ORGANIZATION AND MANAGEMENT_GRADE 11 ABM

UNIT II: THE FIRM AND ITS ENVIRONMENT

MODULE 2 (Q1 - W3)

Learning Competencies:
1. Identify various forces/elements
2. Summarize these forces using the PEST and SWOT Analysis

LESSON 1: Environmental forces and environmental scanning

Every organization operates on an internal and external environment so called as business

environment. The business environment refers to the factors or elements affecting business
organizations. The external business includes factors and elements outside the organization
which may affect its performance, either positively or negatively. On the other and internal
business environment refers to the factors or elements within the organization which may also
affect its performance, either positively or negatively.1

Figure 1.1. Components of a Business Environment2

1
https://www.slideshare.net/NaraMier/the-firm-and-its-environment
2
https://www.toppr.com/guides/commercial-knowledge/business-environment/environmental-scanning/

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Business Environment focuses on STAKEHOLDERS, COSTUMERS, PRESSURE

GROUPS, and INVESTORS or OWNERS and their EMPLOYEES.

● Stakeholders are parties likely to be affected by the activities of the organization.

● Costumers are those who patronized the organization’s product and services. Increasing
costumer specification makes it necessary for managers of organizations to make crucial
decisions regarding the development of products with higher value and improvement of their
services to meet their patrons’ increasing demands.
● Suppliers are those who ensure the organizations continuous flow of needed and reasonably
priced input or materials required for producing their goods and rendering their services.
● Pressure Groups interest groups that try to exert influence on the organization’s decisions or
Actions.
● Investors or Owners provide the company with the financial support needs. The company,
of course, cannot exist without them; thus, they greatly influence organizational
management.
● Employees are comprised to do those who work for another or for an employer in exchange
of salaries/wages or other considerations. Employees execute the company’s strategies and
are important for the maintenance of the company’s stability.

In order for the organization to be successful, it is important that it scans its environment
regularly to assess its developments and understand factors that can contribute to its success.
Environmental scanning is a process used by organizations to monitor their external and
internal environments.3 It is the process of gathering information about events and their
relationships within an organization's internal and external environments. The basic purpose of
environmental scanning is to help management determine the future direction of the
organization.4

A scan of the internal and external environment is an important part of the strategic planning
process. The internal environment offers strengths and weaknesses to business while the external
environment brings opportunities and threats. The four influencing environmental factors known
as SWOT Analysis are:

✔ Strength – an inherent capacity of an organization which helps it gain a strategic

advantage over its competitors.5 It refers to the firm’s resources and capabilities
that can be used as a basis for developing a competitive advantage. Examples are
patents, strong brand names, good reputation among customers, cost advantages
from propriety know-how, exclusive access to high grade natural resources.

✔ Weakness – an inherent constraint or limitation which creates a strategic

disadvantage for a business.6 The absence of certain strengths may be viewed as a
weakness. Examples are lack of patent protection, weak brand name, poor

3
https://www.toppr.com/guides/commercial-knowledge/business-environment/environmental-scanning/
4
https://www.tesu.edu/about/ir/environmental-scanning#:~:text=Environmental%20scanning%20is%20the%20process,future
%20direction%20of%20the%20organization.
5
Ibid.
6
Ibid.

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reputation among customers, high cost structure, lack of access to the best natural
resources, and lack of access to key distribution channels.

✔ Opportunity – a favorable condition in the organization’s environment

enabling it to strengthen its position. 7 Examples are an unfulfilled
customer need, arrival of new technologies, loosening of regulations, and
removal of international trade barriers.

✔ Threat – an unfavorable condition in the organization’s environment

causing damage to the organization. 8 Examples are shifts in consumer
tastes away from the firm’s products, emergence of substitute products,
new regulations, and increased trade barriers.

See https://bstrategyhub.com/swot-analysis-of-apple-apple-swot-2018/ for

Apple’s (iPhone) SWOT Analysis as an example.

There are many strategic analysis tools that a firm can use, but some are
more common. The most used detailed analysis of the environment is the
PEST analysis. This is a bird’s eye view of the business conduct. Managers
and strategy builders use this analysis to find where their market currently. It
also helps foresee where the organization will be in the future. It consists of
various factors that can affect the industry directly or indirectly. The factors
are:

✔ Political factors – take the country’s current political situation. It also

reads the global political condition’s effect on the country and business.
When conducting this step, ask questions like “What kind of government
leadership is impacting decisions of the firm?”. Some examples re
government policies, taxes laws and tariff, stability of government, and
entry mode regulations.

✔ Economic factors – involve all the determinants of the economy and its
state. These are factors that can conclude the direction in which the
economy might move. It helps to set up strategies in line with changes.
Some examples are the inflation rate, interest rate, credit accessibility,
unemployment rates, monetary or fiscal policies, and foreign exchange
rates.

✔ Social factors – might ultimate affect the sales of products and services.
Some examples are the cultural implications, gender and connected
demographics, social lifestyles, domestic structures, educational levels,
and distribution of wealth.

7
Ibid.
8
Ibid.

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✔ Technological factors – whereby advancement is greatly influencing

businesses. It helps the business stay up to date with the current changes.
It will help the business know how the consumers react to various trends.
Some examples are new discoveries, rate of technological obsolescence,
rate of technological advances, and innovative technological platforms.9

Note that some businesses modified the PEST Analysis by adding the
legal and environmental factors which then makes it PESTLE Analysis. Legal
factors include product regulations, employment regulations, competitive
regulations, patent infringements, and health and safety regulations.
Meanwhile, environmental factors include geographical locations, the climate
and weather, waste disposal laws, energy consumption regulation, and
people’s attitude towards the environment.10

See http://panmore.com/apple-inc-pestel-pestle-analysis-recommendations
for Apple’s (iPhone) PEST/PESTLE Analysis as an example.

Important Factors for Environmental Scanning

Before scanning the environment, an organization must take the following

actors into consideration:

Events – These are specific occurrences which take place in different

environmental sectors of a business. These are important for the functioning
and/or success of the business. Events can occur either in the internal or the
external environment. Organizations can observe and track them.

Trends – As the name suggests, trends are general courses of action or

tendencies along which the events occur. They are groups of similar or related
events which tend to move in a specific direction. Further, trends can be
positive or negative. By observing trends, an organization can identify any
change in the strength or frequency of the events suggesting a change in the
respective area.

Issues – In wake of the events and trends, some concerns can arise. These
are Issues. Organizations try to identify emerging issues so that they can take
corrective measures to nip them in the bud. However, identifying emerging
issues is a difficult task. Usually, emerging issues start with a shift in values or
change in which the concern is viewed.

Expectations – Some interested groups have demands based on their

concern for issues. These demands are Expectations.

Components of Environmental Scanning

9
https://www.slideshare.net/Libcorpio/environmental-analysis-swot-analysis
10
Ibid.

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a. Competitive Mindset. Adapting to environmental uncertainties

must star with developing a Competitive mindset. By seeking and
sorting through data about environment, the manager is able to
understand and predict the vatious changes, opportunities, and
threats may affect organizations in the future.

b. Considering future business scenarios. By scenarios consideration

of both worth case scenario or unfavorable future conditions and
best-case scenario or favorable future conditions, as well as
middle-ground possible conditions, the manager will have an idea
of what to do in the future.

c. Business prediction. This is also known as business forecasting. It is a

method of predicting how variables in the environment will alter the
future of business.

d. Benchmarking. It is defined as the process of measuring or

comparing one’s own products, services, and practices of those of
the recognized industry leaders in order to identify areas for
improvement.

To sum-up:
✔ https://www.youtube.com/watch?v=PGQ3Ms0p9cY

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NAME: Date:
Professor: Section: Score:

ACTIVITY 2.1.1
1. Give one possible positive and negative impacts to business operations for each of the
following components of the environment. This requires practical answers. (14pts)

Example:
Customer
● Positive: They provide profits to the company in their every purchase of the
product.
● Negative: Their taste and preference may vary as time passes by.

a. Employees
● Positive:
● Negative:

b. Investors
● Positive:
● Negative:

c. Creditors
● Positive:
● Negative:

d. Government Agencies
● Positive:
● Negative:

e. Competitors
● Positive:
● Negative

f. Technological Variables
● Positive:
● Negative:

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g. Socio-cultural Variables
● Positive:
● Negative:
ACTIVITY 2.1.2
CASE STUDY

Instruction: Provided below is a list well-known companies. Each student will be

assigned one specific company. Your task is to (a) identify the form of business
organization, and (b) perform environmental scanning using the SWOT and PEST
Analysis. (46pts)

1. Coca-Cola Company
2. San Miguel Corporation
3. Jollibee Food Corporation
4. Penshoppe
5. Samsung
6. Honda
7. Shell Company
8. Shopee
9. LG Appliance
10. Louis Vuitton
11. Starbucks
12. MERALCO
13. GMA Network
14. LBC
15. Addessa
16. Belo Clinic
17. Gardenia
18. Watsons
19. National Bookstore
20. Camella Homes
21. SunLife
22. Avon
23. Partas
24. Philippine Airlines
25. Okada