Executive scanning

A structured approach to information gathering can avoid surprises.

by Daniel F. Jennings and Stephen Thompson, 
Industrial Distribution Program, Texas A&M University

In early 1941, Admiral Husband Kimmel took command of the U.S. Pacific Fleet headquartered at Pearl Harbor. By late fall of that year, Kimmel had received numerous warnings from U.S. Naval Intelligence, the Danish Secret Service and the FBI indicating that war with Japan was imminent.

On Dec. 4, Kimmel received fresh warnings from naval intelligence in Washington and the FBI that the Japanese were making preparations to attack an American “possession.” Admiral William Stark, Chief of Naval Operations, sent a private letter to Kimmel on Dec. 5 advising that President Roosevelt and Secretary of State Cordell Hull now believed that the Japanese would launch a surprise attack on an American military base “in the very near future.”

These accumulated warnings were sufficiently impressive to Kimmel that he called a meeting with his senior staff on the afternoon of Dec. 6. At the beginning of the meeting, Kimmel openly expressed his anxiety that Japan was about to launch a massive attack somewhere and was concerned about the safety of the fleet at Pearl Harbor. The senior member of Kimmel’s staff immediately stated that the “Japanese could not possibly be able to proceed in force against Pearl Harbor because the Japanese had concentrated their forces in the South China Sea.” Another high-ranking staff member stated: “the full-alert warnings that the U.S. Army had put into place were sufficient and nothing more was needed.”

Kimmel subsequently recalled that he and his staff concluded that “what we had already done was still good and we would stick to it.” Kimmel further stated, “at the end of the discussion, I put my worries aside and left for a dinner party.”

Interestingly, Kimmel failed to inquire of  Army headquarters exactly what was being done in the way of an alert. Had Kimmel done so, he would have learned the Army was only on limited alert and had been ordered to protect military operations from local sabotage. Also, Kimmel made no effort to use his available channels of communication in Washington to find out the actual meaning of the warnings he had received.

Businesses also miss warning signs
In 2000, Business Week named Cisco Systems the “Corporation of the 21st Century.” Cisco’s senior executives touted the sophisticated management and information systems in place within their firm, stating that those systems operated with real-time data and could detect the slightest change in current markets. However, in 2001, Cisco Systems had the largest inventory write-off ($2.2 billion) of any firm in history.

“We just didn’t see the changes coming,” said Cisco’s CEO to a group of investment bankers.

The top executive of a global industrial equipment manufacturing firm was astounded: His rivals were almost invisible — they were Japanese and Korean firms he had never heard of, but they continued to multiply. This executive later made the following comment regarding these competitors: “Where did they come from? Why didn’t we see them coming? How could we get blindsided like this?”

In 1996, a senior executive of one of the largest electronic distribution firms stated in a keynote speech at a National Electronic Distribution Association annual meeting that the business cycle was “ancient history” for electronic distributors because of the many markets in which they were involved. This same executive said, “It is mathematically impossible for all of our markets to simultaneously decline.” Yet, by 2001 demand for electronic components imploded. Net income of Cisco Systems, long the darling of the telecommunications industry, decreased $8 billion in one year.

Peter Fellowes, who left a law practice to run his family-owned industrial supply manufacturing company, stated: “When I took over, I found that no one in the firm knew what was going on. No one could see wide enough or deep enough into the organization to understand the whole. No one really understood what was going on in our external environment. Everyone had just a piece of the picture in his or her hands. Our decisions were made very quickly and were based on undigested opinions and dramatically related anecdotes.”

How to avoid being blindsided
These examples illustrate flaws in which senior executives and an admiral obtained information about their external and internal environments and their competitors. In today’s world of increasing complexity and rapid change, the need for accurate and precise strategic information is a must. One widely used approach to obtain strategic information is called environmental scanning.

After nearly 40 years, the theory of environmental scanning is well developed and widely disseminated. Pioneering work by academics such as Francis Aguilar of the Harvard Business School and Richard Daft of Vanderbilt University has established rich literature on environmental scanning. Many large corporations such as Royal Dutch Shell utilize the principles of environmental scanning in a process known as scenario analysis.

Yet, the business world remains littered with examples of poor scanning because those individuals involved in the scanning activity failed to include a structured analysis of false, misinterpreted or undetected signals and, in many instances, the scanners were influenced by biases that existed within their firms.

A new concept — executive scanning — can aid executives and professionals in comprehending and navigating their internal and external environments by scanning in a structured manner. Executive scanning enables business executives and professionals to 1) gather information pertaining to their organization’s external and internal environment and 2) create knowledge and make sense from this information.

This structured approach consists of two major activities. The first uses proven diagnostic techniques that allow executives and professionals to understand the components of a particular firm’s external environment as well as understanding the firm’s resources, capabilities, potential for innovation, internal conflicts, power relationships, coordination, control and the firm’s culture.

The second activity involves a scanning process which includes the following five stages:

Collation: Grouping together items of related information to provide a record of events and to facilitate further processing.

Evaluation: Determining the reliability and credibility of the information.

Analysis: Identifying certain facts and comparing them with existing facts and then drawing conclusions.

Integration: Putting all of the analyzed information together to form a pattern of events which, in essence, is a picture of the subject being studied.

Interpretation: Deciding what the collected information means in terms of what is likely to happen in the future.

The process of gathering information about a firm’s external and internal environment is complicated, time-consuming and requires organizational resources, creativity, imagination and insight. Because of false signals, noise, blind spots and smokescreens, the process that many organizations utilize to collect and analyze such information often breeds flawed results. Undetected, these flaws lead to ineffective and disastrous strategies. We argue that our approach of executive scanning provides a way to develop a balanced strategy leading to above-average profits. •

Daniel F. Jennings, Ph.D., PE is a professor in the Industrial Distribution program at Texas A&M University. He holds a doctorate in strategic management from the University of Tennessee. His corporate career includes senior management positions with chemical and forest product firms in the United States, Canada and South America.

Steven Thompson, Ph.D., is an associate professor at Texas A&M University. He holds a doctorate in chemistry from the University of Dundee, Scotland. His corporate career includes senior management experience in the semi-conductor industry in Asia, Europe and North America.

This article originally appeared in the ISMA/I.D.A. Spring Convention 2003 issue of Progressive Distributor. Copyright 2003.

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