In this module you will understand the role of business in the
environment, and how the environment affects the firm. In this module you will identify two main factors of environment that will affect in the performance of a firm or organization. All managers should take into consideration this forces or element surrounding environment in all aspects before planning.
The module is focused mainly on one lesson, specifically:
• Lesson 3 – The Firm and Its Environment Learning Competency: • Analyze the various forces/elements influencing local and international business environment using PEST and SWOT strategies. (LC Code: ABM_AOM11-Ic-d-4 and ABM_AOM11-Ic-d-5)
At the end of this lesson, you are expected to:
1. identify the various forces/elements of the firm’s environment and summarize these forces using SWOT analysis;
2. describe the local and international business environment of a firm; and
3. realize the effects of various forces/elements in business and our environment.
Lesson The Firm and Its Environment 3
A manager undertakes several functions from
planning to controlling. He must take decisions for every type of activity. The decisions of the manager influence the working of an organization. Intelligence will help a manager in assessing the present and future possibilities for the business. He will be able to foresee the things in advance and take necessary decisions at appropriate time.
12 THE FIRM AND ITS ENVIRONMENT
Business firm may be visualized as an institution in society surrounded by
environment example are various external forces influencing its functioning. It is said that business is a product of environment or Business is the creation of its environment. Business Environment refers to the factors or elements affecting a business organization. It may be divided into the External and Internal Business Environments Both external (outside) and internal (inside) business environment factors and elements may affect the business firm’s performance, either positively or negatively. The external or environmental factors are beyond the control of the business firm and the success of the firm will depend to a very large extent on its adaptability to the environment its ability to properly design and adjust the internal factors/variables to take advantage of the opportunities and to combat the threats of the environment.
COMPONENTS OF THE EXTERNAL BUSINESS ENVIRONMENT
A. GENERAL EXTERNAL BUSINESS ENVIRONMENT includes the: economic, sociocultural, politico legal, demographic, technological, and world and ecological situations.
❖ Economic situations may affect management practices in an organization.
Inflation, rate of interest, changing options in stock market, people’s spending habit are some examples of factors elements of economic situations. ❖ Sociocultural situations include the customers’ changing values and preferences; customs can also affect management practice s in the companies. ❖ Politico-legal situations refers to national or local laws, international laws, and rules and regulations that influence organizational management. ❖ Demographic situations may also influence some managerial decisions in organization such as gender, age, education level, income, number of family members geographic origin, etc. ❖ Technological situations of companies involve the use of varied types of electronic gadgets and advanced technology such as computers, microprocessors and others have revolutionized business management.
13 ❖ World and ecological situations are related number of global competitors and markets, as well as the nature and conditions of the changing natural environment.
All of these must be considered as managers plan, organize, staff, lead and control their respective organizations. B. GENERAL SPECIFIC BUSINESS ENVIRONMENT includes stakeholders, customers, suppliers, pressure groups, investors or owners and employees. ➢ Stakeholders are parties likely to be affected by the activities of the organization. ➢ Customers are those who patronized the organization’s products and services. ➢ Suppliers are those who ensure the organization’s continuous flow of needed and reasonably priced inputs or materials required for producing their goods and rendering their services. ➢ Pressure groups are special-interest groups that try to exert influence on the organization’s actions and decisions. ➢ Investors or owners provide the company with the financial support it needs. ➢ Employees are comprised of those who work for another or for an employer in exchange of salaries/wages or other considerations.
The business firm consists of a set of internal factors and is confronted with a set of external factors. This is the relation between a firm and its environment. The internal factors are regarded as controllable factors, as the firm has got control over these factors.
COMPONENTS OF THE INTERNAL BUSINESS ENVIRONMENT
An organizational Internal business environment is composed of its: resources, research and development, production, procurement of supplies and products and services it offers.
The organization’s internal environment is must also be subjected to internal
analyses, internal strengths and weaknesses, opportunities and threats (SWOT)with regards to its: ▪ Resources (financial. Physical, mechanical, technological, and human resources ▪ Research and development endeavors ▪ Production of goods ▪ Procurement of supplies (materials, inputs and finance) ▪ Products and services All of these must be considered prior to organizational planning
ENVIRONMENTAL FORCES AND ENVIRONMENTAL SCANNING
ENVIRONMENTAL SCANNING involves the seeking for and sorting through date about the organization’s environment. It is the process of conducting research through surveys, observation, and other methods, and gathering and analyzing information for the organization.
14 COMPONENTS OF ENVIRONMENTAL SCANNINNG ✓ Developing a competitive Mindset -adapting to environmental uncertainties. ✓ Considering Business scenarios- consider both unfavorable and favorable future conditions. ✓ Business Prediction or business forecasting ✓ SWOT Analysis- SWOT analysis or matrix is one of the most structured and used planning method to evaluate business ventures. ✓ Benchmarking – the process of measuring and comparing one’s own products, services, and practices with those of the recognized industry leaders to identify areas for improvement.
Figure 3.1 The SWOT ANALYSIS or MATRIX
SWOT ANALYSIS- is a basic straight forward model in environmental scanning
which helps the company identifying four key elements: • Strengths – it is the quality that produces a competitive advantage with the company. It belongs to internal environment and expects to affect the company in a positive manner. • Weaknesses- It is quality that puts the company at a disadvantage. It belongs to internal environment and expects to affect the company in a negative manner. • Opportunities – it is a factor in the external environment that is expected to work favorably and positive effect towards company operation. • Threats - it is a factor in the internal environment that is expected to have a negative effect on the company operation.
15 SAMPLE SWOT ANALYSIS
The Local and International Business Environment of the Firm
The Worldwide Environment refers to the external
business environment (such us sociocultural, natural, politico-legal and economic, technological factors) around the world. While the Globalization refers to changes in the dimensions of external environment that result increased interdependence and integration among people and integration among people and organizations around the world. 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. This will enable them to develop their ability to accept and adapt to different cultures, both local and international, that may affect the organization to which they belong. Anthropologist Edward T. Hall, as cited by Schermerhorn (2008) noted that the way people approach and deal with the time varies across cultures.
1.MONOCHRONIC CULTURES refer to cultures where people tend to do one thing
at a time. It emphasizes punctuality and sticking to set rules. 2.POLYCHRONIC CULTURES are cultures more flexible on time and it is used to accomplish many different things at one time.
The culture of different countries is rooted in their history, religion,
traditions, beliefs, and deep- seated values, and because of these, managing globally can be very complicated. And beside the cultural environment, the politico-legal and economic environments must also be considered. Some countries have stable laws and good political climate while others have an opposite -unstable and risky political climate.
16 Directions: Identify the different external environment factor. Write only the letter code of your chosen answer. EF - Economic Factor DF – Demographic Factor SF - Socio-cultural Factor TF – Technological Factor PF - Politico-legal Factor WF – World and ecological Factor
_______ 1. People spending habit
_______ 2. Ethnic and racial diversity _______ 3. Peace and order situation _______ 4. El Niño and El Niña phenomena _______ 5. New inventions and discoveries
ACTIVITY 1 SWOT ANALYSIS. Write your answer in separate sheet.
Supposed you are the Marketing Manager of Triple C Food Corporation, a fast-food chain in the Philippines known for high quality hamburgers.
Examine each the situations below and write S if it is strength, W if a
weakness, O if opportunity, T if it is a threat, and X if it will not affect your company at all. Write your answer in a separate sheet of paper. ______ 1. The Department of Health has undertaken a very aggressive campaign against the cholesterol. ______ 2. Your company has excellent management labor relations. ______ 3. The government has announced its plans of lowering prices of beef by 1.5% next month. ______ 4. There is a growing number of working women in the Philippines based on the latest statistics. ______ 5. There is very stiff competition among fast-food chains in the Philippines. ______ 6. As compared to your competitors, your prices are 10% lower. ______ 7. Your competitor bought a new equipment from Germany which can decrease cholesterol content in food by as much as 20%. ______ 8. Most customers complain of your failure to maintain cleanliness of your comfort rooms. ______ 9. You have limited parking space. ______ 10. Business taxes will increase by 3% next year.
17 References Print Materials
Cabrera, Helena Ma F., Altarejos, Anthony DC and Benjamin, Rias (2016)
Organization and Management, Manila: Vibal Group Inc. (pp. 34-42, 44-49, 54-55, 59-60, 64, 66, 68-70; 76,77,80,84,88,92, 76,77,80,84,88,92, 101-102, 110-115, 120-135, 137-145,148 & 153)
Iñigo, Conrado E., (2009 Edition) Management for Filipinos Principles and Applications, Manila: Lyceum of the Philippine (pp. 87, 94-98, 110-112, 122-124,130, 142, 144-147,149-150, 172-173, 214-216, 237, 244-247, 250-258, 261)
Medina, Roberto G. (2019) Business Organization and Management, Manila:
Rex Book Store, Inc. (pp. 80-82, 87-89, 92,101-105)
Zarate, Cynthia A. (2019) Organization and Management for Senior High School, Quezon City: C & E Publishing Inc. (pp. 153-157, 163-166, 171-174, 185-186, 191-192,198-200, 205, 209-211, 213-216, 220-222,224,225,229- 231, 245-249, 251-253, 258-259,264, 282, 286-295, 300-305, 311-312 & 323)
Corpuz, Crispina R. (2013) Human Resource Mangement, Manila:Rex Book Store
(pp. 85, 99, 102, 111, 115, 273)
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