Topic

“INTERNAL ENVIRONMENT SCANNING”

Businesses are mainly affected by social, economic, legal, technological and international
factors. Environmental analysis is a study of these various influencing factors.
Environmental scanning refers to collecting and utilizing the information about prominent
trends, patterns, occasions and relationships that can adversely impact the business to
determine future opportunities or threats.

Definition

According to William. F. Glueck, “Environmental Scanning consists of identifying and

analyzing environmental influences individually and collectively to determine their
potential effects on an organization and the consequent problems and threats.”

Characteristics of Environmental Scanning

1. Continuous Process- The analysis of the environment is a continuous process

rather than being sporadic. The rapidly changing environment has to be captured
continuously to be on track.

2. Exploratory Process- Scanning is an exploratory process that keeps monitoring the

environment to bring out the possibilities and unknown dimensions of the future. It
stresses the fact that “What could happen” and not”What will happen”.

3. Dynamic Process- Environmental scanning is not static. It is a dynamic process and

depends on changing situations.

4. Holistic View- Environmental Scanning focuses on the complete view of the

environment rather than viewing it partially.

Components of Environmental Scanning

1. Internal Environmental Components- The components that lie within the

organization are internal components and changes in these affect the general
performance of the organization. Human resources, capital resources and
technological resources are some of the internal environmental components.

2. External Environmental Components: The components that fall outside the

business organization are called external environmental components. Although the
components lie outside the organization, they still affect the organizational activities.
The external components can be divided into micro environmental components and
macro environmental components.

Micro environmental components include competitors, consumers, markets, suppliers,

organizations, etc. Macro environmental components include political, legal, economical,
cultural, demographic and technological factors
 .  

Techniques of Environmental Scanning

1. SWOT Analysis- SWOT analysis is an acronym for Strengths, Weaknesses,

opportunities and threats analysis of the environment. Strengths and weaknesses are
considered as internal factors whereas opportunities and threats are external factors.
These factors determine the course of action to ensure the growth of the business.

2. PEST Analysis- PEST stands for Political, economic, social and technological
analysis of the environment. It deals with the external macro-environment.

3. ETOP- ETOP stands for the Environmental Threat Opportunity profile. It helps
an organization to analyze the impact of the environment based on threats and
opportunities.

4. QUEST- QUEST stands for the Quick Environmental Scanning technique. This
technique is designed to analyze the environment quickly and inexpensively so that
businesses can focus on critical issues that have to be addressed in a short span.
Process of Environmental Analysis
 1. Scanning-  The process of analyzing the environment to spot the factors that may
impact the business is known as Environmental Scanning. It alerts the enterprise to
take suitable strategic decisions before it reaches a critical situation.

2. Monitoring- The data is gathered from various sources and is utilized to monitor
and find out the trends and patterns in the environment. The main sources of
collecting data are spying, publications talks with customers, suppliers, dealers and
employees.

3. Forecasting- The process of estimating future events based on previously analyzed

data is known as environmental forecasting.

4. Assessment- The stage in which the environmental factors are assessed to identify
whether they provide an opportunity for the business or pose a threat.

Importance of Environmental Scanning

 Goal Accomplishment: The objectives of an organization cannot be fulfilled unless it

adapts itself to the environmental changes. One has to adjust the strategies to fit in the
changing demands of the environment.

 Threats and Weakness Identification: For an organization to grow, it must

minimize its threats and identify the weaknesses. This is made possible with the help
of environmental scanning with which better strategies can be developed.

 Future Forecast: Environmental changes are often unpredictable. An organization

cannot anticipate all the future events but based on the analysis, it can make better
strategic decisions in the future. Hence, environmental analysis helps to forecast the
prospects of the business.

 Market Knowledge: Every organization must be aware of the ongoing changes in the
market. If it fails to incorporate strategic changes due to changing demands, it will not
be able to achieve its objectives.

 Focus on the Customer: Environmental scanning and analysis make an organization

sensitive towards the changing needs and expectations of the customer.

 Opportunities Identification: With the analysis of the current environment an

organization will be able to identify the possible opportunities and take necessary
steps.
Limitations of Environmental Scanning

 Overloading of information may sometimes result in indecision. Hence it is not

completely reliable.
  It does not forecast the future or eliminate uncertainties. Organizations may face
unexpected events. However environmental scanning should aim at minimizing such
threats to the business.

 It often makes an organization cautious and thereby delayed decision making. It is

better to have a strategic approach to analyze the environment and take decisions or
actions on time.

 When the organizations rely completely on the analyzed information without data
verification and accuracy, it may lead to deviation in the desired outcomes.

WHY IS INTERNAL ENVIRONMENT SCANNING IMPORTANT?

In short, it allows you to identify your organization's strengths and weaknesses, which
can help management during the decision-making, strategy formulation, and execution
processes.

Organizational environment consists of both external and internal factors.

Environment must be scanned so as to determine development and forecasts of factors that
will influence organizational success. Environmental scanning refers to possession and
utilization of information about occasions, patterns, trends, and relationships within an
organization’s internal and external environment. It helps the managers to decide the
future path of the organization. Scanning must identify the threats and opportunities existing
in the environment. While strategy formulation, an organization must take advantage of the
opportunities and minimize the threats. A threat for one organization may be an opportunity
for another.
Internal analysis of the environment is the first step of environment scanning.
Organizations should observe the internal organizational environment. This includes
employee interaction with

 Other employees,
 Employee interaction with management,
 Manager interaction with other managers,
 And management interaction with shareholders,
 Access to natural resources, brand awareness,
 Organizational structure,
 Main staff,
 Operational potential, etc.
Also, discussions, interviews, and surveys can be used to assess the internal environment.
Analysis of internal environment helps in identifying strengths and weaknesses of an
organization.

As business becomes more competitive, and there are rapid changes in the external
environment, information from external environment adds crucial elements to the
effectiveness of long-term plans. As environment is dynamic, it becomes essential to identify
competitors’ moves and actions. Organizations have also to update the core competencies and
internal environment as per external environment. Environmental factors are infinite, hence,
organization should be agile and vigile to accept and adjust to the environmental changes. For
instance - Monitoring might indicate that an original forecast of the prices of the raw
materials that are involved in the product are no more credible, which could imply the
requirement for more focused scanning, forecasting and analysis to create a more trustworthy
prediction about the input costs. In a similar manner, there can be changes in factors such as
competitor’s activities, technology, market tastes and preferences.

WHILE IN EXTERNAL ANALYSIS, three correlated environment should be studied and

analyzed —

 immediate / industry environment

 national environment

 broader socio-economic environment / macro-environment

Examining the industry environment needs an appraisal of the competitive structure of the

organization’s industry, including the competitive position of a particular organization and
it’s main rivals. Also, an assessment of the nature, stage, dynamics and history of the industry
is essential. It also implies evaluating the effect of globalization on competition within the
industry. Analyzing the national environment needs an appraisal of whether the national
framework helps in achieving competitive advantage in the globalized environment. Analysis
of macro-environment includes exploring macro-economic, social, government, legal,
technological and international factors that may influence the environment. The analysis of
organization’s external environment reveals opportunities and threats for an organization.

Strategic managers must not only recognize the present state of the environment and their
industry but also be able to predict its future positions.