Today, we are going to study environmental scanning, types of environment scanning, process and methods/techniques of Environmental scanning. Let’s start with the Introduction of environmental scanning.
Introduction to Environment Scanning
Environmental scanning is an X-ray of the environment. It is defined as the process of understanding the dynamism and trends of the environment.
In other words, it is the process that seeks information about events and relationships in a firm’s environment, the knowledge of which helps top management chart the firm’s future.
Furthermore, Environmental scanning is a process that systematically surveys and interprets relevant data to identify external opportunities and threats. An organization gathers information about the external world, its competitors and itself. The company should then respond to the information gathered by changing its strategies and plans when the need arises.
Environmental scanning entails partitioning the external environment into sectors, namely, cultural, economic, political, technological, and so on. This helps establish a firm’s information needs within those sectors.
Data are usually collected by monitoring and forecasting changes in important variables identified in each sector. That data is then transformed into consolidated information, which is integrated into the firm’s strategic planning process (Georgantzas and Acar 1995).
Environmental scanning is used to gather information from the environment. This information is used to craft a strategic plan that will help an organization achieve and maintain a competitive advantage.
In order to be successful, the organization must align its strategies and plans with the information gathered from environmental scanning.
Types of environmental Scanning
- Concentric scanning: If only one factor of the environment is being analyzed to identify its cause and effect along with its cost and benefit, then it is called concentric scanning. For example: examining only the economic environment to know the possible future profit prospects.
- Comprehensive scanning: If all the factors of the environment are being analyzed to identify their cause and effect along with their cost and benefit, then it is called comprehensive scanning.
Process of Environmental Scanning
The following process is adopted in environmental scanning:
- Study of forces and nature of the environment: This is the first step of environmental scanning in which an organization studies the nature of environmental forces and their trends.
- Determine the sources of information: A company can obtain information from different sources, but it should be ensured that the information is correct. The correct source should be tapped for specific information for more accuracy. Information received from secondary sources may sometimes even misguide strategy managers. Hence‚ it is important that information should be verified for correctness before it is processed and decisions are taken based on it. Different sources used to collect the information are:
- Secondary sources: Newspaper‚ research articles‚ publications etc.
- Mass media: Radio‚ TV ‚ internet etc
- Internal sources: Management information system‚ financial reports‚ etc.
- External agencies: consumer‚ suppliers‚ distributors etc.
- Formal research by organization and research agencies etc.
- Determine the Approaches to Environmental Scanning: The experts have suggested three approaches, which could be adopted for, sort out information for environmental scanning.
- Systematic Approach: Under this approach, information for environmental scanning is collected systematically. Information related to markets and customers, changes in legislation and regulations that have a direct impact on an organization’s activities, government policy statements pertaining the organization’s business and industry, etc, could be collected continuous updating such information is necessary not only for strategic management but also for operational activities.
- Ad hoc Approach: Using this approach, an organization may conduct special surveys and studies to deal with specific environmental issues from time to time. Such studies may be conducted, for instance, when an organization has to undertake special projects, evaluate existing strategy or devise new strategies. Changes and unforeseen developments may be investigated with regard to their impact on the organization.
- Processed-form Approach: For adopting this approach, the organization uses information in a processed form available from different sources both inside and outside the organization. When an organization uses information supplied by government agencies or private institutions, it uses secondary sources of data and the information is available in processed form.
- Scan and Assess the trend: Finally, the organization specifies relevant environmental trends and their behaviors. And assess them in terms of opportunities and challenges.
Techniques/Methods of Environmental Scanning
Following are the methods of environmental scanning:
- Executive opinion method: Under this environment is forecasted on the basis of opinion and views of top executives.
- Delphi Techniques: Outsides experts are used in scanning the environmental factors and their impacts.
- Extrapolating method: Under this method past information is used to predict the future. Trend analysis‚ regression analysis etc are being used to identify the trends.
- Scenario building: Under this method‚ different scenarios that may reflect the future is built. These scenarios address the contingencies and help in better understanding the changes and impacts of the environmental factors.