Drawing strategic value from scanning and business environmental analysis

Organizations operate in an environment

Much of the management theory especially strategy is concerned with the way in which organizations cope with change in the business environment. Particularly the way strategies & structures are adjusted in response to environmental changes.

Strategy planning is a rational integrative discipline. Its approach is to gather evidence with which management can reconcile firm’s internal capabilities to the external environment. And then to make decisions to employ the firms resources for competitive advantage.

Scope of environmental scanning

Courtesy monica's WunderBlog

Environmental scanning analyzes information about every sector of the   external environment that can help management to plan for the  organization’s future.

Scanning covers:

(a)    Industry analysis: Comprises the immediate environment the competitors, suppliers, and customers.  The strategic tool most common used is Michael Porters Five Forces Analysis.

(b)   PEST analysis: The remote environment that includes political, economic, social and technology and also regulatory environment. Here the emphasis is on the changes in the demographic factors and the trends.

Does scanning lead to improved performance?

Research evidence indicates positive evidence as given below:

Newgren et al (1984)
Scanning firms significantly outperformed non-scanning firms
(50 US firms, P/E ratios, 1975-1980)

West (1988)
Daft, Sormunen and Parks (1988)
CEOs of high performing firms scanned more frequently, intensely and broadly
(50 SMEs in Texas)

How is scanning conducted?

In the following ways depending upon the resources available to the firm and the CEOs strategic priorities:

(a)    Ad-hoc scanning – short term, infrequent examinations usually initiated by a crisis

(b)   Regular scanning – studies done on a regular schedule (say, once a year)

(c)    Continuous scanning – (also called continuous learning) – continuous structured data collection and processing on a broad range of environmental factors

Methods

There is no single method for scanning the environment. The time and cost may vary greatly from organization to organization. In the 60’s the common sources of data collection about the external environment were personal experiences, journals, reports, books, professional meetings, industrial conferences, colleagues, board members, friends and employees.

70’s onwards formal environment appraisal units were established. A pioneer was General Electric Co which conducted business environment studies in 1967. Coca Cola, Gillette, Whirlpool and AT&T created such units futures research, commercial research, social forecasting and environmental scanning.

Scanning in large companies

In larger companies, managers tend to minimize their role as monitors and emphasize their role of dissemination of information. Flow and circulation of information becomes an important issue in larger organizations, where more complex structures and functional diversification are dominant features.

Scanning in small companies

Managers of smaller companies assume environmental scanning as a personal responsibility and attribute great importance to that activity. The dissemination factor is irrelevant, because in most of the cases there is nobody else to pass the information to.

What are the objectives of environmental analysis?

It is primarily to utilize scarce organizational resources judicially. Identify the trends in environment. Focus on those which seem to be most relevant & critical to the business.

Use scanning resources judiciously

A huge saving in effort and cost can be achieved by in identifying the driving forces in the environment. These forces will be more influential in determining a firm’s performance than others. These forces are called critical success factors (CSFs). It is vital to focus the firms scanning efforts on them.

Strengthen Core Competencies

Effective CSF analysis should benefit later stages of planning. They disclose specific internal capabilities that must be strengthened to a point where they become sources of distinctive competitive competence. These competencies may be designated as critical core competencies (CCCs).

Scanning the Japanese way

One must learn from the Japanese – who have technological information scanning & analysis system that has been extraordinarily effective for Japanese industry. In US there are the intelligence activities of MITI (Japanese Ministry of International Trade & Industry) & JETRO (Japan External Trade Org) but Japanese businesses are the principal surveyors of the technological environment.

Mitsubishi in earlier times is known to have occupied two floors of the  Pan American building in New York and has a small army of people screening      technical magazines and contacting firms for brochures & other material. The firm does their own microfilming.  Thereafter definite indexing & analysis of information is done in Japan. Interesting data is published and circulated freely among various companies.

It is quite evident that the Japanese have made a science of it.

Conclusion

Dedicated scanning and analysis by motivated staff can result in generating vital data. This leads to the formulation of a robust strategy that will be sustainable. It is equally helpful in the implementation of the strategy too. A lot will depend upon the leadership.

Please do add or post your questions. Thank you.