CHAPTER 2

THE ORGANIZATION
AND ITS ENVIRONMENT
There are two types of the firm’s environment.
These are the internal and external environment
INTERNAL ENVIRONMENT

consists of the elements that have direct

impact on the business operations.
The elements of the internal environment
are directly controlled and can be freely
modified by the firm itself.
EXTERNAL ENVIRONMENT

Consists of the factors that have indirect

but significant influence on the operations
of the business.
These factors, however, cannot be
controlled by the firm.
 TWO TYPES OF EXTERNAL
ENVIRONMENT
1. Microenvironment
also known as the ‘operating environment’
Consists of the customers, suppliers,
regulatory agencies, and competitors
The factors in this environment have direct
relevance to the business operations but
are uncontrollable to a certain extent
2. Macroenvironment
Also known as the ‘general environment’
Consist of the economic, political, social,
legal and technical environment of the
business organization
The factors in this environment are beyond
the control of the firm but are important
determinants of success.
 STRATEGIC PLANNING:
SWOT AND PEST ANALYSIS
Strategic planning techniques such as
SWOT analysis and PEST analysis consider
the elements of a firm’s internal and external
environment in formulating business plans
and decisions.
SWOT ANALYSIS is primarily used to
analyze the microenvironment

PEST ANALYSIS is conducted to address

the firm’s macroenvironment
 PEST ANALYSIS
Is a method used in analyzing the Political,
Economic, Social, and Technological
forces affecting the company.
 Political Factors
Include laws, regulations, and restrictions
that may intervene or affect the company’s
business courses.
Significant political factors include tax
policies, labor laws, environmental laws,
trade restrictions and tariffs.
 Economic factors
Directly affect the capability of business to
generate profits
This include economic growth, interest
rates, exchange rates, and inflation rate.
 Social Factors
• Include demographic aspects such as age,
group affiliation, religion, civil status, and
the economic status of the consumers.
 Technological Factors
Include research and development
activities, automation licensing, patenting,
technological shifts, and outsourcing
decisions.
An important technological factor at
present is the INTERNET, which has
greatly improved the way business
functions are done.
 Selected Department of the
National Government
1. Department of Trade and Industry (DTI)
2. Department of Labor and Employment (DOLE)
3. Department of Interior and Local Government
(DILG)
4. Department of Public Works and Highways
(DPWH)
5. Department of Education (DepEd)
6. Department of Health (DOH)
 Remember!!!
• PEST ANALYSIS exclusively focuses on
the macroenvironment of the firm, it can
guide managers to identify the reasons
why their business is growing or failing
within a certain environment.
• It also helps the company identify new
directions for growth and expansion.
 SWOT ANALYSIS
Is a technique that identifies the Strengths
and Weaknesses of a company, as well as
the Opportunities and Threats it faces.
Strength and Weaknesses are part of the
company’s internal environment
Opportunities and Threats are part of its
external environment
• STRENGTH –include the company’s
attributes that give a competitive edge over
others
• WEAKNESSES – are the attributes of a
company that need to be improved or
changed.
• OPPORTUNITIES – are factors or events
that can give a positive impact to the
company if properly addressed.
• THREATS – are external factors which may
negatively impact the company.
 Remember!!!
• SWOT ANALYSIS is a quick and easy
technique in analyzing the business
situations, it is a versatile tool that can be
applied at the different levels of the
company
• Its main advantage is that it enables
managers to understand their business
better, particularly in terms of how the
company’s internal environment aligns
with external environment.
Porter's Five Forces
A MODEL FOR INDUSTRY ANALYSIS
 Michael E. Porter

 Born in 1947.

 Professor in Harvard
Business School.

 Introduced Porter's

Five Forces Model.

Porter’s Five Forces Chart
1. NEW ENTRANTS
 Establishments that ‘enter’ a given industry to compete with
existing firms

2. RIVAL FIRMS
 Existing establishments in a given industry that compete with each
other; also called industry participants

3. SUBSTITUTES
 Establishments with faster, more accessible and/or cheaper
products and services that may serve as alternative for the
products and services of a given industry

4. SUPPLIERS
 Establishments that supply a given industry’s requirements for
machinery, manpower, materials, money and other resources

5. BUYERS
 The population, whether industrial or consumer, that purchases a
given industry’s product and services.