Understanding the environment your business operates in is a key part of planning, and will allow you to discern the threats and opportunities associated with your area of business. Show
An external analysis looks at the wider business environment that affects your business. An internal analysis looks at factors within your business such as your strengths and weaknesses. Examining your internal and external analyses together gives you a complete picture of your current situation and the steps you can take to plan your marketing. PESTLE external analysisA PESTLE analysis helps you to identify the main external opportunities and threats in your market:
SWOT internal analysisYou also need to understand your own internal strengths and weaknesses. A SWOT analysis combines external and internal analysis to summarise your Strengths, Weaknesses, Opportunities and Threats. For example, a new business may note the following:
You need to look for opportunities that play to your strengths. You also need to decide what to do about threats to your business and how you can overcome important weaknesses. For example, your SWOT analysis might help you identify the most promising customers to target. You might decide to look at ways of using the internet to reach customers. And you might start to investigate ways of raising additional investment to overcome your financial weakness. To find out more about strategic analysis, see measure performance and set targets. Invest NI's Business Direction Tutorial includes a chapter on how to use SWOT analysis to assess your business. See the video below: As a business owner, some things are under your control, such as who you hire and what products you sell. External factors are the things outside your control, such as the economy, your competition, your customers and other elements in your external environment. Your business plan needs to consider how external factors can affect your company for better or worse. Never forget the importance of environmental factors in business. Writing a Business PlanYour business plan turns dreams about the future of your company into specific written goals and projections. A good plan tackles the big questions, such as how long it will take your company to turn a profit, how many employees you'll need and how much control you're willing to yield to investors. Writing everything down forces you to think through your answers and make firm decisions. External factors lie outside your decision-making authority. You can't stop your competitors from offering a better product or keep the economy from sinking into recession. Your business plan can, however, take external factors into account. For instance, if you know your top competitor is going on a hiring binge, that will affect how you plan to recruit and reward employees. Internal and External AnalysisYou can't write a good business plan based on guesses. To get the hard facts that you need requires internal and external analysis. Internal analysis looks at your company's strengths and weaknesses, such as the uniqueness of your product (a strength) and a lack of financing (a weakness). External analysis looks at the outside factors that can affect your success.
While there are many external factors that can affect your business, you can identify the core ones with the acronym PESTLE, for political, economic, social, technological, legal and environmental factors. SWOT is another way to group your analyses. It breaks all factors, internal and external, into four classes: strengths, weaknesses, opportunities and threats. Your company's strengths and weaknesses are internal factors. Your opportunities and threats are external. The Importance of External AnalysisYour business plan has to deal with the importance of external environments in managing organizations. To make the business plan effective, you need detailed information about how the external environment affects you. If, say, you're making an external analysis of your direct competitors, you might want the following information:
You can find this sort of information by reading annual reports, press releases, presentations to investors and articles about the company. The results of your external analysis tell you how to compete effectively. They also help you anticipate how the competition might react to your company's new product or pricing strategy. Matching External and InternalExternal analysis isn't the end game. It's just one step toward drawing up a good plan. Internal and external factors don't exist in a vacuum. For instance, suppose you see an opportunity for a new product line, but you don't have the ability to create one. The opportunity is external, and the limits on your ability to exploit it are internal. To see how internal and external factors affect each other, make a grid with four squares:
This is known as a TOWS grid. You can use the four squares to see how well equipped you are to handle the threats and take advantage of the opportunities:
A TOWS grid doesn't automatically suggest strategies. It does show you where you need to develop strategies to defeat threats and rise to opportunities. You may find the solution to a given challenge is eliminating a weakness or building on one of your strengths. It may be that your weakness makes you too vulnerable to cope with a threat, or your strengths simply aren't strong enough. In that case, you may have to turn to outside help, partnering with other businesses or inviting in new investors. Writing the Plan
Once you've analyzed the effect of external factors and worked out how you'll respond to them, you incorporate that material into your business plan. How you write the plan depends partly on the purpose for which you intend to use it. If you want to attract investors or lenders, a business plan shows them why they should trust you with their money. Craft the plan to emphasize your company's potential and your ability to overcome external threats. It includes your sales and marketing strategy and your projected profits. As you'll be showing it to people who know nothing about you or your business, you'll have to make it clear, concise and compelling. Some business plans are written for internal use, not external use. The goal is to give you a clear map for planning the future and avoiding bumps in the road. You can share it with key employees so they too understand where the company is going. This version still needs the insight from your external analysis. Why is matching internal and external factors such an important strategic management activity?Matching internal and external factors extends the reach of your Team and is important to enlisting the wider community in maintaining and sustaining systems change. Think creatively about how to match the Strengths and connections of Team members with Opportunities that exist in the wider community.
Why do we need to consider internal and external factors in making strategic plan?Once they know about both positive and negative effects within and outside the company, they can produce suitable strategies to handle any predicted situation. Therefore, examining internal and external factors is considered the most important task for an enterprise before launch any strategic marketing plan.
What is the importance of performing internal and external assessments in strategic management?An external and internal audit reveals key opportunities, threats, strengths, and weaknesses confronting an extractive company so that managers can formulate strategies to take advantage of the opportunities and strengths and avoid or reduce the impact of threats and internal weaknesses (David, 2009).
What are the internal and external factors affecting strategic management?The economy, politics, competitors, customers, and even the weather are all uncontrollable factors that can influence an organization's performance. This is in comparison to internal factors such as staff, company culture, processes, and finances, which all seem within your grasp.
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