LESSON 1 :

Environmental Forces and

Environmental Scanning
Business Environment

The factors or elements affecting a business.

Two different Business Environment

 External Business Environment

- includes the factors of elements outside the organization which may affects its
performance, either positively or negatively.

 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 organization’s design or structure.
Considerations such as uncertainly, procurement, and competition are linked
in the external business 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 companies.
Failure to consider a company’s general and specific business
environments may affect strategies that management will make and use.
The general business environment includes;

■ Economics – 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 practice in organizations.
Example: companies may postpone expansion plans if bank loan interest
are too high.
■ Sociocultural situations include customers’ changing values and preferences; customs could
also affect management practices in companies. For example, Filipino customers are now
conscious about 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
the 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.

■ The technological situations of companies involve the use of varies 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 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 environmental friendly instead of only being focused on the products’
speed, fuel economy, and design.
ACTIVITY: I’M IN!!!

You need to make your own situation

about general business environment within
15 minutes.
ACTIVITY:

“MEANING KO, BIGAY MO.”

The Specific Business Environment focuses on

■ 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 manners 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. 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 need and reasonably
prices 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 and which supplier 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, 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
product 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 employeer in exchange of
salaries/wages or other considerations. Employees execute of the company’s strategies and
are important for the maintenance of 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 of supplies, and the products
and services it offers.

■ 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.
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.

■ By seeking for or sorting through data about the environment, it 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 barriers 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.
■ It also consider future business scenarios by realistic consideration of both worst-case
scenario or unfavorable future conditions and best-case scenario or favorable future
conditions, as well as middle-ground possible conditions, you will have an idea of what to
do in the future.

■ Business prediction, also known as business forecasting, is a method of predicting how

variables in the environment 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 followed by gathering
information about the company’s own operations and those of the other 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.