Environmental scanning

Environmental scanning is a process of gathering, analyzing, and dispensing information for tactical or strategic purposes. The environmental scanning process entails obtaining both factual and subjective information on the business environments in which a company is operating or considering entering. A business unit has to monitor key macroenvironmental forces (demographic-economic, natural, technological, political-legal, and social-cultural) and significant microenvironmental actors (customers, competitors, suppliers, distributors, dealers) that affect its ability to earn profits. The business unit should set up a marketing intelligence system to track trends and important developments. For each trend or development, management needs to identify the associated opportunities and threats. 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 (e.g. 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 because this allows the firm to act quickly, take advantage of opportunities before competitors do and respond to environmental threats before significant damage is done.

Macro environment

Macroenvironment consists of demographic, economic, physical, technological, political-legal, and social-cultural forces that affect sales and profits. In business studies, we usually conduct PESTLE or PESTEL analysis to study the macroenvironment.

Environmental scanning usually refers just to the macro environment, but it can also include industry, competitor analysis, marketing research (consumer analysis), new product development (product innovations) or the company's internal environment.

Macro environmental scanning involves analysing:

Economy

• GDP per capita
• economic 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 trend

Government

• political climate - amount of government activity
• political stability and risk
• government debt
• budget deficit or surplus

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

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Ecology

• ecological concerns that affect the firms production processes
• ecological concerns that affect customers' buying habits
• ecological concerns that affect 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

Stakeholders

• Lobbyists
• Shareholders
• Partners
• Employees
• Customers
• Community
• Suppliers
• distributors
• retailers
• agencies

Stakeholders are anybody who is affected directly or indirectly by the organisation Scanning these macro environmental 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 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

• Strategic early warning system