LAGOS CITY POLYTECHNIC E-LEARNINGSCHOOL OF MANAGEMENT AND BUSINESS STUDIES

DEPARTMENT OF BUSINESS ADMINISTRATION PROGRAMME: Higher National Diploma in Business Administration and

Management

COURSE TITLE: Nigerian Business Environment

COURSE CODE: BAM 417

CREDIT HOURS: 3 HOURS A WEEK

LECTURER: OBADIPE A.J.

PROGRAMME GOAL: This course is designed to educate the students on the concept of environment with emphasis on the

characteristics of Nigerian Business Environment with a view of enabling them to understand the interactions between a business organization and its relevant environmental forces that impact on or affect its

performance.

OBJECTIVES:

At the end of this course, the students should be able to:

Know the concept of Organization Understand the concept of systems and systems view of business. Understand the definitions, meanings and the concept of environment. Know the typology of organizational environment. Understand the dimensions of the environment and the need for environmental

analysis Understand the interaction between environmental characteristics and business

performance.

1

COURSE OUTLINESChapter 1: The Concept of Organizations

1.1: Definition of Organizations

1.2: Types of Organizations

1.3: Organizational Goals

1.4: Organizational Structures

1.5: Organizational Effectiveness

1.6: Assignments

1.7: Quizzes

Chapter 2: THE CONCEPT OF SYSTEMS AND SYSTEMS VIEW OF BUSINESS

2.1: Introduction

2.2: Meaning of System

2.3: Types of Systems

2.4: Differences between Open and Closed systems

2.5: Organization as a System

2.6: Quality of an Ideal System

2.7: Importance of Systems approach to Modern Day Organizations.

2.8: Assignments

2.9: Quizzes

2

Chapter 3: THE CONCEPT OF ENVIRONMENT

3.1: Introduction

3.2: The Meaning of Business Environment

3.3: Structure of the Business Environment

3.4: Elements or Forces of the Environment in Nigeria

3.5: Assignments

3.6: Quizzes

Chapter 4: THE NEED FOR ENVIRONMENTAL ANALYSIS AND RESPONDING TO ENVIRONMENTAL CHANGES

4.1: Introduction

4.2: The meaning of environmental scanning

4.3: Types of environmental scanning

4.4: Questions asked by Mangers on Environmental Scanning

4.5: Techniques for scanning the business environment

4.6: Assignments

4.7: Quizzes

Review Questions

3

CHAPTER ONETHE CONCEPT OF ORGANIZATIONS

1.1 Definition of Organizations

An Organization is an entity comprising multiple people, such as an institution or an association, that has a collective goal, and is linked to an external environment. Henry Mintzberg suggests that organizations can be differentiated along three basic dimensions: (1) the key part of the organization, that is, the part of the organization that plays the major role in determining its success or failure; (2) the prime coordinating mechanism, that is, the major method the organization uses to coordinate its activities; and (3) the type of decentralization used, that is, the extent to which the organization involves subordinates in decision-making process.

Organizations exists to achieve goals. These goals are broken down into tasks as the basis for jobs. Jobs are grouped into departments. Departments in organizations may be characterized by marketing, sales, advertising, manufacturing and so on. Within each department, even more distinctions can be found between the jobs people perform. Departments are linked to form the organizational structure.

1.2 Types of Organization

In management, there are two types of organizations. But these types of organizations are found in the organization. These types of organization are simply called formal organization and informal organization.

1.2.1 Formal Organization

A formal organization which is a social system has its roles deliberately created so that the objective of the organization can be achieved Consequently, the features which are associated with formal organizations are:

a) There must be policies and objectives. These policies must be consciously created. And there must be verifiable objectives which are formulated taking the policies into consideration. These objectives are not only for the entire organization but also for the department and sections.

b) The activities of individuals in a formal organization are coordinated. This means that one activity must be linked with another activity. Through this process the entire activities being carried out in the organization move in the same direction.

4

c) The persons in a formal organization must be able to communicate with one another through the appropriate channel which have been created. Consequently, the issue of keeping malice with a fellow worker(s) is ruled out because nothing works in a formal organization without communication taking place.

d) The employees in a formal organization must share a purpose. And the purpose is the reason why the organization is in existence. Such purpose is usually reflected in the mission statement of the organization.

e) The workers in a formal organization on the receipt of necessary directive for their manager must be willing to act. But in acting, it should not be on the individual level; the whole workers must cooperate with one another in their actions.

1.2.2 Informal Organization

The informal organization is a network of personal and social relations not established or required by the formal organization but arising spontaneously as people associate or come together. That is why informal organizations exist in a formal organization. From here, we can see the features of an informal organization which are:

a) The association exist merely as social interactions.b) There is no common or consciously coordinated joint purpose among members

even though they may be contributing to joint result.c) Compatibility is a major criterion for such grouping. Since the informal group

exist in a formal group they can assist or interfere with the enterprise interests.d) The form of punishment that the informal group members can give to an erring

member is to ostracize him. This means that members of the informal group will refrain from talking and interacting with the member under punishment until he turns a “new leaf”.

1.3 Organizational Goals/Objectives

All organizations are purposive. They are established to accomplish an objective. Individuals in an organization work in order to help accomplish these objectives. These individuals wish to accomplish their own goals through the organization. When the goals of the individual and the goals of the organization are the same, we have goal congruency. An organization’s goal could be implicit and require explicit formulation before they could be realized. Goals can be differentiated between official and operative goals. The official goals are mainly for “public consumption” while operative goals are those that are in fact pursued by the

5

organization and this influences its operation. It could be the official goal of the Nigerian National Petroleum Corporation to protect the environment, while the company dumps pollutants into rivers, streams and lakes. Here the goal reflects societal expectations from it. In some instances, the official goal and operative goals could be the same and only differ by the degree of specificity.

Organizations typically develop three types of goals - strategic, tactical and operational goals.

i. Strategic Goals: These are broadly defined targets or future end results set by top level management. Strategic goals are developed for long periods of time usually five or more years. The goals are central to all of organization’s planning and activities. No wonder strategic goals are sometimes called official goals because they are formally stated by top management.

ii. Tactical Goals: These are intermediate goals of the firm set by middle level management for specific departments or units. It is designed to stimulate actions necessary for achieving the strategic gas. Tactical goals tend to be stated in a more specific and measurable terms than strategic goals. They are also stated for a shorter time period. Tactical goals become the basis for tactical planning, about how to carry out the functional operations.

iii. Operational Goals: These are goals that are set by lower level management and address activities that must be performed before tactical goals can be fulfilled. They are specific measurable goals that are applied to specific work operations.As seen above, all the three goals are highly related: The achievement of the operational goals automatically leads to the realization of the tactical goals.

1.3.1 Characteristics of Good Goals

Certain basic characteristics distinguish good goals form “wishes”. Good goals must possess the following qualities:

a) They must be specific and clearly stated.b) Their achievement must be measurable or verifiable.c) They must be realistic.d) They must specify period of achievement.e) They must include intermediate target or goals that will facilitate the attainment

of the major objectives.f) Objectives must be modern and up to date.g) They must be ranked according to relative importance.

6

Thus a good objective is measurable, specific, verifiable and attainable.

1.3.2 Advantages of Organizational Objectives

The importance of organizational objective in a developing country can hardly be overstated. As pointed out earlier, management personnel in developing countries are young, inexperienced and often have a shallow concept of organizational principle. It is not unusual for the owner not to have clearly stated objectives except “to maximize profit”. In public corporations, for example, their objectives are general at best. Often one hears such phrases as “make profit”, “be self-supporting,” etc. and these objectives move from profit making to social welfare redistribution. In civil service, the situation is worse. There are no targets, no deadlines or definite expectations from the management. It is important to highlight the need for goals.

i. Organizational goals help the organization to orient itself to its environment: A typical environment presents management with risks and opportunities. A good goal makes the organization while helping to exploit the opportunities to minimize the impact of the risks.

ii. Good organizational goals help in policy formulation and administration: All policy issues such as marketing policy, production and purchasing policy, personnel policy and financial policy are influenced by the company objectives. If a pharmaceutical company wishes to be a leader in rheumatic muscular and neuralgic pain tablets and research, the personnel policies and practices must provide for the recruitment of quality scientists for its research work, production policies must be highly imaginative and flexible to adapt to the attainment of the objectives and the financial policy must be such as to allow adequate funds for creative research and liberal remuneration to attract seasoned researchers and salesmen.

iii. Clearly stated objectives helps all sub-systems to pull in the same direction thus making for easy co-ordination of activities. Sales department and production department will complement each other. Production insist on quality products to reduce rejects and returns and allowances, the sales department will not promise unrealistic delivery dates, or insist on allowing discount on high quality items. Advertising will stress quality and service and not price.

iv. Clear objectives make for consistency and unit of purpose and direction. It prevents management from stressing short-run gains at the expense of long-run company objectives. Objectives serve as motivators and provide a definite direction.

7

1.3.3 Common Organizational Goals

There was a time economists believed that “the sole purpose of any business was to maximize profit”. This concept is still shares by in many people developing countries. These organizations stress short-run objectives. In their recruitment policy, they will hire poorly qualified employees who us their companies as a training ground to gain experience; they insist on high mark-up, and low-rent stores. In the long-run. They lose business to bigger organizations that insist on well trained, experienced employees with its attendant low cost as a result of reduction in the number of rejects and returns, customer loyalty, and the advantages that accrue from high volume turnover of products. The major organizational goals include: (a) Profitability (b) Survival (c) Growth (d) Market-share (e) Productivity (f) Innovation (g) Employee welfare (h) Service to customers and (i) Social responsibility.

It must be emphasized that objectives must be set for every department, for each supervisor and for each employee. “It is important that every human being has one or more goals towards which he is striving. It is supreme in his thoughts and serves as the pinnacle of this hopes and ambition”.

1.3.4 Personal and Organizational Objectives

As pointed out, all individuals have personal objectives which they plan to achieve through the organization. People act in a manner that will help them attain the desired objectives. A typical employee goals can be divided into two main groups. There are certain objectives that he aims at achieving in the short-run and those he looks forward to achieving sometimes in the future. Some of the objectives could include: money, excitement, security, happy life, leadership position, recognition in the society and many other broad objectives. Sometimes no clear-cut distinction is made as to the best way to attain them and no real priority is placed on them. Somehow, in his head, even if not properly articulated, there is some form of hierarchy of objectives. As a rational being, he will behave in a way that will lead to the attainment of valued goals. An employee is consistently evaluating whether the organization is the instrument through which he can attain his goals, and trying to determine whether his objectives are consistent with the goals of the organization and others in the organization. Where these differ remarkably, there is a conflict. The degree of this disparity in objectives determines the intensity of the conflict. If the individual discovers that the objectives are diametrically opposed, he may elect to withdraw his services if he has an alternative opportunity. If he has

8

none, he may decide to reorient his objectives to arrive at a reasonable compromise between his objectives and organizational goals. Every person has zone of indifference. This zone is said to be narrow if a person is relatively intolerant of disagreements between his goals and those of the organization, or wide if the person remains loyal irrespective of disagreements. Individual objectives should be incorporated in organizational objectives, and sincere efforts should be made in order to realize both. An individual who finds his objectives in serious conflict with organizational objectives should withdraw his services for the organization. Organizations and individuals function better when there is a goal congruency. Each then works towards the realization of the common objective for his survival depends on it.

1.4 Organizational Structure

Organizational Structure is about the patterns or relationship among positions and in the organization and members in the organization. Structure is clearly important in the sense that it makes possible the application of the process of management and creates a framework for orderly interaction and command through which activities of the organizations can be planned, organized, directed, and coordinated for easy managerial decisions and controls. Whether small or large, every organization needs a structure which, not cast in iron, can be constantly reviewed to keep with growth and development pace.

1.4.1 Organizational structure according to Mullins (2007) can help achieve the following objectives:

i. The economic and efficient performance of the organization and the level of resource utilization;

ii. Monitoring the activities of the organization;iii. Accountability for are of work undertaken by groups and individual

members of the organization;iv. Co-ordination of different part of the organization and different area of

work;v. Flexibility in order to respond to future demands and developments, and to

adapt to changing environmental influences; andvi. The social adaptation of members working in the organization.

1.4.2 Forms of Organizational Structure

Structuring formal organization can take any of these forms:

9

a) Functional Structure: This is a type of departmentalization in which positions are grouped according to their main functional are. That is, positions are combined into units on the basis of similarity of expertise skills and work activities. The functional structure group jobs according to similar economic activities, such as: finance, production, marketing and personnel. For example, the production unit combine activities directly related to the manufacturing of a product or the delivery of a service; marketing unit combine activities focusing on sales and promotion; personnel unit is responsible for attracting and retaining organizational members and enhancing their effectiveness; finance and accounting is concerned with obtaining and managing financial resources; and deals with financial reporting to meet the needs of both internal and external sources.An organization developing a functional structure must consider the specialized areas that are relevant to its own needs. For example, hospitals do not have product development departments, but they have admitting, emergency, room, and pharmacy departments.Churches do not have production departments but they do have youth education and choir departments. A large utility company with a functional design might have an energy generation department, a marketing department, a finance and accounting department and a personnel department.Grouping tasks and employees by function can be both efficient and economical. It is particularly for small organizations making a single product because it creates a clear hierarchy of authority and decision-making.

Advantages

Promote skill specialization and in-depth development of expertise

10

MANAGING

DIRECTOR

GM

PRODUCTION

GM

FINANCE

GM

MARKETING

GM

PERSONNEL

Reduce duplication of resources and thereby enhancing efficient utilization of resources

Enhances coordination within the functional area Enhances career development and training within the department It is logical and very easy to adopt It allows superior and subordinates to share common expertise Centralizes decision making It promotes high quality technical problem solving It enables the top management to exercise tight control on the workers It makes training and supervision easier.

Disadvantages

There is slow response on multifunctional problem The top management will have work overload, particularly on decision

making. Emphasizes routine tasks Reduces communication between departments Focuses on departmental issues rather than organizational issues there-by

restricting the views of employees Develops managers who are experts in narrow fields Delay in decision making, particularly if the organization has grown big Coordination is likely to be a problem for top management when the

organization grows.b) Division Structure: This is a type of departmentalization in which positions aregrouped according to similarity of products, location, geography, place and customer. This type of structure occurs when a firm grows so large that functional departments become cumbersome. When the weaknesses of the functional structure exceed the benefits, growing firms tend to restructure into divisionalized form. There are different divisionalized forms, but the most common types are:

i. Product Division: These are divisions created to concentrate on a single product or service or at least a relatively homogenous set of products or services. In product structure, each department is responsible for a product or a related family of products. Lawal (1993), reasoned that an organization may structure itself in this manner because of variations in production and marketing

11

MANAGING

DIRECTOR

activities of the different products manufactures. In short, this structure is useful when the firm’s goods or services are specialized and require specific expertise.

12

MANAGING DIRECTOR

GM COSMETICS

GM TEXTILE DIVISION

GM ELECTRONIC DIVISION

Advantages of Product Division

Allows greater product visibility Allows for accommodating changes resulting from growth rather than

functional structure Suited to fast changes in a product Develops managers who can think across functional lines Provides basis for performance evaluation

Disadvantages

May not use skills and resources effectively Does not foster coordination of activities across product lines Restricts problem solving to a single product Limits career mobility for personnel outside their product lines Requires managers with general management ability

ii. Place or Geographical Divisions: This is otherwise referred to as territorial organizational structure. It is used by organizations with operations in many different locations. This type of structure is often adopted when it is important to provide products or services that are tailored to the needs of different regions or nations.

13

MANAGING

DIRECTOR

GM

EASTERN REGION

GM

WESTERN REGION

GM

CENTRAL REGION

Advantages of Place or Geographic Division

Managers develop expertise in solving problems unique to one location Managers are familiar with customers’ problems within the division Organization can adapt to national differences It places responsibilities at lower levels It provides valuable training grounds for managers

Disadvantages

All functions of accounting, purchasing, manufacturing, customer services are duplicated at each division

It creates problems of control to top management over the operation of local divisions

May cause conflicts between each location’s goals and corporate goals May require extensive rules and regulations to coordinate and ensure uniformity

of quality among locations Requires managers with general management

iii. Customer Divisions: These are divisions set up to service particular types of clients or customers. It is used mainly when there are major differences in the behavior of the customers that preclude adequate coordination of the customers’ various needs within a standard functional structure. This form of structure indicates that management is sensitive to the needs of each customer segment and that it has identifies segments that have substantial sales potential.

14

MANAGING DIRECTOR

GM INSTITUTIONAL PRODUCTS

GM

INDUSTRIAL PRODUCTS

GM

HOUSEHOLD

Advantages of Customer Division

Allows greater customer focus Clearly identifies key customers Suited to understanding customers’ needs Develops managers who are customer concerned Improve Corporate image

Disadvantages

Does not foster coordination between customers Fosters politics in resource allocation Restricts problems solving to a single type of customer

c) Process Structure: This is an organizational structure that is patterned according to the specific production processes performed. For example, a dry-cleaning firm has different production processes which include: drying, ironing and packing; so also a tailoring firm has different production processes which include: cutting, sewing, finishing and packaging.

15

MANAGING

DIRECTOR

WASING DRYING IRONING PACKAGING

d) Hybrid Structure: This is an organizational structure that adopts parts of several different structures. The structure attempts to incorporate advantages of the structures so adopted. Most large organizations have some combination of functional and divisional departments.

The functional departments are created to take advantage of resource utilization efficiencies, economies of scale, or in-depth expertise and divisional departments are created when there are potential benefits from an stronger focus on products, services, or markets. The hybrid structure is otherwise called mixed structure. This structure is better used in organizations that face considerable environment uncertainty that can best be met through a divisional structure and also require functional expertise or efficiency.

16

MANAGING DIRECTOR

UAC FOODS UAC PROPERTIES

UAC BOTTLING COMPANY

UAC TRANSPORT

PRODUCTION

MANAGER

FINANCE MANAGER

PERSONNEL

MANAGER

MARKETING MANAGER

MAINTENANCE MANAGER

PERSONNEL MANAGER

FINANCE MANAGER

COPORATE SERVICE MANAGER

Advantages

An organization can often achieve specialized expertise and economies of scale in major functional areas.

Permits delegation of decision-making authority, thereby relieving top management of the overwhelming burden of having to know everything about everything

It enhances adaptability and flexibility in handling diverse products or service lines, geographic areas or customers through a partial division structure.

It helps align divisional and corporate goals It promotes loyalty and commitment among lower level members of the

organization who have delegated authority and are making important organization decisions.

Disadvantages

It develops, excessively large staff in the corporate level functional departments.

It can cause organizational conflict, because the corporate departments may attempt to exercise increasing amounts of control over the divisions.

It creates work duplication which makes the suppose economies of scale a mirage

It can lead to delay in responding to exceptional situations that require coordination between a division and a corporate functional department.

e) Matrix Structure: It is a type of structure that superimposes horizontal set of divisional reporting relationship onto a hierarchical functional structure. This structure is adopted when members of different functional departments are chosen to work together temporarily on specific contracts or projects.The temporary groups formed are called project. There are two chains of commands, one vertical and one horizontal. The functional heads make up the vertical hierarchy, while the project managers represent the divisional units that operate horizontally across the structure. The heads of the functional and divisional units are sometimes called matrix bosses.

A Typical Matrix Structure

17

MANAGING DIRECTOR

18

Advantages

It avoids duplication of function that occurs with the divisional structure It encourages decentralized decision making Improves environmental monitoring Fast response to change Professional identification is maintained Flexible use of organizational resources

Disadvantages

High administration cost It violates the principle of unity of command Possible slow response to change Heightened prospects for interpersonal conflicts Requires managers with effective human relation Confusion on organizational authority.

1.5 Organizational Effectiveness

Organizational effectiveness can be defined as the efficiency with which an association is able to meet its objectives. This means an organization that is productive that produces a desired effect or an organization that is productive without waste. Organizational effectiveness is about each individual doing everything they know how to do and doing it well; in other words, organizational efficiency is the capacity of an organization to produce the desired results with a minimum expenditure of energy, time, money, and human and material resources. The desired effect will depend on the goals of the organization, which could be, for example, making a profit by producing and selling a product. An organization, if it operates efficiently, will produce a product without waste. If the organization has both organizational effectiveness and efficiency, it will achieve its goal of making a profit by producing and selling a product without waste. In economics and the business world, this my ne referred to as maximizing profits.

The main measure of organizational effectiveness for a business will generally be expressed in terms of how well its net profitability compares with its target profitability. Additional measure might include growth data and the result of customer satisfaction surveys. Highly effective organizations exhibit strength across five areas: leadership, decision making and structure, people, work processes and systems and culture. For an organization to achieve and sustain

19

success, it needs to adapt to its dynamic environment. Evaluating and improving organizational effectiveness and efficiency is one strategy used to help insure the continued growth and development of and organization.

Measuring organizational effectiveness can be and inexact science since each individual entity will have a different list of criteria and priorities to weight and consider through self-assessment

1.5.1 Important reasons for Understanding Organizational Effectiveness

Understanding a company’s level of organizational effectiveness is important for several reasons:

It serves as a check-in to see how well internal procedures are meeting an initial vision.

It provides investors, donors, or employees with an idea of the company’s strength, and it highlights areas of ineffectiveness that can be the focus of improvements.

Organizational effectiveness measures the big-picture performance of a business across a broad range of criteria; financial performance, long-term planning, internal structure, and adherence to core values of the organization.

It helps to pin-point business effectiveness. Turning up areas of ineffectiveness can tremendously be beneficial to an organization.

Organizational effectiveness measured through employee’s self-assessment can also help company personnel reconnect with the initial mission of an organization.

1.6 ASSIGNMENTS1.6.1 Explain the features of Formal and Informal Organizations.1.6.2 What is functional organizational structure and what are the advantages and

disadvantages of this type of structure.1.6.3 Explain the concept of organizational effectiveness and what are the

measures of organizational effectiveness.1.7 QUIZZES1.7.1 Highlight the importance of organizational objectives.1.7.2 With the aid of diagram, explain the hybrid organizational structure and list

its advantages.1.7.3 List the importance reasons for understanding organizational effectiveness

20

CHAPTER TWOTHE CONCEPT OF SYSTEMS AND SYSTEMS VIEW OF BUSINESS

2.1 Introduction

Scientist and philosophers have long wrestled with the problem of how they understand and make sense of our world. There are both descriptive and prescriptive approaches to understanding our world. On the descriptive side, theories of cognition, perception and thinking describe how we humans organize stimuli and make sense out of them. On the prescriptive side, there are two approaches to making sense of the world. The first is reductionism and the other is a systems approach. Reductionism asserts that the best way to understand new phenomena is to study the functioning or properties of its individual parts. For example, the best way to understand the working of the human body is to break it into its components, (organs, muscles, tissues, bones, and cells) and to study the properties of each element (Miller and Rice, 1967).

2.2 Meaning of System

Systems study focuses on the relations between the parts. Rather than reducing an entity such as the human body into its parts or elements (e.g. organs or cells), systems study focuses on the arrangement of and relations between parts and how they work together as a whole. The way the parts are organized and how they interact with each other, determines the properties of that system. The behavior of the system is independent of the properties of the elements. This often referred to as a holistic approach to understanding phenomena.

Flood and Jackson (1991) define a system as a complex and highly interlinked network of parts exhibiting synergistic properties-the whole is greater than the sum of its parts. It is a collection of interrelated parts acting together to achieve some goal which exists in the environment. Also, system is defined as a set of objects together with relationships between the objects and between their attributes related to each other and to the environment so as to create or form a whole (Schoderbek et al, 1985). Further, Checkland (1981) defines a system as a model of a whole entity, which may be applied to human activity.

With respect to organization, system simply refers to a set of different independent parts working together in interrelated manner to accomplish a whole. It is with this essence that synergism appears. For instance, an organization is formed by

21

different departments, sections, and units composed of individuals and groups which are independent, but working together to achieve a common goal with the aim of turning organizational vision into reality. A system in an organization is also a collection of parts (or subsystems) integrated to accomplish an overall goal (a system of people in an organization). Systems have inputs, transformation processes, outputs, and ongoing feedback among these various parts. If one part of the system is removed, the nature of the system is changed.

Source: Weihrich, et al (2008). Input – output model

In their own opinion, the following sub topics are the basic components of a system.

i) Inputs The composition of inputs from the external environment may include people, capital, managerial skills as well as technical knowledge. It also includes the various claimants – groups of people making demands on the organization; such as employees, consumers, suppliers, stockholders, federal, state and local governments.

ii) Transformation processIn an organizational system, inputs are transformed in an effective and efficient manner into outputs. This can be viewed from different perspectives. Focus can be on such management functions as: finance, production, personnel and marketing.

iii) Outputs

22

Inputs Transformation Process

Outputs

Feedback

Inputs are secured and utilized by transformation through the managerial functions-with due consideration for external variables into outputs. Outputs of different kinds vary with the organization. They usually include many of the following: products, services, profits, satisfaction and integration of the goals of various claimants to the organization.

iv) FeedbacksAccording to Gibson et al (1997), the concept of the organization as a system that is related to a larger system, introduces the importance of feedback. Organizations depend on the environment not only for its inputs, but for the acceptance of its outputs.Consequently, they must develop means for adjusting to environmental demands. Simply put, feedback refer to information that reflects the outcomes of an act or series of acts by an individual, group or organization.

2.3 Types of Systems

a) Closed Systems:

The field of closed exemplifies the modern version of closed systems and it is attributed to the work of Norbert Wierner. In 1949, Norbert Wierner, a distinguished mathematician and engineer at MIT (Massachusetts Institute of Technology) discovered this over lunch with a colleague who was a neurosurgeon. The development of the field of closed systems allowed diverse disciplines to communicate about their problems in the common language of the systems study. More Importantly, it allowed a common set of principles to be applied to problems of control and regulation. It has been seen that the principle of system design allowed ancient mariners to steer ships with “governors” were the same principles that allowed mechanical engineers to design thermostat for air-conditioning units, industrial engineers to control products quality, astronomers to describe the behavior of planets, and accountants to design budgetary control systems. These systems can be seen as returning to equilibrium after being disturbed by regulating themselves through feedback information.

The closed systems model is the intellectual base for traditional cost and quality management approaches. Another key idea in closed system is the increase in entropy or the tendency to maximize disorder. This is because the system is closed to the environment and has no ability to import energy to counteract the growth in entropy.

b) Open Systems:

23

Open system theory has its foundations in biology, particularly Darwin’s work on the evolution of species. The popular of open systems theory is attributed to Ludwig Von Bertalanffy who used the term ‘general system theory’ to describe the main ideas and to distinguish them from closed systems thinking. Betalannfy maintained that closed systems thinking was not appropriate to study biological phenomena because biological systems interact with their environment, grow and survive. However, the environment of living organisms is less forgiving and often the luxury to learn from errors does not exist.

2.4 There are four main differences between closed and open systems. Each difference is discussed below.

Relations with the external environment

Open systems theory focuses on the interchange between a system and its environment. Biological organisms are open systems because they constantly evolve and adapt to the needs of their environment. Their behavior is a response to the threats and resources available in the environment in which they exist.

Variables considered

A second are, which differentiates open and closed systems is the number of variables included. A closed system has a few variables. An open system typically deals with more complex set of interrelationships. Cost and quality, viewed from a closed systems perspective, are internal variables that need to be managed within the boundaries of a firm. In an open system, cost and quality are viewed as externally driven variables that must be managed by understanding the environmental influences on these variables.

Form of regulation or control

Closed systems use error-controlled regulation. This is control after-the-fact. Open systems use anticipatory control. They are regulated by anticipating errors before they occur and taking corrective measures before final output. Like a mouse, open systems anticipate a cat’s next move. Waiting for feedback from errors is usually fatal. This form of regulation is called ‘feed forward’ control. If cost is to be managed as an open system, it should be controlled before a product is produced and not after.

Purpose of Regulation.

24

Unlike closed systems, open systems are not interested in returning system back to some predetermined stable state. They recognize that the purpose of regulation is to adjust and move the system on a dynamic path. Open systems seek continuous improvement and not just stability. They said to achieve a dynamic equilibrium. Like living systems, most organizations operate in constant interchange with their environment. They have many complex interactions and interrelationships within their boundaries.

2.5 Organization as a System

The classical approach emphasizes the technical requirements of the organization and its needs-organization without people; the human relations approaches emphasized the psychological and social aspects, and the consideration of human needs-people without organization (Mullins L.J., 2005).

Mullins argued that the systems approach attempts to reconcile these two earlier approaches and the work of the formal and informal writers. According to him, attention is focused on the total work organization and the interrelationships of structure and behavior, and the range of variables within the organization. This approach can be contrasted with a view of the organization as separate parts. He further revealed that the systems approach encourages organizations to be viewed both as a whole and as part of a larger environment. This implies that any part of an organizational activity affects all other parts.

The business organization is an open system where there is continual interaction with the broader external environment of which it is a part. The systems approach sees the organization within its total environment and emphasizes the importance of multiple channels of interaction. The systems approach views the organization as a whole and involves the study of the organization in terms of relationship between technical and social variables within the system. Change in one part, technical or social will affect other parts and thus the whole system.

The organization is seen as being made up of interrelated parts known as subsystems. These subsystems work together to contribute to the survival and success of the entire organization. The system concept and its application in modern day organization is a key concept of system science. According to Von Bertalanffy (1998), the system implies a set of elements standing in interactions. He defined system as complexes of elements standing in interaction, expressed in different forms. It is a set of activities (functions) that are connected both in time

25

and space by a set of decision-making and behaviour evaluation (that is control) practice (Hall & Fagen, 1956).

Waring (1996) defines a system at a simple level as a recognizable whole, which consists of a number of parts (called components) that are connected up in an organized way (the system’s structure). These components interact, that is, there are processes going on. This basic description covers the popular idea of interconnected parts and processes as in the central heating system. It is further argued that, system approach to organization implies the application of system ideas such as emergence and hierarchy (layered structure), communication and control to address problem situations (Jackson, 1995).

2.6 Qualities of an Ideal System

According to Harry (1990) the following elements are indicators of a quality system:

a) Components: A system consists of more than one part called component elements of a system. A component refers to anything that is part of a system or sub-system. The term element implies the smaller components that one would wish to identify separately. Organization of a system is the specification of relations between its elements.

b) Connection: These components of a system are connected together.c) Structure: The form of this connection is fixed in and organized way called

structure. The concept of structure and organization become more interesting in large systems, where more than just one or two possible structures or organizations may be considered.

d) Interaction: The component affects each other by their presence in or removal from the system which results from mutual interaction within the systems environment.

e) Process: The changes resulting from these interactions are called processes. f) Holism and emergent properties: A system is a whole which exhibits

properties which only have meaning in terms of the interactive processes of its components.

g) Identity: The properties of a system that enables it to be identified and separated from other things which are not part of a system.

h) Environment: There are things which are not part of the system, which significantly affect it, but which the system can only marginally influence, called the environment of systems.

26

i) Conceptualization: A system is a concept whose particular form reflects the aims and values of the individual or group whose concept it is (Harry, 1990).Like living systems, most organizations if not all, operate in constant interactions and interrelationships within their boundaries. To survive, organizations must grow and achieve a dynamic equilibrium rather than simply return to a steady state. It is for these reasons that general systems theory has come to be applied to the study of organizational phenomena such as design of management planning and control systems.

2.7 Importance of Systems approach to Modern Day Organizations.

The systems approach of management in modern day organizations is a variable scholarly tool for the academic world. It fosters additional management knowledge to the business world thereby increasing the survivability and profitability ratios of these organizations.

i) For corporate growth and profitability, modern day indigenous organizations should manage their organizations applying systems approach of management. This is because of its bridging ability and interfacing strength in the classical and human relations approaches to managing organizations.

ii) The structured nature of the systems approach enables the organization to function effectively without much friction. Chains of command and lines of authority are clearly spelt out because of the inevitable subsisting relationships between subsystems. Organizations should adopt the systems approach to guarantee orderliness and constancy of operations.

iii) Because of the element of contingency that crops up in daily organizational management and which is evident in the organization of study, modern day managers should apply a “systems approach” to the management of their outfits. This terminology of ours implies the management of an organization using the systems and contingency approaches simultaneously. Their ration of effective application is a function of the manager’s decision and situational forces surrounding the manager at that point in time.

2.8 Assignments

2.8.1 Explain in details, a system model.

27

2.8.2 What are the main differences between closed and open systems

2.8.3 Explain the importance of systems approach to modern day organizations

2.9 Quizzes

2.9.1 Describe organization as a system.

2.9.2 List the qualities of an ideal system.

CHAPTER THREETHE CONCEPT OF ENVIRONMENT

28

3.1 Introduction

Business organizations operates in an environment where they compete with other organizations for resources. Organizations operate not only locally at home, but also internationally in countries around the world. Operating in business environment is uncertain and the environment itself is also uncertain and unpredictable because it is complex and constantly changing.

3.2 The Meaning of Business Environment

The business environment is a set of forces and conditions within and outside the organization’s boundaries that have the potential to affect the way the organization operates. These forces and conditions change from time to time. The business environment presents opportunities which organizations can take advantage and threats that the organizations should avoid. For example, changes in the environment such as introduction of new technology or the opening of global markets, create opportunities for managers to obtain resources or enter new markets and thereby strengthen their organizations. In contrast, the rise of new competitors, a global economic recession, or an oil shortage poses threat that can devastate an organization if managers are unable to obtain resources or sell the organization’s goods and services. The quality of managers’ understanding of organizational environmental forces and their ability to respond appropriately to those forces are critical factors affecting organizational performance.

3.3 Structure of the Business Environment

The environment of business is divided into two sections: the internal and external environment. The difference between the external and internal environment is based on whether or not the factors are outside or inside the environment and whether or not it is within the immediate control of the organization.

Internal Environment

This consists of a set of forces and conditions within the organization’s boundaries that have the potential to affect the way the organization operates. It consists of the owners, board of directors, employees, the organization’s culture, the physical work environment and the various departments that make up the organization (the organizational structure).

The external business environment

29

This consists of a set of forces and conditions outside the organization’s boundaries that have the potential to affect the way the organization operates.

3.4 Elements or Forces of the Environment in Nigeria

Economics Environment:- The economic environment consists of macro-level factors related to the means of production and distribution of wealth which have an impact on the business of an organization. Some of the important factors and influences operating in the economic environment are: (1) The economic stage at which a country exists at a given point of time. (2) The economic structure adopted, such as, a capitalistic, socialistic or mixed economy.(3) Economic policies, such as, industrial, monetary and fiscal policies.(4) Economic planning, such as, five-year plans, annual budgets, and so on.(5) Economic indices like national income, distribution of income, rate and growth of gross national product (GNP), per capita income, disposable personal income, rate of savings and investments, value of exports and imports, the balance of payments, etc. and so on.(6) Infrastructural factors, such as, financial institutions, banks, modes of transportation, communication facilities, and so on. Strategist are acutely aware of the importance and impact of the economic environment on their organizations. Almost all annual company reports presented by the chairman devote attention to the general economic environment prevailing in the country and an assessment of its impact on their companies.

Socio- cultural Environment:- The socio-cultural environment consists of factors related to human relationships within a society; the development, forms and functions of such a relationship; and the learnt and shared behaviour of groups of human beings which have a bearing on the business of an organization. Some of the important factors and influences operating in the social environment are:(1)Demographic characteristic, such as, population, and its density and

distribution, changes in population and age composition, inter-state migration and rural-urban mobility, and income distribution;

(2)Socio-cultural concerns such as environmental pollution, corruption, use of mass media, the role of business in society, and consumerism;

30

(3)Socio-cultural attitudes and values such as, expectation of society from business, social customs, beliefs, rituals and practices, changing lifestyle patterns, and materialism;

(4)Family structure and changes in it, attitude towards and within the family, and family values;

(5)The role and position of men, women, children, adolescents, and the aged in family and society;

(6)Educational levels, awareness and consciousness of rights, the work ethic of members of society, and the attitude towards minority and disadvantaged groups.

The socio-cultural environment primarily affects the strategic management process within the organization in the areas of mission and objective-setting, and decision related to products and markets. Strategists do not seem to be fully aware of the impact of the socio-cultural factors. One reason for such a lack of interest could be the nature of socio-cultural influences. Socio-cultural changes that take place very slowly and do not seem to have an immediate and direct impact on short-term strategic decisions.

Political Environment:- The political environment consists of factors related to the management of public affairs and their impact on the business of an organization. Some of the important factors and influences operating in the political environment:1. The political system and its features, like the nature of the political system,

ideological forces, political parties and centres of power;2. The political structure, its goals and stability;3. Political processes, like the operation of the party system, elections, funding

of elections, and legislation with respect to economic and industrial promotion, and regulation;

4. Political philosophy, government’s role in business, and its policies and interventions in economic and business development.

Technological Environment:- The technological environment consists of those factors that are related to the knowledge applied and the materials and machines used in the production of goods and services which have an impact on the business of an organization. Some of the important factors and influences operating in the technological environment are as follows:

31

1. Sources of technology, like company sources, externa sources, and foreign sources; cost of technological acquisition; collaboration in and transfer of technology.

2. Technology development, stages of development, change and rate of change of technology, and research and development.

3. Impact of technology on human being, the man-machine system, and the environmental effects of technology.

4. Communication and infrastructural technology in environment. Strategists can ill afford to ignore the technological environment, as technology, besides customer groups and customer functions, defines the business of their organizations. According to Boris Petrov, there are three strategic implications of technological change: it can change relative competitive cost position within a business, it can create new markets and new business segments, and it can collapse or merge previously independent businesses by reducing or eliminating their segment cost barriers.

International Environment:- The international (or global) environment consists of all those factors that operate at the transnational, cross-cultural, and across-the-border level which have an impact on the business of an organization. Some of the important factors and influences operating in the international environment are as below:1. Globalization, its process, content, and direction;2. Global economic forces, organizations, blocs, and forums;3. Global trade and commerce, its process and trends;4. Global financial systems, sources of financing, and accounting standards;5. Geopolitical situations, equations, alliances, and strategic interests of

nations;6. Global demographic patterns and shifts;7. Global human resource – institutions, availability, nature and quality of

skills and expertise, mobility of labour and other skilled personnel;8. Global information systems, communication networks, and media;9. Global technological and quality systems and standards;10.Global markets and competitiveness;11.Global legal system, adjudication and arbitration mechanisms;12.Globalization of management and allied disciplines, and the diffusion of

management techniques in industry.

32

The international environment constitutes a special class of the environmental sector. While preceding seven sectors are largely limited and exclusive in nature, the international environment encompasses all the sectors, albeit in the global context. What we mean to say is that while for instance, the political environment within a country could consist of certain factors related to national politics; the international environment would also have a geopolitical component including the political factors and influences at the global level. This section of the unit has been devoted to a discussion of eight different sectors constituting the environment of an organization. By no means is it claimed that our coverage of environmental sectors is all-encompassing. There are other sectors too which are worthy of consideration. For instance, the natural, physical or geographical environment, to which a passing reference has been made while discussing regulatory environment, is also of great concern to companies. Environmental protection is of paramount importance in a world where the issues of sustainable development have assumed great significance. The corporate sector is now required to adhere to a plethora of regulations for environmental protection and control of pollution. This is especially relevant for polluting industries, like, processing plants and refineries. It should be noted that any classification of environment into sectors is artificial and is meant solely to gain an understanding of the different environmental factors. In reality, the dividing line between the different sectors of the environment is hazy and there is a high level of interaction between variables belonging to various environmental sectors. For example, market demand, which is a part of the market environment, does not exist in isolation but is dependent on other factors, such as, the general state of the economy, buyer motivation or technical quality of the products. Apart from the inter-sectoral interaction, there are complex inter-linkages existing among the factors in the same sector of the environment. To consider an example of such an inter-linkage, the technological environment has a number of factors and influences. Among these, collaboration in and transfer of technology affect the development of technology in a particular company and also in the industry as a whole. When the technological level is raised, it has repercussions on human beings and the man-machine system. There are also implications for the environmental effects of technology. The intersectoral and intrasectoral nature of the environmental factors have to be considered while understanding the different environmental sectors. Strategists have to constantly monitor the environment and its different sectors for opportunities and threats that they have, or are likely to have, an

33

impact on their organizations. Such a monitoring is done through environmental scanning.

3.5 Assignments

3.5.1 Explain what you understand by Business Environment

3.5.2 The environment of business is divided into two sections, what are they?

3.5.3 What the elements or forces of the external business environment?

3.6 Quizzes

3.6.1 Highlight the elements of the economic business environment

3.6.2 What are the elements of the socio-cultural environment?

3.6.3 What are the elements of the International environment?

34

CHAPTER FOURTHE NEED FOR ENVIRONMENTAL ANALYSIS AND RESPONDING TO ENVIRONMENTAL CHANGES

4.1 Introduction

Organizations constantly interact with its changing environment and one of the main problems facing organizations is coping with this environmental uncertainty. To make sure that resources are properly utilized to meet the objectives of the organizations, Firms must examine the environmental influences upon them.

4.2 The meaning of environmental scanning

Managers need to understand how the environment affects their organizations and should be able to identify opportunities and threats that are likely to influence their organized performance. However, information about the environment is not always readily available for managers. Managers often find it difficult to predict about the environment due to uncertainty. Environmental scanning is to identify changes of trends in the environment that have the potential to generate opportunities and threats to the organization’s current or future intended strategies”, (Worthington and Britton, 2009). The way this environmental scanning may be put into operation depends on the firm and can be undertaken informally or using quite sophisticated analytical tools and techniques that require significant employment of an organization’s resource. According to Bateman and Snell (2009), environmental canning is the searching for and sorting through information about the environment. Environmental scanning involves gathering information about the events and their relationships within an organization’s internal and external environment. It is the gathering, reviewing and evaluating whatever information about internal and external environments that can be obtained from several distinct sources on a regular basis and interpreting them in the light of the organization’s business sensing the pulse of environmental threats and opportunities. Environmental scanning will help organizations to identify early signals of potential changes in the environment. Informal scanning of the business environment is the process of gathering information about, and from, the organization’s customers, suppliers, distributors and competitors through questionnaires, interview observations, or feedback from the organization’s own sales and customer service staff and using such information to the advantage of the

35

firm. On the other hand, an organization may prefer a more systematic and formal means for environmental scanning.

4.3 Falley and King 1977 in Oyedijo (2004), identified three types of environmental scanning as follows;

1. Irregular scanning systems- Which consists largely of adhoc environmental studies. They emphasize short run reaction to environmental crisis with little attention to future environmental events.

2. Regular scanning systems- These systems revolve around a regular review of the environment or significant environmental components. The focus of this scanning system is primarily retrospective but some thought is given to future conditions assumed to be evolving within the environment.

3. Continuous scanning systems- Here, the components of the organizational environment are constantly monitored. The scanning is an on-going activity for an established segment of the organizational structure. Continuous scanning tends to be more proactive or future oriented than either a regular or irregular systems. The use of a continuous scanning system generally reflects a serious and sustained commitment to environment.

4.4 In an attempt to scan the environmental, managers usually ask the following questions;

Who are our current competitors? Are there few or many entry barriers to our industry? What substitutes exist for our product or services? Is the company too dependent on powerful suppliers?

Answers to these questions help managers develop competitive intelligence, the information necessary to decide how best to manage in the competitive potential of different environments.

4.5 Techniques for scanning the business environment

Many techniques are available to organizations for the scanning of the business environment. Some of these techniques which are discussed below include scenario development, forecasting, benchmarking, trend extrapolation, expert opinion, cross-impact matrices, SWOT and TOWS

4.5.1 Scenario Planning

36

When organizations try to determine the effect of environmental forces on their operations, they frequently develop scenario of the future. Scenario planning is the formulation of multiple forecasts of future conditions followed by an analysis of how to respond effectively to each of those conditions. It can also be called contingency planning. In scenario planning, organizations may generate between two or four generically different possible futures as an outcome of the scenario planning process. This technique focuses on the ‘best case’ or ‘worst case’ scenarios. Scenario planning seeks to consider the possible effects on the interactions between various external environmental forces on the future of an organization. Managers should regard the scenario they have developed as living documents, not as merely prepared once and put aside. Instead, they should constantly modify the scenarios they have created taking into considerations of the changing environment, for example, significant changes in the political, economic and legal environments and what the competitors are doing should be signal for changes in the scenarios already created.

4.5.2 Forecasting

Forecasting is another method used by organizations to scan their environments. Forecasting is the process of predicting what will happen in the future considering the interplay of some environmental variables. According to Bateman and Snell, (2009), forecasting is the method used in predicting how variables will change in the future. For example, in making capital investments, firms try to forecast how interest rates will change. In deciding to expand or downsize a business, firms may try to forecast the demand for goods and services or forecast the supply and demand of labour they probably would use. Forecasts are designed to help executives to predict about the future, their accuracy varies. Forecasts are more accurate when the future ends up looking like the past. However, it should be noted that in cases where there are little or no changes between the past and the future, forecasting may not be all that useful. Forecasting is more useful when the future trends in the environment are nor dynamic. The best advice for using forecasting as offered by Bateman and Snell, (2009), might include the following:

Use multiple forecasts, and perhaps average their predictions Remember that accuracy decreases the further into the future you are trying to

predict Forecasts are no better that the data used to construct them Use simple forecasts (rather than complicated ones) where possible

37

Keep in mind that important events often are surprises and represent departure from predictions.

4.5.3 SWOT or TWOS Analysis

The full meaning of SWOT is S for strength, W for weaknesses, O is for Opportunities and T is for Threats. These are factors found within the business environment in which the organization operate. SWOT analysis is a systematic identification of these factors and the strategy that reflects the best combinations of these factors. The best practice is to effectively maximize a firm’s strengths and opportunities and at the same time, minimize the weaknesses and threats found in the business environment. This frame work can be used to choose and design an effective strategy that can assist an organization to compete in its business environment. A firm can start its SWOT analysis by reviewing its internal strengths and weaknesses. This can be done by the management or by external consultants who can help to provide a more objective view. The factors that are identified are listed and given scores to indicate their importance, with the most important issues receiving the highest scores. The process is applied for the firm’s external opportunities and threats so as to bring to light the external factors which will likely occur and which are seen to have impacts on the firm’s operations. Using this approach, the firm can then design strategies that reflect its ability to operate in its business environment. The resultant strategies should enable the firm to attain its objectives by taking advantages its strength, opportunities and minimizing its weaknesses and avoiding the threats.

4.5.4 Benchmarking

Benchmarking is yet another tool in which a firm can use to scan its environment. Benchmarking is the process in which an organization takes to compare its practices and technologies with those of other organizations. In practice, a firm would identify the best performing company in a given area, for instance, product quality or customer service, and then comparing the processes with theirs to see where areas of improvements can be made in order to meet or even exceed the best practice.

4.6 Assignments

38

4.6.1 What is Environmental Scanning. Explain the types of environmental scanning.

4.6.2 What are the techniques for scanning the business environment?4.6.3 Explain in full what you understand by SWOT analysis

4.7 Quizzes4.7.1 List the frequently asked questions by managers in attempt to scan the

environment4.7.2 Differentiate between scenario planning and forecasting methods of

environmental scanning.

Review Questions

39

1. A formal Organization which is a social system has its roles deliberately created so that the objective of the organization can be achieved. How is it different from an informal organization?

2. The importance of organizational objectives in a developing country can hardly be overstated. Discuss.

3. Organizational structure is about the patterns of relationship among positions and in the organization and members of the organization. Discuss this and also highlight what objectives organizational structure can help to achieve according to Mullins (2007).

4. Explain the various forms of organizational structure.5. System study focuses on the arrangement of and relations between parts and

how they work together as a whole. Discuss.6. Open systems theory focuses on the interchange between a system and its

environment. What are its major differences with a closed system?7. According to Harry (1990), some elements are indicators of a quality system.

What are they?8. The systems approach of management in modern day organizations is a

veritable scholarly tool for the academic world. Explain this in detail.9. The business environment presents opportunities which organization can take

advantage and threats that organizations should avoid. Explain this in details.10.Explain the various elements of the external business environment.11.Worthington and Britton (2009) explains that the purpose of environmental

scanning is to identify changes or trends in the environment that have the potential to generate opportunities and threats to the organization’s current or future intended strategies. Discuss this fully.

12.Many techniques are available to organizations for the scanning of business environments. What are these techniques?

40