ORGANIZATION AND

MANAGEMENT

LESSON 3: PEST AND

SWOT ANALYSES
 DEFINITION OF TERMS

1. Environmental Scanning - It covers a

broader context as it involves evaluating,
monitoring and disseminating of
information from the external and
internal environments to key people
within the organization.
2. External Business Environment –
composed of all the factors or influences in
the organization which may affect the
operation of a business or organization.

3. Internal Business Environment –

Composed of various elements present inside
the organization, that can affect or can be
affected with, the choices, activities and
decisions of the organization.
4. Micro – Environment – it includes the
factors in the immediate area of operation
affecting its performance and decision-
making freedom.

5. Macro – Environment – it is the

condition that exists in the economy as a
whole, rather than in a particular sector
or region.
Micro – Environment Factors that Affect
nearly every business:

1. Suppliers – suppliers are important

component of the micro environment.

2. Customers – people who buy an

organization’s products/services.
3. Competitors – are other organizations
that compete with each other for both
resources and markets.

4. Intermediaries – a major determining

force in business.

5. Publics – an important force in

external microenvironment.
 EXTERNAL ENVIRONMENT

Apart from micro-environment, business

firms face large external
environmental forces. An important fact
about external macro environmental
forces is that they are uncontrollable by
the management. Because of the
uncontrollable nature of macro
environmental forces, a firm must adjust
or adapt it to these external forces. These
factors are:

1. Economic Environment – it includes

the type of economic system that exists
in the economy, the nature and structure
of the economy, the phase of the
business cycle (for example,
Conditions of boom or recession), the
fiscal, monetary and financial policies of
the Government, foreign trade and foreign
investment policies of the government.
These economic policies of the
government present both the
opportunities as well as the threats (i.e.
restrictions) for the business firms.
2. Political-Legal Environment –
businesses are closely related to the
government.

3. Technical Environment – the nature

of technology used for production of
goods and services is an important factor
responsible for the success of a business
firm.
4. Global or International Environment
Plays an important role in shaping
business activity.

5. Socio-Cultural Environment -
members of a society wield important
influence over business firms.
6. Demographic Environment - includes
the size and growth of population, life
expectancy of the people, rural-urban
distribution of population, the
technological skills and educational levels
of labor force.
7. Natural Environment - the ultimate
source of many inputs such as raw
materials, energy which business firms
use in their productive activity.
8. Ecological Environment - due to the
efforts by environmentalists and
international organizations such as World
Bank,
 INTERNAL ENVIRONMENT

The factors in internal environment of

business are to a certain extent
controllable because the firm can change
or modify these factors to improve its
efficiency. However, the firm may not be
able to change all the factors. The various
internal factors are:
1. Value System - the value system of an
organization means the ethical beliefs
that guide the organization in achieving
its mission and objective..

2. Mission and Objectives - the objective

of all firms is assumed to be maximization
of long-run profits.
3. Organization Structure -
oorganization structure means such
things as composition of board of
directors, the number of independent
directors, the extent of professional
management and share -holding pattern.
4. Corporate Culture - corporate culture
and style of functioning of top managers
are important factors for determining the
internal environment of a company.

5. Quality of Human Resources - quality

of employees of a firm is an important
factor of internal environment of a firm.
6. Physical Resources and
Technological Capabilities - physical
resources such as plant and equipment,
and technological capabilities of a firm
determine its competitive strength which
is an important factor determining its
efficiency and unit cost of production.
7. Labor Unions - collectively bargain
with top managers regarding wages,
working conditions of different categories
of employees.
Specific Components of the External
Business Environment
• Customers, Pressure groups,
Stakeholders, Investors or Owners,
Suppliers and Employees
Component of the Internal Business
Environment
• Resources – financial, physical,
mechanical, technological, and human
resources must be subjected to internal
analysis (SWOT).
WHAT IS SWOT
ANALYSIS?
SWOT stands for Strengths, Weaknesses,
Opportunities and Threats. Thompson
and Strickland emphasized that for a
company’s strategy to be well conceived, it
must be matched with the resource
strengths and weaknesses as well as the
best market opportunities and external
threats to its well-being.
STRENGTH is something a firm does well
or a characteristic that enhances its
competitiveness.

WEAKNESS is something a firm lacks,

does poorly, or a condition placing it as a
disadvantage.
OPPORTUNITIES refer to situations
where there are potentials from
developing into products or services or
other business opportunities.

THREATS usually come in the form of

internal and external factors that may put
the firm in uncompromising situation.
 PESTEL ANALYSIS

A PESTEL analysis or PESTLE analysis

(formerly known as PEST analysis) is a
framework or tool used to analyze and
monitor the macro environmental factors
that may have a profound impact on an
organization’s performance.
This tool is especially useful when
starting a new business or entering a
foreign market. It is often used in
collaboration with other analytical
business tools such as the SWOT analysis
and Porter’s Five Forces to give a
clear understanding of a situation and
related internal and external factors.
COMPONENTS OF ENVIRONMENT 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.
2. Considering future business
scenarios – by realistic consideration of
both worse case scenario or unfavorable
future conditions, as well as middle
ground possible conditions, you will have
an idea or what to do in the future.
3. Business prediction (also known as
business forecasting) – is a method of
predicting how variables in the
environment will alter the future of
business.
4. Benchmarking is 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.
ACTIVITY 1:

Write TRUE if the statement is correct

otherwise FALSE.

1. Socio-cultural factors that are present

in the country should be given critical
consideration because these influences
only the firms’ external environment.
2. Educational factor is not an integral
part of the environment and may be
viewed from a number of perspectives.

3. The improvement in technology raises

total factor productivity of a firm and
reduces unit cost of output.
4. Publics are involved in internal
environment that includes different
associations.

5. Quality Assurance capabilities of a

company determine its ability to
introduce innovations which enhance
productivity of workers.
ACIVITY 2:

Rearrange the letters to answer the

following questions below.

1. It includes the factors in immediate

area of operation affecting its performance
and decision-making.
-TMRENVRCIEOIMNON
2. People who buy an organization’s
product/services.
- UMSECSOTR

3. Collectively bargaining with the top

managers regarding wages, working
conditions of different categories of
employees.
- SLNBNIAOORU
4. Something a firm lacks, does poorly, or
a condition placing it as a disadvantage.
- SSSAEEEWKN

5. Come in the form of internal and

external factors that may put the firm in
uncompromising situation.
-STERAHT
ASSIGNMENT:

A. IDENTIFICATION. Identify what is/are

being asked on the following statements.
1. The plant and equipment, and
technological capabilities of a firm
determine its competitive strength which
is an important factor determining its
efficiency and unit cost of production.
2. Employees differ with regard to these
characteristics.

3. The overall purpose or reason for its

existence which guides and influences its
business decision and economic activities.

4. Composed of various elements present

inside the organization.
5. Can influence the cost structure of the
industry and are hence a major force.

B. How do you think Macro

Environmental Factors affects nearly a
business?
Explain your answer in eight sentences.
(5 points)
THANK YOU AND SEE
YOU NEXT MEETING !