Organizations: Political, Structural

and Economic Environment

 Objectives
• Understand and explain organizational theory,
structure, design,
centralization/decentralization and levels
• Discuss the implications of government
regulation
• Enumerate the advantages and disadvantages
of a government planned economic activity
• Enumerate and discuss the legal and
administrative barriers to entrepreneurship
 Objectives
• Differentiate income distribution and wealth
distribution as well as discuss the different causes
of economic inequality
• Identify the different political dimensions relating
to business
• Explain the meaning of corporate social
responsibility and ethical behavior of enterprises
• Explain the role and influence of government and
different pressure groups on corporate policy
• Discuss the reasons behind economic inequality
One of the greatest delusions in the world is the
hope that the evils in this world are to be cured
by legislation

Thomas B. Reed (1886)

 Understanding the Organizational
Environment
• Organizations
– Are complex adaptive system that use people,
tasks and technologies to achieve specified goals
and objectives
• Organizational Theory
– Attempts to explain how organizations work by
defining the common features that organizations
share, by collecting data and by analyzing them,
assessing “what works where – and why”.
 Understanding the Organizational
Environment
• Structure and management of organizations
differ in:
– The sector they operate (public, private, non-
profit)
– The stakeholder configuration
– The set strategic goals and objectives
 Understanding the Organizational
Environment
• 3 Criteria for effective organizations (Drucker)
– They must be organized for business performance
– Their structure should contain the least number of
management levels
– Organizational structure should facilitate training
and testing of future organization leaders
 Organizational Structure
• Is the pattern of relationships among positions
in the organization and among members of
the organization.
• Purpose:
– Division of work
– Coordination of activities
 Organizational Structure
• Objectives:
– Accountability for areas of work undertaken by
groups and individual members of the
organization
– Coordination of different parts of the organization
and different areas of work
– Effective and efficient organizational performance
including resource utilization
– Monitoring the activities of the organization
 Organizational Structure
• Objectives:
– Flexibility in order to respond to changing
environment factors
– The social satisfaction of members of the
organization
• Dimension:
– Allocation of individual tasks and responsibilities,
job specialization and definition
– Formal reporting relationships, levels of authority
and span of control
 Organizational Structure
• Dimension:
– Grouping together of sections, department,
divisions and larger units
– Systems for communication of information,
integration of effort and participation
– Delegation of authority and procedures for
monitoring and evaluating the action
– Motivation of employees through systems for
performance appraisal
 Organizational Structure
• Consequences of Structural Deficiencies
– Low motivation and morale
– Late and inappropriate decisions
– Conflict and lack of co-ordination
– Poor response to new opportunities and external
change
– Rising costs – diseconomies of scale
 Types of Organizational Structure
• Functional
• Product/Service
• Geographical
• Divisional
• Matrix
Centralization and Decentralization
• All power for decision making rests at a single
point in the organization ultimately in the
hands of one person or group.
• The power is dispersed among people or
groups
 Advantages
• Frees top management of routine every day
decisions to concentrate on strategic
responsibilities
• Decision are more local, quicker, more
responsive to clients
• Increased awareness of cost effectiveness
through the organization
• Increased motivation and satisfaction by
junior management
 Disadvantages
• Requires good communication and adequate
control to and from the center
• Need for center to coordinate/integrate
• Can lead to inequality in treatment of clients
• Need individuals willing to take on additional
responsibilities
Large Organizations Lean towards:
• Less centralization
• More specialization
• More rules and procedures to be followed
 Levels of the Organization
• According to Drucker:
– Technical level (Bottom)
– Managerial level (Middle)
– Community/institutional level (Top)
 Mintzberg’s Nine Design Parameters
• Design assumes discretion an ability to alter the
system.
• 9 Design Parameters;
– Job specialization (Design of Position)
– Behavior formalization (DP)
– Training and indoctrination (DP)
– Unit grouping (Design Superstructure)
– Unit size (DS)
– Planning and control systems (Design of Lateral Linkages)
– Liaison devices (DLL)
– Vertical decentralization (Design of Decision Making
Process)
– Horizontal decentralization (DDMP)
 GROUPS DESIGN PARAMETERS RELATED CONCEPTS

Design of Job Specialization Basic Division of Labor

Positions
Behavior Formalization Standardization of work content
System or regulated flows
Training and Indoctrination Standardization of skills

Design of Unit Grouping Direct Supervision

Superstructure Administrative Division of Labor
System of Formal Authority, regulated flows, informal
communication, and work constellations organogram

Unit Size System of informal communication

Direct Supervision
Span of Control
Design of Planning and Control System Standardization of output
Lateral Linkages System of regulated flows
Liaison Devices Mutual adjustment
Systems of informal communication , work constellations,
and ad hoc decision processes
Design of Vertical Decentralization Administrative division of labor
Decision Systems of formal authority, regulated flows, work
Making Process constellations, and ad hoc processes
Horizontal decentralization Administrative division of labor
Systems of formal authority, work constellations, and ad hoc
processes
 Organizational Relationship
• Work Design
– Work can be combined in various forms. Decisions
on the methods of grouping will consider:
• Work Design
– The need for coordination
– The identification of clearly defined division of work
– Economy
– The process of managing activities
– Avoiding conflict
– The design of work organization which takes account
of the nature of staff employed, their interests and
job satisfaction
 Organizational Relationship
• Formal
– Line – vertical flow of authority
– Functional – between specialists in advisory
positions and line management teams
– Staff – personal assistants to senior members
 Organizational Relationship
• Span of Control
– Number of direct reports.
– Influencing factors:
• Nature of organization, complexity of work, range of
responsibilities
• Ability and personal qualities e.g. capacity of manager
• Time available to spend with subordinates
• Ability and training of subordinates
• Effectiveness of coordination, communication, control
systems
• Physical location of subordinates
People and Organizational Relationship
People – organizational relationship
Classification of objectives
Tasks and element functions
Division of work and grouping of people
Centralization and decentralization
Principles of organizations
Span of control and scalar chain
Formal organizational relationship
Line and staff organization
Project teams and matrix organization

Maintain the balance of the socio-technical system and

effectiveness of the organization as a whole
 Factors Affecting Organizational Structure
Selection in Multinational Corporation
• P - political
• E - economical
• S - socio-cultural
• T - technological
• E - environmental
• L - legal
 Regulation
• Is the administrative process of writing and
passing laws that, to a certain extent, restrain
some fundamental rights of business
• AREAS OF GOVERNMENT REGULATION OF
BUSINESS
– The State will take charge of economic activity
• Communist and socialist ideas
• Advantages of Planned Economy
• Driven for collective benefits. – Government decided
economies can be proposed to serve communal rather than
individual needs.
 Regulation
• AREAS OF GOVERNMENT REGULATION OF
BUSINESS
– Advantages of Planned Economy
• Economies of scale – a government run economy would
endeavor to replace a number of firms with a single
firm for the whole economy.
• Inherently protected – government planned economy is
not subject to major downside of market economies
and market-oriented mixed economies.
• Stability – when government is in charge, long-term
venture can be made without fear of a market
downward spiral which can easily lead to abandonment
of a project.
 Regulation
• AREAS OF GOVERNMENT REGULATION OF BUSINESS
– Disadvantages of Planned Economy
• Insufficient use of resources
• Restraint of democracy in trade
• Imposition of Legal and Administrative Barriers (in
ASEAN)
– Disproportionate licensing and regulatory requirements
• 3 Options for entrepreneurs
• Enter the informal sector by paying bribes each step of the way
• Secure and utilize “connections” in the government
• Obtain a government position and abuse the system of authority
to one’s benefit
– Excessive, complex, and arbitrary taxation
– Inadequate banking system and poor banking practices
– Lack of government’s commitment to reduce
administrative barriers
 Regulation
• REGULATIONS RELEVANT TO THE CONDUCT OF
BUSINESS
– Advertising
• Regulatory authority exists to protect consumers and keep
companies about their product.
– Employment and Labor
• DOLE and RTWPB
– Environmental
• Carbon footprint
– Privacy
• Privacy laws prevent companies in disclosing information
freely
– Safety and Health
• Safety and health laws ensures that employers provide safe
and sanitary work environment through frequent inspection
and a grading scale.
 Political Environment of Business
• Government imposes heavy financial
consequential penalties on a company proves
to be financially devastating to investors.
• Changes in government often result in
changes in policy and attitudes towards
foreign business.
 CSR and Organization
• CSR – can be defined as the “economic, legal,
ethical, and discretionary expectations that
society has of organization at a given point in
time.
• Moral, ethical, philanthropic responsibilities in
addition to their responsibilities to earn a fair
return to investors.
 CSR and Organization
• Contemporary Social Issues
– Environmental Issues
– Global Issues
– Technological Issues
 Ethical Behavior in the Enterprise
• Character – drives what we do when no one is
looking.
• Ethics – refers to a set of rules that describes
what is acceptable conduct in society.
• Integrity – being honest and sincere.
• Laws – is a series of rules and regulations
designed to express the needs of the people.
• Morals – are set of rules or mode of conduct on
which society is based.
• Values – are defined as the acts, customs, and
institutions that a group of people regard in a
favorable way.
 Role of Government in Business
• Consumer protection
• Contract enforcement
• Employee protection
• Environmental protection
• Investor protection
• Permission
• Taxation
 Role of Government Policy
• Government policy can promote businesses.
• Government provides services such as
national defense, administration of justice,
education, environment protection, public
works and highways.
 Pressure Groups
• Is an organized group that seeks to influence not
only government policy but also private
enterprises’ operating policy.
– Economic Pressure Groups
– Giant Private Corporations
– Professional Organizations
– Trade Associations
– Trade Unions
– Public Pressure Groups
– Sectoral Pressure Groups
– Religious Pressure Groups
– Governmental Units Pressure Group
 Income and Wealth Distribution
• Income distribution
– In economics, it is how a nation’s total economy is
dispersed amongst its population.
• Distribution of wealth
– Is a comparison of the wealth of various members
or groups in a society.
 Major Causes of Economic Inequality
• Culture and Religion
• Development
• Diversity of Choices
• Education
• Globalization – is a progression by which the worlds are
unified into single society and function.
• Inflation
• Labor Market
• Wealth Condensation – a theoretical process by which,
under certain conditions newly created wealth
concentrates in the possession of already wealthy
individuals or entities.
 Case Analysis Format
I. Title of the Case
II. Background/Facts about the case
III. Business Ethics/Corporate Governance/Social
Responsibility Issues
IV. Evaluation of the Issue
V. Alternative Courses of Action
VI. Evaluation of the Alternatives
VII. Recommendation
VIII. Action Plan