What are the three levels of environmental scanning?

HomeCourses-of-Busi.-Env.-&-Strat.-Mgmt.Environmental Scanning: Concept, Types, Approaches, Process, Techniques or Methods and Importance

Kunwar Santosh Tuesday, March 23, 2021

Environmental scanning may be defined as the process by which organizations monitor their relevant environment to identify opportunities and threats affecting their business for the purpose o taking strategic decisions.It helps identify the early signals of potential changes in the environment. It also detects the changes that are already underway. It normally reveals ambiguous, incomplete, or unconnected data and information. It involves a detailed and micro-study of the environment. Hence. it is also called the X-ray of the environment. The environmental uncertainty, complexity, and dynamism are studied to assess the trend of the environment. It is the base of environment analysis. It is normally done when there is a high level of uncertainty in the environment. It is a continuous process. It also helps to evaluate the long-term scanning strategic plan that will be aligned with future business conditions.The scanning system should be aligned with the organizational context Hence, a scanning system designed for a volatile environment may be inappropriate for a stable environment. Many organizations even use special software and the internet for environmental scanning.From the above discussion, it may be concluded that environmental scanning is a continuous process of study and analysis of the environment to detect the emerging trend in the environment.

Environmental scanning is a process of obtaining information from the environment. It helps prepare an organization to exploit the business opportunity by developing a sound resource base. Further, it also assists in preparing scenarios and adjusting to changes. Environmental scanning may be done in two ways as mentioned below.

If some specific environmental components are only analyzed, it is called centralized scanning. Under this. the important components which are likely to exert considerable impact on the business are only analyzed. For example, if economic conditions are only studied. it is termed centralized scanning. Since specific components are only scanned, this is economical. Likewise, it helps to save time as well. However, it is not a comprehensive method due to the study of specific components only.

If all the components of the environment are analyzed in a detailed and micro way, it is called comprehensive environmental scanning. Under this, all the internal, as well as external components which are likely to influence the business, are analyzed. Hence, it is comprehensive in nature. Since many components are analyzed, it is costly. Likewise, it is time-consuming as well.

There are mainly three approaches to environmental scanning. They are;

Under this approach, a systematic method is adopted for environmental scanning. The information regarding market and customer, government policy, economic and social aspects are continuously collected. In other words, the environment is monitored in a regular way. The timeliness and relevance of such information enhance the decision-making capacity of the management.

Under this, specific environmental components are only analyzed through surveys and studies. The ad-hoc approach is useful for collecting information for specific projects, evaluating the strategic alternative, or formulating new strategies. It is not a continuous process.

Under this, the information collected from internal and external sources is used after processing them. Normally, the information obtained from secondary sources is processed and used as per the requirements of the business.

Environmental scanning is an ongoing process. The following process is adopted for environmental scanning.

In the first step of environmental scanning, the forces of the environment that have got significant bearing in the growth and development of the business should be identified. They may be political, economic, socio-cultural, technological, legal, physical environment, and global components. After this, the nature of the environmental components is studied. The nature of the environment may be simple or complex. It may also be stable or volatile. The nature of the environment affects a firm's ability to predict the future. Some businesses may be operating in a simple environment and others in the complex. When there is a high level of uncertainty and complexity in the environment, environmental scanning becomes more critical.

After studying the forces and nature of the environment, the sources of collecting information from the environment should be determined. There are different sources through which information on the business environment may be collected. They are as follows.

Newspaper, book, research articles, industrial and trade publications, government publication, and annual report of the competitors

Internal reports, management information system, data network, and employee

Consumers, marketing intermediaries, and suppliers

Formal research and study by the employee, research agencies, and educational institutions

Spying and surveillance of the competitors.

After determining the sources of information, the technique of environmental scanning should be determined. The selection of the scanning techniques depends on the nature of the environment to be scanned. The commonly used techniques of scanning are the executive opinion method, expert opinion method, Delphi method, historical analogy, etc.

This is the final step of the environmental scanning process. It involves a detailed and micro-study of the environment to identify the early signals of potential changes in the environment. It also detects changes that are already underway and shows the trend of the environment. The trend should be assessed in terms of opportunities and threats.

It is also called the executive judgment method. Under this environment is forecasted on the basis of the opinion and views of top executives. A panel is formed consisting of these executives.

Under this environment, forecasting is based on the opinion of outside experts or specialists. The experts have better knowledge about market conditions and customer tastes and preferences. This method is similar to the executive opinion method. However, it uses external experts.

This method is an extension of the expert opinion method. It involves forming a panel of experts and questioning each member of the panel about the environmental trend. Later, the responses are summarized and returned to the members for assessment. This process continues till an acceptable consensus is achieved.

Under this method, past information is used to predict the future. Different methods used to extrapolate the future are time series, trend analysis, and regression analysis.

It is a judgmental forecasting technique. Under this, the environmental trends are analyzed with the help of other trends which are parallel to the historical trend. For example, the sales history of a similar product.

Under this, rationål and unbiased intuition is used for environmental scanning, Environmental dynamics are guessed on individual judgment. The reliability of this method is questionable.

Scenarios are the pictures of a possible future. They are built on the basis of a time-ordered sequence of events that have logical cause-and-effect relationships with each other. Scenarios are built to address future contingencies.

Under this, environmental forecasts through various methods are combined to form an integrated and consistent description of the future. A cross-impact matrix is used to assess the internal consistency of the forecasts.

The importance of environmental scanning is mentioned below.

It provides an early signal of threats, which can be defused or minimized if recognized well in advance.

It signals an organization to the changing needs and requirements of the customers.

It helps an organization capitalize on opportunities earlier than the competitors.

It provides a base of objective qualitative information about the environment that can be utilized for strategic management.

It provides intellectual stimulation to managers in their decision-making.

It improves the image of the organization as being sensitive and responsive to its environment.

It is necessary for a business to understand the environmental forces and conduct business accordingly. Hence, a business has to study the business environment in a continuous manner due to the following reasons.

A business may get a first-mover advantage by identifying and exploiting the opportunities earlier than the competitors. It provides a sustainable competitive advantage to the business.

The strategy is a long-term action plan formulated and implemented for competitive advantage. They are formulated and implemented considering the internal as well as external factors. SWOT analysis is the foundation of strategy formulation. It examines the strengths, weaknesses, opportunities, and threats of the firm relative to the competitors and helps to develop different strategic alternatives and select the most suitable. Hence, environmental study or analysis is very important for strategy formulation.

Competitive analysis is also called industry analysis. It shows the intensity of competition among firms across industries. It involves an analysis of rivalry among competing firms, potential entry of new competitors, potential development of substitute products, bargaining power of suppliers, and bargaining power of consumers. They form an industry environment and show the growth and profitability potentiality of a firm. Hence, the study of the business environment is crucial for competitive analysis.

Strategic control involves a re-examination of environmental assumptions to ensure the effectiveness of strategy implementation. It is an early warning system. Hence, it answers the question "Are we moving in the right direction?" It aims at proactive and continuous questioning of the basic direction of the strategy. In this way, the environmental analysis serves as the basis of strategic control.

A business can achieve a competitive advantage if it adapts to the environment and manages itself accordingly. Adaptation refers to the adjustment with the emerging environmental conditions and trends. It helps to maximize the environmental opportunities and mitigate likely threats.

Stability in business activities is important for sustainability. Fluctuation in business activities adversely affects the functional areas as production, marketing, finance, and human resource. For stability, a business should monitor its environment regularly and adjust accordingly. It eventually provides sustainability to achieve business goals.

A firm can collect information from the environment if it studies it continuously. Further, it can detect the emerging trend and scenario from the environment and prepare itself to cope with the likely changes. It enhances the competitive advantage of the firm.

A business alone cannot influence the general environment, However, the environment may be influenced through the formation of organized bodies like industry and trade federations. Environmental study and analysis enable the businesses to understand the environment and lobby further to make it congenial.

A business firm can improve its image by showing that it is sensitive to its environment and responsive to the aspirations of the public. The stakeholders continue to support the organization if it is sensitive to the environment. Stakeholders' support enhances organizational effectiveness.

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