An organization’s environment is considered the physical and social aspects that play a role in the decision-making process of an organization’s management, or in other words, it is the setting in which an organization operates. Such political, environmental, governmental, social, legal, technological, and economic factors all contribute to an organization’s day-to-day business operations, its strategy, and its performance.
Every organization depends on an outside environment to stay in business (e.g. customers purchasing products, suppliers delivering raw materials, banks for financing, etc.), but it is up to the organization as to how to assess this relationship, establish itself, and adjust its structure, strategy, and systems to fit that environment and thus perform effectively and successfully. Many small businesses are restricted in their financial and human resources; consequently, it is even more important for small businesses to accurately assess their environment and plan accordingly.
Environmental scanning is the process of systematically surveying the firm’s business environment and interpreting such data in order to identify potential threats or opportunities. External and internal environmental scanning is required prior to establishing or re-evaluating the firm’s strategy. More importantly, it is an ongoing process and in order to detect changes in their environment, every firm must continue to evaluate vast amount of complex information on a regular basis. That information is used to predict potential threats, possible opportunities, and the overall characteristics of the firm’s environment.
In a fast, ever-changing environment one can no longer predict the future by extrapolating the past. Today’s changes are more complex, novel, and less predictable. What has brought you success in the past, may not bring you the same results today. Environmental scanning will help you analyze the current situation of your business environment and reveal trends and impending impactful events. In order to properly evaluate a vast amount of information, a small business owner/executive must be aware of how he processes information. Our brains can only consciously absorb about 2,000 bits of the 4 billion bits of information we are continuously bombarded with and, to do so, we delete, distort, and generalize information based on our model of the world (i.e. our beliefs and values based on our background, education, culture, etc.). Every person has their own internal representation of the information they process which does not necessarily reflect the event itself. For example: we may not see things if they do not match our beliefs/experience; we characterize information based on past experience; we are drawn to the familiar; we project our assumptions onto situations; we favor the simple over the complex; or we associate a different meaning to a situation. All that can impact how you analyze your business environment and may hinder you from seeing what is really going on.
Since our brains filter information, knowing yourself and how you perceive your environment, will help you recognize when you filter information. You can consciously eliminate certain filters that no longer serve you. This allows you to look at a situation from different angles. Allowing different perspectives (your own, your employees, etc.) will help you recognize changes and possible threats when you scan your business environment and; consequently, you can make wise strategic decisions.