Managing the External Context of an Organization
The external context includes the broad external operating environment in which the organization operates. Influences and factors in the external context include the following:
Cultural, social, political, legal, regulatory, financial, technological, economic, natural, and competitive
Key drivers and trends exerting positive and negative consequences that affect the objectives
Relationships with external stakeholders, along with their perceptions, values, and interests.
Organizations must assess their external operating environment to determine and characterize the crucial influences and factors that might support or impair their ability to manage the opportunities and threats that are identified. These factors are identified by examining the conditions, entities, and events that determine the associated opportunities and threats, and which may influence the organization’s activities and decisions.
Because the external operating environment affects the operations, people involved in supporting the operations have an interest in the information that is created in the characterization of the external environment. The following elements are often considered: material resources, human resources, financial resources, markets of products and services, competitive environment, technology, economic conditions, government oversight, sociocultural, and international. An organization needs to consider its relationship to each of these elements in terms of their strengths, weaknesses, opportunities, and threats.
The external context is characterized by conducting a broad scan of the external operating environment. A PESTLE analysis is used to systematically assess the influences and factors that create opportunities and threats in the external operating environment that are not controlled by the organization. The PESTLE is a risk breakdown structure. It includes the following categories of risk: political, economic, societal, technological, legal, and environmental.
Changes in the external operating environment create uncertainty for the organization. Organizations must manage the effects of uncertainty.(i.e. the opportunities and threats) to lower the risk to meet their objectives. An increased level of uncertainty is often associated with the inability of internal decision makers to obtain sufficient information about the context factor and the opportunities and threats associated with these factors. Finding opportunities can contribute to the chances that the objectives will be met. Threats are likely to lead to chances that the objectives will not be met. As in the case of the internal context, the good news is the opportunities can be used to offset the treats under many conditions. There is also a stable-unstable dimension associated with the external context. In a stable external operating environment, the PESTLE influences and factors remain essentially the same over a period of months or years. During unstable conditions, the PESTLE influences and factors change rapidly. It is particularly important to constantly monitor the external context under unstable conditions.
Dr. Bob Pojasek
Sustainability Legend | ESG Reporting & Disclosures | Uncertainty Risk | Pollution Prevention Expert | Process Improvement | Organizational Sustainability Reporting | Sustainable Procurement Professor
Chairman, Education and Research Executive Board (EREB)
VCARE Academy Inc.
Center for Corporate Performance & Sustainability
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