Fundamentals

of
Environmental
Analysis
PREPARED BY:

RICA ANELI CABIGAS

NENA GERIBISE
 Environmental Analysis is the
process of monitoring
organizational environment to

DEFINITION identify both present and future

threats and opportunities that
may influence the firm's ability to

AND reach its goals.

Awareness of the organizational

RATIONALE environment is vital to the

organization's success.

Management should constantly

gather and consider the
implications of data related to
important environmental factors.
 TO AS SESS
- To assess the organizational environment so that the
management can react to it appropriately and thereby
enchance organization success.

TO RESP ON D
Purpose of
- To respond to critical issues in the environment.
Environmental
TO EXP LOR E
- To explore future conditions of the organizational
Analysis
environment and to incorporate what it learns into
organizational decision makinng.
 Properly use of Environmental Analysis can help
ensure organizational success, however, can vary
drastically from organization to organization.

1. Policy-Oriented Role

3 Roles of - to improve organizational performance by simply

Environmental keeping top management informed about the major

trends emerging in the environment.

Analysis in - emphasizes early detection and appropriate top-

Organizations
management reaction to broad strategic issues such as
attitudes, norms, and laws that are likely to affect the
organization  as a whole.

- unstructured and the relationship between the

environmental analysis process and formal
organizational planning is indirect and informal.
 2. Integrated Strategic Planning Role

- to improve organizational performance by making top

managers and divisional managers aware of issues that

3 Roles of
arise in the firm's environment, by having a direct
impact on planning, and by linking corporate and

Environmental
divisional planning.

- to prepare environmental forecasts in order to

Analysis in generate basic assumptions about organizational
planning.
Organizations - to provide more detailed information about relevant
parts of the environment as specific organizational
plans begin to materialize.
 3. Function-Oriented Role

- to improve organizational performance by providing

environmental information concerning the effective

3 Roles of performance of specific organizational functions.

Environmental - to enhance the performance of a particular function or

major organizational activity at either the corporate or

Analysis in the divisional level.

Organizations - to focus on specific environmental segments related

to the organizational function to address.

- to integrate normal planning process for that

particular organizational function.
SUMMARY
1. Policy-Oriented Role
Broadest in scope and the most loosely related to
formal organizational planning.

2. Integrated Strategic Planning Role

Emphasize a close relationship between
environmental analysis and formal organizational
planning.

3. Function-Oriented Role
The most specifically targeted at particular
organizational issues.
 THE THREE (3)
ENVIRONMENTAL
STRUCTURE
 GENERAL
ENVIRONMENT

OPERATING INTERNAL
ENVIRONMENT ENVIRONMENT
 THE ORGANIZATION
GENERAL ENVIRONMENT OPERATING ENVIRONMENT INTERNAL ENVIRONMENT
- Economic Component - Customer Component - Organizational Aspects
- Social Component - Competition Component - Personnel Aspects
- Political Component - Labor Component - Marketing Aspects
- Technological Component - Supplier Component - Production Aspects
- Legal Component - International Component - Financial Aspects
 GENERAL
ENVIRONMENT
THE LEVEL OF THE ORGANIZATION'S

EXTERNAL ENVIRONMENT MADE UP OF

COMPONENTS THAT ARE NORMALLY BROAD

IN SCOPE AND HAVE LITTLE IMMEDIATE

APPLICATION FOR MANAGING AN

ORGANIZATION.
THE ORGANIZATION

GENERAL ENVIRONMENT
5 Components:
1. Economic Component
2. Social Component
3. Political Component
4. Legal Component
5. Technological Component
 1. ECONOMIC COMPONENT
Indicates how resources are distributed and used
within the environment.

Example:

- Gross National Product COMPONENTS

OF GENERAL
- Corporate Profits
- Inflation Rate

ENVIRONMENT
- Productivity
- Employment Rates
- Balances of Payments
- Interest Rates
- Tax Rates and
- Consumer Income, Debts and Spending
2. SOCIAL COMPONENT
The characteristics of the society in which the
organization exists.

Example:

- Literacy Rates COMPONENTS

OF GENERAL
- Educational Levels
- Customs

ENVIRONMENT
- Beliefs
- Values
- Lifestyle
- Age
- Geographic Distribution
- Mobility of a Population
3. POLITICAL COMPONENT
Comprises elements related to governmental affairs.

Example:
- Type of government in existence
COMPONENTS
- Governmental Attitude towards various industries
- Lobbying efforts by interest groups
OF GENERAL
- Progress toward the passage of laws
- Platforms of political parties
ENVIRONMENT
- Predisposition of candidates running for the office
4. LEGAL COMPONENT
Consists of legislation that has been passed. This
component prescribes rules or laws that all members

COMPONENTS
of society must follow.

OF GENERAL
Example:
- Air Quality of 1967

ENVIRONMENT
- Clean Air Act of 1963
- Occupational Safety and Health Act of 1970
- The Consumer Product Safety Act of 1972
- Energy Policy and Conservation Act of 1975
5. TECHNOLOGICAL COMPONENT
Includes new approaches to producing goods and
services, new procedures as well as new equipments.

Example:

- Contemporary trend toward exploiting robots to

improve productivity is closely monitored by many of
COMPONENTS
today's managers.
OF GENERAL
- Installation of computer-controlled machines are
expected to grow at an annual rate of 35-45 percent
ENVIRONMENT
for the next ten years.

- Level of Innovation
- Automation
 OPERATING
ENVIRONMENT
THE LEVEL OF THE ORGANIZATION'S

EXTERNAL ENVIRONMENT MADE UP OF

COMPONENTS THAT ARE NORMALLY HAVE

RELATIVELY SPECIFIC AND MORE

IMMEDIATE IMPLICATIONS OF MANAGING

THE ORGANIZATION.
THE ORGANIZATION

OPERATING ENVIRONMENT
5 Components:
1. Customer Component
2. Competition Component
3. Labor Component
4. Supplier Component
5. International Component
 1. CUSTOMER COMPONENT

Reflects the characteristic and behavior of those who buy

goods and services provided by the organization.

COMPONENTS Developing profiles helps management generate ideas

OF OPERATING about how to improve customer acceptance of

organizational goods and services.

ENVIRONMENT
 2. COMPETITIVE COMPONENT
Consists of those with whom an organization must "do
battle" in order to obtain resources.

Understanding competitors is a key factor in devleoping

COMPONENTS effective strategy, so analyzing the competitive
environment is a fundamental challenge to management.
OF OPERATING To help management appreciate the strength, weakness
ENVIRONMENT and capabilities of existing and potential competitors and
predict what strategies they are likely to adopt.

Illustration below are the driving factors of competition

within an industry.
THE DRIVING FACTORS OF
COMPETITION WITHIN AN POTENTIAL Threat to new entrants
ENTRANTS
INDUSTRY

Bargaining power of
suppliers
INDUSTRY
SUPPLIERS COMPETITORS BUYERS
RIVALRY AMONG
EXISTING FIRMS
Bargaining
power of buyers

SUBSTITUTES

Threat to substitute products or services

 3. LABOR COMPONENT
Made up of factors that influence the supply of workers
available to perofrm neeed organizational tasks.

COMPONENTS Issues such as skill levels, trainability, desired wage rates,

OF OPERATING and average age of potential workers are important to the

operation of the organization.

ENVIRONMENT Another important but often overlooked issue is the

desirability of working for a particular organization, as
perceived by potential workers.
 4. SUPPLIER COMPONENT
Includes all variables related to those who provide
resources for the organization, these resources are
purchased and transformed during the production process
into final goods and services.

COMPONENTS Sample issues to consider in managing an organization

effectively and efficiently is to be able to identify:
OF OPERATING - How many vendors offer specified resources for sale.
ENVIRONMENT - The relative quality of materials offered by the vendors.
- The reliability of vendor deliveries.
- Credit terms offered by the vendors.
 5. INTERNATIONAL COMPONENT
Comprises all factors related to the ingernal implications
of organizational operations. The significant aspects
includes:

COMPONENTS 1. Laws (Legal Environment)

OF OPERATING 2. Political Practices (Political Environment)

3. Culture (Cultural Environment)

ENVIRONMENT 4. Economic Environment 

That prevail in foreign countries with which the firm does

business.
IMPORTANT ASPECTS OF THE INTERNATIONAL COMPONENT OF AN
ORGANIZATION'S OPERATING ENVIRONMENT.
LEGAL CULTURAL ECONOMIC
ENVIRONMENT ENVIRONMENT ENVIRONMENT

Legal Tradition Customs, norms, values, beliefs Level of economic development

Effectiveness of Legal System Language, Attitudes Population
Treaties with foreign nations Motivations Gross national product
Patent trademark laws Social Institutions Per capita income, Literacy Level
Laws affecting business firms Status Symbols Social infrastructure
Religious Beliefs Natural resources, Climate
Membership in regional
Form of government economic blocks
Political ideology Taxation, Inflation, Interest rates
Stability of government Wage and salary levels
POLITICAL Strength of opposition parties & groups Monetary and fiscal policies
ENVIRONMENT Social Unrest Nature of Competition
Political strife and insurgency Currency Convertibility
government attitude toward foreign firms
Foreign policy
 INTERNAL
ENVIRONMENT
THE LEVEL OF THE ORGANIZATION'S

EXTERNAL ENVIRONMENT WHICH EXISTS

INSIDE THE ORGANIZATION AND NORMALLY

HAS IMMEDIATE AND SPECIFIC

IMPLICATIONS FOR MANAGING THE

ORGANIZATION.
THE ORGANIZATION

INTERNAL ENVIRONMENT
5 ASPECTS:
1. Organizational Aspects
2. Personnel Aspects
3. Marketing Aspects
4. Production Aspects
5. Financial Aspects
1. ORGANIZATIONAL ASPECT
Communication network
Organization structure
Record of success
Hierarchy of objectives
Policies, procedures, rules
Ability of management team
ASPECTS OF
2. PERSONNEL ASPECT
Labor relations
INTERNAL
Recuitment practices
Training programs
ENVIRONMENT
Performance appraisal system
Incentive system
Turnover and absenteeism
3. MARKETING ASPECT
Market segmentation
Product Strategy
Pricing Strategy
Promotion Strategy
Distribution Strategy

ASPECTS OF
4. PRODUCTION ASPECT
Plant facility layout
INTERNAL
Research and development
Use of technology
ENVIRONMENT
Purchasing of raw materials
Inventory control
Use of subcontracting
5. FINANCIAL ASPECT
Liquidity
Profitability
ASPECTS OF
Activity
Investment opportunity
INTERNAL
ENVIRONMENT
 ENVIRONMENTAL
SCANNING
is the process of gathering information about events and their
relationship within an organization's internal and external
environments.
 3 FORMS OF ENVIRONMENTAL SCANNING

1. Irregular Scanning System - focuses mainly on the past in an effort to identify

some event that has already taken place. Emphasizing intermediate or short-run
reaction to crisis.

2. Regular Scanning System - revolved around regular review of the environment

or signficant environmental components. Often made annually. Management
commonly reviews the result during the decision-making process.
 to be
continued...