Determine How External Factors Impact Your Strategic Planning

Seeing the World Around You

Before strategic planning can take place, organizations need to see the external world around them. Understanding and mapping the topography of your business landscape is critical if you are going to strategically maneuver around threats and toward opportunities. That is why one of the first steps in Strategic Analysis is the External Impacts block. It is the time to perform a 360 degree scan and identify external forces that could affect your customers, market, product, operations, or people. The anticipated impact from these external factors should be prepared for, mitigated, or taken advantage of in your company strategy.

The STEEP Model

External factors and impacts can be thought of in terms of cause and effect. External factors are causes such as trends, conditions, or events; and external impacts are resulting effect on your business. Some common examples are things like inflation, demographic shifts, and climate change. Most external factors fall into general categories segmented as social, technological, economic, environmental, and political, which we abbreviate as the STEEP model for short. When scanning for external factors, it is important to be thorough and consider everything that could impact your business. The STEEP model helps adjust your focus during this process so you can better extract meaningful features from the global landscape.

Scanning External Factors

Not all external factors are relevant to your company’s business. Just because a major socioeconomic shift is taking place, it does not mean that your particular market will be impacted in a way that requires strategic action. External factors should be viewed from a contextual lens to help determine their relevancy. The External Impacts Radar is a tool that helps structure this process. To use this tool, you will perform a “scan” for each of the four business Focus Lenses. These are Customer & Market, Product, Operations, and People. During the scan, you will apply the STEEP model to identify external factors across all the categories that could impact the business from the particular Focus Lens through which you are viewing. For example, the first radar scan will be done through the Customer & Market Focus Lens. So, consider social, technological, economic, environmental, and political factors that could impact your company’s customers and/or market. When an external factor is considered, determine how you expect it would impact your customers and market.

Determining and Filtering External Impacts

There are far too many external forces occurring and changing for a company to realistically address in a strategic plan. Therefore, it is necessary to aim strategic focus on only those things that are believed to have a significant impact on the business. Each time an external factor is recognized and evaluated, you need to determine what effect you think it will have on your business. If the effect is minimal, then scratch that external factor off your list and move on. It is not something that warrants further attention. If you conclude that the effect is material, then you need to estimate the likelihood of it happening. The combination of impact magnitude and likelihood will be how you decide the significance. As you build out a list of external impacts for each Focus Lens, individual impacts should be ranked by significance to help prioritize strategic actions that are later taken.

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