ORGANIZATION AND MANAGEMENT

Chapter 2:
The Firm and Its
Environment
2024 July 18 Prepared by: Kyla Angelie A. Laurente
 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
3
 Definition of Terms
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

3
 The Environment of the Firm
Business environment refers to the factors or elements affecting a business organization

External Environment

Microenvironment
Customers, Suppliers
Regulatory agencies, FIRM Macroenvironment
General environment of the firm
Competitors

Internal Environment
The Environment of the Firm

Internal External

This refers to the factors or This includes the factors and

elements within the organization elements outside the
which may also affect its organization which may affect its
performance, either positively or performance, either positively or
negatively negatively
Includes: Types of External Environment:
Employees Microenvironment
Board of Directors Macroenvironment
Managers
 Macroenvironment
The following are the elements that compose the general environment:
1. Legal-political conditions. This refers to governmental policies and the various laws and
governmental regulations affecting the way businesses operate, Examples of these are
government restrictions on importation, tariff rates, taxes, retail prices, and the like.

2. Economic conditions. This refers to the overall health of the economy. Examples of these are
inflation, income levels, gross domestic product (GDP), unemployment, and investment outlooks.

3. Technological conditions. This refers to advancements and developments in technology and its
availability and ability to help businesses prosper and operate more effectively. Examples of these
are IT systems, technological infrastructure, Internet access, wireless payment systems, and
social media.
 Macroenvironment
4. Demographic conditions. This refers to demography, which is the statistical study of people
and human populations. Information such age, sex, marital status, family size, occupation, and the
like are being gathered by businesses to forecast future trends and consumption of the products
and services that they offer.

5. Sociocultural conditions. This refers to the structure and dynamics of individuals and groups
and how these affect their behaviors, beliefs, thought patterns, and lifestyles. Examples of these
are norms and traditions, customs, social values, ethics, gender roles, and the like.

6. Natural environment conditions. This refers to the physical environment of the organization
and the resources available to be able to produce output. It also refers to how firms are able to
meet the needs of its customers while advancing the well- being of the natural environment.
 Microenvironment
The elements of the microenvironment include:
1.Competitors. These include rival firms within the same industry and the ways that they
behave competitively toward one another.

2. New entrants. These include new competitors entering the market and depend on the
presence or absence of barriers to entry into the market.

3. Substitutes and complements. Products that can serve as an alternative to other

products are called substitutes, whereas those products that need to be used along with
other products are called complements. This is based on the ability of consumers to find
what they want from other sellers.
 Microenvironment
4. Suppliers. This refers to the ability of vendors to influence the price that
businesses have to pay for their products or services.

5. Customers. This refers to the ability of consumers to influence the price that
they will pay for the products and services offered by businesses as dictated by the
concepts of demand and supply
 Environmental Scanning and
Analysis
Environmental scanning includes careful monitoring of an organization's
internal and external environments for detecting early signs of
opportunities and threats that may influence its current and future
plans.

There are two ways on how to scan and analyze a firm's environment.
One is by doing a PEST analysis and the other is by doing a SWOT
analysis
 PEST Analysis
PEST analysis, or short for “political, economic, social, and
technological analysis." is a tool that describes how macro-
environmental factors influence the operations, decisions, and
directions of firms, businesses, or organizations.

Aside from the four environmental factors, modern management

practitioners have added legal and environmental as part of the
analytical tool, thereby giving it an alternative name of PESTEL
Analysis.
 PEST Analysis
PEST Analysis is useful for four main reasons:
1. It helps spot business or personal opportunities, and gives advanced
warnings of significant threats.
2. It reveals the direction of change within the business environment. This helps
business shape what they are doing so that they work with change rather
than resist it.
3. It helps avoid starting projects that are likely to fail for reasons beyond
control.
4. It can help businesses break free of unconscious assumptions when they
enter a new country, region, or market because it helps develop an objective
view of this new environment.
 PEST Analysis

P E S T
Political Economic Social Technological

What are some relevant What are the economic What are the current and What are the scientific or
governmental laws and factors that affect supply, potential social issues that technical methods that affect
demand, growth, competition, can affect the industry? the industry such as recent
regulations that could
and profitability within the and potential innovations?
affect how the industry industry? Are there consume groups
operates? and similar groups that
attempt to influence the
What is the effect of industry?
politics to the
organizations and
associations within the
industry?
 PEST Analysis

P E S T
Political Economic Social Technological

Tax Policy Economic Growth Cultural Aspects Research and

Labor Law Rates Health Consciousness Development
Interest Rates Population Growth Activity
Environmental law
Exchange Rates rates Automation
Trade Restrictions Age Distribution
Inflation Technological
Tariffs Career Attitudes
Incentives
The rate of change
in technology
 SWOT Analysis
It involves specifying the objectives of the firm and identifying the
internal and external factors that are both favorable and
unfavorable to achieve the objectives.
SWOT analysis is important because it can help influence the
planning aspect of a firm.
It helps decision-makers determine whether a particular objective
is attainable, given a firm's SWOTs. If the objective is not attainable,
a different objective must be selected and the analytical process is
repeated
 SWOT Analysis

S W O T
Strengths Weaknesses Oppurtunities Threats

Strengths refer to Weaknesses refer to Opportunities refer to Threats refer to elements

characteristics that place elements that the firm in the environment that
characteristics of the
the business at a could use to its could cause trouble or
business that give it an
disadvantage relative to advantage setbacks to the firm
advantage over others others and that hold the
and enable it to do what organization back from
it does exceptionally well fully accomplishing its
over others objectives.
 SWOT Analysis

S W O T
Strengths Weaknesses Oppurtunities Threats

Skilled workforce Outdated facilities New Markets New competitors

Good market share Inadequate Research & Strong economy Supply shortage
Strong source of Development Weak competitors Changing tastes
capital Obsolete technologies New technologies New regulations
Weak management Substitute products
Good reputation Industry growth
Past planning failures Political instability
Vast industry Economic growth
Lack of resources Increased costs
experience Weak marketing
Potential investors
Company trade Cost reduction Weak demand
Absence of Suppliers
Economic decline
secrets Inadequate capital Increased demand
The Local and International Business Environment
of the Firm

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.
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
Five Cultural Dimensions by Geert Hofstede

Power Distance

This is the degree to which a society accepts or rejects the unequal

distribution of power among people in organizations and the
institutions of society.

Example:
India and the Philippines have high power distance, while the US and
Australia have low power distance.
 Five Cultural Dimensions by Geert Hofstede

Uncertainty Avoidance

This is the degree to which society is uncomfortable with risk,

change, and situational uncertainty

Example:
Managers in the US are risk takers. Filipinos are seguristas that
are afraid of taking risks within business endeavors in the market
 Five Cultural Dimensions by Geert Hofstede

Individualism-Collectivism
This is the degree to which a society emphasizes individual
accomplishments versus collective accomplishments.

Example:
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
 Five Cultural Dimensions by Geert Hofstede

Masculinity-Femininity
The degree to which a society values assertiveness and feelings of material
success versus concern for relationships.

Example:
The Japanese and Mexicans do not hesitate to push or express what they
want, unmindful of hurting others' 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
Five Cultural Dimensions by Geert Hofstede

Time Orientation

The degree to which a society emphasizes short-term thinking versus

greater concern for the future or long-term thinking.

Example:
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
Forms of Business Organization

An organization is a social unit of people that is

structured and managed to meet a need or to
pursue collective goals. A business
organization may assume any of the following
forms:
Sole Proprietorship
Partnership
Corporation
Cooperative
 Sole Proprietorship

Also referred to as “single proprietorship”.

A business that is owned by only one individual for the practice of trade
or profession.
Simple and least costly form of ownership among other forms of
business.
It is registered through the Bureau of Trade Regulation and Consumer
Protection (BTRCP) of the Department of Trade and Industry (DTI). •
Common to small business entities like beauty salon, computer shop,
repair shop, and grocery store.
 Sole Proprietorship

Advantages Disadvantages

Easy to start, easy to dissolve; with less

Limited source of capital
government requirements

Fast decision making; only one person decides Limited Life

The owner is legally obliged to pay all business

Full control of operations
debts

Management may be limited to the owner’s

Flexibility of operations
capabilities
 Partnership

Business that is owned by two or more persons pooling their resources

together as common fund.
Just like corporation, it is registered with the Securities and Exchange
Commission (SEC).
The partners are normally involved in the management and operation of
the business.
Profits are divided among partners based on their agreed sharing. The
owner is called partner.
The most common example of partnerships are professional
partnerships, such as law and accounting firms.
 Partnership

Advantages Disadvantages

Easy to form; with proper agreements on its

Limited life
formation

A partner can be held liable for the acts of

Suited to the practice of a profession
other partners

Unlimited liability of one or all owners for the

Higher capital
debts of the partnership.

High possibility of dispute and conflicts

Less regulations compared to corporation
between partners
 Corporation

A business organized as a separate legal entity (artificial person) under the

corporation law with ownership divided into transferable shares of stocks. It
is a business required to have five to fifteen incorporators. Incorporators
refer to those who originally formed the corporation. The existence of the
corporation is evidenced by Articles of Incorporation and by-laws that are
duly approved by Securities and Exchange Commission (SEC)

Section 2 of the Corporation Code of the Philippines defines corporation as “an

artificial being created by operation of law, having the right of succession and
the powers, attributes and properties expressly authorized by law or
incident to its existence.”
 Corporation

It has a legal personality that is separate and distinct from the owners. The
owners are called stockholders or shareholders.
The voting rights of a shareholder is generally based on the percentage of
ownership.
Management of the business is delegated by the shareholders to the Board of
Directors.
Example includes :
General Motors Corporations - an icon for craftsmanship
Apple Corporations - one of the famous tech companies and Amazon
Corporation as the world’s leading ecommerce and innovation company
 Corporation

Advantages Disadvantages

Activities limited by the articles of incorporation and

Capacity as a legal entity
corporate bylaws

More sources of funds More regulations to be followed

Profit is taxed at the corporate tax rate and

Easy to transfer ownership through selling of stocks stockholders are taxed again when profits are
distributed to them

Liability of stockholders/shareholders is limited Costly to incorporate

Unlimited life (50 years subject for renewal) Possibility of abuse of powers by officers
 Cooperative

Duly registered association of persons with a common bond of interest,

voluntarily joining together to achieve their social, economic and cultural needs.
Usually requires at least fifteen members to function.
Usually a board of directors and officers are elected to manage the business
operation.
The owners are called members who contribute equitable to the capital of
the cooperative.
The members are expected to patronize their products and services.
The word “cooperative” appears in the name of the entity.
This form of business organization is regulated by the Cooperative Development
Authority (CDA)
 Cooperative

Shall exist for a period not exceeding fifty (50) years from date of registration
sooner dissolved or unless said period is extended.
Types of cooperatives:
credit cooperative,
consumer cooperative
multi-purpose cooperative
electric cooperative
water service cooperative
fishermen cooperative
health service cooperative
cooperative bank
marketing cooperative
 Cooperative

Advantages Disadvantages

Obtaining capital through investors.

Cooperative has a “one-member one vote”
Unlimited life. The change of members does philosophy. Big investors may choose to
not dissolve the business invest their money to other firms where
their voting power is equal to their
ownership interest.

Lack of membership and participation. The

cooperative may not fully function if
Democratic organization
members do not involve themselves in the
routine business operation.
Roles of Business Organizations in Relation to the
Economy

Drives the Economy

Provides Employment
Through Investment

Produce more Goods Increase Government’s

and Services Revenue
Economic Growth or Economic Development
 Key Differences between Economic Growth and Economic
Development

Criteria Economic Growth Economic Development

Changes in socio-economic structure related

Change in value of goods and services
Definition to human development indices, equality, and
over time, typically annually. standard of living

HDI, GDI, HPI, literacy rate, infant

Measurement GDP, GDP per capita, GNP, NNP
mortality, socio-economic development

Type of Changes Quantitative changes only Both qualitative and quantitative changes

Used to measure performance of all Used to measure progress of developing

Use as Parameter countries countries

Focus Change in economic output Structural changes in the economy

 The Stages of Economic Development:
A Model by Walt Rostow

PRECONDITIONS FOR TAKE-OFF

TRADITIONAL SOCIETY
Transition phase (1700s-1800s in Europe)
Pre-1700s, stable productivity
Increased productivity, development of
1 Limited technology, agriculture-based economy 2
manufacturing
Intensive labor, low trading levels, high income
Establishment of educational institutions,
inequality
banks, and luxury goods market

AGE OF MASS CONSUMPTION

TAKE-OFF DRIVE TO MATURITY
Economy reaches maturity
Rapid growth and industrialization 60-year period post-take-off High quality and quantity of products
Shift from agriculture to production Reinvention and reinvestment in and services
3 Emergence of educated individuals, 4 production 5 Export-oriented production,
access to capital Improved quality of life, technology consumerism
Development of new industries, integration Focus on military, equality, welfare, or
Growing middle class, economic luxury development
urbanization
diversification
 ORGANIZATION AND MANAGEMENT

Thank you so mu-

Any question?

2024 July 18 Prepared by: Kyla Angelie A. Laurente