An organization works in an extremely dynamic environment that keeps changing constantly. So, an organization’s future also has a changing tendency that requires close monitoring of the organization’s ever-changing environment through Environmental Scanning.
The detailed and continuous process by which an organization monitors its internal and external environment is termed as ‘Environmental Scanning’. The process is aimed at identifying the risks and opportunities that can affect an organization’s prospect or direction.
In a more detailed form, Environmental Scanning is related to examining and interpreting different economic, social, technological, political trends, and events that affect an organization or industry or the whole market.
Different factors or components of both internal and external business environment can affect an organization or business in both positive (opportunity) or negative (threat) way. That’s why these are required to be constantly monitored in which Environmental Scanning plays a vital role. These components are:
The internal environment consists of strengths and weaknesses of an organization, wherein the external environment is related to threats and opportunities which are outside components of the organization’s environment.
Purpose of Environmental Scanning
The basic purpose of environmental scanning is data collection related to competitors, employment trends, technological advancement, industry trends, political, economic conditions, etc.
Following are the different aims of environmental scanning process:
- Environment awareness: Environmental Scanning includes the study of the business environment of any business which helps in gaining knowledge of changing the business environment. To remain competitive in the market, business owners must have awareness about the current environment in which they operate their business. This facilitates predicting the prospects of business in such an environment, and also they can plan their business strategy well in advance.
- Information for decision-making: One of the important aims of the business environment study through Environmental Scanning is to provide necessary information which is required for conducting right and better decisions. With the help of the study, businesses can know their stakeholders and competitors much better. So, it’s easier to make decisions related to different aspects like sales & purchase, costing, perks, etc.
- Facilitates policy-making: Good business polices demand a thorough knowledge of different business environment i.e. economical, social, legal, political, etc. By providing such knowledge, environmental scanning contributes to drafting better business policies.
- Planning related to technology: Businesses work in today’s rapidly changing technical environment. It’s necessary for them to cope-up with the technological advancements of their industry by knowing the technological environment. It helps in making effective technical planning for businesses.
- Business survival through forecasting: At the time of recession or losses, organizations bear limited sales while unlimited production may be there. In that scenario, business survival much depends on the fact that all such situations have been predicted well in advance through Environmental Scanning.
Factors to be considered while Environmental Scanning
Different factors are required to be considered before Environmental Scanning like:
- Events: Different occurrences that are specific and occur in different business environments play an important role in the functioning or growth of the business. These events take place in any business environment i.e. internal or external. These can be observed and tracked by the businesses.
For example, The government revises the minimum wages of employees or workers from time to time, and an organization is required to keep track of these revised minimum wages as its mandatory for them to incorporate these new wages in the salary structure of employees.
- Trends: Trends are general tendencies that are connected with events. It is also considered as a group of related events. Trends are also an important factor of Environmental Scanning as it helps organizations in identifying the frequency of different events to make changes in the respective field. These trends can be both positive trends or negative trends.
For example, An organization having different products and markets needs to identify the product that is not making profits in a particular market. For this, it will analyze the previous 4-5 years of sales trends of that product in different markets. If trends are negative, i.e. the sale is decreasing on a ‘year on year’ basis then it may decide to change the marketing strategy of that particular product.
- Issues: There might be some concerns or issues that can arise along with events and trends. To take corrective actions, the identification of emerging issues is required. Identifying emerging concerns that are both burning and cold is a little difficult as it demands change in the values of the concerned area.
For example, While analyzing an organization’s product sales trend of the last 4-5 years, it is found that sale is declining for that product in a particular market. So, it has raised an issue or concern of the wrong marketing strategy or loss to the organization due to the failure of the product in that market.
- Expectations: Different people can demand certain things based on the concern of their issues. These demands are considered as expectations.
For example, Employees who have issues or concerns with their current salary; may expect or demand better salary hikes in their yearly appraisal.
Approaches for Environmental Scanning
Different approaches to scan an organization’s environment are:
- Systematic approach: This approach demands a systematic collection of information for scanning an environment. Different types of information related to market, competitors, customers, regulations, etc. may have a direct impact on the organization’s business. So these are required to be closely monitored regularly to determine relevant facts and figures. This type of approach is best suitable for strategic management activities and operational tasks.
- Ad-hoc basis approach: In this approach, organizations conduct special surveys on an ad-hoc basis related to certain environmental issues. These studies or surveys may be considered while initiating new projects or to update current strategies.
- Secondary information approach: This approach consists of the use of processed form information which is collected from different internal and external environment i.e. government agencies, educational institutes, etc. So, in this approach, information is obtained from secondary resources.
Factors that influence Environmental Scanning
An environmental scanning is affected by different factors which are given below:
- Organizational factors: Different characteristics of the organization such as its size, complexity, nature of its business, market and products/services, age, etc. affect its environment.
- Environmental factors: Different factors related to the nature of the environment like its complexity, flexibility, diversity, etc. also affects the process of environmental scanning.
- Factors related to strategist: Different strategists have an important role in the strategy formulation of an organization. The characteristics of these strategists i.e. qualification, experience, motivation, ability to cope-up with stress, interpersonal skills, etc. make an impact on the organizational environment.
Importance of Environmental Scanning
1. SWOT Analysis: Environmental Scanning is both a complex and important process. The study of both internal and external environment provides valuable information about an organization related to its strengths, weakness, opportunities, and threats (SWOT).
- Strengths: Environmental scanning provides useful insights into an organization’s strengths by analyzing its internal environment that offers a competitive advantage to its business. This information can be used to strengthen these strengths to maximize their profits.
- Weakness: Internal environmental scanning also helps in determining the weaknesses of the organization. The timely corrective measures are required for these weaknesses to achieve growth and stability in an organization.
- Opportunity: Environmental scanning also analyzes external environment factors that facilitate identifying different opportunities for businesses in the external market and to grasp these opportunities, different strategies can be made well in advance.
- Threats: Identification of different threats whether its competitors or any other factor of the external market is equally important for business growth and its smooth operation. Environmental scanning helps in analyzing such threats so that organizations can develop strategies to either remove or minimize the effects of these threats.
Below diagram shows different strengths, weaknesses of the internal business environment of an organization and also opportunities and threats that are external to its environment:
2. Optimum utilization of resources: An organization can grow and achieve its objectives by utilizing its available resources i.e. human, capital or non-human properly and up to a maximum extent. In this, environmental scanning plays a vital role by conducting a detailed analysis of the utilization of these resources. With this analysis, organizations can control the wastage of resources by utilizing them effectively and efficiently.
3. Growth and survival: By analyzing both internal and external environment important factors i.e. SWOT analysis, Environmental scanning prepares the organization to tap any opportunities and threats of the future and simultaneously to improve its strengths by removing weaknesses.
4. Long-term planning: Businesses are required to have both long-term and short-term plans. The long-term objectives of planning can be determined by thorough analysis and environmental scanning. It facilitates business owners to develop the required business strategy.
5. Assists in the decision-making process: With the help of environmental scanning, an organization can decide the best alternatives among different available alternatives to take an effective decision for the organization’s success and growth.
Process of Environmental Scanning
Through the Environmental Scanning process, an organization can understand its business environment in which it operates. In each stage of the environmental scanning process, the organization can respond and manage changes that may happen in both its internal and external environment. The scanning process is also considered as a beneficial tool for strategic management as it helps in formulating and implementing the organization’s objectives by providing a detailed assessment of the internal and external environment.
Environmental Scanning process consists of following steps that are inter-related to each other:
- The environmental scanning process starts with the identification of requirements and concerns that have created the reason for which organization decides for environmental scanning. Different factors that are considered before initiating the process include the scanning purpose, participants of the process, the resource allocation and duration of environmental scanning.
- The next step of the scanning process includes collecting the information. The organization’s requirements are defined in the necessary information that is beneficial in the scanning process.
- Further, all collected information of the organization is analyzed. While analyzing, different trends or concerns are highlighted that may influence the organization.
- The fourth step includes communicating results that are derived from the information analysis.
- After obtaining all relevant information from the above steps, the next step is related to making decisions using all information. Different appropriate measures are taken by the organization to strengthen its position in the current business environment.
Information Sources used in Environmental Scanning
There are two types of information sources that are being used in knowledge gaining and understanding the current business environment of the organization i.e. internal and external sources of information.
Different external information sources are as under:
- Personal links
- Magazines or Journals
- Books and newspapers
- Conferences or meetings
- Colleagues at a professional level
- Internet or other media like television, radio, etc.
However, internal information sources are organization specific. This includes:
- Sales personnel
- Managers and employees
- Internal reports and memoranda
- Internal databases
Environmental Scanning Techniques
Different techniques or methods are being used to scan a business environment. The selection of the right technique is based on different aspects like required data and its source, relevance and cost of information, and the availability of information as well as its quantity and quality, etc. These techniques can be statistical or mathematics-based. These techniques are categorized as:
- SWOT analysis
- ETOP analysis
- QUEST analysis
- PEST analysis
We’ve thoroughly explained these techniques in a separate article here ➡️ https://studiousguy.com/techniques-of-environmental-scanning/
So, Environmental Scanning is considered as an important tool for future prediction and helps organizations to be prepared for an unpredictable and changing business environment. How frequently Environmental Scanning should take place, depends on the organization’s requirements. If an organization belongs to an industry that his highly affected by technological innovations then it requires more close and constant monitoring of its environment.