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Internal Environment – Type of Business Environment

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internal environmentInternal Environment
Introduction to Management (ITM)
Third Semester | Second year
BSc.CSIT | Tribhuvan University (TU)

Internal Environment
An organization has several forces operating within its internal system. These forces together shape the internal environment. An organization’s internal environment consists of conditions and forces within the organization. It provides strengths and weakness to the organization. Its major components include;

  • its owners,
  • the board of directors,
  • employees and organized labor, and
  • the organization’s culture, structure

Owners:The owners of a business are the people who have a legal property right to the business. They may be proprietors, partners and shareholders. Depending upon types of organizations and the nature of business, they are directly or indirectly involved in management of the business.

Board of Directors:Board of Directors are the representatives of shareholders who are directly involved in the day to day operations of the company. Their responsibility is to run the business in the best interest of the shareholders and other stakeholders.  They are involved in the preparation of long term plans and business strategies of the organization.

Employees:Employees are vital and important asset of any organization. When managers and employees hold the same values and have the same goals, everyone wins.  When managers and employees work toward different ends, everyone suffers.

Structure: Structure is overall framework for organizational roles, rules, hierarchy, relations, and authority.  An organization’s structure keeps on changing.  The periodic adjustments made in the work or functions of individuals, groups or units changes the internal working of the organization.

Culture:Culture means the “assumptions that members of an organization share in common”. Every organization has its own culture. In every organization there are systems of values, symbols, rituals, and practices that have evolved over time.

Union: Labor unions represent the problems and feelings of their members to management.  In this process, labor and management interact with each other.  To negotiate wages, working conditions, hours of work, and so on, collective bargaining mechanisms are used.  To avoid unnecessary disturbances, the management institutionalizes grievance handling and collective bargaining systems in consultation with the unions.

As the composition of people, resources, structure, culture, network of relations, nature of products or services, and shareholders changes, an organization’s internal environment also changes.

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