Environmental scanning encompasses the monitoring, evaluating and disseminating of information from external and internal environments to key persons within a corporation. Its purpose is to identify strategic factors-the external and internal elements that will determine the future of the corporation. The simplest method for conducting environmental scanning is through SWOT analysis. The external environment consists of variables (opportunities and threats) that are outside of the organization and not typically within the short-run control of management. These variables form the context within which the corporation exists.
SWOT is an acronym used to describe particular strengths, weaknesses, opportunities and threats that are strategic factors for a specific company. SWOT analysis should identify a corporation's unique competencies-the exacting capabilities and resources that a firm possesses and the superior way in which they are used. But also† the identification of opportunities that the firm is not currently able to take advantage of due to a lack of suitable resources.
Typically, a SWOT analysis looks like the chart on the previous page. SWOT details the factors associated with a company's strengths and compares this its weaknesses, and in doing so, it cold-bloodedly recognizes the factors it possesses. The same detailed and ruthless honesty must prevail when considering both opportunities and threats.
In a SWOT analysis, it is important to record not only quantifiable factors, but those factors that defy quantification and can only be mentioned as a qualified statement of belief. An example would be under the strengths assessment (high customer loyalty factor).
One of the most useful outputs of a SWOT comparison is the TOWS Matrix, which was developed by H. Weihrich of Kidington, UK. It illustrates how external opportunities and threats facing a particular company can be matched with that company's internal strengths and weaknesses to result in four sets of alternative strategies. This matrix is a great way to summarize each set of product lines or market considerations.
Next month, we will consider this latter "attractiveness" scenario in our third and final column.