Determinants of Internal Environment


Meaning of Internal Environment

Internal environment is an environment that symbolizes the atmosphere existing with the business organization. In simple terms, it means in-house factors of enterprise which are by nature constitutional. All the forces and factors lying within the business and have direct impacts on its operational activities fall under the category of the internal environment. It reflects the overall strengths as well as weaknesses of the business and is directly under its control.

The elements encompassed under the internal environment are culture, climate, operations, and their related processes, machines/equipment, staff members, management team, and management principles. Each of these elements possesses the ability to impact the business decisions or behavior of human resources associated with it.

Concept of Internal Environment

The term ‘internal environment’ was at first proposed by a French psychologist named ‘Claude Bernard’. He stated that the maintenance of a stable internal environment is a must for a business to survive within a large varying external environment. A business must always ensure that a positive and healthy environment is existing within its structure resulting in better operational efficiency. Management and the executive team of the company should take steps to provide adequate compensation, benefits, and a working environment to staff in order to keep them motivated and their morale high.

Determinants of Internal Environment
Determinants of Internal Environment

Determinants of Internal Environment 

Vision, Mission and Objectives

The value, mission, and objectives of a firm play a crucial role in deciding the future state of a business organization. It shows the reason behind the business’s existence and its ultimate goals along with the means to reach them. In order to attain the objectives of the business internal environment, a systematic plan is developed and resources are deployed efficiently.

Value System

Value system means the philosophy of an organization that is an integral part of its regulatory framework. It is composed of the culture, norms, work processes, and management practices of the organization. Value system denotes the manner in which a company treats its customer or employees. In addition to this, it also reflects the framework within which employees must perform their duties. 

Physical Resources and Technological Capabilities

Physical resources are tangible assets of firms like plants, machinery, and equipment. These resources define the competitive ability of a business and are key to its success. Technological capabilities, however, denotes the technical know-how of enterprise which are essentially needed in the current scenario of high technology. 

Organizational Structure

Organizational structure means the structure in which operations are directed and carried out within a business so as to reach the final goal. Activities included under this are the make-up of the board of directors, management, shareholders, task delegation, coordination, and supervision. Organizational structure can be functional structure, matrix structure, bureaucratic structure, matrix structure, etc. 

Corporate Image

Corporate image refers to the reputation which a brand has among the public in the market. A business that enjoys a good image is easily able to attract and retain the right talent. Employees also feel motivated and happy being a part of such a reputed brand. 

Labor Management

Labour management means the management of employees and labor working within the organization in distinct roles. Effective management of labor is essential for businesses for maintaining a sound working environment. Manner of employee handling greatly influences the internal environment of the company.

Financial Resources

Financial resources are resources that reflect the total capital amount as well as the income level of the company. The right amount of financial resources are key to maintain continuity in business operations. Businesses that have stable financial resources can easily expand their operations and explore new markets. On the other hand, scarcity of financial resources can become a big hurdle in business growth.