The global recession forced thousands of firms into bankruptcy. Does this fact alone confirm that “external factors are more important than internal factors” in strategic planning?

Expert Answers
Michael Ugulini eNotes educator| Certified Educator

Not necessarily. It depends on the company, its industry, and the quality of its management, as well as the particular internal and external factors that affect a business. External factors are as important as internal factors in strategic planning.  I believe that one does not supersede the other.

First of all, astute company management is management that considers all factors carefully when coming up with a strategic plan. Good managers don’t just consider external factors when coming up with a strategy.

Yes, external factors are very important for a company to consider. For example, retail clothing firms are finding it quite tough to grow sales in the contemporary marketplace. The reason: today’s consumers are currently spending more money on “life experiences” (food and travel) than on products such as clothing.

This past Christmas season was, over all, a dismal one for retail sales in the U.S. Therefore, the external factors of “changing consumer thinking and preferences” are causing retailers to think differently about how to get people back into their stores.

However, a company cannot ignore internal factors in strategic planning as they are just as important. A clothing retailer may have a concept for a new product by a great in-house designer. The company may believe this new product offering can once again spur consumer interest – resulting in more consumers visiting the retailer (in store and online) and also resulting in more sales. As a result, the retailer must advance this program, this internal factor, in its effort to drive sales and profits.

The strategic plan would be to get this new and innovative clothing product to market. The retailer would take into account external forces, while internally continuing to engage in product development. Therefore, strategic planning involves taking into account, as a whole, external and internal factors.

Furthermore, strategic planning means considering the internal factor of “budget constraints.” A company has only so much money to allocate to its strategies and must take this internal factor into account, while at the same time considering external factors such as economic volatility, unemployment, high interest rates, and government regulations as pertains to their specific business.

Many firms were forced into bankruptcy during the global recession because they were not well-prepared to weather that economic storm. This was due to internal factors such as poor planning; inefficient operations; limited budgets; employees that may not have been properly trained; a wrong product mix; unsuitable pricing, and more. Then, harsh external factors combined with these and caused their downfall. Nonetheless, more efficient and well-prepared companies, with smart management, survived the global recession and are still thriving today.