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Proceedings
of the 7th European
Conference on
Management Leadership
and Governance
SKEMA Business School
Sophia-Antipolis
France
6-7 October 2011
Edited by
Dr Charles Despres
SKEMA Business School
Sophia-Antipolis
France

Copyright The Authors, 2011. All Rights Reserved.
No reproduction, copy or transmission may be made without written permission from the individual authors.
Papers have been double-blind peer reviewed before final submission to the conference. Initially, paper
abstracts were read and selected by the conference panel for submission as possible papers for the
conference.
Many thanks to the reviewers who helped ensure the quality of the full papers.
These Conference Proceeding have been submitted to the Thomson ISI for indexing.
Further copies of this book can be purchased from http://www.academic-bookshop.com
ISBN: 978-1-908272-16-4 Book
Published by Academic Publishing Limited
Reading
UK
44-118-972-4148
www.academic-publishing.org

Contents
Paper Title Author(s) Page
No.
Preface v
Biographies of Conference Chairs, Programme
Chair, Keynote Speaker and Mini-track Chairs
Biographies of contributing authors ix
Public Listed Companies and Fund Managers’ Norraidah Abu Hasan, Alicia Tan and 1
Perceptions on Investor Relations Programs in
Malaysia
Memiyanty Abdul Rahim
Evaluation of the Audit Committee Features and the
Manner in Which They Influence Financial Reporting:
Evidence From Amman Stock Exchange
Mo’taz Amin Al –Sa’eed
10
Social Media Networking Tools (SMNT): Concepts, Aurilla Aurelie Bechina and Eli
18
Challenges and Corollaries of Organisational Work
Practices
Hustad
27
The Variations of CSR Functions Depending on the
Socio-Economic Context?
The Characteristics and Performances of
Entrepreneurial Management in Romania
Impact of the Global Economic Crises Over the Micro
and Macro-Environment in Romania
i
Aurica Briscaru and Georgiana
Corcaci
Nicoleta Bugnar, Adriana Giurgiu,
Liana Mester and Mihai Berinde
Stefan Claudiu Caescu and Ionel
Dumitru
Sustainable CIO Leadership in China Eng Chew 51
Model for Performance Management and
Measurement: Using Synergic Effects of Selected
Tools
Developing and Executing a Strategy While
Confronting Conflicting Stakeholder Interests: A
Case Study
Corporative Management Through Crises Eco-
Efficient Modelling
Miroslav Chodúr, Drahomíra
Pavelková and Adriana Knápková
Michael Cummings, Gary Ottley and
Robert Brewster
Cornelia Dascălu, Chiraţa Caraiani,
Gina Raluca Guşe, Florian Colceag
and Camelia Lungu
Questioning on Audit Committee Effectiveness Camelia Liliana Dobroţeanu,
Laurenţiu Dobroţeanu and Adriana
Sofia Răileanu
Governance Versus Entrepreneurship and Regional
Growth and Development: Challenges for Romania
in the Context of Economic Crisis and European
Integration
Re-implementing an Individual Performance
Management System as a Change Intervention at
Higher Education Institutions - Overcoming Staff
Resistance
Influences of the Organizational Culture on Academic
Management Change and Development in Classical
Universities
Structural Capital and Project Processes: Areas for
Future Focus
Anca Dodescu
Marietjie du Plessis
Carmen Sonia Duse, Dan-Maniu
Duse and Catalin Nemes
Barbara Edington and Beth Ouellette
vii
35
44
60
71
80
89
99
105
116
123

Paper Title Author(s) Page
No.
Management Leadership and Governance in
Education
Communications Between Software Engineering and
Business: Opportunity and Cost Analysis
Preventive Measures for Dealing With Corporate
Conflicts
Corporate Governance in Emerging Economies:
Evidence From Romania
ii
Emmanuel Innocents Edoun
Richard Ens and Richard Turner
Olga Erahtina
Niculae Feleagă, Liliana Feleagă,
Voicu Dan Dragomir and Adrian Doru
Bigioi
VTMM - Virtual Team Maturity Model Ralf Friedrich, Udo Bleimann, Ingo
Stengel and Paul Walsh
Managing Knowledge in Digital Economy: The Role
of Virtual Organizations
Social Responsibility, an Element of Competitiveness
- the Case of SMEs in Romania
Toward a Viable Construct of R&D System
Governance
A Biographical Approach to Researching Leadership
and Entrepreneurship Development Processes in a
Small Business Context
Perspectives and Directions for Professional
Development in the Lower Silesian Voivodeship
Compared to Poland and the European Union
IT Project Management in Relation to Employees'
Competence in Poland
Development of a Validation Method for an IT
Governance, Risk and Compliance Health Care
Framework
The Potential of Library 2.0 in Buttressing
“Prosumption” Culture Among Researchers in Kenya
Bogdan Ghilic-Micu, Virginia
Maracine, Marian Stoica and Cecilia
Simion Ciocan
Georgeta Grigore and Corina Grigore
Patrick Hester and Thomas Meyers
Karen Jones
Jolanta Kowal
Jolanta Kowal, Aleksandra
Kwiatkowska and Wojciech Kowal
Mike Krey, Steven Furnell, Bettina
Harriehausen and Matthias Knoll
Tom Kwanya, Christine Stilwell and
Peter Underwood
Individual and Corporate Leadership Longevity Linda Lee-Davies and Nada
Kakabadse
Governance of the Economic Engine Room: Insights
From Agricultural Governance in New Zealand
From Reporting to Communicating: Debates on
European Union Environmental Policies
Transposition at the Microeconomic Level
Toward a new Conceptual Model of Management
and Leadership Competencies and Their Impact on
Organizations’ Performance
The Impact of Quality of Bureaucracy on Governance
Performance: A Comparative Study in Balkan States
Internalisation of the Values of National Integrity
Systems and Governance Performance in Some
South-Eastern European states: Significant Aspects
and Comparative Studies
Toward the What and How of Measuring R&D
System Effectiveness
James Lockhart
Camelia Iuliana Lungu
Xavier Martin
Ani Matei and Lucica Matei
Ani Matei, Florin Marius Popa and
Carmen Savulescu
Thomas Meyers and Patrick Hester
129
136
144
151
159
167
181
189
199
206
217
227
239
246
254
262
270
277
285
296

Paper Title Author(s) Page
No.
Core Competencies for Business Graduates Embark
on the Economic Clusters of Saudi Arabia
iii
Sundaram Nataraja, Mazen
Rasheed, Ahmed Al-Aameri and Zia-
Ulhaq Paracha
Workplace Well-Being and Engagement – Some
Inter-Relations and Their Organizational Impacts
Jinia Mukerjee Nath
313
The Directing Role of Governance in Establishing
Proper Organizational Culture in Universities
Fattah Nazem
321
The Role of Governance in Appointing University
Managers With Creative Problem Solving Skills
Fattah Nazem
327
Overcoming Governance Handicaps in a Developing
Economy
Abiola Ogunyemi
334
The Big Five Personality Traits and the art of Virtual
Leadership
John Politis and Denis Politis
342
The Role of Moral Values in Business Mirela Popa and Irina-Iulia Salanţă 350
Corporate Governance and Conservatism Ali Pourkazemi and Mohammadreza
Abdoli
360
Changing Managerial and Leadership Roles in
Successful Industries in Pune
Parveen Prasad
371
Tax Aggressive Behaviour in Private Family Firms -
the Effect of the CEO and Board of Directors
Tensie Steijvers and Mervi Niskanen 379
Making Organizational Learning Work: Lessons From
a High Reliability Organization
John Sullivan and Roger Beach 387
A Role of Socialization Tactics on the Perceived
Person-Job fit of new Employees
Nucharee Supatn
394
The Social Capital of Brand Communities Anabella Maria Târnovan 402
Knowledge Management: Falling at the First Hurdle? Gerry Urwin 410
Professionalization of TMT in Private Family Firms -
the Danger of Institutionalism
Much More Than CEO Duality: A Behavioural
Perspective on Board Leadership
The Board of Directors as a Team: Getting Inside the
Black box
Board Dynamics: The Soft Underbelly of Corporate
Governance
Gender Spread Analysis of Customer Knowledge for
Competitive Advantage: Case of Beauty and
Cosmetic Products in Thailand
Pieter Vandekerkhof, Tensie
Steijvers, Wim Voordeckers and
Walter Hendriks
Maarten Vandewaerde, Wim
Voordeckers, Frank Lambrechts and
Yannick Bammens
Maarten Vandewaerde, Wim
Voordeckers, Frank Lambrechts and
Yannick Bammens
Theo Veldsman
Lugkana Worasinchai, Farhad
Danesghar and Kerry Barnett
Developing, Screening or Signalling Human Capital? Monica Zaharie, Codruta Osoian and
Adrian Opre
457
PhD Research Papers 465
Experiential Education as a Part of Human
Development in Czech Republic Business
Companies
Radek Blahuš
306
419
427
435
443
452
467

Paper Title Author(s) Page
No.
The Testing and Validation of a Model for Leadership
Maturity Based on Jung’s Concept of Individuation
Relationships Between Human Resources
Management and Organizational Culture
iv
Danie du Toit, Theo Veldsman, Deon
van Zyl
Nicoleta Valentina Florea, Ioana
Raluca Goldbach and Felix
Constantin Goldbach
Examination of the Dynamic Relationship Between
Authoritarianism and Benevolence and BSH and
BSW Through a Polychronic Lens and From a fit
Perspective: Generating Knowledge From Lebanon
Fadi Hachem
497
Inter-Firm Cooperation Under the View of Theory of
Planned Behavior: The Case of Vietnam
Nguyen Phuc Nguyen
505
Choice or Predetermined Path? Women in
Investment Management-Why so few?
Corina Sheerin
515
Identification of Specific Motivational Factors for
Different Categories of Staff and its Importance
Šárka Vránová
524
Work in Progress Papers 533
Models for Supply Chain Governance Emil Crisan, Ilie Parpucea and Liviu
Ilies
The Elaboration and Implementation of an Innovative
Methodology for Analyzing and Evaluating the
Characteristics and Performances of the
Entrepreneurial Management in Romania
Renewing Human Intellectual Capital by Building
Trust in Intra-Organizational Relationships
Records Governance in Enterprise 2.0: Toward an
Archival Understanding of Social Media and its
Potential for Record Creation
Adriana Giurgi, Ion Popa, Nicoleta
Bugnar, Liana Mester, Mihai Berinde
and Lucian Unita
Mirjami Ikonen and Taina Savolainen
Elizabeth Shaffer and Luciana
Duranti
477
487
535
538
541
545

Preface
These Proceedings represent research presented at the 7th European Conference on Management,
Leadership and Governance (ECMLG) hosted this year by SKEMA Business School, Sophia-Antipolis,
France. The Programme Chair is Dr Charles Despres from the SKEMA Business School.
The opening keynote address is given by Christopher Blodgett from NATO School, Oberammergau,
Germany.
The main purpose of ECMLG Conference is for individuals working in the area of Management Leadership
and Governance to come together to share knowledge with peers interested in the same area of study.
A key aim of the conference is about sharing ideas and meeting the people who hold them. The range of
papers will ensure an interesting two days. The topics covered by the papers illustrate the wide range of
issues that fall into this important research area.
With an initial submission of 212 abstracts, after the double blind, peer review process there are 55
academic research papers, 7 PhD papers and 4 work in progress papers published in the Conference
Proceedings. These papers represent research from Belgium, Canada, Cyprus, Czech Republic, France,
Germany, Indonesia, Iran, Japan, Jordon, Kenya, Lebanon, Malaysia, New Zealand, Nigeria, Poland,
Romania, Saudi Arabia, South Africa, Thailand, United Arab Emirates, United Kingdom and United States of
America.
I hope that you have an enjoyable conference.
Dr Charles Despres
SKEMA Business School, Sophia-Antipolis, France
September 2011
v

Conference Committee
Conference Executive
Danièle Chauvel, SKEMA Business School, Sophia-Antipolis, Nice, France
Charles Despres, SKEMA Business School, Sophia-Antipolis, Nice, France
Gordon Hunter, University of Lethbridge, Canada
Jolanta Kowal, College of Management and Wroclaw University, Wroclaw, Poland
Aleksandra Kwiatkowska, College of Management and Wroclaw University, Wroclaw, Poland
Philip Merry, Global Leadership Academy, Singapore
Ewa Panka, College of Management, Wroclaw, Poland
John Politis Neapolis University, Pafos, Cyprus
Florian Sala, SKEMA Business School, Sophia-Antipolis, Nice, France
Chaudhary Imran Sarwar, University of Punjab, Pakistan.
Committee Members
The conference programme committee consists of key individuals from countries around the world working
and researching in the management, leadership and governance fields especially as it relates to information
systems. The following have confirmed their participation:
Paul Abbiati (PMMS Consulting Group Legal Consultant and member of The Chartered Institute of
Purchasing & Supply, UK); Ruth Alas (Estonian Business School, Tallin, Estonia); Mo'taz Amin Al Sa'eed (Al
- Balqa' Applied University, Amman, Jordan); Maria Argyropoulou (Boudewijngebouw 4B, Greece); Ahmet
Aykac (Theseus Business School, Lyons, France); Egon Berghout (University of Groningen, Netherlands);
Svein Bergum (Lillehammer University College, Norway); Mike Berrell (RMIT University, Melbourne,
Australia); Malcolm Berry (University of Reading,, UK); Malcolm Brady (Dublin City University, Ireland);
Douglas Branson (university of Pittsburgh, PA, USA); Kiymet Tunca Caliyurt (Trakya University - Faculty of
Business Administration and Economics, Turkey); Akemi Chatfield (University of Wollongong, New South
Wales, Australia); Daniele Chauvel (SKEMA Business School, Sophia-Antipolis, Nice, France); Mei-Tai Chu
(La Trobe University, Australia); Phillip Davidson (University of Phoenix, Dallas, USA); John Deary; Andrew
Deegan (University College Dublin, Ireland, Ireland); Dirk DeSchoolmeester (Ghent Business School,
Belgium); Charles Despres (SKEMA Business School, Sophia-Antipolis, Nice, France); Sonia Dias
(Faculdade Boa Viagem, Recife, Brazil); Philip Dover (Babson College, USA); Katarzyna Durniat (Wrocław
University, Poland); David Edgar (Caledonian Business School, Glasgow, UK); Niculae Feleaga (Academy of
Economic Studies, Romania); Shay Fitzmaurice (Public Sector Times, Ireland); Adriana Giurgiu (University
of Oradea, Faculty of Economic Sciences, Romania); Ken Grant (Ryerson University, Toronto, Canada);
Paul Griffiths (Director, IBM, Santiago, Chile); Milenko Gudic (University of Belgrade, Yugoslavia,
Yugoslavia); Adam Gurba (WSZ Edukacja Management Department, Poland); Ray Hackney (Brunel
Business School, UK); Joe Hair (Louisiana State University, USA); Memiyanty Haji Abdul Rahim (Universiti
Teknologi MARA, Malaysia); Patrick Hester (Old Dominion University, USA); Fakhari Hossien (UMA
University, Iran); Jack Huddlestone (Cappella University, USA); Gordon Hunter (University of Lethbridge,
Canada); Nada Kakabadse (Northampton Business School, UK); Georgios Kapogiannis (University of
Salford, Manchester, UK); Husnu Kapu (Kafkas University, Turkey); Panagiotis Karampelas (Hellenic
American University, Athens, Greece); Marios Katsioloudes (Hellenic American University, Athens, Greece);
Alicja Keplinger (Institute of Psychology at the University of Wroclaw, Poland); Reinford Khumalo (North
West University, South Africa); Zdzisław Knecht (Wroclaw College of Management, Poland); Maria Knecht-
Tarczewska (Wroclaw College of Management “Edukacja”, Poland); Dimitrios Koufopoulos (Brunel
University, UK); Jolanta Kowal (College of Management and Wroclaw University, Poland); Jiorgis Kritsotakis
(Hellenic American University, Athens, Greece); Mieczysław Leniartek (Technical University in Cracow,
Poland); James Lockhart (Massey University, Palmerston North, New Zealand); Sam Lubbe (University of
South Africa, South Africa); John Macnamara (e-Ireland, Ireland, Ireland); Ahmad Magad (Marketing Council,
Asia, Singapore, Singapore); Bill Martin (Royal Melbourne Institute of Technology, Australia, Australia);
Roger Mason (Durban University of Technology, South Africa); Michael Massey (International Centre for
Applied EQ Leadership, UK); Philip Merry (Global Leadership Academy); Kevin Money (Henley Business
School of the University of Reading, UK); Barbara Mróz ( University of Wrocław, Poland); Aroop Mukherjee
(King Saud University, Riyadh, Saudi Arabia); Hirohisa Nagai (University of Tsukuba/Izmir University of
Economics, Japan/Turkey,); Timothy Nichol (Northumbria University, UK); Chris Norman (Deloitte & Touche,
Neuilly, France); Maciej Nowak (University of Wrocław, Poland); Lavinia Olimid (Academy of Economic
Studies Bucharest, Romania); Abdelnaser Omran (School of Housing, Building and Planning, Universiti
Sains Malaysia, Malaysia,); Nayantara Padhi (Indira Gandhi National Open University, New Delhi, India);
Eleonora Paganelli (University of Camerino, Italy); Jatin Pancholi (Middlesex University, UK); Stavros Parlalis
(Frederick University, Cyprus); Noel Pearse (Rhodes Business School, South Africa,); George Phillip
(Queens University of Belfast, Ireland); Jacobus Willem Pienaar (University of the Free State, South Africa,);
vi

John Politis (Neapolis University, Pafos, Cyprus); Nataša Pomazalová (FEM University of Defence, Czech
Republic); Adina Simona Popa (University "Eftimie Murgu" of Resita, Romania); David Price (Henley
Business School of the University of Reading, UK); Despina Prinias (Hellenic American University, Athens,
Greece); Gazmend Qorraj (University of Prishtine, Kosovo); Senthamil Raja (Pondicherry University, India);
Jan Sarpara (University of Balochistan, Qetta, Pakistan); Chaudhary Imran Sarwar (Creative Researcher,
Lahore, Pakistan); Elaine Saunders (UNISA Graduate School of Business Leadership, South Africa); Maria
Theresia Semmelrock-Picej (Klagenfurt University Biztec, Austria); Kakoli Sen (IILM Institute for Higher
Education, Gurgaon, India); Irma Shyle, (Polytechnic University of Tirana, Albania); Samuel Simpson
(University of Ghana Business School, Accra, Ghana); Raj Singh (University of Riverside, USA); Gregory
Skulmoski (Cleveland Clinic Abu Dhabi, United Arab Emirates); Mateusz Sliwa (Wrocław University, Poland);
Peter Smith (University of Sunderland, UK); Reima Suomi (University of Turku, Finland); Ramayah
Thurasamy (Universiti Sains Malaysia, Malaysia); Alan Twite (COO Vtesse Networks, UK); Mirosława
Wawrzak- Chodaczek (Institute of Pedagogy, Wrocław University, Poland); Brent Work (Cardiff University,
UK); Eleanor Wynn (IT Innovation, Intel Corporation, USA); Monica Zaharie (Babes-Bolyai University,
Romania).
vii

Biographies of Conference Chairs, Programme Chairs and
Keynote Speakers
Programme Chair
Dr Charles Despres is Professor of Organisation Theory in the Knowledge, Technology
and Organization department and a member of the corresponding SKEMA research
centre (KTO). Charles holds a Ph.D.in Business Administration with a concentration in
Organization Theory /Cognitive Systems from the University of Utah, Salt Lake City, USA
(1995). He focused his doctorate on the organizing implications of large-scale
information systems and subsequent research has centered on the triad of information,
organization and culture, Since 1997 his academic and professional career has
concentrated on the emerging field of Knowledge Management. He joined IMD (Lausanne, Switzerland) in
1991 as an ABD Research Fellow. In 1996 he assumed research / professorial roles at the Institute
d’Administration des Entreprises (Aix-en-Provence) and the Theseus Institute (Sophia Antipolis). Dr. Despres
was Professor of Organization and Director of International Development at the Euromed School of Business
(Marseille) from 1997 - 2002. In 2003 he joined the Conservatoire National des Arts et Métiers (Paris) as
Director of Programs at its International Institute of Management. In parallel he was associated with the
College de Polytechnique during 2005 as a Director focusing on Knowledge Management, International
Affairs and Certificate / Degree programs. In 2006 he became Director of Development for the Conservatoire
in the Languedoc Roussillon region of France.
Keynote Speaker
Chris Blodgett is a Lieutenant-Colonel Royal Military College Canada graduate and Air
Force Officer in Canadian Forces. He began as a Navy Tactical Maritime Helicopter
Navigator. Possessing a MA in Management & Policy and certifications in KM, IM,
strategy, change and HR, he was the DND/CF KM Director prior to his present KMO
position at NATO School Germany.
Mini Track Chairs
Dr M. Gordon Hunter is a Professor Information Systems in the Faculty of Management,
University of Lethbridge, Alberta, Canada. He has held visiting positions at universities in
Australia, England, Germany, Monaco, New Zealand, Poland, Turkey, and USA. He
applies qualitative interview techniques (Personal Construct Theory and Narrative
Inquiry) in interdisciplinary research such as small business, agricultural management,
governance of intellectual assets, and cross-cultural investigations. His current research
interests in the information systems (IS) area include the effective management of IS
personnel; the role of Chief Information Officers; and the use of IS by small business.
Philip Merry is founder and CEO of Singapore’s Global Leadership Academy and a
cross-cultural leadership consultant for 31 years in 52 countries. Specialising in the
practical application of happiness and well-being concepts to the multi-cultural
workplace he helps organisations devise happiness strategies that positively impact
productivity. Philip balances his commercial work with development work in women’s
leadership and is a long term facilitator with the UN. In recent years he has consulted
regularly in Bhutan. English by birth and resident in Asia for 24 years Philip is a research
associate at Henley Business School where he is researching the leader’s influence on workplace happiness
across cultures.
Dr. John Politis PhD is an Associate Professor of Management at Neapolis University,
Pafos in Cyprus. He regularly publishes peer reviewed academic papers in quality journals
and his research output is presented at refereed conferences. He is currently a member of
a number of editorial boards, including The Leadership and Organisational Development
Journal and the Knowledge Management Research and Practice Journal. Before taking up
his current position, John was an Executive MBA faculty member for the Centre of
Excellence for Applied Research and Training, and a Pioneering Faculty of Business and
Engineering Management programs at the Higher Colleges of Technology in the United Arab Emirates. He
was also a lecturer and consultant in a number of Australian universities. John has also spent more than 18
years in Australia and Europe in a wide range of managerial roles and has been elected a Fellow of a
number of professional associations.
viii

Dr Florian Sala is a Doctor of Experimental psychology as well as a clinical psychologist
and psychotherapist. At the SKEMA Business School Sophia Antipolis he is Professor of
Management and Human Resources Management and former Dean (2001-2003). He
has been the Programme Director of MSc in HRM since 2009. In 1992 he co-founded
the Institute of Psychoanalysis and Management (IPM) of which he was the national
chairman until to 2000. His major interests are Psychopathology at the workplace,
Psychoanalysis and Group Dynamics.
Biographies of contributing authors (in alphabetical order)
Norraidah Abu Hasan is lecturer of Faculty Administrative Science and policy Studies, Universiti Teknologi
MARA, Malaysia. Her research interests are the corporate governance, human resources and management.
Mo'taz Amin Al-Sa'eed PhD is Assistant Professor ot the Accounting and AIS Department, Al-Balqa’
Applied University, Jordan. His competencies are financial reporting, analysis and auditing, corporate
governance, IT governance and training. He is a member of the Institute of Management Accountants (IMA),
USA, Executive Editor of the International Journal of Accounting and Financial Reporting (IJAFR) and on the
editorial boards of many refereed international journals.
Aurelie Aurilla Bechina Arntzen Prof. Dr. is Professor at the college university of Buskerud, Norway and
visiting Professor at Bangkok University,Thailand. Her academic interests are broad, ranging from real-time
systems development to the conception of knowledge systems. She served as Expert Evaluator for the
European commission.
Radek Blahuš, PhD student at the Tomas Bata University in Zlín, Faculty of Management and Economics, is
very interested in experiential education and its possibilities for development of employees. His bachelor and
diploma thesis was aimed at this topic as well as his internship during his study.
Nicoleta Bugnar is responsible of the PERFORMAN project within the Partner 4 (University of Oradea)
project’s team; Chief of the Department of International Business at the Faculty of Economic Sciences,
University of Oradea, Romania
Stefan Claudiu Caescu is an assistant professor with a PhD since 2010 on strategic marketing in the B2B
field, member of the Marketing Department in the Academy of Economic Studies in Bucharest since 2004,
and having his main areas of specialization strategic marketing, business to business marketing and
marketing management.
Eng Chew is a Professor of Business and IT Strategy at the University of Technology, Sydney, Australia. He
is a former Chief Information Officer of SingTel Optus, with over 25 years of industry experience. With
interests in strategy, management and leadership, he has been conducting field research in China’s
business and service innovations since 2005.
Georgiana Corcaci is a Senior Lecturer PhD University of Petre Andrei Iasi, Faculty of Psychology and
Educational Sciences. Director of Human Resources Center, University "Petre Andrei" of Iasi; Human
Resources Coordinator MA, University "Petre Andrei" of Iasi; National Trainer in the Continuing Education
Program of Teachers; Public Relations Manager at IPIX, Romania; experience in psycho evaluation,
selection, recruitment, career development, assessment of psycho-social skills training.
Emil Crisan is currently a teaching assistant at the Faculty of Economics and Business Administration,
Management Department, Cluj-Napoca, Romania,. He teaches business simulation, logistics, supply chain
and quality management. His research interests are supply chain governance and logistics management
best practices.
Michael Cummings teaches at Babson College in Wellesley, Massachusetts. Prior to teaching at Babson
Cummings founded three companies. He received his MBA from Babson College and his PhD from
University College, Dublin. Dr. Cummings’s research interests center around public policy issues that impact
the Massachusetts Health Care industry.
Cornelia Dascalu is a PhD, Professor at the Academy of Economic Studies, Bucharest, Romania. Her
expertise areas are to teach and research in accounting. Her recent research interest is developed within
three national research projects focused on Managerial Accounting and Social Environmental Accounting.
The research results were published in recognized journals in the field.
ix

Paul Diaconu is a high profile Romanian academic professor and researcher showing particular interests for
investigations of global implications on future developments of accounting and on accounting graduate
programs that prompt for accommodation to prospective challenges. In addition he is actively involved in
business real life and governance of the national accounting professional organization.
Anca Dodescu is the Dean of the Faculty of Economic Sciences of the University of Oradea, and Manager
(National Co-ordinator) of the Project entitled "Entrepreneurship and the Equality of Chances. An Interregional
Model of Women School of Entrepreneurship"
Marietjie du Plessis studied at the University of the Free State (South Africa) and obtained a BAed. Degree
in 1984. In 1986 she completed her BA Hons Degree where after she has obtained a MA Degree in
Afrikaans and Nederlands (Postmodernism: A Literature Study on Andre P. Brink’s Hou Den Bek). She
obtained her MBA in 2010 at the School of Management at the University of the Free State.
Dan Maniu Duşe started his career at the “Lucian Blaga” University in Sibiu in 1979. He is currently Vice
Rector at the University, being responsible with coordinating the academic management (quality of education
and academic human resources). He was actively involved in creating educational programs that meet the
needs of today’s world.
Danie du Toit, BA, D Com, is an Industrial Psychologist who worked for 20 years in various organizations,
holding positions in Human Resources Management and Development. He is currently splitting his time
between consultation, private practice, and academic work. He is a senior lecturer at the North-West
University, South Africa, and is co-author of articles in peer-reviewed magazines.
Lilia Dvořáková, CSc and Ing Jitka Zborková come from the Department of Finance and Accounting,
Faculty of Economics, University of West Bohemia, Czech Republic. Their research interests include
accounting, taxes, business environment and business finance.
Barbara Edington is the director of the Center of Excellence in Project Management, is an associate
professor in the Management and Information Technology Department at St. Francis College, NY. She holds
a DPS in Computing from Pace University, an MBA in Finance from Temple University, a BS in
Psychobiology from Albright College and PMP certification.
Richard Ens is a student at Stevens Institute of Technology working towards his Ph.D in Engineering
Management. Richard received his undergraduate degree in Professional and Strategic speech from Rider
University and Master of Science in Information Systems from Stevens Institute of Technology.
Niculae Feleagă is a University professor PhD. at the Academy of Economic Studies, Bucharest; professor
at the National Institute of Economic and Accounting Techniques, Paris (1997-2000: one semester each
year); member in the “Accounting” working party (1998-2001) and in the “Corporate Governance” working
party of the FEE (2005-2006); member in the PAIB Committee of the IFAC (2008-2010).
Adriana Giurgiu – Scientific Responsible of the PERFORMAN project within the Partner 4 (University of
Oradea) project’s team; Scientific Director of the Research Centre on Sustainable Development and
Competitiveness; Jean Monnet Professor and Module Leader:- "EU Sustainable Development and
Competitiveness"; Specialist in International Business at the Faculty of Economic Sciences, University of
Oradea
Fadi Hachem is a Doctoral Researcher at Cranfield School of Management and a business coordinator at
the Arab Open University, Lebanon. He is a cofounder of Leaders across Borders (LAB). His research
interests are in the areas of Fit theory, leadership paradigms, work home interface, time management,
personality and emotional and relational intelligence.
Patrick Hester is an Assistant Professor of Engineering Management and Systems Engineering at Old
Dominion University and a Principal Researcher at the National Centers for System of Systems Engineering.
His research interests include Multi-attribute decision making under uncertainty, complex system
governance, and decision making using modeling and simulation.
Eun Jin Hwang is an assistant professor in the Department of Health and Human Development at Indiana
University of Pennsylvania. Her Ph.D. is from the Virginia Polytechnic Institute and State University. Her
research and teaching mainly concern fashion merchandising, strategic management with respect to textiles
and apparel and the textile and apparel industry and trade.
x

Mirjami Ikonen is PhD student and University Lecturer of Management and Leadership in the Department of
Business at the University of Eastern Finland. She graduated in Economics from the University of Joensuu.
Her current research focus is interpersonal trust development in leader-follower relationships, especially
within not-for-profit organizations and new methodologies applied in trust research.
Karen Jones BA Hons (First Class) (Open University), PhD (Bangor University), Cert Ed, (University of
Wales) is a lecturer and researcher. She is currently researching and evaluating an £8 million leadership
programme designed to develop and enhance the leadership skills of owners of SMEs at Bangor University
Business School in collaboration with Swansea University.
Jolanta Kowal Ph.D is at theWroclaw College of Management (professor), the Institute of Psychology of
Wroclaw University, Poland. She is a researcher and lecturer (over 70 scientific publications), member of
scientific associations. Jolanta Lectures and seminars on methodology of socio-economic research,
management and multicultural research. Her interests and research specialisation: organization and
management, methodology, quantitative and qualitative research, analytical psychology, cross-cultural
research.
Mike Krey is currently lecturer at Zurich University of Applied Sciences. Besides lecturing at the School of
Management and Law on Management of Information Systems and Enterprise Resource Planning, His
research projects are in the field of Business Integration. He has a Masters of Science in eBusiness and is
currently doing his PHD at the Univerity of Plymouth in the research field of IT-Governance.
Tom Kwanya is a Knowledge Management specialist. He is currently consulting for the Government of
Southern Sudan on a project seeking to establish the first modern library in the post-conflict country. He
previously worked as a Knowledge Management Specialist for research institutions in Kenya. Tom obtained
his PhD in Information Studies from the University of KwaZulu-Natal.
Linda Lee-Davies is a Director of NBS Corporate and Senior Lecturer in Business and International
Management, University of Northampton Business School, writes, teaches and researches in leadership
subjects. With both a commercial and academic background, she communicates closely with local, national
and international organizations to ensure this is fresh and appropriate to the current workplace.
James Lockhart is the Executive Education Consultant to Massey University College of Business and
Senior Lecturer in the School of Management. He has extensive business consulting and executive business
development experience in New Zealand and abroad. He has published on doctoral education, strategy,
governance, corporate failures, and assessing strategic performance. James farms north of Feilding, and
holds commercial directorships.
Camelia Iuliana Lungu PhD is an associate Professor at the Academy of Economic Studies, Bucharest,
Romania. Her expertise areas are teaching and researching in accounting. Her recent research interest
manifests in social and environmental reporting and accounting, by publishing different theoretical and
experimental studies in national and international journals, within three national research projects.
Simon Lutterbie is Director of Research at iOpener Institute. His goal is to understand the drivers that allow
individuals, teams, and organizations to achieve and maintain peak performance. His research spans the
areas of positive psychology, social network analysis, and organizational scholarship. He received his
doctorate from The University of Oxford.
Virginia Maracine is Professor of Operational Research, Risk Management, and Business Logistics and
also Vice-Dean of the Faculty of Economic Cybernetics, Statistics and Informatics at Bucharest University of
Economics. Romania. Her scientific activity includes over 100 articles, papers presented at international
conferences, 16 national research grants, and 12 books in Operational Research, Managerial Decisions,
Economic Dynamics, Financial Market and Portfolios Management.
Xavier Martin is a seasoned consultant with 20 years experience in Management, Leadership and Change
Management both in North America and EMEA. He holds a BA from HEC Montreal and a PhD from ESSEC
Paris.
Ani Matei is professor at Faculty of Public Administration of the National School of Political Studies and
Public Administration, Bucharest. The professional expertise targets the fields of public economics, systemic
analysis, public performance assessment and economics of corruption. He is coordinator of the Academic
Public Administration Studies Archive, as well as of a series of publications concerning comparative studies
in the above fields, achieved in cooperation with national and foreign publishing houses.
xi

Thomas Meyers is a Principal Research Scientist at the National Centers for System of Systems
Engineering (NCSoSE), USA. Thomas retired from the United States Marine Corps in 2000 after 25 years of
service. He received his PhD in Engineering Management and Systems Engineering from Old Dominion
University in 2007.
Sundaram Nataraja is a professor of strategic management at the College of Business Administration (CBA)
in King Saud University, Saudi Arabia. He is also the head of AACSB accreditation Unit at CBA. His research
interests include the effectiveness of business education, organizational culture and leadership, business
ethics, business strategy, and cross-cultural management.
Jinia Mukerjee Nath, currently a PhD student at Skema Business School, France, has a Master of Applied
Psychology and a Master of Clinical Psychology. She has worked as a Clinical Psychologist and a visiting
lecturer in Business Schools. A regularly published creative writer, she has also written a chapter in a book
on Anorexia.
Fattah Nazem is an Associate Professor. He has been vice-president of the research department for the last
five years. His research interests are in the field of Higher Education Management. He has written two books
and 85 articles. He is Chief Executive of the Quarterly Journal of Educational Science.
Nguyen Phuc Nguyen is Ph.D candidate in management at Graduate school of Business Administration at
Kobe University, Japan. Before entering Ph.D program, he was a lecturer at Department of Business
Administration, Da Nang College of Economics at Da Nang University, Vietnam. He holds master degree in
industrial system engineering from Asian Institute of Technology, Thailand.
Kemi Ogunyemi holds a degree in Law from the University of Ibadan and an MBA from the Lagos Business
School. She teaches Business Ethics and Anthropology at the Lagos Business School, while doing her PhD
in Management at the School. Her consulting and research interests include personal ethos, work-life ethic,
social responsibility, sustainability and governance.
Drahomira Pavelkova is working as a professor at Tomas Bata University in Zlin, Faculty of Management
and Economics, Czech Republic. Her areas of professional work and interest cover strategic management,
corporate finance, performance management/measurement of companies and clusters, corporate valuation
and benchmarking. She has managed several research and educational projects with international
cooperation.
Denis Politis has earned a MEng in Mechanical Engineering from Imperial College and is a Ph.D. candidate
at Imperial College, London. He is specialised in quantitative analysis using SPSS and AMOS and is the coauthor
of the conference papers titled: ‘The relationship of mainstream leadership styles to entrepreneurial
orientation’ and ‘Work Environments that Foster and Inhibit Creativity and Innovation’. He is researching a
novel concept at Imperial College, London.
Parveen Prasad completed his PhD at University of Pune, India with a thesis entitled `New Corporate
Leadership and Employees Working Climate’. He has been Associate Professor at an undergraduate
Commerce College for the last 17 years. Besides research papers at national conferences in the area of
Leadership, he has undertaken in-depth research on `Collective Emotional Intelligence’.
Adriana-Sofia Răileanu is a determined young researcher and assistant professor of accounting. She
graduated the MSTCF majoring in accounting, control and auditing at the National Institute of Accounting
and Economic Techniques in Paris. Her research interests include creative accounting and corporate
governance. She is involved in several research projects and published valuable research papers.
Irina-Iulia Salanţă is and full time PhD Student with EU financed scholarship and Teaching Assistant in the
Management Department of the Faculty of Economics and Business Administration, Babeş-Bolyai University
from Cluj-Napoca, Romania. Her interests include topics such as Business Ethics, Management and
Outsourcing Logistics.
Elizabeth Shaffer is a full time researcher for the InterPARES Project and a doctoral candidate in archival
science at the School of Library, Archival and Information Studies of the University of British Columbia, from
which she holds a Master of Archival Studies. Her dissertation research is on records and information policy
in social media environments.
Corina Sheerin is a PhD student at Trinity College Dublin within the Department of Computer Science and
Statistics. Corina is employed at the National College of Ireland, Dublin as a Lecturer in Finance. Her
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doctorate research examines gender segregation within Investment Management. Corina’s research
addresses women’s experience in recruitment, progression and retention within Investment Management.
Tensie Steijvers is postdoctoral research fellow at Research Foundation – Flanders (FWO), and working as
assistant professor at the Center of Entrepreneurship and Innovation (KIZOK) at Hasselt University. Her
primary interests include financing decisions, accounting, top management team behaviour and corporate
governance in private family firms.
John Sullivan is currently an Instructor in the School of Information at the University of South Florida. He
obtained his Ph.D. in MIS from the University of Bradford, West Yorkshire, England. Previously, John spent
twelve years in professional activities in the field of IS as a systems analyst, project manager, and founder of
his own company.
Nucharee Supatn (DBA) is an assistant professor in Department of Management, MSM, Assumption
University, Thailand. She held a Doctoral degree in Business Administration majoring in Marketing. Her
main research focuses are on decision-making process, human and organizational behavior at all three
levels, i.e. organizational, group, and individual, which cover both the consumer and employee sides.
Anabella Maria Tarnovan is a PhD candidate in the Faculty of Communication and Public Relations,
National School of Political Studies and Public Administration, Bucharest, Romania within the programme
“Doctoral scholarships for the development of the knowledge-based society”. Research interests include
Marketing Communications, Culture and Society, Branding and Global Markets, Network Society and Social
Capital, Social Entrepreneurship and Innovation
Richard Turner is a Distinguished Service Professor at the School of Systems and Enterprises (SSE) at
Stevens Institute of Technology. Dr. Turner has 30 years of experience in systems, software and acquisition
engineering. He has developed and acquired software in the private and public sectors and consulted for
government and commercial organizations. Most recently, he was a Fellow at the Systems and Software
Consortium, where he supported technical projects and raised the Consortium’s profile through publications,
speaking and consulting.
Gerry Urwin has 30 years experience in information systems management, consultancy, and project
management as a practitioner and an academic. He is currently researching and teaching at Coventry
Business School. He also contributes to postgraduate teaching at Henley Business School and is Visiting
Professor at Victoria University in Melbourne.
Florea Nicoleta Valentina is a PhD student in Management at Valahia University, Targoviste, Romania, with
over 12 years’ experience in HR. She obtained her MBA in Marketing and in the last two years has published
25 articles in national and international conferences and journals. She received a doctoral scholarship at
Paris Est, Creteil, Val-de-Marne, France, during April-July, 2010.
Pieter Vandekerkhof is a PhD student in management and family firms at the Center of Entrepreneurship
and Innovation, Hasselt University. The topic of his dissertation is the role of non-family managers in private
family firms. Hence, his primary research interests include the combination of theories used in both family
business and top management team literature.
Maarten Vandewaerde is a doctoral researcher at the KIZOK Center for Entrepreneurship and Innovation
(Hasselt University, Belgium), where he is a member of the corporate governance and accountancy research
team. His main research interest involves the board of directors and team dynamics within the boardroom.
He has recently published a paper on shared leadership in the boardroom in the Journal of Business Ethics.
Theo Veldsman holds a Doctorate in Industrial Psychology with 20 years’ experience. He chairs the
Department of Industrial Psychology and People Management, University of Johannesburg. He has
published widely. He has chaired the Society of Industrial and Organisational Psychology of SA, and was
twice President of the SA professional psychological associations.
Šárka Vránová is a lecturer of financial subjects at VOŠE Business School in Zlín.She has a Master degree
in System Engineering from the VŠB in Ostrava, Faculty of Economics, and a Bachelor degree in Pedagogy
from Tomas Bata University in Zlín. She is currently doing a PhD course at Tomas Bata University, Faculty of
Management and Economics.
Tony Wall is a senior academic at the University of Chester’s Centre of Work Related Studies in the UK, one
of the largest centres of negotiated work-based learning. He is a specialist in personal and organisational
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transformation through workplace learning and leadership, and works closely with organisations to accredit
training programmes internationally.
Kowal Wojciech MEng. graduate of the Academy of Mining and Metallurgy, Department of Electronics and
Telecommunications, a senior specialist of computer sciences and computer network administrator at the
University of Wroclaw.
Monica Zaharie is a junior lecturer at Babes-Bolyai University, Faculty of Economics and Business
Administration, Management Department. Since 2004, she has been involved in the quality assurance
process, coordinating the student ratings of instruction, participating to external institutional evaluations,
stakeholders’ feedback surveys such as student satisfaction survey and employers’ opinion surveys.
xiv

Public Listed Companies and Fund Managers’ Perceptions
on Investor Relations Programs in Malaysia
Norraidah Abu Hasan, Alicia Tan and Memiyanty Abdul Rahim
Universiti Teknologi Mara, Malaysia
norraidah@salam.uitm.edu.my
alicia819@salam.uitm.edu.my
memiyanty@salam.uitm.edu.my
Abstract: Managing investor relations (IR) programs are crucially important in a corporate world to win investors
confidence. This paper examines the practice of investor relations in public listed companies in Malaysia. For this
purpose, the perceptions of public listed companies and fund managers are obtained to determine whether there
is any gap between the perceptions of fund managers and public listed companies on investor relations
programs. This study revealed that fund managers are much more concerned with the information on companies’
future prospect and prefer to use one-to-one meeting as the primary means of communications for their
investment decisions. These findings can contribute to some knowledge in assisting companies in designing
effective investor relations programs in accordance with fund managers’ point of view.
Keywords: investor relations, information disclosure, communication channel, fund managers, public listed
companies
1. Introduction
In today’s competitive environment, attracting investors is recognized as a strategy for growth. It was
reported that United States was the pioneer in making investor relations one of the management
disciplines (Marston, 2004). The National Investor Relations Institute (NIRI) found in 1969 defines
investor relations as a strategic management responsibility using the disciplines of finance,
communication and marketing to manage the content and flow of a company’s information to financial
and other constituencies to maximize relative valuation (National Investor Relations Institute, 2002).
Marston and Straker (2001) define investor relations as part of the business reporting process. The
report published by companies shall cover a wide range of documents for investors’ information about
the company performance. Gregory (1997) postulates that investor relations as part of an overall,
integrated, corporate communications message, thus providing a strong strategic role in the corporate
marketing strategy that could give a positive corporate image and enhance the shareholders
confidence. Similarly, Marston (1996) and Tuominen (1997) suggest that the objective of investor
relations is to provide investors with the required information. Hence information disclosure must be a
key instrument in investor relations program.
In a study conducted by Argenti, Howell and Beck (2005) it was found that investor relations is an
integral part of a firm’s corporate strategy and it helps the company to become highly competitive.
Perhaps, an effective investor relations program would be able to broaden the investor base and
increase the company’s share price (Merton, 1987). In Malaysia, Bursa Malaysia Securities Bhd and
the Malaysian Investor Relations Association (MIRA) play an important role in providing guidance to
public listed companies in developing their investor relations programs in an effective manner. It is a
requirement for public listed companies to develop their investor relations as a channel to inform their
investors on the company’s performance. Traditionally, shareholders relied mainly on annual general
meetings (AGM) as the main channel to communicate with companies. According to Bursa Malaysia,
these AGM have proven to be ineffective due to poor attendance, time constraints, logistical problems
and their lack of frequency (Bursa Malaysia, 2007). In Malaysia, the challenge in implementing
investor relations is to ensure public companies are well governed and adopt global practices to build
investor confidence (Berry, 2010).
The old way of communication between shareholders and a company through once a year AGM can
become a painful affair in today’s markets. Managing investors’ expectations through an effective ongoing
investor relations program is crucial for any public listed companies (Bursa Malaysia, 2007).
Therefore, it is important for companies to have an effective and well planned investor relations
program as one of the key components for successfully creating a positive perception of a company
within the investment community, so that they may accurately make investment decisions.
1

Norraidah Abu Hasan et al.
The Malaysian Code on Corporate Governance included the principal responsibilities of the Board in
developing and implementing an investor relations program or shareholder communications policy for
the company. Further, the revised Malaysian Code on Corporate Governance 2007 (MCCG, 2007)
emphasizes the relationship between the board and the shareholders.
This study examines the gap between the perceptions of public listed companies and fund managers
on investor relations programs. There are two types of shareholders, individual shareholders and
institutional shareholders. It is the responsible of all companies to provide equal information to their
shareholders. However, this study only focuses on fund managers, as they play a bigger role in the
stock market compared to other type of shareholders without denying the fact that each shareholder
shall be treated equally by a company.
2. Literature review
After the collapse of Enron, investors become more vigilant than before by looking deeper into
companies and demanding full disclosures. Disclosure is a method of communication between a
company and its investors and stakeholders at large who have interest in the value of firm (Kothari,
2001). Disclosure is also a part of corporate reporting channel that provides useful information to
investors in assessing the amounts, timing, and uncertainty of future cash flows. Useful information
improves investors’ decision making leading to a better allocation of resources in the economy. Lack
of proper information to investors leads to an information problem between insiders and outsiders of
the company (Healy and Palepu, 2001). This is considered as information asymmetry.
Chang, Murphy and Wee (2006) conducted a study on Australian firms using a web-based survey to
rate the firm’s IR practices, and found that continuous disclosure can reduce the information
asymmetry and reduce investor shocks when they receive the negative news during the earnings
announcement. Marston (1996) indicates that effective investor relations involve continuous voluntary
disclosure of company information in the form of annual reports, earnings forecasts and
announcements, proposed investments, governance procedures, dividends and financing intentions
and a wide range of other information, both formal and informal. Furthermore, investors also
concerned on the disclosure of companies’ corporate responsibility practice and those related to the
environmental exposure in which the company operates (Khalid Al-Khater and Kamal Naser, 2003;
Mustaruddin Saleh, Norhayah Zulkifli, and Rusnah Muhamad, 2010).
Many companies have identified that the investor relations function is of great importance within their
organization. Information can be grouped into two categories, namely mandatory disclosure and
voluntary disclosure. Mandatory disclosure is the information that must be disclosed by the company
as required by law. Holland (2001) indicates that firm usually disclose four types of information to
investors; (i) mandatory public disclosure, (ii) voluntary public disclosure, (iii) private disclosure and
(iv) nondisclosure.In Malaysia, disclosure is part of listing requirements and stipulated in Malaysia
Code of Corporate Governance (Bursa Malaysia, 2007). A public listed company (PLC) is legally
obliged to provide the timely and accurate information to the investors. Voluntary disclosure is the
information that is made voluntarily by the firm that not included in law such as profit forecasts,
prospects of future research and development projects of companies (Healy and Palepu (2001). This
information is crucial for investors to make viable and appropriate decisions.
Hall (1992) suggests that investor relations may influence both the equity market valuation and the
potential evaluation of investors. Tuominen (1997) explains that investor relations are able to create
common long-term interaction between the organization and its direct and indirect partner groups in
the investor community. Moreover, Dolphin (1999) argued that investor relations as a significant tool
of corporate communications strategies that can win the financial stakeholders’ approval, and play a
key role in gaining investors’ support to the companies.
Continuous disclosure in investor relations programs is one of the components that contributes to the
effective communication with shareholders and enhances the transparency of the company.
Richardson and Welker (2001) in their research highlighted the corporate-fund manager meeting is
important factor in enhancing the relationship between a company and its investees. Furthermore,
Barker (1998) and Marston (2001) found that fund managers’ meetings with senior management are
their most preferred mode of communication. Private one-to-one meetings with companies provide
unique opportunity for the investors to discuss questions that could not be done in general meetings
(Larran and Rees, 2003). Traditionally, the method of investor relations was seen as formal or
2

Norraidah Abu Hasan et al.
informal communications. The traditional methods of investor relations are less timely and less useful
in decision-making. Formal communications in investor relations requires the firm to publish annual
report, interim reports and meetings with shareholders (Brennam and Kelly, 2000).
The use of the internet in investor relations is a relatively recent and dynamic area. Deller,
Stubenrath, Wolfgang and Weber (1999) did a comparative study on the use of internet among the
companies in the United States, Germany, and United Kingdom and found that companies based in
the United States had more informative websites than websites of companies in Europe.
Fund managers from large institutional investors are the most important category of investors
compared to individual private investors. This is because they manage large amount of funds. This
means that their investment horizons in companies are on a long term basis. Indeed, fund managers
are the primary investment decision makers in the stock market (Barker, Sanderson, Hendry and
John Roberts, 2004)
Essentially, fund managers rely on a number of sources of information when they are looking for
potential investment. These include company announcements, published accounts and the use of
internet as means of communications. The role played by fund managers is becoming more active
and increasingly more complex as they try to evaluate and determine the firm’s actual performance
and seek further investment opportunities so as to act for their client’s best interest. Therefore, an
adequate disclosure of relevant corporate information is an essential element for investors in making
their investment decisions, and enhances investors’ confidence in capital markets (Abdelkarim,
Shahin and Arqawi, 2009).
3. Data and methodology
This research is following the pattern of quantitative research where questionnaires were used to get
feedback from top one hundred (100) public listed companies in Malaysia and fifty fund managers
with regard to investor relations programs. The design of the questionnaire was adapted based on a
survey carried out by Marston and Straker (2001) on the practice of investor relation in Europe and
has been modified to suit with the nature of investor relations practice in Malaysia based on the
Investor Relations Policy of Bursa Malaysia and guideline of investor relations program published by
Malaysian Investor Relations Association (MIRA). There were two versions of questionnaires; one for
public listed companies and the other is for fund managers. The questions covered areas including
the organization of the investor relations function; the information disclosure; the channel of
communication with investors; and the target groups were asked to indicate their opinion, using a fivepoint
scale, on items of highly important to not provided; and strongly agree to strongly disagree.
100 questionnaires were distributed to public listed companies, however only 41 questionnaires were
returned. Therefore in total, there were 41 valid questionnaires to be analyzed with a response rate of
41% (n=41). On the other hand, questionnaires were also distributed to 50 fund managers, and 46
questionnaires were returned with the response rate of 92%. Overall, the total response rate for both
respondents was 58%. Table 1 show that the total response rate for investor relations officers and for
fund managers are considered as sufficient sample (Field, 2009).
Table 1: Groups and questionnaire response rates
Distributed Received Total Response
Rate (%)
Investor relations Officer 100 41 41
4. Demographics
Fund Managers 50 46 92
The following tables show the demographic profile of public listed companies.
Table 2 shows that 93% of the public listed companies have established an investor relations
programs and 51% of the investor relations programs had been established for four to six years. It
was also found that 90% had designated investor relations officer and the rest appointed external
investor relations consultant. However, only 12% of the public listed companies have specific investor
relations department. The remaining are in separate departments, with 37% of the investor relations
being under the Account and Finance department; 10% under the company secretarial department;
3

Norraidah Abu Hasan et al.
and the other 42% in other departments such as the corporate affairs and the corporate
planning/strategic section.
Table 2: Demographic profile (public listed companies)
Number Percentage (%)
Companies with establishment of investor relations program
Yes
No
Years of establishment of investor relations programs
Over 2-4 years
Over 4-6 years
Over 6-8 years
Companies with designated investor relations Officer
Internal investor relations officer
External investor relations
Companies with an investor relations department or section
Investor relations department
Company secretarial department
Accounts/Finance department
Others
Table 3 below shows the demographic profile of fund managers:
Table 3: Demographic profile (fund managers)
Attributes Numbers Percentage (%)
Gender: Male
20
43
Female
Age:
26
57
20-29 years
20
43
30-39 years
22
48
40-49 years
4
9
Years of experience:
Within 2 years
Over 2-5 years
Over 5-10 years
Over 10 years
Based on the table 3, the sample of the fund managers consist of 57% females and 43% males.
There is unequal distribution of gender for the fund managers as the percentage of male is less than
that of female. Moreover, from the table, it can be seen that 43% of staff the ages of between 20 to 29
years old, 48% in the ages between 30 to 39 years and 9.8% are between 40-49 years. Thus, most of
the respondents are between the ages of 30-39 years. Furthermore, more than 50% of the
respondents have an experience in investment analysis for 2-5 years, 20% of them have more than
10 years experience and the rest of them within two years experiences in investment analysis.
5. Result and findings
To study whether there are gaps between public listed companies’ perceptions on their investor
relations programs and fund managers’ expectation on the companies’ investor relations programs.
The gap analysis was used to address the third objective and the research question number five. Gap
can be calculated by deducting mean score of fund managers and companies (Parasuraman, Berry,
4
5
26
6
9
38
3
12
21
8
37
4
5
4
15
17
11
56
13
20
93
7
29
51
20
90
10
12
10
37
42

Norraidah Abu Hasan et al.
& Zeithaml, 1993). If the mean gap is positive, it means that the information disclosed by companies
is adequate for the fund manager used in investment decisions. On the other hand, if the gap is
negative, it shows that there are discrepancies between the fund managers’ perceptions and
companies’ perceptions about what is considered as importance in investor relations programs. A
negative gap indicates fund managers’ expectations were greater than companies’ perception.
Furthermore, the concept of this analysis is the high negative gap means changes must be
implemented by public listed companies to improve the investor relations programs to meet the fund
managers’ expectations.
The respondents consist of both public listed companies and fund managers. All the items are derived
from the MIRA, and the study conducted by Marston and Straker (2001).
Table 4: Gap on companies’ perception and fund managers’ perception on information disclosure
Companies
Mean
(a)
Fund
Managers
Mean
(b) (a-b)
Public Information Disclosure
Quarterly financial results.
4.8780 4.6739 0.2195 .021**
Annual Report 4.1220 4.7826 -0.6585 .005**
Notice of the Annual General Meeting and other
shareholders’ meeting.
4.7805 3.5870 1.1951 .000**
Announcement of dividends and payment dates 4.7317 4.1522 0.5858 .000**
Announcements on rights issues, bonus issues
and return of capita
4.7317 4.3913 0.3415 .007**
Announcements on procedures concerning share
issues, conversions, relinquishing of rights,
redemption of debentures
4.7317 4.2826 0.4634 .003**
The resignation or appointment of the Executive
Chairman/ Chief Executive Officers/ Managing
Director.
4.8537 4.1957 0.6342 .000**
The resignation or appointment of the Board
members, the Company Secretary and the
company’s auditors
4.6829 3.7174 0.9268 .000**
4.689 4.2228 0.4661
Information on Future Prospects
Related party transactions.
3.5122 4.3043 -0.7805 .000**
Memorandum of Understanding (MOU), new
contracts, and new project
3.9024 4.5435 -0.6342 .000**
Prospects of current research and development
projects.
3.4878 4.2826 -0.7805 .000**
Prospects of future research and development
projects.
3.4878 4.3913 -0.9024 .000**
Profit forecasts. 3.3171 4.3696 -1.0488 .000**
Major acquisitions or divestments of companies 4.2195
3.6545
4.6522
4.4239
GAP
-0.4146
-0.7695
Sig
.002**
Information on Management Issues
Corporate governance generally
4.5122 4.3261 0.2195 .137
Directors’ remuneration 4.3659 3.6087 0.7805 .000**
Internal audit. 3.4146 3.7826 -0.3415 .100
External audit. 3.4146 3.8913 -0.4634 .037**
Creation of shareholder value 4.3902 3.9348 0.4678 .001**
Involvement in education, community work,
charity and conservation of the environment
4.0000 3.2391 0.8049 .000**
Succession plans for key management positions 4.2195 3.9512 0.2683 .191
Intellectual capital. 3.8293 3.7561 0.0732 .799
4.0183 3.8112 0.2071
5

Norraidah Abu Hasan et al.
Response categories are: 5 = Highly important, 4 = Important, 3 = Minor Importance,
2 = Not Important, 1 = Not Provided
** = significant at p

Norraidah Abu Hasan et al.
explanation could be that companies mainly preferred to use annual reports and meetings as primary
tools to communicate with the shareholders; whereas, the fund managers look to other means of
communication that can provide timely information for investment decisions.
Table 5: Gap on companies perceptions and fund managers’ perception on the importance of
communication channel
Companies
Fund
Managers
Mean
Mean (a-b)
a
b
Annual reports, notices and circulars to
shareholders
4.8293 4.5000 0.3293 .002**
General meetings. 4.8293 4.3261 0.5032 .000**
One-to-one meetings. 4.4634 4.2609 0.2025 .261
Telephone queries. 4.3415 4.0217 0.3198 .052
Emailing information to those on a
circulation list.
4.2683 4.2826 -0.0143 .736
Email queries 4.4146 4.3696 0.045 .736
Company's feedback on analysts’ reports 4.3902 4.3478 0.0424 .727
Road shows/Trade Fair 3.3659 3.8913 -0.5254 .041**
Site visits. 3.2927 4.3478 -1.0551 .000**
Via Investor Relations sections 4.1220 4.2609 -0.1389 .367
Newspaper online investor relations section 1.9512 3.8261 -1.8749 .000**
4.0244 4.2213 -0.1970
GAP
Response categories are: 5 = Highly important, 4 = Important, 3 = Minor Importance,
2 = Not Important, 1 = Not Provided
** = significant at p

Norraidah Abu Hasan et al.
considered as important from company perspective. This is because the annual general meeting is a
statutory requirement and must be held within six months of each financial year end. The meeting is
an important forum that discusses wider issues of concern to the shareholders. Furthermore,
companies also emphasized the annual report as an important medium of communications. However,
investor relations is not merely one way communication or passive process that only focuses on
corporate reporting alone.
Although reporting historical company performance is a vital part of the program, yet arranging direct
contact with investors and organizing events which allow them to express their opinions and keep
investors properly informed about performance and strategy of company, is the most important aspect
of executing the investor relations programs (Bursa Malaysia, 2007).
The result shows that fund managers expect site visit as important for the medium of communication,
while companies considered it as of minor importance. Furthermore, fund managers rated newspaper
online investor relations section as minor important for means of communication, while companies not
provided this channel as means of communication with investors. A possible explanation could be that
companies mainly preferred to use annual reports and meetings as primary tools to communicate with
the shareholders; whereas, the fund managers look to other means of communication that can
provide timely information for investment decisions.
Overall, the study has investigated the perceptions of the fund managers and public listed companies
regarding the investor relations programs. The objective of the research is to contribute to our
understanding of fund managers’ expectation on companies’ investor relations programs. Results of
the study demonstrated that fund managers perceived public information as not relevant to
investment decisions. Perhaps, the fund managers regard the information about company future
prospects as more important to their investment decisions. Since this study only focused on fund
managers’ perceptions representing only one type of investors for companies, there are also other
various types of investment communities such as individuals and institutional investors and analysts
that could be included. Future studies on other groups of investors will determine whether they have
the same perceptions on investor relations programs.
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9

Evaluation of the Audit Committee Features and the
Manner in Which They Influence Financial Reporting:
Evidence From Amman Stock Exchange
Mo’taz Amin Al –Sa’eed
Al-Balqa' Applied University, Amman, Jordan
motazalsaid@yahoo.com
Abstract: This study aims to evaluate the audit committee features and the manner in which they influence the
financial reporting in the Jordanian companies listed in Amman Stock Exchange (ASE). A questionnaire based
survey was circulated to the internal audit managers and finance managers in public listed companies on the
Amman Stock Exchange (Banking, insurance, and financial institutions), and interviews with AC's members were
conducted. Out of 156 questionnaires, we received 110 back which represents a 71% response rate, (26) AC's
member were interviewed. The study results show after applying multiple regressions that the research
respondents have a good level of education and experience. In addition, individually; there is a relationship
between internal controls effectiveness, financial expertise and literacy; Jordan securities commission
requirements, audit quality, understanding of audit committee functions, and financial reporting (R=0.79).
Furthermore, the independent variables can explain a significant amount of the variability in financial reporting. In
the meantime; stepwise analysis provides that the following independent variables effectively influence the
financial reporting respectively; compliance with JSC requirements, audit quality, internal control effectiveness,
and understanding of AC's functions. Finally; the interviews results show that compliance with JSC requirements
is the most effective feature of AC's that influence the financial reporting, whereas (68%) and (66%) of
respondents have considered internal control effectiveness and financial expertise and literacy respectively are
the most effective features of AC's that influence the financial reporting. Audit quality and understanding of AC's
functions were valued at lower levels. The study like other cross sectional studies is not free of limitations.
Managerial implications and new avenues of future research are supplied (e.g. Independence). Future research
also can borrow the research model and apply a longitudinal study to solve the cross sectional study problems.
Keywords: audit committee, effectiveness, independence, internal control, financial reporting, disclosure, and
corporate governance
1. Introduction
The establishment of audit committee aimed to mitigate corporate fraudulent or creative accounting
practices through internal control initiated by independent and effectively functioning non-executive
members of audit committee. Recently; Jordan has made firm moves to be an attractive investment
environment; so that there is an increasing need of a good corporate governance and accountability
in the corporate sector in Jordan.
Audit committees play a crucial role in firms' financial reporting processes, and thus have attracted
considerable attention from researchers, especially in the wake of recent high profile financial
reporting scandals. Research has not, to date, examined how audit committee features in Jordan’s
efforts to strengthen the firm’s financial reporting environment. Audit committees have been in
existence for many decades. There are three benefits of having an audit committee:
To improve or maintain the quality of the financial reporting process.
To aid the actual and perceived independence of the internal and external auditors, and finally.
To improve the confidence of the financial statement users in the quality of financial reports
(Simnet et al., 1993).
A large proportion of the studies report a positive association between effectiveness and the following
characteristics: presence of the audit committee; audit committee members’ independence; and
members’ competencies. However, the number of meetings and the size of the committee are not
frequently associated positively with audit committee effectiveness. (Bedard and Gendron, 2009).
The existence of an audit committee should improve the monitoring of corporate financial reporting
and internal control. Indeed, users of financial statements often lack information relating to the
company except that disclosed in the annual report and other statutory announcements, because
most of the documents and records are classified as private and confidential.
10

Mo’taz Amin Al –Sa’eed
Generally, our motives for such research are enforcing and encouraging the establishment of an audit
committee. This may lead to the following:
To institute good corporate governance.
To strengthen the role and effectiveness of non-executive directors, to assist directors in
discharging their statutory responsibilities with regard to financial reporting.
To preserves and enhances the independence of internal auditors.
To improve communication between the board and internal auditors.
To assist auditors in the reporting of serious deficiencies in the control environment or
management weaknesses.
To improve communication between the board and external auditor, and
To preserves and enhances the independence of external auditors (Collier, 1993).
The paper aims to reach two goals; first to provide an updated evaluation of the most features of the
AC that effectively influence the Financial Reporting of companies that are listed on the Amman Stock
Exchange., and second to identify research opportunities. The findings are important for policy
makers, stakeholders and company’s management to help them formulate practical guidelines to
improve the corporate governance practices and AC's features of effectiveness among listed firms.
The paper is organised into seven sections. The first section provides an introduction. The second
Section provides research questions. The third section provides a literature review on audit
committees. The fourth section presents the research model and hypothesis development. While the
fifth section offers the data collection and research methodology, the sixth section discusses data
analysis and research findings. And finally; the last section concludes the research.
2. Research questions
The accounting scandals of the last decade have put the audit committee (AC) at the Forefront of the
battle against fraudulent financial reporting. In particular, the Sarbanes-Oxley Act of 2002 (SOX) and
the related rules promulgated by the US Securities and Exchange Commission (SEC) prescribe a
broad range of measures including requirements regarding ACs. (Bedard and Gendron, 2009)
grouped the effectiveness criteria into four categories: financial reporting; external auditing; internal
control; and investors’ perceptions, while we grouped the AC's features into five dimensions (Internal
Controls effectiveness; Financial Expertise and Literacy, Compliance with rules and regulations, audit
quality; understanding of AC's Functions).
Based on these dimensions the research question can be formalised as follows:
“What are the most Audit Committee Features which effectively influence the financial reporting of
Listed Companies in Amman Stock Exchange?"
3. Literature review
This section provides some relevant literature review on audit committees. Audit Committees can
improve the quality of information directly by overseeing the financial reporting process and indirectly
through their oversight of internal control and external auditing. Investors’ perceptions complicate the
process as, for example, audit committees can improve public confidence in the quality of financial
reporting by adopting practices that are considered by the market as best practices – no matter their
substantive impact on information quality. According to (Sabia and Goodfellow ,2005), an audit
committee cannot be effective if it does not have the right people as members; that means that audit
committee members should be independent and competent. Members’ independence is generally
defined as the absence of any relationship with the company that may interfere with the exercise of
their independence from management and the company (BRC, 1999). The Merriam-Webster Online
Dictionary defines effective as follows: “means producing a decided, decisive, or desired effect.” In
general, for regulators, the desired effects or goals of the audit committee consist of providing quality
financial reporting and strengthening investor confidence in the quality of financial reporting and
financial markets (BRC, 1999). In the USA an increasing number of earnings restatements by publicly
traded companies, coupled with allegations of financial statement fraud and lack of responsible
corporate governance of high profile companies (e.g. Enron, Global Crossing, World com in the USA,
Parmalat in Italy and MacMed, Masterbond and Leisurenet in South Africa) have sharpened the ever
11

Mo’taz Amin Al –Sa’eed
increasing attention on corporate governance in general and audit committees in particular. The fall of
these companies raised concerns regarding the lack of vigilant oversight by their boards of directors
and audit committees in the financial reporting process and auditing functions (Rezaee et al, 2003).
In the surrounding of financial scandals (2002), it is increasingly understood that internal auditing is a
key component of internal control over financial reporting; (Sarens and De Beelde, 2006). Sections
404 and 302 of SOX have added internal control to the agenda of audit committees. One of the main
mandatory responsibilities of the AC established by new regulations relates to external auditing
oversight. That is, SOX and other regulations signal that the external auditor is accountable to the
audit committee. In particular, the audit committee is directly responsible for the appointment and
compensation of the auditor and the oversight of her/his work, including the resolution of
disagreements over financial reporting between management and the auditor. Also, the audit
committee now has to pre-approve all non-audit services to be provided by the accounting firm which
employs the company’s external auditor. (Bedard et al., 2008). Many board members serve by virtue
of their position as management of the shareholder and not necessarily because of their qualification
and experience. The primary function of the audit committees is to assist the board in fulfilling its
oversight responsibilities by reviewing the financial information that will be provided to the
shareholders and other stakeholders, the systems of internal controls, which management and the
board of directors have established, and all audit processes (Bean 1999). (Bean, 1999) outlined the
general responsibilities as: 1. the audit committee provides open avenues of communication among
internal auditors, the independent auditor and the board of directors. 2. The audit committee must
report actions to the full board of directors and make appropriate recommendations. 3. The audit
committee has the power to conduct or authorize investigations into matters within the committee's
scope of responsibilities. The committee is authorized to retain independent counsel, accountants or
others if needed to assist in an investigation. 4. The committee will meet at least four times each year
or more frequently if circumstances make it preferable. Audit committees in developing countries may
have difficulties in performing this role since they suffer from a shortage of accounting skills. Several
studies have been undertaken on the audit committees’ oversight responsibilities. The effectiveness
of the audit committee depends on the background of the members which should consist of both
financial and non-financial people. Several studies have examined how “financial expertise” relates to
the identification of financial accounting reporting issues and the assessment of financial reporting
quality (McDaniel et al., 2002). Information from a more credible auditor, manager or director will have
a greater influence on AC decisions (DeZoort et al., 2002). The audit committee would appear to
perform an extensive role in safeguarding shareholders’, and stakeholders’ interests. In addition, it
would create a responsibility of the committee, which they would be bound by law to perform. (Saad et
al, 2006). (Tackett ,2004) stated that although the audit committee represents the interests of
stockholders, current procedures make it difficult for an individual stockholder to become a candidate
for the board of directors without the blessings of corporate management. He also stated that under
normal circumstances, senior management or other directors nominate board candidates. One of the
main responsibilities of the AC is to oversee the external audit function, including the selection,
compensation, work and independence of the external auditor. Effective oversight is expected to
strengthen “audit quality”. The main criteria used to measure “audit quality” relate to auditor, level of
work, and independence. (Bedard and Gendron, 2009).
This study differs from that other reviews in its emphasis on international and local systematic
analysis of the AC features that expected to effectively influence the financial reporting in the sharetraded
companies in Jordan; by formalise a broader range of indicators of effectiveness that we group
into four categories (internal control effectiveness, financial expertise and literacy, compliance with
rules and regulations; audit quality; and members understanding of the AC's functions).
4. Research model and hypothesis development
From the research model (figure 1); the following null hypotheses can be derived:
Hº1: Internal Control Effectiveness does not effectively influence the Financial Reporting.
Hº2: Financial Expertise and Literacy does not effectively influence the Financial Reporting.
Hº3: Compliance with Jordan Securities Commission Requirements does not effectively influence the
Financial Reporting.
12

Mo’taz Amin Al –Sa’eed
Hº4: Audit Quality does not effectively influence the Financial Reporting.
Hº5: Understanding of the Audit Committee Functions does not effectively influence the Financial
Reporting.
Figure 1: Research model
Audit Committee Features
Internal Control
Effectiveness
Financial
Expertise and
Literacy
Jordan Securities
Commission's
Requirements
Audit Quality
Understanding
audit committee
functions
5. Data collection and research methodology
FINANCIAL
REPORTING
Based on the aim of the study and review of the literatures, the study attempted to answer the
following research question: “What are the most Audit Committee Features which effectively influence
the financial reporting of Listed Companies in Amman Stock Exchange?". A postal questionnaire
survey and direct interviews were deemed the most appropriate research tools to answer the study
questions. They are effective tools to seek opinions, attitudes and descriptions about audit committee
effective dimensions. A listing of Share-Traded Jordanian Companies was available from the Amman
Stock Exchange as of 30 September 2010. A total of 156 companies’ Shares were traded on that day.
It was decided to distribute the questionnaire to all those companies, with confidence level of 95%
and internal level of (10). The response rate of the questionnaire survey was (71%), where only (110)
out of (156) questionnaires were returned. In addition to that it was decided to perform a personal
direct interviews with AC's members of (26) persons. Getting organizations to allow access to AC
members and meetings is certainly challenging but not infeasible (Gendron et al., 2004; Gendron and
Bédard, 2006). Interview-based studies have been carried out. However, none of the studies
reviewed relies on the observation of AC meetings in constituting data. Nonetheless, as illustrated by
Leblanc and Gillies (2005), gaining access to board and committee meetings is possible. For
researchers who want to get closer to the field, (Bédard and Gendron, 2004) as well as Leblanc and
Gillies (2005) provide relevant information on strategies to get access to the field and on the research
process in relation to boards of directors and ACs.
13

6. Data analysis and research findings
Mo’taz Amin Al –Sa’eed
The research sample consisted of 81 males (73.6 %) while the rest (29) were females (26.4%) (See
Table: 1). Also less than (14%) of respondent have 1-5 years of experience while the majority of
respondents (86.3%) have between (10) and more than (15) years of experience. Amongst the
respondents there were four discrete categories of age groups, the range of age groups was 25 to
more than 40 years, with the majority aged between 31 to 35 years old(34 respondents). An equal
number of respondents (22) were aged between 25 to 30 and more than 40 years, which indicates
that our respondents can provide objective and deep data that enriches the research results. Of the
research sample, 66 respondents hold bachelor’s degree, and (40 respondents) hold a master’s
degree. Therefore; more likely the research sample has sufficient level of education to respond to
research questionnaire. Nearly, more than (55.5%) of the respondents had (10 years of experience
and above), which indicates that the respondents have a good level of experience to answer the
research questionnaires without any difficulties. Overall; the demographic features of the research
respondents shows the target sample is relevant to answer the research questions.
Table 1: Demographic characteristics of research respondents
AGE
EDUCATION
EXPERIENCE
GENDER
Reliability Statistics
Frequency Percent % Cumulative Percent
25-30 22 20.0 20.0
31-35 34 30.9 50.9
36-40 32 29.1 80.0
More than 40 22 20.0 100.0
Total 110 100.0
Frequency Percent Cumulative Percent
College certificate 4 3.6 3.6
Bachelor Degree 66 60.0 63.6
Master Degree 40 36.4 100.0
Total 110 100.0
Frequency Percent Cumulative Percent
1-5 YEARS 15 13.6 13.6
6-10 YEARS 34 30.9 44.5
11-15 YEARS 27 24.5 69.1
More than 15 34 30.9 100.0
Total 110 100.0
Frequency Percent Cumulative Percent
Male 81 73.6 73.6
Female 29 26.4 100.0
Total 110 100.0
Cronbach's Alpha was used to test the reliability of the scale with (81) tested items and it was (0.952);
which is good because it is greater than accepted percentage of (0.60), which means that if the
questionnaire will be distributed to another sample, we will get a reliable same responses of ( 0.952 )
percentage.
Testing of Research Hypothesis
To test hypothesis, correlation analysis was used to examine the strength of the relationships
between independent variables: internal control effectiveness, financial expertise and literacy, Jordan
securities commission requirements about the audit committee, Audit Quality, understanding of audit
committee functions, and the dependent variable: financial reporting. The correlation analysis allows
testing the strength of relationships between several independent variables and one dependent
variable, which is the case in this study. The results of correlation analysis (see Table 2) shows that
the relationships between internal control effectiveness, financial expertise and literacy, Jordan
securities commission requirements about the audit committee, audit quality, understanding of audit
committee functions and financial reporting are significant on .01 level of significant (P-Value=.000 <
14

Mo’taz Amin Al –Sa’eed
.01). Thus, further analysis becomes possible to examine the amount of variance in the dependent
variables that can be explained by independent variables.
Table 2: Pearson correlation coefficients between the research variables
Under- Internal Financial
Compliance Audit standing of Control Expertise And Financial
Variables
JSC Quality AC's Effective Literacy Reporting
Compliance with
JSC
1 .416(**) .461(**) .612(**) .739(**) .666(**)
Audit Quality .416(**) 1 .316(**) .410(**) .493(**) .567(**)
Understanding of
AC Functions
.461(**) .316(**) 1 .284(**) .476(**) .501(**)
Internal Control
Effectiveness
.612(**) .410(**) .284(**) 1 .638(**) .606(**)
Financial expertise
and literacy
.739(**) .493(**) .476(**) .638(**) 1 .658(**)
Financial Reporting .666(**) .567(**) .501(**) .606(**) .658(**) 1
Regression Analysis
In order to test if the independent variables are able to explain the variance in the dependent variable,
a multiple regression test was carried out to test the relationship between internal control
effectiveness, financial expertise and literacy, Jordan securities commission requirements about the
audit committee, audit quality, and understanding of audit committee functions are able to explain
nearly 79% (R=0.785 P< 0.000) of the variance in financial reporting, also it was found that calculated
F = 33.374 is significant at 0.05 which means that there is an effect of independent variables on
dependent variable. This indicates that there is a significant positive relationship between
independent variables and financial reporting (dependent variable). Thus, we reject the null
hypotheses that assumed there is no significant relationship between independent variables.
Meanwhile the coefficients factors and (T value at 0.05 level of significant) support this suggestion
when taking the independent variable as jointly as follows:
Internal Control effectiveness (2.627, 0.01), compliance with JSC requirements (2.672, 0.010), Audit
quality (3.603, .000), and understanding the AC's functions (2.620, 0.010). While the (T value at 0.05
level) of financial expertise and literacy variable was (1.131, 0.261), which means that this variable
doesn't effectively influence the dependent variable separately. This result could be interpreted that if
we take the financial expertise and literacy lonely; it influences the financial reporting (R= 0.658),
whereas if this variable is considered collaboratively with all other independent variables; it will not
influence the financial reporting. Financial expertise and literacy can be compensated by Enriching
the other audit committee features (Internal control effectiveness, compliance with JSC requirements,
audit quality, and understanding of AC's functions).in the light of this result; we will be able to ignore
influence of the independent variable (financial expertise and literacy) on financial reporting.
Table 3: regression analysis of research variables
Model R R Square Adjusted
R Square
Std. Error of
the Estimate
1 .785 .616 .598 3.97196
ANOVA
Model Sum of
Squares
df Mean Square F Sig.
1 Regression 2632.604 5 526.521 33.374 .000
Residual 1640.750 104 15.776
Total 4273.355 109
Unstandardized
Standardized
Coefficients
Coefficients
Variables B Std. Error Beta t Sig.
(Constant) -.658 .382 -1.725 .087
Internal control effectiveness .223 .085 .218 2.627 .010
15

Financial expertise and
literacy
Mo’taz Amin Al –Sa’eed
.148 .131 .115 1.131 .261
Compliance with JSC .319 .120 .256 2.672 .009
Audit quality .243 .068 .256 3.603 .000
Understanding of AC's .243 .093 .186 2.620 .010
Stepwise analysis
By using the Stepwise analysis to evaluate the AC features, to determine the manner in which they
influence the financial reporting, it shows in table (4) that the most independent variable which
effectively influences the financial reporting was the compliance with JSC requirements with (R =
0.666). This result supporting that the JSC Requirements are lined and complied with the
requirements of the Institute of Internal Auditors, International Standards on Auditing, and principles of
corporate governance. Those standards require the share-traded companies to establish audit
committees to oversight the financial reporting process as a function and responsibility of the
management.
Table 4: Variables evaluation through stepwise analysis and regression
Adjusted R Std. Error of the
Variables R R Square Square Estimate
Compliance with JSC Requirements .666 a .444 .438 .33515
Audit Quality .738 b .545 .537 .30440
Internal Control Effectiveness .761 c .580 .568 .29400
Understanding of AC's Functions .782 d .611 .597 .28409
Multicollinearity Test:
Variance Inflationary Factor (VIF) was used to test the multicollinearity of the variables; this test was
used to verify that each independent variable is independent from other independent variables. It was
found (see table (5)) that VIF < 5, so that there is no multicollinearity which means that the model
used in this research is correct.
Table 5: Multicolleniarity test for independent variables
Collinearity Statistics
Independent Variables Tolerance VIF
Internal Control Effectiveness .536 1.867
Financial Expertise and Literacy .357 2.798
Compliance with JSC Requirements. .404 2.478
Audit Quality .732 1.367
Understanding of AC's Functions .734 1.363
7. Conclusions and recommendations
The research results show that our respondents have good level of education and experience. The
research results also show that there is a relationship between internal control effectiveness, financial
expertise and literacy, Jordan securities commission requirements, audit quality, understanding of
audit committee functions (Independent variables), and financial reporting (dependent variable). In
addition to that; provided by Stepwise analysis in order to evaluate the AC's features and the manner
in which they influence the financial reporting; we found that the compliance with JSC requirements
(R=0.666) has been evaluated as the most effective feature that influence the financial reporting in the
Jordanian share-traded companies. Audit quality, internal control effectiveness, and understanding of
AC's functions are coming next respectively. These results are in line with prior studies (Sori, et al.
2009), (Siti Saad, et al. 2009), ((Bedard and Gendron. 2009). (Bedard and Gendron, 2009) provide that
higher AC competencies are positively associated with higher audit fees, greater auditor
independence and selection of a higher quality auditor. In addition, the research result shows that the
internal control effectiveness, financial expertise and literacy, Jordan securities commission
requirements, audit quality, and understanding of audit committee functions can explain a significant
amount of variance in financial reporting. In other words, if internal control effectiveness, financial
16

Mo’taz Amin Al –Sa’eed
expertise and literacy, Jordan securities commission requirements, audit quality, and understanding of
audit committee functions change in one unit of variance, the financial reporting changes in 79% unit
of variance. Therefore, the independent variables are good predictors of financial reporting. (McDaniel
et al. 2002) provide some evidence on how AC competencies may strengthen financial reporting
quality.
Analysing interviews data, by using frequencies; it was found that (77 %) (20 out of 26 members) of
the interviewed AC's members have mentioned that Compliance with JSC requirements is the most
effective feature of AC's that influence the financial reporting, whereas (68%) and (66%) of them have
considered internal control effectiveness and financial expertise and literacy respectively are the most
effective features of AC's that influence the financial reporting. Audit quality and understanding of
AC's functions were valued at lower levels. These results are in line with prior studies; such as
(Bedard and Gendron, 2009) provide that financial experts are more likely to raise concerns about
accounting policies related to less prominent activities in the media. Drawing on these results,
(Bedard and Gendron, 2009) suggest that the addition of a financial expert is likely to “add structure to
the discussion of overall financial reporting quality” and to “bring a focus on issues that may be
accorded lower priority” by financially literate members. This study like other cross sectional studies is
not free of limitations. The limitations should be seen as new opportunities for future research rather
than deficiencies. Future research can apply the same research model in other context to proof the
validity of the research model a cross context. Future research also can borrow the research model
and apply longitudinal study to heal the cross sectional study problems. Based on the research results
and limitations, practical recommendations can be provide as follows: 1- Audit Committees
Competences should be adopted to improve the financial reporting. 2 - Managers can enhance and
strengthen the internal control systems through effective and efficient segregation of duties, more
institution of good corporate governance principles by separating between ownership and executive
management. 3 – Compliance with Jordan Securities Commission is essential. 4 – The audit
committee members should be qualified, experienced, committed, independent and accountable; this
represents the most reliable guardians of the public interest. 5 – The Board of directors and audit
committee members should together ensure audit quality. 6 - Furthermore; effective and efficient
understanding of audit committee functions plays a crucial role in improving the financial reporting
quality.
References
Bean, J. W. (1999), the audit committees' roadmap, AICPA- USA.
Bedard, J., Chtourou, S.M. and Courteau, L. (2004) The effect of audit committee expertise, independence, and
activity on aggressive earnings management, Auditing. Journal of Practice & Theory, Vol. 23, No. 2, pp. 13-
35.
Bedard, J., Coulombe, D. and Courteau, L. (2008) Audit Committee, Underpricing of IPOs, and Accuracy of
Management Earnings Forecasts, Corporate Governance. An International Review, Vol. 16, No. 6, pp. 519-
535.
Bedard. J. and Gendron. Y. (2009) Strengthening the financial reporting system: Can audit committees deliver?'
Available from: http://ssrn.com/abstract=1438150. (Accessed on 15/12/2010).
Blue Ribbon Committee (BRC). (1999) Audit Committee Characteristics and statements: A Study of the Efficacy
of Certain Blue Ribbon Committee Recommendations. New York: New York Stock Exchange and National
Association of Securities Dealer.1999.
Collier, P. A. (1993) Audit Committees in Major UK Companies. Managerial Auditing. pp 25-30.
DeZoort F.T., Hermanson, R.D., Archambeault., D.S. and Reed, S.A. (2002) Audit committee effectiveness: a
synthesis of the empirical audit committee literature. Journal of accounting literature, Vol.21.No. 1, pp. 38-
75.
IIA, Audit Committee Requirements (2009) Standards and Guidance on Audit Committee and Board of Directors
.Available from: http://www.theiia.org/guidance/standards-and-guidance/audit-committees-board-ofdirectors/
http://www.hefce.ac.uk/pubs/hefce/2008/08_06/ (Accessed on 20/12/2010).
McDaniel, L., Martin, R.D. and Maines, L.A. (2002) Evaluating financial reporting quality: The effects of financial
expertise vs. financial literacy. Accounting Review, Vol. 77. , pp. 139-167.
Rezaee, R., Olibe, K.O and Minmier, G. (2003) Improving corporate governance: The role of audit committees.
Managerial Auditing Journal, Vol. 18. (6/7), pp.530 -537.
Sabia, M.J. and Goodfellow, J.L. (2005) Integrity in the Spotlight', 2nd Edition. Toronto: The Canadian Institute of
Chartered Accountants, p. 512.Smith Committee, 2003.
Sarens, G. and De Beelde, I. (2006) The Relationship between Internal Audit and Senior Management: A
Qualitative Analysis of Expectations and Perceptions. International Journal of Auditing, Vol. 10, No. 3, pp.
219-241.
Tackett, J. (2004) Sarbanes-Oxley and audit failure management auditing. Managerial Auditing Journal.
Vol.19.No. 3. pp. 340 – 350.
17

Social Media Networking Tools (SMNT): Concepts,
Challenges and Corollaries of Organisational Work
Practices
Aurilla Aurelie Bechina 1 and Eli Hustad 2
1
Buskerud University College, Faculty of Technology, Kongsberg, Norway
2
University of Agder, Kristiansand, Norway
aurillaa@hibu.no
eli.hustad@uia.no
Abstract: During the last decade, enterprise strategists started to recognize that business success and
performance improvement was more and more related to the degree to which new technological trends were
used in the organisations. Indeed, the role of the information communication technologies has increased in
improving the social and business life of people. Internet and Web 2.0 has brought a revolution in the way people
are interacting with each others. Although that several benefits have been reported in using social network for
business processes improvement; there is still a stringent need to investigate more closely the implication of
using social technologies in organisational work practices. This conceptual paper based on a literature review
intends to shed a light on the concepts, opportunities and challenges of social networking tools in business
practices. The paper outlines a framework encompassing factors that could facilitate or hamper the adoption of
the Web 2.0 technologies by organisations.
Keywords: Web 2.0, social networking, networks of practice, knowledge sharing, Enterprise2.0, Folksonomies
1. Introduction
The advances in information and communication technology (ICT) have influenced on the emergence
of the contemporary networking society based upon a decentralized, information-driven and
knowledge-based economy (Castells, 2000).
The evolution of Internet as a large scale information infrastructure provides opportunities for social
networking where individuals take part in online communication to share information and knowledge
across spatial and temporal boundaries.
Internet technologies and web-based applications are continuously developing and advancing. This
innovation has caused improved usability attracting several communities to popular online activities.
Individuals make new friendships differently than before by sharing personal profiles (e.g.
Facebook.com), exchanging multimedia files (YouTube.com) and by taking part in virtual games
(WorldofWarCraft.com). People share common interests by participating in different discussion forums
and by making their own blogs. Furthermore, Wikis are increasingly used for easy creation and
frequently updating of information content at web-sites (e.g. Wikipedia). People are making and
sharing their own metadata in terms of social tagging and bookmarks (i.e. Folksonomies). Scholars
and practitioners alike suggest that these contemporary trends of Internet development represent a
paradigm shift towards the second generation of the web conceptualized as the Web 2.0
phenomenon (Musser & O’Reilly, 2006).
While Web 2.0 in terms of social networking technologies is widely applied among people within their
private life for amusing purposes, for meeting new friends and for pursuing and discussing common
hobbies within their leisure time, there is a still a need to further investigate whether social media
could improve the organisational work practices.
The last couple of years, several research studies discussing the new trends based on the usage of
social media within business context have been published (Grossman & McCarthy, 2007; Harrison &
Thomas, 2009; Sau-ling, 2010). However, there are still too little investigations done on the corollaries
of the usage social media technologies on organisational work practices.
This conceptual paper aims to discuss the Web 2.0 perspectives related to business context. For
instance, the main principle of self organizing which social networking build upon may challenge the
traditional organizational ontology in terms of structural, cultural and managerial perceptions. This
paper discusses important challenges and opportunities that Web 2.0 may bring along within an
organizational context.
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Aurilla Aurelie Bechina and Eli Hustad
The section two introduces the basic concepts of the social media networking technologies. The third
part outlines the emerging concepts of enterprise 2.0 while the last section discusses the possible
implications of Web 2.0 on the organisational work practices.
2. Web 2.0 concepts, opportunities and challenges
Web 2.0 and its related elements were introduced through a brainstorming session at a conference
launched by the computer book publisher O’Reilly and the event organizer MediaLive International in
2004 (O'Reilly, 2005).
The Web 2.0 phenomenon has gained tremendous visibility and has attracted strong interests not
only from the scientific community but as well from businesses and IT vendors (Smith, 2008). This has
generated some conflicting definitions of Web 2.0 since IT vendors are trying to capitalize on this
trend by associating their products with Web 2.0 attributes, like they did with KM technologies in the
mid 90’s. Web 2.0 is a controversial term, and there exists different definitions. To elaborate the
ramifications from this debate, however, is beyond the scope of this paper, and we apply the following
definition of Web 2.0 as introduced by Musser and O’Reilly (2006):
Web 2.0 is a set of economic, social, and technology trends that collectively form the base for the next
generation of the Internet – a more mature, distinctive medium characterized by user participation,
openness, and network effects.
The Web 2.0 reflects this new concept of gravitational core identified as the web as platform, user
controlled data, architectures of participation, cost-effective scalability, re-mixable data source and
data transmissions, and harnessing collective intelligence (Tapscott, 2006a).
Web 2.0 should be seen as the convergence of two driving trends, one technological oriented and
one emphasizing social dimensions. This convergence leads to new business models with usercontributed
content. The features leverage a diverse participatory intellectual capital to enhance the
transparency of business processes and to distribute participatory services and products design.
In opposition to Web 1.0, users can easily generate and publish content. The second generation of
the web tends to be more dynamically and user-centric in orientation compared to its first generation,
Web 1.0. Indeed, typical characteristics of Web 1.0 are a less dynamic nature consisting static content
published at separate websites representing information silos. In addition, the content of these earlier
websites were rather predefined and only a few people were involved in the creation of this
information.
The table 1 summarizes central differences between Web 1.0 and Web 2.0.
Table 1: Differences between Web 1.0 and Web 2.0
Web 1.0 Web 2.0
Websites as isolated information silos Websites as interlinked computing platforms
Static websites, download Dynamic websites, upload and download
Content management systems Wikis
Directories (taxonomy) Folksonomies
Britannica Online Wikipedia
Personal websites Blogging
Small “content development groups” User-created content
Publishing Participating and building social networks
HTML, hypertext Ajax (JavaScript, XML), mash-ups
Software created by computer experts Users became co-creators and develop applications
Annual or more seldom releases (Microsoft) Perpetual beta (Google)
“Open source” related development
Furthermore, the users are becoming so-called prosumers (Toffler, 1981), referring to a phenomenon
where a customer represents both producer and consumer. Transferred to the context of Internet, it
follows that a user is now both producing and consuming information at a website (Tapscott &
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Aurilla Aurelie Bechina and Eli Hustad
Willams, 2006). The second generation of the web corresponds more to the original objective and
vision of the Internet which did not originally differentiate between the users and creators of
information since the same software was to be used to browse the web and to create new web-pages
(Berners-Lee, 2000). Nor did he distinguish between internal business resources and the external
web, while companies did develop and still have closed intranets.
Web 2.0 is a platform for interacting with content. Information is broken up into “micro-content” units
that may be distributed across the Web. A new set of tools such as RSS (Really Simple Syndication)
provide mechanisms that creates a "feed" of updates from specified news sites, blogs and so forth.
RSS contributes to publishing, aggregating and combining micro-content in new and useful ways.
The collective intelligence of users encourages more democratic use and participation (Boulos &
Wheeler, 2007). Initially, the primarily goal of the World Wide Web (WWW) was to foster a better
collaboration among the scientific communities by sharing ideas and knowledge. However, it is only
with the emergence of Web 2.0 technologies that we start to recognize its impacts on leveraging
knowledge exchanged and enhancing business processes in organizations.
Web 2.0, could be seen as the emergence of mass collaboration (Tapscott & Willams, 2006), in
which several users participate actively and thereby create mutual benefits in terms of increasing
returns (Shapiro & Varian, 1999). Web 2.0 relies on network effects that cause increasing returns as a
consequence of mass collaboration (Tapscott & Willams, 2006). It follows that data directories and
web-sites get richer the more people interact with them. The foundation for mass collaboration is the
overlapping structure of social networks that constitutes the overall Internet representing an
information infrastructure of web-based communities, technologies and hosted services.
Through social networking sites, Wikis and Folksonomies the second generation of the web aims to
facilitate collaboration and sharing of knowledge and best practices between users, and the web is
becoming a platform for user-created content.
Thus, Web 2.0 as such represents a renaissance of the original idea – which needed to mature
gradually for being implemented in practice in order to foster collaboration amongst the users.
Social software applications and tools are perceived as the outcome of the popularity and the rapid
development of Web 2.0 concepts. The next part reviews the different Web 2.0 technologies.
2.1 Web 2.0 technologies
Although the term Web 2.0 implicitly symbolizes an upgrade to a new version of the World Wide Web,
it does not refer to an update of technical specifications or new releases of software, but rather “the
2.0” intends to illustrate the changes in the ways software developers and end-users are using the
web.
Typical technologies that support user-created content are: wiki’s, like Wikipedia; blogging, such as
Blogger; social networking such as Facebook; and social bookmarking, such as Del.Icio.Us.
Wiki comes from the Hawaiian word for fast. Wiki is a collaborative mechanism that allows people to
contribute or modify content using a simplified markup language. Wiki is usually used to support the
community building website. Wikipedia, an open content encyclopedia, is considered as one of the
most popular examples of a wikis. Wikis allow users to enter, aggregate, and annotate content. The
underlying concept lies on the collective wisdom to produce an organized, thorough, and searchable
database in various domains such as political, humanitarian, education, history, and so forth.
Although, security issues in organizational use of wikis Security have been tackled by putting in place
some mechanisms to restrict viewing or editing content; there are still some concerns to limit the
access as it against the concept of freely contribution. In addition, the quality of the content can be
questionable if the self-organizing editing and vetting is not adequate.
Blogs are the most personal and controversial of the Web 2.0 applications and more especially in
business contexts. Web sites can be created spontaneously and maintained by individuals making it
possible to maintain an online journal on which others can comment for private use or business
purpose. Hence, activities discussions can emerge from dynamic use of the Blogging feature. The
biggest advantage resides in the possibility for participants to interact with others. For example, HP is
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Aurilla Aurelie Bechina and Eli Hustad
encouraging its employee to use blog feature to discuss issues on printer compatibility with
customers. Blogs have experienced exponential growth by enabling mass communication without
requiring HTML knowledge. In fact, in 10 years the blog sites number have increased to more than
200 million (Raskino, 2007). However, it is important to notice there is need to understand further the
knowledge sharing process in this setting. May authors publish their own blog and if there are neither
readers nor active participants, the interest of using a blog is quite limited.
Social networking is the practice of increasing the number of business or personal contact by
making connections through individuals. This system allows members of a specific site to learn about
other members’ skills, talents, knowledge, or preferences regardless of geographic location. The
concept of social networking is of course not new, however, the Internet has provided a strong
potential to extend this phenomenon beyond the usual connections through a Web-based community.
Popular Web sites dedicated to social networking include Myspace, Hi5, twitters and Facebook.
Professional examples dedicated to social networks include LinkedIn, XING, and Viadeo. These later
sites are said to create business opportunities by enhancing communication among employees,
customers who can learn about each other’s background such as undertaken contact information,
education, employment history, employment opportunities, and so forth.
Social bookmarking allows users to manage, store, organize, and search bookmarks of web pages.
The bookmarks can be public, private, or shared only with a specific people or a given community, or
the public. Social bookmark services allow users to organize their bookmarks online with informal
tags instead of the traditional browser-based system of folders. Therefore, authorized people can view
these bookmarks chronologically, by category or tags, or via a search engine. An interesting
additional feature relies on the possibility to comment online, annotate or rate on bookmarks. Some
social book markings provide web feeds allowing subscribers to become aware of creation, tagging,
and saving of new bookmarks by other users. Example includes Flickrs and Delicious.
There are many tools that are available; however, it is important to understand the need of the Web
2.0 users and what type of limitation are encountered while using for instance social software tools.
2.2 Social computing software tools
Web 2.0 does also encompass “lightweight computing tools” which are becoming a new social
computing trend of easy-to-use software (Parameswaran and Whinston, 2007). The software is
mainly developed and made available for free by the open source community (e.g. Google, 2007).
Examples are Ajax (i.e. JavaScript, XML), Python, Perl and MySQL. These software tools have
attracted users with limited computer qualifications into application development, and we observe a
shift towards increased grassroots participation and the emergence of situational applications based
upon ad-hoc software needs and the perpetual beta of quick released (Cherbakov et al. 2007).
Furthermore, interoperability facilitates combination of individual modules of functionalities that are
easy to add, advance and reuse. By combining different applications across websites, users create
popular mashups in a new context (Floyd et al. 2007). This “perpetual beta” principle of quick software
releases does not apply rigorous systems development methods and represents a challenge towards
the traditional system development cycle with seldom releases (Neff and Stark, 2003).
2.3 The users of Web 2.0
More and more studies highlight that the young generation is more inclined to use new information
communication technologies.
With the expansion of computer technologies, the concepts of Digital Natives and Digital Immigrants
have emerged (Prensky, 2001). Digital Natives are individuals who were born and grew up during the
era of the Web, in which instant online access, instant communication with multiple peer groups are
part of their thinking mode. Computers, mobile phones, and video gaming are part of their lives.
Digital Immigrants were born and grew up before this era; thus, these technologies and concepts are
not native to them. Individuals belong either to Digital Native or to Digital Immigrant groups (Prensky,
2001). Digital native have a more intuitive potential than digital immigrant to adopt quickly what Web
2.0 offer (Phifer, 2008). See figure 1. However, motivation of using Web 2.0 technologies is the
decisive element.
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Aurilla Aurelie Bechina and Eli Hustad
Figure 1: Spectrum of Web 2.0 fluency (Phifer, 2008)
For a successful deployment and use of Web 2.0 technologies, it is crucial to categorize the Web 2.0
users in order for enterprises to understand how to deal with employees, customers. Psychographics
are essential, because they relate to the user's lifestyle, interests, aspirations and attitudes towards
the use of tool such blogs, wiki, and social networks. It is not the age of the person that determines
the categories but rather the people inclination to use Web 2.0 technologies (Zhiyuan, Meiyan, Yang,
& Shao, 2009).
One manifestation and application of Web 2.0 in the business domain refers to the concept of
Enterprise 2.0.
3 Web 2.0 in organizations-Enterprise 2.0
With the growing recognition that solely technologies have not fully delivered their promises to
improve business performances (Rigby & Bilodeau, 2007), academic and practitioners have shifted
their focus on solving “non technological issues” related to practices, cultures, and organizational
changes (Allen, 2008). Amongst different business processes, Knowledge sharing process within and
across organisations play an important role in fostering the competiveness of enterprises. Knowledge
sharing process is considered as a challenging task, difficult to nurture within an organization. It
requires pro-social behaviour through social processes, for example by cultivating a sense of
community.
The persistent quest to foster collaboration has led strategist’s people to adopt emerging technologies
supporting new networked business structures. Web 2.0, Social software, could become one of the
answers for improving the way people work together and to address some of the knowledge sharing
challenges.
Close studies looking at the use of Web 2.0 communities show that knowledge sharing is the
fundamental nature of such approaches. For example, strong user’s participations have created the
recognized success of some Web sites such as Wikipedia Ebay or Amazon.
With expanding capability to connect people and the need to enable corporate knowledge sharing, it
is important to provide a platform allowing many tools to be selected from. Every organisation has
their own business requirements and therefore, it is important to tailor this social technological
platform (Carla O’Dell, 2008).
Hence, it is crucial to understand the Web 2.0 concept, how a new breed of open, networked
organization—the Enterprise 2.0 and the Intranet 2.0 is emerging and why nowadays it is gaining
attention (Tapscott, 2006a, Tredinnick, 2006). The main focus is on networking, communication,
communities of practices and collaborative platforms.
In the following we will elaborate on these trends to determine the potential role of Web 2.0.
2.4 Enterprise 2.0: A new way to do business
The term “Enterprise 2.0”, E2.0 describes a collection of organizational and IT practices that help
organizations establish flexible work models, visible knowledge-sharing practices, and higher levels of
community participation. An additional interesting feature of E2.0 is the "mashup" - a website or web
application that uses content from more than one source to create a completely new service.
E2.0 refers to the use of social software in order to improve knowledge sharing and foster
collaboration between companies, employees, theirs customers, and partners. To illustrate this
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Aurilla Aurelie Bechina and Eli Hustad
approach, Tapscott (2006a) introduce “the term of wikinomics to describe an economy in which
companies are gaining competitive advantage by successfully managing a trust-based relationships
with external collaborators and customers” (Johnston, 2007; Tapscott, 2006a). The last decade has
seen a clear evolution toward a networked enterprises concept as a means for companies to be more
competitive. Figure 2 illustrates the evolution from Web 1.0 to Enterprise 2.0.
Figure 2: Evolution of networked enterprises (Hinchcliffe, 2007)
The growing adoption of E2.0 is dictated by the need to capitalize knowledge and to retain the
corporate knowledge assets through a well thought human resource strategies and competence
based management. In addition, the pressure on firms to innovate has forced firms to look for ways to
improve their business performances. E2.0 represents a new paradigm for strategic collaboration and
corporate knowledge sharing.
There is no doubt that knowledge sharing initiatives coupled with collaboration efforts are the best
strategy to address the needs to retain people and reach performance goals. Although Enterprise 2.0
seems to bring the right answer, it is necessary to examine what are the barriers and limitation of Web
2.0.
2.5 New organizational forms
Recently, new organizational forms have emerged consisting of flatter, and more decentralized
organizational structures compared to the traditional hierarchy. For instance, the hierarchic
organizational form represents contradictory features and consists of emerging networks and
temporary work teams where an improvised work style is dominating (Kellogg et al. 2006).
Moreover, researchers have interpreted organizations as a “community of communities of practice”
(Brown and Duguid 1991), as social communities (Kogut and Zander 1992; Teigland 2003), or as
social collectives and ‘knowledge systems’ (Holzner and Marx 1979). In the same vein, Contractor et
al.(2006) argue that the evolving networking form is the organization.
The shift towards new organizational forms is in the practitioner-oriented literature referred to as the
emergence of the Enterprise 2.0. Table 2 depicts the differences between traditional organizational
forms and the heterarchic form that has similarities with the Enterprise 2.0 approach.
Table 2: Comparison of traditional and new organizational forms (Kellogg et al. 2006; Tapscott, 2007)
Organizational dimensions Enterprise 1.0
Hierarchical
Enterprise 2.0
Heterarchic
Form of organizing Permanent hierarchy Temporary work teams
Networked
Decision authority Centralized Decentralized
Accountability Fixed, top-down Shifting, distributed
Division of labor and roles Stable, specialized Dynamic, blurred
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Organizational dimensions Enterprise 1.0
Hierarchical
Enterprise 2.0
Heterarchic
Boundaries Clearly specified, persistent Fuzzy and permeable
Work process Routine work, standardized, rulebased
Improvised, flexible, participative
Direction Management commands Self-managing
Individual motivation Satisfy superiors Achieve team goals
Learning Specific skills Broader competencies
Composition Homogenous Heterogeneous
Performance criteria Established, singular Emergent, multiple
Watchword Stability, inertia Speed, adaptability
Scholars suggest that new organization forms such as the heterarchy which represents a postbureaucratic
organizational form are more prepared for adapting effectively to new conditions of
volatility and virtual spaces compared to traditional forms. Heterarchy is as well defined by David
Stark as ‘an emergent organizational form with distinctive network properties and multiple organizing
principles’ (Stark 2001).
To keep up with the dynamic environment, some firms are experimenting with dynamic strategy such
as the perpetual beta approach, and forms of organizing that are more open, interconnected and
adaptive (Ciborra, 1996; Neff & Stark, 2003).
4 Web 2.0 implications
It is recognized among the Practitioners that focusing only on technologies will not insure the success
of Web 2.0 deployment. E2.0 could have happen even without technologies due to the fact that it is a
socially-driven evolution that did not originate from a technology push nor from a demand pull (AAIM,
2008). Hence, adopting E2.0 is not about using others software tools but rather means that people
have to reconsider their business routine by incorporating the collaborative paradigm in their daily
work. Organizational dimension should be considered by fostering change management strategy
while trying to implement new technology. Understanding organizational challenges means
understanding the E2.0 adoption barriers, which identify the critical success factors.
The penetration of new technologies in the workplace has generated new type of issues and
challenges. For example, selection and adoption of technology is a complex process that is based on
a number of alternatives including technological choices, perceived benefits, cost based models and
organizational strategies. However technology itself needs adaptation to organizational goals and
strategies (Laulmann, Nadler, & O’Farrell, 1991).
Motivations for technology use are both intrinsic and extrinsic. Adaptability of technology to user
needs, user confidence, and motivation to its adoption are key factors to understand. Kanter’s has
identified five characteristics of successful technology adoption, the five Fs -: Focused, Fast, Flexible,
Friendly, and Fun (Kanter, 1990).
Dias (2002) identified three motivation factors for using technology, namely; perceived usefulness,
perceived ease of use, and perceived enjoyment. He argues that “information technology
implementation is an intervention we make in order to improve the effectiveness and efficiency of a
socio-technical system” (Dias, 2002).
The deployment of novel Web 2.0 tools requires understanding the factors that will facilitate or inhibit
the full adoption of their use in the workplace. It is important to examine some of the organizational
issues that E2.0 must face such as governance, culture, leadership, incentive schemes, and value
capture.
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Aurilla Aurelie Bechina and Eli Hustad
One factor related to the organizational culture arises from the fact that some organizations do not
promote extensive collaboration and knowledge sharing outside their project teams. Thus, the Web
2.0 deployment is a challenging task.
Another factor common in many industries (e.g., manufacturing’s, aerospace, automation) is the
generation gap. Workforces in these sectors are aging and belong mainly to the digital immigrant
group. Hence, it is challenging for some of them to use or see a need for social software in their daily
work.
5 Conclusion
During the past few years, there has been a growing interest in social software under the name of
Web2.0 for both the business world and the academic communities. Web2.0 represents the
revolution that is happening since more and more users are transforming from passive consumers
status to active participants.
However, technological innovations are not magic bullets, and will not provoke organizational change
by just being deployed. Enterprise 2.0 technologies must be introduced into a dynamic environment
that participants can see value in. This can be done by taking into accounts human and social
contexts and providing appropriate management visioning of the future.
Just as organizations are beginning to grapple with the potential of Web 2.0 and E2.0, there are more
opportunities being developed. At this point, there is a concept that looks to be the most promising
and that is gaining a large amount of interest (Peter Burkhardt, 2009). The concept refers to the
Semantic Web that should be understood as a means for machines to be able to understand, relate,
and compile information without human intervention. This could be the starting point for the Web3.0.
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26

The Variations of CSR Functions Depending on the Socio-
Economic Context?
Aurica Briscaru and Georgiana Corcaci
Petre Andrei University, Iasi, Romania
aurabriscaru@yahoo.com
gcorcaci@yahoo.it
Abstract. The novelty of this article is that it proposes a paradigm for decoding the business’ social responsible
management. Global connectivity has raised the stakes regarding a corporation’s accountability for its actions.
Points of view abound – on what is harmful and what is not, as well as what constitutes good business, good
practice or even good sense. The social projection regarding the moral aspects of the business is known as
Corporate Social Responsibility (CSR). In the postmodern society, CSR represents one of the major dimensions
of social value creation. To this extent, the organization, no matter its dimensions, as a good “citizen”, has to
“connect” and adjust its values to those of the other social factors that are affected by its functionality. The article
proposes a pattern of evaluation for the business’ social responsible engagement, built on three functions: the
normative, the informative and the educational one. Without being precisely delimited, each one of these
functions has a different type of resonance over society and each one receives a different type of retroaction from
it. The evolution mode of the three functions in economically matured and emerging countries is presented by
comparison, with theoretical and empirical examples. A few key items are addressed through the three
managerial vectors: methods of constructing the internal normative infrastructure, forms of transparency and
disclosure, dialogue and forms of social environment qualification, the development of critical social capabilities
into a consistent management practice, citizenship, credibility and other connected subjects. The article’s
conclusion underlines the fact that as business’ become more visionary, more sensitive to the environment’s
axiological mutations, the more they consolidate their position and sustainability. In these lines, we consider a
new managerial paradigm it will be necessary, focuses to the two functions: normative and transformative.
Keywords: corporate social responsibilty managemnt, normative function, informative function, transformative
function
1. Introduction
Growth for growth’s sake is no longer an option. From the business organization of global society, the
world expectations are not only to assure the goods for its needs but also to imply in the sustainable
development for the humankind. During the last two decades, we have witnessed the development of
a wide range of corporate management actions to address the environmental and sustainability
challenges facing our globe. What we perceive (at least in academic literature) is the shift from an
approach merely designed to provide minimum response to mandatory legal requirements, to a
proactive strategy. To foresee present and future challenges and devise the best set of actions to
minimize risks and to grasp opportunities, a growing number of companies has adopted and
developed the special tools kit circumscribed under the name of ‘corporate social responsibility
management’–CSRM. In brief, many of the business organizations afford being ahead of the
legislators and taking the initiative in designing the sustainability policies.
How do the corporate social responsibility philosophies and practices currently look? If we refer only
to the CSR area of evaluations and audit, made by a huge number of specialized organizations and
institutions, detailed assessment criteria for business citizenship should fill the entire library. These
are the reasons why, in the sense of a mutual agreement, two extreme dimensions were selected as
evaluation norms, thus conferring social legitimacy of business:
Added value to the society in general and to the own stakeholders.
Avoid the harmfulness towards society in general and to the own stakeholders.
Both have the same generous scope: sustainable development for the world.
The paper is not attempting to provide a thorough evaluation of the various tools, but rather its
intention is to offer a paradigm as a decoding key and as leverage to improve the corporate social
responsibility management area. In this line, we find the actions of the CSRM for postmodern
business organizations are currently circumscribed into three main vectors: the normative function,
the informative function and the transformative one.
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Aurica Briscaru and Georgiana Corcaci
2. Normative function of corporate social responsibility management
In the center of the contemporary application of institutional theory regarding the study of
organizations, is the proposition that the organization is created as available social institutions
(Friedland and Alford, 1991, Meyer and Rowan, 1977, Zucker, 1988). Social institutions can be
thought of as social forms and associated social norms (Czarniawska, 1997). It is suggested that the
social structure provides the rules, the axiological register of entitlement and decision making that
design and imply an ethical infrastructure.
The normative function refers to the business organizations’ conformity, in everything it undertakes, to
the milieu constrains and expectances. Coherence between internal and external statements and
regulations is materialized in the organizational values of its culture and voluntary exposed in the
codes. These provides the desirable conducts in the internal work processes and inter-relationally
models with external socio-economic entities. Shortly, the normative function is a continuum of
organization adaptation and anticipation to the following organizational aims:
To discipline the organizational internal behaviors;
To comply to the external normative system;
To voluntary cross the law codes to approach the social legitimacy.
We appreciate this function is what the Polanyi, since 1944, has called the ‘embeddedness’ of
economics. ‘Embeddedness’ underlines that economic activity is created and shaped by political
decisions, social conventions, and shared norms and meanings. Although free markets are often
misperceived as natural, sovereign, self contained, and self-regulating, a market economy cannot
exist independently of the society and rules in which it is located. Embedding markets are essentially
a political activity of building institution. Institutions are enduring rules for making important (economic)
decisions.
The normative function is a self-disciplinary process for organizations but mostly directed by the
circumstances of the economic development and the social conscience maturity of the environment.
Indicators and standards for ‘moral business’ or ‘active citizenship’ seem to be in charge mostly in the
economically developed countries. The baselines of Maslow’s pyramid of needs were crossed a long
time ago in these societies. In the developing countries voluntary normative institutions are more of a
shape without consistence. In this environment, the multinationals become more Romans than
Romans and their ‘glocalyties’ failed in the favor of indigene habitudes with a large relativity of the
normative function but with the maximal profitability.
Briefly, today the design and adequacy of a self-normative infrastructure reflects the evolutionary
stadium of the business organization, from the mandatory to the responsible, but strongly correlated
to a society conscious of its power of influence. As consequence, the social legitimacy of the
organization depends, according to the tolerance scale, on the amorality of every location.
2.1 Credibility versus reputation
Social legitimacy is a method of social acceptance of a juridical recognized status, and based on it, of
a ‘comply conducts’ presumption in terms of company civism. The lack of compliance to the
environment’s expectations, in the sense of dissonance between the companies’ real conducts and
the socially regulated moral standards, should represents a motivation for losing credibility towards
the business co-interested groups. In the business organization, the credibility reference system
signifies reputation. Many theoreticians consider there is no clear limitation between credibility and
reputation. „Corporate reputation is the consensus of perceptions about how a firm will behave in any
given situation, based on what people know about it, including financial performance. (...) But
corporate reputation is not about likeability; it’s about the predictibility of behavior and likelihood that a
company will meet expectations” (Sandberg, 2002: 3). Even though the two subjects are treated as
having the same sense, we still believe that reputation leads to positive and favorable association with
the firms’ products, correlating more with consumer acquisition behaviors. Reputation is essentially
the external assessment of a company or any other organization held by external stakeholders, and it
refers to technical capabilities and competences, standards of professionalism and brand (e.g. baby
care products and Procter & Gamble brand). Whilst credibility would be the capability and power of
the organization to inspire social trust, unlimited by circumstances. It represents the belief, the
presumption that ‘P & G couldn’t…’. It represents the transfer of the reputation in the moral value
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Aurica Briscaru and Georgiana Corcaci
register. The relation between them can be formulated as following: the more the business has higher
technical qualitative standards, the higher the trust, and therefore social expectations towards the
moral values of the business. Their noncompliance is more visible, perceived stronger and sanctioned
faster by the society (i.e. the downgrade of P & G at the CSR test from first to fourth place for
insufficient civic conducts in the Katrina case).
One can say that reputation consolidates credibility. Credibility overcomes a collective representation
of a company as a provider of material goods but as a deliverer of value to all its stakeholders. Yet
they both influence the consumer’s perception, the statuation and maintanance of preferencial
relationships with all other stakeholders direct groups. To reinforce their partners’ trust, responsible
companies invest, parallel with the improvement of the economic-qualitative performances, in the
disciplinary-normative function and in the permanent adequacy of the ethic infrastructure to their
environment. Then, one must mention that social legitimacy, although it has a more visible bind with
the disciplinary-normative function, is obtained with the operation of all the parameters of the social
corporate responsibility’s three functions.
3. Informative function
Man, as we realize if we take a moment to reflect, never completly perceives something
or never fully understands something. Carl Gustav Jung, Psychology of the unconscious
The informative function is a resultant of the actions of making the strategic concerns and ethic
policies of corporative governance public: providing general data and information related to the firm’s
domain of activity, specifying the management standards, ground values and the organization’s
practices. The annual financial results, audit results or perspective objectives are also subjects that
can be circumscribed to the informative function.
The informative function is one of the organization’s ways to transmit to the internal stakeholders,
shareholders and those exterior to it, relevant and specific data and actions that respond to the
interests of every type of group. For the external stakeholders, the addressability is customized on
„target audience”, depending on specific indicators of the consumer information (age, sex, training,
environment of origin, social status and other criteria). Therefore, actions and key words are
underlined – transparency, social reporting, social marketing causes, “eco-friendly” ingredients,
information about the product or packaging, volunteering and ethic judgment of corporative governors,
etc. To capture our mind and hearts, no detail and no dissemination channel can be neglected
because anything can contribute to the consolidation of the brand and reputation. This is why often
CSR at least seen from the outside, can look like another form of marketing – social marketing – or
more of a PR function (e.g. Kotler, 2005).
The informative function of CSRM aims mainly to create a positive visibility from the stakeholders
regarding the good intentions and good organizational practices. Generally, the CSRM informative
function is orientated on the follow aspects:
Product and production information, about the internal work (resources used by the company into
manufacturing its specific products;
Social investments and preservation of the natural environment portfolio and
Interest shown to the owners, employees, consumers and the other affected groups.
Recently, growing social (poverty, deteriorating social equality, and corruption) and environmental
concerns (Global Warming) have pressured companies towards a more systematic treatment of
sustainability reporting; through reporting, the firm would disclose how it is utilizing, developing (or
depleting) and more generally affecting human capital and natural resources. Moreover, because of
several high-profile corporate scandals and the new global financial crisis, there has been a general
sense of distrust regarding the companies’ ability to self-regulate (Edelman Trust Barometer, 2009)
and a belief that existing company disclosures tell an incomplete story regarding past corporate
performance and future prospects (Kaplan and Norton, 1992; Simnett, Vanstraelen and Chua, 2009).
Consequently, in the last years, sell-side analysts generate more positive recommendations for
business’ that score high on the integrated reporting: Environmental, Social and Governance (ESG)
dimensions (Waddock, and Graves, 1997: 303-319).
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3.1 Integrated reporting benefices
Aurica Briscaru and Georgiana Corcaci
An integrated report should present information about the organization’s financial performance with
information about its ESG performance, in an integrated way. In order for integrated reporting to be a
viable and useful activity for companies, it must be underpinned by standardized financial and ESG
reporting frameworks. Integrated reporting provides a broad assessment of company value,
performance, and addresses a comprehensive range of financial, value, social, environmental and
strategic disclosures over long-term periods. This approach aligns the information, essential in
managing sustainable corporate value creation for all stakeholders. Standardized information can
empower stakeholders to more effectively access, manage, analyze and decide alternatives.
Global Reporting Initiative, International Integrated Reporting Committee, the World Intellectual
Capital Initiative and other international bodies suggest that information standardization provides new
information- processing capabilities that facilitate the yielding benefits of a more comprehensive
integrated reporting approach, like:
Greater access to and transparency of information from a wide range of both internal and external
information sources, to improve analysis on both short and long term;
More automated and streamlined assembly and review processes, eliminating pervasive review
systems;
More transparency, reuse and collaboration on reporting and analytical concepts used by internal
and external analysts, enhancing process agility;
More relevant information regarding decision analysis available for management and stakeholder
on both short and long term;
Wider collaboration and disclosure concepts providing a broader dialogue on reporting standards.
To reduce inherent opacity of the huge reporting forms of the organizations and to enhance efficiency
of the information versus credibility from stakeholders, now regulators around the world are migrating
their compliance processes from paper to the Internet. An eloquent example is Southwest Airlines. In
2009, following a continuous improvement process and dialogue with targeted stakeholders, the
company integrated various disclosure areas into its Southwest Airlines ‘One Report’: ‘Our team has
made a commitment to communicate our direction to the market and our One Report is a great
medium for that.’ Focusing on the primary audience for Southwest’s ‘One Report’, the company
initiates vary fuel and water re/use programs.
In the global circumstances, integrated reporting is not only a formal reporting option but also rather a
new analytical capability that provides more for all the interested groups’ expectancies. In addition, if
this way of doing business would be widely approached, the CSRM informative function will become
an authentic organizational communication function and it will be subsumed under to the
transformative function of the CSRM.
However, what is missing in the current CSRM informative function is a higher degree of predictability.
3.2 Organizational transparecy as social demand for predictibility
Human knowledge, as amplitude and authenticity, is limited by man’s biological and psychic
capacities, cultural patterns, social circumstances, etc. His biological confinements and psycho-social
determinisms offer him a mediated access to reality. Although aware of his uncertainties and lack of
accuracy regarding his knowledge, man remains dominated by the need to know. The finality of the
act of knowing is predictability over the world and over himself, the coverage of his need of certainty
and the safety and security offered by knowledge.
Science’s incomprehesible findings, the marketing society, the uncontrollable multinational business
and all the phenomena that he assists to as a spectator or as an actor of circumstance in a
increasingly virtual world, has intensified man’s need and the compensatory importance for
predictability. He needs, even for autosugestion, to belive that he doesn’t live in a snow globe that is
shaken only by those that have the macro-decission power and authority. In the slipstream of this
need one can find expectations regarding the transparency business making act.
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Aurica Briscaru and Georgiana Corcaci
Transparency implies a clear knowledge regarding who makes decisions, what decisions are taken,
who benefits from them and who pays the involved costs. Transparency is viewed as an elementary
request of democracy, an intrsument through which individuals and affected groups are entitled to
react to the governing process of the business, to monitor its actions and conducts, quality of goods
and realations with competitors, governors, etc. And all things alive. But democracy, as history
proves, best calks on a critical mass reached by the economical development. In an optimal
economical development, societies become functionally powerfull, they project themselves different
types of organizations, they diversify the exercise of cooperation, relationing and communication
between them. Economical development provides proper conditions for the diversification and
institutialization of the social actors, and implicitly generates actions of accountability for each and
every one of them. The most ample opinion survey realized on a global level underlined, since 2003,
the profound change regarding the factors of individual perception over business’. Thus, 49% of the
respondents have placed on first place social responsibilities, 40% placed brand quality, reputation
and only 32% the fundamental attributes of business. These synthetic results highly differ though
between lots’ perceptions in developed countries to those developing ones (”The Millenium Pool on
Corporate Social Responsibility”).
The degree of transparency regarding the companies’ governance is a consequence of a society that
is aware of its power to influence, that emits entitled requests for organizations to prove their state of
good neighbors, which means business ethic. The ‘requests’ can vary in form (strikes, boycotts,
manifestations, individual complaints, etc.), intensity or time and space frequency (physical and\or
virtual interactions), levels and dimensions (individual, local, national, international), etc. The
‘requests’ are entitled not only because the organization is named a “person” but also because the
costs of it externalities to all the other (ultimately physical persons).
4. Transformative function
The first two functions seem to represent another scope by the organization itself to its discretion. The
transformative function is the one that calls for free will and authentic engagement. Free will
associated to the human individual, burdens man with the decision to choose between right and
wrong (The information philosopher). Free will associated to the profit organization, forces it to initiate
and adoption a culture of the responsibility. It is a laborious and ample steps, which involves a chain
of decisions and actions (i) of permanent adjustment between the internally posted principles with the
organizational member’s attitudes and conducts, but especially (ii) between the publically exposed
values and its’ multi-stakeholders with multi interests, depending on their different motivations. There
is however, an advantage in the free will’s exertion, in the sense that free will leaves a space,
unfortunately often two big for equivoque. Correct human resources policy declarations (the
informative function) and slippages in selection actions, in remuneration or profoundly moral mission
declarations (the normative function), are proof, and they are generally met in the companies’ original
locations but less in their equivoque moral conducts in countries of the African continent or from
emerging countries of East EU. Ironically, the civil society and states from the economically developed
countries take attitude and pressure the concerns to voluntarily and nondiscriminatory adopt
standards, to be honest ‘glocals’, just like in the example of J & J, which was fined by the American
SEC for immoral conducts applied in the sale of drugs in Romania, Greece and Poland.
Which are the circumscribed actions of the transformative function? In principle, all the actions that
are punctually oriented in covering every stakeholder’s group expectations: employees, consumers,
partners, community, and environment.
Why should the business organization be concerned about the stakeholder’s interest? A succinct
answer would be the need to contribute to the predictable world that is propitious for its development.
The organization is a dynamic structure, which re/constructs by increasing itself through
accommodation and assimilation to the environment. This step widely requires knowledge and
anticipation of the others social actors conducts. Predictability is a transparence and trust issue, not
only between the business organization and its stakeholders, but also between all the institutionalized
social actors or singular individuals. Then, the business as a main organization in a growing network
of organizations has the similar demand for certainty as an individual has.
How can this function be practically realized? From all the alternatives that exist and can be
developed, we chose to analyze the prologue: dialogue. The dialogue allows each party to share its
expectations, negotiate feasible objectives and solutions; dialogue calls for assuming responsibility.
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4.1 . Social dialogue, organizational filter and ferment
‘Reality is created through the act of knowledge itself.’ Camil Petrescu, Journal
The organization- multi-stakeholder dialogue is not the panacea for resolving world problems by itself.
The dialogue between organizational deciders and stakeholders is ultimately a way to transcend
arbitrary theorizations (economic exaggerated) and an ethic appeal that is reasonable and democratic
in terms of decision making, regarding the allocation and management of Earth’s resources. It’s one
of the core weave of the business organization and equally of the society, and it represents the
reflection of the civil society organizations’ maturity. The validity of the honest dialogue partner role
with the stakeholders consists in the organization’s added value to the society and a form of added
value that society gives to the business organizations.
In this respect, we could consider the relationship with stakeholders as being a re/creator of veritable,
original managerial visions. In the last hundred years, contiguity between things, events,
phenomenon, at a social level, has been realized on the world economic development/growth pattern.
In reality this meant the big business’ and the already developed countries’ growth and not
necessarily of the entire world. The theories with the highest degree of economic and social
acceptance- neoliberal- substantiated one and other so the ‘economic growth’ would become a
permanent and indubitable solution for humanity’s needs. All the business’ external costs seemed to
have an insignificant price compared to this major objective of the world. Alternatively, the result of
growth-centered economic policies was the three-fold human crisis of increasing poverty,
environmental destruction, and social disintegration.
The participation of multi-stakeholders in the business’ development strategy represents a form of
social control but also an act of good will and voluntary engagement of those to whom the finality of
the technological processes is meant for. Meaning that the reflection of the stakeholders’ values in the
artifacts offered by technology, diminishes the risk of failure and maximizes the innovative potential of
the business organization’s results. The intelligent companies have verified the practical
consequences (positive and negative) of the antic axiom: ‘knowledge is relational’. In other words, the
wider and divers the relationship, the more stakeholders you can implicate, the more they will discover
technically innovative ideas regarding human needs and desires, and the more trust the consumers
will have in their products. The dialogue with interested groups forces the management to project
more ample strategies and more practices that are responsible.
The benefits resulted from extending the business-society relationship can be described by analogy
with the development cycle of the learning process (Baddeley and Hitch, 1974: 47-89, Kolb, 1984). The
learning process is a cyclical iterative pattern, which follows these steps:
Experience (collecting data and information regarding what happened);
Reflection (decoding data and information and transferring them into knowledge, phase often
realized with the help of discussion groups);
Conceptualization (transforming the reflections into ideas regarding what should be done
differently);
Planning (implementing the new cognitive acquisitions in new plans of action).
The results of the cycle are visible through instruments and processes, in the after action lesson.
Organizational after action reviews, after the dialogue with stakeholders consists in improved
behaviors, more adequate to the situations for both the organization and the stakeholders. In this
respect, there are multiple examples of mutual re/potentiating:
The business – university relationship through which (i) assumptions are verified and the
theoretical-conceptual register developed and at the same time (ii) the business is developed by
replicating or inventing innovative solutions for its needs;
The business-clients relationship generates (i) the improvement of the production cycles,
products, services’ quality and (ii) eases the access and promptness of client services;
The business-civil society organizations relationship (i) contributes in standard and environmental
protection standards projection, volunteer, etc., diminishing the business’s risks and (ii) generates
support for community projects; further the list can be improved with all types of formal and
informal organizations, individuals and/or groups that are interested in their functioning.
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Aurica Briscaru and Georgiana Corcaci
But the tough demands of the insurers towards the oil businesses (after the ecologic disaster that BP
made), and as a result, the enhanced and consensual security measures that all the firms which
operate in this domain will have to take, are also post-action lessons. This example does not intend to
enunciate the fact that the business-stakeholders dialogue would avoid or eliminate all the risky
situations related to the business, but intends to re-confirm the saying: too much trust is madness, too
little is tragedy.
We can conclude that sometimes, after serious accidents but mostly because of a systematic
dialogue with the interested parties, the economic agents manage to identify causal patterns, which
describe the current actions’ effect over their future results. The dynamic relationship with multistakeholders
clarifies critical problems, generates unsuspected alternatives, and increases the level of
responsibility and the organizations’ performances.
The same principle is also found in the title of the ‘Engineering for Sustainable Development: Guiding
Principles’ (2005: 29): ‘Search for the engagement from all stakeholders’. The principle stipulates the
following assertion: Society is the one that will ultimately say what is needed or what it wants for any
development and if it wants or not to maintain that type of development. Therefore, the society related
decisions need:
The stakeholders’ engagement regarding their contributions with different points of view,
perceptions, knowledge and abilities, in product projection for covering their own needs;
The engineers’ active participation in decision making, both as citizens and as professionals.
Appreciating the ‘host culture’s kindness’ (metaphor proposed by Toffler), the big companies,
universities and research institutions state the dialogue with stakeholders in their mission declarations
and develop it in the managerial and current organizational practices and standards. However, in the
current interconnected world, the narrow social level dialogue, like host culture, is not relevant
anymore. Global society needs the new institutionalized dialog. Here is an example:”HP works to build
strong, mutually productive relationships with our diverse stakeholders. We engage them to
understand their perspectives and respond to their global citizenship expectations, as well as to gain
their insights into emerging trends, risks, and opportunities. In turn, we share our positions, progress,
and challenges on key issues such as sustainable product design, climate change, and supply chain
responsibility, and demonstrate how global citizenship is integral to our business and brand” (HP’
Stakeholder Engagement). Thus, business organizations through social dialogue manage selfpositioning
in the citizenship role into their environment and create premises for the Earth to grow
more fertile.
5. Conclusion
The current pattern through which the majority of business organizations are deploying their
strategies on the corporate social responsibility management intends to enhance (i) their internal
disciplinary –normative function aspects, (ii) their duty of the informative source –informative function,
and (iii) occasionally, their transformative one.
The degree of appliance regarding the three functions vary depending on (i) the extent to which the
constituents of the organization’s functioning environment demands predictability and (ii) on the
organization’s need to strengthen the predictability of the environment in which it functions, in order to
conserve and develop itself. Without diminishing the importance of the economic interests, I believe
that the postmodern profit organization needs a new paradigm for CSRM. In the new shape, these
should be narrowed to the two functions:
Internal normative function which should strengthen the general social axiological system, and
Transformative function that refers to: (i) the honesty of the economic entities in offering correct
inter and intra-organizational information regarding the undertaken efforts and progress for
sustainable humanity wellbeing; (ii) long life qualifications of its stakeholders; (iii) multistakeholders’
empowerment through their involvement in organizational decision that can affect
their existence and (iv) combining the market orientation with the social innovation.
The roadmap to realizing benefits from new patterns of CSRM offers corporations the opportunity to
utilize their capabilities, resources, and management competences to lead social progress in a ways
that even the best intention governmental and civil society organizations cannot approach. However,
the opportunity to create economic value through creating societal value will require concrete and
33

Aurica Briscaru and Georgiana Corcaci
tailored metrics for each business and each unit in each location. In addition, it requires the
awareness of each social actor about his or her status as object and subject of responsibility so that
our emerging world can remain a desirable place to be. In this sense, we all have to act with care and
creativity for Earth, society, and ourselves, meaning with responsibility.
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2011]
The Millenium Pool on Corporate Social Responsibility, DOIs.
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Management Journal, 18(4)
Zucker, L. G. (1988), Institutional patterns and organizations, Cambridge, MA: Ballinger
34

The Characteristics and Performances of Entrepreneurial
Management in Romania
Nicoleta Bugnar, Adriana Giurgiu, Liana Mester and Mihai Berinde
University of Oradea, Romania
nico_bugnar@yahoo.com
adrianagiurgiu@gmail.com
lianamester@yahoo.com
mihai.berinde@yahoo.com
Abstract: This paper represents the outcome of a study that was intended to be an empirical research carried
out to assess the entrepreneurial characteristics and the management performance in Romania, and to further
provide solutions to the identified managerial problems. The amplification of the innovative potential of the
Romanian SMEs may be done by the implementation of systems, methods, and management techniques,
recommended following the assessment of entrepreneurial characteristics and performance management - a
process that will result in competitive advantages. In assessing and analyzing the characteristics and
performance of the Romanian entrepreneurial management, there are a number of both quantitative and
qualitative issues surrounding the use of the instruments of this process. A major problem arises from the fact
that many similar surveys to date have focused mostly on measuring and interpreting the economic indicators of
the entrepreneurial process, rather than by analyzing the influence of managerial economic performance
elements. All studies undertaken in the last years reveal, on the one hand the importance of investment and
introduction of new, innovative products, and on the other hand, skills and management skills of the
entrepreneur. We can appreciate that it thus attempts therefore to find the optimal combination between market
products/services, capital market (the financing capacity) and the external environment in which the company
operates. In this context, our study tried to determine the competitiveness of the Romanian in terms of
entrepreneurial characteristics - degree of innovation, education level managers and employees, business
strategies, integration information, productivity / cost, employee behaviour, organizational culture, etc. In this
respect, our scientific research of the entrepreneurial phenomenon went from the consideration that it should rely
on the economic analysis of the results achieved by SMEs, as well as on the analysis of those elements
influencing the achievement of these economic results, and considered the following three main assumptions: the
existence of a positive link between the innovation level of an SME (product, technology) and its economic
performance, the existence of a link between the economic performances and the management system, and the
existence of a link between the investment capacity and the economic performances.
Keywords: entrepreneurial management performance, Romanian SMEs, entrepreneurship, innovation,
management strategy
1. Current state of knowledge
The performance of firms is generally established on the basis of efficiency indicators – turnover,
profit, return ratio, profit ratio, liquidity ratio etc. – calculated in relative and absolute values. Taking
into consideration the specificity of the entrepreneurial system, beyond the values of these indices, it
is of utmost importance to identify and quantify the influence of certain factors on the performances of
the SMEs; we can here remind of the human resources, the quality of the internal climate, the
innovation, the connection with the national and international markets etc. regardless of the methods
of analysis that are used, the managerial performances can also have a non-quantifiable form that
refers to the functional aspects, of the qualitative type, directly linked to the human factor. The
scientific research supposes identification of solutions for making efficient the entrepreneurial activity,
as a factor of influence on the performance of the organization. The basic objective of this stage is to
perform a research activity with respect to the characteristics and performances of the entrepreneurial
management in Romania and to produce a methodology of analysis and evaluation of the economic
activity of SMEs. All studies performed during the last years outline, on one hand, the importance of
the investments and of the introduction of new, innovative products, and, on the other hand, the
relevance of the entrepreneur’s managerial competences and skills. There has been an attempt to
find the optimal mix between the market of the products/services offered, the capital market (the
financing capacity) and the external environment the firm activates in. In the evaluation and analysis
of the characteristics and performances of the entrepreneurial management in Romania there occur a
series of aspects concerning the use of several instruments of this process, both qualitative and
quantitative. The importance given to the performances arising form the managerial skills was noticed
by Peter Drucker, thus: “we need a new Adam Smith or David Ricardo to generate an economic
theory that is centred on knowledge; only such a theory could explain the nowadays society.”
(Drucker 1993).
35

Nicoleta Bugnar et al.
A serious problem derives from the fact that many of the researches performed were focused on
measuring and interpreting the entrepreneurial process by economic indices rather than by the
analysis of the influence of the managerial elements on the economic performances. L.R. Daft defined
organization by two fundamental elements – persons involved and common goal (Daft 1992). M.
Niculescu and G. Lavalette noted that performance is a state of competitiveness of the enterprise,
reached by a level of effectiveness and efficiency that assure a durable presence on the market
(Niculescu, Lavalette 1999). The performance is a remarkable result obtained in the fields of
management, economy, commerce etc. that renders features as competitiveness, efficiency and
effectiveness of the organization and its structural and process components (Verboncu, Zalman
2005). The connection between performance and objectives can be made by establishing the
performance objectives of an organization (Albu 2003):
Positioning on the market,
Innovation,
Productivity,
Financial and logistic resources,
Profitability,
Development and managerial performance,
Employees’ attitude and performance,
Public responsibility.
On the other hand, the performance can be expressed by: closeness to the consumers, closeness to
new forces, closeness to operations, productivity with new forces, simplicity, orientation towards
action and autonomy and entrepreneurship (Popa 2003). Under these circumstances, solely referring
to the factors of influence by which the level of competitiveness of SMEs can be analysed, these
factors are linked to the capacity of investment, the capacity to generate and bring new products on
the market and also the capacity to compete both on the domestic market and on the international
markets.
According to A.D.Little’s theory, the model of a high-performance company is based on the following
factors:
Production resources (technical, energetic, material, human, financial etc.)
Work processes
The organizational structure and the enterprise culture
Holders of economic interests (barbulescu 2000).
Michael Porter identifies 3 stages of competitiveness of a country, stages that can be transposed and
analysed at the level of company:
Stage I: competitiveness determined by production factors – factor-driven (non-qualified or underqualified
labour force; natural resources). The economy is competitive especially due to lower
prices but the products are less complex. At the same time, the presence of key, basic conditions
is assumed (institutions, infrastructure, macroeconomy, health and primary education).
Stage II: competitiveness determined by efficiency factors - efficiency-driven (more efficient
production, better quality products). The conditions of competitiveness are linked to higher
education and long life learning and capacity to obtain benefits form the existent technologies.
Stage III: competitiveness based on innovation – innovation-driven (new products, obtained by
innovation, complex processes of production) (Cojanu, Bîrsan, Unguru 2006).
All studies performed in the late years outline, on one hand, the importance of the investments and of
the introduction of new, innovative products, and, on the other hand, the relevance of the
entrepreneur’s managerial competences and skills. There has been an attempt to find the optimal
mix between the market of the products/ services offered, the capital market (the financing capacity)
and the external environment in which the firm activates. More and more authors agree on the fact
that innovation distinguishes a SME with performance on the market. This innovation, which can be:
managerial, technological or administrative innovation (Koenig 1993), will be transposed in the
economic process by the entrepreneur. The latter is that member of the staff of the organization, who
36

Nicoleta Bugnar et al.
initiates and operates a well defined entrepreneurial approach - by participation of a group of
employees –, who has entrepreneurial and managerial autonomy and is rewarded according to the
performances obtained (Nicolescu 2001). The entrepreneur is responsible for the innovative activities
of his firm, activities that can generate: improvement in the quality of the products, extension of
production range, enlargement of production capacity, decrease of the costs with the personnel,
introduction of quality standards, raise of market share, reduction of the impact on environment etc.
According to the ”Innovation Union Competitiveness Report 2011” issued by the European
Commission, DG Research and Innovation (see Figure 1), ”the R&D intensity in Romania increased
from 0.37 % in 2000 to 0.48 % in 2009. Despite this moderate positive trend, Romania still scores one
of the lowest R&D intensities in the European Union. Using a multiannual perspective, the Romanian
2007-2013 Strategy for Research, evelopment and Innovation has foreseen a gradual increase of the
R&D public budget. However, the further planned increase of the R&D public budget in 2009 did not
take place, mainly due to the economic crisis. A substantial increase of the R&D spending, both in
absolute and relative terms, will be instrumental for Romania in order to raise the economic
competitiveness and secure high-quality jobs. Romanian authorities have recognised this and have
set an ambitious but achievable target for 2020: R&D intensity is expected to account for 2.0 % of the
national GDP in 2020.” (European Commission, DG Research and Innovation, 2011: 201-208)
Figure 1: Romania’s R&D intensity projections, 2000-2020(1) (source: European Commission, DG
Research and Innovation, 2011:201)
Data: DG Research and Innovation, Eurostat
Notes: (1) The R&D Intensity projections based on trends are derived from the average annual growth
in R&D Intensity 2000-2009.
(2) EU: This projection is based on the R&D Intensity target of 3.0% for 2020.
(3) RO: This projection is based on a tentative R&D Intensity target of 2.0% for 2020.
One of the most complex problems regarding the management is the evaluation of the efficiency of a
firm. The causes that generate such a situation are multiple: the economic effect of the firm’s
management are mainly indirect and induced, hence, difficult to point out and evaluate; the results
obtained by the firm are influenced by a series of exogenous factors, at macro level and global
system, not seldom hard to anticipate or impossible to consider. In such circumstances, the
determination of the quantifiable efficiency of the management is of high priority. (Nicolescu,
Verboncu 1996). We can extrapolate in the sense that this scientific research of the entrepreneurial
activity has to follow two directions:
37

Nicoleta Bugnar et al.
Analysis of economic results obtained by the SMEs
Analysis of the elements that influenced these economic activities.
2. Research hypotheses
One of the basic stages of research is establishing the hypotheses that are at the basis of conceiving
the research instruments in connection with the objectives pursued. The quality of hypothesis appears
at the moment there is a relation between at least two variables. In the empirical research, the quality
of hypothesis is given by the degree of testability (Chelcea 2001). According to the literature of
speciality, the factors that influence directly the entrepreneurial activity can be identified by the
analysis of the causes that generate the entrepreneurial initiatives: obtaining a profit, gaining
independence of action, an utmost need to implement an idea, the innovation, the development of the
tertiary sector, the social- economic and demographic characteristics of the last decades (Julien,
Marchesnay 1996).
In this respect, the research activity will start from three hypotheses:
Hypothesis 1: The existence of a positive link between the degree of innovation of SMEs (product,
technology) and the economic performances (see Figure 2)
Hypothesis 2: The existence of a link between the system of management and the economic
performances
Hypothesis 3: The existence of a link between the capacity to invest and the economic
performances
Figure 2: Romania’s R&D profile 2009 (1) (source: European Commission, DG Research and
Innovation, 2011:202)
38

Nicoleta Bugnar et al.
Data: Eurostat, OECD, Science Metrix / Scopus (Elsevier)
Notes: (1) The values refer to 2009 or to the latest available year.
(2) (i) HR and TR are not included in the Reference Group; (ii) The EU value refers to the median
rather than to the average.
(3) HR is not included in the Reference Group.
(4) EU refers to extra-EU.
(5) Elements of estimation were involved in the compilation of the data.
In the activity of the research of the characteristics and performances of the Romanian
entrepreneurial management, we shall take the following steps:
1. Analysis of the characteristics of entrepreneurial management of SMEs
2. Analysis of the economic results obtained by SMEs in the sample selected
3. Making the correlations between the two types of analyses
The instrument used within this research stage is the questionnaire; this represents an instrument of
investigation, consisting of a set of written questions and perhaps visual cues, arranged logically and
psychologically, that, by being administrated by the field operators, elicits, from the persons enquired,
answers that shall be recorded in writing. The effectiveness of the questionnaire-based inquiry is
given by the fact that the statements comprised have the function of stimuli triggering verbal or
nonverbal behaviour. (Chelcea 2001).
Table 1: Variables and items of the measurement scale
Factor Variables Items of the measurement scale
Degree of Capacity of the SMEs to have new
Innovative products
innovation
products
Research-development expenses
Categories of certifications, standards
Increase in the quality of products and
services
Capacity of the SMEs to implement
innovative strategies
Openness to new markets
Participation of SMEs on the international
market
System of
management
Organization Flexible organizational structure
Elaboration of plans and/or activity
programmes
Clear general and specific objectives
Human resources The entrepreneur proves managerial skills
Level of work motivation
Organizational climate
Programmes of personnel qualification
Control – evaluation Projection and use of a system of control
System of performance evaluation
Investment
capacity
Sources of financing New investments
Acquisition of new technologies
Attractions of national and European funds
Services of consultation used
Informational systems Assuring information for initiation,
substantiation and making of decisions
IT applications that regard the administration
of the enterprise
The computers and the software owned by
the firm
39

3. Analysis of results
Nicoleta Bugnar et al.
The processing of the data in the questionnaire applied will be performed by means of the programme
SPSS 17, processing that supposes the following stages:
Formation of database
Introduction of the data obtained by applying the questionnaires
Production of descriptive analysis
Test of the relation between variables and indicators
Test of research hypotheses.
3.1 Sampling and data collection
The investigation was conducted on SMEs doing business in various areas.The research was based
on the use, evaluation and interpretation of a questionnaire which included questions about the
features of management used by SMEs and the economic performance achieved in 2010 as
compared with 2009. The database was compiled by voluntary participation of the managers of SMEs
in completing the questionnaire – managers who have the ability to assess and evaluate the overall
situation of the company and who have been granted confidentiality concerning the data provided.
250 questionnaires were applied by distributing them to the headquarters of the firms. The response
rate of 95.19% was considered valid, considering the number of companies that have responded
positively to the invitation (250).
3.2 Characteristics of the sample
In order to get the results that characterize the overall situation of SME, questionnaires were applied
to companies operating in different sectors, from agriculture - using a production management, to
services - for which the objectives oriented management is high priority. In the first part of the
questionnaire there were questions about the company: name, representative, year of being
established, number of employees, field of activity. While in most cases representatives of the
companies surveyed were managers (85% of the cases), in 15% of cases those who completed the
questionnaire were either business managers or sales representatives or other persons entitled to
provide an overview on the management of that firm. The distribution of the SMEs included in the
database is as follows: 50 enterprises in the field of agricultural products, 50 enterprises in the field of
industrial products, 50 enterprises in the field of trade, 50 transport company and 50 company from
the tourism sector. Regarding the year of setting up, the SMEs surveyed were established between
1990 and 2008, with a noticeably higher concentration in the early 90s (46.55%), but there was also
an attempt to challenge the economic crisis by the number of newly established firms in 2008
(10.25%), while the rest of the firms were established during 1995-2007 (43.20%). As for the number
of employees, their number varies from 2 to 250 people, on average 40-45 people, depending on the
business field and the objectives pursued. In what the destination of the products of the firms
surveyed is concerned, in 45% of the cases the products are oriented towards meeting the needs of
the local and national market, and in 55% of the cases the orientation is both to the domestic and to
the foreign market – with three companies the products are exclusively designed for the external
market, namely the European Union market.
In the second part of the survey, the questions are related to features of the type of management
used by the business: the training in management, the methods used for prognosis and forecasting,
the main objective of the company for the next 3-5 years, the main strategic options for the business,
the organisation within the firm and the method of assigning tasks, the way in which the functions are
distributed within the company, the types of salary incentives, the characteristics of employees, the
type of management applied in the firm, the specific management methods and techniques employed
by the firm, how the decisions are made, the methods of financing and consulting resorted to, as well
as the technique and equipment used in order to improve the work. Assuming that the surveyed firms
are heterogeneous, the results of the assessment of the responses given were predictable. While in
what the training in the field of management is concerned, all respondents have higher economic
studies, in terms of prognosis and forecasting methods used, there are different answers: only 7.25%
have a time horizon of at least 10 years by the forecasts established, which are aimed at: a good
positioning on the market and, thus, the closeness to the consumers; a greater level of innovation and
increased rate of labour productivity and profitability; the attraction and the efficient management of
40

Nicoleta Bugnar et al.
financial and logistical resources; driving the employees to develop positive attitudes oriented towards
professional and personal performance, as well, and, of course, increasing public responsibility. The
research-development function is delimited within these firms, 60% develop annual plans and policies
based on the delimitation of the commercial function, while 22.75% operate pursuing goals and
strategies on a period of 3-5 years, trying to delimit the production and commercial functions. Whether
they exceeded the crisis more easily or more difficultly, the main goal of the companies still remains
the rapid expansion of business (75% of companies) by increasing the volume of investment for
diversifying production or entering new markets; only 15% of companies are satisfied with maintaining
the business’s current dimension, while 10% intend to waive their business by selling it rather than by
suspending the activity or closing the company. To establish strategic partnerships is not agreed by
the firms. Because in 80% of the cases, the job descriptions and the organizational chart are
preferred, this translates into a formal organization of the company (75.45%) or a mixed organization -
partly formal, partly informal (24.55%). In what the staff is concerned, the competence in the field of
activity, the sense of responsibility, as well as the endurance are valued, drawing a positive motivation
from the company, generally an economic one. Even if the type of management employed is in
60.50% of cases that by goals, the specific methods and techniques of management used are: the
diagnosis method and the delegation, but 50.5% of firms use the decision-making meeting.
Considering the period covered and the implications, the strategic decisions (3-5 years) are, on
average, 50%, the tactical decisions (0.5-2 years) 25%, and the current decisions (several months)
25%. Taking into consideration the managerial level, the decision-making belongs to the higher level,
with a percentage of 80%; this may affect the business environment by limiting the possibility of
manifestation of initiative at the middle and lower level. The firms resort to external consulting in order
to try, sometimes failing because of bureaucracy, to access grants that could to complement the
funding methods already in use (leasing and supplier credit - 51.25% of cases). Regardless of the
level of economic performance, firms are fitted with computers connected to the Internet and use
email as the primary means of communication with business partners or customers.
The last part of the questionnaire focused on issues related to the firm’s performance: overall
performances achieved in 2010, compared with 2009, but also at the level of such indicators as
turnover, profit, debt volume, volume of investment, number of employees or new products, as well as
the degree of fulfilment of the objectives established. Surprisingly, despite the crisis that overwhelmed
all activity sectors, most indicators have recorded higher levels in 2010, as compared with 2009.
Thus, with 55.5% of the companies, the turnover was higher - in 95% of cases under the influence of
price and only in 5% of cases under the influence of volume. The level of indebtedness has not
changed significantly, due both to the limited access to credits and to the attempts of economic
recovery. The number of jobs has declined significantly in areas such as services, but increased in
areas such as manufacturing.
Thus, the first hypothesis - the existence of a positive link between the degree of innovation of SMEs
and the economic performances – is not confirmed in fact (see Figure 3). Even if there is an interest
and a positive attitude regarding the design and introduction of new products and the improvement in
the quality of the products and services on the market, the items of the measurement scale of the
research-development expenditures, respectively the categories of certification and standards are
only covered in a proportion of 9.75% and respectively 4.25%. The corrective measures that could
verify this hypothesis will constitute the subject of a further study.
Hypothesis 2 - the existence of a link between the system of management and the economic
performances – is proved in fact and is justified by the way of organizing and implementing an
effective management based on objectives clearly defined and oriented towards efficiency and
performance or on developing plans and activity programs, but also by making the human resource
responsible and by their participation in qualification courses and continuous professional training.
Hypothesis 3 - the existence of a link between the capacity to invest and the economic performances
- is partly confirmed due to the restrained interest of the investors in certain economic areas or fields.
Even if the propensity to invest and to increase the volume of investment in 2010, as compared to
2009, is noticed with 75% of respondent firms, the growth rate of these indicators is not sufficient to
verify this working hypothesis. There is deficiency also at the level of the items of the measurement
scale that regard the acquisition of new technologies and the attraction of national and European
funds, items affected by the high level of bureaucracy existing in Romania.
41

Nicoleta Bugnar et al.
Figure 3: Romania’s average annual growth ( %), 2000-2009(1) (source: European Commission, DG
Research and Innovation, 2011:203)
Data: Eurostat, OECD, Science Metrix / Scopus (Elsevier)
Notes: (1) Growth rates which do not refer to 2000-2009 refer to growth between the earliest available
year and the latest available year over the period 2000-2010.
(2) (i) HR and TR are not included in the Reference Group; (ii) EU refers to the median rather than to
the average.
(3) HR is not included in the Reference Group; Average annual growth refers to real growth.
(4) Average annual growth refers to real growth.
(5) EU refers to extra-EU.
(6) TR is not included in the Reference Group.
(7) Elements of estimation were involved in the compilation of the data.
4. Conclusions
All in all, the study made clear that the factors with a positive influence on the managerial
performance of the SMEs in the sample analysed are: the characteristics of the managers (training,
experience, openness to the new) and the economic features and indicators. The management
strategies implemented by these companies are positively correlated with the value of the
macroeconomic indicators even if the sample used for the study is small, as compared to the total
number of SMEs at national level; but the generalization of results at national level is worthless
because of the differences in the economic development of the geographic areas across Romania.
This correlation is clearly influenced and determined by these firms’ location and by their belonging to
an area that is closer to the Western European influence than other areas of Romania. Of course, the
sample and the diversity of SMEs can be extended, in order to generate more convincing results, but
not generalisable.
The results of this research will be used within the process of optimization of the entrepreneurial
activity, as a factor of influence on the organisational performance, of the efficiency of the
organizational structure and of the increase of economic performance.
42

Acknowledgements
Nicoleta Bugnar et al.
This paper represent the outcome of the empirical research pursued by the authors within the project:
“PERFORMAN - The Elaboration and Implementation of an Innovative Methodology for Analyzing and
Evaluating the Characteristics and Performances of Entrepreneurial Management in Romania”,
managed by the National Council of Private SMEs in Romania (please, visit the CNIPMMR-
website:http://www.smeprojects.ro/index.php?page=proinfo&pid=48&lang=en).
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Nicolescu, O. (2001) Managementul întreprinderilor mici şi mijlocii, Editura Economică, Bucureşti
Nicolescu, O., Verboncu, I. (1996) Management, Ed. Economică, Bucureşti
Niculescu M., Lavalette G. (1999) Strategii de creştere, Ed. Economică, Bucureşti
Popa, Ioan, Belu, Mihaela (2009) "Growth Poles And National Competitiveness", “Annals of Faculty of
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Popa V. (2003) Măsurarea performanţei, Economica, nr. 1
Verboncu I., Zalman M. (2005) Management şi performanţe, Ed. Economică, Bucureşti
43

Impact of the Global Economic Crises Over the Micro- and
Macro-Environment in Romania
Stefan Claudiu Caescu and Ionel Dumitru
Academy of Economic Studies, Bucharest, Romania
stefan.caescu@gmail.com
ionel.dumitru@gmail.com
Abstract: Presenting the characteristics of the Romanian market as a part of EU represents a useful instrument
for all the potential foreign investors who want to develop businesses on this market. Reflecting a superior level
of economic integration, European Union Market – a market of impressive dimension and in continuing
expansion- has a great attractiveness for entrepreneurs, as a result of its remarkable opportunities. Romania’s
status as member of EU, makes its market a part of the European Union market. In this conditions Romanian
market has a high interest in the eyes of foreign investors which adds up to the specific characteristics of its
business environment. From this perspective a scientific undertaking that has as sole purpose presenting the
characteristics of the European market together with the ones of the Romanian market, in the context of the
global economic crisis, presents interest both for theory and practice, representing a useful instrument for all the
potential foreign investors who want to develop businesses on Romanian market. From theoretical point of view
the researched subject represents a problem of international market selection- base component of international
marketing research. From the practical point of view the article presents the results of a qualitative marketing
research of the impact of the economic crises over Romanian companies. The main objectives of the research
have been represented by the identification of the changes that occurred both in the competitive environment and
their impact on the strategic marketing management of companies in Romanian market. In order to answer to the
paper’s objectives, a qualitative marketing research (in-depth structured interview) was conducted, within the top
management of 27 companies. The study can represent a first step in developing, testing and validating a model
of management in crises which will allow companies to identify correlations between the conditions of the
competitive environment in crises situations and the associated marketing management strategies.
Keywords: global economic crises, macro-environment, micro-environment, Romania, EU
1. Introduction
Reflecting a superior level of economic integration, European Union Market – a market of impressing
dimension and in continuing expansion- has a great attractiveness for entrepreneurs, as a result of its
remarkable opportunities. (Adascalitei V., 2005, p.7). Romania’s status of a member of European
Union, makes its market a part of the EU Market. Starting from this penetration of foreign companies
on Romania’s market, represents at the same time penetration on European Union market. In this
conditions Romanian market has a high interest in the eyes of foreign investors which adds up to the
specific characteristics of its business environment. From this perspective a scientific undertaking that
has as sole purpose presenting the characteristics of the European market together with the ones of
the Romanian market, in the context of the global economic crisis, presents interest both for theory
and practice, representing a useful instrument for all the potential foreign investors who want to
develop businesses on this markets. From theoretical point of view the researched subject represents
a problem of international market selection- base component of international marketing research
(Dumitru I., 2007, p.131).
The empiric undertaking had as starting point the analyses of the international macro environment
consisting of six very important factors: demographic, economic, political, competition, resembles
between different external markets (Jeannet J. P. , Hennesey H. D., 1995, p.148-152).
Similar forces (physical-geographical characteristics, demographic characteristics, economic
conditions (Bradley F.,2001, p.221) are divided by some authors in : accessibility criteria, potentiality
criteria, permeability criteria, security and opportunity criteria (Pop N. Al., Dumitru I, 2001, p. 176).
Analyzed separately, Romanian market has a series of specific characteristics, which are a result of
the specific way in which the components of the marketing environment interact. All of this result in a
favorable business environment for foreign investment.
Natural environment together with the demographic and the socio-cultural one can represent
elements of competitive advantage and also strong motives for investing in Romania.
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Stefan Claudiu Caescu and Ionel Dumitru
Market localization. Romania is situated in the Southeastern Europe, in the Northern part of Balkan
Peninsula, inside and outside of the Carpathians Mountains, on the Danube lower course, bordering
the Black Sea.
One of the largest markets in Central and Eastern Europe (ranking 7th , with over 21 million
inhabitants);
EU unique market gateway (access to approximately 500 million consumers);
Attractive location: situated at the turning point between EU, the Balkans and CIS countries,
Romania is crossed by three important pan-European transportation corridors: corridor no. IV
linking Western and Eastern Europe, corridor no. IX connecting Northern and Southern Europe
and no. VII – Danube River, facilitating inland water transportation, at the same time connecting
the Romanian Port of Constanta (the biggest Port to the Black Sea) to Northern Europe, through
the Rhine.
Resource Advantage:
Highly skilled labor force at competitive prices (solid knowledge in foreign languages, technology,
IT, engineering, etc);
Rich natural resources, including surface and underground waters, fertile agricultural land, oil and
gas;
High potential for tourism.
Specific culture. In a global economy, language skills are a key workforce advantage. Born at the
cross roads of different cultures and civilizations, where East meets West, Romanians are
multilingual, open to new experiences, innovative, future oriented. Expats and travelers often consider
Romania a place of their own, mirroring other cultures features, blending them in its life style.
Romanians are well known for their capacity to adapt, to offer, to share some of their good faith
undamaged in time.
For centuries Romanians have created, built and guarded traditions, culture, religion and everything
worth saving as a nation, being the pillar of strength in keeping the European spirit alive. You can find
traces of this ancient civilization all over the country, from its earliest vestiges to the most futuristic
architecture.
Political environment reflecting in a specific composition societies structures, social classes and their
role in society, political forces and the relationships between them, the degree of involvement of state
in economy, the degree of stability of the internal and international climate ( Balaure V., 2005, p.80)
together with the economic and social environment enlarge the advantages offered for foreign
investors.
Political Advantage :stability factor in the Area - NATO membership; stability Guarantee in South
Eastern Europe; EU membership;
International Relationships Advantage: bilateral agreements between Romania and other
countries on investments promotion and protection; bilateral diplomatic relations with 177 out of
the 191 UN member states, plus the Holy See, the Sovereign Military Order of Malta and the
Palestinian National Authority; member of the UN and other international organizations, like:
OSCE, Council of Europe and International Organization of La Francophonie; free trade
agreements with EU, EFTA countries, CEFTA countries; WTO member since January 1995.
Economical Advantage: sustainable economic growth; decreasing inflation; increasing interest on
behalf of Foreign Investors – leader destination for FDI in the region ( Ernst&Young, 2008); sound
fiscal policy (16% flat tax).
Social Advantage: agreement between Government and major unions; no major union
movements; labor relations regulated by the Romanian Labor Code.
Other Advantages: continuously improving infrastructure (commitment to improve the highway
infrastructure to EU standards); well-developed networks of mobile telecommunications in GSM
systems; highly developed industrial infrastructure, including oil and petrochemicals; presence of
branch offices and representatives of various well-known international banks; extensive maritime
and river navigation facilities.
45

Stefan Claudiu Caescu and Ionel Dumitru
Legal environment is now according to the EU regulations and represents another advantage for
foreign investors.
Labor and employment regulations. The Labor Code covers Romanian employees with employment
contracts, who perform activities in Romania or abroad for a Romanian employer, as well as foreign
individuals with employment contracts who perform activities for a Romanian employer in Romania.
The law stipulates individual employment contracts for an indefinite period as the common method of
employment. In addition, other forms of permitted employment are: individual employment contract for
a fixed duration; temporary employment; part-time employment; flexible working arrangements (homebased
work).
2. Objectives
In Romania, the effects of the economic crisis began to be felt almost a year later than in the US and
Western Europe, first by banks and industry and then expanded at population level. Firstly, in
Romania the crisis was exacerbated in the banking system and because 41 of the 42 banks present
on the domestic market are foreign-owned banks, notably from the countries affected by the
economic crisis.
Moreover, the crisis in Romania coincided with early parliamentary elections that took place in
November 2008. It was totally unfavorable for the economy because the political activists, who
pursued re-election and also held the reins of the monetary and financial instruments for macroeconomic
adjustment, delayed by four-five months the enforcement of unpopular measures to fight
the crisis, in order to ensure the electors’ votes. All these led, in 2009, to over 200,000 companies in
Romania being forced to cease activity and declare bankruptcy, which was also a direct result of the
Government’s decision to enforce a required payment of a minimum income tax regardless of the
company turning a profit or not, in order to raise more money .
As shown above, the financial crisis has led companies to rethink their strategies, including marketing
ones, to meet the major changes occurring on the market. This is true also for the Romanian market,
so it is necessary to conduct a research in order to highlight the way in which the crisis has affected
the company's marketing activity on the market in Romania. Thus the present research focused on
key strategic marketing tools and the way that organizations use them to prevent or fight against the
effects of economic crisis.
Among the major objectives of the research there are the following: evolution of the marketing budget
during crisis, identifying corporate objectives set by companies to meet the crisis period and the
elements of differentiation over competitors; market research level of use; product range
development; determining the central tendency in the list prices charged by companies and how they
are negotiated, identifying changes in relations with distributors and evolution of logistics costs,
changes in the promotional policy, in the budget available and the techniques used, the timing when
the companies started to experience the economic crisis, but also when they believe that it is going to
end.
In the following analyses we have considered on one side the national component (national macroenvironment)
and supra national component ( supra national macro-environment), starting from the
status of national market, a component of the unique European Union market and on the other side
impact of economic crises on Romanian companies (micro-environment).
3. Impact of the global economic crises over Romania’s macro-environment
As all European countries Romania was severely impacted by the economic crises. The difference
between Romania and the rest of EU countries stands in the recovery process. As most of the
European countries managed to recover from the economic crises at macro-economic level
throughout 2010, Romania is still struggling to recover in 2011 with low perspectives of this to happen
earlier than 2012.
A scenario of prolonged recession materialized in Romania during 2010. The fiscal austerity
measures enforced last summer accentuated the negative output gap and resulted in an estimated
contraction of –2.5% yoy last year. The decoupling of the Romanian economy from regional and EU
recovery was mainly driven by local factors. The country is just now facing the harming effects of a
pro-cyclical fiscal policy that was employed during the last couple of years. Very weak domestic
46

Stefan Claudiu Caescu and Ionel Dumitru
demand has been hit hardly by a tighter fiscal policy and austerity measures. Furthermore, relatively
high inflation driven by the VAT hike and international food price shocks left no more room for
monetary policy to support the economy through lower interest rates. Looking ahead, the good
exports dynamic is expected to provide some relief but Romania’s economy is expected to continue to
underperform relative to the rest of the region (with GDP growth projected at 1.7% yoy for this year)
(National Bank of Romania,2010). The necessary structural reforms in Romania are strongly
supported by post-accession EU structural and cohesion funds with total allocation amounting to EUR
27 bn to be absorbed by 2013. The absorption rate based on approved contracts was 90.83% (EUR
7.9 bn) in September 2010, which is a considerable improvement from 57.3% in September 2009
while the cash-based absorption rate calculated by the actual funds that reached the final recipient is
still considerably lower at 13.5%. Infrastructure projects amounting to EUR 5.6 bn (including the
Romanian government’s contribution) represent one of the most important components of these
allocations. Moreover, the government endorsed a EUR 4 bn infrastructure upgrade program for the
period 2011–2015 for rehabilitation of local roads, the development of 100 water distribution and
sewage projects and co-financing of other projects initiated by local administrations.
Sectors strongly related to export activities, such as wood products, manufacturing of basic metals,
electrical equipment, motor vehicles, trailers and parts performed exceptionally well during 2010. Two
industries, the electrical machinery and the motor vehicles, trailers and parts industries experienced
one of the strongest rebounds during 2010 (above 30%) following the successful performance of the
previous year, when they increased their share in total Romanian exports from 5% to 8% and from
13% to 16%, respectively. The positive trend has been driven by multinationals moving production to
Romania for cost reasons. Several other industries which function as suppliers to these two major
sectors – such as rubber and plastics or basic metals performed well last year and the positive trend
is expected to continue in 2011.
Several industries have been evaluated as stable this year from different perspectives. Agriculture is
among the least affected by the global crisis but suffering some delays in structural reforms and is
strongly weather-driven. Some support might come from the EUR 8.3 bn allocated from EU funds until
2013, which are expected to accelerate structural reforms such as the consolidation of farming land
(ARIS Invest,2011). Industries with higher value added, such as machinery and equipment,
computers and office machinery, and communications equipment are closely tied to the global
recession with a disastrous 2009–2010 and not much investment expected in 2011 (Romanian
Chamber of Commerce, 2011). Wholesale and retail trade has been negatively impacted by the
collapse in domestic consumption, although some sub-segments have performed very well, such as
pharmaceutical or fuel retail and differentiation among sub-segments is expected to persist this year
as well. Some industries have been undergoing structural changes during the last couple of years
with no clear outlook for recovery in the near future. The mining and quarrying sectors have been in a
continuous decline over the last four years. (Unicredit Tiriac Bank,2011).
Cost advantages continue to play a major role in shaping Romania’s international attractiveness, but
over the last decade the country has lost significant ground in lower value-added sectors such as
textiles, wearing apparel and leather. As most of the foreign investors in these sectors use
outsourcing contracts, exit costs from the market are low and foreign players move easily, searching
for even lower costs in less developed countries. However, exports of textiles and leather products
are still important, representing 14% of the country’s total exports (Ernst&Young,2010).
Some industries such as construction and real estate have been hard hit by the global crisis and
further contraction is still in the cards. Some support for infrastructure-related projects might come
from the EU structural funds and government support plan, however we consider them insufficient to
support a full recovery of the industry this year. The mineral-based products (non-metallic) industry is
strongly correlated with the construction sector activity. Consequently, after the significant decline in
2009–2010 there is not much hope for any significant recovery.
4. Impact of economic crisis over Romanian companies (micro-environment)
Research methodology
For the current research, the data were collected through in-depth interviews. This type of qualitative
research was chosen as the respondents were people in top management of organizations on the
47

Stefan Claudiu Caescu and Ionel Dumitru
business to business market (27 organizations) (managing directors, marketing directors, marketing
executives, presidents of boards of directors), so a focus group would have been impossible to
organize. The interview was a semi-structured one as the discussion was based on a guided
interview.
In order to find out as much information as possible to reveal the decisional issue that was the basis
of this research, but also to better cover the categories of organizations on the business to business
in our country, the sampling was done on the following criteria: ownership, turnover and number of
employees. From the point of view of ownership there were chosen: one public organization, 2 with
mixed ownership and 24 private. With regards to the turnover, 6 of the organizations have had in
2009 a turnover of less than 2 million euro, 12 had the turnover between 2 and 10 million euro, 7 had
the turnover between 10 and 50 million euro and 2 had over 50 million euro. When considering the
number of employees, 6 of them had an average less than 49 employees in 2009, 10 of the
interviewed companies had between 50 and 249 employees on average and the rest of 11 had over
250.
In order to go through the interview easier and to be able to find out all the necessary information in
order to solve the decisional issue that started the research, an interview guide was designed to cover
all the pre-established objectives.
Results
The following are the most important research results, results that will allow us to conclude on the
influence that the economic crisis has on strategic marketing decisions in the companies on the
business to business market in Romania.
All those interviewed said that because of the crisis they had to amend the budget, 15 of them opting
to decrease it (with percentages between 20% and 50%). Only two companies sustained an increase
in the budget for marketing activities in anticipation of attracting an additional number of customers,
leading to increases of up to 20% when compared to the previous year. The explanation for decisions
on the marketing budget may start from the changes in turnover and number of employees.
Trends of sustainable development start to emerge among corporate objectives such as "improving
the quality management", "respect for the business partners and development of mutually beneficial
relationships with them" or "shift to alternative energy sources such as solar panels”. A small number
of organizations are setting targets to increase turnover and market share during this period of crisis
(three of 27 participating organizations), by attracting new customers and addressing new (including
foreign) markets.
Whether it is maintaining a market position obtained or developing, any organization must have a
number of elements of differentiation in relation to competition, factors that would lead consumers to
buy their products and services. In theory, this lies the basis of the company's market positioning, one
that during the crisis, according to research results is made through "high quality products,"
competitive prices", "fast reaction" and" flexibility". The first two elements of differentiation (quality and
price) are constant on positioning, perhaps the most widely used by companies to achieve
advantages over competitors. But we note that there are new elements of differentiation occurring in
response to crisis issues – fast reaction in delivering the orders and flexibility in setting contract
conditions (in particular those related to price). In the business-to-business field, due to special
conditions of sale, plus the financial difficulties affecting most organizations, flexibility in terms of the
payment period may be a major advantage for any company.
The most important decisions regarding the marketing policy of a company refer to the marketing mix:
the products will be part of the company offer, the prices to be charged for them, how they will be
marketed and, last but not least, how the company will promote its offer. Given the fact that the
research results have shown a decrease of the marketing budget because of the financial crisis, it is
important to see what influence this has on strategic decisions regarding the marketing mix.
With regards to the product range, half of the companies participating in the research have introduced
new products on the market, trying to cope with changes in the business environment, adapting to
consumer needs through new offers or even in anticipation of their needs. It is interesting that all of
48

Stefan Claudiu Caescu and Ionel Dumitru
the companies participating in the research did not give up existing products without introducing new
ones, indicating an offensive attitude towards the economic crisis, an attitude that shows that the
companies do not want to give up easily when faced with challenges.
In the business-to-business sector, the pricing policy can be the main competitive advantage, so that
organizations vary the price list according to changes in the market. If in 2008 the trend was the
increase in price over the previous year (19 of the 27 companies participating in the research
indicating that), in 2009 most companies (22) have used the list price decrease due to financial
difficulties which are faced by most of the players on the market. These difficulties are, moreover,
important criteria in negotiating price. The research results show that the most important factors
considered when negotiating the list price are the quantity ordered, the method and time of payment.
In terms of distribution policy, the crisis had a major influence on the company relationship with
distributors, as 22 of the 27 respondents said. In the few cases where there were major changes, they
often refer to dispensing with the services of intermediaries in favor of a direct distribution of the
company products to the customer. An important component of the distribution policy is the logistics
cost, which directly affects the price charged for products and services. At this time of crisis, most of
the respondents experienced a decrease in these costs, allowing them to offer an attractive price for
current and potential customers.
In the section of the interview devoted to the promotion policy the focus was on the main promotion
policies used between 2008 and 2010. The most important differences in the structure of the
promotional techniques, as a consequence of the crisis were : in 2009-2010 there is a decrease in the
number of companies participating to fairs and exhibitions, most often due to the costs involved by
this communication technique; moreover, even if they have opted to use such a method of
communication with the customer, the companies started to be more selective with regards to the fairs
and exhibitions to participate in; during the crisis, they have used more print promotional materials
(flyers, brochures, catalogues) than direct customer contact; the reason for this is that direct contact
also assumes a reasonable sale force, but as seen above the tendency was to reduce the number of
employees; in 2008-2009 the media advertising was used more and more rarely; giving up the media
advertising was done in the favor of Internet advertising.
5. Conclusion
The results emphasized in the present paper may be useful to the academic environment, as a good
practical instrument to be studied during the masters courses aimed at studying the impact of the
economic crisis on macro and micro environment in Romania identifying at companies level the
change management behavior in such situations. Moreover, the results may constitute
recommendations for the business environment, especially for companies that are experiencing real
difficulties in adapting to the new market conditions. Also the information in the paper can be useful
for potential foreign investors that want to activate on Romanian market.
The study can represent a first step in developing, testing and validating a model of management in
crises which will allow companies to identify correlations between the conditions of the competitive
environment in crises situations and the associated marketing management strategies.
Acknowledgements
This paper was cofinanced from the European Social Fund through Sectoral Operational Programme
Human Resources Development 2007-2013, project number POSDRU/1.5/S/59184 "Performance
and excelence in postdoctoral research in Romanian economics science domain".
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50

Sustainable CIO Leadership in China
Eng Chew
University of Technology, Sydney, Australia
eng.chew@uts.edu.au
Abstract: Enterprise Chief Information Officer (CIO) leadership role is constantly evolving due to the dynamically
changing business environments. Most CIO leadership research to date has been centered on firms from
developed markets; but little is known outside of China of their CIO leadership practices. With China’s rapidly
growing global stature accompanied by its unprecedented economic growth rates, competitive firms globally are
seeking to understand and incorporate the “China factor” in their strategy renewal process. Understanding
China’s CIO leadership practices becomes an important requirement for business leaders, practicing CIOs and
scholars alike. This paper addresses this knowledge gap. In particular, it seeks to investigate what is the
evolutionary status and expected sustainable model of CIO leadership practices of Chinese firms as they strive to
become globally competitive multinationals? We use qualitative case study approach to study seven prominent
CIOs from firms in Beijing, Shanghai and Hong Kong, who have all been awarded China’s top 10 CIOs or
equivalent over the 2005-2010 periods. The Chinese firms are a mixture of listed state-owned and joint-venture
(with foreign multinational) enterprises of varying sizes – all with globalization aspirations. The Hong Kong firms
(listed) are already operating internationally. Each CIO was interviewed twice using semi-structured open
questions. We find a hierarchical framework of three value-creation types of CIO leadership: type 1 is focused
principally on managing and provisioning cost-effective and reliable information systems (IS) services to support
business operations; type 2 is focused on both IS operational excellence and, particularly, business strategy
formulation and business model design by leveraging IT to create the firm’s competitive advantage; and type 3
(represented by all three Hong Kong CIO subjects) possesses type 2 attributes plus holding additional corporate
responsibilities beyond IS – such as shared services, business innovation functions. Type 2 and type 3 CIOs
have particularly strong business acumen and relationships. For example, the CIO of a state-owned financial
services firm is actively engaging not only the CEO but also the board directors to “educate” these business
leaders on the unique differentiation by IT in the firm’s business model. Yet, the CIO of a wholesale/retail
enterprise is focused on using IT to offer not only an operationally excellent business platform, but also to create
differentiated value to maximize customer service experience. All Chinese CIOs studied are cognizant of the
Chinese Communist Party philosophy as they build their social capital for business success. Type 3 CIOs play
active corporate leadership role beyond IS – e.g. in merger and acquisition for international expansion. Both
types 2 and 3 are adept to leading ambidextrously – exploiting current IS and corporate capabilities and exploring
or innovating possible future business capabilities through creative use of IT to maximize value creation. Type 3
in addition contributes to the firm’s agility by providing the capabilities to reconfigure knowledge and process
assets in response to market changes. The three-tier framework represents a possible sustainable model for the
evolution of China’s CIO role.
Keywords: China, CIO, sustainable leadership, exploitation, exploration capabilities
1. Introduction
Since China’s opening up (1978) by Premier Deng Xiaoping over 30 years ago, its economy has been
growing at a phenomenal rate of ten percent per annum. Underpinning this remarkable growth has
been China’s pragmatic economic reform which gradually transforms the nation from a centrallyplanned
to a socialist-market economy. This reform has resulted in huge influx of foreign direct
investments into China, making China “the world’s factory” of manufactured goods. China is now the
world’s second largest economy. “It is entering a new era of global economic interdependence as
more Chinese companies chase overseas markets, while more foreign interests seek entry or
expansion in what is arguably the world's most lucrative market” (China Economic Review 2011).
China's business dynamics and competitive landscape are constantly evolving as its economy
continues to grow towards becoming, according to some analysts, the largest within 20 years. This is
possible as “China has a distinct advantage which is its government’s ability to make things happen
quickly and at a scale that other societies cannot emulate” (Redding and Witt 2009). Thus,
competitive firms globally are keenly seeking to understand and incorporate the “China factor” in their
strategy renewal process.
One overarching driver for change in China’s business landscape is the long term national plan, first
launched in 2006 by China’s 11 th Five-Year Plan. It seeks to retransform China’s economy from a
manufacturing-based “made-in-China” focus toward a services-based “innovated-in-China”
powerhouse. This is simultaneously reinforced by China’s broader 15-year science and technology
development plan (2006-2020) that calls for accelerated indigenous innovation to create a robust ITbased
services economy and to capture greater value for China by 2020. In response, Chinese
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Eng Chew
companies are rapidly changing and adapting their strategies to enhance their innovative capabilities
and consequently their international competitive advantages. Following the theory of business and
organizational alignment (Schubert 2004), CIO roles in Chinese companies are also evolving in tune
with this strategic shift in focus. Understanding China’s CIO leadership practices hence becomes an
important requirement for international business leaders, practicing CIOs and scholars alike. Yet, little
is known outside China about the state of its CIOs. This paper addresses this knowledge gap.
Specifically, it seeks to investigate: what is the evolutionary status and expected sustainable model of
CIO leadership practices of Chinese firms as they strive to become globally competitive
multinationals?
After reviewing the underlying theory of sustainable CIO leadership in section 2, the paper describes
briefly the enterprise environmental context of the China CIOs under study in Section 3. Section 4
overviews the research methodology used, and section 5 discusses the results of the qualitative
research and describes the synthesized CIO leadership framework. Section 6 concludes the key
contributions and limitations of the research.
2. Theory of sustainable CIO leadership
The CIO role emerged in the 1970s and has been evolving ever since (Chew and Gottschalk 2009:
332-355). Numerous prescriptions over the years have been proposed for the CIO role to ensure it
creates value for the enterprise. But what makes CIO leadership sustainable? We define sustainable
CIO leadership as one whose value creation capability grows commensurably with the firm’s
organizational capability to sustain competitive advantage. We review the evolution of CIO role below
and use the theory of dynamic capabilities (Teece 2007) to propose the key elements of sustainable
CIO leadership.
Stephens et al (1992) suggest that the CIO should perform as an executive actively involved in
strategy planning, rather than a functional manager. Applegate and Elam (1992) add that the CIO
must bring a broad business perspective to the position; thus CIOs need business literacy and
technical competency and organizational astuteness to be an effective executive (Robson 1997).
Sambamurthy et al. (2001) further argue that the CIO should be a business strategist, who
understands the economic, competitive, and industry forces impacting the business and the factors
that sustain competitive advantage. Hence the CIO needs to be a technology and business strategic
leader who can help shape the enterprise (Lane, 2004), and provide thought leadership to other top
executives, making them aware of the potential for information systems to support and enhance the
strategy of the firm (Enns et al. 2003). The CIO achieves an enabling partnership relationship with
business peers by visibly aligning and prioritizing IT resources with commitments made to peers
(Schubert 2004). Broadbent and Kitzis (2005) argue CIOs have to evolve from the “chief technology
mechanics” role to the “new CIO leadership” role. The new CIO leader is adept at leading and
managing the “demand-side” of IT by collaborating with business to shape the IT-enabled business
strategy using his/her persuasion and relationship competencies; and at executing the “supply-side”
leadership of IT which delivers the strategic outcomes via judicious resource allocation and excellent
program/project and operations management. Smaltz, Sambamurthy and Agarwal (2006) find
empirically that the new CIO leader has six salient roles: business strategist, integrator, relationship
architect, utility provider, information steward, and educator.
In an empirical study of 174 US firms, Chen, Preston and Xia (2010), find CIOs evolve in a two-stage
leadership maturity model: stage 1 supply-side leadership capability and stage 2 demand-side
leadership. Stage 1 excels in exploitation and refinement of existing competencies to ensure business
operations excellence (efficiency). However, stage 1 is not sufficient to create unique organizational
capabilities for competitive advantage. Stage 2 is additionally required to allow IT competencies to be
combined with other complementary non-IT strategic resources and capabilities to explore and create
“new strategic opportunities and business innovations”. Moreover, they find the CIO human capital
(i.e. educational level and work experience) and organizational support for IT both directly influence
the CIO’s supply-side leadership. And the CIO’s structural power (i.e. legitimate power due to CIO’s
formal position within the organization) is a key predictor of demand-side leadership. Firms operate in
dynamic and complex interactive webs of customer, competitive market, social, political, legal, and
technological environments. The executive leaders (including the CIO) have to continually innovate to
align their enterprise with the changing environments. They need the enterprise-level sensing,
seizing, and reconfiguring capacities – known as dynamic capabilities – that make an enterprise agile
and adaptive to continuously sustain its competitive advantage (Teece 2007). Sustainability is
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Eng Chew
attained by firm’s ability respond to market change rapidly with appropriate service or product
offerings to defend its profitability against competition (Harreld, O’Reilly and Tushman 2007). This
depends on the firm’s creativity in acquisition, dissemination, and shared interpretation of information
(i.e. intelligence) about consumers and competitors to reshape its strategy and business model
(D’Souza and Zolfagharian 2009). Consequently, we deduce that CIO leadership will become
sustainable when the CIO acquires the core capability to continually contribute to:
Business and customer intelligence innovation;
The creation and deployment of the enterprise’s dynamic capabilities comprising the firm’s distinct
skills, processes, procedures, organizational structures, decision rules, and disciplines (Teece
2007); and
“Selecting and developing technologies and business models that build competitive advantage
through assembling and orchestrating difficult-to-replicate assets, thereby, shaping competition
itself” (ibid: 1325).
Benner and Tushman (2003) posit that dynamic capabilities are rooted in both exploitative and
exploratory learning activities. So they argue a sustainable enterprise is inherently ambidextrous, able
to effectively operate the co-existence of two types of organizational unit: the productivity-oriented
(exploitation) unit that emphasizes continuous improvement; and the entrepreneurial (exploratory) unit
that builds new businesses on the basis of radical innovation. CIOs with demand-side and supply-side
leadership are adept to leading ambidextrously – exploiting current IS and corporate capabilities and
exploring or innovating possible future business capabilities through creative use of IT to maximize
value creation. Accordingly, we argue these two leadership capabilities form the underlying foundation
for constructing the above three properties of a sustainable CIO leadership.
3. Enterprise environmental context for China CIOs
China’s business landscape is influenced by China’s economic reform. The reform is shaped by the
State’s dual commitments to maintain political control and promote economic freedom, creating the
“socialist market” economy. The co-existence and co-evolution between two competing systems have
led to economic transition process with unique “Chinese characteristics” (Tan 2007). The Chinese
Communist Party (CCP) remains a dominant force influencing Chinese firms, focused on preserving
“social cohesion”. For example, top leaders (often including CIOs) of state-owned enterprises are
commonly members of the CCP; and the Chairmen of the boards (or CEOs) are usually the Party
Secretary Generals. Entrepreneurs from private enterprises are also being actively recruited and have
become key members of the CCP, which in turn legitimizes the role of the CCP in China businesses.
In return, the private sector is provided by the state with “constitutional protections” (Brodsgaard and
Zheng, 2006). To survive, Chinese firms need “strong organizational learning capability to gradually
transform themselves and adopt a new set of strategic orientations by learning from and enacting
their environment” (Tan 2007).
The State’s push towards the “innovated-in-China” goal will also make firms demand for greater
efficiency in the use of resources, innovation and adaptability. Firms will need to respond to the dual
interdependent challenges of: (1) creating indigenous industrial and scientific innovation to maximize
value capture; and (2) building large complex organizations capable to compete at world standards of
efficiency and transparency (Redding and Witt 2009). To that end, existing and aspiring future leaders
in state-owned enterprises are being trained in the CCP’s Central Party School on latest
developments, not only in politics but also, in economics, science and technology, with the view to
better position China in the global scheme of things (Brodsgaard and Zheng, 2006). As a result, the
new-generation CCP members are becoming increasingly business-savvy with a world view. The
School also serves as a relationship (guanxi) network for these leaders to build their social capitals.
All Chinese CIOs studied are cognizant of the CCP philosophy – achieving the state’s need for both
“social cohesion” and “international business competitiveness” – as they build their social capital for
business success.
4. Research approach and selection of China CIOs
We selected seven CIOs from Beijing, Shanghai and Hong Kong who had been awarded China top
10 CIOs of the Year or equivalent over the 2005-2010 period. The China firms consist of state-owned
financial services and meat/foods wholesale/retail firms and state-foreign joint venture telecom
manufacturing firm. All except one have gone international by varying degrees. The Hong Kong firms
are listed banking, transport and utility firms – all operating internationally. We use qualitative case
53

Eng Chew
study exploratory approach (Yin 2002). Each CIO was interviewed twice using semi-structured open
questions. Publicly available documents on the CIOs and their companies were also accessed to
corroborate the interview data.
5. Framework of CIO value-creation types
The value creation scopes of China and Hong Kong CIOs distilled from the interview data are
summarized in Table 1. The names of the CIOs and their firms have been disguised to maintain
anonymity. We use the theories of sustainable CIO leadership in section 2 to explain the data
collected.
Table 1: A summary of the value creation scopes of CIOs under study
CIO Company
(interview
dates)
A MeatCo
(May 2007 &
July 2008)
B SecuritiesCo
(May 2007 &
July 2008)
C FinCo
(Nov 2009 &
Oct 2010)
D T-netCo
(May 2007 &
July 2008)
E BankCo
(March 2008
& July 2009)
F TransportCo
(Nov 2009 &
Oct 2010)
G UtilityCo
(March 2008
& July 2009)
Business Scope of value creation Emphasis of next phase
of organizational learning
State-owned but
listed vertically
integrated meat
wholesale and
retail businesses
State-owned
securities
brokerage with
online trade
services
State-owned
bankcard
services
Statemultinational
joint
venture telecom
network
equipment
manufacturer
State-owned,
listed bank, Hong
Kong
Listed transport
company, Hong
Kong
Listed utility
company, Hong
Kong
End-to-end digitalization of supply
chain which delivers on the firm’s
value proposition and achieves
operations excellence and superior
customer experience. Demand-side
and supply-side leadership
Reliable online trading with industrybest
practices in financial, security
and risk management mechanisms in
full compliance with regulatory
policies – i.e. operational excellence.
Supply-side leadership with emerging
demand-side leadership
Reliable and scalable online real-time
infrastructure to support extremely
high volume online card-services
transaction operations non-stop
7x24x365, coupled with regulatory
compliant financial, security and risk
management best practices – i.e.
operational excellence; IT-enabled
business innovation. Demand-side
and supply-side leadership.
Business operations excellence;
product lifecycle management;
seamless integration of IT operations
of merged/acquired business entities.
Demand-side and supply-side
leadership.
Operational excellence, customer
service excellence, M&A integration
best practices. Demand-side and
supply-side leadership. Corporate
responsibility for operations services.
Operational and customer service
excellence to deliver safe, efficient
and reliable transport services; M&A
integration best practices. Demandside
and supply-side leadership.
Corporate responsibility for
knowledge management and
organizational learning.
Operational excellence, customer
service excellence; shared IT service
excellence across pan-Asia Pacific
regional acquired subsidiaries; M&A
integration best practice; sustainable
IT; product innovation. Demand-side
and supply-side leadership.
Corporate responsibility for
innovation.
54
Supply chain operations,
service innovation and
internationalization by
expanding operations to
other Asian countries
Demand-side leadership;
business operations
management; service
innovations through
deeper customer
insights.
Business model and
service innovations
through deeper customer
insights; intensified
internationalization push.
Product/service
innovation and China
business development;
Asia Pacific solution
delivery.
Business model and
service innovation
through deeper customer
insights
Business model and
service innovation
through deeper customer
insights
Service innovation
through business and
customer insights, and
with customer
participation

5.1 MeatCo
Eng Chew
MeatCo is a state owned enterprise listed on the Chinese market. It has a network of meat processing
centers close to the local farmers which are linked by a huge distribution network to its retail outlets
throughout most of China.
CIO A was recruited in 2000 by MeatCo Chairman to stabilize and improve the reliability of the firm’s
business operations, which was a barrier to growth. CIO A set out to realize the Chairman’s vision for
a high quality meat production system by international standards. He conscientiously built and
maintained rapport with the Chairman and peer executive leaders to understand MeatCo’s business
model and value proposition. This called for a complete production system innovation. Using his
technological expertise (CIO human capital) he led a specialist team to design and implement a
simple yet highly scalable digitalized supply chain and governance processes to deliver on MeatCo’s
customer value proposition. It met the cost structure and scalable distribution goals of MeatCo
business model. Stable and reliable end-to-end operation was first achieved to win confidence of
production users whose work practices had to be simplified – supply-end CIO leadership. Here the
“social cohesion” principle of the CCP was closely observed to minimize impacts on affected workers.
Later, with support from the Chairman and top leadership, CIO A – using demand-side leadership –
instituted the “distributed operations, centralized control” operating principle/policy to innovate
MeatCo’s business operating model. He regarded the CIO job is to influence and act as the
Chairman’s “strategic weapon”. But he argued “appropriate training” must be provisioned to ensure
the “weapon” is pointed at the “right” target and the outcomes are value accretive. Along with
business and technology expertise, he sees communication skills are central to the success of a CIO.
The digitalized supply chain core competencies become MeatCo’s competitive advantage.
Digitalization enhanced MeatCo’s customer experience and enabled ‘preemptive’ executive actions to
respond to environmental changes. Production efficiency improved more than fourfold and retail
stores expanded from 300 to over 2000 including several Asian markets.
5.2 SecuritiesCo
SecuritiesCo is a securities brokerage company. CIO B became SecuritiesCo CIO in 2000 to manage
the implementation and operation of the online trading platform.
CIO B’s leadership practice was founded on the philosophy of self-belief and hard-work with the
humility and intense desire to constantly learn and self-improve to attain service excellence. This
applies to not only technology solutions for the business but also in building close relationships with
the business. Hence, he made the IT department focused on delivering high value service to their
business ‘customers’. At the time of the interviews, CIO B reported to an executive vice president who
reported to the CEO. Nonetheless, CIO B was conscientiously building human and social capitals to
attune to and even anticipate the needs of the Chairman and executive committee. He then
consistently and reliably delivered on all commitments made. This won him their respect and trust.
The first phase of CIO B’s tenure was fully focused on large scale systems development and
integration to implement a reliable online real-time transaction processing system with stringent
security and customer service requirements. It delivered industry best-practice risk management and
online audit capabilities. Data warehouse and data mining were being built to enhance the firm’s
market orientation and customer knowledge and management capabilities. The successful operations
of the online trading system to business and customers’ expectations manifested CIO B’s success in
supply-side leadership practice.
Demand-side leadership practice was then emerging, with CIO B becoming increasingly involved in
business strategy planning. This included business innovation initiatives by leveraging the firm’s
existing and growing technology capabilities. For examples, new service types and futures index were
being planned at the time of the last interview (2008). Indeed, from press report in 2010, CIO B’s role
has evolved to include corporate business operations and managing the Party Secretary Office – a
manifestation of the close interrelationship of CCP and China CIO leadership roles.
5.3 FinCo
FinCo is a state owned bankcard company. Its formation was the culmination of a long term national
research and development initiative – an example of China indigenous innovation success story.
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Eng Chew
CIO C was recruited to join the founding executive leadership team in 2002. He was then already a
highly respected financial industry CIO in China. He was acclaimed for his insights and leadership
practices in business-IT integration that delivered two ground-breaking online trading systems.
Bringing such impressive CIO human capital to FinCo, CIO C (reporting to the Chairman) was able to
quickly build his social capital and structural power. Under his “tutorage” both FinCo’s executive team
and board directors embrace the maxim that “IT is business” – obliterating the typical business-IT
divides seen in many large enterprises inside and outside China.
The first phase of CIO C’s tenure was focused on achieving reliable domestic inter-bank, inter-city and
trans-region interoperability of bankcard. This made its use popular across more than 300 cities and
consequently created the FinCo brand. This phase principally relied on CIO C’s supply-side
leadership. The second phase was focused on developing the second generation high-speed and
high-quality (e.g. with anti-fraud system incorporated) bankcard services network domestically and
internationally and on new product/service innovation. This is consistent with the above-mentioned
CCP’s “international business competitiveness” imperative. It relied on CIO C’s demand-side
leadership, and further grew the business and brand recognition.
CIO C’s current focus is on the exploitation of the second generation network and exploration of new
service and management innovations; for example integration of smartcard with mobile phone to
enable mobile payment and other m-banking services. FinCo’s capabilities in scale, standards and
process innovation were demonstrated by its phenomenal growth: over 2 billion cards issued; 83
accepting countries; $33 card transactions out of every $100 consumers spend in China; and over
100 patents applied by 2009.
5.4 T-netCo
CIO D was hired in mid-2000’s to join the executive leadership team by the Chairman of T-netCo, a
state-foreign multinational joint venture telecom manufacturing firm. While his CIO human capital was
initially technology based, he held a strong view that technology was the means to a business end.
Tasked with the responsibilities for IT development and operations as well as product lifecycle
management, CIO D initially practiced supply-side leadership. Consistent delivery of IT projects and
new product components earned the Chairman’s and business peers’ respect and trust. He invested
energy to build strong relationships with the Chairman and executive peers to gain deeper business
insights and contribute to shaping business strategy. This enabled him to ensure business and IT
strategies and plans are integrated – exemplifying his demand-side leadership.
When T-netCo merged with another multinational firm in 2007, CIO D was put in charge of integrating
the IT systems of the merged companies in China. The success of the integration program led to CIO
D’s role being expanded by the Chairman to focus on product innovation. It included managing a
world-class software application development core competence center with China and Asia Pacific
solution service delivery responsibility. This required his participation in global strategy planning. At
the same time, he was increasingly involved in “go-to-market” presales promotion and business
development. He anticipated his business development role, particularly in the China market, would
expand to about a third of his responsibility in the ensuing years.
With CIO D’s continuing success in his expanded role, and with China’s telecom market growing
rapidly, it would seem plausible that his role would potentially evolve to encompass the pan Asia
Pacific responsibilities.
5.5 BankCo
BankCo is a Hong Kong listed bank. It was acquired by a large China state-owned bank from a
foreign multinational bank. CIO E joined BankCo in 2000, reporting to the CEO. CIO E’s structural
power and demand-side leadership capability grew steadily over the ensuing years as close
professional and personal relationships and thus mutual respect and trust developed with the CEO
and business peers.
The CIO’s initial technology-based human capital was quickly supplemented by strong business skills
– gained through delivery of reliable business-aligned IT operations and services. He performs the
role as a business executive. For example, he contributed to devising the bank’s risk management
and regulatory compliance solutions. And IT team is a key player of product development. He strives
56

Eng Chew
to exploit the Bank’s IT assets and other key resources for incremental growth while at the same time
explore new service innovation ideas for disruptive growth.
As his department’s delivery of IT operations (supply-side) and innovation (demand-side) became
highly dependable, CIO E’s role was expanded to include broader business operations and
administration. These dual business and technology accountabilities together with his structural power
enable CIO E to contribute to BankCo’s agility in sensing and seizing new opportunities and hence
growth. For example, his business unit now plays a critical role in conducting due diligence in merger
and acquisition (M&A) opportunities and takes responsibility in managing the seamless integration of
the acquired company into the “mother ship”.
CIO E is increasingly spending more time in the China Headquarters with group-wide strategic
planning. This includes devising strategies for leveraging the core competencies of BankCo and its
parent to get the “best of both worlds” and helping to realize the parent’s internationalization ambition.
BankCo has grown its Hong Kong branch network by nearly threefold.
5.6 TransportCo
TransportCo is the market leader in transportation in Hong Kong. CIO F was recruited in 1999. His
consistent value delivery to TransportCo over the years has earned him high respect both within and
outside the organization.
CIO F had established excellent business and IT operations environment for TransportCo. He
exhibited superior supply-side and demand-side leadership abilities. His way of managing business-IT
alignment is by working with business on creating new business models. For example, his team is
focused on exploring and assessing innovative ideas for business growth by leveraging emerging
technologies, and by acquisition or joint venture overseas. He created the core competency group to
help assess business opportunities and co-design the appropriate entrepreneurial business models
for those selected within and outside China. And his group is constantly creating IT-enable
innovations to ensure customer service excellence in line with TransportCo’s brand value proposition.
Examples include smartcard ticket, customer loyalty program, and social network for friends of
TransportCo and attendant community services.
CIO F’s value creation capability had been extended to broader high impact corporate project role.
For example, CIO F was the designated corporate leader to manage the “mega-scale” merger with
another equal-size transport firm, responsible for seamless integration of both organizations’ business
processes and IT systems. Its success had won acclaims from both inside and outside of
TransportCo. Another example is the corporate-wide effort to specify, design, and implement the
TransportCo knowledge management system to realize its “learning organization” strategy. This
coupled with the business intelligence program, also lead by the CIO, will enable TransportCo to
develop its dynamic capabilities, agility and hence its innovation capabilities.
5.7 UtilityCo
UtilityCo is a fortune 1000 company listed in Hong Kong. Its business spans Asia Pacific. CIO G was
recruited from another utility company overseas by the CEO in mid-2000s to transform IT into a
business-oriented responsive organization. CIO G has strong utility business background and had
held CIO roles with two previous organizations.
On commencement, CIO G pursued dual tracks: a) improve IT operations to attain operational
excellence in business support; and b) institute the transformative business-aligned IT strategy to
meet the CEO’s expectations. The former exploited CIO G’s supply-side leadership capability and
was relatively straight forward. The latter relied on his demand-side leadership skills to win
acceptance from both the executive leadership team (shaping and aligning with the “demand”) and his
subordinates (executing the strategic plan).
The transformative IT strategy was formulated to achieve the twin financial goals of industry cost
leadership and growth via regional expansion. It comprised three strategic themes: 1) regulatory and
corporate governance compliance to reinforce UtlityCo mission and brand value; 2) customer service
excellence to improve customer retention and acquisition; and 3) IT organizational capital alignment
to transform IT culture and create core competencies that will be replicated across newly acquired
57

Eng Chew
regional businesses to increase speed to market and maximize growth. The superior customer
service resulted from the strategy had won UtilityCo several industry awards in Hong Kong. IT
organizational had become more business oriented and the core competencies developed had
delivered several million US dollars cost savings in regional expansion.
Following these successes in value creation, CIO G’s role was broadened to include corporate
leadership in business innovation by leveraging disruptive technologies – e.g. integrating IT with
smart grids to create sustainable energy services. With support from the executive leadership team,
CIO G instituted open innovation policy and governance process to maximize volume and flow of new
innovative ideas (e.g. personalized consumer solutions) and increase the idea-to-market speed of
business innovation. Core competencies for regional expansion were also enhanced to facilitate
dynamic resource reconfiguration across UtilityCo to maximize agility to seize new opportunities
across the Asia Pacific region.
5.8 Hierarchical framework of CIO leadership
One common practice of all four China CIOs is their proactive treatment of Chinese Communist Party
as a key stakeholder to ensure their requirements are incorporated in the process of value creation.
The CCP’s dual need for “social cohesion” and “international business competitiveness” compels the
CIOs to be highly business-oriented with superior technical foundation while at the same time be
politically savvy. These competencies propel their firms towards becoming internationally competitive
and concurrently ensure that workers affected by IT automation are either retrained for higher value
works or “redeployed” elsewhere to attain the “social cohesion” objective.
A hierarchical framework of three value-creation types of CIO leadership has emerged from the above
analyses of the seven CIOs’ leadership practices, as shown in Figure 1.
Type 1 =
Supply-side
leadership
Type 2 =
Supply-side +
Demand-side
leaderships
Type 3 =
Supply-side +
Demand-side +
Corporate role
leaderships
Figure 1: A hierarchy of value-creation types of CIO leadership
Type 1 value creation delivers operational excellence which contributes to enterprise efficiency and
productivity maximization. It is delivered by supply-side CIO leadership. This was exemplified by
SecuritiesCo CIO who, however, since the interview has evolved to Type 2 by 2010.
Type 2 value creation delivers operational excellence and new business capabilities through
innovations which contribute to cost leadership and revenue growth. It is delivered by supply-side
(type 1) and demand-side leaderships. MeatCo, FinCo and T-netCo belong in this type; though they
are fast evolving into Type 3.Type 3 value creation comprises type 2 value creation as above plus
taking business accountability for a specific corporate value-creation role such as business operations
(BankCo) or aspects of M&A activities (TransportCo and UtilityCo) or service innovation (UtlityCo)
which deliver directly to the bottom or top line of the firm. Both types 2 and 3 are adept to leading
ambidextrously – exploiting current IS and corporate capabilities and exploring or innovating possible
future business capabilities through creative use of IT to maximize value creation. Type 3 in addition
contributes directly to the firm’s agility by providing the requisite capabilities to reconfigure knowledge
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Eng Chew
and process assets (such business operations transformation or M&A activities as a result of business
model innovation) in response to market changes. The three-tier framework represents a possible
sustainable model for the evolution of China’s CIO role. For example, the following CIO evolution
pattern toward type 3 is emerging: MeatCo towards supply chain operations, SecutitiesCo toward
business operations and CCP Party Secretary Office, FinCo towards business model innovation and
T-netCo towards global solution service delivery.
6. Conclusion
We have reviewed and proposed a possible theory of sustainable CIO leadership. The background
and characteristics of China’s transitional economic reform are briefly reviewed to highlight the nature
of their influence on the business of China firms and, indirectly, the China CIOs under study. We have
empirically derived a hierarchical framework of three value-creation types of CIO leadership as a
possible sustainable model for the evolution of China’s CIO role. To the best of our knowledge this is
the first research contribution outside China that addresses China CIO evolutionary trend. This work
could be enhanced by an additional quantitative survey of a larger population of China and Hong
Kong CIOs and their CEOs and business peers to reaffirm the proposed CIO value-creation
framework. Being China specific, a similar research may need to be conducted in another country to
determine if our findings could be generalized to other countries.
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59

Model for Performance Management and Measurement:
Using Synergic Effects of Selected Tools
Miroslav Chodúr, Drahomíra Pavelková and Adriana Knápková
Tomas Bata University in Zlín, Czech Republic
chodur@fame.utb.cz
pavelkova@fame.utb.cz
knapkova@fame.utb.cz
Abstract: This paper incorporates and discusses selected popular performance measurement and management
tools - Balanced Scorecard (BSC), Economic Value Added (EVA), Activity Based Costing/Management (ABC/M)
and EFQM Excellence Model with support of benchmarking. These tools have been selected on the base of
defined criteria. A number of economists have published on the possibilities of various mutual combinations of
these approaches to management and measuring of performance. There is a lack, however, of approaches to
complex view on using all these tools simultaneously, and lack of recommendations for their practical
employment in business practice. Based on the critical literature review, own questionnaire-based results and
experience from different performance management cases, the research team determined the strengths and
weaknesses of management tools mentioned above and suggested to use them in a integrated model to
strengthen their advantages and minimize disadvantages. The interconnection of concepts BSC, EVA, ABC/M
and the model EFQM with support of benchmarking is based on the utilization of their mutual synergic effects that
are expressed by spreading the gained information about the performance of the value chain and its processes.
This way, a coherent complex system of management of performance, which provides the managers of the
company with a good basis for vision and strategy definition and with information important for everyday decisionmaking
situations was obtained. Moreover, methodology for application of the theoretical approaches in the
company practice is proposed. Methodological approach comprehensibly demonstrates how the synergic effects
can be employed in practice.
Keywords: management tools, performance management and measurement, synergic effect
1. Introduction
One major problem of company theory and practice still remaining is the choice of the concept (tool
and/or indicator) for the measurement and management of performance in order to achieve the most
significant support of the basic financial goal of the companies, which is a long-term maximization of
the market value. There are numerous concepts, tools and indicators of performance. In the following
sections the selected concepts, namely Balanced Scorecard (BSC), Economic Value Added (EVA),
Activity Based Costing/Management and EFQM Excellence Model with support of benchmarking will
be examined particularly for the reasons of their possible interconnection, to intensify their strong and
suppressing their weak points.
2. Research methodology
The research employs a method of analysis of particular concepts (tools) for the measurement and
management of performance of companies. With each concept it identifies strengths and weaknesses
and looks for an interconnection with the concept of Balanced Scorecard. The choice of concepts
(tools) for the research is based on following criteria:
Possibility of their interconnection stakeholder value
Support of efficiency of processes within companies
The criteria suggested are the outcome of a research that was carried out with focus on management
of performance of companies and from particular results of the project “Creation of the Model for
Measurement and Management of Performance of Companies”, sponsored by the Czech Science
Foundation (402/09/1739). In the course of that research, various Czech firms filled out 402
questionnaires about the usefulness of concepts of measurement and management of performance.
Based on the results, following concept (tools) have been selected for the continuing research:
Balanced Scorecard as a fundamental concept for an integrated model; next concepts EFQM
Excellence, ABC (Activity Based Costing), EVA and benchmarking. A method of synthesis is further
used to create a model that interconnects abovementioned concepts (tools) for the performance
measurement; and for the description of synergic effects achieved. A methodical procedure is
proposed for the practical application of the proposed integrated model.
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3. Theoretical background
Miroslav Chodúr et al.
Researchers in the field of performance measurement tend to use the term Business Performance
Measurement (BPM) systems without explaining exactly what they mean by it. This lack of clarity
creates confusion and comparability issues, and makes it difficult for researchers to build on each
others’ work (Franco-Santos etc., 2007). The wide-spread definitions of the Performance
measurement are:
Performance measurement system (PMS) is “the set of metrics used to quantify both the
efficiency and effectiveness of actions” (Neely, Gregory & Platts, 1995)
“A performance measurement system is the information system which is at the heart of the
performance management process and it is of critical importance to the effective and efficient
functioning of the performance management system” (Bititci, Carrie & Mcdevitt, 1997)
An effective system of performance management should contain:
A connection between the strategic and operative management
A link to company value
An integration of the compensation system
Communication
Performance evaluation and progress monitoring
These requirements are aimed at fulfilling the concept of a Balanced Scorecard (BSC). Its application
was identified by Harvard Business Review as one of the 75 most influential ideas in business
practice of the twentieth century (Niven, 2006).
BSC (Kaplan & Norton, 1996a) is a model which integrates financial and non-financial strategic
measures. It is distinct from other strategic measurement systems in that it contains outcome
measures and the performance drivers of outcomes, linked together in cause-and-effect relationships
(Kaplan & Norton, 1996a,b) making the performance measurement system a feed-forward control
system (de Haas & Kleingeld, 1999).
The scorecard translates the vision and strategy of a business unit into objectives and measures in
four different areas: the financial, customer, internal-business-process and learning and growth
perspectives. The crux of BSC is the linking together of the measures of the four areas in a causal
chain which passes through all four perspectives. This concept helps in clarification of vision, goals
and strategy of a company and their transfer to particular actions, planning and communication.
Strong aspects of Balanced Scorecard can be further enhanced by the value approach to the
management of performance. The value of the company appears to be an advantageous measure for
its performance because it requires complete information for its measurement. This approach to
management then monitors the growth of the value as the basic goal of company and to its fulfillment
at which all the activities of the company are directed. Value maximization means that the
management of the company must strive for the highest possible return for the owners in the form of
growth of their share value. The increase of the equity value can be measured by Economic Value
Added (EVA). However, a long-term increase of value cannot be achieved without the satisfaction of
customers, creditors, employees and other subjects (stakeholders) closely connected to the given
enterprise while maintaining ethical principles and social responsibility of the company. These
demands are met by linking all perspectives of BSC with the financial perspective, in which the role of
supreme criterion is played exactly by EVA. Many authors, for example Horváth (2002), Stewart and
Zsolt (2003) report that it is possible to link together the approaches BSC and EVA thus attaining
synergic effects, which permit a more effective managing of the value of the company. Horváth (2002)
describes the relationship between the two concepts in the following way: „Concepts BSC and EVA
can be characterized as complementary approaches. If they are used together, the effectiveness of
strategic management increases significantly. “
EVA is concept of Value Based Management approach. The allocation of capital should be in
accordance with the fundamental goal, which is to accept only such projects that will generate value
thus contributing to the creation of EVA. A great advantage of the concept EVA is the possibility of
linking strategic and operative decision-making and utilizing it on all levels of management by
searching for and supporting of so-called value-generators. On the basis of calculation of EVA it is
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Miroslav Chodúr et al.
possible to immediately draw the necessary conclusions if the company is successful and was able to
contribute in the given period to the increase or decrease of the value for its owners by its activities.
According to research by Marr (2003) many companies combine BSC with other concepts and tools.
From his survey it follows that BSC is utilized by 35 % of companies, but only 14 % exclusively. Often
companies combine the use of BSC with TQM, Malcolm Baldridge and EVA.
A growing realization of the limitations of traditional cost accounting information has led to the
examination of techniques such as process costing models; activity based costing and non-financial
performance measurement (Porter & Oakland, 1998). Activity Based Costing/Management (ABC/M)
was developed as a practical solution for problems associated with traditional cost management
systems that we now realize are distorting and incomplete (Cokins, 2001).
ABC focuses on costs associated with activities, but also evaluates whether those activities add
value, thus providing a means of understanding how to reduce costs the most effectively. In addition
to cost reduction benefits, applying ABC gives managers a sound means of monitoring ongoing
performance (Player, 1998). The central theme of ABC systems is that their use leads to improved
product costing, cost management, decision making and competitive advantage.
Newing (1995) suggests that the Balanced Scorecard works well in conjunction with ABC and activitybased
management (ABM) because they are integral parts of the Balanced Scorecard, giving
quantified visibility of what is really driving cost from outside the business, as well as within. ABC is a
system that attempts to accurately link the consumption of resources to designated outputs. Because
of this, ABC is likely to facilitate the measurements within all four of the BSC sectors as well as
assisting in analyzing the trade-off implicit in the four sectors.
Lim (1998) claims that “the ABC system provides important information for effective management of
company activities and processes”. The author suggests the possibility of making use of information
from the ABC system when putting together the measuring of performance within the framework of
the four perspectives of BSC.
Kaplan (2001) highlights, that the three mentioned approaches are all highly compatible. Each can be
implemented independently of the others, but organizations will get the greatest benefit from
integrating all three. Kaplan further offered solutions to the question which should be implemented
first out of these concepts. If the biggest problems facing your company are large and growing indirect
and support expenses, and inefficient processes, then implement ABC first. If the organization has a
low return on capital, a weak financial structure, low sales to asset ratio, and high levels of working
capital, then start with EVA. If the organization wishes to implement a major change in its strategy, or
has just been restructured from a centralized, functional organization to a decentralized, customerfocused
one, than it is suitable to start with the BSC.
The focus on the drivers of organizational performance was enhanced with the introduction of the
EFQM Excellence Model in 1991 (Porter & Oakland, 1998). A common theme in the newer integrated
performance models or frameworks has been determined as an attempt to tie performance metrics
more closely to a firm’s strategy and long-term vision (Wongrassamee, Gardiner & Simmons, 2003).
EFQM model is a practical tool that can be used in a number of different ways:
As a tool for self-assessment
As a way to benchmark with other organizations
As a guide to identify areas for improvement
As the basis for a common vocabulary and a way of thinking
As a structure for the organization’s management system
EFQM model is a non-prescriptive framework based on 9 criteria against which is possible to assess
an organization’s progress towards excellence. Five of these are 'Enablers' and four are 'Results'. The
'Enabler' criteria cover what an organization does. The 'Results' criteria cover what an organization
achieves. 'Results' are caused by 'Enablers' and 'Enablers' are improved using feedback from
'Results'. Rusjan (2005) assesses the usefulness of the EFQM Excellence Model for decision-making
on organizational improvement activities. The model makes possible a comparison in an annual selfevaluation
of what an organization has achieved over a year and at the same time allows for a
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Miroslav Chodúr et al.
comparison with the competition and with partners. The RADAR (R - Results, A - Approach, D -
Deployment, A - Assessment, R – Review) is the recommended scheme for the purposes of selfevaluation
of an organization in accordance with the EFQM model. With the result of the selfevaluation
of the business processes of the method, making use of the logical framework of RADAR,
the following can be obtained: the level of the realization of the business processes from the
perspective of its relevance, the integrity and level of expansion, the quantitative results of the selfevaluation,
an interpretation in words of the results of the self-evaluation, identifying the weak
(impulses for improvement) and the strong points of the organization, the possibility for mutual
comparison – benchmarking between companies which undergo the self-evaluation.
The EFQM Excellence Model has points in common with the BSC (Dror, 2008; Wongrassamee,
Gardiner & Simmons, 2003; Andersen, Lawrie & Shulver, 2000). Both approaches have a common
goal - the constant improvement of the various parameters of the company, achieving the target
results and increasing efficiency. BSC is a strategic tool which supports the transformation toward
vision. It tries to help managers find „what are the right things“ to (strategically) do, while EFQM model
helps to define „how to do such strategic things right“. Shulver and Lawrie (2009) along with Cobbold
and Lawrie (2004) view the essential difference (distinctness) between both concepts as the fact that
BSC is designed for evaluating the strategic performance of a company while the EFQM model,
including the process of self-evaluation, is focused on developing better practices throughout all the
activities of the management of a company. Andersen (2008) proposes the inclusion of the 9 basic
criteria of the EFQM model into the four perspectives of the BSC concept. Anderson further
emphasizes the possibility of making use of the advantages of the EFQM concept in order to remove
the disadvantages of BSC that is the EFQM model as an evaluation of the operative business
activities used when creating BSC which is more focused on the strategic area of management.
According to the results from a study performed by Rigby and Bilodeau (2009) the most frequently
used tool for management of performance in 2008 was benchmarking. It facilitates the comparison of
performance with other subjects and the definition of higher goal-oriented values for individual
indicators of performance. Benchmarking can help with accepting and implementing of activities
leading to improved performance.
4. Proposal of the model using synergic effects of selected concepts
The relevant literature makes mention of the synergic effects arising from the complementary use of
varied combinations listing the concepts sporadically described. IT does not contain, however, a
complete view or a more detailed methodology for practical use of synergy.
The authors suggest the following model which employs this synergy. The integrated model
demonstrating the mutual relationships between the particular concepts is presented in Figure 1 while
the scheme of the model demonstrating the use of synergy is presented in Figure 2.
Balanced Scorecard
Finance
Customer
Internal
processes
Learning and
Growth
Economic Value
Added (EVA)
Value for customers
More effective
processes
due to ABC/M
Ability to change
and improve
Benchmarking
Key performance results
People
results
Customer
results
Processes
Society
results
Leadership (vision, …)
To do (manage and measure)
To do (manage and measure)
right things things right
Figure 1: The integrated model of the mutual relationships between the concepts of BSC, EFQM
Excellence Model, EVA and benchmarking (own elaboration)
63
EFQM Excellence Model

EVA - key
performance
indicators
Benchmarking
ABC method -
customer
profitability
Model EFQM -
customer
results
Miroslav Chodúr et al.
Financial perspective BSC
EVA - key
performance
indicators
Benchmarking
ABC method -
product
profitability
Model EFQM -
financial results
Customer perspective BSC Internal processes perspective BSC
VISION AND STRATEGY
Learning and growth perspective BSC
EVA - key
performance
indicators
Benchmarking
ABC method -
processes costs
Model EFQM -
processes
usability
EVA - key
performance
indicators
Benchmarking
ABC method -
more effective
processes
Model EFQM -
processes
utilization
Figure 2: The scheme of the synergic effects of selected concepts of BSC, EVA, EFQM, ABC and
benchmarking (own elaboration)
The proposed model making use of the synergy of the presented concepts consists of four basic
levels – the financial, customer, the process and the potentials which arise from the perspective of the
Balanced Scorecard concept. Due to limited space, the synergic effects from the employment of the
presented concepts of management performance are only demonstrated on the basic level of the
model. The following part of the paper will describe the methodological approach for Using Integrated
Model employing the mutual connection (the synergic effects) of selected concepts (tools) of
management.
5. Methodological approach for using integrated model
This chapter elaborates on the method for practical application of the model proposed. It defines the
consecutive steps which have to be taken.
Mission, vision and company values
As a first step in the implementation of the model, it is necessary to clarify and define fundamental
goals, visions and values of the company in order to crystallize its strategy.
Determination of processes within the value chain in harmony with the company strategy
Secondly, it is necessary to select processes (or groups of processes) of the company value chain.
Each company employs a different type of processes. It is therefore important to group processes of
the value chain in a way which is in harmony with strategic goals of the company. Basic groups of
value chain processes are the following:
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Miroslav Chodúr et al.
Development and construction of products or services
Processes of purchase of raw materials and services
Partial stages of realization of products or services
Marketing and sale of products or services
Customer care
Innovation processes
Human resources management, knowledge management (human capital)
Financial management (financial capital)
Information and IT management (information capital)
Assets management (infrastructure and company organization)
Arrangement of the system of management of processes
Analysis of costs of processes, profitability of products and customers by means of ABC
Application of the ABC method allows obtaining information on consumption of resources, continuing
processes and profitability of products, customers or market segments. Selection of input information
into the ABC technique takes following steps:
Adjustment of accounting data (from accounting to more actual economical point of view)
Proposal for activities (processes) – the second step follows with definition of activities.
(processes) that are undertaken by the firm. That includes both principal, secondary and
supportive processes, and activities which are parts of them.
Definition of sources of costs – next step is to specify concrete accounting costs that will be,
assigned to proposed activities (processes) within the next step.
Evaluation of activities (processes) – the aim of fourth step is to distribute sorts of costs to
particular activities (processes). It is all about finding the proper chain of causation (cause –
consequence) between sources (costs) and activities (processes).
Definition of costs objects – this step should define costs objects, which can include customers,
segments of markets, suppliers, products, services, purchase orders etc.
Evaluation of costs objects – the final step should evaluate the chosen costs objects by assigning
to them only those costs really caused by them. In order to do that two essential issues must be
considered: the volume of consumed activities to one cost object; and costs of particular activities
Analysis of processes of value chain according to logical framework RADAR of the EFQM
model
The logical framework Radar belongs to the most unbiased method of evaluation of criteria of the
EFQM Excellence model. The aim of evaluation is to analyze the suitability of a process that is being
realized from four different points of view: the relevance of the process, integrity of the process (its
interconnection with other relevant processes), the scale of application of the process and evaluation
and review of the process at hand. Evaluation of each process by means of the logical framework
RADAR is conducted by way of survey where the company under evaluation answers four questions
that related to basic parameters of RADAR (relevance, integrity, scale of application and scale of
review). The company can choose between several patterns of answers to each question, it selects
an answer, which is best illustrating the real state of the process. The analysis by logical framework
RADAR of the EFQM model results in the ability of companies to implement processes of the value
chain.
Analysis of key factors that have impact on performance of companies with help of interaction
between ABC system and the EVA concept.
That analysis identifies and quantifies key factors that have impact on the value of the EVA indicator.
It is necessary to employ the calculation of the EVA and its pyramidal decomposition, which is later
interconnected with results of the ABC. The identification of key factors by the pyramidal
decomposition of EVA is executed in three variants:
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Miroslav Chodúr et al.
1. Functional method of setting the quantified impact of factors on the top EVA indicator (Fig. 3)
Operating profit
before taxes
Sales - Costs
Sales (products)
Sales (goods)
x
EVA
NOPAT -
Consumption
Services
Wages
Other costs
WACC x NOA
1 - tax rate WACC
x
NOA
Material
Energy
Figure 3: Simplified scheme of pyramidal decomposition of EVA (Source: Own elaboration)
2. Second variant of pyramidal decomposition lies in the extension by the level of impact of change in
costs of processes in the value chain on the value of EVA indicator. The following figure 4 depicts the
extension of the pyramidal decomposition by the impact of wage costs of selected processes of the
value chain on the top indicator EVA
Operating profit
before taxes
Sales - Costs
Sales (products)
Sales (goods)
Production Purchase and sale
x
EVA
NOPAT -
Consumption
Services
Wages
Other costs
WACC x NOA
1 - tax rate WACC
x
NOA
Service for
customers
Material
Energy
…...Other
processes…..
Figure 4: Pyramidal decomposition of the EVA indicator extended with a level of costs of processes in
the value chain of a company (source: Own elaboration)
3. Third variant of the pyramidal decomposition lies in its extension by the level of impact of difference
in profitability (revenues, costs) of chosen groups of products or customers on change in EVA
indicator. This extension uses the interconnection between pyramidal decomposition of EVA and
results of ABC model. The scheme of pyramidal decomposition of EVA indicator is illustrated in
figures 5 and 6.
66

Operating profit
before taxes
Sales - Costs
x
Miroslav Chodúr et al.
EVA
NOPAT - WACC x NOA
1. product line 1. product line
2. product line 2. product line
3. product line 3. product line
Other products Other products
1 - tax rate WACC
x
NOA
Figure 5: Pyramidal decomposition of EVA indicator extended by the level of costs and profitability
(revenues, costs) of groups of products (source: Own elaboration)
Operating profit
before taxes
Sales - Costs
x
EVA
NOPAT - WACC x NOA
1. customer group 1. customer group
2. customer group 2. customer group
3. customer group 3. customer group
Other customers Other customers
1 - tax rate WACC
x
NOA
Figure 6: Pyramidal decomposition of EVA indicator extended by the level of costs and profitability
(revenues, costs) of groups of customers (source: Own elaboration)
Assessment of value for customers with the interconnection between ABC and results of
satisfaction of customers (EFQM)
The value for customers may be described as a relation between the saturation of their needs and
sources spent on that saturation. For assessment of that value it is first necessary to asses needs of
customers, i.e. characteristic of products (or services) supplied by the analyzed company; and further
to assess the resources spent on the satisfaction of customers.
The method for assessment of the value for customers may be described in following steps:
Assessment of characteristics (parameters) of products that are the sources of saturation of
customers’ needs
Assessment of the level of satisfaction of customers with individual characteristics (parameters) of
supplied products with the help of survey
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Miroslav Chodúr et al.
Assessment of costs spent on satisfaction of customers
Calculation of the customer value on the basis of variables in this way determined
Assessment of value for employees with the interconnection between ABC system and results
of satisfaction of employees (EFQM)
The process of determination of value for employees is quite similar to that with customers. Value for
employees is defined as a level of satisfaction of employees (in relevant sectors) to the resources
spent on saturation of employees’ needs. As a first step, parameter important for satisfaction of
employees must be determined. Second step requires carrying out a survey on the satisfaction of
employees according to individual parameters. Third step means the determination of costs
(resources) spent on saturation of needs of employees. All costs that emerge along with company’s
employees should be considered as resources spent on the needs of employees. That includes
wages in particular, but also costs of education and spare-time activities, motivation of employees etc.
All these costs may be determined by help of the ABC. The last step lies in the calculation of value for
employees itself, which is calculated as ratio of level of satisfaction of employees to costs of that
satisfaction.
Benchmarking of the results of effected analysis (EVA, ABC, EFQM)
Carrying out of benchmarking lies with the comparison of results of different implemented analysis,
which helps to identify strengths and weaknesses of the company. All comparisons of outcomes of
different analysis, in time, with a plan, within sector, with competitors or in the departments of the
company itself, may serve as an object of benchmarking. When a management of a company
acquires such information, it may extract from that an impulse for improvements and propose specific
measures for achievement of best performance.
The process of benchmarking is realized with following results of analysis:
Comparison of results of EVA and KPI
Comparison of costs of different processes in the value chain
Comparison of profitability between various groups of products or customers
Comparison of results of self-evaluation of processes.
Summary of performed analysis and evaluations
The very last step in analysis and evaluation with help of interconnection between chosen concepts of
performance management is their inclusion in groups that corresponds with perspectives in the
concept of Balanced Scorecard. These results may be used for setting strategic goals and
benchmarks of performance of a company and its processes. Results of effected analysis and
evaluation according to particular perspective BSC are the following:
Finance
Results of economic value added indicator (EVA)
Identification of factors influencing changes in the EVA indicator (KPI)
Profitability of products (group of products)
Quantification of impact of changes in profitability (costs, revenues) of particular supplied products
(group of products) on changes in financial performance shown by the EVA indicator
Customer
Profitability of customers (customers segment)
Quantification of impact of changes in profitability (costs, revenues) of particular customers (group
of customers) on changes in financial performance shown by the EVA indicator
Results of evaluation of satisfaction of customers (level of saturation of customers’ needs)
Internal processes
Costs of particular processes of value chain of a company
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Miroslav Chodúr et al.
Impact of costs of processes of value chain on the financial performance indicated by EVA
Suitability of implemented processes of value chain in the context of criteria of relevance, integrity
(interconnection with other processes), scale of application within the structure of the company
and a scale of review and evaluation
Learning and Growth
Awareness of level of realization of processes in value chain in the area of potentials for creation
of values (innovations, knowledge, information, financial sources, etc.)
Results of evaluation of employees’ satisfaction
Results of self-evaluation of processes focused on encouragement (motivation, remuneration,
etc) and creation of conditions for employees
Performance of a company indicated by EVA
Use of results of analysis and evaluations for specification of strategic goals, strategic
actions, measures and its target values within the perspectives BSC
The last stage of implementation of proposed model lies in its use for transfer of a future company
strategy into the strategic goals, measures and its target values in the individual perspectives of the
proposed model based on the BSC basis.
6. Discussion
The selected models (BSC, EVA, EFQM, ABC/M, benchmarking) rank amongst the most wide-spread
and employed practice tools. Their complementary inclusion into company management of
performance can strengthen the positive aspects or add missing values which serve to assist effective
management. A number of economists have published on the possibilities of various mutual
combinations of these approaches to management and measuring of performance. There is a lack,
however, of approaches to complex view on using all these tools simultaneously, and lack of
recommendations for their practical employment in business practice. The presented methodological
approach demonstrates that the synergic effects can be explained and employed in practice. All of the
presented concepts have a common character – they are difficult to introduce into company practice
and make use of. They permeate entire companies, they are demanding for information systems and
communication. The use of the synergic effects therefore assumes a thorough analysis of the strong
and weak points of the concepts and the planned coordination of their employment into the practical
life of a company. The designed model is used as the basis BSC for a complete and balanced
perception of a company. It introduces elements from other concepts and tools of management
performance into the particular perspectives of a company and mutually links them together. In
contrast to the existing literature which describes in particular the effects from connecting BSC with
the chosen individual concepts, the designed model serves to explain additional synergy.
The concept BSC emphasizes interpretation a complex approach to the company management and
takes into consideration financial and nonfinancial performance indicators. It effectively interconnects
strategic and operative management. The model EFQM Excellence is a tool that offers to
organizations a multidimensional evaluation according selected criteria and which describes in detail
causal synergy between individual processes (activities). The indicator EVA measures the extent to
which the company contributed by its activities in the given period to the increase or decrease of
value for its owners. The goal of the ABC is the disclosure of actual costs and of actual creation of
value – the acquisition of as accurate picture of the reality. The interconnection of concepts BSC,
EVA, ABC/M and the model EFQM with support of benchmarking is based on the utilization of their
mutual synergic effects that are expressed by spreading the gained information about the
performance of the value chain and its processes. By interconnection of the system ABC/M with the
EVA and its pyramidal decomposition, we gain the coupling of changes of the cost demand of
individual processes of the value chain with the financial performance of BSC represented by the top
indicator EVA. Using the output from self-evaluation according to the model EFQM (using logic of
RADAR) it is possible to obtain information about suitability of processes for their implementation
under the criterion of relevance, of integrity (interconnection with other processes), scale of
application and scale of review. This way, we gain a coherent complex system of management of
performance, which provides the managers of the company with information important for everyday
decision-making situations.
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7. Conclusion
Miroslav Chodúr et al.
Company performance measurement and management belong to the crucial tasks of the
management of a company. Many different concepts, tools and indicators for company performance
measurement and management do exist. The approaches BSC, EVA, ABC, and EFQM Excellence
Model and benchmarking belong in the practice of measuring and management of company
performance to widespread concepts (tools), which are at the same time also differently implemented.
Each concept concentrates on important areas of management of the company performance. The
paper shows the possibility of interconnection of the BSC, model EFQM, ABC/M and EVA with the
goal of creating a complex model for performance management and measurement of the company
and its processes. The paper is also significant for its presentation of methodological instructions for
practical application of the designed model into company practice.
Acknowledgements
Authors are thankful to Czech Science Foundation in the Czech Republic (GA CR) No. 402/09/1739
for financial support to carry out this investigation.
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70

Developing and Executing a Strategy While Confronting
Conflicting Stakeholder Interests: A Case Study
Michael Cummings, Gary Ottley and Robert Brewster
Babson College, Wellesley, USA
mcummings@babson.edu
gottley@babson.edu
rbrewster@babson.edu
Abstract: This study was undertaken to explore how organizations develop and implement strategies when
confronted with conflicting institutional demands. Institutional theorist have long noted the presence of conflicting
demands on organizations imposed by external institutions (Oliver 1991, Scott 1983, 2001) but as Seo and Creed
(2002) pointed out organizations actions viewed purely as practical ignores the realities “of the interdependence
of the political and cognitive in the creation, maintenance and change in institutional arrangements”. Pache and
Santos (2010) suggest that organizational actions to address external demands, predicted on the basis of a
unitary organizational response, belie the reality of institutional change. Research studies on strategic
development and implementation in industries with significant stakeholder involvement have explored these
issues using empirical data in large populations. (Sharma, Henriques 2005). However these studies do not
explore the internal dynamics of how strategies are development and implemented in environments with high
stakeholder involvement. We used the case method to develop and understanding of how managers who shape
the organizations actions consider external and internal pressures when crafting and implementing a new firm
level strategy. We find that the internal responses to institutional pressures were complex characterized by
conflicting logics which are potentially fragile in the face of conflicting external institutional demands. Institutional
theory provided a theoretical lens to examine the organizations actions while stakeholder theory was used to
disaggregate the “unified organizational response” to understand the underlying dynamics that lead to the public
expression of the organization’s intentions. The study was conducted on a Massachusetts based hospital.
Keywords: institutional theory, stakeholder theory, strategy development and execution, competition
1. Introduction
Organizations utilize various strategies when confronting multiple demands from institutions (Oliver
1991). More recently scholars have suggested more complex and dynamic frameworks for
understanding the strategies organizations develop and implement to further their objectives while
confronting conflicting institutional demands (Seo, Creed 2002, Pache, Santos 2010). Prior research
has suggested determinates of organizational responses to conflicting demands are organizational
factors of leadership (Oliver 1991) or industry structure factors such as a firm position within an
industry (Sherer and Lee 2002, Sharma and Hendriques 2004). These organizational responses to
new opportunities or challenges most often appear in the public domain as a unified response.
However, these responses are a function of individuals working within an organization discussing,
negotiating and compromising to develop strategies designed to achieve organizational objectives.
For organizations operating in environments where powerful stakeholders are present, organizational
responses may vary depending upon stakeholder influences (Frooman 1999). Our question was
relatively straightforward in conducting this research; how do internal and external stakeholders
collectively influence an organizations strategy development and implementation? Our interest was in
exploring the stakeholder dynamics that are the antecedents to a unified organizational strategic
response to institutional demands by conducting series of in-depth interviews with key stakeholders.
2. Background
John Fernandez had been busy during the last three years since taking on the role of President and
CEO of Mass Eye and Ear Infirmary (MEEI). When he assumed the position at the 185 years old
infirmary in 2007, he inherited an organization with a divided board, poor financial performance and
no long-term plan to help MEEI navigate the challenging health care market. By 2010 MEEI was
benefiting from his leadership; financial performance was improving, the Board of Directors united and
a plan for long-term success had been developed.
Despite a reputation that any health care institution would covet, MEEI had to deal with a competitive
environment that defined the word “complex”. Situated in the shadow (literally) of one of the largest
and most well known hospitals in the country Massachusetts General Hospital, MEEI’s CEO and staff
had conceptualized and articulated a strategic plan to guide the organization’s future.
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Now, in the summer of 2010 – and on the heels of the most sweeping legislative change to the US
healthcare system in a generation – Fernandez turned his attention to actually executing MEEI’s
strategy. “Three years to get here – now to tackle the next twenty”, he thought to himself as he looked
out over the Charles River from his office. Described by his staff as a strategic thinker, Fernandez had
several key staff members that reported directly to him that were responsible for implementing key
elements of MEEI’s strategy. Yet even with what he viewed as a solid plan in place, he was troubled
by the future. Landmark health care legislation passed in early 2010 left him wondering: “How will we
get paid; how does this affects our plan for long term success; can we maintain our position as an
independent health care institution? Most importantly – what decisions do I need to make now to
ensure all of that happens?”
Mass. Eye and Ear’s Strategic Plan
2010 was a watershed year for the health care industry in general – and for a city like Boston, which
was home to many well-known hospitals and medical institutions, the impact of increasing
competition, rampant consolidation, and skyrocketing costs was felt across Massachusetts. MEEI
senior management had crafted a strategy to maintain the Institute’s advantage in the highly
competitive Boston health care market. The plan called for cumulative investment of $270 million
dollars in plant and equipment including greatly expanded technology investments. Key elements of
the plan included:
A major expansion of outpatient services on the main campus.
A new research building constructed on the site of the existing administrative building
A new outpatient facility constructed in the Longwood area adjacent to Brigham and Women’s
including day surgery facilities.
Investment in new imaging equipment and IT support.
Expansion of satellite operations in suburban metro area including expansion of existing offices.
Outpatient services were a major focus of the plan. In addition to expansion of the main campus and
new Longwood site, the plan targeted the development of relations with suburban hospitals, suburban
outpatient offices and strategic alliances with groups such as Atrius Health, an alliance of 5 large
medical groups operating in the greater metro Boston area. Senior management referred to the plan
as “growing the circle.”
3. US Health Care markets
National Competition
Often described as a system, US Health Care was in reality provided to the America public via a
loosely affiliated set of markets. Over the last 30 years, virtually all participants in the various markets
experienced large-scale consolidation. Starting in the early 1980’s government concerns with rising
health care costs lead to the introduction of health care reform designed to constrain cost increases.
The diagnosis-related group (DRG) payment system introduced to health care markets the concept of
prospective payment. Diagnosis was related to the anticipated resource consumption with an
associated payment schedule for each DRG. Hospitals that delivered care at less than the payment
schedule retained the excess; hospitals where costs exceeded the scheduled payment provided the
care at a loss.
DRGs initial introduction was intended to slow the growth in Medicare costs. This exercise of market
power by the US government was not lost on the private sector. Concurrent with government efforts to
slow the growth of public sector health care entitlements, private sector purchasers of health care
began to explore methods to reduce the rapid increase in health care premiums. Health Maintenance
Organizations (HMO) and the competing alternative to HMOs, the Preferred Provider Plans (PPO),
emerged as the preferred health care provider for firms seeking to contain costs. These two
developments effectively ushered in the era of market based US health care.
Hospitals Feel the Squeeze…And Exercise Their Power
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Driven by the need for efficiencies, many hospitals consolidated, with the trend accelerating during
the later 80’s and most of the 90’s. Mergers were the initial vehicle that drove consolidation until 1996.
Post 1996, merger activity was replaced by acquisitions as the favored method of consolidation.
During the first few years of the millennium acquisition activity also slowed from a peak year of 310 to
101 in 2002. By 2002 in most of the US membership in a hospital system became the norm with few
mergers and acquisitions challenged on the basis of anti-trust. During the same period of intense
merger and acquisition activity, bed utilization dropped across the US resulting in hospitals
experiencing excess bed capacity. As hospitals systems expanded, hospitals began to drop
unprofitable operations despite the stated goal of offering a full range of services. Hospitals diversified
into high volume profitable services while rapidly shedding less profitable ones as they positioned
themselves to fill beds to capacity.
As a result of the consolidation activities hospital systems developed powerful bargaining positions in
many US markets. With the exception of a few world renowned institutions, the vast majority of
hospitals served a local population. Even the largest and most respected hospitals derived a
substantial portion of their revenue from the local markets. Health care regulation, left largely in the
domain of state government, led to distinct local variations in health care markets. Massachusetts with
its mandate minded legislature expanded benefits that required insurance firms to provide as part of
their policies. While laudable from the perspective of patient care, the effect was to increase policy
costs, consolidate insurance providers and strengthen providers’ bargaining positions.
As the hospital systems expanded, they used size to gain bargaining power over both their supplier
base and the medical insurance plan providers. Insurance plans that negotiated rates of
reimbursement with the hospitals had to balance pricing considerations with the local access needs of
their insured to these local hospitals. Suppliers and insurance firms also consolidated in efforts to gain
market power countering the hospitals growing clout.
4. Local competition
Boston Hospitals
Home to some of the mostly highly rated hospitals in the country, six large hospitals dominated
Boston metropolitan health care. Mass General, Brigham and Women’s, Tufts, Beth Israel, Children’s
Hospital and Boston Medical Center were all affiliated with a well known medical school. Of these
hospitals, only Mass General and Brigham and Women’s did not have their own in-house Eye and
Ears Nose and Throat services. The economics of hospitals were complex but were driven by two
simple factors. Hospitals operate a fixed cost business model. This led to the second factor: patient
volume was critical to hospital profitability since covering of fixed costs were essential to survival.
Boston hospitals operated in areas with some of the highest real-estate valuation in the country. In
addition to the high cost of land and building acquisitions, most operated in areas where available
land was scarce to non-existent. As physical space became constrained, reducing the ability of high
revenue services such as orthopedics to grow, hospitals were forced to reduce space availability for
other less profitable service such as eye care. Experts agreed that all the major hospitals desire to
provide the complete range of medical services. Constrained by space, the stated objective of
providing a complete range of medical services was challenging.
Partners Health Care
Partners HealthCare was founded in 1994 by Brigham and Women's Hospital and Massachusetts
General Hospital with the expressed purpose of integrating health care. Partner’s principal activity
was the coordination of their physician partners activities with their member affiliates which were
comprised of suburban hospitals, home care providers, mental health hospital, rehabilitation hospitals
and joint ventures with specialty providers such Dana Farber Cancer Center. The payment terms
between hospitals and insurance providers were divided into two contracts. The hospital negotiated
payments for all charges incurred in providing care except for the physicians’ charges. Those charges
were negotiated separately. However in practice hospitals negotiated the two contracts
simultaneously in order to increase their bargaining power over insurers. Partners Health Care’s scale
allowed for considerable influence in negotiation of physician payment rates with Massachusetts
health care insurers. Under scrutiny from the state Attorney General’s office for pursuing excessive
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market clout with insurers, Partners waged an aggressive public relations campaign to refute the
findings in 2009 and 2010.
Insurance Markets
Concurrent with the growth of hospital systems, health care insurers had consolidated over the past
20 years. As firms sought to reduce health care cost by turning away from the traditional indemnity
plans, the initial entry of HMOs and PPOs numbered in the hundreds. Under pricing, inefficient cost
controls, consumer pressure for greater choice led to wide spread losses in the industry. Many HMO’s
and PPO’s either went bankrupt or sought protection by consolidating with other firms. The
Massachusetts’ health insurance market mirrored that of most states in the US. By 2002, three firms
in Massachusetts had an 81% market share. The market structure for insurance was similar in all but
3 of the 50 states with a few insurers holding large market shares. Pricing power which was lost to
these firms in the 90s returned as consolidation shifted the balance of power back to the insurers.
The insurance firms negotiated physician charges and hospital charges with each institution
separately. Larger institutions and organizations such as Partners Health Care were in a position to
negotiate more favorable rates with the carriers.
5. Health care reform in the United States
The Patient Protection and Affordable Care Act, signed into law on March 23, 2010 were sweeping in
both scope and scale. As the law was crafted into regulation for implementation providers faced
heightened levels of ambiguity until final regulations were published. However one important aspects
of the law was clear; providers faced increased regulatory scrutiny and risk under the new health care
law.
Against this volatile and competitive backdrop, John Fernandez and MEEI had managed to
orchestrate a financial comeback since 2007, when it was characterized by slim margins and cash
flow challenges. Between 2007 and 2010, margins had almost quadrupled. With the strategic plan
development completed, MEEI management contemplated the prospect of moving forward with plan
implementation. In addition to uncertainty surrounding health care legislation, Fernandez and his team
faced the tasking of plan implementation in both the city of Boston and in the surrounding metro area.
6. Stakeholders
Boston Redevelopment Authority: Linda Kowalcky
“In 1957, the Boston Redevelopment Authority (BRA) was established by the Boston City Council and
the Massachusetts Legislature. The BRA assumed the development powers previously held by the
Boston Housing Authority and expanded them beyond public housing. In 1960 the City Planning
Board was abolished and its powers were transferred to the BRA. The BRA's statutory authority was
set forth in the Massachusetts General Laws, chapter 121B, section 4 in 1957 and Chapter 652,
section 12 in 1960. Its broad development authorities include the power to buy and sell property, the
power to acquire property through eminent domain, and the power to grant tax concession (under
MGL chapter 121A) to encourage commercial and residential development.”
Directors, appointed by both the Mayor and the Governor of Massachusetts, were granted broad
powers to review projects, tax breaks and exercise the power of eminent domain. The BRA was a
strong force in local property development. Subject to influence and constraint on their power by the
mayor and to a lesser extent the Governor, the BRA had generally exercised considerable power to
approve any building plan in the city of Boston during the last twenty years.
Linda Kowalcky, Deputy Director of Economic Planning, explained the process of project reviews by
the BRA. “All health care and educational institutions with over 100,000 square feet of property must
file an Institutional Master Plan (IMP) with the BRA.” These plans range from general long range plans
to highly specific long range plans. Kowalcky noted that the city tended to treat health care and
education differently from other commercial developers. More specific IMPs tended to fare better in
the long run. “They tend to have much larger contiguous properties and have greater longevity than
most developments. IMPs that are very specific in their planned usage, once approved are granted
zoning rights. Less specific ones must go through additional oversight reviews including community
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reviews as institutions developed more specific usage plans.” The IMPs these institutions submit are
ten years plans although all plans could be amended.
Kowalchy carefully choosing her words noted that community activists carried a “large megaphone”.
Activists’ organizations with a history in the city knew the regulations as well as the city planners.
While the city made the final decision community voice was important in Boston.
Beacon Hill Civic Association
The Beacon Hill Civic Association was founded in 1922 as an advocacy group to protect the historic
and residential character of Beacon Hill. Long a political force in the city, after witnessing the
destruction of the West End during the 1960’s urban renewal, the Association negotiated agreements
to declare the areas historic preventing any further urban renewal efforts. In addition, they negotiated
agreements to prevent large institutions from expanding into Beacon Hill including MGH and a local
university. These legal agreements permanently precluded MGH and the university from expansion in
the Beacon Hill area detailing boundaries as well as use of existing structures within and adjacent to
Beacon Hill.
Massachusetts Eye Care Clinical Associates: Senior Partner Dr. Peter J. Sullivan
The eye care market was highly contested in the Boston metro area with numerous large well-funded
practices and many small practices operating the metropolitan area. Many competitors were for-profit
practices with sophisticated marketing, multiple locations and extensive in-house service offerings.
Dr. Sullivan, neatly dressed in an expensive business suit, was precise in his observations about
competition in the Boston metro market. The Ivy League educated Sullivan had practiced for close to
30 years in metro Boston since finishing his training at MEEI. Commenting on competition for patients,
he noted that competition tended to be localized with patients selecting practices that were close to
home or office. Leaning forward in his chair, he pointedly noted that he did not consider his practice in
competition with MEEI. “Physicians are loyal to the hospitals where they trained. I send most of my
tertiary cases to MEEI or Tufts Medical Center. Years ago I only used MEEI however as time has
passed I know less of the staff there so I now split my referrals” (Tertiary cases were serious cases
that require in-depth medical care generally not available from out-patient practices). He noted MEEI
did reach out to alumni of the training program by hosting gatherings at the American Academy of
Ophthalmology’s annual conference or sending thank you notes for patient referrals.
When questioned on the use of local hospitals for eye care referral, Dr Sullivan noted that as a young
physician he did all his serious eye care at a local hospital. However as specialized eye care
equipment became more available, physicians set up practices capable of providing primary eye care
such as cataract surgery on an out-patient basis. Over time, the skills and equipment needed for eye
care simply no longer existed in the local area hospitals, hence his increased referral usage over the
years to MEEI for the most serious cases.
Dr. Sullivan chuckled when questioned about the tendency of Ophthalmology to set up extensive
capitally intensive practices involving day care surgery. “Ophthalmologists are more entrepreneurial
than most physicians.” Private for-profit practice was not without its own challenges, however. He
noted the need for the purchase of new expensive equipment and increased costs of operating his
offices while reimbursement was squeezed by insurers. “Medicare paid us $2000 for cataract surgery.
They now pay $700. Medicare sets the price for the rest of the insurers. They almost all pay what
Medicare pays. We now need to do 3 and 4 times the cases to make the same money as we did in
the 1990’s. Of course what used to take a half-hour now takes only 10 minutes. Our outcomes have
dramatically improved as our reimbursement has contracted.”
Dr. Sullivan’s patients were happy with their care. “We find that 75% of our referrals come from former
and current patients. They often express their approval of the care they receive. Patients are happy
not only with the care but the timing of the care. It is rare for patients to have to wait much beyond the
scheduled appointment time.” He noted that was not the case for hospitals such at MEEI. “They
cannot control their schedules since they receive not only routine eye care cases but also the cases
which are high intensity involving significant complications.” Dr. Sullivan had referred two cases that
day to Tufts where patients needed immediate attention that day.
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Chief of Ophthalmology - Joan Miller MD
Michael Cummings et al.
The very direct Chief of Ophthalmology, Joan Miller, was candid in her assessment of MEEI’s future;
“We would not get to where we need to be without Fernandez. She described the department’s
relationship with the prior CEO without mincing words; “Our relationship was cantankerous and
fractured. The old CEO and many of the board members viewed survival as success. We need to
grow not just survive.” Dr. Miller was forthright in her involvement in driving for change. “I pushed for
new management insisting that we hire a search firm to help us find the best candidate and making
sure we involved Harvard in the process. Joe (Dr Nadol) supported the changes.”
Dr. Miller spoke about the future plans for MEEI’s expansion into the Longwood area and beyond as
necessary for MEEI’s future. “We need to reach out to primary care physicians to increase our
referrals.” The Longwood expansion offered the opportunity to provide better care with a stronger
group practice close to the area where MEEI had contracts with B & W Hospital. While some
ophthalmologists provided referrals the greatest volume of referrals were from primary care
physicians. ‘We need to expand our surgery center capacity in order to achieve the patient volume
necessary to remain financial viable.’
The plan called for establishing additional relationships with community hospitals to provide eye care
which for the most part was now provided by local surgery centers run by for profit physician groups.
By training many area ophthalmologists, Dr. Miller was aware they created their own competition. She
was however confident MEEI’s expansion into the community was necessary and would be
successful.
Chief of Otology - Joseph Nadol MD
Trained at MEEI, the John Hopkins educated physician had been on staff at MEEI for 35 years.
Starting in 1975 with two other staff physicians, Otology had grown to 45 MEEI staff physicians
comprised of a number of sub-specialties during his tenure. Over the last 25 years, Dr. Nadol was
both the chief of Otology as well as the Chair of the Department at Harvard Medical School. The
mission of Otology was a three pronged mission according to Dr. Nadol; top quality patient care,
leading edge research and teaching of residents and fellows. When asked about referrals the affable
Dr. Nadol stated, “I like to think our referrals are due to our quality of care. We are often the referral of
last resort. Individual physicians, many trained at MEEI, refer to us. At MEEI, we practice the “three A
s”, affability, availability and ability. We believe this allows us in a collaborative manner to drive our
centers of excellence within the sub-specialties.”
Well aware and knowledgeable about MEEI’s strategy, he opined on the expansion; “Our expansion
[to five locations located in the surrounding Boston Metro area] has been mostly opportunistic where
suburban hospitals have invited us to collaborate with them. We are certainly grateful for these
opportunities. We believe an element of our strategy is collaboration.” Sitting on the planning
committees, Dr. Nadol was keenly aware of the long range plans. “John Fernandez attends the
quarterly physician meetings to keep us apprised of the continuing progress of MEEI’s plans.” “Our
independence allows us to ensure that both Otology and Ophthalmology remain a priority in the
medical community free from the competition found within larger hospital complexes from other larger
services.”
VP Communications - Jennifer Street
Jennifer Street, poised and articulate Vice President of Communications, expressed her concern
about the future challenges MEEI faced in 2010. Confident in the strategic plan that MEEI
management had constructed Jennifer expressed concerns with the nuances of the execution of the
plan. Jennifer‘s responsibilities revolved around communicating the organization’s intentions to the
various MEEI stakeholders. One area of MEEI’s campus was located directly next to a new MGH
facility adjacent to Beacon Hill. She noted concerns with any additional expansion or replacement of
buildings on the Boston campus. “The BRA is especially concerned with views entering Boston; since
we sit at the end of the Longfellow Bridge as you enter Boston from Cambridge any structural
changes are likely to face intense scrutiny.” The expansion called for the replacement of the old 1899
building as well as the outdated structure on Cambridge Street that MEEI had purchased from a utility
company.
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Acutely aware of the dynamics associated with scale development in Boston, Jennifer voiced
concerns with the next steps; “My role is guide and support the communication process. How we
communicate our intentions will have a significant impact on the outcome of long term plan.”
VP Research and Academic Affairs - Michael Collins
Commenting on the strategic plans development, Michael Collins reflected upon the challenges he
encountered over the past four years. “The researchers, especially those dedicated to basic research
had little interest in our plan to move them. It took several years of meeting with them to listen to their
concerns and needs while we expressed the concerns and needs of MEEI future before common
ground was reached.” He noted that was only half the challenge. Now a design had to be developed
for the new research facility, the facility constructed and the researchers moved with as little disruption
as possible while key administrative groups in the old utility building were also relocated.
When questioned about his role in the process of designing the new research building, Michael
Collins laughed; “I wish I was designing the building myself. Instead I formed a committee of influential
researchers including one from Mass General to formulate a planned design. We meet constantly to
try to reach consensus, which can only be done by getting the community involved in the space
planning. Most of the time that works fine however we have times when we cannot reach consensus.
While I hate to do it and do not do it often, I have to get John (Fernandez) involved. John makes the
final decision.”
VP Support Services & Real Estate - Robert Biggio
Standing in the main lobby at MEEI, Bob Biggio calmly explained the complex process MEEI was
facing with the planned Longwood expansion. Responsible for design, permitting, construction
contracts and final project oversight Bob was a very busy manager. The success of the projects
depended upon various approvals and external funding before the task of the actual implementation
was undertaken.
The new building required approval by state officials through the determination of need (DON)
process which would likely take as long as nine months to obtain. A DON was required because
project cost exceeded the $23 million DON outpatient project cost threshold that had just recently
been enacted as law in an effort by the state to slow the cost escalation in healthcare. In addition, the
DON could not be applied for unless there was a signed lease. The developer could not obtain
funding approvals unless the lease was irrevocable but MEEI had no guarantee that the
Commonwealth of MA would approve the DON leaving them responsible for a 20 year $60 million
dollar lease and no building absent an approval. As Bob noted; “This sounds confusing because it is
confusing”.
This was just one of the complexities faced by Bob and his staff. The existing 1899 building with the
1970’s building built atop it was to be demolished for the main building expansion but only after the
old building purchased from the utility was demolished and new research space was constructed. At
the same time the 1970’s main building required remodeling without disrupting day-to-day operations.
Finally, MEEI’s 1927 building and MGH’s property were literally inches apart. Construction in this area
was challenging due to the need to upgrade MEEI’s building without disrupting Mass Generals
operations required upgrades although that was less pressing than the other major initiatives that
were under consideration.
7. Expanding MEEI reach
MEEI management had recently signed an agreement with Mass General to provide MGH with eye
and ear, nose and throat (ENT) care. This agreement formalized what had been for many years an
informal arrangement that had existed between the two organizations. MGH had always been a
significant source of patient referral for MEEI however the formal agreement benefited MEEI
physicians with their participation in the Partners network. MGH physicians however were free to refer
to other providers for eye or ENT care.
In addition to the MGH contract, MEEI management had recently formalized an agreement with
Brigham and Women’s (B&W) to provide them with eye and ENT services. MEEI physicians treated
patients both at B&W facilities as well as at the main MEEI campus. B&W, under physical facilities
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pressure driven by expansion of their core surgical and medical services, had outsourced eye care in
the early 2000’s. The contract had previous been held by Beth Israel Hospital however MEEI was
able to wrestle the contract away from them when the original contract expired.
In addition to the contracts with Boston hospitals, MEEI staffed several local offices in the suburban
Boston area. These offices located in office parks contributed little incremental profit to MEEI
however. As one executive noted; “The doctors were MEEI staff physicians however when it comes to
needing either outpatient day treatment or more extensive inpatient treatment they tend to use local
suburban hospitals because patients do not want to travel into Boston.”
8. Next steps- John Fernandez CEO
Since taking the helm at MEEI in 2007, John Fernandez had accomplished much – and he was
justifiably proud of how MEEI had weathered the storm of financial uncertainty over the previous three
years. But he could not rest on his laurels. The Health Care Reform legislation signed in March 2010
cast a long shadow over health care organizations long term planning activities. Could his team
execute the plan on time? What were the risks? What were the opportunities? What were the critical
next steps to bring the plan to a reality?
9. Discussion and conclusions
The intent of the research on MEEI was to make a modest contribution to understanding the internal
dynamics that affect an organization’s development and implementation of a strategy when
confronted with conflicting institutional demands. Institutional theorist have long noted the presence of
conflicting demand on organizations imposed by external institutions (Oliver 1991) however as Pache
and Santos (2010) point out, organizational actions to address external demands were predicted on
the basis of a unitary organizational response. The research at MEEI was developed with a dual
purpose: A: the case is used in a teaching environment to illustrate the complexity of strategy develop
and implementation in the presence of strong stakeholder influences and B: to develop an
understanding of the extent of stakeholder influences on strategy development and implementation. In
other words, what were the internal dynamics that lead to the unified organizational strategic
response to institutional pressures? Our research suggests that stakeholders do shape the
organizations actions with the aim of addressing external pressures however the crafting of internal
responses to institutional pressures were complex characterized by conflicting logics which are
potentially fragile in the face of conflicting external institutional demands.
Our findings suggest that resource providers are indeed a powerful force providing considerable
influence the MEEI’s strategic development. Local regulators appear only marginally powerful in so far
as they have the ability to hold up strategic implementation plans but not completely derail them. Eye
doctors who refer tertiary patients to MEEI also appear only marginally powerful in influencing MEEI’s
strategy however their entrepreneurial activities which effect MEEI’s lucrative routine eye care
business had a powerful influence on MEEI’s strategic direction. Internal stakeholders, principally
doctors and researchers had significant power to influence the hospitals strategy as did the cash
resource providers. The CEO, John Fernandez spent a considerable amount of time continually
meeting with both external and internal stakeholders as he began the process of strategy
implementation responding to questions, concerns and addressing the speed of the implementation.
In a final interview with the researchers he commented on the continual need to communicate with
both inside and outside stakeholders in order to ensure support for the stated strategy. Stakeholder
theory has attempted to address the underlying theoretical conflict between a more normative
institutional perspective and the resource dependence perspective. (Bidhan L. Parmar et al., 2010).
Our interviews suggest while interviewees voiced both resource dependence perspectives and an
institutional perspective, often in the same interview, the resource dependence perspective appeared
to dominate their thinking and subsequently MEEI’s strategy development and execution. (See
Appendix). We conclude that the dominate logic that drives MEEI strategic response is resource
dependence as the hospital seeks to maintain its financial stability and independence. However their
overall response is tempered by an institutional logic suggesting that no one theoretical lens suffices
to understand the antecedent of MEEI’s publicly unified response.
One limitation of this research was the time frame in which the research was conducted. Further
research is required to understand the dominance of the resource perspective with respect to time.
The current environment within the United States is characterized by resource constraints. Our
research does not address the possibility that in a more munificent environment an institutional
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Michael Cummings et al.
perspective may dominate organizational actors thinking. In addition our observations are limited to
one single organization. Multiple observations are needed to draw more universal conclusions.
References
Bidhan L. Parmar et al., 2010 Stakeholder Theory: The State of the Art; The Academy of Management Annuals;
Vol 4. No. 1 2010 403-445.
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Brown, L. Eagan, E., 2004. The Paradoxical Politics of Provider Reempowement; Journal of Health Politics,
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Christensen, C and Dann, J. 1999, The Processes of Strategy Definition and Implementation, Harvard Business
School Publications
Coon, W. and Wolf, S. 2005, The Alchemy of Strategy Execution Wiley Periodicals
Cuellar,A Gertier, P, 2005 How the expansion of hospital systems has affected consumers; Health Affairs 24-1
Eastaugh, S. 2008, Diversification in the Hospital Industry; Journal of Health Care Finance Vol. 34
Hrebiniak, L. 2006, Obstacles to Effective Strategy Implementation, Organizational Dynamics, Vol. 35 No. 1 12-
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Magnes, V. 2008, Who are the Stakeholders Now? An Empirical Examination of the Mitchell, Agle and Wood
Theory of Stakeholder Salience, Journal of Business Ethics 83 (2) 117-192
Mankins, M and Steele, R. 2005 Turning Great Strategy into Great Performance, Harvard Business Review
August 2005
Neilson, G. et al. 2008 The Secrets of Successful Strategy Execution, Harvard Business Review June 2008
Oliver,C 1991. Strategic responses to institutional processes; Academy of Management Review, 16 145-179
Pache, Anne-Claire and Filipe Santos: 2010, When Worlds Collide: The Internal Dynamics of Organizational
Responses to Conflicting Institutional Demands, Academy of Management Review Vol. 35 No. 3 455-476
Partners Web Site
Partners Health Care Rebuts AG Findings on cost, Boston Globe June 17 2010
Reay, T. and C.R. Hinnings 2009, Managing the Rivalry of Competing Institutional Logics, Organizational
Science 30(6), 629-652
Robinson, James, Consolidation and the Transformation of Competition in Health Insurance; Health Affairs Vol.
23 No. 6 2004
Schile, Rob; Six Major Themes of Health Care Reform, Larson Allen CPA Industry Insights Summer 2010 MEEI
Web Site
Sherer, P., Lee, K. 2002. Institutional change in large law firms: A resource dependence and institutional
perspective. Academy of Management Journal, 45: 102-119
Seo,M and Creed, D; 2002, Institutional Contradictions, Praxis and Institutional Change: A Dialectical
Perspective, Academy of Management Review 27 (2), 222-247
Sharma,S and Henriques, I; 2005, Stakeholder Influences on Sustainability Practices in the Canadian Forest
Products Industry; Strategic Management Journal, 26 159-180
Sonpar et al. 2010, The Paradox and Constraints of Legitimacy, Journal of Business Ethics 95: 1-21
Elsback,K. 1994, Managing Organizational Legitimacy in the California Cattle Industry: The Construction and
Effectiveness of Verbal Accounts. Administrative Quarterly 39 (1) 57-88
The War of the Wards, The Economist pg 64 July 24 th -30 th 2010
79

Corporative Management Through Crises Eco-Efficient
Modelling
Cornelia Dascălu 1 , Chiraţa Caraiani 1 , Gina Raluca Guşe 1 , Florian Colceag 2 and
Camelia Lungu 1
1
Academy of Economic Studies, Bucharest, Romania
2
IRSCA Gifted Education, Mogoşoaia, Romania
cornelia.dascalu@cig.ase.ro
ccaraiani@cig.ase.ro
gguse@cig.ase.ro
florin.colceag@gmail.com
camellia.lungu@cig.ase.ro
Abstract: The main goal of this research paper is to set up a coherent corporate management framework in
crisis circumstances within the context of the stakeholders' theory. Environmental impact is a major problem for
the sustainable development of companies. The economic quantitative statements are based on the erroneous
assumption of a steady natural environment. This fact is induced by the predominant use of commutative linear
classic logics. When the environment becomes unstable and resources become exhaustible, more complex
situations arise. These complex situations can no longer be assessed by classical mechanisms but through
instruments developed by complexity sciences. The sustainability mechanisms are no longer linear but complex
and are based on the liaison method of the information flow and data or material accumulation described in this
study. For the purpose of this paper, it has launched a fundamental research based on the normative analysis of
the eco-efficiency definition, considered from the environmental impact on the unit measure perspective. The
model is based on triangulated feedback structures containing a Source, a Sensor and a Decision-maker, as well
as a portfolio of possible relationships between the three components. Through the triangulated feedback
structure, the Decision-maker can act through successive iterations, until the objective is met. To design the crisis
management eco-efficient model, financial and nonfinancial information must be assigned to the Source, and the
management decisions to the Decision-maker. The Sensor is represented successively or integrated through
social and environmental factors that influence the measurement and recognition of eco-efficiency, under crisis
circumstances. The conceptual management framework is derived through a deductive approach to the research
in the context of correlated crises eco-efficient modelling. Through this deductive approach a conceptual
framework of corporate management from the correlated crises eco-efficient modelling perspective is provided.
The post-normal approach of the model discloses and provides effective solutions for the correlated crises ecoefficient
management.
Keywords: corporative management, eco-efficiency, correlated crises, complex modelling, triangulated structure,
post-normal science
1. Introduction
Complex sustainability mechanisms explain the relationships through information flux and data or
material accumulations described by the modelling in this paper. In terms of methodology, the current
assessments are still tributary to quantitative approaches; however, qualitative and correlative
components have emerged, triggered by the non-linear catastrophes caused by financial, ecological
and social crises.
Linear thinking has created a gear based on the man – economic society – technology relationship,
so successful in its confrontation with nature that it has led to serious imbalances that are embodied
in the multi-layered current crises and have various consequences. Within this linear methodology,
the concept of welfare is opposed to the consumerist concept of poverty (Colceag et al., 2010).
Placed in the context of stakeholder theory, the main objective of this paper is to develop a coherent
and eco-efficient framework for corporate management under crisis conditions. The starting point is
the normative-managerial approach of the theory, offered and argued by Donaldson and Preston
(1995). The normative approach involves the use of accepted concepts and theories in the field, to
substantiate the structures, attitudes and management practices designed to equally consider and
meet the interests of all stakeholder groups. Gomes and Gomes (2007) believe that stakeholder
theory is opposable to the understanding of the influences that the entity has and perceives, as a
member of the community and the environment in which it operates. In this context, the authors
consider stakeholder theory to be the theoretical alternative to the junction between the resource
dependence theory and the institutional theory, with the entity’s social and cultural compliance under
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the environmental pressures as a central point (Scott, 1998). The foundation of resource dependence
theory is the existence of relationships between the entity and the specialized environment in which it
operates (Orrù et al., 1991).
Like Jacobs (1997), Phillips and Reichart (2000) or Haigh and Griffiths (2009), this paper recognizes
the natural environment as the main stakeholder of any entity. The environment influences the
performance of the entity and is directly affected by its activities. From this perspective, the vision of
the entity based on natural resources developed by Hart (1995) is the theoretical paradigm
complementary to stakeholder theory, which offers the same span of the eco-efficient approach of
corporate management.
In the first part of the paper, the concepts convergent with the main objective of the research are
discussed. Through a review of the literature, eco-efficiency and sustainability are characterized, in
order to reveal the multiple dimensions of the approach, justifying the use of complexity sciences in
the eco-efficient modelling of the crises for corporate management. To understand the proposed
model, this section describes the triangulated feedback structures.
The second section of the paper develops a model that can be adapted to different degrees of
complexity. The deductive approach of the research leads to the conceptual framework of corporate
management in the context of the eco-efficient modelling of correlated crises. The opportunistic and
quantitative assessment of reality prevents the perception of the aspects related to the harmony of
relationships seen through the ensemble of global systems complexity. With or without intention, this
fact has led to various crises disrupting the complex systems of Terra, that in turn generate non-linear
effects and other crises, until new forms are found to balance the components of the global GAIA
system mechanism (Lovelock, 2006). The manifestation of correlated crises determines a complex
approach embodied in this study through a multi-stage framework procedure, as a part of the ecoefficient
corporate management in crisis conditions.
2. Theoretical and methodological framework of the research
Complexity sciences have brought a new perspective of the assessment directions. This new
perspective is relevant to the understanding of dynamic and complex mechanisms in the relationship
between the human society and the natural environment that ensures the reliability of financial and
non-financial reporting based on sustainability. Each complexity science approaches another direction
of reality assessment that is complementary to the quantitative approaches and the conventional
accounting models.
2.1 Complexity-based eco-efficiency and sustainability
The environmental pressure of the entities is based on two elements: the general level of production
and consumption, on the one hand, and the pressure exerted by each unit produced and consumed in
the environment, on the other hand. Eco-efficiency focuses on the second element and seeks to
increase wealth while diminishing the environmental impact. This entails a more efficient use of
natural resources within economic processes and is implemented through “clean” production
technologies, environmental management systems and eco-design. The result is a decrease of the
environmental impact of a product throughout its life cycle.
Many multinational companies recognize eco-efficiency as a key factor in achieving competitive
advantages. These advantages arise when a business correctly responds to the strict regulations in
the field of environmental protection and to the pressure exercised by the community for the
“greening” of businesses. Moreover, it is advantageous when the entity meets the growing demand of
ecological goods and services and it understands the necessity to comply with international
environmental standards.
The normative position of sustainability can translate directly into eco-efficiency requirements in terms
of technology, thus enabling the definition and modelling of economic growth. Within a sustainable
position, there are different views on economic growth and environmental improvement, leading to
eco-efficiency options (Neumayer, 2003; Dietz and Neumayer, 2007). In the short term, specific
policies can help create product-technology combinations; in the long term, institutions will provide the
guidelines for development (North, 1981, 2005; Freeman and Louça, 2001; Mokyr, 2002). The
overview of complex and dynamic phenomena, both interconnected and auto-generative and un-
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deterministic and evolutive, represents a new approach for the understanding of relationships
between the human environment and the natural environment. In the absence of this understanding,
the sustainability of social policies cannot be discussed.
The interest in sustainable performance and reporting is driven by a number of factors, including the
response to climate changes and environmental degradation, depletion of natural resources and an
increasing recognition of the role corporations play as an agent of economic and social
transformation. In turn, these sustainability issues are perceived as affecting the investment value of a
company, its risk profile and future products and development. Beyond the clear relevance to the
physical environment, the notion of sustainability is broadened to include social and governance
issues. Therefore, some organizations practice social responsibility (CSR) and Triple Bottom Line
performances in a wider form of sustainable performance and reporting known as environmental,
social and governance policies (Hogarth, 2008).
Complexity sciences are increasingly used for modelling a reality that reveals itself as surprising in its
dynamic complexity, particularly in economic, ecologic, sociologic, technologic approaches, that is, in
Triple, Quadruple and Multiple Bottom Line components. The future trends should fit into the action to
assess the obligations arising from the formal and informal requirements for environmental protection.
These obligations are not currently measured and reported in financial statements. The importance
attributed by investors to the development of an activity under the conditions of environmental
protection significantly influences the increase of entity performance, outlining the concept of ecoperformance
in the literature. The sustainable economy is achieved through the interaction of social,
economic and environmental areas and it is characterized by eco-performance as the best positioning
in financial and environmental terms. The eco-efficient entity monitors the Triple Bottom Line (TBL)
performance, which requires equal social, economic and environmental involvement (Caraiani et al.,
2007). Exploring a broader area of decision-making situations in public and private organizations in
developed countries involves special attention to the information needs of stakeholders, including
consumers (Bebbington et al., 2007).
Although the use of complex analytical or structural models brought a new spirit of understanding to
economic laws, this classical approach to twentieth century problems no longer addresses the
information needs in dynamic, crisis or catastrophic situations. Consequently, this paper proposes a
complexity-based model to analyze situations, predict phenomena and establish sustainable policies.
2.2 Post-normal vision of research methodology
To achieve our objectives proposed in the eco-efficient crises modelling, we focus our research on
commutative cycles and diagrams (Colceag et al., 2010).
The study is based on qualitative-correlative approaches of self-stimulating or self-inhibiting cycles
described by Ilya Prigogine (1976) in dissipative systems able to preserve their status through specific
actions. Relating to generative dissipative fractal systems shows how specific tendencies of the
human species are reflected by the development of new reactions vis-à-vis the natural and/or social
environment. Therefore, we use the notions of Source (S), Sensor (&), and Decision-maker (D) and
the relationships between the two triple systems interfering with each other. This requires: (1)
preparing a list of relevant energy and material consumptions and discharges (Source); (2) estimating
the potential social and environmental impacts in conjunction with the identified inputs and discharges
(Sensor); and (3) the interpretation of results to adopt well-documented and correct decisions
(Decision-maker). Figure 1 presents a triangulated feedback structure consisting of a Source (S), a
Sensor (&) and a Decision-maker (D), as well as a portfolio of relationships between these three
components. The primary behaviours set by the directions of the arrows that define the relationships
between the Source, Sensor and Decision-maker are refined by the time factor; each behaviour has
self-stimulating or self-inhibiting capacity. The game of managerial structures allows these structures
to describe the possible portfolio of decisions generated by the relationship structure between the
components.
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Figure 1: Eco-efficient crises modelling through feedback structures for corporate management
The behaviours are fractal patterns, which generate simple schemes, corresponding to cycles, and
contain a minimum of three items A, B, and C, in a perpetual univocal relationship of transmitting
information, such as:
A → B → C → A →
B......
If there is an attached functionality of the type Source, Sensor, Decision-maker between A, B, and C,
we can identify:
A growth cycle: Source → Sensor → Decider → Source....
A degrowth cycle: Source → Decider → Sensor → Source.....
,
which can generate behaviours modifying the overall entropy of the system or the entropy of its
components.
Considering A as the starting point and resource base, and C as the accumulation base, we obtain a
commutative diagram with B as an intermediate point, the three points having the following
relationship:
A → B and B → C ⇒ A → C
The model above is specific to the command and control structures and allows quantitative
measurements in C, validated by B, as an intermediate point. The design of the eco-efficient crises
management model can be represented by attributing financial information, but also non-financial
information to the Source element of the model. Additionally, management decisions should be
assigned to the Decision-maker element, while the Sensor is integrated or successively represented
by the social and environmental factors that can influence the measurement and disclosure of
sustainable performance.
Cycle behaviour can be self-stimulating or self-inhibiting in both cases. Self-stimulating behaviours
increase the amplitude while self-inhibiting behaviours decrease the amplitude in both growth and
degrowth cycles. There may be polygonal commutative diagrams, some having two accumulation
points and two starting points for the arrows representing the flows. The research has revealed an
extensive collection of dynamic life phenomena: individual behaviours, functioning of entities and
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teamwork, market development, economic development and even the socio-economic and
environmental development, displaying a fractal evolution (Malik, 2004).
Post-normal science describes a research methodology applicable in situations of uncertainty, values
in dispute, various and high risks, and urgent decisions, specific to crisis events. The vast array of
techniques and practices designed to promote sustainability can be reconceptualised from the
perspective of the post-normal science approach used from 1980 – 1995 by Jerome Ravetz and Silvio
Funtowicz (Funtowicz and Ravetz 1990) and subsequently in the scientific literature (Funtowicz, 2006;
Ravetz, 2006; Ravetz and Funtowicz, 1999). The work of the two researchers has defined the
concept of post-normal sustainability technologies (PNSTs) as a result of value judgments performed
under complex and uncertain conditions in the context of global restrictions concerning natural
resources (Frame and Brown, 2008; Haag and Kaupenjohann, 2001; Mayumi and Giampietro, 2006).
The continuous and current interest determines the subjects to develop and adopt their own
technology that may seem new, but actually has a rich history. There is a perfect compatibility
between the serious environmental issues identified in the 1970s (Rittel and Webber, 1973) and the
contemporary issues that are manifesting on a more serious and extended scale, described by
Rayner (2006).
Stakeholder engagement to sustainable development issues is crucial to the legitimacy and quality of
decisions. In order to accept the complexity of value judgments in decision-making and accountability
processes, stakeholders need new experiences to interact with traditional ones in their cooperation to
generate knowledge on sustainability. Ideological pluralism and value diversity are also essential to
the conceptualization of sustainability and the implementation of PNSTs. The value-based nature of
the issues involved is expressed in a way that seeks multidimensional support.
3. Eco-efficient crises modelling for corporate management
The normative approach to the definition of eco-efficiency as the environmental impact per unit of
product (Huppes and Ishikawa, 2009) and previous research (Deitz and Rosa, 1994; Chertow, 2001)
have led to the identification of difficulties in assessing the environmental impact in relation to
products. The environmental impact (I), in terms of resource depletion or waste of accumulations
occurs depending on the size of the human population (P), the affluence (level) of consumption (A)
and technology (T) as the ensemble of the processes of obtaining resources and transforming them
into goods. Therefore, the IPAT equation emerges (Ehrlich and Holdren, 1971):
I = P x A x T
Market mechanisms lack the possibility to address urgent environmental issues. From this point of
view, the purely quantitative recognition of environmental issues may paradoxically have destructive
effects on the environment through the lack of contextualization of relationships between nature and
humanity. An equation of equilibrium between the human being (H), economic society (S), natural
environment (E), and technology (T) is as follows:
H x S x E x T = k
where k is the value of planetary resources that are constant at the most. On the other hand, this
equation shows that the synergy and entropy are two key components of each variable; while synergy
is manifesting in qualitative terms, entropy is manifesting in quantitative terms. The population size in
the IPAT equation does not correlate with the qualitative psychological development of the population,
inducing entropic consequences that are definable in quantitative terms. The consumption level does
not correlate with the refinement of consumption structures, determining entropic consequences on
the environment, and technology does not correlate with the responsibility of enhancing human
abilities over the overall planetary balance, which also creates entropic consequences.
The correlated analysis of the two equations reveals the possibility to maintain the natural resources
equilibrium in the context of a nuanced qualitative approach able to preserve and increase the overall
entropy. The qualitative approach and solutions to assess the synergy can be achieved by using the
complexity sciences that are still insufficiently used in current measurements and in generating
economic, social, technological, environmental or educational policies.
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The reality of the current business environment, where the intangible assets become increasingly
important, leads to the idea that cash flows can distort the value of an entity. For example, starting a
business may not generate a positive cash flow, but it can still create extremely valuable software;
also, a company having a positive cash flow may decline as its capital depreciates. Therefore,
economists concerned to create an alternative framework for the use of Gross Domestic Product
(GDP) are oriented towards the Green GDP. This means that GDP must take into account the
depreciation of natural resources and environmental degradation, just as an entity recognizes the
depreciation of tangible and intangible assets (Stieglitz, 2006).
The modelling algorithms of the HSET relationship must finally overcome the barrier of quantitative
reporting, moving towards qualitative – relational measurements. This is finalized in normative models
that allow human welfare as well as sustainability and equilibrium of the natural environment to be
measured. While the empirical analyses use technologies in a framework of quantified experience,
the normative analysis can find various versions, which has led to its use in the modelling of climate
changes and their effects (Kopp and Portney 1999; Huppes and Ishikawa, 2009).
Although modern in its approach to the environment and developed under the philosophy of
sustainable development, the concept of TBL accounting is subject to many pressures in terms of
accounting measurement and recognition, and new reporting technologies. TBL accounting does not
only seek the measurement of direct and marginal benefits, but also the assessment of the structure
of institutional development. In the context of TBL, both uncontrolled growth that depletes natural
resources, and the blocking of economic growth have multiple aggressive effects on the complex
system: man – society – natural environment – technology. A sustainable model that will achieve a
dynamic equilibrium between these four factors entails making circuits with an on-going development
capacity.
In terms of TBL, sustainable development can be defined as keeping intact the consumption potential
related to tradable goods and natural resources per capita for future generations (Haveman, 1990).
The consumption potential (W) is defined as a function of technological (K) and natural resources (E):
W= W (K, E)
The consumption potential is linked to the future production potential, i.e. the resources used,
including technical advancements and natural resources. As a result, a sustainable economic growth
would require a constant level of resources (natural and technological) or an effective replacement of
natural resources through resources generated from production. In these terms, the condition for
sustainable development is provided:
qE’≤K’, for any W’ ≥0
where E’, K’, and W’ are the changes in time of K, W and E, and q is the conversion price of natural
resources measured in terms of technological resources.
Profit-oriented policies based on operating the satisfaction indicators generated by stakeholder
perceptions involve only a partial solution to environmental problems. The factors pertaining to the
fragile equilibrium of environmental synergy are not taken into account. In this respect, we propose a
framework procedure, as an integral part of the eco-efficient corporate management in crises
conditions:
Stage 1 defines the framework by answering the following questions:
What? (The exact definition of the problems, resources, etc.)
Why? (The correct definition of causality.)
How? (Proposing concrete solutions and strategies for implementation.)
With what means? (Defining resources and resource-generating mechanisms.)
With whom? (Defining the structure and composition of the team.)
For whom? (Defining users.)
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Where? (Defining the scope and predicting the contextual opportunities created by a possible
implementation of a solution.)
When? (Defining the time of implementation and calculating the collateral consequences
generated after implementation.)
For what purposes? (Definition of objectives for each stage.)
With what effects? (Definition of expected outcomes and possible side effects.)
With what implementation mechanisms? (Defining the nature of the instruments and compliance
with the features of the phenomenon.)
What steps? (Defining the process steps.)
Stage 2 defines the specific analysis and design directions.
Stage 3 defines the overall policies.
Stage 4 outlines practical solutions and defines the stimulation and inhibition mechanisms required for
implementation.
Stage 5 identifies strategies to prepare implementation, including the necessary human resources.
Stage 6 defines the strategies and portfolios of alternative solutions in different situations (for
example, crises or catastrophes) necessary to implement the framework policies.
In terms of TBL sustainable development, the existence of a degrowth cycle must be considered,
where the direction of the arrows is from the Source, to Decision-maker and then back to the Sensor.
This circuit is necessary for the refinement of the Sensor before making a decision.
The influence of monetarist approaches is actually specific to the relationship between society and
technology. However it may include, without covering the qualitative aspects of the relationship, the
relationships between society and the human being, society and the natural environment, technology
and the human being, and technology and the natural environment. In Quadruple Bottom Line (QBL)
reporting, the human psychological context and the natural environment have a different qualitative
approach based on information, feedback, trust and collaboration networks, synergy, and harmony. In
a QBL approach, the human being is the essential factor. Charter and Chick (1997) recognize it as a
social and ethical influence alongside environmental and economic factors and Allenby et al. (2007)
assign social and cultural attributes, while Hill et al. (2008) observe the absence of the four
dimensional approach of the eco-efficient entity and suggest the construction of new organizations in
this context.
Following a quadrilateral circuit on the QBL scheme, the subsequent set of relationships generated by
the directions of the circuit is estimated:
H → S E → T
× = k
S → E T → H
In this formula, the arrow signifies the involvement of the first factor on the next factor; therefore,
H → S signifies the influence of the human personality on the economic society, a qualitative factor
that is measurable only through the impact of personalities on the course of history. Overall, the
formula signifies the equilibrium of reciprocal influences of all factors that are at most constant.
Therefore, if one type of influence is increasing, another will be increasing in compensation or
decreasing in another report. In the case k takes a value greater than 1, the four entities create
synergy; when k takes an overall value lesser than 1, the four entities have an entropy-generating
relationship and a high risk of destroying the reciprocal equilibriums.
Any cyclical behaviour of a triangulated structure such as a Source, Sensor and Decision-maker,
regardless of the sense of progress and that can lead to the depletion of resources, cannot contain
the four terms in the equilibrium equation identified above. Complex approaches to realities can be
performed on several levels of complexity.
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4. Conclusions
Cornelia Dascălu et al.
Based on complexity sciences, this paper proposes connections between eco-efficiency, sustainability
and corporate management in crisis conditions. The complex vision on correlated crises led to the
identification of the human factor as a central pillar of the current global conjuncture. This hypothesis
prompted the identification of the human being – society – environment – technology correlation.
Environmental issues have generated the natural environment crisis and are the cause of derived
crises: the food crisis, the energy crisis and the economic crisis, including the natural resources crisis.
In order to meet the assessment requirements of the phenomena of creating eco-efficient policies, an
expansion of accounting procedures is necessary. This expansion is needed both at the level of
evolutionary trends of a phenomenon by estimating the new characteristics that can be generated,
and at the level of n-order consequences of a product, process or relationship. In future research, we
propose an approach to sustainability from the perspective of post-normal science and measurement
models. These approaches can create a spatial, temporal, complex and dynamic view, appropriate for
three-dimensional accounting and reporting issues, and for subjacent public policies.
Acknowledgements
This work was supported by CNCSIS – UEFISCSU, project number PN II – IDEI 1825/2009.
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Questioning on Audit Committee Effectiveness
Camelia Liliana Dobroţeanu, Laurenţiu Dobroţeanu and Adriana Sofia Răileanu
The Academy of Economic Studies, Bucharest, Romania
cameliadobroteanu@cig.ase.ro
laurentiudobroteanu@cig.ase.ro
sofiaraileanu@gmail.com
Abstract: In traditionally market-oriented countries, it is generally assumed that strong corporate governance
practices are closely related to consistent proactive efforts made by companies to meet the stakeholders’
expectations. In addition to this, particularly in countries inheriting the Roman-law such as Romania, the
regulatory framework plays an equally important role in promoting and supporting adherence to sound
governance practice. As far as the later is concerned, in our view, one of the key conditions is to design and
enforce a good quality corporate governance framework. This paper critically examines the current Romanian
corporate governance framework with a view to identifying major loopholes that prevent audit committees from
acting in an effective manner. It follows a prior research conducted on a sample of top listed Romanian
companies which showed a very poor performance of audit committees in meeting the stakeholders’
expectations. Since the Romanian authorities have drawn inspiration from the United Kingdom corporate
governance framework, this has been considered as a benchmark in our judgments. The investigation focuses on
issues related to the appointment procedure and composition of audit committee, independence requirements,
availability of resources, and relationships with the board. The research outcomes indicate that in spite of
considerable efforts undertaken by the Romanian authorities to improve the corporate governance framework, a
lot of work still needs to be done in this area. Our findings show that there is a significant number of deficiencies
within the current national regulations ranging from the lack of adequate provisions to inconsistencies and
incomplete or ambiguous requirements, all added up to weak enforcement. We noticed that companies
responded to these deficiencies either by little adherence to corporate governance framework or by setting up
non-effective “porcelain doll” audit committees. The study concludes with a discussion about the adverse
implications of the identified governance framework weaknesses on both companies and stakeholders.
Keywords: audit committee, corporate governance, effectiveness, governance framework, Romania
1. Introduction
Recent global financial crisis have brought to public attention corporate failures that placed under the
question the effectiveness of audit committees (AC) in managing properly their growing
responsibilities (Austin 2011, Jaye and Secrist 2011). However, debates over the AC effectiveness
are not new. Apparently, there is an increasing concern triggered by failures of high profile
corporations, followed by a slow down during good times. Traditionally, AC effectiveness used to be
measured in terms of compliance with relevant regulations (Donker and Zahir 2008). Nowadays, such
an approach is not sufficient anymore, since ACs need to “consider taking the initiative – looking to go
beyond compliance, and actively seeking to identify ways in which they can enhance the quality of
governance that exists in their organisations” (PWC 2006). Looking on several professional
organizations’ web-sites, such as AICPA, Delloite, KPMG, IIA and so on, one may notice that an
impressive amount of energy is thus invested in developing toolkits and software that might support
corporations’ efforts to enhance effectiveness of their ACs.
While the international literature is rich of valuable research papers tackling the issues related to
effectiveness of AC (DeZoort et al. 2002), the Romanian one displays a much limited number of
research papers in this regard. Only recently, AC and corporate governance issues have attracted an
increasing interest among Romanian researchers (Feleagă et al. 2010, Ionașcu and Olimid 2011,
Răileanu et al. 2011, Dobroțeanu et al. 2010). However, to best of our knowledge, previous papers
have not approached the weaknesses of the Romanian corporate governance framework in relation
with actual performance of companies’ ACs.
In our view, the effectiveness of AC strongly depends on two sets of variables. Firstly, the micro-level
set includes, without limitation, company’s characteristics and performances which allow AC to act
effectively: the composition, the independence status, members’ knowledge and experience,
responsibilities and authority, communication etc. Secondly, at macro level, a strong corporate
governance framework plays a crucial role in enforcing sound practice, stimulating AC to act
effectively in the best interests of corporations’ shareholders. As opposed to common law systems –
e.g. the United Kingdom (UK) – this is particularly more obvious in countries inheriting a Roman
system (as is Romania), where “nothing is mandatory if not provided by the law”. This apparently
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minor difference might provide a reasonable explanation for difficulties faced with in implementation of
“comply-or-explain” or voluntary disclosure not only in Romania, but in continental European countries
as well (FRC 2011, EC 2011, Davies and Schlitzer 2008).
On these grounds we conducted our research focusing on a twofold objective: (i) at macro level, our
paper’s objective is to investigate the Romanian corporate governance framework with a view to
identify the major loopholes that prevent ACs to be effective in meeting their expected roles; and (ii) at
micro level, on a limited sample of listed companies, we tested the implications triggered by
regulations’ weaknesses found on compliance with disclosure requirements provided by the corporate
governance framework.
Therefore, we believe that, in spite of its inherent limitations, our research contributes to the
enhancement of national and international literature by providing an insight of the Romanian practice
and regulations related to ACs.
The paper is structured as follows: the next section presents the research method used; it is followed
by a discussion of our research findings corresponding to our macro- and micro-level objectives. The
paper concludes with our comments derived from our examination.
2. The research method and underlying assumptions
According to the research objectives envisaged both quantitative and qualitative methods have been
employed in conducting our research.
The macro-level section relies heavily on qualitative measurements, given that it focuses on critical
examination of the Romanian corporate governance framework related to AC. From this perspective,
the legislation and the relevant regulations taken into account for identifying the legislative loopholes
regarding corporate governance in Romania are: (i) the Company Law no. 31/1990 as subsequently
modified and republished; (ii) the Corporate Governance Codes issued by the Bucharest Stock
Exchange (BSE 2008, BSE 2009) and by the Corporate Governance Institute (CGI); (iii) the corporate
governance implementation guidelines issued by the BSE and the CGI in March 2010 (BSE and CGI
2010). The British model – the Combined Code, currently known as the Corporate Governance
Framework in Great Britain and the Smith Guidance (FRC 2010a, FRC 2010b) – were a source of
inspiration for Romanian authorities in designing the corporate governance framework. Therefore, a
pertinent analysis of the Romanian legislation and regulations cannot ignore it. The documentary
examination and analysis are complemented by the use of inductive and deductive reasoning.
As far as the micro-research objective is concerned, an empirical survey over a limited sample size
has been undertaken with a view to assess the manner in which the companies have reacted to
accommodate the new corporate governance requirements. The sampled companies are those
included by BSE in its BET-10 index in 2007 as an indicator for market liquidity. Although BET-10
composition slightly changed over time, we kept the same sample composition to maintain
consistency in our analysis. A comprehensive examination of information disclosed by sampled
companies on their annual reports and web-sites was undertaken. Three types of AC-related
information for the reporting periods 2008, 2009, and 2010 were gathered and analysed. Firstly, we
looked upon the information subject to mandatory disclosure according to the framework in place for
each of the reporting period considered. These include: governance model and existence of AC.
Secondly, for certain information the framework requires a minimum quantity of mandatory disclosure,
while additional information is subject to voluntary disclosure. Such information includes AC
composition and independence status of AC members. Finally, we considered a set of information
that is to be disclosed voluntarily by companies as follows: the appointment procedure of AC
members, resources available to ACs, and AC disagreements the board. Each criterion was
measured on a three-value scale as follows: 1 point was associated with non-disclosure of
information; 2 points were given for compliance with mandatory disclosure, and 3 points for voluntary
disclosure of supplementary information. An individual company index (ICI) was calculated by
aggregating the values of each criterion for the respective company. Additionally, according to the
type of information scaled, a theoretical adjusted index (TAI) was computed by aggregating the
maximum values that could have been attained by each company for each criterion. Then, by
comparing ICI against its TAI we could measure each company’s departure from mandatory
disclosures, and from reasonable expectations as far as the voluntary disclosure is concerned.
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In spite of the very interesting results thus obtained, there are several research limitations that should
be considered. First of all, this research method was approached as an alternative to interviews with
companies’ officials. Previous attempts to conduct interviews or request questionnaires failed to
provide sufficient and relevant data for our research (e.g. companies officials either declined to be
quoted, or did not reply to our requests and questionnaires). Secondly, the sample size is relatively
small. However, considering the total number of companies listed on BSE (about 76), a sample
consisting of the most liquid companies accounting for 13 percent of total listed provides a fairly good
indication about the actual status related to the issues investigated. Moreover, our findings are
consistent with previous research conducted on Romanian stock market (Ionașcu and Olimid 2011,
CBA 2009, Dobroțeanu et al. 2011).
3. Background of corporate governance in Romania
The 2000 OECD report on national corporate governance practice ranked Romania the 7 th out of ten
surveyed countries (OECD 2000). The major deficiencies included weak enforcement of regulations,
poor quality of information available to shareholders, limited responsibilities assigned to companies’
boards, etc. Consequently, in 2001, OECD and USAID have launched a program aimed at
strengthening the corporate governance framework in Romania (OECD 2001). Under this program,
the first Corporate Governance Code (CGC) was issued by the BSE in 2001, and later on, in 2003,
the Institute of Corporate Governance was established.
To stimulate adherence to the CGC, in 2001 BSE set up the plus category that could have only been
accessed by listed companies that had completely adhered to the 2001 CGC. However, the BSE’s
efforts have not been successful, given that only one company has asked to be listed in the plus
category.
Subsequently, Romania’s objective to access the European Union has been viewed as a strong
motivation to further consolidate the governance framework. Thus, the company law has been revised
several times to introduce provisions related to the corporate governance models applicable to
companies (the one-tier and two-tier models), the supervision role of the board over the executive
management and the composition of the supervisory committees. While considerable adjustments
had been made to enhance the corporate governance framework prior to Romania’s accession to the
European Union, consistent efforts have been further needed from BSE to align its regulations with
the European ones. Thus, the BSE revised the 2001 CGC based on consultations with listed
companies, followed by issuance of the 2008- and 2009-CGC, accompanied by the 2010 BSE
Guidance on implementing corporate governance framework. Therefore, the latest version of the code
dates back in 2009.
Beginning with the reporting period ending on December 2008, listed companies were required to
attach a comply-or-explain statement to their annual reports. In addition, the CGC stipulates that listed
companies should disclose information on corporate governance on their web-sites both in Romanian
and in English.
It is worth mentioning that in Romania, while laws are invested with the most powerful authority,
regulations, such as the CGC and guidance issued by the BSE, do not enjoy the same enforcement
authority since they do not follow the same legislative procedures. Under such circumstances, our
findings should not be surprising.
4. Macro-level examination results
When analysing the developments of the Romanian corporate governance framework over the last
decade, one should notice that the process is relatively slow while the provisions are still incomplete
and difficult to implement (Dobroțeanu et al. 2010). Our major findings derived from the examination
of the Romanian regulatory framework are discussed below in the following sequence: obligations to
set up an AC, procedures for appointing AC members and the number of their mandates, AC
composition, independence of AC’s members, resources available to AC, and AC’s disagreements
with the board.
The framework provisions related to the obligation to set up an AC are inconsistent. While the
company law requires all corporations whose financial reports are compulsorily subject to external
audits to set up the AC (implicitly, the listed companies are included), the BSE guidance contains a
provision which leaves this to the board’s decision. If this provision is considered in conjunction with
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our further comments, one can notice that companies can resort to mechanisms of avoiding setting up
one of the key corporate governance structures: insufficient financial, material, human, and logistic
resources “objectively prevents the board from deciding to set up an AC”.
Turning to the next point – procedures for appointing the members of the AC – the company law
stipulates that the proposals formulated by the board be validated by the shareholders’ decision.
While the BSE code has no provision in this regard, the BSE guide ascribes the appointment decision
to the board only. Aside from the contradictory provisions, the nomination committee plays no role in
this regard. In our view, the AC – “the shareholders’ watchdog” – is the one that should embody the
shareholders’ interests and ensure that the activities related to financial reporting, internal control, and
audit (internal and external) are carried out having in mind the former’s interests. If the final word on
the appointment of the AC members is left in the hands of the shareholders, then the committee
would be invested with the authority and the trust that are absolutely necessary for carrying out its
mission.
As far as the number of mandates is concerned, the difference between the Romanian and the British
frameworks is considerable. While in Romania, a person can have the quality of being a member in
the AC for a maximum of 20-year period (assuming all other conditions met), in UK the maximum
length is nine years. The consequences of such a long time period (four years/mandate, maximum of
five mandates) are multiple: from familiarity threats to AC members’ independence to establishing a
rigid structure which prevents refreshing the team with new members. These provisions, corroborated
with the requirements on membership appointment and validation, show that the system could be
corruptible. To obtain the extension for another mandate, members of the AC can make compromises
for attracting the congeniality and support of the board until the termination of their five mandates,
when it would already be too late to redress the possible problems created in time. If the validation
remains with the shareholders, then these dangers would be much alleviated.
Regarding the AC composition, there are two important comments to make. First of all, the Romanian
framework requires AC be completely formed out of non-executive and independent directors only to
companies that have adopted one-tier model of corporate governance. However, as all listed
companies should compulsorily adopt the two-tier model it leads to the case when ACs consist from a
majority of the non-executive independent members. The second comment is that the law is very
ambiguous: for instance, the section dealing with two-tier model stipulates in one paragraph that only
the independent, non-executive members are allowed in the composition of the board. Therefore, one
may reasonably presume that AC composition is 100 percent non-executive and independent, since it
is formed from the board members. But, as one reads further may find out another paragraph stating
that the majority of the AC members should be non-executive and independent. Such a provision
implies the possibility of attaching to the AC executive, non-independent members as well, the sole
condition being of not holding the majority. The major consequence of these contradictory and
ambiguous legal provisions could be that a key executive director – say, the CFO – may hold an AC
position. Although in minority, the CFO can significantly influence the activities or the decisions of the
committee, and the independence of internal auditors, especially when the latter report the findings
derived from their audit engagements on the company’s financial activities. The fear of the
repercussion of reporting some unpleasant results to executives might press the internal auditors to
compromise their independence and objectivity in carrying out their professional judgments. The
requirement of the BSE code – full non-executive AC composition – comes closer to an adequate
governance rule. Unfortunately, such a rule does not have a similar implementation power as a law.
Most Romanian legal provisions regarding the independence test of the AC members are comparable
to the British requirements. However, the requirements related to one of the independence
assessment criteria are misleading, namely: one should not have been a non-executive member of
the company’s board for a time period longer than three mandates. The same regulations stipulate
under a separate paragraph the possibility of holding five mandates! Thus, one logically understands
that after the completion of the three mandates, one can continue being a member in the AC, but
loses its position as a member of the board. Nevertheless, this reasoning is not valid either, as long
as the law also stipulates that the AC members are selected from among the board members! Thus,
the only logical solutions left are either to interpret these legal provisions as restricting the number of
mandates to three (and if so, it would have been much better to formulate simply and consistently the
text of the law so that its implementation be facilitated and not hindered) or when inspiring from the
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British provisions (which indicate three mandates) the translation was made word by word without
correlating them to the other paragraphs from the regulation.
Looking for the provisions related to resources available to AC, one cannot refrain from paraphrasing
a very popular Romanian writer “it is wonderful, marvellous, but ... definitely, it is not in there!” While
the UK framework is sufficiently detailed in this regard, the Romanian corporate governance
framework approaches the resource issue only in a short sentence. How can an AC carry out its
mission if the issues related to ensuring the financial, material, and logistic resources are not clearly
stipulated in the governance framework?!
The Romanian framework states that the AC’s major responsibility is to assist the board in
supervising financial-, risk- and audit- related issues, but none of the regulatory documents examined
deals with cases of AC’s disagreement with the board. In such circumstances, there is a danger that
significant problems, which cause such divergences or generate major risks for the company, might
not reach the shareholders (Bierstaker et al. 2011). It shouldn’t be reasonable to exclusively rely on
the assumption of voluntary communication with the shareholders as long as this is not customary in
case of Romanian environment. The British regulations cover more extensively this issue, stipulating
the fact that, under the above circumstances, the committee must report the respective
disagreements to the shareholders in the annual report.
5. Micro-level research findings
Following the sequence of issues discussed under the previous section, the results of our empirical
investigation are presented below.
Regarding the governance model and obligation to set up an AC, the results indicate that despite of
positive evolution, at the end of 2010, 80% of the sampled companies still display an one-tier
governance structure, and only 10% comply with the corporate governance requirements by adopting
the two-tier model. There is a considerable decline in number of companies not disclosing such
information from 2008 (90%) to only 10% in 2010 (Figure 1).
Figure 1: Governance model - no. of companies as percent of total sample
Following quite a similar path, establishment of an AC was not reported by the large majority (80%) in
2008. However, in 2010 the number of non-reporting companies dramatically declined to only 10%
(Figure 2).
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Figure 2: Existence of AC, no. of companies as percent of total sample
It should be mentioned that disclosure of such information was required by BSE regulations in place
for each of the three reporting periods considered. Apparently, the BSE guidelines issued in March
2010 seem to have generated these positive outcomes, but one should not overlook the fact that only
disclosure practice improved, while the compliance with laws and regulations still lacks well behind
(30% of companies have not yet established an AC, nor think it necessary). Factors that could explain
such a behaviour list the ambiguity and inconsistencies of the provisions discussed under the
previous section.
As for the appointment procedures of AC members, the governance framework does not require
companies to disclose such information. Therefore, if these were publicly made available by
companies it was considered as voluntary disclosure. Figure 3 provides a fairly good picture of the
results obtained for our sample.
Figure 3: AC members’ appointment procedure, no. of companies as percent of total sample
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It should be noticed that the share of voluntary disclosure increased significantly from 20% of sampled
companies in 2008 to 50% in 2010. Nevertheless, out of five companies reporting on this issue in
2010, only one has indicated that AC members are ratified by shareholders, while four companies
have stated that the board validation is the appointment usual procedure.
When looking at the AC composition and independence status of AC members, it should be
underlined that the Romanian corporate governance framework requires a minimum set of information
to be disclosed by companies. Specifically, the AC members’ names, positions and a short-format CV
as well as the number of independent non-executive AC members should be provided. Any additional
relevant information was considered as voluntary disclosure by companies. Figures 4 and 5
summarise the results derived at the level of our sample.
Figure 4: AC composition, no. of companies as percent of total sample
Figure 5: AC independence status, no. of companies as percent of total sample
While disclosure on AC composition has not exceeded the minimum framework requirements, the
share of companies not complying with mandatory disclosure has considerably declined from 80% in
2008 to 20% in 2010. A similar path was identified for non-reporting companies on issues related to
independence status of AC members (from 80% in 2008 to 50% in 2010). It should be added that
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Camelia Liliana Dobroţeanu et al.
voluntary and mandatory disclosures show positive developments throughout the period. However, a
closer examination of the information made public by companies revealed that, in 2010, 20% of them
have no single independent member in their AC, and 20% have AC comprising of two or three
members of which only one is independent. One company reported in 2010 an AC formed out of a
single non-executive and independent member! In other words, no one can say that such companies
have not complied with disclosure requirements, but the implementation seems to lack well behind the
framework provisions, not to mention the missing or poor explanations given for not observing the
rules. An important driver of a committee’s effectiveness rest with “having the right directors on the
AC — with mandated independence and financial literacy combined with integrity, healthy scepticism,
judgment, knowledge of the company and industry, and the courage to challenge decisions” (PWC
2011).
As both issues related to resources available to AC and AC disagreements with the board are not
specifically required to be disclosed by the corporate governance framework, these were
consequently considered as voluntary disclosure. Nevertheless, none of the sampled companies
made publically available such information. Perhaps, unlike the British or American companies, the
Romanian ones are not facing resource limitations or disagreements with the board’s members!
These results envisage that voluntary disclosure is not one of a favourite practice of Romanian
companies.
The examination of the entire sample shows that 80% of companies have improved their disclosure
practice in 2010 (Figure 6) since closer to null values reflect better performance.
Figure 6: ICI departures from TAI
However, it should be noticed that departures are far from being eliminated which reflects companies
reluctance to approach more openly the voluntary disclosure.
The next chart (Figure 7) provides a picture of departures per each criterion considered in calculation
of indexes.
Apparently, companies fully comply with disclosure requirements regarding the first two criteria.
Nevertheless, this compliance reflects rather the “form over substance” since the governance model
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adopted by companies differs from that required, and AC has not yet been established in 30% of
companies. When looking at the criteria that are completely voluntary or include a component of
voluntary disclosure the extent of improvement is much modest. Since providing additional
information does not seem to attract immediate benefits for reporting companies, reluctance to
approach voluntary disclosure might reflect the management’s strategic considerations (Ionașcu and
Olimid 2011, Bujaki and McConomy 2002).
Figure 7: Gap per assessment criterion
6. Conclusions
Our findings are consistent with previous research on Romanian capital market indicating inadequacy
of the regulatory framework and weak enforcement (CBA 2009, Dobroțeanu et al. 2010, Raileanu et
al. 2011, OECD 2000), as well as reluctance to voluntary disclosure (Ionașcu and Olimid 2011,
Dobroțeanu et al. 2011). Notwithstanding the important developments of the national corporate
governance framework, our study shows that there are several issues which further require the
regulators’ efforts to bring the Romanian companies practice into the line the modern ones of
corporate governance. The research findings indicate that companies need first of all a clear and
coherent regulatory framework (Feleagă et al. 2010). To stimulate adherence, the integration of
corporate governance requirements into a legal form that has the same authority as a law might be an
option for authorities’ consideration. Since voluntary disclosure could not be relied on, of an equal
importance is the need to enhance the corporate governance framework to adequately provide for the
resources available to AC and disagreements with the board. However, week enforcement still
remains an issue of concern as long as appropriate actions are not taken against companies not
complying with requirements.
Such issues along with some other that were not subject to our research prevent AC to act effectively
as expected by stakeholders.
Acknowledgements
We are grateful to anonymous reviewers who made constructive comments and suggestions on an
earlier version of the paper. This study comprises the partial results of wider research conducted
under the projects CNCSIS ID-1785/2008-2011 – “The role of corporate governance in securing the
investor confidence: the national versus European and international performances” and CNCSIS ID-
1798/2008-2011 – “Bipolar study of audit expectations gap: profession versus financial information
users”.
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98

Governance Versus Entrepreneurship and Regional
Growth and Development: Challenges for Romania in the
Context of Economic Crisis and European Integration
Anca Dodescu
University of Oradea, Romania
ancadodescu@yahoo.com
adodescu@uoradea.ro
Abstract: The increased freedom in the movement of goods, services, capitals, and people in the European
Union, the increasing openness and freedom of choice beyond the traditional boundaries are followed,
nowadays, by an increased uncertainty and vulnerability of markets, divergence of interests and constraints,
responsibility and risks associated to public decision. The complexity of the context requires a new style of
government, innovation and creativity in designing and implementing public policies. The simultaneous relevance
of globalization and localization, suggestively conveyed by the phrase “to think globally and to act locally with its
reverse, to act globally and to think locally”, has opened up the way to a “holistic” perspective in designing public
policies. Understanding the concept of “governance” as facilitating the change of perspective concerning the
governance, associated to the fragmentation and decentralization on different levels of public decision, the
existence of partnership and non-hierarchical relations redistributing public power and the implication together
with the government of the social partners in designing public policies, this paper intends to analyse the
interdependence between governance and entrepreneurship, and to demonstrate the importance of the
measures meant to encourage the entrepreneurship as instruments specific to economic growth and regional
development policies. Alongside investigating the governance and entrepreneurship interdependence in the
general context of the European model, the paper presents the context specific to Romania, whose European
integration requires, besides the complex process of policy transfer, the “learning” of new modes to “make” public
policies, characteristic to a multi-level governance and partnership culture, the integration of creativity and
flexibility together with rationality in the public decision making process, respectively. The paper concludes that
encouraging the entrepreneurship as an instrument specific to economic growth and regional development
policies, whose potential is not only under-estimated but also neglected in Romania, it could lead to more rapidly
“exit the crisis” and reconnect to the regional development mechanism. The paper presents research results
afferent to the post-doctoral research project: “Regional Growth and Development Economic Policies. Challenges
for Romania in the context of Economic-financial Crisis and European Model Integration”, carried out in the
project "Economic scientific research, reliance of human welfare and development in the European context”, the
Romanian Academy, “Costin C. Kiriţescu” National Institute for Economic Research, project financed for the
2010-2013 period from the European Social Fund (EFS), Sectoral Operational Programme for Human Resources
Development 2007-2013 (SOP HRD) and implemented by the Romanian Academy, “Costin C. Kiriţescu” National
Institute for Economic Research, based on the Financing Contract no POSDRU/89/1.5/S/62988; period of
implementation: 1 December 2010 – 30 November 2012.
Keywords: governance, public policy, entrepreneurship, regional growth, regional development
1. Introduction
Which is the role of governance in promoting entrepreneurship for fostering regional growth and
development? There are a large number of empirical studies dealing with the relation between
entrepreneurship and economic growth or development at the level of cities, regions and nations, but
nevertheless, few of these concern the developing and transition economies. In Romania, the lack
of research in this field is accompanied by the lack of practice in designing and implementing public
policies to encourage entrepreneurship, the lack of entrepreneurial mindset and the lack of societal
acceptance of entrepreneurship. After a difficult separation of the command economy and transition to
the market economy, facing the challenges of European integration and confronted with the economic
financial crisis, Romania is still far from a “holistic” perspective in designing public policies,
characteristic to a multi-level governance and partnership culture and specific to the current EU
perspective concerning governance. Understanding the concept of “governance” as facilitating the
change of perspective concerning government and public policies, associated to the fragmentation
and decentralization on different levels of public decision, the existence of partnership and nonhierarchical
relations redistributing public power and the implication together with the government of
the social partners in designing public policies, the paper intends to analyse the interdependence
between governance and entrepreneurship, and to demonstrate the importance of the measures
meant to encourage the entrepreneurship as instruments specific to economic growth and regional
development policies.
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2. Governance versus entrepreneurship and regional growth and
development: Literature review
There are many definitions of the concept of governance, but one important separation between
corporate governance and governance is always in discussion. Our analysis is focused on
governance that includes, according to the World Bank definition, the political institutions of a society,
state capacity and regulation of economic institutions (North et al. 2008). The interaction between
governance and entrepreneurship is intimately linked to the economic growth. Starting from the
general assumption in the literature on the contribution of entrepreneurship to job growth, economic
development, and well-being of the society, there is currently a general consensus facing challenges
of exiting the crisis and economic recovery, promoting entrepreneurship is a “major stimulus of new
employment” and requires a wide variety of stakeholders and support mechanisms, an
entrepreneurial mindset and a societal acceptance of entrepreneurship (The Global Entrepreneurship
Monitor 2010). In the category of “stakeholders” mentioned by The Global Entrepreneurship Monitor
2010: families and advisors, creditors and investors, suppliers and customers, including “nonentrepreneurs
with entrepreneurial mindsets”, the governance has an important role. Therefore, our
analysis will follow two relationships highlighted in the literature: the relationship between
entrepreneurship and regional growth and development, on one hand, and the relationship between
governance and entrepreneurship, on the other hand, to create the necessary basis for policy
analysis of stimulating the entrepreneurship in the EU and Romania in the context of economic and
financial crisis.
The relation between entrepreneurship and economic growth or development is a complex one,
entrepreneurship being viewed both as an exogenous and endogenous factor to the economic growth
or development. On the one hand, it is widely common in the literature, based on the Schumpeterian
thought, the idea that entrepreneurship affects economic outcomes through a type of production
function (as a fourth factor of production or through its impact on productivity of production factors or
through “creative destruction” of innovation etc.); on the other hand, economic growth creates
opportunities for entrepreneurs that will expand their entrepreneurial activity reinforcing economic
growth or, entrepreneurship can be stimulated by the economic rules of the game, institutional
framework (Urban 2010: 71-73). There are numerous empirical studies that investigated the link
between entrepreneurship and economic growth at the level of regions and national economy,
entrepreneurship and economic development, innovation, entrepreneurship and growth (Acs 2010).
Also, the role of the government in promoting entrepreneurship is a subject of controversy, starting
with the public economics premise that public action is a compensatory mechanism for the "failures"
of the market. Many economists are cautious or refrain from public action in this area. The argumentquestion
raised by Holz-Eakin and Rosen is relevant in this respect: “If it is hard for self-interested
venture capitalists to get it right, can the government do better?” (Holz-Eakin and Rosen 2004) or
more nuanced, Thurik’s warning “using the wrong lens leads to the wrong policy choice” (Thurik cited
by OEDC 2010). According to Parker, on one hand, there are economists against entrepreneurship
policies. Their argumentation is that in the absence of “market failures”, the free market will generate
efficient amounts of entrepreneurship, so public policies could become unnecessary and even
counter-productive; furthermore, the free market can sometimes generate over-investment in
entrepreneurial projects. On the other hand, commonly articulated rationale for pro-entrepreneurship
policies is that “market failures” (information imperfections, the free-rider behaviour in the field of
innovation, positive externalities of entrepreneurship, for example, business clusters, which
disseminate knowledge and innovation spillovers at relatively low cost etc.) can lead to insufficient
entrepreneurship, and more entrepreneurship is better than less because entrepreneurs create jobs
and innovations (Parker 2009: 405-406). Where social return exceeds private benefits positive
spillovers there is an underinvestment relative to the social benefit that can justify public actions
(Urban 2010: 77-79). Regarding the instruments used by governments to promote entrepreneurship,
instruments meant to improve the access to start-up finance and to innovation (loan guarantee
schemes, direct government interest subsidies, loans, grants etc.) are most frequently invoked,
to which regulation, tax incentives, entrepreneurial education programs, entrepreneurial assistance
and advice etc. are added (Parker 2009: 412). Beyond the precautions, which nobody denies, there is
the government policy’s focus on promoting innovation based on the assumption that
entrepreneurship is fundamental for the modern innovation process (OEDC 2010).
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3. Governance versus entrepreneurship in the general context of the
European model
The complexity of the changes early in this century in the European context, given the simultaneous
relevance of globalization, Europeanization, European integration, regionalisation and localisation,
suggestively conveyed by the phrase “to think globally and to act locally with its reverse, to act
globally and to think locally”, proposed by the OECD in 2006 and then very popular in everyday public
discourse, or by the metaphor of Helen and William Wallace of "the political pendulum” - European
versus national versus global (Wallace and Wallace 2000), has opened up the way to a “holistic”
perspective in designing public policies. The increased freedom in the movement of goods, services,
capitals, and people in the European Union, the increasing openness and freedom of choice beyond
the traditional boundaries are followed, nowadays, by an increased uncertainty and vulnerability of
markets, divergence of interests and constraints, responsibility and risks associated to public decision.
The complexity of the context requires a new style of government, innovation and creativity in
designing and implementing public policies.
In this context, as a facilitator of change of perspective, the concept of “governance” was born from
the need to cover multiple meanings uncovered by the traditional term "government" associated with
central based authority intervention and a system of power sharing and public decision hierarchy.
According to the European Commission, the concept of "governance" is associated with the different
levels of fragmentation and decentralization of public decision and the existence of partnerships and
non-hierarchical networks of redistribution of public power: public - private partnership (state
structures - business), social partnerships (government - employers – trade unions), civil partnership
(public authorities - civil society), and the implication, together with the government, of the social
partners in designing public policies. The widespread idea is that "governance" is a post-modern
concept that corresponds to post-modern economic and political organizations. According to Roderick
Rhodes, cited by the European Commission, the concept of "governance" is currently used with six
meanings a least “the minimal State”, “corporate governance”, “new public management”, “good
governance”, “social-cybernetic systems”, “self-organised networks” (European Commission 2007).
Therefore, using the concept of "governance" is currently very broad and versatile. European
research reports define "governance" as a government interaction with its environment, depending on
the area of interest, for example, the economic sector or civil society. From this point of view,
"governance" requires direct interaction with the business, employers' organizations, trade unions,
citizens, NGOs, etc. (Simons et al. 2004). The concept of "European governance" was launched by
the European Commission, when drafting the White Paper on European Governance, adopted in July
2001, which would include rules, procedures and practices affecting the way in which power is
exercised within the European Union, in order to adopt new forms of "governance", which would bring
the EU closer to its citizens, making it more efficient and stronger democracy in Europe and to
strengthen the legitimacy of EU institutions (European Commission 2001).
The current governance in the European Union - "European governance", in which coexist the nonhierarchical
policy-making, involving sub-national actors, national and supranational ("multi-level
governance), with the principle of subsidiarity, the partnership networks ("policy networks") and
specific instruments of public policy (hearings, consultations, debates, lobbying and advocacy etc.)
and the evaluation of public policies (ad-hoc evaluations, thematic or ex-post, performed by
independent external evaluators) is, in our opinion, the most illustrative example of different levels,
reconfiguring the state's role in the economy at the beginning of the 21st century. Analyzing the
development of the concept of "European governance", starting with the debates on the White Paper
on European Governance, continuing with the debate on the Future of Europe, the Lisbon Strategy,
the European Constitution, the Lisbon Treaty and, more recently, the Europe 2020 Strategy
(European Commission 2010a), we are assisting in setting up the different levels and different
locations of European governance, and emphasizing the role of networks in developing and
implementing policies. We can clearly see the transformation of the "European governance" into a
“multi-stakeholder governance” or "multi-level-network-governance" as a result of the combination of
the concepts of "multi-level governance" (Piattoni 2010) and "network-type governance" or "policy
network" (Börzel 1997). Acknowledging that growth has become the strategically most crucial
objective of the EU policy orientation under the pressure of “the crisis exit” and expediting recovery,
one of the issues to fostering growth is fostering entrepreneurship.
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There are many voices claiming that, unlike the U.S., whose policy is oriented towards
entrepreneurship with emphasis on competition and innovation, EU policy tends to focus on small and
medium-sized enterprises with emphasis on job creation and competitiveness (Urban 2010: 79) and
pays particular attention to the needs of the manufacturing industry. It also responds differently to the
EU policy challenges of globalization. These opinions do not surprise us if we take into account the
specific characteristics of the European model, which includes economic growth, political freedom and
social cohesion, combining "the principle of critical mass nonexplozive, conflicting principles and
values, such as the efficiency and equity" (Dinu 2010: 467) or if we analyze the inclusive nature of the
model concerning the inner rather than the global strengthening. Currently, there are 23 million SMEs
in the European Union, which represent 99% of all the businesses in the EU and ensure
two thirds of all the jobs in the EU (Eurostat 2010).
EU policy in support of SMEs is exhaustively expressed by the "Small Business Act" for Europe,
adopted in June 2008, providing a comprehensive SME policy framework, promoting
entrepreneurship and anchoring the “Think Small First” principle in law and policy making to
strengthen the SMEs’ competitiveness both at the EU and the national level, to promote the SMEs'
growth and development, alleviate the administrative burden, facilitate the SMEs’ access to finance
and support their access to new markets (European Commission 2008). The
Small Business Act for Europe has resulted in significant progress, such as: the improvement of the
business environment (through regulation), the increase of the EU’s role regarding the access to
financing (through financial instruments aiming to facilitate venture capital investments and providing
guarantees for loans to SMEs, SME Finance Forum etc.), the improvement of the access to markets,
particularly for the public procurement (through the development of more SME-friendly European
standards, reducing the administrative burdens when accessing public procurement and facilitating
joint bidding) etc.
In our opinion, the most important progress is related to entrepreneurship, that according to the
European Commission, “takes its place” in the new innovation policy (innovative actions for the
nascent and the new entrepreneurs in order to remove the barriers to "bringing ideas to market" with
emphasis on female entrepreneurship, and youth entrepreneurship) etc. (European Commission
2010b). The instruments include new financial instruments for start-ups and fast growing firms
expanding in the EU and on the global markets (loans, venture capital, risk-sharing finance),
affordable intellectual property rights, strategic use of procurement budgets, supporting internationally
innovative and competitive clusters etc. Of a particular relevance to our analysis is the EU concern for
encouraging regions in the fields of entrepreneurship and innovation, for ensuring complementarity
between the EU, the national and the regional support, and for finding specific niches in the
innovation field, based on smart specialisation strategies (European Commission 2010c). However,
the European Commission estimates that for "more needs be done”, both the EU and EU
countries should intensify their efforts to promote the entrepreneurship and the SMEs, the
Commission stressing the importance of “strong SME governance”, and giving a “clear role for
stakeholders” (European Commission 2011).
Revised in 2011, the Small Business Act for Europe sets out new actions to react to economic crisis,
in line with the Europe 2020 strategy: making the smart regulation a reality for the European SMEs,
paying specific attention to the SMEs’ needs for financing, taking a broad-based approach to
enhancing the market access for the SMEs, helping the SMEs to contribute to a resource-efficient
economy, and promoting entrepreneurship, job creation and inclusive growth (European Commission
2011). Special attention should be paid to further reduce the administrative burden: reducing time
and costs required to set up an enterprise in the Member States (the EU average is 7 days and €
399 in 2010), applying the "principle of the single document" and "one-stopshop”
to facilitate administrative procedures etc., that
stimulates investments, research and innovation, by facilitating access to the European programs
and different loan guarantee schemes.
4. Governance versus entrepreneurship in the context specific to Romania
facing the challenges of economic-financial crisis and the European model
integration
Romania is still far from the perspective of the European governance in designing public policies to
foster entrepreneurship. An obvious first cause is due to the status of the Romanian transition
economy, in which the business sector does not dominate business scenarios like in the EU. After a
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difficult separation of the command economy, in transition to the market economy, the business
creation process has been encouraged or inhibited in direct correlation to electoral cycles. A second
issue is related to the “second transition” undergone by Romania towards the EU Member State. It
requires a complex process of European integration, besides the complex process of policy transfer,
the "learning" of new modes to "make" public policies, characteristic to the multi-level governance and
the partnership culture, the integration of creativity together with flexibility and rationality into
the public policy decision making process. Vulnerability and uncertainty in front of "permanent
transition" of legal, institutional and political framework have a negative impact of business
environment and, nowadays, the adverse effect on business creation. While the EU is concerned with
refining and strengthening the SME governance, and giving a clear role to stakeholders, Romania is
unfortunately facing, at the present, the "short-sightedness" of entrepreneurship to the
government. As in the Romanian folk tale with "old man’s daughter and old woman's daughter", the
government is too preoccupied with reducing the public expenditure that appears to have completely
lost sight of "hardworking daughter" - the private sector, especially the SMEs, and its growth potential
is under-rated.
According to the National Institute of Statistics, the structure of the active economic and social
operators in the Romanian economy in 2008 is: enterprises – 55.3 %, private entrepreneurs – 30.6%,
private administration – 12.6%, public administration -1.5%. This shows that unlike the past, the
prevalence of the private sector is close to the EU average. The SMEs have played a crucial role in
the development of the private sector in the Romanian economy. The SMEs sector constantly grew in
Romania, during 2000-2007, getting to, at the beginning of 2008, almost 500,000 enterprises; the
majority is hold by microenterprises (88%). It is interesting to notice that, at the beginning of 2008,
due to the fiscal incentives practiced in Romania in the case of microenterprises on one side and, on
the other side, due to the stage of entrepreneurship implementation and also due to the increasing
number of enterprises, the weight of microenterprises in the total number of SMEs is much higher in
Romania than the European average, of about 50% (The Romanian National Institute of Statistics
2009). According to the White Paper on SMEs in Romania 2010, in 2008-2010, almost half of the
SMEs under scrutiny (the sample investigated is widely recognized as representative of the SMEs
sector in Romania), restricted the volume of their activity. The economic-financial crisis affected in
particular the 10 to 15 year old SMEs, the microenterprises and the SMEs from the industry field.
Only 7.30% of the SMEs investigated showed an upward trend, with the young SMEs and the SMEs
in tourism standing out in this category. It also shows that 41.77% of the entrepreneurs are deeply
affected by the crisis, which reached its peak in 2010. It is a matter of concern, in our
view, that 43.29% of the entrepreneurs considered that the government had reduced the
capacity to counteract the economic-financial crisis through appropriate measures.
Although nearly 40% of the SMEs investigated perceive Romania's EU integration as a major
opportunity, only about 3% submitted a project to access structural funds,
and only 0.54% received approval for the project submitted (Nicolescu et al. 2010). The
above conclusions show that unlike the EU where "more needs to be done”, in Romania there
is “still much to do” regarding the public policy for the SMEs sector.
There is good news, too. The Government Strategy for the development of the small and
medium sized enterprise sector, developed in a project financed by the Structural Funds by the
Ministry of Economy, Trade and Business Environment and publicly launched in February
2011, updated and adapted the policy priorities of Romania in the field of SMEs, new developments at
the European level in conjunction with the guidelines outlined by the Small Business
Act for Europe and the European Strategy 2020. The overall objective of the strategy is to support the
economic recovery and the development of the SMEs in the period 2011-2013 and
the 2013 strategic priorities are to improve the access of the SMEs to financing, to encourage the
innovative spirit of the SMEs and to increase their competitiveness, simplification and improvement of
the regulatory framework for the SMEs and cooperatives, the development of the entrepreneurship
education system, the improvement of the SMEs' participation in domestic and tertiary
markets. The measures, actions and sub-actions associated with these priorities, the
Government support are: to increase the number of SMEs with about10%, including an
increased number of SMEs per capita, to increase the average number of the employees in the SMEs
sector by 10%, to increase the SMEs’ export by 10%, to increase the labour productivity by 5% etc.
(Romanian Government 2010). Although very present, in line with the recent trends in the
literature on the instruments used to encourage entrepreneurship, the above mentioned government
strategy, which we hope will be implemented, not solve problems, particularly faced challenges of
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Anca Dodescu
“exiting the crisis” and economic recovery. The complexity of the context requires in the same time a
new style of government, innovation and creativity in designing and implementing public policies for
promoting entrepreneurship as a “major stimulus of new employment”, fragmentation and
decentralization on different levels of public decision, the existence of partnership and a wide variety
of stakeholders and support mechanisms, and not ultimately promoting the entrepreneurial mindset.
Acknowledgments
The paper presents preliminary research results afferent to the post-doctoral research project:
“Regional Growth and Development Economic Policies. Challenges for Romania in the context of
Economic-financial Crisis and European Model Integration”, carried out in the project "Economic
scientific research, reliance of human welfare and development in European context”, the Romanian
Academy, “Costin C. Kiriţescu” National Institute for Economic Research, project financed for the
2010-2013 period from the European Social Fund, Sectoral Operational Programme for Human
Resources Development 2007-2013 and implemented by the Romanian Academy, “Costin C.
Kiriţescu” National Institute for Economic Research, based on the Financing Contract no
POSDRU/89/1.5/S/62988;1 December 2010 – 30 November 2012; website: www.cerbun.ro.
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104

Re-implementing an Individual Performance Management
System as a Change Intervention at Higher Education
Institutions - Overcoming Staff Resistance
Marietjie du Plessis
University of the Free State, South Africa
marietjied7@gmail.com
Abstract: Higher Education Institutions face challenges requiring high levels of Individual Performance.
Performance Management is seen as a tool to ensure optimum individual performance. The history of
Performance Management in Higher Education has not always been one of acceptance and immediate success.
The research problem to the study was to investigate the effectiveness of the re-implementation of an Individual
Performance Management System at the University of the Free State, South Africa. Very little research has been
done (Bourne, 2002; Mee, 1998; Hudson, 2001) on the Implementation of Performance Management as a
Change Intervention. Change Management literature provides advice on the implementation of change (e.g.
Duck 1993), and why changes fail (Kotter 1996). However, according to Bourne (2002), there is a dearth of
research-based studies on Performance Management System Implementation. The study therefore investigates
the Re-implementation of Individual Performance Management Systems as a change intervention, utilising
Kotter’s eight steps for the creation and facilitation for successful change. The first three objectives of the
research were linked to the three phases of change, namely planning, implementing and evaluating the new
Performance Management system. The fourth objective was to make recommendations on how to minimise
employee resistance to individual Performance Management. The research was done as a case study. A mixedmethod
mode of inquiry was used by applying both qualitative and quantitative research methods to investigate
the research problem. The statistical data were collected by means of a questionnaire and an analysis was done
by using frequency distribution. Informal, face-to-face interviews were conducted about the main problem areas
identified by the quantitative analysis. A purposive, non-probability, judgemental sampling type was used with a
sample size of 443 staff members. The majority of the respondents (60%) agreed that the planning and
implementation phase was done effectively. Most respondents (53%), however, felt the system had not yet been
anchored in the culture of the organisation or embedded in individual value systems. The conclusion could be
drawn that the application of Kotter’s model for change contributed to the fact that most of the staff accepted the
re-implementation of a new Performance Management system. The model proved to be a diagnostic tool, which
can assist the managers to identify specific problem areas in each of the three phases.
Keywords: change management, performance management, leadership, staff resistance
1. Introduction
Higher Education Institutions face challenges requiring high levels of individual performance.
Performance Management is seen as a tool to ensure optimum individual performance. The history of
Performance Management in Higher Education has not always been one of acceptance and
immediate success. Although there are success stories around the implementation of new
Performance Management systems, there is also growing literature addressing the difficulties of
managing the implementation of Performance Management and it is claimed by some that 70% of
performance measurement initiatives fail (McCunn 1988).
2. Background to the research
The implementation of a comprehensive Performance Management system was firstly identified in
2002 as a strategic priority for the University of the Free State (Bloemfontein, South Africa). A
Performance Management system was developed for both academic and support staff to commence
during 2005 when the process was abruptly ended due to staff resistance. The main reason was that
staff was disillusioned by the complexity and time constraints of the performance review system. The
Management re-introduced a Performance Management system in 2007 and employed a
Performance Management Manager who utilises Kotter’s change model (1996) for implementing the
system.
3. Objective of the study
The research problem to the study was to investigate the effectiveness of the re-implementation of an
individual Performance Management system, utilising Kotter’s model (1996) for change. The four
objectives for this study were to investigate the sub-problems linked to the phases of change and to
make recommendations concerning employee resistance in this regard:
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Marietjie du Plessis
Planning: Were the steps relating to planning correctly applied?
Implementation: Were the implementation steps correctly applied?
Evaluation: Were the steps relating to sustaining and evaluating the process correctly applied?
Recommendations: Minimising employee resistance to individual Performance Management
4. Literature review
The literature review outlined how the Performance Management concept can be translated into a
Change Management approach and how change, learning and performance are inextricably
intertwined. Literature research on both Performance Management (Hale 2002; Härtel et al. 2007;
Houldsworth 2004; Buchner 2007) and Change Management (McKenna 2008; Dawson 2003;
Armstrong 2009; Zenger 2009; Kotter 1996, 2007) was conducted to cover the factors that have an
influence on the implementation of individual Performance Management and to identify success
factors and imperatives for the successful implementation thereof. According to Bourne (2002),
Bourne et al. (1999), Mee, (1998) and Hudson (2001), there very little research has been done on the
implementation of Performance Management as a change intervention. The change management
literature provides advice about the implementation of change, e.g. Duck (1993), and why change
interventions fail (Kotter 1996). Although there is no lack of literature on both Performance
Management and Change Management, Bourne (2002) indicates that there is a dearth of researchbased
studies on the implementation process of Performance Management systems as a change
intervention. The literature review therefore mainly concentrated on aspects that influence the
implementation of individual Performance Management systems and on change processes to
overcome staff resistance.
As a change intervention, Performance Management targets individual employees with the purpose to
enhance not only individual performance, but also to improve organisational performance. Williams
(2002), Hale (2000) and Rao (2008) identify important factors that play a role in the implementation
process of Performance Management, which must be complied with to minimise staff resistance.
According to their research, there needs to be evidence of the employee’s interest in the performance
practice. Successful communication about the practice is needed to result in mutual agreement and
involvement between manager and employee. They further stress the importance of the creation of
shared values, the nature and scope of policies and practices. As Performance Management is seen
as an instrument to change the culture of the organisation, the role that organisational culture plays
with employees, should not be ignored or underestimated. Performance Management is thus about
establishing a culture in which individuals and groups take responsibility for the continuous
improvement of the performance of the business by improving their skills, changing their behaviour
and performance (Armstrong 2009; DeNisi 2006). Performance Management should not be perceived
as something done to the employee, but rather something done for, or in partnership with employees.
The question that still prevails is, why do so many Performance Management systems fail? Bourne et
al. (1999, 2002) and Hudson et al. (2001) identify three main reasons for success and failure
regarding the implementation of Performance Management, namely: contextual issues, prosessual
issues and content issues.
Contextual issues
Contextual issues include higly developed information systems, time and expense required, lack of
leadership and resistance to change. Rao (2008) and Hansson (2003), in addition to Bourne,(1999)
state that inadequate managerial focus and insufficient managerial skills cause the biggest problem in
the implementation and sustaining of Performance Management systems. According to DeNisi (2006),
most of the time employees feel that they are at the mercy of their organisations’ Performance
Management systems and that appraisal systems do not help them to improve their performance.
Processual issues
These issues includes inadequate vision and strategy formulation, which results in the inability to
identify true drivers for both the individual and the organisation. According to Spangenberg (1994) and
Axson (2007), it is generally accepted that the formulation of performanced goals for teams and
individuals will not have the desired effect if developed in isolation.
Content issues
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These issues result from the fact that the strategy of the organisation is not linked to the department,
team or individual goals. According to Rao (2008), the fact that accountabilities are not linked to
multiple owners cause many problems, as no single individual can accomplish the entire task. He
concluded that the most important objectives of Performance Management should be: “To enable
each individual employee to plan his/her work for the entire year to ensure that he/she undertakes
productive activities, utilising his/her competencies in the best possible manner and contributing to the
achievement of departmental or organisational goals and results, while at the same time constantly
learning and developing ones own capabilities and enjoying work.”
The implementation of Performance Management brings focus to organisational change and
development, particularly regarding competencies and change in employees behaviour. As an
effective Performance Management system can facilitate change and innovation, it is important for
organisations to be able to lead successful change.
The literature review on change (Kotter 1996) has shown that some of the most common errors when
transforming an organisation are: (1) Allowing too much complacency, (2) Failing to create a
sufficiently powerful guiding coalition, (3) Underestimating the power of vision, (4) Undercommunicating
the vision, (5) Permitting obstacles to block the new vision, (6) Failing to create shortterm
wins, (7) Declaring victory too soon, and (8) Neglecting to anchor changes in the corporate
culture. According to Kotter (1996), these errors can be avoided by understanding why organisations
resist change and the multi-step process to achieve it, and how leadership is critical to drive the
change process.
Kotter(1996) breaks down the process of creating and leading change within an organisation into an
Eight-Step process of leading change. These steps are discussed under three phases, namely
planning, implementing and evaluating and sustaining.
The Planning phase includes Kotter’s first three steps to manage and lead change. The first step is
Establishing of a sense of Urgency. High levels of complacency and a low sense of urgency constitute
the two most significant impediments to change. Strong leadership and a high level of trust and
understanding is required to overcome complacency.
The second step deals with the Creation of the Guiding Coalition. According to Kotter (1996, 2007)
and Webber (1995), the construction of such a team is an essential part of the early stages of any
change effort. The right composition of individuals, level of trust, and shared vision is critical to the
success of this team.
The third step is the Development of a Vision and Strategy. According to Kotter (1996) and Wycoff
(1995), a good vision must clarify the general direction for change, motivate people to take action in
the right direction and lastly to coordinate the actions of different people. Dolan (2002) believes that
the main reason why many change processes fail is because of the lack of training and preparation
on behalf of corporate management in formulating strategy and in managing change.
The Implementation phase includes the next three steps of Kotter’s eight-step process to manage
change. The first step is the Communication of the Change vision. According to Kotter (1996), one of
the main obsticles is the fact that managers undercommunicate their strategy and vision for change.
Dolan (2002) sees one of the greatest challenges of the change process the participative construction
of new beliefs and values. Van Tonder (2008) and Williams (2002) have identified the importance of
feedback as a minimum requirement for the establishment and maintenance of personal control and
for the development and utilisation of skills.
The second step in the implementation phase is the Empowering of Employees for Broad-Based
Action. According to Kotter (1996), employees feel empowered when they can participate in decision
making, which will result in commitment to change initiatives in particular. Education and training play
a valuable role in the empowerment of employees.
The last step of the Implementation phase is the Creation of Short-term Wins. The generation of small
victories must be planned and can motivate employees to continue with the change effort. One of the
main problems in change interventions is that victory is too soon declared.
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The Evaluation and Sustain phase includes the last two steps of Kotter’s eight-step change process.
The first step of this phase is to Consolidate gains and to Produce more change. This step might be
the most difficult to accomplish. Kotter (1996) suggests that more change should be introduced with
more resources to ensure success and to ensure that the change process does not lose momentum.
The last step is the Anchoring of New Approaches in the Culture. The real key to lasting change is not
in just changing the vision or mission statements, but in changing the organisational culture itself. It is
important to remember that performance and culture are interdependent and mutually supportive and
leaders must consider both performance and culture when designing change initiatives. Kotter (1996),
Smit (2007) and D’Amanto (2009) state that culture only changes after you have altered peoples’
actions and people have benefited from these changed behaviours.
The literature review on both Performance Management and Change Management guided the
researcher to investigate and evaluate the Implementing of a Performance Management system,
utilising Kotter’s planned Change Model at the University of the Free State.
5. Methodology
The research was conducted as a case study. A mixed-method mode of inquiry was used applying
both qualitative and quantitative research methods to investigate the research problem. This method
allowed the researcher firstly to establish attitudes of participants towards the implementation of
individual Performance Management and then to follow up on the questions posing a low satisfaction
rate with in-depth interviews to learn about individual perspectives on the topic. Statistical data were
collected using a 5-point Likert-scale questionnaire, whereafter data were compiled to do a frequency
distribution analysis. The average mean score was calculated using SPSS18.0. All the items were
clustered whereafter a calculation of the descriptive was made. The targeted population was 443
members of staff who have already re-implemented the individual Performance Management system
during 2007 to 2009 at the UFS. Self-developed questionnaires, based on the sub-problems, were
handed out to 200 staff members in different faculties and support services, which are representative
of the target population. Topics and trends identified from the questionnaire were identified and used
for structured individual interviews. The interviews were audio taped and transcribed by the
researcher.
A pilot test was conducted to detect weaknesses in design and instrumentation, using two focus
groups to ensure that no misinterpretation is possible. To provide validation for the qualitative
findings, the researcher used triangulation to combine and compare qualitative and quantitative
methods to see to which extent the findings agree with one another.
5.1 Descriptive statistics of sample
The distribution of questionnaires to different faculties and support services is provided in Table (1).
The affiliation of the sample is visually presented in Figure (1).
Table 1: Distribution of questionnaires
*Academic Faculties
*Faculty A
Faculty B
Faculty C
*SS 1
Faculty D
2
Faculty E
N
n %
199 13 6.5
199 26 13.1
199 49 24.6
199 11 5.5
199 69 34.7
199 8 4.0
199 23 11.6
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*SS: Support Services SS
Figure 1: Affiliation of sample
6. Research findings
Marietjie du Plessis
The results of the quantitative analysis will be illustrated graphically according to the three phases,
planning, implementing and evaluation, and sustaining phases. The findings from the qualitative and
quantitative analysis will be discussed accordingly. The recommendations will be provided in each
phase.
6.1 The planning phase
Sub-problem 1: Were the steps relating to planning correctly applied?
According to the quantitative data, the average mean scores from the questionnaires evaluating the
steps relating to the Planning phase were 3.6 (figure 2). The following deductions were made:
Respondents do not view top management as to be a powerful guiding coalition in the
implementation phase of the new performance system.
Respondents were not aware of faculty/departmental members’ involvement or that they were
invited to explain their needs when the new Performance Management system was designed.
The qualitative data indicated that:
Respondents felt that line managers lack leadership skills and commitment.
Respondents view leaders to be uncertain about the vision and strategy of the Performance
Management process.
A summary of the mean scores of the Planning phase is indicated in figure 2.
6.1.1 Recommendations on the planning phase
Lack of Urgency
According to Kotter (1996), the biggest mistake people can make during a change intervention is to
start the process before a high enough sense of urgency has been established. Complacency is the
biggest resistance factor to overcome in a change intervention, especially if there is no major or
visible crisis.
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X-axis: Mean Score: Planning Phase
Marietjie du Plessis
Y-axis: Item Response Mean
Figure 2: Mean scores: Planning phase
Recommendations:
Top management must clearly state the level of priority for the implementation of Performance
Management, underlining it with research on macro-environmental analysis.
Management should ensure that they have enough time and resources to implement and enforce
Performance Management systems.
Increase communication frequencies to staff on the importance and need for Performance
Management systems.
Ensure that the guiding coalition is committed to the implementation of the Performance
Management system.
Lack of Leadership and Management
According to Rao (2008) and Hansson (2003), inadequate managerial focus and skills cause the
biggest problem in the implementation and sustaining of Performance Management systems.
Recommendations:
The management of Performance management must be formally decentralised to Line Managers.
Many managers still perceive Performance Management to be primarily the responsibility of the
Human Resources Department.
Intensive training for line managers, specifically in the management of individual Performance
Management systems and effective feedback.
Leaders must model the desired change in behaviour and performance in such a way that
employees would want to emulate it.
Unclear Vision
According to Spangenberg (1994), Axon (2007) and Kotter (1996), a clear vision, which is shared and
understood by staff, will not only motivate and coordinate the change initiative, but will also support a
common understanding of the institution’s goals and intended direction.
Recommendations:
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Marietjie du Plessis
Training sessions to clarify the vision and strategies of Performance Management systems.
Increase staff involvement in the formulation of performance goals and the implementation
process of Performance Management.
6.2 The implementation phase
Sub-problem 2: Were the implementation steps correctly applied?
According to the quantitative data, the average mean scores from the questionnaires evaluating the
steps relating to the Implementation phase were 3.56 (figure 3), indicating the following areas as
concerns:
Respondents do not feel to be important role players in the implementation of Performance
Management.
The communication channels do not to provide enough information on the status and progress of
the Performance Management system.
The institutional and personal benefits of the individual Performance Management system were
not properly explained.
Respondents do not utilise/or are not aware of the support systems available to them to discuss
problems regarding the new performance system.
Respondents seem to have problems understanding the Performance Management
documentation.
Respondents were not able to complete their Performance Management plans during and after
the training sessions.
Respondents felt that they did not receive encouragement by their immediate line managers.
During the interviews, further concerns were reported:
Line managers seem to be not committed to the implementation of Performance Management
Ineffective communication and feedback from top management and line managers
Employees do not receive inadequate recognition for implementing Performance Management.
The process takes too long
The mean scores of the Implementation phase are indicated in figure 3.
6.2.1 Recommendations on the implementation phase
Communicating the change vision
According to Kotter (1996), the biggest problem in communicating the change vision is that the
usefulness of feedback is ignored, which lead to employees feeling unimportant. Most of the
interviewees elaborate on the ineffective communication between their line managers and
themselves, as well as top management. Increased communication from top management to establish
a shared understanding of the vision, strategy and intended behavioural changes, which are needed
for performance.
Recommendations:
Training on effective performance feedback should be communicated as a priority to ensure
effective implementation of Performance Management.
Communication channels must be open and safe and information must be distributed to all levels
of the institution.
Empowering broad-based action
According to Kotter (1996), becoming empowered refers to individuals gaining confidence, feeling
they have something to offer, knowing how to put across their ideas, how to take responsibility and to
become active and involved. The findings from the research indicated that there are still many staff
who is not 100% sure of the rationale and motivation behind Performance Management.
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X-axis: Mean scale of Implementation Phase
Marietjie du Plessis
Y-axis: Item response mean
Figure 3: Summary of the mean scores of the implementation phase
Recommendations
Performance management training should be provided for homogenous groups sharing the same
needs and requirements for their situation. Line managers should attend the training sessions
with their staff.
Train additional staff to support line managers in the management of Performance Management.
Provide training to employees to develop coaching and counselling skills, leading teamwork and
the management of employees’ career paths.
Plan additional training to forge what employees have already learned.
Line managers should not let the interval between training and practice become too long.
Documentation and information must be easily understandable and customised.
Increase employee involvement in decision making to let them feel that they have ownership in
the new system.
Creating Short-Term Wins providing recognition
Because change takes time, nonbelievers want to see clear data indicating that the changes are
working. The creation of short-term goals and celebrating performance improvements will not only
motivate people to continue with the change process, but also build momentum (Kotter 1996).
Recommendations
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Marietjie du Plessis
Line managers consistently need to reward and recognise improved behaviour and better
performance, e.g. publications in internal media, recognition at faculty/departmental meetings and
by delegating more responsibilities and authority to staff.
The change to a new Performance Management system should continuously be reinforced by all
levels.
6.3 The evaluation and sustaining phase
Sub-problem 3: Were the Steps related to sustaining and evaluating the process correctly applied?
Kotter (1996) warns that until changed practices attain a new equilibrium and have been driven into
the culture of the organisation, they can be very fragile. Once regression begins, rebuilding
momentum can be a daunting task. Progress can be stalled mainly because of organisational culture
and an increased interdependence that is created by the fast-moving environment.
According to the quantitative data, the average mean scores from the questionnaires evaluating the
steps relating to the Evaluation and Sustaining phase were 3.29 (figure 4) and proved to be the lowest
of the three phases. The following areas were indicated as concerns:
Respondents seem to feel that there were no clear changes in the way they do their work as a
result of the implementation of the new Performance Management system.
Respondents seem to feel that the Performance Management system has not stimulated them to
reflect on new or better ways to do their work.
Respondents do not receive regular feedback from their line managers.
Respondents do not view the related policies to be effectively linked with the new Performance
Management system.
During the interviews, further concerns were reported regarding the evaluation and sustaining phase:
Assessment of performance plans did not take place, because performance plans were not
signed off.
Line managers did not complete their own performance plans.
X-axis: Mean scale of Evaluation and Sustaining phase
Y-axis: Item response mean
Figure 4: Mean scores of the evaluation and sustaining phase
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Marietjie du Plessis
6.3.1 Recommendations on the evaluation and sustaining phase
Consolidating gains and producing more change
According to Kotter (1996), to consolidate gains and to procure more change might be the most
difficult to accomplice. Strong leadership and management are needed to provide a strong focus on
the purpose of the change initiatives by keeping urgency levels high. The implementation process of
Performance Management should be monitored to ensure sustained effectiveness and continuous
change.
Recommendations:
Appoint a willing and capable staff member in each department to assist Human Resources, the
performance manager as well as the line manager with the implementation and monitoring of
Performance Management.
Increase control mechanisms to ensure that annual and half-yearly discussions take place.
Delegate work downwards and sideways to empower employees.
As employees mirror their manager’s behaviour, it is imperative that managers should display
courage and perseverance to manage effectively with the Performance Management system.
Schedule additional training sessions to equip managers with motivational and coaching skills and
communication skills.
Managers should recognise good performance through rewards and recognition.
Anchoring new approaches in culture
Kotter (1996) warns that culture is not something that can be manipulated easily. Culture changes
only after you have successfully altered people’s actions, after the new behaviour produces some
group benefit and after people see the connection between the new actions and the performance
improvement. If employees do not experience any changes in their work situation, as the result of the
implementation of Performance Management, they will not be able to contribute to a new performance
culture.
Recommendations:
Line managers have to give effective feedback on performance to assist staff to change their
behaviour and improve their performance.
Provide more training to ensure that all staff must understand the relevance, benefits and
importance of effective Performance Management systems.
7. Conclusion
The researcher conducted this research to investigate the success and/or failure of the planning and
re-implementation of an individual Performance Management system at the University of the Free
State. The research placed emphasis on the importance of the planning, implementation and
evaluation and sustaining phases of organisational change and suggested ways of dealing with these
aspects. The research further indicates that the implementation of Performance Management should
be planned and managed as an ongoing change process. It further proves the importance of
managing the implementation of a Performance Management system as a change process lead by
transformational leadership. After analysing the implementation processes used for the reimplementation
of Performance Management systems at the University of the Free State, the
conclusion that could be drawn is that the application of Kotter’s model for change contributed to the
fact that most of the staff accepted the implementation of a new Performance Management system.
The model also proves to be a diagnostic tool that can assist the managers to identify specific
problem areas in each of the three phases. This empowers the performance manager to adapt and
improve the process continuously. Performance management systems will never be perfect and must
adapt and change as the organisation changes and evolves
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115

Influences of the Organizational Culture on Academic
Management Change and Development in Classical
Universities
Carmen Sonia Duse, Dan-Maniu Duse and Catalin Nemes
Lucian Blaga University in Sibiu, Sibiu, Romania
carmen.duse@ulbsibiu.ro
dan-maniu.duse@ulbsibiu.ro
catalin.nemes@ulbsibiu.ro
Abstract: This paper sets out to present the defining elements of the cultural dimensions in a classical University
in Romania (“Lucian Blaga” University in Sibiu) and their influence on the change and development program of
the university’s management. Management change and development are considered under the umbrella of the
new educational law (Law nr. 1/2011) that came into force in Romania. Ideas that resulted by using the threedimensional
morphological matrix with the axes: organizational culture – organizational change – cultural
intensity development are analysed and presented in five distinct hypostases of the five cultural dimensions
promoted by the Dutch researcher Geert Hofstede. Expected results of the research are connected to
discovering the activities that allow organizational, institutional and academic management change according to
the cultural specifics and to the new national education law.
Keywords: academic management, change and development, classical university, organizational culture,
education law
1. Introduction
The study on organizational culture in LBU was done during November 2010 – January 2011, by
interviewing a number of 648 academic staff members from all faculties that compose the University.
In order to determine the research sample, the stratified sampling and percentage based on
percentage quotas were used. The questionnaire used to determine the cultural dimensions was
based on the works of Dutch researcher Geert Hofstede (2005). The research had the following
objectives:
Determining the typology of the organizational culture in LBU;
Highlighting the values of the academic staff;
Creating a base for comparing with other academic organizational cultures, in different contexts;
Identifying the action areas for managers in order to increase education and research quality;
Drawing the necessary conclusions for managers to resize and capitalize on the elements of
organizational culture.
The following hypotheses were considered in approaching the research:
H1. The cultural dimensions of LBU will converge with those at national level, meaning high power
distance, femininity, collectivism and high uncertainty avoidance.
H2. A culture oriented towards feminine values and a relatively high uncertainty avoidance shape the
profile of employees where the need for security, engagement, a positive working climate and an
accent on communication and motivation prime.
H3. In a culture with highly collectivist values and with a tendency for femininity, the community
members will be preoccupied in assuring client satisfaction; the individual will be engaged and will
respect the common values of the group.
H4. Individuals from a collectivist culture prefer the security provided by the living environment and
will respect the existing traditions of the group.
After processing the results, for the LBU, the following dimensions were determined.
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2. The organizational culture of “Lucian Blaga” University
1. Collectivism. At university level, there is a strong collectivism (68.18%). The closest explanation
could be the correspondence between the researched dimension and the results at national level. For
a collectivist society, the most stringent requirements regarding the work place are:
To benefit from periodical training to improve performance or even gain new abilities;
To have good physical working conditions;
To be able to fully use your qualifications and competencies.
Collectivism is more favoured by academic staff aged 35-45 that have been within the organisation for
11-15 years.
Results are a little surprising, because you would expect, talking about an university, that a higher
arrogance would exist amongst academic staff and a higher wish to be seen as “the best”.
Like Geert Hofstede said, “in a collectivist society, there is a stress for adapting to the skills and
virtues necessary for being accepted as a member of the group. This leads to a reward for tradition
results.” Without being a traditional university, in the true sense of the word, LBU still has a 22o year
old past behind and if we take a look at the fundaments on which the modern university was built, at
the faculties that existed, we are looking at almost half a century.
The management in a collectivist society is a group management. For collectivists, the identity makes
sense and is defined in relation to others. It derives from the group identity and the relations with
others, which cannot be separated by particular situations or contexts.
Thus, the measure to which the participants feel emotionally integrated is important. If the group is
based on emotionally common interests, the bonuses and stimulants given must be accessible to all
group members, otherwise conflicts can occur. Then the individual appraisal of performances can
come to contradict the group harmony and good relations, and if the appraisal result is negative, the
individual comes to consider that they have been hit in their group image, in losing their prestige.
The management is required to very correctly find a way to require the involvement and participation
of the employees in order for organizational objectives to be reached.
2. Femininity. Without being a very strong one, the score for the entire university is 59.09% in favour
of femininity. The lowest scores were obtained by the Faculty of Medicine (27.27%) and Engineering
(31.81%), while the most feminine groups are the Educational Science Department (63.63%), History
and Patrimony (77.27%) and Journalism (79.5%).
At national level, the femininity dimension, with a collaborative working environment where all
participants are sustained, regardless of their contribution. The relatively short period of prosperity for
the Romanian society, with certain welfare led to the sprout of some masculinity “blossoms”. But the
Romanian culture is not homogenous, because it presents masculine tendencies starting right from
the accentuated differentiation between the behaviour of the two sexes. More, there is even a set of
profoundly feminine representations, like equalitarianism, negative vision on rich people, convenience
etc.
The obtained score, with a strong accent on femininity should give a pause for thought for managers.
Considering the conclusions according to which, organizations with a masculine culture tend to a very
efficient society while organizations with a feminine culture tent towards a prosperous society, the
accent on career is visible. Without any doubt this tendency can speak about the involvement of
academic staff mainly in the didactic activity, which is able to bring material success, whether it is
teaching or other activities. But performance is not only measured in money, but mainly in the quality
of the research done, of published papers, participation at conferences etc. So the accent should
move from a horizontal development of the university to a reduction of study programs and a more
profound involvement of the academic staff on strictly specialized domains.
A new direction can be seen here, that university management needs to take, in the sense of
changing the organizational culture and moving from femininity towards masculinity. But in this stage
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of the culture, the leader of a feminine society should himself be an exponent of feminine culture.
Otherwise, relationships would be based on confrontation and conflicts.
3. Short term orientation of the university refers to identifying the concerns for keeping certain
traditions within the institution in order to fulfil the social obligations as much as the system allows it
through its specific norms, rules and laws. Short term oriented cultures accentuate femininity,
personal stability, a good reputation, social finesse.
By analysing the questionnaires, a short term orientation of the interviewed staff is visible (59.09%).
By faculty, short term orientation is visible in Medicine (84%) followed by the Faculty of Journalism
(79%). But the Educational Science Department is, with 29.5% long term oriented, and followed by
Economic Sciences (25%) then Law and History (18.8%). Women tilt the scale towards short term
orientation, as well as members who have been with the organisation 11-15 years.
What is this telling us? Most certainly, fast results are expected, that the general opinion is that of a
low savings rate and little money for investments is accepted. Short term orientation involves, on one
hand the respect for tradition, to fulfil social obligations, and on the other hand the lack of rigor,
neglect and all this will determine a very little rigorous planning of human resources and only on the
short term. But this has to alert the management, which has to consider the way in which promotions
are granted, because this falls under a rigorous planning of human resources.
The conclusion can be drawn that universities will have a hard time planning on the long term and will
prefer to use past experiences to solve present problems.
4. Low power distance. Research has revealed a medium-low distance to power (51.82%), as
opposed to the national dimension. Faculties with a higher power distance are Engineering and
Medicine, followed by History, Law and Theology. But it must be noted that obtained values are just
below the median (50%), so we are not talking of a truly high power distance between the faculties’
management and the academic staff.
Middle aged employees (35-45 years) see the power distance smaller as those under 35 or above 45
years old. Men also feel closer to power.
How could this situation, the differentiation of this dimension, be explained? A possible answer could
be given considering the resultant feminine dimension. We can assume that the hierarchical system
has only the role of conventionally set inequality. As roles can change, he who is my boss today could
be my subordinate tomorrow.
Relationships with students have also suffered modifications lately, both formally and informally. The
“docile, willing to listen” student type has passed. Students now expect to be treated as real dialogue
partners, they get involved, they contradict, combat, come with new solutions, all this with effects
regarding power distance. The closest distance is noticed at Political Sciences, Sciences, Economic
Sciences and Educational Science Department.
We must not understand that the authority of superiors is minimized Managers with low power
distance are regarded as an authority pole, but they lack the worship associated with high power
distance.
5. Uncertainty avoidance at university level (77.27%) is in accord with the national one. Most faculties
and groups have scores above 50% for high uncertainty avoidance. The most visible is the Faculty of
Economic Sciences, Theology, Journalism and Political Sciences. This situation is understandable if
we consider the current situation in the educational environment, both universities and pre-university
education.
Women have higher uncertainty avoidance (63%), as well as people aged 46-55 (59%).
All these are signs of a wish for uniformity and standardization. In such a culture, managers have a
low tendency towards individual risks and decisions.
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The values promoted by the academic staff in LBU are: order, network, survival, learning, personal
success, safety, people and lastly power.
The organizational values ranked as follows:
First place is for “lawfulness” (79.9%);
Followed by professionalism (73.3%);
Respect (71.7%);
Quality of work done (70%);
Competency, perseverance, security and continuous learning (70%);
Responsibility (69.3%);
Gained performance (69.1%);
Pleasant working climate (65.5%);
Work ethics (65.1%);
Being organized (65%);
Work autonomy (64.7%);
Efficiency (64.4%);
Discipline (69.3%);
Engagement/involvement (68.5%);
Correctness (60.3%);
Client satisfaction, trust and tradition (59.9%);
Innovation/creativity (54.5%).
All these values talk about work consciousness and the seriousness of the academic staff. But what is
in fact the link between the organizational culture, the personnel values and the organizational
change, or how do they influence performance management within the organization?
3. Change and development in the “Lucian Blaga” University
It is common knowledge that a strong culture, with deep roots and carefully connected to the
organizational strategy, but also with the tendencies of the external environment, will always bring
success to the organization, while a weak surface culture is mainly an obstacle in constructing an
organizational strategy (Sackmann, 2001). In this context, culture has a double role: it creates internal
unity and helps the organization adapt to the external environment.
In order to better understand how the culture of LBU works, we must accept these cultural dimensions
as being variable between certain set limits (Fig.1). This means that we can accept that the
dimensions can have different numeric values and the management must accept all fluctuations and
foresee solutions for each one of them.
Low collectivism, low wish for change:
Weak links exist between individuals, communication is formal, and there is a low wish for change. A
dangerous status-quo appears within the organization. Management is forced to act in order to
achieve group cohesion and a step by step acceptance of small organizational changes.
This step has the risk of insular thinking, where individuals in the organization consider that only they
have answers for all questions, and everything that doesn’t fall under their acceptance must be
aborted.
Low collectivism, high wish for change:
Individuals do not find their place within the organization; small spurts of increased individualism
appear. Change is demanded and caused, because the organization is focused towards the external
environment. Management can make changes, but attention to the frail organizational culture is
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required. Low collectivism can easily fall apart, leading to the organization’s demise. Also, conflicts
are inherent, with all their effects, sometimes even dramatic.
High collectivism, low wish for change:
Figure 1: Morphological matrix of organizational change
Inevitably, the climate is highlighted by group unity, with maintaining the current status. There is a
high expression of femininity. Correlated with high uncertainty avoidance, change can sometimes be
completely blocked. There is a high risk for bureaucratization because of this pronounced
conservatism.
What should the management’s reaction be in such a situation? Most certainly, a plead for
implementing step by step changes, according to the new education law. This must be done by
appealing to emotional arguments, by creating pro-change waves. Management must also accept the
idea that change will be done in small but constant steps.
There is a risk of turning into a bureaucratic organization, with all the subsequent consequences.
High collectivism, high wish for change:
For the current situation in Romania, this is the ideal state, because current legislative provisions
require compliance and subjection to the new objectives. If this collectivism would proactively
manifest itself for change, the first thing that would be easily set into practice would be the
remodelling of the university, its reorganization under closed organizational structures which will have
a more consistency, both scientifically and educationally.
In such a situation, the manager will have the sole task of moderating and tempering eventual
enthusiasms that could set unbalances.
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Correlating the obtained results with the cultural dimensions, it is clear that LBU is now at C21, with all
the pros and cons that derive from this situation.
The organization’s femininity can also be linked to change:
Low femininity, low wish for change:
The characteristics are those of a collective with weak links between participants, with a certain
communication, mainly formal. Because of a low wish for change, the members seem more like
passing actors in the organization, rather than its stakeholders, set to build its future. Without the
attributes of masculinity, so without the wish to build a strong career path, the participants in the
organization act only to conserve a mediocre state of art, concerning both relationships and personal
development.
The manager’s task in this situation is to create necessary motivation for the members of the
organization. We could also consider eliminating some of them who do not bring a certain added
value in order to foster the self-accomplishment of the others.
Low femininity, high wish for change:
This is a very unlikely situation, because femininity is characterized by certain stability. The members
of the organization favour good relations and stability that insures the necessary organizational
comfort. Without high personal ambitions, without vanity, a change of the status quo is not required, if
they already have the necessary climate.
High femininity, low wish for change:
This is the classic case, specific to feminine cultures, where a state of the art considered favourable
for group consensus is maintained. Individuals accentuate the stability of the organization, plead for
group harmony and sometimes even oppose welcoming new members into the organization in order
to prevent any perturbation in the organizational balance. If initially such a situation seams favourable
for the organization, in time it will have a negative effect, because of the lack of change. The
organization is and must be seen as an open system, with constant interference with signals from the
external environment, but in this case signals are blocked, inhibited.
The management of such an organization has the task to build masculinity poles within the
organization either by introducing new members who adhere to the masculine culture or by provoking
those members within the organization who can be steered towards areas of change acceptance.
Attention is required in order not to damage the organizational culture.
High femininity, high wish for change:
Again, a very unlikely situation, because femininity appreciates stability, without inflexions, without
new challenges, with a high wish for leaving things the way they are.
Without any doubt the management will have a hard time applying the reforms provided by the
Education Law nr.1/2011, because the participants in the organization will not easily accept change.
This is much more difficult because, in order to have chances of success, change had to be done
slowly, over a long period of time in order to keep the organizational balance. But the current situation
does not allow for this, as now, in just a month’s time, the classification of universities and the ranking
of study programs must be done in Romania, and it has already stirred numerous discussions,
controversies and even conflicts.
What could empower management is the fact that the first place in the promoted values is lawfulness,
which means respecting the law. This leads us to believe that, even though they do not agree with the
way that change is operated and they do not share the vision of the current ministerial leadership,
members of LBU will still accept to produce the changes that are imposed. It remains to be seen how
these changes will reflect in the femininity of the organization and if they will disrupt the organizational
balance. Also, the promotion of those values which could make change viable and accepted
throughout the entire organization is critical (Davidson, 2001).
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Uncertainty avoidance is another dimension which can easily contradict the change proposed by the
new ministerial educational policy. It is accepted for education that applied reforms must first be
experimented on small groups of subjects, in order for them not to disrupt the system on a large
scale. In our situation, a series of measures are applied, which cannot be found anywhere else in
Europe and the effect of which is, currently, very little foreseen and can under no circumstances be
interpreted as favourable.
Small power distance translates to change by a general lack of appetite towards change. Members of
the organization have the courage to inform their leaders on the lack of involvement in change and it
is supposed that common general opinions exist on this topic. In organizations with low power
distance and high uncertainty avoidance, the manager’s authority is supreme and all activities are
done according to well set rules. Taking risks is not cultivated and thus, unwanted. Without any doubt
that just this risk taking brought by the new vision on education is the one that will cast a shadow on
change, making it hard to accept if not even to be completely rejected by the analysed organization.
4. Conclusions
Of course we must accept the idea that no organization has a monolithic culture, but a mix of cultures,
consisting of the analysed cultural dimensions in various proportions. As such, the interventions in
order to achieve change can have unsuspected and different effects in the subcultures that compose
the University in Sibiu.
The high uncertainty avoidance can be exploited by the university management in the sense that the
organizational members will see their jobs threatened if they do not comply. The problem is if the
managers themselves see change as beneficial? Because if they are not convinced by its utility in the
way the new education law shapes the educational path, meaning the imposed classification of
universities and the ranking of study programs, the change will definitely be criticized, contested and
rejected.
The organizational culture changes because of the organization’s need to adapt to environment
changes, but for this to be possible, it is required that values, norms and cultural dimensions allow for
flexibility.
The process of organized and intentional change of an organization, in our case of the whole
educational system the way it is seen by the new educational law, requires a careful analysis of the
elements that will perpetuate change and will contribute to it. Attention must also be given to the point
of origin for the change: people, structure or organizational procedures.
References
Achua, C. and Lussier, R. (2010) Effective Leadership, Fourth Edition, South-Western CENGACELearning.
Davidson, H., 2001, The Commited Enterprise: How to make Vision and Values to Work. Butterworth-
Heinemann, Oxford
Duse, D.M. (2006) Organizational Culture Incentive for Academic Staff Development, in 2nd W4SEAS
International Conferences on Educational Technologies (EDUTE 2006), Bucharest, Romania.
Duse, D.M. (2006) Academic Staff Development Through Organisational Culture, in European Society for
Engineering Education SEFI 2006, June, Uppsala Suedia.
Everard, K.B., Morris and G., Wilson, I. (2009) Effective School Management, Fourth Edition, SAGE Publications
Ltd, London.
Greenberg, J. and Baron, R. (2010) Behavior in Organizations, 10th Edition, Pearson Education Limited, London
Hofstede, G., 2005, Cultures and organisations: Software of the Mind, Revised and expanded 2 nd Edition,
McGraw-Hill, New York
Mc Caffery, P. (2010) The Higher Education Manager’s handbook, Second Edition, Routledge Taylor and Francis
Group, N.Y.
Sackmann, S., 2001, Cultural Complexity in Organizations, John Wilez & Sons, Ltd., New York
Talbot, M., 2000, Make your Mission Statement Work: How to Identify and Promote the Values of Your
Organisation, How to Books, Oxford
122

Structural Capital and Project Processes: Areas for Future
Focus
Barbara Edington 1 and Beth Ouellette 2
1 St. Francis College, Brooklyn Heights, USA
2 The Ouellette Group, Short Hills, USA
bedington@stfranciscollege.edu
beth@ouellettegroup.com
Abstract: Regardless of the research and compilation of standards regarding the best practices of project
management, projects continue to run behind schedule, over budget as well as cause untold stress amongst
team members. With all of the accumulated knowledge, why do projects continue to cause such difficulty? Is
there a disconnect between the research and the application of the outcomes suggested by the research or are
the practical needs still unaddressed by the research? While the project management standards, such as the
PMBOK©, provide guidelines (the “what to do”) they do not address the mechanism for collaboration and the
means of integrating the project’s processes with the existing operational business processes of the corporation.
In other words, the guideline for project process groups needs to be considered in light of a firm’s unique
structural capital. This paper uses exploratory research to posit a framework for more detailed research efforts
within the broad subject area of structural capital as applied to the standards of project management outlined in
the PMBOK©. A global survey of project participants in various industries is the basis for the analysis. Future
research needs to be driven by the practical problems which are not satisfactorily addressed by a theoretical
approach. This paper aims to provide the framework for future applied research efforts.
Keywords: structural capital, project management, processes, business processes, PMBOK
1. Introduction: Problem statement
Despite all of the standards, best practices and frameworks for success, projects continue to fall
behind schedule, exceed budget and fail to be considered successful (Cooke-Davies T. 2002; The
Standish Group, 2001; Pourdehnad, 2007; Economist Journal 2005). If all of these efforts have not
stemmed the tide of failing projects then we must examine the mechanisms of research and industry
standard compilation to identify the factors which may play a role in the disconnect between the
theoretical guidelines and the reality. With so many potential individual variables and relationshipdriven
variables, the best methodology to begin this type of review is exploratory research.
2. Methodology
2.1 Exploratory research
When a problem has a broad range of factors that impact its study, initial research efforts must cover
a wide breadth in order to capture the many possible scenarios which may elicit variables that have
not yet been assessed. Exploratory research can provide the first insights to the direction for more
granular studies. Many variables have been identified as factors in a project’s success or failure. The
problem, simply put, is that the research and the reality are not matching up. When business
enterprises attempt to implement the well-known frameworks for project success such as the
PMBOK©, they often encounter great difficulties and at times the standards are just not applicable to
the business situation and therefore the project guidelines are customized in such a way that the
original standards are hardly recognizable. The mismatch between the research and the reality draws
us back to the use of exploratory techniques in order to “explore” the “what went wrong” scenario to
determine how this new situation can be best addressed by future research.
In this instance exploratory techniques are used to discover the problem areas associated with the
application of traditional project management guidelines as described in the PMBOK©. The large
number of possible issues and potential causes is one reason to choose exploratory methodology in
order to ensure that the research doesn’t assume that this large universe of potentials is complete; it
may well be even larger than we currently believe it to be and any other method would assume that
the pool is finite and would limit the researcher to only the currently known issues while missing the
potential new ones. The issues revealed in the survey were then reviewed through the historical
literature to develop an overview of the possible ways in which to change the research perspective as
a means of improving our understanding of how projects are conducted in the current business
environment.
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2.2 Survey
Barbara Edington and Beth Ouellette
This study used a questionnaire format to gather information from a globally dispersed pool of
participants representing a wide range of industries. Of the 146 participating firms, 51% were located
in North America, 27% in Europe, 2% in Middle East, 1% in Africa and 17% did not declare their
location.
The firms varied as to the number of employees with 30% of the survey representing firms with less
than 500 employees and 47% of the firms having more than 10,000 employees.
The breakdown of the firms by industry is as follows:
Industry Percentage of respondents
Education 5%
Financial/Banking 18%
Manufacturing 9%
Services 39%
Med/Pharma 7%
Telecom 11%
Media 1%
Energy/transport 4%
Other 6%
The projects were not limited to technology which is often the case in project management surveys. In
this study, respondents were involved with marketing, product development, business, service
delivery and construction projects.
3. Survey findings
The broad scope of the survey, as is typical of exploratory research, allows for many aspects of the
topic to be considered and reviewed. While there are many possible interpretations, this paper is
limited to the following findings from the survey:
3.1 Standards are not translating to the business environment
The responses to the question, “What project standards are used at your company?” was almost
equally divided between PMBOK© (43%) and proprietary standards (46%). Only 8% of respondents
used PRINCE2 standards. The time and effort required to design proprietary standards presupposes
that the PMBOK© standards did not meet the specific needs of that company in a way that made it
necessary to devote this effort to creating their own. This is supported by how respondents defined
their personal thoughts on PM techniques: a vast majority of respondents, 72%, believe that the
PMBOK© standards must be customized. The need for proprietary or customized standards may
indicate that the existing standards from the PMBOK© are not directly applicable to the internal
business structure or the nature of the project itself.
More detailed study should consider the level of generalization of the standard itself, the integration of
the standard’s processes with those of the firm’s operational business, the generalization of the
standards across industry type and the “soft” methodology of how the standard is implemented such
as the psychological and sociological aspects of the business environment.
3.2 Project processes are not integrated across all projects at the enterprise level
Project Management Offices (PMOs) are becoming more common components of a firm’s overall
management efforts; however, the role of these offices varies greatly in each firm. Comments on the
definition of governance within an organization ranged from “Governance is the body that guides and
directs the project” to the group “Who defines the strategy.” Integration of projects requires some form
of oversight of all projects. If a PMO is in place within an organization, it may be the central funnel
through which every project passes; however, this is not a common structure. Even if it does exist, not
all projects are routed through the PMO as was noted in the survey.
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Questions about project governance found that firms do not all agree as to the department in which
the responsibility for governance lies. The following departments were identified with the associated
percentage of respondents who said this is how governance is managed in their organization:
Department responsible for governance Percentage of respondents
PMO 27%
Business sponsor 23%
PMI +Business 45%
PM 29%
Project Team 5%
Multiple areas 15%
Other 12%
PMOs are often responsible for managing projects only in terms of assuring that they deliver on time
and on budget but there is no responsibility for integrating risk management or other subcomponents
across all project at an enterprise level.
IT is not surprising that with such a wide variety of governance structures, only 37% of respondents
said they had an integrated risk management process that assessed risk across all projects.
Consistent with the literature on project management, this focus on projects as “islands” creates a
laboratory type environment that is unrealistic in a dynamic, integrated, systems-based business
world. The low percentage of integrated risk management among the survey participants raises the
concern as to how an individual project’s risk management plan can be successful if the other
projects’ risk components aren’t evaluated in the overall planning, execution and control phases.
3.3 Need for firms to improve their execution of project processes
The survey indicated that key process areas such as risk, change, and integration are in need of
improvement within their organization. Despite the high level of proprietary standards (46%)
respondents felt there was a need for improvement in these critical areas. Further research will need
to inquiry the areas of specific dissatisfaction to identify weaknesses in the processes themselves, the
human aspect of their application, their integration with existing structural capital and the methodology
used to determine how the proprietary standards or customized standards are developed. It is also
notable that respondents felt they needed additional training in many of the process areas, soft skills,
governance and project integration. There was no one area that drew the majority of respondents;
rather, the categories for additional training were equally selected. This indicates that the project team
members lack confidence in their ability to understand and apply the processes, and in the softer
business skills needed to successfully execute the project. This need for improved processes
knowledge and soft skills may indicate that the means of conveying the PMBOK© standards is not
optimal, the processes are different from normal operations processes and therefore require
additional or more specific training, or that the individuals most suited to work in temporary
organizations such as project have not been assigned.
4. Lessons learned as Implications for future research
A review of the literature indicates that the disparity between the standards and their practical
application may require a different approach to the overall study of projects. In fact, Koskela (2002)
goes so far as to suggest that traditional project management is counterproductive and “creates selfinflicted
problems that seriously undermine performance.” In the early development of project
management bodies of knowledge (BOKs) projects were smaller in scope, more locally focused and
not as economically imperative. These changes coupled with the continuing poor success rate of
projects encourages a fresh look at projects from a different, broader based perspective.
4.1 Systems thinking approach
Project management research is often focused on its value to the organization or specific analysis of
the factors for failure or success. A faction of the research community contends that broader attention
should be paid to the behavior of projects and the reasons for their existence. We may not sufficiently
understand the nature of projects with enough detail or accuracy to create standards (Söderlund
2003; Bredillet 2002; Themistocleous 2000; Smyth, 2007). A systems thinking perspective is a means
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of redefining the interaction with the organization’s environment, its existing structural capital and
amongst the firms other projects.
Many project management practices developed through the lines of systems engineering which uses
a reductionist approach to examine each subcomponent and process to make sure it works to its
optimal level on an independent basis (Rodrigues 1998; Crawford 2004)). Conversely, the systems
approach looks at the interaction and the relationship of the parts of the system rather than the
individual component level of performance (Pourdehnad 2007). The PMBOK© is based on the
reductionist approach which has limitations in more complex and dynamic project types (Rodrigues
1998; Yeo 1993). The systems engineering, or mechanistic, approach also assumes a project can be
fully planned at the initiation stage and implemented according to that plan which is not a true
assumption in today’s business environment where changes are more frequent. If these assumptions
were true at one point they are no longer so in a dynamic business and economic environment that
often requires frequent changes.
New research is pointing to the systems thinking approach to tackle the holistic nature of a project
within it environment (Edington 2005; Pollack 2007), or a synthetic integrative approach that takes
into consideration the quantitative and qualitative features of systems (Pourdehnad 2007).
Pourdehnad (2007) recommends adding systems models to analytical approaches and educating
project managers in an integrative approach towards plan execution. A systemic viewpoint provides a
much richer portrait of the total environment within which a project takes place including the firm’s
entire portfolio of projects and the collateral associated with the firm’s structural capital. Currently the
business process and other structural capital are viewed as operational assets to be used by the
project. These assets are also referred to as “organizational process assets” and they include the
policies, plans, procedures, lessons learned and any other prior project information (PMBOK© 2008);
however there is a lack of understanding as to how these processes may impact the environment
which surrounds and interacts with the overall portfolio of projects.
The systems approach, if taken from the enterprise level, would help to relieve the “traditional lonely
project perspective” (Engwall 2003). By extending the perspective of the project to include the
historical experience of prior projects and the current organizational context, the researcher can
obtain a more holistic overview of the interactions between the overall organization and the project
itself.
4.2 Knowledge management
The survey tells us that respondents need more training in a broad range of areas which indicate that
the existing knowledge may not be captured and relayed as efficiently as it could. Gathering,
documenting and sharing the knowledge that exists within the firm is particularly important in the
temporary environment of project teams which disband when the project is completed. Without a
knowledge management system, the lessons learned from a project are not able to be optimally
conveyed throughout the organization. Research on the application of knowledge management
techniques in a temporary organization is needed in order to optimize the organization’s intellectual
capital (Ludin and Söderhom 1995).
There is a great deal of tacit knowledge in the management of projects and this may be difficult to
capture explicitly (Koskinen 2003). The PMBOK© Guide is geared to explicit knowledge and tells us
“how” a project should be managed, but there is very little information regarding the transfer of tacit
knowledge which is based on experience rather than explicit information. The increase of
geographically diverse project teams and more “virtual” interaction may add to the complications when
dealing with tacit knowledge. Reich and Wee (2006) suggest enhancing the PMBOK© guide with
knowledge management concepts that would provide guidance for transferring tacit knowledge
between individuals. Developing and documenting intellectual capital in an explicit form allows for
easier distribution within an organization. The responsibility for codifying knowledge and maintaining it
should follow the knowledge management techniques which have developed well-defined roles and
responsibilities (Zack 1999). Future research would benefit the practice by broadening the
understanding of the knowledge that is needed to be transferred and identify best practices to capture
and disseminate it.
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4.3 Temporary organization management
Barbara Edington and Beth Ouellette
The structural capital of an organization typically deals with operational processes that are predictable
and well defined. They are based on organizations that are permanent in nature with long term goals
and strategies. Projects, on the other hand, are temporary and tactical in nature with short term
objectives and milestones. There is little research in the area of temporary organizational
management (Ludin and Söderhom 1995) and there is even less knowledge about how the temporal
project processes interact with the more long-term operational processes of the organization.
Business processes are valued for their repeatability (Davenport 2005) whereas a project’s processes
and interactions are unpredictable by the very nature of a project’s definition as a unique and
temporary endeavor (PMBOK© 2008; Griffith 2007). Kapsali (2011) discusses the concept of
equifinality, defined as operational flexibility, as an essential tool for managing in unpredictable and
complex environments. Equifinality takes the emphasis away from mere prediction of outcomes and
allows for alternative choices to be made as contingencies. Since complex projects are often ill
defined in the beginning and will encounter numerous changes along the way it is nearly impossible to
plan using the hard methodology of reductionism as defined by the PMBOK©. To date, little theory
has been developed in the field of flexible management techniques and future research would be well
directed to this aspect of management.
5. Conclusion
Operational processes may be the bread and butter of the organization, but projects are the key to
product and marketing innovation. The financial transparency of projects makes their success or
failure visible to stockholders and other stakeholders of the organization and emphasizes the critical
nature of implementing projects on time and on budget. Best practice compilations, industry standards
and heavy collections of data points that are analyzed and spun into theory have all failed to be less
helpful than the current business environment demands.
A global survey of companies of various size and industry group indicated that PMBOK© standards
were a good basic methodology for project management but they needed to be customized to be
applicable to a firm’s unique circumstances. In many cases, the companies developed their own
proprietary standards. This need for customization or proprietary development indicates that the
published standards are not sufficient when applied in many business situations. Projects are
continuing to be managed as individual projects rather than as a portfolio of many which leads to
questions about the impact of risk at an aggregate level. Knowledge of the project processes and the
ability to implement them are still areas where individuals lack confidence and suggest that more
training is needed.
Complementary research perspectives can broaden the scope of understanding and potentially
indicate new issues. In addition to the study of individual success and failure factors, examining the
relationship between projects and the relationship between the portfolio of projects and the
organizations operational processes may provide new insight into the interaction between these
entities. A systems thinking approach would help this type of research. Study of knowledge
management principals as applied to project environments will offer a new means of handling the
large amount of tacit information that is inherent within project communications. The temporary nature
of projects also implies the need for a better understanding of general management processes within
a short-term, objective focused environment.
References
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Slevin DP, Cleland DI, Pinto JK, editors. The Frontiers of Project Management Research (cases in project
and program management series). Project Management Institute, Inc. pp 73–95.
Cooke-Davies, T. (2002) “The "real" success factors on projects”, International Journal of Project Management,
Vol 20, pp 185-190.
Crawford L, and Pollack J. (2004) “Hard and soft projects: a framework for Analysis”, International Journal of
Project Management, Vol 22 pp. 645–53.
Davenport TH. (2005) “The coming commoditization of processes”, Harvard Business Review, Vol 83, pp 100-8.
The Economist Journal (2005) “ Overdue and Over budget, Over and Over Again”, [online], Vol. 375, No 8430, p
57-58 http://www.economist.com/node/4065653/print.
Edington, Barbara (2005) A Model of Internal Contextual Factor Relationships Affecting Technology
Implementations, Doctoral Thesis. Pace University.
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Engwall, M. (2003) “No project is an island: linking projects to history and context”, Research Policy, Vol 32, pp
789-808.
Griffith-Cooper, Barber and King, Karyl, (2007), “The partnership between project management and
organizational change: Integrating change management with change leadership”, Performance
Improvement, Vol 46, No 1, pp 14–20.
Kapsali, M. (2011) “Systems Thinking In Innovation Project Management: A Match That Works”, International
Journal of Project Management, Vol 29, pp 396-407.
Koskela, L. and Howell, G., (2002) “The Underlying Theory of Project Management is Obsolete”, Paper read at
the PMI Research Conference.
Koskinen, K. U., Pihlanto, P., and Vanharanta, H. (2003) “Tacit Knowledge Acquisition And Sharing In A Project
Work Context”, International Journal of Project Management , Vol 21, pp 281-290.
Lundin, R., and Söderholm, A.(1995) “A Theory Of The Temporary Organization Project Management
And Temporary Organizations”, Scandinavian Journal of Management, Vol 11, pp 437–455.
Project Management Institute. (2008). A guide to the project management body of knowledge (PMBOK© Guide):
PMBOK© Guide. Newtown Square, Pa, Project Management Institute.
Reich, B. H., & Wee, S. Y. (2006) “ Searching for Knowledge in the PMBOK© Guide”, Project Management
Journal, Vol 37, pp 11-26.
Rodrigues AG, Williams TM. (1998) “System Dynamics In Project Management: Assessing The Impact Of Client
Behavior On Project Performance”, Journal of Operations Research Society, Vol 49, pp2–15.
Smyth, H., & Morris, P. (2007) “An Epistemological Evaluation Of Research Into Projects And Their Management:
Methodological Issues”, International Journal of Project Management, Vol 25, pp 423-436.
Söderlund, J. (2004) “Building Theories Of Project Management: Past Research, Questions For The Future”,
International Journal of Project Management, Vol 22, pp 183-191.
Standish Group International, Inc. (2001) Extreme Chaos, Standish Group International. West Yarmouth, MA.
Themistocleous, G., and Wearne, S. (2000) “Project Management Topic Coverage In Journals”, International
Journal of Project Management, Vol 18, p7.
Yeo KT. (1993) “Systems thinking and project management: time to reunite”, International Journal of
Project Management, Vol 11 No 2, pp 111–7.
Zack, M. (1999) “Managing Codified Knowledge”, Sloan Management Review, Vol 40, No 4, pp 45-58.
128

Management Leadership and Governance in Education
Emmanuel Innocents Edoun
The University of South Africa, Pretoria, South Africa
edounsei@unisa.co.za
Abstract: Educational leadership has attracted a lot of interest in the early part of the 21 st century. The relevance
of the above statement comes from the fact that nowadays, the quality of leadership has a positive impact on
schools and student outcomes. Across the globe, there is recognition that schools require effective leaders and
managers if they are to provide the best possible education for their learners. This study is important because,
as the world is becoming a global village; many governments are becoming increasingly aware that their main
assets are their citizens who constitute a workforce. Effective leadership and management by the head of school
and school’s staff are key factors in bringing about high standards of students’ achievement and school
improvement. However, initial findings reveal that, “Leadership” is an important element that harnesses the
energies and commitment of staff, pupils and parents, and provides a clear direction for the work and
development of the schools. This paper is equally important as it shows that management ensures the efficient
administration and organisation of the school. Day-to-day management expertise without effective leadership,
however, can result in a school that runs efficiently but lacks a sense of vision and purpose. Of course,
leadership skills need to be complemented by management expertise if a school is to be successful, but good
leadership is the essential requirement for creating an effective and high performing school. The best leaders put
pupils’ learning at the centre of their leadership and management activities. The aim of this paper is to
demonstrate that, the skills of the head of school are particularly important in securing the success and
improvement of the school. The best heads of school are the driving force in taking a school forward and ensure
a strong commitment to high standards in all aspects of the work of the school. The study follows a qualitative
research approach.
Keywords: leadership, governance, education
1. Introduction
In April 1994, South Africa became a democratic country with a constitution that promotes democratic
values and principles. As the highest law in country, the constitution guides us in the way we build our
education system and the way we go about running it (Clarke, 2007). However to achieve the above,
effective leadership and management are key factors for successful results in South African Schools
and Universities. Effective leadership and management by rectors, principals, inspectors as well as
universities and schools staff are key factors in bringing about high standards of students and pupils’
achievement and schools improvement. However, initial findings reveal that, “Leadership” is an
important element that harnesses the energies and commitment of staff, students, pupils and parents,
and provides a clear direction for the work and development of the Universities and schools.
Management ensures the efficient administration and organisation of these learning institutions. Dayto-day
management expertise without effective leadership, however, can result in these institutions
that run efficiently but lack a sense of vision and purpose. Of course, leadership skills need to be
complemented by management expertise if these learning institutions are to be successful, but good
leadership is the essential requirement for creating an effective and high performing school (Bush T &
Heystek J. 2006).
In South Africa, at primary and secondary schools, the best leaders put pupils’ learning at the centre
of their leadership and management activities (DoE, 2007). The skills of the principal are particularly
important for changes in securing the success and improvement of the schools (Chirichello M 1999).
The best principals are the driving force in taking schools forward and ensuring a strong commitment
to high standards in all aspects of the work of the schools. They achieve the right balance between
pressure and support and between high expectations and realism (Lemon, 2004). Other high quality
leaders at all levels also help pupils achieve the highest standards. Successful leaders continually
look for ways of doing things better. This is equally important at university levels. The aim of this
study is to explore the distinctive elements of leadership and management as well as the
characteristics of high quality leaders in the education sector in South Africa. The aim is equally to
explore the role of the school governing bodies (SGB) since the inception of democracy in South
Africa in 1994.
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2. Problem statement
Emmanuel Innocents Edoun
Many learning institutions have failed to produce results because of lack of leadership and
governance (Ngoma, 2009). Past studies however revealed that, leadership and governance are the
backbone for any learning institution that strives for success. Success can only be achieved with
discipline and commitment (Ngoma, 2009). Leaders of universities and schools who failed to lead by
example are likely to experience setback with regards to success. The current study however has
used the South African experience by exploring to role that leaders in Schools and Universities are
playing in order to create a conducive environment where both students and their teachers work for
better results. The aim of the study is also to demonstrate the effectiveness of leadership and
governance through the role of the School Governing Body (SGB) in the management of School.
Kamper (2008) argued that many schools in rural South Africa are challenged by socio-economic
circumstances and a lack of provisions from the educational authorities related to facilities, learning
and teaching support materials and support from the education district offices. He further argued that
poverty related challenges could be overcome through energetic, compassionate, innovative and
empowering leadership. The key ingredients of school success appear to be the principal’s passion
for upliftment, the teachers’ commitment and care, the parents’ involvement and the learners’ positive
life-view
3. Theoretical framework
Figure 1 depicts the three critical strategic responses required to put the educational sector in the
Eastern Cape Province on a sustainable and proactive basis and to foster a new approach that
recognizes Leadership and Governance as a central tools for better education in the province. The
main thrust of this strategy is the need to transcend the legalistic and compliance approach in
Education by building a solid movement for the consolidation of Leadership and Governance as a
value add and organic response to the challenges facing the South Africa’s education sector.
Governance and Leadership
Strategy for better Education in RSA
Coordination
COMMUNICATION
Figure 1: The three critical strategic responses
Leadership” is an important element that harnesses the energies and commitment of staff, pupils and
parents, and provides a clear direction for the work and development of the school. Management
ensures the efficient administration and organisation of the school. Day-to-day management expertise
without effective leadership, however, can result in a school that runs efficiently but lacks a sense of
vision and purpose. Leadership skills need to be complemented by management expertise if a school
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Implementation

Emmanuel Innocents Edoun
is to be successful, but good leadership is the essential requirement for creating an effective and high
performing school (Fullan M 2005).
The best leaders put pupils’ learning at the centre of their leadership and management activities. The
skills of the principal are particularly important in securing the success and improvement of the school.
The best principals are the driving force in taking a school forward and ensuring a strong commitment
to high standards in all aspects of the work of the school. They achieve the right balance between
pressure and support and between high expectations and realism. Other high quality leaders at all
levels also help pupils achieve the highest standards. Successful leaders continually look for ways of
doing things better. The best leaders challenge the way schools, pupils and staff work together. They
create the right atmosphere for success, recognise and reward achievement, and act incisively where
performance is not good enough.
The aim of this study is to explore the distinctive elements of leadership and management in the
South African education sector by using the model of figure 1 as a guide for the South African
process. The aim is equally to raise standards and quality in education and training in South Africa
through inspection and advice in support of the vision and strategic direction set out by the
department of education. Part of achieving the aspiration of excellence is the identification and
publicizing of good practices in leadership and management of schools. This report has identified in
South Africa, the characteristics of good practice and has examined what the best leaders do in
important areas of leadership and management.
The best leaders focus on raising pupils achievements This includes Vision, strategic and operational
planning. An important characteristic of schools with very good leadership in South Africa is the
principal’s clarity of vision for improving and developing the schools. Effective leaders in South
Africa’s schools strive to involve stakeholders in defining and reviewing the vision. It is equally
important to analyse the strengths, constraints and opportunities that may affect the vision. Maintain
the vision in the face of obstacles and set-backs and lead by example.
Creating a better environment for teaching and learning is also another factor for success. An ethos
that reflects confidence, trust and mutual cooperation between staff, pupils, governors, parents and
the wider community is essential for purposely working. The best leaders ensure that successes are
shared and there is recognition and reward for effort and achievements. The best leaders also
promote a culture in which all partners are not afraid to be self critical. In these schools there is
honesty, open debate; leaders value contributions and respond to suggestions. Where there seem to
be barriers, good leaders encourage staff to consider other ways of working and share their
difficulties, skills and experience with others.
On the other hand, the best leaders use their knowledge of the curriculum and its assessment as well
as information and guidance documents from national bodies and associations to improve standards.
The South African educational framework gives priority to promoting pupils key skills in literacy,
numeracy, information and communication technology. It allows consulting widely with all interested
parties, especially staff, governors and parents to builds up a shared understanding of work of the
school. It equally ensures collective ownership of policies and schemes at work amongst staff. The
department of education uses assessment information to track pupil performance and guard against
unachievements and Monitor and use evaluation information to improve the work of the school and
raise standards.
With regards to judging success, the principal role for best practice is to create a culture of analysis
and self evaluation to facilitate continuous improvement; take the lead in monitoring and evaluating
teaching and learning. Make sure other staff and governors have a clear role in M&E.
In terms of quality assurance, it is also important to monitor and evaluate the quality of teaching and
standards of pupils’ work and share outcome and acts upon findings .Good leaders set a personal
example of commitment and enthusiasm and demonstrate effective professional expertise in their
day-to-day work. Principals have a particular responsibility for creating and developing an
organisation in which all staff recognize that they are accountable to the success of the school.
Leaders are prepared to challenge any staff who does not meet the required standards.
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Emmanuel Innocents Edoun
With regards to developing team work the best leaders ensure that, all staff are valued as important
members of the school team and are recognized for the contribution they make to the school; there is
delegation of work so that leadership is accepted at every level of the school. Deputies and other
senior staff have important responsibilities and are fully involved in decision-making.
In terms of recruitment and deployment of staff, the best leaders consult and negotiate with staff
about their roles and responsibilities within the school know the strengths and talents of their staff and
make best use of these, recognize that providing opportunities for gaining professional expertise and
creating a strong collegiate ethos are important factors in the recruitment and retention of high quality
staff.
It is also important to develop the leadership and management skills of senior staff by enabling them
to play a significant role in the development and running of the school and help staff to do their jobs
with commitments and take forward remits imaginatively. With regards to setting priorities for
expenditure to facilitate improvement, the best leaders insure that, the priorities for spending match
the school’s aim for improvement identified in the school development plan. Spending is targeted at
areas where the evidence shows that improvements can and must be made priorities for future
spending and clearly clarified that the benefits of extra funding is maximized for the benefits of pupils
and the school and that there is prudent management to ensure appropriate contingency in the
budget.
The School Governing bodies (SGB) should hold the management of school accountable as they are
an important part of the new education system in South Africa. However, democratisation in South
Africa and one aspect of it is the need for greater community involvement on the governance of the
schools. In 1997, as a result of provisions in the South African School Act, governing bodies became
an important feature of public school life (Bush T & Heyste k J 2003).
The SGB is a group of parents who are either elected or appointed to govern a school. It is a body
that has a legal status. Its members represents the schools and its community.SGB determine the
policies and rules for organizing, managing and controlling schools within relevant laws of the country
and the budgets of the schools (Karlsson, 2002). The main objective of the SGB is to promote the
welfare of their schools and to ensure that the learners receive the best possible education. For this
reason their most important task is to help their principals organize and manage their school’s
activities in an effective and efficient way.
4. Methodology
The study finally adopted a combination of qualitative and quantitative research approach. Qualitative
research is based on the assumption that “reality is constructed by individual interacting with their
social world’ (Meriam, 1998). Hence it focuses on the interpretations and meanings given to that
social world. For instance Usher (1997) argues that, the task in social sciences is to interpret social
meanings and is not a search for scientific truth. The basis for this is to understand social world as
constructed by those that experience it. This study first relied on the evidence obtained by Inspectors
and Registered inspectors in South Africa during full inspections of around 150 primary schools
across South Africa during 2008-2009. In addition Inspectors carried out a comprehensive study in
few primary schools.
Secondly, the data collection in focus groups and in-depth structured interviews with key informants
was supported simultaneously with the use of digital voice recorder and note taking. During the
interviews the researcher wanted to know the strategies that could be used for sustainable leadership
and governance for organisation effectiveness in education.
The focus group consisted of a panel of 5 participants. A total of 3 focus groups were established.
The respondents were drawn from civil society, local schools and universities as well as local,
provincial national government’s department of education. In conducting the focus group, the
researcher introduced the topic and rules were set such as only one person should speak at time
without intention to dominate others. Each participant in turn made an opening statement regarding
their experience on the topic. This paper chose focus group because it secured setting was provided
for a discussion without fear of criticism. An in depth discussion of the topic was adequate. Such
discussions were very useful in drafting questionnaires.
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Emmanuel Innocents Edoun
During the structured interviews, the researcher put a collection of questions from previously compiled
questionnaire to a respondent in a face to face situation and recorded the respondent’s answers. The
researcher asked specific items of all participants. The interview consisted of pre-determined set of
questions. The researcher often used a detailed interview guide similar to a questionnaire to guide the
question order and the specific way the questions were asked. This approach is equally useful in this
paper as standardised questions were asked in a predetermined order to all respondents that
provided uniform information which assured the comparability of data.
The researcher also reviewed the leadership and governance policies in the South African Education
sector since 1994. Data analysis of the raw data largely constituted two steps: the researcher
transcribes the entire discussion. This provided a complete record of the discussion and facilitated the
analysis of the data Lewis, (2000)
5. Analysis and key findings
The initial findings revealed that, in the study carried out by inspectors in few primary schools in South
Africa, leadership and governance were the cornerstone for success in most schools. This was
equally confirmed by the researcher who infers that 87% of the respondents argue that leadership
and governance in education are the backbone if success is to be achieved.
In proposing solutions to leadership and governance for organisational effectiveness, 93% of the
respondents think that, Rectors, Deans, Principals and Directors of school and universities have an
important role to play in creating a conducive environment for students and staff as well as parents for
the success of schools. They argue that, leadership and governance are related to transformative
role in the South African education sector. This leadership and governance they argue, do not only
apply for primary and secondary education but for higher education as well. They posit that leadership
and governance are to provide the right mix for better education and secondly they facilitate or enable
other actors, communities, to make their most productive contribution in creating a better work force
for South Africa.
Some of the respondent argued that, in rural areas particularly, the principals appear not to know how
or are not able to manage teaching and learning effectively. The empirical research conducted in
these schools identified specific problems that require urgent attention by the developers and
providers of the ACE (Leadership and Management) programme. These problems particularly
concern the effective delivery of the national curriculum. The findings of this research revealed that
principals in the rural areas of the Eastern Cape have very little knowledge and understanding of the
Revised National Curriculum and National Curriculum Statement and are therefore not able to
implement the prescribed curriculum.
Joubert J Rika (2010) argued that these schools have no learning programmes or work schedules.
Very limited resources for teaching and learning are available because educators are not familiar with
what to order. The few resources that schools have are not managed effectively. Teaching and
learning is not monitored and there is very little collaboration between the educators. The key focus of
the ACE (School Leadership) programme is to facilitate real transformation in schools that is
grounded in recognition of the challenges of particular contexts and the values underpinning the
South African Constitution (Department of Education, 2006). According to the Department of
Education the success of the programme will be measured by the proven ability of the principals who
have completed the course to lead their school in a way that:
Allows effective delivery of the national curriculum
Maximizes the appropriate use of available sources
Encourages positive staff relations and staff career advancement
Empowers members of the school community to confidently engage in their tasks
Despite the commendable efforts of the National Education Department to improve the level of
leadership and management in South African schools, alarm bells sound over the general
performance of the students who have already completed their first year. One has to ask whether the
developers of the module content were familiar with what principals need to know and be able to do in
a diverse South Africa.
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6. Concluding recommendations
Emmanuel Innocents Edoun
This study joins NAESP (2002) argument when it infers that “Effective principals set high
expectations and standards for the academic and social development of all students” If school
principals are serious about providing quality education, then they must rethink the what, why and
how of school management. The study equally argues that, Successful school leaders should be able
to manage a vision that reflects the beliefs, values and commitments of the school Community
Knowledge and understanding of the school’s vision They should be able to demonstrate a balance
between management and leadership which is a balance of management and vision. This study has
found that, school principals experience difficulty in deciding the balance between higher order tasks
designed to improve staff and learner performance leadership and routine maintenance of the day-today
running of a school (management). The principal as a leader should shape the goals, motivations,
attitudes and actions of the staff. Managing a school, and specifically teaching and learning requires
planning and implementing curricular activities to achieve learning outcomes, effective use of human
and financial resources and monitoring performance. This study has related three characteristics of
leadership to leadership as influence, values and vision. As Joubert (2010) put it, influencing people is
an intentional process with the aim of achieving a specific purpose (vision). He argued that, It is
important that leaders ground their actions in clear personal and professional values. Effective leaders
he recalled, create a culture of continuous learning for all educators. What teachers know about the
subjects they teach and whether they have access to the latest research and materials on those
subjects is essential to achieving high levels of learner performance. Simply providing more
opportunities for professional development (workshops) is not enough. It is the quality of the
interventions that counts. Principals must ensure that professional development activities are provided
and that they are focused on teaching practice and learner activities. It must happen in real-time, at
the school and be team-based. Effective principals enforce participation in development activities,
leading by example.
Expectations determine results. Effective leaders understand how to identify and meet the
development needs of all staff members. A detailed professional development plan nurtures the
growth of all individuals in the school community. The principal also engage in one-on-one
discussions with staff members identifying teaching and learning successes and concerns. The
success of professional development activities should be based not only on teaching practice
changes, but also on whether learner performance increases.
Effective managers schedule time for teachers to work, think and plan together. Teams of teachers
who share responsibility for teaching a learning area, subject and phase should meet regularly to plan
lessons and assessment activities. This should ideally take place once a week in the afternoons.
Principals set specific expectations that teachers will continually seek information about academic
content and teaching practice. Teachers often learn much more from each other as they do from
outside sources. Principals should see themselves as team leaders and team members. During
meetings with the phase groups and learning area teams, principals are able to identify barriers to
learner performance and help to change the teaching and learning strategies.
n the other hand the creation of safe and secure school environments is critical as all learners need
a balance of emotional and personal support, especially orphaned learners and learners who come
from child-headed homes (Joubert, 2010). Children need to know that someone cares for them in the
school. They should enjoy coming to school, build positive relationships, gain new knowledge and
develop new skills. A safe and secure environment is not only about a school fence and lack of
violence, it is about creating an environment that supports, motivates, builds self-esteem protects
human dignity.
All school policies, planning, decisions and available human resources must used on the belief that
every child, irrespective of their socio-economic status, physical or mental ability can and will achieve
at high levels. In a democracy where human dignity, equality and education are guaranteed to all, all
learners must be given a legitimate opportunity to achieve the national outcomes. Children are active
learners who learn best from tasks that require them to relate new facts, concepts and processes to
their existing mental images and to their ongoing experiences. It is therefore imperative that all
educators should take collective responsibility to design learning programmes that build on learners’
active learning capacity, multiple intelligences and amazing resiliency. It is the responsibility of school
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Emmanuel Innocents Edoun
principals to monitor and implement intellectually rigorous teaching practices that move learners to
higher levels of learning.
The development of a school culture conducive to teaching and learning is also critical according to
this study as all schools have a specific philosophy, beliefs, traditions, discipline, climate and
organisational goals. Principals should develop a school culture that is flexible, collaborative,
supportive and innovative to improve the achievements of all learners. A flexible school culture
accommodates change and diversity. A collaborative and supportive school culture motivate staff
members to move from a individual sense of “I” to a collective sense of “We” in efforts to improve
teaching and learning. Open communication and sharing are key elements of a positive school
culture. Schools usually have formal structures for decision-making. In a collaborative school culture
principals adopt the role of a facilitator and leader that sets the course for the school. The successful
principal instills leadership capacity into all staff members, giving them authority to be full participants
in decisions about policy, budget, learning programs and teaching and learning improvements. This
requires shifting traditional lines of authority to individual staff members. A school culture conducive to
teaching and learning requires self-discipline and responsibility
In support of Joubert (2010) argument, this study is of the view that actively engaging the community
to create shared responsibility for learner and school success in a contributing factor since schools
and communities are inextricably intertwined and the principal is the linchpin in creating an engaged
community. Public schools play a key role as a model of democracy at work in a society. Parents and
other citizens have a say in decisions that affect the schools in their community. Effective principals
understand that they must engage the community in conversations and decisions about their children.
Communities expect schools to be safe places that provide quality education for their children. They
often expect schools to provide food, to address problems of childcare, health care and other social
problems. Greater understanding of the school’s goals and more parental involvement lead to greater
ownership of schools. With greater ownership of schools, parents are more willing to commit time,
resources and assistance to their children’s learning.
References
Bush T & Heyste k J 2003. School governance in the new SouthAfrica. Compare, 33:127138.
Bush T & Heystek J 2006. School leadership and management in South Africa: Principals’ perceptions.
International Studies in Educational Administration, 34:63-76.
Chirichello M 1999. Building Capacity for Change: Transformational Leadership for School Principals. Paper
presented a t ICSEI Conference, San Antonio, January
Clarke. A 2007. The hand book of School Management
Department of Education 2007. Understanding School Leadership and Management in the South African
Context. Module One. ACE (Scho ol Leadership). Pretoria, South Africa.
Fullan M 2005. Leadership and Sustainability: System Thinkers in Action. Corwin Press, USA.
Karlsson J 2002. . The role of democratic governing bodies in South African schools. Comparative Education,
38:327-336.
Lemon, A 2004 . Redressing School inequalities in the Eastern Cape. Journal of Southern Africa studies.
Merriam, SB. (1998). Qualitative Research and Case Study Applications in Education. San Francisco Jossey-
Bass Publishers.
National Association of Elementary School Principals. (2002). Leading Learning Communities: Standards for
what principals should know and be able to do. Alexandria: NAESP.
Ngoma. W.2009 . The Potholes of service delivery: Reflection on the Eastern Cape Department of Education
(DoE).
Usher, R (1997).Introduction. In G. McKenzie, J.Powell and R. Usher (eds).Understanding social research:
Perspective on methodology and practice. London: The Falmer Press, pp 1-7.
Joubert J Rika. (2010) Trails and tribulations of leadership and change in South African public schools- The
University of Pretoria
135

Communications Between Software Engineering and
Business: Opportunity and Cost Analysis
Richard Ens and Richard Turner
Stevens Institute of Technology, Hoboken, USA
rens@stevens.edu
richard.turner@stevens.edu
Abstract: This paper investigates the communications gap between software development engineers and the
business lead. Better alignment between business and technology is dependent on reducing current
communication gaps. As more methods of communication are utilized in the workplace, research on their effect on
the communication between business and software could assist organizations in reducing project timelines, project
expenses and improve project specifications. The research described provides background and an initial step
toward understanding that effect.
Keywords: communication, management, business, software, engineering
1. Introduction
Communication skills are crucial to the success of all system development projects (Hornik, Chen et al.
2003). As more methods of communications are created and adopted in the professional workspace, it
is becoming increasingly difficult to ensure successful communication. Today’s Information Systems
(IS) professionals can communicate by a number of traditional and new technologies, often using
multiple methods over the day or within the same conversation. The methods include:
Speaking when physically present;
Speaking over the telephone or videoconference;
Writing via e-mail, through instant or text messaging, BlackBerry communicator, virtual meeting
places (e.g. Second Life®), or social media (e.g. Facebook®, LinkedIn®).
As companies continue to expand globally, the employee work force continues to become more diverse
dramatically so since 1964 (Friedman 2006),. One reason is that mothers of young children are much
more likely to be in the workforce than they were fifty years ago. Another is that America has seen a new
wave of immigration from Asia and Latin America (Dobbin, Kalev et al. 2007). A recent study found that
at least 60 million people were living outside their country of birth or citizenship in 2000, an increase of
about 25% since 1990 (Bjorklund and Colbeck 2001). Adding to the complexity, many different cultures
are trying to standardize the use of English, often the preferred language in business communication
(Crystal 2003); (Govindarajan and Gupta 2001). This adds the difficulty of translating different cultural
expressions and customs into English and the consequent assumption that everyone has the same
understanding.
Today, almost 28% of employees of major U.S. corporations work overseas (Thomas 2007). This trend
has led to increased efficiencies and increasing challenges for individuals, organizations, and nations.
In the ever-shrinking world, tremendous competition exists to recruit talent (Florida 2005). Many of the
larger cities such as London, Amsterdam, and New York boast a large percentage of immigrants who
are aggressively competing for the world’s best technological, entrepreneurial, and creative talent
(Florida 2005).
People bring their life and work experience, cultural bias and habits, context, as well as a myriad mental
models to all forms of communication. Unless the communication opportunities are carefully collected,
considered, and normalized, it is unlikely that the parties involved are communicating from the same
perspective.
2. Communication in system development
Effective communication is of primary importance for successful system development (DeBrabander
and Edström ; McLendon and Weinberg), but it has been established that the system development
environment is a prime area for poor communication. For example, significant differences in
perceptions that the end user and analyst bring with them has been identified in (Ives and Olson ;
Green). This is significant for both technical and business reasons. Edstrom was able to demonstrate
that symptoms of ineffective communication between users and specialists are consistently related to
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Richard Ens and Richard Turner
user dissatisfaction with the system and this appears to be true for communication problems in all the
phases of the system development process (Edstrom 1977).
The particular importance of communication to IS professionals is understood (Hornik, Chen et al.
2003). Organizations looking for success in the IS function must take steps to assure successful
communication and improved interpersonal between the software development engineers and the
business leads. When a business person and a software development engineer communicate, they
engage in a multidisciplinary relationship. Both people have their own areas of expertise, but need to
effectively make decisions associated with the larger enterprise. Research has found that
cross-disciplinary education can help students to form valuable connections and relationships, and
thereby further enhance the practical value of their education (Freeman 2007).
Distributed software development (DSD) is common practice in today’s industry (Layman, Williams et
al. 2006). When software development teams are not physically co-located, communication challenges
rise due to complications of the media available and the generally lower frequency of opportunity. The
separation of DSD ranges from team members in adjacent buildings to distribution across different
continents. Global software development (GSD) is the special case of DSD where the dispersion of the
team extends across national boundaries (Sahay 2003). Communication between different cultures
presents additional barriers. Layman and Williams identify challenges in language, communication
form, time zone, and syntax that are exacerbated in GSD (Layman, Williams et al. 2006).
3. Research approach and hypothesis
The purpose of this research is to define and quantify the impact of the communication gaps that exist
today between business and technology. Defining and quantifying the gap should advance the
engineering profession in two ways: first, it should provide solutions for engineers to communicate in
terminology that business owners can understand; second, it should refine the process models that
both business and engineers use today and resolve the gaps that exist.
Figure 1 shows that in every communication situation, a writer or speaker with a particular purpose is
speaking to one or more audiences about a given topic in a particular genre, and against the
background of a wider context (House, Watt et al. 2009).
Figure 1: The rhetorical triangle
The independent variables used in this research are verbal, formal written, and informal written
communication. We used intercultural differences, geographic disparity, and disciplinary background.
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The dependent variables that we used are project timeline, project specification quality, and project
budget.
Verbal communication skills go beyond the words chosen; they also include how your voice is used:
pronunciation, articulation, volume and pitch, emphasis, pace, and timing (Timm and Bienvenu 2010).
Verbal communication includes variables such as speaking clearly, speaking expressively, timing vocal
patterns and visual aids.
Formal written communication is designed to include product development specifications, project
requirements, and all business and technology formal documentation. Assessing and improving formal
written skills can encompass factors such as content, style, and grammar. The goal of any formal
written communication is to ensure that the writer maintains his purpose, ensures the communication is
held in the correct context, and has a specific audience or topic in mind.
Informal written communication includes email, SMS text messages, real time communication tools,
and other forms of informal written communication that does not typically go through the rigors of
producing a document. An excellent definition of informal written communication is: “the social subject
that develops in relation to this invisible technology is one who expects access, expects to be connected
to friends at the stroke of a key, and expects to read and write in particular ways that lead to fulfilling
connections with those friends” (Lewis and Fabos 2005).
Over the past few years, corporations have seen a drastic increase in email communication (up 30%) as
well as a dramatic decrease in faxes and letters (Louhiala-Salminen and Kankaanranta 2005). This shift
to instant communication can either decrease or escalate communication and intercultural challenges.
A recent study conducted by Davis (2009) found that 90 out of the 100 of the respondents experienced
a very high frequency of email problems (Anne S. Davis 2009). The study found that 38% of the
respondents cited 6 to 10 email communication problems per month (Anne S. Davis 2009).
As these informal methods of communication continues to rise in the workplace (Louhiala-Salminen and
Kankaanranta 2005), we must continue to develop methods of instructing best practices and ensuring
that our intended message is communicated.
Based on the background material discussed above, several hypotheses were generated.
Hypothesis 1: Minimizing the verbal communication gaps between business and software development
engineers will assist organizations in reducing project timelines, budgets and improve project
requirements.
Hypothesis 2: Minimizing the written communication gaps between business and software development
engineers will assist organizations in reducing project timelines, budgets and improve project
requirements.
Hypothesis 3: Minimizing the geographic disparity communication gaps between business and software
development engineers will assist organizations in reducing project timelines, budgets and improve
project requirements.
4. Definitions
Communication research has not standardized on terminology when it comes to “a communication
gap.” It is often referred to as ineffective communication or a semantic gap, communication problem.
Theodore Clevenger Jr. notes that “the continuing problem in defining communication for scholarly or
scientific purposes stems from the fact that the verb ‘to communicate’ is well established in the common
lexicon and therefore is not easily captured for scientific use” (Clevenger 1991). In a book published by
Dance and Larson in 1976, The Functions of Human Communication: A Theoretical Approach, 126
different definitions of communication are provided. Their research showed that there is no one
definition of communication that will fit all different forms of research (Dance 1976).
There are several spectrums of defining communication, some broad and some restrictive. A general
example of defining communication is “the process that links discontinuous parts of the living world to
one another” (Ruesch 1957). On the other hand, communication as “a system (as of telephones or
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telegraphs) for communicating information and orders (as in a naval service),” is a more restrictive
definition (Gove 1981).
Hoben (1954) defined communication as “the verbal interchange of a thought or idea” (Hoben 1954).
This definition is an excellent start because it contains the word interchange, but it is limited due to the
word “verbal”. Interchange adds to the definition by ensuring that communication is understood by the
other party. For the purpose of this research, we will build on that definition and define communication
as “the interchange of thought or idea.”
According to the Merriam Webster dictionary, one definition of a gap is “an incomplete or deficient area.”
To combine both definitions, for the purpose of the research, a communication gap was defined as “an
incomplete or deficient interchange of thought or idea.”
5. Current research
Our research uses a mixed method research design that contains both quantitative and qualitative
methods in order to provide a deeper understanding of the issue at hand. The popularity of mixed
methods research can be easily documented through journal articles, conferences proceedings, books,
and the formation of special interest groups (Clark and Creswell 2010). Mixed methods provide the
flexibility required to perform social research and has been called the “third methodological movement”
following the developments of quantitative and qualitative research (Tashakkori and Teddlie 2003).
Mixed methods are needed to fully understand social and behavioral phenomena (Mittman 2004).
There are several advantages to using a mixed methods approach. The qualitative portion of data
gathering can be limiting because when used alone, they tend to produce explicit, rule-based
knowledge (Mittman 2004). The advantage of using qualitative methods is that through their
discovery-oriented character (Sofaer 1999), more may be learned about the phenomenon under
investigation.
We selected a multi-stage approach beginning with a survey providing our quantitative data. The survey
will be followed by interviews (qualitative). Once we fine tune the independent and dependent variables,
we will work with the software development engineer and business teams, then follow up with a survey
and additional interviews. The method of using surveys and interviews was chosen based on research
performed by Ong, who performed a literature review of doctor-patient communication studies and
analyzed the thirteen main techniques that were successfully used in the studies. Ong also analyzed
the reliability of the data by analyzing the Inter-Rater Reliability (IRR), a statistical method for providing
the validity of the data from a study. It provides a quantitative method of understanding the data
generated by the study.
The first phase of the research was a targeted survey at business and technology professionals from a
variety of different companies and backgrounds. The survey was emailed to over two hundred
professionals over a two month period and was administered via the web, Safeguards were in place to
prevent duplicate entries from one person.
The goal of the initial survey was to characterize the nature and depth of the gap and to determine
which, if any, of the hypothesis could be eliminated. The survey was also be used to gather an
understanding of respondents current workplace demographics. The survey requested information
regarding specific communication training including presentation, negotiation, and written skills. The
survey provided us an ability to characterize the nature and depth of the communications gap. With the
separating out the business and technology professionals, it allowed us to better understand each
others prospective on the communications gap between the teams.
6. Results of the initial survey and discussion
A total of 66 professionals responded to the survey during a two month period. Forty three technology
professionals, 18 business and 5 non-classified professionals responded. Table 1 provides the results
from the survey that covered two main topics areas (demographics and communication.) There is an
overall total of 14 items that we used for data analysis, 7 of the questions can be group towards
demographics, and the remaining 7 questions are focused on communication.
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Demographics – The majority of the respondents either work in finance or technology. These two
industries are most prevalent due to the limited number of respondents, but do provide interesting
insight from an industry perspective.
The respondents have significant work experience with the largest percentage base of at least eleven
years professional knowledge. The nature of the years experience provides us an insight into a more
senior level of professional skill. Over ninety percent of the respondents have at least a bachelors
degree or greater. The business respondents have slightly higher level of higher education with forty
seven percent having a master’s degree.
Table 1: Results from the survey
We requested that the respondent detail the number and type of communication classes they have
attended. They question detailed whether they attended public speaking, professional writing, technical
writing, etc. The question also broke down whether they had zero through four plus classes. Our finding
that business professionals attended more communication related classes than technology
professionals agrees with research performed by Boyer Commission (Kenny, Teaching et al. 1998) and
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Austin (Austin 2002). Table two and table three provide the details on the communication classes
attended by business and technology professionals. The findings show that not only do business
professionals attend more communication classes, but they attend many key business relationship
classes such as communication ethics, leadership and teamwork. One additional key finding was that
business professionals attended more negotiation classes than technology professionals, and business
professionals attended more negotiation classes then public speaking.
Table 2: Communication classes attended by business professionals
Which of the following classes and how many have you attended?
Communication Ethics
Leadership & Teamwork
Public Relations
Organizational Communication
Non-Verbal Communication
Interpersonal Communication
Intercultural Communication
Technical Writing
Professional Writing
Negotiation
Public Speaking
0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00
Table 3: Communication classes attended by technology professionals
Which of the following classes and how many have you attended?
Communication Ethics
Leadership & Teamwork
Public Relations
Organizational Communication
Non-Verbal Communication
Interpersonal Communication
Intercultural Communication
Technical Writing
Professional Writing
Negotiation
Public Speaking
0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50
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Communication – Our survey showed that email is the most used form of communication between
business and technology. This finding is directly in line with research performed by Murphy. In 1997,
Murphy found that email was beginning to dominate the day-to-day communications within business
organisations (Murphy 1997). There is a slightly higher percentage of technology professionals using
email.
We requested that the respondent rate the overall communication with their business or technology
counterpart or key contact person. The question was phrased at a high level requesting the respondent
to rate the effectiveness of their communications with their counterpart. The respondents were able to
rate the effectiveness in a 5-option scale starting from extremely difficult to effective the first time. Not
surprisingly, we received minimal feedback from the extreme ends of the answer. Forty two percent of
the business respondents, along with a similar percentage of technical respondents, reported that “The
communication has some challenges, but my message is understood by the third attempt.” All indicated
that the gap exists with only a few of their counterparts. These findings are in line with research
performed by Kim and Hornik which was focused on communication during requirements gathering.
Kim and Hornik found that the different frames used in the requirement dialectic create tensions
between the members of teams, resulting in a communication gap. Their research also found that
users, staff, and managers often find it difficult to communicate due to the differences in language,
tradition, and values (Hornik, Chen et al. 2003).
One goal of the survey was to narrow the independent variables we will use in our ongoing research. In
three separate questions we requested that the respondent rate which of the independent variables
they think most negatively affects technology project time-lines, project budgets and project
specifications.
We ended the survey with an overarching communication question of whether the respondent felt that
by minimizing the communication gaps between business and software development engineers, it will
assist organizations in reducing project timelines, budgets and improve project requirements. Both
business and technology respondents stated that it could slightly or dramatically improve current and
future projects. This finding is in line with results from an extreme programming study performed by
Lucas Layman. Layman’s study found that improving the communication between developers and
business whether the communication is in person or via short informal written communication can assist
in project quality. Layman found that after using the extreme programming techniques, dialogues
between customers and developers over feature details became common, changes in user story
specifications were made throughout the project, and technical questions were resolved quickly and
efficiently (Layman, Williams et al. 2006).
7. Conclusions and future work
Our research to date confirms that communication gaps exists today in some form between business
and technology. Due to the limited industries and size of our survey, our research had some inherent
cultural and industry bias. However our results were consistent and correlates with other studies
described above. In our second phase of research we will apply more rigorous quality analysis to any
survey instruments developed.
The data shows verbal communications was the medium the largest percentage of respondents
identified with communication gaps between business and technology. The majority of the business
professionals and a large percentage of the technology professionals feel that communication gaps
have a negative impact to project timelines, specifications and budgets.
With respect to training and education, the survey showed business professionals attended more formal
communication and negotiation training sessions than technology professionals.
Further research using the mixed methods research approach will allow us to better understand the full
nature of the communication gaps between software engineers and their business counterparts. We
can then identify ways to reduce their impact to improve communication quality and effectiveness.
References
Anne S. Davis, P. A. L., John A Dobelman (2009). "Did You Get My E-mail? An Exploratory Look at Intercultural
Business Communication by E-mail." Multinational Business Review 17(1): 26.
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Austin, A. E. (2002). "Preparing the next generation of faculty: Graduate school as socialization to the academic
career." The Journal of Higher Education 73(1): 94-122.
Bjorklund, S. and C. Colbeck (2001). "The view from the top: Leaders' perspectives on a decade of change in
engineering education." JOURNAL OF ENGINEERING EDUCATION-WASHINGTON- 90(1): 13-20.
Clark, V. L. P. and J. W. Creswell (2010). Designing and Conducting Mixed Methods Research, Sage Publications,
Inc.
Clevenger, T. (1991). "Can one not communicate? A conflict of models." Communication Studies 42(4): 340-353.
Crystal, D. (2003). English as a global language, Cambridge Univ Pr.
Dance, F. E. X., Larson Carl E. (1976). "The Functions of Human Communication: A Theoretical Approach." (A).
DeBrabander, B. and A. Edström (1977). "Successful information system development projects." Management
Science: 191-199.
Dobbin, F., A. Kalev, et al. (2007). diversity management in corporate america: Understanding People in Their
Social Worlds. Contexts, University of California Press. 6: 21-27.
Edstrom, A. (1977). "User influence and the success of MIS projects: a contingency approach." Human Relations
30(7): 589.
Florida, R. (2005). The flight of the creative class: The new global competition for talent, HarperBusiness.
Freeman, S. (2007). "Bridging the Gaps: How Cross-Disciplinary Training with MBAs Can Improve Professional
Education, Prepare Students for Private Practice, and Enhance University Life."
Friedman, T. (2006). The world is flat: A brief history of the twenty-first century, Farrar Straus & Giroux.
Gove, P. B. (1981). Webster's third new international dictionary of the English language, unabridged, G. & C.
Merriam Co.
Govindarajan, V. and A. Gupta (2001). "Building an effective global business team." MIT Sloan Management
Review 42(4): 63-71.
Green, G. I. (1989). "Perceived importance of systems analysts' job skills, roles, and non-salary incentives." MIS
Quarterly: 115-133.
Hoben, J. B. (1954). "ENGLISH COMMUNICATION AT COLGATE RE EXAMINED." Journal of Communication
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Hornik, S., H. G. Chen, et al. (2003). "Communication skills of IS providers: An expectation gap analysis from three
stakeholder perspectives." Professional Communication, IEEE Transactions on 46(1): 17-34.
House, R., A. Watt, et al. (2009). Elements of effective communication: Results from a research study of
engineering faculty. Professional Communication Conference, 2009. IPCC 2009. IEEE International.
Ives, B. and M. H. Olson (1984). "User involvement and MIS success: a review of research." Management Science:
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Kenny, R. W., C. F. f. t. A. o. Teaching, et al. (1998). Reinventing undergraduate education: A blueprint for
America's research universities, Boyer Commission on Educating Undergraduates in the Research
University.
Layman, L., L. Williams, et al. (2006). "Essential communication practices for Extreme Programming in a global
software development team." Information and Software Technology 48(9): 781-794.
Lewis, C. and B. Fabos (2005). "Instant messaging, literacies, and social identities." Reading Research Quarterly
40(4): 470-501.
Louhiala-Salminen, L. and A. Kankaanranta (2005). "’Hello Monica, kindly change your arrangements’: Business
genres in a state of flux." Genre Variation in Business Letters: 55–84.
McLendon, J. and G. M. Weinberg (1996). "Beyond blaming: congruence in large systems development projects."
Software, IEEE 13(4): 33-42.
Mittman, B. S. (2004). "Creating the evidence base for quality improvement collaboratives." Annals of internal
medicine 140(11): 897.
Murphy, H. A. (1997). Murphy, Hildebrandt and Thomas (1997) Effective business communications, McGraw-Hill
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143

Preventive Measures for Dealing With Corporate Conflicts
Olga Erahtina
Higher School of Economics, Perm branch, Russia
ErahtinaOS@hse.perm.ru
Abstract: In this article the author draws our attention to the growth of corporate conflicts which has become one
of the most widely spread tendencies in business environment in recent years. This negative situation results
from the imperfection of preventive system in this sphere. The purpose of this article is to develop the system of
measures to prevent corporate conflicts and to eliminate conditions under which they can arise. The author
assumes that when developing general principles and techniques of dealing with corporate conflicts, it is
essential to understand that the conflicts are based on the objective clash of interests of corporate members. The
more complex the corporate structure is, the more there are incompatible interests and goals that are sources of
new corporate conflicts. The process of dealing with the problem of corporate conflicts consists of a few stages.
At the first stage it is necessary to retrace all conflicting interests. We can identify four general groups of
conflicting interests in a corporation: the conflict of corporate interests and shareholders' interests; the conflict of
shareholders' interests; the conflict of managers' interests and shareholders' interests; the conflict of between
company's governing bodies. At the second stage we should identify the main reason for conflict of interests in
each group. For example, the managers' opportunism caused by their desire to fulfill their interests at the
expense of the corporate interests accounts for the third group conflicts. The third stage deals with the general
principles and techniques of resolving conflicts of each type, that have been proposed by the economic theory
and the judicial practice. In the economic theory it is considered that transferring the rights to a share of residual
income to directors can help shareholders to solve the problem of the directors' opportunism. However, it is only
a partial solution. In its turn, corporate legislation suggests applying two mechanisms to solve this problem: to
limit managers' authority in transacting business and to impose the liability for their decisions. The author makes
a comparative analysis of legal mechanisms used in different countries to prevent corporate conflicts, and
discusses the imperfection of the Russian corporate legislation. At the same time company promoters should
take into account that no legislation can solve the problem of conflicts. The legislator cannot foresee all the
conditions under which conflicts can arise, and provide the only possible solution to each of them. That is why
most rules of corporate law are non-mandatory. These norms allow the members of the corporation to enshrine in
the company charter the method of legal regulation that would provide the balance of interests inside the
company and the consistency in taking decisions. At the fourth stage the author analyses the non-mandatory
norms of corporate legislation and the Corporate governance code to develop proposals for formulating
provisions of the charter aimed at preventing corporate conflicts.
Keywords: corporate conflicts; imperfection of preventive system; measures for conflicts minimization;
incompatible interests and goals
1. Introduction
In the sphere of corporate management the problem of conflict of interests should be given most
serious consideration.
The process of dealing with the problem of corporate conflicts consists of a few stages. At the first
stage it is necessary to retrace all conflicting interests. Then we should identify the main reason for
conflict of interests in each group. The third stage deals with the general principles and techniques of
resolving conflicts of each type, that have been proposed by the economic theory and the judicial
practice.
At the final stage the author analyses the non-mandatory norms of corporate legislation and the
Corporate governance code to develop proposals for formulating provisions of the charter aimed at
preventing corporate conflicts.
We can identify four general groups of conflicting interests in a corporation:
The conflict of corporate interests and shareholders' interests;
The conflict of shareholders' interests;
The conflict of managers' interests and shareholders' interests;
The conflict of between company's governing bodies.
2. The conflict of corporate interests and shareholders' interests
The objective preconditions of a conflict
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Olga Erahtina
As a rule, the conflict between a corporation and its members is associated with the eternal dilemma:
either to pay handsome dividends, or to develop production. « dividends play a significant role in
the process of identifying a common corporate interest. After centuries of conflicts between the
shareholders’ and managers’ interests, the common (strategic) interest was for the first time specified
in the Corporate Governance Code of Organization for Economic Cooperation and Development as
“optimizing over time the returns to shareholders”. The term “returns” means returns on investments»
(Dedov 2004).
Means of conflict mitigation
Thus, despite the fact that optimization of economic indicators of company's performance is an
objective interest, it should not be considered as a goal in itself, but as a means of achieving another
goal - optimizing over time the returns to shareholders. Both interests should not be perceived as
negating each other, they are rather complimentary.
Dealing with the dividends dilemma, legislators of a number of countries (Germany, Finland, Sweden)
oblige companies to pay out the profits in the form of dividends. In Russia dividends payout is not an
obligation, but a joint-stock company’s right. Numerous court precedents only prove it.
Besides, dealing with this problem depends on the regulations on the decision making process. In
particular, it is necessary to specify what governing body is authorized to make decision on dividends
payout, form and amount.
According to the Russian Federation legislation, the right to declare dividends is partially conveyed to
the Board of Directors. Article 42 of Joint Stock Companies Law states that the decisions to pay out
(declare) dividends, including the decisions on their amount and form (depending on the shares'
category (kind), are made by the Annual General Meeting. The amount of the dividends cannot be
bigger than the amount recommended by the Board of Directors (the Board of Supervisors).
We think, that the norm in this version is unlikely to contribute to the solution to this conflict for a
number of reasons. Firstly, if the Board of Directors does not recommend paying out dividends, then
shareholders cannot make such decision on their own. Secondly, this regulation presupposes that
shareholders automatically affirm the amount of the dividends declared by the Board of Directors
(they are unlikely to decide to pay out the amount which is smaller than the amount declared by the
Board).
Such approach, at the first sight, is similar to the approach of British legislation. However, in Great
Britain timing of dividends payment and the shareholders' rights relating to dividends are regulated
mainly by the corporate charter. Only if there are no corresponding provisions in the charter, can
legislative rules be applied.
Good practice
Good practice of corporate governance is summarized in the Corporate Governance Code. The Code
in its turn is based on the internationally recognized principles of corporate governance, developed by
the Organization for Economic Cooperation and Development (ОECD).
The Corporate Code Practice suggests that it should be advisable to obligate the Board of Directors
to approve the Dividends policy Provision. Such Provision should specify how to determine the
minimum share of a joint-stock company's net profit which is to be paid out in the form of dividends,
and the conditions under which dividends on preferred shares are not paid or paid partially.
3. Тhe conflict of shareholders' interests
The objective preconditions of a conflict
In any joint-stock company the problems connected with joint property are inevitable.
The ownership rights are exercised by shareholders upon their mutual agreement. It is a complicated
task to make an agreed decision on issues arising in the process of company's activity. That is why
corporate relationships are regulated by the majority principle. Consequently, those members who
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own a larger share of the capital can impose their will on those, whose share is smaller (the majority
dictatorship problem).
«The recognition of shareholders' common interests leads to partial negation of
democracy principle in decision-making. To neutralize dictatorship, any decision
taken by the majority of shareholders should be justified in terms of common goals and
corporate interests – optimization of economic indicators in the society» (Dedov 2004).
The mechanisms of minority interests protection
In close corporations strategic decisions (reorganization, liquidation and introducing amendments into
the charter) are made unanimously. However, in open corporations which are characterized by
dispersed share ownership, it is not reasonable to apply this mechanism. Instead, the shareholders
who did not vote or who voted against a decision, can exercise their right to start litigation and
challenge it in a judicial procedure. Besides, the shareholder who does not agree with the policy of the
majority of members, can claim that his shares should be bought out at the price current at the
moment of making the decision that he disapproves of.
Shareholders can take part in the AGM personally or through their representatives (by proxy). The
proxy institution provides shareholders with the opportunity to stand for their own interests indirectly,
through their representatives. Besides, as S.D. Mogilevsky points out, this is an absolutely legal
mechanism of vote consolidation (Mogilevsky 2000). Thus, the owners of 25% of votes can block a
decision at the general meeting acting with a three quarter majority.
Russian corporate legislation determines the possibility of share ownership consolidation to exercise
particular rights. For example, the owners of 10% of shares have the right to call an EGM
(extraordinary general meeting), and the right to bring in suggestions to be put on the agenda. The
owners of 25% of shares have the access to account forms and reports, and the minutes of Collegiate
Executive Body's meetings.
Another mechanism of minority interests protection is cumulative voting on electing the Board's
members. On cumulative voting the number of the votes of each voter is multiplied by the number of
candidates. The voters are permitted to award their votes to a single candidate at full value or to split
them between two or more candidates.
The problem of establishing of corporate control
The corporate members tend to establish corporate control. According to Y.M. Gritans, corporate
control is the opportunity to make strategic and operative decisions on the issues of creating
corporations their activity (Gritans 2005).
The subjects of corporate control are both individuals and legal entities – corporate members that
have an influence on the company's business activity (affiliates).
Establishing of corporate control escalates the conflict between its members and in most cases leads
to drastic consequences both for the corporation itself and its counter-agents.
Prevention of corporate control establishment
The mechanisms that prevent establishing corporate control can be split into two groups. The first
group includes those mechanisms that are provided by the corporate charter. For example, one of the
basic mechanisms that impede the members' aspiration to dominate in the corporation is the provision
that sets forth the limitations on the maximum amount of shareholding per shareholder.
Moreover, the charter can define the number, nominal value and categories of shares that a jointstock
company is permitted to distribute in addition to those that have already been distributed. If
there are no such provisions in the charter, the company is not permitted to distribute additional
shares.
The charter can also impose the limitations on the number of shares that one shareholder can hold,
their total nominal value, and the number of votes per shareholder.
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The second group includes legislative mechanisms. According to Clause 1 of Article 40 of Joint Stock
Companies Law, existing shareholders have preemptive right to acquire newly issued shares issued
by a company in a rights issue and issuable securities that can be converted into shares, in proportion
to their existing holdings.
Another legislative preventive mechanism against controlling shareholders is the minority
shareholders' right to claim the buyout of their shares. This mechanism is applied by the legislation
systems of many countries and is common in the European Union.
In Germany and Russia the buyout of shares should be offered by a shareholder owning 30% of
voting shares. In the USA, Great Britain and Australia a controlling shareholder is the one who owns
20% and more of voting shares (Hughes 1998). A controlling shareholder should satisfy all the minority
shareholders' claims about the buyout of their shares.
In the case of a buyout the shares should be bought at the price as high as the price they were
bought at by the controlling shareholder over a certain period of time prior to the buyout. According to
Joint Stock Company Law the weighted average price is determined on the basis of trading results
over 6 months prior to the buyout. In Great Britain this time span is 12 months.
The conflict between controlling and minority shareholders (shareholders oppression)
The right of minority shareholders to claim the buyout of their shares is also one of the means to
eliminate the conflict between them and a controlling shareholder (the owner of more than 30% of
shares).
After acquiring control the majority shareholder can abuse his rights and harm the economic interests
of the minority. Moreover, the appearance of a controlling shareholder results, as a rule, in the
decreased value of voting shares.
However, this conflict can also be caused by minority shareholders abusing their rights.
That is why the legislation of many European countries, as well as the EU Directive, states that the
shareholder who holds 90% and more of voting shares has the right to "squeeze out" the remaining
minority shareholders by buying out their shares. In the Russian Federation this right is granted to the
shareholder who holds more than 95% of shares.
Retaining minority shareholders after acquisition involves can be costly for the corporation which has
to maintain its public status by disclosing information, calling general meetings, keeping the
shareholder register and letting minority shareholders exercise their right to inspect corporate records.
4. The conflict of managers' interests and shareholders' interests
The objective preconditions of a conflict
A director can seek to improve his welfare by gaining profit. Of no less importance for him is building
up his personal capitalization ("investing into himself") through satisfying his personal ambitions and
achieving goals, garnering a reputation and creating the image that would be recognizable in the
business community. Since most part of the director's labour resource is spent on running the
corporation, he will try to fulfill his own interests at the expense of the corporation itself or its activity
(Belyaev 2009).
Means of conflict mitigation
In the economic theory it is considered that transferring the rights to a share of residual income to
directors can help shareholders to solve the problem of the directors' opportunism. However, it is only
a partial solution. The larger the manager's share in the company's capital is, the more acute another
problem becomes: so-called "entrenchment".
So, to use this method of motivation, it is necessary to apply additional adjusting mechanisms. For
example, the corporate charter can limit managers' share in company's share capital to 5%.
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For quite a long time options were believed to be an effective mechanism of regulating the
relationships between shareholders and managerial employees. The "Enron scandal", having affected
the business community, brought this practice into question. In fact, a manager holding an option, just
like a shareholder, is interested in the increase of shares' market value. But this interest lasts only
until the expiration of the option; that is it is a short-term interest. At the same time, it is in managers'
own interests that any information which can decrease the shares' value did not leak into the market.
That is why they could be willing to use accounting frauds and poor financial reporting. As a result, the
popularity of options as instruments of dealing with agent problem has recently been decreasing.
We think that applying the foregoing means of motivation needs additional adjusting mechanisms. It
can be reasonable, for example, to add into the charter the provision that the shares bought by
managers can be sold only after a certain period of time after they leave the company. Besides, the
opportunity to sell options can be made depended on the conclusion that an independent auditor
comes to upon examining company's performance after the manager leaves the company.
Separation of decision-making functions from risk-taking functions involves dealing with the question
of managers' responsibility for their decisions. Economic theorists note the direct interdependence
between the decreasing managers' responsibility and increasing shareholders' risks.
Independence of the governing bodies' members
One of the main means of elimination of the conflict in question is providing independence of
governance bodies' members. At the same time, in Russian joint-stock companies the members of
Board of Directors, as a rule, are elected from shareholders or their representatives.
Managers' and the Board's interests should be subject to common corporate interests, but not to a
single shareholder's interest. For example, the Board of directors is authorized to evaluate the shares'
market value on buying them out from minority shareholders. If all members of the Board depend on
the controlling shareholder or act on his behalf, such decision can be taken in his interests, but not the
minority's interests. It can result in the decreased real market value of the shares and, thus, in
violation of minority shareholders' rights (Dedov 2004).
Good practice
Corporate governance codes and corporate legislation suggest including "independent" directors into
the Board of Directors to mitigate the conflict of interests. These are outside directors with no
connections to the company's executive officers, its shareholders and large counter-agents.
The number of outside directors should be 25% of the total number of directors on the Board. This
provides them with the opportunity to influence the Board's decisions and form a wide range of
opinions on the question to be discussed. In any case, it is advisable that the corporate charter should
provide at least 3 outside directors on the Board. (clause 2.2.3 of the Code).
Since directors can often serve on more than one board or be employed by other organizations, it is
essential to exercise a strict control over their activity. If they are either employees or shareholders of
a rival company, they can be involved in multiple interests, which, in turn, puts into question their
ability to act in the interests of this or that particular joint stock company.
According to Joint Stock Companies Law, the approval of the Board of Directors is needed in cases
when members of a collegiate executive body or a person who serves as a single executive body hold
more than one office. At the same time, the law does not take any view on the question whether the
Board's members themselves can do the same.
Good practice
It is advisable that the corporate charter should include the provision stating that a shareholder or an
employee of a rival company cannot be appointed (elected) a member of the corporate governing
body. It should also be clearly stated in the contract with the general director or a member of the
Executive Board (articles 2.1.2. and 2.1.3. of the Code).
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Since managers are authorized to dispose company's property, they can abuse this power to the
detriment of company's interests. Corporate legislation suggests two main institutions aimed at
protecting companies' property interests against potential abuses: shareholders' or the Board's
agreement of a major transaction or interested party transaction.
According to Joint Stock Companies Law, major transactions are those connected with acquiring
(alienation) of property worth 25% and more of book value of company's assets.
Interested party transactions are the term used in the corporate legislation for the transactions made
by directors on behalf of the company in conflict with its interests or transactions which benefit the
directors themselves.
Entering into a major transaction or interested party transaction needs to be approved of by the
General meeting or the Board of Directors. Since the General meeting cannot react to these situations
promptly, the charters permit to delegate the authority to deal with these questions to the Board of
Directors.
5. The conflict between company's governing bodies
Such conflicts arise when the separation of power, functions and responsibilities of different governing
bodies is not clearly defined. Incorporators should clearly understand for performing what functions
they create this or that governing body.
What is the purpose of the Board of Directors? To execute strategic management of the company and
deal with non-routine situations. Thus, the members of the Board should be highly-qualified
specialists.
Let us now consider this question in terms of conflict of interests. Since so-called "conflict of agents" is
likely to arise in joint stock companies, it is necessary that there should be a third party that would
encourage conflicting parties to reach a consensus. Besides, the Board of Directors should contribute
to creating a stable balance of interests of different shareholder groups.
To deal with these tasks it not sufficient to include only highly qualified specialists into the Board of
Directors. It should also include independent members, those who do not seek any position of power
in the company.
Controlling and executing functions overlapping: the conflict of interests
One of the Board's functions is to perform control over the executive bodies' activity. That is why it
would be logical to assume that no executive directors should serve on the Board, otherwise they
would have to control themselves. However, Russian legislation demands only that executive
directors should not be in the majority in the Board, and the functions of the Chairman and General
Director should be performed by different people.
At the same time, Russian Corporate Governance Code does not recommend including members of
executive bodies into the Board of directors (clause 2.1.2).
General meeting and the Board of directors: authority competition
Analyzing corporate conflicts and related judicial practice, we can assume that in most cases the
conflicts are caused by wrong distribution of authorities between two main governing bodies –
General meeting and the Board of Directors.
Defining the exact sphere of the Board's power depends on how shares are distributed among
incorporators, whether they take part in running the company, and other factors.
According to Clause 2 Article 28 of Joint Stock Companies Law, the decision to increase the share
capital by distributing additional shares is made by the General meeting or the Board of Directors, if
the corporate charter permits it to make this decision (alternative authority). However, it should be
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taken into consideration that making such decision by the Board of Directors is not beneficial for
majority or blocking shareholders: they will have to bear additional costs buying distributed shares.
The alternative authority of the General meeting and the Board of Directors also lies in the sphere of
creation and early termination of power of the executive body (subclause 8 Clause 8 article 48 of
Law).
The questions of appointing and early termination of power of members of the collegiate body can be
transferred into the sphere of the Board's authority. However, it is reasonable to leave the questions
of conclusion and termination of the contract with General Director under the authority of the General
meeting. Delegating these questions to the Board of Directors can result in the abuse of power. The
Board has an opportunity to appoint "its own director" and remove the "unwanted" one. At the same
time suspension of the General director's power and appointing acting general director (when the
General director cannot fulfill his duties) are also under the authority of the Board of Directors.
The author does not claim that the proposed system of preventive measures of dealing with internal
and external corporate conflicts is the complete and final description of all possible methods. At the
same time the authors assumes that this system of preventive measures can be implemented in lawmaking,
judicial practice and developing company charters and other corporate acts.
References
Belayev, D. Interests Сompany and the Сoncept of Вad Faith of Directors//(2009) Zakony Rossii, Issue 5.
Hughes S.B. Corporate Governance in the Sun: Reform to Corporate Governance in Australia//(1998) I.C.C.L.R.,
Issue 10.
Gritans, Y. (2005) Corporate Attitudes: Legal Regulation of the Organizational Forms, WoltersKluwer, Моscow.
Dedov, D. (2004) Conflict of Interest, WoltersKluwer, Моscow.
Mogilevsky, S. (2000) Limited Liability Company, Delo, Моscow.
150

Corporate Governance in Emerging Economies: Evidence
From Romania
Niculae Feleagă, Liliana Feleagă, Voicu Dan Dragomir and Adrian Doru Bigioi
Academy of Economic Studies, Bucharest, Romania
nfeleaga@yahoo.com
liliana_malciu@yahoo.com
voicudragomir@gmail.com
adrian.bigioi@realteam.ro
Abstract: Corporate governance is a set of “rules of the game” through which companies are managed internally
and supervised by Boards of directors, in the best interest of shareholders. Corporate governance is also
acknowledged as a key element in attracting investments and in improving economic performance and
competitiveness in the long term. For this reason, standard setters in developed countries have made substantial
efforts to improve corporate governance. These efforts have been implemented in more or less formal ways, with
respect to drawing governance quality standards to be adopted by companies in different institutional and
industrial contexts. Such “best practice recommendations”, issued by regulators and professional bodies in
developed countries, have also been globally disseminated. Among the beneficiaries, emerging countries in the
Eastern part of the European continent have adopted these standards to better manage the radical economic
transformations that have taken place in the last two decades of the 20th century. Some of these transformations
have envisaged reforming organisational structures, developing new product solutions and reformulating
behaviour patterns in managing. It is estimated that the globalization of financial markets has helped to reduce
the gap between advanced and emerging economies, in terms of governance implementation. However,
economic delays attributable to emerging countries may also be factors acting against further improvement of
corporate governance. In this context, our research aims to examine corporate governance principles used by
companies from emerging economies, where competitiveness in the global economy today is more difficult.
Emphasis will be set on the case of Romania. From a conceptual and regulatory point of view, in Romania
corporate governance has emerged beginning with the early 2000s. The delay is explainable by the difficult steps
taken on the line of political, legal, economic and social reform. In recent years, however, the corporate
governance environment in Romania has changed. Transparency and accountability have become key factors
not only for shareholders, but also for investors, buyers, suppliers, and other stakeholders. In this context, it is
worth to consider, based on statistical data, the degree of development of corporate governance in Romania. The
selected indicators are linked to attributes of the Board of directors, in particular Board structure, size,
independence, frequency of meetings, and other factors. The sources used are based on the official data
published by companies listed on the Bucharest Stock Exchange (BSE). The results will be compared with
results of other case studies of emerging countries and the European best practice.
Keywords: corporate governance; emerging economies; Romania; corporate governance indicators
1. Introduction
Corporate governance represents a set of “rules of the game” through which companies are managed
internally and supervised by Boards of directors, aiming to protect the interests of corporate
stakeholders. It specifies the distribution of rights and responsibilities among different participants in
the corporation, such as the Board, managers, shareholders and other stakeholders, and spells out
the rules and procedures for making decisions on corporate affairs. By doing so, it also provides the
structure through which the company objectives are set, and the means of attaining those objectives
and monitoring performance (OECD, 1999).
The last three decades’ ground-shaking bankruptcies, financial crises and the gap between executive
compensation and corporate performance results, have demonstrated that instituting corporate
governance is not only a means to survive in today’s world, it is a strategy to prosper. Corporate
governance helps companies to attract investments and to enhance economic performance and
competitiveness on the long term. A sound system of corporate governance insures that transparency
is maintained in relation to all significant transactions of a company, especially through the adoption of
disclosure standards in dealing with investors and creditors. Moreover, corporate governance aims to
enhance the managerial attributes of a company, by limiting the abuse of power from insiders and by
safeguarding the resources of companies, through a monitoring system insuring corporate
accountability (Omar et al. 2004).
Since the development of corporate governance has proven to be beneficial for companies, the
regulators in developed countries have made substantial effort for updating and improving
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accountability systems. Corporate governance systems have been reformed through the issuance
and the adoption of best practice codes. The implementation of corporate governance principles into
the practices of enterprises is a non-mandatory practice, but it is subject to market pressure for
conformance. As we speak, there are more than 180 corporate governance codes worldwide, which
have a great degree of similitude and convergence regarding their formulations and content (Aguilera
and Cuervo-Cazurra, 2004).
Drawn firstly in developed countries, best practice recommendations have been disseminated beyond
their borders. Some emerging countries were quick in adapting some of these corporate governance
codes. However, in order for corporate governance principles to have any impact in an economy,
there must be a priori a set of core democratic market institutions. Therefore, instituting corporate
governance in emerging countries necessitates more than just copying external models which display
a proper functioning in developed economies. Emerging countries must make the passage from
institutions of economic and political governance that tend to be heavily relationship-based to
institutions that are more effectively rules-based. This passage is difficult because of the expropriation
problem and because of the widely damaging effects of negative-sum game rivalry among powerful
interest groups entrenched in local structure of political and economic power (CIPE, 2002).
Our research aims to analyze the principles of corporate governance implemented by companies from
emerging countries, where competitiveness in today’s global economy is more difficult. The case of
Romania serves the purpose of demonstrating that functioning market rules need to exist prior to the
implementation of corporate governance codes, which would otherwise fail in their purpose of insuring
accountability.
The rest of the paper is organized as follows. Section 2 discusses the background literature on
corporate governance in emerging economies. Section 3 presents the corporate governance
environment of Romania. Section 4 describes the research method and presents the results. In the
final section, the conclusions are accompanied by a description of tentative avenues of research.
2. Background literature on corporate governance in emerging economies
In this section, we provide a brief overview of the theoretical and the empirical literature on the
implementation of corporate governance principles in emerging economies. The literature focusing on
these aspects is extremely rich. Some studies discuss the attributes and dynamic of corporate
governance in only one emerging country (Black, 2001 on Russia; Jandik & Rennie, 2005 on Czech
Republic; Sarkar & Sarkar, 2005 on India; Black, Jang & Kim, 2006 on Korea; Vitezić, 2006 on
Croatia; Siddiqui, 2010 on Bangladesh). Other papers are multicountry studies (Faccio et al., 2001);
Lefort & Walker, 2003; Klapper and Love, 2004; Allen, 2005; Durnev and Kim, 2005; Driffield et al.,
2005; Love & Rachinsky, 2007).
The thematic approach is also different. Some studies are focusing on the economic behaviour of
companies which are tied to a group or conglomerate which exerts control over them through a
significant participation in their share capital. Conglomerates have been able to grow and increase
their scope and self-intermediation practices even during times of fierce economic reform and
deregulation (Khanna & Palepu, 1999; Lefort & Walker, 2000). Therefore, several studies have sought
to evaluate whether an entity’s affiliation to a conglomerate is a good thing for the investors. Khanna
and Palepu (1999) reported that in Chile and India the affiliation of a firm to such a conglomerate lead
to a growth of economic performance and that the degree of diversification of the conglomerate
increased performance only after it had reached a certain threshold. Still regarding Chilean
companies, Lefort and Walker (2003) indicate that affiliation to a group tends to decrease the value of
the firm and that the effect is partially reduced when there is a separation between cash flow and
control rights.
Other studies based on emerging economies have analyzed the impact of implementing corporate
governance principles on the performance of entities. In 2001, Credit Lyonnais Securities Asia (CLSA)
has devised a series of corporate governance rankings for 495 companies from 25 emerging
countries. The report underlined the fact that companies ranked high on the governance index have
better operating performance and higher stock returns. Klapper & Love (2004) used the governance
rankings produced by CLSA to investigate the relationship between corporate governance and firm
performance by employing multivariate regression. Their tests showed that better corporate
governance is highly correlated with better operating performance and market valuation. Additionally,
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the two researchers emphasized the fact that well-governed firms benefit more in bad corporate
governance environments and that firms can partially compensate for ineffective laws and
enforcement by establishing good corporate governance and providing credible investor protection.
The study conducted by Black (2001) on a sample of Russian firms analyzed for the year 1999
reported a strong correlation between a corporate governance index and the market value. Similarly,
for the period 1999-2004, Black et al. (2006) signaled an economically important and statistically
strong correlation between governance and market value (Black et al., 2006). In the financial sector
there are some significant, but economically unimportant relationships between governance and
contemporaneous operating performance and an even weaker link with the subsequent performance
(Love & Rachinsky, 2007).
Numerous other studies have focused on the role of debt in corporate governance systems from
emerging economies. Debt is an important mechanism for solving monitoring issues in firms where
there is a separation between ownership and control. It is obvious that managers have the incentive
to extend the size of the company even by reducing corporate profits, because large companies are
drivers of power, fame and remuneration for the respective managers. In this case, debt is imposed
as a disciplinary mechanism, aiming to reduce agency costs and to align the interests of managers
with those of the shareholders, within the “control hypothesis” for debt creation (Jensen, 1986). Thus,
Faccio et al (2001) noticed that companies from Eastern Asian countries that were more vulnerable to
expropriation were more levered, giving the controlling shareholder control of more resources to
expropriate without direct liability for more debt. However, Tian (2005) has found no evidence
regarding the disciplinary role of debt, in the case of Chinese companies.
The study of Harvey et al. (2004) on 18 emerging economies has diagnosed a limited disciplinary
effect of debt, in correlation with the nature of the borrowed capital. Thus, the study indicates that the
incremental benefit of debt is concentrated in firms with high expected managerial agency costs that
are also most likely to have overinvestment problems resulting from high levels of assets in place or
limited future growth opportunities. Subsequent internationally syndicated term loans are particularly
effective at creating value for these firms.
Driffield et al. (2005) provided evidence that, on a sample of companies from Correa and Indonesia,
higher ownership concentration is associated with higher leverage irrespective of whether a firm is
family owned or not. But the effects of higher control rights on leverage and profit margin depend on
whether a firm is family owned or not and also whether it has a controlling manager.
Similarly, Sarkar and Sarkar (2005) examined a sample of Indian companies, analyzing the role of
institutional change in strengthening the disciplining effect or mitigating the expropriating effect of
debt. The results indicated that, while in the early years of institutional change, debt did not have any
disciplinary effect on either standalone or group affiliated firms, the disciplinary effect appeared in the
later years as institutions become more market oriented. In addition, the study provided limited
evidence of debt being used as an expropriation mechanism in group firms that are more vulnerable
to such expropriation.
There are also studies which have attempted to characterize the models of corporate governance
adopted in emerging countries. In developed countries there are two models of corporate governance:
the shareholder model and the stakeholder model. While the former has the objective of shareholder
value maximization, the latter aims to defend the interests of firm constituencies (employees,
commercial partners, shareholders, managers etc.). The results of such studies indicate that some
emerging economies tend to adopt the shareholder model, despite the fact that this model is based
on hypotheses and mechanisms such as efficient markets and equity financing (Mukherjee-Reed,
2002 on India; Reed, 2002 on South Korea; West, 2006 on South Africa). Many of the mentioned
countries are former British colonies, with a common law system. Other emerging economies have
adopted the stakeholder model (Rwegasira, 2000 on Africa; Vitezić, 2006 on Croatia; Feleaga, 2008
on Romania; Siddiqui, 2010 on Bangladesh), and some of them have been influenced by the French
system of Roman law. In emerging economies, companies are less motivated to act in a socially
acceptable manner, if their actions are not matched by the available resources. This justifies why the
stakeholder model is more appropriate for such countries.
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3. The corporate governance environment in Romania
Corporate governance became a part of Romanian economic life, both from a conceptually and from
a regulatory point of view, at the beginning of 2000. This delay is the result of the many inconclusive
efforts that targeted political, juridical, social and economic reforms. The governmental policy that was
expected to liberalize the economy after the anti-communist revolution was still not completed after a
decade of quasi-capitalism. At that time, a coherent strategy to extract benefits from national human
and technological resources was still not implemented. The Bucharest Stock Exchange (BSE) opened
for investors in 1995, while the National Securities Commission still had a long way to go to reach
effectiveness; its lack of implication in scrutinizing the quality of financial reports and the impossibility
of implementation of modern accounting policies lead to deep market inefficiencies.
On the other hand, the difficulties the banking system had to face were the main cause for a lack of
implication in the market mechanism. The lack of trust of banks’ stakeholders and minority
shareholders prevented banks to be actively involved in providing and intermediating national capital.
Consequently, the hypothesis that Romania had a functional market economy before the beginning of
our century is unacceptable in our view, even if our European partners seemed to tolerate this difficult
passage to capitalism.
This was the context in which, in 2001, the BSE adopted the first code of corporate governance
addressed at those companies aiming to be listed at the “Plus Category” (meaning an
“additional transparency layer”). This initiative was not successful, since only one company has
entered into this layer. In the following years, BSE has created the Institute for Corporate
Governance, aiming to educate the executives of listed companies into promoting adequate
governance standards, in line with the White Book of Corporate Governance in Eastern Europe,
which was partly designed by BSE. However, the implementation of corporate governance in
Romania did exhibit some fundamental flaws and inconsistencies (Feleaga, 2008):
The lack of precise analyses concerning the relationships between shareholders and managers;
The scarce involvement of all stakeholders in the decision-making process;
The omission of a conceptual framework for an efficient market and its societal implications;
The dubious implication of financial auditors in promoting corporate governance;
The failed reforms in implementing an accounting system in accordance with international
harmonisation;
The poor control mechanisms impairing a fair, relevant, understandable and comparable financial
disclosure.
In 2008, BSE adopted a new Code of corporate governance, having the OECD Principles as basis of
reflexion. The Code entered into force in 2009 and is voluntarily applied by companies listed at the
BSE. The companies which decide on a partial or total compliance with the Code are required to file a
Conformity declaration, similarly with the “comply or explain” principle from the United Kingdom. This
Declaration enumerates the recommendations which have been explicitly implemented by the
companies, as well as their implementation manner. The new Code of corporate governance is similar
to those adopted by other European Member States and stipulates new rules which are important for
managers and Boards of directors from Romanian companies. The BSE considers that the Code can
only supplement the laws in vigour in Romania, e.g. the Company Law, the Accounting Law, the
Financial Markets Law etc.
4. Methodological aspects: Sample selection and results
The aim of the present research is to investigate, based on statistical data, the perceived importance
of corporate governance principles in Romania. The source is the information publicly available from
the companies listed at the BSE. At the end of 2010, 101 companies were registered at the BSE, of
which: in the first tier – 25 companies; in the second tier – 49 companies; in the third tier – 1
company; and unlisted – 26 companies. For the purpose of this study, only the companies in the first
tier were selected, because it is more likely that some of these companies have adopted the
provisions of the Romanian Code of corporate governance, and have disclosed their conformity level.
To obtain a relevant homogenous sample, we decided to eliminate 10 financial companies, and thus
the final sample has 15 industrial companies and is presented in Table 1.
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Table 1: Sample companies:
Niculae Feleagă et al.
Number Company name
1 ALRO SA
2 ANTIBIOTICE S.A
3 AZOMURES S.A.
4 BIOFARM S.A.
5 C.N.T.E.E. TRANSELECTRICA
6 CONCEFA SA SIBIU
7 IMPACT DEVELOPER & CONTRACTOR S.A.
8 OIL TERMINAL S.A.
9 OLTCHIM S.A. RM. VALCEA
10 OMV PETROM S.A.
11 PREFAB SA BUCURESTI
12 ROPHARMA SA BRASOV
13 S.N.T.G.N. TRANSGAZ S.A.
14 SOCEP S.A.
15 TURBOMECANICA S.A.
The indicators used in this study are derived from attributes of the Board of directors: the size and
structure of the Board, the independence of directors, the separation between the chairman of the
Board and the executive officer, as well as the degree of disclosure in relation to these elements.
4.1 The size of the Board of directors
The number of members in the Board depends, in principle, on the relevant regulations specific to
each country and to the sector to which the company belongs. The analysis conducted by Maier
(2005) reveals a great diversity concerning the size of the Board, with an average number ranging
from 7.2 in New Zeeland to 22.8 in Germany.
The BSE governance code provides that the Board must have a membership that guarantees the
efficiency of its ability to monitor, analyze and evaluate the work of directors, as well as the fair
treatment of shareholders. For companies in the sample, the average number of Board members is
six. This average number is consistent with the Romanian Company law which provides for a
minimum of 3 and a maximum of 11 members. Romanian average is lower than the European
average of 12.5 members (Albert-Roulhac & Breen, 2005), a result which can be explained by the
size of local companies and their ownership structure.
4.2 The structure of the Board of directors
Three indicators were used to analyze the structure of the Board: internationalization, age and
diversity of members. Results showed that in Romania, the share of foreign members of the Board of
directors is 16%. Although the value is identical to the European average (Albert-Roulhac & Breen,
2005), it should be noted that only three of the 15 sample companies have foreign citizens as
members. Moreover, for two of the three companies, the percentage of foreign members is over 70%,
which is explained by the weight that foreign capital plays in these companies. The average age of
Board members is 51 years. Board member’s average age is 55 in Europe. On average, directors
have been 5.6 years on the same Board, which is higher than in Romania (around 4 years). On
European Boards, the number of women increased from 6% to 7% (Albert-Roulhac & Breen, 2005),
while in Romania, the percentage is much higher, around 16%.
4.3 The frequency of Board meetings
BSE governance code sets the minimum frequency of Board meetings. These should meet whenever
necessary for the effective discharge of its responsibilities but it is advisable to have at least one
meeting per quarter. The frequency of meetings for companies in our sample is 6 per year. In Europe,
the average frequency of meetings for two-tier Boards is 6.7, while for unitary Boards it is 9.3
meetings (Albert-Roulhac & Breen, 2005).
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4.4 The independence of Board members
Niculae Feleagă et al.
The BSE Code of corporate governance states that the Board structure should ensure a balance
between executive and non-executive members so that no person or group of people can dominate,
in general, the Board’s decisions. Moreover, a sufficient number of board members must be
independent directors, meaning that they should not have or have recently had, directly or indirectly,
any business relationship with the issuer or persons involved, of such importance to influence the
objectivity of their opinions.
The analysis carried out on companies listed on BSE showed that 27% of them are reporting a high
degree of independence of the Board of directors, while for 53% this attribute is lacking. Twenty
percent of companies did not provide information on board independence. Analysis carried out by
Maier (2005) showed the average percentage of board independence on a scale ranging from 1.5% in
Germany to 81.3% in Switzerland.
According to the BSE Code of governance, the Board should establish an audit committee to assist in
fulfilling the Board’s responsibilities in the matter of financial reporting. This committee should be
composed exclusively of non-executive directors and should also contain a sufficient number of
independent directors. For our sample, 80% of companies did not ensure independence of the audit
committee. The other companies did not provide relevant information to make an objective analysis
on the independence of audit committee members. The study by Maier (2005) found, on average, a
degree of independence of the audit committee of 64.5%, varying from 4% in Japan to 95% in
Canada, U.S., Ireland, UK, Netherlands and Luxembourg.
4.5 The separation between the chairman of the Board and the chief executive officer
According to “best governance practice” recommendations in developed economies, the Board
appoints the chairman from among persons who are not part of management. For our sample, in 67%
of the companies the positions of chairman and CEO are held by the same person. For the remaining
companies, the two positions are held by different people.
4.6 The disclosure of director and executive remuneration
External users are interested, in addition to other information about the company, about the
remuneration policy for board members and managers. The remuneration is the most influential factor
on the level of participation directors and executive exhibit in relation to running the business. The
BSE governance code provides that companies must benefit from the services of directors and
executives with a good professional and ethical profile, in conjunction with a reliable remuneration
policy, consistent with the strategy and long-term interests of those entities. The study by Maier
(2005), based on a sample of firms from 24 countries, showed that disclosure of information on
remuneration of Board members and directors has an average of 84%.
None of the Romanian companies analyzed has disclosed information on executive or director
remuneration. The absence of such information leads to an impossibility to corroborate director
remuneration with Board meetings, as to compute an average compensation per meeting. In Europe,
the average compensation per board meeting in 2005 was EUR 7301 (Albert-Roulhac & Breen,
2005).
4.7 The existence of a code of ethics
If you are considering the “best practices” of governance in developed economies, implementing a
code of ethics is necessary. In Europe, on average, 73% of companies have such a code. In
Romania, only 47% of companies provide information on the existence of a code of ethics.
5. Conclusions and directions for future research
Corporate governance is recognized as a key element in attracting investment and increasing
economic performance and competitiveness in the long term. Globalization of financial markets has
contributed to reducing the gap between advanced and emerging economies, in terms of corporate
governance implementation. However, due to cultural, economic and social factors, emerging
economies cannot yet speak of a comprehensive approach, especially when compared with
developed economies.
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In Romania, corporate governance has emerged in its regulatory and conceptual form in the early
2000s. The first corporate governance code was adopted in 2001. In 2008, it was replaced by a new
corporate governance code, which is based on OECD principles. The new code is applied voluntarily
by companies traded on a regulated market operated by the BSE. In this context, our research aimed
to analyze a sample of companies listed on BSE, regarding the perceived importance of corporate
governance principles in Romania. The collected indicators are related to attributes of the Board of
directors: size, structure, frequency of meetings, independence, separation between the chairman
and chief executive officer, and information disclosure.
Results showed that most sample companies do not meet the recommendations of the BSE code of
corporate governance regarding the independence of directors and audit committee members. In
addition, for most of the Romanian companies in our sample, the degree of transparency is much
lower than that of other European companies.
There is much scope for further research in this area. Thus, the sample could be extended to
companies in the banking sector, which would serve to verify if the situation is the same with entities
from the financial industry. In addition, one could explore the incentives behind the Romanian
companies’ decision to implement the recommendations of the code of governance. The corporate
governance impact on performance could also be established through a quantitative research
employing other contextual predictors (economic, political, social, and cultural) of company
performance.
Acknowledgements
This work was supported by CNCSIS–UEFISCSU, project number PNII – IDEI code 1859/2008,
contract no. 837/2009.
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158

VTMM - Virtual Team Maturity Model
Ralf Friedrich 1,2 , Udo Bleimann 1 , Ingo Stengel 2 and Paul Walsh 2
1 University of Applied Sciences Darmstadt, Germany
2 Cork Institute of Technology, Computing Department, Ireland
ralf.friedrich@h-da.de
u.bleimann@fbi.h-da.de
ingo.stengel@cit.ie
paul.walsh@cit.ie
Abstract: As virtual teamwork becomes more and more widely used the performance of many virtual teams is
still low and initiatives improving virtual team performance are often ignored (Kostner, 1998, Lipnack and Stamps,
2000, Stöger and Thomas, 2007). One of the reasons is the lack of a reference model against which virtual
teams can be assessed and gaps in the performance can be identified and closed. In two rounds of control group
experiments, carried-out in 2010 and 2011 and an organisational analysis of a global engineering organisation in
2011, it was identified that a gap in performance is closely related to inappropriate behaviours of team leaders
and team members in a virtual environment. VTMM - Virtual Team Maturity Model addresses this gap. It is
designed to assess the current maturity of a virtual team and proposes clear steps to improve the virtual team
performance quickly. This is achieved through a set of pre-defined virtual team processes. Implementing these
processes will lead to a new behaviours applied by all members of the virtual team and this new behaviour will
lead then to increased team performance. The increased performance can be measured in maturity levels,
showing evidence of the degree of implementation of the virtual team processes. In addition to the processes,
VTMM offers two best practice libraries: One for virtual team tools and one for virtual team culture.
Keywords: Virtual team performance, virtual team maturity model, virtual team leadership, virtual team
processes, virtual team assessments
1. Background
Virtual teams are more commonly used today than a couple of years ago (Brake, 2008). Currently, we
have a good technical infrastructure for virtual teamwork. However, many teams still work with very
basic technology, limiting themselves to e-mail and telephone conferences in their communications
(Busch and Mayer, 2002). An organisational analysis carried out by the authors of this paper of a
global engineering organisation in 2011 confirmed their findings.
Also, virtual teamwork has the disadvantages of missing body language in many communications
(Kostner, 1998). Therefore a virtual team needs to clear and easy to follow processes so that the
missing non-verbal communication is compensated.
In the research of virtual teams through control group experiments some observations have been
made on factors influencing virtual teamwork. These factors have also been stated by Kostner (1998).
They are:
Trust within the team is important
Building relationships through sharing knowledge
Create a common spirit by defining a clear purpose / set of objectives
Share the same information among all team team members simultaneously
This paper describes a possible approach to assess and improve virtual teamwork by using a virtual
team maturity model, called VTMM.
1.1 Definition of a virtual team
There are many definitions of a virtual team as researched by Ebrahim (2009). His definition of a
virtual team has the common criteria listed below:
Geographically dispersed (over different time zones.
Driven by a common purpose.
Enabled by communication technologies.
Involved in cross-boundary collaboration.
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In practical terms, this means that the team members will work from their locations and meet at
particular times through communication media. The team members will work within their own culture
together with team members from other cultures. This adds a complexity to the team members to a
virtual team as they are working together from silos of disciplines, departments and countries
(Beyerlein et al, 2008). This definition is used as the basis for the research introduced in this paper.
1.2 Challenges in virtual teams
Based on Nemiro et al (2008), a virtual team has to overcome the following external and internal
challenges.
External factors (virtual team givens) are those factors that outside the control of a virtual team and
the team has to find a way to manage them:
Distance
Time
Technology
Internal factors (virtual team creations) are those within the control of a virtual team, where the team
can directly influence these factors:
Culture
Trust
Leadership
Both internal and external factors are the virtual team challenges. They can potentially be overcome
by work processes for virtual collaboration.
Now, where the challenges are stated, one key question is:”How can the virtual team performance be
increased?” As all these challenges cannot be captured in a single function and as the challenges
address completely different elements and disciplines, a maturity model might be a promising
approach.
1.3 Performance Improvements through a Maturity Model
There are basically two different types of maturity models, the continuous model such as the EFQMmodel
(EFQM, 2011). EFQM stands for European Foundation for Quality Management. The other
type of maturity models use a staged model, such as CMMi (Chrissis, 2003). CMMi stands for
Capability Management Maturity Model integrated. Definitions of these two models are:
A process improvement technique for evaluating how efficiently a company is able to deliver
technology products to its customers. Capability Maturity Model Integration is often associated with
software development, and seeks to integrate the various steps in the development process.
(Buinness dictionary, 2011)
„The EFQM Excellence Model provides a tool for identifying strengths and areas for improvement but
doesn’t give you a structured approach for implementing improvements to address the issues
identified“ (EFQM, 2011).
Based on the definitions above, desktop research and two rounds of control group experiments, the
Virtual Team Maturity Model (VTMM) has been developed. The main contribution of VTMM is its
process model for virtual team collaboration.
2. Overview of VTMM (Virtual Team Maturity Model)
VTMM follows the thought of Nemiro et al and also of Kostner (1998), Lipnack and Stamps (2000)
and Duarte and Synder (2006). It has been developed in two rounds of control group experiments
carried-out in 2010 and 2011. The control group design was that the one group had to follow certain
team processes which impacted the virtual team creations stated above. The control group received
no special training and guidance. The treatment of the control group experiment was designed to be
explicit in the process of how leadership had to be established and how feedback processes had to
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be implemented. The results of these experiments were that the teams working on the virtual teams
creations explicitly have been more successful in completing the main deliverable of the project: A
web-portal for a university.
The control group experiments confirmed the challenges stated by Nemiro et al (2008). The overall
sense is that the performance improvement of virtual teams need to address three domains (Powell et
al, 2004):
Virtual team processes should define the basic work processes of a virtual team so that the
missing face-to-face interactions are compensated.
Virtual team tools should ensure that the team can communicate effectively and efficiently in
different situations.
Virtual team culture should include elements of trust, leadership and other softer, interpersonal
skills making a team excel.
Between the three domains there are interdependencies:
Processes use tools. Example: In order to conduct a virtual meeting, tools are required. However,
there are so many different tools available on the market, it is difficult to be prescriptive on which
tools to use. Therefore tools in VTMM are being made available in a Best Practice Library
Processes influence culture. Example: If processes are followed then more transparency on the
decision-making is achieved and then trust is likely to increase as well. Here we face the same
challenge as with the tools. There are too many different concepts available on interpersonal skills
to be prescriptive in a maturity model. All the concepts which are relevant to cultural issues are
made available in VTMM as a Best Practice Library.
Culture influences processes. Example: Some cultures require clear processes, other cultures
need less processes. In comparison to tools and culture, a minimum set of processes can be
defined which then needs to be implemented specifically for each virtual team.
Figure 1: Conceptual View of VTMM
These interdependencies are important for the implementation of VTMM on a virtual team. VTMM
defines for the first time a process-based maturity model for virtual teams.
2.1 Scope of VTMM
The model is designed to achieve the objectives below:
To assess the maturity of a virtual team - the maturity level will be assessed for each process of
VTMM. More information are stated in 4.6 Assessment levels.
To guide a specific virtual team to higher performance. Here the model will propose some logical
steps to improve the performance of the virtual team quickly.
To benchmark the virtual team performance against industry-best-practice. This will be possible
after a critical number of assessments have been done and industry-trends can be calculated.
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2.2 Limits of VTMM
Ralf Friedrich et al
The model is limited to the assessment of maturity levels of a specific virtual team.
Organisational aspects are excluded from the maturity assessment. Such organisational aspects
could be the availability of particular training curricula for virtual team members or leaders of virtual
teams or the standardisation of virtual team tools across departments or countries.
2.3 Virtual processes overview
The processes below are described in terms of inputs, methods and outputs. The processes identified
for virtual teamwork are designed to overcome the challenges of virtual teamwork stated above.
Beyerlein et al (2008) made a first attempt to map out collaborative work structures and processes.
The proposed process model below extends their work to cover the transactional trust model by Reina
and Reina (2006). The processes cover the contractual trust, the communication trust and the
competence trust. This model also supports the three functions of a virtual leader as stated by O‘Neill
et al (2008). It also builds on the works of Obradovich and Smith (2008). The proposed process model
extends also the process model described by Duarte and Synder (2006). Their model focused on task
execution. The proposed process model below focuses on task execution in a collaborative
environment and it defines the collaborative environment through processes. The processes and their
objectives are:
Get-to-know-each-other. This process provides a standard orientation for new team members. It
supports the creation of a team identity.
Feedback. In a virtual team and due to its high degree of non-verbal communication, regular
formal feedback is necessary for the leader and team members to develop a sense of where the
team is and preventing conflict early enough. The importance of feedback on team performance
has been stated by Cartwright (2002). The feedback process may be used as an early warning
system.
De cis ion-Ma king. In a virtual team the decision-making has to be transparent (Koster, 1998).
Therefore, formal decision-making is necessary so that all team members can follow the reasons
for the decisions and the related majorities. The decision-making process is based on the sensemaking
process as stated by Hinrichs et al (2008)
Meeting Management. Virtual team meetings have a significant impact on the motivation of the
virtual team. Virtual team meetings have to be prepared, executed and followed-up correctly to
keep the virtual team motivated. A special meeting is the virtual “kickoff” meeting.
S ocia lis ing. This process compensates for the missing face-to-face interaction such as coffee
breaks during meetings or meeting in the kitchen where important communications take place.
Information Management. The management of information is important to keep a clear
understanding about the task, the decisions, the action items and the versioning of the
documents.
Reward & Recognition. This process appraises positive behaviour and discourages undesired
behaviour. It is important to support the team culture.
Ramping-Down. This process manages how the virtual team is dissolved. This process is based
on the works of Sarker and Sahay (2003).
2.4 Best Practice Library on Virtual team tools
The best practice library on virtual team tools describes the possible tools for a virtual team and how
they could be used. A virtual team has basically the choice between synchronous media and
asynchronous tools (Busch and Meyer, 2008 and Duarte and Snyder, 2006).
Synchronous tools include:
Telephone
Videoconferencing
Online collaboration tools
Chat
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Application sharing
Asynchronous tools cover:
E-Mail
Mailing lists
News groups
Websites
Social Media Networks
Databases
Ralf Friedrich et al
There are some hybrid tools emerging, such as virtual team collaboration portals
Virtual teams should use a variety of tools depending on the task to complete. There are tools for
creativity, collaboration, socialisation, reviews and document management available.
This part of the research is still ongoing. It is assumed that existing research can be used to define
this domain fully.
2.5 Best Practice Library on virtual team culture
The impact of culture on virtual teams is according to Freedman (2008) significant. The culture of the
teams depends on many factors. Below is a list of possible influencing factors as identified during the
control group experiments in 2010 and 2011:
Personal experience with virtual teamwork. How much experience have the team members with
virtual teamwork? Are they familiar with the different concepts, processes and tools? What
positive or negative experiences did they make during their lives in virtual teams?
Learner Types. How do the team members learn? Are they learning in a similar way or do they
have different needs on how they acquire new information?
Cultural Orientations. Where are the team members from? Are their cultural orientations alike or
different? How much can the team members move toward the other team members?
Coordination. How is the coordination done in the team? Is everybody involved in the
coordination? Does the coordination style reflect the cultural orientations needs of the team
members?
Treating people equally. Are virtual meetings scheduled in a rotationally mode or are some team
members always at an uncomfortable hour participating?
Leadership. How is the leader skilled to lead the virtual team? How can the team members
contribute in team decisions? How much personal freedom is given to each team member? What
is the mindset of the leader towards all the team members? How are concepts such as
transformational leadership or elective leadership implemented?
General tasks. Do the team members have the right competencies for the tasks? Are the tasks
equally distributed? Are the responsibilities clearly defined? Are the expected quality criteria
defined?
Motivate. How is the motivation of the team? What are the trends? What can the team leader the
the team members do to increase the motivation of the team?
Competency De ve lop. How can we increase the performance of the team members so that they
can learn something on the project?
Ava ila bility. How easy is it to get in contact with the team leader and with other team members?
On which communication channels are they available?
Influencing. How can the team member influence each other in a positive way?
Integrity. What are the individual values of the team members and what are the values of the
team? How fair does the team exchange difficult information? How congruent are the team
members and in particular the team leaders behaviour?
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Learning. What opportunities do the team members have to increase their skill levels? How can
the team leader and the team members support each others learning?
VEtiquette (Conway et al, 2008). What is the norm for respectful communication in the team?
How is it defined?
All these elements above are part of a culture of a virtual team and they are more elements to
consider. A positive team culture will result in trust and commitment. This part of the research is still
ongoing. The objective is to isolate the most influential cultural elements factors on the performance
of virtual teams.
2.6 Assessment levels
Assessments are important to predict successful virtual team collaboration (see Filgo et al, 2008). For
VTMM a staged model assessment is proposed as stages give the user a better orientation. The
levels have been defined to be simple, as everything in a virtual environment needs to be straight
forward (Thomas et al, 2007)
2.6.1 Level 0: Undefined
Is defined has the virtual team has many gaps in the VTMM process model and the success of the
team cannot be traced back to the conformance to virtual team processes. Virtual teams on this level
can be successful. The success is then dependent on some special circumstances within the
environment of the virtual team. This can be due to very experienced team members or due to a
charismatic team leader.
Many of the processes, tools or cultural elements are missing and most likely also unknown to the
virtual team members, leaders and sponsors. Therefore the virtual team does not know what to do to
improve the performance of the virtual team.This statement was confirmed by the organisational
analysis of the global engineering organisation in 2011.
The objective of performance improvement at this level is to educate the team on virtual team
processes, virtual team tools and cultural elements so that the team develops an awareness on what
are the possibilities to get to higher virtual team performance.
2.6.2 Level 1: Basic
At this level the team has awareness on what is required to increase the performance of the virtual
team. All the quick wins have been implemented and the team performance increased, the level of
conflict decreased and the team members develop trust and strengthen their relationships.
Objective for performance improvement is, after the quick wins have been implemented, to create a
solid structure which allows the team to increase its performance further. There will be still some
learning taking place on implementing new processes, tools and cultural elements.
2.6.3 Level 2: Advanced
At this level, all elements of VTMM are present. The virtual team has a positive culture, different tools
are used for different tasks and the virtual team processes are fully implemented or decisions not
implementing them have been well documented. The level of conflict is low and the performance is
high. The team invests time into the relationship with other team members. Complex tasks are
managed successfully and issues are managed efficiently.
Objective for performance improvement is that the team maintains the good performance to complete
the project successfully. Now, the structure has to be implemented in such a way that the team
performance will maintain this level of performance even if there are changes in the team members
(members leaving or entering the team).
2.6.4 Level 3: Mastery
All elements are present to the needed levels. The team is in a state of „flow“ and the performance is
very high. The team has implemented knowledge management processes and works on the
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optimisation of the virtual team processes, tools and culture. Team members enjoying being on the
team and the project progresses according to schedule, budget, scope and quality.
Objective for performance improvement is now maintaining this level over the life-cycle of the team or
until the end of the project.
3. Discussion and Conclusion
VTMM is a model which supports virtual teams to create the virtual teams internal processes leading
to trust, leadership and culture. Currently the model in under validation within a global engineering
organisation implementing virtual teamwork. VTMM is based on the observations of two control group
experiments and an organisational analysis. Virtual teams operate different than face-to-face teams.
Due to limited use of available technology, some processes are excluded in the teamwork. Some
examples are:
Very little time is spent on discussing how leadership should be exercised in the team. People
from different cultural backgrounds have different expectations on how the leader should lead the
team. Also the leader has an internal model of how leadership will be shown. However, there may
be a huge disconnect between the mental pictures of the different people involved. VTMM
provides an approach for aligning these different mental pictures to a commonly understood and
accepted one.
On virtual teams little time is spent on getting to know each other or to socialise. Teams meet for
work and ignore the human need for social interactions. VTMM provides a means of bringing this
natural, tacit human need out in the public space of a team.
Decision-making is made implicitly, frequently by sensing consensus within the group. It is barely
formally documented. This can lead commonly to frustrations of virtual team members. VTMM
defines this key-team process to make it explicit and understandable for all team members.
One could argue that is not intuitive to manage „normal“ social interactions through processes and it
is odd to formalise processes such as decision-making and socializing. However, working in a global
virtual team without having barely non-verbal communications with other team members is a very
unnatural way of working in the first place. So VTMM provides a means of adapting towards this new
way of working overcoming obstacles which have been stated by other researchers.
4. Summary
VTMM is a systemic definition of virtual team domains. It defines a comprehensive set of processes,
which are easy to implement on any virtual team. This is a requirement in virtual environments as
everything which is difficult and requires the team members to think, will most likely lead to
frustrations and failure. VTMM defines two best practice libraries: one for virtual team tools and one
for virtual cultural elements. Here everybody will be able contributing and include concepts of proven
virtual teams best practices. The core of VTMM is the process model. It defines team processes
which are performed in face-to-face teams naturally in a formal way, creating a space where the
virtual team can compensate the missing non-verbal communication.
First control group experiments have shown that the domains are relevant and virtual team
improvement can be achieved through the VTMM process model leading to increased the
collaboration of the virtual team members, resulting in new behaviour during virtual team working
sessions and an overall increase in virtual team performance.
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166

Managing Knowledge in Digital Economy: The Role of
Virtual Organizations
Bogdan Ghilic-Micu, Virginia Maracine, Marian Stoica and Cecilia Simion
Ciocan
Bucharest University of Economics, Romania
ghilic@ase.ro
virginia.maracine@csie.ase.ro
marians@ase.ro
cecilia.simion@yahoo.com
Abstract: Our paperwork approaches the role played by the virtual organization (VO) as an instrument of digital
economy, in the context of globalization paradigm. The VO is a specific tool and a chance for the development of
emerging UE countries, like Romania, for capitalizing the market opportunities generated by more and more
information and knowledge management policies employed by multinational organizations. The research we
have conducted so far lead to identification of practical aspects of creating and managing the VO, both from
structural and procedural perspective. The design and implementation of VOs imply changes of informational
components, managerial structures and administrative entities. One solution to create and maintain virtual
partnerships for stimulation of information production resides with intranet and extranet instruments. Informational
reengineering consists of reviewing the architecture of informational flows, document content management,
redesigning the data bases and data banks. We have noticed that with the VO, the processes of interrogating
knowledge bases, mining data and multi-criteria analyses through specific instruments (data cubes, pivot tables,
OLAP sequences etc.) become daily activities. From procedural perspective we have to focus on how the virtual
organization grasps and reacts to its business environment. A VO has to dynamically adapt its place within this
environment instead of building a certain position that it has to occupy for a while. A sustainable VO supposes a
continuum of designing and implementing of economic processes fundamentally based on the information
transfer, jointly knowledge creation, and building and sustaining of trust. Another part of our paper emphasizes
the four stages of the lifecycle of the VO: identification, formation, operation and dissolution. The mechanisms of
the VO were highlighted by adapting both a three layer model (modules universe, dynamic network, dynamic
organization) and an integrated model (actors, members, and partners). Also, the information system for the VO
has specific electronic management components for the informational content: electronic signature, digital
certificate, and electronic workflows etc, which are analyzed in the third section of our paper. The virtual
organization as a digital partner covers three application areas: knowledge management, resource planning and
work management. Studying these areas in the fourth part of the paper has a great significance through the
major implications on the existence and evolution of the real organizations (the support for the virtual ones), and
also on the dynamics of their specific managerial and leadership techniques (section five of the paper). Also, the
researches and practice in this field are of maximum importance nowadays: they are the fundament for building
the Knowledge Based Economy.
Keywords: digital economy, eBusiness, virtual organization, eManagement, eLeadership, eTeam, business
knowledge ecosystems
1. Introduction: The research questions
The starting point in our researches on the digital economy field consisted in identifying the ways the
businesses adapt to the new economy through the development of knowledge management in the
VOs. In this respect, we’ve tried to find solutions for dynamic adjustment of the eBusinesses by
getting answers to some relevant questions from a process perspective:
What changes take places inside a VO?
How to define processes and how the change processes are started?
What triggers processes?
What kind of processes lead to changes?
Who is involved in the changing processes?
Who is responsible for these changes?
Another major problem in our research was the life cycle of the VO. The core issue here was to
answer questions like:
The VOs are governed by the traditional economic demand–offer rules and transactional costs?
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The behavioural pattern of the VOs follows a classical scenario (demand – design – order –
manufacturing – delivery), or an online scenario (idea – resources finding – design – offer)?
Designing an integrated model of the VO was another research objective. From this perspective, we
have focused on the competences management in a VO, trying to find:
How different activities or tasks are distributed among several partners within the VO having the
same particular competences, or how the competences are allocated to the VO?
The reengineering of the informational system using the new ITC tools is necessary?
What is the place, role and optimum configuration of the technologies for work management,
knowledge management and integrated applications within such a model of the VO so that its
organisational effectiveness could be maximized?
Also, a natural question that arises during our study was: “what is the role of management in the
process of creation and during the life cycle of a VO, and in what extent the leadership becomes more
important than the management”? The fifth part of our paper addresses this challenging question,
trying to get possible answers.
2. Digital economy and transformation of organizations
Virtual organization is based on a network of companies that unite fast to exploit an opportunity that
appears on the market. In a virtual organization partners share expenses, risks and knowledge.
Partners act together on national and global markets, each contributing its own competitive
advantages. A critical factor for success is a sophisticated informational infrastructure that connects
member organizations geographically dispersed. When a commercial task is completed, the
organizational structure dissolves, making room for new alliances. The prerequisites to operate a
virtual organization are (Cunningham, 2005):
A high performance informational technology to connect individual units;
Total mutual confidence between partners;
Existence of essential synergic competences, without direct competition.
Usage of Web transforms fast an organization and affects activities that, on the first look, have no ties
with the network. Any organization using the Web, sooner or later, becomes a virtual organization.
Thus, the Web becomes the central point for an organization that starts to use it. Virtual companies
function in an environment with special features and there is a permanent migration between the
virtual and real world. The main attributes of virtual companies relate to aspects like:
They are Web-size organizations;
They work on Web time;
They are located in the Web;
They are flexible.
From a process perspective, the attention falls on the way the virtual organization perceives the
changes in the environment or the need to renew itself. A VO must be able to reposition itself in a
changing environment. The idea of a virtual organization assumes continuous design and
implementation of economic processes. The organization (as creator of roles and relations) must not
be the same today as it was yesterday and as it will be tomorrow. In order to survive it must adapt and
in order to adapt it must change.
A theory on design and implementation of virtual organizations can be based on three constructions
(Katzy, 2002):
1) the network: consists of already existing industrial constructions, like relations between partners on
a market, existing resources as verified routines and procedures;
2) virtual operation: the cooperative process that combines competences and resources during a
certain period of time in order to achieve standards;
3) standards: the force that pushes for organization restructuring.
Change processes in a virtual organization are linked to network design, operations restructuring,
creation of new business opportunities and dynamic competition (see figure 1).
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Figure 1: Conceptual model for design and implementation of virtual companies
Most ideas about change split time in long sequences. Each sequence consists of groups of activities
with similar goals, and the move from one sequence to the next can be smooth or turbulent. There are
four sequences of change: creation, growth, transformation and decline. Each sequence has its own
role in the life cycle of an organization. Organizations also have four distinct phases in their life cycle,
which are:
Identification,
Creation,
Operation, and
Termination.
Each step is marked by various challenges: tasks, decision processes and management activities that
initiate and sustain the transformation process (figure 2).
Figure 2: Life cycle model for a virtual organization
For each sequence in the life cycle there are two or more major decision processes. First phase deals
with identification, evaluation and selection of opportunities, ending with the decision on the best
opportunity on the market. Most important decisions in the second phase are linked to identification of
partners, evaluation, selection and creation of partnerships. The creation of partnerships involves the
actual incorporation of selected partners in the virtual organization. Once the virtual organization is
created, the operation phase can begin and important decisions are linked to five functional areas:
design, marketing, financial management, manufacturing and distribution. When the market
opportunity is exhausted or disappears the organization ceases to exist. Decision processes in the
terminal phase include termination of operations and distribution of resources (Camarinha-Matos and
Afsarmanesh 2009).
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Virtual organizations follow the classic economic rules of offer and demand and transactional costs.
Thus, the behaviour pattern of a virtual organization can follow a classic scenario (demand – design –
order – manufacturing – delivery), or the online scenario (idea – identification of means – design –
offer).
Classic scenario involves a software interface component that receives the client order. Not only
ordered products are ordered, but also the restrictions on the customizable features. Automated
economic processes are then triggered to solve the respective orders. If the predesigned
manufacturing procedure does not match a particular situation, the execution of processes may be:
suspended until a human supervisor intervenes, or redirected to other, more specialized, processes.
Redirection may happen based on a predesigned plan to handle exceptions or following ad-hoc
negotiations with other business units.
Online scenario applies when an organization generates an innovating idea but does not have the
necessary resources to implement it and create an offer. In this case it identifies partners that have
the required capabilities and negotiates collaboration contracts. Negotiations mean: searching in the
global network of services/processes for the ones that match the needs, negotiation of economic
parameters (price, delivery terms, quality levels etc.); selection of the process that is the best match
for internal and client requirements; electronically signing the contract and placing the order. For such
a scenario to take place there must be specialized nodes in the network that offer services for
registering and searching economic products (Taylor, 2005). Clients will use such e-business nodes in
order to publish their available services (that can be triggered on demand) and to look for partners, in
order to fulfil special orders or those that go beyond their manufacturing capacity (figure 3).
Figure 3: Creation of a virtual organization
3. Integrated model for a virtual organization
In order to have a complete vision on the mechanisms of the virtual organization we must combine the
structural and process perspectives presented in the previous section. This requires a three tier
model, where each tier represents structural elements. The transitions between tiers are the process
elements. Each level defines structure elements that will be linked by functions that initiates and
complete the transition process to the next tier. The three tiers are (Galeano et al., 2005):
The universe of modules;
The dynamic network; and
The dynamic organization.
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The concept of activating the network suggests that members of virtual organizations are a part of a
larger network, from which they are selected. Partners forming a virtual organization at a certain time
either know each other from previous collaborations or negotiate online, with the help of a network
broker. The term dynamic networks means a collection of prequalified partners that agree to form a
common pool of potential members for virtual organizations. Potential members are selected from the
universe of modules containing all individual organizations (for example a particular industry of the
economy). While the goal of virtual organizations is to exploit the resources, the goal of dynamic
network is the possibility to work together on a future market opportunity. Highlighting the features of
each tier helps clarify the process of transition between tiers. The features are related to the functions
needed to initiate and terminate a transition process.
Opportunities and market demand are the incentive that brings together the elements of a virtual
organization into cooperation. A market opportunity may be defined as a (hidden) niche of needs from
which a company may profit. A virtual organization may meet the needs by bringing together the
components required to develop, manufacture and deliver services and/or products. The virtual
organization focuses on a certain segment of the market or a group. The market demand may be
defined as need for specific products that may be sustained by a capacity and will to purchase. Client
specifications indicate which organizations must be involved in manufacturing the product or the
service (Burns and Ash, 2010).
Operation and management of competences raise questions to which the broker of a virtual
organization must answer:
How to distribute the required competences when multiple members have them?
How to allocate competences to the virtual organization? In order to make a decision the best
approach is an informational system (with the infrastructure based on Internet), with the role of
storing, transferring, processing and sharing information about the available resources (figure 4).
Figure 4: Informational system for competences management
Integration of member competences can be done by building a competence matrix that highlights the
member abilities and leads to creation of new products. A major problem is delivering a way to
integrate and share information as well as the ways to understand how a virtual company works and
what the role of the matrix is.
Once the members of the organization understand the process, they are able to proceed with the
integration with partners’ competences, through the actions of the virtual organization broker.
Cooperation of partner companies imply that providers, clients and even competitors share the
abilities, expenses and access to market. Commitment leads to the horizontal and vertical integration
of the value chain. Even a partnership with a rival company may prove fortunate, if the individual
companies do not have the resources and knowledge required to develop, manufacture and deliver
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new products/services. Cooperation with a rival is meaningful when a company market is limited
geographically or to a specific group of private clients. Under these circumstances a virtual company
may expand its market. More than this, these cooperation relations lead to the emerging of the real
Business Ecosystems and Knowledge Ecosystems within an industry or the economy itself (Mărăcine
and Scarlat 2009).
In the context of digital economy and emergence and development of virtual organizations, the
definition of information systems must be extended, accepting that the elements of a system may
exist in digital shape. The highest level of virtual organization is the internet itself, which gives it a new
function: support system for the new forms of work and activities. This became possible because of
changes in management and personnel policies: transition from vertical, tree-like management to
externalization and to horizontal leadership (see the 4th section of the paper).
No matter the shape it presents, any organization has an informational system that provides the
required information for decision making. The informational system of a virtual organization is also
characterized by flexibility, fluidity and dynamism. On the virtual organization level there are
documents that circulate as part of a dynamic informational flow. Also, the data security problem has
a new aspect: electronic security (Camarinha-Matos and Afsarmanesh 2010). This is why during the
analyses and design stage of informational systems for virtual organizations special attention should
be given to electronic signatures, encrypting and decrypting information. Since a virtual organization
is by definition an electronic one, the information system is completely electronic. While in a traditional
organization the information system is the connector between the decisional system and the
operational system, in a virtual organization the information system overlays the entire organization
(figure 5).
Figure 5: Informational system of a virtual organization
Analyses and design of information systems are activities that have changed very little with the
transition to informational society. The methods and techniques for analyses and design have been
adapted to the new digital context. Some models that only applied in the past to strict domains
(programming, economic modelling, mathematics etc.) have been adapted and used in analyses and
design: neuronal analyses, chaotic paradigm, fractal model, anthropocentric paradigm, holonic theory
etc. Thus, the main stages of analyses and design of informational systems remain the same,
improving only the ways to implement and apply them (Yan and Xueshan 2010).
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4. Virtual organizations and new technologies
The development of Internet combined with the development of technologies for work management
will have an outstanding influence on the way actors of the economic environment play their roles on
the scene of world market. It will lead to new forms of economic enterprise, called “virtual enterprise”,
where groups of economic actors associate and put together their resources in order to offer a certain
product/service, traditionally provided by only one enterprise. Such a possibility will have a long term
influence on economy and strategy of enterprise development:
Launching a new product or service on the market will become accessible for much smaller
organizations, with only a fraction of the capital traditionally required, which will intensify the
competition with traditional organizations;
Location of partners in a virtual organization becomes irrelevant, which will accelerate the
internationalization of cooperation and intensify the mobility or work between countries and
geographical areas far away.
Acceleration of innovation and diversification of products and services, a prerequisite for
economic development.
Technologies for knowledge management consist in a collection of instruments designed for the
development, storage, process, dissemination and retrieving knowledge within an organization to
support and improve its business performance (Gupta et al 2000) (figure 6). These technologies
include:
Document management for storage and retrieval;
Data deposits and data mining instruments for storage and analyses of data from
financial/accounting applications;
Full text search and indexing agents, the base for search engines as they are known today on the
internet, for searching documents based on their content;
Linguistic thesaurus that allows intelligent search in full text indexes by memorizing hierarchies,
relations and similarities between terms;
Linguistic instruments to use natural language queries;
Semantic networks to memorize the meaning of documents as a network of actions on objects,
which will allow advanced document searches, based on a network of action models (for example
all documents that talk about transformation of materials at high temperatures);
Intelligent retrieval of documents through instruments with learning capabilities, both on user
interests and target system facilities.
Technologies for work management consist in a collection of instruments designed to assist a
productive work (figure 7).
These technologies include:
Electronic mail, to speed up communication between people and monitor the question-answer
cycles;
Meeting scheduling, to support groups in organizing and planning common activities (for example
pooling resources);
Forums to offer a common space for structured discussions and a base of documents;
Collaborative instruments, which provide means to collaboratively modify various documents in
real time (specifications, contracts, plans, budgets, proposals etc.);
Groupware, which combines the instruments above in a uniform environment, ready to use by
groups;
Document management, to manage large amounts of documents in a structured way and
organize versions, indexes etc.;
Work flow, which supports business processes during their entire life cycle.
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Figure 6: Technologies for knowledge management
Figure 7: Technologies for work management
The instruments are used to assist the work performed to produce services and goods, in contrast
with knowledge management instruments which are used to decide what and how to produce. For
very flexible and hard to predict activities (for example personalized financial services), the
instruments for work groups offer the flexibility required by team work. For most productive activities
work flow management and document management create the biggest opportunities for change, both
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in productivity and quality. The main mission of work flow is to manage the processes that use several
sectors of the company to meet external demands (Eikebrokk and Olsen 2009).
Work flow management includes:
Business process, consisting of one or more procedures or activities linked together, which
execute a goal or business objective, usually in the context of an organizational structure that
defines roles and functional relations;
Work flow represents automation of a business process, partially or completely, during which
documents, information or tasks are transmitted from one participant to another in order to
perform some actions, according to a set of procedural rules;
Work flow management system defines, creates and manages the execution of work flows
through a software instrument; it works using one or more work flow engines, being able to
interpret the definition of the process, interact with participants to work flow and, if needed, invoke
the right software instruments and applications. Activities performed are usually interactive,
involving a human working at a work station (figure 8).
Figure 8: Integration of applications – essential component of work flow solutions
By supporting the integration of existing applications, in the form of activities that automatically invoke
transactions on the network servers, the work flow ensures global integration of people and
applications in a business process. The benefits of work flow can be noticed on various levels.
The benefits for the company are based on the fact that work flow leads to an increased control
over productivity of informational tasks and strengthens the confidentiality and access control
measures, creating at the same time methods for management and control of processes.
The benefits for the client include increased quality of the service, shorter response time, clear
information about the status of the client request and easier access to company agents.
The benefits for company agents mean that every agent can see a list with activities that must be
performed and can organize the work in the best way. For agents, the work flow means work
flexibility, execution speed and a high level of comfort.
The benefits for the manager rely on the fact that work flow presents managers with the decisions
that must be made at the right time and provide enough information for efficient intervention, so
they can act earlier, faster and with more equilibrium. The work flow offers constant access to the
status of each case and a monitoring system allows them to keep the processes under control.
The work flow can revolutionize the supervising function, bringing it closer to its industrial
correspondent.
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The benefits for the organization analyst come form the assisted work flow procedures, though
which organization’s analysts can access any kind of statistic required to analyze the level of work
load, costs, peak periods and many other aspects of company organization. They can
simultaneously use instruments to model procedural refinements on a level never seen before of
detailing and accuracy and the data is available with a low marginal expense.
5. Management vs. leadership into a VO
In the previous sections of our paper we have approached the necessary changes that an
organization had to undertake in order to become part of a VO, from the structural and process
perspectives. Also, we have presented the new technologies required by the VO for knowledge
management, work management, and work flow management. What about the managerial activities
and styles? What is the role of the organization management in the process of creation and during the
life cycle of a VO, and if and in what extent the leadership becomes more important than the
management within such an organizational structure? As we all know, Management circumscribe all
actions focused on accomplishing the tasks in an organization, while Leadership defines the ability to
create an environment where individuals willingly apply and potentate their unique abilities to a
common mission. Leadership is about the relationship between leaders and their team on the way of
transforming their vision in reality. Usually, a good manager relies on competence - the knowledge
and skill to do the job –, while a true leader relies on commitment – the motivation, willingness, and
confidence to do the job. It is also known that management skills are a subset of leadership skills.
We've often heard people trying to separate them by saying that they are leaders, but not managers.
Fact is that any person who holds a managerial position at some time, in some circumstances acts as
a leader and in some as a manager.
One of the commonly coined tells says that leadership is doing the right thing and management is
doing things right. This illustrates how the two skill sets need to work together. In order to be fully
rounded, one must have the ability to manage the day to day tasks and deliver results, while seeing
the opportunity for change and the big picture. Having good leadership skills without the management
skills to support it, will leave a person with an inability to make his/her visions become true. Also,
being a good manager without good leadership skills will cause continual challenges in motivating the
team and producing the results they are trying to manage to. Being able to balance these two styles is
truly a unique skill set. We all must keep in mind that there are an abundance of managers in the
world but very few truly embody the characteristics of a leader. But what differentiates a leader from a
manager? Table 1 summarizes some features of being a leader and being a manager within classical
organizations (Colum 1 and 2). Of course, because many people lead in some proportion and
manage in some other proportion at the same time, a wide combination of behaviours may be
displayed if we intent to deepener the analysis. In the 3rd column of Table 1 we have included the
most important traits required from the person who is in charge with the creation, development /
coordination and dissolution of a VO.
As we can see by comparing the 3 rd column with the first two, the most of these traits indicates that
the coordinator of a VO must be a Leader. Furthermore, given the particular characteristics of a VO
comparing with a classical organization, we can stress out that:
For the most of the managerial team and the employees of a VO, the leader is actually an
eLeader. This makes his/hers activity more difficult because he or she cannot fully use their native
personal charisma, their energy and passion when the most of the conversation around and about
the common activities and goals in the VO are carried out through e-mails, Skype or Dropbox;
From the other perspective, a leader of a VO almost all the time led an eTeam (eT) instead of a
real team formed with real people with whom he or she has daily F2F or P2P meetings. eTs are
commonly adopted as a manoeuvre to cut the budgets of travel, relocation, real estate, or other
business activities. In the particular case of a VO, eT is used by VO partners to fulfil designated
task or project, in which interaction and collaboration take place among geographically distributed
and often culturally disparate individuals (Balthazard et al, 2004). These selected eT members
are committed to a common purpose and should have interdependent performance goals and
share an approach to work for which they hold themselves mutually responsible.
More than this, when the VO is part of a Business (or Knowledge) Ecosystem, virtual species (like
Knowbots) become eTeam “members” and should be considered as active agents for operating
the VO’s activities (Mărăcine and Scarlat 2010). This human – virtual mixture of agents
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Bogdan Ghilic-Micu et al.
additionally rises the difficulty of the managerial process and challenge farther the eLeader’s
skills;
Table 1: Leadership vs. management in classical and virtual organizations (adapted from
ChangingMinds.org,
http://changingminds.org/disciplines/leadership/articles/manager_leader.htm)
Subject Leaders Managers Within the VO
(0) (1) (2) (3)
The Essence is Change Stability
Focus on Leading people
Managing work, systems
and structures
They Have Followers Subordinates
Their Horizon
Long-term, have eyes on
horizon
Short-term, have eyes on
bottom line
Seeks Vision Objectives
Approach Sets direction Plans detail
Decision Facilitates Makes
Power Personal charisma Formal authority
Appeal to Heart Head
Energy Passion Control
Culture Shapes Enacts
Dynamic Proactive Reactive
Persuasion They Sell They Tell
Working Style Transformational Transactional
Exchange Excitement for work Money for work
They Like Striving Action
They Want Achievement Results
Attitude toward Risk Takes Minimizes
Rules Breaks Makes
Conflict Uses Avoids
Direction New roads, innovation
Existing roads,
administrate
Truth Seeks Establishes
Concern about
What is right,
Do the right thing
Being right,
Do things right
Credit Gives Takes
Blame Takes Blames
Daily base working
style
Inspire trust;
Ask “what” and “why”;
Originate.
Rely on control;
Ask “how” and “when”;
Initiate.
Daring Challenge status quo Accept status quo
177
Change the old way of
doing business. Orient the
company towards
eBusiness;
Leading people and make
them believe in the
necessity of change.
Long-term vision and
objectives. They are
visionaries when they think
at the company’s future.
Permanently seeking new
opportunities for niche
business.
Always use their powerful
personality traits for
building sustainable
partnership fundamentally
based on trust among
partners, even if (or
especially when) they are
potential (or traditional)
competitors on the same
market.
Risk oriented people
capable to determine
others to follow them with
enthusiasm on new roads
that lead to innovation,
even if these roads are full
with uncertainties, broken
rules and many unpaid /
underpaid activities.
They build trust by:
using a fair behaviour in all
business circumstances;
doing always the right
thing;
empowering their (e-
)Team members and
giving them credit for their
daily activities and
achievement.
Bolding and confident in
themselves and in their
team members.

Bogdan Ghilic-Micu et al.
The companies positioned at the leading edge are using today Digital Business Ecosystems (DBEs),
i.e. that special Internet-based environment in which businesses can interact with each other in
effective and efficient ways in a digital environment populated by digital species (software
components, applications, online services, information, business models, etc.). Being part of the DBE
means that a company is aware of the range of products and services available from all of the other
partners and can easily match them with its business requirements. In the same time, its products and
services are also being showcased to other companies so they can identify it as a potential business
partner. This is way building Trust and Fairness among partners joining a VO is the key of such a new
kind organization’ success.
Usually, leaders easily get Trust and Fairness as behavioural norms within theirs team / eTeam
members; managers have to enforce those using transactional techniques. One of the reasons “way”
is that Leaders are adapt in the art of Emotional Intelligence (http://coach4growth.com/leadershipskills/develop-good-leadership-skills-what-is-emotional-intelligence-or-eq)
and apply it in a way that
attains the best work out of their people. According with Higgs and Dulewicz (1999), the Seven
Elements that define Emotional Leadership are:
Self-Awareness: The awareness of your own feelings and the ability to recognise and manage
these;
Emotional Resilience: The ability to perform well and consistently in a range of situations and
when under pressure;
Motivation: The drive and energy to achieve results, balance short and long-term goals and
pursue the goals in the face of challenge and rejection;
Interpersonal Sensitivity: The ability to be aware of the needs and feelings of others and to use
this awareness effectively in interaction with them and arriving at decisions impacting on them;
Influence: The ability to persuade others to change their viewpoint on a problem, issue or
decision;
Intuitiveness: The ability to use insight and interaction to arrive at and implement decisions when
faced with ambiguous or incomplete information (uncertainness economic and/or social
environments);
Conscientiousness and integrity: The ability to display commitment to a course of action in the
face of challenge, to act consistently and in line with understood ethical requirements.
What we do know for sure concerning the balance between the managerial and leadership skills for a
successful VO’s leader profile is that:
Coordinating a VO is more about the people than about things. And it is also a “battle” for getting
people out of their comfort zone of doing well known activities and launching them into the uncertainty
of a vision build around somehow abstract concepts like “eBusiness”, “eTeam”, “eActivities”,
“eLeadership” and “eLeader”. And as Grace Hoppe (retired Admiral, U.S. Navy, Nova, 1986) says
“You cannot manage men into a battle. You manage things; you lead people”;
Building and operating a VO is about having vision. And comparing with the management, the
leadership is all about the magic of vision:
Vision that sees what must be tomorrow, beyond what is today;
Customers help you see the vision;
Vision that inspires;
Vision that is clarity;
Vision that is a worthy commitment;
Vision that generates supportive actions.
The VOs as pieces of Knowledge Business Ecosystems are at the leading edge of new economic
performance. This is way we believe that these should be mostly leaded instead of managed.
Because is also known that „under performing organizations are usually over-managed and underled”
(Warren Bennis – President, University of Cincinnati, University of Maryland Symposium, January
21, 1988, http://www.legacee.com/Info/Leadership/Management.html).
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Bogdan Ghilic-Micu et al.
6. Concluding remarks, discussions and future developments
According with the globalization of economy, a new paradigm of work pattern known as VO emerged
in 1990s. VO particularly removes time and location barriers but links companies via ICTs which
enable them to collaborate on a worldwide scale. While at same time being engaged in collaboration,
VO partners have been increasingly relying on eTeam to fulfil designated projects, in which interaction
and collaboration takes place among geographically distributed and often culturally disparate
individuals.
Our paper focused on the necessary transformations needed for a VO to emerge and successfully
being operated. From structural and operational point of view, we conclude that a VO requires a shift
in the people mentality of doing business: a high degree of virtualization has to be accepted,
envisioned and put into practice.
From technological perspective, the people involved with operating into a VO have to be skilled in
easily using the new ICTs and dedicated software for knowledge creation, retrieval, safely sharing,
depreciating and forgetting. The dynamism doubled by a high degree of adaptation to new
unpredictable situations proper to (social and economic) e-environments should be the main
characteristic both for people and technologies.
Within our paper we have opened a door to eLeadership concept and strategies, which basically
refers to how to effectively and strategically lead eT members that are geographically dispersed.
Clearly, leadership and relationships in VOs or eTs can prove challenging to achieved and sustain in
virtual context where:
Trust is difficult to build;
Influence is hard to articulate; and
Communication is often ambiguous.
In this area we conclude that the most interesting subject of debate and, in the same time, the
cornerstone for an effective and efficient governed organization focuses on the management –
leadership balance into a VO. What is the optimal mixture between the managerial skills and
leadership skill for the most successful VO’s leader profile? In what proportion should he or she to
manage and in what proportion they have to lead? This is an interesting and also a challenging
question that keeps our research on going and makes our study a work in progress. And this is way
we will further guide our further researches to draw a profile of the ideal VO’s coordinator, a set of
recommended strategies and possible answers to “when to manage and when to lead” questions.
Because the comparative literature on „charismatic”, „transformational” and „transactional leadership”
needs to be reviewed in view of eEnvironment in which the physical interaction among leaders and
their team/followers is missing.
Acknowledgement
This paperwork was supported by CNCSIS - UEFISCDI, project number PNII - IDEI 810/2008.
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180

Social Responsibility, an Element of Competitiveness - the
Case of SMEs in Romania
Georgeta Grigore 1 and Corina Grigore 2
1 Constantin Brancoveanu University, Pitesti, Romania
2 Academy of Economic Studies, Bucharest, Romania
Georgeta_grig@yahoo.com
corinagrigore@gmail.com
Abstract: Corporate social responsibility has become a buzzword for enterprises of all sizes. Affected by the
economic and financial crisis, enterprises, no matter their size, need to identify business opportunities for a
sustainable development and able to stimulate their creativity and innovation, enter new markets and to identify
new business models. The current period is one of high complexity with implications not only on the economic
side, but also on the social, moral and behavioural aspects. The analysis of social responsibility of enterprises is
a complex issue which requires trans and inter-disciplinary approaches. This is a challenge especially for the
Romanian small and medium enterprises (SMEs). Issues of social responsibility have been little studied at the
SMEs level, despite their obvious theoretical, empirical and policy interest while most of the attention in terms of
social responsibility activities and behavior was directed towards larger companies. Companies of all sizes have
recognised their role in society and the real benefits of a proactive approach to social responsibility. Even though
the social responsibility concept has been largely associated with multinational companies, the SMEs have a high
potential for involving in socially responsible activities. The aim of this paper is to look into the social responsibility
related behavior of SMEs as a competitive advantage for these enterprises. The paper is based on a research on
the SMEs perception regarding their involvement in socially responsible activities as a competitive advantage for
them. The case-study is based SMEs questioned from the Arges county, Romania. After considering the
theoretical aspects in the literature review section, the paper draws on the research conducted with SMEs from
the region. Results show that involvement in socially responsible activities (measured through selected
indicators) is an element of competitive advantage for SMEs. The last section of the paper concludes and
provides some recommendations and further research areas to be explored.
Keywords: corporate social responsibility, SMEs, competitive advantage
1. Background on SMEs and CSR
One can easily get the impression that the economy is dominated by large, multinational enterprises
with billion Euro takeovers, global expansion plans but also risk of huge bankruptcies. However, what
was left behind the scene was around 99% of businesses which are in fact the small and mediumsized
enterprises (SMEs). They are considered to be the main responsible for wealth and economic
growth and their role played in the economy has been acknowledged and brought to the attention of
policymakers, businesses and society lately. They are an essential source of jobs, create
entrepreneurial spirit and innovation and are thus crucial for fostering competitiveness and
employment.
According to the EUROSTAT, 99.5% of the Romanian enterprises are SMEs. These employ 60% of
the persons in the private sector and contribute to more than half of the total value-added created by
the Romanian businesses. Compared to the European Union levels, Romania has the highest
enterprise birth rate in the EU as well as a top-ranking share of high-growth SMEs. The enterprise
survival rate is also substantially higher than in the rest of the EU -18,3% as opposed to 10,3%-
(EUROSTAT SBA database).
Romania's EU integration places new challenges for Romanian companies, irrespective of their size,
particularly the alignment of the techniques used and performance standards. Large firms have
specific policies in this area, but SMEs are connected to the local community through different
mechanisms.
Social and political changes caused by globalization have raised new questions and hope about
authorities and social responsibilities. Increasingly, more companies of all sizes and in different
sectors recognize the importance of their role in society and the real benefits of adopting a proactive
approach to Corporate Social Responsibility. CSR is often defined in terms of social impact, the
organizational work environment and systematic. To be applicable, corporate social responsibility
must be understood as a process by which moral values and concerns are articulated individuals.
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Georgeta Grigore and Corina Grigore
The concept of corporate social responsibility has emerged in Romania after 1990, when several nongovernmental
organizations, associations and foundations have been founded by multinational
companies entering the Romanian market. Those organizations were particularly envisaging a
humanitarian role to help disadvantaged population groups: children, elderly and women. Many of
them were established with private and public institution.
Corporate social responsibility is no longer an area of interest only to large corporations. SMEs can
adopt and adapt the practices of social responsibility of big companies and can thus participate in the
creation of welfare society, although their impact may be lower than for large organizations. In
conducting research, we assumed that the practices and social responsibility activities have positive
effects as a separate company and stakeholders.
Studying the perception of social responsibility practices in the SMEs is still in its infancy, and in
Romania one cannot yet speak of a literature in this field. This research is meant to be a first attempt
to assess the perception and involvement of SMEs in socially responsible activities in Romania, in
particular, firms in the Arges county, and to show that social responsibility practices of companies
represent a factor of competitive success.
The growing interest in CSR practices in Romania was the starting point in developing this research.
Up to the moment of writing this paper, there was no Romanian empirical study known to look at the
SMEs in terms of CSR, how the concept was perceived and degree of involvement.
Are SMEs socially responsible? Is CSR a success factor for business? This is another question that
we want to answer in our study, using a questionnaire. We defined competitive success by seven
items and checked whether CSR practices are perceived as a success factor for SMEs.
2. Literature review
Currently, there is a particular concern for CSR, generally defined as business responsiveness to
ethical expectations, social and environmental stakeholder (United Nations Industrial Development
Organisation (UNIDO)), from the perspective of SMEs in general and the European Union in
particular. According to UNIDO, SME conducted over 90% of all businesses globally are considered
crucial to "eradicate poverty" for many developing countries (UNIDO, Programme on CSR).
Taking the literature in the field as a starting point - only few studies around the world address CSR
from various perspectives at SMEs (i.e.: Morsing and Perrini (2009), Jenkins (2006), Jamali (2008),
and Murillo and Lozano (2009)) - and a consultation with the Association for Community Relations, we
used a qualitative method through which we investigated the concept of CSR both within the company
from the employer’s and employee’s perspective. The study was done in the Arges area, where SMEs
account for over 25% of the region's GDP, and industry relies on a wide variety of natural resources.
Some studies have debated the perception and involvement of SMEs in CSR activities. Yu (2007)
reflected a view of perception and sustainable practices for SMEs in China and considered the
existence of the apparent contradictions of sustainable development in their current state: a high level
of concern vs. low involvement. While behind the barriers for SME involvement in sustainable
development related issues vary widely, several issues relate to lack of awareness and perception,
insufficient financial resources, insufficient foreign aid, implying future action to improve education,
communication and cooperation.
Perrini and Morsing (2009) stressed the importance of understanding the context and manner in
which SMEs engage in CSR practices and how they differ from the approach of the multinational
companies. Lozano and Murillo (2009) identify key elements in the discussion related to the
promotion of CSR in SMEs, with a case study on Spain's Catalan region.
Most times, competitiveness is defined as the ability to generate sustainable competitive advantage to
produce goods and services creating value, or to act appropriately as a consequence of rivalry and
competition with other companies. Business competitiveness (and competitive success of a firm) is
defined as the ability to have a competitive position in terms of rivalry, which gives a superior
performance of competitors.
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Georgeta Grigore and Corina Grigore
The term competitiveness comes from competence. In the economic context, the term has two
meanings: the degree of economic competition in a market or ability to compete or trader’s ability to
act before the rivalry takes place between traders. Also, it is a relative concept, where and if they are
competitive or qualified to compete with others. The position relative to a rival agent of variables is a
determinant of competitive success or failure of the unit of analysis. Competitiveness requires an
agent to choose, define strategies and try to control variables that affect its ability to compete.
The determinants of success have been approached from different perspectives (Krugman 1994).
Some works from the homogeneity of the company explained its success by external factors such as
location or industry, while another group of researchers addressed business heterogeneity focusing
on internal factors. In the 80s, many researchers have shown differences in the level of success
achieved by analyzing the role and performance of enterprise resources and capabilities to achieve
competitive advantages (Gautam 2004).
3. Methodology
The research was conducted in three stages that succeeded in a logical order the results derived from
previous stages and tried to answer the questions: Are there any actions, practices and social
responsibility at the SME level? Are the SMEs socially responsible towards their internal working
environment/ employees? Are CSR practices a factor of competitive success for SMEs?
To answer these questions, we have assumed that the status of knowledge on social responsibility is
still low, rather at the beginning in Romania. There is a lack of strong empirical studies not only for
Romania, but also in the international literature; we found a limited number of studies related to the
concept of CSR practices in SMEs.
We tried to analyze the perception side of SMEs seen as socially responsible entities towards the
internal and external environment and to demonstrate that socially responsible practices represent a
factor of a firm's competitive success.
3.1 Working hypothesis
The main working hypothesis can be stated as following: if SME adoption of CSR practices with its
four dimensions (economic, legal, ethical and discretionary) affect competitive success directly and
positively.
3.2 Sample structure
The research method was a survey with a questionnaire conducted in October-November 2009. It
was decided to interview the manager of the firm assuming that s/he has the information necessary to
complete the questionnaire and this is the person closer to the firm's strategic decisions, which
implies a broad knowledge of business skills and resources.
The target population consisted of SMEs based in Arges county, with more than five employees and
less than 250. The database of firms was obtained with the support of the Chamber of Commerce and
Industry and the Department of Public Finance of the Arges county. The sample distribution by strata
was done following the principle of proportionality (the relative weight of the layer of the population).
We used a simple random selection and structured the sample by sector of activity, age and turnover.
The sample included 951 SMEs, at a confidence level of 95% and with a confidence interval of + / -
3.03. This represents 9% of the population and it is representative.
By type of SME, we distinguish:
Micro - up to nine employees including
Small - 10 to 49 employees
Medium enterprise - between 50 and 250 employees
In the structure of the sample, less than 40% of SMEs are small size. By type of activity and for the
sake of this study, SMEs were classified into one of three categories agreed: production, trade,
services.
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Georgeta Grigore and Corina Grigore
Figure 1: SMEs sample structure by size (%)
Sample structure for each sector is shown in the chart below. It seems there is a predominance of the
services sector followed by trade.
Trade Production Services
Figure 2: Sample structure by size and sector of activity
Another criterion for the classification of SMEs in the sample is their age, as measured by the number
of years since the establishment/foundation of the firm.
3.3 Measurement variables
To test the proposed hypothesis it is necessary to have data to measure the success indicator
(dependent variable), control variables and different dimensions of CSR (independent variables). To
obtain an adequate measure of competitive success, a revision of the literature, empirical works in
this regard was done (Pelham, 2000; Cagliano et al., 2001, among others). The literature on business
administration is considered as more appropriate to use a multidimensional measure of quantitative
and qualitative nature (Kotey and Meredith, 1997), as competitive success is a broad concept,
determined by many variables, tangible and intangible by nature. In addition, it is necessary to refer to
various interest groups. Another challenge of the study is derived from the most appropriate source of
data collection. In this respect, literature has sought various means to identify and measure
organizational performance. Specifically, after source of information used, we can distinguish
subjective and objective (Camisón 1999).
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Georgeta Grigore and Corina Grigore
Figure 3: Sample structure by year of SME foundation
Although no clear consensus in the literature on the types of sources of information used in this paper
proposes the use of biased sources. It was agreed to use a multidimensional scale which includes
both quantitative and qualitative variables, as subjective elements allow for more accurate measure of
competitive success, particularly in the case of SMEs.
Specifically, based on works of reference (Pelham, 2000; Camisón 1999 and 2001; Cagliano et al.,
2001, among others) seven dimensions or variables were selected:
Market share
Labour productivity
Degree of solvency (ability to meet its payment obligations);
Company reputation
Customer satisfaction
Employees satisfaction
Return on investment.
With these variables a score for competitive success was built on a scale of 7 to 35. Each variable
can range from 1to 5 depending on the situation outlined for each company, where 1 represents a low
value and 5 a high one. In order not to undermine the analysis and avoid potential problems of
interpretation of results three control variables were introduced, which according to literature reviewed
(Pelham, 2000, Santos and Gonzalez, 2000, Reid et al., 2000) may have an effect on competitive
success: size (number of employees), firm age (years of its establishment) and industry (it was
agreed to use three sectors: manufacturing, trade services).
Addressing the four dimensions of CSR raised by Carroll (1979) leads us to a separate analysis of
each dimension’s effect on competitive success, process already used in literature by various authors
(Maignan, 2001; Swaen et al., 2003). Each dimension was measured with a global item that
summarizes each concept directly by economic responsibility (innovations to improve the quality of
goods and services), legal (implementation of existing law), ethics (principles and values applied by
management) discretionary policies (voluntary and environmental improvement, environmental).
While in the literature occasionally scales with several items are used (Sen and Bhattacharya, 2001),
this may result from a lack of internal consistency which promotes the use of an item for each
dimension. The literature used different scales with different items. For this study, we chose a Likert
scale whose values range from (1) totally disagree to (5) total agreement.
185

4. Results
Georgeta Grigore and Corina Grigore
At scientific level, it was shown that CSR positively affects the financial results of enterprises, but has
not been studied other indicators that impact on competitive success, a variable of great interest to
business guidelines for the strategic repercussions. Moreover, despite the relative importance of
SMEs in the economy and how different design of strategic policies, there is empirical studies on the
social responsibility of SMEs in Romania. The objective at this stage is to examine whether the
different CSR initiatives and actions contribute to the competitive success of SMEs. For this purpose,
are reviewed 951 small and medium enterprises from many sectors of Arges
To confirm the reliability of the scale used for competitive success Cronbach alpha coefficient was
calculated and obtained a value of 0.8216 for industrial firms and 0.8713 for firms in the services
sector. Validity was confirmed through factor analysis by principal components method with Varimax
orthogonal rotation. By this method, we obtain for each of the seven dimensions of competitive
success of a single factor / score whose value is greater than one and therefore representative of
every dimension is included. Measurement of each variable with a Likert-type scale (5 points) allows
analyzing the relative position of the company on competitiveness. For the remaining variables, using
a global indicator items and is not subject to reliability analysis. In Table 12 the average values are
recorded overall result.
Table 1: The mean of items for success
Item Trade Production Services
Market share 3.29 3.12 3.34
Labour productivity 3.24 3.21 3.29
Liquidity 3.47 3.41 3.59
Firm reputation 3.83 3.79 3.87
Clients satisfaction 3.84 3.82 3.92
Employees satisfaction 3.53 3.51 3.54
Profitability 3.61 3.63 3.68
Global success indicator 24.81 24.49 25.23
To test the working hypothesis linking CSR dimensions to competitive success we used multivariate
regression. This is the most appropriate method for studies in which dependent and independent
variables are continuous variables and there are both dependent and independent, in which case we
used a structural equation analysis. In terms of mathematical regression equation has the following
form:
Yj = the indicator of success for firm j
β0 = regression constant
β1-β7 = parameters partial coefficients of variation for each of the independent variables, dependent
variable is the change that can occur when a unit increase in independent variable
its = time error - residual is the difference between the actual and estimated dependent variable
model
Ckj = value control instruments for company j k (k = 1 size, length k = 2, k = 3 sector)
RS1 = economic responsibility
RS2 = legal liability
RS3 = ethical responsibility
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RS4 = discretionary responsibility
Georgeta Grigore and Corina Grigore
Earlier analysis of data allowed us to evaluate relationships between variables studied. In this regard,
an analysis of levels of tolerance provides no multicoliniar variables (explained and correlation table).
Calculation and analysis of residues in each regression suggested that the sample meets the
assumptions of linearity, homoscedasticity, independence and normality, following the methodology
used.
In Table 2, the results of regressions are presented. For each independent and control variable we
have introduced standardized coefficients and error / standard deviation (in parentheses) and
associated coefficient value F test. R 2 and F associated model are mentioned.
Table 2: Regression results
Independent Variable Beta
Size -0.009
(0.003)
Age 0.004
(0.031)
Sector 0.323
(0.481)
Economic Responsibility 0.223***
(0.212)
Legal Responsibility 0.102*
(0.143)
Ethic Responsibility 0.310***
(0.307)
Discretionary Responsibility 0.140*
(0.130)
R 2 =0.237 significant statistical difference
R 2 c. =0.213 (*) p < 0,1;
F=10.416*** (**) p < 0,05;
N=951 (***) p < 0,01.
Standard error in parentheses
Analyzing the data, it can be seen that independent variables statistically explain variations in the
dependent one. In addition, it is noteworthy that none of the control variables is significant.
Competitive success, therefore, is not affected throughout the years for carrying out market or size or
sector. The results for firm type or size may be explained by the relatively homogeneous structure of
the sample.
Regarding the influence of independent variables, their coefficients (CSR dimensions) are significant.
A first global analysis confirms that CSR has a positive effect on the competitive success of SMEs
surveyed. Regarding the influence of various sizes, that variable measuring economic responsibility
has a positive and significant coefficient suggests that there is an appropriate policy and raised
product quality and innovation that have a significant and positive influence on competitive success.
Ethical responsibility, also partly explains the success and competitiveness of SMEs. Thirdly, the
results show that the company is legally responsible and discretionary social and engaging actionoriented
environment. This also means recognizing the value of interest that have a competitive
position
5. Conclusions
The multinational companies and large companies benefit from their resources and positioning given
by their size and charateristics, such as more visibility. SMEs may not have enough resources to
make publicly available their SR initiatives and many of them remain unknown. Is this good or bad?
More visibility would stimulate competition among firms and make them become more innovative in
the sense of finding better responsbile solutions to serve the needs of the stakeholders Lack of a
satisfactory statistical databases, too general and not a referential based on criteria relevant to the
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Georgeta Grigore and Corina Grigore
study, led me to choose the database provided by the Ministry of Finance, Public Finance and Arges
and combine data from personal inquiries. Databases were processed using SPSS and Stata
statistical software. This research contributes to the literature on business management involving
conduct corporate business results. CSR can be considered a resource that contributes to
competitive success, either directly, as demonstrated in this paper, or indirectly through corporate
reputation as demonstrated in the literature field. Study results indicate that the industry does not
influence the competitive success of the company, which makes clear that domestic variables may
explain the differences in relative competitive position of business. This paper would also contribute to
the literature of CSR practices by analyzing the contribution of RS to competitive success through its
four dimensions: economic, ethical, legal and discretionary
Acknowledgements
This article reflects some of the results obtained under the POSDRU/88/1.5/S/55287 project on
„Doctorat în economie la standardele Europei cunoașterii” (DOESEC), co-financed by the European
Social Fund through the Sectoral Operational Program on Human Resources Development 2007-
2013 and implemented by Academy of Economic Studies of Bucharest in partnership with the West
University of Timisoara.
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Eurostat Database
188

Toward a Viable Construct of R&D System Governance
Patrick Hester and Thomas Meyers
Old Dominion University, Norfolk, USA
pthester@odu.edu
tmeyers@odu.edu
Abstract: The emerging perspective of research and development (R&D) system governance representing a
wholly distinct perspective from that of traditional R&D management is necessary to provide for the direction,
control, and coordination of R&D system outcomes intended to produce enhanced mission capabilities. In
developing a foundational perspective for R&D system governance, a review of three major categories of
literature reveals attributes useful in characterizing what the authors term a R&D governing system and in
recognizing development, employment, and measurement schemes that can promote a viable construct of
governance: The R&D literature, largely a product of technology and innovation management, or TIM, specialty
journals, emphasizes associated R&D themes labeled competence, foresight, innovation, learning, management,
and measurement, which provide for operational governance concerns specifically directed towards R&D
enterprises; Sources of the more generally focused business domain validate specialty literature-derived themes
and so suggest TIM and like publication pertinence to conceptual as well as practical elements of R&D system
governance; and Systems science and engineering literature, too, confirms the worth of a postulated construct of
R&D system governance, complementing the TIM-based characterization with additional elements regarding
R&D system boundaries, environment, integration, and purpose. A discussion is provided to set the context for
the author's derivation of research and development system governance. Exploration of relevant literaturederived
governing system attributes is undertaken with a focus on synthesis of explored literature across the
identified categories and resultant implications for R&D system governance. Emergent attributes derived from
the reviewed literature are explored. Implications of these attributes in an operational setting are discussed.
Given the composite review upon which they are based, our findings promise a defensible way ahead for
designing and maintaining viability of research and development-oriented enterprises.
Keywords: research and development; system governance; systems science; governance; management;
Viability
1. Introduction
Research and development (R&D) enterprises must perform several integrated activities, including
goal setting, project selection, resource allocation, and program evaluation (Calida & Hester 2010b),
with each of these exacerbated by constrained political and economic considerations, in order to
remain viable. Additionally, R&D enterprises must balance short-term goals with those associated
with long-term organizational viability. The fundamental questions necessary for embracing a longterm
perspective are not answered through execution of a traditional management role, where focus
is on efficient usage of organizational resources to achieve short-term goals, such as remaining below
an operating budget and staying on schedule. Rather, the focus requires a novel perspective which
focuses holistically on the strategic positioning of complex organizations through analysis and
execution of what the authors refer to as a construct of R&D system governance, with a construct
defined as: a characteristic that cannot be directly observed and so can only be measured indirectly,
often inferred from patterns of human behavior (Bernard 2002; Gliner & Morgan 2000; Leedy &
Ormrod 2001; Orcher 2005).
In order to explore R&D system governance, the authors are obliged to define these terms at the
outset of any discussion. Given that R&D systems are complex, per the authors' definition, it is
necessary to first clarify the authors' notion of complexity. One of the most referenced discussions of
complexity originates with Flood and Carson's (1993) discussion of Vemuri's (1978) work, which is
summarized as:
Complex situations are often partly or wholly unobservable.
It is difficult to establish laws from theory in complex situations as data is either unavailable or
unreliable.
Complex situations are often soft and incorporate difficult to observe or measure value systems.
Complex situations evolve over time.
This discussion of complexity, however, should be couched in terms of an associated system.
Blanchard & Fabrycky (2011) offer the following definition of a system, which the authors adopt for
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Patrick Hester and Thomas Meyers
this discussion: "A system is a set of interrelated components functioning together toward some
common objective(s) or purpose(s)." (p. 3).
Further, a distinction is made in this discussion regarding system governance. Thus, a formal
definition of governance is further required. Many definitions for governance abound [e.g., (Willke
2007; Keohane & Nye 2000)], however, the authors build their perspective upon that of Lynn,
Heinrich, & Hill (2000), who define governance as follows: "Despite ambiguity of definitions,
governance generally refers to the means for achieving direction, control, and coordination of wholly
or partially autonomous individuals or organizations on behalf of interests to which they jointly
contribute." (p. 235). It is the authors’ view that every system of interest has an implicit governing
system that executes those functions associated with governance. In accepting this definition, one
final element must be considered. That is, the notion of research and development (R&D) enterprise
considerations. Research and development is an activity that seeks to support its associated
enterprise by virtue of exploration, analysis, and discovery through research activities. The desired
end state of these activities is the effective achievement of the enterprise mission and vision. Thus,
the final definition offered in order to frame the problem in question is the definition of R&D system
governance as the means for achieving direction, control, and coordination of a set of interrelated
components functioning together toward some common objective(s) or purpose(s) whose elements or
relationships are not known with complete certainty and whose behavior evolves over time to
encourage desired research outcomes in support of an associated enterprise mission and vision.
Given that the context of the discussion has been set, this paper attempts to explore and synthesize
relevant literature regarding R&D system governance in order to answer the following research
questions:
What literature exists in the area of R&D system governance?
What attributes are foundationally necessary to build an axiomatic basis for R&D system
governance?
These research questions are answered through an extensive literature review and synthesis. The
approach undertaken in support of the literature review is discussed in the following section. The next
section focuses on the attributes relevant to R&D system governance determined as a result of the
literature review. Lastly, conclusions and directions for future research are discussed, which focus on
further development of those attributes developed in this discussion.
2. Approach to literature review
The literature review was performed in order to answer the research questions posed in the previous
section, namely, to support the exploration of literature relevant to R&D system governance.
Primarily, this required exploration of the following three major categories of literature:
The R&D literature, largely a product of technology and innovation management (TIM) specialty
journals, emphasizes associated R&D themes which provide for governance concerns specifically
directed towards R&D enterprises;
Sources of the more generally-focused business domain validate specialty literature-derived
themes and so suggest TIM and like publication pertinence to conceptual as well as practical
elements of R&D system governance; and
Systems science and engineering literature, too, confirms the worth of a postulated construct of
R&D system governance, complementing the TIM-based characterization with additional
elements regarding R&D system attributes of concern to a holistic perspective on R&D system
governance.
In evaluating R&D-related journals, the authors utilized the set of journals determined by Linton and
Thongpapanl (2004, p. 138) to have the highest modified impact factor (as defined in their article) and
having a focus on TIM. Table 1 displays the names of these journals.
Table 1: R&D-related journals
IEEE Transactions on Engineering Management
International Journal of Technology Management
Journal of Engineering and Technology Management
Journal of Product Innovation Management
R&D Management
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Patrick Hester and Thomas Meyers
Research Policy
Research Technology Management
Technological Forecasting & Social Change
Technology Analysis & Strategic Management
Technovation
The authors searched the journals presented in Table 1 with the search terms shown in Table 2. This
search yielded 221 relevant articles. An article was deemed relevant if, upon review of its content,
there was a perceived contribution regarding R&D system governance or its associated concerns.
Table 2: Literature search terms
Accountability Coherence
Competency (or competence), core competency (or
Complexity
core competence)
Control, enterprise control, organizational control,
Critical operational issue
strategic control
Customer Design, enterprise design, organizational design,
strategic design
E-business Effectiveness, measure of effectiveness
Emergence Enterprise engineering
Foresight, technology foresight Enterprise value creation
Governance Identity
Information flow Innovation
Leadership, managerial leadership, strategic
leadership
Learning, corporate learning, enterprise learning
Management Measure of effectiveness, measure of performance
New product development New service development
Performance, managerial performance, measure of
performance, organizational performance, public
service performance
Portfolio, portfolio management, portfolio selection,
portfolio development
Public sector Quality
Research Research and development, R&D
Roadmap, roadmapping Scenario, scenario development, scenario building
Service Stakeholder, enterprise stakeholder
System(s), complex system(s), system(s) of
system(s), system(s) science
System(s) engineering, complex system(s)
engineering, system(s) of system(s) engineering
These relevant results were then analyzed with a clustering analysis tool, the deployment of which is
discussed in detail in Calida and Hester (2010a). This tool explored textual commonalities between
the documents, identifying a set of document clusters that, following author synthesis, was reduced to
the following six attributes proposed as those relevant to R&D system governance operational
concerns, namely, competence, foresight, innovation, learning, management, and measurement. In
an attempt to validate these attributes, those general business journals identified by Linton (2006),
and determined by the authors to be the most relevant to R&D system governance concerns due to
journal focus and scope, were explored. This set of fifteen additional journals is shown in Table 3.
Table 3: General business journals
The Academy of Management Executive
The Academy of Management Journal
The Academy of Management Perspectives 1
The Academy of Management Review
The American Economic Review
Administrative Science Quarterly
California Management Review
Harvard Business Review
Journal of Marketing
Journal of Marketing Research
Journal of Operations Management
Long Range Planning
Organization Science
Sloan Management Review
Strategic Management Journal
1
As of 2006, The Academy of Management Executive has been replaced by The Academy of
Management Perspectives.
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Patrick Hester and Thomas Meyers
For the general business search, the same set of search terms identified in Table 2 was used. This
search yielded 219 relevant articles. The same criteria for relevance were utilized. Exploration of
general business journals yielded a validated set of attributes which matched those identified in the
R&D journals. This indicated the results of the R&D journals with regards to R&D system governance
were generalizable, to a large part, to a more general business setting.
Finally, general systems literature was explored to determine which notions regarding complex
systems and associated concerns could be implemented to assist in the development of a holistic
approach to a general system governance undertaking. Relevant literature was explored which
supported analysis of the notions emplaced by the definition of system governance provided in the
previous section. The following section describes the synthesis of this literature review in terms of its
implications regarding R&D system governance.
3. Relevant attributes derived from literature
Building on the initial definition of a system provided in the Introduction section, the authors first
identify and derive four systems-oriented attributes of a proposed governing system, namely,
boundaries, environment, integration, and purpose. Following the derivation of these systems-related
attributes, the authors have identified six operational attributes of a governing system as competence,
foresight, innovation, learning, management, and measurement. For each of these ten attributes, a
discussion is provided regarding the author’s derived definition of each attribute. Further, implications
for a governing system are discussed.
3.1 Boundaries
Prior to analyzing a system, it is necessary to determine which elements are members of that system.
This is accomplished by defining a system's boundaries, which provide a criterion upon which to
decide on membership for a given system. Those components that exist within the system boundary
are part of the associated system and under the control of that system; those that reside outside of
the system boundary are not. Defining a system's boundary is not always, however, a simple nor
straightforward process. Buede (2000) elaborates,
The single largest issue in defining a new system is where to draw the system's
boundaries....Everything within the boundaries of the system is open to change, subject
to the requirements, and nothing outside of the boundaries can be changed, leading to
many of the system's constraint requirements. (p. 144).
Boundaries can be physical such as the geographic boundaries of a country, or conceptual, such as
those that exist to separate divisions within an organizational hierarchy. R&D systems are typically
open systems, allowing information, energy, and matter to travel across their boundaries. These
systems do not operate within a closed boundary isolated from the outside world, and, thus, a clear
definition of system boundaries is necessary.
Thus, from the perspective of R&D system governance:
Boundaries are defined as the border, physical or conceptual, which is used to determine
system membership; those elements that reside within the identified border belong to,
and are controlled by, the system, while those that reside outside of the border do not.
Boundaries are important to governing systems as an analyst must be aware of those elements under
control of the system, so as to determine which elements can be utilized in wholly realizing
governance functions.
3.2 Environment
Ackoff and Emery (2006) define a system's environment as "a set of elements and their relevant
properties, which elements are not part of the system, but a change in any of which can cause or
produce a change in the state of the system." (p. 19). R&D systems do not exist within an isolated
bubble, but many elements external to the system do not affect it; thus, the system must only be
concerned with those elements in its relevant environment. In this sense, the environment may act
upon or influence the system, and can be influenced but not wholly controlled by the system or its
components. Examples include elements such as associated laws and regulatory body guidance that
may be imposed upon a system and with which the system has no choice but to comply. Systems
must be concerned with their environments as they are inextricably embedded within them.
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Patrick Hester and Thomas Meyers
Thus, from the perspective of R&D system governance:
Environment is defined as those elements that are external to a system's boundaries yet
exert an influence upon the system.
Environments are important to governing systems as there are elements of a system of interest that
may reside outside the boundaries of the governing system, and yet will influence its operation and
effectiveness. The constraints and opportunities provided by these external elements must be
considered in the development of a governing system.
3.3 Integration
The definition earlier provided for a system alludes to the necessity for consideration of integration by
characterizing system components as "interrelated." At its essence, a system requires more of its
components functioning as a system than each can provide individually. Blanchard (2004) echoes
this idea, stating:
A system is made up of many different components, these components interact with
each other, and these interactions must be thoroughly understood by the system
designer and/or analyst. Because of these interactions among components, it is
impossible to produce an effective design by considering each component separately. (p.
9).
It is in the interaction and integration of individual elements that the system performs a function
greater than any element could individually achieve. This notion is known as holism. First defined by
Smuts (1927) as "A whole, which is more than the sum of its parts..." (p. 105), this notion indicates a
system which assimilates parts in an integrative fashion in a manner to achieve more than its
component parts could individually. At its essence, this is what separates a system from a set of
disjoint elements.
Thus, from the perspective of R&D system governance:
Integration is defined as the interaction of elements within a system to achieve a purpose
that no one element could singularly achieve.
Integration is important as a governing system exhibits the governance operational attributes of
competence, foresight, innovation, learning, management, and measurement, but it cannot do so
without consideration of an associated system of interest, which contributes its own attributes to the
governing system's operation, with purpose, foremost among those.
3.4 Purpose
All systems must have a reason for their existence, defined as the system's purpose. In a perfect
world devoid of emergence and uncertainty, a system's purpose could be designed at the outset of
system development. To wit, Blanchard & Fabrycky (2011) note,
When designing a system, the objective(s) or purpose(s) of the system must be explicitly
defined and understood so that system components may be engineered to provide the
desired function(s), such as a desired output for each given set of inputs. (p. 4)
In complex systems, however, a system's purpose is something of an emergent property. There is,
indeed, a sharp distinction between what a system is supposed to do and that which it actually does,
despite the best efforts of the system's designers and operators. Meadows (2008) notes: "Purposes
are deduced from behavior, not from rhetoric or stated goals." (p. 14)
Thus, from the perspective of R&D system governance:
Purpose is defined as the emergent property that defines a system's reason for existence.
The notion of purpose is important to a governing system since, devoid of purpose, a governing
system merely exists to further complicate the operations of an associated system of interest. The
purpose of a governing system is to serve the purpose of its associated system of interest with
operational attributes regarding competence, foresight, innovation, learning, management, and
measurement. It is with these attributes that a governing system assists its associated system of
interest in achieving its ultimate purpose, whatever that may be.
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3.5 Learning
Patrick Hester and Thomas Meyers
The seminal article on organizational learning was authored by Huber (1991), who notes, of learning:
"An entity learns if, through its processing of information, the range of its potential behaviors is
changed." (p. 89). Wilson, Goodman & Cronin (2007) adopt Huber's notion of potential change,
augmenting it through inclusion of a temporal element, noting "Our definition explicitly incorporates
times by requiring a change in the group's repertoire of potential behavior over some time interval." (p.
1044). Madsen & Desai (2010) further echo the notion of change, noting that organizational learning
specifically is "...any modification of an organization's knowledge occurring as a result of its
experience." (p. 453), although the authors feel this notion can be abstracted to apply to any learning.
Bunderson & Reagans (2010) speak of learning as a purposeful process, although Huber (1991)
counters by suggesting learning can occur simply by happenstance, a vision the authors share.
There is some diversity regarding the required activities in the learning process, to include knowledge
acquisition, information distribution, information interpretation, and organizational memory (Huber
1991); encoding, storage, retrieval, processing, feedback and response (Hinsz, Tindale & Vollrath
1997); sharing, storage, and retrieval (Wilson, Goodman & Cronin 2007); knowledge acquisition,
sharing and combination (Argote, Gruenfeld & Naquin 2001); and acquisition, assimilation,
transformation, and exploitation (Zahra & George 2002). The authors observe significant
commonality among these activities, identifying storage, retrieval, and sharing, or communication, as
those activities central to the learning process.
Thus, from the perspective of R&D system governance:
Learning represents an act of information processing that drives changes in learning
systems' ranges of potential behaviors. It can include time-dependent activities of
storage, retrieval, and sharing, or communication.
Learning is necessary for R&D system governance. The very nature of R&D enterprises requires
continual learning in order to adapt and improve upon research and development practices employed
by an organization. Further, with the increased globalization of R&D enterprises, organizational
learning requires effective knowledge sharing across geographic, political, and social boundaries.
3.6 Management
There is no shortage of perspectives on management. Lynn, Heinrich & Hill (2000) speak of
management as a near-term endeavor whose goals are non-emergent (to contrast with governance
and similar strategic management concerns identified as emergent by Nag, Hambrick, & Chen (2007)
and Mintzberg, Ahlstrand, and Lampel (1998)). This endeavor is described as a process by the
National Research Council (NRC) (1987), Cooper, Edgett, & Kleinschmidt (2001), and Verweire &
Van den Berghe (2003). Management requires several activities, including planning, overseeing, and
directing (Barati & Mohammadi 2008); planning, directing, coordination, and control (National
Research Council 1987); goal setting, controlling, and organizational behavior processes (Verweire &
Van den Berghe 2003); and planning, implementation, and control (Wu & Yu 2008). Management
involves scarce resources (Cooper, Edgett & Kleinschmidt 2000; Cooper, Edgett & Kleinschmidt
2001; Barati & Mohammadi 2008; Nag, Hambrick & Chen 2007), necessitating decision-making
processes (Cooper, Edgett & Kleinschmidt 2000), and execution in a dynamic environment (National
Research Council 1987; Cooper, Edgett & Kleinschmidt 2000). Further, proper management
execution supports achievement of organizational goals and objectives (Barati & Mohammadi 2008;
Cooper, Edgett & Kleinschmidt 2001; Cooper, Edgett & Kleinschmidt 2000), improved competencies
(Nag, Hambrick & Chen 2007), and improved performance (Wu & Yu 2008).
Thus, from the perspective of R&D system governance:
Management represents dynamic, near-term oriented, decision-making processes of
planning, monitoring, and controlling non-emergent responses to the efficient application
of skills and resources, or competencies, in accordance with predetermined objectives.
Management is important to system governance as a balance must be maintained between near-term
and long-term concerns in an organization. Proper execution of management functions will ensure
that a governing system functions efficiently in attainment of relevant near-term organizational
objectives such as remaining below budget on R&D expenditures.
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3.7 Foresight
Patrick Hester and Thomas Meyers
To begin a discussion of foresight, the authors refer to two of the most cited definitions of foresight
found in literature. Martin (1995) defines foresight as:
the process involved in systematically attempting to look into the longer-term future of
science, technology, the economy and society with the aim of identifying the areas of
strategic research and the emerging generic technologies likely to yield the greatest
economic and social benefits. (p. 140)
European Commission (2002) defines foresight as "a systematic, participatory, future intelligence
gathering and medium-to-long term vision-building process aimed at present-day decisions and
mobilising joint actions." (p. 17)
Many commonalities are present in the two definitions. Both authors refer to foresight as a systematic
process, although we prefer the notion of systemic in line with Smits and Kuhlman (2004) and in
keeping with the systems-oriented focus of this paper. The European Commission focus is on
medium-to-long term concerns, while Martin focuses on "longer-term" concerns (a sentiment shared
by (Andersen & Borup 2009), a distinction the authors see as inconsequential. Martin discusses
elements of science, technology, economy and society as central to foresight concerns. Several
authors echo similar elements, including notions of science and technology espoused by several
authors (Andersen & Borup 2009; Rappert 1999; Mintzberg, Ahlstrand & Lampel 1998). Consideration
of economic and social benefits resulting from effective foresight are shared by Mintzberg et al. (1998)
and Könnöla, Ahlqvist, Eerola, Kivisaari, & Koivisto (2009), with the latter authors also noting the
importance of the consideration of environmental benefits. The European Commission also
emphasizes the priority of decision-making (a sentiment shared by Mintzberg et al. (1998)), with
Mintzberg et al. (1998) and Rappert (1999) further identifying a need for a prioritization process to be
included in the foresight activity.
Thus, from the perspective of R&D system governance:
Foresight is a systemic process concerned with the mid- and long-term futures of
science, technology, the economy, or society and the identification of economic or
societal gains possible with research or emergent technology. The practice of foresight
is, itself, emergent and typically involves decision-making, including priority-setting.
Foresight is, in many ways, the compliment to management. For a governing system, foresight
ensures that a long-view is maintained. This is especially important in an R&D enterprise as an
investment in research or technology may be necessary in the short-term which will require years to
realize the associated payoff of that investment, if at all. This perspective is contrary to a short-term,
management-only focus largely concerned with efficient resource allocation.
3.8 Competence
Much of the work in the area of competence draws upon seminal work performed by Prahalad &
Hamel (1990). Their notion of competence includes elements of a competitive advantage, shared by
many authors (Barney 1991; Javidan 1998; Lewis 2001), and the requirement for a combination of
skills and technologies (a notion shared by Javidan (1998)). Prahalad & Hamel (1990) speak of the
notion of competence development in a changing environment, where an adaptable organization can
adjust competencies (eliminate or add) in order to maintain an advantage over competitors.
Thus, from the perspective of R&D system governance:
Competence represents the combinations of skills and technological resources -
individually, the competencies - that systems need to remain viable under varying
environmental conditions. It includes an ability to eliminate competencies no longer
needed or to add new ones responsive to environmental demands.
Competence is important in any industry but it is especially relevant to concerns of R&D system
governance. R&D organizations must decide which competencies will help them remain viable in the
volatile world of R&D. Decisions regarding competence can be harsh; years spent developing skills
and capabilities may be abandoned in favor of newer opportunities deemed to yield greater promise.
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3.9 Innovation
Patrick Hester and Thomas Meyers
Arguably the forefather of modern innovation research is Schumpeter, who defines development
(generally understood to be taken as innovation) as the carrying out of new combinations, including
notions of new goods, methods, markets, sources or supplies, and organizations (1934, p. 66). Myers
and Marquis (1969) echo this sentiment, defining innovation as the successful exploitation of new
ideas. Gee (1981) notes the characteristics of novelty and use as necessary for innovation.
Birkinshaw, Hamel & Mol (2008) emphasize the novelty (a sentiment shared by Organisation for
Economic Co-operation and Development (OECD) (2005) and Hargrave & Van de Ven (2006)) and
idea generation (a sentiment shared by Cropley (2006)) aspects of innovation, while Cropley (2006)
speaks of the necessity of opportunity recognition as an integral part of innovation. Similarly,
Katragadda (2006) defines innovation as "finding new ways to create value." (p. 999). Birkinshaw et
al. (2008) speak of innovation as a practice, process, structure, or technique, while OECD (2005)
discusses notions of innovation as a product, process, or method. There is much commonality among
the many perspectives. The notions of value creation or use, novelty, and new idea generation are
pervasive.
Thus, from the perspective of R&D system governance:
Innovation represents the exploitation of, or value creation from, new ideas manifest as
products, processes, or combinations of the two; it may therefore be characterized in
terms of novelty and use.
Innovation is paramount to R&D system governance as it is inextricably linked to successful research
and development efforts. Further, innovation reflects novelty, arguably the backbone of any
successful R&D enterprise.
3.10 Measurement
A significant contribution to the authors’ definition of measurement is derived from van Kerssens
Drongelen & Bilderbeek (1999, p. 36) and van Kerssens Drongelen & Cook (1997, p. 347), who cite
performance measurement as the "...acquisition and analysis of information..." van Kerssens
Drongelen & Cook (1997) also express the importance of establishing standards before measuring
and in using those standards for performance tracking and comparison activities. Kaplan & Norton
(1992) speak of proper measurement as requiring a set of measures in order to effectively understand
and affect a system's behavior. Chiesa, Frattini, Lazzarotti, & Manzini (2009) note the need for
consideration of "...the interplay between measurement objectives, performance dimensions and
contextual factors..." (p. 489) in proper measurement system design and execution. Finally, ISO/IEC
(2007) defines a measure as a "...variable to which a value is assigned as the result of measurement."
(p. 3) Each of these notions offers value to the proposed measurement definition.
Thus, from the perspective of R&D system governance:
Measurement is a purposeful acquisition and analysis of some system's attributes
against a set of independent variables, or standards or dimensions.
Measurement is important to R&D system governance as it provides the evaluation framework upon
which enterprises can determine their organizational performance and effectiveness. In the absence
of a proper measurement approach, organizations would be absent a formalized manner by which to
evaluate progress toward organizational goals and objectives.
4. Conclusions
This paper has presented a set of ten, literature-derived attributes relevant to a construct of R&D
system governance. These attributes have been drawn from general business, technology and
innovation management, and general systems literature. While this review represents a useful
synthesis of literature, much work remains. The next step for this research is to create a set of
axioms, or generalized statements, derived from the identified attributes. These axioms must then be
synthesized as a concise statement of a general theory of R&D system governance. This theory can
then be made operational by way of an ensuing methodological construct. These developments will
result in an defensible, scientifically-derived approach to R&D system governance which will allow for
the direction, control, and coordination of R&D system outcomes intended to produce enhanced
mission capabilities.
196

Acknowledgements
Patrick Hester and Thomas Meyers
This study was supported by funds from the U.S. Department of Homeland Security's Science and
Technology Directorate, Borders and Maritime Division. The authors gratefully acknowledge the
support received from this source.
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198

A Biographical Approach to Researching Leadership and
Entrepreneurship Development Processes in a Small
Business Context
Karen Jones
Bangor University Business School, UK
k.jones@bangor.ac.uk
Abstract: This paper proposes a strategy for the research of leadership and entrepreneurial learning and
development processes in a small business context. It is relevant to wide ranging local, national and European
policies to develop SME entrepreneurial leadership practice and SME growth. Leadership is probably the most
important factor to business success (Analoui and Karami 2003). Yet, as Rae and Carswell (2000) point out, a
greater understanding is needed of the nature and the process of entrepreneurship in terms of how people learn
to start and grow businesses, especially those that become high performing businesses. The authors argue that
the life story approach is an industrious and valid method of researching entrepreneurial learning. It is noted
elsewhere that empirical understanding of the informal processes of leadership learning of entrepreneurs is
limited (Kempster and Cope 2010). Offering a solution in the field of leadership studies, Kuhnert and Russel
(1990) propose biographical data can illuminate the development processes involved in life events. Biography as
a methodology teaches us about life and human behaviour; it can help us to understand individual motives,
personality, the people and conditions that influenced an individual in a way that brings their life and work to life.
“Biography adds flesh to the bones of achievement; it adds human form to the spirit of ideas and emotions”
(Jones 1998 p. 161). Howe (1982) suggests biographical data can draw out a person’s uniqueness and provide
insights into individual human development that reveal the relationship between earlier experience and later
achievements. It has been argued that biographical research is equal to more traditional approaches adopted in
the field of small medium enterprise, and can tap into the intangible nature of creativity, whilst also introducing
creativity and imagination into the research process (Fillis 2006). Methodologically, biographical research can
involve a range of data-collection methods and analytical approaches. This research involves biographic
narrative interpretive method interviews. These begin with a single initial narrative-inducing question. ‘Minimalistpassive’
(Wengraf 2000) interview techniques facilitate uninterrupted narration. Thematic questioning follows and
finally non-narrative questions can be posed (Wengraf 2004). The sample is drawn from owners of small medium
enterprises (SMEs) registered on a leadership and development programme known as ‘LEAD Wales’. The
programme is backed by funding from the European Social Fund (ESF) and Welsh Assembly Government. The
study forms part of a larger research agenda that will track the longer term effects of the intervention. A sample of
17 biographical interviews will form part of the initial study but this target will remain fluid. Despite its scope,
limited contributions to the literature on biography emerge from this field. This paper will explore the feasibility of
biographical research in the context of LEAD Wales by critically reflecting on this work in progress and the
potential contribution of biography as a means of exploring the temporal nature of the lived experience, and an
appreciation in the self and representations of the self as an entrepreneur and leader.
Keywords: leadership, entrepreneurship, learning, SME, biographical research
1. Background
In the western region of the British Isles, Wales typifies the overwhelming economic difficulties
experienced in areas where the decline of traditional industries and subsequent reduced living
standards has been felt most severely. This small population of fewer than 3 million, nearly 5% of the
United Kingdom population, is proving to be resistant to imperatives to drive economic development.
Small and medium enterprise (SME) is vital to the Welsh Economy, as these businesses account for
more than half of all employment in Wales. In a small business context, understanding entrepreneurial
leadership learning and development processes is key to driving economic development and
imperative to the creation of a knowledge economy.
A situation of this kind is not unique to Wales. Across Europe SMEs are recognised as the backbone
of the economy. Entrepreneurship is a major driver of innovation, competitiveness and growth in
Europe. Yet many barriers exist for those hoping to create and grow their own business. Identifying
the need to boost entrepreneurship, as one of the main objectives of the Lisbon Agenda in 2000, the
European Union adopted the European Charter for Small Businesses. However, despite wide ranging
initiatives little progress was made. Following extensive research, the green paper ‘Entrepreneurship
in Europe’ (2003) raised key questions concerning two fundamental issues – ‘How to produce more
entrepreneurs’ and ‘How to get more firms to grow’. Subsequently, the ‘Action Plan: The European
Agenda for Entrepreneurship’ (2004) set out strategic policy areas that include: fuelling
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Karen Jones
entrepreneurial mindsets; encouraging more people to become entrepreneurs; and, gearing them
towards growth and competiveness, among other measures.
Similarly, at a more local level to the present research, the Welsh Assembly Government in its
document ‘One Wales’ (2007) sets out its vision for a sustainable society that includes action to
stimulate enterprise and business growth, particularly in the SME sector. By creating educational links
with entrepreneurs it plans to enhance skills. Entrepreneurship as a driver of economic development
is also seen in the Welsh Assembly Government document ‘Wales: A Vibrant Economy’ (2005), and
in a range of emerging programmes that aim to support SME development and stimulate business
growth.
Initiatives to develop the leadership skills of the owner-managers of smaller enterprises include
‘LEAD’, a major UK leadership programme, developed by Lancaster University Management School.
Following a pilot study, conducted with 69 owner-managers in 2004, funding from the Northwest
Regional Development Agency (NWRDA) enabled full roll out of the programme to a target of 1000
owner-managers between the years 2009 and 2012 in the northwest of England.
Building on this success, LEAD Wales emerged as a result of £8 million of funding from the European
Social Fund and Welsh Assembly Government, with match funding from the higher education delivery
partners – Swansea University in south Wales and Bangor University in north Wales. Between 2010
and 2015 the programme will deliver leadership development to a target of 700 SME owner-managers
across West Wales and the Valleys Convergence region. Recognising the different needs of SME
owner-managers the programme takes a detour from traditional higher education pedagogy by
encompassing a range of reinforcing learning approaches that include taught, situated, enacted, and
observation learning (Kempster and Watts 2002). Programme elements include an initial two day
overnight bonding and management event, formal masterclass sessions delivered by speakers with
expertise in leadership and management topics, business coaching, Action Learning, plus business
shadowing and exchange. The present research forms part of a larger research agenda concerning
LEAD Wales.
2. Entrepreneurial leadership
Interest in leadership development has grown with the recognition that this can create an important
source of competitive advantage (Hirst et al 2004). Leadership capability is recognised as a key factor
in SME survival and growth (Smith and Peters 2006). Recent theorising of the interface between
leadership and entrepreneurship has deepened our understanding of the common threads and
linkages that exist between the disciplines and the similar evolutionary paths they have taken. Most
notably both fields have abandoned the preoccupation with distinguishing leaders and entrepreneurs
through the identification of inherent personality traits (Kempster and Cope 2010). Cogliser and
Brigham (2004) examine the intersection between leadership and entrepreneurship and point out the
entrepreneur is an enterprising individual that leads in extraordinary circumstances. Nevertheless,
while conceptually the fields overlap, entrepreneurial leadership learning and development processes
differ in fundamental ways.
It is understood that both leaders and entrepreneurs engage in an evolutionary and complex social
process of ‘becoming’ located within particular communities (Kempster and Cope 2010). However, in
the context of employed leadership, leaders typically operate in leader-follower dyads situated within
higher level contexts, such as teams nestled within broader organisations (Schrieshaim et al 2001).
The SME leader situation presents a different set of circumstances and opportunities for learning and
developing leadership. Research suggests informal learning and learning through business networks
is a key feature of smaller firms (Anderson and Boocock 2002). Learning triggers may include
complex prolonged and traumatic critical events or ‘critical incidents’ – a concept credited to
Flannagan (1954). Although the immediate impact of critical incidents can be negative, they can act
as powerful crisis driven learning experiences (Cope and Watts 2000).
It is of significance to the context of the present study that research reported by Kempster and Cope
(2010) suggests the entrepreneurs may associate ‘leadership’ with negative experiences and role
models; consequently it is not altogether unexpected that for the nine entrepreneurs in their study
leadership was low in relevance or aspiration. What is more, they had limited opportunities for
leadership enactment and observation, and made few references to significant individuals or
entrepreneurial peers who had strongly influenced their approach to leadership. By contrast, family
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Karen Jones
experiences and parents appeared to play an important role in shaping leadership practice, whether
through positive or negative influences. These findings mirror those of Perren and Grant (2001) who
found entrepreneurs reported a range of informal mechanisms of leadership development that
included observing family members and enhancing their skills in safe environments such as scouts.
However, Kempster and Cope (2010) note “conceptualisations of entrepreneurial leadership are still
embryonic” (p.9). Recognising the limitations of their sample, they state there is “...considerable merit
in conducting longitudinal research that examines how entrepreneurs may grow into becoming
leaders” (p. 27). They recommend longitudinal research with participants on programmes such as
LEAD, starting prior to commencement of the programme, at time points during its existence, at the
end, and in the months and years that follow to understand the dynamic and processual nature of
leadership development and how, or if, leadership practices evolve as a result of interventions such
as LEAD. It is proposed here that biographical research can provide rich insights into entrepreneurial
leadership development and leadership practice prior to commencement of such interventions, and
thereby complement quantitative longitudinal studies.
3. What can biographical research teach us about entrepreneurial leadership?
For simplification the term ‘biography’ refers herein to autobiographical narratives. However,
biographical research as a methodology can involve a wide range of data collection methods and
analytical approaches, although they share some common themes. Notably, the researchers’ interest
in people’s lived experiences and an appreciation of the temporal nature of their experience, interest
in process and change over time and in the self and representations of the self. Frequently, there is a
desire to empower participants so that the respondent contributes to determining the most salient
themes to emerge for discussion in the research, whilst researchers’ of this creed are generally aware
that they are also a narrator in the process (Elliot 2005 p. 6).
At the very least biographical research involves sensitivity to:
“... the connections in people’s accounts of past, present and future events and states of
affairs; people’s sense of their place within those events and states of affairs; the stories
they generate about them; and the significance of context for the unfolding of events and
people’s sense of their role within them. It is the ways that people organize and forge
connections between events and the sense they make of those connections that
provides the raw material of narrative analysis” (Bryman 2004 p. 412).
Despite its scope, limited contributions to the literature on biography emerge from the academic fields
of leadership and entrepreneurship. Nevertheless, those that have contributed include Rae and
Carswell (2000). They suggest a life story approach is an industrious and valid method of researching
entrepreneurial learning, while also facilitating learning in those that undertake interviews. In the field
of leadership studies, Kuhnert and Russel (1990) explain biographical data can illuminate the
development processes involved in life events related to the matter of research interest. They argue
that it is possible learn about a leader’s personal characteristics and behaviours or their underlying
values, attitudes, motivation, believes and environmental contexts. They propose previous life
experiences influence present behaviour; leaders extract meaning from prior life experiences that
shape subsequent behaviours and outcomes.
Yet biographical research is not without its critics. Despite arguing for the use of biography, Howe
(1982) cautions that it should not replace traditional sources of knowledge obtained from “empirical
research” (p. 1073). In doing so he reveals prejudices that serve to undermine biographical research
and qualitative approaches in general. Nevertheless, recent theorising has led to calls for multiple
methods. Politis (2005) suggests further and ‘intensified’ studies on the process of entrepreneurial
learning, while Shane and Venkataraman (2000 p. 224) recommend a variety of methodologies to
explore the topic of entrepreneurship. Recognising leadership is a multifaceted human undertaking
Day and Harrison (2007) suggest incorporating an identity lens into leader and leadership
development efforts to draw out relational and collective identities (p. 371). Additionally, Kempster
(2010) puts forth a strong argument for qualitative research as the method of choice for leadership
studies. On this topic of biographical research Fillis (2006) argues it is equal to more traditional
approaches adopted in the field of small medium sized enterprise, and can tap into the intangible
nature of creativity, whilst also introducing creativity and imagination into the research process.
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4. Research methodology
Karen Jones
The biographical research proposed herein forms part of a larger research agenda that includes a
quantitative longitudinal study and smaller scale qualitative research to track the longer term impact of
the LEAD Wales programme. The proposed methodology to be adopted follows.
4.1 Sampling
It is desirable that the sample, drawn from the LEAD Wales programme, is stratified by criterion such
as gender and business maturity / experience. The time required for interviews factors in the decision
to sample approximately 17 participants in the programme, although this target will remain fluid.
Additional considerations include staffing capacity and the time required for intricate and labour
intensive analytical procedures (Jones 2003). Although the sample is small, data triangulation can be
used (Fillis 2006), in this instance by triangulating the results with data gathered from baseline and
exit questionnaires, focus groups, and other research data concerning LEAD Wales.
To qualify for the programme, participants must be the strategic decision maker of a company that
meets the criterion for a SME or social enterprise. They should communicate a desire for business
growth and innovation, plus a commitment to the principles of social learning with other SME leaders.
Consequently, the individuals participating in LEAD Wales do not represent a random sample of SME
owner-managers in the region.
4.2 Interviewing
The research draws on interview techniques discussed by Wengraf (2004), and biographical narrative
interview techniques and analytical approaches developed of Schütze (1977). Reimann (2003)
provides a detailed discussion of Schütze work and the biographical approach.
Reinmann (2003) recommends starting the interview by discussing the research and where the idea
of asking for the respondent’s life story arose in the first place. A Generative question should be
prepared beforehand in a style that will elicit an extempore narrative. This stage also involves
explaining the features of the interview to the respondent.
The interview involves three stages:
Stage one begins with a single initial narrative-inducing question, described as ‘Minimalistpassive’
(Wengraf 2000 p. 10). The interviewee is asked to tell their life history, rather than certain
passages. Once the respondent has approved the scheme of narration the main narrative unfolds
without interruption. At this stage the interviewer can only provide non-verbal and non-committal
responses, and must not intervene in any way until the story ends.
Stage two immediately follows. Questions can be asked concerning the interviewee’s biography
but only on topics or themes already discussed by the respondent in their narrative. Thus one can
explore points ‘flashed up’ in the narrative and fill in noticeable ‘gaps’ (Reimann 2003).
Stage three involves more probing questioning non-narrative questions. For example, gaining
further information about a person’s retrospective evaluation, review and reflections on a topic of
interest, such as what they would do differently today (Reimann 2003).
Stage one and two of the interview often merge together, whilst stage three may involve a follow up
interview. Alternatively all three stages may sequentially blend into one interview. Interviews can take
45-60 minutes at stage one, and 30-45 minutes at stage two (Jones 2003).
4.3 Data analysis
Analysis is concerned with both what people say and the formal features of the narrative concerning
how their story is told (Schütze 1977 cited in Reimann 2003). Taking this approach, analysis involves
a number of complex procedures where the narrative is explored. Schütze (2008) provides a helpful
summary: initial text sorts explore differentiation in narrative, description and augmentation. A
sequential structural description of the formal features of the narrative is prepared. The different
elements of the interview are compiled in the form of topically related strings of text from the main
story telling interview and question element. Analytical abstraction involves assembling an outline of
the overall biographical structuring, and searching include remarkable, specific and universal features
of the person’s life history and the process mechanisms that shaped it.
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Biographical process structures are the most important ordering principles of life history. The four
main biographical process structures outlined by Schütze (2007; 2008) include: biographical action
schemes, trajectories of suffering, institutional expectation patterns, and creative metamorphoses of
biographical identity.
For instance, process structures emerge in the narrative in the form of different kinds of biographical
action schemes, by which the person attempts to actively shape the course of their life. Additionally,
unexpected and surprising developments may unfold. The concept of trajectories, influential in the
work of Glaser and Strauss (1968), is explored in the narrative by taking account of intentional and
symptomatic indicators. Reimann (2003) explains these may include references to hints that
something difficult is about to be discussed or as an outcome of a change in the person’s life story.
The trajectory will be shaped by certain conditions that forced events. For instance, these experiences
may come to light in a commentary that suggests calming oneself in a deteriorating situation. The
respondent, as narrator and story carrier, may engage in naive self presentation. Institutional patterns
that occur during the life course include experiences of education, family cycles and career patterns.
Finally, creative metamorphoses of biographical identity is characterised by signs that a new
important inner development is starting in the person’s biography.
The narrative will usually contain a combination of biographical process structures, but these typically
occur sequentially in biographical dominance (Schütze, 2007).
A generalised grid structure of analytical categories is created. After case analysis, comparative
analysis is undertaken using a principle of minimal and maximal contrast. This allows for the
comparative analysis of cases between similar groups and contrast comparison between different
groups. It is anticipated that by focusing analysis on a person’s narrative, the researcher moves
beyond what actually happened to explore how people make sense of what happened.
5. Assessing the feasibility of the study
It is imperative to the success of biographical research that the study makes sense and seems
worthwhile to the respondent so that they develop an interest in co-operating in the project prior to
interview. Developing a trusting relationship is critical to this process (Reinmann 2003), and endorsed
by the British Sociological Society who state “research relationships should be characterised,
wherever possible, by trust and integrity” (2002 p.2). Researchers enter into a personal and moral
relationship with those that they study that requires carefully consideration of research ethics. Most
notably to ensure respondents are not adversely affected by the research. As a first step, the right to
refuse participation in biographical research was clearly stated to avoid the possibility that it could be
construed as a formal element of the LEAD Wales programme.
An investigation to assess the feasibility of the study involved discussions with participants at different
stages in the programme. They were given the opportunity to learn about the purpose of the research,
the interview process and expected research outcomes so that it did not give rise to unnecessary
anxiety, false hopes or expectations.
The importance of developing trust, noted by Reinmann (2003), proved to be critical. Those at a more
advanced stage in the programme had a working relationship with the researcher, and consequently
expressed enthusiastic interest in the research. No one explicitly declined. However, it is of note that
men were initially more willing to volunteer for interview than women. Nevertheless, over time the
women participating in the programme became equally interested in the study. By contrast, tentative
discussions with those in the early stages of the programme suggested they were not open to the
idea.
A situation of this kind presents the researcher with a dilemma. Baseline biographical interviews prior
to or early in the LEAD programme could provide a rich source of data regarding prior entrepreneurial
leadership development processes and leadership practice at a point where leadership is less
prominent in the thoughts of respondents. However, exploration of this option revealed that at this
early point in the programme participants were not as willing to discuss the research, let alone
undertake interviews. By comparison this was a welcome prospect for those at a more advanced
stage in the programme. In light of the outcomes of the investigation, there is value in interviewing at
a more advanced stage in the programme or at exit. After all, biographical research not only reveals
the meaning individuals give to their experiences, it also enables the study of social reality in a way
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Karen Jones
that allows us to understand how it continuously reinterpreted by social actors, (Chamberlayne 2004
p. 189).
The investigation with programme participants prompted some to share insightful reflections that
share parallels with earlier research. Notably, the experiential nature of entrepreneurial learning and
recognition of family background and parents in shaping entrepreneurial intention and leadership
development; informal mechanisms of management and leadership; and, limited salience of
leadership per say. This is perhaps surprising from individuals participating in a leadership
programme, yet conceptual repertoires of personal leadership appeared limited and difficult to
express, as noted elsewhere in the literature. Nevertheless, when prompted during the course of the
programme to identify notable people that had influenced their leadership practice, many more
parallels emerged with previous research. Notably, men identified male role models such as their
father as influencing leadership practice. Some recalled experiences of prolonged ‘bullying’ at the
hands of employers as triggering their decision to set up a business. Such experiences instilled a lifelong
conviction to positive leadership. Echoing the findings reported by Perren and Grant (2001),
some male participants in the programme noted membership to associations or clubs during youth as
providing positive male role models. By contrast, women were more likely to identify with their mother
or other notable female figures in the family.
Uncovering potential areas of further exploration, unique to the context of the present research, for
men and women the Welsh culture and notion of community and rootedness in Wales appeared
significant in shaping leadership practice and entrepreneurial leadership identity, thus adding support
to the inclusion of an identity lens in leadership development efforts (Day and Harrison 2007).
6. Conclusions
The findings of this investigation add support to Reinmann’s (2003) argument that building a trusting
relationship is critical to the process of gaining co operation in biographical research. Leadership is an
important factor in SME business success, yet it is widely acknowledged that a greater understanding
is needed of the nature and process of leadership development in an SME context. The investigation
revealed insights into the potential of biographical research to the development of knowledge in the
field. In due course, it is hoped that research findings will contribute to the theorising of SME
entrepreneurship that is critical to the development of local, national and European policies
concerning SME entrepreneurial leadership practice and SME growth. Additionally, there are
implications for those with an interest in developing programmes to support SMEs. The setting for this
research in a rural socially and economically deprived area of Wales is particularly novel and
important. Taking a biographical approach it is hoped that creativity and imagination is brought to the
research process. Biographical interviews provide a unique opportunity for the interviewee to tell the
story of their life. This can be an illuminating and empowering experience that can facilitate learning
and self discovery, which is particularly relevant to LEAD Wales. In due course, biographical
interviews will provide rich data to complement quantitative longitudinal research that will track
changes over time in the leadership practice of those participating in the LEAD Wales programme.
Acknowledgements
LEAD Wales is backed by funding from the Welsh Assembly Government and £5 million from the
European Social Fund.
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205

Perspectives and Directions for Professional Development
in the Lower Silesian Voivodeship Compared to Poland and
the European Union
Jolanta Kowal
University of Wroclaw, Poland
Edukacja College of Management in Wrocław, Poland
jolakowal@gmail.com
Abstract: The article is to present the situation on the labor market in the Province of Lower Silesian in
comparison to the situation in Poland and in the world labor markets. The main objectives concern among others:
the most marketable and appreciated jobs in Poland, a perspective for the market new jobs for the future, the
identification of the most important employee’s competencies towards trades and vocational groups. The analysis
was conducted on the basis of a survey of the Lower Silesian Regional Development Agency, the author’s own
research, the qualitative content analysis of the relevant literature and web portals. Comparing and summing up
study results, the author state that the most important competencies, both the “soft” and the “hard” ones
observed and expected in trades as well as in large professional groups, are as follows: commitment to job,
practical skills necessary to work in a specific position, responsibility, personal culture, conscientiousness,
availability, job experience, independence, communicativeness, team work skills. It can be noticed that
employers have similar expectations as for the competencies in relation to various professional groups, though
these expectations are higher towards people with higher qualifications and towards employees who will occupy
more responsible positions. Economic development and technological changes result in the demand for new jobs
particularly in the areas of IT, biotechnology, medicine, finance, education, security and entertainment. In the
future, the following competencies will be necessary: flexibility, mobility, desire to learn, IT skills, foreign language
skills for a specific sector, use of mobile technologies, team work skills, team management, a solid foundation of
mathematics. The research shows that the desired employees will be university graduates, with practical
experience and those who will be able to change their jobs and to adapt to the market needs several times in
their life.
Keywords: professional development, competencies, employees, unemployment, labour market
1. General economic situation in Poland
Poland is the largest country in Central and Eastern Europe. With the population of 38 million people,
it is the 34 th most populous country in the world and the 6 th most populous state in the European
Union. The total area of Poland is 312 679 square kilometers, making it the 69 th largest country in the
world and the 9 th largest in Europe. In 2008, Poland’s share in the GDP generated by the new
members of the European Union (including Bulgaria and Romania) amounted to 40%.
The dynamic development of the country was enhanced by joining the European Union in 2004 and
particularly stimulating incentives were the following: the adjustment of Polish legislation and
administration to the EU standards and the inflow of structural funds from the Community (until 2013 it
will have been about EUR 67 billion).
The main sectors of economy are services (64% of GDP) and industry (32% of GDP). Agriculture
constitutes the remaining 4% of GDP. For several years the country has been characterized by a
stable demographic situation and an increase in the affluence of the society. In 2009 birth rate was
positive and population rose by 37 thousand people in comparison to the previous year 2008.
Poland continuously decreases the differences that separate it from 15 countries which have been
longer established as the European Union members. According to GUS (Central Statistical Office), in
2000 GDP per capita was USD 4473, while in 2009 it increased more than four-fold and amounted to
USD 18072 per capita. A steady growth in consumer spending at an average level of 5% per year can
be registered in Poland. Inflation amounted to 2,5% in 2007, 4,2% in 2008, 3,5% in 2009 and in 2010.
The research goal
The research aimed at answering questions which referred to some main problems:
The most marketable and appreciated jobs in Poland,
The presentation of a perspective for the market new jobs for the future,
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Jolanta Kowal
The identification of the most important employee’s competencies, in particular for graduates, in
terms of gender, profession and vocational fields,
An attempt to identify the key competencies expected by employers,
Relationship between competencies desired by employers and a type of a professional field and
vocational education.
Research methods
To find answers for the questions mentioned above I reviewed literature, research reports (including
my own in 2007-2010), web portals. The research concerning competences, perspectives and
directions for professional development was conducted by means of quantitative (the socio-economic
attitude scale questionnaires) and qualitative methods (interviews, critical literature and web portals
analysis, comp. Kowal and others 2008- 2010).
The most interesting results out of research conducted in 2010 were presented, in which took part
over 1500 managers of companies on the area of Lower Silesia. The survey concerned among others
matters such as the companies’ economical situation evaluation by employers, structures and
reasons of dismissal and the possibility to employ people in different professional groups. Particularly,
a lot place was devoted to the problem of employees’ competences with reference to different trades
and occupations.
The statistical methods
During data analysis the statistical description measures were selected appropriately to measuring
variables’ scales. There were used measures of descriptive statistics and the methods of statistical
deduction. To generalize conclusions from the research tests on a general population were applied
methods of the point estimation, the section estimation and the statistical hypotheses verification.
However in the paper statistically significant results and conclusions were only mentioned 1 .
Research sample
During the research concerning competences and professional development the target research
population constituted employees on managerial positions in companies on the area of Lower Silesia.
In the case of all conducted research, samples of respondents were chosen by means of the
individual independent random selection method, taking into consideration random selection of
districts and counties.
In 2010 were examined over 1500 respondents representing small, medium and big companies.
Dominating were physical persons running their own business activity and limited liability company.
By verification of population representativeness the statistical optimization method was used. To the
testing variables belonged: a kind of business, the company size, the managerial function, county
(Kowal, 2010a-d).
1.1 Employment on the Polish labor market
According to Eurostat, the unemployment rate in the third quarter of 2010 was 7,7% and according to
GUS it amounted to 10,8%. From the beginning of 2004 until the end of 2008, there was a systematic
drop in unemployment. By the end of 2004, it amounted to 19%; in 2005 – 17,6%, in 2006 – 14,8%, in
2007 – 11,2%, in 2008 – 9,5% (GUS, 2010a). The structure of employment in the Polish economy is
as follows (Kowal, 2010a):
Service sector employs 57% of the population (the EU average is 68%)
Industry employs 30% of the population (the EU average is 26%)
Agriculture employs 13% of the population (the EU average is 5%)
The percentage of the employed working age population is 59% (the EU average is 64%).
Poland is characterized by a high annual average number of working hours per 1 worker, that is 1966,
(which makes Poland the 2 nd country with the biggest number of working hours after Korea; Greece
1 The full statistical report was included in Kowal J. (2010a)
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Jolanta Kowal
and Hungary are in a similarly difficult situation). In 2010 the minimum gross salary was PLN 1317. A
monthly average gross wage in the national economy in 2010 was PLN 3146,00 and in the enterprise
sector it amounted to PLN 3404,00 in September. The dynamics of change in average monthly gross
wages and salaries over the same period last year in the business sector equaled 104%. Our country
has one of the lowest ratios of trade union membership in Europe, totaling 14% predominantly in the
public sector (in Ireland that ratio totaled 45% and 80% in Sweden.
Some Polish economists predict that unemployment rate will reach 9,9-11% by the end of 2011. The
decrease in unemployment may be affected by the increase of financial resources for paid internships
and practice adopted by the government. Likewise, the fact that the first generation of baby boomers
from 1948-1955 will retire might reduce unemployment to the level assumed by the government.
Perhaps the awareness of the decline in the stock of human capital will make employers consider
employment growth. In the upcoming period, long-term guarantees of employment expire mainly in
energy industry, which might lead to the rationalization of employment structure and match the needs
of companies in this sector (HRstandard.pl, 2010). Constant monitoring of the labor market indicates
the seasonal employment, which means a greater demand for employees in the 2 nd and 3 rd quarters
and unemployment growth in the 4 th quarter.
Trends in job offers
Number of job vacancies offered in newspapers and on the Internet is growing steadily (Kowal,
2010a). For instance, in the second quarter of 2010 employers placed almost 65 thousand job offers
on hrstandard.pl website. That is 16% more than in the second quarter and over 50% more than in
the same period in 2009. Foreign employers’ interest in Polish workers has also increased. The
survey of Pracuj.pl and Interactive Market Research Institute, "HR Challenges in 2011”, conducted
among more than 300 HR professionals and managers across Poland and research by DARR.S.A. in
Lower Silesia, carried out among more than 2,000 representatives of companies in various industries
prove the labor market improvement. The results are similar and they show that from 30% to 40% of
companies employ more new employees in comparison to the last year, and entrepreneurs declare
that their companies plan to increase employment by the end of this year. More and more employers
look for employees via the Internet. In the last two quarters of 2010 the majority of job vacancies were
advertised over the Internet in the following sectors: trading and sales, financial sector and
construction. In the third quarter, employees were sought particularly in education and training. Even
more job vacancies were advertised in marketing. The only decline, in comparison to the second
quarter, was registered in the legal sector.
According to the report “Specialists Labour Market in quarter III of 2010”, developed by the
recruitment web portal Pracuj.pl, the most wanted employees were salesmen, who were offered over
26 thousand workplaces, and customer service specialists (over 12 thousand offers). Then the
following job vacancies were offered: IT specialists (11,5 thousand offers, finance specialists (10,5
thousand offers, i.e. increase by 25% in relation to the 2 nd quarter), engineers (over 10 thousand
offers). In July, August and September the number of job vacancies in manufacturing increased the
most (by 1/3) whereas the demand for accountants declined by 17%.
The demand for our employees expressed by foreign companies increased significantly. Foreign
employers advertised almost twice more job vacancies than in the previous quarter. The majority of
job offers were from Germany, which will open the labor market to Poles next year, as well as from
the Netherlands and our neighbors: Russia, Ukraine and the Czech Republic.
On the Polish market, most job vacancies concerned micro- and small-sized enterprises. The sector
of small and medium-sized enterprises constitutes a factor of the Polish economy development and
has an impact on the level and structure of employment as well as on the degree of affluence of
Polish society. The share of the SME sector in the gross domestic product was 47% in 2008, and
more than half of all new workplaces in enterprises in 2003-2008 resulted from intensive development
of SMEs (Kowal, 2010a).
Job search methods
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Jolanta Kowal
Almost 30% of economically active people search for a job using the services of job Internet search
engines (Internet Standard, gp24.pl, 2010) and 50% of employers recruit by means of the Internet
while 67% of employers consider on-line recruitment to be the most effective one.
Mostly young people and students search for the job on the Internet labor market. According to the
GUS data for 2009-2010, 40% of students worked and studied at the same time. The most effective
methods of finding the first job were: looking for jobs directly at employers (37.8%) and through family
and friends (28.8%). Students could expect to find jobs as private tutors, language teachers, IT
specialists or house help (Kowal, 2010a).
Other studies show that nearly 70% of prospective engineers intend to work in Poland, and only 1% of
students would like to find employment abroad. Students prefer to work for large and medium-sized
organizations, and only 3% of respondents would like to be sole traders. While choosing a job,
students with a technical background are guided by the amount of earnings and professional
development opportunities. 46 percent of students believe that the average job search time is 3
months, and the best way to find a job is to use their own networks of contacts. Prospective engineers
prefer to look for a job by using a network of contacts (69%), to contact the prospective employer
directly (47%), to make the first contact with an employer during the Job Fair (17%), to use the
support of university career centers (8%), to set up their own businesses and to apply for freelance
work (6%).
2. Perspectives for labour market in the European Union
In Europe, one of the factors determining the growth of the employment rate is a higher level of
education in society. In 2008 employment index for people with higher education aged 15-64 years
old was 84%, for people with secondary education – 71% and for people with primary education –
48%. Employment index for people with higher education was above the average of 66%. The rise in
the level of education can increase productivity, meet the needs and the increased demand for highly
skilled workers.
The current unemployment rate is 10%, which stems from the fact that during the current economic
crisis, labor markets are not able to offer employment to all persons of working age (to both local and
immigrant workers). In February 2010, 23,01 million people of working age were unemployed – that is
3,1 million more than the year before.
The analysis of the demographic process index shows that societies are aging. From 2020, when
baby boomers of the 60’s start to retire, working population will have decreased in the EU, and the
number of people aged 60 and more will have begun to increase twice as fast as before 2007, i.e.
about 2 million per year instead of 1 million (eu.ngo.pl, 2010). However, despite the aging society, the
number of people working in the EU will grow.
As a result of the economic development, increasing knowledge and awareness of the society, the
demand will grow and the further development of services will take place (in Europe it will be about
20% and in Poland – about 30%), including medicine and health care (one of the reasons for this is
the aging population), transport and logistics, teleworking, tourism, entertainment and recreation. In
the above-mentioned sectors the demand for workforce will be the highest. Economists predict a
certain decline in workplaces in the EU industry (in Poland the number of workers in this sector will
grow), biotechnology development (one of the EU objectives), deficit of engineers and technical staff
in industry and construction, deficit of specialists in the areas related to the Internet and information
technology, employment growth in the construction sector, demand for skilled blue-collar workers
(with vocational training), a significant reduction of jobs in agriculture (at 20-27%), the need for
retraining and high mobility – the change of place of residence and sector, flexible working hours, the
need for temporary work and telework, which will trigger the development of lifelong learning.
2.1 The situation of employees in Poland
This paragraph concerns the situation of employees in Poland on the example of the Lower Silesian
labor market random research.
In the short term in the region about 30% of companies intend to increase employment by 5-10%
compared to the total number of employed persons. While employing, employers should not make
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such criteria as age, sex and the fact of having children the most important factors. The previous
research (Kowal 2010b) shows that in some companies people aged 26-35 as well as men or women
(depending on the nature of work) can be preferred. So far 10.7% of employers preferred to employ
women and 27% preferred men. In the region a difference in remuneration for men and women was
noticed. 8.8% believed that men earned more and 4,6% believed that women did. According to
respondents, higher salaries may result from better qualifications, skills and managerial positions,
work experience. However, there were some opinions on discrimination against women.
In most companies in the region, the opportunities for advancement were registered. According to
respondents, the reasons for professional promotion could be better qualifications, skills and duties
performed better. The majority of employers declared that they provided their staff with training at
least several times a year, and only about 13.3% of employers did not take such actions. But the
depressing fact is that 67.16% of managers believed that there was no need to train workers; some of
them did not know what training to organize and believed that their company had no money for
training. The research conducted in the 1 st and 2 nd quarters shows that training opportunities did not
depend on the sex of employees and that differences resulted only from the nature of the job and the
occupied positions.
Most companies did not take any actions to facilitate the reconciliation of personal and professional
life, but some of them used flexible working hours, provided partial funding for child care (subsidy to
kindergartens, nurseries) and other auxiliary services. The structure of women’s and men’s share in
managerial positions is similar. Men and women now hold senior managerial staff positions in similar
proportions, with a slight predominance of women whereas in the middle level management staff
men’s share is higher by several percent. In comparison to men’s, women’s proportion as specialists
is higher by 8.8% while men prevail in the positions of technical staff (by 5.5% more than women).
2.2 The most wanted jobs in Poland
The results of the study into the most wanted jobs in the region of Lower Silesia in the 3 rd quarter of
2010 did not differ significantly from the results obtained in Poland. The most wanted jobs (in large
professional groups) in the region first of all included very simple jobs (66.3%), workers of personal
services and shop assistants, industry workers and craftsmen, specialists (from 7% to 8%), operators
and assemblers of machinery and equipment and technicians and associate professionals (4%),
office workers (2%), parliamentarians, senior officials and managers (0.7%), farmers, gardeners,
foresters and fishermen (around 0.4%).
The research into the demand for workers in various trades shows that the employment structure in
particular sectors differs essentially.
From over 50% to 70% of the jobs wanted in all industries are workers of simple jobs. In trade, 23% of
the most wanted workers are shop assistants. In service, which is the only trade that needs and
employs a great percentage of workers with a higher education background, 13% of specialists were
employed. In industry and construction, apart from blue-collar workers (in industry- 65.5%, in
construction – 51.6%), the most wanted workforces were industrial workers and craftsmen (in industry
– 21.7%, in construction – 35.5%), operators and assemblers of machinery and equipment (10.5% in
industry and 9,7% in construction).
2.3 Market for new jobs
The world job market and the Polish one are still changing. There were no job advisers, marketing
specialists, stockbrokers, project managers and others on the Polish labor market several years ago.
While some professions are considered to be jobs of the future, others are slowly disappearing from
the market.
On many sites one can find information on the most wanted professions and professionals. The
following statement was made as an example of the facts and forecasts in Poland and around the
world (Kowal, 2010a). Many reports show that in the future in Poland such sectors as services,
transport and storage, where up to several hundred thousand jobs may be created during the next
few years, will operate well. A slightly smaller increase in jobs is forecasted in industry. Other sectors
of the economy may face stagnation in employment (e.g. construction) or a decrease in the number of
jobs, for example in agriculture.
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A job can be found in service sectors and emerging trades, related especially to communication, IT
and telecommunication industries. Among the professions of the future in these sectors, the following
jobs are mentioned: network professionals, tele-IT specialists, mechatronics, internet jobs
(webmaster, traffic manager), jobs associated with information search and processing (expert
classification and expert on information indexing, auditor of information reliability, researcher –
information manager, broker, selector of information and specialist on information inflow
management). New workplaces may also come up in tourism services, catering, hotel trade and
education, whose importance is growing due to the development of high technology. The traditional
craft jobs such as a cook, a miner, a sailor and a carpenter will be much appreciated.
However, there are positions which are difficult to be occupied. Major problems in recruitment (Kowal
2010c) are as follows: lack of work experience (over 52%), lack of practical skills necessary to occupy
a particular position (over 46%), lack of relevant background (approximately 28%), too high salary
expectations (17%), lack of specialized professional certificates (about 17%), lack of independent
work skills, need to be supervised (14.2%), lack of applications (about 9%), unavailability, lack of team
work skills (about 9%). However, it has been noticed that more and more emigrants are eager to
return to the country but large numbers of Polish workers still emigrate.
Research done for EMEA (Europe, the Middle East, Africa) shows a similar trend that can also be
observed in Poland: employers have problems in recruiting suitable candidates for the positions of
skilled manual workers, technicians and drivers. The results of the study conducted for different
countries (gppracy.pl, 2010) show that the largest number of employers experienced difficulty in
recruiting suitable staff in Romania (up to 73%), Japan (63%), Hong Kong (61%), Singapore (57%)
and Australia (52%). Since the previous year, the number of such employers has increased in Hong
Kong. The smallest recruitment problems are registered in companies in the UK (12%), India (12%)
Ireland (14%), China and the Netherlands (15%). Employers in Japan, Hong Kong, Singapore and
New Zealand underline that the biggest problem for them is to find sales representatives.
Concluding: on many markets an increasing difficulty in recruiting skilled workers, technicians,
engineers, production workers, unskilled manual workers, workers of service departments and office
senior staff has been registered. The main reasons for this include the lack of an adequate
preparation of candidates for the job, which results from the fact that the education system is not
adapted to the needs of employers. Young people will have to develop greater job flexibility, not
necessarily by studying a second major or taking additional undergraduate and postgraduate studies,
but by internships, which they should be involved in, membership and activity in scientific students’
association and student trainings. Just a diploma and language skills are not sufficient any more.
3. Competencies versus qualifications
In the information systems we can come across the concept of professional competence, which
includes knowledge, skills and attitudes of workers in the workplace. Employers are interested in
workers’ behavior that is desirable from the viewpoint of the effective performance of tasks which are
specified for their positions in different jobs groups.
3.1 Competencies
Competencies enable the implementation of professional tasks at an appropriate level. Professional
competencies and qualifications comprise intrapersonal characteristics of a worker, his predisposition
(psychological traits and knowledge) and his behavioral skills (Kowal and others 2007-2010). The
notion of "competence" is broader than the term "qualified“.
Professional qualifications include knowledge and skills required to implement components of
professional tasks (in a selected specialty) and show a range of employee’s capabilities and potential
in a particular job position. The level of the implemented tasks depends on the qualifications that can
be divided into practical-motor functions (manual skills) and the intellectual operations (knowledge
and knowledge transforming).
Qualifications depend on professional knowledge (gained at school), general knowledge (general
education, personal experience), skills (professional and general), hobbies and motivation. They
concern a position or a group of positions. Qualifications may be acquired within the school system or
through training.
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Professional qualifications of workers required to perform a specific type of work or to occupy a
specific position can be determined in the labor laws, as far as the unregulated specific provisions are
concerned.
Employees work in three main areas of an organization, which reflects the division of powers into
three categories: social competence, personal competence and managerial competence.
The analysis of professional competence takes into account the following division: "soft" competence
(psycho-social skills, comprising personal and social skills) and "hard” competence identified with the
expertise and professional skills. Personal competencies relate to the individual fulfillment of tasks by
an employee. This kind and level of competence affect the general quality of the performed tasks – it
is connected to the quickness, adequacy and reliability of the undertaken actions. Personal
competencies include for instance: striving for results, flexible thinking, desire to learn, creativity,
analytical thinking, openness for changes, decision making, dealing with stress, solving problems,
vocational development, independence, scrupulousness (Kowal and others 2010a-d).
Social competencies affect the quality of the performed tasks related to contacting other people. The
level of these competencies determines the effectiveness of cooperation, communication or impact on
others. The most frequently mentioned social competencies in management are among others: autopresentation,
building relationships, sharing knowledge and experience, identification with the
organization, communicativeness, personal culture, negotiation skills, relations with customers.
Managerial competencies belong to a special group of competencies which usually relate to
managing employees. They concern such „soft management areas” as work organization or strategic
aspects of management and their level often determines the functioning efficiency of the dependent
area. The managerial competencies include the abilities related to building an efficient organization,
building teams, coaching, delegation of powers, administration, manager supervision, motivating,
strategic thinking, organizing, planning, leadership, solving conflicts, managing information,
innovations, processes management (Kowal and others 2010a-d).
3.2 Key competencies for trades and professional groups
Employees competencies are important professional success factors for both people and firms.
Therefore entrepreneurs are interested in so called key competencies and their level for trades and
professional groups. They have expectations concerning qualifications and competencies towards
employees. Such knowledge may be gained by job market research.
The aims of the random study in 2010 including over 1500 firms in the region of Lower Silesia were:
To find out what sort of skills and competencies employers expect from candidates with the
reference to vocational group, trade, gender,
To depict a stereotype of a competent successful employee.
Companies’ managers answered questions concerning the significance of particular competences, on
the one-zero coded scale, where the value 0 indicated the unimportant factor, 1 – the absolutely
essential factor.
On the basis of employers‘ opinion concerning the competencies of newly employed workers (Table
1), on the one hand, we can figure out their expectations and, on the other hand, we can notice a
certain stereotype or employee’s profile in a specific position.
The analysis of the expected traits of parliamentarians, senior officials and managers can be regarded
rather as qualitative and intuitive, considering employers’ opinions on the fact of necessity for the
above mentioned groups to have such traits as team work skills, commitment to work, responsibility,
communicativeness, independence, conscientiousness, availability, personal culture, specialized
professional certificates.
Specialists should be characterized by such traits as awareness and expression, civic skills, learning
skills, accurate communication in the Polish language, creativity, mobility, commitment to work,
practical skills necessary for work in a specific position, responsibility, independence, background
relevant to the job, conscientiousness, personal culture, availability, job experience, stress
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Jolanta Kowal
resistance/assertiveness, specialized professional certificates, communicativeness, interpersonal
skills, team work skills.
Table 1: Overview of competencies in large professional groups (frequencies)
Tech
Perso
nicia
nal
Operators
Parliam
ns
servic
and
entarian
and
es Industr assembler
s, senior midd
worker ial s of
officials
le
s and worker machinery Worker
and
pers Office shop s and and s at
manage Specia onne worker assista crafts equipmen simple
Competencies rs lists l s nts men t jobs Total
commitment to work 1 1 1 1 0,88 0,96 0,64 0,91 0,91
practical skills,
necessary to work in a
specific position
1 0,91 1 0,8 0,71 0,96 0,82 0,89 0,87
responsibility 1 0,91 0,93 1 0,91 0,72 0,73 0,87 0,86
conscientiousness 1 0,73 0,93 1 0,88 0,76 0,73 0,84 0,84
personal culture 1 0,73 1 1 0,88 0,68 0,64 0,84 0,83
availability 1 0,73 0,87 0,8 0,85 0,72 0,55 0,83 0,8
job experience 1 0,64 0,87 0,8 0,76 0,88 1 0,78 0,8
independence 1 0,82 1 1 0,68 0,68 0,55 0,75 0,75
communicativeness 1 0,55 0,87 1 0,79 0,52 0,55 0,75 0,73
team work skills 1 0,45 0,87 0,8 0,68 0,68 0,55 0,73 0,7
background relevant to
the job
0,5 0,82 0,73 0,2 0,56 0,64 0,91 0,68 0,66
Stress
resistance/assertivenes
s
0,5 0,64 0,8 0,8 0,62 0,4 0,36 0,63 0,6
Source: Own research based on survey (Kowal, 2010)
Technicians and other middle personnel should show commitment to work, practical skills necessary
to work in a specific position, responsibility, independence, conscientiousness, personal culture,
availability, job experience, stress resistance/assertiveness, communicativeness, interpersonal skills,
team work skills, creativity, accurate communication in the Polish language.
The office worker should have such necessary traits as commitment to work, responsibility,
communicativeness, independence, conscientiousness, personal culture, stress
resistance/assertiveness, team work skills, availability, a driving license, computer skills, office
equipment support, practical skills necessary to work in a specific position, job experience, accurate
communication in the Polish language.
Employees in personal services and shop assistants are expected to have the following features:
commitment to work, personal culture, responsibility, conscientiousness, availability, job experience,
communicativeness, practical skills necessary to work in a specific position, team work skills,
independence, stress resistance/assertiveness, background relevant to the job, creativity,
interpersonal skills.
Industrial workers and craftsmen should be characterized by commitment to work, practical skills
necessary to work in a specific position, job experience, responsibility, conscientiousness, availability,
independence, team work skills, personal culture, background relevant to the job,
communicativeness. They also should have specialized professional certificates, be mobile, resistant
to stress and assertive.
Machinery and equipment operators first of all should have job experience, background relevant to
the job, practical skills necessary to work in a specific position; they should be characterized by
responsibility, conscientiousness, commitment to the job, personal culture, availability, independence,
communicativeness, team work skills. They should also have specialized professional certificates, a
driving license, computer and office equipment skills.
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Jolanta Kowal
For workers at simple jobs the most important traits are the following: commitment to the job, practical
skills necessary to work in a specific position, responsibility, personal culture, conscientiousness,
availability, job experience, independence, communicativeness, team work skills, background relevant
to job, stress resistance/assertiveness, interpersonal skills, specialized professional certificates,
creativity.
In the case of industry, employers’ expectations concerning availability, personal culture,
communicativeness and independence were lower. Employers in trading companies expect practical
skills necessary to work in a specific position to a smaller extent. Less assertiveness is expected in
construction.
Concluding on the basis of the data analysis: similar importance of competence in all sectors can be
noticed. Over a half of respondents (out of 205) underlined the following crucial competencies they
expect form an employee: commitment to work, practical skills necessary to work in a particular
position, responsibility, conscientiousness, personal culture, work experience, flexibility,
independence, communication skills, teamwork, background relevant to the job, stress
resistance/assertiveness, interpersonal skills. Thus, attention was paid both to the soft and hard
competencies. Statistical tests for these most important traits did not show many significant
differences among trades as for the importance of the expected competencies. For at least 70% of
respondents the most important competencies were as follows: commitment to work, practical skills
necessary to work in a specific position, responsibility, conscientiousness, personal culture, job
experience, availability, independence, communicativeness, team work skills.
4. Conclusions
Comparing and summing up study results, it can be stated that the most important competencies,
both the “soft” and the “hard” ones observed and expected in trades as well as in large professional
groups, are as follows: commitment to job, practical skills necessary to work in a specific position,
responsibility, personal culture, conscientiousness, availability, job experience, independence,
communicativeness, team works skills. In particular groups employers expect similar competencies
but a different sequence and of different importance. It can be noticed that employers have similar
expectations as for the competencies in relation to various professional groups although these
expectations are higher towards people with higher qualifications and towards employees who will
occupy more responsible positions. Employees with lower qualifications are required to have practical
experience in the first place.
In companies that employ and still will employ women, the level of expected competencies is
statistically lower in relation to men.
Respondents consider the following competencies to be the most important ones both for women and
men: commitment to job, responsibility, independence, conscientiousness, communicativeness, team
work skills, personal culture, practical skills necessary to work in a specific position, availability, stress
resistance/assertiveness, computer/office equipment skills. They are mainly soft competencies, with
the exception of practical skills and computer/office equipment skills. The most appreciated
knowledge that both men and women have is the technical and specialist one as well as knowledge in
the area of economics and management.
In the nearest future it will be possible to see an increasing number of people who have access to
education, the aging society of well-developed countries, decline in birth rate, decreasing population
of economically active people, growing life expectancy and migration. In the next decade there will be
growth in the demand for highly qualified and flexible staff as well as for positions requiring better
skills. Economic development and technological changes result in the demand for new jobs
particularly in the fields of IT, biotechnology, medicine, finance, education, security, entertainment.
Nowadays and also in the future the following competencies will be necessary: flexibility, mobility,
desire to learn, IT skills, foreign language skills for a specific trade, use of mobile technologies, team
work skills, team management, a solid foundation of mathematics. The research shows that the
wanted employees will be university graduates, with practical experience and those who will be able
to change their job and to adapt to the market needs several times in their life.
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UK, Academic Publishing Limited, p. 207-215.
215

IT Project Management in Relation to Employees'
Competence in Poland
Jolanta Kowal, Aleksandra Kwiatkowska and Wojciech Kowal
University of Wroclaw, Poland
Edukacja College of Management in Wrocław, Poland
jolakowal@gmail.com
akwiatkowska@edukacja.wroc.pl
Abstract: One of the contemporary answers to global challenges is project orientation, or how to deal with
change and innovation in a routine way. IT projects and project management have been discovered as a new
source of growth, competitiveness and innovativeness. Many IT employers are wondering how to gain good
employees, what important personality traits, knowledge and skills would benefit the project best and if some
competences are necessary for the job. Project management models and methods have already proved to be a
catalyst for both economic and social benefits and start to exist in higher education area, but their success
depends on employees’ preparation. On many sites one can find information on the most wanted professions and
professionals. The following statement was made as an example of the facts and forecasts in Poland and around
the world. An increasing number of companies having or planning to have an internal computer network and their
own websites will cause the demand for IT professionals, computer technicians, etc. This fact draws up a good
career prospect for students and graduates in information technology. Nowadays, there are two significant
tendencies prevailing in the EU labour market. On the one hand, we can observe the need for specialisations
while on the other hand, flexibility in facing the ever-changing economic situation seems to be a more desirable
tendency. Competition is indeed rising, but along with it there appear greater possibilities for employment as a
side effect. This article is a preliminary report of the broad panel research in Poland. Its aim is to specify: •
whether the employees are aware of the specific competences necessary in their professional groups, which
competences are preferred during recruitment processes, which of the competences are considered most
important for the employers in relation to specific professional groups.
Keywords: IT project management, competences, innovativeness, project – orientation.
1. Introduction
Many reports show that in the future in Poland such sectors as services, transport and storage, where
up to several hundred thousand jobs may occur during the next few years, will operate well. A slightly
smaller increase in jobs is forecasted in industry. Other sectors of economy may face stagnation in
employment (e.g. construction) or a decrease in the number of jobs, for example, in agriculture. A job
can be found in the sectors of services and emerging trades, related especially to communication, IT
and telecommunication industries. Among the professions of the future in these sectors, the following
jobs are mentioned: network professionals, tele-IT specialist, mechatronics, internet jobs (webmaster,
traffic manager), jobs associated with information search and processing (expert classification and
expert on information indexing , auditor of information reliability, researcher – Information manager,
broker, selector of information and specialist on information inflow management). An increasing
number of companies having or planning to have an internal computer network and their own
websites will cause the demand for IT professionals, computer technicians, etc. This fact draws up a
good career prospect for students and graduates in information technology. Nowadays, there are two
significant tendencies prevailing in the EU labour market. On the one hand, we can observe the need
for specialisations while on the other hand, flexibility in facing the ever-changing economic situation
seems to be a more desirable tendency. Competition is indeed rising, but along with it there appear
greater possibilities for employment as a side effect.
2. Methodology
Research goals
This article is a preliminary report of the broad panel research in Poland. The theoretical goal was to
make short introduction to IT project management, define the hard and soft skills as well as the
factors crucial for the IT project team. The practical goal was to implement the knowledge in building
the IT project teams as well as to use the knowledge in training for professional development. Its aim
is to specify:
Whether the employees are aware of the specific competences necessary in their professional
groups of It project management,
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Which competences are preferred during recruitment processes,
Which of the competences are considered the most important for the employers in relation to
specific professional groups like It project management leaders and specialists. We tried to find
answers for the questions by review of literature, research reports (including our own in 2007-
2010) and web portals.
Research methods
The research concerning competences for project management has been performed by means of
quantitative (the socio-economic attitude scale questionnaires - ”Scale of attitudes and motivation“,
elaborated by J. Kowal, 2004) and qualitative methods (in-depth interviews, critical literature and web
portals analysis, quality analysis of the open questions with the competent judges method, comp.
2001, 2004, and others 2008- 2010).
The results out of research conducted in 2009-2010 were presented, in which took part 100
specialists and managers of companies dealing with IT projects on the area of Poland. The survey
concerned the companies’ economical situation evaluation by employers, the politics of recruitment
managers and specialists and their competences as professional success factors.
Research samples
The subject of the research were representatives of IT project teams comprising 100 random persons.
The teams were dealing with national projects covering over 160 localities in Poland.
During the research concerning competences for IT project management the target research
population constituted employees on It project team positions (specialists and managers) in
companies on the area of Poland. Sample of respondents was chosen by means of the individual
independent random selection method. Respondents represented micro, small and medium
companies. Physical persons running their own business activity and limited liability company were
dominating.
The statistical optimization method was used to verify of population representativeness. Testing
variables included: a kind of business, the company size, the professional function, county (Kowal,
2001-2004, 2010a-d).
Measurement scales and statistics methods
The analysis was based on the continuous and ordinal numerical variables as well as binary coded
variables. If the variable is connected to an existing feature, for example – technical education – the
value of the occurrence equals 1, and when the feature did not exist – the value equals 0. With the
implementation of the multiple nominal methods such variables are transformed into frequency,
which, according to the central limit theory, enables the usage of statistical parametric methods (when
the number of samples is higher than 30).
The implementation of the statistical description method
As a measurement of central tendency there was a calculation of the minimal, maximum and average
value, standard deviation and the coefficient of variation in relation to the average. In this text the
arithmetic mean (sometimes marked as m) as well as statistical dispersion – standard deviation and
coefficient of variation (marked as Vm) have been presented (Table 1).
Applied statistic deduction methods
In order to generalise the conclusions of the research attempts on the general population the following
methods have been used. The methods of interval estimation – confidence interval for the average
with the confidence coefficient 1-α=0,95 and the verification of the statistical hypotheses. The
verification of the statistical hypotheses included: compliance test while verifying the necessary
assumptions of the Student test and variance analysis, significance difference test of probability
distribution, T-Student test for independent measurements (comparison of the probability distribution
of the continuous traits and normal probability distribution between two random populations), Leven
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and Fisher-Snedecor tests (research of variance homogeneity), independence tests and statistical
significance tests; during the hypotheses verification it was assumed that the statistical significance
equals α =0,05. This text presents only the significant statistical results. Factor analysis was used to
check whether significant competences can be replaced with two or three well-defined factors of
different substantial content.
3. Introduction to IT project management
Project management is a set of activities with the common goal of completing the set of main and
indirect tasks in a given time limit. It consists of: planning, scheduling, executing and controlling the
tasks needed for completing the project targets. Project management deals with efficient achievement
of the project goals while neutralising the preconceived constraints and risks. It is a discipline
comprising the maintenance of project team's motivation as well as the proper communication among
its members. One can say that one of the key elements of project management is the practical
knowledge of eliminating the risk of failure during the whole project life cycle (Wysocki 2007).
Another point of view states that project management can be defined as a discipline of defining and
accomplishing goals while maximising the optimisation of the resource usage (such as: time, money,
people etc.). Due to the scope of responsibilities, authorities and the level of required competences,
the most important role in the project is in the hands of the project leader. The project manager takes
a direct part in the project management process; he or she coordinates the tasks of the project among
the team members, and builds team's motivation in a way that the goals are accomplished through
the elimination of the existing problems and risks. One of the key features of project manager's
responsibilities is proper communication between the project sponsor and the team members in order
to precisely define the direction of the further changes as well as to notice the appearance of possible
new risks. Another key part in the project is played by the project sponsor, who calls the project into
being. The project sponsor is the most authorised in the project decision making and most often
makes the key decisions in the project in which redefining the scope, budget and deadline takes
place. The sponsor's decisions bind the project leader. Even tough the most common activities such
as computer program elaborating may constitute a project, practically projects are often more
complex. It projects generally concern the elaborating and development of algorithms and computer
programs, adequate hardware and software systems, information systems, information services and
their implementation.
As compared to a process, the project is accomplished once and each project has its own beginning
and ending date (which does not mean these dates may not change, and, as a matter of fact, they
often do). The production of a consignment of goods does not qualify as a project since it is a
repeated process without a planned ending whereas planning and organising the production process
itself - can qualify as one (Spałek,2004).
The methodology of project management stresses the fact that every project is orientated towards
creating a unique product, service or another specific result, like innovation.
Nowadays, there are two main approaches to project management.
The traditional approach identifies a sequence of steps to be completed.
The other approach is seen rather as a set of little tasks than as a complete process.
The project management team makes the most important decisions about a given project. Many
organisations undertake projects as a way of accomplishing goals that are not possible to be
accomplished in their everyday normal work. Organisations run their projects on different levels. In
some projects only one person is needed while in others a team of thousands is often necessary. A
project can take from a few weeks up to a few years. One project can be organised by one
organisation as well as many organising units as a goal of a common enterprise (joint venture,
syndicate etc). Projects have key significance for organisations because they enable the realisation of
the organisation's strategies. Project management rests on the implementation of knowledge, skills,
tools and techniques in the areas realised in the project in order to reach the goals of a given project.
The goals are accomplished through the processes of: initiation, planning, production, controlling and
closing (Kerzner, 2004).
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A project-oriented institution is a new type of activity that embraces project management as an explicit
organisational strategy allowing it to survive and thrive under the circumstances of complexity and
constant change. It is a challenge which should be used in connection to higher education. How to
prepare for this?
Introduction to the research
The work is executed by a project team. The following aspects are important in the work of the team:
The complicated relation of the scope, time, costs, risk and quality,
Stakeholders with different needs and expectations,
Identifying the requirements.
Many processes comprising the project management are of interactive character. This is a result of
the need to precise the project in its realisation. Therefore, we can say that the more we know about
the project, the better we can manage it. The concept of project management is sometimes used to
describe the organisation's attitude towards the operational activity management. The project, which
should be called management by projects, is based on treating many aspects of the operational
activity in a way in which a project is treated, including the usage of the techniques of project
management (comp. Packendorff, 2011). . In the following work we shall try to point out the most
important competences crucial in successful project completion.
4. Social and professional competences
In information systems we can find the concept of professional competence system comprising the
knowledge, skills and attitude of the employees in relation to the behaviour as observed in the
workplace. The subject of interest of the employers is focused on the way the employees' behaviour is
desirable in terms of employees' efficiency in the tasks they fulfil in their professional groups. The
competences constitute the dispositions in terms of knowledge, skills and attitude that enable to
realise the professional tasks on an appropriate level.
The professional aptitude and competences are often understood as intrapersonal attributes of the
employee, his/her disposition (psychological traits and knowledge) as well as the exposed
professional skills (Stogdill 1948; 1974; Witkowski 1995, Penc 1996; Borkowska 1975, 2000;
Juchnowicz 2000, Spitzberg and Cupach, 2002 Kowal and others 2008-2010).
Competences are a broader concept than aptitude.
Professional aptitude comprises the knowledge and skills required to realise the integral professional
tasks (in a given specialisation). They show the scope of skills of the employee in a specific
professional position. The level of the accomplished tasks depends on the aptitude which can be
divided in practical-motoric (manual skills) and intellectual operations (knowledge and its
transformation) Aptitudes depend on the professional knowledge (gained at school), common
knowledge (common education and personal experience), practical skills (professional and common),
interests and motivation depending on the position or a group of positions. Aptitude can be gained
through formal education, vocational course or apprenticeship. Aptitude of the employees for a
specific position or type can be defined by labour law or separately (Kowal and others 2008-2010).
Competence groups
The employees function in three basic organisation areas. These areas can reflect the competence
division into three categories: social, personal and managerial competences.
1. Personal competence
Personal competences are connected to the employee's individual realisation of the tasks. This type
and level of competence influence the general quality of the fulfilled tasks – connected with the speed,
adequacy and the reliability of the fulfilled tasks. Professional sources claim that personal
competences comprise: goal orientation, flexibility of thought, willingness to learn, creativity, analytical
thinking, personal work organisation, openness to change, decision making, dealing with ambiguity,
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problem solving, personal development, independence, honesty, time management (Kowal and
others 2002-2010).
2. Social competences
Social competences are connected to the employee's contact with other people. The level of this
competence is crucial in the efficiency of cooperation, mutual understanding and influencing others.
The most common social competences in management are: self-presentation, building relationship
with other people, sharing knowledge and experience, corporate identity, communication skills,
etiquette, negotiation skills, customer care, cross-cultural skills, friendliness, presentation skills,
influencing others, relations with seniors and juniors in rank, team cooperation, cooperation within the
organisation etc. (compare: Kowal 2008-2010; Argyle 2002, Filipowicz 2004, Konarski 2006).
3. Managerial competences
Competences that deal with managing the employees are specially treated. The managerial
competences comprise the so-called „soft managing areas“ as well as work organisation and strategic
managerial aspects. Their level often determines the efficiency of the managed area. Managerial
competences include: organisation building skills, team building, coaching, delegating tasks,
leadership, managerial control, motivation, strategic thinking, assessment and development of
employees, managerial bravery, organising, planning, conflict solving, leadership as well as managing
information, innovation, processes, projects, managing by goals or managing changes (compare:
Kowal et al. 2008-2010, Listwan 2001, Witkowski 2003).
4. The psychosocial skills or the so-called „soft skills“
The sources often mention the concept of soft skills, n other words the psychosocial skills, comprising
personal as well as social competences. This group of skills enables the efficient fulfilment of
professional tasks as well as realisation of personal goals. (compare: Argyle 2002, Filipowicz 2004,
Hartley 2006, Konarski 2006).
5. ”Hard” skills
Hard skills are related to specialist knowledge and professional skills (such as the knowledge of a
specific computer software or procedures) which are necessary for working in a given position or
performing a special professional role.
To sum up, the following points are important in competence analysis:
Soft skills – comprising personal and social skills
Cognitive competences – comprising information processing skills – research, analysis, synthesis
of information, reporting, planning knowledge use and projecting solutions to specific technical
problems
Linguistic competences – especially the knowledge of foreign languages
Physical competences – related to physical fitness – coordination, strength, endurance, health
and normal functioning of the senses (e.g. good sight)
Hard competences – related to the specialist knowledge and professional skills.
6. Virtual Competence in research in the years 2008-2009.
Many studies draw attention to the need for the development of virtual powers, both among managers
and employees, to efficiently communicate teams via the internet (Nicole Haggerty, Yinglei Wang,
Richard Ivey School of Business at the University of Western Ontario, 2009). More and more
companies are engaged in various projects in which employees are hired and work with the team in
term of physical and temporal distance. The results of work are sent in the form of files by the
Internet, and meetings and consultations are held via teleconference. Virtual teams have reported
problems of effective co-operation. The biggest difficulty makes communication, trust, and lack of
skills and knowledge in the use of virtual tools in the tasks.
Haggerty and Wang consider three basic skills of virtual powers:
Virtual social competencies – the skills involved in building online relationships,
220

The ability to use social media tools,
Virtual effectiveness, which is mostly the result of self-confidence.
The need for virtual learning competencies of employees and their development in this area is
essential in online collaboration when the company pursues a policy of flexible jobs.
Effective training in the field of virtual competence involves using them for personal purposes. The
most desirable competences are mainly the ability to communicate using text as the main carrier of
information, seeking information through various media, being accustomed to the fact that the
continuous availability of online and standalone tools to discover new Internet functionality may result
from the question of whether employers should allow employees to benefit from the social media at
work, or just encourage them to use these tools at home.
5. Results of the research concerning IT project management
During the research (2009-2010), which the theoretical goal was to define the hard and soft skills as
well as the professional success factors crucial for the IT project team, the employees working on the
project answered the questions about the scale and significance of certain competences, pointed out
the most important skills expected from candidates for a job vacancy as well as defined their
indispensability level in relation to the manager and specialist groups. They submitted their answers in
a 5-levelled interval scale in which value 1 means „not important“, 2 „rather important“, 3 “at an
average”, 4 “desired“ and 5 “essential“. Competences with the average value above 4 were assumed
most important. In the compiled questionnaire both soft and hard competences were taken into
account as well as general professional competences in an order dictated by the average grade
(importance). Employees (table 2) gave answers in which we can observe some tendencies and have
a closer insight into the stereotypes of perfect employees as imagined by employer in specialist and
manager groups. It is characteristic that during the assessment of the significance of competences in
all the groups the soft skills, that is the psychosocial skills, were considered to be most important
(practical experience and knowledge concerning programming and working by Internet were obvious
for IT project team).
Table 1: Descriptive statistics for the most important competences according to employees involved
in projects
Managers N=13 m std Vm
Cooperation skills 4.92 0.29 0.06
Efficiency 4.83 0.39 0.08
Ability to complete tasks 4.83 0.39 0.08
Ability to differentiate between more and less important
tasks
4.75 0.45 0.10
Clear awareness of the targets 4.67 0.49 0.11
Communication skills 4.67 0.49 0.11
Credibility 4.67 0.49 0.11
General intelligence 4.67 0.49 0.11
Ability to cope with new and difficult situations 4.58 0.67 0.15
Commitment 4.58 0.51 0.11
Skills 4.50 0.52 0.12
Decision making skills 4.50 0.67 0.15
Time management skills 4.50 0.67 0.15
Motivation 4.42 0.51 0.12
Durability 4.42 0.90 0.20
Energy 4.42 0.67 0.15
Skills 4.33 0.89 0.20
Psychological features 4.33 0.89 0.20
Motivation of achievement 4.33 0.49 0.11
Awareness of one’s own professional expectations 4.33 0.78 0.18
221

Managers N=13 m std Vm
Truthfulness 4.33 0.78 0.18
Management skills 4.33 1.15 0.27
Ability to listen to other people 4.33 0.65 0.15
Interdisciplinary common knowledge 4.33 0.78 0.18
Ability to adapt to new situations 4.33 1.23 0.28
Specialists N=87 m std V m
Cooperation skills 4.48 0.70 0.16
Ability to cope with new and difficult situations 4.47 0.59 0.13
Responsibility 4.46 0.55 0.12
General intelligence 4.40 0.54 0.12
Communication skills 4.40 0.75 0.17
Ability to differentiate between more and less important
tasks
4.39 0.69 0.16
Skills 4.38 0.61 0.14
Commitment 4.33 0.71 0.16
Credibility 4.32 0.66 0.15
Ability to complete tasks 4.29 0.78 0.18
Efficiency 4.28 0.60 0.14
Durability 4.28 0.69 0.16
Knowledge 4.26 0.69 0.16
Skills 4.26 0.60 0.14
Time management skills 4.14 0.81 0.20
Awareness of one’s own professional expectations 4.13 0.97 0.24
Ability to listen to other people 4.10 0.92 0.22
Ability to adapt to new situations 4.10 0.70 0.17
Management skills 4.09 0.98 0.24
Truthfulness 4.06 0.78 0.19
Decision making skills 4.05 0.81 0.20
Interdisciplinary common knowledge 4.03 0.71 0.18
Motivation of achievement 3.99 0.77 0.19
Realistic 3.98 0.95 0.24
Motivation 3.98 0.82 0.21
In general M std Vm
Cooperation skills 4.54 0.67 0.15
Ability to adapt to new situations 4.48 0.60 0.13
Responsibility 4.43 0.64 0.14
Communication skills 4.43 0.73 0.16
General intelligence 4.43 0.54 0.12
Ability to differentiate
between more and less important tasks
4.43 0.67 0.15
Skills 4.37 0.65 0.15
Credibility 4.36 0.65 0.15
Commitment 4.36 0.69 0.16
Ability to complete tasks 4.35 0.76 0.17
Efficiency 4.34 0.61 0.14
Durability 4.29 0.72 0.17
Skills 4.29 0.59 0.14
Knowledge 4.26 0.75 0.18
222

Managers N=13 m std Vm
Time management skills 4.18 0.80 0.19
Awareness of one’s own professional expectations 4.15 0.95 0.23
Ability to adapt to new situations 4.13 0.78 0.19
Ability to listen to other people 4.13 0.89 0.21
Management skills 4.12 1.00 0.24
Decision making skills 4.10 0.80 0.20
Truthfulness 4.09 0.78 0.19
Interdisciplinary common knowledge 4.07 0.72 0.18
Motivation 4.03 0.80 0.20
Motivation of achievement 4.03 0.75 0.19
Energy 4.02 0.84 0.21
Source: authors’ own research 2009-2011
Table 2: The differences testing concerning the most important competences according to employees
involved in projects (Student’s test)
Variables
Mean for
specialists
(N=84)
Mean for
leadres
(N=15)
Students t
test statistics
df dergrees of
freedom
Ability to cooperate
Ability to cope with new
4,57 4,33 1,26 97,00 0,21
situations 4,50 4,40 0,60 97,00 0,55
Communication 4,42 4,53 -0,57 97,00 0,57
General intelligence
Ability to distinguish between
4,40 4,60 -1,30 97,00 0,20
important 4,40 4,60 -1,04 97,00 0,30
Responsibility 4,40 4,60 -1,09 97,00 0,28
Credibility 4,37 4,33 0,20 97,00 0,84
Engagement 4,37 4,33 0,18 97,00 0,85
Effectiveness 4,37 4,20 0,99 97,00 0,32
Skills
Ability to supply things to the
4,35 4,53 -1,04 97,00 0,30
end 4,33 4,47 -0,62 97,00 0,53
Ability 4,30 4,27 0,19 97,00 0,85
Knowledge 4,26 4,27 -0,02 97,00 0,98
Ability to listen to others 4,20 3,73 1,91 97,00 0,06
Time management skills
Awareness of their own
4,20 4,07 0,60 97,00 0,55
professional expe
Ability to adapt to a changing
4,17 4,07 0,37 97,00 0,71
environment 4,17 3,93 1,07 97,00 0,29
Management skills 4,12 4,13 -0,05 97,00 0,96
Ability to make decisions
General knowledge
4,12 4,00 0,53 97,00 0,60
(interdisciplinary) 4,08 4,00 0,41 97,00 0,68
Truthfulness 4,06 4,27 -0,94 97,00 0,35
Life energy 4,05 3,87 0,76 97,00 0,45
Source: authors’ own research 2010
observed
significance
level p
There were no significant differences in weight of competences between leaders and specialists but
may observed some trends in hierarchy of considered factors (Table 2).
223

Leaders in IT projects are expected to have the following competences: cooperation skills (m=4.92),
efficiency (m=4.83), the ability to complete tasks (m=4.83), the ability to differentiate between more
and less important tasks (m=4.75), clear awareness of the targets (m=4.67), communication skills
(m=4.67), credibility (m=4.67), general intelligence (m=4.67), the ability to deal with new situations
(m=4.58), commitment (m=4.58), skills (m=4.50), decision making skills (m=4.50), time management
skills (m=4.50).
On the other hand, IT specialists are expected to have the following competences: cooperation skills
(m=4.48), the ability to cope with difficult situations (m=4.47), responsibility (m=4.46), general
intelligence (m=4.40), communication skills (m=4.40), the ability to differentiate between more and
less important tasks (m=4.39), skills (m=4.38), commitment (m=4.33), credibility (m=4.32), the ability
to complete tasks (m=4.29), efficiency (m=4.28), durability (m=4.28), knowledge (m=4.26), skills
(m=4.26), time management skills (m=4.14), awareness of one’s own professional expectations
(m=4.13), the ability to listen to other people (m=4.10), the ability to adapt to changing situations
(m=4.10), management skills (m=4.09).
The mentioned features correlated positively with hard and soft competences declared by
respondents as a career success factors (Table 3). The most important hard competences for the
both groups were: computer skills, practical knowledge of computer programs, practical skills,
knowledge of foreign languages, driving, experience in the profession, specialist professional
qualifications. Interpersonal skills occured so important like hard competences..
Table 3: The results of factor analysis for competence (factor extraction method - principal component
method, rotation method - varimax normalized)
Factor 1 - soft Factor 2 - hard
Variables
comptetnces
competences
Experience in the profession 0,18 0,57
Professional education 0,25 0,23
Practical skills 0,09 0,66
Computer skills 0,15 0,73
Practical knowledge of computer programs 0,07 0,72
Knowledge of foreign languages 0,16 0,62
Driving 0,12 0,61
Interpersonal skills 0,25 0,65
Specialist professional qualifications 0,09 0,44
Availability 0,75 0,18
Independence 0,87 0,18
Communications
Source: por. Kowal, Panka 2008
0,88 0,12
6. Conclusions
In connection with the development of industry, higher levels of education in society, the biggest and
most interesting employment opportunities will be directed to specialists in the areas related to the
Internet and information technology. Since the fast pace of gaining, collecting and processing
information determine the competitiveness of companies, knowledge management skills will be
particularly appreciated. Crisis will accelerate teleworking development, employment and working
time flexibility. It will also force people to change the place of residence and sectors.
On the basis of our study, we can clearly see that employers expect a higher level of psychosocial
skills first and only then do they pay attention to formal, professional and practical skills. All
professional groups are expected to be responsible, committed and flexible. Managers claim that
objective higher formal education, if not backed with high personal competences, does not guarantee
professional success. The development of key soft competences even during formal education can
compensate the lack of specialist knowledge and professional skills. Even tough hard competences
are essential in specific job positions and in playing professional roles, they should be complemented
with soft competence such as flexibility and adaptation skills.
224

The most important hard competences for career in IT project management teams occurred computer
skills, practical knowledge of computer programs, practical skills, knowledge of foreign languages,
driving, experience in the profession, specialist professional qualifications. The most appreciated soft
competences included interpersonal skills, availability, independence, communicativeness. The best
soft career factors for leaders were: cooperation skills, efficiency, the ability to complete tasks, the
ability to differentiate between more and less important tasks, clear awareness of the targets,
communication skills, credibility, general intelligence, the ability to deal with new situations, decision
making skills and management skills. Specialists as the most effective career factors indicated:
cooperation skills, the ability to cope with difficult situations, responsibility, general intelligence,
communication skills, the ability to differentiate between more and less important tasks, commitment,
credibility, the ability to complete tasks, efficiency.
Interpersonal skills can determine high efficiency in realising personal aims and tasks in contacts with
other people; they enable to build and efficiently use a contact network (the so-called networking),
they also enable personal career development etc. (compare: Kowal and others 2008-2010). The
concept of project-oriented higher education has the potential to offer a diagnosis of universities’
capacity to connect to their external environments, to come up with adequate development strategies
and to deliver these strategies by embracing the project orientation approach. Capacity to innovate is
crucial for contemporary development and depends not only on the idea of project management but
on peoples’ skills.
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226

Development of a Validation Method for an IT Governance,
Risk and Compliance Health Care Framework
Mike Krey¹, Steven Furnell¹, Bettina Harriehausen² and Matthias Knoll²
¹University of Plymouth, UK
²Darmstadt University of Applied Sciences, Germany
krey@zhaw.ch
S.Furnell@plymouth.ac.uk
B.Harriehausen@fbi.h-da.de
Matthias.Knoll@h-da.de
Abstract: The issues, opportunities and challenges of effectively governing an organisation’s Information
Technology (IT) demands and resources have become a major concern of the Board and executive management
in many organisations today. The Swiss health care is currently searching for methods and practices for the
solution of operational planning and optimisation of IT processes. To make sure that the corporate hospital
strategy leads to adequate business decisions an IT Governance Risk and Compliance (GRC) Framework for
Health Care will be needed. This paper presents a practically validation method for this approach. After the
discussion of the challenges to the development of a validation method, the concept of triangulation as the basis
for the method development will be applied to the given health care context. The proposed validation framework
consists of different validation types which evaluate the research result the one hand compared to the
cognizance goal and on the other hand compared to the real world.
Keywords: governance; risk; compliance; health care; validation; framework; triangulation; evaluation method
1. Introduction
In many industry sectors information technology (IT) and its usage are enablers for increasing
effectivity and efficiency in production processes for goods and services. In health care the effect of IT
is especially on medical service provisions and administrative support processes. In that way, IT can
be a driver for diversification in competition and creation of innovative strategic competitive
advantages. However, for years IT has been viewed as an overhead in the health care sector and
hence run as a cost centre. Now, pressure is on IT executives to transform into a service organization,
‘run their organisation like a business’, increase the credibility of IT and achieve realisation of the
fiscal value. Moreover, hospitals are often funded by government and not driven by profit and
therefore impacted by politics. This means that some funding opportunities are driven by the ‘political
priorities of the day’, rather than alignment with the best organisational returns. Public administrations,
health care organisations and private entities have obtained value by implementing IT governance,
which is ‘the term used to describe how those persons entrusted with governance of an entity will
consider IT in their supervision, monitoring, control and direction of the entity’ [ITGI, 2003]. The real
question is not in principle the agreement to such governance issues, but rather the practical issues in
doing so and the related benefits. This is due to increased IT applications landscapes and demand for
more efficient and cost-effective service delivery. This dependency on IT in such an environment like
a hospital with wider accountability, more bureaucracy, lower managerial autonomy [Nicoll, 2005] and
a complex mix of political, organisational, technical and cultural concerns [Bakari, 2007] requires farsighted
management of IT. This calls for effective IT governance. Governance, Risk Management and
Compliance (GRC) is an executive level concern in many enterprises today [Tarantino, 2008]. It is an
approach that addresses not only the establishment of business rules but more importantly how those
rules are integrated into sensible organisational structures, embedded into the day-to-day business
processes of the organisation, communicated (including on-going training) and monitored for
compliance. In this research work the GRC context governance means IT related governance and
describes the topics that the executive management needs to address to govern IT within their health
care organisation (cf. Section 2).
Cost pressure, reforms and quality requirements are three keywords which are mentioned in the
current debate about the Swiss health care – it is facing a radical change.
The Swiss health care system is based on a federal and decentralized structure at the same time. The
federal government is responsible for the definition, regulation and controlling of the health care
issues. The decentralised part is represented by its 26 cantons each with its own particular regulation,
distinct organisations and infrastructures.
227

Mike Krey et al.
Nonetheless, they all have one common feature, i.e. billing is calculated on a per diem basis, which
means that medical insurers simply pay an agreed amount per day spent in hospital – independent of
patient’s diagnosis. Any further costs are covered by the hospital, meaning the state or private
hospital operators pay.
By the end of 2012 the billing by Diagnosis Related Groups (DRGs) will have been introduced. That
means that the hospital is going to be paid, e.g. for an appendix operation with a fix amount and it has
to cover their costs. The primary objective of the DRG introduction in 2012 is not cost saving in the
Swiss tariff structure. Cost savings cannot be expected because of the required additional
administrative work for every hospital to implement the DRG system. The introduction of DRG casebased
lump sums is to achieve two things:
More transparency of all medical services offered and provided in a hospital and ideally
A performance-related kind of payment.
In the Swiss federal structure, the DRGs will provide a prerequisite for more competition between the
service providers (e.g. hospitals, health centres, general practitioners) because services and products
can be compared, regarding cost as well as quality. For the affected hospitals it is necessary to
develop concepts and reforms to save costs and to work more efficiently. Apart from the treatment
costs, hospitals also have to undertake investments to keep up to date and remain competitive.
Therefore, an integrated and comprehensive approach to the governance of IT and its resources is
becoming critical to more effectively align, invest, measure, deploy and sustain the strategic and
tactical direction and value proposition of IT in support of the business. In this context IT as a
business enabler can play an important role in Swiss hospitals, but it also has the potential for many
risks, which may disrupt operations and have unintended consequences.
However, how are adoptions of IT GRC can be validated in such a highly meshed and organisational
complex environment like a hospital? Do all hospitals agree on what the application of an “IT GRC
Framework for Health Care” proposes? Is the practicability and use of the methods within the
framework congruent with the hospitals expectations? These are some of the important questions for
those who have derived requirements for an IT GRC Framework for Health Care, mapped those to
existing ones, identified explicitly gaps where health care specific requirements cannot be fulfilled with
functionalities provided and proposed approaches to close the identified gaps.
The development of a health care specific IT GRC framework consists of three main steps. (1)
Classification of existing IT GRC frameworks. With the help of a classification scheme users as well
as framework developers were provided with an overview of the framework, e.g. related to its
addressed GRC area, framework design or framework application [Krey et. al, 2011]. (2) Exploration
and systematisation of the factors influencing IT GRC structures, processes and outcome and the
requirements and expectations within the health care sector (cf. Section 2). To enhance the future
reusability of such a framework, detailed information about the application method, requirements from
the health care processes (business and IT), accessibility and levels of mutability were required. (3)
Mapping of the existing IT GRC frameworks and the derived requirements within the health care
sector.
This identified a requirements overlap which could be fully or partly covered by the existing
frameworks and made approaches how to fill the gaps possible. This actual research work
corresponds on the third step, the development of an IT GRC Framework for Health Care and
proposes therefore a practically validation method for this approach (cf. Figure 1).
The present paper provides a brief introduction into the key concepts of IT governance and the
current debate about the DRGs within the Swiss health care sector. It shows the drivers and benefits
of both and leads to the research objective, i.e. the application of IT governance to the field of health
care. In the next sections the focus areas of the IT GRC Framework will be briefly discussed. After a
summary of the challenging factors which influence an effective and sustainable adoption within the
health care environment the concept of a validation method and its application methods will be
explained. The paper ends with some remarks about the future research in this field.
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Figure 1: Overall research framework
2. IT GRC framework for health care
Mike Krey et al.
In recent years a range of best practice models (IT Infrastructure Library (ITIL) or Control Objectives
for IT and related Technologies (CobiT)) as well as proprietary frameworks have been developed
(Microsoft Operations Framework (MOF), IT-Service-Management (ITSM) of Hewlett-Packard, or the
IBM IT Process Model (ITPM)). These frameworks, which are also summarised under the topic of IT
governance, describe goals, processes and organizational aspects of IT management and control
[Goeken and Alter, 2007]. From an academic point of view these best practice frameworks can be
seen as an interesting object of research, not only because the models are widely spread but also
because they incorporate a huge amount of consolidated knowledge.
As ascertained by a survey with several Swiss hospital CIOs in 2009 the majority (64%) replied that
the health care sector is a complex and heterogeneous economic sector and cannot be compared to
other industry sectors where CobiT and other IT governance framework have been successfully
applied. Organisational structures, legal restraints and over the years increased heterogeneous IT
systems are just a few aspects which would make the health care sector a sensible field for the
implementation of IT governance. It is pleasing to see that hospitals appear to be taking IT
governance as a part of their governance realm and that 45% of the hospitals surveyed adopt ITIL as
an IT governance framework, while about 8% of hospitals have or will adopt CobiT, IS0-17799 or a
proprietary framework. The majority believed that their ITIL approach is ‘repeatable but intuitive’,
whilst no one thought their ITIL approach is ‘fully optimised’ and the processes have been refined to a
level of good practice, based on the results of continuous improvement and maturity modelling with
other hospitals [Krey et al., 2010]. Based on these findings the following six focus areas for IT
governance are building the basis for the IT GRC Health Care Framework (cf. Section A) and are
influenced by health care specific characteristics (cf. Section B).
2.1 Governance, risk management and compliance
Strategic alignment (Business-IT-Alignment) focuses on ensuring the linkage of business and
IT plans; defining, maintaining and validating the IT value proposition; and aligning IT operations
with enterprise operations.
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Mike Krey et al.
Value delivery is about executing the value proposition throughout the delivery cycle, ensuring
that IT delivers the promised benefits against the strategy, concentrating on optimizing costs and
proving the intrinsic value of IT.
Resource management is about the optimal investment in, and the proper management of,
critical IT resources: applications, information, infrastructure and people. Key issues relate to the
optimization of knowledge and infrastructure.
Performance measurement tracks and monitors strategy implementation, project completion,
resource usage, process performance and service delivery, using, for example, balanced
scorecards that translate strategy into action to achieve goals measurable beyond conventional
accounting.
Risk management requires risk awareness by senior corporate officers, a clear understanding of
the hospital’s appetite for risk, understanding of compliance requirements, transparency about the
significant risks to the hospital and embedding of risk management responsibilities into the
organisation. Within the CobiT framework risk management is one of the focus areas for IT
governance. In this work it is solely orientated in a dedicated risk part.
Compliance is not directly covered by the CobiT framework and its classification into the focus
areas. The compliance lays more emphasis to the fact that by the end of 2012 the Swiss DRG will
be introduced to the Swiss health care sector and 105 of the 141 general hospitals are public or
subsidized private systems [BFS, 2009]. From this point of view compliance means to be conform
to a specification or policy, standard or law that has been clearly defined for the health care sector
by the canton or the federal government to achieve more transparency of all medical services
offered and provided in a hospital and ideally a performance-related kind of payment.
2.2 Characteristics of IT GRC approaches for health care
The reviewed characteristics are building the basis which might help to understand the challenges
that a sustainable IT GRC adoption has to meet within health care organisations. It has to be mention
that not all health care related characteristics apply to each environment. E.g. the specialisation,
division of labour and the shared know-how are significantly depending on the quantitative workload
(e.g. number of cases per year) of the health care institution. Institution with a lower number of cases
might aggregate functional responsibilities to a single person however institutions with higher number
of cases might have a more remarkable division of labour. In addition within lager institutions (e.g.
university hospitals) processes could be found with a lower complexity. The degree of collaboration
(and therefore indirectly the complexity of processes) relates to the degree of specialisation, which
means that this characteristics could be formed individually for the same process. The particular
characteristics of health care organisations and their impact to an IT GRC adoption allow the
derivation of concrete requirements. These requirements allow on the one hand the substantial
analysis of existing IT GRC approaches with regard to their applicability to the health care sector und
on the other hand the adaptation of existing ones or the development of new concepts. The following
list of characteristics is not exhausted but helps to understand the specific challenges.
Table 1: Examples of characteristics of IT GRC approaches for health care
Characteristic Description
A.1 Specialisation and
Division of Labour
A.2 Autonomy
The specialisation of health care organisations is based on the complexity of
provided services, e.g. internal medicine, ENT medicine, surgery, radiology,
nursing, in-patient, outpatient, etc.) and the consequential specialised
(qualitative) division of labour. The division of labour is one of the basic
principles of health care organisations and is implemented not only between but
also within organisations by hierarchical organisational structure. The
hierarchical coordination of tasks leads to organisational units which are often
working independently because of the lack of cross-organisational functions.
“A life of its own” can be found in different organisational units within health care
organisations as a result of the specialisation and division of labour which are
based on the complexity of medical services provided by physicians (e.g.
internal medicine, surgery, radiology, etc.) [Püttner, 1989]. The autonomy of
organisational units lead consequently to decentralised decision-making,
management of structures, information and authorities. The wide-spread of
knowhow within the different (specialised) organisational units and the
complexity of internal structures within a health care organisation additionally
promote the decentralised decision making.
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3. Development of a validation method
Mike Krey et al.
The development of the validation method is part of the 2nd phase (research and evaluation phase) of
the overall research framework (cf. Figure 1) where the previous mentioned three steps (classification,
exploration and mapping) are taking place. The validation method allows a profound evaluation of the
value proposition of the proposed IT GRC Framework for Health Care based on different validation
criteria and is therefore an important part of the overall research framework. In this section the
challenges to a validation with a small statistical population, to be applied methods and the overall
validation framework will be discussed.
3.1 Challenges to the development of a validation method
Although the importance and benefits of a validation are widely perceived in the field of computer
science, different definitions, understandings and emphases still can be found in literature.
Stufflebeam and Shinkfield (1984) made an approach to the definition of a validation and defined it as
a “process of delineating, obtaining, and providing useful information for judging decision
alternatives.” Guba and Lincoln (1985) made a more generalised approach and defined validation “as
the process of describing an evaluand (the entity being evaluated) and judging its merit and
worth.”Alkin (1985) on the other hand describes evaluation as the “process of ascertain the decision
areas of concern, selecting appropriate information, and collecting and analysing information in order
to report summary data useful to decision-makers in selecting among alternatives.” Lee J. Cronbach
(1986) defines evaluation simply as “the collection and use of information to make decisions about an
educational program.” It becomes obvious that a common definition of validation cannot be found in
literature. However, some common aspects of the above given definitions can be underlined.
Validation has to generate information (valid and clear);
This information has to be defensible;
Defined method used for collection and
Validation has the be an organized process
Therefore a valid definition for the actual work is needed. Referring to Sanders (1999, p.25), validation
is understood as a systematic and target-oriented research and assessment method. Target-oriented
within this research work refers not only to single result but moreover to the overall developed IT GRC
framework for health care and is therefore subject of the validation process. Results of the evaluation
determine on the one hand the suitability and contribution of the developed framework to the given
context [March and Smith, 1995, p.254) and allow on the other hand statements on its benefits and
practical usability [Hevner et al., 2004, p. 78].
In addition, other validation criteria for a more sophisticated validation of the framework could be used
(e.g. sensitivity, understanding, effort, etc.). The evaluation results are thus indicative for the potential
use and required qualifications of the IT GRC framework and point out where possible options for
further developments and improvements are.
In this respect the validation should be ideally iterative to the development of the IT GRC framework
(cf. Figure 1). Thus, findings of the validation can directly flow back into the framework development.
The validation of the IT GRC framework faces three challenges:
The lack of dissemination of innovative IT GRC approaches in the given context hampered their
wide validation.
The variety and complexity of IT GRC approaches require the participation of experts with
methodological skills. These specific skills are often not available in health care organisations
[Krey et al., 2010].
Results of the validation should be as objective as possible.
IT GRC frameworks which have been developed application-oriented should solve or improve existing
problems within a defined domain (e.g. Business-IT-Alignment). They therefore can be defined as
innovative. In contrast to many theories of explanation-oriented research, innovative IT GRC
approaches could not always be evaluated with large numbers of cases, since they are often up to the
validation (still) not divulged. Even in the present work, the developed IT GRC Framework for Health
Care is not actively applied at the time of its validation. It therefore constitutes a "potential future
scenario”. A validation of the developed framework with a large statistical population, as often
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Mike Krey et al.
required for the evaluation of theories to empirically evidence the truth, is based on a “potential future
scenario” not possible. It raises the question how the validity, plausibility, flexibility and richness of the
validation results even with a small statistical population can be maximised.
3.2 Concept of triangulation
One possibility to meet the above mentioned challenges is the concept of triangulation. Triangulation
is an approach that – in contrast to the sequential application of research methods – seek the
simultaneous use of various resources (e.g. methods, data, people or theories) to gain perception
[Flick, 2008; Olson, 2004]. Triangulation is a research method that facilitates validation of data
through cross verification from more than two sources. In particular, it refers to the application and
combination of several research methodologies in the study of the same phenomenon [Bogdan and
Biklen, 2006]. The idea is that one can be more confident with a result if different methods lead to the
same result. If a researcher uses only one method, the temptation is strong to believe in the findings.
If a researcher uses two methods, the results may well clash. By using three methods to get at the
answer to one question, the hope is that two of the three will produce similar answers, or if three
clashing answers are produced, the researcher knows that the question needs to be reframed,
methods reconsidered, or both. The purpose of triangulation in qualitative research is to increase the
credibility and validity of the results. Several researchers have aimed to define triangulation
throughout the years. Cohen and Manion (1986) define triangulation as an "attempt to map out, or
explain more fully, the richness and complexity of human behavior by studying it from more than one
standpoint". Altrichter et al. (2008) contend that triangulation "gives a more detailed and balanced
picture of the situation”. According to O’Donoghue and Punch (2003), triangulation is a “method of
cross-checking data from multiple sources to search for regularities in the research data”. However,
Denzin (1970) extended the idea of triangulation beyond its conventional association with research
methods and designs. He distinguished four types of triangulation:
Data triangulation: gathers data at different times, social situations, as well as on a variety of
people
Investigator triangulation: refers to the use of multiple researchers in an investigation process
Theory triangulation: refers to the use of more than one theoretical scheme in the interpretation of
the phenomenon
Methodological triangulation: refers to the use of more than one method to gather data, such as
interviews, observations, and questionnaires.
In doing so, triangulation should enhance the validity, plausibility and credibility of the research results
[Creswell and Miller, 2000, p. 124]. This plausibility and richness are in a validation process with a
small statistical population questionable. The purpose of the current validation approach for IT GRC
framework is therefore – according to the principles of data triangulation [Denzin, 1970] – to involve
as different institutions as possible from the Swiss health care sector. The data used for the
classification of different hospitals has been extracted from the annual data reported by Swiss general
hospitals to the Federal Statistical Office in 2006 [BFS, 2009]. In Switzerland, general hospitals are
classified into five typologies based on size, number of departments and level of specialization. The
details of this classification are given in the latest annual report by the Federal Statistical Office [BFS,
2009]. A brief description of each hospital type is given in Table 2. Typology 1 includes only the five
largest hospitals, which are affiliated to universities and provide a wide variety of services in a large
number of specializations. At the other extreme, Typology 5 includes small general hospitals (mostly
less than 100 beds), which provide basic medical care with few specializations. Table 2 also lists the
number of general hospitals in 2006 by hospital typology, their legal regulation and number of beds.
The Swiss health care system is a combination of public, subsidized private and fully private systems:
105 public or subsidised private hospitals: regional hospitals or university hospitals, e.g. the
University of Geneva Hospital (HUG) with 936 beds, 9,600 staff and 100,000 patients per year;
subsidised private: the home care services to which one may have recourse in case of a difficult
pregnancy, after childbirth, illness, accident, handicap or old age;
36 fully private: hospitals, specialized clinics, health centers, general practitioners, insurance
companies, service providers;
For the actual research work a minimum of three health care institutions for a validation process will
be proposed. As the five university hospitals (K111) in Switzerland provide nearly one fifths of all beds
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– one of the validation partners should be out of this group. The other two health care institutions
should regional hospitals (K112). One of these regional hospitals should be private.
Table 2: General hospitals classification and number of general hospitals in Switzerland by typology
and regal regulation
Typology Code
1 K111
2 K112
3 K121
4 K122
5 K123
Categories/
Description
Centralized care level 1
(university hospital)
Centralized care level 2
(regional hospital)
Basic-care hospital level 3
(relatively large/specialised)
Basic-care hospital level 4
(moderate
size/Specialisation)
Number of
hospitals-
public/
subsidized
private
Number of
hospitals-fully
private
Number of
beds
5 0 4440
23 2 8113
19 5 3812
30 13 3418
Basic-care hospital level 5
(small size/ low
specialisation)
28 16 1224
Total: 105 36 21007
With this selection of health care organisations different scenarios can be integrated (data variation).
In doing so, the richness of the results could be increased and thus a critical discussion of different
perspectives is possible (multi-perspectives). When it comes to the validation through the users, the
second of the above mentioned challenges (cf. Section 2.A) – the participation of experts – becomes
evident. This challenge results from the variety and complexity of the IT GRC approaches. For a
substantiated assessment of the results, of the benefits and possibly other validation criteria, a basic
understanding of the “methodology” how to apply the developed framework is required. A common
research method is to support the IT GRC adoption with case studies [Gomm et al., 2000] Here,
however, the problem becomes clear that for the application of the approach appropriate expertise
(responsibility of experts) is necessary, which is (still) not one of the core competencies of health care
organisations. This addresses the need that the IT GRC adoption should be supported by a
researcher as foreseen by the action research approach (e.g. Cole et al., 2005). Action research is an
interactive inquiry process that balances problem solving actions implemented in a collaborative
context with data-driven collaborative analysis or research to understand underlying causes enabling
future predictions about personal and organisational change [Reason and Bradbury, 2002]. Kurt
Lewin (1946) first coined the term and described action research as “a comparative research on the
conditions and effects of various forms of social action and research leading to social action” that
uses “a spiral of steps, each of which is composed of a circle of planning, action, and fact-finding
about the result of the action”. Since action research involves explicitly a researcher, the third of the
above mentioned challenges is obvious. The involvement of the IT GRC framework developer can
influence the results of the validation, so that an objective assessment of the framework and its
application within the given context is questionable. The endeavor for objectivity is "an essential
guidance for validation approaches" [Frank, 2000, p. 41]. Therefore, in the present research work the
assessment of the validation criteria is not done by the researcher himself, but by the user of the IT
GRC framework within the selected health care institutions. Because of the necessary knowledge
about how to apply the IT GRC framework in the given context and with regard to the action research
approach, the institutions are therefore suitable. Based on their experience gained in this context, it is
now possible, to review the assessments as well with research methods, where the scope of influence
through the researcher is possibly lower. This includes the methods of structured interviews and
questionnaires. The application of different research methods can improve the plausibility and
credibility of the validation findings. In addition to the action research approach, therefore, other
methods (variation of methods) should be applied.
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3.3 Validation framework
Mike Krey et al.
To structure the validation and its various research methods different frameworks exist (e.g. Frank,
2007; Fettke and Loos, 2003; Pfeiffer and Niehaves, 2005; Siau and Rossi, 2007). The framework by
Fettke and Loos (2004) propose a classification of validation methods based on the chosen research
method and the derivation of used quality criteria. Here, the research methods can be classified into
"empirical" and "analytical", while in the derivation process of the quality criteria they differentiate
between "ad hoc" and "theory-based". In the work by Pfeiffer and Niehaves, (2005) a matrix can be
found which refers to the comparison of these artefact types and related quality aspects. Additionally
to Fettke and Loos (2004), Pfeiffer and Niehaves introduce the evaluation dimensions "structure of the
artefact", "evaluation criteria" and "evaluation approach". Siau and Rossi (2007) differentiate in their
study of evaluation methods between “empirical” and “non-empirical” methods and provide guidance
at what time different methods are suitable.
It becomes obvious that the selection of relevant validation criteria and the use of an appropriate
validation method are crucial for the result. On the other hand the validation framework should not
only include the review of the validity of the IT GRC framework but furthermore evaluate the previous
identified research gap and its correctness [Krey et al., 2009]. As Stockmann (2006) stated the
evaluation should prove the “utility” of the research results as a whole.
The development of the IT GRC framework refers to an identified problem in the real world, in addition
to Stockmann (2006) the proof of its “utility” can therefore be brought through its application in the real
world. To cover a maximum of the entire research process with the validation, the applied validation
methods in this research work have been selected on the basis of validation types which belong to the
individual steps of the development process of the framework (cf. Figure 2). Thus, the framework can
be validated from different perspectives.
Figure 2: Classification of validation types into the research process, according to Bucher et al. 2008,
p. 75
Based on the approach by Bucher et al. (2008) the validation process is sequentially organised and
differs between a “cognizance goal” and a “design goal”. The sequence underlines that the
“cognizance goal” of a research work is logically prior to the “design goal” [vom Brocke, 2003]. The
validation of the IT GRC framework as a research result (design goal) can therefore on the one hand
be evaluated compared to the cognizance goal (requirements analysis IT GRC, research gap) and on
the other hand compared to the real world.
In this work, the lack of dissemination of frameworks in the health care sector is the initial problem.
The research gap is characterized by the lack of methods and practices that meet the identified
characteristics and requirements. The solution proposal is represented by the developed IT GRC
Framework for Health Care. The interim results of the research processes can be objects of the
validation process (cf. Figure 4; Bucher et al., 2008, p. 75.):
Validation type 1 rated the developed framework to the research gap. This can be done by an
analytical evaluation, in which the solution proposal is been assessed regarding the requirements.
The research gap itself is not been assessed, as little as the use and application of the framework
under real world conditions.
Validation type 2 analysis the framework with regard to its contribution to the problem solving and
its benefits. The framework is been used under real world conditions (empirical evaluation).
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Mike Krey et al.
Validation type 3 assesses the identified research gap compared to the realised problem of the
real world [Krey et al., 2009].
That raises the question how the various validation types could be methodologically supported. For
the validation type 2, the framework application is focused. Therefore – as already mentioned – the
action research approach shall be used. Whether the framework can meet the defined requirements
(validation type 1), can only be assessed after its application by the involved health care institutions.
In addition, the review of the research gap (validation type 3) with regard to the realised problem shall
also be undertaken by the involved institutions. For this purpose, the relevance of the identified
characteristics and verbalised requirements should be assessed based on their own institution. As for
this review an application of the framework is not required, validation type 3 shall be done before
validation type 2. Structured interviews are used as an appropriate research method to prevent any
kind of misunderstandings concerning the characteristics and requirements of IT GRC frameworks.
After the application of the framework by means of the action research approach (validation type 3),
the involved health care institutions have a comprehensive knowledge (cf. Section 4). Therefore,
while validating the framework (validation type 1) the influence of the researcher should be further
reduced. For this purpose, the questionnaires should be filled out by the institutions. The results
arising from the application of the different validation methods should be documented similar to the
case study technique. Thereby different case studies arise, which will be structured according to the
order of the validation types. As criteria for the validation type 1 the derived requirements for an IT
GRC approach in the health care sector will be used. These criteria will be supplemented by
requirements that - regardless of the context of this work - can be made to framework approaches.
These domain-independent requirements are summarised in Table 3.
Table 3: Domain-independent requirements, according to Brinkkemper, 1990; Hillegersberg and
Kumar, 1999; Sinz, 1998
Requirement Description
Genericity To ensure maximum genericity of the framework and a wide applicability in different
situations
Minimality Minimum level of description of framework components to avoid unnecessary expense
Integrity Maximum level of completeness of framework to ensure its applicability
Granularity Reasonable level of detail in order to achieve a sufficient accuracy with a good
understanding
Complexity Reasonable range of complexity to ensure applicability
Perceivability Maximum level of understanding to secure transparency, comprehensibility and
applicability of the framework
Utility Maximum level of contribution compared to the current stage
Implementation
Maximum level of applicability of the framework
(organisational)
Implementation
(technical)
Maximum level of tool support of the framework
4. Application methods
As ascertained by Krey et al. 2010 (cf. Section 2.B) the self-contained organisational responsibility,
the complexity of the supported processes and the missing cross-organisational coordination make an
overall comparable approach to management of assets, information and IT difficult. A great variety of
responsibilities, notations, level of abstractions, tools and terminologies are the result. The health care
organization is a political arena. An IT department has relatively little influence compared to other
(medical) organisational units within the organization. With limited organizational influence, the IT
department with the CIO must educate management on the necessity of an integrated IT architecture
to avoid bounded rationality during IT development. As Krey et al. (2010) stated fifty-seven per cent of
the hospitals surveyed believe that their IT systems, processes and services still do not deliver the
value expected by the business. The findings indicate that 84% of respondents are unable to provide
the business and IT executives with real-time quantifiable metrics demonstrating the value of IT
services and assets. As budgets come under close scrutiny, nearly the half (47%) claimed that
business decision makers still do not understand the value IT brings to the business. According to the
interviews, 83% of the hospitals surveyed are focused on cost reduction as the principal driver for IT
projects over the next 18 months; the next most common focuses are the consolidation of existing IT
infrastructure and applications and optimisation of the compliance processes regarding the Swiss
DRG 2012. The actual situation within the Swiss health care sector makes the selection of practical
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Mike Krey et al.
and flexible methods obvious. The involvement of hospital practitioners into the validation process is
needed and therefore requires flexibility to the proposed application methods. It is often the case that
those who apply this approach are practitioners who wish to improve understanding of their practice,
social change activists trying to mount an action campaign, or, more likely, academics who have been
invited into an organization (or other domain) by decision-makers aware of a problem requiring action
research, but lacking the requisite methodological knowledge to deal with it. Thus, it allows for several
different research tools to be used as the project is conducted. These various methods, which are
generally common to the qualitative research paradigm, include: keeping a research journal,
document collection and analysis, participant observation recordings, questionnaire surveys,
structured and unstructured interviews, and case studies.
5. Conclusion
The present paper provides a brief introduction into the key concepts of IT governance and the
current debate about the DRGs within the Swiss health care sector. It shows the drivers and benefits
of both and leads to the research objective, i.e. the application of IT governance to the field of health
care. Furthermore, an overview of the different focus areas of GRC and the challenges which have to
be met for an effective and sustainable adoption is provided. Finally the validation method and tools
for its application have been discussed. The proposed systematisation to the validation of IT GRC
frameworks revealed that the evaluation of artefacts so far largely focused on the comparison
between the identified a research gap and the proposed research results. The validation against the
real world to prove the validity of the design and development process is given less importance by the
majority of authors. Possible justifications for this approach can be demonstrated by the following
explanations:
Evaluation as an integral part of design-oriented computer science is a relatively new challenge.
Due to lack of "best practices" in dealing with methods of evaluation, the distinctions between the
two approaches have not been made explicitly.
For the research process there are only limited resources available in most cases. The time factor
is of particular importance, as the evaluation against the real world claims more time than the
evaluation against the identified research gap. This means that researchers can hardly be
motivated to conduct the evaluation against the real world, since in this case; potential publication
opportunities can only be limited perceived.
The evaluation of an IT GRC framework from the real world perspective requires that a health
care institution is accessible for the application of the results, and that organisations participate as
a partner throughout the evaluation process of the research.
Despite the current low penetration of evaluation methods which are focusing on the real world
comparison, the consideration of both approaches to evaluation appears to be desirable. It allows the
differentiated consideration of the cognizance and design goals of the research work.
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238

The Potential of Library 2.0 in Buttressing “Prosumption”
Culture Among Researchers in Kenya
Tom Kwanya 1 , Christine Stilwell 1 and Peter Underwood 2
1
University of KwaZulu-Natal, South Africa
2
University of Cape Town, South Africa
tkwanya@yahoo.com
stilwell@ukzn.ac.za
pgunderwood@wol.co.za
Abstract: The information ecology is changing drastically. One of the elements of this change is the emerging
culture of prosumption which is the convergence of information production and consumption processes creating
an environment in which information users are also active producers of what they consume. Prosumption creates
an information ecology which is largely driven by the users who do not only influence the content but also the
technology with which it is communicated. As the prosumption culture becomes more ubiquitous, especially
amongst the young researchers, the demand for library services which are convenient and provide platforms for
socialization, self-reliance and choice is increasing. Above all, the researchers yearn to be wowed by the
experience offered by libraries which provide a “wonderful” place to read, write, think, engage and reflect.
Available evidence shows that research libraries which do not offer services which meet prosumption needs will
cede their influence and usefulness amongst researchers. As research libraries in Kenya, and elsewhere, grapple
with ways of enriching their services, this study investigated the potential of Library 2.0 model to make the
services prosumption-compliant. The study was conducted through multiple case studies comprised of five
international and national research libraries in Kenya. Library 2.0 is the expression that captures the practical and
focused efforts to use Web 2.0 technology to connect to and create relationships with library patrons. The Library
2.0 approach is premised on the view that the library should be everywhere its users are, have no barriers, invite
user participation constantly and use flexible best of breed systems. It is also based on the understanding that
the empowered user is a critical member of the library ecosystem. With information flowing from multiple
directions – from the library to the user, the user to the library, and between the users – the empowered user
becomes an active participant, co-creator, builder and consultant of the library services and products. The
findings of the study demonstrate that the Library 2.0 model enables users to do more than just retrieve
information. The model enables the users to add value on the information they access through multi-directional
many-many communication approaches made possible by decentralized gateless Web 2.0 systems. This ecology
discards monolithism and instead provides a platform in which different users hold and contribute small pieces of
information which are loosely joined to create a versatile collection through various mechanisms of user
participation.
Keywords: Library 2.0, Web 2.0, prosumption, user-generated content, research libraries, Kenya
1. Introduction
The ICT revolution is significantly impacting research library service scope, depth and delivery. The
impact is basically three-pronged: 1) modernization of library services and products; 2) innovation
through experimentation by exploiting the capabilities of the new technologies; and 3) transformation
by fundamentally changing the nature and delivery of library services (Lynch 2000). There is also a
change in the perception of researchers regarding the place of technology in the library with more
researchers now supporting the use of these technologies in delivering library services (Kiplang’at
and Ocholla 2005). This new perception explains the remarkable increase in the volume and diversity
of digital library products and services. Though Lynch (2000) suggests that libraries were “forced” to
react to changes facilitated by ICT, many research libraries have been trailblazers in the adoption of
ICT tools to offer services.
The Centre for Information Behaviour and Evaluation Research (2007) reports that “researchers of the
future” seem to have embraced a new information seeking behaviour that is not compatible with the
old library service model nurtured in a hardcopy system. Conversely, this information seeking
behaviour is characterized as being horizontal, bouncing, checking and viewing in nature. The
researchers are perceived as being “promiscuous”, diverse and volatile. The information seeking
behaviour they exhibit is described as a form of skimming activity, where they view just one or two
pages from an online resource and then “bounce” out, perhaps never to return. The Centre for
Information Behaviour and Evaluation Research (2007) further suggests that these researchers: 1)
are generally more competent with technology and expect a lot from it; 2) prefer interactive systems
and are turning away from being passive consumers of information; 3) have drastically shifted to
digital forms of communication such as texting rather than talking; 4) multitask in most, if not all, areas
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of their lives; 5) prefer info-tainment approaches to traditional information provision; 6) have limited
tolerance of delay in the provision of services; 7) find their peers more credible as sources of
information than authority figures and structures; 8) feel the need to remain constantly connected; 9)
believe everything is on the web; and 10) are format agnostic.
Salwasser and Murray-Rust (2002) conducted a needs assessment of the researchers at the Oregon
State University libraries and concluded that they wanted to find, retrieve, integrate, and synthesize
well organized information, quickly. They also found that although many scholars of librarianship and
practitioners recommend the involvement of the relevant stakeholders at all stages of new library
developments, the common approach still seemed to ignore the users. Research Information Network
(2011) investigated the information requirements of researchers in the humanities and found that they
want easy access to content which is simple to cite and reuse. The study also confirmed that the
humanities researchers consider the library as a networking “space”, not just a place to conduct
research. The study reported that the humanities researchers are now working with new tools and
technologies in increasingly collaborative environments, producing and using information in diverse
formats and media. Significantly, the study confirmed that the researchers are reluctant to use
information sources which require them to go to a physical library. Wang et al. (2007) also report that
academic researchers in the United States, Greece and China have embraced reciprocal peer
interaction to generate and share important research information both formally and informally. They
also reiterate that the Internet and other ICTs have become vital to research information seeking and
use. Generally similar conclusions have been made by Kaniki (1992) who emphasized the use of
ICTs and informal interactions to share unpublished material among agricultural researchers. Kemoni
(2002) also recommends digitization as a means of enhancing access to research material held by
the Kenya National Archives. Angelo (2010), on the other hand, cautions that several challenges,
such as low information and ICT literacy, impede effective use of ICTs by researchers in Africa.
Several changes in the research sphere which are not directly related to the emerging ICTs also exist.
One, research projects are increasingly becoming interdisciplinary bringing together researchers from
diverse backgrounds on similarly diverse terms of engagement. Similarly, research projects are
becoming global and transcend individual, institutional and national boundaries (Braman 2006). Two,
researchers have realized that effective use of data generated from research is impeded by its
fragmentation across institutional boundaries and barriers caused by processes such as redaction.
Conscious actions are being taken to remove such bottlenecks to research information flow. Three,
scientific research is getting seamlessly integrated in society. This has expanded the range of groups
who consider themselves as stakeholders in the research process and projects. Four, researchers
seek fast, flexible, affordable but reliable information systems. Rimmer et al. (2006) explain that most
researchers now rely heavily on their colleagues and networking events for research information.
Further, self-archiving systems enabling researchers to share or access unpublished manuscripts,
working papers, prepublication items and articles have become invaluable in making research results
immediately available (Braman 2006).
Shera (1966) suggests that research libraries emerged due to the inability of the general library
collections and techniques to meet the special needs of researchers. Heaps (2005), while referring to
the Raymond Burton Library for Humanities Research at the University of York in the United Kingdom,
explains that apart from specialized collections that research libraries hold, the research librarians
also offer specialized services than their counterparts in other library typologies. Providing effective
information services in a research library calls for innovative services going beyond face-to-face
modes (De Groote et al. 2005). Seemingly, there is a “disconnect” between what modern researchers
need and what the research libraries generally offer. Consequently, library usage statistics reported
by the Online Computer Library Centre (OCLC) (2005), Chad and Miller (2005) and Aiken (2006)
indicate that libraries are rapidly relinquishing their place as the top sources of research inquiry.
Indeed, a sizable number of current library users indicate that they will reduce their usage in due
course (OCLC 2005). This change can be attributed to the constantly shifting expectations of users,
especially revolving around the convenience of use of library services and collection (Ramos 2007;
Farkas 2008). Fundamentally, researchers simply expect to be able to access any information they
want anytime, anywhere (Yu 2007; Pauli 2008). They want the library service to fit their lifestyle and
not vice versa (OCLC 2005).
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The research sector in Kenya is still in its infancy but it exhibits the above trends. This situation
exposes the many challenges the sector faces which include lack of clear national research agenda,
inadequate funding, over-reliance on external funding leading to undue external influence on research
projects and trends, and brain drain. Coupled with the fact that most of the researchers in the country
are relatively young - between 31and 50 years of age - and are fairly adventurous with ICT tools
(Kwanya 2010), the need for channels that facilitate participation, networking and collaboration is
critical. The research libraries are at the crossroads. This study investigated the potential of Library
2.0 service model to harness the efforts of the libraries in meeting the need of the researchers to
prosume.
The authors used an interpretive qualitative case study approach to collect data from researchers at
the African Medical and Research Foundation (AMREF), International Livestock Research Institute
(ILRI), Kenya Medical Research Institute (KEMRI), Kenya Agricultural Research Institute, and
International Centre for Agroforestry Research (ICRAF) libraries. The data was collected through
interviews, focus group discussions, direct observation, mystery shopping, documentary analysis and
social network analysis. Data analysis was by content analysis, conversation analysis and
Heideggarian hermeneutics. Reliability and validity of the results was ensured through effective
sampling and pre-testing.
3. Library 2.0
The term Library 2.0 was introduced by Michael Casey through his LibraryCrunch blog in 2005 (Casey
and Savastinuk 2007a). Farkas (2007) points out that the concept is complex and that asking any five
people what it is would yield five different answers. Nonetheless, Iser (2006) defines Library 2.0 as
the expression that captures the practical and focused efforts to use web technologies – Web 2.0 in
particular – to connect to and create relationships with library patrons. In her view, librarians use
Library 2.0 to bring libraries closest to the people through social media. The focus of Library 2.0, to
her, is robust connectedness between all the members of the library community. Library 2.0
represents a significant paradigm shift in the way people view library services. It describes a seamless
user experience where usability, interoperability, and flexibility are vital (Farkas 2005). Thus, Library
2.0 describes a subset of library services designed to meet user needs precipitated by the direct and
peripheral effects of Web 2.0 (Crawford 2006; Habib 2006; Casey 2007; Maslov, Mikeal and Leggett
2009). In the words of Walter (2006), Library 2.0 is a commitment to assess, improve, integrate and
communicate library services consistently. It is any service, physical or virtual, that successfully
reaches users, is evaluated frequently, and makes use of customer input (Casey and Savastinuk
2007b).
Library 2.0 model is commonly perceived to be founded on four principles: 1) the library is
everywhere; 2) the library has no barriers; 3) the library invites participation; and 4) the library uses
flexible best of breed systems. Cho (2008) explains that 2.0 model libraries exhibit unique
characteristics. They embrace their communities and change along with them; adopt user-centred
content and services maximizing the library’s online presence; recognize the fact that the roles of the
librarian and user are not always clear and are dynamic; and create a multi-media experience for
collections and services. They are also socially rich and encourage a two-way communication
environment between the users and libraries.
4. Prosumption
Prosumption is the integration of consumers’ participation in the creation of products or services they
consume (Xie 2005). It is a multidimensional, multi-stage and multifaceted phenomenon that blurs the
traditionally distinct production and consumption processes (Collins 2008; Humphreys and Grayson
2008). Prosumption involves a wide array of activities such as storing, assembling, combining or
shaping with equally diverse variety of input to produce concoctions in which some of the original
inputs are not distinguishable (Xie 2005).
The concept was introduced by Alvin Toffler in his book The Third Wave published in 1980. He
predicted the emergence of a new breed of consumers who would choose to produce some of the
goods and services they consume (Kotler 1986). Ritzer and Jurgenson (2010) explain that even
though the history of prosumption goes beyond the Internet age, the concept has become more
prominent with the emergence of Web 2.0. They argue that although prosumption was not invented
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on or for Web 2.0, this technology remains its most prevalent location and means. As opposed to
traditional production and consumption processes which focus on predictability, calculability and
efficiency, prosumption fosters contingency, experimentation and “playfulness” (Zwick, Bonsu and
Darmody 2008). Chu (2010) and Fuchs (2011) explain that Web 2.0 tools which facilitate prosumption
through data sharing, communication, community, and co-production do not only democratize but also
exert greater influence on various spheres of life in society. Comor (2010) explains that prosumption
is liberating, empowering and prospectively revolutionary. Although Kotler (1986) points out that it is
not possible to get absolute prosumers, he predicts that people will increasingly produce more of what
they consume.
Kotler (1986) identifies some of the motivations for prosumption as the increasing discretionary time
from the shrinking work week; higher education; rising costs of skilled labour forcing people to
undertake the activities themselves; technological advancements providing tools and techniques for
production; high sensitivity to quality leading people to produce their own products; individuation, that
is, self-expression in producing one’s own goods and services as a matter of pride and self-fulfilment.
Xie (2005) explains that the motivations for prosumption are not necessarily economic. For instance,
he explains that a person may decide to eat at home for nutritional purposes; conduct online banking
for convenience; do gardening for enjoyment; or prepare breakfast at home because no alternative
eating place exists. Kotler (1986) also suggests that prosumption activities which are likely to appeal
to the people promise high cost saving, consume little time and effort, yield high personal satisfaction
and require minimal skill. Nonetheless, he clarifies that some prosumers resent over-simplification of
tasks. He cites a case where prosumers rejected a cake brand which required the consumers to
merely add water when they actually wanted to also add milk and eggs to their taste. Consequently,
some prosumers attend basic courses on cooking, gardening, knitting or painting to engage in more
demanding prosumption processes.
5. Findings and discussions
The findings of the study reiterate the common perception that most researchers have reduced their
usage of the physical library services and products. Some of the factors identified as causing the low
usage include insufficient or inappropriate opening hours, distance from physical libraries, inadequate
marketing and low information literacy. The researchers suggested that the libraries should embrace
Web 2.0 tools to facilitate extended, fast and convenient delivery of library services to users at the
point of need. A researcher who has not been coming to a case library lately stated during the focus
group discussion: “I have stopped going to the library but I have not stopped reading; I read on my
mobile phone and computer. If the [library] is to get back users like me, it has to bring the services
online”.
The findings of this study also indicate that although the researchers are keen to contribute content,
most of the libraries lack systems to harness these contributions. Applying Library 2.0 model can
enable the libraries to invite user-generated content through diverse Web 2.0 tools located in strategic
library service instances. For example, researchers can add value to the catalogues by suggesting
personalized keywords, taste-sharing, rating or reviewing items in the Online Public Access Catalogue
(OPAC). Researchers can also generate content through individual, library or institutional blogs, wikis,
Facebook, flickr or YouTube spaces. The researchers can be the major contributors and distributors
of content through social media. The researchers can also play an important role in finding, selecting
and filtering relevant information resources and services. This is very important for modern
researchers because of information overload. Given that researchers increasingly prefer unbundling
of information, they can use Web 2.0 tools to customize and exchange information that uniquely
meets their needs rather than passively consuming mass-produced resources and services.
Social Network Analysis revealed two less active and loosely knit networks of researchers in the case
libraries. Except for two case libraries which are sponsored by the same organization and have
institutionalized systems for collaboration, the other libraries work together in ad hoc manner. Though
the researchers explained that they collaborate individually on similar projects, it was evident that they
are not maximizing the full potential of the networks. They admitted that effective collaboration would
enable them to pool resources, share information materials, build capacity and get exposure on
ongoing projects. One of the reasons why collaboration may not have been easy is lack of effective
communication platforms to facilitate seamless interaction between researchers from different
organizations. This challenge can be addressed through the adoption of simple, generally free and
versatile Web 2.0 tools which can offer researchers destinations for interaction and collaboration
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online to discover and create value through tagging, commenting, connecting and sharing (Mayfield
2006). Given that young researchers believe that books and coffee go together just like movies and
popcorn, the libraries can also introduce social programmes that enable researchers to unwind,
mingle and share research ideas, personal happenings (birth of babies, weddings of children or
siblings, and many more) and general information.
The findings from the interviews and focus group discussions with researchers and librarians revealed
that there are some efforts to get the views of senior researchers on what materials should be
acquired annually through book lists. However, it was noted that these requests are issued during the
annual planning and budgeting season when the researchers are busy. Some libraries also conduct
some form of user surveys but these are irregular and far-between. Generally, the users stated that
they have not contributed significantly in the management of their libraries but would like to, given a
chance. They proposed that the libraries should establish transparent systems of capturing users’
views and preferences on a continuous basis. They also suggested that using appropriate ICT
systems for this purpose as part of the Library Management System would be beneficial. Some of the
challenges that the librarians and users could foresee when involving the users actively in determining
library services and products include heightened expectations which may not be easily satisfied;
diverse opinions which would be difficult to merge; and huge time requirements for the users and
library managers to sift and integrate the suggestions. They pointed out that the benefits of adequate
involvement of the users in decision making in the libraries include ownership, user-centricity of the
services and products, improved usage (frequency and intensity), and high impact.
The research findings also indicate that grey literature such as minutes of specialized meetings,
government documents, conference proceedings, working papers, newsletters, fact sheets and
bulletins are emerging as critical sources of research information. In the focus group discussions the
researchers explained that these sources provide glimpses of research trends even before the formal
publication of results as well as background information such as statistics, facts, overviews and
research summaries. They proposed that using Web 2.0 tools such as SlideShare would enable
researchers to share such grey literature.
The findings also show poor customer service levels which do not meet the expectations of the users.
Mystery shopping, focus group discussions and interviews revealed cases of rudeness,
incompetence, desertion of library reception and service desks, pre-occupation with other tasks when
attending to users, poor communication, and lack of commitment to keep the promises made to
customers. Given that the number, involvement and influence of research stakeholders have
increased, libraries need to be more mindful of their image. Community-centric Library 2.0
approaches can be used to capture the habits, needs, desires, dislikes, and preferences of the
diverse library publics and invite their participation in meeting them. One of the ways this can be done
is by managing the long tail. Since Library 2.0 generally empowers users to self-serve, it gives them
the opportunity to meet their unique information and other needs through techniques and tools that
they are comfortable with and at their own convenience. Technically, researcher’s needs are catered
for with the onus of appropriate usage being on them. It is not practical to provide for all the user
needs but Library 2.0 model places the key in the form of tools, and skills to access the massive
sphere of information in the researchers’ own hands. Further, this approach enables the researchers
to exchange information and thus build fresh content which may not be possible to acquire through
the traditional monolithic library collection development approaches. For instance, a researcher
working on bio-fuels in one of the research institutions said that her area of research is new in her
institution and is often ignored by the library because there are few researchers who have interest in
the topic. Using Library 2.0 approaches can enable the researcher to link with other bio-fuels
researchers and generate or exchange valuable information.
6. Conclusions
User-centeredness is the heart of Library 2.0; it is also the essence of prosumption. Library 2.0
provides the flexibility and tools for researchers to create, consume and share their own information
resources and services. It provides the social, physical and virtual environment which encourages
experimentation (playfulness), innovation and individuation in meeting the emerging research needs.
If it is true, as Friend (1998) states, that traditional libraries have largely been passive institutions
waiting to be used, then Library 2.0 is liberating, empowering and prospectively revolutionary.
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The qualitative methodology used enabled the authors to gather the views, comments and
illustrations on the research topic from the participants. The results reveal a complex situation
requiring a variety of strategic management approaches. Although it implies change, the mere
adoption of the Library 2.0 model may not introduce meaningful change in a traditional research
library. Appropriate change management strategies are essential to enable research libraries to
overcome the challenges arising from the dynamic information environment. Kamila (2009) suggests
effective technology management, total quality management, re-engineering of library services
(innovation), knowledge management and regular SWOT (Strengths, Weaknesses, Opportunities and
Threats) analysis as some of the strategies that libraries can utilize to anticipate and manage change
in their communities. Singh (2009) asserts that leading and managing change is not a luxury but a
necessity for all information professionals. Libraries which cannot take cognizance of and manage
internal and external pressures to change stand the risk of becoming extinct.
Adoption of Library 2.0 in any country presents a challenge to the indigenous library culture, requiring
library staff to learn new skills and to be ready to assess and adopt appropriate new applications as
soon as they are developed. This is a formidable challenge because of the high volume of
applications and market instability. For instance, Google has recently, and without warning, withdrawn
several applications it formerly supported or was developing (Young, 2011). The instability of the
market reinforces the need for regular and consistent environmental scanning as a part of the
strategic management of libraries of all kinds.
The results also lead to another conclusion: the present culture of information use and the perception
of libraries in Kenya will make adoption difficult. There is already evidence that Kenyan academics
and researchers are using sources other than libraries as their principal channel for research
information. To be successful, a “prosumptive” approach will have to engage with the prevailing
research culture and demonstrate that it has overwhelming advantages.
References
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245

Individual and Corporate Leadership Longevity
Linda Lee-Davies and Nada Kakabadse
University of Northampton Business School, UK
Linda.lee-davies@northampton.ac.uk
Nada.kakabadse@northampton.ac.uk
Abstract: Leadership is often very competently defined in terms of sets of skills to be appropriately administered
to a situation and this is often added to by emphases on character or trait being influential in the successful
outcome. Success therefore, is assumed to be dependent on an individual leader being able to, or having the
correct perceptive skills to, furnish the right skills mix at the right time. Inevitably, there is significant margin for
error as hopeful reliance on such serendipity can be high in the success equation. Reducing the margin for error
by forming a more robust approach to developing a broader and more reliable set of leadership skills and
capabilities would provide a greater likelihood of strategic alignment between corporate and individual need on a
more robust basis, increasing both of their respective shelve lives in their internal and external competitive
worlds. These skills, therefore, need to be embedded in order to provide necessary strength and yet be flexible
enough to adapt to survive in differing environments. Once cultivated, these skills need to be inclusive and able
to align the leader and their followers to the organisational vision in the most informed and collaborative way
possible. Underpinned by empirical studies as well as conceptual argument, a model of leadership longevity is
formed with interesting and novel propositions which take the modern leader into less chartered, emotional
territory to really get to know themselves and their company in a holistic manner with the purpose of increasing
the resilience of both. This paper maps the journey less travelled that leads to leadership longevity with an equal
balance of two distinct foci, one of Socratic self knowledge and the other foci being knowledge of the other (i.e.
critical stakeholders and environment). This knowledge requires a different approach to developing self and to
acquiring critical organisational information for more informed decision making through a deliberative inquiry
approach, before aligning all effort towards the organisational vision. Critically and more fully informed about self
and the facts and the feelings of crucial stakeholders and the formative context (i.e. history, environment in which
the organization sits), new leaders emerging from hard times are much better equipped to stay the course for
longer and be more emotionally robust themselves to help others do the same.
Keywords: leadership, vision, outcome, survival, robust, development
1. Background
Leadership is often defined in terms of skills sets appropriate to situations and this is often added to
by emphases on character or trait being influential in successful outcome. (Yukl 1998) For example
(Kakabadse and Kakabadse 1999: 321) define leadership as a ‘capability to identify pertinent
pathways forward when direction is obscure(d)’. In reality this means that leadership is more about
helping people gain an understanding of problems they face and about helping them manage these
problems and even learn to live with them. Thus the success of the organisational goals is dependent
on an individual leader being able to, or having the correct perceptive ability to furnish the right skills
mix at the right time within the context. Inevitably, there is a significant margin for error as hopeful
reliance on serendipitous transformation of the organization can be high in the success equation.
Reducing the margin for error by forming a more robust approach to forming a rounded and reliable
set of leadership skills would also provide a greater chance of alignment between corporate and
individual goal on a more regular basis. These skills, therefore, need to be embedded enough for
strength yet be flexible enough to adapt to survive in differing environments (Gibbins-Klein 2011).
Once cultivated, these skills are transportable and always help align the leader and their followers to
the corporate vision as well a place them in the best place to make ethical decisions.
1.1 Self knowledge
Ethics and use of the power bestowed on the leader was clearly analysed by Zeno, Socrates, Plato
and Aristotle. Zeno followed by Plato’s definitions of discernment and virtues (Smith 2000) are
complimented by Aristotle’s subsequent practical wisdom (Smith 2000) to his learned predecessors,
which context the leader in the influences of their environment as well as their core self. Socrates was
a young man when Zeno of Elea was proposing these philosophies and subsequently taught
Plato,(Smith 2000) contributing emphases on the contemplation of self in terms of knowing one’s self
to be worthwhile to others and also in terms of methods of maximising good will from followers by
appropriate inquiry (Skordoulis and Dawson 2007). This ancient wisdom falls well into the modern
world of leadership in terms of robustness so is a serious consideration as a component of any
deriving model for future use. Ancient wisdom is of great value in virtuous and spiritual thinking (Dalai
Lama 1999). The high ethical and virtuous flavours of all of the writings emphasise that how the
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leader reacts to various temptations or dilemmas is a good barometer of their discretionary use of the
power and indeed indicative of the naturally occurring default leadership style within them. Default –
the natural skills and embedded attitudes, Discretion – the way power of leadership is administered,
and Dilemma - the way one acts under pressure and temptation, are then three key areas for
exploration in the importance of Individual Longevity. This triangle of individual longevity is key to and
stands alongside that of the organization.
1.2 Corporate knowledge
In addition to the influence of the individual longevity of the leader, intelligence dominates corporate
longevity and skills for rendering an organisation robust enough for that over time pivot on this.
Clearly, this cannot be left to chance and inquiry for such information must be of a deliberate nature.
Further, this is not just about clinical data or Aristotle’s episteme (scientific) inquiry but of phronesis
(practical wisdom) centred on deliberations directed at establishing pros and cons through
collaborative and open dialogue (Flyvbjerg 2001). The latter is the exercise of one’s view with intent to
convince others, the former is one’s openness to others in order to form a plural position of
compromise (Bohem 1996). Such Socratic method of inquiry (Skordoulis and Dawson 2007) can then
culminate in aporia from new learning rather than old (Vlastos 1991). Deliberative dialogue must be
set up by leaders to benefit and engage all stakeholders A deliberate exercise must be accessible
and used as a cultural norm to provide an ongoing source of capturing plural and democratic opinion
and thus – the most preferred course of action or most effective decision to follow having been
established through such dialogued means (Yankelovich 2001). It can then be held that this collective
approach is more than dialogue as it is a shared platform of learning (Kakabadse et al 2007) where
multi levels of organisational actors contribute to shared meaning through open and constructive
polylogue. New learning is then facilitated at many levels as the process enriches the organisation
from its core and the resulting integration of expertise ensures a co-operation in the co-creation of
strategic direction and vision. Each participant has an identity constructed in the overall so feels more
fully bonded (Karp and Helgo 2008).
Thus, the vision is organically fed and this makes the chosen direction itself a much prized component
for the leader to safeguard and do justice to. Visioning and visioneering (Kakabadse et al 2005) is
therefore another leadership skill for refinement as well as a cultural habit which renders longetivity
and robustness to the corporate body. As it involves the complete strategic alignment of all parts of
and all members of any organisation, there is no level unaffected by its influence. Deliberative Inquiry
– the intent to find out what one needs to know, Dialogue – the platform of open communication to
bring this about and Direction – the act of aligning all activities to the overall corporate objectives are
then key areas for exploration in terms of the Corporate Longevity needed to partner individual
longevity.
In all, a new model of individual and corporate leadership longevity must split itself evenly as it is clear
that each equally depends on the other.
2. Individual longevity
2.1 Default
The base line of self awareness – knowing the default – is a difficult search. That knowledge of self
though is essential so leaders know what to rely on or to adapt for their own sustainable success
(Ashford 1991). Just as each leader would assess the strengths and weaknesses of their business,
they must be aware of their own contributions and deficits to the organisation and followers they are
responsible for (Lee-Davies 2006). Jung inspired self assessment tests such as the Myers Briggs
Type Indicator (MBTI) are popular in business(Jung 1923) and do help focus the subject on defining
areas for improvement (Leary et al, 2008) and indeed recognising difference and value in others
(Brown and Reilly 2008). However, such tests rely on only the subjects own opinion of self and self
awareness must also come through others so one sees oneself as others do. The 360 degree
assessments in the workplace make much progress with this so in addition to having an opinion on
self the leader can see what followers and their leaders see in their expression and marking results
(Tornow and London 1996). This aligns the leader with their destination while retaining the ability to
question (Cashman 1998).
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More global, rather than individual, trend analyses studies have been compiled in many areas where
leader subjects have been observed by external parties. Defaults in the yacht captains of the BT
Global challenge were longitudinally recorded to show clear management, leadership and personality
differentials in winners (Cranwell-Ward and Bacon 2002). Similarly, the defaults of predisposition and
orientation were axes opposites in a default study of senior leaders in the Integrated Leadership
Development Program (ILDP) (Kakabadse et al 2005). The default of orientation encapsulated the
degree of self or non-self in direction and decision making and predisposition categorised the
analytical tendency or the ability to contextualise. Transactional and transformational (Bass 1985)
defaults can be seen in such studies, as can delegatory and consultative trends (Hersey and
Blanchard 1988). Management and Leadership skills differentiation, (Bennis 1989) formed good base
for questioning as to what balance was needed to be a successful leader. Their evolutionary
derivatives are also present, for instance, transcendence defaults which are less self and more
follower focused (Hooper and Potter 2000) and an emotional balance of the understanding of self and
others (Goleman 1996; Cooper and Sawaf 1998; Leary, Reilly and Brown 2008).
In recognising the basic default, the leader is then able to develop the other skills sets for such a
balance towards business and leadership success in terms of people, planet, profits and posterity
(Kakabadse and Kakabadse 2003).
2.2 Discretion
Once a basic platform of return is determined in the Default, the leader progresses on their selfreflective
journey to determine how that affects the actions they take in their position of power. The
discretionary choices they make and show in their day to day operations will be influenced by their
core abilities marking their presence on the context they are in. Their orientation and predisposition
(Kakabadse et al 2005) may indicate their levels of virtue and even ethics as they strive to use the gift
of leadership discretion and achieve ‘authenticity’ in prosperous social relationships (Smith 2000:
403). This presumes choice is total, however it may be that leaders are not actually completely free to
make choices with both internal and external givens which may already dictate their likely decision
outcomes (Whittington 1988). Indeed, Institutional influences may define or restrict what the leader
such as the CEO is able to do. Also as leader discretion level rises and falls through the ranks and as
context fluctuates, then some leaders may have more discretion than others and that discretion may
change with external and internal circumstance (Hambrick and Finkelstein 1987). Fuelled by scientific
environmental data for calculated perception, both inside and out the organisation, the leader is also
influenced by their own emotional perception naturally biased by experience and their own defaults
(Karp and Helgo 2008). Ethical judgements and dilemmas will also vary, not just with personal and
institutional factors but also with international ones (Kolthoff et al 2010).
3. Dilemma
Leadership scripts or mental-maps (Sergiovanni 2005) influence decision making and the chosen
approaches can contain a dilemma between the balance of what is expected and what they perceive
and judge themselves (Hunt et al 1988).
With default and discretion observed and if not perhaps fully understood but at least considered in the
equation, the context of conflict, temptation, dilemma is essential to calibrate and test the true
leadership self (Kakabadse et al 2007). Leaders must explore their darker sides to achieve better self
knowledge. Knowing how one actually reacts rather than thinks they will react (Karp and Helgo 2008)
to temptation is important. Ethical awareness is one thing before making moral judgement on what
action to take then one’s ethical motivation in terms of intent is only true ethical character if that action
is completed despite the challenges (Kohlberg 1969; Weber, 1990; Trevino and Brown, 2004). In a
qualitative, empirical study of CEOs, three common categories of leadership temptation are identified
(Kakabadse et al 2007). The pursuit of personal pleasure and materialism – hedonism, was
accompanied by the actual power/control in the CEO’s environment as well as the legacy that CEO
hoped to leave (i.e. posterity). Attempts to measure morality as with the ‘Moral Competency Index’
(MCI) (Lennick and Kiel 2005) have highlighted components integral to Moral Intelligence and given it
similar status to IQ, Emotional Quotient/Intelligence EQ/EI (Daniel Goleman 1996) and perhaps
Leadership Quotient (LQ) and Management Quotient (MQ) (Dulewicz 1999). So many different
internal and external factors to consider though make MCI validity questionable in the workplace
(Martin and Austin 2010).
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The use of these three skills individually or as a set provide the base of strength for the way forward
for the organisation as a whole and indeed influence its strategic strength.
4. Corporate longevity
4.1 Deliberative inquiry
Deliberative Inquiry crosses beyond the more obvious knowledge and verification level of scientific
inquiry to delving into what matters to individuals to increase learning at a deeper level and therefore
create more appropriate and meaningful resulting action (Flyvberg 2001). By deliberately courting
uninhibited and widely varying contributions from others and enabling their evolution with each other a
common consensus and deeper self understanding is achieved (Seeskin 1986; Yankelovich 2001).
Such participation into more enlightening methods also matures and refines the individual’s critical
thinking and listening skills so increasing their confidence in articulation and tolerance of wider inputs
in order to arrive at a more suitable and informed decision (Ronald 1992). This reduces error so
saving time and money and therefore renders strength to the outfacing side of the organization from
the inner core.
Deliberative Inquiry then involves the setting up of an environment to accommodate and also facilitate
the different inputs (Ryfe 2002; 2005; Miller and Rose 2007: 34-35). This facilitation encourages
single and plural inquiry resulting in a more positively informed contextualisation of self, others and
the issues concerned (Fischer 2003). More possibilities are explored for solutions (Shotter and Katz
1996) and wider inputs and opinions ensure that potential error is conceptualised in the abstract
before becoming an expensive practicality. The outcome from this process will be slower so the long
lived leader will be the long game player and see that their democratic example and application will be
as crucial as their enthusiasm and facilitation.
4.2 Dialogue
Deliberative Inquiry needs and uses Dialogue to continue the leadership journey for educated
decision making by not only delving into actual working feelings but directing them back upwards with
a shared responsibility. After setting up an attitude and even a deliberate process/environment (Ryfe
2002;Miller and Rose 2007:34-35) to find out what one needs to in order to act upon it, it is necessary
to ensure that the working environment courts and cultivates the input of all opinion at all levels at all
times. The longer lived leader will have in place a facilitative culture which ensures fresh dialogue
from those that know to inform what is necessary for strategic alignment (Gibbins-Klein 2011). Thus in
addition to deliberately setting out to inquire by drilling down into the hierarchy (Skordoulis and
Dawson 2007), a culture is created to sustain the ongoing data input from all linear and lateral levels.
This multiple dialogue or polylogue (Kakabadse and Kakabadse 2003) is then a platform for
connectivity and shared leadership and responsibility from within.
The Dialogue inducing skill of the leader is more than setting up course for inquiry and understanding.
It is the proactive facilitation of a decision making co-operation where staff are entrusted not only to
inform decisions but to perform them. There is collaborative dialogue and a sense of co-creation (Lee-
Davies et al 2007) ensuring a strength from the inner core and at all levels of the organization and
therefore strengthening the leader who facilitated it. By constantly allowing such free ownership, a
sense of belonging retains the talent within at a motivated and empowered level of positivity which
becomes a leadership and organizational life lengthening phenomenon in itself as it becomes self
propagating and self feeding (Ryfe 2002). The Polylogue platform captures an extra level of effort no
leader could obtain by autocratic demand and instruction as willing effort and enthusiasm become
part of the input mix.
This is not to be confused with empowerment of task delivered in a downward way with elements of
tokenism. True skill of ensuring in depth dialogue is far from didactic with directional elements. Not
directional as in instructional but directional as in the way forward. The longer lived leader is the
‘Polylogue Principal’ nurturing the ‘Polylogue Principle’ without feeling threatened by the progress of
the talent within their organizational body. The Principal role is to expertly and exactly channel the
wider discussion and effort in the most positive way to the overall vision (Flyvberg 2001) – yet allow it
room to reveal itself.
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4.3 Direction
Linda Lee-Davies and Nada Kakabadse
With Corporate Longevity in mind, the previous expert unveiling of facts and sentiments from within
the organization is only of great value if properly channelled and aligned with the Corporate Strategic
Plan. The value in surfacing more intricate and informative data by more sophisticated leadership skill
sets such as those above is only maximised, or indeed fully utilised, when translated back into the
Corporate Vision. This is currency exchange with the greatest return possible and in addition to
supporting the Corporate Direction, the fresh and indeed real time and more accurate data, assists
that direction by ensuring that those who decide it are fully informed (Flyvberg 2001).
This vision, ‘this organised perception or phenomenon’ (Mordon 1997) is a formed future rather than a
mere forecast (Parikh and Neubauer 1993). Deliberate direction is thus borne of deliberative inquiry
and the participative leader by using these skills has gained employee commitment to the cause
beyond the dutiful obligatory level (Brabet and Klemm 1994).
Without Visioning (Kakabadse et al 2005), the organisation starts to weaken and indeed there is
division as a paradox in empowerment causes staff to settle into several camps within the company
rather than belong to one. Where senior leaders are not fully aligned with the overall direction and
have agendas of their own, their followers are naturally triaged into different and often opposing
sections, thus creating several companies within the one company. So, sight is taken off the external,
competitive environment and the strength gained from the synergy of the collective all facing in the
same direction is denied leaving the organization weaker with having to face the subsequent internal
issues. The confusion from having not one direction (Parnell 2011) but several competing ones within
means internal war starts up and eats away at the company’s external competitive advantage. With
organizational energies facing inwards, staff begin to form short term survivalist attitudes which
naturally focus more on getting through more imminent matters rather than planning and contributing
to more longer term ones (Laverty 2004). The longevity of the company is therefore so far down their
agenda shortening the corporate life span in competitive terms by many years.
By starting with a personal conviction for the cause, the ‘visioneer’ leader makes it their personal
ambition to ensure that all followers are served with clear direction and purpose while at the same
time ensuring that their senior team deliver the same message. Discretionary breadth and democratic
dialogue are healthy and important and also feed the strength of the company by ensuring more
educated decisions but the team must be united in their message to the organization. It is this unity
which renders the security the followers need to form trust. (Kakabadse et al 2005).
This achieved and disparate groups avoided, the leader must also ensure that the formal and informal
structures they have within the company allow the travel of information all ways. Fast feedback is
essential to be able to react to matters and ensure all followers are informed and inspired by the
vision but also able to input to it quickly and without threat of blockages (Varey 1996). This then
creates an open path for a visioning culture to emerge and so sustain the organization.
4.4 Proposed model of individual and corporate leadership longevity
The proposed diamond model is in itself metaphorical of long life and offers a balanced approach to
leadership longevity diagnostics (Leary, Reilly and Brown 2008) as well as forming a frame for
leadership longevity development – not just in corporate terms but in the individual ones which
underpin those of the overall. Forward facing leaders who wish to future proof themselves and
subsequently their organizations are prompted to think beyond their usual two dimensional
environmental and performance data to form embedded three dimensional, multi-level viewpoints
(Gibbins-Klein 2011). Armed with better self knowledge in terms of acceptance of what is and
improvement of what could be in their own personal terms, the more robust and long lived leader will
have expertly engineered feedback systems they can delve into beyond what is seen on the surface
of the corporate organogram. This provides the polylogue (Lee-Davies et al 2007) platforms for richer
and real time data which in turn impact on the calculation/design of and the ongoing alignment to
successful strategic direction.
The formation of the longevity elements of the model have brought rise to six propositions in essential
component linkages for testing purposes.
P1 Sound individual longevity has a marked impact on corporate longevity
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P2 Understanding leadership defaults has a beneficial effect on leadership longevity
development
P3 Leadership default has a direct impact on successful deliberate surfacing of sentiments
P4 Use or abuse of discretionary power has a direct effect on free dialogue and fast feedback
P5 Leadership ability to control reaction to temptation aligns self to corporate direction
P6 Directional alignment to strategic vision and aims ensure corporate longevity
Testing of these propositions cannot be fully served in this paper but will be part of the research in
progress.
Default
Deliberative
21
Individual
Longevity
Discretion Dilemma
3 4
5
Dialogue
6
Corporate Longevity
Survival
Figure 1: Proposed model of individual and corporate leadership longevity
5. Conclusion
1
Direction
Knowing how one is naturally made up, reacts to the privilege of power and temptations provides the
greater strength and ability to deliberately find out what one needs to know, create the ongoing flow of
crucial knowledge and data to create, care for, control and calibrate the strategic longevity of the
organization. Thus a balance for leadership longevity depends on the inner strength of the both the
individual and the organization.
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253

Governance of the Economic Engine Room: Insights From
Agricultural Governance in New Zealand
James Lockhart
Massey University, Palmerston North, New Zealand
j.c.lockhart@massey.ac.nz
Abstract: The site for much governance research over the last two decades has been publicly listed companies.
The perspective through which the majority of that research has been undertaken is one of agency. However, in
many economies small to medium enterprises (SMEs) make a disproportionate contribution to national wealth.
Neither the features nor the requirements of their governance are well understood. The aim of this paper is to
present the results of a year-long study of the governance of SMEs (overwhelmingly family firms) in New
Zealand’s agricultural industry. It is of significance that these businesses collectively account for NZ$23b in
exports annually (some 68 – 72% of foreign exchange earnings from trade). In short, they represent this first
world nation’s economic engine room. During 2010 the researcher met with some 450 SME owners in New
Zealand’s agricultural sector and discussed with them the attributes of their business’s governance. Day-long
workshops were held at 18 sites throughout New Zealand. Each workshop was attended by about 25 - 30
business owners, holding some NZ$1.0 – 2.0bn of assets on each occasion. The technique of enquiry learning
was used to stimulate discussion among participants with the researcher as facilitator. Ethical approval for the
research was sought and the project was evaluated by peer review and judged to be low risk. Results were
captured through written surveys on occasions, and verbal and physical acknowledgement in response to
specific questions on others. The processes of critical reflection resulted in full participation at each workshop,
and when conducted (three times), a 100% survey response rate was achieved. Given the nature of participant
selection there is the likelihood of a positive bias. The majority of businesses were held by companies, trusts or
some combination of company and trust (94%). The most common model was found to be one where physical
assets were held in a family trust, with a company legally responsible for trade (72% of participants). The owneroperator
as a sole trader was found to be very rare (6% of participants). On equally rare occasions was third
party equity capital held in the businesses. Independent directors or other features of best practice governance
(including formal planning and reporting to shareholders) were the exception rather than the rule. Governance
appointments external to family members, the owners, were most often bestowed on ‘family’ accountants (21%)
and ‘family’ lawyers (11%), often as professional trustees. Inherent conflicts of interest were not recognised by
business owners. Nor was enhanced formality of process perceived by the inclusion of these professionals. In
summary, SMEs in the agricultural sector in New Zealand, despite making a disproportionate contribution to the
economy, were found to be deficient in the most common attributes of business governance. The dominant
attributes are best described as being those of founder-lead entrepreneurial governance where no distinction is
upheld between the multiple roles of shareholders, directors or managers. Further, those businesses in transition
to more mature governance were typically found to be reliant on professionals in close proximity to the business
owners. Who, incidentally, do not appear to discharge their responsibilities in a manner whereby conflicts of
interest were well managed. While this may not be harmful to business performance in the short term it does
raise the question of missed opportunities.
Keywords: founder-led governance, mature governance, governance research, SME governance, New Zealand
1. Introduction
The data for much governance research over the last two decades has been provided by third party
data sets of publicly listed companies, such as, Compustat (Monroe, 2006). The perspective through
which the majority of that governance research has been undertaken is agency theory (Daily, Dalton
& Rajagopalan, 2003). The reasons for and limitations of this narrow approach can be explained by
Bennis and O’Toole’s (2005) phenomena physics envy. This is, in turn, fuelled by the availability of
such large data sets; the increasing ease at which sophisticated analysis can be conducted; and, the
ongoing preference towards quantitative analysis to enhance academic career progression. Using
multivariate analytical techniques (Judge et al., 1988) the process and outcome of governance and its
subsequent contribution to business performance is reduced to a relatively simple input-output model
(Lockhart, 2010). The approach is further limited by both the lack of theory linking antecedent and
outcome variables – other than agency (Jensen & Meckling, 1976), as well as the failure to produce a
systemic understanding of the impact of various attributes, including those within the board room itself
– the black box (Leblanc & Gillies, 2004; Lockhart, 2006).
In many economies small to medium enterprises (SMEs) make a disproportionate contribution to
national wealth (Astrachan & Shanker, 2003). Because individual family members hold multiple roles
neither the features nor the requirements of their governance are particularly well understood (Tagiuri
& Davis, 1996). A body of knowledge is emerging from Europe, but it recognises that family firm
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James Lockhart
governance “violates almost all of the underlying assumptions of traditional governance theories”
(Mustakallio, Autio & Zahra, 2002, p. 205). Whether or not they need a more formal governance
structure (Mustakallio et al.) or not (Swinnen et al. 2010) is open to debate. Nor do large data sets
exist that may assist research of the antecedent variables used in governance input-output modelling
for SMEs. Publicly available company registrations in various jurisdictions seldom aggregate statistics
(see New Zealand Companies Office, 2011). Therefore, analysis of antecedent governance variables
can only occur with substantial investment in a priori coding (e.g., Mustakallio et al.). In the absence
of having intimate knowledge of each company, such as that achieved through case studies (Yin
1988, 1993), as published by Steier (2001) and Lockhart and Taitoko (2005), the identification of
director attributes, and other structural characteristics of the firm’s governance, is a near impossible
task. However, this entire discussion is underpinned by the assumption that the company
(Micklethwaite & Woolridge, 2005) is the preferred vehicle for growth not the entrepreneur (Haynes,
et. al., 1999; Gabrielsson, 2007).
The aim of this paper is to present the results of a year-long study of the governance of SMEs in New
Zealand’s export-dependent agricultural industry and to report on current trends and common
behaviours observed in these rural businesses. This opportunity was created through unique access
provided by an executive education contract between the author’s parent institution and the country’s
largest rural financier.
Ethical approval was sought for this research. The project was evaluated by peer review and judged
to be low risk.
2. Literature review
Business schools and business researchers (Podolony, 2009) seldom venture behind the farm gate.
In most developed nations the responsibility for the business education of farmers and the research of
their enterprises lies mostly beyond the interests of b-schools. There are some exceptions but rarely
do b-schools target rural audiences, especially the producers of raw commodities. The domain of bschools
starts largely at the first stage processor (Davis & Goldberg, 1957), and may encompass
some of the attributes of supply chain management but that too is mostly downstream of producers.
Despite that neglect emerging concerns of governance (Cadbury, 2000), leadership and management
(Bates, 2011), especially those relating to small business (in terms of employee numbers), ought to
be transportable across sectors. Therefore, b-school knowledge should be of relevance to this
community providing a thorough understanding of the context is sought, and the knowledge is then
appropriately applied. The warning here is that much of what is written in the domains of corporate
governance (OECD, 2009; Pieper, 2003), leadership and management is likely to be of little
immediate relevance to rural family businesses. The same argument could be said to apply to small
family businesses elsewhere, especially when legal responsibilities are relatively trivial (Davis, 2007).
This in part may explain the justification for the development of an increasingly independent body of
knowledge (Lansberg, Perrow, Rogolsky, 1988) concerning family firms (e.g., Carlock & Ward, 2001;
Ward, 2004).
Until the late 1990s the source of much business success was attributed (or otherwise) to the CEO
(Peters & Waterman, 1982). In many nations, especially the United States of America, the CEO was,
and to some extent still is, heralded as the corporate saviour (Iaccoca, 1988: Khurana, 2002) and has
reached demi-god status. Much of this literature has attracted considerable criticism (Jackson, 2001;
Micklethwait & Wooldridge, 2003; Rosenzweig, 2007) nevertheless it appears to influence
practitioners. However, the collapse of Enron on December 3, 2001 (Bryce, 2002; Eichenwald, 2005)
shifted the direction of the lens through which much of business success is now examined. Suddenly
the corporate board had become important. Although the recognition of governance as a source of
wealth creation began emerging a decade earlier following publication of the Cadbury Report in 1992.
The same shift in attention is now occurring in the SME and family business domain (Swinnen et al.,
2010).
The limitations to our knowledge of effective governance (Lockhart, 2010) are due to two phenomena.
The first is to do with the respectability (Gummesson, 1991) of research methods. The second
limitation is to do with access. Respectable research typically involves the use of large scale data sets
and the search for relationships with the hope of eventually identifying causality between variables. In
this case effective governance is reduced to a pseudo-linear input output model. Despite perceptions
to the contrary little of this research has been revealing. For example, there is as yet, no systemic
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James Lockhart
support for the view that independent directors (by virtue of stockholding) add value. The second
limitation is due to the difficulty of accessing the ‘board room’. Only in rare instances have
researchers entered the board room, or a proxy site for the board room. Hence the mystique
concerning what really goes on (Leblanc & Gillies, 2004). Does a board really add value, if so how?
Some boards appear to add considerable value, while others are culpable of wealth destruction
(Healy, 2003).
There has been little research on the governance of small to medium sized enterprises (SMEs). By
contrast the succession planning literature (Davis, 1968; Handler, 1990, 1994; Lansberg, 1999; Dyck,
Mauws, Starke, & Mischke, 2002) is abundant. Even less research has been completed on the
governance of rural business that also happen to be both SMEs and family firms (Reid, 2004).
Therefore, we know little about what is happening, and little attention has been paid to their needs, up
until now. Although some local research concerning succession planning has been undertaken
(Keating & Little, 1994; Little and Taylor, 1998).
Because of the limitations of research, as discussed above, recommendations for boards are typically
based on structure and form, including easy-to-measure externally recognisable attributes concerning
directors. Hence, the near constant recommendation for independent directors (Institute of Directors
in New Zealand, 2007) – their incidence is measurable from the outside but their systemic contribution
is unknown (Leblanc & Schwartz, 2004). Therefore, whether or not those recommendations of
structure and form are optimum for providing effective governance for an organisation is, for the time
being anyway, debateable, and could be even limiting practice (Ghoshal, 2005). Rather, if good
organisational governance is to be achieved (Pound, 1997), when governance is defined as effective
decision-making for good company performance, directors must be selected on the basis of how their
competencies and behavioural characteristics complement each other and how they enhance the
strategies an organisation has for achieving its purpose (vision) (Collins & Porras, 1994). Regulatory
agencies and other groups involved in establishing the framework of governance may find it
worthwhile to consider the mix of behavioural characteristics and the skills, aptitudes and capabilities
of directors within boards.
3. Data sources
During 2010 the researcher met with some 450 SME owners in New Zealand’s agricultural sector and
discussed with them the attributes of their businesses’ governance. Day-long workshops were hosted
by the country’s leading rural financier at 18 sites throughout New Zealand. Each workshop was
attended by about 20 - 30 business owners often accompanied by their business partners (spouses
and/or siblings). Business owners were specifically invited by their financier because they were either
pursuing a growth ‘strategy’, confronting family succession, considering exit or had recently diversified
their land holdings. In summary, they were considered to own businesses that would benefit from
more formal governance and were considered receptive to management learning (Burgoyne &
Reynolds, 1997).
The technique of enquiry learning (Siebert & Daudelin, 1999) was used to stimulate discussion among
participants by the researcher concerning the benefits, attributes, and implementation of formal
governance. In that respect the 18 workshops represented focus groups (Merton, Fiske, & Kendall,
1956; Wilkinson, 1998; Överlien, Aronsson & Hyden, 2005). Results were also captured by a mixed
method (Tashakkori & Teddlie, 2003) through written surveys on three occasions, and verbal and
physical acknowledgement in response to specific questions on others. The processes of critical
reflection (Schön, 1987) resulted in full participation at each workshop, and when conducted, a 100%
survey response rate was achieved.
Given the nature of participant selection there is the likelihood of bias. Those invited were considered
to be in need of more formal governance. Therefore, while there was no compulsion to attend there
was a heightened degree of receptivity to discussion. Relative to the population this sample was
expected to be better informed, more receptive to change, willing to learn, and more eager to
contribute than their peers having demonstrated those attributes to their financier. Therefore, any bias
is likely to favour the attributes of governance over the larger population of New Zealand farm
business.
256

4. Results
James Lockhart
The majority of businesses were held as companies, trusts or some combination of company and
trust (94%). The most common model was found to be one where the physical assets were held in a
family trust, with a company responsible for trade (72% of participants). The owner-operator as a sole
trader was found to be very rare (6% of participants). On rare occasions was third party equity capital
held by businesses, and equally rare were independent directors or other features of best practice
governance (including formal planning and reporting). Governance appointments external to family
members, as business owners, were often bestowed on ‘family’ accountants (21%) and ‘family’
lawyers (11%). The inherent conflicts of interest of having service providers in these appointments
was not recognised by the business owners. Nor was enhanced formality of process perceived
through their appointment.
Davis (2007) observed that the legal obligations of a family business are ‘few in number, but very
important’ (p. 1). In New Zealand, like most other ‘Western’ jurisdictions these are limited to an annual
company return, election of directors, and appointment of the auditor (Companies Act, 2010). In
practise, annual returns were reported to be completed online by either a company director/business
owner cum manager or by the company’s accountant (a highly automated task). No election of
directors was found to occur among participants as they were almost always appointed at the time of
the company’s registration, except when multiple generations of family were involved. Business
owners, through their role of shareholders were never observed to appoint an auditor (except perhaps
during patrimonial disputes), with one reported incidence among the 450 businesses involved.
Only rarely was a vision, or statement of purpose written down, occurred with some 10% of
participants. Formal planning was limited, and typically included nothing more than an annual
cashflow (23% of participants), and or production forecast (17%). Formal evaluation of financial
performance was also rarely undertaken. Changes in balance sheet position were noted from annual
tax accounts, and/or calculated from the value of land sales in close proximity. Debt positions were
reported by the financier on a monthly (current liabilities), or annual basis (term liabilities) leaving
reasonably simple calculations to be undertaken by the business owners.
5. Discussion
Numerous reasons were sighted by the workshop participants to justify the dominant form of business
structure. Trusts were still considered to be an appropriate vehicle for asset protection and tax
minimisation. While companies were seen as appropriate to limit risk from potential financial liability.
Seldom did workshop participants express the view that the business’s legal structure was adopted
with the purpose of business growth. Whether trusts provide the form of asset protection that they
may have once done, or tax minimisation among beneficiaries is debatable. New Zealand has, by
global standards, liberal matrimonial property law, and the beneficiary income of minors (U16) is now
taxed at company rates.
The governance structure of trusts and companies held by the workshop participants also displayed
consistent sub-optimal patterns. Outside of the providers of equity capital, typically the farming
couple, appointees as trustees or company directors were most often the farm family’s accountants
and/or lawyers. While the motivation for such appointments was recognisable, they are the two best
known ‘professionals’ to rural businessmen and women, it potentially sets up a conflict of interest that
needs to be managed. It would be highly irregular to find a corporate, or medium-sized business
where the company lawyer or accountant, or those of substantial shareholders sat on the company
board. A comparison of the typical governance attributes of the participant businesses with those
where governance is mature is presented in Table 1.
Governance is much more about effective decision making than it is about structure and form (Ward,
2004; Huse, 2007: Peebles, 2010). New Zealanders are notoriously poor at building great companies.
Few of the iconic companies established in the 19 th Century remain. As a nation business owners
appear to spend considerable time and entrepreneurial effort getting to ‘first base’; an entity with $4-
8m of equity; operational systems and processes; reasonable returns (in cash and wealth creation);
good employees; and, typically some form of local market presence. In the case of those rural entities
the equity base is often higher – as evidenced in this study, and it is the global market served, through
societal marketing boards (Izraeli & Zif, 1997) or farmer-owned cooperatives (Hansmann, 1996). At
the stage when the company should be transitioning from an entrepreneurial form to something more
257

James Lockhart
formal, with a formal – but not necessarily cumbersome - governance structure (see Figure 1) owners
appear to sell. The rural business involved in the study only rarely offered an alternate view, where
the linkage between governance and succession planning was at the point of being discussed. Rarely
was more formal governance considered to be related to business growth, the understanding sought
by the financier.
Table 1: Comparison of the governance attributes of 450 participating businesses with those of
mature governance
Rural SME Governance Mature Governance
1 Tightly-held ownership
Dispersed ownership
(founder, spouse, immediate family)
2 Founder control
(minimal constitutional arrangements)
3 Founder management
(no separation of governance and management
activities)
4 Informal decision-making
(generally intuitive)
(employees, non-family investors)
Board control
(written constitution protecting minority shareholder
rights)
Board management
(notional separation of governance from
management
Formal decision-making
(formal reporting to a decision-making board)
5 Individual decision-making Group decision-making
6 Few or no formal meetings Regular board and management meetings
7 Few records of meetings Formal meeting minutes
8 Centralised and intuitive direction and leadership Direction from a board through a CEO
(division of labour between governance and
management)
9 Highly flexible strategising
(often with spontaneous decision-making)
10 Intuitive policy-making
(few formal delegations and procedures)
Figure 1: The transition process from founder-lead to mature governance
258
Planned strategising
(formal planning, evaluation and control against
plans)
Identifiable policies and delegations
(written policies, delegations of authority and formal
procedures)

James Lockhart
Much is to be learnt from what formal governance (Carver & Oliver, 2002) has to offer SMEs. The
mere discipline of planning and reporting on performance, say quarterly, is suspected to be of benefit
to most of the rural businesses in this study. However, there remain considerable prejudices among
participants about what directors can and cannot do. Similarly, the rights and responsibilities of
shareholders did not appear to be especially well understood.
At the very minimum considerable value could be achieved by simply making the existing legal
entities operate in the way they were intended. This will include the recognition that companies are
the globes preferred vehicle for growth (Micklethwait & Wooldridge, 2003). However, the roles and
responsibilities of their shareholders, their directors, and their employees need to be considerably
better understood. Operationalising shareholders meetings, board meetings, and management
meetings was considered onerous by many of the participants involved.
6. Conclusions
We actually know little about governance. The relationship between good governance and
subsequent business performance has not been established. However, business failures, such as,
that explored by Lockhart and Taitoko (2005) typically reveal governance failure. Recommendations
for boards surround their structure and form. They could well be improved by addressing effective
decision-making for good company performance. In doing so they may better attract the attention of
SME owners.
In most SMEs and family businesses owners hold multiple roles, such as, director, trustee,
shareholder, beneficiary, general manager, and labourer. Immediate improvements could be achieved
by conducting roles in isolation of each other, one at a time. Exemplary companies, both in New
Zealand and abroad, regardless of scale, have all adopted formal governance processes of planning
and control. Therefore, some benefits appear to exist from the adoption of better governance.
Research should now attempt to identify whether causality exists between exemplary companies and
formal governance, ignored by Collins and Porras (1996).
SMEs in the agricultural sector in New Zealand, despite making a disproportionate contribution to the
economy, were found to be deficient in the most common attributes of business governance. While
this may not be harmful to business performance in the short term it does raise the question of missed
opportunities.
Acknowledgements
A graduate student, Alan Withy, influenced the design and some of the contents of Figure 1.
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261

From Reporting to Communicating: Debates on European
Union Environmental Policies Transposition at the
Microeconomic Level
Camelia Iuliana Lungu
Academy of Economic Studies, Bucharest, Romania
camelia.lungu@cig.ase.ro
Abstract: The purpose of this paper is to adapt the EU environmental policies at a microeconomic level and
carry out debates of possible impacts on companies’ activities. Based on the literature review the existing state of
the European Union's environmental policies is discussed. Further, a critical analysis for various aspects to which
they address and a debate of those aspects in the context of usefulness to stakeholders are conducted. The
stakeholders’ needs and requirements are the main determinants for companies to expend the unilateral
reporting process, creating support for the development of dialogic communication, as a tool for knowledge
transfer. The research questions are constructed around the idea of overcoming the one way approach of
companies’ reporting processes by pleading for a feedback-based communication. By developing the research
questions, the paper supports the idea that the two-way relationship: stakeholders – company provides
substance for environmental reporting and for the implementation of environmental policies at the required
European, national or international level. The research outlines a framework for the European Union's
environmental policies reporting to be adapted to the microeconomic level. Furthermore, in order to demonstrate
their usefulness, the transposition of environmental policies at a company’s level create the premises for
reconsidering management practices, moving towards green, knowledge-based and participatory issues. The
usefulness of the study lies in its target to fill the gaps and create bridges between institutional policies and
companies’ policies referring to the impact of the corporate activity on the environment.
Keywords: environmental policies, environmental reporting, dialogic communication, organisation
communication strategy
1. Introduction and research methodology
The trends characterizing the future of our society include expansion of knowledge, rapidly improving
information systems and environmental sustainability, with the rate of use of some renewable
resources exceeding sustainable yields. In the last decade, corporate social and environmental
responsibilities have risen to prominence as corporate social interests are increasingly recognized,
and the importance of environmental protection is globally accepted. Trends like these contribute to
the fact that companies need to be educated in managing organizational and individual change
(Hutchinson, 1996) by integrating their environmental policy with the business strategy.
The complex and dynamic nature of environmental problems requires flexible and transparent
decision-making that embraces a diversity of knowledge and values (Reed, 2008). To achieve this,
stakeholder participation is increasingly being sought and embedded into environmental decisionmaking
processes, from local to international scales (Stringer et al., 2007 in Reed, 2008). Based on
an analysis of 239 published case studies of stakeholder involvement in environmental decisionmaking,
Beierle (2002) concluded that more intensive stakeholder processes are more likely to yield
higher quality decisions.
Today’s main environmental challenges are systemic in character and cannot be considered in
isolation. The assessments of EU’s four environmental priority areas (climate change, nature and
biodiversity, use of natural resources and waste, and environment and health) point to a series of
direct and indirect links between environmental challenges. Most of the changes in the state of the
environment described here are ultimately driven by unsustainable consumption and production
patterns.
The paper focuses on the information dynamics between stakeholders and corporate managers,
addressing to the environmental disclosure decisions. Such concerns affect corporate responsibility
as managers attempt to legitimize the company’s environmental activities and to mitigate potential
negative consequences resulting from regulatory or legislative actions. In order to respond to
sustainability demands addressing environmental impact, this study has as research objective to
debate the possibility of repositioning the environmental reporting within a new, constructive
perspective. The papers’ research proposition is: Reporting environmental policies at microeconomic
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level must overcome the state of simply informing and must integrate communication strategies for
creating a dialog between company and its stakeholders.
This statement of the aim of the paper is based on a theoretical research, designed as a mix of
theories which link the environmental aspects of sustainability to communication strategies. It focuses
on detecting their meeting point and proposes to redesign the stakeholder theory by interfering it with
situational theory in order to introduce elements of communication strategy within corporate
environmental reporting.
What does environmental communication in general encompass? Cox (2010) respond to this question
by highlighting two main characteristics: environmental communication is both pragmatic, helping us
debate on environmental issues, and constitutive, in the sense that it can shape our vision of the
environment and current challenges. In today’s societies, environmental communication may be
considered as the foundation for establishing relationships between people and the environment and
as a means for enhancing environmental literacy and sustainable environmental practices.
This article provides a theory-based, strategic framework to facilitate a constructive achievement of
environmental goals of sustainability development for companies’ purpose. Considering that one of
the most ethically-grounded theoretical traditions to emerge in communication is dialogue, the paper
introduces the use of dialogic communication as a theoretical framework to guide relationships
between companies and their stakeholders. A number of communication strategies are provided for
companies to create dialogic relationships with stakeholders using the internet tool.
Companies understand the importance of responding to pressure from stakeholders (Friedman and
Miles, 2002) to help improve their competitive posture; however, they also need to manage the many
perspectives and conflicting interests of their stakeholders, which require them to develop specific
capabilities to manage these pressures (Rueda-Manzanares et al., 2008).
To respond to the pressures of adopting environmental practices, the importance of company’s
communication to its stakeholders, using alternative support, such as internet is stressed. For
companies, web sites provide a controlled channel through which they can communicate with the
stakeholder publics and the media. For stakeholders, web sites provide a channel through which
organizations can be viewed and better understood (Kent et al., 2003). Theorizing researches
suggest that the internet may facilitate more balanced organization – public relationships (Coombs,
1998) and increased participation of citizens in community life. Companies will manage perceived
environmental legitimacy by signalling to the stakeholders that their behaviour is appropriate and
desirable and, at the same time, to react to public pressures by adapting the level, content and quality
of their environmental information dissemination processes (Aerts and Cormier, 2009).
2. Integrating environmental policy in business strategy
The starting point of this paper is the Sustainable Development Strategy of the European Union that
reaffirms the importance of assessing the impact of a policy, where it’s social, environmental and
economic dimensions, taking both into account, the external impact and the cost of disregarding such
action. EU environmental policies were incorporated in the 6th Environment Action Programme
(6EAP) through the consideration of certain issues mainly related to the EU’s role in global
environmental governance. In the year 2010, the EU 2020 Strategy reconsidered the existing general
requirements expressed in the Lisbon Strategy adopted in 2000. The purpose was to turn Europe into
the most competitive and dynamic knowledge-based economy in the world. More practical
requirements were introduced, such as highlighting environmental sustainability and social aspects.
In the recent Europe 2020 Strategy the Commission underlined resource efficiency as one of the
objectives. It is more important to focus on the environmental impacts of over-use of natural resources
not only because company’s economic performance depends on this natural capital, but also the
market will more likely fail to react quickly or appropriately. The sustainable use of resources is central
to managing social problems, environmental damage and economic scarcity (EEA, 2010) and it must
be the central objective for environmental policy and for integrating it into all other policy areas. At the
macroeconomic level, one of the environmental policy objectives of the 6 th EU’s Environmental Action
Programmes (6EAP) is: “aiming at ensuring that the consumption of resources and their associated
impacts do not exceed the carrying capacity of the environment.” It was repeated in the EU
Sustainable Development Strategy of 2006: “Promoting sustainable consumption and production by
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addressing social and economic development within the carrying capacity of ecosystems and
decoupling economic growth from environmental degradation.” This is especially true now that
protection of the environment requires increasingly fundamental changes in our economic and social
practice. However, there has been seen little progress in companies’ practice.
The 6th Environmental Action Programme (6EAP) runs till mid 2012. The four priorities for the years
2002 to 2012 are climate change; nature and biodiversity; environment, health and quality of life; and
natural resources and waste. EU should, with the future programme, 7 th EAP, renew and start
coherent commitments for specific environmental policy interventions, as well as thematic strategies
and actions in a number of other priority fields. The instruments to reinforce environmental policy
should refer to: legal, market mechanisms-based and good governance mechanisms-based.
Companies can promote environmental policy integration by changing their internal culture and
practices, and by developing policies or approaches that support integration when policies are being
implemented. The perceptions of society and specific stakeholders are also important, as is their
ability to influence or inform policy-making and implementation.
The initial goal of increased environmental reporting was simply to demonstrate a company's
commitment to the environment. The environmental report demonstrates, first, the degree to which a
company has accepted responsibility for environmental impacts caused by its products and
production processes, second, the increased openness towards stakeholders and, finally, the
importance of strategic environmental management (Owen, 1992). Further wider ranging objectives
may also be attributed to the environmental report, including the acknowledgement of a shared
responsibility for the state of the environment, to differentiate the organization from its competitors, to
obtain social approval for operating practices, and perhaps most commonly, to demonstrate
regulatory compliance (Azzone et al., 1997). Environmental reports serve as a tool to change external
perceptions and to instigate dialogue with stakeholders both inside and outside the company. Open
and honest, relevant and well-targeted environmental communications can contribute to increasing
employee motivation, improving company or brand reputation, strengthening credibility, and building
trust and long-term competitive advantage.
3. Communicating to stakeholders by internet: Debate of a possible signalling
strategy for environmental reporting
Stakeholder theory (introduced by Edward Freeman in 1984) posits that there are a variety of
strategic publics that can influence an organization. Situational theory (introduced by James E. Grunig
in 1966), resource dependency theory (introduced by de Jeffrey Pfeffer and Gerald Salancik in 1978),
and dialogic theory (seldom associated to philosopher Martin Buber) all help explain the complex
relationships between organizations and publics. Cozier and Witmer (2001) have extended situational
theory to the Internet and have shifted the focus from publics organized around organizations and
their problems to a realization that publics are formed and reformed, through mediated communication
behaviours. Several organizational communication theories help to explain the dynamics of
organizational response to stakeholders in general and organizational responsiveness through the
internet communication channel, more specifically. Organizations that can create an identification
between themselves and their publics increase the likelihood that publics will turn to that organization
(a source with which they identify) for guidance (Kent et al., 2003).
Within our proposal the organizations are the companies that report on environmental aspects of their
activity, while the public is represented by the stakeholders. The paper supports the involvement of
company’s strategy in selecting the targeted stakeholders by using communication efforts, and by
creating the right messages. Any company’s stakeholders have specific information needs and enact
specific communication behaviours. Companies are employing a range of different communication
channels to inform and interact with stakeholders on their environmental responsibility and
sustainability strategies. Through communication, companies are attempting to ensure the
stakeholders that they manage their sustainable activities beyond the shareholders’ interests, in areas
of environmental conservatism, corporate compliance, and social contribution. Thus, companies may
use such communication in order to influence stakeholders’ image on the company and may turn on
their favour what stakeholders see as important or less important in relation to environmental aspects.
Based on the literature research regarding the relationship between stakeholders and organizations,
the following research questions are formulated:
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Which stakeholder is the most valued by corporations in terms of meeting stakeholders’
expectations or needs?
What kinds of needs or expectations of each stakeholder were mostly frequently used on the
corporations’ web sites as a part of building the company – stakeholder relationships?
How stakeholders react to information?
How stakeholders perceive the environmental problems and how committed are they to
environmental issues?
Signalling theory suggests that profitable companies have the incentive to distinguish themselves
from less successful ones to raise capital at the lowest possible cost. Voluntary disclosures of
corporate social and environmental information can be one way to achieve this, considering that
stakeholders are generally thought to perceive the absence of voluntary disclosure as an indication of
bad news about the company (Joshi and Gao, 2009).
Until a few years ago, most information, environmental or otherwise, was disclosed through traditional
media or through intermediaries but it was limited by the uncertainty of reaching the intended target
and by the high cost. The rapid development of the internet has led companies to reconsider their
reporting strategies as it offers much more flexibility than traditional means for both the presentation
and content of reporting, and allows disclosing far more information than is possible through
traditional methods (Aerts et al., 2008). Identifying stakeholders that react to environmental aspects is
a main concern for companies as they determine and select the most important issues and demands.
Online interaction can change the whole picture. Previously powerless groups of stakeholders may no
longer be ignored because the internet has changed organization stakeholder dynamics (Coombs,
1998).
Currently, one of the strengths of the internet communication is its ability to unite publics, or to help
individuals recognize that they share interests with others. Because of its public nature, online
communication provides an excellent opportunity for an analysis of varied communication within a
diverse group of organizations (Kim et al., 2010). Internet communication has changed power
dynamics and become a crucial tool for companies (Taylor et al., 2001). In a short time, the internet
has become an essential tool for organizational communication (Stuart and Jones, 2004; Sullivan,
1999).
In order to debate possible answers to the questions raised in the former paragraph of this paper, we
introduce in discussion the type of environmental communication, defined by Cox (2010) as
“pragmatic and constitutive for our understanding of environment as well as our relationship to the
natural world; it is the symbolic medium that we use in constructing environmental problems and
negotiating society’s difference to them”. The pragmatic aspect of environmental communication can
be used to educate stakeholders with the aim of helping them find solutions. The constitutive part of
environmental communication helps companies to create symbols or depiction of environmental
aspects as the subject of stakeholders’ understanding.
Stakeholders see a company’s websites as a key source of information on the corporate responsibility
activities. As a dialogic medium, the internet is viewed by Christians (1990) socially responsible
because it: respects the dignity of human work, needs little specialized training to operate, is generally
accessible to the public, and empathizes personal satisfaction and ingenuity in its use. Meanwhile the
internet is a dialogical tool because it maintains open-ended conversation with their users and
conforms to the desires and purposes of the users, rather than transform human desires to fit the
shape of the tools.
Over the past years, the importance of online communications as part of an integrated environmental
communications strategy has grown significantly (Maanavilja and Hyder, 2009). The reality shows that
companies are currently not making full use of the possibilities offered by internet-based
environmental communications. For responsible companies the issues related to reporting
environmental aspects of their activity are of great importance. In their study, Capriotti and Moreno
(2007) show that the corporate websites of the companies have a very low interactivity level in
connection with issues related to sustainability aspects. The websites assume a mainly unidirectional
function, focusing on the presentation of the information content. Although best practices are
emerging, there are significant opportunities for improving environmental communications.
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In this respect, this paper proposes to adapt the environmental reporting activity of any company
towards a dialogic communication with stakeholders, by using the internet as an integrated, engaging
and transparent communication tool.
4. Adapting dialogic environmental communication from company –
stakeholder relationship perspective
Companies are in a very initial phase of interaction or dialogue with their publics, considering that the
resources used to present the information are mainly expositive, and the feedback resources
available are minimal. They are focusing primarily on the dissemination of information, rather than
favouring dialogue and interaction with their stakeholders. As suggested by Cozier and Witmer (2001)
the creation of aware stakeholders is facilitated by organizational communication and through
mediated communication channels such as the internet. At present time, the researchers’
recommendations to incorporate two-way (dialogic) communication channels (Kent et al., 2003) into
managerial strategies are not yet representative. One limitation on the creation of dialogue is
interactivity. The concept of interactivity, or responsiveness to stakeholder information needs, is
crucial to relationship building and is the mainstream proposal of this article. Most companies fail to
effectively maintain open channels of communication with stakeholders.
Therefore, this paragraph proposes a debate that incites companies to introduce a
bidirectional/dialogic approach for issues related to environmental reporting. Thus, by using the
internet as communication channel, companies may offer possibilities for feedback, to their
stakeholders. The development of web technologies and corporate websites introduces new
opportunities for two-way dialogue with different stakeholder groups. Even if the internet cannot
replace traditional forms of stakeholder engagement, its tools such as interactive surveys, webchats,
wikis, blogs and social networks can be extremely useful in enabling companies to enhance the
interaction with existing stakeholders (Maanavilja and Hyder, 2009).
The concept of dialogic theory is often associated with the philosopher Martin Buber (Kent and Taylor,
1998). Buber viewed human communication as an intersubjective process in which parties come to a
relationship with openness and respect. Dialogue is the basis for that relationship. Buber's conception
of dialogue focuses implicitly on ethics. That is, for a dialogic relationship to exist, parties must view
communicating with each other as the goal of a relationship. Another author, Habermas (1984) relies
on the framework of dialogue to examine communicative ethics. For Habermas (1990), dialogue
occurs when parties agree to coordinate in good faith their plans of action. Inherent in Habermas'
conception of dialogue is a belief that ethical communication cannot be dominated by one party. Thus,
dialogue involves a cooperative, communicative relationship.
To facilitate a practical debate, discourse mechanisms need to be developed. This will permit an easy
and unbiased communication between a company and its many different stakeholders, and will
provide transparency in communication (and thus debate) between stakeholders. New technology, in
the form of the interactivity and wide reach of the internet, might offer such a potential forum for
democratic debate (Unerman and Bennet, 2004). Organizations employ a variety of communication
mechanisms in their attempts at overcoming the difficulties of identifying, reaching and engaging in
dialogue with a wide range and large number of stakeholders (Swift et al., 2001). The internet is one
such mechanism which has been seen as useful because of the large number of stakeholders who
can potentially be reached at relatively little marginal cost, and because of the interactive
communication facilities embodied within it (SustainAbility, 1999). Ovaitt (1995) viewed the Internet as
a great public relations opportunity for one to talk to customers and other audiences directly and get
equally direct feedback. Without a dialogic loop, the communication between company and
stakeholders using the internet becomes nothing more than a new monologic communication
medium, or a new marketing technology (Kent and Taylor, 1998). The internet provides companies an
opportunity to create dynamic and lasting relationships with their stakeholders.
Although internet stakeholder dialogue may give previously unheard stakeholders a voice in the
determination of corporate responsibilities, it may ignore the views of many stakeholders upon whom
corporate actions might have a significant impact. One way in which corporations have used the
internet to extend corporate accountability mechanisms is through the development of stakeholder
dialogue forums. Companies claimed that stakeholders can openly discuss aspects of corporate
social, environmental, economic and ethical responsibility and accountability (Unerman and Bennet,
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2004) on these forums. Therefore, they need to be used in conjunction with other forms of
stakeholder dialogue, targeted at economically weak stakeholders.
In this respect, the paper highlights some ideas to support the use of the internet resources in order to
facilitate the stakeholders’ feedback and to create a dialogic communication between the company
and its stakeholders:
Stakeholders may be able to easily contact the company and provide feedback by e-mail or
through online feedback forms, and by that, facilitating conversation around company’s
environmental policy;
Companies may design online tools such as surveys, discussion forums and webchats not only
for collecting feedback on reports, but also for the ongoing process to identify issues of concern
and understand stakeholders’ opinions;
Companies may use interactive surveys to find out the stakeholder views on key environmental
issues;
Companies may gather comments and questions that users post in and provide answers on a
dedicated FAQ page or by publishing stakeholder views on their environmental performance or
reporting;
Companies may create live webchats as the most interactive and spontaneous type of online
dialogue;
Companies may capture the conversation (webchat transcript and supporting materials such as
slide shows, videos or background articles) and make it available on the website, allowing people
who were not able to participate to join the discussion afterwards;
Companies may create blogs on environmental aspects and practices, offering an opportunity to
connect with stakeholders in a potentially more personalized, transparent and interactive way
than classic reports;
Web 2.0 communication tools, such as online communities, social networking sites and wikis may
facilitate informal interaction between the representatives of the company and relevant
stakeholders as well as between different stakeholders.
In the media dominated world of today, non-traditional media such as social media including Twitter,
Facebook, bloggers, or internet-based news providers play a key role in shaping and moving
information very quickly, informing the public, influencing public opinion and in setting public agendas.
5. Conclusion
A conclusion that can be drawn from this study is that environmental communication must focus on
knowledge transmission designated to change the behaviour of stakeholders. The goal of the
communication is to demonstrate that the company is engaged in responding to environmental
issues. Adapting to environmental perspective, one way of enhancing sustainable behaviour among
the stakeholders would be by coming up with a goal of the communication, identifying the barriers that
inhibit them from engaging in sustainable behaviour, designing a strategy and tools to use in order to
communicate with people in such a way that they will likely accept the new behaviour. To achieve its
goal, the company has to come up with key messages that are meant to be intertwined in all
communication that goes out to the stakeholders. In term of environmental protection the key
message should emphasize the collective responsibility of the company and the stakeholders and
hence everyone should feel responsible of preserving and conserving the environment. Another key
message that the organization should send to stakeholders is that company’s environmental policies
are not meant to hurt the economic development but to promote sustainable growth.
In accordance with the strategic approach to environmental responsibility, this paper supports the
idea that companies may create a competitive advantage by using dialogic communication media in
its most updated facet: the internet communication. The future of corporate sustainability reporting lies
in a shift from reporting to communicating, in order to engage, learn and integrate environmental
communications into mainstream corporate communications. As a result, companies are increasingly
employing a range of different communication channels to respond to diverse stakeholders needs.
The internet tool is most likely to underpin the diversified existing communication options as it offers
flexible opportunities for information sharing and interaction with stakeholders. Internet
communication can include the personal touch that makes public relations effective, being one of the
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Camelia Iuliana Lungu
only ways to reach traditionally isolated stakeholders. The achievement of environmental
communication at the microeconomic level using the internet may lie in understanding the dialogic
communication.
Acknowledgments
This paper is part of a research project PN II/2008, Research regarding reassessment of financial
reporting in the light of risks and uncertainties generated by contingent social and environmental
factors, ID 1819, granted on the base of the national competition conducted by National University
Research Council (CNCSIS) within Romanian Ministry of Education.
References
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Organizations and Society, Vol 34, no.1, pp 1-27.
Aerts, W., Cormier, D. and Magnan, M. (2008) “Corporate environmental disclosure, financial markets and the
media: An international perspective, Ecological Economics”, Vol 64, no.3, pp 643-659.
Azzone, G., Brophy, M., Noci, G., Welford, R. and Young, W. (1997) “A stakeholders’ view of environmental
reporting”, Long Range Planning, Vol 30, no.5, pp 699-709.
Beierle, T.C. (2002) “The quality of stakeholder-based decisions”, Risk Analysis, Vol 22, pp 739–749.
Buber, M. (1947) Between man and man, London: Kegan Paul. Trans. R. G. Smith
Capriotti, P. and Moreno, A. (2007) “Corporate citizenship and public relations: The importance and interactivity
of social responsibility issues on corporate websites”, Public Relations Review, Vol 33, no.1, pp 84-91.
Christians, C.G. (1990) “Social responsibility: Ethics and new technologies”, in Johannesen, R.L. (1990) Ethics in
Human Communication, Prospect Heights, Waveland.
Coombs, W.T. (1998) “The Internet as potential equalizer: new leverage for confronting social irresponsibility”,
Public Relations Review, Vol 24, no.3, pp 289-304.
Cox, R. (2010) Environmental Communication and the Public Sphere, Sage, Thousand Oaks.
Cozier, Z.R. and Witmer, D.F. (2001) The development of a structuration analysis of new publics in an electronic
environment, in: Heath, R.L. and Vasquez, G. (Eds.), Handbook of Public Relations, Sage, Thousand Oaks,
pp 615-623.
EEA (2010) The European environment — state and outlook 2010: synthesis, European Environment Agency,
Copenhagen.
Freeman, R.E. (1984) Strategic Management: A Stakeholder Approach. Boston: Pitman.
Friedman, A.L. and Miles, S. (2002) “Developing stakeholder theory”, Journal of Management Studies, Vol 39,
no.1, pp 1-21.
Grunig, J.E. (1966) “The role of information in economic decision making”, Journalism Monographs, No. 3, pp. 1-
51.
Habermas, J. (1984) The theory of communicative action, Vol. 1: Reason and the rationalization of society,
Beacon Hill Press, Boston.
Habermas, J. (1990) Moral consciousness and communicative action, MIT Press, Cambridge.
Heath, R.L. and Vasquez, G. (Eds.) (2001) Handbook of Public Relations, Sage, Thousand Oaks.
Hutchinson, C. (1996) “Integrating environment policy with business strategy”, Long Range Planning, Vol 29,
no.1, pp 11-23.
Joshi, P.L. and Gao, S.S. (2009) “Multinational corporations' corporate social and environmental disclosures
(CSED) on web sites”, International Journal of Commerce and Management, Vol 19, no.1, pp 27-44.
Kent, M.L. and Taylor, M. (1998) “Building dialogic relationships through the world wide web”, Public Relations
Review, Vol 24, no.3, pp 321-334.
Kent, M.L., Taylor, M. and White, W.J. (2003) “The relationship between web site design and organizational
responsiveness to stakeholders”, Public Relations Review, Vol 29, no.1, pp 63-77.
Kim, S., Park, J.H. and Wertz, E.K. (2010) “Expectation gaps between stakeholders and web-based corporate
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Leal, W. and Borner, J. (2005) Communicating sustainable development: A practical guide for communications
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Maanavilja, L. and Hyder, L. (2009) Trends and best practice in online CSR/sustainability reporting, A CSR
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685-707.
269

Toward a new Conceptual Model of Management and
Leadership Competencies and Their Impact on
Organizations’ Performance
Xavier Martin
ESSEC Business School, Paris, France
xmartin@phormaction.com
Abstract: Management has long been considered in terms of competencies, whereas Leadership is still mainly
defined in the literature in terms of traits and behaviors. This conceptual article first aims at defining management
and leadership characteristics, roles and competencies to clarify their difference and their complementarily. Then,
a parallel is drawn with the transactional and transformational leadership theory to propose new measures. Also,
a set of complementary management and leadership competencies are identified, and suggestions are made
concerning their specific impact on organization’s performance, using the Balanced Score Card (human
resources, processes, customer and finance outcomes).
Keywords: management competencies, leadership competencies, organization’s performance
1. Introduction
Currently, there is a lot of academic literature on Leadership, but some issues are still pending; (1)
“Most empirical studies fall into distinct lines of research such as traits, behaviors, power, and
situational approaches” (Yukl 2010 p 41), overlooking at competencies, which are also involved in
leadership. (2) the nature of the link between management and leadership is still a point of
disagreement. Hence, one of the most popular approaches of leadership is the dichotomy between
transactional and transformational leadership (Bass 1985), does not clarify the link with management,
(3) how management and leadership impact specifically performance is not still clear and (4) a global
leadership framework is still work in progress (Yukl 2010). The objective of this article is to clarify the
difference between management and leadership competencies, whereas it will suggest their
complementary impact on organizations’ performance.
2. Definitions of management and leadership competencies
Some experts propose that both leadership and management are qualitatively different and mutually
exclusive (Bennis & Nanus 1985). Others view leading and managing as distinct processes, but they
do not assume that leaders and managers are different types of people (Bass 1990, Mintzberg 1973);
this approach has been selected in this paper, because even though their definition, characteristics
and roles are different, they can be encompassed by the same person.
Management: has been defined as “an authority relationship that exists between a manager and
subordinates to produce and sell goods and services” (Rost 1991). This definition stresses the line
authority that exists between a manager and subordinates, and the central importance of objectives in
the the management process (setting, coordinating and controlling) in the manager role.
The “New Leadership School” differentiates management from leadership (Kotter 1999, Bennis and
Nanus 1997). At a conceptual level, both are about power in organizations; the management is an
authority (delegated by the top management) whereas leadership is a capacity of lateral influence.
Rost (1991) stated that managers might be leaders, but only if they have this type of influence
relationship.
Leadership: according to Yukl 1989 most definitions of leadership involve a process of influencing.
Notwithstanding, some definitions specify the relation between a leader and follower (Bass 1999) and
a multidirectional influence relationship between a leader and followers with the mutual purpose of
accomplishing real change (Rost 1991). In order to articulate it against management, leadership can
be defined as influencing without authority within an organization.
Complying with the characteristics and fulfill the role, managers and leaders need to demonstrate
different competencies.
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Xavier Martin
Competencies: Most leadership studies have considered traits, skills and behaviors. However, all
these themes constitute parts of the leadership; traits are mainly innate, i.e. we are born with it;
behaviors are outcomes, i.e. the demonstration of innate and acquired factors in a given environment.
Other elements to consider are skills and competencies; the difference between skills and
competencies is hard to be defined. Like traits, skills are determined jointly by learning and heredity
(Arvey and al 2007). In this paper, we focus on the competencies of managers and leaders.
Competencies can be defined as “ a set of integrated information about a certain field of knowledge,
plus a recognized and proven experience of the practical application of this knowledge” (Darmon
2007 p 8). Accordingly, competencies are a combination of aptitudes, knowledge and experience,
whereas skills are a combination of aptitudes and knowledge (Darmon 2007). Yet, all these elements
can be acquired in management as in leadership. Corresponding with this view, competencies should
be considered in a global leadership framework.
One of the most used leadership models (Bass 1985) contrasts transactional and transformational
leadership. Burns (1978), sees that the transactional leader is given power to perform certain tasks
and reward or punish depending on the team's performance; Hence, the manager lead the group and
the group agrees to follow his lead to accomplish a predetermined goal in exchange for something
else. According to Burns (1978), the transformational leader motivates his/her team to be effective
and efficient. Communication, on the other hand, is the base for goal achievement, focusing the group
on the final desired outcome or goal attainment. Even though this transactional theory is widely
spread, still “new methods need to be created for measuring transformational and transactional
leadership” (Bass 1999 p23). Indeed, the management and leadership competencies approach can
contribute to that.
Table 1 shows the differences between roles and characteristics of Managers and Leaders.
Table 1: Management and Leadership characteristics and roles
Management characteristics Leadership characteristics
Assigned
Takes initiative
Maintain
Develop
Short Term
Long Term
Focus on past
Focus on future
Focus on performance
Focus on competencies
Management role (objectives) Leadership role (behaviors)
Planning
Organizing
Coordinating
Controlling
Change Management
Networking
Emotional intelligence
Building competencies
3. Management competencies
Many taxonomies of management competencies have been proposed; yet, a widely accepted one
uses three broad categories; technical, interpersonal and conceptual skills (Yukl 2010). An extensive
research conducted with 10 000 managers using the Managerial Position Description Questionnaire
(MPDQ) defined nine managerial responsibilities (Page & Tornow 1987). Linking these to the core
definition of management, four competencies are basic requirements to fulfill the role: planning,
organizing, coordinating, and controlling (Thietart 1999). The tasks and contribution of managers
include setting objectives, organizing, motivating and communicating, measuring and developing
people (Mullins 2007 p418). These competencies are linked to the planning, organizing, coordinating
and controlling manager role.
Planning: the process of planning is “examining the future, deciding what needs to be achieved and
developing a plan of action” (Mullins 2007 p 415). Competencies include translating organization
goals into team and individual objectives.
Organizing: corresponds to “providing the material and human resources and building the structure to
carry out the activities of the organization” (Mullins 2007 p 415) or even making optimum use of the
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Xavier Martin
resources required in order to enable the successful carrying out of plans. Competencies include
develop policies and procedures, delegating and allocating resources.
Coordinating: is “Unifying and harmonizing all activities and effort of the organization to facilitate its
working and success” (Mullins 2007 p 415); globally, coordination is concerned with communication
and motivation. Competencies: at the team level, managers make sure that each person acts at the
right place at the right time, communicate the strategy and the objectives, train and motivate
individuals to achieve their objectives.
Controlling: can be defined as “verifying that everything occurs in accordance with plans, instructions,
established principles and expressed command” (Mullins 2007 p 415). Competencies therefore
include: controlling of the individual performance and outcomes, providing feedback and evaluating,
rewarding, as well as tracking productivity and effectiveness.
Accordingly, a parallel can be made between these management competencies and transaction
leadership competencies. Burns (1978) urges that power is given to the leader to evaluate, correct
and train subordinates when productivity is not up to the desired level, and reward effectiveness when
expected outcome is reached. Some scholars identify three dimensions of transactional leadership,
which are contingent reward, active and passive management by exception (Judge and Piccolo
2004). So, even though both definitions include evaluation and reward, the management
competencies proposition is more global than the pure transactional leadership and can therefore
include more competencies linked to the four aspects of management.
4. Leadership competencies
Over the last fifty years, different leadership approaches have been explored, whereas recently, the
integrating conceptual framework of leadership is proposed (Yukl 2010 p493). In this framework,
leadership behaviors are outcomes, influenced by four variables (leaders traits, leader power,
situation and intervening variables). Additionally, leadership competencies can also be considered as
antecedents to leadership behaviors, because they represent the acquired dimension of leadership,
complementary to traits (innate aspect of leadership). From an individual point of view however, best
leaders have innate abilities, as well as developed competencies.
The need for leadership competencies comes mainly because of environment and organizational
changes affecting organizations. This is corresponding with the fact that a changing environment
forces companies to constantly evolve. Mullins (2001) insists that this will happen through employees
willing to adapt, learn new competencies, and adapt their behaviors. In this regard, many companies
adopt a matrix structure, in order to cope with complexity, which, in turn calls for more lateral
communications, and people been able to influence without authority.
Even though, whereas the management is focusing on established past experience and successes,
leadership, however, has been such a response to the rapid changing environment. In this context,
the knowledge, traits, behaviors and competencies could be different, if complementary (see Table 1).
Since the need for more leadership in organizations comes from the necessity to adapt more rapidly
to changing environments, leadership competencies focus on helping the organizations to adapt and
change. The leadership competencies are linked to the leader roles: change management,
networking, emotional intelligence and building competencies.
Change management: “Leading change is one of the most important and difficult leadership
responsibility” (Yukl 2010 p296). Since change happen through people, “evidence overwhelmingly
suggests that the most fundamental problem in all of the stages is changing the behavior of people”
(Kotter 2002 p 6). A leader has, in terms of competencies, to support individuals to coping with
change, sharing a vision, creating alignment and get buy-in.
Networking: As organizations become more complex (matrix organizations), more interactions are
required outside authority lines, whereas “the ability to assemble a coalition of internal and external
supporters is especially important to make innovative changes and ensure that they will be
implemented successfully” (Kanter 1983). Leaders, consequently, have to use network strategically
by analyzing their networks, planning actions, and negotiating with other stakeholders. This is
corresponding, even though, with influencing without authority.
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Xavier Martin
Emotional intelligence (EI): Salovey and Mayer (1990) defined EI as “the subset of social intelligence
that involves the ability to monitor one’s and others’ feelings and emotions, to discriminate among
them and to use this information to guide one’s thinking and actions” (Salovey and Mayer 1990
p.189). Goleman (1995) urges that emotional intelligence is relevant for leadership effectiveness in
many ways. Recently, an increasing number of scholars have argued that EI is a core variable that
affects the performance of leaders (Sterberg 1997). Salovey and Mayer (1990) identified four
dimensions: self-emotional appraisal, others’ emotional appraisal, regulation of emotions and use of
emotions.
Building competencies: can be defined as “the process of change in thought and action-both
individual and shared-embedded in and affected by the institutions of the organization” (Crossan et al
1999). Even though, dramatically, “the requirements of leadership have changed so dramatically, and
most development models are ill-suited for these changing requirements” (Charan et al 2011).
Therefore, as a critical point, leaders have to learn and help people to learn though coaching, creating
learning opportunities and communities and reward learning.
Consequently, a link can be made between leadership competencies and the transformational
approach. In transformational leadership research, the leader is highly visible and uses chain of
command to get the job done. Transformational leaders focus on the big picture, needing to be
surrounded by people who take care of the details. The leader is always looking for ideas that move
the organization to reach the company's vision (Burns 1978). Another approach proposes four
dimensions for transformational leadership, which are charisma, inspirational motivation, intellectual
stimulation and individualized consideration (Judge and Piccolo 2004). Intellectual stimulation can be
linked to building competencies, individualized consideration associated with Emotional Intelligence,
charisma is more of a trait, and motivation in the present model is considered a management
competency.
A meta-analysis revealed that “transformational and transactional leadership are so highly related that
it makes it difficult to separate their unique effects” (Judge and Piccolo 2004). This paper proposes
distinct management and leadership competencies (see summary in Table 2), which could help in
differentiating the two concepts and identifying their specific impact on organizations’ performance.
Table 2: Examples of management and leadership competencies
Management Leadership
Setting objectives
Delegating
Motivating
Feed-back
H1 Management and leadership competencies are different constructs
5. Impact on organization’s performance
Empathy
Negotiation
Getting buy in
Coaching
Historically, performance has been measured in terms of financial quantitative outcomes. Darmon &
Martin (2011), in a recent article suggested that specific management practices drive more short term
performance (quantitative financial outcomes) whereas others encourage more long term
performance (qualitative relational). Focusing on the fact that management is more concerned with
tasks and objectives, whereas leadership regarded behaviors, their impact on organization’s
performance could be different. However, according to Carlile & Christensen (2005), there have been
few efforts to classify key variables associated with organization effectiveness. Even though, a few
taxonomies of outcomes have been published in the recent years (Day 2001). Perhaps the most
widely performance measure used in business organizations is the Balanced Score Card (BSC)
(Kaplan & Norton 1996), which goes beyond summary financial measures; It captures the critical
value creation activities created by skilled, motivated organizational participants. While retaining, via
the financial perspective, an interest in short term performance, the BSC clearly reveals the value
drivers for superior long-term financial and competitive performance (Kaplan & Norton 1996 p8).
Additionally, it distinguishes among financial, productivity, customer and human resources outcomes.
These outcomes are linked, even thoug, will be impacted differently by management and leadership
practices.
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Xavier Martin
The first measurement, the human resources dimension is concerned with competencies, motivation,
empowerment and alignment. Measures of performance can include the number of new
competencies acquired, increasing the level of competencies, level of empowerment of employees,
their motivation and satisfaction. Since leadership is more concerned about people and the future,
whereas management is more concerned with productivity, it can be assessed that leadership
competencies will affect the human resources performance more that management competencies.
H2 leadership competencies have a more positive correlation with human resources outcomes
than management competencies.
The second measure of performance, the processes, is focusing on quality, continuous improvement
and improving techniques and processes. Performance measures include reducing errors, quality
improvements, and waste level… Total Quality Management can be perceived as a management tool,
since it is about improving existing methods and process, whereas leadership will use tools like
reengineering to better fit the future. Therefore, management competencies should affect the
processes performance more than leadership competencies.
H3 management competencies have a more positive correlation with processes outcomes than
leadership competencies
The customer dimension of performance is focusing on the impact on the customer i.e. satisfaction,
loyalty, retention rate, image, new customers, which can be used as measures. Management is more
concerned with achieving short-term results, when leadership focuses on building trust and long-term
relationships through satisfied and involved employees and customers; leadership competencies
should affect customers performance more than management competencies.
H4 leadership competencies have a more positive correlation with customer outcomes than
management competencies.
The most macro measure of organizations’ performance is financial results, which are a consequence
of the other three outcomes (human resources, processes and customer). This performance,
consequently, can be measured by growth, profit, margins, market share, and share value. The
healthiest organizations are those, which build on short-term performance through management, and
sustainability through leadership; financial performance is then achieved through both management
and leadership competencies.
H5 financial outcomes are positively correlated to both management and leadership
competencies
The variables and hypotheses are presented in Figure 1.
6. Conclusion
Changes in environment and organizations call for new competencies, which are different from the
historical management competencies. This conclusion is in line with the documented theory of
transactional and transformational leadership because “Transforming leadership fits very nicely with
our description of leadership, not management. In contrast, the notion of transactional leadership has
characteristics of both leadership and management”. (Betts and Santoro 2007 p3).
This paper articulates with defining specific management and leadership competencies, whereas
attempting to position them as complementary in achieving organizations’ outcome performance.
This could indeed assist in finding better measurements of the transactional/transformational
leadership approaches as well as clarify the unique contribution of management and leadership in
organizations. Also, considering leadership competencies as an antecedent to leadership behaviors
may help to complete a global leadership framework, because leadership is about the innate but also
the acquired.
For practitioners, this proposed framework could be useful to identify the critical competencies
needed in their teams, assess and develop individuals to better achieve organizations’ outcomes.
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Planning
Organizing
Coordinating
Controling
Change
Management
Networking
Emotional
Intelligence
Building
Competencies
Xavier Martin
Management
Competencies
Leadership
Competencies
Financial
Performance
Customer
Performance .
Process
Performance.
Human
Resources
Figure 1: Conceptual framework
Additionally, for academics, a previous proposed integrated model (Yukl 2010) considered traits,
power, situations and intervening variables as antecedents to leadership behaviors; considering
leadership competencies could complete the framework by taking into account not only the mainly
innate traits perspective, but also the mainly acquired leadership competencies.
7. Future research
This framework of leadership proposes a list of leadership competencies as complementary to
management competencies and speculates on their impact on organization’s performance. These
hypothesizes should be tested empirically. Therefore, this empirical research should take into
consideration the management and leadership level of the sample; more senior people would need
more strategic competencies, whereas more front line managers and leaders would need more
operational competencies.
Also, some intervening variables could be considered, as subordinate, task, and organization
characteristics.
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276

The Impact of Quality of Bureaucracy on Governance
Performance: A Comparative Study in Balkan States
Ani Matei and Lucica Matei
National School of Political Studies and Public Administration, Bucharest,
Romania
amatei@snspa.ro
lmatei@snspa.ro
Abstract: The interaction between the degree of administrative rationalisation, ratios of economic growth and
public sector performance represents a research field yet insufficient approached, at least for the Balkan states.
The administrative rationalisation refers to the Weberian approaches of public administration and civil service,
developing presently on the theories and principles of rational choice. The link with the economic growth and
governance performance has been demonstrated in several studies developed by recognised authors or
prestigious international institutions or organisations: World Bank, OECD etc. In this context, the paper aims to
assess the economic impact of the quality of bureaucracy in national administrations, whose structures, through
administrative convergence and dynamics become more or less similar to Weberian administrative structures. At
the end of the 20 th century, the field literature has developed comprehensive studies on that topic, analysing the
situation in over 35 states worldwide. The Balkan states were not comprised in the mentioned studies. Further
studies have extended the analyses on the direct and indirect correlations between quality of bureaucracy and
governance performance. The studies concerning the European Union Member States, African states etc. are
relevant. Evans and Rauch (1999) have demonstrated that there is a strong relationship between a national
state’s bureaucratic capacities (what they refer to as its ‘weberianess’) and its record on economic growth. The
conclusions are global, with regional character, emphasizing the directions of action in view to promote the
administrative rationalisation. It is worth to mention the studies on the analysis of administrative meritocracy,
concept deriving also from Weberian approach of public administration correlated with specialised studies from
sciences of education and psychology. All the above-mentioned studies will impose a thorough interdisciplinary
character to the paper. The paper presents the outcomes of a comparative theoretical and empirical research for
the Balkan states, in view to determine the correlation between the quality of bureaucracy, economic growth and
governance performance. The investigation method consists in the use of the sociological tool “analysis of
economic bureaucracy”, whose content is based on Weber’s principles of administrative rationalisation, adapted
to the research objectives of the paper and grouped in competitive salaries, internal promotion and career
stability, and meritocratic recruitment. The investigation method represents an extension of “Weberian scale”, tool
already inserted in the socio-administrative culture and it provides information for the analysis proposed. The
sociological investigation was developed in four Balkan states: Romania, Greece, Bulgaria and Croatia on a
sample of 125 stakeholders, determined on basis of rigorous representativeness criteria at central government
level for each above-mentioned state. The research methods use analyses based on statistic correlation and
regression as well as socio-political qualitative analyses, deepening the research directions from the field
literature and studies. The authors are beneficiaries of the project “Restructuring doctoral research in the fields of
political sciences, public administration, sociology and communication”, co-funded by the European Union
through the European Social Fund, Sectorial Operational Programme Human Resources Development 2007-
2013
Keywords: bureaucracy, governance performance, Weberian administration, comparative studies in Balkan
states
1. Introduction
The issue of public sector performance is more and more present in the field literature. Regarded as a
finality of a complex public management process, referring either to the central or to the local
government, the public sector performance acquires systemic characteristics and, according to the
level, the governors establish the feedback that is carried out through new public decisions meant to
lead towards performance improvement.
Kearney and Berman (1999, 5) show that “the concern with improving the performance of government
organisations has existed since the Scientific Management Movement”. Relating to public
organisation management by outcomes, the mentioned authors approach public sector performance
in various dimensions, such as: organising work, managing workers, measuring performance and
overcoming resistance to performance-enhancing innovations.
In this context, Smith (1990, 53) reveals the fact that “the performance indicators have become
ubiquitous in the public sector” and “the lines of accountability are far more complex in the public
sector”.
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Ani Matei and Lucica Matei
The perspective of direct and mutual correlations and determinations between the public sector
performance and quality of bureaucracy is supported both by studies and analyses of important
international institutions: World Bank, International Monetary Fund, OECD or UNDP etc. and by
contributions of recognised authors: Rauch and Evans (1999), Brignall and Modell (2000).
Meyer and Zucker (1989, 111) provide a framework conception, substantiating the opinion above
expressed, asserting “generally, performance will be defined narrowly to the extent that a) elites
dominate organisation, b) a high degree of professionalisation exists, and c) the organisation
performs a technical function, outputs of which are measurable”.
The specificity in the public sector does not always favour its performance, especially when “the norm
of participative democratic governance operates, sometimes in the formal structure or rules of an
organisation; the interests of multiple constituencies are given recognition; the organisation’s function
is non-technical and outputs elude measurement”.
Extending the above approach, more than a decade ago, the World Bank (WDR, 1997) concluded:
“government effectiveness is the cause of higher economic growth” and “human resource
management is a determinant of organisational performance” (WPSR, 2005, 27).
In this context, the World Bank included the quality of public bureaucracy, of policy-making and public
service provision in the index on “government effectiveness”. Moreover, on the basis of an analysis
achieved in 175 states, Kaufmann (1999) emphasised the fact that it was confirmed the close link of
government effectiveness with the economic growth as well as the fact that “government effectiveness
contributed to higher national income” (WPSR, 2005, 27). We find additional arguments in the same
document, asserting, on the ground of consistent studies in private companies in industrialised states
and then in developing and transition states, that the quality of bureaucracy and human resource
management are closely linked to their global performance.
For our research approach, the studies of Evans and Rauch (1999), respectively Rauch and Evans
(1999), and other studies are relevant, determining the adequate social and statistic instruments of
assessing the quality of bureaucracy. Based on the above studies, with special reference to the scale
of “analysis of the economic bureaucracy”, (Rauch and Evans, 1999, App.), all empirical
investigations as well as the indicators of quality of bureaucracy were achieved.
Concerning some adjacent issues about the evolution of meritocracy, in South-Eastern Europe,
relevant researches are comprised in Matei and Matei (2010), Matei and Popa (2010), etc.
The finality of our current study refers to determining the correlations between the quality of
bureaucracy and public sector performance. For the second process analysed, the public sector
performance, we took into consideration, some indicators used by the World Bank: Government
Effectiveness (Gov Eff), Regulatory Quality (Reg Qual), Rule of Law (Rule Law), Control of Corruption
(Con Cor), and also the Real Gross Domestic Product (RGDP).
The sociological investigation was developed in four Balkan states: Romania (RO), Greece (GR),
Bulgaria (BG) and Croatia (HR), on a sample of 125 stakeholders, determined for every state, on the
basis of rigorous criteria of representativeness at the level of central governments.
2. Theoretical approaches
2.1 Governance performance
Bouckaert and Halligan (2008), as well as Pollitt and Bouckaert (2000) achieve an international
comparison related to “managing performance” and “public management reform”. In the public sector,
the statistical ratios and/or connections between performance management and quality of
bureaucracy trigger the understanding of the processes of performance management and governance
performance.
The general approach framework of this issue is delivered by the New Public Management (Hood,
1995) or by “reinventing government” (Osborne and Gaebler, 1992).
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A broad and generic definition of performance – based public management is taking/allocating
responsibility for the performance of the system, being accountable for its results (Bouckaert and
Halligan, 2008, 32).
Hannagan (2008), referring to performance management in an organisation, states that “the term
performance management means different practices to different managers but usually includes the
following elements:
The organisation has shared objectives, or a mission statement or corporate objectives, which it
communicates to its employees.
Individual performance management targets are set, which are related to the organisational
objectives.
A regular, formal review is carried out to monitor progress toward the objectives.
The review process is used to identify training needs, career development and possible rewards.
The effectiveness of the whole process is evaluated against the overall performance of the
organisation” (Hannagan, 2008, 294).
Matei (2008a) and Matei and Popa (2010) or Andrei et al (2009) present an interesting theoretical and
empirical analysis concerning meritocracy decentralisation and professionalisation of civil service, as
pillar for increasing performance in the public sector.
Important and constant concerns this time with regard to the public sector performance can be also
found in the UN Public Administration Programme, which in the 2005 and 2008 reports, presents both
the public sector performance (WPSR, 2005), and the issue of the public governance (WPSR, 2008).
Thus, WPSR (2005) focuses upon the way in which the human potential will be transformed in order
to improve the public sector performance. The general context in which the stated issue is
approached is characterised, on one hand, by the complexity of the policy making processes and of
the public strategies and, on the other hand, by the deterioration of the human resources capacities of
accomplishing these functions. The aspects set forth render difficult, for many states, the application
of the national objectives and strategies for increasing the governance performance through poverty
and corruption reduction, promoting the sustainable human development, as it is underlined in the
Millennium Development Goals (MDGs).
WPRS (2008) emphasises the role of the civic engagement in the public governance process. By
presenting several case studies, it is being emphasised, in a real manner, the role of the different
practices in consolidating the governance capacity through transparency and responsibility. In this
context, the relations between the power and the civil society organisations are tackled, as well as the
necessity of adopting methodologies and strategies proper for each state’s condition for a successful
civic engagement in the public governance.
The mentioned technical support is also offered by the analysis made by Willmore (2005) or Matei
(2008b).
2.2 Aggregated governance indicators
The World Bank has achieved comprehensive theoretical and experimental studies in the last
decades. In view of our study, the papers of Kaufmann, Kraay and Zoido-Lobaton (1999, 2), as well
as the previous ones approaching the so called “governance matters” are relevant. The above papers
comprise “six new aggregate measures capturing various dimensions of governance that provide new
evidence of a strong causal relationship from better governance to better development outcomes”.
The six indicators correspond to six basic governance concepts: voice and accountability, political
instability and violence, government effectiveness, regulatory burden, rule of law and graft.
Concerning the public sector performance and its assessment, we find a comprehensive synthesis in
Van Dooren and Van de Walle (2008). Matei and Matei (2009) provide a complementary perspective
concerning the use of cost-benefit analysis for assessing the anti-corruption strategies and enhancing
the pubic sector performance.
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Ani Matei and Lucica Matei
From those major dimensions characterising the governance process for the public sector
performance, we selected four indicators describing, on the basis of statistic aggregated variables, the
last two sets of major topics.
Following the conception presented by the World Bank, the four indicators will describe:
Government Effectiveness, combining the perceptions of the quality of public service provision,
the quality of bureaucracy, the competence of civil servants, the independence of the civil service
from potential pressures and the credibility of the government’s commitment to policies into a
single grouping. The main focus of this index is on “inputs” required for the government to be able
to produce and implement good policies.
Regulatory Burden includes measures of the incidence of market-unfriendly policies such as price
controls or inadequate bank supervision, as well as perceptions of the burdens imposed by
excessive regulation in areas such as foreign trade and business development.
Rule of Law includes several indicators which measure the extent to which agents have
confidence in and abide by the rules of society. These include perceptions of the incidence of
both violent and non-violent crime, the effectiveness and predictability of the judiciary, and the
enforceability of contracts. Together, these indicators measure the success of a society in
developing an environment in which fair and predictable rules form the basis for economic and
social interactions.
Control of Corruption describes the measures of perception of corruption.
3. Empirical approach
3.1 Collecting the original data
Several steps have been successively achieved in view to accomplish the empirical investigation. The
investigation instrument used was designed as a questionnaire with 20 questions following closely
“Analysing Economic Bureaucracy” (Rauch and Evans, 1999, Appendix or Matei et al., 2011).
According to its structure, the variables that will model the quality of bureaucracy, respectively its
connections with the economic environment can be synthesised according to Table 1.
Table 1: Structure and expected finality of the questionnaire
Questions Content and expected finality Description
q1 – q3 Core Economic Agencies Identifying the important agencies/public
institutions for economic policy making
q4 – q13 Recruitment and Careers Applying the meritocratic criteria in recruitment
(q4, q5)
Measuring the importance of career-building (q6 –
q11)
Rather the “blurring” of public/private boundaries
that is one gauge of the extent to which the state
is “embedded” in society (q12, q13).
q14 – q16 Salaries Bureaucratic compensation and socio-economic
status
q17 – q20 Civil Service Exams Measuring the extent to which recruitment is
meritocratic for the bureaucracy as a whole (q17,
q18)
Measuring socio-economic status for the
bureaucracy as a whole (q19, q20).
Source: Synthesis after Rauch and Evans (1999, 9, 10)
The target group of the empirical research comprises four Balkan states: Bulgaria, Croatia, Greece
and Romania, relevant for the developments recorded in the administrative and public sector reforms.
Their status related to the European Union represents the most relevant perspective for the current
research.
The above group comprises older EU Member State (Greece), new ones (Bulgaria and Romania) and
an acceding one (Croatia).
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The experts who achieved the empirical investigation are teaching staff or researchers from New
Bulgarian University (BG), University of Rijeka (HR), University of the Aegean and European Public
Law Organization (EPLO) (GR), National School of Political Studies and Public Administration
(NSPSPA) (RO).
The questionnaires were distributed to high civil servants and representatives of central governmental
authorities in various decentralised structures in regions of the states analysed.
Table 2 presents the structure of the target group, the experts used and the number of the
responders.
Table 2: Structure of the target group
State ID Experts used Number of questionnaires
applied
Bulgaria (BG) BG 2 25
Croatia (HR) HR 3 25
Greece (GR) GR 4 48
Romania (RO) RO 3 26
Source: The authors
3.2 Statistic indices
3.2.1 Building the indices of the bureaucratic quality
In view to be compatible with other researches with similar objective (Rauch and Evans 1999, Hyden,
Court and Mease 2003, Court, Kristen and Weder 1999, Henderson et al., 2003 or Matei et al., 2011),
in the current paper we used the same indices concerning the quality of bureaucracy.
Thus, according to the description proposed in the mentioned papers:
MERIT Index = [(q4 – 1)/3 + (q5 – 1)/3] / 2
CAREER Index = [(4 – q6)/3 + (q7 – 1)/2 +(q8 – 1)/3 + (q10 – 1)/3 +(q11 – 1)] / 5
SALARY Index = [(q14 – 1)/4 + (q16 – 1)/3] / 2
We remark that the variables used do not cover the whole content of the questionnaire and database.
This is due to the fact that we have aimed to achieve the research objective, and the other data can
be used for extending the investigations to adjacent objectives.
Processing the empirical data described in sub chapter 2.1, we shall obtain the situation from Table 3.
Table 3: Indices of the bureaucratic quality
Source: The authors
ID MERIT
CAREER
SALARY
Index
Index
Index
BG 0.39 0.44 0.41
HR 0.28 0.36 0.33
GR 0.45 0.54 0.44
RO 0.51 0.59 0.56
3.2.2 Indices of the public sector performance
Taking into account the period of the current research, we have considered that it is more proper to
use the values of the indices of governance performance calculated by the World Bank. We took into
consideration the following ones: government effectiveness (Gov Eff), regulatory quality (Reg Qual),
rule of law (Rule Law), control of corruption (Con Cor) and Real GDP (RGDP).
Their description, the modality of calculation and the relevance concerning public sector performance
can be found in Kaufmann, Kraay and Mastruzzi (2010).
Table 4 presents the values of the indices mentioned for 2009.
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Table 4: Indicators of public sector performance (2009)
ID Gov Eff Reg Qual Rule Law ConCor RGDP
(USD)
BG 0.142 0.626 -0.05 -0.12 9521
HR 0.639 0.555 0.216 0.035 13911
GR 0.608 0.800 0.638 0.119 28829
RO -0.130 0.618 0.101 -0.130 9337
Source: Kaufmann, Kraay and Mastruzzi (2010)
4. Interpretation and conclusions
As it will be further seen, the empirical data mentioned will confirm the connections, correlations and
mutual determinations between various statistic variables modelling the bureaucratic processes and
the processes concerning the economic and public sector performance.
4.1 Merit, career and salary
Table 5 describes Pearson correlations among the three variables.
We remark that at least from statistic point of view, the three variables do not have a very powerful
correlation. However, all coefficients of correlation are positive, ranging from 0.043 (Merit/Salary) to
0.265 (Salary/Career).
Table 5: Statistic correlations between variables of quality of bureaucracy
Merit
Career
Salary
Pearson Correlation
Merit Sig (2-tailed)
N
Pearson Correlation
Career Sig (2-tailed)
N
Pearson Correlation
Salary Sig (2-tailed)
N
1
124
0.168
0.061
124
0.043
0.635
124
** Correlation is significant at the 0.01 level (2 – tailed)
Source: The authors
0.168
0.061
124
1
124
0.265
0.003
124
0.043
0.635
124
0.265**
0.003
124
1
The regression of the three variables, establishing a direct determination between Career and Merit
and an independence of the variables Merit and Salary, triggers similar conclusions.
The explanations of these results consist in the complexity and diversity of the civil service reform
processes in the Balkan states and their insufficient development.
Merit = 0.339 + 0.160 Career – 0.002 Salary
(0.072) (0.984)
F = 1.768 R 2 = 0.028
The incompatibility of the salary policies with the meritocracy or career policies results both from the
analysis of correlations and regressions More conclusive explanations could be obtained if we
analyse data for every state. The correlations between them reveal situations, sometimes
contradictory and anyway the lack of convergence in the meritocratic bureaucratic processes.
4.2 Quality of bureaucracy and public sector performance
Considering Merit, Career and Salary as indicators of the quality of bureaucracy, Table 6 presents the
correlations between them and the indicators of economic performance and public sector
performance.
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Ani Matei and Lucica Matei
Table 6: Statistic correlations concerning the quality of bureaucracy and governance performance
Source: The authors
Pearson Correlation
Gov Eff Sig (2-tailed)
Pearson Correlation
Reg Qual Sig (2-tailed)
Pearson Correlation
Rule Law Sig (2-tailed)
Pearson Correlation
Con Cor Sig (2-tailed)
Pearson Correlation
Ln RGDP Sig (2-tailed)
Merit Career Salary
-0.650
-0.550
-0.784
0.350
0.450
0.216
0.505
0.551
0.244
0.495
0.449
0.756
0.124
0.255
-0.066
0.876
0.745
0.934
-0.297
-0.169
-0.469
0.703
0.831
0.531
-0.021
0.093
-0.243
0.979
0.907
0.757
In this case, from statistic point of view, reality provides different evolutions of public sector
performance and specific processes taken into calculation for the quality of bureaucracy. The
explanations derive from inconsistence of statistic data, contradictory evolutions between the
economic and bureaucratic processes, specific for the public sector. The linear regressions establish
situations of statistic co-linearity for a series of variables and direct or indirect significant
determinations.
The following relations highlight this situation.
Merit = 0.392 – 0.486 Gov Eff + 0.295 Reg Qual + 0.984 Con Cor
Career = 0.620 – 0.611 Gov Eff + 0.141 Reg Qual +1.507 Con Cor
Salary = 0.717 – 0.599 Gov Eff - 0.093 Reg Qual +1.361 Con Cor
The above relations demonstrate powerful determinations of ConCor on bureaucracy, alternative,
positive or negative determinations of average intensity of Reg Qual and negative determinations of
Gov Eff.
It is worth to mention that the variable Rule Law does not influence the evolution of the indicators
concerning the quality of bureaucracy.
This fact expresses a more general conclusion for the four states, which may be generalised at South-
Eastern European states concerning the incompatibility of policies for the quality of bureaucracy and
government effectiveness.
The economic performance is also influenced by the quality of bureaucracy. This fact results from the
analysis of regression:
Ln RGDP = 9.111 – 8.017 Merit + 20.006 Career – 13.722 Salary
Thus it results the powerful direct determination Career/RGDP and inverse determination, also
powerful, related to Merit, respectively Salary. The same conclusion results also for the other
indicators of governance performance, except Reg Qual, for which the dependency is negative only
related to Salary
(-3.029)
This last conclusion may have as cause the fact that the statistic investigation has been achieved in
the top period of the economic crisis, expressed for the respective states in powerful measures of
reducing the bureaucratic apparatus.
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284

Internalisation of the Values of National Integrity Systems
and Governance Performance in Some South-Eastern
European states: Significant Aspects and Comparative
Studies
Ani Matei, Florin Marius Popa and Carmen Savulescu
National School of Political Studies and Public Administration, Bucharest,
Romania
amatei@snspa.ro
Abstract: The paper is based on a fundamental hypothesis frequently found in the field literature concerning the
powerful correlation between public integrity, professionalism of civil service and central or local governance
performance. Taking into consideration the assertion of National Integrity Systems (NIS) in the European states,
their pillars become important factors in promoting public integrity, which represents a systemic effect of their
interaction. For most South-Eastern European states, NIS developments have recorded various stages that could
be emphasized in close connection with the evolution of important European processes, such as the European
integration. The national political systems and depth of democratic systems influence directly NIS. In fact, their
plenary assertion represents both the cause and effect of national political and democratic systems. In this
context, the main objective of the paper emphasizes, through qualitative and quantitative analyses, significant
aspects on the economic and social results of governance under the conditions of more profound internalization
of NIS values in the public organizations. The target group comprises South-Eastern European states such as:
Romania, Bulgaria and Serbia. The documentary resources comprise country studies on NIS evaluation, results
concerning the Corruption Perception Index (CPI) and Global Integrity Index, studies of the European Bank for
Reconstruction and Development as well as empirical researches of the authors, achieved in the framework of
specialized research programmes on the topic of public integrity. Paper achieved with the support of the project
“Restructuring doctoral research in the fields of political sciences, public administration, sociology and
communication”, co-funded by the European Union through the European Social Fund, Sectorial Operational
Programme Human Resources Development 2007-2013
Keywords: national integrity system, governance performance, South-Eastern European states, internalization,
public integrity
1. Introduction
The term ‘National Integrity System’ (NIS) was coined by the foundation managing director of
Transparency International, Jeremy Pope, to describe a changing pattern in anti-corruption strategies
in which it was recognised that the answer to corruption did not lie in a single institution, let alone a
single law (Pope, 1996). It is now increasingly recognised that integrity is being promoted and
corruption combated in many societies through a number of agencies, laws, practices and ethical
codes, combining the three elements of ethical standard-setting (or values-based leadership),
institutional design and management, and legal regulation (Sampford and Dar, 1993; OECD, 2000;
Head, Brown and Connors, 2008).
The study is an analytical report that presents a detailed and nuanced assessment of national
systems for combating corruption. It is an important tool that completes the global indicators and the
surveys from Transparency International (Corruption Perceptions Index, the index of bribery, and
Global Corruption Barometer) by exploring the specific practices and conditions from each country.
Throughout this study, Transparency International aims to draw a picture of NIS in different countries
from all regions of the world. The study provides both indicators for measuring subsequent progress
of these countries, and a basis for states’ comparison.
Doig and McIvor (2003a, 2003b) and Brown and Uhr (2004) consider that the NIS approach is
intended to be flexible rather than prescriptive. There is no one single NIS approach and no one
single NIS solution; it is the overall configuration and inter-relationships of the pillars, with overall key
strategies and objectives, which are important within the specific country context. Thus through a NIS
assessment, an overall anticorruption programme can be developed that identifies the context before
assessing the roles and effectiveness of the pillars. For example, although the NIS had been
developed after the end of communist hegemony and many of the transitional states have also often
faced the same developmental issues of other developing countries, their socio-economic context and
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Ani Matei et al.
institutional configuration have meant that some of the issues relating to corruption are of a different
nature (Steves and Rousso, 2003; Matei, 2008; Matei and Matei, 2009).
NIS offers a strategic approach within which and through which a reform strategy is developed. Such
a strategy would be based on the NIS's inclusive nature and the developmental inter-relationship
between goals, objectives, elements and pillars. Any such system however, is dependant on a
number of variables, including the impact of context and the role of the pillars.
This in turn requires assessment to be made on the weaknesses and strengths of reforms relating to:
specific pillars in terms of their centrality to the working of a NIS; the added-value of pillar interaction
both in terms of addressing corruption and the wider NIS goals; promoting co-ordinated donor support
to pillars; national plans for dealing with corruption and wider public service reform; measuring
individual pillar and NIS performance; and reconfiguring the NIS pillars as a consequence (Doig and
McIvor, 2003a, 325; Matei and Popa, 2011, 3).
Country studies of NIS type are performed only to evaluate such systems: on the one hand, creating a
strong empirical fundament on which better governance can be subsequently promoted in all areas,
and on the other hand, allowing the elaboration of specific and effective national reforms to fight
against corruption. Transparency International considers that it is necessary to understand the
capacity of national integrity systems of being able to diagnose corruption risks.
NIS includes the key institutions, the laws and practices (‘pillars’) that contribute to integrity, to
transparency and to accountability within a society. NIS structure comprises 13 pillars (Figure 1),
identified through their key role in supporting and promoting the public integrity.
When working properly, NIS fights corruption as part of a larger combat against power abuse, law
breaches and fraud, in all of its forms.
2. Assessing the National Integrity Systems
2.1 Country studies
The assessment of the NIS is achieved regularly, being the object of country studies.
NIS country studies are based on the assessment of institutions and relevant processes for such a
system in the battle against corruption.
The essential features of NIS country studies are:
They provide a qualitative assessment of the integrity system in a given country. The research
framework is followed by the evaluation of the situations that happen in reality.
They include important data such as legislation, governmental and nongovernmental reports,
news releases, corruption cases, academic research, interviews with experts, and discussion on
focus groups.
They are based on a mixture of theoretical and practical research.
They refer only to corruption cases that been unravelled to the public and are based on
formidable sources.
Each NIS country study (Pope, 1996; Uhr, 2004; Matei and Popa, 2011) consists of two parts: a main
report (15,000 words) and a summary of the report (2,500 words), where the latter is based on the
former. The NIS’s main report includes the following elements:
A short presentation that provides a clear and concise summary of the results of the study, the
main issues, the conclusions and / or recommendations.
A country characterization, which provides a brief overview of the political economic and social
development of the specified state.
A characterization of the corruption, which describes the causes, the levels, the costs, the types
and the impact of corruption in that state.
A section dedicated to activities to fight corruption, which provides an overview of the reforms and
the anti-corruption activities with a direct impact on the NIS in the last five to ten years.
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A section extensively devoted to the description of that specific state’s National Integrity System,
which provides a sharp image of NIS’s institutions and procedures, and the mode of action and
interaction with other NIS pillars.
An evolution of the NIS focused on how it works in general, in practice, providing an identification
of any trends that could have been observed by studying the country and giving, always when
possible, examples of quality practices.
A section that provides an overview of areas of priorities, particularly where progress is needed
and where there exist real opportunities for reform.
A section to recommendations, highlighting both the areas of further investigations in relation to
different types of corruption, to its positive practices against it, and the domains and activities that
require short or medium term attention paid.
2.2 A dynamic model for NIS assessment
The development of models for NIS quantitative assessment has been the target both of
Transparency International, national and international research institutions and centers and several
specialists. The general context of those models is provided by the studies and models for assessing
the anti-corruption strategies and in general of the phenomena and processes of corruption.
Doig and McIvor (2003b), Brown, Uhr, Shacklack and Connors (2004) analyse the “qualitative
assessments versus the quantitative assessments” in the approach of NIS studies.
Uhr (2004) develops relevant studies on NIS assessment referring to “activities and criteria for
assessing the consequences of integrity institutions, policies and reforms”. In this respect, it is also
worth to mention Brown and Uhr (2004) who focus on “conceiving, describing and assessing integrity
systems”.
In assessing the adjacent processes to public integrity, we mention the cost-benefit analyses (Matei
and Matei, 2009) or the econometric models (Andrei, Stancu, Nedelcu and Matei, 2009). The field
literature emphasizes the models developed by the World Bank (Huther and Shah, 2000, 2-8; World
Bank, 2000) or the European Bank for Reconstruction and Development (Steves and Rousso, 2003,
4-7).
Matei and Matei (2011) comprise a detailed analysis of those models.
The proposed model for NIS assessment is based on the following hypotheses:
Internalization of social norms in the public or private organizations as well as at individual level
and implementation of new mechanisms for social organization included in the National Integrity
Systems represent a continuous, progressive process.
The reference periods for NIS assessment should be enough large in view to discuss about
genuine internalization of norms and behaviours aimed by NIS (usually 10 years).
The assessment is based on TI methodology and it refers for key public institutions and
nongovernmental actors at three dimensions: their overall capacity; their internal governance and
procedures; their role in the overall integrity system (TI, 2010, 15-16).
Each dimension takes into consideration sets of indicators, called resources and independence under
capacity; transparency, accountability and integrity under governance; and pillar-specific indicators
under role. In this context, Figure 1 provides a suggestive image.
2.3 The dynamic matrix associated to NIS
The shift to quantitative assessment involves a stage of analysis and quantification of the activities in
the framework of NIS, based on country studies and other documents comprising information about
NIS.
The quantitative data will be inserted in a matrix which will have the following structure:
Each pillar of NIS, considered as NIS Indicator, will be represented by a variable, which, for each
state will integrate annual assessments on the development of the internalisation of the norms of
integrity, promoted by the respective pillar.
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Ani Matei et al.
Figure 1: NIS indicator framework (source: TI, 2010)
A variable will be associated to each state, which integrates both the assessments for each pillar
and its evolution in time.
The weight for each NIS Indicator will be the same.
Based on the qualitative information contained in the NIS country study, each indicator on a scale
of 1 to 5, 1 being the lowest and 5 the highest rating. Each end point of the scale (score 1 and 5)
as well as the mid-point have been qualitatively defined in the rating framework (TI, 2010, 31).
The final scores are transformed from their original five-point scale to a 0 to 100 scale, such that
the final score is out of 100, related to the needs and specificity of research, the final scores could
be also transformed into other scale (i.e. from 0 to 10, etc.). There is no weighting of individual
scores. The individual indicator scores are then aggregated (by simple averaging) into scores for
each dimension. The scores by dimension can also be further aggregated into a single score for
each pillar. Also, separate scores for the indicator set which covers the formal framework versus
the one which covers the actual practice are possible.
In the current study, we consider that the maximal score of a NIS Indicator could be reached in a
reference period established (i.e. 10 years). Therefore, the annual scores will be cumulative. At
the end of the period, for each NIS Indicator, a differentiated score will be obtained related to the
year of drawing up the country study, the value of the indicator in that year and further
progressive accumulations.
NIS dynamic matrix will be based on a nominal NIS matrix, with a similar structure, marking, for
each NIS Indicator, the relevant data concerning the year for adopting/setting up/ achieving the
activities aimed by NIS and eventual changes, as well as the qualitative appreciations,
recommendations contained in the country study.
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2.4 Other modality for NIS assessment –Global Integrity Index (GII)
Although it does not represent the same instrument as NIS assessment, “the Global Integrity Index
assesses the existence, effectiveness and citizen access to key national level anti-corruption
mechanisms used to hold governments accountable”. Therefore GII, being generated through
integration of more than 300 integrity indicators, provides a comprehensive image concerning NIS
internalisation. GII methodology is also well defined, being directly linked to reality.
Table 1 presents a correlation between NIS and GII indicators.
Table 1 Correlations between NIS and GII indicators
NIS Indicators GII Indicators
Legislative Government Accountability - Legislative
Accountability
Administration & Civil Service
Executive Government Accountability - Executive
Accountability
Judiciary Government Accountability - Judicial
Accountability
Public Sector Government Accountability – Executive
Accountability
Political parties Elections - Political Financing
Electoral Offices Elections
Supreme Institution of the Court of Auditors
Oversight & Regulation - Supreme Audit
(control of accounts)
Institution
Ombudsman Oversight & Regulation – National Ombudsman
Police and prosecutors Anti-Corruption and Rule of Law
Anti-corruption Agencies Anti-Corruption and Rule of Law
Media Civil Society, Public Information & Media
Civil Society Civil Society, Public Information & Media
Private Sector
Source: Matei and Popa, 2011
Oversight & Regulation
Besides GII for NIS assessment, the assessment proposed by Matei and Matei (2011) will be turned
into account for the anti-corruption strategies.
3. Empiric study on NIS assessment
3.1 Overview
The empiric study takes into consideration three South-Eastern European states: Bulgaria, Romania
and Serbia. NIS development in those states is different, taking into account their different positions
related to the European integration. Based on the analysis of country studies, Appendix 1 presents
the nominal matrix on the relevant activities for NIS indicators assessment. It is hard to implement the
methodology proposed by TI (2010). Therefore we have considered a weighty assessment related to
GII and II-AC assessments of the anti-corruption strategies (Matei and Matei, 2011, 39) for those
three states (Table 2).
Table 2: Adjacent assessments for NIS indicators
State
Year
1999
GII
-
Bulgaria
II-AC
17.14
GII
Romania
II-AC
6.54
GII
Serbia
II-AC
-
2000 - 34.42 18.64 22.24
2001 - 39.66 40.46 37.47
2002 - 49.86 45.68 38.81
2003 - 52.84 48.42 46.27
2004 - 58.88 51.10 48.73
2005 - 66.85 62.91 58.43
2006 80 73.85 86 66.31 64 65.57
2007 87 78.14 81 70.45 - 66.67
2008 87 82.91 80 74.59 62 70.85
2010 84 - 79 - 63 -
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Source: http://globalintegrity.org Matei and Matei, 2011
Lacking detailed aspects in view to achieve NIS assessment, according to TI (2010), we shall
consider the progressive aspects of NIS internalisation as well as the level reached in 2010 as the
mean of GII and II-AC assessments.
In this context, in close correlation with the data presented in Appendix 1, we obtain Table 3.
Table 3: NIS global assessment
State
Bulgaria Romania Serbia
Year
TI Score Transformed TI Score Transformed TI Score Transformed
Score
Score
Score
2000 1.69 33.73 0.95 19.01 1.02 20.46
2001 1.94 38.87 2.06 41.27 1.72 34.47
2002 2.44 48.86 2.33 46.59 1.78 35.70
2003 2.59 51.78 2.47 49.39 2.13 42.57
2004 2.88 57.70 2.61 52.12 2.24 44.83
2005 3.27 65.51 3.21 64.17 2.69 53.76
2006 3.61 73.37 3.38 67.64 3.01 60.32
2007 3.82 76.57 3.59 71.86 3.07 61.34
2008 4.06 81.25 3.80 76.01 3.26 65.18
2009 4.17 83.40 3.82 76.40 3.26 65.25
2010 4.08 81.50 3.80 76.00 3.27 65.35
Source: The authors
Adding to the assessment from Table 3 an analysis of correlation, we shall discover, as obvious, a
high compatibility of NIS evolution in those three states, Pearson correlation coefficients varying
between 0.973 and 0.991.
At the same time, the highest mean could be found at NIS Indicators for Bulgaria (62.87), and the
lowest at Serbia (49.93), thus situating the three states in the “moderate” evolution area.
The highest standard deviations could be found at Romania (18.30), followed by Bulgaria (17.78) and
Serbia (15.32).
4. Public integrity and governance performance
The interaction between the two social and economic processes, public integrity and governance
performance are unanimous accepted in the field literature.
The qualitative analyses based on NIS assessments are rare. Most analyses and studies refer to
corruption and its economic impact (Rose-Ackerman, 2005, Ch 2; Mauro, 1995; Andrei, Matei and
Rosca, 2009; Matei, Matei and Savulescu, 2010) or corruption and reform (Rose-Ackerman, 2005, Ch
5 - 11; Andrei, Matei, Stancu and Oancea, 2009).
Relevant studies of the World Bank are using the control corruption index in the analysis on
governance performance. Inspiring from the latter studies, we shall consider the Gross Domestic
Product per capita during 2000-2010 as indicator of governance performance.
For GDP per capita, using the data of the World Bank, its evolutions are compatible, the correlation
coefficients being comprised between 0,983 and 0.992.
The means are differentiated, 4961$ for Romania, 4046.82$ for Bulgaria and 3755.9$ for Serbia.
The most spectacular evolutions are recorded by Romania, with a standard deviation of 2810.22,
followed by Bulgaria with 1982.39 and Serbia with 1968.97.
By regression analyses, one may establish the direct dependency between NIS evolution and GDP,
which could provide relevant information on their interdependence.
290

For those three states we shall obtain:
NIS_BG = -204.667 + 32.697 LN_GDP_BG
NIS_RO = -167.176 + 27.036 LN_GDP_RO
NIS_SE = -134.658 + 22.813 LN_GDP_SE
Ani Matei et al.
As revealed by the correlation analyses, it is a direct dependency between the two categories of
indicators, any variation of an indicator being reflected in a similar variation of the other indicator.
5. Conclusions
The National Integrity Systems through their complex and comprehensive structure integrate
fundamental values of social, economic and political development of a state.
For the South-Eastern European states, NIS evolutions hold emergent characteristics, determined
both by the European integration and globalization and the specificity of development in this region of
Europe.
The effects of crisis or globalization have influenced in comparable manner both NIS and governance
performance. We explain the above issue through the fact that two of the key pillars of NIS are the
executive and legislative, and at the same time the other pillars contribute directly or indirectly to
governance performance.
For the South-Eastern European states, the behaviour of the topic under analysis is endemic and the
analysis and data above presented are sustaining this conclusion.
This fact may also translate into a relation of regression, using the means of the national variables.
Mean_NIS = -171.922 + 27.899 LN_Mean_GDP
As example, an increase of the level of NIS internalisation by 15% would lead to an increase by 16%
of GDP. Of course, other analyses should associate to that conclusion.
6. Appendix 1: Nominal matrix on NIS assessment in some South-Eastern
European states
Pillars
Bulgaria
Country
2001
Legislative - the constitution was
adopted in 1991;
- MPs are not allowed to
take another job;
- immunity for political
opinions and expressed
votes;
- there are no express
provisions on conflict of
interest;
- the requirement to
declare gifts of more than
500 leva or equivalent.
Executive - ministers are not
allowed to perform other
activities during their
mandate;
- members of the
executive are suspended
from the exercise of the
mandate of the National
Assembly during their
mandate;
291
Romania
2005/2010
- the constitution was
adopted in 1991 and
amended in 2003;
- there is an
incompatibility regime
for parliamentarians;
- political and
parliamentary immunity
for opinions expressed
votes;
- 2000 - the first anticorruption
legislation.
- 2001 - the first anticorruption
strategy;
- 2005 - the second
anti-corruption
strategy;
- 2008 - the third anticorruption
strategy
- ministers are
responsible for their
activity civil and
Serbia
2001
- the constitution
was adopted in
2006;
- MPs can occupy
other positions;
- MPs enjoy
immunity;
- MPs can be
members of the
Government;
- there is no
regulations of conflict
of interest.
- ministers fill asset
disclosure form;
- local government
is organized in
municipalities;
- local Law of
Administration was
adopted in 1999.

Ani Matei et al.
- according to the law the
criminal law;
- the requirement to
territory of Bulgaria is declare gifts;
divided into municipalities - ministers are subject
and regions; to legislation regarding
- the municipality is the the incompatibilities
basic-administrative unit; and conflict of interest;
- Size of a municipality is - ministers fill asset
established by
referendum;
disclosure form;
- regions are headed by - the Constitution of
a governor;
government is
- The work of local organized on the
community organizations central and local level;
are established by the - in 1991 was passed
Local Autonomy Law and the Law in 2001 as
Law on Local Public
Administration.
local government.
Pillars
Bulgaria
Romania
Serbia
Country
2001
2005/2010
2001
Judiciary - under the Constitution - under the Constitution - article 91 of the
the judiciary is
the judiciary is Constitution
independent;
independent; guarantees the
- the law governing the - under the Constitution independence of
judiciary: Law of the the judiciary is the judiciary;
Judiciary (1994); composed of courts, - there is a code of
- magistrates are Public Ministry and the ethics for judges;
independent and, after a Superior Council of - under constitution
trial period, are
Magistracy; the position of judge
irremovable;
- the Constitution is permanent;
- supreme Judicial judges are forbidden to - magistrates have a
Council is an have other functions certain degree of
independent body that except those in
immunity;
approves appointments,
transfers and dismissal;
- supreme institution is
called the Supreme
Administrative Supreme
Court;
- magistrates are not
allowed to have links with
NGOs that fight against
corruption;
education;
Public Sector -the civil service is - in 1999 was adopted - general activity
governed by the status of the Statute of Civil regulated by the
civil servants (Law
Servants;
Constitution;
67/1999) and Law - in 1999 the National - there are
Administration (130/1998); Agency of Civil mechanisms to
- in exercise of their
Servants;
protect civil
activities, officials are - In 2004 was adopted servants;
forbidden to receive gifts; Code of Conduct for - there is no
- are protected by the Civil Servants;
ministerial
state in the exercise. - in exercise of their responsibility law;
activities, officials are - there is no
forbidden to receive requirement to
gifts;
declare goods
- law of government
was adopted in
1992;
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Political parties
(Financing of
political parties)
- activity of political
parties is regulated by
art. 11 of the
Constitution;
- the legal document
governing political parties
is the law of political
parties (1990);
- political parties are
prohibited from receiving
funding from abroad or
from anonymous
sources, from public
institutions;
- there are no limitations
on how to use money;
Bulgaria
Ani Matei et al.
- activity of political
parties is regulated by
art. 40 of the
Constitution;
- Regulated by Law
43/2003;
- Names of all donors
to be published in the
Official Gazette;
- the law was
adopted in 1997;
- the law regulates
the means of
financing;
Pillars
Romania
Serbia
Country
2001
2005/2010
2001
Electoral offices - the legal basis is
represented by art. 73
of the Constitution and
the law 373/2004;
- permanent Electoral
Authority has the
status of an
autonomous
administrative
authority;
Supreme - the institution was - the institution is - this institution
institution of created in 1995;
required by the does not exist in
accounts
- members are Constitution of 1991; Serbia;
independent and - organization Act was
responsible for breaking passed in 1992;
the law;
- has the power to
- the institution check control over all public
budget implementation, resources;
public expenditure; - the institution is
independent in
exercising control;
Ombudsman - there is legislation on - institution regulated by - there is legislation
the establishment of such the Constitution;
on the
institutions; - organization Act was establishment of
passed in 1997; such institutions;
Police and - All employees of the - police is under the - prosecutors are
Prosecutors police force belong to the Ministry of independent under
Ministry of Interior; Administration and the Constitution,
- Employment, transfer
Interior;
Code of Criminal
and dismissal are as - there is a code of Procedure and Law
clearly defined;
police ethics. of prosecutors;
- They are prohibited to
- Ministry of Internal
all employees of these
Affairs is
organizations to engage
responsible to the
in political debates;
Parliament and
- Prosecutors are
hierarchically
subordinated to attorney
general.
President.
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Ani Matei et al.
Anti-corruption - there are in the Ministry - in 2000 was founded
agencies of Interior and in the the first department to
Ministry of Justice fight corruption within
departments specialized the Prosecutor
magnifying glass against General;
corruption;
- in 2002, National
- have their own
Anticorruption
organization,
Prosecutor was
independently funded but established later
must provide an annual transformed into
report to Parliament. National Anti-
Corruption Directorate;
- the Interior Ministry is
the General
Anticorruption
Directorate (2005).
Pillars
Bulgaria
Romania
Country
2001
2005/2010
Media - press freedom is - the Constitution
provided in the provides the right to
constitution. expression and right to
information;
- Law on Free Access
to Public Information
was adopted in 2001;
- in 2002, the Law
Audio-visual;
Civil society - Access to Information - freedom of
Act was adopted in 2000; association - right
- in 2000 the Law on Civil envisaged by the
Society Organizations. Constitution;
- the work of civil
society organizations is
regulated by
Government Ordinance
26/2000.
Private sector - the Romanian
Constitution provides
different economic
rights: the right to
economic activity, free
enterprise;
- the main problem is
the level of private
sector and tax number.
Source: Country studies for NIS (TI, 2010)
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Commission to
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Serbia
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- press freedom is
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information.
- non-governmental
activity is regulated
by
laws on
associations of
citizens and sociopolitical
organizations.
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295

Toward the What and How of Measuring R&D System
Effectiveness
Thomas Meyers and Patrick Hester
Old Dominion University, Norfolk, USA
tmeyers@odu.edu
pthester@odu.edu
Abstract: Performance measurement is a term for several decades linked to evaluation processes exercised by
organizations, or organizational systems, intended to promote many purposes, including purposes the focus of
research and development (R&D) organizations, or R&D systems. The performance of R&D systems was once
almost exclusively measured in financial terms or with respect to indicators such as the quantity of new products
developed, patents granted, or like evaluations defensibly characterized more in terms of evaluated systems'
intrinsic attributes than by system stakeholder desires. The past two decades have witnessed a move toward
performance measures and performance measurement systems (PMS) now commonly seen to represent R&D
system effectiveness much better than did their predecessors. This paper’s authors acknowledge progress made
to date but contend that near-term improvements might be had given a perspective of what they term R&D
system governance and the straightforward application of concepts popularly employed within the engineering
test and evaluation (T&E) and decision science communities. Precisely, they propose that the merits of R&D
systems be evaluated using multi-criteria decision analysis (MCDA) techniques to manipulate eight attributes of
an emergent construct of R&D system governance in concert with three conventions long central to T&E. This
paper first introduces a single research question that called for reviews of literature pertaining to PMS
development and current state of use. It next addresses the concepts of critical operational issues (COI),
measures of effectiveness (MOE), and measures of performance (MOP) using definitions increasingly favored by
the T&E community. The paper then briefly describes the authors’ derivation from the systems science and
engineering-, technology and innovation management-, and general business-focused literature a set of eight
attributes they maintain as essential to the most effective R&D systems and that therefore constitute what they
recognize as an emergent construct of R&D system governance: two systems attributes of purpose and
integration; and six of what the authors have termed operational attributes of competence, foresight, innovation,
learning, management, and measurement. The work concludes with preliminary suggestions for manipulating the
T&E concepts and governance attributes with MCDA techniques in order to measure R&D system effectiveness.
Keywords: research and development; performance measurement; test and evaluation; critical operational
issues; measures of effectiveness: measures of performance; multi-criteria decision analysis; system governance
1. Introduction
Performance measurement is a term for several decades linked to evaluation processes exercised by
organizations, or organizational systems, intended to promote many purposes, including purposes the
focus of research and development (R&D) organizations, or R&D systems (Chiesa, Frattini,
Lazzarotti, & Manzini 2009; Kerssens-van Drongelen & Cook 1997). The performance of R&D
systems was once almost exclusively measured from “backward looking accounting based” (Bourne,
Mills, Wilcox, Neely, & Platts 2000, p. 754) perspectives, using other financial gauges (Bean 1995;
Bodner & Rouse 2007; Bordley 1998; European Industrial Research Management Association
[EIRMA] 1995; Hultink & Robben 1995; Kaplan & Norton 1992; Kennerley & Neely 2002; McGrath &
Romeri 1994; Ojanen 2003; Neely 1999; Rouse & Putterill 2003; Szakonyi 1994a; Tangen 2004;
Wilcox & Bourne 2003), or with respect to indicators such as the quantity of new products developed,
patents granted, or like evaluations (Brown & Gobeli 1992; Brown & Svenson 1988; Graves,
Ringuest, & Case 2000) defensibly characterized more in terms of evaluated systems' intrinsic
attributes than by system stakeholder desires. The past two decades of concern for R&D system
performance measurement - plausibly considered to have been introduced by Eccles’ “performance
measurement manifesto” (1991, p. 131), Schmitt's (1991, p. 13) suggestion that "strategy...be used as
the scale of measure for R&D," Kaplan and Norton’s balanced scorecard (1992), and similarly
focused and timed efforts - have witnessed a move toward performance measures and performance
measurement systems (PMS) now commonly seen to represent R&D system effectiveness far better
than did their predecessors. This paper’s authors acknowledge progress to date but contend that
near-term improvements might be had given a perspective of what they term R&D system governance
and the straightforward application of concepts popularly employed within the engineering test and
evaluation (T&E) and decision science communities. Precisely, they propose that the merits of R&D
systems be evaluated using multi-criteria decision analysis (MCDA) techniques to manipulate eight
attributes of an emergent construct of R&D system governance in concert with three conventions long
central to T&E.
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This paper first introduces a single research question that called for reviews of literature pertaining to
PMS development and current state of use. It next addresses the concepts of critical operational
issues (COI), measures of effectiveness (MOE), and measures of performance (MOP) using
definitions increasingly favored by the T&E community. The paper then briefly describes the authors’
derivation from the systems science and engineering-, technology and innovation management-, and
general business-focused literature a set of eight attributes they maintain as essential to the most
effective R&D systems and that therefore constitute what they recognize as an emergent construct of
R&D system governance: two systems attributes of purpose and integration; and six of what the
authors have termed operational attributes of competence, foresight, innovation, learning,
management, and measurement. The work concludes with preliminary suggestions for manipulating
the T&E concepts and governance attributes with MCDA techniques in order to measure R&D system
effectiveness. The authors hope their proposals will offer practitioners means to more meaningfully
assess and improve the effectiveness of R&D systems they design, deploy, and exercise.
2. R&D system performance measurement
Ojanen (2003) once addressed a significant and arguably insidious issue with:
"What are the gaps between the utilized and desired measures or evaluation methods of
R&D...?" (p. 6);
a question answered with a note of common and consequential gaps, particularly in the arena of the
non-financial measures so greatly emphasized during the past twenty years. Ojanen's query
prompted for that researcher as well as for the authors here a following research question of the form:
What measurement conventions other than those currently observed might generally
improve the utility of R&D system PMS?
That question in turn prompted for the authors a review of the R&D system performance
measurement-related literature focused on the current state of R&D system performance
measurement practice. Given that topic's plausible framing as an element of R&D system
performance, general system performance, or even of organizational or strategic systems (Brockhoff
2003; Micheli & Manzoni 2009; Neely 1999; Schmitt 1991; Verweire & Van den Berghe 2003; Wilcox
& Bourne 2003), the expressed domain of R&D system performance measurement was seen as
subordinate to, encompassing, or otherwise topically linked the prominent additional domains
identified in Table 1.
Table 1: Prominent literature domains linked to R&D system performance measurement
Prominent Literature Domains Linked to R&D System Performance Measurement
Domain Relevant Literature
System Management Behn 1995, 2003; Kaplan & Norton 1996; Lynn, Heinrich, & Hill 2000; Mintzberg
1987; Mintzberg, Ahlstrand, & Lampel 1998
System Productivity Bean 1995; Brown & Gobeli 1992; Brown & Svenson 1988; Jones & Williams 1998
Performance Blackburn & Valerdi 2007, 2008, 2009a, 2009b; Bourne et al. 2000; Chiesa et al.
Management and PMS 2009; EIRMA 1995, 2004; Fitzgerald & Storbeck 2003; Griffin & Page 1996; ;
International Council on Systems Engineering [INCOSE] 2010; Kaplan & Norton
1992, 1996; Kennerley & Neely 2002; Kerssens-van Drongelen 1999;
Kerssens-van Drongelen & Bilderbeek 1999; Kerssens-van Drongelen & Cook
1997; Neely, Richards, Mills, Platts, & Bourne 1997; Poh, Ang, & Bai 2001; Rouse
& Putterill 2003; Werner & Souder 1997a, 1997b
Innovation Bougrain & Haudeville 2002; Cooper 1999; Cordero 1990; Tatikonda & Rosenthal
2000; Zien & Buckler 1997
New Product Bordley 1998; Cellucci 2010; Davis, Fusfeld, Scriven, & Tritle 2001; EIRMA 2002;
Development, Portfolio Henriksen & Traynor 1999; Pillai, Joshi, & Rao 2002; Balachandra & Friar 1997;
Selection, and Portfolio Cooper 1998; Cooper & Kleinschmidt 1996; Cooper, Edgett, & Kleinschmidt 2001;
Management
Davidson, Clamen, & Karol 1999; Griffin 1997; Khurana & Rosenthal 1998
Project Termination
Balachandra 1996; Balachandra & Brockhoff 1995
Criteria
Public vs. Private R&D Lee & Om 1996; Meesapawong, Rezgui, & Li 2010; Vanderloop 2004
Test and Evaluation Sproles 2000a, 2000b, 2001, 2002; Stevens 1979; Sydenham, 2003
The authors' review also established that a seemingly quite generalizable set of popular T&E
concepts garnered little attention within the R&D system performance-related literature surveyed. A
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Thomas Meyers and Patrick Hester
distinct but complementary literature review (Hester & Meyers 2011) fortified author notions of T&E
convention pertinence to R&D system PMS, and that effort will be described following explanations of
the T&E conventions of interest.
3. T&E concepts pertinent to R&D system performance measurement
Publications such as those displayed in Table 1 primarily represent the two most recent decades of
work meaningfully supportive of R&D system performance measurement-related pursuits. That work
has produced particular methods such as Kaplan and Norton's (1992) popular balanced scorecard as
well as more methodological-level contributions like the Poh et al. (2001) classification of R&D project
evaluation schemes as either "weighting and ranking methods" or "benefit-contribution methods"
(p. 64). The authors submit that there may be room for a method distinct from those previously
advanced, one perhaps most appropriately housed within the Poh et al. (2001) weighting and ranking
category but one aimed at the R&D system - vice R&D project - level and one surely aligned with
Stevens' (1979) call that operational test and evaluation (OT&E) "determine the performance of a
system under the most current operational conditions" (p. 4) and whether or not it can, under those
conditions and "in combination with its operators (and all supporting parties)...fulfill its current mission
and objectives" (p. 4). Considering systems of R&D governance as entities appropriate for the
application of certain OT&E concepts, the authors maintain that approaches to R&D system
performance measurement could take advantage of three particular concepts increasingly favored
(Campbell 2004) within the engineering OT&E community: the concepts of COI, MOE, and MOP
related in a fashion depicted with Figure 1 and that even OT&E community members consider
"manifestations of good management practices" (Sproles 2000a, p. 51) and so just as applicable to
traditionally non-engineering applications as to those of T&E or other engineering domains (Sproles
2000a).
Figure 1: Measurement conventions of operational test and evaluation
3.1 Critical operational issues
Stevens (1979) and particularly Sproles (2000a, 2000b, 2001, 2002) have defined COI as:
Incontrovertible, stakeholder-recognized needs directly derived from problems that must
be satisfactorily addressed to attain problem resolution; emergent essentials of capability
without which posited problem solutions must be judged unacceptable on functional
grounds.
Critical operational issues represent itches that must be scratched to bring satisfaction; nothing less
will do, as a sports team analogy similar to ones used by Blackburn and Valerdi (2007, 2008, 2009a)
can make plain. Suppose that the rabid fans of an American professional baseball team - not unlike
the rabid fans of many sports teams in many countries - demand that their club's coming season
culminate with a championship or that the team at least perform in a manner the fans could
shamelessly defend as "championship caliber"; if championship ways did not emerge during the
season, the resulting collective disappointment would represent the fans' judgment of a failed season.
The need for championship play would represent a stakeholder-recognized COI, one of possibly
several fan-desired, emergent team capabilities termed "'show stoppers'" by Sproles (2002, p. 256)
and Sydenham (2003, p. 9) and that, if not achieved, would by definition render the system of interest
- the baseball team in this case, with its players, coaches, management, ownership, and such - a
deficient solution to the system stakeholders' need for championship ball. Similarly, the fans - defined
as stakeholders or even as shareholders in the case of private interests - of R&D organizations might
identify COI regarding a need for that organization, or system, to respond to something they perceive
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as some threat to its purpose or goals; if whatever might be proposed to resolve the threat does not
do so, then the proposal would have to be judged a failed solution, and the critical issue would remain
and perhaps worsen as it awaited another attempt at resolution. Additional and similar analogies can
explain the central role that measures of effectiveness play in determining whether or not the critical
itches that are COI get scratched.
3.2 Measures of Effectiveness
Measures of effectiveness may be defined as (Sproles 2000a, 2000b, 2001, 2002; Stevens 1979):
Variable standards derived from problem stakeholder-determined COI, independent of
solutions proposed to resolve the stated issues but that anticipate stakeholder desires for
solution-induced emergent properties and that therefore serve as gauges against which
should be assessed proposed solution’s bearing on the COI of interest.
What should normally be a small number of COI (truly critical issues should be expected to be small in
number) assigned to any specific need should each be accompanied by a similarly small number of
MOE (Sproles 2002) that stakeholders then use to make binary, "yes" or "no," determinations of
whether or not COI have been satisfactorily resolved. Measures of effectiveness are variables that
may be viewed as sliding scales of the "standards" highlighted in the definition above; and because
they are drawn only from COI, they are independent of attributes of solutions proposed to dispel the
problems or satisfy the desires behind critical issues. The worth of MOE in measuring R&D
organization effectiveness - or equivalently, in measuring R&D system governance- may, like COI, be
explained with sports metaphors.
Fans hoping to watch their clubs demonstrate championship play on the baseball field might
expressly or tacitly judge their teams in terms of "runs scored per game," "team batting average,"
"number of Golden Glove awards earned" for defensive play, the "earned run average" of the team's
pitching corps, or other traditional (and obviously variable) markers of baseball excellence. A high
average of runs scored per game or high number of Golden Glove awards emerging from a 162-game
season, for example, might compel fans even strongly disposed to “championship or bust” opinions to
at least adopt more conciliatory, “wait ‘til next year” attitudes; if so, then MOE such as “runs scored
per game,” “team batting average,” “team chemistry,” and other qualitative or quantitative standards
would have in some way collectively demonstrated fans to have given their allegiance to what they
could defensibly call a championship caliber ballclub. One critical issue favorably resolved!
Measures of effectiveness are as useful in judging the effectiveness with which R&D systems pursue
their critical issues as they are in identifying championship-caliber baseball teams. It can be easily
reasoned, for example, that R&D organization stakeholders believe those organizations' continued
viability to critically depend on their leaderships' abilities to develop R&D project portfolios superior in
certain ways to those developed by competitors. In other words, stakeholders wish to see healthy
degrees of foresight emerge from their R&D organizations of interest and therefore should consider
foresight or like attributes as measures of how effectively the organizations meet a charge to, for
example, remain viable in the face of competition. The same can be said for a small number of
additional R&D organization governance attributes to be identified and explained in Section 4.
3.3 Measures of performance
The one-time New York Yankee catcher and American baseball icon, Yogi Berra, is popularly credited
with the observation that "it ain't over 'til it's over," words true enough for baseball and just as true in
serving to dispel the confusion that often accompanies the concepts of MOE and MOP (Sproles
2000a, 2001, 2002). Yogi may be said to have unintentionally employed the "over" of "it ain't over" as
an MOE describing whether or not the Yankees still had a chance to win the baseball game in
question; the "over" of "'til it's over" recognized that the system Yogi viewed as a ballgame always
concludes in accordance with a prescriptive set of rules not yet applicable at the point in the game
when he uttered his famous phrase. The "measures" of "measures of effectiveness" and "measures of
performance" likewise sound identical but mean very different things. Here, again, Sproles (2000a,
2000b, 2001, 2002) offers an appropriate suggestion:
Measures of performance are evaluations of systems’ intrinsic functions by which can be
judged, using MOEs, those systems’ capabilities to resolve the needs from which the
MOE and their antecedent COI derived.
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Unlike their stakeholder-oriented MOE counterparts, MOP should be considered not as variable
standards but as precise evaluations of system-intrinsic properties (Sproles 2000a, 2000b, 2001,
2002) or, in other words, of those systems' measurable outputs. Baseball fans might, for example, see
performance measures like "runs scored per game," "team batting average," "number of Golden
Glove awards earned" for defensive play, and the "earned run average" of the team's pitching corps
as respective evaluations of 3.2, .283, 2, and 3.89 that they could use to judge team effectiveness
against established standards, or MOE. In doing that, fans or other interested groups would employ
MOP in concert with MOE and COI to determine in strict "yes" or "no" fashion whether or not their
teams displayed the stuff of champions. A process of determining whether or not R&D organizations
meet stakeholder-identified COI would closely mirror baseball fans' "thumbs up" or "thumbs down"
appraisals of their favorite teams' mettle. As has been the case with the baseball example used here,
quantitative MOE would generally call for quantitative MOP, while qualitative MOE such as foresight
(a construct in the vein of team chemistry, governance, or effectiveness) might call for qualitative
MOP or, more probably, some combination of qualitative and quantitative entities commonly
addressed with MCDA techniques.
4. The what and how of R&D system effectiveness measurement
At the dawn of what this paper earlier noted as the past two decades' focus on PMS other than those
primarily focused on budget or financial data, Schmitt (1991) opined about a double entendre he
intended with the phrase, "strategic measure" (p. 13). He proposed that the phrase should indicate not
only "a strategy of measuring R&D," per se, but more importantly that the strategies employed by
R&D organizations, or systems, actually be the measures by which those systems' performances are
judged. That proposal has proven particularly striking for its logical link to the purpose and results of a
literature review conducted by Hester and Meyers (2011) to identify foundational attributes of a
construct of R&D system governance that could likewise serve PMS designed to judge R&D system
effectiveness. As the first step in their effort to identify R&D system governance attributes, Hester and
Meyers (2011) conducted a systems science and engineering-, technology and innovation
management-, and general business-focused search of the literature, one guided by appropriate
bibliometric concerns (Linton 2006; Linton & Thongpapanl 2004; Marr & Schuima 2003) and one that
ultimately allowed them to define R&D system governance as an emergent construct capturing eight
attributes they maintain as essential to the most effective R&D systems: two systems attributes of
purpose and integration; and six of what the authors termed operational attributes of competence,
foresight, innovation, learning, management, and measurement. Table 2 offers definitions of the eight.
Table 2: R&D system governance attributes (Hester & Meyers 2011)
R&D System Governance Attributes
Attribute Definition
System Purpose A system's purpose is the emergent property that defines its reason for existence.
System Integration Integration is the interaction of a system's elements that enable it to achieve purposes
unachievable by any single element.
Competence Competence represents the combinations of skills and technological resources -
individually, the competencies - that systems need to remain viable under varying
environmental conditions. It includes an ability to eliminate competencies no longer
needed or to add new ones responsive to environmental demands.
Foresight Foresight is a systemic process concerned with the mid- and long-term futures of science,
technology, the economy, or society and the identification of economic or societal gains
possible with research or emergent technology. The practice of foresight is, itself,
emergent and typically involves decision-making, including priority-setting.
Innovation Innovation represents the exploitation of, or value creation from, new ideas manifest as
products, processes, or combinations of the two; it may therefore be characterized in
terms of novelty and use.
Learning Learning represents an act of information processing that drives changes in learning
systems' ranges of potential behaviors. It can include time-dependent activities of storage,
retrieval, and sharing, or communication.
Management Management represents dynamic, near-term oriented, decision-making processes of
planning, monitoring, and controlling non-emergent responses to the efficient application
of skills and resources, or competencies, in accordance with predetermined objectives.
Measurement Measurement is a purposeful acquisition and analysis of some system's attributes against
a set of independent variables, or standards or dimensions.
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Attributes of purpose, integration, competence, foresight, innovation, learning, management, and
measurement can surely be considered meaningful fixtures of many organizations' (sound) strategies,
and the authors therefore propose that set to represent the "what" of this paper's theme due to: (a) its
derivation from an extensive review of appropriate literature; (b) what can be responsibly argued as
the appeal it would hold for R&D system stakeholders; and (c) for comprising elements relatively small
in number and therefore aligned with a key precept of MOE selection noted in Section 3.2. The
authors moreover contend that these emergent constructs, by definition only indirectly measurable
(Bernard 2002; Gliner & Morgan 2000; Leedy & Ormrod 2001; Orcher 2005), represent precisely the
sort of variables most suited to evaluations of R&D system effectiveness; if somehow linked as MOE
to smartly-selected R&D system MOP, then the set of eight attributes presented here or reasonable
proxies could promote the "how" of R&D system performance measurement possibly to be realized
with multi-criteria decision analysis-derived approaches like that also suggested by Hester and
Meyers (in press) and described in next two subsections.
4.1 An approach to measuring R&D system effectiveness
The Table 2 attributes of R&D system governance may be considered by stakeholders to represent or
perhaps nearly represent the emergent MOE they desire induced by processes incorporated with
R&D systems of interest to provide capabilities or resolve issues identified with
stakeholder-determined COI; and with the real possibility that effectiveness measures include
qualitative entities like those of Table 2 as well as some number of other qualitative or quantitative
entities - such as baseball-related entities of “team batting average” and “team chemistry” - the
designers of R&D system PMS should approach their organizations' performance evaluations (really
evaluations of organizations' effectiveness, to use the OT&E vernacular endorsed with this paper)
with methods accepted for their accommodation of disparate data types. Figure 2 portrays the
authors' belief that an intersection of the T&E-derived notions so far emphasized with this paper and
methods drawn from multi-criteria decision analysis can promote acceptable R&D system PMS like
one proposed by Hester and Meyers (in press).
Figure 2: A T&E- and MCDA-derived approach to measuring R&D system effectiveness
The design of PMS suited to R&D organizations can commence in accordance with Section 3.1-3.2
guidance. Stakeholders should first identify critical operational issues respecting concerns of
organizational mission, investment, or others deemed truly critical. Once they have identified an
appropriately small number of COI, stakeholders should next derive from each an equally appropriate
number of MOE. The COI identification and MOE derivation processes will together recognize the set
of emergent properties desired by stakeholders to alleviate certain organizational problems or to
provide certain organizational capabilities, and they will most importantly for PMS purposes represent
the gauges with which stakeholders will ultimately evaluate their organization's performance. By then
identifying measures of organizational performance to be associated - either exclusively or in
many-to-one fashion, as shown with Figure 2 - with established MOE, stakeholders will have fully
instantiated the Section 3 OT&E themes and set themselves on a traceable and defensible course for
judging whether or not their critical issues will have been resolved. The identification and logical
alignment of MOP with COI and MOE previously established will also have fully realized Figure 2's
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upper, "Test and Evaluation-derived" portion, and it will simultaneously mark commencement of the
figure's lower portion processes featuring multi-criteria decision analysis-derived techniques to obtain,
per the Hester and Meyers proposal (in press), an optimized value of organizational performance, or
utility, based on independent evaluations of MOP and corresponding weights (the w1 through w5 of
Figure 2) of importance. The Figure 2-depicted fusion of OT&E and MCDA concepts suggests that
appropriately derived MOP can be combined into a single quantitative evaluation of Utility able to
serve relevant stakeholders' cumulative desires for organizational performance.
4.2 An example
Section 4.1 concepts might be best illustrated with the notional example depicted in Figure 3.
Suppose that a R&D organization's stakeholders hold its maintenance of customer satisfaction and
operational stability to be among the most critical of issues facing the organization. Also suppose the
Figure 3 MOE to have been appropriately derived from the two COI shown, noting that those same
effectiveness measures directly reflect the governance attributes of Table 2 and so could represent
the table's generic set tailored to circumstances peculiar to the R&D system of interest. Lastly
suppose that organizational MOP logically associated with MOE and observant of MCDA needs for
quantitative expression - including those to be associated with qualitative MOE - had been identified
and individually evaluated. With each of those three operations completed, methods like that of
Hester and Meyers (in press) could then be applied to yield a Utility value of the R&D organization, or
system, of interest. Stakeholders could view that value as an ordinal measure considered in the
context of particular organizational configurations, goals, or other circumstances of importance; in
other words, any single R&D organization's Utility - or equivalently, its effectiveness - will likely
change with changes in wisely-selected COI, MOE, and MOP, making the approach described here of
use in, for example, comparing current state against potentials related to risk, capital upgrades,
acquisitions, portfolio selection, or other concerns commonly encountered by R&D organizations.
Figure 3: A notional example of measuring R&D system effectiveness
5. Conclusions and call for further research
This paper represents an attempt to draw attention to long-standing and apparently still-vexing
concerns realized with attempts to measure the effectiveness of R&D systems or, equivalently, with
attempts to develop PMS of real worth to R&D organizations. Its authors gratefully acknowledge the
extensive and beneficial body of work so far dedicated to the study of R&D organization performance
measurement, and they hope that their own current and future reflections, too, will support that effort
and others dedicated to more general concerns of organizational governance and effectiveness.
Though on the surface there appears to be a place in the measurement of R&D system effectiveness
for governance concepts coupled with specific conventions of T&E and MCDA, there remains much to
be explored. This may hold most true for the fundamental processes of COI, MOE and MOP selection
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Thomas Meyers and Patrick Hester
that seem particularly inviting to the application of non-probabilistic methods such as those based on
fuzzy set theory, the AHP, Delphi processes, or combinations of those or other approaches drawn
from the fertile and possibly quite applicable domain of decision science. Whatever the future course
of measuring R&D system effectiveness, the authors strongly believe that it should and will feature the
stakeholder centrality featured by concepts presented with this paper.
Acknowledgements
Funding for research represented with this paper has been provided by the Borders and Maritime
Security Division of the United States Department of Homeland Security, Science and Technology
Directorate. The authors gratefully acknowledge the support received from this source.
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305

Core Competencies for Business Graduates Embark on the
Economic Clusters of Saudi Arabia
Sundaram Nataraja, Mazen Rasheed, Ahmed Al-Aameri and Zia-Ulhaq Paracha
King Saud University, Saudi Arabia
snataraja@ksu.edu.sa
mazen@ksu.edu.sa
Alaameri@ksu.edu.sa
zparacha@ksu.edu.sa
Abstract: The core competencies are the attributes, skills, and knowledge that employees across an
organization are expected to have to contribute successfully within a particular organizational context. The
business graduates are the fresh and young citizens, who graduate from various undergraduate business
programs that are offered at the private and public higher education institutions. The Economic system of Saudi
Arabia has been classified into three major clusters namely 1) Services sector, 2) Industrial Sector, and 3) Public
Sector. These sectors are the potential employment providers for the business graduates in the nation; and they
individually include several industries within. The actual number of competencies an organization may choose to
use varies widely from one organization to the other. Some examples of competencies organizations might use
would be i.e. communication skills; interpersonal skills; analytical and critical thinking skills, business acumen;
emotional stability; information technology skills; and work ethics. These competencies can be further classified
into three broad categories namely (i) personal attributes, (ii) professional skills, and (iii) business disciplinary
knowledge. How the employee competency is defined should be determined by how each organization chooses
to define it to fit its current work culture. The primary purpose of the study is two-fold. Firstly, the purpose is to
amass the core competencies in a list; and secondly, is to help develop and inculcate such competencies in
future graduates through an effective academic program to enable their employability in the economic clusters of
the nation. The research used both qualitative and quantitative research methods to collect empirical data. A
major emphasis is placed onto find out whether any idiosyncratic skills or knowledge that the graduates require to
possess to perform well in the economic clusters of Saudi Arabia. The research findings indicated that an array of
core competencies including certain eccentric skills specific to the Saudi Arabian culture are required for the
business graduates. Moreover, findings of the research study will be used by business schools in the process of
reviewing, updating and enriching their curriculum.
Keywords: competencies, business graduates, economic clusters, work-culture, organizational performance,
and academic program
1. Introduction
The contemporary business environment has forced business firms, industrial organizations and
public institutions to provide products and services comparable to international standards. The
human contribution is vital to the survival and success of these entities today. Hence, the entities are
looking forward to have competitive advantage on human grounds the staffing has become such a
strategic priority for employing competent workforce in Saudi Arabia. The potential employers of
business graduates include businesses, industries and organizations situated within the framework of
three economic clusters namely (i) Service sector, (ii) Industrial sector, and (iii) Public sector in the
country. These employers expect a set of personal attributes, an array of professional skills, and indepth
knowledge of specific functional areas of business in the name of 'Core Competencies' from the
prospective employees. These employees are mostly graduates, who are completing their
undergraduate studies in the universities, colleges, and professional institutions that offer academic
programs in the field of business administration. The study primarily aimed at accruing the core
competencies for business graduates; and to help develop and instill such competencies in future
graduates through an effective academic program to enable their employability and marketability in
the economic clusters of the nation.
In this context, the study attempted to flock and comprehend the core competencies required for
business graduates, who embark on the economic clusters of Saudi Arabia. The remainder of this
paper is organized as follows: Section 2 provides theoretical underpinnings and literature related to
the title of this research. Section 3 describes the research methods being used in the process of
collecting relevant data and information. Section 4 reports the findings with meaningful discussions.
Section 5 concludes with some suggestions and remarks for future research.
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2. Literature review
Sundaram Nataraja et al.
Business graduates are needed to adapt to the new business environment and workplace demands
to keep abreast with global competition. The key elements that enable graduates to perform parallel
to these demands are core competencies imparted during college education, especially during the
undergraduate study. Core competencies are included as major construct in various research studies
and they are essential for prospective employees to succeed in their career (Arthur, Inkson, & Prinkle,
1999; Ball, 1997; Defillippi & Arthur, 1994; Eby, Butts, & Lockwood, 2003; Hackett, Betz, & Doty,
1985; and Jones & Bergmann Litchenstien, 2000). The core competencies are the attributes, skills,
and knowledge that employees across an organization (Dieters et al., 2000) are expected to
contribute successfully within a particular organizational context.
Currently, it has become a common belief of the organizations that higher education institutions
should equip business graduates with proper skills, knowledge and attributes to be successful in the
workplace (Robinson & Garton, 2007). In Asia, most employers prefer business graduates obtained
their degrees from public universities since they are perceived to have the necessary academic
grounding and employability skills which are important in the current job environment. Generally,
employers who have the experience of hiring business graduates from public schools seem to be
more satisfied with their employees (Kaur & Kaur, 2008). Although competencies have been
considered increasingly important for better organizational performance, thus far, it has been unclear
what exactly the core competencies are required for business graduates embark on the economic
clusters of Saudi Arabia. Gibson (1993) stated, “Good employees are professional asset, bad
employees are occupational liabilities” in an organization. Traditionally, personnel approaches have
been much concerned with advancing theoretical understanding about the nature of competencies.
Boyatzis (1982) and Spencer and Spencer (1993) define competencies as the capacities that exist
with in a person and which predict superior performance. Competency management has been
suggested as a way to utilize employee skills more effectively in the workplace for several years now.
The concept originated from Human Resource (HR) management as a way to align HR processes
such as recruitment, selection, training and development, and performance appraisal to job
requirements and organizational strategy (Green, 1999). Therefore, the Saudi Arabian entities are
much concerned about the competencies required in their employees.
The core competencies are essential elements that portray the individuals with professional
identification and involvement in a particular organization (Mowday, Porter, and Steers, 1982).
Theoretically, the core competencies enable prospective employees to have (i) strong belief in and
acceptance of organizational goals and values; (ii) willingness to exert considerable effort on behalf of
the organization; and (iii) strong desire to maintain membership in the organization.
Michael Porter – the leading professor of Harvard Business School and the author of Competitive
Advantage theory – has conducted extensive studies in grouping the businesses and organizations
fall under various clusters of national economies in the Middle East. This paper got help from the
Porter’s model and the public listings of companies with Saudi Stock Exchange Bureau for classifying
the Economic clusters of Saudi Arabia. As guided by the literature, the Service sector of Saudi Arabia
includes banks, financial institutions, insurance companies, hotel and tourism enterprises, real estate
companies, information technology and telecommunication companies, media and publishing firms,
transportation companies, educational institutions, health organizations, retailing businesses, and
marketing companies; the Industrial sector includes companies in petroleum and minerals,
petrochemicals, agriculture and food, construction, industrial investments, and manufacturing plants
for various consumer products; and the Public sector includes various public enterprises, government
departments, ministries, commissions and public agencies, and organizations involved in policymaking,
policy-execution and judiciary functions.
According to Annual Statistical Report issued by the Department of Statistics and Information, Ministry
of Economy and Planning (2010), including public and private in nature, there are 30 universities, 47
colleges of business and professional institutes offering higher education in Saudi Arabia. A study
indicated that 74% of these are institutions are offering undergraduate academic programs in
business administration field. All these institutions are ought to comply with the requirements of the
National Qualification Framework monitored by the National Commission on Academic Accreditation
and Assessments (NCAAA) of Saudi Arabia. The requirements are mainly established for the
purposes of developing student capabilities upon assuring and achieving the desired program
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Sundaram Nataraja et al.
learning outcomes. Additionally, there are several universities and colleges in Saudi Arabia are
aspiring to get business program accreditation from international accrediting bodies such as
Association to Advanced Collegiate Schools of Business (AACSB), which requires the institutions to
establish appropriate program learning goals incorporating the desired core competencies to be
inculcated on business graduates. This study has analyzed such requirements along with the
requirements of entities in the economic clusters of Saudi Arabia in establishing the core
competencies that are discussed in this paper.
Additionally, literature on core competencies predicts that the personal characteristics of age, gender,
and family background; and also the situational factors like classroom participation, scholastic
effectiveness, and leadership styles will differentiate the required core competencies of a specific
individual. Personal characteristics have been investigated in relation to core competencies required
in college graduates (Adler, 1997). The study also made an attempt to clarify the general perspective
that women are tend to be more committed to organization than man (Mathieu and Zajac, 1990) with
reference to the female graduates with business degrees embarking on the economic clusters of
Saudi Arabia. However, there were fewer options presented for women to get employment in Saudi
Arabia and that there are obstacles relating to (a) cultural and social condition that restrict women to
work together in certain work environments, and (b) marriage and family that make it more difficult for
women to become organizational members (Aven, Parker, and McEvoy, 1993).
This paper has amassed 20 core competencies (CC) under three broader categories such as (i)
personal attributes, (ii) professional skills, and (iii) business disciplinary / specialized area knowledge
to measure the effectiveness of business graduates embark on the economic clusters of Saudi
Arabia. The core competencies are provided in Table – 1 below:
Table 1: List Core Competencies (CC)
Personal Attributes Professional Skills Business Disciplinary/ Specialized
CC 1. Assertiveness
CC2. Organized
CC 3. Detail oriented
CC 4. Sequential Vs Synchronic
CC 5. Quick learner
CC 6. Tolerant Vs Strict
CC 7. Emotional stability
CC 8. Introvert Vs Extrovert
3. Research methodology
CC 9. Communication skills
(oral and written in both Arabic
and English)
CC 10. Critical thinking skills
CC 11. Information and
Technology (IT) skills
CC 12. Interpersonal skills
CC 13. Research skills
CC 14. Analytical skills
Area Knowledge
CC 15. Knowledge on business
functional areas (i.e. accounting,
finance, management, marketing,
statistics, etc.)
CC 16. Knowledge of business
processes
CC 17. Knowledge on specialized
business area
CC 18. Knowledge of current business
trends
CC 19. Knowledge of social, cultural,
legal, ethical, and environment related
to business functions
CC 20. Knowledge of business
strategy
For collecting the primary data, this study has employed both qualitative and quantitative research
methods. The qualitative data have been collected by conducting personal interviews with selected
corporate managers, small and medium enterprises (SME) owners, general managers and/or
personnel managers of manufacturing companies, and administrative managers of government /
public service organization. There were 11 interviews held in a prearranged schedule in the months of
March and April, 2011. In the service sector, there were four interviews being conducted with senior
managers of Tawuniya – the company for cooperative insurance in Saudi Arabia, Saudi Telecom
Company, Samba Financial Group, and Al Rajhi Bank. In the industrial sector, there were three
interviews being conducted with senior managers of Saudi Basic Industries Company (SABIC), Arab-
American oil Company (ARAMCO), and Al Drees Petroleum Company. In the public sector, there
were four interviews being conducted with Administrators of Saudi Monetary Agency, Communication
and Information Technology Commission, Saudi Arabian Airlines, and Ministry of Interior. At the same
time, the quantitative data have been collected through administering a survey specifically structured
for this study. Originally, it was estimated to conduct with 250 respondents but only 241 surveys were
completed with a distribution of 81 in service sector, 80 in industrial sector, 80 on public sector based
companies.
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Sundaram Nataraja et al.
The secondary data were collected by reviewing relevant literatures including books, peer reviewed
research articles, statistical reports, and annual reports that were available in libraries, virtual
databases, and company websites.
4. Research findings
The outcomes of the 11 personal interviews were amazingly interesting. The face to face interactions
with the senior managers, personnel managers, and administrators of selected organizations have
opened the eyes of the researchers even beyond the research topic. The knowledge gained with
regard to the required core competencies for business graduates to be successfully employed at
various organizations as well as the accountability of business education providers in developing such
core competencies in students is worth mentioning here. Primarily, the interviewees have confirmed
the relevance of the 20 core competencies established by this study and have suggested some
additional competencies that are eccentric in nature to be developed in business graduates. For
example, a compulsory internship/ practicum opportunity for all the students to be incorporated in the
business curriculum in order for the graduates to gain hands-on practical experience prior to
embarking on the economic clusters of Saudi Arabia. This was a serious concern raised by several
survey respondents as well. At the same time, there are business schools in the country that
emphasize the internship/practicum/coop training as mandatory requirements in their curricula i.e. the
curriculum adapted by the College of Business Administration at King Saud University – one of the
premier institutions in the nation – for its Bachelor of Science in Business Administration (BSBA)
program does include such an arrangement, however, some other schools which did not provide such
opportunity for students may consider this requirement carefully as an important aspect demanded by
the potential employers in Saudi Arabia.
The survey results have confirmed the definitive requirements of the potential employers with regard
to the core competencies required for business graduates seeking employment with entities in the
economic clusters of Saudi Arabia. Figure – 1 indicates the percentage of respondents, who prefer
each competency as a requirement for business graduates, while they are employed in their
organizations, in order to optimize their organizational performance. The graphs indicate the level of
requirements of the core competencies in all three sectors of the economic cluster.
Figure 1: Required core competencies for business graduates
The analysis of the survey results provided a clear understanding how each competency is essential
or not so important for organizations in all three sectors of the economic cluster of the country.
Moreover, the survey results indicated that some of the core competencies are inevitable for business
graduates towards in achieving the desired organizational performance. At the same time, some of
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Sundaram Nataraja et al.
the core competencies are regarded dispensable as low as 30 to 20 percent. This survey clearly
provided a platform for the business schools to focus the important core competencies in developing
the business students. Interestingly, the results indicated that the Service sector is more demanding
and requires all the core competencies as a matter of higher degree of importance.
5. Discussions
The study investigated the concept of core competencies for business graduates embarking on the
economic clusters of Saudi Arabia. The analysis of survey results reveals that the established twenty
competencies are significantly related to all the three sectors of Saudi Arabian economic clusters. The
personal interviews established a need for mandatory internship/practicum to be built-in the business
curriculum. Based on the survey data analysis and interviewees responses, a model has been
developed by incorporating the twenty core competencies selected for this study. The model is
shown below in Figure – 2.
Figure 2: Core Competencies for Business Graduates (CCBG) model
The above model begins with the fresh/newly admitted students into business programs. The
business education providers such as universities, colleges and institutes help transform these
students as business professionals upon inculcating the twenty core competencies that are grouped
under three major developmental domains (as shown in Table – 1) namely (i) personal competencies,
(ii) business disciplinary / specialized area knowledge. These twenty core competencies are
established based on the requirements of the quality/accreditation/regulatory agencies that are
monitoring the business programs for their effectiveness in developing students as qualified
professionals to enter into the national workforce; and required by various entities that serve as the
potential employers for business graduates and also form the economic clusters of Saudi Arabia.
Besides, the business schools will provide mandatory internship / practicum opportunity for students,
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as required by several industry leaders (interviewees), to gain hands-on experience. In the end of the
learning process, as shown in the model, the outcome is the competent business graduates, who will
fill various positions in the economic clusters of Saudi Arabia. In a nutshell, the model clearly portrays
the importance of these twenty core competencies and the mandatory internship/practicum in the
process of educating the newly admitted students into competent business professionals.
Perhaps, further research can provide insight into the theoretical connections between the core
competencies required for business graduates and their employability in the various sectors of Saudi
Arabian economic clusters. Literatures report that core competencies are certainly important for
business graduates and the personal interviews reinforced that assertion. The personal attributes,
professional skills, and business disciplinary /specialized area knowledge may go long way in helping
the students to develop their professional career.
The research limitations also are to be accounted here. The samples are randomly selected for both
qualitative and quantitative data collection. Probably, more measures are needed to validate these
research findings. Perhaps, surveying different organizations in the economic clusters might produce
different results. In terms of research, this might probably be the first study on core competence
required for business graduates in Saudi Arabia. Hence, the generality of these results are minimal.
Moreover, the research findings have important implications for business education providers in Saudi
Arabia. The results indicated that business schools should audit the effectiveness of their academic
programs. Having clearly documented the core competencies and the education process in the CCBG
model, this research study expects the business schools to cross-check their curricula and
incorporate the missing competencies, if deemed necessary.
6. Conclusion
This study confirmed the requirement of core competencies for business graduates who are
embarking on the economic clusters of Saudi Arabia. As Boyatzis (1982) and Spencer and Spencer
(1993) defined competencies as the capacities that exist within a person and which predict superior
performance, the research study, as shown in the CCBG model, presumably prove the superior
performance of the business graduates in the nation. Additionally, personal interviews with selected
senior managers and administrators implied the importance of a practical training for the business
graduates. It is interesting to note that all the twenty core competencies are much required to secure
a job in the service sector and the public sector has the lower level of requirement. This may be
reflective of the stiff competition in the service sector, which requires the employees to be much more
prepared / developed to face the competitive nature of the business today. The study confirmed that
there are not many idiosyncratic skills are required for business graduates other than in depth
knowledge in Saudi Arabian culture in order to serve the local population. It is the firm belief of the
authors that the business education providers in Saudi Arabia will certainly read and review this paper
to realign their undergraduate curriculum in order to prepare better professionals to serve the
economic clusters of the country.
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312

Workplace Well-Being and Engagement – Some Inter-
Relations and Their Organizational Impacts
Jinia Mukerjee Nath
SKEMA Business School, Sophia Antipolis, France
jiniamukerjeenath@yahoo.com
Abstract: A working professional is known to spend anything from one-fourth to one-third of his lifetime at the
workplace. This is one of the reasons why the workplace environment plays such a significant role in an
employee’s global and overall sense of individual well-being. Well-being is important to companies for their own
performance interests. Positive well-being like work happiness, job satisfaction, joy, fulfillment and engagement
are known to improve company performance, while predominance of negative aspects like pervading stress,
burnout, depression en masse in employees only deteriorate company performance. Negative aspects in turn
create additional mental health costs for stakeholders like governments and additionally can even cause loss of
life, e.g. suicide. For these reasons the subject of workplace well-being is fast growing importance to human
resource departments. Awareness of these issues, understanding and appreciation of the deeper psychological
roots of well-being are becoming increasingly fundamental for every leader/manager in the management
hierarchy of the employee up to the very top, for purposes of initiating steps for better and sustainable company
performance. Traditional models of understanding these roots only relied on traditional psychological models of
past century – that is “identify what's wrong” and fix approach. Positive psychology is a field, pioneered by people
like Maslow and later Seligman, that emerged with the core assumption that the 'what's wrong' model of
psychology that has traditionally dominated individual and organizational psychology for the last century presents
only half the picture – it is thus necessary to identify, measure, preserve, reinforce and encourage what's going
right. The main aim of this paper is to aid the understanding and appreciation of the deeper roots of both wellbeing
and engagement using constructs of positive psychology, disambiguate their distinction with close relatives
like job satisfaction and happiness, and present a discourse on the realities of such phenomena culturally.
Understanding these roots can help leaders or managers re-orient attitudes and take more actionable and
sustainable steps towards the elusive ideal of high performance companies with happy employees.
Keywords: workplace well-being, engagement, positive psychology, engagement impacts, mental health,
organizational health
1. Introduction
Employee workplace well-being is known to be a pivotal internal factor that affects company
performance. The overall logical chain of reasoning, of why this is so, is as follows. A healthy work
force usually in general carries positive feelings towards the employer at large. Positive feelings lead
to a happier worker. A happier worker could lead to greater employee engagement. Both happiness
to a certain extent and engagement to an even larger extent increases workforce productivity leading
to better company performance. Going a bit deeper, these ‘factors’ are better stated as the set of
cognitive and emotional antecedent variables in the workplace, that are known to generate a high
frequency of positive affect in employees. Revisiting the big picture again, it is this employee ‘positive
affect’ and its degree of pervasiveness across the organization, that ultimately relate to the positive
business outcomes for the company.
Conversely lack of positive affect or presence of negative affect could lead to employee turnover
problems, negative business outcome and company reputation. But more importantly, for the
individual, the continued daily impact (typically a professional spends at least one-third of his day at
the workplace) of what started as a professional difficulty slowly starts to assume a personal
dimension - it could destructively permeate and eat up into the psyche of the individual progressively,
lead to emotional exhaustion, burnout, and in certain cases where psychopathology like depression
sets in, lead to loss of life (e.g. suicide). Governments then start becoming concerned not only at the
unfortunate loss of life, but also increasing mental health and social costs that might arise if a
substantial population is under such conditions.
In this paper we postulate a holistic approach towards attaining the elusive ideal of a high
performance company with happy employees. We emphasize that to make effective changes it is not
only important to not only fix what's going wrong but to reinforce and encourage what's going right.
The latter part i.e. “identifying, preserving, encouraging and reinforcing the right virtues” assumes
more importance in our paper. Positive psychology, a field that focuses on “what's right” approach
gathered force only at the start of this century. It emerged with the core assumption that a 'what's
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wrong' model of psychology that has traditionally dominated individual and organizational psychology
for the last century presents only half the picture.
First, we will present an introduction to positive psychology for the individual and the organization,
followed by definition of employee well-being through the positive psychology framework. Then we
will discuss and distinguish several closely related terms like workplace happiness, job satisfaction
versus engagement, and try to do an in-depth analysis of the meaning and repercussions of
engagement or disengagement in an organizational setting considering cultural aspects.
2. Positive psychology for the individual and the organization: A brief
introduction
Psychology in the twentieth century, be it from the individual or the organizational perspective, was
principally focused on observing, analyzing, modeling, measuring and designing ways for overcoming
the dysfunctional – identifying and fixing what is wrong, rather than identifying and reinforcing what is
right. In a radical departure from the ‘disease’ or 'illness' ideology of traditional psychology,
Seligman’s (1998, 2002) presidential address to the American Psychological Association,
emphasized the creation of a new generation of psychology called positive psychology – where the
goal was to develop equivalent tools, methods and a set of rigorous quantitative “lens” (Robison,
2003, Seligman and Petersen, 2004) with which traditional psychology had flourished, but focusing on
identifying, measuring and nurturing strengths and virtues that enable a more fulfilling existence. The
origins of this approach could however be traced (Froh, 2004), to the presidential address of
American Psychological Association in 1906, by William James who posed the question why some
individuals were able to utilize their resources to their fullest capacity and others were not.
Maslow(1954) in his chapter entitled “Toward a positive psychology” stated this even more explicitly -
“The science of psychology has been far more successful on the negative than on the positive side; it
has revealed to us much about man’s shortcomings, his illnesses, his sins, but little about his
potentialities, his virtues, his achievable aspirations, or his full psychological height. It is as if
psychology had voluntarily restricted itself to only half its rightful jurisdiction, and that the darker,
meaner half.”
Positive organizational psychology is the application of positive psychology in company or
organizational settings and has taken two principal paths. (a) Positive Organizational behaviour
(Luthans (2002a, 2002b), (Luthans and Youssef, 2007) (b) Positive organizational scholarship.
Positive Organizational Behavior (POB) is defined as "the study and application of positively oriented
human resource strengths and psychological capacities that can be measured, developed, and
effectively managed for performance improvement in today’s workplace". Positive organizational
scholarship (Cameron, et. al, 2003) , focuses on a variety of positive dynamics in businesses and
organizations, studying and analyzing any phenomenon that leads to positive, nurturing results and
extraordinary outcomes, often focusing on elements like organizational virtuousness, resilience,
identity, thriving and positive leadership.
3. Defining well-being
Early Greek philosophy propounded two kinds of well-being: (a) The Aristippus approach was
hedonism, or the pursuit of sensual pleasure and avoidance of pain. The Aristotle approach was
eudaimonia ("eu" ("good") and "daimōn" ("spirit") - is a Greek word meaning "human flourishing" –
spelling anglicized as eudemonia). In modern days these elements have been revived in the context
of positive psychology aided by seminal papers on this topic by Ryan and Deci (2001) and Waterman
(1993).
Hedonic well-being - simply stated is equivalent to “happiness”(Waterman, 1993) or “what makes life
good”. More specifically hedonics is the wellness sensation that pervades when there is only physical
or mental pleasure and positive emotions that excludes any painful or negative emotions. Most work
on hedonic well-being is measured by assessing subjective well-being (SWB) using three measures
namely life satisfaction, presence of positive mood versus the absence of negative mood. Ryan and
Deci (2001) also state that the “the focus of hedonic psychology on pleasure versus pain also readily
links it with behavioral theories of reward and punishment (e.g. Shizgal 1999) and “may be explained
through the expectancy-value approach (Oishi et al 1999) which in its simplest form suggests that
well-being is a function of expecting to attain (and ultimately attaining) the outcomes one values,
whatever those might be.”
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From the eudemonic perspective, subjective happiness or hedonic well-being cannot be equated with
psychological wellness or well-being in totality (Ryan and Deci, 2001). These missing elements that
eudemonia proposes are concerned “with the actualization of human potentials” and are said to occur
“when people’s life activities are most congruent or meshing with deeply held values and are
holistically or fully engaged” (Ryan and Daci, 2001) – a sensation that is often stimulated through a
combination of personal growth, environmental mastery, sense of purpose, autonomy, selfacceptance
and positive relations with others.
Today, well-being is considered to be a multi-dimensional construct (Ryan and Deci, 2001), consisting
of both hedonic and eudemonic dimensions– in a nutshell the hedonic one is concerned about
subjective happiness, while eudemonic one is concerned about meaningfulness or purposefulness.
Both generate positive affect and cater to the different dimensions of the sensation of well-being in
the human mind. Of course well-being also includes the degree absence of negative components as
well.
4. Well-being at work: Engagement-oriented versus engagement-neutral
With the above background on positive psychology and the approaches to generalized well-being and
its dimensions, the concept of well-being at work can be well-explained.
Typically happiness at work for employees of a securely established traditionally wealthy company
(for example in a relatively monopolistic business) often are (but not necessarily strictly) tied to
aspects like salary level, position, material perks, pride of being associated with a large branded
company, the social environment at work, job security (particularly for governments or European
private companies) etc. - this list is complete by no means. A lot of people stay in the company for
‘what they get’ rather than ‘what they do’ - that enables them to fulfill their basic needs, feel a sense of
adequacy and cater well to their hedonistic if not eudemonic well-being. In the words of Bruggeman,
Groskurth, and Ulich (1975) these people describe and acquiesce to job constraints, exist in a state of
“resigned” job satisfaction, where they feel “happy and satisfied” and would probably score high in the
subjective well-being index. This population is what we call employees with little or no engagement.
This does not necessarily mean that they are bad employees or don’t contribute. They will do what
they are asked, but will not stretch to do more than required, will not make suggestions for
improvements, will not offer new ideas. They do just the measured adequate. It simply means they
are not involved – the job is simply a means to their end. And they are happy this way.
The engaged employee, in contrast is of a different breed. What is engagement? The UK Work
Foundation’s definition of engagement is as follows: “Employee engagement describes employees’
emotional and intellectual commitment to their organization and its success. Engaged employees
experience a compelling purpose and meaning in their work and give their discretionary effort to
advance the organization’s objectives”. An alternate definition provided by the firm “The Best
Companies” echoing the same spirit is as follows: “Engagement can be defined as an employee’s
drive to use all their ingenuity and resources for the benefit of the company.” It is the difference
between people coming to work and doing an adequate job, versus people stretching themselves
beyond adequacy to exceed expectations – displaying keen interest, giving their best, displaying
creativity, using initiative and discretionary effort. From the positive psychology viewpoint, we can
note the presence of a strong eudemonic element here.
A nice example worth quoting was posted in the DecisionWise leadership website (Sheffield, 2010)
on this. “Consider Connie. She is an assembly line employee who is satisfied with her job. Her job
means steady employment. She feels satisfied with her pay (at least it’s better than most of the jobs
she could find down the street). She starts at 7:00 in the morning and gets off in time to pick up her
seven-year-old from school. It meets her needs. However, for Connie, it’s just a job. She can’t say
she looks forward to coming to work, and she doesn’t find herself motivated to perform her best.”
Connie may also be happy or satisfied with her job, without being engaged.
5. Explaining engagement through positive psychology
A high degree of engagement may be explained to a significant extent using flow theory in positive
psychology, first proposed by Mihály Csíkszentmihályi(1990) - “Flow is the mental state of operation
in which a person in an activity is fully immersed in a feeling of energized focus, full involvement, and
success in the process of the activity.” Flow is completely focused motivation. It is a single-minded
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immersion and represents perhaps the ultimate in harnessing the emotions in the service of
performing and learning. In flow, the emotions are not just contained and channeled, but positive,
energized, and aligned to the task at hand. One cannot force oneself to enter flow or even predict
when one is going to enter flow. It just happens. A flow state can be entered while performing any
activity, although it is most likely to occur when one is wholeheartedly performing a task or activity for
intrinsic purposes. What are the conditions that stimulate flow? According to Csíkszentmihályi (1990),
there are 3 pre-conditions for achieving flow:
First the task must pose itself as a challenge relative to the skills of the person engaged in the
task. If the task is too easy or too hard for the skill level of the person, flow never happens.
Goals of the task and achievement targets must be clearly understood by the person.
The task must have a clear and immediate feedback.
In practice, one can construct gradations to the degree of employee engagement, from those actively
engaged at the one end (and exhibiting flow) to those actively disengaged at the other end of the
spectrum.
6. The deep drivers of employee engagement
An American HR firm Tower Sperrin, in an engagement report identified overall positive response to
the following questions as indicators of engagement: (a) Really care about the future of my company
(b) Proud to work for my company (c) Sense of personal accomplishment from my job (d) My
company is a good place to work (e) Company inspires me to do my best work (f) Understand how
my unit/department contributes to company success (f) Understand how my role relates to company
goals and objectives (g) Am personally motivated to help my company succeed (h) Am willing to put
in a great deal of effort beyond what is normally expected. Similarly Gallup claims to identify
employee engagement through a similar 12 item questionnaire (no reproduction of those questions
allowed without Gallup’s permission) given to employees and then statistically aggregating the
responses for the entire company. We believe that these factors are more detectors or symptoms of
engagement rather than drivers of engagement. These hypotheses are rooted in the extrinsic and
intrinsic motivation of the individual that is shaped by personality and the belief systems of the
individual developed through social learning. Causality, rather than correlation or association is
indeed a difficult point to prove in the social sciences; nevertheless some hypotheses could be
presented for further study and research.
Csíkszentmihályi (1990) himself forwards one such hypothesis. He states that an autotelic (Greek
auto=self, telos=purpose) personality is very likely to experience flow and thus exhibit significant
engagement. An autotelic personality is one who is driven internally rather than by external material
elements. Indicators of autotelic personality are certain personality traits like curiosity, persistence,
low self-centeredness, and a high rate of performing activities for intrinsic reasons only.
The attribute of engagement or disengagement is not just an attribute of an employee but could be a
property of the work environment that the employee is embedded in, to which the employee adapts.
In other words company or its particular departmental culture could be engaged or be engagementneutral.
Some companies do not expect disengaged employees at all, they will typically hire
candidates by asking probing questions to test their attitude towards engagement and will go the
extent of removing them if hired by mistake – in such situations engagement is a precondition to
preserving the employment – that everybody must be engaged is a core company value. Many other
companies (and the numbers are getting fewer and fewer everyday) or certain specific positions of
theirs may demand someone who can do a task just adequately.
People whose personal eudemonic goals are strongly attached to job, performance and challenge,
may in general not have a sense of workplace well-being in engagement neutral environments.
People, with hedonistic predominance could feel happy and satisfied in such environments for the
benefits they receive. No person is perfectly hedonistic or eudemonic, occupying the very end of the
spectrum – in the words of Csikszentmihalyi - typically it is a gradation - ranging from individuals who
almost never feel that what they do is worth doing for its own sake, to others who feel that almost
anything they do is important and valuable in its own right.
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7. Organizational benefits of engagement
An organization with truly engaged employees stands to receive several benefits from a chain
reaction of consequences due to the engagement factor - improved quality of work leads to greater
customer satisfaction, efficiency/productivity is improved, there are lesser project delays. These in
turn lead to the earning of trust from customers and consequently lead to greater market reputation.
Internally the company benefits from higher talent retention rates (consequently lower attrition rates)
and greater innovation efforts, particularly necessary for fast moving high-tech and internet oriented
companies. Another internal benefit gained is that when people really love the work they do, they take
keen interest, typically the knowledge evolution (noviceskilledexpert) for the individual is faster,
training time become lesser and on the job performance is augmented. Other side effects are reduced
absenteeism, lesser illness rates and accidents.
We thus have an explanation – why job satisfaction and happiness do not in themselves create high
performance, as they may not be sufficient criteria for engagement – the personality might not have
enough job related eudemonic goals. Imagine Connie’s management is very progressive and has
regular communication with her to hear her voice and consult her views – such internal
communication could be a contributing factor towards potentially engaging Connie but does not
amount to employee engagement and so does not guarantee superior performance.
8. Self-reported reasons for disengagement and its impacts
While employees can be essentially disengaged towards work by virtue of their personality, a lot of
disengagement seem to result from failure of executive leadership to retain or nurture engagement.
Several reasons of why people of an engaging nature actually become progressively disengaged can
be found in interesting blogs on the web, and in narrative self-reports (a) no coaching or support from
manager (b) much of the workforce in unappreciated environment. (c) Fresh, new ideas disregarded
or ignored. Why put in extra effort for ridicule or lack of acknowledgement? (e) employees asked to do
'important' work that was known from before to not be contributory to the organization in any
meaningful way – but somehow was important for the manager when assigned– yet during
performance appraisal the employee was told that the employee does not deserve to get a raise as
the work he did does not globally improve the company performance. (f) an environment – where
lesser engaged employees are rewarded with promotions for unknown or hidden reasons
disregarding the achievements on previously set objectives - on which legitimate promotions are
supposed to be granted (g) a continued sequence of carrots and broken promises resulting in a
complete loss of trust towards the employer (h) sidelining the real contributors of the work. We can
clearly see a clear mix of discontented hedonic and eudemonic elements of individuals here.
In such conditions, the usual response of the employee is either 'fight' or 'flight' (seek another job).
'Flight' is often a chosen option for its relative ease. But economic slowdown often makes it difficult for
such people to exercise a 'flight', sometimes difficult to get an alternate employment through which
they can retain the ability to pay their bills and yet renew their engagement. Till then, such people
stand only to bear such deplorable conditions. Emotional access, sharing and disclosure to good
friends at work often lighten their burden – but is sometimes not enough. What has been surprisingly
revealed in an Australian study (also confirmed by a Gallup study) is that those with poor or unhappy
work environments have worse health and sense of well-being than the unemployed. The Gallup
study states that “Even at a time when unemployment is high and many people are thankful to have a
job, those who are actively disengaged in their work have lower wellbeing than the unemployed”
(Harter and Agrawal 2011).
9. Culture dependent versus culture invariant aspect of well being and
engagement
Some dimensions of engagement or disengagement is very cultural. In the earlier sections, we have
encountered some of these cultural aspects. Typically, but not necessarily, in American or Anglo-
Saxon environments, or in countries with significant corporate influence of these cultures, the
distinction is more black and white than in countries or cultures where simply adequacy rather than
work devotion is expected. For many large Western European corporate houses, the latter applies -
engagement, personal, emotional involvement and performance might not be rewarded or valued
leading to disgruntled employees. Sometimes this causes the 'flight' of people with such mindsets, to
those places or companies where such criteria are valued. Many don't leave these large companies
they first joined, ever – for the constant financial or other benefit they continue to receive for
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sustaining their basic needs – many people who had elements of job devotion often learn to live in
learned helplessness at work (Seligman, 1975), improve their environment by changing teams or
somehow channelize their eudemonic interests towards other aspects of life. For many others, both
employee, management or human resource departments, there does not seem to be any thought or
notion beyond adequacy in the job – emerging from the cultural trend, exposure and habit – for such
a population, active engagement could turn out to be a surprise and even actually pose a threat to
their well-being. No wonder in European countries, the concept of corporate well-being, as has been
laid down by European Union legislation, is more medically oriented as presented by Anttonen and
Räsänen (2008) - “Well-being, as described in the legislation, comprises of aspects of occupational
safety, occupational health, psycho-social factors (including job stress, mental health, bullying and
sexual harassment), occupational hygiene, workplace design, and the environmental measures taken
by companies that affect aspects of well-being.” The definitions of health promotion used in Public
Health legislation are clearly based on the concept of health promotion used by World Health
Organization (WHO), i.e. health promotion is the process of enabling people to increase control over
health determinants. The only remote relationship to engagement in the official guidelines in
European Network for Workplace Health Promotion at the workplace is as follows: “There is also a
strong correlation between an effort and reward imbalance and negative impact on mental health.
Within reason, employers can take steps to minimize this, for example by paying a decent wage to
the lowest paid employees.“
In contrast, in the Anglo-Saxon environments, engagement is (typically) so much expected at work
and culturally desired by the employee that engagement has a polar impact on mental and physical
health of the employee – amounting to distress for the employee on disengagement and fulfillment on
engagement. Clear indications of this emerge from the studies by Gallup reported by Wagner and
Harter(2006) that “Engaged people feel less stress, and the stress they do feel is offset by a lot more
happiness and enjoyment and interest.” ..“The converse is true of the disengaged, who feel more
stress and have fewer sources of pleasure at work.”
The culturally invariant aspect of positive well-being, regardless of engagement, is perhaps sources of
pleasure at work, the biggest of which is the employee's social network at work.
10. Mental health impact of the lack of well-being
At first we present the impact of disengagement in engagement oriented work environments or
cultures. A recent Gallup study involving 9,561 employed adults looked in to the effects of
disengagement on mental health. The study was conducted during a period when United States
moved through the period of recession (February 2008 through April 2009). People previously
diagnosed with depression or anxiety was excluded from the study. Participants were given Gallup's
12-item employee engagement assessment, the Q12, to determine engagement at workplace. When
the participants were again surveyed about eight months later, results indicated that actively
disengaged employees were 1.7 times more likely than engaged employees to be diagnosed with
anxiety and almost twice as likely (than engaged employees) to be diagnosed with depression for the
first time in the next year.
Regardless of engagement or not, absence of well-being can be devastating, leading to stress,
burnout, anxiety, depression and in the worst case suicide. The advent of mental health problems is
an invariant consequence of lack of well-being that seem to cut universally across cultures –
regardless of whether that well-being stems from engagement or not. There is ample literature and
statistics on the topic of rising mental health costs due to a lack of workplace well-being - that is
revealed on a simple internet search. For example, in the European Union Network for Workplace
Health Promotion website (2011) rings the following alarms: (a) Mental ill health at work is estimated
to cost the EU 136 billion EUR annually (b) More than a quarter of European employees suffer from
mental stress.
11. Conclusion and future work
In a narrative rather than an empirically validated mode, we tried to explain the concept of employee
engagement from the perspective of positive psychology. Employee engagement seems to be a
concept that has been variedly and sometimes confusingly used in practice with close terms like job
satisfaction, work happiness etc. We have attempted to disentangle some of these knots clearly. We
also presented the benefits to organizational health that employee engagement could bring through a
chain reaction. We presented the matrix of engaged versus disengaged employees in engaged or
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engagement-neutral environments and its consequences. We characterized well-being as a relative
term - personality dependent, subjective and culturally based and may not be necessarily tied to
engagement. We presented observations suggesting strong stereotypical consistency in the
perception, meaning and determinants of well being across Europe and the Anglo-Saxon world.
Notable among that observation is the reduced versus increased role that engagement seemed to
play as a determinant of well-being. Finally, we presented the observation that regardless of whether
the lack of well-being stems from engagement or not, the fact that workplace well-being affects
mental health seems to be invariant across cultures.
The analysis given in this paper is by no means complete in its depth or totality of coverage –
however the paper attempts to make a start towards spreading awareness by describing an eclectic
set of important relations between engagement, well being and its organizational impact.
A natural sequel that leaders and managers would expect is a set of operational guidelines on how to
integrate these notions as actionable steps in practice which in itself is a large topic of analysis in its
own right – whose basis requires extensive scientific validation using a rigorous quantitative lens.
While many HR firms or leadership institutes have been recommending such steps to the
management of companies, we argue that the awareness of “why” behind those recommendations
and the chain of reasoning “why it should work in a given cultural context or a given company”, unless
explicated, might not be sufficient to convince the belief systems of the management to win their high
engagement beyond the routine. We hope this paper has begun to take a modest step in this regard.
The apparent cultural divide in the European versus the Anglo-Saxon notion of well-being at work
opens up research in these two cultural directions. There does not seem to be much work on the
European side on engagement, professionalism and well-being – thus opening up many possibilities.
For example, it is interesting to study in the European context, whether productivity and good
company health is possible with simply ‘professionalism’ ( job effectively and immaculately done as
per planned characteristics of the outcome in exact working hours of the day – nothing less, nothing
more) but without personal devotion of employees that the Anglo-Saxon ‘engagement’ trend seems to
be calling for – isn’t that what large industrial houses in Europe have done perhaps for centuries? The
relation between professionalism and engagement needs to be explicated and disentangled. What is
perhaps valuable for a traditional European company is a statistical study on management as well as
employee perceptions of the influence of attributes like professionalism, engagement, disengagement
on attributes that define company and employee goals. Without such assessments, trying to impose
engagement oriented attitudes suddenly in an engagement neutral environments due to the whim or
belief of some top management or because ‘engagement is trendy/cool’ or ‘others are doing it’ will
only have sunk costs without payoff. At a more theoretical level, the nature of the associative link
between the symptomatic detectors of engagement (e.g. the Gallup or another similar questionnaire)
and the positive psychology character/ personality traits defined by Petersen and Seligman(2004)
needs to be studied. Cross validation or revalidation of these questionnaires, for formulation of
alternative detector questions that achieve the same result is also another possible topic of study.
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320

The Directing Role of Governance in Establishing Proper
Organizational Culture in Universities
Fattah Nazem
Department of Education, Roudehen Branch, Islamic Azad University,
Roudehen, Iran
nazem@riau.ac.ir
Abstract: The purpose of the present study is to validate a scale for measuring the organizational culture of
higher educational institutes. The population of the study included all the staffs who were employed in all
branches of Islamic Azad University in Iran (i.e., 420 branches and educational centers). The research sample
consisted of 996 staffs randomly selected from 86 branches and educational centers using stratified and cluster
random sampling methods. The research instrument was a researcher-made questionnaire for organizational
culture which was constructed based on the Robbin’s (1996) theory with 28 items and underlying factors of
individual initiative, risk tolerance, direction, integration, conflict tolerance, management contact, control, and
reward system (α = 0.92). The results of factor analysis and principal components analysis, using a varimax
rotation, showed that building blocks of organizational culture includes risk tolerance (Items 1, 8, 10, 13, 15, 17,
18, 19, 24, 25, and 27), direction (Items 11, 12 , 20, 21, 22 and 28), reward system (Items 3, and 4) , and
management contact (Items 6, and 7).
Keywords: governance, organizational culture, universities, varimax rotation
1. Introduction
In many countries, higher education institutes are centrally run and their budget are provided by the
governments. Therefore, the government directly interferes in the universities' affaires. Higher
education system is one of the most important and complicated products of human achievements. In
recent decades, the changes have revolutionized the social systems and organizations; hence,
scientific centers, in general, and universities, in particular, are more addressed to satisfy new
expectations. Regarding the key role of higher education, Green (1997) explains that higher education
provides the technical knowledge and skill that industry requires it in future and the fact that
governments depend on this knowledge to have an effective and strategic programming. In addition,
higher education develops the people's attitudes and motivation in order to confidently work in a group
and actively participate in the national development plans. Universities are included in those social
systems which have been recognized as the society’s engine for raising awareness and the basic
center of thought and reflection. Nowadays, no developed country is found that has reached its
present status without relying on its active and equipped universities. Today, universities can be
considered as the heart of the dominating and successful civilizations. Because of profound changes
which have affected our today's world, the universities, even more than ever, have been in the focus
of prolonged international and social discussions which devote to the goals and ideals of universities
as well as their roles in guidance and leadership (Feigenbaum, 1994).
2. Literature review
Culture is so important to an organization. Schein (1999) suggested that an organization’s culture
helps it cope with its environment. The culture of an organization and its vision and purpose must be
in alignment for it to change (Wallach, 1983). Culture influences the communication skills and
decision-making processes of the organization’s members and affects its credibility (Cooke &
Rousseau, 1988; Fisher, 2000; Kowalczyk & Pawlish, 2002; Mycek, 2000). Organizational culture also
shapes the organization’s level of socialization and learning (Cooke & Rousseau, 1988). Kowalczyk &
Pawlish (2002) correlated the importance of culture to an organization’s competitive advantage,
adaptability, and level of innovation. The culture of an organization may affect organizational system
operations, productivity, leadership actions (Shaw, 2002; Taylor, 2002), performance (Cameron &
Quinn, 1999; Conant, 2007; Siu Chow & Liu,2009; Boggs, 2010; Asree et al., 2010; Naor et al., 2010;
Tseng, 2010), and organizational effectiveness (Valentino, 2004). Research has shown that culture
has influenced employees’ commitment (Lok & Crawford, 1999; Mycek, 2000; O’Reilly, 1989; Putz,
1991; Webster, 2004) and behaviors (Atchison, 2002; Cooke & Rousseau, 1988).
Robbins (1996) has mentioned the key characteristics of organizational culture as follows:
Individual initiative: The degree of responsibility, freedom, and independence that individuals
have.
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Fattah Nazem
Risk tolerance: The degree to which employees are encouraged to be aggressive, innovative and
risk-seeking
Direction: The degree to which the organization creates clear objectives and performance
expectations
Integration: The degree to which units within the organization are encouraged to operate in a
coordinated manner
Management contact: The degree to which managers provide clear communication, assistance,
and support to their subordinates
Control: The number of rules and regulations, and the amount of direct supervision that are used
to oversee and control employee behavior
Reward system: The degree to which reward allocations (salary increases, promotions) are based
on employee performance criteria in contrast to seniority, favoritism, and so on.
Conflict tolerance: The degree to which employees are encouraged to air conflicts and criticisms
openly.
Lynn (1999) also concluded that organizational culture is effective in successful use of intellectual
capital. Bontis (1998) presented the Model from the University of Western Ontario in which
organizational culture is a fundamental element in forming structural asset. He believed that
organizations should have the culture which is strong enough for the individuals to be able to gain
new experience, failure, and learn again something new; the culture that punish the staff for their
malfunctions will have the least success. Flamholtz (2002) considered culture as the major factor in
the development of an organization and the cornerstone of the long-run goals of a successful
company. Since governance, in many countries, provides financial supports for the universities,
allocates their budgets, and directly or indirectly involves in the universities affairs, it should play an
active role in establishing appropriate organizational culture
Regarding organizational culture variable as a guarantee to survive and a competitive advantage for
universities, the present research is going to design a valid instrument which identifies the constructs
which form the organizational culture, measure the variable of organizational culture in each of
dimensions which form it, and find a way to develop proper organizational culture in universities.
3. Research questions
What are the indexes which construct the organizational culture in universities?
Which of these indexes has more contribution in forming organizational culture?
4. Method of the study
The population of the study includes all the staffs who work in 420 branches and educational centers
in 14 zones of Islamic Azad University.
2 2
z σ
In order to estimate the least volume of sample, n = formula was used. Regarding the
2
d
minimum sample required for the staff’s group which was estimated as 996 people, the same number
of questionnaires of organizational culture was administered to the staff in 86 branches and
educational centers. In order to select the research sample, two methods of stratified and cluster
random sampling were used.
The research instrument was a researcher-made questionnaire for organizational culture which was
constructed based on the Robbin’s (1993) theory with 28 items and underlying factors of individual
initiative(Items 1,3,10 and 27), risk tolerance(Items 15,17 and 25), direction(Items 7,13,21 and 28),
integration(Items 4,5 and 12), conflict tolerance(Items 9,16 and 19), management contact(Items 6,23
and 26), control(Items 2,11,20 and 22), and reward system(Items 8,14,18 and 24) and (α = 0.95). The
reason why Robbins' (1996) questionnaire was administered was that it had already been adapted to
the native culture of the subjects by Asadpour (2010),and Najafzadeh (2010) . However, the actual
questionnaire administered here, has undergone some alterations to be suited to the environment of
the higher education institutions.
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Fattah Nazem
The researcher has used factor analysis and principal components analysis, using a varimax rotation
in order to identify the underlying constructs of organizational culture.
5. Findings of the study
The preliminary analysis of different indexes of central tendency, variability, and the distribution of the
staff’s scores obtained from the questionnaire of organizational culture and its 8 components show
that the distribution of the staff’s scores in the given variables have tendency toward normality. To
answer the research questions, factor analysis procedure was applied.
The first step in factor analysis process which is also its first assumption is Checking Missing Data. In
this step, subjects number 492,493,494,495,496,769,927,933,949,953, and 958 including eleven
persons altogether were eliminated from statistical analysis so that the factor analysis assumption
under the heading of at least missing (0.02) could be observed in each subject. Hence, in this
research no item has been eliminated except eleven subjects. The second factor analysis assumption
denotes enough sample size. In this research, Kaiser- Meyer- Olkin (KMO) equals 0.958
consequently, the sample size is sufficient. The third factor analysis assumption is normality of multivariation
distribution known as sphericity. As the Approximate Chi Square equalled 12707.050 with
the 378 degree of freedom, it can be stated that the amount of the Approximate Chi Square is
statistically significant and the given statistics is significant at least at the 0.999 level of confidence
(α = 0.001).
According to component matrix of items we can determine both the specific factor of each item and its
position in the related factor based on loading factor. After studying table of component matrix
precisely, the researcher used Rotation Method so that loading factor of each item can be determined
stressing at recognition of each item in one of the 8 factors. Reiterating that in this research, the
researcher has followed Exploratory Factor Analysis and has used Principal Component Methods
from Extraction of Factors, Varimax Method was applied (table 1). According to varimax, the
researcher was able to determine both the factor to which the item belongs after rotation and the
position of each item in related factor with reference to loading factor. This table shows in which factor
each item has been located after the rotation. For instance, Items 1 ,8, 10, 13, 15, 17, 18, 19, 24, 25
and 27 have been located in the first factor (risk tolerance).
Eventually, 4 factors have been extracted from rotation of factor analysis; in fact, organizational
culture consists of 4 factors respectively as follows: risk tolerance, direction, reward system, and
management contact.
Table 1: Rotated component matrix
Component
X
risk tolerance direction reward system management contact
x1
x2
x3
x4
x5
x6
x7
x8
x9
x10
x11
x12
x13
x14
.549
.659
.659
.589
323
.706
.666
.751
.598
.553
.687

x15
x16
x17
x18
x19
x20
x21
x22
x23
x24
x25
x26
x27
x28
Fattah Nazem
Component
.663
.750
.702
.549
.648
.632
.731
Hence, emphasizing at the four-fold factors of organizational culture, items related to each factor have
been summarized in table 2 respectively.
Table 2: Results of factor analysis of intellectual capital construct
Factors
First Factor
Second Factor
Third Factor
Fourth Factor
Index
risk tolerance
direction
reward system
management contact
.620
.669
.595
.591
Items
1,8,10,13,15,17,18,19,24,25,27
11,12,20,21,22, 28
3 ,4
6,7
6. Discussion and conclusions
In this study, in order to assess the organizational culture, a researcher-made questionnaire for
organizational culture was applied, which was constructed based on the Robbin’s (1993) theory with
28 items and underlying factors of individual initiative, risk tolerance, direction, integration, conflict
tolerance, management contact, control, and reward system. The 8 factors which were used to
assess the organizational culture in this study are in agreement with the theories and studies carried
out in and out of Iran. Some of the similar studies done in the same field are as follows: Litwin and
Stringer(1986) ,Gordon(1991), Robbin’s(1996), Gregory(2004), Mehdynia(2008), Cheradmand(2009),
Najafzadeh(2010), and Asadpour(2010).
Regarding the research background and the related theories, the four factors involved in
organizational culture show that the organizational culture scale almost generally covers the
underlying factors. Hence, it can be concluded that the results obtained from the administration of the
tool and the level of organizational culture in universities determined by the application of the tool as
well as its validity are generally acceptable. The increasing need of universities for determining the
level of organizational culture from the one side and the lack of valid instrument of the organizational
culture from the other side were the main causes of doing the present study. In addition, the research
was done to identify the precise and complete dimensions, aspects and factors which make
organizational culture through measuring the validity of a scale which was designed and administered
to the staff of higher education institutions. In this way, it is possible to locate the theoretical position
of organizational culture and identify the importance of the variables which have been introduced by
different theories as the factors which form organizational culture. The ultimate purpose of the study,
then, is to design and administer a valid tool in order to develop proper organizational culture in
universities.
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Fattah Nazem
Higher education system, as the most important system in any society, is also comprised of
organizations whose main foci are on “thoughts” and has a profound effect on cultural, political and
religious affairs. Organizational culture is among the variables whose efficiency have been
investigated and proved by various researchers (Wallach, 1983; Cooke & Rousseau, 1988; O’Reilly,
1989; Gordon,1991; Putz, 1991; Robbins,1996; Schein, 1999; Cameron & Quinn, 1999; Lok &
Crawford, 1999; Fisher, 2000; Mycek, 2000 ; Mycek, 2000; Kowalczyk & Pawlish, 2002; Shaw, 2002;
Atchison, 2002; Taylor, 2003 ; Valentino, 2004; Webster, 2004; Gregory,2004; Conant, 2007; Siu
Chow & Liu,2009; Boggs, 2010; Asree et al. ,2010; Naor et al., 2010; Tseng, 2010).
Close attention to organizational culture is an absolute necessity within all organizations particularly
higher education institutions. Organizational culture is a commodity necessary to guarantee
organizational survival and universities’ competitive advantage in the complex and competitive world.
The results of this study are also in line with those of other research projects the breadth of which are
mentioned in the previous sections. Furthermore, universities, as one of the social systems, have
been recognized as the engine of disseminating knowledge and awareness as well as the center of
directing the societies. They are the basic centers of thought and reflection. The questionnaire
administered here also enjoys some psychoanalytic features, specifically construct validity. These are
some of the reasons which lead the researcher to recommend that the same study be carried out not
only in Islamic Azad University but in all other universities and its findings, in turn, be taken into
consideration in those universities. In order to develop proper organizational culture in universities, it
should first be measured through a valid instrument. Consequently, necessary managerial actions
should be taken. Leaders are also urged to take practical steps towards materializing the principles of
organizational culture since they guarantee the survival of the organization and are among the
competitive benefits.
Since the higher education systems in many countries are managed in a central office and the
university budget is assigned by the governments, it is quite clear that governments interfere in the
universities' affairs. Developing proper organizational culture is among the affairs governments are
required to control in universities. To this end, one such valid instrument is required first to measure
the organizational culture in the universities and then to improve the indices of organizational culture
by asserting an efficient management mechanism. The indices of organizational culture according to
the findings of the present study include risk tolerance, reward system, management contact, and
direction. The significance of such indices is proved in various studies.
Acknowledgements
This paper is extracted from a research project sponsored by the research department of the Islamic
Azad University, Roudehen Branch to whom I owe a debt of gratitude.
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326

The Role of Governance in Appointing University
Managers With Creative Problem Solving Skills
Fattah Nazem
Department of Education, Roudehen Branch, Islamic Azad University,
Roudehen, Iran
nazem@riau.ac.ir
Abstract: The purpose of the present study is to validate a scale for measuring the creative problem solving of
the managers of higher educational institutes. The population of the study includes all the managers who work in
all branches of Islamic Azad University in Iran (i.e., 420 branches and educational centers). The research sample
consisted of 332 managers who were randomly selected from 86 branches and educational centers using
stratified and cluster random sampling methods. The research instrument was the Whetten & Cameron’s (2006)
Creative Problem-Solving questionnaire which consisted of 22 items with dimensions of logical problem solving,
creative problem solving, developing innovation and Cronbach Alpha of 0.82; The results of factor analysis and
principal components analysis, using a varimax rotation, showed that building blocks of creative problem solving
skills includes creative problem solving (Items 4, 5, 8, 9, 13, and 15), developing innovation (Items 1, 2, 3, 16, 17,
and 21), and logical problem solving (Items 18, 19, and 20).
Keywords: governance, creative problem solving skills, factor analysis, universities
1. Introduction
The higher education system has caused a great deal of changes in social, economic and political
fields. Green (1997) explains that higher education provides the technical knowledge and skill that
industry requires it in future and the fact that governments depend on this knowledge to have an
effective and strategic programming. Godet (1994) in his book entitled "From Prediction to Action"
refers to ten factors relating to universities' functions and indicates the important role of the leaders
who direct these informing centers (i.e., universities). According to Godet, these factors are as follows:
1) university as a social organization should become ready to logically analyze the present situation of
the society and set goal for the future purposeful movement of the country. 2) University should be the
pioneer of spreading liberal thoughts and national solidarity. 3) It should help in analyzing and solving
the problems the society faces. 4) University has an important role in explaining the way through
which the things become globalized; hence, the familiarity with this process is the university's
responsibility. 5) Universities will miss their unique role of knowledge development; therefore, they
have to connect to other non-academic institutes and parallel institutes which are active in developing
knowledge. 6) Universities are obliged to develop knowledge through applying basic research. 7)
Universities are in charge of publishing and spreading the written culture. 8) Universities are
committed to continually publish the culture of theism, kindness, brotherhood, social discipline, work
conscience, social sensitivity and commitment, and meritocracy. 9) As the source of thought and the
place for bringing up the national resources, universities are responsible for leading and educating all
members of the society. 10) As dynamic organizations and systems, universities have an important
role in leading people to participate in running the society by providing the managers with their unique
strategies and solutions.
Because of profound changes which have affected our today's world, the universities, even more than
ever, have been in the focus of prolonged international and social discussions which devote to the
goals and ideals of universities as well as their roles in guidance and leadership (Feigenbaum, 1994).
In many countries, higher education institutes are centrally run and their budget are provided by the
governments. Therefore, the government directly interferes in the universities' affaires and their
managers are appointed by the government or its related organizations. The very important issue in
each system, especially higher education system, is nominating and appointing qualified leaders and
managers who can efficiently manage the higher education institutes. Drucker (1954) believes that
the managers are the most valuable resources of the organizations. The qualified and knowledgeable
managers are able to achieve the organization's goal using their own abilities, specialized knowledge
and vocational experiences while they apply less resource and increase the efficiency of the
organization. One of the qualifications that the university managers should possess is high creative
problem solving skills.
327

2. Literature review
Fattah Nazem
The last several decades have been marked by societal turbulence and rapid social change (Naisbitt,
1982; Smith, 1990; Toffler, 1980). This societal turbulence has been reflected in several
organizational trends. Changing demographics, social changes, and technological changes are major
factors affecting organizations (Cross, 1981).
Peter Vaill (1989) coined the term “permanent white water” (p. 4) to describe the chaos, rapid change,
and uncertainty faced by members of society. Vaill reported a comment made by one manager
attending a seminar that he was conducting.
“Most managers are taught to think of themselves as paddling their canoes on calm, still
lakes,” he said. “They’re led to believe that they should be pretty much able to go where
they want, when they want, using means that are under their control. Sure there will be
temporary disruptions during changes of various sorts … but the disruptions will be
temporary, and when things settle back down, they’ll be back in the calm, still Lake
Mode.” (Vaill, 1989, p. 2)
According to studies carried out by many organizations, there are three common changes that must
be made in schools in order to produce workers who can cope with the new workplace. The first two
are creative problem solving and the ability to work as a member of a team. The third critical
competency relates to learning. Some reports call it lifelong learning while others call it learning how
to learn. Managers in all types of organizations must themselves have these competencies and must
be able to develop and nurture them in those who work with them and for them (Knowles, 1990) Thus,
creative problem solving, working as a team, and learning in permanent white water are three
competencies that managers need in order to ensure lifelong employability.
In order to cope with societal and organizational trends, it is important to have effective and efficient
ways to solve problems. “A problem can be defined as any situation in which a gap is perceived to
exist between what is and what should be” (VanGundy, 1988, p. 3). An alternative view is that a
problem occurs when “there are obstacles to a smooth transition from one state to the other” (Mayer,
1994, p. 4722).
It is also important to differentiate between routine and non-routine problems. Routine problems are
ones that can be resolved by replicating thinking that has occurred before. Thus, routine problems are
not truly problems since there is not an obstacle blocking the transition between what is and what
should be. Non-routine problems, on the other hand, are different from those solved previously, so
creative thinking is required. Creative problem solving goes beyond “simply retrieving something
previously done in this situation” (Weisberg, 1988, p. 152).
Since problem solving skill is an indispensable part of organizational life, it is undeniably necessary to
have competent higher education managers who are able to initiatively settle down the problems,
especially in the modern competitive world. Whetten & Cameron (2006) enumerated the following
aspects of initiative creative problem solving skill:
Logical problem solving: A skill with four stages of defining the problem, creating alternative solutions,
evaluating and selecting the alternative solutions, and performing and tracing the solutions.
Creative problem solving: A skill which removes the limitations of the logical problem solving model
using initiation and cognitive constraints. It has the four stages of preparation, establishment,
illumination, and confirmation.
Developing innovation: Free the potential in people.
The result of the study by Connelly (1996) indicated that the creative problem solving skills accounted
for significant, positive variance, career achievement and solution quality for upper level leaders.
Johnson (1986) also concluded that the use of creative problem solving can lead to better outcomes
from the customer’s perspective as a result of creative solutions. Another study carried out by
Ackerley (2006) revealed that there is a relationship between creativity and leadership among
university students in Business. Diliello (2006) also found out that individuals who have high
innovation and creativity potential are more likely to perceive opportunities to practice innovation and
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Fattah Nazem
creativity when they perceive strong support from the workplace. The workplace was measured at the
Work Group level, the supervisor level, and the organizational level. These findings support the
theoretical propositions that self-leadership and innovation/creativity are related. Baghdarnia (2006)
revealed that there is a significant relationship between managers’ problem solving skill and
organizational climate with the staff’s performance. The managers with problem solving skill are more
successful. He found that a decent organizational climate and managers with high problem solving
skill could lead to quality management and high performance among the staff in ministry of education
in Iran. The result of a study by Hasanvandi (2009) indicated that there is a relationship between
managers’ creative problem solving skill and organizational climate with their productivity. This is to
say that the productivity can be improved among staff in the ministry of education in Iran provided that
the two factors of managers’ creative problem solving skills and organizational climate are present.
The need for management and leadership is vital and sensible in all fields of social activities. Without
effective leadership and guidance, material and human resources are doomed to decrease and
destruction, while the managers of higher education as people who are in charge of organizations and
university branches are considered as the main and determining factor in preparing and supplying the
human resources required by other organizations which provide services or products in the society.
The related background information shows that if universities have managers who enjoy a high
degree of creative problem solving skills, the universities will be able to achieve their goals while they
spend fewer sources but with better quality. They can also increase the level of productivity of the
higher education system, and undoubtedly the society will enjoy higher productivity.
Universities are social systems which have been known as the center of knowledge and information
as well as the thinking base for leading societies. The very important issue in each system, especially
higher education system, is nominating and appointing qualified leaders and managers who can
efficiently manage the higher education institutes. One of the qualifications that the university
managers should possess is high creative problem solving skills. Therefore, in order to appoint
university managers, first creative problem solving skills should be measured through using a valid
instrument, and then those who enjoy high creative problem solving skills can be appointed.
Regarding creative problem solving factor as a skill and feature for managers of the higher education
centers, the present research is going to design a valid instrument which identifies the factors which
form the creative problem solving, measure the variable of creative problem solving in each of
dimensions which form it, and find a way to strengthen the managers’ creative problem solving skills.
3. Research questions
What are the indexes which construct the creative problem solving skills of higher education
managers'?
What items are included in each index?
Which of these indexes has more contribution in forming creative problem solving skills?
4. Method of the study
The population under investigation in this study consists of official managers who work in 420
branches and educational centers in 14 zones of Islamic Azad University. In order to estimate the
least volume of sample, n =
2 2
z σ
2
d
formula was used. In this formula refers to probability
precision. It was considered as 0.05 in the previous studies. refers to interval confidence of %95
which is 1.96, and refers to the variance of the attribute under study in the population. These are
the three criteria based on which the sample size was estimated. Regarding the minimum sample
required for the managers’ group which was estimated as 332 people, the same number of
questionnaires of creative problem solving was administered to the managers in 86 branches and
educational centers. In order to select the research sample, two methods of stratified and cluster
random sampling were used.
To assess creative problem solving, the questionnaire of Whetten & Cameron’s( 2006) Creative
Problem-Solving questionnaire which consisted of 22 items with dimensions of logical problem
solving(Items 1, 2, 3, 4, and 5), creative problem solving (Items 6, 7, 8, 9, 10, 11, 12, 13, 14, and 15),
and developing innovation (Items 16, 17, 18, 19, 20, 21, and 22) was applied.The obtained
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Fattah Nazem
Cronbach’s Alpha was 0.82. As in the social research, the degree of reliability and validity of the
research instruments based on Likert Scale are measured through Cronbach , the higher amount of
( =0.70) indicates the higher reliability and validity of the measurement tool.
The researcher has used extracted factors through varimax rotation and linear structure relationship
software (LISREL) in order to obtain and entitle simple construction of creative problem solving
factors.
5. Findings of the study
The preliminary analysis of different indexes of central tendency, variability, and the distribution of the
managers’ scores obtained from the questionnaire of creative problem solving and its 3 components
show that the distribution of the managers’ scores in the given variables have tendency toward
normality. To answer the research questions, factor analysis procedure was applied. The first step in
factor analysis process which is also its first assumption is Checking Missing Data. In this step
subject’s number 43, 45, 49, 50, 146, 147,148, and 194 including eight persons altogether were
eliminated from statistical analysis so that the factor analysis assumption under the heading of at least
missing (0.02) could be observed in each subject. Hence, in this research no item has been
eliminated except eight subjects. And the given situation shows that there is no need to omit some of
the items and it is possible to follow the process of Factor Analysis while having all the items. The
second factor analysis assumption denotes enough sample size. In this research, Kaiser- Meyer-
Olkin (KMO) equals 0.823; consequently, the sample size is sufficient. The third factor analysis
assumption is normality of multi-variation distribution known as sphericity. As the Approximate Chi
Square equalled 1436.975 with the 231degrees of freedom, it can be stated that the amount of the
Approximate Chi Square is statistically significant and the given statistics is significant at least at the
0.999 level of confidence (α = 0.001).
According to component matrix of items we can determine both the specific factor of each item and its
position in the related factor based on loading factor. After studying table of component matrix
precisely, the researcher used Rotation Method so that loading factor of each item can be determined
stressing at recognition of each item in one of the 3 factors. Reiterating that in this research, the
researcher has followed Exploratory Factor Analysis and has used Principal Component Methods
from Extraction of Factors, Varimax Method was applied (table 1). According to Varimax, the
researcher was able to determine both the factor to which the item belongs after rotation and the
position of each item in related factor with reference to loading factor. This table shows in which factor
each item has been located after the rotation. For instance, Items 4, 5, 8, 9, 13 and 15 have been
located in the first factor. To fulfill the purposes of the study to determine the indexes of creative
problem solving and its components, the underlying items, and the index with the highest contribution,
eventually, 3 factors have been extracted from rotation of factor analysis; in fact, creative problem
solving skills consists of 3 factors respectively as follows: creative problem solving, developing
innovation, and logical problem solving. The table also indicates that logical problem solving has the
highest level of contribution to the formation of creative problem solving skills in universities.
Table 1: Rotated component matrix
X
x1
x2
x3
x4
x5
x6
creative problem solving
.585
.585
Component
developing innovation
330
.578
.550
.526
logical problem solving

x7
x8
x9
x10
x11
x12
x13
x14
x15
x16
x17
x18
x19
x20
x21
x22
.531
.560
.601
.546
Fattah Nazem
Component
Hence, emphasizing at the three-fold factors of creative problem-solving skills, items related to each
factor have been summarized in table 2 respectively.
Table 2: Results of factor analysis of creative problem solving skills construct
Factors
First Factor
Second Factor
Third Factor
.526
.618
.510
Index
creative problem solving
developing innovation
logical problem solving
.528
.692
.702
Items
4, 5, 8, 9, 13, 15
1, 2, 3, 16, 17, 21
18, 19, 20
6. Discussion and conclusions
Higher education system is the one in every society whose main role is to develop and present
science to the society. In addition, universities are social systems which have been known as the
center of knowledge and information as well as the thinking base for leading societies. In some
societies, the government directly interferes in the universities' affaires and their managers are
appointed by the government. The very important issue in each system, especially higher education
system, is nominating and appointing qualified leaders and managers who can efficiently manage the
higher education institutes. One of the qualifications that the university managers should possess is
high creative problem solving skills. Therefore, in order to appoint university managers, first creative
problem solving skills should be measured through using a valid instrument, and then those who
enjoy high creative problem solving skills can be appointed. The purpose of the present study is to
validate a scale for measuring the creative problem solving of the managers of higher educational
institutes.
In this study, in order to assess the managers’ creative problem solving, the Whetten & Cameron’s(
2006) creative problem-solving questionnaire was applied which contains 3 scales of logical problem
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Fattah Nazem
solving, creative problem solving, and developing innovation. The 3 factors which were used to
assess the creative problem solving in this study are in agreement with the theories and studies
carried out in and out of Iran. Some of the similar studies done in the same field are as follows:
Hasanvandi (2009), Whetten & Cameron( 2006), Baghdarnia (2006), Sabokbar (2005), Farhady
(2001), Basadur (2004), Basadur et al.( 2000), Treffinger et al. (1994), VanGundy (1988), Isaksen
(1987), Parnes and Brunelle (1967), and Parnes and Noller(1972). The difference between the
findings of the present study and those of others is that Whetten & Cameron’s( 2006) creative
problem-solving questionnaire had been administered to university managers and the reliability and
validity had already been confirmed. The reliability and validity of the questionnaire was also
confirmed in the studies conducted by Hasanvandi (2009), Farhady (2001), and Baghdarnia (2006),
for example, which was administered to the managers in educational organizations, and by Sabokbar
(2005) which was administered to the managers in industrial organizations.
The very important issue in each system, especially higher education system, is nominating and
appointing qualified leaders and managers who can efficiently manage the higher education institutes.
Creative problem solving skill and efficient leadership have a strong relationship and are included
among the variables whose efficiency have been investigated and proved by the following
researchers: VanGundy, (1988),Weisberg( 1988),Connelly (1996), Whetten & Cameron (2006),
Baghdarnia (2006 ), and Hasanvandi (2009).
Regarding the research background and the related theories, the three factors involved in creative
problem solving skills show that the creative problem solving scale almost generally covers the factors
which make it. Hence, it can be concluded that the results obtained from the administration of the tool
and the level of managers' creative problem solving determined by the application of the tool as well
as its validity are generally acceptable. The increasing need of organizations for determining the
managers' attitude toward the work environment from the one side and the lack of valid definitions
about creative problem solving skills and the existence of this feature in the managers of higher
education from the other side were the main causes of doing the present study. In addition, the
research was done to identify the precise and complete dimensions, aspects and factors which make
creative problem solving skills through measuring the validity of the creative problem solving scale
which was designed and administered to the managers of higher education. In this way, it is possible
to locate the theoretical position of creative problem solving and identify the importance of the
variables which have been introduced by different theories as the factors which form creative problem
solving. The ultimate purpose of the study, then, is to design and administer a valid tool which can
determine the extent of creative problem solving skill of managers in higher education.
The results of the present paper recommend that afore-said questionnaire be used in the coming
researches of creative problem solving analysis specifically for high-rank officials of Islamic Azad
University. The reasons behind it is: the great number of studies carried out in relation to the
existence of relationship between creative problem solving and efficient leadership; the fact that
universities are included in the social systems which have been recognized as the engine of
spreading knowledge and awareness as well as the center of directing the societies, and the creative
problem solving questionnaire, as the results of this study suggest, enjoys some psychoanalytic
features specifically construct validity. Furthermore, regarding the role of universities as the basic
center of thought and reflection, the study is better to be carried out in all other universities and its
findings, in turn, be taken into consideration whenever the managers are supposed to be appointed.
Also since logical problem solving shows the highest contribution in forming the creative problem
solving skills in universities, efforts should be spent to strengthen the index. In that case, the
management with high creative problem solving skills and appropriate trainings which strengthen the
factors of creative problem solving provide a better context in which the universities and higher
education systems in the whole world achieve their goals while backed by their governments.
To sum up, since the higher education systems in many countries are managed in a central office and
the university budget is assigned by the governments, it is quite clear that governments has a
significant impact on the universities' affairs and their managers are assigned by the government. As
Vaill (1989) put forward, to manage this ever-changing world where the traditional methods do not
work, managers are required to be equipped with capabilities and skills to stand up against the
problems. Creative problem-solving skill, according to Knowles (1990), is among the necessary skills
to acquire. Therefore, to assign a manager in higher education centers, a valid instrument is required
to measure their creative problem-solving. Those with high creative problem-solving skills can be the
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Fattah Nazem
best choice. Moreover, if the indices of creative problem-solving (including logical problem-solving,
developing innovation, and creative problem-solving) are improved, this vital skill is upgraded among
managers.
Acknowledgements
This paper is extracted from a research project sponsored by the research department of the Islamic
Azad University, Roudehen Branch to whom I owe a debt of gratitude.
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333

Overcoming Governance Handicaps in a Developing
Economy
Abiola Ogunyemi
Pan-African University, Lagos, Nigeria
kogunyemi@lbs.edu.ng
Abstract: In trying to establish the foundation for trust and legitimacy in a newly formed democracy, Roussouw
(1998) identifies the three concepts around which ethical behavior can be built as ‘the self’, ‘the good’, and ‘the
other’. I daresay that these same three could form the basis for establishing trust and integrity in governance and
leadership legitimacy. In view of recent crises of trust in Nigeria, involving the President of the Court of Appeal
and the Chief Justice of Nigeria, and resulting in the near-collapse of public confidence in the judiciary, this paper
introduces the three concepts into a discussion of how best to restore trust when there has been bad governance
and corrupt leadership whether in the governance structures of an organization or of a country. Critical theory
acts as a “map or guide to the social sphere” and analyzes “competing power interests … within a society” (Zou
and Trueba, 2002, at p. 90). Critical researchers are interested in the ability of power to establish democracy and
in causing “a more just, democratic and egalitarian society” (ibid. at p. 95). This paper examines media reports
about recent conflicts in Nigeria, which illustrate the sad consequences of abuses of powers of governance, and
suggests a recovery model based on Roussouw’s concepts and his description of the South African experience,
(Roussouw 1998). In a country where business ethics and corporate governance are struggling for life and
survival, and there is a strong need to build trust, reflections and propositions about how this can be facilitated
form a source upon which individuals and institutions can draw to sustain their hope, and to develop practical
applications of norms which may lead to better leadership and governance practice. At the very least, this paper
serves as one more reminder of the goals we need to set ourselves as a country and as a people. The points
discussed are also valid for other emerging economies that may face similar challenges.
Keywords: governance, leadership, public confidence, independence, judiciary
1. Introduction
2011 was marked out to be an election year in Nigeria. Therefore it was a time when sustaining public
confidence in governance should be a priority for government at all levels, whether the judiciary, the
legislature or the executive.
However, two months before the elections, a series of scandalous incidents rocked the country and
greatly affected confidence in the government, specifically in its third arm which had hitherto enjoyed
great respect (Buba and John, 2011). The President of the Appeal Court, Justice Ayo Isa Salami
(referred to below as Salami or the PCA) was accused of corruption and biased judgments (Buba and
John, 2011). While the press was covering this story and protesting on behalf of the judiciary that this
was a smear campaign, Salami made public an attempt by Justice Aloysius Katsina-Alu, Chief Justice
of Nigeria, (referred to below as Katsina-Alu or CJN) to elevate Salami to the Supreme Court (Buba
and John, 2011). Salami claimed this would be a demotion, since he would be junior to justices he
previously nominated to the Supreme Court, and that it was a politically motivated attempt to interfere
with the independence of the Appeal Court in the upcoming elections (Nwannekanma, 2011). He
therefore sued Katsina-Alu, the Federal Judicial Service Commission (FJSC) and the National Judicial
Council (NJC) and in his pleadings alleged that Katsina-Alu had earlier requested him to compromise
justice in a case concerning the validity of the Sokoto State governorship election (Iriekpen, 2011).
Sokoto is a State in Northern Nigeria. The series of events rocked the country and further damaged
its already shaky pillars of public trust.
In examining the foundation for trust and legitimacy in a newly formed democracy, Roussouw (1998)
identifies the three concepts around which ethical behavior can be built as ‘the self’, ‘the good’, and
‘the other’. These three form the basis for establishing integrity and public confidence in governance
and leadership legitimacy. Since the above-mentioned crises in Nigeria badly decimated public
confidence in the judiciary, the third pillar of governance in a democratic system, this paper introduces
the three concepts into a discussion of how best to restore trust and confidence when people have
experienced bad governance and corrupt leadership.
Critical theory acts as a “map or guide to the social sphere” and analyzes “competing power interests
… within a society” (Zou and Trueba, 2002, at p. 90). Critical researchers are interested in the ability
of power to establish democracy and wish to enable “a more just, democratic and egalitarian society”
334

Abiola Ogunyemi
(ibid. at p. 95). I have here examined a number of the numerous media reports about recent conflicts
in Nigeria, in February, between Justice Aloysius Katsina-Alu and Justice Ayo Salami, which illustrate
the sad consequences of abuses of powers of governance, and attempted to suggest a recovery
model based on Roussouw’s concepts and his South African experience (Roussouw 1998).
To a country where business ethics and corporate governance are lacking and there is a strong need
to build trust, this paper brings reflections and propositions about how to accomplish this. Hopefully,
individuals and institutions could derive from it some useful ideas and applications for better
leadership and governance practice. It is also a reminder of the goals we need to set ourselves as a
country and a people. The points discussed are valid for other emerging economies facing similar
challenges.
2. Some related literature
An independent judiciary is essential to the maintenance of the rule of law (Santiso, 2003).
Buttressing this, Court, Hyden and Mease (2003) point out that the way the judiciary functions affect
economic, political and social development. The same authors in studying judicial processes in
sixteen developing countries used five parameters to assess the indicators of the rule of law as
guaranteed by the judiciary: access to justice (translated into equal protection for all citizens in the
Universal Declaration of Human Rights - UDHR); due process (fair hearing; transparency and
thoroughness in the UDHR); autonomy (independence); appeal; judicial review; media; and special
inquiries are among the means to ensure accountability, application of international human rights
principles, and existence of non-judicial dispute resolution systems (Court et al, 2003, at page 11-12).
The first three are interesting since they form the crux of the Salami–Katsina-Alu problem that this
paper analyzes. Besides, since Court et al (2003, at p. 26) identify the major problem in all sixteen
developing countries as corruption, exemplified in the perception that “money buys justice” (at p. 20),
they confirm that this is a menace to good governance and social justice.
3. Methodology
Critical research is a way to provoke social change by providing insights into the ‘social order in such
a way that it becomes itself the catalyst which leads to the transformation of this social order’ (Fay,
1987, at p. 27). In this write-up I have chosen to base my study on media texts (Schofield Clark, 2008)
of the coverage of the Salami–Katsina-Ala debacle comprising twenty-six (26) newspaper articles and
nine (9) online news sites. These write-ups reflect societal sentiment around the event, since the
issues being examined by the paper are societal. In targeting emancipation (Myers 2007), critical
research examines issues in contemporary society. One ever-burning issue is governance.
Everywhere that people are placed in positions of fiduciary responsibility and are entrusted with
decision making powers that affect the lives of the populace or of their employees, as happens in
countries and in companies, the need to ensure legitimacy of leadership and good governance cannot
be overemphasized.
The media at times can act as an agenda-setter (McCombs and Shaw, 1972) but when members of
the public “react directly to objective events” (Page, Shapiro and Dempsey, 1987 at p. 23), the media
serves as a reflection of what the wider society experiences when events happen. This is why these
articles have been chosen for a proxy of the general feeling of Nigerians at home and abroad
regarding these matters. Also, the media influences the informative content and the dissemination of
the news (McCombs and Shaw, 1972) that reaches a hundred and forty million Nigerians, and so lets
us know the far-reaching impact of the events. The discussion of these issues in this paper is
expected to contribute towards solutions of the cracks in the social system (Schofield Clark, 2003),
since individual agency can always have an impact on the structures (Giddens, 1984) despite the
constraints of the environment (Schofield Clark, 2003).
The articles reporting the Salami–Katsina-Alu story span about a month - print media trail from the 1 st
to the 28 th of February and online media trail from the 10 th of February to the 10 th of March. My paper
analyses their contents and shows how Roussouw's (1998) three concepts have relevance in
resolving the leadership and governance issues that they throw up. The discussion illustrates public
reaction to specific real events and their far-reaching consequences in a specific context, adopting the
typical critical research approach of generalizing to a culture rather than to a population (Schofield
Clark, 2003).
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Abiola Ogunyemi
4. Discussion of the media articles and Roussouw's three concepts
As shown in Table 1, each of the articles discusses different issues of trust and governance.
Recurring themes include integrity, equity and fairness (Iriekpen, 2011), transparency, justice and
independence (Nwogwugwu, 2011), the rule of law, human rights, and violation of due process
(Soniyi, 2011), and public confidence (Ughegbe, 2011). Roussouw's three concepts can be used to
categorize these themes in such a way as to facilitate identification of where to begin applying the
necessary remedies (Roussouw, 1998).
Table 1: Articles raising different issues of trust and governance
Media Article Featured in Issues Raised
“Stirring the Hornets’ Nest” Debate The judiciary is a pillar of a democratic society, an
epitome of dignity. It has to be above corruption.
“In Defence of the Court of
Appeal”
“Katsina-Alu Versus Salami:
Battle on the Bench”
“Katsina-Alu, Salami Face-off:
The Clash of the Titans”
Spurious accusations should be avoided.
Advertorial The accusations are false and politically motivated and
are an attempt to vilify and discredit the judiciary.
However, to elevate S to the Supreme Court would be
a violation of due process.
Law S should not be elevated to the Supreme Court. It
would be a bad precedent, is unethical, and is a
politically motivated attempt to interfere with the
independence of the court in the upcoming elections.
The CJN should not head both the FJSC and the NJC.
The CJN should not have interfered with the
jurisdiction of the Appeal Court in the Sokoto State
governorship election petition.
Politics Today The attempt to elevate S to the Supreme Court is
generating undesirable tension and disquiet. Disputes
between S and K biased the opinions of their
colleagues – one of the other justices disqualified
himself from sitting. INEC should have remained
neutral.
“Promotion or Punishment” Debate Ripples generated by the attempt to move S to the
Supreme Court; it violates due process and seems a
punishment for upright behavior.
“Demystifying the Judiciary” The Polity This sadly constitutes the destruction of yet another
national institution due to political intrigue. K, as CJN,
has some explaining to do. The attempted promotion
seems to be a conspiracy to influence the elections.
“Judiciary Runs the Gauntlet” Cover Story The Nigerian judiciary is no longer seen as the
champion of democracy due to these suspicion of
corruption. S alleged that the CJN, K, asked him to
influence a judgment on Sokoto State legal tussle over
the governorship elections. Corruption is tearing the
judiciary apart; judges become millionaires from
handling election petition matters. We are no longer
“Katsina Alu-Salami Fight
Unsettles the Bench”
“This is the Time to Make the
Judiciary Truly Independent,
Says Wahab”
“Lawyers, Groups Divided On
Salami-Katsina-Alu Saga”
certain of equity, justice and fair play from them.
CoverExtra An “institution-wrecking controversy” is playing out. S
is suing the CJN, FJSC, NJC and the Attorney General
of the Federation to restrain them from promoting him.
The actions of the CJN are disappointing to Nigerians
and embarrassing to his colleagues. Promotion
process stopped. Call for separation of the office of the
chairman of the NJC from that of the CJN, to avoid
conflict of interests.
CoverExtra The promotion attempt was not in good faith. The
judiciary needs to be genuinely independent. It would
be terrible if the public lost confidence in the judiciary.
CoverExtra The public’s belief that the judiciary is the last hope of
the common man is being eroded. Old allegations
have now gained credence. The attempted promotion
was unconstitutional (Section 292(1a)). Resignation of
the two justices is demanded. The CJN is out of line,
violating all ethics, rules and norms of the Bench. S is
going down and wants to pull others down with him.
“A Brief Introduction to Anarchy” Live Confidence in the judiciary has been weakened;
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Abiola Ogunyemi
leading people to despair of ever having any clean
institutions. This is a power struggle. S is accused of
having party sympathies. The system is in danger of
falling into anarchy.
Media Article Featured in Issues Raised
“Salami: A Duel Over Motive” Cover Unclear motives: S would not have revealed the
problem with the Sokoto State gubernatorial election if
the CJN had not attempted to promote him. He acts for
himself rather than for the country. S does not trust the
“As Their ‘Lordships’ Expose
Their Flanks”
Behind the
Figures
other appellate justices. He is biased towards a party.
Public confidence is all gone. It has now been
confirmed that those who do not have money cannot
get justice. There have been lack of decorum and
conflicts of interests: more than two-thirds of the
council owe their appointments to K as CJN. The
judiciary needs to devise corrective measures to flush
out corruption and restore public confidence.
“Press Release” The attempted promotion was constitutional. The only
problem was the absence of the nominee’s consent.
“SERAP writes UN Special
Law The attempted promotion violates principles of the rule
Rapporteur on Independence of
of law and separation of powers and therefore
Nigeria’s Judiciary”
endangers equality, impartiality, transparency, the
protection of human rights, independence, and
integrity. The UN Convention against Corruption and
the Basic Principles on the Independence of the
Judiciary is being trampled on. The judiciary is meant
to guard against tyranny, victimization and oppression
by the other arms of government. No one can get fair
hearing in the courts if the issues are not addressed.
“Access to Justice Calls for
Law The Code of Conduct for Judicial Officials of the
Investigations on Justice
Federal Republic of Nigeria is being violated. These
Salami’s Allegations Against
are problems of fairness, transparency, rule of law,
CJN”
justice, due process and independence of the
judiciary. The judiciary needs to regain public
confidence.
“Will the Judiciary Survive?” Cover The judiciary needs to clean up its act. The NJC
should address the issues and restore the people’s
confidence that it is possible to access justice. Integrity
and moral authority of the judiciary are at stake.
“The Judiciary Failed, Not
Katsina-Alu or Salami?”
Cover The nation’s judicial institutions need reengineering.
“Katsina-Alu/Salami: Trial of the Politics Today The level of dignity associated with the Nigerian
Judges’
judiciary has fallen. The earlier allegations which
seemed spurious may turn out to have substance. K
should resign.
“As Salami Slams Justice” Polscope S and K should resign. The judiciary has been
wounded. Public confidence needs to be restored. S’s
withdrawal of his lawsuit is a bad sign; true interest in
justice should not give way to pressure. The taint on
the judiciary will take a long time to erase.
“The Salami-Katsina-Alu Crisis” Outlook The judiciary, democracy and the whole country are at
stake. The persons involved should resign and reform
should be carried out to restore credibility.
“Justice Ayo Salami/Chief Advertorial There was neither abuse of due process nor ouster of
Justice of Nigeria Face-Off and
jurisdiction in the Supreme Court’s intervention in the
the Sokoto State Governorship
Sokoto State governorship electoral petition. The
Election Litigations”
scandal is rooted in personal antipathies.
“Feeding on Salami…” Viewpoint The event caused shock and consternation. The CJN
should resign. Great moral and personal courage is
needed to repair the harm done. Independence and
confidence are at stake.
‘A Judicial Rumble That Smears Cover The judiciary is now seen as not being immune to
Justice”
corruption. People will no longer trust the judgments
delivered. We need to restore public confidence.
“The Judiciary Is Not
Cover A committee has been set up to “save the face” of the
Compromised”
judiciary. Public confidence may not be altogether lost.
337

Abiola Ogunyemi
“Ode to Silence: Speech is Advertorial Public war is undignified and unworthy of the judiciary.
Silver, Silence is Golden”
More discretion would have been good. A number of
questions remain unanswered.
Online news sites Issues Raised
“Salami Floors Katsina-Alu” The procedure for S’s promotion was flawed.
“S’Court Elevation: When These events were unconstitutional and sadly reflect the state of the
Justices Fight in Public Domain”
“ASUU to Chief Justice Katsina-
Alu: Resign Now”
“Isa Ayo Salami Vs. Aloysius
Katsina-Alu”
“Katsina-Alu & Salami: Scandal
of Judicial Corruption”
“Demand for the Immediate
Resignation of Justice Aloysius
Iyorger Katsina-Alu”
“National Judicial Council
Summons Justice Aloysius
Katsina-Alu and Justice Ayo
Salami”
“Chief Justice of Nigeria
Suspended Over Allegations of
Misconduct”
“Five-man Panel to probe CJN,
Salami”
Nigerian judiciary.
The CJN should resign immediately to preserve honor and integrity. It is
not enough to have the PCA withdraw the case. Public belief in the
judiciary is being destroyed.
The justices are all tainted by these revelations. The quality of justice
dispensed in courts across the nation is questionable.
Judges had moral authority, independence and dignity. “The greatest way
to undermine a nation is to pervert its judicial system”. Nigerians will no
longer trust the system.
Petition for signatures for the resignation of the CJN, as part of “the
rebuilding process of Nigeria for the common good”.
Investigations by the NJC are ongoing into the corruption of the judiciary,
specifically the cases of S and K.
The NJC has set up a probe panel; the events have discredited the
judiciary and branded it as corrupt.
A five-man panel is to probe S and K, in response to public outrage.
A common thread running through all the different expressions of public reaction is the perception that
if persons placed (as judges are) in positions of fiduciary responsibility give in to the temptation to
serve their own interests when faced with conflicts of interest, then the public cannot rely on them.
The first two articles in early February preceded full public knowledge of the incidents and thus they
are good indicators of the previous levels of confidence in the judiciary. Expectations of probity from
the judiciary were unsurprisingly high (Igbanoi, 2011), since this body is considered a pillar of
democratic society and an epitome of dignity and expected to be above corruption. Quoting Mathew
Jackson, in the same article, Igbanoi (2011) extols an “independent and virtuous judiciary” and
emphasizes that spurious accusations should be avoided. Buba and John (2011) state that the
accusations are false and politically motivated and are an attempt to vilify and discredit the judiciary.
However, they do warn that elevating Salami to the Supreme Court would be a violation of due
process.
In the subsequent articles, the tone changes to reflect shock and alarm. Issues raised include the
unethical nature of any attempt to promote Salami to the Supreme Court; the lack of precedence for
such a move; the political machinations behind it and the resulting loss of independence of the
judiciary; the strange incident of the Supreme Court intervening in an electoral petition which was
properly brought before the Court of Appeal to which jurisdiction belongs according to the Nigerian
Constitution; and the fear that the upcoming elections and future judicial process would be tainted
with the realization that the judiciary is corrupt and justice can be bought with money (Uwaleke, 2011).
As fallout of the incident, tension and disquiet within the judiciary itself rose and opinions and loyalties
were divided (Iriekpen, 2011). More issues of independence and conflict of interest were raised – one
justice disqualified himself from sitting on a case he had argued about, but such nobility seemed to be
the exception rather than the rule (Iriekpen, 2011). People lamented the destruction of yet another
national institution due to political intrigue (Olanitonu, 2011; Ughegbe, 2011). Others pointed out the
need for separation of the office of the chairman of the NJC from that of the CJN, to avoid any conflict
of interests. This is somewhat reminiscent of campaigns to separate the offices of CEOs and Board
Chairmen. There were calls for resignation of both Salami and Katsina-Alu (Nwannekanma, 2011;
Odivwri, 2011). The need to devise corrective measures to flush out corruption and restore public
confidence was highlighted (Agbakoba, 2011). There was a strong feeling that the credibility, integrity
and moral authority of the judiciary were at stake (Otteh, 2011; Odinkalu and Wills, 2011).
Building ethical behavior around the Self
338

Abiola Ogunyemi
The themes of integrity, moral character, courage and discretion fall within this category. These are
the qualities that would help a leader, in the judiciary or in the corporate world, to withstand social
pressures and resist political intrigue. Consciousness of and desire to preserve integrity would hold
the person to high standards and help eschew actions that could constitute abuse of office.
Building ethical behavior around the Good
Recognition of the need for public confidence in a leader in order to achieve the goods of social
balance, justice and harmony would help the leader perceive the danger in placing himself or herself
in situations of conflict of interest. Interest in what is good for the country would also lead to effort to
preserve good governance. In some cases, it could result in whistle-blowing where necessary to
preserve the health of the institution or the achievement of its goals. Appreciation of the good to be
achieved helps the individual find justification for desisting from acts that would counter that good. A
good number of Nigerian non-governmental associations, for example, the Access to Justice and the
Socio-Economic Rights and Accountability Project (SERAP) made their recommendations for
resolving the Salami–Katsina-Alu problem based on this approach, while others, like the Academic
Staff Union Universities (ASUU), emphasized what is expected of ethical behavior that is built on the
self.
Building ethical behavior around the Other
A desire to serve others can strengthen the leader’s resolve to withstand temptation to compromise
standards in favor of himself when experiencing a conflict of interests. This sense of altruism would
lead to doing whatever is necessary for the common good of the organization. It would also support
the consciousness of the need to be fair to others and to respect their human rights, and therefore to
follow due process to ensure equity.
5. Restoring trust and public confidence
In the light of Roussouw's (1998) article, the articles show that the Salami–Katsina-Alu scandal
greatly lowered public confidence and undermined the foundations of trust in the society. This makes
it critical to find ways to build and rebuild confidence and trust if we are ever going to be able to
establish good governance. This is particularly important in developing economies, where basic
infrastructure and educational systems are often still in the process of being constructed, and
therefore the fragility of the economy is such that a climate of suspicion and mistrust inhibits
investment.
The Nigerian judiciary, and any organization that has suffered a loss of public confidence, needs to
build up that confidence again by engaging in ethical behavior that could reinforce and enhance both
the habit of and the perception of ethical action. In this way, confidence would be gradually regained.
Actions that build ethical behavior around the self, the good, and the other could be carefully selected
and repeated until they become entrenched leadership attitudes. Three of the four markers for the
fundamental state of leadership developed by Quinn (2006), also support Roussouw’s model: being
internally-directed would correspond to building on self; being results-centered corresponding to
building the good; while being other-focused corresponds to building for others.
Leaders must always consciously strive to ensure that their actions do not harm society (Roussouw,
1998). Recognizing the harm evidenced in the social reaction documented by the Nigerian media
should lead all members of the judiciary to become more circumspect in carrying out their
professional duties. If they respond to the issues raised by resolving to clean up their act and restore
the glory of the judiciary, then they will achieve a combination of internally and externally induced
responsibility which would enable a true and lasting rebuilding of the structures of the society
(Roussouw, 1998). Similarly, if and when business leaders recognize the harm that is done to the
morale and trust of their teams when they compromise in situations of conflict of interest and outrage
the sense of justice and fairness of employees, then they will more easily find the impetus to act
responsibly.
6. Conclusion
According to Roussouw (1998), erosion of trust and unethical behavior destroy the legitimacy of a
democratic state and puts its future at risk. This is why it is imperative that something be done to stem
339

Abiola Ogunyemi
the downward spiral following from loss of trust in the judiciary, especially as this institution was
regarded as the one remaining inviolable sanctuary free from corruption.
Adopting the model of constructing ethical behavior on the three pillars of self, good and other will
help to avoid losing sight of the requisite building blocks for a much desired social order where access
to justice and good governance will prevail. In truth, if the leader behaves according to his values
(self), pursues ambitious new outcomes (good), and puts the collective good first (other), then a
fundamental state of good governance will be relatively easy to establish (Quinn, 2006).
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341

The Big Five Personality Traits and the art of Virtual
Leadership
John Politis 1 and Denis Politis 2
1
Neapolis University Pafos, Cyprus
2
Imperial College London, UK
j.politis@nup.ac.cy
denis.politis@gmail.com
Abstract: The goal of this study is to examine the influence of the ‘big five personality traits’ on the variables of
Art of Virtual Leadership on a utilities organization operating in the United Arab Emirates (UAE), which is
managing remote workers and virtual teams. The study also investigates the psychometric properties of the
newly developed Art of Virtual Leadership measurement instrument. As for the originality of the study, it is the
first to examine the affect of the well established ‘big five personality traits’ on the newly developed Art of Virtual
Leadership dimensions in the UAE. The paper is aspiring to assist firms in the UAE to identify which of the ‘big
five personality traits’ are likely to influence the Art of Virtual Leadership dimensions, which in turn could assist
managers to communicate, supervise and lead employees from a distance. A path analysis was performed,
applying SEM, using AMOS. Overall the findings support the positive relationship between the ‘big five
personality traits’ and the variables of the Art of Virtual Leadership, with the exception of neuroticism. As
anticipated, neuroticism showed a negative relationship with the dimensions of improve virtual communication
and handle virtual meetings. Moreover, the study has found agreeableness, conscientiousness and openness to
experience to be the most important traits for managers leading remote workers and virtual teams. Finally, the
data supported the psychometric properties of the newly developed Art of Virtual Leadership dimensions.
Keywords: agreeableness, big five personality traits, conscientiousness, extraversion, neuroticism, openness to
experience, virtual leadership
1. Introduction
All people, including managers, have certain lasting characteristics which influence the way they act,
think, feel, and behave both on and off the job. These characteristics are grouped by researchers into
five general traits, known as the Big Five Personality Traits: extraversion, negative affectivity
(neuroticism or emotional stability), agreeableness, conscientiousness and openness to experience
(George 2007; Tett & Burnett 2003). It is being argued that every person, and by extension a
manager, falls along the continuum of one, or more than one, of the Big Five Personality Traits, as
shown by Jones and George ( 2009, p. 82). Depending upon which end of the continuum a manager
falls (e.g. at the high end or at the low end of one trait continuum, and/or somewhere in between) it
will determine her/his effectiveness and efficiency.
On the other hand, organisations would like reaping the benefits offered by distance management, but
their managers are facing challenges when leading a virtual office. Although Montero (2008) who
spearheads the remote work movement offers a number of ‘keys’ (e.g. virtual leadership variables) to
leading remote workers and managing virtual teams, it is acknowledged that there is no empirical
investigation examining the link between the specific virtual leadership variables and the Big Five
Personality Traits in order to clarify leadership effectiveness in virtual teams (Yukl 2010). One
reviewer for example noted that “speculating about the practical utility of the emotional intelligence
(EI) might be premature” (Zeidner et al. 2004) and until more rigorous evidence accumulates, we
cannot be confident about the connection between EI and leadership effectiveness. Thus, employing
the personality traits in a research model can help predict the trait(s) which might be more important in
performing a job that requires skills to lead virtual workers. Subsequently, this paper aims to
investigate which of the Big Five Personality Traits will have the greatest impact on the Art of Virtual
Leadership variables. This in turn might assist managers to lead virtual teams and mobile workers. In
addition, the psychometric properties of the newly developed Art of Virtual Leadership measurement
instrument are examined.
2. Conceptual model and hypotheses
In relation to personality traits, a wide range of sources, from both the scientific literature and popular
press, indicate that thousands of words represent personality traits (Robbins & Judge 2011; Jones &
George 2009; Webster's dictionary 2008; Schneider & Hough 1995). Over the years these thousands
of words/personality traits were condensed to what is known today as the ‘big five personality traits’
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John Politis and Denis Politis
(Mount & Barick 1995; Digman 1990): extraversion refers to people (extraverts) who are outgoing,
talkative, sociable and assertive. Introversion and passivity refers to individuals (introverts, the
opposite of extraverts), who are less sociable, shy, and cautious and they feel comfortable being
alone. Negative affectivity (known as neuroticism or emotional stability) is the tendency to experience
negative emotions, feel distressed, hostile and critical of oneself and others. In contrast, people with
low negative affectivity are poised, secure, and calm and governed by emotional control (Digman
1990). Agreeableness, refers to people who get along well with other people – some scholars label
agreeableness with ‘friendly compliance’ (John et al. 2008). Conscientiousness refers to people who
are careful, dependable and self-disciplined and openness to experience is the tendency to be
original, flexible, creative, risk taking and be open to a wide range of stimulus (John et al. 2008).
Although it was found that agreeableness and conscientiousness were positively and significantly
correlated with transformational leadership (Harms et al. 2006), the concept of virtual leadership is
very new and to our knowledge is being only used by workplace consultants to help managers when
implementing a virtual office (Montero & Montero 2011). A review of literature revealed a number of
tips which are believed to assist managers to successfully work with virtual teams and mobile
workers. These tips are grouped into ‘four keys’ (managing by results rather than activity, improving
virtual communication, handling virtual meetings and schedules and providing virtual feedback and
support) called by practitioners as the ‘Art of Virtual Leadership’ (Montero 2008).
A review of the literature revealed numerous studies linking the five personality dimensions, as
defined by Digman (1990), and leadership (Harms et al. 2006; Bono & Judge 2004; Bass 1990).
Specifically, extraversion is correlated with self- and peer ratings of leadership (Gough 1990).
Neuroticism is linked with leadership qualities and job performance (Bass 1990), and openness to
experience is positively and significantly related to leadership performance (Bass, 1990).
Conscientiousness, found to be predictive of managerial performance (John et al. 2008; Digman
1990; McCrae & Costa 1987), entrepreneurship (Jones & George 2009), and agreeableness were all
positively and significantly correlated with transformational leadership (Harms et al. 2006).
Although there has been considerable speculation about the implications for effective leadership in
virtual teams (Yukl 2010) and there are no empirical investigations examining the art of virtual
leadership – personality traits relationship (Manning & Curtis 2009), it is true that agreeableness and
conscientiousness were related to transformational leadership (r = 0.12, p < 0.05 and r = 0.17, p <
0.05, respectively) (Harms et al., 2006, p. 86). It is thus plausible to assume that the personality traits,
with the exception of neuroticism, will be predictive factors of the art of virtual leadership dimensions.
This assumption is expressed in Hypotheses 1a – 1d.
Hypothesis 1a: The higher the level of extraversion, the stronger its relation to the art of virtual
leadership dimensions.
Hypothesis 1b: The higher the level of agreeableness, the stronger its relation to the art of virtual
leadership dimensions.
Hypothesis 1c: The higher the level of conscientiousness, the stronger its relation to the art of virtual
leadership dimensions.
Hypothesis 1d: The higher the level of openness to experience, the stronger its relation to the art of
virtual leadership dimensions.
In relation to negative affectivity (neuroticism), Harms et al. (2006) found near zero negative
correlation (r = -0.05) between emotional stability (neuroticism) and transformational leadership. It is
thus plausible to assume that negative affectivity (neuroticism) will have a negative influence on the
art of virtual leadership dimensions. This assumption is expressed in Hypothesis 2.
Hypothesis 2: The art of virtual leadership dimensions will be negatively related to neuroticism
derived by the Big Five Personality Traits questionnaire.
343

3. Subjects and procedure
3.1 Sample
John Politis and Denis Politis
The study involves a questionnaire-based survey of employees from a utilities organization operating
in the UAE (Dubai) which is facing the challenge of managing remote workers and virtual teams. The
questionnaire was written in the English language measuring the supervisors’ and/or managers’
personality traits and the virtual leadership ‘four keys’ (constructs), as defined by Montero (2008).
The employees who completed the questionnaire are engaged on some kind of off-site assignment or
remote work and they stay in touch with management using virtual technologies.
All respondents were full-time employees and volunteered to participate in the study - anonymity and
confidentiality were guaranteed. A total of 128 employees returned usable questionnaires (68.8
percent response rate). Twelve incomplete questionnaires were excluded from the final sample. The
final sample consisted of 32 percent females and 68 percent males. The participants were relatively
young as 73.4 percent were under the age of 30; 77.3 percent were employed for less than 3 years in
the current position, and 70.2 percent were employed for less than 3 years in the organization; 59.4
percent knew their immediate leader for less than 2 years. As for the participants educational level
64.1 percent had attained a college degree and 10.8 percent had received technical college
qualifications in the English language.
3.2 Analytical procedure
The analysis of moment structures (AMOS) software (Arbuckle 2003) was used for the factor analysis
(measurement model) and for the regression analysis (structural model). A mixture of fit-indices was
employed to assess the overall fit of the measurement and path models given by the AMOS software.
These include: the chi-square to degrees of freedom (χ 2 /df); the goodness-of-fit (GFI); the adjusted
goodness-of-fit (AGFI); the comparative fit index (CFI); the Tucker and Lewis index (TLI); the root
mean square residual (RMR) and root mean square error approximation (RMSEA). According to
Jorskog and Sorbon (1993) the model fits the data well when the values of GFI, AGFI, CFI and TLI
are greater than 0.90; RMR is less than 0.05; RMSEA is up to 0.05 and acceptable up to 0.08; and
χ 2 /df is less than 3.0. A confirmatory factor analysis (CFA) was performed to assess the factorial
validity of the measurement models and the results are shown in Section 4. Subsequently, a path
analysis was performed using AMOS. Finally, the average variance extracted (AVE) was computed to
assess the convergent validity of the Art of Virtual leadership constructs (Fornell & Larker 1981).
4. Measurement models
4.1 Independent variables
The big five personality traits were assessed using Goldberg’s (1992) 40 paraphrased items, which
intend to measure managers’ and supervisors’ extraversion, negative affectivity, agreeableness,
conscientiousness and openness to experience. A sample item is: “He/she is interested in people”.
The instrument employs a 5-point Likert response scale (1 = very inaccurate to 5 = very accurate). A
CFA of all items was conducted checking for construct independence. As the eigenvalues based CFA
failed to extract the four recommended factors by Jones and George (2009), a series of CFAs were
performed until a 5 factor solution was obtained. Thus, the data supported the independence of
extraversion (6 items, α = 0.69), negative affectivity (6 items, α = 0.76), agreeableness (6 items, α =
0.72), conscientiousness (5 items, α = 0.74), and openness to experience (5 items, α = 0.79). Twelve
items were dropped due to cross loading and were not included in the path model analysis.
4.2 Dependent variables
A survey questionnaire was developed by the authors based on Montero (2008) ‘four keys’ which are
believed to assist managers to successfully work with virtual teams and mobile workers. The survey
intended to measure managers’ and supervisors’ virtual leadership constructs namely, ‘manage by
results, not activity’, ‘improve virtual communication’, ‘handle virtual meetings and schedules’ and
‘provide virtual feedback and support’. Responses to the 20 items were made on a 5-point Likert
response scale (1 = never to 5 = always). A typical item measuring the Art of Virtual Leadership is:
“Our manager is having regularly scheduled phone calls with remote employees”. Based on the
results of the CFA five factors were supported: manage by results, not activity (5 items, α = 0.84),
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improve virtual communication (5 items, α = 0.83), and provide virtual feedback and support (5 items,
α = 0.77). The construct ‘handle virtual meetings and schedules’ was split into ‘handle virtual
meetings’ (2 items, α = 0.83) and ‘handle virtual schedules’ (2 items, α = 0.77). One item was
dropped due to high cross loadings on other factors. Moreover, the measures achieve adequate
convergent validity as the AVE for each construct was greater than 0.5 (Hair et al. 1995, p. 653).
4.3 Path modelling
Using the analytical procedure outlined in Politis’s (2001) paper, we then calculated the parameters of
λi, and θi, in the path model. Table 1 contains the mean, SDs, reliability estimates, λi and θi estimates.
Table 1: Descriptive statistics, reliabilities, λ and θ estimates
Latent Variable Mean SD(σ) Reliability
Estimate (α)
λ= σ ∗√α θ = σ 2 ∗1- α
The Big Five Personality Traits
Extraversion 3.39 0.61 0.69 0.51 0.115
Negative affectivity 3.56 0.78 0.76 0.68 0.146
Agreeableness 3.70 0.60 0.72 0.51 0.101
Conscientiousness 3.69 0.62 0.74 0.53 0.100
Openness to experience 3.70 0.61 0.79 0.54 0.078
Art of Virtual Leadership
Manage by results, not activity 3.42 0.75 0.84 0.69 0.090
Improve virtual communication 2.89 0.93 0.83 0.85 0.147
Provide virtual feedback and
support
3.24 0.79 0.77 0.69 0.144
Handle virtual meetings 2.14 1.16 0.83 1.06 0.229
Handle virtual schedules 3.22 0.99 0.77 0.87 0.225
N = 128
Note: λ has been rounded to two decimal places.
The AMOS analysis showed that the structural model fits the data reasonably well, with χ 2 /df = 3.05; p
= 0.000, GFI = 0.93; AGFI = 0.79; CFI = 0.95; TLI = 0.84; RMR = 0.08; and RMSEA = 0.12.
Alternative models were examined with either paths added, reversed or removed, but all led to
significantly worse model fit. Thus, the standardized regression coefficient estimates from the two
AMOS structural models were tabulated in Table II.
5. Results
Table 2 presents the standardised path estimates (γs) found from the AMOS analysis, as well as the
means, standard deviations, and coefficient alphas (αs) of the big five personality traits and the
constructs of virtual leadership. It should be noted that only significant regression coefficients are
reported.
Table 2: Means, standard deviations, and AMOS standardised regression path estimates for
personality traits and virtual leadership constructs
Latent Variable Mean (SD)
σ
1 2 3 4 5 6 7 8 9 10
The Big Five Personality Traits
1. Extraversion 3.39 0.61 .69
a
2. Negative affectivity 3.56 0.78 - .76
3. Agreeableness 3.70 0.60 .40 - .72
4. Conscientiousness 3.69 0.62 .55 - .65 .74
5.Openness to
experience
3.70 0.61 .57 - .66 .68 .79
Art of Virtual Leadership
6. Manage by results,
not activity
3.42 0.75 .16 - .41 .28 .46 .84
7. Improve virtual
communication
2.89 0.93 - -.17 .19 .49 .21 .71 .83
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Latent Variable Mean (SD)
σ
1 2 3 4 5 6 7 8 9 10
8. Provide virtual
feedback and support
3.24 0.79 .17 - .29 .26 .40 .81 .77 .77
9. Handle virtual
meetings
2.14 1.16 - -.48 - - - .28 .50 .36 .83
10. Handle virtual
schedules
3.22 0.99 .16 - - .16 - .44 .44 .40 .32 .77
N = 128
a Cronbach alpha reliability estimates (αs) are located on the diagonal
All standardised path estimates (γs) ≥ 0.26 are statistically significant, p < 0.01; and all γs above 0.16
are statistically significant, p < 0.05. Note: γs not reported if not statistically significant.
The mean values (µs) of the Big Five Personality Traits suggest that managers and supervisors (the
sample) exhibit moderate level of agreeableness, conscientiousness and openness to experience as
the µ for all three variables is equal to 3.7 on a scale of 1 – 5. One can argue the sample falls towards
the high end along the traits continuum. In addition, the average scores for extraversion and negative
affectivity (emotional stability) fall between moderate (4) and neither inaccurate nor accurate (3) (µ =
3.39 and µ = 3.56, respectively). That means the sample exhibits less than moderate level of
enthusiasm and sociable behaviour (extraversion) and is somewhat pessimistic and critical of
themselves and others. The µs clearly indicate that if the managers and supervisors scored high on
any of the personality traits (excluding emotional stability) there is higher correlation with the
dimensions of the art of virtual leadership. For example, extraversion has the lowest mean score (µ =
3.39) and its correlation with each variable of virtual leadership is the lowest compared with openness
to experience (µ = 3.7) correlations. These trends are discussed in detail in the following paragraphs.
Overall, the results from the path models support the five hypotheses at least for most of the art of
virtual leadership dimensions. As predicted, the relationship between extraversion and three of the
five art of virtual leadership variables is positive partially supporting Hypothesis 1a. Specifically,
extraversion is significantly and positively related with ‘manage by results, not activity’ (γ = 0.16, p <
0.05); ‘provide virtual feedback and support’ (γ = 0.17, p < 0.05), and ‘handle virtual schedules’ (γ =
0.16, p < 0.05). Hypothesis 1b was supported for three of the art of virtual leadership variables as the
relationship between agreeableness and ‘manage by results, not activity’ (γ = 0.41, p < 0.01), ‘improve
virtual communication’ (γ = 0.19, p < 0.05), and ‘provide virtual feedback and support’ (γ = 0.29, p <
0.05) are significant and positive.
Hypothesis 1c stated that the greater the higher the level of conscientiousness, the stronger its
relation to the art of virtual leadership dimensions. The standardised path coefficient between
conscientiousness and ‘manage by results, not activity’, ‘improve virtual communication’, ‘provide
virtual feedback and support’, and ‘handle virtual schedules’ were significant and positive (γ = 0.28, p
< 0.01; γ = 0.49, p < 0.01; γ = 0.26, p < 0.01 and γ = 0.16, p < 0.05, respectively). However, the link
between conscientiousness and the dimension of ‘handle virtual meetings’ was not supported.
Moreover, the standardized path coefficient between open to experience and ‘manage by results, not
activity’, ‘improve virtual communication’, and ‘provide virtual feedback and support’ were significant
and positive (γ = 0.46, p < 0.01; γ = 0.21, p < 0.05 and γ = 0.40, respectively). The expected
relationship between open to experience and the dimensions of ‘handle virtual meetings’ and ‘handle
virtual schedules’ were not supported, hence the data provided partial support for Hypothesis 1d.
In relation to the negative affectivity – art of virtual leadership relationship, the findings are consistent
with predictions for at least three dimensions. Specifically, the results showed that negative affectivity
(emotional stability) was significant and negatively related to ‘improve virtual communication’ (γ = -
0.17, p < 0.05), ‘handle virtual meetings’ (γ = -0.48, p < 0.01) and ‘handle virtual schedules’ (γ = -14, p
< 0.1), partially supporting Hypothesis 2.
Finally, the data supported the psychometric properties of the newly developed Art of Virtual
Leadership measurement instrument as three of the indented factors (‘manage by results, not activity’,
‘improve virtual communication’ and ‘provide virtual feedback and support’) were confirmed by the
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CFA. The fourth factor (‘handle virtual meetings and schedules’) was split into ‘handle virtual
meetings’ (2 items) and ‘handle virtual schedules’ (2 items) and one item was dropped due to high
cross loadings on other factors.
6. Discussion
The aim of this research was to investigate the influence of the big five personality traits on the
variables of art of virtual leadership for a utilities organization operating in the UAE, which is
managing remote workers and virtual teams. The study also investigates the psychometric properties
of the newly developed Art of Virtual Leadership measurement instrument.
The findings of this study give support to the role of the five personality traits in fostering virtual
leadership practices in order to manage virtual teams and mobile workers in the UAE. It appears from
the findings that those managers who are likable, cooperative, trusting and helpful will be adopting
practices of improving virtual communication and providing virtual feedback, and above all provide
specific, measurable, and attainable goals for the remote employee, so that he or she knows what
must be done and when (e.g. manage by results, not activity). In other words, if organisations in the
UAE wish to take advantage of distance management they should avoid employing supervisors who
are irritable, suspicious, unsympathetic and uncooperative (e.g. score low on agreeableness).
However, if they already employ uncooperative and unsympathetic supervisors they should train them
in order to become more trusting, amiable, tolerant and cooperative (e.g. score on the high end of the
agreeableness continuum). That is because agreeableness showed positive and statistically
significant association with ‘manage by results, not activity’, ‘improve virtual communication’ and
‘provide virtual feedback and support’.
Similarly, the findings suggest that conscientiousness is a good predictor of the art of virtual
leadership practices. Specifically, it was shown that those who are well organized, careful, selfdisciplined,
responsible and precise (scored relatively high in the conscientiousness continuum) will
focus on performance based management and virtual communication. In addition, if managers and
supervisors score high on the conscientiousness continuum, it enables them to provide virtual
feedback and support which is often neglected even when employees are physically present on their
stations working. It is suggested in this finding that managers should be vested with high
conscientiousness in order to schedule regular meetings with remote workers to assess needs, give
feedback and discuss problems. High conscientiousness will equip managers with the right mindset to
work from anywhere and keep their virtual teams connected by constantly checking and responding to
voice messages and e-mail (ensuring timely communication) , so that remote workers stay connected,
motivated and on target.
The study also offered insight into the art of virtual leadership – openness to experience relationship.
The findings clearly support the relationship between openness to experience and manage by results,
not activity, improve virtual communication and provide virtual feedback and support. Although
success or effectiveness was not measured in this study, it is being argued in the literature that
removing impediments, such as political interference, resource restrictions and unattainable
performance expectations, will increase accountability and lead to successful results (Artley 2001).
So, the strong connection between openness to experience and manage by results, not activity (e.g.
provide specific, measurable, and attainable goals to the remote employee), suggest that
organizations should encourage and actively support managers and supervisors in taking risks, be
flexible (open) and innovative in their planning and decision making (be open to experience) if they
are committed to reap the benefits offered by distance management.
Although a weak connection was found between extraversion and manage by results, not activity (γ =
0.16, p < 0.05), provide virtual feedback and support (γ = 0.176, p < 0.05), and handle virtual
schedules (γ = 0.16, p < 0.05), it is believed that those who are energetic, enthusiastic, sociable and
talkative (extraverts) will focus on performance based management and help remote employees stay
connected, motivated and on target, which in turn might lead to higher team performance (Nemiro et
al. 2008).
In relation to emotional stability it was argued that the more emotionally stable individuals are (positive
affectivity), the better their task performance (Mount & Barick 1995). In other words managers who
are low on negative affectivity do not tend to experience many negative emotions and moods and are
less pessimistic and critical of themselves and others (Jones & George, 2009); hence they tend to
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improve the performance of others. The average score of µ = 3.56 on a scale of 1 – 5 found in this
study suggest that remote workers and virtual teams feel their managers and supervisors are slightly
anxious, nervous and have a pessimistic behaviour (negative affectivity) creating an atmosphere that
does not support virtual meetings (γ = -0.48, p < 0.01), virtual communication (γ = -0.17, p < 0.05) and
virtual schedules (γ = -14, p < 0.1). As a result, negative affectivity prevents organisations of reaping
the many benefits of a more flexible workplace. Positive ways of thinking rather than obstacle thinking
will assist managers and supervisors to recognize opportunities in difficult times, provide solutions to
problems and reframe experiences in order to handle organisational challenges (Jones & Kriflick
2005), such as leading and managing remote and mobile workers. As the emotional stability of
managers and supervisors was assessed by their subordinates, one can argue that the practical utility
of emotional stability might be premature and we cannot be confident in the link between negative
affectivity and the virtual leadership constructs. Managers and supervisors therefore should be
reporting on their own measurement of emotional stability in order to have more confidence in the
results.
In conclusion, this study contributes to an emerging research on informal virtual leadership, which
thus far has received little attention. It suggests managers should possess high agreeableness, high
conscientiousness, high openness to experience and high extraversion in order to implement virtual
offices and manage a more flexible workforce consisting of remote and mobile workers. The study
also suggests that perpetual pessimists should be replaced with people who exhibit positive affectivity
in order to lead remote workers and manage virtual teams. Therefore, organisations need to invest in
efforts of training managers and employees to develop high scores on the traits of agreeableness,
conscientiousness, openness to experience and extraversion (Nemiro et al. 2008) by teaching
cognitive modelling methods (Gist 1989). In addition, organizations should discourage pessimistic
behaviour that can be disruptive, dysfunctional and endure problems which negatively affect
performance outcomes of virtual teams and mobile workers. Finally, the newly developed scales
measuring the Art of Virtual Leadership have good psychometric properties.
6.1 Limitations and future research directions
While this research has established a clear relationship between the dimensions underlying the five
personality traits and the art of virtual leadership, this study contains several limitations that may be
addressed in future research. First, given that the cross-sectional design of the study renders it
vulnerable to problems associated with common method variance. To account for the problem of
common method variance, it would be advantageous for future research to gather data from multiple
sources (Spector 1987). In addition, managers and supervisors should be reporting on their own
measurement on the virtual leadership constructs in order to have more confidence in the results.
Second, although the hypotheses imply causation, cross-sectional studies cannot test causality
directly. Thus, future research should perform a longitudinal study to explore in greater detail the art of
virtual leadership – personality traits relationship. To assess virtual leadership effectiveness, future
research should include measures of success in personality traits – art of virtual leadership research
model. Finally, the use of the Goldberg’s (1992) measuring instrument might be limited by the
specifics of the Arabic culture and the embedded culture within the participating organisation as
twelve (12) items were dropped due to poor or cross loading. Future research should further test the
psychometric properties of the Big Five Personality Traits instrument.
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349

The Role of Moral Values in Business
Mirela Popa and Irina-Iulia Salanţă
Babeş-Bolyai University, Cluj-Napoca, Romania
mirela.popa@econ.ubbcluj.ro
irina.salanta@econ.ubbcluj.ro
Abstract: The efforts of moral improvement in several areas of human activity, business in particular, are scarce,
to say the least and moral values that pertain to truth, goodness, respect, altruism, justice, love are not given their
rightful share of consideration. Sometimes businessmen or managers reveal a fragile system of values,
indifference, apathy, a narrow moral and spiritual horizon and sometimes anxiety, inner turmoil and
hopelessness. Such attitudes are prone to lead to deviance and antisocial modes of behavior, such as violence,
dissemination of lies, corruption, tax evasion and various other forms of crime. We chose to research on this
topic, because we believe that social, cultural and moral values, as well as the human relations are lagging far
behind the technical and scientific progress. Furthermore, we may ask ourselves whether science is always in the
service of mankind and whether scientific discoveries are always instrumental to genuine social and moral
progress. Our endeavor is meant to evaluate the role of moral values – related debates in acknowledging their
importance in professional improvement and, why not, in the pursuit of happiness and a life in accord with nature.
We will therefore be able to identify the role of moral values in stimulating students to manifest an ethical
behavior in business or the intention thereof, at least. A major role will be assigned to raising awareness between
responsibility, trust, loyalty, on one hand, and financial and professional success, on the other. We will try to
prove that a modern society based on freedom of action and, consequently, on individual liberties, requires from
everybody in the most imperative way solidarity, responsibility, respect, trust, initiative and sustained effort so that
not only individual, but also communal goals are achieved.
Keywords: ethics, moral values, valuation of values, responsibility, moral improvement
1. Introduction
Some authors believe that our society, including our education, is undergoing a moral „crisis”, i.e. a
lack of moral values, combined with a rather feeble hope that this crisis is soon to be overcome. The
surrounding world is an extremely (virtually infinitely) varied one. Its phenomena are beyond
reckoning and the laws that govern them are many and often mysterious. This world of „hazard” is
governed by the law of probability. It is subject to social, moral, political, religious, cultural, economic
laws. The „actual” world seems to have gone astray or completely separated from the spiritual and
moral reality. Modern society must face increasingly frequent extraordinary circumstances, as well as
social, moral, economic, political, cultural, religious, technological uncertainty and instability, which led
to the devaluation of tradition, to unchecked individualism and egocentricity, to the birth of the modern
man, devoid of transcendence, alienated from his natural identity, shallow in spirit and subservient to
market economy, materialism and excessive consumption.
Guenon, notices in ″Modern world crisis″ that (Guénon 1993):
nothing and no one find themselves in the right place anymore;
people do not recognize any effective authority anymore, in the spiritual order and any
legitimate power in the temporal order;
the profanes dare to discuss sacred matters, to question their character and even their
existence;
the inferior got to judge the superior;
the ignorance imposes limits to wisdom;
the error overcomes the truth;
the human substitutes to the Divine;
the earth has more importance than the heaven;
the individual proclaims himself as the measure of all the things and pretends to dictate
to the Universe the laws which are made of his own ration, weak and mistaken.
”The grand endeavor of moral „discharge” initiated by humanistic sciences as early as the 18 th century
seems close to fulfilling its goal. []. Psychoanalysis, sociology, psychiatry, genetics and anthropology
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Mirela Popa and Irina-Iulia Salanţă
have all approximated good and evil, proclaiming that we are basically toys at the mercy of blind
biological and social forces, that explain our behavior to a considerable degree” (Minois 2002).
Francis Fukuyama wondered in his book „The Great Disruption”: „Are we doomed to slide further on
into higher levels of social and moral disorder or do we have reasons to believe that the disruption is a
just a transitory phenomenon and that the USA and other societies that were confronted with it will be
able to reshape themselves?” And what form will this reshaping process assume, provided that it will
occur, indeed? Will it happen spontaneously or will it be enforced by the government through public
policies? Or should we rather expect some kind of unpredictable and most likely uncontrollable
religious renaissance to restore social values (Fukuyama 2002)?
In our opinion, the question we should ask ourselves is not when the “disruption” will occur and how
we are going to die, but rather how we are going to live. One more question that befits the end of a
century of conflict and the beginning of a hopefully more peaceful one (Lambarde & Maris 2000):
“After all, is life worth being efficient or worth living?”
We don't subscribe to the concept that culture must not interfere with science that morals are
incompatible with business or that ethical principles cannot serve as a practical guide in politics.
In our view, the shortest way to a genuine democracy that avoids the aggravation of our identity crises
requires a reconsideration of the sources of classic and Christian philosophy.
2. The role of moral values – related debate
Some people erroneously believe that business ethics, as science, has no utility, because it has a
cognitive and prescriptive character that concerns the people's conduct and cannot really move them
into actual moral action. The concept is often regarded as too vague or too complicated to be applied
into practice. In our opinion, business ethics has an important informative and descriptive, as well as
persuasive function. Furthermore, it draws up global theoretical images of good (liberty, sincerity,
solidarity, respect, dignity, humanity) and evil.
Business moral values are defined as the personal moral values held by individuals who are engaged
in business interactions. Direct supervisors may play an important role in shaping the business moral
values of their subordinates (Jiang et. all. 2011).
The assessment of the moral values' capacity of influence helps us make accurate judgments in
appreciating or own or our fellows' decisions and deeds, enables us to acquire full certainty of what is
right and what is wrong and persuades us into choosing the good at all times.
The debate concerning moral values plays an important part in educating economics students to
adapt to the social and business environment they will belong to. Our mission is not only to highlight
theoretical aspects of moral values applied to business, but also to work out an actual, practical guide
for the improvement of our society's moral life together with the students. The benefit of such approach
would consist in helping future business experts determine what the best course of action, the criteria of
chose and the moral motivations that should underlie their actions.
2.1 Description of the survey
The study that we make reference to was carried out in December 2010 and was based on interviews
with 417 students that took the Business Ethics course of the Faculty of Economics and Business
Administration in Cluj-Napoca, Romania.
The questionnaire that was handed out to the students also included questions regarding age, gender
and economic status. In the first stage, we have reminded the students that, according to axiology
(the prescriptive function of morals), the law-maker is the human community, with its manifold
anonymous experiences, customs and traditions.
According to the attitudes and perceptions that the human being has about the environment in which
he developed, his judgments can be divided in:
Life judgments (cognitive).
351

Aesthetics judgments (aesthetics).
Value judgments (morals).
Mirela Popa and Irina-Iulia Salanţă
The value judgments come from the moral conscience, but in the process of moral perfection all the
above mentioned values are important.
In our research we decided to examine the following categories of values:
Material values (economic) (Vec): money, property, wealth;
Aesthetic values (Ves): harmony, aesthetics and artistic creation, sublime, the beautiful;
moral values (Vm): honesty, fairness, altruism, duty, love;
Professional values (Vp): professional skills, prestige, autonomy, creativity, diligence;
Religious values (Vr): faith, sacred, revelation, god, obedience.
In the second stage, we asked them to list the order of these first five moral values that they consider
to be the most relevant by looking into their own experience and relating them to their current
knowledge, mindset and needs (and also taking into account the social, cultural, political, economic,
juridical context, as well as any role model they may take inspiration from). They were explicitly
required to honestly mention only those values that move their free will and perseverance into action
and avoid lip service, as the responses were confidential.
In the third stage, the longest one, the discussion concerning moral values was opened by referring to a set
of statements and judgments concerning human conduct, integrating norms and imperative principles of
what ought to happen, all brought together in a guide of moral human action (definition of concepts,
functional analysis, enunciation of causal factors, description of characteristics, approach to
multiculturalism). In such context, we agree that the transition from real to ideal, from what it is to what ought
to be, is possible.
During this stage, the three successive steps of knowledge are covered in an interactive manner:
The descriptive step, that helps organize the data of moral life (moral relations, moral vices and
virtues, moral qualities and flaws);
The analytic - synthetic step, that involves the analysis of relations between moral phenomena
and discerns the constituent elements of morality (norms, consciousness, values, relations),
analyzing them conceptually and empirically and synthesizing them gradually into a theoretical
model of morals;
The explanatory step, that deals with the causal or generating factors of morality that explain its
genesis, structure, functions, types of morality and moral progress.
Moral values encompass human life in its entirety, as is it cannot be conceived in the absence of
these basic landmarks of spirituality and culture. Some are fundamental (cardinal), some are
secondary or derived; some are purpose – related (so-called „final values”), while others are goalrelated
(instrumental values); some concern things (works, goods), others persons (character,
personality); some values are optional, others mandatory. The latter are supported, enforced and
endorsed by prescriptive systems that include rules and penalties of moral, judicial, religious nature.
Values are assigned not only to persons, but also to communities, organizations, groups, actions,
ideas, decisions, intents. It is therefore extremely difficult to come up with an objective and
comprehensive definition of „value” for any given situation. As far as we are concerned, values are the
highest benchmarks of efficiency, effectiveness, welfare, character, virtue, beauty that are
appreciated, accepted, wanted and endorsed by people and the community.
In the fourth stage, we go back to the original survey and ask them again to list (on the same
questionnaire) the first five values that they consider to be the most important to them.
2.2 Processing the questionnaire and interpreting the results
Most students interviewed were aged 19 to 21 and of an average wealth or slightly below average.
Out of the 417 questionnaires, 32 (i.e. 0.076% of the total) were canceled for the following reasons:
they were incorrectly completed; the participants were located outside the majority being either
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Mirela Popa and Irina-Iulia Salanţă
atheist, too wealthy or too poor. We obtained 345 valid questionnaires from which 246 were filled in
by females and 139 by males. The process of recognizing a certain hierarchy of values must take into
account the relative importance of the place owned by a certain value in the hierarchy. In this respect,
to give the proper weight to each value, we considered the relative importance of a place which was
10% lower than the previous one. As can be seen in Table 1, we have assigned the following relative
importance to those five places: v1=1.52, v2=1.37, v3=1.23, v4=1.11 and v5=1.
To establish the order of the values we calculated separately for stages 2 and 4 the aggregation
functions using the following formula.
j
5
=∑
i=
1
f ( V ) v × N
ij
i
ij
N - number of students that put value „ j ” on place „i ”; j - value, j = 1,
5
f ( V j ) ∈ [385; 585.20]
Aggregation functions were calculated taking into account the options of males and females:
j
5
f = ∑
i=
1
f ( V ) v × N
i
ijf
5
( V j ) b = ∑ vi
N ijb
ij = +
i=
1
N ijf N N ijb
f ×
N ijf - Number of students that put value „ j ” on place „i ” (females)
N ijb - Number of students that put value „ j ” on place „i ” (males)
f ( V ) ∈ [246; 373.92]; f ( V ) ∈ [139; 211.28]
j
f
Table 1: Data from processing the questionnaires
j
b
353

Legend:
Vec - Material values (economic)
Ves - Aesthetic values
Vm - Moral values
Vp - Professional values
Vr - Religious values
Li - Place „i ”, i = 1,
5
Mirela Popa and Irina-Iulia Salanţă
vi - Coefficient of the relative importance of place „ i ”
E2, E4 - Second/fourth stage of the study
f ( Vj
j
)
f
- Aggregation function value for„ j ”
f ( V ) - Aggregation function value for„ j ” (females)
f ( V )
j b
- Aggregation function value for„ j ” (males)
As it can be observed in Table 1, the total amount of aggregation functions (of those 5 values) for
each stage separately is 2,398.55 (385x6.23, where 6.23 is the sum of coefficients of the relative
importance of those 5 places):
5
5
∑ ∑
VT = f ( V ) = f ( V ) + f ( V )
j
j= 1
j=
1
j
f
5
∑
j=
1
VT - The total amount of functions aggregation for each stage of those 5 values
j
b
We chose to draw graphically in Figure 1 the changing of options in stage 4 opposed to stage 2 in
establishing the hierarchy of the five values.
Figure 1: The values of the aggregation functions in stage 4 opposed to stage 2
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Mirela Popa and Irina-Iulia Salanţă
In Figure 1 we may notice that moral values ranked higher in stage 4, becoming the only set of values
with this positive evolution.
In
Figure 2a and 2b we showed
the changing of options in stage 4 opposed to stage 2 in establishing
the hierarchy of the five values for males and females. This way, the set of moral values ranked
higher for both males and females. We want to highlight the fact that females had a greater
contribution to obtaining this result. Both males and females repositioned negatively mostly the
material values. At a closer look at Figure 2b, we notice that the value of the aggregation function is
higher for the religious values than for the moral ones according to our male respondants.
Figure 2: The values of the aggregation functions in stage 4 opposed to stage 2 (2a) females, (2b)
males
In Table 2 we calculated
the weights of the aggregation functions of the values in total and their
deviations from the average weight of 20% (100%/5 values).
P
f ( V j )
f ( V j )
= × 100
VT
Δ P ( ) = P f V f ( V j )
j
f (V ) - Weight of the aggregation functions of value „
− 20%
P j
Δ
j
P
P ) - Deviation (%) of
f ( V
(V )
j
j
f from the average (20%)
” in total
Table 2: The weights of aggregation functions and percentage deviations
from the average
As we may notice in Table 2 the moral values in stage four ranked higher in the students’
preferences, consequently the aggregation function gained 0.66%. It is good news to find out that
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Mirela Popa and Irina-Iulia Salanţă
material values were given up (dropping by 0.46%) in favor of moral ones. The aesthetic values have
been reduced by only 0.14% and the religious and professional ones by 0.03%.
Moreover, as shown in Table 2, the deviations from the average value given to a set of values are
positive
for moral values, professional and material ones in both stages.
2.3 Findings
Most values that we
acknowledge are meant serve certain objectives. Consequently, values can rank
differently for each of us according to the importance of the moment. This means that the hierarchy of
values takes place according to the values that serve the most stringent and urgent need. As shown
in Table 1, the professional values ranked the highest as the students have the need to acquire
professional skills. Material values ranked second. This can be explained easily taking into
consideration that Romanians have low incomes. The value assigned to an urgent need is the
greatest and other values are compared against it.
Values manifest themselves when individuals try to cover
their needs. Values appear as objective and
external
to the individual, but become attributes of the latter once appropriated, reshaping the
individuals whole psycho-moral life.
Values are meant to select human attitudes
and actions by declaring them moral or amoral / immoral,
to measure the individual's degree of conscious involvement in the process of moral development
and to regulate the individuals' conduct in society, as it tends to funnel their aspirations. Values
therefore enable individuals to act in a morally – aware manner, rather than just out of reflex. For the
values to manifest themselves, it is mandatory that they are enforced by norms, regulations and
standards. One of the fundamental principles of morality proclaims that one's deeds are to be
assessed not by the deed itself, but according to its value.
The educational dimension alone is not sufficient for the development
of the moral representations in
accepting
or not a certain system of values. This depends of factors such as the social environment,
the bio-psychological evolution, the development degree of social relations in the communities that we
belong to.
3. General considerations concerning moral responsibility
In business, some widely-accepted moral values (compassion, altruism, loving kindness, charity) may
bring about failure and bankruptcy, with all the immoral consequences that derive from corporate
failure. On the other hand of the spectrum, let us remember the grim realities of the day: most
business agents are completely immersed in or „possessed” by their goals and are ready to „die” for
maximum profit, career, power and supremacy. Everything is measured against profitable interest and
financial targets.
We agree that utility
and profit are necessary to prosperity, but that comes with a cost that often
bypasses
the ethical aspect of business. However, solutions must be found to make interest converge
and make room for a humanistic approach in business. That's why we think that we can infuse moral
substance into the efficiency, performance and maximization of profit – driven responsibility.
The ethical philosophy of the latest decades has been placing real emphasis on the issue of
responsibility.
Modern psychology stresses the importance of self-control and individual responsibility
(individuals are able to control the course of their destinies by means of their own decisions). We
believe that the cause of success or failure lie primarily within the individual.
The responsibility is „the obligation that is incumbent on a person to regard itself as a free author of
his
deeds and take upon itself their consequences” (Baudin1937). In other writings, responsibility is
defined as the „solidarity of the human being with his acts, recognizing to be the author that takes
upon himself both credit and blame, which involves therefore consciousness and freedom for the
agent” (Morfaux 1980).
Dimitrie Gusti claims that
the individual responsibility is directly proportional with the level of collective
responsibility.
Even though it is an individual attribute, responsibility has objective and external
criteria, as it performs a social function. He highlights the double aspect of responsibility (Gusti 1969):
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Mirela Popa and Irina-Iulia Salanţă
An objective character, which derives from our responsibility towards the organized sanction of
the law or the informal sanction of the public opinion.
A subjective character, i.e. the sense of responsibility towards the sanction of our own
consciousness.
The responsibility denotes o relation between three terms (Petit Dictionnaire d’Ethique 1993):
The responsible person.
The area of responsibility: tasks, actions, attitudes.
The authority that one is
accountable to: court of law, people invested with such authority,
personal consciousness, public opinion, God.
The responsibility in any of an organization's activities is crucial in order to maintain the economic
success and to gain a commercial edge by buying reputation and eliciting trust. Sustainability and
responsibility are now united under the global „umbrella”
of corporate social responsibility that has
turned into a global movement. CSR must be regarded as a voluntary act of the companies (it must
not be regulated by law), that is part of the long-term strategies that pertain to the rational use of
resources, to the professional improvement programs for the employees, to technical innovation and
environmental protection.
The minimum requirements of responsibility are:
Freedom (free will, absolute
authority).
The purpose of responsible acts (the ideal, i.e.
love, moral improvement).
Constant allegiance to good and truth.
The lucidity of consciousness (subjectively, relatively and qualitatively), the
level of knowledge,
judgment and the ability to accept the legitimacy of guilt and penalty.
The assessments of one’s own deeds and
the capacity to accept guilt and penalty.
Axiological appropriation and perseverance in virtue.
The existence of an authority (moral consciousness, public opinion, community).
Mutual relationships and the complementarities of human
beings.
It has been often asserted that freedom is the prerequisite of responsibility and responsibility
is the
measure of acquired freedom. Responsibility thus becomes the prerequisite of a higher level of
human freedom, a response of freedom, moral consciousness, of the virtues and moral values that
we assign to ourselves.
To Sartre, freedom is a „curse”, because the humans must take upon themselves the risk of their
actions: „as man is doomed to be free, he must shoulder the weight of the whole world; he bears the
responsibility
for the world and for himself as a way of being [...]. In this sense, the responsibility of the
individual for his own self is overwhelming, because he is the one that a world owes its existence to”
(Sartre 1969).
In the course of his life, a human may be active or passive, involved or detached, supportive or nonsupportive,
sympathetic or unsympathetic to other people's needs. His/her states are influenced by
many
inner motivational
drives, by the Ego's system of moral norms, by psychological mobility or
inertia and also by a large number of external factors.
Well-understood responsibility fosters loyalty. Loyalty and mutual support spread out as far and wide
as business, both within organizations and outside. Colleagues, members of staff, customers and
suppliers
join in their duties and moral obligations, as they
all depend on fair contracts and harmony,
understanding and mutual trust.
4. The role of managers in the process of moral improvement
The business moral values that organizational members hold are an important factor in employee
effectiveness and performance. The interaction between subordinates and their immediate
supervisors is important in organizational moral management. [...] The formal/position power held by
supervisors, the imitation or identification process experienced by subordinates, and supervisor
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Mirela Popa and Irina-Iulia Salanţă
business moral values may influence subordinates’ performance, which can inhibit unacceptable
working behavior and promote acceptable working behavior (Jiang et. all. 2011).
Responsibility is rooted in loving-kindness towards the fellow man, asserted in liberty, justified by
reason, enforced by consciousness and manifested in assumed conduct. Rather than trying to
dominate the world, Michel Maffesoli wrote, or to transform and change it – all three being
Promethean attitudes -, we should rather try to merge with the world by way of contemplation
(Maffesoli 2002).
The saving solution to the day's harsh reality would be a both individual and communal moral
renewal. A full sense of accomplishment in terms of action and solidarity can only be achieved by way
of a spiritual experience and permanent education. In this context, Constantin Noica had a
remarkable insight: „Because the restoration of norms does not require a new Decalogue meant to
impose them on us,
but rather a spirit able to call them to life within us” (Noica 1993).
The valuation of values (the knowledge and acknowledgment of values) may be considered the
highest ideal that may hold the power of attraction required to make human emotional, intellectual and
volitional powers converge. As a starting point, the ideal is the main factors that contribute to the
improvement of the human personality and condition.
The choice and valuation of values and ideals involves a complex and continuous process of
education as a mandatory prerequisite. The benefits of the educational process are the understanding
and acceptance of changes, the development of human creativity, the support of intercultural
exchange and democratic values against the background of human existence with its local and global
determinations. The educational function of ethics has
been revealed since ancient times by Plato
and Aristotle.
Whether we are aware of it or not, we perform our activities in more or less organized
circumstances. Just like humans that are subject to continuous learning and education organizations
are open to learning, also. “Closed” organizations stay on the beaten bath and are doomed to failure,
as opposed to those open to novelty, learning and constant adaptation to change.
An education that emphasizes ethical individual decision-making and understanding of the impact of
negatives modes of conduct on the organization is vital. In such context, the concept of „solidarity” for
adequate social involvement wouldn't be out of place, either. A Chinese proverb about poverty
teaches that: „Not by giving out fish will you feed the needy, but rather by putting a fishing rod into his
hands and teaching his how to fish!” The gist of the proverb is the relation between
individual
responsibility and solidarity, as well as the „alliance” between ignorance and passivity.
Each manager is in a position of influence on his team. All managers should act as moral role models
and set standards of morality in their area of responsibility and authority. We stress the fact that it is
extremely important that the manager acknowledge the fact that they are the one who set the pace
and call the tune in their organization. One of their main responsibilities is therefore to make it clear to
anyone within the organization or related to it that social responsibility and moral
behavior are
expected and properly rewarded.
However, it is not enough to shift the system's orientation towards the future, as Toffler writes we
must also change the individual's attitude towards time (Toffler 1973).
It is by no means easy to appoint yourself the judge of the past and the prophet of the future, as
Cioran does in his book „The Transfiguration
of Romania”. Even though „it is not pleasant to add more
knowledge to the vastness of autochthonous lucidity”, we must nevertheless have the strength to face
our limitations and „flaws” in order to understand what we have to overcome and what to become.
True nationalism must ask the question „what are we supposed to
become”, not „how are we
supposed to stay?” (Cioran 1990).
The value of authority in business (as it is the case in any organized area of activity) is not only a welldocumented
reality, but also the very key to success. What about the authority of value? In this
context, we believe that managers (those who enjoy the value of authority) must understand the role
of values and invest them with authority. They must be able to: choose their own values, relate them
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Mirela Popa and Irina-Iulia Salanţă
to the values of others, change his outlook on morality (if necessary), accept pluralism (everybody's
rights), show flexibility, adaptability, tolerance (accept differences), cooperate with his team across the
whole
chain of command, become aware of their difficulties, limitations, resources and strengths,
reject pressure and conformity, accept perpetual change, be self-confident, foster creative, freedom,
truth, justice, equality, be open to reasonable and constructive dialogue, manifest at all times social
and professional responsibility.
5. Conclusions
Man, a complex and hope-driven being, will not abandon his quest for the answer to the ultimate
question concerning his meaning and purpose. Man is by nature a moral being, able to discern good
and evil, knowing that good must be done and evil, „avoided”, therefore living a moral life, observing
certain moral principles and norms.
Each person is able to become a moral personality (carrier of the good), inasmuch as he / she wants
to, of course. Not of all
of us have the potential to become great scientific or professional personalities
of remarkable originality and creativity, but we still have the potential to become moral personalities,
in accordance with the social circumstances of everyday life. Everybody should aspire to a
harmonious development and be willing make the required efforts to this purpose.
The
manner in which the individual communicates with himself and the others is greatly influenced by
the degree of self-understanding, by the value and the power that he ascribes to himself. Anyway, the
key to the affirmation of one's personality lies in the self-knowledge, an image perceived through
communication with others.
The contemporary man can attain the maturity of his being, becoming aware of his
meaning and
purpose,
accepting his condition, dignity and responsibility, becoming the master of his own destiny.
More than ever before, it is now the right time to speak of the art of life management by which we can
reclaim our lives, identities, personal becoming and self-fulfillment, that modern society has alienated
us from.
The
very condition of public morality and the „sanity” of social, economic, juridical, political relations
depend on each individual's level of emotional and moral maturity.
References
Baudin, E. (1937) Précis de morale, J. De Gigord, Paris.
Cioran, E. ( 1990) Schimbarea la faţă a României, Editura Humanitas, Bucureşti.
Guénon,
R. (1993) Criza lumii moderne, Editura Humanitas, Bucureşti.
Gusti, D. (1969) Opere, Editura Academiei RSR, vol II, Bucureşti.
Fukuyama, F. (2002) Marea Ruptură, Editura Humanitas, Bucureşti.
Jiang, D.Y., Lin, Y.C., Lin, L.C. (2011) “Business Moral Values of Supervisors and Subordinates and Their
Effect on
Employee Effectiveness”,
The Journal of Business Ethics, Vol. 100, No. 2, May, pp 239–252.
Lambarde P. & Maris B. (2000) Doamne, ce frumos e războiul
economic!, Editura Antet, Bucureşti.
Maffesoli, M. (2002) La Transfiguration du politique. La tribalisation du monde postmoderne
(1992), Éditions La
Table ronde.
Minois, G. (2002) Les Origines du mal. Une histoire du péché originel, Fayard.
Morfaux, L., M. (1980) Vocabulaire de la philosophie et des sciences humaines,
Armand Colin, Paris.
Noica, C-tin. (1993) De caelo: încercare în jurul cunoaşterii şi individului, Editura Humanitas, Bucureşti.
Petit Dictionnaire d’Ethique (1993), CERF, Paris..
Sartre,
J., P. (1969) Fiinţa şi neantul, Editura pentru literatură universală, Bucureşti.
Toffler, A. (1973) Şocul viitorului, Editura Politică, Bucureşti.
359

Corporate Governance and Conservatism
Ali Pourkazemi and Mohammadreza Abdoli
Shahrood branch, Islamic Azad University, Shahrood, Iran
alipurkazemi@iau-shahrood.ac.ir
mra830@yahoo.com
Abstract: In this study, we investigated the relationship between internal and external factors of corporate
governance and the conservative attitudes of accountants and how this affects financial reports. Two internal
factors include executive directors ratio and internal auditor. Two external factors include non-executive directors
and ownership concentration ratio. The Hill & Guili model has been used to measure conservatism. Based on this
model, the accounting numbers that are reliable are used. The "Hirfindal" model has been used to measure and
rank the ownership concentration of corporations. Based upon this model,the corporation which has one
shareholder enjoys the highest concentration rank. This study has been done on acceptable corporations in the
Tehran Stock Exchange. The number of companies investigated was 102 and were chosen and organized
systematically in 2010 using the statistical methods of Pearson and Regression Analysis. Statistical tests
confirmed that the connection and affect of internal corporate governance factors with accounting conservatism
was high and that the relationship and affect of external factors with conservatism was low. Controlling variables
with respect to other research results and also Iran's trading law and the law of corporate governance in Iran
were considered in this research. These controlling variables include the type of private and government
ownership, the size of the corporation and the ratio of leverage. The result of this research model was the
confirmation of a meaningful and positive relationship between the type and the size of a corporation and the
ratio of leverage with the amount of conservatism in companies.
Keywords: corporate governance, conservatism, Herfindal's model, Hill and Giuli's model
1. Introduction
Corporate governance is a hot topic in the United States (US) and Europe. In the US, Congress
recently passed a set of corporate governance provisions in financial reform legislation. In the
European Union (EU), the European Parliament is trying to harmonize corporate laws among the
member countries Into this whirlwind of legislative action comes a new book entitled 'The Law and
Economics of Corporate Governance: Changing Perspectives' (Edward Elgar, 2010). This book is a
compendium of five essays by corporate governance experts, together with an insightful overview by
its editor, Alessio Pacces. A book with this title should include at least one essay on corporate
governance in Asia. This is an economically vibrant region with its own governance issues, such as
how a corporate board operates when the national government is the controlling shareholder.
Guili and Hein (2000) in a 30 year period studied the changes in incomes and cash trends in accrual
receivable and payment and concluded that the level conservatism has increased. Based on Iran's
SFAC (SPELL OUT FIRST TIME), accountants facing obscurity should observe cautiously and
expose their nature and amounts. From the point of view of Iran's SFAC, conservatism means
application of cautionary measures in applying judgment to assessments of obscure conditions in a
way that does not exaggerate incomes and capitals. Also, expenses and debts should not be
presented as less than factual numbers.
Hasas Yeganeh (2008) defines corporate governance as the laws, regulations, structures, processes
and culture which leads to the achievement of transparency and gives the ability for observation of the
rights shareholders. Some researchers Rian (2006), Giuli (2000), Klin & Karol (2006) refer to
conditional and unconditional conservatism and consider conditional conservatism as accounting
standards which are necessary, such as application of lower of cost or market price in which good of
bad results are not important. This is usually called profit and loss conservatism. On the other hand
unconditional conservatism refers to those financial attitudes that are based on accounting standards
that are not necessary. Net official value are presented as less than factual and are called balance
sheet official values.
John Manuel & Osama (2009) studied the relationship between conservatism and corporate
governance. They have researched corporate governance internally and externally to study
conservatism by comparing to the market values. They found that corporations that have stronger
management team practices have a higher degree of conservatism. They also found that corporations
that have stronger management teams use discretionary accrual to inform the investors when giving
them bad news.
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Ali Pourkazemi and Mohammadreza Abdoli
Hajipour & Ghemi (2010) conducted research on the affect of conservatism on stability of profit and
the ratio of price and profit. They believe that conservatism will identify temporary incomes and costs
and therefore profits. The lack of stability in profits will cost instability in the ratio of price to profit. The
result of their research has been confirmed in Iranian corporations.
Chen, Elder and Hung (2010) examine the incentive and entrenchment effects of controlling
shareholders association between the investment opportunity set and earnings management in
Taiwan. They find that firms with more investment opportunities are more likely to engage in earnings
management and find incentive effects of controlling shareholders on firms financial reporting
behavior. They found that cash flow rights are negatively associated with absolute abnormal accruals
under a growth opportunity setting . Their results further indicate that high-growths firms with a high
deviation between cash flow right and control right are more likely to engage in earnings
management.
Rahmani and Gholamzade (2009) studied the relationship between public ownership in the market
and conservatism in financial reports. In their view, one of the factors for improving the value of
financial reporting is observation conservatism. In this research they study the difference between
conservatism in financial reports of 40 different corporations both before and after the names of these
corporations were registered in the Tehran Stock Exchange. The result of the research showed that
conservatism in financial reporting after registration of their names in the Tehran Stock Exchange was
greatly reduced. Mashahyekh and Mohammad Abadi and Safarzade (2009) conducted a study of the
affect of conservative accounting on the stability of profit and concluded that in Iranian corporations
the increase of conservatism was linked to the reduction of profit. Etemadi , Noravesh, Adel Azar and
Sedehi (2010) studied the predicted model of conservatism accounting with an emphasize on its
relationship with the average of the cost of capital in Iranian corporations in a period of 10 years.
Karami, Hoseini and Hasani (2010) studied the connection between corporate governance and
conservatism in the Tehran Stock Exchange. They believe that corporate management teams can act
as supervisors on the actions of managers and prevent them from presenting the profits faster while
delaying the presentation of losses.
For conservatism they used Baso's model. The result of their research was the confirmation of the
meaningful and positive relationship between conservative CEOs and main investors and the
negative relationship between irresponsible numbers of the conservative managers.
Jey,Ahmad, Mohammad (2008) studied the relationship between accounting conservatism, corporate
governance and the affect of political factors. They found that the affect of bad news - in contrast to
good news - is faster. In addition, the coefficient of unity for variable of accounting committee and the
number of board of directors and its independence have a strong affect on conservatism. In these
corporations the level of conservatism has increased. They found that the marginal affect for effective
political conditions on the price changes due to good and bad news and that also the connection was
negative. For example, state ownership in this situation had a positive affect. They came to the
conclusion that there is a positive and important affect for political factors and corporate governance
in regard to promotion of the profit values. Kang, Jeng, James (2010) have studied the affect of the
structure of corporate governance and conservative accounting numbers in China. They used the
Baso's model and its modified version, developed by Bal and Shiva Komar, for measuring
conservatism. They found that corporations with stocks that circulate less have less conservatism.
They discovered in confirmation of their past results the corporations that have more concentrated
ownership data asymmetry and as a result there is more cost for representation and there for there is
less demand for conservative earnings. Ahmad and co researchers (2005) in their research found
certain observations that conservative accounting subsides the contradictions between the interest of
shareholders and bond holders in dividend policies and it also subsides the cost of corporate debts.
They have used the methods based on market value and accrual item for measuring conservatism.
They discovered that corporations that face such contradictions reveal more conservatism accounting.
Chei, Lio and Vung (2009) studied the affective factors in conservative attitudes in corporation. For
this case they researched the corporate governance factor. They believe that in corporations that
conservatism is more prevalent that have problems with presentation costs. Therefore in such
corporations the existence of a weak corporate governance system can lead to more conservative
accounting attitude. They consider that corporations that have a weaker corporate governance
structure have a bigger tendency toward conservative accounting attitudes.
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Ali Pourkazemi and Mohammadreza Abdoli
Young Byun and et al (2011) study value information of corporate decisions and corporate
governance practices in Korea .they investigate a direct link between corporate governance practices
and strategic corporate decisions such an investment, financing dividend policies and cash holdings
.Their findings show that the value implications of financing, investment, dividend, and cash – holding
decisions are strong for firms with sound corporate governance practices
Annelies and et al (2010) after controlling for selection bias and endogenously simultaneously, find a
significant positive relationship between corporate-governance ratings and performance. However,
the strength of this relationship seems to depend on the quality of the institutional environment.
Finally, we find that improvements in corporate-governance ratings over time result in decreasing
marginal benefits in terms of performance.
Mehrani ,Halaj and Hassani (2007) in their study researched the relationship between accrual and the
major of conservatism accounting based on Baso's model. They believe that the affect of accrual
accounting in regard to accrual accounting is more balanced. They found the profits of the accounting
are almost 4 times more sensitive to the data profit sharing in comparison with positive data out put.
(Bani Mahd and Bagheri 2009) have studied the major of conservatism in the acceptable corporations
in Tehran Stock Exchange based on Hein and Guili's model. They have studied the affects of the type
of ownership of corporations, the size of corporations and also leverage ratio of these corporations on
the amount of loss. They found a strong relationship between corporate losses with the amount of
conservatism. They also discovered that conservatism will promote the value of corporations that
have a loss in the long run.
Renders, et al (2010) establish whether this positive relationship exists hrough modeling the
relationship more carefully. After controlling for selection bias they find a significant positive
relationship between corporate governance ratings and performance. Hesiang, et al (2010) used both
primary and archival data from Taiwan to find that compensation can encourage company board of
directors to act in the best interests of shareholders when there is greater board independence.
Among all board supervision capabilities, continuing education is the most important factor in
enhancing the transparency of a firm.
With respect to the research done in Iran and other countries the following hypothesis are created:
There is a positive and meaningful relationship between conservative accounting and nonexecutive
directors ratio.
There is a negative and meaningful relationship between conservative accounting and executive
directors' ratio.
There is a positive and meaningful relationship between conservative accounting and the
existence of internal auditor in corporation.
There is a positive and meaningful relationship between conservative accounting and
concentration of ownership ratio.
Research Methodology
Each variable and how they have been measured are described using the continuation model of
conducting research with respect to the existing theoretical information. The result of other research is
also explained in this section
The executive directors' ratio
Based on Iran's trading laws, trading corporations are managed by board of directors and according
to the corporate charter. Some of the board members may work full time in the company as a
responsible manager. These managers are more aware of what happens in the company and also
share more profits. Therefore there is a kind of a conflict of interest between them and the rest of the
investors based upon corporate governance laws of Iran's board of companies.
Board of directors should register descriptions and responsibilities of each one of the board members
in the annual reports and announce that to all the share holders and clients who check the internet
websites.
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Ali Pourkazemi and Mohammadreza Abdoli
In order to calculate the ratio of responsible board of directors, the total number of responsible and
employed board members-executive directors- is divided by the total number of board of directors.
The non-executive directors' ratio
According to the trading laws of Iran, business corporations can choose some of their board members
from outside of the corporation. These members can be directors of other corporations. These
members can't be the managers of state corporations. The names of these individuals are provided in
annual reports. As these individuals do not work full time in the corporation they are not as aware of
internal conditions of the corporation. But as they have no direct share in the activities of the
company, they enjoy more independence and are expected to have better supervision of the board of
directors. This ratio is attained by the division of the number of the total number of the board members
by the number of board members from outside the company.
Internal auditing
According to the laws of corporate governance of Iran and Stock Market Law, trading companies
should have an internal audit procedure which is under the supervision of the board of directors.
Internal auditors can audit and report in any areas of finance and activities. In Iran there is no auditing
committee and this role is performed by the internal auditor in a more limited way. In order to study
the research, corporations that have internal auditor are considered separately from corporations with
no internal auditor.
The ratio of concentration ownership
In Iranian corporations, major stock holders usually choose the corporate managers while minor share
holders have no role in choosing managers and the CEO. Theoretically, it is acceptable but in practice
it is to be expected that major investors will think of their own interest and neglect the interests of the
minor investors.
The corporate governance laws of Iran in this regard do not present a specific mechanism. To
measure this variable we calculate the concentration of ownership in the company which means, how
to distribute the stocks among the stockholders. In this research, the ratio of the concentration of
ownership was calculated using Herfindal and Hershin's model . This ratio is obtained by the sum of
the square roots percentage of the stock which belongs to the shareholders of the company. In the
case of the entire amount of the shares belonging to one individual will have the highest value and will
be equal to 10000 units. In the case of the structure of ownership being more dispersed and all
shareholders have equal ratios, the HHI index has the lowest value and is calculated by N/10000.
HHI = ∑ (pi /p *100 ) 2
Measure of conservatism in corporations
Due to problems that exist in the Baso and other's model - and also inefficiency of the capital in the
market in Iran( weakness of efficiency) - the conservatism in a company is not due solely to the
market prices . In Qiuli and Hil's model conservatism is calculated as following:
TOTAL ACCRUAL*(-1)/TOTAL ASSET =Conservative Index
Accruals are equal to difference in net income to net cash from operational activity (according to Iran's
accounting standards) plus depreciation expense. Total asset is equal to book value of assets in
2010. According to Qiuli and Hil's (2000) the growth of accruals can be an index of change in the
degree of conservative accounting in a long term period which means if accruals grow the
conservatism has decreased and vise versa. Therefore in order to confirm the direction of charges in
conservatism accruals are multiplied by (-1). In order to homogenize information in the corporations
with different size, the total accruals accounting is divided by the total asset.
Variable of research
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Ali Pourkazemi and Mohammadreza Abdoli
Base on other research done in Iran and other countries variable control include size of corporations,
type of ownership (government or private) and ratio of leverage.
The size of corporations is calculated with the logarithm of total assets of corporations' values at the
end of the financial period in 2010. The type of ownership of corporation's is determined by the
General Business law of Iran. Thus all corporations were segregated into two divisions. According to
Iran's General Business law, corporations that directly or indirectly have their shares owned by the
government or state organizations are considered government; otherwise, they are private .The ratio
of leverage is calculated by dividing the total debts to total asset of each company.
2. Research model
Based on the above discussion, the relation of variables is:
CONSERVATISM = α0 - α1 * (% EXECUTIVE MANAGERS) + α2 * (% NON-EXECUTIVE MANAGERS ) + α3 * (INT AUD) +α4
*(OWN CONC) +α5 * (VARIABLE CONTROL(
In the above model, conservatism as a dependent variable and percentage of the board that are
employees, percentage of the board that are not employee, INT AUD and OWN CONC are independent
variables of research. Variable controls include the size of the companies, the type of the ownership
and the ratio of leverage.
In this section we present the descriptive statistics of the corporations under study and also the results
of preformulated regression tests and the result of research test theories.
Society and statistical samples
In order to study the research model and also test the hypothesis, the acceptable corporations in the
Tehran Stock Exchange were considered. These companies had the end of their financial year
designated as the end of Esfand (or December) and do not include investing corporations and
financial dealers. In the period 2009-2010 their financial information was available. The number of
corporations that met these conditions was 232 companies and 102 of these from different industries
were chosen randomly.
Table 1a: Statistical descriptions of the sample corporations
Number of Selected Corporation Total Number of Corporation
Type of industries
11
12
19
17
15
17
11
102
23
22
42
57
42
40
26
232
Mineral corporation
Food Corporation
Cement and Tile corporation
Metal corporation
Automobile corporation
Petrochemical corporation
Pharmacy corporation
When the outputs of these companies were considered, 15 companies were eliminated from the
research because of abnormalities thus reducing the sample size to 86. The results of the statistical
descriptions of each variable is given in the table below:
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Total

Ali Pourkazemi and Mohammadreza Abdoli
Table 1b: Statistical descriptions of the sample corporations
Minimum Maximum Statistic Mean Std. Deviation
Conservatism Index -.85 .15 -.1671 .18296
Executive directors Ratio 00.00 .67 .3431 .15224
Non-executive directors Ratio .33 1.00 .6570 .15224
Ratio of Conservatism 4 11325 3082.97 2321.724
Internal Auditor 00.00 1.00 .5465 .50075
Size of Corporation 10.38 13.90 11.8344 .60870
Leverage Ratio 00.00 2.14 .6741 .3170
Type of Ownership 00.00 1.00 .4070 .49415
The corporations studied in this research were 63% private while 37% are government. Also 67
companies have internal auditor while 45 companies use private auditors with the rest government.
The results of solidarity between variables are shown in the following chart. For this purpose we use
the Pierson correlations.
Table 2: Correlations of variables
Pearson
Correlation
Sig. (2tailed)
Pearson
Correlation
Sig. (2tailed)
Pearson
Correlation
Sig. (2tailed)
Pearson
Correlation
Sig. (2tailed)
Cons index Size
Lev
.index
Type
corpo
Executive
directors
1 .166 .093 -.176 .265 *
Nonexecutive
directors Int.Auditor Conc.index
-.130 .050 -.085
.126 .395 .105 .014 .234 .645 .435
1 -.108 .086 -.203 .233 *
.280 **
-.085
.324 .431 .060 .031 .009 .438
1 -.333 **
.209 -.017 -.017 .111
.002 .053 .878 .875 .308
1 -.225 *
The test of pre formulated use of regression model for the research model.
1- The study of standardized residual.
365
-.103 -.018 .061
.038 .346 .871 .580

Ali Pourkazemi and Mohammadreza Abdoli
In order to study the plot of the standardized of residual we used Histogram diagrams. Q-Q and P-P
diagrams are also used to study the normality of inputs. If all the points shown on the diagram are on
a bisector of the first quarter then the inputs are completely distributed normally.
The graph in figure 1 shows the residuals are distributed normally.
Figure 1: Normal P-P plot of standardized residual
2-K-S test
Another test for the normality of data is the "Colomogroph-Smirnof" test which is a non-parametric
test. In case the amount is sign 5%, the speculation of statistical zero based on normality of
distribution variable under study with the confidence interval of 95% is accepted.
Mean
Standardized Residual
.1328491
Std. Deviation .26980506
Absolute .077
Positive .077
Negative . -054
Kolmogorov-Smirnov Z .720
Asymp. Sig. (2-tailed( .677
The test normality of observation (residual)
One of the hypothesis which is considered in regression is the independence of errors (the difference
between actual numbers and the predicted numbers by regression model).For this we must use the
Durbin – Watson test.
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Ali Pourkazemi and Mohammadreza Abdoli
Model R R Square b
Adjusted R Square Durbin-Watson
1
.770 a .593 .552 1.532
If the outcome of this test is between 1.5 to 2.5 it is proper. It is observed that statistic of Durbin-
Watson is in the proper range so it can be concluded that the errors are independent. Therefore, we
can use a regression model to test the research hypothesis.
In continuation we will statistically study each researched hypothesis result.
Hypothesis1.
There is a meaningful and positive relationship between the ratio of non-executive directors and
conservatism. The related statistic to determine the meaningfulness of the coefficients is the statistic
of T instead of which sign is used.
The ratio of non-executive directors has no affect on conservatism. H0: β=0
The ratio of non-executive directors has affect on conservatism. H1: β#0
1
Non-standardized Coefficients
Standardized
Coefficients
Model B Std. Error Beta f Sign.
(Constant) .477 .047 2.834 .000
Non-executive directors
Ratio
.619 .126 .565 2.523 .014
In the column β in the table above amount and independent variable coefficient is presented orderly in
regression equation. Therefore the model equation is Y=0.477+0.619X
It is clear from the column sign in the chart above, amount of statistics sign for the variable of nonexecutive
managers is equal to 0.014 .With respect to the considered alpha for this study is equal to
5% , therefore this variable is meaningful(. 565 percent) and the hypothesis is acceptable.
Hypothesis2.
There is a meaningful and negative relationship between conservative accounting and the ratio of
executive directors. It is expected that responsible members on the board of directors who are
company employees and derive part of their benefits and rewards based on reported profits in the
financial forms would exhibit less conservative attitudes and may try to exaggerate income and
present profits earlier. The study of this attitude is presented in the table below.
1
Non-standardized Coefficients
Standardized
Coefficients
Model B Std. Error Beta f Sig.
(Constant) .302 .065 2.157 .001
Executive directors Ratio -.421 .973 -.365 2.789 .036
The result of statistical tests show the level of 5% because the amount of sign is less than the level of
alpha. Thus this research hypothesis is accepted. The coefficient of correlation between these two
variables is about 36%. Furthermore the relationship between them is negative.
Hypothesis3.
There is a positive and meaningful relationship between conservative accounting and internal
auditing.
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Ali Pourkazemi and Mohammadreza Abdoli
In this hypothesis it is expected more conservatism to exist in the company with the presence of an
internal auditor in the company.
1
Non-standardized Coefficients
Standardized
Coefficients
Model B Std. Error Beta f Sig.
(Constant) .378 .029 3.020 .000
Internal Auditor .622 .040 .510 2.463 .037
As it is shown in the table above, the amount of sign is less than alpha 5%. Therefore the research
hypothesis is accepted which means there is a meaningful relationship between the presence of an
internal auditor in the company with level of the conservatism. The amount of the coefficient of beta
confirms the intensity of this relationship.
Hypothesis4.
There is a meaningful and positive relationship between accounting conservatism and the rank of the
concentration of ownership in the company. Based upon theoretical principals it is expected that
companies in which the rank of the concentration of ownership is higher and closer to the number 1,
the measure of conservatism due to more supervision by stockholders will be higher. The results of
the studies are presented in the table below.
1
Non-standardized Coefficients
Standardized
Coefficients
Model B Std. Error Beta f Sig.
(Constant) .146 .033 2.437 .000
Rankof Concetration .513 .064 .432 3.784 .015
With regard to the result of the above table the amount of sign is less than the level of 5%. Therefore
the research hypothesis is accepted. The intensity of the relationship is 43 percent.
In order to study the control variables, the Forward method is used. The 7 variables which are studied
are specific features among many features of corporate governance that predict conservatism. It is
possible that some of the variables of corporate governance chosen might not be good predictors.
These cases are very naturalistic. Therefore when unrelated variables entered the model without
improving the predictions the flaws of the added values will be increased. Entering each of the 3
control variables ( size of the companies, the ratio of financial leverage and the type of ownership of
companies) separately in each of the research hypothesis the following results are attained.
With entering each of the control variables into the hypothesis model 1, the measure of their
correlations is changed and is increased. This level with respect to the amount of alpha is meaningful.
Upon entering the size of the company and the ratio of financial leverage gives an indication of the
type of ownership of the corporation referred to in the second researched hypothesis. When the
coefficients R 2 for the size of the company is 3% and for the ratio of leverage is 3%, the type of
ownership of the company has increased 2%.
The results of the research indicates that upon entering the variable of the size of the company and
the ratio of financial leverage, then the type of the ownership of companies are consequently the
coefficient of R 2 for the size of the company is 5%. The ratio of the leverage is 3% and the type of
ownership of the company has increased 4%.
The results attained from the fourth research hypothesis indicates that upon entering variables of the
size of company, the ratio of financial leverage and the type of ownership of the corporation yields
coefficients for the size of the company of 4 % , or the ratio of leverage 6 % and for the type of the
ownership companies of 4%.
3. Discussion and conclusion
Based upon theoretical principles and also the results of research about conservatism, it is expected
that the ratio of employee board of directors, the presence of an internal auditor and higher
concentration of ownership leads to more conservative attitudes from executive managers. On the
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Ali Pourkazemi and Mohammadreza Abdoli
contrary, the presence of the higher ratio of non-executive directors to directors leads to less
conservatism in those companies. Furthermore, the effect of political attitudes and with reference to
agency theory, it is expected that the managers of bigger companies are under pressure from outside
to delay presenting their profits, to recognize all costs and to underestimate all kinds of reserves. This
issue is also true among the corporations that have higher ratio of leverage.
The results of this research showed that the presence of executive directors that are selected by a
majority of stockholders will result in a more realistic accrual accounting approach and the reporting of
real expense and revenue in annual financial statements. It also helps avoid any artificial reserve
expense and to reporting of revenue with objectivity. The markets and CPA (auditors) don’t accept
conservative incomes and react to these incomes.
In addition the presence of major stockholders in the companies that consider themselves the main
owners of the company impacts on conservatism. With increasing rank of concentration, corporations
financially conservative behavior increases, thus the majority do not protest having minority
stockholders. In corporations in which dispersion of stockholders is high, the conservative
corporations index is low and accrual reserve accounting is minimal. The majority of stockholders in
Iranian corporations are banks and investments corporations that want to keep cash on corporations
and don’t pay out to stockholders.
The relation between non-executive board members and the amount of conservatism is confirmed
and positive which means that with the increase of the presence of non-executive directors in
companies, the level of conservatism is increased. In other words, the recognition of profits are
delayed while the recognition of reserve expense is high and early. Such boards are more
independent and don’t influence accrual accounting items and are not direct beneficiaries in
proportion to annual net income. Their payroll is fixed and not a ratio of annual income.
The affect of internal auditors on report of income is also confirmed and meaningful. Internal auditors
don’t delay reports of revenue nor recognize reserve expense that are unacceptable within Iranian
accounting standards. They report any deviation of accounting standards in accounting systems. The
are independent of the corporation's CEO and they report any cases to chief directors.
In this study, just like the results of other similar studies, the effect of the size of corporations and their
ratio of financial leverage and the type of private ownership in the company on conservatism has
been positive. This indicates that these factors cause more fiscal conservatism within the company.
The reason for this increase seems to be the protection of benefits in the company and less exposure
of such benefits to others such as banks, financial sponsors, government and politicians.
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370

Changing Managerial and Leadership Roles in Successful
Industries in Pune
Parveen Prasad
M.U College of Commerce, Pune, India
parvin_prasad@hotmail.com
Abstract: The challenges in the world today demand new leadership practices from management. The fast
changes, high volatility, hyper competition, declining prices, compressed margins are now demanding a rewriting
of many rules. The focus is on dealing appropriately with people to establish a conducive working climate. It is
now increasingly being realized that people provide the competitive advantage and the future of corporations lies
in the hands of people working as their employees. This research study attempts to identify and establish a
relationship of key elements in people oriented leadership practices through vision and values, policy formulation
and goal setting, developing a global mindset, culture building. Motivation and morale building, team working,
management of colleagues and liaison with the boss of middle level managers assessing their bosses on these
eight variables in ten successful enterprises in Pune The findings reveal a high correlation among these eight
variables and a single factor loading which was named as ‘learning’. The first Principal Component Analysis
explained a variance of 76.50 per cent which is quite high. This empirical research study is useful for the
managers and leaders at all levels including the human resource managers as it provides a formula for achieving
success in Companies by fostering a learning environment where shared visions, values, goals, policies, culture,
global mindset, teams are the norm. These measures would promote and foster an employee centric working
climate so conducive for achieving productivity and empowerment of employees at all levels.
Keywords: leadership, management, challenges, employee centric, vision and values success formula
1. Introduction
Leadership can be defined as being the ability to bring about movement or change in a group or
organization when there is a risk or uncertainty by inspiring others to head in a particular direction.
Perhaps the best known example of leadership comes from the case of Carl Ghoshn, who took over
as Chief Executive Officer (CEO) of the automobile company named Nissan Renault and lead a
turnaround. This once thriving company had been struggling to turn a profit for eight years.
Purchasing and manufacturing costs were high and profit margins notoriously low. The company’s
debt, even after the Renault investment, accounted a staggering $ 11 billion. Product innovation was
at a standstill and the company was trying to compete with aging and outdated car models. When
Ghoshn got to Nissan, he found deeper problems, including a culture of blame where no one was
willing to accept responsibility for mistakes. One reason, he discovered, was that most Nissan
managers did not have a vision, clearly defined policies, goals and areas of responsibility and
authority. (Economic Times, July, 2010). Other literature has described similar inspirational
turnarounds like Jan Carlzon of Scandinavian Airlines (SAS). Carlzon’s strong belief in the creation of
an environment in which employees accept and execute their responsibilities with confidence and
finesse and the role of leaders in imparting the company’s vision and listening to what they need to
make that vision a reality and he being a visionary, strategist, informer and inspirer has produced
exceptional results ( Ackoff,1999).
In modern corporations, characterized by fast changes hyper competition, declining prices,
compressed margins, one of the important concerns is the need of leadership to accelerate the speed
with which it can adapt to rapid and unforeseen changes in its environment (Berret & Bryman, 1992).
In order to achieve this speedy adaptation, leadership needs to be extended to all levels of the firms
hierarchy rather than it being confined to the top management (Berret & Bryman, 1992). Researchers
have recognized and acknowledged the basis of new leadership approaches to help firms respond to
a business environment that seems to have become unpredictable and more challenging. The factors
underlined for effective leadership today have been identified. Conja &Fulmer, (2004) observed four
keys to become a more effective leader namely: high networking and influencing skills, a long lasting
vision, ability to coach others instead of doing everything yourself and a global perspective. It is
increasingly being realized that people provide a competitive advantage and the future corporations is
in the hands of people who work as their employees (Adair, 2006). In the manufacturing
organizations, the average percentage of the human factor cost is 60 per cent and in service
organizations it constitutes as high as 80 per cent of the total cost. Hence there is an increasing
emphasis today in optimization of the human resource component in this context of volatile and
complex changes in the internal and external working environment of firms.
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Parveen Prasad
2. Changing managerial and leadership roles
Osborne(2005) opined that the five key leadership roles includes designing a strategic vision to
motivate and inspire empowerment of employees, sharing of information, openness and innovation,
following the market and staying intent on the quality of execution.
A learning organization has direct relevance to address the issue of complex organizations today
(Osborne, 2005). It is observed that it is not just possible to figure from the top and have everybody
else following the orders of a grand strategist. The problems faced today are becoming complex to be
solved by one person. It is becoming well established that those organizations that will excel in the
future will be the organizations that discover how to tap people’s commitment and capacity to learn at
all levels in the organization (Northouse, 2003). A learning organization is characterized by the
spectre of sharing management and leadership at all levels including the setting of the
vision,mission,values,goals,policies,building cultures, acquisition of a global mindset, morale and
motivation building and liaison with the top management.
Taking cue from these phenomena, the researcher has attempted in this paper to empirically explore
these features in successful manufacturing and service organizations involving the perceptions of 207
middle level managers, of their superiors, through their changing managerial roles in ten successful
companies in Pune. The main contribution of this paper is to empirically explore these key leadership
roles in the complex environments facing organizations today.
Through a rigorous literature review and understanding of changing roles of managers as leaders in
Pune based industries, the researcher also wish to motivate the top management and Human
Resource (HR) Managers to explore and design systems for implementing changing managerial roles
as leaders, as an acquisition of these phenomena promise to enhance productivity and stimulate
loyalty among personnel at various levels and share continuous teaching and learning among people
in an organization. These phenomena are observed in these successful organizations included in the
study.
3. New leadership and managerial roles
As organizations are changing and becoming more open, management and leadership is being widely
shared by all levels for sharing vision,mission,goals,strategies,global perspectives and culture (Rao,
2003). Several studies conclude that the role of vision is central. It is contended that the concept of
vision and value building is important to foster interconnectedness and interrelationship among
various levels of personnel in global organizations (Wall, 1995)
Leaders are looking to their company values as a means for providing focus, direction, and motivation
that will enable the organizations to survive and flourish. Bartlett (2005) opined that the leadership
responsibility is to establish a statement of values and to ensure that these guiding principles become
a basis for action throughout the organization. He established that a shared set of deeply held core
values and vision are a key to creating alignment and empowering people. The vision statement
embodying key strategies to keep up with the rapidly changing environment in the future should be
developed and shared with all. It is argued that a dominant transformational and adaptive organization
articulates a strong vision and aligns its followers around a vision. Culture is a key for following an
organization’s vision and building of a trustworthy character. Hesselbien et al., (1999) opine that the
culture is an important determinant for creating an adaptive climate.
Motivation and morale building are considered paramount for enhancing the spirit in the work
environment. The challenge of doing the job with a spirit of invigoration and creating a genuine
satisfaction and motivation for the employees is through the creation of a work environment or
Hertzberg’s hygiene factors such as pay benefits and human relations (Sirota et al., 2000). It is further
mentioned that there are three primary sets of goals for people at work namely- equity, achievement
and camaraderie. These are called as the three factor theory of human motivation in the workplace.
These three sets of goals characterize what the overwhelming majority of the employees want and the
statistical evidence gathered highlight a correlation of employee morale with the performance
measured on the three factor criteria. There is now a general consensus that leadership in the new
environment is much more difficult in hard times than in good times.
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Parveen Prasad
It is highlighted by Osborne (2005) that the five key leadership roles include a strategic vision to
motivate and inspire, empowerment of employees, sharing of information, openness and innovation,
following the market and staying intent on the quality of execution.
Sathe (2003)tried to examine leadership as corporate entrepreneurship which requires a strong active
and determined leadership on the part of all managers and executives with a strong focus on different
human relationships. Their primary role also involves building of a consensus in their organization.
Consensus means that people have agreed to cooperate in the implementation of a decision. A
leader needs people throughout the organization capable of making tradeoffs and adjustments. As
obstacles arise shared understanding promotes that type of coordinated and independent action. In
other words exercising leadership is an integral part of a manager’s job.
In a firm with a leadership culture, one of the ways that leadership is manifested is that managers and
individuals take responsibilities for the firm as a whole and not just their individual site (Crainer ,2005).
Leadership is also viewed in the early 21 st century as the capacity of the human community to shape
the future and specifically to sustain the significant processes of change required to do so. Leadership
no longer is considered an application for the managers’ at all levels to lead but it applies to the whole
organization and its ability to develop a leadership mind set for the entire organization (Buelins, 2005)
Collins (2001) highlights five common characteristics of high performing organizations namely: high
emotional intelligence, strong networking and influencing skills, a long lasting vision, and ability to
coach others instead of doing everything yourself and a global perspective. He believed that effective
leaders need to adopt these features in order to elevate organizations from good to great.
Venkatesh (2006) studied human resource management practices of successful Indian and
multinational organizations. He increasingly observed that people provide the competitive advantage
and the future corporations lie in the hands of the people who work as their employees. Several
studies on Organization Behaviour compiled by Luthans (2005) underline an inextricable link between
technological and human components of work, jobs being more generic rather than specific,
contingent workforce comprising a significant proportion of the workforce, a strong influence of
customers in the work performed in organizations, teams instead of individuals producing basic units
of work and organization charts failing to capture the networks of influence and relationships.
Ackoff (1999) studied the challenges faced by the organizations in the 21 st century. It was highlighted
that the challenge faced is in getting everyone in the organization on the same wavelength of a
common goal, a common mission, setting the values and living by them. Several studies including
Osborne’s behaviour model underline key leadership roles including a strategic vision, to motivate
and inspire empowerment of employees and sharing of information, openness and innovation,
following the changes in the market conditions and staying intent in the quality of execution. Wall
(1995) underlines the urgent need of strategic thinking among all levels of hierarchy-in today’s
enterprises which increasingly focus on teamwork, flexibility and a de emphasis of levels. In his book,
he prepares a model designing systematic steps in creating new or evolving strategies based on the
learning of frontline strategies who, according to his contention, must participate in the strategy
forming process. The model starts with a strategic foresight, the next step is to deliberate on
strategies when they are developed, test strategies with customers and ultimately evolve new
strategies. Wall cites the examples of organizations like Daimler Chrysler, which employ the wisdom
of cross functional teams and frontline employees who are active strategists and executors. Studies
such as those conducted by Wall throw light on the importance of the concepts of vision and strategy
to foster an interconnectedness and interrelationship among various levels of personnel in global
organizations. In a study reported by Shaffer (2004) on the findings of a nation under the study of the
American Management Association, business leaders estimated that 14 per cent of each 40 hour
week is wasted due to poor communication of strategy and vision among the employees. This
amounts to seven weeks a year of productive time wasted.
When management researches are analysed, it is seen that management models were examined in
different dimensions and from different perspectives. In Bennis (2003) studies, one of the basic
functions of managers in organizations is to concentrate on the performance of teams they manage
and to inspire and motivate team members, managers and individuals with a vision that enables the
team members to reach their goals. Managers have to rationalize their ideas and thoughts for
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Parveen Prasad
members of organizations and should communicate them clearly by issuing analogies and metaphors.
It is also felt that empowerment of employees is important because they belong to a group and
opportunities for their learning and skill development are given. These factors are also important for
directing the strategic decisions of managers and allow these strategies to have an impact.
Ward (2003) emphasizes that the most important factor about being a manager is having
dreams.(Tichy, 2004) states that in today’s business world good management is required more than
ever. Managers define themselves as transformative. It is a reality that most important part of the
management process is creating and implementing the change process and making effective
transformation.
Chakraborty and Chakraborty (2004) analysed management from the perspective of psychology and
considered a different dimension of management and leadership. The study implies the importance of
management for both morale building and motivation within the organization. The above studies
extend an insight on how creation of a productive and harmonious working environment are being
perceived as strategic issues for enhancing employee productivity and efficiency.A model is created
by connecting the dots ,which are the context (big picture),vision and strategy (what business needs
to become and how it plans to do it),linkage(what’s in it for me),roles(expectations of our teams) and
these studies emphasise how leaders and managers should create the above pointers for creating
success today.
From the literature survey done so far, it can be concluded that:
Organizations’ are held by connections and commitment rooted in freedom and congenial work
environment rather than coercion and control
Leadership is the business of all levels of managers and not just of those at the top
There have been attempts in the past to measure the impact of each of the variables of vision,
values, mission, goals, global mindset, strategy formulation, morale and motivation, liaison with
the top management, no research has been done to determine a correlation of all these variables
and a factor analyses of the same as existing in successful; industries in Pune, India.
Therefore, it hypothesizes that all these variables are closely connected and they collectively build a
learning environment through a sharing of these variables among all the levels of employees
4. Empirical study and results
Ten recently successful (a substantial growth) manufacturing and service organizations, situated in
and around Pune, agreed to provide access to their middle level managers from the various
organizational units. Although there are several companies in and around Pune which fit in this
category, the researcher focused on the above ten which agreed, through my personal contacts, to be
covered in the study
At each company, the researcher studied; the researcher measured the extent to which each of the
following organization systems enabled leadership. Such as, Vision and Values, Policy Formulation,
Planning and Goal Setting, Global Mindset towards Technology and Systems Management, Inspiring,
developing and Empowering Staff, Culture Building, Team Work and Team Building, Management of
Colleagues and Liaison with the Boss,
It wished in this study, to examine the process of ‘New Corporate Leadership’ in the context of the
rapidly changing social, economic, technological, political scenario and the employees working
climate measured through their perceptions of various aspects of successful organizations’
environment or work settings seen through their immediate supervisors or bosses. The data collected
from the ten organizations is cross sectional .A survey method in the form of filling of questionnaires
by the middle level managers is adopted. This method seemed the most appropriate as information
about new leadership and the employees working climate could be secured first hand from the middle
level managers themselves. Besides, their perceptions and experiences would be appropriate in
understanding paramount issues related to new leadership instead of the top managers proclaiming
themselves. Secondary data on inputs relating to the employees’ working climate and new leadership
issues for companies in India is not widely available. Besides, companies themselves have not
undertaken any concerted efforts and exercises on these issues.
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Methods of Data Analysis
Parveen Prasad
The survey method of data collection is measured through a detailed quantitative analysis
undertaken by using SPSS (Statistical Package for Social Sciences- version 11). This is a very
popular and user friendly statistical package. The researcher needed to measure ordinal data, in the
form of perceptions of the middle level managers of their bosses, on various new leadership and
employees working climate related variables on a scale of 1 to 5. For this, a psychometric evaluation
of the tools employed and a subsequent factor analyses was required. SPSS served the purpose for
the same appropriately.
Sample Details
The sample available for this analysis consisted of 207 middle level managers drawn from ten
companies located in and around Pune. It was expected that the sample drawn from ten companies
would be reasonably heterogeneous and representative permitting fair generalization from the present
study.
Psychometric Evaluation of ‘Managerial and Leadership Roles’ scale:
The managerial and leadership roles scale has nine subscales as shown in Table 1.
Table 1: Subscales of managerial and leadership roles scale
Subscale No Subscale Name No of Items
1. Vision and Values 5
2. Policy forming, planning and goal setting 5
3. Global mindset 9
4. Inspiring, developing, empowering staff 15
5. Culture building 5
6. Team work and team building 5
7. Management of colleagues 5
8 Liaison with boss and top management 5
Correlations:
Among the various Karl Pearson’s product moment correlations and item remainder correlations
computed as a necessary step for determining factor analyses, the correlations among the main
variables are particularly important for testing the hypotheses. These are namely the eight subscales
of managerial and leadership roles.. Also the correlations among the eight subscales of vision and
values, policy formulation, planning and goal setting, global mindset, inspiring, developing and
empowering staff, culture building, team work and team building, management of colleagues, liaison
with the boss were computed.
Table 2: Correlation matrix among the eight subscales of the ‘managerial and leadership roles’ scale
**
Subscale Vision Goal Global Inspire Culture Team Colleague Boss
Vision 1.00
Goal 0.81 1.00
Global 0.72 0.83 1.00
Inspire 0.74 0.78 0.83 1.00
Culture 0.68 0.68 0.70 0.79 1.00
Team 0.66 0.71 0.73 0.82 0.76 1.00
Colleague 0.69 0.70 0.74 0.91 0.79 0.82 1.00
Boss 0.62 0.67 0.66 0.69 0.67 0.64 0.74 1.00
The correlation matrix was visually scrutinized for its suitability for factor analysis. Bartlett’s test of
sphericity was also computed which yielded a test statistic (chi-square = 1666.65, df = 28, p < 0.001)
indicating that the obtained correlation matrix significantly departs from the identity matrix, thus
indicating its suitability for factor analysis Kaiser-Meyer-Olkin measure of sampling adequacy has also
been calculated which turned out to be 0.927 and can be classified as ‘marvelous’.
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Parveen Prasad
Retaining unities in the diagonal, the correlation matrix was subjected to principal components
analysis (PCA). Both, Cattell’s scree plot and Guttman –Kaiser’s eigenvalue ≥ 1 criterion, indicated
one factor solution. The first principal component explained 76.50 per cent of variance. Nevertheless,
a two-factor varimax rotated solution was obtained and compared with one factor solution (i.e. first
principal component).One-factor solution has been found to be more interpretable than the two-factor
solution and the same is reported in Table 3.
Table 3: The first principal component loadings of the eight subscales of the ‘managerial and
leadership roles’ scale
Subscale
First Principal Component
PC loading h 2
Vision and Values 0.84 0.71
Policy Formulation, Planning and Goal Setting 0.88 0.78
Global Mindset towards Technology and Systems Management 0.89 0.79
Inspiring, Developing and Empowering Staff 0.92 0.86
Culture Building 0.97 0.75
Teamwork and Team Building 0.88 0.78
Management of Colleagues 0.90 0.81
Liaison with Boss and Top Management 0.81 0.65
Sum of squared loadings (SSL) 6.12 (76.50%)
A reference to Table 3 indicates that all the eight subscales are substantially loading on the first
principal component. The first principal component is labeled as ‘Managerial and Leadership Role
Effectiveness’ factor.
5. Discussion:
The managerial and leadership roles of managers include various distinct variables, each of which
contributes to the effectiveness of the role and its overall positive impact. For instance, vision,
embodying key issues and values as a guiding principle form the basis for creating employees’
alignment. This is one of the major challenges faced by the top leaders in organizations. Research
results show a Principal Component loading (0.84) of vision and values, which is quite substantial, on
the Managerial and Leadership Roles Subscale (MLRS). Moreover, vision and values highly correlate
(0.79) with the variables included in MLRS. This is adequate reason for the companies to focus their
attention here. Forbes Marshall, which ranked seventeenth, in India, as a ‘Great Place to Work With’
undertaken by the organization ‘Great Places to Work With,’ Pune Chapter, scored high on the
parameter of maximum employee involvement in the formulation and revision of the vision and values.
Other companies, however, still consider this exercise as a top management activity.
Policy formulation, planning and goal setting demands a leadership from managers at all levels
for collective decision making and setting a fair allotment of goals. The research results reflect
Principal Component Loading (0.88) of this scale, which is high.
This scale too, closely correlates (0.85) with all the eight variables related to MLRS. Companies like
Kirloskar Brothers Limited and Thermax have developed cross functional teams to create a sharing of
critical information needed for an improved performance. It is strongly felt by the Chairman of Indian
Seamless and Metal Tubes how direction and communication have to be strengthened to ensure the
employees’ whole hearted compliance.
Global Mindset towards technology and systems management is becoming a carefully cultivated
attitude among the top leaders in the companies included in the study. The Principal Component
loading of this scale (0.89) is quite high. Moreover it positively correlates (0.86) with all the variables
of the MLRS. All companies in the study have been undergoing a massive restructuring programme
and a systems change for reaching global benchmarks. Forbes Marshall, Foseco India, Thermax and
Indian Seamless and Metal Tubes are working towards developing a close collaboration with the
research and development department and are showing an increasing focus on the aspects of
technical training for their employees. As a matter of fact, Forbes Marshall and Kirloskar Pneumatic
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Parveen Prasad
Company have restructured their entire manufacturing equipment and apart from upgrading them,
have now adopted a cellular technology, now rampant in the modern enterprises.
Inspiring, developing and empowering staff is a challenging activity for every organization. Each
company included in this study, was attempting a mix of techniques to enliven motivation among its
employees. They are increasingly convinced of the consequences of an effective motivation to retain
their employees, and to inspire them to realize their potential in achievement of productive results
from them. The loading of this variable (0.92) is quite high on the MLRS. Even its correlation (0.90)
with other variables in MLRS reflects its significance. The example of Thermax in this respect is a
model for others to follow. The managing director uses occasions like festivals to chat with the various
categories of personnel. Foseco has adopted a concept of a ‘hot seat’. Here every fortnight, all levels
of managers, by turns, occupy a frontal seat and get themselves assessed by groups of employees
from all levels on parameters of credibility, handling of situations, objectivity, team working, alignment
of departmental colleagues, sharing of critical information and so on. This has proven to help to
remove many barriers and inculcate more transparency in their working. Forbes Marshall has adopted
a more flexible approach of an open door policy. Any employee is free to interact with leaders at any
level without any structured appointments. Alfa Laval witnesses their top leader take a walk every
week in all the departments for an informal chat and interaction. This makes him more accessible
where he can witness hands on problems and grievances. The common underlying feature of all
these techniques is the thrust towards people friendly or an employee centric approach.
Culture building too is an important component for MLRS. The loading (0.87) is high on the Principal
Component. It also positively correlates (0.82) with other variables in this factor. The common culture
is oriented towards creating a sense of belonging and treating employees with a sense of self respect.
Atlas Copco particularly believes in the people oriented culture as a part of its working environment.
Cricket matches and a collective team working with a mix of employees from different levels of
hierarchy are common. The term preferred is cross functional teams. The recent restructuring
exercise in companies like Kirloskar Brothers, Bajaj Tempo now Force Motors, has incorporated the
concept of cross functional teams for all areas of working. It is increasingly felt by them that decisions
and problem solving in all spheres require a holistic approach built through the concept of a cross
functional team.
Team work and team building is one activity that has received tremendous attention. The Principal
Component loading on the MLRS (0.88) reflects the significance of this variable. Its correlation (0.84)
with other variables in this scale too is high. In today’s companies, for working with the growing
number of knowledge workers, team working has become an essential characteristic. Companies like
Alfa Laval and Indian Seamless Metal Tubes have even changed their appraisals systems from
individual to collective working of individuals in teams. The parameters for assessing individuals as
team members include traits like cooperativeness, information sharing, harmonious consultation,
loyalty, and equality in treatment of members.
Management of Colleagues by learning and acquiring traits of sharing, empathy and cooperation is
being compulsorily adopted by companies. The Principal Component loading of this variable on
MLRS is high (0.90).The correlation (0.86) is positive with other variables. Although this is not
separately focused upon by the companies, the top management is closely relating it with the team
working. Foseco is consciously aligning all its work processes, attitudes and decisions related to
culture towards empowerment and support of employees. Alfa Laval stresses on the open door policy.
Here the top leaders do not have the privilege of making any decisions alone.
Liaison with the boss and top management too loads high on the Principal Component of MLRS
(0.81). Its positive correlation (0.75) with other variables spells its feature of a close liaison with the
top bosses. Forbes Marshall believes in a system of coordination. Every activity is coordinated
together and hence, apart from critical issues, care is taken to integrate all activities together without
much differentiation from the top leaders. Consequently, work differences are blurred.
The factor analyses of the above eight subscales of the Managerial and Leadership Role Scale
strongly suggest a single factor conceptualization of the MLRS. This also explains 47.69 per cent of
variance which is quite high.
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6. General conclusion
Parveen Prasad
The assessment of these variables strongly loaded on a single factor reflects the spirit of a ‘learning’
organization. Review of Literature on areas of leadership mention this concept as a necessary feature
of a modern day enterprise against a traditional company. The characteristics that define a learning
organization are similar to the variables studied in the Managerial and Leadership Role scale. This
observation corroborates our viewpoint about the trend of companies today in adopting the learning
organization mode. All the companies included in the study, are strongly oriented towards the
principles of a learning organization.
So, in effect, it may be concluded and strongly recommended that all companies must focus their
attention towards these variables to adapt in this constantly changing business scenario and volatile
environment. The objective of all enterprises should be aimed at restructuring towards a learning
organization mode which is constantly innovating and mobilizing its motivated employees towards
proactive changes. The days of a traditional enterprise are certainly numbered. Managers at all levels
also should now acquire leadership attitudes and hence approach their work functions towards
alignment of their team members and fine tuning their working instead of a constant guidance and
direction
References:
Ackoff, R. (1999). A Design of Organizations for the 21 st Century. New York: Oxford University Press.
Adair, J. (2006): How to Grow Leaders. New York: Amacom Publishing.
Bartlett, C. (2005). Rebuilding behavioural context .San Francisco: John Wiley & Sons.
Bennis, W. (2003). On becoming a Leader. Mumbai, India: Reprint by Magna Publishing.
Buelins, M. (2005). Integrated Performance Management – The Informal Organization.California:John
Wiley&Sons
Collins, J. (2001). Good to Great UK: Random Books
Chakraborty, S. & Chakraborty, D. (2004).The Transformational Leaders and Spiritual Psychology.A Few
Insights. Journal of Organisation Change Management,(11-94-210).
Craig, Crainer S. (2005). Financial Times – Handbook of Management (3 rd Edition). Pearson UK: Education Ltd.
Craig, J. (2004). Meeting the ethical challenges of leadership (2 nd ed). London: Sage.
The Economic Times (July,2010).Leadership and Business Turnaround.Pune:The Times of India
Goldratt Elujahu (2005). Organizational Change – New Leadership Paradigms. California: John Wiley & Sons.
Hesselbein Francis, Goldsmith Marshall and Somerville Iain (1999). Leading Beyond the Walls..New York:Peter
Drucker Foundation for Non Profit Management
Luthans F. (2005). Organizational Behaviour.(10 th Edition) North America: McGraw- Hill Education:
Northouse P. (2003). Leadership Theory and Practice. New York: Sage Publications:
Osborne, R. (2005). Organization Behaviour.(11 th Edition).New York: John Wiley & Sons
Rao, T.V. (2003). 360 Degree Feedback. Ahmedabad: TVS Learning Systems
Sathe, V. (2003) Corporate Entrepreneurship.UK: Cambridge University Books
Shaffer, J. (2004). The Leadership Solution. New Delhi, India: Kogan Page Publications
Sirota, R., Mischkind, A . & Meltzer, M. (2000). The Enthusiastic Employee. USA: Macmillan Books
Tichy, N. (2004) Cycle of Leadership.USA: Harper Business Books
Venkatesh, J. (2006). Human Resource Management New Delhi: Oxford University Press:
Wall Shannon Rye (1995). The New Strategists. New York: John Wiley & Sons.
Ward, A. (2003). Matching Leaders to Evolving Organizations.UK: Macmillan.
378

Tax Aggressive Behaviour in Private Family Firms - the
Effect of the CEO and Board of Directors
Tensie Steijvers 1 and Mervi Niskanen²
1
Hasselt University, Diepenbeek, Belgium / Research Foundation-Flanders
(FWO), Brussels, Belgium
²University of Eastern Finland, Kuopio, Finland
tensie.steijvers@uhasselt.be
mervi.niskanen@uef.fi
Abstract: Tax aggressiveness is defined as downward management of taxable income through tax planning
activities which can be legal or illegal or may lie in between. Given that taxes are an important cost for each firm,
tax aggressiveness may be desired by its shareholders. In this paper, we investigate to what extent CEO
ownership and governance (e.g. composition of the board of directors) affect tax aggressive behavior decisions in
private family firms. More specifically, we extend prior knowledge by studying how board’s monitoring behavior
may moderate the relationship between the CEO’s involvement in the firm and tax aggressive behaviour of the
firm. The data, collected through a private survey, consist of 600 Finnish family and non family SMEs and is a
panel with observations from the years 2000-2005. The model is estimated based on robust Ordinary Least
Squares estimations including several moderating effects. In this paper, we find that private family firms appear to
be less tax aggressive than private non family firms. Even though tax aggressive behaviour provides tax savings
and allows the CEO to mask rent extraction (e.g. earnings management, perquisite consumption, excessive
salaries…) to the detriment of other shareholders, the non financial costs being the possible reputation damage
and loss of socioemotional wealth seem to outweigh the benefits. Within the group of private family firms, results
show that family firms with a lower CEO ownership share are more eager to engage in tax aggressive behaviour.
This result highlights the importance of the unique agency conflict between the CEO (agent and possibly
principal) and (other) shareholders (principals) in determining family firms’ tax reporting. Finally, our results show
that the presence of an outside director in the board of directors improves the monitoring effectiveness which
reduces the tax aggressive behavior of those private family firms with low CEO ownership shares.
Keywords: private family firms, tax aggressiveness, socioemotional wealth
1. Introduction
Tax aggressiveness is defined as downward management of taxable income through tax planning
activities which can be legal or illegal or may lie in between (Frank et al., 2009). To what extent a firm
is tax aggressive has to be chosen by the firm. As the CEO plays an economically significant role in
determining the level of tax avoidance that firms undertake, the CEO can be considered as the
decision maker (Dyreng et al., 2010). The CEO has to trade off the marginal benefits against the
marginal costs of managing taxes.
Chen et al. (2010) indicate that our understanding of tax reporting aggressiveness is limited and even
lacking in a context of private family firms. However, private family firms are particularly suitable to
study tax aggressiveness. Desai and Dharmapala (2006) indicate that the analysis of a tax
aggressiveness decision is embedded in an agency framework in which managers can enjoy private
benefits of control at the expense of other shareholders. Given that private ownership lacks
disciplining of the market for corporate control, agency costs could be high (Schulze et al., 2001).
For private family firms, the benefits do not only include the tax savings but tax aggressiveness also
allows the CEO to mask any kind of rent extraction vis-à-vis the other shareholders (e.g. earnings
management, perquisite consumption, excessive salaries …). This rent extraction can be considered
as agency costs for the firm. On the cost side, the CEO has to take into account the time that has to
be invested to implement the tax evasion measures, the possible penalty from tax authorities and the
possible damage to the firm’s reputation and family’s socioemotional wealth. Private family firms have
a much longer investment horizon and greater reputation concerns (Gedajlovic and Carney, 2010).
Family firms do not only have financial goals but also noneconomic goals such as preservation of the
family dynasty and perpetuation of family values through the business, that meet the family’s affective
needs which is described as socioemotional wealth (Gomez-Mejia et al., 2007).
Therefore, the main objective of this study is to determine whether from an agency perspective,
private family firms, compared to private non family firms, are more or less eager to engage in tax
aggressive behavior. Moreover, we question whether the extent of separation between ownership and
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Tensie Steijvers and Mervi Niskanen
management, affecting the extent of agency problems, will also affect tax aggressive behavior.
Additionnally, we extend prior knowledge by studying how effective monitoring by a board of directors
may mitigate the agency problems arising from separation between ownership and control, resulting
in tax aggressive behavior.
2. Literature review and hypothesis development
According to traditional agency theory, privately family owned and managed firms are often
considered as a low agency cost case (Jensen and Meckling, 1976; Fama and Jensen, 1983). Family
members would be more likely to behave altruistically. Parental altruism is a utility function in which
the welfare of parents is positively linked to the welfare of their children. Altruism may have several
beneficial effects such as the creation of a self-reinforcing system of incentives encouraging family
members to be considerate of one another (Schulze et al., 2003) and the enforcement of incentives to
communicate and cooperate with each other. When a firm is owned solely by a single ownermanager,
it can even be considered as a zero agency cost case (Ang et al., 2000).
However, by (partially) separating ownership from management in private family firms, agency costs
may arise due to information asymmetries and strains on the limits of bounded rationality among
family owners. The interests of owner(s) and manager(s) may not be completely aligned: the ability of
the CEO to act in his own interests at the expense of (other) family firm owners will increase (Chua et
al., 2003). Engaging in tax aggressive behavior by the CEO may be a reflection of this shareholdermanager
agency problem.
Engaging in tax aggressive activities is accompanied by costs and benefits within the context of
private family firms. As Dyreng et al. (2010) indicate that the CEO plays an economically significant
role in determining the level of tax avoidance that firms undertake, we take the perspective of the
CEO in studying the costs and benefits of tax aggressive behavior that determine the actual extent of
tax aggressiveness.
Chen et al. (2010) provide an overview of these costs and benefits. On the benefit side, there are the
direct tax savings which benefit all shareholders. Moreover, the complexity and obscure nature of tax
aggressiveness may allow the CEO to mask or hide any kind of rent extraction activities (e.g. earnings
management, perk consumptions, excessive compensation …). On the cost side, the firm risks a
potential penalty by the tax authorities. Moreover, if other shareholders perceive tax aggressive
behaviour as a way to mask rent extraction, a price discount will be imposed on the firm’s shares.
However, in private family firms, we argue that the costs are slightly different. First, contrary to public
firms (Chen et al., 2010), this rent extraction and other perquisite consumption behaviour by the CEO
(Schulze et al., 2003), will not be punished by the shareholders by a price discount because private
ownership lacks disciplining of the market for corporate control. Moreover, the lack of external
discipline increases the likelihood that information asymmetries will develop vis-à-vis for example
outside shareholders (Lubatkin et al., 2005). Additionally, previous studies indicate that CEO turnover
is significantly lower in family firms, indicating that possible rent extraction is less likely to be punished
by the shareholders (Tsai et al., 2006). Secondly, since private family firm owners are underdiversified
and have their wealth tied disproportionately to their firms, any penalty for the tax authorities is more
likely to be substantial to them. Thirdly, there is the possible damage caused to their reputation in
case of a tax related lawsuit, which seems to be most important to private family firms. Due to the
large equity ownership by the family, private family firms have a much longer investment horizon and
greater reputation concerns compared to public firms (Gedajlovic and Carney, 2010). They want to
pass the firm onto the heirs and want to preserve the reputation of the family name. Family owners
want to protect the family name as they view their firms as legacies to be handed over to the next
generations. Family firms have been represented as a combination of an emotion-oriented family
system focussing on non economic goals and the results-oriented business system focussing on
economic goals. Non economic goals such as preservation of the family dynasty and perpetuation of
family values through the business, that meet the family’s affective needs are described as
socioemotional wealth. Especially in private family firms, family wealth is closely linked with the
socioemotional wealth the family obtains from controlling the firm (Gomez-Mejia et al., 2007). So,
preserving the socioemotional wealth is itself a key goal in many private family firms.
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Therefore, we argue that, in general, the reputation concerns and preservation of the socioemotional
wealth, specific for private family firms, outweighs the benefits of tax aggressive behaviour in private
family firms. So:
Hypothesis 1: Private family firms exhibit a lower level of tax aggressive behaviour compared to
private non-family firms.
There is a growing consensus that private family firms cannot be viewed as a homogeneous entity
(Westhead and Howorth, 2007). Specific family firm characteristics may influence the private family
firm’s agency problems and resulting tax aggressive behavior. Given the importance of the decision
maker-manager in this context (Dyreng et al., 2010), we take into account the CEO’s ownership
share.
If the CEO has a high ownership share, he bears many of the costs and receives nearly all of the
benefits of any of his actions including tax aggressiveness. A CEO with a high ownership share is
mainly worried by the preservation of the good reputation and passing the firm to his children. They
may be less eager to engage in rent extraction because this may harm the firm. Parental altruism
gives the controlling owner/CEO incentive to take actions that they believe would benefit the nuclear
family. In addition, the emotional attachment to and self identification with the firm and the utility
derived from the ability to exercise authority are strong (Gomez-Mejia et al., 2007). Therefore, the
CEO will be less inclined to engage in tax aggressive activities because the avoidance of any penalty
from the tax authorities, negative publicity or loss of socioemotional wealth are essential.
A CEO with a lower or no ownership share may be more inclined to engage in tax aggressive
activities. The low CEO ownership share usually arises due to succession of the firm over several
generations, which weakens the attachment of the family to the firm. The focus shifts from from family
goals to a combination of family and business goals. Family ties and altruistic feelings weaken and
the family CEO with low ownership share will often put the welfare of the own nuclear family before
the wealth of the extended family (Karra et al., 2006; Lubatkin et al., 2005). This low ownership share
may reduce the motivation of descendant CEO’s, which increases the incentive to act
opportunistically because they bear only part of the cost of such action. It may enhance rent
extraction by the CEO. The shareholder-manager agency conflict becomes more prominent. The
reputation effect of tax aggressive behavior and the incentive to preserve socioemotional wealth
becomes of minor importance since the family ties have weakened and the intra family conflict may
intensify.
If the CEO has no ownership share and is thus a professional outside CEO, ownership and
management are completely separated which may lead to significant shareholder-manager agency
costs due to misalignment of incentives. Goals of manager (agent) and owner(s) (principal) can
diverge because the outside manager is not always familiar with the family goals or may choose other
goals than those strived for by the family shareholders. He will have a more short term view compared
to a family CEO. He will be evaluated based on the financial performance and the cost savings he
achieves. So, he will be more inclined to improve the financial results for the family shareholders and
engage in tax aggressive activities. Since family firms are not eager to provide outside managers with
equity shares, they will be more likely to receive a performance based salary or bonus (Banghoy et
al., 2010). Outside CEOs are expected to be less concerned with penalties from the tax authorities or
other long term implications with regard to reputation or socioemotional wealth. They are brought in to
provide objectivity and more rationality (Blumentritt et al., 2007). They do not strive at life time
employment. Thus:
Hypothesis 2: Private family firms with a high CEO ownership stake exhibit a lower level of tax
aggressive behavior
However, the board of directors may in several ways be an instrument to reduce shareholdermanager
agency problems and restrict tax aggressive behaviour by the CEO. In private family firms,
boards of directors may perform several board roles (Voordeckers et al., 2007). The board is
responsible for monitoring and evaluating management. Within an effective corporate governance
structure, the board verifies whether the management acts in the best interest of the shareholders. In
case of sound corporate governance, the directors should detect any kind of rent extraction behavior
and report it to the shareholders. To perform this task effectively, the directors should have the
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necessary expertise and objectivity that ostensibly mitigates the expropriation of firm resources for
example by rent extraction. Therefore, as rent extraction possibilities are reduced, the incentive for a
CEO to engage in tax aggressive behaviour to mask rent extraction would be reduced. As argued
above, private family firms with a lower CEO ownership share would be more eager to engage in tax
aggressive behavior. In those firms, the advantages of tax aggressiveness become dominant since
the preservation of the firms reputation and socioemotional wealth are less important due to weaker
family ties. However, the control role performed by an effective board reduces this tax aggressive
behavior by avoiding rent extraction such as excessive CEO compensation and thereby reducing the
motivation of the CEO to engage in tax aggressive activities. Moreover, in case of tax related law
suits, the reputation of the board may also be threatened. It may subject the directors to heavy
criticism. Therefore, they will try to reduce the extent of tax aggressive behavior.
Therefore, we consider the moderating effects of an effective board of directors on the relationship
between CEO ownership and tax aggressiveness. So:
Hypothesis 3: The negative relationship between CEO ownership and tax aggressive behaviour will
be weakened by effective monitoring by the board of directors
3. Data and variables
3.1 Data set
The data for the study were collected through a private survey. The database consists of 600 Finnish
SMEs and is a panel with observations from the years 2000-2005. A private family firm is defined as a
firm where more than 50% of the shares is owned by the family. This definition is in line with the
majority of family business definitions that require family ownership as one of the main indicators for
defining a family firm (Chua et al., 1999). The model will be estimated based on robust OLS
estimations including several moderating effects. After elimination of outliers we ended up with a final
sample of 1621 private family and non family firms out of which 921 firms are categorized as ‘family
firms’.
3.2 Measures
The dependent variable we use is the effective tax rate defined as total tax expense divided by
earnings before taxes. Firms that are more aggressive have lower effective tax rates (ETRs). This
measure reflects aggressive tax planning through permanent book-tax differences (Chen et al., 2010).
We incorporate several independent variables in our study. In order to verify whether family firms are
more or less tax aggressive than non family firms, we incorporate the ownership percentage in hands
of the family (‘Familyown’) or alternatively, a dummy variable (‘Familydummy’) with a value ‘1’ if more
than 50% of the shares are owned by the family; ‘0’ otherwise. Within the group of private family firms,
we include ‘Ceoown’ which measures the percentage ownership by the CEO. We also include board
effectiveness by studying CEO duality and the presence of outside board members. Governance
literature generally suggests that as boards become increasingly independent of management, their
monitoring effectiveness increases, thereby decreasing managerial opportunism (Harford et al.,
2008). CEO duality (‘Ceo_dual’) has a value ‘1’ if the firm’s CEO is also the chair of the board of
directors; ‘0’ otherwise. Alternatively, we include ‘ext’ which has a value ‘1’ if the board contains at
least one outside board member; ‘0’ otherwise. In each of the regressions we perform, we control for
firm characteristics reported in prior literature (Chen et al., 2010; Frank et al., 2009) that are correlated
with tax aggressive behavior. Therefore, we can ensure that our results are not driven by fundamental
differences between family and non family firms and within the group of family firms. In our study, we
control for the firm’s profitability by incorporating the return on assets (‘roa’) and the firms leverage
measured by long term debt divided by lagged assets (‘lev’). A second set of control variables is
related to the differences in book and tax reporting that can affect the tax aggressiveness measure.
We include the firm’s plant, property and equipment divided by lagged assets (‘ppe’) and the firm’s
intangible assets divided by lagged assets (‘intang’). Lastly, we also control for firm size by including
the natural logarithm of total assets of the previous year (‘size’). In addition, for all regressions, we
include dummies to control for year and industry fixed effects. Table 1 and table 2 present the
descriptive statistics and correlation matrix for the main variables of our analysis.
Table 1 reveals that the private family firms in our sample have an average asset size of 315,000
euros and have an average effective tax rate (ETR) of 23%. On average, the CEO owns 50% of the
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shares. The firms are characterized by a rather high ROA of 20%. Moreover, in more than 50% of the
firms, the CEO is also the chair of the Board of Directors. In the majority of family firms (81%), an
outside director is serving on the board. Additionally, we add that in the total sample of family and non
family firms, 57% of the firms are family firms. 41.81% of the firms are firms where no family is
involved i.e. where the family has 0% of the shares. In 5.29% of the firms, the family owns a certain
amount of shares but less than 50%.
Table 1: Descriptives and correlation matrix
1.ETR
2.
Ceoown
3.Size
4. Roa
5. Lev
6. Ppe
7. Intang
8.
Ceo_dual
9. Ext
Mea
n
Std.
dev.
1
0.23 0.13 1
0.49 0.33 0.05 * 1
315 3.20 0.02 -0.22 ***
0.20 0.21 -0.25 *** 0.06 * -
0.17 *
2 3 4 5 6 7 8 9
0.21 0.34 -0.16 *** -0.03 -0.05 -
0.22 ***
.
1
0.36 0.38 -0.13 *** -0.03 -0.03 -0.03 0.60 *** 1
1
**
0.01 0.04 -0.05 * -0.04 -0.01 0.01 0.05 * -0.02 1
0.53 0.49 0.07 ** 0.35 *** -0.15 ***
1
0.04 0.03 0.06 * -0.03 1
0.81 0.39 -0.01 -0.01 0.02 -0.07 ** -0.02 -0.10 ***
* , ** , *** significant at the 10%, 5% and 1% level respectively (two-tailed test)
-0.08 ** -0.05 1
4. Results
In table 2 and table 3, the results are presented. All regression models are estimated with OLS and
robust standard errors are calculated.
Table 2: Robust OLS regression on SMEs’ tax aggressiveness
Dep. variable: ETR (1) (2)
Familydummy 0.0141 ** (0.007)
Familyown 0.0134 * (0.007)
Roa 01134 *** (0.033) 0.1136 *** (0.033)
Lev -0.0078 (0.009) -0.0079 (0.009)
Ppe -0.0265 ** (0.011) -0.0268 ** (0.011)
Intang -0.0873 (0.076) -0.0877 (0.076)
Size 0.0139 *** (0.003) 0.0139 *** (0.003)
Constant
0.1257 *** (0.023) 0.1274 *** (0.023)
R² 0.1057 0.1052
F value 8.69 *** 8.43 ***
Number of obs. 1650 1650
* , ** , *** significant at the 10%, 5% and 1% level respectively (two-tailed test). Robust asymptotic standard
errors reported in parentheses.
We also included in each regression industry and year dummies (results not reported).
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Tensie Steijvers and Mervi Niskanen
Table 2 reveals that hypothesis 1 can be confirmed. Private family firms appear to be less tax
aggressive compared to non family firms. The variable ‘Familydummy’ as well as ‘Family own’ reveals
a significant positive effect. The other significant control variables have the expected sign. More
profitable (‘Roa’) and larger firms (‘size’) seem to have a larger ETR whereas firms with more plant,
property and equipment (‘ppe’) have a lower ETR. However, as argued above, private family firms are
a heterogeneous group. Therefore, further analysis within the group of private family firms is provided
in table 3.
Table 3: Robust OLS regression on family firms’ tax aggressiveness
Dep. variable: ETR (1) (2) (3) (4)
Ceoown 0.021(0.013) -0.152 ** (0.066) 0.132 *** (0.031) 0.0029 (0.025)
Ceoown x Size 0.030 *** (0.011)
Ext 0.061 *** (0.019)
Ceoown x Ext -0.134 *** (0.034)
Ceo_dual 0.0131 (0.016)
Ceoown x Ceo_dual 0.0128 (0.030)
Roa 0.171 *** (0.025) 0.169 *** (0.024) 0.166 *** (0.025) 0.170 *** (0.025)
Lev -0.008 (0.045) -0.007 (0.046) -0.002 (0.044) -0.008 (0.045)
Ppe -0.042 (0.031) -0.041 (0.031) -0.045 (0.030) -0.042 (0.031)
Intang -0.156 (0.130) -0.156 (0.131) -0.169 (0.128) -0.155 (0.132)
Size 0.012 *** (0.004) 0.001 (0.006) 0.012 *** (0.004) 0.013 *** (0.004)
Constant
0.153 *** (0.034) 0.218 *** (0.042) 0.106 *** (0.037) 0.147 *** (0.036)
R² 0.122 0.129 0.136 0.126
F value 8.48 *** 8.77 *** 8.52 *** 8.01 ***
Number of obs. 898 898 898 898
* , ** , *** significant at the 10%, 5% and 1% level respectively (two-tailed test). Robust asymptotic standard
errors reported in parentheses.
We also included in each regression industry and year dummies (results not reported).
Regression (1) in table 3 does not seem to confirm hypothesis 2, with respect to the effect of the CEO
ownership share on tax aggressive behavior. Regression (1) shows no significant effect of ‘Ceoown’.
However, we argued that firm size may be an important moderator in the context of tax aggressive
behaviour. Very small, young private family firms may not have the experience to engage in tax
aggressive behavior and are fully occupied with the core business and/or survival of the firm.
Therefore, we included in regression (3) the moderating effect of firm size (‘size’) on the relationship
between ‘Ceoown’ and ‘ETR’. We included the term ‘Ceoown x size’. From the results in table 3, we
cannot see in regression (2) what the impact is of the ownership share of the CEO on tax aggressive
behavior when firm size increases. In order to capture the total effect, we have to take into account
the coefficient of ‘Ceoown’ as well as the interaction term and the value of the moderating variable
which is ‘Size’ (Kam and Franzese, 2007). Figure 1 graphically presents the marginal effect of the
ownership share of the CEO on ‘ETR’ as firm size changes.
Any point of this line is ∂ETR/∂Ceoown = β1+β3(Size). The dotted lines represent the 95% confidence
interval, which allows us to determine the conditions under which the ownership share of the CEO has
a significant impact on the firm’s ‘ETR’. Figure 1 shows that the ownership share of the CEO has a
significant positive effect on ETR, indicating a lower extent of tax aggressiveness if the family firm has
more than 400,000 euro of assets. The positive effect increases as firm size increases. This confirms
our hypothesis 2 indicating that as the ownership share of the CEO increases, the family firm
becomes less tax aggressive. For the smaller family firms in our database, we find no significant effect
of ‘Ceoown’ on the tax aggressive behavior.
With respect to hypothesis 3, the variable ‘Ext’ is included in regression (3) as well as the interaction
term ‘Ceoown x Ext’. The interaction term has the predicted negative sign and is significant at 1%
level. The CEO ownership share no longer affects the tax aggressive behavior of the firm if the board
includes an independent outside director. The benefit for CEO’s to engage in tax aggressive
behaviour, at the expense of other shareholders, is nearly absent when the firm hires an external
board member due to a higher monitoring effectiveness thereby limiting possible rent extraction
behavior. This confirms hypothesis 3. Regression (4) extends this discussion and takes into account
the moderating effect of CEO duality (‘CEO_dual’). Therefore, we include in regression (4), Ceo_dual
and the interaction term ‘Ceoown x Ceo_dual’. Contrary to what we expected, CEO duality appears to
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Tensie Steijvers and Mervi Niskanen
have no significant moderating effect. It seems that if the board is chaired by the CEO, the board does
not play a mitigating (monitoring) role in reducing rent extraction behavior by the CEO and thus
reducing the motivation for tax aggressive behavior.
Marginal Effect of Ceoown
-.2 -.1 0 .1 .2
Marginal Effect of 'Ceoown' on tax aggressive behavior
Dependent Variable: ETR
1 3 5 7 9 11
size (ln (assets))
Marginal Effect of Ceoown
95% Confidence Interval
Figure 1: Marginal effect of ‘Ceoown’ on tax aggressive behavior (ETR)
5. Conclusion
In this paper, we examine the tax aggressiveness of private family firms, relative to their non-family
counterparts. We find that private family firms appear to be less tax aggressive than private non family
firms which is in line with Chen et al. (2010) based on public family firms. This result highlights the
importance of the non financial costs related to tax aggressive behavior being the possible reputation
damage and loss of socioemotional wealth as indicated by Gomez-Mejia et al. (2007). Even though
tax aggressive behaviour provides tax savings and allows the CEO to mask rent extraction to the
detriment of other shareholders, the non financial costs seem to outweigh the benefits. Within the
group of private family firms, our paper contributes to a better understanding of the impact of the
ownership structure on private family firms’ tax reporting. Results show that firms with a higher CEO
ownership stake are less eager to engage in tax aggressive behaviour, while CEOs with a lower
ownership share are more eager to engage in tax aggressive behaviour. This result highlights the
importance of the unique agency conflict between the CEO (agent and possibly principal) and (other)
shareholders (principals) in determining family firms’ tax aggressive behavior. Finally, results show
that the presence of an outside director in the board improves the monitoring effectiveness thereby
limiting possible rent extraction behavior by the CEO. Therefore, these boards appear to reduce the
tax aggressive behavior of private family firms where the CEO owns a low ownership share.
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386

Making Organizational Learning Work: Lessons From a
High Reliability Organization
John Sullivan 1 and Roger Beach 2
1
University of South Florida, Tampa, Florida, USA
2
University of Bradford, UK
jjsullivan@usf.edu
r.beach@bradford.ac.uk
Abstract: This paper reports findings from an ongoing study to understand the dynamics of operational reliability.
Previously, the study identified weaknesses in organizational settings that inhibited learning opportunities,
specifically the ability to learn from failure (Sullivan et al., 2008). Effective organizational learning strategies are
critical in promoting operational reliability, particularly in recovering from operational failures or preventing them
altogether (Sullivan, 2007). In the literature, there is considerable debate over the effectiveness of organizational
learning. However, there is evidence that shows that it can, and in some cases must, work. The U.S. Navy
demonstrates exceptional learning capabilities, learning from failure and even learning without failure. Further,
the Navy’s knowledge management practices have proven effective over time as generations of military
personnel, civil servants, and contractors learn from the experiences of their predecessors (Sullivan, 2007).
Findings arising from a six-month ethnographic study of an organization working in a high reliability environment
supporting Navy operations are presented in this paper. Data gathered from this study concerning an operational
failure are analyzed using the Sullivan-Beach Model (Sullivan and Beach, 2009); an explanatory framework that
describes the dynamics of High Reliability Organizations (HROs), the factors that contribute to operational
reliability and those that threaten to undermine the reliability of an organization’s operations. From this analysis,
the possible causes of operational failure were identified that lead to remedial actions being taken and dramatic
improvements in operational reliability being achieved. Further valuable insights into why some organizations
learn from failure when others do not arose from this work.
Keywords: operational reliability, organizational learning, knowledge management, organizational memory, high
reliability organizations
1. Introduction
This research is part of an on-going study to develop an understanding of operational reliability. The
organizational factors that contribute to operational reliability and the dynamic relationships that exist
between them influence how reliable an organization is. HROs are not always reliable, but the way
they respond to failure, or potential failure, sets them apart from traditionally less critical organizations
(Sullivan and Beach, 2009; Sullivan, 2007).
To make a positive impact on operational reliability, organizational learning has to be considered in
relation to knowledge management and organizational memory (Jennex and Olfman, 2002).
Organizational learning is used to improve critical activities and remain competitive based on past
performance. Thus, organizational effectiveness can be improved when management monitors
organizational performance and establishes knowledge requirements. Knowledge workers use
knowledge management systems to identify meaningful information that needs to be retained and
capturing it for future use. Thus, organizational memory is said to be the physical IT infrastructure that
facilitates the storing, searching, and retrieving of factual information (Jennex, 2008; Jennex, 2005;
Jennex and Olfman, 2002).
While there are critics of the notion that organizational learning contributes to operational reliability
(Baumard and Starbuck, 2005; Mellahi, 2005; Husted and Michailova, 2002; Busby, 1999; Starbuck,
1993; Milliken et al., 1992), this study provides evidence that organizations can learn from past
experiences and that those with highly evolved cultures of reliability can mitigate imagined failure
scenarios by developing strategies in advance, essentially learning without failure (Jennex, 2008;
Sullivan, 2007).
When organizations learn from failure, they become more competent. Conversely, operating
environments that demonstrate a propensity for repeated failures show signs of an inability to learn
from past mistakes (Sullivan, 2007) raising the question - why do some organizations fail to learn from
failure when others do not? In the following sections we provide the background to an ethnographic
study which was conducted over a six month period with an organization working in a high reliability
environment. The data gathered from this study was analyzed using the Sullivan-Beach Model for
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John Sullivan and Roger Beach
High Reliability Organizations (HROs) (Sullivan and Beach, 2009). The principles behind the model
are briefly explained and the remedial action taken as a consequence of the analysis is described.
Insights into why organizations fail to learn when others do not, are also presented.
2. Methodology
Having previously developed a framework to explain the dynamics of High Reliability Organizations
(HROs) and the factors that contribute to, and threaten the reliability of, an organization’s operations,
opportunities to engage in an ethnographic study were of interest. As a methodology, ethnography
can help researchers develop a much deeper understanding of a particular environment and social
phenomenon than other approaches; the researcher becomes integrated into the community in which
the observations are made (Morvaridi, 1998). Post-September 11, 2001 access to military facilities
has become difficult so when the opportunity to study an organization in a high reliability environment
allied to the military arose it was eagerly embraced. Obtaining the richness of this qualitative data
would have been impossible by any other practical means.
3. Background
The organization involved in this study manufactures outboard cables for US Navy submarines.
Outboard cables carry signals between electronic devices and must remain reliable under the intense
pressures of the harsh underwater environment. While these cables do not represent a single point of
failure for a submarine, cable failures can limit a submarine’s ability to carry out its mission.
The manufacturing process for these cables involves several processes, at least three manager level
checkpoints, and government inspection and acceptance. All processes and checkpoints are
documented and signed by the worker who performs the task. Once assembled, the cables are
pressure tested beyond the operating pressures they would encounter in their service life cycle before
being scrutinized by Government representatives. If accepted, the cables are entered into the
inventory system for the US Navy Submarine Fleet where every activity concerned with a cable’s
installation and maintenance is documented. The Navy maintains complete traceability for each cable
and its component parts. If at any time a cable fails, it is replaced, and either repaired or destroyed.
When cables reach the end of their design life, they are replaced and destroyed.
The prime directive of the case organization is to build, test and document reliable outboard cables for
the US Navy Submarine Fleet. To that end, it is the responsibility of the manufacturer to maintain and
report production metrics. Statistical process control data for each manufacturing process, checkpoint,
pressure test and government acceptance is reported to the Navy each month. All rework is
documented and statistical trends are identified and analyzed. Typically, this manufacturing facility
would experience less than one failure in one thousand cables built. Excessive failures adversely
affect the manufacturer’s compensation from the Navy which, in extreme cases, can terminate
contracts. Thus, it was cause for concern when fifteen out of sixteen cables failed pressure testing in
one month.
4. Failure analysis
The failed cables were manufactured in batches of four. In the first batch, three of four cables failed
pressure testing. The remaining three batches of cables (twelve in all) failed as well. Post-test
analysis revealed that the polyurethane was de-laminating from the cable jacket (Figure 1). A search
through manufacturing records found no previous incidents of de-lamination involving this type of
cable, this connector body, or this brand of polyurethane.
An investigation of these sets of cables examined and tested the raw materials for defects and ‘out-ofspec’
design modifications. The connector body was exactly the same as those previously used and
successfully tested. The polyurethane, comprised of a resin and a hardening agent, was found to
have no variation in composition from previous batches. The machine used to mix and dispense the
polyurethane was operating within specification. The only variation that was discovered was that the
jacket for the raw cable was found to have significantly more paraffin wax in its chemical composition
than previous lots. While it was still within its approved specification, it presented a problem.
A test cable was assembled, and before the polyurethane was applied, the raw cable was treated with
a chemical to remove excess wax from the cable jacket. The cable passed pressure testing and
showed no signs of de-lamination. Problem solved, …right? Wrong!
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Figure 1: Cable connector assembly
John Sullivan and Roger Beach
For most organizations this would close the case. A technical cause of the failure had been
determined and appropriate remedial action had been developed and implemented. Something was
learned and it seemed time to move on. However, this manufacturing facility is a HRO. Simply solving
the technical problem is not enough. A bigger question was why further batches of cables had been
manufactured when the first batch had revealed a 75% failure rate. This question speaks to the
essence of what it means to be a HRO. It is as much about process reliability as product conformity.
4.1 Operational unreliability in the cable manufacturing facility
It is part of the culture of the HRO to strive to know what they do not know. They also communicate to
each member of the organization how they fit in the big picture, and they design reliability-centered
reward systems (Roberts and Bea, 2001). The individuals in the cable manufacturing facility
demonstrated weakness in all three of these areas and operational failures had emerged as a result.
First, the drive to know what they do not know had atrophied into an atmosphere of complacency.
The unit had recently undergone a period of turnover where five of the eleven workers had less
than one years experience on the job. Also, the new workers were not accustomed to the
demands of a high reliability environment, and were still adjusting to its culture.
Second, workers had grown increasingly skeptical as to the importance of their individual
contribution, and how they fit in the larger organizational picture. Divisions between senior
members and new members had intensified, and the sense of cooperation and heedful interaction
had diminished. Workers had begun pointing fingers when mistakes were made, and seemed
more interested in finding fault than preventing errors.
Third, the reliability-centered reward system and the closely associated system of accountability
had completely eroded. Deficiencies that might be considered to be minor and administrative in
nature were not being corrected. Thus, larger mistakes had begun to go uncorrected. A lack of
accountability had also led to staff repeatedly not following documented procedures and a
growing number of careless human errors (i.e., forgetting signatures at checkpoints, etc.).
Thus, the de-lamination problem was a technical problem requiring a technical solution but the
incident had brought to light underlying operational weaknesses that simply could not be allowed to
continue in a HRO.
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5. Sullivan-Beach Model
John Sullivan and Roger Beach
The Sullivan-Beach Model (Sullivan and Beach, 2009) illustrates the dynamics of operational
reliability, in particular, how HROs maintain a balance between capability and risk over extended
periods of time (Figure 2). As long as capability outweighs risk, the scale stays in balance and the
organization remains reliable. Failure occurs when risk, comprised of expectations and risk factors,
outweighs capability, comprised of resources and competence factors. In such cases, the scale tips
out of balance and consequences follow.
Figure 2: Sullivan-Beach Model for high reliability organizations
Bidirectional relationships exist between expectations and consequences, risk factors and
competence factors, as well as expectations and resources, whilst the relationship between
consequences and competence factors is one-way. Expectations and consequences are also related
in that the consequences for failure are applied according to the degree of missed expectations; some
failures can increase future expectations, e.g. the reorganization of NASA after the Challenger
disaster. Resources and expectations are related because stakeholders provide resources and
therefore attach expectations to the allocation, e.g. return on investment. The reverse is also true;
reductions in resource allocations are typically accompanied by demands within the organization to
lower expectations, e.g. commercial and/or operational performance. Risk factors and competence
factors are related in that risk factors left unchecked, e.g. office politics, groupthink, etc. will make the
organization less competent. Conversely, a defining characteristic of HROs is that they constantly
seek out potential risk and mitigate it before it manifests into failure. Thus, some of the organization’s
competence is targeted at minimizing the effects of risk factors. Finally, the one-way relationship
between consequences and competence factors can best be described as organizational learning;
failures invoke consequences, which provide opportunities to learn and become more competent
(ibid).
The contribution of the three organizational factors, noted in the previous section, to the unreliability of
the organization’s operations can be explained by the model as follows (Figure 3).
The first area of weakness, worker complacency, can be represented by diminished competence
factors and in its relationship to risk factors. Complacency is a risk factor for HROs as it opposes the
drive to know what they do not know. The second area of weakness can be described as a toxic
organizational culture. Since the work environment is affected by its organizational culture, the norms,
unwritten rules, customs, and rituals among workers, an adversarial culture becomes a risk factor that
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John Sullivan and Roger Beach
diminishes competence. That is, the group as a whole is less competent, and therefore less
productive, when contentious relationships allow competing objectives and personal agendas to
threaten the organization’s prime directive.
Figure 3: Sullivan-Beach Model depiction of cable manufacturer’s state of unreliability
The third area of weakness is the lack of accountability for not meeting performance expectations.
Expectations were not unreasonable in that the cable manufacturing facility had enough resources,
personnel, tools and raw materials for them to be met; the relationship between expectations and
resources was thus aligned. However, when expectations were not met, there was no accountability
at the worker level. Accountability is often thought of as severe punishment, particularly in military
environments. However, accountability can be implemented in a constructive manner by monitoring
performance metrics (planned vs. actual) so long as it is tracked and acted upon when not in line with
expectations. It can even be communicated in a manner as nonthreatening as, ‘observe what is true
and choose what works.’ When there is no accountability, high expectations can become misaligned
with minimal or no meaningful consequences.
Related to accountability and consequences is organizational learning. A prominent characteristic in
HROs, accountability for not meeting expectations and the consequences it invites, motivates
individuals and organizations to learn and become more competent so that future failures are
avoided. The reverse is also true. If the individual or organization is not held accountable, then there
is no motivation to learn and become more competent, and a downward spiral of failure is likely to
ensue (Sullivan, 2007).
6. The learning phase
From our analysis of the case using the Sullivan-Beach Model it was clear that the facility managers
needed to implement a system of accountability, consequence, and organizational learning, and that
this would have to be undertaken in an adversarial culture. On one hand, the risk factor and
adversarial culture had caused the group as a whole to become less competent. On the other hand, a
lack of accountability had led to no meaningful consequences and no organizational learning with the
result that there was no way of increasing organizational competence. With a source of competence
atrophy on one side and a muted source of learning on the other, the organization was in a state of
steady competence decline. Failure was inevitable. Something had to change.
The facility managers implemented changes that addressed each of the three areas of weakness
mentioned above:
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Diminished competence: Senior members of the facility were tasked with conducting formalized
training sessions for all staff covering topics from the most basic to more advanced. Senior
members were thrust into leadership roles, and given a sense of ownership and responsibility for
the competence of the group.
Fitting into the bigger picture: The shop foreman delegated administrative tasks (i.e., monitoring
training and safety inspection schedules) to junior members of the group. Thus, junior members
were given responsibility for part of the operation. It also freed up the foreman’s time to take a
more proactive role in managing the facility. He was able to mentor junior staff and inculcate the
importance of performing each task in the process precisely so that reliability of the process leads
to reliability of the product.
Accountability, consequence and learning: Two messages were emphasized to everyone in the
facility – ‘if one of us fails, we all fail’ and ‘observe what is true and choose what works’. Workers
were empowered to bring any concerns they had to managers and were guaranteed immunity
from retaliation regardless of who was involved. Members of the facility were constantly reminded
to view their mistakes as opportunities to improve rather than personal attacks; this not only
promoted an atmosphere of accountability between managers and workers, but also between
workers themselves. Workers who were reminded of forgotten signatures responded with
gratitude rather than scorn. It became viewed as ‘covering my back’ rather than ‘stabbing me in
the back’. These reminders also became far less frequent in the following months.
The above remedial actions resulted in a dramatic improvement in the operational reliability of the
facility. As junior workers enhanced their technical skills and contributed to administrative tasks within
the facility, they bought in to the culture of reliability that is essential for HROs. Senior members
became more engaged as they saw how passing on their knowledge and experience to junior
members increased the operational reliability of the group as a whole. Managers documented lessons
learned, incorporated them into future training exercises and made them accessible to other
managers through technical bulletins and written procedures.
7. Conclusion
While it is recognized that there is considerable debate over the contribution organizational learning
can make to operational reliability, this study has provided insights into how it can work and why some
organizations are able to learn from failure.
There are some environments that require organizations to learn by their mistakes and to develop
mitigating strategies to avoid future failures. These are the characteristics of the HRO. However, there
is an increasing necessity for higher levels of operational reliability from traditionally less critical
organizations. For example, internet access to financial institutions has drastically increased the
importance of safeguarding personal information to prevent identity theft, a concept that would have
been completely foreign twenty five years ago. In other words, changes in the way the world conducts
business have increased the importance of understanding operational reliability and its component
parts, which include the conditions under which organizational learning works or does not work. As
illustrated by this study, organizations can learn from mistakes when it is important for them to do so.
More highly evolved (in the operational reliability context) organizations learn without failure, either
from the mistakes of other organizations, or by developing techniques to seek out unknown risks and
implement mitigation strategies in advance. While there are different types of HROs, they all place
operational reliability as their prime directive. In many cases, failure is simply not an option.
Shortly after this episode in the cable manufacturing facility, a batch of four different types of cables
was returned from pressure testing. Two failed. The Engineering Manager was called to the facility
only to find several of the workers actively involved in the initial stages of failure analysis. Each
contributed to the building of the cables. This time, instead of finger-pointing, they were working
together trying to find the cause of the failure.
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Range Planning, Vol 38: pp 281-298.
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pp. 23-29.
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Congressional Report (2006). H. Rpt. 109-377 – A Failure of Initiative: Final Report of the Select Bipartisan
Committee to Investigate the Preparation for and Response to Hurricane Katrina, Government Printing
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Skills and Techniques, University of Bradford Graduate School, Bradford, West Yorkshire, UK.
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Starbuck, W. H. (1993). “Keeping a Butterfly and an Elephant in a House of Cards: The Elements of Exceptional
Success,” Journal of Management Studies, Vol 30, No. 6: pp 885-921.
Sullivan John J. (2007). Management of Information Systems: Transferable Success Factors from High Reliability
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Conceptual Model,” International Journal of Project Management; Vol 27, No. 8, pp 765-775.
Sullivan, John J.; Wyeth, Mela; and Chumney, Wade M. (2008). “Developing the ERP Pre-Mortem Framework:
Addressing the Debate over Organizational Learning,” In Proceedings International Conference on
Information Resource Management (Conf-IRM 2008).
393

A Role of Socialization Tactics on the Perceived Person-
Job fit of new Employees
Nucharee Supatn
Assumption University, Thailand
nuchareespt@gmail.com
Abstract: Socialization concept has been introduced in a variety of theoretical perspectives. It is agreed that the
appropriate use of the socialization tactics would enhance the fit between employees and their jobs which, in
turn, would affect their attrition to be diminished. This study examined the relationship between socialization
tactics and perceived person-job fit as well as the retention intention of the employees. The three socialization
tactics as proposed by Jones (1986) i.e. context, content and social tactics, were adopted. Questionnaire survey
was conducted while new employees who have joined the firms within two to six months were targeted. A total of
one hundred complete data sets were obtained. Structural equation modelling was utilized to analyse the data.
The results show different roles of each socialization tactics. Content and social tactics were found to positively
influence person-job fit while the significant influence of context tactic was not. Person-job fit was found to
positively influence job satisfaction while satisfaction positively influenced retention intention. Thus, the indirect
influence of person-job fit on retention intention could be inferred.
Keywords: socialization tactics, person-job fit, job satisfaction, retention intention
1. Introduction
Schneider firstly proposed his idea on the Attraction-Selection-Attrition or ASA framework in 1987 and
updated it in 1995. It was mentioned in his work that people are particularly important in the
organizational context since the people are responsible for the development and changes in structure,
processes and culture of the organization. People attributes are considered as fundamental
determinants of the organizational behaviour. Attraction-Selection-Attrition framework explains the
interrelated processes of attraction, selection, and attrition. Attraction refers to the mutual preference
of the prospect employees and the organization that result from the shared value and characteristics
while selection is the subsequent process by which the organization selects the employee with
attributes that are similar to those of the organizations. Attraction of people to the careers is individual
difference based on the interests, personality, and values of each person. People tend to search and
select an organization that fits well with them. Organizations also select people who share common
personal attributes, even though the common competencies are not shared (Simosi 2010). Attrition, in
which an employee leaves the organization and/or organization forces employee to leave, occurs
when there is no fit between the organization and that particular employee. Employee attrition can be
said to be a waste since it causes expenses for the organization as well as time and opportunity
losses for the employees.
Previous researches show the interest of the first two processes of the ASA framework which are
attraction and selection by emphasizing on how to attract and select the right people to join
organizations, for example, the use of job realistic previews to carefully select the employees.
However, attraction and selection are implemented in a short period of time to evaluate people’s
attributes. It could not be assured whether the selected people are well-fitted with organization or not.
The employee attrition could not be assured as well. To diminish the attrition, organizational strategies
that help employees to adjust themselves to fit well with the organization and the job context are of
interest for decades. The socialization concept has been introduced in various perspectives including
socialization practices and policies. Socialization process and tactics have been widely discussed in
previous researches.
Socialization is the process by which people learn from others. Organizational socialization is the way
new employees learn about their work and the way to adjust their behaviours and style to best fit into
it. Essential values, abilities, expected behaviours and social knowledge would help employees to
assume their appropriate roles as a member of the organization. However, employees can learn and
develop these factors in the socialization process. The term socialization process covers the
resources that the organization provides to assist in socializing employees. It may vary from
something simple like an organizational handbook to something more complicated as the roles of
supervisors and co-workers, through feedback, advice, and general conversations as well as some
organizational strategies such as mentorship, skill-building, training, and self-reflexivity. These
strategies, activities and tools would help newcomers to learn about the practices and values of the
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organization. As such, the fit between persons and their jobs can be expected when successful
socialization processes are implemented.
Successful socialization refers to newcomers' adjustment to their work environment as well as
alignment of their efforts to organizational goals (Baker and Feldman 1990). Thus, the theories and
practices on the socialization tactics are widely discussed. Moreover, previous researches indicated
that effective socialization can lead to positive work attitudes and behaviours such as work motivation,
job involvement, organizational commitment, low turnover, innovative and cooperative behaviour and
so on (e.g. Van Maanen 1976; Feldman 1981). However, later researches suggested the intervening
effects of person-organization fit and employees’ job satisfaction on the relationship between
socialization processes and its outcomes (e.g. Simosi 2010; Wheeler Gallaghe, Brouer, and Sablynski
2007; Cooper-Thomas and Anderson 2002)
Even though many researchers studied the ASA framework, socialization process, personorganization
fit and their consequences, little research apparently examined the use of socialization
tactics and their outcomes in Asian countries. Besides, most of the previous researches were
conducted in Western countries. Thus, the question, “How socialization tactics influence person-job fit
and organization outcomes in Asian countries?” should be clarified. This study attempts to examine
the relationship between socialization tactics and perceived person-job fit as well as job satisfaction
and the retention intention of the new employees who have joined the organization within a two to six
month period. The paper can be categorized into seven sections. After the introduction, brief literature
on person-job fit and socialization tactics are reviewed. The conceptual framework and hypotheses
are proposed in the second section. Next, the research methodology is described followed by the data
analysis and research findings. Then, the conclusion and discussion and research implications are
provided. Finally, the recommendation for the future researches is provided.
2. Literature review
2.1 Person-job fit
The term person-environment fit is used as a general term for selection and recruitment of new
employees (Carless 2005). Three common forms of fit can be categorized as person-job fit, personorganization
fit, and person-group fit. Person-job fit explains the match between a person and the
requirements of a specific job while person-organization fit focuses on the match between a person
and the organizational attributes such as value, personality, culture, regulations and so on. Finally
group-fit refers to the match between employees and their immediate workgroup which includes both
co-workers and supervisors (Werbel and Gilliland 1999). However, only person-job fit is focused in
this current study since very newcomers who join the organization within two to six months were
targeted. Within this period, person-organization and person-group fits may not be completely
developed.
Person-job fit refers to the matching of the individual knowledge, skills, and abilities of a person and
demands of the job as well as the needs or desires of a person and what is provided by the job
(O'Reilly, Chatman, and Caldwell 1991). The domains of persons, jobs and the potential outcomes of
the person-job fit framework as proposed by Edwards (1991) are presented in Figure 1.
Edwards (1991) also introduced the two common operations of person-job fit as needs-supplies
perspective and demand-abilities perspective. Needs-supplies fit explains the fit between employee
desires and job supplies which means the characteristics and attributes of the job that may satisfy
those employees’ desires. Desires or needs include personal goals and value of the employees while
the job supplies include general characteristics of occupation, pay and other job attributes. The
demand-abilities fit explains job demands that are essential to carry out the task in which the
employees can use their abilities to meet job requirements. Job demands include knowledge, skills,
and abilities required to perform the job at an acceptable level. High level of person-job fit is illustrated
if there is the matching of needs-supplies and demand-abilities. Previous researches indicated that
the high level of person-job fit would lead to a number of positive outcomes such as job satisfaction,
low job stress, motivation, performance, attendance, and retention (Sekiguchi 2004; Edwards 1991).
One way to enhance person-job fit in the new employees is to expose them to effective socialization
processes in which the right information, knowledge, expected skills, values and attitudes are learned.
Thus, the use of the appropriate socialization tactics should be emphasized.
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Nucharee Supatn
Figure 1: Domains of person-job fit (source: Adapted from Edwards, 1991, p.285)
2.2 Socialization tactics
Nelson and Quick (1991) mentioned that newcomers’ experience the “reality shock” and
“psychological distress” upon organizational entry. To reduce this experience employees should try to
become familiar with the organizational rules, roles, tasks and norms. This requires both functional
and social aspects of their jobs, their new positions, as well as new organization. Van Maanen and
Schein's (1979) tactics model is one of the most commonly used approaches to understanding
organizational socialization. They outlined six bipolar tactics that organizations use to influence
newcomers as collective VS individual; formal VS informal; sequential VS random; fixed VS variable;
serial VS disjunctive; and investiture VS divestiture. Later, Jones (1986) provided additional terms to
call each pole of the bipolar tactics, as institutionalized or individualized. She also categorized the six
tactics to three categorizations, namely context, content, and social tactics as seen in Table 1:
Table 1: A classification of socialization tactics
Classification Institutionalized Individualized
Context
Collective Individual
Formal Informal
Content
Sequential Random
Fixed Variable
Social
Serial Disjunctive
Investiture Divestiture
Source: Jones, 1986, p. 263
The first bipolar, collective–individual refers to whether newcomers are socialized in groups or
individually while the second; formal-informal explains whether newcomers are segregated from
insiders during socialization. Therefore, these two tactics are categorized as “context” by Jones
(1986). The collective and formal tactics emphasize on the organization while individual and informal
tactics focus more on the individual. Collective and formal tactics are considered as Institutionalized
tactics. The next two bipolar, sequential–random and fixed-variable, are related to the content of the
socialization process. Sequential tactic is used when the newcomers are told explicitly about the
sequencing of planned socialization stages. Fixed tactics are illustrated when there is an explicit, fixed
timetable for completing the various socialization stages. Thus, both sequential and fixed tactics are
considered as institutionalized tactics. Finally, serial tactic refers to the newcomers' socialization by
“incumbents” who are experienced employees i.e. leaders or colleagues that can influence
newcomers by acting as role models. In contrast, disjunctive tactic refers to the absence of such
incumbents. Lastly, investiture involves the affirmation of newcomers' personal identity and
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Nucharee Supatn
characteristics while divestiture refers to negative social interactions between newcomers and other
employees. Thus, this bipolar tactic means whether or not the newcomers receive positive support
from the insiders. Hence, both serial-disjunctive and investiture-divestiture are categorized by Jones
(1986) as social tactics while serial and investiture are considered as Institutionalized tactics and
disjunctive and divestiture are considered as individualized tactics.
2.3 Relationship between socialization tactics and person-job fit
Previous research results have confirmed that the institutionalized tactics are associated with lower
role ambiguity, role conflict, intention to quit, and anxiety and higher level of job satisfaction,
organizational commitment, and task performance (e.g. Bauer et al 2007; Cooper-Thomas and
Anderson 2006; Ashfort and Saks 1996). Some previous researches indicated that social tactics, as
compared to content and context tactics, were found to be more critical to newcomers’ adjustment
and learning the socialization processes and have more positive effects on the above outcomes than
content or context tactics (e.g. Simosi 2010; Saks et al 2007), these findings are questionable in this
study. As only new employees are focused in this study, their adjustment processes may be different.
As such the first hypothesis (H1) can be proposed as:
H1: Three socialization tactics, context, content, and social, are positively related to perceived
person-job fit of the new employees
2.4 Relationship between person-job fit and job-related outcomes
Previous studies have shown that the level of person-job fit has a significant impact on job related
outcomes (Chatman 1991; O' Reilly et al 1991; Saks and Ashforth 1997). Edwrads (1991) listed the
possible outcomes of person-job fit as promoting higher organizational commitment, job motivation,
job satisfaction, psychological and physical health, coping and adaptation, and job performance and
lowering organizational stress, absenteeism and also turnover rate. However, only job satisfaction
and intention to be retained as an employee of the current organization are focused in this study. As
such, the next three hypotheses can be proposed as following:
H2: Person-job fit is positively related to job satisfaction of the new employees.
H3: Person-job fit is positively related to retention intention of the new employees.
H4 Job satisfaction is positively related to the retention intention of the new employees.
2.5 Research framework
As the six bipolar tactics proposed by Van Maanen and Schein's (1979) are closely related, this study
set out to examine three classes of socialization tactics i.e. context, content, and social tactics as
recommended by Jones (1986). Retention intention was focused as the key dependent variable of the
study since the target group was the newcomers who were in the process of socialization and selfadjustment.
Person-job fit and job satisfaction were proposed as the outcomes of the socialization
process. The conceptual framework can be proposed in Figure 2 as follows:
Figure 2: Research framework
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3. Methodology
3.1 Research design and sampling
Nucharee Supatn
To test the conceptual framework and all four hypotheses, a survey research was designed. Data
from newcomers were collected during the early stages of their socialization i.e. within the first 2 to 6
months of working. This group was targeted based on the previous research findings that socialization
tactics are likely to be more important during the first few months at work since the new employees
adjust rapidly to their new work surroundings during this period (e.g. Saks and Ashforth 1997; Simosi
2010). Two hundred questionnaires were distributed to the Human Resource Managers of 50 trading
firms that are located in Bangkok. The HR Managers were asked to give the questionnaires to the
employees who have joined their organization within the 2-6 month period. Completed questionnaires
were sent to the researchers directly in order to ensure the confidentiality and anonymity of the
respondents. The total 105 questionnaires were returned. However, five were discarded since they
were incomplete. As such only 100 sets of data which was about 50 percent response rate were used
for the further analysis. Of the respondents, 41 percent were male and 59 percent were female. Fifty
nine percent held bachelor’s degrees, 40 percent held master’s degrees and one percent held
doctorate degree. With regard to age it was found that, 76 percent of the respondents were between
21 and 30 years, 23 percent were between 31 and 40 years and the rest the one percent were above
40 years. All respondents were new employees of trading firms, 35 percent of the firms were owned
by Thai investors, 34 percent were joint ventures between Thai and foreign investors and the rest of
the 31 percent were multinational corporations.
3.2 Measures
Socialization process was measured by 25 Likert-scale items modified from Van Maanen and Schein
(1979). Thirty items measuring six bipolar tactics were firstly proposed. However, from the pre-test
results, five items were discarded in the scale purification process since they were cross loaded with
others. Regarding to the exploratory factor analysis results, the three classes of socialization tactics,
context, content, and social tactics were determined. Two dimensions of person-job fits, needssupplies
and demand-abilities fit, were measured on 13 items guided by Edwards (1991). Four Likert
scale items were used to measure job satisfaction while another 4 items were for retention intention.
All scales used 7 point rating scale ranging from 1 (strongly disagree) to 7 (strongly agree). The
questionnaire was translated into Thai. Back-translation was used to ensure content validity. The
Cronbach’s alpha coefficients together with the item-to-total correlation were performed to ensure the
reliability of the scale. Satisfactory Cronbach’s alpha ranging from 0.82 to 0.95 was obtained. Then,
the confirmatory factor analyses were performed to ensure the construct and discriminant validity. The
results are shown in Table 2.
Table 2: Confirmatory factor analysis results
Construct χ2/df GFI NFI CFI RMSEA Cronbach’s α
Context Socialization Tactics 1.494 .955 .975 .991 .072 .915
Content Socialization Tactics 1.975 .904 .918 .957 .082 .949
Social Socialization Tactics 2.602 .911 .917 .946 .091 .907
P-J fit 1.738 .901 .927 .949 .089 .914
Job Satisfaction 2.512 .973 .972 .982 .127 .860
Retention Intention 2.971 .954 .932 .944 .101 .821
The results yielded satisfactory fits. This indicates that all sets of measurement models could identify
their related latent constructs effectively. Hence, the data analysis and hypotheses testing can be
done. The results are shown in the next section.
4. Data analysis and research findings
4.1 Structural equation model fits
Structural equation modelling using AMOS 17 was performed to test the proposed framework and all
hypotheses. Four major criteria, χ2/df, GFI, CFI, and RMSEA, were used to examine the fit of the
structural model. Good fit was shown (χ2/df=3.186; GFI=.934; CFI= .955; NFI =.937 and RMSEA=
0.079). Squared multiple correlations (R 2 ) suggested 83 percent power of prediction on retention
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Nucharee Supatn
intention while 64 percent of the power of prediction on person-job fit was shown. Thus, the structural
equation model was significant and usable for hypotheses testing.
Context
Content
Social
-.05 (NS)
.56***
.40***
Demandabilities
fit
P-J Fit
Needssupplies
fit
.95***
-.04 (NS)
Figure 3: Proposed structural equation model of the research framework
Remarks: χ2/df=3.186; GFI= .934; CFI=.955 NFI=.937 and RMSEA=0.079
Standardized coefficients are shown: * p

5. Conclusions and discussion
Nucharee Supatn
Contrary to previous research in which the social tactics (as compared to content and context) were
found to be the most critical tactics for newcomers' adjustment, this study found that content tactics
provided higher influence on perceived person-job fit of the new employees. As most participants
(around 76 percent) were 21-30 years, they were new graduates who just received their bachelor’s or
master’s and started their first jobs. Without or with less work experience, this group may need
content tactics more than other tactics in the first period since these tactics deal with the content of
the information given to newcomers via socialization (Jones 1986). For content tactics, it contains
sequential VS individual and fixed VS informal tactics as institutionalized VS individualized tactics.
Sequential tactics provide the newcomers with explicit knowledge on the sequence of activities or
experiences they will go through in their organizations. This could advantage the young new-recruited
employees as it provides structure, procedure, and reliability in the job. The young newcomers may
need these contents to adjust themselves to the working contexts which are different from their
college lives in this initial stage. Besides that, the fixed tactics also provide the newcomers with
precise knowledge of the time-table associated with completing each stage in the socialization
process. Hence, it allows newcomers to be aware of the changes that would occur as well as the time
frame needed to complete each activity. These content tactics would help newcomers adjust
themselves and come up with the fit between the job and themselves. Even though the creative and
innovative thinking may not be actuated by these tactics, they may not need in the very first stage of
organizational socialization.
Apart from the content, perceived personal acceptance by the group has been found to influence
newcomers’ adjustment (Allen and Meyer 1990). The social tactics i.e. serial and investiture help
newcomers learn through social learning. The provision of role models of the incumbents enhances
newcomers' understanding of the task and role's demands as well as of the organizational norms and
culture. The experienced employees are either formal or informal mentors who could provide not only
job-related information but also social support, advice and inside and informal information to help the
newcomers develop their psychological safety and adjust themselves by having an informal social
network (Simosi 2010). Consequently, the fit between person and their job would be developed and
perceived by the newcomers. Undoubtedly both content and social tactics influence the newcomers’
perception on their person-job fit.
Another important finding is the insignificant direct effect of person-job fit and retention intention. The
relationship between person-job fit and retention intention as well as affective commitment were
shown in previous researches (e.g. Simosi 2010; Kilic, Iplik, and Yalcin 2011). Inconsistent with this
research finding, Wheeler et al (2007) found that the misfit of the persons and their organization and
their jobs do not necessarily lead to the turnover. The mediating role of job satisfaction on the
relationship between person-job fit and retention intention was found. Thus, it can be inferred that the
fit between persons and their jobs could enhance newcomers’ satisfaction on their jobs while their
satisfaction influences their retention intention. Person-job fit without job satisfaction could not affect
newcomers’ intention to retain themselves with the organization. Even though only indirect effect of
person-job fit on the newcomers’ retention intention was found, it confirms the positive influence of
person-job fit on newcomers’ retention intention, in the indirect way.
6. Research implications
As a positive influence of person-job fit on newcomers’ retention intention was found, it is necessary
that the management should aware of the importance of social socialization tactics for newcomers'
adjustment in order to promote the person-job fit. The findings on the effects of content and social
tactics on person-job fit would help management to utilize some relevant socialization tactics that are
associated with both content and social tactics. The sequential and fixed tactics should be
implemented while those tactics like are random and variable should be avoided. Learning through
the formal training with the fixed schedule should be provided as well as the formal channels for the
information acquisition to newcomers can be provided. The use of some strategies related to serial
and investiture tactics should also be considered. The role models of the experienced and successful
employees should be available. Mentors with powerful positions in the organization serve as role
models may be assigned to help the newcomers to obtain successful socialization and person-job fit.
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7. Limitations and recommendations for the future researches
As the research model was limited to some important constructs to achieve parsimony, some other
constructs such as person-organization and person-group fit can be added into the model. Also, some
constructs that are related to the employees such as some personality traits, needs and motivation,
self-efficacy and so on can be included in the future researches.
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401

The Social Capital of Brand Communities
Anabella Maria Târnovan
National School of Political Studies and Public Administration, Romania
Anabella.beju@gmail.com
Abstract: This article breaks new grounds by exploring brand communities as a source of social capital
understood here as social networks, connections, norms and trust. Evidence from several sources suggests a
strong decrease in social capital and thus severe consequences in civic engagement (Putnam). In this context it
has become essential to investigate alternative sources of social capital. In the network society, brands have
clearly become important means of self-expression by carrying stories, symbols and myths, which consumers
consider valuable in constructing their identities (Holt). Recent studies (Muniz & O’ Guinn, Schau, Cova, Kim)
have brought to attention the importance of brand communities - defined as a specialized, non-geographically
bound communities based upon a structured set of relationships among admirers of a brand. Thus in a world
where global brands become icons and brand communities spring up online and offline, a new, different form of
social capital might be arising, the social capital of brands. This article is an attempt to explore the complex
relationship between global values, brands, brand communities and social capital by including one important
factor, the Internet, as main source of (social) networks. Are brand communities a source of social capital? What
is the mechanism of building social capital within brand communities and more important who benefits from it? By
taking one step further, this study aims to investigate also some of the potential effects of brand communities at
collective level that is whether social change such as poverty alleviation, women empowerment, equality of
opportunities etc. can be enacted by engaging the brand community members in pursuing shared goals. That is
to say, can social brand capital be translated into civic engagement and if so what is the role of (global) values
attached to the brand? The ultimate purpose of this article is to show that brand communities should be regarded
as social innovation ecosystems and could thus serve to both multinational companies and international
organizations as a resource in their sustainable development strategies and goals.
Keywords: social capital, brand communities, network society, civic engagement, sustainable development,
iconic brands
1. Introduction
Various studies from recent years show that brands are the most important resources of companies to
produce value. It is estimated that brands generate an average of one third from the value obtained
by stakeholders. (Millword BrandZ Report 2010). More than that, despite the financial crisis, global
brands increased their value. The omnipresence of brands is an incontestable reality as Andy Warhol
noted since 1975 referring to the Coca Cola brand which in 2010 values 67,983 billion dollars.
(Millword BrandZ Report 2010).
„You can be watching TV and see Coca Cola, and you know that the President drinks
Coca Cola, Liz Taylor drinks Coca Cola, and just think, you can drink Coca Cola, too. A
coke is a coke and no amount of money can get you a better coke than the one the bum
on the corner is drinking. All the cokes are the same and all the cokes are good. Liz
Taylor knows it, the President knows it, the bum knows it, and you know it."
When did we get here and most important how do brands affect society?
Even if brands have had for decades an important role in commercial activity, the perspective towards
brands has changed fundamentally in a progressive competitive market. In the context of large scale
economy development, multinational companies, the so called global players sought to maximize
profits by refining marketing and advertising strategies in emerging markets, creating thus the
premises for Theodore Levitt's (1983) “globalization of markets”. P&G spent over 300 million dollars
on media 1977-1987 in the USA for advertising of the Ivory brand (Aaker 2005). The expansion on
emerging markets raised a major issue of consumer cultural compatibility with both product and
brand. As a result of several failures when introducing products or marketing strategies in different
markets, companies and specialists concluded that, marketing and advertising strategies are
culturally bound and while a standardized approach applies to certain cultures, a cultural specific
strategy might be needed for others. An important contribution to this field of research is the one of
Geert Hofstede (1991), who identified five cultural dimensions and Marieke de Mooij’s (1998)
extensive study on the implications of the latter for marketing and advertising strategy in different
cultures. It has been argued that specific cultures have specific values which need to be addressed in
order to create and maintain a long term relationship with the consumer. Douglas Holt (2004) in his
work „How brands become icons” attempts to articulate principles of cultural branding. Holt
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concentrates on identity brands which consumers tend to value as means of self-expression (clothing,
beauty, automotive, food, are just a few examples). Identity brands notes Holt, „have managed to
spun myths that they have become cultural icons” (Holt 2004); brands have become symbols, „a
material embodiment of the myth” and consumers experience a bit of the myth through consumption.
Since consumers from different cultures choose to experience the same (global) myths which
influence their identity through a shared consumption of goods and implicitly of experiences, it is
rather naturally to ask ourselves to what extent and in what manner do global values attached to a
brand (re)shape rational actions of consumers within their local environment. In other words what are
the sociological implications of global branding. While as mentioned above, many researchers have
tried to solve the global-local dilemma by applying Hofstede' s Cultural Dimensions or Schwartz Value
Survey (1992) to different countries and cultures, little attention has been paid to the social aspects of
branding. In the last years however, studies (Muniz & O' Guinn, Schau, Cova, Fournier & Lee, Grün &
Osmonbekov, Kim) have brought to attention the importance of brand communities in building strong
long-term relationships with consumers. Muniz and O' Guinn (2001) introduce the idea of brand
community defined as “a specialized, non-geographically bound community, based on a structured
set of social relations among admirers of a brand”. Drawing on brand community, most recent Muniz
and O' Guinn (2009) proposed a sociological model of brands arguing that the already existing
approaches to brands are too simple. While applauding the initiative to break new grounds by
challenging the consumer-market dyad, I consider that the sociological model of Muniz and O' Guinn
cannot entirely fill in the sociological gaps.
I attempt to take one step further by bringing my personal contribution to the development of a
sociological brand model based on social capital. The sociological model proposed by Muniz and O'
Guinn will serve as departure point in my study. The model proposed in the present paper will be
centred on two different forms of social capital trust and networks. The ultimate purpose of this article
is to show that brand communities, as source of social capital, should be regarded as social
innovation ecosystems and could thus serve to both multinational companies and international
organizations as a resource in their sustainable development strategies and goals. Implications of
practical applications will be discussed in the last chapter.
2. Brand communities-a word on theory
To understand brand communities it is necessary to trace the historical and conceptual development
of both concepts “brand” and “community”.
The concept of community can be traced to German thinker Tönnies who in his work “Community and
Society” (1887) tried to explain the evolution of modern society by introducing the concepts of
community (Gemeinschaft) and society (Gesellschaft). Tönnies’ analysis departs from the positive
relationships created among people and from social relationships. The main distinction made by
Tönnies refers to the social relationships, which are associated with personal ties and a shared sense
of living together in the case of community and impersonal relationships and reduced implication of
the individuals in the case of society. Community offers a sense of belonging and safety, thus
individuals tend to be more preoccupied with the common welfare, while in society they feel alone and
tend to focus on their personal interests. Giddens (1990) identifies three criticism streams of Tönnies’
work-associations of community with rural life and of society with urban life, the substitution of social
life by modern institutions, modern cities as the prerequisite for the emergence of new community
forms- which he rejects by arguing that the main change has occurred at personal relationships level
and in everyday life, these being reshaped according to a certain social context. For Giddens the
main issue when discussing personal relationship is that of trust, which in his view is not longer
defined by personalized relationships within a local community but it becomes a work in progress of
redefining and finding the self - the reflexive self - according to the options provided by the
mechanisms of globalization (Giddens 1990). In the informational era individuals have access to
information from long distances and thus their personal life and relationships are shaped as a result of
influences from the “outside world”, which has become larger. For Weber communal relationships are
driven by a shared consciousness of belonging (Weber 1978). An important contribution to the
literature on community is the introduction of the concept of “imagined communities” (Anderson 2006)
when referring to nations. The latter is helpful in understanding the community in the informational era
where communities are not necessarily bound to a geographical area, are. It is the case of the virtual
communities for instance.
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Brands have become a marker of consumers’ life. Several specialists have made their contribution to
this area (Kotler, Keller, Aaker, Fournier, Holt, McCracken are only very few of them) and therefore I
consider there is no further need for clarification. I selected however a few approaches to serve as
reference in our argumentation. What is a brand? For Aaker (2005) and Kotler (2010) a brand is a
name or a distinctive symbol (such as a registered trademark or logo or a packaging design) used
with the intention of identifying a product or a service belonging to a producer or group of producers.
According to Calderer and Reagan (2001) branding implies a great idea, an image, a benefit, a
promise and positioning. Holt (2008) attempts to set the ground for cultural branding and argues that
brands are “vessels of self-expression” while embodying a myth.
3. Redefining brand communities
The concept of brand communities has first been introduced by Muniz & O' Guinn (2001) as
specialized, non-geographically bound communities based upon a structured set of relationships
among admirers of a brand. As a result of an extensive literature review (see Muniz 2001) Muniz
identifies three community commonalities: consciousness of a kind (a shared sense of belonging),
rituals and traditions (which perpetuate a shared history) and a sense of moral responsibility. The
concept has attracted the attention of other researchers. Most of the studies (Muniz, Schau, Cova,
Fournier & Lee, Grün & Osmonbekov, Kim, Devasgayam et.al) offer a marketing-centred perspective
focused on the brand meaning for the members of the brand communities, branding strategies in the
brand community or the potential of community members of generating brand innovation and very
little attention is directed towards sociological aspects of brand community. Further, a substantial
amount of research has been conducted offer theoretical on virtual brand communities. A distinction
can be made therefore between online (virtual) and offline brand communities.
The most consistent contribution to the study of brand communities remains that of Muniz and O’
Guinn. This being said, while acknowledging the highly valuable theoretical framework offered by
Muniz and O’ Guinn, I still consider that some important aspects related to brand communities have
been left out or not sufficient discussed. In the following I will elaborate on to two points about brand
communities, the clarification of which is necessary and relevant for the purpose of this paper.
The first refers to the idea of networks. As an explanatory definition for the no longer geographically
bound communities Muniz uses the one of Bender (1978) “a network of social relations marked by
mutuality and emotional bonds”, does however not elaborate further on the network idea, related to
brand communities. Both concepts „brand” and „community are highly related to networks. Firstly,
brands are owned by collectives of consumers who are constantly part of an imagined network
powered by the brand. Secondly, in his attempt to relate micro-level to macro-level patterns
Granovetter (1973) offers a fruitful insight of diffusion of information within a community from a
network approach. Based on Manuel Castells’ conceptualization of the network society, understood
as the society whose social structure is made of networks powered by microelectronics-based
information and communication technologies- I argue that brand communities are and should be
regarded as products of the network society. By social structure, is meant „the organizational
arrangements of humans in relations of production, consumption, reproduction, experience, and
power expressed in meaningful communication coded by culture. A network is a set of interconnected
nodes. A node is the point where the curve intersects itself. A network has no centre, just nodes”
(Castells 2004). No less important in this respect is that the rapid development of modern
communication technology facilitates the diffusion of brands at global scale and sets the ground for
the emergence of new forms of communities, the virtual ones.
Consequently the network approach is vital in the study of brand communities. People want to be
networked and they want to be in relationships. Probably the best examples in this sense are social
networks like Facebook, LinkedIn or Tweeter which are subject of several contemporary studies.
Secondly but by no means less important, drawing back on Tönnies (1887) and Dewey (2001) I aim
to make justice to one central concept in social sciences, which has been completely neglected in
Muniz and O’ Guinn’s conceptualization of brand community, namely communication. I note here that
in a later work (2005) Muniz and O’ Guinn attempted to address the process of communication in
brand communities but exclusively from a marketing communication perspective which is obviously
inconsistent with the highly sociological approach on brand communities claimed by the authors
themselves.
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In our opinion brand communities cannot exist in the absence of communication and communication
processes. This is consistent with Dewey (2001) who argues that “society exists through processes of
transmission as much as through biological life”. Dewey identifies two meanings of communication:
(1) as transmission and (2) as builder of shared values. This one last aspect can serve as explanatory
to the phenomenon of sharing values, symbols attached to the brand and most important of
establishing behaviour accordingly. Tönnies (2004) considers that in community “communication is
based on mutual understanding, that is to say consensus, which can be regarded as the force,
holding together the community and every agreement can be considered an unwritten internal law”.
Thus in the case of brand communities which are based on voluntary participation, communication
among members of the brand community helps sharing and reinforcing norms of behaviour. Muniz
himself admits that members have a moral sense of responsibility. .
Further, drawing on Weber I note that communal social relationship is based on a subjective feeling of
the parties that they belong together, feeling which leads to a mutual orientation of behaviour. If this
should be true, social relationships become an issue of communication. Let us take as an explanatory
example the famous Prisoners Dilemma. One might assume about the other whom he is in a
relationship with that the orientation of behaviour is or will be mutual, or one might assume the
opposite and in this case withdraw from the relationship. However in the absence of communication
these are pure assumptions. One needs to know about the feelings and intentions of the other,
otherwise the relationship is based only on assumptions and becomes vulnerable. This applies in the
exact same way to brand communities.
Finally, as already shown brand communities are a product of the network society. Therefore it is
naturally to assume that the culture of brand communities will at least to some degree relate to the
culture of network society. Castells (2004) defines the latter as a culture of protocols of
communication enabling communication between different cultures on the basis, not necessarily of
shared values, but of sharing the value of communication. This is to say: the new culture is not made
of content but of process. The culture of the brand community is based on protocols of communication
and the shared value of communication. In other words, while it is very difficult to identify shared
values among members of a brand community because they come from different cultures, countries,
cities, villages and so forth the only statement that is true so far and sustained by the nature of brand
communities is this: the culture of brand community is the shared value of communication. .
Relationships in the brand community are based on different forms of communication, whether it is
face to face or computer-mediated. People in the brand community want to communicate. When
looking at virtual communities we can notice that they engage in discussions on several topics more
or less and in some cases not at all related to the brand.
4. Social capital
Social capital is one of the scientific concepts with greatest resonance in social and economic
thinking. The growing academic interest for social capital comes as a natural consequence of the fact
that classical economic and social approaches seem to have reached their limits. Social capital offers
an entirely new and vast area of research as well as high potential in filling in the theoretical blanks of
standard approaches.
What is social capital?
Coleman (1994) defines social capital by its function as “a variety of different entities with two
elements in common: they all consist of some aspects of social structures and they facilitate a certain
actions of actors - whether persons or corporate actors-within the structure.” The most resonant
definition of social capital remains the one offered by Putnam (1995) who refers to social capital as
“features of social life-networks norms and trust-that enable participants to act together more
effectively to pursue shared objectives”. Social capital is thus seen as a network of social connections
and relationships who facilitate the achievement of common goals. This is to a certain degree
consistent with Dasgupta (2010) who argues that social capital is most usefully viewed as “system of
interpersonal networks”. Similar Ostrom (2010) identifies three forms of social capital: (1)
trustworthiness; (2) networks; (3) formal and informal rules and institutions. A valuable contribution to
the study of social capital is Granovetter’s (1973) networked approach to link small-scale group
patterns to large scale patterns. “Social Capital is not what you know, but who you know” (Woolcock &
Narayan 2000).
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This literature review reveals that there is only one aspect that theorists agree upon and that can be
reduced mainly to Dasgupta’s definition “system of interpersonal networks”. While this is very useful
for the purpose of our paper, I will also rely on the definition provided by Robert Putnam. Further
Ostrom’s forms of social capital will be used to introduce a social capital based branding model.
As mentioned in the beginning social capital has gathered very much attention of researchers from
both sociology and economy due to its potential of providing answers to dilemmas and answers which
could so far not be solved by standard approaches. Social capital is in my opinion a valuable path to
be followed. However it would be naïve to believe that it can solve all our problems in the current
stage of its research. Here I note the most important limitation of social capital acknowledged also in
the literature: social capital is very difficult to be measured. That is certainly a task which should be
addressed carefully by researchers. As long as we cannot rely on measures most of our conclusions
will be rather intuitive and from this perspective unreliable. Dasgupta (2000) offers a more consistent
approach in the study of social capital by launching a research question which I will reproduce here:
“what is the available repertoire of behaviour patterns in this situation or that, and how does one of
them come to be entrenched as the standard? More generally, what kinds of institutions and habits
make an economy or a society better able to adapt to changing circumstances by finding and
imposing appropriate norms of behaviour?” In other words we need to establish what should be
measured in terms of social capital and how these results can find their practical application.
This is consistent with the purpose of this paper which involves the study of behaviour patterns within
brand communities, where brand communities an example of a new form of social institution that is
believed to be useful in driving social change in an innovative manner. Can brand communities act as
drivers of social innovation such as poverty alleviation, women empowerment, equality of
opportunities etc. by engaging the brand community members in pursuing shared goals? That is to
say, can social brand capital be translated into civic engagement and collective action?
5. The social capital of brand communities - an argument for social innovation
As shown earlier brand communities are networked sets of social relationships among admirers of a
brand based on a shared value of communication. Social capital on the other hand is a system of
interpersonal relations, it is who you know and it is a network of social connections and relationships.
It is thus legitimate to refer to brand communities as valuable sources of social capital.
Taking one step further, by using Putnam’s argument of civil engagement, I argue that brand
communities from a social capital perspective can be regarded as social innovation ecosystems and
could thus serve to both multinational companies and international organizations as a resource in
their sustainable development strategies and goals. Thus social innovation such as poverty
alleviation, women empowerment or gender equality can be enacted by engaging community
members in pursuing shared goals. It is important to note here that a consistency of values attached
to the brand with the social innovation is needed.
Further I will try to introduce a social capital based branding model which offers a different
sociological perspective on brands.
6. A social capital based model of brands
The model proposed in the present paper is centred on two forms of social capital: (1) trust, (2)
networks. The social capital model of brands is an attempt to contribute to the development of Muniz’
sociological branding model and therefore some components are similar and will not be explained in a
detailed manner. For further clarification please see Muniz 2009.
The basic components of the proposed model are: the Marketer, the Brand, the Consumer Networks
and Institutions. In the following I will try to explain the components of my model as well as the
relationships between them.
The Marketer is the one who introduces a product with a name, a trademarked logo and a unique
packaging design which differentiate it from other products. According to the general accepted
definitions of brand (Aaker, Kotler) we might think of the marketer as the agent introducing the brand.
However in the absence of meaning the brand does not exist yet. This is consistent with Holt (2008)
and Muniz (2009) who argues that names logos and designs are markers of the brand which are
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empty in the absence of a history and meaning. Therefore the marketer can only be regarded as
Initiator of the Brand.
Marketer
Communicatio
Institutions
Brand
Product
Trustworthines
C.
Trust
Consumer
C
C
T T
Consumer Consumer
C
Consumer Network
T T
Consumer Consumer
T T
C C
Consumer
T =
Trustworthiness
C =
Figure 1: The proposed model
When we talk about Brand we can refer to several different things. First we can talk about a unique
product, specific features or quality. Secondly the brand can be associated with values, symbols,
myths, promises, attitudes etc. No less significant is the association of brand with a global sense of
belonging. In terms of Holt (2008) brands act as vessels of self-expression, they are filled with stories
that consumers find valuable in constructing their identities. While this was certainly true for some
time and it still applies to some degree in the present, I argue that brands can no longer be regarded
as isolated material, symbolic or cultural capital - as meaning (Holt 2004, Muniz 2009). Consumers
use brands as a mean of communication and of engaging in relationships with other people with
whom they feel connected through consumption of the same brand. Thus brands are not only means
of self expression but means of communication and social engagement. Consumers are no longer
only adopters of the brand but participate in some cases actively in others indirectly in the creation of
the brands. They own the brands and can be referred to as creators of the brand. In this sense one
important aspect should be clarified. The meaning of the brand is the product of a consumer collective
creation process and not that of individual consumers. Thus when speaking about brand meaning it is
not appropriate to refer individual consumers but to consumer collectives.
Consumer networks are consumer collectives or groups of consumers linked via social networks.
These may be face to face community based networks (a typical case is that of multilevel marketing
networks), virtually linked consumer networks (virtual brand communities) or imagined consumer
networks „All the cokes are the same and all the cokes are good. Liz Taylor knows it, the President
knows it, the bum knows it, and you know it." (Warhol 1975) Here I rely on Anderson’s concept of
imagined community which in my opinion applies similarly to the idea of network.
Institutions include channels of traditional and new media retailers, equity markets, NGO’s. As Muniz
(2009) notes institutions are not limited to channels of intentional marketing communication but also to
any other form of influence which can contribute to the creation of brands.
The sociological model proposed by Muniz is centred on brand meaning. I tried to show earlier that
brands can no longer be reduced to their meaning. When speaking about brands we automatically
refer to collectives of consumers who not only invest brands with meanings but also use brands as
means of self expression and of communication. Their social action is being shaped according to
certain values of the collectives who use the brand. The central object of this paper and the one of
407
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Anabella Maria Târnovan
Muniz (2009) that is a sociological branding model implies that brands are invested with more than
meaning, they are invested with social capital. Accordingly, it is necessary to build the sociological
model on forms of social capital that is trust and networks. In this respect communication processes
have a crucial role.
7. Conclusions
In this article I tried to argue that brand communities are a valuable source of social capital and can
thus be regarded as social innovation ecosystems. First to set the ground for my argumentation I
clarified two crucial aspects related to brand communities: the network approach and the
communication approach. Following a literature review on social capital I showed that brand
communities are potential sources of social capital. Further by introducing Putnam’s argument of civic
engagement I explained that social change such as poverty alleviation, women empowerment, gender
equality etc. can be enacted by engaging the members of the brand community in collective action.
Last but not least, I proposed a sociological model of brands based on social capital. In my opinion
this model can serve as a useful tool for both multinational companies and international organizations
in their sustainable development strategies. I also consider the proposed model a valuable alternative
approach in marketing strategies. Finally it is important to acknowledge that the model presented here
is in its first stages and therefore subject to further development.
Acknowledgements
Anabella Maria Târnovan is beneficiary of the project “Doctoral scholarships for the development of
the knowledge-based society”, co-funded by the European Union through the European Social Fund,
Sectorial Operational Programme Human Resources Development 2007-2013
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409

Knowledge Management: Falling at the First Hurdle?
Gerry Urwin
Coventry University, UK
G.Urwin@coventry.ac.uk
Abstract: This exploratory research aims to describe the opportunities to improve project management through
learning from past experience. Building on research to date and a series of pilot interviews a conceptual model is
developed to illustrate the transfer and conversion of knowledge through a full or partial cycle of identification,
storage, access, absorption and finally ‘knowledge in action’. Nine stages that support the knowledge
management process are identified and some of the limitations in the existing application of “lessons learned” in
government sponsored IS projects are highlighted. This research aims to facilitate improved understanding of
barriers to knowledge management for both academic and practitioner audiences More advanced aspects of
effective knowledge management are discussed and future research directions are suggested.
Keywords: knowledge management; project management; organizational learning
1. Introduction
This paper reports early results from exploratory research into the effectiveness of knowledge
management within and between government sponsored projects. It synthesises related academic
literature and government publications and draws from this a conceptual model to help understand
some of the key issues, and to guide the following research. The research methodology is described
together with the context in which the implementation of the concept of “lessons learned” is examined
in government sponsored information systems projects. A summary of initial findings of the pilot stage
of the research leads to a discussion of some of the issues involved in successfully managing
different types of knowledge.
Effective knowledge management has been identified as offering clear benefits to organizations in
terms of performance improvements (Cummings, Bing-Sheng 2006, Edmondson 2008, Nonaka
2007). Yet there is significant under-exploitation of these potential benefits. With a failure rate of over
80% for knowledge management programmes (Storey, Barnett 2000) there is obviously a problem of
significant proportions in putting knowledge management into practice. More significant yet, how
many organizations operate without even attempting to implement a formal knowledge management
programme, with the attendant loss and degradation of existing knowledge, or lack of exploitation of
latent knowledge sharing opportunities?
In 2007 the Chief Information Officer at the Department of Work and Pensions stated that only 30% of
government sponsored projects succeed (Collins 2007). And yet a fundamental part of the
government mandated project management methodology (PRINCE2) is the formal creation and use
of “lessons learned reports”. Surely we can improve project management through learning from past
experiences, both good and bad? In recent years there has been considerable criticism of the
management of government sponsored projects, and strong recommendations of the need to learn
the lessons of previous experience (C.P.A. 2000, C.P.A. 2005, C.P.A. 2007, C.P.A. 2009) and the
number, size and cost of government sponsored IS projects, often costing hundreds of millions of
pounds, emphasises the importance of research into more effective methods of knowledge
management in this area.
The main objectives of this research are to:
Determine the effectiveness of knowledge management within and between government
sponsored IS projects.
Ascertain to what extent lessons learned from government sponsored information systems
projects are identified, stored, accessed and used.
Develop a conceptual framework to improve understanding of this complex area, with the
intention of developing future recommendations and suggested improvements in knowledge
management processes.
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2. Literature review
Gerry Urwin
The concept of Knowledge Management is often oversimplified, with reference made to the use of
knowledge management systems as if their implementation is sufficient for effective use. Schultz and
Leidner (2002) argue that knowledge management is,
“the generation, representation, storage, transfer, transformation, application, embedding, and
protecting of organizational knowledge”(Schultze, Leidner 2002).
This includes several stages which focus on the effective organizational use to which the knowledge
is put, insisting that the knowledge is applied, embedded and (unusually) ‘protected’. O’Leary (2002)
takes a more pragmatic perspective, suggesting that knowledge management can be defined as the
organizational ‘‘efforts designed to:
Capture knowledge;
Convert personal knowledge to group-available knowledge;
Connect people to people, people to knowledge, knowledge to people, and knowledge to
knowledge
Measure that knowledge to facilitate management of resources and help understand its evolution’’
(McCall, Arnold et al. 2008, O'Leary 2002, McCall, Cousins 1990)
Part of the problem is that in terms of adding organizational value, knowledge is often part of a series
of related processes (Nonaka, Takeuchi 1995, Ruey-Lin 2008) including knowledge creation,
knowledge transfer and knowledge – in – action; whereas much of the literature uses the term
‘knowledge’ as a noun, or artefact, as a condition of having access to information and often as
something that exists independent of context. There is strong focus in some of the literature on “hard”
knowledge management systems, databases and ‘ontologies’, while at the other end of the spectrum
there is also much emphasis on knowledge as unique, and being both person specific and context
specific (Alavi, Leidner 2001, Blackler 1995, Tuomi 1999). This fundamental perspective or
understanding of what knowledge is, and its level of tangibility and complexity significantly affects the
approach to knowledge related processes such as knowledge sharing and knowledge transfer. The
major implication of these various conceptions of knowledge is that each perspective suggests a
different strategy for managing the knowledge and a different perspective of the role of systems in
support of knowledge management” – Alavi & Leidner (2001: 110)
One of the ‘step changes’ in our understanding of knowledge management as an organizational
process came with the differentiation between information and knowledge, and the categorization of
knowledge as either ‘explicit’ knowledge, including language and documentation, and able to be
expressed, documented or stored; or ‘tacit’ knowledge which of its nature is less tangible and includes
personal experience and skills, and often learning of which we are unaware (Nonaka 2007, Polanyi
1966). One of the fundamental aspects of knowledge creation is the relationship between explicit and
tacit knowledge, and the conversion processes which can allow the transformation of tacit knowledge
to explicit, and vice versa (Nonaka, von Krogh et al. 2006, Nonaka 1991)..
There are certain constraints to such conceptual models which result in the failure to meet
expectations in large or complex knowledge management projects.
Carlile (2004) identified three boundaries that limited the transfer of knowledge:
Syntactic boundaries require only knowledge transfer on the expectation that all parties
understand the knowledge transferred
Semantic boundaries also require translation of the knowledge, as it may not be universally
understood
Pragmatic boundaries require knowledge transformation, in that the new users may have different
interests or objectives and the knowledge needs to be matched to its new context.
This is important in that, depending on the degree of complexity of the knowledge in question and the
receptiveness of the transferee, there needs to be a match between ‘donor’ and receiver in terms of
language used, the ability and experience of the receiver, and the generalisability or transferability of
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the knowledge to a new setting (e.g. a different culture). Even then, people don’t passively accept
knowledge, they actively interpret it to fit their context, “thus what makes sense in one context can
change, or even lose its meaning when communicated to people in a different context” (Nonaka
2005). In addition, Leonardi & Bailey (2008) argue that there are further problems in knowledge
transfer for those working across time and geographic space. This is supported by Hong and Vai
(2008) in the context of virtual cross functional teams.
Yanow (2009) argues that what she calls ‘passionate humility’ is an important requirement in
knowledge transfer, in that people must accept that they could be wrong, or mistaken, or deficient in
their knowledge before they will seek or embrace others’ knowledge. Yanow argues that in
professional practice there is a predominant “language of certainty”, that is, a conviction that one is
self evidently right, through common sense, logic and rational thought. What she believes is required
is a move to more reflective practice through a “language of inquiry”, challenging one’s own
perspective, and adopting a more empathetic, or “emotionally intelligent” perspective (Goleman
1998).
McCall et al. (2008) suggest that Knowledge Management Systems (KMS) “focus on bringing together
the explicit knowledge that exists in organizations … such as basic definitional information,
procedures for performing tasks, and previous problem resolution examples”. More complex tacit
knowledge is added to the Knowledge Management System as it matures, although often using
different methods of storage, or access (e.g. ‘signposting’ experts who may be available for coaching,
mentoring or workshops as a more effective method of knowledge transfer).
The concept of absorptive capacity views knowledge in a wider context and is utilised by Boynton et
al. (1994) to help explain the relationships between IS use and managerial IS knowledge,
management processes and management climate. In essence it relates to communication issues, in
that it refers “not only to the acquisition or assimilation of information by an organization, but also to
the organization’s ability to exploit it”(Cohen, Levinthal 1990).
Access to external knowledge and internal knowledge integration capability has a positive effect on
project timeliness (Mitchell 2006). Although Mitchell (2006: 924) does caution that, “The ability to
integrate internally held knowledge requires a shared perspective of the problem, which permits
existing knowledge to be combined and reformulated to produce new insights and solutions (Nonaka
1994)”
Mitchell suggests that it is the social interactions among individuals that transfer knowledge through
internal methods of communication, and develop a common perspective or interpretation for applying
this knowledge in a problem solving situation. “Where organizational units hold specialized
knowledge, inter-unit linkages are the primary means of transferring that knowledge” (Mitchell 2006)
Cummings and Bing-Sheng (2006) present a comprehensive overview of the context of successful
knowledge transfer. They argue that the literature presents five contexts that can influence the
transfer of knowledge in organizations and the subsequent internalization of that knowledge:
The environmental context – including entrepreneurial, learning, innovation and international
environments
The source context – the knowledge sharing attitude of the knowledge source, the credibility and
the intent of the source to complete the transfer (in a reciprocal exchange for example, the source
could cease once his/ her benefit from the exchange had been achieved)
The relational context - the relationship ‘distance’ within or between individuals, groups or
organizations engaged in knowledge transfer
The recipient context – including the recipient’s motivation, absorptive and learning capacity,
intent and knowledge experience.
The knowledge context – knowledge is defined not as a dichotomy between explicit and tacit
knowledge, but as a continuum of degrees of ‘explicitness’. It is also defined by its degree of
‘embeddedness’ (in people, tools, processes etc.)
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This explanation is a much better presentation than most in the literature, of the complexity and
variability which can influence the knowledge management process. Evidence of the failure of
knowledge management programmes to meet expectations Storey & Barnett (2000) suggests that
underestimating this complexity could be a factor in such lack of success.
3. Conceptual model and underlying knowledge management process
One of the drivers of this research is the exploration of the degree of applicability of knowledge
management theory, particularly in the context of government sponsored IS projects and using the
vehicle of the PRINCE2 project management methodology. Nonaka argues that “Making personal
knowledge available to others is the central activity of the knowledge creating company” (Nonaka
1991). Through the use of PRINCE2 as a mandatory project management methodology in
government sponsored projects, the identification and codification of personal knowledge through
“lessons learned” is a key objective. This is in response to ongoing criticism of past limitations of
project management, ineffective use of consultants, and evidence of poor value for money (C.P.A.
2000, C.P.A. 2005, C.P.A. 2007).
The conceptual model which drives the research is illustrated in Figure 1 below and draws on and
extends Alavi & Leidner’s (2001) work on knowledge transfer..
Figure 1: Conceptual model (adapted from Alavi & Leidner (2001))
The aim is to progress through the cycle, but it is the proactive transfer and conversion processes that
are crucial. ‘Knowledge in action’ with no reflection, identification of learning opportunity, conversion
and storage, is ultimately transient experience and of no potential benefit to any other than the
participants.
Edmondsen (2008) would argue that this is, or should be, an evolutionary process and the ‘knowledge
in action’ is constantly challenged and improved as new circumstances alter. This is similar to how
Argyris (1976) sees his model of ‘double loop learning as a method of inviting challenges to
established views, which may then subsequently be adjusted in order to take advantage of the best
information available. Knowledge is not, therefore stable and static, but instead forms a dynamic and
transient flow, or pool into which one can submerge. The reaction to this submersion can vary
significantly depending on the ‘absorptive capacity (Cohen, Levinthal 1990), or the transformative
capacity (Garud, Nayyar 1994), that is, the ability to absorb and exploit either external or internal
organizational knowledge. It also depends on the motivation and receptiveness of the individual or
team to challenge their own mental models, and actively participate in the process. Thus the cyclical
flow illustrated in Figure 1. (above) may not be smooth and self regulating. It will depend very much
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on the type of knowledge; how open it is to conversion; the type of individual etc. This links with work
by Heron and Reason (1997), where they describe four different types of knowing:
Experiential knowing – direct face to face encounter with something or someone
Presentational knowing – the expression of this experience via a story etc.
Propositional knowing – the development of concepts and ideas
Practical knowing – which consummates the other forms of knowing in action in the world, that is,
the knowing of how to do something.
And this in turn has echoes of Kolb’s (1984) experiential learning cycle, with experience followed by
reflection and conceptualisation, before putting new knowledge into action.
Drawing together these different elements from the literature allows a knowledge management
process to be articulated (see table 1, below) which elaborates on the cyclical model illustrated in
figure 1, above.
Table 1: Stages in the knowledge management process
Stages in the Knowledge Management Process
1. Knowledge creation (knowledge in action)
2. Knowledge identification – what of potential value do we have
3. Knowledge capture – codification (files/ records/ documents)
4. Knowledge mapping ‐ where is it (documents, e‐source, expertise or staff signposting)
5. Knowledge storage – physical location including search facility()
6. Knowledge access – how easy is it to get at (including: security; currency; ‘reward for
release’ e.g. workshops, mentoring etc.)
7. Knowledge transfer – how to convert/ translate/ shared “knowledge base”
requirement
8. Knowledge absorption – learning
9. Knowledge application – full or partial, this may include knowledge adaptation/
creation – adjustment to different contexts or setting
It can be argued that stages 1-5 of the knowledge management process are relatively straightforward
compared to the task of motivating capable staff to access, find, absorb, and be in a position to utilise
relevant knowledge gleaned from lessons learned from previous experience. It is these first stages
that are the focus of this phase of the research.
In stages 6 and 7, how easy it is to access and transfer the knowledge is heavily dependent on the
‘degree of explicitness’ and embeddedness (Cummings, Bing-Sheng 2006).
Stages 8-9 reflect Bloom’s (1956) work on some of the higher levels of learning. Bloom’s taxonomy of
learning can be applied to knowledge management from the perspective of the “receiver” or user. In
Bloom’s terms ‘knowledge’, or knowing is one of the lowest forms of learning in that it reflects e.g. the
retention of facts, and it is only when the knower understands the knowledge, and can apply it in
different contexts that higher levels of learning are evidenced. The ability to analyse, synthesise and
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critically evaluate are the higher levels of learning according to Bloom. And it is in this differentiation of
types or degrees of knowledge, of the levels of complexity, which also echo what is often portrayed as
the explicit / tacit dichotomy of knowledge. And it is here that one of the key barriers to successful
knowledge transfer lies. In the same way that Nonaka and Takeuchi (1995) described the different
processes of knowledge creation and conversion, and Nonaka and Konno (1998) argued that each
process was supported by a different form of knowledge “space”, this paper suggests that the form of
knowledge management process that is appropriate will vary depending on the level of complexity of
the knowledge being transferred. Logic suggests that (to use Bloom’s terminology) the simple forms of
“knowledge” and “comprehension”” are easier to transfer through transformation into explicit forms (for
example, the creation of procedural guidance in the form of project management methodologies such
as PRINCE2) than more complex synthesised or integrated knowledge (Grant 1996).
Argyris and Schon (1996) further argue that temporary gains in knowledge often occur, and indeed
this can be viewed as a “near miss” to organizational learning, in the sense that changes in behaviour,
routines and “theory in action” are observed. But when these are held only in the minds of “individual
carriers” as in the case of the many consultants used in government sponsored projects the benefit is
lost when that knowledge moves on to another client, or even another project within the same client
organization.
In effect the application of the ‘lessons learned’ reporting system within PRINCE2 explicitly addresses
stages 1 – 6 in table 1. (above), in that it assumes in stage 1. that there are lessons of value to both
experienced and inexperienced project staff and stakeholders that are gained throughout the project
process. A possible limitation of the PRINCE2 approach may be that the lessons learned reporting
may be seen either as an administrative ‘chore’ to be completed with the minimum effort; or it may be
delegated to one person who may, or may not actively explore the learning achieved from multiple
perspectives. The person(s) involved in the learning experience arguably has already gained the
benefit in terms of new knowledge, and the challenge is therefore initially to identify knowledge of
value to others, and in stages 2, 3, 4 and 5 to persuade the participants or designated others to take
the time and effort to reflect and codify that knowledge into an appropriate form to be stored and
transferred. At a minimum it is required that the knowledge be identified, codified, mapped and stored.
Therefore if there is no initial identification of knowledge as a future learning opportunity, whether this
be through PRINCE2 lessons learned reporting, or some other system, there can be no systematic or
controlled knowledge management within or between organizational projects. So even if reflection
upon ‘knowledge in action’ occurs and new personal knowledge is created, the crucial first step
towards knowledge management and organizational learning is the identification of that knowledge, in
order that either the knowledge itself can be codified and stored, or signposting to the knowledge
source can occur.
4. Methodology
Following a series of high profile IS project failures and several critical reports; the call for improved
project management in government sponsored projects has been prevalent for a number of years.
Projects in a Controlled Environment (PRINCE) is a standard project management methodology
developed in 1989 to improve the management of Government IT projects.
The research strategy adopts a case study approach (Eisenhardt 1989, Yin 2003) using government
sponsored IS projects. The research draws on, and extends early work by Alavi & Leidner (2001) to
develop understanding of the potential for knowledge exploitation within and between large, complex
IS projects in the UK ‘public sector’. The research design aims to draw from multiple sources, in the
first instance building on established research in the literature, and using the researcher's own
experience in information systems implementation, further focused through preliminary informal
interviews. Six pilot interviews were conducted with project and programme managers. Later research
will develop in depth case studies in order to draw lessons from the reflections of Senior Responsible
Owners (SRO), Programme and Project Managers and consultants, as well as other interested
stakeholders.
The pilot interviews were chosen through chain sampling on the basis of their potential for learning,
which Stake (1994) argues is more important than representativeness, "often it is better to learn a lot
from an atypical case, than a little from a magnificently typical case". Within-case analysis and cross
case analysis is conducted through the use of NVIVO qualitative data analysis software. The
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research findings will be validated through consultation with 'industry experts'. The contribution of this
research aims to inform both academic and practitioner audiences.
5. Preliminary results
Pilot interviews were carried out with six experienced project managers who have all worked on
multiple large projects within more than one Government Department or Ministry. The research is still
at an early stage, however the results of the pilot interviews suggest some important results. A
summary of some of the key points from the interviews include:
All respondents agreed there were often significant problems in government sponsored projects
and much potential for learning lessons.
There is variable adherence to the requirement to produce lessons learned reports. Where these
are in evidence it is often a product of consultants who are qualified PRINCE2 practitioners
adhering to self imposed standards, or seen as a “tick box” exercise rather than an opportunity to
learn.
There is often no central repository of lessons learned reports, and therefore no easy access to
knowledge gained
There is no synthesis of lessons learned and there is no mechanism for identifying commonly
repeated errors or solutions to common problems
There is rarely any attempt to qualify the types of lessons learned, in order to develop appropriate
means of storage, or access routes
There has been no formal method of capturing knowledge from the large number of external
consultants employed. As these numbers have dramatically reduced in recent years due to
political change and economic constraints, much knowledge has been lost.
There is a perception among some of those interviewed that there is still a significant shortfall in
the required project management skills at all levels of the client organizations, although this
seems to vary considerably by government department. While there is evidence of an ongoing
training programme focused on the PRINCE2 project management methodology, the benefits of
this have still to become apparent.
There are some structural, possibly cultural, and sometimes litigious influences which discourage
the formal capture of lessons learned.
Analysis of the pilot interviews suggests that: the importance of the need for further research into
knowledge management in the context of government sponsored IS projects has been confirmed.
There appear to be exemplary practices in some departments, but there are difficulties in sharing
these. There is a very variable application of the principles of ‘lessons learned’ reporting as an integral
part of the PRINCE2 project management methodology and there are significant barriers to effective
knowledge management in the context of government sponsored IS projects.
Based on the pilot interviews in this research, in many cases it is at Stage 2, knowledge identification,
that the application of PRINCE2 in government sponsored projects appears to be flawed. In other
situations Stages 1 – 5 are carried out (albeit inconsistently), but without access from a central source
the knowledge gained from previous lessons cannot be found, shared and applied, and certainly this
curtails the opportunity to further adapt and create new knowledge from what has gone before.
6. Discussion
Why do we not learn from project failures? “We rarely try” argue Abdel-Hamid and Madnick (1990),
claiming that people tend to hide mistakes. Claims that the Office of Government Commerce (OGC)
instructed staff to destroy final Gateway Review reports within seven days of issue, if true, would
support this contention (Collins, 2007). With the potential furore that can be unleashed in the media
with regard to Government sponsored IT projects, it is perhaps understandable that there is some
reticence to highlight any areas of weakness or mistakes. Abdel-Hamid and Madnick propose that
learning from successful projects is no less problematical, in that there is no desire to look for
problems unless someone is dissatisfied. And so, in the first instance there appears to be a positive
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motivational force to cover up mistakes, and a lack of motivational force to learn from success even at
the primary stage of identification of knowledge.
Alavi & Leidner (2001) argue that there are three quite distinct ways of looking at knowledge, each of
them carrying with it a need for a different strategy for managing that knowledge and a different
requirement for systems that might support such knowledge management. One of the traditional
forms of knowledge sharing was through seeking out and exchanging knowledge with co-workers.
This is limiting as soon as an organization becomes larger than this form of exchange can cope with.
This is exacerbated when multi site organizations occur, and again when internationalization is
involved. In the case of many government sponsored IS projects there are still a large number of
consultants used, and they bring with them opportunities to learn, but also dangers of a dissipation of
knowledge as they move from one project to another, between Departments or Ministries, or out of
the organization altogether.
Retrospectively identifying either good practice to be embraced, errors to be avoided, or solutions to
known problems is insufficient as a means of changing the way that an organization manages its
‘knowledge in action’, or how it applies or develops knowledge in practice. However, identifying
knowledge which is likely to be of benefit to the organization and codifying it in a way that makes to
available to others is the first (albeit important) step in implementing change through the exploitation
of knowledge. It appears from the pilot interviews that this is often not happening, at least not in a
comprehensive or consistent way. There is a need for a better understanding of how even the most
basic knowledge management steps, that is, how the identification of valuable knowledge and
creation of centrally accessible storage and mapping of knowledge can be better implemented, before
any more advanced knowledge management initiatives can hope to succeed. Each of the stages in
the knowledge management process offer their own barriers to success and without the foundations
of the early stages further progress is restricted.
7. Future research
This is obviously an early stage in this research, however important issues and inconsistencies of
practice have been identified. This offers opportunities for future research which should identify the
barriers to more effective knowledge management and develop a conceptual framework to allow
better understanding of the complex issues involved, which both help and hinder knowledge transfer,
absorption and re-use. This should both develop academic theory and practitioner understanding of
effective knowledge management in project management.
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418

Professionalization of TMT in Private Family Firms - the
Danger of Institutionalism
Pieter Vandekerkhof, Tensie Steijvers, Wim Voordeckers and Walter Hendriks
Hasselt University, Belgium
pieter.vandekerkhof@uhasselt.be
tensie.steijvers@uhasselt.be
wim.voordeckers@uhasselt.be
walter.hendriks@uhasselt.be
Abstract: We examine the determinants of top management team professionalization in private family firms from
an institutional perspective. Professionalization, conceptualized here as the inclusion of non-family managers in
the TMT, can be more challenging due to the unique composition of family firms. In this paper, we try to answer
the call for a multi-theoretical approach to determine which family firms are more or less eager to hire non-family
managers, by using institutional drivers, complementary to the mostly used agency arguments. Institutional
theory encompasses three forms of institutional isomorphism as possible antecedents for professionalization of
the top management team: coercive, normative and mimetic isomorphism. Furthermore, the specific ties within a
business family, translated by socioemotional wealth, can affect the extent to which isomorphism drives TMT
professionalization. Propositions are made about the direct effect of coercive, normative and mimetic
isomorphism on TMT professionalization on the one hand, while SEW is assumed to play a moderating role on
these direct relationships. Hence, professionalization of top management teams in family firms is a complex
process due to the unique combination of family and business goals. This complexity also implies that the
institutional viewpoint may be a double-edged sword. From the bright side of the institutional perspective, these
forces can be a mechanism to break the barrier for integration of non-family managers in private family firms. On
the contrary, the dark side may lead to hiring non-family managers due to institutional pressures, while the
underlying functional need may be absent. These contradictions may lead to further conceptual exploration as
well as empirical testing in this field. Hence, this study makes several contributions to both family business
research and institutional theory.
Keywords: professionalization, top management teams, family firms, institutional theory, socioemotional wealth
1. Introduction
Family members in a private family firm are often present in the management of the firm as well as the
board of directors, while they also may form the group of majority shareholders (Chua et al., 2009).
This combination of tasks leads to unique organizational structures which may have an impact on
professionalization of the private family firm, defined here as the integration of non-family managers in
the top management team (hereafter TMT) (Dyer, 1989, Zhang and Ma, 2009). Several studies
emphasis that this form of professionalization may be difficult through for example the misalignment of
goals and objectives between family and non-family members which can lead to greater conflict within
the top management team (Chua et al., 2009, Schulze et al., 2001, Schulze et al., 2003b).
Even though the studies mentioned above state that the integration of non-family managers in the
TMT of a private family firm may involve opportunity costs for the family, it appears that
professionalization of the TMT is enlarging nowadays (Bennedsen et al., 2007, Klein, 2007).
Therefore, family firms do not always seem to fear the changes that occur when professionalizing
their TMT. Up until now, empirical research concerning non-family managers in the top management
team of family firms focuses on the effects of the presence of these managers on managerial
activities and characteristics (Sonfield and Lussier, 2009), the collaboration with the family managers
in the TMT (Chua et al., 2009) or the effects of a non-family CEO (Lin and Hu, 2007). However, no
research is conducted on why family firms are more or less eager to hire non-family managers.
Antecedents of professionalization are already explained within the general context of a TMT
(Finkelstein et al., 2009), but the specific family firm impediments or impetuses for TMT
professionalization may reveal an unique influence on the process. Therefore, the objective of this
study is to look at the determinants of TMT professionalization in private family firms.
Hiring non-family managers leads to the separation of ownership and control and thus increases
agency costs. Therefore, agency theory is frequently used within the research field of TMT
professionalization of private family firms (Ang et al., 2000, Chua et al., 2003, Gomez-Mejia et al.,
2001). However, family firm researchers recently began to question the use of only a traditional
agency perspective to look at the antecedents of TMT professionalization in family businesses
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Pieter Vandekerkhof, et al.
(Schulze et al., 2003b, Schulze et al., 2003a, Steijvers and Voordeckers, 2009). In addition, there are
studies that use a multi-theoretic perspective to investigate the determinants of professionalization of
family firms as a way to complement the agency arguments (Gabrielsson, 2007, Yildirim-Öktem and
Üsdiken, 2010, Vandekerkhof et al., 2011).
Therefore, we highlight the institutional perspective of the multi-theoretical approach because TMT
professionalization may not always be driven by efficiency reasons, explained by for example the
contingency perspective (Pennings, 1987, Luthans and Stewart, 1977). It can also be a response to
the external environment in which the firm operates to gain legitimacy, resources and stability
(Yildirim-Öktem and Üsdiken, 2010, Meyer and Rowan, 1977). In this paper, the institutional viewpoint
is explained by three forms of isomorphism, a process that forces one organization to homogenize in
a population consisting of other organizations that face the same environmental conditions (DiMaggio
and Powell, 1983, Meyer and Rowan, 1977). We also integrate socioemotional wealth (hereafter
SEW) given the specific family firm focus of this paper. SEW refers to “the non-financial aspects of the
firm that meet the family’s affective needs, such as identity, the ability to exercise family influence,
and the perpetuation of family dynasty” (Gómez-Mejía et al., 2007 ,p. 106). SEW may moderate the
relationship between institutional factors and professionalization of family firms. We argue that the
more a family firm values family control, the less sensitive it is to environmental pressures that may
increase the tendency towards TMT professionalization.
Our paper contributes to the literature in several ways. First, we combine family business and TMT
literature to analyze the presence of non-family managers in family businesses. By applying a multitheoretical
view, we go beyond the often used agency costs arguments. Second, we examine the
preservation of SEW (Gómez-Mejía et al., 2007) as a moderating effect. Hereby, we try to detect how
the drivers of professionalization of the TMT, inspired by institutional theory, are moderated by the
salience of SEW.
The rest of this paper is structured as follows. The following section will give definitional clarity on
what professionalization exactly is, followed by a review of the institutional view regarding
professionalization of a TMT in a private family firm and the derivation of propositions. The third
section will describe the moderating role of SEW. Afterwards, the propositions will be discussed and
combined into a conceptual model in order to formulate final conclusions and directions for future
research.
2. TMT professionalization in private family firms through an institutional lens
Firms evolve through stages in their organizational life cycle (Zahra and Filatotchev, 2004). Each
stage implies increasing complexity and the resources that enabled a firm to grow will become
insufficient. Firms in this specific situation are called threshold firms. The greatest challenges for
threshold firms are the increase of managerial activities and greater managerial division of labor.
Hence, threshold firms are characterized as the evolution from a one-person, entrepreneurial style of
management to a functionally organized, professional top management team (Daily and Dalton, 1992,
Hofer and Charan, 1984).
In current literature, no definitional clarity can be found to explain what professionalization is. Some
authors use characteristics of professionalized firms (Hall and Nordqvist, 2008) while others use traits
of professional managers (Schein, 1968). Flamholtz & Randle (2007) explain the concept by the
needed management systems to professionalize. Finally, types of professionalizing a firm can form
the basis for a definition of the concept (Songini, 2006). So, a unified definition of professional
management does not exist. Hence, we define TMT professionalization in this theoretical paper as the
inclusion of non-family managers to fill positions in the management team (Zhang and Ma, 2009).
Professionalization of family firms has been viewed through the lens of many theories but a general
conclusion about the need and the path towards professionalization has not yet emerged (Songini,
2006).
A frequently used theory in family business literature is the agency theory. Family firms are
considered as having no or low agency costs given the combination of ownership and management
(Jensen and Meckling, 1976, Fama and Jensen, 1983). The wellbeing of an individual in the family
may be positively related to that of other family members, also referred to as altruism (Gomez-Mejia et
al., 2001, Lubatkin et al., 2005, Schulze et al., 2003b). Altruism, in this case, will lead to incentives to
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Pieter Vandekerkhof, et al.
be considerate of one another (Schulze et al., 2003b) and to communicate and cooperate with each
other (Van den Berghe and Carchon, 2003). Eddleston et al. (2008) consider this ‘bright side’ of
altruism as a family firm-specific resource. However, there are studies that declare that this bright
sight of altruism ignores problems that can occur in case of a single owner-manager which can be
summarized by the ‘dark side’ of altruism. Controlling owners may be more vulnerable for self-control
problems (Lubatkin et al., 2005). For example, once a family has enough ownership for unchallenged
control, it can begin to free ride by using the firm’s resources for personal benefits and for privileges of
family members (Schulze et al., 2003b, Schulze et al., 2003a). Concentrated family ownership may
also lead to adverse selection (limiting executive management positions to family members) and
managerial entrenchment, which can be problematic as the risk of hiring low quality employees
increases (Lubatkin et al., 2005, Gomez-Mejia et al., 2001). Given these different angles, agency
theory in a family firm context provides no straightforward answer whether family firms are more or
less eager to hire a non-family manager.
Therefore, there have been calls for taking a multi-theoretic approach to complement or extend the
agency explanations. We follow the lead of this call by focusing on a theoretical viewpoint within the
multi-theoretic approach. We use an institutional perspective to describe the unique interactions
between the business, ownership and family institutions (Leaptrott, 2005). More concrete, we will
investigate the context in which family firms operate, which can make them more eager to hire a nonfamily
managers (Gabrielsson, 2007, Yildirim-Öktem and Üsdiken, 2010, Voordeckers et al., 2007).
DiMaggio & Powell (1983) state that an organizational change like professionalization of management
can be an action driven by uncertainty and institutional pressures, defined as institutional
isomorphism. As a consequence, social conceptions of appropriate organizational forms and
behaviors that constitute the institutional environment of firms will lead to pressures to conform to
these shared notions of appropriate forms and behaviors in order to gain legitimacy, resources and
stability (Meyer and Rowan, 1977, Teo et al., 2003). DiMaggio & Powell (1983) identify three
mechanisms through which institutional isomorphism occurs: coercive, normative, and mimetic. The
authors remark that this typology is analytical as they are not always empirically distinct. These three
forms will be the building blocks of our propositions concerning the antecedents of TMT
professionalization in private family firms.
2.1 Coercive isomorphism
Coercive pressures are defined as the formal and informal pressures which are exerted on
organizations by other organizations upon which they are dependent and by cultural expectations in
the society (DiMaggio and Powell, 1983). Teo et al. (2003) argue that these pressures may stem from
a variety of sources like for example suppliers, regulatory bodies or parent corporations. When family
firms are characterized by a dependency pattern like just mentioned, they are more likely to exhibit
similar features of which the presence of non-family managers can be an example. Also, a common
legal environment affects an organizational structure as rules institutionalized and legitimated by and
within the state are reflected in the firms. As a result, firms may become more homogeneous within
wider institutions. Here, an example of the homogenization in line with the topic of this paper may be
less clear as there are no mandatory governmental rules concerning integration of non-family
managers in the TMT of private family firms. But the increased focus on for example external directors
or females in the board of directors may be an indication that such mandatory rules regarding the
presence of non-family managers could be set up in the future. All these examples are more direct
forms of coercive pressures but DiMaggio & Powell (1983) and Marquis et al. (2007) state that a more
subtle form also exists. They argue that neighborhood organizations also feel pressures to conform to
the firms within the same geographical area or to specific regional legislation. Taken all these
examples together, we propose:
P1: Greater coercive pressures will increase the likelihood of hiring at least one non-family manager
in private family firms.
2.2 Normative isomorphism
The second source of institutional isomorphism implies that norms are shared through relational
channels among members of a network. This sharing leads to an increasing strength of the norms
and their potential influence on organizational structures and behavior (DiMaggio and Powell, 1983).
According to Teo et al. (2003), a wide extent of use of an organizational practice will make it
normatively appropriate. Also, direct and frequent communication will increase the likelihood of
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Pieter Vandekerkhof, et al.
adoption. The network in which these norms are shared may be interorganizational channels of firms
and their suppliers or customers on the one hand (Teo et al., 2003), while on the other hand
professional, business, and other key organizations can play an important role (DiMaggio and Powell,
1983, Parada et al., 2010). Greenwood et al. (2002) suggest that professional associations play an
important role in forming and reproducing shared meanings and understandings which in turn will lead
to changes in organizational practices and values of member companies. If we link this specific form
of pressure to the focus of this paper, a private family firm can integrate a non-family manager in their
TMT as it is perceived to be a norm within the ‘network’. For example, family firms that are member of
professional associations may consider hiring non-family members in their TMT because the
association puts emphasis on the benefits of doing so or because other members within the
association have already hired non-family managers so it becomes normatively appropriate.
Additionally, DiMaggio & Powell (1983) state that sharing norms is not always done by communication
but that formal education can also be an important source of normative isomorphism. Universities and
professional training centers can be important institutions for organizational norm development.
Again, placing this into the specific context of our research, we can state that managers who have
seen the benefits of integrating non-family members into a family firm by education or training, will be
more eager to support such an organizational change. Based on all these arguments about normative
isomorphism, we formulate the next proposition:
P2: Greater normative pressures will increase the likelihood of hiring at least one non-family manager
in private family firms.
2.3 Mimetic isomorphism
While normative isomorphism puts more emphasis on adaptation of practices, mimetic isomorphism is
rather linked with modeling or imitating actions of other organizations (Teo et al., 2003). An
organization may model itself after other organizations to acquire legitimacy while it can also be an
action driven by uncertainty (DiMaggio and Powell, 1983). As with normative pressures, if enough
similar organizations organize their firm in a particular way, it will be taken for granted. Hence, other
companies are more eager to model themselves after these organizational structures to gain
legitimacy. Besides modeling based on the prevalence of a particular action, Mizruchi & Fein (1999)
state that organizational leaders may decide to mimic other organizations in situations where a clear
course of action is unavailable, organizational technologies are poorly understood or goals are
ambiguous. Applying it to the context of non-family managers in the TMT of private family firms
means that if more family firms have already hired at least one non-family manager, it will increase
the likelihood of other firms following the lead of this call to gain legitimacy or as a response to
uncertainty. Finally, DiMaggio & Powell (1983) and Zhang & Ma (2009) argue that greater perceived
success of for example hiring non-family managers in family firms, will also increase the likelihood of
other family firms emulating. Teo et al. (2003) refers to this way of modeling as ‘second mover
advantage’. Taken all these examples of mimetic pressures together, we propose:
P3: Greater mimetic pressures will increase the likelihood of hiring at least one non-family manager in
private family firms.
3. SEW as a moderator
The unique aspect of this paper is found in the inclusion of socioemotional wealth or SEW (Gómez-
Mejía et al., 2007) as it may moderate the relationships between isomorphism and the likelihood of
the inclusion of non-family managers in the TMT of a private family firm. SEW deals with the unique
characteristics brought by the presence of family ties in an organizational atmosphere (Gomez-Mejia
et al., 2010, Berrone et al., 2010). These traits lead to non-economic utilities and will bond family
members together but can also limit access to resources (Cruz et al., 2010).
This limitation occurs when the family firm focuses on “values emphasizing the loyalty, commitment
and contribution to the family, and respect for family-based authority and hierarchy” (Zhang and Ma,
2009 ,p.129). Therefore, the more a family firm values family control, the less receptive it is to the
institutional arguments to increase TMT professionalization. For example, even though a family firm is
uncertain about for example evolution of their TMT and it has the ability to model a successful family
firm which has at least one non-family manager in the TMT, SEW may lead the organization not to
mimic the successful firm in order to preserve family unity, family based authority and control. As
such, professionalization of TMTs seems to be much more complicated in private family firms. Hence:
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Pieter Vandekerkhof, et al.
P4: The positive relationships between the three forms of institutional isomorphism and the likelihood
of hiring at least one non-family manager in private family firms will decrease if the family firm is
characterized by a high level of SEW.
4. Discussion and conclusions
Institutional theory is an appropriate framework to understand how and why governance practices are
introduced or changed in family businesses (Parada et al., 2010). Melin and Nordqvist (2007) support
this viewpoint by stating that there is an increasing institutionalization of family firms. In order to
survive, firms need to adapt (Zahra and Filatotchev, 2004). Institutional theory implies that this
adaptation can occur without evidence of increased organizational efficiency. It can rather be a result
of one of the three sources of institutional pressures we analyzed in this paper (Mizruchi and Fein,
1999, DiMaggio and Powell, 1983, Meyer and Rowan, 1977). When these sources are linked to the
specific focus of our research, namely integration of non-family managers in the TMT of private family
firms, we propose that all three forms of isomorphism increase the likelihood of non-family presence
in the TMT. Firstly, formal and informal pressures by related institutions as a form of coercive
isomorphism can ‘force’ family firms to hire at least one non-family manager. Secondly, shared norms
that ‘live’ within organizational or professional networks, like for example the shared norm that the
presence of non-family members in a private family firms is valuable, may increase the likelihood of
other private family firms hiring a non-family top manager. Finally, modeling as an attempt to gain
legitimacy or as an action driven by uncertainty are examples of mimetic isomorphism. This imitating
behavior will also lead to the fact that family firms may become more eager to hire non-family
managers if other firms have proven to be successful with this integration or when firms copy others
due to uncertainty to cope with changes. Several studies also suggest that the three distinct sources
of institutional pressure will not be mutually exclusive (Meyer and Rowan, 1977, Mizruchi and Fein,
1999, DiMaggio and Powell, 1983). For example, the influence of a professional association can lead
to both normative and mimetic isomorphism. Hence, we combine our propositions just made into a
conceptual model, as illustrated in figure 1 below, to clarify the relationship between institutional
isomorphism and TMT professionalization in private family firms. This model contains a limited
number of antecedents, as direct effects like the number of family members, tenure and educational
background of family members, … are not incorporated. This is because we only want to highlight the
institutional effects instead of setting up a complete overview of possible determinants of TMT
professionalization in private family firms. Hence, further research may want to focus more on direct
drivers to achieve a balanced model when combining it with the conceptual model presented in this
study.
Figure 1: Conceptual model: institutional forces and TMT professionalization in private family firms
Furthermore, future empirical research on TMT professionalization could be inspired by this
conceptual framework. First, using institutional theory as a basis for empirical research on this topic
would provide insights in the antecedents of TMT professionalization. Direct measures of
isomorphism are absent in current literature. Hence, empirical research could take these, up until now
largely ignored, institutional effects into account by testing the influence of these pressures on the
probability of TMT professionalization. Note that empirical studies will have to cope with choosing an
appropriate definition of a family firm as no unified definition of this type of firm exists (Chua et al.,
1999). Second, the uniqueness of the family effect within this study opens many opportunities for
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Pieter Vandekerkhof, et al.
future studies. We propose that when socioemotional wealth is considered to be important by the
family and thus family ties are strong, this can encounter the institutional effects. The family wants to
preserve unity and control (Gómez-Mejía et al., 2007) and therefore will be less sensitive to
institutional pressures. The high level of SEW can be seen as a bubble that is created by the family
which does not allow institutional forces to influence the organizational structure. By studying both
institutional pressures and ‘family pressures’ simultaneously, it may enrich our view on how both
elements determine TMT professionalization behavior of private family firms. Therefore, our
conceptual model emphasizes the need to study interaction models in order to find out when
institutional pressures become inferior compared to family pressures translated into the importance of
socioemotional wealth.
If empirical testing of our framework would confirm our propositions, future research should reveal
whether these institutional antecedents of professionalization proof to be beneficial for the family firm.
Even though institutional pressures might ‘force’ firms to professionalize, this does not have to be
value creating for the family firm. We could argue that the effect of isomorphism on TMT
professionalization can be seen as a double-edged sword as there may be a bright or dark side. The
former indicates that mimetic, coercive or normative forces, will also increase firm efficiency and
capacities. To explain the ‘dark side’ of institutional forces, authors like Pennings (1987) and
DiMaggio & Powell (1983) state that changes like TMT professionalization are not always based on
efficiency reasons when institutional pressures are the drivers. This implies that some family firms
may hire a non-family manager because of mimetic, coercive or normative pressures without having
the functional need to integrate this manager in their TMT. For example, small family firms in which
the first generation of the family both manages and owns the company often have no real need to add
non-family managers in their TMT as it often consists of the founder and one or two family members.
Another example of the ‘dark side’ of institutionalism can be found in the concept of symbolic
management (Westphal and Zajac, 1998). Here, family firms will satisfy external demands or cope
with pressures by integrating at least one non-family manager in the TMT but not giving this manager
the appropriate authority. Then, the presence of nonfamily managers will rather be a symbol. Finally,
besides investigating if the institutional effects are beneficial, further research can compare the
institutional viewpoint in different contexts. For example, a comparison between public versus private
family firms may provide different effects of institutional drivers.
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426

Much More Than CEO Duality: A Behavioural Perspective
on Board Leadership
Maarten Vandewaerde 1 , Wim Voordeckers 1 , Frank Lambrechts 1 and Yannick
Bammens 2
1
Hasselt University, Belgium
2
Maastricht University, The Netherlands
maarten.vandewaerde@uhasselt.be
wim.voordeckers@uhasselt.be
frank.lambrechts@uhasselt.be
y.bammens@maastrichtuniversity.nl
Abstract: In the slipstream of several large-scale corporate scandals, the board of directors has gained a pivotal
position in the corporate governance debate. However, due to an overreliance on particular methodological (i.e.,
input-output studies) and theoretical (i.e., agency theory) research fortresses in past board research, academic
knowledge concerning the actual functioning of this important governance mechanism remains fairly limited. This
theoretical paper focuses at board leadership, arguably one of the research areas plagued most by these predominant
approaches in previous studies. Specifically, its aim is to provide guidance and inspiration to researchers
who aspire to go beyond traditional board leadership research, which has turned a blind eye on actual leadership
dynamics and has solely focused on structural leadership characteristics, through the examination of leadership
processes and behaviours inside the board team. In this light, we set out to assess the relevance of traditional
and more specific team-related leadership theories that have amassed in organizational behaviour literature
and discuss their implications for board leadership. In addition, a number of methodological approaches are
put forward which are likely to prove particularly fruitful in assessing the actual leadership dynamics occurring
within corporate boards and, therefore, in increasing our understanding of their functioning.
Keywords: board of directors, board leadership, leadership theory, board behaviour
1. Introduction
The interest in corporate governance has risen dramatically over the last couple of decades. A host of
high-profile corporate scandals that have shaken up the corporate world, the most recent ones being
directly related to the worldwide financial crisis (e.g., Bear Stearns, Lehman Brothers), have put a
painful emphasis on the importance of proper corporate governance and have made its consequences
highly visible and tangible to the general public. Within this broad debate, major attention
usually goes out to the board of directors, both in the popular press (evidenced by captivating newspaper
headlines such as 'Where was the board?' and ‘Enron Board Asleep at the Wheel’ (Nofsinger
and Kim 2003)) as in the academic realm; the latter in which quite an extensive stream of literature
has developed that addresses this pivotal internal governance mechanism. Yet, while these studies
have in many ways contributed to the build-up of a significant body of knowledge concerning boards,
relatively little is known about how they actually function and how they protect and create value for
their firms and its wider set of stakeholders (Huse 2005). Recently, scholars have argued that this
void in academic knowledge can be mainly attributed to some distinct theoretical and methodological
approaches characterizing the majority of past board studies (Daily, Dalton, and Cannella 2003; Gabrielsson
and Huse 2004). On the theoretical side, the major emphasis on agency theory has resulted
in an almost exclusive focus on the control tasks of boards, thereby ignoring other important contributions
they have to offer to their respective firms (e.g., providing advice, networking, legitimizing, coordinating
stakeholder expectations, etc.) (Bammens, Voordeckers, and Van Gils 2008; Daily, Dalton,
and Cannella 2003; Van den Heuvel, Van Gils, and Voordeckers 2006). Moreover, from a methodological
perspective, board scholars have mainly limited themselves to a strict input-output approach in
their studies, directly linking board demographic indicators (e.g., board size, age of directors, number
of independent directors, etc.) to board and firm performance. In doing so, they have ignored behaviours
and processes inside the board team, or at most considered these demographic indicators to be
good proxies for them, which in effect has blurred our understanding of how boards function and,
moreover, has resulted in largely inconsistent and inconclusive findings (Gabrielsson and Huse 2004).
The focus of this paper is on board leadership, arguably one of the areas within board literature most
affected by these theoretical and methodological research fortresses (Vandewaerde, Voordeckers,
Lambrechts, and Bammens 2010). Virtually all of the work dealing with this topic has been centred on
leadership structure (mainly CEO duality) and its implications for board and firm performance, result-
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Maarten Vandewaerde et al.
ing in hardly any attention given to how the board team is actually led (Heracleous 1999; Leblanc
2005). Given that in organizational behaviour literature it is generally acknowledged that leadership
has a clear impact on group and team effectiveness (Cohen and Bailey 1997), it is high time, we argue,
to move the field beyond structure by adopting a behavioural approach to board leadership in
which is delved into the actual leadership behaviours and processes that take place in the boardroom
(Huse 2005). In this light, the aim of this paper is to concisely review relevant existing leadership literature
and to determine its implications for our understanding of board leadership and thus, more
broadly, boards of directors’ functioning and effectiveness. We aspire to offer board scholars some
guidance in opening up the black box of board leadership, and aim to inspire them to do so, by offering
some promising insights from organizational behaviour research which can be drawn upon in the
study of actual board leadership dynamics. In the overall architecture of our work, this core focus of
the paper will be attended to right after we broaden the discussion somewhat by shortly touching
upon the board leadership issues of firm strategic leadership and CEO duality. We conclude by a
discussion of some theoretical and practical implications, as well as a number of promising methodological
approaches, concerning the study of board leadership based upon the offered leadership literature.
2. Board leadership
The notion of board leadership can be addressed from two distinct perspectives (Lorsch 2009). On
the one hand, the term board leadership may be used to denote the strategic leadership of the firm
provided by the board of directors. The perspective we want to primarily pursue in this paper, however,
concerns the manifestation of leadership within the board team itself, a heavily underinvestigated
topic in board research. Given the limited space available here, we do not attempt to
provide a comprehensive review of existing literature (e.g., full accounts of agency and stewardship
theory), but instead limit ourselves to a discussion of the material which is most pertinent to the goal
of our paper: providing guidance and inspiration to researchers who aspire to go beyond traditional
board leadership research through the examination of leadership processes and behaviours inside
the board team.
2.1 Board strategic leadership
The dominance of the agency theory paradigm in the governance literature has resulted in an almost
exclusive emphasis on the control tasks of the board of directors (Gabrielsson and Huse 2004). In
adopting a multi-theoretical approach, contemporary board scholars generally acknowledge, however,
that boards fulfil numerous other important tasks in their respective firms as well (e.g., Bammens,
Voordeckers, and Van Gils 2011; Daily, Dalton, and Cannella 2003). In this respect, among other of
these board service-related tasks such as advising, legitimizing, and networking, providing strategic
direction and leadership for the firm has been put forward as an important function of the board (Huse
2005). Indeed, boards of directors, while needing to be mindful not to overstep the fine line which
separates theirs and management’s responsibilities in this area, have an important role to play in
shaping the content, context, and conduct of strategy (McNulty and Pettigrew 1999) and especially in
providing hands-on leadership for their firms during times of crisis (Lorsch 2009). As this paper’s focus
is not on the leadership of boards of organisations but on the leadership of boards in organisations
(Bedeian and Hunt 2006), we will continue with the latter in the remainder of this paper and refer
the reader interested in a more in-depth discussion of board strategic leadership to some excellent
reviews regarding this topic (see, for example, Pugliese, et al. 2009; Finkelstein, Hambrick, and Cannella
2009).
2.2 Board team leadership
2.2.1 The usual suspect: CEO duality
In line with the methodologically predominant input-output approach characterizing decades of board
research (Daily, Dalton, and Cannella 2003), scholars have mainly limited themselves to studying
easily measurable variables in the field of board team leadership as well, leading to a major emphasis
on leadership structure and its relationship to board and firm performance (Heracleous 1999; Leblanc
2005). Although some studies have addressed lead directors, presiding directors, and board committee
leaders (Conger and Lawler 2009), CEO duality, witnessed by its depiction as one of the four
usual suspects in board research (Finkelstein and Mooney 2003), has heavily dominated this scene.
Within this stream of literature, whether or not the roles of Chief Executive Officer and Chairman of
the board of directors should reside in one person has been addressed from two contrasting perspec-
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Maarten Vandewaerde et al.
tives (Dalton, Daily, Ellstrand, and Johnson 1998). Proponents of CEO duality generally draw upon
stewardship theory to substantiate their claim in favour of the joint structure. It is argued that such
unified firm leadership will facilitate superior firm performance as it removes any internal or external
ambiguity concerning who is responsible for firm processes and outcomes, eliminates the possibility
of dysfunctional conflict and power struggles between the CEO and the board Chair, and avoids having
two public spokespersons addressing stakeholders (Conger and Lawler 2009; Dalton, Daily, Ellstrand,
and Johnson 1998). However, while CEO duality is a quite commonplace phenomenon in
corporations, its desirability is often questioned. Emanating from the dominance of agency theory in
corporate governance research, and the resulting focus on the board’s control tasks, CEO duality has
often been considered problematic by board scholars (Dalton, Daily, Ellstrand, and Johnson 1998).
The main underlying argument opposing the CEO simultaneously operating as the Chairman of the
board is that in such situations it is very difficult for the board of directors to properly monitor CEO and
top management performance and to operate independently of them. The risk of managerial domination
of the board and the firm is thus argued to be mitigated, at least to some extent, by the separation
of both positions (Conger and Lawler 2009).
Nevertheless, despite these plausible arguments and a substantial amount of studies addressing
CEO duality, its implications for board and firm performance remain unclear. Indeed, a large-scale
meta-analysis conducted by Dalton, Daily, Ellstrand, and Johnson (1998) does not reveal any evidence
supporting nor opposing the separation of both roles. Given these findings and the fact that in
organizational behaviour literature it is generally acknowledged that leadership has a clear impact on
group and team effectiveness (Cohen and Bailey 1997), it is high time, we argue, to move the field
beyond structure and agency theory by adopting a behavioural approach to board leadership (Huse
2005). Getting an insight into how the board team is actually led by addressing leadership behaviours
and processes, instead of continuing on the beaten path and giving it yet another shot with CEO duality,
would significantly advance our knowledge concerning how (effective) boards function and how
they protect and create value for their firms and its wider set of stakeholders. In this light, the following
parts of this work set out to concisely review and discuss the implications of relevant leadership literature
that board scholars can draw upon in an attempt to open up the black box of board leadership
(see table 1).
Table 1: Leadership theories and its implications for board leadership
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Maarten Vandewaerde et al.
2.2.2 Traditional leadership theory and board team leadership
Ever since the dawning of the human species, man has been fascinated by the exploits of individual
leaders. Such popular conceptions of leadership have also constituted the primary paradigm adopted
in scientific organizational leadership literature ever since its naissance at the beginning of the 19 th
century (Pearce and Conger 2003). Over time various distinct lines of research have developed within
this larger field (Bryman 1986), each approaching hierarchical leadership from a different perspective.
Therefore, while it previously has been hinted that these theories may be useful in the context of
board strategic leadership (Heracleous 1999), we believe they may be particularly pertinent to studies
concerning the Chairman, who can be considered the appointed leader of the board, and his exercised
leadership within the team. During a considerable part of the first half of the 20 th century, the
trait approach dominated the leadership studies scene. Fuelled by the rapid development of psychological
testing at that time, leadership scholars were concerned with ascertaining which personal
qualities (i.e., physical traits, abilities, and personality characteristics) distinguished leaders from nonleaders
(Yukl 1989). Applied to a board context, this would translate into there being certain personal
characteristics that can distinguish effective Chairmen from ineffective ones with respect to leading
their boards. However, in making such claims prudence is needed as empirical evidence concerning
the trait approach is far from unequivocal, although it does provide modest indication that certain personal
qualities (e.g., a strong drive for responsibility, self-confidence, persistence in pursuit for goals,
etc.) may have some, although not determining, effect (Heracleous 1999; Yukl 1989). During the ensuing
two decades, the emphasis in leadership studies shifted towards attempts to discover leadership
styles or behaviours that could predict leadership effectiveness (Horner 1997). In a board context,
this would mean that there are particular leadership behaviours or styles exhibited by Chairmen
that consistently lead to superior board leadership. The renowned Michigan and Ohio State leadership
research programs adopted this approach and discerned both task- (‘Initiating structure’) and
relationship-oriented (‘Consideration’) behaviours as important and independent factors. However,
due to methodological weaknesses and inattention to situational moderator variables (Yukl 1989),
there has been little empirical support for a general style approach to leadership.
Subsequently, in response to the equivocal findings of previous approaches, a situational or contingency
perspective on leadership was adopted which prevailed throughout the 1970s. In these studies
it was assumed that different behavioural or trait patterns would be effective in different situations,
and researchers consequently set out to identify such moderating effects (Horner 1997). Applied to
boards, this would translate into different Chairmen, in accordance with their different personal qualities,
being more able to effectively lead the board in different situations and, in addition, for a given
Chairman different leadership styles or behaviours differing in effectiveness contingent upon the circumstances.
While leadership scholars generally agree the situation matters for leadership effectiveness,
empirical work emanating from this hierarchical situational perspective on leadership has come
up with results that are inconclusive or weak at most, in part due to methodological limitations in the
research and conceptual deficiencies in the theories underlying it (Yukl 1989). Finally, from the 1980s
on, what some have called “new leadership approaches” (Bryman 1986: 280) have come to the forefront.
Among these, transformational, charismatic, and visionary forms of leadership are some of the
most researched topics in contemporary leadership studies. These new leadership models share
some common features in that they emphasize inspirational messages, emotional feelings, ideological
and moral values, symbolic leader behaviour, individualized attention, and intellectual stimulation
(Avolio, Walumbwa, and Weber 2009). In the board context, this would imply that the designated
leader, i.e., the Chairman, functions as some sort of manager of meaning by engaging in sensemaking
(i.e., defining organizational reality) for the other directors (e.g., by casting a vision for the
future). Accumulated research within this leadership tradition has found quite robust evidence linking
these new leadership approaches to leadership effectiveness across many different types of organizations
and situations making it an interesting prospect for board research (Avolio, Walumbwa, and
Weber 2009).
2.2.3 Team leadership theory and board team leadership
Given the deep-rooted tradition of leadership studies with a strictly hierarchical focus, there must be
some validity to such an approach. However in a team context, the desirability of such top-down leadership
has been questioned (Pearce and Conger 2003). Whereas team leadership studies have traditionally
been characterized by an unadulterated extrapolation of ‘theories of leadership’ to a team
setting, recently calls have been made to examine ‘team leadership theories’ as a disparate phenomenon
(Burke, et al. 2006; Morgeson, DeRue, and Karam 2010) as they are theoretically distinct
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Maarten Vandewaerde et al.
(see table 2). That is, traditional leadership theories are unable to grasp the dynamics and complexities
of team leadership as they focus on leading individuals and are mainly static in kind, thereby failing
to take into account the adaptive nature, specific task context, and intricate team member interactions
that characterize teams (Burke, et al. 2006; Kozlowski and Bell 2003).
Table 2: Comparison of traditional and team-centred leadership (adapted from Yukl 1989)
In this light, the academic community has recently invested considerable effort in attempting to integrate
the largely independently developed team and leadership literatures by establishing a genuine
team leadership tradition. Many of the researchers who are investigating leadership in teams do so
from a functional approach (Burke, et al. 2006) where, as outlined by Hackman and Walton (1986:
75), “[the leader's] main job is to do, or get done, whatever is not being adequately handled for group
needs” (McGrath 1962) If a leader manages, by whatever means, to ensure that all functions critical
to both task accomplishment and group maintenance are adequately taken care of, then the leader
has done his or her job well”. In adopting a catchall perspective with regard to who performs these
functions it is often acknowledged within this field that leadership in teams is not the prerogative of a
hierarchical leader but can be exhibited by multiple individuals in the collective (Morgeson, DeRue,
and Karam 2010). As such, these rather recent team leadership theories are characterized by a genuine
focus on leadership instead of leaders, where leadership is generally conceptualised fairly broadly
as a deliberate social influence process directed towards certain goals (Hosking 1988).
Congruent with this line of thinking, collective forms of leadership have recently attracted a fair deal of
scholarly attention. In a board context, the notion of shared leadership (highly similar to other forms of
leadership within this category such as distributed, collaborative, and collective leadership) can be
argued to be particularly relevant and attractive (Vandewaerde, Voordeckers, Lambrechts, and Bammens
2011). Drawing upon law of the situation theory, shared leadership has been conceptualized as
a mutual peer influence process characterized by leadership in teams not being limited to the hierarchical
or appointed leader only, but being shared among team members depending on who has the
greatest potential to satisfy team needs given the task or situation at hand (Pearce and Conger 2003).
As such, shared leadership within a team can be regarded as a dynamic and fluid influence process
that resembles a “ ‘whack-a-mole’ game in which the person with the most relevant skills and expertise
‘pops up’ at any given time” (Friedrich, et al. 2009: 934). Applied to the context of the board of
directors, this leadership conceptualization translates into, as opposed to traditional leadership theories,
the Chairman not always representing the source of wisdom and direction, but leadership (both
task- and person-focused) within the board team being fluidly distributed among directors based upon
who is the most qualified given the situation at hand. In any instance, one or more directors will be the
most apt to lead the team, which makes that the continuing dynamics of sharing leadership will result
in more effective use of the human capital present throughout the team and consequently, as can be
expected due to similar findings in many other team contexts, increased board task performance. In
this light, collective leadership theories may prove to be very interesting prospects for board leadership
research.
3. Discussion
3.1 Theoretical implications and further research
Given the overwhelming emphasis on structure (mainly CEO duality) in past board studies, academic
knowledge concerning actual board leadership dynamics remains highly limited. The main contribu-
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Maarten Vandewaerde et al.
tion of this paper is therefore aimed at offering researchers some guidance in opening up this black
box of leadership by highlighting opportunities from the vast leadership literature that can be drawn
upon. In this light, the dominating traditional research streams, with their clear focus on the hierarchical
leader, may be informative for studies that aim to understand leadership exhibited by the Chairman
as the appointed leader of the board. For instance, researchers may set out to discover certain
personal traits or qualities that distinguish effective from less effective Chairmen when it comes to
leading their boards or focus on identifying particular Chairman leadership styles and behaviours that
are consistently more or less effective for board leadership. In addition, as leadership scholars generally
acknowledge the impact of situational factors on leadership (Yukl 1989), adopting a contingency
approach in these studies might be particularly fruitful. For example, one might expect the complexity
of the board tasks, among many other contextual determinants, to act as a moderator as routine tasks
are likely to require a different leader or leadership approach than highly complex undertakings. The
final main hierarchical leadership research stream that has developed over the years may prove to
yield highly interesting insights for board research as it has it has demonstrated promising empirical
results in a wide range of contexts but can also be expected to make particular sense in the boardroom.
Given that board teams are characterized by a highly horizontal authority structure and that
even the Chairman does not possess real instruction authority over the other board members (Gabrielsson,
Huse, and Minichilli 2007), these appointed leaders of the board may prove to be particularly
effective when functioning as managers of meaning for the other directors (e.g., inspiring, stimulating,
motivating) in order to get the most out of their capabilities.
In addition, as the board can be considered to be a collection of interdependent individuals that interact
socially in order to fulfil one or more common goals within certain boundaries (Kozlowski and Bell
2003; Vandewaerde, Voordeckers, Lambrechts, and Bammens 2011), considering team leadership
theories, besides these top-down approaches, may yield particularly fruitful insights. In fact, shared
leadership has been recently offered as a promising leadership conceptualisation in the context of the
corporate board (Vandewaerde, Voordeckers, Lambrechts, and Bammens 2011). First of all, the
abovementioned non-hierarchical team architecture of the board provides a fertile ground for shared
leadership to flourish. In addition, given the complex and ambiguous environment boards operate in,
“no corporate board member is likely to possess the full complement of information and knowledge
necessary to achieve desired goals” (Gabrielsson, Huse, and Minichilli 2007: 24), including the
Chairman. It is exactly in those contexts, in which the success of the team is dependent on the unique
set of skills, knowledge, and backgrounds that all of its members bring to the table, that shared leadership
has been demonstrated to result in more effective team performance and thus can be regarded
as a relevant practice, making board studies focusing on this fluid and mutual peer influence process
particularly appealing. In congruence with these insights, it has in fact recently been offered that, due
to the specific nature of the board, one should think of board leadership as a ‘system of leadership’,
comprised of both formal (e.g., Chairman, lead director) and informal elements, in which different
directors may need to step forward and provide leadership for the board at different times (Lorsch
2009).
In applying abovementioned leadership approaches to future board studies, thereby going beyond the
traditional input-output approach and focus on leadership structure characterizing existing research,
board scholars can draw upon a wide arsenal of instruments that have been developed within those
streams. Over the years many validated scales have been developed that, just to state a few, measure
personality traits, transformational leadership and charismatic leadership (Avolio, Walumbwa, and
Weber 2009). While empirical studies concerning shared leadership have thus far been fairly limited
in number, researchers within this relatively new field of leadership have also developed a number of
promising approaches that can be drawn upon (see Pearce and Conger 2003 for a collection). Finally,
qualitative research may prove to be particularly attractive for board leadership studies as such research
will enable scholars to get close to, and provide an in-depth understanding of, the actual leadership
behaviours and processes that occur within the boardrooms under study. Both interviews (e.g.,
use of the critical incident technique to tease effective board leadership behaviours and the conditions
under which they hold out of respondents’ narratives (Yukl 1989)) and participant observation may
prove to be highly informative in this respect. Given the unexplored and specific nature of the board
team (e.g., no direct supervision of the team and its performance, horizontal authority structure, complex
and firm-critical task work), such empirical work will not only be of interest to governance scholars
and practioners, but may also enrich leadership literature by expanding or refining academic understanding
concerning existing leadership theories. While a discussion of all possible research opportunities
for such board studies delving into actual leadership dynamics would be overkill, we would
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Maarten Vandewaerde et al.
like to end this section by offering some additional research questions which we find of particular interest.
First, in investigating the leading role of the Chairman, it would be highly interesting to ascertain
to what extent task or team maintenance-oriented Chairman leadership behaviour, or mixtures
thereof, explain board performance. This analysis of desired Chairman behaviour could be expanded
by taking contextual factors (e.g., sector, firm life-cycle, environmental pressure) and time (e.g., does
this change as board teams mature) into account. Alternatively, it would prove interesting to investigate
whether and, if so, under what conditions shared leadership will in fact as proposed result in
increased board task performance. In addition, delving deeper into the interplay between the Chairman
as the appointed leader of the board and the numerous emergent leaders in this mutual influence
process is destined to yield highly interesting insights.
3.2 Practical implications
Board leadership studies drawing upon the research streams that have been discussed throughout
this paper are likely to yield new insights that have many practical implications as well. For instance, if
future studies discover that there are certain personality characteristics or personal abilities that
clearly distinguish effective board leaders from ineffective ones, this could form a major element to be
included in Chairman selection and appointment procedures. In addition, if certain leadership styles or
behaviours emanating from Chairmen turn out to generally result in more effective board leadership,
this would imply that training these appointed leaders in such behaviours would be worthwhile. Extending
this reasoning to the contingency approach to leadership, if particular situational factors are
discovered to require different Chairman traits or leadership styles, this could again be taken into account
for, respectively, selection and training purposes. Similarly, if studies in the ‘new leadership’
tradition come up with promising results, selecting Chairmen who are naturally inclined to act as managers
of meaning for the other directors, or aiding others in becoming so is advisable. Finally, the
insights emanating from all of these traditional leadership streams could be taken up in the evaluation
of the Chairman of the board, calling for corrective actions if he or she falls short with respect to leading
the board team.
Similarly, if studies that focus on team-centred leadership, and in particular shared leadership, come
up with results that are comparable to other contexts, this could be incorporated in practical recommendations
as well, only now pertaining to all directors instead of just the Chairman of the board. For
example, in selecting board members, one would aim at attracting a team of competent individuals
that is diverse enough in composition, without this being obstructive, to allow for leadership being
fluidly shared based on who is the most competent given the task at hand. These compositional aspects
should furthermore, especially in a rapidly changing environment, continue to receive the necessary
attention during board and director evaluations, in which it may also prove to be useful to assess
individual directors with respect to their participation in the shared leadership process. Finally,
directors, although usually at least to some extent experienced in leading individuals, may need to be
trained to cope with this mutual and fluid influence process which they may not be accustomed to.
This can be expected to especially be of importance for Chairmen, as they may need to be aided in
how to deal with their new roles and responsibilities as appointed, but not authoritative, leaders.
4. Conclusion
Despite decades of scholarly research, knowledge concerning how boards actually operate remains
fairly limited. This dire conclusion applies particularly to the field of board leadership, in which an almost
exclusive focus on leadership structure (predominantly CEO duality) has obscured academic
comprehension of actual leadership behaviours and processes that take place within the boardroom.
This paper provides an overview of relevant research streams and theories stemming from the vast
literature on leadership that board scholars can draw upon to address this important and regrettable
gap in research. The focus on the human side of corporate governance inherent to such studies is a
major step forward in the process of scholars truly getting a grasp of how boards actually function and
how they protect and create value for their firms and a wider set of stakeholders (Huse 2005).
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434

The Board of Directors as a Team: Getting Inside the Black
box
Maarten Vandewaerde 1 , Wim Voordeckers 1 , Frank Lambrechts 1 and Yannick
Bammens 2
1
Hasselt University, Belgium
2
Maastricht University, The Netherlands
maarten.vandewaerde@uhasselt.be
wim.voordeckers@uhasselt.be
frank.lambrechts@uhasselt.be
y.bammens@maastrichtuniversity.nl
Abstract: As one of the primary internal governance mechanisms available to a firm, the board of directors has
attracted considerable research attention in the past few decades. Nevertheless, mainly due to particular
theoretical (i.e. agency theory) and methodological (i.e., input-output approach) limitations characterizing past
research, academic knowledge with respect to how boards actually operate and what determines their
effectiveness remains relatively limited. In this paper we argue for a team perspective on boards to address this
research gap. In particular, we show that boards can be rightfully conceptualized as teams and suggest that
introducing concepts and theories from team literature into board studies would prove to be a very fruitful
approach in opening up the black box of board functioning. In this light, in drawing upon recent team literature,
we develop and discuss a comprehensive theoretical model addressing the board of directors from a team
perspective, thereby drawing attention to a number of interesting avenues for further research that board scholars
may explore.
Keywords: board of directors, teams, black box, board decision-making, theoretical model
1. Introduction
In recent years the interest in corporate governance, not in the least due to several large-scale
corporate scandals, has picked up momentum among scholars as well as practitioners and
governments. Within this larger field of research, one sub-stream has specifically focused on the
board of directors, which is generally considered to be one of the primary internal governance
mechanisms available to a firm (Bammens, Voordeckers and Van Gils, 2011; Daily, Dalton, and
Cannella 2003). However, despite this increased focus on corporate boards and the resulting upsurge
of empirical studies in the area, there is still scant evidence on what determines a board’s
effectiveness and how this in turn is related to firm performance (Finkelstein and Mooney 2003; Huse
2005). In this light, it has recently been argued that the ambiguous and even conflicting results of past
research can be largely attributed to the overreliance on particular established methodological (i.e.,
input-output approach) and theoretical (i.e., agency theory) research fortresses in those studies
(Daily, Dalton, and Cannella 2003; Gabrielsson and Huse 2004).
In response to the abovementioned issues, this theoretical paper therefore aims to answer to the call
made by board scholars to focus on board processes and behaviour as a means of overcoming past
board studies’ limitations (Huse 2005), by introducing a team perspective into the study of the board
of directors. In this paper, we first attend to this by building upon team literature to substantiate the
claim that boards can in fact be rightfully conceptualized as teams, something which has been
ignored or even denied in past board research. Next, in drawing upon recent advancements in
academic understanding concerning teams, we develop and discuss a theoretical framework
conceptualizing the board of directors as a team. In particular, we advance a comprehensive IMOI
model of board team effectiveness in which it is argued that inputs (e.g., director and board team
characteristics), trough mediating mechanisms (processes and emergent states), result in certain
outputs (board task performance as well as other team and individual outcomes). In acknowledging
the dynamic character of board teams, thereby clearly expanding previous theoretical efforts (e.g.,
Forbes and Milliken 1999), it is furthermore recognized that these outcomes, through a continuous
learning and adaptation process, are likely to subsequently serve as inputs in this system. The
remainder of this work is dedicated to a discussion of the theoretical and practical implications
resulting from such a team perspective on boards.
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2. Making a case for conceptualizing the board of directors as a team
The use of teams has increased dramatically at all organizational levels over the past few decades,
which has sparked substantial scholarly interest into the topic. When considering the upper echelons
of organizations, the term top management team is currently widely adopted among academics and
practitioners to depict the small group of most influential executives at the top of the firm. This leaves
one to wonder why the use of the concept team is rarely encountered in descriptions of that other
influential collection of individuals at the apex of the organization: the board of directors. This may be
partly attributed to the methodological limitations of a substantial proportion of previous board studies
in which attempts were made to establish a direct relationship between board demographic
characteristics and board or firm performance (Gabrielsson and Huse 2004). Such an input-output
approach disregards the importance of interactions, behaviours, and processes inside the boardroom
(Huse 2005), or at most considers demographic indicators to be good proxies for them (Lawrence
1997), which essentially makes thinking of boards as teams extraneous. On the theoretical side, the
dominance of the agency theory paradigm may have served as an additional impediment. In this line
of thinking, limiting the discretion of self-serving managers is considered to be the main responsibility
of the board, resulting in an almost exclusive emphasis on the board’s control tasks (Fama and
Jensen, 1983). Absolute director independence is consequently considered to be a prerequisite for
effective board performance (Daily, Dalton, and Cannella 2003), which leads to a major focus on the
polarized relationship between directors and management, in effect diverting attention away from how
the board team in itself functions internally and how directors interact in order to perform their broad
set of tasks.
In addition to these methodological and theoretical hindrances which in essence have led to a
majority of board studies ‘living outside the boardroom’, thereby subtly turning a blind eye on a team
perspective in the board context, a number of scholars straightforwardly discard the notion of the
board of directors functioning as a team altogether. The lack of social interaction between members of
the board due the fact that meetings are held only episodically and generally have a crammed agenda
is often offered as a prime reasoning behind this rationale (Forbes and Milliken 1999). Second, some
scholars claim a board’s size, especially in big listed firms, is usually too large to allow for this bundle
of individuals to convert into a team (Forbes and Milliken 1999). Furthermore, the fact that board
members usually occupy high-rank positions in other firms, which makes that residing on the board is
only a secondary activity for them, is argued to make the emergence of a team identity more
troublesome, thereby hindering team development as well. Finally, such detrimental effects are
claimed to be even aggravated by the strong personality of those high-ranked individuals, who have
usually attained such positions by relying on power and coercion, not teamwork (Katzenbach 1997).
However, two major remarks with respect to such claims are warranted. First, these issues may
actually not be as salient in the boardroom as is proposed (e.g., directors interact outside the
boardroom as well, board size does generally not exceed manageable levels, directors usually have
experience with functioning in other work teams). Second, and most importantly, in making such
claims these scholars take on a rather normative stance in conceptualizing teams as effective groups,
whereas such a perspective is generally not adopted in the team literature. Therefore, in building an
argument for regarding the board as a team, this paper adopts the definition offered by Kozlowski and
Bell (2003: 334) pertaining to teams in an organizational context, which draws upon a host of
scholarly contributions and has later on been taken up in various studies. They define teams as
collectives who ‘(a) exist to perform organizationally relevant tasks, (b) share one or more common
goals, (c) interact socially, (d) exhibit task interdependencies (i.e., work flow, goals, outcomes), (e)
maintain and manage boundaries, and (f) are embedded in an organizational context that sets
boundaries, constrains the team, and influences exchanges with other units in the broader entity’.
Such a conceptualization of teams, which is generally endorsed in team literature (Mathieu, Maynard,
Rapp, and Gilson 2008), confirms the validity of a team perspective in a board context (Vandewaerde,
Voordeckers, Lambrechts, and Bammens 2011). First of all, by performing several, intrinsically
organizationally relevant, control and service tasks the board is working towards the fulfilment of a
broad common goal which is ultimately value protection and creation for shareholders and a broader
set of stakeholders (Huse 2005). Second, as no board team member is likely to possess all of the
required knowledge, skills, and abilities to bring these tasks to fruition individually (Gabrielsson, Huse,
and Minichilli 2007), directors are highly interdependent in their work. Finally, although the board of
directors is an intact social system (Forbes and Milliken 1999) constructed on the interactions of its
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members, it is embedded in a larger contextual environment which undeniably impacts its functioning
(Gabrielsson and Huse 2004; Huse 2005).
In line with these insights, a number of recent theoretical and empirical contributions have in fact
taken some conservative steps towards a team perspective on boards by indicating that boards are
similar in nature to many other kinds of teams and that factors that lead to high performance in such
teams also contribute to board effectiveness (e.g., Gabrielsson, Huse, and Minichilli 2007; Payne,
Benson, and Finegold 2009). The preliminary findings of these studies are of groundbreaking
importance for future board studies as they indicate that it is feasible and rewarding to apply concepts
from team literature to board studies in order to increase academic understanding about how boards
of directors actually operate.
3. The board of directors as a team: A theoretical model
Team literature has a long history of researchers adopting approaches in which inputs are theorized
to lead to processes that in turn lead to outcomes (I-P-O models) to express the nature of team
performance (Ilgen, Hollenbeck, Johnson, and Jundt 2005). However, contemporary team scholars
recognize that such I-P-O frameworks are unable to rightfully characterize the functioning of teams
and have therefore offered input mediator output input (IMOI) models as more valid alternatives.
Drawing upon these recent advancements in academic literature, the theoretical model concerning
boards as teams developed in this paper (see Figure 1) has been constructed in accordance with
such an approach (Mathieu, Maynard, Rapp, and Gilson 2008). In IMOI models it is not only
recognized that not all intermediate factors are processes and that they are therefore more rightfully
denoted as mediators, but, more importantly, also that teams are complex and dynamic entities in
which feedback loops cause outputs to subsequently serve as inputs in this system as the result of a
learning and adaptation process (Ilgen, Hollenbeck, Johnson, and Jundt 2005). The solid line from
outputs to mediators in the developed model denotes, as recognized in team literature (Mathieu,
Maynard, Rapp, and Gilson 2008), that feedback of this type is likely to be quite influential and readily
occurring, whereas the dashed line suggests that output and mediator influences on inputs would
likely be less potent as member composition, team structure, and contextual factors are for instance
likely to be less malleable. In the following sections, the theoretical model and its constituents will be
concisely discussed given the vastness of the team literature field and the limited space available
here. Inspired readers who are interested in a more in-depth and expanded analysis of team
functioning are invited to consider some excellent team literature reviews (e.g., Cohen and Bailey
1997; Kozlowski and Bell 2003; Mathieu, Maynard, Rapp, and Gilson 2008).
Figure 1: The board of directors as a team: a theoretical model
3.1 Inputs
Past board studies have linked many of the elements that fall into this category directly to board
performance. In adopting an IMOI approach we argue that the way the board team is designed and
the characteristics of its members are not directly linked to performance but serve as an important
determinant of the board’s internal functioning. In addition, these matters may be fairly complex as
some board inputs can be expected to have multiple and contrasting effects on different mediating
constructs (e.g., diversity, see Forbes and Milliken 1999). In line with team literature, the impact of
contextual factors and their nested nature is also acknowledged.
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3.1.1 Board members
Team literature has a long history of studies focusing on the attributes of team members and the
impact thereof on processes, emergent states, and ultimately outcomes (Mathieu, Maynard, Rapp,
and Gilson 2008). Within this category, demographic indicators (e.g., age, gender, ethnicity, tenure,
etc.) have been at the basis of a large proportion of board studies as well, albeit therein usually
directly linked to performance. As such studies have come up with largely inconsistent and
inconclusive results (Daily, Dalton and Cannella 2003), recognition of the team character of boards
and consequently considering the indirect impact of these indicators, through mediators, may turn out
to be highly instrumental. In addition, a number of other member characteristics which go beyond
mere demography, such as personality (e.g., Big Five), competencies, orientations (e.g., goal,
teamwork, and learning orientations), attitudes, values, status positions, and personal identities have
been demonstrated to affect team functioning and may therefore prove to be valuable in a team
perspective on boards (Kozlowski and Bell 2003; Mathieu, Maynard, Rapp, and Gilson 2008).
3.1.2 Board team
Numerous studies have been devoted to team-level input variables and their impact on team
functioning within team literature. Several of these variables, along a number of board-specific ones,
are likely to play an important role in the boardroom as well. For instance, the issue of diversity (e.g.,
on attributes such as ethnicity, age, gender, function, and education), systematically pops up as an
important determinant of many team processes and emergent states, an aspect which the
considerable attention devoted to this topic in board research warrants refocusing at. In a related
fashion, the notion of faultlines, i.e., the hypothetic dividing lines that split a group into subgroups
based upon one or more of common attributes, and its consequences for the team’s internal
functioning may be particularly pertinent in a board context (Mathieu, Maynard, Rapp, and Gilson
2008). Indeed, in board teams these faultlines may go beyond the traditional ones and result in
subgroups based upon whether directors are also executives or not or which stakeholders they
represent. In addition, CEO duality and other structural leadership aspects fall into this category. As
past input-output studies in this area have resulted in largely inconclusive findings (Finkelstein and
Mooney 2003), adopting an IMOI approach with respect to these issues may prove to be more fruitful.
3.1.3 Environmental context
Boards, as any other team, operate within contexts external to the immediate team that have an
impact on their functioning. For one, the organization in which a board is embedded can be expected
to be influential in this respect as, for example, a company’s culture and its climate for openness are
likely to have some trickle-down effect to the board as well (Mathieu, Maynard, Rapp, and Gilson
2008). In addition, the importance of the wider contextual environment is also widely acknowledged in
team literature (Cohen and Baily 1997). In a board context several studies have already indicated that
stakeholders both within and outside the focal firm (Ravasi and Zattoni 2006) as well as the broader
institutional environment (Aguilera and Jackson 2003) can have a determining influence on what goes
on inside the boardroom.
3.2 Mediators
From a methodological point of view, board research has been dominated by a strict input-output
approach, resulting in hardly any academic knowledge concerning the actual functioning of the board.
In team literature it has long been acknowledged that certain mediating mechanisms exist that
express the nature of this black box in linking drivers (i.e., inputs) to outputs (Mathieu, Maynard,
Rapp, and Gilson 2008). These mediators fall into two categories: processes and emergent states.
Processes can be defined as “members’ interdependent acts that convert inputs to outcomes through
cognitive, verbal, and behavioral activities” (Marks, Mathieu, and Zaccaro 2001: 357). Emergent
states, on the other hand, describe cognitive, motivational, and affective states of teams and
individuals, as opposed to the nature of dynamic member interaction (Marks, Mathieu, and Zaccaro
2001).
3.2.1 Processes
Team processes play a pivotal role in most, if not all, team effectiveness models and cannot be
omitted in a team perspective on boards (Ilgen, Hollenbeck, Johnson, and Jundt 2005). In developing
their well-received taxonomy of team processes, Marks, Mathieu, and Zaccaro (2001) recognize the
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multiphase character of team processes and offer that some processes may take place more
frequently in transition phases (i.e., periods of time when teams concentrate primarily on internal
evaluation and planning activities in light of goal accomplishment) and others in action phases (i.e.,
periods of time when teams perform activities directly aimed at goal accomplishment). Accordingly,
the taxonomy distinguishes between three superordinate categories: transition, action, and
interpersonal processes. During transition phases, processes such as mission analysis, goal
specification, planning, and strategy formulation take place. During action phases on the other hand,
team members concentrate more on activities such as monitoring internal systems and progress
towards team goal achievement, coordinating members’ contributions and interactions, and
monitoring and backing up other team members. Finally, the interpersonal category includes
processes such as conflict management, motivation and confidence building, and affect management,
which may take place during both transition and action phases (Marks, Mathieu, and Zaccaro 2001;
Mathieu, Maynard, Rapp, and Gilson 2008). The extent to which these processes are carried out in an
effective manner within the board team, which is dependent on the inputs brought to the boardroom
table by its members, constitutes an important determinant of board performance.
3.2.2 Emergent states
In addition to processes, a host of cognitive, motivational, and affective emergent states, both at the
collective and the individual level, have been offered in team literature as potential mediating
mechanisms for team outcomes (Ilgen, Hollenbeck, Johnson, and Jundt 2005). Among the team-level
emergent states, collective efficacy (a team’s collective belief regarding is ability to be successful on a
specific task) and potency (a team’s collective belief regarding its ability to be successful in general)
have quite consistently been demonstrated to exhibit a positive relationship with performance
(Kozlowski and Bell 2003). Other potentially important collective emergent states that come to the
forefront when conceptualizing boards as teams are, among others, team climate (i.e., the set of
norms, attitudes, and expectations that individuals perceive to operate within the team), collective
cognition (e.g., shared mental models and transactive memory systems) and collective mood and
emotions (Mathieu, Maynard, Rapp, and Gilson 2008). In addition, many emergent states at the
individual level, such as for example individual efficacy and potency but also satisfaction and
cohesion (i.e., member attraction to the group) are likely to constitute powerful explanatory factors
with regard to board team performance as well (Ilgen, Hollenbeck, Johnson, and Jundt 2005;
Kozlowski and Bell 2003). Highly informative in this respect may be the concept of trust, which has
gained a pivotal position in team literature and has been previously demonstrated to contribute to
increasing academic understanding concerning actual board behaviour and explaining board task
performance (e.g., Bammens, Voordeckers and Van Gils 2008).
Although task performance is the most commonly studied outcome in team literature, the importance
of other team and individual outcomes is widely acknowledged among scholars as well (Cohen and
Bailey 1997; Mathieu, Maynard, Rapp, and Gilson 2008). Similarly, conceptualizing the board as a
team warrants attention to both board task performance and more ‘soft’ outcomes such as members’
affective reactions and viability outcomes. In acknowledging the complex and dynamic character of
board teams, in accordance with the adopted IMOI approach, it is furthermore recognized that board
outcomes, through a continuous learning and adaptation process, serve subsequently as inputs to
mediators.
3.3 Board outputs
Although task performance is the most commonly studied outcome in team literature, the importance
of other team and individual outcomes is widely acknowledged among scholars as well (Cohen and
Bailey 1997; Mathieu, Maynard, Rapp, and Gilson 2008). Similarly, conceptualizing the board as a
team warrants attention to both board task performance and more ‘soft’ outcomes such as members’
affective reactions and viability outcomes. In acknowledging the complex and dynamic character of
board teams, in accordance with the adopted IMOI approach, it is furthermore recognized that board
outcomes, through cyclical feedback loops, serve subsequently as inputs to mediators. That is, as
boards go through performance episodes, the team’s internal dynamics are continuously updated as
a result of a learning and adaptation process. For instance, one can expect that excellent board task
performance will be positively related to collective efficacy and potency or that increased trust will
have an impact on satisfaction and cohesion as well as conflict management processes.
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3.3.1 Board task performance
Although many different categorizations exist (e.g., Huse 2005; Johnson, Daily, and Ellstrand 1996;
Zahra and Pearce 1989), the broad distinction between control and service tasks is widely embraced
among scholars (Forbes and Milliken 1999; Vandewaerde, Voordeckers, Lambrechts, and Bammens
2010). Due to the longstanding tradition of agency theory as the primary research paradigm in
governance literature, the board’s control tasks have received considerable attention in past board
studies (Daily, Dalton, and Cannella 2003). The role of the board of directors from this perspective is
to limit the discretion of managers, who are supposed to be opportunistic and self-interested, by
monitoring their actions and decisions in order to minimize agency costs and maximize shareholders’
wealth (Fama and Jensen 1983). However, as indicated in recent literature, this is not the only
problem principals face. Their agents also suffer from the limitations of human cognition, resulting in
what is known as honest incompetence, which makes board control imperative even in the absence of
managers’ self-serving acts (Hendry 2002). Resulting from these needs, the control tasks of the board
include a relatively wide range of related activities such as determining top executives’ compensation,
hiring and firing the CEO and other top-level managers, ratifying and monitoring important decisions,
and controlling firm financial performance (Huse 2005).
In addition to control, contemporary board literature generally acknowledges that boards fulfil other
important tasks in their respective firms as well (Forbes and Milliken 1999; Van den Heuvel, Van Gils,
and Voordeckers 2006; Zahra and Pearce 1989). In making such claims scholars expand their view
beyond agency paradigms and adopt a multi-theoretical perspective on board tasks by drawing upon
theories including, among others, stewardship, resource dependence and stakeholder theory (Huse
2005). These theories give way to more service-related board tasks which include a number of
specific activities such as participating in strategic decision-making, providing advice and counsel,
networking, legitimizing, and coordinating stakeholder expectations (Huse 2005).
3.3.2 Team and individual outcomes
Besides task performance, a number of more ‘soft’ team and individual outcomes will result from the
board team’s functioning. As outlined by Marks, Mathieu, and Zaccaro (2001), these products of team
experiences, which can generally be categorized under the abovementioned collective and individual
emergent states (e.g., trust, collective cognition, team climate, etc.), are vital from a team perspective
as they serve as new inputs to subsequent processes and emergent states and, ultimately, outputs. In
the study of these alternative outcomes, members’ affective reactions (e.g., satisfaction,
organizational and team commitment) and team viability outcomes (e.g., cohesion) (Kozlowski and
Bell 2003; Mathieu, Maynard, Rapp, and Gilson 2008) are two of the issues that have attracted
considerable interest and have come up as particularly important for future team functioning.
4. Discussion
Despite decades of corporate governance research, actual academic knowledge concerning boards
of directors remains fairly limited (Daily, Dalton, and Cannella 2003). In this paper we demonstrate the
appropriateness of depicting the board as a team and suggest that introducing concepts and theories
from team literature into board studies is the next step to take in the process of increasing our
understanding of how inherently complex and dynamic board teams function and what contributes to
their effectiveness. Indeed, this team approach to corporate boards bestows researchers with the
possibilities to go beyond traditional research fortresses by opening up the black box and focusing on
actual human behaviours and processes. In their efforts of doing so, board scholars are invited to
draw upon the integrative board team model, or parts thereof, offered in this paper and make use of
the wide array of instruments that have been developed in team literature over the years. For one,
many processes and emergent states can be measured using questionnaires administered to board
members by adopting scales that have been developed, validated, and often used quite extensively in
research on teams (Cohen and Bailey 1997; Kozlowski and Bell 2003). Besides quantitative research,
more qualitative approaches may prove to be particularly informative as they allow for a detailed and
rich depiction of the dynamisms and complexities that are inherent to a team’s functioning. Whatever
its nature, we particularly want to encourage studies that take board outcomes other than task
effectiveness into account as they are nearly always ignored but come up as highly important in team
literature for the team’s functioning and subsequent task performance. In this light, we also want to
specifically point out the interesting possibilities for future research that can be found in investigating
how dynamic cyclical feedback loops unfold within the board team as outcomes of its functioning
serve subsequently, through a learning and adaptation process, as inputs for its future functioning.
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Maarten Vandewaerde et al.
The insights gained from all of these studies aimed at opening up the black box by adopting a team
perspective on boards are bound to have many practical implications as well. From a regulatory
perspective, integrating this deeper understanding about how boards actually function and what
determines their effectiveness into corporate governance codes would be highly beneficial as this
would result in regulations and guidelines that actually make real sense. This would take these codes
beyond the current day box-ticking approach based on recommendations which are often at most
loosely connected to whether or not a board functions properly, perhaps most strikingly evidenced by
the ofttimes exemplary and even applauded structure of the boards of firms that ended up as some of
the most scandalous corporate meltdowns (e.g., Enron and WorldCom) in history (Finkelstein and
Mooney 2003). In addition, as many of these insights may be hard to translate into enforceable
regulations, they are destined to find their way into a wide array of practical tools which, possibly with
the help of board and process consultants, can be drawn upon by boards who aspire to improve their
functioning and effectiveness. Finally, three areas which have recently received considerable
attention in board practice, i.e., director selection, evaluation, and training, are likely to be impacted by
and benefit from a team perspective on boards. For one, in forming the board team and selecting
individual members, there is a need to go beyond some heavily advocated issues (e.g., director
independence, non-CEO duality) and focus on ensuring that the board is composed in a manner that
will enable it to function as an effective team. Periodic board and director evaluations should
furthermore incorporate these issues of team functioning and composition on a regular basis so that if
necessary, for example due to changed environmental circumstances or strategic challenges,
corrective measures can be taken. While this may take place in the form of dismissal and selection of
directors, board members may also require supplementary training, including on the interpersonal
level, to ensure they will be able to function properly within the team.
5. Conclusion
Despite decades of scholarly research, mainly due to particular methodological and theoretical
research fortresses, academic knowledge about how boards of directors function and what
determines their effectiveness remains limited. In adopting a team perspective on boards, this paper
aims at contributing in the process of overcoming these limitations of past board studies by providing
some foundations for researchers to build upon in their efforts to close this highly lamentable research
gap. Our work is thus in defence of a focus on the human side of corporate governance (Huse 2005),
in which it is acknowledged that boards are made up of interacting individuals, as a highly
commendable approach to increase our understanding of this important governance mechanism.
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442

Board Dynamics: The Soft Underbelly of Corporate
Governance
Theo Veldsman
University of Johannesburg, South Africa
theoveld@mweb.co.za
Abstract: In spite of the abundance of corporate governance codes, as well as legislation to ensure compliance
and stock exchange reporting requirements, corporate failures still persist because of poor governance. It can
argued that though the “rules of the road” – codes and legislation – are in place, the chances of governance
failure will remain high if explicit attention is not given to the “software” of governance –i.e., board dynamics.
Board dynamics remains the soft underbelly of governance, the “black box of what happens behind the
Boardroom door”. The aim of this paper is to address the variables affecting board dynamics, and board
performance – “soft” governance - with its consequential implication for corporate governance. A conceptual
framework for soft governance will be proposed through which board dynamics can be explored and studied. The
paper addresses the following topics: firstly, the unique character and features of the board as a group which
needs to become a team in order to be effective as a board; secondly, a proposed map of the performance
“space” of the Board in terms of: (i) the board set-up – the task (the “Hardware”) and dynamics (the “Software”)
dimensions of the board - to create favourable performance conditions, (ii) the evolutionary life cycle stages of
board dynamics, (iii) the task and process board performance dimensions; and (iv) board performance outcomes;
and, thirdly, the make-up of the aforementioned elements of the board’s performance space as seen from the
vantage point of board dynamics.
Keywords: corporate governance; soft governance; board dynamics; board performance; board effectiveness
1. Introduction
Corporate governance (from the Latin “to steer, direct”) has been described as biggest issue facing
business in the 21 st century, especially in light of a number of significant corporate failures attributed,
in many cases, to breakdowns in governance (King II 2002; Rezaee, 2009). Corporate governance
codes abound, as well as legislation to ensure compliance like the USA Sarbanes-Oxley and stock
exchange reporting requirements. Yet, corporate failures still occur because of poor governance. In
some quarters, it is argued that corporate governance is in crisis (Garratt 2003; MacAvoy & Millstein
2003), and may even be fatally flawed (Chew & Gillian 2005).
Corporate governance refers to ensuring that an organization conducts its business in an ethical,
legitimate, fair, and credible manner with respect to its current performance and future sustainability
whilst balancing the multiple interests of its diverse stakeholders. The ultimate aim of corporate
governance is to ensure that the business of the organization is conducted in such a way as to make
and keep the organization a going concern for all its stakeholders (Daily, Dalton & Cannella 2003;
Huse, Minichilli & ShØning 2005; Murphy & McIntyre 2007; Tricker 2009).
Corporate governance is multi-dimensional in nature. On the one hand, governance has both content
(the “what” of governance), and process dimensions (the “how” of governance). On the other hand,
one can act according to the letter of and/or the spirit of a governance code. Content and letter pertain
more to the “hard” side, while process and spirit refer to the “soft” side of governance. Different
permutations of sound governance arise out of these dimensions. E.g., an organisation can follow the
letter with reference to content and process, but not the spirit of a governance code.
Frequently corporate failures arise out of the first permutation referred to above – adherence to the
letter but not the spirit of a code. Most, if not all, of the current corporate governance codes deal
predominantly (or exclusively) with the content and letter, and not the process and spirit, of
governance. The content of codes is often seen as the “silver bullet” that will minimize or even prevent
governance failures. This oversight in codes of not acting according to the spirit (“soft” governance),
content, and process wise, of a corporate governance code has become, and truly is, the soft
underbelly of governance. Put differently, it is the “black box of what happens behind the boardroom
door” of corporate governance.
It will be shown in the discussion below that “soft” governance embraces a whole range of elements
that are not addressed by conventional governance codes, essentially the “people side” of boards.
Codes unintentionally encourage organisations to pay attention only to the “hard” content/letter aspect
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Theo Veldsman
of governance and, by default, to ignore the “soft” process/spirit side. It has been proposed that a dire
need exists for a behavioral (or process based) theory of board functioning – “soft governance”
(Leblanc & Schwartz 2007; Minichilli, Zattoni & Zona 2009; Van Ees, Gabrielsson & Huse 2009; Zona
& Zattoni 2007).
The aim of this paper is to build an in depth, comprehensive understanding of board dynamics in
order to strengthen and protect the soft underbelly of governance by proposing a conceptual model of
soft governance in terms of which board dynamics can be explored and understood. It is the premise
of this paper that adherence to the process and spirit of corporate governance, or not, can be
attributed to the dynamics between and amongst the directors of a board. In turn, the board dynamics
will directly and significantly affect the probability that sound corporate governance will be a lived,
practiced reality in an organization.
The paper addresses the following topics: firstly, the unique character of the board as a group that
needs to become a team; secondly, a map of the performance “space” of the board which charts the
elements of soft governance, and, thirdly, the specific elements of the board’s performance space as
seen from the vantage point of board dynamics.
2. The unique character of the board as a group that needs to become a team
The board of directors of an organisation as a collective body carries the highest and ultimate
authority and accountability for protecting the interests of the organisation’s stakeholders, relative to
the actions, actual and intended, present and future, taken by an organisation and its leadership.
These are the so-called agency and/or stewardship roles of the board (Daily, Dalton & Cannella 2003;
Davis, Schoorman & Donaldson 1997; Murphy & McIntyre 2007; Tricker, 2009; Zona & Zattoni 2007).
The former role has received the most attention in literature. The latter role is, however, increasingly
being emphasized (Minichilli, Zattoni & Zona 2009).
Being a collective body speaking with one voice (Charan 2005) implies that the board as a group of
individuals must transform itself into a proper team. Viewed as a team, the board can be described as
a limited number of persons who have to act in a mutually supportive and interdependent manner.
Through the differential contributions of its respective members, the board as a team strives to
achieve shared intentions and goals within a certain context for which collective responsibility has to
be taken. The common goal is a well governed organisation (Conger, Lawler & Finegold 2001;
Murphy & McIntyre 2007; Nadler, Behan & Nadler 2006; Payne, Benson & Finegold 2009; Zona and
Zattoni 2007).
The unique character of the board as a group is to be found in at least five dominant features that
make it challenging for a Board to become a proper team and not remain merely the sum total of a
group of individuals:
One becomes a board member through politically-based election (or, in some instances, even a
nomination) process where Board members are expected, whether it is explicitly expressed or
not, to represent and serve the parochial interests of the stakeholder(s) they represent.
Board members have high personal profiles and strong personalities who often are executive
leaders in their own right in other organisations. As members of the board, they all are equal in
standing, responsibility, and roles (Zona & Zattoni 2007).
Usually at least 50% of Board members are not employed on a permanent basis by the
organisations on whose board they serve. They therefore do not have a full time involvement in
the organisation (Conger, Lawler & Finegold 2001; Nadler, Behan & Nadler 2006; Payne, Benson
& Finegold 2009).
A low frequency of regular face-to-face interaction amongst board members (Marcus 2008;
MacAvoy & Millstein 2003; Murphy & McIntyre 2007; Zona & Zattoni 2007).
The solving of complex challenges/issues under severe time constraints with imperfect
information (Conger, Lawler & Finegold 2001; Marcus 2008; Nadler, Behan & Nadler 2006).
Given the conventional understanding of teams, the challenge for a board to move from being merely
a group of individuals to a genuine team is thus a daunting one. However, if this transformation does
not occur, the likelihood of destructive and unhealthy board dynamics sabotaging the process and
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Theo Veldsman
spirit of sound corporate governance, its soft underbelly, and consequently the content and letter
thereof, increases.
The transformation of a board from a group to a genuine team requires an in depth understanding of
the “performance space” of a board and the make-up of each of the elements constituting this space.
This will form the topics of the next two sections of the paper.
3. The “performance space” of a board
Figure 1 depicts a proposed map of the “performance space” of the board with its constituent
dimensions, which covers the soft governance of the board in its totality.
Task
Performance
Dimension:
Board Task
Execution
Board
“Hardware”
High
Board
“Software”
Forming
Storming
Norming
Performing
Reinventing
Process PerformanceDimension: Board Dynamics
Board
Performance
Outcomes
Figure 1: A map of the “performance space” of the board
According to Figure 1, the “performance space” of the board consists of five elements:
The board set-up in terms of its “Hardware” and “Software”, shown in the box at the bottom of the
two axes. The board set-up contains the Pandora’s Box of things the board has to put in place
regarding task (the “Hardware”) and process (the “Software”) to create favourable board
dynamics and performance conditions. The board set-up hence encompasses the enablers of
sound board dynamics and, consequently, excellent board performance (Marcus 2008; Zona and
Zattoni 2007). Figure 2 depicts the make-up of the board set-up, i.e. the Pandora Box of elements
affecting its dynamics.
The board hardware sets the outer context (i.e., the playing field) for the board software (i.e., the
players and game) shaded in Figure 2; the board software elements being unshaded. Though the
hardware elements set the preconditions for the software elements of the board set-up, the software
elements can either strengthen or weaken the hardware elements, however well they have been set
up:
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High

Theo Veldsman
The evolutionary life cycle stages of performance, the four quarter circles in Figure 1 as the Board
moves along the two performance dimensions – the stages being Forming through to Reinventing
(Wheelan 2005).
The task (i.e., getting the work done) and process (i.e., working together) performance
dimensions, ranging from low to high - the axes of performance in Figure 1 (Zona and Zattoni
2007).
Performance outcomes, the diagonal in Figure 1, which is a function of the board’s evolution or
lack thereof through its performance life cycle stages, and thus its progress or lack thereof along
the two performance dimensions.
Positioning
of Board
Operating
Framework
Culture
Style
Climate
Mood/ Vibe
Interaction
Patterns
Leadership
Trust Power & Politics
Personal
Make-up
Organisation
Image
Board Tasking
Board Design Ethics
Board Profile
Operating
Logic
’
Reputation
Dominant
coalition
Agenda
Scope of Work
Competencies
Figure 2: The board set-up elements affecting the board’s dynamics
Overall, the above performance space elements configure systemically into a pattern of board
performance, whether it is a virtuous or vicious cycle, which, in turn, affects the quality of corporate
governance that will manifest (Huse, Minichilli & ShØning 2005).
At most, if at all, corporate governance codes deal primarily with the performance space elements of
board hardware and task performance dimension in order to enhance board performance – the “hard
side” of corporate governance. However, these expositions mostly assume that the hardware
elements, to be discussed below, will be in place. The “soft side” of corporate governance, as
represented by the board software, the process dimension and evolutionary performance stages, are
most frequently not formally addressed by such codes.
Each of the five elements of the “performance space” of the board, as depicted in Figure 1, is next
discussed in detail.
4. Board set-up: its “hardware”
The board hardware pertains to the formal aspects of the board’s functioning. It defines and frames
the board’s role and mode of working. The board hardware sets the context (i.e., playing field) for the
board software (the players and game).
4.1 Hardware element 1: Positioning of the board
The positioning of the board refers to the Operating Framework that needs to be set up for the board
as a foundational, starting point. This framework consists of five interdependent elements, the
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Theo Veldsman
answers to which need to form a coherent whole (Charan 2005; Chew & Gillian 2005; Garratt 2003;
Nadler, Behan & Nadler 2006; Payne, Benson & Finegold 2009):
Its purpose: why does the board believe it exists?
Its vision: what dream does the board have for the organisation its is overseeing?
Its mandate: what type of board does the board wish to be in terms of its sphere of Influence,
relative to that of the CEO and the executive team?
Its vantage point: from what perspective will the board view the world and the way it works?
Its identity: what is our “brand” as a board?
Without having explicitly addressed the above five questions regarding the board’s positioning, as well
as reaching and maintaining consensus on them, a board will be unclear on its positioning. Such
vagueness and ambiguity will from the start create a potential breeding ground for the emergence of
destructive board dynamics.
4.2 Hardware element 2: Tasking
Tasking refers to the scope of work as demarcated by the Board for itself - what will be on the board’s
agenda and what will it spend its time and energy on - the board’s radar screen. In terms of these task
dimensions, a board would set it’s agreed upon goals and expected outcomes (Garratt 1997; 2003;
Lawler, Finegold, Benson & Conger 2002; Tricker 2009). If the board’s tasking is incomplete and /or
biased, the chances are high that it will on an ongoing basis have to deal with “surprises” requiring
crisis management and knee jerk responses.
4.3 Hardware element 3: Design
Design pertains to the way in which the board has been configured to function - its operating logic -
assuming that the Tasking Hardware Element, demarcating the work to be done by the board, is in
place. Design thus is how the board is structured and functions (Finegold, Benson & Hecht 2007;
Payne, Benson & Finegold 2009; Van Ees, Gabrielsson & Huse 2009).
If the board’s operating logic is ill conceived, chaos and confusion will reign from the word “Go” due to
the absence of a proper operating logic: it will be unclear what has to be deliberated when and by
whom with what authority, accountability, and responsibility. Fertile soil will have been created for
destructive and unhealthy board dynamics to germinate and flourish.
4.4 Hardware element 4: Profile
Profile refers to the desired competencies of board members as individuals and that of the Board
overall - what total set of competencies the Board must have at its disposal. Profile also entails issues
such as the number of Board members to serve on the board; the ratio between outsiders – Non-
Executive Directors – and insiders – Executive Directors in order to ensure balanced and diverse
views (Finegold, Benson & Hecht 2007; Zona & Zattoni 20070); and stakeholder diversity and
representivity on the board to ensure the necessary heterogeneity on the board (Conger, Lawler &
Finegold 2001; Johnson, Ellisrand & Daily 1996; Minichilli, Zattoni & Zona 2009; Payne, Benson &
Finegold 2009).
Frequently, no or unclear competency models exist for the board. If such a model does exist, it is
often biased towards the “hard”, tangible competencies. Sometimes there is even a bias with respect
to certain types of “hard” competencies – e.g., financial or manufacturing – instead of “soft”
competencies such as people management and stakeholder management. Conditions have been
created for destructive and unhealthy board dynamics to germinate and flourish: the wrong people
mix will be on the board, given the job to be done by the board. Board deliberations and decisions will
be driven by and slanted towards the competencies present in the Board.
4.5 Hardware element 5: Ethics
Ethics encompasses what is prescribed and laid down by the board as acceptable and unacceptable
conduct by board members, jointly and severally. It determines how board members will conduct
themselves. Most, if not all, boards have a Code of Ethics (or Conduct) because such a code is
prescribed by the majority, if not all, corporate governance codes (e.g., King III 2009).
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Theo Veldsman
From a board dynamics perspective, the issue is not the availability of a Code of Ethics per se, which
often boils down to a mechanical listing of acceptable/unacceptable conduct. The issue is rather what
the underlying core values are that inform and provide the basis for the code with its prescriptions. In
the absence of board consensus on core values, the Code of Ethics becomes a mechanistic
compliance tool bereft of any real appeal and meaning, being expanded continuously in a futile and
desperate effort to cover each and every ethical issue, contingency, and exception as it arises. There
is also the additional complication of culturally diverse boards made up of members with significantly
different value sets or similar values but with vastly different acceptable and unacceptable behaviours
associated with those values (Chan & Cheung 2008).
In summary, the hardware of the board set-up defines upfront the playing field for the effective
functioning of a board. If the playing field is unclear and/or under contention, the necessary
preconditions for constructive and healthy board dynamics would have been severely compromised
even before the software, the players and the game of the board set-up is addressed.
5. Board set-up: its “software”
Within the context provided by the “Hardware” as the necessary conditions of the board set-up, the
software of the board set-up encompasses the elements pertaining to board processes - the
conditions conducive to constructive and healthy board dynamics. Though the hardware elements set
the preconditions for the software elements of the board set-up, the software elements - the board
processes – can inversely strengthen or weaken the hardware elements, however well they have
been set up. Patterns of dynamics, whether virtuous or vicious thus emerge, affecting the board’s soft
governance (Huse, Minichilli & ShØning 2005).
The software elements can be grouped into three types: the macro software elements which provide
the inner context in which the micro software elements are embedded; the micro software elements;
and Trust as the resultant outcome of the interaction of all of the former elements.
5.1 Macro Software Element 1: The organisation’s image
Each and every organisation has a certain image that gives it a certain reputation, good or bad,
amongst its stakeholders and within its operating context (Pharoah 2003). This reputation will
entice/repel individuals to make themselves available as prospective board members, which will
determine the potential quality of members serving on the board. Inversely, board members in a self
fulfilling way enact and live out the organisation’s image, and hence reinforce its reputation. Thus, an
organisation attracts the board members it deserves because of its image.
5.2 Macro software element 2: The dominant coalition on the board
Virtually without exception, like-minded or parochial, interest-based board members coalesce
spontaneously and/or deliberately over time into a coalition: a set of board members expressing
closely aligned views/positions on board matters and pursuing common outcomes. If such a coalition
is strong - whether in sheer numbers on the board, because of the personal reputation and standing
of the members of the coalition; and/or because of the standing they are awarded on the board
because of their real/perceived backing from their sponsors outside the board - they will become the
dominant coalition of the board (Tricker 2009).
If the dominant coalition has the superordinate interests of the organisation at heart, such a coalition
will work to the benefit of the organisation within the framework set by the hardware elements, which,
in an ideal situation will have been established though a consensus-seeking process. However, if the
dominant coalition is pursuing narrow parochial interests, and using the organisation as the
instrument through which to drive and implement those interests, the scene has been set for a
divisive, conflict ridden board. The board has now been hijacked by a set of members for their own
purposes. Very often under these conditions, a counter-coalition emerges spontaneously in the board,
even if its members are only joining hands for the sole reason of opposing the common enemy
represented by the dominant coalition. Such a situation will cause the board to become and remain
completely dysfunctional.
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Theo Veldsman
5.3 Macro software element 3: The culture of the board
The culture of the board pertains to: (i) its shared attitude of engaging with the board’s work; and (ii)
its established style of doing things in the board - its rules of engagement (Charan 2005; Huse,
Minichilli & ShØning 2005; Minichilli, Zattoni & Zona 2009; Tricker 2009).
In the case of constructive and healthy boards dynamics, leveraged from consensus on the hardware
elements, a shared attitude and style will readily emerge in the board. In the case of destructive and
unhealthy board dynamics, no such sharing will emerge. Significantly different and opposing attitudes
and styles will be used by board members. However, such differing and opposing attitudes and styles
need not be divisive, as they may serve to provide a more balanced approach to the business at hand
and may also function as an important trigger and source of constructive conflict, re-invention, and
creativity in the board.
5.4 Macro software element 4: The climate in the board
Whereas the board culture pertains to a shared attitude and style amongst board members, the
climate in the board deals with the prevailing mood (or vibe) which permeates the board functioning
and interaction on a constant basis (Garratt 2003; Huse, Minichilli & ShØning 2005). This climate can
be performance enhancing (e.g., positive, optimistic, constructive) or eroding (negative, pessimistic,
arrogant), in turning infusing the board’s deliberations, decisions and actions with a certain flavour.
5.5 Micro software element 5: Leadership
Leadership is about influencing a group of people, in this case board members, to collectively pursue
a shared agenda and goal(s) in order to achieve desired, shared outcomes. Every board has, either
implicitly or explicitly, a leadership stance – a perspective on how leadership should be viewed and
exercised in the board, especially since many, if not all, of the board members would be in leadership
positions outside of the board (Charan 2005; Conger, Lawler & Finegold 2001; Huse, Minichilli &
ShØning 2005; Nadler, Behan & Nadler 2006).
5.6 Micro software element 6: Personal make-up
Present in the boardroom is the sum total of board members’ “givens”, life histories, acculturalisation,
personal/ interpersonal styles and attitudes, expertise/knowledge, track record, as well as personal
standing and reputation. All of these form the basis of the preferred roles that board members (wish
to) play in the board (Huse, Minichilli & ShØning 2005).
Even if the right people are in the boardroom, they will be strangers to one another. The challenge is
to transform this group of strangers into an effective team of trusted partners (“invoking the right
chemistry”) in light of the unique features of a board as a team explicated above – particularly
considering the low frequency of face-to-face interaction as board members.
5.7 Micro software element 7: Power and politics
Power and politics are part and parcel of a board and its dynamics. The issue is rather how and to
what end the power and politics are applied: towards the common good of the board and the
organisation concerned with its stakeholders or towards personal and/or narrow parochial interests. At
issue here is whether the use of the power with the associated politics is leveraged from an ethical,
corporate citizen basis or a purely expedient, opportunistic, and self serving basis (Van Ees,
Gabrielsson & Huse 2009).
5.8 Micro software element 8: Interaction patterns
A critical enabling software element in the board’s functioning effectively as a collective body is the
interaction patterns that become established and institutionalized in the board over time – the ways in
which board members work together in doing the board’s work - during and between board meetings
(Huse, Minichilli & ShØning 2005; Marcus 2008; Van Ees, Gabrielsson & Huse 2009). These
interaction patterns manifest in the set ways in which the board handles processes such as
information gathering/sharing, problem solving, decision making, and conflict resolution.
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5.9 Micro software element 9: Trust
Theo Veldsman
From one angle, trust is the resultant outcome of the positive, constructive interaction of all of the
above software elements, therefore the result of constructive and healthy board dynamics. From
another angle, trust, or, more correctly, increasing levels of trust, acts as probably the most critical
enabler in creating the conducive conditions under which these elements can flourish in a sustainable
manner. When issues arise with respect to any of these elements, they can be successfully resolved
in a permanent way because of the trust present. Hence the central position of trust amongst the
software elements. Trust is therefore pivotal in constructive and healthy board dynamics (Huse,
Minichilli & ShØning 2005; Tricker 2009).
Paradoxically, trust, cannot be addressed in and of itself because it is an outcome of board dynamics.
A board should rather, through its leadership, deliberately encourage and institutionalize trust
engendering behaviour amongst and between board members in the board’s ongoing functioning.
This would allow trust to germinate and thrive in the board as it carries on with its day-to-day
business.
In summary, whereas the hardware elements of the board set-up create the preconditions for the
software elements to flourish, the software elements, in a sense, more directly act as levers to
constructive and healthy board dynamics. Recursively, however, conducive software elements
provide the leverage to put those preconditions in place – thus, very much a chicken-and-egg
situation.
6. The evolutionary life cycle stages of board performance relative to the task
and process performance axes
Without exception, groups (including boards) aspiring to transform themselves into genuine high
performance teams need to move through successive, evolutionary life cycle stages (Wheelan 2005).
Only in this way will they be able to perform at the highest possible level and re-invent themselves as
and when circumstances demand it. Table 1 provides an overview of the key challenge of each of the
five successive, evolutionary life cycle stages as given in Figure 1.
Table 1: Central challenge of the life cycle stages of boards
LIFE CYCLE STAGE OF BOARD
CENTRAL CHALLENGE OF STAGE
Stage 1 - Forming To get a board up and running with respect to the task it has to do, and
for members to understand and accept one another in a basic sense as
board members by putting in place the necessary basics regarding the
hardware and software elements
Stage 2 - Storming To create conditions under which board members feel free to start
challenging the Stage 1 leader-imposed hardware and software
elements regarding their appropriateness
Stage 3 - Norming To debate, reach sufficient consensus within the board, and roll out “fitfor-purpose”
hardware and software elements appropriate to the
unique character of and the challenges faced by the board
Stage 4 - Performing To enable and empower the board to constructively and productively
work together as a board, task and process wise
Stage 5 – Re-invention To leap frog as a board to a next higher and/or different level of
performance, and also reach out to other boards
7. Performance outcomes
Performance outcomes (the diagonal in Figure 1) are a function of the board’s evolution or not
through its performance life cycle stages, and thus of its concurrent progress or not along the two
performance dimensions of task and process. The board’s performance must be defined, tracked, and
assessed in a holistic, integrated, and systemic manner regarding these dimensions (Garratt 2003).
Frequently only the measurement of adherence to the content of corporate governance codes - the
rules of the game - is recommended in the majority of these codes. Metaphorically speaking: “Are we
consistently driving on the right side of the road?” However, no assessment is made of “how” we are
driving, even if we are on the right side of the road. It has, however, been argued all along that, in
order to deal with the soft underbelly of governance, both the content and process, as well as the
letter and spirit of governance must be addressed – the elements contained in the performance space
450

Theo Veldsman
of the board that affect board dynamics and hence its total performance as per Figure 1 (Nadler,
Behan & Nadler 2006).
8. Conclusion
It was the premise of this paper that adherence to the process and spirit of corporate governance, or
not, can be attributed to the dynamics between and amongst the directors of a board. The purpose of
this paper was to explore the variables affecting and determining sound soft corporate governance –
the people side of boards. The value, both conceptually and practically, of the above proposed
conceptual framework for soft governance is that it can be used to understand, diagnose and test
postulates/ hypotheses regarding board dynamics, and its relationship with board performance.
Ultimately, the dynamics and consequently the effectiveness of a board contribute in no uncertain
terms to the competitive edge and performance of the organisation it is overseeing (Charan 2005;
Payne, Benson & Finegold 2009; Zona and Zattoni 2007). By addressing soft governance in a
deliberate way, board effectiveness can be significantly enhanced. In this way, the chances of
corporate failures because of poor governance can be significantly reduced.
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451

Gender Spread Analysis of Customer Knowledge for
Competitive Advantage: Case of Beauty and Cosmetic
Products in Thailand
Lugkana Worasinchai 1 , Farhad Danesghar 1, 2 and Kerry Barnett 2
1
Bangkok University, Thailand
2
University of New SouthWales, Sydney, Australia
lugkana.w@bu.ac.th
Abstract: The ability of cosmetic and beauty product (CBP) manufacturers to produce timely and effective
responses to their customers’ dynamic needs constitutes a major challenge for these manufacturers for survival
and competitive advantage. This paper provides a preliminary analysis of the customer knowledge in CBP in
Thailand for improving current products and/or creating new CBPs through appropriate management of customer
knowledge with specific focus on analysing customers’ knowledge in both genders. By reviewing current literature
on customer knowledge management a modified version of an existing theoretical model is proposed to both
facilitate and guide partial understanding of this knowledge in CBP sector. The study adopts an exploratory
quantitative research methodology. Data were collected from 86 customers of CBP in Thailand that enable
analysis of various aspects of customer knowledge possessed by both genders in this sector. Results of this
study are expected to provide required insights for future stages of a larger research project with the ultimately
aim of enhancing competitive positioning of the CBP manufacturers in Thailand markets who are currently facing
strong competition from global manufacturers.
Keywords: business innovation; agile organization; customer knowledge management; emerging customer
requirements
1. Introduction
In an early study by Ernst and Young customer knowledge is quoted as the most important type of
knowledge (97%) for enhancing effectiveness of actions within organisations. This was followed by
knowledge about best practice and effective processes (87%), and knowledge about competencies
and capabilities (86%) (Smith & Farquhar 2000). Many successful organizations have already put
considerable efforts in acquiring knowledge from their customers. KM systems have been developed
that integrate knowledge of their employees’ and customers (Turban et al 2008). In fact the role of
customers in generating ideas has been widely recognised, (Moller 2006; Yakhlef 2005; and Gibbert
et al 2002). Furthermore, the major challenge of managing knowledge is suggested to be less in its
creation and more in its capture and integration (Bose & Sugumaran 2003; Davenport et al 2002).
Cosmetic and beauty products constitute a large proportion of spending among both genders in many
Asian countries including Thailand. The Thai producers of cosmetic and beauty products (CBP) in
particular are enjoying an advantage in accessing in abundance many of the natural sources of CBPs
as a result of a strong interest from both local and foreign markets for the Thai CBPs.
The main motivation behind the current study is a growing concern and challenge that many of the
Thai producers of CBP are facing in providing timely and effective responses to their emerging
customers’ needs in both domestic and global markets. Such challenge exists as a result of
competitive forces from foreign producers of CBP products, the latter being able to provide innovative
products and services as a result of understanding the dynamic needs of their customers. The current
study is an initial attempt to provide partial answers to the following questions:
What is the gender spread of the current customers of CBPs in Thailand, and what constitutes the
knowledge that each gender possess in relation to the CBPs and the surrounding competitive
environment?
What are the main sources of such knowledge?
How Thai CB producers can utilise the above findings in order to enhance their competitive
position within the existing markets?
Due to the wide scope of customer knowledge the current study only focuses on the variation of such
knowledge by both genders and leaves the other aspects of customer knowledge for future studies.
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2. Research methodology
Lugkana Worasinchai et al.
This study adopts an exploratory quantitative research methodology for answering the above
research questions. As the first phase of the methodology an appropriate theoretical framework is
developed for the customer knowledge in order to guide subsequent data collection and analysis
phases of the study. The selection criteria for the proposed model are the ability of the model to
clearly define various categories and characteristics of customer knowledge within the sector. Such
characterisation will then enable representation of both the customer knowledge that in turn will result
in answering the research questions in the light of the theoretical framework so that systematic and
valid conclusions and arguments can be derived.
In the next phase of the study a survey instrument is developed for the collection of data. Data were
collected from a selective sample of 86 customers of CBPs who had visited Bangkok’s two major
shopping centres. The goal of the survey is to develop some initial insights into the gender distribution
of the customers of CBPs as well as their requirements and knowledge that each group possesses in
relation to the CBP and the surrounding business environment. It is expected that this initial
investigation will pave the road for development of more thorough and meaningful instruments in
future studies that will ultimately result in development of an industry-based knowledge-base for the
Thai CBP sector. The idea is to assist Thai CBP sector to enhance their competitiveness in emerging
markets in both Thailand and the world.
To provide a better understanding of, and a context for, the present study the remaining steps of the
larger research project are listed below. These steps are for demonstration only and will not be
implemented in the current study:
In the next phase, the existing theoretical model will be used to identify various relevant knowledge
activities involved in managing customer knowledge in CBP sector. This in turn will provide foundation
for designing an industry knowledge-base system for the sector. Next, the proposed design will be
evaluated for appropriateness and usability quality attributes before being implemented in the form of
a full blown industry-based CKM for CBP.
3. Theoretical framework
The theoretical framework of the study consists of two components. The first component is a
classification scheme for customer knowledge. The second component is a specialised knowledge
management model that incorporates relevant knowledge activities for creation and transformation of
various types of customer knowledge within the CBP sector. These components are described below.
Taxonomy of Customer Knowledge: According to Gibbert et al (2002) and from an organizational
perspective, customer knowledge can be categorised at least into the following three classes:
Knowledge about Customers (KaC): The goal of collecting this kind of knowledge is to understand
customers’ motivations and to address these needs in a personalized way. This category deals
with both the factual information about customers as well as customers’ explicit needs and their
interests as perceived by customers themselves (Dalkir 2005).
Knowledge from Customers (KrC): This category deals with the customer’s perceptions, insights,
reactions, knowledge about other products, suppliers, markets, suggestions, and overall
knowledge of competitive environment (Ibid). It provides a view of how customers perceive their
environment and the particular role they play within the environment. This provides CBP
manufacturers with a context for creation and delivery of required products and services as
explained by the next category of knowledge.
Knowledge for Customers (KfC): This category of customer knowledge is generated by the CBP
manufacturers themselves. This is done by integrating KaC and KrC in order to identify
customers’ hidden/tacit needs so that the producers can be one step ahead of the customers’
explicit needs the latter being the subject of the previous knowledge category, KrC. Appropriate
interpretation and analysis of such need is expected to satisfy customers’ emerging and dynamic
needs within the CBP markets. It goes one step beyond the customer’s current explicit needs as
known by the customers themselves, and instead focuses on specific knowledge that CBP
manufacturers need to develop in order to enhance their existing products, and/or to develop new
products and services that customers cannot perceive at present (Sue et al,, 2006). Alternatively
453

Lugkana Worasinchai et al.
this knowledge can help CBP manufacturers to identify interim products and services that can be
used by customers for performing other tasks (also see Schotte, 2003; Tian-Xue & Tian, 2005).
A Customer Knowledge Management Model: In a recent study Daneshgar & Parirokh (2012)
introduced a specialised theoretical model for the higher education sector that specifies various
knowledge activities related to the creation and utilisation of customer knowledge for enhancing
competitive advantage of the firms in this sector; this model in turn has benefitted from the models
proposed by Dalkir (2005) and XXXX. Due to its generic nature the underlying principles behind the
above model have been used in the current study and a modified version for the CBP sector is
presented in Fig. 1.
Figure 1: An integrated customer knowledge management for CBP
In Fig. 1, KaC and KrC are initially collected from, the customers. Due to the tacitness of some of the
above categories of knowledge however the above knowledge may need to go through a sensemaking
and re-interpretation process by CBP manufacturers using their own experience, possibly
supplemented by best practices and current literature in the field. Results from such refining process
will then be disseminated throughout the organisation and then applied intuitively to the internal
processes in order to create KfC. The latter knowledge will become foundation for adopting
appropriate strategies for developing new and innovative products and services that are expected to
satisfy tacit and dynamic requirements of customers. The new products and services are then
communicated to the customers that in turn will initiate a new round of customer knowledge cycle.
The cyclical nature of the CKM process ensures that the customer knowledge is managed
dynamically, is developed within relevant context, and is actionable; these latter three being major
characteristics of knowledge that distinguishes it from the explicit information.
4. Data collection and analysis
On the basis of the methodological steps of the study a preliminary investigation of KaC and KrC for
the CBPs is provided followed by conclusions on how the above results can be used to generate KfC
and subsequently to enhance competitive advantage in CBP sector in Thailand. Due to the
exploratory nature of the study we only provide some general understanding of various types of
customer knowledge and associated activities possessed by males and females in the form of a
comparative gender divide analysis. More thorough studies will be needed in future for better
understanding of other aspects of the customer knowledge in the sector.
Knowledge about Customers (KaC): Data were collected from 86 individuals who visited two major
shopping centres in Bangkok. Demographic information about these individuals constitutes part of the
KaC for our study and is shown in Table 1.
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Lugkana Worasinchai et al.
Table 1: Demographic information about customers of CBP (KaC)
Age (%)
< 20 21-30 31-40 >40 Total
Male 5.8 25.6 3.5 0 34.9
female 2.3 53.5 7 2.3 65.1
Total 8.1 79.1 10.5 2.3 100
Education (%)
below undergrad undergrad or between master or between Total
Male 5.8 19.8 9.3 34.9
female 2.3 44.2 18.6 65.1
Total 8.1 64 27.9 100
Occupation (%)
student owner public officer private officer other Total
Male 15.1 9.3 4.7 5.8 0 34.9
female 20.9 3.5 5.8 29.1 5.8 65.1
Total 36 12.8 10.5 34.9 5.8 100
10,000- 20,000-
Income
30,000- 40,000-
50,000 Total
Male 8.1 14 8.1 1.2 1.2 2.4 34.9
female 12.8 26.8 18.6 1.2 4.8 1.2 65.1
Total 20.9 40.8 26.7 2.4 6 3.6 100
Table 1 shows the demographic characteristics of participants by gender, age, education, occupation
and income. Results are reported as percentages. Table 1 suggests that most of the individuals who
visited cosmetic counters were female (65.1%) and aged between 21-30 years (53.5%). In addition,
most of them were more likely to hold an undergraduate or master’s degree (91.9%) and the majority
of them (88.4%) have a monthly income of less than 30, 000 Bhatt (around $1,100US per month).
Furthermore, whereas females constitute the majority in the sample, for one particular age group, the
under-20, the relative frequency of males (5.8%) is twice the females’ (2.3%). The same pattern is
emerged under the ‘education’ category: for the ‘below undergrad’ group, which would mostly
correspond to the under 20 age group, the relative frequency of males under-20 is twice the females’
relative frequency which is consistent with the previous result on gender spread. In contrast, for all
other education levels females maintain relative frequencies similar to the gender spread.
Knowledge from Customer (KrC): A tabular summary of the significant results of the sample t-tests for
gender spread analysis is shown in Table 2. These results correspond to the behaviours of males and
females within the business environment in relation to the CBP. In other words, these results indirectly
imply the knowledge of the two groups about the competitive environment surrounding CBPs in
Thailand.
Table 2: Behavioural factors in relation to CBP by gender (KrC)
Attitude towards
buying
CBO from
department stores
Reasons for buying
CBP
Where they buy
CBP
Source of info on
Variable
Action
Reputation
of products
Internet
Letter
Factor
(n)
Male
(30)
Femal
e (56)
Male
(30)
Femal
e (56)
Male
(30)
Femal
e (56)
Male
(30)
Mean
(SD)
3.907
(0.719)
4.075
(0.737)
3.900
(0.712)
3.554
(0.711)
3.483
(1.184)
2.564
(1.572)
2.567
(1.135)
455
t Df p-value
Mean
Difference
Effect size
(Cohen's
d)
-2.06 84 .043 -0.168 -0.233
2.15 84 .034 0.346 0.492
3.01 72 .004 0.919 0.641
-2.01 84 .047 -0.504 -0.460

CBP
Product Category
Email
Variable
Lugkana Worasinchai et al.
Femal
e (56)
Male
(30)
Femal
e (56)
Factor
(n)
Male
Treat pores in (30)
skin Femal
e (56)
Male
Treat
(30)
damaged
Femal
skin
e (56)
3.071
(1.093)
2.633
(1.299)
3.196
(0.923)
Mean
(SD)
2.467
(1.279)
3.036
(1.235)
1.967
(1.326)
2.679
(1.162)
-2.11 45 .041 -0.563 -0.533
t Df p-value
Mean
Difference
Effect size
(Cohen's
d)
-2.01 84 .048 -0.569 -0.460
-2.58 84 .012 -0.712 -0.590
Table 2 shows that males’ and females’ attitudes towards buying cosmetic products (shown by the
variable ‘action’ in column 2) are significantly different: t (84) = -2.06, p=.043. Inspection of the two
group means for action indicates that females (M=4.075, SD=.74) are more likely to be influenced by
knowledge about a cosmetic product reputation, quality, and price that is advertised than females (M=
3.91, SD=0.72). However, the effect size (d= 0.23) suggests that the gender difference is small.
Column 1 in Table 2 shows major general categories of factors for which data were collected.
Variable/s in column 2 represents those factors within the corresponding category that provided
significant results indicating significant differences between the two genders. Explanations for the
remaining variables in column 2 follow:
Reasons for buying CBP – males have been more concerned about the reputation of the product than
females
Where they buy CBP – males use online Internet shopping more frequently than females
Sources of information – males use letters (sent by the manufacturers through normal postal services)
and e-mail less frequently than females
Product Category – males use cosmetics to treat large pores and damaged skin less than females.
The above results provide information about behavioural factors of each gender within the wider
business environment. Some of these factors relate to the customers’ personal preferences, others
are the result of comparisons that customers make between various CBP products that may result in
certain behaviour in relation to the CBPs.
5. Summary of the results
A summary of the results in Table 2 is provided below:
Attitude towards buying CBP – Compared to women, men’s action is less influenced by the
information that manufacturers provide about their products. In other words, when deciding to buy the
product men are more action-oriented whereas women are more information-oriented.
Reasons for buying CBPs – Males are more concerned about the reputation of the product than
females.
Where you buy CBPs – Males use online Internet shopping more frequently than females. Males use
online Internet shopping more frequently than females
Source of information – Males use letter and e-mail less frequently than females.
Types of products – Male less than Females male have significantly used
cosmetics to treat large pores and infirm skin less than Females
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Furthermore, no significant differences were found between the male and female groups for the
following categories (due to the space limitation not all insignificant factors are listed below):
Attitude towards buying: Pricing
Source of information: Internet social tools
Attitude towards buying: Special sale promotions
Source of information: Referrals (by a friend or relative).
6. Deriving appropriate knowledge for customers:
Informed by the above results the next step is to integrate the identified KaC and KrC as a basis for
developing a set of knowledge chunks that can be used for developing new and innovative products
and services for customers that correspond to their tacit (non-explicit, unknown, unspoken) needs.
The latter knowledge when identified by the manufacturers can be directly communicated to
customers in order to affect their behaviour. Development of such knowledge requires extensive
insights by experts in the domain, and is the subject of a future study. However the current study
provides sufficient evidence to believe that certain customer segments (males under 20) behave
radically different from the remaining segments. This in turn is expected to guide the CBP
manufacturers to provide appropriate products and services to various customer segments.
7. Conclusion and limitations:
This paper is an early attempt in providing a preliminary analysis of the customer knowledge in CBP
in Thailand with the ultimate aim of identifying innovative services and new products for the above
manufacturers. In order to understand the nature of customer knowledge and the role it may play in
guiding new products and innovative customer services, a modified version of an existing theoretical
model and associated customer knowledge taxonomy was proposed by reviewing the current
literatures on CRM and CKM. According to the proposed theoretical framework two kinds of customer
knowledge, that is KaC and KrC, shall be combined in order to produce required knowledge that can
either be directly channelled to the customers, or it can be embedded in new products and innovative
customer services. This knowledge was called KfC. Quantitative results indicate significant
differences among various customer segments that when interpreted and used by domain experts,
are expected to potentially enhance the competitive positioning of the Thai CBP manufacturers. One
limitation of the study is that none of the authors are considered expert in production and/or marketing
of the CBPs; as a result the study could not provide definitive results. This is one major limitation of
the current study that makes the study a ‘work in progress’ rather than a ‘completed study’.
References:
Bose, R. and Sugumaran, V. (2003) “Application of knowledge management technology in customer relationship
management” Knowledge and Process Management, Vol 10, No.1, pp 3-17.
Dalkir, K. (2005) Knowledge Management in Theory and Practice, London: Elsevier.
Daneshgar, F. and Parirokh, M. (2012) “An Integrated Customer Knowledge management for Academic
Libraries”, will be published in Library Quarterly, Chicago University Press, Chicago, USA., January.
Davenport, T.H., Harris, J.G. and Kohli, A.K. (2002), "How do they know their customers so well?" MIT Sloan
Management Review, Vol 42, No.2, pp 63-73.
Gibbert, T. M., Leibold, M. and Probst, G. (2002) “Five styles of Customer Knowledge Management, and how
smart companies put them into action” European Management Journal, Vol 20, No.5, pp 459-469.
Möller, K. (2006) “Role of competences in creating customer value: A value-creation logic approach.” Industrial
Marketing Management, Vol 38, No.8, pp 913-924.
Smith, R. G. and Farquhar, A. (2000) “The road ahead for the knowledge management: an AI perspective”,
American Association for Artificial Intelligence (winter 2000), pp 17-40.
Turban, E., Leidner, D., McLean, E., and Wetherebe, J. (2008) Information Technology for Management:
Transforming Business into Digital Economy, 3 rd edition, New York: John Wiley.
Yakhlef, A. (2005) “Immobility of tacit knowledge and the displacement of the locus of innovation” European
Journal of Innovation Management, Vol 8, No.2, pp 227-239.
Tian-Xue Feng, and Jin-Xin Tian (2005) “Customer knowledge management and Condition Analysis of
Successful CKM Implementation.” Proceedings of the Fourth International Conference on Machine Learning
and Cybernetics, Guangzhou, China, 18-21 August.
Schotte, Thilo. (2003) “Customer Knowledge Management: How Does My Customer Look and Feel?” In
Knowledge Management and Networked Environments; Leveraging, Intellectual Capital in Virtual Business
Communities, Edited by Alfred Beerli and others. New York: American Management Association: 17-39.
Su, C., Chen, Y. and Sah, D. Y. (2006) “Linking innovative product development with customer knowledge: a
data-mining approach”, Technovation 26 (7): 784-795. 2006.
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Developing, Screening or Signalling Human Capital?
Monica Zaharie, Codruta Osoian and Adrian Opre
Babeș-Bolyai University, Cluj Napoca, Romania
monica.zaharie@econ.ubbcluj.ro
codruta.osoian@econ.ubbcluj.ro
adrianopre@psychology.ro
Abstract: Higher education system plays numerous roles for the labor market. Complementary to the main
instructional function, the educational credentials signal to employers the candidates’ potential value. Also,
education socialises the graduates into certain cultural values, and contributes to the assignment of the labor
market vacancy positions to graduates. As supported by the human capital paradigm, graduates develop through
education their competencies, being more appreciated by employers during the job selection process. On the
other hand, the sorting theory considers that the educational system selects the high-performing students. The
signalling theory states that, through education, graduates signal their potential to the hiring companies. This
theory does not sufficiently explain the evaluation of the candidates during the hiring process. The paper aims to
analyse the employers’ perspective on the main roles of the higher education regarding graduates’ integration
onto the labor market so that to bring input for the improvement of the instruction quality. The survey was
conducted on 65 differently sized companies. The results bring arguments in favour of the human capital theory,
but do not support the sorting theory hypothesis: 51% of the respondents consider that studious students, with
good school results will become high-performing employees. On the contrary, the educational system is not
considered to support employers’ decisions during the job selection process. The information provided through
the educational credentials is scarcely used by the hiring companies in the job employment process. Still, the
employers’ satisfaction level with the quality of the educational system was found to mediate the employers’
support for the hypothesis of the three theories. Employers who are more satisfied with the quality of the higher
education tend to base their hiring decision on the information provided by the candidates’ diploma to a greater
extent. Increasing employers’ satisfaction with the quality of the higher education system might contribute to a
better usage of the educational signals in the job hiring process.
Keywords: higher education, human capital theory, screening theory, signalling theory, labor market
1. Literature review on education and graduates’ labor market outcomes
The relation between the educational system and the labor market represents one of the matters of
great concern and consequence for our society. As a concrete form of manifestation, the nature of
this relation may be expressed by the particularities of the graduates’ transition process from
education towards the labor market and by the higher education graduates’ employment rates.
One of the chief argument paths regards the analysis of the extent to which education contributes to
the national benefit and the increase of individual labor market outcomes. At general level, there are
two pertinent points of view (Ashenfelter and Layard, 1986):
The human capital paradigm, setting forth that education represents a productive input, whose
marginal contribution may be highlighted by the differences in salary among the population with
different education levels.
The sorting and credentials theories, which state that the differences between the outcomes of higher
education graduates and those of the persons with secondary education are owned to the signalling
of one’s skills to the employer, and to employers’ screening of educational credentials.
Within these theoretical paradigms regarding the relation between education and the graduates’
outcomes on the labor market, there is a sequence of middle range explanatory theories (Bills, 2003):
human capital, screening, signaling, control, cultural capital, institutional, and credentials theories.
1.1 Human capital theory
Although approached by numerous authors, the concept of human capital is still insufficiently defined
(Becker, 1967; Mincer, 1958). We will envisage the human capital as the ensemble of knowledge,
competences, experience, time resources, which can be capitalized within the productive process
(Husz, 1998). Investment in education and health delivers human capital (Becker, 1993). At
organization level, it is referred to as intellectual capital (Magrassi, 2002), encompassing all resources
which determine the competitive value of a company, such as: the relational capital (the relations with
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external agents), the human capital (employees’ knowledge and skills) and the organizational capital
(embodying the collective knowledge, beyond the skills of each individual).
The human capital theories consider that individuals acquire the skills required on the labor market by
means of education (Becker, 1967, 1993; Mincer, 1958). With each year of schooling, one may opt to
make the transition toward full-time employment or to carry on the educational training, the latter case
meaning that one will further invest in one’s own human capital. According to this theory, the income
of an employee is proportional with the human capital accrued. It is considered that during studies,
the individual lacks a salary income, and therefore postpones earning such income. Insofar as the
individual aims to maximize his/her income, he/she will seek to balance out the marginal cost with the
marginal outcomes of the education (Ashenfelter and Layard, 1986).
The skills developed through education contribute directly to the increase of the individual’s efficiency.
Therefore, a higher educational level enhances the candidate’s value in the employers’ opinion,
returning thus better results on the labor market (greater income, increased safety of the workplace).
This prompts employers to select the candidates based on their education, and individuals to invest in
their own human capital.
The value of the human capital model, as developed by Mincer (1958) lies with the fact that it enables
the understanding of the occupational choice models in relation to the length of the tuition period and
the differences in income associated with various occupations (Teixeira, 2007). This investment
model, accounting the individuals’ decision to carry forward their education was of tremendous
concern, most of the findings establishing that the purpose of the individual decision is to obtain
gratification on the labor force market.
From a methodological standpoint, most of the studies which tested this model were based on time
series. They subjected to analysis the evolution of cohorts of students in various educational fields.
Also, they analyzed the level of graduates’ income in various occupational fields as a function of the
number of candidates who opt to enroll in the respective field (Mattila, 1982). Moreover, some studies
examined the effects of the education costs (tuition fees and scholarships) upon the number of the
candidates seeking admission (McPherson, 1978).
With respect to the limitations of this approach, there is an insufficient operationalization of the
fundamental concepts: although the skills acquired are a core element of the transition process, the
human capital theory does not contemplate the evaluation thereof by the employers. This gives rise to
certain difficulties in explaining the process of assigning the graduates to the vacancies on the labor
market (Rosenbaum and Binder, 1997). With this limitation in mind, further analysis of the skills
demanded by the labor market and an in-depth assessment of the occupational selection process is
still necessary.
A further amendment regards the efficiency function of education. Provided the furthering of education
generates an increase in the efficiency and income, the model envisages long education spans. As
there is a restriction given by the limited active period, the individual will not invest in education
indefinitely. Yet, this theory omits to explain why the greatest parts of the individuals complete their
studies around the age of 20-30, and not towards the end of their lives. Nevertheless, we deem the
current trend which enhances the principles of ongoing learning forms consonant part with the model
proposed by the human capital theoretical paradigm.
Carrying on with the review of the criticism against this theoretical perspective, one of the main
aspects which is not reflected in this model regards the role of the family in the individual’s education
(Ashenfelter and Layard, 1986). Other studies set forth that there is a positive relation between the
family background (family income, parents’ education and profession) and the level of education
pursued by an individual. The persons belonging to a family with superior background tend to
complete more years of education, as compared to those not as privileged in what regards their
descent.
1.2 Signalling and screening theory
In the 1970’s, the job-market signalling model states that candidates signal to employers their
competences by means of their educational credentials (Spence, 1974 apud Bills, 2003). This theory
is also closely interconnected with the human capital theories and the screening theory. As theoretical
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nucleus, its starting point is the economic model of asymmetric information. This model sets forth that
in economic trading, the uneven access to information regarding the parties involved influences the
normal product and service exchange market. The academic degrees become thus a signal of
efficiency addressed to employers. Although this perspective does not assert that the individual
increases its efficiency directly through education, the degree achieved becomes valuable,
symbolizing a signal to employers.
An important aspect is represented by the opportunity costs for the acquirement of educational
certificates. These include both the financial cost and those related to time, psychological costs, and
effort. The level of the costs is lower for the competent graduates (referred to as “productive” by
Michael Spence), as they are required to invest less than the weak graduates in order to obtain the
same certificate (Spence, 2002). Under these conditions, the correspondence between the graduates’
actual efficiency and the educational signals they obtain is ensured. If the costs implied by the
acquirement of educational certificates used for signaling are identical for the two categories of
graduates, the differences between them with regard to the completed educational level disappear.
Thus, the barriers which hinder the group of inefficient individuals to acquire a certificate with
equivalent signalling value as the certificate of the efficient graduates are removed. As one of the
roles of the educational certificates is to signal the graduates’ efficiency accurately, this theory deems
that interventions to generate cost differences for the two categories of individuals in acquiring the
educational diploma are necessary.
Spence (2002) conceptualizes the employment process as a risk investment, the signaling theory
applying especially in the situations where the occupational selection process is marked by a high
degree of uncertainty regarding the candidate’s suitability with the requirements of the vacant position
(Spence, 1974 apud Bills, 2003). Therefore, although not necessarily considered that education
increases the graduate’s efficiency significantly, it becomes valuable both for the graduate and the
employer: the potentially valuable graduates will invest more in education in order to signal their
higher efficiency to employers.
This perspective drew the attention from the content of the qualifications covered by certificates, to
the offer of labor market. Signalling can be achieved through the academic results (grades, final
graduation grade, results in different competitions), reference letters from the teachers’ board or
former employers. The signalling process entails signalling costs, deemed to be indirectly related to
the individual’s efficiency (Teixeira, 2007).
Signalling is complementary at the level of the selection process on the labor market: employers
perform the selection, whereas the graduates signal the qualities they posses. Whether uncertain
about one individual’s real abilities, employers benefit from a set of signals about candidates
(educational certificates, work experience, race, sex).
From a methodological point of view, this theory was tested by Arkes (1998), who analyzed the
importance of academic certificates to employers. Based on the National Longitudinal Survey on
Youth, the author evaluated to what extent a set of 10 skills comprised by the qualification test of the
Armed Forces are represented by a certificate at a certain level. The skills were: general scientific
knowledge, mathematical comprehension, vocabulary knowledge, text comprehension, numerical
operations, coding speed, vehicle and commercial information, knowledge of Mathematics,
mechanical comprehension, electronic data). The higher education credentials proved to signify the
evaluated skills at the highest degree, especially the vocabulary and mathematical knowledge,
whereas the high school certificates chiefly signify text comprehension and mathematical abilities.
Therefore, the findings of the survey prove that employers value the educational credentials, as they
convey signals of the graduates’ skills.
Other findings represent a limitation of this theory as worded in the first instance. Rosenbaum and
Miller’s (1997) empirical studies do not support the applicability of the signaling theory, showing that
employers do not use the signals transmitted by graduates in the selection process (grades, reference
letters from former employers). Starting with this invalidation of the theory, the authors carry forward
their analysis focusing on the social capital. Therefore, the signaling process is analyzed from the
point of view of its social significance. What this study proves, is that employers assign different
degrees of confidence to the sources of information to which they resort. The diplomas do not hold
the greatest importance, but the references received from trustworthy persons. Rosenbaum and
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Binder (1997) show that employers do not use the information provided by the education institutions
or former employers in the selection process, yet rely on the data obtained through the selection
interview, intuition or information gathered via the social networks. The social capital is that which
confers credibility and reliability to the information acquired about the candidates. Judging by these
results, we note that although employers claim to desire candidates with higher education, they do not
use the education credentials as a selection criterion for the hiring process. Another limit of this theory
regards the lack of clarification of the relationship between educational credentials and graduates’
incomes. The statistical studies have not yet clarified if the higher incomes of the graduates are due to
their education or because of their wealth they afforded to graduate higher education.
Even if the two theories are different, the signaling and screening theories are considered to have
common points. They both accept the hypothesis that better educated individuals are more productive
on the labor market and the fact that employers use educational credentials as a mechanism of
selecting job candidates. The strong relation between the signaling theory and the screening theory is
also supported by Weiss (1995). The author develops the sorting theory, which includes both
signaling theory and screening theory. The sole difference related to the action priority of the two
actors involved: employers who initiate the job selection process or the graduates who initiate the
signaling process. Through education individuals develop skills necessary on the labor market, but in
the same time they also signal their potential. As a consequence a part of the value of the diploma
becomes independent with the graduates’ competences.
Approaching employers perspective, the sorting theory supports the fact that employers use
educational signals (grades, diplomas, reputation of the educational institution) in order to estimate
candidates’ future performance on the job.
In analyzing the relation between higher education and the labor market, one of the most famous
survey studies conducted at international level is the CHEERS project (Careers after Higher
Education: a European Research Study - Higher Education and Graduate Employment in Europe -
European Graduate Survey) conducted in 1998-2000 (Teichler, 2002). The questionnaire-based
survey was complemented by in-depth interviews conducted with employers in nine European
countries. The companies participating in this study were of various sizes, and from different fields: IT,
business and banking, consulting, communications and public sector. The project aimed to identify
employers’ opinion on the requirements from candidates for graduate positions, the employment
screening practices, selection criteria, and the satisfaction level with the quality of higher education
graduates (de Weert, 2007). As expected, differences were found between the declared opinions and
the practices implemented in the job selection process, according to the country of origin.
The results show that the educational diplomas have different value for employers. Especially in hard
sciences fields employers consider the diplomas as being a signal for what graduates have learned,
proving their knowledge. In this respect the diploma shows both graduates’ discipline in completing
the tasks and a certain level of knowledge. There can be identified three categories of information the
diploma signals to employers: knowledge and skills specific to the job field (this indicator is even more
prevalent in European countries), abilities, and candidate’ self-development potential. There are also
employers, for whom the diploma has no great signaling value, being only a condition required by the
employment legislation without certifying some specific knowledge.
The diploma does not guarantee the graduate’ qualification for the job, but it often represents a
necessary condition for it. As regards the selection criteria in the first stage employers are interested
in the field of study, courses attended, and extracurricular activities. The importance of the school
results vary according to the country. In some countries the grades represent an important selection
criterion, while in others they are mostly ignored.
Another important topic regards the relation between the candidate’s field of study and the jobs on the
labor market. Differences were identified among employers ‘opinions. Some of the employers believe
that there is a strong connection between education attained and the requirements of the jobs,
especially for fields such as electronics, production, and engineering. These employers are more
focused on the educational credential during the employment process. Another category of employers
(commerce and other services, but also public sector) are less interested in the candidates’
educational background. For example, a consultancy companies aims for more general skills and
considers that the specific ones can be developed by job training. These latter employers see a
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connection between the candidates’ personality and their option for a certain major. Also, a third
category of employers do not show a special interest in the educational credentials, but are more
focused on finding specific knowledge and skills.
1.3 Aim of the research
The aim of this research is to analyze employers’ opinions regarding the role played by the higher
education system in the hiring process.
The first hypothesis of the paper, developed in the framework of human capital theory, states that
through education individuals attain competences necessary on the labor market (Becker, 1967,
1993; Mincer, 1958). According to this, the education system develops the graduates’ competencies,
which will bring them income proportionate with the number of school years.
The competencies acquired through education contribute to the increase of the graduate’ working
place productivity. A higher education level attained will make the candidate more valuable for the
employing company, which will bring better outcome on the labor market (higher income, working
place security). Due to the developed competencies and increased productivity, employers will select
those candidates with higher education level.
Although the attained competencies are an important element of the employment process, the human
capital theory does not clarify the way employers evaluate the candidates’ competences (Rosenbaum
and Binder, 1997). There is a further need to analyze the competencies required on the labor market
and the way they are assessed by employers. Starting from here, surveying the expectations of the
labor market represents a good step forward. The present research presents a part of the results of a
survey conducted on employers in a developing country. The objective of the survey was to identify
the employers’ opinion regarding the main role played by the education system: does it develop the
graduates’ competencies, and does education facilitate employers’ hiring decisions?
2. Methodology of the research and main results
2.1 Sample of the research
Considering the exploratory role of the survey, there was applied a non-probabilistic sampling
technique: the judgment sample / purposive sample. The participants’ selection technique is based on
the assumption that the selected subjects embody the characteristics of the target population. Our
purpose was to include in the sample companies of different sizes and from different activity fields.
Thus, we made sure that the sample covered a wide range of characteristics displayed by
organizations of different sizes and from different activity fields. An advantage of this technique
consists in the possibility to control a set of characteristics of the population included. On the other
hand, the impossibility to control the sampling error prevents this technique to allow the generalization
of the results to the entire population.
The sample of the pilot survey comprised 65 Romanian companies. The average number of
employees of the companies included in the sample is 75, and the age of the companies ranges from
more than 90 years to less than 1 year from incorporation. In respect of the fields of activity, they are
diversified, including: trade, manufacturing (textiles, footwear, furniture, and wire derivative products),
consultancy, telecommunications, constructions, real estate, education, tourism, transport.
One of the criteria used in the company selection referred to the experience in employing higher
education graduates. Out of all the individuals employed the previous year in the selected companies,
on average 30% were higher education graduates. The respondent who completed the questionnaire
was part of the human resources department or occupied a management position within the
company.
2.2 Instrument of the research
The questionnaire attempted to identify the roles played by higher education in the employment
process. The research instrument presented a list of roles possibly played by the educational system
and the respondent organizations assessed on a five point scale (from 1 to 5), the degree in which
each of the statements represented an important role.
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With regard to the validity of the instrument, considering that the sample was not a probabilistic one,
the research did not expect a high external validity (namely, the results to be generalized to the entire
population). Nevertheless, good construct validity was ensured through the design of the
questionnaire. The present paper emphasizes only one of the questionnaire’s sub-components,
attempting to verify two hypothesis of the human capital theory and signaling theory, by identifying
employers’ opinion regarding the role played by candidates’ attained education.
2.3 Research results
According to employers’ answers, the results support the hypothesis of the human capital theory.
Among the respondents, 55% agree that the education system develops graduates’ competences
(mean 3.32, σ = 1.1). Supporting human capital approach, 51% of the companies consider that
graduates who studied seriously and had good school results would become better performing
employees once employed (mean 3.41, σ = 1.2). It is worth mentioning that the questionnaire item
was formulated in this way so as to be able to represent the role played by the educational system in
developing the competencies of the hardworking students. A common argument related to the
outcomes of education reports the fact that the lack of students’ involvement is a cause for education
failure. For this reason the question was formulated in such a way to suggest the impact of education
accompanied by students’ involvement. Even more, it was aimed to control the negative effect on
employers’ opinions of the higher education masification phenomenon and the decrease of its quality.
For this reason, the questions addressed emphasized the distinction between high and low
performing students. In the situation of the question not specifying the students’ performing level, only
20% of the respondents agree that the higher education graduates will become better performing
employees (media 2.64, σ = 1.0). Contrary to the human capital paradigm, 39% of the employers do
not agree that higher education graduates will become better performing employees. Other studies
show that, according to employers’ opinions, the educational indicators do not play an important role
in the hiring process (Osoian, Nistor and Zaharie, 2010). Still, the results of the present study show
that provided the fact that the student is learning seriously during the studying period and has good
school results, the employers will consider the graduate as a future better performing employee.
Also supporting the hypothesis of the human capital theory there are the answers regarding the
salaries of the higher education graduates: 40% of the employers consider that higher education
graduates should get higher salaries (mean 3.30, σ = 1.1). A high percentage of the respondents
consider that if the educational system is of a high quality, the graduates would become better
performing employees deserving higher wages than undergraduates.
The human capital theory is opposed to the screening theory developed by Arrow (1973), according
to which the higher education system does not contribute to better performance of the graduate. The
education does not develop graduates’ competencies. The educational system has a filtering role, by
selecting individuals according to their potential. Still, even if the educational system does not develop
the graduates’ competencies, it still contributes to the employment process. Contributing to the job
selection, the education system can offer information to employers about the graduates with a native
higher potential. Starting from the screening theory, we decided to test the following hypothesis: the
educational diploma facilitates the employment selection process by the information it provides to
employers. Most of the studies test this hypothesis by analyzing the sheepskin effect (an increase in
graduates’ income as a consequence of receiving the graduation diploma). The wages of two
categories of graduates are compared: individuals who graduated receiving their diploma and
individuals who finished higher education, but did not get their graduation diploma. In that case the
two categories have the same number of years of schooling, but one category lacks the graduation
diploma.
We considered it relevant to verify this hypothesis by analyzing employers’ opinions regarding the role
of the educational system in the job selection process. Through three questions, we analyzed the
degree in which employers believe that the education system selects the more performing graduates.
Only 25% of the respondents consider that through the information provided, the educational diploma
facilitates the job selection process (mean 2.62, σ = 1.1). Also, only 7% of the employers consider that
the university system selects the good students from the poor students (mean 2.26, σ = 0.95). An
even lower percentage of companies, only 4%, consider that the university system selects the
students since the admission (mean 1.71, σ = 0.91). The research results bring support to the human
capital theory, but do not uphold the screening theory. Despite numerous voices stating that
education is not useful for graduates on the labor market, the research shows that the majority of the
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employers agree that through higher education graduates develop their knowledge, skills and
competencies. Furthermore, employers better satisfied with the quality of the higher education system
consider education to be even more useful in increasing graduates’ human capital (r = 0.22, p

PhD
Research
Papers
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466

Experiential Education as a Part of Human Development in
Czech Republic Business Companies
Radek Blahuš
Tomas Bata University in Zlín, Faculty of Management and Economics, Mostní
5139, Zlín, Czech Republic
blahus@fame.utb.cz
Abstract: For business companies, employees are undoubtedly one of the most important sources of
competitive advantage. Due to the fact, that these companies understand much more how important knowledge,
skills and quality of their people are, the importance of their systematic and efficient education and development
is growing too. If it is well prepared, experiential education brings very efficient way to develop human resources.
According to the results of David Kolb´s research, participants could recall six times more information gained by
communication, illustration and experience comparing to information gained only by communication and two
times more information comparing to information gained by combination of communication and illustration. This
efficiency is achieved primarily by direct involvement of participants in education process and by their own
activity. Experience of the participant, developed from solving tasks and problems, is after finishing the activity
analysed by targeted feedback supervised by lector. Main aim of this targeted feedback is to evaluate and
generalize the gained experience to a form of practically usable knowledge. Very high costs are a disadvantage
of this very efficient education. Sometimes it is also very difficult for companies to define main goal of the
program – what leads to vacuous use of experiential methods for amusing events – as rewards for employees
and managers. The main aim of this paper is to refer about results of quantitative questionnaire research among
Czech business companies from year 2011. This research is aimed at the range of experiential education in
these companies. It also tries to find the answers to questions about purposes for which experiential education is
used in them and what reasons lead them to use or not use it. Within this research framework, this paper shall
identify specifics of Czech experiential education. It is very different from similar programs offered abroad. Lots of
years, Czech Republic develops separately without any foreign influence and with specific nature conditions,
which don´t allow difficult expeditions in wild nature. But it starts formation of an unusual approach to experiential
education. It is known as Czech Way now and it is a subject of interest for a lot of experiential education
companies all over the world.
Keywords: experiental education, czech way, czech business companies, employee education
1. Introduction
Experiential education is a form of human resource development that was very growing before 2008
in Czech Republic. When crisis comes, it declined because of high costs. But in these days, as crisis
is leaving, this sector is growing again. Finally, it is not only an expensive fun for richest companies –
it is, if well prepared, very effective form of education with many positive externalities for company as
for employees.
Because of history of communist regime and specific environment conditions, it starts formation of an
unusual approach to experiential education in Czech Republic. Now, it is known as “Czech Way” and
it is a subject of interest for a lot of experiential education companies all over the world. It is
advantage for Czech companies, because they are able to use these methods at home, from people
who started the Czech way approach. This paper is aimed to refer about how Czech companies use
this unique advantage.
Because this paper aimed on Czech approach to experiential education and on Czech business
companies, mainly Czech information sources will be used.
2. Theoretical base of experiential education
The research of David Kolb suggests that no less than 80% of our knowledge comes from our own
experiences. These experiences are processed rationally into an experience, which we further follow.
(Kolb, 1981: 290-299)
Effectiveness of learning from experiences compared to just listening or listening with a demonstration
was confirmed by research performed by IBM and the UK Post. It was also found that knowledge
acquired from mere listening is much easier to forget, and the difference becomes more significant
with elapsed time from the process of learning. This dependence is shown in Table 1. (Svatoš and
Lebeda, 2005: 10-20)
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Table 1: An amount of remembered knowledge divided by methods of learning (Svatoš and Lebeda,
2005: 10-20)
Elapsed time Listening Listening and demonstration Listening, demonstration, experience
3 weaks 70% 72% 85%
3 months 10% 32% 65%
Experiential education tries to utilize this immense potential. It builds on the activity of the participant
and on the experience that arises in dealing with challenges and solving problems which the
participant is facing. The activity is followed by teacher-led feedback, which aims to assess the
experience and generalize acquired knowledge. This way the experiences are transformed into
experience usable in practice. (Clegg and Birch, 2005: 194)
This training cycle, described by an American psychologist David Kolb, is called Kolb learning cycle
and is shown in Figure 1. (Reitmayerová and Broumová, 2005: 26-27)
Figure 1: Kolb learning cycle (Davies, 2006)
Akella argue that the cycle can be entered in any stage. (Akella, 2010: 101) But the learning process
usually begins with action and seeing effects of the action (a person doing something and having a
concrete experience). Then come reflect on this effect - followed by understanding the general
principle and finally planning a practical approach to similar situation. (Mackay, 2007: 195-196)
Stages of this cycle are followed in a sequence and participants go through it several times, so this
process can be described as a spiral of these cycles. (Akella, 2010: 101)
Experiential learning serves well also for developing teams. A team can develop a composite image
of itself by reflecting on its experience through conversations that examine differences in members’
experiences on the team. This shared image becomes the guiding light that enables the team to learn
and shape itself to respond effectively to the challenges of its mission. (Adams, Kayes and Kolb,
2005: 6-7)
2.1 Forms of experiential education program
We can find many forms of experiential education programs. Lots of them are only fun actions without
any development potential. These are for example big fun outdoor actions for employees with their
families, small fun actions for limited number of employees or outdoor programs as an addition for
non-experiential trainings or as a relaxing program during conference or long meeting. Employees
enjoy these actions so it could be used as a reward for them and for informal meeting with other
colleagues. (Svatoš and Lebeda, 2005: 34-42)
But if we want to find real development, we have to look somewhere else. Highest development
potential of experiential education is in programs aimed at teambuilding and positive regulations of
group dynamics. We can also find courses aimed at skills or knowledge development - mainly soft
skills training. These could be very effective too, but well-prepared program is necessary. Very well
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prepared program is necessary also in special courses, which try to solve unusual, mainly personnel,
problems. (Svatoš and Lebeda, 2005: 34-42)
2.2 Advantages of experiential education
Main advantages of experiential education are in its effectiveness. Knowledge acquired this way is
very long remembered and simply recallable. Participants deeply believe in its veracity, because it
wasn´t only told them – they recognized it for themselves. (Svatoš and Lebeda, 2005: 27-28)
It brings also some positive externalities very often. Well-known is its ability to improve and deepen
relationships between employees. Participants could easily understand whole educational program
like an employee benefit – so its motivational effect is very beneficial too. (Svatoš and Lebeda, 2005:
29)
Organization of some unusual experiential program may be interesting information also for media, for
other companies or for jobseekers. So it could be used like a topic for publicity.
2.3 Disadvantages of experiential education
Well known disadvantage of experiential education is high costs. Very attractive programs cost more
money, of course. But attractiveness does not mean quality every time! It could disrupt participants
and take their attention away from the educational process very easily. Because of the high costs,
high effectiveness is expected. But the quantity of imparted skills and knowledge is not the main aim
of experiential education and it depends on the form of prepared program. (Svatoš and Lebeda, 2005:
29-30)
It takes a lot of risks to organize experiential education program. Although it is very-well prepared,
there is a risk of injury or accident yet. Also relationships between employees could be damaged, if
they were bad or complicated. (Svatoš and Lebeda, 2005: 30-31)
3. Czech way
The first who tried to use the principles of experience in educating adults was the German educator
Kurt Hahn (1886-1974). In 1941 in the UK, he established a school for training of seafarers Outward
Bound. Some of his courses lasted for several weeks, which is much longer in comparison with
experiential courses today. He also put emphasis on personal experience and cooperation with
others. These courses took place mostly on the sea, where the participants were completely thrown
back on their own resources, so the activities were absolutely true-to-life and had a real impact on the
participants. Ideas and findings of Kurt Hahn became basic principles for both worlds and Czech
approach to experiential education. (Kompot, 2007: 5)
Only few years after Outward Bound was established, development of experiential education in Czech
Republic went in slightly different direction due to the specific conditions. The result is an unusual
approach, also known as the Czech way. There are two main reasons for this - the communist regime
and the specific environment conditions.
3.1 The communist regime
When the system of experiential education was just beginning to shape, the Czech Republic become
isolated by the communist regime. This fact effectively prevented Czech pioneers of experiential
education from exchanging information with other countries, where the experiential education was
developing fairly similarly to each other. Besides that, it was quiet difficult to utilize experiential
education for courses for educating employees. So it was developing mainly in the field of education
of children and adolescents. Therefore the education aimed for general development of personality
rather than development of particular set of skills. (Hrkal and Hanuš, 1998: 13-15)
3.2 Specific environment conditions
The population density of Czech Republic is quiet high and it is equally distribute through the country.
It is situated in temperate climate with totally lack of wild nature. This is the reason, why this
environment is totally useless for expedition, so famous in other countries.
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So it was necessary to find an alternative approaches. These were found by Lipnice Holiday School. It
developed an original method of games with consistent use of motivation and method of dramaturgy.
(Hrkal and Hanuš, 1998: 13-15)
Method of games and consistent motivation was a logical solution of problem with useless
environmental conditions. It is not necessary for participants to climb a high mountain – if he or she
would be strongly motivated, he would feel the same emotions (happiness, disappointment,
exhaustion, satisfaction with a well-done work or dissatisfaction with poor management of their team)
also if he would only run up and down on a hill during a big strategy game. If he wants to win, he has
to do his best, to find the best strategy, cooperate with his team and also take responsibility for his
decisions and his results. (Svatoš and Lebeda, 2005: 23-34)
The method of dramaturgy is looking at the best order of activities and programs as a major tool for
achieve an ideal development impact on participants. Activities are selected with regard on its
continuity. It understands importance of bringing activities in order, where one is complementary to
another, and where whole program is escalating or contrasting (as actually needed). It is difference
from abroad, where the accent was mainly on the strong impact of single activities. (Hrkal and Hanuš,
1998: 13-15)
3.3 Advantages of Czech approach
In case of high usage of games in Czech Republic, a big advantage is lower level of risk – players can
try something what they couldn´t try in real life, because they are in a safe environment of a game,
without any real consequences. Also the risk level of injury and accident or risk level of emergence of
conflicts in group of participants is lower than during expedition courses. Games could be modified by
actual needs, so it is possible to prepare program exactly for solving of specific problems.
No special environment or terrain conditions are necessary, so the program could be run quiet close
to the company seat. The last, but not least, advantage is lower cost of these courses in average, but
it is not the rule.
3.4 Disadvantages of Czech approach
One of main disadvantages of Czech way courses is their less attractiveness then expedition
programs. Very often, participants are afraid of forcing to play an infantile game and to feel very
embarrassingly. It is very difficult to break these prejudices sometimes.
Experiential program, both Czech and abroad, should be very well prepared – but really quality Czech
way program needs a lot of work also from contracting company. It is very difficult to find real aim of a
course that would suit to company and would be realistic. But it is critical point. It decides if the
program would be successful or not very often. So the high intensity of preparing work is another
disadvantage.
3.5 Usage of Czech way courses
In case of advantages and disadvantages, Czech approach and Czech way courses are better for soft
skills developing programs and for solving of unusual problems, which could crop up in companies or
teams. Contrary, expedition type of courses, much more used abroad, is better for directing of group
dynamics and for team shaping.
4. Research methodology
Main aim of this research is to find out the range of usage of experiential education in Czech business
companies. It also tries to find answers to questions about purposes for which experiential education
is used in them and what reasons lead them to use or not use it.
Data was collected by quantitative questionnaire research during spring 2011 from among 182 Czech
business companies from many branches. Questionnaires were sent out by e-mail. Questions were
asked with predetermined range of possible responses and respondents could choose one or more
answers – according to the type of question. The research was divided by company size criterion.
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In the Figure 2 and Table 2 below can be seen relative and absolute frequency of companies divided
by their size.
Table 2: Structure of companies divided by size
Company size Absolute frequency Relative frequency
Micro companies (1-10 employees) 48 26,37 %
Small size companies (11-50 employees) 37 20,33 %
Medium size companies (51-250 employees) 56 30,77 %
Large size companies (over 250 employees) 41 22,53 %
Total 182 100 %
Figure 2: Structure of companies divided by size
4.1 Frequency of usage of experiential education programs
The aim of this part of research study is to confirm the validity of this hypothesis:
Hypothesis 1: At least 20% of companies use experiential education programs more often than two
times a year.
Table 3: Frequency of usage of experiential education programs among Czech business companies
Absolute frequency Relative frequency
Never 69 37,91%
Less than 1x / year 32 17,58%
1-2x / year 38 20,88%
3-8x / year 18 9,89%
More often 25 13,74%
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Figure 3: Frequency of usage of experiential education programs among Czech business companies
As we can see in Table 3 and Figure 3, nearly 10 % of Czech business companies use experiential
education programs from 3times up to 8times a year and 13,74 % companies even more often.
However, the most companies - nearly 38 % - don´t use these programs at all.
9,89 % + 13,74 % = 23,63 %
23,63 % ≥ 20 %
Hypothesis 1 was confirmed.
4.2 Frequency in using various forms of experiential education
In this part, the following hypothesis will be confirmed or rejected:
Hypothesis 2: Programs for positive regulation of group dynamics and teambuilding are the most
commonly used form of experiential education in Czech business companies.
In Table 4 we can see results from question, where companies choose which forms of experiential
education they use. Every company could choose any number of answers from none to all – if they
use all these forms. As we can see, the most commonly used form of experiential education program
is program that aimed at positive regulation of group dynamics and teambuilding (42,86 % of Czech
business companies use it). So hypothesis 2 was confirmed.
Table 4: Frequency in using various forms of experiential education among Czech companies
Absolute frequency Relative frequency
Group dynamics, teambuilding 78 42,86%
Addition use within another action 76 41,76%
Big fun actions 63 34,62%
Small fun reward actions 40 21,98%
Skills / knowledge development 15 8,24%
Solution of unusual personnel problems 8 4,40%
As said before, there are lot of forms of experiential education. Because it is very modern, many
companies use these forms only to looks modern, flexible and active. This may be one of reasons
why big fun actions or smaller fun reward programs are very commonly used. For the same reasons
are also used experiential or outdoor actions as an addition for non-experiential education program or
as a relaxing program during conference or long meeting – which are very famous, as we can see in
Table 4.
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Among favourite types of programs, there is only one with real development potential. It is program
aimed at teambuilding and positive regulations of group dynamics. It is well-known and proved by
many researches that experiential education has the ability to positively regulate group dynamics.
This may be the reason, why these types of programs are the most commonly used in Czech
business companies. But popularity of other development forms of experiential education is very low,
although they are able to be very effective too.
4.3 Effectiveness of experiential education
The aim of this research study was also to confirm the validity of this hypothesis:
Hypothesis 3: On a five-point scale, medium and large size companies at average consider
experiential education at least 0.5 point more effective then small size and micro companies.
Companies answered a question that was aimed to find out their opinion on the effectiveness of
experiential education. They have to choose a point at five point scale, where 1 was “Totally
inefficient” and 5 was “Very effective”. We can see results from micro companies and small size
companies together in Table 5 and results from medium and large companies together in Table 6.
Absolute frequency of answers was multiplied by its value. Then its total sum was divided by number
of answers to get an arithmetic average. We can also see median and modus there.
Table 5: Effectiveness of experiential education estimated by micro and small Czech companies
Micro + small companies
Points Absolute frequency Relative frequency Points * Abs. frequency
1 17 20,24% 17
2 13 15,48% 26
3 26 30,95% 78
4 19 22,62% 76
5 9 10,71% 45
Total 84 100,00% 242
Arithmetic average 2,88
Median 3
Modus 3
Table 6: Effectiveness of experiential education estimated by medium and large Czech companies
Medium + large companies
Points Absolute frequency Relative frequency Points * Abs. frequency
1 13 13,27% 13
2 27 27,55% 54
3 20 20,41% 60
4 22 22,45% 88
5 16 16,33% 80
Total 98 100,00% 295
Arithmetic average 3,01
Median 3
Modus 4
3,01 > 2,88
3,01 - 2,88 = 0,13
0,13 < 0,50
As we can see, effectiveness of experiential education estimated by medium and large Czech
companies is 0,13 higher than this value estimated by small and micro companies. This value is lower
than 0,5. The hypothesis 3 was refuted.
4.4 Most beneficial effects of experiential education
In this part, this hypothesis will be confirmed or rejected.
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Hypothesis 4: Regardless to their size, companies consider improving and deepening relations
among employees as the most beneficial effect of experiential education.
In this question, companies had to choose up to three most beneficial effects of experiential
education. Because some of them chose only one, amount of answers isn’t exactly equal to threetime
number of companies.
As we can see in Figure 4, regardless to their size, companies understand as most beneficial effect of
experiential education programs improving and deepening relations among employees. The second
most beneficial effect is motivation for employees. High amount of skills and knowledge transmitted by
these programs and that these skills and knowledge are very easily gained and accepted is also quiet
beneficial, as well as these skills and knowledge are long remembered and easily recallable. The
least beneficial point is publicity – it isn’t very important for most companies.
The hypothesis 4 was confirmed.
Figure 4: Most beneficial effects of experiential education estimated by Czech companies
4.5 Most negative aspects of experiential education
The last hypothesis to confirm or reject is:
Hypothesis 5: Regardless to their size, companies consider high costs as the most negative aspect of
experiential education.
In this question, like in the previous one, companies had to choose up to three most beneficial effects
of experiential education. Because some of them chose only one, amount of answers isn’t exactly
equal to three-time number of companies.
In figure 5 we can see that in total, high costs are really the most negative aspect of experiential
education. But most negative is in micro companies that have really small budget for such expansive
form of education. High costs are very negative also for medium and large companies, but there are
some more negative aspects for them. In medium companies it is problem with employees, that don´t
want to attend these programs and in large companies is organisational difficulty the most problematic
point.
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In total, the less negative aspect is low amount of transmitted skills and knowledge, high risk of injury
and that is not recommended to use experiential education programs with groups, where are very bad
or very conflict relations.
The hypothesis 5 was rejected.
Figure 5: Most negative aspects of experiential education estimated by Czech companies
5. Conclusion
So we can say that more than 20% of Czech business companies use experiential education by more
than two-times a year. Although it looks like quiet high result, most of these companies use these
methods only for fun motivational actions. From development forms of programmes, nearly only
teambuilding activities are used. Maybe that it is supposed by opinion of companies, that improving
relations among employees is the most beneficial effect of experiential education.
There´s not much difference between smaller and larger companies in opinion on effectiveness of
experiential programs. But for smaller companies, high costs are the main problem for organisation
these actions. For larger companies, organisational difficulty and unwillingness of employees to
attend these programs are bigger problems.
My opinion is that high costs and organisational difficulty is equal to quality that these programs could
offer. Unwillingness of employees is very often caused by their doubts about meaning and about a
program of an experiential course. If course is well-prepared and employees are informed enough
before it starts, it will bring very efficient form of educating for the company. I hope that Czech
companies will use more development types of experiential programs in future, because it brings
many positive externalities.
Acknowledgements
This contribution was written within the framework of the IGA (Internal Grant Agency, MSMT) grantmaintained
project: Reg. No. IGA/52/FaME/11/A, Applying and usage of employees’ education
methods with the Knowledge Management elements in the business companies in Czech Republic,
and with the financial support of IGA.
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476

The Testing and Validation of a Model for Leadership
Maturity Based on Jung’s Concept of Individuation
Danie du Toit 1 , Theo Veldsman 2 , Deon van Zyl 2
1
North-West University, Vanderbijlpark, South Africa
2
University of Johannesburg, South Africa
Danie.dutoit@NWU.ac.za
Theoveld@mweb.co.za
vanz@icon.co.za
Abstract: The aim of this paper is to report on a study set up to investigate the link between a leader’s level of
psycho-social maturity, as understood in terms of the Jungian concept of “individuation”, and effective leadership.
The application of this concept to leadership has never been undertaken before. The main postulate of the study
was that a leader who has progressed to higher levels of individuation will excel as a leader. Inversely, leaders
with lower levels of individuation will have a higher chance of organisational derailment and burnout,
manifestations of failed leadership. The study’s objective was to empirically test and validate a proposed
leadership psycho-social maturity model based on the concept of individuation (elsewhere reported) in terms of
its ability to predict leadership (in)effectiveness. It was found that individuation stages with their accompanying
attributes as manifestation of leadership psycho-social maturity indeed exist; this process unfolds in a circular,
rather than linear, way - to be further explored in future research. Though an empirically significant relationship
could not be found between the psycho-social maturity level of leaders and their chances of burnout and
derailment, the relationship was in the postulated direction. This finding was ascribed to the high levels of
individuation of the leaders studied. The major value of the study lies in the insight it provides into current/future
challenges, issues and problems in organisations, e.g. how leaders handle ambivalence, dilemma’s, paradox,
empowerment, burnout and derailment, all characteristic of organisational life, in their endeavour to grow in
psycho-social maturity. Additionally, women’s individuation, and the incorporation of the “feminine principle” in
organisations, needs serious attention.
Keywords: leadership, maturity, individuation, Jung
1. Introduction
Globally the demands on senior leaders of companies have changed dramatically over recent years.
Economic hardships and unrelenting changes in the context are disrupting organisational dynamics
and creating increased employee anxiety, decline in loyalty and mistrust in management. Macrochanges
demand more than just new competencies and behaviour of leaders. The leaders of the
future will have to be extraordinarily mature to cope with the demands placed upon them ( Buzan,
Dottino & Israel, 2007: 5; Daloz Parks, 2005; Gardner & Schermerhorn, 2004). The role of leaders has
become very complex; they have to deal with extremely high ambiguity levels (Development
Dimensions International, 2004; Plowman, Solansky, Beck, Baker, Kulkarni & Travis, 2007), while
simultaneously being expected to give followers some degree of certainty and clarity. Future leaders
need to inspire others to learn more about themselves (Smith Kuczmarski & Kuczmarski, 2007).
Leaders whose influence extends beyond bottom-line results are needed. Leadership should strive to
restore hope, optimism, resilience and meaningfulness (Avolio, Gardner, Walumbwa, Luthans, & May,
2004). Globalisation particularly forces leaders to lead in a seamless world. Leadership within
organisations needs to be not only better, but fundamentally different from the past.
Incidences of derailment and burnout are increasing. Bennis and O’Toole (2000) coined the term
“leadership churning” to describe the escalating turnover rate of CEOs and ascribed it mainly to the
more demanding nature of the position and the inability of boards to select the right people to fill these
positions. The concept of derailment and contributing factors are applicable across cultural borders
(Van Velsor & Leslie, 1995). Whereas derailment refers to the external manifestation of failed
leadership, burnout refers to the internal experiences of the person, when his/her energy runs out.
Burnout is usually caused by being over-stressed for extended periods of time (Schuler, 1982; Sharit
& Salvendy, 1982). The incidence of burnout among business leaders is at alarming levels
(Ammondson, 2001; Buzan et al., 2007: 5; Levinson, 1996). Derailment exemplifies and externalizes
failed leadership on an individual level. The characteristics of the derailed leader are very similar to
the characteristics of a less individuated person. These characteristics include: lack of empathy
(Macaluso, 2003), over-ambition, over-independence or over-dependence, abrasiveness,
defensiveness, arrogance, inability to adapt/develop, and volatility (Lombardo & McCauley, 1988).
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Danie du Toit et al.
Such changes with manifested consequences in derailment and burnout, demand more than just new
competencies and behaviour of managers (Bowles, 1997; Daloz Parks, 2005; Hogan & Raskin, 1990;
Kets de Vries, 2001). Successful managers of the future will have to understand their emotional,
irrational sides, and those of others (Kets de Vries, 2006). They will need exceptional interpersonal
skills (Kets de Vries, 2001) based on true appreciation of their own and other’s unconscious
processes (Crossan & Mazutis, 2007). They will have to live their values without becoming trapped in
their prejudices, projections and unconscious belief patterns.
Organisational leaders have to face their internal worlds more. Most people have unresolved issues;
because this “baggage” is usually unconscious (Kalsched, 1996; Pearson, 1986), its influence is often
ignored in studies on leadership behaviour. However, it could influence leadership and interpersonal
behaviour in adverse ways (Greenleaf, 1988; Jaworski, 1998), seeing that people often base their
decisions on and act according to unconscious belief patterns (Jaworski, 1998; Kets de Vries, 2001;
Pearson, 1986).
These belief patterns refer to what Jung called the archetype, anima/animus and the shadow (Jung,
1948; 1989; 1933/1990; Von Franz, 1998). Kets de Vries (2001; 2006) states that leaders must juggle
not only the external forces impacting on their organisations, but also the undertow of their own
characters. He believes the style and character of the CEO have a considerable impact on the
company. Kets de Vries (2001) found that the strategy, structure and culture of an organisation might
all be strongly influenced by the personality of its leader. Unless leaders really understand their
personal histories and are aware of their unconscious belief patterns, they will be inauthentic and
unable to truly empower others (Jacobson, 1993; Jacoby, 1999).
A key construct in psychosocial maturity is self-awareness. In Jungian literature, “awareness” is in
essence a synonym for “individuation”. Individuation refers to the process whereby the individual
becomes conscious out of the original state of unconsciousness and becomes conscious of
relationships (Jacoby, 1999). The astute leader is self-aware (Crossan & Mazutis, 2007) and attuned
to the nature of his/her relationship with followers, making behavioural adjustments to maintain and
improve interpersonal relationships (Church, 1998).
Despite the proliferation of research and writings on leadership, very little is yet understood about the
psychology of leadership (Kets de Vries, 2001). The work of Greenleaf (1988) suggests a new way of
looking at leadership. He emphasises personal characteristics of leaders. Jaworski (1998) and
Wheatley (1999) built on this and described leadership development as a journey of personal growth.
Both refer to Jung and their paradigms are compatible with a Jungian view. Bennis and Slater (1998)
also took a more intrapersonal view and stated that leadership is character and the process of
becoming a leader is much the same as becoming an integrated human being.
“Individuation” as a concept is well described and researched, but, possibly, because of its
complexity, no instrument to measure individuation level could be found. Jung (1948) defines
individuation as the process that forms and differentiates individuals; through which a person
becomes a psychological individual: a unique, separate, indivisible unit/whole, with the unconscious
becoming more integrated into the conscious. The person gains insight into his/her psychosocial
dynamics, i.e. his/her strengths and weaknesses.
Because the factors causing burnout and derailment are linked to personality and unconscious forces,
they are extremely hard to change. The usual “cookbook-style” efforts to develop leaders are clearly
failing. Approaching leadership in organisations from a personal growth (or individuation) viewpoint,
could add much to understanding the leadership crisis, derailment, burnout and the failure of leaders
to learn and change.
2. Problem statement
The aim of the study was to investigate the link between individuation levels and effective leadership
from a Jungian perspective. The main postulate informing the study was that a person who has
progressed on the journey of individuation will excel as a leader. Secondly, this study aimed to show
how chances of derailment and burnout as manifestations of failed leadership, may be reduced with
increasing individuation levels.
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Danie du Toit et al.
The objective of this paper is to report on the empirical testing and validation of the proposed model of
leadership individuation (du Toit, 2011).
3. Literature
Based on the literature review, a leadership individuation model was built. The three stages of
individuation described by Stein (2006), which develop sequentially (Stein, 2006), was utilised: a
person first builds self-confidence (the containing/nurturing stage) before facing the challenges of the
world (the adapting/adjusting stage), finally reaching purpose, meaning and integration (the
centring/integration stage). Stein (2006) however, state that these stages are metaphorical,
symbolical depictions and are described as overlapping and inter-dependent. Personal growth
towards maturity is not a neat, absolutely definable process, though stages and transitions between
stages can be differentiated. Stein (2006) explained these stages as a conceptual model of growth
towards maturity based on Jung’s (1959/1968) original work on individuation. No previous attempts to
empirically show that these stages exist and that a person develops sequentially through them could
be traced.
Based on the three stages, 10 leadership attributes divided among the stages, were identified from
literature (du Toit, 2011). These are summarised in Table 1.
Table 1: Attributes of individuated and unindividuated leaders
Stage 1: CONTAINMENT/Nurturing stage
Individuated Unindividuated
Attribute: Pre-leadership
Builds security as base for further development; challenges physical, psychological boundaries
Nurturing needs adequately met.
High self-esteem.
High self-confidence.
Strong nurturing needs.
Low self-esteem.
Low self-confidence.
Stage 2: AdaptinG/ADJUSTING stage
Faces challenges of the world
Individuated Unindividuated
Attribute 1: Balancing self-sufficiency with group/team orientation
Independent, self-sufficient wanderer, forms ego-identity
Independent, self-sufficient.
Conforming, others-directed: safety of collective defines
Self-directed, purposeful.
comfort-zone.
At peace with life history.
Lacks purpose.
Uncomfortable with life history.
Attribute 2: Balancing engagement, disengagement from self, others
Lets go of past.
Remains objective: faces reality.
Intermittently distances self from others, reflects
on events.
Open to change; breaks archetypal patterns
Holds onto past.
Subjective.
Unable to take meta-perspective.
Attribute 3: Managing polarity: balancing self-empowerment, empowering of others
Allows others to individuate
Tolerates imperfection in self, others.
Overly anxious about achievement.
Insight into own strengths, weaknesses.
Overly confident; hubris.
Growth-orientation towards self, others.
Main concern not own/others’ growth.
Attribute 4: Self-awareness, insight
Faces the shadow
Self-aware of inner world.
Gripped by unconscious, instinctual reactions.
Self-aware of core complexes and their power. Many “blind spots”: problems others are aware of but the
Accepts uniqueness of others.
leader not.
Tends to judge people different from him/herself.
Stage 2: AdaptinG/ADJUSTING stage
Attribute 5: Sense of deeper meaning, destiny
Incorporates archetypal images, creates collective meaning
Takes responsibility for own happiness, growth.
Views life as snapshot event.
Utilises learnings from past, lives fully in present Reacts without considering broader implications, context.
while considering impact on future.
Could be stuck in past, living only for moment or overly
Driven by deep sense of higher purpose,
anxious about future.
making contribution/difference; risen above
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egocentric self-interest.
Stage 3: CENTRING/IntegratinG stage
Becomes centred, whole, connected to transcended and immediate realities
Individuated Unindividuated
Attribute 6: Maintains composure, mental clarity amidst complexity, chaos
Able to enter flow-state, accepts he/she is “good enough” leader
Comfortable with complexity, ambiguity.
Comfortable with imperfection, fluidity, change.
Comfortable with lack of structure.
Ambiguity triggers dependency needs, anxiety.
Perfectionist tendencies.
Needs clear structure.
Attribute 7: Embracing, managing ambivalence, paradox
Faces, balances own anima/animus
Balances dynamic opposites simultaneously:
Not in touch with inner wisdom.
handles tension created by seemingly
Uncomfortable with ambivalence, paradox.
conflicting ideas.
Clings to all-knowing persona.
Balances forceful animus with reflective depth –
thoughtful anima.
Considers conscious and unconscious in inner
dialogue.
Stage 3: CENTRING/IntegratinG stage
Attribute 8: Living interrelated, interconnected
Aware of interconnectedness, synchronicity; expects small miracles; enters into true dialogue
Allows life to happen.
Tries to control everything.
Connected to transcendent world, practical
Feels alone, separated.
realities.
Self-serving.
Ready to serve something beyond him/herself.
Attribute 9: Experiencing psychological integration, wholeness
Experiences personality unification
Aware of self, potentialities.
Feels fragmented, compartmentalised.
Healthy dialogue between parts of self whilst Overly individualistic or becomes immersed in collective.
parts maintain independence.
Remains a stranger to him/herself.
Deep awareness of total self – known,
unknown; good, bad; strengths, weaknesses;
accepts self.
Some of the main constructs of the study were already well conceptualised and researched. Burnout,
its main indicators and its measurement with reliable and valid instruments are well established.
Derailment is also well defined and its main constructs well described, making it relatively easy to
devise a measuring instrument. Individuation, in contrast, has not been described in operational terms
yet. The need exists to build and validate an instrument to measure the degree of individuation as
expressed in leadership behaviour.
The expected relationships between the various constructs are depicted in figure 1.
According to Figure 1, a leader’s success is not only determined by his/her competence, which is
impacted on by level of maturity, measured here as individuation. The leader then performs in the
organisation - the external world - or derails. In his/her internal world, he/she copes or burns out.
Postulates derived from the literature review
Postulate 1
The stages of individuation as described in the ten attributes exist as identifiable entities
Postulate 2
The individuation process develops stage-wise and sequentially
Postulate 3
Individuated leaders can be reliably and validly differentiated from less individuated leaders.
Postulate 4
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The leader with higher personal maturity has less chance to derail or burn out than the less mature
one.
DERAILMENT BURNOUT
LEADERSHIP
PERFORMANCE
LEADERSHIP
COMPETENCE
Education
Training
Experience
Personality,
Character,
Temperament
External
manifestation
LEADERSHIP NEEDS
+ VALUES
Figure 1: Leadership maturity model
4. Research design
4.1 Research approach
Internal
manifestation
LEADERSHIP
COPING
LEADERSHIP BUILDING BLOCKS
• Leadership process
• Leadership roles
• Leadership styles and modes
• Leadership profile
• Leadership psycho- social dynamics
• Leadership culture
• Leadership community
LEADERSHIP MATURITY
• Measured by individuation
Micro-context
Macro-context
An interpretative paradigm was followed. The ontology was to interpret and understand the psychodynamic
forces underpinning successful leadership in organisations.
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4.2 Research process
Danie du Toit et al.
Firstly, the research was theoretical: to conceptualise the link between individuation level and the
success of leadership, and also between individuation level and the tendency of leaders to derail or
suffer burnout. The insights gained were placed in the context of current organisational realities and
the effect thereof on organisational success.
Secondly, the empirical part of the study was conducted to provide evidence for the conceptualisation.
For testing of postulates in-depth, semi-structured interviews, drawings and questionnaires were used
with a limited number of participants. The objective of this paper is to report on the empirical study
and findings.
5. Population and sample
The purposive sampling method was used. A sample of 30 leaders and potential leaders was
selected from 6 different organisations, all from different industries in South Africa.
6. Data gathering methodology
Semi-structured interviews were conducted with the selected participants, who were asked to tell their
leadership life stories and to make a symbolic representation of their leadership style and
philosophies in the form of drawings. They also completed Maslach Burnout Inventories, which
measures burnout, and a newly designed derailment questionnaire on themselves. The life stories
and drawings were evaluated by independent Jung-oriented psychologists. For scoring the life stories,
another newly designed instrument measuring individuation was used. Participants were asked to
nominate eight persons who knew them well. These persons received electronic questionnaires on
both derailment and individuation to complete on the participants.
A pilot study preceded the actual field study with the purpose of testing the data gathering methods.
Slight changes were made to the methodology after the pilot study.
All participants were offered feedback on their results compared to those of the study group. The
insights and confirmations obtained during feedback were incorporated into the findings.
The principle of triangulation was applied in an effort to ensure reliability and validity. Different data
collection methods were thus utilised to measure the dependent variable, individuation, in the
empirical study. These methods were: questionnaires, drawings and life stories. Previous attempts to
either measure individuation, or to determine the attributes associated with the stages of individuation
could not be found in literature.
The various methods used yielded two surprise findings: first, that drawings as a research technique
gave a reliable measure of an individual’s level of individuation. Second, that a person cannot
accurately assess his/her own individuation level: the self-assessment individuation levels had lower
validity and reliability than the other measures of individuation.
7. Data analysis
The data gathered were studied in-depth to gain some understanding of the psycho-dynamic factors
impacting on the success of these participants. To uncover trends and correlations between the main
variables of the study – individuation level, burnout and derailment - a non-parametric statistical
analysis was done. Inter-rater reliability was calculated to ensure the reliability of the data
interpretation.
8. Research findings and their implications
Overall, the key findings based on the empirical study were:
Individuation stages with accompanying attributes do exist. Based on this, it can be concluded
that we now have a validated leadership individuation model;
The individuation process unfolds in a circular way;
A focus on individuation could provide deepened insight into current issues and problems in
organisations, e.g. how leaders handle ambivalence, paradox, empowerment, burnout and
derailment;
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Danie du Toit et al.
Women’s individuation particularly needs serious attention. Apart from actual women,
organisations also need to understand the “feminine principle”. A new way of leading
organisations is needed in the post-patriarchal era. The “feminine principle” could provide a way
to integrate profit seeking with the personal growth of employees; and
The leadership individuation model and instrument provide a possible approach to enhance
leadership maturity.
In terms of the postulates the following findings were made and insights gained:
Postulate 1: The stages of individuation as described in the ten attributes exist as identifiable
entities
This study endeavoured to apply the individuation stages to leadership and to show in the field study
that these stages exist. That has been done successfully. Thus, postulate 1 was accepted. The
unique contribution of this study was also to identify and describe the main leadership attributes and
key behaviours associated with each of these attributes. The leadership individuation model
proposed, and as built from the literature review, was confirmed and validated by the field study.
Focusing on maturity could provide a holistic view of the leader. The proposed model provides a
possible basis for a coherent, systematic and integrated perspective on the personal development
and growth of leaders.
The major implication of this model for leaders is the different role it emphasises: that of the leader in
allowing others to individuate. If this role becomes a core role of a leader, it brings the role of peopledeveloper
forward, which should go a long way to alleviate many current problems and issues, such
as the shortage of competent leaders, leadership derailment and burnout.
Postulate 2: The individuation process develops stage wise and sequentially
This study built on the proposed three individuation stages developed sequentially (Stein, 2006). This
study attempted to show empirically that these stages exist and that a person develops through these
stages in a sequential order.
Though the results of the field study showed the existence of the three individuation stages, no
evidence could be found to conclude that participants develop sequentially through these stages. It
was found that participants scored markedly higher on Stage 2, Adapting/Adjusting, than the other
two stages. Postulate 2 could thus not be proved.
In general, it appeared that attributes dealing with personal growth form part of the earlier stages of
individuation whereas those dealing with other people are associated with later stages. This view is in
line with the growth process proposed by Emotional Intelligence literature (Cooper & Sawaf, 1997;
Goleman, 1996), which proposes that a person should first understand and deal with his/her emotions
and then learn how to understand and deal with the emotions of others. This view also makes it
plausible that more emphasis on developing the containment/nurturing stage is needed as
prerequisite for further development to stage 3.
Though the field study could not prove individuation as a sequential process through the stages and
attributes as described, enough evidence exist to confirm their existence. Though three stages are
described, it is clear that individual growth can never be reduced to a simple linear process. Personal
growth is more complex and rich. The stages and attributes exist and it is expected that future
research will be able to prove that it does take place in a sequential order from stage 1, finally
reaching stage 3. Future research should also investigate growth beyond stage 3.
One of the main implications of the findings regarding postulate 2 is that organisations should give
more attention to the development of the attributes relating to Containment/Nurturing and
Centring/Integration. The emphasis on Adapting/Adjusting should be balanced by this shifting focus.
The findings challenged the notion that individuation is age-bound (Jung, 1959/1968; Stein, 2006).
They maintain that individuation only becomes important to a leader during the second half of life. In
this study some of the persons with the highest individuation rating were younger than 30. This could
mean that it is possible to accelerate the maturing process, which is important because of dire need
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for mature leaders. The newly developed instrument measuring individuation could assist the
maturing process by indicating aspects to develop.
Postulate 3: Individuated leaders can be reliably and validly differentiated from less
individuated leaders
This postulate was partially accepted. The findings showed that the stages and attributes do exist
(postulate 1) and that they probably develop in some sequence (postulate 2). To utilise the stages
and attributes in the selection and development of leaders, they must be measured in individual
leaders. No previous attempts to measure individuation could be traced in literature.
Further research is needed to determine the impact of cultural, racial and gender differences on the
individual leader’s individuation process. In practice, organisations need to devise programs to grow
individuated leaders.
Postulate 4: The leader with higher personal maturity has less chance to derail or burn out
than the less mature one
This postulate was partially and conditionally accepted. No significant relationships were found
between individuation levels, propensity to derail and levels of burnout. All participants scored fairly
high on individuation evaluations, with both derailment and burnout scores measuring low. Though no
significant relationship could be found between individuation levels, a visual inspection showed that
they were in the expected direction: a higher degree of individuation was associated with lower
degrees of burnout and derailment.
9. Conclusion
This study attempted to link concepts from diverse fields to produce unique insights. The study of
leadership is usually seen as belonging to the field of business schools whilst Jungian concepts are
usually studied by Clinical Psychologists. It is believed that this Industrial Psychology study which
attempted to straddle the fields showed some worthwhile insights and has made a meaningful
contribution to our understanding of leadership.
Some implications are that current leadership development interventions should be expanded to deal
with psychological maturing of leaders, with the focus on developing Stages 1 and 3 in particular.
Furthermore, the growing emphasis on employee wellness should include the leader’s role in creating
healthier organisations.
Given the changing demands on leaders, organisations must be transformed to become more
individuation friendly, thus nurturing more individuated leaders, a necessity for future organisational
success. A revised approach to leadership selection and development to identify individuation levels
is also needed, assisting organisations in addressing the challenges of the current leadership crisis of
heightened incidents of burnout and derailment.
Looking at the type of organisations we have created, a totally new type of leadership is needed. This
leadership should embrace the more “feminine” principles of the Nurturing/Containment and
Centring/Integration stages. Organisations clearly need leaders who are integrative thinkers (Avolio,
2007; Maak & Pless, 2006; McKinsey Global Survey, 2009). Particularly the attributes associated with
Centring/Integration are likely to become increasingly important.
The new leader will not only have to be extremely mature, but must also be able to allow others to
individuate and become mature. Command-and-control leadership hence will probably have to
disappear. The new organisation will depend more than ever on the maturity and integrity of
employees. Balancing self-empowerment with empowering others (an attribute of
Centring/Integration) was less well developed for participants. It can be argued that empowerment will
probably grow in importance in organisations.
The psycho-dynamic approach to leadership could potentially address some of the major emerging
leadership challenges. The application of the construct “individuation” to leadership increases the
chance to remove blockages to the growth of individual leaders; thus decreasing the leader’s
propensity to burn out and derail. Increasing individuation leads to more abstract thinking which
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enhances the leader’s ability to handle complex issues and paradoxes typical of the emerging new
world order.
From an individuation point of view the emphasis of future leadership development should clearly be
on self-knowledge and self-understanding. These personal attributes form the basis of mature
leadership. The immature leader is unlikely to be able to handle the ambiguousness, complexity and
ethical dilemmas he/she will be faced with.
The question which inevitably arises: can Jung’s insights now, more than forty years after his death,
contribute anything to our understanding of leadership in complex, global organisations embedded in
an increasingly demanding context? The answer is a very definite “yes”. His concept “individuation”,
probably his main contribution, has been almost ignored. It is believed that individuation as a concept
can in future greatly contribute to our understanding and development of leaders in organisations,
especially in the new world of work that is emerging.
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486

Relationships Between Human Resources Management
and Organizational Culture
Nicoleta Valentina Florea, Ioana Raluca Goldbach and Felix Constantin
Goldbach
University Valahia of Targoviste, Romania
floreanicol@yahoo.com
ioanagoldbach@yahoo.com
felixgoldbach@yahoo.com
Abstract: People are the active resources of the organization because of their potential, experience and passion,
their development and their initiatives actively contribute to increased efficiency and organizational effectiveness.
Without human presence is simply impossible for an organization to achieve its objectives. Human resources are
the only inexhaustible resource of creativity, new ideas and solutions, original and valuable. The ability of an
organization to use its human capital as a core competency depends at least in part on the organizational culture
that is operating. Organizational culture consists of the shared values and beliefs that give members of an
organization meaning and provide them with rules for behaviour. This article shows the relationship between
human resources management and organizational culture, but also it shows in what ways can organizational
culture influence and shape a human resources function, in order to obtain performance. Also, we will show that
the culture of an organization and the human resources management function are inseparable.
Keywords: human resources management, organizational culture, organizational strategy, performance
1. Introduction
Human resources are a key resource, vital for organizations in their competitive success. More and
more the competitive advantage of an organization lies in its people.
In any organizational culture, a human resources manager can help an organization to obtain
performance, productivity, flexibility, effectiveness, innovation or equity and diversity. The tone for the
culture begins with organization leaders and other members of the executive team. Organizational
culture establishes standards of behaviour, many of which are unritten, for all employees.
Organizational culture have a strong influence on the performance and general behaviour of the
human resources system, and affects what human resources system does , how it does it, to whom,
and when. Culture is a significant part of the foundation that determines the general design, structure,
functions, and change. Human resources management function is implyed when planning and
initiating organizational changes. Thus, human resources department must have staff members with
change agent competencies. These staff must have the ability to build trust within employees and
minimize the negative reactions.
2. About human resources management and organizational culture
The human factor is recognized as being one of the key factors in obtaining the organizational
success (Larsen H.H., Brewster C, 2007).
In the XXI century human resources are the major source which gain competitive advantage and may
be an important determinant in obtaining long-term performance. Organizations have realized that
their success depends on their ability to attract, develop and retain talented staff.
Organizations have realized that human resources management became the main aspect of business
administration. The secret of success it is not only reside in technologies but also in ensuring that the
team consists of people who give all the best to succeed. People are an essential characteristic of the
effective organizations. To obtain efficient products and services, technological innovation is needed
and this can be achieved only through the efforts and enthusiasm of human resources. Organization's
success lies in attracting the best and better trained people.
Today, human beings are recognized as the central most precious business resource (Reed A.,
2001).
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Nicoleta Valentina Florea et al.
The HR area is one of the most sensitive and delicate areas in any organization because it is the
place where generally of the sensitive pieces of information are deposited and kept (Moore R., 2008).
“Human resources is no longer about trying to smooth the ride for others; it is about
navigating business into uncharted waters” (Reed A., 2001).
Many organizations recognize that people are the core of their successful activities:
“Abbey National is nothing without its people”- Abbey National,
“We recognize that it is our people that make things happen”- BAE Systems,
“Everything we do rely on people”- BP Amoco,
“People are the key to the success of the business”- British Airways,
“We have continued to invest in our most important resource of all- our people”- Dixons,
“The difference between successful and less successful organizations ultimately lies in
the quality of their staff”- HSBC.
Managers are often under great pressure to improve the performance of their organizations. To
improve performance, needs to constantly evaluate operations or process related to producing
products, providing services, and marketing and selling products. The ability of an organization to use
its human capital as a core competency depends at least in part on the organizational culture that is
operating. Organizational culture consists of the shared values and beliefs that give members of an
organization meaning and provide them with rules for behavior. These values are inherent in the ways
organizations and their members view themselves, define opportunities, and plan strategies. Much as
personality shapes an individual, organizational culture shapes its members’ responses and defines
what an organization can or is willing to do. The culture of an organization is seen in the norms of
expected behaviors, values, philosophies, rituals, and symbols used by its employees (Mathis R.L.,
Jackson J.H., 2008). Culture evolves over a period of time. Only if an organization has a history in
which people have shared experiences for years does a culture stabilize. Culture is important
because it tells people how to behave (or not to behave). Newcomers learn the culture from the senior
employees; the rules of behavior are perpetuated (Mathis R.L., Jackson J.H., 2008). These rules may
or may not be beneficial, so that the culture can either facilitate or limit performance. In one culture,
external events might be seen as threatening, whereas another might view risks and changes as
challenges requiring immediate response. The culture type can be a source of competitive advantage,
especially if it is unique and hard to duplicate.
Culture can be defined broadly as a set of more or less coherently, weaker or stronger articulated, the
values, meanings, behaviors and organizational practices that effectively provides both the main grid
and interpretation of organizational reality orientation organizational conduct. It is therefore a symbolic
system more or less shared by members of an organization. Culture is understood as either a
cognitive process of adaptation to specific contexts of organizational diversity and integration in this
reality (Schein E.H., 2004) or as a resource to act and order "political" in the same reality, with which
individuals become aware of how it can "act on the truth" (Pettigrew M. et all., 2003).
Organizational culture is a pattern of group responsibility that they invent, discover or develop as they
learn to solve problems of external adaptation and internal integration, that works well enough to be
considered valid and therefore, are transmitted to younger members as the correct way to perceive,
think and feel about those issues. Culture is more than the values of a group, it is the end result
reached by repeated successful and gradual process of consideration of certain things as truth
without question.
In general, organizational culture is a system of values, assumptions, beliefs and norms shared by
members of an organization that unites them. Typically, culture reflects the views or views on "how
things are done here”. This concept is sometimes called corporate culture because the concept of
culture is often used to describe the internal environment. The concept of culture can be used to
describe the internal conditions, is important because individuals act based on values shared by them,
their behavior, can have a significant impact on organizational activities (Pietkiewicz E., 1999). Culture
affects service and quality, organizational productivity, and financial results. Culture affects the
attraction and retention of competent employees.
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Nicoleta Valentina Florea et al.
A corporate culture is the combination of the values and characteristics that define an organization. It
influences the way employees relate to one another, to customers, to shareholders, and to business
partners (Fairbairn U.F. from Losey M. et all., 2005). It drives behaviors and unites employees around
a shared set of values. It can lift our performance and improve our work environment. Companies with
strong, formally articulated values that are focused on the needs of their constituencies have an
important advantage over those without such values.
Culture is both a dynamic phenomenon that surrounds us at all times, being constantly enacted and
created by our interactions with others and shaped by leadership behavior, and a set of structures,
routines, rules, and norms that guide and constrain behavior (Schein E.H., 2004).
3. Aligning HRM and organizational culture with the organization strategy to
obtain performance
The general objectives of human resource management aimed increasing organization
competitiveness, productivity and quality, the rules and legal obligations compliance, but also social
and individual development and thus promoting organizational development. In the past one of the
main roles of human resources was to follow compliance laws, rules and regulations, and today
besides these necessary functions is aimed getting results, too.
Other objectives pursued (Vasile E., 2004) by human resource management:
Help organizations to achieve their goals;
Use effectively the skills of the workforce;
Provide for the organization well-trained and motivated employees;
Increase the level of employee satisfaction from work;
Communicate the personnel policy to all employees;
Help and maintain the professional ethics;
Help introducing the trade benefits for the individuals, groups and the public.
I would add that another important goal would be aligning HR with organizational culture and
organizational strategy, in order to achieve the organization objectives and to obtain competitiveness.
When these objectives are met, then the activity of human resource management can be considered
effective and useful for the organization.
The logic of having HR involved with strategic planning seems clear enough, the implementation is
apparently not as widespread as expected.
A BNA study summarized HR’s strategic performance notes:
Top management usualy does not assess HR on its strategic contributions,
Only about one-quarter of firms monitor effectiveness/productivity statistics- measures clearly tied
to business strategic performance,
Around one-half of organizations do not have an HR strategy,
Forty percent of firms report weak or no links between HR and overall strategic planning.
A wide array of data from both academics and consulting firms shows that HR practices really do
make a significant difference to business outcomes. For instance, companies that follow HR best
practices have more than 50% higher market value than those who do not. Some recognized HR best
practices include: employment security, selective recruiting, high wages, information sharing, training,
promotion from within, measurement (Mathis R.L., Jackson J.H., 2008). The use of these HR best
practices will illustrate that HR strategies help both employees and employers to obtain performance.
Walker defines the human resource management as "mean of alignment of HR to the strategic
context of business" (Baron A., Armstrong M., 2007) and can be described as an approach to making
decisions on the organization's intentions and plans, to achieve the policies and practices governing
employment relationships, talent management, knowledge management, learning and development,
performance management and pay systems of human resources.
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To align human resources management with the mission and the objectives of the organization, it
must take into account the following three approaches (Lengnick-Hall C., Lengnick-Hall M., 1998):
Matching management style or personal activities with organizational strategy;
Morecast demand for labor depending on strategic objectives and environmental conditions;
Presenting the means of integrating human resources management in global efforts to match the
strategy and organizational culture.
Aligning human resource management with the strategy and the organization's strategic objectives is
the integration of the decisions concerning human resources in the decisions regarding the obtaining
organization results and demonstrate the value of human resources management in the organization.
This involves the integration of human resources in the planning process of the organization,
determining those HR activities that lead to achieving results and building strong relationships of
human resources.
Aligning human resources with the organization culture is a vital process for the organization in
achieving its objectives and delivering results.
The impact of human resource system on the results achieved is possible by aligning the organization
of this system with the organization's strategy, technology and life cycle of the organization.
Organizations that compete and have a well defined long term strategy must align the human
resources system strategy by investing more in its people. Under this concept, organizations that
achieve such alignment will have a greater success, and other organizations can reach even into
bankruptcy.
People are the key resource that influences every element of the strategic management of an
organization (Millmore M. et all, 2007). Also, human capabilities and strategic choice influences
transposition efficiency in practice. Understanding and development of a strategy is very difficult and
very important in order to achieve its objectives and obtaining competitive advantage.
The strategic planning allows organizations to know where they are, where they want to get and how
they plan to get there. The strategic implementation of human resources management supposes
adoption of some activities which can sustain the organization objectives and measuring the
contribution of these activities to achieve the strategic objectives of the organization. It wasn’t been
precisely determined which activities of human resources management help to achieve the
organization objectives, but the most mentioned activities by the human resources managers and
having a valuable contribution are: the recruitment and the selection processes, human resources
development and employment relations (US Office of HRM).
Human resources activities to help organizations achieving the competitive advantage and to achieve
its objectives, strategic human resources management must align strategically to the mission and to
the organization objectives.
For an organization to develop an effective strategy must: be formulated on the basis of sufficient
information; align the organization's general strategy; be developed on long term; represent the basis
of a strategic plan; create strategic feedback; lead to results; achieve its objectives, and human
resources strategy must:
Proceed from the general strategy of the organization;
Calculate the personnel turnover;
Elaborate good plans for recruitment, selection, employment, integration, training, development,
evaluation, promotion, remuneration, motivation, retention (by a well trained human resources
department with specialists in these areas);
Support the organization's values;
Meet the organization's culture.
Comply with the regulations and the legislation in force (to avoid discrimination and to apply
ethical principles and peers opportunities to all candidates and employees);
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Be made in writing and to be communicated to employees and to receive feedback after collective
discussions.
Alignment of the organizational culture and HR strategy help effect such aspects as merger success,
productivity, and whether human capital can indeed be a core competency (Mathis R.L and Jackson
J.H., 2008).
More and more say that HR is viewed as a strategic partner and their knowledge and abilities are
perceived as a core competency for organizations.
A corporate culture is the combination of the values and characteristics that define an organization. It
influences the way employees relate to one another, to customers, to shareholders, and to business
partners (Condrey S.E., 2010_.
“Culture does not change because we desire to change it. Culture changes when the
organization is transformed; the culture reflects the realities of people working together
every day” - Frances Hesselbein.
As a strategic business partner, HR can have a powerful impact on a company’s operational and
financial outcomes by leading a cultural transformation.
4. The influences between HR and organizational culture
The nature of the human resources management influence depends on the role the personnel
function that plays in an organization and the model existing in the organization. In an organization
where it is a centralized strategic human resources management model, human resources
management has a strong influence on the organizational culture (Condrey S.E., 2010). In those
organizations where it is a consultative or organizational development model, human resources
management participates in the formulation and implementation of organizational change and
development initiatives, and its influences on organizational culture will be more difficult to identify.
Not in any organizational culture, a human resources manager can help an organization to obtain
performance, productivity, flexibility, equity, innovation, effectiveness, or diversity.
The culture and climate of an organization can serve as levers for influencing people to change or to
maintain their beliefs, values, attitudes, and patterns of behaviors, their willingness to truly listen to
clients’ options, their approach to work, and their willingness to collaborate with people from other
organizations. Organizational culture may encourage its staff to collaborate or to participate in
teamwork for improvements.
A human resources manager needs methods for identifying, interpreting, changing, and maintaining
organizational culture and climate. In many organizations human resources managers have the role of
important actors for organization’s effectiveness. HR managers’ initiatives affect organizational
productivity and flexibility.
For example, the attraction of those talented candidates in the recruitment process, will affect the
organizational culture, and the organizational culture affect the recruitment processes (Condrey S.E.,
2010).
Many organizations spend money to attract qualified employees to retain them, and to “fit” them with
the organization culture. To attract the best candidates and to achieve its objectives, the organization
launches the recruitment advertising, in the country or abroad, depending on finding the best prepared
candidates.
Recruitment advertise must present the organization name and profile (its main activity) with brief
references, because is a form of indirect advertising and the organization may become known; the
organization with a good reputation will attract valuable candidates (Panisoara G., Panisoara I.-O.,
2007).
In the new K- Economy HR managers and specialists must focus on new recruitment and selection
methods, such as:
Recruitment and selection based on competencies and knowledge;
Recruitment based on organizational brand;
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Nicoleta Valentina Florea et al.
Selection made via networks, personal references, reputation(Saul P., 2003);
Maintain HR offering rewards, teamwork, implementation of sustainable development, notdiscrimination,
equity, equal chances;
Recruitment and selection aligned with the organizational culture, with their objectives, mission,
knowledge management, and innovation;
For recruitment and selection effectiveness the organization must determine net costs, value of
intellectual capital, number of talented candidates applying for advertised jobs.
Corporate culture is critical to success in knowledge economy. “Successful knowledge sharing is 90%
cultural, 5% tools, and 5% magic”- Koskiniemi M., VPHR, Buckman Laboratories.
The biggest danger for the organization is to show a wrong image about itself and not keep its
promises made in the recruitment process - Gunther Everart, recruitment manager.
Socio-professional integration represents the assimilation of a person in the professional environment,
adapting to the demands of work and the behavior of group in which is working, accommodation and
the adequacy of his personality to the group, and more important to its culture (Paus V.A., 2006).
Integration is when the new employee becomes familiar with the organizational culture, the internal
regulations, working time, breaks and social activities. Successful organizations will make sure these
processes are treated as important and allocate them sufficient resources (Martin M., Jackson T.,
2008). A nice receiving doubles the chances of maintaining the new employee into organization for a
long time (Lakhdar S. et all., 2001). Professional integration is familiarity with the new place and
conditions of employment, accommodation of new employee with the group work, creating an
atmosphere of safety, privacy and belonging, so that the new employee and to acquire confidence in
their ability to perform job duties (Omer I., 2003). The period of integration of a new employee is
required because he can not work effectively without knowing the organization and the complexity of
tasks make impossible their fulfilling without an initiation in advance. Some organizations do not take
into account these arguments and require the employee to work from day one. For the employee
appears a stressful situation, on professional and in the relationships plan (Paus V.A., 2006).
Because of the organizational integration importance and complexity it is necessary to create specific
programs of integration, which can ensure the problem solving of both sides (Varzaru M., 2000).
Communication in the selection process (interviewing) is to inform the candidates about the
organization, its culture, its vacancies and its demands, being an instrument of public relations of the
organization and give the candidates the opportunity to provide more detailed information on their
professional past and their future aspirations (Omer I., 2003).
They must create programs to encourage good employees to stay with the organization (Bogardus
A.M., 2004): opportunities for advancement; new challenges and responsibilities; opportunities for
growth and career development; training opportunities; appreciation for what they do; flexible work;
mentoring programs.
Changing or maintaining organizational culture and climate can be a complex, time-consuming,
expensive, unpopular, and risky process. HR managers that take the role of change agents need
special skills, and abilities that may not be readily available in organization’s departments from reliable
consultants. When an organization’s culture must be changed, top management needs those
resources to accomplish its objectives on time and into an turbulent environment. In every department
there are their own cultures, which may suppress and repel people who have abilities and skills suited
to organizational change. Thus, the organizational culture has an important effect (sometimes a
negative effect) on internal recruitment, selection, establishing compensation, evaluating
performance. This change-resistant organizational culture has effects on HR practices and their
effectiveness.
Organizational climate is easier to change and to measure, but it can be transitory, like a mood
(Condrey S.E., 2010). Organizational climate is close to the surface and relatively easy to sense.
Changing events or leadership can cause it to swing, and the changes appear immediately.
Organizational culture is different. It is embedded in the fabric on an organization. When an
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organization claims that an organization’s culture has changes, actually only the climate has changed.
When the culture is changed it stays changed. Culture is integrated to an organization and cannot be
manipulated easily.
When one brings culture to the level of the organization and even down to groups the organization,
one can see clearly how culture is created, embedded, evolved, and ultimately manipulated, and, at
the same time, how culture constrains, stabilizes, and provides structure and meaning to the group
members (Schein E.H., 2004).
When new employees are coming into a multinational company, they must adapt with the new job, the
new foreign language, the new habits, new colleagues, new behaviors, new work style, and must
adopt certain values and norms that define the occupation. If they will understand the dynamics of
culture, they will be less likely to be irritated, and anxious when they encounter the unfamiliar and
seemingly irrational behavior of people in organizations, and they will have a deeper understanding
not only of why various groups of people or organizations can be so different, but also why it is so
hard to change them.
Even more important, if the employees will understand the forces acting within that define who they
are, that reflect the groups with which they identify and to which they want to belong.
“Culture is the deepest, often unconscious part of a group, therefore, less tangible and
less visible than other parts” (Schein E.H., 2004).
“Organizational culture is not just another piece of the puzzle, it is the puzzle…. A culture
is not something an organization has; a culture is something an organization is”
(Pacanowsky and O”Donnell from Condrey S.E., 2010).
Human resources management is an active participant in setting the tone and direction for employee
involvement’, thus is affecting the organizational culture. HRM has a central voice in the design of
intervention’s, that are consciously intended to alter aspects of the belief and value systems of
managers and employees- core elements of the organizational culture.
HRM influences beliefs, attitudes, and behaviors toward compliance with laws and regulations, key
components of the fabric of the organizational culture. The organizational culture influences the
philosophy, structure, and the direction of HRM departments and functions (Gibson and James from
Condrey S.E., 2010)]. The organizational culture determines whether the organization will be a leader
or a follower in the market because the compensation system reflects and communicates how the
agency values its employees.
The sustained success of organizations has less to do with market forces than with company values,
less to do with resource advantages than with vision (Cameron K.S., Quinn R.E., 2011).
Once the policy and practices of employee development have flowed horizontally and vertically within
the organization and have become part of the lasting culture of the organization. Many corporations
spend important sums on executives with personality to determine if they “fit” into the organizational
culture. This shows how the organizational culture shapes the staffing functions. The organizational
culture also has an important influence on how they treat education and training costs as an expense
or as an investment. The organizational culture has an important influence on whether an organization
use teamwork or individualistic work, and on employee performance.
HRM is directly influenced by organizational culture because it must design and implement reward
systems and employee and management development systems that reflect collaborative or
individualistic activities.
Organizational culture establishes standards of behaviors, many of which are unwritten, for all
employees. The tone for the culture begins with organization leaders and other members of the
executive team (Bogardus A.M., 2004). Whether the organization’s leaders treat employees with
dignity and respect, or somewhere between those two extremes, their behavior is generally emulated
by managers and supervisors at lower levels in the organization and, in turn, affects the way individual
employees do their jobs.
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If a CEO spend 16 hours every day at his/her job, executives who report to him/her will do the same in
order to impress their bosses. This make the culture to be successful; the employees spend at least
as much time at work as their managers. The managers who maintain a balance between their work
lives and outside activities create an atmosphere that encourages other employees to do the same. In
these organizations, employees who want to “impress the boss” develop interests unrelated to their
work and have more balance in their lives as a result.
People and the whole communities may not be aware of their own culture because they have not
learned a trade as a structural or technical component. Values and beliefs that a culture develops
over of generations, transmitted from generation to generation and is normally unconsciously acquire
very early in people's lives, family, school, through religious education, employment and the contact
other members of society.
In terms of awareness of culture, these can be achieved only through prolonged contact with other
cultures, in which case it should be understood not only the crop but also its culture. Social contacts
and work with other cultures gives us a mirror to see our own culture. Culture is particularly important
for people.
However, a culture reflects hundreds of years of social experience and helps man to adapt and solve
problems of life. Therefore it requires respect and tolerance towards other cultures values and beliefs,
but their precious foreign to other people. Some cultures show a high degree of tolerance towards
other cultures, while others are not, therefore, here we can realize the great responsibility incumbent
manager or leader.
Understand and respect the culture eventually take ethics as organizational cultures or micro-cultures
reflect national culture above all other norms and values include. Recent research has already
provided a picture of the organizational culture of the leading companies that have shown that these
firms have achieved remarkable results over a long period of time through a strong corporate culture
of its own.
Leading people is a task much more related to culture and value-laden than any other area because,
for a practice field, country, company proved to be unaffordable for others. The "human element" in
the organization began, therefore, regarded as the most valuable resource of an organization. It
follows a series of conclusions on: how to treat people, how to motivate the choice for high
performance and processing systems.
Corporate culture is the magic phrase that managers need to know. The impact of culture on
organization performance in perspective is mainly a positive phenomenon, required to restore a
balanced approach of the organization's problems. A sophisticated management information system
may not lead to any improvement in performance if they ignore culture (Kilmann R.H., 2001).
Specific HR strategies depend on the strategis and plans of an organization. But how specifically can
HR professionals provide the perspective and expertise to be a successful part of the strategic
planning process.
They can:
Understand the business, knowing the financials and the key drivers of business success are
important to understanding the need for certain strategies,
Focus on the key business goals. Programs that have the greatest relevance to business
objectives should get priority,
Know what to measure. Metrics are a vital part of assessing success, which means picking those
measures, that directly relate to the business goals,
Prepare for the future. Strategic thinking requires preparing for the future, not focusing on the
past- except as a predictor of the future.
The ability of an organization to use its human capital as a core competency depends at least in part
on the organizational culture that is operating. Organizational culture consists of the shared values
and beliefs that give members of an organization meaning and provide them with rules for behavior.
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These values are inherent in the ways organizations and their members view themselves, define
opportunities, and plan strategies. Much as personality shapes an individual, organizational culture
shapes its members’ responses and defines what an organization can or is willing to do.
The culture of an organization is seen in the norms of expected behaviors, values, philosophies,
rituals, and symbols used by its employees. Culture evolves over a period. Only if an organization has
a history in which people have shared experiences for years does a cultura stabilize(Mathis R.L.,
Jackson J.H., 2008).
A relatively new firm, such as a business existing for less than two years, probably has not developed
a stabilized culture. Managers must consider the culture of the organization because otherwise
excellent strategies can be negated by a culture that’s incompatibel with the strategies. In one culture,
external events in an idustry might be seen as threatening, whereas another culture might view risks
and changes as challenges requiring immediate responses. The latter type of culture can be a source
of competitive advantage, especially if it is unique and hard to duplicate. Organizational culture should
be seen as the “climate” of the organization that employees, managers, customers, and others
experience. This culture affects service and quality, organizational productivity, and financial results.
Alignment of the organizational culture and HR strategy help effect such aspects as merger success,
productivity, and whether human capital can indeed be a core competency.
5. Conclusions
Human resources management should fully understand the important roles that culture and climate
play in their organizations, particularly in enabling or inhibitions change. HRM professionals need to
see the nature of culture and climate and use different strategies for identifying them. This will help
HRM structure and functions become parts of strategic management of the organization. Culture has
an important influence on employee relations management, policies, and practices. Depending on its
culture, the organizations are preoccupied with doing things legally, and its managers spend much
time and effort addressing processes and rules to govern employee relation issues; where the
managerial style is more organic, employee relations are managed in a more open climate, and
employees may even participate in establishing the rules of behavior. There is no doubt that the right
culture can make a great difference in a company’s ability to compete, succeed, and grow.
Undoubtedly the culture will help the organization to earn the loyalty of customers, attract and retain
satisfied employees, and ultimately drive business growth in the future.
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Bogardus A.M. (2004), Human resources jumpstart, Sybex Inc., 1151 Marina Village Parkway, Alameda, USA;
Cameron K.S. and Quinn R.E. (2011), Diagnosing and changing organizational culture, John Wiley &Sons, San
Francisco, USA;
Condrey S.E.(2010), Handbook of HRM in government, third edition, John Wiley &Sons, Inc., 989 Market Street,
San Francisco, CA, USA;
Fairbairn U.F.(2005), HR as strategic partner: culture change as a case study, from Losey M. Et all, Future of
HRM: 64 thought leaders explore the critical HR issues of today and tomorrow, John Wiley & Sons, Inc.,
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Gibson D. James A. from Condrey S.E.(2010), Handbook of HRM in government, third edition, John Wiley
&Sons, Inc., 989 Market Street, San Francisco, CA, USA;
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meaning, first edition, Palo Alto, California, Davies-Black;
Lakhdar S. et all.(2001), Gestion de ressources humaines, Universite de Boeck, Canada;
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Lengnick-Hall C., Lengnick-Hall M.(1998), Strategic human resources management: a review of the literature and
a proposed typology, Academy of Management Review, vol.13, nr.3, 454-470;
Martin M., Jackson T.(2008), Practica de personal, Editura CODECS, Bucuresti ;
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Moore R.(2008), Benchmarking 100 success secrets, Springer Science, USA;
Omer I.(2003), Psihologia muncii, Editura Fundaţia România de Mâine, Bucharest;
Pacanowsky J., O’Donnell T. from Condrey S.E.(2010), Handbook of HRM in government, third edition, John
Wiley &Sons, Inc., 989 Market Street, San Francisco, CA, USA;
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Paus V.A.(2006), Comunicare şi resurse umane, Editura Polirom, Iaşi;
Pettigrew M. et all. (2003), Innovative forms of organizing, Sage Pub., London;
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Reed A.(2001), Innovation in human resources management: tooling up for the talent wars, CIPD House, Camp
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Schein E.H., (2004), Organizational culture and leadership, third edition, Wiley Imprint, San Francisco, USA;
US Office of HRM (Sep.1999), Strategic human resources management. Aligning with the mission;
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Varzaru M.(2000), Resursele umane ale întreprinderii, Editura Tribuna Economică, Bucureşti.
496

Examination of the Dynamic Relationship Between
Authoritarianism and Benevolence and BSH and BSW
Through a Polychronic Lens and From a fit Perspective:
Generating Knowledge From Lebanon
Fadi Hachem
Cranfield University, Milton Keynes, UK
Arab Open University, Beirut, Lebanon
fadi.hachem@cranfield.ac.uk
Abstract: This paper draws on four theories that have received elevated attention during the last decade. These
are paternalistic leadership theory, polychronicity theory, boundary theory and fit theory. Very few studies have
recently examined the dynamic relationship between the leader’s behaviors and the employee’s non-work related
outcomes (e.g. Heinen 2009). In addition, only one study (Risavy et al 2008) explicitly investigated the potential
relationship between polychronicity, defined as the preference to do many tasks simultaneously or in parallel, and
Work Family Conflict (WFC). Polychronicity was found to be an antecedent of WFC. There is no study that
holistically examined the intriguing dynamic relationship between the four theories explored in this study. More
specifically, there is no study that examined the impact of the leader’s behaviors on the strength of the
employee’s work and home boundaries (Boundary Strength at Work (BSW) and Boundary Strength at Home
(BSH)) as conceptualized by Hecht and Allen (2009) and the therefore effect on their integration and
segmentation preferences between work and home leading to more or less work home balance. This study’s
context is Lebanon where Lebanese usually mix between the management and the leadership concepts. That
said, I focus on “Paternalistic Leadership” which is ubiquitous in the Middle East. “Paternalistic Leadership” has
two main dimensions: Authoritarianism and Benevolence. In this study, I examine the direct effect of the
authoritarian and benevolent leadership behaviors on the followers’ BSW and BSH then their indirect effect
through a fit lens. In order to depict the whole dynamics of my model and in response to the recent call by Michel
and Hargis (2008) for the examination of the contextual factors that facilitate the employee micro-role transitions
(work/home) and that affect the mechanism of this transition, I also explore the supplementary fit between
authoritarian/benevolent Lebanese leaders and their followers along the dimension of
polychronicity/monochronicity and their effect on their BSW and the BSH. This augments our knowledge about
the factors that may affect the employee’s work home balance beyond the conflict and the positive spillover
approaches.
Keywords: paternalistic leadership, polychronicity, boundary, and fit theories, Lebanon
1. Introduction
The current Lebanese societal developments and workplace trends have implications on the
Lebanese organizations and their traditional styles of management. Recently, Western scholars
identified a new act of leadership. They found that successful leaders have tailored their practices to
facilitate their followers’ home life based on their recognition that they have an effect on their
employees coping mechanisms within and between the work/home domains (e.g. Chen, Powell and
Greenhaus 2009). Indeed, leaders set the stage not only for their followers’ work roles but also for
their non-work home roles. Most of the work/family studies of the management effect on the
employee’s non-work domains focused on the supervisors and their support (Cf. Hammer et al 2009)
rather than on the top managers/leaders, their specific behaviors and their crucial factual influence on
the organizations’ family-friendly policies and programs. Countable studies focus on particular leaders’
behaviors, mostly relevant to the Western context, such as the transactional and transformational
leadership styles or the Leader Member Exchange (LMX) (Harrison et al. 2007; Heinen 2009;
Youngcourt, Huffman and Alden-Anderson 2008) and their effects on their followers’ non-work related
outcomes. These scant studies focused on the leaders’ roles in increasing/decreasing the followers’
WFC and family work conflict (FWC); however, none of them did focus on the employee’s work/home
boundaries’ management and/or on the mechanisms through which leaders affect their boundaries
preferences. I believe that studying the home and work boundaries is a precursor to exploring what is
going inside them and whether they are in conflict or in synergy. Therefore, there is still much to learn
by examining the effect of specific context-based leaders’ behaviors on the followers’ management of
their work and home boundaries. I propose that authoritarianism and benevolence (Farh and Cheng,
2000), prevalent in the Middle East (Pellegrini and Scandura 2006) and thus in Lebanon, not only
“add a critical dimension to our understanding of the work-nonwork interface” (Hecht and Allen
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Fadi Hachem
2009:858) but also help in creating “actionable knowledge” for the Lebanese organizations and their
leaders.
This paper responds to the recent call for indigenous theories in the Academy of Management
Review. Suddbay, Hardy and Huy (2011) recommended different approaches to increase creativity in
the formulation “process” of research questions that should be context-dependent rather than
domesticated to the already established literature largely western-based and which was criticized for
self-referentiality. Eventually, the therefore growing chasm between theory and practice in the
management field due to the lack of “indigenous theories” led to the identification of a need for “more
contextualization” (Johns 2006). This study’s focus on the Lebanese context allows us to counter
Smith and Lewis (2011) premise that current management theories are simple and static and do not
respond to the organizational environment’s dynamic challenges and trends. After I briefly study the
Lebanese context and its implications based on the purpose of this study, I review the relevant
Western literature on boundary theory focusing on the people’s preference for
integration/segmentation between work and home and on the BSW and the BSH. Then I examine the
direct effect of the authoritarian and the benevolent Lebanese leaders on their followers’ BSW and
BSH and thus their preference for work/home segmentation/integration. Last but not least, I focus on
polychronicity as an individual’s preference to juggle multiple tasks simultaneously at work and/or at
home and I propose that it affects an individual’s boundary management strategies. At last, I
distinctively study how the fit between these two types of paternalistic Lebanese leaders and their
followers along the dimension of polychronicity might differentially affect their followers’ nonwork
outcomes.
2. Lebanese context
Having a peculiar socio-political structure characterized by the dual western and oriental values,
Lebanon gives women, the caregivers, some space outside the family system allowing them to play
new roles, previously restricted to men as breadwinners, in the business world. The Lebanese women
percentage of participation in the labor force was estimated by the Human Development Reports
(HDR) to be around 32.4% in 2008. That said, dual-career couples become the norm in the Lebanese
society rather than the exception. Given this change in the Lebanese family structure, the current
complexity in the environment due to globalization, the huge progress in technology and devices used
(e.g. Blackberry services), the Lebanese economy’s focus on customer service, the management of
the work and home social domains becomes more challenging. Based on this domains’ blurring fact
mainly due to their highly technology-laden interconnectivity, some people prefer to create and
maintain boundaries similar to "mental fences" (Zerubavel 1991:2) "as a means of simplifying and
ordering the environment" (Ashforth, Kreiner and Fugate 2000:474) based on their
segmentation/integration preferences.
3. Boundary/border theory and boundary management
Three decades ago, Kanter (1977) talked about the “myth of separate worlds” where the work and
home domains “do not and should not overlap” (Ashforth et al 2000:487). Many authors said that this
myth should be buried (e.g., Heraty, Morley and Cleveland 2008) given the aforementioned
challenges and trends. Accordingly, recent research started examining the mechanisms through
which employees can decrease the negative aspects and increase the positive aspects of being
simultaneously involved in both work and family roles (Chen et al 2009). Boundary/border theory
provided the most logical and practical answer to the “how” this can be achieved helping to balance
between work and family/home. Despite the burgeoning of research on work and family/home
spheres in different disciplines including psychology, sociology, history, anthropology and economics
(Pitt-Catsouphes, Kossek and Sweet 2006), research on the home and work boundaries and their
characteristics is still scant with some seminal studies (Ashforth et al 2000; Clark 2000; Nippert-Eng
1996). These studies examined how people develop a “proper relationship” between work and home
including what belongs and what does not to each domain and how they negotiate their boundaries
preferences with their employers in order to maintain this kind of relationship. Nippert-Eng (1996:8)
defined “boundary work” as “the key process that reflects and helps determine how much we
integrate/segment home and work”. As a cognitive western sociologist, she assumed that “we
[Americans] impose boundaries on everything, including our daily activities and the places and people
with whom we pursue them” (p.xi). So, she considered similar to Zerubavel (1991) that boundaries are
socially constructed. Thus, we can imply that it is almost tautological to say that in order to better
understand whether two systems (family/home and work) will be in conflict or in synergy, we have to
examine their mental, physical, temporal, emotional and behavioral boundaries. In the same vein of
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Hecht and Allen (2009:840), I focus more precisely on the boundaries between the employees’ work
and home which “demarcate what belongs to each domain and establishes their distinctiveness” and
their strengths/weaknesses. These boundaries are “somewhat idiosyncratically constructed” (Ashforth
et al 2000:474); they are idiosyncratic in that they are not institutionalized as the work and home
domains whose meanings are generally agreed upon by all the members of a given society or culture.
This study enriches both theory and practice by exploring the meanings of the boundaries for
Lebanese managers.
Western scholars have identified different characteristics of the boundaries: thinness or thickness,
flexibility, permeability and strength/weakness and thus their ability or tendency to be blended,
maintained or changed (e.g. Ashforth et al 2000; Clark 2000; Hecht and Allen 2009; Nippert-Eng
1996). These different characteristics converge at the BSW and the BSH. Ultimately, the definition of
the strength of the boundary reflects per se the permeability, flexibility and blending characteristics
(Clark 2000:758) or “is a function of flexibility-ability, flexibility-willingness and permeability” (Bulger,
Matthews and Hoffman 2007:367). In this study, I adopt Hecht and Allen concise conceptualization of
BSW and BSH. For Hecht and Allen (2009:840), permeability, which is bidirectional, is “at the core of
boundary strength” given that it reflects the degree to which a boundary is flexible and blending and "it
is directly concerned with the extent to which the performances of work and nonwork roles actually
penetrate one another". In fact, the boundaries serve as the backdrop against which people
integrate/segment simultaneously or in parallel events from their work and home domains (Nippert-
Eng 1996). I specifically argue that the erection of strong/weak boundaries is directly related to the
employees’ preferences for segmentation or integration. Indeed, strong boundaries between work and
home lead to segmentation between the two domains. Time devoted for work is not interdependent
with time devoted for home. Also, what happens at home is separate from what happens at work.
However, when boundaries are weak, employees carry home their unfinished work or might receive
phone calls after official working hours; thus, time that should be devoted for family becomes an
extended work time. In this case and due to domains’ integration, all the problems at work might
spillover to the home place. It is worth noting here that the weakness and the strength of the
boundaries do not mean that employees will experience more and less conflict respectively. Both
boundaries strength and weakness can lead to conflict or lack of it. So, Segmentation or integration is
not bad or good per se given the constraints and challenges, mainly at the workplace, of choosing or
of being obliged to choose to be at any point along the segmentation/integration continuum. Given the
general lack of constraints at home and their presence at the workplace that might restrict the
employee’s autonomy, individuals were found to have more latitude over the home boundary shape
and thus its strength than over the work’s boundary strength (Hecht and Allen 2009). Some of the
workplace constraints were identified by Nippert-Eng (1996:14). She implied that the boundaries’
negotiation, creation and maintenance are affected by the formal organizational support and by the
individual’s preferences and their expectations mainly from their leaders. Given this paper’s focus on
the individual level of analysis, the organizational support represented by the “progressive” family
supportive organizational policies and programs is beyond its scope. I focus on the leaders, the
“border keepers” (Clark 2000:761), who represent the informal organizational support. Indeed, I
propose that the leader does not only reflect the organization’s culture through their participation in
the formulation and implementation of the family-friendly policies, but also directly affect the dynamic
nature of the employee’s work and home boundaries and their shape (i.e. weaknesses and strengths)
through their everyday behaviors. Also, I examine the managers’ preferences to multitask, i.e.
polychronicity, and its unstudied impact on their BSW and BSH through a leader/follower fit lens. This
latent relationship between polychronicity and BSW and BSH was indirectly implied by Hecht and
Allen (2009:859) who stated that “individuals would feel less conflicted if they could devote focused
attention to each of their work and nonwork roles [monochronicity], without feeling pressed to do both
at the same time [polychronicity]”.
4. Paternalistic leadership in Lebanon
Very recently, Yahchouchi (2009:128) noted that “the Lebanese management style is still relatively
unstudied”. I found that the few studies conducted in the Lebanese context applied the Western
leadership models ignoring its idiosyncrasy. Some studies examined the
transactional/transformational leadership styles to differentiate between Lebanese Muslim and
Christian leaders (Yahchouchi 2009) or between managers in the Lebanese banking sector (Oueini
2005). Others focused on Weber’s types of authority and touched tangentially on the paternalistic
leadership concept (e.g., Neal et al. 2007). However, there are no studies that explicitly and
specifically examine “paternalistic leadership” despite its prevalence in the Middle East (e.g. Al Omian
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and Weir 2005; Pellegrini and Scandura 2006) and thus in Lebanon. Gelfand, Erez and Aycan
(2007:15) defined paternalistic leadership as a “hierarchical relationship in which a leader guides
professional and personal lives of subordinates in a manner resembling a parent, and in exchange
expects loyalty and deference” (italics added by the author). Given the purpose of this study, I adopt
this definition since it implicitly reflects the role of the paternalistic leader not only at the workplace, but
also at home. There are different dimensions of paternalistic leadership. I focus on Authoritarianism
and Benevolence which allegedly generate countervailing and idiosyncratic expectations for home
and work (Farh and Cheng 2000). Authoritarian leadership behavior was defined as having the
following characteristics: a) Strong and even absolute authority, b) control over subordinates, and c)
demand for unquestioning obedience from the subordinates. On the other hand, the benevolent
leadership behavior characteristics are reflected in the “individualized, holistic concern for
subordinates’ personal and family well being” (Pellegrini and Scandura 2008: 573).
Some of the Lebanese don’t concisely understand the leadership construct, which does not have a
synonym in Arabic and which usually overlaps with the management concept in their minds and thus
in their practical usage of the two different concepts. Given the scant research on “leadership”
conducted in Lebanon, I drew on the GLOBE studies of other relevant Arab countries such as Egypt
where the meaning of leadership for their people reflects some of the facets of its understanding by
Lebanese. Indeed, some Lebanese, similar to many Arabs, have “an elitist, transcendent view of their
leaders” who should be revered and sometimes sacred (Javidan et al 2006:80). This high importance
attributed to or maybe encroached on the leader’s role combined with the absence or at the best the
mere existence of formal support from the Lebanese organizations makes the behaviors of the
leaders the main catalyst in the employee’s work and nonwork lives.
5. Paternalistic leadership and BSW/BSH
Kanter (1977) said that organizations are designed in a way that their leaders are not and should not
be concerned with their followers’ nonwork lives. Although this is less true in the United States today
than it was thirty years ago (Kreiner, Hollensbe and Sheep 2009), the situation in Lebanon still reflects
what Kanter found given the absence and the abuse of formal organizational support reflecting a
passive role of Lebanese leaders. For instance, more than half, one-third of women and 56% of men,
of the Lebanese workers do not have insurance (Aractingi and Ghorra 2008).
Although research on “Leadership” has sharply increased during the last few years, most of the
Western developed theories did not examine the effect of the leaders’ behaviors on their followers’
non-work outcomes (Harrison et al 2007). Kirchmeyer (1995) came close but she focused on the
employer’s role in helping the employees manage their work-nonwork boundary as part of the
organization’s possible responses to nonwork, which were divided into “integration” and
“segmentation”, rather than on the leaders’ roles, behaviors and practices. She found that through the
adoption of the “integration” practice, employers allow their employees to integrate their roles and
thus they assume “responsibility for aspects of workers’ nonwork lives in addition to work lives…and
in a sense “taking control”, [which] fits a paternalistic model of the employer-worker relationship”
(Kirchmeyer 1995:17) on which I focus here. Through the adoption of the “segmentation” process, the
employers imply that they don’t want to interfere with the employees’ non-work lives and that they
want to keep their relationship with the followers restricted to the work domain. Kirchmeyer’s study is
somehow in alignment with my study but she focused on the employers’ and not on the leaders’ and
their followers’ preference to integrate/segment the work/home domains. More recent studies (e.g.
O’Neill et al 2009) examined from an open system’s perspective the “contagion” and “crossover”
effects of the senior managers’ work-home positive and negative spillover on their followers’ attitudes
and behaviors. These studies imply the potential psychological intrusion of the consequences of
leader’s work/home management strategies through their followers’ work boundaries and the
therefore deleterious or favorable reflection on the followers’ outcomes. Only one recent dissertation
(Heinen 2009) explicitly tackled the relationship between two transformational leadership behaviors
(Inspirational and work-empowering) and employees’ WFC through their perception of the
organization’s climate. Overall, these countable studies implied that leaders’ roles should transcend
the work boundaries to their followers’ home boundaries. So, the leader’s perception with respect to
their interference in their followers’ non-work lives, which is acceptable and sometimes favored and
needed in Lebanon in opposition to the West where it is considered unethical, should change. I
noticed that while some Lebanese leaders coach their followers to distinguish between what to carry
home and what not and thus teach them how and when to integrate/segment between the family and
work roles similar to some western leaders (Ilies, Wilson and Wagner 2009), others oblige them to
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finish their work at home, but they don’t allow for family issues to interfere with work as I discuss
below.
6. Authoritarianism and BSW and BSH
Authoritarian leaders usually create a defensive organizational climate where their followers are not
allowed to talk about family and private issues at work. They also require high organizational
commitment and high performance from their followers. Indeed, followers are expected not only to
devote all the official working hours to work-related tasks and activities but also to be flexible about
their family/home time leading them to work overtime exhibiting work organizational citizenship
behaviors (WOCBs). In addition, authoritarian leaders indirectly oblige their fearful followers to
minimize their usage of family-friendly policies which might lead to negative consequences on their
current status and their promotions (e.g. Butler, Gasser and Smart 2004; Perlow 1998). Indeed, the
followers’ usage of these policies might be wrongly perceived by the authoritarian managers’ as an
overuse the organization’s resources or as a lack of exhibition of WOCBs and as an excessive
exhibition of home organizational citizenship behaviors (HOCBs) (Kossek, Noe and DeMarr
1999:106). These factors make the follower’s home boundary more permeable and flexible than the
work boundary leading many Lebanese husbands to neglect home-related responsibilities, putting all
the pressure on their wives who are expected to handle these responsibilities (Sugita 2008). Further,
this has led some Lebanese female managers working with an authoritarian paternalistic leader to
refuse to get promoted in order to take care of their families and not to feel guilty (cf. Clark 2000 for
similar stories). That said, the high performance expectations of these authoritarian leaders are
usually not fulfilled given their lack of respect of followers’ boundaries’ preferences. Western studies
found that these leaders’ expectations that exceed the followers’ abilities are negatively related to
their perception of the “family-supportive work-family climate” existence (Heinen, 2009) leading to
their low commitment to the leader and to the organization and to less WOCBs (Cheng, Huang and
Chou 2002); however, this might not always be true in Lebanese organizations given some
employees’ financial needs and their submissive cultural values. Indeed, authoritarian leadership
behaviors might be accepted by some Lebanese employees who prefer to be told what to do (e.g. Ali
1995) and who revere hierarchy (Pillai, Scandura and Williams 1999). In fact, some Arabs represent
the obedient followers who “should comply and abide by leaders’ request without dissent” (Pellegrini
and Scandura 2008:573) disregarding the difficulties that they might face to fulfill some of their
irrational requests.
I propose that authoritarian paternalistic leaders lead to less “creative work-family management”
(Hammer et al 2009), which aims to a proactive job redesign in order to facilitate the integration of
work and family responsibilities, and to strong work boundary and weak home boundary.
7. Benevolence and BSW and BSH
Benevolent paternalistic leaders not only involve themselves in their followers’ work-related issues but
also transcend that to their family-related private issues; the grateful followers enjoy this relationship
waiting for the opportunity to serve back their leaders. The dynamics of this relationship was not
tackled based on the integration of leadership/home-work literature.
In describing the relationship between the benevolent paternalistic and his/her followers, Martinez
(2003:16) reflected on how the leader’s
“Supportive actions move the employment relationship into boundaries that are not
typical of most employment relationships (i.e., personal loans, high degree of personal
interest). As a result, leaders possess subtle control over employees’ responsiveness to
flexibility in work schedules, overtime hours, and other dimensions of the employment
relationship”.
Indeed, some Lebanese employees expect from their leaders to be involved in their social activities
such as wedding ceremonies, birthday parties and funerals. It is not abnormal that Lebanese leaders
call for a meeting for their work unit, which serves as a traditional family in order to provide gifts for
employees’ marriages and to present condolences or that they pay the tuition fees of an employee’s
son from their own salary or from the organization’s budget (Cf. Pellegrini and Scandura 2006:269).
Based on these examples, a benevolent “paternalistic leader is like a father and takes care of the
employees as a father would” (Pellegrini and Scandura 2006:269). S/he is also expected to provide
“individualized consideration” (Pellegrini and Scandura 2008) similar to transformational leaders
whose behaviors lead to more positive spillover and to a perception of a family-supportive work
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climate (Harrison et al 2007; Heinen 2009). This makes the leader a role model of work/family balance
providing emotional and instrumental supports (cf. Hammer et al 2009). That said, the intervention of
the leader in the employee’s public (work) and private (home) lives does not violate their privacy but it
is expected and welcomed by many Lebanese employees. Indeed, this benevolent paternalistic
relationship might lead to more enrichment between the follower’s work and family (Powell, Francesco
and Ling 2009:608), to less conflict between their work and family (Frone, Yardley and Markel 1997)
and to better management of their home/work boundaries given this parental guidance of their
professional and personal lives provided by the benevolent leader (Gelfand et al 2007). This
eventually and practically leads the followers to idiosyncratically determine their BSW and their BSH
as they and their leaders see fit. Below I elaborate on the leaders/followers fit along the dimension of
polychronicity meeting Edwards (2008:171) second criterion for the successful integration of the P-E
fit in theoretical and empirical studies, which is the determination of “the content of person and
environment dimensions”.
8. Polychronicity
People’s preferences to allocate time between different work and nonwork roles have received little
attention. Few studies focused on the individual differences along the dimension of time and its
effects on the home/work domains (e.g., Grzywacz and Marks 2000) although Greenhaus and Beutell
(1985) studied the effect of time management and its allocation on the conflict between work and
family many years ago.
In response to Kossek, Lautsch and Eaton (2005) recent call for more research on the individual
differences and the correlates of boundary management strategies in order to build the nomological
network of the “work/home boundary” concept, I, inspired by Hecht and Allen (2009), focus here on
polychronicity which was recently revitalized in the management literature. Few studies (e.g. Kossek,
Noe and DeMarr 1999) examined the employee’s personality using the Big Five Model and its effect
of their boundary management strategies. This is the first study that explores the joint impact of the
leaders’ and their followers’ preferences to multitask on the followers’ home/work boundaries’
preferences. I adopt the recent definition of polychronicity which differentiates it from the concept of
multitasking and thus resolves the long time debate that pictured the “polychronicity literature” as “old
wine in a new bottle”. König and Waller (2010:175) recommended that “the term polychronicity should
only be used to describe the preference for doing several things at the same time, whereas the
behavioral aspect of polychronicity should be referred to as multitasking” (Italics in the original). I
extend this definition to say that polychronicity is a preference to handle multiple tasks/roles within the
same domain or across domains (i.e. work and home). Several recent studies examined the dynamics
of the relationship between polychronicity and work outcomes; however, there is only one study which
tackled the relationship between polychronicity and non-work outcomes, i.e. WFC (Cf. Risavy et al
2008). This renders this study to be overdue.
9. Leader/follower fit along the dimension of polychronicity and its effect on
the employee’s BSW and BSH
In response to the recent call by Michel and Hargis (2008) to the examination of the contextual factors
that facilitate the employee micro-role work/home transitions and that affect the mechanism of this
transition, I use the fit approach to examine the similarity between the paternalistic leaders and their
followers’ polychronicity/monochronicity preferences and the effect of this (mis)fit on their followers’
boundaries preferences and thus their BSW and BSH. Along the same lines of the few studies that
examined Person-Job fit and Person-Group fit along the dimension of polychronicity (e.g. Hecht and
Allen 2005), I focus on supplementary fit which occurs when the follower has similar
polychronic/monochronic preferences to his/her leader.
Given the exploratory nature of this study, I expect that the fit or misfit between an authoritarian
paternalistic leader and his/her followers along polychronicity does not affect their followers’ work and
home boundaries’ strength given the authoritarian leader’s high focus on the work and lack of
attention to the follower’s personal life. So, authoritarian leaders look at issues from their perspectives
disregarding the followers’ needs and preferences. Thus, a (in)congruency between the authoritarian
leader and their follower along any dimension is of little value given the leader’s rigidity and the
therefore difficulty to change his/her management approach. Indeed, “individuals must routinely
negotiate [with their leaders] the boundaries between work and home as they participate in daily
activities” (Kreiner 2006:485). Given that authoritarian leaders don’t allow their followers to participate
in making decisions, the boundaries preferences’ negotiation process would be dominated by the
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authoritarian leader who ignore his/her followers’ preferences. This usually leads to strong work
boundaries and permeable home boundaries disregarding the degree of match between them and
their followers on the polychronicity/monochronicity preference.
For a polychronic benevolent leader, having a polychronic follower, who is willing to move back and
forth between different domains such as from work to home then from home to work during the same
day, gives both of them more latitude about what and when to segment and integrate. I expect that
the fit between a benevolent leader and his/her follower along the dimension of polychronicity leads
both the leader and the follower to be involved in each others’ work and home lives; this would be
reflected in the follower’s better management of their home and work boundaries. A misfit between
the leader and the follower might still lead to a respect of the followers’ boundaries preferences given
the benevolent leader’s considerate nature and willingness to negotiate each follower’s case based
on his/her job nature and its demands with respect to multitasking.
10. Research question
How the authoritarian and benevolent paternalistic leader fit with their followers along the dimension
of polychronicity affect the followers’ nonwork outcomes?
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504

Inter-Firm Cooperation Under the View of Theory of
Planned Behavior: The Case of Vietnam
Nguyen Phuc Nguyen
Kobe University, Japan
npnguyenkobe@gmail.com
Abstract: Inter-firm relationship, especially cooperation, has been received much intention from researchers in
theories and empirical analyses. In general, almost studies have tried to clarify the nature of this relationship
under the view of economics or management. In addition, the theory of planned behavior (TPB) was famous
model in predicting human behavior. Its earlier model- theory of reasoned action- was applied into information
systems, namely technology acceptance model (TAM). These two models have been widely accepted. However,
they differ from the commitment-trust theory in marketing. This can create shortcomings in effort of drawing the
picture of inter-firm cooperation. Therefore, by combining commitment-trust theory, the technology acceptance
model and theory of planned behavior, the paper will build up the model for explaining inter-firm relationship. The
author has used hierarchical regression method in order to prove the proposed model. Confirmatory factor
analysis was used to demonstrate constructs and to score latent variables which became important components
in structural model approach. Besides that, salient features of the integrated model are to treat important
components of the TPB, the TAM as latent variables, which are required to estimate, instead of being calculated
directly from the suggested formula. Bayes estimation method is used for predicting latent variables. Using data
from the survey on Vietnamese enterprises, the paper discovered that motivation for cooperation would
contribute most to cooperation intention. This finding would cast doubt the original concept of attitude toward
behavior in the TPB. Moreover, attitude toward cooperation, the psychological manner of representatives, also
played an important role in shaping behavioral intention. The empirical results have supported these three
models in which subjective norm and control mechanism would enhance the chance for inter-firm cooperation
indirectly through behavioral intention. The proposed model not only contributes to the theory of organizational
behavior but also suggests implications for manger in practice. Managers can stimulate inter-firm cooperation by
choosing the right representative.
Keywords: cooperation, inter-firm relationship, TPB, TAM, Vietnam
1. Introduction
In running business, firm has relationship with others such as suppliers, customers, competitors, and
it is called relationship. In the efforts of clarifying the nature of this relationship, authors have done a
lot of studies which almost focused on inter-firm cooperation. Some authors investigated factors
influencing this type of relationship (Rindlfleisch 2000; Edelenbos & Klijn, 2007). The others have built
up theories to explain that type (Anderson & Narus, 1990; Morgan & Hunt, 1994). All of these
researches, have been studied in business and management, confirmed that these factors affect
directly inter-firm relations.
On the other hand, in predicting and explaining human behavior, the theory of reasoned action (TRA-
Fishbein & Ajzen, 1975) and its extended model- the TPB proposed by Ajzen (1991), became widely
accepted model. These theories have been tested and supported by empirical analyses mostly from
psychology (Netemeyer et al., 1991; Manstead and van Eekelen, 1998; Armitage & Conner, 2001).
The TRA was applied for information systems, namely the TAM (Davis, 1986). The TPB was also
applied for business but with simple decisions (Netemeyer et al., 1993 and Thomson &
Panayiotopoulos, 1999). Complex decisions were rarely studied except for East (1993) and Hill et al
(1996). Surprisingly, inter-firm cooperation is not a fresh topic but there is less academic research has
been dedicated to examine the driving forces of intention (Mayer et al, 1995; McKnight et al, 1998 and
Nguyen, 2011). More precisely, there is no research investigating the effect of TPB as well as no
adaptation of this in predicting cooperation decision under firm’s level data.
These above discussions open free room for researchers who wish to combine theories in
management and psychology in explaining inter-firm relationship. The present research is designed to
contribute to the theory of inter-firm behavior by using the TPB; the TAM and the commitment-trust
theory (Morgan & Hunt, 1994), abbreviated by COTT, as theoretical backdrops for modeling the
relationships among these variables. Moreover, the study attempts to further our understanding of the
contribution of each construct in proposed model. Lastly, the paper will treat components of TPB as
latent variables which are not calculated directly from the suggested formula by TPB. Using survey
data on Vietnamese enterprises, the paper will show the results of these concerns.
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Nguyen Phuc Nguyen
The remainder of this paper is organized as follows. In the following section, theoretical traditions
regarding foundations of behavior and hypotheses related to it will be highlighted. Afterward, the
author will present the methodology and test the resultant model using the Vietnamese data. The
contribution of study and direction for future research are the final part of the paper.
2. Theoretical perspectives and hypotheses
The theoretical model of inter-firm cooperation, structured based on previous studies, is displayed in
Figure 1. The model is an integration of three foundations: the TPB, the TAM, and the COTT. Below
the author specifies constructs and develops causal relationship among these. In addition, the author
distinguishes between motivational and attitudinal influences in order to clarify its individual effect on
cooperative intention. Hence, the model involves four determinants of one’s cooperative intention
before reaching cooperative decision.
Motivation for
cooperation
Attitude toward
cooperation
Subjective norm
Control
mechanism
Figure 1: Proposed theoretical model
2.1 Behavioral intention
Cooperation
intention
Firm and regional
characteristics
Cooperation
decision
An intention is understood as a determination to engage in a particular behavior (Atkinson, 1964).
Besides, according to the TRA and the TPB, the predictor of behavior is the person’s intention to
perform the behavior. In the same fashion, Davis et al., (1989) also postulated that behavioral
intention is the major determinant of behavior and any other factors which affect user behavior do so
indirectly by affecting behavioral intention. Furthermore, intention is derived from one's desire to
achieve positively valent outcomes or avoid negatively ones (Deci & Ryan, 1987). Therefore, intention
to cooperate, based on Fishbein and Ajzen’s (1975), is the strength of one’s intention to engage in
cooperation with others to achieve goals. It is broad concept which implies goals and plays multiple
roles (Nguyen, 2011).
The empirical analyses have confirmed the positive effect and mediating role of behavior intention
over many years (Netemeyer et al., 1993; Sutton, 1998; Venkatesh, 2000; Armitage & Conner, 2001;
Nysveen et al. 2005; Nguyen, 2011). However, behavioral intention is absent in the COTT. One
should know that there is shortcoming between psychology and marketing theory. Nevertheless, it is
expected that in high involvement behavior like cooperation, this component has strong causal
relationship with behavior (Thomson & Panayiotopoulos, 1999). Therefore, the author expects the
following hypothesis:
Hypothesis 1: Intent to cooperate has positive relationship with cooperative behavior and fully
transmits the effects of all other determinants.
2.2 Motivation for cooperation
The current literature on inter-firm relationships and technology acceptance highlight the importance
of motivation for behavior. Motivation for cooperation refers to expected benefit derived from inter-firm
relationship. This is similar to relationship benefit (Morgan & Hunt, 1994) or perceived usefulness
(Davis, 1986). Motivation embraces intrinsic motivation, extrinsic motivation (Vallerand, 1997).
Intrinsic motivation relates to performing an activity for itself (Deci & Ryan, 1987), whereas extrinsic
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Nguyen Phuc Nguyen
motivation refers to engaging in behavior to achieve specific rewards (Vallerand, 1997). Motivation for
cooperation used in this paper encompasses these two elements. This reflects the reasons for making
inter-firm relationships that are independent of one’s attitude toward behavior and expectation from
this behavior. It is somewhat similar to goal intention (Gollwitzer & Brandstatter, 1997) or perceived
desirability (mentioned by Krueger et al. 2000). According to the TAM, perceived usefulness may
positively affect behavior intention. Furthermore, as an effect of intrinsic motivation and extrinsic
motivation, this determinant can enhance manager’s intention to make cooperation with other firms
even if they do not possess a positive attitude toward partner or manager’s manager (Nysveen et al.,
2005 and Nguyen, 2011). On the basis of these arguments, the author can propose the second
hypotheses:
Hypotheses 2: Motivational elements have a direct effect on behavioral intention.
2.3 Attitude toward cooperation
According to TRA, attitude toward behavior is defined as an individual’s positive or negative feelings
about performing the specific behavior (Fishbein & Ajzen 1975). Attitude is a function of salient beliefs
about consequences of performing behavior and the evaluation of those results. However, in the effort
of applying TRA into information systems, Davis (1986) omitted attitude determinant in order to get
better understand the influence of perceived ease of use and perceived usefulness on intention.
Despite this omission, TAM and its subsequence versions (TAM 2 and TAM 3) have been tested,
accepted and applied (Davis, 1989; Venkatesh & Davis, 2000; Koufaris, 2002 and Venkatesh & Bala,
2008). This refelects that this variable can be modified, excluded or extended.
On the other hand, Morgan & Hunt (1994) defined relationship commitment: “An exchange partner
believing that an ongoing relationship with another is so important as to warrant maximum efforts at
maintaining it”. It reflects only one side of Fishbein & Ajzen’s definition. Relationship commitment has
been regarded as positive feelings about the worth of doing actions.
Clearly, both terms require an evaluation of behavioral consequences. It seems reasonable to
assume that these two concepts did not take into account the effect of person’s manner in
partner/object of interest. Therefore, applying Lutz (1985) in inter-organizational relationship, the
author proposes attitude toward cooperation as “predisposition to respond in the consistently
favorable or unfavorable manner to inter-firm cooperation in general.” Unlike definition of Fishbein &
Ajzen (1975), this measures psychological status of person in relation to questionable objects. The
fundamental notion here is that attitude toward cooperation consists of multiple dimensions. Attitude
toward the objects refers to one’s predisposition to objects. Attitude toward the instrument refers to
the way for expressing attitude toward objects. This classification slightly differs from Sandage &
Leckenby (1980).
The studies on attitude toward behavior have proposed the effect of this element on behavioral
intention (e.g Ajzen, 1991; Armitage & Conner, 2001; Tonglet et al., 2004). Besides, literature on
technology usage found that attitudes are influential for the intention to use (David et al., 1989;
Koufaris, 2002). Specific type of attitude, attitude toward advertising, has been received empirical
supports for its effect on customer’s intention (Drossos et al., 2007 and Heikki, 2008). Recently, in
investigating manager’s intention in cooperation decision, Haug & Sommer (2008) and Nguyen (2011)
have confirmed the role of perceived trust as well as attitude of manager on cooperation intention.
Thus, the author proposes the following:
Hypothesis 3: The more positive the attitude toward cooperation in general, the higher behavioral
intention.
2.4 Subjective norms
Subjective norms, developed by Fishbein & Ajzen (1975), refer to external and interpersonal
influence. This variable consists of two measures, namely normative belief, referring to doing what
other people want one to do, and the motivation to comply with important referents. This classification
is similar to injunctive norms and descriptive norms, mentioned by Thøgersen (2008).
On the other hand, the important of subjective norms on behavioral intention have been revealed in
literature across disciplines (Ajzen, 1991; Arrighetti et al., 1997; Nysveen et al., 2005 and Nguyen,
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Nguyen Phuc Nguyen
2011). Besides, in studying the relationship between social norms and cooperation in social
dilemmas, Thøgersen (2008) found that two types of normative beliefs influence cooperation
synergistically rather than additively. Therefore, in this study, subjective norms will cover these two
elements. Congruence with empirical findings, the author argues that subjective norms are drivers for
cooperation intention.
Hypothesis 4: Subjective norms influence is positively associated with cooperation intention.
2.5 Control mechanism
Perceived control has been used in several theoretical foundations such as self-efficacy (Bandura,
1982), perceived behavioral control (Ajzen, 1991). In this paper, control mechanism refers to the way
of one’s control over the environment and one’s behavior. This definition differs from perceived
behavioral control as well as self-efficacy. While the later relates to people’s perception of the ease or
difficult of performing the behavior (Ajzen 1991), the former, in contrast, relates to the way of archiving
that perception. Control mechanism reflects the internal and external control over the behavior of
interest. Particularly, internal control relates to self-efficacy, based on factors that come from within
subject and external control relates to the environment.
There is a growing evidence to support the effect of perceived control on behavioral intention.
Empirical results for this effect have been provided by Netemeyer et al. (1991), Manstead & van
Eekelen (1998), Tonglet et al. (2004), and a series of studies related to information (Koufaris, 2002;
Nysveen et al., 2005 and Heikki et al., 2008). Moreover, the effect of self-efficacy and perceived
control on behavioral intention is typical not consistent in researches. For example, while Terry &
O’Leary (1995) found that perceived behavioral control predict exercise behavior, Manstead & van
Eekelen (1998) argued the positive role in intention of self-efficacy. It should also be noted that,
although there is mismatch between the effects of these two terms, they become part of control
mechanism. Therefore, one might expect that:
Hypothesis 5: The closer control mechanism over object/situation of interest, the higher behavioral
intention to cooperation.
3. Method
3.1 Research instruments
The above model is an integrating version of the TBP, the TAM and the COTT tailoring for inter-firm
relationship. Therefore, a questionnaire was developed based on previous researches in those fields.
Besides, because there is no research on this type of behavior, some items will be developed. Almost
constructs consist of multiple items, each of which was measured either by seven point Likert scale,
ranging from 1 (completely disagree/ unused) to 7 (completely agree/used) or by binary one. This
measurement is different from other researches which used one type of scale- Likert scale (Davis et
al. 1989, Ajzen 1991, Hill et al. 1996 and Nysveen et al., 2005). Despite this, the proposed measures
used in this paper are acceptable based on strong supports from discussion on the optimal scale by
Ajzen (1991) and from empirical studies (Nguyen 2011 and Goethner et al. 2011).
The six items motivation for cooperation measurement was developed from represented items in
Morgan & Hunt (1994), Zhang & Lam (1999), Venkatesh (2000) and Heikki et al. (2008) studies.
These items were used mainly for information systems area; hence they will be modified for the
purpose of the research, combined with item in Nguyen (2011).
Attitude toward behavior in general and attitude toward advertising specifically have been studied in
widely literature such as Ajzen (1991), Sutton (1998), and Drossos et al. (2007). However, the items
developed in thoes researches were found inappropriate for author’s purpose becauses of difference
from own’s definition as well as field study. Therefore, the scale measures attitude toward inter-firm
cooperation was developed based on items choosen from the related studies (Morgan & Hunt, 1994;
Fang et al., 2008; Heikki et al., 2008 and Nguyen, 2011). This variable is measured by five items.
The construct of subjective norms was assessed from two perspectives: injunctive norm and
descriptive norm using three items. One of the injunctive norm measure was adapted from Nguyen
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Nguyen Phuc Nguyen
(2011). The remains were developed from Conner & McMillan (1999), Okamuro (2007). These three
items were used to investigate the effect of social factors on cooperation intention in general.
Control mechanism is another version of perceived behavioral control, introduced by Ajzen (1991).
This construct was evaluated by using four statements. One example of the statements is “Using legal
systems (e.g., court) to require partner fulfill responsibilities for the project” rates from 1 (strongly
disagree) to 7 (strongly agree). Three other statements were developed based on study of Ajzen
(1991) and Conner & McMillan (1999). On the other hand, cooperative intention (INT) and cooperative
decision (DECI) were measured using items adapted from Krueger et al. (2000) and Nguyen (2011).
These two constructs are single item measurement.
3.2 Controls
Following earlier researches on inter-firm cooperation (Fritsch 2003; Okamuro, 2007 and Nguyen,
2011), the author controls analyses for size (Small, Medium, Large), age (range from 1 to 4 in which
1:< 5 years; 2: 5-9 years; 3:10-15 years and 4:>15 years) and cultural differences (North, Central and
South of Vietnam).
3.3 Data collection
The survey was planned to get understanding about inter-firm cooperation in Vietnamese context. At
first, the questionnaire written in English was translated into Vietnamese. A pilot study with four
company’s representatives (from manager’s level above) in three representative urban regions was
conducted. The constructs were revised based on feedback to improve the format and scale
measure. Then, the questionnaire consisted of two versions –printed and soft copy- was sent to 500
companies which consist of 200 in the Da Nang and each of 150 for Ho Chi Minh and Ha Noi city.
These three cities were selected because of the respective disposable income per capita and
representing for registered companies. To ensure a high return and usable rate, following-up nonrespondents
through reminder letter and phone-calls was carried out. A total of 203 questionnaires
were completed and used in ensuing data analysis.
3.4 Data analysis method
In literature on behavior study, researchers used behavioral intention representing for behavioral
decision. Therefore, the dependent is used in analyses is behavioral intention. (e.g. Ajzen & Maden,
1986 and Thøgersen, 2008). However, in order to analyze the impact of behavior intention on interfirm
cooperation, this variable became independent element in empirical model (Nguyen, 2011). The
purpose of this research is to build a measurement model of behavioral decision based on
representative’s intention and its precedents. Thus, the analysis involved two steps. First, a model of
cooperation intention was build using confirmatory factor analysis based on above constructs.
Second, the resulting model was used to explain inter-firm behavioral decision by using instrumental
variable probit method for estimation. Based on these, the empirical model is as follows:
DECIi = β0 + β INTi
+ δ X i + i
ε
where DECIi is cooperative behavior of firm i; β 0 is constant; INTi is cooperative intention; β is
coefficient of cooperative intention; X i is vector controlling for firm and regional characteristics; δ is
vector of parameters of X i and εi is the error term. Congruent with the proposed model, the
cooperative intention is the function of its latent variables:
INTi
= α + μ i + ∂ X i Z + υ i
(2)
In which Z i is vector of latent variables representing for motivation for cooperation (MOTI), attitude
toward cooperation (ATCO), subjective norm (SUB) and control mechanism (COM); μ is vector of
parameter and vi
is the error term.
509
(1)

4. Results
4.1 Confirmatory factor analysis results
Nguyen Phuc Nguyen
The first step mentioned above starts with purification process. After this process, two items from
motivation for cooperation and attitude were eliminated. Confirmatory factor analysis using LISREL8.8
was conducted to get path coefficients among constructs. Although the RMSEA of CFA result is
0.107, it is sensitive to sample size (Chen et al., 2008). Therefore, other fit indices (CFI and NNFI)
were used for testing the model fit because they are generally unaffected by sample size.
Based on LISREL output, NNFI and CFI exceeded acceptable thresholds. Validity of observed
variables is measured by item-factor loading. The larger the factor loadings or coefficients, compared
with their standard errors, the stronger is the evidence that the measured variables represent the
underlying constructs. Completely standardized factor loadings of un-eliminated items in this
researches range from 0.710 to 0.958 would be considered to have good construct validity because
they express more trait variance than error variance (Bollen, 1989). In addition, the proportion of
variance (R-square) of items in the model, ranged from 0.505 to 0.952, indicates that those selected
items have good reliability.
In order to test convergent validity of the model, Cronbach’s alpha for each construct was displayed in
table 1 and all exceeded the threshold 0.7 (Nunnally, 1978). Furthermore, the Average Variance
Extracted (AVE) was calculated and ranged from 0.590 to 0.672. Furthermore, the discriminant
validity test, shown in table 2, was conducted by comparing the square root of AVE of each construct
with other correlations. A model is considered to be good if AVE is greater than 0.5 and square root of
AVE is greater than correlation with others (Fornell & Larcker, 1981). These confirmed that the
proposed model is good and could be used for second regression. Latent variables would be scored
from LISREL using Bayes estimation method.
Table 1: Confirmatory factor analysis results
Motivation for Attitude toward Subjective Control
cooperation
cooperation
norm mechanism
Cronbach’s alpha 0.875 0.871 0.850 0.850
Average Variance
0.663 0.597 0.672 0.590
Extracted (AVE)
N 203 NNFI 0.90
Chi-square 325.65 CFI 0.92
df 98 RMSEA 0.107
Table 2: Square root of average variance extracted and correlations among construct
AVE MOTI ATCO SUB COM
MOTI 0.663 0.814
ATCO 0.597 0.553 0.773
SUB 0.672 0.310 0.187 0.820
COM 0.590 0.172 0.071 0.173 0.768
4.2 Testing the proposed model
STATA 11 package is used for testing hypotheses based on constructs and latent score variables
which was predicted from step one using instrument variable method, called IVprobit. To test for the
existence of multicollinearity, variance inflation factors (VIF) were computed for all predictor variables.
VIF scores were well below 3. Thus, no evidence of multicollinearity was indicated (Hair et al., 2005).
The result of initial estimation without control variables is shown in the first two columns in Table 3.
Characteristics of company and culture influence are added in succession from model 2 to model 4.
Testing for the exogeneity (Wald test) of cooperation intention using IVprobit does reject the null
hypothesis, suggesting that the endogenous regressor (INT) should be used. Moreover, there is a
large negative and significant correlation, athrho (another version of rho in STATA package) between
the error terms of the instrument equation and inter-firm cooperation equation. This reflects the role of
unobserved variables affecting both cooperative intention and cooperative decision. Across all models
in table 3, there is strong evidence for supporting proposed hypotheses. Motivation for cooperation,
attitude toward cooperation, subjective norm and control mechanism have shown positive effect on
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Nguyen Phuc Nguyen
cooperation intention (Hypotheses 2-5). This empirical result is consistent with literature in studying
TPB. (Ajzen, 1991; Arrighetti et al., 1997; Armitage & Coner, 2001; Tonglet et al., 2004). Moreover,
this result also supports for integrating the TAM and the COTT in explaining inter-firm behavior.
One of the remarkable findings is about the prominent effect of motivation for cooperation. By
separating the expect outcomes form attitude toward behavior as originally designed in TPB,
motivation for cooperation, among those latent variables, seems to be the most contribution to
cooperation intention. It creates more than 60% of cooperation intention and exceeds others additive
effect. This is similar to the effect of perceived usefulness, introduced in TAM. This found also support
for the findings in Nguyen (2011) which use single item for measuring this effect. This finding also
supports the TAM which replaced attitude toward behavior by perceived usefulness. It seems to be
true that the first and most important factor in creating behavioral intention in any circumstance is
motivation for that behavior. It somewhat casts doubt on the results of other researches in TPB which
have overestimated the contribution of attitude instead of motivation for behavior (e.g Thomson &
Panayiotopoulos, 1999 and Tonglet et al., 2004).
The other valuable result is for attitude toward cooperation. Based on the proposed definition of this
concept, the psychological manner of representative has played important role in shaping cooperation
intention. This contributes above 20% to intention. This helps us to understand more about inter-firm
relationship. Besides the effect came from reasons for particular relations, the attitude’s effect of
representative has to be considered in making inter-firm relationships. The attitude term also helps us
to explain the reason why trust has been key mediating variable in commitment-trust theory (Morgan
& Hunt, 1994). Besides, the social influence and control mechanism contribute to facilitating
cooperation decision through intention. Using control system will stimulate cooperative intention
because it provides the buffer for reducing risks associated with this behavior. These above findings
would be consistent across regressions which are displayed in table 3.
Table 3: Empirical results for IVprobit regression
Model 1 Model 2 Model 3 Model 4
VARIABLES DECI INT DECI INT DECI INT DECI INT
Constant -5.988*** 4.911*** -6.551*** 4.642*** -7.589*** 4.734*** - 4.449***
7.470***
(0.734) (0.0738) (0.692) (0.144) (0.831) (0.228) (0.831) (0.275)
INT 1.351*** 1.397*** 1.470*** 1.462***
(0.155) (0.142) (0.147) (0.145)
MOTI 1.165*** 1.214*** 1.138*** 1.151***
(0.344) (0.340) (0.348) (0.344)
ATCO 0.426** 0.335* 0.406** 0.462**
(0.202) (0.184) (0.185) (0.185)
SUB 0.121** 0.118** 0.123** 0.135**
(0.0566) (0.0531) (0.0544) (0.0540)
COM 0.148*** 0.154*** 0.150*** 0.124**
(0.0527) (0.0533) (0.0518) (0.0490)
Small 0.689*** 0.174 0.681** 0.173 0.695** 0.190
(0.265) (0.170) (0.282) (0.168) (0.278) (0.165)
Medium -0.430* 0.825*** -0.502* 0.820*** -0.508* 0.841***
(0.239) (0.198) (0.265) (0.198) (0.265) (0.198)
Age 0.294*** -0.0362 0.289*** -0.0261
(0.103) (0.0673) (0.104) (0.0662)
Central -0.0117 0.305
(0.299) (0.192)
South -0.214 0.340
(0.331) (0.227)
χ2 (Wald test of 25.09*** 29.84*** 31.44*** 32.18***
exogeneity)
athrho -1.201***
(0.240)
-1.354***
(0.248)
-1.396***
(0.249)
-
1.366***
(0.241)
Observations 203 203 203 203
Robust standard errors in parentheses
*** p

Nguyen Phuc Nguyen
The main findings indicate that, in line with TPB and TAM, cooperative intention is the main mediator
of all other determinants to inter-firm decision. Moreover, from robustness check, the author found
that the smaller size of company, the more willingness to engage in inter-firm cooperation. Based on
resources- base perspective, it is true that the smaller the company which lacks resources or wishes
to learn new knowledge…, the more ambition is in this type of relations. This finding is consistent with
Nguyen (2011). Another finding form robust check is about the effect of age on inter-firm cooperation.
As suggested by Nguyen (2011), the age of company could be the predictors of inter-firm relationship:
the more experience of the company, the more likely for inter-firm cooperation. However, the author
did not found the effect of cultural influence on firm’s behavior. This contradicts with finding in Nguyen
(2011). This can because of using more items in analysis.
5. Contributions and limitation of research
5.1 The contributions of study
This research contributes to the literature on inter-firm relationship theory. Firstly, by separating
motivation for cooperation from psychological attitude, the empirical results highlight the importance of
motivation for cooperation as the main contributor for cooperation intention. This will cast doubt the
original concept of attitude toward behavior presented in TPB (Ajzen, 1991). On the same sound, this
finding over scores the contribution of perceived usefulness mentioned in TAM. This findings
supplement for the theory of inter-firm behavior. Secondly, the paper showed that attitude toward
which includes trust item positively affect cooperation intention (Morgan & Hunt, 1994; Hiekki, 2008
and Nguyen, 2011). This will contribute to the shortcoming in both TPB and TAM. Therefore, the
proposed model could be used for explaining inter-firm behavior as well as human behavior in
general.
For the managerial contribution, the paper gives the framework for explaining inter-firm cooperation.
The manager or owner should choose the representative who takes part in making inter-firm
relationship due to the effect of attitude toward cooperation. By choosing the right people who is
preferred by partner’s representative, this cooperation process could be shorter. Moreover, setting up
the control system in cooperation period will enhance the chance for this decision to become true.
5.2 Limitation of study
The research had measured subjective norms in general. Therefore, the effect of injunctive norms and
descriptive norms are not revealed. Moreover, the study also open the chance for future research
which uses one type of measure scale in order to compare the results based on used scale.
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514

Choice or Predetermined Path? Women in Investment
Management-Why so few?
Corina Sheerin
National College of Ireland, IFSC, Dublin, Ireland
csheerin@ncirl.ie
Abstract: Traditionally banking and finance have been male domains, however in recent years women have
been attempting to challenge this status quo. However, Investment Management and the trading floor (despite
being the most lucrative sub sector of the industry) stubbornly remains “a jungle of chest-pounding males”. This
paper aims to address the current gap in the literature concerning the educational choices, and subsequent
career orientated decisions, made by women which lead them to opt into or out of careers in financial services
and in particular Investment Management. Within the educational and labour market, a plethora of choices exist
for men and women in terms of programmes of study and occupations Equally a wide range of theories have
been put forward in the literature to explain women’s educational and subsequent occupational choices, however
to date very little focus has been placed on financial services specifically. Theories from disparate disciplines
including: sociology, gender studies, psychology and economics have been examined and explored over time
and while all add value, no one theory explains educational and occupational choice fully. What is common
across the literature however is that choice is a multifaceted, intricate process which is dynamic and complex.
This paper concentrates on one strand of the literature, namely the individual factors which have been put
forward to explain the existence of gendered behavior in educational and occupational choice with particular
focus on male dominated fields. This research will contribute to the literature by exploring whether men and
women’s educational and occupational choice differ not because of stereotypes embedded by society, family and
institutions, but because of our neurological makeup. Specifically this research aims to address whether biology
contributes to explaining the underrepresentation of women within Investment Management.
Keywords: investment management; educational choice; occupational choice; gendered behaviour; biology
1. Introduction
One of the most striking features of the global labour market is that despite the market being more or
less equally divided between men and women, significant differences exists in the occupations that
men and women occupy (Weisgram et al., 2010). In particular, women are significantly
underrepresented in fields such as construction, engineering and science and a significant body of
literature exists regarding women’s experiences in these domains, (Hegewisch et al. 2010,
Rosenbloom et al. 2007). Within the field of finance a small body of literature exists regarding
women’s representation in the sector. Most of this literature has focused on women working in
accounting and to a lesser extent auditing and taxation (Twomey et al. 2002, Barker and Monks
1996). Over the last decade, some literature has emerged regarding women in financial services
sectors such as insurance and retail banking (Broadbridge et al. 2007, Ozbilgin and Woodward 2004),
but to date Investment Management has not been examined.
Statistics for the financial services sector globally indicate equality among the sexes. Across the EU
27 in 2007, parity between the sexes was evident within the sector with 51.1 percent female and 48.9
percent male employed, European Commission (2007). In Ireland in 2006, 58.4 per cent of all
employees in the financial services sector were women, (European Commission, 2008).
Despite the fact that women and men are equally represented at a sectoral level within financial
services, significant divergence is evident in both the sub sectors women and men work in and the
roles they hold. Recent findings from the Scottish financial services sector indicate that “males
dominate higher end positions such as stockbroking (59 per cent) in contrast to female domination (80
per cent) of basic customer service roles” (Scolarios and Taylor 2010, p.2). This study seeks to
examine in an Irish context, the absence of women within ‘front office’ Investment Management. This
research will specifically address only one facet of the literature, namely individual factors and their
influence on women’s presence in ‘front office’ Investment Management.
2. Investment management as a sector of employment
Prior to investigating why women are absent within ‘front office’ Investment Management it is
important to provide context regarding how the sector is comprised and organised. Investment
Management is one of the three main sectors of employment within the financial services sector, the
other two being Banking and Capital Markets and Insurance (Forfas 2008). Investment Management
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is a term that is widely used in both the media and within the financial services sector. Despite the
ubiquitous nature of the term, it often does not have clearly defined parameters. For the purpose of
this study, the Investment Management sector will be bounded by the parameters defined by Forfas
(2008) whereby the Investment Management sector is comprised of two sub groups of employment,
referred to commonly in the sector as ‘front office’ (Investment Management)and ‘back’ office (Fund
Servicing).
Generally front office refers to those working in roles such as trading and roles related to the
management of funds, whereas back office refers to those working in funds servicing and functions
which support front office. In establishing a clearer picture of the ratio of men and women employed in
front and back office employment within the sector in Ireland, an obvious gap in information was
uncovered. Currently within an Irish context, no official or national statistics are available regarding
gender breakdown. This is in part due to the blurred lines around the definition of Investment
Management alluded to earlier and further exacerbated by the fact that there are no disclosure
requirements for firms regarding this information and as a consequence shroud of surrounds remains
firmly in place.
In attempting to address this information gap, ten firms in the Irish Investment Management market
were contacted regarding the gender breakdown of employees. Of the ten, only three were willing to
provide information. Two of the three companies are medium size back office companies (Company A
and B). Company C, a large investment management firm with both front and back office functions
was the sole provider of a gender breakdown of employees. Albeit a very small sample size, the
results showed 1) baseline figures across companies illustrated a gender balance between men and
women; 2) women were present in equal number to men in the back office and 3) women were
significantly absent from front office departments. Within Company C, 80 percent of the fund
management team was male compared with 100 percent of the human resources team who were
female. This limited information is supported by the limited literature in the field. McLean (2005, p.1)
noted “go to a conference of hedge fund managers, or a benefit or just an old fashioned booze up,
and it is obvious that something is missing: women”. Niesen and Ruenzi (2006, p.4) further embedded
this proposition with the provocative suggestion that, within the USA, “fund management companies
only employ as many female fund managers as needed to avoid lawsuits due to gender
discrimination”.
The next sector evaluates the individual factors which have been put forward in the literature to
explain why women are underrepresented within certain fields of study and occupations. This will
provide the basis for the development of a conceptual model which can be tested within the domain of
investment management
3. Review of the literature
While specifically addressing individual factors within this research it is accepted that a plethora of
influences affect individual’s educational and occupational choice and choice is an iterative, complex
and multifaceted process (Foskett et al. 2008). The differences in choice between individuals are
often examined through the lens of gender whereby individual traits and hence choice are associated
with ‘maleness’ or ‘femaleness’ (Hess and Ferree 1987). As early as 1942, the differences between
the genders was explored and used as an explanatory variable for differences in social behaviours
including educational and occupational choice (Parsons 1942).
4. Biology and educational and occupational choice
The longstanding argument within the literature regarding whether differences in occupational and
educational choice are influenced by "nature" or "nurture" still remains and while it is widely accepted
that women’s role in reproduction and the home influences societal, educational and occupational
choice a wide divergence exists between academics as to how much of the differences is attributable
to biology. The next section evaluates the role of biology in occupational choice particularly within the
context of investment management.
Baron-Cohen (2003, p.1) in his empathising/systemising theory suggests that men and women differ
in their educational and occupational choice not because of stereotypes embedded by society, family
and institutions but because of our neurological makeup. He proposed that “the female brain is
predominately hardwired for empathy and the male brain is predominantly hard wired for
understanding and building systems”. This theory which was supported by Zeyer and Wolf (2010) and
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Tannen (1991) who imply women are more attracted to occupations and careers which allow them to
‘empathise’, develop relationships with others and understand emotions of others. In contrast, men
are seen as attracted to careers and occupations which are ‘systemising’ in nature, thus facilitating
emotional detachment and dispassionate decision making (Parsons 1942, Adya and Kaiser 2005)
Hell and Pabler (2010) in their recent study suggested that the differences in educational and
occupational choice of men and women is directly linked to gender and can be traced back to
differences in pre and post natal hormone levels (in particular testosterone and oxytocin). They claim
the differences in hormone levels influence the level of male or female cognitive, physical and
behavioral characteristics’ one exhibits’. As a direct consequence of these differences women and
men’s educational and occupational choices are influenced, often towards gender atypical roles.
Hell (2010) and Browne (2006) acknowledge that hormone levels alone are not sufficient to explain
differences in educational and occupational choice. Fine (2010) and Spelke (2005) are more critical
and dismiss such biological theories as far too simple. They argue that sex differences do not exist
and any differences observed between boys and girls, even at a young age are more likely to be
socially learned rather than inherent biological differences.
Albeit unclear whether the behaviours of men and women differ due to biological reasons, it is highly
plausible that these behavioural differences may contribute to explaining the absence of women front
office Investment Management. According to Geary (1998), occupations where the focus is on facts,
creating systems, like engineering and technology are almost exclusively male dominated due to the
congruency of the skillset with male characteristics. Within Investment Management although less
obvious than in engineering and technology, skills such as fact finding, building systems and logical
problem solving are essential, in particular within the front office as evidenced by Hopkins (1986 p.70)
“it’s [Investment Management] a culture based on a puritan work ethic taken to the sometimes absurd
extremes…..leisure, health, relationships and happiness itself are all secondary to work”. If assuming
the biological reasoning of men being more presupposed towards problem solving and system
building, this may go some way in explaining the absence of women in front office Investment
Management.
5. Personality and educational and occupational choice
According to Cobb and Tan (2009) occupational choice depends on personality which is highly
correlated with gender. Ham (2009) indicates that the decision to choose a particular career path is
intrinsically linked to the personal characteristics of an individual which may be inherent in an
individual or of a learned nature. Within the realm of traditional labour economics personal
characteristics and their influence on educational and occupational choice, have been referred to as
the ‘dark matter’ of economics and have received limited attention (Hechman and Rubinstein 2001).
However, in recent years a growing body of literature drawing upon psychological theories has been
emerging. The common theme across the literature is the correlation between gender, personality
types and certain occupational choices (Borghans et al. 2008, Furnham and Fudge 2008).This fusion
of economic and psychology theory has revolutionised and enhanced theories of educational and
occupational choice significantly with Heckman et al. (2006) claiming personality has a greater effect
on occupational choice than cognitive ability and this finding is more pronounced among women.
In examining personal characteristics of individuals, the difficulty often lies in classifying the range of
personal attributes and characteristics into a finite number of types. Within this study the five factor
model of personality has been adopted. This model is considered to be one of the most
comprehensive frameworks within which personality psychology and occupational choice can be
examined. The five factor model classifies a wide range of personality traits according to five factors
namely: openness, experience, conscientiousness, extraversion, agreeableness and neuroticism
(Borghans 2008, McCrae and Costa 2003).
Within the five factor framework, personality traits are described as “dimensions of individual
differences in tendencies to show consistent patterns of thoughts, feeling, and actions” (McCrae and
Costa, 2003 p.25). The category headings for personality characteristics within the model should be
considered not as sole catalysts but as contributing factors in ones choice of educational path and
subsequent occupation (Ozer and Benet Martinex 2006, Barrick et al. 2005). The next section
examines the model more closely.
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Openness as a personality trait with the five factor model is associated with an individual’s comfort
level with new ideas. If an individual is positive about new ideas and techniques, they are classified as
a high scorer in terms of openness. Such a person might be attracted to entrepreneurial jobs which
require idea generation, creativity and independent thinking. Openness is also associated with having
a positive attitude towards training and development and embracing new techniques and skills. As a
sector, Investment Management is extremely innovative and dynamic and financial product
development and management is an integral aspect of most roles within the front office
Conscientiousness is associated with an individual’s attitude towards work. Those individuals who are
performance driven, work hard and are industrious are considered high scorers. Within Investment
Management, conscientiousness is essential, given the long hours’ culture and performance driven
ethos of the sector (Ogden et al 2008). Harrison (2007, p.1), highlights this fact; “the hours were
frightening and we were considered wimps if we took even half of our holiday entitlement. By the
fourth year those of us who were left were surviving on coffee, adrenalin and, in some cases,
cocaine.”
Extraversion is associated with being energetic, extroverted, good in social settings and gregarious.
Barrick and Mount (1991) claim that extraversion is valued in social jobs or those occupations which
required a high volume of socialising and interaction with other people. Borghans et al. (2008) argue
that those individuals who are social and extroverted will choose occupations that involve more
socialising and opportunities to interact with others. In the field of Investment Management,
extraversion is a personality trait that is essential for certain roles, but not all. For individuals working
in client-facing roles where socialising is essential, extraversion is an important personality trait.
However, for individuals working in roles with no client interface the need to be extroverted is
redundant. This is in line with the results of Barrick and Mount (1991) who found that
conscientiousness and openness are valued highly in all occupations while extraversion is valued
more highly in social jobs.
Agreeableness as a personality trait is classified as being compassionate, easy to get along with and
likable. Much debate exists within the literature regarding its validity as an explanator for educational
and occupational choice. In recent studies, Ham et al (2009) concluded that agreeableness and
extraversion are positively valued within social occupations only. Gelissen and Graaf (2006) concur
with the earlier Barrick and Mount (1991) study which uncovered no relationship between
agreeableness and career choice. Mueller and Plug (2004) found that agreeableness is not always a
desirable characteristic. Wakefield (2008) inferred that this is particularly the case in financial based
careers. In his study, Wakefield examined the effects of having a Machiavellian rather than agreeable
personality and its effect on educational and occupational choice amongst accountants. Machiavellian
personality traits are defined as “a negative character trait that includes manipulation, cunning,
duplicity and bad faith” (Wakefield, 2008, p115). Machiavellian characters are generally concerned
with self interest rather than the greater good and are not usually considered to be agreeable
individuals unless for their own purpose. The results indicated that although Machiavellian behavior is
not essential in order to succeed in finance and accounting professions, such behaviour is certain
considered to have a positive rather than a negative (Bowles et al. 2001)
Neurotisim is associated with an individual’s ability to deal with negativity and level of emotional
stability. As described by Ham (2009, p.12), neuroticism is seen as a negative personality trait which
often leads to individuals being “less productive due to their distress”. As described by Prospects UK
(2008, p.1) a UK based career advisory service for students, a career in Investment Management is
described as one where “the work is demanding” and “managing large amounts of other people's
money is not a career for the faint-hearted.” Investment Management is often referred to as a sector
which is aggressive in nature “men get so aggressive, shout, scream and throw things across a
room," (Buksh 2009, p. 1) ‘‘macho,’’ ‘‘aggressive,’’ ‘‘intense’ ’(Turco, 2010, p. 903) Hence Investment
Management requires individuals with a high level of objectivity, detached personality and ability to
work well under pressure and operate within this organisational culture.
Recent literature which has examined the relationship between gender and personality traits within
the five factor model both has indicated interesting results. Schmitt et al. (2008) and Donnellan and
Lucas (2008), concluded that women score higher on all five factors when broad classifications of the
factors within the model are utilised. Costa et al (2001) examined the relationship using sub headings
within each personality trait and their results indicated mixed results with women scoring consistently
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higher scores than men across the sub headings of Neurotisim and Agreeableness In the case of
Conscientiousness, women were seen to score slightly higher but the gender difference was almost
non existent. For Extraversion and Openness inconsistent results emerged with women scoring
higher on certain sub headings such as ‘openness to feelings’ versus men who scored higher on
‘openness to ideas’. In the case of Extraversion, men, under the sub headings of ‘excitement seeking’
scored higher versus women who scored higher in facets such as ‘warmth’.
The main critics of personality as an explanatory variable for educational and occupational choice cite
stability of the traits as a potential problem. However McCrae and Costa (2003) claim that from the
age of thirty years onwards, personality and its associated traits are seen as broadly stable. Heckman
(2006) and Mueller and Plug (2004) question the validity of personality as an explanatory variable for
educational and occupational choice on the basis that personality is endogenous and unstable and
may be influenced by labour market factors. Equally it can be argued that personality alone is not an
appropriate explanatory variable for occupational choice given the feminisation of certain professions
such as law and medicine over the last number of decades (Kay and Gorman 2008, Dacre 2008).
Despite these criticisms, overall the five factor model is seen as a robust and stable model from which
to examine personality and its relationship with educational and occupational choice
6. Self efficacy/success and educational and occupational choice
Expectations and perceptions of success in any discipline are essential influences contributing to the
educational and career options that individuals consider to be available to them. Often perceptions,
aspirations and expectations regarding particular disciplines and careers can be so embedded within
an individuals’ psyche that alternative educational paths and occupational choices are not even
considered. This is particularly evident within the context of gender.
Gender stereotypes are defined by Blakemore et al. (2008, p.7) as “beliefs about members of a
particular group simply because they are members of that group”” Stereotypes regarding gender roles
both in society and the labour market are often instilled at an early age. Fiske and Kim (2000) found
that children adopt stereotypes about gender before they learn stereotypes about any other societal
group. Lawrence and Brown (1976) suggest that the effect of one’s self concept has a different effect
on career maturity among young adults (twelfth graders) depending on gender, gender roles and
race. Eagly (2000, p.127) defines gender roles as “shared expectations that apply to individuals on
the basis of their socially identified sex”. In this instance, if an individual’s gender role schema is
particularly strong then certain male dominated occupations like Investment Management may not
even be considered by women as a career option and the decision to reject it an unconscious one,
(Eccles et al. 1994).
Eccles et al. (1994) cautions that examining an individual’s perceived or actual ability to succeed, the
exploration must be underpinned by the occupation under examination. In the case of Investment
Management, ability in mathematics and a positive attitude towards mathematical and quantitative
subjects rather than languages, for example, is essential. This is particularly the case when examining
occupations within front office Investment Management. Sells (1980) describes mathematics as the
“critical factor” which limits access to high income and high status occupations. Uma et al. (2007)
outline that expectations regarding success in mathematics are significantly related to intentions to
take up further study or undertake occupations that are quantitative and technical in nature. Evidence
suggests that particularly in fields of engineering, technology, mathematics and related disciplines,
men have greater belief in their own ability than women (Watt 2004, Wigfield and Eccles 2000).
Furthermore, from a societal perspective, the embedded stereotype that “boys are better” in terms of
ability within the fields of mathematics (despite statistics illustrating this is not the case) serves only to
disengage women even further by undermining their beliefs regarding their own ability (Nosek et al,
2009, p.1).
7. Personal identity and goals and educational and occupational choice
In developing an individual’s self perception of ability and success, Eccles (2009) states that formation
of one’s ‘identity’ is essential. Identity is a widely used term in psychology and relates to both how an
individual perceives themselves in terms of their skills and competencies and their personal goals and
values. Stitt-Gohdes (1997, p.12) suggests that one’s identity within the workplace defines identity,
the argument being; we are much more likely to be asked “what do you do?” rather than “who are
you?” and as such this question determines our status in society. Eccles (1994) argues that
educational and occupational choice is guided, and influenced significantly, by: (a) an individual’s
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expectations of achievement in a particular discipline and (b) the values attached to those
achievements. A wide range of social, cognitive and biological factors influence the development of a
person’s identity and this development differs significantly between the genders.
Cross and Madden (1997) sought to address how the gender development of young women differs
from men and how their beliefs in their own abilities, skills and expectations for the future diverge. In
line with Van Horen (2008 they proposed that male and female self concepts can be linked to the
theory that women feel they belong to an ‘interdependent’ self construal and define themselves
through the relationships they have with others. Men’s self construct is of an ‘independent’ self where
a clear boundary exists between themselves and others. For the interdependent construal, group
goals are considered more relevant and important whereas within independent construal individual
goals are the priority. These theories may have validity when considering the absence of women in
fields like Investment Management where the emphasis is on personal targets, personal success,
beating benchmarks, aggressive performance driven goals rather than group orientated goals. The
choice to select a particular course of study or occupation is based on an individual’s personal goals
and cost benefit analysis of the options, where the task value of each option is considered.
Task value is defined by Eccles (1994, p.596) as “a quality of the task that contributes to the
increasing or decreasing probability that an individual will select it”. The task value is comprised of
four components: utility value; intrinsic value; attainment value; and cost of engaging in the task.
Utility value refers to those tasks that facilitate attainment of long term goals which are usually
externally recognised. Intrinsic value relates to an individual’s interest, motivation and consequential
enjoyment in undertaking a task. The attainment value of the task relates to the personal values that
an activity can provide and whether it assists the individual in achieving the self image they have
formed for themselves (Eccles et al. 1994). Markus and Nurius (1986) argued that self image is based
on a personal belief system and ‘possible self’ notion from which individuals make educational and
occupational choices that facilitate successful achievement of the ‘possible self.’
Attainment value and self image are influenced by personal and collective identities and beliefs and
as individuals encounter more life experiences and social settings over time these identities and
beliefs may evolve significantly or embed deeply. Such experiences assist individuals in defining who
they are, what they want to be, which, in turn, directly influence educational and occupational choices
(Eccles 2009). Given that men and women have very different self images, often heavily influenced by
social stereotypes, various educational and career choices will have a different attainment value
attached. Dimond and Guzdial (2008) claim that women tend to have a higher attachment to social
goals and their self image is influenced heavily by this desire to help others which is fulfilled in careers
like teaching and nursing. Betrand’s (2009) findings suggest postgraduate females are less attracted
to finance and corporate related occupations due to the individualistic money-driven characteristics
associated with them. Niederle and Vesterlund’s work (2005) conclude that women are not attracted
to highly competitive, highly pressurised environments to the same extent as men also; thus further
embedding the barriers for those women trying to break into the hierarchical ranks of Investment
Management.
8. Conclusion
The absence of women in front office Investment Management is an important sectoral issue which
needs to be addressed. Analysis of the individual factors which contribute to sex segregation is
therefore critical to illuminating our understanding of educational and occupational choice within this
context. From the review of the literature it is evident that individual factors may have validity as
explanatory variables and as such provide the basis of a conceptual model illustrated in Figure 1.
The conceptual model indicates the four main clusters of individual factors which influence
educational occupational choice. Albeit complex interrelationships between the four groups of factors
exist the model provides a starting point for investigating formally the unexplained absence of women
in Investment Management front office roles
520

Figure 1: Conceptual model
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523

Identification of Specific Motivational Factors for Different
Categories of Staff and its Importance
Šárka Vránová
Tomas Bata University in Zlin, Czech Republic
Sarka.Vranova1@seznam.cz
Abstract: The aim of this paper is to point out differences in motivation of different categories of staff (according
to gender, age, education etc.). Detailed knowledge about motivation will allow managers to lead their staff more
efficiently to positive attitude to work and willingness to continue developing their skills. This will enable
companies to achieve higher efficiency in the future. A person’s effectiveness is determined by their skills and
competences, but also their willingness to work. If they are poorly motivated, their performance will be poor.
Therefore one of the manager’s key tasks is to influence motivation of their subordinates. Motivation to work is
ideal if the employee’s needs and interests correspond with the needs and interests of the company. From the
point of view of the company’s long-term economic prosperity, it is objectively essential in running the
organization to systematically influence willingness to work, and to direct people’s motivation. The use of
psychological research findings about motivation and stimulation is still insufficient. There is therefore a need for
further analysis in this area, and its results need to be passed on to managers. The author has been dealing with
this topic for several years. Her research is based on specialist literature in Psychology and Personal
Management. Primary data was received by means of a questionnaire survey among staff in companies of
various specialization and size. The survey was carried out in 2011. The author is going to continue researching
motivation and stimulation in the workplace. Her aim is to find out about motivational factors among present-day
employees in various categories (according to gender, age, qualification etc.), and use this understanding to
suggest the most effective ways to stimulate them. Well-stimulated staff will be more efficient, which will increase
companies’ overall efficiency. The research is based on a working hypothesis that a large number of staff in
companies are not sufficiently and properly motivated. This is due to inadequate knowledge of factors which
motivate them. The result is insufficient willingness of employees to work and develop their skills, leading to
companies achieving lower efficiency than their potential would allow them. The paper informs about research
into motivational factors of different categories of staff. It deals with differences in motivation according to gender,
age, education etc. Better knowledge about motivation will allow more effective stimulation of staff to positive
attitude to work and willingness to continue developing their skills.
Keywords: motivation, motivational factors, motivation process, staff, motivation theory
1. Introduction
Good management means creating the best possible conditions for individuals to work together in
order to achieve common goals. Therefore it is important for every manager to understand what
motivates people so as to make the organization and its staff more effective.
Managers use stimulation to influence their staff’s motivation to work. They encourage their positive
attitude to their duties and their further personal development. Stimulating staff is an integral part of all
activities of a manager. It is, however, not an easy task as the stimulating effect of various impulses is
different with different people. One of the key prerequisites of successful stimulation is applying it in
accordance with the employees’ needs and motivational factors. That requires every manager to
know their staff well.
The more developed a society is, the bigger variety of effective stimulation factors. With the
employee’s rising standard of living, the stimulating effect of physical reward decreases. Other factors
become more important, like job interest, relationships in the workplace, the manager’s personality
and behaviour etc.
Different organizations have different goals. In the same way, the people working in them also have
their own needs and goals.
Managers who know their employees can help them realize that they can satisfy their individual
needs, develop their potential and thus contribute to the common aims of the organization.
However, we need to bear in mind that the individual is not merely a production factor in fulfilling the
organization’s goals. Individuals are not only employees, they also play many other important roles in
society, and this applies to managers as well as their subordinates. Each person is unique, with his
own needs, aspirations, attitudes, wants, knowledge, skills and other potential. If managers
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Šárka Vránová
understand the complexity and individuality of their employees and show them respect, they can help
them feel jointly responsible for achieving the organization’s aims.
2. The research: Its approach, aim, hypotheses and methods
The research used the following approach:
Defining the problem - by establishing the depth and breadth of the research, by defining its aims,
the type of information needed, where and from whom to obtain that information, who would
obtain it, and the methods and resources used.
Research plan: the research materials (questionnaires) were drawn up, a representative sample
of respondents was selected.
Collecting the data: respondents were asked to fill in the questionnaires.
Processing, analyzing and assessing the data: the information provided was collated, sorted and
analyzed. The results of the research were assessed.
Conclusions: the results of the research were used to draw up conclusions and recommendations
to improve management methods.
The aim of the research was to establish the most significant factors which people consider important
in carrying out their work. It went on to analyze the biggest differences between the various factors in
the way they are perceived by different categories of people.
The following hypotheses were set:
Basic hypothesis: there are significant differences in the factors affecting people’s work motivation,
depending on categories such as their sex, age, education etc.
Secondary hypothesis: the greatest differences in the perceived importance of the various factors are
found between men and women.
The research methods used were both qualitative and quantitative,
In terms of qualitative research, the interview method was used. A number of managers were
interviewed individually at length, then group interviews were held with about 30 members of staff.
The interviewees' opinions on the subject matter were examined in detail. Their responses identified
25 factors which they considered most important in their work.
The quantitative research method took the form of written questionnaires which the respondents were
asked to complete. The questionnaire was initially validated on a group of 30 respondents. It was then
distributed to a further 300 randomly selected participants who are employees in the Czech Republic.
They were asked to rate the relative importance to them of each of the 25 identified factors on a scale
of 1 to 5 as follows:
1: Not important at all
2: Not very important
3. Averagely important
4. Quite important
5. Very important
Some 214 properly completed questionnaires were returned.
The research was carried out between November 2010 and April 2011.
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3. Basic terminology
Šárka Vránová
Motivation is a general term encompassing a whole series of different ambitions, aspirations, needs,
wishes and so on. Motivation has been defined as “all those inner striving conditions described as
wishes, desires, urges and so forth … It is an inner state of man that activates or moves.” (Berelson
1964)
Motivation includes effort, perseverance and goals. It is what drives man to perform. Human
motivation is very complex and can sometimes even be conflicting.
The motivation process
The basis of the motivation process is unsatisfied need. A lack of something is the first link in the
chain of events which influence the individual‘s behaviour. Unsatisfied need generates stress at the
physical or mental level. This leads us to take steps to satisfy the need and thus to reduce the stress.
Needs give rise to wishes and goals. Because they are unfulfilled, they create stresses and drive
activity aimed at meeting those goals. The result of this process is satisfaction. Satisfaction is the
pleasure of a wish fulfilled.
The explanation of this chain is complex. For one thing, many needs depend on the circumstances in
which people find themselves. Circumstances have a crucial influence in particular on the perception
of secondary needs. Note here that physiological needs are considered as primary. Secondary needs
are others such as belonging, esteem, self-actualisation and achievement. Furthermore, while needs
can be the cause of behaviour, they are also its effect. Satisfying one need can result in the wish to
satisfy another. But human behaviour is not necessarily driven by needs alone, because other factors
can also have a role to play. (Koontz 1998)
Stimuli
Stimuli are what incite individual action. Motivation reflects desires, but stimuli are the incentives or
the rewards which increase our endeavour to satisfy those desires.
Stimuli affect individual behaviour. Managers should be very alert to different stimuli and be innovative
in the way they use them. They must put to good use those stimuli which make their employees work
more effectively for the organization.
4. Motivation theory
For many years now researchers have been developing theories to help managers understand better
the way people behave. However none of these theories have yet come up with a universally
acceptable explanation of human behaviour, because individuals are very complex. Here I will outline
some of the most popular theories. Managers should be familiar with these and use them to develop
their own motivational approaches.
4.1 Maslow's Hierarchy of Needs
This is the most popular theory of motivation in the workplace. It holds that needs are the most
important motivational stimuli. Maslow said these needs are arranged hierarchically from the most
basic to the highest order.
The most basic human needs in terms of importance are, according to Maslow:
1. Physiological needs
2. The need for safety and security
3. The need for belongingness and love
4. The need for esteem
5. The need for self-actualization
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Šárka Vránová
If the lower-order needs are satisfied, the higher-order needs begin to take precedence. If some of the
needs are satisfied, they cease to act as a stimulus. (Maslow 1954)
4.2 Herzberg's two-factor theory
Herzberg divides the factors into external and internal stimuli.
The external stimuli or "dissatisfiers" relate to the working conditions. He calls them "hygiene factors",
and they include company administration, management quality, work conditions, relationship with
peers, salary, job status, job security, and personal life. In his view, these factors can only cause
dissatisfaction; they do not function motivationally as stimuli.
The internal stimuli or "motivators" relate to the work content. They include the work itself,
responsibility, recognition, promotion, achievement, and opportunity for growth. Fulfilment in these
areas can lead to satisfaction, but never to dissatisfaction.
The factors identified by Herzberg are broadly similar to those identified by Maslow. (Herzberg 1959)
4.3 McGregor's X-Y theory
The X and Y theories are two sets of assumptions about the human character.
According to theory X, people dislike work and avoid it. Therefore they must be directed and
threatened with punishment. People avoid responsibility, have little ambition, and seek security above
all else.
Theory Y assumes that exerting physical and mental effort comes naturally to people. Their
commitment to organizational objectives increases in line with their rewards. They are capable of selfdirection.
They not only accept responsibility, they even seek it. People are able to use ingenuity and
creativity to solve organizational problems. In the workplace, their intellectual potential is under-used.
Theory X is pessimistic and static. Subordinates are directed primarily by their superior. In contrast,
theory Y is optimistic and dynamic. It puts the emphasis on self-direction.
This approach to management highlights the need to understand human nature. McGregor suggested
that every management process should begin by asking how the manager sees himself. (McGregor
1960)
4.4 Vroom's expectancy theory
Vroom sought to evaluate motivational stimuli in quantitative terms. He argues that individuals will
perform specific actions aimed at achieving a specific goal or result, and they expect some sort of
reward for the result of their effort. Furthermore, the result should satisfy an important need for them.
The more important their need, the greater the effort they are prepared to make.
Vroom´s equation is M = E * I * V, where:
M = motivation to work, anticipated effort
E = expectancy (the employee's expectations about the outcome of his effort)
I - instrumentality (the employee's perception of the likelihood that his performance will be rewarded)
V = valence (the value of the reward that results from his performance)
Managers can influence these variables by selecting the appropriate employees, developing their
knowledge, giving them advice, understanding their needs, providing appropriate equipment and
working conditions, and so forth. (Vroom 1964)
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4.5 Other theories
Šárka Vránová
There are many other very important motivation theories, for example the Equity Theory populalized
by J. S. Adams (Berkowitz 1965), the stimulation theory (or theory of reinforcement) (Skinner 1953),
the Porter-Lawler model (Porter and Lawler 1968), C. Alderfer's theory (Alderfer 1972), goal-setting
theory (Locke 1984), causal attribution theory (Heider 1958).
5. Research results
As already stated in section 2, the questionnaire contained questions relating to 25 motivation factors.
These factors were arranged according to Maslow's hierarchy of needs (viz. section 4.1) from the
lowest to the highest. Thus motivation factors 1 - 5 dealt with satisfying physiological needs,
motivation factors 6 - 10 with satisfying safety and security needs, motivation factors 11 - 15 with the
need for love and belonging, factors 16 - 20 with the need for esteem, and the last group, factors 21 -
25, looked at satisfying the need for self-actualization. The respondents rated each factor's
importance to them on a five-point scale. The questionnaire is attached.
The results of the analysis of the questionnaire exercise were used to analyse the differences
between the following selected categories:
By sex
By age
By education.
5.1 Differences by sex
The factor rated "very important" by the greatest number of men and women (57 % in both cases)
was the financial remuneration of their work.
For women, the second most highly rated factor was "feeling good in the workplace" (52 %), while for
men, it was "work which allows you at least one holiday a year so you can get a break" (52 %).
Then the responses rating each factor as "quite important" and "very important" were counted for both
sexes separately. This showed which factors were rated most differently between the sexes. The
following factors were considered much more important by women than by men:
A job where you feel safe,
A job which does not cause long-term sleeping problems,
Praise from your superior
A job which is not too stressful
Having a friend in the workplace.
On the other hand, men much more than women thought it very important to have the right materials
and equipment to do their work properly and safely.
In the factors rated as being "not important at all" or "not very important", the biggest differences
between men and women were as follows:
Praise from your superior
A superior you respect
Your work is valued by your colleagues
A job where you feel safe
A workplace free of unhealthy physical effects such as noise, dust and the like.
Many more men than women rated all these factors as unimportant.
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Šárka Vránová
From these findings it is clear that both sexes agree in considering the financial rewards for their work
as very important. However, women put much greater emphasis on matters which affect their health,
and in contrast to men, they also have greater regard for factors connected with other people in the
workplace, particularly their superiors.
5.2 Differences by age
Comparisons were made between two age groups: ages 21-30 - which we will call the "younger
people", and 41-50 - the "older people". One of the reasons for comparing these age groups is that
most of the survey respondents belonged to one or the other. Another reason is that these age
groups are sufficiently wide apart to reflect changes in their motivation. The factors rated "very
important" by most of the younger group were "work which allows you at least one holiday a year so
you can get a break" (60 %), then "financial remuneration", then "feeling good in the workplace" (57 %
in both cases). In the older group, 57 % of the respondents cited "financial remuneration" as very
important, and none of the other factors were rated this highly by more than 50 % of the older
respondents.
Then the responses rating each factor as "quite important" and "very important" were counted for both
age groups separately. This showed which factors were rated most differently between the younger
group and the older group. The following factors were considered much more important by the older
people than by the younger ones:
A job where you feel safe
The company's prospects (whether it will provide work into the future)
A superior you respect
Your work is valued by your colleagues
On the other hand, younger people attached far more importance than older people to "the prospect
of more interesting work" (working more creatively, more independently, etc).
The greatest differences between the age groups in the factors they considered "not important at all"
or "not very important" were as follows:
The superior's willingness to take account of your problems,
The feeling that your work is useful and important,
Financial remuneration.
These factors were rated unimportant or not very important by 17 - 26 % of younger people, but by no
more than 2 % of the older respondents.
In this category too it is clear that both the younger and older age groups agree in attaching great
importance to the financial remuneration of their work. However, it is surprising that 10 % of the
younger age group rated financial remuneration as “not very important“ and 7 % as even “not
important at all“. Among the older age group, no-one considered financial remuneration “unimportant“
or “not very important“. The older people show more anxiety than the younger ones, as well as a wish
for respect and understanding, and the feeling that they are doing useful work.
5.3 Differences by education
Comparisons were made between the following three categories
Skilled workers with practical or apprentice qualifications
Secondary school qualifications
Higher education qualifications
The factors rated "very important" by the highest number of skilled workers and secondary schooleducated
respondents were "financial remuneration", and "work which allows you at least one holiday
a year so you can get a break".
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Šárka Vránová
Those with higher education also considered financial remuneration very important, but the same
percentage also cited "feeling good in the workplace".
Then the responses rating each factor as "quite important" and "very important" were counted for all
three education levels separately. This showed which factors were rated most differently between
these groups.
The biggest difference was that people with higher education find it much more important than the
secondary school-educated group to feel that their work is valued by their colleagues.
Furthermore, the higher education group place much more emphasis than the skilled workers on
"opportunities for further training and qualifications", and "the opportunity to use your knowledge and
skills".
The greatest difference between the higher education group and the skilled workers in the factors
they considered "not important at all" or "not very important" was that the skilled workers were much
more likely to consider it not important at all to be "given important tasks to perform".
As with the previous categories, here too it is clear that all three education levels consider the
financial remuneration of their work as very important. The higher education group place more
emphasis than the others on those factors which satisfy their need for recognition and self-fulfilment.
6. Conclusion
These findings show that there are important differences between different categories of employee in
the extent to which specific factors motivate their work. That means that the basic hypothesis has
been confirmed. However, the primary motivation factor for all categories turns out to be the financial
remuneration of the work.
The biggest percentage differences in each group rating a specific factor as important or not important
were found when the groups were categorized according to education level. The next biggest
differences were found when the groups were categorized by age, and in third place when
categorized by sex. This, therefore, does not bear out the secondary hypothesis.
It is a very interesting fact that the greatest differences in the perceived importance of the motivation
factors were found between the different groups of people according to their education. This can be
explained on the basis of Maslow's theory of the hierarchy of needs. More highly-educated
people generally have the kind of work and high enough incomes to be able to satisfy their
physiological needs and safety needs. Therefore they begin by almost taking it for granted that these
needs are satisfied, and they show a markedly greater desire than less-educated people to satisfy
their need for esteem and self-actualization.
The author of this paper intends to continue this research. More questionnaires will be distributed, and
an even more detailed questionnaire process will be carried out.
The differences in the categories already defined will be analyzed in greater detail. In addition to the
categories above, the author will focus on establishing the differences between categories of
employees according to:
Income level
Job status
Length of time in the job
Family situation
Whether or not they have children.
The author's present and future research in this field seeks to promote a better understanding of the
effect of different motivation factors on different categories of employee. This knowledge could
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Šárka Vránová
improve the work of managers in providing stimulation for their employees' work, increase their
employees' job satisfaction, and make their industries more effective.
7. Appendix 1: Questionnaire
How important is this to you?
1 Not important at all
2 Not very important
3 Neither important nor unimportant
4 Quite important
5 Very important
Factor How important is
this to you?
1 Work which does not cause long-term sleeping problems 1 2 3 4 5
2 Work which does not restrict your ability to eat, drink etc. at appropriate intervals 1 2 3 4 5
3 A working environment free from harmful physical influences (e.g. noise,dust) 1 2 3 4 5
4 Work which is not unduly stressful 1 2 3 4 5
5 Work which allows at least one holiday a year when you can relax 1 2 3 4 5
6 Employment prospects - whether you enjoy job security for the future 1 2 3 4 5
7 Clear information about what is expected of you 1 2 3 4 5
8 Provision of the necessary materials to work safely and to a good standard 1 2 3 4 5
9 Necessary information to work safely and to a good standard 1 2 3 4 5
10 Work in which you feel safe 1 2 3 4 5
11 Having someone at work who is a friend 1 2 3 4 5
12 Feeling at ease among work colleagues 1 2 3 4 5
13 Being part of a good team whose members do their work well 1 2 3 4 5
14 Having a manager whom you respect 1 2 3 4 5
15 Your manager's willingness to take your problems into consideration 1 2 3 4 5
16 Financial reward for your work 1 2 3 4 5
17 Non-financial benefits (e.g. perks of the job) 1 2 3 4 5
18 Praise from your manager 1 2 3 4 5
19 Colleagues show appreciation of your work 1 2 3 4 5
20 Being given significant job responsibility 1 2 3 4 5
21 Feeling that the work done is useful and important 1 2 3 4 5
22 Opportunity to use knowledge, skills and talent 1 2 3 4 5
23 Opportunity for promotion 1 2 3 4 5
24 Opportunity to take on more interesting tasks (more creative, more independent,
etc.)
1 2 3 4 5
25 Opportunity for further study or education 1 2 3 4 5
Please add any additional factors which you think are important in work:
………………………………………………………………………………………………………………………
…………………………………………………..…………………..…………………………………..................
............
You are: □ male □ female
Please state your age group:
□ under 20 years □ 21 - 30 years □ 31 – 40 years □ 41 – 50 years □ 51 – 60 years □ 61 or
older
What is your level of education?
□ apprentice-trained/practical qualifications
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□ secondary education
□ tertiary education
Šárka Vránová
Thank you for taking the time and trouble to complete this questionnaire.
The identification data helps to improve the quality of this research.
The information you have provided is strictly anonymous.
References
Alderfer, C. (1972) Existence, Relatedness and Growth, Free Press, New York.
Berelson, B. and Steiner, C. (1964) Human Behavior: An Inventory of Scientific Findings. New York, Harcourt
Brace Jovanovich, New York.
Bělohlávek, F. (2008) Jak vést a motivovat lidi, Computer press, Brno.
Berkowitz, l. (1965) Advances in Experiental Social Psychology, Academic Pres, New York.
Donnelly, J.H. and Gibson, J.L. and Ivancevich, J.M. (1997) Management, Grada, Praha.
Eggert, M. (2005) Motivace, Portál, Praha.
Faerber, Y. and Stowe, Ch. (2007) Vedení lidí v praxi: zlepšete své manažerské dovednosti, Grada, Praha.
Heider, F. (1958) The Psychology of Interpersonal Relationships, Wiley, New York.
Herzberg, F., Mausner, B. Snyderman, G. (1954) The Motivation to Work, John Wiley & Sons, New York.
Locke, E. A. (1984) Effect of self-efficacy, goals ang task strategies on task performance. Journal of Applied
Psychology, 69 (2), s. 241-251
Maslow, A. (1954) Motivation and Personality, Harper & Row, New York.
McGregor, D. M. (1960) The human side of enterprise. McGraw-Hill, New York.
Mikuláštík, M. (2007) Manažerská psychologie, Grada, Praha.
Mládková, L. and Jedinák, P. (2009) Management, Vydavatelství a nakladatelství Aleš Čeněk, Plzeň.
Koontz, H. and Weihrich, H. (1998) Management, Victoria Publisching, Praha.
Porter, L. W., Lawler, E. E. (1968) Managerial Attitudes and Performance. Irwin-Dorsey, Homewood (IL).
Skinner, B.F. (1953) Science and Human Behavior, Macmillan, New York.
Vroom, V. (1964) Work and Motivation, John Wiley & Sons, New York.
532

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in
Progress
Papers
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534

Models for Supply Chain Governance
Emil Crisan, Ilie Parpucea and Liviu Ilies
Babes-Bolyai University, Cluj-Napoca, Romania
emil.crisan@econ.ubbcluj.ro
ilie.parpucea@econ.ubbcluj.ro
liviu.ilies@econ.ubbcluj.ro
Abstract: An important set of studies has been developed in the corporate governance field; a research area has
been created containing different subjects: agency theory, governance models and structures, governance
impact on company’s performance or governance failures. While corporation is the main scope of these
researches, corporations don’t exist as independent structures. One hypothesis we consider is that corporate
governance theories are not entirely relevant for chains of companies, except the case of asymmetric supply
chains. For equilibrated supply chains the focus of corporate governance for only one corporation, one link of the
chain, seems to be obsolete as long the interests of chain stakeholders are different and they act together for
attaining their goals. Let’s consider management as a system running current activities of a corporation.
Corporate governance is a higher ranked system, by establishing rules for management. It is also partially an
external system, by ensuring stakeholders’ interests are achieved without their direct involvement within the firm.
Contrary to all reasons, if corporations within a chain have the same power and very efficient governance
systems, the chain would generate poorer results than any other competitor chain with different configuration.
Why? Business means nowadays dependence among links. For creating a chain cost disadvantage, one
powerful corporation from the chain is enough to be governed or directed to good results only for chain local
stakeholders. In order to face this problem, supply chain management processes, which ensure collaboration for
all chain partners have been developed. Within the article we consider the necessity of higher ranked systems
similar to corporate governance system for supply chain management. For identifying forms of supply chain
governance, a literature review study was performed. Three supply chain models were identified. Supply chain
governance models and researches are at the beginning, even if supply chain management is a common
business practice.
Keywords: supply chain, governance, management
1. Introduction
Supply chain is not a widely accepted term. Many concepts are used within literature to denote the
connection among firms for creating products: transorganisational organizations, supply networks
(Verwaal and Hesselmans 2004), interorganizational relationships (Neumann 2010), interfirms (Wu et
al. 2006), global value chains (Loconto 2010), extended enterprise (Davis and Spekman 2004) or
value chains (Sivakumar et al. 2010). While these concepts have different specific meanings, the
existence of all these terms is proving that collaboration among companies is necessary. There are
many discussions whether the term used for denoting companies collaboration to be supply chain,
demand chain or value chain? The term supply chain is called into question by marketing, strategic
management and other researchers, but is accepted as the most representative term for corporate
collaboration. Supply chain management and supply chain governance, having the same ontological
problems, should also be accepted. There are also many meanings for governance. For this paper,
governance is the rules, the structures and the institutions that guide, regulate and control social life,
features which are emanated from power (Barnett et al. 2005). Governance is not decision making, is
not management, but is the framework where decision making is made, for any system.
Considering this controversial situation regarding terminology, in this paper we seek to find answers to
the following two questions:
Are there any models, any common practices which denote supply chain governance?
Are these models sustainable? Could they be adopted by several supply chains?
We start our analysis with a review of the possible reasons for implementing supply chain
governance. Based on this review, we observe that the forms of supply chain governance depend on
the power each partner of the chain has. We review the supply chain governance models, presenting
an alternative model imported from politics – network governance. Finally, the conclusions of the
study are presented.
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Emil Crisan et al.
2. Reasons for supply chain governance
The change of business strategy from vertical integration to external partnerships, together with an
increase of worldwide competition and frequency of quality improvement projects implementation has
generated for chain coordinators problems in monitoring and coordination of suppliers and distributors
(Vurro et al. 2009). In this context, the transition from transaction cost economics (TCE) governance
models to collaboration based models is obvious. The small chain links are no longer only evanescent
partners. For obtaining efficiency and efficacy in customer serving, collaboration is needed. 80% of
the alliances fail to achieve their intended goals. The main challenge of supply chain governance is
cooperation (Kuittinen et al. 2009).
Another reason for supply chain governance is reputation. Many years chain coordinators have used
different suppliers which did not take into account any ethical or environmental concerns. Criticisms of
perceived social and environmental deficiencies have dramatically increased; there exist several civil
organizations acting as advocates for these fair causes. The adoption of sustainable practices aimed
at managing and anticipating potential legitimacy and reputation threats due to misconduct along the
supply chain is now a common practice for most chains. These criticisms have led to a specific type of
governance, called sustainable supply chain governance (Blowfield and Dolan 2010).
Opposite to the transaction cost economics theory, supply chain governance has a tendency on
gathering the resources of all links of the chain. The resource-based view should be reflected in
supply chain governance. Supply chain governance is in this way an optimistic view for a relation (it
can generate value) in comparison to the pessimistic approach of TCE (costs, risks) (Vivek et al.
2009).
Supply chain governance should though consider several goals: reputation, efficiency, adaptation,
cooperation. Together with these goals, long term contracting will increase chain predictability and
trust for all chain members. Fawcett et al. recognize three areas for supply chain governance:
functional excellence (containing traditional firms’ functions at supply chain level: engineering,
sourcing, operations, logistics, marketing), cross-functional and inter-organizational (Fawcett et al.
2006). Functional excellence determines operational excellence. The goal of supply chain governance
structures is to maintain and enhance operational excellence and to create a cross-functional
excellence.
3. Supply chain governance models
Governance of supply chain system is rules, structures and the institutions that guide, regulate and
control the supply chain, emanated from power. It would be a superior system for supply chain
management. Most of researches consider supply chain governance as multiple arm-length
relationships. Here governance is not for the whole supply chain, but between each two supply chain
partners. One company can have total control over another, here we face a hierarchical relation – it is
a hierarchy. The opposite situation is the market relation. Gerefii (in (Loconto 2010)) has identified five
types for value chain governance: hierarchy, captive, relational, modular and market – ranging from
high to low levels of power asymmetry. Power is defined as the capability of one firm to influence the
actions and the decisions of another firm (Burgess and Singh 2006).
The question is whether these multiple relationships could be considered a system.
It is obvious that an asymmetric supply chain – having as coordinator the producer or the buyer is
commonly run as a hierarchical system. Hierarchical supply chain governance seems to be the right
term for it. The coordinator implements an extended corporate governance structure, without taking
into account partners’ interests. It is the case for hierarchy and captive governance between partners.
Marketing governance implies a short-term relation between equal partners. The costs and barriers to
leave the chain are low. In this case there are no coordinators, while all companies function
autonomously. Supply chain governance exists at low level. There are probably no structures which
coordinate the whole chain. It is the case for modular and market governance among partners. The
last case proposed by Gerefii implies relational governance between partners. Implemented at the
supply chain level, it could reflect governance definition. Rules, structures and institutions that guide,
regulate and control the chain can be developed. This is the relational supply chain governance we
refer to. All these aspects can be implemented through executive governance councils, supply chain
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Emil Crisan et al.
steering committees, partner advisory councils and senior executive supply chains positions. Yet the
functions of these structures are not very well established (Fawcett et al. 2006) at supply chain level.
Another model which can be adopted for supply chain governance is network governance. This model
exists as a policy network - instead of regional governments these networks are formed by several
actors who share common interests and who consider that cooperation is the best way to achieve
them. There can be state or non-state actors (civil society, private companies); they can include multilevel
actors (from regional, national or international level). Instead of market or hierarchical
governance, there is a durable bargaining system linking independent actors based on trust for long
term relationships (Messner and Meyer-Stamer 2000).
4. Conclusions
As discussed above, supply chain governance can manifest through three different models:
hierarchical, relational and network. The development of real governance structures and processes
for supply chains seems to be only at the beginning, but taking into account the fast growing pace of
corporate governance issue, supply chain governance could become a major field of research in the
near future. One research alternative we consider for the future is to build a mathematical model for
supply chain governance, having as result the performance of the chain and as variables the
governance practices within the chain.
Acknowledgements:
This work was supported by the European Social Fund through Sectoral Operational Programme
Human Resources Development 2007-2013, project number POSDRU/1.5/S/59184 „Performance
and excellence in postdoctoral research in Romanian economics science domain” (EC). The work of
this research was financed by The Romanian National Council of the Higher Education's Scientific
Research (CNCSIS) from the project “A conceptual framework for theoretical modeling. The impact
study and prediction analysis for the stock exchange market and for prices equilibrium”, ID_2586,
Babeș-Bolyai University, Cluj-Napoca, Romania (IP).
References
Barnett, M., Duvall, R., Hurrell, A., Laffey, M., Weldes, J., Kapstein, E., Gruber, L., Shaffer, G., Finnemore, M.,
and Johnstone, I. (2005). "1 Power in global governance." Power in global governance, 1.
Blowfield, M., and Dolan, C. (2010). "Outsourcing governance: Fairtrade's message for C21 global governance."
Corporate Governance, 10(4), 484-499.
Burgess, K., and Singh, P. (2006). "A proposed integrated framework for analysing supply chains." Supply Chain
Management: An International Journal, 11(4), 337-344.
Davis, E. W., and Spekman, R. E. (2004). The Extended Enterprise: Gaining Competitive advantage through
collaborative supply chains: FT Press.
Fawcett, S., Ogden, J., Magnan, G., and Cooper, M. (2006). "Organizational commitment and governance for
supply chain success." International Journal of Physical Distribution and Logistics Management, 36(1), 22.
Kuittinen, H., Kyläheiko, K., Sandström, J., and Jantunen, A. (2009). "Cooperation governance mode: an
extended transaction cost approach." Journal of Management and Governance, 13(4), 303-323.
Loconto, A. "Value Chains and Chains of Values: Tracing Tanzanian Tea." Presented at The 116th EAAE
Seminar "Spatial Dynamics in Agri-food Systems: Implications for Sustainability and Consumer Welfare",
October 27th -30th, 2010, Parma, Italy.
Messner, D., and Meyer-Stamer, J. (2000). "Governance and Networks: tools to study the dynamics of Clusters
and Global Value Chains." IDS/INEF Project" The Impact of Global and Local Governance on Industrial
Upgrading.
Neumann, K. (2010). "Ex ante governance decisions in inter-organizational relationships: A case study in the
airline industry." Management Accounting Research, doi:10.1016/j.mar.2010.05.002.
Sivakumar, K., Roy, S., Zhu, J., and Hanvanich, S. (2010). "Global innovation generation and financial
performance in business-to-business relationships: the case of cross-border alliances in the pharmaceutical
industry." Journal of the Academy of Marketing Science, 1-20.
Verwaal, E., and Hesselmans, M. (2004). "Drivers of Supply Network Governance: An Explorative Study of the
Dutch Chemical Industry." European Management Journal, 22(4), 442-451.
Vivek, S., Richey Jr, R., and Dalela, V. (2009). "A longitudinal examination of partnership governance in
offshoring: A moving target." Journal of World Business, 44(1), 16-30.
Vurro, C., Russo, A., and Perrini, F. (2009). "Shaping Sustainable Value Chains: Network Determinants of Supply
Chain Governance Models." Journal of Business Ethics, DOI 10.1007/s10551-010-0595-x, 1-15.
Wu, F., Yeniyurt, S., Kim, D., and Cavusgil, S. (2006). "The impact of information technology on supply chain
capabilities and firm performance: A resource-based view." Industrial Marketing Management, 35(4), 493-
504.
537

The Elaboration and Implementation of an Innovative
Methodology for Analyzing and Evaluating the
Characteristics and Performances of the Entrepreneurial
Management in Romania
Adriana Giurgiu 1 , Ion Popa 2 , Nicoleta Bugnar 1 , Liana Mester 1 , Mihai Berinde 1
and Lucian Unita 1
1
University of Oradea, Romania
2
Bucharest Academy of Economic Studies, Bucharest, Romania
adrianagiurgiu@gmail.com
popaion_2000@yahoo.com
nico_bugnar@yahoo.com
mihai.berinde@yahoo.com
lianamester@yahoo.com
lucian.unita@gmail.com
Abstract: This paper presents the work in progress developed by the authors within the project entitled:
“PERFORMAN - The Elaboration and Implementation of an Innovative Methodology for Analyzing and Evaluating
the Characteristics and Performances of Entrepreneurial Management in Romania”, financed by the Romanian
Authorities (UEFISCDI) Programme 4 – Partnerships in the priority fields in the framework of preparing a future
FP 7 project, with an amount of 500,000.00 Euros. The PERFORMAN project is a research project developed by
a Consortium of Romanian Universities, such as The Bucharest Academy of Economic Studies, The ”Lucian
Blaga” University of Sibiu, and The University of Oradea, in partnership with a Romanian large company (IPA
S.A.), all together under the coordination of The National Council of Private SMEs in Romania (CNIPMMR). The
project aims to provide an innovative methodology for analyzing and evaluating the characteristics and
performances of the entrepreneurial management in Romania, to further recommend systems, methods and
managerial techniques adapted to the specific of Romanian SMEs and to the difficulties they confront, intending
to contribute in a decisive way to the increasing of the competitiveness and the innovation potential of the
Romanian SMEs, in the context of Romania’s integration in the European Union, and the transition to the
knowledge - based economy. The general objectives of the PERFORMAN project are as follows: to increase the
competitiveness of Romanian SMEs; to increase the innovation potential of Romanian SMEs by implementing
new systems, methods and managerial techniques; to facilitate the creation and development of a culture of
innovation within the Romanian SMEs; to increase the management capacity of Romanian SMEs facing the
competition on the Single Market of the EU. As the project will end only on September 30, 2011, in this paper we
will present the progress of PERFORMAN as resulted from the activity developed within the project by the
University of Oradea, as Partner no. 4 in the Consortium, and to which the authors of this paper belong to. The
target group envisaged by the implementation of the project are the Romanian SMEs, which will be the direct
beneficiaries of all the recommendations and solutions proposed after the analysis and the evaluation of the
characteristics and performances of entrepreneurial management foreseen by this project will be finished.
Considering the possibilities of disseminating the results of the University of Oradea as Partner no. 4 in the
project, the number of the ultimate users will be of at least 300 SMEs, of which 250 are already involved in the
project, as part of the project’s sample structure formed from a total of 1500 SMEs managers, that the
Consortium agreed that assure the necessary representativeness for implementing the evaluation methodology
of the characteristics and performances of the entrepreneurial management in Romania.
Keywords: Romanian SMEs’ entrepreneurial management performance
1. Introduction to a research project in progress: PERFORMAN aims and
objectives
The entrepreneurial management’s performance represents a state of competitiveness of the
enterprise, reached by a level of effectiveness and efficiency that assure a durable presence on the
market (Niculescu, Lavalette 1999), and it could be obtained in the fields that renders features as
competitiveness, efficiency and effectiveness of the organization and its structural and process
components (Verboncu, Zalman 2005). The PERFORMAN project aims to provide an innovative
methodology for analyzing and evaluating the characteristics and performances of the entrepreneurial
management in Romania and to recommend systems, methods and managerial techniques adapted
to the specific of Romanian SMEs and to the difficulties they confront. The project will contribute in a
decisive way to the increasing of the competitiveness and the innovative potential of Romanian
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Adriana Giurgiu et al.
SMEs, in the context of Romania’s integration in the European Union and the transition to the
knowledge - based economy.
The general objectives of the PERFORMAN project are as follows: to increase the competitiveness of
Romanian SMEs; to increase the innovation potential of Romanian SMEs by implementing new
systems, methods and managerial techniques; to facilitate the creation and development of a culture
of innovation within the Romanian SMEs; to increase the management capacity of Romanian SMEs
facing the competition on the Single Market of the EU. The specific objectives of the PERFORMAN
project consist of: the elaboration of a innovative methodology, adapted to the specific of Romanian
SMEs; analysis and evaluation of the characteristics and performances of the management applied in
SMEs; the implementation of this methodology in order to analyze and evaluate the entrepreneurial
management in Romania; formulating recommendations and managerial solutions for solving the
problems identified in the evaluation.
2. The research methodology and the project’s implementation
PERFORMAN is now in the last stage of its implementation process, and its ambitious objectives
were foreseen to be accomplished through the implementation of the following project’s phases and
activities:
The Phase I – Fulfilling a complex research concerning the methodologies of analysis and evaluation
of the characteristics and performances of entrepreneurial management at international level – was
implemented during October 2008 - February 2009, and implied a fundamental research pursued with
the aim of highlighting the main characteristics of the entrepreneurial management, setting off the
trends which manifest in this field at the European Union level, analyzing of the existing situation at
the international level in the field of methodologies of analysis and evaluation of the entrepreneurial
management performances, followed up by the synthesis of the best existing practices at international
level in the field of methodologies of analysis and evaluation of the entrepreneurial management
performances, while a plan that assures the quality of the project was elaborated by the project’s
partners, too, and the initial portal of the project was released.
The Phase II – Background and projection of an experimental model of a methodology for analyzing
and evaluating the characteristics and performances of entrepreneurial management in Romania -
was implemented during February 2009 – September 2009, and during this phase, the project’s
partners conceived an experimental model of methodology for analyzing and evaluating the
characteristics and performances of the entrepreneurial management in Romania based on the
preliminary analysis of the best existing practices at international level, activity which was followed by
the projection of the experimental model of methodology for analyzing and evaluating the
characteristics and performances of entrepreneurial management in Romania, as well as by the
elaboration of the related documentation for the experimental model of methodology for analysis and
evaluation of the characteristics and performances of entrepreneurial management in Romania.
The Phase III – Simulation and experimentation of the experimental model of methodology for
analyzing and evaluating the characteristics and performances of entrepreneurial management in
Romania - was implemented during September 2009 – October 2010, and consisted of the selection
of 100 persons – managers, consultants and university professors to be part of the testing sample.
During this phase, the evaluation criteria concerning the functionality of the experimental model of the
methodology of analysis and evaluation of the characteristics and performances of entrepreneurial
management in Romania were defined, and the portal released during the Phase I was optimized in
accordance with the evolution of the project, ensuring an electronic presentation corresponding to the
experimental model of methodology. Thereafter, the partners were testing the model of methodology
for analysis and evaluation of the characteristics and performances of entrepreneurial management in
Romania, and the outcomes were evaluated accordingly.
Phase IV – Finalizing the projection of the methodology for analyzing and evaluating the
characteristics and performances of entrepreneurial management in Romania. Implementing the
methodology for evaluation of the characteristics and performances of the entrepreneurial
management in Romania – is the current and the last stage of the project, which have to end no later
than September 30, 2011. During this phase, the project’s partners have already analyzed the
strengths and the weaknesses of the methodology model identified after the evaluation of the model
experimentation results, and have made all the necessary corrections and improvements in order to
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Adriana Giurgiu et al.
finalize the methodology for analysis and evaluation of the characteristics and performances of
entrepreneurial management in Romania. At present, the methodology for analysis and evaluation of
the characteristics and performances of entrepreneurial management in Romania was finalised, and
the documentation of the technical - economic analysis concerning the methodology for analysis and
evaluation of the characteristics and performances of entrepreneurial management in Romania was
elaborated. The project’s partner have also established so far the structure of the sample, which is
formed of 1500 SMEs managers considered to assure its representativeness.Currently, the
implementation of the methodology for evaluating the characteristics and performances of
entrepreneurial management in Romania on the previously defined sample is taking place, for
highlighting the characteristics and performances of entrepreneurial management in Romania.
Thereafter, the recommendations will be formulated and some managerial solutions for solving the
problems identified in the evaluation will be offered. Finally, the results of the implementation of the
recommendations will be evaluated, in order to ensure the transfer of the project’s outcomes to a
number of SMEs as big as possible.
3. Expected results
At the end of the implementation of the activities foreseen in the project, the following resulta are
expected:
An innovative methodology for analyzing and evaluating the characteristics and performances of
the entrepreneurial management;
A set of existing good practices at international level in the field of the characteristics and
performances of the entrepreneurial management;
A complex and up to date characterization of the entrepreneurial management in Romania;
A set of recommendations and managerial solutions concerning the problems identified during the
evaluation of Romanian entrepreneurial management;
At least 50 SMEs which will implement systems, methods and modern managerial techniques;
The website of the project with a strong innovative character.
Acknowledgements
This paper resulted of the empirical research pursued by the authors within the project:
“PERFORMAN - The Elaboration and Implementation of an Innovative Methodology for Analyzing and
Evaluating the Characteristics and Performances of Entrepreneurial Management in Romania”,
managed by the National Council of Private SMEs in Romania (please, visit the CNIPMMRwebsite:http://www.smeprojects.ro/index.php?page=proinfo&pid=48&lang=en).
References
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540

Renewing Human Intellectual Capital by Building Trust in
Intra-Organizational Relationships
Mirjami Ikonen and Taina Savolainen
University of Eastern Finland, Joensuu, Finland
mirjami.ikonen@uef.fi
taina.savolainen@uef.fi
Abstract: The study focuses on trust in relationships between organizational actors. Trust is looked as a basis
for collaboration and means for renewing human capital. More specifically, this study aims to explore the process
of trust development, i.e., building, maintaining and repairing dyadic level trust in intra-organizational
relationships within the Finnish organizational contexts. Trust is an important element of human intellectual and
social capital. It is also the essence of leadership, as managerial leaders are responsible for knowledge sharing,
motivating and creating learning culture. Trust as a complex and multifaceted phenomenon has been widely
studied in different fields of science during the past decade. Different conceptualizations of the nature of trust
exist in interpersonal relations. In prior research, the role of trust is seen crucial within organizations. Trust
facilitates cooperation which in turn generates social capital, job satisfaction, effective organizational behaviors
and commitment, and job performance within organizations. The current study poses the question of how leaders
and managers enact on building and sustaining trust to renew human intellectual capital. Furthermore, the study
aims to discover how applicable the method of empathy-based stories is to trust research.
Keywords: interpersonal trust development, renewal of human capital, intangible resources, organizational
culture, leadership, qualitative methods
1. Introduction and purpose
Trust in different organizational and business relationships has been largely and multidisciplinary
investigated over the last few years. Trust has also been identified as one of the most frequently
examined constructs in the organizational literature lately (Burke et al. 2007). Trust plays multiple
roles within organizations (e.g. Möllering et al. 2004) enabling more open interpersonal
communication contributing to information and knowledge sharing in different types of relationships
between actors (Savolainen 2010). Within the organizations, the role of trust is crucial when creating
an ethical work context and generating social capital (Pastoriza et al. 2009). Trust has important
effects on behavioral outcomes such as higher levels of cooperation (Dirks and Ferrin 2002).
Trust plays also a role in enhancing business competitiveness. In Finland, for example, the
significance of trust in leadership is highlighted in the National Development Program of
Competitiveness by The Finnish Innovation Fund. Building and maintaining trust are recognized as
the most significant elements of leadership and are prioritized in selecting and training leaders and
leadership skills for competitiveness in Finnish organizations (Nurmio and Turkki 2010). More
research on trust is needed, in Finland also, as it has been scarce so far. Especially trust
development in interpersonal relationships has not been examined even at individual level of trust
although it predicts outcomes such as job satisfaction, effective organizational behaviors and
commitment, turnover and performance (Lewicki et al. 2006). This paper deals with dynamics of
interpersonal level trust. Reciprocal cooperation builds trust and affects positively on the
organizational performance by the processes of renewing human capital.
2. Theoretical background
2.1 2.1. Concept of trust
Trust is seen as a key concept in analyzing both intra- and inter-organizational relationships. Trust is a
complex, multifaceted phenomenon, and different conceptualizations of the nature of trust exist in
interpersonal relations, for example, trust between peers, supervisor-subordinate trust, managerial
trust and organizational trust (Möllering et al. 2004). Moreover, trust plays an important role in
leadership. A theoretical foundation for the paper is the framework by Mayer et al. (1995) and
Rousseau et al. (1998). Scholars have distinguished between relation-based trust which has an
affective basis, and character-based trust which has a cognitive basis. Relation-based affective trust
refers to the role of emotions in the process of trust development; character-based trust refers to
beliefs about another's trustworthiness (Gillespie and Mann 2004). According to Jones and George
(1998) the states of trust are conditional, unconditional and distrust. The experience of trust and the
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Mirjami Ikonen and Taina Savolainen
interplay of individual's values, attitudes, and moods and emotions are emphasized in the process.
Trust is seen as social glue, which is crucial to successful performance of teams.
2.2 LMX theory
In this paper, theoretical framework draws upon Leader-member exchange (LMX) theory and stage
models of trust development. However, the paper questions the quite widely held view in the trust
literature that trust develops by different bases and stage-wise models of the bases over time (Lewicki
et al. 2006). According to LMX-theory, the leader builds a unique relationship with each follower and
trust has a central role in this process. LMX-theory emphasizes the importance of interaction and
communication but also reciprocal trust, respect and commitment. It describes the role-making
processes between a leader and each individual subordinate and the exchange relationship the
development over time (Graen and Uhl-Bien 1995). The main stages of relationship development
according LMX are stranger-stage, acquaintance-stage and mature partnership-stage. Trust building
is essential in leadership and one of leaders’ tasks among others. Mature partnership exchanges are
not only behavioral but also emotional mutual support, respect and trust empowers and motivates
both. LMX-theory is applied in the study because the assumptions and interests of it are closely
aligned with theories of interpersonal trust.
3. Data and analysis
This qualitative study is based on the constructionist paradigm and the interpretive approach pursuing
descriptions of the phenomena studied. It aims to gain understanding of the perceptions of actors,
individuals and groups in their own, real life contexts. This reality can be investigated from multiple
and different points of view not excluding one another. The empirical data of the study is originated in
two sources. First, longitudinal data is collected within Finnish organizational context. The target
organization of the study is a not-for-profit organization providing social services similarly to private
business. The data was collected by participant observation, ethnographic interviews, site documents
and field notes during 2009-2011. By adopting an open-ended approach of interviewing, it is possible
to listen to unanticipated but closely related issues which seemed to be particularly important to
respondents. Dyads were encouraged to describe stories about behaviors, situations and incidents in
everyday life retrospectively from the very beginning of their leader-follower relationship (Ikonen
2010). Second, narratives are collected by the method of empathy-based stories (MEBS) among
students of the university. The data includes stories written by students and these stories are
analyzed by content analysis and narrative methods. MEBS is based upon the assumption that
people can express their understanding of social situations and episodes in a form of a story rather
than answer a researcher’s questions (Eskola 1997). MEBS provides both challenges and unusual
possibilities of analysis. For example, the method facilitates the capture of cultural meanings of a
particular situation, such as trust building or trust violating in the present study.
4. Findings
The findings indicate that the perceptions of trust of intra-organizational actors differ by position,
gender and tenure. Interestingly, the perceptions of distrust were described with strong emotions and
discrimination between organizational actors. In an organizational context, trust and cooperation will
not operate in a vacuum. Preliminary findings of the study indicate that integrity, mutual support,
reciprocity, and initiative are the main elements of efficient relationship between team leader and
team members. Integrity, one of the dimensions of trustworthiness, emerges in our data of showing
trustworthiness as keeping promises. Trust is induced trough actions which are in line with the spoken
words. Leader-member dyads communicate on a regular basis without avoiding disagreeable issues.
Moreover, the leader never criticizes those members who bring out truth (Ikonen and Savolainen
2010b). The study shows interestingly that the process of trust development appears as 'wavelike'
motion in nature characterized by 'splashing and calms' (Laaksonen 2010). The process includes
various cycles instead of distinctive 'linear' progressing stages (Ikonen and Savolainen 2011).
Furthermore, leader’s expressions of emotions have an influence on follower’s experience of trust
(Häkkinen et al. 2010). The findings support the other results emphasizing the cycles of trust
development with times of stable maintaining.
In the analysis, we focused on the meanings the leaders and followers give to trust and the way how
they construct trust in their stories. In our data, the leaders “show their heart,” but they do not lose
their professionalism. They show trustworthiness by humility behavior, humility of a special type. The
leaders and followers have their own sense of humor which is seen in their usage of special words by
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Mirjami Ikonen and Taina Savolainen
which they generate progress within their teams. It is not only a sense of humor, but a terminology
created within a group for their purposes. The leaders individually take into consideration the needs of
subordinates. Furthermore, the findings suggest that a leader may show trustworthiness by visibility
and presence and by supporting, encouraging and delegating responsibility, and giving feedback. The
leaders are mainly responsible for the change of the organizational culture. However, gender
differences are not emphasized in the current study.
5. Conclusions and implications
Preliminary findings show that repaired trust can develop into more confident than trust that has never
been put into test in work relationships. The role and practices of trust needs to be considered more
carefully and the dynamics of intra- and inter-organizational relationships understood more deeply, as
the relationships may be multiplex. In conclusion, the findings imply that in development of leadership
skills building trust needs to be considered as intangible asset and a skill for leaders. Moreover, the
implication is that in development of leadership skills building trust and showing trustworthiness
cannot be overestimated in the current business environments making strong requests of cooperative
abilities in daily leadership practices (Ikonen and Savolainen 2010a). Raising the level of awareness
of the significance of trust and developing trust building skills in organizations may remove obstacles
in pursuing trusting network relationships (Savolainen 2010).
For further research, the results of the study show that the method of empathy-based stories can well
be applied to produce a richer and deeper view on interpersonal trust as to renewing human capital.
Especially, the method of empathy-based stories (MEBS) demonstrated a promising alternative for
data collection concerning a mundane and complex phenomenon. On the other hand, the
methodological approach adopted for the study and LMX-theory are used together quite seldom and
may therefore be a cause of criticism. Further research is needed to enhance our understanding
about trust development and how trusting relationships are created repaired. The prior research of
LMX theory as well as the prior trust research has a clearly dominating quantitative tradition. On the
contrary, the current study applies qualitative methodology, as that approach is well suited to capture
the abstract nature of the concept and developmental dynamics of trust.
References
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integration. Leadership Quarterly 18, 606-632.
Dirks, K.T. and Ferrin, D.L. 2002. Trust in Leadership: Meta-analytic findings and implications for organizational
research. Journal of Applied Psychology 87, 611-628.
Eskola, J. (1997) Eläytymismenetelmäopas. Tampere University.
Gillespie, N. and Mann, L. (2004) Transformational leadership and shared values: The building blocks of trust.
Journal of Managerial Psychology 19, 588-607.
Graen, G.B. and Uhl-Bien, M. (1995) Relationship-based approach to leadership: Development of leader-member
exchange (LMX) theory of leadership over 25 years: Applying a multi-level multi-domain perspective.
Leadership Quarterly 6 (2), 219-247.
Häkkinen, S., Ikonen, M. and Savolainen, T. (2010) "Do Leaders Expressions of Emotions Build
Trustworthiness?" Proceedings of ICLM, 13.-14.12., Lund, Sweden.
Ikonen, M. (2010) "Trust development in intra-organizational relationships. Stories of dyadic leader-follower
relationships." Proceedings of the 3rd Qualitative Research Conference, 1.-3.6., Vaasa, Finland.
Ikonen, M. and Savolainen, T. (2011) “Trust in work relationships: a solution for overcoming cultural hindrances
to organizational innovations?” Proceedings of TIIM Conference, 28.-30.6., Oulu, Finland.
Ikonen, M. and Savolainen, T. (2010a) "Trust development in Dyadic Leader-Follower relationships in Different
Types of Organizations." Proceedings of the 5th EIASM Workshop on Trust Within and Between
Organizations, 28.-29.1., Madrid, Spain.
Ikonen, M. and Savolainen, T. (2010b) “Trust in team leadership: linearity or wavelike development?”
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Jones G.R. and George, J.M. (1998) “The Experience and Evolution of Trust: Implications for Cooperation and
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Laaksonen, P. (2010) “The nature of the process of trust and the development of trust in the team – a case study
in a third sector organization.” Master's thesis. UEF, Department of Business.
Lewicki, R.J., Tomlinson, E. C. and Gillespie, N. (2006) Models of Interpersonal Trust Development: Theoretical
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Mayer, R.C., Davis, J.H. and Schoorman, F.D. (1995) “An Intergrative Model of Organizational Trust.” Academy
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Pastoriza, D., Ariño, M.A. and Ricart, J.E. (2009) Creating an Ethical Work Context: A Pathway to Generate
Social Capital in the Firm. Journal of Business Ethics, Vol. 88, 477-489.
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Rousseau, D.M., Sitkin, S.B., Burt, R.S. and Camerer, C. (1998). Not so different after all: A cross-discipline view
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Savolainen, T. and Häkkinen, S. (2011) Trusted to Lead: Trustworthiness and its Impact on Leadership. The
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Trust within and between organizations, 28.-29.1., Madrid, Spain.
544

Records Governance in Enterprise 2.0: Toward an Archival
Understanding of Social Media and its Potential for Record
Creation
Elizabeth Shaffer and Luciana Duranti
University of British Columbia, Vancouver, Canada
eshaffer@interchange.ubc.ca
luciana@mail.ubc.ca
Abstract: Social media use by both public and private organizations has dramatic implications for the reliability,
authenticity and evidentiary capacity of their records and poses technological, resource and policy challenges. It
is essential to find ways to ensure that social media technologies that are used in organizations and the policy
frameworks that support their use are designed to mitigate risks associated with the open and ephemeral nature
of the Web. This paper presents research to date that examines the records management and policy issues that
arise from creating records in social media environments.
Keywords: social media, records management, policy analysis
1. Introduction
The ubiquitous adoption of social media technologies enabling participatory Web functions by both
public (Osimo 2008; Wyld 2007; Chang and Kannan 2008) and private (Bughin, Manyika & Miller
2008; Shirky 2008) organizations is having an impact on the creation, use and management of
records (Bailey 2008; Henhoeffer 2011). The rapid uptake in use of these technologies poses
technological, resource and policy challenges that are continually evolving as technologies change
and are utilized for contemporary records creation and recordkeeping practices. Ensuring that social
media technologies that are used in organizations and the policy frameworks that support their use
are designed to mitigate risks associated with the open nature of the Internet is becoming a priority.
The means of control over information created with social media technologies are often in the hands
of third parties, who may be residing in locations outside the jurisdiction of the country in which the
information originates, and this raises concerns around privacy, security, ownership of information
and proper access.
This paper presents our research in progress on the nature of the material generated using social
media and the policy requirements capable of controlling and protecting such material; it includes an
examination of the literature on social media technologies and records, identification of the issues that
arise from records created using these technologies, and a report on early investigation into the policy
requirements necessary to ensure these issues are adequately addressed. Methods employed
include content and diplomatic analysis to assess the nature of the products of organizational social
media use, and policy analysis to assess existing organizational records management and social
media policies and prescriptively determine policy requirements and alternatives for achieving social
media policy goals.
2. What are social media?
Coined by Dale Dougherty of O’Reilly Media in 2004, the term Web 2.0 is commonly associated with
the Internet as an integrated and dynamic service platform that is highly interactive and facilitates the
generation of content by interconnected user communities utilizing Web applications that allow
interoperability, collaboration and information sharing. While Tim Berners-Lee, who is credited with
conceiving the World Wide Web, dismisses it, this term has gained traction and is generally linked to
ideas such as: individual production and user generated content; harnessing the power of the crowd;
data on an epic scale; architecture of participation; network effects; and openness. Social media
technologies build on the foundations of Web 2.0, enabling users to develop, contribute, exchange
and share user-generated content on the Web and Enterprise platforms. Social media comprises a
variety of applications and services such as blogs and microblogs, wikis, RSS feeds, podcasts,
multimedia sharing, tagging and social bookmarking, and social networking services (Anderson
2007).
Social media are consistently evolving with the ever-increasing ability to combine tools and
information to create new forms of documents, such as mashups, that can pose challenges to
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Elizabeth Shaffer and Luciana Duranti
traditional paradigms and raise questions of intellectual property, privacy and confidentiality,
authorship and ownership. No longer passive recipients of information, users are now active
participants in an interactive Web environment through the use of social media technologies.
(Dearstyne 2007; Gerber 2006).
3. A shifting information landscape
Social media technologies have been used to support a range of organizational and government
activities. Organizations and governments are adopting new ways of engaging with users and
increasing the accessibility and usability of public and private sector information (Osimo 2008; Wyld
2007; Chang and Kannan 2008). Thus, many contemporary records requiring long term or permanent
retention are being created using social media technologies, which are by their very nature ephemeral
and collaborative. The democratic nature of these technologies has afforded greater connection,
collaboration and knowledge creation in interactions amongst citizens, organizations, and
governments (Benkler 2006). However, their adoption is fundamentally altering how the records
resulting from those interactions are created, (re) used, managed and eventually preserved. An
understanding of these potential new records necessitates a theoretical approach in order to
comprehend their unique attributes and requirements before they become irretrievable or unusable.
Because of the potential of social media interactive platforms, the traditional boundaries of an
organization’s business processes are more malleable, no longer controlled by a traditional
administrative paradigm, with the consequence that organizational records may be created and held
outside of an organization’s records systems. Discussing the loss of the recordkeeping procedures
that separated “the back and front office”, Moss states: “much of the ‘individual production’
championed by Web 2.0 enthusiasts lacks the mediation processes that are familiar in the analogue”
(Moss 2011).
4. Managing social media records
In archival theory, a record is “a document made or received in the course of a practical activity as its
instrument or by-product, and set aside for action or reference.” It has distinct attributes which support
the presumption of its authenticity and ensure its reliability and accuracy through creation, use,
maintenance, and ultimately, preservation. The authenticity of digital material is dependent upon the
protection through time of its identity and of its integrity (Duranti 1995). Organizations use records to
support accountability and compliance, that is, as evidence of their activity (Shepherd and Yeo 2003).
In order for a record to act in an evidentiary capacity, it must be created, managed and preserved
respecting applicable legislation, regulations, standards, codes of practice, and/or community
expectations (Shepherd and Yeo 2003). The evidentiary capacity of a record depends on its reliability
and is provided to it by its form, authorship, and control on the procedure of creation (Duranti 1995).
In a traditional information environment these factors are easy to identify and assess. Not so in a
social media environment.
Social media is causing a paradigm shift by transforming the information landscape from solely
hierarchical to predominantly collaborative or horizontal, and business processes traditionally
conducted in closed systems can now take place on open networks with the potential of
decentralizing decision-making and records creation. Systems that were once static are now dynamic,
facilitating the creation of ephemeral information that cannot be used as record (Henhoeffer 2011).
Much of what social media technologies allow users to do raises questions about recordness,
authenticity, reliability and accuracy. An analysis of how social media are used is required for
developing appropriate records management policies, directives and guidance (Henhoeffer 2011).
A 2008 survey of 1,988 executives from across the globe on their company’s business use of social
media technologies showed that “companies are not only using more [social media] technologies but
also leveraging them to change management practices and organizational structures,” (Bughin,
Manyika & Miller 2008). Experts agree that existing records management policies, principles and
practices cannot be applied to this new interactive digital landscape due to its dynamic, ephemeral
and interactive nature (Henhoeffer 2011; Jaeger, Lin & Grimes 2008).
Furthermore, many social networking applications (e.g. Facebook, Twitter, LinkedIn) don’t share the
same standards and are constantly adding new features, changing terms of use and privacy settings
in ways that are in direct contrast with existing standards for both analogue and digital records, such
as the standards for email, which are fixed over time (Franks 2010). The changing features of social
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Elizabeth Shaffer and Luciana Duranti
media raise the question of what to capture as a record and when to capture interactions as part of
one or more records (Franks 2010). Additionally, as social media often reside on outside servers in
third-party environments, capturing the information generated within them as records after having
identified its function is labour intensive and inefficient (Franks 2010).
5. Policy implications
While the investigation into the record nature of the entities created using social media must be
ongoing, due to the continuing change of the environment in which they come to exist, records
management and social media policies (or a combination of them) can aid in addressing the issues
already identified: reliability and liability, security, privacy and confidentiality (Jaeger, Lin and Grimes
208), as well as authenticity, accuracy, e-discovery, intellectual property, freedom of information
legislation, and long term preservation and access (Orna 19).
Whether through inclusion in existing policies that address records and information management or
through the creation of a new social media policy, every organization should provide:
Guidance on how employees are expected to communicate and conduct themselves on behalf of
the organization using social media;
Guidance on what types of social media tools are approved by the organization to communicate
organizational information;
Clear identification of the categories of information considered permissible to be communicated
via social media (clearly identify trade secrets, define personal information, etc.);
Guidance on how to identify and manage records created with social media technologies --
including use, capture, storage, retention and disposition, and appropriate metadata application;
Procedures for establishing, maintaining and closing social media accounts;
Legal disclaimers in social media postings appropriate for the organization;
Information on the use and posting of copyrighted works, trademarks and protected materials;
Guidelines on data security;
Information on laws relating to freedom of information and protection of privacy;
Information on industry standards and guidelines that may be in conflict with social media use
(e.g. industry rules and responsibilities, etc.);
Indication of the consequences for violating the policy.
We are currently developing a policy analysis framework which will be utilized to support individual
organizations in creating policies capable of addressing their own specific needs.
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