Well for the past two videos we've spent our time learning about the two kinds of external
environments: the general environment and the specific environment.
Together these two environments consist of the many factors that business managers must
consider if they are to survive in today's competitive business climate.
For a review of the general and specific environments you may access them through the links at the
top of your screen.
Although newfound knowledge is something to be celebrated, knowledge simply for knowledge's
sake is of little use to practicing managers.
So in this video we're going to take a practical look at how managers actually make sense of
their external environments.
The first step to understanding a businesses own unique external environment is to engage
in environmental scanning.
Environmental scanning is a process of surveying the environment for events, trends, or other
issues that may affect the organization.
By scanning their environments, managers are able to stay up-to-date on changes that may
serve as opportunities or threats to their business.
Looking at the general environment, managers will search for information related to the
economy, as well as technological, sociocultural, and political/legal trends.
Such information can be found in government reports, trade journals, business periodicals,
and even scholarly databases.
For the specific environment, we know that we're evaluating customers, competitors, suppliers,
industry regulations, and advocacy groups.
Scanning the specific environment may look a little different, since the components are
specific to the business itself.
Although information sources may vary, customer surveys, company annual reports, industry
specific trade journals, and even professional associations can serve as valuable sources
for environmental scanning.
Remember that a companies evaluation will only be as good as the information that it
collects, so this step is critically important to accurate decision making.
Once environmental scanning has been conducted, the next step to evaluating a businesses external
environment is to interpret those environmental factors.
Although obtaining a large amount of information during environmental scanning is almost a
guarantee, not all of that information is important to the organization.
Generally environmental factors can be separated into two categories: opportunities and threats.
If you've been exposed to the SWOT Analysis then these terms are likely very familiar
to you.
Opportunities of course represent changes or trends in the external environment that
can positively impact the business if taken advantage of, while threats can produce the
opposite effect.
Let me provide a brief example of an area that can serve as both an opportunity and
a threat.
It's no secret that advances in statistical software that allow businesses to organize,
analyze, and interpret large amounts of data are an opportunity for many businesses.
The ability to uncover patterns or habits related to consumer behavior can help businesses
better meet the needs of their consumers and increase revenues in the process.
Failing to adapt to these changes though can be a threat if competitors incorporate the
new technology and thus put the business at a disadvantage.
So in summary, the business needs to categorize the factors identified during environmental
scanning as either threats or opportunities and determine the severity of them as well.
Once the environmental factors have been interpreted, the business is ready to engage in the final
step: action.
Whatever opportunities and threats have been identified need to be acted upon.
Opportunities need to be leveraged or capitalize upon, while threats need to minimized or better
yet, eliminated altogether.
Now in reality this is by far the most difficult step, because really a series of limitless
alternatives exist in terms of how to respond to opportunities and threats.
In order to increase the accuracy of decision-making, business managers should clearly outline their
business model as well as the important environmental factors being considered.
These environmental factors should be factors specific to the business and include components
from both the general and specific environments.
Once all of these factors are documented, managers can now think through the impact
that such factors pose to the business, and develop strategies to capitalize on those
factors or mitigate the potential risks.
Unfortunately the uncertainty and unpredictability of business environments makes no decision
a sure thing, but by carefully walking through these steps managers can at least make a more
rational and informed decision.
This has been Evaluating External Environments.
For questions please leave them in the comment box below and I'll do my best to get back
to them in a timely fashion.
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Thanks for watching.