Talk to any business owner of executive today and ask them about their challenges. Whereas some will talk about internal aspects like (Human Resource constraints) of the business and to what extent they are inhibiting their growth, many will actually talk about those external factors (out of their control) like high interest rates, volatile exchange rates among others are major roadblocks to their business growth.
This brings me to a key subject today; business environment. The term business environment refers to external forces, factors and institutions that are beyond the control of the business and they affect the functioning of a business enterprise. For example the political instability in South Sudan has affected many businesses just like how the long drought season last year has done. These effects may be positive or negative. On a positive note, the government’s increased expenditure on infrastructure developments has widened the market for contractors.
It is therefore that every business takes time to study, analyze and thereafter develop strategies to operate in an environment that affects your business. Many scholars and business practitioners have developed many tools to help businesses understand their environments and here today, we shall share with you the PESTEL Model. One may evaluate six (6) forms of environmental influences in the PESTEL framework. They are political, economic, social, technological, environmental and legal.
- Politics affect business in many ways; ranging from political instability, election cycles, tax policies, protectionism or protecting of local markets etc.
- Economic factors such as interest rates, inflation, unemployment rates and access to credit must also be evaluated by every business.
- Social factors, largely related to the populations’ demography assess the mentality of the individuals or consumers in a given market. Gender, literacy, religion, population structure and many others are fundamental to a business.
- Technology is increasingly becoming a multi-faceted enabler in effecting change. Technological advancements can optimize internal efficiency and help a product or service from becoming technologically obsolete.
- Impact on the environment is a rising concern and there is growing pressure on business to advance practices that do not harm the environment. In some instances, incentives are available to environmentally friendly enterprises.
- This entails learning about the laws and regulations in affecting your industry, country or local government. Examples include licensing requirements, employment laws, and health and safety regulations among others.
There is a general observation that the business environment is becoming more demanding as it continuously evolves. To a great extent, the changes in the evolution are continuing to speed up every now and again and this requires constant transformation in how leaders think and act. Traditional methods may no longer be effective. We acknowledge that change is not easy, but leaders who continually reframe their mindset and innovate are best set up to thrive and grow.
By Brian Ahabwe Kakuru
Brian is an entrepreneur and business advisor. He is also the Managing Director at BLEGSCOPE®, and has close to 15 years of business advisory experience notably in the financial services, manufacturing, tourism and hospitality, real estate, infrastructure, and agriculture among others. You can follow him on twitter >> @BrianAhabweK