Journal of Scholastic Inquiry: Business, Volume 2, Issue 1, Spring 2014

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Journal of Scholastic Inquiry: Business

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Journal of Scholastic Inquiry: Business

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JOURNAL OF SCHOLASTIC INQUIRY: BUSINESS Spring 2014, Volume 2, Issue 1 Managing Editor Dr. Tanya McCoss-Yerigan Editor-in-Chief Dr. Jamal Cooks General Editor Daniel J. O’Brien APA Editor Jay Meiners Editorial Advisory Board Shirley Barnes, Alabama State University Joan Berry, University of Mary Hardin-Baylor Brooke Burks, Auburn University at Montgomery Timothy Harrington, Chicago State University Mark Wesolowski, Practitioner-Chicago Public Schools Lucinda Woodward, Indiana University Southeast

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TABLE OF CONTENTS Publication Agreement and Assurance of Integrity Ethical Standards in Publishing Disclaimer of Liability Research Manuscripts

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Who And What Are Important In The Mission Statements of Large Corporations?

Darwin L. King, St. Bonaventure University Carl J. Case, St. Bonaventure University Kathleen M. Premo, St. Bonaventure University

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Using Employee Opinions to Better Understand Mergers and Acquisitions Emily L. Hause, St. Mary’s College of California Scott M. Brooks, OrgVitality Jack W. Wiley, Jack Wiley Consulting, LLC

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A Framework for Specifying Business Models J. Bradley Barbeau, CSU Monterey Bay School of Business

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The Status of Electronic Social Networking Implementation at the Fortune 500 Firms Carl J. Case, St. Bonaventure University Darwin L. King, St. Bonaventure University

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Cultural Adaptation Mediates the Relationship Between Reflective Leadership and Organizational Performance for Multinational Organizations Patricia A. Castelli, Lawrence Technological University Thomas G. Marx, Lawrence Technological University David O. Egleston, Lawrence Technological University

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Who And What Are Important In The Mission Statements of Large Corporations?

Darwin L. King St. Bonaventure University Carl J. Case St. Bonaventure University Kathleen M. Premo St. Bonaventure University Abstract Mission statements are, no doubt, one of the most important public communications made by a corporation. In these declarations, a company attempts to explain its reason for existence. In particular, mission statements typically include both the stakeholders that are most important to firms and companies’ planned goals and objectives. Another related issue is whether mission statements differ significantly by country. To this end, the authors chose to analyze the mission statements of 150 of the largest firms in the United States and five foreign countries. These foreign countries are France, China, Canada, Australia, and Brazil. The authors believe that an analysis of these 150 mission statements would provide valuable insight into whom and what large corporations, on a global basis, consider important enough to include in their published mission statements. The authors discovered a number of similarities and differences between U.S. mission statements and mission statements from foreign countries. For example, the customer was the most commonly included stakeholder in all of the countries under review except Canada. Likewise, the stated goals and objectives of these firms had significant similarities and differences. For example, the U.S. mission statements included the goal of maintaining a leadership position far more often than their counterparts in the other five countries. Mission statements from firms in this study provides valuable insight into understanding current mission statements from an international perspective.

Keywords: mission statements, international, largest corporations, stakeholders and goals

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Introduction A mission statement is one of the most important communication tools that a corporation utilizes to connect with all of its interested parties. Stockholders, creditors, and other stakeholders review these documents to better understand a firm’s reason for existence. Most mission statements identify both the stakeholders that a firm considers to be the most important and the goals and objectives that an organization hopes to accomplish. Although mission statements are normally quite short, an analysis of them can produce a wealth of information. In addition, a review of mission statements from a number of foreign countries should provide additional insight into what and who large foreign corporations consider to be the most important.

Because mission statements are important to both a firm itself and all interested stakeholders, this study can provide all parties with information necessary to aid in their decision making. First, the mission statement serves as a critical element in the strategic planning process. The mission statement summarizes the organizational purpose that guides organizations in the process of making long-range strategic decisions. A corporation would lack purpose and direction without the mission statement, which acts as a “lighthouse” to guide the corporation’s actions.

In addition to being important to a firm, the mission statement is also valuable to all stakeholders. For example, customers, employees, and stockholders may have greater loyalty to firms that publish mission statements identifying a particular stakeholder. Some firms have very short mission statements that specifically identify few or no related stakeholders, while others are very long and include visions, philosophies, objectives, plans, and strategies (Abrahams, 1999).

These longer mission statements often identify a number of specific stakeholders, such as customers, employees, the community, and stockholders. Stakeholder groups that are specifically mentioned in a mission statement tend to have a closer allegiance to the organization. For example, a mission statement that stresses the importance of customers enhances the relationship with that stakeholder group.

In an effort to explore mission statement content, the authors decided to analyze the largest corporations in the United States and five foreign countries. These foreign countries are France, China, Canada, Australia, and Brazil. This generated, for the authors’ analysis, a total of 150 mission statements. This project with provide better understand about who and what the largest global companies consider important enough to include in their published mission statements. Customers, employees, stockholders, suppliers, and communities are typically mentioned as stakeholders in mission statements. Corporations have included common goals and objectives such as producing a quality product for customers, operating on an environmentally friendly basis, conducting global operations, striving to maintain a leadership position, and many others. The authors’ intent in conducting this mission statement analysis is to better understand the similarities and differences in mission statement content from a global perspective.

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Review of Literature Peter Drucker, a premier author of numerous management texts and articles, wrote extensively on the importance of mission statements. Drucker (1974) believed that a mission statement should clearly state the company’s “reason for being.” Furthermore, he believed that a mission statement was the “foundation for priorities, strategies, plans, and work assignments.”

In particular, he argued that a mission statement should be the foundation for a firm’s objectives and strategies. Mission statements define a firm’s organizational purpose.

Over the past 40 years since Drucker began writing about the importance of mission statements, companies have continued to stress the importance of these statements by including them in both annual reports and company Internet homepages. The ideal mission statement, according to Drucker, should be short and to the point. One of his favorite sayings was “A mission statement should fit on your T-shirt” (Edersheim, 2007). Based on the 150 mission statements reviewed for this project, the authors found that current mission statements are typically far too lengthy to fit on the front of a shirt.

Peter Drucker (1978) also established the Leader to Leader Institute, which emphasized the importance of mission statements. Drucker and his associates believed that a mission statement should discuss four areas: who we are, what we do, what we stand for, and why we do it. He believed that mission statements should specifically mention important stakeholder groups, such as stockholders, employees, and customers.

Like Drucker, Fred David believes that mission statements are especially important to corporations. David (2005) comments on the fact that mission statements are described with different names, such as creed statements, statements of philosophy, statements of belief, and statements of business purpose. Also similar to Drucker, David (2009) believes that a mission statement should contain the firm’s “reason for being.” The reason for being is often marketing related with identified products and target markets. For example, Pearce and David (1989) state that a firm’s mission statement should “identify the scope of the firm’s operations in product and market terms.” David (2013) also states that mission statements mention a number of critical components, including customers, products or services, markets, growth concerns, public image, and employees. The 150 mission statements analyzed in this study did include many of the characteristics that David mentioned.

Robbins and Coulter (2012) argued that mission statements should emphasize a firm’s goals and objectives. This is one of the major mission statement content areas that the authors studied in this project. Other authors such as Ann McKee (2012) believe that mission statements provide focus for all of a company’s employees. Like Drucker, McKee believes that mission statements must describe what the firm stands for, what it does, and who is important to the company.

Samuel and S. Trevis Certo (2012) believe that mission statement creation is a vital part of a firm’s strategic management process. Other authors such as Hitt, Black, and Porter (2012) support this premise. They also believe that mission statements must articulate an enterprise’s

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basic purpose, which is critical when the company’s strategic management plan is developed. In a comprehensive review of 300 mission statements, Jeffery Abrahams (1999) found that these proclamations must provide a statement of purpose for the firm as well as reflect the values of the organization.

Other authors such as Rarick and Vitton (1995) believe that mission statements should communicate basic company philosophies, offered products or services, customer target markets, obligations to stockholders and employees, and concerns for the community and environment.

Finally, Schermerhorn, Osborn, Uhl-Bien, and Hunt (2012) believe that mission statements should describe both a firm’s purpose in society and the stakeholder groups served by the company.

Given the previous research of many management writers, this study researched two mission-statement-content areas. First, stakeholder groups were analyzed to determine who is important to a company. Second, the authors reviewed the firms’ goals and objectives in an effort to define their primary reasons or purposes for existence. This study identified five stakeholder groups and 14 specific goals and objectives.

Research Questions A review of previous research on mission statements shows that they are critically important to all stakeholders. Both internal and external interested parties gain valuable information concerning a firm’s “reason for existence.” In addition, mission statements identify the stakeholders that firms consider to be the most important. Finally, mission statements also describe the identified goals and objectives that companies hope to accomplish in the future. The study reinforces the principle that mission statements are important to both an organization and all of its stakeholders. Mission statements reveal a company’s character.

Methods The authors selected the six countries listed above as a representative sample of nations of which information on the largest corporations was readily available. In particular, these countries were on the Forbes (2013) listing of the largest public companies by country. The authors then searched for the homepages of the largest 25 public corporations in each of these six countries, providing a total survey population of 150 mission statements. These statements were studied by the authors in an effort to summarize important stakeholders and goals/objectives. A mission statement was found for the vast majority of corporations. In rare situations in which a mission statement was not available but a vision statement was located, the vision statement was used in place of the missing mission statement.

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Results The authors’ summary of the analysis of the 150 mission statements is presented in Table 1. The top portion of Table 1 summarizes the stakeholders identified by corporations in the United States, France, Canada, Australia, Brazil, and China. The stakeholder groups included the community, customers, employees, stockholders, and suppliers. In recent years, large corporations have come to realize the importance of being a “good citizen” in the communities in which they conduct operations. For many years, the “marketing concept” has emphasized the principle that if a business is going to succeed, it must satisfy the needs and wants of its target markets. Also, historically, a corporation’s owners (stockholders) have always been considered to be equally noteworthy stakeholders. These above-mentioned stakeholders were commonly found in the majority of the reviewed mission statements.

The lower section of Table 1 summarizes the recognized goals and objectives of the firms in these six countries. This study identified fourteen specific goals and objectives. These goals include producing an affordable product for customers, conducting operations within an established set of core values, maintaining efficient operations, conducting business in an environmentally friendly manner, maintaining ethical operations, conducting business on a global scale, and emphasizing growth and expansion. The final seven goals are encouraging innovation, maintaining a leadership position, stressing the importance of profits and profitability, emphasizing the production of quality products that represent value to customers, stressing the importance of safety in operations and products, encouraging teamwork in business operations, and maintaining an environment of trust. Indeed, these 150 large corporations have specifically identified an extensive range of goals and objectives.

A review of the stakeholder portion of Table 1 shows that the customer is the most important stakeholder in five of the six countries. The only exception was Canada where a larger percentage of the mission statements identified a company’s employees as the most important stakeholder. Customers were mentioned in over 50% of the mission statements in the other five countries. Australia had the largest percentage of mission statements identifying customers (76%) as the most important stakeholders. The emphasis on customers supports the fact that the “marketing concept” of emphasizing customer satisfaction continues to be of prime importance to large corporations. The other stakeholders were identified as most important less often with suppliers being mentioned the least.

None of the goals possessed a significant percentage for being the most important goal among all of the corporations. For example, the most frequently cited goals in U.S. mission statements were providing a quality product that provides value to the customer, maintaining a leadership position, and conducting business operations in an ethical manner. For France, conducting business operations by using an established set of core values and desiring operation expansion and growth were the most typical goals.

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Similarities in these 150 Mission Statements There are noteworthy similarities involving the stakeholders in these mission statements.

Table 2 shows the three most frequently mentioned stakeholders for each country. It was almost unanimous that customers are the most important stakeholder to firms. The only exception was Canada where the most frequently mentioned stakeholders were a firm’s employees. The importance of the community was evident in the United States, France, Australia, and Brazil where it was either the second- or third-most mentioned stakeholder. Table 1’s percentages confirm that customers are indeed the most included stakeholder in mission statements. For example, 76% of the Australian mission statements specifically identified customers as major stakeholders. Closely following Australia were both the United States and France with 68% of their mission statements identifying customers as major stakeholders. The importance of stockholders was another similarity for these companies. Stockholders were either the secondor third-most frequently mentioned stakeholders (Table 2) in each of the reviewed countries with the exception of France. Finally, suppliers were the least mentioned stakeholders for each of the six countries.

When considering goals and objectives, there are not as many similarities as compared to the stakeholders. Table 3 summarizes the three most important goals or objectives for each country. For example, concern for the environment was the most frequently mentioned goal in Australia and Brazil. In the United States and Canada, maintaining a leadership position was the most important goal. Of the 14 identified goals or objectives, the only items that were not in the top three most frequently identified goals were affordability, efficient, profits/profitability, and trust. Each of the other 10 identified goals was in the top three lists of goals for at least one country.

There were, however, some similar trends. The goal of providing a quality product that provides value to customers was a major goal for five of the countries. With the exception of Canada, each of the other countries identified this goal as a significant one. Table 3 also shows that four of the goals were of major importance to four of the countries. For example, ethical behavior was especially important in the United States, Canada, Australia, and Brazil. The goal of maintaining global operations was a significant goal in the United States, Canada, Brazil, and China. Maintaining a leadership position was critical for companies in the United States, Canada, Australia, and Brazil. Finally, the goal of growth and expansion was especially vital for businesses in France, Australia, Brazil, and China.

Differences in these 150 Mission Statements Reviewing Table 1’s statistics shows that the recognition of the importance of the community in which the company operates varies considerably. For example, 52% of the Australian mission statements identified the community as a stakeholder, whereas only 20% of the mission statements of French and Canadian firms did the same. The same disparity existed

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in the firms that identified employees as stakeholders in their mission statements. For example, Canadian and Australian firms included employees in approximately 50% of their mission statements, whereas U.S. firms mentioned employees in only 16% of their mission statements. A similar situation exists with stockholders. They are mentioned in 52% of Australian mission statements but were found in only 12% of French mission statements.

The second section of Table 1 also contains a number of noteworthy differences between countries concerning goals. For example, French companies include the importance of operating within a set of established “core values” in 36% of their mission statements. This compares to only 8% of U.S. and Chinese firms and a mere 4% of Brazilian companies. The top U.S. corporations did not mention the goal of growth or expansion in any of their reviewed mission statements. This compares to 32% of Chinese firms and 24% of French and Brazilian firms that included the goal of growth or expansion. The goal of maintaining a leadership position was mentioned in 44% of Canadian mission statements, but it was contained in only 12% of French and Chinese mission statements.

Other differences can be found by looking at the goal of emphasizing safety in the customer’s products and the employee’s work environment. This was stated in 28% of Australian mission statements, but it was found in only 8% of the mission statements from the U.S. and Brazil (and 4% of Chinese mission statements). The number of firms that specifically identify the important goal of conducting operations in an environmentally safe, earth friendly manner was surprising. This goal was included in 32% of Brazilian mission statements but it was only mentioned in 8% of U.S. mission statements. Another important goal is maintenance of high ethical standards in all operations. This was mentioned in 40% of Canadian mission statements, but it was found in only 12% of Chinese mission statements and 8% of French mission statements.

The content of mission statements do vary by country especially in a firm’s identified goals and objectives. There are certain similarities among the stakeholder’s mentioned in the mission statements such as the fact that customers are mentioned in over 50% of the mission statements from every country reviewed in this study with the exception of Canada (only 40%).

The authors plan to continue this research and compare mission statements issued in 2014 with the mission statements reviewed in this paper. This comparison may help to identify trends in mission statement content because companies continually revise and update their mission statements.

Discussion Final Observations and Comments Based on the writings of Peter Drucker and many management authors who followed him, a mission statement is one of the premier communication devices for corporations. It is generally placed conspicuously on a firm’s homepage and in annual reports. It provides

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interested parties with the reason for a firm’s existence. It clearly shows who and what the company considers to be the most important. Mission statements are critically important to businesses because they describe the purpose and reasons for a firm’s existence to all stakeholder parties. It is important that a firm constructs a mission statement that accurately describes itself to all internal and external interested parties. If a firm places an emphasis on customers and concern for the environment, those facts should be evident in the published mission statement.

This study indicates that there are many similarities and differences in mission statement content. These similarities and differences pertain to both the stakeholders and the goals/objectives identified in the mission statements. Table 1 summarizes the stakeholders and goals and objectives identified in the mission statements. In particular, the authors identified five stakeholder groups and 14 goals or objectives following an analysis of the mission statements.

Looking at the stakeholder information first, it is clear that the most recognized stakeholder in the mission statements of these countries is the customer. In every country with the exception of Canada, the customer was the most frequently cited stakeholder. As mentioned earlier, this supports the importance of the marketing concept. Corporations continue to realize that they must meet the needs and wants of their target markets if they expect to survive. It is also apparent that the community is a close second to the customer as a significant stakeholder.

The community is either the second- or third-most cited stakeholder in four of the six countries (the exceptions are Canada and China).

The stockholder is another very important stakeholder that was either the second- or third-most frequently identified stakeholder in five of the countries (the only exception was France). In particular, stockholders were mentioned in at least 40% of the mission statements of firms in Australia, Brazil, and China. Employees were recognized in at least 40% of the mission statements from Australia, Canada, and Brazil. The stakeholder group that mission statements least recognized is the supplier. The only country that frequently identified suppliers was Australia in 24% of its corporations’ mission statements.

Another comment on the stakeholder portion of Table 1 concerns Australia. It appears that the Australian mission statements are more complete and lengthy on average than any of the other countries’ mission statements. In particular, with the exception of suppliers, at least 52% of the Australian mission statements identified the communities, customers, employees, and stockholders as significant stakeholders. Australian corporations are unique in that they specifically identify a wide range of stakeholders. Many of the mission statements from the other countries identified only one or two of the stakeholder groups.

The lower portion of Table 1 summarizes the 14 goals or objectives mentioned in the mission statements of these 150 companies. A review of this area of the table shows that there are noteworthy differences by country. For example, the goals of leadership, ethical operations, and global operations were the most frequently reported goals for U.S. firms. Canada was the most similar to the U.S. by identifying the same three goals in the same ranking order. The most commonly described goals for China were producing a quality product that provided value to customers, maintaining global operations, and desiring growth or expansion

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In order to review the firms’ most frequently listed goals or objectives, the authors established a 24% occurrence rate as a definition of a “frequently” listed goal. This was based on U.S. statistics in which the third most commonly identified goal was the desire to conduct global operations (after leadership and quality product at 32% and ethical operations at 28%).

When analyzed with the 24% frequency model, France had only two goals with that occurrence rate (core values and growth/expansion). In comparison, both Canada and China had four goals at the minimum 24% frequency level. Brazil was the country with the largest number of identified goals (six) in its mission statements (at the 24% level or higher). Brazilian mission statements listed the goals of concern for the environment (32%), ethical operations (32%), global operations (28%), growth and expansion (24%), leadership position (28%), and quality product or service (28%). Compared to other countries’ firms, it appears that Brazilian firms emphasize the accomplishment of a set of multiple goals or objectives.

Australian and Brazilian companies appear to compose the most comprehensive and extensive mission statements based upon the number of stakeholders and goals specifically identified in their mission statements. On average, Australian mission statements included all five of the stakeholder groups at a higher level than the other five countries. For example, 52% of Australian mission statements included communities as an identified stakeholder. The next three countries that included communities, based upon frequency, were Brazil with 32%, the U.S. with 28%, and China with 24%. This principle remains true when customers, employees, stockholders, and suppliers are considered. Each of these stakeholder groups is mentioned more often in Australian mission statements than for any of the other five countries.

In summary, mission statements are, no doubt, one of the most important communication devices that are created by firms. They are invaluable to both the organization itself and all of the stakeholders. If a mission statement is poorly constructed, the firm does not effectively describe its reasons for existence to interested stakeholders. This can result in reduced sales and earnings when customers switch to companies that clearly indicate the importance of customers in their mission statements.

Customers read and study mission statements to better understand the customer’s importance to companies. If customers are not mentioned in the mission statement, the assumption can be made that they are not a priority for that firm. Likewise, stockholders review mission statements to see if a firm has concern for the owners. Finally, employees study mission statements to see if they are a priority for their companies. Many current mission statements mention that one of the most important stakeholder groups is the firm’s employees because a company can only be as good as its employees. In summary, mission statements are important to all stakeholder groups both inside and outside of an organization. If a party fails to understand a mission statement, they risk misunderstanding an organization’s reason for existence.

Mission statements are fluid documents that are typically revised and updated by companies on a regular basis. In many cases, external interested parties will turn to an analysis of a firm’s mission statement to better understand the company. In summary, mission statements are valuable to all interested stakeholders. Without an understanding of a company’s mission

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statement, the evaluating party will not arrive at an appropriate appraisal of the reasons for existence of the company under review.

Author Biographies Darwin King has taught in higher education since 1971. For the last 30 years, he has been a professor of accounting for St. Bonaventure University, and he has taught courses in accounting, management, finance, marketing, and information systems. In recent years, Professor King has taught accounting courses including financial and managerial accounting, fraud examination, accounting information systems, auditing, and financial statement analysis.

His research interests include accounting history, mission statements, student Internet behavior, timber accounting and taxation, and other taxation topics.

Carl Case received his Ph.D. in business computer information systems from the University of North Texas in 1996, and he is professor and chair of the Department of Management at St. Bonaventure University. He has been a college educator and professional business information system consultant for the past 31 years. Dr. Case has taught a variety of courses including business information systems, system analysis and design, e-commerce, business telecommunications, and accounting information systems. As a consultant, Dr. Case has developed and implemented over 100 information systems for private, public, and governmental organizations. Dr. Case has also had his research on student teams, phishing, electronic social networking, organizational computing behavior, and student Internet behavior published in a variety of academic journals.

Professor Premo has been employed as an educator for over eighteen years, currently teaching in the Management Department at St. Bonaventure University. Professor Premo has taught courses in Management and Organizational Behavior, Social Roles of the Organization, International Management, and Business Policy. In addition to her interest in mission statements, Professor Premo’s research interests include studying the business styles, current government operations, and cultural aspects of businesses in Asia, sub Saharan Africa, South America, and Europe.

References Abrahams, J. (1999). The mission statement book: 301 corporate mission statements from America’s top companies. Berkeley, CA: Ten Speed Press.

Certo, S. C., & Certo, S. T. (2012). Modern management: Concepts and skills (12th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

David, F. R. (2005). Strategic management: Concepts and cases (10th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

David, F. R. (2009). Strategic management: Concepts and cases (12th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

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David, F. R. (2013). Strategic management: Concepts and cases (14th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

Drucker, P. (1974). Management: Tasks, responsibilities, and practices. New York, NY: Harper & Roe. Drucker, P. (1978). The Drucker self-assessment tool: Content-How to develop a mission statement. New York, NY: Leader Books.

Edersheim, E. H. (2007). The definitive Drucker. New York, NY: McGraw-Hill.

Forbes Company Listings. (2013). Listing of the largest global firms searchable by country.

Retrieved from: http://www.forbes.com/global2000 Hitt, M. A., Black, J. S., & Porter, L. W. (2012). Management (3rd ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

McKee, A. (2012). Management: A focus on leaders. Upper Saddle River, NJ: Pearson Prentice Hall.

Pearce, J., & David, F. (1989). “The bottom line on corporate mission statements,” Academy of Management Executive 1, 2(May 1987), 109.

Rarick, C., & Vitton, J. (1995). “Mission statements make sense.” Journal of Business Strategy, 1, 11-12.

Robbins, S., & Coulter, M. (2012). Management (11th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

Schermerhorn, J., Osborn, R., Uhl-Bien, M., & Hunt, J. (2012). Organizational Behavior.

Danvers, MA; John Wiley & Sons.

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Table 1 Percentages of 2012 Mission Statements by Country Including the Following: Stakeholders & Goals/Objectives.

Stakeholders

U.S.

France Canada Australia

Brazil

China

Communities

28%

20%

20%

52%

32%

24%

Customers

68%

68%

40%

76%

52%

56%

Employees

16%

24%

48%

52%

44%

32%

Stockholders

20%

12%

32%

52%

44%

40%

Suppliers

12%

8%

4%

24%

12%

8%

Affordability

12%

4%

8%

0%

0%

0%

Core Values

8%

36%

20%

12%

4%

8%

Efficient

4%

0%

0%

4%

0%

0%

Environment

8%

12%

20%

28%

32%

16%

Ethics/Ethical Operations

28%

8%

40%

20%

32%

12%

Global

24%

8%

28%

16%

28%

36%

0%

24%

20%

20%

24%

32%

Innovation

20%

20%

12%

20%

12%

24%

Leadership

32%

12%

44%

20%

28%

12%

Profits/Profitability

16%

16%

12%

8%

12%

8%

Quality/Value/Service

32%

20%

24%

24%

28%

44%

Safety/Safe Product

8%

12%

16%

28%

8%

4%

Teamwork

8%

20%

8%

12%

0%

0%

Trust

4%

16%

4%

8%

4%

0%

Goal/Objective

Growth/Expansions

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Table 2 Top 3 Most Mentioned Stakeholders by Country.

RANKING

United States

France

Canada

Australia

Brazil

China

1.

Customers

Customers

Employees

Customers

Customers

Customers

2.

Community

Employees

Customers

Community, Employees, Stockholders

Employees Stockholders

Stockholders

3.

Stockholders

Community

Stockholders

Suppliers

Community

Employees

Table 3 Top 3 Most Mentioned Goals/Objectives by Country.

RANKING 1.

United States

France

Canada

Core Values Growth

Leadership

2.

Leadership Quality/Value Ethical/Ethics

3.

Global

Innovation Quality Teamwork

Global

Ethical/Ethics

Australia Environmental Safety Quality/Value

Ethical/Ethics Growth Innovation Leadership

Brazil Environmental Ethical/Ethics Global Leadership Quality/Value Growth

China Quality/Value Global

Growth

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Using Employee Opinions to Better Understand Mergers and Acquisitions Emily L. Hause St. Mary’s College of California Scott M. Brooks OrgVitality Jack W. Wiley Jack Wiley Consulting, LLC Abstract Research on using organizational climate to predict and help manage organizational performance is applied to mergers and acquisitions. Based on a dataset representative of the U.S. workforce, findings show that “employee-centric” employee opinions (e.g., job security and commitment) and “performance-centric” employee opinions (e.g., customer orientation and quality) present different patterns between employees in organizations acquiring others versus organizations being acquired. Specifically, organizations that have been acquired seem to have less successful customer processes than organizations doing the acquiring. Furthermore, employees in organizations undergoing merger or acquisition feel less favorable about their employment.

Given that common reasons for the failure of mergers and acquisitions include employee acceptance, change-management, and cultural factors, there are clear implications for understanding and managing mergers and acquisitions.

Keywords: mergers, acquisitions, employee opinions, organizational climate

Over the past two decades, theories and models of organizational performance have increasingly included components of organizational climate and culture. Wiley, Brooks, and Hause (2003) describe holistic models that illustrate how organizational climate, customer satisfaction, and financial outcomes are all interrelated. Saltzman and Brooks (2010) show how organizational confidence is related to employee turnover, company performance, the macrolevel performance of industries, and even country-level gross national product. The literature on this topic is growing at an increasing rate (see Brooks, Wiley, & Hause, 2006 for review).

According to Wiley, Brooks, and Lundby (2006), one implication of these interrelationships is that carefully selected employee opinion measures can serve as “leading indicators” of organizational outcomes and that these leading indicators can be separated into two broad categories:

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1. “Employee-centric” indicators, which are focused on employee characteristics.

Employee-centric indicators tend to be good predictors of outcomes such as turnover and union vulnerability.

2. “Performance-centric” indicators, which include climate measures relevant to the work itself—such as service orientation or quality—tend to be good predictors of outcomes such as customer satisfaction and productivity.

Research on these two categories of organizational climate demonstrate that not all employee opinions are equal in predicting different kinds of organizational outcomes. (While this may sound self-evident, the popular human resources press often loses sight of this in discussions of employee engagement. See Brooks & Saltzman, 2012 for discussion.)

The understanding of organizational climate theory and research is deepened when applied to important organizational efforts and events. The goal of this paper is to examine both employee-centric and performance-centric employee opinions in relation to mergers and acquisitions. Mergers and acquisitions are a critical element of many organizations’ growth strategies (Gaughan, 2013). Indeed, they are attempted quite often. Over 37,000 mergers and acquisitions were transacted worldwide in 2006 (Marks, 2008).

Even though mergers and acquisitions are designed to improve organizational performance, many studies highlight the struggles of these efforts in achieving overall objectives.

Marks (2008) calls the merger and acquisition success record “dismal,” estimating that 75% of mergers and acquisitions fail to meet their objectives. Others are not so optimistic. Cartwright and McCarthy (2005) showed that 83% of all deals failed to deliver shareholder value and that 53% actually destroyed value. Eichinger (2005) concluded that 50%–75% of mergers and acquisitions fail. These researchers highlight that failures frequently occur due to the “soft” factors—organizational integration, relationships among employees and functions, and other people-related issues.

Whether or not these estimates are exactly on target, they serve to underscore the basic point that mergers and acquisitions can be implemented much more effectively. Furthermore, it is clear that at least part of the solution will involve change management, organizational culture, and other employee-oriented efforts. It stands to reason that the practice of mergers and acquisitions can benefit from organizational climate and culture research.

Mergers and acquisitions are sometimes discussed interchangeably, but there are key differences. According to Marks (2008), a merger is the combination of separate entities into a new organization, whereas an acquisition is the integration of one organization into another.

Mergers would, therefore, likely involve two similarly performing organizations of relatively equal status, and acquisitions will clearly have a dominant player (in some combination of performance, size, net worth, and status).

The purpose of this paper is to examine the dynamics of employee-centric and performance-centric measures in organizations with mergers compared to organizations involved with acquisitions.

Specifically, our research questions include

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1. How do mergers and acquisitions impact employee-centric and performance-centric employee opinion measures?

2. Can these “leading indicators” help us better understand/manage the impact of restructuring efforts?

Method Participants This examination of worker attitudes and outcomes is based on Gantz Wiley Research’s WorkTrends, a large-sample employee-attitude survey that has been employed since the mid1980s. (Note: Gantz Wiley Research was acquired by Kenexa in 2006, which was in turn acquired by IBM in 2012.) In 2005, 10,000 paper-and-pencil surveys of employee opinions were administered to a panel of volunteer respondents across the United States. Prior to completing the survey, respondents were screened for a) full-time employment (over 32 hours per week) and b) organization size (over 100 employees). The response yielded 5,718 completed surveys.

Measures There were three main sets of measures examined for this study: employee-centric, performance-centric, and the degree of organizational restructuring. The employee-centric measures included a job satisfaction measure. This was assessed via five items with a Cronbach’s alpha of .87. Example items included “Considering everything, I am satisfied with my company as a place to work” and “I am proud to tell people I work for my company.”

Intention to remain was measured with the single item “I am seriously considering leaving my company within the next 12 months” (reverse scored). Finally, job security was measured with the single item “How do you rate your company on providing job security for people like yourself?”

Performance-centric measures included customer orientation and quality emphasis.

Customer orientation was assessed with four items that had a Cronbach’s alpha of .81. Example items included “Customer problems get corrected quickly” and “We regularly use customer feedback to improve our work processes.” Quality emphasis was also assessed with four items that had a Cronbach’s alpha of .81. Example items included “Where I work, we are continually improving the quality of our products and services” and “Where I work, we set clear performance standards for product/service quality.” Organizational restructuring was measured by asking respondents if their company had experienced events such as mergers and acquisitions during the last 12 months. Respondents were split into three groups based on this item: workers in organizations that had acquired another organization (n = 770), workers in organizations that had been acquired by or merged with another organization (n = 245), and workers in organizations with no recent mergers or acquisitions (n = 4,703).

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Results Employee-centric items included intent to remain, job satisfaction, and perceived job security. Performance-centric measures included customer orientation (e.g., using customer feedback and addressing customer problems) and quality emphasis (e.g., standards and continuous improvement). Means for respondents who belong to an organization that had acquired another organization were compared to means for respondents from organizations that had been acquired by or merged with another organization as well as to respondents belonging to organizations with no merger or acquisition activity. The means indicate significantly lower job satisfaction for employees who had been acquired/merged with another organization, and they also indicate a lower intention to remain with their organization. In addition, perceived job security was found to be lowest in organizations that had been acquired/merged with another organization and highest in organizations with no activity (see Table 1).

With regard to performance-centric items, means were compared among respondents from an organization that had acquired another organization, respondents from an organization that had been acquired by or merged with another organization, and respondents from an organization with no merger or acquisition activity. These means indicate significantly lower customer orientation and quality emphasis for employees in an organization that has been acquired than for employees in other organizations (see Table 2).

Discussion The results highlight different patterns regarding employee-centric measures of organizational climate (e.g., satisfaction and security) and performance-centric measures of organizational climate (customer orientation and quality emphasis) emerging from organizations that acquired another organization, were acquired by or merged with another organization, or had no activity: · Employee-centric employee opinions. · Employees being merged or acquired feel less favorable about their employment. They report less job security and satisfaction, and they are less inclined to remain with the organization. This makes sense because acquired organizations are typically smaller and are lower in status than the acquiring organizations. Their staff—especially those in support positions—are at risk for layoffs in order to meet the financial goals of restructuring. Acquired organizations find it harder to create a climate of employee wellbeing. This is likely due to employees’ higher levels of uncertainty about their current positions and announced and/or anticipated changes, perhaps resulting in a lack of perceived control. · Even employees in acquiring organizations feel less job security than those in organizations without any mergers and acquisitions (though not as low as those from

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acquired or merged organizations). This suggests that even being in the dominant organization in an acquisition brings some levels of uncertainty. · Performance-centric employee opinions. · Employees from organizations acquiring other organizations report a stronger sense of customer orientation and quality emphasis than employees in acquired or merged organizations and, importantly, employees in organizations without any mergers and acquisitions at all. Research has demonstrated that these types of performance-centric employee opinions have a documented link to actual organizational performance (Brooks et al., 2006; Wiley et al., 2006). This suggests that acquiring organizations have stronger quality and more successful customer service processes than other organizations. Such processes may have helped put these organizations in a position to acquire other organizations.

Several implications emerge from this study for both scientific understanding and practical application. This research suggests that employee observations of organizational climate through mergers and acquisitions are grounded in meaningful organizational events.

Employee-centric and performance-centric views show different patterns across different types of major organizational change. Managing the uncertainties involved in mergers and acquisitions has long been a focus for organizational researchers and leaders. However, these efforts are often focused on the acquired or merged organization with little or no attention given to the acquiring organization. This study reinforces how being merged and acquired is stressful, but acquiring another organization also carries uncertainties worthy of exploration.

Organizational researchers wishing to play more active roles in mergers and acquisitions can implement comparable, ongoing survey measurements within the participating organizations.

The ability to map the ranges of both employee-centric and performance-centric opinions can help direct organizational leaders’ and researchers’ attention and effort to best integrate organizations. This can help, for example, retain high performing and mission-critical employees (via employee-centric metrics) or diagnose and address operational concerns (via performance-centric metrics).

Future research can explore the full process of mergers and acquisitions and not simply the existence of a recent occurrence (as with this study). Learning how employee opinions change through the cycles of organizational change (and possibly organizational turmoil) can further our understanding of employment relationships in transition. Future studies can also address some of the limitations inherent in this nationally sampled study. Although this study employed a large and impressive data set, the metrics used in this study were from one point in time and averaged across many employees representing many organizations engaging in many kinds of mergers and acquisitions. The measures do not fully reflect the complexities of such organizational changes, which can pursue many types of objectives. Additionally, organizational integrations typically take place over the course of many months, suggesting an evolution and process worth exploring in the future.

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Despite these limitations, this study gives us a platform from which to conduct further research into theoretically sound and practically useful employee opinions to help understand and manage mergers and acquisitions.

Author Biographies Dr. Emily Hause is an Associate Professor of Industrial and Organizational Psychology at St. Mary's College of California. She has taught at the undergraduate and graduate level since 1990 in both Psychology and Business programs, with a special emphasis on employee attitudes, survey research methodology, and metrics. She has worked with the California Department of Transportation, GE Superabrasives, and General Motors. Emily received her Ph.D. in Industrial and Organizational Psychology from The Ohio State University.

Dr. Scott Brooks is a partner and vice president of employee surveys and organizational research at OrgVitality. With over twenty years of experience, he consults with organizations and individuals to drive strategic change based on surveys, HR metrics, and research that illuminate the connections between leadership, operations, customer loyalty and business results.

Prior to OrgVitality, he led the consulting group within Kenexa’s survey practice, was the West Coast General Manager and an executive consultant for Gantz Wiley Research, and also worked internally within organizational development for a division of Target, Inc. Scott holds a Ph.D. in Industrial and Organizational Psychology from The Ohio State University.

Dr. Jack Wiley is President and CEO of Jack Wiley Consulting. Relying upon 35 years of experience in research and consulting, Jack helps top leadership teams maximize their effectiveness by building the highest levels of employee motivation and commitment. A prolific author, recent books include RESPECT: Delivering Results by Giving Employees What They Really Want and Strategic Employee Surveys, Evidence-Based Guidelines for Driving Organizational Success. Previously in his career, Jack established and ran the Kenexa Research Institute and co-founded Gantz Wiley Research. He received his Ph.D. in organizational psychology from the University of Tennessee.

References Brooks, S. M., & Saltzman, J. M. (2012). Why employee engagement is not strategic. HR People & Strategy, 35(4), 4-5.

Brooks, S. M., Wiley, J. W., & Hause, E. L. (2006). Using employee and customer perspectives to improve organizational performance. In L. Fogli (Ed.), Customer Service Delivery: Research and Best Practices. San Francisco, CA: Jossey-Bass Publishers.

Cartwright, S., & McCarthy, S. (2005). Developing a framework for cultural due diligence. In G. K. Stahl & M. E. Mendenhall (Eds.), Mergers and Acquisitions: Managing Culture and Human Resources. Stanford University, CA: Stanford Business Books.

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Eichinger, R. (2005). M&A: The problem and the fix. Presentation delivered at the Human Resource Planning Society Workshop, Miami, FL. Gaughan, P. A. (2013). Maximizing corporate value through mergers and acquisitions: A strategic growth guide. Hoboken, NJ: John Wiley & Sons.

Marks, M. (2008). Making mergers and acquisitions work: The basics and beyond. Workshop delivered at the Twenty Third Annual Conference of the Society for Industrial and Organizational Psychology, San Francisco, CA. Saltzman, J. M., & Brooks, S. M. (2010). Strategic surveying in the global marketplace and the role of vitality measures using employee and customer perspectives to improve organizational performance. In K. Lundby (Ed.), Going Global: Practical Applications for HR and OD Professionals in the Global Workplace. San Francisco, CA: Jossey-Bass.

Wiley, J. W., Brooks, S. M., & Hause, E. L. (2003). The impact of corporate downsizing on employee fulfillment and organizational capability. In K. P. De Meuse & M. L. Marks (Eds.), Resizing the Organization – Managing Layoffs, Divestitures, and Closings: Maximizing the Gain while Minimizing the Pain. San Francisco, CA: Jossey-Bass Publishers.

Wiley, J. W., Brooks, S. M., & Lundby, K. M. (2006). Put your employees on the other side of the microscope. Human Resource Planning, 29(2), 15-21.

Table 1 Means for Employee-Centric Outcomes Acquired Acquired by/ Another Merged with No Activity Job Satisfaction 3.83 3.53* 3.77 Intent to Remain 3.70 3.35* 3.75 Job Security 3.54 3.23* 3.73* Notes. Means based on 1 to 5 responses, with 5 = more favorable * Analysis of variance (ANOVA) significant difference based on p < .01.

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Table 2 Means for Performance-Centric Outcomes Acquired Another

Acquired by/ Merged with

No Activity

Customer Orientation

3.85*

3.65

3.70

Quality Emphasis

3.76*

3.55

3.61

Notes. Means based on 1 to 5 responses, with 5 = more favorable. *ANOVA significant difference based on p < .01.

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A Framework for Specifying Business Models J. Bradley Barbeau CSU Monterey Bay School of Business Abstract The concept of a business “model” has been growing in popularity, but as a concept, it is still subject to multiple interpretations and definitions. This paper extends the current literature to present a structural framework for specifying a firm’s business model. The framework can be applied in a research context to investigate the varying types of business models and their characteristics. The framework conceptualizes competition among firms as competition among alternative business models, enabling a more complete model of competition than the models that have been provided by previous literature. It can also be applied in practice to designing specific business models and assessing a model’s fit with its environment and its ability to compete in a marketplace. This paper illustrates this framework’s usefulness through a businessmodel analysis of the video rental industry’s evolution. This analysis looks specifically at the competition between the Blockbuster and Netflix business models with implications for the industry’s current changes as video streaming emerges. The paper concludes with suggestions for both the framework’s practical applications and research applications.

Keywords: business models, strategy, customer value, value proposition

Business models have been a topic of discussion and investigation in both the academic and applied business realms for the past two decades. The literature, however, remains young and needs development. There is much promise for business models to provide new tools and a new understanding of business design and the competitive process.

We believe that improved knowledge about how to describe the architecture of the activity system, e.g., its key design parameters, will bring the importance of the topic to the forefront of managers’ and researchers’ thinking, and help them design better business models. (Zott & Amit, 2010, p. 217) This paper provides a review of existing literature on business models and then proposes a structural framework for specifying business models. This proposed structural framework captures the intentions of previous thinking on business models, but it extends that thinking into a more complete conceptualization of business models. The business model framework presented here subsumes previous business model conceptions in a “core business model,” and then, it extends that core model with elements that address a business’s organization, financing, and development.

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Literature Review Business Model Definitions The term “business model” has been used in many contexts with limited general agreement about what a business model is or consists of. Osterwalder, Pigneur, and Tucci (2005) state that The expression stands for various things, such as parts of a business model (e.g. auction model), types of business models (e.g. direct-to-customer model), concrete real world instances of business models (e.g. the Dell model) or concepts (elements and relationships of a model). (p. 8) The expression ‘a company’s business model’ refers to the way a firm does business. It is a snapshot and of a specific moment in time (Osterwalder et al., 2005). However, most definitions of a business model propose that a business model is a fundamental structure that describes a firm’s basic business and economic logic. Osterwalder et al. (2005) state that a business model’s objective is to “express the business logic of a specific firm” (p. 5). This firm’s logic is similar to the dominant-logic notion of Prahalad and Bettis (1986). They define management logic as “the way in which managers conceptualize the business and make critical resource allocation decisions” (p. 490). This fits closely with the way a “business model” is conceptualized; however, a business model is not identified with the logic of management but with the logic of the business itself.

Thus, a business model describes a business’ “architecture.” Osterwalder et al. (2005) describe a business model as “the blueprint of how a company does business” (p. 4). A business model “articulates the logic, and provides data and other evidence that support a value proposition for the customer, and a viable structure of revenues and costs for the enterprise delivering that value” (Teece, 2010, p. 173). Summarizing the extant view, Teece (2010) states, All businesses either explicitly or implicitly employ a particular business model. A business model describes the design or architecture of the value creation, delivery, and capture mechanisms employed. The essence of a business model is that it crystallizes customer needs and ability to pay, defines the manner by which the business enterprise responds to and delivers value to customers, entices customers to pay for value, and converts those payments to profit. (p. 191) This value creation, delivery, and capture process is central to a business model, and a business’ value proposition is a central organizing principle. Shafer, Smith, and Linder (2005) state that a business model can be seen as a “representation of a firm’s underlying core logic and strategic choices for creating and capturing value within a value network” (p. 202). The value proposition states the value a business provides to its customers, including identifying the customer problem that the firm is addressing and how the firm solves that problem for the customer.

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Osterwalder et al. (2005) combine the architecture metaphor with the value proposition to conceptualize a business model as a Description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams. (pp. 17-18) Complementary to the value-creation view is value appropriation, which is articulated by Lai, Weill, and Malone (2006). In their view, “a business model may be defined as how businesses appropriate the maximum value of the products or services they have created” (p. 5).

This appropriation” provides the complementary half of a business’ exchanges with customers: the business provides value to customers in the form of a product or service and receives (captures or appropriates) value through its pricing. Most recent views of business models would combine these, seeing both value creation and value appropriation as central elements of a business model.

A business model may also be viewed as what a firm does to create and capture value.

Zott and Amit (2010) describe a business model as “a system of interdependent activities that transcends the focal firm and spans its boundaries” (p. 216). This introduces two important notions: a business model describes activities as well as logic, and a business model extends beyond a firm’s boundaries to include both strategic partners that participate in the value creation process and the business’ intended customers,. Their conception may be further refined by including which problems to serve for the focal customers.

An activity in a focal firm’s business model can be viewed as the engagement of human, physical and/or capital resources of any party to the business model (the focal firm, end customers, vendors, etc.) to serve a specific purpose toward the fulfillment of the overall objective. (Zott & Amit, 2010, p. 217) A natural question that arises is about the distinction, between a business model and a business strategy (Magretta, 2002; Osterwalder et al., 2005; Teece, 2010). Teece (2010) considers a business model to be more “generic” than a business strategy and considers “Strategy analysis [to be] an essential step in designing a competitively sustainable business model” (p.

217).

It is this paper’s position that it is useful to look at a business model as the expression and operationalization of business strategies. Thus, the strategies that a business follows should be embodied in specific elements of its business model. In this conceptualization, business strategy and business models are neither competing nor identical; a “strategy” refers to a business model’s key aspect or design principle that generates competitive advantage for the firm, and the strategy is put into action by the way it guides the business model’s design.

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Functions of a Business Model Another way of looking at a business model is to examine the functions that a business model performs for a firm. According to Chesbrough and Rosenbloom (2002), a business model fulfills the following functions: · Articulates the value proposition (i.e., the value created for users by an offering based on technology); · Identifies a market segment and specify the revenue generation mechanism (i.e., users to whom technology is useful and for what purpose); · Defines the structure of the value chain required to create and distribute the offering and complementary assets needed to support position in the chain; · Details the revenue mechanism(s) by which the firm will be paid for the offering; estimates the cost structure and profit potential (given value proposition and value chain structure); · Describes the position of the firm within the value network linking suppliers and customers (incl. identifying potential complementors and competitors); and · Formulates the competitive strategy by which the innovating firm will gain and hold advantage over rivals. (pp. 533-4) Teece (2010) presents a visual framework for a business model that bears similarity to Chesbrough and Rosenbloom’s list of functions. Teece’s (2010) diagram is shown in Figure 1.

His framework is based on the value-creation-and-capture conceptualization of a business model, and it introduces the notion of profits, or profitability, to the business model. A business model must specify the value that a firm creates and how it will profitably capture that value.

From the foregoing discussion, a business model is described as a structure that embodies a business’ logic, describing how the firm will employ internal and external resources to produce value for a select group of customers and then capture that value through an exchange process.

This structure would consist of inputs, resources, partners, activities, and target customers. In this form, the business model is captured in a diagram called the business model canvas (Osterwalder & Pigneur, 2010, p. 44), which is shown in Figure 2.

Extending the Business Model In order to execute its business model, a firm needs to create an organization that implements the model and obtain the necessary financial resources to finance the organization’s construction and development. Without this organization, the business model is merely a business idea, a concept that has not been implemented. For example, Okkonen and Suhonen (2010) include the management system as part of their description of the business model.

Furthermore, because a business model will operate in a dynamic market, a firm will need to evolve its business model continually. In fact, these three elements—a business model’s organization, financing, and development—are integral parts in designing and specifying how

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the firm will operate. Specifically, this paper posits these three elements are also important to understanding a firm’s operation and design and, thus, they are included in a firm’s business model.

Thus, in addition to specifying the creation and capture of customer value, a complete business model needs to address the firm’s organizational, financial, and developmental strategies. These aspects of a business model can be sources of competitive advantages in the marketplace through organizational innovations, innovative financial structures and sources, and superior, dynamic growth and development strategies that renew and even extend a firm’s competitive advantage in the marketplace.

For example, Teece (2010) treats entry timing as “a strategic, rather than a business model issue” (p. 189). However, if a business development model is included as part of an overall business model, then entry timing becomes an endogenous variable in the business model, an element of the business model’s design, rather than an exogenous variable. It would make no sense to consider a business model as independent of the environment in which it is to operate, and entry timing is a matter of linking the business model to the environment’s stage of development to which it is best suited.

However, the business model as described above, which focuses on value creation and capture, does have a different quality than the organizational, financial, and business development submodels. It might be useful to maintain value creation and capture as a distinct element of a firm’s business model, which is then labeled as the core business model, and to consider the organizational, financial and business development models as comprising, in essence, extensions of the core model. These three elements will comprise the extended business model.

A Business Model Framework While the literature has used the terminology “business model” and delineated the functions of a business model, it has not answered the “what it is” question. This is the equivalent of describing an automobile as “a device that transports passengers from one place to another.”

The framework contains a business’s logic by specifying the relationships between a business model’s various elements and processes by which the business model attains its objectives. It also specifies the architecture, a set of elements and the relationships between those elements, that will embody a specific business model’s logic. The complete framework is depicted in Figure 3.

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The core business model. The core business model presented is similar to the business model “template” that is articulated by Osterwalder and Pigneur (2010). The core business model consists of three submodels: the marketing model, the operations model, and the economic model. These submodels describe the provision and capture of value in a business, and together they encompass the business model as the literature has conceptualized it.

The definition of the customer value that a firm provides to its target market, the means by which a firm accomplishes customer recruitment, or the obtaining of new customers; and the means by which a firm delivers value to its customers are central to the core business model.

These functions are embedded in the marketing submodel of the core business model. The marketing model describes the ways a firm links itself to the customer segments that it is targeting.

In order to deliver value to customers, a firm must have a means of producing that value.

“To deliver this value proposition, the firm has to possess a certain set of in-house and/or outsourced capabilities” (Dubosson-Torbay, Osterwalder & Pigneur 2002, p. 7). These capabilities are embedded in a firm’s operations model, which describes the means by which a firm produces customer value. The operations model specifies a firm’s key business processes and activities, the key resources that a firm needs, and the key partners involved in producing value for a firm’s customers.

A business model does not stop at a firm’s boundaries, but it must include a firm’s partners in the value chain. Hamel (2000) states that “the design and management of the value network can be important sources of business concept innovation” (p. 58). This is supported by Teece (2010).

The value chain issues are part of the operations model, but operations are only a part of the overall business model. Magretta (2002) claims that business models are “variations on the generic value chain underlying all businesses” (p. 4). This view would seem to overlook that a business model is only partly about how to organize the value chain—it is also about figuring out the value proposition to the customer as well as the value capture mechanism (Teece, 2010).

A firm’s production of value creates costs, and the pattern of these costs creates a firm’s cost model. The features or characteristics of a firm’s cost model would include the nature of any economies of scale along with the important cost drivers (Porter, 1985). In a sustainable business model, the firm must be able to capture the value that it creates through a revenue model. The pattern of costs and revenues creates a firm’s economic model.

Thus, a complete core business model must specify the three submodels of marketing, operations and economics. This framework, in various forms, has existed in the literature for some time, and it has served as the most extensive form of a business model with many uses of the term referring to less complete models. However, many firms’ sources of competitive advantage include aspects of business design that are not included in this core model. For example, firms may create competitive advantages through superior forms of organization that extend their reach or effectiveness in the marketplace, through superior or lower cost access to capital for expansion, or through their ability to expand rapidly in the marketplace. None of

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these aspects is directly related to novel means of creating or capturing value but rather to firms’ ability to manage, finance, and grow their businesses more efficiently than competitors.

Blockbuster, for example, was an imitable model, but it expanded so rapidly that it left little room for competitors. Other firms such as Hollywood Video, which successfully created a similar superstore design, were not able to match the extensive market presence achieved by Blockbuster because of Blockbuster’s head start and rapid expansion. Thus, additional structures must be added to a business model’s framework to allow the business model to address the competitive advantages that stem from other sources other than the direct provision of customer value. This leads to presenting the framework as the extended business model.

The extended business model. Although it is not directly related to the creation, delivery, and capture of customer value, the extended business model provides critical elements to a firm’s ability to implement, finance, and evolve its core model. Elements of the extended business model can also be designed to create and sustain a firm’s competitive advantages.

Thus, it is argued that these elements must be included in a complete business model and cannot be ignored in the formulation and understanding of the firm’s inner functions.

The extended business model also consists of three submodels: the organization model, the financing model, and the business development model. These are proposed as extensions of the firm’s core business model.

The organization model specifies a firm’s legal form, governance structure, management structure, and cultural aspects. The organization-design literature is vast, and it is not proposed to completely cover the options available to a firm in designing its organization. But an organization’s design provides substantial opportunity for achieving competitive advantage through effective design and organizational innovation. Teece (2010) agrees with this by stating that “new organizational forms can be a component of a business model; but organizational forms are not business models” (p. 176).

The financial model specifies how a firm funds itself, including the capital structure and financing mechanisms that a firm uses. While profitability has already been addressed in the core business model’s economic submodel, it does not address how a firm will initially fund itself nor how it will fund its growth, nor does it address issues of capital structure or the cost of capital. A firm’s ability to move successfully from a business idea to revenue generation depends upon its ability to obtain the necessary funding. Business ideas that develop an effective funding strategy have an inherent competitive advantage when compared to business ideas that do not develop an effective funding strategy. Thus, a firm’s financing is considered an important element of the business model.

Profitability for a fledgling firm is a secondary goal to cash management and to increasing the firm’s value. Increasing the firm’s value may entail an extended period of negative profitability and/or negative cash flow as the firm invests in increasing its potential for future profits. In fact, the firm must focus on increasing its value because the rate of return that venture investors require exceeds the return that can be provided through short-term profitability.

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The only way to provide the required high returns is by utilizing investor funds to increase the firm’s value. The firm then creates a “liquidity event” in which investors can recover their investment plus the return.

A business must be investable for it to start up successfully: it must be designed to provide a return to investors that is commensurate with the level of risk associated with investing in the business. For startup businesses, the level of investment risk is substantial and very difficult to estimate. This places a premium on the founding team’s quality. The founding team must be able to successfully meet unanticipated challenges and protect investments. The requirement for high levels of returns to investors in order to obtain funding implies that the return is going to come from increases in the firm’s value rather than from the direct shares of current or future profits.

The business development model specifies the strategies a firm uses to grow and adapt to market changes, including acquisition strategies, research and development strategies, product development strategies, and market development strategies. For most firms, the initial core business model will only provide limited growth, which is usually not sufficient to create a sustainable business. In order to reach maturity, a firm must build its business beyond the initial core model, developing itself from a single-market, single-product startup firm to a multimarket, multiproduct mature firm.

These three submodels enable the assessment of a firm’s business model in a wider framework. This allows us to look at how a firm organizes itself, funds itself, and grows its business. The broader framework has the potential to add to the understanding of a firm’s scalability, its sources of competitive advantage, forms of operating leverage, and how the firm manages the risks associated with its business.

Methodology The previous section has proposed an extension to previous business models as a useful conceptual framework; this section demonstrates the framework’s use in a case analysis of the evolution of competition in the video rental industry.

The case analysis is intended to demonstrate how the framework is useful in constructing a concise description of the nature and outcomes of competition in the video rental industry.

Competition in the Video Rental Industry In 1975, the successful introduction of the VCR spawned the video rental industry. In its early days, the video rental industry consisted of many small video rental stores, a few small chains, and some retail stores that added videocassette rentals to their existing retail business. In 1985, Blockbuster launched its first rental store, beginning a transformation of the very fragmented video rental industry into a chain-dominated industry that Blockbuster dominated.

Blockbuster’s core business model involved renting prerecorded videocassettes through brick-

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and-mortar, superstores. In comparison to other video rental stores at that point in time, Blockbuster’s superstores provided customers with a superior shopping experience in terms of movie selection and convenience. The timing of the emergence of Blockbuster’s core business model in 1985 was not an accident; prior to that time, the market was not sufficiently large to support the volume necessary for the Blockbuster superstores to thrive. Once the market reached a sufficient size, however, the superstore model, despite its higher overall costs per location, was superior to the lower-cost stores that were in existence, dominating on selection and shopping experience.

Once Blockbuster had established its core business model as a superior competitor in a local market, the next phase of development was to replicate that model in thousands of local markets. This strategy established additional sources of competitive advantage for Blockbuster, providing it with economies of scale in marketing as well as great purchasing power for being the largest buyer of prerecorded videocassettes. However, this element of the firm’s strategy, which led it to become the dominant video rental company, was not merely a result of its core business model. Blockbuster became a store-opening powerhouse, opening a store a day at one point in its development, and it achieved operating over 9,000 stores at its peak. Blockbuster’s prowess at opening new stores should be viewed as an integral part of its business model.

Blockbuster cannot be understood as a firm without considering its business development model and its financing model, which needed to work together. Its competitive advantage was built on the power that came from being the largest video rental firm.Blockbuster’s rapid growth, which was critical to the establishment and maintenance of its competitive advantage against similar rivals such as Hollywood Video, created the need for considerable financial resources.

Therefore Blockbuster should be viewed as having two clear focuses in its business model. The first is its core business model design, based on superstores that offered a wide selection, a positive shopping experience, and an automated customer checkout and return process to speed transactions. The second focus of its business model was its business development strategy, which is an element of the extended business model. With this strategy, Blockbuster could be viewed as being in the business of opening stores. The allowed them to win local market battles at the store level. In turn, the rapid expansion strategy allowed them to win the war through leaving little room for competitors to enter. Similarly, Starbucks, McDonald’s, Facebook, and others have based their business development strategies on their ability to expand faster than their competitors. The success of Blockbuster’s business model and other similar business models cannot be fully understood from their core business models. These chains achieve dominance through the combination of a strong core business model with the business development strategy of rapid growth through multiple locations.

These business development decisions impact firms’ financing strategies. In order to grow rapidly, these firms have used both franchising and public capital markets to provide the necessary financial resources. By contrast, In-N-Out Burger is an example of a firm that also has a strong core business model, but it has chosen to expand much more slowly by design. With its

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slower rate of expansion, In-N-Out Burger has been able to fund its expansion internally, and this has allowed it to keep ownership within its founding family.

By the early 1990s, Blockbuster dominated the video rental industry, reaching a total of over 9,000 locations by 2004. However, in the 1990s, video technology changed from the videocassette to the DVD, creating an opening for competition from a different business model.

Netflix developed an alternative customer interface and a delivery model that resulted in key differences from the Blockbuster core and extended business models. Household penetration of Internet-capable personal computers was rapidly increasing, along with the acceptance and usage of online commerce by households. The DVD’s compact, lightweight form allows them to be inexpensively delivered through the U.S. Postal Service. This enabled Netflix to build a business based on renting DVDs online with fulfillment accomplished through the mail from centralized, automated warehouses. This new model obviated the need for distributed retail stores, replacing them with centralized warehouses and servers that cost far less.

This change in customer ordering and fulfillment constituted a drastic difference between the Netflix operations model and the Blockbuster operations model. In turn, the new operations model affected the marketing economic models. The new Netflix marketing model, based on customers ordering their DVDs from home, meant that the Netflix model provided a different type of convenience for customers than the Blockbuster model. Blockbuster’s was based its convenience on having locations that were near customers’ homes, making it possible for a customer to obtain a rented DVD within minutes of deciding that he or she wanted to view a movie. Netflix provided convenience based on the customer being able to order, receive, and return a rented DVD without leaving his or her home. The pattern of customer value creation changing as a result of a technological change is consistent with the description of disruptive innovations by Christensen (1997).

In addition to changes in customer value, the Netflix operating model changed its economic model in important ways. As described above, the costs associated with the Netflix operating model were much lower than the Blockbuster model’s costs. After a short time of using the video rental industry’s standard method of charging for rentals on a per rental, per day basis, Netflix changed to a subscription model in which the customer paid a flat, per month rate.

Importantly, characteristics of Netflix’s business model prevented Blockbuster from responding effectively to Netflix’s competitive threat. Blockbuster’s business model was dependent upon obtaining a significant volume in each rental store to cover the costs of maintaining Blockbuster’s expensive brick-and-mortar stores. Not only did Netflix drain some of Blockbuster’s volume, but also any attempt by Blockbuster to duplicate the Netflix model would accelerate its loss of rental volume from its stores, damaging Blockbuster’s profitability.

In addition, the Netflix subscription-pricing model was not practical for Blockbuster, which had far higher costs per transaction than Netflix due to Blockbuster’s operations model. This assessment of Blockbuster’s inability to respond is a key insight into Blockbuster’s fall. It was not a lack of foresight or management ability but rather an economic barrier resulting from its business model design that led to Blockbuster’s downfall. Furthermore, the business model that

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Blockbuster chose proved highly successful for the market environment that existed from 1985 to the late 1990s, but it became unsuccessful due to a technology change that could not have been foreseen.

Findings The foregoing analysis has applied this paper’s business model framework to competition’s evolution in the video rental industry. The framework allows us to establish several key elements of that industry’s dynamics and the ensuing competitive process with a new level of clarity.

First, the emergence of the Blockbuster business model was the result of managerial insight into the video rental industry’s evolving state. The superstore design of the Blockbuster stores proved superior at the time of its introduction because the market density had increased to the point of which the market was sufficiently large enough to support the superstores’ higher costs.

Second, Blockbuster’s superstore design in itself was not sufficient to guarantee Blockbuster’s success. The superstore design was certainly imitable by other companies.

Blockbuster’s dominance was dependent upon marrying its successful core business model with its aggressive business development strategy. This combination allowed Blockbuster to dominate in local markets and in the national market.

Third, the Blockbuster model’s strengths became vulnerabilities when the dominant video-recording media changed from the videocassette to the DVD, which allowed the emergence of the Netflix business model. Moving aggressively against the Netflix model by imitating it, while technically possible for Blockbuster, would have entailed a substantial economic cost through Blockbuster cannibalizing its own stores. Said another way, Blockbuster’s adoption of Netflix’s Internet-based model was blocked by the economic damage Blockbuster would do to its own retail store model.

Discussion and Conclusions This paper has presented a business model framework that conceptualizes a core business model based on the creation and capture of value in exchanges with customers, and it extends that core model to include organizational, financial, and business development submodels to create a more complete framework for specifying a firm’s business model. The paper then used a case study of competition between Blockbuster and Netflix to illustrate the model and show its usefulness in understanding patterns and competition’s evolution.

The framework presented in this paper has several important applications in both academic research and management practice. By systematically describing a firm’s strategy and structure through a business model, it is possible to compare different firms and examine how their strategies and structures exploit the characteristics of their environments. In turn,

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environmental changes impact the effectiveness of firms’ business models. The framework also provides a rich means of describing competition between firms. Competition can occur between any element or between multiple elements of each firm’s business model. These analyses can be useful for understanding the competitive process from an academic perspective. They can also be useful for managers needing to understand how their firm’s business model competes with other firms’ models in the marketplace.

An important entrepreneurial application of the business model framework is its use as a design tool. Osterwalder and Pigneur (2010) use the business model canvas as a template, enabling entrepreneurs to design particular business models to fit products and markets for their companies. The extended model is presented here as a useful addition to Osterwalder and Pigneur’s (2010) canvas, adding additional design elements for entrepreneurs to consider.

The specification of a business model combined with background information on the market environment would provide useful information for venture capital investors to use to compare alternative businesses for potential investment. Finally, the business model framework provides a succinct description of a business that a manager can use to redesign and improve the functioning of his or her firm.

There is a great deal of research to be done on business models both in developing the conceptual framework and in utilizing that framework to examine competition and firm performance under various business models. Developing typologies of business models, examining which features of business models lead to successful market performance, and linking successful business model attributes to situational factors could provide firms with insights into designing their business models. Indeed, little work has been done in linking business model design to outcomes in the marketplace or even in defining what a business model’s desired outcomes are. Teece (2010) discusses aspects of business models as they relate to competitive advantage. In particular, he discusses the business model’s imitability in relation to competitive advantage.

Research on the evolution of business models, both incremental evolution and radical transformation, could provide insight into changes in successful business models as industries undergo significant technological change. This evolution of business models could be examined as an intrafirm phenomenon in which firms change their business models to anticipate or adapt to market changes over time. Evolution could also be examined at the industry level to understand characteristics of business models are able to change successfully over time. Teece (2010) states that “our state of understanding as to the precise relationship between business model choice and enterprise performance is both highly context dependent and rather primitive” (p. 191).

Author Biography Brad Barbeau, Ph.D., is Assistant Professor of Economics and Entrepreneurship at the CSU Monterey Bay College of Business. He teaches courses in both economics and entrepreneurship, and is coordinator for the entrepreneurship concentration for the College of

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Business. His primary research is on the development of business models and the evolution of competition. Brad holds his MBA, M.A. in economics and Ph.D. in business administration from the University of Michiganâ&#x20AC;&#x2122;s Ross School of Business. Brad has been involved in several startup companies, and is currently on the board of California Coastal Rural Development Corporation, a lender to agriculture and small businesses.

References Chesbrough, H., & Rosenbloom, R. S. (2002). The role of the business model in capturing value from innovation: evidence from Xerox Corporation's technology spinâ&#x20AC;?off companies.

Industrial and Corporate Change, 11(3), 529-555. doi:10.1093/icc/11.3.529 Christensen, C. (1997). The innovator's dilemma. Boston, MA: Harvard Business School Press.

Dubosson-Torbay, M., Osterwalder, A., & Pigneur, Y. (2002). E-business model design, classification, and measurements. Thunderbird International Business Review, 44(1), 523. doi 10.1002/tie.1036 Lai, R., Weill, P., & Malone, T. (2006). Do business models matter. Retrieved from http://seeit.mit.edu/Publications/DoBMsMatter7.pdf Magretta, J. (2002). Why business models matter. Harvard Business Review, 80, 86-92.

Okkonen, L., & Suhonen, N. (2010). Business models of heat entrepreneurship in Finland.

Energy Policy, 38(7), 3443-3452. doi http://dx.doi.org/10.1016/j.enpol.2010.02.018 Osterwalder, A., & Pigneur, Y. (2003). Modeling value propositions in e-Business. Proceedings of the 5th international conference on Electronic commerce, 429-436. doi 10.1145/948005.948061 Osterwalder, A., & Pigneur, Y. (2010). Business Model Generation. Hoboken, NJ: Wiley, John & Sons, Incorporated.

Osterwalder, A., Pigneur, Y., & Tucci, C. L. (2005). Clarifying business models: Origins, present, and future of the concept. Communications of the Association for Information Systems,16(1).

Porter, M. E. (1985). Competitive advantage: Creating and sustaining superior performance.

New York, NY: Free Press.

Prahalad, C. K., & Bettis, R. A. (1986). The dominant logic: A new linkage between diversity and performance. Strategic Management Journal, 7(6), 485-501. doi 10.1002/smj.4250070602 Shafer, S. M., Smith, H. J., & Linder, J. C. (2005). The power of business models. Business Horizons, 48(3), 199-207. doi http://dx.doi.org/10.1016/j.bushor.2004.10.014 Teece, D. J. (2010). Business models, business strategy and innovation. Long Range Planning, 43(2-3), 172-194. doi http://dx.doi.org/10.1016/j.lrp.2009.07.003 Zott, C., & Amit, R. (2010). Business model design: An activity system perspective. Long Range Planning, 43(2-3), 216-226.

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Zott, C. R., Amit, R., & Massa, L. (2010). The business model - theoretical roots, recent developments, and future research. Retrieved from http://www.iese.edu/research/pdfs/di0862-e.pdf

Figure1. Elements of Business Model Design. Adapted from â&#x20AC;&#x153;Business Models, Business Strategy and Innovationâ&#x20AC;? by D. J. Teece, 2010, Long Range Planning, 43, p. 173. Copyright 2009 by Elsevier, Ltd.

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Figure 2. The Business Model Canvas. Adapted from â&#x20AC;&#x153;Business Model Generationâ&#x20AC;? by A. Osterwalder and Y. Pigneur, 2010. Copyright 2010 by John Wiley & Sons, Incorporated.

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Figure 3. The Business Model Framework.

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The Status of Electronic Social Networking Implementation at the Fortune 500 Firms Carl J. Case St. Bonaventure University Darwin L. King St. Bonaventure University Abstract

Electronic social networking is becoming more important as both an informal communication mechanism and an economic driver. This study was undertaken to expand upon previous studies and determine the status of social networking at the largest and most successful corporations, the Fortune 500 firms. A three-step research methodology found that nearly all of the Fortune 500 firms have implemented at least one social network with LinkedIn being the most pervasive product. Moreover, the majority of corporations utilize four to six social networks.

Keywords: social networking, LinkedIn, Twitter, Fortune 500

Introduction Social media are forms of electronic communication, such as social networking websites and microblogging, through which users create online communities to share information, ideas, personal messages, and videos (Merriam-Webster, 2014). The popularity and growth in electronic social networking have been phenomenal. Facebook (2014) was launched a mere 10 years ago, but it reached the 350 million member milestone in 2014. In terms of networking, individuals ages 18 to 24 have an average of 510 Facebook friends, while those ages 55 to 64 have 113 Facebook friends (Facebook, 2014; AARP, 2013). Twitter, the social networking world's most visited site, was incorporated in 2007, but it surpassed 200 million tweets per day in 2011 (Schonfeld, 2011). By 2014, Twitter averaged 500 million tweets per day on its network (Twitter, 2014).

It is estimated that 67% of adults in the United States use social media (Brenner, 2013).

In addition, according to comScore, social tools account for 20% of all online activities outside of work (Healey, 2013). However, social networking is not only an informal communication medium, McKinsey & Company forecasts that $900 billion to $1.3 trillion in annual economic value is created through the use of these social social networks. As compared to other

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communication mechanisms such as the telephone, e-mail, postal mail, and, face-to-face interaction, electronic social networking allows users to easily interact with a larger social community and quickly share information.

The social networking sites that have the most visitors include Facebook, LinkedIn, Twitter, YouTube, and blogs. An examination of the monthly unique-visitor count demonstrates the popularity of these products. In August 2013, there were 163 million visitors to Facebook, 250 million visitors to Twitter, 41 million visitors to LinkedIn, and 163 million visitors to YouTube (complete.com, 2013; ebizmba.com, 2013). Moreover, in September 2013, Technorati, a blog search engine, tracked 1.3 million blogs, 38,000 of which were business blogs (technorati, 2013). In the business world, electronic social networking serves a myriad of important purposes. Jobvite, for instance, found that 92% of U.S. firms use social networks to locate talent, and LinkedIn is the most popular network (Brandpoint, 2012). Moreover, social networking and online community building are being planned by 30% of senior marketing executives as the vehicles for deploying new automation marketing (Henschen, 2013).

Moreover, the McKinsey Global Institute found that potential value lies in using social tools to enhance communications, knowledge sharing, collaboration within and across enterprises, and workforce effectiveness (Chui et al., 2012).

However, a 2011 survey of 200 U.S. based marketers at medium and large firms indicated that although 97% of firms have adopted social media techniques, merely 20% used social media efforts as a core function of their marketing efforts (Forrester, 2011). Moreover, only 14% of firms in a Global CIO survey had completed a major project that incorporated social networks into their information technology (IT) infrastructures (Murphy, 2012). In addition, in 2012, just 13% of firms had the goals of launching or upgrading enterprise social networks on their IT project lists (Donston-Miller & Carr, 2012).

Non-IT professionals have mixed ratings of the success of social networking initiatives for firmsâ&#x20AC;&#x2122; external social networking systems. Ten percent rate the initiatives as great with strong usage in all targeted segments and that they result in better service, support, or revenue (Healey, 2013). Twenty-seven percent rate the initiatives as good with small pockets of effective use. The primary drivers behind firmsâ&#x20AC;&#x2122; approaches to external social networking are marketdriven branding and promotion (56% of respondents), a sales-driven desire to increase sales (12% of respondents), support-driven to better understand customer issues (11% of respondents), and integrated plans to bring marketing, sales, and support together (11% of respondents). An InformationWeek Global CIO survey of IT executives at firms with 100 or more employees also found that 38% of respondents indicate that sentiment analysis of social network comments is important to building customer ties (Murphy, 2013).

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Review of Literature Researchers have explored a model for understanding trial, adoption, and use of new media technologies. In addition, research has examined Twitter usage motivation, successful Facebook implementation factors, and microblogging at Fortune 50 and Fortune 200 firms.

In terms of understanding the trial, adoption, and use of new media technologies such as social networking and video sharing, a qualitative analysis of semistructured interviews was utilized to study the content acceptance model (Barelka, Jeyaraj, & Walinski, 2013). Themes regarding why these technologies are used include introduction by acquaintance, advertising in mass media, a technology’s ease of use, a technology’s perceived cost, entertainment value, informational value, and communication value. Introduction by acquaintance and advertising in mass media are proposed to affect new media technology trial. Ease of use and perceived cost of technology are hypothesized to affect adoption of new media technologies. Entertainment value, informational value, and communication value are suggested to influence user usage.

Agrifoglio, Metallo, Black, and Ferrara (2012) examined the role of intrinsic motivation and the perceived ease of use in Twitter users’ continued Twitter usage. Research findings suggest that Twitter users believe that using Twitter can improve their performance or ability to achieve specific goals, and, thus, they are more extrinsically motivated to continue using Twitter.

In addition, because individuals feel pleasure, enjoyment, and satisfaction when using Twitter, they are more intrinsically motivated to continue using it.

Yang (2012) investigated the determinant factors for the successful implementation of Facebook marketing by enterprises. Research findings suggest that advertising messages provided by close friends only affect consumers’ brand attitudes, but advertising messages provided by commercial sources affect both consumers’ brand attitudes and their purchasing intentions. Utilitarian and recreational advertising messages affect consumer advertising attitudes, brand attitudes, and purchasing intentions. In addition, consumers’ involvement partially mediates the effects of utilitarian and recreational advertising attitudes, brand attitudes, and purchasing intentions.

A study by this paper's authors examined the web pages of the 2009 Fortune 50 firms to determine Twitter’s implementation and usage (Case & King, 2011). The results indicated that the majority of firms, 54%, had a Twitter account. Moreover, 37% of these firms had multiple accounts. Although usage varied by industry sector, 85% of the firms utilized Twitter for news distribution. Twitter was used to a much lesser extent for marketing/promotions, customer service, and human resources.

Another study by the authors examined the web pages of the 2010 Fortune 200 firms to determine electronic social networking’s implementation and usage, and, in particular, it examined the implementation and usage of Facebook, Twitter, and blogs (Case & King, 2010).

The results indicated that the Fortune 200 firms were embracing the new social networks.

Nearly three-quarters of the firms had implemented electronic social networking, and 65% of the firms had a Twitter account. In addition, 44% of the Fortune 200 firms made use of at least two

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social networks. Although participation varied by industry sector, 79% of the firms utilized Twitter used the social network for news distribution. Twitter was used to a much lesser extent for marketing/promotions, customer service, and human resources.

Given the pervasiveness and economic impact of electronic social networking, this study was undertaken to better understand social networking’s status in the largest and most successful corporations, the Fortune 500. The research is intended as a baseline for future and more indepth examinations of these firms.

This study was implemented to determine which social networks are employed, which social networks are the most and least utilized, if multiple social networks are deployed, and if there are there relationships between the uses of these social networks. The overall purpose of the study is to empirically examine the current state of electronic social networking in business and create a foundation for future understanding.

Methods This study utilized the CNNMoney website’s (2013) list of the Fortune 500 firms to obtain the 2013 Fortune 500 company directory and the corresponding company web addresses.

A three-step process was used to determine social networking implementation for each organization. First, because a company’s home page is the Internet location where the most current or prospective stakeholders access a firm’s website for communication information, each company’s contact page was examined to determine which social networks, if any, are utilized.

A preliminary analysis found the presence of nine primary social networks and nine less used social networks (identified as "other"). The primary social networks include blogs, Facebook, Flickr, Google+, Instagram, LinkedIn, Pinterest, Twitter, and YouTube. Second, if any of the nine social networks were not found on a home page, the page’s search engine was utilized to search for the given social network. Third, if the social network was not found during this search, the social network’s website was utilized to search for the company. Firm social network utilization was then examined to determine the prevalence of each social network and the usage of multiple social networks. In addition, social networking utilization was examined to determine if there were correlations between the use of any two social networks.

Results A review of the Fortune 500 firms found that nearly all of the firms, 97%, utilize LinkedIn (Table 1). The other most implemented social networks include Twitter (76% of firms), Facebook (74% of firms), YouTube (67% of firms), and blogs (53% of firms). The least utilized social networks include Google+ (17% of firms), Pinterest (8% of firms), Flickr (6% of firms), other (6% of firms), and Instagram (3% of firms).

Table 2 details the “other” (least common) social networks utilized by the firms. These were implemented by 6.4% of the firms and include Forum, Foursquare, iTunes, mobile alerts,

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SlideShare, Spiceworks, StockTwits, Tumblr, and Viggie. The most common programs include SlideShare (eight firms), mobile alerts (seven firms), and Forum (six firms).

Relative to social networking utilization, Table 3 illustrates that 8% of the Fortune 500 firms use only one social network. Ninety percent use LinkedIn, 3% use a blog, and 1% use Facebook. Thirteen percent of the Fortune 500 firms employ two social networks, 13% utilize three social networks, and 65% use four or more social networks. Overall, 99% of the Fortune 500 firms utilize at least one form of electronic social networking.

Social networking utilization was examined next to determine if there were correlations between the use of the various social networks. Table 4 illustrates that there are significant correlations at the .01 level or the .05 level (2-tailed test) for several of the social networks. For example, the use of Facebook was significantly correlated with the use of Twitter. In particular, only LinkedIn was significantly correlated with Twitter and YouTube. This is surprising because LinkedIn and Facebook were not significantly correlated even though they have a similar component, presenting oneâ&#x20AC;&#x2122;s profile. Twitter and YouTube were significantly correlated with all social networks with the exception of blogs. Facebook was significantly correlated with all social networks with the exception of LinkedIn and blogs. Only blogs were significantly correlated with Flickr. Google+ and other social networks were significantly correlated with all social networks except LinkedIn and blogs. Pinterest and Instagram were significantly correlated with all social networks except LinkedIn, Flickr, and blogs. And Flickr was significantly correlated with Twitter, YouTube, blogs, Google+, and other social networks.

Discussion The results indicate that Fortune 500 firms utilize a variety of electronic social networks.

The most common product is LinkedIn, and it is utilized by 97% of firms. Twitter and Facebook are used by approximately three-quarters of the firms. YouTube is employed by two-thirds of the firms, and blogs are used by more than one-half of firms. The remaining, but far less frequently utilized, social networks are Google+, Pinterest, Flickr, other, and Instagram. The most common other social networks are SlideShare, mobile alerts, Forum, and Foursquare.

In terms of the quantity of social networks, 99% of firms utilize at least one social networking social network. In particular, 8% employ one social network, 13% employ two social networks, 13% employ three social networks, 20% employ four social networks, 25% employ five social networks, 15% employ six social networks, and 6% employ more than six social networks.

When examining correlations in the use of multiple social networks, an interesting potential relationship is apparent. Although LinkedIn is the most commonly used social network, its use is only correlated with the implementation of Twitter and YouTube. It is possible that these three social networks are considered complimentary in regards to information distribution. LinkedIn is generally used for asynchronous distribution of relatively static information, while Twitter is utilized for instantaneous information distribution, and YouTube is

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a platform for visual and audio presentation of information. By utilizing these social networks, a firm has three distinct channels of communication that have differing informational richness and information-delivery time frames. Of note is that there are multiple correlations in regards to nearly all other social networks. It is difficult at this point to speculate as to why these relationships exist. Further research in social network content, such as YouTube video themes, Twitter texts, and blog content, may be helpful in explaining why, for example, both Twitter and YouTube are correlated with every other social network except blogs.

There are two important implications from the study. Results demonstrate that Fortune 500 firms have adopted electronic social networks, especially LinkedIn. Not only are nearly all firms using social networking, but also LinkedIn is, by far, the most pervasive social network.

LinkedIn was even used by 90% of the firms that deployed only one social network. It is possible that LinkedIn is heavily utilized because of its potential use in recruiting. When compared to Facebook, LinkedIn is likely perceived as a more professional communication venue rather than the informal Facebook platform. However, even though nearly all firms have adopted social networks there are differences in adoption rates. The implication is that advantages and weaknesses may be identified because of this disparity. Pinterest, Flicker, and Instragram, for instance, have been adopted by few firms. As a result, there may be first-adopter advantages available to firms that wish to deploy these products in the eventual possibility that these products continue to gain popularity among users. Conversely, the 24% of firms that have not implemented Twitter, which is the most used product by the general population, may be at a disadvantage because they are not utilizing a network that provides access to the largest consumer base. Future research examining adoption rates regarding industry sector and business size would be helpful in further clarifying where opportunities may exist.

Second, the results show that firms employ multiple channels or mechanisms to communicate with stakeholders. Future research is needed to determine which social networks are the most effective in communicating with a given stakeholder group. For instance, it could be hypothesized that LinkedIn may be the best social network for communicating with prospective employees, while YouTube may be the most efficient tool for marketing company products to potential customers. It is also possible that firms employ multiple social networks as a result of peer pressure with their competitors. As a result, it may be a competitive disadvantage to not employ multiple social networks. It appears, however, that four to six social networks are the optimum mix because 60% of the firms implemented this range of products.

Only 6% of firms employed more than six social networks. Overall, because there is no commonality in terms with the number of adopted social networks and because the Fortune 500 firms are not equal in financial success, the implication is that advantages may be possible if both the appropriate social network and the number of complementary technologies can be determined for a firm. Firms may be deploying social networking in an effort to increase sales, increase productivity, or for other purposes. Future research is needed, therefore, to explore if there is an optimum mix of technologies that can be used to achieve these goals for a firm. It is possible that industry sector and organization size are important factors in this regard.

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The limitations of this study are primarily a function of the type of research. The study examined social networking from an exploratory perspective but did not delve into the specific uses of each social network in each firm. Future research is needed to explore social network usage, to determine the effectiveness of each social network, and to determine why a specific social network is correlated with another social network. Overall, the research has empirically provided new insight into understanding the prevalence of electronic social networking in the Fortune 500 firms, and it has created a foundation for future research.

Author Biographies Carl Case received his Ph.D. in business computer information systems from the University of North Texas in 1996, and he is professor and chair of the Department of Management at St. Bonaventure University. He has been a college educator and professional business information system consultant for the past 31 years. Dr. Case has taught a variety of courses including business information systems, system analysis and design, e-commerce, business telecommunications, and accounting information systems. As a consultant, Dr. Case has developed and implemented over 100 information systems for private, public, and governmental organizations. Dr. Case has also had his research on student teams, phishing, electronic social networking, organizational computing behavior, and student Internet behavior published in a variety of academic journals.

Darwin King has taught in higher education since 1971. For the last 30 years, he has been a professor of accounting for St. Bonaventure University, and he has taught courses in accounting, management, finance, marketing, and information systems. In recent years, Professor King has taught accounting courses including financial and managerial accounting, fraud examination, accounting information systems, auditing, and financial statement analysis.

His research interests include accounting history, mission statements, student Internet behavior, timber accounting and taxation, and other taxation topics.

References AARP. (2013). Upfront. AARP The Magazine, 56(5A), 10.

Agrifoglio, R., Metallo, C., Black, S., & Ferrara, M. (2012). Extrinsic versus intrinsic motivation in continued Twitter usage. Journal of Computer Information Systems, 53(1), 33-41.

Barelka, A. J., Jeyaraj, A., & Walinski, R. G. (2013). Content acceptance model and new media technologies. Journal of Computer Information Systems, 53(3), 56-64.

Brandpoint. (2012). 6 ways to use social media when looking for a new job. The Times Herald.

November 26, A-10.

Brenner, J. (2013). Social networking. Pew Internet. Retrieved from http://pewinternet.org/Commentary/2012/March/Pew-Internet-Social-Networking-fulldetail.aspx

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Case, C. J. & King, D. L. (2010). Cutting edge communication: Microblogging at the Fortune 200. Twitter implementation and usage. Issues in Information Systems, XI, 216-223.

Case, C. J. & King, D. L. (2011). Twitter usage in the Fortune 50: A marketing opportunity?

Journal of Marketing Development and Competitiveness, 5(3), 94-103.

Chui, M., Manyika, J., Bughin, J., Dobbs, R., Roxburgh, C., Sarrazin, H., . . . Westergren M. (2012). The social economy: Unlocking value and productivity through social technologies. mckinsey.com. Retrieved from http://www.mckinsey.com/insights/high_tech_telecoms_internet/the_social_economy Complete.com (2013). Site statistics Facebook. Complete.com. (September, 2013 ). Retrieved from http://siteanalytics.compete.com/facebook.com/ Complete.com (2013). Site statistics LinkedIn. Complete.com. (September, 2013). Retrieved from http://siteanalytics.compete.com/linkedin.com/ Complete.com (2013). Site statistics Twitter. Complete.com. (September, 2013). Retrieved from http://siteanalytics.compete.com/twitter.com/ Complete.com (2013). Site statistics YouTube. Complete.com. (September, 2013). Retrieved from http://siteanalytics.compete.com/youtube.com/ Donston-Miller, D., & Carr, D. F. (2012). 7 lessons in social business. Informationweek.com, 1350, 22-27. eBizMBA.com. (2013). Top 15 most popular social networking sites - September 2013. ebizmba.com. (September, 2013). Retrieved from http://www.ebizmba.com/articles/social-networking-websites Facebook. (2014). Facebook. (February, 2014). Retrieved from http://en.wikipedia.org/wiki/Facebook Facebook.com (2014). Facebook now has 350 million members! (February, 2014). Retrieved from https://www.facebook.com/pages/Facebo%CE%BFk-now-has-350-millionmembers-How-many-of-them-will-join-this-page/190493827991 Forrester Consulting. (2011). Listening and engaging in the digital marketing age. Forrester Research, July, 2011, 1-24. Retrieved from http://i.dell.com/sites/content/corporate/secure/en/Documents/listening-and-engaging-inthe-digital-marketing-age.pdf Healey, M. (2013). Getting (truly) social. Informationweek.com, 1354, 8-15.

Henschen, D. (2013). Spend trend. Informationweek.com, 1357, 17-23.

Merriam-Webster.com. (2014). Social media. (February,2014). Retrieved from http://www.merriam-webster.com/dictionary/social+media?show=0&t=1392212946 Money.cnn.com. (2013). Fortune 500. CNNMoney. (September, 2013). Retrieved from http://money.cnn.com/magazines/fortune/fortune500/ Murphy, C. (2012). New IT rulebook. Informationweek.com, 1327, 19-27.

Murphy, C. (2013). Goodbye IT, hello digital business. Informationweek.com, 1360, 14-26.

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Schonfeld, E. (2011). Twitter reaches 200 million tweets per day, but how many come from bots?

(March, 2011). Retrieved from http://techcrunch.com/2011/06/30/twitter-3200-milliontweets/ Technorati. (2013). Directory of blogs. technorati.com, (September, 2013). Retrieved from http://technorati.com/blogs/directory/ Twitter.com. (2014). About. Retrieved from https://about.twitter.com/company

Table 1 Overall Social Network Usage Social network LinkedIn Twitter Facebook YouTube Blog Google+ Pinterest Flickr Other Instagram

Percentage of Firms 97% 76% 74% 67% 53% 17% 8% 6% 6% 3%

Number of Firms 487 381 368 336 263 87 42 31 31 16

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Table 2 Breakdown of Other Social Networks Social network

Number of Firms

Forum

6

Foursquare

5

iTunes

2

mobile alerts

7

SlideShare

8

Spiceworks

1

StockTwits

1

Tumblr

4

Viggie

1

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Table 3 Usage of Multiple Social Networks Type

Percentage of Firms

Number of Firms

Only 1 Social Network

8%

42

Uses 2 Social Networks

13%

64

Uses 3 Social Networks

13%

66

Uses 4 Social Networks

20%

101

Uses 5 Social Networks

25%

124

Uses 6 Social Networks

15%

73

Uses 7 Social Networks

4%

19

Uses 8 Social Networks

1%

7

Uses 9 Social Networks

1%

3

99%

499

Total

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Table 4 Social Networking Pearson Correlations LI LinkedIn

TW

FB

YT

BL

G+

PI

FL

OT

IN

.1

.145**

.073

.127**

-.004

.009

.004

.042

-.010

.030

Twitter

.145 **

1

.571* *

.550**

.081

257* *

.135**

.144**

.144* *

.102*

Facebook

.073

.571**

1

.596**

-.005

.251* *

.181**

.098*

.135* *

.109*

YouTube

.127 **

.550**

.596* *

1

.062

.276* *

.165**

180**

.162* *

.127* *

-.004

.081

-.005

.062

1

.013

.013

.128**

.045

.036

Google+

.009

.257**

.251* *

.276**

.013

1

.165**

.101*

.210* *

.156* *

Pinterest

.004

.135**

.181* *

.165**

.013

.165* *

1

-.078

.221* *

.437* *

Flickr

.042

.144**

. 098*

.180**

.128**

.101*

-.078

1

.209* *

.000

Other

-.010

.144**

.135* *

.162**

.045

.210* *

.221**

.209**

1

.095*

.030

.102*

.109*

.127**

.036

.156* *

.437**

.000

.095*

1

Blog

Instagram

Note. * Correlation significant at the .05 level (2-tailed); ** Correlation significant at the .01 level (2-tailed).

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Cultural Adaptation Mediates the Relationship Between Reflective Leadership and Organizational Performance for Multinational Organizations Patricia A. Castelli Lawrence Technological University Thomas G. Marx Lawrence Technological University David O. Egleston Lawrence Technological University

Abstract The purpose of this research study was to test Castelliâ&#x20AC;&#x2122;s (2012) model of reflective leadership (RL) for use in multinational organizations. This study also tests whether the effects of RL on organizational performance are mediated by cultural adaptation (CA). The results, based on 663 responses to a unique survey instrument developed for this study, demonstrate that three components of RL (openness, purpose, and challenging beliefs) improve organizational performance (sales, profits, and meeting organizational goals) and that performance improvements are mediated by CA. Keywords: reflective leadership, global leadership, cultural adaptation, organizational performance

Introduction Participating in emerging markets is essential to the success of multinational companies in todayâ&#x20AC;&#x2122;s global economy in which 30% of the $72 trillion world output is traded across international boundaries (World Economic Outlook, 2013). Leaders of multinational firms must adapt their companiesâ&#x20AC;&#x2122; cultures to the needs of local consumers, employees, suppliers, and communities to succeed in increasingly competitive markets around the globe. Global organizations must be able to operate effectively in different economic, political, legal, social, ethical, cultural, and religious environments (Wyman/Mercer, 2007). Thriving organizations must formulate and implement globally integrated strategies that address the challenges of

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increased diversity, uncertainty, ambiguity, and complexity; and the accelerated pace of market, social, and technological changes that characterize today’s global economy. Successful leadership across nations depends on leadership behaviors, policies, practices, values, and beliefs being consistent with culturally-driven social expectations (House, et al., 2014). Cabrera (2012) captures the cultural and institutional challenges confronting global leaders: Global leaders utilize their understanding of cultural and institutional nuances and their global connections to create new forms of value….Truly global leaders act as bridge builders, connectors of resources and talent across cultural and political boundaries — relentlessly dedicated to finding new ways of creating value. They don't just think and act global, they are global. (p. 1) Reflective leadership (RL) is characterized by learning from reflecting on past experiences. RL enhances a firm’s ability to adapt its strategies, policies, and business practices to local conditions in diverse markets around the globe. It is particularly important to multinational organizations that must learn to adapt to the customs, values, and cultures of the many nations where they conduct business. The theoretical RL model developed by Castelli (2012) describes the actions leaders can take to capture and utilize their firm’s collective experiences to enhance its ability to adapt to diverse cultures in transnational organizations (see Figure 1).

Castelli’s (2012) original RL model consists of five factors (openness, purpose, meaning, challenging beliefs, and ongoing dialogue and feedback leaders can use to capture, disseminate, and utilize past experiences to improve a firm’s performance (see Figure 1). Reflective leaders create a nonthreatening environment in which followers can openly discuss both positive and negative experiences (openness). They relate these experiences directly to the organization’s goals to maximize their contributions to the company’s competitive advantage (purpose).

Reflective leaders encourage followers to learn from past experiences and improve their future conduct, behavior, and performance by encouraging followers to extract the meanings of these experiences (meaning). Leaders challenge followers to recognize, understand, and appreciate different value and belief systems and to question personal values and beliefs as a result of past experiences (challenging beliefs). Finally, reflective leaders ensure continuous learning from cumulative experiences by maintaining ongoing dialogue that has constructive feedback (ongoing dialogue and feedback).

The purpose of this research was to test Castelli’s RL model (2012) to determine if RL improves the performance of multinational organizations. A unique survey instrument was developed for this study in which three of the five components of RL (openness, challenging beliefs, and purpose) were shown to predict organizational performance. Another objective of this study was to determine whether RL’s effects on organizational performance are mediated by its enhancements to a firm’s ability to adapt its policies and practices to local cultures (CA).

Mediation occurs when the effects of an independent variable (IV) on its related dependent variable (DV) flow through an intervening variable known as a mediating variable (MV). In the case of full mediation, all of the effects of the IV on the DV can be attributed to changes in the

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MV brought about by the IV. In other words, there is no direct effect on the DV from the IV. In the case of partial mediation, a portion of the effect on the DV from the IV can be explained by changes in the MV that are caused by the IV. For example, Schaubroeck, Lam, and Peng (2011) demonstrated that the effects of transformational leadership on team performance occur when the team trusts the leader. Transformational leadership creates trust, which improves team performance.

A large number of mediators likely exist in the relationship between RL and organizational performance. RL may improve creativity, resulting in better products and services and more efficient work methods. RL may reduce costs and improve product quality by enabling employees to identify new ways of performing their jobs. RL may simply encourage employees to work harder. RL may enable employees to adapt to the needs of the local cultures in which their organization operates and sells its products and services. This CA is particularly important for multinational firms. Understanding the method by which multinational firms can better meet the needs of their customers is enormously beneficial. This study examines whether CA mediates the relationship between RL measures and firm performance measures. The conceptual model for this study is shown in Figure 2.

Reflective leaders create safe environments in which their employees can discuss the mismatch between the initiatives, policies, products, and services of the organization and the culturally-determined needs of clients and customers. Reflective leaders further cause their employees to challenge existing policies and work methods (assumptions) and reflect on whether the products and services the organization provides are meeting the needs of clients and customers. Finally, reflective leaders remind employees of the critical role they play in organizational success. As the employees in an organization, and the organization itself, adapt to the specific cultural needs of customers, organizational performance should improve.

Review of the Literature Jack Mezirow (1978) introduced the concept of transformative learning to the field of adult education as “an approach to teaching based on promoting change, where educators challenge learners to critically question and assess the integrity of their deeply held assumptions about how they relate to the world around them” (p. xi). Transformative learning is a multifaceted theory that encompasses elements from adult learning, instructional design, experiential learning, and the social sciences (Castelli, 2011). The later concept of experiential learning has been expanded and refined over the years in the context of reflective learning in the field of adult education (Brookfield, 1995; Mezirow & Taylor, 2009; Schön, 1983). Leaders (Cranton, 2002, 2006; Fisher-Yoshida, 2009; Fisher-Yoshida & Geller, 2008, 2009) have also integrated reflective learning into academic and work experiences, and according to Taylor (2007), the use of reflective learning has expanded internationally.

Although the concept of RL is not new, it has quickly gained momentum with the rapid onset of globalization and understanding multiple cultures is critical to a multinational firm’s

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success because of globalization. The ability to adapt to local cultures is a major competitive advantage, especially for multinational organizations. The multibillion dollar loss from WalMart’s failed efforts to penetrate the German market from 1997 to 2006 was largely due to the company’s failure to adapt its successful U.S. business policies and practices to German culture, markets, and labor laws (Christopherson, 2007). Indeed, the rapid onset of globalization has made understanding culturally diverse business settings and the ability to adapt policies and practices to them critical to organizational success (Ng, Van Dyne & Ang, 2009). According to Gurdjian, Halbeisen, and Lane (2014), “The ability to push training participants to reflect, while also giving them real work experiences to apply new approaches and hone their skills, is a valuable combination in emerging markets” (p. 3). A dynamic cycle of learning is particularly critical for global leaders given the uncertainty and complexity of operating in numerous diverse cultures.

The proposed relationships among RL, CA, and organizational performance produced several hypotheses: H1a-c: An open and safe environment is associated with increased goal attainment, sales, and profits.

H2a-c: Challenging beliefs and assumptions is associated with increased goal attainment, sales, and profits.

H3a-c: Purpose is associated with increased goal attainment, sales, and profits.

H4a-c: The effects of an open and safe environment on organizational goal attainment, sales, and profits are mediated by CA. H5a-c: The effects of challenging beliefs and assumptions on organizational goal attainment, sales, and profits are mediated by CA. H6a-c: The effects of purpose on organizational goal attainment, sales, and profits are mediated by cultural CA. Methods The purpose of this study was to test the predictive validity of Castelli’s (2012) model of RL and the mediating effects of CA on organizational performance. A three-factor RL instrument (safe and open environment, purpose, and challenging assumptions) was used to measure RL. The factors open and safe environment (Cronbach’s alpha =.96), purpose (Cronbach’s alpha =.91), and challenging beliefs and assumptions (Cronbach’s alpha =.93) consist of five items each. Similarly, CA (Cronbach’s alpha =.90) consists of five items. The resulting Castelli Marx Egleston (CME) RL instrument is shown in Appendix A. The survey instrument was administered to respondents who were members of professional groups on LinkedIn (Castelli, Egleston & Marx, 2013), representing a variety of leadership, international management, business, industrial academic, and nonprofit interests.

The recruiting letter which was posted in the LinkedIn Groups, asked for people who “meet the

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criteria of being, or having been, a working professional in a multinational organizationâ&#x20AC;? to complete a survey on RL. Participation was voluntary, and participants in the survey remained anonymous. Participants indicated the extent to which their leaders engage in each of the behaviors included in RL and CA on a four-point scale (never, some of the time, most of the time, or always). Organizational performance was measured with three items (which ranged from substantial decline to substantial improvement) assessing prior-year sales, profits, and achievement of organizational goals.

Results A total of 745 people answered at least one question in the survey. Complete responses which were retained for the analyses were received from 663 respondents. The sample consisted of 341 men and 269 women (53 participants elected not to provide their gender) from more than 60 countries (approximately 40% of the sample reported being from the United States). The average respondent was 48.7 years of age with 8.75 years of international business experience.

Means, standard deviations, reliability estimates, and correlations between the variables in the study are reported in Table 1.

Hypotheses 1 through 3 were tested using a one-tailed, Pearson product-moment test. As can be seen in Table 1, all nine tests yielded statistically significant results (all p-values less than .00 and were in the predicted direction). The results provide a strong validation of the Castelli (2012) model of RL. Hypotheses 4 through 6 were tested using the Sobel test. Although bootstrapping has recently come into fashion when estimating indirect effects (Bollen & Stine, 1990; MacKinnon, Lockwood, & Williams, 2004), the Sobel test has sufficient statistical power to detect mediation (Fritz & MacKinnon, 2007) and is not subject to distributional effects (Stone & Sobel, 1990) when the sample size is large as it is in the present study. As can be seen in Table 2, the results of all nine proposed mediations are statistically significant, providing strong evidence that CA mediates the effects of RL on organizational performance.

Discussion The results of this study demonstrate that RL affects all three measures of organizational performanceâ&#x20AC;&#x201D;sales, profits, and achievement of organizational goals. Although not measured in this study, the effects of RL on organization performance likely result from individual and group-level improvements in performance. Mollick (2012) demonstrated that organizational performance is driven much more by individual factors than organizational factors. This study explicates the means by which individual performance can be improved. Furthermore, the results show that the effects of RL on performance are mediated by CA. As evidenced in this study, the leader plays a vital role in promoting the reflection learning among his/her followers. Additionally, it was shown that practicing reflection has a

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significant impact on the performance of a multinational firm in terms of sales, profits, and meeting organizational goals. Therefore, it behooves the global leader to practice reflective learning on an ongoing basis. The results of this study showed that four factors are significantly related to RL: promoting an open and safe work environment, ensuring that employees understand the organization’s purpose, challenging assumptions, and adapting to local cultures.

Reflective leaders create an environment in which employees feel safe to admit mistakes and adopt new assumptions and practices that contribute to organizational success. Leaders can promote an open and safe work environment that encourages followers to discuss their work experiences freely at meetings. Leaders can implement an open-door policy in which employees feel free to informally talk and meet with their leaders without appointments. Effective leaders find meaningful ways to build trust with followers (Castelli, Castronova, Stavros, & Seiling, 2007). Leaders build trust by sharing what they have learned from their experiences and by encouraging followers to do the same. Active listening is another effective tool for showing followers that their views are heard and valued (Castelli, 2008). Research suggests that when leaders show interest and enthusiasm regarding the importance of an employee’s role in the organization’s success, motivation increases, which may enhance follower performance (Schwartz & Castelli, 2014).

To ensure employees understand their organization’s purpose, leaders can connect employees’ roles and responsibilities to the organization’s mission. This is achieved by direct communications to ensure that tasks and goals are clearly defined and understood (Demerouti, Bakker, de Jonge, Janssen, & Schaufeli, 2001). Furthermore, when a leader explains how specific tasks contribute to the organizational goals, employees will not only understand their roles in the larger scheme, but also they will experience higher job satisfaction (Hackman & Oldham, 1976) by knowing that their work has meaning and purpose and is valued by the organization. Employees are more motivated and perform better when they understand their roles in the organization and how their work supports the company’s mission and goals.

Challenging assumptions is a critical part of RL, particularly for multinational organizations operating in diverse cultures. Leadership is central to open and candid communication when leaders encourage followers to discuss the impacts of personal values and beliefs on both individual performance and the company’s performance (Fisher-Yoshida, B. & Geller, K. 2009). The leader may want to initiate such discussions by sharing some personal experiences. Sharing experiences and challenging assumptions is particularly important at the beginning of international assignments so mistakes can be avoided when working with diverse cultures. Organizational training, coaching, and mentoring can improve cultural awareness and help avoid pitfalls that could damage the reputation of the firm when working in culturally diverse settings.

As evidenced in this study, adapting to local cultures is crucial to an organization’s success in terms of increased sales, profits, and fulfillment of organizational goals. There are a variety of meaningful ways multinational organizations can adapt to the cultures they serve.

Understanding, adhering to, and respecting local rules, regulations, and laws is of the utmost

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importance (Vance & Paik, 2011). Additionally, acknowledging and respecting local political systems and processes as well as being mindful of local customs and cultures is vital. Finally, marketing themes should recognize and show consideration for local values, and company policies and practices must always respect the local cultures and customs in the markets where an organization has a presence.

These limitations and the results of the study suggest areas for future research. It would be interesting to replicate these results with a more traditional sample (i.e., a university-based study). Replication could also be conducted within industries and firms of various sizes.

Of greater interest to the researchers are the specific mechanisms whereby RL affects CA. Future studies that enhance the understanding and effective application of RL could explore factors that promote RL and dimensions of CA beyond the ones included in this study. Future studies could also expand the measures of organizational performance to include impacts on followers (e.g., job satisfaction, commitment, and motivation), innovation, quality, and the social and environmental performance of an organization. It is also important to explore the potential moderating effects of organizational characteristics (size, business strategy, and culture), industry structure (competitive intensity), and individual cultures on RL’s impact on CA and organizational performance. Case studies of select organizations, industries, and countries would be particularly insightful Conclusions Reflective leaders encourage their followers to learn from experience. This occurs through reflective learning. Leaders stimulate reflective learning by creating a safe environment that reduces or eliminates the threat associated with acknowledging failure and by promoting open communication. Leaders further encourage reflective learning by elucidating the connections between the performance of individual employees and the fulfillment of the organization’s goals and objectives, leading to increased sales and profits. The final condition for reflective learning is challenging the assumptions one’s behavior is based on. When followers challenge their own assumptions and feel safe discussing their past failures with one another and their leader, the result is the identification of adaptive models of behavior that improve individual and organizational performance (Mollick, 2012).

This research is significant because the theory of RL has not been empirically tested to date. This study advances the analysis of RL by developing and testing a causal model that demonstrates the effects of RL on important organizational outcomes and the meditational role of CA. This is a critical, necessary step for the future empirical analysis and testing of RL models and hypotheses. Furthermore, this study enhances the understanding of how RL impacts performance through RL’s effects on the ability of an organization to adapt its business policies and practices to local cultures.

This study provides insights and practical applications that are useful to both domestic and international leaders. This research is also significant for the future development of

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multinational leaders, academia, and educators due to its results about RL’s impact on organizational effectiveness. The results of this study contribute to the existing literature on RL, provide new research on the relationships between RL and CA, and demonstrate how RL may impact an organization’s business goals. Furthermore, as a result of this study, a RL instrument was developed (Appendix A).

This research on RL is relevant due to the current state of globalization and leading economic indicators that are reporting increased world convergence in the future. This research on the impact of RL is also relevant to all professionals who are seeking to increase their effectiveness and expand their comfort zones by working with others from different cultures.

The results propose that RL can be defined as creating an open and safe work environment that promotes trust, connects followers’ work to organizational goals and objectives, and encourages followers to challenge their assumptions by reflecting on past experiences. This research suggests that RL qualities may provide a catalyst for high-performance multinational organizations. With RL driving the actions of the multinational businesses, work performance, life experience, and professional growth may be enhanced for all of the members in an organization.

Author Biographies Patricia A. Castelli, Ph.D. is an associate professor of management at Lawrence Technological University’s College of Management. Her research interests include leadership development, global leadership, reflective leadership, and leadership motivational theories.

Thomas G. Marx, Ph.D. is a college professor at Lawrence Technological University’s College of Management. His research interests include global leadership, international business economics, and strategic business planning.

David O. Egleston, Ph.D. is an assistant professor at Lawrence Technological University’s College of Management. His research interests include human resource management, interrole conflict, work teams, and transformational leadership.

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Fisher-Yoshida, B. (2009). Coaching to transform perspective. In J. Mezirow, J. Taylor, & Associates (Eds.), Transformative learning in practice; insights from community, workplace, and higher education (pp. 148-159). San Francisco, CA: Jossey-Bass.

Fisher-Yoshida, B., & Geller, K. (2008). Developing transnational leaders: Five paradoxes for success. Industrial and Commercial Training, 40(1), 42-50.

Fisher-Yoshida, B., & Geller, K. (2009). Transnational leadership development: Preparing the next generation for the borderless business world. New York, NY: AMACOM publishing.

Fritz, M. S., & MacKinnon, D. P. (2007). Required sample size to detect the mediated effect.

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Gurdjian, P., Halbeisen, T., & Lane, K. (2014). Why leadership-development programs fail: Sidestepping four common mistakes can help companies develop stronger and more capable leaders, save time and money, and boost morale. McKinsey Quarterly. Retrieved from http://www.mckinsey.com/insights/leading_in_the_21st_century/why_leadershipdevelopment_programs_fail Hackman, J. R., & Oldham, G. R. (1976). Motivation through the design of work: Test of a theory. Organizational Behavior and Human Performance, 16, 250-279.

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Hinkin, T. R., & Schriesheim, C. A. (1989). Development and application of new scales to measure the French and Raven (1959) bases of social power. Journal of Applied Psychology, 74, 561-567.

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Journal of Scholastic Inquiry: Business

Openness

Purpose

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Meaning

Leader provides Interest and relevance Critical safe environment; in job tasks thinking and atmosphere of trust create awareness: reflection promotes double-loop â&#x20AC;&#x153;How does my work learning impact the organization?â&#x20AC;?

Challenging Beliefs

Realizing alternative approaches/views; changing behaviors

Ongoing Dialogue and Feedback

Figure 1. An Integrated Model for Promoting Reflective Leadership in Multinational Organizations (Castelli, 2012).

Journal of Scholastic Inquiry: Business

Reflective Leadership

Volume 2, Page 68

Cultural Adaptation

Performance 1. Sales

1. Openness

1. Market 2. Profits

2. Purpose

Policies

3. Beliefs

2. Customs

3. Meeting Goals

(IV)

Figure 2. Conceptual Model for Measuring Reflective Leadership

Table 1 Means, Standard Deviations, and Correlations Between Study Variables __________________________________________________________________________ Variable Safe and Open Environment Challenging Assumptions Purpose Cultural Adaptability Goals and Objectives Sales Profits

M

SD

7.82

4.70

4.61 10.21 7.79 1.83 0.25 0.17

3.98 3.61 3.92 0.71 1.16 1.14

Safe

ChA

P

CA

Goals

Sales

0.62 0.52 0.70 0.35 0.30 0.33

0.35 0.66 0.31 0.26 0.29

0.51 0.31 0.30 0.29

0.37 0.24 0.27

0.40 0.44

0.80

__________________________________________________________________________ Note: r = 0.24, p = 0.00

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Table 2 Z-scores and P-values of Tests of Mediation Using the Sobel Test ___________________________________________________________________________ Dependent Variable Goals and Objectives Independent Variable Safe and Open Environment Challenging Assumptions Purpose

Sales

Profits

Z

P

Z

P

Z

P

20.17

0.00

3.42

0.00

4.72

0.00

18.30 12.90

0.00 0.00

7.25 6.78

0.00 0.00

7.49 8.73

0.00 0.00

Journal of Scholastic Inquiry: Business

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Appendix A The CME Reflective Leadership Instrument Open and Safe Work Environment My leader makes me feel safe discussing my work experiences.

My leader provides a safe environment where open communication is encouraged.

My leader makes me feel safe expressing my views.

My leader provides an environment where open communications are valued.

My leader makes followers feel safe sharing what they learn from their experiences.

Purpose My leader connects my work to the organization’s mission.

My leader explains how followers’ tasks contribute to the goals of the organization.

My leader relates followers’ responsibilities to the organization’s goals and objectives.

My leader describes how followers’ responsibilities are tied to organizational objectives.

My leader explains the purpose of followers’ tasks and responsibilities.

Challenging Beliefs and Assumptions My leader asks followers to discuss how their assumptions, values and beliefs were affected by their experiences.

My leader encourages followers to ask how their beliefs could affect their performance.

My leader asks followers to discuss how their experiences with their assignments affected their assumptions, values and/or beliefs.

My leader asks followers to discuss how their assumptions, values and/or beliefs affect their work.

My leader asks followers to discuss their assumptions, values and/or beliefs at the beginning of their assignments.

Cultural Adaptability Our company policies and practices respect the local culture and customs in the markets where we have a presence.

Local political systems and processes are acknowledged and respected.

Our marketing/advertising themes recognize and respect local values.

Local rules, regulations and laws are acknowledged and respected.

Our company is aware of and respectful of local customs and culture.

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NOTES

Journal of Scholastic Inquiry: Business

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Who And What Are Important In The Mission Statements of Large Corporations?

Darwin L. King, St. Bonaventure University Carl J. Case, St. Bonaventure University Kathleen M. Premo, St. Bonaventure University Using Employee Opinions to Better Understand Mergers and Acquisitions Emily L. Hause, St. Maryâ&#x20AC;&#x2122;s College of California Scott M. Brooks, OrgVitality Jack W. Wiley, Jack Wiley Consulting, LLC A Framework for Specifying Business Models J. Bradley Barbeau, CSU Monterey Bay School of Business The Status of Electronic Social Networking Implementation at the Fortune 500 Firms Carl J. Case, St. Bonaventure University Darwin L. King, St. Bonaventure University Cultural Adaptation Mediates the Relationship Between Reflective Leadership and Organizational Performance for Multinational Organizations Patricia A. Castelli, Lawrence Technological University Thomas G. Marx, Lawrence Technological University David O. Egleston, Lawrence Technological University

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ISSN: 2330-6807 (print) ISSN: 2330-6815 (online)