Environmental Scanning

Environmental Scanning Definition

The process of environmental scanning refers to monitoring an organization’s relevant environment to identify opportunities and threats affecting its business.

As well as detecting the early signs of potential changes in the environment, it also identifies the changes in progress. It is a detailed and micro examination of the environment.

Consequently, it is also called the X-ray of the environment, because it normally reveals ambiguous, incomplete, or unconnected data and information.

An environmental trend is assessed by analyzing the uncertainty, complexity, and dynamism of the environment.

Creating a long-term strategic plan that will align with future business conditions, is a continuous process that is normally done when there is a high level of uncertainty in the environment.

Environmental scanning can otherwise be called as SWOT analysis. Environmental scanning occurs in the Proactive phase of strategic conflict management.

For a scanning system to be effective, it must be aligned with the organizational context.

For instance, an environment that is volatile may not be suitable for a stable environment. For environmental scanning, many organizations use special software and the internet.

Based on the above discussion, it can be concluded that environmental scanning involves examining and analyzing the environment continuously to identify new trends emerging.

Strategy makers engage in environmental scanning to be aware of threats and opportunities.

Types of Environmental Scanning

A) Centralized scanning:

Centralized scanning refers to analyzing only some specific environmental components. In this case, only the elements that are likely to have a significant impact on the company are examined.

Centralized scanning, for example, is the study of only economic conditions. In addition to being economical since specific components are only scanned, this method helps to save time as well.

However, the study of only specific components does not make it a comprehensive method.

B) Comprehensive scanning:

The term comprehensive environmental scanning refers to the detailed analysis of all the components of the environment.

This analysis examines all the internal and external factors which may influence the business. Therefore, it is comprehensive.

Because many components are analyzed, it is expensive and time-consuming.

Approaches to Environmental Scanning

A) Systematic approach:

As part of a systematic approach, environmental scanning is undertaken using a systematic method.

Market and customer information, government policies, economics, and social factors are continuously collected.

In other words, the environment is monitored regularly. Using timely and relevant information helps management make better decisions.

B) Ad-hoc approach:

The Ad-hoc approach consists of only surveying and studying specific environmental components. It is useful for gathering information for specific projects, evaluating strategic alternatives, or developing new strategies.

The process does not continue continuously. To be effective, environmental scanning needs to be carried out on a continuous basis.

C) Processed form approach:

The Processed Form Approach incorporates information collected from internal and external sources, which is processed and used following the business’ requirements.

Process of Environmental Scanning

To conduct environmental scanning, the following process is followed.

A) Understanding the forces that shape the environment and its nature

The first step in environmental scanning is to identify the factors that have influenced the business’ growth and development.

There are various components to these environments, including political, economic, socio-cultural, technological, legal, physical, and global ones.

After this, the nature of the environmental components is examined. An environment can be simple or complex, stable or volatile.

Some firms operate in a simple environment, while others work in a complex environment. Environmental scanning becomes more important when there is a high level of uncertainty in the environment.

B) Information sources should be determined

The sources of collecting information from the environment should be identified after studying the forces and nature of the environment.

The following sources can be utilized for gathering information on the business environment.

Secondary sources: Newspapers, books, research articles, industrial and trade publications, government publications, and competitors’ annual reports
Mass media: TV, radio, and the Internet
Internal sources: Management information systems, data networks, and employee reports
External agencies: Consumers, intermediaries and suppliers
Formal studies: Research conducted by employees, research agencies, and educational institutions
Spying and surveillance of the competitors.

C) Determine the techniques for scanning the environment

It is important to determine the technique of environmental scanning after determining the sources of information.

Scanning techniques depend on the type of environment to be scanned. Executive opinion, expert opinion, Delphi, historical analogies, and other techniques are commonly used for scanning.

D) Trend Assessment and Scanning

To identify early signals of potential changes in the environment, a detailed micro-study of the environment is the final step in the environmental scanning process.

It also detects changes already in progress and shows the trend of the environment. To assess the trend, opportunities, and threats should be taken into consideration.

Techniques of Environmental Scanning

A) Executive opinion method:

In this method, top executives are consulted to formulate forecasts and views. This panel is composed of these executives.

B) Expert opinion method:

It is similar to the executive opinion method but uses external experts. Experts have better knowledge of market conditions and customer tastes and preferences.

C) Delphi method:

Using this method, experts are questioned about environmental trends by a panel of experts. Afterward, the responses are summarized and returned to the panel members for assessment.

In this way, a consensus can be reached until an acceptable level has been reached.

D) Extrapolating method:

A time series, trend analysis, or regression analysis can be used to predict the future using past information.

E) Historical analogy:

In this method, trends are analyzed based on parallel trends, such as the sales history of similar products, which parallel the historical trends.

F) Intuitive reasoning:

For scanning environmental dynamics, rational and unbiased intuition is used. Individual judgment is used to guess environmental dynamics. This method is not reliable.

G) Scenario building:

To address future contingencies, scenarios are built based on time-ordered sequences of events that have logical relationships to one another.

H) Cross-impact matrix:

To assess their internal consistency, cross-impact matrices are used to combine environmental forecasts by combining different methods.

Importance of Environmental Scanning

A well-timed environmental scan can identify threats and defuse or minimize them.
As the needs and requirements of the customer change, environmental scanning alerts an organization to this change.
An organization can capitalize on opportunities earlier by scanning the environment.
For strategic management, environmental scanning provides objective qualitative information about the environment.
Managers are provided with intellectual stimulation through environmental scanning.
Organizations that conduct environmental scanning enhance their image as environmentally sensitive and responsive.
Through environmental scanning, business firms can enjoy first mover advantage.

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Smirti

(Founder of Management Notes)
MBA,BBA.

I am Smirti Bam, an enthusiastic edu blogger with a passion for sharing insights into the dynamic world of business and management through this website.

I hold a MBA degree from Presidential Business School, Kathmandu, and a BBA degree with a specialization in Finance from Apex College,

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Environmental Scanning – Meaning, Types, Approaches, Process, Techniques and Importance | Business Environment