TYPES OF ENVIRONMENTS – INTERNAL AND EXTERNAL ENVIRONMENT
Internal environments
- Intermediate environment
- External environments
Using the acronyms SWOT, select any specific business and apply it
Internal Environment
The conditions, entities, events, and factors within an organization that influence its activities and choices, particularly the behavior of the employees.
Internal Environmental Factors: The internal environmental factors refer to those factors over which the entrepreneur has control, at least in the short run; this is why it is also called the controllable environment of the business. The internal environment of the business is made up of all those physical and socials factors within the boundaries of the business, which impart strengths or cause weaknesses of a strategic nature and are taken directly into consideration in the decision-making behavior of the business. Strengths are inherent capacities, which a business can use to gain strategic advantage over its competitors; they are the internal strong points of the business such as: its core skills, competencies and expertise. While weaknesses are inherent limitations or constraints, which create strategic disadvantages, they are the internal factors that are lacking in the business.
A successful entrepreneur will find ways of overcoming the weaknesses and convert them into strengths. The internal environment of the business is made up of micro-environmental factors such as: organizational goals and objectives, specific technologies utilized by component units of the organization, the size, types and quality of personnel, its administrative units, and the nature of the organization’s product/service.
Kazmi’s (1999) views Organizational resources as the physical and human resources used as inputs in the organization to create outputs.
Organizational behaviour: Organizational behaviour is the manifestation of the various forces and influences operating in the internal environment of an organization.
Strengths: Strengths are inherent capabilities that give strategic advantage.
Weaknesses: Weaknesses are inherent limitations or constraints, which create strategic disadvantage.
Synergy: Synergy is an idea that the whole is greater than the sum of its parts, i.e. 3+3=7.
Distinctive competence: The specific ability possessed by a particular organization that distinguishes it from others.
Organizational capability: This is the inherent capacity or ability of an organization to use its strengths, and overcome its weaknesses in order to exploit opportunities and face threats in its external environment.
External Environmental Factors
The external environmental factors refer to those factors over which the entrepreneur has no control but have tremendous impact on the survival of the business; this is why it is also called the uncontrollable environment of the business. Within the external environment of the business are all the factors which provide opportunities or pose threats to it. Opportunities are favourable conditions in the business’ environment, which enable it to consolidate and strengthen its position. They are the likely benefits to the business resulting from changes in the external environment while threats are unfavorable conditions in the business’ environment, which create a risk for, or cause damage to, the business; they are the possible pitfalls or dangers resulting from changes in the external environment.
The major external environmental factors are:
Demographic factors: These include the market i.e. consumer populations. It deals with their composition in terms of sex, age, income, marital status, educational levels etc.
Political/Legal Factors: this is made up of laws, government agencies and pressure groups that affect the business.
Technological Factors: This deals with knowledge of how to accomplish tasks and goals, and innovations.
Natural Environment: This deals with all the gifts of nature or natural resources of the nation that serve as input for the business.
Socio-Cultural Factors: These deal with the people, their norms, values and beliefs as they affect the business.
Economic Factors: These deal with the Macro level factors relating to means of production and wealth distribution.
Competitive Environment: These are those firms that market products that are similar to, or can be substituted for, a business’ product(s) in the same geographical area. The four general types of competitive structure are monopoly, oligopoly, monopolistic competition, and perfect competition.
Other Factors: The other factors making up the external business environment are:
(1) Suppliers, which are other firms and individuals that provide the input resources needed by the organization to produce goods and/or services.
(2) Intermediaries, who are independent businesses that perform all the activities necessary to direct the flow of goods and services from manufacturers/marketers to ultimate consumers/customers. They include wholesalers, retailers, agents and distributors, and
(3) Customers who constitute a portion of the target market of the business; they are the ones the business strives to satisfy.