What is a far environment for businesses?

So what do managers need to be aware of in the environment beyond customers, suppliers and competitors, while still focussing on maintaining and improving value to your customers as you think about this far environment?

Changes in the far, or external, environment can be both a threat and a source of opportunities to organisations. It follows that managers who can monitor and understand their far environments are likely to be more effective.

To be able to do this, you must understand the main elements of your organisation’s far environment, and then improve your knowledge of them and how they are likely to affect your organisation and the field in which it operates. Even if you are not in a position to influence how your organisation responds to the far environment, understanding how it is changing can help you to manage some of the ways in which your organisation has chosen to respond.

We will look briefly at the range of factors in the far environment that can influence organisations, although of course which factors are important will vary between organisations. We will do this under the five headings of sociological, technological, economic, environmental and political factors (STEEP).

Then we will look at what you can do to keep abreast of external changes that may impact on your organisation.

Sociological factors

We live quite differently from the way our parents did when they were our age, and we can see that the world in which today's children will live and work as adults will be different again. Sociological factors that are likely to affect organisations include demographic changes, patterns of work, household and social structure, morbidity and mortality, and gender roles, which may all influence changing social needs.

Demographic changes in the West, where both birth rates and death rates are declining, mean that the number of people of pensionable age in developed OECD countries will rise by 70 million by 2025, while the working-age population will rise by only 5 million (OECD).

This ageing of the population will affect the demand for consumer products and services and for the public and caring services provided by public and non-profit organisations, the income, tax and donor base to fund them, and also the size of the workforce and the availability of labour.

Patterns of work continue to change. Few people entering the job market today expect lifelong employment with the same employer, and careers will often consist of several jobs and possibly periods of unemployment.

There has been a substantial growth in part-time jobs, most of them done by women. In most European countries the number of women in paid employment is now similar to the number of men.

Household and social structures are very different now from the `typical' household consisting of two parents and one or more children. The decline in traditional social structures based on class, religion and family has led to increasing mobility and freedom of choice.

However, it has also created new social problems and issues, such as an increase in homelessness and a decline in traditional family support structures, with their impact on the services and products of many organisations.

Technological factors

Just as the industrial revolution altered the way people lived in previous centuries, moving them from rural areas to towns and creating new markets, customer needs and public services, so the information technology revolution may be doing the same in this century. The information revolution is leading to worlds of work and living substantially different from the ones we have been familiar with.

Changes in information and transport are:

• lowering the barriers of time and place - globalisation means that customers and suppliers are less geographically discrete and are easier to connect
• creating new ways of doing things and demands for new services
• transforming the nature of many internal service functions, such as secretary, finance officer, project manager, stores clerk and fundraiser, which are now based largely on IT systems
• changing patterns of social and economic inequality and marginalisation, as the impact of new technology is unevenly spread.

Next month we will look at economic factors…

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