Conditions are changing simultaneously in different fields, social, political, economic and technological, and they are often in conflict. It is difficult to forecast the area where changes will most affect business. For each specific business, it is important to keep in touch with the key changes in each area of the business environment and to update the forecast.
Technological Environment
This is probably the easiest to identify:
- Accumulated technical knowledge (general exponential curve)
- World-wide communications system (transport, satellites, etc).
- Data processing (mini-computers, data banks, office systems, electronic mail (E-mail))
- New processes aimed at lower energy consumption and higher feed/raw material utilization, new energy sources.
- High investment cost.
- New technology for basic human needs (biotechnology, synthetic food, genetic engineering)
Economic Environment
This changes in the following areas:
- Obsolescence of all past theories
- Irrelevance of past extrapolation
- World-wide population growth, but concentrated in certain areas
- High energy/raw material costs
- Inflation coupled with lower economic growth (stagflation)
- Monetary instability and disparity between developed countries
- (DC)/Organization of Petroleum-Exporting Countries (OPEC) and LDC.
- Shortage of capital, credit squeeze, very selective investments
- Shortage of people able to understand the new environment
- Potential shortage of food world-wide
Social Environment
Changes occur in:
- Collapse of tradition and structures
- New education, new expectations, new motivations
- New life styles, mobility, quality of life, health care
- Consumerism/ecology/anti-business attitudes
- Unemployment and shorter working time
- Crime/terrorism
- Participate working conditions
Political Environment
- The political environment is subject to
- Nationalism versus grouping of industries
- Higher government intervention/trade and job protection
- Price control and income equalization
- Political instability/wars
Relative importance of the external factors Generally speaking, the changes in social environment and to some extent the political factors will play a much larger part in shaping the business environment than they did in the past.
General Impact of Environmental Changes on Business: Coping with the changing environment is already a difficult task; the difficulty appears larger when it is realized that not only is the number of changes high, but the difference in ‘quality’ is even more striking. Most conditions show fundamental differences with past history and knowledge, as well as the past and even the current approach to business theories and management. Things are not only drastically different; they change quickly, much faster than they did in the industrial revolution during the 19th century. These fast changes are therefore very difficult, if not impossible, to foresee; they create business turbulence and unexpected crises at short notice; instability, discontinuity and uncertainty seem to characterize the present years and this situation will continue until the world reaches a new period of stability in all these respects.
Evaluation: All these changes can be frightening and leave one wondering whether the ordinary business executive can cope with them; whether the ‘human gap’ is not too great. However, there is no choice, so one might as well adopt a responsible and positive attitude instead of a passive and negative one.
The ‘serenity prayer’ says: In most businesses, a change in environment can be considered either as a threat or as a new opportunity depending on the point of view. A newly industrialized nation can be considered as a threat (cheap competition) or an opportunity (new market).
While excessive inflation is a nightmare for most governments, it is viewed as an opportunity by many businesses. Increasing crime is a frightening trend to most people; but security companies consider it as an opportunity for more business.
It is important to conduct a rational and systematic analysis of the future impact of each environmental factor on a specific business; and to avoid being trapped in a last minute crisis, under the pressure of events, when it may be too late to adjust to them. This analysis can be set out in the following manner.
Environmental Factor: Technological
- Degree of change: high/low
- Probability of occurrence: high/low
- Implication: opportunity or threat
Environmental Factor: Economic etc. The probability level associated with each factor is a basic ingredient of any potential ‘environment scenario’ and concerns the risk evaluation of each future business strategy. Thus the systematic evaluation of opportunities and threats is a key part of the overall process of strategic business planning.
