The following topics will be addressed in this post:
Why is environmental scanning a management concept, NOT an entrepreneurial concept, and what process do entrepreneurs practice which takes its place?
What are the pros and cons of doing business entirely online without a physical storefront or presence? Consider this question from the perspective of selling a tangible product.
Traditionally, management is divided into four major functional categories: planning, organizing, leading, and controlling. Here, I will discuss controlling, which can be defined as monitoring performance and making needed changes. Specifically, I will focus on two issues of controlling: environmental scanning and using a completely on-line presence. I place these in controlling because I take the perspective that the firm is currently operating.
Firms exist in highly competitive business environments. The world is constantly changing. New competitors arise daily. Technology improvements are creating new processes and functionalities. All of these factors and more create uncertain and tumultuous business environments. Consequently, firms must overcome or at least adapt to the uncertainty by using techniques like environmental scanning.
Before proceeding, we should define environmental scanning. So, what is environmental scanning? At the most basic level, environmental scanning is probing for and scrutinizing information about a firm’s environment in order to make decisions (BusinessDictionary). This definition sounds straightforward and almost simplistic, but the process is essential because acting without the proper information can have profound consequences. The environmental scanning process involves seeking information, and often the information is internal or not generally available to the public. Also, because the environment is vast and information can be nearly infinite, environmental scanning involves deciding what information to retain for use and what information can be discarded as irrelevant (Bateman and Snell).
To streamline and focus the process, managers can employ various frameworks. For example, Michael Porter has developed a useful Five Forces model to classify the competitive environment. Mr. Porter’s model breaks the environment around rivals firms into suppliers, customers, new entrants, and substitutes/complements (1000Ventures). Another framework a manager could use is SWOT analysis that focuses on internal strengths and weaknesses and external opportunities and threats (Nickels, McHugh, and McHugh). Any framework should help develop a set of questions or guidelines or avenues that drive the research.
Why is environmental scanning not an entrepreneurial concept? Environmental scanning is used by large firms that are going concerns and operating in a competitive environment. Also, much of the information is not publicly available. If environmental scanning is a management concept, then what do entrepreneurs do? Well, typically some sort of SWOT analysis is a part of any business plan. Also, entrepreneurs can use primary and secondary research methods that are less resource intensive than environmental scanning. Basic primary research can involve observation or simple surveys. Secondary research can include examining trade journals, websites, and government data (Byrd and Megginson).
The other controlling topic to be addressed here is using an on-line storefront exclusively rather than a traditional brick-and-mortar store. Some of the primary advantages include reduced overhead expenses, access to the global marketplace, and enhanced pricing power because you do not have to collect state sales tax (although current litigation might change this item). Some of the primary disadvantages include reduced legitimacy, inability for customers to try the product, potentially high shipping costs, and potential customer dissatisfaction if the return policy is not liberal. Perhaps the most difficult aspect of on-line vending is creating a robust Internet presence so the various search engines bring your website up on the first page of a key-word search.
A manager engaged in controlling these issues can make adjustments to maximize the utility of an on-line only storefront. The web search retrieval issue can be enhanced by paying for web optimization services, paying for a sponsored link, and by aggressively networking and linking with other websites. Shipping issues can be improved by using an established logistics expert such as FedEx or UPS. Customer satisfaction can be enhanced by providing high levels of post-sale customer support and maintaining a liberal return policy similar to Zappos or Amazon.
Environmental scanning and on-line storefront operations are just two aspects of the management function of controlling. In the current business environment, however, these two aspects are becoming ever more relevant and important. The savvy businessperson must optimize the controlling functions to serve as the platform for continued planning, organizing, and leading.
Bateman, T.S. & Snell, S.A. (2009) Management: Leading and collaborating in a competitive world, Eighth edition. McGraw-Hill: New York.
Byrd, M.J. & Megginson, L.C. (2009). Small business management, An entrepreneur’s guidebook, Sixth Edition. McGraw-Hill:New York.
Nickels, B., McHugh, J., and McHugh, S. (2008) Understanding business, Eighth edition. McGraw-Hill: New York.