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What Is Environmental Scanning for Your Business?

To be successful in business, it’s not just your own company that you need to intimately understand—you should have a deep understanding of the environment surrounding your company. To stay ahead of the competition, make the right choices for your organization’s future, minimize losses and gain knowledge about the factors that affect your business both directly and indirectly, you need to undertake environmental scanning.

This article tells you all you need to know about environmental scanning—what it is, how you should perform an environmental scan and why it’s absolutely critical for the success of your business.

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What is environmental scanning?

Environmental scanning is the continual analysis of the environment inside and outside of your organization. An environmental scan is used to evaluate potential opportunities, threats and markets, and to learn any number of lessons that can affect your company.

Identifying these factors allows you to do the following:

  • Respond appropriately by creating strategies to combat potential threats before they affect your company
  • Make optimal decisions based on changing market landscapes
  • Develop strategies that meet the marketplace demands of your industry

Environmental scanning is not just something that large organizations perform. It’s an absolute must for companies of every size, from small, locally owned shops—and even entrepreneurs—all the way up to multinational corporations.

Environmental scanning strategies

To build and grow a prosperous business, develop a strategic approach to environmental scanning. Here are some common analysis approaches:

Market research

Market research is an important component of environmental scanning: you need to learn about trends in your industry to counter threats as well as to take advantage of opportunities. You must also be aware of potential pitfalls showing up in your industry due to competitor mistakes, which will help you avoid making the same errors.

Market research may include reading articles, newspapers and academic journals. It may also include monitoring industry demographics, paying attention to the performance of your competitors in the stock market and understanding the labor market both in general and as it relates specifically to your industry. 

Expert opinion

Seeking the knowledge of an industry expert allows you to gain better insight into the current patterns and opportunities of your industry. Industry experts recognize emerging trends and where they see such trends heading. Paying attention to these industry experts helps you determine how your business can fit into new spaces as well as how it can take advantage of trends that may be coming down the line.

SWOT analysis

A SWOT analysis stands for strengths, weaknesses, opportunities and threats. This analysis allows you to to determine which areas your business excels at, which need improvement and which are ripe for further exploration.

Evaluating these four factors will help you reach organizational goals by fixing existing problems, anticipating foreseeable threats to your company and capitalizing on future industry trends as they begin to emerge.

Related: What is Strategic Planning?: A Definition

PESTLE analysis

PESTLE stands for political, economic, social, technological, legal and environment. (Some people only use the first four and conduct what is known as a PEST analysis.)

A PESTLE analysis looks at external factors that impact the success of your business, so it’s important to keep track of them. They included threats to your company and industry—but if you consider, analyze and make adjustments to your business accordingly, these threats can turn into opportunities. 

Examples of a few factors and conditions that would be part of your PESTLE analysis are the following:

  • A change in tax laws that affects your business and your industry at large
  • A rise in inflation, which may affect how you price your own goods due to your increased cost for raw materials, and due to consumers’ changing spending habits amid upward inflation  
  • Shifting attitudes in society about how people feel about certain products and services, impacted by factors like morals, ethics, health concerns, social justice issues and more  
  • A state or federal court ruling that changes who can be classified as an independent contractor, assuming you make use of such labor
  • New government regulations that require you to upgrade your technology or other equipment

Industry analysis

Industry analysis is a type of market research that assesses the business strategies used by your direct or indirect competitors. By evaluating their strategies and resulting successes or failures, you can engineer your own strategies to stay ahead of the competition. 

Components of business environments

Part of any good environmental scanning process is looking at your business environments, both internally and externally.

Internal components of business environments 

Internal environmental components include factors that exist within your company. Any changes to these components will affect how your company operates and how well it performs. Internal components include:

  • Human resources
  • Financial resources
  • Organizational structure
  • Corporate culture
  • Technological resources
  • Capital resources

How well these components function within an organization affects the company’s vitality, so it’s crucial to keep track of them.

Related: Outsourcing Human Resources: Things to Consider

External components

External components affecting an organization include both micro and macro factors.

Micro environmental factors are competitors, clients, suppliers, consumers and other components related directly to the operations of the business.

Macro environmental factors include components indirectly related to your business. These include the following:

  • Demographics: Understanding the demographics of your consumers is required to create effective marketing campaigns that target specific audiences. Demographics include education level, age, income, marital status, career, gender, religion and ethnicity. Different groups of individuals have certain expectations from organizations, as well as varying needs and desires based on their own cultural beliefs and social practices.
  • Economics: Economic trends drive price changes. If the current economy is in a downturn, for example, your company will want to assess its pricing strategy and determine if adjustments need to be made to operate within buyers’ financial parameters.
  • Politics/Legal: Every organization is required to meet local, state and federal regulations regarding taxes, public health and safety and advertising. Stay up to date with changes in regulations at all levels of government and monitor your business’s adherence in order to avoid fines and legal issues.
  • Technology: It has never been more critical for organizations to share information, connect and engage with consumers to with the evolving world via technology. The internet, social media and apps provide exceptional platforms for small businesses to succeed, but each company needs to research exactly how to use social media and other technologies to their advantage.

Environmental scanning FAQ

Here are some commonly asked questions about environmental scanning for a business:

How often should an environmental scan take place?

An organization needs to analyze changes in the market and the surrounding environment continuously. For that reason, you should always be performing an environmental scan. But for the purposes of taking stock and having a regular “check-in” with key stakeholders within your business, it may be a good idea to actively discuss your environmental scan at the top of each quarter.

How long does an environmental scan last?

Environmental scanning involves a number of research and analysis strategies that require the ongoing tracking of factors that influence a business, so there is no particular endpoint; an environmental scan never really “ends.”

When should I implement findings from my environmental scan?

Just like the process of conducting an environmental scan itself, the implementing of findings from your environmental scan should be a continuous process. You should begin to think about how you’re going to counter threats and turn them into opportunities as soon as you begin discovering them.

This means that if you have a established a quarterly process of reviewing your environmental scan with stakeholders, you shouldn’t be waiting until this quarterly review to begin making changes. You should begin working on these areas of improvement as they emerge during the process of environmental scanning.

Who performs an environmental scan for a business?

Environmental scans are performed by the leaders of an organization, as they have the resources and insight to conduct research and complete in-depth analyses of the internal and external factors affecting the business’s environment.

However, the leaders of an organization should not be performing an environmental scan behind closed doors and without other input. You should be gathering information from all levels of the company, because insight into your competitors can come from numerous places. Even if, as company management, you are continuously monitoring your competition, it’s quite possible that you missed some news—or even reliable gossip—that your employees have gleaned about a competitor’s upcoming plans or the health of your competitor’s business.

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