THE PHYSICAL ENVIRONMENT ANALYSIS

Learning Objectives:

At the end of this chapter, the students should be able to:

1. Identify the different external environment that surround a

company;
2. Explain the three major process in conducting an external
environment analysis; and
3. Discuss the importance of analyzing the physical
environment of a company.
THE EXTERNAL ENVIRONMENT

A company does not operate in a vacuum. Rather, it operates in an

environment surrounded by different external and internal
forces.

The external environment of a company has three layers, namely,

the physical or natural environment, the general or societal
environment, and the industry or task environment.

Each environmental layers consists of strategic factors that

influence the growth and direction of a company. Sound strategic
management recognizes the need to analyze the external
environment.
EXTERNAL ENVIRONMENT ANALYSIS PROCESS

An external environment analysis follows a systematic

process. It involves three major processes as follows
1. Environmental scanning
2. Environmental monitoring
3. Competitive intelligence
 These three external environmental analysis process are all directed
towards evaluating the probable trends in the external environment that
may happen in the future.

Environment
Environmental Competitive
scanning al monitoring intelligence

Forecast
Environmental Scanning
Is the critical surveillance and evaluation of events happening in the external environment that may
influence the current position and future plans of a company.

Environmental scanning aims to achieve the following:

1. Gain deeper understand of the nature and trend of changes in the environment surrounding a
company.
2. Identify opportunities and threats that will possibly confront a company.

Environmental scanning involves the following steps:

1. Setting up an environmental scanning system or program

2. Collecting and analyzing secondary data
3. Collecting and analyzing primary data
4. Identifying issues that consistently surface
5. Interpreting results and preparing a report
Environmental Monitoring
Is the process of tracking the environmental trends or sequence of events
determined during an environmental scanning.
Companies usually conduct an environmental monitoring after the
environmental scanning for the following:
1. Building sufficient and reliable data to determine the emerging trends
2. Validating collected data so that they become precise and reliable.
The steps involved in environmental monitoring are as follows:
1. Identify emerging issues
2. Evaluating the time frame of emerging issues
3. Deciding on the action to be taken
Competitive Intelligence
Is a systematic process of collecting, analyzing and interpreting
information about business competitors.
Companies conduct competitive intelligence to understand the different
forces in the market and develop the most appropriate marketing strategy:
The following are the steps in conducting competitive intelligence:
1. Identify the source of information
2. Validate collected information
3. Analyze the information
4. Make a projection
5. Define the action to be taken