Organization And Management Module 3

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

MODULE 3 CHAPTER 2 THE FIRM AND ITS ENVIRONMENT

Objectives: At the end of this chapter, the students are expected to: 1. Discuss the meaning and nature of business. 2. Identify the various kinds of business. 3. Recognize the objectives of business. 4. Identify various forces/elements of the firm’s environment. 5. Describe the local and international business environment . 6. Summarize these forces using the PEST and SWOT analysis. INTRODUCTION Knowledge about management and organization is very useful especially in human endeavors like operating a business firm. Business firms and the government are expected to provide goods and services to the society. Business may be defined as all-profit seeking activities and enterprises that provide goods and services necessary to an economic system. Profits refer to the rewards for business persons who take the risks involved in producing and marketing goods and services. According to Stephen P. Robbins & Mary Coulter, Environment refers to institutions and forces that affect organizational performance. Prepared by: Rea Mariz I. Jordan/ GumacaSHS-Teacher / 09.07.2020

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

Business Environment refers to the factors or elements affecting business organization. It divided into the External and Internal Business Environment. Business Environment-The combination of external and internal factors that influence a company’s operating situation. The business environment can include factors such as: clients and suppliers, its competition and owners; improvements in technology; laws and government activities; and market, social and economic trends Understanding the local and international business environment of the firm requires managers of organizations to sharpen their cultural intelligence. Cultural Intelligence is an individual’s ability to favorably receive and adjust to an unfamiliar way of doing things. Anthropologist EDWARD T. HALL, as cited by SCHERMERHORN (2008), the way people approach and deal with the time varies across cultures.  Monochronic culture is a culture where people tend to do one thing at a time.  Polychronic culture is a culture that is more flexible on time and it is used to accomplish many different things at one time. Geert Hofstede, cited by SCHERMERHORN (2008), showed how selected countries ranked on the five cultural dimensions he studies.  POWER DISTANCE -The degree to which a society accepts or rejects the unequal distribution of power among people in organizations and the institutions of society.  UNCERTAINTY AVOIDANCE -The degree to which society is uncomfortable with risk, change, and situational uncertainty.  INDIVIDUALISM-COLLECTIVISM- The degree to which a society emphasize individual accomplishments versus collective accomplishments  MASCULINITY-FEMININITY- The degree to which a society values assertiveness and feelings of material success versus concern for relationship.  TIME ORIENTATION- The degree to which a society emphasizes short-term thinking versus greater concern for the future or long- term thinking.

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

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

KINDS OF BUSINESS 1. COMMERCE- Business firms which are engaged in buying and selling of goods and services. Also included in this category are trading, merchandising, and marketing. Examples of commerce as a kind of business are supermarkets, dry goods stores, peddlers, sari-sari stores, importers, and many others. 2. INDUSTRY- engaged in production. Good produced which are intended for ultimate consumption are called consumer goods, while goods intended for use of business and industry are called producer’s goods. Industry business may be further classified into: A. Genetic Industries- are those involved in agriculture, forestry, and fish culture. B. Extractive Industries- are those involved in the extraction of goods from natural resources, which include mining, lumbering, hunting and fishing. C. Manufacturing Industries- convert raw materials into finished products. Examples are firms engaged in the manufacture of drugs, plastics, food, liquor, footwear, motorcars, tools, office supplies, etc. D. Construction Industries- are those engaged in building infrastructures like airports, seaports, dams and highways and dwelling units. 3. Services- one which sells service to the buyer. Service firms may be classified as: A. Recreation- moviehouses, television and radio stations, theaters for drama and stage presentations, resorts and the like. B. Personal- restaurants, barber shops, transportation, hotels, tailoring shops, slimming salons, and the like. C. Finance- banks, insurance companies, investment houses, financing institutions, credit unions, savings and loans associations, and the like. OBJECTIVES OF BUSINESS A business firm is established primarily for profit. There are other reasons, however, why anyone would want to start a business. Some of these are to do work that is enjoyable to do something for pleasure and pride, and to achieve financial independence. Professional managers maintain that a business firm should achieve the following multiple objectives: 1. Creation and distribution of product or service

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

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

2. Satisfaction of personal objectives like profits for owners, salaries and other compensation for executives, wages and other compensation for employees, psychic income for all, including pride in work, security, recognition, and acceptance. 3. Protection and enhancement of the human and physical resources of society; and 4. Economy and effectiveness of operation THE LOCAL AND INTERNATIONAL BUSINESS ENVIRONMENT The Local Business Environment Local business is driven by specific local conditions and market characteristics. Yet, it also operates in a larger economic context. At the local level, the business must compete for employees, resources from suppliers at a competitive price, local advertising and marketing channels. The most successful businesses are well-managed creating a compelling value proposition relative to its local competitors. So, business intelligence and local community buyer values are critical for management pricing, inventory, and marketing strategies. Still, a local business operates in a larger economic context. The International Business Environment The international business environment is the environment outside the Philippines and in different sovereign countries, with factors that are distinct to the home environment of the organization and the foreign country where the organization operates. ENVIRONMENTAL SCANNING- involves the seeking for and sorting through data about the organization’s environment. It is a process of gathering, analyzing, and dispensing information for tactical or strategic purposes. It is monitoring and interpreting sweep of social, political, economic, ecological, and technological events to spot budding trends that could eventually impact industry. Components of Environmental Scanning  competitive mind-set  considering of future business scenarios  business prediction/forecasting, and benchmarking  Benchmarking is the process of measuring or comparing one’s own products, services, and practices with those of the recognized industry leaders in order to identify areas for improvement.

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

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

Environmental forces and environmental scanning The business environment may be classified into two types: EXTERNAL BUSINESS ENVIRONMENT - refers to the forces/factors outside the organization which may affect, either positively or negatively, the performance of the organization.

Figure 7 External Business Environment

Figure 8 Functions of the Business Firm

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

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

Types of Elements in the External Environment Direct Action Elements These directly influence the organization and often referred to as stakeholders of the organization. The Direct Action Components of the External Environment  Customers- are whoever pays money to acquire an organization's product or service. A customer could be an individual, an institution like school, a government agency, a business firm, or a social club.  Suppliers- are organizations that provide resources for other organizations.  Labor Supply- Employing staff with relevant skills and experience is essential. This process begins at recruitment stage and continues throughout an employee's employment via ongoing training and promotion opportunities.  Competitors- are other organizations that compete for resources. They may be direct or indirect. Nescafe and Great Taste Coffee are direct competitors, and so are Pepsi and Coke, but Nescafe and Pepsi are indirect competitors. a. Monopoly- where there is only a single producer or seller. b. Oligopoly- where there are only a few producers or sellers of similar products. c. Pure competition- when there are many producers or sellers of similar products.  Financial Institutions- commercial banks, development banks, and other lending institutions  Government agencies Indirect Action Elements These do not affect the organization directly. Instead, they affect the climate in which the operations of the organization take place.  The economic dimension inflation, interest rates, unemployment, and demand.  The technological variable refers to the methods available for converting resources into products or services.  The socio-cultural variable- include the costumers’ changing values and preferences; customs could also affect management practices in companies. Ex. Filipino costumers are now conscious about the importance of avoiding fatty foods.  The political-legal variable refers to government regulation of business and the relationship between business and government.  The international variable refers to the extent to which an organization is involved in or affected by business in other countries.

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

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

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The Demographic variable- consists of gender, age, educational level, income, number of family members, geographic origin

Types of Business Environment The environment of business may be classified as either static or dynamic 1. Static- Few forces in the environment are changing to affect business. Ex. No new competitors, no new technological breakthroughs by current competitors, and little activity by public pressure groups 2. Dynamic- When significant number of environmental forces that affect business are changing. Ex. Rapidly changing government regulations affecting business, new competitors, difficulties in acquiring raw materials, and continuously changing socio-cultural aspects of the population INTERNAL BUSINESS ENVIRONMENT - refers to the forces/factors within the organization which may affect, either positively or negatively, the performance of the organization. INTERNAL BUSINESS ENVIRONMENT includes:  Resources – financial, physical, mechanical, technological, and human resources must be subjected to internal analyses (SWOT)  Research and development  Production  Procurement of supplies – materials, inputs, and finance  Products and services, it offers WHAT IS A PEST ANALYSIS? A PEST analysis is a strategic business tool used by organizations to discover, evaluate, organize, and track macro-economic factors which can impact on their business now and in the future. The framework examines opportunities and threats due to Political, Economic, Social, and Technological forces. Outputs from the analysis inform strategic planning processes and contribute to market research. The output from a PEST analysis is useful for informing other business management tools such as SWOT analysis

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

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

Why do a PEST analysis?  Helps to evaluate how your strategy fits into the broader environment and encourages strategic thinking  Provides an overview of all the crucial external influences on the organization  Supports more decisive and knowledgeable decision making 

Assists planning, marketing, organizational change initiatives, business and product development, project management, and research papers

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

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

Political

Economic

Political or politically motivated factors Overall economic forces that could that could impact the organization. impact on your success. Examples include: Examples include: Government policy, political stability or instability, bureaucracy, corruption, competition regulation, foreign trade policy, tax policy, trade restrictions, labor/environmental/copyright/consumer protection laws, funding grants & initiatives, etc.

Economic trends, growth rates, industry growth, seasonal factors, international exchange rates, International trade, labor costs, consumer disposable income, unemployment rates, taxation, inflation, interest rates, availability of credit, monetary policies, raw material costs, etc.

Questions to ask:

Questions to ask:

Social

What economic factors will affect us moving forward? How does the performance of the economy affect us at the moment?  How are our pricing, revenues, and costs impacted by each economic factor? Technological

Social attitudes, behaviors, and trends that impact on your organization and target market. Examples include:

Technology that can affect the way you make, distribute, and market your products and services. Examples include:

Attitudes and shared beliefs about a range of factors including money, customer service, imports, religion, cultural taboos, health, work, leisure, the environment; population growth and demographics, immigration/emigration, family size/structure, lifestyle trends, etc.

Technology and communications infrastructure, legislation around technology, consumer access to technology, competitor technology and development, emerging technologies, automation, research and innovation, intellectual property regulation, technology incentives, etc.

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What government policies or political groups could be beneficial or detrimental to our success? Is the political environment stable or likely to change?

Questions to ask  

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Questions to ask: How do our customer’s beliefs and values influence their buying habits?  What technological advancements How do cultural trends and human and innovations are available or on behavior play a role in our business? the horizon?

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

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

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How will this technology impact on our operations?

Figure 9 PEST Analysis

The SWOT Analysis

Figure 10 SWOT Analysis

To run a successful business, you should regularly analyze your processes to ensure you are operating as efficiently as possible. While there are numerous ways to assess your company, one of the most effective methods is to conduct a SWOT analysis. A SWOT (strengths, weaknesses, opportunities and threats) analysis is a planning process that helps your company overcome challenges and determines what new leads to pursue. The primary objective of a SWOT analysis is to help organizations develop a full awareness of all the factors involved in making a business decision. This method was created in the 1960s by Albert Humphrey of the Stanford Research Institute, during a study conducted to identify why corporate planning consistently failed. Since its creation, SWOT has become one of the most useful tools for business owners to start and grow their companies. 

Strengths refer to internal competencies possessed by an organization that will enable it to achieve its objective.

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

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

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

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Opportunities refer to economic, socio-cultural, political, technological, demographic, and industrial trends and events that could significantly benefit an organization in the future.

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Threats are economic, cultural, political, technological, demographic and industrial trends and events that are potentially harmful to an organization’s present and future competitive position.

Figure 11 How to Conduct SWOT Analysis

Figure 12 What is SWOT Analysis?

A SWOT should be prepared for each of your company business/ product activities. The results of SWOT Analysis will guide you in making the action plans.

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

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

Capitalize on Strengths Reduce Weaknesses Use Opportunities Neutralize, Convert Threats into Opportunities

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

ACTIVITY 3 Give one possible positive and negative impacts to business operations for each of the following indirect action elements of external environment. Write your answer in a piece of paper. Prepared by: Rea Mariz I. Jordan/ GumacaSHS-Teacher / 09.07.2020

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

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

POSITIVE

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

NEGATIVE

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

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

For more than 15 years, Miss Marlene Cagatao worked in various capacities with Airwave Aviation School, an educational institution engaged in educating and training pilots and airplane technicians. Marlene was aware of the ever-increasing demand for pilots and technicians around the world. This information lingered in the mind of Marlene and she thought that maybe there was an opportunity to open an aviation school outside Metro Manila. As vice president of Airwave Aviation School for five years, she felt that she was ready to operate a school for pilots as presidents. She knew exactly the requirements needed for operating this kind of school. In due time, Marlene was able to convince three prominent persons to finance the project. Marlene already had a name for the school: LILI MARLENE AVIATION SCHOOL. Her next concern was to find suitable location outside Metro Manila. She found a 20-hectare land in Cabanatuan City, which she thought , would be just right for her proposed project. When Marlene was called to a meeting with the financiers, she was asked about the advantages of Cabanatuan as the site for the school. Among her reasons were the low acquisition cost of land and the importance of the area in the development of the projects of the national government. The construction of the SCTEX highway to Baguio was in progress, while the proposed seaports in Dingalan and Baler, Aurora was already drawing board. In addition, various infrastructures and facilities were already presents in the area. The financiers were satisfied with her statements regarding the proposed site, but they wanted more information. Marlene was told that like any other business, operating an aviation school must be able to meet the criteria of profitability and stability for long period of time. They asked her to produce information about how the current situations would allow the proposed aviation school to prosper. In response, Marlene agreed to produce the answers in their next meeting.

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

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

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

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

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

ACTIVITY 5 Making the Most of Your Talents and Opportunities Make your own Personal SWOT Analysis using this format. Write your answer in a piece of paper.

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