CHAPTER 1

NATURE AND CONCEPT OF MANAGEMENT

Objectives:

1. Discuss the meaning and functions of management

2. Identify the scope of management
3. Recognize the importance of effectiveness and efficiency in organization.
4. explain the various types of management theories
5. Describe characteristics of a manager
6. Examine the levels of manager in the organization
7. Compare the types of managers
8. explain the functions, roles, and skills of a manager
9. Describe the nature of an organization
10. Identify the basic principles of management and organization
 MODULE I

Week 1

INTRODUCTION

The satisfaction of human wants is a universal concern and this is the basic reason why
organizations are established. Governments, business firms, and even nonprofit organizations
are expected to manage their resources properly, or they will fail in the attempt to contribute
their share in the alleviation of property and want.
WHAT IS MANAGEMENT?

Management involves coordinating and overseeing the work activities of others so that
their activities are completed efficiently and effectively. Or simply, Management is the art of
getting work done through others.

FUNCTIONS OF MANAGEMENT

Managers just don't go out and haphazardly perform their responsibilities. Good
managers discover how to master five basic functions: planning, organizing, staffing, leading,
and controlling.

1. Planning: This step involves mapping out exactly how to achieve a particular goal. Say,
for example, that the organization's goal is to improve company sales. The manager first
needs to decide which steps are necessary to accomplish that goal. These steps may
include increasing advertising, inventory, and sales staff. These necessary steps are
developed into a plan. When the plan is in place, the manager can follow it to
accomplish the goal of improving company sales.

2. Organizing: After a plan is in place, a manager needs to organize her team and materials
according to her plan. Assigning work and granting authority are two important
elements of organizing.

3. Staffing: After a manager discerns his area's needs, he may decide to beef up his staffing
by recruiting, selecting, training, and developing employees. A manager in a large
organization often works with the company's human resources department to
accomplish this goal.

4. Leading/ Directing: A manager needs to do more than just plan, organize, and staff her
team to achieve a goal. She must also lead. Leading involves motivating, communicating,
 guiding, and encouraging. It requires the manager to coach, assist, and problem solve
with employees.

5. Controlling: After the other elements are in place, a manager's job is not finished. He
needs to continuously check results against goals and take any corrective actions
necessary to make sure that his area's plans remain on track.

All managers at all levels of every organization perform these functions, but the amount of
time a manager spends on each one depends on both the level of management and the specific
organization.
EFFICIENCY AND EFFECTIVESS: A BASIC REQUIREMENT

Efficiency means getting the most output from the least amount of inputs
 “doing things right”
 concern with means(ways) of getting things done
 getting work done with a minimum effort, expense, or waste
 use resources – people, money, raw materials wisely and cost-effectively

Effectiveness means do those work activities that will help the organization reach its goals

 “doing the right things”

 concern with ends(result) of organizational goal achievement
 accomplish tasks that help fulfill organizational objectives
 make the right decisions and successfully carry them out to accomplish the
organization’s goal.

EVOLUTION OF MANAGEMENT THEORIES

The simplest definition of management is getting things done through people. It implies that
an organization, whether small, medium, or large, is composed of people. A business
organization exists for a purpose.

1910s-1940s: Management as Science

Management as Science was developed in the early 20th century and focused on increasing
productivity and efficiency through standardization, division of labor, centralization, and
hierarchy. A very ‘top-down’ management with strict control over people and processes
dominated across industries.

1950s-1960s: Functional Organizations

Due to growing and more complex organizations, the 1950s and 1960s saw the emergence
of functional organizations and the Human Resource (HR) movement. Managers began to
understand the human factor in production and productivity and tools such as goal-setting,
performance reviews, and job descriptions were born.

1970s: Strategic Planning

The focus is from measuring function to resource allocation and tools like Strategic
Planning, Growth Share Matrix, and SWOT (identification and analysis of the company’s
Strengths, Weaknesses, Opportunities, and Threats) were used to formalize strategic
planning process. After several decades of ‘best practice’ and ‘one size fits all’ solutions,
academics began to develop contingency theories.

1980s: Competitive Advantage

As the business environment grew increasingly competitive and connected, and with a
blooming management consultancy industry. Competitive Advantage became a priority for
organizations in the 1980s. Tools like Total Quality Management (TQM), Six Sigma, and Lean
Management were used to measure processes and improve productivity. Employees were
more involved by collecting data, but decisions were still made at the top, and goals were
used to manage people and maintain control.

1990s: Process Optimization

Benchmarking and business process reengineering became popular in the 1990s, and by the
middle of the decade, 60% of Fortune 500 companies claimed to have plans for or have
already initiated such projects. TQM, Six Sigma, and Lean remained popular and more
holistic, organization-wide approach and strategy implementation took the stage with tools
such as Strategy Maps and Balance Scorecards.

2000s: Big Data

Largely driven by the consulting industry under the banner of Big Data, organizations in the
2000s started to focus on using technology for growth and value creation. Big data is a
broad term for data sets so large or complex that traditional data processing applications
are inadequate. Accuracy in big data may lead to more confident decision-making. And
better decisions can mean greater operational efficiency, cost-reductions, and reduced risk.

After several decades of trying to manage people through the different management
theories, one has to realize that what worked before just simply is not enough anymore.
Traditional Management is fine if one wants compliance, but if one wants innovation and
growth, management has to engage its people on a whole new level. Top down control is a
thing of the past. Succeeding in today’s environment requires a management style that
inspires and is participatory.
GeorgeR.Terry

After Fayol, many theorists have looked at the functions and crafter their own
ideas, deviating only slightly from Fayol’s core functions. George R. Terry wrote a book
Principles of Management in 1968 and outlined his view on the principles. Terry believed there
to be four core functions, each function posing and responding to a specific question the
management must solve. The question, the fundamental function and the resulting action are
outlined in the below graph:
The Question The Function The Result
Objectives, policies, procedures and
What is the need? Planning
methods
Where should actions
Work division, work assignment, and
take place and who Organizing
authority utilization
should do what work?
Why and how should
Leadership, communication,
group members perform Actuating
development, and incentives
their tasks?
Are the actions being
Reports, comparisons, costs and
performed according to Controlling
budgets
plan?
HaroldKoontz and CyrilO’Donnell

In 1976, Harold Koontz and Cyril O’Donnell published an essay Management: A Systems
and Contingency Analysis of Managerial Functions. They felt the previous studies have been
effective in describing the functions, but believed the division should be more detailed. Koontz
and O’Donnell believed there to be five key functions of management:Planning, Organizing,
Staffing, Directing/Leading,andControlling. These five functions of management have become
perhaps the most cited and they are explained further in the following section. Overall, the
quick outlook would hopefully have highlighted the alignment of the functions of management
in different management theories.
ACTIVITY 1

1. Briefly explain the importance of studying management.

2. Explain why efficiency and effectiveness are important to management.

Activity 3

Read the story, write your interpretation and the lesson you have learned about the story.

That’s Not My Job

This is a story about four people named Everybody, Somebody, Anybody and Nobody. There
was an important job to be done and Everybody was sure that Somebody would do it. Anybody
could have done it, but Nobody did it. Somebody got angry about that, because it was
Everybody’s job. Everybody thought Anybody could do it, but Nobody realized that Everybody
wouldn’t do it. It ended up that Everybody blamed Somebody when Nobody did what Anybody
could have.
MODULE 2

Week 2

WHAT IS A MANAGER?

Manager is one who plans, organizes, leads

and controls other individuals in the process
of pursuing organizational goals. Managers
are vested titles like president, department
head, dean, administrator, supervisor, team
leader and the like.

Managers may direct workers directly or they

may direct several supervisors who direct the
workers.

The manager must be familiar with the work of

all the groups he/she supervises, but does not
need to be the best in any or all of the areas.

It is more important for the manager to know

how to manage the workers than to know how
to do their work well.

LEVELS OF MANAGER

1. First-line managers: manage the work of nonmanagerial

employees who typically are involve with producing

the organization’s products or servicing the

organization’s customer.

They are often called: supervisor, shift

manager, district manager, department

manager, office manager

2. Middle managers: manage work of first-line managers

They are often called: regional manager, project leader, store manager, division manager
3. Top managers: are responsible for making organization wide decisions and establishing the plans
and goals that affect the entire organization.

They are often called: executive vice president, president, managing director, chief operating officer,
chief executive officer

MANAGERIAL ROLES

A manager wears many hats. Not only is a manager a team leader, but he or she is also a planner,
organizer, cheerleader, coach, problem solver, and decision maker — all rolled into one. And these are
just a few of a manager's roles.

In his classic book, The Nature of Managerial Work, Henry Mintzberg describes a set of ten roles that a
manager fills. These roles fall into three categories:

1. Interpersonal: This role involves human interaction.

2. Informational: This role involves the sharing and analyzing of information.

3. Decisional: This role involves decision making

MANAGEMENT SKILLS

1. Technical - This skill requires the ability to use a special proficiency or expertise to perform
particular tasks. Accountants, engineers, market researchers, and computer scientists, as
examples, possess technical skills. Managers acquire these skills initially through formal
education and then further develop them through training and job experience. Technical skills
are most important at lower levels of management.

2. Human- Human: This skill demonstrates the ability to work well in cooperation with others.
Human skills emerge in the workplace as a spirit of trust, enthusiasm, and genuine involvement
in interpersonal relationships. A manager with good human skills has a high degree of self‐
awareness and a capacity to understand or empathize with the feelings of others. Some
managers are naturally born with great human skills, while others improve their skills through
classes or experience. No matter how human skills are acquired, they're critical for all managers
because of the highly interpersonal nature of managerial work.

3. Conceptual- This skill calls for the ability to think analytically. Analytical skills enable managers
to break down problems into smaller parts, to see the relations among the parts, and to
recognize the implications of any one problem for others. As managers assume ever‐higher
responsibilities in organizations, they must deal with more ambiguous problems that have long‐
term consequences. Again, managers may acquire these skills initially through formal education
and then further develop them by training and job experience. The higher the management
level, the more important conceptual skills become.
The Famous Theories on the Functions Of Management

As experts began studying and theorizing the essence of management, different ideas and
concepts regarding the functions were born. Here are a few of the most influential theories
and theorists, who’ve outlined their ideas about the functions of management.

Henri Fayol
Henri Fayol was the first to attempt classifying managerial activities into specific
functions. The French engineer established the first principles of the Classical
Management Theory at the start of the last century.

Henri Fayol is claimed to be the real father of modern management. He was a

Frenchman born in 1841 and was working as an engineer with a mining company. He
improved the condition of the company from virtual bankruptcy to high success. He
brought out some 14 basic management principles, which he felt, could be used in all
management situations, irrespective of the organizational framework.

BASIC PRINCIPLES OF MANAGEMENT

1. Division of labor
It is the concept of specialization of work. It refers to breaking down large tasks into
their components parts and assigning workers to each part. It suggests the more people
specialize; the more efficiently they can perform their job.

2. Authority
It is the right to give orders and the power to exact obedience.

3. Discipline
 This represents obedience, good behavior and outward marks of respect.

4. Unity of command
This indicates that each employee must receive instructions from only one person.

5. Unity of direction
Refers to those operations within the organization that have the same objective must be
directed by only one manager using one plan.

6. Subordination of individual interest to the general interest

Implies the interest of employees should not take precedence over the interest of
organization as a whole: the interest of one person or group should be subordinate to
those at the organization.
 7. Remuneration
It represents the compensation of personnel for service rendered. It denotes
compensation should be both fair to employees and employers.

8. Centralization
It is the process of concentrating decision-making authority to the center.

9. Scalar of chain
It is often called as hierarchy; the chain of supervisors ranging from the ultimate
authority to the lowest ranks. Hierarchy refers to the line of authority from top-level
management to lower level management.

10. Order
It indicates that materials and people should be in the right place at the right time.
People, in particular, should be in the jobs or positions they best suited to.
 
11. Equity
Combines kindliness and justice or resulted from kindness and justice. Managers should
be both friendly and fair to their subordinates

12. Stability of tenure of personnel

This means creating an atmosphere of suitability of permanent status (tenure) for
employees. High employee turnover rate undermines the efficient functioning of an
organization.

13. Initiative
This indicates that subordinates have to be given the freedom to conceive and carry
their plans even though some mistakes may result.
 
14. Esprit de corps
This denotes a sense of harmony and unit among the members of an organization.

WHAT IS AN ORGANIZATION?

Organizations consist of people who, more or less, share common objectives or

purpose. The behavior of the organization is directed towards the attainment of these
objectives. The members who compromise the organization work jointly in groups and
cooperate together in interdependent relationships.

Charitable organizations like the Red Cross, provide assistance to the poor and the sick.
Lo9cal governments are organizations that run the political affairs of provinces and
municipalities. The various types of organization are illustrated in Figure 3.
 Figure 3
Types of Organizations

COMMON CHARACTERISTICS OF ORGANIZATION

1. Coordination of Effort
2. Common Goal or Purpose
3. Division of Labor
4. Hierarchy of Authority

PRINCIPLES OF ORGANIZATION
1. Principle of Objective
The enterprise should set up certain aims for the achievement of which various
departments should work. A common goal so devised for the business as a whole and
the organization is set up to achieve that goal.

2. Principle of Analysis
 Managers in organizations must be able to break a problem down to its components,
analyze these components, and then come up with a feasible solution.

3. Principle of Simplicity
The organizational structure should be simple so that it is easily understood by each and
every person. The authority, responsibility and position of every person should be made
clear so that there is no confusion about these things.

4. Principle of Functionalization
Business firms are not supposed to be organized to accommodate individuals. Rather it
should be built around the main functions of the business.
 ACTIVITY 2
1. Choose one principle of management and provide specific business situation where it
can be used.

2. Explain how managers differ from non managerial employees

3. Describe the rewards and challenges of being a manager.

Activity 3

Choose Five Principles of Management, make a short video and apply

Activity 4

Understanding the foundations for Managerial Success

Put a check mark whether you Agree or Disagree with the following statement. Seven Agree answers
will show the students’ sufficient or average understanding of the foundations for managerial success.
Eight to nine Agree answers will indicate superior understanding of the said foundations for managerial
success.

Successful Managers are those who:

1. look after their self-interests first

2. inspire their subordinates to do their best in assigned tasks
3. can craft messages that could be understood clearly by subordinates

4. have self-discipline
5. believe in using punishment to make subordinates follow

6. work well with others

7. do not believe in due process
8. practice logical thinking before decision-making
9. always consider the “general good”
10. have the ability to listen what others seek to communicate
11. respect everyone and has the ability to maintain career advancement
12. generally “goes the extra mile” for those around him or her

Seven Agree answers will show the students’ sufficient or average understanding of the foundations for
managerial success. Eight to nine Agree answers will indicate superior understanding of the said
foundations for managerial success.
Chapter Test

Identification

1.is a process of planning, organizing, leading, and controlling activities in

an organization in a systematic way in order to achieve a common goal.

2. means mobilizing the material and human resources of the

organization to put plans into effect.

3. refers to the recruitment, placement and training of qualified

personnel to the organization’s work

4. are responsible for using materials and talents in the most economical
and productive manner.

5. are those who direct the activities of other managers and sometimes
also those of operating employees.

6. are managers in charge of units that provide support to the line units.

7. refers to the ability of manager to see the organization as a whole and

to solve problems to benefit the total system.

8. are roles played by the manager when he interact with others.

9. is a collection of people working together to achieve a common

purpose.

10. means breaking a job into specialized tasks to increase productivity.

1. Grandfather of Arjun retired as the Production Manager of a manufacturing company. At
which level of management was he working?
a. Top level
b. Middle level
c. Lower level
d. All the above
2. Setting the organization’s goals and deciding how best to achieve those goals is defined as:
A. Organizing
B. Planning and decision making
C. Controlling
D. Leading
 
3. Determining how best to group activities and resources is defined as:
A. Organizing
B. Planning and decision making
C. Controlling
D. Leading
 
4. Monitoring and correcting ongoing activities that facilitate goal attainment is defined as:
A. Organizing
B. Planning and decision making
C. Controlling
D. Leading
 
5. Motivating members of the organization to work in the best interests of the organization is
defined as:
A. Organizing
B. Planning and decision making
C. Controlling
D. Leading
6.                    skills are necessary to accomplish or understand the specific kind of work done in
an organization.

A. Technical
B. Interpersonal
C. Conceptual
D. Decision-making
E. Time management
 
7.                  skills depend on the manager's ability to think in the abstract.
A. Technical
B. Interpersonal
C. Conceptual
D. Decision-making
E. Time management
 
8.                  skills refer to the manager's ability to prioritize work, to work efficiently, and to
delegate appropriately.

A. Technical
B. Interpersonal
C. Conceptual
D. Decision-making
E. Time management

9. Pick the answer choice that represents an example of organizing:

A. Tom is a lawyer at a large PR company and is preparing all of his co-workers for depositions
that they will have to face.
B. Tom is a project manager at an IT company and is determining how he should distribute
resources and allocate roles.
C. Tom is a manager at a large PR company and he is trying to determine which people he
should hire to work on his company's new promotional line
D. Tom is a director at a large IT company and he is trying to determine how his employees
have performed in the past quarter.

10. Daniel manages a team that has missed their production goals for the past three months.
After reviewing each employee's performance record, Daniel adjusted the sales goal to take
additional quality control measures into consideration. Why is this an example of
controlling?

A. Because somebody will likely get fired as a result of this analysis.

B. Because Daniel acted as a leader and took responsibility for the project.
C. Because Daniel looked at team results and took appropriate corrective action.
D. Because Daniel is micromanaging his employees.
 Chapter 2
Module 3
Week 3
The Firm and its Environment
Objectives
1. Identify various forces/elements of the firm’s environment
2. Summarize these forces using the PEST and SWOT analyses.
3. Describe the local and international business environment
4. Discuss the different phases of economic development
5. differentiate the various forms of business organizations

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.

Business Environment refers to the factors or elements affecting business organization. It divided into
the External and Internal Business Environment.

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.

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.

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

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

The 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.
Week 4

ECONOMIC ROLESOF BUSINESS ORGANIZATIONS

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.

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
 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.

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:
• The organizations’ resources
• Research and development
• Production
• Procurement of supplies
• Products and services offered

THE LOCAL AND INTERNATIONAL BUSINESS ENVIRONMENT

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.

ECONOMIC DEVELOPMENT - Is a total process which includes not only economic growth or the increase
in the amount of goods and services produced by the country’s economy but also consider the social,
political, cultural and spiritual aspects of the country’s growth.
PHASES/STAGES

1. MALTHUSIAN

• Proposed by Thomas Robert Malthus (1766 – 1834)

• A theory about economic growth which depends on

the rate of the population of a certain area

• The economic growth is inversely proportional to the population.

The smaller population, the higher the economic growth and vice versa

2. GOVERNMENT – LED ( LOCAL ECONOMIC DEVELOPMENT)

• An approach towards economic development which allows and encourages local people to work
together to achieve sustainable economic growth and development.

• Support the formation of a partnership between local and national institutions towards strategic
implementations.

3.  A LA KUZNETS (GOVERNMENT VS. ENVIRONMENT)

• Proposed by Simon Kuznets

• The existence of a pattern or behavior, between

economic growth and environmental degradation, consistent

with the environmental Kuznets curve (EKC) hypothesis.

4. HUMAN CAPITAL BASED

• Is a measure of the economic value of an employee’s skill set.

• Refers to the knowledge, skill sets and motivation that people have, which provide economic value.

• It could be invested in through education, training and enhanced benefits that lead to an improvement
in the quality and level of production.

5. POST DEMOGRAPHIC TRANSITION

• proposed in 1929 by Warren Thompson

 • is the transition from high birth and death rate to lower birth and death rate as the country develops
from pre- industrial to an industrialized economic system

• fertility rate decreases when child mortality is low, and is weakly dependent in GDP.

WHAT IS A BUSINESS ORGANIZATION?

A business organization is a collection of people working together to achieve a common purpose related
to their organization’s mission, vision, goals and objectives, and sharing a common organizational
culture.

Organizational culture is the set of beliefs and values shared by organization members and which guide
them as they work together to achieve their common purpose.

Simple business organization is an organization with few departments, centralized authority with a
wide span of control, and with few formal rules and regulations.

Functional business organizations group together people with similar or related duties, practices
delegation of authority to functional managers like the personnel managers, sales managers or financial
managers but allow CEOs to retain authority for strategic decisions.

Divisional business organizations are made up of semi-autonomous, separate business units, with a
division head responsible for his or her unit’s performance.

Profit business organizations are organizations designed for the purpose of achieving their goals and
achieving stability through income generation and profit-making. 22. Non-profit organizations are
organizations designed to give service to clients without expecting monetary gains o r financial benefits
for their endeavors.

Open/Flexible business organizations are formed to meet today’s changing work environment. They
include team structures, matrix business organizations, project business structures, boundary less
business organizations, and virtual business organizations
ACTIVITY

1. In 50 words, discuss the main purpose of going into business.

1. Give one possible positive and negative impacts to business operations for each of the
following direct action elements of external environment:

DIRECT ACTION ELEMENTS POSITIVE NEGATIVE

a. customer
b. supplier
c. labor supply
d. competitors
e. financial institutions
f. government agencies

2. Give one possible positive and negative impacts to business operations for each of the
following indirect action elements of external environment:

DIRECT ACTION ELEMENTS POSITIVE NEGATIVE

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

ACTIVITY

Write a two-page paper describing a business firm of your choice in terms of the
following: the company, its products, its customers, and its competitors.
ACTIVITY

Which cultural dimensions are practiced in the Philippines? Put a check mark or an mark beside the
cultural dimension to express your affirmative or negative response.

Cultural dimension

a. Low power distance _________

b. High power distance _________

c. Low uncertainty avoidance _________

d. High uncertainty avoidance _________

e. Individualism _________

f. Collectivism _________

g. Masculinity _________

h. Femininity _________

i. Short term thinking _________

j. Long term thinking _________

3 Types of Business
There are three major types of businesses:
1. Service Business
A service type of business provides intangible products (products with no
physical form). Service type firms offer professional skills, expertise, advice,
and other similar products.
Examples of service businesses are: salons, repair shops, schools, banks,
accounting firms, and law firms.
2. Merchandising Business

This type of business buys products at wholesale price and sells the same at
retail price. They are known as "buy and sell" businesses. They make profit by
selling the products at prices higher than their purchase costs.
A merchandising business sells a product without changing its form.
Examples are: grocery stores, convenience stores, distributors, and other
resellers.
3. Manufacturing Business

Unlike a merchandising business, a manufacturing business buys products

with the intention of using them as materials in making a new product. Thus,
there is a transformation of the products purchased.
A manufacturing business combines raw materials, labor, and overhead
costs in its production process. The manufactured goods will then be sold to
customers.
Hybrid Business

Hybrid businesses are companies that may be classified in more than one
type of business. A restaurant, for example, combines ingredients in making a
fine meal (manufacturing), sells a cold bottle of wine (merchandising), and fills
customer orders (service).