Chapter 2

• Environmental Scanning


  The actual monitoring and evaluation of information from the external and internal environment of a business organization
• Modes of Environmental Scanning

  • Ad hoc environmental scanning
  • Regular Scanning
  • Continuous Scanning
• Ad hoc environmental scanning

  Not often done and is usually applicable only during a crisis situation
• Regular Scanning


  Usually done at least once a year or at regular intervals
• Continuous Scanning


  Refers to the continuous collection of data on a broad range of environmental factors
• SWOT Analysis


  A technique that identifies the Strength and Weaknesses of a company as well as the Opportunities and Threats it faces
• SWOT Analysis


  • Strengths and weaknesses are part of the company's internal environment, while opportunities and threats are part of its external environment
• Strengths


  A company's attributes that give a competitive edge over others
• Strengths


  • market leader
  • good brand image
  • providing quality products and services
  • good reputation in the business
  • good credit standing
  • competent and highly skilled staff
  • excellent distribution channels
  • outstanding communication and network system
  • good number of patents
• Weaknesses


  Attributes of a company that need to be improved or changed
• Weaknesses


  • lack of access to technology
  • limited distribution channels
  • poor location
  • lack of facilities and equipment
  • poor transportation system
• Opportunities


  Factors or events that can give a positive impact to the company if properly addressed
• Opportunities


  • new markets
  • potential profits
  • additional sources of raw materials
  • increased purchasing power of consumers
  • better location
  • new users or customers
• Threats


  External factors which may negatively impact the company
• Threats


  • increase in the price of resources
  • entry of new competitors
  • high inflation rates
• Importance of SWOT Analysis


  • A quick and easy technique in analyzing business situation
  • More effective if managers use clear and accurate data and analyze the factors in an objective manner
  • Enables managers to understand their business better, particularly in terms of how the company's internal environment aligns with its external environment
• SWOT analysis not very effective when dealing more complicated issues and factors that cannot be clearly assigned to only one category
• PEST Analysis


  A method used in analyzing the Political, Economic, Social and Technological forces affecting the company
• Political Factors


  Laws, regulations, and restrictions that may intervene or affect the company's business course
• Businesses must comply with rules and regulations imposed by the government, and compliance requires managers to adjust their operations accordingly
• Economic Factors


  Factors that directly affect the capability of business to generate profits
• High inflation rate


  Affects the acquisition of raw materials
• Increase in the prices of raw materials and basic commodities


  Affects business
• Increased oil prices


  Result in increased cost of transporting goods
• Social Factors


  Demographic aspects such as age, group affiliation, religion, civil status, and the economic status of consumers
• Firms usually shape their products or services based on their target market
• Social Factors


  • Instant noodles target consumers who are always on the go or have limited time to prepare home-cooked meals
  • Laundry shops cater to people who are unable to do their own laundry or who have no helpers to do their laundry for them
• Analyzing social factors can help a company implement changes and improvement in its operations, products, and services
• Social Factors


  • Birth rate
  • Financial capabilities of potential customers
  • Frequency of using diapers
  • Store where they usually buy diapers
• Technological Factors


  Research and development activities, automation, licensing, patenting, technological shifts, and outsourcing decisions
• PEST analysis exclusively focuses on the macroenvironment of the firm
• PEST analysis can guide managers to identify the reasons why their business is growing or failing within environment
• PEST analysis helps the company identify new directions for growth and expansion
• A major limitation with PEST analysis is that it does not consider the internal elements of the company
• Benefits of Strategic Planning Using SWOT and PEST Analyses

  • Help companies in formulating strategies and aligning their vision and mission to the general direction of the business environment where they operate
  • SWOT analysis focuses on the external environment through the threats and opportunities, while all aspects of PEST analysis consider the external environment the business firm
  • Information gained from PEST analysis be used in identifying the opportunities and threats in SWOT analysis
• Division of work


  • Divide work into specialized tasks and assign responsibilities to specific individuals
• Authority


  • Delegate authority along with responsibility
• Discipline


  • Make expectations clear and punish violations
• Unity of Command


  • Each employee should be assigned to only one supervisor
• Unity of Direction


  • Employee's efforts should be focused on achieving organizational objectives