INSTITUTE: USB

DEPARTMENT: BBA
Bachelor of Business Administration
Business Environment 20BAT-158
By- Dr. Chitvan Khosla
UNIT 1 : Lecture 2
Environment Scanning : Meaning
and Techniques DISCOVER . LEARN .
EMPOWER
 Environment
Scanning
Course Outcome Will be covered in
CO Title Level this lecture
Number

CO1 It will help the students to understand and Remembe

analyze various environmental factors and r
their impact on business
 
CO2 It will help the students to understand the Understa
Economic Environment and different nd
Economic Systems  
CO3 Students comprehend the impact of the Understan
global factors on the environment. d

2
Environment Scanning : Meaning

• Environmental scanning is the acquisition and use of information about events, trends,
and relationships in an organization's external environment, the knowledge of which would
assist management in planning the organization's future course of action.
• Environmental scanning is a process that systematically surveys and interprets relevant
data to identify external opportunities and threats. An organization gathers information
about the external world, its competitors and itself.
• Environmental Scanning is a process of analyzing internal and external factors of the
environment. It is a process in which the organization undertakes a study to identify the
opportunities and threats in an industry.
• The information obtained through environmental scanning can be used by leaders to design
new objectives and strategies or modify existing objectives and strategies.
• The purpose of the scan is the identification of opportunities and threats affecting the
business for making strategic business decisions.
•  As a part of the environmental scanning process, the organization collects information
regarding its environment and analyzes it to forecast the impact of changes in the
environment. This eventually helps the management team to make informed decisions.
Concept of Scanning

• Environmental scanning is the art of systematically exploring the external

environment to:
• (i) better understand the nature and pace of changes in that environment, and
• (ii) identify potential opportunities, challenges and likely future developments
relevant to your organisation.
• Environmental scanning explores both new, strange and weird ideas, as well as
persistent challenges and trends today.
 Important factors of Environment
Scanning
• Before scanning the environment, an organization must take the following factors into consideration:

• Events – These are specific occurrences which take place in different environmental sectors of a business.
These are important for the functioning and/or success of the business. Events can occur either in the
internal or the external environment. Organizations can observe and track them.

• Trends – As the name suggests, trends are general courses of action or tendencies along which the events
occur. They are groups of similar or related events which tend to move in a specific direction. Further,
trends can be positive or negative. By observing trends, an organization can identify any change in the
strength or frequency of the events suggesting a change in the respective area.

• Issues – In wake of the events and trends, some concerns can arise. These are Issues. Organizations try to
identify emerging issues so that they can take corrective measures to nip them in the bud. However,
identifying emerging issues is a difficult task. Usually, emerging issues start with a shift in values or
change in which the concern is viewed.

• Expectations – Some interested groups have demands based on their concern for issues. These demands
are Expectations.
Importance of Environment Scanning
• Identification of strength: Strength of the business firm means capacity of the
firm to gain advantage over its competitors. Analysis of internal business
environment helps to identify strength of the firm. After identifying the strength,
the firm must try to consolidate or maximize its strength by further improvement
in its existing plans, policies and resources.

• Identification of weakness: Weakness of the firm means limitations of the firm.

Monitoring internal environment helps to identify not only the strength but also
the weakness of the firm. A firm may be strong in certain areas but may be weak
in some other areas. For further growth and expansion, the weakness should be
identified so as to correct them as soon as possible.

• Identification of opportunities: Environmental analyses helps to identify the

opportunities in the market. The firm should make every possible effort to grab
the opportunities as and when they come.
• Identification of threat: Business is subject to threat from competitors and various factors.
Environmental analyses help them to identify threat from the external environment. Early identification
of threat is always beneficial as it helps to diffuse off some threat.

• Optimum use of resources: Proper environmental assessment helps to make optimum utilisation of
scare human, natural and capital resources. Systematic analyses of business environment helps the firm
to reduce wastage and make optimum use of available resources, without understanding the internal and
external environment resources cannot be used in an effective manner.

• Survival and growth: Systematic analyses of business environment help the firm to maximize their
strength, minimize the weakness, grab the opportunities and diffuse threats. This enables the firm to
survive and grow in the competitive business world.

• To plan long-term business strategy: A business organisation has short term and long-term objectives.
Proper analyses of environmental factors help the business firm to frame plans and policies that could
help in easy accomplishment of those organisational objectives. Without undertaking environmental
scanning, the firm cannot develop a strategy for business success.

• Environmental scanning aids decision-making: Decision-making is a process of selecting the best

alternative from among various available alternatives. An environmental analysis is an extremely
important tool in understanding and decision­making in all situation of the business. Success of the firm
depends upon the precise decision-making ability. Study of environmental analyses enables the firm to
select the best option for the success and growth of the firm.
Techniques of Environment Scanning
 SWOT ANALYSIS

STRENGTH WEAKNESS OPPORTUNITIES THREATS

 SWOT

• STRENGTH - Inherent capacity which an organization can use to gain strategic

advantage over it competitors
• WEAKNESS - Inherent limitations or constraint which creates a strategic
disadvantage
• OPPORTUNITY - a favorable condition in the organization’s environment which
enables it to consolidate and strengthen its position
• THREAT - an unfavorable condition in organization’s environment which creates
a risk or causes damage to the organization
• SWOT: (Strength-Weakness-Opportunity-Threat): Identification of threats and
Opportunities in the environment (External) and strengths and Weaknesses of the
firm (Internal) is the cornerstone of business policy formulation; it is these factors
which determine the course of action to ensure the survival and growth of the firm.
• The SWOT analysis is an extremely useful tool for understanding and decision-making
for all sorts of situations in business and organizations. SWOT is an acronym for
Strengths, Weaknesses, Opportunities, Threats

• The aim of any SWOT analysis is to identify the key internal and external factors that are
important to achieving the objective. SWOT analysis groups key pieces of information
into two main categories:
1. Internal factors – The strengths and weaknesses internal to the organization.
2. External factors – The opportunities and threats presented by the external environment.

• Examples of SWOT:
• Strengths and Weaknesses:
1. Resources: financial, intellectual, location
2. Cost advantages from proprietary know-how
3. Creativity / ability to develop new products
4. Valuable intangible assets: intellectual capital
5. Competitive capabilities
6. Big campus selection
• Opportunities and Threats
1. Takeovers
2. Market Trends
3. Economic condition
4. Mergers
5. Joint ventures
6. Strategic alliances
7. Expectations of stakeholders
8. Technology
9. Public expectations
10. Competitors and competitive actions
11. Poor Public Relations Development
12. Criticism (Editorial)
13. Global Markets
14. Environmental Conditions
Uses of SWOT Analysis
• Helps in Corporate planning

• Sets objectives – defining what the organisation is intending to do

• Environmental scanning: Internal appraisals of the organisations, this needs to include an

assessment of the present situation as well as a portfolio of products/services and an analysis of
the product/service life cycle

• Analysis of existing strategies: this should determine relevance from the results of an
internal/external appraisal. This may include gap analysis (compare its actual performance
with its potential performance which will look at environmental factors)

• Strategic Issues defined – key factors in the development of a corporate plan which needs to
be addressed by the organization.

• Develop new/revised strategies – revised analysis of strategic issues may mean the objectives
need to change
• Establish critical success factors – the achievement of objectives and strategy
implementation.

• Preparation of operational, resource, projects plans for strategy implementation.

• Monitoring results – mapping against plans, taking corrective action which may
mean amending objectives/strategies.

• Also; Use SWOT analysis for business planning, strategic planning, competitor
evaluation, marketing, business and product development and research reports.
PEST Analysis
• A scan of the external macro-environment in which the firm operates can be
expressed in terms of the following factors:
• Political
• Economic
• Social
• Technological
• The acronym PEST (or sometimes rearranged as "STEP") is used to describe a
framework for the analysis of these macroenvironmental factors. A PEST analysis
fits into an overall environmental scan as shown in the following diagram:
• Political Factors: Political factors include government regulations and legal issues
and define both formal and informal rules under which the firm must operate. Some
examples include:
• tax policy
• employment laws
• environmental regulations
• trade restrictions and tariffs
• political stability

• Economic Factors: Economic factors affect the purchasing power of potential

customers and the firm's cost of capital. The following are examples of factors in the
macroeconomy:
• economic growth
• interest rates
• exchange rates
• inflation rate
• Social Factors: Social factors include the demographic and cultural aspects of the
external macroenvironment. These factors affect customer needs and the size of
potential markets. Some social factors include:
• health consciousness
• population growth rate
• age distribution
• career attitudes
• emphasis on safety

• Technological Factors: Technological factors can lower barriers to entry, reduce

minimum efficient production levels, and influence outsourcing decisions. Some
technological factors include:
• R&D activity
• automation
• technology incentives
• rate of technological change
Porter’s Five Force Model / Industry
Analysis
• The Five Forces model of Porter is an outside-in business unit strategy tool that is
used to make an analysis of the attractiveness (value...) of an industry structure.It
captures the key elements of industry competition

• Porter’s five forces model is an analysis tool that uses five industry forces to
determine the intensity of competition in an industry and its profitability level.

• Five forces model was created by M. Porter in 1979 to understand how five key
competitive forces are affecting an industry.

• It is every strategist’s job to evaluate company’s competitive position in the industry

and to identify what strengths or weakness can be exploited to strengthen that
position. The tool is very useful in formulating firm’s strategy as it reveals how
powerful each of the five key forces is in a particular industry.
 PORTER’s FIVE FORCES MODEL
Potential
entrants

Threat of
new entrants

Bargaining power Industry competitors

of suppliers
Suppliers Buyers
Rivalry among Bargaining power
existing firms of buyers

Threat of
substitutes

Substitute
products
1. Threat of new entrants. This force determines how easy (or not) it is to enter a
particular industry. If an industry is profitable and there are few barriers to enter,
rivalry soon intensifies. When more organizations compete for the same market
share, profits start to fall. It is essential for existing organizations to create high
barriers to enter to deter new entrants. Threat of new entrants is high when:

• Low amount of capital is required to enter a market;

• Existing companies can do little to retaliate;
• Existing firms do not possess patents, trademarks or do not have established brand
reputation;
• There is no government regulation;
• Customer switching costs are low (it doesn’t cost a lot of money for a firm to switch
to other industries);
• There is low customer loyalty;
• Products are nearly identical;
• Economies of scale can be easily achieved.
2. Bargaining power of suppliers. Strong bargaining power allows suppliers to sell higher priced or
low-quality raw materials to their buyers. This directly affects the buying firms’ profits because it has to
pay more for materials. Suppliers have strong bargaining power when:

• There are few suppliers but many buyers;

• Suppliers are large and threaten to forward integrate
• Few substitute raw materials exist;
• Suppliers hold scarce resources;
• Cost of switching raw materials is especially high.

3. Bargaining power of buyers. Buyers have the power to demand lower price or higher product
quality from industry producers when their bargaining power is strong. Lower price means lower
revenues for the producer, while higher quality products usually raise production costs. Both scenarios
result in lower profits for producers. Buyers exert strong bargaining power when:

• Buying in large quantities or control many access points to the final customer;
• Only few buyers exist;
• Switching costs to other supplier are low;
• They threaten to backward integrate;
• There are many substitutes;
• Buyers are price sensitive.
• Threat of substitutes. This force is especially threatening when buyers can easily
find substitute products with attractive prices or better quality and when buyers can
switch from one product or service to another with little cost. For example, to switch
from coffee to tea doesn’t cost anything, unlike switching from car to bicycle.

• Rivalry among existing competitors. This force is the major determinant on how

competitive and profitable an industry is. In competitive industry, firms have to
compete aggressively for a market share, which results in low profits. Rivalry among
competitors is intense when:

• There are many competitors;

• Exit barriers are high;
• Industry of growth is slow or negative;
• Products are not differentiated and can be easily substituted;
• Competitors are of equal size;
• Low customer loyalty.
 APPLICATIONS
• Thus, Porters model of five competitive forces allows a systematic and
structured analysis of market structures and competitive situations.
• The model is typically described as a tool for industry analysis. However,
depending on the actual question, it can be applied to particular companies,
market segments, or regions to. In a given industry, all market players face the
same five forces. The impact of these forces on any of these players may vary, do
to different strategies, competences and processes of these players. Analogously,
the same applies for specific market segments, regions or niches.
• Therefore, it is necessary to determine the scope of the market to be analyzed in
a first step. Following that, all relevant forces for this market are identified and
analyzed. Hence, it is not always necessary to analyze all elements of all
competitive forces with the same depth.

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QUEST Analysis
• . QUEST ANALYSIS QUEST stands for Quick Environmental Scanning
Technique. It is a four-step process which uses scenario-writing for scanning the
environment and identifying strategic options.

• The four steps involved are: -

• Strategists make observation about the major events and trends in their industry.
• Then they speculate on a wide range of important issues that might effect the future
of their organizations by scanning the environment broadly and comprehensively.
• The QUEST director prepares a report summarizing the major issues and their
implications, and 3 to 5 scenarios incorporating the major themes of the discussion.
• The report and scenarios are reviewed by a group of strategists who identify feasible
strategic options to deal with the evolving environment. The options are then
ranked.
Assessment Pattern

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 APPLICATION
• Application of business environment can be as follows:
1. In area of Economic affairs
2. In analyzing business situations
3. Tackling the competition in business
4. Market Research

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 FAQS
• Define environmental scanning.
• What are the various techniques of environmental scanning?
• Define swot analysis.
• What are the objectives of scanning?
• Discuss Porter’s five forces Model as a technique of Environment Scanning.
• What is Pest Analysis?
 REFERENCES

• Reference Books-
• K. Aswathappa, Essentials of Business environment.
• Francis Cherrunilam, International Trade and Export Management, Himalaya
Publications.

• References of websites
• http://www.businessdictionary.com/definition/environmental-scanning.html
• http://www.wisenepali.com/2016/01/environmental-scanning-types-importance.h
tml

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THANK YOU

For queries:
Email: Chitvan.e8637@cumail.in