Critically discuss, be means of literature review, the relationship between environmental scanning and strategic procurement

1. Introduction

Can a business like Airbnb, operating in the home-sharing and tourism sector, disregard months-long lockdowns and shutdowns caused by a global pandemic and yet sustain its growth in the long run?

Was it possible for a global investment bank like Lehman Bros. to evade an inevitable bankruptcy in the face of a disastrous financial crisis that primarily hit the US market in the late 2010s, with ripple effects eventually felt worldwide?

In both cases, the answer is a straight “NO.” Thousands of small and medium brick-and-mortar enterprises around the world faced forced shutdowns, at least temporarily, due to COVID-19 over the last couple of years. However, a significant number of entrepreneurs not only sustained their businesses but, in fact, successfully grew them over the pandemic period.

How could they stand out from the rest in a market hit by one of the deadliest human crises ever known to mankind? How could a lot of entrepreneurs successfully keep their businesses like bakeries or restaurants operational by exploring the online route while others could not?

These questions can be answered with a detailed discussion of environmental scanning. In this paper, we will also discuss strategic procurement and its relationship with environmental scanning. We will begin with a brief literature review, followed by a case study. 

2. Literature Review

2.1 Environmental Scanning

Environmental scanning is the process of obtaining information about an organization’s external factors, such as different events, trends, and forces attributing to potential changes, with the sole intention of making informed and knowledge-based decisions in the context of the organization’s future plan of action. So, the scanning involves “knowing and interpreting the external changes,” which effectively becomes “a primary mode of organizational learning.” (Choo 1999)

Here, it is noteworthy that scanning an organization’s external environment is not merely an act of gathering information; there is more to it. It helps the management to determine potential threats and explore possible opportunities while protecting the organization from facing any impending surprises.

Environmental scanning, as Chun Wei Choo (1999) elaborates, “…analyzes information about every sector of the external environment that can help management to plan for the organization's future. Scanning covers not only competitors, suppliers and customers, but also includes technology, economic conditions, political and regulatory environment, and social and demographic trends.”

Delving deep into the study of environmental scanning, Chun Wei Choo (1999) comes up with four different aspects of information sought. Situational dimensions demonstrate a strong co-relation between environmental uncertainty and the intensity and frequency of scanning. The complexity of external factors, coupled with frequently changing external forces, makes a strong case for an environmental uncertainty that demands an increased rate and greater intensity of environmental scanning.

The second aspect reveals an intrinsic relationship between organizational strategy and scanning strategy. A strategy or a set of strategies adopted by an organization- be it from Porter’s (1985) Generic strategies or strategic stances proposed by Miles & Snow (1978)- determines the intensity, purview, and fineness of environmental scanning.

Looking into different sectors of the environment is what is called Information Needs, while sources and modes of scanning come under the purview of Information Seeking. Information use, on the other hand, guides the management towards a better understanding of the organization and helps devise its future planning, leading to desired performance. Managerial traits, too, play a significant role in determining the nature of environmental scanning administered by the organization. Managers at the upper echelon of the organization tend to scan more extensively than those in the downstream hierarchy.

Organizational learning by means of environmental scanning requires both searching information and viewing information. Based on these two acts of information seeking and viewing, Chun Wei Choo (1999) proposes four different modes of scanning the external environment of an organization, namely, Undirected viewing, Conditioned viewing, Informal search, and Formal search.

As the name suggests, undirected viewing means looking at information spread over a wide area to identify any traces of potential change early so that information can be used in an organization’s planning to gain a competitive advantage over others. Keeping no particular information needed into consideration, the management employs distinct sources in large numbers to screen a huge volume of information collected.

Conditioned viewing, on the other hand, is used in scanning when the management intends to study the potential influence a set of information could have on the organization. Information need is much more specific in nature, so the scope of screening is narrow as well, meaning it entails less time and minimal effort. Once the information is proven to be important enough for the organization, the searching mode of scanning is triggered by the management.

Informal search comes into play when there is a need for information to develop a more detailed understanding of a particular topic. Following no formal methodology, the search intends to delve deep into the topic, seeking specific insights and details, to realize whether to employ more time and effort on this issue. 

The most sophisticated and formal mode of scanning goes by the name "formal search." A well-planned, structured methodology is followed here to collect reliable information from comparatively more trustworthy and knowledgeable sources compared to other modes of scanning. Particular information on a specific area or topic is sought so that it can be used in the process of planning the organization’s future course of action. So, the relative significance of the information sought necessitates enhanced focus on its accuracy and overall quality.  

Describing an intelligent organization, Garvin (1993) says, “…an intelligent organization is a learning organization that is skilled at creating, acquiring and transferring knowledge, and at modifying its behavior to reflect the new knowledge and insights.”

Environmental scanning can be a great tool for an intelligent organization to better understand and learn about itself and its external forces, and if carried out effectively, it can provide the organization with a sustained competitive advantage over its competitors in the long run. However, to successfully administer a scanning project, the organization must have a long-term plan in mind and employ sufficient resources and efforts for it to bear fruit in the form of enhanced organizational understanding for the management. Scanning programs generally take 3 to 5 years to make significant contributions to the organization’s long-term progress. (Choo 1999)

Another highly significant trait of an intelligent organization is its holistic approach. “The intelligent organization adopts a holistic approach to knowledge management,” opines Chun Wei Choo (2002), “that successfully combines tacit, rule-based, and background knowledge at all levels of the organization.”

So, as a highly effective tool for organizational learning, environmental scanning needs to be incorporated into the organization’s formal system, in which coordinated efforts from a domain expert, a skilled information manager, and an information technology expert can be a great recipe for holding a sustained competitive edge in the market over a long period.

Japanese companies like Canon and Honda have proven how continuous monitoring of external factors and sustained research and development (R&D) efforts over time have continued to provide them with a technological edge in a highly competitive global technology market. (Choo 2002)

However, effective coordination between different parts of information management- identifying, acquiring, organizing and storing, developing and disseminating, and using information- must be ensured to get the best results from environmental scanning. Regarding best practices of scanning, Chun Wei Choo (1999) writes, “environmental scanning has to balance the tensions between control and creativity, centralization and decentralization, focus and exploration.” 

If this balance can be maintained, coupled with effective use of time and resources, environmental scanning can generate valuable assets for an organization in the form of knowledge about the organization’s relative stance to the market forces and future opportunities and threats, based on which an informed plan of future actions can be formulated.

2.2 Strategic Procurement

Strategic procurement means a continued process of timely, flawless supply of goods and services that complements the organization’s primary business objectives. It aims to keep the overall supply chain uninterrupted while always seeking to minimize risks and maximize value creation both at the supplier’s end and the customer’s end.

A modern procurement strategy is no longer limited to traditional savings and compliance. Strategic procurement today explores different creative ways of creating value for the organization- and this value proposition goes far beyond the narrow purview of savings and compliance.

For the study of strategic procurement, here, I intend to employ the theoretical perspective of Dynamic capabilities along with Barney’s (1991) Resource-based view (RBV).

The theory of Dynamic Capabilities (DC) highlights an organization’s capability of coordinating its internal and external resources, thus making the organization better placed and more equipped to respond to the changing factors in its environment.

Dynamic capabilities, proposed by Teece, Pisano, and Shuen (1997), “analyzes the sources and methods of wealth creation and capture by private enterprise firms operating in environments of rapid technological change.” So, under this theory, an organization’s competencies- both internal and external- are intended to be well coordinated so that new avenues of opportunities can be explored while avoiding impending threats posed by changing external forces.

J.B. Barney holds quite a similar stance in his Resource-based view (RBV), a highly influential theory in the domain of strategic management, emphasizing the identification of a firm’s strategic resources that can be utilized for gaining a long-term competitive edge in the market. Barney (1991) says, “... sustained competitive advantage derives from the resources and capabilities a firm controls that are valuable, rare, imperfectly imitable, and not substitutable. These resources and capabilities can be viewed as bundles of tangible and intangible assets, including a firm’s management skills, its organizational processes and routines, and the information and knowledge it controls.”

However, one criticism that can be labeled as RBV is that it primarily focuses on the internal resource base of an organization. This is where dynamic capabilities (DC) theory seems to hold a more holistic approach. Yet, there are many who view a strong evolutionary connection between RBV and dynamic capabilities theory.

Nelson and Winter (1982) are of the opinion that the theory of dynamic capabilities stems from RBV theory, a view that cannot be discounted altogether, given how similar propositions they make in terms of resource identification, maximization, and utilization of organizational resources.

Dynamic capabilities (DC) theory can be applied with great effect to the holistic nature of environmental scanning, in which information management can be of great value to this theory. While DC intends to integrate and exploit an organization’s internal and external capabilities, to positively and progressively respond to the changing forces in the external environment, scanning provides information about those forces. Now, the organization can utilize its holistic resources to make informed decisions on the basis of information collected through environmental scanning.

So, dynamic capabilities, if put into practice with a well-planned and structured scanning program over a period of time, can produce sustained competitive advantages for the organization. It can now be fairly ascertained that a scanning project greatly complements the dynamic capabilities theory.

A good example of how closely-knit they can be comes from some of the garment factories in Asia, particularly in Bangladesh and Vietnam. During the early stages of the COVID 19 pandemic, a lot of garment factories in Asia suffered the cancellation of orders and delayed payments from buyers, accounting for losses in the millions, while major players like Vietnam and Bangladesh saw raw material imports from China- the largest producer- completely halted.

However, some factories in Bangladesh could still remain operational even during the high wave of COVID disasters. It was possible because they shifted their focus to manufacturing personal protective equipment (PPEs) and face masks, both of which were in high demand in the domestic as well as international markets. (Bangladesh garment makers turn virus gloom into boom 2022)

It shows that these garment manufacturers utilized their internal competencies and external resources in the form of their goodwill and a strong, loyal client base to respond to the changing external forces. Scanning the environment, they must have identified factors- not just negatives but some positives as well.

If lockdowns, order cancelations, delayed payments, and shortage of raw materials were negative forces, the management must not have overlooked opportunities like strong and ever-increasing demands for PPEs and face masks, with some highly conducive government schemes and policies like low-interest, subsidized credit loans for the garment industry, and exemption of their factories from the country-wide lockdowns and shutdowns.

But does it mean all the factories could take such informed decisions and make progress? Or, may I inquire, were those who were unable to make such fateful decisions capable of capitalizing on the opportunities created; did they have a holistic scanning mechanism in place, or did they lag behind at the level of competence; or did both play a role in their relative misery?

However, it may not be entirely correct to attribute their perceived inability to respond to changing forces to incompetence and a lack of scanning mechanisms. A curious mind might wonder if the industry had a level playing field and if socio-political and socio-economic studies could provide additional information needed to determine the true cause of their demise.

Now, coming back to strategic procurement, this domain of knowledge now harbors more of a customer-centric approach, clearly shifting away from its traditional supplier-centric narrow view. Modern procurement strategies are now devised to collaborate with all the stakeholders across the departments in an organization. Strategic procurement now intends to have a more holistic view, integrating both the upstream and downstream organizational operations.

2.2.1 Customer-centric procurement

Customer-centrism as an approach has swept across the field of business organizations, advancing and redefining almost all the traditional theories and approaches across the board, keeping customers at the core. Business literature has seen numerous studies by renowned business experts all over the world.

Webster (1992) remarks that marketing’s focus will be "managing strategic partnership and positioning the firm between vendors and customers in the value chain." Duncan Jones (2017), VP and Principal Analyst, Forrester, thinks that the next generation of procurement will be customer-focused. Customer preferences will be playing an increasing role in procurement decisions and solutions.

The ever-advancing landscape of technology can be the driving force behind a customer-centric procurement strategy. Technology-assisted strategic procurement will open up new and varied avenues for the increasing role of customer preferences in the process of procurement.

With the availability of an increasing amount of digital data coupled with data analytics, modern technology can foster the process of procurement and help the management make much more informed and accurate decisions. Advanced communication technology can also assist a procurement professional in maintaining coordination with a supplier and the marketing personnel. Moreover, technology or digital procurement itself has been a new area of study that deals with a structured analysis of digital buying processes and solutions.

3. The Relationship between Environmental Scanning and Strategic Procurement

Environmental scanning of a business organization can play a significant role in modern strategic procurement, which entails a holistic view of operations. Information coming through an effective scanning program will provide vital knowledge of the potential opportunities to explore and of possible threats to avoid. Early detection of a possible market trend or identifying an untapped market opportunity could lead to a highly successful procurement drive, providing the organization with a significant competitive advantage in the market.

To further discuss the relationship between environmental scanning and strategic procurement, let us take up a real-life case study, in which we will explore how complementary environmental scanning could be towards an organization’s strategic procurement. 

3.1 A Case Study: High Penetration of Broadband Internet in Bangladesh during Covid and Potential Business Opportunities

Bangladesh, an emerging economy from South Asia, has experienced almost a three-fold increase in economic growth over the past 10 years, not an expendable feat by any standard. (Statista, 2022) The turnaround of its fortune began when the technology-driven project, Digital Bangladesh, was launched back in 2008, and its implications started becoming visible since 2010.

A countrywide digitization drive was successfully undertaken, establishing more than 4,500 digital centers. Government services were extensively made available online, and most importantly, a significant reduction in internet prices, coupled with a sustained high growth of mobile phone adoption, saw a whopping 60% internet penetration. (Chowdhury 2020)

On the back of continuous infrastructural development undertaken by the government in the communication and technology sectors, industries like ICT and e-Commerce have experienced tremendous growth. Moreover, the successful proliferation of mobile financial services has turned it into a technology-driven economy in every sense of the word. Even during the pandemic-forced lockdowns, people immensely benefited from the digitized economy.

Bangladesh, a country of roughly 170 million people, currently has 181 million mobile phone subscribers and 123 million internet subscribers, of which 113 million access the internet on their mobile phones. (Mobile Phone Subscribers in Bangladesh 2021; Internet Subscribers in Bangladesh 2021)

While broadband internet penetration till the outbreak of the pandemic was not yet satisfactory, the scenario has started changing over the last couple of years. The pandemic-forced extended homestays, home offices, and online education have seen broadband subscriptions getting doubled since 2019. (Broadband internet providers eye growth 2021)

The number of broadband users may still be very small compared to mobile internet subscribers. But the increasing need for high-speed broadband internet in everyday life- and that so not just in cities- clearly indicates that the recent high penetration of broadband adoption will continue in the coming years as well. In particular, online education has been a pressing need that was deeply felt across the country during the pandemic. So, a blended learning system has been in discussion in the media over the past year, and the government is also working towards introducing a blended approach to the education sector. Moreover, high-speed 5G internet has been launched recently in the country. (Bangladesh enters 5G era today 2021)

Realizing an imminent broadband boom, Internet Service Providers (ISPs) are now moving towards semi-rural and rural areas, a clearly untapped market for them to explore. Here, it is noteworthy that more than 60% of the population still lives in rural areas in Bangladesh.

A well-planned environmental scanning would clearly indicate that the increasing adoption of broadband internet across the country would create a huge demand for affordable digital devices like laptops, notebooks, and smartphones. Students will particularly require learning-friendly devices with built-in education applications in them. The high adoption of laptops and smartphones will also create a huge demand for related accessories, especially those needed for online education.

So, upon acquiring the knowledge of this relatively untapped market, local laptop and smartphone manufacturers can undertake a strategic procurement drive, leading to potential strategic partnerships with various suppliers.

4. Conclusion

Knowledge based on information is an asset to an organization. The success of any organization largely depends on taking informed decisions successfully. While collecting information about internal factors looks less difficult and less complex because they can be controlled to some extent, the same cannot be said about external forces. Various modes of environmental scanning intend to provide valuable information about factors external to an organization.

A procurement professional can create value for an organization in more than one way. But for that, one requires knowledge coming from different departments. As strategic procurement now takes into account the knowledge of all the stakeholders of an organization, information about external factors can be of immense value to procurement professionals.