Scanning Your External Business Environment

The 2010 IBM Chief Executive Officer Study is generating a lot of chatter in social media channels (hundreds of blog mentions). The comprehensive study covering 33 industries and 60 countries asked CEOs how they are capitalizing on complexity in a more uncertain business climate.

Setting strategic direction in a changing external business environment

The high interest in the study is evidence that leaders are looking harder for strategic solutions for managing in a more volatile business world. Business leaders are more concerned than ever about the external business environment, yet they feel less confident about how to navigate through it. Rigorous external business environment scanning is key to increased competence, and confidence, in finding robust strategic solutions. A typical PEST (political, economic, socio-cultural, technological) analysis, however, seems inadequate in increasingly volatile environments.

We used to scan our environment by asking questions based on informed shifts in market dynamics and changes in PEST factors. Today, we have to consider that the goal post may be moved to another field. Realistically, few CEOS are presuming to have as much understanding and control over the external environment as they had before the 2007 market downturn.

Bolder questions for a more complex external environment

The good news is that analytical tools are evolving to put leaders back in control of their strategic approach to the external business environment. Traditional approaches are likely to come up short. In light of the dramatic restructuring of industries and economies, new questions need to be asked when analyzing the external environment from a short- and longer-term horizon. In the former business climate, a firm’s core competence was expected to endure for a lifetime like a destiny assigned by the mythological Fate Lachesis. Today, the ‘what if’ scenarios must be bolder.
· Will my core competence be commoditized? How soon?
· What’s my next core competence?
· What regions will dominate in my core competence?
· What companies/regions will erode my competitive advantages?
· Will this become an outsourced industry? And by whom?
· What will be the most innovative product/company tomorrow?
· What technologies, not yet conceived of, will out innovate me?
· What is the worst-case scenario in terms of capital market receptivity to my industry? What will be my alternatives?

New business scanning models

In responding to the needs of leaders, it is important to distinguish whether their main concern is the ability to understand the rapidly changing business environment, or the capacity to undertake the appropriate actions to respond to it. Most leaders will argue the former. The evidence shows that leaders are confident that they have the skills and resources to respond to drastic change (this introduces another challenge: over-optimism – watch for an upcoming article on this) and what they really require is a more robustway of scanning their business environment, and keeping up with the changes.

The usefulness of external business environment scanning in strategic planning should not be discounted as outdated. It is likely only your model that is outdated. Studies continue to show that a good external business environment scan has significant positive effect on the strategic course of a firm, and ultimately performance; environment scanning models today must include plausible varying scenarios to be adequate for the current complexity.

For over twenty three years, Stephen has helped businesses, government agencies and non-profits organizations in Asia to learn and apply Strategic Management and Innovation to their organizations to sustain and improve long term performance. He has successfully led and facilitated numerous “live” strategic planning efforts and in-company senior management development programs, for a wide range of organizations including multi-national companies, small-medium enterprises and government agencies.

As an international consultant, Stephen has led public workshops/seminars on key strategic management topics such as strategic thinking and planning, change management, leadership and innovation, in Singapore, Malaysia, Indonesia, India, Dubai, China and the USA. He has trained hundreds of managers in workshops and seminars, with consistently excellent evaluations by the participants, who come from a wide range of industries in both the private and public sectors.