TABALONG NATIONAL HIGH SCHOOL

Tabalong, Dauis, Bohol

QUARTER 3
CHAPTER 2

LESSON 1: THE ENVIRONMENT OF THE FIRM

Objectives
At the end of this lesson, the students will be able to
1. define environmental scanning,
2. identify the various forces of the firm’s environment,
3. discuss SWOT and PEST analyses,
4. identify common elements and differences between the two techniques, and
5. employ SWOT and PEST analyses in analyzing the business environment of a firm and in other
situations.
MAJOR PROBLEMS FACED BY BUSINESSES
Uncertainty
This strikes fear in company executives because its effect can result in staggering costs. Uncontrollable
external factors like political, economic, technological, and social forces are always at work. Unexpected future
events can derail a company off the business track if the management is not prepared with a contingency plan.
The common reaction to uncertainty is to stick with manageable short-term goals. However, this may prove to
be less rewarding since it can offset the potential profitability that a long-term goal may provide.
Globalization
Globalization is a concern for top executives because of the changes it brings. These changes may
require costly adjustments to cope with the challenges of serving new markets and new trends. Companies may
need to offer new products and services to better serve new markets. Globalization also results in stiff
competition among companies since the business operations shift to the international scene. As such, managers
have to deal with the cultural differences and varying government rules and regulations which can complicate
trade and commerce. All of these changes have to be embraced by companies since globalization will
continually make international operations more challenging than ever.
Innovation
Companies should build a more innovative culture in their respective organizations. Some of the large
companies are afraid that innovation will result in the relaxation of protocols and practices which leads to loss
of control. Top companies executives fear that giving employees more freedom to develop new products or
services without supervision from management may cause them to prioritize individual goals over company
objectives. For “healthy” innovation to happen, there should be a balance between how much freedom should
be given to employees and the level of control exercised by managers to implement their authority and impose
discipline among employees.
Government Policies
Companies should adhere to new government regulations and policies on environmental, financial,
marketing, and other aspects of business. Such policies may complicate decisions of top executives but
managers should continually improve their skills to address the effects of these policies.
Technology
Technological advancements happen fast and companies have to cope by investing in new technologies
to take advantage of their benefits before they become obsolete. The competitive business environment
requires companies to stay informed about changes and make appropriate adjustments in their operations.
Investing in new technology enables a company to take advantage of the next technological developments and
smoothly transition to future innovations.
Diversity
Diversity adds value to products and services since different ideas and perspectives are utilized in the
process. However, this poses a challenge for companies to bring together a diverse group of employees and
work for a single goal. Thus, managers need to make the proper adjustments in their communication with
employees, suppliers, customers, investors, and business partners.
Complexity
Globalization and information technology have led to the emergence of a complex business
environment. Business transactions have become more complex because of the diverse cultures of people
across countries. Managers are challenged to develop management protocols that minimize the complexity of
different tasks.
Information Overload
6 Innovations in information technology have led to fast-paced communication and the availability of a
large amount of information on the internet. How to deal with the vast information available online is
something that business executives should consider. Effective information management is a good investment
since the result can provide valuable insights especially for marketing and strategic business planning.

ORGANIZATION AND MANAGEMENT Subject Teacher: Mildred T. Ladera

 THE ENVIRONMENT OF THE FIRM
The business firm’s environment refers to the conditions and elements that define its operations and
determine its success. There are two types or the firm’s environment. These are the internal and the external
environment.
The internal environment consists of elements that have a direct impact on the business operations.
These include the employees, the board of directors, and the managers. The elements of the internal
environment are directly controlled and can be freely modified by the firm itself.
The external environment consists of factors that have indirect but significant influence on the
operations of the business. These factors, however, cannot be controlled by the firm. There are two types of
external environment:
1. Microenvironment is also known as the “operating environment.” It consists of the customers,
suppliers, regulatory agencies, and competitors. The factors in this environment have a direct
relevance to the business operations but are uncontrollable to a certain extent.
2. Macroenvironment is also known as the “general environment.” It consists of the economic, political,
social, legal, and technical environment of the business organization. The factors in this environment
are beyond the control of the firm but are important determinants of success.
A successful business understands the changes in its external environment to take advantage of
opportunities provided by these changes. Companies gather information on the external environment by
conducting environmental scanning and strategic analysis.
ENVIRONMENTAL SCANNING
Environmental scanning is the actual monitoring and evaluation of information from the external
internal environment of a business organization. The information is then provided to the key people to guide
the organization in its business operation and in preparing for target market operations. There are three modes
of environmental scanning as follows:
1. Ad hoc environmental scanning is not often done and is usually applicable only during a crisis
situation. The firm does ad hoc scanning to determine whether a problem is either external or internal.
2. Regular scanning is usually done at least once a year or at regular intervals.
3. Continuous scanning refers to the continuous collection of data on a broad range of environmental
factors. It is also referred to as continuous learning done to monitor the components of an
organization’s internal environment.

STRATEGIC PLANNING: SWOT and PEST Analyses

To adequately deal with the forces of the external environment, managers and decision-makers apply
certain techniques in gathering and analyzing information and subsequently conducting strategic planning
techniques such as the SWOT and PEST analyses. SWOT analysis is primarily used to analyze the
microenvironment, while PEST is conducted to address the firm’s macroenvironment.
SWOT Analysis
This identifies the Strengths and Weaknesses of a company as well as the Opportunities and Threats it
faces. The strengths and weaknesses are part of the company’s internal environment, while opportunities and
threats are part of its external environment.
Strengths include the company’s attributes that give a competitive edge over others. This contributes to
its good image and a positive reputation in the business scene. It may include being a market leader. Having a
good brand image, providing quality products and services, and having a good reputation in the business. Also
include good credit standing, competent and highly skilled staff, excellent distribution channels, outstanding
communication and network systems, and a good number of patents.
Weaknesses are the attributes of a company that need to be improved or changed. These may hinder
the company’s growth and performance. Examples are lack of access to technology, limited distribution
channels, poor location, lack of facilities and equipment, and poor transportation system.
Opportunitiesare factors that can give a positive impact to the company if properly addressed.
Opportunities come in different forms like new markets, potential profits, additional sources of raw materials,
increased purchasing power of consumers, better location, and new users.
Threats are external factors which may negatively impact the company. These are trends, changes, or
movements over which the company has no control but should be addressed to maintain its status in business.
Some examples are increase in the price of resources, entry of new competitors, and high inflation rates.
PEST ANALYSIS
A method used in analyzing the Political, Economic, Social, and Technological forces affecting the
company. This technique focuses on the factors that define the macroenvironment of the business.
Political factors include laws, regulations, and restrictions that may intervene or affect the company’s business
6 course. Significant political factors include tax policies, labor laws, environmental laws, trade restrictions, and
tariffs.
Business must comply with rules and regulations imposed by the government, and compliance requires
managers to adjust their operations accordingly. Companies are required by the government to comply with the
Minimum Wage Law in determining the wages of their employees. Business also have to comply with the

ORGANIZATION AND MANAGEMENT Subject Teacher: Mildred T. Ladera

 required legal documents, pay fees and secure permits before they begin their operations. Another significant
factor for manufacturing are zoning restrictions.
Economic factors directly affect the capability of business to generate profits. These include economic
growth, interest rates, exchange rates, and inflation rate. The increase in the prices of raw materials and basic
commodities is also an important factor that affects business.
Social factors include demographic aspects such as age, group, affiliation, religion, civil status, and the
economic status of consumers. Companies focus on information regarding their target market, particularly its
buying habits, attitudes, ethics, personalities, and values.
Firms usually shape their products or services based on their target market. Companies that sell instant
noodles target consumers who are always on the go or have limited time to prepare home-cooked meals.
Services such as laundry shops cater to people who are unable to do their own laundry or who have no helpers
to do their laundry for them.
Technological factors include research development activities, automation, licensing, patenting,
technological shifts, and outsourcing decisions. An important technological factor at present is the Internet,
which has greatly improved the way business functions are done.
Since the PEST analysis exclusively focuses on the macroenvironment of the firm, it can guide managers
to identify the reasons why their business is growing or failing within a certain environment. It also helps the
company identify new directions for growth and expansion. A major limitation of the PEST is that it does not
consider the internal elements of the company.

LESSON 2: THE LOCAL AND INTERNATIONAL BUSINESS ENVIRONMENTS

Objectives
At the end of this lesson, the students will be able to
1. recognize the factors that affect the local business environment,
2. acknowledge the forces that affect the international business environment,
3. discuss the different phases of economic development, and
4. explain the role of business in the country.
Business organizations have diversified through the years. Many local companies have expanded and
established branches throughout the country while some have become international brand. On the other hand,
foreign companies have entered our local markets and thrive. These companies recognized the importance of
analyzing their potential business environment and coped with the changing external forces and emerging
opportunities in order to succeed and thrive. Companies operating in the local or international scene should
adapt to change and take advantage of opportunities so they can successfully flourish in any kind of
environment.
The Local Business Environment
In the conduct of their business, companies have to contend with the conditions and changes in their
local business environment. The Philippine business environment in influenced by a lot of factors both in
microenvironment and macroenvironment.
One major consideration for Philippine business is the weather. It can be very hot in the summer and
very stormy by the last quarter of the year. Intense weather condition can have adverse effects especially on
business engaged in food production and agriculture. Any adverse weather phenomena, such as typhoons and
droughts, may result in the loss of crops which lead to an increase in food prices. Natural disasters such as
earthquakes can bring about disruptions in businesses and industries due to property damage and casualties.
Aspects of Philippines culture should also be considered. Certain local products, such as native cuisine
and handicrafts, may have strong market in certain areas but may perform weakly in other places in the
country. Businesses who wished to bring foreign products into our local market should also be mindful whether
these products are acceptable in the Philippine culture.
Business opportunities and threats should also be considered in the local environment. At present
several BPO (Business Process Outsourcing) companies operating in the Philippines take advantage of the
cheap operating and labor costs, as well as the highly skilled workforce among Filipinos.
The International Business Environment
The international environment also consists of the political, economic, social, and technological
environmental forces. These must be considered when a company decides to expand its business overseas, as
different countries provide a variety of opportunities and threats for the business.
A company operating with international branches should take note of the political environment,
particularly the stability of the government of the country where it operates. Different countries have different
trade laws and policies.
Companies should also consider the economic environment of the country such as presence of
6 infrastructures that support economic activities. Railroads, ports, power plants, schools, commercial
establishments, markets, utilities, and communication systems should be evaluated.
Social environment also includes cultural differences. Companies entering the international market
should learn the proper cultural practices and taboos. Taboos are social or religious customs that prohibit, for
example, discussion of a particular practice or association with a particular person, place, or thing. There are
also language differences so managers should understand the colloquial meanings of the words when translated

ORGANIZATION AND MANAGEMENT Subject Teacher: Mildred T. Ladera

 in other languages. Rewards and punishments should also be carefully studied since people across the world
have different and particular methods of motivation depending on their cultural upbringing.
Lastly, the technological factors. It should ensure the compatibility of the available local technology
with the technology it employs in its operations. A company should also ensure that the country has an available
workforce that is sufficiently competent to handle the technologies that the venturing company will introduce.
The potential benefits and harm that might result from the introduction of technologies should also be taken
into account.

LESSON 3: THE ETHICAL ENVIRONMENT OF THE FIRM

Objectives
At the end of this lesson, the students will be able to
1. determine the ethical issues on business,
2. identify the five perspectives in ethics,
3. explain the relevance of corporate social responsibility in an organization,
4. discuss corporate integrity and its dimensions,
5. differentiate social obligation from social responsiveness, and
6. describe how organizations apply social responsibility in their activities.
Business Ethics and Management
An ethical issue refers to a concern on which an individual must decide based on several alternatives of
what is morally right or wrong. In business, these issues play a crucial role in decision-making. Any manager
should be guided by a set of business ethics which are moral principles and standards that guide business
people in their transactions. Generally, business ethics sets the moral standards for any kind of business
function.
Perspectives on Ethics
In deciding on ethical issues, five guiding principles may be used.
1. Universalism – This is the principle which states that all people should have certain values like honesty,
respect, and cooperation. Universalism requires every person to reenact these values in the same way
under all circumstances and at all times.
2. Egoism – this is the principle which promotes the greatest good to oneself. It is focused on the
perspective that people ultimately act for self-advancement, no matter how good their intentions are.
Based on this view, it is permissible for a person to cooperate with others as long as this will serve his or
her own interest.
3. Utilitarianism – this is the principle which focuses on the greatest good for the greatest number of
people. In this perspective, the ultimate concern of managers is to make decisions that are beneficial to
the greatest number of people.
4. Relativism –This is the principle which states that ethical behavior is based on a person’s own and other
relevant people’s opinions and viewpoints. It acknowledges that there are different standards for each
culture. Therefore, business transactions may proceed differently from one culture to another.
5. Virtue Ethics – this is the principle which states that morality depends on the maturity of a person with
good moral character. Based on society’s moral standards, a moral person can interpret these as the
application of personal virtues like faith, honesty, and others. Thus, what is right is based on the level of
one’s moral judgment.
Corporate Integrity
Corporate integrity refers to that sense of “wholeness” created by the right relationships among the
members of the corporation. It has five dimensions: cultural, interpersonal, organizational, social, and natural.
Of all the dimensions, the cultural dimension has the most impact on the internal relationships in the
company. Culture is what unites employees, and cultural aspects such as language, rituals, behavior patterns,
and beliefs form the framework that determines the manner by which people relate with one another and
engage with experiences and situations. Managers are encouraged to establish an open atmosphere that will
facilitate communication among people with different cultures and backgrounds. The interpersonal
dimension focuses on the relationships among people. Important relationships that impact the organization
include family relations, civic life, and work relations. The organizational dimension considers the main
purposes of the business, particularly the economic and financial purposes, managerial purpose, and civic
purpose. The social dimension views the organization as actively engaging with society. The business must be
seen not only as a business leader, but also as a significant social element in its community. The natural
dimension looks into how the organization relates to nature.
Corporate Social Responsibility
One business practice which is considered vital to current international standards of business
6 operations is corporate social responsibility. This refers to business operations and activities that have the
welfare of society in mind. A firm should aim to pursue long-term goals which will benefit society. Business
operations, therefore, should be strategized to pursue economic goals while upholding the welfare of the
society.
This is closely related to the concepts of social obligation and social responsiveness. These define the
extent to which a company is able to exercise social responsibility in its operations and activities.

ORGANIZATION AND MANAGEMENT Subject Teacher: Mildred T. Ladera

 Social obligation refers to complying with legal and ethical standards to uphold social welfare. Social
responsiveness, on the other hand, goes beyond prescribed standards and implements actions that aim to
make an impact on society. For example if the company produces products that do not harm or pollute the
environment, it is meeting its social obligation. However, if the same organization uses fully recycled paper in
packaging its products, organizes yearly tree-planting activities for its employees, and supports campaigns and
advocates against illegal logging and pollution, then it is socially responsive.
All element of social responsibility in their operations are:
Economic responsibility, the company should produce goods and services with reasonable prices and satisfy
the needs of its customers, stakeholders, and other members of society even as they ensure sustainability and
growth.
For legal responsibility, the organization should comply with local and international laws that apply to its
business operations.
Ethical responsibilities include establishing norms, standards, mores, and practices that reflect fairness to the
consumers, employees, shareholders, and the community.
Lastly, its philanthropic responsibilities include the initiation of voluntary activities such as establishing
corporate programs, donating to charitable institutions, and other similar charitable causes.

LESSON 4: THE BUSINESS ORGANIZATION

Objectives
At the end of this lesson, the students will be able to
1. identify the forms of business organization, and
2. discuss the types of business.
Forms of Business Organizations
There are three forms of business organizations based on ownership structure. These are sole
proprietorship, partnership, and corporation. A wise manger should consider the characteristics of the business
organization that he or she wishes to establish in making the business plan as each presents unique advantages,
opportunities, and challenges.
Sole Proprietorship
Are companies owned by one person who is usually hands-on in managing the day-to-day activities?
Sole proprietorship owns the entire business, including all assets and profits. Since they own all the assets, sole
proprietors are also responsible for all the liabilities of the business.
Assets are resources with economic value that are owned and controlled by the business owners.
Examples of assets are facilities, equipment, machinery, cash, office supplies, and raw materials. Liabilities are
debts or obligations which arise in the course of the business operations.
Sole proprietors are also considered single taxpayers and are assigned a single Tax Identification
Number (TIN). Owners also apply a business trade name and register the business with the Department of
Trade and Industry (DTI).
Partnership
It is a form of business organization where ownership of the business is shared by two or more
members. The partners mutually agree as to how decision will be made and how the profits and losses will be
shared. They also agree on how future partners will be admitted and how disputes will be resolved legally. The
amount of contribution, the type of work to be inputted, and the time to be devoted by each partner is also
outlined to ensure a clear distinction of responsibilities.
Under the Civil Code of the Philippines, a partnership is considered a juridical person or an entity having
a separate legal personality from the partners. A partnership can either be general or limited.
General partnership is a form of partnership wherein the partners have the unlimited liability for the
debts and obligations of the partnership.
Limited partnership is wherein one or more general partners have unlimited liability and the limited
partners have liability that is only up to the amount equal to their capital contributions.
Corporation
Corporation has a distinct personality separate from its owners. This means that it is treated like an
individual person with benefits from certain rights as well as obligations and responsibilities. A corporation can
enter into contracts, secure loans, sue and can be sued, hire employees, and pay taxes.
There are two types of corporation. These are as follows:
A stock corporation has capital stock divided into shares and dividends. Surplus profits are given to
shareholders depending on the number of shares held.
A non-stock corporation does not issue shares of stock and is established primarily for public interests
6 such as foundation for charitable, educational, social, cultural, and other similar purposes.

ORGANIZATION AND MANAGEMENT Subject Teacher: Mildred T. Ladera

 Classification of Businesses
Businesses can also be classified based on the types of products or services rendered.
1. Service business is a type of business that provides labor and other services to customers. Examples
are transportation companies like airlines and shipping lines; professional services like accounting,
legal, engineering, and customer service; entertainment like amusement parks and movie houses; hotels
and restaurants; apartments; banks and lending companies; event planners; telecommunication
services; medical services; media and many others.
2. Merchandising business is a type of business that purchases products from other businesses like
manufacturers and sells them to customers at a higher retail price. Examples are grocery stores,
supermarkets, car dealers, real estate dealers, and electronic stores.
3. Manufacturing business is a type of business where raw materials are transformed into finished goods
through product-processing, labor, and other manufacturing processes. Examples include
manufacturers of soap, and detergent, canned goods, automobiles, and medical drugs.
There are also other businesses that cannot be classified into any of these types like agriculture,
aquaculture, and mining companies.

Reference book: Organization and Management, Cynthia A. Zarate, pp 46-92

ORGANIZATION AND MANAGEMENT Subject Teacher: Mildred T. Ladera