Executive scanning and perceived uncertainty: a multidimensional model - includes appendices

Journal of Management, Spring, 1996 by Brian K. Boyd, Janet Fulk

Environments pose important constraints and contingencies for organizations: firm competitiveness and even survival can depend on the ability to monitor and adapt to environmental trends. Informal environmental scanning by executives is one information acquisition tactic that has drawn the attention of recent research (Hambrick, 1981; 1982; Daft, Sormunen & Parks, 1988). Although top managers are not the only sources of environmental information, they do play a significant role in gathering external intelligence. Research has shown that executives can spend as much as one quarter of their time monitoring the environment (Hambrick, 1981; Kefalas & Schoderbek, 1973). And yet, environments can be diffuse, complex, dynamic and elusive. The magnitude of the scanning task can be daunting to any individual's information processing capabilities.

One line of research has linked executives' scanning activities to their personal perceptions of uncertainty. Early research reported weak to moderately positive correlations between environmental scanning and a composite measure of perceived uncertainty (Blandin & Brown, 1977). Daft et al. (1988) extended this research by arguing that perceived uncertainty, by itself, should have little effect on scanning activity. Instead, they found that scanning was driven by strategic uncertainty: perceived uncertainty in strategically important sectors.

We expand research on perceived uncertainty and executive information search in a qualitatively new direction. We propose that some types of perceived uncertainty are potentially remedied by external information search, while others are not. Scanning may well provide useful information for decision making in response to perceived variability. However, when the environment is not predictable or is difficult to analyze (perceived complexity), external information search is less beneficial; consequently, scanning may not be an effective investment of scarce executive time under such circumstances. Thus, scanning levels will vary depending on perceived variability, complexity and importance. An important issue, for example, may receive only limited scanning if it is perceived as too complex to yield any valuable strategic information. This model is a departure from previous studies as we view executives as sophisticated information seekers: they attend to multiple aspects of an environmental sector and respond in nonsimplistic fashions to differences across these aspects. Our model offers a rationale to integrate conflicting findings on the effectiveness of scanning. Some studies have found that businesses which seek out external information have reported significantly better sales, profitability, and productivity than those who do not (Daft et al., 1988; Robinson, 1982). Frederickson and Mitchell (1984), however, found that the cost and time required for external information search did not always pay off for organizations in volatile environments. By identifying the different dimensions of perceived uncertainty and their implications for scanning, this research may shed further light on this issue.

The next section develops our rationale and presents a series of hypotheses. We then present the results of an empirical test of the hypotheses. Seventy two executives engaged in strategic planning in a variety of firms from a cross section of industries were interviewed to assess their scanning activities and perceived uncertainty.

Literature Review and Hypotheses

Strategic planning is an important contributor to a firm's long-term growth and viability: generally, firms which plan effectively outperform their non-planning counterparts (Boyd, 1991; Rhyne, 1986). Scanning and environmental analysis in turn play a crucial role in supporting the planning process (Fahey & Narayanan, 1986). Aguilar (1967, p. 1) described environmental scanning as a search 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." For example, environmental assessment is considered a necessary antecedent to the development of goals or primary strategies (Dess, 1987). Scanning can be particularly important for monitoring broad trends and identifying new product-market opportunities (Bourgeois, 1980). Scanning also provides the basic data which allows executives to interpret their environment (Smircich & Stubbart, 1985), and assess characteristics of strategic issues (Jackson & Dutton, 1988). Finally, scanning provides an important source of information used to support organizational control (Lorange, Morton & Ghoshal, 1986).

Industry structure models of strategy (e.g., Porter, 1980) have proposed the development of formal scanning units to collect strategic information about environmental sectors. However, relatively few firms have departments or individuals dedicated to environmental scanning (Fahey & King, 1977; Thomas, 1980), and the benefits of such formal programs have yet to be demonstrated (Lenz & Engledow, 1986; Stubbart, 1982). Consequently, scanning in most firms is done informally by senior management (Jain, 1984; Keegan, 1974). Aguilar (1967) argued that executives will evaluate several factors before deciding to monitor a specific issue, including its scope and urgency, relationship to long-term plans, potential significance as a "problem" area, and whether the issue and its information needs are readily definable.