Crisis in Organizations: What Has a Bigger Impact – Internal or External Factors?

In today’s rapidly changing business environment, every organization is exposed to crises. The question many leaders ask themselves is: what has a bigger impact on an organizational crisis – internal factors that we can control or external factors that are beyond our reach?

Internal vs External – What Has a Greater Impact?

Internal factors, such as management decisions, organizational structure, company culture, or employee engagement, have a significant influence on the functioning of a business. These are areas we can manage, modify, and adapt based on needs. On the other hand, external factors – like economic, political, technological, or social changes – are largely out of our control but can still play a crucial role in an organization’s crisis. The COVID-19 pandemic is a prime example of how global, external circumstances can disrupt even the largest companies.

Crisis Doesn’t Happen Overnight – Recognize the Symptoms

Crises rarely appear overnight. Often, the first signs can be detected long before the crisis fully develops. The problem is that many organizations choose to ignore these early warnings. We fear failure and see it as something negative that should be hidden. Sweeping issues under the rug only makes things worse. In reality, early recognition of problems and an open approach to them can save a company from a serious crisis. It’s essential to change our perspective – we don’t have to be perfect. Accepting mistakes and irregularities can paradoxically protect us from bigger problems in the future.

Agency and External Factors – How to Find Balance?

Nurturing a sense of agency is crucial. We should work on changing what we can control, but with the awareness that not everything is within our grasp. We often forget about the phenomenon known as the “fundamental attribution error,” where we assume that our actions are the sole cause of a crisis or success. In reality, external factors, which we have no influence over, can have a key impact on our situation. Therefore, we should avoid extremes in our perception of crises – both the belief that everything depends on us and the idea that we have no control can lead to poor decisions. The key is to be aware of the existence of various factors and their interplay.

Generational and Economic Changes – Challenges for Organizations

We are currently living in a time of dynamic change – generations of workers, work methods, and entire economies are evolving. In such a situation, it’s easy to get lost and cling to old, proven methods that may no longer be effective in this new reality. Antonio Gramsci, an Italian thinker, defined crisis as a moment when the old has ended, and the new has not yet come. This analogy fits many organizations – we hold onto outdated methods because they worked for many years, forgetting that sometimes we must take a risk and change our approach to survive.

In the face of uncertainty, flexibility, adaptability, and openness to change are essential. Crises can be a breakthrough opportunity, but only if the organization is able to adjust to new realities.

 INTERNAL  FACTORS OF CRISIS

• Unclear corporate policies can lead to confusion in actions.

• Erroneous or vague company goals can hinder effective resource management.

• Rigid adherence to tried-and-tested formulas for success can stifle innovation.

• Lack of understanding of the organization's mission can result in a loss of goal clarity.

• Failure to adapt strategies to internal and external conditions can lead to disoriented actions.

• High turnover of managerial staff negatively impacts organizational stability.

• Poor management style can limit the effectiveness of actions.

• Erroneous assessment of employees' capabilities can lead to their improper utilization.

• Indecisiveness in management and decision-making negatively affects the pace of actions.

• Intra-organizational conflicts can disrupt harmony and work efficiency.

• Budgeting errors can lead to unforeseen losses.

• High costs can have a negative impact on the profitability of the company.

• Erroneous investments due to inadequate planning can result in losses.

• Poor management of working capital can lead to financial difficulties.

• Operating at a scale beyond financial capabilities can lead to indebtedness.

• Deficiencies in management organization can lead to chaos in operations.

• Erroneous organizational solutions not aligned with the strategy can hinder goal achievement.

• Conservative organizational methods can limit the ability to adapt.

• Lack of or inconsistent cross-functional actions can hinder effectiveness

• Deficiencies in non-production materials can lead to product problems.

• Outdated technology can limit the competitiveness of the company.

• Technical product errors can negatively impact the company's image.

• Unused production capacity can lead to inefficiency.

• Lack of automation can negatively affect productivity.

For every organization, a crisis is a unique event. On one hand, the risk of its occurrence can lead to serious threats and potentially result in the company's downfall; however, on the other hand, it can serve as a catalyst for positive changes and an opportunity for further development. The inevitable presence of crisis situations in modern organizations underscores the need for their early recognition, diagnosis, and ultimately, overcoming. This, in turn, highlights the importance of understanding the nature of the crisis and its causes.

Defining a crisis in an organization can be complex because it involves many different aspects. A crisis may be associated not only with financial issues but also with social, technical, or legal matters. It can affect both individuals and entire groups within the company.

In simple terms, a crisis is typically a difficult situation that may already be happening or may occur in the future. Generally speaking, a crisis is a crucial moment that can completely change the course of events in an organization.

Factors triggering a crisis in an organization can be the result of both internal actions over which we have control and external ones over which we may not necessarily have influence. Learn about internal factors within the company that may precipitate a threatening situation:

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