Carlos Hilado Memorial State College
Alijis Campus | Binalbagan Campus | Fortune Towne Campus | Talisay Campus
COLLEGE OF BUSINESS MANAGEMENT AND ACCOUNTANCY
1ST SEMESTER 2019-2020
MODULE 2
For
ISORCO
(introduction to Organization and Management Concepts
BSIS 2A, 2B, 2C
Prepared by:
MARILOU R. JONOTA, MBA
OCTOBER 5, 2020
BUSINESS AND ITS ENVIRONMENT
Objectives:
At the end of this chapter, the students are expected to:
1. Discuss the meaning and nature of business; business;
2. Identify the various recognize the objectives of business;
3. Recognize the objectives of business
4. Assess the impacts of various business environments;
5. Appraise the business environment and match with the organization,
6. Evaluate the survival strategies in uncertain environments;
7. Examine the application of coping strategies; and
8. Examine the application of environmental control measures.
What is Business?
Kinds of Business
INTRODUCTION
Knowledge about management and organization is very useful especially endeavors
like operating a business firm. This will be more significant, however, if such supplemented
by a basic knowledge of business and its environment. This chapter attempt such
requirement.
WHAT IS BUSINESS?
Under the free enterprise system, the growth of the economy lies in the ability of
private individuals to achieve economic objectives. The quest for profit is usually undertaken
by engagement in business operations. Business firms and the government are expected to
provide goods and services to the society. The major part of this task, however, is assigned to
the private business firms.
Business is largely responsible for bringing into the market a wide array of products,
which were not made available in the past High technology items like colored television,
video equipment cellular phones, and computers are sold openly in the market. This happens
even as business firms continue to provide mankind with basic necessities like food and
shelter Even amusement centers like Disneyland and resorts like Boracay are made possible
because of business
Business Defined
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
businesspersons who take the risks involved in producing and marketing goods and services.
KINDS OF BUSINESS
According to the nature of the principal activity performed business may be classified
into three main divisions
1. Commerce. Business firm which are engaged in bus and selling of goods and
services are classified as commerce Also included in this category are trading
merchandising and marketing Examples of commerce as a kind of business are
supermarkets dry goods stores peddler's sari-sari stores importer and many others
2. Industry. Industries are those which are mainly 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 producers 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. A service business is one which sells service to the buyer. Service firms
may be classified as a:
a. Recreation-movie houses, television and radio station theaters for drama and
stage presentations resorts and the like
b. Personal restaurants, barber shops transportation hotels tailoring shops , slimming
salons and the like and
c. Finance - banks insurance companies investment house 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 a product or service
2. satisfaction of personal objectives like profits for owners salaries and other
compensation for executives, wage and other compensation for employees,
psychic income for all including pride in work surety recognition and acceptance.
3. protection and enhancement of the human and physical
4. economy and effectiveness of operation.
THE ENVIRONMENT OF BUSINESS FIRMS
Organizations will succeed or fail depending on the environment that confronts them.
A manager of a particular business organization is not entirely helpless. He can do something
in your the environment, or make some adjustments in the organization Managing the
environment requires a clear orientation and an understanding of factors in the environment
what affect business and the application of the right strategies to harness these factors to a
business firm's advantage The environmental factors that affect the activities of the
organization may be internal or external.
The External Environment
The external environment consists of elements outside an organization that are
relevant to business operations These elements play important roles in business operations
because these are the sources of the inputs required by business firms for conversion into
outputs which, in tum are required by the external environment (Figure 4)
Types of Elements in the External Environment
1. Direct Action Business – these directly influence the organization. These include the
consumers, competitors, labor unions, suppliers, financial institutions, and
government agencies.
2. Indirect Action Business - These do not affect the organization directly. Instead, they
affect the climate in which the operations of the organization takes place. These are
the technological, economical, socio-cultural, political, legal, and international
variables.
Direct Action Elements
1. consumers
2. competitions
3. labor supply
4. competitors
Indirect Action Elements of the external Environments
1. technological variables
2. economic variables
3. political legal variables
4. socio-cultural variables.
5. International Variables.
Matching the Organization with the Environment
Why do some organizations thrive in certain environments where others fall? The
answer maybe derived both determining whether the organization in question is fitted to the
environment.
Types of Business Environment
a. Static – few forces in the environment are changing to affect business.
b. Dynamic – when significant number of environment forces tat affect business are
changing.
Environmental Uncertainty
This may be defined as a lack of complete information regarding what exists and what
developments may occur in the environment. This uncertainty makes it difficult for
managers to perform the following:
a. Analyze constituencies and their needs.
b. Predict future state of affairs;
c. Understand their potential implications for the organization.
Dimensions of Environmental Uncertainty
1. Complexity – this refers to the number of different factors in the environment
such as information, capital, material, people, and other organization.
2. Rate of change in these factors. These are the factors in the external environment
change from time to time.
Designs of Business Organizations
Uncertainties in the environment make it necessary for managers to consider
appropriate design for each of environment.
1. Mechanic Design. An organization with a mechanistic design is deemed appropriate
for a task that is routine and unchanging. This design is characterized by a vertical
structure that typically operates with:
a. More centralized authority
b. Many rules and procedures
c. A precise division of labor
d. Narrow spans of control; and
e. Formal means of coordination
2. Organic Design. An organization with an organic design is appropriate for a task that is
non-routine and changing. It is characterized by the following:
a. decentralized authority
b. fewer rules and procedures
c. less precise division of labor
d. wider spans of control;
e. more personal means of coordination
SURVIVAL STRATEGIES IN UNCERTAIN ENVIRONMENTS
To survive and grow in uncertain environments to general options are available to
business organization. Figure 77.
1. Application of coping strategies
2. Adaptation of Environmental Control Measures. Associations
COPING STRATEGIES
a. Buffering – this refers to setting up buffers for both input and output sides of the
organizational activities in order to absorb and cope with environmental
uncertainty.
b. Smoothing – irregular demand is always a problem for many business firms.
c. Forecasting – this refers to making predictions, projections, or estimates of future
events or conditions in the environment in which the organization operates.
d. Rationing – this happens when the organization ignores some operations and
emphasizes others in other in order to preserve the most critical functions of the
technical core.
e. Boundary spanning – this is the process of creating jobs or roles in which
individual employees are required to “have” strong communication links within
their department., with people in other units, and often with the external
community”.
f. Structural complexity – this is when the business adapts to the environment by
setting up departments or subsystems that will respond to specific groupings of
environmental factors.
g. Executive succession – one way of adapting to uncertainty in the environment is
the adoption of an effective executive succession.
a. Enables the organization to hire executives with new energy and vitality.
b. Provides organization with a way to bring in specific skills needed to
analyze and respond to the environment; and
c. Provides a coordinated means of replacing retiring executives.
ENVIRONMENTAL CONTROLLING
So that the discussions have focused on how business firms can apply specific
strategies to cope with changes in the environment The business firm has another option,
however, may make some moves to control the environment Controlling the environment
consist of two categories. They are as follows:
1. Creating Favorable Linkages. The objective of creating favorable linkages is to
reduce environmental uncertainty This can be achieved by using any of the following:
a. Mergers.
b. Joint Ventures.
c. Interlocking Directorates. When some members of the board of directors of one
company are also members of the board of another company, such arrangement is
called interlocking directorates.
d. Executive Recruitment
e. Institutional Advertising. This type of advertising is designed to build goodwill for a
company among stockholders, employees, distributors, the public and the
government.
f. Resource Flows. This term refers to the pattern of resource exchange between the
organization and others in the environment.
2. Manipulating the Environment Organization
a. Changing Elements. A business organization may seek to manipulate it environment
by changing one or more environmental elements in which it operates.
b. Lobbying. This term refers to the act of attempting to influence business and
government to create legislation or conduct an activity that will help a particular
organization.
c. Forming Trade Associations
CHAPTER EXERCISES
1. Differentiate the three kinds classification of business
The classification of business has three kinds, the first one is called Commerce,
Trading merchandising and marketing are also included in this category Examples of
trade as a kind of industry are supermarkets dry goods stores peddler's sari-sari stores
importer and many others Business firms that are engaged in transport and selling
goods and services are known as trade. Commerce refers to the purchase and sale, for
money or in kind, of products and services. It is a company division. This requires all
the procedures that have to do with the sharing of goods and services. Typically, the
term refers to doing business on a big scale. The second kind of business is called
Industry. Industries are those specifically engaged in producing Good manufactured
products, which are intended for ultimate use, are referred to as consumer goods,
whereas goods intended for business and industry use are referred to as producer
goods. Industry business can be classified into Genetic industries, Extractive
industries, Manufacturing industries and Construction industries. Genetic industries
are those involved in agriculture, forestry and fish culture. Extractive industry are
those engaged in the extraction of products from natural resources, which include
mining lumbering, hunting and fishing. Manufacturing industry are Transforming raw
materials into finished products Examples include companies involved in the
manufacture of plastic drugs , food, motorcars, tools, office supplies, etc.
Construction industry are those interested in the development of facilities such as
seaport dams for airports and highways and housing units. And lastly the Third kind
of business is Service, A service company is one that provides service to the
consumer. Services are a recognizable subset of economic utilities and share their
characteristics. The fundamental difference is that businesses are concerned with the
development of infrastructure networks in order to provide value to their customers
and serve as service providers and users of services. Service can be classified to
Recreation-movie houses, television and radio station theaters for drama and stage
presentations resorts. Personal restaurants, barber shops transportation hotels tailoring
shops, slimming salons. Finance - banks insurance companies investment house
financing institutions, credit unions, savings and loans associations
2. In not more than 50 words discuss the main purpose of going into business
The primary aim of a business is to increase profits while upholding corporate social
responsibility with its shareholders or stakeholders. There are other reasons why
someone may want to run a business, but a business firm is created primarily for
profit. Some of these include doing pleasant jobs, doing something for fun and pride,
and gaining financial freedom.
3. Give one possible positive and negative impacts to business operations for each of the
following direct action elements of external environment.
a. Customer
Positive Impact
Customers are really important to the life of the company without them the
company cannot make any sales and profit without customers. Your customer is
the most important part of your business. Without the customer, you don't see any
sales.
Negative Impact
No matter how proven it is, poor customer service experience always has a
negative impact on your company. Every business relied on frequent customers
and sales and the customers ' positive feedback. In the end, businesses that have
bad customer service lose customer satisfaction, return business, revenue,
credibility and staff. If your company is dependent on one or few customers your
business is at serious risk. If just one of your customers leave it could seriously
affect your revenues and profits.
b. Supplier
Positive Impact
Higher quality increases customer satisfaction, reduce costs, increased efficiency,
minimizes price volatility which creates positive impact to the customers service
that can lead your business to success.
Negative Impact
If a supplier provides a poor quality product to a firm, it may affect the firm's
reputation as the firm will need to use the goods or sell them onto their customers.
It can lead to negative impact which can cause of loss of costumers.
c. Competitors
Positive Impact
Competition between businesses may stimulate the development of new or
improved goods, or more successful processes. Companies may compete to be the
first to market a new technology or a different one. With new and improved
goods, innovation often benefits customers, helps boost economic growth and
raises living standards.
Negative Impact
Competitors will try to win market share by cutting costs, improving efficiency,
lowering price and innovating by either creating new products and services or
improving upon old ones. In other words, competition tends to give consumers
better goods and services at lower prices.
d. Financial institutions
Positive Impact
with low interest rate money is cheap so banks will lend the money to whoever is
qualified to get a loan. In addition to this, with good interest rates, banks and other
financial intuitions can draw people to put their saving into their bank and they
will get high interest rate and bank or other financial institution will get more
money to lend to others.
Negative Impact
One of the ways that financial institutions affect business and households are
interest rates. With high interest rates money is expensive, and the bank do not
want to loan money to the company. This means that the company cannot get
cheap loans or mortgages, so they cannot buy what they need, because they won’t
get a loan.
e. Government agencies
Positive Impact
The government can change the way businesses work and influence the economy
either by passing laws, or by changing its own spending or taxes. Government
spending or lower taxes can result in more demand in the economy and lead to
higher output and employment.
Negative Impact
Political factors involve the decisions and laws that governments make. These
include: Governments can raise or lower corporation tax, which will impact on
profits. They can also affect businesses by increasing value-added tax on products
or business rates.
4. Give one possible positive and negative impacts to business operations for each of the
following indirect action elements of external environment.
a. Technological variables
Positive Impact
Technology can improve productivity, communications, human resource
management, saves time, creates mobility, encourages innovation and creativity
whether you have one or thousands of employees. You can finish the job, it
improves efficiency and increases workflow considerably. Efficiently and
effectively
Negative Impact
Expense is probably the number one disadvantage related to technology and
business because technology has a high maintenance cost. On the other hand, the
evolution of modern technology has disadvantages, for example, dependence on
new technology. Man no longer needs to think.
b. Economic variables
Positive Impact
Major benefits of business in the local economy include a boost in employment
and discretionary income in the community, tax income increases for local
governments and a loyal customer base for businesses.
Negative Impact
A significant decline in economic activity can lead to a loss of jobs, a decline in
real income, a slowdown in industrial production and manufacturing and a slump
in consumer spending.
c. Socio – cultural variables
Positive Impact
A strong, healthy culture cultivates a workplace where employees have higher job
satisfaction, deeper employee engagement and ultimately, increased productivity.
Satisfied, engaged employees go above and beyond what is required of them
because they are invested in the work they are doing. This benefits your business.
Negative Impact
Socio-cultural variables can include social attitudes, values, education, ideology,
etc. Conflicts begin when one of the organization's members does not adapt and
stays ahead of the competitors. Cultural discrimination and sexual harassment also
have occurred at work.
d. Political – legal variables
Positive Impact
The Legal Environment of Business introduces us to the role of legal agendas in
managerial decisions. It helps managers in the operation of their business and
allows them to know the limits and boundaries of there being in the name of their
respective firms. It makes their decisions apt to the legal system.
Negative Impact
Political factors can raise or lower corporation tax, which will impact on profits.
They can also affect businesses by increasing value-added tax on products or
business rates.
e. International variables.
Positive Impact
International business also increases competition in domestic markets and
introduces new opportunities to foreign markets. Global competition encourages
companies to become more innovative and efficient in their use of resources. For
consumers, international business introduces them to a variety of goods and
services.
Negative Impact
International trade is known to reduce real wages in certain sectors, leading to a
loss of wage income for a segment of the population. However, cheaper imports
can also reduce domestic consumer prices, and the magnitude of this impact may
be larger than any potential effect occurring through wages.
END OF TOPIC!
Chapter 2. 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 president 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 e
concern was to find a 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 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 on the drawing board
In addition, various infrastructure and facilities were already present 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 a long period of time They
asked her to produce information about how the current situation would allow the proposed
aviation school to prosper In response. Marlene agreed to produce the answers in their next
meeting.
Learning Assessment
1. Using the various environments that affect business, conduct and present 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.
