Republic of the Philippines

UNIVERSITY OF NORTHERN PHILIPPINES

Tamag, Vigan City

COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

INSTRUCTIONAL MATERIAL
in
Mgt. 101a
(Principles of Organization
and Management)
 ABOUT THE INSTRUCTIONAL MATERIAL

This instructional material includes the nature and scope of organization and
management. It presents the overview, definitions of organization and management.

In order for you to go effectively and efficiently with the module, these are some of the things you
should remember:

ICONS

LESSONS. This icon reminds you the lesson proper. The needed information
you need to know.

LEARNING OUTCOMES. This icon represents the learning outcomes of the

instructional materials on what is expected from it.

REMEMBER. This Is an icon that signifies an information that you should bear
in mind because this is a very important theory or knowledge.

REFLECTION ACTIVITY. This is an icon that you will find in the instructional
material that you need to answer. It requires you to reflect on the concepts and
theories presented in the instructional material.

POST – TEST. This icon pertains to the post – test. You need to answer this
and submit to your instructor to measure the knowledge you gained in the
instructional material.
 LESSON 1. BUSINESS IN GENERAL

Learning Outcomes:

At the end of the chapter, you should be able to:

✓ Define, explain and understand business and development of business

✓ Discuss the elements of business system as well as the relationship
between business and economy

INTRODUCTION

Ideally whenever a business is planned to be put up, the owner or prospective

managers must first make the policy decision necessary to established it (the business). The
forms of ownership must be decided. All necessary factors must be taken into consideration
before you can start your own business.

BUSINESS

It has been defined as an organization of people with varied skills, which uses property
or talents to produce goods and services, which can be sold to others for more than their cost.

Business is any activity involve in the production and distribution of goods and services
aimed to meet the economic needs of consumers with an objective of eventually earning profit.

Profit – is the main objective of business which distinguishes it from charitable

institutions and government agencies.

KINDS OF BUSINESS

This classification is based in the nature of the principal activity performed by the
business enterprise. Business activity may be divided in three kinds:

a. Industry business – involves the conversion of raw materials into finished products or goods.
It involves application of labor in the processing of raw materials to become finished products so
that greater usefulness becomes possible.

It is primarily concerned with the creation of form utility or production of goods that are either
“Consumer Goods” or “Production Goods”

Consumer Goods – goods for final consumption for the satisfaction of wants.
Producers Goods – goods like textiles, raw materials, machines, lumber use by producers for
further processing.
 FACTORS OF PRODUCTION – ELEMENTS OF A BUSINESS SYSTEM

Land
(Materials)

Capital Labor
(Money) BUSINESS ENTERPRISE
(Manpower)

Entrepreneur
(Management Skills/ Entrepreneurial Ability

Figure 1. Elements of a Business System

Industry is further sub – divided into:

a. Extractive Industries – include farming, fishing, mining, etc. They are characterized
by the extraction of goods from natural resources.

b. Manufacturing industries – use materials and supplies turned out by the extractive
industries change these raw materials into various articles of materials for further
production of goods and new products.

Owners Workers

Business
Associations Customers
Labor Union Supplier

Community Government
Figure 2. A business enterprise in relation to other members in
the system
b. Commerce Business – it is the process of buying and selling where the goods are
moved from the point of production to the point of consumption. It involves the
distribution of form utilities.

c. Services Business – is primarily concerned with services rendered for the satisfaction
of the needs and wants of the consumers these are sub – divided into:

a. Public and community service

b. Professional or trade service

Broadly speaking, services may be also sub – divided into:

1. Recreation Services – which includes TV stations, movie productions and

theaters.
2. Personal Services – which includes hotels, restaurants, schools, beauty parlors.

BUSINESS LIFE CYCLE

The business life cycle goes through the phases of recovery, inflation, recession
and depression.

Stages:

1. Product development
2. Testing and introduction
3. Rapid growth of demand
4. Steady – state demand
5. Phase out

RELATIONSHIP BETWEEN BUSINESS AND THE ENVIRONMENT

Environment – anything that surround us. It may either be:

a. Internal environment – they are the so called “controllables” within the control of
the company, deals with the anatomy of the business or entire body system of the
company or business.

b. External environment – they are the so called “uncontrollable” outside the

company, the society, the outside forces. It includes the economy, customers
culture and practices, suppliers and the politicians as seen in Figure 2 and 3.

Economics – come from the word “oikonomia” started as “home economics” which
means management of the house hold.
 The business firm produces goods and services form the factors of production,
consumers in turn, buy these goods and services. Business firms thus contribute to the
country’s economic growth.

Gross National Product (GNP) – defined as the total market value of goods and services
produced by a country in any given period.

Produces goods and services

Economy Business

Provides for the factors of productions

Figure 3. Relationship between business and the economy

a. Political Environment

Politics is a competition for influences and position. It is also a means by

which society faces up to issues and decides how to resolve them. It is a quest for human
betterment by public means. In short, it is the purposeful activity by which man seek to
live a better life.

Political setting is a control of administrative life or all government officials

such as there is a great influence of politics and politicians in all government business
operation for the purpose may be of using society’s larger interest.

All administrator, policy making body within the government are political they
are concerned in policy formulation, they administer policy that really affect the company
or business.

Government policies that affect business:

a. Monetary policies
b. Licensing/ business permits
c. Economic policies (globalization
b. Socio Cultural Environment

Society – represents the whole social organization includes the totality of

social organization – the peer groups interacting to another in many ways.

Culture – are human crated beliefs, customs, practices acquired by men as a

member of the society.

The successful entrepreneur attains a position of prestige in the community

because of his many contributions to society especially in terms of general jobs to many
people and providing needed goods and services.

c. International Business Environment

An important factor in the management of any organization is the increasing

internationalization of business activities. International business activities range from
exporting goods to other nations to establishing manufacturing operations in other
nations. These activities present new challenges to managers.

The trading of goods and services across national boundaries result from the
principle of competitive advantage. Factors determining a country’s competitive
advantage include the presence of natural resources, adequate quality and quantity of
labor and capital, available technology and the cost of these resources.

Exporting and Importing

An organization may become involved in international business activities by

exporting, importing or manufacturing in a foreign country.

Exporting – refers to the selling of an organization’s goods in other country.

Importing – is the purchasing of goods and services form a foreign country.

Reasons for Exporting:

1. If production process requires high volume to reduce cost per unit, the home market
may be too small to absorb the output, thus the output may be sold overseas.

2. The demand for the firm’s product may be seasonal and irregular. By expanding the
firm’s market to other countries, production costs may be lowered by more effective
production scheduling.

3. All products undergo what is called the product life cycle when the products are first
introduced, there is usually a big demand and the introducing firm is the only supplier. As
the product reaches maturity, this competitive edged is reduced and can be maintained
only by creating new market, where it re – enters the growth stage.
4. In selling goods and services, the organization may face competition as stiff as it does
in the Philippines, this its marketing cost may be reduced. By established goods in new
overseas markets, the organization is also able to increase its profits without asking new
product development.

POSITIVE VALUES OF A FILIPINO ENTREPRENEURS

a. Pakikipagkapwa Tao – there are many ways in making cultural values favorable to
entrepreneurship. For example, value of pakikipagkapwa tao (human relations) which
covers concern for “hiya” (loss of face), “pakikisama” (togetherness), “pakikibagay”
(adjusting and adopting to other people), “malasakit” (concern), “utang na loob” (debt of
gratitude), “amor propio” (self – esteem) and “bayanihan” (cooperative spirit). These
values are favorable to entrepreneurship because it is against any form of exploitation of
another.

b. Bahala na – by nature Filipinos are “malakas and loob” (strong hearted and not timid).
The fact is that many pursue plans and projects even if it is not sure of future
developments or events that may affect accomplishments.

c. Pakikipagsapalaran – the saying “ang taong talagang duwag, tumatakbo’t walang

sugat”, shows that as a people do not consider it honorable to surrender before
uncertainty or challenge. It is very quick to adjust new and strange situations. It is not
surprising why there is plenty of mobility among of countrymen and it is not unusual to
find interprovince migration as precipitated by the love for “pakikipagsapalaran”
(adventure”, that is risk taking.

WHY DO PEOPLE ENGAGE IN BUSINESS

People engage in business because of the following reasons:

a. Power – some are engaged in business or enters into a business because they expect
to rise up in their position.

b. Profit – businessman engage in business not only for social standing but their desire
for profit.

c. Service to the community – some businessmen are not doing through just because
of profits but as a part of their public service.

d. Personal satisfaction – business does not only mean to provide livelihood, source of
income or “daily bread” but its they “way of life” search for own self – fulfillment.

e. Livelihoods – engaged in business to earn a living.

f. Social Approval – business has a social standing in the community. Before they look
upon businessmen, and pay greater attention of lawyers, doctors, priest but at this point
in time they enjoy in the society equal to or even higher than any other calling.

g. Protection – sometimes inherit a business and pursue the business.

The factors identified above are the motivational factors. These factors can be
clearly explained and directly linked with needs theory.

FACTORS TO BE CONSIDERED IN CHOOSING A BUSINESS:

1. Available funds – availability of funds definitely limits the type of enterprise that may
be formed by an individual, partnership or corporation.

2. Special aptitude and interest – one must consider personal attitudes and interest.
Training, education and experience – one must have adequate training, educational
background and experience. Of course, a common laymen cannot produce spare part or
goods.

3. Social statues of the business – social standing of the business affects the individual.
Integrity of the store, “the select” establishment in a given community.

4. Competitive situation – rivalry among business establishment.

5. Demand and supply – are another factor that must be evaluated before a final
decision is made to enter a given business.

Demand – is the desire for a particular products or goods.

Supply – is the quality f goods that the seller us willing to sell at a particular time and
price, how much will be offered for sale.

LEGAL FORMS OF BUSINESS OWNERSHIP

The organizational form which a business enterprise assumes is determined

by the owner or the enterprise in accordance with its objectives and the resources
available. One of the questions which anyone starting a business is: “Which is the best
form of ownership for me to use?”.

The legal forms of ownership are as follows:

a. Sole proprietorship – a form of business organization organized and managed by only

one person. It is possible that the capital in this form of business comes from the
collective contribution of members of the family or among friends, however, for the
business to be considered a sole proprietorship it should be registered in the name of
only one person.

The simplest form of ownership and the most prevalent particularly in small
enterprise. This form is well suited to professional and service enterprises such as dental
clinics, architectural officers, repair shops, landscape gardeners, etc.

b. Partnership – it is stated in the Civil Code Article 1767 that “by the contract or
partnership two or more persons bind themselves to contribute money, property, or
industry to a common funds, with the intention of dividing the profit among themselves”.

A partnership acquires juridical personality upon agreement of the partners;

such as agreement is required to be in writing, if the capital of the partnership is P8, 000
or more and must be recorded in the Securities and Exchange Commission (SEC).

Partnership may be classified:

a. As to object

a.1. Universal partnership – one where the partners contribute all their property into a
common fund, with the intention of dividing it, as well as its profits.

a.2. Particular partnership – may be establish over a determinate thing, it uses or fruits
for the accomplishments of a specific undertaking, or the exercise of a profession.

b. As to liability

b.1. General partnership – most common form of partnership and the oldest form of
business ownership. It is a contractual relationship that may be entered into by any
person, who possess the right to contract in his own right and partners are liable pro –
rata.

b.2. Limited partnership – partners are liable only for the amount of their investment in
the partnership. They take no part in the active management. A limited partner may
contribute ash but not service.

Kinds of partners:

1. General partners – one who liability to third person extend to his personal property,
may either be a capitalist or industrial partner.
2. Limited partners – one whose liability to the third person is limited only to his capital
contribution.
3. Capitalist partners – one who contributes money, property to the common fund.
4. Industrial partners – one who contributes services, talents, skills, abilities but not
property.
5. Managing partners – one who manage the affairs of the business, may be appointed
in the Article of Incorporation.
6. Liquidating partners – one who take charge of the winding up of the partnership upon
dissolution.
7. Ostensible – one who take active part and known to the public as a partner.
8. Secret partners – one who take active part in the business but its not held out as a
partner, it could also call “sleeping partner”.
9. Silent partners – one who does not take active part and not known or held out as a
partner.
10. Dormant partners – one who does not take active part and not known or held out as
a partner.
11. Nominal partner – a partner who exist only in name, one who is no partner at all they
are only using his name for business or prestige.
12. Junior/ incoming – a person lately or about to be taken.
13. Retiring/ senior – one who withdraw from the partnership.

c. Corporation – is an artificial being, created by law, having the right of succession and
powers, attributes and properties, expressly authorized by law or incident to its existence.
It has a personality separate and apart from individual members/ stockholders who as
natural persons are merged in the corporate body.

It is a form of business organization and that it is an “association of individual

organized under a “charter” granted by the state”.

Charter – is the corporation law of the Philippines. The charter entitles the business to
exercise its power or privileges as a corporation.

d. Cooperatives – is a voluntary business organization formed by its member for

purposes of collectively carrying on a business activity for the direct benefit of the
members.

It is a non – profit enterprise, owned and democratically control on a mutual basis

by members who participate in the savings generated by the cooperative proportion to
the patronage given by the individual member to the association.
 Such organizations are based on the four cooperative principles:

a. Open and democratic membership

b. Democratic control (one member, one vote)
c. Limited interest on capital
d. Patronage refund (distribution of savings to member in proportion to their
participation in the business of the cooperative)

Kinds of Cooperatives:

a. Consumer cooperative
b. Marketing cooperative
c. Producers’ cooperative
d. Financial/ credit cooperative