Introduction
Environmental analysis is one of the most essential strategic tools, which is used in contemporary strategic and operational management. Among other issues, its primary purpose is identification of the internal and external components, which may potentially affect business performance of a company. One of the key ideas behind this analysis is assessment of different threats and opportunities looming on the company horizon. The data, which is collected with help of environmental scanning, is subsequently turned into the basis for decision-making.
The practice shows that the today’s markets are dynamically evolving (Nag, Hambrick & Chen, 2007) . Every day brings a new turn of technological development and market changes. Thus, in order to stay competitive, the managers have to constantly analyze different situational factors of internal and external natures.
This research pursues several objectives. Firstly, it examines the importance of the results of the internal environmental scanning in business analysis. Secondly, this paper speaks about the importance of the external environmental scanning. Thirdly, it discusses the importance of the finding results in contemporary business research. Then, this research provides a list of recommendations based on the SWOT analysis and explains how they should be translated into the respective business goals. Finally, the paper creates operational tactics for the marketing, legal and financial departments of a company.
Internal Environmental Scanning
Business scanning of internal processes of the company is the first step in analyzing its environment. Internal company environments covers different issues, which happen inside the company, and which are not connected to the company’s relationships with customers, suppliers, government authorities and other external parties (Becker, Kugeler & Rosemann, 2003). Typical elements of internal environment include interaction between employees and their colleagues, managers and employees, interaction between managers and other managers, managers and shareholders, assets management, operational planning and internal company development issues.
The practice shows that the most essential context of internal environmental scanning is that it helps to provide a good reflection of a company’s assets, and to infer whether assets of the company are being managed effectively. In practice, internal environmental scanning helps to understand the following relevant aspects:
It helps to understand whether the company human resources policies of a business organization correspond to the industry ‘best practices’.
Specifically, it reveals whether the professional hired by the organization are skilled enough to address the challenges faced by the organization in an effective and professional manner (Adams & Jeanrenaud, 2008). Sometimes, the managers do not track company performance regularly, and, in such cases, internal environmental scanning remains the only solution to keep the organization efficient. In addition, internal environmental audit is helpful for understanding whether the human resources policies used by the organization are effective enough. To be more specific, the practice shows that professional and skilled human resources are the key to organizational business excellence. Thus, internal environmental scanning helps to ascertain whether current approach to corporate governance meets interests of the key company employees (Kiechel, 2010).
It helps to understand whether the company performance corresponds to the expectations of its shareholders.
Maintaining dialogue between managers, employees and shareholders is important. However, today’s business practice is so dynamic, that it is often not possible to find whether rapport between the executives and the shareholders is present.
It helps to understand whether a company manages its assets portfolio effectively
Finally, internal environmental audit is the best way to understand whether physical and intellectual assets of the company are managed in an efficient, harmonious and productive way. The company should dispose of obsolete assets, as well as it should acquire those, which are necessary for survival under the market conditions.
External Environmental Analysis
As far as external environmental analysis is concerned, its primary purpose is to analyze three inter-correlated external business environments. Their coalescence produces a good framework for understanding whether the company deals effectively with various external market and other challenges (Besanko, 2013).
These dimensions are the following:
Industry (immediate) environment
At this level, the analysts should provide a comprehensive appraisal of the competition within the industry, and, specifically, strengths and weaknesses of the closest competitors. In addition to analyzing various issues connected with analyzing competition-related aspects, analysis of this environment reveals whether the company approaches to tackling industry trends is effectively. The final element involves analyzing the effects of globalization on the industry in general and on the company in particular.
National environment
This dimension refers to the appraisals of the national economic and financial frameworks effectiveness and business fertility. By analyzing the relevant economic factors, the company can conclude whether it can operate effectively within specific national boundaries. Although the process of globalization gradually erases national economic boundaries, it will take years before the process is finalized. Therefore, analyzing economic climate of a particular country is important.
Macro-economic environment
Macro-economic dimension deals with various large-scale economic processes. Particularly, it evaluates how the global economy functions, and what is the influence of social, technological and international factors. Analyzing this dimension is helpful for understanding what threats and opportunities may the organization face in the dynamically evolving globalized environment.
Environmental scanning objectives in the SWOT context
SWOT is an effective solution for appraising major factors, which jeopardize or facilitate company business performance. Together with internal and external environmental scanning, the use of this technique is helpful for developing goals and objectives, which accomplishment may result in enhancing financial performance of the company (Becker, Kugeler & Rosemann, 2003).
The following SWOT-based objectives appear to be justified in today’s business context.
Identification of the company internal and external threats – accomplishing this company will help to understand how effective internal company governance is, and how effective is the company in mitigating the impacts of such threats. Once such threats are identified, the company can start developing strategies, required for addressing them.
Identification of the company weaknesses – the practice shows that not a single company on any market is flawless. Even large corporate giants like Facebook and Google and vulnerable to the stability of internet legislation in various jurisdictions. Accomplishing this objective will help to understand whether the company can survive in the pressuring external economic environments.
Identification of opportunities and strengths is essential for exploring the new markets and ascertaining strong features of a company, which may be exploited for increasing its competitive advantage in specific areas of its performance.
Accomplishing these objectives will help to improve long-term company performance, and to make it more flexible against the different economic and non-economic challenges.
Transforming environmental objectives into business goals
However important business environment objectives may be, they are practically useless, until they are transformed into precise, SMART-based business goals. With regard to the present scenario, environmental scanning objectives mentioned above can be transformed into the following goals:
Development of the thoroughly documented SWOT plan of an organization. This plan should comprehensively list all issues relating to the key strengths, weaknesses, opportunities and threats. These aspects should be integrally interwoven into the company policies, mission and vision statement.
Establishment of the monitoring unit within the company. In addition to the plan development, the company should create a department, which will be responsible for identifying SWOT-elements and reporting to the company management, when any serious issues are diagnosed.
These business goals will make a significant positive contribution to improvement of the company business processes, and, most importantly, it will make the company prepared for different types of internal and external crises.
Creation of operational tactics for the different departments
Marketing, financial and legal departments of a company are central corporate units, which effective performance determines general successfulness of the company. Implementing the following tactical measures is effective in contemporary business environment:
For the financial department it is highly recommended to work with independent analysts and counsellors because they are often better familiarized with the new economic developments than their in-house colleagues are. Furthermore, because today’s financial environments are immensely dynamic, basic accounting period should be reduced from yearly to quarterly.
For the legal department, the company should place additional focus on protecting intellectual property assets, because this group of the company will gain major importance in the upcoming future. There is strong evidence showing that while physical assets of a company can be easily replaced, intellectual assets of a company are often unique, as well as quite often they are key determinants of the company successfulness.
For the marketing department, the company should focus on developing the methods of digital commerce. Today’s analysis shows that the turnover of goods and the products in the internet will continue increasing, and, most assuredly it will replace traditional, “brick-and-mortar” methods of selling goods and promoting services.
Conclusions
References
Adams, W. & Jeanrenaud, S. (2008). Transition to sustainability: towards a humane and diverse world. Gland, Switzerland: IUCN.
Nag, R.; Hambrick, D. C.; Chen, M.-J (2007). "What is strategic management, really? Inductive derivation of a consensus definition of the field”. Strategic Management Journal 28 (9): 935–955
Kiechel, W. (2010). The lords of strategy: the secret intellectual history of the new corporate world. Boston, Mass: Harvard Business Press.
Besanko, D. (2013). Economics of strategy. Hoboken, NJ: John Wiley & Sons.
Becker, J., Kugeler, M. & Rosemann, M. (2003). Process management: a guide for the design of business processes. Berlin, New York: Springer.
