Small business owner scanning within a dynamic environment

SEAANZ 2009 Wellington New Zealand

Blake Escudier Ph.D.Capella University

Sept 2, 2009

Small business owner scanning within a dynamic environment

Small business is the commercial fabric of every community. And to remain successful, the Small Business Owner must adapt to changes in their market environment.

Dynamic Environments are chaotic in nature and affects may cause drastic changes to small business markets.

• What is Scanning the Environment?• What is a Dynamic Environment?• What are the key dimensions small business owners

work within?• Processes in Analyzing the environment• Chaotic Environments• Self-efficacy and the small business owner• Environment effects on small business owner

scanning• Conclusion• Future Research

What is Scanning?

Scanning the environment is a process used by organizations to acquire knowledge of events, trends, and relationships of systems external to the organization. By observing changes in the market, Small Business owners have the option to adapt their resources to prevent threats or pursue opportunities.

Dynamic Environments create changes while trying to reach a new market equilibrium

Question: Does the business owner have the tacit knowledge to handle major market changes?

Question: What can a small business owner do to better prepare for the potential of a dynamic environment?

Small business owner Self-Efficacy is the belief in themselves and their ability to find a solution when faced with a situation and the ability to do what it takes to change.

Key dimensions small business owners live within

• Businesses exist within an open system in constant relationship between organizational systems and numerous environments.

• Business owners view elements of the environment in relation to affect on present operations and future expectations.

• Business owner decision-contingency relies on the owners ability to monitor the external environment and integrate changes with internal organizational resources.

• Personal agency is a system of making causal contributions to their own personal action. The most pervasive personal agency is the individual system of belief in control over actions and environment.

What is the most limiting factor small business owners face?

The most influential dimension affecting business owners is a temporal perspective. Due to limited resources, business owners rely on their own knowledge and the knowledge assets they may acquire – time is a resource that small businesses are relatively unable to increase as compared to larger organizations.

Key factors affecting the temporal dimension of small business owners

Small business planning is subject to the viewpoint of the owner. The link between a business and the environment is envisioned by the owner.

Situational factors create antecedent states of momentary moods such as anxiety, hostility or excitability, and momentary conditions such as cash resources, fatigue, and illness – these are distinguished from chronic individual traits.

These antecedent states exist when scanning the environment and create momentary states owners then bring to the situation – from states resulting from the previous situation. These are called situational influencers and are based on the owners perception of the situation.

Premise here is that the owner’s perception of the situation has more affect on behavior than the inherent features of the situation

Processes in analyzing the environment

Undirected viewing: Small business owners perceive the environment is not analyzable. The process for gathering market information is haphazard and limited. Small business owners may be able to keep their operations going – if the market remains relatively stable. – Learning is derived through a status-quo operation.

Conditioned viewing: Business owners believe the environment is analyzable – yet are passive in efforts to gather information. Monitoring the competition and industry standards provides the owner with a level of tacit knowledge based on stability.

The differences: Conditioned viewing has procedures for scanning yet following standardization may not allow for emerging changes and developments through new sources.

Chaotic Environments

• Traditional economic models represent systems in relatively stable equilibrium.

• The reality is that environments exist within a chaotic system, are in constant flow, and are time-dependent.

• Within relatively stable equilibrium environments – change takes place through entrepreneurial activity in which individuals search for self-satisfaction.

• Changes in competition, access to resources, and technological advances may create uncertainty within the environment. Owners with limited resources may perceive the environment as a threat to their own operations. The level of threat is based on the complexity of the situation and the rate of change.

Self-Efficacy and the small business owner

• The small business owner’s level of self-efficacy relates to their belief in the extent to which they have control over their environment.

• Due to limited scanning – many business owners have a false illusion of control. They overemphasize the extent to which they are able to handle situations within a dynamic environment.

• Business owners will be confident in their ability based on previous control during relatively stable environments.

• Many psychologists have presented that emotional behavior is the cause of feelings.

• Empirical implication: if the environment is inducing people to act emotionally – people will state they feel those emotions.

Environment effects on small business owner behavior

• A person’s consciousness is epistemologically linked to the person but ontologically outside the person. - Thus, emotional feeling is a fact about the situational environment rather than a fact of the individual themselves.

• The condition of the environment and the cognitive self-efficacy of the individual to deal with evolving situations determine the resulting behavior and, thus, future business activity.

Conclusion

Dynamic environments present problems for small business owners as the level of changes within the market become more drastic and may overwhelm the self-efficacy of the owner since most of their tacit knowledge is based on short term scanning programs, tending to be limited in scope and scale. Within dynamic environments, unstable markets cause uncertainty of resources, competition and system relationships. While a new equilibrium is certain, small business owners are required to adjust if they are to survive. Owners must not only adjust their perceptions of the market but also perceptions in their own ability to make adjustments. The fact that a dynamic environment affects business owner’s perception, as well as the markets in which they operate, suggests that planning for dynamic environments may help reduce the potential effects on both the business and the owner’s ability to deal with drastic market changes

Future Research

• To evaluate small business growth and survivability, quantified research should be conducted on small business scanning practices within a select group of businesses within a similar industry. This longitudinal study would compare scanning practices and resulting changes in business success indicators.

• To evaluate owner self-efficacy effects on planning within a dynamic environment, a post dynamic event study should be conducted. Through survey of small business owners the study would search for indication whether the pre-event level of market scanning might have created a lower owner self-efficacy concerning their ability to manage change during the post event dynamic environment.