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Environmental Factors in Strategic Planning

For any business to grow and prosper, managers of the business must be able to anticipate, recognise and deal with change in the internal and external environment. Change is a certainty, and for this reason business managers must actively engage in a process that identifies change and modifies business activity to take best advantage of change. That process is strategic planning.

The following diagram provides examples of factors that are agents of change and need to be considered in the strategic planning process. Explanation of these factors is found below.

Internal and External Environmment in Strategic Planning

Internal and External Environment

All businesses have an internal and external environment. The internal environment is very much associated with the human resource of the business or organisation, and the manner in which people undertake work in accordance with the mission of the organisation. To some extent, the internal environment is controllable and changeable through planning and management processes.

The external environment, on the other hand is not controllable. The managers of a business have no control over business competitors, or changes to law, or general economic conditions. However the managers of a business or organisation do have some measure of control as to how the business reacts to changes in its external environment.

Internal Environment Factors

Table 1 below identifies important aspects of the internal environment that can significantly impact on the well-being of a business or organisation. Generally the strategic planning process will examine the strengths and weaknesses of the organisation (see SWOT analysis), and it is likely that significant discussion will center on the relative strength of internal environment factors.

Table 1: Factors in the internal environment and their affect on the business/organisation
Factor Influence on the organisation

Human Resource

The knowledge, experience and capability of an organisation's workforce is a determining factor of success. For this reason, organisations pay particular attention to the recruitment of staff and also to engage in the training of staff and volunteers to build the organisation's capability. In pursuing both recruitment and training strategies, an organisation is often limited by its financial strength. Nevertheless, training of staff is an essential aspect of good business management, and even in difficult financial circumstances is an achievable strategy.

Organisational Culture

The culture within the organisation is a very important factor in business success. (see More about organisation culture). The attitudes of staff and volunteers, and their ability to "go the extra mile" makes a very significant difference. Negative attitudes can severely impact on the organisation's ability to implement strategies for development despite however thorough the planning processes. Positive attitudes of staff and volunteers will not only make the management task easier but also will be noticed and appreciated by customers of the business or members of organisation.

Organisation Structure

Businesses and organisations may be impeded by their structure, constitution and/or forms of governance. Organisation structure is essentially the way that the work needed to carry out the mission of the organisation is divided among its workforce. (see more about organisation structure)

In a non-profit organisation, the organisation will include the management board or committee (i.e. President, Secretary, Treasurer and Ordinary Committee Members), the salaried staff of the organisation and all the volunteers that have roles as coordinators of various business functions (e.g. Event Coordinator, Promotions Coordinator and Coaching Coordinator).When an organisation is a for-profit business that operates in a very competitive environment, its organisation structure may help or hinder the ability of the organisation to react to change. For example, when the organisation structure has many levels of management, decision making can be slow as information is carried up and down the hierarchy. For this reason, "flatter" organisation structures are often preferred i.e. people who work "at the coal face" and one level of management above. Volunteers are normal part of the non-profit organisation but not the profit-business. Although it is often hard to find volunteers, the organisation structure of the non-profit organisation can be very flexible by appointing volunteers as needed.


The capability of the management team and the leadership styles employed by managers will also have a major impact on the morale of staff (and volunteers in a non-profit organisation) and organisation culture. More contemporary forms of management involve workers in decision making processes and trusting that, although managers and workers have different viewpoints, they largely benefit by working together to achieve the business objectives.


The internal environment of the organisation can be made richer or poorer by its assets. For example, the organisation's premises can be pleasant and uplifting, or demure and depressing. The availability of equipment is another asset that can significantly impact on the internal environment. If equipment is in short supply or not of the expected standard, then staff may be hindered in the performance of their duties, or if equipment is used by customers then customer satisfaction will fall.

Financial Strength

Financial strength is a factor in its own right that influences the internal environment of the organisation. Despite however good other internal factors may be, it is very difficult for an organisation that is too short of cash to implement strategies within the strategic plan. If the organisation struggles financially this can impact on staff morale as budgets need to be excessively tight.

External Environment Factors

Table 2 below identifies important aspects of the external environment in which the business operates. The business cannot control these aspects but can respond to change if needed. The main problem for business managers is to be able to respond early to change in the external environment, and this depends on how soon any change is identified. Some external environmental factors such as economic conditions are reported daily in the media and managers have a wealth of information on which to develop strategic plans. However, some external factors may be difficult to identify, particularly of the pace of change is very slow or is hidden from view.

Illustration of external factors affecting the sport organisation


Table 2: Factors in the external environment and their affect on the business/organisation
Factor Influence on the organisation

Economic conditions

Prevailing economic conditions of the nation will have an effect on the spending patterns of citizens. Increases in interest rates and/or a high level of unemployment will depress consumption of non-essential goods and services. For example. when people experience financial hardship, they will spend much less on sport and recreation, holidays, new cars and luxury goods. Economic conditions are global as well as national, and when there is a global financial crisis as in 2007, changes in the external environment can be dramatic.

Market (competition)

The strength of business competition is a constantly changing factor in the external business environment. Not only will competitors come and go, but they will also change marketing strategies, product lines and prices. Often such changes are not heralded and business managers must be alert as to what competitors are doing.


Technological change has been rapid in the last 50 years and is a factor in the external environment that constantly exerts pressure on the business or organisation. If businesses do not adapt sufficiently quickly to technological change, they risk losing market share. It's not just that technological change affects the design of products, but even the delivery of services can change.

Climate change

Climate change is an insidious threat because the pace of change may be recognisable only if considered on a decade-by-decade basis. The effect of climate change will not fall equally on all nations and all businesses. Businesses that depend directly on a good supply of water e.g. agriculture, field sports will be adversely effected if climate change results in reduced rainfall. However the flow on affects of drought will eventually work their way through to all businesses in the effected community.


Taxation is one of most obvious changes in law through legislation. Sometimes taxation changes occur overnight with little warning and sometimes there is plenty of time for the business to prepare. Other law changes that commonly affect business include Workplace Health and Safety, Industrial Relations, Consumer Protection and Environmental Law,


The media is undergoing rapid and significant change. The main driver of this change is technology and the rise of the internet. Newspapers once carried many pages of job adverts but now this business is conducted by online recruitment companies such as Seek.


Like law, changes in government policy can be well notified and discussed, or without warning. As an example of how government policy has an effect, is that many organisations depend on government financial assistance. When there is a change of government, such funding assistance can disappear in a short space of time.


There is constant change in the make-up of the population. Some of these changes include an increasing proportion of elderly citizens, increasing number of two-income families, the age at which people marry is increasing, increasing ethnic diversity, suburbs which were once dominated by young families now have few. These demographic changes can have a significant effect locally. For example, a sport club which once prospered can begin to decline as the local area has less and less children.

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