The Firm and Its Environment

 

Chapter 2

The Firm and Its Environment

 

Lesson 1

Environment Forces and Envir Environmental onmental Scanning

 

Components of the External Business Environment: General and Specific The general business environmen environmentt includes the eco cono nom mi c, so soci cio ocultur cultura al, polit li ti coco-leg legal,

demogr aphi hic, c, te techn chno olog logii cal, cal, and w wo or ld a and nd ecological situation. All these must be considered as manager plan, organize, staff, lead, and control their respective organization.

 

Business environmental refers to the factors or elements affecting a business organization.. organization The External Business Environment includes the factors and elements outside the organization which may affects its performance, either posi ositively or negatively while the internal Business Environment refers to the factors or elements within the organization which may also affect its perf pe rfor orma manc nce, e, eith either er po posi siti tive vely ly or ne negat gativ ivel ely y.

 

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Economic Situation may affect management

 practices in organizations. organizations.

For Example, Companies may postpone expansion  plans if bank loan interests are to high.

 

Sociocultural Situation include the

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costumers’ changing values v alues and  preference: customs could also affect management practices in companies. For example, Filipino costumers are now conscious about the importance of avoiding fatty foods, so many food companies now make sure that products they offer are cholesterol-free arethe low in cholesterol. In doing so, they avoidor losing their customers.

 

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Politico-legal Situation refer to national or local laws, international laws and rules and regulations that influence organizational management. For example example,, labor laws related related to prevent preventing ing employers from firing their employees without due process require the former to allow the latter to exercise their right to present their position during disciplinary discipl inary action before their employment can be terminated.

 

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Demographic Situation such as gender as gender, age, education level, income, number of family members, geographic origin, etc., may also influence some managerial decision in organizations For example, decisions regarding hiring of human resources may ne affected by an organization’s management policy that shows prejudice to the hiring of married females who are childbearing age because they would likeintothe minimize payment of maternity leave benefits.

 

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Technology Situations of the companies involve the use of varied types of electronic gadgets and advanced technology such as computers, robotics, microprocessors, and others that have revolutionized business management; management; eecommerce, teleconferencing, and sophisticated information systems have rapidly changed the ways that business is conducted in the 21st century

 

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World and ecological situations are related to the increasing number of global competitors and markets, as well as the nature and conditions of the changing natural environment.

For example, car manufacturing managers must give the go signal for the development of vehicles that are environmental friendly instead of only being onand the design product’ product’s s speed, fuel focused economy, . The specific business environment focuses on stakeholders, customers, pressure groups, and investors or owners and their employees

 

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Stakeholder s are parties likely to be affected by the activities of the organization, while customers are those who patronize 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.

 Pressuree groups  Pressur groups are special-interest groups that try to exert 'influence on the organization’s decisions or actions.

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The organization’s investors owners  provide the company with theorfinancial support it needs. 

Employees are comprised of those who work for another or for an employer in exchange of salaries/wages or other considerations.

 

Components of the Internal Business Environment The organization’s organization’s internal environment must also be 

subjected to internal analysis. Internal Strengths and Weaknesses, opportunities, o pportunities, 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), and products and planning. services must all be considered prior to organizational

 

What is PESTEL Analysis used used for  

PESTEL is a management framework used to analyse the external factors affecting

 projects/brands/businesses These factors cannot be controlled by the  business, but can influence decision making.

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Components of Envir Environmental onmental Scanning: Developing a Competitive Mindset, Considering Future Business Scenarios, Business Prediction, SWOT Analysis, and Benchmarking

 

Adapting to environmental uncertainties must start with developing a competitive mindset. Ignorance of presentday realities may cause individuals or organizations to do certain things that they may regret in the future: hence, environmental scanning is necessary.

You must also consider future Business Scenarios. By realistic consideration both worth-case scenario or unfavo unfavorable rable future cond conditions itionsns, andasbest best-case -case sce scenario nario or favorable favora ble future cconditio onditions, we well ll as mid middledleground possible conditions, conditions, you will have an idea of what to do in the future.

 

Prediction, also known as  Business Prediction,  business forecasting, is a method of  predicting how variables in the environment will alter the future of  business. Benchmarking is defined as the process of measuring or comparing one’ one’ss own products, services, and practices with those of the recognized industry leaders in order to identify areas for improvement.

 

Lesson 2

The Local and International Business Environment of the Firm

 

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Understanding the local and international  business environment of the firm requires managers of organizations to sharpen their cultural intelligence.

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This will enable them to develop their ability to accept and adapt to different cultures, both local and international, that may affect the organization organizati on to which they belong.

 

Anthropologist! Edward T. Hall, as cited by Schermerhorn(2008), noted that the way people approach and deal with time varies across cultures.  Monochromic culture refers to cultures wherein people tend to do one thing at a time; also, these cultures emphasize punctuality punctuality and stick to set rules.

 Polychr  Polychromic omic culture, culture, on the other hand, are more flexible as regards time; accomplishing many different things at once is also common for these cultures.

 

Geert Hofstede, also cited by Schermerhorn(2008), showed how selected countries ranked on the five cultural dimension he studied: Power Distance- the degree to which a society

accepts or rejects the unequal distribution of  power among people people in organizations organizations and the institutions of society

 

Uncertainty nty Avoidance Avoidance-- the degree to which Uncertai society is uncomfortable with risk, change, and situational uncertainty.

Individualism-Collectivism- the degree to which a society emphasizes individual

accomplishmen accomplishments ts versus collective accomplishments.

 

Masculinity-Femininity- the d degree egree to wh which ich a ssociety ociety values assertiveness and feelings of material success versus concern for relationships.

Time Orientation- the degree to which a society emphasize short-term thinking versus greater concern for the future or long-term thinking.

 

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The local culture of a particular country also influences the management practices of firms. An example example is the mañana mañana habit which is part of of local Filipino culture and practices by some Filipino workers. It is counter productive since it encourage the postponement of performing task that can be done immediately to another day.

 

Managing in a Worldwide Environment: Cultural, PoliticoEnvironment: legal, and Economic Environment 

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The call for business to go global is hard to resist as this is the trend prevailing in the 21st century. The culture of different countries are rooted in their history, history, religion, traditions, beliefs, and deep-seated values, and because of these, managing globally can be very complicated complicated..

 

The politico-legal environment refers to the laws and political climate of different countries. Some countries have stable laws and good  political climate climate while others have the oppositeunstable laws and risky political climate.

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Awareness of the economic issues of countries where organizations intend to establish business is also very important. 

Do they have a free market or a planned economy? Answering this question is the first step because the country’s economic system has the potential to influence to organization’s decision-making.

 

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Other economic matters that must be considered are the inflation rates, the gross national

 product/gross domestic domestic product, the currency exchange rates, taxation system, and others

 

Lesson 3

Phases of Economic Development

 

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Although material wealth accumulation is among the concerns of genuine economic development, its greater concern is the

total improvement of the quality of  people’  people’s s live. This, in turn, is related to sustainable

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economic development in a country which greatly influencesissues business management.

 

Sustainable economic development

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ensures that the present needs of a  particular generation are full met without endangering the ability of future generations to also fully meet their own needs. Business managers must be conscious of

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their decisions to avoid the abuse of ecological elements-air elements -air,, water, water, and soil-as this will threaten sustainable economic development.

 

Different countries have different management strategies to encourage ecological respect and prevent damage to the environment.

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Common environmental and ecological  problems that have to be dealt with by  business managers include destruction of natural habitats, depletion of clean water resources, urban, industrial, and agricultural pollution, and many more.

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The MDGs, according to the UN, are “the world’s time-bound time-bound and quantified targets for addressing extreme poverty in its many dimensions-income dime nsions-income poverty p overty,, hunger,, disease, lack of adequate shelter, hunger and exclusion.

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1. Eradicate extreme hunger and poverty 2. Achieve universal primary education 3. Promote gender equality and empower women 4. Reduce child mortality 5. Improve maternal health 6. Combat HIV/AIDS, Malaria, and other diseases 7. Ensure environmental sustainability 8. Develop a global partnership for development

 

Meanwhile, the National Economic and Development Authority(NEDA) has laid out the Philippine Development Plan(PDP) 2011-2016, 2011-2016, which “adopts a framework of inclusive growth, which is high growth that is sustained, generates

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mass employment, employmen t, and reduces reduc es poverty. poverty.

 

1. Pursuit of inclusive Growth 2. Macroeconomic Policy 3. Competitive Industry and Services Sectors 4. Competitive and Sustainable Agriculture and Fisheries Sector  5. Accelerating Infrastructure Development 6. Resilient and Inclusive Financial Sector  7. Good Governance and the Rule of Law 8. Social Development 9. Peace and Security 10.Conservation, 10. Conservation, Protection, and Rehabilitation of the Environment and Natural Resources

 

Another potential means for economic

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growth and development is the planned integration of the 10 Southeast Asian nations in 2015 which include the Philippines. The Association of Southeast Asian  Nations(ASEAN) Economic

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Community(AEC) could help the Philippines achieve its goal of inclusive growth that creates jobs and reduces  poverty..  poverty

 

Since the AEC is envisioned to become a

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single common market and production  base for an estimated 600 million people of different nationalities, it means freer flow labor.of goods, services, investments, and The study concluded that “new

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opportunities for growth and prosperity may emerge, but the challenge is to ensure that growth is inclusive and  prosperity is shared.”

 

Lesson 4

Forms of Business Organizations

 

The form of a business organization may depend on its purpose, nature of

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operations, and resources. resou rces. However, a  business organization’s organization’s form may change with the changing times and the demands they present.

 

Changing Forms of Business Organizations

 

Change is constant and organizati organizations ons continue to undergo various changes to ensure effectiveness, efficiency, and relevance in the world of

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 business.

 

Simple business organizations- th thes esee re refe ferr to to  business organizations organizations with few departments, departments, centralized authority with a wide span of control, and with few formal rules and regulations. Functional business organizations- th these ese pert pertain ain to  business organizatio organizations ns that group together together those with similar or related specialized duties that introduce the

concept of delegation of authority to functional managers like the personnel manager, sales manager, or financial manager but allow CEOs to retain authority for strategic decisions.

 

Divisional business organizations- th theese are

 business organizations organizations m made ade up of separate  business units that are semi-autonomous or semi-independent, with a division head responsible for his or her unit’ unit’ss performance. Profit business organization- the these se are are busin business ess organizations designed for the purpose of achieving their organizations’ mission, vision, goals, and objectives and maintaining their organizational stability through income generation and profit-making activities. Immediate revenue or cost factors account for their success or failure.

 

Non-profit organizations- the these se are busi business ness organizations designed for the purpose of achieving their organizations’ mission, vision, goals, and objectives providing service to clients without expecting monetary gains or financial benefits for their

endeavors. Their success or failure may be measured by the high or low evaluation scores they obtain.

Open/flexible business organization- the these se are for forme med d to meet today’s changing work environment.

 

Business organizations affect and are

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affected by the environment; therefore, change becomes inevitable. Other forms of business organizations:

 

Team structure- where the organization as a whole is made up of work teams(small, out focused) that work together to achieve the organization’’s purpose; popular in collective organization culture.  Matrix business organizations- tho those se which which assi assign gn experts or specialists belonging to different functional departments to work together on one or mare projects; exhibit dual reporting relationships in which managers report to two superiors-the superiors -the functional manager and the divisional manager manager..

 

 Project business structurestructure- a business business organiza organizational tional form with a flexible design, where the employees continuously work on projects assigned to them; projects may be shortterm or long-term and members disband when the project is completed.  Boundaryless business organization- a bus busin ines esss organization whose design eliminates vertical, horizontal, or external boundaries, and is described to be flexible and unstructured; there are no barriers to information i nformation flow and, therefore, completion of work is fast.

 

Virtual business organization organization-- ma made de up of of a small small group group of full-time workers and outside experts who are hired on a temporary basis to work on assigned projects; members usually communicate online.

 

The most common forms of business are: Sole Proprietorship

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Partnership

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Corporations

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Limited Liability Companies(LLC) Subchapter S Corporations(S Corporations)

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Sole Proprietorship 

A sole Proprietorship is the most common form

of business organizati organization. on. It’s It’s easy to form and offers complete control to the owner. But the  business owner is also personality liable for all financial obligations and debts of the business.

 

As a sole proprietor you can operate any kind of business as long as you are the only owner.. It can be full-time or part-time owner work. This includes operating a: 

Shop or retail trade business

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Large company with employees

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Home-based business

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One-person consulting firm

 

Partnership  A partnership is the relationship existing existing between two or more person who join to carry on a trade or business. Each person contributes money money,, property property,, labor or skill, and expects to share in the profits and

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losses of the business.

 

Corporation 

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A corporation structure is more complex than other business structures. It requires complying with more regulations and tax requirements. r equirements. Corporations are formed under the laws of each state and are subject to corporate income tax at the federal and state level. In additional, any earnings distributed to shareholders in the form of dividends are taxed at the individual tax rates on their personal annual tax returns.

 

Limited Liability Company(LLC) 

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A Limited Liability Company(LLC) is a relatively new business structure allowed by state statute. LLCs are popular because, similar to a corporation, owners have limited personal

liability for the debts and actions of the LLC. Other features of LLCs are more like a  partnership, Providing management management flexibility and the benefit of pass-through taxation.

 

Subchapter S Corporation 

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The Subchapter S Corporations is a variation of the standard corporation. The S corporation allows income of losses to be passed through to individual tax returns, similar to a partnership. Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income.

 

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