The Internal Environment

Introduction

This text gives an example of the firm's value chain as an important tool for determining how it provides value to the customer through its operational functions. The VRIO analytical tool is meant to answer specific questions that the firm must address when evaluating the firm's offerings.

How and why do managers conduct an internal analysis of their firms?

A firm's internal environment is illustrated in the image by the innermost orange circle. The internal environment consists of members of the firm itself, investors in the firm, and the assets a firm has. Employees and managers are good examples; they are firm members who have skills and knowledge that are valuable assets to their firms. Evaluating a firm's internal environment is not just a matter of counting heads, however. Successful firms have a wide range of resources and capabilities that they can use to maintain their success and grow into new ventures. A thorough analysis of a firm's internal situation provides a manager with an understanding of the resources available to pursue new initiatives, innovate, and plan for future success.

Components of a Firm’s Environment

Source: OpenStax, https://openstax.org/books/principles-management/pages/8-5-the-internal-environment
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