External and Internal Environment

Introduction

The growing complexities in the business environment have invoked a new urgency for organizations; the need for the organizations to have a clear structure and ability to deal with the emerging challenges in the form of socio-political and economic environment. Some of these challenges are unpredictable, but proper screening will give a clear picture on what is needed to minimize or eliminate the complexity. In other words, the organizations must be ready to continuously practice flexibility that would enable them strategically make changes whenever need be, without compromising productivity (Snyder & Cummings 1998, p.873). Furthermore successful competitive advantage goes beyond business survival, where the strategic demand is based on continuous improvement of the business as well as adjustment of the production to the upper end (Crosby, DeVito & Pearson, 2003, p.18). Courtney (2002, p.149) wraps up the value of strategic analysis in his statement, “The rubber band theory of how organizations develop suggests that if an organization can clearly articulate where it is now, as well as have a vision of where it wants to go, the vision will catapult the organization from where it is now towards its vision”.

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The Importance of Strategic Analysis

The process of organizational improvement demands that the leadership understands the historical perspective of the organization, in relation to its competitive success as well as failures (Vakola & Rezgui 2000, p.174). Even though there is a general consensus that the absolute needs assessment should form an important ingredient of all stages of organization’s plans of improvement and budgeting process, the available literature reveals that many organizations apply the concept only in theory (Horner 2006, p. 4). In an attempt to give the provisions of visions and as well as direction that would promote the success of the organization, Crosby, DeVito & Pearson (2003, p.20-21) subdivides the strategic analysis into two categories: needs assessment and appreciative inquiry. The former is achieved through continuous focus on the strategic plan and continuous process improvement context while the latter involve the development of organization’s portfolio with specific pointer to the kind of business to be done and the performance criteria needed; a combination of the two should give maximum profit and clear strategies that organization will use to have properly structured and coherent goals and objectives (Eicher, 2006, p.32; Kaplan & Norton 2008, p.62).

Needs Assessment; this is the process of current and desired outcomes are identified, with a clear analysis of the shortcomings to achieve the desired out put (Taylor & Driscoll 1998, p.31). In this approach to strategic analysis, there is a systematic attempt that identifies the apparent gap between the organization’s needs and capabilities, with the setting of priorities through analysis of the cost of such deficiencies elimination and the cost of ignoring the process, thereby coming up with the most critical need for action (Leigh, Watkins, Platt & Kaufman 2000, pp.88-89). In short, a needs assessment “evaluates whether there is a ‘case for action’ or a ‘business case’ for modifying, enhancing, or replacing the current system”(Miranda 2002, p. 13).

Appreciative Inquiry; this process is more different from the needs assessment in that it is more of a strength or a sufficiency model, with overall emphasis on what the organization does efficiently and sufficiently that has seen its current position. This form of inquiry relies on “positive dialogue” to uncover the issues that led to the success of the organization (Egan & Lancaster 2005, p.31). It is from this process that an organization can be able to emphasize on their strength to continuing building on their success (p.32). It draws its strength from the knowledge that organizations would always have an already existing strength that may help in the continuous building and success of the organization (p.33).

Strategic Analysis and Vision, Mission, and Objectives

The use of strategic analysis is critical in determining the specific information of an organization. One of those areas is defining the vision, mission, and objectives that the organization wants or wishes to adopt. Vision defines the long term goal of the organization, that may seem unreachable; mission on the other hand is the reason for the organization’s existence; while objectives is what the organization wants and is able to achieve in practical sense (Egan & Lancaster 2005, p.34).

Courtney (2002, p.140) however states that the idea of vision and mission are always very close to each other to an extent that at times one is confused for another. He therefore clarifies that a vision refers to a shared values that are implied and to an ideal that is difficult to attain and in most occasion is it is not expressed (p.141). while the mission a profit making organization is always aligned with the intention to make profit, a non-profit organization’s mission is not related to making profit but plans to pursue a more noble and reputable course (Vakola & Rezgui 2000, p.176).

External and Internal Environment of Organizations

The external environment of an organization entails the analysis of the situation as it is influenced by some factors that are outside the organization’s mandate (Taylor & Driscoll 1998, p.38). Such external environments are basically such areas as the organization’s geographical areas of operations as defined by the political, economic and the social settings (p.39). Internal environment on the other hand are involved in the internal structure of the organization, normally within the mandate of the said organization, which traditionally includes organization’s management structure, production and all other issues within the organization’s internal reach (Taylor & Driscoll 1998, p.39).

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Tools for Measuring the External and Internal Environment of an organization

Strategic Audit

It considers the strategic issues from the internal and external environment of the organization (Courtney 2002, p.139). This tool provides the mangers with important backgrounds information to help in the strategic planning process. After the scanning of the external and internal environments, the manager will be in a position to determine the future role of the findings in its environment, influence and image and more importantly, the appropriateness of the services or goods provided (p.140).

Strategic audit tool should provide the information about the existing potential client, competitors, stakeholders and any other important factors impacting on the organization. The acquisition of these factors should be made a priority as the managers will be able to have more awareness on the opportunities and threats facing the organization as well as increase their ability to manage the problems Miranda 2002, p.14. Miranda explains that if this knowledge is extensive, that is covering all the external and internal environment of a firm, there is the possibility of reducing the element of a surprise, thus creating more stability and will in turn give the room to manage the risk at the right stage (p.15).

Again, the planning process becomes easier as people in charge are aware of the available variables. However, in the planning process, accidents and chances will still emerge as both external and internal environments are dynamic and there is the possibility of new shocks or unexpected changes occurring (Miranda, 2002, p.15). In such a case, it is the responsibilities of the managers in charge minimize all the elements of shocks and respond appropriately by adapting to the changes as they come. He therefore outlines some of the specific issues that need to be assessed in the strategic audit as follows:

  • The possibility of future happenings and the probable directions as concerns the business environment, specifically the global or regional knowledge of the economic situation and society or community that defines the regions;
  • The future direction the industry sector that the company operates on;
  • The probable future events that the organization will most likely face that may impact on their line of business;
  • The trends and patterns of happening that is likely to impact of the organization either positively or negatively
  • The current and the anticipated future driving forces or the strategic external forces that may influence the organizations operations, and the extent of both positive and negative impact
  • The vision and the preferred future for the organization, inscribed in the mission and vision statements, core business objectives, strategies and policies. Assessment of the status of these parameters, particularly if they are not only clearly articulated but also acted upon in consistent with the external and internal environments of the organization;
  • Assessment of the stakeholder I relation to their positive or negative influence, knowledge, skills, interests, participation, support and commitment;
  • The organization’s reputation as mirrored amongst its industry peers and competitors; and the leadership style and commitment of the executives (Miranda 2002, p.16)

SWOT analysis

SWOT refers to Strength, Weaknesses, Opportunities, and Threats. This tool helps management to analyze the ability of the organization to respond to the inherent situation. It provides an organization with a more vibrant objective-oriented assessment criterion, thus giving the organization the criteria for dealing with any environmental impact. A strength may be that which help organization achieve its objectives effectively e.g. superior and innovative technology, superior human resource structure, good customer care reputation etc (Crosby, DeVito & Pearson 2003, p.22). A weakness on the other hand is the limitation, fault of defects in organizations that acts as barriers to its goals and objectives achievements (p.22). These may be a weak technology, poor customer care or poor human resource structure (p.23). Opportunities are basically the available criteria that may help achieve the goals or in a more pragmatic explanation, help the firm build on the strength and eliminate weaknesses. One of such would be the opportunity to improve on the technology through powerful software integration packaging, and many others. Finally, threats are based on what may be a head of the organization’s intended direction to success. These may entail such areas as system failures, striking workforce, etc (Vakola & Rezgui 2000, p.174).

In the above outline, SWOT analysis as a tool for measuring the external and internal environment of a firm encourages the people in charge to think about the positive and the negative aspect of the organizations as well. It is also useful in the process of assessing the competitors, especially their weaknesses as well as competitive advantage. In general, SWOT tool should help summarize all the information gained in the course of research in a logical framework. It has proved very critical for many organizations through identification of their strength and opportunities available for them. Snyder & Cummings 1998 (p.877) explain, “You must recognize the strengths of your competitors in the market if you are to deal effectively with them. You must also recognize that your competitors will be assessing the market in the same way and looking to exploit the opportunities available to them”.

When conducting a SWOT analysis, it must be remembered that it is a “non-financial balance sheet” where the analysis is undertaken by the use of a grid to enable one match strengths and opportunities and knowledge on how to overcome the weaknesses and threats (Snyder & Cummings 1998, p.878). The table below is a two-by-two matrix table for SWOT analysis (Adopted from Snyder & Cummings 1998, p.879)

Strengths-something that is done correctly in an organization. This could be the unique skills or technological advantage that the competitors lacks Weaknesses– Something that an organization is poor at, as compared to the competitors and thus puts the organization at a disadvantage in the business line
Opportunities-a realistic avenue for future growth in the business and that which can be used to develop a competitive advantage. In this part, some of the areas to be looked at are: the market trends, ways of exploiting the market, and identification of the chances available Threats- factors that may be out of control for the organization and that which may lea to a decline in business. In this area, things to look for are: the competitors activities, the inherent obstacles to the outlined path for success, the possibility and impact of a new entrant in the are of operations

In the SWOT analysis, the specific areas to be remembered are: building on the strengths, resolving weaknesses, exploiting opportunities, and avoiding threats. Snyder & Cummings (1998, p.879) further explain that the SWOT tool should be able to reveal ideas on how the organization is different from its competitors, both in terms of market and product.

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However, Kaplan & Norton (2008, p.67) observes that there is no specific order in which this internal and external analysis should be done, but it is possible to begin with either the internal or external aspects even though it is the external factors that trigger awareness that a strategic analysis is necessary. In fact, the factors that influence the operations of the organizations are realized once the brainstorming begins, hence prompting a two-by-two table as illustrated above. Kaplan & Norton(2008, p.68) say that such a table can be easily produced and thus be seen as very superficial in nature, so to avoid this trap, numerous drafts should be made in the process of brainstorming and discussed appropriately until a final copy is produced.

Critical Success Factors tools

This tool can be used to identify the most important ingredient for success (Snyder & Cummings 1998, p.874). They specifically focus upon the key components that must be present and correctly managed in the operating environment. Example of critical success factors are like a visionary leader, a motivated as well as knowledgeable staff, managerial support. With this tool, the organization is must be able to identify that which must go right for the success to be achieved. For instance, if the response time for the customer’s query is the problem, then the leader has the full responsibility to streamline the process to ensure such responses are quick and satisfactory. In essence, it will enable every employee to identify with the goal thus the ability to arrange the workload in an appropriate manner such that the customer becomes a priority in the arrangements (Snyder & Cummings 1998, p.881). With this responsiveness, the organization builds its reputation as well as customer base, thus the inherent ability to reach their goals through performance measurements (p.882).

Reference

Courtney, R. (2002), Strategic Management for Nonprofit Organizations, Routledge ISBN: 978 0-415-25024-5.

Crosby, L., DeVito F. & Pearson, J (2003), Manage your Customers’ Perception of Quality. Review of Business, 24 (1), 18-24.

Egan, T. &Lancaster C. (2005), Comparing appreciative inquiry to action research: OL practitioner perspectives. Organization Development Journal, 23 (2), 29-49.

Eicher, J. (2006), Making strategy happen. Performance Improvement, 45 (10), 31-37.

Horner, K. (2006), Successful business continuity strategies: how to conduct business as usual, Computer Technology Review. 

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Kaplan, R. & Norton, P. (2008), Mastering the management system, Harvard Business Review, 86, 62-73.

Leigh, D., Watkins R., Platt W., & Kaufman R. (2000), Alternate models of needs asssessment: selecting the right one for your organization. Human Resource Development Quarterly, 11, 87-93.

Miranda, R. (2002), Needs assessment and business case analysis for technology investment decisions. Government Finance Review, 18(5), 12-16.

Snyder, W& Cummings T. (1998), Organizational learning disorders: conceptual model and intervention hypotheses, Human Relations, 51, 873-95.

Taylor, P. & Driscoll, M. (1998), A new integrated framework for training needs analysis. Human Resource Management Journal, 8 (2), 29-50.

Vakola, M. & Rezgui Y. (2000), Organizational learning and innovation in the construction industry. The Learning Organization, 7 (4), 174-184.

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