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1.5 External environment

1.5 External environment

Learning outcomes

Adverse weather conditions can affect many businesses

In the pursuit of achieving their aims and objectives, businesses face challenges from both within and outside of their organizations. Internal and external opportunities and threats will affect a firm’s performance and chances of success. Understanding these factors can facilitate effective decision-making. Internal threats are constraints within a firm’s own control. These limitations tend to be dominated by the rules, policies and culture of the organization. Examples of internal constraints include:

  • Finance - Most firms lack sufficient sources of finance (see Unit 3.1) thereby limiting their ability to achieve organizational objectives.
  • People - Poor working relations and ineffective communication systems hinder the performance of a firm. Motivational strategies (see Unit 2.4) can go some way towards resolving these issues.
  • Marketing - Firms might not have as attractive marketing campaigns as their rivals, such as inferior products, packaging, customer service and promotions.
  • Production - Firms may lack the resources and/or expertise to improve their operations such as production techniques or stock control systems to enhance their efficiency and competitiveness.

The focus of this Unit is, however, on the external business environment. External threats and opportunities either restrict or aid the performance of a business but are beyond its control. The external business environment refers to the factors that are beyond the control of any individual organization, i.e. the external environment affects all businesses in the economy. The most common framework used to examine the external environment is a STEEPLE analysis.

A STEEPLE analysis is a management tool used to study the factors in the external business environment that impact on its operations. STEEPLE stands for:

  • Social
  • Technological
  • Economic
  • Ethical
  • Political
  • Legal, and
  • Environmental factors that affect business operations and decision making.

The learning outcomes (or assessment objectives) for this section of the IB Business Management syllabus are:

  • STEEPLE analysis of a given organization (AO2, AO4)
  • Consequences of a change in any of the STEEPLE factors for a business’s objectives and strategy (AO3)
Top tip!

It is quite common for students to use a PEST analysis framework as a simplified version of STEEPLE analysis, where PEST stands for:

  • Political factors - which include legal factors
  • Economic factors
  • Social factors - which include environmental and ethical factors
  • Technological factors

Whilst there is no real issue with students using a PEST analysis framework (which is more simple than a STEEPLE analysis), given the PEST analysis is not explicitly stated anywhere in the IB Business Management syllabus, make sure you are familiar with using a STEEPLE analysis framework for assessment purposes.

InThinking Business Management resources

Click the hyperlinks below to access the InThinking resources for this particular section of the IB Business Management syllabus.

Return to the Unit 1 Business Organization & Envionment homepage

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