Perceived environmental sector importance as a determinant of managerial information search behavior.

Author:Leaptrott, John
 
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INTRODUCTION

The strategic management process is traditionally described as a continuous, proactive process where key decision-making personnel regularly seek information in order to assess the environment and, as a result, make necessary changes to the manner in which the organization operates in order to achieve strategic objectives (Aguilar, 1967; Hambrick, 1981; Hambrick, 1982). Alternatively, some recent researchers have found this process to be somewhat more intermittent and reactive. Various explanations for why the process has often more intermittent and less proactive have been offered. For example, Forbes (2007) views the process as controlled by practical considerations such as the "quantity" and "determinacy" of available information that is used in environmental assessment. Nadkarni & Barr (2008) describe the process as being driven by managerial perceptions of the relevancy of environmental sectors to performance and the degree a causal relationship between the environmental factors and their potential effects on the organization's performance are determinable. Thus, these studies support the premise that a manager's perceptions regarding the quantity, quality and relevancy to performance of available environmental information would influence their decision as to whether to invest the time and effort required to seek that information. Consistent with the expectation that relevancy to performance would be a motivating factor in the information search process, the present study tests the degree managers' information seeking behavior involved in scanning the environment is related to their perception of a particular environmental sector's importance.

In addition, the study avoids some of the methodological issues involved with previous studies that aggregated perceived environmental sector importance with other variables such as perceived environmental sector complexity and environmental sector rate of change into a single latent predictor variable, perceived strategic uncertainty. The study focuses on the more direct relationship between perceived environmental sector importance and scanning frequency using five different information sources for each of six sectors encompassing both the task and general environment. The relationships between perceived sector importance and source usage for both task environment sectors and general environment sectors can then be compared to determine if the relationship is uniform for the various sectors of the environment.

LITERATURE REVIEW AND HYPOTHESES

Perceived environmental importance as a predictor of scanning behavior originated from prior research that examined how persons, primarily managers in large businesses, scan the environment. These researchers (e.g. Daft, Sormunen & Parks, 1988; Sawyerr, 1993; Elenkov, 1997; May, Stewart & Sweo, 2000) have tested relationships between "perceived strategic uncertainty" and scanning behavior. The latent predictor variable "perceived strategic uncertainty" in these studies was comprised of three individual predictor variables (perceived rate of environmental change, perceived level of environmental complexity and the level of importance in obtaining the organizational goals). Specifically, the latent predictor variable perceived strategic uncertainty was calculated as follows (Daft et al., 1988:130):

PSU = I (C + R).

Where

PSU = Perceived Strategic Uncertainty

I = Perceived Sector Importance

C = Perceived Sector Complexity

R = Perceived Sector Rate of Change

These studies typically differentiated between the task and general environments pursuant to typologies developed by Bourgeois (1980) and Dill (1958).The task environment consisted of the environment closest to the organization including the customer sector, supplier sector and competitor sector. These sectors in the task environment are differentiated from those in the general environment, consisting of the social, demographic and economic sectors, because the task environment sectors more frequently involve direct contacts with the organization and the contacts between the general environment and the organization tend to be more indirect.

The Daft et al. (1988) study found the correlation between scanning frequency and perceived strategic uncertainty was higher for the personal modes than the written modes. Sawyerr (1993) studied the relationship between the perceptions of environmental uncertainty and environmental scanning behavior for a sample of CEOs in 47 Nigerian manufacturing firms. The results indicated there was a significant positive relationship between perceived environmental uncertainty scores and scanning interest scores in all environmental sectors. However, such a positive relationship between perceived environmental uncertainty scores and scanning frequency scores was not found for all sectors. Elenkov (1997) sampled 141 Bulgarian company executives. While the scanning mode results in Bulgaria were similar to the results in the United States based Daft et al. (1988) study, he did not find evidence to support the hypothesized positive relationship between strategic uncertainty and scanning found in the United States sample.

May et al. (2000) sampled of Russian executives. In contrast to the results of the Daft et al. (1988) U.S. sample, the sector rate of change and sector complexity were not significant predictors of scanning behavior in the Russian sample. The researchers speculated the persistence of a turbulent economic environment and other factors faced by Russian executives, might result in decision-making that is more centralized and based on substantially less information compared to decision-making in the United States.

The differences in the results between these subsequent international studies and the original Daft et al. (1988) domestic study could be attributable to many factors investigated in other strategy studies involving information search. Forbes (2007) expressed certain caveats regarding the decision-making utility of scanning in certain contexts such as exist in these international scanning studies. Building on the ideas of Huber & Daft (1987), he proposes that in order for information gained from the scanning process to be useful in decision- making it must sufficient in both quantity and determinacy on order to achieve a satisfactory level of comprehensiveness. Information must be available in sufficient quantity to portray an environmental situation correctly. For example, if a firm has competitors that are privately held or report as part of a large conglomerate financial information about them may be scarce and scanning may be of reduced value. Similarly, information may be anecdotal, subject to conflicting interpretations or inconsistent. This lack of determinacy may also diminish the value of scanning and therefore affect the degree management engages in search activity. These conditions may account for some in the variance in results from the scanning studies in different countries where the information varies greatly as to its comprehensiveness.

Other streams of scanning research have investigated the process of environmental scanning and identified additional individual, organizational and industry level factors that influence scanning behavior. All organizational leaders have individual limitations as to the scope of information they can monitor (Cho & Hambrick, 2006; Cyert & March, 1963). Bogner & Barr (2000) describe cognitive frameworks that develop during the process of sense-making (Daft & Weick, 1984) as managers interpret their environment from information gathered during scanning and then act based on their interpretations. Managers develop these frameworks based on past experiences with events and interactions with the environment, and then use these frameworks as an interpretive tool to make sense of current events and to decide what actions are appropriate responses to them (Reger & Palmer, 1996). As such, these frameworks that are developed are subject to the cognitive biases and values of the members of the dominant coalition in the organization (Hambrick & Mason, 1984), the perception by managers that alternatives can be developed to frameworks that are controllable (March & Shapira, 1987) and managerial judgments that they fit the social economic and cultural structures of the organization (Ocasio, 1997).The utility of these frameworks diminish as changes in the competitive environment become more frequent (Nadkarni & Barr, 2008). As a result, managers have to devote more time to those events in order to develop new cognitive frameworks that more relevant to

the new environment.

Organizational level factors can also affect scanning behavior. Daft & Weick, (1984) suggested that many organizations have developed a culture of passive acceptance of environmental change and actively seek information on its...

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