ORGANIZATION AND MANAGEMENT

1ST QUARTER
Lesson 3: The Firm and its Environment

I. INTRODUCTION

All managers, without exception, must consider their organization’s external and internal
environments before planning anything. Responding to the various forces/ elements of the firm’s external
and internal environment is a must because failure to do so may bring about negative effects. However,
managers must make sure that they respond based on the proper identification and evaluation of these
forces/elements in their surrounding environments.
At the end of this lesson, the learners should be able to understand and analyze the various
forces/elements influencing local and international business environment using PEST and SWOT strategies.

“Good management is the art of making problems so interesting and their solutions so constructive
that everyone wants to get to work and deal with them.”
-Paul Hawken

We will be proceeding with our lesson proper with the use of the following e-learning platforms:
1. Edmodo;
2. Zoom;
3. Google meet; and
4. Messenger/messenger chat room.

IV. ABSTRACTION

The external environment is a major factor that influences a company’s operations. It has a significant
effect on the operations of the business and is often beyond the control of the manager. A good understanding
of the business environment will enable managers to identify opportunities and challenges, anticipate
changes and developments, and formulate plans and decision that will benefit their respective business firms.

To further continue with our discussion, kindly look for the following articles and videos:

1. Environmental Scanning: https://www.youtube.com/watch?v=CZ1yeCfuvz0,

https://www.youtube.com/watch?v=8HOA9yftPUc

2. PESTLE Analysis: https://www.youtube.com/watch?v=bYn4CyL3r5w

3. SWOT Analysis: https://www.youtube.com/watch?v=JXXHqM6RzZQ

Environmental Scanning

The business firm’s environment refers to the conditions and elements that define its operations and
determine its success. There are two types of firm’s environment: Internal and External environment. The
internal environment consists of elements that have a direct impact on the business operations which includes
employees, board of directors and managers. The elements of the internal environment are directly controlled
and can be freely modified by the firm. The external environment consists of factors that have indirect
significant influence on the operations of the business. These factors, cannot be controlled by the firm with
two types: Microenvironment and Macroenvironment. Microenvironment is also known as the “operating
environment. “have a direct impact on the business operations which consists of customer, suppliers,
regulatory agencies and competitors. The factors in this environment have a direct relevance to the business
operation but are uncontrollable. Macroenvironment is also known as the “general environment.” It consists
of economic, political, legal, and technical environment. The factors in this environment are beyond the
control of the firm but are important determinants of success.

Environmental scanning is the actual monitoring and evaluation of information from the external and
internal environment. There are three modes of environmental scanning as follows:

1. Ad hoc environment scanning is not often done and usually applicable only during crisis. The firm does
not ad hoc scanning to determine whether a problem is either internal or external

2. Regular scanning is usually done at least once a year or at a regular interval.

3. Continuous scanning refers to the continuous collection of data on a broad range of environment. It is also
referred to as continuous learning done to monitor the components of organization’s internal environment.

PEST Analysis

What is a PEST analysis?

A PEST analysis is a strategic business tool used by organizations to discover, evaluate, organize,
and track macro-economic factors which can impact on their business now and in the future. The framework
examines opportunities and threats due to Political, Economic, Social, and Technological forces. Outputs
from the analysis inform strategic planning processes and contribute to market research.

Why do a PEST analysis?

1. Helps to evaluate how your strategy fits into the broader environment and encourages strategic
thinking.
2. Provides an overview of all the crucial external influences on the organization
3. Supports more decisive and knowledgeable decision making
4. Assists planning, marketing, organizational change initiatives, business and product development,
project management, and research papers.

Who should use a PEST analysis?

A PEST analysis is useful for any organization that needs to gauge current and future markets. The
significance of each area in PEST Analysis will vary for different industry sectors. For example, there is likely
to be a different emphasis on the technology element for IT organizations compared with those involved in
health, tourism, mining, defense, and banking.

PEST Analysis Template

Political or politically motivated factors that could
impact the organization.
Examples include:
Government policy, political stability or instability,
bureaucracy, corruption, competition regulation,
foreign trade policy, tax policy, trade restrictions,
labor/environmental/copyright/consumer protection
laws, funding grants & initiatives, etc.
Questions to ask:
• What government policies or political groups
could be beneficial or detrimental to our
success?
• Is the political environment stable or likely to
change?
Overall Economic forces that could impact on
your success.
Examples include:
Economic trends, growth rates, industry growth,
seasonal factors, international exchange rates,
International trade, labor costs, consumer
disposable income, unemployment rates,
taxation, inflation, interest rates, availability of
credit, monetary policies, raw material costs, etc.
Questions to ask:
• What economic factors will affect us moving
forward?
How does the performance of the economy
affect us at the moment?
 • How is our pricing, revenues, and costs
impacted by each economic factor?

Social attitudes, behaviors, and trends that impact on
your organization and target market.
Examples include:
Attitudes and shared beliefs about a range of factors
including money, customer service, imports, religion,
cultural taboos, health, work, leisure, the
environment; population growth and demographics,
immigration/emigration, family size/structure, lifestyle
trends, etc.
Questions to ask
• How do our customer’s beliefs and values
influence their buying habits?
• How do cultural trends and human behavior
play a role in our business?
Technology that can affect the way you make,
distribute, and market your products and services.
Examples include:
Technology and communications infrastructure,
legislation around technology, consumer access
to technology, competitor technology and
development, emerging technologies, automation,
research and innovation, intellectual property
regulation, technology incentives, etc.
Questions to ask:
• What technological advancements and
innovations are available or on the horizon?
• How will this technology impact on our
operations?

SWOT Analysis

What is a SWOT analysis?

SWOT analysis is a simple, but useful, planning tool for assessing internal and external factors
impacting on your organization’s success, now and in the future. The SWOT methodology identifies internal
strengths (S) and weaknesses (W) of the organization and external Opportunities (O) and Threats (T) in the
marketplace. The information identified during a SWOT session provides the basis for further in-depth
analysis using other business tools, and should lead to a business strategy and action plan that capitalizes
on strengths, rectifies weaknesses, takes advantage of opportunities, and minimizes threats.

Why do a SWOT analysis?

Using a SWOT analysis as a planning tool provides an opportunity to bring your whole team together,
encourages their participation development of your business strategy, and promotes mutual understanding
of critical issues impacting on your success. Developing a SWOT Matrix does not require specialized training
and has minimal cost, except for the time of those involved. You can use it as part of an annual strategy
review, to react and respond proactively to a changing environment, to explore new initiatives, to focus and
redirect efforts and resources, as part of emergency and crisis planning, as a broad environmental scan for
initial planning, and to plan an individual’s career or develop a performance plan.

Who can use a SWOT analysis?

Because the technique is so simple and versatile, development of a SWOT chart is useful for all
industries, anyone who needs to make decisions and manage initiatives, all levels of an organization, existing
businesses, new businesses, and individuals.
SWOT Analysis Template
 Strengths are characteristics that give you a competitive Weaknesses are issues that reduce your
advantage and can be leveraged for success. When competitiveness and require improvement.
choosing strengths, they should be unique to your Weaknesses might include:
organization. If everyone in your industry has the same • A lack of expertise, skills or funds
• Aging infrastructure and technology
strength then it’s not a strength, it’s necessary for your
• An inflexible workforce.
survival.
A list of example questions e.g.
Strengths could include such things as:
• What are your competitors doing better than you?
• Your brand and reputation
• What makes potential customers buy from others?
• Patents and intellectual property
• What factors lose you sales?
• Prime location
• Key employees
• Advanced technology or leading edge processes
List of example questions:
• What do we do better than anyone else?
• What unique resources can we draw upon that our
competitors can’t?
• What do our customers see as our strengths and
why do they choose us?
Opportunities are reasons why your business is likely Threats are issues that might inhibit growth and
to grow. competitiveness.
Opportunities might include: Threats might include:
• New markets • New regulations
• New technology • New competitors
• Changes in customer demographics and lifestyle • Political change
choices • Environmental conditions
• Topical events • The state of the economy
• Changes in government policy List of example questions:
List of example questions: • What moves are our competitors making that
• What changes and trends in our external impact on our business?
environment can we benefit from? • What changes will negatively affect revenue and
• Is the opportunity ongoing or is there a limited profits?
window to get involved? • What threats do our suppliers face that will impact
• Is the market expanding or do other factors make on us?
it worth pursuing?

VI. REFERENCES

Organization and Management by Cabrera, Altarejos and Riaz published by Vibal

Organization and Management for Senior High School by Cynthia A. Zarate published by C & E Publishing,
Inc.
Business Organization and management by Medina 2015 published by REX Book Store
Organization and Management 2016 by Payos, Espinoza, Zorilla published by REX Book Store