Environmental Scanning in Business - Coursework Example

Name: University: Course: Tutor: Date: Today, unlike a number of years ago, business managers are finding it appropriate to have a strategic understanding of the environment surrounding the business. This strategic understanding is particularly focused on the external environment of a business primarily because of its dynamic nature. It is only through this understanding that firms can respond to challenges emanating from the ever changing external environment that threatens their survival and success in an appropriate way. This understanding of the external environment or self appraisal is perfectly captured in strategic management in concepts like external appraisal or strategic audit, which is also what environmental scanning refers to (Karami 2008). It is therefore appropriate to look at environmental scanning as the process of monitoring, assessing and distributing of information from both internal and external environment to the firm’s corporate strategists. Just as the name “scanning” suggest, environmental scanning essentially refers to the act of looking and analyzing the external environment, and especially the economic, demographic, cultural, legal, and technological trends at any given time, in an effort to formulate strategies that can be used by the managers to maintain their firms’ competitive advantage while bettering their performance in future. Today’s ever-changing and uncertain environment is the sole driver of the need for managers to consistently seek and integrate information and awareness of these changes in their policy formulation. A number of important changes that managers ought to consistently seek include the changes in their competitive environment and opportunities that constantly keep on opening up at any given time and that might be used by a firm to gain a competitive advantage. It is only though gaining this understanding that managers can seek and integrate improvements in each area of their firms and also enhance their responsiveness and understanding of their strategies and their (strategies) success at any given time (Helfat et al 2007). Looking at environmental scanning as the continuous acquisition and application of up-to-date information on the trends, events and relationships in a business’ external environment, it is proper to conclude that environmental scanning is an important tool that managers can use to enable them get an understanding of the external environment of their firm, from where they can respond probably with policies and strategies that enables them maintain their competitive advantages. This understanding and information is also vital in enabling managers formulate effective strategies and policies that positions the firms in a better positions, a position that enables them improve their respective firms’ competitive advantage in future. Due to the fact that the ability of a firm to adapt to its external environment depends primarily on its understanding and knowledge of its external changes that are taking place at any given time, environmental scanning is undoubtedly a primary system of organizational learning (Escribano et al 2009). Strategic management literature is replete with research studies that attempts to investigate the relationship that is thought to exist between the external environment of a business and the usage of different types of information sources in developing a competitive advantage, all of which confirms the existence of a positive relationship between the two (Parker, 2008). From the findings of these studies it is obvious that the kind of information that managers use in formulating strategies is influenced by the firm’s competitive strategy. This therefore can be construed to mean that the strategy determine the scanning behavior while scanning behavior affect the strategy as well. Looking at the demographic, political, legal, economic, technological and cultural environment trends of a business in vital in that its assists managers in formulating strategy that are responsive to the environment always. It is also through this understanding of the external environment that managers can effectively align the environmental requirements with the competitive strategies thereby achieving exception performance in their management functions (Parker 2008). Just as Karami (2008) notes, environmental scanning enables managers to comprehend the environment (internal and external) within which the firm operates at any given time and come-up with strategies while highlighting issues that might need redress both in the short-term and long-term. Environmental scanning also enables managers to identify and critically evaluate their respective firms’ external environment thereby according them an opportunity to assess alternatives that they might consider in response to present challenges while still giving them a chance to reflect on their internal strengths and weaknesses in response to these challenges (Carral & Kajanto 2008). Managers are also accorded a chance to address; social, competitive, economic, and technical issues that might be almost impossible to recognize and address despite the fact that they are persistent and almost out of their (managers) control. It is only after taking into consideration the whole range of activities forming environmental scanning that the management can take appropriate actions that position the respective firm strategically, and that is particularly responsive to the threats and opportunities facing the firms. Giving managers a picture of the present environment (internal and external) is important in that it gives the manager an understanding of the environment the firm is operating in and still setting the stage for the main issues that need to be attended to while assisting them in detecting new market demand and opportunities that might require to be considered in strategy formulation (Porter 2004). This follows the fact that strategic thinking calls for an understanding of alternative strategic goals and purposes together with the ability to identify critically different environments. Nokia, the telecommunication giant, case is a case in point that can perfectly demonstrate the importance of understanding the external environment in the business field (Carral & Kajanto 2008). In this regard I am referring to Nokia’s ability to always keep abreast of its external environment and that of the telecommunication sector through gathering, assessing and acting on information in the environment, something that has provided it with a competitive advantage in a number of notable periods. For instance, in 2008, Nokia was the first to design smart phone with additional features than was the case before in response to its vice-president prediction of outsell of first-time phone sell by first-time replacement phones (Carral & Kajanto 2008). Managers can improve their effectiveness immensely by simply putting effort at working through the strategic issues that are embedded in their firm’s strategic management model. In this case, all what they have to do is to focus on several managerial decisions that ascertain their long-term performance. Just as is the case with strategy formulation, managerial decisions that managers can formulate have to be informed by the external environment at any particular time while considering the firm’s internal environment (internal strengths or weaknesses) in their execution. Strategic management dictates that managers think strategically and develop the capacity action while still getting a clear understanding of the future of the business in the context of vagueness and uncertainty through identifying interdependency of key factors. The essence of strategic thinking by managers emanates from the fact that by so doing they can steer their firms in the straight and narrow path of success though looking at their respective firm in the perspective of the global events and trends, from where they can identify important interdependencies. It is from the same that they can respond successfully and in time to the ever-changing threats and opportunities. Considering the political, social, technological, legal, or economic trend might not be enough. There is need for the analysis of a number of other important aspects of the firm that might not necessarily be external in nature but still very important in strategy formulation. For some firms it might be a number of environmental influences such as competition that definitely have the greatest influence on the firm, while to others and especially services and manufacturing firms, it might be customers, both of which require proper analysis (Escribano et al 2009). There is also the; structure and profitability of the firm; the market growth; level of differentiation; economies of scales; capital intensity; frequency of new product launches; stages in the services or product life, all of which have great effect on the competitive environment (Helfat & Peteraf 2003). Environmental scanning also enables managers to keep their firms updated on the new and emerging business regulation, technologies, practices, and rising trends, thereby cautioning their firms from lagging behind in this dynamic environment (Zollo & Winter 2002). It also reduces the chances of being blind-sided, not to mention ultimately resulting to excellent anticipatory management. It is this awareness of the latest technologies and other external factors in the business environment that show Nokia evade massive losses while the rest of the companies in the telecommunication industry suffered massive losses when they tried responding to a forecasted growth of 30-40% in the industry that was not to be (Carral & Kajanto 2008). Despite all these benefits to a manager that environmental scanning has, there are a number of challenges that affect its overall value. For instance, the fact that environmental scanning involves gathering vast amount of data within and out of the firm and then analyzing them in the framework of the strategic objectives, that at times might not be developed as would be required, demonstrates its tasking nature. Another manifestation of its complexity can be seen in indexing, referencing and statistic analysis that normally follow the gathering process. It is this kind of complexity and involvement that normally increases its probability of missing the point or being rendered an exercise in futility. The gathering and analysis of the data for evaluation by management in the process of creating awareness of the external and internal environment is work in itself that require human resource and therefore added cost on a firm that is endeavoring to maximize profits. The high probability of not getting it right combined with the high costs emanating from the exercise itself is at the center of the cold shoulder that managers have been giving environmental scanning in recent time (Helfat et al 2007). Another demonstration of the slim chances that can be found in the application of environmental scanning is the high number of tools involved namely; PEST analysis, value chain analysis, Porters Five Forces Model to name but a few, all of which require specialized skills and added costs. Deficient in leadership is another bottleneck facing environmental scanning. For environmental scanning to be a success, proper leadership ought to be present so that such leadership can among others, offer leadership and motivation in the entire process. The leaders also ought to lead with enthusiasm and passion, while deliberately creating and maintain interest in the entire process. Otherwise the process will end up being a waste of time and resources. References Escribano, A, Fosfuri, A, Tribó, J, 2009, Managing External Knowledge Flows, Research Policy, Vol. 38, pp. 96-105. Helfat, C, Finkelstein, S, Mitchell, W, Peteraf, M, Singh, H, Teece, D, Winter, S, 2007, Dynamic Capabilities. Understanding Change in Organizations, Blackwell, Oxford. Helfat, C, Peteraf, M, 2003, The Dynamic Resource-Based View, Strategic Management Journal, Vol. 24, pp. 997-1010. Karami, A, 2008, “An Investigation on Environmental Scanning and Growth Strategy in High Tech Small and Medium Sized Enterprises”. High Technology Small Firms Conference, May 21-23 2008, University of Twente. Parker, A, 2008, “Nokia Reaps Benefits of Emerging Markets”, Financial Times, available at http://www.ft.com/intl/cms/s/0/b308b23c-008f-11dd-a0c5- 000077b07658.html#axzz1XWzbBChh Porter, M, 2004, Competitive Advantage: Creating and Sustaining Superior Performance, Free press, New York. Zollo, M, Winter, S, 2002, Deliberate Learning and the Evolution of Dynamic Capabilities, Organization Science, Vol. 13, pp. 339-351. Carral, R, & Kajanto, M, 2008, “Nokia: A Case Study in Managing Industry Downturn”, Strategic Direction, Vol. 29, Iss. 1. Pp. 25-33. Read More