Organization and

Management
Quarter 1 – Module 1:
The Meaning, Functions, Types
and Theories of Management
Lesson The Meaning, Functions,
1 Types and Theories of
Management

Blocking the Barriers

Coordination-is the integration of

the various efforts of individual or
groups in unity to achieve a
common goal.

Efficiency- ability of an individual

to generate maximum output using
a minimum input by doing the
things right.

Effectiveness- is the ability of an

individual in creating a desired
result or output by doing the right
things

In every organization whether it is small or big, public or private, local or

international and profit or non-profit oriented needs to have a good management

system in order to achieve their set organizational goals and this can be possibly

realized if there will be coordination, efficiency and effectiveness among the

people together with the various resources within the organization.

Management, plays a vital role in every company, whether it is a simple sari-

sari store or a big corporation, for it can define where will it be in the future and

whether it will become successful or not. It is quite clear that it’s success rely on

how effective and efficient the manager will perform all the management functions

as well as the type of approach to be implemented.

 What’s In

In order for us to understand more about MANAGEMENT, let us make a

graphic organizer using it and think of any ideas that are related with the term and
give a short explanation of your answer.

MANAGEMENT

What’s New

Note: (It is better po, if the resources will also have an illustrated pictures)
 RESOURCES FUNCTIONS OF
MANAGEMENT
MANPOWER
PLANNING
MONEY
ORGANIZING
MATERIALS
STAFFING
MACHINE
LEADING
METHODS
CONTROLLING

Based on the above illustration, how are you going to define MANAGEMENT? Do
you have any idea? Write your answer below and let us find out whether you
have got it correctly.

What is It
Let us take a look of how Management is being defined:

Management is the process of coordinating and overseeing the work

performance of individuals working together in organizations, so that they could
efficiently accomplish their chosen aims or goals.

It is also defined the process of designing and maintaining an environment for

efficiently accomplishing selected aims (Heinz, Welhrich, and Koontz,2009)

Management- is the process of supervising the over-all operation of the people and
other resources through an efficient and effective implementation of the various
functions towards the achievement of the organizational goals.
Management pertains on how to get things done through the proper
utilization of all the organizational resources specially the people in order to achieve
predetermined plans and goals, like in dealing with your own personal life you
actually apply management on it and perform the various functions in order to
maximize your time, talents and resources by means of studying and working hard
so that you can reach and attain your various life goals and certainly you are not
just doing it for yourself but also for your loved ones and the people around you
that is why the concept and functions of management plays a big part in every
person success. However, if you fail to perform it properly and apply the various
functions efficiently and effectively you will have a hard time reaching your goals in
life.
FUNCTIONS OF MANAGEMENT

PLANNING

setting of goals
and defining the
tasks to be to be

ORGANIZING

putting together
CONTROLLING FUNCTIONS OF
all the task and
resources

monitoring
and evaluating
performance

LEADING STAFFING
influencing and filing in of

motivating various job

people positions
Planning- it is the primary functions of management that involves the setting of
organizational goals, establishing useful strategies, identifying the tasks to be
performed and when it should be done in order to achieve both the short-term and
long-term goals of the company.

Organizing- it is the act of transforming all the plans into realization and it
involves the assigning and coordination of specific task and resources to the
various groups that will enables them to contribute for the immediate attainment of
the company objectives.

Staffing- involves the manning of various job position in the organization

structure through the process of proper and fair recruitment, selection, appraisal
and development of the personnel that will support the organization’s success in
achieving their goals.

Leading or Directing- deals with providing clear instructions and guiding the
employees regarding the tasks that they are required to do and encourage a
positive attitude towards work that will motivates them to perform well towards the
realization of the company’s aims.

Controlling- is the task wherein setting of standards of performance are made and
comparing it with the actual performance of the individual or groups, to ensure
that the jobs are done in accordance to the plans and if not, necessary corrections
must have to be made.

MANAGEMENT THEORIES

After performing the various functions of management, it is also important to

take into consideration how management have evolved throughout the years and
have changed from simple to more complex and diverse, depending on the needs of
the people and suitability on the organizations nowadays. It is necessary for us to
know and understand how the various theories of management influence and bring
huge impacts on how present management practices are being done also which
among those are no longer use or needs to be improved in order to adapt with the
fast changing times. Here are the following management theories
SCIENTIFIC MANAGEMENT THEORY
❖ introduced by Frederick W. Taylor, who is also known as “The Father
of Scientific Management”
❖ apply scientific approach in doing a task
- It follows a step by step procedure in performing a specialized
task in order to expedite the process that will increase worker’s
productivity and establish the “best way” of doing the task.
❖ introduce the concept of a “Fair Day’s Pay for Fair Day’s Work”
- this means that workers must be paid according to the amount
produced. Taylor wants to encourage improved productivity through
monetary compensation. (piece rate system)
❖ introduce the Principles of Scientific Management
1. “Time and Motion” study- it is a systematic approach
performed in order to determine how jobs are being done and identify
which way will only take a little time and a little motion to finish a task.
This replace the rule of thumb method (Hit or miss approach).
2. Scientifically select and then train, teach and develop the
workers.- workers are being chosen and train based on their abilities and
skills to perform a specialized task that will eventually makes them to
become experts of the job.
3. Heartily cooperate with the workers so as to ensure that all work
is done in accordance with principles of science that has been developed.-
the managers work closely with the workers to supervise their
performance and to ensure increase in productivity by following the
required process.
4. Divide work and responsibility almost equally between the
management and the workers.- this only means that both manager and
the workers shares equal amount of responsibility wherein the managers
handles the planning functions as the workers will be performing the
tasks.

ADMINISTRATIVE MANAGEMENT THEORY

❖ developed by Henri Fayol, who is known as “The Father of Modern

Management”
❖ focus on the efficient implementation of organizational management
practices
- It emphasizes on how managers perform his managerial
functions that will both benefit the organization and the employees
❖ promotes top-down approach.
- This means that the command will come from the top
management downwards to the last level of the organizational structure
❖ develops the 14 principles of management:
1. Division of labor 8. Centralization
2. Authority and Responsibility 9. Scalar Chain of Authority
3. Discipline 10. Maintenance of Order
4. Unity of Command 11. Equity/fairness
5. Unity of Direction 12. Stability/Security of Tenure
6. Subordination of Individual Interest 13. Employee Initiative
to General Interest 14. Promotion of team spirit or
7. Remuneration Esprit de Corps
 BUREAUCRATIC THEORY

❖ introduced by Max Weber

❖ management is defined by clear set of rules
- this theory believes that good performance can be derived when
there are detailed rules that govern all employees how they should
behave and
TOTAL QUALITY be treated.
MANAGEMENT(TQM)
❖ division of labor
- it means that tasks are being divided among employees and the
organization and take accountable for their individual or group
performance.
❖ promotes formal and impersonal relations
- in this way everyone is treated fairly and in accordance with the
defined rules, this will also to avoid favoritism.
❖ develops a clear hierarchical structure of authority
- it means that each level in the hierarchy have authority that
comes with the position and not with the person, for example a
subordinate cannot give orders to the manager even if he/she is the son
of the owner of the company because the position of the subordinates
does not hold such authority.
❖ follows a legal- rational approach
TOTAL QUALITY- this means that managers
MANAGEMENT (TQM) make objective decisions in
accordance with the defined rules and regulations and without bias. For
example: the manager will have to promote an employee, he/she will
perform the process based on the qualifications, expertise and
performance of the personnel and not because of personal reasons.

TOTAL QUALITY MANAGEMENT (TQM)

❖ proposed by quality experts, W. Edwards Deming and
Joseph M. Juran
❖ focus on customer satisfaction both external and internal
- this theory give emphasis on how to meet the needs and
demands of the external customers in terms of providing quality
products and services and at the same time the internal which are the
employees through providing continuous development and rewards
system.
❖ promotes the continuous improvement in the quality of both the
products and
ORGANIZATIONAL services(OB)
BEHAVIOR as well as the people
APPROACH
- this means that constant improvement of the products through
continuous market research are being considered to be able to meet the
increasing demand of the customers and for the employees, by providing
them with various seminars and trainings that will further develop their
skills and abilities as well their performance that will contribute to the
company’s competitive edge in terms of its profitability and
sustainability.
 ORGANIZATIONAL BEHAVIOR (OB) APPROACH

❖ supported by Robert Owen, Mary Parker Follett, Hugo Munsterberg

and Chester Barnard
❖ focus on analyzing and understanding the behavior of people within
their groups and at work
- this is a very important task for the managers to consider in
order to create an organizational culture that encourage continuous
growth and development among their people and influences and shapes
their behaviors in a manner that will contribute in the realization of the
organizational objectives.
❖ recognize the psycho-social aspects of every employees
-this theory also give emphasis on the various needs of every
https://www.pinterest.ph/pin/213428469820803934/
individual and how their behavior affects their way in dealing with other
people so that manager can initiate actions and make crucial decisions
that will help satisfying those needs and enables them to perform well on
their jobs and be more productive to support the company’s goals.
❖ promotes human relations that helps people to learn how to get
along well with others
- if every individual understand each other it will be easy for them
to cooperate and to work harmoniously with one another towards the
attainment of organizational goals. Also if the employee feels the sense of
belongingness and importance within the group as well as with the
organization they worked in, it boosts their morale and they are likely to
become more productive.

What’s More

Fill in the Box. Identify the correct term for each given statement. Fill each box with
the correct letter to find the correct answer.

1. Putting the right people on the right job.

2. Monitoring and Evaluating individual performance

3. Establishing effective strategies to realize the goals

4. Guiding the employees with the activities that they must need to perform

5. Focus on the study and understanding of the employees conduct within the
organization

6. Adapts the time and motion studies in performing a specialized task

7. The process of assigning tasks and resources to various individuals

8. Management follows a detailed rules and regulations

9. It emphasize on meeting the customer satisfactions

10. The act of supervising the performance of all the resources of the organization
through effective execution of the different functions to attain specific goals.

What I Have Learned

CONCEPT IN A BOX. Complete the table with the various concepts that you have
learned from this module.

A. Give the Five Functions of Management and give a brief description for each.

B. Complete the table with the various features of each Management Theories. Select
your answer from the dialog box and write it on the appropriate table

Continuous product improvement

RULES AND REGULATION

TIME AND MOTION STUDY

Organizational Management

human relations
 MANAGEMENT THEORIES FEATURES

1. SCIENTIFIC MANAGEMENT

2. ADMINISTRATIVE MANAGEMENT

3. BUREAUCRATIC

4.TOTAL QUALITY MANAGEMENT

5. ORGANIZATIONAL BEHAVIOR

What I Can Do

Fill out the table by giving concrete answers on the following questions.

How will I apply the Functions What Theories of

of Management… Management I am
(shd.be one line only) going to use…

at home

in school

in the
community
 Assessment

A. Let’s Match This! Draw a line to match the picture on the left to the correct
description on the right.

staffing

leading

controlling

organizing

PLANNING

B. Put a Check (√ ) on the line provided before each number if you Agree with the
statement and an (X) if you Don’t Agree. Consider the things you have learned in this
module as you answer this test.
1.Henri Fayol believes that implementing an efficient and effective
managerial practices will help the organization to achieve its desired goals.
2. Formal and impersonal relations in the Bureaucratic theory encourage
fairness and avoid favoritism.
3. Scientific theory of Management practice and follows the rule of thumb
approach.
4. Coordination of activities and resources are being done in the planningstage.
5. Performing a continuous market research will enable the company to
provide quality and latest products and services that will satisfy their customers never
ending wants and needs.
 Lesson
The Functions, Roles and
2 Skills of a Manager

In our life we need to perform so many functions and roles that we are expected
to portray from time to time. Different roles from a simple to a more complexone from
being a husband or a wife, a daughter or a son, a sister or a brother, a parent, an
employee, a student, and a friend and so many more on the list. Manager is no
exception from portraying and performing various functions in each level of
management and taking different roles as the need arises. Furthermore, in order for
the manager to undertake those various functions and roles he needs to possess the
right skills to be able to successfully execute those responsibilities efficiently and
effectively.

It is quite true that, Manager portrays a very crucial part in the management
process or system of any organization. The life and success of all the organization
really lies on the hands of the manager and how he/she will perform the various

functions and roles, from optimizing all the resources of the company, monitoring
the performance of the employees and motivating them to ensure high level of
productivity, handling of various problems of the company and making crucial
decisions. Those are among the various responsibilities that a manager must
efficiently and effectively carry out in order to achieve the company goals and to
become successful and maintain its sustainability in the industry.

What’s In

Match the picture with the appropriate function for each role. Write the letter of the
correct answer.
 1. 2. 3. 4. 5.

A. B. C. D. E.
Controlling and Setting the goals Examining and Helping the Planning and
extinguishing of the treating the students to learn construction of
the fire organization patient structures

FIGURE IT OUT!
 Manager is the person who is
Blocking the Barriers responsible for the over-all operation of the
organization as well as the people and all the
Roles-is a socially expected behavior resources within his/her control to ensure
pattern usually determined by an that every element is working together
individual’s status in a particular towards its goals and objectives. In doing so,
society; a character assigned or
manager has to perform multiple roles and
assumed
functions according to the level of
management and must need to possess the
Function- is the job or duty of a person
required skills to successfully carry out all
those responsibilities.
Skills- is a developed aptitude or ability;
a learned power of doing something MANAGERIAL LEVELS
competently
Each organization depending on their size
or structure resulted to dividing the management into various levels and this is very
necessary to ensure that the manager will be able to closely supervise their
subordinates and must see to it that their performance is aligned with the company’s
goals and objectives. Organization is usually divided into three levels of management
in order to show the separation of the various managerial positions within the
company. The various level of management clearly provides the administrative ranks
of the organization workers that determines the chain of command, the scope of
authority and the status enjoyed by the managerial position. The three functions of
the levels of management are:

TOP-LEVEL MANAGEMENT

TOP- LEVEL MANAGERS

(Corporate Managers)

-set goals; handle external

affairs; make strategic plans and
crucial decisions MIDDLE-LEVEL MANAGEMENT
-
MIDDLE- LEVEL MANAGERS

(Tactical Managers)

-formulate and carry out activities;

report to the top manager;
LOWER-LEVEL MANAGEMENT
supervise and leadsthe lower level

FRONTLINE OR LOWER- LEVEL MANAGERS

(Operational Managers)

-responsible for the day-to-day operations; reports to

middle- level manager; serve as abridge between
TOP-LEVEL MANAGERS- also known as the general or strategic manager and is accountable to the
shareholders for operating the business. It is usually composedof the Board of Directors, President;
Vice-President, Chief Executive Officer (CEO);Chief Operating Officer (COO), Chief Financial Officer
(CFO) and Chief Marketing Officer (CMO) who have authority over the organization’s other human
resources. Their functions are as follows:

▪ formulate policies and lay down the general and long- term goals of the organization
which focus on its sustainability, development and over-allefficiency and
effectiveness.
▪ devise sound strategies that will support the realization of the set goals and aligning
competent managers to successfully carry them out.
▪ appoints executives for middle-level management
▪ controls and coordinates all the activities of the organization
▪ handles inter-relationship with the external environment
▪ provides guidance and direction to the whole organization

MIDDLE-LEVEL MANAGERS- are also known as the tactical manager and is accountable to the
top-level managers for the activities of their departments. They are made up of General Manager,
Regional Manager, Branch Manager, District Manager and Plant Manager. They are more aware of
the company’s problem compared to the top-level managers because they have close contacts
with the frontline managers, customers and other subordinates. Aside from the above mentioned,
their functions

are as follows:

▪ serves as communicators between top and lower levels as they transferinformation,

reports and various data of the company to the top-level managers.
▪ in charge with the employment and trainings of the lower levels
▪ interpret and carry out the plans of the organization in accordance with thepolicies and
directions of the top-level management.
▪ supervise and monitors the performance of the lower-level managers
▪ develops creativity to provide sound ideas about operational and problemsolving skills
to their subordinates.
▪ Motivation of frontline managers

FRONTLINE OR LOWER-LEVEL MANAGERS- also known as the operationalmanagers and

composed of Supervisors, Foreman, Store or Office Managers and Team Leaders. Their
functions include:

▪ assigning of task and jobs to other subordinates

▪ supervise the day to day activities of the organization
▪ directly responsible for the quality and quantity of worker’s production
▪ serves as a bridge between management and non-management employee
▪ maintain discipline in the organization
▪ supervise, guides and motivates subordinates
▪ make necessary decisions on their levels
MANAGERIAL ROLES

According to Henry Mintzberg, a professor at McGill University and who

conducted a research on what real managers do, He classified the managerial roles
in three categories: interpersonal, informational and decisional or decision making.

INTERPERSONAL- this pertains to the role that hassomething to

do with building a good relationship with others and related to
human skills. Some of the interpersonal roles of a manager are:

A. Figure head- he stand as a source of inspiration and a symbol of

legal authority to his employees and performs social,ceremonial duties like
signing of documents and receiving visitors.
B. Leader- he hires, trains and motivates his personnel and he also
communicates performance goals and evaluates theperformance of the
employees.
C. Liaison- the manager interacts and communicates with internal
and external members of the organization and this networking activity is
critical in realizing the organizational goalsespecially concerning with the
customers.

INFORMATIONAL- this role involves generating and sharing of

important information to successfully attain the company’s
objectives. Some of the informational rolesare as follows:

A. Monitor- he takes the role as the receiver and collector of

useful information that can be obtained through meetings, conversations
and documentations to keep abreastof the current and industry
standards as well as the changesoccurring in both internal and external
business environments.
B. Disseminator- takes and distributes information tothe
appropriate individuals or subordinates regularly.
C. Spokesperson- transmits information about the
organization to outside parties or individuals.
 DECISIONAL or DECISION-MAKING- this role

entails processing and using of information to makedecisions

in order for the managers to get things done. Some of the
decisional roles are the following:

A. Entrepreneur- the one who design and initiate change within the
organization and usually involves improvement that willcontribute in the
achievement of future goals.
B. Mediator- handles and resolves conflicts among employees,difficult
problems and non- routine situations like strikes.
C. Resource Allocator- the manager decides on how to allocate or
distribute the resources and with whom to work closely toattain desired outcomes.
D. Negotiator- this role is where the manager represents a team or
departments when negotiating an issue with the suppliers, individual employees,
unions, customers, the government and outsideparties. Managers usually negotiates
on budgeting and purchases.

MANAGERIAL SKILLS

Diagram 1.0 (Required Managerial Skills for Each Managerial Level)

 CONCEPTUAL HUMAN SKILLS TECHNICAL
SKILLS SKILLS

Most common with Top- Common with all levels of Most common with
level managers managers Frontline or Lower-level
managers

Ability of the managers to Enable managers in all Is the knowledge and

think of possible levels to relate well with proficiency in activities
solutions to complex people that involves methods,
problems processes and
procedures

Through the ability to see Communicating, leading, Lower-level managers

“the big picture”, allows inspiring and motivating find these skills very
to recognize significant will be easy with the help important because they
elements in the situation of human skills are the ones who manage
and to understand its especially in dealing with the non-management
relationships among the people both in the workers who usually use
elements internal and external varied techniques and
environment of the tools to be able to
organization produced good quality
products and services

What’s More

Identify the term that is being describe by each given statement by arranging
the jumbled letters.

1. The manager who take the role of resolving conflicts among employees and
handles difficult problems and non- routine situations.

T A D O M I R E
2. This manager is also known as tactical manager and supervise the work of the
frontline managers.

D I L E D M E L V L E

3. It is the role of a manager that has something to do with building a good

relationship with others.

P N T O R A L E N S I E R

4. The skills that are common to all managers and allows them to deal with
different people.

M H A N U

5. It is a socially expected behavior pattern usually determined by an individual’s

status in a society.

S R E O L

6. The manager who carry the roles of communicating information to outside

parties.

O S S E K P P E O R N S

7. The manager who handles the organization’s inter-relationship with the external
environment.

P T O L L E V E

8. This role requires the processing and using of information in order to make
decisions.

L D I C E S A O I N

9. This role allows the manager to stand a symbol of legal authority among his
employees.

E R F U I G D A H E

10. The manager who is responsible for the quality and quantity of output of the
workers.

E R W L O L V E E L
 What I Have Learned

A. Illustrate the level of management and briefly explain its functions.

AGREE! or
B. Write AGREE, if the statement is correct and
DISAGREE DISAGREE, if the statement is incorrect.

1. Maintaining an inter-relationship with an external environment is

performed by the middle-level managers.

2. Informational roles pertain to creating a good relationship with

other people.

3. Liaison roles is responsible for the hiring, training and motivating

of his employees.

4. As a monitor, the manager receives and collects useful information

to help the company to be updated with the current trends and changes in the
business environment.

5. The frontline managers are the one who layout the long-term
organizational goals.

6. Technical skills are mostly used by the lower-level managers.

7. Negotiator is the one who handles and resolves conflicts among

employees.

8. The top- level managers are composed of Regional manager,

Branch manager and Plant manager.
 9. Informational roles pertain to generating and sharing important
information to achieve the company’s goals.

10. The middle manager serves as a bridge between the top-level

managers and frontline managers.
Complete the Table. Give a specific role that you have portrayed in your life
and Identify the various functions that you have performed for each roles and
the skills that you have used to successfully carry it out.

ROLES FUNCTIONS SKILLS

at home

in school

in the
community
 Assessment

A. Memory Game! Match the various level of manager to the functions given
on each box. Write only the letter of the correct answer.
A. B. C.

TOP-LEVEL MIDDLE-LEVEL LOWER-LEVEL

MANAGER
MANAGER MANAGER

1. Interpret and carry out theplans 4. Directly responsible for the

of the organization according to quality and quantity ofoutput of
the direction of the upper the workers.
management.

Controls and coordinatesall Serves as a bridge between

the activities of the management and non-
2. 5.
organization. management employees

Formulate sound strategies that

will supportthe attainment of
goals and assign competent
3. managers to carry it out.

B. Classify each given scenario whether it is under Conceptual Skills (CS);

Human Skills (HS) and Technical Skills (TS). Write only the abbreviation.

1. Motivating your subordinates to accomplish the task.

2. Visualize the inter-relationship of various concepts and ideas.

3. Handling and resolving conflicts among employees.

4. Using of office software such as Microsoft Office, Adobe and Google

docs in preparing reports.

5. Defining a problem and develop effective solutions.

C. Choose the correct answer from the box to complete each analogy.

1. Decisional roles: decision making; Informational roles: _

2. Figure head: ceremonial duties; Leader:

3. Spokesperson: transmit information; Disseminator:

4. Resource allocator: distribute resources; Entrepreneur:

5. Decisional: negotiator; Interpersonal:

Generating useful information Hires and trains personnel

Distribute information to appropriate parties Design and initiate change

Liaison Mediator

Resolves conflicts Negotiator

A. Which among the functions, roles and skills of a manager, you consider the

most important? Explain your answer.

 Various Forces/Elements
Lesson Influencing Local and
3 International Business
Environment Using
PEST/SWOT Strategies
In today’s dynamic business environment,
where most companies are operating, it is very
Blocking the Barriers crucial for a manager to understand and to cope
with the various conditions and changes in the
Inflation-is a period when business environment of the firms or the company.
the general price level of Managers must take into consideration the
the products and services
different aspects of the business environment and
in an economy increases.
that is both the internal and external before
planning anything. It is a must for the manager to
Interest rates- is the
percentage of the become cautious in dealing with varying
principal charged for the environmental forces because it might bring
use of money by the possible threats or can potentially affects the
lender
business operation of the company. Moreover,
being aware and knowledgeable about these forces
Exchange rates- is the
will enable the manager to respond strategically to
price of the nation’s
currency in comparison to achieve positive results and to ensure the
foreign currency. This is company’s favorable position in the future.
used as a basis for
The ability of the business firm to
changing one currency
into another. deal with these various environmental forces will
allow the organization to determine its Strengths,
Weaknesses and analyze the possible
Economic growth- an
increase in the amount Opportunities that they can take advantage on as
and value of goods and well as the Threats that can affect their operation.
services produced by an
economy for a certain
In addition, the firm can also identify the various
external forces that it needs to deal with in order to
mitigate the impacts that these Political,Economic,
Social and Technological factors may
impose to the company. Using of SWOT and PEST analysis will help and guide the
managers to effectively and efficiently handles various factors and elements and
will enable them to formulate strategies that will be useful in overcoming the
impacts that these forces might cause on the business at present as well as in the
near future.

What’s In

The success of every business lies in the hands of a manager and after
learning their functions, roles and skills that is needed for the manager to perform
and to possess, it is also important for the manager to take into consideration the
environment where he is working and must be aware of what is happening in the
environment where the business is operating. It is needless to say that manager
must be knowledgeable about the various forces or elements within and outside the
business environment in order to ensure the success of the business operation.

Complete the table by providing a lists of internal or external factors that can
affect the business operation.

INTERNAL EXTERNAL
ENVIRONMENT ENVIRONMENT
 Notes to the Teacher
The business environment of the firm is a reflection of not just how business are
conducted but on how business resiliently adapts withthe change that is brought

What’s New

GUESS THE PIC!

Identify the following photos whether it is INTERNAL or EXTERNAL business

environment.

1.
EMPLOYEES

2.
3.

SUPPLIER

MANAGER
4.

5.

What is It

THE FIRM AND ITS ENVIRONMENT

The environment of the firm or business is a significant factor that a

manager must take into consideration in the performance of his functions. The
Business environment pertains to the conditions and factors that affects the

business operations and defines its success. It is divided into two types, these are
the internal and external business environment.
 EXTERNAL
ENVIRONMENT

THE FIRM

MICROENVIRONMEN MICROENVIRONMEN
INTERNAL

▪ ENVIRONMENT
Customers ▪ General
▪ Suppliers environment
Competitors Physical
▪ resources of the firm
Regulatory
Managers
agencies

Figure 1.0. The Firm’s Environment

INTERNAL BUSINESS ENVIRONMENT

- It consists of factors or elements within the organization that have a direct

impact, either positively or negatively, on the business operations. The element in
this business environment can directly controlled and easily adjusted by the firm.
For example, employees, managers, organizational culture and machineries

EXTERNAL BUSINESS ENVIRONMENT

- It consists of factors or elements outside the organization that have indirect

but significant influence, either positively or negatively, on its operation. The firms
have no control over these factors. There are two types of external business
environment:
1. Microenvironment- is also refers to the operating environment. It consists of
customers, suppliers, competitors and regulatory agencies. These factors have a direct
significance to the business operation but uncontrollable to a certain extent.

Customers- this factor has the most significant impact on the

business because a business cannot operate for a profitwithout attracting
customers that will support and patronize the business products and services
and knowing the target market will enable the business to formulate sound
marketing strategies that will help them in developing their customer base
and in generating profits in the long run.

Suppliers- can influence the business in terms of the availability of

the raw materials to be used in the business andthis factor could affect the
business depending whether the supplier is the largest one or the only
sources of the business inputs and these conditions could influence as the
determiningfactors of price increase or decrease.

Competitors- this can affect the business in terms of itsnumber, the

more competitors a business have the more it canbring huge impacts on the
business operation especially in terms of shared customers.

Regulatory agencies- could influence the business in terms of the

restrictions that these agencies may impose on the business that is why it is
very important for the managers to be informed with these factors in order to
align their strategies, decisions and actions. Like for example, pressure from
the Food and Drugs Administration (FDA) on some department stores that
cause them to stop selling toys containing lead and to stop ordering those
products from the suppliers.
2. Macroenvironment- is also known as the general environment, it includes
the economic, political, social and technological environment of the business firm
and the factors in this environment are beyond the control of the firm.

Political factors- include laws, it may be national, local or even

international, rules and regulations and restrictions that may affect or
interfere with the firm’s business operations. Some political factors
include labor laws, tax policies, environmental laws, tariffs and trade
restrictions. For example, in terms of labor laws, employer cannot fire
employees without due process also in following the Minimum Wage Law
in determining the wages of the employees. It is very important for the
businesses to comply with the rules and regulations imposed by the
government and managers must need to make decisions accordingly.

Economic factors- this factor can directly affect the ability of the
business to earn profit as well as the management practices in the
organizations. This includes inflation, interest rates, exchange rates,
people’s spending habits and economic growth. It can affect the business
for example if the interest rate for a bank loan is high, companies may
suspend its plan for expansion.

Social factors- include demographic aspects such as age, civil

status, group affiliation, religion, customs, economic status of consumers
and the customer’s changing values and preferences could also affect the
management practices and decisions. For example, people nowadays are
always on the go that is why many companies sells instant foods in order
to meet the changing demand of the customers. This factor is very
important for the firm to know for it can be used as a basis in producing
goods and service according to their target market and will enable the
company to make necessary adjustments and improvement on the
products they will offer.

Technological factors- involves the use of varied types of

electronic gadgets and advanced technology such as computer and
robotics, automation, research and development activities, licensing,
patenting, technological shifts and outsourcing decisions. This factor has
rapidly changed the way business is conducted nowadays. For example,
the use of Internet at present is an important factor which has greatly
improved the way business activities are done especially with the use of
social media that serves as a medium for advertising and marketing of
products and services.
 In order for the business to become successful, it should have a better

understanding of the changes in the external environment in order to benefit from

the various opportunities that these changes may bring. Many companies gather

information about the external environment through conducting environmental

scanning and strategic analysis such as the SWOT (Strengths, Weaknesses,

Opportunities and Threats) and PEST (Political, Economic, Social and Technological).

Environmental Scanning- is the constant monitoring and evaluation of information from the
external and internal environment of a business firm. The information acquired is given to
the key people to guide the company inits business decisions and operations also in
conducting a search for a newtarget market. There are three modes of environmental
scanning:

1. Ad hoc environmental scanning- is not often done andis usually

applicable only during a crisis situation. This is being done in order to
determine whether the problem is external or internal.

2. Regular environmental scanning- is usually done at

least once a year or at a regular interval.

3. Continuous environmental scanning- refers to thecontinuous

collection of data on a broad range of environmental factors.
 COMPONENTS OF ENVIRONMENTAL SCANNING

Business Forecasting- is a method of predicting how variablesin the

environment will alter the future of business. It could be used in making business

decisions like branching out, expanding or downsizing the company. This prediction

may not always be assured.

Benchmarking- it is the process of measuring or comparing one’s own

products, services and practices with those of the recognizedindustry leaders in order

to identify areas for improvement.

In order to adequately deal with the forces and element of external

environment, managers employ certain techniques in generating and analyzing data

that can be used in conducting strategic planning. The use of strategic planning

techniques such as SWOT and PEST analysis take into account the elements of both

the firm’s internal and external environment in developing business plans and

decisions. SWOT anlysis is used primarily to analyze the microenvironment, while

the PEST is performed to address the macroenvironment.

SWOT ANALYSIS

is a technique that identifies the Strengths and Weaknesses of a company, as

well as the Opportunities and Threats it faces. In conducting this analysis, it is

necessary to say that strenghts and weaknesses are part of the firm’s internal

environment while opportunities and threats are part of its external environment.
 STRENGTHS
(What does your company do better
that others?)
- pertains to the company’s
characteristics that gives a
competitive advantage over other
companies.
Examples of Strengths:
1. Good credit standing
2. Competent and highly skilled staff
3. Excellent distribution channels
4. Outstanding communication and
network systems
5. Good numbers of patents
OPPORTUNITIES
(What trends/conditions can
positively impact your company?)
- are factors or events that can
give a positive impact to the company
if properly addressed.
Examples of Opportunities:
1. New Markets
2. Potential profits
3. Additional sources of raw materials
4. Increased purchasing of consumers
5. Better location
6. New users or customers
WEAKNESSES
(What aspect s of your company need
to be improved?)
- are the characteristics of a
company that needs to be improved or
changed.
Examples of Weaknesses:
1. Lack of access to technology
2. Limited distribution channels
3. Poor location
4. Lack of facilities and equipment
5. Poor transportation system
THREATS
(What trends/conditions can
negatively impact your company?)
- are external factors which
may negatively impact the company.
Examples of Threats:
1. Increase in the price of resources
2. Entry of new competitors
3. High inflation rates
PEST ANALYSIS
is a method used in analyzing the Political, Economic, Social and
Technological factors affecting the company. This technique focuses on the factors
tha define the macroenvironment of the business.

POLITICAL FACTORS ECONOMIC FACTORS

➢ Government laws (National, ➢ Inflation

Local and International) ➢ Interest rates
➢ Labor law ➢ Exchange rates
➢ Minimum wage law ➢ People’s spending habits
➢ Environmental law ➢ Economic growth
➢ Government stability
➢ Rules and regulations
➢ Trade Restrictions
➢ Tariffs
➢ Tax policies

SOCIAL FACTORS TECHNOLOGICAL FACTORS

➢ Demographic aspects such as ➢ Research and Development

age, gender, civil status, activities
educational background, ➢ Use of electronic gadgets and
income advanced technology like
➢ Group affiliation computers and robotics
➢ Religion ➢ Automation
➢ Customs ➢ Technological shifts
➢ Economic status of consumers ➢ Licensing
➢ Customer’s changing values
and preferences

The use of both techniques could help the manager in analyzing various
business situations, in conducting a SWOT analysis it provides an easy and versatile
tools that can be applied in different levels of the company. It is more effective if
managers will be more objective in analyzing clear and accurate data. This also help
managers to understand the business better specifically on how the firm’s internal
environment aligns with its external environment. In addition to that, it helps the
firm’s to realize its advantage within the industry . However, this technique is not
applicable in dealing with more complicated factors that cannot be assigned to a
single category. For instance factors that can be both a strength and weakness of the
company. On the other hand, the use of PEST technique can guide the managers to
recognize the reasons why their business is succesful or not within a certain
environment. It also helps the company discover new paths for growth and
expansion. However, the limitation of this technique is that it does not take into
consideration the internal elements of the firm.

What’s More

A. Put a check (√) if the following given elements is under Strengths,

Weaknesses, Opportunities and Threats.

STRENGTHS WEAKNESSES OPPORTUNITIES THREATS

1. New market

2. Poor
location

3. High
inflation rates

4. Good credit
standing

5. New users
or customers

B. Put a check (√) if the following given elements is under Political, Economic.
Social and Technological factors.

POLITICAL ECONOMIC SOCIAL TECHNOLOGICAL

1. Interest
rates

2. Labor law

3. Research
and
Development

4. Custom

5. Inflation
 What I Have Learned

A. Complete each analogy by choosing your answer from the box.

A. External business environment E. Once a year

B. Economic growth F. Entry of New Competitors

C. Operating environment G. Lack of access to technology

D. Continuous H. PEST

1. Microenvironment: ; Macroenvironment: general environment

2. Ad hoc scanning: during crisis; Regular scanning:

3. Opportunities: Better location; Threats:

4. Macroenvironment: ; Microenvironment: SWOT

5. Internal business environment; direct impact; ; indirect impact

B. Modified True or False. Write True, if the statement is correct and if it is

incorrect replace the underline word(s) or phrase with the word(s) or phrase
that will make the statement correct.

1. Benchmarking is the constant monitoring and analyzing of the information from

the internal and external environment of the firm.

2. Threats are characteristics of a company that needs to be improved or changed.

3. Suppliers can affect the business operation in terms of availability of raw materials
and can be a determining factors of price increase and decrease.

4. The external business environment have a direct impact, either positively or

negatively, on the business operation and the elements in this environment can be
directly controlled or easily adjusted by the firm itself.

5. Inflation is a period when the general price level of the products and services
increases.
 Assessment

A. Identify the terms describe in each given statement. Choose your answer
from the box. Write only the letter of the correct answer.

A. Macroenvironment E. Ad hoc scanning I. Opportunities

B. Regular scanning F. SWOT analysis J. Microenvironment

C. Business forecasting G. Benchmarking

D. PEST analysis H. Strengths

1. The technique used to analyze the macroenvironment of the firm.

2. This environmental scanning is conducted only during a crisis situation
3. It also refers to general environment which includes the economic, political,
social and technological factors which are beyond the control of the firm.
4. These are the factors or events that can give a positive impact to the company
if properly addressed.
5. The process of measuring and comparing one’s own products, services and
practices with those of the recognized industry leaders in order to identify areas for
improvement.

B. Classify the following conditions according to the types of business

environments and Identify each conditions using the SWOT and PEST analysis.

Environment SWOT ANALYSIS PEST ANALYSIS

(INTERNAL or (STRENGTHS, (POLITICAL,
CONDITIONS EXTERNAL) WEAKNESSES, ECONOMIC,
OPPORTUNITIES SOCIAL AND
AND THREATS) TECHNOLOGICAL)
1. Automation in the
production process
2. Increase in the
exchange rates of
dollars
3. Shifts on organic
products
4. Customers preference
on savings over
spending
5. Company compliance
to labor laws
 C. Match the terms with the correct description in each box. Write the
letterof the correct answer on the space provided.

1. Threats

2. Environmental scanning

3. Social factors

4. Business forecasting

5. SWOT analysis

A. B.
The technique used to A method of predicting
analyze the how variables in the
microenvironment of the environment will alter
business the future of business

C. D.

The constant monitoring

The characteristics of the
and evaluation of the
company that needs to be
information from
improved and changed
internal and external
environment of the

E. F.
It consists of
These are external factors
demographical aspects
which may negatively
such as age, gender,
impact the company
civil status and religion