La Salette of Roxas College Inc.

Magsaysay St. Vira (Pob), Roxas, Isabela

S.Y 2021-2022

BUSINESS ORGANIZATION AND MANAGEMENT

First Handout
TOPIC 1:
THE FOUNDATION OF BUSINESS

What is Business?
Business is a general term, which includes all profit-seeking activities of enterprises that
provide goods and services necessary to an economic system. In the hope of making profits;
businesses produce and market goods and services. In satisfying customers' needs and
wants, the firm will generate sales revenues which make profits possible.
Definition: any lawful economic activity concerned with the production and / or
distribution of goods and services for profit.

What is Profit?
Profit is the money that remains after a firm deducts its expenses related to producing
and marketing goods or services from its revenues. The firm receives money arising out of sales,
commissions, and the like. Production costs (like those spent for direct materials, labor, and
overhead) plus marketing costs (like those spent for advertising, salesmen's commission, and
the like) constitute the expenses that will be used to calculate profit.
Profit is the primary reason why people go into business. Businesses that do not make
profits are bound for extinction.

The Private enterprise system

The private enterprise system is a feature of our market economy. Under this system,
individuals are vested with the right to operate enterprise for private gain.
The institution of private property bestows on owners of property the right to use,
exchange, or exploit their properties. This mechanism makes possible the operation of private
enterprise.
Another distinct feature of our economic system is the right of inheritance. In the event
of the death of the enterprise owner, whatever financial gains accruing to the firm
automatically transfers to the heirs, including the enterprise itself. This incentive provides the
property owner with the assurance that his entrepreneurial efforts will not be wasted.
The private enterprise system made possible to a large extent the growth of output and
incomes in industrialized countries such as the United States, Great Britain, and Japan. If only
the private enterprise system will be utilized fully, economic growth in the Philippines will be
easier to achieve.

What is e entrepreneur?
Entrepreneur is one who brings resources, labor, materials, and other assets into
combinations that make their value greater than before, and also one who introduces
changes, innovation, and a new order.

The Private enterprise system and the entrepreneur

The entrepreneur is the one assigned to perform the lead role in making the private
enterprise system work. It is inevitable that there will be shortages in some types of goods and
services, which in turn results to some unsatisfied need. Our economic system is designed to
allow the entrepreneur to pitch in by filling the need and making profits in the process.
When an unsatisfied economic need is recognized, the entrepreneur devises a plan
and designs an organization that will facilitate the achievement of his profit objectives.
Entrepreneurs may establish either new companies or reorganize existing ones.
Even if the entrepreneur is aiming for profits, he may end up with losses. Among the
factors of production, he is the one who assumes the risk of either succeeding or failing. The
entrepreneur however, is well aware of this. The private enterprise system compensates the
risk of financial loss with the possibility of making big profits.

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The entrepreneur and alternative economic system
There are three distinct economic systems.

1. Capitalism
Capitalism refers to that economic system in which the means of production,
consisting of land and tangible goods, are owned privately. Capitalism has the following
characteristics:
1. private enterprise and freedom of choice;
2. freedom to compete;
3. limited role of government;
4. prices set by the interaction of the economic forces of supply and demand;
and
5. profit motive.

Private enterprise refers to the ownership of property by a private individual for use in
his own business. Freedom of choice refers to the owner's right to own, use, or dispose of his
property as he sees fit.
The freedoms to compete provide businesspersons the right to either engages or
withdraw from a competitive situation with other businesspersons. Society is benefited in the
long run because of the effects of competition in the delivery or production of goods and
services. The competing firms jostle for consumer patronage by improving any or all of the
aspects or producing quality products, competitive pricing, promotion, and distribution.

The Entrepreneur Task

Land Labor Capital

(Natural Resources) (Human Resources) (Financial Resources)

Entrepreneur

Production process

Finished Goods and

Services
Figure 1: entrepreneur’s Task

Under capitalism, the limited participation of government in actual business pursuits

allows businesses to flourish.
The prices of commodities and resources under capitalism go up or down depending
on supply and demand. If there is less supply than demand for a certain product, the price of
that product tends to go up and if there is more supply than demand, the price tends to go
down.
The profit motive is also a feature of capitalism. Private individuals will produce goods
or services to satisfy consumer wants but with the belief that the economy will allow them to
make a profit out of the exercise.

2. Communism
The direct opposite of capitalism is communism where the means of production
are owned by the society as a whole. Communism is an economic system
characterized by the following:
1. State ownership of economic resources
2. Social and economic equality
3. Central planning for economic and social activities;
4. No freedom of competition

Under communism, all economic resources are owned by the state hence,
ownership, control, use, and disposition remain as prerogative of the state. No

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 individual may use economic resources for his own benefit, for profit, or for the
advancement of his own economic well-being.
In communist states, social classes and economic inequality are theoretically
non-existent. Every individual is regarded as the equal of another.
In contrast with individual exploitation of economic resources under
capitalism, the communist state adheres to central planning tor economic and social
activities. The initiative of exploring economic opportunities is passed on from the
individual to the state.
A s nobody is allowed to own economic resources, individuals are deprived
of the first requisite tor competition.

3. Socialism I
Midway between capitalism and communism is socialism, where the state
owns only the essential industries like steel, utilities like water and power,
transportations, and the like. All other types of Businesses are open for exploitation by
private persons. This characteristic provides limited options for the private individual in
making profits.

Rewards to successful entrepreneurship

The use of any of the factors of production entitles the owner to receive some form of
compensation. The factors, which are used in making a commodity, consist of land, labor,
and capital. To make them productive, however, a fourth factor is necessary - entrepre-
neurship.
When land is used for production, the compensation paid to owners is called "rent". The
term "rent" specifically refers to the price paid per unit of time for the services of a durable
good, in particular, land and building.
For the effort of laborers, they are paid wages or salaries. Wages are usually determined
on a piece-rate basis, while salaries are based on time-rate.
Interest is the compensation paid to owners of invested capital.
When all the factors of production are properly compensated, whatever is left as profits
is regarded as income, which accrues to the entrepreneur.
The rate of compensation paid to the factors of production is limited to a large extent by
industry norms or market forces. Legislation, however, have modified the rates like those for
minimum wage and the mandated interest rates on capital.
The profits accruing to the entrepreneur, on the other hand, are limited only by his skill
and industry. He may reap huge amounts of profits, but it is because he may also lose in the
process.

Factors of Economic Limiting Factor for

Production Reward Rewards Received
Land Rent Supply and demand
Industry rates/
Capital Interest government mandated
rates
Supply and demand/
Labor Wage/Salary
legislation

Entrepreneur Profits Skill of entrepreneur

Figure 2 Production and Their Rewards

As the landowner earns rent for allowing use of his property, the owner of capital is paid
interest for allowing use of his capital. The laborer at work earns wages for his effort, while the
entrepreneur earns profits for making the right business decisions. When the entrepreneur
succeeds, he is compensated for his vision, originality, and daring.

Organization and management concept

Business firms are organizations established to achieve certain objectives. Theory and
practice indicate that for modem business to succeed, effective applications of sound
organization and management practice must be made. It follows, then, that knowledge of
organization and management theories must first be acquired.

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What is Management?
Management is the systematic process of planning, organizing, staffing, directing, and
controlling activities in an organization to achieve certain objectives.

The Management Principles (14 Management Principles)

There are various management principles applicable to managing a business enterprise.
These are as follows:
1. Division of labor. This means breaking a job down into specialized tasks to increase
productivity. For example: the total job of financing appliance sales may be broken into
tasks like credit investigation, collection, and accounting.
2. Authority. This is the right given to a person in position to give orders plus the power to
exact obedience. For example: a sales manager must have the right to expect from the
sales supervisor the required volume of sales for a given period.
3. Discipline. This provides uniform application of behavior to certain activities the outcome
of which is readily predicted. If discipline is not practiced, objectives will be very hard to
achieve.
4. Unity of command. This means that each employee must have only one supervisor.
Reporting to more than one boss creates and reduces productivity.
5. Unity of direction. This means that the efforts of everyone in the organization must be
coordinated and focused in the same direction. It will be hard to achieve an
organizational objective if some components of the organization are not moving towards
the identified objective.
6. Subordination of the individual interests to the general interest. This refers to the goals of
the organization that should take precedence over individual goals. When the reverse
happens, it will be difficult for the organization to succeed because its goals will always
be set aside.
7. Remuneration. Employees should be paid fairly in accordance with their contribution to
the organizational effort. This must be applied to pay, bonuses, and benefits.
8. Centralization. Power and authority must be centralized as much as possible.
Decentralization must be instituted, however, when the firm grows to a considerable size.
9. Scalar chain. This means that subordinates should observe the official chain of command
unless authorized by their respective. superiors to communicate with each other.
10. Order. This means that human and non-human resources should be in their proper places.
The production manager, for example, must hold office at the production site.
11. Equity. This is the result of kindliness and justice and is a principle to guide management-
employee relations.
12. Stability of tenure. High employee turnover is counter-productive. To motivate employees
to stay with the company, effective manpower planning and implementation are neces-
sary.
13. Initiative. Management should encourage employees to act on 11u*ir own volition when
confronted with an opportunity to solve a problem.
14. Sprit de corps. This means that managers should emphasize teamwork by building
harmony and a sense of unity among employees. Harmony breeds high morale and is
more productive than discord.

What is an organization?
Organizations deeply affect our lives that we seem not able to survive without them.
When we send our children to school, we reckon with the organization running it. Organizations
like Jollibee and McDonald's are responsible for providing us with ready meals at convenient
locations.

Organization Defined
An organization is an entity comprising a group of people, established to accomplish
certain goals. A mere grouping of people will not qualify as an organization, the group must
have some objectives to achieve and to be able to do so, they must interact, use knowledge
and techniques, and work together in patterned relationships.

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The Function of Organization
There are certain objectives that the individual will find hard, if not impossible, to
achieve. The mass production of cars, for instance, will be nearly impossible for a single person
to undertake. Even if the job is performed by many persons acting independently, the
manufacture of cars will be a very difficult activity. The variety of specialized tasks alone will
overwhelm the individual worker if he is required to do all of them.
Such kind of difficulties plus many more are what organizations seek to eliminate. In
addition, a fully organized group offers some advantages which cannot be derived from an
unorganized grouping of people. Even wild animals know the value of organizing themselves
for survival. Scientists observed that when certain carnivores like lions and hyenas hunt for
food, these animals find it easier to catch a prey if they do it as an organized group.

Common Characteristics of Organizations

The following are the four characteristics commonly shared by organizations:
1. Coordination of effort. When properly directed, persons working in coordination with
others will produce better outputs than when they work independently. Studies indicate
that the total output of persons cooperating with one another in an organized manner is
better than when they are not so.
2. Common goal or purpose. In order to make the employees work with proper direction,
they must be provided with a common goal or purpose. Organizations that do not make
clear their goals or purposes run the risk of failure.
3. Division of labor. When the total job is divided into manageable parts, workers will be more
familiar with their assignments making them more proficient. A manufacturing firm, for in-
stance, will be engaged in various activities like production planning, materials
procurement, manpower acquisition, manning the production line, and the like. When all
the firm's employees perform all the functions (i.e., no specific assignment for each), they
will have less time to master any activity. This w i l l result to poor production.
4. Hierarchy of authority. When individuals work collectively, someone must be provided with
authority to make sure that I he assigned goals are achieved in the desired manner.

The entrepreneur and the manager

The function of entrepreneur is to create new business. Thus, his first concern is the
identification of a business idea, not necessarily a new one. If the idea looks promising, he
assembles the needed resources (land, labor and capital) a n d proceeds with the installation
of the production process. He does whatever is needed to make the business a real going
concern.
After spending money, time, and effort to make the business a viable entity, the
entrepreneur will now attempt to expand so that the funds invested in the organizational stage
may be recouped. The stage is then set for efficiency in operations.
Efficiency, however, will require routinization of activities. This is the scenario where the
entrepreneur will feel uncomfortable. Fortunately, routinization and efficiency are the turf of
the professional manager. This is where he comes in and continues the task initiated by the
entrepreneur.
The entrepreneur and the manager perform complimentary roles in making the business
succeed. The former puts up a business firm, the latter keeps it going.

(Principles and Organization and Management) BM 01- Module 1

 Business Activity Competitor’s activity

Unaware of
Identify and seize
entrepreneur’s
opportunity
move

Slowly becomes
Entrepreneur’s turf Assemble Resources
aware

Becomes fully
Start Operation
aware

Expand Operation Decides to compete

Manager’s turf
Maximize profits Starts operation

Shares in industry
Meet competitions
profit

Figure 3: The complementary roles of the entrepreneur and the manager

Prepared by:

IWALY BELLE C. CABANIZAS

Subject Teacher

(Principles and Organization and Management) BM 01- Module 1

 La Salette of Roxas College Inc.
Magsaysay St. Vira (Pob), Roxas, Isabela
S.Y 2021-2022

Entrepreneurial Mind
Activities

Name: ___________________________________________________

1. Why are businesses so important not only to individuals and families but to the nation’s
economy as well?

2. What role does the entrepreneur perform under the private enterprise system?

3. What is an organization and what are the common characteristics of organization?

4. Why are organization important?

5. What is the function of the entrepreneur and how does it differ from the job of the
manager?

(Principles and Organization and Management) BM 01- Module 1

Name: ___________________________________________________

Case Analysis: Ramirez University: What am I living for?

There are 12, 113 students enrolled in the various courses offered by Ramirez University.
Located in Santiago City, the school is composed of different colleges offering courses in
engineering, nursing, business administration, arts and sciences and education.

The school is owned by the Ramirez family headed by Mrs. Sally Ramirez, a widow. In
spite of the number of students, the school appears not to be making profits to the
dissatisfaction of the five Ramirez children. Some of the buildings need repair and at least one
is recommended by the faculty have already moved to better- paying jobs. Instructional
materials are always in short supply. The Ramirez children feel that these problems could be
solved with the infusion of additional funds.

When Mrs. Ramirez assembled her children to a meeting, she presented the difficulty of
securing funds. She mentioned that maybe each of the five could contribute a million pesos
or more from their own pockets. At this point, Rouel, the eldest, blurted out the following:

"Ma, you're running the school as if it is a charitable institution. Look how many students
you have adopted as scholars... more than a thousand! How many of our relatives are in the
payroll even if they don't deserve to be!

You reward employees not because of good performance. Our tuition fees are the
lowest in the region. You are not even interested in knowing the return on investment the school
generates!

Ma, it's time for us to run the school like a business. It must make enough profits so that
we can continue serving the community. We should have at least a few professional
managers."

Mrs. Ramirez replied by saying:

"Rouel, this is the way we have been running this school ever since your father and I
founded it. We started with a few students and with our method; it grew into what it is now!

We were able to help many people get a degree and many of them me grateful. You
and your siblings were able to get a good education in prestigious universities here and abroad
because of the income we derive I win this school.

Your father and I believe that by helping other people, our needs will be taken care of."

QUESTIONS:

1. With whom would you align yourself with? Mrs. Ramirez or her son?
2. What are the good points in Mrs. Ramirez's arguments? In Rouel’s?

(Principles and Organization and Management) BM 01- Module 1