Management. Internal and external environment of the organization: concept, characteristics and examples

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

The external and internal environment of an organization in management depends on a combination of economic factors. This is the ability to compete, the profitability of the company, the performance indicators of the adopted strategy and the conditions for further development. If the industry allows you to enter new markets (especially foreign ones), the external environment requires strategic planning and forecasting.

Internal environment: general concepts

The internal environment of an organization includes the events, factors, people, systems, structures and conditions within the organization that are generally under the control of the company. The mission statement and leadership style are also reinforcing factors. They are usually related to the internal environment of the organization in management. And the external environment will depend on the actions of the previous one.

Thus, it is the internal that determines organizational activities, decisions, behavior and attitudes of employees. Changes in leadership style, organizational mission, or culture can have a significant impact on a company in terms ofoverall.

Environment and its characteristics

Some factors originate outside the company but cause change within the company. Basically, the following objects and concepts are outside the control of any organization:

• Customers.
• Competition.
• Economy.
• Technology.
• Political and social conditions.

The external environment of a management organization can have a significant impact on its internal environment, for example, its current operations, growth and long-term sustainability.

Ignoring external forces can lead to error. It is imperative that managers constantly monitor and adapt to the external environment, working to make proactive changes early rather than adopting a reactive approach that can lead to a completely different result.

SWOT analysis

The internal and external environment of a management organization stimulates managers' reactions to circumstances and changes. They rely on "scan" data. Process means monitoring both environments for early signs of what might need to be changed. To address potential opportunities or threats, adjustments must be made to identify the company's strengths and address its weaknesses.

One common type of environmental scan is the SWOT analysis, which specifically looks at the strengths, weaknesses, opportunities, and threats of internal and externalorganization environment. In short, management comes down to analyzing everything that happens around the company and in it, as well as in the work of personnel and employee satisfaction with their position.

The manager will begin to analyze the internal environment, studying inefficiencies within the organization. Then he must consider the external environment and things that happen outside the organization but affect its successful existence.

Factors affecting profitability

SWOT-analysis recommends analyzing the components that can affect the performance of the company. For each of the factors, there are several circumstances that can change the external and internal environment of the management organization. Examples of this are the marketing environment. It is a combination of external and internal factors and forces that affect a company's ability to connect with and serve its customers.

Business Marketing Environment

The indoor environment varies by company and includes owners, workers, machines, materials, etc. The external is additionally divided into two components: micro and macro.

1. Micro or task environment is also business specific. It consists of the factors involved in the production, distribution and promotion of the offer.
2. A macro or broad environment includes concepts that affect society as a whole.

The wide medium has six components:

• Demographic.
• Economic.
• Physical.
• Technological.
• Political and legal.
• Socio-cultural.

A company's marketing environment is comprised of actors and parties outside of marketing that influence its ability to manage it in terms of building and maintaining successful relationships with target customers.(Philip Kotler)

External Relationship Adjustment Principle 1 - Competition

If your firm is not a monopolist, you will have to fight competition. When you start a business and enter the market with your product, you are fighting against established, more experienced companies in the same industry.

Once you've been successful, you'll have to deal with new firms trying to steal your customers or compete with you. It can strengthen positions or break you. For example, competing with Amazon, many smaller stores closed. If the factors of the external and internal environment of the organization were discovered earlier, everyone could become competitive.

Adjusting Principles 2 - Public Policy Changes

Changes in government policy can have a huge impact on businesses. The tobacco industry is a classic example. The external and internal environments of the organization of cigarette companies since the 1950s have been changed by government influence. They were required to put warning labels on their products, they lost the right to advertise on television. In addition, there are fewer and fewer places left for smokers,where they can smoke legally.

The proportion of smokers in Russia has almost halved, which has had a corresponding impact on industry revenues. Considering the concept of the external and internal environment of the organization, it should be said that the first entails changes in the second. There are independent circumstances that cannot be "beaten".

Internal Development Factor 1 - Employees

If you are not a one-man entrepreneur, your employees are an important part of your company's internal environment. They must do a good job. Managers must be able to handle lower-level employees and control other parts of the internal environment.

Even if all employees are capable and talented, internal politics and conflict can destroy a good company. These factors of the external and internal environment of the organization need to be identified. This is one of the features of the personnel policy of the enterprise.

Internal Factor 2 - Finance

Even with big savings, lack of funds can be the deciding factor in whether a firm survives or not. When financial resources are too limited, it affects the number of people you can hire, the quality of the equipment, and the effectiveness of the advertising you need to organize.

If there are no such difficulties, there is more flexibility for business development and expansion. Under such conditions, it is easier to survive a crisis or unplanned inflation.

Methods of the internal and external environment of the organization

When all the factors are established, you need to move on to the methods of analyzing strengths and weaknesses. This is recommended by the SWOT system. The final indicators obtained will be used in the preparation of strategic planning, after which they will become the optimal platform for creating a tactical expansion of the enterprise.

SNW-analysis differs from SWOT in a more advanced system of tactics that focuses on strengths. The first is used for developed countries, where the company itself is an important principle of building a business. The second analysis is used in less developed countries, where business may cease to exist due to the influence of the state.

There are also two different analyzes (STEP and PEST) aimed at the activities of the state and at the same time small businesses.

1. STEP-analysis variant is used in the USA, Russia, Africa and countries with a large territory. China uses a different method of analysis, since some areas there are demarcated on a legal basis. The technological factor is prioritized as an indicator of progress.
2. PEST analysis is used to analyze the external characteristics of a business. It touches upon factors such as the politics and economics of world leaders. It is on them that the development of a "small" country depends.

To understand the system of macroeconomic impact, you need to study the economy of other states.

Organization of environment management

Change management can be defined as a systems approachto the transformation of processes, systems, structures, technologies and values in order to correct the shortcomings and inconsistencies in the organization. This entails a series of activities that help participants move from their current way of working to their intended way.

In business, change refers to any change in the traditional way of working. It could be an addition, change to a policy, process, method, or anything else that could directly or indirectly affect the organization.

The reasons for making changes can be natural (ie survival, growth or expansion). They can also be reactive, that is, adapt to a changing environment. Consider some of them:

• Change management involves careful planning and implementation of strategies while consulting and involving the people affected by the change. It helps the organization to implement, manage and track change and empowers members of the organization to embrace change in the existing environment.
• Recognizing the need. Only by determining what will be improved (i.e. process, product, technology, method). This requires a team that will initiate the process and lead.
• The urgency to make employees and other members of the organization realize the importance of change and its benefits. This is an important step that should be considered and brought to the attention of all stakeholders. In addition, parties with alternative ideas should be given an equal opportunity to present their views, opinions andproposals on the same issue.
• Barriers. Resistance to change is one of the main barriers to change management. Sometimes leadership can only get support from a few people, and others may be resistant to change. Thus, in order to effectively implement a change strategy, barriers must be removed in a timely manner.
• Awareness. Change must begin with a vision for the future as it clarifies the future goals of the organization to stakeholders. Therefore, it is necessary to create and communicate this vision to affected parties so that they know why this is happening.

One of the best tactics for boosting team interest and morale is to create small, easily achievable milestones to boost employee morale and satisfaction. But long-term goals should not be ignored, since it is they that affect the adoption of changes in the external and internal environment of the enterprise organization. Changes often fail because they are prematurely declared successful.

They must be implemented properly. We need to wait a while to identify gaps or shortcomings.

Why do we need PEST analysis

This is a tool designed to identify aspects of the external environment. They can influence the organization's strategy. Managing the internal and external environment is impossible without a strategy and the use of the same format on a par with competitors.

STEP-analysis helps to get a goodresult if different form factor estimates are periodically applied. Fixed indicators of dynamic growth that affect the prospects for business development. The result is a model of the company's response to a new strategy that can adapt the company to the totality of the identified factors in the macro environment.

Characteristics of a good company organization

Employees must be trained to successfully integrate changes into their daily routine. Change monitoring should support an ongoing mechanism in place to monitor whether changes are implemented correctly.

Change management refers to the process of developing and implementing corporate strategies, plans and practices that emerge from the various internal and external environments of an organization. A competency characteristic refers to the set of exceptional skills, strategies, moves, or technologies that distinguish between a leader and an average player in an industry. It is a vital source of competitive advantage for a firm over its competitors.