Continuing to look at your 'far environment'...

Economic factors 

Organisations in all sectors are susceptible to broader economic forces, The state of the economy affects organisations in a number of ways, including: 

• Income streams. The health of the economy affects consumer and business spending, capital investment, tax revenues and the level of charitable donations. Economic recessions often lead to restrictions on public spending, bringing adverse effects on those industries and sectors which rely on government contracts, as well as on those who use public services and whose demand for the services may well be greater during such times of recession. 
• The nature of demand. Generally, increasingly affluent societies spend proportionately more on leisure and fashion than on household goods. 
• Inflation. This affects the balance between saving and spending by consumers and businesses. In some sectors increases in government funding have been below the rate of inflation, so that organisations have had to improve efficiency and/or reduce services. 
• Exchange rates. The rate between the major currencies affects the affordability of imports and exports, and hence their value to consumers and businesses. 
• The labour supply. Economic growth affects the demand for labour and the ability of organisations to recruit suitably qualified staff. 

Environmental factors 

Environmental issues have a growing impact on what customers want and how organisations behave. You may need to consider a number of factors: 

• Legislation. The main emphasis of the increasing environmental regulation is on pollution control and waste disposal, but it is also affecting packaging, transport and distribution, and sources of materials. 
• Information and reporting. Many customers and communities consider organisations' publicity and labels in assessing the value of goods and services, for instance looking for evidence of 'dolphin-friendly' tuna fishing methods. 
• Employees. Increasingly, employees are interested in and concerned about the environmental credentials of their employers. 
• Operational advantages. There are opportunities for organisations with high environmental standards to gain an advantage over other organisations in the eyes of the customer. This might be reduced energy costs, for example, or increased public and external support. 

Political factors 

Government policy and spending decisions have a major impact on most organisations in the public and private sectors. Some organisations have performance targets and measurements imposed directly on them by central or local government. 

Governments regulate what consumers of many products and services can buy, and where, how and for how much (because of indirect taxes), all of which affect customers' perceptions of value. The laws and regulatory frameworks which result from political processes have a huge impact on most organisations. 

In wider terms, the rise and fall of democracies or dictatorships and government policy in countries and regions across the world affect consumers: how many of them there are, what they want and are able to buy and what can be sold to or in other countries. 

Such political change also affects relationships with public and non-profit service organisations in other countries. 

The STEEP framework provides a useful structure for the discussion of the external environment. As you may well have noted, however, the distinction between the factors is rather artificial. Many political decisions have an economic impact, and almost all economic factors have a political dimension. Social behaviour is influenced by new technology, and in turn influences political decisions. 

Environmental issues have strong social, political and economic elements, and the implementation of environmentally acceptable solutions often depends on the adoption of new technology. 

It is important not to worry too much about how to classify external factors, but to be aware of how they may affect your organisation, your role and what customers value. 

Most organisations attempt to keep abreast of and sometimes to forecast changes in their external environment, and we consider this next.