ABM ORGANIZATION AND MANAGEMENT READING MATERIALS

Every human being has several needs and desires. But no individual can satisfy all his wants.
Therefore, people work together to meet their mutual needs which they cannot fulfil individually.
Moreover, man is a social being as he likes to live together with other people. It is by working
and living together in organised groups and institutions that people satisfy their economic and
social needs. As a result there are several types of groups, eg., family, school, government, army,
a business firm, a cricket team and the like. Such formal groups can achieve their goals
effectively only when the efforts of the people working in these groups are properly coordinated
and controlled. The task of getting results through others by coordinating their efforts is known
as management. Just as the mind coordinates and regulates all the activities of a person,
management coordinates and regulates the activities of various members of an organisation.

DEFINITION OF MANAGEMENT

It is very difficult to give a precise definition of the term ‘management’. Different scholars from
different disciplines view and interpret management from their own angles. The economists
consider management as a resource like land, labour, capital and organisation. The bureaucrats
look upon it as a system of authority to achieve business goals. The sociologists consider
managers as a part of the class elite in the society.

The definitions by some of the leading management thinkers and practitioners are given below:

 Management consists in guiding human and physical resources into dynamic, hard-hitting
organization unit that attains its objectives to the satisfaction of those served and with a
high degree of morale and sense of attainment on the part of those rendering the service.
—Lawrence A. Appley 


 Management is the coordination of all resources through the process of planning,

organizing, directing and controlling in order to attain stated objectives. —Henry L.
Sisk.


 Management is principally the task of planning, coordinating, motivating and controlling

the efforts of others towards a specific objective. —James L. Lundy 


 Management is the art and science of organizing and directing human efforts applied to
control the forces and utilize the materials of nature for the benefit of man. 
—
American Society of Mechanical Engineers 


 Management is the creation and maintenance of an internal environment in an enterprise

where individuals, working in groups, can perform efficiently and effectively towards the

attainment of group goals. 
—Harold Koontz and Cyrill O’Donnell 


 Management is the art of knowing what you want to do and 
then seeing that it is done
in the best and cheapest way —F.W. Taylor 


 To manage is to forecast and to plan, to organize to command, to coordinate and to

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 control. —Henry Fayol 


 Management is the function of executive leadership anywhere. —Ralph C. Davis 


 Management is concerned with seeing that the job gets done; its tasks all center on
planning and guiding the operations that are going on in the enterprise. —E.F.L. Breach



 Management is a distinct process consisting of planning, organizing, actuating and

controlling performed to determine and accomplish the objectives by the use of people
and resources. —George R. Terry 


 Management is guiding human and physical resources into dynamic organizational units,
which attain their objectives to the satisfaction of those served and with a high degree of
morale and sense of attainment on the part of those rendering service. 
—American
Management Association 


 Management is a multi-purpose organ that manages a business 
and manages Managers

and manages Workers and work. —Peter Drucker 


The simplest definition of management is getting things done through people. It implies that an
organization whether small, medium or large is composed of people. A business organization
exists for a purpose.

The management is the process of achieving organizational objectives through people and other
resources. It is also a function that coordinates the efforts of people to accomplish a common
goal or task in the organization.

CONCEPTS OF MANAGEMENT

The term management has been interpreted in several ways; some of which are given below:

MANAGEMENT AS AN ACTIVITY
Management is an activity just like playing, studying, teaching etc. As an activity management
has been defined as the art of getting things done through the efforts of other people.
Management is a group activity wherein managers do to achieve the objectives of the group. The
activities of management are:
l Interpersonal activities l Decisional activities
l Informative activities

MANAGEMENT AS A PROCESS
Management is considered a process because it involves a series of interrelated functions. It
consists of getting the objectives of an organization and taking steps to achieve objectives. The
management process includes planning, organizing, staffing, directing and controlling functions.
Management as a process has the following implications:
 Social Process: Management involves interactions among people. Goals can be achieved
only when relations between people are productive. Human factor is the most important
part of the management. 


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  Integrated Process: Management brings human, physical and financial resources
together to put into effort. Management also integrates human efforts so as to maintain
harmony among them. 

 Continuous Process: Management involves continuous identifying and solving
problems. It is repeated every now and then till the goal is achieved. 

 Interactive Process:Managerial functions are contained within each other. For example,
when a manager prepares plans, he is also laying down standards for control.

NATURE AND CHARACTERISTICS OF MANAGEMENT

The salient features which highlight the nature of management are as follows:
 Management is goal-oriented: Management is not an end in itself. It is a means to
achieve certain goals. Management has no justification to exist without goals.
Management goals are called group goals or organisational goals. The basic goal of
manage- ment is to ensure efficiency and economy in the utilisation of human, physical
and financial resources. The success of management is measured by the extent to which
the established goals one achieved. Thus, management is purposefull.

 Management is universal: Management is an essential element of every organised

activity irrespective of the size or type of activity. Wherever two or more persons are
engaged in working for a common goal, management is necessary. All types of organi-
sations, e.g., family, club, university, government, army, cricket team or business, require
management. Thus, management is a pervasive activity. The fundamental principles of
management are applicable in all areas of organised effort. Managers at all levels perform
the same basic functions.

 Management is an Integrative Force: The essence of management lies in the

coordination of individual efforts in to a team. Man- agement reconciles the individual
goals with organisational goals. As unifying force, management creates a whole that is
more than the sum of individual parts. It integrates human and other resources.

 Management is a Social Process: Management is done by people, through people and

for people. It is a social process because it is concerned with interpersonal relations.
Human factor is the most important element in management. According to Appley,
“Man- agement is the development of people not the direction of things. A good manager
is a leader not a boss. It is the pervasiveness of human element which gives management
its special character as a social process”.

 Management is multidisciplinary: Management has to deal with human behaviour

under dynamic conditions. Therefore, it depends upon wide knowledge derived from
several disciplines like engineering, sociology, psychology, economics, anthropol- ogy,
etc. The vast body of knowledge in management draws heavily upon other fields of
study.

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  Management is a continuous Process: Management is a dynamic and an on-going
process. The cycle of management continues to operate so long as there is organised
action for the achievement of group goals.

 Management is Intangible: Management is an unseen or invisible force. It cannot be

seen but its presence can be felt everywhere in the form of results. However, the
managers who perform the functions of management are very much tangible and visible.
 Management is an Art as well as Science: It contains a systematic body of theoretical
knowledge and it also involves the practical application of such knowledge. Management
is also a discipline involving specialised training and an ethical code arising out of its
social obligations.

On the basis of these characteristics, management may be defined as a continuous social process
involving the coordination of human and material resources in order to accomplish desired
objectives. It involves both the determination and the accomplishment of organisa- tional goals.

OBJECTIVES OF MANAGEMENT

The objectives of management are narrated as under.

 Organisational Objectives:Management is expected to work for the achievement of the
objectives of the particular organisation in which it exists. Organisational objectives
include:
o Reasonable profits so as to give a fair return on the capital invested in business
o Survival and solvency of the business, i.e., continuity.
o Growth and expansion of the enterprise
o Improving the goodwill or reputation of the enterprise.

 Personal Objectives: An organisation consists of several persons who have their own
objectives. These objectives are as follows:
o Fair remuneration for work performed
o Reasonable working conditions
o Opportunities for training and development
o Participation in management and prosperity of the enterprise
o Reasonable security of service.

 Social Objectives: Management is not only a representative of the owners and workers,
but is also responsible to the various groups outside the organisation. It is expected to
fulfil the objectives of the society which are given below:
o Quality of goods and services at fair price to consumers.
o Honest and prompt payment of taxes to the Government.
o Conservationofenvironmentandnaturalresources.
o Fair dealings with suppliers, dealers and competitors.
o Preservation of ethical values of the society.

ROLE AND IMPORTANCE OF MANAGEMENT

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Management is indispensable for the successful functioning of every organisation. It is all the
more important in business enterprises. No business runs in itself, even on momentum. Every
business needs repeated stimulus which can only be provided by management. According to
Peter Drucker,“ management is a dynamic lifegiving element in an organisation, without it the
resources of production remain mere resources and never become production”.

The importance of management has been highlighted clearly in the following points:
 Achievement of group goals: A human group consists of several persons, each
specialising in doing a part of the total task. Each person may be working efficiently, but
the group as a whole cannot realise its objectives unless there is mutual cooperation and
coordination among the members of the group. Manage- ment creates team-work and
coordination in the group. He reconciles the objectives of the group with those of its
members so that each one of them is motivated to make his best contribu- tion towards
the accomplishment of group goals. Managers provide inspiring leadership to keep the
members of the group working hard.

 Optimum utilisation of resources: Managers forecast the need for materials, machinery,
money and manpower. They ensure that the organisation has adequate resources and at
the sametime does not have idle resources. They create and maintain an environment
conducive to highest productivity. Managers make sure that workers know their jobs well
and use the most effi- cient methods of work. They provide training and guidance to
employeers so that they can make the best use of the available resources.

 Minimisation of cost: In the modern era of cut-throat competition no business can

succeed unless it is able to supply the required goods and services at the lowest possible
cost per unit. Manage- ment directs day-to-day operations in such a manner that all
wastage and extravagance are avoided. By reducing costs and improving efficiency,
managers enable an enterprise to be com- petent to face competitors and earn profits.

 Survival and growth: Modern business operates in a rapidly changing environment. An

enterprise has to adapt itself to the changing demands of the market and society.
Management keeps in touch with the existing business environment and draws its
predictions about the trends in future. It takes steps in advance to meet the challenges of
changing environment. Changes in busi- ness environment create risks as well as
opportunities. Manag- ers enable the enterprise to minimise the risks and maximise the
benefits of opportunities. In this way, managers facilitate the continuity and prosperity of
business.

 Generation of employment: By setting up and expanding business enterprises, managers

create jobs for the people. People earn their livelihood by working in these organisations.
Managers also create such an environment that people working in enterprise can get job
satisfaction and happiness. In this way managers help to satisfy the economic and social
needs of the employees.

 Development of the nation: Efficient management is equally important at the national

level. Management is the most crucial factor in economic and social development. The

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 development of a country largely depends on the quality of the management of its
resources. Capital investment and import of technical knowhow cannot lead to economic
growth unless wealth producing resources are managed efficiently. By producing wealth,
management increases the national income and the living standards of people. That is
why management is regarded as a key to the economic growth of a country.
PRINCIPLES OF MANAGEMENT

A principle refers to a fundamental truth. It establishes cause and effect relationship between
two or more variables under given situation. They serve as a guide to thought & actions.
Therefore, management principles are the statements of fundamental truth based on logic
which provides guidelines for managerial decision making and actions.

HENRI FAYOLS 14 PRINCIPLES OF MANAGEMENT

1. Division of Work – specialization of work labor is necessary for organizational success.
2. Authority – the right to give orders must accompany responsibility.
3. Discipline – obedience and respect helps the organization run smoothly.
4. Unity of Command – each employee should receive order from only one superior.
5. Unity of Direction – the efforts of everyone in the organization should be coordinated
and focused in the same direction.
6. Subordination of Individual Interest – resolving the tug of war between personal and
organizational interest in favor of the organization is one of management’s greatest
difficulties.
7. Remuneration – employees should be paid fairly in accordance with their contribution.
8. Centralization – the relationship between centralization and decentralization is a matter
of proportion; the optimum balance must be found for each organization.
9. Scalar Chain – subordinates should observe the formal chain of command unless
expressly authorized by their respective superiors to communicate with each other.
10. Order – both material things and people should be in their proper places.
11. Equity – fairness that results from a combination to kindliness and justice will lead to
devoted and loyal service.
12. Stability and Tenure of Personnel – people need time to learn their jobs.
13. Initiative – one of the greatest satisfaction is formulating and carrying out a plan.
14. Esprit de Corps – harmonious efforts among individuals is the key to organizational
success.

THE MANAGER’S JOB

The manager’s job is to combine human and technical resources in the best way possible to
achieve the company’s goal. Managers are not involved directly in production; that is, they do
not produce finished products themselves. Instead, they direct the efforts of others to accomplish
goals.

Managers must exercise three basic types of skills: technical, human and conceptual skills.
All managers must acquire these skills in varying propositions, although the importance of each
type of skill changes at different management levels.

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Technical Skills – are the manager’s ability to understand and use techniques, knowledge and
tools and equipment of a specific discipline or department.

Human Skills – are interpersonal skills that enable a manager to work effectively with and
through people. Human skills include the ability to communicate with, motivate, and lead
employees to accomplish the assigned activities. Managers need human skills to interact with
people both inside and outside the organization.

Conceptual Skills – determine a manager’s ability to see the organization as a unified whole and
to understand how each part of the overall organization interact with other parts. These skills
involve an ability to see the bigger picture by acquiring, analyzing and interpreting information.
Conceptual skills are especially important for top-level managers, who must develop long-range
plan for the future direction of the organization.

THE MANAGEMENT PROCESS

Management is a process, a non-stop process of ensuring continuity and growth within an
organization. It involves goal setting, executing the plan, Measuring results and Sustaining
operations-the four GEMS of Management. These GEMS assume the framework of a wheel,
signifying that the entire management process is a continuous cycle.

4 Gems of Management refers to Goal, Execution, Measurement and Sustenance, all of

which are important to the success of a business. There is a key role that a manager of a
company plays. The manager is responsible of ensuring the accomplishment of the
organizational goals by working with and through people. This includes planning, organizing,
staffing, leading, or directing and controlling to accomplish the organization’s goal.

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The GEMS Management Wheel
Stage 1: Goal Setting 1. Synthesizing Information 2. Formulating Alternative 3. Deciding on
Courses of Action 4. Establishing Goals
Stage 2: Executing the Plan 5. Organizing 6. Communicating 7. Guiding
Stage 3: Measuring Results
Stage 4: Sustaining Growth 8. Promoting Change 9. Developing People

ROLE AND RESPONSIBILITIES OF A MANAGER

A manager in the workplace is responsible for a lot of duties-most of them supervisory in nature.
In a small business, the manager is often a jack-of-all-trades. Though he/she may oversee
aspects of the business, hhis/her responsibilities may be hands-on as well. In medium sized and
large corporations, you might find layers of management levels, each with specific duties.
Specifically, the responsibilities of a manager include the following:
1. Staffing
2. Communication
3. Training
4. Administrative Investigation and Discipline
5. Employee Relations
6. Business Growth and Sustainability

DIFFERENCE BETWEEN HARD SKILLS AND SOFT SKILLS

Here are the three differences between the two skills:

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 1. To be good at hard skills, it usually utilizes the Intelligent Quotients or IQ (also known
as your left-brain – the logical center; while to be good at soft skills usually takes
Emotional Quotient or EQ (also known as your right brain – the emotional center.
Examples of hard skills are math, physics, accounting, programming, biology, statistics,
chemistry etc. While examples of soft skills are self-management skills like self-
confidence, stress management and peole skills like communication nr networkign skills,
persistence and perseverance, patience etc.
2. Hard skills are rules where rule stay the same regardless of cicrcumstance, organization
culture and co-employee. In constrast, soft skills are skills where the rules change
depending on the circumstances, organizational culture and people you work with.
3. Hard skills can be learned in schools or trainings. There are usually designated levels of
expertise and a direct path as to how one excels with each hard skill. In contrast, there is
no simple path in learning soft skills. Most soft skills are not directly taught in school and
have to be learned during interaction with other people in school or during the on-the-job-
training.

All jobholders need to have hard skills and soft skills in order to succeed in their chosen career or
profession.

DEFINITION OF JOB COMPETENCY

Job Competency – is defined as the ability of an individual to do a job properly. A competency

is also the capacity to follow a set of defined behaviors. It is a structured guide that enable the
identification, evaluation and development of the behaviors of each employee. It is the
combination of knowledge, skills, abilities, and personal attributes that contribute to enhance
employee performance and ultimately result in organization success. Core competencies are
those that organizations identify as the contributing the most toward achieving strategic results.

According to Personnel Management in the 21st century, job competency is also defined as the
underlying characteristics of the employee (knowledge, skill, attitude and motivation) which
results in effective or superior performance.

The following are some of the common core competencies required of an employee for
excellence performance:
Adaptability Leadership Customer Focus
Commitment Independence Teamwork
Creativity Emotional Stability Cooperation
Motivation Analytical Reasoning Result Orientation
Foresight Communication Skills

There are competencies required depending upon the kind of job an employee is holding, the
culture of the company, and his/her rank or position in the organization. For managers and
executives, for example, leadership competencies required are talent management, change
management, team leadership, conflict management, project management, negotiation and
influence etc.

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THE FIRM AND IT’S ENVIRONMENT

Business Environment refers to the factors or elements affecting business organization. The
business environment may be classified into two types:

Internal Business Environment - refers to the forces/factors within the organization which my
affect, either positively or negatively, the performance of the organization.

External Business Environment - refers to the forces/factors outside the organization which my
affect, either positively or negatively, the performance of the organization.

The General External Business Environment Includes: • Economic • Socio-cultural •

Politico-legal • Demographic • Technological • World and ecological situations.

The Specific External Business Environment Includes: • Stakeholders • Customers • Pressure

groups • Investors • Employees

The Internal Business Environment Includes: • The organizations’ resources • Research and
Development • Production • Procurement of supplies • Products and services offered

ENVIRONMENTAL SCANNING
 Involves the seeking for and sorting through data about the organization’s environment.
 It 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

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

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

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  Is the set of beliefs and values shared by organization members and which guide them as
they work together to achieve their common purpose.
 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.
 Is the set of beliefs and values shared by organization members and which guide them as
they work together to achieve their common purpose.

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.
 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
 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.

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.
 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?”
 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)

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  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.

THE LOCAL BUSINESS ENVIRONMENT

Local business is driven by specific local condition and market characteristics. Yet, it also
operates in a larger economic context. At the local level, the business must compete for
employees, resources from suppliers at a competitive price, local advertising and marketing
channels. The most successful businesses are well-managed creating a compelling value
proposition relative to its local competitors. So, business intelligence and local community
buyer values are critical for management pricing, inventory, and marketing strategies. Still, a
local business operates in a larger economic context. The mood and sentiments of the overall
economy influences local businesses dramatically. Many of these forces are beyond the control
of local businesses, yet, often determine success and failure. Access to capital, levels of
consumer spending, the overall health of the economy, ability to lease spacive and equipment,
unusual weather, all present challenges to local businesses. Finally, the regulatory environment
places controls, regulations and taxes on local businesses that directly affect profitability and
business sustainability.

THE INTERNATIONAL BUSINESS ENVIRONMENT

The international business environment is the government outside the Philippines and in
different sovereign countries with factors that are distinct to the home environment of the
organization and the foreign country where the organization operates.

For the most part, economic factors have a huge impact on companies working in an
international business environment. The foreign country’s monetary system, inflation and
interest rates are some of the items that organizations have to look into when putting up
businesses in other countries outside the Philippines. Then we have the political environment
which influences government legislations, rules and regulations that can either be friendly or
unfriendly to business.

THE ROLE OF BUSINESS IN RELATION TO THE ECONOMY

The critical role that business plays in the economy cannot be overemphasized. Image a world
where we have to produce everything that we consume –food, clothes, vehicle, furniture etc. It
not only take time and effort but oftentimes huge resources in order to build or manufacture what
we consume. Business obtains such resources as materials, labor and equipment to be able to
produce goods and services. As a result of business, commerce and markets, consumers are able
to live more comfortably and improve their standard of living conditions. Consumers are able to
enjoy a variety of goods and services because procedures and suppliers compte for markets and
regularly attempt to improve their products and services so that the same will be patronized.

ECONOMIC DEVELOPMENT

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  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.
 Economic Development is the process by which a nation improves the economic,
political, and social well-being of its people.
 Economic Development can be defined as efforts that seek to improve the economic
well-being and quality of life for a community by creating and/or retaining jobs and
supporting or growing incomes and the tax base.

5 PHASES OF ECONOMIC DEVELOPMENT

1. MALTHUSIAN • Proposed by Thomas Robert Malthus (1766 – 1834) • A theory about
economic growth which depends on the rate of the population of a certain area • The
economic growth is inversely proportional to the population. The smaller population, the
higher the economic growth and vice versa.
2. GOVERNMENT – LED ( LOCAL ECONOMIC DEVELOPMENT) • An approach
towards economic development which allows and encourages local people to work
together to achieve sustainable economic growth and development. • Support the
formation of a partnership between local and national institutions towards strategic
implementations.
3. A LA KUZNETS (GOVERNMENT VS. ENVIRONMENT) • Proposed by Simon
Kuznets • The existence of a pattern or behavior, between economic growth and
environmental degradation, consistent with the environmental Kuznets curve (EKC)
hypothesis.
4. HUMAN CAPITAL BASED • Is a measure of the economic value of an employee’s
skill set. • Refers to the knowledge, skill sets and motivation that people have, which
provide economic value. • It could be invested in through education, training and
enhanced benefits that lead to an improvement in the quality and level of production.
5. POST DEMOGRAPHIC TRANSITION • proposed in 1929 by Warren Thompson • is
the transition from high birth and death rate to lower birth and death rate as the country
develops from pre-industrial to an industrialized economic system • fertility rate
decreases when child mortality is low, and is weakly dependent in GDP.

SCANNING THE ENVIRONMENT: PESTEL ANALYSIS

A PESTEL analysis or PESTLE analysis (formerly known as PEST analysis) is a framework

or tool used to analyse and monitor the macro-environmental factors that may have a profound
impact on an organisation’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 stand for
Political, Economic, Social, Technological, Environmental and Legal factors.

A PESTEL Analysis is an analytical tool for strategic business planning, incorporating strategies
and programs to reach the business goals. A PESTEL analysis is used to identify and analyse the
key drivers of change the external business environment, as well as when plans to launch a new
product, project or service into the market is considered. This can be used for business planning,

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strategic planning, marketing planning, product development, organisational planning, and
research reports. The idea of this tool is to analyse the external environment from many different
angles, and to provide a complete evaluation when considering a certain idea or plan, providing
insight to whether a project is better placed than its competitors, and if its able to respond to
change more effectively. Understanding these environments helps to minimize threats, while
maximizing opportunities. Environmental scanning can help business identify opportunities in
the market while avoiding costly mistakes or risks.

All aspects (or environments) are important in delivering a multi visioned analysis of the
organisations external environment. Although different industries will hold higher value to one
environment over another, it is imperative to apply all aspects to any business strategy who
wants to develop, grow or even sustain their involvement in the market. A PESTEL analysis
forms a much more comprehensive result over a SWOT analysis.

When the factors for each environment are assessed, this information can then be analysed
further using a SWOT analysis to identify the threats and weakness associated with each of the
factors.

POLITICAL FACTORS:
These factors involve governmental influences effecting the economy and how a business can be
operated.These factors are all about how and to what degree a government intervenes in the
economy or a certain industry. Basically all the influences that a government has on your
business could be classified here. This can include government policy, political stability or
instability, corruption, foreign trade policy, tax policy, labour law, environmental law and trade
restrictions. Furthermore, the government may have a profound impact on a nation’s education
system, infrastructure and health regulations. These are all factors that need to be taken into
account when assessing the attractiveness of a potential market.

ECONOMIC FACTORS:
These factors determine an economy’s performance resulting in impacting the organisations
operational capabilities as well as their profitability and sustainability Economic factors are
determinants of a certain economy’s performance. Factors include economic growth, exchange
rates, inflation rates, interest rates, disposable income of consumers and unemployment rates.
These factors may have a direct or indirect long term impact on a company, since it affects the
purchasing power of consumers and could possibly change demand/supply models in the
economy. Consequently it also affects the way companies price their products and services.

SOCIAL FACTORS:
Also known as socio-cultural factors, these factors consider the beliefs, attitudes and trends of
the population that affect the market and community socially. This requires the advantages and
disadvantages the product holds to the community to be consideredThis dimension of the general
environment represents the demographic characteristics, norms, customs and values of the
population within which the organization operates. This inlcudes population trends such as the
population growth rate, age distribution, income distribution, career attitudes, safety emphasis,
health consciousness, lifestyle attitudes and cultural barriers. These factors are especially

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important for marketers when targeting certain customers. In addition, it also says something
about the local workforce and its willingness to work under certain conditions.

TECHNOLOGICAL FACTORS:
In a world of technological innovation and increased demand on technology, these factors impact
the way organisations market their products, as well as platforms for marketing itself, while also
realizing technology often becomes outdated within a short period of time after its released.
These factors pertain to innovations in technology that may affect the operations of the industry
and the market favorably or unfavorably. This refers to technology incentives, the level of
innovation, automation, research and development (R&D) activity, technological change and the
amount of technological awareness that a market possesses. These factors may influence
decisions to enter or not enter certain industries, to launch or not launch certain products or to
outsource production activities abroad. By knowing what is going on technology-wise, you may
be able to prevent your company from spending a lot of money on developing a technology that
would become obsolete very soon due to disruptive technological changes elsewhere.

ENVIRONMENTAL FACTORS:
These factors consider ecological and environmental aspects including those which influence or
are determined by the the surrounding environment. Environmental factors have come to the
forefront only relatively recently. They have become important due to the increasing scarcity of
raw materials, polution targets and carbon footprint targets set by governments. These factors
include ecological and environmental aspects such as weather, climate, environmental offsets
and climate change which may especially affect industries such as tourism, farming, agriculture
and insurance. Furthermore, growing awareness of the potential impacts of climate change is
affecting how companies operate and the products they offer. This has led to many companies
getting more and more involved in practices such as corprate social responsibility (CSR) and
sustainability.

LEGAL FACTORS:
The legal considerations can be a make or break for an organisation. Although PESTEL analysis
is typically and external evaluation, Legal factors considered need both internal and external
consideration. With governmental laws laws effecting how an organisation acts, internal policies
are also taken into account when developing strategies for the company. If these factors are not
continually reviewed, large fines, imprisonment and business closure can become reality.

Although these factors may have some overlap with the political factors, they include more
specific laws such as discrimination laws, antitrust laws, employment laws, consumer protection
laws, copyright and patent laws, and health and safety laws. It is clear that companies need to
know what is and what is not legal in order to trade successfully and ethically. If an organisation
trades globally this becomes especially tricky since each country has its own set of rules and
regulations. In addition, you want to be aware of any potential changes in legislation and the
impact it may have on your business in the future. Recommended is to have a legal advisor or
attorney to help you with these kind of things.

ADVANTAGES OF A PESTEL ANALYSIS

 Helps to understand and provide insight into the business environment

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  Encourages strategic thinking and promotes innovation
 Reduces risk when introducing new strategies
 Reduces the effects of future threats to the organisation
 Opens new opportunities
 Model is simple to use
 Promotes team collaboration

DISADVANTAGES OF A PESTEL ANALYSIS

 Continual analysis and updates given the changing market
 Requires diversity in perspectives to achieve deeper analysis
 Mainly based on assumptions given its future vision
 Collaboration of of data can be time consuming and expensive
 Missing data or unexpected changes in the market can lead to financial losses

SWOT ANALYSIS
SWOT analysis (or SWOT matrix) is a strategic planning technique used to help a person or
organization identify strengths, weaknesses, opportunities, and threats related to business
competition or project planning. It is intended to specify the objectives of the business venture or
project and identify the internal and external factors that are favorable and unfavorable to
achieving those objectives.

Users of a SWOT analysis often ask and answer questions to generate meaningful information
for each category to make the tool useful and identify their competitive advantage. SWOT has
been described as the tried-and-true tool of strategic analysis, but has also been criticized for its
limitations.

Strengths and weakness are frequently internally related, while opportunities and threats
commonly focus on the external environment. The name is an acronym for the four parameters
the technique examines:
 Strengths: characteristics of the business or project that give it an advantage over others.
 Weaknesses: characteristics of the business that place the business or project at a
disadvantage relative to others.
 Opportunities: elements in the environment that the business or project could exploit to
its advantage.
 Threats: elements in the environment that could cause trouble for the business or project.

The degree to which the internal environment of the firm matches with the external environment
is expressed by the concept of strategic fit. Identification of SWOTs is important because they
can inform later steps in planning to achieve the objective. First, decision-makers should
consider whether the objective is attainable, given the SWOTs. If the objective is not attainable,
they must select a different objective and repeat the process.

FORMS OF BUSINESS ORGANIZATIONS

Business firms are organized into three district groups. They are as follows:
 The major forms

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  The minor forms
 The modified corporate form.

MAJOR FORMS OF BUSINESS ORGANIZATION

The major forms of business organization are the most common and they consist of the
following:
1. Sole Proprietorship- is a business firms owned and operated by a single person. The
sole proprietorship hires other people to help him in operating the business. The sole
proprietorship is the most popular form of business organization.
2. Partnership -is that form of business organization owned and operated by two or more
person.
Types of Partnership – Prospective partners are provided with two options in organizing
a partnership. They may establish any of two types of partnership which are as follows:
 General Partnership – is an association of two or more person who are actively
involved in the business and all of which have limited liabilities.
 Limited Partnership - is an arrangement whereby the liability of one or more
partners is limited to the amount invested in the business. It is a requirement,
however that there must be at least one partner with limited liability.
3. Corporation–is a business firm owned by individuals or other corporations.

MAJOR FORMS OF BUSINESS ORGANIZATION:

POSITIVE AND NEGATIVE FEATURES
Business Aspect Sole Partnership Corporation
Proprietorship
Liability of owners Unlimited Limited/unlimited Limited
Ease of expansion Not easy Not easy Easy
Life of firm Dependent on Dependent on the partners Not dependent on
the owner the owners
Decision making Can be made Tends to be slower Tends to be the
quickly slowest
Taxation of income Once Once Twice
Ease of formulation Easiest Easy Not easy

THE MINOR FORMS OF BUSINESS ORGANIZATION

 The joint stock company - is a form of business wherein the capital is divided into small
units permitting a number of investors to contribute varying amounts to the total profits
being divided between the stockholders in proportion to the number of shares they own.
 The joint venture - is a partnership established for a specific project or for a limited
time. A joint venture is formed when a foreign company finds a local partner to share the
costs and operation of the business.
 The business trust - is a legal form of a business organization where a trustee is
appointed to manage the business and its operations through a trust relationship.

THE MODIFIED CORPORATE FORM OF BUSINESS ORGANIZATION

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The corporate form of ownership was modified to suit special requirements. These are two forms
which have become popular: the cooperatives and mutual companies.
1. Cooperatives- A cooperative is a firm owned by a group of people who have a common
objective and who collectively bear the risks of the enterprise and share its profits.
Cooperatives are formed to make their members individually profitable or to save money.
There are different kinds of cooperatives. They are the following:
 Credit union- This is one that accepts deposit from its members and lends money,
also to its members, at reasonable rates.
 Producer’s Cooperative – This is organized by members to mutually assist one
another in the procurement of raw materials, machinery equipment, and other needs
of the producers.
 Marketing Cooperative- This is organized to assist its members in the marketing of
their products.
 Consumer’s Cooperative- The purpose of this firm is to provide members with
quality goods and services at reasonable prices.
 Service Cooperative- This firm is organized to make services readily available to its
members at a lower cost.
2. Mutual Companies – A mutual company is a financial service firm (such as an
insurance company or a savings and loan association) owned by its policyholders or
depositors. There are two types of mutual companies. They are the following:
 Mutual Savings Banks – These are firms owned by depositors which specialize in
savings and mortgage loans. The profits of these companies are remitted to the
depositors.
 Mutual Insurance Company – This is Cooperative Corporation organized and
owned by the policyholders.

SOURCES OF FINANCING FOR BUSINESS FIRMS

Types of Organization Financing Source
Single proprietorship -owner’s personal funds
-borrowings from private persons or banks
Partnership -partner’s personal funds
-borrowings from private persons or banks
Corporation -sale of shares of stocks
-borrowings through insurance of debt instruments
like bonds and promissory notes
- borrowings from banks

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