ORGANIZATION &
MANAGEMENT
THE FIRM AND ITS
ENVIRONMENT
BY: ROCKY ACE U. PALALAY,
TEACHER II
OBJECTIVES
At the end of the discussion, you will be able to:
Identify the various forces/elements of firm’s environment and summarize
the forces using the SWOT analysis;
Describe the local and international business environment of a firm; and
Explain the role of the business in relation to the economy, discuss
different phases of economic development, and differentiate the various
forms of business organizations
LESSON 1:
ENVIRONMENTAL FORCES
AND ENVIRONMENTAL
SCANNING
Just like human beings, business enterprises do
not exist in isolation. Each business firm is not
an island unto itself; it exists, survives and
grows within the context of the element and
forces of its environment.
By the word “environment” we understand the
surroundings or conditions in which a
particular activity is carried on. And we know
that organization is a social entity that has a
hierarchical structure where all necessary items
are put together and they act within it to reach
the collective goal.
Business Environment
Refers to the factors or elements
affecting business organization. It is
divided into the External and Internal
Business Environment.
Definition of terms
Environmental scanning
The activity of analyzing various areas affecting a
business enterprise
The considering of events and trends that present
either threats or opportunities for the
organization.
A necessity in generating business ideas or in
screening identified business ideas
Information gathered are used in SWOT analysis
EXTERNAL BUSINESS
ENVIRONMENT
Includes the factors and elements outside
the organization which may affect its
performance, either positively or
negatively.
COMPONENT OF THE EXTERNAL
BUSINESS ENVIRONMENT: macro
AND micro
EXTERNAL BUSINESS
ENVIRONMENT(Micro)
includes those players whose decisions and actions
have a direct impact on the company. Production
and selling of commodities are the two important
aspects of modern business. Accordingly, the
micro-environment of business can be divided.
Micro External Business
Environment forces
Micro External Business Environment forces
1. SUPPLIERS OF INPUTS
2. COSTUMERS
3. COMPETITORS
4. MARKETING INTERMEDIARIES
5. TRADE UNIONS
6. PUBLIC
1. SUPPLIERS OF INPUTS
An important factor in the external micro-
environment of a firm is the supplier of its
inputs such as raw materials and components.
Normally, most firms do not depend on a
single supplier of inputs. To reduce risk and
uncertainty business firms prefer to keep
multiple suppliers of inputs.
2. CUSTOMERS
The people who buy and use a firm’s product and
services are an important part of external micro-
environment.
Main concern: Customer Satisfaction
Attract customers = increase demand and market
for its product.
3. COMPETITORS
Different firms in an industry compete for sale of
their products. This competition may be based on
pricing of their products and non- price competition
through competitive advertising such as sponsoring
some events to promote the sale of different varieties
and models of their products
4. MARKETING INTERMEDIARIES
In the firm's external micro-environment,
marketing intermediaries play an essential role
of selling and distributing its products to the
final customers. Marketing provides an
important link between a business firm and its
ultimate
customers.
5. PUBLICS
Environmentalists, media groups, women’s
associations, consumer protection groups, local
groups, Citizens Association are some important
examples of publics which have an important
bearing on the business decisions of the firm. The
existence of various types of publics influences the
working of business firms and compels them to be
socially responsible.
Macro External Business
Environment forces
EXTERNAL BUSINESS
ENVIRONMENT (Macro)
Has an indirect influence on the business.
The factors are uncontrollable by the business.
the macro environment includes trends in the
gross domestic product (GDP, inflation,
employment, spending, and monetary and fiscal
policy.
Macro External Business Environment forces
1. Economic Environment
2. Political Environment
3. Legal Environment
4. Technological Environment
5. Natural Environment
6. Global Environment
1. ECONOMIC environment
Issues that are bound to have an impact on the company. This
would include factors like inflation, interest rates, economic
growth, the unemployment rate and policies, and the business
cycle followed in the country.
E.g. economic growth, interest rates, exchange rates, inflation
rate, unemployment rate, etc.
Ex. Companies may Postpone expansion plans if bank loan
interests are too high.
2. Politico-legal Situations
Include government regulations and legal issues.
Government regulations and legal factors are assessed in terms of their
ability to affect the business environment and trade markets.
The main issues addressed in this section include political stability, tax
guidelines, trade regulations, safety regulations, and employment laws.
3. TECHNOLOGICAL SITUATIONS
Include technological advancements, lifecycle of technologies, the role of the
Internet, and the spending on technology research by the government.
E.g. R&D activity, automation, rate of technological change, new or improved
distribution channels, improved communication and knowledge transfer etc.
New technologies create new products and new processes.
Technology can reduce costs, improve quality and lead to innovation.
4. Global or international environment
Global environment plays an important role in shaping business
activity.
With the liberalization and globalization of the economy, business
environment of an economy has become totally different wherein it
has to bear all shocks and benefits arising out of global environment.
Includes the social, political, economic, regulatory, tax, cultural,
legal, and technological environments .
5. SOCIOCULTURAL SITUATIONS
Socio-economic environment of the firm’s market via elements like customer
demographics, cultural limitations, lifestyle attitude, and education.
Business can understand how consumer needs are shaped and what brings
them to the market for a purchase.
These factors affect customer needs and the size of potential markets.
E.g. health consciousness, population growth rate, age distribution, career
attitudes, emphasis on safety, education levels, income levels etc.
6. DEMOGRAPHIC SITUATIONS
The demographic environment includes
size and growth of population,
life expectancy of the people,
rural-urban distribution of population,
the technological skills and educational levels of labor force.
All these demographic features have an important bearing on the
functioning of business firms.
7. Natural environment
The natural environment is the ultimate source of many inputs
such as raw materials and energy, which firms use in their
productive activity.
The natural environment which includes geographical and
ecological factors such as minerals and oil reserves, water and
forest resources, weather and climatic conditions are all highly
significant for various business activities.
8. ECOLOGICAL SITUATIONS
Due to the efforts of environmentalists and international
organizations such as the World Bank the people have now become
conscious of the adverse effects of depletion of exhaustible natural
resources and pollution of environment by business activity.
Accordingly, laws have been passed for conservation of natural
resources and prevention of environment pollution. These laws
have imposed additional responsibilities and costs for business
firms.
COMPONENTS OF THE INTERNAL
BUSINESS ENVIRONMENT
INTERNAL BUSINESS
ENVIRONMENT
Refers to the factors or elements within
the organization which may also affect
its performance, either positively or
negatively.
Generally controllable because the
company has control over these factors.
INTERNAL BUSINESS
ENVIRONMENT
1. Value System
2. Mission and Objectives
3. Organization Structure
4. Corporate Culture
5. Quality of Human Resources
6. Labor Unions
7. Physical Resources and Technological Capabilities
1. Value System (Internal Business
Environment)
The value system of an organization means the ethical
beliefs that guide the organization in achieving its
mission and objectives. It is a widely acknowledged fact
that the extent to which the value system is shared by all
in the organization is an important factor contributing to
its success.
2. Mission and Objectives (Internal
Business Environment)
The business domain of the company, direction of development,
business philosophy, business policy etc. are guided by the
mission and objectives of the company. The objective of all
firms is assumed to be maximization of profit. Mission is
defined as the overall purpose or reason for its existence which
guides and influences its business decision and economic
activities.
3. Organization Structure (Internal
Business Environment)
The nature of the organizational structure has a
significant influence over the decision-making process in
an organization. An efficient working of a business
organization requires that the organization structure
should be conducive for quick decision-making.
4. Corporate Culture (Internal Business
Environment)
Corporate culture is an important factor for determining the internal
environment of any company.
Example: In a closed and threatening type of corporate culture the
business decisions are taken by top level managers while the middle level
and lower level managers have no say in business decision- making. This
leads to lack of trust and confidence among subordinate officials of the
company and secrecy pervades throughout the organization.
5. Quality of Human Resources (Internal
Business Environment)
Quality of employees that is of human resources of a firm is an
important factor of internal environment of a firm.
The characteristics of the human resources like skill, quality,
capability, attitude and commitment of its employees etc. could
contribute to the strength and weaknesses of an organization.
6. Labor Unions (Internal Business
Environment)
Labor unions collectively bargains with the
managers for better wages and better working
conditions of the different categories of workers.
For the smooth working of a business firm good
relations between management and labor unions is
required.
7. Physical resources and technological
capabilities (Internal Business
Environment)
Physical resources such as, plant and equipment and
technological capabilities of a firm determine its competitive
strength which is an important factor for determining its
efficiency and unit cost of production. Research and
development capabilities of a company determine its ability to
introduce innovations which enhances productivity of workers.
An Organizations Internal Business Environment is composed of its:
• Resources
• Research and development
• Production, procurement of supplies, and the
• Products and services it offers.
The Organizations Internal Environment must be Also subjected to:
• Internal analysis
• Internal strengths and weaknesses, opportunities and threats
(SWOT) with regards to its resources (Financial, Physical,
Mechanical, Technological, and Human Resources)
STRATEGIC PLANNING: SWOT
and pest analyses
SWOT Analysis is a technique that
identifies the Strengths and
Weaknesses of a company, as well as
the Opportunities and Threats it
faces.
STRATEGIC PLANNING: SWOT
and pest analyses
In conducting this analysis, it is
imperative to note that strengths and
weaknesses are part of the
company’s internal environment,
while opportunities and threats are
part of its external environment.
STRENGTHS (What does your company do
S
better than others?)
WEAKNESSES (What aspects of your
W company need to be improved?)
O OPPORTUNITIES (What trends/conditions
can positively impact your company?)
T THREATS (What trends/conditions can
negatively impact your company?)
strengths
Include;
the company’s attributes that give a competitive edge over
others.
strengths
Good performance and a positive reputation in the business
scene
strengths
Having a good brand image
strengths
Providing quality products and services
strengths
Good credit standing
strengths
Competent and highly skilled staff
strengths
Excellent distribution channels
strengths
Outstanding communication and network
systems
weaknesses
Are attributes of the company
that need to be improved or
changed. These attributes
may hinder the company’s
growth and performance.
weaknesses
Lack of access to technology
weaknesses
Limited distribution channels
weaknesses
Poor location
weaknesses
Lack of facilities and equipment
weaknesses
Poor transportation system.
opportunities
Are factors or events
that can give a positive
impact to the company if
properly addressed. It
come in different forms;
opportunities
New markets
opportunities
Potential profits
opportunities
Additional sources of raw materials
opportunities
Increased
purchasing power of
consumers
opportunities
Better location
opportunities
New users or customers
threats
Are external factors
which may negatively
impact the company.
These are;
Trends
threats
Increase in the price of resources
threats
Entry of new competitors
threats
High inflation rates
STRENGTH WEAKNESS
• Dominant brand position in the PH • Lack of brand presence overseas as compared to
• Strong brand loyalty from Filipinos locally
• Superior MENU • Difficulty selecting good franchise partners and
• Corporate values of integrity & humility -> suitable location for international investments
Family like culture • High employee turnover rate
OPPURTUNITIES THREATS
• Large Filipino emigrant population overseas • Presence of strong and entrenched competitors
• Rise of emerging markets like China & India like McDonalds & KFC
• Difficulty adapting Menus to suit local tastes.
• Growing health consciousness in the global
population may lead to decrease in desirability of
products.
STRENGTHS WEAKNESSES
• Brand recognition • Premium price
• Innovation • Lost of Steve Jobs
• Marketing • Closed operating system
OPPURTUNITIES THREATS
• Acquisition of Beats by Dre • Samsung
• Apple cars • Rising COG
• Technological advancements • Microsoft
PESTel Analysis
A PESTEL analysis or PESTLE analysis (formerly known
as PEST analysis) is a framework or tool used to analyses
and monitor the macro-environmental factors that may
have a profound impact on an organization’s
performance.
This tool is especially useful when starting a new business
or entering a foreign market. It is often used in
collaboration with other analytical business tools such as
the SWOT analysis and Porter’s Five Forces to give a
clear understanding of a situation and related internal and
external factors. PESTEL is an acronym that stands for
Political, Economic, Social, Technological,
Environmental and Legal factors.
PORTERS 5 FORCES
PORTERS 5 FORCES
Porter’s Five Forces analysis is a
framework that helps analyzing the level
of competition within a certain industry.
It is especially useful when starting a
new business or when entering a new
industry sector.
PORTERS 5 FORCES
According to this framework, competitiveness does
not only come from competitors. Rather, the state
of competition in an industry depends on five basic
forces: threat of new entrants, bargaining power of
suppliers, bargaining power of buyers, threat of
substitute products or services, and existing
industry rivalry
COMPONENTS OF
ENVIRONMENTAL
SCANNING
BUSINESS ENVIRONMENT
Developing a COMPETITIVE
MINDSET
By seeking and sorting through data
about environment, you may be able
to understand and predict the various
changes, opportunities and threats
that may affect organizations in the
future.
CONSIDERING FUTURE
BUSINESS SCENARIOS
By realistic consideration of both
worse- case scenario
or unfavorable future conditions, as
well as middle ground possible
conditions, you will have an idea or
what to do in the future
BUSINESS PREDICTION (Business
forecasting)
A method of predicting how variables
in the environment will alter the
future of business. It could be used in
making decisions regarding
offshoring, branching out locally, and
expanding or downsizing.
BENCHMARKING
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
Lesson 3: Phases of
Economic
Development
Definition
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 social, political,
cultural and spiritual aspects of the country’s
growth.
Economic development phases/stages.
Distinct stages involved in the total process of economic development in a
particular country. These includes:
Economic growth
Improvement of human development index
Availability of benefits provided by science and technology
Societal improvement of the opportunities and
General welfare of its members
Greater concern is the total improvement of the quality of people’s
lives.
SUSTAINABLE ECONOMIC DEVELOPMENT ensures that the
present needs of a particular generation are met in full without
endangering the ability of future generations to also fully meet
their own needs.
*Business managers must be conscious with their decisions
-Must not lead to the abuse of ecological elements –
air, water, and soil - as this will threaten sustainable economic
development.
Common environmental and Ecological
problems that have to be dealt with by
business managers include destruction of
natural habitats, depletion of clean water
resources, urban, industrial, and
agricultural pollution, and many more.
Common environmental and Ecological
problems that have to be dealt with by
business managers include destruction
of natural habitats, depletion of clean
water resources, urban, industrial, and
agricultural pollution, and many more.
September 2000, world leaders
gathered for the Millennium Summit,
they had committed their nations to a
global partnership toward reduction of
extreme poverty and the pursuit of the
Millennium development Goals (MDG)
MDG’s are “the world’s time-bound and
quantified for addressing extreme poverty in
its many dimensions— income poverty,
hunger, disease, lack of adequate shelter,
and exclusion—while promoting gender
equality, education, and environmental
stability”
MDG’s
1. Eradicate Extreme Hunger and Poverty
2. Achieve universal primary education
3. Promote Gend er equality and empower women
4. Reduce child mortality
5. Improve maternal health
6. Combat HIV/AIDS, Malaria
7. Ensure environmental sustainability
8. Develop a global partnership for development
NEDA (National Economic and
Development Authority) laid out the
Philippine Development Plan (PDP) 2011-
2016, which “adopts a framework of
inclusive growth, which is high growth
that is sustained, generates mass
employment, and reduces poverty”
Philippine development plan (PDP)
1. In pursuit of Inclusive Growth
2. Macroeconomy Policy
3. Competitive Industry and Services Sectors
4. Competitive and Sustainable Agriculture and Fisheries Sector
5. Accelerating Infrastructure Development
6. Towards a Resilient and Inclusive Financial Sector
7. Good Governance and the Rule of Law
8. Social Development
9. Peace and Security
10. Conservation, Protection, and Rehabilitation of the Environment and
Natural Resources
