By the word environment we mean a “surrounding” as well as “conditions influencing development or growth of a situation.
“Business environment accordingly mean all external forces or factors which have an influence on business.
Many theoreticians are interested in including the internal forces as well as external forces having a bearing on business activities. According to them micro and macro aspects simultaneously interact to have influence upon business.
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Let us now see what we mean by internal environment. Internal environment is determined by management structure, ethos of the management, asset-structure of the organization, human capital, financial resources and marketing logistics.
The primary objective of any business is profit maximisation. At the same time organizations also have a human face in their approach. They do lot of things for their employees. Though in India labour welfare is not wider as in Europe on other countries of west Labour welfare has got an important dimension in recent a year that incidentally determines the organization’s ethos and values.
In that case a part of profit in spent towards labour welfare. Many business firms help in many philanthropic activities such as Tata, Infosys, Microsoft’s, and Ford etc. Profit is not the sole motive or aim of business. Business has a social responsibility too.
In modern industries high labour morale helps magnificently to uphold the cause of the organization. Labour in this sense is not a liability but real strength of a modern company. Similarly relationship between company and top hierarchy, interaction, team work, spirit of understanding play leading role in determining a firm’s objective. A modern company C.E.O. must enjoy the confidence of Board member for smooth functioning of the company.
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The ethics and rules of sound corporate governance requires that behaviour of C.E.O. must be democratic, transparent and the Board of Directors should remain responsible towards the shareholders and other stakeholders. This environment plays a crucial role in creating an ideal situation for a company.
The technological endowments, R&D activities, are real internal strength of a company. A company enjoys high level of profit and cost efficient input output mix if technological situation is strongly favourable. Many experts believe technology is a potent force in modern business.
Technological breakthrough if properly done with suitable mix of capital goods then it will marginalise the role of labour. In modern industries production function is designed in such a manner that allocation of capital and labour is made optimally to reach an ideally optimal situation.
These favourable situations are all the strength of internal environment of a company. The more favourable internal environment is the more will be the company’s optimal allocation of resources to achieve its goals, within a well defined frame of time.