The focus of the growth of organizations is often looking at from two perspectives. We have internal growth and external growth. It has been noted that the growth of any company is based on a set of strategies that are designed to guide the development process. In the development of companies through planning, internal growth is given priority. It by nature extends the prevailing capabilities of the company. Internal growth directly touches on the assets of the company.
A strong base on internal growth eases external growth. External growth is more elaborate than internal growth. Companies resort to external growth when they want to increase their growth capacity within a short time. Both the internal and external growth of companies is affected by many factors. Internal growth of organizations is impeded by many factors emanating from without the organization (Ma, 1999).
External factors that impede internal growth in organizations include economic, political, social, technological, cultural, customer, competitors, legal, and environment. These factors are prevalent in either the micro or the macro environments in which an organization operates (Cooney and Malinen, 2004).
The general working of the economy affects the internal operations of a company or organization. An example is a shift in the rates of interest. When interest rises, the organization will have paralyzed operations due to reduced borrowing. At times when the rates go low, the organization is likely to borrow more to implement their internal growth plans. Many other economic factors are resulting from economic policies and different economic forces. These are the rate of growth of the economy, nature of trading practices, and inflation which affect business (Zakić, Jovanović and Stamatović, 2008).
Social factors have both a direct and indirect impact on internal growth. The taste of consumers keeps changing and may either impact the organization positively or negatively. Taste of consumer change due to changes in beliefs, opinion, level of education, and preferences among others. Market research is the only solution that can be adopted by organizations in solving this problem. Politics can be a barrier to market entry.
The political climate such as political stability affects the operations of a company. When there is political stability, business is likely to flourish and by effect, the organization will strengthen; the reverse is true. Government policies on industries or organizations are a common thing. Changes in different policies; for instance, taxation will automatically affect the organization (Davidsson, 2006).
Technological changes can be both liabilities and assets to the organization. When new technologies emerge, organizations are forced to adopt the technology by acquiring the technological tools. This consumes resources from the organization. However, these tools help in making the organization more competitive. Hence, the tools raise productivity by boosting internal growth (Davidsson, 2006).
Organizations adjust their activities in the market relative to the competitors. The activities or moves adopted by competitors often affect the organization. Some measures taken by competitors may force organizations to adjust their internal structures thereby affecting the internal growth patterns (Zakić, Jovanović, and Stamatović, 2008).
Legal factors appear in different aspects of the external environment. Legislative changes may pressure organizations to change their structures so that they can meet the new requirements. Legal changes may stiffen the operating environment of a given organization. It may also favor the environment in which an organization exists thus boosting growth (Zakić, Jovanović, and Stamatović, 2008).
Even though internal growth forms the basis of growth for an organization, it must be understood that external factors have a significant influence on internal growth. Political and economic factors are significantly prevalent in micro and the macro-environment and have an enormous effect on the internal growth of the organization. While formulating internal growth strategies, organizations must learn to recognize the possible pressures in the external environment. These pressures are discovered through research. Research helps organizations to establish certain levels of predictions. Their predictions can help companies to put in place measures of coping with the changes that are embedded in the predictions made through research (Davidsson, 2006).
Organizations must consider three aspects, which as is proposed in the model of organizational growth by Davidsson. These are abilities, needs, as well as opportunities. Growth is affected by these three factors. The focus on these factors helps in achieving predictability. Predictability helps organizations to plan on how to deal with occurrences in the external environment (Davidsson, 2006). In either the economic, political, social, technological, or even the cultural spectra and which are likely to impact on internal plan implementation. As organizations plan on growth, they must factor in uncertainties.
These risks or uncertainties may not be generated within the organization; they mostly originate from the external environment. However, this does not mean that there are no internal factors affecting growth. Internal problems are mostly generated from the management and if they combine with external factors, the growth of the organization can be put to halt (Zakić, Jovanović and Stamatović, 2008).
References
Cooney, T. & Malinen, P. (2004). New Perspectives on Firm Growth. Turku: European Council for Small Business and Entrepreneurship.
Davidsson, P. (2006). Research on Small Firm Growth: A Review. Web.
Ma, H. (1999). Creation and preemption for competitive advantage. Management Decision, 37(3), 259 – 267.
Zakić, N., Jovanović, A. & Stamatović, M. (2008). External and Internal Factors Affecting the Product and Business Process Innovation. Economics and Organization. 5(1), 17 – 29.