Approaches and Techniques Used For Environmental Scanning in Organization

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By: Site Engineer, Staff

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Approaches To Environmental Scanning

The various approaches used by strategy managers for environment scanning can be summarized under three broad categories.

1. Ad Hoc Approach

In this approach, some companies collect specific information on selected environmental factors by conducting special studies. Such studies are usually conducted when a company wants to launch a special project. The impact of a project on various environmental factors is studied within the framework of a specially designed study program and results are obtained through analysis using computer software or changes and developments may be studied using pilot projects and results extrapolated for use by strategy managers.

Usually, organizations use various kinds of approaches for evaluation of the environment. Further, they choose a highly systematic complex process of evaluation or just settle for an informal assessment.

Generally, during an emergency, an informal assessment is made. However, information and pattern of changes already studied may be used to arrive at a strategic decision. A systematic approach is a proactive approach where a system may be designed to convert threats into opportunities.

An informal approach is a reactive approach where unless the companies have good flexibility in their structures and business processes it may be difficult for them to plan strategies accordingly. Practically, it is not possible to stick on to exclusively one type of approach. Depending on the various issues faced, the company chooses its mode or approach. Results based on correct data are important for strategy managers to formulate workable strategies.

2. Systematic Approach

Formats for various issues are developed and scanning systematically in a step-by-step fashion in this approach. The information related to various factors viz regulatory, social, economic, technological resources, etc is collected which has a direct bearing on the working of a company.

Data on various factors are continuously collected and updated and their effect on various elements relevant to the organization is studied.

The variance of various factors is analyzed and their swing is worked out to estimate the impact of the changes. A system of assessment of the environment is prepared by the strategy manager followed by all the line managers in the organization.

3. Process Information Approach

Information on the environment and its various factors are available from trade papers, trade magazines, etc. Many organizations prepare a summary of relevant information to keep themselves updated. The processed data are made available to the strategic management group for processing and drawing inferences based on which connective actions may be taken by a company.

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, information must be verified for correctness before it is processed and decisions are taken based on it.

Sources are:

  • External agencies like customers, share agencies, advertisers, associations unions, government agencies.
  • Market research reports educational institutions testing laboratories etc.
  • Spying is considered a powerful way of extracting information from other companies.
  • Trade directories journals magazines newspapers books, newsletters, government publications annual reports of companies case studies, etc.
  • Radio, news, television, the internet, etc.
  • Internal documents viz files, records, management information systems, employee standards drawings charts, etc.

It is found that the chronological order of information is also important for strategy managers. Usually, information received from government agencies is quite stale since processing takes more time. Information received from competitors is expensive but it is usually fresh and is quite useful.

Techniques Used For Environmental Scanning

The techniques may be either very systematic to intuitive. The selection of a technique is based on data required, source of data, decisions to be taken, timelines of information, relevance, cost of information, quantity, quality and availability of information, etc.

Many theoretical models for extrapolation of information have been developed, depending on the kind of information required.

Some of the methods widely used can be categorized as follows:

  • Field-force analysis;
  • The field normally relationship theoretical limit envelopes;
  • Scenario writing;
  • Simulation;
  • Single variable extrapolation;
  • Morphological analysis;
  • Cross-impact analysis;
  • Dynamic mode mapping game theory, etc.

The techniques are either statistical or mathematical. However, judgmental and institutive techniques are also widely used.

The entire process consists of the following steps.

  • Diagrams showing interrelationships amongst various factors are prepared and an attempt is made to quantify the results.
  • The study is reviewed by a group of experts who deliberate on each aspect and on the possible strategies that may be made.
  • Major events and trends in the environment are studied.
  • A cause and effect relationship is established about events and trends for long and short terms. This is done through brainstorming in a group.

The information gathered needs to be structured so that it may be easily understood and assimilated. The information generated is classified and structured to study emerging threats and opportunities.

Environmental Issues

Environmental scanning generates a vast amount of information that is not completely purified. The information should be rearranged to draw meaningful inferences from it. Also, each piece of information may vary concerning its value and priority.

Hence, it is prioritized based on the amount of impact it can make on strategies. A qualitative assessment can be made with a little effort if a matrix is attempted to be created with a probability of its intensity on various aspects of the business. It would be possible to rank critical and high items and not so critical and low priority items. It must be remembered that low or high priority is a variation that may change with time and a low priority item may become most critical with time.

A corporation’s external strategic factors are the key environmental trends that are judged to have both a medium to the high probability of occurrence and a medium to the high probability of impact on the corporation.

The issues priority matrix can then be used to help managers decide which environmental trends should be merely scanned (low priority) and which should be monitored as strategic factors (high priority). Those environmental trends judged to be a corporation’s strategic factors are then categorized as opportunities and threats and are included in strategy formulation.

Internal and External Environment

The environment of business is made up of all the elements that are relevant to an organization’s operations through outside its control. This means that to survive in the business environment, organizations must anticipate, interact, act and react to the environment to utilize the opportunities and turn away the threats that exist in the environment. Also, it is to take advantage of the opportunities and turn away the threats of the environment. Organizations must have an understanding and appreciation of the elements or factors of the environment. The business environment is made up of internal environmental variables and external environmental factors.

Internal Environment

The internal environment refers to the factors that immediately influence how work is done and goals achieved.

Factors that make up the internal environment are employees, shareholders, and boards of directors.

  • Employees: These are the people that implement and execute the operations of an organization. The nature and structure of employees of most organizations have changed primarily as a result of changes in demographic factors. Organizations need highly trained, motivated and skilled employees to achieve organizational goals. In an organization, where the required employees are lacking management effectiveness may be constrained.
  • Shareholders and Boards of Directors: Through voting rights, shareholders have the capacity and capability to influence the organizational direction and thrust. Shareholders and Boards of Directors through their decisions have enhanced the effectiveness of organizations while some have seen the collapse of some organizations. The nature and structure of the shareholders and board of directors in an organization can affect the effectiveness or otherwise of organizations.

External Environment

The external environment is made up of those factors or variables that can directly or indirectly affect an organization significantly.

Direct Action Environment

A direct action environment is made up of external stakeholders and internal stakeholders that are directly or indirectly affected by the operations of an organization.

Internal Stakeholders: They have the capacity and capability to influence the organizational direction and thrust, this has been previously discussed under the internal environment above.

External Stakeholders: They affect the organization’s activities from outside and include customers, suppliers, governments, media, labor unions financial institutions and competitors.

  • Labor Unions: Employees are members of labor unions. There may be no labor union in an organization, yet the employees may be members of a larger labor union and so affected by the activities of labor unions. Labour unions may call on their members to embark on industrial actions to present their grievances, change policies, protest economic measures seek an increase in welfare and economic benefits for members, etc. These will certainly affect the operations of organizations and the effectiveness of management hence the need for a good grasp of the activities of labor unions by management is recommended.
  • Media: The media serve as a medium between organizations and society. Information about organizations is provided to the public through the media. In the same vein, organizations receive information from the public most of the time through the media. The role of the media is therefore very critical in the operations of organizations.
  • Competitors: Organizations operate in a competitive world, where they are seeking the attention of the same customers just like their competitors. The practices of competitors affect an organization’s practices. Where competitors offer superior quality products at low prices, an organization has to do better than the competitor if it intends to draw and retain the attention of customers. The ability or inability to respond to the competition may impact on the effectiveness of organizations and so management should be conscious of the activities of competitors.
  • Customers: Customers buy the products of the organization and value to the operations of an organization. The satisfaction of the customers is a key to successful management and so organizations need to interact with and respond to the needs of the customers. A customer can be an individual, an institution or a firm. An understanding of the customers will assist the organization in tailoring its marketing efforts (product, price, place, and promotion) to satisfy the customers and achieve its goals.
  • Suppliers: These are the suppliers of the input (resources) used by organizations for production. Organizations depend on suppliers to meet their requirements for material and labor needs. They prefer suppliers that offer low prices and supply high-quality inputs. The inputs supplied to determine the quality and quantity of products that the organization can produce (output). Most organizations have established good business relationships with their suppliers to have a constant supply of inputs needed for production.
  • Government: In the normal course of activities the government is expected not to interfere with business. However, in today’s world, the government does and must interfere and intervene in business. This could be due to economic as well as political reasoning. Government through rules, regulations, and policies, influences and affects the operations of organizations. The government has created agencies to monitor and regulate the operations of organizations. Thus, awareness of the government rules and regulations will assist management in adapting the organization to its environment.

Indirect Action Environment

Every organization in a particular industry is exposed to or affected by the indirect environment. It affects organizations indirectly and is made factors such as laws, competition, technology, social-cultural trends, and ecology. These are the variables that indirectly affect the management of organizations.

1. Technological Environment

Technology is the totality of the means used by people to provide comfort and sustain human existence. Technology is neutral and natural and is not the problem or reason for problems occurring in the world. Rather, it has touched on almost every aspect of human life and made possible so many possibilities.

To the credit of technology, there are varieties of products low-cost production, safer and efficient methods of production more leisure time for workers, improved human life and affluence.

Technological improvements and discoveries are made as a result of research effort and it takes a lot of finance to embark on research. It creates opportunities and threats to organizations and affects management practices.

Technology can result in changes in taste and demand, insolvency of the product. It creates new competitions redefines organizations’ and customers’ relationships, etc. An understanding of the technological environment will assist managers in improving products, seek new customers, lower cost of operations, generate more profits to achieve organizational goals and hasten the introduction of new products.

2. Political-Legal Environment

This consists of government rules and regulations that apply to organizations. Governments make rules and regulations to ensure the smooth operations of organizations and to control organizations’ activities.

The rules and regulations affect organizations in a variety of ways, it can support organizations through government subsidies contracts research and promotion. Government subsidy directs the flow of resources to preferred users (organizations). It also promotes business through tariffs that restrict foreign competition with local industries.

Government awards contracts for production, service, and construction to the organization and this stimulates business operations. The government also supports most of the research efforts in the form of research grants to research institutions and organizations.

The rules and regulations of government can also serve to control organizations through investigation and direct control. By investigating and publishing findings of organizational practices the government has been able to influence public opinion about an industry, company, or product.

The government prescribes standards of conduct, operation, or service for organizations, which are designed to protect consumers’ employees, competitors and investors, control entry into specific industries and protect health morals, and safety.

Managers must pay attention to the political-legal environment and its variables, to respond appropriately to the opportunities and threats that arise as a result of government support or control of organizations’ activities.

3. Ecological Environment

The ecological environment is made up of our natural surroundings and the need for harmony between living things and their environment. There is increased concern to protect preserve and conserve the environment for human existence. This has implications for management and organizations.

Organizations must assess and control pollution as it is a problem for the environment and must also minimize organizations’ operations that have negative impacts on the natural environment. Ecological issues include energy, pollution, deforestation, species loss, soil erosion, etc that affect the environment negatively.

Managers and organizations have responded to the ecological environment by making decisions that resulted in minimal pollution of the environment, producing environment-friendly products, and production methods, recycling materials, and effective waste disposal systems. The ecological issues may be opportunities or threats to organizations and so managers need to be conversant with the ecological environment to respond to its influences appropriately.

4. The Social-Cultural Environment

This environment includes institutions’ people and their values and the norms of behavior that are learned and shared. It can be classified into demographics, lifestyles social values and culture. Demographics are the characteristics of the population in terms of age, sex, family size, etc. They tend to affect organizations in terms of demand for product profit level and survival labor force etc.

Lifestyles: This is all about people’s attitudes and values. For most people these days as a result of the dynamics of the environment, their lifestyles change and are affected by changes. The changes in lifestyles do affect the products offered by organizations the marketing message reward package, leadership, and organizational culture. This presents problems and prospects for organizations.

Social Values: This refers to accepted social behavior norms and beliefs. Social values vary from one environment to another. The social values of an environment affect leadership style, management practices, economic goals, labor-management relationship, social responsibility, etc of an organization. This may present problems or prospects for organizations. Some social behaviors are frowned at as unethical business practices in certain environments and that tends to constrain management practices in such environments.

Culture: This is the distinctive way members of a particular society interact with one another and with outsiders and how they achieve what they do. Culture determines the benchmark for perceiving behavior and also how problems are understood and solved by its members. Culture impinges on the day-to-day behavior and decision-making of employees and directs their actions towards the achievement of organizational goals. Culture has an impact on the effectiveness of organizations in the area of employment, discipline, reward system, finance and achievement of goals. Culture affects organizations and organizational culture affects employee’s effectiveness and organizational goals. It affects the very survival of the organization and could be an opportunity or a threat to organizations. So, management needs to be aware of the critical importance of culture to respond appropriately and harness its potentials.

5. The Economic Environment

The economic environment directly affects the economic activities of organizations. It consists of price demand, supply, gross national product, gross domestic product, per capita income and other economic indices like the exchange rate stock exchange indexes under-employment, etc. These economic issues and problems can and do affect management decision-making and planning. So an understanding of the economic variables will aid management in planning and decision-making as the opportunities and threats posed by the economic environment can be discerned.

Prices charged by organizations for goods and services, cost of operations, demand for products, the supply of input for production, reward systems, etc are some of the issues that hinge on the economic environment.

 

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