This is a brief explanation of context of the organization. For further information, contact me at the e-mail address provided at the end of the article.
In the new generation management system standards we find clause 4- Context of the organization. Clause 4.1 is titled Understanding the organization and its context, while clause 4.2 is titled Understanding the needs and expectations of interested parties. (ISO 45001:2018 includes workers here as well).
The question is: Why is clause 4 included in the standards? Why does ISO 9001:2015 specifically refer to strategic direction in clause 4.1? I think it has to do with the sustainability of the organization. In clause 6.1 of the standards, Actions to address risks and opportunities , we are referred to clauses 4.1 and 4.2. Risks and opportunities are to a large degree identified during the context analysis in clause 4.
I have found invaluable information in training material of the Harvard Extension School that was developed by Robert Pojasec. The material goes a long way to explain context, and how context fits into organizational sustainability and the organizational management systems.
According to Robert, there is a link between context and sustainability of the organization. Organizations normally operate within a defined structure and have a socialization process that is determined by the governance of each individual organization. To understand context it is necessary to know how and where individuals participate in the organization. This is also reflected in ISO 26000 which addresses social responsibility of the organization.
Sustainability cannot be applied in the same way in every organization. Organizations are different from each other in many ways, even when organizations are in the same industry sector. Governance is different in every organization.
Sustainability has three responsibilities, pillars, elements or components. These are economic, environmental and social sustainability. They apply differently in individual organizations. What is important is to view each organization in the context in which it operates. Corporate en employee responsibilities must address the various operational risks posed by the context of the organization.
Understanding context
Context involves the operating environment of an organization. It exists both inside and outside the organization. Context needs to be understood before strategic planning can be viably done. And, yes, the standards do refer to strategic planning and direction, in various clauses of each standard.
We need to define the external and internal factors and issues that organizations need to consider when they manage risk.
External issues include:
- Outside stakeholders (interested parties in the ISO standards)
- Local operating environment
- External factors that may influence the selection of organizational goals, objectives and targets, or its ability to achieve these.
Internal issues include:
- Internal stakeholders of interested parties
- The organization’s approach to governance
- Contractual relationships with customers (and others)
- Organizational capabilities
- Culture of the organization
Why does context matter?
Understanding the organization and its context is important because:
- It determines the influence and priority of stakeholders or interested parties
- It helps to determine how readily sustainability programs can be adopted
- It determines whether sustainability programs can indeed help the organization to get where it is supposed to be to address its social license to operate (The King report on corporate governance explains that it is society that allows the organization to operate)
If the customers or principle stakeholders come from a different context. It may influence organizational goals and other operating requirements, irrespective of the type of organization. A good example is the application of Broad Bases Black Economic Empowerment (BBBEE) in South Africa, which is a political initiative of the government to promote an ideological agenda.
The performance of a sustainability program must also be placed in context. An example is a South African company that implemented an environmental sustainability program to minimize its environmental impact through the use of electricity, which is mainly generated in coal-fired power stations. They were concerned about the use of scarce non-renewable resources (coal), and the pollution associated with the power stations. A large number of solar panels were installed, which made the company almost independent from their electricity supplier (ESCOM power, provided through the local municipality). One would assume that they have achieved their goal in terms of minimizing their environmental impact. That is indeed so, but there was a negative impact, which needs to be seen in context. The municipality from which they were purchasing the ESCOM provided electricity, started to suffer a major financial loss because of the loss of income from who was, up to that point, one of their largest customers in terms of electricity sales. This led to a social impact because the municipality had less income available that could be spent on service provision and social upliftment programs. The company had to explore other initiatives to off-set these negative impacts.
Addressing context
The results of the context analysis will form the foundation of the management system that will be developed. Context determines goals and objectives for the organization. The management system focuses on the achievement of the goals and objectives by addressing and managing risks and opportunities, discovered during the context analysis (remember that context changes over time, and sometimes rapidly, so it must be regularly analyzed).
Internal context
Internal context looks at issues internal to the organization that can affect it as far as the achievement of goals and objectives are concerned.
- Quality (financial) goals and objectives
- Environmental goals and objectives
- Social goals and objectives (including health and safety, see ISO 26000)
Internal context helps to identify strengths and weaknesses inside the organization. Examples of these issues include:
- Product and service offerings
- Governance, organizational structures, roles, responsibilities and accountabilities
- Regulatory requirements
- Policies, goals and objectives and strategies employed to achieve them
- Assets of the organization
- Capabilities of the organization
- Organizational culture
- Etc
Internal context includes anything and everything within the organization that may influence the way it manages its internal risks and opportunities.
External context
The external context includes the micro- and macro environments that the organization operates in.
The micro-environment consists of the environment of the organization’s immediate operations and how it affects its performance and decision making, and how the operations affects this environment. Examples are:
- Customers
- Suppliers
- Investors
- Media
- Competitors
- Etc
The macro-environment is further removed from the organization’s operation, but it still has a profound effect on its ability to perform successfully. Examples are:
- Political influences
- Economic influences
- Socio-cultural influences
- Technology influences
- Legal influences
- Environmental influences (think climate change, resource depletion, natural disasters, etc)
- Etc
What do we do with the analysis results?
We use the outputs from the context analysis to identify strengths and weakness internal to the organization, and opportunities and threats outside the organization – in other words, do a SWOT analysis. The outputs form the SWOT analysis are used to determine risks and opportunities, and for setting goals and objectives and to determine strategy for achievement of the goals and objectives. We use this to address the risks and opportunities that we have identified.
Context helps the organization to understand its key risks and challenges (Clause 6.1 of the standards). This is then used to establish programs for managing the risks and opportunities (Clause 6.1) and to set objectives with their associated programs (Clause 6.2 of the standards). It helps the organization to really understand itself, and to do viable planning around this understanding. Examples are:
- The relative size of the organization in terms of the bigger picture
- Growth in the specific market sector
- Etc
Context helps the organization to identify products and services, competencies and performance attributes that are unique to a successful organization and those that sets it apart from other organizations. It helps the organization to preserve its competitive edge, and helps to identify those things that it must develop to sustain itself into the future.
I trust that this article will be helpful. The specific techniques and methodologies that can be used are not covered here (such as PESTLE analysis, Porter’s five forces analysis, resource audit, MOST analysis, etc).
Proper context analysis helps the organization to plan for sustainability into the future. There are numerous ISO standards available to guide organizations in this process, which we should discuss in a later article!
Please feel free to e-mail me at koosgouws10@gmail.com with your comments. Also feel free to visit our website at www.sheqmanagementsystem.co.za, or the alternative website at www.sheq-management-systems.webnode.com to read some of our older interesting posts.
Koos
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