External and internal environment of the organization in management depends on a combination of economic factors. This is the ability to compete, the profitability of the company, indicators of the effectiveness of the adopted strategy and the conditions for further development. If the industry allows entering new markets (especially foreign ones), the external environment requires strategic planning and forecasting.
The internal environment: general concepts
The internal environment of the organization includes events, factors, people, systems, structures and conditions within the organization, which, as a rule, are controlled by the company. The mission statement and leadership style are also reinforcing factors. Usually they are associated with 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 one that determines the organizational activities, decisions, behavior and relationships of employees. Changes in leadership style, organization mission, or culture can have a significant impact on the company as a whole.
The external environment and its characteristics
Some factors arise outside the company, but cause changes in it. Basically, such objects and concepts are beyond the control of any organization:
- Customers
- Competition.
- Economy.
- Technology.
- Political and social conditions.
The external environment of the organization of management on the internal can have a significant impact, for example, on its current operations, growth and long-term sustainability.
Ignoring external forces may cause an error. It is imperative that managers constantly monitor and adapt to the external environment, working to make proactive changes earlier, and not to take a reactive approach, which can lead to a completely different result.
SWOT analysis
The internal and external environment of the management organization stimulate managers' reactions to circumstances and changes. They rely on "scan" data. A process means monitoring both environments for early signs that may require change. To take into account potential opportunities or threats, you need to make adjustments to identify the strengths of the company and deal with its weaknesses.
One of the common types of scanning environment is a SWOT analysis, which specifically considers the strengths and weaknesses, opportunities and threats of the internal and external environment of the organization. Briefly, management comes down to an analysis of everything that happens around the company and in it, as well as in the work of the staff and the satisfaction of employees with their position.
The manager will begin to analyze the internal environment, studying inefficiencies within the organization. Then he should consider the external environment and things that happen outside the organization, but affecting its successful existence.
Factors Affecting Profitability Ratios
The SWOT analysis recommends analyzing the components that may 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. This is a combination of external and internal factors and forces that affect the company's ability to establish relationships and serve its customers.
Business marketing environment
The internal environment depends on the company and includes owners, workers, machines, materials, etc. The external is further divided into two components: micro and macro.
- The micro or task environment is also business specific. It consists of factors involved in the production, distribution and promotion of the proposal.
- A macro or wider environment includes concepts that affect society as a whole.
A wide environment consists of six components:
- Demographic.
- Economic.
- Physical.
- Technological.
- Political and legal.
- Socio-cultural.
The company’s marketing environment consists of actors and non-marketing parties who influence their ability to build and maintain successful relationships with target customers (Philippe Kotler).
External principle of regulation of relations No. 1 - competition
If your company is not among the monopolists, you will have to fight competition. When you start a business and enter the market with your product, there is a struggle with well-established, more experienced companies in the same industry.
After you succeed, you will have to face new firms that are trying to divert your customers or compete with you. She can strengthen her position 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.
Adjustment of principles No. 2 - changes in public policy
Changes in public policy can have a huge impact on business. 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 state influence. They were obliged to place warning labels on their products, lost the right to advertise on television. In addition, smokers have fewer and fewer places where they can smoke legally.
The share of smokers in Russia decreased almost by half, which accordingly affected the industry’s income. 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 “beat” is impossible.
Internal Development Factor No. 1 - Employees
If you are not an entrepreneur in one person, your employees are an important part of the internal environment of your company. They should 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, domestic politics and conflicts can ruin 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 No. 2 - Finance
Even in conditions of great savings, lack of funds can be a decisive factor in the question of whether the company will survive or not. When financial resources are too limited, this affects the number of people you can hire, the quality of equipment, and the effectiveness of the advertising you need to organize.
If there are no such difficulties, there is more flexibility for the development and expansion of the business. In such circumstances, it is easier to survive a crisis or unplanned inflation.
Methods of the internal and external environment of the organization
When all factors are established, it is necessary to pass to methods of analysis of 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 tactical expansion of the enterprise.
SNW analysis differs from SWOT in a more advanced tactical system that focuses on strengths. The first is used for developed countries, where the company itself is an important principle in building a business. The second analysis is used in less developed countries, where business may cease to exist due to government influence.
Two different analyzes (STEP and PEST), aimed at the activities of the state and at the same time small business, are also distinguished.
- The STEP analysis option is used in the USA, Russia, Africa and countries with a large territory. China uses a different method of analysis, since there are some areas that are legally delimited. Priority is given to the technological factor as an indicator of progress.
- To analyze the external characteristics of the business, PEST analysis is used. It affects factors such as politics and the economies of world leaders. The development of a "small" country depends on them.
To understand the system of macroeconomic impact, you need to study the economies of other states.
Environmental Management Organization
Change management can be defined as a systematic approach to the transformation of processes, systems, structures, technologies and values in order to correct weaknesses and inconsistencies in the organization. This entails a series of actions that help participants move from their current way of working to the intended one.
In business, change refers to any change in the traditional way of working. It can be the addition, change of a policy, process, method or anything else that can directly or indirectly affect the organization.
Reasons for making changes may be natural (that is, for survival, growth or expansion). They can also be reactive, that is, adapt to a changing environment. Let's consider some of them:
- Change management involves carefully planning and implementing strategies, while consulting and involving people affected by the change. It helps the organization to implement, monitor and monitor changes, and enables organization members to accept changes in the existing environment.
- Recognition of the need. Only by determining what will be improved (that is, a process, product, technology, method). To do this, you need a team that will initiate the process and lead.
- The urgency with which it is necessary to make employees and other members of the organization realize the importance of change and their benefits. This is an important step that should be reviewed and communicated to all interested parties. In addition, parties with alternative ideas should be given equal opportunity to express their views, opinions and suggestions on the same issue.
- Barriers. Resistance to change is one of the main obstacles to managing change. Sometimes management can only get support from a few people, while others can resist change. Thus, for the effective implementation of a change strategy, barriers must be removed in a timely manner.
- Awareness. Changes should begin with a vision for future development, as it clarifies the organization’s future goals for stakeholders. Therefore, it is necessary to create and convey this vision to the affected parties so that they know why this is happening.
One of the best tactics to increase the team’s interest and morale is to create small milestones that are easily achievable to enhance employee morale and satisfaction. But long-term goals should not be ignored, since they affect the adoption of changes in the external and internal environment of the organization of the enterprise. Often, changes are unsuccessful due to the premature announcement of success in their implementation.
They must be implemented properly. You need to wait a while to identify gaps or weaknesses.
Why PEST Analysis
This is a tool designed to identify aspects of the external environment. They can influence the organization’s strategy. Management of 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 good result if you periodically apply different estimates of form factors. Indicators of dynamic growth are recorded that affect the prospect of business development. The result is a model of the company's reaction to a new strategy that can adapt the company to the totality of identified macroenvironment factors.
Characteristics of the proper organization of the company
Employees must be trained to successfully integrate changes into their daily routine. Change monitoring should support an existing, ongoing mechanism to monitor whether changes are implemented correctly.
Change management refers to the process of developing and implementing corporate strategies, plans and methods arising from various internal and external environments of an organization. A competency profile involves a combination of exceptional skills, strategies, moves or technologies that distinguish between the leader and the average player in the industry. This is a vital source of competitive advantage for a company over its competitors.