The external environment
The external environment
The world outside an organization. It has four main parts (normally abbreviated as PEST):
Government action and changes in the law.
Changes in the economy (particularly people’s incomes and competition between companies).
Changing social factors like fashion, crime, health, population and the environment.
Changes in technology that lead to new and better products.
This PEST analysis is used in corporate
strategy as part of the SWOT analysis (evaluating the organization’s
internal strengths and weaknesses and opportunities/threats in its external environment).
Big issues in the external environment
a) state or individual?
Government interference or personal liberty. Self-help or state help?
b) priorities between government spending
The biggest spenders are health, social services, education, transport, housing and local government, and
Will high government spending (and so the need for higher taxes) destroy new businesses and people’s will to
d) international terrorism
(particularly from Islamic groups after 9/11).
e) international politics
(particularly relations between America, the EU, Arab countries, Russia, Japan and China)
Can they co-operate to solve problems like climate change,
world famine and the Middle East conflict?
a) increasing global competition
(particularly from countries like China and India with lower wages).
Global companies like Coca-Cola selling products worldwide and so extending the influence of American
c) rising incomes
(the amount people can spend after paying taxes).
(for better products at lower prices).
e) wealth creation
Increasing a country’s income and production to pay for material goods including health and education.
a) the environment
- shortage of resources (due to increases in wealth and population).
- protecting the countryside.
- disposal of rubbish (because of our throwaway society).
b) violent crime
(increasing crime even in schools).
- increased selfishness and materialism.
- decreasing influence of moral values like courtesy, compassion and community.
d) distribution of income and wealth
The increasing gap between rich and poor; and the balance needed between:
- encouraging hard work (with low taxes) and
- helping the poor and needy (with higher government spending).
e) relationship problems
- greater stress and anxiety.
- less time for family and leisure.
– rising health costs from an ageing population and increasing drug prices.
Work and life are changing ever more quickly, making lifelong learning and
education more important.
h) information society
Knowledge is vital to be successful (called a knowledge economy) but finding knowledge from
mountains of information (via the Internet) isn’t easy.
i) famine and disease
(particularly in Africa, pictured right).
Quality entertainment is needed to make us happy and educated.
a) wider use of smaller, more intelligent computers
The constant increase in computer power is phenomenal.
Science and technology can’t ignore people’s needs and must provide creative solutions to their problems.
c) genetic engineering (biotechnology)
(cloning and new drugs and cures).
Improving quality of information from the Internet (revolutionizing communication,
entertainment, education and learning).
Key quotes explained
“Want, disease, ignorance and squalor”
- Lord Beveridge’s
(pictured right) four
The Beveridge Report in 1944 concluded that Britons needed government help (the welfare
state) to remove these evils.
But you also need personal responsibility and community action – a society is what we make it.
“The life of the nation is secure only while the nation is honest, truthful, and virtuous”,
said Frederick Douglass, the American
You can’t get something for nothing – if you spend money on one thing, you can’t spend it on something else (the
economist’s idea of opportunity cost).
“Earth provides enough to satisfy every man’s need but not every man’s
Gandhi ,Indian leader (pictured right)
The greedy pursuit of money will destroy the planet. “We borrow it from our children”, says a
Native American proverb, and so we have a responsibility to preserve it.
Gandhi also said that we must slow down and give ourselves more time to reflect on the damage we’re inflicting
on our souls and the world.
We must pay at least as much attention to morality as to money, so we have the wisdom to cope with accelerating
social and scientific change.
“Our scientific power has outrun our spiritual power”, lamented the American civil rights
leader, Martin Luther King.
“Those who do not remember the past are condemned to repeat
- George Santayana, American philosopher (pictured
We won’t have a better future unless we learn the lessons of the past, particularly the evil of inhumanity to
man (such as the Holocaust and unnecessary wars).
If we don’t, we’ll keep on making the same mistakes.
“We are drowning in information and starved of
Naisbitt, American futurist (pictured right)
The Internet has given us the challenge to find knowledge and wisdom from the mountain of information
(pictured right) trilogy: Future Shock (1971), The Third Wave
(1981) and Powershift (1991)
The world’s biggest challenge is to cope with accelerating change and avoid over stressing people.
Stress is the result of change happening faster than people’s ability to cope with it (“future
The “Third Wave” is the post-industrial age when power is transferred to the knowledgeable
(For more detail see Future Shock and
The Third Wave in the Business
J.K. Galbraith (pictured right) , The Affluent Society (1958)
People’s wealth is mixed with poor public services (“private opulence, public squalor”).
The wealthy protect their position through what his 1992 book called a “culture of
contentment” based on selfishness and greed.
Charles Handy (pictured right), The Age of Unreason (1989)
He predicted the “shamrock organization” that has three parts:
a) small, full-time workforce.
b) part-time and temporary employees
(to hire and fire when needed).
c) outside contractors
(external organizations providing goods and services).
(For more detail see The Age of
Unreason in the Business Books section).
Fritz Schumacher (pictured right), Small Is Beautiful
Supports “technology with a human face”, using technology to develop people’s skills and
So in poor countries it must be cheap, easy to use and available to everyone.
(For more detail see Small Is
Beautiful in the Business Books section).
Peter Schwartz (pictured right), The Art of the Long View
Create scenarios (or predictions) of the future based upon two or three of the most important and likely trends
in each of the four PEST categories (political, economic, social and technological).
Then work out the implications of these scenarios for the organization’s corporate strategy.
John Naisbitt, Megatrends
Technological progress must be balanced with people’s needs for love and human contact (“high tech/high
David Riesman (pictured
right), Nathan Glazer and Reuel Denney, The Lonely Crowd (1950)
“Other-directed” people do what others (like their "peer group") do and want, not what is
best for them.
They aren't true to themselves and their principles, lacking autonomy, self-knowledge and meaningful
So they are the “lonely crowd” who are “at home everywhere and