Internal and External Environments of Business

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  • 0:00 Internal and External…
  • 1:23 The SWOT Analysis
  • 1:53 Strengths and Weaknesses
  • 2:24 Opportunity and Threats
  • 2:45 Lesson Summary
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Lesson Transcript
Instructor: Ryan Hultzman
An organization must have the ability to examine and make changes based on internal and external environmental factors that affect its performance. The use of tools to analyze these environmental factors is the key to a successful organization.

Internal and External Environments

If there is anything that is steadfast and unchanging, it is change itself. Change is inevitable, and organizations that don't accept change and that make adjustments to their business model to keep up with changes are doomed to fail. There are events or situations that occur that affect the way a business operates, in a positive or negative way. These events or situations can have either a positive or a negative impact on a business and are called environmental factors.

There are two types of environmental factors: internal environmental factors and external environmental factors. Internal environmental factors are events that occur within an organization. Generally speaking, internal environmental factors are easier to control than external environmental factors. Some examples of internal environmental factors are:

  • Management changes
  • Employee morale
  • Culture changes
  • Financial changes and/or issues

External environmental factors are events that take place outside of the organization and are harder to predict and control. External environmental factors can be more dangerous for an organization given the fact they are unpredictable, hard to prepare for, and often bewildering. Some examples of external environmental factors are:

  • Changes to the economy
  • Threats from competition
  • Political factors
  • Government regulations
  • The industry itself

The SWOT Analysis

SWOT is a structured planning tool that can be used to evaluate the strengths, weaknesses, opportunities, and threats involved in running a business venture. Using a SWOT analysis can be used to help a business determine the advantages or disadvantages of changes they want to make based on internal and external factors. A SWOT analysis can be broken into two distinct parts. The strengths and weaknesses are based on internal environmental factors. Opportunities and threats are based on external environmental factors.

Strengths and Weaknesses

To help determine what changes need to be made to the internal environmental factors an organization should look inward at its own strengths and weaknesses. An example of strengths could be an organization's solid financial base, a well-educated workforce, or high-tech equipment. All of these are great examples of organizational strengths. Some examples of organization's weaknesses are unpaid employees, low morale, or poor direction from upper management. A great organization tries to exploit their strengths and minimize their weaknesses.

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