Organization and Management

Governor Pack Road, Baguio City, Philippines 2600

Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section:
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 2 – Org Man Subject Teacher:

The Firm and its Environment

Learning Objective:

After completing this chapter, you’ll be able to:

1. Identify the various forces / elements of the firm’s environment and summarize these forces
using the STEEPLE analysis method;
2. Describe the local and international industry using Porter's Five Forces;
3. Explain the role of business in relation to the economy;
4. Discuss the phases of economic development; and
5. Differentiate the various forms of business organizations.

Definition of Terms

• Omnipotent View – internal forces (culture)

• Symbolic View – external forces (environment)

Types of Organizational 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.

Organizations or more specific business organizations, and their activities are always being affected
by the environment. In an organization, every action of the management body is influenced by the
environment.

Environmental forces and environmental scanning

An organization’s operations are affected by both types of environments. Therefore, the managers
need to make an in-depth analysis of the elements of the environments so that they can develop in
themselves an understanding of the situations of the organization.

1. Internal Environment (or Micro environment) of Organization

Forces or conditions or surroundings within the boundary of the organization are the elements
of the internal environment of the organization.
It generally consists of those elements that exist within or inside the organization such as
physical resources, financial resources, human resources, information resources, technological
resources, organization’s goodwill, corporate culture and the like. In conclusion, it includes everything
within the boundaries of the organization.

Elements of internal environment:

a. Owners and Shareholders

People who invested in the company and have property rights and claims on the organization.
Owners can be an individual or group of persons who started the company; or who bought a share
of the company in the share market. They are an integral part of the organization’s internal
environment. Owners play an important role in influencing the affairs of the business.

b. Board of Directors
The board of directors is the governing body of the company who is elected by stockholders, and
they are given the responsibility for overseeing a firm’s top managers such as the general manager.

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 Organization and Management
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section:
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 2 – Org Man Subject Teacher:

c. Employees
Employees or the workforce, the most important element of an organization’s internal
environment, which performs the tasks of the administration. Individual employees and also the labor
unions are important parts of the internal environment. If managed properly they can positively
change the organization’s policy. But ill-management of the workforce could lead to a catastrophic
situation for the company.

d. Organizational Culture
The collective behavior of members of an organization and the values, visions, beliefs, habits that
they attach to their actions. It plays a major role in shaping its success because the culture is an
important determinant of how well the organization will perform. It plays a major role in shaping
managerial behavior.

e. Resources of the Organization

Resources can be discussed under three broad heads:
Physical resources include land and buildings, warehouses, all kinds of materials, equipment and
machinery.
Human resources include all employees of the organization from the top level to the lowest level
of the organization.
Financial resources include capital used for financing the operations of the organization including
working capital.

f. Organization’s image/goodwill
The reputation of an organization is a very valuable intangible asset. High reputation or goodwill
develops a favorable image of the organization in the minds of the public (so to say, in the minds of
the customers). ‘No- reputation’ cannot create any positive image. A negative image destroys the
organization’s efforts to attract customers in a competitive world.

2. External Environment of Organization (Macro Environment) – Factors Outside of Organization’s

Scope

The external environment embraces all general environmental factors and an organization’s
specific industry-related factors. The general environmental factors include those factors that are
common nature and generally affect all organizations.

The external environment can be subdivided into 3 layers:

a. Physical Environment - climate, physical resources or raw materials, wildlife and other natural
resources

b. Societal Environment – societal forces affecting the enterprise (social, political, cultural,
economic, legal, technological, demographic, ecological, and ethical forces)

• Socio-demographic Forces
Refers to the education, lifestyle, taste and preferences, and age profile of the market. It
also pertains to the size and geographic distribution of the population.
It indicates the product, services, and standards of conduct that society is likely to value
and appreciate.

• Technological Forces
It denotes to the methods available for converting resources into products or services.
Managers must be careful about the technological factor. Investment decisions must be
accurate in new technologies and they must be adaptable to them. It has major impacts
on product development, manufacturing efficiencies, and potential competition.
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 Organization and Management
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section:
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 2 – Org Man Subject Teacher:

• Economic Forces
Factors such as monetary and fiscal policies, interest rate, employment, inflation rate,
demographic changes, energy, security, economy growth, consumer spending, and
revenue and cost that may affect the industry.

• Ecological (Environment) Forces

Contextually relevant environmental issues: global (e.g. climate change), regional (e.g.
flooding, droughts, etc.) or local (e.g. contamination of water supplies);
Trends or expected future developments in the environment; and
Geographical location

• Political Forces
Government policies either national, state/provincial, local, other; and government
resource allocations that may lead to the direction of future political change: future policy
prospects; upcoming elections and possible change in government (local, state, national)
and its consequences; other relevant political trends.

• Legal Forces
It consists of laws and regulatory frameworks in a country that regulates the business
operations. It primarily protects companies from unfair competition and also protect
consumers from unfair business practices.

• Ethical Forces
Factors such as an individual’s behavior, knowledge, morals, values and personality that
may affects ethical decisions.

c. Industry Environment – government, suppliers, customers, competitors, employees, creditors,

investors by incorporating Porter's Five Forces:

• Competition in the industry

Refers to the number of competitors and their ability to undercut a company. The larger
the number of competitors, along with the number of equivalent products and services
they offer, the lesser the power of a company.

• Potential of new entrants into the industry

A company's power is also affected by the force of new entrants into its market. The less
time and money it costs for a competitor to enter a company's market and be an
effective competitor, the more an established company's position could be significantly
weakened. An industry with strong barriers to entry is ideal for existing companies within
that industry since the company would be able to charge higher prices and negotiate
better terms.

• Power of suppliers
It is affected by the number of suppliers of key inputs of a good or service, how unique
these inputs are, and how much it would cost a company to switch to another supplier.
The fewer suppliers to an industry, the more a company would depend on a supplier. As a
result, the supplier has more power and can drive up input costs and push for other
advantages in trade.

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 Organization and Management
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section:
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 2 – Org Man Subject Teacher:

• Power of customers
It is affected by how many buyers or customers a company has, how significant each
customer is, and how much it would cost a company to find new customers or markets for
its output. A smaller and more powerful client base means that each customer has more
power to negotiate for lower prices and better deals.

• Threat of substitute products

Substitute goods or services that can be used in place of a company's products or services
pose a threat. Companies that produce goods or services for which there are no close
substitutes will have more power to increase prices and lock in favorable terms. When
close substitutes are available, customers will have the option to forgo buying a
company's product, and a company's power can be weakened.

Phases of Management Development:

Economic Time Period Overview

Phases

Mercantilism 1500-1780 Countries accumulated wealth through trade relations with

other countries: European countries (Spain and Purtugal)
Industrial 1780-1880 Production and distribution became mechanized: machines
Revolution and equipment; and infrastructures.
Fordism 1880-1970 Mass production of standardize products at a low price that
a common man can afford; Henry Ford’s Ford Model T.
Post- Fordism 1970-2010 Computer- tooled tools: internet
Globalization 2010- present Different countries trade to each other. Stiff competition and
constant maintenance of quality.

Forms of business organizations

The 4 Major Business Organization Forms

Business organization is the single-most important choice you’ll make regarding your company. What
form your business adopts will affect a multitude of factors, many of which will decide your
company’s future. Aligning your goals to your business organization type is an important step, so
understanding the pros and cons of each type is crucial. Your company’s form will affect: How you
are taxed; Your legal liability; Costs of formation; Operational costs; etc.

1. Sole Proprietorship
The simplest and most common form of business ownership, sole proprietorship is a business
owned and run by someone for their own benefit. The business’ existence is entirely dependent
on the owner’s decisions, so when the owner dies, so does the business.

2. Partnership- These come in two types:

In general partnerships, both owners invest their money, property, labor, etc. to the business and
are both 100% liable for business debts. In other words, even if you invest a little into a general
partnership, you are still potentially responsible for all its debt.
Limited partnerships require a formal agreement between the partners. They must also file a
certificate of partnership with the state. Limited partnerships allow partners to limit their own
liability for business debts according to their portion of ownership or investment.

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 Organization and Management
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section:
Email: email@uc-bcf.edu.ph; Website: www.uc-bcf.edu.ph

MODULE 2 – Org Man Subject Teacher:

3. Corporation
Corporations are, for tax purposes, separate entities and are considered a legal person. This
means, among other things, that the profits generated by a corporation are taxed as the
“personal income” of the company. Then, any income distributed to the shareholders as
dividends or profits are taxed again as the personal income of the owners.

4. Limited Liability Company (LLC)

Similar to a limited partnership, an LLC provides owners with limited liability while providing some of
the income advantages of a partnership. Essentially, the advantages of partnerships and
corporations are combined in an LLC, mitigating some of the disadvantages of each.

REFERENCES

John R. Schermerhorn (2010). Introduction to Management

Ranulfo P. Payos, et al( 2016). Organization and Management. Rexetore.
https://www.iedunote.com/organizational-environment-elements

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