Top 11 Factors (Internal) Affecting Organisational Performance

Don Headgear
5 min readNov 16, 2022

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Photo by Jason Goodman on Unsplash

"What you don't know will hurt you" (Rohn 2011). This risk of insufficient information gain, in an organisational context, is broadly categorised into internal factors i.e. those under the control of the company no matter whether they are tangible or intangible and external (environmental) factors i.e. those outside and under no control of the company (Mageplaza, 2022). Far from mutually exclusive, these external factors can often drive internal factors and in some acute cases, internal factors can influence external factors. This has been demonstrated at Square, Inc, where the emerging strategy (internal factor) was to lobby the creation political environments (external factor) that were favourable to its business. (Business Research Methodology, 2021).

Despite their non-mutual exclusivity, let's focus on the internal factors in isolation so as to explicitly capture their relevance to organisational performance.

Notwithstanding the actions of such organisations as Square, Inc, external factors affecting organisational performance, generally speaking, cannot be fully controlled (Picincu, 2019). A more common, albeit less efficient approach, is for organisations to take action macro level action, in result to changes in external factors, opposed to addressing these external factors through internal means.

Internal factors affecting an organisation may be categorised as shown in Figure 1 (Pearson, 2022).

Figure 1 Internal Factors Affecting Organisational Change. Available at: Pearson (2022)

Whilst an interdependence also exists between internal factors, similar to environmental factors, for clarity and consistency, each internal factor shall be analysed in isolation.

1. Strategic Capability Planning

Strategic capability is the capability of an organisation to undertake strategic action (Lenz, 1980), given it's internal capability, in such a way that is consistent with it's corporate strategy, vision and values. This ensures any changes are consistent.

2. Diversity and Inclusion

As an organisation evolves its strategic capability, it must do so by embracing a diverse and inclusive workforce. Research has shown the a diverse and inclusive work environment generates enjoys a 2.3 times higher cash flow (Deloitte, 2020) (Bush, 2021). Diverse and inclusive teams have over 5 times higher employee retentions (Wong, 2020) (Bush, 2021). Not only this but it can also improve team performance by up to 30% (Gartner, 2019). Additionally, diverse and inclusive teams tend to have a greater readiness towards innovation (Bush, 2021).

3. Constructive Criticism

Constructive criticism or feedback is one of the most effective drivers for individual and organizational success (Czernik (2017). Thus, one may not be surprised by the need for organisational change as result of the emergence of Generation Z into the workplace. According to Jenkins (2019), 40% of Generation Z want performance reviews with their manager or team lead daily or in some cases up to several times a day in order to maintain team member retention. Even with a 5-10 min chat, this raises the team performance management overhead by a number of orders of magnitude compared to the presently adopted quarterly, 6-month or yearly check-in. Thus, the drive for an organisational change to facilitate constructive criticism.

4. Organisational Performance

As we have already mentioned, organisational performance can be improved by up to 30% (Gartner, 2019) through such internal factors as *diversity and inclusion* as well as concepts and innovation (Bush, 2021).

5. Attrition

This is the 'turn-over' rate of team members and as previously mentioned, a diverse and inclusive team has proven advantageous in increasing retention (Bush, 2021) i.e. reducing attrition.

6. Organisation Control and Bureaucracy

As observed by Weber (1922), organisational control and bureaucracy display self-reinforcing tendencies, ultimately resulting in a dehumanised organisation that suffocates individual freedom and potential. Thus, it seems only logical that creating change in this "iron cage" is hard (Tams, 2018).

7. Communication

Internal organisational communication facilitates the flow if information among members of the organisation. Whilst the direction of communication can be upward, horizontal or downward depending on the organization's structure, chain-of-command and culture (Hartzell & Kwong, 2012), any gap, block or redundancy in a communications channel/direction will almost certainty drive the need for change in an organisation.

8. Disorganisation

Miller & Skidmore (2004) describe this as the changing expectations of working life in that employees want more human organisations; quite the opposite to hyper-organisation. Perhaps the emergent strategy to handle the cultural shift towards more working from home, post COVID-19, was the first step on the journey towards a more disorganised work environment and as such is already driving organisational change.

9. Concepts and Innovation

Concepts and innovation should be the mantra for companies wishing to change their internal environments and in the process change the way they project themselves in the external marketplace (Juneja, 2022). As made clear by Bush (2021) this has been shown to improve team performance.

10. Emerging Strategy

The problem with strategic capability planning is that it is long term focused and does not address emergent factors affecting organisations (Indeed, 2021); for such dynamic factors we need an emergent strategy. For example, organisations had to develop an emergent strategy to address the post COVID-19 organisational culture of people's norms being such that they felt more 'normal' working from home.

11. Organisational Ethos and Culture

According to Schein (2004), organisation ethos and culture is comprised of three levels:
- Artefacts that may reflect culture (symbology language etc.)
- Norms and values about appropriate attitudes and behaviours (espoused or real)
- Underlying assumptions and beliefs (conscious or unconscious)

The culture of an organisation defines the 'correct' way to perceive, think and feel (CIPD, 2022), much like looking at the lens through which we see the world (Covey, 2020) or in this case the lens through which team members see the organisation.

Whilst it is evident that a multitude of internal factors can affect organisational performance, the aforementioned focal areas should aid one in categorising real instances to promote a more collective and effective mitigation strategy.

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References

Bush, M. (2021) Why is Diversity and Inclusion in the Workplace Important. Available at: https://www.greatplacetowork.com/resources/blog/why-is-diversity-inclusion-in-the-workplace-important (Accessed at: 2 November 2022)

Business Research Methodology (2021) Square PESTEL Analysis. Available at: https://research-methodology.net/square-pestel-analysis/ (Accessed:19 September 2022).

Czernik, A. B. (2017) Feedback: Driving Individual and Organisational Success. Available at: https://www.inspired-executives.com/feedback-driving-individual-organizational-success-download/ (Accessed: 1 November 2022).

Deloitte (2018) The Diversity and Inclusion Revolution, 22 Available at: https://www2.deloitte.com/content/dam/insights/us/articles/4209_Diversity-and-inclusion-revolution/DI_Diversity-and-inclusion-revolution.pdf (Accessed at: 1 November 2022)

Gartner (2019) Diversity and Inclusion Build Hight-Performance Teams*. Available at: https://www.gartner.com/smarterwithgartner/diversity-and-inclusion-build-high-performance-teams (Accessed at: 1 November 2022)

Indeed (2021) What is Emergent Strategy? With Benefits and Examples. Available at: https://www.indeed.com/career-advice/career-development/emergent-strategy-definition (Accessed: 2 November 2022).

Jenkins, R. (2019) This is How Generation Z Employees Want Feedback. Available at: https://www.inc.com/ryan-jenkins/this-is-how-generation-z-employees-want-feedback.html (Accessed: 2 November 2022).

Juneja, P. (2022) Role of Innovation in Change Management. Available at: https://www.managementstudyguide.com/role-of-innovation-in-change-management.htm (Accessed: 2 November 2022).

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