The Impact of Both Internal and External Factors on Business Success

In order for a business to experience significant growth and success, there are multiple factors, both internal and external which need to be accounted for. Not only are these factors internal or external, but they can also be micro or macroeconomic.

Some of the external factors which affect business performance can be measured using pestle. Pestle is an analytical tool which was developed by Professor Francis Aguilar and involves looking at the political, economic, social, technological, legal, and environmental factors which all affect a business. An external factor that isn’t included in pestle is demand. Demand is the “quantity consumers are willing to buy” (Eastin and Arbogast, 2020). It is significant as it provides a business with revenue allowing them to survive and expand. Different businesses use different levels of consumer orientation in their products due to price elasticity of demand. Due to the nature of elastic products having a larger change in demand from a change in price, elastic products are more standardised compared to inelastic products. Businesses producing inelastic goods are more likely to have adapted the product to appeal to their target market. The intersection of demand and supply is also of key significance to a business’s success as this helps a business to “optimise resources and achieve a balanced set of organisational goals”. If a business is at equilibrium it means that the “market is clear of shortage and surplus” meaning all goods produced are sold therefore the business doesn’t incur costs from holding unnecessary stock. Supply itself is another factor that affects a business’s success. If a business is to outsource stock whether it is raw materials or finished goods, the business needs to evaluate the implications from the association to that company. A UK-based clothing company known as Boohoo recently were found out to be paying factory workers as “little as £3.50 an hour” (Boohoo to investigate supplier over claim it paid workers £3.50 an hour, 2020) as well as having staff working throughout these unprecedented times “without the appropriate safety measures”. The implications of this to Boohoo have led to a movement on social media using the hashtag BoycottBoohoo in order to raise awareness and to encourage people to shop elsewhere. Demand and supply aren’t the only external factors which can affect a business’s success, environmental factors can also have an impact. There is an increasing amount of focus being placed on the negative effect humans have on the environment and how to reverse this. If a business chose to act correspondingly and carried out actions which were “beyond the interests of the firm and that which are required by law” then the business would be seen to have high corporate social responsibility which could give them a unique selling point giving them an advantage against competitors.

However, external factors can only influence a business’ success to a certain extent. A business needs to have an efficient internal structure to enable smooth operations and to allow for them to “adapt to the fast-changing environment” (Stoyanova and Angelova, 2018) before external influences can even play a part. A key internal factor for a business’s growth is to ensure they have chosen the correct organisational structure. Managers who are traditionally at a higher level in bureaucracy should “bring knowledge to bear on productive effort” to the rest of the staff. If a business decides to undertake Weber’s bureaucratic view and implement “strict supervision of the lower offices by the higher ones” (Weber, 1978) this could be detrimental to the business’ internal environment as employees in the lower offices may feel undermined and this, in turn, will reduce their productivity. The business’s choice of organisational structure influences which motivational theory the managers then use to drive productivity. In a centralised business with a strict hierarchy, it is most likely Taylor’s Scientific Management Theory will be adopted where employees are “motived solely by money”. A scientific, money-driven approach such as Taylor’s is only effective in a certain business as there are many other factors that motivate staff as outlined by Maslow’s Hierarchy of needs. Maslow orders needs by different categories, starting with the lowest and most basic needs such as physiological and goes up to the highest possible level being self-actualisation. If a business were to choose a flatter organisational structure where decentralisation is used it is much more likely for individuals to reach self-actualisation. Andy Cosh, Xiaolan Fu and Alan Hughes carried out a study to find out the relationship between organisational structure and the level of innovation within small UK firms. Their findings showed that “62% of business which chose to have a decentralised structure had higher levels of innovation” due to the increased freedom and motivation of workers. The choice of organisational structure has a significant influence on the corporate culture of the business. Corporate culture involves having shared beliefs and values across the corporation in order ‘to build organisational commitment, motivate personnel and facilitate socialisation” (Smircich, 1983). Another key internal factor influencing success and growth is finance. A business needs to ensure they have enough liquidity to meet their day to day overheads but also to ensure they can afford to purchase stock and use effective marketing. Businesses need to ensure they keep a reserve of capital to help them to cope with contingency plans. This is particularly relevant to today’s economy with the global pandemic of COVID-19 which forced thousands of businesses to stop trading, reducing their revenue significantly. Amazon managed to turn COVID-19 into a business opportunity as they had enough liquidity to hire “175,000 additional employees” (Dumaine, 2020) to help them cope with the surge of demand. If Amazon hadn’t had a contingency plan, they wouldn’t have been able to do this. Despite having to pay more staff wages amazon came out of its three-month period with a “26% gain in revenue over 2019”.

Overall, I believe that for a start-up business trying to grow responsibly and effectively in today’s economy their primary focus should be on external factors. This is because they will need to carry out extensive research of the market they are about to enter to ensure there will be a suitable demand. This will ensure they maintain a flexible stock level and unsettle market equilibrium. It will help a business to assess their competitors and for them to distinguish a unique selling point. Once the business is established the focus should shift to internal factors to make the business a pleasant working environment where instructions and expectations are clear.