Chapter 2: The Firm and its Environment
Lesson 3.1: Environmental Forces and Environmental Scanning
 The environment in which a business operates is a major consideration
 Factors/Elements of Politico legal situations
in determining an organization’s design 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.
 Factors/Elements of Demographic situations
 Environmental scanning – seeking for and sorting through data about
the environment
 External business environment – refers to the factors/elements outside
the organization which may affect, either positively or negatively, the
performance of the organization
 Internal business environment – refers to the factors/elements within
the organization which may affect, either positively or negatively, the
performance of the organization
 General Components of the External Business Environment
1. Economic situations
2. Sociocultural situations
3. Politico legal situations
4. Demographic situations
5. Technological situations
6. World and ecological situations
 Factors/Elements of Economic situations
1. Inflation
2. Rate of interest
3. Changing options in stock markets
4. People spending habits
 Factors/Elements of Sociocultural situations
1. Customer’s changing values and preferences
2. Customs
1. National or local laws
2. International laws
3. Rules and regulations that influence organizational management
1. Gender
2. Age
3. Educational level
4. Income
5. Number of family members
6. Geographic origin
 Factors/Elements of Technological situations
1. Use of varied types of electronic gadgets and advanced technology
 computers, robotics, microprocessors
2. Revolutionized business management
 e-commerce, teleconferencing, and sophisticated information systems – MIS or
management information system
 SAP or system applications and products – a German software company whose
products allow businesses to track customer and business interactions
 Factors/Elements of World and Ecological situations
1. Increasing number of global competitors and markets
2. Nature and conditions of the changing natural environment
3. Products produced by companies must cater to the changing needs of people in the
global community, while, at the same time, considering their impact on the natural
environment
 Specific Components of the External Business Environment 4. Considering future business scenarios – by realistic consideration of both worse-
1. Stakeholders – are parties likely to be affected by the activities of case scenario or unfavorable future conditions, as well as middle ground possible
the organization conditions, you will have an idea or what to do in the future
2. Customers – are those who patronize the organization’s products 5. Business prediction (also known as business forecasting) – is a method of predicting
and services how variables in the environment will alter the future of business. It could be used in
3. Suppliers – are those who ensure the organization’s continuous making decisions regarding offshoring, branching out locally, and expanding or
flow of needed and reasonably priced inputs or materials required downsizing the company. However, the accuracy of such business predictions cannot
for producing their goods and rendering their services. Inputs always be assured.
includes financial and labor supply. Benchmarking – the process of measuring or comparing one’s own products,
4. Pressure groups – are special interest groups that try to exert services, and practices with those of the recognized industry leaders in order to
influence on the organization’s decisions or actions. identify areas for improvement.
5. Organization’s investors or owners – provide the company with
financial support it needs. The company cannot exist without them;
thus, they greatly influence organizational management. Branching
out, offering new products and services, and applying for needed
loans are all affected by the investors’ or owners’’ way of thinking.
6. Employees – are comprised of those who work for another or for an
employer in exchange of salaries/ wages or other considerations.
They execute the company’s strategies and are important for the
maintenance of the company’s stability.
 Components of the Internal Business Environment
1. Resources – financial, physical, mechanical, technological, and
human resources must be subjected to internal analyses (SWOT)
2. Research and development
3. Production
4. Procurement of supplies – materials, inputs, and finance
5. Products and services, it offers
 Components of Environmental Scanning
1. Developing a competitive mindset – by seeking and sorting through
data about environment, you may be able to understand and predict
the various changes, opportunities and threats that may affect
organizations in the future.