Environmental Scanning

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.

Environmental Turbulence

Organizations faced different challenges over the years. During the mass production era with the Industrial Revolution, management was mainly focused on production optimization with little to no product differentiation. One of the most famous quotes from that era is Henry Ford’s response to suggestions of product differentiation to “give the Model T in any color as long as it was black”. This clearly illustrates organizations’ focus during that time. The mass marketing era followed and organizations’ focus shifted from production to marketing with a keen eye on how to best market their products to their customers. Later, called the postindustrial era, firms were faced with more unexpected and novel changes that lead to complex problems. Firms could no longer only focus on their internal challenges but had to also address external issues such as retaining customers, managing union demands, and stockholders expectations, among other problems.

People had their basic needs of food, shelter, and transportation met. Over the years, their needs evolved and desires for novel products arose. Consequently, organizations had to expand their assortment of products and services. Management’s attention was no longer solely focused on the organization, but had to also incorporate customer desires and demands, and eventually, address the firm’s social and environmental responsibility. Additionally, the competition increased due to technological advances and internationalization of the business and the level of turbulence in a firm’s environment increased dramatically especially towards the end of the 20th century.

The setting within which a firm operates (i.e. political, environmental, governmental, social, legal, technological, and economic factors) is considered its environment and environmental turbulence is the accelerated rate and complexity of change and the unpredictable, uncertain challenges an organization faces. Since every business depends on its environment for its survival (i.e. customers purchasing products, suppliers delivering raw materials, banks for financing, etc.), assessing the firm’s environmental turbulence and adjusting its structure, strategy, and system accordingly is essential for effective and successful performance. Large corporations can use their resources to better manage a turbulent environment or simply acquire their competition to make their problem go away. Small businesses do not have that luxury. A small business differentiates itself from the large corporations by its size (up to 500 employees according to the U.S. Small Business Administration), revenues, less hierarchy, centralized decision-making, and with limited financial and human resources. Therefore, it is even more important for small businesses to accurately assess their environment and plan accordingly. Past successes can no longer be extrapolated into the future due to the speed of change and unknown unknowns a firm faces in a highly turbulent environment. The higher the environmental turbulence, the more difficult to manage.

With the inauguration of a new president less than 24 hours away, one can sense the uncertainty in the air. Change is upon us and we all have to adapt to a new president with new ideas. How much that will affect the U.S. economy is yet to be determined. Nevertheless, as a small business owner/executive you must stay agile and flexible enough to manage an uncertain and unpredictable future. Despite being confronted with a vast amount of complex information, you must be able to process all that information and be able to properly perceive the firm’s environment and make smart decisions. Turbulence is the name of the game and it is here to stay. Seeing the world through rose-colored glasses might help, but it is not the solution. No matter the situation, it comes down to how you will direct your company into the future. Do you want to ride out the storm and drift around wherever the wind may take you? Or are you committed to taking the rudder into your own hands, determine the level of turbulence in your organization’s environment, and adjust the sails accordingly to create your own future?

Strategic Management for Small Businesses

As a small business owner, you wear many hats every day: CEO, CFO, Accountant, HR Manager, Marketing Manager, Website Designer, Social Media Expert, to mention a few and as if it is not already difficult enough to juggle all these different positions, now you also have to worry about your strategy.

Many small business owners are simply too busy with the daily maintenance of their company that they do not have the time to plan and implement an elaborate strategy. However, research has shown that businesses that forego strategic planning are more likely to fail. Consequently, strategic planning is essential to a firm’s survival. Even more importantly, there is a positive relationship between formal planning and firm performance.

Although it may sound daunting, strategic management is simply a series of managerial decisions and actions that are focused on the long-term performance of the firm. It includes analyzing the company’s internal and external environment, formulating a strategy based on the firm’s vision and mission statements, implementing the strategy, and employing a system for evaluation and control. Strategy is setting goals and defining the actions to be taken to achieve such goals with the resources available. However, small businesses often have limited financial and human resources, and consequently, are more susceptible to changes in their environment making strategic planning even more significant.

If you fail to plan, you plan to fail

If you don’t know where you are going, it is true that any road will take you there, but how can you ensure that everyone in your company is taking the same road? And, even more importantly, when will you know that you have arrived? Without a clear plan, you will float around like a cork in the ocean and go wherever the current (i.e. the environment) will take you.

Strategic management does not have to be an elaborate planning process. You can simply start by truthfully acknowledge where your company is now, and not where you would like it to be. Then, visualize where you would be in 2, 5, or 10 years if you continued the same way. If you don’t like that answer, you will have to figure out what changes need to be made to get you where you would want to be. Assess the potential risks and possible payoffs, define specific actions and goals, and get everyone on board. Remember that no matter how elaborate your strategy, it is the implementation of such strategy and taking corresponding action that will set you apart.

What is Strategy?

We just started a new year and you should seize the opportunity to review your company’s strategy. But what exactly is strategy and what does it mean?

Strategy, as “a careful plan or method for achieving a particular goal usually over a long period of time” (Merriam-Webster), has been used for centuries in one form or another. The word strategy itself is derived from the Greek word strategos (for “military leader”) and refers to the role of the military leader in a war. The Art of War is a collection of warfare strategy depicting various strategies and tactics of different aspects of warfare. This collection dated 5th century BC is attributed to Chinese military strategist Sun Tzu and ever since has been adapted and used in business and law. One of the many quotes from The Art of War exemplifies the basis of strategic planning: “If you know both yourself and your enemy, you can win numerous battles without jeopardy”.

You need to know what your company is about, its vision and the specific steps you need to take to get to where you want to go. Or in other words: analyze the current state, assess your resources, formulate a plan, set your goals, and take action. Basically, strategy is a verbalized plan that will allow you to achieve your goals over a specified time with the resources available.

There are different types of strategy to consider:

Corporate Strategy describes a company’s direction in regards to growth and general management of their business units and product lines.
Business Strategy describes a company’s competitive position at the business unit level. It describes the company’s products/services in regards to the industry or market segment.
Functional Strategy describes a company’s approach to maximize resources and productivity at the functional levels (i.e. R&D, Marketing, HR, Finance, etc.) in order to offer a competitive advantage.
Operational Strategy describes the company’s day-to-day operational activities usually very narrow in focus and based on a set budget.

Strategy, at its core, is taking action that will set your company apart from your competitors. It is all about being different. It is about gaining and sustaining competitive advantage in your industry and market. What is your company’s strategic position and how is it different from your rivals? What unique value do you offer that sets you apart from your competitors and wins clients? Do you focus on the right goals and have the corresponding tactics in place to achieve them? What is your strategy for 2017?