What are some effective techniques for identifying trends in the external environment?

Drawing from my experience working with business leaders in communication/smartphone industry, PESTEL analysis was invaluable. It blended insights from multiple angles: the impact of global trade policies on supply chains, the influence of economic shifts on consumer buying power, adapting to changing social trends in user preferences, keeping pace with rapid technological advancements like 5G, responding to environmental demands for sustainability, and navigating the complexities of legal compliance in data protection.

Understanding the big picture is crucial, and that's where PESTEL analysis shines. It breaks down the external environment into six critical factors: Political, Economic, Social, Technological, Environmental, and Legal. By examining each element, you can uncover trends that might impact your business, like emerging technologies or shifting consumer behaviors.

Some examples of PESTEL analysis: Political: Government policies and changes in government, foreign trade policies, internal political trends, tax policy, regulation trends. Economic: Growth, interest rates, exchange rates, inflation, disposable income, unemployment rates. Social: Demographic trends, cultural factors, attitudes towards education and health. Technological: Technological advancements, R&D, automation, and the level of technological change. Environmental: Climate change, weather, natural disasters, and environmental regulations, natural resources and sustainability issues. Legal: Discrimination law, consumer law, antitrust law, employment law, and health and safety regulations.

Expand beyond PESTEL analysis by incorporating a holistic environmental scanning approach. Consider additional dimensions such as cultural, demographic, geopolitical, and ethical factors.

In my experience, this method is very useful for industries that are shapped by geopolitical relations and are cosumer driven. An example of this is electrical vehicles. A PASTEL analysis can highlight things like China's influence on the supply chain as well as the IRA influence on consumer behavior... all in a logical package.

Take PESTEL a step further with STEEPLED—adding Ethics, Education, and Demographic factors into the mix. This comprehensive approach ensures you're not missing any subtle shifts that could become significant trends, like changes in population demographics or global educational shifts.

Engage with a diverse range of stakeholders when conducting in-depth environmental analyses. Involving employees, customers, partners, and community representatives can provide valuable perspectives on ethical and demographic aspects.

In my experience, this analysis is a better fit when we're talking horizontally about ESG. At the individual industry or segment, it's hard to integrate ethical factors into actionable decisions because what is "ethical" will depend so much on the company, industry and/or region.

Utilize advanced data analytics and artificial intelligence to conduct a comprehensive STEEPLED analysis, enabling your business to systematically assess Social, Technological, Economic, Environmental, Political, Legal, Ethical, and Demographic factors for proactive trend identification. Implement real-time monitoring tools and engage in continuous stakeholder collaboration to gather diverse perspectives, ensuring a dynamic and evolving understanding of external influences and allowing your business to stay ahead of emerging trends through strategic adaptation.

In my work with agri-food sector leaders, STEEPLED analysis has been key. It's practical: understanding consumer health trends (Social), using drone technology for crop monitoring (Technological), navigating economic downturns (Economic), implementing eco-friendly farming (Environmental), adhering to food safety regulations (Legal), ensuring ethical practices like fair trade (Ethical), and addressing the needs of an aging population (Demographic). Each aspect is vital for informed decision-making in this dynamic industry.

While traditionally internal, SWOT Analysis can also be turned outward to assess your competitive landscape. By evaluating the Strengths, Weaknesses, Opportunities, and Threats in your industry, you can pinpoint trends that may transform weaknesses into strengths or threats into opportunities.

to make a more effective SWOT analysis, take it a step back and use the other frameworks for external environment analysis to identify threats and opportunities. Use PESTEL for macroenvironmental analysis and Porter's five forces industry level analysis.

Introduce the concept of a Resource Alignment Matrix, which is an extension of SWOT analysis. This helps businesses identify specific resources and capabilities required to capitalize on opportunities or mitigate threats posed by external trends.

In science, education, and business, SWOT analysis emerges as a critical tool for strategic planning. In science, it's about leveraging strengths like advanced technology to overcome funding weaknesses, seizing opportunities in burgeoning fields like AI, and staying alert to threats from rapid technological evolution. For education, SWOT helps institutions capitalize on their diverse programs to address the digital divide, tapping into the growing trend of online learning while adapting to evolving student expectations. In the realm of business, it's about using brand reputation and customer loyalty as a springboard to address operational inefficiencies, exploring new markets and consumer trends, while keeping an eye on competitive threats.

Strength and weaknesses focus on internal elements, while opportunities and threats shed light on external factors. By systematically evaluating Strengths, weaknesses, opportunities and threats, businesses can discern external factors that impact their operations.

Porter's Five Forces provides a laser-focused look at your industry's competitive dynamics. It examines competitive rivalry, supplier power, buyer power, the threat of substitution, and the threat of new entrants. Grasping these forces helps you spot trends that may alter the competitive balance, like new market entrants or changing supplier relationships.

I personally do not like this tool only because it creates the illusion that buyers and suppliers are completly homogenous. I've worked at global companies that make and sell product in all regions and customers / suppliers vary a lot by region... in fact, so much so that the go to market approach has to be adapted.

Please avoid the following most common mistakes when doing this analysis: *Neglecting Industry Dynamics. *Overlooking Rapid Changes. *Ignoring Complementary Products. *Underestimating Digital Disruption. *Focusing Solely on the Present.

This tool is like a map of your competition. It looks at five key areas: whether new businesses can easily start competing with you (threat of new entrants), whether there are other products that can replace yours (threat of substitutes), how strong your customers' bargaining power is, how strong your suppliers' bargaining power is, and how fierce the competition is in your industry.

I'm something of a fan of the 5 forces model, though it is the principle I like. All forms of business have competition as purchasers, whether business or consumers, generally have a finite amount to spend and an increasing amount of choice on where and how to spend it. However, the 5 forces model makes one think of the market position of their own product, and how secure it is or highlights the risk of what might make this move and the control available to mitigate this.

This is where imagination meets strategy. Scenario planning involves envisioning various future scenarios based on current trends. It's not about predicting the future; it's about preparing for it. By considering different potential outcomes, you can develop flexible strategies that hold strong, no matter which way the wind blows.

Scenario planning is a provocative technique for anticipating external trends' strategic impacts. However, poor application risks wasting resources on improbable futures. Leaders must pressure test assumptions, establish rigorous qualifying criteria, and assign relative probabilities across multiple planning horizons. While considering divergent scenarios has creative merit, analysis paralysis, confusion and long-term distraction are dangers without appropriately framed implementation. advice. Guidance on focusing scenarios, defining success measures, and integrating with objective data would help leaders extract value from this approach.

The external environment is the set of factors and forces that affect your business and its performance but are beyond your direct control. Techniques for identifying trends: - Environmental scanning: Process of collecting and analyzing information about the external environment. - SWOT analysis: Evaluate the strengths, weaknesses, opportunities, and threats of your business, concerning the external environment. - Scenario planning: Technique that helps create multiple plausible and alternative futures, based on different combinations of trends and uncertainties.

I've utilized this "What If...?" method numerous times, and the most successful sessions are ones where the key assumptions and key risks are explicit (in writing) and are well understood by the participants of the sessions. Without assumptions and risks, it's not effective to project alternatives nor can adjustments be made after the fact.

One way of exploring this particular approach is looking across similar verticals or geographies that are perhaps more advanced than your company. In writing Delivering the Digital Restaurant, a best selling book that describes the strategic landscape of digitization for restaurants, my co-author and I strived to give context on other markets or other verticals that were more mature than the US market. By doing this, it enabled the reader and restaurant strategists to ask the question - well what if this happens here, or what happens if this market mirrors what's happened elsewhere? Similarly, it helps address the differences between markets and then shape scenario plans that can be chosen based on a more holistic and informed perspective.

Continuous Environmental Scanning: - Engage in continuous monitoring of the external environment through techniques such as market research, competitor analysis, and staying informed about industry news and developments. Regularly scan for emerging trends, technological advancements, and changes in consumer behavior. Scenario Planning and Trend Analysis: - Utilize scenario planning and trend analysis techniques to envision different future scenarios and identify potential trends. Assess the impact of various factors such as economic, political, technological, and social changes on the industry. This proactive approach helps organizations anticipate potential trends and prepare strategic responses.

While these tools are powerful, the secret ingredient is continuous vigilance. The external environment is fluid, with new trends constantly emerging. Regularly revisiting your analyses and staying attuned to industry news and reports (Google Alerts can be handy here) ensures you're not just keeping up with trends but staying ahead of them. In conclusion, identifying trends in the external environment demands a blend of analytical rigor and forward-thinking creativity. By leveraging these techniques, you're not just charting a path for your business; you're navigating with a map that anticipates the terrain ahead. Remember, in the realm of business strategy, the best defense against the future is a good understanding of the present.

Use the power of AI to monitor your market, your customers, your competitors, your adjacent markets, and new technology. You can create a prompt to inform you proactively of any major changes in the above groups or write a prompt that integrates all the pieces of information and tells you the likely effects of the changes.

Cross-Industry Analysis: Look for trends in other industries that could eventually impact your own. Innovations often cross industry boundaries. During the pandemic, e-commerce led when most businesses were figuring out how to deliver their services digitally.

Trends come from outside the company. For that reason, and in my opinion, to analyze trends you should only use macro- or micro-environment tools, such as: - PESTEL (or STEEPLED and its variants) - 5 Porter Forces - Trend analysis - Benchmarking - ETOP (Environmental Threats and Opportunities Profile)