Internal Environment:
The part or level of an organisation’s total environment that exists inside the organisation and usually has immediate and specific implications for managing the organisation is called the internal environment. It consists of those factors inside an organisation that affect the management of the organisation. In broad terms, the aspects included in the internal environment are, objectives, resources and facilities (human and physical), informal organisation (or group), other divisions or units of the organisation, unions, marketing and accounting. It may be notes that employees and unions of an organisation have such a nature as they are to be included both in external and in internal environment. From a more specifically management viewpoint, internal environment includes the state of planning, organizing, staffing, directing and controlling with the organisation.
Matching the Internal Environment with the External Environment
It is clear from the above discussion that on organisation (internal environment) must be suited to its external environment. The management develops its organizational strategies through an environment analysis. On the basis of the results of such environmental analysis, proper organisational strategy may be systematically developed by means of the following special tools and techniques:
1. Critical Questions Analysis (CQA)
Several contemporary management writers suggest that an appropriate organizational strategy is a process of answering some critical or basic question as follows:
(a) What are the purposes and objectives or goals of the organisation?
The answer to this question unfolds the desination where the organisation wants to go. Appropriate strategy must reflect organizational purpose and objectives in order to minimize inconsistencies in strategy.
(b) Where is the organisation currently heading?
The answer to this question tell about the state of achievement of organizational goals and also whether the level of present progress is satisfactory or not. Managers come to now the gaps in their performance. In fact, this question focuses on where the organisation is actually going – whether on desired path or in wrong direction.
(c) What is the present environment in which the organisation exists and what changes are expected in it in relevant future?
The answer to this question brings out the special features of the current environment and its future trends. However, it may be noted that this question focuses on factors both inside and outside the organisation. For example, lack of technically qualified personnel in the organisation and a sudden arrival of latest computerized technology in the market are the factors that exist respectively in the internal and the external environment.
(d) What steps are essential to better accomplish the objective in future?
In fact, the answer to this question focuses on the requirements of the actual strategy of the organisation in order to remove all inconsistencies and gaps in the currently adopted strategy. However, it may be noted that correct answer to this question depends on the opportunity provided to the managers to reflect on he previous three questions.
Thus, managers can have appropriate strategy to match internal environment with external environment only if they have a clear understanding of three things:
i. Where the organisation intends to go
ii. Where the organisation is currently going
iii. What is the environment in which it exists and is expected to exist.
2. SWOT Analysis
Strategic thinking tends to focus on analysis of the strengths and weaknesses of the firm and opportunities and threats of the external environment. Only after completing a comprehensive appraisal of the internal and external situations (strengths, weaknesses, opportunities and threats) of the firm, managers could consider the viable strategic options. Such options could only be broadly classified as, for instance, growth (to increase the amount of business), diversification (to reallocate resources to new attractive products in order to exploit new market segments), harvest (to maximize the short term cash flow from the business), retrenchment (to strengthen or protect the amount of business being currently generated) and divestiture (to eliminate an organisation segment, commonly known as Strategic Business Unit (SBU), that is not generating a satisfactory amount of business and that has little hope of doing so in the near future). Good strategic option (selected out of the aforesaid strategic options) should build on strengths and exploit opportunities.
The logic of this analysis indicates that as each firm will be facing a differnet set of opportunities and threats (Os and Ts), and each will have differing strength and weaknesses (Ss and Ws), the strategies that result will be unique to the firm. However, a precaution has to be taken in selecting the managers who conduct the SWOT analysis, because if it is given to inexperienced hands, then it may tend to generate long lists of points and the longer the list, the cloudier will be the emerging strategic picture.
It may be noted that they may be two ways to superior performance of the organisation:
i. either the organisation should become the lowest-cost producer in its industry,
ii. it should differentiate its products or services in such respects as are valued by the customers so high that they will pay a premium price to get and enjoy such edging benefits. Thus, organizations can choose to apply either of these two general strategies.
3. Business Portfolio Analysis
Under this type of analysis, sound and unsound business activities are separately identified in relation to market share of business and the growth of markets in which business exists. Sound activities are then continued, supported and emphasized, while unsound activities are discarded, discontinued and de-emphasized.
4. Competitor Analysis
Managers should know quite a lot about their competitors because it is essential to stay in competition in order to capture a lion’s share of the market. Organisations should devote the time and effort required to gain a deep understanding of their competitors. If they know their enemy, it will help them to anticipate the strategic moves that the rivals might make. For purposes of making a systematic examination of the competitors and their strategies the following steps are required to be taken:
(i). To examine the existing and potential (future) competitors by close scrutiny of the needs that organisation’s products or services are satisfying.
(ii). To examine the competitor’s current activities, capabilities, drives, expected moves and vulnerabilities (weaknesses).
(iii). To concentrate on four main areas with a view to establishing a comprehensive profile of the competitors their future goals, assumptions, current strategy and capabilites.