Posted on August 12, 2015 by Michael Schmid
Often this analysis is referred to as an environmental scan, and the purpose is to identify any major shifts in competition, customer requirements, technologies, competitive rivalry, or the threat of substitute products or processes, as well as potential legislation that may hinder the organization’s ability to move forward. Such an exercise typically includes an internal assessment of some sort, to bring to light and update organizational strengths and weaknesses, while identifying external opportunities and threats. It may also reveal both obvious and unforeseen opportunities to leverage the company’s talent, capital and expertise, not only within the current industry, but also other commercial sectors in which there may be unmet needs.
In a more formal sense, environmental scanning can be defined as ‘the study and interpretation of the political, economic, social and technological events and trends which influence a business, an industry or even a total market. However, I think it is important that whenever a company commences an environmental scanning exercise, it should also look inward and take a more micro examination of itself through a simple SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis.
We all regularly perform some form of informal environmental scanning, whether it is specific to our jobs and companies or particular to our personal and social lives. As human beings, we are constantly assessing the environment in which we work, live and play. But it is important, if not vital, to perform some sort of a formal scanning procedure before developing corporate strategy or even creating a marketing plan.
The environment in which we compete is constantly changing, so in order to ensure that any strategy we are developing remains relevant, actionable, and impactful, a formal and critical assessment of our competitive landscape and our strengths and weaknesses is a very logical first step in strategic planning.
At Cre8tive Logic, we like to take a very systematic approach to environmental scanning. We first take a deep dive into the macro economy and not only assess the current macro environment, but review forward-looking information to provide some glimpse as to what type of economy a company may find itself in over the coming year or two. We analyze and report on economic metrics and what they may mean to a particular client.
LEADING ECONOMIC INDICATORS:
Inflation & consumer earnings
Economic growth rates (worldwide and by specific country)
Raw materials and supply costs
We evaluate the respective industry sectors in which a client company competes, or is looking to establish a presence. This includes an analysis of the various sectors for historical and forward looking growth, competition, entry and exit barriers, legislative issues, etc.
Our next step is to help the company conduct an internal assessment. We analyze internal strengths and weaknesses, or review and refresh any previously identified competencies or vulnerabilities.
We then refocus to the external, using Michael Porter’s concept of “Five Forces” to really help paint a 360 degree picture of the current (and near future) external competitive landscape in which our clients operate:2
Threat of new entrants
Threat of substitute products or services
Power of customers
Power of suppliers
Intensity of competitive rivalry
Environmental scanning is an important first step to any strategy development or planning. It is an art form; guidelines on how to scan are necessarily few, which is why Cre8tive Logic employs a very systematic approach. There are no hard and fast rules to lead to a "correct" interpretation of information, so be careful to structure any scanning exercise to minimize the possibility of being "blind-sided" by a change in the environment that you should have seen coming. Finally, remember that environmental scanning is only one component of external analysis. It is the starting point, however, from which an organization can identify trends and events in the environment that may be worth monitoring or exploiting. More importantly, it provides a basis for discerning the strategic direction for your company from which you may plan far more effectively.
1 Kroon, J. (1995), "General Management" (2nd Edition), Pearson South Africa, p. 76
2 Michael Porter is the Bishop William Lawrence University Professor at The Institute for Strategy and Competitiveness, based at the Harvard Business School.