Internal Environment pinpoints in-house factors of the firm, which are often constitutional in nature. On the flip side, External environment is composed of those factors which are exterior to the firm. Business refers to the collective effort of the firm in making money by buying and selling merchandise. We all are aware of the fact that every business operates in an environment called Business
Environment. The business environment comprises all the elements that have a bearing on the decisions, moves and functions of the business. The environmental factors, not just affect the business, because of the changes and activities, but these factors can also be affected by the business activities. Based on the extent of control, the environmental factors are divided into two groups or say types – Internal Environment and External Environment. So, let’s start our discussion on
the difference between this two environment.
Comparison Chart
Definition of Internal EnvironmentInternal Environment is that part of the business environment which is concerned with the different factors present within the organization. It comprises of conditions, forces, members and events which has the capability to influence the company’s decisions and operations. It determines the procedures and methods in which activities are carried out in the organization, as well as it includes all of the immediate and information resources, such as technical, financial and physical resources of the organization. These factors are:
Definition of External EnvironmentExternal Business environment comprises of all the extrinsic factors, influences, events, entities and conditions, often existing outside the company’s boundaries but they have a significant influence on the operation, performance, profitability and survival of the business enterprise. For the purpose of continuous and uninterrupted functioning of the business, the enterprise has to act, react or adjust according to these factors. These factors are not under the control of the enterprise. The elements of the external environment are divided into two categories: Micro EnvironmentOtherwise called as task environment, these factors directly influence the company’s operations, as it covers the immediate environment that surrounds the company. The factors are somewhat controllable in nature. It includes:
Macro EnvironmentOtherwise called as general environment, macro environment affects the entire industry and not the firm specifically. That is why these factors are completely uncontrollable in nature. The firm needs to adapt itself according to the changes in the macro-environment, so as to survive and grow. It includes:
Key Differences Between Internal and External EnvironmentThe difference between the internal and external environment can be drawn clearly on the following grounds:
ConclusionThe company has to properly understand the business environment, i.e. the internal and external environment, in which it operates, so as to survive and function smoothly. It will also help in its growth and expansion in the long run. Why is it important to understand the external and internal environments to think strategically?A clear understanding of and distinction between the internal and external environment will guide strategic actions because the organization can focus on what it can control, instead of becoming frustrated with external factors.
How is internal and external environment related to strategic management?To some extent, the internal environment is controllable and changeable through planning and management processes. The external environment, on the other hand is not controllable. The managers of a business have no control over business competitors, or changes to law, or general economic conditions.
Why environment is important in strategic management?The environment is the source of resources that the organizations needs. It provides opportunities and threats, and it influences the various strategic decisions that executives must make.
What is the purpose of external and internal environment?The internal environment consists of those factors which have the potential to influence the company's decisions, working and strategies. On the flip side, the external environment comprises of those factors which can affect the survival, growth, reputation and expansion of the company positively or negatively.
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