What Is the Importance of External and Internal Environments?

External environments are important for businesses because external events can immediately cause companies to fail. Internal environments are important because internal strengths give companies the ability to overcome crises.

Employee morale and training are intrinsic parts of the internal business environment. When deficits in these areas go unaddressed, employees can't maximize the effectiveness of business plans. Availability of assets is also important for a healthy internal environment. Companies need sufficient financial means to invest in infrastructure and equipment, building the foundations for healthy production levels.

External business environments are shaped by political, economic and cultural factors. For example, well-run businesses may not thrive if located in nations with depressed economies. As cultural and demographic realities change, businesses must often reduce production and cut back on employees. External factors can deny a business the opportunity to secure needed loans or pay back outstanding debts.

Earthquakes, floods and other natural disasters are among the most damaging external factors. Natural calamities can immediately and comprehensively destroy businesses through property damage and loss of life. Typically, it's tougher to plan for unpredictable external dangers than internal ones.

Oftentimes, events affect both internal and external business environments. General political and economic crises can limit the availability of workers, altering internal dynamics. New laws and taxes can limit internal effectiveness as well.