Definition: Internal environment is a component of the business environment, which is composed of various elements present inside the organization, that can affect or can be affected with, the choices, activities and decisions of the organization.
It encompasses the climate, culture, machines/equipment, work and work processes, members, management and management practices.
In other words, the internal environment refers to the culture, members, events and factors within an organization that has the ability to influence the decisions of the organization, especially the behaviour of its human resource. Here, members refer to all those people which are directly or indirectly related to the organization such as owner, shareholders, managing director, board of directors, employees, and so forth.
Factors Influencing Internal Environment
- Value System: Value system consists of all those components that are a part of regulatory frameworks, such as culture, climate, work processes, management practices and norms of the organization. The employees should perform the activities within the purview of this framework.
- Vision, Mission and Objectives: The company’s vision describes its future position, mission defines the company’s business and the reason for its existence and objectives implies the ultimate aim of the company and the ways to reach those ends.
- Organizational Structure: The structure of the organization determines the way in which activities are directed in the organization so as to reach the ultimate goal. These activities include the delegation of the task, coordination, the composition of the board of directors, level of professionalization, and supervision. It can be matrix structure, functional structure, divisional structure, bureaucratic structure, etc.
- Corporate Culture: Corporate culture or otherwise called an organizational culture refers to the values, beliefs and behaviour of the organization that ascertains the way in which employees and management communicate and manage the external affairs.
- Human Resources: Human resource is the most valuable asset of the organization, as the success or failure of an organization highly depends on the human resources of the organization.
- Physical Resources and Technological Capabilities: Physical resources refers to the tangible assets of the organization that play an important role in ascertaining the competitive capability of the company. Further, technological capabilities imply the technical know-how of the organization.
Internal environmental factors have a direct impact on a firm. Further, these factors can be altered as per the needs and situation, so as to adapt accordingly in the dynamic business environment.