CEOs, Information, and Decision Making: Scanning the Environment for Strategic Advantage

CEOs SCAN THE EXTERNAL ENVIRONMENT for information about events and trends in order to plan their organizations’ future courses of action. This study investigates how CEOs in the Canadian publishing and telecommunications industries acquire and use information about the business environment. The uncertainty of the environment was found to be related to the amount of scanning done. The perceived quality of information sources and the environmental uncertainty accounted for a significant proportion of the variance in source use. Information about the environment was often used in making decisions concerning organizational improvements and business strategies. INTRODUCTION 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 learned about the information behavior of managers as a distinct user group. Relative to the large number of studies on scientists and technologists, 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 Ethel Auster, Faculty of Information Studies, University of Toronto, 140 St. George Street, Toronto, Ontario, Canada M5S 1Al Chun Wei Choo, Faculty of Information Studies, University of Toronto, 140 St. George Street, Toronto, Ontario, Canada M5S 1Al LIBRARY TRENDS, Vol. 43, No. 2, Fall 1994, pp. 206-25 @ 1994 The Board of Trustees, University of Illinois AUSTER & CHOO/CEOs, INFORMATION, DECISION MAKING 207 scanning for information about an uncertain environment that would influence their use of sources? Organization theory emphasizes the effect of environmental uncertainty on scanning behavior 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? The purpose of the present study is to investigate how chief executive officers (CEOs) in the Canadian publishing and telecommunications industries seek and use information about the external business environment, an activity known as environmental scanning. Environmental scanning is defined as the acquisition and use of information about events and trends in an organization’s external environment, the knowledge of which would assist management in planning the organization’s future courses of action (Aguilar, 1967; Choo & Auster, 1993). 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 scanning is needed to provide the information for top management to make decisions that create strategic advantage for the organization to succeed in a changing environment (Glueck & Jauch, 1984; Lester & Waters, 1989). CONCEPTUAL FRAMEWORK Research on environmental scanning appeared in the 1960s with a pair of pioneering studies by Aguilar (1967) and Keegan (1968). Since then the majority of studies has revolved around four research themes: (1) the effect of perceived environmental uncertainty on scanning; (2) environmental sectors scanned; (3) information sources used; and (4) scanning methods. On the effect of environmental uncertainty, most studies found that managers who perceive greater environmental uncertainty tend to do more scanning (see for example, Nishi et al., 1982; Daft et al., 1988; Auster & Choo, 1992, 1993). The focus of scanning is on market-related environmental sectors, with information about customers, competitors, and suppliers being the most important (Jain, 1984; Ghoshal & Kim, 1986; Lester & Waters, 1989). The information sources most often used are personal sources, especially managers and staff within the organization, while sources such as the company library and online databases were less used (O’Connell & Zimmerman, 1979; Kobrin et al., 1980; Auster & Choo, 1992, 1993). Scanning methods can range from ad hoc informal activities to systematic formalized efforts, depending on the organization’s size, its experience, and its perception of the environment (Thomas, 1980; Klein & Linneman, 1984; Preble et al., 208 LIBRARY TRENDUFALL 1994 1988) (for an in-depth review of research on environmental scanning, see Choo & Auster, 1993). Taylor (1991) suggests that a more complete picture of information seeking by a group of users may be gained by analyzing their information use environment, which comprises sets of people, dimensions of the problems to be solved, the work setting, and the ways problems are considered to be resolved. The present study attempts to understand something of the managers’ perceptions of their business environments that would reflect the problem dimensions (e.g., complexity, familiarity) which motivate their information seeking, the scanning activity itself, and the ways that they then use the information in problem solving or decision making. The conceptual framework for investigating these research questions is constructed on theoretical foundations in organization theory and information needs and uses studies. A recent review of past research on scanning concluded that the perceived uncertainty of the environment is related to the amount of scanning done (Choo & Auster, 1993). Uncertainty arises because the executive experiences a lack of information about an external environment that is complex and variable. Furthermore, the more important or strategic that environmental change is perceived to be, the greater the amount of scanning. Thus we identify perceived strategic uncertainty as an independent variable that would affect the executives’ scanning behaviors. Information seeking involves both selection and use of sources. Several classic information needs and uses studies have found that users prefer sources that are perceived to be more accessible rather than sources that are perceived to be of higher quality (see, for example, Rosenberg, 1967; Gertsberger & Allen, 1968; Allen, 1977). Some recent studies have examined how the perceived quality of information from a source may influence its use (Halpern & Nilan, 1988; Nilan et al., 1988; Taylor, 1986; Zmud, 1978). Although it is possible to think of other organizational and personal variables that could affect scanning, concentrating on environmental uncertainty, source accessibility, and source quality, provides a useful start in identifying key informational variables that influence the amount of scanning and the use of information sources to do the scanning. Finally, in order to complete our model, we explore how managers use the scanned information in decision making (Mintzberg, 1973, pp. 137-42). The full conceptual framework is shown in Figure 1. To summarize, the present study investigates environmental scanning by chief executive officers in two Canadian industries by addressing three research questions: AUSTER & CHOO/CEOs, INFORMATION, DECISION MAKING 209