What is an Environmental Scan?

What is environmental scanning?

Environmental scanning is the process by which business leaders monitor both internal and external environments to identify opportunities, threats and emerging trends. This involves observing competitors, customers, industry shifts and broader macroeconomic factors. 

“It means looking at what’s happening in the world around you, like changes in the economy, what customers are interested in, or what competitors are doing,” said Ryan Perry, franchise broker and founder of Franchising Path. “This gives you a bigger picture of which … opportunities are growing, which ones might be risky and which ones actually match what you’re looking for.”

Why environmental scanning matters in business

Effective environmental scanning lets CEOs move out of day-to-day operations to take a macro view,  helping leaders anticipate change, identify risks and inform strategic planning. By regularly scanning their environments, executives and managers can spot early signs of shifts in customer behavior, advances in technology or external disruptions that may impact operations.

“The power of environmental scanning lies in how well you synthesize and act,” said Rita Thomas, founder and CEO of 110 North The Creative Agency. “A strong sense of brand identity gives you clarity in the noise and confidence to ignore what’s not a fit.”

Leaders who ignore environmental scanning risk missing opportunities for innovation. These missed opportunities and indecision can result in lower production, poorer outcomes or loss of market share. Eventually, companies that fail to evolve with the market risk being surpassed and, ultimately, failing.

“The brands that stay relevant and grow over time are the ones that actively track shifts in culture, technology, economy and customer behavior, not reactively, but intentionally,” Thomas said.

Steps to conduct an environmental scan

Leaders can perform a structured environmental scan by following these steps:

1. Define Scope and Objectives: Clarify the purpose and boundaries of the scan. What problem or opportunity is the scan intended to address?
2. Gather Internal and External Data: Collect relevant information from inside the company. This can include employee feedback, sales data and customer service insights. Then, move onto external sources, like industry trends, competitor strategies and regulatory changes.
3. Identify Patterns and Trends: Analyze datasets to highlight recurring themes, emerging patterns and changes in market sentiment or technology.
4. Analyze Impact on Goals: Assess how identified trends or changes could affect current business objectives, operational strategies or product offerings.
5. Apply Findings to Strategy: Use insights to inform business planning, allocate resources and guide decision-making for competitive advantage.

Analysis frameworks for environmental scanning

Analysis frameworks can help you to run a thorough and effective environmental scan. Plugging the information you gather into various analysis frameworks can help you consider how it affects your business in different ways.

Popular models include:

• SWOT Analysis: A SWOT analysis helps businesses assess internal Strengths and Weaknesses against external Opportunities and Threats. For more information, check out our guide on how to run a SWOT analysis.
• Porter’s Five Forces: The Porter’s Five Forces model includes evaluating threats of substitute products, bargaining power of suppliers, threats of new entrants, bargaining power of buyers and rivalry among competitors. See more in our guide to the management theory of Michael Porter.
• PEST and PESTLE Analysis: These frameworks evaluate Political, Economic, Social, Technological (plus Legal and Environmental) factors influencing a business environment.

Real-world applications of environmental scanning

In human resource planning, organizations analyze workforce trends and generational expectations to create effective recruitment and retention strategies. Healthcare organizations conduct scanning to prepare for changes in government policy or medical technologies. Competitive intelligence teams continuously monitor the landscape for product substitutes, new entrants and shifting customer attitudes.

A real-world example: When McDonald’s introduced $1 menu items, other fast-food chains quickly responded with value menus of their own so they wouldn’t lose market share. This demonstrates the power of monitoring competitor innovation and adapting quickly.

Challenges and best practices

While environmental scanning is powerful, leaders face several challenges:

• Avoiding information overload: With so much data available, filter trends through brand values and strategic priorities, prioritizing actionable insights.
• Ensuring data reliability: Use source verification and triangulate data from multiple reputable sources for accuracy.
• Making results actionable: Synthesize findings with business goals in mind, involving teams from across the organization to spot relevant cultural signals.

Best practices include collecting both qualitative and quantitative insights, involving the whole team, developing cultural intelligence and networking with industry experts at events or through advisory relationships.

“Some of the best trendspotting comes from unexpected places: a customer service call, a TikTok comment, a sales team anecdote,” Thomas said. “Encourage every corner of your team to bring cultural signals to the table. It creates a more agile and well-informed organization.”

Sammi Caramela and Jennifer Dublino contributed to this article. Source interviews were conducted for a previous version of this article.