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Environmental scanning

From Academic Kids

For a company to gain or maintain a sustainable competitive advantage, it must be ever vigilant, watching for changes in the business environment. It must also be agile enough to alter its strategies and plans when the need arises.

Methods

There are three ways of scanning the business environment:

  • Ad-hoc scanning - Short term, infrequent examinations usually initiated by a crisis
  • Regular scanning - Studies done on a regular schedule (say, once a year)
  • Continuous scanning - (also called continuous learning) - continuous structured data collection and processing on a broad range of environmental factors

Most commentators feel that in today's turbulent business environment the best scanning method available is continuous scanning. This allows the firm to act quickly, take advantage of opportunities before competitors do, and respond to environmental threats before significant damage is done.

The Learning Organization

Once information is obtained, it must be disseminated throughout the company, to all departments, and at all levels. There is resistance to this outlook because many employees feel that knowledge is power and sharing knowledge will reduce one's worth to the company. Further, all people in the company should share in the task of scanning. When all employees scan some part of the environment, and all information, so obtained, gets disseminated through out the organization, the company is said to be a learning organization.

The Macroenvironment

Environmental scanning usually refers just to the macroenvironment, but it can also include industry and competitor analysis, consumer analysis, product innovations, and the company's internal environment. Macroenvironmental scanning involves analysing:

  • The Economy
    • GNP or GDP per capita
    • GNP or GDP growth
    • unemployment rate
    • inflation rate
    • consumer and investor confidence
    • inventory levels
    • currency exchange rates
    • merchandise trade balance
    • financial and political health of trading partners
    • balance of payments
    • future trends
  • Government
    • political climate - amount of government activity
    • political stability and risk
    • government debt
    • budget deficit or surplus
    • corporate and personal tax rates
    • payroll taxes
    • import tariffs and quotas
    • export restrictions
    • restrictions on international financial flows
  • Legal
    • minimum wage laws
    • environmental protection laws
    • worker safety laws
    • union laws
    • copyright and patent laws
    • anti- monopoly laws
    • Sunday closing laws
    • municipal licences
    • laws that favour business investment
  • Technology
    • efficiency of infrastructure, including: roads, ports, airports, rolling stock, hospitals, education, healthcare, communication, etc.
    • industrial productivity
    • new manufacturing processes
    • new products and services of competitors
    • new products and services of supply chain partners
    • any new technology that could impact the company
    • cost and accessibility of electrical power
  • Ecology
    • ecological concerns that effect the firms production processes
    • ecological concerns that effect customers' buying habits
    • ecological concerns that effect customers' perception of the company or product
  • Socio-Cultural
    • demographic factors such as:
      • population size and distribution
      • age distribution
      • education levels
      • income levels
      • ethnic origins
      • religious affiliations
    • attitudes towards:
      • materialism, capitalism, free enterprise
      • individualism, role of family, role of government, collectivism
      • role of church and religion
      • consumerism
      • environmentalism
      • importance of work, pride of accomplishment
    • cultural structures including:
      • diet and nutrition
      • housing conditions
  • Potential Suppliers
    • Labour supply
      • quantity of labour available
      • quality of labour available
      • stability of labour supply
      • wage expectations
      • employee turn-over rate
      • strikes and labour relations
      • educational facilities
    • Material suppliers
      • quality, quantity, price, and stability of material inputs
      • delivery delays
      • proximity of bulky or heavy material inputs
      • level of competition among suppliers
    • Service Providers
      • quantity, quality, price, and stability of service facilitators
      • special requirements

Scanning these macroenvironmental variables for threats and opportunities requires that each issue be rated on two dimensions. It must be rated on its potential impact on the company, and rated on its likeliness of occurrence. Multiplying the potential impact parameter by the likeliness of occurrence parameter gives us a good indication of its importance to the firm.

Responses

When an issue is detected, there are generally six ways of responding to them:

  • opposition strategy - try to influence the environmental forces so as to negate their impact - this is only successful where you have some control over the environmental variable in question
  • adaptation strategy - adapt your marketing plan to the new environmental conditions
  • offensive strategy - try to turn the new influence into an advantage - quick response can give you a competitive advantage
  • redeployment strategy - redeploy your assets into another industry
  • contingency strategies - determine a broad range of possible reactions - find substitutes
  • passive strategy - no response - study the situation further

See also:


List of Marketing TopicsList of Management Topics
List of Economics TopicsList of Accounting Topics
List of Finance TopicsList of Economists
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