The key difference between internal and external business environment is that internal environment is specific and has a direct impact on the business, whereas external environment has an impact on all business groups, not just one particular business.
Analysis of internal and external environment is very important for the success of a business. Moreover, the internal environment is also known as a microenvironment, while the external environment is known as a macro environment.
CONTENTS
1. Overview and Key Difference
2. What is Internal Business Environment
3. What is External Business Environment
4. Similarities Between Internal and External Business Environment
5. Side by Side Comparison – Internal vs External Business Environment in Tabular Form
6. Summary
What is Internal Business Environment?
Internal environment refers to the environment that is in direct contact with a business organization and can directly affect the daily activities of the business. The internal environment comprises of factors like competitors, suppliers, customers, employees, shareholders. In other words, the internal environment is a collection of all the forces that are close to the business organization. Moreover, these factors have a short term impact on the organization.
The following is a description of how elements of the internal environment affect the business.
- Suppliers – They provide raw products and other commodities to the business to manufacture products.
- Competitors/Rivals – They compete in the market with equivalent products or services.
- Customers / Consumers – They purchase products or service and referred to as “king of business”.
- The firm itself is a combination of a number of elements like owners like shareholders or investors, employees and the board of directors who are interested in profit and the stability of the business.
In general, the internal environment is analysed by SWOT analysis. SWOT stands for Strength, Weaknesses, Opportunities and Threats. Through this analysis, a business entity can decide several things. For instance, the business can develop through identifying lapses in their internal environment such as training needs for their employees, resource allocations etc.
What is External Business Environment?
External environment of a business refers to the outside factors that influence the organizational performance, decision making and strategy of all businesses. It does not affect only one business entity but has an impact on similar business groups at the same time.
Macro environment is another name for the external environment. In the context of macro, it stands for global scale or large scale. Moreover, it has a vibrant nature which keeps changing.
The study of the external environment is known as PESTLE analysis. PESTLE stands for changing factors of external environment: political, economic, social, technological, legal and environmental variables. These variables consider both economic and non-economic factors like social issues, political concerns, ethnic mix, family structure, population size, income distribution, inflation, GDP aspects, political stability, taxes, and duties, etc.
Moreover, businesses can be more strengthened by identifying external business environment business or by conducting PESTLE analysis. As a result, there will be new product development, price changes, identifying new ventures, increasing market share etc.
What are the Similarities Between Internal and External Environment?
- The analysis of the internal and external environment is extremely important for the growth of a business.
- Therefore, it is necessary to analyse both the internal and external environment to maintain a smooth and sustainable business.
What is the Difference Between Internal and External Business Environment?
Internal environment or micro environment is specific and has a direct impact on the business. Meanwhile, the external environment, which is known as a macro environment, has no direct impact on a particular business, but it has an impact on all business groups. So, this is the key difference between internal and external business environment.
Furthermore, internal environmental factors are controllable by its own, while external environment factors are not controllable by the business. Additionally, the features of an internal environment directly and regularly affect the firm, but which is the opposite in the case of an external environment. Besides, a further difference between internal and external business environment is their analysis. A COSMIC or SWOT analysis can analyse the internal business environment, whereas PESTLE analysis can analyse the external business environment.
Summary – Internal Environment vs External Business Environment
Internal environment refers to the environment that is in direct contact with a business organization and can directly affect the daily activities of the business. In contrast, the external environment of a business refers to the outside factors that influence the organizational performance, decision making and strategy of all businesses. So, in summary, the key difference between internal and external environment is that internal environment is specific and has a direct impact on the business, whereas external environment has an impact on all business groups, not just one particular business.
Image Courtesy:
1. “SWOT en” By Xhienne – SWOT pt.svg (CC BY-SA 2.5) via Commons Wikimedia
2. “Business environment” By HelpinghandVK – Own work (CC BY-SA 4.0) via Commons Wikimedia
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