Internal Components of Business Environment

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Internal Components of Business Environment

After discussing the meaning and Concept of the Business Environment, its characteristics, and its importance of the business environment, now we will discuss the various components of the business environment. They can be classified into two categories- internal and external. They, directly and indirectly, influence business decisions. Shortly describe some following points that show these internal components of the business environment.

Internal Components of Business Environments

Goals, policies, strategies; organizational culture; organizational resources; and organizational structure are major internal components of the business environment, They provide strengths and weaknesses to the organization. The components Of the internal environment Of a business are to a certain extent controllable because the firm can change or modify these factors to improve its efficiency. However, weak firms may not change or modify all the components. The management should utilize them in favor of the organization by using their knowledge, ability, and skill. Some popular definitions of internal environment given by J. Stoner and G. Agrawal are as follows:

Internal environment is all elements inside an organization that are relevant to its operations. —J. Stoner

Internal environment consists of conditions and forces within the business organization that affect its performance and outcomes —G. Agrawal

Eventually, the internal environment is the sum of all forces inside an organization that are relevant to the operation of the business. They influence organizational decisions. The management’s ability to analyze and make changes or modify them properly. The major internal environment is as follows:

1. Goals, policies, strategies


The organizational goal is an internal component or factor of the business environment. Goals are the overall objectives and purpose of a business that have been established by its management and communicated to its stakeholders. Profit maximization, wealth maximization of shareholders, bearing social responsibility, etc. are examples of organizational goals. Goals provide guidelines to the organization.


The policy is another internal component or factor of the business environment. It is a set of principles, rules, and guidelines formulated or adopted by an organization to reach its goals. Policies provide guidelines to the organization. Management must conduct its activities remaining under the policies.


Strategy is another internal factor of the business environment. An organizational strategy is the sum of the actions a company intends to take to achieve long-term goals. It is a broad action plan. It provides guidelines for the future activities of an organization. It provides strategic benefits to the organization.

2. Organizational culture

Another internal component of the business environment is organizational culture. This is supposed to be the stamina of the internal environment of any business organization. It is the norms, values, and beliefs that contribute to the unique social and psychological environment of an organization. It is based on shared attitudes, beliefs, customs, and written and unwritten rules.


Norms are standards, rules, guides, and expectations for actual behavior. Norms are acceptable behavior. Norms take a long time to change. Norms are specific guidelines.


Values are abstract conceptions of what is important and worthwhile. Values are general guidelines.


Beliefs are assumptions that are held to be true, by an individual or a group regarding events, people, or things. Belief may or may not be rational.

3. Organizational resources

Organizational resources are all assets that an organization has available to use in the organizational process. Human resources, physical resources, financial resources, and technological resources are the basic four organizational resources.

Human resource:

Human resource is an important organizational resource. Qualified, experienced, and motivated employees have considered a destiny of an organization Human resource is the strategic resource of an organization.

Physical resource:

The physical resource is another organizational resource. It consists of land, buildings, machines, equipment, furniture, raw materials, and so on. The organization needs adequate, suitable, and quality physical resources. They are very essential for the success of the organization.

Financial resource:

The financial resource consists of financial structure, cost Of finance, availability of finance, and so on. It is an important resource of an organization. It is considered the lifeblood of an organization. It can manage human, physical, and technological resources.

Technological resource:

The technological resource consists of information and communication technology, research and development, methods, models, theories, and so on. It plays a vital role to be a market leader and enjoying strategic advantages.

4. Organizational structure

Division of work, classification of activities, a hierarchy of authority, coordination, etc, are the constituents of organizational structure.

Division of work:

A division of work refers to the practice of division of total work into smaller tasks or jobs. This means that for every job, there can be any number of processes that must occur for the job to be complete. A division of work also includes a schedule of deadlines for the subtasks such as operations, finance, production, or marketing. It increases efficiency and productivity. It also brings specialization in work ensuring the right person to the right work breaking tasks into smaller more precise tasks. The total work of an organization is assigned among the people based on their qualifications, experiences, and skills.

Classification of activities:

Classification refers to the process of grouping activities into departments such as marketing departments, finance departments, production departments, personnel departments, etc. It is done on the basis of function, product, area, customers, process, time, and so on.

Hierarchy of authority:

A hierarchy is a system in which members of an organization are ranked according to status or authority. It is a power structure. Generally, it flows vertically upwards or downwards but sometimes it may flow diagonally.


Coordination is the integration and synchronization of the efforts of group members so as to provide unity Of action in the pursuit of common objectives of the organization. It is an integral element of all managerial functions such as planning, organizing, directing, and controlling. Thus, it is the essence of management. There are many individuals, groups, and departments in an organization that performs different kinds of activities. Coordination brings together these activities for achieving the objectives of the organization. It plays a vital role in the achievement of organizational goals.

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