Business Environment

Any company contains the internal environment and exists in the external environment. Both of these have great influence on enterprises performance (Fitzen, 2006). Through the identification of external issues and the assessment of internal issues, organisations are able to achieve success when the correct direction and proper strategy are made. On the contrary, if improper actions were taken in environmental aspects, firms will lose competitive advantage and cannot survive in the market (Fitzen, 2006). Therefore, it is essential to evaluate and understand both internal and external environments for companies. The purpose of this essay is to discuss whether or not the internal environment is more crucial to an enterprise than the external environment by analysing the major elements of them.

Auditing external environment is a significant way for companies to achieve successful business. The external environment offers a platform for organisations to develop. Companies can obtain opportunities to accomplish the desired goals there. However, the external market keeps pace with the constantly changing social progress that makes the environmental situations more and more complicated. In light of this, the uncertainty and uncontrollability must be handled scrupulously (Fitzen, 2006). In order to survive, enterprises should evaluate the external issues and adjust to the external changes accordingly. Otherwise, external aspects will pose a fatal threat to the growth of firms (Johnson et al., 2008). Assessment of outside environment can help organisations determine inside objectives and plans, which was clearly described as outside-in method (Garrett, 2010). The external environment consists of macro environment and micro environment which can be analysed by PESTEL and Five Forces respectively. The two models concentrate on main aspects of outside environment in different perspectives. By using these analytical tools, companies can identify the external opportunity and threat, and design sustainable business plans to attain long-term goals (Johnson et al., 2008). PESTEL comprises the changing and complicated drivers in the general environment. The term represents political, economic, socio-cultural, technological, environmental and legal. Those elements are closely related to each other and change constantly. For example, economic growth provides money capital to develop technology. Hence, companies should focus on all of them, because each factor can affect business performance. A case in point, in terms of socio-cultural, firms need to ensure that a campaign to be launched in a new market will not offend against the local custom and religion through the assessment of macro environment of that region (Johnson et al., 2008). As a result, PESTEL contributes to prevent external risk. Micro environment is a lower layer inside macro environment. The micro factors existing in this layer are defined as industry which stands for firms who produce similar goods and services. In another words, those firms compete and affect each other simultaneously. The analytical model to evaluate this competitive environment is called Five Forces which include danger of new rivals, risk of substitute goods, high price asked by suppliers, low price required by purchasers and competition among external actors. This method emphasises on profit potential. This is to say, by detailed analysing the outside forces, organisations can identify the situations of markets and their competitors, which enable them to modify the strategies to struggle against rivals and gain benefits (Johnson et al., 2008). For instence, Kodak failed to monitor forces successfully. As a specialist of producing film, Kodak gained high reputation in that industry. However, when it developed in the field of camera, Kodak did not win the same dominant status. Cameras made by Kodak can not compare with those produced by leading manufactures such as Nikon. Therefore, Kodak did not benefit from camera market. In addition, with the growing number of competitors fighting for this market, Kodak got less and less profit (Garrett, 2010). Therefore, insufficient analysis of external environment can lead firms to work out wrong strategies that cause them loss chances and face ventures (The Times 100, 2009). The external environment has been increasingly concerned since 1980s when Porter put forward the outside-in theories. However, internal environment obtains a relative low attention (Fitzen, 2006; Garrett, 2010). Furthermore, focusing on external aspects only without underlining the value of internal environment, firms cannot achieve sustainable development (Garrett, 2010).

Assessment of internal environment is an indispensible procedure to firms because it can