Types of Business Environment | Internal & External Business Environment

Internal and External Business Environment that affect the organization's performance

Types of Business Environment

Environment refers to all external forces, which have a bearing on the functioning of business. And business environment consist of all those factors that have a bearing on the business. It can be defined as total of internal and external factors to an organization that affects it. The term business environment implies those external forces, factors and institutions that are beyond the control of individual business organizations and their management but affects the business enterprise. 

Environment is dynamic and changes according to time, so it is complex and difficult to forecast. It is necessary to maintain regular monitoring on environmental changes to grab opportunities and understand probable threats and challenges. It cannot exist and operate without environment. These are internal or external forces that affect the organization’s performance. 

There are two types of business environment that affect the organization’s performance and they are as follows;

• Internal Environment and 
• External Environment 

1) Internal Environment 

The internal environment is the environment that has a direct impact on the business. These internal factors are generally controllable because the company has control over these factors. It can alter or modify such factors as its personnel, physical facilities and organization and functional means to suit the environment. An organizations’ internal environment consists of conditions and forces within the organization. It provides strength and weakness to the organization. Its major components include; 

Owners 

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

Board of Directors 

They are the representatives of shareholders who are directly involved in the day to day operations of the company. It is the responsibility of the board of directors to run the business in the best interest of the shareholders and other stakeholders. They are the people who are involved in the preparation of long term plans and business strategies of the organization. 

Employees 

Employees can be defined as a person employed for wages or salary, especially at non-executive level. They play a vital role in the organization. It is the responsibility of a manager to keep coordination among themselves under any unit of workforce. When managers and employees hold the same values and have the same goals that lead towards predefined objectives. 

Structure 

Structure is overall framework for organizational roles, rules, hierarchy, relations, and authority. The periodic adjustments made in the work or functions of individuals, groups or units changes the internal working of the organization. 

Culture 

Culture refers to the belief involved in the activities and applied in an organization. It is the assumptions that members of an organization share in common. In every organization there are systems of values, symbols, rituals, and practices that have evolved over times. 

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. 

2) External Environment 

External environment refers to the environment that has an indirect influence on the business. It is the factors and forces outside the organization that affect the organization’s performance. The factors of this environment are uncontrollable by the business. The external environment includes two layers and they are; 

• General Environment
• Task Environment

General Environment 

It is also known as macro environment or remote environment. It refers to the brad external conditions that may affect business activities of the firm. It creates threats and opportunities to the business organization. It is categorized into different components as follows; 

• Economic Environment:- There is tight bond between business and its economic environment. Business obtains all its needed inputs from the economic environment and it absorbs the output of business units. 

• Socio-cultural Environment:- It refers to the values, norms, beliefs, lifestyles, accepted behavior patterns of people, family systems and customs of people in a given society. These elements of society directly influence business organizations. 

• Political Environment:- The political environment of a country is influenced by the political organizations such as philosophy of political parties, ideology of government or party in power, nature and extent of bureaucracy influence of primary groups etc. 

• Technological Environment:- Technology is understood as the systematic application of scientific or other organized knowledge to practical tasks. Technology changes fast and to keep pace with it, businesses should always be alert to adopt changed technology in their business. 

Task Environment 

Task Environment involves factors in the immediate competitive situation of a particular organization. It is also called the competitive or operating environment. Forces in the task environment result from the actions of suppliers, distributors, customers, and competitors.