Environmental scanning

Question 1

1. What is environmental scanning and why/how is it important in the context of global supply chain management?
   o What are the main organisational tasks that require environmental scanning?
   o Why do firms need to scan the environment?
   o Why is environmental scanning relevant for global supply chain management?

Answer 1

“Called environmental scanning, this information-gathering process detects environmental turbulence or change likely to affect the homeostasis of the organizational system [Dozier, 1992]” (Lauzen and Dozier, 1994)
→ Firms are highly dependent on the information they gather
Bourgeois (1978) defined strategy in terms of a firm’s relationship with the environment to achieve its objectives.

Aim of the paper
To suggest an integration of the two approaches to strategy, business policy (BP) and organizational theory (OT) through a marriage of the strategy and environment variables as treated in the separate disciplines.
Further, the aim of the paper is to argue that research into the process of secondary strategy making provides great potential for increasing our knowledge within strategic management.

Approach of BP literature = to view management as proactive/opportunistic agent
Approach of OT literature = reactive stance by viewing the environment as a deterministic force to which organizations respond

In sum, most of the BP literature dealing with the environment concept has focused on trends, forces, ratios, or other aggregations. The contribution to be made from the OT literature is in identifying the sources of these gross movements.

• The general environment are argue to be related to the “Corporate Strategy”, which is the selection of product markets or industries, and allocation of resources among them. The general environment is composed of multiple task environments. Source of: general social, political, economic, demographic, and technological trends. Whereas the “Business Strategy” it the competitive weapons used to give organization its “distinctive competence”, and thus to navigate in the task environment, which is composed of competitors, suppliers, customers,.
o Weapons depend on task environment characteristics i.e. external attributes e..g complexity, dynamic-shifting and volatility.
→ Therefore, these strategies are throughout the article termed, respectively, primary and secondary.

Findings
The article describes:
• The objective external environment and its variability are the source of the firm’s opportunities and risks and as such must be accounted for when strategies are made and executed, whereas managers’ perceptions of the environment are part of the strategy-making process

Therefore, while domain selection (primary) strategy involves a scanning of the general environment for both (1) broad trends (economic, demographic, sociocultural, etc.) that affect the organization more or less indirectly, and (2) for suitable new task environment entries (e.g., product-market), the domain navigation (secondary) strategy deals directly with the elements of task environment and the changes or discontinuities that they effect.

Question 2

2. What is the information theory on uncertainty?
   o What is the relationship between uncertainty and information
   o What is the relationship between uncertainty, information and scanning techniques & behaviour?

Answer 2

Choo, 2001:

Environmental scanning is the acquisition and use of information about events, trends, and relationships in an organization’s external environment, the knowledge of which would assist management in planning the organization’s future course of action → a way to develop responses and avoid surprises and thus identify threats and opportunities Need → seek → use

The objective of this paper is to expand the Aguilar/Daft and Weick model in two ways:
• Elaboration on the model by detailing the information needs, information seeking and information use patterns
• Elaboration on the model by detailing the sense-making, knowledge-creation and decision-making processes that

PROBLEM 
Does environmental scanning improve organizational performance?

Modes of Environmental Scanning
Depending on whether the organization believes the environment is analysable or not, and whether the organization is active or passive about intruding into the environment in order to understand it, four modes of scanning may be differentiated: undirected viewing, conditioned
viewing, enacting, and searching (Figure 3).

Sensemaking is induced by changes in the environment that create discontinuity in the flow of experience engaging the people and activities of an organization.

An organization possesses three kinds of knowledge:

• tactic (personal knowledge learned through extended periods of experiencing and doing a task)
• explicit (expressed formally using a system of symbols) and
• cultural (consists of beliefs and organization holds to be true based on experience, observation about itself and environment)

Decision making requires information gathering and processing beyond the capabilities of any organization. Depends on:
clarity of organizational goals and uncertainty or amount of information
• Rational mode: goal and procedural clarity are both high, choice is guided by performance programs
• Process mode: when strategic goals are clear but the methods to attain them are not,.
• Political mode: goals are contested by groups but procedural certainty is high within the groups
• Anarchic mode: goal and procedural uncertainty are both high

Undirected Viewing

Since the environment is assumed to be unanalyzable, the organization is satisfied with limited, soft information and does not seek comprehensive, hard data. Information seeking is thus casual and opportunistic, relying more on irregular contacts and casual information from external, people sources.

During undirected viewing, sensemaking is characterized by informal bracketing. Bracketing of external signals are informal in that what the organization notices depends on what subjective cues observers happen to be attending to at the time. There is little by way of a stable stock of knowledge that can be called upon to interpret and make sense of changes in the environment.

Overall, the modus of learning is one of stimulus-and-response:
the organization maintains its status quo until a strong stimulus is recognized and necessitates a response.

Research shows that environmental scanning is linked with improved organizational performance. However the practice of scanning is not sufficient in itself, scanning must be aligned with the strategy, and scanning information must be effectively utilized in the strategic planning process. Hence, environmental scanning is concluded to be an information seeking and organisational learning process.

The model implies that for organizations wanting to encourage their members to scan more proactively, both the level of environmental analyzability and the level of organizational intrusiveness need to be raised. To increase environmental analyzability, the organization might keep in close touch with important actors in the environment and encourage staff to be interested in and to discuss and collectively make sense of external developments. To increase organizational intrusiveness, the organization might create channels to communicate with and influence stakeholders and be tolerant about innovative enactment experiments that do not ‘succeed’ but increase the organization’s understanding of a difficult problem.

Question 3

3.What are the different modes and approaches to environmental scanning? (covered through your presentations)
o What are the different modes for environmental scanning?
o Which approaches are best suited for global supply chain management?

Answer 3

1. Porter’s DIAMOND:
   If a company use Porter’s Diamond model, then it is to analyse actively, and to see if there is a cluster in a given country.
   • Helps understand the competitive position/advantage of a nation in global competition
   • Nations competitiveness depends on the capacity of its industry to innovate and upgrade
   • Businesses within clusters stimulate each other = productivity, innovation and improvements.
   • Companies gain advantage against the world’s best competitors because of pressure and challenge - they benefit from having strong domestic rivals, aggressive home-based suppliers and demanding local customers.
   • Gives a different perspective towards how a company globalize - better to develop domestic suppliers and buyers than relying solely on foreign ones (the correct approach to globalization is to tap selectively into sources of advantage in other nations diamonds)
   4- Factors system
   • Factor conditions - The nations position in factors of production e.g. skilled labour
   • Demand conditions - The nature of home-market demand (high quality)
   • Related and supporting industries – The presence or absence in the nation of supplier industries that is internationally competitive (SC firms are productive and efficient)
   • Firm strategy, structure and rivalry – The conditions in the nation covering how companies are created, organised and managed, as well as the nature of domestic rivalry
   • The role of the government is to encourage this constant self-improvement.
   • The role of chance is often included in the Diamond Model as the likelihood that external events such as war and natural disasters can negatively affect or benefit a country or industry.
   o → Policy makers look at these two reports not managers
   Advantages:
   • Organisations can use the model to establish how they can translate national advantages into international advantages.
   • Helps understand the competitive position in global markets
   • Addresses the importance of the government
   • Focus strongly on the domestic country in becoming successful in internationalization
   Disadvantages and limitations
   • Only really applied to developed economies
   • However, question is should we look at a single country or regions when we define clusters
2. CAGE framework – Ghemawat (Distance still matters)
   • This paper aims to present a tool, which helps managers identify and access the impact of distance on various industries, whenever a company plan to expand to new markets.
   • Pinpoints differences between multinational companies and local competitors
   • Technology may indeed be making the world a smaller place, but it is not eliminating the very real and often very high costs of distance
   • Using the framework can dramatically change a company’s assessment of the relative attractiveness of foreign markets
   Cultural
   • Determines the interaction between people and companies
   • Distance is created through:
   o Religious beliefs
   o Race
   o Social norms
   o Language

Administrative
• • Historical and political associations affect trade between countries
• • Distance can be created through unilateral measures
• • Tariffs
• • Trade quotas
• • Restrictions on FDI
• • Subsidies and favouritism
Geographic
• In miles/kilometres
• Other attributes that must be considered include
• the physical size of the country
• average within-country distances to borders
• access to waterways and the ocean
• It effects:
• Cost of transportation
Economic
• The wealth or income of consumers is the most important economic attribute
• Rich countries engage in relatively more cross-border economic activity
• Expand abroad for purposes of replication or arbitrage

Advantages
• Helps to find a perfect host country
• Encompasses quantitative and qualitative methods
• Evaluates potential risks in foreign markets
• Helps to develop strategies for entering new markets
Disadvantages
• Does not address the power of strategic alliances, joint ventures and acquisitions.
• Does not include technological factors
• Primarily focuses on macro-level distances leaving behind the micro-level perspective
• - Good tool both not enough and it need to be supplemented with other frameworks
- Limitation: do not focus on rivalry

3. Logistics Performance Index (LPI) & LOCAI framework:
   The LPI – Logistics Performance Index:
   An index based on measures (subjective) for transport and information infrastructure, SCM and trade facilitation capabilities, which are calculated based on a world survey of international freight forwarders and express carriers.

Based on 7 underlying factors of logistic performance:
• Efficiency of the clearance process by customs and other border agencies
• Quality of transport and IT infrastructure for logistics
• Ease and affordability of arranging international shipments
• Competence of the local logistics industry
• Ability to track and trace international shipments
• Domestic logistics costs
• Timeliness of shipments on reaching destinations

• High-income OECD countries lead in logistics performance. They benefit from economies of scale and scope, innovation and technological change in logistics services.
• Low-income countries, landlocked countries or countries with political instability are at the bottom of the LPI ranking.

Limitations
• Bias of internal freight forwarders.
• LPI might reflect excess problems outside the country itself, such as transits and co-dependency between countries.

The Logistics Capability Index – LOCAI
The LOCAI provides rankings, shows details about what different locations can offer, and for assessing the major physical, managerial and regulatory bottlenecks of the logistics industry. It can raise awareness of opportunities in improving logistics capabilities.

The LOCAI uses perceptions by international freight forwarders (soft data), which is highly subjective. The soft data should be complemented by a representative set of hard indicators on countries’ logistics capabilities to get a valid and comprehensive overview.

LOCAI is a composite index of the 5 underlying factors:
• Modern infrastructure (phones, internet access, computers etc.)
• Traditional infrastructure - adapted to multi-modal transportation
• Trade facilitation (a wide range of rules, procedures, and mechanisms that help information flow across borders)
• Quality of logistics services (availability and quality of inter-modal transportation)
• Soft infrastructure (laws and regulations on trade facilitation, customs etc.)
The higher the ranking, the more likely is the country to attract FDI and to connect to regional and global value chains.

Limitations
• Availability and quality of input data
• Choice of proxy measures
- Survey is based on leading/large logistic firms and associations. Hence, the data can be biased (Perceived environmental uncertainty at is best)
• Can support decision making, but quite complex to make a global value chain based on this

Key Takeaways
• The LPI / LOCAI frameworks can help decision-making (a macro-institutional approach).
• Gaps in logistics performance between the bottom and top performers persist
• Supply chain reliability and service quality are strongly associated with logistics performance
• LPI and LOCAI should be used in conjunction to include both hard- and soft indicators
• Therefore it is analysable and it is data that is collected and one might conditional view

4. Logistics Environment Complexity Index (LSEC):
   LSEC Index
   • Provides structured insight into complex logistics environment from a macro-economics perspective
   • Helps understand limitations imposed by environment
   • Used to evaluate supply chain competence factors of units of analysis (e.g. countries)
   • Conceptualizes environmental complexity: hierarchical breakdown in analysable entities
   • Enables geovalent adjustment: adapting and accommodating structural and environmental complexity
   • Only relevant if you use it for benchmark purposes (also a limitation of the algorithm you use a benchmark in this example the US for this examples)
   • Higher the number the lower complexity → managers assign weights through judgments not perceptions

Applying LSEC Index

1. Breaking down complexity in hierarchy of flows and factors
2. Assigning weights to respective flows (payment, information, physical and ownership) and factors using research data and/or surveys
3. Calculating index scores
4. Comparing overall scores to reach decision

Advantages
•	Systematic breakdown of complex issues
•	Allows both quantitative and qualitative input
•	Companies and countries applicable
•	Enables context specific analysis
•	Details can be further examined
•	Consistency in judgement
•	Risk of uncertainty can be minimized
•	Benchmarking

Disadvantages

• Subjectivity remains to a certain extend (weight allocation)
• Environmental complexity is analyzed ignoring other environmental uncertainty dimensions (e.g. dynamism, munificence)
• Time consuming
• Large amount of data required
• Approach may be difficult to understand

5. Global logistics costs framework (GLC):
   → What is an estimate of logistics expenditures for the global economy?
   - Logistics is one of the largest costs involved in international commerce
   - The sizing of global logistics expenditures is a difficult task…
   - AI used to investigating costs more exact → more like an index
   Findings:
   - Some countries has lower logistic cost → better infrastructure etc. based on more investments in logistics
   This framework can be argued to be put into both analysable and passive i.e. undirected viewing or analysable and passive i.e. conditioned viewing
   Advantages
   • Gives a good overview of the logistic cost for each country
   • Shows variation between logistic costs between countries / regions
   • Shows the changes in logistic cost between years
   • Helps companies for their market-entry and expansion strategies
   • Increasing accuracy through continuous improvement and training
   • Market entry strategy

Disadvantages
• Political intrigue in several areas when collecting the data
• Absolute values for expenditures, provided in current US$, may be biased in unknown ways
• The data used is an estimation using AI so not perfect data (the reason is that not all countries have the data available for the total logistic cost but some countries have)
o If inputs are wrong the output become wrong

What problems can be solved?
• Not an actual framework/tool to solve a specific problem
• Can be used as a benchmarking tool for different countries
• Since logistics don’t create value in the traditional way the aim is to keep logistics costs at a minimum
• The results can help to point out the need of change to decision makers on a political or private level
• The calculations can be used to find patterns between markets/countries (i.e. developing regions vs. mature markets)

6. Country Sustainability Index framework:
   • Main purpose: Development of a Supply Chain Sustainability Risk (SCSR) map (Excel tool) that provides an overview of the issue-specific and overall sustainability risk for different purchasing countries.
   o 17 different countries
   o Can be used for managers of where they can source from etc.
   o Weighted proxy variable → you cannot take them out
   → This framework is passive and analysable conditioned viewing
   The Conceptual Background for the SCSR Map
   • An integration of country-level sustainability measures in the supplier evaluation process will simplify the sustainable risk assessment process for the focal firm.
   • The institutional theory implies that a supplier´s sustainable risk level is influenced by the country´s sustainable risk level
   o Framework used to simplify the decision process

Solution Design
• SCSR can be subcategorized into environmental-, social and governance related issues
• Those three main categories have been further divided into 15 risky sustainability issues which are presented by a total of 23 proxy variables
o France is the least risky country to solve from (weighted average of all proxy variables)
Limitations
• • Case study approach
• • Regional differences are not taken into consideration
• • Different stakeholder do not assign the same importance to different sustainability issues

Question 4

4.What are the alternatives to deal with the information-related uncertainty?

Answer 4

Flyn and Flynn - “Information-processing alternatives for coping with manufacturing environment complexity” :

• The paper aims to investigate the influence of investments in information systems on the relationship between environmental complexity and manufacturing performance.
• While some authors have claimed that more complex, tech-systems are needed to cope with a more complex environment, other papers have claimed that this isn’t the case.
• Therefore, a moderated multiple regression and multiple discriminant analysis was undertaken to find quantitative and empirical proof - All analysis was conducted at the plant level – 164 plants.
• First hypothesis that the complexity of the manufacturing environment is inversely related to manufacturing performance

Galbraith (1973;1977;1993) proposed the information-processing model of factors that contribute to uncertainty:
• Goal diversity (Multiple products)
• Labor diversity (internal uncertainty, working schedules)
• Supplier diversity (number, reliability)
• Customer diversity (size, characteristics)
• On top of Galbraith, manufacturing diversity, should also be considered. E.g. a bill of materials with a great number of levels adds to complexity.
• Process diversity: E.g. the choice of manufacturing process (Job shop vs. Assembly line) has a large impact on the complexity in the manuf. Environment.

First broad information-processing alternative:
The potential 3 means to achieve reduced complexity, on top of reducing the different forms of diversity listed above, are:
• Creation of slack resources (inventory buffer or backlog)
• Self-contained tasks: Instead of being organized by function, each work group is assigned to a category of output and given all major resources needed to provide that output. (H2)
• Use of environmental management strategies (e.g. JIT, small lot sizes, employee flexibility)
• There is lots of literature that supports the idea that companies profit from less complex systems (H3)

Second broad information-processing alternative
Increasing the capacity of the organization to make use of the information acquired during task execution

Two potential ways:
• Making investments in information systems (H4)
• Use of lateral relations (lateral forms of communication and joint decision-making processes)
• Permits to solve problems at the level where they occur; empowerment and team-based approach (H5)

In addition, it is predicted that the effect of information-processing approaches will be especially critical in organizations that are inherently more complex (H6-H8).

Findings:
Environmental complexity was found to be related to manufacturing performance (for each of the five dependent variables)

Support was found for H1, H2, H3a. H3b, H3c, H5, H6, H7 and H8

→ Investments in information systems and reduction of labour and customer diversity did not moderate this relationship.
• Of particular importance, the best performing complex plants excelled at the use of practices related to simplification of the manufacturing environment, compared with their counterparts with poorer manufacturing performance.
• However, due to the multicollinearity the signs of the coefficients of the independent variables cannot be interpreted.
• Therefore, it can be concluded that there was a relationship between the complexity of the manuf. Environment and manuf. Performance, and that certain sets of independent variables moderate that relationship, but we don’t know anything about the direction of the relationship.

Key Takeaways

• The use of multifunctional employees and cellular layout (self-contained tasks) reduces information-processing needs by focusing the efforts of each work group on a limited set of goals.
• Manufacturing information-processing complexity can be reduced through the use of environmental management strategies that directly attack the sources of complexity.
• Coordinating decision making and communicating manufacturing strategy throughout all levels and functions of an organization (lateral relations) increases the information-processing capacity of the organization.
• Increasing the information-processing capability of the organization through investment in computer information systems is not related to better manufacturing performance according to the findings of this study.
Study supports information-processing model and the world class manufacturing paradigm.