Question

Explain briefly meaning of environment scanning in business?

Answer 1

Environmental scanning in simple words means looking around you while starting up a business or running a business. It can be defined as a process of gathering, analyzing, and dispensing information for tactical or strategic purposes. One must carefully monitor internal as well as external environments for detecting early signs of opportunities and threats that may influence its current as well as future plans. It is monitoring and analyzing sweep of social, political, economic, ecological and technological events to spot budding trends that could eventually impact industry.

Purpose of Environmental Scanning :

• Effective utilization of resources
• Constant monitoring of resources.
• Strategy formulation.
• Identifying opportunities and threats.
• Useful for managers.
• Predicting future.

Different factors to be considered while scanning business environment:

Approaches to Environmental Scanning :

1) Systematic Approach : As the name suggest it is nothing but scanning your environment collected systematically. Information regarding your business environment is to be collected and continuously monitor changes. Updating is essential only in a strategic respective but also operations point of view.In this approach information is collected relating to customers, changes in government policies etc that have a direct impact on the organization.

2) Adhoc Approach : Organizations could conduct surveys, studies to undertake special projects, evaluate existing strategies or devise new strategies. Changes and unforeseen developments may also be investigated.

3) Processed Approach : Information used is supplied by govt agencies or private institutions. Secondary data available from external and internal sources may also be used.

Structuring the environmental appraisal : Two most important techniques of environmental appraisal are :

• ETOP (Environmental Threats and Opportunity Profile)Analysis:

Steps involved in preparation of ETOP:

• Dividing the environment into different sectors.
• Analyzing the impact of each sector of an organization.
• Subdividing each environmental factor into sub factors for a comprehensive analysis.
• Analyzing the impact of each subfactor on the organization in the form of a statement.
• Finally preparation of a summary to show the major factors for the sake of simplicity.

Importance of ETOP analysis:

• This analysis provides a clear vision to the strategies of the sectors and the different factors in those sectors.
• Helps the organization in knowing where it stands with respect to its environment.
• Helps the organization in formulation of proper strategies to take advantage of the opportunities available for the business.

• SWOT(Strength, Weakness,Opportunities and Threats) Analysis: This is another technique of analyzing the business environment. This analysis helps in determining the course of action to ensure the growth/survival of the firm.
• Strengths: here are internal to units ie; a units resources and capabilities that can be used as a basis for developing a competitive advantage; strength should be realistic and not modest. Example: good reputation among customers, goodwill, capabilities etc.
• Weaknesses : Internal force which could be barrier to growth and survival of a business or say to achieve competitive advantage.Example : gaps in capabilities, deadlines, financial issues etc.
• Opportunities : any favorable situation present now or in the future in the external environment. Examples : unfulfilled customer need, arrival of new technologies, loosening of regulations, demographic shift etc.
• Threats : This could be a external barrier or force which could infer the attainment of competitive advantage, any unfavorable situation in the external environment that is a damage or danger to business now or in near future. Examples : Change in consumer preferences, tastes, new rules and regulations, sustaining internal capability, financial backing etc.

PEST Analysis : It is very important that an organization considers its environment before beginning the marketing process. In fact proper environment analysis should be continuous and the changes implemented after analysis should be constantly studied.The macro environment includes political, sociocultural, economic and technological factors. They are also known as PEST factors.