Environmental Scanning

Definition
Environmental scanning is the monitoring,
evaluating and disseminating of information
from the external and internal environments
to key people within the corporation.
It is a tool that a corporation uses to avoid
strategic surprise and to ensure long term
health.

Azhar Kazmi, quoted in his book
Business Policy and strategic management that

the process by which organizations monitor
their relevant environment to identify
opportunities and threats defecting their
business is known as environmental scanning.
Factors to be consider for environmental scanning:

1. Events are important and specific occurrences
taking place in different environmental sectors.
2. Trends are the general tendencies or the courses
of action along which events take place.
3. Issues are the current concerns that arise in
response to events and treats.
4. Expectations are the demands made by
interested groups in the light of their concern for
issues.
Example: Gas leakage accident at the Union Carbide Factory
at Bhopal in Dec. 1984.

Event The accident and the resulting holocaust

Trend The authorities and Organizations to be conscious about
safety from hazardous exposure to chemicals

Issue A rising concern about environmental pollution
Expectation

To legislate changes in rules and regulations pertaining to
safety measures and stricter enforcement through various
mechanism

Environmental Scanning & Monitoring
Techniques
TECHNIQUES FOR ENVIRONMENTAL
SCANNING
Involve two phases: Information gathering and Evaluation
1) Verbal & Written Information:
verbal information includes, information obtained by direct talk with
people, by attending seminars, meetings, etc..
Written or documentary information includes both published and
unpublished materials
2) Search and Scanning:
this involves research for obtaining the required information
3) Spying:
Eve though it is not considered as ethical, spying to get information
about the competitor is not uncommon
These 3 pertains to source of information/methods of gathering
information

4) Forecasting:
done by corporate planners or other staff personnel or
consultants
This pertains to use the information gathered by above
mentioned 3 methods for picturing the future scenario.




The QUEST (Quick Environ mental
Scanning techniques)
Internal strategists will observe and identify the major
events and trends in the Industry
Speculate on a wide range of important ISSUES that
might affect the future of their organization
Preparing a report summarizing the major issues and
their implications and 3-5 scenarios incorporating the
major themes of their discussion.
Report and scenarios are reviewed by a group of
strategists who identify feasible strategic options to
deal with the evolving environment.
Environmental Scanning & Monitoring-
Tools
Environmen
t Scanning
Tools
PEST
SWOT
Analysis
Industry
Analysis
Competitor
Analysis
SWOT
(Strength-Weakness-Opportunity-Threat)
Identification of threats and Opportunities in the
environment (External) and strengths and
Weaknesses of the firm (Internal) is the
cornerstone of business policy formulation; it is
these factors which determine the course of
action to ensure the survival and growth of the
firm.
SWOT Analysis


The SWOT analysis is an extremely useful tool for
understanding and decision-making for all sorts of situations
in business and organizations. SWOT is an acronym for
Strengths, Weaknesses, Opportunities, Threats.

SWOT analysis came from the research conducted at
Stanford Research Institute from 1960-1970. The background
to SWOT stemmed from the need to find out why corporate
planning failed. The research was funded by the fortune 500
companies to find out what could be done about this failure.
The Research Team were Marion Dosher, Dr Otis Benepe,
Albert Humphrey, Robert Stewart, Birger Lie.


SWOT: Studying Internal & External
Environment
The aim of any SWOT analysis is to identify the key
internal and external factors that are important to
achieving the objective. SWOT analysis groups key
pieces of information into two main categories:

Internal factors The strengths and
weaknesses internal to the organization.
External factors The opportunities and
threats presented by the external environment.

Examples of SWOTs
Strengths and Weaknesses
Resources: financial, intellectual, location
Cost advantages from proprietary know-how
Creativity / ability to develop new products
Valuable intangible assets: intellectual capital
Competitive capabilities
Big campus selection

Opportunities and Threats
Takeovers
Market Trends
Economic condition
Mergers
Joint ventures
Strategic alliances
Expectations of stakeholders
Technology
Public expectations
Competitors and competitive actions
Poor Public Relations Development
Criticism (Editorial)
Global Markets
Environmental conditions

Uses of SWOT Analysis
Corporate planning

Set objectives defining what the organisation is intending to do

Environmental scanning
Internal appraisals of the organisations SWOT, this needs to include an
assessment of the present situation as well as a portfolio of
products/services and an analysis of the product/service life cycle

Analysis of existing strategies, this should determine
relevance from the results of an internal/external appraisal.
This may include gap analysis (compare its actual
performance with its potential performance which will look at
environmental factors)


Strategic Issues defined key factors in the development of
a corporate plan which needs to be addressed by the
organisation


Develop new/revised strategies revised analysis of
strategic issues may mean the objectives need to change

Establish critical success factors the achievement of
objectives and strategy implementation

Preparation of operational, resource, projects plans for
strategy implementation

Monitoring results mapping against plans, taking
corrective action which may mean amending
objectives/strategies.

Also;
Use SWOT analysis for business planning,
strategic planning, competitor evaluation,
marketing, business and product development
and research reports.

PEST Analysis


A scan of the external macro-environment in which the firm operates can
be expressed in terms of the following factors:

Political
Economic
Social
Technological

The acronym PEST (or sometimes rearranged as "STEP") is used to
describe a framework for the analysis of these macro environmental
factors. A PEST analysis fits into an overall environmental scan as shown
in the following diagram:
Environmental Scan
/ \
External Analysis Internal Analysis
/ \
Macroenvironment

Microenvironment
|
P.E.S.T.

Environmental
scanning
External
analysis
Macro
environment
PEST analysis
Micro
environment
Five force
analysis
Internal
analysis

Political Factors

Political factors include government regulations and
legal issues and define both formal and informal rules
under which the firm must operate. Some examples
include:
tax policy
employment laws
environmental regulations
trade restrictions and tariffs
political stability


Economic Factors


Economic factors affect the purchasing power of potential
customers and the firm's cost of capital. The following are
examples of factors in the macroeconomy:

economic growth
interest rates
exchange rates
inflation rate


Social Factors

Social factors include the demographic and cultural aspects
of the external macroenvironment. These factors affect
customer needs and the size of potential markets. Some
social factors include:
health consciousness
population growth rate
age distribution
career attitudes
emphasis on safety


Technological Factors

Technological factors can lower barriers to entry, reduce minimum
efficient production levels, and influence outsourcing decisions.
Some technological factors include:
R&D activity
automation
technology incentives
rate of technological change

Industry Analysis
An industry is a group of firms producing a similar
product or service
An examination of the important stakeholders group
in a particular corporations task environment is a
part of industry analysis
Porters approach to Industry Analysis
A corporation is most concerned with the intensity of
competition within its industry
The level of this intensity is determined by basic
competitive forces
In scanning its industry, the corporation must
assess the importance to its success of each of the
six forces

Forces Driving Industry Competition
Threat
of New

Entrants
Bargaining
Power
of Suppliers
Bargaining
Power
of Buyers
Relative
Power
of Unions,
Governments,
etc.
Potential
Entrants
Threat of
Substitute
Products
or Services
Industry
Competitors

Rivalry Among
Existing Firms
Other
Stakeholders
Buyers
Substitutes
Suppliers
Threat of New Entrants:
Some Barriers to Entry
Economies of Scale
Product Differentiation
Capital Requirements
Switching Costs
Access to Distribution Channels
Cost Disadvantages Independent of Size
Government Policy
Properties of Entry Barriers
Entry barriers can and do change as the conditions
change
Entry barriers can change for reasons inside the
firm : impact of the firms strategic decisions
Some firms may possess resources or skills which
allow them to overcome entry barriers into an
industry more cheaply than most other firms
Rivalry Among Existing Firms
Intense Rivalry is Related To:

Number of Competitors: numerous or equally
balanced competitors
Rate of Industry Growth: slow industry growth
Product or Service Characteristics: Lack of
differentiation or switching costs
Amount of Fixed Costs : high fixed or storage costs

High fixed or storage costs
Lack of differentiation or switching costs
Capacity augmented in large increments (leading to
overcapacity and price cuttings)
Diverse competitors
High strategic stakes
High exit barriers (specialized assets, fixed costs of
exit, strategic interrelationships, emotional
barriers, government and social restrictions)
Shifting Rivalry
The factors that determine the intensity of
competitive rivalry can and do change
As an industry matures, its growth rate declines,
resulting in intensified rivalry, declining profits
An acquisition can introduce a different personality
to an industry
Focusing selling efforts on the fastest growing
segments can reduce the impact of industry rivalry
Entry Barriers and Exit Barriers
When entry barriers are high and exit barriers are
low, entry will be deterred, and unsuccessful
competitors will leave the industry
When both entry and exit barriers are high, profit
potential is high, but is usually accompanied by
more risks, and unsuccessful firms will fight to stay
The worst case is when entry barriers are low and
exit barriers are high (overcapacity, poor
profitability)
Pressure from Substitute Products
Substitutes limit the potential return of an industry
by placing a ceiling on the prices firms in the
industry can profitably charge
Identifying substitute is searching for other products
that can perform the same function as the product
of the industry
The impact of substitutes can be summarized as
the industrys overall elasticity of demand
Bargaining Power of Buyers
Buyers compete by forcing down prices, bargaining
for higher quality or more services, and playing
competitors against each other
A buyers group is powerful if:
1. It purchases large volumes relative to seller sales
2. The products it purchases from the industry
represent a significant fraction of the buyers cost of
purchase (shop for good price)


3. The products it purchases from the industry are
standard or undifferentiated
4. It faces few switching costs
5. It earns low profits (thus sensitive to costs)
6. Buyers pose a credible threat of backward
integration
7. The industrys product is unimportant to the quality
of the buyers products or services
8. The buyer has full information
Bargaining Power of Suppliers
Suppliers can exert bargaining power over participants in
an industry by threatening to raise prices or reduce the
quality of purchased goods and services
A supplier group is powerful if:
1. It is dominated by a few companies
2. It is not obliged to contend with other substitute products for
sale to the industry
3. The industry is not an important customer
4. The suppliers product is an important input to the buyers
business
5. The suppliers group products are differentiated or it
has built up switching costs
6. The supplier group poses a credible threat of
forward integration
7. Labor must be considered as a supplier that exerts
great power in many industries
Government as a force in industry
competition
Government role as supplier and buyer can be
influenced by political factors
Government regulations can set limits on the
behavior of firms as suppliers or buyers
Government can affect the position of an industry
with substitutes through regulations, subsidies, or
other means
Government can affect rivalry among competitors
by influencing industry growth
Thank You..!!