Scanning the External Environment

The external business environment consists of broader forces that not only affect your start-up, but also other actors in the micro-environment. These shape the characteristics of the opportunities and threats and are factors that are largely uncontrollable by you or any other company.

The environment can affect your start-up in dramatic ways. You can have the best business idea with a great technology but it might still fail miserably if factors like changes in the policies of the host government, new regulations or an economic crisis in the host country come along. Therefore, it is imperative that you keep a close watch over environmental factors that affect your start-up and prepare adequately to face the emerging challenges.

PESTEL analysis is a framework that allows the evaluation of the status of your start-up in relation to the external environment. It covers political, economic, social, technological, legal and environmental factors. Depending on which elements are included and the order used to list them out, it can also be referred to as STEP, STEEP, PESTEL, PESTLE or LEPEST. Recently it was even further extended to STEEPLE and STEEPLED, including education and demographics. The following sub-sections will give a deeper overview of how these elements could affect your start-up in the water and sanitation sector:

Political Environment

Economic Environment

Social Environment

Technological Environment

Environmental Factors

Legal Environment 

“Environmental scanning is the acquisition and use of information about events, trends, and relationships in an organisation's external environment, the knowledge of which would assist management in planning the organisation's future course of action” (CHOO 2001).

The aim of scanning is to provide robust information related to the state-of the art, trends and emerging issues to enable you to build up a business plan with a long-term perspective. The knowledge gathered through environmental scanning will give you the basis to avoid reacting and putting out fires in the future of your start-up (adapted from CONWAY 2009).

(Adapted from CONWAY 2012)

Part 1: Focus Your Scanning

Because we have limited time, energy and limited resources, always start your scanning with a focus. Deciding what to scan for will most likely be linked to those major drivers of change in the external environment that are likely to have an impact on your start-up. You should ask yourself the question, “What is happening in my environment that will affect the future of my start-up?” Through this analysis, you should be able to identify emerging issues, uncertainties and trends (and their driving forces –why is this happening?) that have important implications for your business. Remember that you should scan at different levels:

• what competitors are doing,
• what is happening in the industry and how your competitors might respond,
• what is happening more generally with industry and government policy, and
• the broader societal and global trends.

You might need to interview some specialists, participate in specialised on-line forums in water and sanitation, or discuss with your professors or with your colleagues to identify what could be the critical trends in the water and sanitation sector affecting your start-up.

Part 2: Who should scan?

We are continuously scanning the external environment, either consciously or sub-consciously, but in order to take advantage of the findings, we should count with a system to record them formally. Ideally, you should have a team of people that contribute to the scanning process, especially because it involves the perception, efforts and sharing from different minds. But in case you are starting up a business alone, make sure you remain open minded, curious and systematic, welcoming diversity and thinking out of the box.

Part 3: Starting to Scan

Start by setting up your classification system that lists out the categories you will use to classify and record what you are finding. You can use for instance the PESTEL framework (political, economic, social, technological and legal factors), which will give you an idea of what are you going to look for. At the end of the scanning it will help you to retrieve your findings easily.

Google is the most obvious resource to start looking for information with a few keywords. Remember that you already have a focus, and considering that you will obtain thousand of hits with this search-machine, you should always ask yourself, “is this piece of information relevant to my start-up?” Ideally Google will take you to specialised web pages in water and sanitation that will keep you informed about the trends in this sector. These include:

www.wsp.org

www.who.int

www.susana.org

www.sandec.ch

www.irc.nl

www.wsscc.org

www.wsup.com

www.iwahg.org

…among many others. Make sure you subscribe to E-mailing lists with news and participate actively in forums, such as the www.ecosanres.org and forum.susana.org. There are also many regional groups that will keep you updated with the latest information in your country, for instance:

www.indiawaterportal.org

www.afriwater.org

www.washasia.wordpress.com

wash-periurbano.ning.com

...among many others.

You should also review the local as well as international newspapers, as global news about economy, politics, regulations, etc. will be first published there! Don’t forget to keep an eye on seminars, conferences, expos and workshops happening near your locality. It is in the frame of these events that you will have the chance to listen about new technologies and approaches, and will help you to talk to experts during the coffee breaks. 

Part 4: Recording Your Hits

You need to keep a track of your scanning hits to make use of this information in the future. How to do it would depend on your preferences. The options are manifold: word, excel, bookmarks, a simple notebook, or even specialised web-machines such as http://shapingtomorrow.com/. Once you have been scanning regularly for a couple of months, you will find that some hits will start showing some similarities. When this happens, you are starting to identify a trend! Try to dig out to learn more about it.

Part 5: Analysing Your Scanning Output

“At this stage, you have started to identify trends and you can see some interdependencies among those trends. What does it all mean? When you ask that question, it's time to move to analysis” (CONWAY 2012).

In order to evaluate how the current affairs, emerging issues and trends could affect the future of your start-up, you could make use of the External Factor Analysis Summary (EFAS). This tool indicates whether the company is able to effectively take advantage of existing opportunities along with minimising the external threats.

The first step you should take is to decide whether a particular trend is an opportunity or a threat for your start up. After this is done, follow these steps (Adapted from PU 2002):

1. List opportunities & threats (5-10 each) in column 1.
2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in column 2 based on that factor’s probable impact on the company’s strategic position. The total weights must sum to 1.00.
3. Rate each factor from 5 (Outstanding) to 1 (Poor) in column 3 based on the company’s response to that factor.
4. Multiply each factor’s weight times its rating to obtain each factor’s weighted score in column 4.
5. Use column 5 (comments) for rationale used for each factor.
6. Add the weighted scores to obtain the total weighted score for the company in column 4. This tells how well the company is responding to the strategic factors in its external environment.

The better positioned your start-up is, the higher the rating will be. For instance, 3 will indicate neither well nor poorly positioned, just average. A number higher than 3 will mean that the business is responding well to the external factors. A start-up with an overall rating of 5 would be responding to the respective environment in an outstanding way.

The following table presents a External Factors Analysis Summary (EFAS) for a company in India which designs and installs wastewater treatment plants:

Part 6: Reporting your findings

Scanning improves an organisation’s abilities to deal with a rapidly changing environment in a number of ways:

1. It helps an organisation capitalise on early opportunities rather than lose these to competitors.
2. It provides an early signal of impending problems, which can be defused if recognised well in advance.
3. It sensitises an organisation to the changing needs and wishes of its customers.
4. It provides a base of objective qualitative information about the environment that strategists can utilise.
5. It provides intellectual stimulation to strategists in their decision-making.
6. It improves the image of the organisation with its public by showing that it is sensitive to its environment and responsive to it.
7. It is a means of continuing broad-based education for executives, especially for strategy developers.