ACEBA Systems Technology Institute Inc.

Senior High School

Organization and Management (Quarter 1)
Academic Track

MODULE 3

CHAPTER 2

THE FIRM AND ITS ENVIRONMENT

Objectives:
At the end of this chapter, the students are expected to:
1. Discuss the meaning and nature of business.
2. Identify the various kinds of business.
3. Recognize the objectives of business.
4. Identify various forces/elements of the firm’s environment.
5. Describe the local and international business environment .
6. Summarize these forces using the PEST and SWOT analysis.

INTRODUCTION
Knowledge about management and organization is very useful especially in
human endeavors like operating a business firm. Business firms and the government
are expected to provide goods and services to the society.

Business may be defined as all-profit seeking activities and enterprises that

provide goods and services necessary to an economic system. Profits refer to the
rewards for business persons who take the risks involved in producing and marketing
goods and services.

According to Stephen P. Robbins & Mary Coulter, Environment refers to

institutions and forces that affect organizational performance.

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 ACEBA Systems Technology Institute Inc.
Senior High School
Organization and Management (Quarter 1)
Academic Track

Business Environment refers to the factors or elements

affecting business organization. It divided into the External

and Internal Business Environment.

Business Environment-The combination of external and internal factors that

influence a company’s operating situation. The business environment can include
factors such as: clients and suppliers, its competition and owners; improvements in
technology; laws and government activities; and market, social and economic trends

Understanding the local and international business environment of the firm

requires managers of organizations to sharpen their cultural intelligence.
Cultural Intelligence is an individual’s ability to favorably receive and adjust to
an unfamiliar way of doing things.
Anthropologist EDWARD T. HALL, as cited by SCHERMERHORN (2008), the way
people approach and deal with the time varies across cultures.
 Monochronic culture is a culture where people tend to do one thing at a time.
 Polychronic culture is a culture that is more flexible on time and it is used to
accomplish many different things at one time.

Geert Hofstede, cited by SCHERMERHORN (2008), showed how selected countries

ranked on the five cultural dimensions he studies.
 POWER DISTANCE -The degree to which a society accepts or rejects the
unequal distribution of power among people in organizations and the institutions
of society.
 UNCERTAINTY AVOIDANCE -The degree to which society is uncomfortable
with risk, change, and situational uncertainty.
 INDIVIDUALISM-COLLECTIVISM- The degree to which a society emphasize
individual accomplishments versus collective accomplishments
 MASCULINITY-FEMININITY- The degree to which a society values
assertiveness and feelings of material success versus concern for relationship.
 TIME ORIENTATION- The degree to which a society emphasizes short-term
thinking versus greater concern for the future or long- term thinking.

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 ACEBA Systems Technology Institute Inc.
Senior High School
Organization and Management (Quarter 1)
Academic Track

KINDS OF BUSINESS
1. COMMERCE- Business firms which are engaged in buying and selling of goods
and services. Also included in this category are trading, merchandising, and
marketing. Examples of commerce as a kind of business are supermarkets, dry
goods stores, peddlers, sari-sari stores, importers, and many others.

2. INDUSTRY- engaged in production. Good produced which are intended for

ultimate consumption are called consumer goods, while goods intended for use
of business and industry are called producer’s goods.

Industry business may be further classified into:

A. Genetic Industries- are those involved in agriculture, forestry, and fish
culture.
B. Extractive Industries- are those involved in the extraction of goods from
natural resources, which include mining, lumbering, hunting and fishing.
C. Manufacturing Industries- convert raw materials into finished products.
Examples are firms engaged in the manufacture of drugs, plastics, food,
liquor, footwear, motorcars, tools, office supplies, etc.
D. Construction Industries- are those engaged in building infrastructures like
airports, seaports, dams and highways and dwelling units.

3. Services- one which sells service to the buyer. Service firms may be classified
as:
A. Recreation- moviehouses, television and radio stations, theaters for drama
and stage presentations, resorts and the like.
B. Personal- restaurants, barber shops, transportation, hotels, tailoring shops,
slimming salons, and the like.
C. Finance- banks, insurance companies, investment houses, financing
institutions, credit unions, savings and loans associations, and the like.

OBJECTIVES OF BUSINESS
A business firm is established primarily for profit. There are other reasons,
however, why anyone would want to start a business. Some of these are to do work that
is enjoyable to do something for pleasure and pride, and to achieve financial
independence.

Professional managers maintain that a business firm should achieve the following
multiple objectives:
1. Creation and distribution of product or service

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 ACEBA Systems Technology Institute Inc.
Senior High School
Organization and Management (Quarter 1)
Academic Track

2. Satisfaction of personal objectives like profits for owners, salaries and other
compensation for executives, wages and other compensation for employees,
psychic income for all, including pride in work, security, recognition, and
acceptance.
3. Protection and enhancement of the human and physical resources of society;
and
4. Economy and effectiveness of operation

THE LOCAL AND INTERNATIONAL BUSINESS ENVIRONMENT

The Local Business Environment
Local business is driven by specific local conditions and market characteristics.
Yet, it also operates in a larger economic context. At the local level, the business must
compete for employees, resources from suppliers at a competitive price, local
advertising and marketing channels. The most successful businesses are well-managed
creating a compelling value proposition relative to its local competitors. So, business
intelligence and local community buyer values are critical for management pricing,
inventory, and marketing strategies. Still, a local business operates in a larger economic
context.
The International Business Environment
The international business environment is the environment outside the
Philippines and in different sovereign countries, with factors that are distinct to the home
environment of the organization and the foreign country where the organization
operates.
ENVIRONMENTAL SCANNING- involves the seeking for and sorting through data
about the organization’s environment. It is a process of gathering, analyzing, and
dispensing information for tactical or strategic purposes. It is monitoring and interpreting
sweep of social, political, economic, ecological, and technological events to spot
budding trends that could eventually impact industry.
Components of Environmental Scanning
 competitive mind-set
 considering of future business scenarios
 business prediction/forecasting, and benchmarking
 Benchmarking is the process of measuring or comparing one’s own products,
services, and practices with those of the recognized industry leaders in order to
identify areas for improvement.

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 ACEBA Systems Technology Institute Inc.
Senior High School
Organization and Management (Quarter 1)
Academic Track

Environmental forces and environmental scanning

The business environment may be classified into two types:

EXTERNAL BUSINESS ENVIRONMENT - refers to the forces/factors outside the

organization which may affect, either positively or negatively, the performance of the
organization.

Figure 7
External Business Environment

Figure 8
Functions of the Business Firm

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 ACEBA Systems Technology Institute Inc.
Senior High School
Organization and Management (Quarter 1)
Academic Track

Types of Elements in the External Environment

Direct Action Elements
These directly influence the organization and often referred to as stakeholders of
the organization.

The Direct Action Components of the External Environment

 Customers- are whoever pays money to acquire an organization's product or
service. A customer could be an individual, an institution like school, a
government agency, a business firm, or a social club.
 Suppliers- are organizations that provide resources for other organizations.
 Labor Supply- Employing staff with relevant skills and experience is essential.
This process begins at recruitment stage and continues throughout an
employee's employment via ongoing training and promotion opportunities.
 Competitors- are other organizations that compete for resources. They may be
direct or indirect. Nescafe and Great Taste Coffee are direct competitors, and so
are Pepsi and Coke, but Nescafe and Pepsi are indirect competitors.
a. Monopoly- where there is only a single producer or seller.
b. Oligopoly- where there are only a few producers or sellers of similar
products.
c. Pure competition- when there are many producers or sellers of similar
products.
 Financial Institutions- commercial banks, development banks, and other
lending institutions
 Government agencies

Indirect Action Elements

These do not affect the organization directly. Instead, they affect the climate in
which the operations of the organization take place.
 The economic dimension inflation, interest rates, unemployment, and demand.
 The technological variable refers to the methods available for converting
resources into products or services.
 The socio-cultural variable- include the costumers’ changing values and
preferences; customs could also affect management practices in companies. Ex.
Filipino costumers are now conscious about the importance of avoiding fatty
foods.
 The political-legal variable refers to government regulation of business and the
relationship between business and government.
 The international variable refers to the extent to which an organization is
involved in or affected by business in other countries.

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 ACEBA Systems Technology Institute Inc.
Senior High School
Organization and Management (Quarter 1)
Academic Track

 The Demographic variable- consists of gender, age, educational level, income,

number of family members, geographic origin

Types of Business Environment

The environment of business may be classified as either static or dynamic

1. Static- Few forces in the environment are changing to affect business.

Ex. No new competitors, no new technological breakthroughs by current

competitors, and little activity by public pressure groups

2. Dynamic- When significant number of environmental forces that affect

business are changing.

Ex. Rapidly changing government regulations affecting business, new

competitors, difficulties in acquiring raw materials, and continuously changing
socio-cultural aspects of the population

INTERNAL BUSINESS ENVIRONMENT - refers to the forces/factors within the

organization which may affect, either positively or negatively, the performance of the
organization.

INTERNAL BUSINESS ENVIRONMENT includes:

 Resources – financial, physical, mechanical, technological, and human resources
must be subjected to internal analyses (SWOT)
 Research and development
 Production
 Procurement of supplies – materials, inputs, and finance
 Products and services, it offers

WHAT IS A PEST ANALYSIS?

A PEST analysis is a strategic business tool used by organizations to discover,
evaluate, organize, and track macro-economic factors which can impact on their
business now and in the future. The framework examines opportunities and threats due
to Political, Economic, Social, and Technological forces. Outputs from the analysis
inform strategic planning processes and contribute to market research.
The output from a PEST analysis is useful for informing other business management
tools such as SWOT analysis

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 ACEBA Systems Technology Institute Inc.
Senior High School
Organization and Management (Quarter 1)
Academic Track

Why do a PEST analysis?

 Helps to evaluate how your strategy fits into the broader environment and
encourages strategic thinking
 Provides an overview of all the crucial external influences on the organization
 Supports more decisive and knowledgeable decision making
 Assists planning, marketing, organizational change initiatives, business and product
development, project management, and research papers

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 ACEBA Systems Technology Institute Inc.
Senior High School
Organization and Management (Quarter 1)
Academic Track

Political Economic
Political or politically motivated factors Overall economic forces that could
that could impact the organization. impact on your success.
Examples include: Examples include:
Government policy, political stability or Economic trends, growth rates, industry
instability, bureaucracy, corruption, growth, seasonal factors, international
competition regulation, foreign trade exchange rates, International trade, labor
policy, tax policy, trade restrictions, costs, consumer disposable income,
labor/environmental/copyright/consumer unemployment rates, taxation, inflation,
protection laws, funding grants & interest rates, availability of credit,
initiatives, etc. monetary policies, raw material costs, etc.
Questions to ask: Questions to ask:
 What government policies or  What economic factors will affect
political groups could be beneficial us moving forward?
or detrimental to our success? How does the performance of the
 Is the political environment stable economy affect us at the moment?
or likely to change?  How are our pricing, revenues, and
costs impacted by each economic
factor?
Social Technological
Social attitudes, behaviors, and trends Technology that can affect the way you
that impact on your organization and make, distribute, and market your
target market. products and services.
Examples include: Examples include:
Attitudes and shared beliefs about a Technology and communications
range of factors including money, infrastructure, legislation around
customer service, imports, religion, technology, consumer access to
cultural taboos, health, work, leisure, the technology, competitor technology and
environment; population growth and development, emerging technologies,
demographics, immigration/emigration, automation, research and innovation,
family size/structure, lifestyle trends, etc. intellectual property regulation, technology
incentives, etc.
Questions to ask
Questions to ask:
 How do our customer’s beliefs and
values influence their buying habits?  What technological advancements
 How do cultural trends and human and innovations are available or on
behavior play a role in our business? the horizon?

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 ACEBA Systems Technology Institute Inc.
Senior High School
Organization and Management (Quarter 1)
Academic Track

 How will this technology impact on

our operations?
Figure 9
PEST Analysis
The SWOT Analysis

Figure 10
SWOT Analysis

To run a successful business, you should regularly analyze your processes to

ensure you are operating as efficiently as possible. While there are numerous ways to
assess your company, one of the most effective methods is to conduct a SWOT
analysis.

A SWOT (strengths, weaknesses, opportunities and threats) analysis is a

planning process that helps your company overcome challenges and determines what
new leads to pursue.

The primary objective of a SWOT analysis is to help organizations develop a full

awareness of all the factors involved in making a business decision. This method was
created in the 1960s by Albert Humphrey of the Stanford Research Institute, during a
study conducted to identify why corporate planning consistently failed. Since its creation,
SWOT has become one of the most useful tools for business owners to start and grow
their companies.

 Strengths refer to internal competencies possessed by an organization that will

enable it to achieve its objective.

 Weaknesses are areas that limit or inhibit an organization’s overall success.

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 ACEBA Systems Technology Institute Inc.
Senior High School
Organization and Management (Quarter 1)
Academic Track

 Opportunities refer to economic, socio-cultural, political, technological,

demographic, and industrial trends and events that could significantly benefit an
organization in the future.

 Threats are economic, cultural, political, technological, demographic and

industrial trends and events that are potentially harmful to an organization’s
present and future competitive position.

Figure 11
How to Conduct SWOT Analysis

Figure 12
What is SWOT Analysis?

A SWOT should be prepared for each of your company business/ product

activities. The results of SWOT Analysis will guide you in making the action plans.

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 ACEBA Systems Technology Institute Inc.
Senior High School
Organization and Management (Quarter 1)
Academic Track

Capitalize on Strengths

Reduce Weaknesses

Use Opportunities

Neutralize, Convert Threats into Opportunities

ACTIVITY 1
Name 10 Famous Local Businesses in the country and 10 international businesses.
Write your answer in a piece of paper.
ACTIVITY 2
Give one possible positive and negative impacts to business operations for each of
the following direct action elements of external environment. Write your answer in a
piece of paper.
DIRECT ACTION POSITIVE NEGATIVE
ELEMENTS
a. customer
b. supplier
c. labor supply
d. competitors
e. financial institutions
f. government
agencies

ACTIVITY 3
Give one possible positive and negative impacts to business operations for each of
the following indirect action elements of external environment. Write your answer in a
piece of paper.

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 ACEBA Systems Technology Institute Inc.
Senior High School
Organization and Management (Quarter 1)
Academic Track

DIRECT ACTION POSITIVE NEGATIVE

ELEMENTS
a. technological
variables
b. economic variables
c. socio-cultural
variables
d. political-legal
variables
e. international
variables

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 ACEBA Systems Technology Institute Inc.
Senior High School
Organization and Management (Quarter 1)
Academic Track

ACTIVITY 4
CASE 2. LILI MARLENE AVIATION SCHOOL: Lucy in the Sky with Diamonds

For more than 15 years, Miss Marlene Cagatao worked in various capacities with
Airwave Aviation School, an educational institution engaged in educating and training
pilots and
airplane technicians.

Marlene was aware of the ever-increasing demand for pilots and technicians
around the world. This information lingered in the mind of Marlene and she thought that
maybe there was an opportunity to open an aviation school outside Metro Manila. As
vice president of Airwave Aviation School for five years, she felt that she was ready to
operate a school for pilots as presidents. She knew exactly the requirements needed for
operating this kind of school.

In due time, Marlene was able to convince three prominent persons to finance the
project. Marlene already had a name for the school: LILI MARLENE AVIATION
SCHOOL. Her next
concern was to find suitable location outside Metro Manila. She found a 20-hectare land
in Cabanatuan City, which she thought , would be just right for her proposed project.
When Marlene was called to a meeting with the financiers, she was asked about the
advantages of Cabanatuan as the site for the school. Among her reasons were the low
acquisition cost of land and the importance of the area in the development of the
projects of the national government. The construction of the SCTEX highway to Baguio
was in progress, while the proposed seaports in Dingalan and Baler, Aurora was already
drawing board. In addition, various infrastructures and facilities were already presents in
the area.

The financiers were satisfied with her statements regarding the proposed site, but
they wanted more information. Marlene was told that like any other business, operating
an aviation school must be able to meet the criteria of profitability and stability for long
period of time. They asked her to produce information about how the current situations
would allow the proposed aviation school to prosper. In response, Marlene agreed to
produce the answers in their next meeting.

LEARNING ASSESSMENT:

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 ACEBA Systems Technology Institute Inc.
Senior High School
Organization and Management (Quarter 1)
Academic Track

1. Using the various environments that affect business, conduct and presents an
environmental scanning that could serve as basis whether to pursue or not the proposal.
2. Based on the data given, provide a list of pros and cons for the proposed location
site.
3. Create acceptable assumptions to present possible level of profitability and stability of
the proposal

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 ACEBA Systems Technology Institute Inc.
Senior High School
Organization and Management (Quarter 1)
Academic Track

ACTIVITY 5
Making the Most of Your Talents and Opportunities

Make your own Personal SWOT Analysis using this format. Write your answer in a piece
of paper.

Prepared by: Rea Mariz I. Jordan/ GumacaSHS-Teacher / 09.07.2020