Grade 11

Organization and Management

Week 3 – Module 3
The Firm and Its Environment

1
 Chapter 2

THE FIRM
AND
ITS ENVIRONMENT

for Grade 11
Organization and Management

SELF-LEARNING KIT

2
 First Semester
Module No. 3
LESSON 1: The Forces Influencing Local and International Business
Environment
OBJECTIVES
1. Identify the various forces/elements of the firm’s environment and summarize these
forces using PEST and SWOT analysis; and
2. Describe the local and international business environment of a firm

LEARNING COMPETENCY
1. Analyze various forces/elements influencing local and international business
environment using PEST and SWOT strategies

I. TRY ME!
A. Guess Who!
Guess who is being described in the given statement by rearranging the scrambled
letters to find the answer.
1. They are those who work for an employer in exchange of salaries or other
considerations.
POEMLEYES = Answer: _______________
2. They are those who purchase goods and services available for sale.
COURTMESS = Answer: _______________
3. They provide the sellers with the quantity of products they; the sellers would need
to sell.
UPPERLISS = Answer: _______________
4. They try to exert influence on the organization’s decisions or actions.
SURSPREE SPOURG = Answer: _______________
5. They provide capital for the business to operate.
STORVINES = Answer: _______________

B. Identification.
Identify whether the given is a strength, a weakness, an opportunity, or a threat.
_______________ 1. sufficiency of number of workers
_______________ 2. rapid change of taste and preferences of consumers because
of some social media influence
_______________ 3. machines used are almost worn out
_______________ 4. workers are inexperienced on the new job
_______________ 5. presence of rival firms
_______________ 6. adherence to the standards set by the local government
_______________ 7. sufficiency of funds to operate the business
_______________ 8. only the store is available to cater to the needs and wants of the
people in the community
_______________ 9. the management has sufficient knowledge and understanding
to run the company
_______________ 10. availability of job positions for the people in the community

3
II. LESSON PROPER
Environmental Forces and Environmental Scanning
Business Environment refers to the factors or elements affecting a business
organization. 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 while the
Internal Business Environment refers to the factors or elements within the organization
which may also affect its performance, either positively or negatively. The environment
in which the business operates is a major consideration in determining an
organization’s design or structure. Considerations such as uncertainty, procurement,
and competition are linked with the external environment. 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.

Components of the External Business Environment: General and Specific

Systematic monitoring of the major external forces influencing organizations is
necessary to improve the management of companies. Failure to consider a company’s
general and specific business environments may affect the strategies that the
management will make and use.

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.

Inflation, rates of interest, changing options in stock markets, and people’s

spending habits are some examples of factors or elements of economic situations.
Economic situations may affect management practices in organizations. For example,
companies may postpone expansion plans if bank loan interests are too high.
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.
Politico-legal situations refer 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.
Demographic situations such as gender, age, education level, income, number
of family members, geographic origin, etc., may also influence some managerial
decisions in organizations. For example, decisions regarding hiring of human
resources may be affected by an organization’s management policy that shows

4
prejudice to the hiring of married females who are in the child-bearing age because
they would like to minimize payment of maternity leave benefits.
The technological situations of 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 in conducted in the 21st century.
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. For example, car manufacturing managers must
give the go signal for the development of vehicles that are environmentally friendly
instead of only being focused on the product’s speed, fuel economy, and design.
Meanwhile, the specific business environment focuses on stakeholders,
customers, suppliers, pressure groups, and investors or owners and their employees.
Stakeholders 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 organization
to make crucial decisions regarding the development of products with higher value
and the improvement of their services to meet their patron’s increasing demands. Also,
this has prompted companies to solicit feedback from their customers to avoid
dissatisfaction that may lead them to patronize another company offering similar
products and services instead.
Suppliers are those who ensure the organization’s continuous flow of needed and
reasonably priced inputs or materials required for producing their goods and rendering
their services. Inputs mentioned also include financial and labor supply. Managers
decide what, where, and when to buy their supplies and which supplier to favor with
their organization’s supply orders.
Pressure groups are special-interest groups that try to exert influence on the
organization’s 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 led and to stop ordering or importing such products from
their suppliers.
The organization’s investors or owners provide the company with the financial
support it needs. The company, of course, cannot exist without them; thus, they 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 all affected by the investors’ or owners’ way of thinking.
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 for the company’s
stability. For example, managerial decisions are influenced by the company’s
knowledge workers.

5
Components of the Internal Business Environment
An organization’s internal business environment is composed of its resources
(money, manpower, method, machine, materials, management, moment), research
and development, production, procurement of supplies, and the products and services
it offers.
The organization’s internal environment must also 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.

Components of Environmental Scanning:

Developing a Competitive Mindset, Considering Future Business Scenarios,
Business Prediction, SWOT Analysis, and Benchmarking
Adapting to environmental uncertainties must start with developing a competitive
mindset. Ignorance of present-day realities may cause individuals or organizations to
do certain things that they may regret in the future; hence, environmental scanning is
necessary. By seeking for and sorting through data about the environment, you may
be able to understand and predict the various changes, opportunities, and threats that
may affect organizations in the future. Knowing the present-day competitors, the
possible number of barriers to entering your chosen business industry, the existence
or nonexistence of substitutes to your planned product or service, and possible
dependence on powerful suppliers and customers will be helpful in developing a
competitive mindset.
You must also consider future business scenarios. By realistic consideration of
both worst-case scenario or unfavorable future conditions and best-case scenario or
favorable future conditions, as well as middle-ground possible conditions, you will have
an idea of what to do in the future.
Meanwhile, business prediction, also known as business forecasting, is a method
of predicting how variables in the environment will alter the future of a business. It
could be used in making decisions regarding offshoring, branching out locally, and
expanding or downsizing the company. However, the accuracy of such business
predictions may not always be assured.
Benchmarking is defined as 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. Best practices of said industry leaders are observed
so that understanding their competitive advantage would be easier. This is followed
by gathering information about the company’s own operations and those of the other
company in order to identify gaps; this, in turn, could be used to find out the underlying
reasons for performance differences. From these said reasons, a set of best practices
in one’s own company will be listed down and that, ultimately, leads to the company’s
improved performance.

6
 Helpful to achieving the Harmful to achieving the
objectives objectives

STRENGTHS WEAKNESSES

Examples: Examples:
Internal attributes of
the organization 1. Sufficiency of funds to 1. Hired workers are
operate the business inexperienced on the new
(Resource Analysis) job.
2. The management has
sufficient knowledge and 2. Machines used are
understanding to run the almost worn out
company.

OPPORTUNITIES THREATS

Examples: Examples:
External attributes of
the organization 1. Business location is 1. Presence of rival firms
(Environmental accessible to the residents 2. Difficulty in adapting to
Analysis) of the nearby barangays the rapid changes of taste
2. The company adheres and preferences of the
to the standards set by the consumers
local government.

Figure 2.1 The SWOT analysis or matrix is one of the most structured and used
planning method to evaluate a business venture

7
A. Self-check. Answer briefly and comprehensively.

1. What is the difference between the terms “external business environment” and
“internal business environment”?

Answer:

_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________

2. Why is customer satisfaction important in all types of businesses?

Answer:

_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________

3. Why should business professionals consider future business scenarios? Will you
make use of these as a business professional in the future? Explain your answer.

Answer:

_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________

8
The Local and International Business Environment of the Firm

Understanding the local and international business environment of the firm

requires managers of organizations to sharpen their cultural intelligence. Cultural
intelligence is an individual’s ability to favorably receive and adjust to an unfamiliar
way of doing things. This will enable them to develop their ability to accept and adapt
to different cultures, both local and international, that may affect the organization to
which they belong.

Anthropologist Edward T. Hall, as cited by Schermerhorn (2008), noted that the

way people approach and deal with time varies across cultures. Monochronic cultures
refer to cultures wherein people tend to do one thing at a time; also, these cultures
emphasize punctuality and sticking to set rules. Polychronic cultures, on the other
hand, are more flexible as regards time; accomplishing many different things at once
is also common for these cultures. It may be very frustrating for one who is influenced
by monochronic culture if he or she does not possess cultural intelligence.

Geert Hofstede, also cited by Schermerhorn (2008), showed how selected

countries ranked on the five cultural dimensions he studied:

Power Distance - the degree to which a society accepts or rejects the unequal
distribution of power among people in organizations and the institutions of society.
For example, India and the Philippines have high power distance, while the United
States of America and Australia have low power distance. The use of the terms “Sir”
and “Madam” to refer to the boss or superior by subordinate employees in the
Philippines shows respect for authority figures, or high-power distance. In the US,
subordinates just use the name or nickname of the boss when addressing him or her,
indicating low power distance.
Uncertainty Avoidance - the degree to which society is uncomfortable with risk,
change, and situational uncertainty
Managers in US are risk takers. Filipinos are seguristas that are afraid of taking
risks within business endeavors in the market.
Individualism-Collectivism - the degree to which a society emphasizes
individual accomplishments versus collective accomplishments
Individualistic cultures like those of the US and Australia are characterized as “I”
and “me” cultures where employees prefer to work alone without help from others.
Mexico, Thailand, and the Philippines exhibit collectivism or preference for group or
teamwork.

9
 Masculinity-Femininity - the degree to which a society values assertiveness and
feelings of material success versus concern for relationships
The Japanese and Mexicans do not hesitate to push or express what they want,
unmindful of hurting others’ feelings, thus, showing masculinity. Filipinos, Thais, and
Swedes would rather keep quiet and accept defeat if what they want is not acceptable
to others, thus, exhibiting femininity.
Time Orientation - the degree to which a society emphasizes short-term thinking
versus greater concern for the future or long-term thinking
The Americans, who are risk-takers, prefer short-term thinking. On the other hand,
Filipinos and the Japanese, who are not risk-takers, are long-term thinkers.
The local culture of a particular country also influences the management practices
of firms. An example is the mañana habit which is part of local Filipino culture and
practiced by some Filipino workers. It is counterproductive since it encourages the
postponement of performing tasks that can be done immediately to another day.
Managing and disciplining workers who practice this habit would be easier for
managers if they are able to identify the workers who adhere to such negative work
habit and prevent them from doing it. This, however, is easier said than done because
it is difficult to explain a country’s unique cultural characteristics.

Managing in a Worldwide Environment:

Cultural, Politico-legal, and Economic Environments
The call for business to go global is hard to resist as this is the trend prevailing in
the 21st century. The economic and social benefits that come with globalization are
said to be among the positive outcomes. Globalization advocates, however, fail to
realize the very serious challenges faced by managers in adjusting to the cultural
differences among different countries where they intend to do business. The culture
of different countries is rooted in their history, religion, traditions, beliefs, and deep-
seated values, and because of these, managing globally can be complicated.
Besides the cultural environment, the politico-legal and economic environments
must also be considered. The politico-legal environment refers to the laws and political
climate of different countries. Some countries have stable laws and good political
climate while others have the opposite -- unstable laws and risky political climate.
Awareness of the economic issues of countries where organizations intend to
establish business is also very important. For instance, do they have a free market or
a planned economy? Answering this question is the first step because the country’s
economic system has the potential to influence the organization’s decision-making.
Other economic matters that must be considered are the inflation rates, the gross
national product/gross domestic product, the currency exchange rates, taxation
system, and others.

10
B. Self-check. Answer briefly and comprehensively.
1. Define cultural intelligence. How important is it in terms of doing business globally?
Answer:

_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
2. Why should a country’s politico-legal issues be considered when managing in a
worldwide environment?
Answer:

_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
C. Tell Me More!
Answer briefly and comprehensively.
1. Practice benchmarking by comparing your school’s practices with the best practices
of a leading school in the Philippines. Are there performance gaps? What are the
underlying reasons for the identified performance differences? List down your
suggested best practices to improve the performance of your school.
Answer:

_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
2. How would you describe the Philippine culture? Do you think it would be easy for a
foreign or expatriate manager to manage his or her company in the Philippines?
Explain your answer.
Answer:

_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
11
III. ASSESS WHAT YOU HAVE LEARNED

A. Which cultural dimensions are practiced in the Philippines? Put a check mark (/) or
an ex mark (x) beside the cultural dimension to express your affirmative or negative
response. (10 points)

Cultural Dimension / or x
1. Low power distance 1. _______
2. High power distance 2. _______
3. Low uncertainty avoidance 3. _______
4. High uncertainty avoidance 4. _______
5. Individualism 5. _______
6. Collectivism 6. _______
7. Masculinity 7. _______
8. Femininity 8. _______
9. Short-term thinking 9. _______
10. Long-term thinking 10. _______

B. Multiple Choice. Read each item carefully and encircle the letter of your answer.
(10 points)

1. They are those who work for an employer in exchange of salaries or other
considerations.
A. Customers C. Employees
B. Stakeholders D. Investors
2. They include the customers’ changing values and preferences
A. Sociocultural situations C. Politico-legal situations
B. Demographic situations D. Technological situations
3. They are providing financial aid for the business to operate.
A. Customers C. Employees
B. Stakeholders D. Investors
4. In putting up a business, the owner/s should abide with the government policies.
Which environmental factor is the situation evident?
A. Political C. Social
B. Economic D. Technological
5. Since the business is already operating for ten (10) years now, the management
thinks of adapting the new methods fit to the new generation. Example: from manual
recording of files (writing) to just encoding the information to the computer system
A. Political C. Social
B. Economic D. Technological
6. Filipinos are seguristas that are afraid of taking risks within business endeavors in
the market.
A. Power distance C. Uncertainty avoidance
B. Masculinity-Femininity D. Individualism-Collectivism
7. All, except one, are opportunities of an internet cafe located near the school when
students will no longer be restricted with the stay at home policy.

12
A. Students could have another place to go to if they do not feel like attending classes.
B. Its accessibility to students in making their school tasks makes it an advantage for
the cafe.
C. Its income would probably be high knowing that a number of students’ outputs are
to be computerized.
D. Parents could easily locate their children most especially, if their children are fond
of playing internet games.

8. The use of the terms “Sir” and “Madam” to refer to the boss by a subordinate
employee in the Philippines shows respect for authority figures. Which cultural
dimension is evident in the following situation?
A. Power distance C. Uncertainty avoidance
B. Masculinity-Femininity D. Time Orientation
9. United States and Australia are characterized as “I” and “me” cultures where
employees prefer to work alone without help from others.
A. Power distance C. Uncertainty avoidance
B. Masculinity-Femininity D. Individualism-Collectivism
10. Statement 1: Electronic payment system (EPS) does not require cash in
purchasing an item in malls.
Statement 2: Online business is the “IN” thing in today’s generation.
A. Only statement 1 is correct. C. Both statements are correct.
B. Only statement 2 is correct. D. None of the statements is correct.

C. Completion. Let us say that your family plans to open a sari-sari store at home that
at least, your family can earn while staying home because of the threat of COVID-19.
Complete the table below by identifying at least two (2) of each of the strengths,
weaknesses, opportunities, and threats in your environment (internal or external). Use
what you have learned from the discussion in this lesson. Correct and clear answers.
(16 points)
STRENGTHS
WEAKNESSES
1. 1.

2. 2.

OPPORTUNITIES
THREATS
1. 1.

2. 2.

13
 GLOSSARY

Changing options - the consumer’s change in preference of goods and services

offered

Currency exchange product - the rate at which central banks will exchange the
country’s currency for another

Economic situations - includes inflation rates of interest, people’s spending habits,

changing options, etc.

Environmental scanning - seeking for and sorting through data about the
environment

External business environment - refers to the factors or elements outside the

organization which may affect, either positively or negatively, the performance of the
organization

Globalization - refers to changes in the dimensions of external environment that result

to increased interdependence and integration among people and organizations among
the worlds

Gross domestic product (GDP) - total final output of goods and services produced
by the country’s economy, withing the country’s territory

Gross national product (GNP) - total domestic and foreign output claimed by the
residents of a country

Inflation - a period of above normal general price increases, as reflected in the

consumer and wholesale price indexes

Inflation rate - rate reflected during a period of above normal general price increases
Interest rates - the total amount that the borrower must pay annually to the lender
and above the total amount borrowed

Internal business environment - refers to the factors or elements within the

organization which may affect, either positively or negatively, the performance of the
organization
People’s spending habits - consumers’ changing ways of spending their money on
goods and services
Worldwide environment - refers to the external business environment (i.e.
sociocultural, natural, politico-legal, economic, and technological factors) around the
world

14
 REFERENCES
Cabrera, H. M. F., Altarejos, A. DC. & Benjamin R. (2016). Organization and
Management Teacher’s Manual for Senior High School. Quezon City: Vibal
Group Inc.
Cabrera, H. M. F., Altarejos, A. DC. & Benjamin R. (2016). Organization and
Management Textbook for Senior High School. Quezon City: Vibal Group Inc.

Prepared by:
Charmine I. Sayawan
Teacher

15