Environmental Scanning – An Information System Framework for Strategic Decisions in SMEs: A Case Study Analysis

Environmental Scanning – An Information System Framework for Strategic Decisions in SMEs: A Case Study Analysis

Ho Yin Wong (Deakin University, Australia), Parves Sultan (Central Queensland University, Australia), Jason Kokho Sit (Bournemouth University, UK), En Li (Central Queensland University, Australia) and Jia-Yi Hung (Tzu Chi College of Technology, Taiwan)
DOI: 10.4018/978-1-4666-5962-9.ch003
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Abstract

The aim of this chapter is to explore the role of environmental scanning in information systems for strategic decisions in the context of small and medium sized enterprises (SME) in Australia. A case study approach was adopted for this exploratory study. In-depth interviews were conducted with owners of two SMEs. Data were analysed using manual qualitative data analysis techniques. Owing to the unique characteristics of SMEs, findings suggest that SMEs share some commonalities and differences to their large firm counterparts. In general, SMEs have a clear idea what their information needs are. They have a narrow scope of scanning, which focuses mainly on economic, customers, and competitive information. External sources from media, salespeople, clients, and competitors are their major sources of information. Human memory and manual filing systems are the key methods of storing information. The information is distributed through personal communications. SMEs use common sense and intuitive approach rather than sophisticated analytical tools to analyse the information. The scanned information is used for both strategic and functional decisions. The findings provide insight to SMEs as to the usefulness of environmental scanning in making various business decisions.
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Introduction

The contemporary economy is a global economy. Businesses in every country of the world engage in business transactions that, in one way or another, affect other businesses worldwide. An introduction of a new product range from a competitor can affect the way business deploys its marketing strategy. A government passes legislations that can impact how business runs their operations. Business environments change every day. Some of these changes come abruptly and some are somehow anticipated. The fast pace of change has unsettled the competitive game among firms irrespective of their sizes. Globalization, the rapid advancement of information and communication technology, the disbarment of the boundaries between industries and the emergence of new entrants, and significant shifts in consumers’ needs and expectations are the factors that can have great impact on the firm success and the definition of competitive strength (Salmon & de Linares, 1999). Global information is foundational to understand the changing global environment (Wong & Hung, 2012). Since the firm cannot control external events, it must endeavour to anticipate and understand them. A critical issue for the firm is how best to participate and manage the changes taking place in the global economic world.

The dynamics of markets force the firm to contemplate its strategy and the environment. Strategic management is concerned with the analyses, decisions, and actions a firm undertakes so as to create and sustain competitive advantages (Dess, Lumpkin, & Eisner, 2007). The firm cannot make decisions in a vacuum. Instead, it needs information related to its business to make educated decisions. In order to make appropriate strategic decisions, the firm needs inputs from the analyses that identify opportunities and threats in the markets. Environmental scanning, as a useful information system tool for large and small businesses, can provide management with detailed and relevant global information for strategic and tactical decision makings (Choo, 1999; Jain, 1984; Wong & Hung, 2012). Environmental scanning can alert the firm emerging environmental issues. Information generated from environmental scanning helps the firm develop and modify strategy that meets the ever-changing external environment. If environmental scanning can better prepare the firm for a volatile environment, the firm has an incentive to get involved in environment scanning irrespective of the size of the firm. Timely and accurate information about the relevant environment is an important element for small and medium enterprises (SMEs) to succeed or fail (McGee & Sawyerr, 2003; Mohan-Neill, 1995). When it is successfully done, environmental scanning can signal SMEs to important trends and issues before the competitors recognize them. Otherwise, SMEs may be placed in a reactive rather than a proactive mode. As such, it is necessary to understand the nature and use of environmental scanning practices in particular to SMEs so that a better framework can be provided to SMEs for making better strategic decisions. In addition, environmental scanning practice has been a topic of study from the perspective of large firms (Wong & Hung, 2012), environmental scanning practice from the SMEs point of view is limited to the findings of the impact of the scope of scanning on strategy formulation (Beal, 2000; Mohan-Neill, 1995), organizational size, inflexibility of technology development, and firm orientation (Yasai-Ardekani & Nystrom, 1996), and the perceived value of environmental scanning practices (Ngamkroeckjoti, Speece, & Dimmitt, 2005). An exploratory study can provide further insights as to the practice of environmental scanning in the SMEs literature. The objectives of this chapter are first to review the literature of environmental scanning, in particular in the SMEs context; and second to explore the role of environmental scanning in the SMEs context with empirical evidence.

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