U3.18 — Internal and External Factors that Drive Change in a Global Environment
Overview
Dotpoint 18: internal and external factors that drive change in a global environment.
Businesses operating in a global environment must constantly respond to change. Global markets are affected by changing customer expectations, new technology, international competition, economic conditions, government regulations and social trends.
Change can be driven by factors from inside the business or from outside the business. This dotpoint focuses on two main groups of factors:
- internal factors — forces for change that come from within the business
- external factors — forces for change that come from the business environment outside the organisation.
Understanding these factors is important because businesses that fail to adapt may lose customers, become less competitive or miss opportunities in overseas markets.
Internal and External
Factors Driving Change
🏢 Internal factors that drive change
Internal factors are forces for change that come from within the business. These factors are usually linked to the business’s goals, performance, resources, leadership, employees, systems and operations.
Why internal factors drive change
Internal factors drive change because businesses often need to improve how they operate in order to stay competitive in global markets.
A business may decide to change because its strategy has shifted, its technology is outdated, its costs are too high, its staff need new skills or its current operations are no longer suitable for international growth.
Unlike many external factors, internal factors are usually more controllable because they come from decisions and conditions inside the business.
Key internal factors that drive change
Business goals and strategy
A business may change because its goals or long-term strategy have changed. For example, a business that wants to expand into overseas markets may need to redesign products, change its marketing strategy, open new offices or build international partnerships.
Example: Wendy’s decision to move Wunderers’ Hotels’ head office to Singapore is an internal strategic decision designed to support growth in the Asia-Pacific region.
Leadership and management decisions
Managers and owners can drive change by making decisions about structure, systems, staffing, innovation and expansion. Strong leadership can encourage a business to modernise before it falls behind competitors.
Example: Bob wants his dad’s camera store to modernise by embracing digital technology and e-commerce so the business can sell to collectors worldwide and create space for newer digital products.
Financial performance
Poor sales, falling profits, rising costs or weak cash flow can drive change because the business may need to improve efficiency, reduce expenses or find new revenue sources.
Example: Bob’s dad’s camera shop has declining sales and shelves full of outdated equipment, which creates pressure to change its products, technology and sales channels.
Technology and systems
Outdated internal technology can drive change because the business may become slower, less efficient or less attractive to customers. Modern systems can improve communication, online sales, data analysis, customer service and international operations.
Example: Introducing an e-commerce platform could allow the camera shop to sell old cameras to collectors around the world and reach customers beyond the local area.
Staff skills and workforce capability
Businesses may need to change when employees require new skills, training or roles. This is especially important in global markets where staff may need to use new technology, communicate across cultures or manage international customers.
Example: Wunderers’ Hotels needs Training and Development Coordinators to help train new employees in the Singapore office and support the company’s international growth.
Organisational culture
Organisational culture refers to the values, attitudes and behaviours shared by people in a business. A business may change its culture if it needs to become more innovative, customer-focused, diverse or internationally minded.
Example: Wendy believes diversity within teams is a driving force for change and growth, so she wants employees from different departments and experience levels to apply for leadership opportunities.
Operational efficiency
Operational efficiency can drive change when the business wants to produce goods or deliver services faster, cheaper or with fewer errors. Global businesses often need efficient systems because they may operate across different countries, time zones and supply chains.
Example: A business expanding overseas may need to change its ordering systems, delivery processes and customer support to serve international customers more effectively.
Example of how to write this factor in an exam
An internal factor that can drive change is leadership and management decision-making. This occurs when managers decide that the business must change its strategy, systems or operations to improve performance. For example, Bob wants his dad’s camera store to introduce e-commerce and modern digital camera practices. If the business uses online selling, it may be able to sell older cameras to collectors worldwide and create space for newer digital products. As a result, internal leadership can drive change by pushing the business to modernise before it loses further sales.
🌏 External factors that drive change
External factors are forces for change that come from outside the business. These factors are often less controllable and may include political, economic, social, technological, legal and environmental changes.
Why external factors drive change
External factors drive change because global businesses operate in changing markets, economies, societies and legal systems.
A business may need to change its products, operations, staffing, marketing or international strategy in response to government policy, exchange rates, customer trends, digital technology, legal requirements or environmental expectations.
Businesses that monitor external factors are more likely to identify threats early and take advantage of opportunities in global markets.
PESTLE factors that drive change
Political factors
Political factors include government stability, trade agreements, international relations, tariffs, sanctions and government policy. These can drive change by affecting how easily a business can trade or operate across borders.
Example: Wunderers’ Hotels may be encouraged to expand because international regulations and restrictions between countries have decreased, making travel and international operations easier.
Economic factors
Economic factors include interest rates, exchange rates, inflation, unemployment, economic growth and consumer confidence. These can drive change by affecting customer spending, business costs and demand in different countries.
Example: Increased confidence in international travel can drive change for Wunderers’ Hotels because stronger room bookings may encourage the business to expand its Asia-Pacific operations.
Social factors
Social factors include changes in customer preferences, demographics, lifestyles, values and cultural expectations. These can drive change by forcing businesses to adapt products, services and marketing to suit different groups of customers.
Example: A hotel chain operating in the Asia-Pacific region may need to adapt its customer service, loyalty program and marketing to suit different cultures, languages and travel preferences.
Technological factors
Technological factors include digital platforms, automation, artificial intelligence, online payment systems, e-commerce and communication technologies. These can drive change because businesses may need to modernise to meet customer expectations and compete globally.
Example: The growth of digital photography, e-commerce and online selling creates pressure for Bob’s dad’s camera shop to move away from outdated film-based practices.
Legal factors
Legal factors include laws and regulations relating to employment, taxation, product safety, consumer protection, privacy, contracts and international trade. These can drive change because businesses must comply with the rules in each country where they operate.
Example: A business expanding into Singapore may need to adjust employment contracts, tax arrangements, privacy practices and workplace procedures to meet local legal requirements.
Environmental factors
Environmental factors include climate change, sustainability expectations, waste reduction, energy use and environmental regulations. These can drive change because customers and governments may expect businesses to operate more responsibly.
Example: A global hotel chain may need to reduce energy use, manage waste and adopt sustainable practices to meet customer expectations and environmental rules in different markets.
Competitive pressure
Competitive pressure occurs when rival businesses force a business to improve its products, prices, technology, customer service or marketing. In global markets, competition can come from both local and international businesses.
Example: If rival hotels in Asia-Pacific offer better loyalty rewards, digital booking systems or customer service, Wunderers’ Hotels may need to change to remain competitive.
Example of how to write this factor in an exam
An external factor that can drive change is technological change. Technology can force businesses to update products, systems and operations so they remain competitive. For example, Bob’s dad’s camera shop is affected by the shift from film photography to digital photography and online selling. If the business does not respond to this external technological change, it may continue to lose sales and be left with outdated stock. As a result, external technology can drive change by forcing a business to modernise its products and sales channels.
🎧 Prefer listening?
If you prefer listening to the content in podcast format:
🎥 Prefer watching?
If you prefer watching the content in video format:
Biz Fact: The shift from film photography to digital photography shows how external technological change can force businesses to adapt quickly. Businesses that ignore major changes in technology can be left with outdated products, falling sales and weaker competitiveness.
Past Exam Questions
Use these past exam questions to practise applying internal and external factors that drive change in a global environment.
Section 1 Questions
2020 — Section 1 — Question 5(a) — 4 marks
Context
Successful management of any workforce requires the ability to continuously change and adapt. To operate in a global environment, organisations must also prepare their people adequately for change.
Question: Describe one internal and one external factor that drive change in a global environment. (4 marks)
Internal:
External:
Command term focus: Describe
Describe requires the main characteristics of each factor. For this question, identify one internal factor and one external factor and show how each can drive change.
See the full command term guide here: Command Terms.
Sample answer
Internal: One internal factor that can drive change is business strategy. If a business decides to expand into a global market, it may need to change its products, staffing, management structure, technology and marketing to suit international customers.
External: One external factor that can drive change is technology. New digital platforms, e-commerce systems and communication tools can force a business to update the way it sells products, serves customers and competes in global markets.
2024 — Section 1 — Question 1(a) — 2 marks
Context
To operate successfully in a global environment, businesses must ensure that their staff are prepared adequately for change.
Question: Identify two internal factors that can drive change in a global environment. (2 marks)
One:
Two:
Command term focus: Identify
Identify requires naming the factor. For this 2-mark question, two correct internal factors are enough.
See the full command term guide here: Command Terms.
Sample answer
One: Business goals and strategy.
Two: Staff skills and workforce capability.
Section 2 Questions
2017 — Section 2 — Question 8(a) — 4 marks
Case study / context
During his high school years, Bob worked in his dad’s specialty camera store, developing film and selling cameras and equipment after school. Bob took a couple of gap years and travelled the world, noticing the variety of photographic equipment people used. He also noticed the range of accessories people had purchased, such as camera covers, bags and selfie sticks.
Now back home, Bob’s ambition is to work with his dad to modernise and manage the camera shop once he graduates from the local university. Bob is trying to encourage his dad to embrace new digital technology by changing his current practices to modern digital camera practices and embracing the digital age.
Bob thinks an e-commerce platform would help move the ‘old’ cameras to collectors worldwide. Operationally, this would provide more space to stock digital products for customer sales in the shop. As well, the online presence would provide opportunities to develop electronic sales. However, his dad is resisting any change to the digital age and, as a result, sales are down and the shelves are full of outdated cameras and equipment.
Prepare a short report or essay for Bob and his dad addressing the following points:
Question: Outline why it is vital that businesses be aware of the internal and external factors that drive change. (4 marks)
Command term focus: Outline
Outline requires the main features. For this question, show why awareness of internal and external factors matters for Bob’s dad’s camera shop.
See the full command term guide here: Command Terms.
Sample answer
It is vital that businesses are aware of internal factors that drive change because these factors can reveal problems inside the business that need to be fixed. In Bob’s dad’s camera shop, sales are down and the shelves are full of outdated cameras and equipment. This shows the business needs to change its stock, technology and sales methods to improve performance.
It is also vital that businesses are aware of external factors because the market outside the business may change quickly. The shift from film cameras to digital technology and online selling has changed what customers want and how they purchase products. If the camera shop ignores these external changes, it may continue losing sales to more modern competitors. As a result, awareness of internal and external factors helps a business adapt before it becomes less competitive.
2023 — Section 2 — Question 9(a) — 3 marks
Case study / context
Wendy is the CEO of an Australian-owned hotel chain, Wunderers’ Hotels Pty Ltd, that has been operating for 25 years. Wendy has hotels in Australia and the Asia-Pacific area. The hotels have a strong loyalty rewards program, with over 50,000 members. Their goal in the next five years is to double their membership base and increase sales now that international regulations and legislation have decreased between countries. Wendy has seen an increase in room bookings in the last six months and believes people now have the confidence to travel once again internationally. Another accrediting factor to increased sales is due to popular events being rescheduled, such as the Australian Open and the Formula 1 Grand Prix.
Wunderers’ Hotels’ head office is in Melbourne. However, Wendy would like to move the office to the Asia Pacific region. This would allow her to focus on increasing memberships and customer service within that region and enable the hotel to be recognised as an international hotel chain. Wendy has chosen to establish the new head office in Singapore.
Currently, Wendy has 40 employees working in the Melbourne office in a range of roles in accounting, strategic business development, marketing, sales and human resource management. To train new employees in the Singapore office, she has requested a team member from each department to apply for a new role: Training and Development Coordinator. This will involve travel to Singapore four times a year. The role is an opportunity for leadership within the company and comes with an increase in salary and an annual bonus. Everyone within each team can apply if interested, no matter how long they have worked for the organisation or their experience. One of her main reasons for this is to create a team of leaders with diversity. Wendy strongly believes diversity within teams is a driving force for change and growth.
Some more experienced employees within the company have expressed disappointment and frustration that junior members of staff can apply for this promotional position. This has created arguments within the teams. Some staff members are also unhappy with the change of head office to Singapore. Implementing change within a business can be difficult and it is often met with resistance, so Wendy is keen to use Kotter’s 8 Steps to implement her changes successfully.
Refer to the case study and your own knowledge to answer the questions below.
Question: Explain one external factor that could drive change in this global business. (3 marks)
Command term focus: Explain
Explain requires cause and effect. Identify one external factor and show how it could drive change for Wunderers’ Hotels.
See the full command term guide here: Command Terms.
Sample answer
One external factor that could drive change for Wunderers’ Hotels is economic conditions. The case states that Wendy has seen an increase in room bookings and believes people have the confidence to travel internationally again.
If customer confidence and travel demand increase, Wunderers’ Hotels may need to change its operations to manage growth in the Asia-Pacific region. This could include moving its head office to Singapore, improving customer service and expanding its loyalty rewards program. As a result, stronger economic conditions and increased travel demand can drive change by encouraging the business to expand and operate more internationally.