The physical environment analysis Environmental scanning is the critical

surveillance and evaluation of events

happening in the external environment that
EXTERNAL ENVIRONMENT may influence the current position and future
plans of a company. This involves identifying
The External Environment, also referred to as key forces existing in the environment that
the General Environment. It is an inclusive may change or affect the future of a company.
concept that involves all outside factors and
influences that impact the operation of a • Environmental Monitoring
business that an organization must respond or
Is the process of tracking the environmental
react to in order to maintain its flow of
trends or sequence of events determined
operation.
during an environmental scanning.
two types of External Environment:
• Competitive Intelligence
• Micro Environment
PESTEL ANALYSIS
• Macro Environment
it describes framework of
three layers of the external environment macroenvironmental scanning components
of strategic management.
• Physical or Natural Environment
IMPORTANCE
The physical or natural environment
refers to the ecological and geographical • RISK MANAGEMENT
factors that can impact an organization’s
• ENHANCED REPUTATION
operations. This includes the following
aspects: • COST SAVINGS

• Societal Environment risk management

Social environment depends on the social Another reason environmental monitoring is

constructs (generally accepted ideas and important is that monitoring environmental
characteristics) of the target society. It is made factors like air and water quality helps
up of factors such as beliefs, traditions, identify potential risks early.
ethnicity, occupation, disposable income,
ENHANCED REPUTATION
consumption trends, and gender of
consumers and the general public. Consumers and investors increasingly favor
businesses with strong environmental
• Industry Environment
practices.
An industry environment is the sum of factors
COST SAVINGS
and processes that function in the company
surroundings. These factors affect the Lastly, identifying inefficiencies in resource
business of a company because of the use through environmental monitoring can
constant interactions between them. lead to significant cost savings.
EXTERNAL ENVIRONMENT analysis process Competitive INTELLIGENCE
The three major processes: Competitive intelligence is a systematic
process of collecting, analysing and
• Environmental Scanning
interpreting information about business
competitors. It is intended mainly to monitor
the probable moves competitors. It is entirely ENVIRONMENTAL ANALYSIS
different from business espionage, which is an
ENVIRONMENTAL ANALYSIS
unethical practice.
PEST
identify the sources of information
Societal Environment
Good sources of information about
competitors are annual reports, websites, Consists of Political or Legal, Economic,
mission and vision statements, newspapers Sociocultural and technological factors.
and magazines, financial statements, and Composed of several variables that influences
publications of research offices. the growth of the industry in which a
company belongs. Effects by these variables
Validate collected information
can be felt directly by a specific industry and
Only information that can provide valuable sometimes indirectly towards a business.
and strategic insights to a company must be
Political or Legal Segment
validated.
Tax Laws
Analyze the information
Government System
Data collected reflect the past and current
performances ot competitors. When analyzing Foreign trade relations
collected information, it is important to avoid
making assumptions and projections. Antitrust regulations

Make a projection Immigration laws

The process of making a projection means Provision on special incentives

that the probable actions of competitors are Government programs and priorities
predicted. Projections are usually based on
the past performances of competitors.

Define the action to be taken Political or Legal Segment

The last stage in competitive intelligence is to The political systems, tax laws, government
identify a company's action to combat the programs and priorities and other variables
projected moves of competitors. under political or legal segment directly
affects a business or an industry where it
The physical environment operates. Example, Executive Order No. 28,
The physical or natural environment of a series of 2017, which banned smoking in
company includes physical resources, public places nationwide, which reduced the
wildlife, and climate. These elements are consumption of cigars and cigarettes.
inherent and beyond the control of a Economic
company. It is important to conduct a physical
or natural environment analysis to determine The growth or the recession of the economy,
possible strategic factors for the following: which is manifested by key economic
indicators as mentioned before. Example, a
high inflation rates and unemployment levels
affects all types of businesses. In which a high
inflation rate reduces disposable income of
consumers who tend to limit their expenses.
Which can greatly affect the production values, beliefs and lifestyles in a society for a
process of a company due to less buyers period of time.

Interest Rates

GDP Rates Internet availability

Inflation Rates Spending on research and development

Telecommunication Infrastructure
Unemployment Levels
Genetic engineering
Currency Market
Wireless Communication
Consumer price Index
Patent Protection
Money Supply
Computerized Operation
Disposable Income

OTHER SEGMENTS
Sociocultural
Demographic Segment
refers to the customs, traditions, values,
beliefs and lifestyles in a society for a period Business must design and offer their products
of time. Some important variables comprising appropriately to fit the demographic profile of
this segment includes a greater concern for their expexted market. Business that disregard
the environment, level of education and the the influence of demographic segment do not
increase of women in the workforce. For endure or last in competitive environment.
example, mining companies and coal
processing plants are facing pressure from
environmental groups for the possible Age Distribution
shutdown of their operations.
Sex

Race
Level of education
Ethnicity
Population growth rate
Religion
Lifestyle Population age distribution
Income
Birth rates and life expectancies

Pension plans and health care

Global Segment
Concern for the environment
The global environment consists of
multifaceted factors that affect a business's
operation, and the business has no control
Technological Segment
over them. These are inevitable external
Accelerated pace of changes and barriers imposed by the
advancements in technology and
communication has tremendously affected
almost all types of businesses across Global Trade Liberalization
industries. refers to the customs, traditions,
Trade Agreements (e.g. NAFTA, APEC, and
ASEAN)

Emerging Economies (China and India

CONDUCTING A SOCIETAL ENVIRONMENT

ANALYSIS

The commonly used strategic management

tool to conduct a societal environment
analysis is the STEEP or PESTEL analysis.

STEEP stands for sociocultural, technological,

economic, environmental, and political forces.

PESTEL stands for political, economic,

sociocultural, technological, environmental,
and legal forces.

This tool is intended to determine the trends

happening in the industry to which a company
belongs.

STEEP

The purpose of a macro-environmental

(STEEP) analysis is to capture and interpret
what is happening (and what is likely to
happen) in the environment in which a
business operates.

PESTEL

A PESTLE analysis studies the key external

factors that influence an organisation. It can
be used in a range of different scenarios, and
can guide people professionals and senior
managers environment, people's way of life,
governments, legislation, competitors,
technology, and other external factors to a
business in strategic decision making.
Companies can use a PESTLE analysis in
financial analysis, risk analysis and strategic
planning.