Environmental Scanning PDF

ENVIRONMENTAL SCANNING By Felina C. Young and Paul VanZandt CLASSIFICATIONS OF THE ENVIRONMENT 1. General Environment – includes trends and events that that can impact the organization but the organization has little or no influence on these trends and events, such as political, economic,...

ENVIRONMENTAL SCANNING By Felina C. Young and Paul VanZandt CLASSIFICATIONS OF THE ENVIRONMENT 1. General Environment – includes trends and events that that can impact the organization but the organization has little or no influence on these trends and events, such as political, economic, etc. 2. Industry/Competitive Environment- are trends and events in the environment of an industry which can be influenced by an organization and the organization can be influenced by the trends and events happening in the industry. Example: Since the industry is composed of different organizations that compete with one another by selling the same or similar goods, when one increases its price, it will have some effect on the pricing of others.  In view of the greater influence of the general environment of the likelihood of success of an organization, managers are more concerned with factors in the general environment and try to anticipate consequences to their business. The popular tool for organizing these factors is the PESTEL analysis. What is PESTEL Analysis? ◦ PESTEL analysis is defined as a business impact study that aims to understand the effects of 6 key external factors, which are politics, economics, social, technology, environmental, and legal. ◦ Initially designed in 1967 as a business planning tool, this method was then known as PEST, with environmental and legal factors joining the list as regulations and business environmental factors became larger business influences. ◦ The PESTEL analysis technique is a key tool for a company’s management team during enterprise strategic planning. When correctly done, this analysis technique can help anticipate future challenges and opportunities. This technique is especially helpful when formulating a strategic business plan that methodically takes both internal and external influences on the business into account.  PESTEL Analysis Framework ◦ The PESTEL analysis framework is a strategic tool utilized by businesses to assess and respond to external macro-environmental factors influencing their operations. It encompasses six key dimensions: Political: Political factors involve governmental policies, regulations, and geopolitical stability impacting business environments. For example, shifts in tax policies or trade agreements can significantly influence market conditions and operational decisions. Economic: Economic factors, such as GDP trends, inflation rates, and interest rates, shape consumer behavior and business investment strategies. Industries sensitive to economic fluctuations must adapt pricing and operational strategies accordingly. Social: Social factors encompass cultural norms, demographics, and consumer preferences. Understanding societal shifts and behaviors helps businesses tailor their products, services, and marketing strategies to meet diverse customer needs effectively.  PESTEL Analysis Framework Technological: Technological advancements drive innovation and operational efficiencies across industries. Businesses leveraging emerging technologies like AI, IoT, and automation gain competitive advantages in product development and service delivery. Environmental: Environmental factors, including sustainability practices and regulatory requirements, impact operational strategies and consumer perceptions. Adopting eco-friendly practices not only meets regulatory standards but also enhances brand reputation and customer loyalty. Legal: Legal factors encompass laws and regulations governing business operations, employment practices, and consumer protection. Compliance with data privacy laws (e.g., General Data Protection Regulation) and industry- specific regulations is crucial for mitigating legal risks and maintaining trust.  Key Benefits of Applying PESTEL Analysis 1. Better threat anticipation and management ◦ An enterprise that has planned for all the key 6 external factors highlighted in PESTEL, is in a position where they have a wider and more in-depth understanding of any threats emerging out of external factors. This helps businesses make plans for contingencies, to avoid the threat or to deal with it in the most prudent way possible. 2. Increased chances for business continuity during disasters ◦ Business disasters can be natural, political, geopolitical, or economic. Companies who are actively aware of these shifting landscapes have more capacity to absorb these challenges and ensure business continuity and perhaps even growth during such periods. A recent example would be the sudden rise in Federal Reserve interest rates to tackle inflation in 2022 where many companies who had taken business loans based on floating interest rates (especially to stay afloat during COVID lockdowns) now found themselves paying 3-4 times in interest amount within just a year. This rate hike however was much discussed and anticipated and businesses that repaid or maintained sufficient cash margins accounting for anticipated rate hikes, have a much better chance of ensuring the financial stability of the firm.  Key Benefits of Applying PESTEL Analysis 3. Competitive tech-stack ◦ PESTEL analysis included technology as a key factor that keeps the management team aware of the level of maturity of the company’s tech stack (set of tools, programming languages, and technologies used to develop an application) vis-a-vis competition and what is available in the market. Consider this against a CTO trying to convince the board of tech investment without the right macro context. ◦ A company’s management team may be composed of more experienced but demographically older members. A PESTEL analysis enables the management to keep themselves tech-savvy and aware of the latest technology and its benefits to enterprise growth. These tech investments may span across the organization chart such as improving human resource management efficiency, better employee surveying for feedback, better quality customer data collection, better enterprise data management, planning product and service improvements/ innovations, etc.  Key Benefits of Applying PESTEL Analysis 4. New opportunities identification ◦ External factors are not just threats and compliance, they can and often are filled with business opportunities to be explored. A change in the landscape can be an opportunity for the entity who is already prepared to take advantage. For example, while GDPR regulations led to a reduced volume of business inquiries from websites, they also improved the quality of these leads who were now more sales- ready. This was because visitors who gave their consent to be contacted by sales or cookie tracking for better product recommendations or receive newsletters on the product etc, were clearly more ready to make a purchase. Companies who invested more, not less, on the website quality and better quality online resources post-GDPR, were able to leverage improved lead quality and therefore better sales opportunities in the European market. 5. Focused strategic planning ◦ A company’s strategic plan is the overarching business operations and growth plans that drive every other objective. PESTEL analysis is a primary tool for an enterprise’s management team seeking to create a realistic, achievable, and competitive strategic plan that takes into account all external factors. While several other methods also take into account external opportunities and threats, it is only PESTEL that clearly breaks down for the management team the 6 factors that allow for a broad, yet in- depth analysis of external business influences.  PESTEL Analysis in Strategic Management PESTEL analysis is a fundamental component of strategic management. It provides a comprehensive view of the external environment, allowing organizations to make informed decisions, plan for the future, and adapt to changes in their operating environment. It helps in crafting strategies that are not only relevant but also resilient in a dynamic and complex world. Here’s how a PESTEL analysis is relevant in the context of strategic management: 1. Identifying Opportunities and Threats: By examining Political, Economic, Social, Technological, Environmental, and Legal factors, organizations can identify both opportunities and threats in their external environment. This information is critical for crafting strategies that leverage opportunities and mitigate threats. 2. Scenario Planning: PESTEL analysis aids in scenario planning, where organizations can consider various future scenarios based on different combinations of these external factors. By doing so, they can develop strategies that are robust and adaptable to various potential futures  PESTEL Analysis in Strategic Management 3. Strategic Decision-Making: Understanding the external environment through a PESTEL analysis is essential for making informed strategic decisions. It helps in shaping business strategies that align with the current and future landscape. 4. Risk Management: Organizations can use PESTEL analysis to assess risks associated with changes in the external environment. For example, changes in government regulations, economic downturns, or technological disruptions can pose risks to the organization, and a PESTEL analysis can help identify and manage these risks. 5. Innovation and Adaptation: The Technological and Environmental factors in a PESTEL analysis can guide innovation and adaptation efforts. It can help organizations stay ahead of technological advancements and align their strategies with environmental sustainability.  PESTEL Analysis in Strategic Management 6. Global Expansion: For organizations considering international expansion, a PESTEL analysis is crucial for understanding the unique factors and challenges in each target market. It helps in tailoring strategies to fit specific international environments. Ex. Two-storey Jollibee with bigger chunks and machine assisted orders. 7. Regulatory Compliance: The Legal factors in the analysis help in identifying legal requirements and compliance issues that can affect the organization’s strategies. This is particularly relevant in industries with high regulatory oversight, such as healthcare or finance which are highly sensitive markets. 8. Stakeholder Communication: Understanding the Social and Environmental factors can aid in effective communication with stakeholders. It enables organizations to demonstrate their commitment to societal and environmental concerns, which can be a key part of their strategic positioning What to do? ◦Make an individual PESTEL Analysis of your organization or business, then merge with other members’ contributions. ◦This will be your homework assignment to be included in your individual and group SWOT analysis to be submitted by your team