Environmental Scanning: Characteristics, Components, Techniques, Process, importance, Limitations

 Environmental Scanning 

Environmental scanning is a process of gathering information about the events and their relationship with the internal and external environment of the organization. The primary aim of environmental scanning is to find out the future prospects of business organization. 

As a significant resource to the management, the Environmental Scanning Committee enables the management to make decisions from fundamental analysis of historical events to estimate future events. The committee also helps in creating action plans to address these upcoming events, analyzing action plans and arranging appropriate resources for those plans, and putting management in contact with fellow employees with the knowledge set to provide quality data for decision making.

Environmental Scanning Definition

The process of collecting, evaluating, and delivering information for a strategic purpose is defined as environmental scanning. The process of environmental scanning requires both accurate and personalized data on the business environment in which the organization is operating or considering entering.

Characteristics of Environmental Scanning

The characteristics of environmental scanning are as follows: 

1. Continuous Process- The analysis of the environment is a continuous process rather than being sporadic. The rapidly changing environment has to be captured continuously to be on track.
2. Exploratory Process- Scanning is an exploratory process that keeps monitoring the environment to bring out the possibilities and unknown dimensions of the future. It stresses the fact that “What could happen” and not ”What will happen”.
3. Dynamic Process- Environmental scanning is not static. It is a dynamic process and depends on changing situations.
4. Holistic View- Environmental Scanning focuses on the complete view of the environment rather than viewing it partially.

Components of Environmental Scanning

1. Internal Environmental Components- The components that lie within the organization are internal components and changes in these affect the general performance of the organization. Human resources, capital resources and technological resources are some of the internal environmental components.
2. External Environmental Components: The components that fall outside the business organization are called external environmental components. Although the components lie outside the organization, they still affect the organizational activities. The external components can be divided into microenvironmental components, and macro environmental components.

Microenvironmental components include competitors, consumers, markets, suppliers, organizations, etc. Macro environmental components include political, legal, economical, cultural, demographic, and technological factors.  

 

Techniques of Environmental Scanning

1. Environmental Threat and Opportunity Profile Analysis (ETOP)

ETOP is considered as a useful device that facilitates an assessment of information related to the environment and also in determining the relative significance of external environment threats and opportunities to systematically evaluate environmental scanning. By dividing the environment into different sections, the ETOP analysis helps in analyzing its impact on the organization. The analysis is based on threats and opportunities in the environment.

2. Quick Environmental Scanning Technique Analysis (QUEST)

QUEST is an environmental scanning technique that is designed to assist with organizational strategies by keeping adheres to change and its implications.  Different steps involved in this technique are as follows:

• The process of environmental scanning starts with the observation of the organization’s events and trends by strategists.
• After observation, important issues that may impact the organization are considered using environment appraisal.
• A report is created by making a summary of these issues and their impact.
• In the final step, planners who are responsible for deciding the feasibility of the proposed strategy, review reports.

3. SWOT Analysis 

SWOT analysis stands for strengths, weaknesses, opportunities and threats analysis of a business environment. Strengths and weaknesses are an organization’s internal factor while threats and opportunities are considered as external factors. So, the process of SWOT analysis includes the systematic analysis of these factors to determine an effective marketing strategy. It is a tool that is used by the organization for auditing purposes to find its different key problems and issues.

These are identified through internal and external environmental analysis.

Internal environment analysis/ scanning

Different factors are considered while analyzing the internal environment of an organization like the structure of the organization, physical location, the operational capacity and efficiency of the organization, market share, financial resources, skills and expertise of employees, etc.

Strengths: The strength of any organization is related to its core competencies i.e. efficient resources or technology or skills or advantages over its competitors. 

For example, the marketing expertise of a firm can be its strength. Apart from this, an organization’s strength can be:

• Strong customer relations
• Market leader in its product or services
• Sound market image and reputation
• Smooth cash-flows

Weaknesses: A weakness or limitation of an organization is related to the scarcity of its resources or skill-set of staff or capabilities that creates an adverse effect on its performance. 

For example, limited cash-flow and high cost are considered as a financial weakness of the organization. Similarly, other weaknesses can be:

• Poor product quality
• Low productivity
• Unrecognized brand name or poor brand image

External environment analysis/scanning

Different factors that are considered while scanning the external environment of the organization like Competitors, customers, suppliers, technology, social and economic factors, political and legal issues, market trends, etc.

Opportunities: An opportunity of the organization’s environment is considered as its most favorable situation. These are the circumstances that are external to the business and can become an advantage to the organization. 

For example, different opportunities for a firm can be:

• Social media marketing
• Mergers & acquisitions
• Tapping new markets
• Expansion in International market
• New product development

Threats: Threats of an organization are current or future unfavorable situations that may occur in its external environment. 

For example, below are a few major threats for a firm:

• A new competitor in the market
• The slow growth of the market
• Changing customer preferences
• Increase in the bargaining power of consumers
• Change in regulations or major technical changes

4. PEST Analysis

PEST technique for a firm’s environmental scanning includes analysis of political, economic, social, and technical factors of the environment. 

a) Political/ Legal factors: Different factors like changes in tax policy, availability of raw material, etc. creates a direct effect on a business. So organizations are required to constantly monitor tax-related policy changes as an increase in tax may increase the heavy financial burden on them. Similarly, different laws like “Consumer protection act” also play an important role in an organization’s operation activities as it is important to abide by the act.

More examples can be foreign trade policy, political changes, regulations in competition, trade restrictions, etc. also considered as different political/ legal factors that exist in the external business environment.

b) Economic factors: Different economical Factors like the unemployment rate, inflation, cost of labor, economic trends, disposable income of consumers, monetary policies, etc. play an important role in environmental scanning.

For example, in the case of high unemployment, a company may decrease the prices of its products or services and in opposite situation i.e. when the unemployment rate is low then prices can be high. This happens because if more customers are unemployed then by lowering the prices, an organization can attract them.

c) Social / Cultural factors: Attitude, trends, and behavioral aspects of society also create an impact on the functioning of the organization. Studying and understanding the lifestyle of consumers is very much required to target the right audience and to offer the right product or services based on their preferences.

For example, Issues and policies related to the environment like pollution control are also being considered by organizations to ensure that it operates in an environment-friendly atmosphere. Taking care of the cultural aspect of different countries while doing business at the international level, is also an important factor.

d) Technological Factors: Technological factors affect the way firms produce products and services as well as market them. Like, “processes based on new technologies” is one of the important factors of a technological environment. To maximize profits, production should be handled most cost-effectively and this, technology has an important contribution.

For example, an increase in computer and internet-based technology is playing a major role in the way organizations are distributing and marketing their products and services. Also, different advancements in technologies like automation of the manual process and use of machinery based on more advanced and latest technologies, more investment in research & development by organizations have increased their efficiency by increasing production in less time, cost-reduction and better investment in the long run.

Process of Environmental Analysis

1. Scanning-  The process of analyzing the environment to spot the factors that may impact the business is known as Environmental Scanning. It alerts the enterprise to take suitable strategic decisions before it reaches a critical situation.
2. Monitoring- The data is gathered from various sources and is utilized to monitor and find out the trends and patterns in the environment. The main sources of collecting data are spying, publication talks with customers, suppliers, dealers and employees.
3. Forecasting- The process of estimating future events based on previously analyzed data is known as environmental forecasting.
4. Assessment- In this stage, the environmental factors are assessed to identify whether they provide an opportunity for the business or pose a threat.

 

Importance of Environmental Scanning

• Goal Accomplishment: The objectives of an organization cannot be fulfilled unless it adapts itself to environmental changes. One has to adjust the strategies to fit in the changing demands of the environment.
• Threats and Weakness Identification: For an organization to grow, it must minimize its threats and identify its weaknesses. This is made possible with the help of environmental scanning with which better strategies can be developed.tz
• Future Forecast: Environmental changes are often unpredictable. An organization cannot anticipate all the future events but based on the analysis, it can make better strategic decisions in the future. Hence, environmental analysis helps to forecast the prospects of the business.
• Market Knowledge: Every organization must be aware of the ongoing changes in the market. If it fails to incorporate strategic changes due to changing demands, it will not be able to achieve its objectives.
• Focus on the Customer: Environmental scanning and analysis make an organization sensitive  to the changing needs and expectations of the customer.
• Opportunities Identification: With the analysis of the current environment, an organization will be able to identify the possible opportunities and take necessary steps.

 

Limitations of Environmental Scanning

• Overloading of information may sometimes result in indecision. Hence it is not completely reliable.
• It does not forecast the future or eliminate uncertainties. Organizations may face unexpected events. However environmental scanning should aim at minimizing such threats to the business.
• It often makes an organization cautious and thereby delays decision making. It is better to have a strategic approach to analyze the environment and take decisions or actions on time.
• When the organizations rely completely on the analyzed information without data verification and accuracy, it may lead to deviation in the desired outcomes.