Some organisations are struggling with new concepts to the standard such as Context of the Organisation and do not see how it fits into their management system, they are often leaving it until last but really it should be one of the first things they do when structuring their new system along with Scope, Interested Parties and Risks and Opportunities.
The standard is still based around the Plan, Do, Check and Act framework and the clauses at the front of the standard; Context of the Organisation, Interested Parties, Risk are all in the planning stage and should be done at the start of your system structure. Without identifying the context of the organisation, you will not be able to structure your management system correctly and effectively as it is there to identify the business and what it is trying to achieve.
The concept of Context of the Organisation is not new like most of the requirements you see in standards, they are old concepts and theories with a new twist so it might help to go through some of the old management techniques that we have been through in education or early career stages.
The Context of the Organisation is there to define the business; to not only help the organisation define what they are trying to achieve and for whom, but also to focus the system development on the key areas of the business.
There is a note within the clause of the standard which gives some guidance to what you should be defining and if we take those notes it will highlight one possible method for identifying the Context which could be familiar to a lot of people, or at least allow for a simple example or internet search to get a better idea of what you should be considering.
“NOTE 2 Understanding the external context can be facilitated by considering issues arising from legal,
technological, competitive, market, cultural, social and economic environments, whether international, national, regional or local.”
If we take some of the above items and display them as below it reflects what is known as a PEST/PESTEL/PESTLE Analysis:
The PEST/PESTLE/PESTEL analysis doesn’t cover all the notes but it provides a structure and understanding of the approach you could take. You can expand the above and come up with your own acronym but if we explore the PEST/PESTLE/PESTEL concept a little further it will help with the understanding and appreciation of what the standard is asking you to do.
A PEST/PESTLE/PESTEL analysis is an old marketing tool which helps to identify the market the business is currently exposed to, this is sometimes referred to as Macro-environmental factors. These factors have a current or future impact on the business and are to be understood and defined to structure the focus of the business or in the case of ISO 9001:2015, the system to control these factors.
Top management would be expected to know what factors impact the business so that the auditors can determine if they have a grasp of the business and have taken these factors into consideration when creating and developing the management system appropriate to the business. This is not a difficult area for organisations to demonstrate and in our experience most organisations have a very good awareness of what these factors are and what they can be in the future. The concept may sound daunting but it’s relatively easy to demonstrate compliance if you understand what the standard is trying to achieve.
We can explore each of the factors further to help the understanding of what these factors mean and why they need to be determined by the organisation.
Political factors are the elements that are controlled by governments which can impact the business, this can not only be the government associated with the location of the organisation but also the location of where they do business or their customers location. This can include government policies, foreign trade policy, tax policy, labour laws and trade restrictions etc. The hot topics now are Brexit within the UK and organisations would be expected to understand how the Brexit process is going to impact the business, this may be in a positive or negative way. So why is this important to an organisation developing their ISO management system? Let’s assume that an organisation exports to Europe from the UK, Brexit is going to have an impact; possibly in a positive way, but this could shape the organisation’s focus on where the business is going over the next few years. The exports to Europe could reduce for the organisation so maybe they need to start looking at other countries or pulling out of the European market altogether? Maybe the products they supply are governed by EU laws, what laws will they need to comply with in future? Maybe they need to identify new laws for other countries and focus on those instead? These are all decisions Top Management should already have considered or started to investigate and 99% of the time when the question is asked of Top Management during audits they have the answers. Auditors are not there to agree or disagree with your point of view, they just want to know that you have a point of view, have considered the impacts and are looking at ways of exploiting or mitigating the impacts Brexit will have on their business.
The economic factors are monetary/economy related and sometimes reference macro and micro economic factors. They could be economic growth, interest rates, inflation, exchange rates etc. again, staying on the Brexit topic, the impact the decision has had on the exchange rate has been significant. How is the exchange rate impacting your business? If you do not trade internationally then possibly there is no impact but even if you buy products from overseas organisations; directly or indirectly then you will be impacted, maybe not straight away, but we have started to see the cost of goods increase. Even food in supermarkets has started to increase, you may not think food prices will impact your business but if food costs go up, so does inflation and in turn this could increase the salary you need to pay employees. How is this going to impact the business? Can you sustain a 4% increase in salaries? On the other side of the coin, if you are exporting outside of Europe rather than importing you would have suddenly become cheaper than some of your international competitors so maybe there is a market opportunity that you can exploit. If the pound has dropped 10% you have become 10% cheaper than someone in the USA .
Social factors are considerations to beliefs and attributes of the population and the general social considerations of the market you operate within. You could also use this element for internal reviews to determine social considerations of staff members. Some examples of these factors are population growth, age distribution, demographics, views on health, employment and culture. Let’s take age distribution and how that can impact a business and a management system structure. Maybe the products or services you provide are aimed at the younger generation of between 16 and 25 years of age. You market your products and services at that age group and have historically done marketing via magazines, trade shows and conventional marketing i.e.picking up the telephone. This form of marketing is probably not going to generate many results and the younger generation use social media platforms to be aware of products and services on the market. Is this something your organisation is shifting attention to in order to increase sales and remain in business? Maybe you need to redesign products themselves which are now manufactured from sustainable materials as your customer base is now more aware of these elements? If so have we got a design process being started to focus on new products and materials? There are many questions organisations need to ask themselves and be aware of as this can influence the structure and direction of the management system and business.
We all know that Technology changes at a rapid rate and that rate is increasing year on year. If you don’t stay on top of new technologies you are quickly left behind. Technology can impact both how you market products, and what products you market. Maybe you are selling old telephones that you turn the dial on, don’t think there are many people who would still sell those so it’s an extreme case but demonstrates the thinking. If that organisation does not start to offer new phone technologies then there is a good chance they will not survive much longer. On the other hand, there is possibly a market for older technologies for collectors or film sets etc. so Technological advances can work both ways. Technology can also impact how an organisation operates; you could possibly need to embrace new technologies to sell your products (social media etc.) or new machinery and equipment will allow you to reduce the costs for manufacturing parts and become more competitive in the market.
Environmental factors may seem unusual when considering a Quality Management System but Environmental factors are an increasing concern for many people and customers, they will be considered. Environmental factors will take into consideration your ethical behaviors; sustainable sourcing which are prevalent in many industries now and even when Certification Bodies are assigning auditors they are considering the locations of auditors to reduce the environmental impact when reaching clients. Governments may also introduce new climate targets such as the packaging regulations, RoHS compliance and Carbon Footprint reductions. These government changes may not only appear in the Political area of a PEST/PESTLE/PESTEL analysis but also the Environmental section. Are your products or services more environmentally friendly than your competitors, is this something you could exploit as a business?
Finally, we come to Legal factors, these are factors that can be internal or external and can range from health and safety laws to advertising laws. Organisations need to know and understand what legal factors may impact and influence the business, this could also be of greater importance when trading on a global level. With Brexit now taking place there is a high chance that over time legal requirements of organisations trading internationally will change and require businesses to change and adapt to those changes. Fully understanding the legal factors will help to give confidence in the business controls, but can also help to ensure the business stays legally compliant.
There is nothing within the standard that states that a PEST/PESTLE/PESTEL analysis is required, there are also other options and tools available to organisations to help them to identify the context of the organisation. Whatever tool or method you use needs to be suitable for you as an organisation, there is also no requirement to document all the above but you will be questioned about how you have identified and more importantly understood the context of the organisation. There are no right or wrong answers to the context of the organisation as each business is different, will have different core values and be focusing on different markets.
By defining the context fully, organisations will then be able to structure their management system effectively and set the business on a clear path to effective management along with the other new elements of Scope and Boundaries, Interested Parties and Risk Management.
Auva are holding a training event on understanding context of the organisation which is free to attend.