ENVIRONMENTAL SCANNING: ACQUISITION AND USE OF INFORMATION BY CHIEF EXECUTIVE OFFICERS

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1 1 ENVIRONMENTAL SCANNING: ACQUISITION AND USE OF INFORMATION BY CHIEF EXECUTIVE OFFICERS IN THE CANADIAN TELECOMMUNICATIONS INDUSTRY by Chun Wei Choo A thesis submitted in conformity with the requirements for the degree of Doctor of Philosopy Faculty of Library and Information Science University of Toronto Copyright by Chun Wei Choo (1993)

2 2 ENVIRONMENTAL SCANNING: ACQUISITION AND USE OF INFORMATION BY CEOS IN THE CANADIAN TELECOMMUNICATIONS INDUSTRY PhD Dissertation (1993) Chun Wei Choo Faculty of Library and Information Science University of Toronto ABSTRACT The present study investigates how chief executive officers in the Canadian telecommunications industry acquire and use information about the external business environment, an information seeking activity known as environmental scanning. Data were collected by a nationwide questionnaire survey and several focused interviews. Of the 113 CEOs in the study population, 67 returned completed questionnaires, thus giving a response rate of 59 percent. Personal interviews were then conducted with eight of the respondents. The chief executives collectively perceive the Technological, Customer, and Competition environmental sectors to have the greatest Perceived Strategic Uncertainty these sectors were perceived to be the most strategic, variable and complex. For each environmental sector, the Amount of Scanning of the sector is positively correlated with the Perceived Strategic Uncertainty of that sector. Generally, the chief executives use multiple, complementary sources in environmental scanning. Personal sources such as customers and subordinate staff are very important in both scanning and decision making, and they are used more frequently than impersonal sources. Nonetheless, impersonal sources such as publications and reports are also frequently used in scanning. In decision making, environmental information from internal sources is used more frequently than that from external sources. For many of the information sources, the frequency of source use is positively correlated with Perceived Source Accessibility, Perceived Source Quality, and Perceived Environmental Uncertainty. However, among these three variables, it is Perceived Source Quality that accounts for most of the variance of the frequency of source use. This appears to contradict past research and extant theory. We suggest that the turbulence of the external environment, the strategic role of scanning, and the special character of the information use contexts of managers, help to explain why information quality is more important. The chief executives use environmental information frequently in the four decisional roles of Entrepreneur, Resource Allocator, Disturbance Handler, and Negotiator. Furthermore, the executive who scans more is likely to use environmental information more frequently in the Entrepreneur decisional role; while the executive who perceives a higher level of Perceived Environmental Uncertainty is likely to use environmental information more frequently in the Negotiator decisional role.

3 3 ACKNOWLEDGEMENTS First and foremost, I am extremely grateful to my thesis supervisor, Professor Ethel Auster. She has guided this research with a sure hand, drawing deeply upon her wealth of experience as an eminent researcher of the field, and always exercising an unerring judgement of what differentiates a good research endeavour from a mediocre attempt. No doctoral student could have wished for a more dedicated or helpful faculty advisor. I am very grateful for the advice and assistance that I have received from the members of my dissertation committee, Professor Joan Cherry and Professor Andrew Clement. They have spent many hours reading and thinking about this research, and have helped to add clarity and rigor to the analysis, interpretation, and presentation of its findings. I also wish to thank the dean and faculty of the Faculty of Library and Information Science for providing a warm and supportive environment for this research to develop. Thanks must be given to all the sixty seven chief executive officers who participated in this research, especially to the eight who were interviewed. Anonymity prevents me from naming the chief executives individually, but without their unselfish cooperation this research would not have been possible. Last but certainly not least, I salute the understanding and support shown by my wife and two daughters, who often saw little of me during days when daddy was busy at school. This research is funded by a doctoral fellowship (award no ) and by a research grant (file no ), both from the Social Sciences and Humanities Research Council of Canada. This study is a component of a larger, ongoing study sponsored by SSHRCC on environmental scanning by top-level managers in Canadian industries.

4 4 TABLE OF CONTENTS ABSTRACT ACKNOWLEDGEMENTS LIST OF TABLES LIST OF FIGURES i ii viii x Chapter Page 1 INTRODUCTION Background to the Problem Purpose of the Study The Nature of Environmental Scanning The Canadian Telecommunications Industry Significance of the Study 14 2 REVIEW OF THE LITERATURE Organizations and Environments 17 Environment as source of information 17 Environment as source of resources 20 Environment as source of variation 22 Summary Organizational Information Processing 23 Organizations as information processing systems 23 Organizations as decision making systems 25 Organizations as interpretation systems 26 Summary Information Needs and Uses 28 Engineers and scientists as information users 28 Social scientists as information users 32 Summary Managers as Information Users 37 Managerial roles 37 Information acquisition and use by managers 39 Summary 46

5 5 2.5 Research on Environmental Scanning 46 Early studies 46 Recent research 51 Summary Synthesis of Principal Findings and Variables 64 3 METHODOLOGY Conceptual Framework Research Hypotheses Definition and Measurement of Variables 78 Environmental sectors 79 Perceived Environmental Uncertainty 80 Information sources 82 Perceived Source Accessibility 83 Perceived Source Quality 85 Amount of Scanning 87 Use of sources in scanning and decision making 89 Use of environmental information in decision making 90 Validity and reliability Study Population Data Collection Methods 98 Rationale 98 Preliminary consultations 100 Survey methodology 101 Pilot survey 103 Main survey 104 Interview methodology 106 Social desirability bias Analysis of Data from Mail Questionnaire 111 Descriptive statistics 111 Hypotheses testing Analysis of Data from Personal Interviews 116

6 6 4 RESULTS OF MAIL QUESTIONNAIRE Profile of Questionnaire Respondents 120 Representativeness of the questionnaire respondents 122 Number of questionnaire respondents Perception of Environmental Sectors Perceived Strategic Uncertainty and Amount of Scanning 127 Testing of Hypothesis Influence of firm size Perception of Information Sources 133 Perceived Source Accessibility 133 Perceived Source Quality Use of Information Sources in Scanning Influence of Environmental and Source Characteristics on Source Usage in Scanning 144 Testing of Hypothesis Testing of Hypothesis Testing of Hypothesis Testing of Hypothesis Use of Information from Sources in Decision Making Influence of Environmental and Source Characteristics on Usage of Information from Sources in Decision Making 155 Testing of Hypothesis Testing of Hypothesis Testing of Hypothesis Testing of Hypothesis Checking for multicollinearity Use of Environmental Information in Decision Making 166 Testing of Hypothesis Testing of Hypothesis Summary of Mail Questionnaire Results 171

7 7 5 RESULTS OF PERSONAL INTERVIEWS Purpose of Interviews Profile of Interview Respondents Scanning Behaviours and Critical Incidents 179 Supplier of financial information and networks 180 Cable television operator/paging company 182 Data communications equipment supplier 185 Network analysis and testing products manufacturer 188 Telecommunications components manufacturer 190 Long distance telecommunications reseller 192 Switching equipment manufacturer 195 Data network services vendor Analysis of Critical Incidents Relative Importance of Accessibility and Quality Role and Use of the Company Library Use of Online Databases Summary of Personal Interviews DISCUSSION OF RESULTS Perception of Environmental Sectors Influence of Perceived Strategic Uncertainty on Amount of Scanning Use of Personal Sources Use of Impersonal Sources Use of Internal and External Sources 239 Informational boundary spanning 239 Uncertainty absorption Influence of Perceived Source Characteristics on Source Use 242 Perceived Source Quality and decision making 242 Perceived Source Quality and environmental scanning Influence of Perceived Environmental Uncertainty Use of Environmental Information in Decisional Roles Summary of Discussion 259

8 8 7 CONCLUSION Highlights of the Study Implications for Management Implications for Library and Information Science Implications for Executive Information Systems Limitations of Present Study Recommendations for Further Research Conclusion 281 REFERENCES 284 APPENDIX A: Mail Questionnaire 301 APPENDIX B: Mail Questionnaire Covering Letters 315 APPENDIX C: Interview Schedule 319

9 9 LIST OF TABLES Table Page 1.1 Canadian Telecommunications Industry Size of Questionnaire Respondent Firms Profile of Questionnaire Respondents Comparison of Questionnaire Respondents and Study Population by Firm Size Comparison of Questionnaire Respondents and Study Population by Geographical Location Perceived Importance, Variability, and Complexity of Environmental Sectors Perceived Strategic Uncertainty of Environmental Sectors Histogram of Respondents Indicating Frequency of Information about the Environment Coming to Their Attention Amount of Environmental Scanning Amount of Time Spent on Environmental Scanning Correlations between Perceived Strategic Uncertainty and Amount of Scanning Perceived Source Accessibility (PSA) Rank Order of Sources according to Mean Perceived Source Accessibility (PSA) Source Categories Perceived Source Accessibility by Source Category Perceived Source Quality (PSQ) Rank Order of Sources according to Mean Perceived Source Quality (PSQ) Perceived Source Quality by Source Category Histogram of Respondents Indicating Frequency of Using Information Sources in Environmental Scanning Frequency of Using Source in Scanning by Source Category Correlations between Perceived Source Accessibility, Perceived Source Quality, Perceived Environmental Uncertainty, and Frequency of Using Source in Scanning 147

10 Correlations between Perceived Environmental Uncertainty and Frequency of Using Source in Scanning by Source Category Regressions to explain Frequency of Using Source in Scanning based on Perceived Source Accessibility, Perceived Source Quality, and Perceived Environmental Uncertainty Rank Order of Sources according to Frequency of Using Information from Source in Decision Making Frequency of Using Information from Source in Decision Making by Source Category Correlations between Perceived Source Accessibility, Perceived Source Quality, Perceived Environmental Uncertainty, and Frequency of Using Information from Source in Decision Making Correlations between Perceived Environmental Uncertainty and Frequency of Using Information from Source in Decision Making by Source Category Regressions to explain Frequency of Using Information from Source in Decision Making based on Perceived Source Accessibility, Perceived Source Quality, and Perceived Environmental Uncertainty Frequency of Using Environmental Information in Decision Making Correlations between Total Amount of Scanning and Frequency of Using Environmental Information in Decision Making Correlations between Perceived Environmental Uncertainty and Frequency of Using Environmental Information in Decision Making Summary of Results of Hypotheses Testing Profile of Interview Respondents Summary of Critical Incidents Most Frequently Used Sources in Environmental Scanning and Decision Making 233

11 11 LIST OF FIGURES Figure Page 2.1 The manager as information processing system Principal variables investigated in scanning research Overview of research literatures Principal variables from the research literature Principal variables in conceptual framework Matrix of decisional roles and environmental sectors Matrix of decisional roles and information sources Matrix of environmental sectors and information sources Highlights of the study 264

12 12 CHAPTER 1 INTRODUCTION 1.1 Background to the Problem The purpose of the present study is to investigate how chief executive officers (CEOs) in the Canadian telecommunications industry acquire and use information about the external business environment. The study draws upon research from library and information science on information needs and uses, and research from organization theory on the interaction between organizations and their environments. The study of information needs and uses has a long tradition in library and information science, with the first studies beginning in the early 1950s. Recent reviews of this literature reveal two recurrent themes, a focus on the user as a member of a sociological and professional group, and an orientation towards the design of information systems (Hewins 1990, Dervin and Nilan 1986). A large number of information needs and uses studies have examined how defined groups of users choose between and utilize information sources. The groups which have been most intensively studied are scientists, engineers, and social scientists (Crawford 1978). Findings from these studies are specific to the group or a context, making generalizations difficult. After comparing thirteen science user studies, Skelton (1973) concluded that the most heavily used methods by which scientists gain information are personal recommendations, chance, abstracts/indexes and citations. Allen s (1977) study on information flow among engineers and scientists in an R&D organization showed the importance of personal contacts and discussions between engineers and the importance of source proximity and accessibility. The information needs and uses studies

13 13 collectively suggest two broad tendencies: users prefer face-to-face communications with personal sources, and they tend to use sources that are accessible or close at hand. The study of the relationship between organizations and their environments has also occupied organization theorists for decades. Organizations are seen as being dependent on their environments for markets, resources, and information. Much of the research deals with how organizations should adapt to changing environments. Several classic studies concluded that as the environment becomes more uncertain, it may be necessary to increase differentiation and integration among subunits (Lawrence and Lorsch 1967), allocate decision-making discretion to boundary spanning units (Thompson 1967), or adopt flexible, organic management structures (Burns and Stalker 1961). More recently, researchers have analysed the survival of organizations over time, and have theorized that for a population of organizations as a whole, it is the environment that determines which organizations survive or fail (Hannan and Freeman 1989). The work of Porter (1980, 1985) has underscored the importance of analysing competitive forces in an organization s environment in order to discover ways to create competitive advantage. Along with the development of these theories, a number of structural dimensions of organizational environments have been proposed and applied in field studies. However, there are only a relatively small number of studies that examine how firms acquire information about the external environment, and such efforts are often an aside to the main research focus of analyzing how managers use environmental information in strategic planning or decision making. Generally, these studies have found a growing awareness of the importance of environmental information, that external scanning increases with environmental uncertainty, that information about the market and competitors are the most important, and that scanning is often positively correlated with organizational performance.

14 14 The work of managers is information-intensive. Managers are exposed to a huge amount of information from a wide range of sources and selectively use the information to make day-to-day decisions and to formulate longer term strategies. Yet much remains to be learnt about the information behaviour of managers as a distinct user group. Relative to the large number of studies on scientists, engineers, and social scientists, there have been only a very few studies that look at managers of business organizations as information users. Should we expect managers to show the same preferences for information sources as scientists and engineers? Are there special features about managers scanning for information about an uncertain environment that would influence their use of sources? Organization theory emphasizes the effect of environmental uncertainty on scanning behaviour and the use of environmental information to develop courses of action. To what extent does environmental uncertainty affect the use of information sources? How do managers use information about the environment in decision making? These are the issues that motivate the present study. At the end of our analysis, we will attempt to translate our results into implications for the management of information sources, the provision of information services, and the design of executive information systems. 1.2 Purpose of the Study The purpose of the present study is to investigate how chief executive officers in the Canadian telecommunications industry acquire and use information about the external business environment. Today s enterprises thrive in an increasingly uncertain and unstable business environment. Customer behaviours, competitive strategies, technological advances, regulatory policies, economic conditions, and social values, are continually shifting in complex and unpredictable ways. As a result, gaining

15 15 information about events and trends in the business environment becomes a critical activity of chief executives who have to ensure the competitiveness or survival of their firms. The present study addresses the following questions: (1) Which sectors of the external business environment are seen as important and uncertain by the chief executives? (2) How much scanning of the external business environment is done by the chief executives? (3) Which information sources are used by the chief executives to scan the environment? (4) What factors influence the use of these information sources? (5) In what ways do the chief executives make use of information about the external environment? Which sectors of the external business environment are seen as important and uncertain by the chief executives? The external environment consists of a multitude of physical and social factors that could impact the organization. The executive does not have the time or capacity to monitor developments in all these factors, and by necessity must choose to give greater attention to areas and issues that are deemed to be strategic. For these areas or sectors, information is rarely if ever sufficient with respect to the needs of the executive, and this lack of information about the environment is experienced as uncertainty. A logical starting question for our study is therefore to understand which sectors of the external business environment are considered by the executives to be strategic to their firms and how uncertain they perceive these areas to be.

16 16 How much scanning of the external business environment is done by the chief executives? Given that executives experience a lack of information concerning important aspects of their external environment, it would be instructive to examine if they respond to this uncertainty with varying amounts of scanning. As we will discuss in detail in the next section, scanning is a multifarious information activity that is difficult to quantify. Nonetheless, organization research has applied multiple methods of measuring scanning that provide useful ways of at least comparing the amounts of scanning done by different executives. A measure of scanning would also enable us to test for a relationship between environmental uncertainty and the amount of scanning done. Which information sources are used by the chief executives to scan the environment? In some ways, this question and the next are the central issues addressed in this study. By virtue of the position and role of the chief executive, she or he is exposed to information flowing from a number of sources inside and outside the organization. Faced with this rich array of possible information sources, we need to have an understanding of which information sources are actually used by the chief executives. For this study, we seek a broad picture of the sources that are used by the executives to learn about developments in the external environment, so we present the respondents with an extended list of sources which include internal and external, personal, printed, and electronic sources. What factors influence the use of these information sources? Enumerating the sources used by chief executives to scan begs the larger question: why these sources? A large number of personal, situational and task factors may affect the selection and use of information sources. In the present study, we concentrate upon the effects of the perceptions of information sources and the external environment. A long line of information needs and uses studies in library and information science has

17 17 examined the use of information sources by identified user groups, especially scientists and technologists. Many of these studies conclude that the perceived accessibility of an information source is a strong predictor of its use. A number of classic studies have in fact shown that the effect of accessibility is much more important than the perceived quality of the source. It would be useful to investigate whether perceived source accessibility continues to exert its strong influence for the case of chief executives scanning the environment. Furthermore, a small number of studies of managers as information users has found that their use of sources to acquire information about the environment increases with their perception of environmental uncertainty. The present study investigates the existence of these relationships for CEOs in the Canadian telecommunications industry. In what ways do the chief executives make use of information about the external environment? Having acquired information about the external business environment, chief executives translate the knowledge into action through decisions and plans. Probing the complex process of using information in decision making is a huge endeavour on its own and cannot be adequately attempted in a study of the present scope. However, we address the question at two exploratory levels. First, we relate the use of environmental information to the types of decisions that chief executives make. Then, we describe a number of specific incidents of chief executives using environmental information that results in some significant action or decision. To summarize, because we are primarily interested in the information behaviour of managers, our focus is on investigating the effect of informational variables on the executives scanning activities. The independent variables in this study are the executives perception of uncertainty in the external environment, and their perceptions of the accessibility and quality of the various information sources that they use in

18 18 scanning the environment. Uncertainty is essentially the lack of information about the environment, while accessibility and quality are among the most important traits that affect the selection and use of information sources. The dependent variables we examine are the amount of scanning done by the executives, the use of information sources to do the scanning, and the types of decisions in which executives use environmental information. Our framework thus consists of variables from both library and information science and organization theory. 1.3 The Nature of Environmental Scanning The seminal study on environmental scanning was published by Aguilar in Aguilar defines environmental scanning as scanning for information about events and relationships in a company s outside environment, the knowledge of which would assist top management in its task of charting the company s future course of action (p.1). Scanning then is the acquiring of information, and the importance of scanning stems directly from the importance of the decisions that result from it. Certainly not all of the information from scanning may be actually used in making strategic decisions, yet any piece of such information, whether it is obtained with or without a purpose, could have an impact on decision making. Scanning spans a range of information activities. Aguilar usefully identifies four modes of scanning. In undirected viewing, the manager is exposed to information with no specific purpose or informational need in mind. In fact, the manager is unaware of what issues might be raised. Undirected viewing takes place all the time, and alerts the manager that something has happened and that there is more to be learnt. An example of undirected viewing would be when the manager converses with business associates during social gatherings. In conditioned viewing, the manager is exposed to

19 19 information about selected areas or certain types of information. Furthermore, the manager is ready to assess the significance of such information as it is encountered. An example of conditioned viewing would be the browsing of sections of newspapers or periodicals that report regularly on topics of interest. In informal search, the manager actively looks for information to address a specific issue. It is informal in that it involves a relatively limited and unstructured effort. An example of informal search would be the activity of keeping an eye on the market to check on the results of some new product pricing policy. Finally, in formal search, the manager makes a deliberate or planned effort to obtain specific information or information about a specific issue. An example of formal search would be a systematic gathering of information to evaluate a prospective corporate acquisition. To summarise, the rubric of environmental scanning includes both looking at information (viewing) and looking for information (searching). It could range from a casual conversation at the lunch table or a chance observation of an angry customer dumping a product in a trash can, to an extensive market research programme to identify business opportunities. In a classic 1967 paper, Etzioni describes how in practice scanning could take place at multiple levels. At high-order levels, scanning looks at the total environment, develops a broad picture, and identifies areas that require closer attention. At low-order levels, scanning homes in on the specific areas and analyses them in detail. Etzioni (1967, 1986) compares this to a satellite scanning the earth by using both a wide-angle and a zoom lens. For an organization, such an approach results in a mixed scanning strategy that guides information collection and decision making. We see similarities between Etzioni s multiple levels of broad and focused scanning and Aguilar s multiple modes of scanning through general viewing and purposeful searching.

20 20 In their recent study of environmental scanning for the British Library, Lester and Waters (1989) define environmental scanning as the management process of using environmental information in decision making. The process is made up of three activities: (1) the gathering of information concerning the organization s external environment; (2) the analysis and interpretation of this information; (3) the use of this analysed intelligence in strategic decision making. (Lester and Waters 1989: 5). Lester and Waters extend the definition of environmental scanning to include the analysis, interpretation, and use of the information gained in strategic decision making. This is in line with the standard doctrine in strategic management theory, where the analysis and diagnosis of environmental threats and opportunities typically form the first phase of the strategic management process (see for example, Glueck and Jauch 1984). In the present study, our focus is on the acquisition of information rather than the subsequent analysis and interpretation of information gained through scanning. However, we try, in an exploratory way, to identify the types of decision-making which frequently use environmental information. Perhaps the most important point here is that, as in Aguilar, the linkage between scanning and strategic planning is given prominence. For the present study, we adopt Aguilar s (1967) definition of environmental scanning as the acquisition of information about events, relationships, and trends in a company s external environment, the knowledge of which would assist top management in planning the company s future course of action. Following Aguilar, we recognize that scanning includes both general viewing of or exposure to information, and purposeful searching for information to address particular issues. Furthermore, we recognize that

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