3.3 Context

5Cs: Applying Context for Business Planning

Context refers to the external microenvironment in which a business operates. This is everything outside the company’s control, but which may impact the company’s business or the lives and businesses of the company’s customers.

Context is the broadest external view of what is going on in a particular market, such as in the New Zealand market. Most people are aware of the important current trends happening in the market where they live. For example, most people know that “inflation is making things more expensive”, or “crime is on the increase”, or “children are becoming more technologically savvy.”

For business planning, companies need to synthesise these many, many trends into key elements that could well come to affect the environment in which the business operates.

Important Aspects of Context

There are a lot of things happening all the time, but not all of them are relevant to specific businesses. At the same time, there are some major events, such as Covid or wars, that happened in the recent past or far away from a particular market, that may no longer have a direct impact on a business.

For this reason, when writing the key components of context, you should consider three things:

1. Context refers to the external macroenvironment

When writing about the context, you should write about trends that are external to the company’s business. This means that you will be writing about trends in the economy, society and culture, not trends happening in the specific business.

In most cases, you will be looking at trends that affect the industry in which a business operates – i.e. you are taking a broad view of what is happening and looking at trends that will affect all businesses in the same industry, of which your company is just one of them.

Context Change: A change in taxes

An upcoming change of government may mean lower taxes for the wealthier segments of society, providing more spending power for people with higher incomes and boosting markets such as expensive cars, real estate and luxury travel^[1]. The same change may also mean proportionally higher costs of anyone on lower incomes, which may mean changes in buying behaviour among mass market consumers.

Companies do not have any control over tax policy, but both the company and their customers will be affected by it. It is, therefore, an example of an important external trend. The same would be true for any government policy that affects a particular industry.

2. Context should focus on future change

There may have been some major events in the recent past or even events that are happening right now, but for planning purposes, companies need to focus on what will happen in the future. The future is impossible to predict accurately, but by attempting to make some general predictions, companies can be prepared for key changes. In particular, businesses are interested in what will happen over the next 12 months, although sometimes companies try to look much further into the future.

For this reason, when writing about context, you should focus on trends that are happening now and which are likely to continue, accelerate or decline in the future. You are always trying to think of what will most likely happen in the future. So, for example, discussing the impact of Covid, which happened in the past, is no longer important for context planning.

Context Change: Electric Planes

As consumers become increasingly aware and concerned about global warming and climate change, industries that are known polluters are likely to be impacted – and corresponding sub-industries would also feel the impact.

In 2024, air travel is almost entirely dependent on fossil fuels and all air travel and air freight is polluting. While there are no alternatives, people and goods will continue to travel by air, but as consumers become increasingly concerned, some will choose not to use airlines.

At the same time, when some more innovative air transport providers come up with less polluting aircraft, they could quickly cause consumer demand to shift.^[2].

Such a change would affect airlines, air freight providers, travel agencies, tourist industries, and many others.

3. Context needs to be relevant to the industry in which the company operates

Finally, the discussion of context must be literally in context. There are many trends happening all the time, but not all of them will affect a particular industry. When writing about context, you should attempt to include trends and elements that are likely to affect the industry in which a business operates, but you should not include (or not provide detail) for trends that are unlikely to impact the industry. In other words, you should include only relevant trends.

Context Change: Scrapping of Generational Smoking Ban

of individual politics, the New Zealand government received worldwide acclaim for introducing the world’s first law that would affecting ban future generations from smoking.^[3].

This would have an enormous future impact on any business providing health care, and on the revenues of cigarette manufacturers and retailers. It may have had an indirect impact on exercise and sports companies too. But it may have had relatively no affect (or at least no direct affect) on many other businesses such as restaurants (where smoking is already prohibited), car sales, computer services and so on. A business would only include this point if it were directly affected and so the trend was relevant to its own business.

The recent reversal of this policy will also have an impact on some businesses.^[4]