Organization and management lesson2 of grade 11

Organization and management

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ENVIRONMENTAL FORCES
AND ENVIRONMENTAL
SCANNING

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Definition of Terms
1. Environmental scanning means seeking for and sorting
through data about the environment
2. External business environment refers to the
factors/elements outside the organization which may
affect, either positively or negatively, the performance of
the organization.
3. Internal business environment refers to the
factors/elements within the organization which may affect,
either positively or negatively, the performance of the
organization.

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4. Micro-environment includes those players whose
decisions and actions have a direct impact on the
company. Production and selling of commodities are the
two important aspects of modern business. Accordingly,
the micro-environment of business can be divided.
5. Macro-environment is the condition that exist in the
economy as a whole, rather than in a particular sector or
region. In general, the macro environment includes trends
in the gross domestic product (GDP, inflation,
employment, spending, and monetary and fiscal policy.

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The various constituents of micro-environment are as under:
1. Suppliers of inputs: An important factor in the external micro-
environment of a firm is the supplier of its inputs such as raw
materials and components. Normally, most firms do not depend on
a single supplier of inputs. To reduce risk and uncertainty business
firms prefer to keep multiple suppliers of inputs.
2. Customers: The people who buy and use a firm’s product and
services are an important part of external micro-environment.
Since sales of a product or service is critical for a firm's survival
and growth, it is necessary to keep the customers satisfied. A
concern for customers’ satisfaction is essential for the success of a
business firms. Besides, a business firm has to compete with rival
firms to attract customers and thereby increase the demand and
market for its product.

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3. Marketing intermediaries: In the firm's external
micro-environment, marketing intermediaries play an
essential role of selling and distributing its products to the
final customers. Marketing provides an important link
between a business firm and its ultimate customers.

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4. Competitors: Different firms in an industry compete for sale of
their products. This competition may be based on pricing of their
products and non- price competition through competitive
advertising such as sponsoring some events to promote the sale of
different varieties and models of their products.
5. Publics: Finally, publics are an important force in external
microenvironment. Environmentalists, media groups, women’s
associations, consumer protection groups, local groups, Citizens
Association are some important examples of publics which have
an important bearing on the business decisions of the firm. The
existence of various types of publics influences the working of
business firms and compels them to be socially responsible.

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External Macro Environment
Apart from micro-environment, business firms face large external
environmental forces. An important fact about external macro
environmental forces is that they are uncontrollable by the
management. Because of the uncontrollable nature of macro
forces a firm must adjust or adapt it to these external forces. These
factors are:
1. Economic Environment: Economic environment includes all
those forces which have an economic impact on business.
Accordingly, total economic environment consists of agriculture,
industrial production, infrastructure, and planning, basic economic
philosophy, stages of economic development, trade cycles,
national income, per capita income, savings, money supply, price
level and population.

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2. Political-legal Environment: Business firms are closely
related to the government. The political- legal environment
includes the activities of three political institutions, namely,
legislature, executive and judiciary which usually play a
useful role in shaping, directing, developing and controlling
business activities.
3. Technological Environment: Technological environment is
exercising considerable influence on business. Technology
implies systematic application of scientific or other organized
knowledge to practical tasks or activities. Business makes it
possible for technology to reach the people in proper format.

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4. Global or International Environment: Global environment
plays an important role in shaping business activity. With the
liberalization and globalization of the economy, business
environment of an economy has become totally different wherein
it has to bear all shocks and benefits arising out of global
environment.
5. Socio-cultural Environment: Social and cultural environment
also influences the business environment indirectly. These
include people’s attitude to work and wealth, ethical issues, role
of family, marriage, religion and education and also social
responsiveness of business.

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6. Demographic Environment: The demographic environment
includes the size and growth of population, life expectancy of the
people, rural-urban distribution of population, the technological
skills and educational levels of labor force. All these demographic
features have an important bearing on the functioning of business
firms.
7. Natural Environment: Natural environment influences
business in diverse ways. Business in modern times is dictated
by nature. The natural environment is the ultimate source of many
inputs such as raw materials and energy, which firms use in their
productive activity. The natural environment which includes
geographical and ecological factors such as minerals and oil
reserves, water and forest resources, weather and climatic
conditions are all highly significant for various business activities.

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8. Ecological Environment: Due to the efforts of
environmentalists and international organizations such as
the World Bank the people have now become conscious
of the adverse effects of depletion of exhaustible natural
resources and pollution of environment by business
activity. Accordingly, laws have been passed for
conservation of natural resources and prevention of
environment pollution. These laws have imposed
additional responsibilities and costs for business firms.

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Internal Environment
The various internal factors are:
1. Value system: The value system of an organization
means the ethical beliefs that guide the organization in
achieving its mission and objectives. It is a widely
acknowledged fact that the extent to which the value
system is shared by all in the organization is an important
factor contributing to its success.

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2. Mission and objectives: The business domain of the company,
direction of development, business philosophy, business policy etc.
are guided by the mission and objectives of the company. The
objective of all firms is assumed to be maximization of profit.
Mission is defined as the overall purpose or reason for its existence
which guides and influences its business decision and economic
activities.
3. Organization structure: The organizational structure, the
composition of the board of directors, the professionalism of
management etc. are important factors influencing business decisions.
The nature of the organizational structure has a significant influence
over the decision-making process in an organization. An efficient
working of a business organization requires that the organization
structure should be conducive for quick decision-making.

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4. Corporate culture: Corporate culture is an important
factor for determining the internal environment of any
company. In a closed and threatening type of corporate
culture the business decisions are taken by top level
managers while the middle level and lower level
managers have no say in business decision- making. This
leads to lack of trust and confidence among subordinate
officials of the company and secrecy pervades throughout
the organization.

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5. Quality of human resources: Quality of employees that
is of human resources of a firm is an important factor of
internal environment of a firm. The characteristics of the
human resources like skill, quality, capability, attitude and
commitment of its employees etc. could contribute to the
strength and weaknesses of an organization.
6. Labor unions: Labor unions collectively bargains with
the managers for better wages and better working
conditions of the different categories of workers. For the
smooth working of a business firm good relations between
management and labor unions is required.

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7. Physical resources and technological capabilities: Physical
resources such as, plant and equipment and technological
capabilities of a firm determine its competitive strength which is
an important factor for determining its efficiency and unit cost of
production. Research and development capabilities of a company
determine its ability to introduce innovations which enhances
productivity of workers.
Specific Components of the External Business Environment
Stakeholders, Customers, Suppliers, Pressure groups,
Organization’s investors or owners
and Employees.

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Component of the Internal Business Environment
1. Resources – financial, physical, mechanical,
technological, and human resources must be subjected to
internal analysis (SWOT)

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What Is a SWOT Analysis?
A SWOT analysis is a technique used to determine and define your Strengths,
Weaknesses, Opportunities, and Threats (SWOT). SWOT analyses can be applied to
an entire company or organization, or individual projects within a single department.
Most commonly, SWOT analyses are used at the organizational level to determine how
closely a business is aligned with its growth trajectories and success benchmarks, but
they can also be used to ascertain how well a particular project – such as an online
advertising campaign

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Porter’s Five Forces
Porter’s Five Forces analysis is a framework that helps
analyzing the level of competition within a certain industry. It is
especially useful when starting a new business or when entering a
new industry sector. According to this framework, competitiveness
does not only come from competitors. Rather, the state of
competition in an industry depends on five basic forces: threat of
new entrants, bargaining power of suppliers, bargaining power of
buyers, threat of substitute products or services, and existing
industry rivalry.

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.
Source: https://www.business-to-you.com/porters-five-forces/

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PESTEL Analysis. A PESTEL analysis or PESTLE analysis
(formerly known as PEST analysis) is a framework or tool used
to analyses and monitor the macro-environmental factors that
may have a profound impact on an organization’s performance.
This tool is especially useful when starting a new business or
entering a foreign market. It is often used in collaboration with
other analytical business tools such as the SWOT analysis and
Porter’s Five Forces to give a clear understanding of a situation
and related internal and external factors. PESTEL is an acronym
that stands for Political, Economic, Social, Technological,
Environmental and Legal factors.

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Components of Environmental Scanning
1. Developing a competitive mindset – by seeking and
sorting through data about environment, you may be able
to understand and predict the various changes,
opportunities and threats that may affect organizations in
the future.
2. Considering future business scenarios – by realistic
consideration of both worse- case scenario or unfavorable
future conditions, as well as middle ground possible
conditions, you will have an idea or what to do in the future

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3. Business prediction (also known as business forecasting) – is a
method of predicting how variables in the environment will alter
the future of 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 cannot always be assured.
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.

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QUIZ
(SEPTEMBER 19, 2023)

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1.It is a technique used to determine and define your
strengths, weaknesses, opportunities and threats.
2.It is a framework or tool used to analyze and monitor the
macro-environmental factors that may have a profound
impact in organizations performance.
3.It is a process of measuring or comparing one’s own
products, services and practices with those of organized
industry leaders in order to identify areas for improvement.
4.It is a method of predicting how variables in the
environment will alter the future of the business.
ZIRCON

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5. They collectively bargains with the managers for better wages
and better working conditions of the different categories of
workers.
6-8. Give the three components of environmental scanning.
9. They are the people who buy and use a firms products and
services.
10. It plays an important role of selling and distributing its
products to the final customers.
11. It is the ethical beliefs that guide the organization in achieving
its mission and objectives.
12. It is defined as the overall purpose or reason for its existence
which guides and influences its business decision and economic
activities.

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13. It is the ultimate source of many inputs such as raw
materials and energy which firms use in their productive
activity.
14. It is a framework that helps in analyzing the level of
competition within a certain industry.

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15-19. Give the Porter’s Five Forces

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20. BONUS

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AMETRINE

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1.The _________________ in which the business
operates is a major consideration in determining an
organization’s design structure.
2.It consists of the factors in the company’s immediate
environment that affects the performance of the
company.
3.It refers to the factors/elements outside the
organization which may affect, either positively or
negatively, the performance of the organization.
AMETRINE

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4. It plays an important role of selling and distributing its
products to the final customer.
5. It includes all those forces which have an economic impact
on business.
6-7. With the __________ and ____________ of the economy,
business environment of an economy has become totally
different wherein it has to bear all shocks and benefits arising
out of global environment.
8. The __________ environment include the size and growth
of population, life expectancy of the people, rural-urban
distribution of population, and technological skills of
educational levels of labor force.

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9. It is the ethical beliefs that guides the organization in
achieving its objectives.
10. It is the ultimate source of many inputs such as raw
materials and energy which firms used in their productive
activity.
11. It is a framework that help in analyzing the level of
competition within a certain industry.
12. It is the method of predicting how variables in the
environment will alter the future of the business.

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13-15. what are the components of environmental scanning
16. This is used at the organizational level to determine
how closely a business is aligned with its growth
trajectories and success benchmarks, but they can also be
used to ascertain how well a particular projects is
performing according to initial projections.
17. PESTEL is a framework that help analyzing the level of
competition within the certain industry. TRUE or FALSE
18. Pestel stands for Political, environment, sociocultural,
technological, environmental and legal factors.

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19-20. Give at least 2 constituents of micro-
environment.