Environmental Scanning

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Learning objectives Describe the concept of environment in the

context of strategic management Explain the process of SWOT analysis Name, describe, and exemplify eight

environmental sectors Describe the process of environmental

scanning Prepare Environmental Threats and

Opportunities Profile (ETOP) for an organization

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Concept of environment The environment of any organisation

is "the aggregate of all conditions, events and influences that surround and affect it." K. Davis, The Challenge of Business, (New York, N.Y.: McGraw-Hill, 1975),p.43

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Characteristics of environment Environment is complex Environment is dynamic Environment is multi-faceted Environment has a far-reaching

impact

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Internal environment The internal environment refers to all factors

within an organisation that impact strengths or cause weaknesses of a strategic nature.

Strength is an inherent capacity which an organisation can use to gain strategic advantage. Examples of strength are: good reputation among customers, resources, assets, people, experience, knowledge, data, and capabilities.

Weakness is an inherent limitation or constraint which creates strategic disadvantages. Examples of weakness are: gaps in capabilities, financial deadlines, low morale, and overdependence on a single product line.

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External environment The external environment includes all the

factors outside the organisation which provide opportunities or pose threats to the organisation.

Opportunity is a favourable condition in the organisation's environment which enables it to consolidate and strengthen its position. Examples of opportunity are: economic boom, favourable demographic shifts, arrival of new technologies, loosening of regulations, favourable global influences, and unfulfilled customer needs.

Threat is an unfavourable condition in the organisation's environment which creates a risk for, or causes damage to, the organisation. Examples of threat are: economic downturn, demographic shifts, new competitors, unexpected shifts in consumer tastes, demanding new regulations, unfavourable political or legislative, new technology, and loss of key staff.

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Technique of SWOT analysis Setting the objectives of the organization or its unit Identifying strengths, weaknesses, opportunities, and

threats Asking four questions

How do we maximise our strengths? How do we minimise our weaknesses? How do we capitalise on the opportunities in our

external environment? How do we protect ourselves from threats in our

external environment? Recommending strategies that will optimise the

answers from the four questions

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The business environment of an organisation

ORGANIZATION

RELEVANT ENVIRONMENT

GENERAL ENVIRONMENT

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Eight sectors of the business environment Economic International Market Political Regulatory Socio-cultural Supplier Technological

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Factors in environmental scanning Events are important and specific

occurrences taking place in different environmental sectors.

Trends are the general tendencies or the courses of action along which events take place.

Issues are the current concerns that arise in response to events and trends.

Expectations are the demands made by interested groups in the light of their concern for issues.

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Approaches to environmental scanning Systematic approach Ad hoc approach Processed-form approach

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Sources of information for environmental scanning Documentary or secondary sources Mass media Internal sources External agencies Formal studies Spying and surveillance

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Factors affecting environmental appraisal Strategist-related factors Organisation-related factors Environment-related factors

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Identifying high priority environmental issues

Impact on Business __________________________________________________________

Probability High Medium Low of impact

---------------------------------------------------------------------------------- High Critical High priority Low priority

Medium High priority High priority Low priority

Low To be watched Low priority Low priority

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Source: Adapted from the William R.Boulton: Business Policy: The Art of Strategic Management (New York: Macmillan Publishing Co., 1984) p.120.

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Environmental threats and opportunities profile (ETOP)

Environmental Nature of impact Impact of each sector Sectors

EconomicInternationalMarketPoliticalRegulatorySocio-culturalSupplierTechnological