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This piece of paper is divided into two main segments. The first segment will discuss in detail two
differences and similarities that existed among the internal and the external environment. The
other half will explain the relationship between the industrial organization model and the
resource-based model with the internal and external environment.

Every organization have their own internal environment (strength and weaknesses) which they
have control over and this include the organizational culture, resources, and capabilities. On the
other hand they have an external environment (threats and opportunities) which they have
little to no control including, political legislations, economic conditions, competitors and the list
goes on (Hanson et al 2017). Steward (2018) highlighted that organization environments are
composed of forces surrounding an organization that affect performance, operation and
resources. It include all the elements that exist within and outside the organization’s
boundaries. There is no exception regarding the fact that managing organization is complicated,
but scholars and business management theorist argues that in order to manage organization
effectively, managers must understand their environment which can enables them to
determine the right mission let alone the right strategy to focus on . Once they had glimpse of
what their strength and weaknesses as while as the existing opportunities and threats are, they
will have more chances of surviving the turbulent nature of their surrounding environment. It is
very important to notify that rather than static, these environments (internal and external)
tends to constantly change overtime. As Hanson et al (2017) proposes, both the external and
internal environment are exposed to changes because of the increasing pressure for the
organization to be more competitive and communication and information technology
breakthrough. As a result, the strategic actions and performance will change with the change in
the nature of the environment.

To start with, the internal and external environment are very different in terms of the elements
or factors classified under each environment. The internal environment is a combination of the
organization itself: its policies, management structures, organizational culture and so forth. On
the other hand, the external environment is referred to the elements or forces that existing
outside of the organization that is independently existed on their own sake without the
influence of the organization. Nevertheless, the external environment’s elements when

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compared with the internal elements is very different. As listed by Hanson et al (2017) the
elements or the factors of the external environment consist of political, economic environment
which can include the fluctuation in inflation rate, unemployment and so forth.

Firstly, one of the differences between the strategic external and internal environment is based
on the level of controllability. Internal Environment are said to be controllable whilst, External
environments are uncontrollable.

Organizations has little to no control over their external environment. Hanson et al (2017)
highlighted that…the external environment is a very important factor for firm’s success yet
organization has no control of how the external environment elements will shape up. These same
elements tend to change constantly and unpredictably which makes it even more difficult for
organizations to deal with. Elements in an external environment include: economy landscape,
entrants to competition, regulations and so forth.

Conversely, organizations are more able to control their internal environment. This is because,
the internal environment consist of factors and elements that organization have access to at any
point in time. Some factors within the internal environment include, the organization itself, asset
and resources both tangible and intangible. In this note, strategic managers can mobilize skilled
workers anywhere within the organization or to other branches, but do not have the power to
replace any existing regulations that exist within the economy. Thus, in this note, one of the
differences between the internal and external environment is based on their level of
controllability.

Additionally, another differences that occur is based accordingly to the influence that each
environment on decision making .Decision making and performance system as a strategic
approach is influence by the firm’s internal and external environment. Whenever, strategic
managers and decision makers have to collectively agree on certain decisions, they tend to refer
to the analysis conducted on the internal and external environment as a framework for making
final decisions. Nevertheless, the external environment have an indirect yet regular influence on
decision making. This is because every now and then, the nature of external factors is constantly
changing, however the change happens elsewhere outside of the organization which then

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followed by changes within an organization. For instance, a change in the demographic pattern
in one country will often lead to a formulation of new marketing strategies, or involve a firm shift
from producing elderly consumable products to updated fashions preferred by youngsters.
Demographic change in this case is an external factor initiated first outside of the organization.
At the end, the firm then respond to the change by shifting to new operation and adopt new
marketing strategies that complement the new conditions of their environment, which as a result
reflects an indirect relationship.

The internal environment on the other hand, have a direct and distantly effect toward decision
making, operation as well as performance. Unlike the external environment, these are not
outside factors but built-in capabilities and or elements that are part of the organization so the
influence is rather quicker but not as regular compared to external factors.

However, apart from their very distinct nature, the internal and external environment tends to
have common traits that makes them similar to some extends. Their first similarities is based on
how the changeable nature and second is referred to the fact that in terms of strategic decision
making, both tend to have a similar level of importance.

It is believed that, the external environment is considered to be more volatile than the internal
environment. This is true when considering the number of amendments that has taken place to
government policies in some countries, or the rapidly growth in population and the different
patters it shapes to. Nevertheless, as confirmed by Muscalu et al (2016) there are four
characteristics of an external environment: it is numerous, complex, dynamic, unpredictable and
disruptive to organization’s strategic actions. In this note, the external environment is unstable
and it is constantly changing. Similarly, the internal environment tends not to be stable as well,
in regards to the competitive advantage which one of the elements in the internal environment.
As highlighted by Hanson et al (2017)…the competitive advantage of a firm do not last for so long.
Instead it tends to be as temporary and liable to change as the external environment conditions.
This is because, rival competitors in the long-run will tend to use their unique resource and core-
competencies to imitate products and service provided or add more value to their products which
will make their products and service stands out.

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The internal and external environment do not operate in isolation. As emphasized by Hanson et
al (2017)…the foundation for forming the firm’s visons, developing its mission and identifying and
implementing strategic action, organization needs to understand the condition of their external
environment via conducted analysis, then matching it with knowledge about its internal
environment. In this note, when it comes to finalizing strategic actions, despite their different
nature, the internal and external environment become similar in terms of level of importance. As
added by Muscalu et al (2016) the influence between the organization and its external
environment is reciprocal meaning that in one way or the other, each category of environment
influence one another. Thus, indicate that each are use collectively when it is time for an
organization to search for new opportunities or to achieve a competitive advantage.

Nevertheless, firms usually use Industrial organization model and resource based model to help
them develop their vision and mission. Understanding their internal and external environment
plays an important role in determining the right strategies to use at the same enabling them to
exploit the right opportunities.

The resource base model suggested that in order to get the average return a firm seeks, their
internal environment is the gateway. As Hanson discussed, “organization’s uniqueness resources
and capabilities are the basis of a firm’s strategy and its ability to earn above-average return”
(2017, p 15). The model simplifies that, understanding the key strengths and weaknesses plays
an important role on the use and selection of a strategy or strategies to exploit opportunities in
the external environment which result in successful performance. Therefore in this case, firms
do not need to be concerned about the conditions of the external environment. Instead, they
need to focus on which strategies they can implement and which opportunities they can exploit
in terms of the capabilities and resources that they have. Choosing a strategy that is not
compatible with the nature of their resources and capabilities that they have in-house will lead
to ineffective operation. Take for instance, Fiji is a culturally diverse country with a variety of
market opportunities. Successful firms that still operates to these days have a special traits of
capitalizing on serving the right market that they are know more about rather than adapting their

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strategies to the context of the external environment. In this way, they are able to get the above-
average return they seek.

On the other hand, the industrial organization model emphasizes that external environment
plays an important role in enabling firm to earn above average return. It becomes apparent that,
in order for an organization to be successful or able to earn above what they expect from their
investment, Hanson et al (2017) highlighted that they must develop or acquire the internal skills
needed to implement strategies required by the external environment. Additionally, the external
environment has a dominant influence on firm’s strategic actions and performances than do the
choices managers make in their organization. As Hanson et al (2017) claimed, successful firms
will always refer to the conditions of their external environment in order to know what necessary
skills and later on strategies that they need to implement that will enable them to become
attractive industries. In this note, the competitive advantages and core competencies that
organizations have are regarded as less important unless they complement and be useful to the
current external environment conditions so that they can get the superior returns they expected.

To sum up, organization environment apparently have appeared play an important role in the
strategic action. It has been noted that the changes in the organizational internal and external
environment tends to have a change in the strategic actions as well performance of an
organization. It also been outlined that both the environment (internal and external) have
common grounds or similarities which include the level of importance in terms of decision making
process and that both also are frequently and liable to change overtime. Their differences is also
discussed and to recall, both environment (internal and external) are different in terms of
controllability in which the internal environments are more controllable than the external
environment, apparently their elements are also far from similar, the internal emphasizes on
anything within the organization while the external refers to outside factors or elements.
Additionally, their influence is also different, the internal had a direct influence while the external
environment had an indirect influence. Finally, what also discussed are the two models namely
the industrial organization model which specifies that the external environment plays a dominant
role in the selection and use of strategies for a firm than the choice that managers make for their
firm. The other model which was discussed was the resource-based model for above average

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return which claims that in order to get the above average return, firms must develop missions
and vision and opportunities to exploit that matches their resources no matter if it is not the
most profitable choice. Nevertheless, their relationship with the internal and external
environment is plainly outlined the suggestions they made.

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Bibliography

 Muscalu, E, Iancu, D & Halmaghi E,E 2016, ‘ The influence of the external environment on
organizations’, Journal of Defense Resource Management¸ Vol. 7, No. 2, pp. 134-137,
viewed on 14 September 2018,from:
http://journal.dresmara.ro/issues/volume7_issue2/13_muscalu_iancu_halmaghi.pdf
 Steward, W 2018, what is an Organizational environment?, Study.com, viewed on 16
September 2018 from: https://study.com/academy/lesson/what-is-an-organizational-
environment-definition-theory-quiz.html
 Terreberry, S 1968, ‘ The evolution of organizational environments’, Administrative
Science Quarterly, Vol 12, No 4, pp. 591-593, viewed on 16 September 2018, from:
https://www.jstor.org/stable/pdf/2391535.pdf?refreqid=excelsior%3A2f89a6c6d40213
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