Training Blog

The external environment is the world in which the business operates, it is a large ever changing place made up of:

• Organisations
• Employers
• Suppliers
• Customers
• Other Stakeholders

A business can’t operate with being influenced by and impacting upon the external environment. A key success factor for any business is an accurate understanding of the external environment. A long-term analysis of what is happening in all areas of a business can be monitored, anticipated and dealt with accordingly. The external environment can be defined & analysed using on of the following:

• STEEP – Sociological, Technological, Economic, Environmental, Political
• STEP – Sociological, Technological, Economic, Political
• PEST – Political, Economic, Sociological, Technological
• PESTLE – Political, Economic, Sociological, Technological, Legal, Environmental
• STEEPLE – Sociological, Technological, Economic, Environmental, Political, Legal, Ethical
The idea is the same for all of the models; that there are several main external influences on a business.
The STEEP model uses the 5 headings listed above.

Sociological Factors:

These include demographic changes in:
• Age
• Structure of the population
• Patterns of work
• Gender roles
• Patterns of consumption
• Changes in culture

Technological Factors:

• ICT is lowering the barriers of time and place
• ICT creates new industries
• Many individual jobs and internal service functions have been transformed and are now largely or solely based on ICT systems.

Economic Factors:

• Rate of economic growth
• Interest rates
• Inflation rates
• Energy prices
• Exchange rates
• Levels of employment

The state of a country’s economy pervades all aspects of business life as it affects demand for goods and services, the availability and cost of resources (land, labour, materials & buildings). Both individuals’ and businesses’ behaviour reflects their expectations of economic trends. Governments use changes in the interest rate to try to achieve short-term in levels of demand, investment and spending. Global communication technology has resulted in very high levels of currency trading, which leads to a great volatility in exchange rates.

Environmental Factors:

These are of growing importance as people all over the world are very concerned about the impact of businesses on the natural environment. The following are factors that businesses need to consider:

• Legalisation – Environmental Legalisation is increasing, with the emphasis on pollution control and waste disposal. However there are regulations affecting packaging, transport and distribution and sourcing materials.
• Information – Businesses report regularly on their environmental performance.
• Employees – Employees are interested &concerned about the environmental credentials of their employers.
• Shareholders – Most shareholders of larger businesses are financial institutions who are driven by financial performance. However in several countries a category of ethical investors is emerging.
• Pressure Groups –In the late 20th Century there was a massive growth in pressure groups, most of which were established to deal with particular issues. Many of them broadened their membership bases and became a permanent part of the political scene; these groups include groups such as Greenpeace and Stonewall.
• Customers – There are opportunities for businesses that are operating to high environmental standards to gain market advantage.

Political factors

Political influences affect/most of what we all do. Here are only a few political factors for businesses:
• Legislation – This affects a lot of different aspects of business life. The CIPD (Chartered Institute of Personnel and Development).
• Trading Relationships – Examples of this are the World Trade Organisation and the European Union.
• Government- In many cases the Government is either the largest employer or purchaser of goods and services or in some cases the only customer.
• Public Services – Health Services, Education and the Police Force are all determined on political grounds.
• Taxation – This is a pretty big one for businesses.

The distinction between the factors defined in the STEEP model are rather artificial, this is because in reality the factors are often interlinked.

In Images of Organisation, Gareth Morgan talks about learning the skill of “reading” situations. This is particularly important for people dealing with business situations. “Skilled readers develop the knack of reading the situations with various scenarios in mind and of forging actions that seem appropriate to the readings thus obtained”. The metaphor “implies a way of thinking and a way of seeing that pervade how we understand the world generally”.

Morgan wasn’t intending to categorise different types of business, rather offer different ways of looking at them. The metaphorical lens can help people understand their experiences with them.
Morgan uses eight metaphors to create “images of organization”:

• A Machine – Businesses are often designed and operated as if they are machines, with highly visible structures and procedures. They offer continuity and security, but tend to fit people into jobs rather than allow much creativity
• An Organism – This means seeing the businesses as behaving in similar ways to our own biological mechanisms. When the environment around us changes, so do our bodies. Successful businesses are often adaptable and open to change. This may mean that its structures and procedures are less fixed.
• A Brain – Seeing a business as a brain means realising it has to be able to respond to change and also capable of rational thinking and intelligent change. Being open to inquiry and self-criticism often produces the ability to innovate: as Morgan puts it, businesses become “learning systems” that are able to self-organise.
• A Culture – When you speak of businesses as cultures, we are referring to the fact that they are made up of sets of values, perspectives and principles, held and sustained by the people who work there.
• A Political System – Businesses are not only about structures, cultures and hierarchies, they are also about politics. Politics in this context is about the social relations between individuals and groups in a business that involves authority or power. Organisational charts that plot the lines of communications between people will reveal some, but not all of the politics.
• A Psychic Prison – This more abstract metaphor suggests that some businesses are constrained by themselves. Conventional or usual, ways of organising work and thinking about it can limit change and the adoption of alternative business strategies. Looking at the business in these terms encourages us to dig beneath the surface in order to see the restrictions real or otherwise that may be affecting the business and its ability to operate successfully.
• Flux and Transformation – Morgan suggests that the secret to understanding businesses from this perspective lies in understanding the constant change shaping our lives. To understand a business we have to appreciate it as an ever changing thing. It grows & regenerates in order to survive.
• A Vehicle for Domination – This metaphor introduces the idea that businesses can be or an attempt to be dominant. They can or try to impose their will on others. Again it encourages us to dig below the surface in order to understand and appreciate how business can exert power and influence.

Morgan’s framework is considered to be useful as one way of understanding business. It’s not intended to suggest fixed types of businesses. Businesses are likely to be a mixture of different metaphors, which can change over time, or according to circumstance. The metaphors can help to highlight the complexities of a business and their potential impact.