Components of Internal Environment

Organizations also have an internal environment which includes all the elements within the organization’s boundaries such as human resources, other resources mission, culture etc.

Human resources:

A firm’s real assets are its human resources consisting of board of directors, top management, middle management, supervisors and employees. The board’s vision, commitment, knowledge, experience political connections – all help in taking the firm to commanding heights. Same is the case with the top management which provides direction and middle management which translates theoretical into action plans. Managers with vision, drive, and enthusiasm always help the firm to steer out of troubles and stay ahead of competition. An organization’s employees are also a key element of its internal environment. When managers and employees embrace the sale values and have the same goals everyone wins. When they work at cross purposes, however, or when conflict and hostility pervade the organizations everybody loses.

Other Organizational Resources:

Other organizational resources (Capital, land, equipment, plant, structure technology processes etc) should always be properly aligned with firm’s strengths combined in an appropriate manner to produce results. Factors such as proper location, up to date technology, adequate capacity, efficient distribution network, reliable and cost effective sources of supply etc help the firm in realizing its professed goals.

The organization’s mission:

Organizations are set up for a purpose. Although the purpose may change over time it is essential that stakeholders understand the reasons for the organization‘s existence that is the organization’s mission. An organization’s mission is a statement of its fundamental unique purpose that sets a business apart from other firms of its type and identifies the scope of the business operations in product and market terms. The mission at the corporate level in stated in fairly broad terms but is sufficiently precise to provide direction to the organization .At the business unit level , the mission is narrower in scope and more clearly defined. It is necessary that an organization carefully understands its mission because a clear sense of purpose is essential to set proper goals. C K Prahalad argued that organizations should spend a considerable amount of time in understanding what proficiencies they possess. For instance, Sony has used it skills in miniaturizing audio, video, electronics products as its particular strategic competence. Like wise AT&T’s diversification into the credit card field was an application of its strategic competence in transaction processing based on its extensive billing experience in the telephone industry. Companies that have lost sight of the goals, in India too, have slipped badly and lost their sheen and value in the market place (NEPC Group, Arvind Mills, US group, Damania Group, Modi Group, to name a few). They failed because they were not able to determine clearly which activities fitted into the their strategic direction and capabilities and which ones did not.


In a similar vein, culture is important to organizations because as individuals act on shared values and other aspects of organizational culture, their behaviors can have a major impact on organizational effectiveness. Organizational cultures, of course develop from a variety of sources. Strong founders may leave a major influence on the culture that develops within an organization. For example Ray Kroc, the founder of McDonald’s espoused, quality service cleanliness and value still the corporate creed. As rewards systems, policies, and procedures are established they impact culture by further specifying notions of appropriate behavior. Further critical incidents such as an employee being rewarded or fired for pushing a major innovation, may add to individual’s perceptions of internal norms over time. For example, a consistent shared emphasis on innovation has helped 3M produce a steady stream of new products as well as make continual improvements in existing ones.

Source: Strategic Management

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