A Managerial Early Warning System: From an Abstract to a Subjective Approach

A Managerial Early Warning System: From an Abstract to a Subjective Approach

Ramona-Diana Leon (The National University of Political Science and Public Administration, Romania)
DOI: 10.4018/978-1-5225-2716-9.ch006
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Abstract

The purpose of this research is to determine how managers could influence the results generated by a managerial early warning system, based on an artificial neural network. In order to achieve this goal, a multiple case-study strategy is employed which combines the qualitative with the quantitative perspective. The results prove that 78.10% of the variability of the managerial early warning system reliability can be explained by managers' influence and company's size; the first one is negatively correlated with system's reliability while the latest is positively correlated with system's reliability. These findings have both theoretical and practical implications. On the one hand, they extend the literature regarding managers' participation in the process of developing the future corporate strategy. On the other hand, they offer a better understanding on how managers may influence not only the identification of the weak signals but also the development of scenarios and forecasted business results.
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Introduction

Against the backdrop of globalization and the switch from the industrial to the knowledge-based economy, the perspective from which a firm’s sustainability is approached changed radically. Unlike the theories developed in the 19th and early 20th centuries (namely, the classical theory, the shareholder theory etc.) which claim that a firm’s sustainability is ensured through profit maximization and shareholders’ satisfaction, those promoted during the 20th and 21st centuries (like, neo-institutional theory, the knowledge-based theory of the firm, the holistic theory etc.) bring forward three pillars of company’s sustainability, namely: profitability, stakeholders, and natural environment (Fiksel, 2006; Leon, in press; Lozano, 2008). In other words, managers have to focus not only on increasing shareholders’ satisfaction but also on augmenting their internal and external stakeholders’ satisfaction, improving the quality of life in the community in which their firm operates, and protecting the environment; they have to address the challenges from the micro- and macro-environment, having their stakeholders’ interests in mind.

Besides, in the current economy, managers have to take into account the fact that information travels faster from one continent to another, and increases company’s vulnerabilities and opportunities. On the other hand, due to the high amount of information, customers’ preferences change in a faster pace; they become more indecisive and their expectations are harder and harder to predict. On the other hand, firm’s communication with its stakeholders is easily supported by the development of information and communication technology (ICT); due to this, it can better connect with all the categories of stakeholders, from all around the world, and at the same time, it becomes more vulnerable in front of rumors.

Within this context, managers started to look for potential solutions and tools that could help them ensure company’s sustainability and predict the future, by giving them some “early warnings”. Although the concept of “early warning” was brought forward in the 1970’s (Ansoff, 1975; Meyer & Pifer, 1970), its necessity captures managers’ and researchers’ interest especially in turbulent times. Thus, various models of early warning systems were developed after World War II (Ansoff, 1975, 1979; Meyer & Pifer, 1970; Pettway & Sinkey, 1980; Sinkey 1975, 1977, 1978), tequila crisis (Laitinen & Chong, 1999; Li & Davies, 2001), and the 2008 economic crisis (Christofides, Eicher & Papageorgiou, 2016; Dawood, Horsewood & Strobel, 2017; Schoemaker & Day, 2009; Yang, 2012). Some of them use abstract tools like statistical analysis (Laitinen & Chong, 1999; Salzano, Garcia Agreda, Di Carluccio, & Fabbrocino 2009) or artificial neural networks (Yang, 2012; Zheng et al., 2012) while others focus on managers’ involvement and mitigate for using managerial debates (Day & Schoemaker, 2005; Kotler & Caslione, 2009). The former ones (especially, the models based on artificial neural networks) emphasize ICT’s value and also reflect the added value that managers bring to strategic planning; unlike the ICT tools, managers are capable of contextualization, finding a meaning for specific situation, understanding the influence that various variables may have on the organizational environment, and setting their sights on motivating the human resources to act in the desired direction. Last but not least, managers’ participation to strategic planning extends their vision beyond the organizational boundaries (Ringland, 2010) and influences the organizational outcomes (Elbanna, Di Benedetto & Gherib, 2015). All these elements seem to be recognized by those who claim that a managerial early warning system should be based on debate (Day & Schoemaker, 2005; Kotler & Caslione, 2009) or at least it should combine the debate with ICT (Leon, 2011).

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