Internal Factors that May Affect the Business Organization

Mastering some of the forces that impact your business is more challenging than handling others. The extent to which you can control them differs. You can change how internal and external factors affect your firm. You cannot make the economy grow. But, you can encourage spending. Learning more about the factors at work will better equip you.

In this article, I will not go into much detail about external factors. I will discuss elaborately how internal factors can impact a business. I will talk about the most popularly assessed internal factors.

The internal business environment comprises of factors within the company which impact the success and approach of operations. Unlike the external environment, the company has control over these factors. It is important to recognize potential opportunities and threats outside company operations. However, managing the strengths of internal operations is the key to business success.

The role of company leadership is an essential internal factor. Your leadership style and other management style impact organizational culture. Often, firms provide a formal structure with its mission and vision statements. Some cultural implications which result from leadership approaches are:

  • Value of employees
  • The positive or negative nature
  • Effectiveness of communication level of family-friendliness

The strength of employees is also an essential internal business factor. Check if employees are motivated, hard-working and talented. They will produce better results compared to an unmotivated and less talented workforce. The processes and relationships between and within departments can also improve effectiveness and efficiency.

In a high performing workplace, the workers not only have talent, but they also work better together. The employees and departments collaborate on ideas and resolutions.

The internal factors basically include the inner strengths and weaknesses.  Internal factors can affect how a company meets its objectives. Strengths have a favorable impact on a business. Weaknesses have a harmful effect on the firm.

Some examples of areas which are typically considered in internal factors are:

  • Financial resources like funding, investment opportunities and sources of income.
  • Physical resources like company’s location, equipment, and facilities
  • Human resources like employees, target audiences, and volunteers
  • Access to natural resources, patents, copyrights, and trademarks
  • Current processes like employee programs, software systems, and department hierarchies

Companies must also consider softer elements like company culture and image, the role of key staff, operational efficiency and potential.

Below, I have mentioned the most common internal factors. These might affect your business in various ways.

  • Organizational and operational

These are a part of the operational and administrative procedures. This includes disorganized or inaccurate record keeping.  Interruptions to your supply chain and outdated or faulty IT systems are also factors you should evaluate. If you do not overcome these, your customers might see you as unreliable. You can also lose all your data.

  • Strategic risks

These affect your firm’s ability to reach the goals in the business plan. They could be due to the impacts of changes in technological evolutions or customer demand. These factors could pose as threats as they can alter how customers perceive your product. Based on these, customers might think a product is overpriced, dull and outdated.

  • Innovation

Your business needs innovation in order to keep up with competitors. It is essential to get one step ahead. Innovation could come in the form of marketing. It could also be through promotional initiatives in the marketing plan, staff training, and welfare.  Embracing new technology is the best way to keep up with technological advancements.

A lack of innovation can pose a serious risk to a growing business. No innovation will cause a company to remain boring. The company will become dull, stagnant and irrelevant.

  • Financial

The financial risks depend on the financial structure of your business. It is also dependent on your business transactions and the financial systems. For example, changes in interest rates or being overly reliant on one customer could affect business.

  • Employee risks

Employees are vital to business success. But, there are risks associated with them. For an industry, strike action could lead to a lot of problems.

Internals Factors in SWOT

The internal factors of a business are often studied in a SWOT analysis. The SWOT matrix is a structured planning method. You can use SWOT analysis to analyze your company and its environment. It assesses the strengths, weaknesses, opportunities, and threats. The strengths and weaknesses of a project or business are internal factors. Opportunities and threats are external elements.

Strengths

Strengths are the features of your business which allow you to work more effectively than competitors. Your specialist technical knowledge could be your strength. You will have to consider your strengths from own point of view. You should also give importance to customers’ and clients’ view.

You must be honest and realistic. When you try to find company’s strengths, try to answer the below questions:

  • What is it that you do well?
  • What benefits do you have over your competitors?
  • What makes you stand out from the competitors?

Weaknesses

Weaknesses are the areas which have scope for improvement. Find out if your business is new products or skills. Also, try to find if you have a lower productivity or higher cost base than your competitors.

You will have to face the unpleasant truths about your firm and be realistic. Ask the following questions:

  • What are you bad at?
  • Is there anything you could be better at?
  • What should you avoid?
  • What leads to problems or complaints?

The greatest thing about internal factors is that you have control over most of them. Changing internal factors often involves some indirect costs. Some of the factors are a result of the way you run your business. Example of this includes reputation, credit worthiness, and image. Other factors depend on your business decisions. Example of this includes management structure and staffing.

Image: Rawpixel.com/Shutterstock.com

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