Internal and External Environment Analysis in Strategic Management | Desklib

STRATEGIC ANALYSIS

Strategic Management 1
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

Strategic Management 2
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

Strategic Management 3
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