A Contingency-Based View of Chief Executive Officers' Early Warning Behaviour (eBook)

Dr. Andreas Kirschkamp promovierte bei Prof. Dr. Utz Schäffer am Lehrstuhl für Controlling der European Business School, Oestrich-Winkel. Er ist im Bereich Mergers & Acquisitions bei der Verlagsgruppe Georg von Holtzbrinck in Stuttgart tätig.

Foreword 6
Preface 8
Table of Contents 10
List of Figures 16
List of Tables 20
List of Formulas 26
List of Abbreviations 28
A Introduction 29
1 Motivation and Objectives 29
2 Proceeding and Method 33
B Understanding of Early Warning in Literature and Definition of Important Terms 35
1 German Literature 35
1.1 Frühwarnung, Früherkennung and Frühaufklärung 35
1.2 The Concept of Early Warning by KRYSTEK and MÜLLERSTEWENS 37
2 English Literature 43
2.1 AGUILAR’s Concept of Environmental Analysis 43
2.2 ANSOFF’s Concept of Weak Signals 44
2.3 Issue Detection 48
2.4 Organizational Information Processing 52
C Contingency Theory as an Approach to Explain Early Warning Behavior 55
1 Basis of the Classical Contingency Theory 55
1.1 Development of the Classical Contingency Theory 55
1.2 Aims and Main Assertions of the Classical Contingency Theory 56
2 Extension of the Classical Contingency Theory 60
3 Critical Assessment of the Contingency Theory 64
4 Application of the Contingency Theory to Early Warning Behavior, Research Model and its Variables 68
4.1 Application of the Contingency Theory to Early Warning Behavior 68
4.2 Selection of Design Variables of Early Warning Behavior and Success Measures 69
4.3 Research Model 74
5 State of Empirical Research 75
D Deduction of Hypotheses 79
1 Relationship between Environmental Uncertainty and the Design Variables of Early Warning Behavior 79
2 Relationship between the Personality of the CEO and the Design Warning Behavior Variables of Early 92
2.1 Locus of Control 92
2.2 Tolerance for Ambiguity 96
2.3 Need for Achievement 99
2.4 Risk Propensity 102
2.5 Egalitarianism 103
2.6 Moral Reasoning 105
2.7 Machiavellianism 107
2.8 Trust in People 109
3 Relationship between Success of Early Warning and Economic Success 110
4 Overview of Hypotheses 111
E Operationalization of the Research Model 115
1 Basic Aspects of the Operationalization 115
2 Operationalization of Early Warning Behavior 116
2.1 Scanning 116
2.2 Interpreting 119
3 Operationalization of Contingency Variables 121
3.1 Environmental Uncertainty 121
3.2 Personality 125
4 Success 130
4.1 Success of Early Warning 130
4.2 Economic Success 131
F Methodological Conception of the Analysis 133
1 Data Collection and Data Basis 133
1.1 Data Collection 133
1.2 Data Basis 137
2 Basis of the Quantitative Analysis 140
2.1 Introduction to Modeling Structural Equations 140
2.2 Basics of Constructs 142
2.3 Selection of Method for Structural Equation Modeling 149
2.4 The Structural Model as Means of Valuating Simple Causal Hypotheses 149
2.5 Moderating Effects as Means of Valuating Alignment Hypotheses 152
2.6 Fit Criteria for Constructs 155
3 Construct Measuring 161
3.1 Early Warning Behavior 161
3.2 Contingency Variables 166
3.3 Success Measures 173
4 Cluster Analysis 174
G Results of the Empirical Analysis 177
1 Introductory Analysis 177
1.1 Differences of Perceived Strategic Uncertainty among Sectors 177
1.2 Empirical Assessment of Early Warning Behavior 179
2 Empirical Valuation of Hypotheses 188
2.1 Fundamental Aspects of the Valuation of Hypotheses 188
2.2 Valuation of Hypotheses within the Context of the Classical Contingency Theory 190
2.3 Valuation of Hypotheses within the Context of the Extended Contingency Theory 199
2.4 Concluding Analysis 212
H Final Thoughts and Outlook 223
1 Summary and Discussion of the Results 223
2 Critical Assessment and Further Research Possibilities 233
3 Implications for the Practice 236
Appendix 239
1 Measuring of Composite Constructs 239
2 Explanatory Contribution of Attitudes for Design Variables of Early Warning Behavior 245
3 Explanatory Contribution of all Contingency Variables for Design Variables of Early Warning Behavior 246
4 Questionnaire 247
Bibliography 255

A Introduction (p. 1)

1 Motivation and Objectives

"Organizations depend on the environment […] and often must cope with unstable, unpredictable external events." They can anticipate these events that affect the organization by early warning, a two-step process that comprises scanning the environment and interpreting these data into information about opportunities and risks for the organization.

"[I]dentifying the opportunities and risks" in the organizational environment gives organizations time and the possibility to survive by changing strategy or structure in order to adapt quickly to new trends or by even influencing these trends. Organizations that are aware of potential risks and chances can use this information and shape the environment or adapt to it. So, they have the possibility to avoid a missing fit between the organizational environment and the strategy of the organization which results in declining performance.

In consequence, it is not surprising that organizations anticipating these potential risks and chances tend to be more successful than competitors which are not aware of them. This process helps organizations to outperform peers and leads to a competitive advantage. Therefore, early warning is perceived as a resource defined as "stocks of available factors that are owned or controlled by the firm" which can be deployed by the company. This is supported by the resource based view that assumes "that sustained superior performance arises from sustainable competitive advantages" caused by firm-specific resources.

The relevance and necessity of this anticipation can be illustrated with examples from companies that anticipated trends and therefore gained market dominance. AMAZON foresaw the relevance of the internet as a distribution channel and DELL new methods of production and storage. Both of them were then able to convert this foresight into a benefit for their customers. Examples of companies that were not able to foresee the future also prove the necessity of early warning. On the larger scale, there is a rising number of insolvencies in countries like Germany. On the smaller scale, there are many examples of companies that failed to notice risks and new trends.

The necessity of early warning systems is also reflected by German law. The KonTraG (Gesetz zur Kontrolle und Transparenz im Unternehmensbereich = Law for Control and Transparency in Business) requires an early warning system for stock corporations. It demands these systems mainly because of two reasons: 1) the fast changing environment and 2) the backward orientation of accounting that therefore does not allow the deduction of reliable conclusions about the future. Although the regulatory demands are not completely concordant with those of the organizations, this law has been a milestone in Germany for its importance on early warning in legislation.

In the context of research on early warning there is first of all an important stream of economic literature that focuses on the phenomenon of environmental scanning. At this moment research has focused on the relationship between environmental uncertainty and specific design variables of scanning behavior. But important questions remain and further research has to be done.

The process of early warning consists of two steps: scanning and interpretation. Although the importance of the second step is stressed in literature, empirical studies have not yet focused on this step. In the context of early warning there are only case studies that tried to explore the way managers interpret the organizational environment.