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AO3 You need to be able to: Demonstrate synthesis and evaluation. Command terms these terms require students
to rearrange component ideas into a new whole and make judgments based on evidence or a set of criteria. Compare
Compare and contrast, Contrast, Discuss, Evaluate, Examine, Justify, Recommend, To what extent

Changing objectives in response to changes in the external and internal environment

NB You will deepen your understanding of these concepts when studying PEST and SWOT analyses

Aims and objectives are not fixed, but will change from time to time in response to changes in the internal and external environments, which offer opportunities or pose threats.

Internal environment:

Internal means inside the business and can be controlled by the business. It includes all aspects such as developing human resources, financial planning, change management and marketing.

Negative internal changes may include:

  • High staff turnover and/or absenteeism
  • Falling quality standards
  • Loss of productivity and falling motivation and morale
  • Liquidity problems
  • Increasing costs

These negative changes (Weaknesses) are a threat to the business and must be addressed by changing aims and/or objectives

- for example by MBO.

Positive internal changes may include:

  • The recruitment of talented and experienced individuals
  • Improving productivity and quality
  • Successful innovation
  • Exceeding performance measures

Positive changes (Strengths) to the internal environment also should be addressed. These might involve changing budgets or success criteria or even strategic aims. If change does not happen the firm may still perform well, but below its capabilities.

External environment:

This external environment is everything outside the business, and is not controllable by the business. It includes political, economic, social and technological (refer to PEST analysis later) changes which impact on the business and its markets. The external environment provides the opportunities for business growth and development and poses threats to its financial and operating activities.

The drivers to change in the external environment may be negative or positive.

Negative changes may include:

  • Recession
  • New competition
  • Innovation and new products from competitors
  • New laws and regulations which increase the firm's costs
  • Changes in social behaviour and trends which will decrease demand for a firm's products and services

These negative changes are a threat to the business and must be addressed. Although the firm cannot change the external environment - it may alter its business practices and operations to reduce their effects.

Positive changes may include:

  • Economic recovery and boom periods
  • New technologies that will reduce production and/or operating costs
  • Changes in consumer behaviour that favour the firm's products and services
  • Reductions in taxes

Positive changes (Opportunities), of external factors should lead the business to review its corporate objectives and strategy and adjust its plans for the future (refer to SWOT analysis later)

Change can be very stressful for businesses and must be managed effectively