Environmental Scan: The Key Internal and External Factors
This article first appeared on the Panorama WFP blog in November 2021.
So, you want to know what kind of environment your organisation is facing, who your competitors are, and what strengths and weaknesses they have. More importantly, you want to know what your own strengths and weaknesses are and what people think about you. The best way to gain this perspective on your business is by conducting an environmental scan.
If you’re thinking of conducting strategic workforce planning in your organisation, you’ll want to make use of an environmental scan. It won’t predict the future, but it will provide necessary and invaluable insights into the environment and context in which your organisation currently operates, and that is just as essential to strategic planning as the planning itself.
If you want to know what your organisation is up against and plan how to come out stronger than before, you’ll want to start with an environmental scan. Here’s how to do it and what it involves.
What is an environmental scan?
An environmental scan is the process of tracking trends, opportunities and threats that could impact organisational success and influence future decisions. It involves analysing both internal and external environments to help shape business goals and workforce planning. It is the beginning exercise prior to conducting your strategic workforce planning.
What does an environmental scan involve?
The purpose of an environmental scan is to enable your organisation to gain an understanding of internal and external environments as they pertain to talent decisions. It ensures you have all the key information to make an informed decision on appropriate steps to deliver on organisational priorities.
When reviewing the internal environment from a supply perspective, you will perform an analysis of the current workforce. That includes data points such as attrition rates, skill availability and the percentage of the workforce due to retire. Internal environment scanning from a demand perspective is looking at the short to medium term strategic priorities of the business. What is the work to be done? With this, you can look at the strategic priorities of the executive leadership team to understand how this flows down.
External environment scanning from a supply perspective will include elements such as skill shortages and macroeconomic impacts on the labour market. An external environment review from a demand point of view can include, but is not limited to:
- Macro-economic drivers
- Natural disasters
- Health pandemics
- Technology innovations
- Changes in legislation & policies and
- Large scale customer and competitor behaviour changes.
This forms part of an analysis known as PESTLE, which we’ll go into deeper below.
Labour market analysis
Another task to involve in your environmental scan is a labour market analysis. In the labour market, skills are exchanged for payment, employers compete for workers, and workers compete for jobs. An analysis of this is the process of understanding that market and how it will affect your organisation. It involves:
- Identifying which labour market is most suitable for certain positions
- Determining the salaries paid for such positions
- Identifying market trends
- Consulting with management about their workforce needs.
Here in Australia, we have the National Skills Commission as a central resource to understand the market as we move through different stages of economic ups and downs. This holistic view of the skills today, and those needed for tomorrow offer you a great benchmark when niching down to your own workforce market analysis in line with your growth plans.
Components of an environmental scan: internal and external
As we touched upon before, there are four key components to consider when conducting an environmental scan, both in terms of supply and demand:
- Internal environment scanning (supply)
- Internal environment scanning (demand)
- External environment scanning (supply)
- External environment scanning (demand).
Angela Shield from Applied Materials has a great visual publicly available that shows how they look internally and externally with their environmental scans:
Let’s take a look at each one of these in more detail.
Internal environment scan (supply)
The mental model for internal environmental scanning on the supply side can be aligned with your workforce analytics. This gives you the most comprehensive view of your workforce and what talent you have available to you today. There are a number of metrics that can be used:
- Time to hire
- Cost to hire
- Early turnover
- Time since last promotion
- Revenue per employee
- Performance and potential
- Engagement rating
- Cost of HR per employee
There’s also diversity and inclusion, culture, and employee engagement and development to consider. The key with this is understanding the metrics that are important for your environmental scan that give you and management the data to make informed decisions. Scanning environmental workforce data will also positively impact your confidence in decision making.
Internal environmental scan (demand)
Think of the internal environmental scan from the demand side as a snapshot of your annual report. These are all the internal demands that the business has put in place of its workforce to deliver on its strategy.
- How employees live your organisation’s purpose and values
- The impacts employees are making outside of your organisation
- Key strategic priorities and what is needed to deliver them (BAU, new projects, new departments and so forth).
Really, it’s about understanding what value your organisation creates, and how the workforce delivers this.
External environmental scan (supply)
When thinking about how to do the external environment scan for supply, you can build a mental model (i.e. an explanation of your thought process on how things work) around the traditional workforce market analysis concept. Within this, you need to think about key external recruitment drivers such as:
- Availability of talent
- Graduates in skills required
- Academic pipeline more broadly
- Competitor growth and war for talent and
The strength and ability of your employer brand relative to the market.
External environmental scan (demand)
During an external demand scan, you need to consider the demands placed on your organisation’s workforce by the world outside of your business. In business, this is known as the PESTLE analysis, otherwise known as:
The PESTLE analysis is commonly thought of as a more comprehensive version of the traditional SWOT analysis. As a result, it’s noteworthy that you should use a form of PESTLE analysis when conducting an external environment scan to ensure you consider all possible factors that will impact your workforce capacity and as such, your ability to deliver on strategic priorities.
Considering external factors
Next we’re going to take a deeper look into the external factors involved in environmental scanning. Internal factors pull resources and data that you and the team need to get hold of from within the business. Whereas external factors you are required to go and look for, so let’s consider each in more detail.
Considerations on the political front when you conduct environmental scanning are to include changes to policy and elements such as government grants. So, it’s important here to seek relevant professional advice if unsure on the impact any changes will have on your business.
When doing an environmental scan the performance of the economy can tell its own story. In a bull market companies are investing, and growing, with employees feeling optimistic about growth and being open to change because of what appears to be a de risked moment in time to do this. Counter to this is a bear market, with a ‘bunker down the hatches’ approach that impacts the mindset of both internal and external talent.
In certain environmental scan documentation you may see social intertwined with the term demographics. Here we consider elements that are impacting society as a whole. This can be consumer trend analysis, uprisings, health pandemics, attitudes to higher education, attitudes to your industry and so forth. By understanding the social issues of the time you can bring this into your environmental scan as part of your workforce planning.
Keeping an eye on technological shifts when you conduct an environmental scan helps you understand trends in automation and research and development. Having an understanding of what roles you will need today, tomorrow and in years to come will be impacted by the evolution of technology. This therefore needs to be a key external factor to consider for the medium to long term of the business when doing environmental scanning.
As with the policy section, keeping abreast on legislation related to your operating environment is key when doing environmental scanning. Not just how it affects your ability to do business, but how it affects your ability to attract the right talent to deliver on your business objectives.
This external factor is especially key for specific industries that are affected by their geographical location (think bushfires in California and hurricanes around the Gulf of Mexico). The impact of climate change and seasonal requirements can affect delivery of your products. This should be a particularly strong factor for industries such as agriculture and tourism. Environmental scans in these industries are key on more regular occurrences.
How often should environmental scanning occur?
There is no right answer here. As a rule of thumb, conducting an annual environmental scan will put you in a strong position-though, it simply depends on your specific business and industry. It also depends on public information, how much knowledge you already have, and the level of research you need to deliver on your products and services. All this adds up to time, and you don’t want to conclude an environmental scan to start environmental scanning weeks later.
Focus groups are one way to help review what you have in place and offer guidance in your search for answers on a timeline. It is also worth considering what your leaders want, when and in what way. This will help you understand what to include in any future scanning process and the timeline to follow.
An environmental scan is a big-time investment, but it pays big dividends. The key is creating a foundation of data points that are right, relevant and of value to your organisation when environmental scanning. This should be an iterative process that moves with the flow of the organisation.
Putting a timeline in place to consistently deliver on environmental scans is also important, considering the world is moving at a fast pace. While the above frameworks help you cut the fat, it’s crucial to tailor them to what your organisation needs in the short, medium and long term.
Book a call today with the team at Panorama and let’s discuss how workforce planning software can drive efficiencies in your organisation.