Definition of environment scanning
Environmental scanning in strategic management is termed as the utilisation and possession of information regarding patterns, relationships, occasions and trends within a company’s external and internal environment that impact the future and current strategies.
An environment should be scanned to determine forecasts and growth of the factors that influence an organisation’s success. As a result, during the strategy formulation, the organisation should try to minimise threats and gain from the opportunities. Moreover, this must be noted that a threat for one can be an opportunity for the other.
Environmental scanning in strategic management has 3 approaches:
- Systematic approach
- Ad-hoc approach
- Processed approach
However, in a large company employees are hired who research the market changes and inform the top management. This step helps the organisation to make important decisions about the future. Efforts for environmental scanning in strategic management can be as follows:
- Market research and planning
- Compare the performance with the competitors
- Analysing and interpreting the demographic data
- Collecting information about the trends
- Learning from the higher executives
Components of Environmental Scanning in strategic management
The environment of business is divided into two parts namely, external and internal environment. However, there are various components related to both environments which can be studied further.
- Internal environment
- External environment
Firstly being an example of environmental scanning in strategic management is internal analysis. They lie inside the organisation and impacts the performance of the company as a whole. This involves understanding and interpreting different resources like human resources( employee relation with management & other employees, management with shareholders, brand awareness), capital, technological, culture, objectives, corporate structure, value system, labour union etc. As a result, the internal analysis identifies weaknesses and strengths within the company.
Now, the external environment talks about the outside walls of the company. As competition adds up, the external environment becomes dynamic and plays a crucial role in long term plans. The factors are infinite therefore the organisation should be vigilant and adjust according to the changes. Strategic managers must focus on the present state and future positions.
Micro refers to the individual company atmosphere which can be controlled up to one extent affecting it externally. However, the factors included in the micro sector includes suppliers, organisation, market, competitors, industry, consumers, etc.
Macro indicates the environmental scanning example of the factors which are not under the control of the company. This sector includes demographical, political, economic, technological, cultural, environment, etc.
Importance of Environmental Scanning
Environmental scanning in strategic management results in making correct use of resources like capital, natural and human. This step limits the wastage of the resources and ensures optimum utilisation so that they can be saved for the future.
Growth and survival
By exploiting the environment with the help of SWOT analysis, an organisation can take the first-mover advantage, study the competitor’s step, etc. Therefore resulting in business survival and growth.
Identifies Strengths and Weaknesses
Strengths depict the advantage area which acts as the power of the business. They must strive to make improvements through various strategies and by building immediate plans. Also, the limitations of the firm are noticed by searching for weaknesses. Therefore, a firm focus on the area to stop the expansion and correct them.
Identifies Opportunities and Threats
Research of the market is done to find information and gaps where the company can benefit. Therefore after identifying opportunities, the company should grab them by proper analysing. Environmental scanning example helps to detect the threats and eliminate the risk if cured on time.
Long term strategy formation
When the information is gathered and trends are known, the business tries to formulate the strategies that help in the long run. As a result, environmental scanning in strategic management enables the organisation to build efficient plans and policies.
Decision making is a term that depicts choosing the best among the various alternatives available. Moreover, an example of environmental scanning in strategic management aids the senior management to take crucial company’s decisions by taking into consideration all the factors and keeping in mind the success of the organisation.
Process of Environmental Scanning in strategic management
Commonly termed as the EAU( Environmental Analysis Unit) is a set of chosen people who focus on the analysis and deliver the results to strategists. However, it’s not always necessary to have an extra section for the research work but a special task force is established as mentioned.
The term refers to the event that tends the industry to start with the changes or a desire for data. The factors can be outside or inside the organisation like a change in government policy. As a result, managers take environment studies seriously.
Ongoing study of the environment refers to the greater environment coverage. Making analysis limited leaves few areas leaving the scope of potential spots. However, ongoing research locates better and existing impact of the organisation. Furthermore, the technique serves as the complementary source of informal scanning.
After choosing the path, the information is gathered relating to the specific strategy chosen which may include all the factors affecting the analysis. Also, the analysis should not be made on the whims of higher-level management but rather going through the proper analysis and data interpretation.
This step involves the decision making which should be made by the specified groups plus the people working closely in the area of environmental scanning in strategic management. The employees responsible for strategic decisions must make a contact to ensure better performance. Also, the changes may be needed and fluctuate with time. Therefore the awareness of environmental factors is required constantly.
Techniques of Environmental Scanning
According to environmental scanning in strategic management, new strategies are made to take the benefit of the opportunities in the future. As a result, different techniques are used for environmental scanning which is as follows:
Environmental scanning in strategic management is followed to know about the recent trends so that the exploitation of the opportunities can be done. As a result, to reduce the impacts, strategic steps can be taken. However, research is termed as the old method yet a different department named R&D is established for the purpose to find information about the market.
The term SWOT stands for strengths, weakness, opportunity, and threat. This kind of technique helps the organisation to conduct an internal analysis of its strengths and weaknesses. Furthermore, it becomes significant to know about the company’s project planning and competition. This method aids in identifying the factors which can support the achievement of organisational goals.
This type of analysis is executed to know about the macro-environment. Therefore, here the term denotes political, economic, technological, legal, social and environmental. Although these factors are not under the control of the company, still it can be prepared for the impact the factors may cause.
Environmental Scanning example states, change in employment laws, tax policy etc can be regarded as the political factors which impact the business.
Analysis of the industry
There are various company’s prevailing in the industry which can be either indirect or direct competitors which exist in the category of the microenvironment. As a result, to beat the competition environmental scanning in strategic management is conducted (like knowing the trade secrets) to make the strategies.
Environmental scanning in strategic management includes forecasting the state of the future and therefore includes statistical methods. In the Delphi technique, the experts from the internal and external rankings from wide but related fields are asked to fill a questionnaire regarding the problem. The summary is again reviewed and then used to forecast the strategies to be made.
The process is conducted where the participants open up with ideas. They are encouraged to be innovative and think about the situation in different ways which are then analysed according to the view of benefits, implications and costs.
Environmental scanning in strategic management through benchmarking explains setting up standards or an option is chosen by any competitor/individual. If a competitor company manufactures the same product hierarchy with less price then the leading company should learn the concepts ( like tear down or value engineering) and apply them. An example of environmental scanning who learned from benchmarking, Xerox corporation.
Example of Environmental Scanning in strategic management
Environmental scanning example includes various ideas of the real-time who researched and gained by evaluating the market.
- PepsiCo planned to shift its investment in functional and healthier foods by observing the demand among the customers moving towards healthy habits. Also, customers are reluctant to use fast food, knowledge of which was gained through market research. As a result, the company collaborated with different food companies to avail them of healthy beverages and food.
- Microsoft works on R&D ( research and development) to keep itself updated with the trends in mobile devices and software. Firstly, the company started with rooting in software for mobile PCS and desktops along with which it produced devices like pads and phones to expand its global reach.