The Internal Business Environment

The Nature of the Business Environment

The business environment is a set of forces and conditions within and outside the organization‘s boundaries that have the potential to affect the way the organization operates. These forces and conditions change from time to time. The business environment presents opportunities which organizations can take advantage and threats that the organization should avoid. For example changes in the environment such as the introduction of new technology or the opening of global markets, create opportunities for managers to obtain resources or enter new markets and thereby strengthen their organizations. In contrast, the rise of new competitors, a global economic recession, or an oil shortage poses threat that can devastate an organization if managers are unable to obtain resources or sell the organization‘s goods and services. The quality of managers‘ understanding of organizational environmental forces and their ability to respond appropriately to those forces are critical factors affecting organizational performance.

Structure of the Business Environment

The environment of business is divided into two sections: the internal and external environment. The difference between the external and Internal environment is based on whether or not the factors are outside or inside the organization and whether or not it is within the immediate control of the organization.


This consists of a set of forces and conditions within the organization‘s boundaries that have the potential to affect the way the organization operates. It consists of the owners, board of directors, employees, the organization‘s culture, the physical work environment and the various departments that make up the organization (the organizational structure). Let us briefly discuss these factors.


The owners of business are those who have legal property rights to the business. Owners can be a single individual who establishes and runs a small business, partners who jointly own the business, Individual investors who buy stock in a corporation, or other organizations. These sets of people have a stake in the business and are mindful of how the business is being managed.

Board of directors

A corporate board of directors is elected by the stockholders and is charged with overseeing the general management of the firm to ensure that it is being run in a way that best serves the stockholders interest. Some boards are relatively passive. They perform a general oversight function but seldom get actively involved in how the company is really being run. But this trend is changing, however, as more and more boards are more carefully scrutinizing the firms they oversee and exerting more influence on how they are being managed.


An organization‘s employees are also a major element of its internal environment. The employees are the workers who perform the day to day operations of the organization and ensure that work is being accomplished to achieve the organization‘s desired goals. These sets of people are being supervised and managed by the managers of an organization. Managers are responsible for combining and coordinating the resources of an organization including the workers to ensure that organizations achieved their goals.

There are many types of managers depending on their levels in the organization. We have the top managers, the middle managers and first-line managers. The top managers are relatively small group of executives who manage the overall organization. Some top managers are addressed as the chief executive officer (CEO). Others are called presidents or vice presidents. The next sets of managers are the middle managers. They are usually very large at least more than the top managers in most organizations. They are primarily responsible for implementing the policies and plans developed by the top managers and for supervising and coordinating the activities of lower-level managers. Examples of middle managers are the operations managers, plant managers, the last sets of managers we are going to consider are the first- line managers who are sometimes also called the supervisors. They supervise and coordinate the activities of the operating employees.

Physical work environment

An important part of the internal environment is the actual physical environment of the organization and the work that people do. Some firms have their facilities in downtown skyscrapers, usually spread across several floors. Others locate in suburban or rural settings and may have facilities resembling a college campus. Some facilities have long halls lined with traditional offices.

Organizational structure

Business organizations are characterized by a division of labour which allows employees to specialize in particular roles and to occupy designated positions in pursuit of the organizational objectives. The resulting pattern of relationships between individuals and roles constitutes what is known as organizational structure and represents the means by which the purpose and work of the organization is carried out.

The external business environment

This consists of a set of forces and conditions outside the organization‘s boundaries that have the potential to affect the way the organization operates. The external environment can further be sub divided into tasks and general environments.

The task environment which is an aspect of the external environment and is also referred to as immediate or operational environment is the set of forces and conditions that originate with suppliers, distributors, customers, and competitors .these forces and conditions affect an organization‘s ability to obtain inputs and dispose of its output. The task environment contains the forces that have the most immediate and direct effect because they pressure and influence managers on a daily basis. When managers turn on the radio or Television, arrive at their offices in the morning, open their mail, or look at their computer screens, they are likely to learn about problems facing them because of changing conditions in their organization‘s task environment. In unit 2, we shall discuss more about these factors.

On the other hand, the general environment consists of factors such as legal, economic, political, socio- cultural, technological and ethical factors which affect business organizations operations and which emanate from local, national and international sources.

The business environment is everything around the business organization which can impact on the performance of the organization. As we saw, in examining the business environment, we distinguished between the internal and the external factors which can affect the operations of an organization. The internal environment consists of the management team, employees, structure of the organization consisting of the various departments of the firm.

Self-Assessment Questions

1. Explain the term Business Environment‘

2. What is the difference between the Internal and external environment of Business?

3. Discuss how consumers influence Business Organizations.

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