Environmental scanning

Environmental scanning is one of the essential components of the global environmental analysis. Environmental monitoring, environmental forecasting and environmental assessment complete the global environmental analysis. The global environment refers to the macro environment which comprises industries, markets, companies, clients and competitors. Consequently, there exist corresponding analyses on the micro-level. Suppliers, customers and competitors representing the micro environment of a company are analyzed within the industry analysis.[1]

Definition of environmental scanning

Environmental scanning can be defined as ‘the study and interpretation of the political, economic, social and technological events and trends which influence a business, an industry or even a total market’.[2] The factors which need to be considered for environmental scanning are events, trends, issues and expectations of the different interest groups. Issues are often forerunners of trend breaks. A trend break could be a value shift in society, a technological innovation that might be permanent or a paradigm change. Issues are less deep-seated and can be 'a temporary short-lived reaction to a social phenomenon'.[3] A trend can be defined as an ‘environmental phenomenon that has adopted a structural character’.[2]

Environmental Scanning is an ongoing process and organizations are always refining the way their particular company or business goes through the process. Environmental scanning reinforces productive strategic plans and policies that can be implemented to make the organization get the maximum use of the business environment they are in. Environmental scanning not only helps the business find its strengths in its current environment but it also finds the weakness of competitors, identifies new markets, potential customers and up and coming technological platforms and devices that can be best used to sell/market the product or service. Environmental Scanning helps a business improve their decision-making process in times of risk to the external and internal environments the business is in.[4]

Environmental Scanning Process

When scanning the environment, the organization need to look at all the influences of the company. The scanning process makes the organization aware of what the business environment is about. It allows the organization to adapt and learn from that environment.[5] When the company responds to an environmental scanning process it allows them to easily respond and react to any changes to both the internal and external business environment. Environmental scanning is a useful tool for strategic management as it helps them to create and develop the aims and objectives of the company which assists with the production of the company or organization.

When looking at the weaknesses of the organization’s placing in the current business environment a formal environmental scanning is used. A common formal environmental scanning process has five steps. The five steps are fundamental in the achievement of each step and may develop each other in some form:

  1. The first step of the environmental scanning process requires the identification of the needs and the issues that have occurred that caused the organization to decide an environmental scanning is required. Before starting the process there are several factors that need to be considered which include the purpose of the scanning, who will be participating in the processes and the amount of time and the resources that will be allocated for the duration of the scanning process.
  2. The second step of the scanning process is gathering the information. All the needs of the organization are translated into required pieces of information that will be useful in the process.
  3. The third steps analyzing all the information that the business have collected. When analyzing the information organizations are made aware of the trends or issues that the organizations may be influenced by.
  4. The step four of the environmental scanning process is all about the communication of the results obtained in step three. The appropriate decision makers analyze the translated information of the potential effects of the organization. All the information is presented in a simple and concise format
  5. With all the information obtained from steps three and four, step five is all about making informed decisions. Management creates appropriate steps that will position the organization in the current business environment.[4]

Information Sources Used in Environmental Scanning

The information sources used to gain knowledge and understanding of the current business environment the organization is in can be split into two categories. The external and internal information sources. The external sources aren’t always those in a published form and can include verbal sources such as ‘word of mouth’. The external information sources include:

The internal information is all information that is specific to the organization. This information can be compared with the external sources to get the maximum use out of both types of sources for the organization, internal information includes:

Barriers of Environmental Scanning

Environmental scanning isn’t always as effective or useful in an organizational setting for several reasons. The volume of the information received through the scanning process can be disadvantageous when attempting to translate and make sense of the information as some information may get overlooked or just missed entirely. Because of the volume of information its hard to decipher what is important or not so management and key information may be missed. Another way vital information can be missed is if the information is unordered and unorganized. Due to ever changing environment all information runs under a time limit of validity. Another barrier to environment scanning is the interpretation of information that has been collected. Undetermined sources can cause confusion and irrelevance to the process.[4]

Macro environment

There are a number of common approaches how the external factors, which are mentioned in the definition of Kroon and which describe the macro environment, can be identified and examined. These factors indirectly affect the organization but cannot be controlled by it. One approach could be the PEST analysis. PEST stands for political, economic, social and technological. Two more factors, the environmental and legal factor, are defined within the PESTEL analysis (or PESTLE analysis).

The segmentation of the macro environment according to the six presented factors of the PESTEL analysis is the starting point of the global environmental analysis.

PESTEL analysis

The six environmental factors of the PESTEL analysis are the following:

Political factors

The company/organization needs to consider the political environment when creating business strategies. The entire political environment includes looking at government policies and the risk and instability of current political factors. Political risks can include an unexpected loss of ownership due to government takeover (nationalization), or changes in labour laws which might increase the cost of the company’s workforce. However often business can anticipate issues by performing a political risk analysis. The political instability can influence the business and the duration of time that business/ organization is profitable.[6]

Economical factors

The economic factors of the business environment are all the variables that impact how the consumer spends their money and the power of that purchase. There are multiple factors that exist at any time. An example of an economic factor is the recent recession influenced people to spend less and save more which has impacted current consumer spending patterns. The economic development of a country Is an important element when scanning the economic environment.[7] Countries are often categorized as either ‘developing’ or ‘developed’. The exchange rate of a country can have an extensive impact on the profitability of a business. Relatively small changes in the exchange rate may be the difference between profit and loss. When promoting, selling a product it is important for an organization to consider the extra financial information including current rates, taxes etc. in the economy of the country.[6]

Socio-cultural

The socio- cultural environment looks at the demographic characteristics of the current business environment. It looks at the values, customs and norms of the environment of which a company or organisation is placed.[7] When looking at the socio-cultural environment it is important to consider the social values of the environment. Organizations look at the cultural characteristics of the society and consider all values and customs that are often associated with the culture while they try to market and sell the product or service,[6] such as:

Technological factors

The technological environment is becoming a lot more important in the modern day business environment. New technology produces new opportunities for companies and organizations to create, sell and promote a product. Technology is rapidly growing and forever changing. Telecommunication technology e.g. cellphones and laptops are increasing the opportunity within an organization to promote and sell a product. The internet has made information available to the consumer to easily compare current prices of a product or service with the price of the competitors of the same product or service. The internet has also created more opportunity to market the product or service via the use of social media.[7]

Environmental factors

The environmental factors of the PESTLE analysis include natural resources that are affected by the processes of selling and marketing products or services. The two main environmental trends that need to be considered when evaluating the natural environment is the increased pollution and growing shortage of raw materials, Government regulations are creating practices that encourage environmental sustainability. A business might for example utilize recyclable and biodegradable packaging, thus making the most of the environmental opportunities to create a sustainable organizational in the current natural environment.[7]

Legal factors

The legal environment includes the laws and regulations of a state. The laws and regulations will influence the way in which an organization will market or sell the product and services. The legal factors influence trade agreements between different governments and states. The governments that have a well developed public policy about selling and marketing goods may limit competition and place other obligations on retailers.[7]

SWOT Analysis

SWOT or situation analysis is used when wanting to look at both the internal and external environment. SWOT stands for Strength, Weakness, Opportunity and Threat. The internal factors considered are the strengths and weaknesses where the opportunities and threats are external factors that are all used and considered to help improve the overall decision making process in dynamic strategic situations the business is facing.

The strengths are positive characteristics in the internal business environment which can be capitalized on to increase the overall organisations performance. The weakness are factors of the internal environment which may restrict and interfere with the positive organizational performance. The internal environment factors will include finance, production, research, development and marketing. The opportunities include factors of the external environment that act like stepping stones for the organization in order to achieve their current strategic goals. The threats include the factors that have an effect and may interrupt the organization from achieving the goals. Often threats will come out of the external business environment.[9]

Mesoenvironment

The meso-level is settled between the macro- and the micro- level. This field deals with the design of the specific environment of the enterprises. It is of decisive importance that the layout of the physical infrastructure (transport, communication and power distribution systems) and of the sector policies, especially of the education, research and technology policy, are oriented towards competitiveness. In addition, the design of the trade policy and systems of rules (for example: environmental norms and technical safety standards), which contributes to the development of national advantages of competition, is relevant. Like on the micro-level, on the meso-level new patterns of organisation and steering must be developed. The state shall give impulses and mediate between enterprises, associations, science and intermediate institutions. "The design of locations becomes like that a continuous process on the basis of the efforts of enterprises, science and state as well as of the determined cooperation of private and public agents".

See also

Notes

  1. ↑ Dillerup, R., Stoi, R. (2006), "Unternehmensführung",Vahlen, p. 179 et seq.; p. 187 et seq.
  2. 1 2 Kroon, J. (1995), "General Management" (2nd Edition), Pearson South Africa, p. 76
  3. ↑ Kroon,J. (1995), "General Management" (2nd Edition), Pearson South Africa, p. 76
  4. 1 2 3 4 Albright, Kendra (May–June 2008). "Environmental Scanning: Radar For Success". Information Management Journal.
  5. ↑ Costa, Jorge (1995). "An Empirically- based Review Of The Concept Of Environment Scanning". International Journal of Contemporary Hospitality Management.
  6. 1 2 3 Samson, Danny (2012). Management In New Zealand. Cengage Learning.
  7. 1 2 3 4 5 Armstrong, Gary (2012). Principles Of Marketing. N.S.W: Pearson Australia.
  8. ↑ Jeffs, C. (2008), "Strategic Management", SAGE Publications Ltd., p. 29 et seq.
  9. ↑ Nixon, Judy (2010). "Exploring SWOT analysis - where are we now?: A review of academic research from the last decade". Journal of Strategy and Management.
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