Organizational Management

Environmental Forces and Environmental Scanning (Lesson 1)

Definition of Terms
● Environmental Scanning - seeking for and sorting through data about the environment
● External Business Environment - refers to the factors/elements within the organization
which may affect, either positively or negatively, the performance of the organization.
➔ e.g - competitors, target market, etc.
● Internal Business Environment - refers to the factors/elements within the organization
which may affect either positively or negatively, the performance of the organization.
➔ e.g - clients, employees, etc.
● People’s Spending Habits - consumer’s changing ways of spending their money on
goods and services.
● Economic Situations - includes inflation rates of interest, people’s spending habits,
changing options, etc.
● Business Environment - refers to the factor or elements affecting a business
organization.

All managers, without exception, must consider their organization’s external and
internal environment before planning anything. Responding to the various forces/elements of
the firm’s external and internal business environments is a must because failure to do so may
bring about negative effects.

Types of Business Environment

I. External Business Environment

- Refers to the factors/elements within the organization which may affect,
either positively or negatively, the performance of the organization.

A. General External
1. Economic Situations - it may affect the management practices in an
organization.

For example, companies may postpone expansion plans if bank loan interest is
too high.

➢ e.g - inflation, changing options in stock markets and

people’s spending habits.
2. Socio-Cultural Situations - it includes the customer’s changing values and
preferences; customs could also affect management practices in
companies.

For example, Filipino customers are now conscious about the importance of 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…

3. Demographic Situations - such as gender, age, education level, income,

number of family members, geographic origin, etc., may also influence
some managerial decisions in organizations.

For example, decisions regarding hiring of human resources may be affected by

an organization’s management policy that shows prejudice to the hiring of
married females who are in the child-bearing age because they would like to
minimize payment of maternity leave benefits.

4. Politico-legal Situations - refers 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 their
employment can be terminated.

5. Technological Situations - involve the use of varied 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.

6. World and Ecological Situations - related to increasing the number of

global competitors and markets, as well as the nature and conditions of
changing natural environments. 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 product’s speed, fuel economy, and design.
B. Specific External

1. Stakeholders - are parties likely to be affected by the activities of the

organization.

2. Customers - are those who patronize the organization’s products and services.
Increasing customer sophistication makes it necessary for managers of
organizations to make crucial decisions regarding the development of products
with higher value and the 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.

3. Suppliers - are those who ensure the organization’s continuous flow of needed
and reasonably priced inputs or materials required for producing their goods and
rending their services. Inputs mentioned also include financial and labor supply.
Managers decide what, where, and when to buy their suppliers and which
supplier to favor with their organization’s supply orders.

4. 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 (FDA) on some
department stores and drugs led them 25 to stop selling beauty products
containing lead and to stop ordering or importing such products from their
suppliers.

5. Investors or Owners - provide the company with the financial support it needs.
The company, of course, 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 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. Employees execute 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.

II. Internal Business Environment

- Refers to the forces/factors within the organization which may affect, either positively or
negatively, the performance of the organization.

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.

Environmental Scanning - seeking for and sorting through data about the environment.

Components of Environment Scanning

a. Development of a Competitive Mind-set - by seeking for and sorting through data
about the environment, you 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 non existence of substitutes to your planned products
or services and customers will be helpful in developing a competitive mindset.

b. Considering of Future Business Scenarios - by realistic consideration of worst case

scenario or unfavorable future conditions and best-case scenario or favorable
conditions, as well as middle-ground possible conditions, you will have an idea of what to
do in the future.

c. Business Prediction/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.

d. Benchmarking - is the process of measuring or comparing one’s own products, services

and practices with those of recognized industry leaders in order to identify areas for
improvement.
SWOT Analysis

Aim of SWOT Analysis

➢ To help decision makers share and compare ideas

➢ To bring a clearer common purpose and understanding of factors for success.
➢ To organize the important factors linked to success and failure in the business world
➢ To analyze issues that have led to failure in the past
➢ To provide linearity to the decision making process allowing complex ideas to be
presented systematically.

Strengths

- Internal to the unit; are a unit’s resources and capabilities that can be used as a
basis for developing a competitive advantage; strength should be realistic and not
modest.

The list of strengths should be able to answer:

● What are the unit’s advantages?

● What does the unit do well?
● What relevant sources do you have access to?
● What do other people see as your strengths?
● What would you want to boast about to be someone who knows nothing about
this organization and its work?

Weaknesses

- Internal force that could serve as a barrier to maintain or achieve a competitive

advantage; a limitation, fault or defect of the unit; it should be truthful so that they
may be overcome as quickly as possible.

The list of weaknesses should be able to answer:

● What can be improved?

● What is done poorly?
● What should be avoided?
● What are you doing as an organization that you feel could be done more
effectively/efficiently?
● What is this organization NOT doing that you feel it should be doing?
● If you could change one thing that would help this department function more
effectively, what would you change?
Opportunities

- Any favorable situation present now or in the future in the external environment.

❖ e.g - unfulfilled customer need, arrival of new technologies, loosening of

regulations, global influences, economic boom, demographic shift

The list of opportunities should be able to answer:

● Where are the good opportunities facing you?

● What are the interesting trends you are aware of?
● Think of: market developments; competitor; vulnerabilities; industry/lifestyle
trends; geographical; partnerships

Threats

- External force that could inhibit the maintenance or attainment of a competitive

advantage; any unfavorable situation in the external environment that is
potentially damaging now or in the future.

❖ e.g - shifts in consumer tastes, new regulations, political or legislative effects,

environmental effects, new technology, loss of key staff, economic downturn,
demographic shifts, competitor intent; market demands; sustaining internal
capability; insurmountable weaknesses; financial backing

The list of threats should be able to answer:

● What obstacles do you face?

● What is your competition doing?
● Are the required specifications for your job/services changing?
● Is changing technology threatening for your position?
● Do you have financial problems?
● Could any of your weaknesses seriously threaten your unit?
Who needs SWOT Analysis?
SWOT Analysis is also required for/during…

● Product Launch ● Competitor Evaluation

● Effectiveness in Market ● Product Evaluation
● Decision Making ● Strategic Planning
● Personal Development ● Brainstorming Meetings
Planning ● Goods & Services Evaluation

Cultural Dimensions

Definition of Terms
● Gross National Product - total domestic and foreign output claimed by the residents of
the country.
● Gross Domestic Product - total final output of goods and services produced by the
country’s territory.
● Currency Exchange Product - the rate at which central banks will exchange one
country's currency for another.
● World Wide Environment - refers to the external business environment, sociocultural,
natural, politico-legal and economic technological factors around the world.
● Globalization - refers to the change on the dimension of external environment that
results the increased interdependence and integration among people and organizations
around the world.

Types of Culture
● Monochronic Culture - is a culture where people tend to do one thing at a time
● Polychronic Culture - is a culture that is more flexible on time and it is used to
accomplish many things at one time.

5 Cultural Dimensions
1. Power Distance - the degree to which the society accepts or rejects the institutions of
society.

Example: India and Philippines have high power distance, while the US and
Australia has low power distance. The use of terms “sir” and “madam” tp refer to the superior by
subordinate employees in the Philippines shows respect for authority figures, or high power
distance. In the US, subordinates just use the name or nickname of the boss when addressing
them, indicating low power distance.
 2. Uncertainty Avoidance - the degree to which society is uncomfortable with risk, change
and situational uncertainty.

Example: Managers in the US are risk takers. Filipinos are “seguristas” that are
afraid of taking risk within business endeavors in the market.

3. Individualism – Collectivism - the degree to which a society emphasizes individual

accomplishments versus collective accomplishments.

Example: Individualistic cultures like those of the US and Australia are

characterized as “I” and “me” cultures where they prefer to work alone without the help
from others. Mexico and Thailand and Philippines exhibit collectivism or preference for
group or team work.

4. Masculinity/Femininity - the degree to which a society values assertiveness and

feelings or material success versus over relationships.

Example: The Japanese and Mexicans do not hesitate to push or express what
they want, unmindful of hurting other feelings, thus showing masculinity. Filipinos, Thais, and
Swedes would rather keep quiet and accept defeat if what they want is not acceptable to others,
thus exhibiting femininity.

5. Time Orientation - the degree to which a society emphasizes short-term thinking versus
greater concern for the future or long term thinking.

Example: The Americans, who are risk takers, prefer short term thinking. On the
other hand, Filipinos and Japanese, who are not risk takers, are long term thinkers.