EXTERNAL ENVIRONMENT
CENTRAL LUZON STATE UNIVERSITY
College of Business Administration and Accountancy
Department of Business Administration
Focuses on
identifying and
evaluating trends
and events
beyond the
control of a single
firm.
OBJECTIVES
✓ Describe how to perform an External Assessment
✓ Discuss the Industrial Organization
✓ Explain the Forces present in a competitive
environment
✓ Identify the Key External Forces
✓ Develop an EFE Matrix and CPM
POLITICAL
External
FIRM
LEGAL
Political factors result from the processes and actions of
government bodies that can influence the decisions and
behavior of firms.
Government Policies
Trading Policies
Monetary/Tax Policies
Political Factors
Corruption
Consumer Confidence
Inflation rate
Interest rate
Unemployment
Economic Factors
Economic factors in a firm’s external environment are largely
macroeconomic, affecting economy-wide phenomena.
Sociocultural factors capture a society’s
cultures, norms, and values of the population
within which the organization operates
Ethnic/religious factors
Health and Lifestyle
Life Cycle
Socio-cultural Factors
Population growth
Filipino: Close family ties
Virtual kumustahan
E-numan session
Health and Lifestyle
Lifecycle
Bachelor
Empty Nest 1 and 2
Newly married couple
Full Nest 1,2,3
Solitary Survivor 1 and 2
Population Growth
Technological factors pertain to innovation
in technology and the regulations
surrounding technology
Technological Development
Research Development
Information System
Technological
Consumer access to technology
It involves issues such as the natural environment,
global warming, and sustainable economic growth.
Weather
Climate change
Environmental regulations
Environmental
Environmental issues
Legal factors include the official outcomes of
political processes as manifested in laws,
mandates, regulations, and court decisions—all of
which can have a direct bearing on a firm’s profit
potential.
Environmental Law
Consumer protection
Legal Factors
Data Privacy Act
Tariff laws
• Republic Act 8749 Philippine Clean Air Act Of
1999
• Ra 9275 Philippine Clear Water Act
• Republic Act 6969 Toxic Substances, Hazardous
And Nuclear Waste Control Act Of 1990. ...
• Presidential Decree 1586 Environmental
Impact Statement (Eis) Of 1978.
• Ra 9512 Environmental Education Act Of 2008
RA 7394 (Consumer Act of the
Philippines of 1991)
THREAT OF
NEW
ENTRANT
THREAT OF
SUBSTITUTE
COMPETITIVE
RIVALRY
BARGAINING
POWER OF
SUPPLIER
BARGAINING
POWER OF
BUYER
Threat of New Entrant
The possibility that the profits of established firms in the
industry may be eroded by new competitors.
Bargaining Power of Buyer
The threat that buyers may force down prices, bargain for
higher quality or more services, and play competitors against
each other.
Bargaining Power of Supplier
The threat that suppliers may raise prices or reduce the
quality of purchased goods and services.
Threat of Substitute
The threat of limiting the potential returns of an industry by
placing a ceiling on the prices that firms in that industry can
profitably charge without losing too many customers to
substitute products.
Intensity of Rivalry among Competitors
The threat that customers will switch their business to
competitors within the industry.
This strategyformulation tool
summarizes and
evaluates the
major
opportunities and
threats in the
functional areas
of a business
Key External Factors
Opportunities
• Opportunities are the chances exist in the external environment, it depends
firm whether the firm is willing to exploit the opportunities or may be they
ignore the opportunities due to lack of resources.
Threats
• Threats are always evil for the firm, minimum no of threats in the external
environment open many doors for the firm. Maximum number of threats for
the firm reduce their power in the industry.
Steps in Developing the EFE Matrix
1. List key external factors as identified in the external-audit process.
2. Assign a weight that ranges from 0.0 (not important) to 1.0 (allimportant) to each factor.
3. Assign a rating between 1 and 4 to each key external factor to indicate
how effectively the firm’s current strategies respond to the factor, where
4 = the response is superior, 3 = the response is above average, 2 = the
response is average, and 1 = the response is poor.
4. Multiply each factor’s weight by its rating to determine a weighted score
for each variable.
5. Sum the weighted scores for each variable to determine the total
weighted score for the organization.
Identifies a firm’s
major competitors
and its particular
strengths and
weaknesses in
relation to a sample
firm’s strategic
position.
Critical Success Factor
• Critical success factors are extracted after deep analysis of external
and internal environment of the firm.
• Obviously there are some good and some bad for the company in the
external environment and internal environment.
• The higher rating show that firm strategy is doing well to support this
critical success factors and lower rating means firm strategy is lacking
to support the factor.
EXTERNAL ENVIRONMENT
CENTRAL LUZON STATE UNIVERSITY
College of Business Administration and Accountancy
Department of Business Administration