Understanding and Defining the Organizational Context

As mentioned earlier, the context of the organization consists of the environment in which it operates and
refers to internal and external issues relevant to the activity of the organization. As a first step in defining
the organizational context, I suggest following a course that will put you in a position to better define
your quality policy, to identify the business environment in which the organization is active, to identify
which internal and external issues in this environment influence the organization, and to understand who
the relevant interested parties are. The following is the suggested process for an effective definition of the
context of the organization (the different stages are elaborated throughout Section 4.1) (Figure 4.1):
• The definition of the context of the organization will begin with PEST (political,
economic, social, and technological factors) analysis, which will provide inputs for
the strengths, weaknesses, opportunities, and threats (SWOT) analysis.
• SWOT analysis will define inputs for the determination of the internal and external
issues.
• The determination of the internal and the external issues will help identifying
relevant interested parties.
• Identifying interested parties will assist in defining the scope of the QMS.
• The scope of the QMS will provide the foundation of the QMS.
PEST Analysis
PEST stands for political, economic, social, and technological factors that may affect the strategy of the
organization. In order to understand better the context of the organization, it is recommended to conduct a
PEST analysis—analysis of different conditions that affect the organization in the business environment
in which it is active. This analysis reviews the macro environment of an organization
PEST analysis
SWOT analysis
Identify int. and ext. issues
Identify interested parties
Define scope of the QMS
Figure 4.1 Stages in understanding the organizational context.
10 ISO 9001:2015—A Complete Guide to Quality Management Systems
and is a useful tool for understanding how a business environment behaves and affects the QMS. A
business environment will be analyzed by what it is addressing: the products, the customers’ expectations,
the activities of the organization, and so on. And these are reviewed through four different perspectives:
political, economic, social, and technological.
PEST analysis identifies external factors that might change and while changing will affect or influence
the organization and its operations. Each of the factors (political, economic, social, and technological) is
used to assess the extent of influence of the business environment on the ability of the organization to
deliver a product according to its customers’ expectations. The organization, on the other hand, cannot
influence these factors but must try to adapt to them. The outputs of PEST analysis will be used as
opportunities and threats for the later SWOT analysis, which will be discussed later. PEST analysis may
be also extended to seven or even more factors: ecological (or environmental), legislative (or legal), and
industry analysis, which uses the name PESTELI analysis. But I will concentrate on the four main factors.
The four parameters for analysis vary in significance and influence depending on the type of organization,
its business environment, and activities. For example, a software development company should give more
scale to the technology while a voluntary association in a developing country should pay more attention
to the political conditions.
Political Factors
Political factors consist of government regulations and legal factors that can affect the business
environment. Issues such as political stability, trade regulations, manufacturing regulations, safety
regulations, and employment laws will be assessed for their influence on the QMS. More example factors
are
• Ecological/environmental issues
• Current legislation
• Anticipated future legislation
• International legislation (global influences)
• Regulatory bodies and processes
• Government policies, terms, and change
• Funding, grants, and initiatives
• Market lobbying groups
• Wars and conflicts
These factors may have a significant influence on defining the processes, their resources, and their
required controls. These factors may dictate the implementation of processes and activities or may
demand product specifications. Other good examples of a factor are work grants and permissions between
different countries in different areas of the world that affect the availability or costs of human resources
and the medical industry, when a manufacturer must implement local or regional regulations in each
country or region where it is marketing its devices.
Context of the Organization 11
Economic Factors
The economic factors evaluate issues that are bound to impact on the cash flow, the business cycle, and
any critical decisions regarding the direction of the organization. Here we can find factors such as
economic growth, unemployment rate, inflation, and interest rates. Some more examples are
• National economies and trends
• General taxation issues
• Taxation to activities, products, services
• Seasonality
• Weather issues
• Market and trade cycles
• Specific sector factors
• Customer/end user drivers
• Interest and exchange rates
• International trade and monetary issues
Another good example is the big economic crisis of 2008, when many companies experienced a decline in
their business. This led to the cancelation or delay of many plans and developments for new products.
Social Factors
Social factors represent the socioeconomic environment of the markets in which the organization is
active. Social factors affect how one organization perceives its customers and the interested parties, their
needs, and expectations (clause 4.2 of the ISO 9001 Standard), and understanding the social factors help
the organization ensure meeting those needs and expectations by supplying the appropriate products and
services. Examples of social factors are
• Lifestyle trends
• Demographic trends
• Consumer attitudes and opinions
• Media views
• Changes in laws that affect social behaviors
• Image of the organization
• Consumer buying patterns
• Fashion and role models
• Major events and influences
• Buying access and trends
• Ethnic/religious factors
• Advertising and publicity
• Ethical issues
Lifestyle trends are a good example of how a change of lifestyle can change realization processes of a
product—today people shop online so that products are delivered directly to their home instead of going
out to the stores. As a result the delivery businesses are booming. This fact impels many organizations to
change their realization processes and adopt new distribution channels.
12 ISO 9001:2015—A Complete Guide to Quality Management Systems
Technological Factors
Technological factors may have a significant effect on the expectations of customers, on the products or
services offered, and thus on the processes and how products are realized. And in today’s world
technological factors are the ones that are changing most rapidly. An organization that has the ability to
detect and identify and react to these changes faster has an advantage in its market. Examples for
technological factors are
• Competing technology development
• Associated/dependent technologies
• Replacement technology/solutions
• Maturity of technology
• Information and communications
• Consumer buying mechanisms
• Technology legislation
• Innovation potential
• Technology access, licensing, patents
• Intellectual property issues
• Global communication
• Social media use
• Maturity of organizations
A good example that describes such significant technological changes is taken from the music recording
industry in the last 20 years. In the early 2000s, the industry went from analog technology to digital
technology leaving thousands of studios with irrelevant equipment. In a very short time, all studios
needed to adapt to the new technologies and purchase new digital equipment because all its customers
adapted it. That means adapting their substructures, their work environment, their purchase, the
competence of the human resources, and so on. But guess what? After 20 years of digital sound, a social
trend (social factor) has changed and today people are looking again for the warm analog sound! So
studios that were smart and kept the old technology can satisfy today’s customers who will pay a bit more
for the vintage technology. How the world is changing and then changing back again ….