency is again having an impact on UK businesses. Firms like Nissan who have recently invested in the UK have signaled that they will withdraw their business from the UK if the government fails to sign up.
All businesses are affected by economical factors nationally and globally. Interest rate policy and fiscal policy will have to be set accordingly. Within the UK the climate of the economy dictates how consumer may behave within society. Whether an economy is in a boom, recession or recovery will also effect consumer confidence and behaviour.
An economy which is booming, is characterised by certain variables. Unemployment is low, job confidence is high, because of this confidence spending by consumers is also high. This has an impact on most businesses. Organisations have to be able to keep up with the increased demand if they are to increase turnover. An economy which is in a recession is characterised by high unemployment, and low confidence. Because of high unemployment spending is low, confidence about job security is also low. Businesses face a tough time, consumers will not spend because of low disposable income. Many businesses start cutting back on costs i.e. Labour, introduce shorter weeks and cut back on advertising to save money.
Case: In the early 1990’s when the UK economy was in a slump, and businesses were folding repeatedly, a security company called ‘Dreadlocks security’ to combat falling sales embarked on strategy of cutting back on labour costs, and doubling advertising expenditure. The companies’ theory was that not their entire target segment was affected by the recession and he had to fight for the customers that still had the income to spend on security products.
Economies globally also have an impact on UK businesses, cheaper labour abroad affects the competitiveness of UK products nationally and globally. An increase in interest rates in the USA will effect the share price of UK stocks or adverse weather conditions in India may affect the price of tea.
A truly global player has to be aware of economic conditions across all borders and ensure they employ strategies and tactics that their protects their business.
Within society forces such as family, friends, media affect our attitude, interest and opinions. These forces shape who we are as people and the way we behave and what we ultimately purchase. For example within the UK peoples attitudes are changing towards their diet and health. As a result the UK is seeing an increase in the number of people joining fitness clubs and a massive growth for the demand of organic food. On the other end of the spectrum the UK is worried about the lack of exercise its youngster are obtaining. These ‘fast food games console’ children are more likely to experience health problems in their future because of the lifestyle they are living now.
Population changes also have a direct impact on all organisations. Changes in the structure of a population will effect the supply and demand of goods and services within an economy.
In Japan the fall in the birth rate has had a major impact on the sales of toys, as demand falls competition for the remaining market becomes very intense. If this trend continues it will have an impact on other sectors within the future affecting teen products, 20’s products and so on.
As society changes, as behaviours change organisations must be able to offer products and services that aim to complement and benefit peoples lifestyle and behaviour.
Changes in technology is changing the way business operates. The Internet is having a profound impact on the marketing mix strategy of organisations. Consumers can now shop 24 hours a day comfortably from their homes. The challenge these organisation faces is to ensure that they can deliver on their promise. Those businesses, which are slow to react, will fall at the first few hurdles. This technological revolution means a faster exchange of information beneficial for businesses as they can react quickly to changes within their operating environment.
There is renewed interest by many governments to encourage investment in research and development and develop technology that will give their country the competitive edge. The pace of technological change is so fast that in the computer industry the average life of a computer chip is approximately 6 months. In the name of progression technology will continue to evolve organsiations that continue to ignore this will face extinction.
Principles of Marketing by Philip Kotler
Principles of Marketing by Frances Brassington and Stephen Pettitt.