MODULE 2. THE FIRM AND ITS ENVIRONMENT (Organization and Management)

2 MODULE 2
LEARNING MODULE
BLENDED FLEXIBLE LEARNING
Organization and Management (ORMA 321)
AN OVERVIEW
INTRODUCTION
Today, companies operate in a dynamic environment. Varying environmental

forces can potentially affect business operations and dealing with these forces is a
matter of profitability, sustainability, and survival. It is crucial for managers to
understand the various aspects of the environment, respond to discrepancies in
business operations, direct the company in decision making and confronting
problems and offer solutions to those issues.
However, some companies fail because they are not able to cope with the
changes and meaningfully employ the lessons imparted by their experiences in
dealing with them. Environmental forces are either internal or external and may
have positive or negative effects on the firm. Whichever the case, companies and
organizations should be ready to face challenges and address issues intelligently and
strategically to achieve meaningful results.
This module will further discuss the environmental forces that affect the
operations of companies, SWOT analysis, PEST analysis, etc.
LEARNING OUTCOMES
At the end of this module, you should be able to:
1. Identify various forces/elements of the firm’s environment.
2. Summarize these forces using the PEST and SWOT analysis.
3. Differentiate the different forms of business organizations.
4. Explain the role of business in relation to the economy.
LEARNING RESOURCES
1. Medina, Roberto G., (2016). Business Organization and Management, Rex

Publishing, Inc.
2. Zarate, Cynthia A., (2016) Organization and Management, C & E Publishing
Inc., Quezon City
LEARNING INPUTS
THE ENVIRONMENT OF THE FIRM

LESSON 1
The Environment of the Firm

COLEGIO DE STA. ANA DE VICTORIAS, INC.
Osmeña Avenue, Victorias City, Negros Occidental, 6119
The business firm’s environment refers to the conditions and elements that define
its operations and determine its success. There are two types of the firm’s
environment. These are internal and external environment.
External Environment
Microenvironment
Customers Macroenvironment
Suppliers The Firm General environment of the
Regulatory agencies firm.
Competitors
Internal Environment
Employees
Board of Directors
Managers
The Internal Environment refers to all the inlying forces and conditions present
within the company, which can affect the company's working. These includes the
employees, board of directors, and the managers. The elements of the internal
environment are directly controlled and can be freely modified by the firm itself.
External Environment is a set of all the exogenous forces that have the potential to
affect the organization's performance, profitability, and functionality. There are two
types of external environment:
 The micro environment consists of the factors that directly impact the
operation of a company.
 The macro environment consists of general factors that a business typically
has no control over. The success of the company depends on its ability to
adapt.
Environmental Scanning
Environmental scanning is the actual monitoring and evaluation of information

from the external and internal environment of a business organization. The
information is then provided to the key people to guide the organization in its
business operations and in preparing for target market operations. There are three
modes of environmental scanning as follows:
1. Adhoc environmental scanning is not often done and is usually applicable

only during a crisis situation. The firm does adhoc scanning to determine
whether a problem is either external or internal.
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2. Regular scanning is usually done at least once a year at regular intervals.

3. Continuous scanning refers to the continuous collection of data on board
range of environmental factors. It is also referred to as continuous learning
done to monitor the components of an organization’s environment.
Strategic Planning: SWOT and PEST Analysis
A. SWOT ANALYSIS
SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.
Strengths and weaknesses are internal to your company—things that you have some
control over and can change. Examples include who is on your team, your patents
and intellectual property, and your location.
Opportunities and threats are external—things that are going on outside your
company, in the larger market. You can take advantage of opportunities and protect
against threats, but you can’t change them. Examples include competitors, prices of
raw materials, and customer shopping trends.
B. PEST ANALYSIS
PEST Analysis (political, economic, social and technological) is a management

method whereby an organization can assess major external factors that influence its
operation in order to become more competitive in the market. As described by the
acronym, those four areas are central to this model.
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a. Political
Political or politically motivated factors that could impact the organization.
Examples include:
Government policy, political stability or instability, bureaucracy, corruption,
competition regulation, foreign trade policy, tax policy, trade restrictions,
labor/environmental/copyright/consumer protection laws, funding grants &
initiatives, etc.
Questions to ask:
 What government policies or political groups could be beneficial or

detrimental to our success?
 Is the political environment stable or likely to change?
b. Social
Social attitudes, behaviors, and trends that impact on your organization and target
market.
Examples include: Attitudes and shared beliefs about a range of factors including
money, customer service, imports, religion, cultural taboos, health, work, leisure, the
environment; population growth and demographics, immigration/emigration, family
size/structure, lifestyle trends, etc.
Questions to ask
 How do our customer’s beliefs and values influence their buying habits?
 How do cultural trends and human behavior play a role in our business?
c. Economic
Overall economic forces that could impact on your success.
Examples include:
Economic trends, growth rates, industry growth, seasonal factors, international
exchange rates, International trade, labor costs, consumer disposable income,
unemployment rates, taxation, inflation, interest rates, availability of credit,
monetary policies, raw material costs, etc.
Questions to ask:
 What economic factors will affect us moving forward?

 How does the performance of the economy affect us at the moment?
 How are our pricing, revenues, and costs impacted by each economic factor?
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d. Technological
Technology that can affect the way you make, distribute, and market your products
and services.
Examples include:
Technology and communications infrastructure, legislation around technology,
consumer access to technology, competitor technology and development, emerging
technologies, automation, research and innovation, intellectual property regulation,
technology incentives, etc.
Questions to ask:
 What technological advancements and innovations are available on the

horizon?
 How will this technology impact on our operations?
LESSON 2 THE BUSINESS ORGANIZATION
Forms of Business Organization
1. SOLE OR SINGLE PROPRIETORSHIP
A sole or single proprietorship is a business unit owned and controlled by a single

individual. The owner of the proprietorship is referred to as a sole proprietor or a
single proprietor. A sole proprietorship is the simplest business entity and the easiest
to form or put up. Most businesses start as sole proprietorships. The business and
the owner are essentially one. The owner usually manages the business and makes
all decisions. All the profits of the business accrue to him. As such, the profit of the
business is taxed as the personal income of the owner.
2. PARTNERSHIP
Partnership is an association of two or more persons who have agreed to contribute

money, property, or industry to a common fund with the intention of dividing the
profits among themselves. Two or more persons may form a partnership for the
exercise of a profession. Strictly speaking, the exercise of a profession is not a
business or an enterprise for profit, but rather for service; but the law allows two or
more professionals, like lawyers, doctors, certified public accountants, among others
to act as partners in the practice of their profession. Such partnerships are called
general professional partnerships. The owners of a partnership are called partners.
In a partnership, there is another concept that equally applies from the business
entity concept pertaining to the relationship of the partners to the partnership. It is
the aggregate concept, which views the partnership as a collection of rights and
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responsibilities, of the individual partners, in as much as the individual partners are

jointly liable for all the debts and obligations of the partnership. This concept deals
with the individual personality/ identity of the partners in relation to the
partnership. Each partner is an agent of the partnership. All actions of each
individual partner, so long as they are within the scope of the partnership business,
bind the partnership, making the partnership liable for whatever consequences that
partner's actions may bring about.
Nature of a Partnership
A partnership is easier to form than a corporation. It allows the pooling of resources

for some common purpose(s). Partnerships have been employed not only for small
operations, but also for large-scale operations. It may be a small firm selling goods or
services at a single location, or it may be a larger enterprise selling goods or services
at different locations.
Partnerships may be composed of two partners only or dozens of partners. It is

contractual in nature because it is formed through a contract between or among the
partners. The partnership can be formed by either an oral contract/agreement or by
a written contract/agreement. A Written contract is not required for a partnership.
All that is needed is that the partners agreed to form the partnership and are
amenable to the terms of the agreement.
3. CORPORATION
A corporation is an artificial body or being (as differentiated from a natural person),

organized under the provision of law in which ownership is divided into shares of
stocks.
The Corporation Code of the Philippines defines a corporation as an artificial being

created by operation of law, having the right of succession and the powers,
attributes, and properties expressly authorized by law or incident to its existence.
Five or more persons are required to organize a corporation. They are called
incorporators. The owners of a corporation, which include the incorporators, are
called shareholders or stockholders because investments in a corporation are
evidenced by stock certificates. The stock certificates are the written evidence
representing ownership in a corporation. On the other hand, the shares of stock
owned by the owners/shareholders/stockholders are the intangible rights of
ownership in the corporation. In our modern times, they are also referred to as
stakeholders because they put their money/investment at stake, i.e., subject to risks.
Classification of businesses
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The key management functions are planning, organizing, leading and controlling.
They can be summarized in the model below.
Businesses have different purposes and fields of endeavor. Among the classification
of businesses as to nature are the following:
1. SERVICE BUSINESS
A service type of business provides intangible products (products with no physical

form). Service-type firms offer professional skills, expertise, advice, and other similar
products. Examples of service businesses are salons, repair shops, schools, banks,
accounting firms, and law firms.
2. MERCHANDISING BUSINESS
This type of business buys products at wholesale price and sells the same at retail
price. They are known as "buy and sell" businesses. They make a profit by selling the
products at prices higher than their purchase costs. A merchandising business sells a
product without changing its form. Examples are grocery stores, convenience stores,
distributors, and other resellers.
3. MANUFACTURING BUSINESS
Unlike a merchandising business, a manufacturing business buys products intending

to use them as materials in making a new product. Thus, there is a transformation of
the products purchased. A manufacturing business combines raw materials, labor,
and overhead costs in its production process. The manufactured goods will then be
sold to customers.
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MODULE 2
ACTIVITIES AND SELF - CHECK QUESTIONS

Organization and Management (ORMA 321)
✓ Self - assessment
Imagine yourself as an entrepreneur who wishes to engage in a business in your

community. Answer following questions.
1. What type of business do you imagine yourself establishing?

2. Do you see yourself as a sole proprietor, a partner in a business venture, or a
high- ranking officer in a big corporation? Explain why.
Midterm Quiz
Write the correct term in the space before the number.
1. A business organization composed of a minimum of 5 to a

maximum of 5 owners called shareholders.
2. It is the process of planning, organizing, leading, and controlling
the activities of an organization effectively and efficiently to
achieve organizational goals.
3. A business organization that has one owner.
4. A type of business that provides labor and other services to its
customers.
5. A business that transforms raw materials into finished goods.
6. This phenomenon is defined as the transfer of an organizational
function to a third party.
7. The level of organization which requires the greatest degree of
conceptual skills.
8. It is a managerial skill that includes the capacity to motivate,
lead, and control the behavior of his or her subordinates.
9. It enables people to do business in any part of the world.
10. It is a type of manager who only thinks of him/herself.

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2 MODULE 2

Today, companies operate in a dynamic environment. Varying environmental

1. Medina, Roberto G., (2016). Business Organization and Management, Rex

THE ENVIRONMENT OF THE FIRM

The Environment of the Firm

Environmental scanning is the actual monitoring and evaluation of information

1. Adhoc environmental scanning is not often done and is usually applicable

2. Regular scanning is usually done at least once a year at regular intervals.

Strategic Planning: SWOT and PEST Analysis

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.

PEST Analysis (political, economic, social and technological) is a management

 What government policies or political groups could be beneficial or

 What economic factors will affect us moving forward?

 What technological advancements and innovations are available on the

LESSON 2 THE BUSINESS ORGANIZATION

Forms of Business Organization

1. SOLE OR SINGLE PROPRIETORSHIP

A sole or single proprietorship is a business unit owned and controlled by a single

Partnership is an association of two or more persons who have agreed to contribute

responsibilities, of the individual partners, in as much as the individual partners are

A partnership is easier to form than a corporation. It allows the pooling of resources

Partnerships may be composed of two partners only or dozens of partners. It is

A corporation is an artificial body or being (as differentiated from a natural person),

The Corporation Code of the Philippines defines a corporation as an artificial being

A service type of business provides intangible products (products with no physical

Unlike a merchandising business, a manufacturing business buys products intending

ACTIVITIES AND SELF - CHECK QUESTIONS

Imagine yourself as an entrepreneur who wishes to engage in a business in your

1. What type of business do you imagine yourself establishing?

Write the correct term in the space before the number.

1. A business organization composed of a minimum of 5 to a

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