Comparing and Contrasting Internal and External Environment Analysis

This essay delves into the critical analysis of internal and external environments within strategic management, exploring their significance in modern business. It begins by establishing the importance of environmental analysis, both internal and external, and its relationship to an organization's business model. The essay provides a literature review on the internal and external environments, highlighting the resources, capabilities, opportunities and threats that define each. It then compares and contrasts the similarities and differences between the two environments, emphasizing the micro and macro environmental factors. The core of the essay examines the relationship between the business environment and the industrial organization and resource-based models. The essay concludes by summarizing the importance of environmental analysis for strategic decision-making and achieving a competitive advantage. References are included at the end.

Running head: ANALYSIS OF EXTERNAL ENVIRONMENT
ANALYSIS OF EXTERNAL ENVIRONMENT
Name of the Student
Name of the University
Author Note

1
ANALYSIS OF EXTERNAL ENVIRONMENT
Introduction
The purpose of the assignment to analyse the internal and external environment of an
organization and its importance in the modern business environment. The relation that has
been established between the internal and the external environment of an organization and the
industrial model of the company is an important of the discussion that will be done in the
essay. The importance that the external environment analysis of a firm holds in the business
environment will be analysed in the essay in detail. The significance that the understanding of
the internal environment of the organization and resources hold in its operations is a part of
the discussion. The essay will be further related to the various similarities and the differences
that exist between the internal environment and the external environment of the organization.
The business model of the organizations is related to the environment in which the
organization has its operations. This relationship will also be examined in the discussion. The
business models will be examined based on the resources and the capabilities that are held by
the organizations and the ways by which these resources help the organizational operations
(Arbaugh and Camp 2017).
Literature based on the internal and external environment
The internal environment of an organization is based on the capabilities and resources
that are possessed by the company which are used for the purpose of creating a position in the
market. The internal organization is based on the ways by which the resources and the
capabilities are bundled in an innovative manner with the proper exploitation of the core
competencies or capabilities. The values of the organization are thereby based on the
performance based characteristics and the product attributes which are related to the
willingness of the customers to pay. The resources that are possessed by the organization are
an important part of the competitive advantage that is created in the industry. The capabilities
of an organization are also important for the ways by which it is able to emerge in the
industry in which it is operating. The skills of the employees of the organization and the
knowledge that has been gained by them play an important role in the ways by which the
firms are able to perform (Barbuto Jr 2016). The capabilities are able to add values to the
services and goods that are offered by the organization. The internal capabilities of the
organization are developed in the different functional areas which include, human resources,
distribution, management, marketing, management information systems, manufacturing and
the research and development based activities. The organization thereby aims at building the
core competencies which are able to create sustainable competitive advantage in the industry
in which the company operates. The sustainable competitive advantages are able to
differentiate the company from the competition in the market. The competitors are thereby
not able to imitate the service, process or goods that are offered by the organization (Epstein,
Buhovac and Yuthas 2015).
The external environment of the organization is based on the opportunities and threats
that are present in the industry. The strategic actions that have been taken by the company are
based on the different factors that are present in the industry. The external environment of the
organization can be affected by different factors which include, turbulence, complexity,
uncertainty. The firms mainly engage themselves in the analysis of external environment for
the purpose of understanding the ways which they are able to cope with the areas in which
they are operating or about to operate. The competitive environment of the organization is
also an important part of the external environment in which it operates. The external
competitive environment has proved much broader and complex which can affect the ways
by which organizations operate in these areas (Brunswicker and Vanhaverbeke 2015).

2
ANALYSIS OF EXTERNAL ENVIRONMENT
Similarities between the internal and the external environment
The internal environment analysis of the organization helps in understanding the ways
by which it is able to use the resources and strategies for the purpose of creating a
competitive advantage in the industry. The competitive qualities of the company are thereby
able to create a different position of the organization in the industry in which it operates. The
company is thereby able to analyse its capabilities with the help of internal environment
which can further be helpful for the successful operations (Lozano and von Haartman 2017).
The external environment analysis on the other hand is able to provide information to
the organization related to the factors of the areas in which it operates. The external
environment is also able to provide adequate information to the management so that the
strategies of the company can be decided in an appropriate manner. The analysis of the
external environment therefore plays a similar role like that played by the internal
environment. The companies are thereby able to sustain in an effective manner within the
industry of its operations with the help of this analysis (Epstein 2018).
Differences between internal and the external environment
The internal and external environment of an organization can also be termed as the
micro and macro environment. The micro environment of the company is able to affect the
particular business organization. On the other hand, the external environment is able to affect
the other business organizations which are operating in the same industry. The internal
environment has direct impact on the operations of the business, whereas, the external
environment is able to influence the different business organizations which are a part of the
economy (Teece 2016). The internal environment is particularly considered for a specific
organization and the external environment is not specific to a single organization. The
internal factors of the organization are easily controllable by the business, whereas, the
external factors cannot be controlled by the company. The internal factors of the firm affect
the operations on a regular basis and on the other hand, the external factors are not able to
affect the firm on a regular basis. The study of the internal environment is done by the
organizations on a periodic basis, whereas, the study of the external environment is done only
when the organizations enter a different market area (Ferraris, Santoro and Dezi 2017).
Relationship between business environment and the models
The internal environment analysis of the organization is mainly based on the resource
based model which helps in examining the resources and capabilities that are present in a
company. The unique and different capabilities of the organizations play an important role in
creating a competitive advantage in the market. The core competencies and the capabilities of
the firm are thereby able to influence the strategies that affect the external environment. The
VRIN analysis is also a significant model which can help in examining the core competencies
of the organization. The vision statement of the organization is also an important part of the
capabilities that are possessed. The strategies are also developed with the help of the vision
that is created by the organizations in an effective manner. The strategic leaders are able
those people who are located in different areas and help in the selection of the strategic
actions that are required to be taken by the organization (Fraj, Matute and Melero 2015). The
leaders of the organization are also important for the internal analysis of the environment in
which it operates. The resources of an organization thereby play an important role in deciding
the ways by which they are able to analyse the internal environment. The core competencies
are also an important part of the resource based analysis. The resources and capabilities of the
organization thereby play a significant part in the ways by which they are able to develop the

3
ANALYSIS OF EXTERNAL ENVIRONMENT
strategies that can help in creating a profitable position in the industry (Hawn and Ioannou
2016).
The external environment analysis is mainly based on the ways by which the
company is able to focus on the competitors and the opportunities that are present in the
industry. The industry in which the companies operate is analysed with the help of different
external environment based models. The industrial organization model helps the
organizations to analyse the external environment or the industry of their operations. The
model that has been described in this case is based three different forces which affect the
organizations. The first force is based on the limited levels of competition that exist in the
market in which the organizations operate. The levels of competition and rivalry among the
customers is also an important factor that affects the organizational operations. The industry
analysis of organizations is based on the strategic groups that are formed for the purpose of
detecting the strategies that are developed in the industry. The levels of competition are high
within the strategic groups as compared to those between the groups. The analysis of the
external environment is thereby based on the industry of operations of the organizations
(Hislop, Bosua and Helms 2018).
The second force is based on the barriers that are present to the entry of new
organizations. The higher levels of entry barriers are able to affect the industry and the
competition is decreased as well. The high entry barriers are maintained by the organizations
which operate in the industry in order to discourage the new organizations. The industrial
organizations model also provides explanation based on the barriers that are present in the
international market which prevent the entry of new organizations. The barriers are thereby
able to determine the capacity of the firm to operate in the market in a profitable manner
without the entry of new organizations (Khorev, Salikov and Serebryakova 2015).
The third factor of the industrial organization model is related to the prediction of the
competition that the firm can face in the future. This helps the organizations to make better
preparations based on the types of competitors that they can face in the future. The strategy
that has suggested in this case can be applied successfully only for a few number of
competitors in the industry.
The analysis of the internal and external environment of the organization is thereby
based on the ways by which the strategists are able to use the models. The resource based
model has been helpful for the analysis of internal environment and the industrial
organization model has been successful in providing the detailed analysis of the external
environment. The management can formulate proper strategies which can help them to
maintain the position of the organization within the particular industry. The internal factors
and the external factors of the organization are thereby heavily dependent on the models that
are effectively used for the analysis. The inefficient use of the models can however act as a
negative factor for the analysis of organizational environment (Kuratko, Hornsby and Covin
2014).
Conclusion
The discussion can be concluded by stating that the analysis of internal and external
environment of an organization plays an important role in the ways by which they are able to
operate in the market. The internal environment is based on the capabilities and resources that
have been gained by the organization. This further helps the organization to create a position
in the industry. On the other hand, the external environment is based on the factors based on
the industry and environment in which the organizations are able to operate in a successful

4
ANALYSIS OF EXTERNAL ENVIRONMENT
manner. The models that have been developed for the analysis of the internal and the external
environment play an important role for the strategies that are developed by the organizations
to operate in a particular country. The companies are thereby able to create a profitable
position in the market with the help of the analysis of environment that is done by the
strategists. This is further helpful for the organization to decide whether it is profitable for
them to continue their operations in the market.

5
ANALYSIS OF EXTERNAL ENVIRONMENT
References
Arbaugh, J.B. and Camp, S.M., 2017. Managing growth transitions: Theoretical perspectives
and research directions. The Blackwell handbook of entrepreneurship, pp.308-328.
Barbuto Jr, J.E., 2016. How is strategy formed in organizations? A multi-disciplinary
taxonomy of strategy-making approaches. Journal of Behavioral and Applied
Management, 3(1), p.822.
Brunswicker, S. and Vanhaverbeke, W., 2015. Open innovation in small and medium‐sized
enterprises (SMEs): External knowledge sourcing strategies and internal organizational
facilitators. Journal of Small Business Management, 53(4), pp.1241-1263.
Epstein, M.J., 2018. Making sustainability work: Best practices in managing and measuring
corporate social, environmental and economic impacts. Routledge.
Epstein, M.J., Buhovac, A.R. and Yuthas, K., 2015. Managing social, environmental and
financial performance simultaneously. Long range planning, 48(1), pp.35-45.
Ferraris, A., Santoro, G. and Dezi, L., 2017. How MNC’s subsidiaries may improve their
innovative performance? The role of external sources and knowledge management
capabilities. Journal of Knowledge Management, 21(3), pp.540-552.
Fraj, E., Matute, J. and Melero, I., 2015. Environmental strategies and organizational
competitiveness in the hotel industry: The role of learning and innovation as determinants of
environmental success. Tourism Management, 46, pp.30-42.
Hawn, O. and Ioannou, I., 2016. Mind the gap: The interplay between external and internal
actions in the case of corporate social responsibility. Strategic Management Journal, 37(13),
pp.2569-2588.
Hislop, D., Bosua, R. and Helms, R., 2018. Knowledge management in organizations: A
critical introduction. Oxford University Press.
Khorev, A.I., Salikov, Y.A. and Serebryakova, N.A., 2015. Conceptual features of the
balanced development of business organizations. Asian Social Science, 11(20), p.22.
Kuratko, D.F., Hornsby, J.S. and Covin, J.G., 2014. Diagnosing a firm's internal environment
for corporate entrepreneurship. Business Horizons, 57(1), pp.37-47.
Lozano, R. and von Haartman, R., 2017. Reinforcing the Holistic Perspective of
Sustainability: Analysis of the Importance of Sustainability Drivers in
Organizations. Corporate Social Responsibility and Environmental Management.
Teece, D.J., 2016. Dynamic capabilities and entrepreneurial management in large
organizations: Toward a theory of the (entrepreneurial) firm. European Economic Review, 86,
pp.202-216.