1 EXECUTIVE SCANNING IDIS 611 Dr. Jennings August 2008

11

EXECUTIVE EXECUTIVE SCANNINGSCANNING

IDIS 611IDIS 611

Dr. JenningsDr. Jennings

August 2008August 2008

22

Executive Master of Industrial Distribution

Residency Week

Executive Scanning: Understanding And PredictingWhat’s Around The Corner

Daniel F. Jennings Ph.D., PEAndrew Rader Professor of Industrial Distribution

Texas A&M University

33

In the year 2000 much was written in In the year 2000 much was written in the popular press about a certain the popular press about a certain company. This firm was described by company. This firm was described by many as the: many as the:

21st Century Corporation21st Century Corporation

44

The 21st Century The 21st Century CorporationCorporation

Flattened the corporate pyramid.Flattened the corporate pyramid.

Outsourced capital-intensive Outsourced capital-intensive manufacturing.manufacturing.

Forged strategic alliances with Forged strategic alliances with suppliers to significantly reduce suppliers to significantly reduce inventories.inventories.

55


Sophisticated IT systemsSophisticated IT systems– Real time dataReal time data– Detect slightest change in current Detect slightest change in current

market conditionsmarket conditions– Forecast with precision Forecast with precision

66

20002000

RevenuesRevenues $34.3 Billion$34.3 Billion

Net IncomeNet Income $7.4 Billion$7.4 Billion

Market ValueMarket Value $453.9 $453.9 BillionBillion


77


20012001

RevenuesRevenues $22.4 Billion$22.4 Billion

Net IncomeNet Income $(1.1) Billion$(1.1) Billion

Market ValueMarket Value $238.9 $238.9 BillionBillion

88


April 2001April 2001

$2.2 Billion Inventory Write Down$2.2 Billion Inventory Write Down

99


What Happened?What Happened?

1010


Over reliance on IT systems.Over reliance on IT systems.– Too much dataToo much data– Not sufficient understandingNot sufficient understanding

Didn’t understand the way our customers Didn’t understand the way our customers managed their business.managed their business.

Financing from venture capitalists & stock Financing from venture capitalists & stock marketmarket

Didn’t use cash flow from operations to Didn’t use cash flow from operations to finance their business.finance their business.

1111


We didn’t think clearly.We didn’t think clearly.

We didn’t see the downturn We didn’t see the downturn coming.coming.

We just projected past We just projected past performances forward. performances forward.

1212


Cisco SystemsCisco Systems

1313


What Are The Lessons to Be What Are The Lessons to Be Learned From The Bust? Learned From The Bust?

1414

Facing the FutureFacing the Future

byby

Prahalad and HamelPrahalad and Hamel

1515

What percentage of your What percentage of your time is spent on external time is spent on external

issues?issues?

1616

How much of this time is spentHow much of this time is spent

considering how the world willconsidering how the world will

be different in five or ten years?be different in five or ten years?

1717

Of the time devoted to looking Of the time devoted to looking outward and forwardoutward and forward

How much is spent in consultation How much is spent in consultation with colleagues to build a shared, with colleagues to build a shared, well-tested view of the future?well-tested view of the future?

1818

From their research, Prahalad & Hamel From their research, Prahalad & Hamel reported that the answers of senior reported that the answers of senior

executives conform to aexecutives conform to a

40-30-20 rule40-30-20 rule

1919

The 40-30-20 RuleThe 40-30-20 Rule

40 % of their time spent looking 40 % of their time spent looking forwardforward

30% of this time spent peering five 30% of this time spent peering five or more years into the futureor more years into the future

20% is spent attempting to build a 20% is spent attempting to build a collective view of the futurecollective view of the future

2020

The 40-30-20 RuleThe 40-30-20 Rule

(40% x 30% x 20%)=2.4%(40% x 30% x 20%)=2.4%

Thus, on average, senior executives Thus, on average, senior executives spend less than 3% of their energy in spend less than 3% of their energy in building a corporate perspective of building a corporate perspective of the futurethe future

2121

What is involved in developing aWhat is involved in developing a

direction for the future??? direction for the future???

2222

The External EnvironmentThe External Environment

AwarenessAwareness

Duncan’s ContributionsDuncan’s Contributions

2323

Environmental SectorEnvironmental Sector

The Competition SectorThe Competition Sector

The Customer SectorThe Customer Sector

The Technological SectorThe Technological Sector

The Regulatory SectorThe Regulatory Sector

The Economic SectorThe Economic Sector

The Sociocultural SectorThe Sociocultural Sector

2424

Environmental Sectors Environmental Sectors DefinedDefined

The Competition SectorThe Competition Sector

This sector includes the firms and This sector includes the firms and products that compete with your products that compete with your company’s products, and companies that company’s products, and companies that make substitute products. It also refers to make substitute products. It also refers to competitive tactics and actions between competitive tactics and actions between you rfirm and the other competing firms in you rfirm and the other competing firms in this industry.this industry.

2525


The Customer SectorThe Customer Sector

This sector refers to those companies This sector refers to those companies or individuals that purchase the products or individuals that purchase the products made by your company. Customers made by your company. Customers include companies that acquire your include companies that acquire your products for resale, as well as final products for resale, as well as final consumers.consumers.

2626

The Technological SectorThe Technological Sector

This sector includes the development This sector includes the development of new production techniques and of new production techniques and methods ,innovation in materials and methods ,innovation in materials and products, and general trends in research products, and general trends in research and science relevant to your companyand science relevant to your company


2727

The Regulatory SectorThe Regulatory Sector

This sector includes federal and state This sector includes federal and state legislation and regulations, city or legislation and regulations, city or community policies, and political community policies, and political developments at all levels.developments at all levels.


2828

The Economic SectorThe Economic Sector

This sector includes economic factors This sector includes economic factors such as stock markets ,rate of inflation, such as stock markets ,rate of inflation, foreign trade balance, federal and state foreign trade balance, federal and state budgets, interest rates ,unemployment budgets, interest rates ,unemployment and economic growth rate.and economic growth rate.


2929

The Sociocultural SectorThe Sociocultural Sector

This sector comprises social values in This sector comprises social values in the general population, the work ethic, the general population, the work ethic, and demographic trends such as an and demographic trends such as an increasing number of women in the work increasing number of women in the work force.force.


3030

The Present Concept of the The Present Concept of the EnvironmentEnvironment

General EnvironmentGeneral Environment

Task EnvironmentTask Environment

Industry EnvironmentIndustry Environment

3131

General EnvironmentGeneral Environment

Duncan’s Six Duncan’s Six SectorsSectors

A General A General OverviewOverview

3232

Task EnvironmentTask Environment

Specific dimensionsSpecific dimensions

CompetitorsCompetitors CustomersCustomers SuppliersSuppliers Strategic AlliesStrategic Allies RegulatorsRegulators EmployeesEmployees OwnersOwners

3333

Industry EnvironmentIndustry Environment

Competitive Forces Competitive Forces AnalysisAnalysis

3434

Environmental State Environmental State DimensionsDimensions

(Duncan’s Model)(Duncan’s Model)

• Small number of factors and components in the environment• Factors and components are somewhat similar to one another.• Factors and components remain basically the same and are not changing

• Large number of factors and components in the environment• Factors and components are not similar to one another• Factors and components remain basically the same.

• Small number of factors and components in the environment.• Factors and components are somewhat similar to one another.• Factors and components of the environment are in continual process of change.

• Large number of factors and components in the environment.• Factors and components are not similar to one another.• Factors and components of environment are in a continual process of change

Static

Dynamic

Simple Complex

3535

Environmental UncertaintyEnvironmental Uncertainty

Lack of information regarding Lack of information regarding environmental sectors(components) environmental sectors(components) and environmental factors.and environmental factors.

Not knowing the economic impact of Not knowing the economic impact of an incorrect decision.an incorrect decision.

Inability to assign probabilities with Inability to assign probabilities with any degree of confidenceany degree of confidence

3636


Consider:Consider:

Actual (objective) Environment = AActual (objective) Environment = A

Perceived Environment = PPerceived Environment = P

Does:Does:

A = P (or) A = P (or)

A ≠ PA ≠ P

3737


While it is important to measure the While it is important to measure the specific objective attributes of the specific objective attributes of the environment, the important environment, the important phenomenon to measure is the phenomenon to measure is the decision - maker’s perception of the decision - maker’s perception of the environment.environment.

(Downey,Hellriegel & Solcum,1975)(Downey,Hellriegel & Solcum,1975)

3838

A New Term - Perceived A New Term - Perceived EnvironmentalEnvironmental

Uncertainty(PEU)Uncertainty(PEU)

Sewell AverySewell Avery

1995 NEDA Executive 1995 NEDA Executive Conference.Conference.

3939

PEUPEU

It is probably a mistake to say that It is probably a mistake to say that environments are uncertain. environments are uncertain.

It is the organization that is It is the organization that is uncertain about the environment.uncertain about the environment.

(Achrol ,Reve & Stem ,1983).(Achrol ,Reve & Stem ,1983).

4040

Questions Questions

What benefits can be derived from What benefits can be derived from investigating PEU?investigating PEU?

4141

Wood’s Study of Distribution Wood’s Study of Distribution Channels (2001)Channels (2001)

Why do changes in environmental Why do changes in environmental conditions cause changes to the conditions cause changes to the exchange relationships among exchange relationships among channel members ?channel members ?

Is it the channel members perception Is it the channel members perception of environmental conditions that of environmental conditions that causes decision -maker’s to take causes decision -maker’s to take actions that change the channel?actions that change the channel?

4242

An Earlier Important An Earlier Important QuestionQuestion

How is information about events , How is information about events , trends , and relationships in an trends , and relationships in an organizations external organizations external environment obtained?environment obtained?

How is this information utilized by How is this information utilized by the gathering organization?the gathering organization?

4343

The Question AnsweredThe Question Answered

Aguilar (1967)Aguilar (1967)

Daft (1988)Daft (1988)

4444

Daft’s ModelDaft’s Model

Sector Importance

SectorComplexity

SectorRate ofChange

Perceived Sector

Uncertainty

Perceived Strategic

Uncertainty

CEO Scanning

Frequency

CEO Scanning

Mode

4545

Scanning Modes Scanning Modes (Choo,2001)(Choo,2001)

Scanning Modes

Information Need Information use

Amount of

Targeted Effort

Number of Sources

Tactics

Undirected Viewing

General areas Of interest; Specific need to be released

Serendipitous discovery “sensing”

Minimal Many Scan broadly a diversity Of sources, taking advantage of whats easily accessible

Conditioned Viewing

Able to recognize topics of interest

Increse understanding “sense making”

Low Few Browse in pre-selected sources on pre-specified topics of interest -“Tracking”

Informal Search

Able to formulate queries

Increase knowledge within narrow limits “Learning”

Medium Few Search is focused on an issue or event,but a good enough search is satisfactory - “Satisfying”

Formal search Able to specify targets

Formal use of information for planning acting -“Deciding”

High Many Systematic gathering of information on a target,following some method or procedure -“Retrieving”

4646

Environmental Scanning(ES)Environmental Scanning(ES)

Distinct from information gatheringDistinct from information gathering

Distinct from competitive intelligenceDistinct from competitive intelligence

Distinct from business intelligenceDistinct from business intelligence

ES gathers and analyzes every sector ES gathers and analyzes every sector

of the external environment.of the external environment.

4747

The Internal EnvironmentThe Internal Environment

The Alignment TrapThe Alignment Trap

4848

Managing The Business (The Managing The Business (The Reality)Reality)

Political Model

Mental Model

Business Model

Operating Model

4949

In many companies, the political, In many companies, the political, mental, business, and operating mental, business, and operating models are all perfectly aligned.models are all perfectly aligned.

But models don’t last forever. They But models don’t last forever. They decay.decay.

The RealityThe Reality

5050

FITCongruence in Strategy, Critical Tasks, People, Formal Organization, Culture

SIZE AND AGEOrganizations Get Larger, More Structured, and Older

INERTIA• Structural• Cultural

SUCCESSIn Stable Environments

SUCCESS

Congruence As A Managerial Trap:The Success Syndrome

SUCCESSWhen Environmentsshifts

5151

Managing The Business (The Managing The Business (The New View)New View)

Political Model

Mental Model

Business Model

Operating Model

Space For New

Concepts

5252

Executive ScanningExecutive Scanning

Involves the external and internal Involves the external and internal scanning activities of senior and scanning activities of senior and middle managers.middle managers.

Sense making & knowledgeSense making & knowledge

5353

Sense Making and Sense Making and KnowledgeKnowledge

The ability to understandThe ability to understand

The External Environmental Scanning The External Environmental Scanning ProcessProcess

The Internal Environmental Scanning The Internal Environmental Scanning ProcessProcess

The ConfoundsThe Confounds

5454

Core ValuesCore

Values

Core Behaviors

Core Behaviors

Core Competencies

Core Competencies

Environment

5555

Core Values

Core Behaviors

Core Competencies

Environmental Shifts

The Confounds

5656

The ConfoundsThe Confounds

SignalsSignals

BlindspotsBlindspots

Smoke ScreensSmoke Screens

5757

Executive ScanningExecutive Scanning

Internal Environment• Resources• Capabilities• Innovation• Conflict• Control• Coordination• Culture

External Environment

• General• Task• Industry

Confounds

Organizational Executives

Confounds

5858

Daniel F. Jennings, Ph.D., P.E. Texas A&M University

3367 TAMUCollege Station, TX 77843-3367

Phone: (979) 845-4984Fax: (979) 845-4980

[email protected]

© 2007 TAMU

Documents

1 EXECUTIVE SCANNING IDIS 611 Dr. Jennings August 2008