Republic of the Philippines

Sorsogon State College

SORSOGON CITY CAMPUS
Sorsogon City

EC 4A – Opportunity Seeking 1
BS Entrep – 2A / BS Entrep – 2B

Schedule Week 5 and 6 (October 12 – 16 and 19 – 23, 2020)

Lesson No. Module 3

A. Environmental Scanning
1. SWOT Analysis
2. PESTEL
3. Porter’s Five Forces
4. Value Chain

Introduction Module 3 provides us with information about environmental scanning. This is essential for
a would-be entrepreneur before putting up his own enterprise. Ultimately, internal and
external aspects can either break or make a business organization.

Learning After finishing this Module, the BS Entrepreneurship students will be able to:
Objectives 1. Learn on how to do environmental scanning
2. Apply in their businesses the importance of scanning the environment
3. Acquire the knowledge and skills in scanning the internal and external environments
of the firm

Key ENVIRONMENTAL SCANNING

Concepts
I. SWOT Analysis

What is SWOT Analysis?

A SWOT analysis guides you to identify your organization’s (internal environment)

strengths and weakness (S – W), as well as broader opportunities and threats (O – T) of
your external environment.

When Do You Use SWOT?

Based from ctb.ku.edu (CommunityToolBox), you might use SWOT analysis at any stage
of an effort, such as, to:

 Explore possibilities for new efforts and / or solutions to problems.

  Make decisions about the best path for your initiative. Identifying your
opportunities for success in context of threats to success can clarify directions
and choices.
 Determine where change is possible. If you are at a juncture or turning point, an
inventory of your strengths and weaknesses can reveal priorities as well as
possibilities.
 Adjust and refine plans mid-course. A new opportunity might open wider
avenues, while a new threat could close a path that once existed.

Pre-test Activity 1A : Group yourselves into five and answer the following questions:
1. What are the strengths and weaknesses of your group?
2. What are the opportunities and threats facing it?

Internal External
Strengths Weaknesses Opportunities Threats
1.
2.
3.
4.
5.

Key What are the Elements of a SWOT Analysis?

Concepts
Below is a guide in listing your internal factors: strengths and weaknesses (S, W). These
may include your resources and experiences. The following are the general areas need
to consider:

• Human resources – staff, volunteers, board members, target population

• Physical resources – your location, building, equipment
• Financial – grants, funding agencies, other sources of income
• Activities and processes – programs you run, systems you employ
• Past experiences – building blocks for learning and success, your reputation in
the community

Meanwhile, listed hereunder is the guide in listing your external factors: opportunities and
threats (O, T). Forces and facts that your organization does not control include:

• Future trends in your field or the culture

• The economy – local, national, or international
• Funding sources – foundations, donors, legislatures
• Demographics – changes in the age, race, gender, culture of those you serve or
in your area
• The physical environment (Is your business located in a growing part of the city?)
 • Legislation (Do new LGU requirements make your job harder … or easier?)
• Local, national, or international events

Who Develops the SWOT?

1. Team members
2. Project managers
3. An individual or small group
4. Stakeholders

When and Where Do You Develop a SWOT Analysis?

✓ SWOT analysis is best done during a retreat or planning session through

brainstorming and analysis.
✓ When all the persons concerned are more relaxed, friendly, at the same time, the
setting is constructive, the result will be more truthful, comprehensive, insightful,
and useful.

Steps for Conducting a SWOT Analysis

The following steps are derived from ctb.ku.edu (CommunityToolBox):

1. Designate a leader or group facilitator who has good listening and group process
skills, and who can keep things moving and on track.
2. Designate a recorder to back up the leader if your group is large. Use newsprint
on a flip chart or a large board to record the analysis and discussion points. You
can record later in a more polished fashion to share with stakeholders and to
update.
3. Introduce the SWOT method and its purpose in your organization. This can be
as simple as asking, “Where are we, where can we go?” If you have time, you
could run through a quick example based on a shared experience or well-known
public issue.
4. Depending on the nature of your group and the time available, let all participants
introduce themselves. Then divide your stakeholders into smaller groups. If your
retreat or meeting draws several groups to get a range of perspectives, and give
them a chance to introduce themselves. (Note: The size of these depends on the
size of your entire group --- breakout groups can range from three to 10. If the
size gets much larger, some members may not participate.
5. Have each group designate a recorder, and provide each with newsprint or dry-
erase board. Direct them to create a SWOT analysis in the format you choose –
a chart, columns, a matrix, or even a page for each quality.
▪ Give the groups 20 – 30 minutes to brainstorm and fill out their own
strengths, weaknesses, opportunities, and threats chart for your program,
 initiative or effort. Encourage them not to rule out any ideas at this stage, or
the next.
▪ Remind groups that the way to have a good idea is to have lots of ideas.
Refinement can come later. In this way, the SWOT analysis also supports
valuable discussion within your group or organization as you honestly
assess.
▪ It helps to generate lots of comments about your organization and your
program, and even to put them in multiple categories if that provokes
thought.
▪ Once a list has been generated, it helps to refine it to the best 10 or fewer
points so that the analysis can be truly helpful.
6. Reconvene the group at the agreed-upon time to share results. Gather
information from the groups, recording on the flip-chart or board. Collect and
organize the differing groups’ ideas and perceptions.
▪ Proceed in S-W-O-T order, recording strengths first, weaknesses second,
etc.
▪ Or you can begin by calling for the top priorities in each category --- the
strongest strength, most dangerous weakness, biggest opportunity, worst
threat --- and continue to work across each category.
▪ Ask one group at a time to report (“Group A, what do you see as strengths?”)
You can vary which group begins the report so a certain group isn’t always
left “bringing up the end” and repeating points made by others. (“Group B,
let’s start with you for weaknesses.”)
▪ Or, you can open the floor to all groups (“What strengths have you noted?”_
for each category until all have contributed what they think is needed.
7. Discuss and record the results. Depending on your time frame and purpose.
▪ Come to some consensus about the most important items in each category.
▪ Relate the analysis to your vision, mission, and goals.
▪ Translate the analysis to action plans and strategies.
8. If appropriate, prepare a written summary of the SWOT analysis to share with
participants for continued use in planning and implementation.

II. PESTEL Analysis

PESTEL Analysis or PESTLE Analysis (formerly known as PEST Analysis)

- Acronym for Political, Economic, Social, Technological, Environmental, and Legal
factors
- A framework or tool used to analyze and monitor the macro-environmental factors
that may have a profound impact on an organization’s performance
- Useful when starting a new business or entering a foreign market
- Often used in collaboration either with SWOT analysis or Porter’s Five Forces to give
a clear understanding of a situation and related internal and external factors

PESTEL will be elaborated on below:

 Figure 1 – PESTEL Analysis

Political Factors – all about how and to what degree a government intervenes in the
economy or a certain industry which include government policy, political stability or
instability, corruption, foreign trade policy, tax policy, labor law, environmental law, trade
restrictions, nation’s education system, infrastructure, and health regulations

Economic Factors – determinants of a certain economy’s performance that may have a

direct or indirect long-term impact on a company (i.e., economic growth, exchange rates,
inflation rates, interest rates, disposable income of consumers, and unemployment

Social Factors – especially important for marketers when targeting certain customers for
these factors represent the demographic characteristics, norms, customs and values of
the population within which the organization operations, population trends (population
growth rate, age distribution, income distribution, career attitudes, safety emphasis, health
consciousness, lifestyle attitudes and cultural barriers

Technological Factors – pertain to innovations in technology that may affect the

operations of the industry and the market favorably or unfavorably (i.e., technology
incentives, the level of innovation, automation, research and development (R & D) activity,
technological change and the amount of technological awareness that a market
possesses)

Environmental Factors – include ecological and environmental aspects such as weather,

climate, environmental offsets and climate change that may affect industries in tourism,
farming, agriculture, and insurance

Legal Factors – quite similar with the political factors but here, it is more specific such as
discrimination laws, antitrust laws, employment laws, consumer protection laws, copyright
and patent laws, and health and safety laws
 Example of PESTEL Analysis

Figure 2 – Example of PESTEL Analysis

Assignment / For the full list of PESTEL factors, click this link: Scanning the Environment: PESTEL
Homework Analysis, September 18, 2016, https://www.business-to-you.com/scanning-the-
environment-pestel-analysis/, retrieved on August 19, 2020.

Key III. Porter’s Five Forces

Concepts
Should an entrepreneur want to analyze the level of competition within a certain industry,
he may try Porter’s Five Forces. Basically, this is useful for startups or when entering a
new business industry. As posted in business-to-you.com, “competitiveness does not only
come from competitors. Rather, the state of competition in an industry depends on five
basic forces: threat of new entrants, bargaining power of suppliers, bargaining power of
buyers, threat of substitute products or services, and existing industry rivalry”.

Examples:

1. Airline industry – If the five forces are intense, almost no company in the industry
earns attractive ROIs (returns on investments).
2. Soft drink industry – If the five forces are mild, there is room for higher returns.

Please see below illustration to best describe the above-example on airline industry:
 Figure 3 – Airline Industry on the Porter’s Five Forces

To be more specific, the illustration below shows this along the five forces model:
 Figure 4 – Five Forces Model

The following is the discussion on Porter’s Five Forces as lifted from business-to-you.com:

1. Threat of New Entrants

New entrants in an industry bring new capacity and the desire to gain market share. The
seriousness of the threat depends on the barriers to enter a certain industry. The higher
these barriers to entry, the smaller the threat for existing players.

2. Bargaining Power of Suppliers

This force analyzes how much power and control a company’s supplier (also known as
the market of inputs) has over the potential to raise its prices or to reduce the quality of
purchased goods or services, which in turn would lower an industry’s profitability potential.
The concentration of suppliers and the availability of substitute suppliers are important
factors in determining supplier power. The few there are, the more power they have.

3. Bargaining Power of Buyers

The bargaining power of buyers is also described as the market of outputs. This force
analyzes to what extent the customers are able to put the company under pressure, which
also affects the customer’s sensitivity to price changes. The customers have a lot of power
when there aren’t many of them and when the customers have many alternatives to buy
from. Buying power is low however when customers purchase products in small
amounts, act independently and when the seller’s product is very different from any
of its competitors. Companies can take measures to reduce buyer power by for example
implementing loyalty programs or by differentiating their products and services.

4. Threat of Substitute Products

The existence of products outside of the realm of the common product boundaries
increases the propensity of customers to switch to alternatives. Every product that
serves a similar need for customers should be taken into account. Energy drink like
Redbull for instance is usually not considered a competitor of coffee brands such as
Nespresso or Starbucks. However, since both coffee and energy drink fulfill a similar need
(i.e. staying awake/getting energy), customers might be willing to switch from one to
another if they feel that prices increase too much in either coffee or energy drinks. This
will ultimately affect an industry’s profitability and should therefore also be taken into
account when evaluating the industry’s attractiveness.

5. Rivalry among Existing Competitors

This last force of the Porter’s Five Forces examines how intense the current competition
is in the marketplace, which is determined by the number of existing competitors and what
each competitor is capable of doing. Rivalry is high when there are a lot
of competitors that are roughly equal in size and power, when the industry is growing
slowly and when consumers can easily switch to a competitors offering for little cost. When
rivalry is high, competitors are likely to actively engage in advertising and price wars, which
can hurt a business’s bottom line.

Figure 5 – Porter’s Five Forces Factors

IV. Porter’s Value Chain

Value Chain – As mentioned in businessnewsdaily.com, “a value chain is the full range

of activities --- including design, production, marketing and distribution --- businesses
conduct to bring a product or service from conception to delivery”. For instance, if a
company is producing goods, basically, its value chain starts with the raw materials to
make their products, and consists of everything added before the product is delivered to
the end users.

Supply Chain – According to Jon Gold, Vice President of Supply Chain and customs
policy at the National Retail Federation, “supply chain generally looks at the parts or
materials that go into a product, where a product is manufactured, and the transportation
logistics of getting it from the factory to the store”.

Porter’s Value Chain Framework

It was Michael E. Porter of Harvard Business School who first to introduced the concept
of a value chain. He wrote, “Competitive advantage cannot be understood by looking at a
firm as a whole. It stems from the many discrete activities a firm performs in designing,
producing, marketing, delivering and supporting its product. Each of these activities can
contribute to a firm's relative cost position and create a basis for differentiation”.

Porter splits in his book a business’ activities into two categories: primary and support.
For the primary activities are as follows:

• Inbound logistics includes the receiving, storing and distributing of raw materials
used in the production process.

• Operations is the stage at which the raw materials are turned into the final product.

• Outbound logistics is the distribution of the final product to consumers.

• Marketing and sales involve advertising, promotions, sales-force organization,

distribution channels, and pricing and managing the final product to ensure it targets
the appropriate consumer groups.

• Service is the activities needed to maintain the product's performance after it has
been produced, including installation, training, maintenance, repair, warranty and
after-sale services.

Meanwhile, the following support activities help the primary functions:

• Procurement is how the raw materials for the product are obtained.

• Technology development can be used in the research and development stage, in

how new products are developed and designed, and in process automation.

• Human resource management includes the activities involved in hiring and

retaining the proper employees to help design, build and market the product.

• Firm infrastructure refers to an organization's structure and its management,

planning, accounting, finance and quality-control mechanisms.

Example of Value Chain:

 1. Starbucks – creates value for customers, guarantees high-quality flavors and
works to build a sustainable future

According to businessnewsdaily.com, Starbucks begins by tasting a variety of coffees that

use beans from Latin America, Africa, Arabia, Asia, and the Pacific. The company spends
time visiting coffee growers and building lifelong relationships. Starbucks creates
partnerships all over the world to ensure the best coffee for its customers.

In addition to this, another part of Starbuck’s value chain is interacting with customers and
ensuring it provides an excellent service. This company also maintains HR, technology
development, finances and other operations.

To sum this up, Starbucks presents its coffee as “the end of a long journey --- from the
land, to the farmer, to the roaster, to your eagerly waiting hands. Each step is important
in defining what that coffee will taste like.” These quoted sentences were lifted from
businessnewsdaily.com.

Conducting Value Chain Analysis

1. Cost Advantage

After identifying the previously mentioned primary and support activities, businesses
should identify the cost drivers for each activity. That means, something that affects the
cost of an activity or process which may include the following:

• Work hours
• Machine use and setup
• Wage rates
• Materials used to make products
• shipping

Take note that if costs are reduced in one area, they can be reduced also in another.
Henceforth, you can then identify opportunities to reduce overall costs.

2. Differentiation Advantage

The priority of this is to create the most value to customers which can include the following:

• Using relative marketing strategies

 • Knowing about products and systems
• Answering phones faster
• Meeting customer expectations

After getting the cost advantage and differentiation advantage, next s evaluating these
strategies to improve the value. In other words, focusing on customer service, increasing
options to customize products or services, offering incentives, and adding product
features. Finally, businesses should identify differentiation that can be maintained, and
which adds the most value.

Important Tips When Creating a Value

When deciding how to improve your value chain, it should reflect its overall generic
business strategies. Hence, be clear about whether you’re trying to set yourself apart from
your competitors or simply have a lower cost base.

Key Points

Value Chain Analysis is a useful strategic management tool because it works by breaking
an organization’s activities down into strategically relevant pieces, so that you can see a
fuller picture of the cost drivers and sources of differentiation, and then make changes
appropriately.

References Section 14. SWOT Analysis: Strengths, Weaknesses, Opportunities, Threats,

https://ctb.ku.edu/en/table-of-contents/assessment/assessing-community-needs-
and-resources/swot-analysis/main, retrieved on August 19, 2020.

Scanning the Environment: PESTEL Analysis, September 18, 2016,

https://www.business-to-you.com/scanning-the-environment-pestel-analysis/,
retrieved on August 19, 2020.

Porter’s Five Forces, August 3, 2016, https://www.business-to-you.com/porters-five-

forces/, retrieved on August 19, 2020.

The Five Forces, https://www.isc.hbs.edu/strategy/business-strategy/pages/the-five-

forces.aspx, retrieved on August 19, 2020.

Porter’s Value Chain: Understanding How Value is Created Within Organizations,

https://www.mindtools.com/pages/article/newSTR_66.htm, retrieved on August
20, 2020.
 What is Value Chain Analysis? by Karla Harrison Contributing Writer, August 28, 2019,
https://www.businessnewsdaily.com/5678-value-chain-analysis.html, retrieved on
August 20, 2020.

Prepared by

Name : LED L. DESPUIG-ENCINARES

Position/Rank : Associate Professor III
Institution : Sorsogon State College
Sorsogon City Campus
Institution’s Address : Magsaysay Street, Sorsogon City