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What is Internal Environment ? Definition and 11 factors

The meaning of the word environment is the surroundings or the area where an activity
takes place. Various events take place in an organisation, and several employees work
together to achieve a common goal. The environments also influence the actions of
management and employees. There are mainly two types of environments, such as
Internal environment and external environment, which affect an organization.

In this article, you will learn about what is the internal environment, the definition of the
internal environment, and the main internal environment factors.

The internal environment of an organization is formed of various elements such as the

management of the organization, employees of the organization, philosophy of
the organization, and the goals & objectives of the organization.

Int. Environment Definition

The internal environment of an organization can be defined as an environment that

consists of various factors like human resource, the value system of the organization,
physical resources, organizational structure, mission, and objectives of the organization.
The internal environment not only influences the activities and choices of employees but
also affects the behavior of employees within the organization.

These factors influence the behavior of people working in the organization and also
impact their ability to make decisions. For example, in a traditional organization, the
relationship between managers and employees is stringent. The manager will only give
commands to his subordinates and expect them to do their job as asked, whereas, in a
modern organization, the relationship between a manager and his assistants is
somewhat lenient. The manager does not only assign work to his employees but also
provide them with opportunities to stay their opinion and to grow in their career.

The different factors of an organization influence its internal environment, and the
internal environment of the organization controls the behavior of managers and
employees working in the organization.

In the next section, you will learn about the different factors which form the internal
environment of an organization.

Internal Environment factors

1. Organizational structure

Organizational structure means the way information follows in an organization. An

organizational structure of an organization defines the composition of the board of
directors, management, and shareholders. The structure of an organization influences
the decision-making capacity of an organization. The more level of management in the
organization means more delays in decision making.

For example, if an organization has three levels of management, then it will take more
time to provide a solution to the problem faced by laborers as compared to an
organization with a lesser number of management levels. The ability to make quick
decisions is essential for an organization.

The role of the board of directors is vital in all critical decision making. Practical
managerial skills are required to run an organization smoothly and to achieve the goals
of the organization. In addition to this, the board of directors plays an essential role in
designing policies for an organization.

Further, these policies influence the decisions taken regarding the growth and
functioning of the organization. The professionalism and decision-making ability of
management is very crucial for the success of an organization.

2. Human resources environment

Human resources are the employees and labor working in an organization. Human
resource is the most crucial asset to an organization. The success of an organization
depends on the human resource of an organization.

The way employees are treated, and their skills are harnessed tells a lot about an
organization. In present times, talented employees like to work in organizations where
they are given opportunities to grow.

3. Value System

The value system of an organization is also known as the philosophy of an organization.

The value system of an organization contains work processes, culture, norms, climate,
and work processes of an organization.

The value system of an organization defines the way it works or treats its employees and
customers. In addition to this, the value system of an organization also determines how
the employees of the organization should perform their duties. They should do their work
by remaining within the value system.

4. Physical Resources

Physical resources mean the machinery, tools, and all other tangible assets of an
organization. The physical resources are significant for the success of an organization. A
company with better and more modern physical resources has a competitive edge over
its competitors.

For example, an organization with an automation machine can produce more in a given
period as compared to an organization with machinery which requires manual handling.
Because of this reason, companies always look for better mechanisms and updates it
frequently to produce more and generate more profits.

5. Mission and Objectives

The mission and objectives of an organization play an essential role in deciding the
future position of the organization and its place in the market. The business plan is
developed and resources are used to achieve the objectives of the organization’s
internal environment.

6. Corporate culture

The corporate culture of an organization is also known as organizational culture. The

corporate culture of an organization defines the beliefs, values, and assumptions
followed by the management and employees of an organization. It contributes in
identifying the unique social and psychological ethos of an organization.

The organizational culture of an organization influences everything from the way

employees interact with one another to the way important decisions are made in the
organization. Organizational culture controls the way information is shared in the
organization.

7. Financial and marketing resources

Financial resources define the income or total capital of an organization. An organization

with financial stability can decide to expand their business or can explore new markets.
Whereas organizations with limited financial resources find it challenging to grow their
business.

8. Plans and policies

Plans and policies of an organization are developed to achieve the goals of the
organization and to create discipline in the organization.

9. Corporate image

Corporate image means the reputation of an organization in the market. A company with

a positive corporate image attracts the right talent in the organization.
10. Labour management

Labour management means how an organization handles its employees and laborers.
The way employees are handled in an organization affects based on its internal
environment of an organization.

11. Technical capabilities

Technical capabilities imply to the technology used in the organization. Like physical

resources, companies with the latest technology have a competitive edge over their
competitors. The importance of technology has increased especially in the present era of
technology.