Internal and External Environment Analysis in Strategic Management | Desklib

This paper compares and contrasts the internal and external environment of strategic management process. It discusses the concepts of internal and external analysis, their differences and similarities, and the relationship between the business environment and analysis models. The paper also covers the tools and frameworks used for internal and external analysis. Subject: Strategic Management, Course Code: N/A, College/University: N/A.

STRATEGIC ANALYSIS

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Introduction
The aim of this paper is to compare and contrast the internal and external environment of
strategic management of the process. In this paper, the concepts of internal and external
analysis will be discussed from the expert’s point of view. After that, Differences and
similarities of the internal and external analysis will be given. In the end, the relationship
between the business environment and analysis model will be discussed (Welford, 2016).
The aim of internal environment analysis is to identify the internal factor such as strength,
weakness, opportunity, and the threat of the company. It provides the recommendation and
suggestions on how the company could use and take advantages of its strength or improve
its weakness. External environment analysis aim is to analyse the external factor such as
political, legal, technical and economical. It helps to identify the barriers to operate in the
future. External environment analyse the economy as a whole, the internal environment
analyse resources within the organisation. Internal environment and external environment
analysis are used to analyse the resources to make sure the company future profitability,
growth and competitiveness of the company (Hill, Jones, and Schilling, 2014).
Literature Review
According to the Eikeland and Skjærseth, (2016), the internal environment is a corporate
environment which has a directly affect the organisation. Company’s owners have to analyse
the internal factor which affects the company such as strength, and weakness. These factors
help the company to determine that the company ability to avoiding the threat and take the
advantages of exciting opportunities. Internal environment analysis includes the resources,
capabilities and competencies held by the company. It is important for the company to
sustain the competitive advantages which is done by analysis the internal environment. The

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resources of the company can analysis by the resources which can be divided into the 3 parts
of the company. These are 1. Assets which are visible like raw material, financial resources,
and computers 2. Invisible assets are brand, reputation, and moral enterprises; 3. The
capability of an organisation. It is a way to analyse the internal environment of the company.
Porter introduces the new method to analyse the internal environment which is known as
Value Chain analysis. There are many methods and tools to analyse the internal environment
but the functional analysis is the simplest method to analyse the company. It can be said that
the company resources can be set according to the company profile and functions such as
marketing, finance, human resources, operations, information system and corporate culture.
According to the Dobbs, (2014), internal factor includes the financial aspects, technical
aspects, and marketing aspects. The research of internal environment includes Marketing,
finance, operations, information system and human resources.
The external environment refers to the events outside of the company which affects the
company. Many companies are operating in the international market not only the domestic
market. The external factor of the other countries can also affect the company like changes
in technology, changes in political policies, changes in legal policy of the country. Policies
and laws affect the country market environment which affects the company and create the
problem for the company for making the selection such as where and how the company
competes or operate. The company should aware of these factors to the impact of the reality
of this environment. It is important to analyse the external factor for the decision makers.
According to Ottman, (2017), Decision makers should know about the competitive position
of the company in making the decisions. According to the Epstein, (2018), the external
environment divided into two parts with the name of the social environment and work
environment. Social environment includes the general power of the government which is

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made for the short period but it affects the company in long-term decisions like economic
forces of the exchange of material, energy and money, Power of technology which is used
for problem-solving. Work environment includes the factors that affect the organisation
directly this includes the government, local communities, special interest groups and trade
associations. The external environment divides into three components these are the general
environment, industrial environment, and competitive environment. The main external
factors which affect the company are the legal, socio, political, technological, economic and
environmental. The company has many threats and group of a factor that affect the company
such threat of competitors, the threat of substitute, the threat of new entrants, bargaining
power of buyers and the bargaining power of suppliers. The company should know about
their competitors by analysing the competitor is called the competitor analysis. According to
the Porter, and Heppelmann, (2014), external environment includes the remote environment,
industrial environment, and operating environment. According to Grant, (2016), the
external environment is classified into the legal, technological, economic and competitive
environment. The external environment includes the microenvironment and
microenvironment. The macro environment includes the factors which are difficult to
control because it is beyond the limit of the company management and Microenvironment
includes the factors which are controllable and within the company management. The
company uses the tools for the analysis of the external environment which is PEST and
Porter’s five forces framework (Tietenberg, and Lewis, 2016).
Similarities
The internal and external environment of the strategic management process is similar to each
other. For analysing the business environment, the internal and external environment is
analysed. For making the decision the company analyse both environment internal as well as

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the external environment (Marttunen, Lienert, and Belton, 2017). The internal environment
of strategic management process analyses the Strength and weakness of the company,
external environment of strategic management process also analyse the bargaining power of
buyer which is also the strength of the company. Internal environment analyse the threat of
the company as same as the external environment also analyse the threat of the new entrants,
competitors, and the substitute. The internal environment is used by the big companies as
same as the external environment is also used by the big companies to analyse the external
environment. The internal environment of strategic management of process helps the
company to reduce the threat and use the strength. The external environment of strategic
management of process helps to analyse the competitor behaviour and the substitute
companies to reduce the threat of the company. The external environment is analysed by the
tools, the internal environment of the company is also analysed by the tools and models. The
external environment uses the PESTLE and Porter’s five force framework to analyse the
environment. The internal environment uses the SWOT model to analyse the internal
environment. The internal and external environment has the common objective to analyse
the environment. To achieve the success or to reduce the competitors are the main objectives
of the company. Internal and external analysis of the company is used for the common
purpose that is to analyse the environment and reduce the weakness and grab the
opportunity. Internal and external analysis of the company shows the financial position of
the company (Ketata, Sofka, and Grimpe, 2015). Hence, the purpose of internal and
external environment analysis is similar and it can be used by the company is also similar.
Internal and External analysis of the company helps the company to achieve the success or
to maintain the good image in the market.

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Differences between Internal and External Environment
There is a difference between the internal and external environment. The internal
environment contains the factors which affect the organisation indirectly but the external
environment contains those factors which directly affect the internal environment. Internal
environment factors affect indirectly to the company but external environment factors affect
them directly to the company. Within the organisation, factors affect the company is called
internal environment and the factors within the economy affect the organisation is called the
external environment (Wheelen, et al., 2017)
Internal environment includes the Strength, weakness, opportunity and threat factors but the
external factor includes the Political, socio, technological, legal and environmental factors.
SWOT Analysis and VRIO framework is used in analysing the internal environment. To
analyse the external environment, PESTLE Analysis and Porter’s five forces framework is
used to analyse the external environment. Internal environment affects the company but the
external environment factors affect the many companies or multinational companies.
Environment change, environment capacity and the scarcity of the resource is the behaviour
of the external environment and the threat of the competitors and substitute are the factors of
the internal environment. The external environment helps to analyse the threat of new
entrants, the threat of substitute product, and it also analyse the competitor. The internal
environment helps to analyse the strength, weakness, opportunity, and threat of the
company. PESTLE Analysis and Porters five forces framework analyse the external
environment which is helpful for the small companies as well as multinational companies.
But the internal environment analysis tools such as SWOT Analysis and VRIO Framework
helps to analyse the internal environment which is used by the smaller companies. Analysis
of the external environment is cost effective as well as the time-consuming. External

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environment analyses the economy as a whole which consumes more time for analysing but
the internal environment consume the less time for analyses the environment. The internal
environment of the company analyse the company factors only but external environment
analyse the economic factors as well as company factors (Schaltegger, and Burritt, 2017).
Relationship between the business environment and model
Models help the company to analyse the business environment these are SWOT Analysis,
VRIO Framework, PESTLE analysis, and Porter’s five force framework. Factors of external
environment have a positive impact on the internal environment. For example- Competitor
analysis helps the organisation to control its threats and use strength to compete with the
competitors. External environment analysis helps the company to improve its internal
environmental policies. With the internal analysis, the threat of the new entrants and
substitute of the product is analysed by the company. Hence it has been seen that the
analysis of the external environment can be analysed with the internal environment analysis
information (Schaltegger, and Wagner, 2017). Internal environment analysis means the
strength and weakness of the company, which helps the company to analyse the external
environment and same as the external environment help the internal environment to analyse.
Analysis of external factor such as the political, legal, technical, environmental and
economic helps the company to make the policies of the company. Political and legal
external factor helps the company to make the internal policies to reducing the threats. The
threat of the company can easily reduce by comparing the internal and external analysis data
of the company. Internal environment and external environment are interlinked to each other
which help to reduce the threats and make the opportunities to grab the market. Social factor
of external analysis describes the strength and opportunities of the company. Internal
analysis of the resources helps to analysis the competitor’s threat and the threat of substitute.

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Bargaining power of buyer and suppliers can be reduced by analysis the strength and
opportunity of the company. Thus, it is observed that the internal and external environment
is depended on each other (Hair, 2015).
Conclusion
From the above analysis, it has been concluded that the internal and external environment of
the strategic management process is similar in nature. The internal environment of the
strategic management process is an analysis of the internal factor of the company which
directly affect the company and the external environment is the analysis of the external
factors who indirectly affect the company. The different author has the different point of
view for the internal and external analysis. For the internal and external analysis, the
company used the tools. SWOT Analysis and VRIO Framework are the tools used for
analysing the internal factor and Pestle and Porter’s five force framework is used to analyse
the external environment of the company. There is a similarity between the internal and
external analysis, the purpose of the external and internal analysis is the same. It has
common objectives to grab the market or to reduce the threats (Wulf, 2016). But there is
some difference between the external and internal environment analysis of the company.
Internal analysis of the company is used to analyse the internal environment and external
environment analysis is used to analyse the external environment of the company. With the
use of the models and frameworks business environment is analysis. To take the advantage
of strength and improve weakness, Company can easily use the internal analysis models. To
identify the barriers in the organisation, company use the external analysis tools these are
Pestle and Porters five forces framework. It has some differences but the purpose to reduce
the threat and grab the market is similar. It helps the company to achieve the goals and

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objective by analysing the environment. The company will achieve the target and expand the
business in the other market with the help of external and internal analysis.

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