Senior High School - Accountancy, Business and Management

1. CHAPTER 2: THE FIRM
AND ITS ENVIRONMENT
Prepared By Teacher Gladuardo B. Butic
Sagada National High School – Senior High School
Organization and Management – 1:30 – 2:30 Monday to Saturday

2. TOPIC OBJECTIVES
• The learners have an understanding of the role of
business in the environment, and how the
environment affects the firm (Content Standard).
• The learners shall be able to analyze the various
environmental forces affecting the firm and
summarize these using Strengths, Weaknesses,
Opportunities and Threats (SWOT) Analysis
frameworks (Performance Standard)

3. CHAPTER OUTLINE
1. Environment Forces and Environment
Scanning
2. The Local and International Business
Environment of the Firm
3. Phases of Economic Development
4. Forms and Business Organizations

4. CHAPTER OUTLINE
1. Identify the various forces/elements of the firm’s
environment and summarize these forces using SWOT
analysis;
2. Describe the local and international business environment
of a firm; and
3. Explain the role of business in relation to the economy,
discuss the different phases of economic development, and
differentiate the various forms of business organizations.

5. LESSON 1
ENVIRONMENTAL FORCES
AND ENVIRONMENTAL
SCANNING

6. LESSON 1: ENVIRONMENTAL FORCES AND ENVIRONMENTAL SCANNING
ESSENTIAL IDEAS
• Business Environment refers to the factors or elements affecting a
business organizations. It may be divided into the External and
Internal Business Environments.
• The External Business Environment includes the factors and
elements outside the organization which may affect its performance,
either positively or negatively, the performance of the organization.
• The Internal Business Environment refers to the factors/elements
within the organization which may effect, either positively or
negatively, the performance of the organization.

7. LESSON 1: ENVIRONMENTAL FORCES AND ENVIRONMENTAL SCANNING
ESSENTIAL IDEAS
• The environment in which a business operates is a major
consideration (such as uncertainty, procurement, and competition are
linked with the external environment) in determining an
organization’s design or structure.
• A company’s strategy and approach to operations must also be
aligned with the limitations of its external environment as well as its
internal environment.

8. COMPONENTS OF THE EXTERNAL BUSINESS
ENVIRONMENT: GENERAL AND SPECIFIC
• The general business environment includes the economic,
sociocultural, politico-legal, demographic, technological and
world and ecological situations. All these must be
considered as managers plan, organize, staff, lead and
control their respective organizations.

9. COMPONENTS OF THE EXTERNAL BUSINESS ENVIRONMENT:
GENERAL AND SPECIFIC
• Economic Situation
• Sociocultural Situation
• Politico-legal Situation
• Demographic Situation
• Technological Situation
• World and Ecological
situations
Are considered as
the GENERAL
components of the
external business
environment

10. COMPONENTS OF THE EXTERNAL
BUSINESS ENVIRONMENT: GENERAL
1. ECONOMIC SITUATION
• Inflation, rates of interest, changing options in stock
markets, and people’s spending habits are some examples of
factors / elements of economic situation.
• Economic situation may affect management practices in
organizations. For example, companies may postpone
expansion plans if bank loan interests are too high.

11. COMPONENTS OF THE EXTERNAL
BUSINESS ENVIRONMENT: GENERAL
2. SOCIOCULTURAL SITUATIONS
• Include the customers’ changing values and preferences;
customs could also affect management practices in
companies.
• For example, Filipino customers are now conscious about
the importance of avoiding fatty foods, so many food
companies now make sure that the products they offer are
cholesterol-free or are low in cholesterol. In doing so, they
avoid losing their customers.

12. COMPONENTS OF THE EXTERNAL
BUSINESS ENVIRONMENT: GENERAL
3. POLITICO-LEGAL SITUATIONS
• Refers to national or local laws, international laws, and
rules and regulations that influence organizational
management.
• For example, labor laws related to preventing employers
from firing their employees without due process require the
former to allow the latter to exercise their right to present
their position during disciplinary action before their
employment can be terminated.

13. COMPONENTS OF THE EXTERNAL
BUSINESS ENVIRONMENT: GENERAL
4. DEMOGRAPHIC SITUATIONS
• Such as gender, age, education level, income, number of
family members, geographic origin, etc… may also influence
some managerial decisions in organizations.

14. COMPONENTS OF THE EXTERNAL
BUSINESS ENVIRONMENT: GENERAL
5. TECHNOLOGICAL SITUATIONS
• Companies involve the use of varied types of electronic
gadgets and advanced technology such as computers,
robotics, microprocessors, and others that have
revolutionized business management; e-commerce,
teleconferencing, and sophisticated information systems
have rapidly changed the ways that business is conducted
in the 21st century.

15. COMPONENTS OF THE EXTERNAL
BUSINESS ENVIRONMENT: GENERAL
6. WORLD AND ECOLOGICAL SITUATIONS
• Are related to the increasing number of global competitors
and markets, as well as the nature and conditions of the
changing natural environment.
• Products produced by companies, of course, must cater to
the changing needs of people in the global community,
while, at the same time, considering their impact on the
natural environment.

16. COMPONENTS OF THE EXTERNAL BUSINESS ENVIRONMENT:
GENERAL AND SPECIFIC
• Stakeholders
• Customers
• Suppliers
• Pressure Groups
• Investors or Owners
• Employees
Are considered as
the SPECIFIC
components of the
external business
environment

17. COMPONENTS OF THE EXTERNAL
BUSINESS ENVIRONMENT: SPECIFIC
1. STAKEHOLDERS and CUSTOMERS
• Are parties likely to be affected by the activities of the
organization, while customers are those who patronize the
organization’s products and services.
• Increasing customer sophistication makes it necessary for
managers of organizations to make crucial decisions
regarding the development of products with higher value
and the improvement of their services to meet their patrons’
increasing demands.

18. COMPONENTS OF THE EXTERNAL
BUSINESS ENVIRONMENT: SPECIFIC
2. PRESSURE GROUPS
• Are special-interest groups that try to exert influence on the
organizations’ decisions or actions. For instance, pressure
from the Food and Drug Administration on some
department stores and drug stores led them to stop selling
beauty products containing lead and to stop ordering or
importing such products from their suppliers.

19. COMPONENTS OF THE EXTERNAL
BUSINESS ENVIRONMENT: SPECIFIC
3. INVESTORS OR OWNERS
• Provide the company with the financial support it needs and of course,
cannot exist without them, thus, greatly influence organizational
management.
• Top-level, Middle-level and Lower-level managerial decisions are all
influenced, in one way or another, by the investors or owners of
organizations.
• Branching out, offering new products and services, and applying for
needed loans are affected by their way of thinking

20. COMPONENTS OF THE EXTERNAL
BUSINESS ENVIRONMENT: SPECIFIC
3. EMPLOYEES
• Are comprised of those who work for another or for an
employer in exchange of salaries or wages or other
considerations. Employees execute the company’s strategies
and are important for the maintenance of the company’s
stability.
• For example, managerial decisions are influenced by the
company’s knowledge about their workers.

21. COMPONENTS OF
INTERNAL BUSINESS
ENVIRONMENT

22. INTERNAL BUSINESS ENVIRONMENT
• It is composed of its resources, research and development,
production, procurement of supplies, and the products and
services it offers.
• Internal environment of the organization must be subjected
to internal analyses.
• Internal strengths and weaknesses, opportunities, and threats (SWOT)
with regards to its resources (financial, physical, mechanical,
technological, and human resources), research and development
endeavors, production of goods, procurement of supplies (materials,
inputs, and finance), and products and services must all be considered
prior to organizational planning.

23. COMPONENTS OF
ENVIRONMENTAL SCANNING

24. COMPONENTS OF ENVIRONMENTAL
SCANNING
• Developing a Competitive Mindset,
• Considering Future Business Scenario,
• Business Prediction (Business Forecasting),
• SWOT Analysis, and
• Benchmarking