ENVIRONMENTAL FORCES,

ENVIRONMENTAL SCANNING, AND

BUSINESS ENVIRONMENT
for Organization and Management
Senior High School (ABM)
Quarter 1 / Week 3

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 FOREWORD

This Self-Learning Kit for Organization and Management is an

innovative tool designed exclusively for ABM students in the Senior
High School. It assists in understanding the various
forces/elements influencing local and international business
environment using PEST and SWOT strategies.
It is aligned with the BEC of the Department of Education
following the prescribed MELCs (Most Essential Learning
Competencies.
This Self-Learning Kit is divided into three parts.
What happened?
This section contains pre-activities that serve as the
beginning point and a pretest to determine if students are
sufficiently prepared to begin a new course of study.
What I Need to Know? (Discussion)
This section includes the various forces/elements
influencing local and international business environment using
PEST and SWOT strategies.
What I have Learned? (Evaluation/Post Test)
The exercises contained in this section measures student’s
understanding of the various forces/elements influencing local and
international business environment using PEST and SWOT strategies.
Students are expected to develop their skills and apply what
they have learned in their daily lives.

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 OBJECTIVES
At the end of the lesson, the learners are expected to:
K: identify various forces/elements of the firm’s environment and
summarize these forces using the PEST and SWOT analysis;
S: describe the local and international business environment of the
firm; and
A: appreciate the importance of analyzing various forces/elements of
the business environment using PEST and SWOT strategies.

LEARNING COMPETENCY:
Analyze various forces/elements influencing local and
international business environment using PEST and SWOT strategies
(ABM_AOM11)

I. What Happened
Let us have a recall!

An individual engaged in management activities is called a manager. Managers super

Managerial Levels
Organizations typically have three levels of management with their respective manag

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 Managerial Skills
Managerial skills may be classified as the following.
Conceptual Skills
Human Skills
Technical Skills

PRE-TEST:
Modified Identification. Choose the correct answer from the given devices
below. Write only the letter of your answer in your activity notebook.

A. General Business Environment

B.Specific Business Environment
1. Technological
2. Suppliers
3. Pressure groups
4. Economic
5. Demographic

II. What You Need To Know

All managers, without exception, must consider their organizations’ external and intern

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 Definition of Terms
Environmental scanning – seeking for and sorting through data about the environmen
Inflation – a period of above normal general price increases, as reflected in the consu
Inflation rate – rate reflected during a period of above normal general price increases
Interest rates – the total amount that a borrower must pay annually to the lender a
Changing options – the consumers change in preference of goods and services offere
Gross National Product (GNP) – total domestic and foreign output claimed by the
Gross Domestic Product (GDP) – total final output of goods and services
produced by the country’s economy, within the country’s territory

DISCUSSION

Environmental Forces and Environmental Scanning

Business environment refers to the factors or elements affecting
a business organization. It may be divided into External and
Internal Business Environments. The External Business Environment
includes the factors and elements outside the organization which
may affect its performance, either positively or negatively while the
Internal Business Environment refers to the factors or elements
within the organization which may also affect its performance,
either positively or negatively. The environment in which a business
operates is a major consideration in determining an organizations’
design or structure. Considerations such as uncertainty, procurement,
and competition are linked with the external environment. A
company’s strategy and approach to operations must also be
aligned with the limitations of its external environment as well as its
internal environment.

Components of the External Business Environment: General and

Specific
Systematic monitoring of the major external forces influencing
organizations is necessary to improve the management of

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companies. Failure to consider a company’s general and specific
business

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environments may affect the strategies that management will make
and use.
The general business environment includes the economic,
sociocultural, politico-legal, demographic, technological, and world
and ecological situations. All these must be considered as managers
plan, organize, staff, lead, and control their respective organizations.
Inflation, rates of interest, changing options in stock markets,
and people’s spending habits are some examples of
factors/elements of economic situations. Economic situations may
affect management practices in organizations. For example,
companies may postpone expansion plans if bank loan interests are
too high.
Sociocultural situations include the customers’ changing
values and preferences; customs could also affect management
practices in companies. For example, Filipino customers are now
conscious of the importance of avoiding fatty foods, so many food
companies now make sure that the products they offer are cholesterol-
free or are low in cholesterol. In doing so, they avoid losing their
customers.
Politico-legal situations refer to national or local laws,
international laws, and rules and regulations that influence
organizational management. For example, labor laws related to
preventing employers from firing their employees without due
process require the former to allow the latter to exercise their right
to present their position during disciplinary action before their
employment can be terminated.
Demographic situations such as gender, age, education level,
income, number of family members, geographic origin, etc., may
also influence some managerial decisions in organizations. For
example, decisions regarding the hiring of human resources may be
affected by an organization’s management policy that shows prejudice
to the hiring of married females who are in the child-bearing age
because they would like to minimize the payment of maternity leave
benefits.
The technological situations of companies involve the use of
varied types of electronic gadgets and advanced technology such as
computers, robotics, microprocessors, and others that have
revolutionized business management; e-commerce, teleconferencing,
and sophisticated information systems have rapidly changed the ways
that business is conducted in the 21st century.
World and ecological situations are related to the increasing
number of global competitors and markets, as well as the nature
and conditions of the changing natural environment. Products produced
by companies, of course, must cater to the changing needs of
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people in the global community, while, at the same time, considering
their impact on the natural environment. For example, car
manufacturing managers must give the go signal for the
development of vehicles that are

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environmentally friendly instead of only being focused on the product’s
speed, fuel economy, and design.
Meanwhile, the specific business environment focuses on
stakeholders, customers, pressure groups, and investors or owners and
their employees.
Stakeholders are parties likely to be affected by the activities
of the organization, while customers are those who patronize the
organization’s products and services. Increasing customer
sophistication makes it necessary for managers of organizations make
crucial decisions regarding the development of products with higher
value and the improvement of their services to meet their patrons’
increasing demands. Also, this has prompted companies to solicit
feedback from their customers to avoid dissatisfaction that may lead
them to patronize another company offering similar products and
services instead.
Suppliers are those who ensure the organization’s continuous
flow of needed and reasonably priced inputs or materials required
for producing their goods and rendering their services. Inputs
mentioned also include financial and labor supply. Managers decide
what, where, and when to buy their supplies to favor with their
organization’s supply orders.
Pressure groups are special-interest groups that try to exert
influence on the organization’s decisions or actions. For instance,
pressure from the Food and Drug Administration on some
department stores and drug stores led them to stop selling beauty
products containing lead and to stop ordering or importing such
products from their suppliers.
The organization’s investors or owners provide the company
with the financial support it needs. The company, of course, cannot
exist without them; thus, they greatly influence organizational
management. Top-level, middle-level, and lower-level managerial
decisions are all influenced, in one way or another, by the investors
or owners of organizations. Branching out, offering new products
and services, and applying for needed loans are all affected by the
investors’ or owners’ way of thinking.
Employees are comprised of those who work for another or for an
employer in exchange of salaries/wages or other considerations.
Employees execute the company’s stability. For example,
managerial decisions are influenced by the company’s knowledge
workers.

Components of the Internal Business Environment

An organization’s internal business environment is composed of
its resources, research and development, production, procurement
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of supplies, and the products and the products and services it offers.

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 The organization’s internal environment must also be subjected
to internal analyses. Internal strengths and weaknesses, opportunities,
and threats (SWOT) with regards to its resources (financial,
physical, mechanical, technological, and human resources),
research and development endeavors, production of goods,
procurement of supplies (materials, inputs, and finance), and products
and services must all be considered prior to organizational planning.

Retrieved from https://www.google.com/

Figure A. The SWOT analysis or matrix is one of the most structured

and used planning method to evaluate a business venture.

Components of Environmental Scanning: Developing a Competitive

Mindset, Considering Future Business Scenarios, Business Prediction,
SWOT Analysis, and Benchmarking
Adapting to environmental uncertainties must start with
developing a competitive mindset. Ignorance of present-day realities
may cause individuals or organizations to do certain things that may
regret in the future; hence, environmental scanning is necessary.
By seeking for and sorting through data about the environment, you
may be able to understand and predict the various changes,
opportunities, and threats that may affect organizations in the
future. Knowing the present-day competitors, the possible number of
barrier to entering your chosen business industry, the existence or
nonexistence of substitutes to your planned product or service, and
possible dependence on powerful suppliers and customers will be
helpful in developing a competitive mindset.
You must also consider future business scenarios. By realistic
consideration of both worst-case scenario or unfavorable future
conditions, as well as middle-ground possible conditions, you will have
an idea of what to do in the future.
Meanwhile, business prediction, also known as business
forecasting, is a method of predicting how variables in the environment

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will alter the future of business. It could be used in making
decisions regarding offshoring, branching out locally, and expanding
or downsizing the company. However, the accuracy of such
business predictions may not always be assured.
Benchmarking is defined as the process of measuring or
comparing one’s own products, services, and practices with those of the
recognized industry leaders in order to identify areas for improvement.
Best practices of said industry leaders are observed so that
understanding their competitive advantage would be easier. This is
followed by gathering information about the company in order to
identify gaps; this in turn, could be used to find out the underlying
reasons for performance differences. From these said reasons, a set of
best practices in one’s own company will be listed down and that,
ultimately, leads to the company’s improved performance.

The Local and International Business Environment of the Firm

Understanding the local and international business environment
of the firm requires managers of organizations to sharpen their
cultural intelligence. Cultural intelligence is an individual’s ability to
favorably receive and adjust to an unfamiliar way of doing things. This
will enable them to develop their ability to accept and adapt to
different cultures, both local and international, that may affect the
organization to which they belong.
Anthropologist Edward T. Hall, as cited y Schermerhorn (2008),
noted that the way people approach and deal with time varies
across cultures. Monochromic cultures refer to cultures wherein people
tend to do one thing at a time; also, these cultures emphasize
punctuality and sticking to set rules. Polychromic cultures, on the other
hand, are more flexible as regards time; accomplishing many different
things at once is also common for these cultures. It may be very
frustrating for one who is influenced by a monochronic culture to be
dealing with one who is influenced by a polychromic culture if he or
she does not possess cultural intelligence.
Geert Hofstede, also cited by Schermerhon (2008), showed how
selected countries ranked on the five cultural dimensions he studied:
Power Distance – the degree to which a society accepts or rejects
the unequal distribution of power among people in organizations
and the institutions of society.
For example: India and the Philippines have higher power
distance, while US and Australia have low power distance. The use of
the terms “Sir” and “Madam” to refer to the boss/superior by
subordinate employees in the Philippines shows respect for authority
figures, or high-

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power distance. In the US, subordinates just use the name or nickname
of the boss when addressing him or her, indicating low power distance.

Hofstede Five Dimension

Retrieved from https://www.google.com/

Figure B. This bar graph shows the comparative scores of a few
countries based on Hofstede’s cultural dimensions theory.

Uncertainty Avoidance – the degree to which society is

uncomfortable with risk, change, and situational uncertainty.
Managers in the US are risk takers. Filipinos are seguristas that
are afraid of taking risks within business endeavors in the market.
Individualism-Collectivism – the degree to which a society
emphasizes individual accomplishments versus collective
accomplishments.
Individualistic cultures like those of the US and Australia are
characterized as “I” and “me” cultures where employees prefer to work
alone without help from others. Mexico, Thailand, and the
Philippines exhibit collectivism or preference for group or team work.
Masculinity-Femininity – the degree to which a society values
assertiveness and feelings of material success versus concern for
relationships.
The Japanese and Mexicans do not hesitate to push or express
what they want, unmindful of hurting other’s feelings, thus showing
masculinity. Filipinos, Thais, and Swedes would rather keep quiet
and accept defeat if what they want is not acceptable to others,
thus, exhibiting femininity.
Time Orientation – the degree to which a society emphasizes
short-term thinking versus greater concern for the future or long-term
thinking.
The Americans, who are risk-takers, prefer short-term thinking. On
the other hand, Filipinos and the Japanese, who are not risk-takers, are
long-term thinkers.
The local culture of a particular country also influences the
management practices of firms. An example is the mañana habit which
is part of local Filipino culture and practiced by some Filipino workers. It

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is counterproductive since it encourages the postponement of
performing tasks that can be done immediately to another day.
Managing and disciplining workers who practice this habit would
be easier for managers if they are able to identify the workers who
adhere to such negative work habit and prevent them from doing it.
This, however, is easier said than done because it is difficult to
explain a country’s unique cultural characteristics.
Managing in a Worldwide Environment: Cultural, Politco-legal, and
Economic Environments
The call for business to go global is hard to resist as this is the trend
prevailing in the 21st century. The economic and social benefits that
come with globalization are said to be among the positive
outcomes. Globalization advocates, however, fail to realize the very
serious challenges faced by managers in adjusting to the cultural
differences among different countries where they intend to do
business. The culture of different countries is rooted in their history,
religion, traditions, beliefs, and deep-seated values, and because of
these, managing globally can be very complicated.
Besides the cultural environment, the politico-legal and economic
environments must also be considered. The politico-legal environment
refers to the laws and political climate of different countries. Some
countries have stable laws and good political climate while others have
the opposite—unstable laws and risky political climate. Awareness of
the economic issues of countries where organizations intend to
establish business is also very important. For instance, do they have a
free market or a planned economy? Answering this question is the first
step because the country’s economic system has the potential to
influence the organization’s decision-making. Other economic
matters that must be considered are the inflation rates, the gross
national product/gross domestic product, the currency exchange
rates, taxation systems and others.

What is PEST Analysis?

PEST Analysis is a strategic framework used to evaluate the
external environment for a business by breaking down opportunities
and threats into Political, Economic, Social, and Technological factors.
PEST analysis can be an effective framework to use in Corporate
Strategy Planning, useful in identifying the pros and cons of a Business
Strategy. Below we break down each of the 4 Factors of PEST (Political,
Economic, Social, Technological).

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 Photo credit: https://courses.corporatefinanceinstitute.com/courses/corporate -
business- strategy-course

Political Factors
When looking at political factors, you are looking at how
government policy and actions may affect the economy, as well as the
specific industry the business operates in. These include the following:
 Tax Policy
 Labor Law
 Environmental law
 Trade Restrictions
 Tariffs
One of the reasons that elections tend to be a period of uncertainty for
a country is that different political parties have diverging views on
economic policy. The P in PEST analysis stands for Political.

Economic Factors
Economic Factors take into account the various aspects of the
economy, and how the outlook on each area could impact your business.
These economic indicators are usually measured and reported by Central
Banks and other Government Agencies.
 Economic Growth rates
 Interest Rates
 Exchange Rates
 Inflation
Often these are the focus of external environment analysis. The
Economic outlook is of extreme importance for a business, but the importance
of the other PEST factors should not be overlooked.
Social Factors
PEST analysis also takes into consideration social factors, which are
related to the cultural and demographic trends of society. Social norms
and
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pressures are key to determining a society’s consumerist behavior. Factors to
be considered include the following:
 Cultural Aspects
 Health Consciousness
 Population Growth rates
 Age Distribution
 Career Attitudes
Technological Factors
Technological Factors are linked to innovation in the industry, as well as
innovation within the overall economy. Not being up to date on the latest
trends of a particular industry can be extremely harmful to operations.
Technological Factors include the following:
 Research & Development Activity
 Automation
 Technological Incentives
 The rate of change in technology
(Retrieved from PEST Analysis n.d)

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III. What Have I Learned
SUM IT UP!

Business environment refers to the factors or elements affecting a

business organization. It may be divided into the External and Internal Business
Environments. The External Business Environment includes the factors and
element outside the organization which may affect its performance,
either positively or negatively while the Internal Business Environment refers
to the factors or elements within the organization which may also affect
its performance, either positively or negatively.
The general business environment includes the economic,
sociocultural, politico-legal, demographic, technological, and world and
ecological situations. All these must be considered as managers plan,
organize, staff, lead, and control their respective organizations.
The specific business environment focuses on stakeholders, customers,
pressure groups, and investors or owners and their employees.
Components of the Internal Business Environment
An organization’s internal business environment is composed of its
resources, research and development, production, procurement of supplies,
and the products and the products and services it offers.
Geert Hofstede, also cited by Schermerhon (2008), showed how
selected countries ranked on the five cultural dimensions he studied:
 Power Distance
 Uncertainty Avoidance
 Individualism-Collectivism
 Masculinity-Femininity
 Time Orientation
What is PEST Analysis?

PEST Analysis is a strategic framework used to evaluate the external

environment for a business by breaking down opportunities and threats
into Political, Economic, Social, and Technological factors.

1
 POST TEST:
MODIFIED MATCHING TYPE: Classify the following and write the correct answer
in the appropriate column. Do it in your activity notebook.

Economic Investors Politico-legal Power distance

Production Research and development Sociocultural
Stakeholders Time orientation Uncertainty
avoidance
General Business Specific Business Internal Business Cultural
Environment Environment Environment Dimension

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 DEPARTMENT OF EDUCATION
SCHOOLS DIVISION OF NEGROS ORIENTAL

SENEN PRISCILLO P. PAULIN, CESO V

Schools Division Superintendent

JOELYZA M. ARCILLA, EdD

Assistant Schools Division Superintendent

MARCELO K. PALISPIS, EdD

Assistant Schools Division Superintendent

NILITA L. RAGAY, EdD

OIC - Assistant Schools Division
Superintendent CID Chief

ROSELA R. ABIERA
Education Program Supervisor – (LRMS)

ELISA L. BAGUIO, EdD

Division Education Program Supervisor – MATHEMATICS

MARICEL S. RASID
Librarian II (LRMDS)

ELMAR L. CABRERA
PDO II (LRMDS

GWEN ABA GALVEZ

Writer

CHRISY BLEZEILLE L. POCONG

Lay-out Artist

ALPHA QA TEAM
LITTIE BETH S. BERNADEZ
MERCYDITHA D.
ENOLPE
RONALD TOLENTINO
DIDITH T. YAP

BETA QA TEAM
ELIZABETH A. ALAP-AP
EPIFANIA Q. CUEVAS
NIDA BARBARA S.
SUASIN VRENDIE P.
SYGACO MELBA S.
TUMARONG HANNAHLY
L. UMALI

ENHANCEMENT TEAM
BB. BOY JONNEL C. DIAZ
JEE LIZA T. INGUITO
SALVADOR G. AGUILAR

DISCLAIMER
The information, activities and assessments used in this material are designed to provide accessible
learning modality to the teachers and learners of the Division of Negros Oriental. The contents of this module
are carefully researched, chosen, and evaluated to comply with the set learning competencies. The writers
and evaluator were clearly instructed to give credits to information and illustrations used to substantiate this
material. All content is subject to copyright and may not be reproduced in any form without expressed written
consent from the division.
JR
 REFERENCES
Cabrera, H. M. F., et al. 2017. Organization and Management. Quezon
City: Vibal Group, Inc.

What is PEST Analysis? Retrieved from

https://corporatefinanceinstitute.com/resources/knowledge/stra
tegy/pest-analysis/ on August 5, 2020
 SYNOPSIS AND ABOUT THE AUTHOR

ANSWER
This Self Learning Kit (SLK) is about KEY
the various forces/ elements influ

internationalbusiness environment
using PEST and
SWOT strategies. Here you will learn the different environmental forces o
Realistic examples are provided for you. As you go over the discussion, y

appreciate analyzing
the importance
elementsofenvironment
various forces/ business
of the using
PEST and
SWOT strategies.
Find enjoyment in learning this SLK.

GWEN ABA GALVEZ is an Accountancy Business and Management

(ABM) teacher at Dauin National High School, Division of Negros
Oriental. She currently teaches specialized and applied subjects for
Senior High School students.
In her love and trust for Foundation University, Dumaguete
City, she finished her Secondary Education in the said institution.
She graduated Bachelor of Science in Commerce major in
Management Accounting and earned her degree in Master of Business
Administration at the same school.
In order for her to be qualified to teach in the Department of
Education, she took her Continuing Program Education at
Foundation University, Dumaguete City. She was a former Branch
Manager of one of the branches of M.Lhuillier Financial Services
(Pawnshops), Inc. for seven years.