External business environment
Changes to the business environment from external factors and in its competitive strength cause changes in way a business performs (e.g. in terms of sales and profits) and force it to change its business strategy (e.g. alter aspects of its marketing mix).
The term ‘external business environment’ refers to the surroundings or external conditions in which a business operates.
The acronym PESTLE is one way of identifying and evaluating key areas that contribute to the businesses external environment.
The potential impact of relevant changes in the external environment can be represented in various graphics, diagrams or PESTLE maps. There is no set format for these, but the maps should:
- Identify key changes in PESTLE factors
- Show how different PESTLE factors relate to each other
- Explain the impact of the changed PESTLE factors on business performance
- Identify possible changes to the marketing mix in response to the changed PESTLE factors
Another key external factor affecting the strategy and performance of a business is its competitive position. A business in a strong competitive position can influence prices, sales and hence profits. It has been suggested (by Porter in 1979) that there are five elements that make up the competitive position of a business.