Externality

Lesson 1 How Internal and External Factors Drive Organizational Change

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• published: 05 May 2016
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Business: Principles of Management Ch 5. Organizational Change Lesson 1 How Internal and External Factors Drive Organizational Change Instructor: Sherri Hartzell Sherri has taught college business and communication courses. She also holds three degrees including communications, business, educational leadership/technology. Managers must recognize and respond to all factors that affect their organizations. This lesson describes how the internal and external environments of an organization drive change within the company. Navigating Change in Organizations Navigating in today's chaotic business environments is much like trying to steer a tiny boat back to shore while caught in the center of a hurricane. There are many forces at work that a person will need to respond to in order to make it safely back to port. Just like this tiny ship, today's organizations and their managers are faced with a significant amount of factors that require an immediate response, often in the form of organizational change. The forces that drive this change in business are known as the internal and external environments. This lesson will discuss how both the internal and external environments of an organization induce change. The Internal Environment The internal environment of an organization refers to events, factors, people, systems, structures, and conditions inside the organization that are generally under the control of the company. The company's mission statement, organizational culture, and style of leadership are factors typically associated with the internal environment of an organization. As such, it is the internal environment that will influence organizational activities, decisions, and employee behavior and attitudes. Changes in the leadership style, the organization's mission, or culture can have a considerable impact on the organization. The External Environment The external environment are those factors that occur outside of the company that cause change inside organizations and are, for the most part, beyond the control of the company. Customers, competition, the economy, technology, political and social conditions, and resources are common external factors that influence the organization. Even though the external environment occurs outside of an organization, it can have a significant influence on its current operations, growth, and long-term sustainability. Ignoring external forces can be a detrimental mistake for managers to make. As such, it is imperative that managers continually monitor and adapt to the external environment, working to make proactive changes earlier on rather than having to take a reactive approach, which can lead to a vastly different outcome. Environmental Scanning and Change In order for managers to react to the forces of internal and external environments, they rely onenvironmental scanning. Environmental scanning refers to the monitoring of the organization's internal and external environments for early signs that a change may be needed, to accommodate potential opportunities or threats, and to make adjustments to allow the company's strengths to combat its weaknesses. If you recall, one common type of environmental scan is the SWOT analysis, which looks specifically into the strengths, weaknesses, opportunities, and threats of the internal and external environments. A manager will begin analyzing the internal environment by looking into inefficiencies inside the organization, and will then look outside to the external environment and things occurring independent of the organization. Environmental scans allow managers to use the knowledge gained during the scanning process to decide what strategic steps, or changes, the organization needs to take to create or maintain a competitive advantage.