Environmental Scanning: How CEOs Can Stay Ahead of the Curve and Beat the Competition

What is environmental scanning?

One of the most essential roles a CEO will fulfill to help a company stay current is to scan the horizon, pay attention to changes and build a strategy to meet the marketplace’s new demands. 

Environmental scanning lets leaders move out of day-to-day operations and take a macro view of the organization. It shifts the organization from a reactive mode to a proactive mode so it can anticipate and meet market changes and new customer expectations. 

The 4 elements of environmental scanning

Staying alert and keeping watch are two concepts that will help CEOs stay ahead of marketplace changes. Below are four areas CEOs should watch for to remain alert business leaders. 

Examine these areas to become aware of and prepared for the coming changes to the market. Well-prepared CEOs can conduct an external scan of their environment to be ready for any potential change that might impact the business.

1. CEOs should look for shifts in behavior and thinking. 

CEOs and leaders must pay attention to early thinking and behavior shifts in the market. To do this, they should incorporate the following advice: 

• Train teams to look for shifts. Leaders should train their teams to pay attention to the shifts around them. Aware teams can alert leadership to new trends. 
• Look for changes in how the business is viewed. Leaders should monitor changes in thinking about the value of their product or the way they do business. They should also review shifts occurring in the culture or community. 
• Be the first to understand how others are thinking. Leaders who will lead in the future understand what others are thinking before everyone in the market comes to the same realization. With that in mind, leaders should seek to understand customer emotions and get into the minds of current and potential customers to understand their desires before others articulate their demands. Leaders who read between the lines without relying solely on market research can discern what’s coming next before anyone else.  

When a business examines what a customer wants before the customer knows what they want, it’s sure to be rewarded. Steve Jobs once reminded the team at Apple: 

“Some people say, ‘Give the customers what they want.’ But that’s not my approach. Our job is to figure out what they’re going to want before they do. I think Henry Ford once said, ‘If I’d asked customers what they wanted, they would have told me, ‘A faster horse!’ People don’t know what they want until you show it to them. That’s why I never rely on market research. Our task is to read things that are not yet on the page.”

2. Leaders should look for new starts in the marketplace.

In business and life, something new is always happening. Technology leads to new opportunities, and changes often create a sense of urgency to act. In business, existing companies would be wise to pay attention to new marketplace elements. A new-start scan could include:

• New entrants into the market
• Newly developed products
• New technology
• New customer attitudes and desires

One example of a new start in the fast-food industry was when McDonald’s started offering $1 menu items. Other fast-food chains became aware of this new start and quickly followed suit so they wouldn’t lose market share as customers flocked to McDonald’s lower-priced menu. Other entities’ new initiatives can help existing companies understand when to begin something new.  

3. Leaders should scan for substitutes for their offerings. 

Every business leader should conduct a scan of new or better substitutes for their business and product. An old proverb states, “There is nothing new under the sun,” so no company or organization should feel it has the one and only unique product. 

Leaders must identify how consumers might substitute another’s product for theirs and what changes they should make in their current product to stay ahead of the competition. 

False substitutes will always come into the marketplace seeking to mirror your products and services. Some can happen locally, but many substitutes can also happen internationally in a worldwide economy. This warning should inspire well-prepared CEOs to build products and services that are not easily replicated or duplicated. 

If your business or product can be duplicated in a short period, you haven’t built your business to last. CEOs who wish to become market leaders must strive to build and produce products that are not easily imitated.  

4. Leaders should scan for signs of what’s ahead.

A well-prepared leader pays attention to the signs present in the culture. A scan of these signs would include a review of the economic, social and judicial changes that might impact the business. A leader should review signs of anything new impacting their business or how they do business at the local, national and international levels.  

There are always signs of what is coming if leaders open their eyes. Some examples include:

• Scan for changing customer expectations. CEOs should train their teams to notice signs from the customer about changing expectations that might come in the form of new or more complaints and suggestions for product features.
• Scan for signs in the stock market. The stock market is another place to scan for signs. The stock market may indicate potential signs of how well the economy is doing or which types of industries are on the rise.
• Scan for signs of workforce changes. The generational workforce is another area to scan. Review signs of change in the generational workforce in terms of their expectations and behavior.    

How do you conduct an environmental scan?

There are several ways to conduct a scan of external factors impacting your business. The most popular is Porter’s Five Forces, part of the management theory of Michael Porter, a Harvard Business School professor and consultant. 

Porter first described this model in a 1979 Harvard Business Review article. He outlines forces outside a business that significantly impact its performance and operations. Those factors are:

1. Threat of substitute products or services
2. Bargaining power of suppliers
3. Threat of new entrants
4. Bargaining power of the buyers
5. Rivalry among existing competitors

This kind of analysis can offer a quick assessment of your business, with each area given a rating of strong, moderate or weak.

Tips for conducting an effective environmental scan

Here are some more detailed tips for conducting effective environmental scanning:

• Filter trends through your brand values: According to Rita Thomas, founder and CEO at 110 North The Creative Agency, environmental scanning is about identifying which trends align with your brand. Rather than jumping on every trend you see in your industry, pause and ask yourself whether it will benefit your bottom line. “A strong sense of brand identity gives you clarity in the noise and confidence to ignore what’s not a fit,” she said.
• Collect qualitative and quantitative insights: Thomas recommended prioritizing employee, customer and community feedback in addition to hard data. “Marrying the two leads to a richer, more informed strategy,” she said.
• Involve the whole team: “Some of the best trendspotting comes from unexpected places: a customer service call, a TikTok comment, a sales team anecdote,” Thomas said. “Encourage every corner of your team to bring cultural signals to the table. It creates a more agile and well-informed organization.”
• Know what you want: Ryan Perry, franchise broker and founder of Franchising Path, recommended defining your goals and budget when conducting environmental scanning. That way, you won’t go into it blindly.
• Use data to connect with your customers/clients: Rather than over-prioritizing data collection, consider how it might positively impact your customers/clients. “The power of environmental scanning lies in how well you synthesize and act,” Thomas said. 
• Network with industry experts: Perry recommended talking to others in your industry by attending industry events and asking for advice from experts in your market. “This kind of real-world insight gives you information you won’t always find online,” he said.
• Develop cultural intelligence: Thomas explained that her business truly listens to its customers/clients, paying close attention to their feedback and expectations. “That includes social conversation, media trends, grassroots movements, generational shifts, and even micro-moments happening in communities,” she explained. “This cultural intelligence helps us move beyond surface-level insights and craft strategies that feel resonant, not reactionary.”

What are the benefits of an environmental scan?

Leaders who conduct an environmental scan might experience the following benefits:

• Prepares business for industry changes: An environmental scan helps company leaders stay ready to react and respond to marketplace changes. A leader with critical thinking skills and awareness will react to changes influencing their business and turn those opportunities into positive results. These results can include innovations that propel the company to reach new customers and markets. 
• Helps businesses stay relevant: “The brands that stay relevant and grow over time are the ones that actively track shifts in culture, technology, economy and customer behavior, not reactively, but intentionally,” Thomas said.
• Instill confidence in your brand: Thomas added that environmental scanning can help increase your confidence as a brand, as you’ll feel prepared to adapt to any changes. Naturally, this will encourage others to have that same confidence in your business, as you meet them with authenticity and intention.
• Improves your decision-making: According to Perry, environmental scanning can help businesses make smarter decisions. “It means looking at what’s happening in the world around you, like changes in the economy, what customers are interested in, or what competitors are doing,” he told business.com. “This gives you a bigger picture of which franchise opportunities are growing, which ones might be risky, and which ones actually match what you’re looking for.”
• Saves time: Environmental scanning helps you save time by honing your focus on more aligned, long-term opportunities, Perry said.

What are the dangers of not doing environmental scanning?

The future will come to businesses and marketplaces whether or not companies and leaders are prepared. Many businesses ignore external changes because they’re stuck in past business models and thought frameworks. 

Leaders who don’t prepare for marketplace shifts experience:

• Missed opportunities: If a leader doesn’t see or understand market shifts, the company misses opportunities, resulting in lagging profits, lower production and poor outcomes. Many could have remained leaders in their fields if the organization had paid attention to the landscape of external forces and adapted its business model to meet new demands.
• Business failure: Many once-successful companies seen as industry leaders have closed their doors because they failed to identify changes in external forces. When companies are unprepared for change, they often fall behind. If the situation is bad enough, they end up shuttering their operations because they could not change fast enough to retain market share. 

In contrast, CEOs and leaders who prepare their organizations by identifying market challenges and opportunities can spearhead change to thrive in the new environment.

Environmental scanning is an indispensable preparation tool

A quick environmental scan can help CEOs and the companies they lead gain a competitive edge. Such an evaluation can enable leaders to see the changes, pivots and movements that will lessen negative impacts or help propel their business forward.

This four-step environmental scan can quickly assess changes and shifts in the market that any CEO can conduct with their team to help their organization stay prepared and get ahead. 

Well-prepared leaders are alert and aware, able to see trends before other leaders spot them. Their vision helps their companies effect change and become market leaders. 

Sammi Caramela and Jennifer Dublino contributed to the reporting and writing in this article.