What is environmental scanning?
Environmental scanning involves analyzing and leveraging data regarding events, patterns, trends, opportunities, and potential threats, to help improve decision making. Further, the environmental scanning process is a subsection of strategic planning and is a key component in developing successful planning and management strategies.
Environmental scanning should not be confused with external scanning, as external scanning strictly measures, tracks, and analyzes external data only.
On the other hand, the environmental scanning process involves various types of both internal and external data and is understood to create a larger understanding of how your organization is situated within its industry, its market, and provides clear comparisons between your competition.
What is the purpose of environmental scanning?
The purpose of environmental scanning is to help businesses stay informed about factors that may impact their operations, strategy, and competitiveness. By systematically analyzing trends, market conditions, and emerging risks, companies can identify opportunities for growth and anticipate potential threats.
This proactive approach enables organizations to make data-driven decisions, adapt to changes in the business landscape, and maintain a competitive edge.
Environmental scanning can significantly improve strategic planning, as it provides valuable insights into economic, technological, political, and social developments that could influence business success.
The environmental scanning process (step-by-step guide)
The environmental scanning process involves several key steps to ensure businesses gather relevant insights for strategic decision-making.
Define your objectives
Determine what specific trends, risks, or opportunities you want to monitor. This could include analyzing economical, technological, legal, ecological, or social factors. Or all of them.
Identify data sources
Sources can range from public records, industry reports, and news articles to scraped web data and social media monitoring.
Data analysis and interpretation
In environmental scanning, data analysis and interpretation involve examining collected information to identify patterns, trends, and insights that impact business strategy. By filtering out noise and focusing on relevant data, organizations can make informed decisions, anticipate market shifts, and adapt to emerging opportunities or threats.
Implement insights into strategy
Implementing insights into strategy involves integrating key findings from environmental scanning into decision-making, product development, or market positioning. Businesses use these insights to adjust strategies, mitigate risks, seize opportunities, and maintain a competitive edge in a dynamic environment.
Data collection methods
Such as annual research, automated tools, or data APIs, to systematically gather and analyze information. By following this structured approach, companies can stay ahead of changes and make well-informed decisions.
SWOT analysis
Evaluates a company’s Strengths, Weaknesses, Opportunities, and Threats to identify growth areas and risks. It balances internal capabilities with external factors for strategic planning.
PESTLE analysis
Analyzes Political, Economic, Social, Technological, Legal, and Environmental factors affecting a business. Helps companies adapt to external changes and anticipate risks.
Scenario planning
Creates multiple future scenarios to prepare for uncertainties. Helps businesses develop flexible strategies for different possible outcomes.
Industry benchmarking
Compares a company’s performance with industry standards and competitors. Identifies strengths, weaknesses, and best practices for improvement.
Others
Porter’s Five Forces. Assesses competition, supplier and buyer power, new entrants, and substitutes to understand market dynamics and profitability.
Trend Analysis. Tracks historical data to predict future market and consumer trends. Helps businesses stay ahead of industry shifts.
Competitive Intelligence. Gathers and analyzes competitor data to refine strategies and identify market opportunities. Enhances competitive positioning.
Why is environmental scanning important for business success?
Beyond simply gathering a deeper understanding of the business landscape and gaining competitive intelligence insights, environmental scanning is also linked to generating successful business strategies. According to a Gartner study, enterprises will miss out on up to 10% of annual sales due to poor business strategies.
This includes both developing and executing said business strategies. Environmental scanning fulfills the informational needs required for improving strategic planning and generates insights on competitors that can be used internally to compare your competitor’s strategies against your own.
Internal vs. external environmental scanning
In order to conduct a thorough environmental scan, companies must take a look at both internal and external factors. Likewise, it is important that companies regularly gather, collect, and analyze both internal data (possibly from a CRM or from HR) as well as external data from third-party data providers.
Let’s take a look at some of the internal and external factors (similar to the above-mentioned scanning types) that companies often examine when performing an environmental scan.
Internal factors
- Company’s organizational structure
- Business strategies, marketing strategies, etc.
- Culture and workplace environment (including employee retention, turnover, etc.)
- Overall company-wide leadership
External factors
- Economic conditions
- New technologies
- Competitors’ performance
- Global events (i.e. COVID-19)
- Political and legislative changes
- Workforce trends
- Climate, natural disasters, etc.
- Cultural trends (global and domestic)
The five types of environmental scanning
As mentioned previously there are various types, or modes, of environmental scanning, that can be conducted internally and/or externally.
Today, many companies conduct a variety of environmental scans, both internally and externally. This is primarily due to the increasing competitiveness in business landscapes and the increasing amount of data, that can generate thoughtful insights, being created daily. Likewise, the five major modes of scanning include: economic, technological, legal, ecological, and sociological.
1. Economic scanning involves evaluating how consumers are spending their money, which industries are outperforming others, and the financial health of various markets due to economic factors.
2. Technological scanning refers to the evaluation and tracking of new technologies, updated technologies, and consumer & business trends within tech.
3. Legal scanning involves monitoring legislative changes and their overall impact on business rules and regulations, consumer activities, and public health and safety.
4. Ecological scanning considers climates, natural disasters, and green issues as a whole.
5. Sociological scanning involves deepening one’s understanding of current social movements, political climates (not related to legislation), and cultural impacts of business decisions.
Benefits of utilizing environmental scanning
Environmental scanning provides companies with various benefits, beyond the above-mentioned advantages, such as strategic planning and overall business landscape research. Some additional benefits of environmental scanning include:
- Improves company-wide organizational strategies
- Enhances market adaptability and boosts performance
- Helps generate unique proactive marketing and sales strategies
- Benefits risk mitigation best practices and overall threat management
Challenges and best practices in environmental scanning
Common mistakes to avoid
Data overload. Managing too much information and not excluding what’s irrelevant.
Inaccurate information. It’s important to ensure that data sources are reliable and data is up to date.
Missing rapid market changes. To not miss changes in the market, companies should keep up with evolving trends and unexpected disruptions.
Bias in analysis. As much as possible, businesses should aim to avoid subjective, unproductive interpretations that may skew decision-making.
Resource constraints. Another common mistake is not allocating enough time, personnel, and tools effectively for continuous scanning.
Tips for an effective scanning process
Define clear objectives. Focus on specific trends or risks relevant to business goals.
Use diverse data sources. Combine traditional reports, alternative data, and real-time insights.
Leverage technology. Utilize AI, automation, and data visualization for efficient analysis.
Regularly update insights. Continuously monitor and refine findings to stay ahead of changes.
Encourage cross-department collaboration. Involve multiple teams for a well-rounded perspective.
Wrapping up
In all, environmental scanning is a critical component of developing and implementing a successful business strategy. With the rise of public web data and an increasingly digital landscape, environmental scanning will continue to utilize non-traditional data sources, and businesses will rely on such indicators to develop strategies that keep them ahead of their competitors.
