Impact Of Internal And External Factors On The Business Operating Environment

Discussion

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

Business environment is comprised of all those elements that boast of having a bearing on the business. Mastering the forces that have an influence on the business environment is a challenging task in comparison with other operational activities. The extent to which these forces can be controlled varies. These forces can be changed in terms of how they ca affect the firm. However, the economy cannot be touched. Spending, however, can be encouraged. Learning more about these forces at work would better equip in influencing the business operations. Based on the intimacy range with the firm, these environmental factors of a business can be classified into two different types. There are broadly two types of environment of a firm, the internal environment, i.e. internal factors of the firm and the external environment i.e. external factors of the form that contain some relevancy to it (Epstein and Buhovac 2014).

Internal factors

The internal business environmental factors influence the approach and success of the business operations. The organization has complete control over the internal factors. Recognizing possible opportunities and threats that are outside the company’s operations are considered extremely important. Nevertheless, proper management of the key strengths of the internal operations is vital for the success of the business (Chan et al. 2012). Some of the most common internal factors are discussed below:

The role played by company leadership is an extremely important internal factor. The existing leadership styles and other management styles influence the culture of the organization. More often than not, organizations present a formal structure that accompanies its mission and vision statements. Leadership approach has resulted in some cultural implications, some of which are as follows:

• Value given to the staff
• The negative or positive nature
• The efficiency of communication standard of family friendliness (Kuratko, Hornsby and Covin 2014)

Employee strength is another important internal business factor after leadership. Employees who are motivated, talented and hardworking would bring in better results than employees who are demotivated and not talented. Inter-department procedures and associations also has the potential to better efficiency and effectiveness. A high performing workplace boasts of talented employees who work together in a better way. In such situations, the workers and their departments cooperated in terms of ideas and resolutions. Organizational and operational factors are a part of the managerial and operational processes. It comprises of imprecise and disorganized record keeping too. Evaluations must be carried out of factors like interruptions in the supply chain and faulty IT systems too. If a company fails to overcome these situations the customers may start seeing the company as unreliable (Hanim Mohamad Zailani et al. 2012). Strategic risks have the capacity to influence the company’s capability of reaching the objectives of a business plan. It can be due to the influences of the technological evolution changes or even consumer demands. These elements can turn into threats as they have the capability of altering the way consumers observe the product. On the basis of these, customers might believe a product is dull, overly priced and outdated. Innovation is required by business for keeping up with their competitor. Staying pone step ahead is very essential. Innovation also presents itself in the form of marketing, or via advertising initiatives inside marketing plans, welfare or employee training. Adopting the latest technologies is the best possible way for keeping up with the technological improvements. A lack in innovation in a developing business poses a grave risk. Lack of innovation inside an organization makes it boring, which would ultimately turn the company into a stagnant, boring and irrelevant one (Wilden et al. 2013). In the financial structure of a business, dependency is seen from the financial risks. These risks are also dependent on the different business transactions and the fiscal systems. Such as, alterations in interest rates or simply acting overly dependent on any single customer can have an adverse impact on the business operations. Additionally, employees are crucial to the success of nay business. However, certain risks are associated with them. For any business sector, strike action can direct towards many serious problems.  The most important thing about all these factors is that they are under the control of the organization. Making alterations in these factors most of the time involves a certain amount of indirect costs, as some of these are the outcome of business operations (De Giovanni 2012).

Internal factors

Factors that are external to an organization are the factors that determine its external environment. The organization cannot exercise any control over these factors or the way they would shape up. The external factors can be further sub divided into two categories: general environment and task environment. The general environment factors have an instant direct influence on the operations and the activities of the business organization. General environment dimensions are broader and generic, while those of task environment contain of the precise organization (Sekaran and Bougie 2016). The elements of general environment are as follows:

Economic elements inside an organization represent the overall fiscal system of the organization operations. For the businesses, the most vital factors are interest rates, inflation and redundancy. These elements influence the product demand. Technological elements manage the available methods in order to convert the resources into any form of services or products. Manager have to make sure they are careful about these elements. The decision of investing needs to be perfect inside new technologies and they need to be flexible for with them (Bridge and O’Neill 2012). Socio-cultural elements are made up of demographics, values, morals and customs existing in the society where the company operates. Manager have to make sure they are well aware about these elements as the standard of operation differs from culture to culture and similarly does the need and preferences of the products and services. The political-legal elements of the general business environment are indicative of the business-government relationship, government business law and the complete political and legal condition of a state. Business laws of any country decide the dos and don’ts of all the operating organizations inside it (Arregle et al. 2012). International element virtually influences every organization. It is related to the level to which any organization is tangled in or influenced by the organizations in other states. The concept of global society has played a huge role in bringing together all the nations and the modern communication network and transport technology (Lambert and Davidson 2013).

Task environment is comprised of the factors that directly influence and are influenced themselves by the operations of an organization. These factors are identified below:

Organizational policies are often influenced by competitors. In a competitive market, all organizations attempt staying and staying ahead of others. Therefore, customers always have lots of options and product qualities improve. Every organization has the primary goal of achieving high customer satisfaction standard. A customer’ purchase is the key element that helps a company survive and thrive. Suppliers are those who provide products or service materials. Good relations with suppliers is the key to keep the organization stocked with quality input materials, so management must deal with them carefully (Michalos 2017). Regulators as a unit boast of the authority for controlling, regulating or influencing the policies and practices inside an organization. The main players are government agencies, and the created interest groups attempt at influencing both the organizations as well as the government. The strategic partners of any organization are the individuals or organizations with whom there exists an agreement or understanding to ensure development of the organization and its operations. These partners, in one way or another have an impact on the activities of the organization (De Medeiros, Ribeiro and Cortimiglia 2014).

External factors

The best model to understand and apply the external factors of an organization is with PESTLE (political, economic, social, technological, legal and environmental) analysis. In case of internal factors, the best model is SWOT (strengths, weaknesses, opportunities and threats) analysis (Epstein and Buhovac 2014).

Conclusion

From the discussion, it is evident that every manager must be aware and have an understanding of the external and internal nature of the business environment. If a manager is unaware and lacks comprehension regarding the environment of the organization, he or she would definitely face difficult situations, and so would the organization in the current fast and hyper-moving organizational environment.

References

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Bridge, S. and O’Neill, K., 2012. Understanding enterprise: entrepreneurship and small business. Palgrave Macmillan.

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De Giovanni, P., 2012. Do internal and external environmental management contribute to the triple bottom line?. International Journal of Operations & Production Management, 32(3), pp.265-290.

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Wilden, R., Gudergan, S.P., Nielsen, B.B. and Lings, I., 2013. Dynamic capabilities and performance: strategy, structure and environment. Long Range Planning, 46(1), pp.72-96.