CHAPTER 4

• 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. The firm does ad hoc scanning to determine whether a problem is either external or internal
• 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
• Strengths


  A company's attributes that give a competitive edge over others. The strengths of a company contribute to its good performance and a positive reputation in the business scene
• 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


  The attributes of a company that need to be improved or changed. These attributes may hinder the company's growth and performance
• 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. These are trends, changes or movements over which the company has no control but should be addressed to maintain its status in business
• Threats


  • increase in the price of resources
  • entry of new competitors
  • high inflation rates
• 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 such factors may be both considered a strength and a weakness of the company
• 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. Significant political factors include tax policies, labor laws, environmental laws, trade restrictions, and tariffs
• Businesses must comply with rules and regulations imposed by the government, and compliance requires managers to adjust their operations accordingly
• Political Factors


  • Compliance with Minimum Wage Law
  • Compliance with legal documents, fees and permits
  • Zoning restrictions
• Economic Factors


  Factors that directly affect the capability of business to generate profits. These include economic growth, interest rates, exchange rates, and inflation rate
• Economic Factors


  • High inflation rate affecting acquisition of raw materials
  • Increase in prices of raw materials and basic commodities
  • Increase in oil prices affecting transportation costs
• Social Factors


  Demographic aspects such as age, group affiliation, religion, civil status, and the economic status of consumers
• Social Factors


  • Buying habits, attitudes, ethics, personalities, and values of target market
• Firms usually shape their products or services based on their target market
• Social Factors


  • Instant noodles targeting consumers who are always on the go or have limited time to prepare home-cooked meals
  • Laundry shops catering to people unable to do their own laundry or have no helpers
• Technological Factors


  Research and development activities, automation, licensing, patenting, technological shifts, and outsourcing decisions
• Technological Factors


  • Internet improving business functions
  • Social media introducing new venues for promoting and marketing
  • Automation improving production operations
• PEST analysis exclusively focuses on the macroenvironment of the firm, and can guide managers to identify the reasons why their business is growing or failing within environment
• PEST analysis does not consider the internal elements of the company
• Benefits of Strategic Planning Using SWOT and PEST Analyses

  • SWOT analysis and PEST analysis 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 should be used in identifying the opportunities and threats in SWOT analysis