In business, the CEO is responsible for identifying and acting on opportunities. Their biggest regret may be missing a clearly identifiable industry trend or failing to enact change in the organization that would have been essential for key pivots or decisions.
“Environmental scanning” is a business term used to help leaders survey the landscape of competitors, customers, and new product and service innovations. The CEO prepared to lead in the future is one who prepares today.
Introduction to environmental scanning
One of the most essential roles a CEO will fulfill to help a company stay current is to scan the horizon, pay attention to changes and build a strategy to meet the marketplace’s new demands.
Environmental scanning lets leaders move out of day-to-day operations and take a macro view of the organization. It shifts the organization from reactive mode to proactive mode so it can anticipate and meet market changes and new customer expectations.
Did you know? When CEOs are adaptable, they can pivot as the market changes. Another benefit of being adaptable is bouncing back quickly from adversity.
How do you conduct an environmental scan?
There are several ways to conduct a scan of external factors impacting your business. The most popular is Porter’s Five Forces, part of the management theory of Michael Porter, a Harvard Business School professor and consultant.
Porter first described this model in a 1979 Harvard Business Review article. He outlines forces outside a business that significantly impact its performance and operations. Those factors are:
- Threat of substitute products or services
- Bargaining power of suppliers
- Threat of new entrants
- Bargaining power of the buyers
- Rivalry among existing competitors
This kind of analysis can offer a quick assessment of your business, with each area given a rating of strong, moderate or weak.
Tip: A SWOT analysis is another way to develop your business strategy by comparing internal factors against external factors like opportunities, trends and threats.
What are the benefits of an environmental scan?
An environmental scan helps company leaders stay ready to react and respond to marketplace changes. A leader with critical thinking skills and awareness will react to changes influencing their business and turn those opportunities into positive results. These results can include innovations that propel the company to reach new customers and markets.
When considering the responsibilities of being prepared for the future, CEOs and leaders would do well to remember the words of Abraham Lincoln: “You cannot escape the responsibility of tomorrow by evading it today.”
What are the dangers of not doing environmental scanning?
The future will come to businesses and marketplaces whether or not companies and leaders are prepared. Many businesses ignore external changes because they’re stuck in past business models and thought frameworks.
Leaders who don’t prepare for marketplace shifts experience:
- Missed opportunities: If a leader doesn’t see or understand market shifts, the company misses opportunities, resulting in lagging profits, lower production and poor outcomes. Many could have remained leaders in their fields if the organization had paid attention to the landscape of external forces and adapted its business model to meet new demands.
- Business failure: Many once-successful companies seen as industry leaders have closed their doors because they failed to identify changes in external forces. When companies are unprepared for change, they often fall behind. If the situation is bad enough, they end up shuttering their operations because they could not change fast enough to retain market share.
In contrast, CEOs and leaders who prepare their organizations by identifying market challenges and opportunities can spearhead change to thrive in the new environment.
Did you know? CEOs and influential leaders should conduct an environmental scan once a year to review shifts that can and will impact business performance.
The 4 elements of environmental scanning
Staying alert and keeping watch are two concepts that will help CEOs stay ahead of marketplace changes. Below are four areas CEOs should watch for to remain alert business leaders.
Examine these areas to become aware of and prepared for coming changes to the market. Well-prepared CEOs can conduct an external scan of their environment to be ready for any potential change that might impact the business.
1. CEOs should look for shifts in behavior and thinking.
CEOs and leaders must pay attention to early thinking and behavior shifts in the market. To do this, they should incorporate the following advice:
- Train teams to look for shifts. Leaders should train their teams to pay attention to the shifts around them. Aware teams can alert leadership to new trends.
- Look for changes in how the business is viewed. Leaders should monitor changes in thinking about the value of their product or the way they do business. They should also review shifts occurring in the culture or community.
- Be the first to understand how others are thinking. Leaders who will lead in the future understand what others are thinking before everyone in the market comes to the same realization. With that in mind, leaders should seek to understand customer emotions and get into the minds of current and potential customers to understand their desires before others articulate their demands. Leaders who read between the lines without relying solely on market research can discern what’s coming next before anyone else.
When a business examines what a customer wants before the customer knows what they want, it’s sure to be rewarded. Steve Jobs once reminded the team at Apple:
“Some people say, ‘Give the customers what they want.’ But that’s not my approach. Our job is to figure out what they’re going to want before they do. I think Henry Ford once said, ‘If I’d asked customers what they wanted, they would have told me, ‘A faster horse!’ People don’t know what they want until you show it to them. That’s why I never rely on market research. Our task is to read things that are not yet on the page.”
Tip: For effective environmental scanning, use a combination of external sources (industry publications, customer feedback, suppliers, government officials and competitors) and internal sources (customer service reps, social media managers and sales team).
2. Leaders should look for new starts in the marketplace.
In business and life, something new is always happening. Technology leads to new opportunities, and changes often create a sense of urgency to act. In business, existing companies would be wise to pay attention to new marketplace elements. A new-start scan could include:
- New entrants into the market
- Newly developed products
- New technology
- New customer attitudes and desires
One example of a new start in the fast-food industry was when McDonald’s started offering $1 menu items. Other fast-food chains became aware of this new start and quickly followed suit so they wouldn’t lose market share as customers flocked to McDonald’s lower-priced menu. Other entities’ new initiatives can help existing companies understand when to begin something new.
3. Leaders should scan for substitutes for their offerings.
Every business leader should conduct a scan of new or better substitutes for their business and product. An old proverb states, “There is nothing new under the sun,” so no company or organization should feel it has the one and only unique product.
Leaders must identify how consumers might substitute another’s product for theirs and what changes they should make in their current product to stay ahead of the competition.
False substitutes will always come into the marketplace seeking to mirror your products and services. Some can happen locally, but many substitutes can also happen internationally in a worldwide economy. This warning should inspire well-prepared CEOs to build products and services that are not easily replicated or duplicated.
If your business or product can be duplicated in a short period, you haven’t built your business to last. CEOs who wish to become market leaders must strive to build and produce products that are not easily mirrored.
4. Leaders should scan for signs of what’s ahead.
A well-prepared leader pays attention to the signs present in the culture. A scan of these signs would include a review of the economic, social and judicial changes that might impact the business. A leader should review signs of anything new impacting their business or how they do business at the local, national and international levels.
There are always signs of what is coming if leaders open their eyes. Some examples include:
- Scan for changing customer expectations. CEOs should train their teams to notice signs from the customer about changing expectations that might come in the form of new or more complaints and suggestions for product features.
- Scan for signs in the stock market. The stock market is another place to scan for signs. The stock market may indicate potential signs of how well the economy is doing or which types of industries are on the rise.
- Scan for signs of workforce changes. The generational workforce is another area to scan. Review signs of change in the generational workforce in terms of their expectations and behavior.
FYI: Track KPIs to identify unusual changes in customer complaints, sudden increases or decreases in orders or sales, or pending legislation that affects supplies and costs.
Environmental scanning is an indispensable preparation tool
A quick environmental scan can help CEOs and the companies they lead gain a competitive edge. Such an evaluation can enable leaders to see the changes, pivots and movements that will lessen negative impacts or help propel their business forward.
This four-step environmental scan can quickly assess changes and shifts in the market that any CEO can conduct with their team to help their organization stay prepared and get ahead.
Well-prepared leaders are alert and aware, able to see trends before other leaders spot them. Their vision helps their companies effect change and become market leaders.
Jennifer Dublino contributed to the reporting and writing in this article.