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For a company to gain or maintain a sustainable competitive advantage, it must be ever vigilant, watching for changes in the business environment. It must also be agile enough to alter its strategies and plans when the need arises.

Methods

There are three ways of scanning the business environment:

• Ad-hoc scanning - Short term, infrequent examinations usually initiated by a crisis
• Regular scanning - Studies done on a regular schedule (say, once a year)
• Continuous scanning - (also called continuous learning) - continuous structured data collection and processing on a broad range of environmental factors.

Most commentators feel that in today's turbulent business environment the best scanning method available is continuous scanning. This allows the firm to act quickly, take advantage of opportunities before competitors do, and respond to environmental threats before significant damage is done.

Environmental Analysis (`Scanning') ]

The first step in addressing the wider, `external' environment is that of discovering what threats and opportunities it holds for the organization. This is environmental analysis. The heart of this process has been called scanning. This is a term which is much used by marketing experts, but which has been rarely defined - and even less frequently employed in practice.

'Scanning' is a very wide-ranging activity. In its broadest sense it encompasses all those activities which the organization uses, formally and informally, to keep abreast of those changes in the external environment which will affect its future. At its widest it can include all the factual (news and documentary) material to be seen on television or read in the newspapers and periodicals! Here the simplest advice must be to maintain the maximum exposure to the widest range of these media; certainly not relying on just one newspaper (even the - Wall Street Journal - or the - Financial Times - ), which will almost inevitably be biased in one way or another, but taking a balanced range of these.

Some of the activities which need to be considered include the following.

Modes of Scanning

Francis Joseph Aguilar distinguishe four modes of scanning:

1. "Undirected Viewing - is defined as general exposure to information where the viewer has no specific purpose in mind with the possible exception of exploration. This mode is characterized by the viewer's general unawareness as to what issues might be raised. The sources of information are many and varied, the amounts are relatively great, and the screening is generally coarse ... alerting the businessman to the fact that - something - has changed ...
2. Conditioned Viewing - where scanning is defined as directed exposure, not involving active search scanning, to a more or less clearly identified area or type of information ... the viewer is sensitive to the particular kinds of data and is ready to assess their significance ...
3. Informal Search - here scanning is defined as a relatively limited and unstructured effort to obtain specific information for a specific purpose ... the information is actively sought.
4. Formal Search - finally this form of scanning refers to a deliberate effort ...to seek specific information ..."

He went on to add the warning that:

"Scanning is costly; information is boundless. In practice an organization can attend to only a small fraction of the information that keeps pouring in upon it from its environment. The rules of scanning must be framed with reference to the economics of this activity, and costs must be weighed against benefits."

Of these processes it is the first, `undirected viewing', which potentially represents the major expenditure of resource, but also the most important benefits in terms of long-term survival (although it is also the most neglected by many organizations).

Sources

Unfortunately, undirected viewing is the most difficult to control. thus Fahey and Narayman also described its complexity and inherent difficulties:

"Scanning is the - most ill-structured - and ambiguous environmental analysis activity. The potentially relevant data are essentially unlimited. The data are inherently scattered, vague, and imprecise, and data sources are many and varied. Moreover, a common feature of scanning is that - early signals - show up in unexpected places. Thus, - the purview of the search must be broad - , but no guidelines exist as to where the search should be focused. In short, the noise level in scanning is likely to be high."

Even on a limited scale, however, these resource demands imply the necessity of a team approach. One of the most interesting suggestions for handling this came from an organization which asked - all - its employees to clip - any - news item they felt might be relevant to the future of the organization. All of these clippings were then `scanned' by the environmental analysis group. When a pattern emerged, of a phenomenon being reported across a number of such sources, it was reasoned that these particular `weak signals' possibly indicated an important underlying trend, and it was thereafter tracked in more detail.

John Naisbitt extended the scope of the analysis, with his statement, "The most reliable way to anticipate the future is by understanding." He also putsthe process of scanning the media into a more `academic', historical context:

"We learn about this society through a method called `content analysis', which has its roots in World War II. During that war intelligence experts sought to find a method for obtaining the kinds of information on enemy nations that public opinion polls would have normally provided. Under the leadership of Paul Lazarfel and Harold Lasswell ... it was decided we would do an analysis of the content of the German newspapers ... Although this method of monitoring public behaviour and events continues to be the choice of the intelligence community -the United States annually spends millions of dollars doing newspaper content analysis in various parts of the world - it has rarely been employed commercially."

He added that the greatest strength of such analysis comes about because:

"For economic reasons the amount of space devoted to news in a newspaper does not change significantly over time. So, when something new is introduced something else or a combination of things must be omitted. The news-reporting process is a forced choice in a closed system. In this forced-choice situation, societies add new preoccupations and forget old ones. In keeping track of the ones that are added and the ones that are given up, we are in a sense measuring the changing - share of the market - that competing societal concerns demand."

He is probably correct in assuming that this degree of sophistication is employed nowhere outside of the intelligence services, but scanning might include the use of regular opinion surveys (most probably shared `omnibus' surveys). Another approach is to take regular reports from consultancies which specialize in this field, such as the Henley Centre for Forecasting. An active industry association might also provide good support.

Scanning Processes

Continuous scanning, probably mainly of the mass media, is thus one of the most important, externally oriented, activities undertaken by any organization.

Possibly the simplest, and best, advice is to cultivate a deep, on-going, curiosity about that external world; coupled with an ability to recognize which - signals - , from amongst the mass of data which every new day brings, are relevant - and important - to the future of the organization. This philosophy should ideally be shared by others in your organization.

The ultimate incentive for investing the necessary time and resources in these processes is a realization of just how important these activities may be to preserving the long-term future of the organization.

Weak Signals

There has been a considerable amount of largely academic discussion about `weak signals', small pieces of information which signal important changes which are as yet unrecognized. The comment has concentrated upon retrospective analysis. Thus, for example, the `signals' that Japanese manufacturers were coming to dominate certain industries (the motorcycle industry, for instance) are, once you look for them, quite obvious; and yet they were totally overlooked by the existing suppliers in these markets.

The problem, which most of these academics tend not to address, is that while it is easy to see these patterns with the benefit of hindsight, it proves very difficult indeed to detect them in advance.

Joseph Martino suggested that the key is to look for `patterns' (a sequence of signals). Two errors can be made. The first, and most likely, is to miss the signals altogether. The second, at the opposite extreme, is to find a pattern which is not really there: `The human mind has an amazing facility for finding patterns in what is really nothing but random noise.' In the field of business, he suggests that the movements of key experts or management (or changes in management structure) may offer a useful, early, insight into competitive developments at least.

Joseph Martino also suggested that one way of trapping weak signals is to set `thresholds' (for instance, that a senior politician has to become involved with an issue or that a journal considers it worth an editorial comment), above which signals are then tracked. It has to be recognized, however, that setting any such `thresholds' requires considerable expertise.

Perhaps the most important advice, all too often neglected in practice, is that the suspected weak signals must then be tracked.

The Learning Organization

Once information is obtained, it must be disseminated throughout the company, to all departments, and at all levels. There is resistance to this outlook because many employees feel that knowledge is power and sharing knowledge will reduce one's worth to the company. Rather, all people in the company should share in the task of scanning. When all employees scan some part of the environment, and all information, so obtained, gets disseminated through out the organization, the company is said to be a learning organization.

The Macroenvironment

Environmental scanning usually refers just to the macroenvironment, but it can also include industry and competitor analysis, consumer analysis, product innovations, and the company's internal environment. Macroenvironmental scanning involves analysing:

• The Economy
  • GNP or GDP per capita
  • GNP or GDP growth
  • unemployment rate
  • inflation rate
  • consumer and investor confidence
  • inventory levels
  • currency exchange rates
  • merchandise trade balance
  • financial and political health of trading partners
  • balance of payments
  • future trends
• Government
  • political climate - amount of government activity
  • political stability and risk
  • government debt
  • budget deficit or surplus
  • corporate and personal tax rates
  • payroll taxes
  • import tariffs and quotas
  • export restrictions
  • restrictions on international financial flows
• Legal
  • minimum wage laws
  • environmental protection laws
  • worker safety laws
  • union laws
  • copyright and patent laws
  • anti- monopoly laws
  • Sunday closing laws
  • municipal licences
  • laws that favour business investment
• Technology
  • efficiency of infrastructure, including: roads, ports, airports, rolling stock, hospitals, education, healthcare, communication, etc.
  • industrial productivity
  • new manufacturing processes
  • new products and services of competitors
  • new products and services of supply chain partners
  • any new technology that could impact the company
  • cost and accessibility of electrical power
• Ecology
  • ecological concerns that affect the firms production processes
  • ecological concerns that affect customers' buying habits
  • ecological concerns that affect customers' perception of the company or product
• Socio-Cultural
  • demographic factors such as:
    • population size and distribution
    • age distribution
    • education levels
    • income levels
    • ethnic origins
    • religious affiliations
  • attitudes towards:
    • materialism, capitalism, free enterprise
    • individualism, role of family, role of government, collectivism
    • role of church and religion
    • consumerism
    • environmentalism
    • importance of work, pride of accomplishment
  • cultural structures including:
    • diet and nutrition
    • housing conditions
• Potential Suppliers
  • Labour supply
    • quantity of labour available
    • quality of labour available
    • stability of labour supply
    • wage expectations
    • employee turn-over rate
    • strikes and labour relations
    • educational facilities
  • Material suppliers
    • quality, quantity, price, and stability of material inputs
    • delivery delays
    • proximity of bulky or heavy material inputs
    • level of competition among suppliers
  • Service Providers
    • quantity, quality, price, and stability of service facilitators
    • special requirements

Scanning these macroenvironmental variables for threats and opportunities requires that each issue be rated on two dimensions. It must be rated on its potential impact on the company, and rated on its likeliness of occurrence. Multiplying the potential impact parameter by the likeliness of occurrence parameter gives us a good indication of its importance to the firm.

Responses

When an issue is detected, there are generally six (6) ways of responding to them:

• opposition strategy - try to influence the environmental forces so as to negate their impact - this is only successful where you have some control over the environmental variable in question
• adaptation strategy - adapt your marketing plan to the new environmental conditions
• offensive strategy - try to turn the new influence into an advantage - quick response can give you a competitive advantage
• redeployment strategy - redeploy your assets into another industry
• contingency strategies - determine a broad range of possible reactions - find substitutes
• passive strategy - no response - study the situation further

REFERENCES

• F. J. Aguilar, ‘Scanning the Business Environment’ (Macmillan, 1967)
• L. Fahey and V. K. Narayman, ‘Macroenvironmental Analysis for Strategic Management’ (West Publishing, 1986)
• J. Naisbitt, ‘Megatrends: Ten New Directions Transforming our Lives’ (Macdonald, 1982)
• J. Martino, ‘Technological Forecasting for Decisionmaking’ (American Elsevier Publishing Company, 1972)