Environmental Scanning as a Process of

Strategic Decision-Making – A Review

Precious Uchechi IKEBUJO
Department of Business Administration, Post Graduate School (PhD, Management),
Nile University of Nigeria, Abuja.

Precyike@yahoo.com

ABSTRACT

This study examined environmental scanning as a method of making strategic decision.

Business environments no doubt could be difficult to predict as a result of complexities and
uncertainties. In some cases, the environments are hostile and not comfortable. As a result of
this, there could be rise in the mortality rate of businesses and organizations. The specific
objective of the study, therefore, was to evaluate the significance of environmental scanning
on strategic decision-making. The research design adopted was qualitative method.
Secondary resources are used for this study. In the course of the study, it was revealed that
there were various sources of information used in environmental scanning with a view to
influence strategic decision-making for organisations. Some of them were employees in the
organisation, stakeholders’ meetings, external customers, the print and electronic media, and
competitors. The study recommended that environmental scanning would help organisations
test their level of innovativeness and build a competitive advantage over their competitors
towards business survival.

Keywords: Environmental Scanning, Strategic Decision-Making, External Environment,

Internal Environment

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1. Introduction

Globally, the contemporary business environment is becoming more dynamic, unstable and

challenging to understand unlike the way it was centuries ago (Onodugo & Ewurum, 2013;

Zang, Majid and Foo, 2010). Moreover, the unpredictable nature of business environments is

the most worrisome for companies (Jörg, Neon & Reiner, 2011). Resulting from this

phenomenon, therefore, it has become imperative to integrate strategic decision with business

environments (O’Regan, Kling, Ghobadian & Perren, 2012). Similarly, the trend in modern

business environment has made organisations to get involved in strategic decisions that will

make them succeed and achieve their objectives (Cancellier, Junior, & Rossetto, 2014). This

trend and unpredictable nature of business have left management with no other option than to

consider environmental scanning as a tool for business growth. The making of strategic

decision in our modern world is a prerequisite to organisational success and this success as

well as sustainability of businesses according to Muhammad and Muhammad (2014) are a

function of making strategic decision.

Smit, Cronje, Brewis and Vrba (2011) in their study discovered that the quantum of reliable

information to business executives is a function of the organisation’s level of uncertainty

ascribed to it. Therefore, organisations intending to be world class have no choice than to

compete in the world economy with a view to facing socio-economic pressures (Sewdass &

Du Toit, 2014). Additionally, the environment of business in the present world economy

accepts international investment and emerging trade (South Africa’s competitive advantage in

the developing world, 2014). Nevertheless, environments must be scanned by enterprises for

better management of outcomes that are not certain, and this influences their position on

competition (Bhardwaj &Kuman, 2014). In the same vein, Zang, Majid and Foo, (2010) are

of the opinion that environmental scanning as well as interpreting and understanding the

information so obtained are very imperative for optimal business performance. Agbim and

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Oriarewo (2014) in their study also opined that the making of effective decision that are

strategic only takes place when an organisation does environmental scanning.

The Nigerian business environment could, basically, be termed unfriendly and uncomfortable

due to the rise in production cost and other environmental factors which have made

organisations in Nigeria less competitive. These uncontrolled factors invariably may have

resulted to the increase in business mortality rate in Nigeria (Onodugo and Ewurum, 2013).

This, in no small measure, has made researches to examine how best organisations can

favourably be at ease with difficult times by making strategic decision significant. This is

exactly the challenge that the study seeks to examine. The specific objective of this paper,

therefore, is to assess the extent to which enterprises regard environmental scanning as an

important tool for strategic decision-making.

2. Literature Review

2.1. Environmental Scanning

Environmental scanning according to Bhasin (2019) is a continuous and meticulous

evaluation of organisation’s internal and external environments with a view to determining its

strengths, weaknesses, opportunities, and threats, which will influence the present and future

organisation’s strategies. Additionally, environmental scanning as opined by Bhardwaj and

Kumar (2014) is the collection of vital facts with respect to concerns and relationships of the

external environment of an organisation; which will be of immense benefits to business

executives in designing the future course of action. Kadir, Cheng and Bohari (2014) in their

study concurred that the persistent rise in challenging and dynamic environment distracts the

attention and focus of business executives from very pertinent issues thereby loosing grip on

threats and opportunities. Lau, Liao, Wong and Chiu (2012) are also of the view that

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environmental scanning is a process of collecting information and interpreting same to plan

the business strategic process. Environmental scanning as defined by Zhang, Majid and Foo

(2011) is that process that evaluates and makes use of information beneficial to an

organisation.

3. Theoretical Review

With regard to the relationship between environmental scanning and decision-making, two

theories were reviewed: “(a) The Industrial Organisation Model of Above Average Returns;

and (b) The Resource-Based theory (RBT)”.

3.1. The Industrial Organization Model of above Average Returns

The model according to Porter (1980) suggested that the major source of strategic decision-

making is the scanning of external environment. The model assumed that external

environment imposes burden and challenges that drives the decision made leading to the

attainment of business objectives. Collis (1991) was of the opinion that identifying these

factors, channelling strategies in the right direction and successful competition are pivotal to

the theory. Accordingly, Niederhut-Bollmann and Theuvsen (2008) asserted that this model

has also been used towards the evaluation of strategic management in the business of

agriculture as well as small and medium enterprises.

3.2. The Resource-Based Theory (RBT)

This theory examines the internal business environment as the major source of information

for decision-making. The theory believes that the resources of the business firm are key

factors used in determining strategic decision-making. Barney and Hesterly (2010) opined

that business organisation must be well coordinated and decisively exercise superior control

over their resources if they really need to overcome competitors and attain organisational

objective. Additionally, resource-based theory encourages businesses to produce sound

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analysis of resources and very potent abilities that promote improvement in strategic

decision-making (Mugera, 2012).

3.3. Application of the Two Theories

This paper suggested a blend and combination of the two theories. According to Grant

(2013), no single strategy exists in environmental scanning such that would provide

information that guarantees the making of strategic decisions. In order to conduct

environmental scanning that would enrich strategic decision, business organisation should

rely on both the “industrial organisation model and resource-based theory”. While the former

harps on the external environment of business; the later discusses information in connection

with the internal environment of business organisations. The combination of the two models

is necessary for business organisation to adapt successfully and overcome the changes in

environment (Cancellier, Junior, & Rossetto, 2014). It is, therefore, pertinent to note that

applying strategic decision through the two models reduces the risk of business failure and

thereby promotes a firm’s growth inevitably.

4. Empirical Review

4.1. Categories of Business Environments

Several researches have been carried out on environmental scanning and business

environments. Consequent upon these studies, it is discovered that business environment can

either be external or internal.

4.1.2. External Environment

External environment according to Pulaj and Pulaj (2015) refers to factors that are not within

an organisation; and as such do not have control over them. In addition, external environment

according to Du Toit (2016) and Toivonen and Viitanen (2016) are factors and variables an

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organisation cannot influence, control or monitor, which could be political, economic, social,

technological, information and knowledge environment.

1. Political Environment: This environment includes policies, laws and regulations

of government. Others are political power and instructions of government

(Wambua & Omondi, 2016). All of these constitute the legal framework

regulating and controlling the activity of the business of an organisation.

2. Economic Environment: The variables include spending pattern of consumers,

rate of inflation, income level of consumers, rate of interest etc. Richard and Colin

(2005) opined that the economy of a country has influence significantly on the

strategy of the organisation. They asserted further that economic growth of a

country has a direct effect on the variables of economic environment.

3. Socio-Cultural Environment: The variables that could constitute the social

environment of an organisation include lifestyle, culture, beliefs, behaviours of

people/customers etc (Toivonen & Viitanen, 2016). These forces are dynamic and

are in a progressive change process with respect to achieving the needs of the

environment (Pulaj & Pulaj, 2015).

4. Technological Environment: According to Du Toit (2016), technological

environment includes variables like innovation, industry growth in technology,

investment of government in research and development etc.

5. Information and Knowledge Environment: Bhardwaj and Kumar (2014)

classified the factors as: “increased speed at which the accumulation of

knowledge, production, employment of knowledge and cognitive activities of

production, with increasing in the added value resulting from”.

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4.1.3. Internal environment

Indris and Primiana (2015) believed internal environment refers to sub-units that are parts of

the organisation. They opined further that internal environment has an impact on the

organisation’s schedule as well as its performance. The variables or factors relating to

internal environment according to Hit, Ieland and Hoskisson (2016) include organisational

strategy, set objectives, philosophy, structure, methodology, technology among several

others. On the other hand, Pearce and Robinson (2013) were of the opinion that internal

environment may involve resources owned, skills, aptitudes, level of professionalism etc.

Moreover, Organisational resources are of greater value than the industrial structure with a

view to making competitive advantage possible and sustainable (Abu Naser, Al Shobaki, &

Abu Amuna 2016). The components of internal environment are discussed below:

a) Organisational Resources: These are assets owned by the organisation which may

either be tangible or intangible (Pearce & Robinson, 2013). They asserted further that

the tangible assets are those that are visible like financial resource, computers, raw

materials, production facilities, fixtures and fittings as well as buildings. On the

contrary, the intangible assets are invisible. Indris and Primiana (2015) opined that

these may include organisational reputation, brand, technical capability, trademarks,

exposure and experience, ethics and code of conduct.

b) Core Competencies: Knowledge, skills and abilities from workforce and the

methodology of converting these inputs into useable form - output are referred to as

capability (Musran, 2010). Core competency, according to Indris and Primiana (2015)

is one sure indicator used in analysing organisational strengths and weaknesses.

c) Culture of the Organisation: Agbim and Idris (2015) defined organisational culture

as the deepest values and beliefs shared by the workforce of an organisation. The

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 culture of an organisation is considered to be the steadiest of all internal variables of

an organisation.

d) Style of Management: According to Adnan (2015), management styles are those

practices used by management staff in making decision, managing information and

subordinates, motivating staff and relationship etc. In addition, Beketova (2016)

affirmed that management style is considered as a strong instrument in understanding

the culture of an organisation.

e) Structure of Organisation: Sammoudi (2016) viewed organisational structure as the

hierarchy of the organisation, which defines the level of authority, flow of

communication as well as responsibilities. Accordingly, organisational structure

outlines functions, authorities, powers and responsibilities (Adnan, 2015).

4.2. Stages of Environmental Scanning

Environmental scanning according to Bhasin (2019) involves the following stages listed

below:

1. Performing marketing research with a view to collecting data in order to plan and

effect future course of action.

2. Benchmarking the productivity of the organisation in competition with a view to

studying their methodologies and business thought.

3. Willingness to be coached or mentored by senior management personnel in the firm.

4. Evaluating and analysing decision on the ground of demographics; and

5. Gathering relevant data from publications.

Furthermore, Haliza, Sayeed and Nor (2018) opined that the system of environmental

scanning consists of the following seven steps: “specify information needs, specify

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information sources, compile information, catalogue information, store information and

disseminate information”.

In a similar study, Cancellier, Blageski, and Rossetto (2014) stated four environmental

scanning modes which are (a) overall knowledge of the environment and without specific

objective to scanning widely; (b) scanning with the intention of getting information which

could be used to make impact on worker’s duty; (c) searching for information in order to

specify main causes and evaluate their implications in a non-structured form with limitations;

and (d) searching formally to collect information that are of specific intensions. Babatunde

and Adebisi (2012) conducted a survey consisting of 550 managers from 124 Nigerian bank

networks. Their study concluded that: (a) in scanning the environment, the educational status

of the managers has a great impact on strategic decisions; (b) the market and in particular, the

sector of the customers that are active; those who command the greatest objects while

scanning the environment are the competitors. The same competitors are volatile the most in

the subject matter of evaluation; (c) organisations in Nigeria depend majorly on non-formal

sources in collecting data; and (d) customers, academic books, journal publications, files of

private concern are the main information sources of very immense value.

In the study of Zang, Majid and Foo (2011), scanning the environment involves ‘synthesizing

and processing information’ substituting ‘products/service information’; which can render

clarity of the process of scanning systematically. The final consumers possess the opportunity

of quality assessment upon acceptance, such as factors relating to “timeliness, relevance and

accuracy” for the purpose of tactically providing strategic decision-making. If information

used by the consumer is unsatisfied, another process of purchases, procedures and transfer

will be adopted. Sometimes, ‘synthesizing and processing of information’ as well as

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dissemination of information could be eliminated as a result of factors involving the

achievement of information requiring speedy attention and very fast action, they emphasized.

4.3. Environmental Scanning Techniques Aiding Strategic Decision-making

Abdullah and Shamsher (2011) used PEST as a technique to assess environmental scanning.

PEST according to them consists of “political, economic, social and technological”

environments of business. The PEST analysis contributes to letting loose of propositions

thereby helping to efficiently accommodate actual events in the present environment. PEST,

therefore, examines the significant elements that could influence the organisations existing in

that sector. Accordingly, Gupta (2013) opined that PEST analysis helps business

organisations to influence changes in environments that are external to them. Abdullah and

Shamsher (2011) also opined that SWOT analysis existed to evaluate strengths, weaknesses,

opportunities, and threats of any given business. They buttressed further that SWOT analysis

assist organisations to collect information and produce methods necessary to manage

difficulties within the organisation.

Furthermore, Onodugo and Ewurum (2013) suggested the following techniques used for

scanning our environment towards influencing strategic decision-making of business: (i)

opinion survey; (ii) forecasting, (iii) critical analysis of government policies; and (iv)

professionally educated opinion.

1. Opinion Survey: This method sampled opinions from the public with the help of

survey method. According to them, the methods of interview and questionnaire are

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 often used. These instruments are administered to garner information relating to

provision of service and how best they can be attended to.

2. Forecasting: This technique is vital when preparing and evaluating methodologies for

change management. It is a technique that assists businesses to predict the future

outcomes of their environment. There are diverse methods of forecasting used in

environmental scanning and they are:

a) Leading Indicators: They are the indicators that give the economy its

possible direction. An example is the price of shares in the capital market.

This gives confidence to investors and, hence promoting economic growth.

b) Lagging Indicator: This is the opposite side of leading indicator. It is

seen as the most important outcome of any economy resulting to shock and

imbalance. The Nigerian civil servants’ salary is an example of lagging

indicator of unpredictable increase.

c) Historical Trend Analysis: This is the process of predicting the future

with respect to identifying past trends. As soon as a forecaster identifies a

previous trend, he could use it to determine future outcomes.

d) Scenario Writing: This is another forecasting technique. It is a

description in written form presented in a narrative fashion.

e) Quantitative Method: Some examples relating to quantitative methods

are “regression analysis, econometric models, factor analysis etc.”

3. Critical Analysis of Government Policies: One of the tools that plays a major role in

deciding direction in advanced and developing economies is government policy. In

Nigeria, both the monetary and fiscal policies as well as the annual budget are

instruments of regulating the economy. In order to ensure proper scanning of our

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 environment, a critical analysis of these policies should not be under-estimated as the

activities of government affect the strategic decision made by businesses.

4. Professionally Educated Opinion: This technique seeks the advice and responses of

technocrats in their field of endeavour. Publications of both national and international

standards are useful instruments that help in the understanding of scanning business

environments. Publications from the World Bank, newsletters from professional

associations, researches from United Nations, data from National Bureau of Statistics,

Statistical Bulletin from Central Bank of Nigeria are sources of reliable professional

inputs bordering on environmental scanning. In addition, information that are useful

could be gotten from researchers, consultants in their chosen field in the network

called Delphi Technique.

4.4. Role of Environmental Scanning on Strategic Decision-making

The objective of environmental scanning is to enable business executives make strategic

decision capable of positively influencing the protection of the future of their business

(Bhardwaj & Kumar, 2014). Accordingly, and Sekan (2012); Yuliansyah, Gurd, and

Mohamed (2017) opined that the system of environmental scanning maximises the flow of

information from the business environment as an instrument of strategy towards making

decisions such as (i) Concentration – market development, market penetration or product

development, (ii) Integration – vertical or horizontal integration, (iii) Cooperation – joint

venture, alliance, (iv) Diversification – merger, acquisition, (v) Internationalization –

exporting, licensing, foreign direct investments (vi) Liquidation – winding up or outright

closure, and other forms of creativity in an organisation. To forecast the future of any

business could as well result to expanding the risk of retrogression in the present. Therefore,

management responsibility towards scanning the environment should be through skilful

techniques of forecasting such as “scenario writing and impact analysis to explore

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alternatives systematically” (Du Toit, 2015). Through this process, they can make possible a

picture that is coherent to management executives of alternatives in support for the future

environment of a business. More so, for environmental scanning to be productive,

organisations should encourage the continuous building of human capacity of their

employees in their organisations and taking steps to improve on it (Rubĉić & Sekan, 2012).

The identification of challenges and threats in business environment early enough is one of

the benefits of environmental scanning to management; and very importantly, to convert the

making of strategic decisions into opportunities (Du Toit, 2018). Management takes the

initiative of making strategic decision on business organisation by trying to influence the

environment in favour of their enterprise (Ford, Huerta, Menachemi, & Babik, 2013).

Through this process according to Rubĉić and Sekan (2012), uncertainty about business

environments could be reduced through the capabilities of their organisation. In addition,

management in organisations according to Babalhavaeji and Farhadpoor (2013) make use of

sixteen various sources of information. These are “customers, competitors, business and

professional associates, government official newspapers and periodicals, government

publications, broadcast media (radio and TV), industry and trade associations (publications

and reports), conferences and trips, superiors and board members, subordinate managers,

subordinate staff, internal memorandum and circulars, internal reports and studies, library and

electronic information services”. From the sources outlined according to Oghojafor,

Olamitunji & Sulaimon (2011), major information on the business environment are derived in

order to make decision through environmental scanning sufficient to promote the

performance of business organisation.

Babalhavaeji and Farhadpoor (2013) argued that firms who do not show much interest in a

variety of information are not likely to succeed. This could make these firms lose very

important information about business stakeholders; while those making use of environmental

13
scanning are sure to succeed. They stated further that being privy to important information

could help a business firm possess a competitive advantage as it permits business executives

of organisations better their efforts in “strategic planning, tactical implementation of

programme and its monitoring and control initiatives” (Babalhavaeji & Farhadpoor, 2013).

Most importantly, accessibility to information could be connected to making quality decision

amongst management staff in an organisation. Environmental scanning makes way for

intelligence towards empowering organizational strategies. In exchange, it will help

organisations remain focused on their business objectives and at the same time provide a

haven in sustaining competition in the environment of business. Moreover, environmental

scanning exists in identifying “opportunities and threats; and matching same with the

organization’s strengths and weaknesses in an interactive process called SWOT ANALYSIS”

(Onodugo & Ewurum, 2013). Strategy formulation, however, comes after SWOT evaluation.

Strategies undergo formulation and revision with the aid of very strenuous assessment on the

factors influencing business environment.

Internal and external environments of any given business require various variables that have

direct impact on strategic decision-making (Menzel & Günther 2012). The need to improve

decision-making is, therefore, connected with changes in the environment a business operates

(Papulova & Gazova, 2016). In the same vein, O’Regan, et al., (2012) opined that decision-

making integration with the business environment is positively significant to the success of

the enterprise. Cancellier, Junior and Rossetto (2014) added that this success will take place

because of the need to synchronise the enterprise with its environment. Scanning the

environment is a necessity that needs to be adopted in times of growth of an organisation.

According to Sophia and Owuor (2015), the successful scanning of the business environment

coupled with well meshed effective decision-making will inevitably lead to the growth of an

organisation and decision-making can be seen as a rational method of managing external

14
threats and making good use of opportunities. This is done in order to use the decision made

through scanning of the business environment to boost the performance of the organisation

(Williams, Manley, Aaron, & Daniel, 2018).

To sum up the discussion from the literature, here is a framework underlying the empirical

analyses demonstrating the relationship between environmental scanning and strategic

decision-making.

Figure 1: Framework Underlying the Empirical Analyses

Determinants

Internal Environment

Mission
Objectives
Value System Input Output
Corporate Culture
Management Style
Core Competencies
Organizational Structure
Organizational Resources
Environmental Scanning Strategic Decision-
Making
Customers
Strength and Weaknesses Competitors Integration
Print Media Cooperation
Managers Concentration
Subordinates Diversification
Board Members Internationalization
Internal Reports Liquidation
External Environment Business Associates
Legal Broadcasting Media
Political
Economic
Socio-Cultural
Technological
Information/knowledge
Environmental Concern

Opportunities and Threats

Source: Author’s Concept

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5. METHODOLOGY

The research design used for the study was historical. It involves a systematic survey of the

past with a view to understanding the present and at the same time standing in a good

position to manage the future. This design relies on what happened in the past by using

available data from secondary sources like libraries, journals, academic books etc. The type

of data used was qualitative. Croswell (2009) sees qualitative research as one in which

investigators examine what they understand, see, feel or hear. The objective, therefore, is to

construct a multifaceted and vivid photograph of the problem being investigated. Trochim

and Donnelly (2008) added that generating elaborate information with a view to presenting

judgements behind events is what qualitative research is about.

In the process of conducting this critical review on environmental scanning and strategic
decision-making, this study also adopted the “Systematic Quantitative Assessment
Technique” (SQAT) developed be Pickering and Byrne (2013). SQAT is efficient in the way
papers are assessed to determine their inclusion or otherwise in the review process, and the
focus is on peer-reviewed journal and other publications to maintain a high-quality paper.
The technique is simple to use, logical and replicated easily. It recommends five necessary
steps in carrying out an effective review and the steps as well as how they were applied in
this study are shown in table 1. A total forty-one peer-reviewed English articles on
environmental scanning as a process of strategic decision-making met the selection criteria
from the thirteen databases.

Table 1: Description and Application of SQAT

S/ Steps Application in the Current Study

No.

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 1. Define Topic Environmental scanning as a process of strategic
decision-making

2. Formulated Research Question One Central Research Question: “How effective has
environmental scanning been as a decision-making
strategy”

3. Identified Key Words “Environmental scanning” + “Decision-making

strategy”

4. Databases Identified and Searched 1. 13 databases utilized are: Elsevier, Springer, Wiley,
Taylor and Francis, JSTOR, Emerald, Sage,
Inderscience, Cambridge Journal, Oxford, Igenta,
HeinOnline. Dissertations

2. “All in title” + “With the exact phrase” search using

the following combinations:

a. “Environmental Scanning” + “Decision-making”

b. “Environmental Scanning” + “Strategic Decisions”

c. “Strategic Decision-making”

5. Publications Read and Assessed 1. Abstracts of articles identified were read to confirm
they discussed environmental scanning as a process of
strategic decision-making

2. Literature reviews on peer-reviewed conceptual and

empirical papers were used,

6. FINDINGS

From the investigation, the results showed that there are various sources for scanning

information in business environment that influence strategic decision-making. The result was

based on five sources of information: (1) staff of organisation; (2) industry meetings; (3)

customers; (4) competitors; and (5) the media. This is supported by Kourtely (2005); that for

a business organisation to gain competitive advantage, it has no option than to persistently

monitor different sources of information simultaneously. The result from this study is also

supported by Sutcliff (2005); that business executives who source for information from

17
several sources can fuse them into a network of determinants that promote strategic decision-

making. The view of this study is consistent with Beal (2000); that business organisations

that align their strategic decision-making with environmental scanning perform better than

those who do otherwise.

7. CONCLUSION AND RECOMMENDATIONS

The objective of this study was to examine the role played by environmental scanning on

strategic decision-making. In conclusion, therefore, this study opined that it is almost

impossible for any business organisation to attain its goal and continuously survive without

thorough assessments of information from the environment such firms exist. Moreover, the

complex and incessant dynamic nature of the characteristics in business environments in our

modern era require scanning of information with a view to guiding the growth and survival of

businesses. This study does not only enlighten entrepreneurs and management but to

constantly search for information to remain competitive guarantees business survival in the

long run; and promote the process of making strategic decisions. It is, therefore,

recommended that: (1) managers should, as a matter of urgency, help organisations test their

level of creativity and innovativeness at all times in order to achieve set targets; (2) decision

makers should assist organisations in building a competitive advantage over their competitors

and business survival in order to remain relevant; and (3) management should assist

organisations in reducing production cost and consequently promote profit initiative.

8. Limitation

This study was basically a review of historical/secondary data. Interviews and questionnaires

were not applied to gather first-hand information as regards the extent to which scanning

business environments affect strategic decision-making in organizations.

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19
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