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What Is an Internal Environmental Analysis?

By Jan Fletcher
Updated May 16, 2024
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An internal environmental analysis is an extensive review of all aspects of a company's operations, internal guidance and mission. Aspects of operations typically reviewed are marketing strategy, production capacity, and the company's vision and leadership. All of these things are examined with a critical eye to uncover those aspects that may be problematic, yet go unnoticed in daily operations. Nonprofit organizations may also conduct a similar analysis.

Company management typically initiates this internal analysis in an effort to identify areas of risk and opportunity. Top-level management conducts an inventory to assess strengths and weaknesses in the overall functioning of the organization. It is usually an exhaustive review with a goal of identifying and rectifying those internal factors that are limiting the company's growth. The internal environmental analysis is in contrast to an external analysis, which would be concerned with the macro business environment.

An objective look at the firm’s staffing is usually at the forefront of an internal environmental analysis, since human resources are key to optimal business performance. The firm’s human capital likely will be inventoried. Managers will probably conduct a review of total staffing capabilities, assessing the depth of talent and management experience currently onboard.

The company's internal workplace culture, and how that may have shifted over time from its original mission and goals, will likely be assessed. Sometimes a company will use an outside firm to conduct the analysis. Such a move may occur, when the company wants an outside, objective view of the internal inner workings of the company.

In contrast to a staff performance review, the internal environmental analysis does not typically assess the company's human resources with an eye toward a particular individual's performance. That type of assessment would be considered part of regular human resource management. Instead, the sum total of the company's human capital would likely be considered as a major asset. An internal environmental analysis looks at staffing in terms of managerial competency and overall staffing needs on an organizational level. Areas of weakness, and departments that are understaffed or staffed with underqualified or overqualified employees, would probably be noted.

An internal environmental assessment is also conducted in order to diagnose areas of underutilization, functions that may be redundant, and areas of underdeveloped opportunities. Existing and forecasted financial resources of a company are also reviewed in the analysis. Available capital is compared to anticipated needs for expansion and capital improvements. How the organization is governed, and how well that is working for the company at the current stage of operations will likely be included in the review. The company's location and public reputation are also considered.

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Discussion Comments
By Populartesi — On Jan 15, 2014
As someone who has worked both in-office and remotely, I’m curious if an internal environmental analysis also looks at the expenses versus the value of having an actual brick-and-mortar office.

For example, I began working for a startup company that really took off and continued to increase their staff and, as a result, continued to buy bigger and better space in a downtown office. Of course, the cost became more than they could handle, so instead of decreasing office space they let people go. So even though I understand that companies need to look at the business performance of their staff as a whole, how do actual office costs factor into internal environmental analysis, if they do at all? Also, have there been any studies that have shown an increase in business performance after allowing people to work from home?

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