Businesses have two types of environments: internal and external. Internal environments are controlled by the company, and may include elements such as organizational structure and workforce. External environments, however, exist outside of the company and are not within its range of control. As such, businesses may be vulnerable to the many threats that external environments can pose.
Strengths and weaknesses exist in all organizations and should include considerations for people, resources, culture, work processes, tools, supply chain, financial situation, etc. The list goes on and on. The important thing here is to start the process by first looking at external threats that can have a negative impact on your business and its resources.
The first step is to carry out a SWOT and PEST analysis on your business. Start with the threats. Focus here on your external world, the things you cannot control but must be aware of. There can be natural disasters and global events but these a few and far between. Let us look at the treats closer home;
The market; such as changes in consumer preference and increased competition. If your customers are personally affected, their priorities may change and you could experience a reduced demand for your products or services.
Your suppliers; if your suppliers are having problems, you may run out of the products you sell, or the materials you need to make products.
Competition; What would happen if a big brand store opened near you or your direct competition brought launched a new and improved product?
Utilities and services, such as failures or interruptions to the delivery of your power, water, transport and telecommunications.
The Economy– whether it’s boom time or bust, how the economy is doing impacts on your business. While you may not have control over the economy at large, understanding what drives it can help you manage threats and maximise opportunities.
Political-Legal Factors – changes in government or government policies and legislation can impact on business, which is why business owners need to keep abreast of all latest developments
Socio-Cultural Factors – What cultural aspects are likely to affect the business? Consumer attitudes and opinions, Consumer buying patterns, Ethical issues
Technology – if you wish to remain relevant, make sure that you monitor technological developments in your field and in the wider business sphere to ensure the business is run efficiently.
The process of identifying risks, assessing risks and developing strategies to manage risks is known as risk management. A risk management plan is an essential part of any business as it helps you to understand potential risks to your business and identify ways to minimise them or recover from their impacts. Not all the risks above are applicable to your business or there could be risks not mentioned which are applicable, but the more prepared you and your staff are the better the business will deal with the threats when they happen.
Mark Caine said - "The first step toward success is taken when you refuse to be a captive of the environment in which you first find yourself."