1: Information for strategic planning
Saxby et al (2002) observe that environmental scanning provides information about the environment which can guide strategic direction. Porter (2004,1) notes that a successful strategy should result in "a favourable position in an industry" -- a "competitive advantage". Sustainable competitive advantage is achieved by generating or possessing resources that are inimitable, are valued by the customer and can be used effectively (Fahy and Smithee,1999). These distinctive capabilities distinguish the company from the competition and lead to competencies which can provide a competitive advantage in the market. Environmental scanning provides information, such as the strengths or weaknesses of competitors and consumer behaviour and enables companies to discern which resources are valuable to the market and also provides information which can be used as the basis of marketing strategies to leverage these resources and apply them most appropriately. This can strengthen a companies own competitive position and weaken that of the competition.
An awareness of the dynamic environment was responsible for Nokia taking advantage of increased growth, and, according to Strategic Direction (2007), Nokia accurately predicted and planned for a slowdown in growth when their competitors' strategies were based on a predicted 30-40 percent growth. This inaccurate forecasting, lead to Sony Ericsson issuing a profit warning as demand for replacement handsets in the European market was less than their predictions. Moreover, it also signalled a missed opportunity to create products more relevant to the market demands and environmental conditions. Forecasting changes in demand helps to sift new opportunities from red herrings and ensure that resources are used in the most effective manner.
2: Detecting new opportunities
Kotler (2003) notes that a key purpose of environmental scanning is to detect new opportunities and forecast demand. Carral and Kajanto (2008) assert that Nokia's position as market leader in the mobile communication industry owes much to understanding industry dynamics. They note that gathering, analysing and acting on data was a key factor in Nokia taking advantage of inflection points and capitalising on the potential for growth. Parker, (2008) cites Nokia's vice-president who predicted that, in developing markets, 2008 would be the first year that replacement handsets outsold first-time purchases. This information enabled Nokia to create plans to introduce more feature rich products for the replacement handset market to cater for the customer demands, thus yielding higher margins.
3: Executive stimulation and development
Executive level strategic planning should based on data rather than whim. This is important as it not only projects a more professional image but also keeps the executive decision makers in tune with the market. Further, it provides education and stimulation for decision makers, who are usually appointed to these positions due to their capacity to turn thought in to action and ultimately profit. Moreover, Dibb et al (2001) note that environmental scanning has an additional benefit in that it helps to assess current performance in relation to the competition. The first step in the strategic planning process is to determine the current situation "Where are we now? Environmental scanning helps to asses the company's position in the market and measure the success of previous strategies and direct future strategy.
4: Monitoring market trends and fashions
Strategic Direction (2005, 21) note that success or failure depends on "ever-quicker reactions to market trends, requirements and aspirations". However, it could be argued that to "react" suggests that companies should act after the event, by which time, it may be too late. Environmental scanning increases sensitivity to customers changing needs and companies should be proactive in monitoring, predicting and responding to market trends. Even if the company is not able to be first to market with a new product or service, simply being aware of what is happening in the competitive environment enables them to plan ahead and build competitive strategies. Nokia have paid dearly for failing to respond to the needs of some markets, particularly in the U.S. where delay in introducing clamshell and QWERTY phones eroded market share and damaged brand image.
5: Monitoring the dynamic business environment
Saxby et al (2002) emphasise the importance of regular and continual scanning due to the dynamic nature of the modern business environment. This is vital as small changes in the environment such as legislative, cultural or technological changes, if not anticipated and acted upon, can be the difference between becoming the market leader and insolvency. It is important to note that the affect of environmental changes on one company may be different to the affect on another. Changes in the economic environment have meant that companies with heavy reliance on finance have been stripped of working capital whereas cash-rich companies have been able to take advantage of this by positioning themselves to acquire insolvent competitors and increase their market share. A threat for one company can be an opportunity for another -- environmental scanning helps to anticipate these threats or opportunities at the earliest opportunity and act on them -- proactivity rather than reactivity
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