Math 12 ABM Org - MGT Q1

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ENVIRONMENTAL FORCES,

ENVIRONMENTAL SCANNING, AND


BUSINESS ENVIRONMENT
for Organization and Management
Senior High School (ABM)
Quarter 1

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OBJECTIVES
At the end of the lesson, the learners are expected to:
K: identify various forces/elements of the firm’s environment and
summarize these forces using the PEST and SWOT analysis;
S: describe the local and international business environment of the firm; and
A: appreciate the importance of analyzing various forces/elements of the business
environment using PEST and SWOT strategies.

LEARNING COMPETENCY:
Analyze various forces/elements influencing local and international
business environment using PEST and SWOT strategies (ABM_AOM11)

I. What Happened
Let us have a recall!

An individual engaged in management activities is called a manager. Managers


supervise, sustain, uphold, and assume responsibility for the work of others in his or her
work group, team, department, or the organization, in general. Therefore, it is safe to
assume that organizational success depends upon managers who practices optimal
utilization of their human and material resources, and who encourage high levels of
performance, effectiveness, and efficiency among the individuals under their care.

Managerial Levels
Organizations typically have three levels of management with their respective
managers – top-level managers, middle level managers, and frontline or lower-level
managers.

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Managerial Skills
Managerial skills may be classified as the following.
 Conceptual Skills
 Human Skills
 Technical Skills

PRE-TEST:
Modified Identification. Choose the correct answer from the given devices below.
Write only the letter of your answer in your activity notebook.

A. General Business Environment


B. Specific Business Environment
1. Technological
2. Suppliers
3. Pressure groups
4. Economic
5. Demographic

II. What You Need To Know

All managers, without exception, must consider their


organizations’ external and internal environments before planning anything.
Responding to the various forces/elements of the firm’s external and
internal business environments is a must because failure to do so may bring about
negative effects. However, managers must make sure that they respond based on the
proper identification and evaluation of these forces/elements in their surrounding
environments.

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Definition of Terms
Environmental scanning – seeking for and sorting through data about the
environment
Inflation – a period of above normal general price increases, as reflected in the
consumer and wholesale price indexes
Inflation rate – rate reflected during a period of above normal general price increases
Interest rates – the total amount that a borrower must pay annually to the lender and
above the total amount borrowed
Changing options – the consumers change in preference of goods and services
offered
Gross National Product (GNP) – total domestic and foreign output claimed by the
residents of a country
Gross Domestic Product (GDP) – total final output of goods and services
produced by the country’s economy, within the country’s territory

DISCUSSION

Environmental Forces and Environmental Scanning


Business environment refers to the factors or elements affecting a business
organization. It may be divided into External and Internal Business Environments.
The External Business Environment includes the factors and elements outside the
organization which may affect its performance, either positively or negatively while
the Internal Business Environment refers to the factors or elements within the
organization which may also affect its performance, either positively or negatively.
The environment in which a business operates is a major consideration in
determining an organizations’ design or structure. Considerations
such as uncertainty, procurement, and competition are linked with the external
environment. A company’s strategy and approach to operations must
also be aligned with the limitations of its external environment as well as its internal
environment.

Components of the External Business Environment: General and


Specific
Systematic monitoring of the major external forces influencing organizations
is necessary to improve the management of companies. Failure to consider a
company’s general and specific business

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environments may affect the strategies that management will make and use.
The general business environment includes the economic, sociocultural,
politico-legal, demographic, technological, and world and ecological situations. All
these must be considered as managers plan, organize, staff, lead, and control their
respective organizations.
Inflation, rates of interest, changing options in stock markets, and people’s
spending habits are some examples of factors/elements of economic
situations. Economic situations may affect management practices in organizations.
For example, companies may postpone expansion plans if bank loan interests are too
high.
Sociocultural situations include the customers’ changing values
and preferences; customs could also affect management practices in companies. For
example, Filipino customers are now conscious of the importance of avoiding fatty
foods, so many food companies now make sure that the products they offer are
cholesterol-free or are low in cholesterol. In doing so, they avoid losing their
customers.
Politico-legal situations refer to national or local laws, international laws, and
rules and regulations that influence organizational management. For example, labor
laws related to preventing employers from firing their employees without due process
require the former to allow the latter to exercise their right to present their position
during disciplinary action before their employment can be terminated.
Demographic situations such as gender, age, education level, income, number
of family members, geographic origin, etc., may also influence some managerial
decisions in organizations. For example, decisions regarding the hiring of human
resources may be affected by an organization’s management policy that
shows prejudice to the hiring of married females who are in the child-bearing
age because they would like to minimize the payment of maternity leave benefits.
The technological situations of companies involve the use of varied types of
electronic gadgets and advanced technology such as computers, robotics,
microprocessors, and others that have revolutionized business management; e-
commerce, teleconferencing, and sophisticated information systems have rapidly
changed the ways that business is conducted in the 21st century.
World and ecological situations are related to the increasing number of global
competitors and markets, as well as the nature and conditions of the changing natural
environment. Products produced by companies, of course, must cater to the changing
needs of people in the global community, while, at the same time, considering their
impact on the natural environment. For example, car manufacturing managers must
give the go signal for the development of vehicles that are

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environmentally friendly instead of only being focused on the product’s
speed, fuel economy, and design.
Meanwhile, the specific business environment focuses on stakeholders,
customers, pressure groups, and investors or owners and their employees.
Stakeholders are parties likely to be affected by the activities of the
organization, while customers are those who patronize the organization’s
products and services. Increasing customer sophistication makes it
necessary for managers of organizations make crucial decisions regarding the
development of products with higher value and the improvement of their
services to meet their patrons’ increasing demands. Also, this has
prompted companies to solicit feedback from their customers to avoid dissatisfaction
that may lead them to patronize another company offering similar products and
services instead.
Suppliers are those who ensure the organization’s continuous flow
of needed and reasonably priced inputs or materials required for producing their
goods and rendering their services. Inputs mentioned also include financial and labor
supply. Managers decide what, where, and when to buy their supplies to
favor with their organization’s supply orders.
Pressure groups are special-interest groups that try to exert influence on
the organization’s decisions or actions. For instance, pressure from the
Food and Drug Administration on some department stores and drug stores led them to
stop selling beauty products containing lead and to stop ordering or importing such
products from their suppliers.
The organization’s investors or owners provide the company with the
financial support it needs. The company, of course, cannot exist without them; thus,
they greatly influence organizational management. Top-level, middle-level, and
lower-level managerial decisions are all influenced, in one way or another, by the
investors or owners of organizations. Branching out, offering new products and
services, and applying for needed loans are all affected by the
investors’ or owners’ way of thinking.
Employees are comprised of those who work for another or for an employer in
exchange of salaries/wages or other considerations. Employees execute the
company’s stability. For example, managerial decisions are
influenced by the company’s knowledge workers.

Components of the Internal Business Environment


An organization’s internal business environment is composed
of its resources, research and development, production, procurement of supplies, and
the products and the products and services it offers.

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The organization’s internal environment must also be subjected to
internal analyses. Internal strengths and weaknesses, opportunities, and threats
(SWOT) with regards to its resources (financial, physical, mechanical, technological,
and human resources), research and development endeavors, production of goods,
procurement of supplies (materials, inputs, and finance), and products and services
must all be considered prior to organizational planning.

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Figure A. The SWOT analysis or matrix is one of the most structured and used
planning method to evaluate a business venture.

Components of Environmental Scanning: Developing a Competitive


Mindset, Considering Future Business Scenarios, Business Prediction,
SWOT Analysis, and Benchmarking
Adapting to environmental uncertainties must start with
developing a competitive mindset. Ignorance of present-day realities may cause
individuals or organizations to do certain things that may regret in the future; hence,
environmental scanning is necessary. By seeking for and sorting through data about
the environment, you may be able to understand and predict the various changes,
opportunities, and threats that may affect organizations in the future. Knowing the
present-day competitors, the possible number of barrier to entering your chosen
business industry, the existence or nonexistence of substitutes to your planned product
or service, and possible dependence on powerful suppliers and customers will be
helpful in developing a competitive mindset.
You must also consider future business scenarios. By realistic consideration of
both worst-case scenario or unfavorable future conditions, as well as middle-ground
possible conditions, you will have an idea of what to do in the future.
Meanwhile, business prediction, also known as business forecasting, is a
method of predicting how variables in the environment

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will alter the future of business. It could be used in making decisions regarding
offshoring, branching out locally, and expanding or downsizing the company.
However, the accuracy of such business predictions may not always be assured.
Benchmarking is defined as 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. Best practices of said
industry leaders are observed so that understanding their competitive advantage would
be easier. This is followed by gathering information about the company in order to
identify gaps; this in turn, could be used to find out the underlying reasons for
performance differences. From these said reasons, a set of best practices in
one’s own company will be listed down and that, ultimately, leads to
the company’s improved performance.

The Local and International Business Environment of the Firm


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. This will enable them to develop their ability to
accept and adapt to different cultures, both local and international, that may affect the
organization to which they belong.
Anthropologist Edward T. Hall, as cited y Schermerhorn (2008), noted that the
way people approach and deal with time varies across cultures. Monochromic cultures
refer to cultures wherein people tend to do one thing at a time; also, these cultures
emphasize punctuality and sticking to set rules. Polychromic cultures, on the other
hand, are more flexible as regards time; accomplishing many different things at once
is also common for these cultures. It may be very frustrating for one who is influenced
by a monochronic culture to be dealing with one who is influenced by a polychromic
culture if he or she does not possess cultural intelligence.
Geert Hofstede, also cited by Schermerhon (2008), showed how selected
countries ranked on the five cultural dimensions he studied:
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.
For example: India and the Philippines have higher power distance, while US
and Australia have low power distance. The use of the terms “Sir” and
“Madam” to refer to the boss/superior by subordinate employees in the
Philippines shows respect for authority figures, or high-

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power distance. In the US, subordinates just use the name or nickname of the boss
when addressing him or her, indicating low power distance.

Hofstede Five Dimension

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Figure B. This bar graph shows the comparative scores of a few
countries based on Hofstede’s cultural dimensions theory.

Uncertainty Avoidance – the degree to which society is uncomfortable


with risk, change, and situational uncertainty.
Managers in the US are risk takers. Filipinos are seguristas that are afraid of
taking risks within business endeavors in the market.
Individualism-Collectivism – the degree to which a society emphasizes
individual accomplishments versus collective accomplishments.
Individualistic cultures like those of the US and Australia are characterized
as “I” and “me” cultures where employees prefer to work alone
without help from others. Mexico, Thailand, and the Philippines exhibit collectivism
or preference for group or team work.
Masculinity-Femininity – the degree to which a society values
assertiveness and feelings of material success versus concern for relationships.
The Japanese and Mexicans do not hesitate to push or express what they
want, unmindful of hurting other’s feelings, thus showing masculinity.
Filipinos, Thais, and Swedes would rather keep quiet and accept defeat if what they
want is not acceptable to others, thus, exhibiting femininity.
Time Orientation – the degree to which a society emphasizes short-term
thinking versus greater concern for the future or long-term thinking.
The Americans, who are risk-takers, prefer short-term thinking. On the other
hand, Filipinos and the Japanese, who are not risk-takers, are long-term thinkers.
The local culture of a particular country also influences the management
practices of firms. An example is the mañana habit which is part of local Filipino
culture and practiced by some Filipino workers. It

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is counterproductive since it encourages the postponement of performing tasks that
can be done immediately to another day.
Managing and disciplining workers who practice this habit would be easier for
managers if they are able to identify the workers who adhere to such negative work
habit and prevent them from doing it. This, however, is easier said than done because
it is difficult to explain a country’s unique cultural characteristics.
Managing in a Worldwide Environment: Cultural, Politco-legal, and Economic
Environments
The call for business to go global is hard to resist as this is the trend prevailing
in the 21st century. The economic and social benefits that come with globalization are
said to be among the positive outcomes. Globalization advocates, however, fail to
realize the very serious challenges faced by managers in adjusting to the cultural
differences among different countries where they intend to do business. The culture of
different countries is rooted in their history, religion, traditions, beliefs, and deep-
seated values, and because of these, managing globally can be very complicated.
Besides the cultural environment, the politico-legal and economic
environments must also be considered. The politico-legal environment refers to the
laws and political climate of different countries. Some countries have stable laws and
good political climate while others have the opposite—unstable laws and risky
political climate. Awareness of the economic issues of countries where organizations
intend to establish business is also very important. For instance, do they have a free
market or a planned economy? Answering this question is the first step because the
country’s economic system has the potential to influence the
organization’s decision-making. Other economic matters that must be considered
are the inflation rates, the gross national product/gross domestic product, the currency
exchange rates, taxation systems and others.

What is PEST Analysis?


PEST Analysis is a strategic framework used to evaluate the external
environment for a business by breaking down opportunities and threats into Political,
Economic, Social, and Technological factors. PEST analysis can be an effective
framework to use in Corporate Strategy Planning, useful in identifying the pros and
cons of a Business Strategy. Below we break down each of the 4 Factors of PEST
(Political, Economic, Social, Technological).

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Political Factors
When looking at political factors, you are looking at how government policy and
actions may affect the economy, as well as the specific industry the business operates in.
These include the following:
 Tax Policy
 Labor Law
 Environmental law
 Trade Restrictions
 Tariffs
One of the reasons that elections tend to be a period of uncertainty for a country is
that different political parties have diverging views on economic policy. The P in PEST
analysis stands for Political.

Economic Factors
Economic Factors take into account the various aspects of the economy, and how the
outlook on each area could impact your business. These economic indicators are usually
measured and reported by Central Banks and other Government Agencies.
 Economic Growth rates
 Interest Rates
 Exchange Rates
 Inflation
Often these are the focus of external environment analysis. The Economic outlook is
of extreme importance for a business, but the importance of the other PEST factors should
not be overlooked.
Social Factors
PEST analysis also takes into consideration social factors, which are related to the
cultural and demographic trends of society. Social norms and

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pressures are key to determining a society’s consumerist behavior. Factors to
be considered include the following:
 Cultural Aspects
 Health Consciousness
 Population Growth rates
 Age Distribution
 Career Attitudes
Technological Factors
Technological Factors are linked to innovation in the industry, as well as innovation
within the overall economy. Not being up to date on the latest trends of a particular industry
can be extremely harmful to operations. Technological Factors include the following:
 Research & Development Activity
 Automation
 Technological Incentives
 The rate of change in technology
(Retrieved from PEST Analysis n.d)

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III. What Have I Learned
SUM IT UP!
Business environment refers to the factors or elements affecting a business
organization. It may be divided into the External and Internal Business Environments. The
External Business Environment includes the factors and element outside the organization
which may affect its performance, either positively or negatively while the Internal Business
Environment refers to the factors or elements within the organization which may also affect
its performance, either positively or negatively.
The general business environment includes the economic, sociocultural, politico-
legal, demographic, technological, and world and ecological situations. All these must be
considered as managers plan, organize, staff, lead, and control their respective organizations.
The specific business environment focuses on stakeholders, customers, pressure
groups, and investors or owners and their employees.
Components of the Internal Business Environment
An organization’s internal business environment is composed of its
resources, research and development, production, procurement of supplies, and the products
and the products and services it offers.
Geert Hofstede, also cited by Schermerhon (2008), showed how selected countries
ranked on the five cultural dimensions he studied:
 Power Distance
 Uncertainty Avoidance
 Individualism-Collectivism
 Masculinity-Femininity
 Time Orientation
What is PEST Analysis?
PEST Analysis is a strategic framework used to evaluate the external environment
for a business by breaking down opportunities and threats into Political, Economic, Social,
and Technological factors.

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POST TEST:
MODIFIED MATCHING TYPE: Classify the following and write the correct answer in the
appropriate column. Do it in your activity notebook.

Economic Investors Politico-legal Power distance


Production Research and development Sociocultural
Stakeholders Time orientation Uncertainty
avoidance
General Business Specific Business Internal Business Cultural
Environment Environment Environment Dimension

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