What do the September 11 terror attacks, the Great Recession of 2008, the Japanese Tsunami, and Miley Cyrus have in common? While the obvious answer is “they are all disasters,” (sorry Miley fans), from the
viewpoint of strategy execution, there is another common thread: All of the items named were external factors that had profound effects on businesses far and wide, affecting the strategy and planning of even see mingly unrelated firms:
- 9/11 and the 2008 mortgage meltdown effects were obvious, with immeasurable lost commerce, wages, and even lives resulting from them directly.
- Besides the physical devastation in Japan itself, there were less obvious effects to business from the tsunami – but it did affect the market for computers and cell phones as many of the microchips we rely on for our gadgets were destroyed, causing fulfillment delays, product shortages, and lost sales.
- And Miley Cyrus’ turn from America’s sweetheart into a crass persona furthered the trend towards aggressive sexuality and disdain for convention in pop culture – which affects everything from the type of music advertisers use to appeal to hip youngsters to the type of merchandise carried in clothing stores.
The point is: external factors which seemingly have nothing to do with you and your company can have ripple effects that force you to change your strategy to stay alive. And while there appear to be no defenses against these external forces, by keeping abreast of them and by monitoring trends, you can remain nimble enough to adjust to and even capitalize on them.
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In Six Disciplines’ Methodology, change is expected and planned for while keeping the current business operating with the least amount of disruption possible. But you have to know what to change, and this includes keeping an eye out for the following important external factors and trends.
1. The Economy
Sales depend on the wealth of a population, or at the very least, on the ability for that population to borrow money to make their purchases (credit). So when economic conditions aren’t bright, you need to adjust your strategy. This could mean layoffs and other cost-cutting measures, price reductions to increase sales volume etc.
On the other hand, when the economy picks up, it might be time to borrow to improve your IT infrastructure, put the pedal to the metal in regards to your marketing efforts, and spend big to hire top executives and salespeople.
Credit availability, interest rates, manufacturing indexes, inventory figures, housing stats – all of these indicators have been thoroughly discussed on leading business and government periodicals and publications such as the Wall Street Journal, Bloomberg, the U.S. Bureau of Economic Analysis, and the Conference Board.
2. Cultural Shifts
The society we live in and its culture dictate our personal values to a large degree, and these values are what drive our day to day decisions – including the types of products we buy, the places we go, and the services we use. Shifts in culture, therefore, drive the demand for new gadgets, clothing, food (did you even hear of gluten-free food or Paleo diets 5 years ago?), clothing, music, and even business systems.
This means you need to pay attention to trends and fads, as silly or distasteful as some of them may seem. As an example, social media took the world by storm, but to this day many business people dismiss Snapchat and Instagram as silly platforms mostly for bored teens, while forward-looking firms are set to make a killing by engaging with consumers through them.
The trend is your friend, so pay attention to things like Twitter’s top trending hashtags. Here is an excellent list of trend-spotting tools by Wordtracker.
A potentially contentious, yet extremely important subject to consider when it comes to your company strategy is the political climate.
This embodies everything from intellectual property laws to zoning restrictions to antitrust laws to employee and consumer protection regulations. There are practically zero aspects of business that are not directly impacted by the politics of where the business is located.
Political forces can alter the playing field physically, through things like zoning/infrastructure and housing developments, or economically, through changes in tax laws, minimum wages, and permitting fees. Government intervention can also create a market, such as the medical marijuana one in California or recreational one in Colorado – or practically destroy it, as in the case of alcohol during the Prohibition.
As a business owner or executive, it behooves you to get connected with your local politicians to stay informed of changes which could impact your bottom line…before they become costly surprises.
Technology, especially when widely adopted rapidly, is always a major disruptor and game-changer, and there are many examples of industry leaders who ignored technological change and suffered greatly for it.
Consider the effect of MP3s on the music industry. It still hasn’t recovered from its protectionist stance of suing Napster and individual downloaders in the early stages of the technology, rather than using P2P technology to sell music itself. Or how about Blockbuster? The once ubiquitous chain that is all but shuttered today, all because they completely ignored video streaming. We can see it happening right before our eyes today with Uber and Lyft, who’s personal ride sharing service technologies have created a new workforce and are driving inefficient, costly, and unfriendly taxi companies out of business.
Last but certainly not least, is Mother Nature. This is the least predictable factor of all, and that lack of predictability should be accounted for in your strategy some way.
Not having earthquake insurance in California for an office building would be extremely bad strategy, for example. Similarly, flood insurance is a must in hurricane-prone zones. While nature itself is out of your control, you can still take steps to minimize or prevent losses.
Pressure from environmental groups can also alter a business’ strategy. For instance, when businesses are perceived as having a negative impact on the natural environment around them. The global warming controversy could also play a part if your strategic planning, as politicians consider carbon taxes and other measures.
In short, the point of this post is to encourage you to avoid tunnel vision and keep an eye out for the factors that can impact your strategy despite being external to your organization and out of your control.
For ideas on how to cope with change, we suggest you watch Gary explain how to manage complexity in a world where you seem to have little control:
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