No business is an island. Virtually every company evolves in the context of a mix of environmental factors, ranging from economic to legal influences. Because these environmental factors change over time, a business must adapt to new circumstances by adjusting its strategic planning. The more flexible a company's strategy, the better it will be able to meet these challenges.
Economic environment is an important variable affecting a company's strategic planning. During affluent economic times, consumers have more discretionary income and are more likely to spend money on luxury items. During tough economic times, customers have less money and are more likely to spend on necessities and small indulgences. In addition, a difficult economic environment makes it difficult for businesses to borrow money, affecting expansion possibilities. During an economic downturn, businesses should adjust strategic planning to offer products and services appropriate to the time, and meet cash flow challenges through sales revenue whenever possible.
The regulatory environment in which a company operates can have significant consequences for its operations and strategic planning. A food business must adjust its operations to address current health department regulations and a pharmaceutical company must comply with all relevant regulations regarding testing and marketing its products. When regulations change, a company must stay abreast of developments and adjust strategic planning so its operations are safe and compliant.
A company's physical environment can have significant consequences for its strategic planning. Physical environment for a business covers everything from its existing location to weather patterns that affect production and sales. A farm that experiences a change in weather patterns can shift its strategic planning by introducing new crops that are suitable for current conditions. A retail business might experience a change in its physical environment because of major construction affecting traffic patterns outside its doors, and it might adapt by reaching out more proactively to customers who arrive on foot.
Customer Perception Environment
Businesses also confront environmental changes as a result of customer perceptions that pertain to their overall industries. A restaurant that focuses on hamburgers might run into difficulties as a result of food safety scares related to tainted meat, and a nuclear power plant might experience image problems as a result of a disaster in another part of the world. Strategic planning to deal with changes in customer perceptions should focus on adjusting company practices and marketing efforts to address current customer concerns and biases.