3rd Floor Ever Gotesco Building Commonwealth Ave.

, Cor Batasan,
Quezon City, 1126 Metro Manila /
Tel. No. (028) 2533859

MODULE
Organization and Management
Grade 11
st
1 Quarter - Week Three and Four
Business and its Environment

Name: ______________________________________________ Date: ____________

Grade & Section: _____________________________________ Score: ___________

I. SUBJECT CONTENT:

Business and its Environment

II. OBJECTIVES:
At the end of this lesson. 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

III. REFERENCE/S

Book: Business Organization and Management

Publisher: (Roberto G. Medina Rex Book Store)

IV. PRE - TEST

Fill in the blanks.

1. __________ consists of all factors that affect the activities of the organizations.
2. _____ refers to elements outside the organization which are relevant to business
operations.
3. _______ is a market conditions that exists when there is only one produce or seller of
a particular product.
4. The indirect action elements consist of technological, economic, political – legal,
socio-cultural and _____ variables.

Organization and Management 1

5. Laws and regulations implemented at the local, national and international levels are
referred to as ________.
6. ________ environments are those characterized by few forces that are changing.
7. __________ is the lack of complete information regarding what exists and what
developments may occur in the environment.
8. An organization with a _________ design is deemed appropriate for a task that is
routine and unchanging.
9. _________ refers to efforts involved in reducing change in the environment.
10. _________ refers to replacement of a top manager by another managers.

Organization and Management 2

 3rd Floor Ever Gotesco Building Commonwealth Ave., Cor Batasan,
Quezon City, 1126 Metro Manila /
Tel. No. (028) 2533859

MODULE
Organization and Management
Grade 11
st
1 Quarter - Week Three and Four
Business and its Environment

Name: ______________________________________________ Date: ____________

Grade & Section: _____________________________________ Score: ___________

V. LESSON PROPER:

Knowledge about management and organization is very useful especially in human

endeavors like operating a business firm. This will be more significant, however, if such is
supplemented by a basic knowledge of business and its environment. This lesson attempts to
provide such requirements.

VI. A. MOTIVATION

Direction: Write any words, phrases or sentences that you think describes business
environment.

Organization and Management 3

B. DISCUSSION:

What is Business?

Under the free enterprises system, the growth of the economy lies in the ability of
private individuals to achieve economic objectives. The quest for profit is usually
undertaken by engagement in business operations. Business firms and the government
are expected to provide goods and services to the society. The major parts of the task,
however is assigned to the private business firm. Under the system, firms are free to
compete with each other and competition leads to the offering of new and improved
products and services to the society. The standard of living is raised or lowered
depending to a large extent on the performance of business firms.

Business is largely responsible for bringing into the market a wide array of
products, which were not made available in the past. High technology items like colored
television, video equipment, cellular phones, and computers are sold openly in the
market. This happens even as business firms continue to provide mankind with basic
necessities like food and shelter. Even amusement centre’s like Disneyland and resorts
like Boracay are made possible because of business.

Business Defined

Business may be defined as all proof – seeking activities and enterprises that
provide goods and services necessary to an economic system. Profit refers to the
rewards for business persons who takes the risks involved in producing and marketing
goods and services.

Kind of Business

According to the nature of the principal activity performed, business may be

classified into three main division.

1. Commerce. Business firms which are engaged in buying and selling of goods and
services, are classified as commerce. Also included in this category are trading,
merchandizing, and marketing. Examples of commerce as a kind of business are
supermarkets, dry goods store, peddlers, sari sari store, importers and many others.

2. Industry. Industries are those, which are mainly engaged in production, Goods
produced, which are intended for ultimate consumption, are called consumer goods,
while goods intended for use of business and industry are called producer’s goods.

Organization and Management 4

 Industry business may be further classified into:

a. Genetic industry 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 product. Examples are
firms engaged in the manufacture of drugs, plastics, foods, liquor, footwear, motorcars,
tools office supplies, etc.

d. Construction industries are those engaged in building infrastructures like airports,

seaports, dams, and highways and dwelling units.

3. Services. A service business is one, which sells service to the buyer. Service firms
may be classified as:

a. Recreation – movie house, television, and radio stations, theaters for drama
and stage presentations, resorts and like.

b. Personal – restaurants, barber shop, transportation, hotels, tailoring, shops,

slimming salons, and the like.

c. Finance – 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. There are other reasons,
however why anyone would want to start a business. Some of these are to do work that
is enjoyable, to do something for pleasure and pride, and to achieve financial
independence.

Professional managers maintain that a business firm should achieve the

following multiple objectives.

1. creations and distribution of a product

2. satisfaction of personal objectives like profits for owners, salaries another

compensation for executives, wages and other compensation for employees, psychic
income for all, including pride in work, security, recognition and acceptance.

3. protections and enhancement of the human and physical resources of society

and

Organization and Management 5

 4. economy and effectiveness of operations

The Environment of the business firms

The environmental factors that affects the activities of the organization may be
internal or external.

The External Environment

The external environment consists of elements outside an organization that are

relevant to business operations. These elements play important roles in business
operations because these are the sources of the inputs required by business firms for
conversion into outputs which I turn are required by the external environment.

The main Function of the Business

The Business Firm

as transformer

as recipient
Outputs
*Products
*Services
Inputs
*raw materilas
*money
*labor
*energy

as provider as recipient
External
Environment

Types of Elements in the External Environment

There are two elements that compose the external environment.

1. Direct Action Elements. The directly influence the organization. These includes the
consumers, competitors, labor unions, suppliers, financial institutions, and the
government agencies. They are often referred to as stakeholders of the organization.

Organization and Management 6

2. Indirect Action Elements. These do not affect the organization directly. Instead they
affect the climate in which the operations of the organizations take place. These are the
technological, economic, socio cultural, political – legal and international variables.
These are instances, however when an indirect action elements of one industry is
regarded as a direct actions elements of another.

For examples, the duplication serve business may be an indirect action elements of
schools, but it may be considers as a direct action elements of publishers of book.

Elements in the External Environment of Business Firms

Business Firm

Direct Action Elements Indirect Action

Consumers Elements
Competitors Technological variables
Labor unions Economic variables
Suppliers Political – legal varibales
Financial institution Socio cultural variables
Government agencies International variables

The Direct Action Components of the External Environment

What the organizations can achieve will depend much on the direct actions components
of the external environment. However, the organization’s strategy and tactics may modify the
influence of the elements. These elements are:

1. Customers. Customer patronage is very vital to the existence of the business firm.

2. Suppliers. Business firms achieve their objectives through a combination of activities.

3. Labor supply. The services of managers and employees are indispensable requirements of
business operations.

4. Competitors. In determining the appropriate marketing strategy the manager of business firm
will have to consider not only the target customers but also the competitors. Competitors may
either be direct or indirect. The intensity of competitions will differ from one situations to another.
As such marketing strategy of any business firm will depend on any of the following situations.

Organization and Management 7

 a. Monopoly – where there is only a single producer or seller;

b. Oligopoly – when there are only a few producers or sellers of similar products;

c. Pure Competition – when there are many producers or sellers of similar products.

5. Financial Institution. Business firms are concerned with maintaining or expanding their
operations. In either case, the company will need funds. The expansions option could be
opening a new branch, adding a new product to its line, or purchasing a lot or new equipment.

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
validity of business firms could be enhanced or limited by actions of government agencies.

The Indirect Action of the External Environment

The business organization is affected indirectly by elements in the external environment.

These elements are the following.

1. Technological variables – has become widely recognizes as an important ingredient in the

success of business firms.

2. Economic Variables – The economy has a very important element in the business pursuits.
Even in the company has the edge in technology and financial capability over its competitors, it
may not be successful if the economy does not allow it.

3. Socio Cultural Variables – Business organizations can only flourish if they consider society
customs 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 levels.

5. International Variables –This elements includes changes occurring in various parts of the
world, which may affect business organizations in various ways and degrees.

Types of Business Environment

The environment of business may be classified as either static or dynamic.

1. Static – Few forces in the environment are changing to affect business.

2. Dynamic – when significant numbers of environment forces that affect business are changing.

Design of Business Organizations

1. Mechanistic design – an organization with mechanistic design is deemed appropriate for a

task that is routine and unchanging. This design is characterized by a vertical structure that
typically operates with.

Organization and Management 8

 a. more centralized authority

b. may rules and procedures

c. a precise division of labor

d. narrow of control

e. formal means of coordination

2. Organic Design – An organizations with an organic design is appropriate for a task that is non
routine and changing. It characterized by the following.

a. decentralized authority

b. fewer rules and procedures

c. less precise division of labor’

d. wider spans of control

e. more personal means of coordination

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

2. Smoothing

3. Forecasting

4. Rationing

5. Boundary

6. Structural Complexity

5. Execution Succession

Environmental Controlling

The business firm has another option, however. It may make some moves to control the
environment. Controlling the environment consist of two categories. They are as follows.

1. Creating Favorable Linkages

a. Mergers

b. Joint ventures

c. Interlocking Directorates

Organization and Management 9

 d. Executive Recruitment

e. Institutional Advertising

f. Resource Flows

2. Manipulating the Environment

a. Changing Elements

b. Lobbying

c. Forming Trade Association

Environmental Forces and Environmental Scanning

The environment in which a business operates is a major consideration in determining
an organization’s design structure. Considerations such as uncertainty, procurement, and
competition are linked with the external environment. A company’s strategy and approach to
operations must also be aligned with the limitations of its external environment.
Definition of Terms
1. Environmental scanning means seeking for and sorting through data about the
environment.
2. External business environment refers to the factors/elements outside organization
which may affect, either positively or negatively, the performance of the organization.
3. Internal business environment refers to the factors/elements within the organization,

The various components of business environment are External environment consist of

those factors that affect a business enterprise from outside. External environments includes
shareholders, competitors, customers, society, government laws and regulations, policies and
technology.
4. Micro-environment includes those players whose decisions and actions have a direct
impact on the company. Production and selling of commodities are the two important
aspects of modern business. Accordingly, the micro-environment of business can be
divided.
5. Macro- environment is the condition that exist in the economy as a whole, rather than
in a particular sector or region. In general, the macro environment includes trends in the
gross domestic product (GDP, inflation, employment, spending, and monetary and fiscal
policy.

The various constituents of micro-environment are as under:

1. Suppliers of inputs: An important factor in the external micro-environment of a firm
is the supplier of its inputs such as a raw materials and components. Normally, most
firms do not depend on a single supplier of inputs. To reduce risk and uncertainty
business firms prefer to keep multiple suppliers of inputs.
2. Customers: The people who buy and use a firm’s product and service are an
important part of external micro-environment. Since sales of as product or service is

Organization and Management 10

 critical for a firms. Besides, a business firm has to compete with rival firms to attract
customers and thereby increase the demand and market for its product.
3. Marketing intermediaries: In the firm’s external micro-environment, marketing
intermediaries play an essential role of selling and distributing its products to the final
customers. Marketing provides an important link between a business firm and
ultimate customers.

4. Competitors: Different firms in an industry compete for sale of their products this
competition may be based on pricing of their products and non-price competition
through competitive advertising such as sponsoring some events to promote the sale
4
of different varieties and models of their products. Because of liberalization and
globalization of the Indian economy since the adoption of economic reforms there
has been a significant increase in the competitive environment of business firms.
Now, Indian firm’s must compete not only with each other but also with foreign firms
whose products can be imported. In America, American firms faced a lot of
competition from the Japanese firms producing electronic goods and automobiles.
5. Publics: Finally, publics are an important force in external microenvironment.
Environmentalist, media groups, women’s associations, consumer protection groups,
local groups, Citizen Association are some important examples of publics which have
an import bearing on the business decisions of the firm. The existence of various
types of publics influences the working of business firms and compels.

External Macro Environment

Apart from micro-environment, business firms face large external environmental forces.
An important fact about external macro environment forces is that they are uncontrollable by the
management. Because of the uncontrollable nature of macro forces a firm must adjust or adapt
it to these external forces. These factors are:
1. Economic Environment: Economic environment includes all those forces which have
an economic impact on business. Accordingly, total economic environment consist of
agriculture, industrial productions, infrastructure, and planning, basic economic
philosophy, stages of economic development, trade cycles, national income, per capita
income, savings, money supply, price level and population.
2. Political-legal Environment: Business firms are closely related to the government. The
political- legal environment includes the activities of three political institutions, namely,
legislature, executive, and judiciary which usually play a useful role in shaping, directing,
developing and controlling business activities.
3. Technological Environment: Technological environment is exercising considerable
influence on business. Technology implies systematic application of scientific or other
organized knowledge to practical tasks or activities. Business makes it possible for
technology to reach the people in proper format.
4. Global or Internal Environment: Global environment plays an important role in shaping
business activity. With the liberalization and globalization of the economy, business
environment of an economy has become totally different wherein it has to bear all
shocks and benefits arising out global environment.
5. Socio-cultural Environment: Social and cultural environment also influences the
business environment indirectly. These include people attitude to work and wealth,
ethical issues, role of family, marriage, religion and education and also social
responsive.
6. Demographic Environment: The demographic environment includes the size and
growth of population. Life expectancy of the people, rural-urban distribution of

5
Organization and Management 11
 population, the technology skills and educational levels of labor force. All these
demographic features have an important bearing on the functioning of business firms.
7. Natural Environment: Natural environment influences business in diverse ways.
Business is modern times is dictated by nature. The natural environment is the ultimate
source of many inputs such as raw materials and energy, which includes geographical
and ecological factors such as minerals and oil reserves, water and forest resources,
weather and climatic conditions are all highly significant for various business activities.
8. Ecological Environment: Due to the efforts environmentalist and international
organizations such as the World Bank the people have now become conscious of the
adverse effects of depletion of exhaustible natural resources and population of
environment by business activity. Accordingly, laws have been passed for conversation
of natural resources and prevention of environment population. These laws have
imposed additional responsibilities and cost for business.

Internal Environment:

The factors in internal environment of business are to extent controllable because the firm can
change or modify these factors to improve its efficiency. However, the firm may not be able to
change all the factors. The various internal factors are:
1. Value system: The value system of an organization means the ethical beliefs that
guide the organizations in achieving its mission and objectives. It is a widely
acknowledge fact that the extent to which the value system is shared by all in the
organization is an important factor contributing to its success.
2. Mission and objectives: The business domain of the company, direct of
development, business philosophy, business policy etc. are guide by the mission and
objectives of the company. The objective of all firms is assumed to be maximization,
of profit. Mission is defined as the overall purpose or reason for its existences which
guide and influences decisions and economic activities.
3. Organizations structure: The organizational structure, the composition of the board
of directors, the professionalism of management etc. are important factors
influencing business decisions. The nature of the organizational structure has a
significant influence over the decisions making process in an organization. An
efficient working business organization requires that the structure should be
conducive for quick decision making
4. Corporate culture: Corporate culture is an import factor for determining the internal
environment of any company. In a closed and threatening type of corporate culture
the business decisions are taken by top level managers while the middle level and
lower level managers have no say in business decisions making. The leads to lack of
trust and confidence among subordinates officials of the company and secrecy
pervades throughout the organization.
5. Quality of human resources: Quality of employees that is human resources of a
firm is an important factor internal environment of a firm. The characteristics of the
human resources like skill, quality, capability, attitude and commitment of its
employee etc. could contribute to the strength and weakness of an organization.
6
6. Labor unions: Labor unions collectively bargains with the managers for better
wages and better working conditions of the different categories of workers. For the
smooth working of a business firm good relations between management and labor
unions is required.
7. Physical resources and technology capabilities: physical resources such as plant
and equipment and technological capabilities of an firm determine is competitive

Organization and Management 12

 strength which is an important factor for determining its efficiency and unit cost of
production. Research and development capabilities of a company determine its
introduce innovations which enhance productivity of workers.

Specific Components of the External Business Environment

Stakeholders, Customers, Suppliers Pressure groups, Organization’s investors or owners and
Employees.

Component of the Internal Business Environment

1. Resources – financial, physical, mechanical, technological, and human resources must
be subjected to internal analysis (SWOT)
What Is a SWOT Analysis?
A SWOT analysis is a technique used to determine and define your Strengths,
Weaknesses, Opportunities, and Threats (SWOT). SWOT analyses can be applied to an
entire company or organization, or individual projects within a single department. Most
commonly, SWOT analyses are used at organizational level to determine how closely a
business is aligned with its growth trajectories and success benchmarks, but they can also be
used to ascertain how well a particular project – such as an online advertising campaign – is
performing according to initial projections.

Organization and Management 13

Porter’s Five Force
Porter’s five analysis is a framework that helps analyzing the level of competition within a
certain industry. It is especially useful when starting a new business or when entering a new
industry sector. According to this framework, competitiveness does not only come from
competitors. Rather, the state of competition in an industry depends on five basic forces: threat
of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute
products or services, and existing industry rivalry.

PESTEL Analysis.
A PESTEL analysis or PESTLE analysis (formerly known as PEST analysis) is a framework
or tool used to analyses and monitor the macro-environmental factors that may have a
profound impact on an organization’s performance. This tool is especially useful when
starting a new business or entering a foreign market. It is often used in collaboration with
other analytical business tools such as the SWOT analysis and Porter’s Five Forces to give
a clear understanding of a situation and related internal and external factors. PESTEL is an
acronym that stands for Political, Economic, Social, Technological, Environmental and
Legal factors.

Organization and Management 14

1. Developing a competitive mindset – by seeking and sorting through data about environment,
you may be able to understand and predict the various changes, opportunities and threats that
may affect organizations in the future.

2. Considering future business scenarios – by realistic consideration of both worse-case

scenario and unfavorable future conditions, as well as middle ground possible conditions, you
will have an idea or what to do in the future.

3. Business prediction (also known as business forecasting) – is a method of predicting how

variables in the environment will alter the future of business. It could be used in making
decisions regarding offshoring, branching out locally, and expanding or downsizing the
company. However, the accuracy of such business predictions cannot always be assured.
Benchmarking – the process of measuring or comparing one’s own products, services, and
practices with those of the recognized industry leaders in order to identify areas for
improvement.

C. ACTIVITIES
Activity 1. Direction: Based from the Mind Mapping exercise, answer the following questions
with 5 - 7 sentences only.

1. What is your idea about business environment?

2. Why is it important for business enterprises to understand their environment? Explain briefly.

Activity 2:

Directions: Determine the word described in each statement below. Draw your answer from
the Rebus Puzzle.

1. These are the internal, positive attributes of your company.

2. These are the things that you need to improve to be competitive.

Organization and Management 15

3. These are the external factors in your business environment that are likely to contribute to
your success.

4. You may convert this as your strength when it occurs.

5. ________________

Activity 3

Answer the following questions.

1. Differentiate the three kinds/classifications of business.

2. In not more than 50 words, discuss the main purpose of going into business.

Organization and Management 16

3. Mention the various dimensions of business environment.

Activity 4

Using the PESTEL As early as January of 2020, you are already thinking of putting up a
grocery store in your public market on or before September 2020. September 2020 is fast
approaching but several factors have prompted into your mind whether to continue the
opening of your business or not due to the problem of COVID 19.

Question: Identify changes in business environment under different heads —

economic, social, technological, political and legal that have facilitated the
companies’ decisions to plan significant investments in organized retailing. Use the template
below for your answer.

POLITICAL ECONOMIC SOCIAL TECHNOLOGICAL ENVIRONMENTAL

VI. ASSIGNMENT

Answer the following.

1. Give one possible positive and negative impacts to business operations from each of the
following direct actions elements of external environment.
a. customer c. financial institution
b. supplier d. government agencies

Organization and Management 17