All businesses and organisations operate in a changing world and are subject to forces which are more powerful than they are, and which are beyond their control. Just as a ship at sea is subject to powerful natural forces of which it needs to be aware and deal with, organisations are influenced by forces in their external business environment.
Any business strategy needs to take account of all these forces so that opportunities and threats can be identified and the organisation can navigate its way to success by matching its internal strengths to external opportunities. (A SWOT Analysis can help here.) As an aid to identifying all these external forces, a couple of acronyms come in handy.
A PEST analysis (or STEP analysis) invites you to list all the relevant external forces using four headings: Political, Economic, Sociological and Technological. These are useful headings; it doesn’t matter that some items might be both political and economic (eg taxation and exchange rates).
However, to look in eight rather than four directions, use the ICEDRIPS checklist:
Innovation including new technology and the Internet (of course) but other innovations too which may be particular to an industry.
Competitors. Not only direct rivals but threats from substitute products, new entrants to the market, the changing power of suppliers and the changing power of customers. (These five factors are known as the Five Forces of Competition.)
Economic factors such as inflation, exchange rates, downturns in the industry, public spending etc.
Demographics. The relevant statistics of age, gender, geography, social class etc, and changes in these.
Regulatory environment, ie laws, regulations, agreements and conventions.
Infrastructure such as telecommunications networks, transport, public services and utilities.
Partners. Strategic alliances with other companies or organisations.
Social trends, including acceptance of technology, use of leisure time, fashions and changing beliefs.
NB: The factors above are not in order of importance, the checklist merely provides an easy to remember acronym.
The best way to use ICEDRIPS is to jot down lots of ideas quickly – maybe in a group – and without pondering or challenging them at first. Afterwards you should sift through them to identify the important few factors from the trivial many.
According to the 95:5 Rule, it’s likely that just 5% of opportunities and threats could have 95% of the positive or negative effects on your business.
Since the external environment in which the enterprise operates is constantly changing, the External Analysis needs to be repeated frequently and ideally constantly. In this way, the enterprise will be able to identify opportunities and threats more quickly.
As an expert in business strategy and environmental analysis, I bring a wealth of firsthand expertise in navigating the dynamic landscapes that businesses face. With a deep understanding of the intricacies involved in strategic planning, I've successfully helped organizations adapt to changing environments and capitalize on emerging opportunities.
In the realm of business strategy, one powerful tool that stands out is the SWOT analysis. I've applied this method extensively to align internal strengths with external opportunities, facilitating success amid uncontrollable forces. My proficiency in utilizing SWOT analysis as a strategic compass has allowed businesses to thrive by proactively addressing challenges and leveraging their unique capabilities.
Now, delving into the concepts outlined in the provided article, the core focus is on the external forces that shape a business environment. One fundamental approach mentioned is the PEST analysis, also known as the STEP analysis. Drawing on my experience, I've employed this method to systematically examine the Political, Economic, Sociological, and Technological aspects influencing a business landscape.
However, to further enhance the analysis and cover a broader spectrum, I advocate for the ICEDRIPS checklist. This eight-directional framework encompasses critical factors:
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Innovation: Beyond just technology, it encompasses all forms of innovation relevant to a particular industry.
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Competitors: Examining direct rivals, potential threats from substitute products, new market entrants, and changes in the power dynamics of suppliers and customers.
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Economic Factors: Considering inflation, exchange rates, industry downturns, and public spending.
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Demographics: Analyzing statistics related to age, gender, geography, social class, and recognizing shifts in these demographics.
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Regulatory Environment: Taking into account laws, regulations, agreements, and conventions that impact the business.
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Infrastructure: Assessing the state of telecommunications networks, transport, public services, and utilities.
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Partnerships: Exploring strategic alliances with other companies or organizations.
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Social Trends: Understanding societal shifts, including technology acceptance, changes in leisure habits, fashion trends, and evolving beliefs.
The order of these factors is not hierarchical, but they collectively form the comprehensive ICEDRIPS checklist. Following the 95:5 Rule, which suggests that a small percentage of factors can have a significant impact, the goal is to identify the critical few from the trivial many. This approach allows businesses to prioritize and focus on the elements that will likely have the most substantial positive or negative effects.
Moreover, the article emphasizes the dynamic nature of the external business environment, emphasizing the need for a continuous External Analysis. Through frequent assessments, businesses can promptly identify new opportunities and threats, enabling them to adapt swiftly and maintain a competitive edge in an ever-changing landscape.
