If a business is to be able to move fast and with strategic agility, its learning is a task deserving of constant attention and sensemaking from as many smart and diverse minds as can be trained on it.
In a learning economy, the sea of influences in which any company now works is increasingly complex, fast moving and unpredictable. In it, to minimise risk of misplaced choices, decision makers need a reliable feed of the best current strategic background information made available to them, on demand and with increasing speed.
Moreover, through the advancing digital revolution, discontinuous change in the sector in which any business now trades will emerge with ever greater certainty, unpredictability and rapidity, offering ever fewer reliable indicators of the future.
It is to this future that all businesses must be prepared to respond.
Against these challenges, if they are to be strategically agile, responsive and confident to launch and test new experiments, companies need to cultivate the best possible market awareness they can muster in spotting gaps and opportunities rivals haven’t yet seen.
Thus, sensing change is now beyond a one-man job, and businesses must train and sensitise as many minds as they can engage in collaboration to monitor what is changing around them, beyond their control, in the markets in which they compete.
Such environmental scanning will become a necessary and routine core competence in any company wanting to adapt and survive.
Enabling this ability, leadership in a learning organisation serves its people by seeking contribution and, by guiding them in what to look out for, empowering and developing better rounded, more knowledgeable workers and teams.
Limiting the number of perspectives brought to bear on that learning will constrain a business’s sensitivity to what is changing around it, as it is the melding of insights and perspectives that will foster the emergence of unexpected joint efforts, creativity and new solutions to a business’s challenges.
To allocate resources flexibly and swiftly to where they are needed most, teams and individuals across the best-adjusted businesses will be required to watch actively also for changes in customer preferences driven by that evolving external environment, and to act swiftly upon them.
Nearly 20 years ago, management academic and author Peter Drucker declared that increasing the productivity of knowledge workers is, “the most important contribution management needs to make in the 21st century.”
Environmental scanning is just one essential future capability to which Drucker’s observation must be applied.
So, if a business is to be able to move fast, this is a business-wide task deserving of attention and sensemaking from as many smart and varying perspectives as can be focused on it.
With rivals likely using similar technologies and getting ever smarter, too, the aim for any business must be not to get left behind in its learning, but to develop advanced capabilities to respond to persistent unforeseen market resets driven by the insights of others.
Some learning objectives to address this awareness of external environmental change might include:
- To develop a collaborative, commonly understood and evolving framework for interpreting that which is in its market pretty much beyond its control and shifting around any business.
- To use this to create a base of rolling, adaptive workplace intelligence ready to respond in context to management enquiry about which change that can be detected is of greatest significance to the business they work in.
- To be able to articulate this in such a way that in the face of persistent change its dialogue is updated routinely with new inputs, insights and fresh interpretations.
- Constantly to be identifying the scope for improvement in the processes by which this framework is assembled and evaluated, and of the sources on which it draws.
The common PESTLE challenge
Businesses have common challenges in what is happening externally, which may be described by the acronym PESTLE. These initials represent influences that are by nature Political, Economic, Socio-cultural, Technological, Legal and Environmental.
Those trained across the workplace to explore and think about this may each perceive its factors with differing degrees of prominence or importance, which, to reduce cognitive bias in the minds of constant learners is just as it should be.
What follows is intended to be loose, general and illustrative, and certainly not definitive or prescriptive for any specific business.
That said, without more ado, and with a little explanation as we travel, let’s explore what this analysis means for any business.
Governments dictate patterns of behaviour for all organisations and stakeholders in an advanced society.
As such, their authority has a substantial influence on the success or failure, the competitiveness and sources of competitive advantage of the companies that operate within a government’s jurisdiction.
In certain countries, states or provinces, governments aim to create policies that make it easier to do business, while in others, they may foster policies that are less favourable.
As the British government is finding out painfully at the time of writing through its “Brexit” from Europe, such political factors thus have significant impacts for the future strategic choices, costs and returns of its own national businesses.
In democracies, elected governments form guidelines for:
- Acceptable employment practices and relationships
- The ways in which business is done and how disputes between them are resolved
- The rights and contractual obligations of all parties to a transaction or in a relationship
- The obligations and structures of business control and governance of companies
- The conduct of environmental and safety undertakings
Although Australian governments tend to pursue policies designed to minimise harm to, and promote outcomes acceptable to, their key voters, these policies frequently affect businesses and their trading strategies.
Political policies and activities that may affect a business’s strategy include attitudes to factors such as:
- Priorities afforded to national budgeting, savings and monetary policy, with substantial effects for the availability and cost of capital for business
- The degree of support or otherwise for worker protection and unionised labour
- Which industries are to be supported, or otherwise, as matters of national priority, and in which ways
- Energy policies and which forms of generation are to be supported, funded and regulated, and how
- How government supports and offers subsidies for business initiatives through measures such as tax incentives and industry funding
- The ways in which, and where, facilities for education, research, innovation and training are provided
- The philosophies driving school and university funding, both nationally and at state level
- The ways in which, and where, infrastructures such as roads, rail, ports and airports are to be supported, prioritised and funded, and by which level of government
- The availability and regulation of telecommunications, energy and supplies of water
- Factors concerning national population structure and productivity, including the degree and nature of immigration, education and training to foster a domestic market and provide an appropriately skilled labour pool.
- How ownership of intellectual property may be protected through laws affecting patents and copyrights
The frameworks for regulation
By way of illustration, depending on the strategic orientation of an industry’s players, government choices to regulate or deregulate an industry can present either new opportunities or new threats.
Internationally, deregulation led new businesses to establish budget airlines in the United States, United Kingdom, and in Australia. Locally, these emerged as VirginBlue, Qantas’s Jetstar, and in Impact and Tiger, bringing about demanding competition on price and stripped-back services.
The same effects could be seen on deregulation of telecommunications to reduce the quasi-monopoly powers of Telstra, itself formerly known under pre-privatisation government control as Telecom Australia.
As we can see at the time of writing, the decisions of the US government to attempt to protect US jobs have a distorting effect on its relationships with others such as China, whose export markets to the US market are threatened.
While those in power in the US seem unable to come to agreement on acceptable standards for funding healthcare, some western European countries (most notably in Scandinavia) support social models involving high levels of taxation to support generous social security systems and relatively high levels of state expenditure on social services.
This is not the case for eastern European countries, however, which may have chosen to support lower levels of taxation and lower state support for social services.
Nevertheless, possessing skilled and relatively well-educated workforces, companies including LG Electronics, Samsung, Hyundai, Audi, General Motors and Dell have elected to install facilities in central and Eastern Europe to take advantage of those countries’ lower labour unit costs.
We can see similar effects taking hold in the increasingly pro-business policies of governments in Brazil, Russia, India and China (the so-called “BRIC” nations) for the benefits of those countries’ lower trade barriers, skilled workforces and greater access to natural resources. Those countries’ large domestic markets, with their own increasing discretionary incomes, also now offer opportunities for Australian and other developed nations’ exporters.
The health or otherwise of an economy has major impacts for business success, dictating what is likely or not to prosper.
The general idea is that economies expand when people are confident the future looks positive, and contract when the opposite appears to be true. These cycles drive corresponding opportunities in the demand for goods and services.
Obviously closely related to government policy and the political philosophies of the party in power that shape demand, economic forces that affect and guide strategy in whichever economies a business operates include:
- Exchange rates, which dictate the associated buying power and the value of different currencies in countries trading with each other
- Interest rates, which affect the cost and availability of capital for business borrowing and investment
- The supply of jobs, which is driven by the price and availability of appropriate labour
- The rate of growth of gross domestic product (GDP).
None of these factors operates in isolation from the others, nor is independent of the decisions of the government in power.
Related to the first item above, when the Australian dollar is relatively strong, the cost of imports falls and the costs of locally made goods rise relatively.
When the dollar is relatively cheap, the price of what is produced locally falls, making Australian exports perform better and imports more expensive.
When the Australian dollar appreciates, manufacturers tend to send more production overseas, and businesses buy more offshore and enter into strategic relationships with companies in other countries to take advantage of their lower costs.
When the cost of the dollar drops, economic business opportunities move back the other way.
With growing supply chain globalisation, many businesses now secure revenue or materials from multiple sources and economies, making this balancing act between the interplay of these factors much more complex.
When interest rates rise, major assets such as houses become more expensive, spurring households to save, not spend, with resulting impacts for all other markets for goods and services.
Whatever the economic cycle, boom or bust, opportunities and threats are in the eyes of different kinds of beholders.
This economic factor, added to the differences in political issues in separate macro environments, makes strategic management much more complex and challenging for multi-state and multinational businesses.
Where economics possesses much complexity, most can learn to understand its effects at a basic level because it directly affects any individual’s ability or will to spend or save.
The social and cultural factors that affect any business are those shaping the beliefs, values, attitudes, opinions, demographic make-up and lifestyle aspirations of the people in the communities it serves, and in which it works.
Changing social and cultural attitudes and behaviours drive their own change, shaping fashion and demand for many kinds of products and services.
These forces are constantly at work on a business, within, in its employees, and from without, in its customers and suppliers, and in those who work with and for them.
Changing societal trends exist in the interplay of social factors across and between all groups to present new opportunities and threats or constraints to different kinds of businesses.
They influence what people read, watch, listen to and believe, and consequently how they behave. And they affect their choices of leisure activities and entertainment, how they care for their children, how they prefer to shop, and so on.
In a networked, fast-learning economy, it is likely the changes in these forces will continue to accelerate faster than ever before, giving managers much more pressure to adapt to them ever more deftly, at greater speed, and on the basis of better information.
Thus, in a learning economy, in the threat of rivals’ possible better competitive understandings of these changes lies another of the forces to which companies must adapt.
It is often said that demography is destiny, as the age structure of a country is predictable and has known and identifiable effects.
Population trends and distributions determine the future of a country, region or even the entire world.
As Australia’s population ages, the profile of its older group is also projected to change. In 2017, more than half of older people (57%, or 2.2 million) were aged 65–74, one-third were aged 75–84 (30%, or 1.2 million), and 13% were aged 85 and over (497,000). By 2047, it is projected there will be just under 3.4 million people aged 65–74, though this represents a smaller proportion of all older people (45%). People aged 75–84 will account for 35% (2.6 million) of the population and 1 in 5 older people will be aged 85 and over (20%, or 1.5 million). [Source: Australian Institute of Health and Welfare, November 2018.]
The current structure of the population results from the growth in numbers of the generation born in the years following the end of the Second World War through to the late 1950s.
At first, the above-trend economic growth and increases in consumerism this “baby boom” triggered provided opportunities for many businesses.
The growing availability of education that accompanied this also gave rise to an expanding educated national workforce.
As its individuals now move into retirement, these consumers’ purchasing patterns are changing, with them spending less and saving more.
This changes the pattern of national demand for products and services accordingly.
One of the most profound structural economic changes in post-war decades resulted from women entering the labour market.
In developed economies, that change has affected the nature and education of the workforce, and now who gets hired, how companies are resourced and how people are rewarded for their efforts.
Women entering the labour force en masse also stirred opportunities to supply a great variety of products and services aimed specifically at them. It now does so in satisfying new demands, such as in growing needs for child care, resulting from not just one but both parents working.
Changing family structures
In the arrival of better contraception, family planning exacerbated a slowing birth rate in many developed countries.
Changes in government policies on economic factors driven by fewer young people being born and available to take on jobs have resulted in increasing Australia’s reliance on immigration to sustain its skill levels, its young labour pool and tax base.
More relaxed attitudes to marriage and divorce have had a dramatic impact on family structures, as no doubt will 2017’s changes in legislation concerning gay marriage.
Without such change in family units and in two-income households would be less likely the emergence of products and services satisfying increasing demand for child and aged care, including internet shopping, home delivery, services being offered outside of normal working hours, and so on.
In many countries, and doubtless in your own workplace, higher levels of education see both consumers and employees generally still becoming more educated, with more than 60 per cent of students now going on after school to complete some form of tertiary study at university, TAFE, or similar.
Exacerbating the effects of a better educated population, increasing access to information via the internet and the media is unlikely ever to slow, perpetuating a boom in knowledge-based industries with an accompanying shift in influence and political power to more knowledgeable, better-informed consumers.
Within a learning economy, much more change will flow both from and to businesses, as increasingly those within companies will drive both those organisations’ and their own contextual learning, using the growing availability of free internet tools and services to do so.
International travel is now a commonplace expectation, as is living or studying for periods overseas.
Shifting patterns of migration also dramatically change both the ethnic mix of the countries to which migrants move, which in turn stimulates demand for more culturally appropriate supplies of goods and services for their communities, and changes the tastes of locals in those host nations which brush up against them.
Australia’s government promotes its well-educated and diverse cultural and linguistic population internationally as a benefit to global organisations which want to tap into such diversity.
But, immigration has also caused social and cultural disquiet among certain political and societal groups, both in Australia and internationally, stimulating much political disquiet.
Environmental consciousness and the push for increased corporate responsibility
Evolving attitudes on corporate social responsibility have changed the ways in which businesses have been forced to evolve their behaviour in environmentally, ethically and socially responsible ways, rather than just focus on growing wealth for their shareholders.
Increasingly, learning, sustainable businesses must factor into their calculations increasing demands for environmental sustainability, greater social responsibility, more effective stakeholder management and legal compliance, as well as achieving strategic outcomes that result in business survival and growth.
Businesses in energy, mining and transportation face new societal concerns about land use and pollution, as seen in resulting social and mainstream media attention.
These same forces have been of benefit to markets for alternative and renewable energy supplies, and triggered innovations in recycling and water management.
From all of these examples, overlaid on top of the other ever-shifting socio-cultural dynamics, emerge both new business opportunities and threats.
Social outcomes in combination
All of the above, fuelled not least by increasingly influential social media, adds up to an increasing societal emphasis on quantity and quality-of-life concerns, and, in developing societies, on the attainment of ever multiplying consumer choices and rising standards of living.
Purchasing patterns have become more consumption-oriented (manifesting in the availability of increasing credit, with all the economic risks increased household debt entails), with spending on leisure and entertainment growing, both within and beyond the home.
The growth in the number of double-income families has caused strains in home-making and in caring for the very young, the infirm and growing numbers of ageing family members.
Across the community, concerns about the growing impact and wastefulness of consumerism and the rising number of working hours needed to pay for such consumer-oriented lifestyles have seen a growing hunger to achieve higher pay (at a time when wage growth has stalled) and better, safer, more flexible working conditions and enhanced work-life balance.
The rise of the “gig economy” and less secure, contract-based forms of freelance work adds another highly complicating factor to this mix.
Translating social change into forecasts of the effects on the organisation may be difficult at best, but cultivating a base of clearly shared, collaborative insights and inputs from a team of increasingly sensitised, enlightened workplace observers can make better sense of the array of changes occurring than even a highly trained single mind.
Technological forces for change
One definition of technology is “the application of scientific knowledge for practical purposes, especially in industry.”
To understand its forces, managers with strategic responsibilities must explore the effects of existing and emerging innovations, and how, through creativity and human ingenuity, they are applied in developing new processes and products.
As we have seen through the disruptive appearances of Amazon, Google, Facebook, Uber and others via the internet, technological change can have a sudden, surprising and dramatic effect on any business’s trading environment, giving rise to sophisticated new markets and products, and significantly shortening the lives of other previously existing manufacturing facilities, services and businesses.
Through the constant reworking of “creative destruction,” each new wave creates both opportunities and threats, overwriting what has passed before, and in the networked Learning Economy, these changes will likely make a disproportionate and accelerating effect on the pace of change in the workplace and beyond.
The internet is now the juggernaut driving the digital revolution, in much the same ways that the internal combustion engine overwrote the railways but created the huge motor companies, road networks, out of town retail and spaces given over to car parking today.
These in turn are being overwritten by moves towards both electric and self-driving vehicles possibly paid for by subscription or on a per-use model.
Mobile phones connected to the internet have now long challenged established fixed-line operators.
Other game-changing technologies, such as cloud computing, also enable workers to access information, analyse data, collaborate with colleagues, and serve customers in real time, from anywhere.
In an age of possible information overload, the information- or knowledge-worker’s value rests not on their intrinsic knowledge per se, but increasingly on their ability to filter and propel vast amounts of information into action in collaboration with others.
To support worker productivity, IT-driven organisations must now rethink their workforce technology strategies for a cloud-first world.
Cloud workers are now at the forefront of a shift toward remote workspaces, real-time collaboration, and connected global communities.
Changes in technology both affect an organisation’s ways of working and learning, as well as its products and services.
To serve their needs, IT-led businesses must support devices and facilities that foster continuous productivity, flexibility, and convenience.
At the same time, advances in machine learning and, soon, quantum computing, may see many jobs replaced by robots and artificial intelligence (AI).
Against these constantly changing dynamics of technology, the threat of copycats is now constant in business. Despite intellectual property laws, patent filings and market dominance, competitors will find ways to offer cheaper versions of pretty much any product.
Rapidly advancing technology, AI and the internet have also served to accelerate the pace of replication, making it even harder for a company to maintain the top spot in any sector.
The revolution in genetic technology and engineering now provides opportunities for companies to produce genetically modified and disease-resistant crops, animals and even, now, genetically engineered human beings.
For the first time ever, such change, and through innovations such as CRISPR (short for “clustered regular interspaced short palindromic repeats”), which provides a faster, cheaper and more accurate than previous methods of tinkering with genetic code, mean for the first time we human beings are now in control, potentially, through the eradication of inherited genetic disorders, even of our own evolution.
Many of the concerns factoring into political considerations end up being transformed into law, meaning there is substantial overlap between legal and political forces affecting any business.
The law often trails other societal developments, but companies must not just understand the possible impacts of laws and regulations, but also how they will be interpreted and administered by the courts.
Those laws influencing businesses are often characterised as “red tape.”
They include labour relations, taxation, health and safety at work, environmental protection, corporate governance, trade practices, consumer protection, contracts, property rights, intellectual property, corporate structure and ownership, and so on.
In addition to passing laws, governments may then establish autonomous agencies or bodies with the statutory authority to investigate and regulate critical market functions and behaviours.
They include matters such as monopoly and anti-competitive behaviour; imposing essential prudential capital structures on financial organisations; upholding workplace health and safety in all businesses; protecting the environment; regulating how Australian Securities Exchange (ASX) market participants list on it and report to shareholders, and through associated accounting and shareholder reporting standards.
The laws passed then give power to those enforcing compliance with government policies.
For businesses, it is vital also to understand how uniform and reliable will be the rule of law wherever they trade, how consistently its standards will be applied and what they must learn about trading under them, and how.
They must also understand how costly it may be, in the event of breach, to address the demands of the legal system concerned.
How powerful, predictable and evenly those forces will be applied must also be learned and factored in, including the behaviours of lawyers, judges, police and bureaucrats who administer Australian, or, where necessary, local, overseas, law.
The natural environment
Concerns for the natural environment are neither exclusive nor limited to Australia, as we know from the international accords of Kyoto and Paris on climate change.
Nevertheless, the country finds itself at an extreme end of the spectrum in its droughts, access to water, land degradation and loss of productivity, and increasing incidence of storms, fires and floods brought about by the ravages of atmospheric pollution.
Perceptions as to how well companies uphold the health of the environment also play out strongly in consumer expectations in the supply of products and services. Witness the strong and persistent growth in demand for rooftop solar panels among Australian households.
Such environmental worries also relate to debates over the size and location of population, and the ability of natural systems to support further population growth.
However, considerations of the significant role the natural environment plays and its protection also increases operating costs for some businesses, such as in rising costs of insuring their activities against adverse natural events.
Such variables may also affect those trading overseas in other less well-understood ways.
Lower crop yields and reduced land productivity drives up prices for raw materials, which flows throughout the value chain of all products made from those materials, increasing prices at retail for end consumers, and at every stage in distribution for all goods and services consumed, whether in the home or in business.
This also affects directly the businesses that transport agricultural and forest products, the service providers who advise the producers, and others across their channels of distribution.
And their flow-on effects pass on to banks and financial institutions that lend money, as well as governments and the demand on their agencies’ abilities to extend financial support to those who for whatever reason seek government assistance.
The combined effects of all and any of the above are unavoidable and unevenly distributed, even for businesses apparently in the same industry and with ostensibly the same shared fate.
Nevertheless, in the Learning Economy, those that aren’t planning their learning and responses to such change are likely to fare poorly against rivals that are.
Put simply, tomorrow’s top companies will routinely and constantly scan the external environment, making continuous learning a fundamental feature in their organisational DNA.
In them, an improved, shared understanding of the external environment encourages repeated learning and adjustments, and helps them to develop enhanced products and services more rapidly.
In the Learning Economy, they can then create value quickly, collaboratively, and effectively, also seeking ways to enhance their business processes and working practices, which continuously feeds back into better business performance.
In the age of possible information overload, organising knowledge preemptively to enable managerial response in real time will help create organisations that can learn fast, can move quickly, and whose leaders are empowered to act more swiftly in addressing change.
The environments in which their teams work will grow transparency, through better-effected collaboration and communication, and in the incidence of serendipitous insights which enable them to respond to the triggers of change less like a hierarchy and more like a living, networked organism.
Most importantly, however, learning organisations enable a cohesive community with a focused culture, attracting people who are motivated by the purpose of their shared work and who come to work aiming to learn and contribute, and who are driven to achieve through it.