CS_Manasan.docx

Pamantasan ng Cabuyao
Katapatan Subdivision, Banay-banay, Cabuyao, Laguna
Graduate School and Continuing Professional Education
NERICA BARRIENTOS-MANASAN
GS_MBA-01
Dr. Niño J. Viñas
Case Study #1
22nd International Conference on Production Research
ENVIRONMENTAL SCANNING AND SMES STRATEGIES: A CASE STUDY
Abstract ID: OSPF10019
A.C.M. Pimentel, M.M. Spinola, R.O. Moraes
Departamento de Engenharia de Produção, Universidade de São Paulo, Av. Prof. Luciano
Gualberto, São Paulo, SP, Brasil
Abstract
Dynamic competitive environment demands a constant adaptation. To prioritize strategic
actions, companies must monitor key factors that affect their strategy. However, in SMEs
(Small and Medium Enterprises) strategic planning and environment scanning tend to be
informal and centralized on the owner. In this situation, these activities might be left aside
or not produce information to support strategy formulation. Given the circumstances, it is
important to understand the relationship between strategic decisions and scanning activities
in SMEs. The relevance of this study lies on the fact that, in Brazil, over 90% of the
companies are SMEs, therefore they represent a significant force to the economy. The
objective of this research is to identify, from the characteristics of scanning process in
SMEs, the relationship between competitive strategies and scanning activities. It was used
a unique case study, establishing the proposition that the adoption of a strategy does not
consider scanning activities. A framework was elaborated, based in the theory, and it was
used as research instrument. The interviews were conducted with the board. The collected
information were analyzed and confronted with the results found in theory. It was observed

an informal and unstructured scanning, and a lack of reliability in the information gathered,
what could limit the influence of scanning in strategy. Up to this moment, scanning
activities did not influence the strategy in the studied company. This work helps to
understand the relationship between scanning activities and strategy in SMEs. The
framework developed can be used as reference to other studies. The limitations are the fact
that the research only considers the company´s vision about its own environment and the
owner’s opinion and the impossibility of results generalization. Future works can reproduce
the research in similar companies, to confirm the obtained results.
Keywords:
SME, environmental scanning, Competitive Intelligence
1 INTRODUCTION
In a highly competitive environment, to know external environment and adjust to it is very
important. Because of its dynamism, a constant scanning is necessary to conduct correctly
strategic actions of the companies. Scanning includes defining information needs,
searching and collecting and using them deliberately to set organizational strategy [1].
SMEs have some particularities, as financial restrictions, simple structure, informality,
centralization, among others [2]. These particularities can affect scanning process, since
the owner, who is the main executive and also perform many operational activities, has few
time to plan and scan [2]; [3].
Relationship among scanning activities and strategic process were studied [4];[5].
However, correlation is still in discussion, since factors as cognitive capacity and
personality can influence it. In SMEs, this also occurs, maybe more strongly, given the
great importance of the owners role, leading the company to be a reflect of his personality
[2]. In smaller companies, planning tend to be informal and reactive [3]; [6]. So, scanning
activities and strategic actions depend almost exclusively on the skills and posture of this
person towards the information received.
Smaller companies attend over 90% of all companies in Brazil and are a important force in
the economy, generating wealth and jobs [7]. A poor scanning, due resources restrictions

or lack of time, can lead to bad actions and, in the limit, put the business in risk. Given the
context, a important question is how relationship between strategic decisions and scanning
activities develops in Brazilian SMEs. The objective of this work is to identify, from
characteristics of scanning process in a SME, the relationship between competitive strategy
and scanning activities. As results, it was expected that smaller companies had few
knowledge on the external environment, with an informal and unstructured scanning, with
use of personal sources, given the tendency of these companies to informality. Other
variables of environment would receive little attention of the owner, and would be obtained
by chance.
2 THEORETICAL REVIEWS
2.1. SMEs environment
To characterize a SME, there are many of criteria, such as number of employees and annual
incomes. A small company can be defined as having between 20 and 99 employees, and a
medium company has between 100 and 499 [7]; or as having between 10 to 49 employees,
with a annual income from US$ 400 thousand to US$ 3,5 millions [8]; or even as having a
annual income until US$ 2 millions, and a medium company until US$ 7,5 millions [9]. In
this study, a company will be considered as medium if it fits at least in one of these criteria.
Smaller companies have specificities and tend not to follow academic models towards their
administration and operation [10], [2].In SMEs, adaptation and optimization were more
important than strategic thinking. There are important features that differentiate a SME
from a big company, and it is necessary to use different approaches to study these kind of
company [11], [2], [10]. Since they are so heterogeneous, it is difficult to propose theories,
but there are similar features among them, as exposed in table 1 [2].
Organizational aspects
Table 1: SME characteristics
Heading 1

Centralization; simple and small structure; non-existence of intermediary hierarchical
levels; direct contact with employees, easing informality and flexibility; little control over
external environment; owner prefers to use sensibility rather than administrative
techniques; low maturity; planning and control little formalized; strategy little formalized
and very intuitive; reactive management.
Decisional aspects Decision making lead by owner´s beliefs and based in a short-term logic
and experience; owner does not have time to perform strategic analysis; centralization and
personification of decisions; short decision circuits and often taken without having all
necessary information. Direct contact and simple structure facilitates understanding about
what happens within the company, increasing responsiveness.
Individual aspects Predominance of an individual, who influences strategy, structure
and performance; company is affected by owner´s personal course; propriety determines
status and roles in the organization; owner has paternalist attitudes towards employees.
They have little technical knowledge, poor formal knowledge, generally based in everyday
practices, limited human resources and technical skills.
2.2. Competitive strategies
A strategy must consider three factors: objective, scope and advantage, which defines its
purpose. The objective defines also the time gap to achieve it; scope defines the boundaries
into which this strategy will be used. The essence is to define what the company will do
differently from its competitors, therefore, its competitive advantage [12].
Strategy concepts points to the importance of establishing differentiation towards
competitors, creating more value to the customers, or the same value at lower cost, or even
doing both. The way in which activities are performed in the company are the basic units
of its competitive advantage. In other words, strategic positioning means to perform
activities in a different way of the rivals [13].
Generic competitive strategies can be: leading by cost, by differentiation or by focus, and
it must consider which activities the company performs and how they are done, besides the
industry context [14].

Another typology, and define three types of strategy, taking as key-dimension the changes
regarding products or market. None of the strategies are superior to the others, but each
type has its risks, as showed in table 2 [15].
In SMEs, the strategic process, when existent, is incomplete, unstructured and irregular.
Generally, It works reactively, it is defensive and informal, since owners do not strive to
have a structured planning. Strategy development occurs as the company needs, trying to
increase its survival chances. High resources restrictions make theses companies very
vulnerable to management errors and financial hazards, what would influence the strategy
process [3].
Besides that, SME owners fell that strategic planning is too complex and sophisticated.
Existing overload on SME owners, low professionalization and resource restrictions would
inhibit planning process. This context contributes to the little interest in strategic planning
of SMEs [3].
There is a positive correlation between company size and sophistication level in planning
process, thus, as a SME grows, the company would need to do a formal and structured
planning [16]. However, most important strategic decisions are taken outside formal
planning, and this would be stronger in smaller companies [17].
Other strategic planning schools, such as learning, are more adequate to SMEs, since they
have a more open process, and people outside and inside the company can contribute,
Table 2: Strategy typology Miles
Type Characteristics Risk Focus
Defenders Offer a stable set of products and Obsolescence Process efficiency,
compete by price, quality, service
and delivery
manufacture or delivery
rationalization
Prospectors Pioneers in developing products
or services, changes product
lines frequently and compete by
seeking new market
opportunities
Over extension To select and to adjust
domain, observing trends in
product and market
Analyzers Intermediary – change products
slower than prospectors and areless compromised wit stability

allowing creativity. Owners could take advantage from learning since they have difficulties
to understand a complex ad dynamic environment [3].
2.3. Scanning competitive environment
Companies must adapt to the environment to survive. Scanning is a first step in this process
of adaptation, because competitors with different information show differences in skills to
formulate responses, and survival depends on understanding external influences [4], [18],
[19]. Scanning to competitive intelligence can be defined as the main tool to obtain
important information. Competitive advantage would come from organizational ability to
scan proactively and have more efficient responses [5]. Scanning is the search and collect
of information about events, tendencies and changes beyond organizational boundaries to
guide strategic management [20].
Definitions
Organizational decisions and actions come from information processing arising from
external environment. Changes, events and tendencies create signs and messages, and
organizations use these clues to adapt to new conditions. Besides that, external environment
influences internal structure: if it is more stable, structure would be more rigid, if it is more
dynamic, companies would be more flexible [21]. So, environmental scanning is the
internal communication of external information that might influence in decision making,
and involves identifying these factors, collecting information, that are passed to managers
to guide future actions [18]
Executives use these information to maintain or change structures. So, scanning´s purpose
can be environment surveillance rather then problem solving. Scanning does not enable the
company to adapt to the market, instead helps to construct perceptions and strategic answers
by executives from obtained information [21]; [5].
There are different approaches of scanning [4], [21], [5], [18]. It is hard to establish
scanning measures, since executives scan in a fragmental, informal and random way.
Measured variables were frequency (what were the frequency in which executive knew
about tendencies and events), interest (extension in which executives detained in a subject)

and hours (what percentage of scanning time was directed to each department) ([4], [19])
Other factors measured could be frequency and scope (which sectors are scanned). Also, to
perform a formal scanning, some steps can be followed. First it is necessary to identify
scanning needs. Next, to collect information and analyze them. Finally, the results must be
communicated and a decision must be made based on the information (informed decision)
[18], [1]
It is possible to define "monitoring modes" [1]. In "undirected vision", the individual is
exposed to information without a specific goal, trying to detect early signs of changes in
the environment. In "Guests vision", the individual sees information about selected topics
in an attempt to assess the impact on the company. In "informal search" the individual seeks
information actively, but not so structured. Finally, in the "formal search" there is a formal
and deliberate planning for specific information.
The role of the managers and strategy
The role of entrepreneurs is important in searching and processing information, and it is
even more critical for smaller companies, since they are more dependent on individuals as
information providers. Difference in the patterns of information seeking is influenced by a
set of psychological factors and factors related to personality, which will be addressed later
on [6]. Managers have the role of interpreting the external uncertainties and decide on how
the internal structure should work for better fit [21]. In SMEs, there are difficulties in
understanding the external environment, and therefore qualitative aspects related to the
understanding and interpretation, and the cognitive capacity of the leader become very
important [3]. In addition, variables such as strategic strengths and weaknesses would be
subjective representations made by the directors, and this depends on their characteristics.
There are three factors orientated to entrepreneurship that affect competitive scanning.
First, "need for achievement" refers to the desire of the manager to be successful. These
people would have a moderate propensity to take risks, and prefer to take responsibility for
their own decisions. The second factor, "locus of control" refers to managerial perception
of how their personal control affect the results. This factor has two dimensions: internal,
where the manager believes that their actions and behaviors interfere with the search result

and thus control over the environment, and external, where he believes the situations are
unpredictable and results derive from luck or chance, what leads to a passive attitude. The
last factor, "innovation" refers to the tendency of the leader in supporting and engaging in
new and creative ideas and experimentation, exploring new and unique ways to solve
problems within the organization [5].
Furthermore, market-oriented firms were more proactive in scanning because their culture
favors support for this activity. Proactive scanning is driven more strongly by innovative
managers, with a strong desire to succeed. Therefore, scanning efforts could be maximized
in companies that value competitive intelligence over competitors and consumers.
Knowledge of consumers and competitors' actions allowed a better evaluation of the
strengths and weaknesses of the company, and therefore a better representation of their
competitive advantage. The competitive scanning should be done to understand the impact
of market forces [5].
There is a common body of knowledge in industry, and executives tend to see common
sources of information. Entrepreneurs only scan beyond these limits if their strategy asks
for a particular type of information or if the information was very abundant [4], [20]. In
SMEs the preparation of formal strategic alternative scenarios is not developed - the
executive collects information in the day- to-day to develop a strategy. Search for
information would tend to drive up to what is familiar, convenient and less costly [11].
The choice and use of sources of information also depends on cognitive ability and values
and beliefs of the executive. Organizations can be seen as rational systems for decision
making, but there is a limitation that is the individual's cognitive capacity [21]. Information
would serve to reduce the uncertainty of the process. There is distinction in the choice of
sources of information according to personal characteristics [6]. There is a increased
importance of non- personal sources in leaders with internal locus of control and high self-
esteem. Leaders with a propensity to take risks tend to seek personal sources, while leaders
with personality stiffer seek professional sources.
Given the diverse influences on scanning activity and strategy, some subjective, the
relationship between these two aspects is object of study, without a definitive conclusion.

Companies that tend to adopt the strategy of "defenders" would have a more limited
scanning, and companies that tend to be "prospectors" are more aggressive and wide in this
activity [15]. Other studies [4], showed inconsistency because defenders are not necessarily
passive, but tend to more aggressively competing for efficiency. Likewise, prospector,
though innovative, are primitive in the approach of production or operation. The link
between strategy and scanning was not strong. Instead, prospectors and defenders had the
same information, but used it differently, and these choices are linked to their distinctive
competencies and managerial values. The scanning itself would not be used to reinforce
their strategies and would be restricted to a functional role. Executives scan according to
the perceived need for information, and this can be considered a function of the
organization's strategy. Executives scan to enhance their competitive strategies. This
behavior can perpetuate strategies, limiting its responsiveness to environmental signals
[22]. However, other researchs ([4]) reached different results, where executives rarely
discussed ways of monitoring in terms of contribution to strategy, but in terms of functional
and personal interest.
Scanning in SMEs
In the SME environment scanning occurs in a situational and reactive way, and the leaders
have little control or influence over the external environment and little awareness about the
need for pro-active scanning [10]. Customers aspects were most monitored by SMEs,
followed to information about suppliers, industry regulations and general economic
conditions [23].
Even so, the factors that received more attention still lacked information, which to the
authors can be explained by an inefficient and unstructured scanning, because even with
high frequency search, was not suitable. It was also found infrequently scanning of
competitors, and the factor "price by the competitor" as the one highlighted. Other sectors
few scanned were linked to demographic, socio- cultural and "practices of banks and
lenders."

The authors also analyzed the influence of the size (number of employees and annual
revenue) and the age of the company in scanning activities. In general, since environmental
influence increased, aspect of bank practices received the more attention. As for age, the
authors found that younger firms seemed more concerned with competition. Scanning
competitive environment proves to be an important part in the process of strategic planning,
since the information obtained, if used properly, can lead to good decisions on the
establishment or continuation of a competitive advantage. Many factors influence this
activity, and in SMEs it tends to be centralized in the leader / owner, who for lack of time
or resources, can neglect it. The relationship between scanning and strategy is still
controversial in the literature.
3. METHODOLOGY
The methodology used was a single case study, where the object of study was a medium
size industry in the state of to the framework below. The interview followed, to the extent
possible, this sequence of items São Paulo. The company has a diverse product line, serving
industries such as: stationery (predominant), "Home Centers", furniture and toys. Its sale is
concentrated in the domestic market, serving all states of Brazil. It is a family business,
with 20 years of existence; In the last 5 years, it underwent on a process of rapid growth in
its manufacturing plant as well as in sales. After a period of turmoil and disorganization,
the company began to restructure its internal environment, at first, establishing rules and
operating procedures.
With this consolidated for about 3 years now, its concerns are about the strategic process
and gathering information from the external environment. Despite the lean management
structure and few hierarchical levels, it has formed, since 2009, formalized directory board
and important issues are always discussed and decided together by these people, who have
family ties. No member of the group is considered the company's president. The most
important decisions involving investments, strategic actions one new changes in previous
decisions are made jointly by the group. In case of discrepancies, the general consensus of
the majority prevails. Over time, there has been a maturation in relation to the frequency
and format of meetings and decisions. Each member of this group is responsible for an area
of the company: sales and commercial; production and product design; purchase; and

"back-office" (IT, accounting, tax, human resources and finance). Given these
characteristics of the object of study, observation and understanding of the scanning
processes and strategy planning can be clearer, as the company has gone through several
cycles of learning.
The company's generic strategy is differentiation in products and service. However, its
products are considered of low turnover and commodities - price factor often ends up being
predominant in trade negotiations. Using the five forces model of Porter, it can be noted
that the industry has tougher competition and low financial return. Compared to
competitors, there is a great rivalry and "price war" strategy is a constant. About new
entrants, there is an imminent threat, coming from imported products brought by new
distributors, which eventually compete with industry. There is little bargaining power with
suppliers, which are composed mostly of multinational or large businesses. Regarding
buyers, the bargaining power of them is great, due to the characteristics of the product itself
and increased competition. About substitutes, there is a possibility of moderate occurrence.
To form the interview script , it were used several of the studies discussed in the theoretical
foundation, according to figure 1:
Figure 1: Proposed Framework

To help in the investigation of the research question, it were formulated two propositions.
SMEs have little visibility of its external environment. Increased competition is a major
concern for these companies as well as financial performance variables. Thus, loss of
market share and revenues are sensitive issues [10]. Factors related to market are the most
monitored [23]. Given the constraints of resources and human capital to smaller companies,
and their reactivity characteristics in the strategy ([2]; [3], [10]), the first proposition of the
study is:
P1. In an SME environmental monitoring will be limited to matters related to clients with
personal sources.
Considering the points raised in the first proposition, and yet the fact that strategic processes
are poorly structured and formalized in SMEs, and that there is dynamism and speed in
decision making of SMEs due to centralization and hierarchical structure centered in leader
([11]; [2]), and the fact that in these companies scanning is situational and reactive [10],
the second proposition of the study is:
P2. In an SME, only information about competitors, characterizing a threat to the company,
will cause a change in strategic actions in order to minimize the financial impact of this
new situation.
4. RESULTS
The interviews were conducted during a week with members of the directory board. Then,
the information obtained were summarized in Table 3, following items proposed in the
framework, to facilitate understanding and analysis.
The results obtained in the case study are consistent with the theoretical aspects, regarding
the particularities of SMEs in shaping strategy and environmental scanning. It was also
observed that there is a strong motivation of the members of the company to make it
successful, which is the main driver of decisions. Although there is a small structure in
scanning, the company often feels "lost" and unsure about whether or not to take actions
based on the information obtained, since it considers these personal sources not totally

reliable. Even information coming directly from external customers and staff are seen as
biased, particularly with regard to price and activity of competitors

DIGESTED CASE STUDY:
TITLE OF THE STUDY:
ENVIRONMENTAL SCANNING AND SMES STRATEGIES: A CASE STUDY
By: A.C.M. Pimentel, M.M. Spinola, R.O. Moraes
FACTS OF THE STUDY:
Events, trends, issues, and expectations are the four most important factors in
environmental scanning. Events are occurrences that occur in various environmental
sectors of a business. These occurrences sometimes follow a pattern and tend to move in a
specific direction. In this case study, it was determined that in a highly competitive
environment, knowing the external environment and adapting to it is critical. Because of
its dynamism, it necessitates constant scanning in order for companies to carry out their
strategic actions correctly. Scanning entails defining information needs, searching for and
collecting information, and then using it purposefully to set organizational strategy.
Companies must monitor key factors affecting their strategy in order to prioritize strategic
actions. However, in SMEs (Small and Medium Enterprises), strategic planning and
environment scanning are typically informal and centered on the owner. In this situation,
these activities may be neglected or fail to generate information to support strategy
formulation. Given the circumstances, it is critical to comprehend the relationship between
strategic decisions and scanning activities in SMEs. The importance of this study stems
from the fact that SMEs account for more than 90% of all businesses in Brazil, making
them a significant economic force. The goal of this study is to identify, based on the
characteristics of the scanning process in SMEs, the relationship between competitive
strategies and scanning activities. A unique case study was used to establish the proposition
that the adoption of a strategy does not take scanning activities into account. Based on the
theory, a framework was developed and used as a research tool.

ISSUES:
There are three entrepreneurship-related factors that influence competitive
scanning. First, "need for achievement" refers to the manager's desire to be successful.
These individuals would have a moderate proclivity to take risks and prefer to be
accountable for their own actions. The second factor, "locus of control," refers to managers'
perceptions of how their personal control affects the outcomes. This factor has two
dimensions: internal, where the manager believes their actions and behaviors interfere with
the search result and thus control over the environment, and external, where he believes
situations are unpredictable and results are determined by luck or chance, resulting in a
passive attitude. The final factor, "innovation," refers to the leader's proclivity to support
and engage in new and creative ideas and experimentation, as well as to explore new and
unique ways to solve problems within the organization.
An informal and unstructured scanning was observed, as well as a lack of reliability
in the information gathered, which could limit the influence of scanning in strategy.
Scanning activities had no effect on the company's strategy up to this point. This work
contributes to a better understanding of the relationship between scanning activities and
strategy in SMEs. The framework created can be used as a model for future research. The
research's limitations include the fact that it only considers the company's vision of its own
environment and the owner's opinion, as well as the impossibility of generalizing results.
Future research can be replicated in similar companies to confirm the obtained results.
RESOLUTIONS:
The case study fallouts are consistent with the theoretical aspects, such as the
particularities of SMEs in shaping strategy and environmental scanning. It was also
discovered that the members of the company have a strong desire to see the company
succeed, which is the primary driver of decisions. Despite the fact that scanning has a small
structure, the company frequently feels "lost" and unsure about whether or not to take
actions based on the information obtained, because it considers these personal sources to
be untrustworthy. Even information obtained directly from external customers and
employees is viewed as biased, particularly in terms of price and competitor activity.

Scanning the competitive environment within the context of dynamic changes is a
critical tool for supporting strategic actions. Due to their unique characteristics, SMEs face
numerous challenges in carrying out this activity in a structured manner. In these
companies, strategy formation is also informal and reactive. Studies attempting to establish
a link between these two processes are still contentious. Scanning had a limited impact on
strategy in the case studied, particularly when the impact of environmental changes implied
a loss of customers, revenue, or profitability. Other external factors could also have an
impact on strategy. However, the strategy had no effect on scanning activity.

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