3.1 The Environmental Scan
Environmental Scan vs. Environmental Analysis
To understand how elements outside of an organization’s control can impact the organization’s strategic decision making, marketers will create a SWOT analysis. SWOT stands for strengths, weaknesses, opportunities, and threats. The SWOT is a fluid analysis meaning that it changes constantly. The first step to creating an effective SWOT is to perform an environmental scan. The second step is to conduct an environmental analysis.
An environmental scan’s purpose is to analyze the various macro environments that surround organizations and industries to identify current and potential trends or changes. An environmental analysis examines those trends to determine which represent potential opportunities or threats to an organization’s strategic implementation. We will start by discussing how to conduct an environmental scan.
The Environmental Scan
Scanning the environment is the researching of trends occurring outside of an organization’s control. Some trends are easily identifiable as they are reported in journals, government reports, and by reputable outlets. However, others require ‘digging’ through research studies, blogs, and other materials. Since not all sources are accurate or objective, research should be conducted to validate trends that are discovered. There are a number of common approaches for how the external factors, which describe the macro environment, can be identified and examined. These factors indirectly affect the organization but the organization cannot control the trend impact. One approach is the PESTLE scan.
PESTLE stands for political, economic, social, technological, legal, and environmental. Occasionally, a PESTLE scan will be used which eliminates environmental, and combines legal with the political environment.
PESTLE Scan
The six environmental factors of the PESTLE scan are the following:
Political factors
- Taxation policy
- Trade regulations
- Governmental stability
- Unemployment policy
Economic factors
- Inflation rate
- Growth in spending power
- Rate of people in a pensionable age
- Recession or boom
Socio-cultural
- Age distribution
- Education levels
- Income level
- Consumerism
- Diet and nutrition
- Population growth
- Life expectancies
- Religion
- Social class
- Expectations of society about the business
Technological factors
- Infrastructure
- E-commerce
- Social media
- Level of Automation
Legal factors
- Unemployment law
- Health and safety
- Product safety
- Advertising regulations
- Product labeling
- labor laws
Environmental factors
- Sustainability
- Waste disposal
- Energy consumption
- Pollution monitoring
Note that the items listed are not trends but rather the type of topics that might be included. When conducting a PESTLE scan, specific trends should be listed. Trends indicate movement: is something becoming more popular, less popular, increasing, slowing down, etc.
In addition to the PESTLE scan, a scan of the trends occurring within the competitive environment is necessary as well. The competitive analysis is not included in the PESTLE, because it contains more depth as industry changes, competitive advancements, and innovations are explored. An examination of the competitive environment includes direct competitors as well as indirect competitors. Direct competitors produce the same product while indirect competitors produce product in the same product category. An example of the difference between direct and indirect competitors is to consider that soft drinks are direct competitors, while fruit juices, coffees, and water are all indirect competitors of soft drinks.
You Try It!
Which of the PESTLE environments contain the following trends? Keep in mind that it is common for trends to ‘fit’ into more than one category so do not be concerned if your first guess is not what shows up, as long as you understand why the one that shows up is correct.
