Principles Of Management: Internal And External Factors Impacting Business Operating Environments

The Impact of Internal and External Factors on the Business Operating Environment

Discuss about the Principles of Management.

In present scenario, the organizations are not solely depended upon the organizational strategies or policies but there are several other factors which impact the organizational performance. The business operating environment has a direct linkage with the two major factors i.e. the internal factors and the external factors. The business organizations analyze the impact of these factors through two major analytical tools. For understanding the internal factor the business organizations takes use of SWOT analysis, benchmarking, rating scale etc. And to analyzethe impact of external factors the business organization takes use of PESTLE analysis, Porter five forces etc. all these tools are used to evaluate the impact of the factors and to make the organization prepare to cope up with the impact of these factors (Sheng, Zhou and Li, 2011).

Every business organizations have a diverse and unique operating environment. There are numerous external and internal factors which affects the growth, performance and development of the organization. In the recent years there has been posed great emphasis upon the internal and the external factors of an organization as there are several other things which depends upon these factors. The formulation of business strategies, the implementation of plans, the expansion strategies etc. are few such activities which are depended upon the vitality of the internal and external factors. There are number of internal factors in an organization such as culture, financial issues, employee morale and management change (Peng, Wang and Jiang, 2008).Any organization or business can have a change in management at any point of time. The change in management will impact the business operating environment in a way such as the employees can feel disappointed with the change in manager. Other impacts could be change consumption of time to get adjusted with the new managerial authorities. This will result into ineffective communication between the manger and the employees. Another internal factor such as change in technology used in operating business can also impact the business operating environment. It is not necessary that each and every employee will adjust and can easily take use of the new and innovative technologies. This will keep the work on halt due to lack of skills in usinginnovative technologies. Another internal factor is employee morale, it is necessary for the businesses to maintain the employee morale. This internal factor directly impacts the productivity and efficiency of the organization. If the morale of the employees is down they will not be able to deliver their best which will result into inefficient productivity and ultimately the organization has to suffer. Financial resources or financial issue is another internal factor which impacts the operating business environment (Vega-Jurado, et al., 2008). The growth and effective functioning of any business depends upon the financial stability of that organization. If the financial condition is not strong then it may result into decline of the growth of that business as the organization does not possess funds to expand its business or to take operational risks. Thus it will weaken the position and effective functioning of any business organization. 

Organizational Adaptation Theory and Organizational Interpretation Process

External factors are the one on which the business has a very little or no control over their occurrence and supervision. The external factors comprises of market influences, competitive situation, technological aspects, geographical, political, economic, legal and social factors. In all the countries, there is an economic cycle which is experienced by the economies. There are several economic boom and economic recessions in these cycles. When there is an economic boom it impacts the business organizations in a positive manner as there is increased level of employment, the organization can easily raise the prices or their products and services as the economy is in boom and the individuals are able to give higher pr ices. Thus the prices and profits get impacted with the change in economic factor. On contrary the recession phase de creases the profits and business of the organization as people have lower purchasing power. Hence the organizations are required to reduce theirprices (Epstein and Buhovac, 2014).The employment rate also decreases as the business does not recruit any further staff because of recession. The second main external factor is the geographical factor which has a direct impact over the business operating environment. The geographical factor has number of influences over the business. For example, if any business exists in Australia, then the country is located in the region of Asia-pacific and so it is vital that as per the geographical locations, the economic conditions of the nearby regions impact the working of the business. For instance, if China is performing well then is beneficial for Australia as there will be effective trade of services and goods among both the countries. As well as in the Asia-pacific region there are several companies located based on Australia. Thus it is vital that the economic conditions must be appropriate of those regions. Therefore all the external factors impact the organizational business in one or another way (Xue, Liang and Boulton, 2008).

The impact of the external factors can be understood with a theory from business management i.e. organizational adaptation theory. This theory can b e explained as the organizations are required to transform or modify their procedures and structures so that they can easily cope up with the dynamic business environment and the external factors (Purna, 2017).These may include shift in an economy, any new laws and regulations, technological innovation etc. the organizations must be prepared to adapt the changes which are the result of the external factors. The primary purpose of this theory is to improve the organizational processes which are inefficient and correct the imbalances prevailing in the organizational operations. The organizational adaption can be reactive in nature and may arrive after a sudden change in the external factors. The mangers are required to implement a change in the culture, procedures and strategies to sustain the impact of the external factors (Eisenhardt and Graebner, 2007). The organizational adaptation theory primarily refers to a modification in the external environment factors which dictates modification in a group of organizational businesses instead of a single ora particular business organization to adapt. One of the examples of organizational adaptation is the banks. All the banking organizations adapt the changes and adjust themselves to any new banking regulation passed by the Governments. This may be in terms of dealing with the customers, managing accounts etc. thus all the organization take appropriate steps to adapt the change obtained sue to the external factors (Weiner, 2009).The literature over the theory of organizational adaptation proposes that there are changes which occur in the business overtime. And to adapt these changes there is a need of strategic re-organization of the business which includes re-administration or re-engineering. But the re-organization also differs in nature and all sorts of re-organizations are not equally important (Elbashir, Collier and Davern, 2008). It is the theory with a perspective of adaptation as a changing process, with the aspects related to the environmental determinism or the strategic choice. On argument which exists in the organization adaptation theory is that whether the adaptation is derived environmentally or managerially. To analyze this, several theorists have approached the theory of organizational adaptation by their individual point of view (Nonaka and Von Krogh, 2009).

Conclusion

There is one more model from the business management view that is the organizational interpretation process. In this concept, it has been viewed and analyzed that in what manner the organizations act, interpret and approach on the change in the factors which surrounds the organization. There are primarily three stages in this process i.e. scanning, interpretation and learning (Park, 2007).First the business organization analyzes the impact of external factor through scanning. Secondlythe positive as well as negative implications of these fact ors are analyses through interpretation and finally the organization implementstrategies to handle the impact of these factors which is performed in the learning phase. Thus with the help of this concept the organizations prepare themselves for getting impacted with the effect of external factors (Schreyögg and Kliesch?Eberl, 2007).

Conclusion

From this essay it can be concluded that the external and the internal factors are highly vital for the growth, development and effective functioning of a business organization. These factors pose a direct impact over the organizational business and operating environment. The theory of organizational adaptation explains the manner in which the organizations are required to adapt the changes. And the concept of organizational interpretation process is use to analyze the impact of these in three major phases. Thus it is necessary that the organization must analyzeand evaluate these factors overtime so that they may not impact the business in an in-depth manner. By analyzing these on a continuous basis will help the business organization in targeting the opportunities and saving itself from various threats.

References

Eisenhardt, K.M. and Graebner, M.E., 2007. Theory building from cases: Opportunities and challenges. Academy of management journal, 50(1), pp.25-32.

Elbashir, M.Z., Collier, P.A. and Davern, M.J., 2008. Measuring the effects of business intelligence systems: The relationship between business process and organizational performance. International Journal of Accounting Information Systems, 9(3), pp.135-153.

Epstein, M.J. and Buhovac, A.R., 2014. Making sustainability work: Best practices in managing and measuring corporate social, environmental, and economic impacts.Berrett-Koehler Publishers.

Nonaka, I. and Von Krogh, G., 2009. Perspective—Tacit knowledge and knowledge conversion: Controversy and advancement in organizational knowledge creation theory. Organization science, 20(3), pp.635-652.

Park, H. (2007), the impact of environmental factors on business strategies in selected major U.S. apparel manufacturing companies 1970-2005, Pp.172, Accessed on: 2^nd February, 2017, Accessed from: https://theses.lib.vt.edu/theses/available/etd-08082007-155046/unrestricted/newETDfinal.pdf

Peng, M.W., Wang, D.Y. and Jiang, Y., 2008. An institution-based view of international business strategy: A focus on emerging economies. Journal of international business studies, 39(5), pp.920-936.

Purna, A., (2017). Organizational Adaptation Theory, Accessed on: 2^nd February, 2017, Accessed from: https://www.ehow.com/facts_7533511_organizational-adaptation-theory.html

Schreyögg, G. and Kliesch?Eberl, M., 2007. How dynamic can organizational capabilities be? Towards a dual?process model of capability dynamization. Strategic management journal, 28(9), pp.913-933.

Sheng, S., Zhou, K.Z. and Li, J.J., 2011. The effects of business and political ties on firm performance: Evidence from China. Journal of Marketing, 75(1), pp.1-15.

Vega-Jurado, J., Gutiérrez-Gracia, A., Fernández-de-Lucio, I. and Manjarrés-Henríquez, L., 2008.The effect of external and internal factors on firms’ product innovation. Research policy, 37(4), pp.616-632.

Weiner, B.J., 2009. A theory of organizational readiness for change. Implementation science, 4(1), p.67.

Xue, Y., Liang, H. and Boulton, W.R., 2008. Information technology governance in information technology investment decision processes: the impact of investment characteristics, external environment, and internal context. Mis Quarterly, pp.67-96.