CHAP 2 - Firm and Its Environment

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.
ENVIRONMENT
The GENERAL EXTERNAL BUSINESS ENVIRONMENT
includes:
• Economic
• Socio-cultural
• Politico-legal
• Demographic
• Technological
• World and ecological situations.
ENVIRONMENT
The SPECIFIC EXTERNAL BUSINESS ENVIRONMENT
includes:
• Stakeholders
• Customers
• Pressure groups
• Investors
• Employees
ENVIRONMENT
The INTERNAL BUSINESS ENVIRONMENT
includes:
• The organizations’ resources
• Research and development
• Production
• Procurement of supplies
• Products and services offered
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
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
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
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.
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.
ENVIRONMENT
ECONOMIC DEVELOPMENT PHASES/STAGES
• Economic growth
• Improvement of human development index
• Availability of benefits science and
provided by technology
• Societal improvement of the opportunities and
• General welfare of its members.
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.
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.
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.
ENVIRONMENT
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
ENVIRONMENT
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:
Team structures, matrix business organizations, project business
structures, boundary less business organizations and virtual business
organizations.
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.
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?”
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.
ENVIRONMENT
customers
suppliers Rival firms
COMPAN
Y
New
substitutes
entrants
Porter's Five Forces

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CHAPTER 2 : THE FIRM and it’s

EXTERNAL BUSINESS ENVIRONMENT

SIMPLE BUSINESS ORGANIZATION

FUNCTIONAL BUSINESS ORGANIZATION

DIVISIONAL BUSINESS ORGANIZATION

NON-PROFIT BUSINESS ORGANIZATION

PROFIT BUSINESS ORGANIZATION

OPEN/FLEXIBLE BUSINESS ORGANIZATION

• Refers to specific groups of people with which the company/firm

• The company’s customers, rival firms, new entrants, substitutes and

• The abovementioned competitive environment forces have the power

• The less power each of these competitive environment forces have,

suppliers Rival firms

Porter's Five Forces

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