CHAPTER 2
BUSINESS AND
ITS ENVIRONMENT
At the end of this chapter, the students are expected
to:
1. discuss the meaning and nature of business;
2. identify the various kinds of business;
3. recognize the objectives of business;
4. asses the impacts of various business environment;
5. appraise the business environment and match with the
organization;
6. evaluate the survival strategies in uncertain environments;
7. examine the application of coping strategies; and
8. examine the application of environmental control measures.
Kinds of Business
1. Commerce- are engage in buying and selling of goods and
services. Also included in this category are trading,
merchandizing and marketing. Examples of commerce as a kind
of business are supermarkets, dry goods stores, peddlers,
sari-sari stores, importers and many others.
2. Industry- mainly engaged in production. Goods produced,
which are intended for ultimate consumption, are called
consumer goods, while intended for use of business and
industry are called producer's goods.
Industry business may be further
classified into:
a. Genetic Industries are those involved in agriculture, forestry,
and fish culture.
b. Extractive industries are those involved in the extraction of
goods from natural resources, which include mining, lumbering,
hunting and fishing.
c. Manufacturing industries convert raw materials into finished
products. Examples are firms engaged in the manufacture of
drugs, plastics, food, liquor, footwear etc.
d. Construction industries are those engaged in building
infrastructures like airports, seaports, dams, highways and
dwelling units.
Kinds of Business
3. Services - A service business is one, which sells service to the
buyer. Service firms may be classified as:
[Link] - moviehouses, television and radio stations,
theaters for drama and stage presentation, resorts and the like;
[Link] - restaurants, barber shops, transportation, hotels,
tailoring shops, slimming salons, and the like;
[Link]- banks, insurance companies, investment houses,
financing institutions, credit unions, savings and loans
associations, and the like;
OBJECTIVES OF BUSINESS
A business firm is established primarily for PROFIT
1. creation and distribution of product or services;
2. satisfaction of personal objectives like profits of owners,
salaries and other compensation for executives, waged and
other compensation for employees, psychic income for all
including pride in work, security, recognition, and acceptance;
3. protection and enhancement of the human and physical
resources of society; and
4. economy and effective ness of operation.
THE ENVIRONMENT OF BUSINESS FIRMS
Business Environment - means all of the internal and
external factors that affect how the company
functions including employees, costumers
management, supply and demand and business
regulations.
The External Environment
The external environment consist of elements outside an
organization that are relevant to business operations.
These elements plays important roles in business operations
because these are the sources of the inputs required by
business firms for conversion into outputs which in turn, are
required by the external environment.
THE BUSINESS OUTPUTS
FIRM -products
-services
INPUTS
-raw materials
-money EXTERNAL
-labor ENVIRONMENT
-energy
[Link] Action Elements- These directly
influence the organization. These include the
consumers, competitors, labor unions,
suppliers, financial institutions and
government agencies. They are often referred
to as stakeholders of the organization.
2. Indirect Action Elements- These do not
affect the organization Instead they affect the
climate in which the operations of the
organization take place. These are the
technological economic socio-cultural,
political-legal and international variables.
BUSINESS
FIRM
Direct Action Indirect Action Elements
Elements
- technological variables
- consumers -economic variables
-competitors -political-legal variables
-labor unions -socio-cultural variable
- suppliers - financial institutions
- financial institutions -international variables
[Link]- Costumer patronage is very vital to the existence of
the business firm. The manager must continuously strive to keep
old costumers and attract new ones.
[Link] - Business firms achieve their objectives through a
combination of activities. First and foremost is the transformation
of production inputs like raw materials, services, energy,
equipment and labor into usable products or services.
Note:
Business first must maintain
good relationship with suppliers
if they want on-time deliveries of
inputs.
3. Labor Supply - The services of managers and employees are
indispensable requirements of business operations. These services are in a
way procured through recruitment and hiring by the human resource
specialist of business firms.
4. Competitors - The target share can be successfully achieved through
careful analysis of competitors, may either be direct or indirect. Example
Nescafe and Great Taste Coffee are direct competitors , and are pepsi and
coke, but nescafe and pepsi are indirect competitors.
The intensity of competition will differ from
one situation to another. As such the marketing
strategy of any business firm will depend on any
of the following situations:
• Monopoly- where there is only a
single producer or seller
• Oligopoly- when there are only a few
producers or seller of similar
products; and
• Pure Competition - when there are
many producers or seller of similar
products.
5. Financial Institutions - Business firms are concerned with
maintaining or expanding their operations. In either case, the
company will need funds. As such, a company planning to expand its
business must be well regarded by financial institutions.
6. Government agencies -In many ways business organizations are
affected by changes in government policies . From the enactment of
laws to the granting of business permits, the viability of business
firms could be enhances or limited by actions of government.
1. Technological Variables - Technology has become widely
recognized as an important ingredient in the success of business
firms and manager who does not consider the technological
variables in his strategy faces to risk of losing out to competitors.
Technology refers to the tools and ideas that may be used an
organization to pursue it's goals.
2. Economic Variables- This concern will touch on the health of the
economy in terms of inflation, income levels, gross domestic product,
employment and job outlook. Because of the importance of the economic
variables, business managers are required todevite time and resources to
forecasting the economy and to anticipate changes in important concerns
like prices.
3. Socio- Cultural Variables - Business organizations can only flourish if
they consider society's costum and values in the planning and
implementation of their activities.
4. Political -Legal Variables - These consist of laws and regulations
promulgated and implemented at the local, national and international
[Link] included in this element are individuals and organizations
that attempt to influence the political legal environment.
5. International Variables - This element includes changes occurring in
various parts of the world, which may affect business organizations in
various ways and degrees.
Why do some organizinations thrive in certain environments where others fail?
The answer may be derived from determining whether the organization in
question is fitted to the environment where it operates. Not all environments are
similar in terms of business considerations. One environment may be friendly to
one particular type of business, while another may be hostile to that business
type.
1. Static- Few forces in the environment are changing to affect business.
Among the notable features of static environments are no new competitors,
no new technological breakthroughs by current competitors, and little
activity by public pressure groups to influence the organization.
2. Dynamic- When significant number of environmental forces that affect
bussines are changing. Among the features of a dynamic environment are
rapidly changing government regulations affecting business, new
competitors difficulties in acquiring raw materials, and continuously
changing socio-cultural aspects of the population.
This may be defined as a lack of complete information
regarding what exists, and what developments may occur in
the environment. This uncertainty makes it difficult for
managers to perform the following:
1. Analyze constituencies and their needs;
2. Predict future state of affairs; and
3. Understand their potential implications for the
organization.
1. Complexity - This refers to the number of different factors in the
environment such as information, capital, material, people and other
organizations.
2. Rate of Change in these Factors- These are the factors in the external
environment change from time to time. For instance, income levels and
the number of qualified teachers may increase or decrease after few
years. Environmental uncertainty rises as the rate of change increases.
DESIGNS OF BUSINESS
ORGANIZATION
[Link] Design
• An organization with a mechanistic design is deemed
appropriate for a task that us routine and unchanging.
• This design is characterized by a vertical structure that
typically operates with:
a. more centralized authority;
b. many rules and producers
c. a precise division of labor;
d. narrow spans of control; and
e. formal means of coordination.
2. Organic Design
• An organization with an organic design is appropriate for a
task that is non-routine and changing. It is characterized
by the :
a. decentralized authority;
b. fewer rules and producers
c. less precise division of labor;
d. wider spans of control; and
e. more personal means of coordination.
2. Organic Design
• Task in organic organizations are completed through
group efforts and are adjusted and redefined to cope with
demands made by the changing environment.
• Those close to the task are vested with authority to make
decisions since they have a more immediate
understanding of problems. Organization members
exchange information about adjustments in tasks and
changes that have occurred in the environment making
communication as primarily horizontal.
STATIC DYNAMIC
ENVIRONMENT ENVIRONMENT
ORGANIC
MECHANISTIC
ORGANIZATION
ORGANIZATION
ENVIRONMENTS AND ORGANIZATIONS
SURVIVAL STRATEGIES
IN UNCERTAIN
ENVIRONMENTS
1. Application of Coping Strategies - Coping
Strategies refer to the transformation of a part
of all of the organization to make its activities
more compatible with existing environmental
conditions.
[Link] of Environmental Control Measures
- Environmental control refers to management
actions to identify and influence environmental
factors to obtain more positive effects on
organizational activities
Coping
Strategies
Coping strategies are those used to protect internal
operations from the harmful effects of changes in the
environment. These strategies are as follows:
1. Buffering
• This refers to setting up for both inputs and output sides of
organizational activities in order to absorb and cope with
environmental uncertainty.
• Programs or practices are instituted to prevent environmental
factors from upsetting the production process.
• Example input buffer is the stock file of fuel by shipping company
to provide some assurance of unhampered operation for a certain
period.
1. Buffering
• When the production outputs of finished goods are not disposed
as fast as they produced, itqy cause disruption in the production
activities of the firm. If such disruption will jeopardize operations,
management my choose to sell their products at low prices,
sometimes even lower than production costs. This action is
referred to as buffering on the output side.
2. Smoothing
• Irregular demand is always a problem for many business firms.
This is so because of the difficulty in making adjustments
concerning manpower and equipment.
• This is remedied by smoothing which refers to efforts involved in
reducing changes in the environment.
• Example offering of discounts during slack season like selling
raincoats at big discounts during summer.
3. Forecasting
• This refers to make predictions, projections, or estimates of
future events or condition in the environment in which the
organization operates. If forecasting is effective, the business firm
will be able to make the necessary adjustments in its operation to
meet changes in the environment.
4. Rationing
• This happens then the organization ignores some operations and
emphasizes others in order to preserve the most critical functions
of the technical core.
• Example University, which temporarily deploys it's research
personnel to assist in enrolment activities. After the enrolment
period, the reassigned employees go back to their permanent
units.
5. Boundary Spanning
• This is the process of creating jobs or roles in which individual
employees are required to "have strong communication links
within their department, with people in order units, and often
with the external community."
• The individuals, called boundary spanners, gather and collect
critical information, which can be used to reduce uncertainty in
some areas of operation.
6. Structural Complexity
• This is when the business adapts to the environment by setting up
departments or subsystems that will respond to specific
groupings of environmental factors.
• Example the production of a book publishing company may
create another unit that's will deal with author's concern.
• Another example is the creation of senior citizens lanes in various
government offices and large retail establishments.
7. Executive Succession
• One way of adapting to uncertainty in the environment is the adoption
of an effective executive [Link] replacement of a top manager
by another manager is referred to as executive succession.
• The folio advantages may be derived from an effective executive
succession;
a. enables the organization to hire executives with new energy and vitality;
b. provides organization with a way to bring in specific skills needed to
analyze and respond to the environment; and
c. Provides a coordinated means of replacing retiring executives.
ENVIRONMENTAL
CONTROLLING
1. Creating Favorable Linkages
[Link]- from a legal point of view, a merger is a legal consolidation
of two entities in one entity.
[Link] Ventures - is a business arrangement in which two or more
parties agree to pool their resources for the purpose of
accomplishing a specific task. This task can be a new project or any
other business activity.
[Link] Directorates - When some members of the board
directors of one company are also members of of another company's
board of directors .
1. Creating Favorable Linkages
[Link] Advertising- This type of advertising is designed to
build goodwill for a company among shareholders,
employees,distributors, the public and the government.
[Link] Flows- This term refers to the pattern of resource
exchanges between the organization and other organizations in the
environment. In the attempt to control the environment,the manager
can make important decisions on the pattern of [Link]
options fall under any of the following:
• FREQUENTLY OF EXCHANGE
• QUANTITY INVOLVED IN THE EXCHANGES
2. Manipulating the Environment
[Link] Elements - A business organization may seek to
manipulate it's environment by changing one or more environmental
elements in which it operates.
[Link] - This terms refers to the act of attempting to influence
business and government to create legislation or conduct an activity
that will help a particular organization.
[Link] Trade Associations - Members of trade associations pool
their resources to influence government policies affecting their
business.
THANK YOU
FOR LISTENING!