Chapter 2

1. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
The business environment may be classified into two types:
EXTERNAL BUSINESS ENVIRONMENT
• refers to the forces/factors outside the organization which my
affect, either positively or negatively, the performance of the
organization.
INTERNALBUSINESS ENVIRONMENT
• refers to the forces/factors within the organization which my
affect, either positively or negatively, the performance of the
organization.

2. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
The GENERAL EXTERNAL BUSINESS ENVIRONMENT includes:
• Economic
• Socio-cultural
• Politico-legal
• Demographic
• Technological
• World and ecological situations.

3. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
The SPECIFIC EXTERNAL BUSINESS ENVIRONMENT includes:
• Stakeholders
• Customers
• Pressure groups
• Investors
• Employees

4. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
The INTERNAL BUSINESS ENVIRONMENT includes:
• The organizations’ resources
• Research and development
• Production
• Procurement of supplies
• Products and services offered

5. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
ENVIRONMENTAL SCANNING
• Involves the seeking for and sorting through data about
the organization’s environment.
• is a process of gathering, analyzing, and dispensing
information for tactical or strategic purposes.
• It is monitoring and interpreting sweep of social,
political, economic, ecological, and technological events
to spot budding trends that could eventually impact
industry

6. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
ENVIRONMENTAL SCANNING
• Involves the seeking for and sorting through data about
the organization’s environment.
• is a process of gathering, analyzing, and dispensing
information for tactical or strategic purposes.
• It is monitoring and interpreting sweep of social,
political, economic, ecological, and technological events
to spot budding trends that could eventually impact
industry

7. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
COMPONENTS OF ENVIRONMENTAL SCANNING
• The development of a competitive mindset
• Considering of future business scenarios
• Business prediction/forecasting
• 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

8. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
CULTURAL INTELLIGENCE
• Is an individual’s ability to favorably receive and adjust to
an unfamiliar way of doing things.
MONOCHRONIC CULTURE
• Is a culture where people tend to do one thing at a
time.
POLYCHRONIC CULTURE
• Is a culture that is more flexible on time and it is used
to accomplish many different things at one time.

9. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
ECONOMIC DEVELOPMENT
• Is a total process which includes not only economic
growth or the increase in the amount of goods and
services produced by the country’s economy but also
consider the social, political, cultural and spiritual aspects
of the country’s growth.

10. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
science and
ECONOMIC DEVELOPMENT PHASES/STAGES
• Economic growth
• Improvement of human development index
• Availability of benefits provided by
technology
• Societal improvement of the opportunities and
• General welfare of its members.

11. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
BUSINESS ORGANIZATION
• Is a collection of people working together to achieve a
common purpose related to their organization’s mission,
vision, goals and objectives and sharing a common
organizational culture.
ORGANIZATIONAL CULTURE
• Is the set of beliefs and values shared by organization
members and which guide them as they work together
to achieve their common purpose.

12. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
BUSINESS ORGANIZATION
• Is a collection of people working together to achieve a
common purpose related to their organization’s mission,
vision, goals and objectives and sharing a common
organizational culture.
ORGANIZATIONAL CULTURE
• Is the set of beliefs and values shared by organization
members and which guide them as they work together
to achieve their common purpose.

13. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
TYPES OF BUSINESS ORGANIZATION
SIMPLE BUSINESS ORGANIZATION
• Is an organization with few departments, centralized authority
with a wide span of control, with few formal rules and
regulations
FUNCTIONAL BUSINESS ORGANIZATION
• Groups together people with similar or related duties,
practices, delegation of authority to functional managers like
the personal manager, sales manager or financial managers
but allow CEOs to retain authority for strategic decisions.

14. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
TYPES OF BUSINESS ORGANIZATION
DIVISIONAL BUSINESS ORGANIZATION
• Is made up of semi-autonomous, separate business units, with
a division head responsible for his unit’s performance.
NON-PROFIT BUSINESS ORGANIZATION
• Are organizations designed for the purpose of achieving their
goals, giving service to clients without expecting monetary
gains or financial benefits for their endeavors

15. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
TYPES OF BUSINESS ORGANIZATION
PROFIT BUSINESS ORGANIZATION
• Are organizations designed for the purpose of achieving their
goals and achieving stability through income generation and
profit making.
OPEN/FLEXIBLE BUSINESS ORGANIZATION
• Are formed to meet today’s changing work environment and
includes: T
eam structures, matrix business organizations,
project business structures, boundary less business
organizations and virtual business organizations.

16. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
COMPETITIVE ENVIRONMENT
• Refers to specific groups of people with which the
company/firm interacts
• The company’s customers, rival firms, new entrants, substitutes
and suppliers make up the firm’s competitive environment
forces.
• The abovementioned competitive environment forces have
the power to influence the nature of the competition among
rival companies so the firm must learn to adapt to or influence
also the said competition.

17. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
COMPETITIVE ENVIRONMENT
• The less power each of these competitive environment forces
have, the more profitable the industry will be.
• The firm’s managers must be able to identify the varying
needs of its customers and focus on creating customer value.
• The firm must also know the answers to the questions “who
are our rival companies?” “who are the new entrants to the
industry?” “what are their different or new and better ways of
providing value to customers?”

18. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
COMPETITIVE ENVIRONMENT
• The firm must realize that the substitutes are the biggest
opportunity or threat in an industry and this implies that they
may have to think of new strategies in order to compete with
them. (landline phones have cellphones as substitute)
• The firm must also realize the importance of their suppliers
that provide them with major inputs: raw materials for
manufacturing goods, money from investors, and financial
institutions, and people who supply them with new ideas and
help in the production of goods and services that they offer.

19. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
COMP
ANY
suppliers
customers
Rival firms
substitutes
New
entrants

20. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
TASK 1
Identify and list down the customers, rival firms, new entrants,
substitutes and suppliers of Philippine Airlines (PAL) or any
known Philippine Company listed among the top 100 Philippine
Corporations.

21. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
ASSESSMENT 1
Which cultural dimensions are practiced in the Philippines? Put a
(/) or an (x) mark beside the cultural dimension to express your
affirmative or negative response.
1. Low power distance
2. High power distance
3. Low uncertainty avoidance
4. High uncertainty avoidance
5. Short term thinking
6. Collectivism
7. masculinity
8. Femininity
9. Individualism
10. Long term thinking

22. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
ASSESSMENT 2
Fill in the blanks with the correct answer. Answer may be one of
the following: Simple, Functional, Divisional, Profit, Non-Profit,
Open/Flexible, Boundaryless or Virtual Business Organization
(1) Business Organizations maintain their stability
through income generation.
(2) Business Organizations made up of semi-
autonomous units.

23. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
(3) Business Organizations formed to meet today’s changing work
environment.
(4) Business Organizations is easy to manage because it
has few departments, centralized authority and few rules and
regulations.
(5) Business Organizations that groups together those with similar
or related specialized duties.
(6) Business Organizations that assigns experts
belonging to different departments to work together on one or
more projects.

24. CHAPTER 2 : THE FIRM and it’s ENVIRONMENT
(7) Business Organizations who design is flexible and
unstructured.
(8) Business Organizations whose members are
physically dispersed and who, oftentimes, communicate
electronically through computers.