Internal & External Factors That Affect an Organization

Internal and external factors have a huge effect on the success or failure of a business. Business owners can’t control external factors, but they must be able to anticipate and adjust to these factors to keep their organizations on track. However, business owners and leaders do have significant influence over internal factors that affect a business, and how they handle these internal factors will have a major impact on the future of their companies.

Leadership refers to the people in your organization that make all the major decisions regarding financing, budget, sales, marketing, and human resources. Companies with strong leadership have a clear vision for the future, a plan of how to achieve their goals and a quantifiable way of measuring success. They have also developed the kind of management structure that enables employees to feel empowered, while also meeting production and sales goals. Weak leadership is like a ship without a rudder that has no direction and is in danger of sinking. Leaders that lack a strong vision and that are unable to properly manage their teams will find it difficult to achieve their goals.

Strong businesses feature motivated workers that understand management’s expectations and are given the tools, training, support, and encouragement to not only meet those expectations but to exceed them. It’s not enough for leaders to hire qualified employees, because every good company does the same thing. For a company to consistently produce high results, managers must ensure that they are in constant communication with employees and that any problems or dissatisfaction within the rank-and-file is handled in a timely manner. When employees feel valued and rewarded, they will go above and beyond to maintain a high organizational standard.

Do your employees understand why your company exists? In other words, has management communicated the mission statement of your business, which is the underlying reason that you make specific products and offer specific services? Defining the ‘why’ of a company rather than the ‘what’ of a company is the key to providing your employees with the motivation and buy-in that affects how hard they work, and how much they believe in what they do. For example, the shoe company Zappos developed a mission statement that it was always about pleasing the customer, no matter what it took. That mission enabled Zappos’ management to give employees the discretion to give discounts and freebies to customers without supervisor approval. As a result, Zappos soon became known as one of the best customer service companies in the world.

Unless you’ve invented something unique, there are other companies in your industry that sell what you sell. That means you have to be aware of your competition and what they’re doing in the marketplace, and use that information to distinguish yourself in as many ways as possible. Although you can’t control what your competitors do, you can find areas of weakness in their marketing and use that to your advantage.

Customers are flaky and unpredictable, and just when you think you’ve got their loyalty, they move on to the next big thing. You can’t control customer behavior, but you can study it and learn how to adapt to changes that could impact your sales. When customers indicate they want something you’re not offering, you may want to listen and start offering what they’re asking for, before your competitors do.

Business owners can’t control the economy, but they must respond to indicators that trend upward or downward, then adjust their own operations accordingly. For example, if economists forecast a recession, it could be time to tighten budgets, eliminate some projects, and remain in a holding pattern until things improve. However, when the economy grows and interest rates are low, that could make it easier for you to obtain low-interest loans to help expand your business.