How is environmental scanning useful to international business?

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  1. Organizations today face unprecedented challenges in maintaining commercial survival and success. This is true for organizations both large and small, for-profit and non-profit. Success requires a keen strategic understanding of external influences in order to respond in ways that will ensure the organization's survival and success. Environmental scanning is one tool in an organization's arsenal that can be used to gain this understanding.


    Environmental scanning is the internal communication of external information about issues that may potentially influence an organization's decision making process. Environmental scanning focuses on the identification of emerging issues, situations, and potential pitfalls that may affect an organization's future. The information gathered, including the events, trends, and relationships that are external to an organization, is provided to key managers within the organization and is used to guide management in future plans. It is also used to evaluate an organization's strengths and weaknesses in response to external threats and opportunities. In essence, environmental scanning is a method for identifying, collecting, and translating information about external influences into useful plans and decisions.
    Why Environmental Scanning?
    There are many important reasons to do environmental scanning. Because of rapid changes in today's marketplace and new and emerging business practices, it is easy for an organization to fall behind by not keeping up in areas such as technology, regulations, and various rising trends. Environmental scanning reduces the chance of being blindsided and results in greater anticipatory management.
    The relationship among markets, strategic planning, and the environment external to an organization is what defines an organization's success. As external forces are identified, organizations have the opportunity to examine their options in response to the challenge and consider their internal strengths and weaknesses to respond to these challenges.
    According to John D. Stoffels' Strategic Issues Management: A Comprehensive Guide to Environmental Scanning, environmental scanning "allows an organization to address external competitive, social, economic, and technical issues that may be hard to identify and are persistent. Specifically, its intent is not merely one of information gathering; rather, its purpose is to focus on future impacts on the organization rather than those centered on the present situation. Environmental scanning helps an organization learn about the potential influences from external environments and how it can respond strategically. Through understanding these two elements--external influences and the organization's internal processes--the organization can respond in a more timely and effective manner.
    The focus of environmental scanning is on strategic thinking and planning. Its value comes from the identification and understanding of complex issues facing the organization. Environmental scanning helps an organization form a strategic position from which it can address external forces over which it has little, if any, control. Through consistent monitoring of external influences, organizations can shape their own internal processes to reflect necessary and effective responses. The process of understanding the match between external influences and internal responses assists in adjusting organizational structure and strategic plans that are designed to be more effective and flexible to changing market forces. Thus, the successful organization is focused on learning as well as on flexibility and responsiveness.
    Environmental scanning is not a stagnant process. It should be constant and ongoing in order to maintain a preparative stance as environmental influences arise. This organizational learning process is a key component to organizational success. Through constant monitoring of the environment, management has the ability to make necessary adjustments in the organization's response that can mean the difference between success and failure.
    External Environments
    There are several external environments that may impact an organization. These can be grouped into categories including social, regulatory, technological, political, economic, and industry. [See "External Environments Impacting the Modern Organization" on page 42]. Influences of each can negatively affect an organization, resulting in poor performance or ultimate failure. Of these environments, as Chun Wei Choo notes in Information Management for the Intelligent Organization: The Art of Scanning the Environment, the industry's environment is the most significant, with its focus on customers, suppliers, and competitors and their intricate relationships.
    It is increasingly vital to the continued growth and improved performance of an organization to monitor these external environments in order to make necessary adjustments to these influences. Environmental scanning offers a process by which the value of an organization may be maintained or enhanced even in the face of adversarial challenges. Environmental scanning helps to focus the organization's strategic and tactical plans on those external forces that may threaten its stability and turn those potential problems to its advantage. An organization manages this process by identifying and examining those external events that may otherwise be unpredictable and uncontrollable. The process assumes that potential impacts on the organization may come from unexpected sources. Therefore, environmental scanning is integrally linked to organizational and strategic planning and plans for unexpected changes that will affect the organization.
    Environmental scans must be conducted on an ongoing basis in order to effectively monitor external forces that are likely to impact an organization, issues for each of the external environments should be explored. A comprehensive environmental scanning process will keep a watchful eye on the potential impacts of the following different environments:
    * Industry/Market: Because the industry/market environment generally seems to be the most significant, it is useful to examine the structure of the industry and identify the key competition in the industry. Understanding the role of the competitors in the market and their relationship with each other, their customers, and their suppliers will provide useful information on trends and potential problems for competing organizations.
    * Technology: The emergence of new technologies can impact organizations' overall business and production processes. It is useful, therefore, to monitor changes in technologies, particularly those that influence business efficiencies, changes in production, existing infrastructures (e.g., energy, transportation, and communication), and the rise of new products or services.
    * Regulatory: Changes in laws and regulatory guidelines may also have a significant impact on the organization. Communications media ownership laws, for example, can have dramatic effects on the numbers of stations one owner may have, thereby potentially affecting the overall market structure and market share. Laws regarding minimum wage and business taxes can have direct bearing on hiring practices within an organization. Regulatory information on employment practices, intellectual property, and those that are industry-specific are important to consider.
    * Economic: Local, regional, national, and international economies can affect an organization, depending on its size, scope, and market. Rates of unemployment and inflation can help or hinder growth if the organization is caught off-guard. Economic information can help the organization prepare for changes in these and other related issues (e.g., exchange rates and gross national product of potential trading nations).
    * Social: Market changes are sometimes driven by changes in society. Demographic shifts in the population may cause an increase or decrease in demand for a given product or service. Demographic information should be monitored for changes in variables such as size and distribution of population, age, education, and income. Additional, qualitative indicators (e.g., consumer attitudes) are also important and should be monitored.
    * Political: Local, national, and international politics can influence an organization in ways that may be direct or indirect. Certainly, the acts of terror on September 11, 2001, directly affected many national and international business practices. Tariffs can concern organizations by either restricting trade flows or by encouraging them, depending on how they are set. It is useful for an organization to have a clear understanding of the political climate in which it operates so that it can be prepared for sudden changes that result from elections or changes in existing policies or laws.
    How Does Environmental Scanning Work?
    Executives and other decision-makers within an organization must not spend their entire time monitoring the environment. The environmental scanning function can be set up as a distinct unit, scrutinizing developments based upon a set of criteria developed in conjunction with the primary decision makers in the organization, prioritizing those trends and events with the potential for the most critical impact. Scanning the external environment identifies potential threats to and opportunities for an organization; an internal assessment of an organization identifies its strengths and weaknesses. Informal sources and the information they produce, emerging issues, as well as the strengths and weaknesses of an existing system, can be identified. A more formal scanning system can be used to correct the weaknesses.

  2. How is environmental scanning useful to international business?

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