Digital Transformation Series: The External Drivers of Change

In the first article of our Digital Transformation Series, we discussed the PESTEL Framework and its importance in your transformation strategy.

Your business sits inside an ever-evolving landscape of tectonic shifts. The external environment analysed through the lens of PESTEL (Politics, Economics, Society, Technology, Environment and the Legal framework) is demanding that management boards look up from short term perspectives, and step into a greater leadership role on sustaining life and generating wealth for everyone. PESTEL is a traditional tool in strategy and business development, used as a framework to shape strategy within the context of threats and opportunities. Consider your business using this 6W2H Model.

6W2H Model of a firm’s Operating Context. It illustrates the significant overlap between the firm’s internal drivers, and that of its environment.

6W2H Concept

  • What are you doing and When? – Your Company in the context of multiple horizons
  • Where are you doing that? – Political, Geo-Political, Legal, Environment
  • Why are you doing that? – Economic for your company and the country within which you operate
  • To who and for whom? –  to who are you doing it to, and for whom?
  • How are you doing it and for how much? – Technological, Legal, Environmental

The interests of a firm have always been inextricably connected to the interests of all the actors around it. The quality of the exchange of value between a company and these forces is fundamental to its continued existence. Society becomes its customers, its employees, its professional expertise and skill, its competition, its compliments, the needs that it aims to satisfy. The environment becomes its source of resources, ideas, challenges, and innovation. Its technology becomes the methods, the legal and politics the context, and economics the reward.

 The role of a firm is to effectively manage the interests of all actors on whom it relies in order to realise sustainable economic growth for its owners

Balancing Interests

Much of the interests of politics, society and the environment can be understood through the lens of the global sustainable development goals.

At the 2015 United Nations Climate Change Conference in Paris, more than 180 countries agreed to 17 Sustainable development goals to improve the planet by 2030. These goals are outlined as follows:

17 SDG Goals in the context of PESTEL. Technology underlies all of them.

Each goal comes with its own list of targets and measures and articulates the interests of the numerous actors on our global playground. You can read about the sustainable development goals here.

Although these goals are rooted in 5 parts of PESTEL, Technology plays a fundamental dual role throughout them all. Technology and science have enabled social, economic and political progress for millennia, but most significantly in the last 3 centuries. With that growth has come huge largely unanticipated environmental and social consequences. Experience has taught us that our decisions on design and deployment of new technology would result in better consequences if we took a more systemic view of their impact.

For a firm, this understanding and clarity provides 2 key ingredients to its digital transformation strategies.

a firm gains knowledge of the constraints and systemic framework within which it must work.

The firm understands the vast array of opportunities or problems to be solved, to which it can apply its innovativeness, technology, design and business models.

Let’s move on to how we can Interpret PESTEL with a checklist for your digital transformation

Political

  • Do you understand your business within your political context?
  • You can be a domestic regional actor, national, trading bloc, multinational or global actor. 
  • what drivers are influencing the political environment of your business?
  • What legislation currently exists within the context of your business and its technology, and what is likely to exist in the future?
  • What advocacy groups are strongest?
  • What is the legislative appetite of your political context toward enabling sustainable goals?
  • How are businesses incentivised to invest, debate or contribute within your political context?
  • Which of the SDG goals that impacts your firm is likely to be most relevant within your political context?
  • What opportunities do you see from the above within the context of your transformation objectives and when are they likely to occur?

Economic

  • Where is your business resident for tax purposes?
  • What is your revenue model / business model?
  • What industry do you operate in?
  • What Ecosystems do you operate in?
  • What Platforms are driving value in that Ecosystem?
  • What is the nature of competition within the context of your industry, ecosystem and platforms?
  • What Markets are served, over served, or underserved?
  • What barriers exist in your marketplace?
  • What initiatives are opening your marketplace?
  • What are the dominant social behaviours in your marketplace?
  • What are the emerging social behaviours in your marketplace?
  • What opportunities do you see from the above within the context of your transformation objectives and when are they likely to occur?

Social

  • What are the most significant social challenges within your context?
  • What are the important Social movements likely to gain prominence?
  • How do these impact your business?
  • What is your current social contract within the context of where you operate?
  • What values are important to your consumers?
  • What values are important to your employees?
  • What values are important to your suppliers and partners?
  • What capabilities do you have or outsource to understanding societal needs and drivers?
  • What measures do you currently have in place around your social actions?
  • What opportunities and risk do you see from the above, and how can it reshape your transformation priorities?

Technological

  • What technologies currently drive your business?
  • What technologies are available within your industry, eco-system and marketplace?
  • What development trends are prevalent within your industry and marketplace?
  • What enablers to further development exist within your operating context?
  • What are the main internal challenges technology addresses for you?
  • What are the main external challenges technology addresses within your operating environment?
  • Success in transforming to sustainable energy and other initiatives can result in the stranding of some capital investments based on old and less efficient technologies. Where does your business currently stand on this risk?
  • The increasing capability of machines; the growth of artificial intelligence. Prominent scientist believe that we are still many years from human level AI; but that now may be the time to establish clear rules and constraints within which AI and humans will coexist. What exposure and role does your organisation play in this debate?
  • What opportunities and risk do you expect from the above and how can you use it to reshape your priorities

Environmental

  • What is your carbon  footprint, and what are your amibitions?
  • What is your biodiversity score, and what are your ambitions?
  • What are the attitudes of the society and governments in your operational context toward  these ambitions?
  • What technologies currrently available to you can be utilised to deliver upon these objectives?
  • Non-Agreement to the SDG goals. 187 out of 197 countries have ratified the Paris Agreement of COP21, and the United States is due to withdraw by January 2020. The countries who are not part of this accord now or in the future, possibly represent threats to the achievement of these goals, and as such their actions and their interests will need to be understood beyond what was agreed to here. Those without any form of ratification as at 08/11/2019 include Iraq, Iran, Turkey, Yemen, Lebanon, Libya, Kyrgyzstan, Eritrea, Angola, South Sudan (UN.ORG, n.d.). What strategies have you considered for these countries and how might these impact on others for the future?
  • How can you shape this context to priorities the most imporant elements in your digital transformation Journey?

Legal

  • What is the legal framework within your operational context?
  • What levels of protections exist for your business’s right to operate and or compete?
  • What technological developments are influencing and reshaping traditional legal strategies within your context?
  • In what ways is technology reshaping legal practices?
  • How can you leverage these answers to create opportunities and avoid risks for your business?

Conclusion

The external environment is a rich source of evolving opportunity and constraints. The firm that can successfully manage these interests as relevant to their scope and scale, will design better more durable digital transformation strategies. Combining digital transformation with a holistic review of your business strategy and in consideration of global sustainable development goals, will establish your firm as a pioneer, thought leader, and designer of the future. Follow our series and future articles to learn how to tie this into the internal view of the firm and your SWOT analysis.

Article Collaborators

Katherine Byam : Founder & CEO @ Dieple Consulting & Training Limited
Christophe Nicault : CTO @ Dieple Consulting & Training Limited
Krishna Patel: Business Transformation Director @ Vedanta Enterprises

Bibliography

UN.ORG. (n.d.). Retrieved from UN.ORG: https://treaties.un.org/Pages/ViewDetails.aspx?src=TREATY&mtdsg_no=XXVII-7-d&chapter=27&clang=_en.

UN.ORG. (n.d.). Retrieved from UN.ORG: https://www.un.org/sustainabledevelopment/development-agenda/

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