Management & Change The Journal of the IILM Institute for Higher Education (Listed in Cabell’s Directory of Publishing Opportunities, Texas, USA) EDITORIAL ADVISORY BOARD Ahmed, Abad Ex-Pro-Vice Chancellor, University of Delhi, Delhi. Balachandran, V. Bala Distinguished Professor, J.K. Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois. Baxi, Chetan Adjunct Professor, IILM Institute for Higher Education & Former Dean, Research, Management Development Institute, Gurgaon. Bhattacharyya, B. Distinguished Professor and Vice-Chairman, IILM Institute for Higher Education, New Delhi & Former Dean, Indian Institute of Foreign Trade, New Delhi. Chatterjee, N.R. Dean Emeritus, IILM Institute for Higher Education, New Delhi. Coree, Joseph Professor, Robert Morris College, Pittsburgh, USA. Ghosh, Avijit Professor, Stern School of Business, New York University, USA. Jain, P.K. Professor of Finance, Dept. of Management Studies, Indian Institute of Technology, New Delhi & Former President, GIFT Society. Joshi, J. Rama Professor, Shri Ram Centre for Industrial Relations, New Delhi. Khan, M.Y. Ex-Professor, Dept. of Financial Studies, University of Delhi, Delhi. Mamkoottam, K. Professor, Faculty of Management Studies, University of Delhi, Delhi. Mukherji, Badal Professor, TERI University& Former Director, Delhi School of Economics, Delhi. Nair, N.K. Professor, Shri Ram Centre for Industrial Relations, Human Resources, Economic & Social Development, New Delhi. Panchmukhi, V.R. Ex-Chairman, Indian Council of Social Science Research. Pandey, I.M. Chairman, Academic Council, Pearl School of Business, Sector 32 Gurgaon. Pandit, V.N. Ex-Professor, Delhi School of Economics, University of Delhi, Delhi. Sheth, N.R. Ex-Director, Indian Institute of Management, Ahmedabad. Singh, J.D. Director, Jaipuria Institute of Management, Noida. Szell, Gyorgy Professor, University of Osnabruck, Germany. Vrat, Prem Professor Emeritus, MDI, Gurgaon. Former Vice-Chancellor, U.P. Technical University, Lucknow and Former Director, IIT Roorkee. Manuscript Submission Contributions are invited in diverse areas of management from interested authors. In each issue of the journal it is normally planned to include research papers, case studies, original conceptual papers/perspectives, short communications, management cases and book reviews. For contributors guidelines, authors may refer to the inside back cover. Enquiries should be electronically made to the Editor, Management & Change, IILM Institute for Higher Education at e-mail management.change@iilm.edu. Frequency and Subscriptions Management & Change is published bi-annually i.e. twice a year (No.1: Summer; No.2: Winter). Annual subscription rates are as follows: Within India – Institutional : Rs. 750; Individual : Rs. 500 Overseas – Asian Countries : $50; Other Countries : $150 (Air mail) Demand Draft should be drawn in favour of IILM Institute for Higher Education, payable at New Delhi. Advertisement rates full page Rs. 20,000 ; half page Rs. 10,000. Editorial/Subscription Information For editorial queries, please write to the Editor, Management & Change, IILM Institute for Higher Education, Tel: 91-11-30934336, Fax: 91-11-30934339, E-mail: management.change@iilm.edu. For subscription related queries please contact Editorial Coordinator (deepa.khanna@iilm.edu). Order for print copies to be made at management.change@iilm.edu. Online version for 2011 and later issues is being made available through IILM website on free downloadable basis. Copyright @ 2010 IILM Institute for HIgher Education. All Rights Reserved.
Chronology of Editorial Team of ‘Management & Change’
Volume & Issue (Year)
Editor
Associate Editor
Vol. 1 & No. 1 (1997) Vol. 1 & No. 2 (1997) Vol. 2 & No. 1 (1998)
Prof. Debi S. Saini Prof. Debi S. Saini Prof. Debi S. Saini
Sami A. Khan Sami A. Khan Sami A. Khan
Vol. 2 & No. 2 (1998)
Prof. Debi S. Saini
Sami A. Khan
Vol. 3 & No. 1 (1999)
Prof. Debi S. Saini
Sami A. Khan
Vol. 3 & No. 2 (1999)
Prof. Debi S. Saini
Sami A. Khan
Vol. 4 & No. 1 (2000)
Prof. Gautam Bhattacharya
Sami A. Khan
Vol. 4 & No. 2 (2000)
Prof. Gautam Bhattacharya Prof. Gautam Bhattacharya Prof. Gautam Bhattacharya Prof. Gautam Bhattacharya Prof. Gautam Bhattacharya Dr. Irfan A. Rizvi (Chief Editor) Dr. Irfan A. Rizvi (Chief Editor) Dr. Irfan A. Rizvi (Chief Editor) Dr. K.M. Mital Dr. K.M. Mital Dr. K.M. Mital Dr. K.M. Mital Dr. K.M. Mital Dr. K.M. Mital Dr. K.M. Mital Dr. K.M. Mital Dr. K.M. Mital Dr. K.M Mital Dr. K.M Mital
Vol. 5 & No.1 (2001) Vol. 5 & No. 2 (2001) Vol. 6 & No. 1 (2002) Vol. 6 & No. 2 (2002) Vol. 7 & No. 1 (2003) Vol. 7 & No. 2 (2003) Vol. 8 No. 1 & 2 (2004) Vol. Vol. Vol. Vol. Vol. Vol. Vol. Vol. Vol. Vol. Vol.
9 & No. 1 9 & No. 2 10 & No. 1 10 & No. 2 11 & No. 1 11 & No. 2 12 & No. 1 12 & No. 2 13 & No. 1 13 & No. 2 14 & No. 1
(2005) (2005) (2006) (2006) (2007) (2007) (2008) (2008) (2009) (2009) (2010)
Vol. 14 & No. 2 (2010)
Dr. K.M Mital
Editorial Coordinator Zafar H. Anjum Zafar H. Anjum Zafar H. Anjum Lincy Sebastian Yusuf Siddiqui Zafar H. Anjum Lincy Sebastian Yusuf Siddiqui Zafar H. Anjum Lincy Sebastian Yusuf Siddiqui Zafar H. Anjum Lincy Sebastian Yusuf Siddiqui Zafar H. Anjum Lincy Sebastian Yusuf Siddiqui
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Yusuf Siddiqui
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Yusuf Siddiqui
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Yusuf Siddiqui
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Yusuf Siddiqui
Prof. M.K. Moitra (Editor) Prof. M.K. Moitra (Editor)
Yusuf Siddiqui
Dr. Siri D. Vivek Dr. Rajesh Pilania Dr. Rajesh Pilania -
Johnson E.P Johnson E.P Johnson E.P Johnson E.P Johnson E.P Johnson E.P Johnson E.P Johnson E.P Johnson E.P Arun Thomas Arun Thomas Ms. Deepa Khanna Ms. Sarla Rawat Ms. Deepa Khanna Ms. Sarla Rawat
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Yusuf Siddiqui Yusuf Siddiqui
ACKNOWLEDGEMENT TO REFEREES Following management professionals acted as referees for contributions made for Management & Change, Vol. 14 No. 1 & 2 (2010). Management & Change acknowledges their valuable comments and suggestions for improving papers included in the following two issues.
Management & Change
Management & Change, Vol. 14 No. 1
VOLUME 14
Dr. S.K. Jain
MANGEMENT CASES
Dr. Raj Agarwal
Dr. Tripti Desai
Dr. Sujit Sen Gupta
Dr. Mahim Sagar
Dr. P. Malarvizhi
Professor & Head, Department of Management Studies, Indian Institute of Technology Delhi, New Delhi 110016. Director, CME, All India Management Association (AIMA), Management House, 14, Lodhi Institutional Area, New Delhi 110003. Professor, OB & HR, IILM Institute for Higher Education, 3 Lodhi Institutional Area, New Delhi 110003. Professor, Marketing Area, IILM Institute for Higher Education, 3 Lodhi Institutional Area, New Delhi 110003. Assistant Professor, Department of Management Studies, Indian Institute of Technology Delhi, New Delhi 110016. Professor, Finance, IILM Institute for Higher Education, 3 Lodhi Institutional Area, New Delhi 110 003.
Management & Change, Vol. 14 No. 2 Prof. Kailash Tuli
Professor, OB & HR, IILM Institute for Higher Education, 3 Lodhi Institutional Area, New Delhi 110003. Maj. Gen. (Dr.) Ashok Mehta Professor, IILM Institute for Higher Education, 3 Lodhi Institutional Area, New Delhi 110003. Dr. Raj Agarwal Director-CME, All India Management Association, Management House, 14, Lodhi Institutional Area, New Delhi 110003. Dr. S.S. Yadav Professor & Former Head, Department of Management Studies, Indian Institute of Technology Delhi, New Delhi 110016. Dr. Sushil Professor of Strategic, Flexible Systems & Technology Management, Department of Management Studies, Indian Institute of Technology Delhi, New Delhi 110016. Dr. Mahim Sagar Assistant Professor, Department of Management Studies, Indian Institute of Technology Delhi, New Delhi 110016.
NUMBER 2
2010
Sustainable Business Strategy or Eyewash for Unethical Business Practices: A Study of the CSR Initiatives of Coca Cola India
Anu Singh Lather Sona Vikas
1
Case Analysis I
Kailash Tuli
17
Case Analysis II
Sangeeta Yadav
21
A Study of Granger Causality between Spot and Futures Prices for Selected Companies in India
Sathya Swaroop Debasish
29
Relationship Between Learning Organization and Organizational Effectiveness: An Empirical Study of Few Selected Information Technology (IT) Firms In India
Luxmi Gunmala Suri
49
Enterprise Performance Management Maturity: A Conceptual Model and Research Issues
Mohd. Akhtar Sushil R. K. Mittal
79
Communication Strategies for Job Satisfaction and Employee Engagement in Indian IT Sector
Neera Jain Puneet Malhotra
97
Variation in the Quality of Medical Services: An Empirical Investigation
M. A. Bhat M. Y. Malik
127
Correlates of Work-Family Conflict among Dual Career Women
Abdul Gani Roshan Ara
145
The Impact of Economic Value Added (EVA) on Shareholders’ Value: An Empirical Evaluation
N. Sakthivel
167
Significance of Technology Management & Core Competence for Competitive Sustenance
Anjana Kak
209
An Empirical Study of E-Commerce Practices of Indian Organizations
Rajendra Pr. Sharma Gajendra Chittora Karunesh Saxena
231
Extrapolating Group Decision Making: Means to Overcome Group Think
Anjali Ganesh
241
ARTICLES
Impact of the Global Financial Meltdown on the Treasury Income of Indian Public Sector Banks
Suresh Chandra Bihari 259 Amrita Basu
Contributors Prof. Anu Singh Lather
Dean, University School of Management Studies, Guru Gobind Singh Indraprastha University, Delhi, Mob: 9871433504; Tel : 011-23900253(O), E-mail: anusinghlather@yahoo.com
Sona Vikas
Research Associate, University School of Management Studies Guru Gobind Singh Indraprastha University, Delhi, Mob: 9810669548; Tel: 011-23900255 (O) ; E-mail: sonavikas9@gmail.com
Dr. Sathya Swaroop Debasish
Reader, P.G. Dept. of Business Administration, Utkal University, Vani Vihar, Bhubaneshwar 4 , Orissa; Mob: 09437284361
Dr. Luxmi
Sr. Lecturer, University Business School, Panjab University, Chandigarh, Mob: 09463888038; E-mail :luxmimalodia@yahoo.com
Gunmala Suri
Reader, University Business School, Panjab University, Chandigarh Tel: 0172 2534705(O); 0172 6663315 (R.); Mob: 09463966834 E-mail: g_suri@yahoo.com, gunmalas@gmail.com
Mohd Akhtar
Oil and Natural Gas Corp. Ltd. (ONGC), Delhi
Dr. Sushil
Professor of Strategic and Flexibility Management, DMS, IIT, Delhi.
Dr. R.K. Mittal
Vice-Chancellor, Teerthanker Mahaveer University (TMU), Moradabad;E-mail: vicechancellor@tmu.ac.in
Dr. Neera Jain
Assistant Professor, Business Communication, MDI, Gurgaon E-mail: njain@mdi.ac.in
Aruna Koneru, English Language Skill, reviewed by Pallavi Ghosh.
Puneet Malhotra
PGDBM (final year), MDI, Gurgaon.
Subesh Das, Managing People at Work: Employment Relations in Globalizing India, reviewed by Swati Sinha.
Dr. Mushtaq Ahmad Bhat
Kenneth M. York, Applied Human Resource Management: Strategic Issues and Experiential Exercises, reviewed by Vini Kirtani.
Associate Professor, Department of Business and Financial Studies, University of Kashmir, Srinagar 190006.
Dr. Mohd.Yaseen Malik
Lecturer, Islamia College of Science and Commerce, Srinagar, Kashmir.
Dr. Abdul Gani
Central University of Kashmir, 101, Baghi-Hyder, Hyderpora, Srinagar 190005 (J&K) Tel: 01942440959 (O); 0194-2442068 (R): Fax: 2440344, Mob: 9419021397; E-mail: drganird@yahoo.com
BOOK REVIEWS Morgen Witzel, Tata: The Evolution of a Corporate Brand (Foreword by Prof. Ram Charan), reviewed by B.Bhattacharyya. Sharad Sarin, Strategic Brand Management for B2B Markets: A Road Map for Organizational Transformation; and Pingali Venugopal, Marketing Management: A Decision-making Approach, reviewed by Sapna Popli. David W. Cravens & Nigel F. Piercy, Strategic Marketing (Eighth Edition), reviewed by Sujit Sengupta & Sonia Takkar. T N Srivastava & Shailaja Rego, Business Research Methodology, reviewed by Shayamanuja Das. Rajesh Ray, Enterprise Resource Planning; and Ajeet Khurana, Information Technology, reviewed by Vandana Srivastava. D.N. Dwivedi, Macroeconomics: Theory and Policy, reviewed by Sangeeta Yadav. Prasanna Chandra, Fundamentals of Financial Management (Fifth Edition), reviewed by Girish Ahuja. Y. V. Reddy, India and the Global Financial Crisis: Managing Money and Finance, reviewed by Shiva Kumar Srinivasan. B.L. Agarwal, Theory and Analysis of Experimental Designs (First Edition), reviewed by Sumit Rastogi. Jayavenugopal, Can We Tackle? An Insight into Learner’s Life through Teacher’s Perspective by Educationist and Social Scientist, reviewed by Sambamuthy Padmavathi.
Jasmine Kaur, IFRS: A Practical Approach; Sunil Sharma, Supply Chain Management: Concepts, Practices, and Implementation; and William B. Werther & Jr. David Chandler, Strategic Corporate Social Responsibility: Stakeholders in a Global Environment (Second Edition), reviewed by K.M.Mital.
From the Editor’s Desk Roshan Ara
Education Department, Govt. of Jammu & Kashmir, Srinagar.
N. Sakthivel
Lecturer, PG & Research Dept. of Commerce, Gobi Arts & Science College, Gobichettipalayam, Erode, TN 638453; Mob: 09786677899, 09698626997; E-mail : sakthivel_gasc@rediffmail.com, sakthivelgasc@gmail.com
Dr. Anjana Kak
Assistant Professor, NIT, Naseem Bagh, Srinagar.
Dr. Rajendra Prasad Sharma
Associate Professor & Programme Director, Indian Institute of Foreign Trade, J1/14, Block EP & GP, Sector V, Salt Lake City, Kolkata 700 091,Tel: 033 23572853-54 Ext. 131; Mob: 09903522627
Dr. Gajendra Chittora
Management Consultant, Industrial Product Organization, E-mail: gchittora72@yahoo.co.in
Dr. Karunesh Saxena
Director, Faculty of Management Studies, MLSU, Udaipur, E-mail: ksfmsudr@gmail.com
Dr. Anjali Ganesh
Professor, Department of Business Administration, St Joseph Engineering College, Vamanjoor, Mangalore 575028.
Dr. Suresh Chandra Bihari
Professor (Finance ), IBS, Hyderabad, a constituent of IFHE(Deemed -to-be-University), Mob: 9010620500/9437107358; E-mail: scbihari@gmail.com/ scbihari@yahoo.co.in
Amrita Basu
PGDBM, IBS, Hyderabad.
UNIQUE IDENTITY, HEALTH INSURANCE AND MEDICAL INCLUSION
Given the stresses and increasing unpredictability of modern life, health is one of the biggest challenges mankind faces today. Aadhaar numbers in future can play vital role in making health services available from both public and private service providers at low cost and achieving health security for all. UID numbers can improve access, reduce response time, lower medical cost and enhance capacity building of enlisted medical practitioners, leading ultimately towards medical inclusion (a new term coined by the Editor similar to financial inclusion for availability of financial services everywhere). Governments and health service providers today have little control over quality of health service delivery at PHCs (Primary Health Centers), CHCs (Community Health Centers), and district lead hospitals. UID numbers can go a long way in enhancing effective utilization of medical resources located in rural, sub-urban and urban areas.
WHAT IS SOFT IS STRONG
UID numbers will facilitate a well functioning social safety net for citizens by unifying all subsidies into cash-based transfers (The Economic Times, March 1, 2011). GOI is making it compulsory to transfer all cash based transfers to the MGNREGA beneficiaries through Aadhaar numbers only. The finance ministry has recently recognized Aadhaar as an officially valid document for opening bank accounts. Aadhaar numbers may offer a better alternative to promote health security for our citizens than several other alternatives that are being explored. UIDAI (Unique Identification Authority of India) aim that welfare measures desired for poor ultimately reach them. With Aadhar numbers, it could be possible to pay welfare funds including those for microinsurance based GOI health insurance schemes by making beneficiaries directly access their bank accounts (The Times of India, Budgeting Reform: Unique Identification Cannot be put off (Editorial), February 10, 2011).
Water is fluid, soft and yielding. But water will wear away rock, which is rigid and cannot yield. As a rule, whatever is fluid, soft, and yielding will overcome whatever is rigid and hard. This is another paradox – what is soft is strong. Water flows humbly to the lowest level. Nothing is weaker than water, yet for overcoming what is hard and strong, nothing surpasses it. - Lao-Tzu, Taoist philosopher
Unique identity and healthcare: A 12-digit exclusive unique identity number for country’s residents duly linked with their demographic and biometric information, Aadhaar, is being issued by the UIDAI (Unique Identity Authority of India). It is akin to the social security number available to residents in the US and the welfare number in Europe, which can make both governments and markets function better. In a country where fake and duplicate identities are not uncommon leading to funds diversion and leakages ix
in government programmes, Aadhaar can go a long way in minimizing such occurrences. In fact, with little ingenuity, Aadhaar offers endless opportunity for improving the delivery of public services (The Economic Times, November 28, 2010). Central advantage of Aadhaar numbers is universal application and eliminate multiplicity of beneficiaries in schemes. Aadhaar will help the government to save enormous costs in implementing welfare schemes while improving transparency and accountability in governance. Once the individuals have unique Aadhaar numbers, unscrupulous gains derivable from fake identities would be easily detected and eliminated. This would give governments chance to streamline their social programmes such as National Rural Health Mission, and target them more effectively for benefitting people (Vijay Kelkar, Solving the Identity Problem, The Times of India, November 27, 2010).
though it may be issued by any one state. The Authority is planning to change its name as National Identification Authority of India (NIDAI) to convey the idea of national portability. UID is however not necessarily a citizenship or nationality number despite the fact that very large number of citizens would eventually be holding this number. The authorities who provide nationality document for citizenship will continue to provide the facility as before. UID can help address the causes that lie at the root of poverty and exclusion, such as employment and health security, and address the basic challenges surrounding what many of us refer to as the ‘last mile’. The Aadhaar number also enables the poor to fulfill the Know Your Customer (KYC) norms that, today, often limit them from using basic services – proof of identity and proof of address requirements that they must fulfill in order to use services such as banking and healthcare (Kelkar, 2010).
IT-enabled medical inclusion would be based on effective health information in place enabling patient medical history to be accessed anytime from anywhere by a doctor, paramedic, hospital, patients, and even by organizations which have stakes in individuals in knowing their medical histories. Aadhaar numbers are best suited for collecting and processing biomedical and other related information and monitoring medical costs. Electronic connectivity via Internet and other networks could facilitate healthcare provider exchange patient health information. Similarly, within a hospital via Intranet a hospital medical information system (HMIS) would connect all departments seamlessly.
In India till February 2011 a total of 20 lakh UID numbers were already issued with plan to enhance enrollment rate from the existing 1 lakh per day to 10 lakh per day by October 2011 in order to achieve the target of 60 crore UID numbers by 2014. In order to speed up the enrollment process, GOI has enhanced the cap at Rs. 50 to be paid per enrollment for which the state governments would be registrars in their respective states (Economic Times, January 13, 2011). However, the greater challenge before the UIDAI is not just to roll out 10 lakh or more Aadhaar numbers per day, but to utilize the vast identity data base thus created for executing different welfare schemes and improving service delivery, accountability and transparency in governance.
UID (unique identification) numbers can play increasing role in direct healthcare, health information system, and emerging fields such as Electronic Patient Record, Electronic Health Record, Telemedicine, etc. In a country where the majority of the population lives in rural areas, tools like telemedicine can contribute substantially in bridging the gap between the demand and supply of healthcare needs particularly in inaccessible areas. Using the technology, patients can be examined, monitored and treated, without face to face contact with the doctor. The Fortis Foundation and Khushii (NGO) partnership at Neemrana in Rajasthan is one such successful initiative that has been received with considerable success (Singh, Malvinder Mohan, Healthcare Needs Radical Thinking, The Economic Times, February 23, 2007).
Health insurance issues in India: Saving money by individuals is generally regarded as best guarantee for future risks at all levels. Insurance by paying premiums to insurance companies is a better option than building money reserve for future contingencies but beset with more detailed planning and options offered by the insurance company. In India, in earlier days healthcare expenditure was met by families from their out-of-pocket expenses only but it is becoming increasingly burdensome with rising medical costs. Unlike saving and credit, insurance provides a solution to risks posed by health emergencies in which case it becomes health insurance. However, guidelines and conditions for health insurance pose some intriguing features e.g. a health insurance policy does not permit claims to be made for a disease, which has occurred once to a policy holder.
UID number makes identity portable in the same manner a mobile phone makes communication portable. UID number is a nationally verifiable identity infrastructure that carries a national portability as it offers countrywide validity Management & Change, Volume 14, Numberx2 (2010)
Medical insurance used to be offered by public sector companies before the advent of large scale privatization. Later private companies started xi & Change, Volume 14, Number 2 (2010) Management
offering it when the sector was opened up. This was followed by the advent of purely healthcare companies. Health insurance industry in India is having two class of players - public and private. Prominent public players are National Insurance, New India Assurance, Oriental Insurance, National Insurance Company, etc; while some prominent private players are - ICICI Lombard, Bajaj Allianz, IFFCO Tokio, and Reliance General. This apart, there are three exclusive health insurance companies as well – Star Health and Allied Insurance, Apollo Munich and Max Bupa. Private players till 2010 held a 42 per cent market share with remaining by public sector insurance firms (Sengupta, D., Health Cover is Proving Too Costly for Insurers, The Economic Times, May 28, 2010).. The main difficulty for changeover to a new insurer lies in the preexisting disease (PED) cover offered by health insurance. In quite a number of cases normal lead time for settling claims for PEDs is 3-4 years. A PED is defined as a sickness or condition that the policyholder was suffering from within 48 months prior to buying a health policy. The period during which the insurer will exclude coverage to such illnesses – typically around 3-4 years – is referred to as the waiting period. In the absence of portability option by the customers, some insures tend to act arbitrary in hiking premium rates assuming that policyholders anyway would stick with them (Kulkarni, Preeti, Get Most Out of Health Cover Portability, The Economic Times, February 23, 2011). As per prevalent rules claims such as those for bypass surgeries are invariably rejected if they occur in the first year of the cover on the ground that such medical conditions do not develop overnight. Hitherto, in the event of changing insurer, the individuals are required to go through the waiting period all over again. Insurers pay such claims only when an individual has spent minimum prescribed years after insurance before submitting any claim.
health insurance varies between 60 and 65. A person with age greater than 65 may not find easy to be accepted by other company under portability option. Risk profile of an individual refers to the probability of a person falling sick and making a claim. The poorer the risk profile, the higher the probability of claims arising from an individual; and accordingly to counter the premium charged should also be higher. Concerns are voiced that senior citizens in age higher than 65, who may be suffering from pre-existing ailments, may not be the real beneficiary of the portability option, as quite often their request for change may not be accepted by the new insurer (Sengupta, 2011). Analysis of claim rates: During 2009-10, all the general insurers put together sold 68 lakh health covers, which covered 5.5 crore individuals. In 2008-09 the claims ratio was 103 per cent down from 105 per cent a year earlier. From 2009 onwards health insurance industry started introducing several restrictions such as sub-limits on room rents, different ailments and doctors’ fees, which all reduced claims ratio below 100 in 2009-10 (Sengupta, 2011). As per the data analyzed by the IRDA (Insurance Regulation and Development Authority) for 2008-09 for medical insurance claims in India, the individual age-group 41-60 accounted for 31 per cent of the claims while it resulted in 35 per cent of the total cash outgo. The age-group 61-65 accounted for 8 per cent of the claims while it resulted in 10 per cent of the cash outgo. The age-group 66-70 accounted for 7 per cent of the claims paid. On overall terms, health insurance industry based on IRDA study may not be very profitable based on 2008-09 figures that if the premium income was Rs. 100 for the year, outgo as a result of the claims payment was Rs. 103 i.e. a loss of Rs. 3 (Sengupta, 2010).
A waiting period is the time generally between 3 to 4 years, only after which general existing ailments get covered, provided there is no recurrence of the ailment during the waiting period. Diseases that exist in a person at the time of buying a policy is referred to as pre-existing. Not all companies have all types of health products. For example, a particular company may not have a floater policy - a cover that provides a fixed sum assured for a family (Sengupta, 2011).
The largest claims paid in cash for ailments where patients stayed less than a day were linked to eye problems, followed by circulatory ailments, neoplasm, digestive problems, injury and urology issues. In India, it is infectious diseases (12 per cent) followed by digestive and urology-related ailments that resulted in the largest number of claims for insurers. However, the largest cash outflows for insurers resulted from circulation-related problems, including heart blockages, blood vessel-related issues, followed by digestive ailments and urology problems. As for hospitalization, about 30 per cent of the patients stay in hospitals for less than a day while another 21 per cent stay for more than 10 days. The remaining stay between one to ten days.
Health covers are valid for a year. ‘Age of entry’ refers to the age of an employee at which he buys a cover. There are some companies which offer health cover till the age 80, though for most companies entry age for
Portability of insurance policies: Portability offers flexibility to policyholders for changing the insurance company without losing accumulated track record of claims free period with the outgoing insurer. With portability, if under a
Management & Change, Volume 14, Numberxii 2 (2010)
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previous policy a medical condition is excluded from coverage for two years and at the end of the second year the policyholder decides to switch, he will not have to go though the same waiting period again. Furthermore, if under the new plan the waiting period for the same condition is three years, the policy should exempt from the condition of one extra year with the new insurer. Portability will ensure greater competition among insurers which will benefit customers in the long run. Following portability, insurers shall be constrained to improve their service level due to competition which will benefit customers in the long run. With the portability option provided, the policyholders will not lose continuity benefits in the event of change of insurer. The new insurer will have to exclude the years completed under the previous policy while calculating the waiting period. With the portability option provided, intense competition is likely to reduce the scope for such arbitrary moves. This may compel companies to offer better service, products and claims experience (Kulkarni, 2011). IRDA (Insurance Regulatory and Development Authority) has recently issued guidelines on portability of health insurance that will be applicable from July 1, 2011 for policies offered by both life and general insurance companies. In the absence of portability option, policy holders are often constrained to stick to their existing insurers despite poor service for the fear of having to go though the waiting period all over again. Individual will however have to accept the terms and condition of the health policy of the new company (Kulkarni, 2011). Accordingly, all health insurers have been advised by the IRDA to inform policyholders that all health insurance policies are portable however but those desirous of change should initiate timely before the renewable date. As 15-days period is prescribed for processing the portability request, the application should be made around one to two months prior to the expiry of the existing policy (Kulkarni, 2011). The success of portability shall depend on many factors including creation of a shared database by which an insurance company could find out past track record of a person with the previous insurer. The IRDA has advised insurance companies to share the claim details of the policies with the renewing company within seven working days in the event of policyholder opting for portability. IRDA guidelines also provide other continuity benefits like no-claim xiv Management & Change, Volume 14, Number 2 (2010)
bonuses and free medical check-ups. As per the IRDA guidelines allowing portability, credit in terms of waiting period would be limited to the sum assured including bonus under the previous policy. The IRDA has put the onus on the new insurer for continuing the cover. In the event of policy lapsing into discontinuity following delay by the insurer, the insurer shall be bound to continue coverage (The Times of India, Health Cover Portability Okayed, February 11, 2011. Health Insurance and HIV/AIDS: India with an HIV prevalence rate of 0.31 per cent is home to the third largest number of people living with HIV/ AIDS in the world – 23.9 lakh. Currently, HIV is excluded from all insurance policies available in the country, which is planned to be extended to people living with HIV (PLHIV). HIV/AIDS which was earlier regarded as an ‘incurable disease’ is now transformed into a ‘manageable health problem’ and could be covered in health insurance. With timely initiation of ART (Anti-Retroviral Therapy), PLHIV may live a normal life up to 20 more years. (Sinha, Kounteya, HIV may get Medical Insurance soon, The Times of India, February 2, 2011). In India, at present only Star Health and Allied Insurance has an insurance policy for PLHIVs but in vogue only in four states - Karnataka, Maharashtra, AP and Tamil Nadu. As of beginning of 2011, more than 7,000 PLHIVs have subscribed to this insurance, which provides a health cover of Rs. 30,000 with an yearly premium of Rs. 1511. Currently the financial burden for treatment and care is shared by the NACO (National Aids Control Organization) and PLHIVs. While the NACO pays for ART, PLHIVs suffer economic hardships on account of travel, nutrition and loss of wages. HIV has been taken out from the exclusion list making it possible for poor PLHIVs to be covered under health insurance, which can make them entitled to one time hospitalization for nearly 700 in-patient procedures with costs up to Rs.30,000 by paying a minimum registration fee of Rs. 30 per annum. Companies interested to spend on healthcare under CSR need to realize that covering HIV patients with a medical policy is no more a loss making proposition (Sinha, 2011). Microinsurance and healthcare: Several state governments and private entities in India are experimenting with microinsurance models for healthcare for weaker sections. Due to less margins involved some innovations are needed to make microinsurance suited for poor. Microinsurance models are more when such schemes are based on public and private participation and cooperation (Singh, 2007). As per one suggestion made in past, GOI xv & Change, Volume 14, Number 2 (2010) Management
should sets aside, say, a sum of 25 per cent of its total healthcare outlay on part financing of microinsurance health schemes as part of the NRHM (National Rural Health Mission). Thus, if the healthcare outlay is Rs. 20,000 crore, a sum of Rs. 5,000 should be earmarked for microinsurance schemes which may also provide facility to select a hospital of one’s choice. Respective state governments may come with a health policy based on service through micro-health insurance, specifying the list of approved hospitals, from which people may select hospital of their choice. From this sum of Rs. 5,000 crore the government can allocate Rs. 100 as annual premium paid per person, thereby bringing 50 crore people under health cover facility, enabling to invest as much as Rs. 1 lakh on an individual’s healthcare covered under medical insurance (Singh, 2007). In past in Andhra Pradesh, Dr. Y.S. Reddy, the late Chief Minister of A.P. had introduced an innovative health insurance scheme for women, Abhaya Hastham in partnership with Life Insurance Corporation of India, which following his untimely death was renamed as Dr. Y.S.R. Abhaya Hastham. The scheme involved a minimum contribution of Rs. 1 per day by an insured woman, entitling her to earn a pension sum between Rs. 500 to Rs. 2200 per month for part financing healthcare needs in old age (The Times of India, Keeping the A.P. Dream Run Going, May 20, 2010). Dr. Devi Shetty, a renowned physician of the country, who set up the Narayana Hrudalaya Hospital for meeting healthcare particularly tertiary care needs of the poor, also came out with the ‘Yeshasvini Cooperative Farmers Healthcare Scheme’ on June 1, 2003 for providing health cover to two million farmers in the Karnataka region. The scheme is essentially a self-financed scheme which is not tied with any insurance company. It offers a low priced product covering over 1600 defined surgical procedures to farmers and their family members. The scheme allows treatment to be received by farmers at 300 odd private and public hospitals within Karnataka. The premium is Rs. 120 per year for an adult or a child payable at a rate of Rs. 10 per month. Age of the insured persons range between 0 to 75 years. The policy is valid for one year and the beneficiaries need to pay the premium up-front. The premium is discounted by 15 per cent for families of five or more members. The premium is calculated in a manner that it is not affected by age, health status or other individual factors. This in theory should make the insurance more attractive to less healthy individuals making incidence of claim rates somewhat higher benefiting the sick and poor more. xvi Management & Change, Volume 14, Number 2 (2010)
The success of this scheme has inspired similar initiatives in other states. Yeshasvini is open to all cooperative society members who have been in the cooperative society for a minimum of six months. The payout is limited to Rs. 200,000 (approximately $4000) per year per individual and Rs. 100,000 (approximately $2000) per surgery per individual. This is enough for almost all surgical treatments at the network hospitals. In addition, the policy holders can receive free outpatient consultation at all participating hospitals, discounted tariffs for investigations and inpatient treatment for non-covered hospitalization. All procedures are limited to one incidence per year. The policy excludes coverage for prosthesis, implants, joint replacement surgeries, transplants, chemotherapy, cosmetic surgery, burn treatments, dental surgeries, and several other items. Normal delivery is covered. Children born prematurely or with low birth weight who require special care during the first seven days after birth are covered (Seiro, I.T.O. & Hisaki, Kono (2010), Why is the Take-up of Microinsurance so low? Evidence from a Health Insurance Scheme in India, The Developing Economies, Vol.48No.1, 2010, pp.74-101). Health insurance and medical inclusion: Government of India plans to come out with national medical insurance policy which will be both inclusive and universal furthering the cause of medical inclusion espoused vide this editorial. Government of India is seized of the issue aiming to bring healthcare within the reach of one and all and reduce out-of-pocket expenses for all citizens, build first class primary healthcare, and widen access to tertiary care through public facilities (The Hindu, Financial Health, Editorial, April 6, 2009, p.8). People desire to go for such policies when they are not covered for critical illnesses by their group insurance plans. Accordingly, those nearing retirement often need to have a personal health cover that helps them tide over the transition. As for self-employed and whose occupation is of seasonal nature, a standard health insurance or mediclaim is anyway necessary. Health premiums may cost 2-4 per cent of individual income for spending on health emergencies. (Narayanan, S., Give Your Financial Portfolio the Health Booster Shot, The Economic Times, February 23, 2011). Need for public investments in healthcare is considerable as this sector cannot be allowed to serve the interests of society’s affluent groups only and not leaving healthcare delivery at the mercy of market forces only and not addressing the interests of disadvantaged groups adequately. GOI recently launched the national health insurance scheme, Rashtriya Swasthya Bima Yojna (RSBY) for BPL families, which is to be rolled out in 366 districts in xvii & Change, Volume 14, Number 2 (2010) Management
29 states. As of December 23, 2010, a total of 22, 354, 462 smart cards have been issued across 260 districts in 27 states (Sinha, 2011). Even in the United States, the federal government had to intervene in order to bring large size of population within the ambit of government-funded health insurance cover for universalizing healthcare. While many organizations cover healthcare expenditure under postretirement medical schemes offered by large number of organizations, a growing numbers supplement it with extra health cover to meet the challenge of unforeseen health emergencies through medical insurance. The real objective of medical inclusion is to make health services available to all for which UID numbers are best suited for making ICT enabled health services accessible to all. The number brings with it powerful features, one important of which is the unique identity it provides to an individual applicable in any part of the country. In the absence of proper infrastructure for medical inclusion in place, people living in rural areas, urban slums and small towns, may find it difficult to access health facilities on uniform basis and affordable rates. Medical inclusion may help access health services from anywhere at affordable rates facilitated by Aadhaar. IILM Institute for Higher Education
K.M.Mital
INDIRA GANDHI ON MAHATMA GANDHI It will never be possible to evaluate how much India and he world owe to Mahatma Gandhi. He left his imprint on history as well as our hearts. He was a revolutionary and a saint, a visionary and the most practical of men. His insistence on applying the test of truth to every issue and situation enabled the shy lad to bring down the age of empires. His teaching of non-violence gives mankind the only hope of survival in the face of the nuclear menace. Mahatma Gandhi taught us to ask basic questions. At the same time, no human problem was too small for him. For centuries he will remain a guiding light for peoples and nations. - Indira Gandhi, Former Prime Minister of India Source:
Anand T. Hingorani & Ganga A. Hingorani, The Encyclopaedia of Gandhian Thoughts, AICC Publication, 24 Akbar Road, New Delhi 110 001, 1985.
xviii Management & Change, Volume 14, Number 2 (2010)
Management Case SUSTAINABLE BUSINESS STRATEGY OR EYEWASH FOR UNETHICAL BUSINESS PRACTICES: A STUDY OF THE CSR INITIATIVES OF COCA COLA INDIA Anu Singh Lather
Sona Vikas
Purpose - CSR research so far has primarily explored CSR at the domestic level, i.e., in the home countries of multinationals. The purpose of this paper is to extend research on CSR in host countries, particularly developing countries, in order to develop a deeper understanding of the profound impact MNCs can have on a less developed country. Design/methodology/ approach - The authors have undertaken a study of four American MNCs operating in India to compare their CSR initiatives here with their CSR activities back in their home country. All these Fortune 500 companies are in relatedbusiness, operational in India across various locations since more than a decade. Most importantly, they are highly rated corporate citizens in their home country. Findings - all of these companies have concentrated their efforts in their home country and made valuable contribution. However, they have taken only a few initiatives in other countries of business operations including India. In fact, there seems to be eyewash - some stray efforts here and there. Compared to the hefty profits they carry back home, their CSR practices seem miniscule in the countries outside their home, particularly India. Research limitations/implications –Through this study it is clearly evident that MNCs currently are still managing CSR haphazardly or unsystematically outside their home country, thus making it imperative for them to redesign their CSR strategy, and directing the host country government to formulate stipulated policies for MNCs. Originality/Value – This paper is a novel attempt to compare CSR initiatives of American MNCs in related business in their home country and host country (in this case India). MNCs have an obligation to behave legally and with integrity, within the purview of the laws of the host country. Management & Change, Volume 14, Number 2 (2011) Change, 14, Number 2 (2010) © 2010 IILM Institute for HigherManagement Education. & All RightsVolume Reserved.
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Keywords:Multinational corporations, corporate social responsibility, home country, host country, CSR relocation process “When you live and work in the local communities you serve … when your business depends on the vibrancy of these local communities for its very survival, it shapes your philosophy about how you conduct yourself.” -Muhtar Kent (President and COO, Coca Cola August 2007) INTRODUCTION Coming from the head of the Coca-Cola Company (TCCC), which is one of the largest manufacturers, distributors and marketers of non-alcoholic beverage concentrates and syrups in the world and one of the largest corporations in the United States, it is a very positive message. It is important that everyone in society – be it, an individual or a corporation – should contribute according to his or her possibilities. Global corporations are in a much better position to foster ethical principles or address social problems (Edwards, et al., 2006). And today in times of global recession, there is an increasing public demand on business leaders to include social issues as part of their strategies in the present - day social and political business climate (Davis, 2009). The case of Coca Cola is important to study, simply because it has been in the eye of the storm since several years. As a matter of fact, despite receiving threats due to its bottling plants and pesticide accusations, how come Coca Cola is successfully operating? In order to distract public attention from the anti-Cola campaign is it seeking reprieve from CSR initiatives? It is questions like these whose answers the authors are seeking. GLOBAL CORPORATE CITIZENSHIP FRAMEWORK OF COCA COLA “As we create value for our shareowners and other stakeholders by running a successful business, we must also be a force for positive global change — one community at a time. We must help create economic and social value, protect the environment and contribute to the longterm sustainability of every community we serve.” -E. Neville Isdell (Chairman and CEO, Coca Cola, August 2007) Management & Change, Volume 14, Number 2 (2010)
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The Coca Cola Company is committed to achieving the highest standards of governance and business ethics. These standards are upheld by the Company’s Board of Directors, the highest level of leadership. Corporate responsibility is managed through the Public Policy and Corporate Reputation Council, a cross-functional group of senior managers from the Company and its bottling partners. Corporate responsibility for the Coca Cola Company means building a sustainable business and helping to build sustainable communities. They use internal and external frameworks, standards and principles to guide their approach to corporate responsibility and their progress towards helping to build sustainable communities. As per the Citizenship Report 2004, The Coca Cola Company (TCCC) established a citizenship framework in four broad areas to conduct its business in a sustainable manner, namely, Marketplace, Workplace, Environment and Community. Also, in 2004 TCCC undertook initiatives to address three key areas of Water, Health and Wellness and HIV/AIDS in Africa. Prior to 2004, TCCC’s citizenship journey had primarily been philanthropic in the form of cash contributions, product donations, and use of resources such as trucks and advertising space for community initiatives. Their corporate philanthropy was a top-down approach driven by the company headquarters, where the connection to the community was limited and which was reactive to community and business needs. It was characterized by small partnerships with NGOs. Subsequently, in July 2005, a new framework for long-term, sustainable business success called the Manifesto for Growth was launched, which integrated all facets of the business and established the role of TCCC’s bottling partners in its long-term success. The five key areas of their Manifesto for Growth guide the way in which Coca Cola conducts business. Continual collaboration with their bottling partners is integral to their longterm success. Their vision for sustainable growth includes the People (being a great place to work where people are inspired to be the best they can be), Portfolio (bringing a portfolio of beverage brands that anticipate and satisfy people’s desires and needs), Partners (nurturing a winning network of partners and building mutual loyalty), Planet (being a responsible global citizen that makes a difference), Profit (maximizing return to shareowners while being mindful of our overall responsibilities). The year, 2005 onwards, the company initiated the Partnership/collaboration model. There was a participative approach between the company and its bottlers. The company now is in a continuous process of proactively assessing the environmental needs. The projects undertaken in select areas are in accordance to strategic platforms, adopted through a community-centric approach. Many partnerships have been formed with renowned NGOs across Management & Change, Volume 14, Number 2 (2010)
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the world. They are learning from stakeholders, including activists. ‘The future of our business depends on the vitality of the communities where we operate’ is the mantra of Coke. Some of the key features of their current global corporate responsibility initiatives are summarized below. In the community: The Coca-Cola Company supports the United Nations Global Compact, taking a corporate leadership role in the focus areas of human rights, labour rights, protection of the environment, and anti-corruption. They are committed to improving the quality-of-life in the communities; promoting active lifestyles and well-being; driving economic growth by means of increased opportunities in terms of jobs and tax income; supporting socioeconomic development in developing and emerging markets through economic opportunities and wealth creation as well as technology and knowledge transfer and local entrepreneurship; and investing in local economies through substantive and locally relevant community programmes particularly in the areas of: education, youth development, arts and culture, and women and girls.
Anu Singh Lather & Sona Vikas 5
other supplies. After the September 11 terrorist attacks on the World Trade Center and the Pentagon, Coca-Cola and its affiliates committed to a $12 million financial contribution to disaster relief efforts. Together with The Coca-Cola Foundation in 2006, TCCC contributed almost $70 million to communities worldwide including civic and public affairs, community and economic development, culture and the arts, education, the environment, and health and social services. The break-up with respect to the investments is given in the figure below. Fig. 1 Global Corporate Social Investment, 2006
At the Workplace: As of December 31, 2007, Coke employed approximately 90,500 people, eighty-two per cent of whom were based outside the United States. Together with their bottling partners, the Coca-Cola system employs hundreds of thousands of people around the world. People are a key area of focus in their Manifesto for Growth and their Workplace Rights Policy and Human Rights Statement reflect their fundamental respect for their associates (how they call their employees) and a commitment to providing a rights-based working environment. In the Marketplace: Each of their products claims to be of the highest quality, meeting consumers’ changing tastes, needs and expectations. In each of the more than 200 countries where they operate, they are an active member of the business community, working hand in hand with local individuals, merchants and governments to improve the health and prosperity of the local economy and environment. Environment: The Coca-Cola system’s environmental commitments are focused on the areas of water stewardship, sustainable packaging, and energy and climate protection. Charitable donations: The Coca-Cola Company and its bottling partners shipped more than 30 million donated 8-oz. servings to Hurricane Katrina Evacuees. They donated $10 million to tsunami relief efforts in Asia and employees of Coca-Cola in the region also delivered bottled water, food and Management & Change, Volume 14, Number 2 (2010)
Source: http://www.thecoca-colacompany.com CSR INITIATIVES IN INDIA Coca-Cola emphasizes the importance of before-profit responsible practice. The India-focused corporate campaign is due to the company’s serious efforts to link Corporate Social Responsibility (CSR) and profitability. Consumers being the biggest stakeholders of its company, Coca Cola wants to project the company as a socially responsible organization. The CocaCola India Citizenship Framework is illustrated in the attached figure. Some of the CSR initiatives of Coca Cola in India are as follows. -
Environment (Water conservation, rain-harvesting efforts in the water Management & Change, Volume 14, Number 2 (2010)
6 Sustainable Business Strategy or Eyewash for Unethical...
CCI (division)
l l
l l
l l
l
l
Hindustan Coca-Cola Beverages Private Limited (HCCBPL) bottling headquarters
l Technical support Implementation l Support in identifying Identifying local community and partners projects l Communication tools Community mobilization l Monitoring and evaluation Funding locally relevant projects l tools Monitoring and sustenance Financial support Creating engagement Franchisee bottler l opportunities Implementation l Lead national initiatives Identifying local community and l Water stewardship projects l Sustainable packaging l Community mobilization Monitoring and governance l Funding locally relevant projects for division funded projects l Monitoring and sustenance
Anu Singh Lather & Sona Vikas 7
areas; its alliance partners include leading NGOs like Child Relief & You (CRY), Pratham, Prayas, Naandi Foundation and Literacy India). -
Literacy (Run Jagriti Learning Centers, which provide educational resources and opportunities to nearly 2,000 underprivileged primary school children in areas near Coca-Cola offices and bottling plants in Pune; Coca-Cola is also working with community leaders to put on street plays on the theme of community awareness, such as a series that was conducted in 50 villages in Gurgaon reaching nearly 500,000 villagers).
-
Health (Launching remedial educational schools through which the Company aims to raise awareness levels, provide health education thereby preventing communicable diseases such as AIDS and HepatitisB and raise awareness amongst the urban poor in slum areas on key issues such as immunization, hygiene and sanitation, reproductive and child health. Coca-Cola India has also adopted Primary Health Centres in areas close to company units, and conducted basic training to the local communities).
-
Rainwater Harvesting (It is a huge initiative to combat water scarcity and reduced ground water tables across the country. Coca-Cola manages rainwater-harvesting projects at Delhi schools in partnership with the Central Ministry of Water Resources).
Source: http://www.thecoca-colacompany.com deficient areas and recycling of used PET bottles; initiated afforestation drive, tree-plantation drive; preservation of marine life; working with a community in the desert state of Rajasthan to restore a 400-year-old step well; started three projects to collect and purify rainwater on behalf of local farmers. And it has launched another rainwater project in a village near the city of Pune with the potential to harvest up to 4 million liters of rainwater annually). -
In the Community (Supporting Basti Shiksha Pariyojana, Slum Cluster integrated community development project of CII for providing nonformal education to over 1500 unprivileged children and linking education to health, girl child empowerment, women’s empowerment and family welfare programmes; partnership with Naandi Foundation, supporting Govt. schools in Ameenpur and Byramalaguda, Andhra Pradesh to provide wholesome education at the Primary level to children belonging to weaker sections).
-
Education (Tie up with local NGOs and communities to offer a variety of educational initiatives such as informal education, remedial learning, vocational training and IT instruction, especially in backward and rural
Management & Change, Volume 14, Number 2 (2010)
ACCOLADES FOR COCA COLA The Coca-Cola Company has been awarded several awards for their efforts and contribution to the society both in India and globally in the past few years. In India, Coca Cola has been awarded Pegasus Corporate Social Responsibility Gold Award 2008, Global Golden Peacock Award 2008, CII National Award for Excellence in Water Management-2008, No. 2, India’s Most Respected Fast Moving Consumer Goods Company, and No. 7, Most Respected Multinational Corporation in India by Business World and Indian Market Research Bureau (2007), Bhagidari Award 2007, Asia Society Leadership Award (2007), and globally some of the awards include Corporate Social Responsibility Award, Mexican American Legal Defense and Education Fund (March 2007), Ethical Brand Awards: No. 1 in the U.S., No. 3 in Spain and No. 8 in France, five-country study by market research group GfK NOP (February 2007), and Best Companies of the Year, Coca-Cola Spain, Dirigentes (2007). Management & Change, Volume 14, Number 2 (2010)
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So far it sounds good. However, globally the company has been subjected to severe criticism from so many countries that it is very difficult to believe that it is the same company that has received numerous awards for its community development programmes. In fact, community leaders, activists, and students from across the country are challenging the soft drink giant for its abuses. Criticism of Coca-Cola has come from many sources for various reasons. The major being that Coke drains water from some of the poorest communities in the world to sell as bottled water and make soft drinks, unethical business practices, environmental issues, bottling plant deaths and mass boycott across the world. Coca Cola Enterprises (CCE, Coca Cola company’s biggest bottler for North America and parts of Europe) published Continuing Our Journey, the company’s corporate responsibility and sustainability report for 2006 in which it flagged off social and environmental concerns around its parent’s business in India and Columbia as one of the major issues with the company stakeholders. ‘Issues’ for them were actually seen as gross CSR violations across the world. These include concerns on health, business practices, environment and bottling plant deaths. Numerous court cases have been filed against the Coca-Cola Company since the 1940s related to health, alleging that the acidity of the drink is dangerous. It is also accused that the beverage contains high fructose corn syrup (introduced to reduce costs) which has possible links to diabetes and obesity. The frequency of exposure of teeth to cariogenic (acidic) environments affects the likelihood of tooth decay through caries development. With regards to business practices, Coca Cola has been accused of intimidation, kidnapping and murder of Sinaltrainal trade workers in Columbia (1996). Among other problems, they had to face the Bigio family lawsuit (1997), anti-trust lawsuit filed by Pepsi-co (2000), Class-action race discrimination lawsuit (2000), protests for black under-representation in top management (2003), Removal of vending machines from Scottish Schools (2004), fine for unfair commercial practices levied on Coca-Cola’s Mexican unit (2005), and Philippine unfair competition case(2008). In the 1970s, a Coca-Cola franchised bottling plant in Guatemala suffered a spate of mysterious murders of union-affiliated employees leading to the non-renewal of the bottling plant’s license in 1981. In Colombia, it was alleged that Panamerican Beverages (Panamco), CocaCola’s main bottler in Latin America hired paramilitary mercenaries to assassinate union leaders in 2001. These charges have resulted in several court cases and boycott actions against the Coca-Cola Company. As a consequence of these CSR violations, a public outrage against Coke started following which there were boycotts that spread across several campuses and trade unions in Britain, Ireland, Columbia, United States, Italy, France, and Canada amongst others. Management & Change, Volume 14, Number 2 (2010)
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The case of Coca-Cola India is no different. Although Coca-Cola India’s commitment to after-profit investment in local communities cannot be denied, criticisms of the company’s before-profit practice in India have increased over the course of the last year. Coca-Cola’s operations in India have come under intense scrutiny as many communities are experiencing severe water shortages as well as contaminated groundwater and soil that some assert are a result of Coca-Cola’s bottling operations. A massive movement emerged across India to hold the Coca-Cola Company accountable for causing water shortages and pollution, water depletion and contamination. Several Indian states have announced partial bans on the drinks in schools, colleges and hospitals. Detailed accusations include environmental issues wherein in India there exists widespread concern over how Coca-Cola is produced. In particular, it is feared that the water used to produce Coke may contain unhealthy levels of pesticides and other harmful chemicals. It has also been alleged that due to the amount of water required to produce Coca-Cola, aquifers are drying up and forcing farmers to relocate. In 2003, the Centre for Science and Environment (CSE), an NGO in New Delhi said aerated waters produced by Coca-Cola contained toxins including lindane, DDT, malathion and chlorpyrifos — pesticides that can contribute to cancer and a breakdown of the immune system. CSE found that the Indian produced Coca-Cola’s soft drink products had 30 times the level of pesticide residues permitted under European Union regulations – The shocker came when CSE tested the same products in the US and found no such residues! Also, environmental degradation in the form of depletion of the local ground water table due to the utilization of natural water resources by the company poses a serious threat to many communities. Near the holy city of Varanasi in northeastern India, a local water official blames a Coke plant — which has been the scene of many protests by NGOs and local residents — for polluting groundwater by releasing wastewater into surrounding land. In March 2004, local officials in Kerala shut down the $16 million Coke bottling plant at Plachimada blamed for a drastic decline in both quantity and quality of water available to local farmers and villagers - draining in excess of one million litres of water per day reducing local supplies, thus creating unemployment as coconut groves and vegetable crops dried up. The industrial waste that Coca-Cola sells or gives to local farmers as fertilizer due to its high phosphate content has been alleged to be of no chemical use to agricultural land. It is also alleged that the sludge is dumped in dry riverbeds which has led to concern over the safety of local drinking water supplies. On analysis of water from around the plant, it has been claimed that it contains high levels of cadmium and lead – both of which pose serious health risks to flora and fauna and can affect the growth of children’s nervous systems, and cause cancer, kidney and liver damage in any age group. Management & Change, Volume 14, Number 2 (2010)
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Coca-Cola’s response was a vehement denial. The company has denied all the above claims, and states, that these allegations are false. According to Coke, neighbouring communities, tribal leaders, NGOs, environmental scientists and government officials have repeatedly rejected the extremists’ allegations as totally groundless. They have asserted that local communities in Kerala have welcomed their business as a good corporate neighbour. AUTHORS’ NOTE Not surprisingly, the column carrying CSR achievements in India is not as heavily weighed as it should be. It seems to be eyewash - some stray efforts here and there. Compared to the hefty profits Coke carries back home, its CSR practices seem miniscule. In fact, comparatively, their visibility is not there in India – Coke’s efforts have not converted to a movement as it is in its home country, despite the fact that it has been doing business for long in India. Coca Cola’s behaviour in its expanding Indian market has led to world wide apprehension with the international media and agencies showing support to the protests against the company (Krishnan & Balachandran, 2004). Explanations given by Coke both in India and abroad in its defense are not very convincing. CSR initiatives taken by Coke seem to be a camouflage of unethical business operations. The company needs to realize that it is in its own interest to operate responsibly. Responsible business has to be the core of all companies’ strategies – not a bolt on to operations. What is required is an attempt to make a comprehensive and consolidated effort, where people are aligned and there is a clear, strategic and measurable CSR agenda (Krishnan & Balachandran, 2004). They may have a huge number of CSR accomplishments to their credit, but all of them get washed away when any outbursts and accusations happen. It may not be that all of these accusations are true, but there has to be some ounce of truth in them. While there is a discussion on the do’s and do not’s of corporations, one fundamental question remains unanswered. What is a corporation’s duty to the society in which it functions, and how can its responsibilities be reconciled with the everincreasing demands to be competitive in the global economy? Is it mandatory for a company to operate morally and ethically? Barry (1999) had made note of the concept where business as a social entity is bound by all the morals and responsibilities expected of a member of society. Alsop (2004) declares that corporate reputation has never been more valuable or vulnerable than today. The public has been slow to forgive business for scandals such as Enron. Companies also have to be careful that their promises to be socially Management & Change, Volume 14, Number 2 (2010)
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responsible are not self-serving or contain hollow promises. Coke has not only market share in India, but also substantial value share in the market. It needs to understand that morality in business can neither be imbibed nor made incumbent – it must come naturally. If any company comes under this kind of scrutiny, we need to ask ourselves a basic question: how could this apparently quality-conscious company, market a product that is unfit for human consumption? Are monetary gains more important than heath and environment issues? How can we continue letting a corporation continue to not only operate but also reward it for its so-called CSR activities? As responsible citizens, how does our conscience support such appalling behaviour? Who cares about insecticide content? Who is worried about Osteoporosis? What is the Government doing about it? Is there a framework that is not only laid down, but also being judiciously implemented and monitored for evaluation, so as to keep the multinationals in tow? If the answers to these questions are in the negative, then we need to do serious thinking. We ought to have stringent policies in place, so that companies operate in an ethical scaffold, and no company gets away scot free if cases of unethical behaviour are reported. India needs to firmly review its policy regarding foreign firms in terms of their obligations as corporate citizens and lay down clearly defined procedures for CSR. As with all business activities, the notion of corporate leadership should undergo a cost-benefit analysis. From a strategic perspective, by building a broad-based public/private commitment to economic growth and development, the benefits of corporate leadership affect the community as well as the corporation. The government needs to formulate and implement several policies. These include improving the policy environment for business, active participation of the government and the corporations in the policy development process will ensure that private sector interests are taken into consideration, developing strategic corporate partnerships to build trust and communication amongst local communities and enhancing the corporations’ ability to interact with and respond to the grassroots sentiments and concerns by allowing the development of sensitive lines of communication that allow a problem-solving approach to emerging challenges. KEY OUTCOMES AND LESSONS LEARNED FROM THE COCA-COLA CASE The allegations against Coca-Cola, regardless of whether or not they are valid, teach several lessons that are applicable to many companies in conducting their business-community relations. One of the lessons that can Management & Change, Volume 14, Number 2 (2010)
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be learnt from this case study is that large corporations are never out of the limelight, even when conducting business in developing countries many thousands of miles from global headquarters. Public concern over multinational (mal) practice has grown in recent years (Coors and Winegarden, 2005). These controversies are a reminder of India’s sometimes acrimonious relationship with huge multinational companies. Multinational enterprises try to maximize their interests by investing abroad seeking access to natural resources, strategic assets, larger markets, or increased efficiency. Companies must be prepared to take full responsibility for its actions and be held fully accountable at all times (Smith, 2007). This is probably the best way in which to avoid bad press, public protests and a smear on the company name, even if the company is victim of malicious extremist attacks. As such, Coca-Cola needs to tread carefully with how it treats protestors and the media. While the allegations remain unproven, it seems that the company is understandably acting defensively. However, a refusal to accept that there is a problem, or to take on board what the protestors are saying, might ultimately do the Coca-Cola brand more harm than a CSR programme does good. Coca-Cola India’s after-profit initiatives are undoubtedly serving poor communities and benefiting many people. Undeniably, the company has worked alongside many government and non-governmental organizations in funding various education, healthcare and water conservation initiatives that target poor communities and those most in need of help. Yet there is still great dissatisfaction regarding the company’s before-profit behaviour, whether the allegations are valid or otherwise. Indeed, the manner in which a company makes its money is still more important to people in the vicinity of a plant than how the company spends or reinvests its profits later. Therefore CSR might be better understood as charitable after-profit investments only when before-profit policy and practice is environmentally, and socially, responsible. When corporations move outside their home countries, there are several global considerations involved, especially with their CSR practices (Crouch, 2006). Not only are there fundamental strategic CSR goals and outcomes to consider, but also a variety of cross-border factors that can potentially complicate the success of CSR strategies if not examined appropriately (Cumming, et al., 2005). Relocation has many poles regarding entry and exit policies – MNCs need to understand not only the local CSR context in host and home country, but also manage the CSR expectations on operations in developing economies and the CSR expectations on closure. Relocation confronts diversity in CSR globally, regionally and nationally (Cumming, et al., 2005). There are regional blocks and countries having different Management & Change, Volume 14, Number 2 (2010)
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views on the role of business in society; countries having different CSR policies and institutional support for CSR practices; countries having diverse CSR agendas, different managerial understandings of CSR with CSR having many different positions in their strategies. Managing the CSR aspects of (re) location is an incredibly difficult process because of the many contexts, and local as well as global issues to address (Diller, 1995). When MNCs endeavour to contribute through CSR, they are faced with some critical issues that emanate from relocation. These are related to shareholders (competitiveness), employees (job security, development, retraining & out-placement & retraining, inclusion), customers (product provenance and tracking), environmental interests and concerns (protection of global and local key resources and sinks), neighbours (local value added and retained, minimum nuisance and protection of environmental assets, maintenance and improvement of social cohesion), governments (inward investment, economic multipliers, cultural and environmental asset protection, development of local know-how), and NGOs (labour and human rights, environment). Multinational corporations must welcome inputs from the host government and provide information about its operations to the public (Aaronson and Reeves, 2002). The expectation from the MNC abroad is to act ethically and in a socially responsible way. The host government has a responsibility to set rules that are clear, consistent and economically and technically feasible. In this context, a comprehensive, clear, and corporate policy on CSR needs to be enforced (Bondy, et al., 2004). This may require drawing upon a new framework for CSR in India to establish measurable benchmarks for facility, national, and perhaps global CSR. Cooperation between the MNC and the host country’s government is highly recommended. Prahlad & Lieberthal (1998) point out that companies must make the transition in their business strategy of ‘thinking globally’ to ‘thinking locally’ as each of the emerging markets represents an intriguing challenge for marketing with its vast diversities existing across nations and even within nations in culture and socio economic conditions. It is in marketing across such diverse cultures and varying conditions that the concept of corporate social responsibility becomes critical to success. CSR is considered inbuilt in the business existence of the traditional firms in the emerging markets like India (Mohan, 2001). THE WAY FORWARD FOR COCA COLA: SOME RECOMMENDATIONS Offered here are the some recommendations by the authors to Coca Cola. Regular Audits and reviews - A system of annual social audits needs to Management & Change, Volume 14, Number 2 (2010)
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be established to monitor in a transparent manner the corporate efforts for improving the quality of life in the areas surrounding the plant. Senior executives should ensure that the company’s business managers become responsible and accountable for corporate and facility - water, environmental, and sustainable development goals as well as government and company compliance programmes. CSR initiatives need to be both sensitive to community needs and concerns. They also need to be able to better anticipate challenges that may arise in the future. In conjunction with this, the company should establish a facility and national-level audit of these activities every three years and consider forming a special external advisory group to advise, assess, and review the programme and its components. CSR interventions: They must be designed for the benefit of the local communities and lead to the development of sustainable physical and social infrastructure. Standalone or periodic activities will make very little impact. For instance, the plant could focus on major long-terms programmes (in coordination with local governments) for provision of safe drinking water to rural communities. Similarly, the linkage of health and water could be addressed by focusing on the regional water quality results. In brief, the company could make its water programme more transparent to local communities and interested stakeholders and accountable at the facility and country level, and serve as an important catalyst for greater awareness and activities within the eco-region and watersheds within which it is operating.
Anu Singh Lather & Sona Vikas 15
stakeholders in the region such as irrigation and local government. TCCC should try to be net water positive with respect to its own operations from a watershed perspective, especially in water stressed areas. TCCC should define a strategy wherein it is able to offset this anomaly through appropriate and commensurate interventions that should, ideally, result in a stream of benefit flows to the community. There is a lot Coke can do, to clean its image, both in India and outside. It may be investing a lot of money in societal developments, but they would all appear as a camouflage to unethical business practices that get reported and spoil the image of the company. The companies, particularly multinationals must remember this all the time - A CSR strategy cannot be sustainable if it stems from allegations or criticisms of any form. SUGGESTED READINGS Aaronson, S. & J. Reeves (2002) “The European Response to Public Demands for Global Corporate Responsibility”, National Policy Association (www.bitc.org/docs/NPA_Global_CSR_survey.pdf). Alsop, R.J. (2004) “Corporate Reputation- Anything but Superficial: The Deep but Fragile Nature of Corporate Reputation”, The Journal of Business Strategy, 25: 21-30.
Strengthen reputation in local communities: The Company needs to strengthen its reputation with local communities by taking local economic, social, and cultural norms and aspirations into account in its business, environment, and CSR programmes. Greater participation by facility managers in local community social networks, for example, might sensitize managers about special needs that could differ from one village to the next. Locating plant managers in communities where they speak the same language as the villages, for example, can enhance opportunities for communication and mutual understanding.
Barry, N. (1999) “Anglo-American Capitalism and the Ethics of Business”. Wellington, NZ: New Zealand Business Round Table.
Specific environment-related recommendations: For water conservation, the Company should accord high priority to conservation of water and its enhancement in all its activities. It should ensure that all water conservation/enhancement measures are relevant to the perspectives and needs of the region in which they are located and that their effectiveness is sustainable over the life of the plant. There is a need to promote efficient use of water and conservation practices in joint collaboration with other
Crouch, C. (2006) “Modelling the Firm in its Market and Organizational Environment: Methodologies for Studying Corporate Social Responsibility”, Organisation Studies, 27: 1533-1551.
Management & Change, Volume 14, Number 2 (2010)
Bondy, K., D. Matten & J. Moon (2004) “The Adoption of Voluntary Codes of Conduct in MNCs: A Three-Country Comparative Study”, Business and Society Review, 109 (4): 449-477. Coors, A.C. & W. Winegarden (2005) “Corporate Social Responsibility – or Good Advertising?” Regulation, 28: 10.
Cumming, J.F., N. Bettidge & P. Toyne (2005) “Responding to Global Business Critical Issues: A Source of Innovation and Transformation for FTSE 350 Companies?” Corporate Governance, 5: 42-52. Management & Change, Volume 14, Number 2 (2010)
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Davis, J. (2009) “Satyam: Corporate Governance Revisited”, International Business Times, January 20, 2009. Deane, R. (2001) Foreword. In Henderson, D. (2001) Misguided Virtue: False Notions of Corporate Social Responsibility. Wellington, NZ: New Zealand Business Round Table. Diller, J. (1999) “A Social Conscience in the Global Marketplace? Labour Dimensions of Codes of Conduct, Social Labelling and Investor Initiatives”, International Labour Review, 138 (2): 99-129. Edwards, T., O. Tregaskis, P. Edwards, A. Ferner & P. Marginson (2006) Charting the Contours of Multinationals in Britain, Working Paper. (http://en.wikipedia.org/wiki/Coca-Cola & http://ia.rediff.com/money/2006/aug/18cola2.htm) Krishnan, S.K. & R. Balachandran (2004) Corporate Social Responsibility as a Determinant of Market Success: An Exploratory Analysis with Special Reference to MNCs in Emerging Markets at IIM K – NASMEI International Conference. Mohan, A. (2001) “Corporate Citizenship: Perspectives from India”, Journal of Corporate Citizenship, Spring: 107-117. Prahalad, C. K. & K. Lieberthal (1998) “The End of Corporate Imperialism”, Harvard Business Review, July-Aug, 68-79. Smith, A.D. (2007) “Making the Case for the Competitive Advantage of Corporate Social Responsibility”, Business Strategy Series-j, 8 (3). www.killercoke.org www.nottingham.ac.uk/business/ICCSR/09-2003.PDF) www.thecoca-colacompany.com www.thesouthasian.org/archives/2006 pepsi_coke_facing_ban_ consumer.html www.coca-colaindia.com Management & Change, Volume 14, Number 2 (2010)
SUSTAINABLE BUSINESS STRATEGY OR EYEWASH FOR UNETHICAL BUSINESS PRACTICES: A STUDY OF THE CSR INITIATIVES OF COCA COLA INDIA
CASE ANALYSIS I Dr. Kailash Tuli Professor, OB & HR Area IILM Institute for Higher Education 3, Lodhi Institutional Area New Delhi 110 003 E-mail: kailash.tuli@iilm.edu Issue 1: How far you feel that the Global Corporate Citizenship Framework of Coca-Cola has succeeded in meeting its objectives? Global Corporate Citizenship sounds a very good and mind catching pious philosophy and it would indeed be excellent if carried out in real practice. If one looks from the perspective of human being’s fundamental needs, then needs like hunger and thirst come on the topmost list of Maslow’s Need Hierarchy Model. Thirst reminds people invariably of water and then in the beverages it is the Coca Cola. The massive advertising by all possible modes and all locations makes ‘coke’ as a popular name as ones own nick name. At times it is like omnipresent symbol of quenching thirst. For a big and populous nation like India the the drink ‘coke’ is found almost in every nook and corner but corresponding to its mega-scale presence the return to the fast emerging consumer society in the form of CSR is just an iota. A ‘Global Corporate Citizenship Framework’ sounds good if it is matched with caring for those who need care. In many parts of India water scarcity is a serious problem. In any Indian scenario one can see stacking of huge piles of ‘coke’ crates in almost all urban locations, but do we and they (Coca Cola) realize that millions in this country have the problem of potable drinking water? Even in the villages there may not be clean drinking water but one may find presence of coke. Now let every one be Management & Change, Volume 14, Number 2 (2010)
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clear that having drinkable water scarcity should necessitate to have coke as a substitute for healthy water.
psyche of young Indian population and they (Coca Cola) too know the power of this huge and growing segment of population in India.
Coke can earn many folds more respect vis-a-vis if their social responsibility especially in the rural India is delivered aggressively. Coke should not forget that they were also in exile from India during postemergency period (1977 onwards). This is now a great opportunity to show their gratitude and sense of social responsibility in the mega style to make a visible impact at this stage.
It is somewhat sad to see that the efforts of giant of the size of Coca Cola have just done little in India on CSR front, which is one of the basics of any management. Coca Cola have done only in areas like community, education, environment, health and rain water harvesting. It is needless to say that there is no dearth of delivering various types of corporate social responsibilities in India. It simply requires more of will and intentions on their part by parting little bit more from profits, which otherwise are also escalating.
Issue 2: How far you feel that CSR Initiatives in India are more symbolic in nature rather than as substantive contribution which have made a real dent on country’s socio-economic development? The list of the coca Cola initiatives are given in Fig 1: Global Corporate Social Investment, 2006, shows areas like; (i) Community and Economic Development (25 million $), (ii) Higher Education (20 million $), (iii) Culture and Art (13 million $), (iv) Health and Social Science (3 million $) (v) Environment (2million $) and (vi) Other programmes (7 million $). This adds up to 80 million dollars in all. For the size and population of a country like India this is not even peanuts. Such “generosity” of the global brand name company shows that they have undoubtedly profit motive in their minds because they understand that the psyche of the Indian youth is hooked up with ‘coke’. Clearly they are cashing on it. It is indeed obvious that Coca Cola is an American company, though it is perceived more as an MNC. Coca Cola has done huge contributions in USA as during the natural calamity of Catarina cyclone as well as to the sufferers of WTC 9/11 attack. On the other hand the tasks in the social sectors which they are doing in India are miniscules. India has a robust market of 1.2 billion and Coke is for thirst quenching (Topmost need according to Maslow Need Hierarchy Model). They are making big profits and many fold more profits are to pour in the future. Matching with this business model Coca Cola is shirking the responsibility which arises from this. This is also leading to some kind of ‘hidden’ protests from rural masses. Millions in India know about Swami Ramdev’s public statements about the harms of their beverages. In fact in many educational institutions coke is prohibited. These are signs of resentment which is perhaps deliberately they are ignoring. From health perspective coke as a drink is under scanner. It is the power of their intensive media laden advertisements that coke has penetrated in the Management & Change, Volume 14, Number 2 (2010)
Issue 3: Do you think that spate of awards received by the Coca-Cola Co for its CSR Initiatives are matching enough as the company’s very product is a carbonic drink which is not very good for health? Getting awards is one thing. The principle of consonance and dissonance will aptly clarify the created images in the minds of the public. Accolades conferred on Coca Cola in India are out of proportion. The common person’s perception about these appear to be simply out of proportion. Just compare the scale of Coca Cola’s visibility and the visibility of their non-profit works for the nation. This is simply discomforting. These kinds of gaps show that the motive of Coca Cola is simply profit. Of course it is well known fact that companies do make profits and there may mot be anything unethical about that motive. But thinking at higher level one may appreciate if the companies do some social work for helping masses. India is the best crucible to do this experiment, because of her rapidly changing economy and the socioeconomic and life-style changes associated with that. The reason is that in India there is gigantic market and at the same time ever growing in decades to come. So the message is that there are tremendous opportunities in which any company can ‘win the hearts’ of the people in an economic change scenario alike India. So far Coca Cola has won the pockets of the people and it remains to be seen that when they will be really able to win the hearts of the people. Winning the hearts of kids is one thing but winning the respect from mature masses is another professional and corporate challenge. A widespread awareness is emerging in the minds of the people regarding natural health practices. These convincing views are not is tune with cola and other aerated drinks. There is more focus on natural and Management & Change, Volume 14, Number 2 (2010)
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healthy foods and drinks and ironically for companies in this business it is not a good news. However the fact remains that there is huge population and each one of them is not necessarily indoctrinated by these rationales. If this kind of change occurs at large scales in the population in any given region then it can be a reversal for Coca Cola.
A little probings will reveal that ‘Coca Cola’ is lacking in its corporate social responsibility. Coca Cola is indeed cherished by young generation all over India. At this juncture of time, India offers tremendous opportunities to MNCs, which can bring in more respect like in case of Hindustan Unilever Limited (HUL).
On the other hand if these companies are socially responsible and do something positive for the society in which they operate then they may not lose the business to that extent.
People in many parts of the world are already alert about the psyche of ‘Cocacolonization and MacDonaldism.
So keeping in mind the corporate social responsibility, Coca Cola can ensure a better future in their line of business. In fact, getting more in contact with the local population may give them more innovative ideas. May be Coca Cola can learn and collaborate for numerous ideas from companies like ‘Rooh Afza’, Dabur, Himalaya, Baidyanath and other similar companies. Issue 4: Are the authors’ recommendations for enhancing CSR role in Coca-Cola Co are adequate or you have some more ideas to offer? In a statement, Muhtar Kent (August 2007), President and COO, Coca Cola says,“When you live and work in the local communities you serve … when your business depends on the vibrancy of these local communities for its very survival, it shapes your philosophy about how you conduct yourself.” Now the question is that if this applicable in the global context or Kent speaks it only for some specific regions of the world. Coca Cola has quite successfully invaded India which in the future may even prove than the any biggest and ever expanding market in the world. It becomes crucial at such juncture that they should also take care for the moral, ethical, social responsibilities which go along with the professional aspects of any company of the size and stature of Coca Cola. When it comes to corporate social responsibility then there is an interesting aspect that to what extent one company does it by its own philosophy or is propelled to do so because other say so. Here lies a very interesting aspect of ethics,; is it self generated or it is to be done under social pressure.’ or in nutshell, “where is the locus of control?” Management & Change, Volume 14, Number 2 (2010)
It is right time for this ever growing Coca Cola to keep in mind that they can “Act globally but at the same time thinking locally” as per Indian conditions, culture, psyche of people and above all feeling responsible as well as accountable for the country in which they can keep on growing for ever, like the population explosion of India. CASE ANALYSIS II Dr. Sangeeta Yadav Assistant Professor (Economics Strategy & International Business) School of Management IILM Institute for Higher Education 3,Lodhi Institutional Area New Delhi -110003 E-mail : sangeeta.yadav@iilm.edu The Universal Declaration of Human Rights (UDHR) is a milestone document in the history of human rights. It declares that “every individual and organ of society should play its part in securing the observance of the rights contained in it”. This implies care for the common good and calls upon the companies, individuals, governments and NGOs to participate in the larger issues of governance. This raises the a concern regarding the role and responsibility of the corporate sector in contributing to the well-being of the society. The basic premise of corporate social responsibility (CSR) entails a socially responsible conduct by business firms. The genesis of CSR as a concept took its roots from Economics. Adam Smith, noted Economists in his book “An Inquiry into the Nature and Causes of the Wealth of Nations,” (1776) noted that, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard for their own interest.” This laid the foundation of corporate social responsibility, where the firm was expected not only to create wealth Management & Change, Volume 14, Number 2 (2010)
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ofr its shareholders but also advance the interests of the society. However, another noted economist, Milton Friedman in his famous 1970’s article in The New York Times Magazine, wrote that “the one and only social responsibility of business, is to increase profits for shareholders.” With the advent of Industrial Revolution, the concept of corporate social responsibility gained importance. Industrialisation gave birth to large corporations and through mechanisation totally transformed the way goods were manufactured. Profits of a firm reached unprecedented levels and industrialists amassed huge fortunes at the cost of the labour class. This was the time that radical theorists such as Karl Marx and Friedrich Engels propounded the concepts of socialism and communism which raised a concern against the exploitation of the labour class. With the start of the 20th century, labour unions were formed which demanded that a firm should not focus on profit maximisation alone but gradually introduce welfare schemes for the workers. Later years saw the emergence of the stakeholder theory by R. Edward Freeman (1984). The stakeholder theory considered governmental bodies, political groups, trade unions, communities, associated corporations, prospective employees, prospective customers, and the public at large within the ambit of a firm’s influence. The earlier shareholder view believed that a firm needs to address the needs of only investors, employees, suppliers, and customers. The collapse of communism in 1990s and increasing globalisation further changed the way corporations operated. More responsible business practices have emerged as we see in formation of World Business Council for Sustainable Development, and the United Nations Global Compact. Issue 1: How far you feel that the Global Corporate Citizenship Framework of Coca-Cola has succeeded in meeting its objectives? For better implementation of the social welfare programmes, a firm needs to have a CSR framework which aligns community efforts with core business strategy, company expertise and market needs. In case of Coca Cola, this kind of planned approach is clearly visible. Instead of certain random acts of philanthropy, the company uses internal and external frameworks, standards and principles to guide their approach to corporate responsibility. As per the Citizenship Report 2004, The Coca Cola Company (TCCC) established a citizenship framework in four broad areas to conduct its business in a sustainable manner, namely, marketplace, workplace, environment and community. In the community - The Coca-Cola Company supports the United Nations Management & Change, Volume 14, Number 2 (2010)
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Global Compact and hence focuses upon human rights, labour rights and protection of the environment. They are committed to supporting socioeconomic development in developing and emerging market. At the Workplace - Through their Manifesto for Growth and their Workplace Rights Policy they try to provide a rights-based working environment. In the Marketplace - Each of their products claims to be of the highest quality, meeting consumers’ changing tastes, needs and expectations. Environment - The Coca-Cola system’s environmental commitments are focused on the areas of water stewardship, sustainable packaging, and energy and climate protection. However, though the Coca Cola Company apparently seems committed to achieving the highest standards of governance and business ethics, its track record in developing countries does not seem too impressive. One of the major criticisms is that Coke drains drinking water from some of the poorest communities in the world to sell as bottled water and to make soft drinks. It has been charged of indulging in unethical business practices and has indulged in gross CSR violations across the world. Several law suits are pending against the company in various countries. Its workplace ethics seem to be only in spirit and not in action when we see the protests for black under-representation in top management. As a consequence of these CSR violations, there exists strong protest movements against Coke in Britain, Ireland, Columbia, United States, Italy, France, and Canada. These cases are a dent on the Global Corporate Citizenship Framework of Coca-Cola. There is a visible dichotomy between the CSR principles of Coca Cola company and its actual ground performance especially so in the case of developing countries. Developing countries and transition economies suffer from various governance issues and hence Multinational Enterprises (MNEs) can easily exploit the lack of regulations and the needed enforcements. Developed nations of the world function on clear defined rules and strong enforcement, leading to strict control on any wayward behavior by firms. Coca Cola seems a classic case of this kind. Issue 2: How far you feel that CSR Initiatives in India are more symbolic in nature rather than as substantive contribution which have made a real dent on country socio-economic development? What gets measured is what gets done- this is applicable to CSR initiatives Management & Change, Volume 14, Number 2 (2010)
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of a company. It is important to conduct a cost-benefit analysis on their CSR expenditure. At the same time it is essential to measure a company’s CSR performance and benchmarking it against the other similar companies in the wider industry spectrum. In the case of India, companies like Tata Group, ITC, Wipro, Hindustan Unilever, have been very proactive in CSR efforts. In June 2008, a survey was carried out by the TNS India (a research organization) and the Times Foundation which revealed that over 90 per cent of all major Indian organizations surveyed were involved in CSR initiatives. The leading areas that corporations were involved in were livelihood promotion, education, health, environment, and women’s empowerment. In a survey carried out by the Asian Governance Association, which ranks the top 10 Asian countries on corporate governance parameters, India has consistently ranked among the top three along with Singapore and Hong Kong, for the last eight years.
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drinks. Soft drinks have long been suspected of leading to lower calcium levels and higher phosphate levels in the blood leading to lowering of calcium levels of the bones. The case also brings out the fact that numerous court cases have been filed against Coca-Cola since 1940s on the basis of its impact on health due to high acidic content of the drink. The high fructose corn syrup content in the soft drink which has been introduced to reduce costs has shown possible links to diabetes and obesity. The frequency of exposure of teeth to carcinogenic environments affects the likelihood of tooth decay through caries development. Recent research has linked soft drinks with childhood obesity since there is very high sugar content in coca cola drinks which is an unhealthy consumption of empty calories. It is a dangerous overload of caffeine and potentially hazardous, nutrient-depleting additives. Cola drinks can interact adversely with antacids, possibly causing constipation, calcium loss, hypertension, nausea, vomiting, headaches, and kidney damage.
The case of Coca-Cola India however seems different. Coca-Cola’s operations in India have come under intense scrutiny since its operations are leading to water shortages, pollution and contamination of groundwater and soil and thus leading to forced relocation of farmers. Apart from it is also alleged that the soft drink contains unhealthy levels of pesticides and other harmful chemicals. The Centre for Science and Environment (CSE), an NGO in New Delhi reported high levels of toxins including lindane, DDT, malathion and chlorpyrifos in the coke soft drink. These pesticides lead to cancer and a breakdown of the immune system. These pesticides residue were 30 times the level permitted under European Union regulations. Coke has also been criticised for polluting groundwater in Varanasi. Same case has been reported by officials in Kerala.
Looking at all the above health hazards which are very serious in nature, all CSR efforts by Coca Cola Company seems trivial in comparison. Such carbonated drinks lead to long term health disasters and especially affect growing children who are more hooked to such drinks. Little these children realise that they are drinking this strange mixture of phosphoric acid, sugar, caffeine, colouring, and flavouring matter which is affecting their bones, growth, teeth and making them obese. Compared to the health hazards that coke creates, its CSR practices seem miniscule.
In the light of all these issues CSR initiatives by Coca Cola seem to be more as an effort to rebuild its tarnished brand image in India. This case thus facilitated the discussion regarding use of CSR by Coca Cola more as a tool for its sustainability in India and only as a green washing effort to counter its allegations. This raises the larger issue of the need for adopting ethical values in the business practices by multinationals operating in India.
Coke’s business policies and processes seem to be irresponsible when it comes to developing countries. The company needs to realize that it is in its own interest to operate responsibly. Responsible business has to be the core of all companies’ strategies – not a bolt on to operations. A few acts of CSR cannot be a solace for selling a product which has such harmful effects on the health.
Issue 3: Do you think that spate of awards received by the Coca-Cola Co for its CSR Initiatives are matching enough as the company’s very product is a carbonic drink which is not very good for health? Various lab tests across the world have proved the harmful effects of soft
The author rightly suggests that India needs to firmly review its policy regarding foreign firms in terms of their obligations as corporate citizens and lay down clearly defined procedures for CSR. Another valid suggestion is that Indian government acts towards improving the business policy environment and bring a focus towards cooperation between government
Management & Change, Volume 14, Number 2 (2010)
Issue 4: Are the authors’ recommendations for enhancing CSR role in Coca-Cola Co are adequate or you have some more ideas to offer?
Management & Change, Volume 14, Number 2 (2010)
26 Sustainable Business Strategy or Eyewash for Unethical...
and the corporations in the development process. MNCs operate in countries with widely diverging socio-economic and environmental conditions and hence they need to be more sensitive towards the environment and health and safety aspect in the host country. The lesson from the last decade is that regulation and self-regulation are both needed. Founders of Institutions of Higher Learning
JAMES THOMASON: FOUNDER OF THE ERSTWHILE THOMASON COLLEGE OF CIVIL ENGINEERING ROORKEE (1847) WHICH LATER BECAME UNIVERSITY OF ROORKEE (1949-2000) AND FINALLY INDIAN INSTITUTE OF TECHNOLOGY ROORKEE (2001) Indian Institute of Technology Roorkee, into which the erstwhile University of Roorkee and formerly Thomason College of Engineering have subsumed is the nation's pride in engineering education. In India today there are many institutions of engineering or technology of standards comparable to Roorkee and some even superior, but only few can match its long glorious past as one of the country's premier institution of learning. Establishment of erstwhile Thomason College at Roorkee in 1847 is credited to James Thomason, its founder, who was among very able, learned and hardworking Englishmen who had came to India as a distinguished citizen of his country. After his premature death in 1853 the then Roorkee College of Civil Engineering was renamed after him, not because he was the Lt. Governor of the Northwestern Provinces when the College was founded but because this institution was his dream project for which he had put his heart and soul to achieve it. James Thomson had envisioned creating multitude of public works throughout the country, accordingly a need was felt by him to set up an engineering institution of excellence in the country. Col. P.T. Cautley (of the Royal Artillery) in former North-Western Provinces was the (Project) Director of the proposed Ganga Canal which originates from Haridwar to which a great support was lent by James Thomason in the capacity as Lt. Governor of North-Western Provinces in 1843 till his death in 1853. However, James Thomson's vision was much broader than confining the needs of Ganga Canal project only. While P.T. Cautley looked at this institution to meet immediate needs of civil engineering professionals for Ganga Canal, James Thomson had a larger vision for meeting civil engineering needs of whole of India. While James Thomson supported and facilitated Ganga Canal project by way of securing/ sanctioning budgetary approvals, he was more emotionally involved in setting up an Engineering College at Roorkee. As soon as the clearance of the Ganga Canal project was obtained and work started in 1842, Thomason focused on realization of his dream project of setting up an institution of excellence in civil engineering as public works were priorities of those days (which incidently continue to be the need of
Management & Change, Volume 14, Number 2 (2010)
Anu Singh Lather & Sona Vikas 27 present times as well following ever growing needs of infrastructural development). The aqueduct being the most challenging piece of work on the canal, it became the centre of intense engineering activity. It was within this backdrop that James Thomason proposed setting up College of Civil Engineering at Roorkee. The idea for a college at Roorkee was accepted by the then GovernorGeneral Lord Hardinge in 1847. In the mean time, two years earlier in 1845 an event had taken place in Saharanpur, which can be called the seed from which the Roorkee College grew. On the initiative of R. Baird Smith, a distinguished military engineer and a senior irrigation officer, posted on the Eastern Yamuna Canal, suggested to Lt. Governor Thomason that a school to train surveyors and draughtsmen for canal work be opened at Saharanpur. James Thomason immediately approved the proposal as it was in line with his own thinking. The Saharanpur school had a short life, which later under the direction of James Thomason was taken over by the Roorkee College of Engineering. It was like a sapling nurtured at Saharanpur for two years that was later transplanted to Roorkee. Thomason's proposal for college of civil engineering had the general support of Cautley, Baird Smith, and Baker, the three prominent military engineers working in the field of irrigation in the Ganga-Yamuna area at that time, though the credit of initiating the idea and vigorously pursuing it largely owed to Thomason. After preparing a ground for several years, Lt. Governor Thomason presented a well-documented proposal to the Governor General vide a communication of September 23, 1847 recommending establishment of a college of civil engineering at Roorkee. The communication enumerated at length activities in various departments of the government in execution of which needs for civil engineers was overriding. The importance of land survey to organize revenue collection, necessity of developing irrigation systems and harnessing waterpower to turn indigenous water mills, proper maintenance of navigation channels for trade and transport, construction of roads and bridges, introduction of railways, all were cited in a forceful plea for the establishment of the college. The suitability of Roorkee as a site for the college in view of the biggest engineering feat of those times, the Solani aqueduct on the Ganga Canal, being under construction were given in support of setting up college at Roorkee. The notification was issued by then Governor General and the Roorkee College started functioning from January 1 1848, an event which marked the beginning of engineering education in India. On January 1, 1848 the College started functioning in tents, with Lieut. R. Maclagan of the Bengal Engineers as the principal, and four other teachers, designated as headmaster, instructor of drawing, head native master, and assistant native master. The Roorkee College had some important features which immediately distinguished it from the colleges of liberal education which the British had opened or were later to open at other places. The College was totally residential. All the students and staff were provided residential accommodation on the campus. All the students, for many years, were stipendiary, and were Management & Change, Volume 14, Number 2 (2010)
28 Sustainable Business Strategy or Eyewash for Unethical... assured of jobs under the public works department. The students could thus be kept under the college discipline all the twenty-four hours, and not only their curricular but also all their extra-curricular activities could be programmed and rigidly enforced. This gave the Roorkee College, a unique opportunity to build and maintain traditions of discipline and emotional involvement peculiar to it. Roorkee College was James Thomason's pet child. After his death the College was very deservedly named after him as the Thomason College of Civil Engineering. Founded in 1847, during a hundred years of its existence, not only it maintained its prominent position as the premier engineering college in the country but also acquired fame outside India. While engineering college at Roorkee served the North-Western Provinces, other engineering colleges were opened at Calcutta, Madras and Pune in the next fifteen years to fulfill the needs of three presidencies of Bengal (now West Bengal), Madras (now Chennai) and Bombay (presently Mumbai). The Calcutta Civil Engineering College at Fort William was founded in 1856, but had rather a short life as it closed in 1864. However, at the same time engineering classes were started at the Presidency College, Calcutta. Later the Engineering College at Sibpur was established in 1880. University of Roorkee as a university was established by an Act of the UP legislature in 1949, Indian Institute of Technology Roorkee was established by an Act of India's Parliament in 2001 as the country's seventh IIT, subsuming the erstwhile University of Roorkee and the original seed institution Thomason College of Engineering, popularly known as the Roorkee College and one the oldest engineering colleges in the world. Roorkee College of Engineering (now the seed institution of IIT Roorkee and previously UOR) owes much to James Thomason. He was an unusual man, very different from the general run of civil servants and political appointees of the East India Company. He was compassionate and humane, sincerely devoted to imperial interests, but at the same time dedicated to the service of the people whom the government professed to serve. He was a man of vision, and could pursue a just cause with zeal and perseverance. He left an indelible imprint of his personality on all the departments of administration of the North-Western Provinces during his ten years, 1843-53, as its Lieut-Governor. Before his premature death in 1853, he had prepared a scheme for its development which if followed, would have made it one of the greatest engineering colleges of the world at that time, serving not so much the imperial interests of Britain but more economic, engineering, and educational interests of the Indian people. - Culled out and summarized by the Editor Source: 1. Mital, K.V. (1986) History of The Thomason College of Engineering (1847-1949), University of Roorkee, Roorkee. 2. Mital, K.V. (1997) History of Roorkee University (1949-96), University of Roorkee, Roorkee. Management & Change, Volume 14, Number 2 (2010)
A STUDY OF GRANGER CAUSALITY BETWEEN SPOT AND FUTURES PRICES FOR SELECTED COMPANIES IN INDIA Sathya Swaroop Debasish The main objective of the study is to examine the directional causality between spot and futures market in Indian scenario. For this purpose, the study has used pairwise Granger Causality test. The study has used daily prices series in both spot market and futures market for the 40 sample individual stocks drawn from six leading sectors, namely, automobiles, banking, cement, gas, oil & refineries, information technology and pharmaceutical. The period of study is from January 1, 1997 to May 31, 2009. The study finds that with the exception of Tata Motors, all the remaining automobile companies showed bi-directional causality between spot and futures prices. Seven (out of selected nine) banks showed bi-directional causality between spot and futures prices. In the gas, oil & refineries sector, BPCL, HPCL, IOC and Reliance Industries showed bidirectional causality between spot and futures prices. Out of the seven IT firms, four companies did not show any causality between spot and futures prices. All the six selected pharmaceutical companies witnessed bi-directional causality between spot and futures prices. Keywords: Granger causality analysis, spot market, futures market INTRODUCTION The advent of stock index futures has profoundly changed the nature of trading on stock exchanges. The concern over how trading in futures contracts affects the spot market for underlying assets has been an interesting subject for investors, market makers, academicians, exchanges and regulators alike. These markets offer investors flexibility in altering the composition of their portfolios and in timing their transactions. Futures markets also provide opportunities to hedge the risks involved with holding diversified equity portfolios. As a consequence, significant portion of cash market equity transactions are tied to futures and options market activity. However, it is Management & Change, Volume 14, Number 2 (2011) Change, 14, Number 2 (2010) Š 2010 IILM Institute for HigherManagement Education. & All RightsVolume Reserved.
30 A Study of Granger Causality between Spot and Futures Prices...
yet to be known if the introduction of stock index futures has served the purpose claimed by the regulators. India is almost unique in having started trading in individual stock futures in a big way with relatively higher trading volume as compared to the underlying cash market. Equity derivatives trading started on June 9, 2000 with introduction of stock index futures by Bombay Stock Exchange (BSE). National Stock Exchange (NSE) also commenced its trading on June 12, 2000 based on S&P Nifty. Trading on NIFTY futures was introduced on the July 12, 2000.Trading on stock futures was introduced in the NSE on November 9, 2001. Subsequently, other products like stock futures on individual securities, index options and options on individual securities were introduced. Investigation of causal relationship between futures and cash prices is not a new phenomenon. At the international as well as at national level, significant efforts have been made to evaluate the price discovery efficiency of different futures markets like commodity futures, currency futures, equity futures, and others. Garbade and Sibler (1983), Protopapadakis and Stoll (1983), Fatimah (1994), Thomas and Karande (2001) and Isabel and Gilbert (2004) investigated the price discovery efficiency of commodity futures market in different countries viz; America, United Kingdom, Malaysia, India, Mexico and others. Most of these studies found that equity and futures prices were co-integrated and the causality from the futures to cash market was significant as compared to the causality from reverse side. In this study, a pair wise Granger Causality test was done to establish the cause and effect relationship between spot and futures market. Testing causality, in the Granger sense, involves using F-test to examine whether lagged information on a variable Y provides any statistically significant information about a variable X in the presence of lagged X. If not, then “Y does not Granger-cause X.” PAIR-WISE GRANGER CAUSALITY TEST Granger (1988) pointed out that if a pair of time series is cointegrated, then there must be causation in at least one direction. According to the Granger Causality (Granger, 1969) approach a variable Y is caused by X, if Y can be predicted better from past values of Y and X, than from past values of Y alone. Four patterns of causality can be distinguished: (a) unidirectional causality from X to Y; (b) unidirectional causality from Y to X; (c) feedback or bi-directional causality; and (d) no causality. For a simple bivariate model, Management & Change, Volume 14, Number 2 (2010)
Sathya Swaroop Debasish 31
the pattern of causality can be identified by estimating regression of Y and X on all the relevant variables including the current and past values of X and Y, respectively and by testing the appropriate hypothesis. Formally a time series xt Granger-causes another time series yt if series yt can be predicted with better accuracy by using past values of xt rather than not doing so, other information being identical. In other words variable xt fails to Granger-cause yt if Pr (yt + m | Ùt ) = Pr (yt + m | Øt ) where, Pr (yt + m | Ùt) denotes conditional probability of yt where Ùt is the set of all information available at time t, and Pr (yt + m | Øt ) denotes conditional probability of yt, obtained by excluding all information on xt from yt . This set of information is depicted as Øt . The causal relations between stationary series xt and yt can be established based on the following equations:
where, k is suitably chosen positive integer; ãj and âj , j= 0,1…..,k are parameters and á is constant and ut is disturbance terms with zero means and finite variances. The null hypothesis that yt does not Granger-cause xt is accepted if the âj, (with j>0) in equation (21) is jointly significantly different from zero using a standard joint test (like F-test) Similarly xt Granger-causes yt if the ãj (with j>0) coefficient in equation (22) are jointly different from zero. OBJECTIVES OF THE STUDY The main objective of the study is to examine the directional causality between spot and futures market. For this purpose, the study has used pair-wise Granger Causality test. LITERATURE REVIEW The study of Kutner and Sweeney (1999) examined whether the S&P 500 index cash and futures markets were causally related in the statistical sense of Granger (1969). Intraday minute-by-minute returns were examined over the period August to December 1987. A two stage filter technique was employed to reduce the raw returns to white noise and eliminate any Management & Change, Volume 14, Number 2 (2010)
32 A Study of Granger Causality between Spot and Futures Prices...
autocorrelation in the regression residuals. Given the nonsynchronous trading in the index and the use of intraday data, this could be a serious problem that may invalidate any statistical inferences. The findings indicated a strong causal relationship, with the futures leading the cash. Different filtering mechanisms were explored that yielded similar results. Granger, et al., (1998), Covrig and Melvin (2001) and Anderson, et al., (2002) examined the price discovery efficiency of currency futures market in various developing and developed economies and they observed strong bilateral causality between spot and futures markets. Most of their studies found that futures market was efficient for underlying currencies, in the sense that it led the cash market. Raju and Karande (2003) investigated the causality relationship between equity futures and cash market on NSE, but found mixed results regarding the causality relationship between two markets. The reason for the confusing results may be the short time period (i.e. three years) considered for the study but when the same market was examined by considering lengthy time frame (i.e. five years) by Gupta and Singh (2006), they found strong bilateral causality between cash and futures market. Thus, the review of literature provides sufficient evidences that equity futures market have been an efficient price discovery vehicle. By using intra-day data from April to September 2004, Mukherjee and Mishra (2004) made an effort to investigate the possible lead-lag relationship, both in terms of return and volatility, among the NIFTY spot index and index futures market in India and also to explore the possible changes (if any) in such relationship around the release of different types of information. Their results suggested that though there is a strong contemporaneous and bi-directional relationship among the returns in the spot and futures market, the spot market was found to play comparatively stronger leading role in disseminating information available to the market, and therefore said to be more efficient. Apart from this, there was also interdependence (in both direction) and therefore more or less symmetric spillovers among the stock return volatility in the spot and futures market. The results relating to the informational effect on the lead-lag relationship exhibited that though the leading role of the futures market would not strengthen even for major market-wide information releases, the role of the futures market in the matter of price discovery was found to be weaker and sometimes disappeared after the release of major firm-specific announce-ments. Management & Change, Volume 14, Number 2 (2010)
Sathya Swaroop Debasish 33
Sah and Omkarnath (2005) examined the nature and extent of relation between NSE-50 Futures and volatility of S&P CNX Nifty. They used Granger causality test to study relationship between volatility and futures market activity. The sample data consisted of daily closing prices of S&P Nifty and turnover from June 12, 2000 through March 25, 2004 for near month and from June 12 through January 29, 2004 for middle month and far month contracts. Their empirical study suggested that futures market activity destabilized the underlying market. The direction of causation was bidirectional in case of near month; however, causality ran from Nifty Futures to volatility of S&P Nifty in case of far month contract. Kakati and Kakati (2006) examined two issues: (1) Price dynamics between spot and futures prices for stock (i.e., whether futures market leads the spot market or vise-a-versa in price discovery) and (2) Informational content of the basis (i.e., whether or not that information revealed by the basis has a signaling role in determining the direction of change in spot and futures prices). Using S&P CNX Nifty Index Futures, CNX IT index and ten stock futures, their study found that the basis reveals the direction of changes in futures prices and also to a much lesser extent, that of cash/spot prices. They, however, failed to find evidence that futures prices lead spot prices on a day-to-day basis. It appeared that the information was mostly aggregated in the spot markets and then transmitted to the futures market. Bi-directional causality with moderate feedback was noticed when longer lag periods were considered. The futures market converged much faster than the spot market does to the deviation of the equilibrium. Praveen and Sudhakar (2006) studied the price discovery mechanism in India’s rapidly growing commodity futures market. Granger Causality Test was used for the study that focuses on the Indian stock and commodity market. A comparison was drawn for price discovery between the grown stock market and the growing commodity market. Their study highlighted as to how the futures market influenced the spot market and facilitates better price discovery in the spot market. The spot and/or futures market dominated the price discovery, but it appeared that a better price discovery occurred when there was a mature futures market for the commodity. Overall, the above studies show that the effect of futures trading on the volatility of spot markets varies depending on time period, model specification, and/or country examined. Considering the short history of futures and options trading and the presence of several market frictions and restrictions that might have hindered the efficient operation of Indian securities markets, a Management & Change, Volume 14, Number 2 (2010)
34 A Study of Granger Causality between Spot and Futures Prices...
study of the effect of futures trading on spot market volatility is highly required for the Indian stock markets. DATA AND SOURCES The study has used daily prices series in both spot market and futures market for the 40 sample individual stocks drawn from six leading sectors, namely, automobiles, banking, cement, gas, oil and refineries, information technology and pharmaceutical. The results of the 40 selected companies are presented in the section ‘Analysis and Findings’. In terms of market capitalization, the leading stocks under each of the six selected sectors were shortlisted. On the basis of complete data availability of spot prices during the study period and a minimum 24 months of continuous daily futures data, we finalized the selected 40 companies. The spot prices and the one-month futures prices of the selected stocks are taken for the study. The futures time series analyzed here uses data on the near month contract as they are most heavily traded. The study used data on daily opening, low, high and closing prices of the selected indices and individual stocks traded in the spot market. The futures data include the near-month prices of daily opening, low, high and closing. The study was entirely based on time series data from secondary sources and collected from official website of National Stock Exchange (www.nse-india.com). The period of study is from January 1, 1997 to May 31, 2009.
Sathya Swaroop Debasish 35
applied. Testing causality, in the Granger sense, involves using F-tests to test whether lagged information on a variable Y (futures prices) provides any statistically significant information about a variable X (spot prices) in the presence of lagged X. If not, then “Y does not Granger-cause X.” The study tests the directional causality between spot and futures prices using Pairwise Granger Causality. In Granger Causality analysis, we test two sets of null hypotheses, namely, (i) Futures price does not Granger Cause Spot price (ii) Spot price does not Granger Cause Future price Both these null hypotheses are tested using F-test for statistically significance at 1 per cent or 5 per cent level. If only the first hypothesis is rejected, we conclude that futures price ‘Granger cause’ spot price, whereas rejection of only second hypothesis implies that spot price ‘Granger cause’ futures price. In both these cases, we evidence unidirectional causality between spot prices and futures prices. But on the other hand, if both the above hypothesis is rejected simultaneously, we conclude bi-directional causality. This implies that there exists a twoway feedback relationship between spot and futures market. The study employed Granger Causality test as provided in the econometric software package Eviews version 3.0. ANALYSIS AND FINDINGS
RESEARCH METHODOLOGY Methodology directs the researcher to conduct the research in a systematic manner and deals with sampling plan and various tools to carry out the analysis on the data collected. In the first place, the daily returns based on spot and futures prices were computed. The price series consisted of open price, low, high, and closing prices for both spot and futures market. The returns for the futures contract and the spot index are defined as RFt = {Ln (Ft / Ft-1)} and RSt = {Ln (St / St-1) }, respectively where Ft and St are the futures prices and spot prices on day t, respectively. Since our objective is to detect causal relationship between spot price and futures prices series, pair-wise Granger Causality Tests have been Management & Change, Volume 14, Number 2 (2010)
1. Granger Causality Analysis between Spot and Futures Market for companies in Automobile sector The results of the Granger causality study for the six selected automobile companies are presented in Table 1. It is observed that the first hypothesis, namely, ‘Futures price does not Granger Cause Spot price’ is rejected for all these companies with statistical significance. This implies that futures prices ‘granger causes’ the spot prices. Further, it can be seen that for first null hypothesis highest value of F-test is witnessed for Hero Honda (35.46) followed by Maruti Udyog (31.69) and Bajaj Auto (29.49), each of them found to be significant at 1 per cent level. With respect to the first hypothesis lowest value of F-test is seen for TVS Motors (28.63). Management & Change, Volume 14, Number 2 (2010)
36 A Study of Granger Causality between Spot and Futures Prices...
Sathya Swaroop Debasish 37
Further, the second hypothesis, namely, ‘Spot price does not Granger Cause Futures price’ is rejected for the selected automobile companies (except Tata Motors) with statistical significance. It can be seen that for second hypothesis highest value of F-test is observed for M & M (21.39) followed by Maruti Udyog (18.85) and TVS Motors (18.12), all being significant at 5 per cent level. Least value of F-test for second hypothesis is seen for Bajaj Auto (15.59).
Thus, with the exception of Tata Motors all the remaining Automobile companies showed bi-directional causality between spot and futures prices. Tata Motors is observed to have unidirectional causality from futures to spot i.e., futures prices ‘granger causes’ spot prices.
Table 1 Pairwise Granger Causality Results for the selected companies in Automobile Sector
Table 2 provides the results of the Granger causality study for the nine selected banks. It is observed that the first hypothesis namely, ‘Futures price does not Granger Cause Spot price’ is rejected for eight banks (except Canara Bank) with statistical significance. This implies that Futures prices does causes the spot prices. Further, it can be seen that for first hypothesis highest value of F-test is witnessed for Oriental Bank (65.85) followed by Union Bank of India (56.94) and ICICI Bank (43.68), all being significant at 1 per cent level. Least value of F-test for first hypothesis is seen for IDBI (23.56) followed by Bank of Baroda (31.52) and PNB (32.61), all being significant at 1 or 5 per cent level.
S.No. 1
2
3
4
5
6
Companies Bajaj Auto
Hero Honda
Maruti Udyog
M&M
Tata Motors
TVS Motors
Null Hypothesis
F-statistic
Result
Futures price does not Granger Cause Spot price
29.49* (0.0031)
Rejected
Spot price does not Granger Cause Future price
15.59** (0.0455)
Rejected
Futures price does not Granger Cause Spot price
35.46* (0.0012)
Rejected
Spot price does not Granger Cause Future price
15.85** (0.0489)
Rejected
Futures price does not Granger Cause Spot price
31.69* (0.0049)
Rejected
Spot price does not Granger Cause Future price
18.85** (0.0362)
Rejected
Futures price does not Granger Cause Spot price
28.11* (0.0000)
Rejected
Spot price does not Granger Cause Future price
21.39** (0.0135)
Rejected
Futures price does not Granger Cause Spot price
23.19* (0.0036)
Rejected
Spot price does not Granger Cause Future price
12.36 (0.0761)
Rejected
Futures price does not Granger Cause Spot price
28.63** (0.0213)
Rejected
Spot price does not Granger Cause Future price
18.12** (0.0433)
Rejected
Note: Value in parenthesis indicates the probability values of accepting the null hypothesis;* denote significance at 1 per cent level; ** denote significance at 5 per cent level. Management & Change, Volume 14, Number 2 (2010)
2. Granger Causality Analysis between Spot and Futures Market for companies in Banking sector
Table 2 Pairwise Granger Causality Results for the selected companies in Banking sector S.No. 1
2
3
4
Companies Bank of Baroda
Canara Bank
HDFC Bank
ICICI Bank
Null Hypothesis
F-statistic
Result
Futures price does not Granger Cause Spot price
31.52** (0.0126)
Rejected
Spot price does not Granger Cause Future price
17.65** (0.0355)
Rejected
Futures price does not Granger Cause Spot price
20.51 (0.0625)
Accepted
Spot price does not Granger Cause Future price
11.36 (0.1125)
Accepted
Futures price does not Granger Cause Spot price
36.54 * (0.0016)
Rejected
Spot price does not Granger Cause Future price
21.89** (0.0269)
Rejected
Futures price does not Granger Cause Spot price
43.68* (0.0001)
Rejected
Spot price does not Granger Cause Future price
26.39* (0.0036)
Rejected
Management & Change, Volume 14, Number 2 (2010)
38 A Study of Granger Causality between Spot and Futures Prices... 5
6
7
8
9
IDBI
Oriental Bank
PNB
SBI
Union Bank of India
Sathya Swaroop Debasish 39
Futures price does not Granger Cause Spot price
23.56** (0.0359)
Rejected
Thus, with the exception of Canara Bank and PNB all the remaining banks showed bi-directional causality between spot and futures price.
Spot price does not Granger Cause Future price
20.68** (0.0463)
Rejected
3. Granger Causality Analysis between Spot and Futures Market for companies in Cement sector
Futures price does not Granger Cause Spot price
65.85* (0.0000)
Rejected
Spot price does not Granger Cause Future price
38.69* (0.0000)
Rejected
Futures price does not Granger Cause Spot price
32.61* (0.0046)
Rejected
Spot price does not Granger Cause Future price
16.58 (0.0839)
Accepted
Futures price does not Granger Cause Spot price
42.61 (0.0052)
Rejected
Spot price does not Granger Cause Future price
25.63 (0.0059)
Rejected
Futures price does not Granger Cause Spot price
56.94* (0.0000)
Rejected
Spot price does not Granger Cause Future price
23.48* (0.0048)
Rejected
Table 3 provides the results of the Granger causality study for the selected four Cement companies. It is observed that the first hypothesis, namely, ‘Futures price does not Granger Cause Spot price’ is rejected for the selected cement companies (except ACC) with statistical significance. This implies that futures prices does cause the spot prices. Further, it can be seen that for first hypothesis highest value of F-test is witnessed for Gujrat Ambuja Cements (56.42) and lowest value of F-test is seen for India Cements (25.69), being found significant at 1 per cent and 5 per cent level, respectively. Table 3 Pairwise Granger Causality Results for Select Stocks in Cement Sector S.No. 1
Note: Value in parenthesis indicates the probability values of accepting the null hypothesis;* denote significance at 1 per cent level; ** denote significance at 5 per cent level.
2
Further, the second hypothesis namely ‘Spot price does not Granger Cause Futures price’ is rejected for seven banks (except Canara Bank and PNB) with statistical significance. It can be seen that for second hypothesis highest value of F-test is observed for Oriental Bank (38.69) followed by ICICI Bank (26.39) and SBI (25.63), all being significant at 1 or 5 per cent level. Least value of F-test for second hypothesis is seen for Bank of Baroda (17.65) followed by IDBI (20.68) and HDFC Bank (21.89). PNB is observed to have unidirectional causality from futures to spot i.e., futures prices ‘granger causes’ spot prices with F-value of 32.61 significant at 1 per cent level. In case of Canara Bank, both the null hypothesis could not be rejected implying that neither futures prices ‘Granger causes’ spot prices nor the vice-versa.
3
Management & Change, Volume 14, Number 2 (2010)
4
Companies ACC
Grasim Cement
Gujrat Ambuja Cement
India Cement
Null Hypothesis
F-statistic
Result
Futures price does not Granger Cause Spot price
13.65 (0.0844)
Accepted
Spot price does not Granger Cause Future price
21.59** (0.0128)
Rejected
Futures price does not Granger Cause Spot price
45.69* (0.0006)
Rejected
Spot price does not Granger Cause Future price
32.38* (0.0159)
Rejected
Futures price does not Granger Cause Spot price
56.42* (0.0000)
Rejected
Spot price does not Granger Cause Future price
28.69* (0.0003)
Rejected
Futures price does not Granger Cause Spot price
25.69** (0.0363)
Rejected
Spot price does not Granger Cause Future price
17.83** (0.0469)
Rejected
Note: Value in parenthesis indicates the probability values of accepting the null hypothesis;* denote significance at 1 per cent level; ** denote significance at 5 per cent level. Management & Change, Volume 14, Number 2 (2010)
40 A Study of Granger Causality between Spot and Futures Prices...
Sathya Swaroop Debasish 41
For ACC, the first hypothesis could not be rejected with significant thereby implying that futures prices do not ‘Granger Cause’ spot prices. Further, the second hypothesis, namely, ‘Spot price does not Granger Cause Futures price’ is rejected for all the selected cement companies with statistical significance. It can be seen that for the second hypothesis the highest value of F-test is observed for Grasim Cements (38.69) and the lowest value of F-test for India Cements (17.65), being found significant at 1 per cent and 5 per cent level, respectively. Thus, bi-directional causality between spot and futures prices is observed for three cement companies namely, Grasim Cements, Gujrat Ambuja Cements and India Cements. But for ACC, only unidirectional causality from spot prices to futures prices is observed since only the second hypothesis (i.e., ‘Spot price does not Granger Cause Futures price’) is rejected at 5 per cent level with F-value of 21.59.
2
3
4
5
Bongaigaon Refineries
GAIL
HPCL
IOC
4. Granger Causality Analysis between Spot and Futures Market for companies in Gas, Oil & Refineries sector Table 4 provides the results of the Granger causality study for the selected eight companies in the Gas, Oil & Refineries sector. It is observed that the first hypothesis, namely, ‘Futures price does not Granger Cause Spot price’ is rejected (with statistical significance) for only five companies, namely, BPCL, Bongaigaon Refineries, HPCL, IOC and Reliance Industries. This implies that futures prices does ‘granger cause’ the spot prices for these five 5 companies. For the remaining three Companies namely, Bongaigaon Refineries, GAIL and ONGC the first hypothesis could not be rejected indicating that futures prices do not cause the spot prices. Further, it can be seen that for first hypothesis highest value of F-test is witnessed for Reliance Industries (65.85) and lowest F-value for HPCL (21.36), being significant at 1 per cent and 5 per cent level, respectively. Table 4 Pairwise Granger Causality Results for Select Companies in Gas, Oil & Refineries Sector S.No. 1
Companies BPCL
Null Hypothesis
F-statistic
Result
Futures price does not Granger Cause Spot price
23.69** (0.0239)
Rejected
Spot price does not Granger Cause Future price
16.89** (0.0359)
Rejected
Management & Change, Volume 14, Number 2 (2010)
6
7
8
IPCL
ONGC
Reliance Industries
Futures price does not Granger Cause Spot price
42.39* (0.0003)
Rejected
Spot price does not Granger Cause Future price
16.97 (0.0539)
Accepted
Futures price does not Granger Cause Spot price
18.46 (0.0645)
Accepted
Spot price does not Granger Cause Future price
11.39 (0.1326)
Accepted
Futures price does not Granger Cause Spot price
21.36** (0.0452)
Rejected
Spot price does not Granger Cause Future price
18.26** (0.0338)
Rejected
Futures price does not Granger Cause Spot price
42.39** (0.0025)
Rejected
Spot price does not Granger Cause Future price
38.69** (0.0189)
Rejected
Futures price does not Granger Cause Spot price
17.86 (0.0865)
Accepted
Spot price does not Granger Cause Future price
11.39 (0.1152)
Accepted
Futures price does not Granger Cause Spot price
20.52 (0.0563)
Accepted
Spot price does not Granger Cause Future price
19.56** (0.0368)
Rejected
Futures price does not Granger Cause Spot price
77.58* (0.0000)
Rejected
Spot price does not Granger Cause Future price
33.56* (0.0000)
Rejected
Note: Value in parenthesis indicates the probability values of accepting the null hypothesis;* denote significance at 1 per cent level; ** denote significance at 5 per cent level. Further, the second hypothesis namely ‘Spot price does not Granger Cause Futures price’ is rejected for five of the selected companies (except Bongaigaon Refineries, GAIL and IPCL) with statistical significance either at 1 or 5 per cent level. It can be observed that for second hypothesis highest value of F-test is witnessed for IOC (38.69) and least F-test value Management & Change, Volume 14, Number 2 (2010)
42 A Study of Granger Causality between Spot and Futures Prices...
Sathya Swaroop Debasish 43
for first hypothesis is seen for BPCL (16.89), both found to be significant at 5 per cent level. Thus, only four of the selected companies showed bidirectional causality between spot and futures prices. These are BPCL, HPCL, IOC and Reliance Industries, in which cases both the null hypothesis were rejected with statistical significance. For GAIL and IPCL, none of the hypothesis could be rejected thus implying no causality between spot and futures prices. For Bongaigaon Refineries, only the first hypothesis could be rejected (and not the second hypothesis), indicating unidirectional causality from futures to spot (i.e., futures prices ‘granger causes’ spot prices). On the other hand, for ONGC a unidirectional causality from spot to futures is witnessed as evidenced from the rejection of second hypothesis of ‘Spot price does not Granger Cause Future price’ (and not the first hypothesis). 5. Granger Causality Analysis between Spot and Futures Market for companies in Information Technology (IT) sector Table 5 Values of the F-test associated with of the Granger Causality Study for the selected seven IT companies. S.No. 1
2
3
4
5
Companies I-Flex
Infosys Tech
PATNI Computers
Polaris
Satyam Computers
Null Hypothesis
F-statistic
Result
Futures price does not Granger Cause Spot price
12.36 (0.0965)
Accepted
Spot price does not Granger Cause Future price
9.45 (0.1568)
Accepted
Futures price does not Granger Cause Spot price
13.65 (0.0784)
Accepted
Spot price does not Granger Cause Future price
10.86 (0.1148)
Accepted
Futures price does not Granger Cause Spot price
14.69 (0.0684)
Accepted
Spot price does not Granger Cause Future price
13.52 (0.0568)
Accepted
Futures price does not Granger Cause Spot price
23.52** (0.0346)
Rejected
Spot price does not Granger Cause Future price
11.38 (0.1781)
Accepted
Futures price does not Granger Cause Spot price
13.59 (0.0711)
Accepted
Management & Change, Volume 14, Number 2 (2010)
6
7
TCS
WIPRO
Spot price does not Granger Cause Future price
7.56 (0.1863)
Accepted
Futures price does not Granger Cause Spot price
21.36** (0.0452)
Rejected
Spot price does not Granger Cause Future price
14.25 (0.0856)
Accepted
Futures price does not Granger Cause Spot price
22.53** (0.0412)
Rejected
Spot price does not Granger Cause Future price
18.65** (0.0397)
Rejected
Note: Value in parenthesis indicates the probability values of accepting the null hypothesis;* denote significance at 1 per cent level; ** denote significance at 5 per cent level. Unlike other sectors, it is witnessed that more number of selected IT companies does not show any causality between spot and futures prices. These are I-Flex, Infosys Tech, Patni Computers and Satyam Computers. In all these four IT companies, both the null hypothesis could not be rejected with statistical significance as seen from the probability values (attached with F-test) which are observed to be higher than 0.05 (5 per cent level of significance). In case of WIPRO, there was bi-directional causality between spot and futures prices series, since both the hypothesis could be rejected with significance. The first hypothesis ‘Futures price does not Granger Cause Spot price’ is rejected (at 5 per cent level) for WIPRO with F-value of 22.53, and the second hypothesis ‘Spot price does not Granger Cause Future price’ was also found to be rejected with F-value of 18.65, significant at 5 per cent level. On the other hand, unidirectional causality was seen for two IT companies namely, Polaris and TCS. For both these companies, the first hypothesis (i.e., ‘Futures price does not Granger Cause Spot price’) could be rejected with F-value of 23.52 (for Polaris at 5 per cent level of significance) and 21.36 (for TCS at 5 per cent level of significance). This implies that for Polaris and TCS, futures ‘Granger causes’ spot prices, but the reverse is not found to be true. 6. Granger Causality Analysis between Spot and Futures Market for companies in Pharmaceutical sector The results of the Granger causality study for the six selected Pharmaceutical Management & Change, Volume 14, Number 2 (2010)
44 A Study of Granger Causality between Spot and Futures Prices...
Sathya Swaroop Debasish 45
companies are presented in table 6. This is the only sector in which all the selected companies witnessed bi-directional causality, implied by the combined rejection of both the null hypothesis, with statistical significance. This implies that futures prices do ‘Granger cause’ the spot prices, and spot prices also do ‘Granger cause’ futures prices. Further, it can be seen that for the first hypothesis highest value of F-test is witnessed for Wockhardt (74.39) followed by Dr. Reddy’s (46.85) and CIPLA (38.69), all being significant at 1 per cent level. Lowest value of F-test for first hypothesis is seen for Dabur (24.85), followed by Glaxo Pharma (31.28) and Ranbaxy (35.68), all being significant at 1 per cent level. Table 6 Pairwise Granger Causality Results for Select Companies in Pharmaceutical Sector S.No.
Companies
Null Hypothesis
F-statistic
Result
Futures price does not Granger Cause Spot price
38.69* (0.0086)
Rejected
Spot price does not Granger Cause Future price
21.38** (0.0125)
Rejected
Futures price does not Granger Cause Spot price
46.85 (0.0000)
Rejected
Spot price does not Granger Cause Future price
16.67** (0.0183)
Rejected
Futures price does not Granger Cause Spot price
24.85* (0.0000)
Rejected
Spot price does not Granger Cause Future price
22.97** (0.0076)
Rejected
Futures price does not Granger Cause Spot price
31.28** (0.0156)
Rejected
Spot price does not Granger Cause Future price
18.69** (0.0359)
Rejected
Futures price does not Granger Cause Spot price
35.68* (0.0054)
Rejected
Spot price does not Granger Cause Future price
25.18** (0.0236)
Rejected
Futures price does not Granger Cause Spot price
74.39* (0.0000)
Rejected
Spot price does not Granger Cause Future price
19.19* (0.0000)
Rejected
Note: Value in parenthesis indicates the probability values of accepting the null hypothesis;* denote significance at 1 per cent level; ** denote significance at 5 per cent level. Moreover, the second hypothesis, namely, ‘Spot price does not Granger Cause Futures price’ is rejected for all the Pharmaceutical companies, with statistical significance. It can be seen that for second hypothesis highest value of F-test is observed for Ranbaxy (25.18) followed by Dabur (22.97) and CIPLA (21.38) each being found to be significant at 5 per cent level. Lowest value of F-test for first hypothesis is seen for Dr. Reddy’s (16.67), followed by Glaxo Pharma (18.69) and Wockhardt (19.19), all being significant at 5 per cent level. CONCLUSION
1
2
3
4
5
6
CIPLA
Dr. Reddy’s
Dabur
Glaxo Pharma
Ranbaxy
Wockhardt
Management & Change, Volume 14, Number 2 (2010)
The pair-wise Granger Causality test was undertaken to establish the cause and effect relationship between spot and futures market. With the exception of Tata Motors, all the remaining automobile companies showed bi-directional causality between spot and futures prices. Seven (out of selected nine) Banks showed bi-directional causality between spot and futures prices. In case of PNB, futures prices ‘granger causes’ spot while futures ‘granger causes’ spot prices for Canara Bank. In the cement sector, unidirectional causality is observed from spot prices to futures prices, with the exception of ACC for which futures prices do not ‘Granger cause’ spot prices. In the Gas, Oil & Refineries sector, BPCL, HPCL, IOC and Reliance Industries showed bi-directional causality between spot and futures prices. Out of the seven IT firms, four companies did not show any causality between spot and futures prices. These are I-Flex, Infosys Tech, Patni Computers and Satyam Computers. All the six selected pharmaceutical companies witnessed bi-directional causality between spot and futures prices. The results of this study are especially important to stock exchange officials and regulators in designing trading mechanisms and contract specifications for derivative contracts, thereby enhancing their value as risk management tools. REFERENCES Abhyankar, A. (1998) “Linear and Non-linear Granger Causality: Evidence from the UK Stock Index Futures Market”, The Journal of Futures Market, 18 (5): 519-540. Caines, P.E., C.W. Keng & S.P. Sethi (1981) “Causality Analysis and Multivariate Autoregressive Modeling with an Application to Supermarket Management & Change, Volume 14, Number 2 (2010)
46 A Study of Granger Causality between Spot and Futures Prices...
Sales Analysis”, Journal of Economic Dynamics and Control, 3: 267 - 298. Engle, R.F. & C.W.J. Granger (1987) “Cointegration and Error Correction: Representation, Estimation, and Testing”, Econometrica, 55: 251-276. Ghosh, A. (1993) “Cointegration and Error Correction Models: Inter Temporal Causality between Index and Future Price”, The Journal of Future Markets, 2: 193-198. Granger, C.W.J. (1969) “Investigating Causal Relations by Econometric Models and Cross-Spectral Method”, Econometrica, 37: 424-438. Granger, C.W.J. (1998) A Bivariate Causality Between Stock Prices and Exchange Rates: Evidence from Recent Asia Flu, Discussion Paper, Deptt. of Economics, University of California, San Diego, p.1-24. Granger, C.W.J. (1988) “Causality, Cointegration and Control”, Journal of Economic Dynamics and Control, 12: 551-559.
Sathya Swaroop Debasish 47
Tang, G.N., S.C. Mak & D.F.S. Choi (1992) “The Causality between Stock Index Future and Cash Index Prices in Hong Kong”, Applied Financial Economics, 13: 711-742. Thornton, D.L. & D.S. Batten (1985) “Lag-Length Selection and Tests of Granger-Causality between Money and Income”, Journal of Money, Credit, and Banking, 17: 164-178. Turkington, J. & D. Walsh (1999) “Price Discovery and Causality in the Australian Share Price Index Futures Market”, Australian Journal of Management, 24 (2): 97-113.
WINNING AND LOSING The spirit of sports is destroyed by business getting involved. Sports should simply bring lightness, laughter and entertainment. When business enters it, its very soul is destroyed. - Sri Sri Ravi Shankar
Gupta, K. & B Singh (2006) “Price Discovery and Causality in Spot and Futures Market in India”, ICFAI Journal of Derivatives Market, 3 (1): 30-41.
When you win and the other fellow loses, what do you see? A losing face. But there is great joy in losing and making the other person win and have a happy face. Who will be the happiest person? The one who brings happiness to others.
Kang, H. (1985) “The Effects of Detrending in Granger Causality Tests”, Journal of Business and Economic Statistics, 3: 344-349.
- S. Satchidananda
Kutner, George W. & Robert J. Sweeney (1999) “Causality Tests Between the S&P 500 Cash and Futures Markets”, Journal of Futures Markets, 19 (2): 217-232. Lutkepohl, H. (1982) “Non-Causality Due to Omitted Variables”, Journal of Econometrics, 19: 367-378.
There is always the motivation of wanting to win. Everybody has that. But a champion needs, in his attitude, a motivation above and beyond winning. - Pat Riley The difference between winning and losing is always a mental one. - Peter Thomson
Mehra, Y.P. (1989) “Velocity and the Variability of Money Growth: Evidence from Granger-Causality Tests”, Journal of Money, Credit and Banking, 21: 262-266. Stock, J. & M. Watson (1989) “Interpreting the Evidence on Money-Income Causality”, Journal of Econometrics, 40: 161-182. Management & Change, Volume 14, Number 2 (2010)
Winning is not overrated, it’s your acceptance of being rated. - Carrie Latet Source:
The Times of India, Be a Sport (Sacred Space), March 10, 2011
Management & Change, Volume 14, Number 2 (2010)
48 A Study of Granger Causality between Spot and Futures Prices...
VOCATIONAL TRAINING In India, where more than eighty per cent of the population is agricultural and another ten per cent industrial, it is a crime to make education merely literary and to unfit boys and girls for manual work in after-life. Our children must, from their infancy, be taught the dignity of such labour.
RELATIONSHIP BETWEEN LEARNING ORGANIZATION AND ORGANIZATIONAL EFFECTIVENESS: AN EMPIRICAL STUDY OF FEW SELECTED INFORMATION TECHNOLOGY (IT) FIRMS IN INDIA Luxmi
Gunmala Suri
- Mahatma Gandhi, Young India, Sept 1, 1921 I would revolutionize college education and relate it to national necessities. There would be degrees for mechanical and other engineers. They would be attached to the different industries which would pay for the training of the graduates they need… Medical colleges would be attached to certified hospitals. As they are popular among moneyed men, they may be expected by voluntary contributions to support medical colleges. And agricultural colleges, to be worthy of the name, must be self-supporting. - Mahatma Gandhi, Harijan, July 31, 1937 The core of my emphasis is not the occupations, but education through manual training – all education - of letters, history, geography, mathematics, science, etc., through manual training…This primary education would include the elementary principles of sanitation, hygiene, nutrition, of doing their own work, helping parents at home, etc. The present generation of boys knows no cleanliness, no self-help, and physically weak. I would, therefore, give compulsory physical training through musical drill, etc. - Mahatma Gandhi, Harijan, Oct 30, 1937 My plan to impart primary education through the medium of village handicrafts like spinning and carding, etc., is conceived as the spearhead of a silent social revolution fraught with the most far reaching consequences. It will provide a healthy and moral basis of relationship between the city and the village, and thus go a long way towards eradicating some of the worst evils of the present social insecurity and poisoned relationship between the classes. - Mahatma Gandhi, Harijan, Oct 9, 1937
Management & Change, Volume 14, Number 2 (2010)
This study examined the relationship between learning organization and organizational effectiveness in the information technology firms in India. A descriptive cum empirical methodology was used. For the purpose of the study, eight core dimensions of learning organization were identified: holistic frame, shared vision, information flow, strategic thinking, empowerment, internality, and synergy. For organizational effectiveness, eight core dimensions were identified: flexibility, acquisition of resources, planning, productivity, communication, stability, cohesive workforce, satisfied work force. Research findings indicated a strong positive relationship between learning organization and effectiveness and between most of the learning organization dimensions and of organizational effectiveness dimensions Keywords:Learning organization, organizational effectiveness, information technology firms in India INTRODUCTION Information technology industry has been steadily growing and expanding in the international market and playing an important role in the Indian economy. But, in order to keep growing and expanding, IT firms have only one choice: to reinforce and expand their capabilities to learn, adapt, innovate and transform them, i.e. to build and maintain learning organizations. Learning is the key to success-some would even say survivalin today’s organizations. Knowledge should be continuously enriched through both internal and external learning. For this to happen, it is necessary to support and energize organization, people, knowledge, and technology for learning. Management & Change, Volume 14, Number 2 (2011) Change, 14, Number 2 (2010) © 2010 IILM Institute for HigherManagement Education. & All RightsVolume Reserved.
50 Relationship Between Learning Organization...
LEARNING ORGANISATION (LO) Senge (1990) one of the leaders in the field of the learning organization defined the learning organization as one where: “people continually expand their capacity to create results they truly desire; new and expansive patterns of thinking are nurtured; collective aspirations are set free; people are continually learning to learn together”. Garvin (1993) defined Learning Organization as an organization skilled at creating, acquiring and transferring knowledge and at modifying its behaviour to reflect new knowledge and insights. According to him, learning organizations are skilled at five main activities: systematic problem solving, experimentation with new approaches, learning from their own experience and past history, learning from the experiences and best practices of others, and transferring knowledge quickly and efficiently throughout the organization. Watkins and Marsick (1992) state that “learning organizations are characterized by total employee involvement in a process of collaboratively conducted, collectively accountable change directed toward shared values or principles.” Chang and Lee (2007) explained that learning organization covers individual, grouping and organizational learning with the simultaneous proceeding effort for organizational and individual learning. It is a type of collective activity to reach organization shared vision. Farago and Skyrme (1995) defined learning organization as “those that have in place systems, mechanisms and processes, that are used to continually enhance their capabilities and those who work with it or for it, to achieve sustainable objectives for themselves and communities in which they participate.” Malhotra (1996) defined the LO as an “organization with an ingrained philosophy for anticipating, reacting and responding to change, complexity and uncertainty”. The key ingredient of the LO, Malhotra commented, is in how organizations process their managerial experiences (Malhotra, 1996). The social view of the LO dominates the popular writing the focus is not on outcomes; rather it focuses on interaction and process (Smith and Tosey, 1999): There are five critical elements to the definition: (i) A learning organization learns consciously; it introduces a necessary level of intent and commitment to the process of learning. (ii) A learning organization learns continually, not just consciously. Management & Change, Volume 14, Number 2 (2010)
Luxmi & Gunmala Suri 51
(iii) A learning organization highlights experience as a source of learning; it emphasizes the means and ability to exploit its track record, using field operations as a primary source of learning, while drawing from elsewhere. (iv) A learning organization improves practice; the litmus test for whether learning has, in fact, occurred lies in the extent to which its practice has actually improved. (v) A learning organization is built around people - their know-what, knowhow, and know-why are central to the undertaking. One of the first and most popularized models dealing with building a learning organization is Senge’s model. (Senge 1990) identified five core disciplines needed to build a learning organization. These disciplines are: systems thinking, personal mastery, mental models, building shared vision, and team learning. Senge saw “systems thinking” at the heart of his model, the whole as primary, interdependence and interaction of the parts, parts not to be taken as primary, and stressed cyclical causation, long-term perspective, and feedback of the features of open systems perspective. Personal mastery means that organizations must encourage their employees to continuously learn and develop their skills and capabilities. Each individual must have a clear vision and long range goals, recognize clearly the gap between the vision and current situation, and be willing and determined to change the present situation. A learning organization values the role that learning can play in developing organizational effectiveness. It demonstrates this by having an inspiring vision for learning and a learning strategy that will support the organization in achieving its vision. The leadership of a learning organization is committed to the importance of learning and clearly communicates that learning is critical to organizational success. The leadership recognizes the importance of providing the motive, means, and opportunity for learning: (i) the motive being the “why?”—the purpose and reason for learning; (ii) the means being the “how and what?”—the models, methods, and competencies required; and (iii) the opportunity being the “where and when?” - the spaces for learning. Leaders take an exemplary leading role in creating and sustaining a supportive learning culture. The structure of a learning organization takes into account the common obstacles to learning so it is carefully aligned with strategy, avoiding and minimizing unnecessary levels of hierarchy. Communication systems are used to facilitate the lateral transfer of Management & Change, Volume 14, Number 2 (2010)
52 Relationship Between Learning Organization...
information and knowledge across formal structural boundaries. In decentralized and geographically spread organizations, particular care is taken to use communication to encourage lateral communication. Adequate resources are allocated for learning in terms of time, space, specialist support staff, and budgets for knowledge management and learning infrastructure, formal and informal communities of practice and other value networks (both internal and external), and learning and development programs. Support to communities of practice, for example, is extended in a structured manner throughout their life cycle. To stimulate creativity and generate new insights and innovative practices, a learning organization takes a balanced approach to the importance of both planned and emergent learning. Planned learning is addressed through the careful development of strategy, structure, systems, procedures and plans. In a learning organization, planning is based on careful reflection through probing questions that draw on data and information from monitoring, review, and self- and independent evaluation. Emergent learning is equally important but takes an inherently more speculative and opportunistic approach. It is dependent on encouraging a passion for learning and knowledge sharing among staff members, developing learning competencies, creating opportunities for informal sharing, and cultivating a supportive learning culture. Failures and unintended outcomes are the focus of constructive discussions leading to new approaches. When such incidents involve clients, care is taken to protect their reputation. Team learning is seen to be crucial “because teams, not individuals, are the fundamental teaching unit in modern organizations (Senge, 1990). Stress is made on dialogue, team work, sharing information, constructive discussion, openness, collaboration, and free thinking as crucial in team learning. Shared vision is a critical factor in organization success, and shared vision must be created through interaction with individuals in the organization not imposed by top management. A shared vision provides encouragement and support for members to learn and innovate. Several models of a learning organization were developed extending and or drawing on Senge’s model to a greater or lesser degree. It can be concluded from the discussion that the various models of the learning organization extend and or draw on Senge’s model, to a greater or lesser degree. Building a learning organization is a challenging, slow, continuous multi-faceted process Management & Change, Volume 14, Number 2 (2010)
Luxmi & Gunmala Suri 53
that requires continual changes in the whole organizational internal environment, including culture, structure, job design, processes, technology, human, etc. ORGANISATIONAL EFFECTIVENESS (OE) The complexity and competitiveness of today’s business environment requires that companies continuously raise the bar on their effectiveness. Top performance increasingly demands excellence in all areas, including leadership, productivity and adaptation to change, process improvement, and capability enhancement (knowledge, skills, abilities, and competencies). It is no doubt that improving organizational effectiveness is a significant way to lead to business success. However, how to improve OE and what are key factors affect OE has still no certain answer. According to research, there are some directions to improve organizational effectiveness. Typical organizational effectiveness projects include, process mapping and measurement; process improvement; expert facilitation of internal interventions; productivity improvement; monitoring and evaluation; measuring and assessing climate and culture; improving communication processes; team building and team effectiveness improvement; cohering management teams and rationalizing the complexities of organizational structure. Organizational effectiveness theory began a dramatic evolution nearly 50 years ago with the merging of general systems theory concepts and then-prevailing management theory. This combination signaled the start of a paradigm shift — a new way of viewing the world and relating to each other - comparable to a shift from “machine age to organic thinking” (McCann, 2004). It is essential to understand how organizational effectiveness theory and practice has evolved over time. The adoption of general systems theory concepts in management studies has been one of the most significant events in organizational effectiveness studies over the past 50 years and continues to shape thinking and practice. Systems theory views the individual, group, organization, and the organization’s larger set of interdependent organizations as a dynamic, interrelated whole. Changes in one or more parts of this complex system imply changes for the others. All system parts are in a state of more or less constant and active adaptation, and how well adaptation occurs becomes the critical question from an effectiveness perspective. Management & Change, Volume 14, Number 2 (2010)
54 Relationship Between Learning Organization...
From a knowledge management perspective, effective organizations are those that promote individual and group learning through management practices that amplify and move infuriation through organization - level systems, processes, and technologies (McCann, 2004). Many effectiveness measures and models have been developed and advocated by various writers, such as: profitability, productivity, efficiency, effectiveness, adaptability, growth, innovation, etc. James Price (1968) has reviewed and analyzed fifty studies and developed a model comprising of an independent variable called ‘effectiveness’. After surveying the available research literature price came to the conclusions that five variables are positively related to effectiveness. These five variables are: Productivity, morale, conformity adaptability and institutionalization. Price also concluded that productivity is more closely related to effectiveness than are the four other variables. Robbins (1998) suggested four performance indicators to assess organizational effectiveness: profit maximization, organizational ability to acquire inputs and transform them successfully into outputs, maintaining stability and balance, and identifying and satisfying customers’ needs. Robbins and Coulter (2005) suggested that organizational effectiveness included four approaches/models: goal/output achievement, systems resources, internal processes, and multiple constituencies models. Literature on organizational effectiveness clearly shows that there is no single universal measure that can be used to assess overall organizational effectiveness. Traditional financial and the productivity measures are not accepted as the indicators for organizational effectiveness. Moreover, we can hardly find an organization that is very successful or failure in every aspect. The study of organizational effectiveness has dramatically evolved with the adoption of general systems theory concepts and changes in the complexity and pace of change of organizational environments. Organizational effectiveness has always measured how successfully organizations achieve their missions through their core strategies. Organizational effectiveness studies are concerned with the unique capabilities that organizations develop to assure that success. Learning Organisation And Organisational Effectiveness William (1994) in his study ‘Correlates of Organizational Effectiveness: A Multilevel Analysis of a Multidimensional Outcome’ explored the relationship between environmental scarcity, organization size, and board composition with measures of financial and social performance. Correlates were found Management & Change, Volume 14, Number 2 (2010)
Luxmi & Gunmala Suri 55
to be related to both measures of performance and the hypotheses were largely supported. Anomalous relationships, however, were found between organizational size and social performance as well as outsider representation and financial performance. The study demonstrates that normative explorations focusing only on financial performance can lead to misleading conclusions about organizational effectiveness. Cameron (1986) studied organizational effectiveness and its predictors. The study demonstrates how organizational effectiveness studies are crucial in certain types of organizations. The results of the study of 29 organizations indicate that certain managerial strategies are strongly associated with high static scores and improving effectiveness over time. Managerial strategies were found to be more important than structure, demographics, finances and other factors. Proactive strategies and ones with external emphasis were more successful than internal and reactive strategies. Selden (1998) evaluated the relationship between the seven dimensions of learning organization (continuous learning, inquiry and dialogue, team work, embedded system, empowerment, system connections and provision of leadership) and knowledge performance and it was found that all dimensions except inquiry and dialogue were significantly correlated with knowledge performance. Dymock and McCarthy (2006) conducted a research to explore employee perception of the development of a learning culture in a mediumsized manufacturing industry that inspires to become a learning organization. Provision of leadership and continuous learning dimensions received the highest score of mean in this research. Steven and Pool (2000) investigated the relationships of total quality management, organizational culture and their impact upon a learning organization. The study investigated the attributes of a learning organization and its influence upon employee motivation. A total of 307 executives participated in the study. Results revealed that many executives had pursued professional development programs in TQM principles and/or in Senge’s organizational learning principles over the last four years. The results indicate a corporation implementing TQM principles in a supportive organizational culture has a positive and significant relationship with organizational learning compared to those executives not exposed to these constructs. Also, the findings revealed a positive and significant relationship between a learning organization and the motivational level of its business executives. Management & Change, Volume 14, Number 2 (2010)
56 Relationship Between Learning Organization...
Luxmi & Gunmala Suri 57
OBJECTIVES
Instrument
1. To identify the current levels of the dimensions of learning organization those characterize IT firms in India.
A questionnaire was used for the purpose of collecting field data, and consisted of two parts. The first part drew on and extended basically Udai Pareek’s model (1990), dealing with the LO and included (48) statements representing the 8 core dimensions of a LO, as follows:
2. To assess the organizational effectiveness of the IT firms against core effectiveness measures. 3. To examine the relationship between learning organization and organizational effectiveness of the IT firms. 4. To examine the relationship between psycho-demographic variables (i.e. age, educational qualification and level) with learning organization and organizational effectiveness. 5. To highlight areas where attention needs to be paid in order to enhance effectiveness and building a learning organization. HYPOTHESES H1:There is a significant relationship between learning organizations and organizational effectiveness. H2: There is a significant relationship between each of learning organizations dimensions and each of the organizational effectiveness dimensions. H3:There is a significant relationship between psycho-demographic variables (i.e. age, educational qualification and level) with (a) Learning Organization (b) Organizational Effectiveness.
1. 2. 3. 4. 5. 6. 7. 8.
Holistic Frame: Statements 1,9,17,25,33,41. Strategic Thinking: Statements 2,10,18,26,34,42. Shared Vision: Statements 3,11,19,27,35,43. Empowerment: Statements 4,12,20,28,36,44. Information Flow: Statements 5,13,21,29,37,45. Internality: Statements 6,14,22,30,38,46. Learning: Statements 7,15,23,31,39,47. Synergy: Statements 8,16,24,32,40,48.
The second part of the questionnaire (Dr. N. Dixit) focused on organizational effectiveness, and included (24) statements covering eight effectiveness measures as follows: 1. 2. 3. 4. 5. 6. 7. 8.
Flexibility: Statements 1,9,17. Acquisition of resources: Statements 2,10, 18. Planning: Statements 3,11,19. Productivity and efficiency: Statements 4,12,20. Communication: Statements 5,13,21. Stability: Statements 6,14,22. Cohesive work force: Statements 7,15,23. Satisfied work force: Statements 8,16,24.
Research Methodology Population and Sample
Reliability Analysis
This research was administered with a purposive sample of (100) participants, representing 14 per cent of total employees working at (5) IT firms, and (87) questionnaires were analyzed. The IT industry was selected because it has been playing a steadily increasing role in the Indian economy, witnessing rapid disturbing changes and continual product development. All this makes the IT industry attractive and suitable for studying the learning organization and its relationship with organizational effectiveness.
Reliability can be defined to the extent to which a variable is consistent in what it is intended to measure. Since standardized questionnaires were modified to suit the present study reliability analysis was conducted. Several measures of reliability can ascertain the reliability of the measuring instrument. In the present research, the reliability Learning Organization and Organizational Effectiveness questionnaire scale was determined by using Cronbach’s Coefficient alpha.
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58 Relationship Between Learning Organization...
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Reliability Coefficients Item
Cronbach’s Alpha
Exhibit 3 Level of Position N of Items
LO
.653
48
OE
.691
24
Outcome
Level
Valid:
Top management
47
54.0
Middle management
36
41.4
Lower management
4
4.6
Total
87
100.0
* Values above .60 establish reliability of the scale. ANALYSIS AND DISCUSSIONS Normality of data was tested by Kolmogorov-Smirnov test (K-S) and Shapiro-Wilk (S-W) test. The following tables show the various data descriptive on the basis of age, qualification and gender. Exhibit 1 Age Outcome Valid:
Years
Frequency
Frequency
Per cent
On the basis of three levels in the organization, the maximum respondents in the sample belonged to top management (54 per cent), followed by 41-4 per cent respondents from middle management and 4 respondents from lower management. Table 1 Descriptive Statistics for Dimensions of LO Parameter
N
Mean
Std Deviation
Per cent
Holistic Frame
87
3.9272
0.19802
21-25
53
60.9
Strategic Thinking
87
3.9904
0.25206
25-30
24
27.6
Shared Vision
87
4.0556
0.24202
more than 30
10
11.5
Empowerment
87
4.0441
0.19433
Total
87
100.0
Information Flow
87
4.1092
0.20622
Internality
87
3.8372
0.24508
Learning 87
4.0613
0.26671
Synergy
87
4.0077
Valid N
87
The maximum number of respondents belonged to the age group of 21-25 years (60.9 per cent) followed by 24 respondents in the age group of 24-30 years (27.6 per cent) and finally 11.5 per cent respondents who had an age of more than 30 years. Exhibit 2 Qualification Outcome
Item
Frequency
Per cent
Valid:
BE
67
77.0
PG
20
23.0
Total
87
100.0
Majority of the respondents had a qualification of bachelor of engineering (77 per cent) and 20 respondents had a post graduate qualification (23 per cent). Management & Change, Volume 14, Number 2 (2010)
0.22578
Table 5 presents the means and the standard deviations of the responses of the research sample to the dimensions of Learning Organization. It clearly appears that respondents felt that their firms have been moving well towards building LO, with an overall mean = 4.004. Most of the variables/ statements have a mean above the mean of the scale (4); only few statements have a mean below (4). Information Flow had the highest mean (4.11). Thus, people saw their firms as a system where information was not confined to few people rather there is free flow of information in the organization.
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Both shared vision and learning dimension ranked second, with a mean 4.06. This meant that people felt strongly that a common vision and continuous learning amongst the employees support and facilitate building and maintaining a LO. Empowerment dimension came third, with a mean 4.04, which meant that study respondents had a strong feeling that employee empowerment is an important factor in building a LO. Five of the variables had a mean above (4) and three had a mean above (3). Synergy came fourth, after empowerment, with a mean (4.00), which is still higher than the mean of the scale (3). This meant that respondents had a relatively strong belief that synergy contributes to building LOs.
with a mean of 4.08, followed by satisfied workforce (4.06). The dimension of planning came seventh with a mean of 4.03, which was still on the higher side but less than the overall organizational effectiveness mean. Cohesive workforce ranked last with a mean of 3.99, the only dimension which had a mean less than 4. The overall mean of both learning organization and organizational effectiveness scale are on the higher side with a mean of above 4.00. Organizational effectiveness level is slightly higher than the level of learning organization.
Table 3 Descriptive Statistics for LO and OE Strategic thinking scored a mean of 3.99 and holistic frame a mean of 3.93. Last, internality had the lowest mean (3.84), which is also above the mean of the scale. The dimension of acquisition or resources scored the highest mean 4.15, followed very closely by ‘flexibility’ and the dimension of ‘productivity’ and efficiency.
Item
N
Mean
Std. Deviation
LO
87
4.0041
0.12857
OE
87
4.1001
0.15648
Valid N
87
HYPOTHESES TESTING Table 2 Descriptive Statistics for Dimensions of OE Parameter
N
Mean
Std Deviation
Holistic Frame
87
3.9272
0.19802
Strategic Thinking
87
3.9904
0.25206
Flexibility
87
4.1418
0.28590
Acquisition of resources
87
4.1533
0.37973
Planning
87
4.0268
0.31424
Productivity and Efficiency
87
4.1456
0.26265
Pearson’s Correlation was used to test hypotheses of the study, and the results are displayed by Tables 8 and 9. H1: There is a significant relationship between learning organizations and organizational effectiveness. Table 4 Correlation between LO and OE Item LO
Test Pearson Correlation
OE 87
4.0920
0.27697
Sig. (2-tailed)
Cohesive Workforce
87
3.9847
0.25872
N
Satisfied Workforce
87
4.0613
0.20031
Valid N
87
Management & Change, Volume 14, Number 2 (2010)
1
0.261* 0.014
Pearson Correlation
Stability
Stability came next with a mean of 4.09. Communication ranked fifth
OE
Sig. (2-tailed) N
Communication
LO
87
87
0.261*
1 0.014
87
87
*. Correlation is significant at the 0.05 level (2-tailed). Based on Pearson’s correlation coefficient, there is a significant positive relationship between the LO and OE (r = 0.261). Therefore, H1 is accepted. Management & Change, Volume 14, Number 2 (2010)
Parameter
Holistic Frame
Parameter
0.288**
0.088
0.482**
-0.017
0.472
0.002
0.002
0.148
0.007
0.417
0.000
0.879
87
87
87
87
87
87
87
87
Pearson Correlation
0.100
-0.349**
-0.290**
-0.106
0.106
0.022
-0.200
0.089
Sig. (2-tailed)
0.358
0.001
0.006
0.331
0.330
0.840
0.063
0.415
87
87
87
87
87
87
87
87
-0.162
-0.108
0.243*
-0.139
0.027
-0.193
0.395**
-0.018
0.134
0.320
0.023
0.200
0.804
0.074
0.000
0.870
87
87
87
87
87
87
87
87
Pearson Correlation
0.130
0.275**
-0.030
0.303**
0.196
0.008
0.193
0.079
Sig. (2-tailed)
0.228
0.010
0.782
0.004
0.069
0.942
0.073
0.466
87
87
87
87
87
87
87
87
Pearson Correlation
0.030
0.139
0.004
0.097
0.066
0.173
0.201
-0.180
Sig. (2-tailed)
0.781
0.201
0.970
0.373
0.544
0.110
0.062
0.096
87
87
87
87
87
87
87
87
Pearson Correlation
0.195
0.035
-0.152
-0.009
0.521**
-0.091
0.225*
0.100
Sig. (2-tailed)
0.070
0.746
0.159
0.936
0.000
0.402
0.036
0.355
87
87
87
87
87
87
87
87
Pearson Correlation
0.029
-0.075
-0.012
-0.359**
0.354**
0.194
0.444**
-0.107
Sig. (2-tailed)
0.792
0.492
0.911
0.001
0.001
0.072
0.000
0.322
87
87
87
87
87
87
87
87
-0.057
-0.263*
-0.003
-0.400**
0.203
0.102
0.312**
0.118
0.600
0.014
0.978
0.000
0.059
0.346
0.003
0.276
87
87
87
87
87
87
87
87
Pearson Correlation
N
N
N Internality
N Learning Management & Change, Volume 14, Number 2 (2010)
N Synergy
Pearson Correlation Sig. (2-tailed) N
* Significant at .05 level ** Significant at .01 level It seems to be that people, who admit they are wrong, go a lot further than people who prove they are right. - M. K. Gandhi
Luxmi & Gunmala Suri 63
0.157
Sig. (2-tailed)
Information Flow
Cohesive Satisfied Work Work force force
0.322**
N
Empowerment
Stability
0.322**
N
Shared Vision
Acquisition Productivity Commuof & Planning nication resources Efficiency
-0.078
Pearson Correlation Sig. (2-tailed)
Strategic Thinking
Flexibility
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Table 5 Correlations among Sub-dimensions of LO and OE
64 Relationship Between Learning Organization...
H2: There is a significant relationship between each of learning organizations dimensions and each of the organizational effectiveness dimensions.
Luxmi & Gunmala Suri 65
In order to test the above hypothesis one way ANOVA is applied to the respondent data. Table 6 ANOVA (Age)
The correlation between the various sub-dimensions of LO and OE was tested using Pearson’s Correlation Coefficient. The results are mixed as some variables show significant relationship with each other while others show an insignificant relationship. The results are as follows: (i) Holistic frame has a significant correlation with Acquisition of resources, Planning, communication and cohesive workforce. It has a negative relationship with flexibility and satisfied workforce.
Item LO
OE
(ii) Strategic thinking has a significant and negative relationship with acquisition of resources and planning.
Range
Sum of Squares
df
Mean Square
Between Groups
0.056
2
0.028
Within Groups
1.366
84
0.016
Total
1.422
86
Between Groups
0.018
2
0.009
Within Groups
2.088
84
0.025
Total
2.106
86
Item
LO
(v) Information flow is not significantly correlated to any of the effectiveness dimensions. However, it has a negative relation with satisfied workforce. OE
(vi) Internality is highly correlated with productivity and efficiency. It also has a significant positive relationship with cohesive workforce.
Range
Sum of Squares
df
Mean Square
Between Groups
0.052
1
0.052
Within Groups
1.370
85
0.016
Total
1.422
86
Between Groups
0.045
1
0.045
Within Groups
2.061
85
0.024
Total
2.106
86
(vii)Learning is significantly negatively correlated with productivity and efficiency. It is also significantly correlated to communication and cohesive workforce.
OE
Therefore, the hypothesis H2 is only partially accepted. LO
H3: There is a significant relationship between psycho-demographic variables (i.e. age, educational qualification and level of position) with (a) Learning Organization, and (b) Organizational Effectiveness. Management & Change, Volume 14, Number 2 (2010)
1.724
0.185
0.353
0.703
F
Sig.
3.218
0.076
1.851
0.177
Table 8 ANOVA (Level of Position) Item
(viii)Synergy has a highly significant relationship with cohesive workforce and a significantly negative correlation with acquisition of resources and productivity and efficiency.
Sig.
Table 7 ANOVA (Educational Qualification)
(iii) Shared Vision was significantly and positively related to acquisition of resources and cohesive workforce. (iv) Empowerment dimension has a positive and significant relationship with acquisition of resources and productivity and efficiency.
F
Range
Sum of Squares
df
Mean Square
Between Groups
0.059
2
0.029
Within Groups
2.047
84
0.024
Total
2.106
86
Between Groups
0.091
2
0.046
Within Groups
1.331
84
0.016
Total
1.422
86
F
Sig.
1.204
0.305
2.874
0.062
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66 Relationship Between Learning Organization...
The results for all three psycho-demographic variables i.e. age, educational qualification and level of position show insignificant relationship with both ‘learning organization’ and ‘organizational effectiveness’. Therefore, the hypothesis H3 is not accepted. CONCLUSIONS AND RECOMMENDATIONS Following are the main conclusions and results of the study: l
IT firms in India have developed an overall moderate-high level of LOs, with varying degrees from one core dimension to another. The highest level corresponded to information flow dimension, while internality got the lowest level (X¯ =3.84).
l
IT firms have developed high levels of most variables of the eight dimensions of the LO. Only few variables were below the overall mean (4), which included the following: Holistic frame, strategic thinking and internality.
l
l
Assessment of overall effectiveness of the IT firms, as perceived by research sample, was relatively high, only cohesive workforce dimension got an assessment below high level. Significant and positive correlation was found between LO and organizational effectiveness.
l
LO and effectiveness sub-dimensions have moderate to high correlation among themselves. However few dimensions have insignificant relationship.
l
All three psycho-demographic variables taken in the study i.e. age, educational qualification and level have insignificant correlation with both LO and effectiveness.
l
The variables which have scored low like holistic frame, internality and strategic thinking incase of LO and cohesive workforce incase of effectiveness need to be paid attention to. However, even these variables score above the scale mean (3).
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Luxmi & Gunmala Suri 67
RECOMMENDATIONS Managers and employees need to strongly recognize that knowledge has become a vital source for sustainable competitive advantage. Management should exert continuous efforts to maintain and nourish continuous LO in order to attain steadily higher performance levels. Special emphasis must be placed on: tolerating mistakes and constructive discussion thereof, encouraging trial and experimentation and innovation, expanding use of teambased structures (cross-functional and cross hierarchical ), management must accept criticism, encouraging and nurturing mutual trust, openness, establish constant contacts with various stakeholders, and extend learning and knowledge sharing throughout the whole company. All these would help in enhancing organizational effectiveness and thereby, building a Learning Organization. LIMITATIONS AND FUTURE RESEARCH Following are some of the limitations of the study: First, the research was carried out in only one sector in India i.e. IT sector, and therefore, the findings are likely to have limited application to other countries and sectors. Second, only one method for data collection (questionnaire) was used. Finally, the study relied on respondents’ perceptions and individual perspectives. This research should be seen as a starting point for research in the LO in the IT industry. It is hoped that it will stimulate more interest and research in IT and other areas. Future research should use multiple research methods for data collection in order to obtain deeper and more reliable data. Finally, research should involve stakeholders, other than employees, in assessing organizational effectiveness, such as customers, owners, etc. and also other level of employees in the organization. REFERENCES Cabrera, Elizabeth F. & Angel Cabrera (2003) “Strategic Human Resource Evaluation.” Human Resource Planning. 26(1): 41-50. Management & Change, Volume 14, Number 2 (2010)
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Luxmi & Gunmala Suri 69
Cameron Kim S. (1986) “A Study of Organizational Effectiveness and its Predictors”. Management Science, 32: 87-112.
McGill, M., J. Slocum & D. Lei (1992) “Management Practices in Learning Organizations”, Organizational Dynamics, 22 (1): 5–17.
Chang, S. C. & M. S. Lee (2007) “A Study on Relationship among Leadership, Organizational Culture, the Operation of Learning Organization and Employees’ Job Satisfaction”, The Learning Organization, 14 (2): 155-185.
Pedler, M., J. Burgoyne & T. Boydell (1991) The Learning Company. A Strategy for Sustainable Development. London: McGraw-Hill.
Cusins, Peter (1994) “Understanding Quality Through Systems Thinking”, The TQM Magazine, 6(5): 19-20 Daft, R. (2004) Organization Theory and Design (Eighth Edition), Mason, Ohio: South-Western. Dealtry, R. & R. Teare (1998) “Building and Sustaining a Learning Organisation,” The LO, 5(1):. 47 – 60. Digenti, D. (1998) “Toward an Understanding of the Learning Community,” Organizational Development Journal, 16(2): 91-96. Dixon, N. (1994) The Organizational Learning Cycle. How We Can Learn Collectively, London: McGraw-Hill.
Price,James L. (1968) Organisational Effectiveness: An Inventory of Propositions. Homewood, IL, Richard D. Irwin, Inc. Robbins, S. & M. Coulter (2005) Management (Eighth Edition). UpperSaddle River, NJ. Pearson Prentice-Hall. Selden, G. (1998) Dimensions of the Learning Organization in Familyrun Businesses. PhD dissertation, University of Georgia, Athens, GA. Selden, G. & K. Watkins (2001) “LOs: What Impact They Do Really Make?” Troy State University Business and Economics Review, 25(2): 8-12. Senge, P. (1990) “The Fifth Discipline: The Art and Practice of the LO”, New York: Doubleday/ Currency.
Dymock, D. & C McCarthy (2000) “Towards a Learning Organisation: Employee Perception”, The Learning Organisation, 13(5): 525-537.
Steven W. Pool (2000) “The Learning Organization: Motivating Employees by Integrating TQM Philosophy in a Supportive Organizational Culture”, Leadership & Organization Development Journal, 21(8): 373 – 378.
Farago, J. & D. J. Skyrme (1995) “The Learning Organisation”. Retrieved from http: http// www.skyreme.com/insights/3lrnorg.htm/.
Smith, P.A.C. & P. Tosey ( 1999) ”Assessing the LO: Part 1- Theoretical Foundations”, The Learning Organisation, 6(2): 70 – 75.
Garvin, D. A. (2000) Learning in Action: A Guide to Putting the LO to Work. Boston, MA: Harward Business School Press.
Thomas, K. & S. Allen (2006) “The LO: A Meta – Analysis of Themes in Literature”, The LO, 13(2): 123 – 39.
Kottler, P. (2000) Marketing Management. Englewood Cliffs, New Jersey: Prentice Hall.
Watkins, K. & V. Marsick (1992) “Building the Learning Organization: A New Role for Human Resource Developers”, Studies in Continuing Education, 14(2): 115–129.
Malhotra, Y. (1996) “Organizational learning and LO: An Overview”. Retreived from http:llwww.kmbook.com/orglrng.html. McCann, Joseph (2004) “The Changing Definition of Organizational Effectiveness,” Human Resource Planning, 27(1): 24-30. Management & Change, Volume 14, Number 2 (2010)
William (1994) “Correlates of Organizational Effectiveness: A Multilevel Analysis of a Multidimensional Outcome”, Journal of Business Ethics, 13: 1-10.
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Annexure
QUESTIONNARE ON ORGANISATIONAL EFFECTIVENESS I. Biographical information In this section personal information is being sought and it is assured that the information provided will be kept strictly confidential (Please v). Name (optional) 21 to 25
25-30
1. Goals are set and clearly understood by most members of the organizations.
1
2
3
4
5
2. The work effort is usually intense and height.
1
2
3
4
5
3. Creative-insights and innovative ideas are encouraged.
1
2
3
4
5
4. Outsiders perceive it as vibrant and high potential unit.
1
2
3
4
5
5. There is positive interpersonal climate.
1
2
3
4
5
6. Employees feel that their most of the needs are satisfied.
1
2
3
4
5
Age (years)
Below 21 More > 30
Educational Qualification
Graduate Engineering Post-Graduate Others (specify)_____________________
7. Decisions are communicated to all concerned as when they are taken.
1
2
3
4
5
Level
Top management Lower management
8. The work process is coordinated and under control.
1
2
3
4
5
9. It is easy to give an explanation of the overall objectives of organization to subordinates.
1
2
3
4
5
10. There is constant striving for greater accomplishments.
1
2
3
4
5
11. The organization is responsive to changes in external conditions.
1
2
3
4
5
12. The organization has the image of a growing dynamic system.
1
2
3
4
5
13. Employees feel like they really belong to each other.
1
2
3
4
5
14. Employees feel that they are satisfied with their job and work climate.
1
2
3
4
5
Middle management
I. Organization A series of statements are listed below which describe the effectiveness of the organization as a whole. In considering the effectiveness of the overall organization we would like you to indicate how frequently the following statements hold. Please use the following scale in response to each statement and tick the appropriate number. Where number denotes (1) (2) (3) (4) (5)
Very infrequently Infrequently Moderately frequently Frequently Very frequently
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4. The organisational structure allows and facilitates most of its parts and people to accomplish their task.
1
2
3
4
5
5. Most of the critical information is shared in an authentic way at most levels in the organisation.
1
2
3
4
5
6. Most people in the organisation are optimistic about their personal and organisational future.
1
2
3
4
5
5
7. The organisation gives importance to and facilitates self development of its people.
1
2
3
4
5
4
5
8. People are generally willing to suspend their own assumptions, and think collectively on critical matters.
1
2
3
4
5
4
5 9. People in the organisation generally see and deal with things in isolation; they seem to miss their interconnections.
1
2
3
4
5
10. People ignore working out consequences or implications of most actions that they plan.
1
2
3
4
5
11. The organisational vision is inspiring for most of its people, and seems to be linked with their own personal goals.
1
2
3
4
5
12. There is enough decentralisation and delegation in the organisation.
1
2
3
4
5
13. There is free flow of relevant information in the organisation.
1
2
3
4
5
14. Generally people here believe that they can influence what happens in the organisation in a very limited way.
1
2
3
4
5
15. The organisation is rather insulated, and does not learn from other organisations.
1
2
3
4
5
15. Formal management system is widely used.
1
2
3
4
5
16. There is a stable, predictable work environment.
1
2
3
4
5
17. Goal clarity is valued and encouraged.
1
2
3
4
5
18. Maximum output is obtained from the resources employed in the organizations (i.e., man, material, equipments).
1
2
3
4
5
19. Flexibility and readiness to change are highly valued and inspired.
1
2
3
4
20. The organization is continuously increasing its resources.
1
2
3
21. Employees feel they are part of a team.
1
2
3
22. The morale of employees is high.
1
2
3
4
5
23. Employees at all levels freely exchange information with each other.
1
2
3
4
5
24. The day-to-day work is seldom interrupted.
1
2
3
4
5
II. Organizational learning Please select the response that best describes your feelings with the following aspects for your organization: 1. The organization is alive to changes and is strongly connected with the environment.
1
2.
The organisation encourages managers to prioritise their tasks in terms of their strategic thrust.
1
3. The vision of the organisation is developed by its top leaders, without involving most members in its development.
1
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2
2
2
3
3
3
4
4
4
5
5
5
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26. The organisation is unwilling to discontinue a business line, or close down a unit, even when it does not seem to be central to its main purpose.
1
2
3
4
5
27. The vision developed by the top people is generally limited to that level, and does not get communicated to most people in the organisation.
1
2
3
4
5
28. A lot of support from the seniors is experienced by people while working on their tasks.
1
2
3
4
5
1
2
3
4
5
5
29. Most communication in this organisation is through rumours because of lack of proper communication by the authorities in time.
1
2
3
4
5
4
5
30. People in the organisation are more aware of the constraints, and feel helpful in dealing with them.
2
3
4
5
5
31. The organisation does not give importance to critical enquiry and reflection by people; there seems to be a rush for completing the assignments.
1
4
1
2
3
4
5
5
32. Coordinated action is lacking; people do most of their work by themselves.
1
2
3
4
5
5
33. People are willing to examine their basic assumptions, when they get information conflicting with their expectations. 34. Management encourages people to reflect on information and data, and reframe them at the strategic level.
1
2
3
4
5
35. The top management develops organisational vision, but commitment to it by most people seems to be low.
1
2
3
4
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16. People, who have strong views during discussions, continue to hold them, even after a decision has been taken.
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17. The organisation generally treats each event by itself. These are treated as discrete events rather than seeing them in a pattern
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18. The top leaders search for the key variables which make the most impact, prioritising the various items in terms of their importance.
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19. Top leaders give highest priority to developing an inspiring vision for the organisation.
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20. Employees in the organisation feel that they lack proper direction for the work they are supposed to do.
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21. People generally hesitate to communicate negative information to their seniors.
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22. When people working in the organisation get together, generally they talk about negative things, and discuss some emotion-laden issues from the past.
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23. There is no conducive climate in the organisation for learning; people are generally critical and not supportive.
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24. Not enough time and attention is given to clearing or taking care of hurt feelings; most attention is on completing tasks rather than on improving human processes.
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25. People are generally busy with their present concerns and they are not able to see the larger issues beyond the immediate.
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36. People are most interested in getting formal authority, rather than developing their personal power to influence decisions.
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37. Generally people come to know about critical decisions and information from sources other than the management of the organisation.
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SAROJINI NAIDU: THE NIGHTINGALE OF INDIA Sarojini Naidu (February 13, 1879 – March 2, 1949) known as Bhartiya Kokila (The Nightigale of India) was the first Indian woman to become the President of the Indian National Congress and the first woman to become the governor of any Indian state. She was born in Hyderabad as the eldest daughter of scientist-philosopher, Aghornath Chattopadhyaya, and Barada Sundari Devi, a poetess. She studied at Madras University, King's College London, and Girton College, Cambridge. After completing her studies at the age of 19, she married Dr. Muthyala Govindarajulu Naidu and was blessed with four children – Jayasurya, Padmaja, Randheer and Leelamani. Following partition of Bengal in 1905, she joined freedom movement. During 1903-17, Sarojini Naidu came into contact with country's top leaders,
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78 Relationship Between Learning Organization... intellectuals and reformers including, Gopal Krishna Gokhale, Rabindranath Tagore, Annie Besant, C.P.Rama Swami Iyer, Mohandas Gandhi, Jawaharlal Nehru, etc. In 1925, she was elected as the President of the Indian National Congress, the first Indian woman to hold that post. In March 1919, the British Government passed the Rowlatt Act which Indian people viewed as harmful to the country's interests. Mahatma Gandhi organized the 'Non-Cooperation Movement' to protest its enactment and Sarojini Naidu was assigned onerous responsibilities for its success. Inspired by Margaret Cousins (1878-1954), she led a delegation of fourteen women leaders to Lord Montague, Secretary of State for India and submitted a memorandum soliciting the enfranchisement of women on an equal basis with them (Kapoor, 2011). This was followed by a number of requisitions to the Southborough Committee by women organizations like Women Graduates Union of Bombay, Women's branch of the Home Rule League, Bharat Istri Mandal, Bombay Women's India Association, and others. The demand for enfranchisement of women was turned aside on the plea that Indian society was not prepared for it (Kapoor, 2011). She supported the Gurdwara Reform Movement of Akali Sikhs in Punjab and stood for Hindu-Muslim unity. She was an official delegate to the second Round Table Conference (1931) in London after the signing of the GandhiIrwin Pact (1931).She visited many countries including England, South Africa, Canada and the US and lectured on various subjects ranging from the ideals of Indian womanhood to the miserable plight of Indians in India and abroad (Kapoor, 2011). On January 26, 1930, Indian National Congress demanded independence from the 'British Rule'. On May 5, 1930, Mahatma Gandhi was arrested and soon after Sarojini Naidu was also arrested. She along with Gandhiji was released on January 31, 1931. In 1931, she participated in the Round Table Summit, along with Gandhiji and Pandit Madan Mohan Malviya. In 1942, she was arrested during the 'Quit India Movement' and stayed in jail with Gandhiji. Sarojini Naidu shared a warm relationship with Mahatma Gandhi, even calling him “Mickey Mouse'. Following Independence, she was appointed the Governor of Uttar Pradesh, a position she held until her demise in Lucknow on March 2, 1949. In later years, her daughter Padmja Naidu, was appointed Governor of West Bengal. - Editor Management & Change, Volume 14, Number 2 (2010)
ENTERPRISE PERFORMANCE MANAGEMENT MATURITY: A CONCEPTUAL MODEL AND RESEARCH ISSUES Mohd Akhtar
Sushil
R.K. Mittal
Traditional enterprise performance management (EPM) is based on financial measures, which was too focused on short term and historic data. Non-financial measures such as customer satisfaction, quality of product, technical skill of workforce, etc were given importance and the concept of balance measurement came into being. These models were linked with strategy and multi-dimensional in measurement. Each model had focus on one or few perspectives, but did not cover all dimension of performance measurement. Some researchers have incorporated few dimensions of flexibility in EPM model. Hybrid model is also proposed, where more than one model has been clubbed to measure enterprise performance and it has given better performance improvements. Different generations of PMS are elaborated. Taking a cue from maturity models of software SEI’s CMM and project management PMMM, concept of EPM maturity is described and a 5-level EPM maturity model (EPMMM) have been conceptualized and proposed in this paper. Once the organizations moves up the EPM maturity ladder/ level, it would be able to drive enhanced performance benefits in different dimensions. The conceptual model has implication for researchers and managers. Further research, empirical and case studies, will help in enriching the maturity model. Keywords:Enterprise performance management system, maturity model, maturity levels. INTRODUCTION Performance measurement is the process of assessing progress towards achieving predetermined goals. Performance management is building on that process, adding the relevant communication and action on the progress achieved against these predetermined goals. According to Drucker (1964), two concepts that underlie organizational performance are efficiency (doing Management & Change, Volume 14, Number 2 (2011) Change, 14, Number 2 (2010) © 2010 IILM Institute for HigherManagement Education. & All RightsVolume Reserved.
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things right) and effectiveness (doing the right things). As Niven says, measurement has never been as important as it is today. He also cites Drucker who observed that “few factors are as important for performance of an organization as measurement, and measurement is among the weakest areas in management today” (Niven, 2002). Enterprise Performance Management System (EPMS) is a set of processes that help businesses discover efficient use of their business units and financial, human and material resources. It describes all of the processes, methodologies, metrics and system needed to measure and manage performance of the organization. It should be used as a strategic tool of learning and enabling to better understand what drives values creation in the enterprise. Various models have been proposed by different researchers and each model has its strength and shortcomings. Some of them have practical implementation difficulties and none covers all the dimensions of performance management. An effort has been made to define the concept of maturity and level or ladder of maturity of enterprise performance management. This will help the organization to move up the ladder of EPM maturity to reap the accelerated benefits. LITERATURE REVIEW Performance Measurement and Management Traditional performance measurement was based on financial and cost parameters, which did not give true picture as to how enterprise business is moving and lack strategic focus. Hayes and Abernathy (1980) said that system designed for external reporting are heavily financially biased and not correctly used to manage enterprise. Skinner (1974) emphasized need for strategic focus and competitive availability. Cross and Lynch (1988) proposed performance pyramid, a structure of measures that permeate through the organization’s hierarchy in order to integrate performance. Other measures of quality, efficiency, productivity, market share, customer satisfaction, innovation, employee satisfaction known as leading indicators are more important to drive performance of enterprise. Many researchers have come out with some pertinent indicators for performance management. Management & Change, Volume 14, Number 2 (2010)
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Chakravarthy (1986) observed that traditional financial measures are inadequate for evaluating enterprise performance. He suggested two other measures, namely, sakeholder satisfaction and quality of enterprise transformation. Sink and Tuttle (1989) noted that performance of an enterprise is a complex inter-related among seven criteria related to effectiveness, efficiency, quality, productivity, quality of life, innovation and profitability. They suggested four areas to focus on: performance improvement planning, measurement & evaluation, improvement & control and cultural support system. According to Eccles (1992) leading indicators of business performance cannot be found in financial data alone. Quality, customer satisfaction, innovation, market share, etc often reflect a company’s economic condition and growth prospects better than its reported earnings. Toni and Tonchia (2001) noted that traditional cost performances (production costs and productivity) are kept separate from more innovative non-cost measures (quality, time and flexibility). To make effective, it should include financial and non-financial measure with greater consideration of human resources. Harter, et. al. (2002) found a substaintive relationship between unit-level employee satisfaction–engagement and business-unit outcomes. Changes in management practices that increase employee satisfaction may increase business-unit outcomes including profit. Performance measurement methodology have been developed by various researchers. Dixon (1990) came out with Performance Measurement Questionnaire (PMQ) approach to find out strength and weaknesses of currently used manufacturing performance measurement system. Performance measures used in PMQ were neither related to strategy of organization nor customers. Another performance measurement system known as TOPP developed by SINTEF (1992) in which four methodologies are used: Self-Audit, Extended Audit (experts), Self Assessment and Benchmarking. It reviews performance along 3 dimensions: Effectiveness, Efficiency and changeability. Kaplan & Norton (1992) emphasized that traditional financial measurements (e.g. ROI, EPS, etc) provide misleading signals. They proposed a balanced set of measurements consisting of non-financial measures in addition to financial measures called Balanced Scorecard (BSC), where performance is measured along 4 dimensions: Financial, Customer, Internal Business Processes and Innovation & Learning perspectives. It translates strategy into performance measures and targets and helps focus organization what must be done to create break-though performance. Kaplan and Norton (2002) emphasized building strategy focused organisation with Management & Change, Volume 14, Number 2 (2010)
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BSC. To ensure that strategy gets implemented, five principles of a strategy focused organisation to be followed: (i) Translate strategy to operational terms by strategy mapping and showing cause and effect linkage between measures. (ii) Align strategy with resources, departments and business units. (iii) Make strategy everyone’ everyday job by communication of organisation vision to everyone. It should be done by creating strategic awareness, aligning personal objective with incentive compensation into organisation plan. (iv) Make strategy a continuous process by making it ongoing and never ending process. The budgeting process to be linked with strategy. (v) Mobilise change through executive leadership: Senior executives through leadership can drive transformation. A survey result of 500 responses, only 15 per cent showed breakthrough results as they have made BSC as integral part of strategic planning processes. Neely & Adams (1998) conceptualized a Performance Prism framework which depicts measurement as process of gathering management intelligence. Performance Prism is a 3-dimensional model having five facets for delivering stakeholders value. These are: (i) Stakeholders Satisfaction: Who are stakeholders and their needs, (ii) Strategies: What strategy to be adopted to satisfy stakeholders needs, (iii) Processes: What are the required process to execute these strategies, (iv) Capabilities: What capabilities needed to operate and enhance these processes, and (v) Stakeholders Contribution: What stakeholders’ contributions are required to develop and maintain these capabilities.
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2007). In comparison to firms reflecting control dominant type top management of the firms reflecting flexibility dominant type, use more number of diverse measures and PMS to support strategic decision-making, legitimate actions and organizational attention to a greater extent (Henri, 2006). Chenhall (1996) studied the performance of 37 manufacturing firms and found a positive association of high degree of manufacturing flexibility, performance measurement and organizational performance. Firms must become more efficient, flexible, and customer-oriented to be able to compete in the global economy. Government providing supportive infrastructure and strategic choices of the firms together determines the competitive edge of firm (Halachmi, 2002). The flexible system methodology based on SAPLAP (Situation-Actor-Process, Learning-Action-Performance) framework (Sushil, 2001) has been used to evolve the ‘learning issues’ regarding actual practices and to bring out the ‘suggested actions’ for ‘improvement of performance’. Dynamic SAP-LAP analysis application for auto component manufacturing firm in India has been studied (Tapan Sahoo, et al., 2010). Sushil (2005) developed a flexible strategy framework for managing continuity and change. The EPM models have been categorized according to different generation type based on perspectives of measurement and evolution time.
Risk management should be considered as third leg of shareholders value creation alongwith productivity and revenue growth. They suggested a three-level risk management framework parallel to strategy scorecard (Kaplan, 2009). Flexible strategy game-card for strategic performance developed by Sushil (2010) comprises two broad perspectives, namely enterprise and customer. Enterprise perspective related with situation, actor, process and performance while customer perspective have generic and specific factors.
Generation 1 PMS: The objective of performance measurement has changed over the past few decades. Traditional performance measures based on productivity are no longer appropriate or representative of the information needs of today’s competitive global market. Various alternative performance systems have been proposed. Review of various performance measurement system revealed that the limitations of traditional approaches to performance measurement have brought many emerging trends in performance measurement system development in order to produce worldclass enterprise performance.
An empirical study of Canadian 175 SME manufacturing companies supply chain context showed a direct effect of strategy on flexibility and flexibility on performance. Innovative strategy firms should invest in new product and delivery flexibility, while customer oriented firm, should invest heavily in developing sourcing, product, and delivery flexibility (Kamel, et. al., 2009). Healthcare processes are sensitive to changes in the external and internal environment and hence healthcare PMS should have multiperspective such as efficiency, effectiveness and flexibility (Purbey, et. al.,
Generation 2 PMS: The next generation was to design a system of performance measurement. Many researchers tried to develop a model focusing on a particular perspective. However, there models could not give a comprehensive picture of business performance. These models can be broadly put in two categories: External Models such as performance benchmarking and internal models such as Return on Investment (ROI), EVA, Management Audit, Activity Based Costing (ABC), Budgeting, TQM, ISO, Six Sigma.
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Generation 3 PMS: Most of them lack in strategic perspective and, comprehensiveness. Next generation of PMS was focused on strategic perspective and tried to incorporate comprehensive view of the business performance such as Balanced Scorecard (BSC) proposed by Kaplan and Norton (1992) and Performance Prism by Neely and Adams(1998), EFQM Business Excellence Model (EFQM, 1991). Generation 4 PMS: Hybrid models organizational performance is a timedependent multi-dimensional concept and should be measured using alternate approaches/ models as each model / approach has its benefit and limitations. According to Krauth (1999), there is connection between BSC, EFQM model and ISO 9001, and using all three models together gives a better impact on IT/Enterprise System (ES) performance improvement. Reo (1999) emphasises that the EFQM and TQM models should be integrated with BSC for better results. Rosemann and Wiese (1999) proposed an additional ‘Project’ perspective in BSC for IT/ES. According to Kaydos (2003), besides BSC, there are other measurement frameworks like performance prism, Quantum Performance Management Model and the Tableau de Bord. None answer everything, though all models are useful. He has presented a combined model of BSC and performance prism as shown in Fig 1. He also suggested to combine other models such as Baldrige Business Excellence, TQM and Six Sigma. Fig. 1 Hybrid Model of Balanced Scorecard and Performance Prism
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Maturity model Various maturity models such as software development, people, project, and enterprise performance measurement maturity models are cited below. Software Engineering Institute’s Capability Maturity Model Integrated for software development (SEI CMMI) has 5-levels, namely: Level 1 : Level 2 : Level 3 : Level 4 : Level 5 :
Initial Managed Defined Quantitatively Managed Optimizing
The People CMM is a maturity framework which is for developing and managing workforce of an organization from an ad hoc approach to mature and disciplined development of the knowledge, skills, and motivation of the people that will enhance performance of the organization. Based on the current maturity of the workforce practices, it helps organization to improve workforce practices. Level 1:Initial (Workforce practices applied without analysis of impact) Level 2:Managed (Managers take responsibility for managing & developing their people) Level 3:Defined (Develop workforce competencies aligned with business strategy) Level4: Predictable (Empower and integrate workforce competencies, manage quantitatively) Level 5:Optimizing (Continuously improve) Based on learning from Software Engineering Institute’s Capability Maturity Model for software development, Crawford (2002) has proposed a 5-level Project Management Maturity Model (PMMM) as given below. The model aims to measure organizational maturity in bringing organizational and cultural change for effective project management.
Source: http://www.balancedscorecard.org/ Management & Change, Volume 14, Number 2 (2010)
Level 1 : Level 2 : Level 3 : Level 4 : Level 5 :
Common Language Common Processes Singular Methodology Benchmarking Continuous Improvement, Sustainable Competitive Advantage (SCA). Management & Change, Volume 14, Number 2 (2010)
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Organization Project Management Maturity Model (OPM3) developed by the Project Management Institute (PMI) of USA with 4-levels of maturity as shown in Fig. 2.
Martin Philips and Brent Winsor of Cognos have described performance management maturity. It is performance management capability and defined three level of maturity.
Level 1 : Level 2 : Level 3 : Level 4 :
Level 1 : Visualize metrics or set of performance measures Level 2 : Manage performance. This will need metrics data mart and BSC application. Level 3 : Drive strategy. Complete BSC and dashboards.
Standardize Measure Control Continuous Improvement
PROPOSED MODEL Fig. 2 PMI OPM3 Model EPM Maturity Model (EPM3) Webster’s Dictionary defines maturity as being ripe or having reached the state of full natural or maximum development. Organizations have adopted PMS of different types either singularly or more than one but they are not integrated. Some organization have adopted PMS aligned with strategy and running parallel performance benchmarking for continuously process improvement. To follow a synergetic approach, if they can move on next ladder or level, where performance measures of strategically aligned PMS may have benchmarks alongwith targets, to see how the organization is performing internally against targets as well as against its competitors or best-in class. A five ladders or levels enterprise performance management maturity model (EPMMM), in short EPM3 has been defined and represented in Figure 3. Ladder/ Level 1: Initial stage; standalone, traditional This is initial ladder or level, where traditional performance measures, unaligned with strategy and standalone. Source: http://www.pmi.org According to Anderson and Jessen (2002), the concept of project maturity and levels of project maturity has been studied through questionnaire based survey in Norway. Project maturity is through project ladder. Project ladder or level 1 is project management, ladder 2, Programme Management, and ladder 3, portfolio management. The project maturity is measured in three dimensions such as Knowledge (capability to carry out different tasks), Attitudes (willingness to carry them out), and Actions (actually doing them). It has been found from survey that knowledge and attitude are stronger than action taken.
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Ladder/ Level 2: Strategically aligned Performance management models aligned with strategy such as BSC, Performance Prism, EFQM BEX model etc. Ladder/ Level 3: Benchmarked In addition to internal targets for performance measures, it should also have both both internal and external performance benchmarks. Ladder/ Level 4: Quality assessment and business excellence Next level of maturity of performance can be achieved by integrating models of quality assessment such as TQM, Six Sigma, ISO and Business Excellence models such as EFQM, Baldrige, etc. Management & Change, Volume 14, Number 2 (2010)
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Final level of maturity may be achieved by incorporating flexibility such as strategic, operational, IS, functional and risk assessment (internal and external). At this level of performance management, organization will be best-in class, continuously improving, business excellence and driving strategic performance improvement with minimum risk.
and practitioners. Further empirical studies need to be conducted to prove the efficacy of EPM maturity model in driving enterprise performance improvements. Case studies also need to be carried out to see the impact and benefits of using EPM3. With these investigations, the EPM3 model will be able guide organizations where EPM is, where it needs to and how to get there. Expected benefits of EPM3 will be in driving enterprise performance improvement multi-dimensionally.
Fig. 3 Enterprise Performance Management Maturity Model (EPM3)
REFERENCES
ladder/ Level 5: Risk assessment and flexibility incorporation
EPMS with Risk Assessment and Flexibility
E P M M A T U R I T Y L E V E L
EPMS with Quality Assessment/ BusinessExcellenceed with Risk Assessment
EPMS with Benchmarks EPMS Strategic Aligned
EPMS Standalone
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CONCLUSION AND SUGGESTION FOR FUTURE RESEARCH Every model of enterprise performance measurement and management proposed by many researchers and practitioners, having its own advantages and weaknesses, no single model can fulfill almost all aspects of organizational performance requirements. As the organization moves up the ladder or hierarchy level of maturity as proposed, it would be able to reap the benefits of performance measurement in terms of performance improvements, continuous improvement, quality, business excellence, ability to manage turbulence in environment to drive superior value creation for various stakeholders. The paper has attempted to examine the EPM maturity definition and levels. Many organizations have already reached different levels of EPM maturity. The above conceptual framework has implication for researchers Management & Change, Volume 14, Number 2 (2010)
Chakravarthy, B.S.(1988) “Measuring Strategic Performance”, Strategic Management Journal, 7: 110-118. Chenhall, R.H. (1996) Strategies of Manufacturing Flexibility, manufacturing Performance Measures and Organizational Performance: an empirical investigation, Integrated Manufacturing Systems, 7(5): 25. Crawford, J.K.(2002) Project Management Maturity Model. Florida, USA: Auerbach Publications (Taylor & Francis Group). Cross, K.F. & R.L. Lynch (1988) “The SMART Way to Sustain and Define Success”, National Productivity Review, 8(1): 23–33. Dixon J., A. Nanni & T.Vollmann (1990) The New Performance Challenge. Burr Ridge, IL: Business One Irwin. Management & Change, Volume 14, Number 2 (2010)
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Drucker, P. F. (1964) Managing for Results. New York: Harper Row. Eccles, R.G. (1991) “The Performance Measurement Manifesto”, Harvard Business Review, Jan-Feb, 131-137. Eccles, R.G. & P.J. Pyburn (1992) “Creating a Comprehensive System to Measure Performance”, Management Accounting (US), Oct., 41-44. Epstein, M.J. (1996) Measuring Corporate Environmental Performance. The IMA Foundation for Applied Research, Inc. Epstein, M.J. (2000) Measuring and Managing Performance in 21st Century, Cranfield MGr Research Institute website. Ghosal S., G. Piramal & C.A. Bartlett (2000) Managing Radical Change: What Indian Companies must do to become World-Class. New Delhi: Penguin Books. Govindarajan, V. & A.K. Gupta (1985) “Linking Control Systems to Business Unit Strategy: Impact on Performance”, Accounting, Organizations and Society, 10(1): 51-66. Harter, J.K., F.L. Schmidt & T.L. Hayes (2002) “Business-Unit-Level Relationship between Employee Satisfaction, Employee Engagement and Business Outcome: A meta-analysis”, Journal of Applied Psychology, 87(2): 268-279. Hayes, R.H. & W.J. Abernathy (1980) “Managing Our Way to Economic Decline”, Harvard Business Review, Jul-Aug, 67-77. Hayes, R.H. & K.B. Clark (1986) “Why Some Factories are More Productive than Others”, Harvard Business Review, Sep-Oct, 66-73. Henry, J.F. (2006) “Organizational Culture and Performance Measurement System”, Accounting, Organizations and Society, 31(1): 77. Ittner, C.D. & D.F. Larcker (1997) “Quality Strategy, Strategic Control Systems and Organizational Performance”, Accounting, Organizations and Society, 22: 293-314. Ittner, C.D. & D.F. Larcker (1998) “Are Non-financial Measures Leading Management & Change, Volume 14, Number 2 (2010)
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Indicators of Financial Performance? An Analysis of Customer Satisfaction”, Journal of Accounting Research, 1-35. Ittner, C.D. & D.F. Larcker (1998) “Innovations in Performance Measurement: Trends and Research Implications”, Journal of Management Accounting Research, 10: 205-238. Ittner, C.D., D.F. Larcker & T. Randall (2003) “Performance Implications of Strategic Performance Measurement in Financial Services Firms”, Accounting, Organizations and Society, 28(7-8): 715-741. Johnson, H.T. & R.S. Kaplan (1988) Relevance Lost: The Rise and Fall of Management Accounting. Boston, MA: Harvard Business School Press. Kamel, A.F., V. Kumar & U. Kumar (2009) “An Empirical Study of the Relationship among Strategy, Flexibility and Performance in the Supply Chain Context”, Supply Chain Management, 14(3): 177. Kaplan, R.S. (1983) “Measuring Manufacturing Performance: A New Challenge for Managerial Accounting Research”, Accounting Review, 58(4): 686-705. Kaplan, R.S. (1984) “Yesterday’s Accounting Undermines Production”, Harvard Business Review, 62: 95-101. Kaplan, R.S., A. Mikes, R. Simons, P. Tufano, & M. Hofmann, Jr. (2009) “Managing Risk in the New World”, Harvard Business Review, 84(10): 68-75. Kaplan, R.S. & R. Cooper (1998) Cost and Effect: Using Integrated Cost Systems to Drive Profitability and Performance. Boston, MA: Harvard Business School Press. Kaplan, R.S. & D.P. Norton (1992) “The Balanced Scorecard: Measures that Drive Performance”, Harvard Business Review, Jan-Feb, 71-92. Kaplan, R.S. & D.P. Norton (1996) The Balanced Scorecard: Translating Strategy Into Action. Boston, MA: Harvard Business School Press. Kaplan, R.S & D.P. Norton (2000) The Strategy Focused Organization Management & Change, Volume 14, Number 2 (2010)
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How Balanced Scorecard Companies Thrive in the New Business Environment. Boston, MA: Harvard Business School Press. Kaplan, R.S & D.P. Norton (2001) Strategy Focused Organization. Boston, MA: Harvard Business School Press. Kaydos, W. “What Should Your Company Measure Beside Financial Results”. The Balanced Scorecard Institute, Rockville, MD, USA. Krauth, P. (1999) Balanced Scorecard Approach to Strategy Formation at a Hungarian IT Company, Symposium on IT Balanced Scorecard, Antwerp, March. Lynch, R.L. & K.F. Cross (1995) Measure Up! (second edition). Cambridge, MA: Blackwell Publishers. Manzoni, J.F. “The Need for a New High Performance Management Control Paradigm”, in Epstein, M.J. and Manzoni, J.F. “Performance Measurement and Management Control: A Compendium of Research”, 2002. Neely, A.D. (1998) Measuring Business Performance, The Economist Book, London, UK. Neely, A.D. (1999) “The Performance Measurement Revolution: Why Now and What Next?”, International Journal of Operations and Production Management, 19( 2): 205-28. Neely, A.D., C. Adams & M. Kennerley (2003) The Performance Prism: The Scorecard for Measuring and Managing Stakeholder Relationships, Financial Times Prentice Hall, London, 2003. Neely, A.D., M. Gregory & K. Platts (1995) “Performance Measurement System Design: A Literature Review and Research Agenda”, International Journal of Operations and Production Management, 15(4): 80-116. Neely, A.D., A.H. Richards, J.F. Mills, K.W. Platts & M.C.S. Bourne (1997), “Designing Performance Measures: A Structured Approach”, International Journal of Production and Operations Management, 17(11): 1131-1152. Management & Change, Volume 14, Number 2 (2010)
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Niven, P.R. (2002) Balanced Scorecard Step-By-Step: Maximizing Performance and Maintaining Results. New York: John Wiley & Sons Inc. PMI, Organizational Project Management Maturity Model (OPM3) Available on http://opm3.pmi.org/models.htm Purbey, S., K. Mulkherjee & C. Bhar (2007) “Performance Measurement System for Healthcare Processes”, International Journal Productivity and Performance Management, 56(3): 241. Quinn, J.B. (1978) “Strategic Change: Logical Incrementalism”, Sloan Management Review, Fall, 7-21. Ridgway, V.F. (1956) “Dysfunctional Consequences of Performance Measurements”, Administrative Science Quarterly, 1(2): 240-247. Reo, D. A. (1999) “The Balanced IT Scorecard for software intensive organisations: benefits and lessons learnt through industry applications”, Symposium on IT Balanced Scorecard, Antwerp, March. Rosemann, M. & J. Wiese (1999) “Measuring the Performance of ERP Software: A Balanced Scorecard Approach”, Proceedings of the 10th Australasian Conference on Information System, Wellington. Sahoo T., D.K. Banwet & K. Momaya (2010) “Strategic Technology Management in Practice: Dynmic SAP-LAP Analysis of an Auto Component Manufacturing Firm in India”, Global Journal of Flexible Systems Management, 11(1): 13-22. Schneiderman, A.M. (1999) “Why Balanced Scorecards Fail”, Journal of Strategic Performance Measurement, 6-11. Sedera, D., M. Rosemann & G. Gable (2001) “Using Performance Measurement Models for Benefit Realisation with Enterprise Systems - The Queensland Government Approach”, presented at the European Conference on Information Systems (ECIS ’01), Bled, Slovenia. SEI (1994) The Capability Maturity Model: Guidelines for Improving Software Practices, Addison-Wesley, USA. Management & Change, Volume 14, Number 2 (2010)
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Sethi, V., K.T. Hwang, & C. Pegels (1993) “Information Technology and Organisational performance”, Information & Management, 25: 193205
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Sushil (2010) “Flexible Strategy Game-Card”, Global Journal of Flexible Systems Management, 11(1): 1-2.
Sigurt, V. (2004) “Continuity and Change: Making Sense of the German Model”, Competition and Change, 8(4): 331-337.
Thompson Jr, A.A., A.J. Strickland & J.E. Gamble (2005) Crafting and Executing Strategy, The Quest for Competitive Advantage. New Delhi: Tata McGraw-Hill Publishing Company.
Simons, R. (1995) Levers of Control: How Managers Use Control Systems to Drive Strategic Renewal. Boston, MA: Harvard Business School Press.
Toni, De & S. Tonchia (2001) “Performance Measurement Systems: Models, Characteristics and Measures”, International Journal of Operations and Production Management, 21: 46-70.
Simon, R. (2000) Performance and Control System for Implementing Strategy: Text and Cases. Upper Saddle River, NJ: Prentice Hall.
Turney, P.B.B. & B. Anderson (1989) “Accounting for Continuous Improvement”, Sloan Management Review, 30(2): 37-48.
Sink, D.S., T.C. Tuttle (1989) Planning and Measurement in Your Organization of the Future. Norcross, GA: Industrial Engineering and Management Press.
Waterhouse, J. & A. Svendsen (1998) Strategic Performance Monitoring and Management: Using Non-Financial Measures for Corporate Governance, Canadian Institute of Chartered Accountant.
SINTEF (1992) “TOPP: A Productivity Programme for Manufacturing Industry”, NTNF/NTH, Trondheim, Norway.
HBR (1998) “Measuring Corporate Performance”.
Skinner, W. (1974) “Decline, Fall and Renewal of Manufacturing”, Industrial Engineering, Oct, 32. Stevens, S.S.(1959) Measurement, Psycho-physics and Utility”. In C.W. Churchman and P. Ratoosh (eds.) Measurement: Definitions and Theories. NY: Wiley. Stewart, T. (1997) Intellectual Capital: The New Wealth of Nations. London: Nicholas Brealey. Stewart, G.(1995) “Supply Chain Performance Benchmarking Study Reveals Keys to Supply Chain Excellence”, Journal of Enterprise Information Management, 38-44. Sushil (2001) “SAP-LAP Framework”, Global Journal of Flexible Systems Management, 1(1): 22-32. Sushil (2005) “A Flexible Strategy Framework for Managing Continuity and Change”, International Journal of Global Business and Competitiveness, 1(1): 22-32. Management & Change, Volume 14, Number 2 (2010)
www.2GC.uk.com www.balancedscorecard.org http://www.pmsolutions.com www.pmi.org.OPM3 SARDAR PATEL: DOYEN OF FREEDOM MOVEMENT AND ARCHITECT OF NATIONAL INTEGRATION AND UNITY Sardar Vallabhbhai Patel was born on October 31, 1875 in Gujarat and obtained his entire education with distinction and flying colors. He obtained the degree of Barrister of Law from UK by studying at the Middle Temple Inn. He worked hard to go to England to realize his goal, completing the 36 months course in just 30 months and also topping the class. He returned to India in 1913 and started his legal practice at Ahmedabad. Mahatama Gandhi returned from South Africa two year later in 1915 and Sardar Patel was increasingly drawn towards him from that year onwards and eventually became one of the most trusted lieutenants of Mahatma Gandhi. In fact on last day of his life (January 30, 1948), Gandhiji had a very long meeting with Sardar Patel at Birla House lasting more than two hours prior to the ill-fated prayer meeting from which Bapu never returned alive.
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96 Enterprise Performance Management Maturity... Drawing inspiration from the Father of the Nation, Vallabhbhai gave up his lucrative legal practice and joined the freedom struggle. He organized Kheda Satyagraha by involving poor farmers to oppose high taxes announced by the government of those days. His movement met with splended success in its goals and his name and fame spread all over the country. In 1928 he fought for the cause of farmers in Bardoli, which later came to be known as ‘Bardoli Movement’ and his followers started calling him Sardar. During the ‘Quit India Movement’ launched by Mahatma Gandhi, Sardar Patel made a very passionate and fiery speech at Mumbai, which along with similar calls made by Pandit Nehru and Maulana Azad galvanized the whole nation for realizing the goal of complete freedom for India. Sardar Patel is remembered as a veteran leader who unified princely states and brought them within one fold what is present day India. He aimed at integration in two ways – territorial integration and promotion of different communities by developing a sense of national identity. Sardar Patel was a statesman of great standing, vision and integrity. He was also a person of enormous humility. He would always attribute his achievements to all pervasive leadership of Mahatma Gandhi. He once said: “It was Mahatma Gandhi, who gave the herb of Satyagraha and all I did was to administer the medicine”. Sardar Patel’s stewardship is largely responsible for reorganizing ICS (Indian Civil Service) as ‘Indian Administrative Service’ and building up the framework for ‘Indian Police Service’. Today Sardar Patel is regarded as one of the doyen’s of India’s freedom movement in the galaxy of Pt. Nehru, Dr. Rajendra Prasad, Subhas C. Bose, and Maulana Azard, who all together fought for freedom struggle under the leadership of Mahatma Gandhi. As country’s Home Minister and Deputy Prime Minister during the period 1947-50, he emerged as a very able administrator endowed with matchless organizing capabilities in leading the country’s administration and reorganizing princely states. On his 75th birthday, Sardar Patel told his friends, admirers and followers by saying: “I have reached an age when it is my right to take rest, but the heart is yearning to utilize the time that is still left to me in the service of my country, in these critical days. It is my earnest wish to see India stable, strong, prosperous and free from danger, and I wish to dedicate the rest of my life for that sacred task.” - Editor Source:
Singh, B.P., A Beacon Light for Today’s Youth, Bhavan’s Journal, March 31, 2011.
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COMMUNICATION STRATEGIES FOR JOB SATISFACTION AND EMPLOYEE ENGAGEMENT IN INDIAN IT SECTOR Neera Jain
Puneet Malhotra
The Indian information technology (IT) industry is growing rapidly and has played a major role in placing India on the international map. The industry, characterized by large workforce and significant attrition rates has been able to maintain high level of productivity during recession with adjusted business strategies such as frozen or reduced salaries, layoffs and doing more with less. These have significantly altered the work environment and lowered down the employee engagement and satisfaction levels. Even in the post recession times, this is affecting the morale of the employee. Effective communication becomes very important in such situations. The study first identifies the underlying factors determining communication satisfaction for Indian IT industry. Then, the relationship between communication satisfaction and job satisfaction as well as communication satisfaction and employee engagement are studied. Based on the findings, the study makes practical recommendations for IT firms to revamp or realign their internal communication strategies for long term sustained competitive advantage. Keywords: Job satisfaction, effective communication, communication satisfaction. INTRODUCTION The Indian information technology (IT) industry is growing rapidly and has played a major role in placing India on the international map. IT has a major role in strengthening the economic and technical foundations of India. According to the report of the Ministry of Communication and Information Technology, Govt. of India (2008-09) the Indian IT sector currently employs 2.2 million professionals directly and another 8 million people indirectly, thus making it one of the biggest job creators in India and a mainstay of the national economy. Management & Change, Volume 14, Number 2 (2011) Change, 14, Number 2 (2010) © 2010 IILM Institute for HigherManagement Education. & All RightsVolume Reserved.
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Among all the industries, Indian IT and ITeS services were the worst hit due to recession. In order to simply survive, many companies adjusted their business strategies such as frozen or reduced salaries, layoffs, cut in promotions, compensation and perks of the employees (SHRM, 2009). These have significantly altered the work environment and lowered down the employee engagement and satisfaction so much so that even in the post recession time, this is affecting the morale of the employee. Effective communication becomes very important in this situation and managers and organization must be more adept than ever in interacting with employees. Researchers have continually reported the importance and role of communication for achieving organizational success however most of the work on communication satisfaction has been done with respect to skilled workers rather than knowledge workers. In organizational context also this has been taken for granted and ignored. As companies are contending with the business changes brought by the recession and post recession it requires that organizations of all sizes should continually evaluate their communication practices and procedures (Watson, 2009). In such situation, there is a need for the managers to redesign and realign their internal communication strategies in such a manner that job satisfaction and employee engagement are not affected. Here, the study first identifies the underlying factors determining communication satisfaction for Indian IT industry. Then, the relationship between communication satisfaction and job satisfaction as well as communication satisfaction and employee engagement are studied. Based on the findings, the study goes on to make practical recommendations for IT firms to revamp or realign their internal communication strategies for long term sustained competitive advantage. Effective Communication in Organizations Communication has been an important aspect in organizational functioning for long. This has been recognized by Barnard (1938), Bavelas & Barrett (1951) and Rogers & Agarwala (1976). Effective communication is one of the most important components leading to an organization’s success. Greenbaum, et al. (1988) support this notion by suggesting that “Communication is of fundamental importance in the operation of all organizations, and knowledge of the efficiency of the general communication system is vital to achieve high levels of organizational effectiveness”. Lack of effective communication and information exchange “exacerbate Management & Change, Volume 14, Number 2 (2010)
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uncertainty (and) increase alienation” among employees (Hargie & Tourish, 2000). It follows that if an organization’s employees are unhappy or dissatisfied, then it is likely that overall organizational effectiveness suffers. Thus, there is a clear suggestion that effective communication promotes “organizational cohesion and effectiveness”. Michael and Clifford (2007) and Garett (2008) provide guidelines on how to make internal communication in organizations more meaningful, more positive and more effective. Downs and Hazen (1977) and Clampitt and Downs (1993) describe eight factor structure composed of communication climate, personal feedback, organizational integration, relation with supervisor, horizontal – informal communication, relation with subordinates, media quality, and organizational perspective. Over the past forty years many organizations have turned to communication audits to identify strategies to improve their organizations’ communication practices. Moreover, as employees are contending with the businesses changes brought by the recession and post recession times, most companies have increased their employee communication efforts. Also, as companies are continuously adjusting their employee communication policies in response to the downturn, there is a renewed focus on identifying the factors that determine communication satisfaction in today’s unprecedented situation. Authors, as a part of this research on employee communication in Indian IT sector identify the factors Indian IT companies need focus to realign their employee communication strategies. Job Satisfaction and Effective Communication Several theories attempt to explain job satisfaction, but three conceptual frameworks seem to be more prominent in scholarly literature. The first is content theory (Maslow, 1954) which suggests that job satisfaction occurs when one’s need for growth and self actualization is met by the individual’s job. The second conceptual framework often known as process theory, explained job satisfaction as how well the job meets one’s expectations and values (Gruenberg, 1979). The third conceptual group includes situational theories (Quarstein, et al. 1992), which intend that job satisfaction is a product of how well an individual’s personal characteristics interact or mesh with the organizational characteristics. Hoppock (1935), who made the term popular observed that job satisfaction is a combination of psychological, physiological and environmental circumstances that makes a person say, “I am satisfied with Management & Change, Volume 14, Number 2 (2010)
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my job”. This indicates that job satisfaction is influenced by variety of variables but they tell us nothing about its nature. Locke (1976) defined job satisfaction as “a pleasurable or positive emotional state resulting from the appraisal of one’s job or job experiences”. Job satisfaction deals mainly with affective or feeling states. It is exclusively used as an individualistic concept. It is concerned with how an individual, and not a group or company, reacts to the job. In 1969, Smith perceived job satisfaction as the “extent to which an employee expresses a positive orientation towards a job”. In the industrial context, Nash (1985) while reviewing the nature of the job satisfaction found that it is ascribed to many factors and also varies from individual to individual. In simple terms, job satisfaction elucidates what makes people want to come to work, happy about their job or not to quit their job? Thus as long as the dominant needs are fulfilled and expectations and values are not compromised, employee will be satisfied with the job. The importance of effective communication in organizations and its impact on organizational functioning and job satisfaction is historically well recognized (Barnard, 1938, Bavelas & Barrett, 1951, Rogers & Agarwala 1976). If the employee is not satisfied on any of these issues or finds that the problems are not addressed to dissatisfaction may creep in. In order to provide complete information to the employees about these facets of the job the management should have an effective communication system in place. Conrad and Poole (2002) contend that employees who participate in “informal networks have higher morale, job satisfaction, and commitment to their organization and are better able to meet other peoples’ communication needs than employees who are not actively involved”. This forms a virtuous cycle. If employees believe the supervisor is open and responsive and procedures within the organization are fair, they will be more willing to speak up. Several studies have linked employee voice to organizational commitment, suggesting that employees who are committed will be more likely to speak up (Davis, 2007 Jacqueline, 2009). With most IT companies implementing cost cutting measures like salary freezes and cuts in fringe benefits, there is a negative impact on job satisfaction of the employees. Therefore, companies are looking towards other cost – effective means by concentrating on other facets of job satisfaction. The significant relationship among a number of communication dimension and measures of job satisfaction, commitment and climate has already been proved by Roberts and O’Reilly (1974) and Munichsky (1977). It is intended to determine if the casual relationship between communication Management & Change, Volume 14, Number 2 (2010)
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satisfaction and job satisfaction still holds true in the Indian IT sector. Further, authors intend to identify the dimensions of communication satisfaction that have a significant impact on job satisfaction. Employee Engagement and Effective Communication The term for employee engagement is derived from the works which began in the 1920’s to study the morale or a group’s willingness to accomplish organizational objectives. Institute for Employment Studies (IES) define employee engagement as “a two-way relationship between the employer and the employee.” It reflects “a positive attitude held by the employee towards the organization and its values.” Since an engaged employee is aware of “business context, and works with colleagues to improve performance within the job”, the organization must work to “develop and nurture engagement” (Robinson, et al., 2004). Employee engagement involves an expression of the self through work and other employee-role activities. This conceptualization can be seen in definitions of engagement such as those by Kahn (1990) who defined engagement as “the harnessing of organization members’ selves to their work roles; in engagement, people employ and express themselves “physically, cognitively, and emotionally during role performances”. Similarly, Schaufeli and Bakker (2004) defined engagement as “a positive, fulfilling, work-related state of mind that is characterized by vigour, dedication, and absorption”. Implicit in these definitions is a second commonality, namely that engagement occurs on a regular, day-to-day basis, and is actively applied by and through the employee’s work behaviours (Harter, et al., 2002, May, et al., 2004). Employee engagement is one of the most important determinants of job performance and hence, is an important consideration from HR’s perspective while designing internal communication programmes. In today’s situation, as it is not easy to maintain high levels of job satisfaction in the midst of the pay cuts and other cost – cutting measures, most of the companies are using effective communication to maintain high levels of employee engagement. Thus, in today’s scenario, it is important for companies to persuade employees to make sacrifices and maintain same level of commitment towards their work, through effective communication. Fostering healthy communication by soliciting feedback and making organizational changes based on employees’ feedback is really important (Scoeff , 2007). Management & Change, Volume 14, Number 2 (2010)
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This research study explores the relation between communication satisfaction and employee engagement, in Indian IT sector so that proper initiatives could be taken to increase employee engagement in post-turbulent times. OBJECTIVE AND METHODOLOGY Research Objective RQ1.What are the factors Indian IT companies need to focus on as a part of their realignment of employee communication strategies? RQ2.What is the relationship between communication satisfaction and job satisfaction for Indian IT companies? RQ3.What is the relationship between communication satisfaction and employee engagement for Indian IT companies? Based on the findings through survey (Phase I) and a few interviews afterwards (Phase II), the study makes practical recommendations for IT firms to revamp or realign their internal communication strategies for long term sustained competitive advantage. Methodology (Phase I) Target Audience
Neera Jain & Puneet Malhotra 103
verified using ‘internal consistency’ method (Cronbach’s alpha), for each Communication Satisfaction dimension. To measure employee job satisfaction within the Indian IT sector companies, abridged Job Descriptive Index (Stanton, et. al., 2001), has been used as it is one of the most widely accepted methods of measuring job satisfaction. To measure Employee Engagement IES diagnostic tool (IES Survey, 2003) was used. The objective was to derive organization specific drivers where the respondents were asked to answer using 5 Likert scale questions on a scale of 1 to 5 ranging from ‘Strongly Disagree to Strongly Agree’. The survey also comprised questions regarding the demographic information: age, gender and work experience. Demographic Analysis A total of 158 respondents filled in the electronic questionnaire. The demographic factors that were considered were gender, age and work experience which was analyzed using descriptive statistics and frequency calculation: Table 1 Demography
Criteria
Divisions
The survey consisted of 40 closed ended questions. For evaluation of the communication satisfaction level of the respondents, 10 Likert scale questions on a scale of 1 to 5 ranging from ‘Strongly Disagree’ to ‘Strongly Agree’ were derived from Communication Satisfaction Questionnaire (Downs and Hazen, 1977), based on the following dimensions of Communication Satisfaction (a) Horizontal Communication (b) Supervisor Communication (c) Personal Feedback (d) Corporate Information and (e) Communication Climate. The reliability of the selected questions was Management & Change, Volume 14, Number 2 (2010)
Valid Cumulative Per Cent Per Cent
Gender F
The target audience were the IT professionals who were the employees of 6 renowned IT companies. The data was collected using the ‘mail questionnaire’ method. The sampling technique used was convenience technique, a non – probability sampling where subjects are selected because of their convenient accessibility and proximity to the researcher. A total of 158 respondents filled in the electronic questionnaire.
Frequency Percent
49
31
31
31 100
M
109
69
69
Total
158
100
100
<23
84
53.2
53.2
23-25
22
13.9
13.9
67.1
25-30
9
5.7
5.7
72.8
30+
43
27.2
27.2
100
158
100
100
0-2 years
40
25.3
25.3
25.3
2-5 years
11
7
7
32.3
100
100
Age
Total
53.2
Work Experience
more than 5 years Total
158
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Gender
Factor Analysis
Out of 158 respondents one hundred and nine respondents (69 per cent) were males while forty nine respondents (31 per cent) were females.
Communication satisfaction represents variables that are interrelated so the relationships among these sets of variables are examined and are then represented in terms of a few underlying factors that explain the correlations among a set of variables to identify a new, smaller set of uncorrelated variables to replace the original set of uncorrelated variables in the analysis. For this purpose, factor analysis was done using principal component extraction method to eliminate multicollinearity and identify distinct factors. Factors with eigen values greater than 1.0 were considered significant.
Age Eighty four respondents (53.2 per cent) were less than 23 years of age, twenty two respondents (13.9 per cent) were between the ages of 23 to 25, nine respondents (5.7 per cent) were between the ages of 25 to 30 while forty three respondents (27.2 per cent) were over 30 years of age. Work Experience Forty respondents (25.3 per cent) had less than two years of work experience, eleven respondents (7 per cent) had work experience between two to five years while one hundred and seven respondents (67.7 per cent) had more than five years of work experience.
Thus exploratory factor analysis was conducted which yielded 3 factors that act as determinants of communication satisfaction in the Indian IT sector which accounted for 65.17 per ‘cent of the total variance’ (Appendix Table II). An item was considered to load significantly on a dimension if it had a loading of 0.60 or above and in case of cross loading the factor for which the variable has high load was considered in that factor (Appendix Table I). Based on factor analysis, the following three factors were identified:
Validity and Reliability As both the questionnaires for job satisfaction and employee engagement have been taken from widely cited questionnaire, therefore there is no need to check for the validity of questionnaire.
Factor
Dimensions/ Corresponding Survey Questionnaire
Motivational communication
Personal feedback D7, D8
How employee work judged and performance is appraised?
Corporate information D5,D6
Whether the amount of information regarding the organization’s goals, policies and financial health received by employees is sufficient?
Horizontal communication D4, D9, D10
How comfortable are employees using informal communication channels to discuss issues with coworkers and information to do their job?
Supervisor communication D1, D2
How willing and comfortable are employees initiating upward communication?
Communication climate D3
How the overall communication health is viewed by the employees, to include satisfaction with organizational and personal communication?
It is needed to check the reliability for only the Communication Satisfaction dimension. For this purpose, authors used Cronbach’s alpha: Table2 Reliability Statistics Cronbach’s Alpha 0.795
N of items
Interpersonal communication
10
Since Cronbach’s Alpha value is greater than 0.6, it implies internal consistency of the questionnaire. In other words, it means that the questionnaire is reliable. Research Objective 1 The first research question aims to identify the factors responsible for effective employee communication in the context of Indian IT sector. Management & Change, Volume 14, Number 2 (2010)
Organizational
Definition
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The first factor is ‘motivational communication’ which includes “personal feedback” (D7, D8) and ‘corporate information’ (D5, D6). This indicates that if the employees are provided with the information about their performance – positive and negative, then the employee could work in the direction to remove the negative aspects and work on positives. This would motivate them to get involved in the organizational life. Also if the correct and timely information regarding the organizations policies and goals are conveyed to the employees then this would help in alignment of vision of employees with the vision of the organization. The second factor is ‘interpersonal communication’ which includes the ‘horizontal communication’ (D4, D9, and D10). This helps employees to share and discuss their thoughts and feelings with their supervisors. This results in an increase in informal networks, develops higher morale and resolves conflicts (Conrad and Poole, 2002). The third factor is ‘organizational communication’ which includes ‘supervisor communication’ (D1, D2) and ‘communication climate’ (D3). This factor suggests that if there is sound relation between the supervisor and employees and the employees feel satisfied with organizational communication policies, it will improve the communication system in the organization as a whole. This would further lead to the growth of employee and organization.
Neera Jain & Puneet Malhotra 107
dimension showed that communication climate ranked the highest, or was the strongest dimension followed by supervisor communication, horizontal communication, personal feedback and corporate information. Table 4 Rank Order of Means of Survey Question on a 1 – 5 scale Rank
Mean
1
3.53
My supervisor listens and pays attention to me.
2
3.52
My supervisor offers guidance for solving job-related problems.
3
3.51
Communication in the organization makes me identify with it or feel a vital part of it.
4
3.41
I receive in time the information needed to do my job.
5
3.40
Information about company policies and goals.
6
3.23
Information about company policies and goals.
7
3.18
Information about my progress/performance in my job.
8
3.08
Information about a well-defined career path.
9
2.92
Extent to which conflicts are handled appropriately through proper communication channels.
10
2.90
Extent to which communication with other employees at my level is accurate and free flowing.
Rank Ordering of Survey Questions and Dimensions of Communication Satisfaction Downs and Adrian (2004) suggest one way to understand the data is to rank-order them “on the basis of the means from 1 – 40…to determine conceptual patterns within each group” (p. 146-147). Ultimately, “mean scores that fall well below the conceptual midpoint (a 5 on a 0-10 scale or a 4 on a 1-7 scale) can be thought of as weaknesses” (Downs & Adrian, 2004, p. 145). The CSQ questions and dimensions were rank ordered using 3 as a conceptual mid-point on a scale of 1 – 5 to identify the strongest and the weakest factor in the Indian IT sector. The means of the ten communication satisfaction questions and the 5 communication satisfaction dimensions were calculated. These mean scores were then rank-ordered to identify which survey questions and dimensions employees indicated as the strongest and the weakest on communication satisfaction. The overall mean score for the 10 questions was 3.2689, while the overall mean score for the five dimensions was 3.295. Thus, the composite mean for each CSQ Management & Change, Volume 14, Number 2 (2010)
Question
Table 5 Communication Satisfaction Dimension Ranking Rank
Mean
Dimension
1
3.5190
Communication climate
2
3.4652
Supervisor communication
3
3.2572
Horizontal communication
4
3.1677
Personal feedback
5
3.0665
Corporate information Management & Change, Volume 14, Number 2 (2010)
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Table 8 Coefficients Table for Job Satisfaction
Research Objective 2 The second research question aims to find whether there is a relation between Communication Satisfaction and Job Satisfaction levels in the Indian IT sector. Using Pearson’s correlation coefficient, correlation is found between each of the Communication Satisfaction dimensions and Overall Job Satisfaction. This is to find the Communication Satisfaction Dimensions that have a large impact on Job Satisfaction. Table 6 Pearson’s Coefficient for Job Satisfaction Job Satisfaction (Pearson’s Coefficient)
Attribute Supervisor Communication
0.372**
Horizontal Communication
0.253**
Personal Feedback
0.229**
Corporate Information
0.424**
Communication Climate
0.175*
** Correlation is significant at the 0.01 level (2 – tailed) * Correlation is significant at the 0.05 level (1 – tailed) The above table show that except communication climate, supervisor communication, horizontal communication, corporate information and personal feedback all are significantly correlated to job satisfaction at 1 per cent level of significance. To determine the significant model or relationship between communication satisfaction dimensions and job satisfaction, analysts use multiple regression analysis where ANOVA table will predict whether the model is significant or not. Table 7 ANOVA Table for Job Satisfaction Model
F
Sig.
1
9.736
0.000a
Model
t
Sig.
(Constant)
8.400
0.000
SuperC
3.345
0.001
HorizC
-0.521
0.603
PersonalF
-0.979
0.329
CorporateIn
4.115
0.000
CommunicationCl
-0.576
0.566
According to ANOVA table, the model of job satisfaction is significant at 10 per cent level of significance with F value to be 9.736 and R square as .243 that is 24.3 per cent (Appendix Table: III) of the total variation in job satisfaction is explained by these variables. From the coefficient table it is concluded that supervisor communication and corporate information are significantly related to job satisfaction. Thus if there is sound relationship with supervisor and the proper information about organization is communicated to employees then the job satisfaction will increase. However, horizontal communication does not show a significant relationship with job satisfaction. For the gender relationship with these dimensions following results were obtained: Table 9 Pearson’s Correlation Coefficient between Job Satisfaction and Communication Satisfaction Dimensions Dimensions
Male
Female
Supervisor communication
0.344**
0.466**
Horizontal communication
0.284**
0.233
Personal feedback
0.261**
0.091
Corporate information
0.446**
0.353*
Communication climate
0.208*
0.084
** Correlation is significant at the 0.01 level (2 – tailed) * Correlation is significant at the 0.05 level (1 – tailed)
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Table 13 Coefficients Table for Males
The above table shows that at 1 per cent level of significance for males except communication climate all the four dimensions are correlated to job satisfaction and for females only supervisor communication is correlated.
Model
For male, from the ANOVA table the model is significant as p-value is 0.000 at F-4.319 and R-square is 0.334 that is 33.4 per cent (Appendix Table: IV) variation in the job satisfaction can be explained by these variables. According to coefficient table, relationship of only supervisor communication and corporate information with job satisfaction is significant and the other variables are not significantly related with job satisfaction. Also, for females, the model is significant as p-value is .000 at F=6.597 and R-square is 0.243 that is 24.3 per cent (Appendix Table: V) variation in the job satisfaction can be explained by these variables and according to coefficient table, relationship of only supervisor communication and corporate information with job satisfaction is significant and the other variables are not significantly related with job satisfaction. Table 10 ANOVA Table for Females Model 1
F
Sig.
6.597
.000a
Table 11 Coefficient Table for Females
t
Sig.
(Constant)
7.398
.000
SuperC
3.266
.002
HorizC
-.652
.518
PersonalF
-1.589
.119
CorporateIIn
2.370
.022
CommunicationCl
-.956
.344
Analysis 1. Satisfaction with Supervisor Communication To inculcate a sense of job satisfaction among male and female employees their supervisors should be open to ideas, listen to them, pay attention to them, offer guidance for solving job-related problems, and trust them. The elementary job of a supervisor is simply to assign tasks and let subordinates know whether they are meeting desired job expectations. Based on responses to the survey, it is clear that supervisors at the IT companies exceed these minimum requirements and relate to their subordinates on a more personal level. 2. Satisfaction with Corporate Information
Model
t
Sig.
(Constant)
5.475
.000
SuperC
2.157
.033
HorizC
.186
.853
PersonalF
-.501
.618
CorporateIn
3.284
.001
CommunicationCl
-.019
.985
Table 12 ANOVA Table for Males Model 1
F 4.319
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Sig. .003a
Although this dimension was the lowest ranked by mean score, for male and female employees it has significant relationship with job satisfaction at 10 per cent significance level. Hence, the study showed that the information received about the company’s policies and goals, changes going on at the company, the company’s financial status, government regulations affecting the company and information about the company’s achievements and failures give a sense of job satisfaction among the male and female employees. Hence, communication policies related to these communication satisfaction dimensions should be redesigned in a manner that alleviates the anxiety of workers and encourages a more comprehensive employeeorganization fit.
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Research Objective 3 The third research question explores the relation between Communication Satisfaction and Employee Engagement. Again, Pearson’s correlation between Communication Satisfaction Dimensions and Employee Engagement is used to determine significant relations between them. Table 14 Pearson’s Coefficient for Employee Engagement Job Satisfaction (Pearson’s Coefficient)
Attribute Supervisor communication
0.315**
Horizontal communication
0.364**
Personal feedback
0.405**
Corporate information
0.246**
Communication climate
0.319**
** Correlation is significant at the 0.01 level (2 – tailed) * Correlation is significant at the 0.05 level (1 – tailed) The above table shows that all the variables are significantly correlated to employee engagement at the 1 per cent level of significance. To determine the significant model or relationship between communication satisfaction dimensions and employee engagement, analysts use multiple regression analysis where ANOVA table predicts whether the model is significant or not. Table 15 ANOVA Table for Employee Engagement
Neera Jain & Puneet Malhotra 113 SuperC
1.798
0.074
HorizC
2.346
0.020
PersonalF
3.900
0.000
CorporateIIn
-2.070
0.040
CommunicationCl
1.235
0.219
According to ANOVA table, the model of employee engagement is significant at 10 per cent level of significance with F-value to be 10.413 and R-square as 8.255 that is 25.5 per cent (Appendix Table: VI) of the total variation in job satisfaction is explained by these variables. From the coefficient table analysts conclude that supervisor communication, horizontal communication, personal feedback and corporate information are significantly related to employee engagement. Thus, a sound relationship with supervisor and between co-workers, will communicate the proper information about organization and employees’ assessment which will add to job satisfaction. However, any change in the communication climate will not have any impact on the job satisfaction as it is not significantly related to job satisfaction. For the gender relationship with these dimensions following results were obtained: Table 17 Pearson’s Correlation Coefficient between Employee Engagement and Communication Satisfaction Dimensions Dimensions
Male
Female
Supervisor communication
.239**
.529**
Horizontal communication
.389**
.366**
Personal feedack
.401**
0.377**
Model
F
Sig.
Corporate information
.217*
.285*
1
10.430
.000a
Communication climate
.266**
.441**
Table 16 Coefficients Table for Employee Engagement Model (Constant)
t
Sig.
7.574
.000
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** Correlation is significant at the 0.01 level (2 – tailed) * Correlation is significant at the 0.05 level (1 – tailed) The above shows that at 1 per cent level of significance for males and Management & Change, Volume 14, Number 2 (2010)
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Neera Jain & Puneet Malhotra 115
Table 21 Coefficients Table for Males
females the four dimensions are correlated to employee engagement except corporate information.
Model
For males, from the ANOVA table the model is significant as p-value is 0.000 at F-7.370 and R-square is 0.263 that is 26.3 per cent (Appendix Table: VII) variation in the employee engagement can be explained by these variables. According to coefficient table, relationship of only horizontal communication, personal feedback and corporate information with employee engagement is significant and the other variables are not significantly related. Also, for females, the model is significant as p-value is 0.000 at F-4.465 and R-square is 0.342 that is 34.2 per cent (Appendix Table: VII) variation in the employee engagement can be explained by these variables and according to coefficient table, relationship of only supervisor communication with employee engagement is significant and the other variables are not significantly related. Table 18 ANOVA Table for Females Model
F
1
4.465
Sig. 0.002a
Table 19 Coefficients Table for Females Model
t
Sig.
(Constant)
6.205
0
SuperC
2.628
0.012
HorizC
0.043
0.966
PersonalF
1.077
0.288
CorporateIIn
-0.657
0.515
CommunicationCl
1.189
0.241
Table 20 ANOVA Table for Males Model
F
Sig.
1
7.370
.000a
Management & Change, Volume 14, Number 2 (2010)
t
Sig.
(Constant)
5.303
0.000
SuperC
.774
0.441
HorizC
2.879
0.005
PersonalF
3.548
0.001
CorporateIIn
-2.050
0.043
CommunicationCl
.881
0.380
Analysis 1. Satisfaction with Supervisor Communication In case of employee engagement, only female employees were found to have significant relationship between supervisor communication and employee engagement. No one impacts the state of engagement more than an employee’s immediate boss. While this might be a slight exaggeration, analysts believe most people do not leave their jobs; they leave their bosses. Thus to have a highly engaged team the supervisor should not only coach and empower his people but also help them in setting clear goals by providing open and honest feedback. This is important to develop in them a sense of belonging with the organization. 2. Satisfaction with Personal Feedback Male employees derive employee engagement when their efforts are properly recognized and when they received adequate information about their performance. Female employee’s responses showed no statistically significant relationship between this dimension and engagement. 3. Satisfaction with Corporate Information Only males have significant relationship with engagement at 10 per cent significance level i.e. male employees feel engaged from the information they receive about the company’s policies and strategies which help them in achieving a strategic fit between themselves and the company and results in better employee engagement. Management & Change, Volume 14, Number 2 (2010)
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4. Satisfaction with Horizontal Communication Specifically, male employees were shown to feel engaged when they found compatibility with their working groups and when informal messages are free flowing. Hence, communication policies related to these communication satisfaction dimensions should be redesigned in a manner that make the employees get some excitement and enthusiasm in their work. Supervisor should serve as a catalyst for higher levels of engagement in all aspects such as coach and develop for results, drive performance, inspire loyalty and trust and influence through personal power (Wellins, et al). Personal feedback enables the employees to know whether they are on the right path or not in terms of the strategic goals of the company as well their personal career path. This information enables them to suitably adjust their performance if they are not on the right path. This also helps them to gain skills and knowledge in which they are found lacking. Horizontal communication should develop the informal communication more. Corporate information enables the employees to know the strategies and policies of the organization which helps them in achieving a strategic fit between them and the company which results in better employee engagement. Communication Climate with respect to Job Satisfaction and Employee Engagement From the above analysis, it is clear that both in job satisfaction and employee engagement, one can see that there is evident dissatisfaction among women in particular which is not a good indication for the organization as the number of female employees is expected to increase in the near future and hence communication policies targeted at addressing gender diversity will help the organization to retain the employees. Similarly, IT employees, in general, indicated that they were not at all satisfied with the timely dissemination of information needed to do their jobs and with the way conflicts are handled through proper communication channels. Communication practices at the organization do not motivate them to meet the goals and they do not feel like a vital part of the team. The communication climate dimension ranked first out of the five dimensions tested and this proves that employees give more importance to it and hence organizations are required to promote healthy communication climate. A healthy communication climate which supports â&#x20AC;&#x153;supportiveness; participative Management & Change, Volume 14, Number 2 (2010)
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decision making; trust, confidence and credibility; openness and candour; and high performance goalsâ&#x20AC;? (Hargie & Tourish, 2000) is essential in todayâ&#x20AC;&#x2122;s challenging environment. Phase II Based on the results and its analysis, analysts interviewed six senior managers from different IT organizations to get their perspective. They agreed that effective communication is a pre-requisite for job satisfaction and employee engagement. They also talked about that the importance of effective communication in post recession times when all organizations are going through major changes. In such a situation, the organizations need to redesign and realign their internal communication strategies in such a manner that job satisfaction and employee engagement are not affected. Some of them talked about different initiatives various companies have taken to make communication more open in organizations. However, these long term strategies should be embedded in to the very culture of the organization to address issues related to job satisfaction and employee engagement. The inputs received from these senior managers can be discussed in the following categories: l
Establishing formal channels of communication
l
Developing informal communication
ESTABLISHING FORMAL CHANNELS OF COMMUNICATION Formal Networks Formal networks can be developed by setting up regularly scheduled (monthly) meetings between department heads to see how/if they can assist each other, providing training for supervisors on strategies for dealing with staff conflicts, and recognizing each department on performance basis in the employee newsletter. This can also be done by asking the executive director or chief operating officer to send out a monthly or quarterly email message to all IT professionals that provides updates on changes taking place in the organization, information on the its financial standing, information on government regulations that affect the organization, and information regarding its achievements and failures. Management & Change, Volume 14, Number 2 (2010)
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HR Portals Portals should be introduced which provide a fast and easy way of communication between the employee and the HR managers. In the IT sector the number of employees far exceeds the number of HR managers, it becomes difficult for the HR department to focus on each and every employee. HR portals attempt to reduce the workload on the department by shifting the mundane job to the portals and making face to face communications focused on important aspects. User-friendly Intranet within the organizations can be used to address questions about organizational practices and processes. Grievance Redressal Organizations should have an effective grievance redressal mechanism which is thoughtfully prepared, extensively communicated and periodically reviewed. This would enable employees to raise their concerns and discuss their issues without fear of victimization, subsequent discrimination or disadvantage. This can be done either through HR or through Ombudsperson. Any issue raised by an employee should be settled within a reasonable time limit. A discussion oriented approach should be encouraged to get it resolved. Diversity Initiatives With the changing demographics in organizations today, diversity has become a major issue. Managing the diverse workforce effectively is a major challenge before the organizations. To address this issue, diversity education programmes which lay emphasis on understanding and valuing the differences, and leveraging them in order to compete effectively should be initiated. These innovative endeavors would take care of the women employees by providing them generous work / life-balance and careerdevelopment opportunities. Creating Informal Networks In order that all the employees are kept abreast of what is going on in the organization, informal meetings can be held whenever required. This would also provide a good solution for the interaction problem between the employees and the manager and enable the employees to discuss the problems and ask clarifications regarding the organizational policy changes that take place in the organization. Informal networking can also take place by making Management & Change, Volume 14, Number 2 (2010)
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some employees to have lunch or breakfast with the senior management. may be once in a week and thus promoting a culture of open communication which will help the employee to have better commitment towards the organization as well as help the management to find out problems that the employees may be facing. Some others approches are: Pocket Sessions involving informal question and answer session Partner Round Table meetings where organization considers the employees as partners Colleague Councils where managers consult with the group of employees are already being used by different organizations to develop an environment of trust and understanding. Employees can be given the chance to respond to the impact of decisions made by management through the use of intranet. This would help them participate in decision making. Also the employees will have better commitment towards their jobs due to better understanding of the policies. Mentorship Programme Many organizations have mentorship programmes in place where new employees are paired with a mentor who can guide them through their careers and also help them avoid the pitfalls of the office politics. However, this tool should be used more effectively to nurture and grow the people. An important element of the mentoring relationship would be setting and facilitating clearly-defined learning objectives which may begin with a meeting discussing about their expectations and initial goals. Regular communication is important in order to effectively maintain the mentor-protégé relationship. The ‘mentor coordinator’ will also call the mentor periodically, and the mentor will be encouraged to contact the coordinator if any questions regarding the relationship arise. This would also enable to assess the performance of the mentor and maintain seriousness and interest on his part. The closer the communication, the more likely the programme will be successful. These programmes will reduce the feeling of being lost in the organizations. Buddy System Programme Many organizations make use of the buddy system wherein the employees are given the support, encouragement and confidence to the new entrant to explore innovative ideas and expertise of another which helps the former Management & Change, Volume 14, Number 2 (2010)
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become more productive at a faster pace. The buddy to a new employee helps the person adjust to the various processes existing within the system. The role of a buddy though apparently similar is different from that of the mentor. Mentoring a person is more complex and it requires coaching and guiding the employee for a longer period of time with a broader target in mind. Similarly, while mentors generally hold a superior role in the organization, buddies are from the same line of management, however, the challenge is to select the right buddy with the right attitude since a wrong choice can professionally kill a person.
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Davis, Joann (2007) “Communication: It is more than Distributing Information”, Employee Benefit Plan Review, 62 (1): 5–8. Downs, C. W. & A.D. Adrian (2004) Assessing Organizational Communication: Strategic Communication Audits. New York: The Guilford Press. Downs, C.W. and M.D. Hazen (1977) “A Factor Analytic Study of Communication Satisfaction”, Journal of Business Communication, 14 (3): 63-73.
Grapevine One of the most common forms of informal communication is the grapevine. Although it is often the source of inaccurate rumours, it can be used positively in reducing anxiety as a release mechanism for stress, identification of pending problems and early warning signal for organizational changes. This can also be used as a mechanism for fostering social interaction and promoting cohesiveness between organizational members thus as a way of informally sharing and testing ideas. In organizations, today it can be tapped to identify and make use of key communicator pointers, monitor what is happening in the organization and also to supplement formal channels of communication. The main purpose of organizational communication is to help in the achievement of organizational goals. An open communication culture between the upper and lower echelons of company would go a long way in providing a conducive environment to the employees which would ultimately positively affect job satisfaction and employee engagement. REFERENCES Barnard, C.I. (1938) The Functions of the Executive. Cambridge. MA: Harvard University Press. Bavelas, A., & D. Barrett (1951) “An Experimental Approach to Organizational Communication”. Personnel, 27: 366-371. Clampitt, P.G. and C.W. Downs (1993) “Employee Perceptions of the Relationship between Communication and Productivity: A Field Study”, Journal of Business Communication, 30 (1): 5-28. Conrad, C., & M.S. Poole (2002) Strategic Organizational Communication in a Global Economy. Orlando: Harcourt. Management & Change, Volume 14, Number 2 (2010)
Garett, Alexander (2008) “Crash Course in Internal Communications”, Management Today, 20. Greenbaum, H., P. Clampitt & S. Willhnganz (1988) “Organizational Communication: An Examination of Four Instruments”, Management Communication Quarterly, 2 (2): 245-282. Gruneberg, M. M. (1979) Understanding Job Satisfaction. New York: Macmillan. Harter, J. K., F. L. Schmidt & T. L Hayes (2002) “Business-Unit-Level Relationship between Employee Satisfaction, Employee Engagement, and Business Outcomes: A Meta-Analysis”, Journal of Applied Psychology, 87 (2): 268-279. Hargie, O. & D. Tourish (2000) Handbook of Communication Audits for Organizations. New York: Routledge. Hoppock, R. (1935) Job Satisfaction. New York: Harper. Kahn, W. A. (1990) “Psychological Conditions of Personal Engagement and Disengagement at Work”, Academy of Management Journal, 33 (4): 692-724. Landau, Jacqueline (2009) “When Employee Voice is Met by Deaf Ears”, S.A.M Advanced Management Journal, 74 (1):4-12, 28, 2. Locke, E. A. (1976) “The Nature and Causes of Job Satisfaction”. In: Dunnette, M.D. (ed.) Handbook of the Industrial and Organizational Psychology. Chicago: Rand McNally. Management & Change, Volume 14, Number 2 (2010)
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Maslow, A. (1954) Motivation and Personality. New York: Harper. May, D. R., R. L. Gilson & L. M. Harter (2004) “The Psychological Conditions of Meaningfulness, Safety, Availability and the Engagement of the Human Spirit at Work”, Journal of Occupational and Organizational Psychology, 77 (1): 11-37. Muchinsky, P.M. (1977) “Organizational Communication: Relationships, Organizational Climate and Job Satisfaction”, Academy of Management Journal, 20 (4): 592-607. Mitchell, Michael S. and Clifford M. Koen Jr. (2007) “Write” and Wrong: Improving Employee Communication, Supervision, 68 (12): 5–11. Nash, M. (1985) Managing Organizational Performance. San Francisco, CA: Jossey-Bass Quarstein, V. A., R. B McAfee & M. Glassman (1992) “The Situational Occurrences Theory of Job Satisfaction”, Human Relations, 45 (8): 859-873.
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SurveyFindings/Articles/Documents/090247%20EcononicDownturn%20Survey%20Brief_FINAL.pdf). Smith, P.C., L.M. Kendall & C.L. Hulin (1969) The Measurements of Satisfaction in Work and Retirements. Chicago: Rand McNally. Stanton, Jeffory M., et al., (2001) “Development of a Compact Measure of Job Satisfaction: The Abriged Job Descriptive Index”, Educational and Psychological Measurement, 61 (6): 1104-1122. Watson Wyatt (2009) “Few Employers Planning to Increase Communication to Workers about Pay”, PR Newswire. Wellins, Richard S., et al. “Employee Engagement: The Key to Realizing the Competitive Advantage”. Monograph, Development Dimensions International, Inc., MMV. Accessed on June 3, 2010 ( h t t p : / / w w w . d d i w o r l d . c o m / p d f / ddi_employeeengagement_mg.pdf; (http://www.mit.gov.in/content/itsoftware-services-and-bpo).
Roberts, K. H. and C.A. O’Reilly (1979) “Some Correlations of Communication Roles in Organizations”, Academy of Management Journal, 22 (1): 42-5. Robinson D, Perryman S and Hayday S (2004) “The Drivers of Employee Engagement”. Report 408, Institute for Employment Studies. Accessed on June 7, 2010 (http://www.employment-studies.co.uk/pubs/ summary.php?id=408). Rogers, E. M., & Agarwala-Rogers, R (1976) Communication in Organizations. New York: Free Press. Schaufeli, W. B. & A. B. Bakker (2004) “Job Demands, Job Resources, and their Relationship with Burnout and Engagement: A Multi-Sample Study”, Journal of Organizational Behaviour, 25 (3): 293-315. Schoeff, Mark Jr. (2007) “Employee Communication is no Small Wonder”, Communication World, 86 (8): 6. SHRM Survey Brief (2009) “The Employee Point of View: The Economic Downturn”. Accessed on June 1, 2010 (http://www.shrm.org/Research/ Management & Change, Volume 14, Number 2 (2010)
SERVICE ETHOS Rendering help to another is the function of all human beings. - Tattvarthasutra 5.21 I try to treat whoever I meet as an old friend with dignity, with honour. - The Dalai Lama Life's most urgent question is: What are you doing for others? - Martin Luther King, Jr If you help others, you will be helped, perhaps tomorrow, perhaps in one hundred years, but you will be helped. Nature must pay off the debt. It is a mathematical law and all life is mathematics. - G I Gurdjieff Management & Change, Volume 14, Number 2 (2010)
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APPENDIX Table IV Model Summary
a) Research Objective 1 – FACTOR ANALYSIS Table I Rotated Component Matrixa Component
Group 1
2
.892
D2
.777
D3
.466 .789
D6
.610
D7
.860
D8
.651
R Square
1
.578a
.334
Table V Model Summary
.678
D5
R
3
D1
D4
Model
Model
R
R Square
1
.492a
.243
.497
c) Research Objective 3 – CORRELATION & REGRESSION ANALYSIS
D9
.772
D10
.709
Table VI Model Summary Table II Total Variance Explained
Model
R
R Square
1
.505a
.255
Rotation Sums of Squared Loadings Component
Total
% of Variance
Cumulative %
1
2.430
24.303
24.303
2
2.198
21.977
46.280
3
1.889
18.889
65.170
Table VII Model Summary Model
R
R Square
1
.585a
.342
b) Research Objective 2 – CORRELATION & REGRESSION ANALYSIS Table III Model Summary Model
R
1
.493a
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R Square .243
Table VIII Model Summary Model
R
R Square
1
.513a
.263
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ENCOURAGEMENT A famous dancer was to perform but she was ill that day. The show was a sell-out, the audience waited anxiously for the show to begin. The anchor announced, “Ladies and gentlemen, welcome to the performance. The bad news is that the famous dancer is unwell, so she cannot perform. The good news is that her student will dance instead. The audience was obviously disappointed. The student dancer gave a wonderful performance. Yet no one applauded. Her little son from the sidelines ran to the mike and exclaimed loudly, “Mummmmmyyy, you dance great! I love you.” Overwhelmed, the audience joined the little boy in a deafening applause. Each one of us is a wonderful being. Encourage bringing forth hidden ability and wonder in an individual. Telling others constantly that they are useless, stupid and unimaginative only destroys any possibility of their improvement. However, if we were to be encouraging and generous with praise, chances are we would make others realize their potential. Encouragement involves a little loving effort, which will result in a very big difference in the life of other. - Swami Sukhabodhananda Source: The Times of India, New Delhi, July 31, 2007
MUSIC AND LIFE I am so fond of music that once, while I was in South African Hospital and ailing from a bruise on my upper lip, I felt greatly soothed as the daughter of a friend of mine sang the song 'Lead kindly Light' at my request. I cannot conceive of an evolution of the religious life of India without music. I do say I am a lover of music as well as the other arts. Only my values may be different from the accepted one, that is all. - M.K. Gandhi, The Bombay Chronicle, February 5, 1924. Music has given me peace. I can remember occasions when music instantly tranquilized my mind, when I was greatly agitated over something. Music has helped me to overcome anger. I can recall occasions when a hymn sank deep into me, though the same thing expressed in prose had failed to touch me…Let no one infer from this that I know music. On the contrary, it would be more correct to say that my knowledge of music is very elementary. I cannot critically judge music. All I can claim is that I have a natural year for good homely music. - M.K. Gandhi, Young India, June 10, 1929
Management & Change, Volume 14, Number 2 (2010)
VARIATION IN THE QUALITY OF MEDICAL SERVICES: AN EMPIRICAL INVESTIGATION Mushtaq Ahmad Bhat
M. Y. Malik
In the healthcare industry, hospitals provide the same types of service, but they do not provide the same quality of service. Under such circumstances patient’s decision to patronize one and not the other is based on quality service offered to him. He takes into account relative efficiency while choosing a particular hospital. Customer based determinants and perceptions of service quality, therefore, play an important role when choosing a hospital. However, quality does not improve unless it is measured. In the present study, an attempt has been made to study the variation in the quality of medical services of four hospitals in the state of Jammu and Kashmir and the Union Territory of Chandigarh through the use of a self-developed and statistically-tested research instrument so as to provide management with actionable and diagnostic information for enhancing service quality. An analysis covering five hundred twenty (520) patients revealed 41.45 per cent variation in the overall quality of medical services among the sample organisation and suggests resource allocation decisions on cleanliness and comfort and nursing care besides improvements in other dimensions of service quality. Keywords:Medical services, nursing care, hospital cleanliness and comfort, physician care, registration and admission, food services. INTRODUCTION The enhanced focus on customer satisfaction in contemporary marketing and management literature (Anderson and Sullivan, 1993; Bearden and Teal, 1983; Churchill and Suprenant, 1982; Spreng, et al., 1996) appears to have led to widespread attention for patient satisfaction in the more specialized healthcare literature (Cronin and Taylor, 1994). The benefits to be achieved from quality service are many and include: customer satisfaction and loyalty, attraction of new customers and higher market share, improved employees Management & Change, Volume 14, Number 2 (2011) Change, 14, Number 2 (2010) © 2010 IILM Institute for HigherManagement Education. & All RightsVolume Reserved.
128 Variation in The Quality of Medical Services: An...
morale and lower staff turnover, fewer mistakes and increased productivity (Barnes, 1997; Buzzell and Wiersema, 1981; Schoeffler, et.al., 1974; Takeuchi and Quelch, 1983). The costs of poor quality relate to lack of responsiveness to the customer, dissatisfied customers, complaints and adverse word-of-mouth communication, and dissatisfied employees (Crosby, 1979; Goodman, et al., 1986). In view of this wide-spread belief, service quality is used as a strategic differentiation weapon to build a distinctive advantage which competitors would find difficult to copy. Furthermore, consumers today are more aware of alternatives on offer and rising standards of service have increased their expectations. They are becoming increasingly critical of the quality of service they experience. Therefore, excellent service quality is not an optional competitive strategy which may or may not be adopted to differentiate one service organization from another, but it becomes essential to corporate profitability and survival. To achieve service excellence, service organizations must strive for “zero defections”, retaining every customer that the company can profitably serve (Reichheld and Sasser, 1990). Zero defections require continuous efforts to improve the quality of the service delivery system. Quality, however, does not improve unless it is measured. The quality of service – both technical and functional- is a key ingredient in the success of service organisations (Gronroos, 1984). Technical quality in health care is defined primarily on the basis of the technical accuracy of the diagnosis and procedure. Functional quality, in contrast, relates to the manner of delivery of health-care services. The distinction between these two aspects is widely accepted (Asubonteng, et al., 1996; Babakus and Mangold, 1992, Parasuraman, et al., 1985, 1991), although different terminology is occasionally used. Many researchers argue that functional service quality may be seen by the customer as the most important factor in a service transaction, given their frequent inability to judge technical quality of service (Asubonteng, et al., 1996). Particularly in a health care context, technical quality may be difficult for a consumer with no technical expertise to evaluate, whereas functional quality (the manner in which the service is delivered) can, and will, be evaluated by the consumer (Gronroos, 1984). Because it may be difficult for the consumer to assess technical quality, they tend to rely on the “how” of service delivery, and attributes such as empathy, reliability, responsiveness associated with the service encounter become critical (Babakus and Mangold, 1992; Parasuraman, et al., 1985, 1988). Hence, the measurement of hospital’s service quality has to be based on perceived quality rather than objective quality because services are intangible, heterogeneous and their consumption and production occurs simultaneously. Management & Change, Volume 14, Number 2 (2010)
Mushtaq Ahmad Bhat & M. Y. Malik 129
However, Lewis and Booms (1983) and Webster (1989) believed service quality to be a measure of how well the service level matches customers’ expectations. The most common definition of quality is the traditional notion that views quality as the customer’s perception of service excellence. That is to say, quality is defined by the customer’s impression of the service provided (Berry, et al., 1988; and Parasuraman, et al., 1985). The assumption behind this definition is that customers form the perception of service quality on the basis of service performance and their experience of the same. It is, therefore, the customer’s perception that categorises service quality. For example, service quality is considered as “a measure of how well the service delivered matches customer’s expectations” (Lewis and Booms, 1983), or “providing the customer with what he wants, when he wants it, and at acceptable cost, within the operating constraints of the business” (Lewis, 1991), “providing a better service than the customer expects” (Lewis, 1998). Parasuraman, et al., (1985) found that consumers’ perceptions of quality are influenced by various gaps which lead to service quality shortfalls and, in particular, the “quality perceived in a service is a function of the gap between customer’s desires/expectations and their perceptions of the service that is actually received,” i.e., service quality is a measure of how well the service delivered meets the expectations of service. In short, perceived quality involves the subjective response of people and is, therefore, highly relativistic. It is a form of attitude, related, but not equivalent to satisfaction, and results from a comparison of expectations with perceptions of performance (Parasuraman, et al., 1985; 1988). Perceived service quality is an important measure in influencing the consumer’s value perception and in affecting the intention to purchase products or services (Bolton and Drew, 1988; Zeithaml, 1998). RESEARCH OBJECTIVES Despite the strategic importance of quality in the context of any healthcare organization, it is popularly perceived that substantial differences in quality exist among healthcare providers. Research comparing healthcare providers on various issues pertaining to service quality are, however, limited (Bhat, 1990; Buch, 1993; Moore and Bopp, 1999; Mukhopadhayay, 1993; Mushtaq and Yaseen, 2007; Prakash, 1989; Ramesh, 1993; Sharma and Chahal, 1999, 2004). There is a dearth of empirical information on consumers’ acceptance of healthcare practices. Given the rapid changes in health-care environment, increasing competitiveness in the health-care industry, and an increasing awareness by patients of consumer satisfaction, the present study attempts Management & Change, Volume 14, Number 2 (2010)
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Mushtaq Ahmad Bhat & M. Y. Malik 131
RESEARCH METHODOLOGY
(38 per cent) and twenty to thirty thousand (13 per cent) and the remaining (9 per cent) belonged to higher income group of above thirty thousand rupees per month. Service group respondents were highest participants (63 per cent) followed by business group respondents. An equal number (50 per cent) of respondents (in-patients and out-patients) of all the hospitals, under reference, participated in the present study.
Sample Profile
QUESTIONNAIRE DEVELOPMENT AND DATA COLLECTION
The study seeks to analyse the variation in the quality medical service of hospitals in the state of Jammu and Kashmir and the Union Territory of Chandigarh (Punjab). However, the study was confined to urban areas only keeping in view the concentration of hospitals, which is relatively high, in these areas as well as the paucity of time and financial resources of the researchers. The study is further limited to four major hospitals, namely, Shri Maharaja Hari Singh Hospital (SMHS) in Srinagar, Shri Maharaja Gulab Singh Hospital (SMGS) in Jammu, Shri Achariya Chandra Medical College and Hospital (SACMH) in Jammu and FORTIS in Chandigarh. These Hospitals have been purposely selected for the present study keeping in view that they are the largest teaching hospitals in respective states. Moreover, in terms of employee and bed strength, these hospitals stand at the top.
The study is based on the primary data collected from the patients (both inpatients and out-patients) through a questionnaire designed and developed after consultations and discussions on the aforesaid research problem with the panel of patients, medical experts/administrators and academicians as well as after reviewing the relevant literature. Initially, the questionnaire consisted of sixty statements. The questionnaire was piloted on twenty patients in medical wards of SMHS Hospital, Srinagar. After the elimination, addition and rephrasing of several questions, the final questionnaire was prepared consisting of forty-eight questions. The construct was measured on a five point Likert-type scale (ranging from 1: strongly disagree to 5: strongly agree) and all questions were phrased positively. The data collected was reduced and purified with the help of the Cronbach Alpha Test.
The size of the sample consisted of five hundred twenty respondents. This represents two hundred eighty from public sector hospitals (54 per cent) and two hundred forty from private hospitals (46 per cent). In order to seek balanced opinion regarding quality of medical services, respondents bearing varied demographic characteristics such as age, income, education, gender and profession were selected from different wards (in-patient) and from different out-patient departments. Stratified random sampling for both in-patients and out-patients was followed. Before approaching a respondent, the importance of medical service for both the receiver and the service provider used to be discussed first.
Reliability and Validity
to measure and analysis service quality variation in hospitals, under reference, through the use of self-developed research instrument so as to provide management with actionable and diagnostic information for enhancing service quality in their respective hospitals.
Majority of the respondents (39 per cent) belonged to the age group of thirty-five to fifty followed by the age group of twenty to thirty-five (35 per cent) while as the remaining (26 per cent) were in the age group of above fifty. Male respondents were 63 per cent. Respondents who had obtained secondary level education were the highest participants (42 per cent) followed by the graduates (39 per cent) and post-graduates (19 per cent). Mass participants (40 per cent) were in the income group of ten to twenty thousand rupees per month followed by the income group of up to ten thousand rupees Management & Change, Volume 14, Number 2 (2010)
A composite score for the questionnaire was obtained by summing the scores of individual statements. Reliability tests were run to determine how strongly the attributes were related to each other and to the composite score (Table 1). The internal consistency reliability test is deemed to be acceptable for basic research when the reliability coefficient exceeds Nunallyâ&#x20AC;&#x2122;s reliability criterion of 0.70 level (Nunnally, 1978). The present generated scale indicated the score of 0.96 which is an acceptable reliability coefficient. The Cronbachâ&#x20AC;&#x2122;s alpha was also performed on each factor/ dimension and all the six factors/dimensions scored more than the suggested cut-off value of 0.70, revealing an acceptable level of reliability (Table 2). The dimensions finally selected have been given exploratory headings. Thus out of fifty-six (56) statements, forty-eight (48) statements got grouped under six factors, viz., Nursing Care (14.57 per cent VE), Cleanliness and Comfort (13.44 per cent VE), Physician Care (13.23 per cent VE), Treatment Results (11.19 per cent VE), Registration and Admission (9.40 per cent VE) and Food Services (9.29 per cent VE). Management & Change, Volume 14, Number 2 (2010)
132 Variation in The Quality of Medical Services: An...
Mushtaq Ahmad Bhat & M. Y. Malik 133
Table 1 Mean Scores, Standard Deviation, Cronbach Alpha Reliability Coefficient Scores and Variance Explained for Medical Services Dimensions
Registration and Admission
Food Services
4.36
4.03
4.11
3.96
3.74
4.19
4.06
Standard Reliability Coefficients/Deviation
0.88
0.90
0.71
0.76
0.83
0.93
0.81
Table 2 Quality of Medical Service Variation: Overall
0.91
0.96
14.57
13.44
13.23
11.19
9.40
9.29
71.13
Analytical Techniques In line with the objective of the study, two main techniques were used to analyse the data. First, a gap analysis was conducted by comparing perceived performance with expectations (SQ = P-E). The result of this comparison was the measurement of service quality. A comparative study among the four hospitals was conducted with respect to quality of medical services and its dimensions: nursing care, cleanness comfort, physician care, treatment results, registration and admission, and food services. Analysis of Variance (ANOVA) was used to test any significant differences in the quality of medical services of four hospitals, under reference. The results obtained from this computation are presented in eight tables (Table 2.9) OVER-ALL VARIATION IN THE QUALITY OF MEDICAL SERVICES Table 2 summarizes data regarding overall variation in quality of medical service among sample organization and brings to light that significant variation (p<0.01) in the quality of medical services exists among the hospitals to Management & Change, Volume 14, Number 2 (2010)
SMHS
-15.99
18.83
SMGS
-8.19
13.38
SACMH
-6.58
18.02
FORTIS
6.06
07.55
F. Value
0.78
Percent Explained
0.92
Total
0.92
Between Hospitals
0.95
Standard Deviation
0.96
Mean values of service quality
Variation Hospitals
Variance Explained (%)
Total
Over-all Service Quality
Cronbachâ&#x20AC;&#x2122;s Alpha Reliability Coefficients
Cleanliness and Comfort
Mean Scores
Reliability Test Scores
Nursing Care
Treatment Results
Physician Care
Dimensions of Medical Services
extent of 41.45 per cent. The highest negative mean score of both public hospitals (SMHS with -15.99 followed by SMGS with -8.19) reveals that both hospitals are poor in service quality in comparison to private hospitals under study. The overall mean score of FORTIS (6.06) followed by SACMH (-6.58) shows that these two hospitals are relatively high in delivering quality medical services in comparison to public sector hospitals. However, it is very important to mention that FORTIS with positive mean score is the only hospitals in the sample organization that exceeds its patientsâ&#x20AC;&#x2122; expectations. The remaining three hospitals, under study, are much below the expectations of their respective patients.
66987.09
161589.75
41.45
60.42*
*
P < 0.01; DF between hospitals, 03; Number 519; Total= 520
DIMENSION-WISE VARIATION IN QUALITY OF MEDICAL SERVICES Table 3 presents data regarding dimension-wise variation in quality of medical service among the hospitals and brings to light that variation among hospitals on cleanness and comfort dimension is highest i.e. (36.39 per cent) followed by nursing care (36.33 per cent). The variation on quality of medical care dimensions except cleanliness and comfort and nursing care varies from 20.63 per cent to 26.09 per cent among sample organization, which is an important finding for public sector hospitals. This research finding suggests that SMHS needs to take immediate steps to improve cleanliness and comfort service. Other important research finding is that all hospitals under study, Management & Change, Volume 14, Number 2 (2010)
134 Variation in The Quality of Medical Services: An...
Mushtaq Ahmad Bhat & M. Y. Malik 135
except FORTIS, need to invest heavily on nursing care in terms of better qualified and trained staff to improve their over-all quality of medical services.
ELEMENT-WISE VARIATION IN THE QUALITY OF MEDICAL SERVICES
Data also reveals that hospitals do not show much variation on physician care but the high variation in mean scores of public hospitals indicate heterogeneity on physician care dimension between the two public hospitals. FORTISâ&#x20AC;&#x2122; positive mean score (0.34) reveals better medical services as it exceeds the expectations of its patients on said dimension. The remaining hospitals under-study show negative mean scores which means they fall short of what their patients expect from them. The data on remaining dimensions of medical care (food services, treatment results and registration and admission) reveals low variations (26.09; 25.61 and 21.50 per cent respectively) among sample organization.
Nursing Care Analysis of Table 4 reveals that variation on nursing care among sample organization is 36.33 per cent which is relatively higher as compared to physician care (20.63 per cent, Table 6.5). The element-wise analysis of
Total
Percent Explained
F. Value
Between Hospitals
36.33
3039.22
8351.28
36.39
7870.13
20.63
22.18*
1167.11
4556.93
25.61
29.38*
2602.80
2129.24
9974.86
21.50
26.09
4. Interaction with patients
30.12*
1623.68
457.89
3. Intelligence of nurses
48.70*
5. Supportive and helpful nurses 6. Quick response from nurses 7. Confident and trustworthy nurses
23.37*
8. Nurses treat patients with courtesy and respect
30.12*
9. Nurses respond to quarries from patients
*
P < 0.01; DF between hospitals, 03; Number 519; Total= 520 GURU
Nursing Care
When you are pulled towards a guru you suddenly feel that you are being pulled inwards, not outwards. - Osho Management & Change, Volume 14, Number 2 (2010)
F-Value
Food services
10212.04
0.73 0.58 0.64 0.63 0.72 0.62 0.74 0.82 0.69 0.59 0.68 0.77 0.79 0.58 0.65 0.73 0.73 0.62 0.60 0.66 0.91 0.53 0.65 0.67 0.65 0.57 0.66 0.72 0.61 0.70 0.69 0.65 0.80 0.66 0.62 0.78 5.03 4.39 4.91 5.80
Percent Explained
Registration and admission
3710.85
2. Promptness of nurses
-0.45 -0.53 -0.36 0.07 -0.67 -0.73 -0.55 0.08 -0.65 -0.65 -0.39 0.02 -0.76 -0.72 -0.38 0.04 -0.58 -0.55 -0.47 0.03 -0.82 -0.57 -0.06 0.04 -0.46 -0.60 -0.48 0.06 -0.41 -0.62 -0.09 0.03 -0.64 -0.50 -0.12 0.03 -5.44 -5.47 -2.90 0.40
Total
Treatment results
5.03 4.39 4.91 5.80 4.15 3.10 3.00 4.15 4.97 5.43 4.42 4.77 4.11 3.78 3.25 3.49 2.63 2.36 2.55 3.03 3.45 2.10 5.18 2.85
Variation
SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS
Variation Between Hospitals
Physician care
-5.44 -5.47 -2.90 0.40 -0.82 1.94 1.75 2.20 -2.50 -0.92 -2.22 0.34 -4.01 -3.65 -2.95 0.44 -1.93 0.36 1.73 2.00 -1.29 -0.45 -1.00 0.68
1. Sympathy and politeness of nurses
Standard Deviation
Cleanliness and comfort
SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS
Standard Deviation
Nursing care
Mean values of service quality
Dimensions of Service Quality
Hospitals
Table 3 Variation in Medical Services across Dimensions
Mean values of service quality
Elements of Service Quality
Hospitals
Table 4 Quality of Medical Service Variation on Nursing Care
54.62
163.49
33.40
42.80*
58.01
193.59
29.96
36.51*
40.01
160.17
24.97
28.41*
40.34
165.43
24.38
27.52*
55.21
166.36
33.18
42.38*
63.61
193.53
32.86
41.78*
37.87
146.94
25.77
29.63*
44.56
159.57
27.92
33.06*
40.81
175.74
23.22
25.81*
3710.8 5
10212. 04
36.33
48.70*
*
P < 0.01; DF between hospitals, 03; Number 519; Total= 520 Management & Change, Volume 14, Number 2 (2010)
136 Variation in The Quality of Medical Services: An...
Mushtaq Ahmad Bhat & M. Y. Malik 137
Cleanliness and Comfort The data on Table 5 reveals that quality of medical service on cleanliness and comfort of sample organization also varies considerably (36.39 per cent) which is marginally higher in comparison to nursing care (36.33 percent). The element-wise analysis of cleanliness and comfort highlights highest variation (35.57 per cent) on cleanliness of bathrooms and toilets followed Table 6 Quality of Medical Service Variation on Physician Care
*
107.62
35.57
47.12*
35.30
101.32
34.84
45.63*
23.91
89.54
26.70
31.08*
159.75
450.55
35.45
46.88*
59.14
308.90
19.14
20.20*
115.64
402.75
28.71
34.37*
131.33
413.44
31.76
39.72*
3039.2 2
8351.2 8
36.39
30.12*
F. Value
38.29
P < 0.01; DF between hospitals, 03; Number 519; Total= 520
Management & Change, Volume 14, Number 2 (2010)
F. Value 30.45*
Percent Explained
Cleanliness and Comfort
26.30
0.68 0.55 0.66 0.58 0.73 0.66 0.56 0.70 0.57 0.66 0.63 0.46 0.74 0.69 0.56 0.51 0.63 0.69 0.60 0.58 0.73 0.72 0.62 0.68 0.75 0.71 0.58 0.76 0.78 0.66 0.57 0.59 0.67 0.67 0.65 0.67 4.97 5.43 4.42 4.77
Total
8. Floors are regularly cleaned
89.38
-0.32 0.07 -0.02 0.08 -0.26 -0.24 -0.11 -0.01 -0.08 -0.09 -0.37 0.07 -0.59 -0.20 -0.28 0.02 -0.47 -0.16 -0.28 0.04 -0.25 -0.10 -0.23 0.06 -0.23 -0.11 -0.31 0.03 -0.14 -0.01 -0.34 0.04 -0.16 -0.08 -0.28 0.01 -2.50 -0.92 -2.22 0.34
Between Hospitals
7. Bedding etc. is regularly changed
23.51
SMHS SMGS SACMH FORTIS SMHS 2. Promptness of SMGS doctors SACMH FORTIS SMHS 3. Intelligent doctors SMGS SACMH FORTIS SMHS 4. Supportive and SMGS helpful doctors SACMH FORTIS SMHS 5. Doctors instill SMGS confidence in SACMH patients FORTIS SMHS 6. Doctors explain SMGS reason/s for test/s SACMH FORTIS 7. Enough time is SMHS spent by doctors SMGS on treatment and SACMH care FORTIS SMHS 8. Doctors answer SMGS the quarries of SACMH patients FORTIS SMHS 9. Confident and SMGS trustworthy SACMH doctors FORTIS SMHS SMGS Physician Care SACMH FORTIS 1. Sympathy and politeness of doctors
Standard Deviation
6. Ventilation of wards
0.60 0.41 0.46 0.51 0.60 0.48 0.48 0.48 0.55 0.43 0.53 0.49 0.55 0.42 0.49 0.54 1.31 0.89 1.00 0.96 1.14 0.84 0.95 0.97 1.17 1.00 1.02 1.01 1.17 0.94 1.06 0.99 4.15 3.10 3.00 4.15
Percent Explained
5. Clean drinking water area
-0.04 0.06 0.36 0.30 -0.18 0.18 -0.13 0.32 -0.10 0.20 0.60 0.24 -0.16 0.66 -0.04 0.28 -0.16 0.13 0.03 0.29 0.00 0.18 0.10 0.20 -0.10 0.09 0.07 0.30 -0.08 0.44 0.76 0.27 -0.82 1.94 1.75 2.20
Total
4. Fresh and clean garments and curtains
SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS
Between Hospitals
3. Neat and clean waiting rooms
Standard Deviation
2. Bathrooms and toilets are clean and functioning
Mean values of service quality
1. Neat and clean corridors
Hospitals
Elements of Service Quality
Variation
Variation
Mean values of service quality
Elements of Service Quality
Table 5 Quality of Medical Service Variation on Cleanliness and Comfort
Hospitals
nursing care reveals highest variation (33.40 per cent) on sympathetic and politeness of nurses. The results reveal that private hospitals figure high on service quality scores in comparison to public hospitals on said element of nursing care. The variation among sample organization is low (23.22 per cent) on quick response from nurses. The service quality scores of public hospitals understandably are comparatively very low against private hospitals on interaction with patients. The fact is that the nursing staff is not sufficient and qualified and they remain very busy with paper work and do not get sufficient time to interact with patients. Private hospitals, as expected, score high on said element of nursing care as they employ sufficient and qualified nurses.
11.34
111.22
12.61
9.711*
18.83
134.47
14.00
13.90*
11.82
101.40
11.65
11.26*
8.35
113.74
7.34
6.76*
13.05
116.60
11.19
10.75*
25.09
150.06
16.66
17.13*
32.53
161.74
20.11
21.48*
25.12
138.63
18.12
18.88*
20.61
134.65
15.30
15.42*
1623.6 8
7870.1 3
20.63
22.18*
*
P < 0.01; DF between hospitals, 03; Number 519; Total= 520 Management & Change, Volume 14, Number 2 (2010)
138 Variation in The Quality of Medical Services: An...
Mushtaq Ahmad Bhat & M. Y. Malik 139
by clean drinking water area (35.45 per cent) where as there is a low variation of (19.14 per cent) on ventilation of wards followed by neat and clean corridors (26.30 per cent). In the sample organization, only SMHS scores low and negative on all elements of cleanliness and comfort and falls
behind the other hospitals on all elements of the abovementioned dimension. This indicates relatively poor services in the hospital regarding cleanliness and comfort. Treatment Results
*
Percent Explained
F. Value
3.77
3.35*
25.06
82.72
30.29
37.10*
Table 8 Quality of Medical Service Variation on Registration and Admission Elements of Service Quality 12.22
16.61
25.36
60.44
88.65
101.00
18.73
25.10
21.63*
19.68*
1. Behaviour of gatekeepers
28.61*
2. Employees at registration counter are polite and helpful 3. Attendants act honestly
12.53
69.94
17.91
18.63*
4. Employees providing admission tickets act honestly 7.69
83.74
9.18
8.63*
5. Overall procedure of registration 5.74
12.80
60.24
62.12
P < 0.01; DF between hospitals, 03; Number 519; Total= 520
Management & Change, Volume 14, Number 2 (2010)
20.12
9.52
20.60
9.00*
6. Waiting time to be attended Registration and Admission
22.15*
Variation
SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS
-0.25 -0.08 0.60 0.35 -0.21 0.33 0.57 0.25 -0.35 0.20 0.24 0.31 -0.24 0.24 0.42 0.44 -0.44 0.10 0.04 0.35 -0.44 -0.43 -0.14 0.30 -1.93 0.36 1.73 2.00
0.57 0.50 0.41 0.57 0.47 0.47 0.44 0.50 0.55 0.49 0.39 0.58 0.46 0.46 0.48 0.63 0.51 0.41 0.38 0.52 0.58 0.53 0.44 0.60 2.63 2.36 2.55 3.03
F. Value
10. Politely treated
39.20
Percent Explained
9. Information about health progress is given
1.48
Total
8. Attention from nurses regarding drips and wound dressing
35.59*
Between Hospitals
7. Method of explaining result of tests
29.43
Standard Deviation
6. Procedure of treatment
109.30
Mean values of service quality
5. Blood bank services
32.17
The analysis of Table 7 reveals that there is significant variation (p<0.01) in the sample organization on treatment results (25.61 per cent). Mean service quality scores of private hospitals is comparatively high against public hospitals. The element wise analysis of treatment results brings to light highest variation (30.29 per cent) on medical test facilities availability while as the variation is lowest (3.77 per cent) on availability of medicine. Private hospitals including one public hospital (SMGS) score high on regular health progress information as against other public hospital (SMHS). The variation on the remaining elements of treatment results varies from 29.43 per cent to 9.18 per cent.
Hospitals
4. Result of tests comes quickly
0.57 0.53 0.46 0.60 0.44 0.30 0.29 0.45 0.48 0.42 0.43 0.55 0.46 0.40 0.35 0.49 0.59 0.46 0.48 0.56 0.67 0.50 0.39 0.54 0.59 0.41 0.36 0.47 0.61 0.52 0.44 0.56 0.49 0.41 0.36 0.54 0.46 0.37 0.41 0.49
Total
3. Medical test facilities adequately available
-0.17 -0.33 -0.46 0.08 -0.37 -0.46 -0.63 0.03 -0.30 -0.15 -0.19 0.02 -0.35 -0.50 -0.27 0.02 -0.65 -0.52 -0.08 0.03 -0.48 -0.31 -0.45 0.03 -0.59 -0.72 -0.39 0.04 -0.15 -0.44 -0.42 0.05 -0.54 0.04 0.17 0.08 -0.41 -0.26 -0.23 0.06
Variation Between Hospitals
2. Medicines are always adequately available
SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS
Standard Deviation
1. Improvement in conditions after consulting the doctors
Mean values of service quality
Elements of Service Quality
Hospitals
Table 7 Quality of Medical Service Variation on Treatment Results
25.30
95.68
26.44
30.68*
13.16
71.13
18.50
19.38*
15.24
83.07
18.34
19.17*
10.93
78.74
13.88
13.75*
7.54
62.38
12.08
11.73*
9.48
86.18
11.00
10.55*
21.50
23.37*
457.89 2129.24
*
P < 0.01; DF between hospitals, 03; Number 519; Total= 520 Management & Change, Volume 14, Number 2 (2010)
140 Variation in The Quality of Medical Services: An...
Mushtaq Ahmad Bhat & M. Y. Malik 141
Registration and Admission The data in Table 8 provides information regarding variation in quality of medical service on registration and admission among sample organization and brings to light that variation on said dimension is 21.50 per cent (p<0.01). Element-wise analysis on aforementioned dimension shows highest variation (26.44 per cent) on behaviour of gatekeepers while-as variation is lowest on waiting time to be attended (11.00 per cent). The service scores of sample organization also do not exhibit much variation on overall procedure of registration.
is very high as compared to all other hospitals in the sample organization indicating that hospital is much better in food services in comparison to rest of the hospitals in the study. The elementwise analysis of food services brings to light that there is a highest variation (31.72 per cent) on range and appeal of menus and the variation is lowest on temperature of food (11.54 percent). As far as meal delivery in time is concerned, the variation is 12.29 per cent and surprisingly SMHS hospital scores very high on that particular element as compared to other hospitals in the sample organization. The variation on the remaining elements varies from 30.76 per cent to 12.29 per cent. CONCLUSION AND SUGGESTIONS
Food Services Table 9 also reveals significant (p<0.01) variation on food services (26.09 per cent) in the sample organization. Mean service quality score of FORTIS
6. Overall food service
Food Services
*
F. Value
5. Behaviour of staff serving food
Percent Explained
4. Range and appeal of menus
0.95 0.90 1.08 1.12 0.86 0.87 1.02 1.20 0.86 1.01 1.04 1.14 1.15 1.00 0.88 1.36 0.87 1.06 1.08 1.05 0.92 0.92 0.97 1.21 3.45 2.10 5.18 2.85
Total
3. Temperature of food
0.33 -0.03 0.05 0.13 -0.48 -0.02 -0.10 0.10 0.03 0.06 -0.02 0.10 -0.46 -0.42 -0.27 0.08 -0.46 -0.05 -0.54 0.20 -0.25 0.01 -0.12 0.07 -1.29 -0.45 -1.00 0.68
Between Hospitals
2. Taste of food
SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS SMHS SMGS SACMH FORTIS
Standard Deviation
1. Meal delivery quite in time
Variation
Mean values of service quality
Elements of Service Quality
Hospitals
Table 9 Quality of Medical Service Variation on Food Services
36.91
300.13
12.29
11.96*
73.13
324.55
22.53
24.82*
34.63
300.01
11.54
11.13*
147.17
463.88
31.72
39.65*
118.61
385.55
30.76
37.91*
80.09
342.55
23.38
26.04*
The findings of the present study are of vital importance for hospital administrators with respect to the non-clinical aspects of service quality. The study reveals significant variation (p<0.01) on cleanliness and comfort dimension followed by nursing care as reported by respective respondents of the sample organisation. The overall variation in quality of medical service among sample organization is 41.45 per cent. Within this variation, the variation on cleanness and comfort followed by nursing care dimension is 36.39 and 36.33 per cent respectively. This is an important finding for public sector hospitals and suggests resource allocation decisions to be re-evaluated in the light of patients’ expectations to improve over-all quality of medical care. The study has shown that cleanliness and comfort followed by nursing care are the critical dimensions of a hospital service quality. However, it was found that medical services, as perceived by patients, failed to meet their expectations in almost all the six dimensions, except, in the case of FORTIS whose perceived service quality score was reported positive. It has also been found that the quality of medical service of private hospitals in relatively better than that of government hospitals. Delivering better medical care is one of the best ways a hospital can respond to competition. Obtaining reliable and valid measures of service quality from patients is critical to achieving that goal. As a result, service quality programmes should become high priority with expenditure viewed as long-term investment for future growth. REFERENCES
2602.80 9974.86
P < 0.01; DF between hospitals, 03; Number 519; Total= 520
Management & Change, Volume 14, Number 2 (2010)
26.09
30.12*
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142 Variation in The Quality of Medical Services: An...
Mushtaq Ahmad Bhat & M. Y. Malik 143
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Barnes, J. G. (1997) “Closeness, Strength and Satisfaction: Examining the Nature of Relationships between Providers of Financial Service and their Retail Customers”, Psychology and Marketing, 14(8): 765-790. Bearden, W. O. & J. Teal (1993) “Some Determinants of Consumer Satisfaction and Complaint Reports”, Journal of Marketing Research, 20: 21-28 (February). Berry, L. L., A. Parasuraman & V. A. Zeithaml (1988) “The Service-Quality Puzzle”, Business Horizon, 31(5): 35-43. Bhat, V.N. (1990) “Public Health in India”, Delhi: Amar Prakashani, pp. 95104. Bolton, R.N. & J.H. Drew (1988) “A Model of Perceived Service Value”, Technical Note, 88-420.1, GTE Laboratories, Waltham, MA Buch, M.W. (1993) “Towards a Cost Effective Health Care System”, Vacham Health Care, 4(1): 55. Buzzell, R. D. & F. D. Wiersema (1981) “Successful Share-building Strategies”, Harward Business Review, January-February; p. 135. Churchill, G. A. & C. Suprenant (1982) “An Investigation into the Determinants of Consumer Satisfaction”, Journal of Marketing Research, 19: 491-504 (November). Cronin, J. & S. Taylor (1994) “SERVPERF versus SERVQUAL: Reconciling Performance-Based and Perceptions-Minus-Expectations Measurement of SQ”, Journal of Marketing, 58: 125-131 (January). Crosby, P. (1979) Quality Is Free. New York: McGraw-Hill. Management & Change, Volume 14, Number 2 (2010)
Lewis, B. (1991) “Service Quality: An International Comparison of Bank Customers Expectations and Perceptions”, Journal of Marketing Management, 7: 47-62. Lewis, B.R. (1988) “Customer Service Survey: A Major UK Bank” in Lewis, B. (1991), “Service Quality: An International Comparison of Bank Customers Expectations and Perceptions”, Journal of Marketing Management, 7: 47-62. Lewis, R.C. & B.H. Booms (1983) “The Marketing Aspect of Service Quality” in Lewis, B.R. (1991) “Service Quality: An International Comparison of Bank Customers Expectations and Perceptions”, Journal of Marketing Management, 7: 47-62. Moore, S. T. & K.D. Bopp (1999) “How Consumers Evaluate Healthcare Quality (Part 2)”, Health Marketing Quarterly, 17(1): 1-8. Mukhopadhayay, A. (1993) “Health System and Services”, Health for All, 28(12): 6-13. Mushtaq, A. B. & M. M. Yaseen (2007) “Quality of Medical Services: A Study of Selected Hopitals”, NICE Journal of Business, 2(2): 69-79. Nunally, J.C. (1978) Psychometric Theory (second edition). Englewood Cliffs, New Jersey: McGraw Hill Book Company. Panasuraman, A., V. A. Zeithaml & L.L. Berry (1988) “SERVQUAL: A Multiple Scale for Measuring Consumer Perceptions of Service Quality”, Journal of Retailing, 64(1): 12-40 (Spring). Parasuraman, A., L. Berry & V. Zeithaml (1985) “A Conceptual Model of SQ and Its Implications for Future Research,” Journal of Marketing, 49: 41-50 (Fall). Management & Change, Volume 14, Number 2 (2010)
144 Variation in The Quality of Medical Services: An...
Parasuraman, A., V.A. Zeithaml & L.L. Berry (1991) “Refinement and Reassessment of the SERVQUAL Scale”, Journal of Retailing, 67(4): 420-50. Prakash, C. (1989) “Quality of Health Care in India (pp. 289-299)”. In: Goel S.L.and Kumar R. (ed.) Hospital Administration and Management-Vol. III. New Delhi: Deep and Deep Publications. Ramesh, (1993) “The Private/Public Mix in Health Care in India”, Health Policy and Planning, 8: 43-46 (March). Reichheld, F. & W. Sasser (1990) “Zero Defections: Quality Comes To Service”, Harvard Business Review, September-October, 105-111. Schoeffler, S., R.D. Buzzell & D.E. Heany (1974) “Impact of Strategic Planning on Profit Performance”, Harward Business Review, MarchApril, 137. Sharma, R. D. & Hardeep Chahal (1999) “A Study of Patients’ Satisfaction in Outdoor Services of Private Health Care Facilities”, Vikalpa, 24(4): 69-76. Sharma, R. D. & Hardeep Chahal (2004) “Managing Healthcare Service Quality in a Primary Health Care Centre”, Metamorphosis – JMR, 3(2): 112-131. Spreng, R.A. & R.D. Mackoy (1996) “An Empirical Examination of A Model of Perceived Service Quality and Satisfaction”, Journal of Retailing, 72: 201-14. Takeuchi, H. & J. A. Quelch (1983) “Quality is more than Making a Good Product”, Harvard Business Review, July-Aug, 139-145. Webster, C. (1989) “Can Consumers be Segmented on the Basis of their Service Quality Expectations?” Journal of Services Marketing, 3(2). Zeithaml, V. A. (1998) “Consumer Perceptions of Price, Quality and Value: a Means-end Model and Synthesis of Evidence”, Journal of Marketing, 52: 02-22 (July).
Management & Change, Volume 14, Number 2 (2010)
CORRELATES OF WORK-FAMILY CONFLICT AMONG DUAL CAREER WOMEN Abdul Gani
Roshan Ara
The present study identifies the variables that interfere with work- life balance of dual career women and suggests measures for managing the demands of work and family. Two hundred women working in educational institutions, media organisations, banks, government offices, hospitals and other white-collar situations in Kashmir valley were selected for the study. The results suggest that role conflict among working women involves a number of dimensions which are affected by host of personality, social, familial and background variables. The findings highlight that the levels of conflict in working women vary and are dependent on the availability of various support systems within and outside the family as well as the organisations where they work. A good and supportive atmosphere at home and workplace is required for proper management of working women’s work-family conflict. The study also examines the present state of research and identifies the need for and areas of further research in the field. Keywords: Working women, role- conflict, correlates of conflict, Kashmir Valley INTRODUCTION Women, constituting about half of the world’s population, are the most important human resources central to the development of any race, culture, nation or civilization. Women have been the nurtures, care givers and the backbone of our society. Recent years have brought a great change in the lives of women all over the world, influencing their attitudes, values, inspirations, ways of feeling and acting for effective participation in all walks of life. The traditional concept of women being bondaged to the household, child bearing, child rearing and domestic duties is now gradually changing. They have risen above socio-cultural traditions to take a serious look at themselves, their potentials and capabilities and have taken more professional Management & Change, Volume 14, Number 2 (2011) Change, 14, Number 2 (2010) © 2010 IILM Institute for HigherManagement Education. & All RightsVolume Reserved.
146 Correlates of Work-Family Conflict Among Dual Career Women
roles for creating a meaning for themselves. Paid employment has become less physically tiring, has more status, yields more income and is accompanied by better working conditions. Since their personal resources like time, money and energy are limited it is hard for them to allocate limited resources to these roles and adjusting to them. Various socio-economic and politico-legal factors have brought about a newly emerging middle class of working women in India. The process of industrialization, urbanization and secularization has brought about various socio-psychological changes in attitudes and values of women. Education and employment have provided them with new avenues to express and assert themselves. In the changed social milieu a woman worker plays a double role–the traditional domestic role of a wife, mother, home- maker, mother-in-law, daughter, daughter-in-law and that of a professional worker outside her home as colleague, boss and subordinate. There are contradictory role expectations from workingwomen while she is at work and at home. On professional front she is expected to be committed, dynamic, competitive, straight forward, non-sentimental and act in a” business like” manner and at home front, she is expected to be sweet, soft, sensitive, adaptable, gentle, unassertive and domesticated. As an ideal woman she wants to fulfill the duties of a faithful wife, a sacrificing mother, obedient and respectful daughter in-law and an efficient and highly placed career woman. But the expectations and requirements arising from these two roles are in direct contrast with each other. An attempt to play one of the roles with perfection leads to an inadvertent sacrifice of the other. Being subjected to the dual demands of home and work place, which are often contradictory in nature, she faces various problems of adjustment. She finds it difficult to satisfactorily cope with both the roles simultaneously. Coping up with the situation requires not only additional physical strength, personal ability and intelligence on the part of a working woman but also requires the members of her ‘role set’ to simultaneously make necessary modifications in their expectations. In order to help dual career women to manage the demands of both work and family, it is necessary to explore the origins and correlates of work stressors and work–family conflict, and to find a support system at the level of the family, workplace, community and government for resolving it. The present study is an attempt to study the nature and extent of work-family conflict of dual career women , identify the variables that interfere with their work-life balance and suggest ways for striking out a balance between their two roles. Management & Change, Volume 14, Number 2 (2010)
Abdul Gani & Roshan Ara 147
Review of Research Work-family conflict has been emphasized as an inter-role conflict that occurs when the role pressures from work and family are incompatible (Seto, et al., 2004). Although the level of role conflict experienced by working women has been well documented by the western researchers (Clark, 2000; Evandrou, et al., 2002; Guest, 2002; Rapaport and Rapaport, 1980; Sekaran, 1984; Voydanoff, 1988) far less is known about the variables leading to the interface of work-family conflicts (Aryee, 1992; Seto, et al., 2004). The available research has indicated a number of positive and negative factors that affect work and family domains of employed women: high work demand, low job control, role ambiguity, inadequacy of reward, underutilization of skills, social support at work, flexible working hours, helpful supervisors, helpful colleagues and paid sick leave (Allen, et al., 2000; Shipley, 1992). The extent to which a working woman actually perceives potential role conflict situations as problems or feels personally troubled by them depend, generally, upon three mediating variables: characteristics of the conflict including the nature and intensity of the conflict; characteristics of the working woman including her age, qualification, length of service or marriage, etc, and characteristics of organization which include the type and nature of organizations where woman is employed (Carlson and Kacmar, 2000; Grace, 1972). The works of many researchers (e.g. Adams, et al., 1996; Carlson and Kacmar, 2000; Parasuraman, et al., 1996) have found that a variety of antecedents including role ambiguity, role conflict, time demands and involvement in both the work and family domains are directly and positively relate to work-family conflict. The studies of Rapoport and Rapoport (1969) and Warren (2002) have indicated that the people have limited time and energy and that the time and energy spent in one domain (e.g., paid work activity) is invariably unavailable for other domains (e.g., education, social or family responsibilities).Women having multiple roles results in work - family conflict because time and energy is shared, clubbed and extended across the two spheres of activity.Women who choose to combine marriage with career face almost a situation of normlessness and hardly know how to apportion time and resources between these two major responsibilities. Time of a working woman is related to the type of house-hold and job responsibilities, the distribution of housework among the members of family, number of paid assistants, the services available and the use of work-saving devices (Rapoport and Rapoport, 1969). If forced to choose between work and family, women generally prefer Management & Change, Volume 14, Number 2 (2010)
148 Correlates of Work-Family Conflict Among Dual Career Women
their family than their work (Ahmad, 1996; Aryee, 1992; Gutek, et al., 1991). Mothers that are employed full time exhibit a higher level of anxiety than mothers who work part time (Hemmelgam and Laing, 1991). Female work role is only partly actualized because it is especially vulnerable to family role demands (Hughes and Galinsky 1994). Role conflicts will not manifest if a woman does not put her career above her duties as daughter in law, wife and mother. As long as the woman does not recognize the unconditional primacy of the family roles, but pursues her extra-familial activities independently of these roles, open conflicts between the woman and her role senders are bound to emerge. Behavioural discrepancy is considered to be having an important bearing on role conflict. This conflict has also been reported to relate to various outcomes such as depression, bad physical health, job dissatisfaction, life and family dissatisfaction and intention to quit the job (Evandrou, et al., 2002; Seto, et al., 2004). Further effects are absenteeism (Goff, et al., 1990), lack of psychological availability at work (Cooper and Williams, 1994; Hall and Parker, 1993), accidents and loss of productivity (Ganster and Schaubroeck , 1991), high turnover (Adebayo , 2006), poor health ( Evandrou, et al., 2002) and wasted human potential (Wagner and Neal, 1994). When conflicts between the two life domains of employed women occur its consequences are also reflected in both organization and domestic life. There is, therefore, a growing recognition by policymakers of the importance of supporting women in juggling work and family life, (Evandrou, et al., 2002). It has been found by several investigators that those women who strongly accept either the modern or traditional roles have relatively less role conflict than those who fall in between the two (Adebayo, 2006; Kapur, 1974). Having less time and more incongruent demands of dual roles, the working woman is experiencing more and more role conflict in the modern situations (Hall, 1975; Holahan & Gilbert, 1979; MacKinnon, 1978; Nischol, 1975; Nevill & Demico, 1975). It makes sense that the more roles people have, the more opportunity there will be for different roles to have conflicting expectations. This is partly the logic behind the study of women’s workhome role conflict based on the assumption that for women the work role is an “additional” role and an important and demanding one. The working mother’s role is widely regarded as a classic conflict situation in developing countries. Potentiality for conflict has been suggested from a variety of sources: the diffused nature of role and role overload (Mackinnon, 1978), their exposure to conflicting expectations (Gordon & Management & Change, Volume 14, Number 2 (2010)
Abdul Gani & Roshan Ara 149
Hall, 1974; Hall & Gordon, 1973; Terborg, 1977), their concern with personal identity and self-esteem (Holahan & Gilbert, 1979), effectiveness and moral orientation of their role (Grace,1972) and the attitude of family members towards their employment (Hemlatha and Suryanarayana, 1983). Husband’s attitude has been found co-varying most closely with the role conflict in a working wife. There is serious risk of conflict and tension in marriage particularly when the wife’s employment creates a change in earlier habits. Echoing this concern Nischol (1975) reports that the male copartners have not yet reconciled themselves to some inconvenience resulting from their wive’s gainful employment outside the home. Spouses belonging to inconsistent pre-marital socio-cultural backgrounds and those with incompatible and uncongenial personality traits, disharmony in sexual relationship, and unfavourable post-marital circumstances experience tensions in their married life. In situations where there was a lag between the change in the attitudes of husbands and the other family members towards a working wife’s role and status and that of her own attitude towards the same, there is always friction and tension in married and family relationships (Kapur, 1974; Gordon and Hall (1974). Having pre-school children at home and also school going children has been consistently related to measures of workfamily strain and conflict (Greenhaus and Kopelman, 1981; Voydanoff, 1988). There is a limitation in the degree to which a husband and wife are willing to delegate child-care to others even when such resources are available. The pressure of managing multiple roles is large and the psychological benefits of employment are the least among married women with small children (Collins, et.al.,1992). Besides, the physical and mental health of the children is another factor which produces conflict in the maternal role of the working women (Rapoport and Rapoport, 1969; Voydanoff, 1988). The above review reveals that in spite of the increased formal participation of women in paid employment being a global phenomenon, research into work-family linkages that this phenomenon has precipitated has been done mostly in Western societies. In this study, we examine several determinants of work–family conflict and their relationships. Material and Methods The study was carried out among working women working in various organizations in the Kashmir Valley who fulfilled the criteria of being married and engaged in dual work. The respondents were randomly selected purposefully from educational institutions, media organizations, banks, Management & Change, Volume 14, Number 2 (2010)
150 Correlates of Work-Family Conflict Among Dual Career Women
government offices and hospitals and belonged to various social, economic, cultural, demographic and professional groups and categories. These occupations were chosen deliberately because of the high concentration of women workers employed in them. A total of 250 participants responded to the survey but only 200 of the questionnaires were analyzed; the others were either not filled properly or only partially completed. Participants were randomly and independently sampled. Participants were randomly and independently sampled. The confidentiality of all information received was guaranteed by asking participants not to include their names on the completed questionnaires. Main data for the study was collected directly from the respondents in face to face mode using written questionnaires, direct oral interviews and observations. Written questionnaires included questions which were largely objective in nature and provided factual information. Direct oral interviews were semi-structured and included questions which were subjective in nature and whose answers could not be clearly expressed in writing. The data obtained through interviews was also supplemented by visiting some of the respondent’s at home and observing their behaviour and role in actual reality. The results of the study were analyzed with the help of simple average scoring scales, chi-square tests and ranking methods.
Abdul Gani & Roshan Ara 151
Correlates of Role Conflict An attempt has been made in this section to identify the factors contributing to the degree of role conflict of the dual career women. The results of the study in this regard are presented in Tables 1 and 2 and analyzed in detail in the following paragraphs. Table 1 Factors affecting Role Conflict among Working Women S.No.
1.
Type of Profession Teachers Administrative officers/employees Media women Bank employees Doctors & nurses
2.
3.
RESULTS AND DISCUSSION Degree of Role Conflict 4.
In an attempt to assess the nature and extent of role-conflict experienced by the working women the respondents were asked the question: ‘How often do you have to juggle work and family obligations that conflict with one another and give you a pulled-apart feeling?’ The items were rated on a 5-point Likert-type scale, ranging from 1 (never) to 5 (very often). Those whose responses were 4 and 5 were deemed to have high degree of role conflict and the others whose responses were 1, 2 and 3 were considered to have low degree of role conflict. There were 66 cases of high degree of role conflict and 134 cases of low degree of role conflict. As such all respondents had role conflict of which again one-third had high role conflict. This means that about 67 per cent women, reporting low role conflict, where to some extent successful in achieving a harmony between their family and professional lives and the remaining 33 percent faced various obstacles in achieving the desired harmony. Management & Change, Volume 14, Number 2 (2010)
Factors
5.
6.
7.
Degree of Role Conflict
Low 46 29 12 21 26
High 14 11 8 14 19
Total 60 40 20 35 45
Age Below 30 years 31-40 years 41 years & above
50 48 36
25 26 15
75 74 51
Education Upto graduation Graduation Post-Graduation & above
16 51 67
19 23 24
35 74 91
No. of children Upto 2 children 3 children 4 & above children
53 41 40
13 16 37
66 57 77
Average age of children 4 years 5-12 years 12 years & above
65 55 14
35 23 8
100 78 22
Income Below Rs. 5000 Rs. 5000 – Rs. 10000 Rs. 10000 & above
37 60 37
39 19 8
76 79 45
No. of family members Below 4 4–8 8 and above
54 42 38
12 15 39
66 57 77
Management & Change, Volume 14, Number 2 (2010)
152 Correlates of Work-Family Conflict Among Dual Career Women 8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
Abdul Gani & Roshan Ara 153 18.
Length of service Below 5 years 6 – 15 years 15 years & above
35 49 50
27 24 15
62 73 65
Length of married life Below 4 years 4 – 10 years 10 years & above
50 49 35
30 19 17
80 68 52
Family type Nuclear Extended
88 46
18 48
106 94
Husband’s attitude Encouraging Tolerant Hostile
46 57 31
15 28 23
61 85 54
21.
Attitude of mother in law Favourable Neutral Unfavourable
56 48 30
16 29 21
72 77 51
22.
Attitude of the boss/employer Cordial Formal Hostile
21 94 69
11 33 22
32 127 41
16 104 14
9 36 21
25 140 35
62 42 30
21 15 30
83 57 60
Attitude of colleagues Helpful Formal Indifferent Level of job satisfaction High Medium Low Level of work commitment High Medium Low Performance of job role Very satisfactory Satisfactory Unsatisfactory
Management & Change, Volume 14, Number 2 (2010)
19.
20.
23.
Health Condition Good Average Poor
53 72 9
11 38 17
64 110 26
Personality type Home oriented Career oriented Home-cum career oriented
27 27 80
30 24 12
57 51 92
Child care arrangement In-laws Servants Other arrangements
76 43 15
21 27 18
97 70 33
Availability of domestic help Full time Part time Not available
18 50 66
9 21 36
27 71 102
Use of labour saving devices One Two Three Four & more
25 15 34 60
24 19 13 10
49 34 47 70
Distance between work place & residence Below 5 kms 5 – 10 kms Above 10 kms
50 43 41
12 18 36
62 61 77
Table 2 Extent of Role Conflict and its Correlates S. No
68 43 23 19 37 78
23 18 25 10 26 30
91 61 48 29 63 108
Correlates
X2 value
V
P v
1.
Type of Profession
6.169
4
NS
2.
Age
0.600
2
NS
3.
Education
8.066
2
< 0.05
4.
No. of Children
14.762
2
< 0.005
5.
Average age of children
0.904
2
NS
6.
Income
19.392
2
< 0.005
7.
No. of family members
19.690
2
< 0.005
8.
Length of service
6.983
2
< 0.05
9.
Length of married life
26.237
1
< 0.005
10.
Husband’s attitude
3.943
2
NS
Management & Change, Volume 14, Number 2 (2010)
154 Correlates of Work-Family Conflict Among Dual Career Women 11.
Attitude of mother in law
12.
Abdul Gani & Roshan Ara 155
6.359
2
< 0.05
Attitude of boss/employer
12.005
2
< 0.005
13.
Attitude of colleagues
13.640
2
< 0.005
14.
Level of job satisfaction
9.896
2
< 0.01
15.
Level of work commitment
10.328
2
< 0.01
16.
Performance of job roles
2.841
2
NS
17.
Health condition
18.128
2
< 0.005
18.
Personality type
29.902
2
< 0.005
19.
Child care arrangements
7.858
2
< 0.05
20.
Availability of domestic help
0.434
2
NS
21.
Use of labour saving devices
26.336
3
< 0.005
22.
Distance between workplace and residence
12.186
2
< 0.005
Note: 1. Based on corresponding contingency Table 1 2. “NS” stands for `Not Significant’ Type of profession: The objective situation of role conflict of working women is determined by their work situation which is defined mainly by the type of profession they are in. A majority of women covered by this study were teachers followed by the women in the health services; those engaged in official work, banks and in various media related professions. The results reveal that media women followed by bank employees, doctors and nurses were more conflict ridden compared to teachers and office workers. This can be attributed mainly to the nature of work of women belonging to these occupational groups and also to their job demands. It is presumed that women working in these comparatively new professions are in a more acute role conflict situation than women in traditional women’s jobs. The groups of doctors, nurses, bank employees and media women had reportedly more marital problems than the teachers and the office workers. The type of profession and the degree of role conflict is, however, not statistically significant. Age and experience: The respondent’s age and time spent in service were found to be closely associated with their satisfaction with role performance. This was primarily because of the younger age of the children, heavy demands of parents-in-law and low combined income of husband and wife. In the older age group children began to look after themselves and income of the family also increased. The data distribution in the Table 1 clearly indicates Management & Change, Volume 14, Number 2 (2010)
that majority of young respondents (below 40 years of age) experienced either high or medium role conflict; whereas a few elderly mothers experienced high or medium role conflict. Elderly mothers constitute majority of the strength of the congruency group whereas the young mothers represent only a minor percentage of its strength. Working mothers experience more role-conflict when they do not have satisfactory childcare provision at home during their school time. Thus the hypothesis that older the working mother with more experience and grown-up children better she is adjusted than that of a young mother with less experience, having small kids is found to be correct. Our x2 values also confirm this finding. Level of education: Generally women perceive work to be of secondary and family of primarily significance to them. This order of priorities, acts as a major barrier to the full use of their high level educational qualifications in some form of gainful employment. Our results (Table 1) reveal that higher the level of education lesser is the degree of role conflict experienced by working women. A statistically significant (5 per cent level) association between the level of education and degree of role conflict, as reported in Table 2, also confirms the findings. Education also determines the status of working mothers inside and outside the families. The higher status of the wife mostly proves to be a source of tension if the husband cannot make up for the higher educational and professional status of the wife through other means like income, own success etc. or when the wife does not play down her superiority within the family and in her conduct. The actual conduct of educated working women in the situation of tension created by conflicting role demands are also determined by the way they themselves and their relevant family members interpret and evaluate the situation Number and age of children: The study results indicate that the working mothers having more number of children are prone to face more role conflicts and problems of adjustment. The intensity of the role conflict is found to be less with the working mothers having more grown up children because with the advance in age and maturity of mind, the adaptability of an individual increases; hence elderly working women are likely to make better adjustment in role conflicting situations than the younger ones. The x2 values contained in Table 2 also exhibit that number and age of children of working women are significant contributors to their conflict arising out of conflicting expectations of their family members and job roles. The findings are thus in Management & Change, Volume 14, Number 2 (2010)
156 Correlates of Work-Family Conflict Among Dual Career Women
accordance with the theoretical proposition taken by other researchers (Allen, et al., 2000; Greenhaus and Kopelman, 1981; Voydanoff, 1988). The respondents having children of younger age group were found less satisfied with the performance of dual roles than respondents with grown up children. Since younger children need more care than the older ones, it is but natural that working mothers face more problems when their children are in their infancy. Supporting the argument Johnson and Johnson (1977) assert that traditionally, mothers are expected to take care of children, and even if the father provides a great deal of support to this, the major responsibility usually lies with the mother. After having children, a dual career-marriage undergoes certain pressure towards normalization. Income: Its conformity with the popular belief personal income was found to be correlated with work–family conflict. It is also argued that women having heavy financial obligation and working more for economic reasons face greater difficulties in adjusting to family life and face more conflict than those who have minimum economic obligation. By contrast, women with higher income may attain greater fulfillment by using their skills and be more satisfied with the payment they receive. Role conflict will also occur in the case of women whose income is considerably higher than that of the male breadwinners or who have to be the main breadwinners themselves. Allen, et al. (2000) and Seto, et al. (2004)) see reason for this maladjustment in the overdeveloped ego of those women who earn more than their husbands or because of the ego threat to the husband who may react aggressively to overcome that threat. Where the husband’s dominant position is endangered by the woman’s economic potential, the culturally defined non-reciprocal status differential between husband and wife is equally threatened. We found a very vivid demonstration of this fact in our study. Family situation: The composition or structure of family is an important factor for proper adjustment or otherwise of a woman in family life. In case of a nuclear family, the working wife has to adjust herself with only her husband and children who are generally considerate, co-operative and sympathetic and in of extended families, the working women have to adjust with all the family members who may not be as co-operative and sympathetic as her husband and children. Hence in an extended family, the working mother has a higher degree of role obligations. From our study it appears that working mothers from nuclear family background are better adjusted than those living in extended families. Management & Change, Volume 14, Number 2 (2010)
Abdul Gani & Roshan Ara 157
Every woman wants to use some modern kitchen aids in order to save both time and labour which help them to carry on both the home and job roles simultaneously with ease. From the data it appears that there is a significant relationship between these two variables. Those who use more modern kitchens aids are not found in the highest conflict group. Mothers having proper arrangements for the care of their children during the school hours are found to have less tension and less maladjustment in their family and vice versa. Our results also indicate that proper childcare arrangement helps the working mother face less strain than where the case is just the other way round. Husband’s attitude: Spouse support was found to be a stronger predictor of work-family conflicts. Husband is the main link between wife and other family members and his nature is of much importance in performing the dual roles by women. Among the respondents where the husbands were of demanding nature role conflict was found to be maximum, though the variables were not significantly associated. The helping husband not only lessens the wife’s household work-load but also provides her energy and a resource that can be availed of in emergencies. The unfavourable attitude of the husbands towards their working wive’s employment is the result of various factors including his ego frustration and threat, and the feeling of insecurity and inferiority. In case of conflict between domestic and work responsibilities, it is always the career of women that takes a second place. As long as the woman does not place career above her family roles and the dominant position of the husband in the family is not questioned, the extra professional burden for the woman does not lead to open conflicts. Attitude of mother-in-laws: In the present family system in India in general and Kashmir in particular the mother-in-law occupies a very important place. The attitude of the mother-in-law towards the working daughter-in-law is crucial so far as the latter’s adjustment or maladjustment is concerned. If the mother-in-law is kind and considerate, than the employed daughter in law is found to be more or less adjusted. Her attitude towards the job of her daughter-in-law affects the performance of the later in home and at job. Her favourable attitude was found to be of great importance in creating conditions of happiness in family and particularly for daughter-in-law. Similarly, non-cooperative and unfavorable attitude of family members was found as a very potential factor in causing conflict as these variables were also found to be related at 5 per cent level of probability. Inter-personal relations at workplace: Employment of a woman can be Management & Change, Volume 14, Number 2 (2010)
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satisfying to her to the extent to which the people with whom and for whom she works look for and develop respect for her human dignity. It has been observed during the study that career women, except those in the teaching profession, are still the victims of unwarranted suspicion and contempt. Most of the respondents felt that their employers behaved with them well. Only a few were of the opinion that their employerâ&#x20AC;&#x2122;s or bossesâ&#x20AC;&#x2122; behaviour was not satisfactory. Data given in Table 2 show that the male colleagues have, on the whole, exhibited a helping attitude towards their women colleagues. They also have good relations with each other. The present findings lend credence to previous research findings that have demonstrated the lack of communication with co workers or support from line managers and dissatisfaction with supervisory relationships to be significantly associated with work-family conflict (Adebayo, 2006; Fujiwara, et al., 2003). Job satisfaction: Many professionals, managers and executives who have attained success and received rewards in their careers enjoy working and value the rewards and recognition they get from their work (Ahmad and Skitmore, 2003). It is generally assumed that if a working woman is satisfied with her job, she is in a more favourable position to make adjustments in her family and that her dissatisfaction with her job affects her marital harmony adversely. There is a significant relationship between these two variables in our study. Our data shows that at both high and low levels of job satisfaction; there is considerable divergence between high and low degree of role conflict. There is a greater incidence of high conflict when satisfaction level is low and vice versa. It is because when a woman is highly satisfied she has greater willingness to accept difficulties and would not be overawed by them. The reverse may also be true. When conflict between the two roles is not very high and can be resolved easily, the satisfaction level goes up. If the two roles appear incompatible, then also the satisfaction level falls. The present results also confirm that the two variables are strongly inversely related (Table 2). Commitment to job: The nature and kind of responsibilities at home and job are very different which demand lots of time and effort from working wives. Conflict is experienced by working women in situations where they want to be honest to their jobs and to their households and want to devote time to both. The factors involved in a womenâ&#x20AC;&#x2122;s decision to work are important because they operate as variables which interact with the employment situation and in turn influence the family. Therefore, commitment to job has an important bearing on the role conflict. Our data shows that gross economic necessity was the main factor responsible for outside working of Management & Change, Volume 14, Number 2 (2010)
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the women in majority of cases. Commitment to job and role conflict were found to be related at 1 percent level of probability. Health condition: Health is an important contributory factor in the satisfactory performance of home role and job role of a working woman. Both the roles require physical strength and those who perceived their health as poor were the sufferers both physically as well as mentally. Poor health led to poor performance of roles thereby resulting in role conflict. Data summarized in Tables 1 and 2 clearly reveal that perceived health of the respondents and performance of dual roles was closely associated and the association was statistically significant. Capacity to cope up with the conflict decreases with the decreasing health status. An overwhelming majority of those who suffer from poor health was not able to manage the two roles satisfactorily. Personality type: Categories of people with similar patterns of personality traits are known as personality types. The home-cum-career-oriented personality women enjoy both the tasks equally well and have no particular preference for either. Table 1 clearly indicates that those with a home-cumcareer-oriented personality face the least degree of role-conflict and those with a home-oriented personality face the highest degree of role-conflict. If a woman enjoys only home-oriented tasks she would easily get bogged down with a full-time job and the problems that it entails. Those with a career-oriented personality do not show marked difference in the incidence of degree of conflict. The relationship between personality type and degree of conflict variables is significant at 0.05 per cent level of significance (Table 2). Other factors: Tables 1 and 2 reveal that of the external situational variables the significant ones in producing role conflict in working women include the care of young children at home while working women are at work, the distance of work place from residence and type of conveyance used by working women to reach their places of work. The other factors are of least significance. CONCLUSION AND SUGGESTIONS The results of the study reveal that a majority of the dual career women have a positive attitude towards their profession. They do not perceive a basic contradiction between their family roles and their professional roles, but consider them to be on the whole compatible. The analysis of the results demonstrates that work-family conflict is not a function of any single factor Management & Change, Volume 14, Number 2 (2010)
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but many factors contribute to make it a reality. The nature and extent of working women’s role conflict depend on the availability of various support systems within and outside their families and the employing organizations. Number and age of children, husband’s attitude and co-operation, attitude and co-operation of in-laws, family composition, use of labour saving devices and a number of other factors are found to be responsible for the creation of this role conflicting situations. Poor health of the respondents and behaviour of friends and neighbors also contribute to role-conflict. Results point out that the type of family, number and type of modern kitchen aids and having or not having economic obligations towards the family, are the other important factors which have a direct bearing on role conflict among employed women. Work-family conflict is also found to be related directly to motivational level, favourable attitude of colleagues, and inversely related to the presence of young children and a home-oriented personality of dual career women. A housewife’s taking up the working role outside her home, not only brings about a profound change in her status within and outside the family, but also produces increasing pressures upon her to reconcile the dual burden of the two conflicting roles. It necessitates the rearrangement of her family roles and responsibilities. To pursue her dual roles successfully, a career woman has to work within a stricter time schedule and system which necessitates a greater mental and physical alertness and induces major changes in her behaviour, perceptions and life styles as she interacts with the outside working world. She is required to rationalize several domestic responsibilities and rituals and become more rational, pragmatic and individualistic in her outlook. These lead to changes in her work-division, marital relationship, and relations with in-laws and authority patterns within the family. Women’s involvement in work outside their homes affects established traditional norms regarding the proper sphere of women, their status vis-à-vis their husbands, patriarchal family values, redefinition of the roles of family members, child care, mixing with other men and remaining outside their homes for long durations. A dual career woman’s strong involvement and commitment to job role is found to interfere with the whole-hearted and successful performance of her domestic role. It makes sense as a woman is believed to be endowed with invincible and idealized traits of nurturance, forbearance and ability to provide warmth, emotional support and solace. She is expected to make home a livable place; some times at the cost of her emotions and health. It was also found during the study that in case there is a direct conflict between Management & Change, Volume 14, Number 2 (2010)
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the job and the home role, it is the job role which has to be curtailed while the wife-mother role always predominates. It was also observed that in spite of taking pride and interest in job and home, being women, a majority of working women, realize that their primary role is towards husband, home and children. The well being of the family and the readiness of women to subjugate profession to the needs of the family and to accept the authority of the husband have prevented the outbreak of open conflicts in many cases. Despite obstacles, a satisfying balance between work and family life is achievable. For this to happen communication with superiors, peers and subordinates in the work situation and with family members needs to be strengthened. One needs to realize that women are indeed a segment of ‘special needs’ with too many social, cultural and biological reasons for not being exactly like men. Workable solutions customized for this segment need to be looked for. Though professional women have begun to create a new identity of a working mother yet a true integration in the work place has not been achieved. If women have the drive, efficiency and singleminded devotion to their career, they can overcome the barriers to the top. A woman should understand that ‘women’ and ‘profession’ are not two mutually exclusive terms. She can be a woman and a professional at the same time and she should be proud of being both. Empowerment and opportunities, education and encouragement by supportive husband and inlaws make for a seamless transition to a status where she commands both respect and admiration. The trend of labourforce participation indicates that in the years ahead, the greatest addition in the workforce will be of women in the age group of 25-54 years. This means that more and more women will be adding on a new role to the traditional role of a home maker and the incidence of different types of role conflict would be more common which would trouble all types of women workers. What is required, therefore, is a good and supportive atmosphere at home and workplace to facilitate dual career women’s reaching a better equilibrium between work and other spheres of life. Employers need to be encouraged to introduce more flexible work practices. Although the number of establishments offering these practices in the country is growing, it is relatively small compared with many other countries and the range is limited, primarily to child care responsibilities. There is a growing recognition by policymakers of the importance of supporting women in juggling work and family life, (Evandrou, et al., 2002). Since the work-family conflict related problems are living and dynamic Management & Change, Volume 14, Number 2 (2010)
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in nature, there can be no final and permanent solution to these problems. There is therefore, always a need for further research in the area so as to bring out, from time to time, the factors responsible for the role conflict situation and work out the coping up and accommodation strategies. Obviously, the study has not sufficiently captured the entire variables that could be of interest in a work-family conflict research. It would be rewarding to examine some comparisons in the work-family interface using more objective indices. For example, it would be interesting to compare women with school age children to those whose children attend schools, full time working mothers to those who work only part-time and women who stay at home to those who work outside. Further research in to the differences in gender and nature of work vis-à-vis work-family conflict would also be more illuminating for policy formulation and intervention.
Carlson, D. S. and K.M. Kacmar (2000) “Work-Family Conflict in the Organization: Do Life Role Values make a Difference?” Journal of Management, 26(5): 1031-1054.
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Adams, G.A., A.K. King & D.W. King (1996) “Relationships of Job and Family Involvement, Family Social Support, and Work-Family Conflict with Job and Life Satisfaction”, Journal of Applied Psychology, 81(4): 411-20. Adebayo, D.O. ( 2006) “Workload, Social Support, and Work-School Conflict Among Nigerian Non-Traditional Students”, Journal of Career Development, 33 (2): 125-141. Ahmad, A. (1996) “Work-Family Conflict among Married Professional Women in Malaysia”, Journal of Social Psychology, 136 (5): 663-6. Ahmad, Sariati & Martin Skitmore (2003) “Work-Family Conflict: A Survey of Singaporean Workers”, Singapore Management Review, 25 (1): 35-52. Allen, T. D., D.E.L. Herst, C.S. Bruck & M. Sutton (2000) “Consequence Associated with Work-to-Family Conflict: A Review and Agenda for Future Research”, Journal of Occupational Health Psychology, 5: 278-308. Aryee, S. (1992) “Antecedents and Outcomes of Work-Family Conflict among Married Professional Women: Evidence from Singapore”, Human Relations, 45(8): 813-37. Management & Change, Volume 14, Number 2 (2010)
Clark, S. (2000) “‘Work-Family Border Theory: A New Theory of Work/ family Balance”, Human Relations, 53(6): 747-761. Collins, C., L.B. Tide & M. Stommel (1992) “Promoting Positive well-being in Employed Mothers: A Pilot Study”, Health Care for Women International, 13:77-85. Cooper, C. L. & S. Williams (1994) Creating Healthy Work Organizations. Chichester: John Wiley & Sons.
Fujiwara, K., E. Tsukishma, A. Tsutsumi, N. Kawakami & R. Kishi (2003) “Interpersonal Conflict, Social Support, and Burnout among Home Care Workers in Japan”, Journal of Occupational Health, 45: 313-320. Ganster, D.C. & J. Schaubroeck (1991) “Role Stress and Worker Health: An Extension of the Plasticity Hypothesis of Self-Esteem”, Journal of Social Behaviour and Personality, 6:349-60. Goff, S.J., M.K. Mount & R.L. Jamison (1990) “Employer Supported Child Care, Work/Family Conflict, and Absenteeism: A Field Study”, Personnel Psychology, 43: 793-809. Gordon. F.E. & D.T. Hall (1974) “Self-Image and Stereotype of Feminity: Their Relationship to Women’s Role Conflict and Coping”, Journal of Applied Psychology, 59(2): 241-243. Grace, G.R. (1972) Role Conflict and Teacher. London: Routledge and Kogan Paul. Greenhaus, J.H. & R.E. Kopelman (1981) “Conflict between Work and Non-work Roles: Implications for the Career Planning Process”, Human Resource Planning, 4(1): 1-10. Management & Change, Volume 14, Number 2 (2010)
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Guest, D. (2002) Perspectives on the Study of Work-Life Balance. In Social Science Information, SAGE Publications.
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Gutek, B.A., S. Searle & L. Klepa (1991) “Rational versus Gender Role Explanations for Work-Family Conflict”, Journal of Applied Psychology, 76(4): 560-68.
Nischol, K. (1975) “Economically Independent-Emotionally Crushed”, Social Welfare, 20 (6 & 7): 37-40.
Hall, D.T. & F.E. Gordon (1973) “Career Choice of Married Women: Effect on Conflict, Role Behaviour and Satisfaction”, Journal of Applied Psychological, 58(1): 42-48. Hall, D.T. & V.A. Parker (1993) “The Role of Workplace Flexibility in Managing Diversity”, Organizational Dynamics, 21: 5-18. Hemlatha, P. & M. Suryanarayana (1983) “Married Working Women: A Study of their Role Interactions”, Indian Journal of Social Work, XLIV (2): 153-156. Hall, D.T. (1975) “Pressure from Work, Self and Home in the Life Stages of Married Women”, Journal of Vocational Behaviour, 6(1): 121132. Holahan, C.K. & L.A. Gilbert (1979) “Interrole Conflict for Working Women: Careers versus Jobs”, Journal of Applied Psychology, 64(1): 86-90. Hughes, D.L. & E. Galinsky (1994) “Gender, Job and Family Conditions and Psychological Symptoms”, Psychology of Women Quarterly, 18: 251-270. Johnson, F.A. & C.L. Johnson (1977) “Role Strain in High Commitment Career Women”, Journal of American Psychoanalysis, 4(1): 13-36.
Parasuraman, S., Y.S. Purohit, V.M. Godshalk & N.J. Beutell (1996) “Work and Family Variables, Entrepreneurial Career Success, and Psychological Well-being”, Journal of Vocational Behaviour, 48: 275-300. Rapaport, R. & R.N. Rapaport (1980) Three Generations of Dual-Career Family Research. In: F. Pepitone-Rockwell (ed) Dual Career Couples. Beverly Hills: Sage. Rapaport, R. & R.N. Rapoport (1969) “The Dual Career Family”, Human Relations, 22(1): 3-30. Sekaran, U. (1984) “Job and Life Satisfaction Experienced by Dual Career Family Members”, Journal of Psychological Research, 28(3). Seto, Masako, Kanehisa Morimoto & Soichiro Maruyama (2004) “Effects of Work-Related Factors and Work–Family Conflict on Depression among Japanese Working Women Living with Young Children”, Environmental Health and Preventive Medicine, 9: 220–227. Shipley, P. & M. Coats (1992) “A Community Study of Dual-Role Stress and Coping in Working Mothers”, Work Stress, 6(1): 49–63. Terborg, J.R. (1977) “Women in Management: A Research Review”, Journal of Applied Psychology, 62:647-664.
Kapur, P. (1974) Changing Status of the Working Women in India. New Delhi: Vikas Publishing House.
Voydanoff, P. (1988) “Work Role Characteristics, Family Structure Demands, and Work/Family Conflict”, Journal of Marriage and the Family, 50:749-61.
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Wagner, D.L. & M.B. Neal (1994) “Care Giving and Work: Consequences, Correlates and Workplace Responses”, Educational Gerontology, 20:645-63.
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Management & Change, Volume 14, Number 2 (2010)
Management & Change, Volume 14, Number 2 (2010)
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DAWN
THE IMPACT OF ECONOMIC VALUE ADDED (EVA) ON SHAREHOLDERS’ VALUE: AN EMPIRICAL EVALUATION
The deeper the darkness the nearer is the dawn. - M.K.Gandhi
N. Sakthivel
ART AND LIFE Life is, and must always be greater than all the arts put together. I go still further. For I say that he is the greatest artist who leads the best life. For what is art without the background and setting of a worthy life? An art is to be valued only when it ennobles life. I object emphatically only when people say that art is everything, that it does not matter even if life has to held subservient to its (i.e. art's) fulfillment. I have then to say that my values are different, that is all. But fancy people saying that I am opposed to all arts on that account! - M.K. Gandhi, The Bombay Chronicle, February 5, 1924.
A MANTRA FOR HEALTH AND HAPPINESS The most relaxing recreating forces are a healthy religion, sleep, music, and laughter. Have faith in God – learn to sleep well – love good music see the funny side of life – and health and happiness will be yours. - Dr. Israel Bram, a famous Philadelphia based US physician Source:
Dale Carnegie, How to Stop Worrying and Start Living, Vermillion, London, UK, 1998, p. 45.
LIVE FOR TODAY Yesterday is but a dream; tomorrow is only a vision. But today well-lived, makes every yesterday a dream of happiness and every tomorrow a vision of hope. - Kalidasa Yesterday is gone. Tomorrow has not yet come. We have only today. Let us begin. - Mother Teresa
Concepts of Economic Value Added (EVA) and Market Value Added (MVA) or shareholder value creation or simply called value creation were developed in order to reflect corporate performance more accurately. Many researchers have supported EVA as the best internal determinant of MVA. The most important benefit of the implementation of an EVA system is given and in conclusion, there is a discussion of some criticisms offered by different researchers and practitioners on EVA as a measure of shareholder value creation. According to Stewart, a company’s EVA is the fuel that fires up its MVA. Fatemi, et al categorized companies according to their ability to generate EVA and MVA companies with high EVA and MVA are called “winners”, companies with a high EVA and low MVA are “problem children”, companies with a low EVA and a high MVA are “holders of real options” and companies with a low EVA and MVA are typified as “losers”. In this scenario, here in this paper an attempt is made to identify the relationship between EVA and MVA (value creation) in Indian context. In this article, the relationship between value creation (MVA) and EVA is analysed in two ways. At first, time series data of companies under each industry for 10 years are pooled together and categorised into three groups based on 30 th and 70 th percentiles of EVA. That is, EVA below its 30th percentile is formed into one group, between 30th and 70th percentile as another group and EVA above its 70th percentile as third group. The first one is identified as low EVA group, second one as moderate and the third group as high EVA group. The mean MVA across these three groups are compared using one way ANOVA in order to find out whether MVA differ significantly with difference in the level of EVA.
Enjoy your magic moment today, as it will not be there tomorrow. - Paulo Coelho Management & Change, Volume 14, Number 2 (2010)
The next part of analysis for identifying the relationship between MVA and EVA is carried out using simple regression technique. Management & Change, Volume 14, Number 2 (2011) Change, 14, Number 2 (2010) © 2010 IILM Institute for HigherManagement Education. & All RightsVolume Reserved.
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This regression technique is adopted to evaluate strength of relationship of EVA on MVA on annual basis for each industry as well as for all selected industries. Further, Durbin Watson (DW) statistic is considered for identifying existence of serial correlation between MVA and EVA. As a rule of thumb DW stat value less than 1 indicates positive serial correlation while value above three (3) reveals negative serial correlation between two variables. Keywords:EVA, MVA, Shareholders’ Value, Market Capitalisation, Net Worth INTRODUCTION Economic Value Added (EVA) and Market Value Added (MVA) are new concepts in the field of financial management. The use of EVA instead of sales turnover crosses all industrial and commercial boundaries and allows meaningful understanding among different corporates that are working towards the economic upliftment of nation. No corporate may continue to exist if it fails to create adequate wealth. Corporates not making value addition in their wealth may become sick; as we find many examples in public sector and if these corporates are regular in not adding value they may cause their death over a period of time. Thus, EVA and MVA may be broader measures of judging the contribution of an organization towards the national economic development and growth. Now, the EVA and MVA are acceptable models across state line. Despite the fact that, these models are yet to get statutory recognition for financial statements disclosure, but now, it is matter of point in time only. For last twenty years, researchers, professional consultants and corporate managers engaged in the field of financial management have been writing on the issue. However, majority of them have drawn inferences about the theoretical framework of EVA and a few of them have splintered to make concept as a legitimate tool of corporate financial performance measurement. ECONOMIC VALUE ADDED (EVA) EVA and MVA or shareholder value creation or simply called value creation were developed in order to reflect corporate performance more accurately. Many researchers have supported EVA as the best internal determinant of MVA. The most important benefit of the implementation of an EVA system Management & Change, Volume 14, Number 2 (2010)
N. Sakthivel 169
is given and in conclusion, there is a discussion of some criticisms offered by different researchers and practitioners on EVA as a measure of shareholder value creation. According to Stewart, a company’s EVA is the fuel that fires up its MVA. EVA was introduced by a New York based consulting firm M/s Stern Stewart & Co in early eighties. The corporate sector in India is gradually recognizing the importance of EVA as a result of which some Indian companies viz., Ranbaxy Laboratories, Samtel India Ltd.etc., have started calculating EVA. Infosys Technologies Ltd is the first Indian company to report its EVA in the annual report. EVA attempts to measure true economic profit as it compares actual rate of return as against the required rate of return. EVA explains whether a business unit best utilizes its assets to generate return and maximize shareholders’ value. EVA is just a way of measuring an operation’s real profitability. EVA effectively measures productivity of all the factors of production. viz., land, labour, capital, entrepreneur and management. EVA is a residual income that subtracts the cost of capital from the operating profits generated by a business. EVA is an excess profit of a firm after charging cost of capital. EVA essentially seeks to measure company’s actual rate of return as against the required rate of return. To put it simply, EVA is the difference between Net Operating Profit after Tax (NOPAT) and the capital charge for both debt and equity (WACC- Weighted Average Cost of Capital). If NOPAT exceeds the capital charge (WACC), EVA is positive and if NOPAT is less than capital charge, EVA is negative. EVA is a corporate surplus, which is shared by the employees, management and the shareholders. Efficiency bonus, profit sharing schemes, managerial remuneration over and above minimum sustenance salary, issue of bonus shares and incentive dividend to equity and preference shareholders respectively can be linked to EVA. MARKET VALUE ADDED (MVA) With a view to measure shareholders’ value, Stewart invented the term Market Value Added (MVA). MVA is defined as “the difference between market value of invested capital and book value of invested capital of a company at a given period of time”. Market value of invested capital refers the market value of equity capital and debt capital, but the market value of debt is not easily available as debts are not generally traded. Thus, the definition of MVA can be stated as market capitalization less net worth. Market capitalization is the product of closing share price and number of outstanding shares as on that date (i.e., date of balance sheet). Whereas, net worth is the Management & Change, Volume 14, Number 2 (2010)
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sum of equity capital, reserves and surplus net of revaluation reserve less accumulated losses and miscellaneous expenditure. MVA Market capitalizations
= =
Market capitalisation - net worth Closing share price x number of outstanding shares.
MVA is considered as a measure of shareholders’ value. MVA denotes the extent to which the market has added value to the net worth of a company. An increase in MVA infers maximization of shareholders’ wealth. This is because shareholders want to see appreciation in stock price. MVA can improve if market capitalization increases for the same level of net worth or if net worth of a company decreases. MVA provides the stock market’s assessment of how efficient a company is in using capital. A positive MVA indicates that a company is building value for its shareholders and a negative MVA indicates that a company is destroying shareholders’ value. Against this background, this article is an attempt to analyze the impact of EVA on shareholders’ value (Market Value Added). REVIEW OF LITERATURE According to Lehn and Makhija (1996) EVA and MVA are increasingly being eyed as alternative measures of business performance and strategic development. Despite the attention, however, the empirical research has been devoted to these two metrics. To provide clarifications on the subject, the study which examines the effectiveness of EVA and MVA as measures of performance, as signals of strategic change in these metrics of strategic development was conducted. The study used data from 241 firms for the time slap 1987-96, showed that EVA and MVA effectively measured the quality of strategic decisions and served as signals of strategic change. They were found to be significantly correlated with stock price performance and inversely related to turnover. Firms having greater focus in their business activities had higher MVA than less focused counterparts. Kramer and Pushner (1997) tested the hypothesis that EVA is highly correlated with MVA. The study concluded that no clear evidence to support the contention that EVA is the best internal measure of corporate success in adding value to shareholder investments. On the contrary, the market seems more focused on ‘Profit’ than EVA. The study found that there is no clear advantage to shareholders in looking at EVA, as the accounting return on their investment is NOPAT. Management & Change, Volume 14, Number 2 (2010)
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Saxena (1998) elucidated that there is no one method of measuring financial performance that is totally perfect. Thus, a measure should be such that satisfies shareholders’ expectations and is also being committed by top management. EVA is a measure that should be used by top management to evaluate investment centre managers, because it considers goal congruence between shareholders and managers. Banerjee and Jain (1999) carried out a research based on empirical data. Among the selected independent variables (EPS, EVA, Kp, Lp and ARONW), EVA has proved to be the most explanatory variable, when MVA was taken as the dependent variable and Backward Elimination method was applied to find the most explanatory independent variable. For this purpose, the time frame was of eight years and all the variables were calculated over this period for the sample companies. Bao and Bao (1999) revealed the association between EVA and the value of the Indian firms, which are included in the COMPUSAT – Global Village Database. The results of the study showed that the EVA is positively and significantly correlated with the firm value. The results are consistent with the theory in that firms with EVA created value and firms with higher created value have higher stock prices. The study also revealed that explanatory power of EVA is lower that of earnings and book value of firms under consideration. Thenmozhie (1999) explained the concept of EVA and compared with some other traditional measure of corporate performance viz., ROI, EPS, RONW, ROE, ROCE, etc. It has used the coefficient of determination to demonstrate that the traditional measures do not reflect the real value of the shareholders, and thus EVA has to be taken into account to measure the value of shareholders’ wealth. The study has also described that the concept of EVA in Indian scenario with specific reference to companies like NIIT, Hindustan Lever and ITC. The study also referred to some of the shortcomings of the concept of EVA but maintains that EVA is a better measure of corporate performance as compared to the traditional measures. Banerjee (2000) attempted to find out whether Stewart’s claim that market value of a company is equal to the discounted value of all future EVAs, holds good in the Indian context or not. For the purpose of the study, the researcher selected a sample of 200 companies over a time span of four years (1994-95 to 1997-98). According to him, market value of firm is the function of two components viz., Current Operational Value (COV) and Management & Change, Volume 14, Number 2 (2010)
172 The Impact of Economic Value Added (EVA) on...
Future Growth Value (FGV). COV is equal to the book value of beginning invested capital plus the capitalized value of current year’s EVA, whereas FGV represents the present value of all expected future improvements. Based on the analysis of data, it can be concluded that in many cases there is a considerable divergence between MVA and the sum total of COV and FGV. However, it was pointed out that this divergence may be due to the short time span of the study, thus leading to the inability of FGV to capture the growth potential factored in the market value of company’s shares. Parasuram (2000) discussed the EVA position of 14 major public sector banks, 7 new private sector banks, 5 old private sector banks and 2 foreign banks. Among the strength indicators, deposit, return on assets, interest income as a percentage of total assets, interest yield spread as a percentage of total assets and EVA were considered. The study concluded that EVA is an important measure to judge a bank performance in view of the current scenario of banks. EVA has been found to have a high degree of correlation with ROA but not with any of other measures. It signifies a fact that banks realize importance of measuring EVA separately even if they do well on other fields. Some of the banks which have higher net profit and otherwise ranked high have been found to have negative EVA. The study expects that EVA will soon displace other measures of bank performance. Sahu (2001) analyzed the degree of relationship between the accounting profitability and DROSHE (Discounted Return on Shareholders’ Equity) by using spearman’s rank correlation. For examining the effect of selected accounting profitability measures on the DROSHE, regression analysis has been applied. Finally, the co-efficient of determination (r2) has been used to find out the extent to which these accounting profitability measures explain the variation of DROSHE. The study found that there was no strong positive relationship between DROSHE and selected accounting profitability measures. The study also revealed that the accounting profitability measure ROTTA (Return on Total Tangible Assets) explained the maximum variability in DROSHE. Thampy and Beheli (2001) studied the economic profits of commercial banks in the public and private sectors during 1990s. It also moves benchmark performance of banks from accounting profits to economic profits and shareholder wealth creation. The study is restricted to 12 commercial banks consisting of 4 public and 8 private sector banks. The period covered for the study is three years starting from 1995-96 to 199798. Beta has been calculated on the basis of daily stock price data with Management & Change, Volume 14, Number 2 (2010)
N. Sakthivel 173
Bombay Stock Exchange’s BSE 200 Index returns during January 1, 1997 to March 31, 1998 as the proxy for the market returns. The study showed that the performance of the Indian banks as measured by EVA is not very satisfactory. The results of the study revealed that the commercial banks under consideration did not create any positive EVA due to: (a) banks could be over capitalized and (b) returns are very poor from banking business. The study also suggested that banks should improve and strengthen their credit assessment technique and monitoring mechanism to bring down the non-performing assets so as to improve the earning capacity. Bardia (2002) argued that the concept EVA is better than the concept of accounting profit as a tool of value creation because it considers overall cost of capital. In this study, an attempt is made to analyze financial performance of Infosys Technologies Ltd on the basis of traditional parameters like ROCE, ROE, EPS, etc. and the new performance measure EVA. Fernandez and Laura (2002) made an attempt to quantify shareholder value creation for 276 American companies for years 1998, 1999, 2000, and 2001. It was found that the market value of the ‘276’ companies was 8716 billion dollars in 2001 and 9729 billion dollars in 2000. It was also found that Microsoft was the leading shareholder value creator in 2001 and Cisco was the top shareholder value destroyer. In this study, it was found that the correlation of EVA with created shareholder value was only 17.66 per cent. Out of 276 companies, 60 companies had negative EVA and positive created shareholder value and 64 companies had positive EVA and negative created shareholder value. Finally, the study concluded that EVA does not properly measure wealth creation. Bardia (2002) revealed that the concept of EVA has caught on the fancy of investment analysis recently as a tool of measuring corporate performance. In a dynamic corporate environment, a common investor finds it increasingly difficult to monitor his investments. The method of EVA guides investors in evaluating the performance of the company and monitoring their investments. It is claimed that EVA is the sole method of accounting properly for various dimensions by which a company’s value may be added or lost. In fact, the method emphasizes quality of earning and not just quantity. As a matter of number of companies adopting EVA as a tool of performance measurement, is increasing sharply in India. However, no system or technique will bear fruits until it Management & Change, Volume 14, Number 2 (2010)
174 The Impact of Economic Value Added (EVA) on...
is well implemented under set of principles and has the support of all the concerned parties. EVA is no exception to this general rule. Further, as with any other system, EVA also has limitations especially in the context of various adjustments necessarily made at the time of its computation out of accounting profit. However, it still stands as an improvement over traditional performance measures like return on investment (ROI), earning per share (EPS), return on net worth (RONW), price earning ratio (P/E Ratio), etc. If EVA is implemented well taking its limitations into account, it will reveal better results in analyzing performance of a corporate entity. Niranjan Swain, et.al. (2002) examined how the MVA is considered to be the best indicator of shareholder value creation correlated with the firm’s performance in terms of financial measures and economic factors. The study also made an attempt to find out if there exists any correlation between R&D expenditure and MVA as well as EVA. For this study, a sample of 36 top companies is taken from chemical industries- including Drugs and Medicines, Fertilizers, Pesticides, Paints and Cosmetics during the period spanning 1992-93 to 2000-01. The study concluded that EVA outperforms other financial and economic variables in explaining the MVA. Suresh Kumar and John (2003) determined how to measure Economic Value by adopting financial statements of a leading Power Generation Company in India. This study used trend value analysis to forecast the value of NOPAT, Cost of Equity, Cost of Debt and Invested capital. This study found that Economic Value Added applied over financial statements of leading Power Generation Company in India has added considerable value to shareholders. Fernandez (2003) analyzed 582 companies using EVA, MVA, NOPAT and WACC and calculated 10-year correlation between the increase in the MVA and each year’s EVA, NOPAT and WACC. Also an attempt was made to analyze relationship between shareholder value creation and various other parameters including Economic Profit and EVA during the period 19911997. In this study, it was found that the average correlation between the increase in MVA and EVA, NOPAT and WACC was 16 per cent, 21 per cent, and 21.4 per cent. The study also observed that the increase in firm’s value is basically determined with the change in growth of firm’s cash flow and also by the changes in the firm’s risk, which lead to changes in the discount rate. Management & Change, Volume 14, Number 2 (2010)
N. Sakthivel 175
Spivey and Mc Millan (2003) examined relationship between shareholder return and various non–market accounting and economic performance measures. By using uni–variate analysis and multi–variate analysis, it was found that there was significant correlation existed between shareholder return and the profitability measures and also found that there was the positive correlation between the shareholders return and profitability measures. Malik (2004) examined relationship between shareholder wealth and certain financial variables like EPS, RNOW and ROCE. By using correlation analysis, it was found that there was positive and high correlation between EVA, RONW and ROCE. There was a positive but low correlation between EVA and EPS. By using co-efficient of determination (r2), EVA was compared with traditional performance measures and it was found that not a single traditional performance measure explains to the fullest extent variation in shareholder wealth. Singh and Garg (2004) examined the disclosure of EVA in Indian corporates. The study revealed that out of 50 companies, only 32 companies have generated positive EVA and 18 companies have destroyed their shareholders’ wealth in 1998. In 2000, only 29 companies have generated positive EVA. In 2001, only 34 companies have generated positive EVA. And the same trend continued in 2002. The study also found that one – third of total companies were reporting negative EVA throughout the period and another one – third companies were generating positive EVA. It also revealed that only two – three industries were reporting negative EVA and rest were generating positive EVA. Panigrahi (2005) examined how the EVA is superior to MVA. This has been examined by financial performance of ITC Ltd, which has adopted the EVA as its performance measurement. This study found that by increasing EVA, Shareholder Wealth is created and established the fact that the EVA is superior to the MVA. Fernandez and Villanueva (2005) made an attempt to quantify shareholder value creation for the 50 companies included in the EuroStoxx 50 in December, 2004. In this attempt, it was found that the percentage of value creators was 89 %, 72 %, 63 %, 51 %, 12 %, 2 %, 72 % and 58 % for 1997, 1998, 1999, 2000, 2001, 2002, 2003 and 2004. It was also found that the three companies that created more shareholder value in the EuroStoxx 50 in 2004 were Italian: Enel, Eni and Tim. Enel (48 %) was the most profitable company and the least profitable company was Carrefour (- 17 Management & Change, Volume 14, Number 2 (2010)
176 The Impact of Economic Value Added (EVA) on...
%). In this attempt, it was also found that 38 companies had positive returns, but only 29 companies created shareholder value. Only 17 companies had a shareholder return up to 20 per cent in 2004. Singh (2005) examined an appropriate way of evaluating bank’s performance and also found out which Indian banks have been able to create (or destroy) shareholders’ wealth since 1998-1999 to 2002-2003. This study is based on 28 Indian private and public sector banks that are listed on the Bombay Stock Exchange (BSE). The study suggested that the relationship between EVA and MVA is statistically significant. The study showed impressive performance in terms of EVA by banks such as State Bank of Bikaner and Jaipur, Jammu and Kashmir Bank, Global Trust Bank and Indusind Bank. Ghanbari and Sarlak (2006) studied EVA in Indian automobile industry. The objectives of the study were to compute and analyze EVA of firms in the automobile industry and to identify the EVA trend of the industry the period of the study. The study found that the EVA of only 30 per cent of the selected companies was positive and 70 per cent of the selected companies had destroyed their shareholders wealth by negative EVA. The study concluded that there was a significant increasing trend in EVA of the automobile industry firms which means that companies have a positive trend to improve their firm values. Ramachandra Reddy and Yuvaraja Reddy (2007) examined the effect of selected variables on MVA. This study was conducted with 10 cement companies in India and the objective of this study was to examine the effect of select variables on MVA. For this purpose, multiple regression technique was used to test effect of select variables on MVA. The study found that none of the factors had impact on MVA and EPS was found to have negative and significant impact on MVA. The study concluded that the performance of select cement companies in terms of profitability cannot be increased unless adequate attention is paid to modernization, cost reduction, control taxes, etc. OBJECTIVE OF THE STUDY l
To analyse the Impact of Economic Value Added (EVA) on Shareholders’ Value (MVA) in selected Indian Industries.
Hypothesis of the Study l
Shareholders’ value is independent of EVA in selected Indian Industries.
Management & Change, Volume 14, Number 2 (2010)
N. Sakthivel 177
Period of the Study The present study covered a period of 10 financial years from 1997-1998 to 2006-2007. RESEARCH METHODOLOGY Data The present study is based on the secondary data comprising the financial statements and share price of the sample companies across cement, chemical, information technology, oil & gas, paper, pharmaceutical, shipping, steel & aluminium, sugar and textile industries for the years from 1997-98 to 2006-07. Sampling Technique For sample selection, stratified sampling technique was used. In stratified sampling, the population is divided into groups called strata. A sample is then drawn from within these strata. As the study focuses on value creation, the companies with continuous listings in the BSE and with high liquidation are stratified as sample population. Since, majority companies with the above nature are grouped under BSE Group A and Group B across different Industries, they were considered as study population. The companies under BSE Group A and Group B, which are traded continuously on all market days, were stratified first. From the stratified set of companies, 93 companies are finally selected based on the availability of financial statements and share price data for the whole study period. The above data were collected from the Capitaline Database. Finally selected companies were then grouped industry-wise. Statistical Tools Applied For Analysis In this study, the relationship between shareholders’ value (MVA) and EVA is analysed in two ways. At first, time series data of companies under each industry for 10 years are pooled together and categorised into three groups based on 30th and 70th percentiles of EVA. That is, EVA below its 30th percentile is formed into one group, between 30th and 70th percentile as another group and EVA above its 70th percentile as third group. The first one is identified as low EVA group, second one as moderate and the third group as high EVA group. The mean MVA across these three groups are compared using one way ANOVA in order to find out whether MVA differ Management & Change, Volume 14, Number 2 (2010)
178 The Impact of Economic Value Added (EVA) on...
N. Sakthivel 179
significantly with difference in the level of EVA. The next part of analysis for identifying the relationship between MVA and EVA is carried out using simple regression technique. This regression technique is adopted to evaluate the strength of relationship of EVA on MVA on yearly basis for each industry as well as for all selected industries. Further, Durbin Watson (DW) statistic is considered for identifying the existence of serial correlation between MVA and EVA. As a rule of thumb DW stat value less than 1 indicates positive serial correlation while value above three (3) reveals negative serial correlation between two variables. THE IMPACT OF EVA ON SHAREHOLDERS’ VALUE: ANALYSIS AND INTERPRETATION Fatemi, et al. categorized companies according to their ability to generate EVA and MVA. Companies with high EVA and MVA are called “winners”, companies with a high EVA and low MVA are “problem children”, companies with a low EVA and a high MVA are “holders of real options” and companies with a low EVA and MVA are typified as “losers”. In this scenario, in this article an attempt is made to identify the relationship between EVA and MVA (value creation) in Indian context. The following section deals with results of the analysis regarding the impact of EVA on Shareholders’ value – industry wise and all selected industries together: CEMENT INDUSTRY Table 1 presents the results of one ANOVA comparing the MVA across company groups with low, moderate and high EVA under cement industry. Table 1 Results of ANOVA Showing the Difference in Value Added among Company Groups with Low, Moderate and High EVA under Cement Industry Level of Economic Value Added (EVA)
N
Low
21
-149.20
242.15
Moderate
28
-127.78
317.29
High
21
-124.13
651.63
All
70
-133.11
423.77
SD: Standard Deviation. Source: Capitaline
Market Value Added (MVA) Mean SD
NS: Not Significant.
Management & Change, Volume 14, Number 2 (2010)
F-Value
p-Value
0.02 (NS) 0.9788
It can be seen from table that MVA across all company groups is negative indicating that shareholders’ values in cement industry were destroyed irrespective of the level of EVA. That is, negative MVA despite increase in the level of EVA might be due to under-pricing of share prices of cement companies. The decline in the negative MVA with increase in the level of EVA has indicated a remarkable improvement in value creation for cement industry during the period from 1997-98 to 2006-07. But from F-value obtained from the analysis, which is very low and insignificant, it is evident that value creation for companies under cement industry is independent of the EVA of these companies during the period from 1997-98 to 2006-07. The results of simple regression analysis between MVA and EVA on yearly basis and also for all years pooled together are presented in Table 2. The table is also provided with correlation (R), coefficient of determination (R2), coefficient of determination adjusted for degrees of freedom (Adjusted R2) and Durbin-Watson statistic. An observation of the table shows that adjusted R-square value is negative in three years and overall fit of the regression is insignificant in 7 out of 10 years providing evidence of weak relationship between MVA and EVA of companies under cement industry. However, EVA has been able to significantly describe MVA in 1997-98, 2003-04 and 2006-07 as the obtained F-values, 4.12 (p < 0.10), 23.68 (p < 0.01) and 9.18 (p < 0.05) for the fit of the regression are statistically significant, respectively. Also, there has been significant relationship between MVA and EVA when all years data are pooled together (ß =1.908, t = 1.99, p < 0.01) and overall model is fitted significantly (F-value = 3.95, p < 0.05). But adjusted R square is very low at 0.041, revealing that variation explained by EVA in MVA is very low for cement industry during the period. From DurbinWatson statistics (DW Stat), it is understood that there might be existence of some positive serial correlation between the two in 2004-05 (DW = 0.99 < 1) and overall in 10 years (DW = 0.89 < 1). So, on the whole, there was no association between MVA and EVA in most of the years but overall in ten years there has been a notable positive association between the two in respect of cement industry. CHEMICAL INDUSTRY Table 3 presents the results of ANOVA comparing the MVA by company groups with low, moderate and high EVA under chemical industry. Management & Change, Volume 14, Number 2 (2010)
0.89
*Significant at 10% level. **Significant at 5% level. ***Significant at 1% level. NS: Not Significant. Source: Capitaline
414.99 0.041 0.055 All Years
-158.588***
-3.10
1.908**
1.99
0.234
Management & Change, Volume 14, Number 2 (2010)
Table 3 Results of ANOVA Showing the Difference in Value Added among Company Groups with Low, Moderate and High EVA under Chemical Industry
3.95**
1.61 446.39 0.647 207.756 2006-07
1.10
5.800**
3.03
0.805
0.577
9.18**
2.19 446.89 0.150 -93.420 2005-06
-0.54
2.080
0.94
0.387
-0.020
0.88(NS)
0.99 297.47 0.280 -264.644* 2004-05
-2.32
-2.499
-1.39
0.529
0.136
1.94(NS)
1.73 120.42 0.826 -115.526* 2003-04
-2.34
-6.326***
-4.87
0.909
0.791
23.68***
2.52 275.44 0.279 -191.437 2002-03
-1.61
-7.446
-1.39
0.528
0.134
1.93(NS)
1.21 368.43 0.355 -18.782 2001-02
-0.12
11.412
1.66
0.596
0.226
2.75(NS)
2.53 332.34 0.137 -260.870* 2000-01
-2.05
-4.562
-0.89
0.370
-0.036
0.79(NS)
2.79 333.27 0.002 -268.524* 1999-00
-2.13
0.654
0.09
0.041
-0.198
0.008(NS)
1.35 290.78 0.193 -134.416 1998-99
-0.93
-5.289
-1.09
0.440
0.032
4.12* 313.75 0.452 -2.03 -5.019* 0.88 141.559 1997-98
Value
‘t’ Value
Beta
‘t’ Value
0.672
0.342
1.20(NS)
1.86
DW Stat F-Value SE
Estimate R
2
R2
Adjusted
N. Sakthivel 181
R EVA Intercept
Year
Table 2 Results of Simple Regression Showing the Relationship between EVA and MVA for Cement Industry from 1997-98 to 2006-07
180 The Impact of Economic Value Added (EVA) on...
Level of Economic Value Added (EVA)
N
Low
27
-215.73
386.06
Moderate
36
-155.24
262.15
High
27
-225.47
287.52
All
90
-194.46
309.46
SD: Standard Deviation; Source: Capitaline
Market Value Added (MVA) Mean SD
F-Value
p-Value
0.48 (NS) 0.6188
NS: Not Significant.
Table shows that MVA on an average negative for all EVA categories and does not differ significantly (F value = 0.48, not significant). For low and high EVA groups, the value creation is much lesser compared to moderate EVA group. The negative MVA has indicated that the market has undervalued the share prices and failed to respond to future growth in EVA of companies under chemical industry during the period. The results of regression presented in Table 4 provide significance of relationship of EVA on MVA in each year of the study period for chemical industry. It is apparent from table that the correlation coefficient (R) between MVA and EVA is above 0.40 in most of the years and the regression model between the two is fitted significantly for 1997-98 (F-value = 6.86, p < 0.05), 1998-99 (F-value = 37.20, p < 0.01), 1999-00 (F-value = 27.72, p < 0.01), 2000-01 (F-value =11.26, p < 0.01) and in 2004-05 (F-value = 3.48, p < 0.10). This provides the evidence of strong association between the two in such a way that the market has responded to EVA of the companies under this industry before valuing their share prices in these years. However, value creation based on EVA has been consistent because adjusted R-square values of the regression models for the years from 2001-02 to 2003-04 are negative. Also, for the years 2005-06 and 2006-07, the fit of the models between the two are not significant statistically. Moreover, when time series data for all selected years are pooled together, the F-value become insignificant and adjusted R-square value has been very low (Adjusted R2 = 0.003). This shows the poor association between the two overall in 10 years. Durbin – Watson values in between 1 and 3 indicating non-existence of first order auto-correlation between MVA and EVA from 1997-98 to 2006-07 for chemical industry. But with the 10 years data, there seems to be serial correlation between the two. This serial correlation between two variables might be due to their association Management & Change, Volume 14, Number 2 (2010)
All Years
*Significant at 10% level. **Significant at 5% level. ***Significant at 1 % level. NS: Not Significant Source: Capitaline
0.53 1.22(NS) 0.718
Management & Change, Volume 14, Number 2 (2010)
-217.174***
-5.64
1.11
0.117
0.014
0.003
309.08
1.91 1.97(NS) 2.688 -237.207 2006-07
-1.21
1.40
0.468
0.219
0.108
450.17
1.79 2.21(NS) 1.961 -155.290* 2005-06
-2.17
1.49
0.490
0.240
0.131
182.88
1.58 3.48* 1.710* -166.172** 2004-05
-2.39
1.87
0.576
0.332
0.237
207.46
2.18 0.25(NS) 301.82 1.787 -277.751* 2003-04
-2.04
0.50
0.187
0.035
-0.103
2.01 0.002(NS) 447.75 0.307 -378.459* 2002-03
-1.94
0.05
0.018
0.0003
-0.143
1.71 0.17(NS) 2.548 -338.762* 2001-02
-1.87
0.41
0.152
0.023
-0.117
390.89
1.03 11.26*** -10.097*** 81.734 2000-01
0.59
-3.36
0.785
0.617
0.562
238.88
1.38 27.72*** -5.379*** 23.735 1999-00
0.46
-5.26
0.894
0.798
0.770
97.02
1.72 37.20*** -4.407*** -2.792 1998-99
-0.07
-6.10
0.917
0.842
0.819
89.23
1.39 6.86** 0.423 0.495 0.704 -2.62 -1.615** 0.89 37.745 1997-98
Beta Value
‘t’ Value
‘t’ Value
R EVA Intercept
93.01
DW Stat R
2
R2
Adjusted
Estimate
INFORMATION TECHNOLOGY INDUSTRY
SE
F-Value
N. Sakthivel 183
in the first four years. Hence, it is found that EVA has played a vital role in creating value from 1997-98 to 2000-01 but afterwards market has not considered the fundamental characteristics of the companies before fixing the share prices of companies under chemical industry.
Year
Table 4 Results of Simple Regression Showing the Relationship between EVA and MVA for Chemical Industry from 1997-98 to 2006-07
182 The Impact of Economic Value Added (EVA) on...
For Information Technology industry, the significance of the difference in MVA across low, moderate and high EVA groups are analysed and the results are depicted in Table 5. Table 5 Results of ANOVA Showing the Difference in Value Added among Company Groups with Low, Moderate and High EVA under Information Technology Industry Level of Economic Value Added (EVA)
N
Market Value Added (MVA) Mean SD
Low
12
31.95
690.00
Moderate
16
1133.78
3024.38
High
12
10098.32
14767.95
All
40
3492.59
9195.63
F-Value
p-Value
5.51***
0.0081
SD: Standard Deviation; ***Significant at 1% level. Source: Capitaline It can be seen from table that the mean MVA is 31.95, 1133.78 and 10098.32 for low, moderate and high EVA groups revealing the fact that the value of IT companies increases with increase in their EVA levels. This shows positive association between the two. Further obtained F-value, 5.51 from the one way ANOVA is highly significant at 1 per cent level indicating that MVA differs significantly with difference in the level of EVA in respect of companies under Information technology industry. But from the year wise analysis using regression technique, results of which presented in Table 6, it is evident that the relationship between the two has been very poor because the fit of the regression models in 8 out of 10 years are not significant statistically. Also, in 1999-00 and 2000-01, the adjusted R-square values are negative revealing very poor association between MVA and EVA in these two years particularly. At the same time, in the end year, identical results as witnessed in the base year can be visible. That is, EVA tends to play significant role in 1997-98 and again in 2006-07 Management & Change, Volume 14, Number 2 (2010)
1.94 -0.62 -790.603 All Years
Management & Change, Volume 14, Number 2 (2010)
*Significant at 10% level. **Significant at 5% level. ***Significant at 1 % level. NS: Not Significant Source: Capitaline
6681.00 24.658***
-1.08 -4213.045 2006-07
5.99
0.697
0.486
0.472
35.88***
2.74 5809.60 51.346***
0.49 960.097 2005-06
7.82
0.984
0.968
0.953
61.15**
2.76 3012.60
-0.26 -255.832 2004-05
7.697
1.57
0.743
0.551
0.327
2.46(NS)
0.85 1436.30
0.13 325.560 2003-04
6.171
2.73
0.888
0.788
0.682
7.43(NS)
1.09 3277.60
-0.18 -575.091 2002-03
7.983
1.12
0.622
0.387
0.080
1.26(NS)
1.00 3118.30
-0.32 -1665.399 2001-02
11.721
1.20
0.647
0.419
0.128
1.44(NS)
1.35 4380.70
1.56 1282.387 2000-01
100.969
2.00
0.816
0.666
0.499
3.99(NS)
1.72 874.47
0.32 44.796 1999-00
-6.024
-0.51
0.337
0.114
-0.330
0.25(NS)
0.96 118.96
-1.78 -103.808 1998-99
0.572
0.11
0.079
0.006
-0.491
0.012(NS)
0.90 49.30 0.065 0.377 0.614 1.10
0.950 4.32 4.702** -4.42 -110.438** 1997-98
‘t’ Value Beta ‘t’ Value Value
2.697
0.903
27.14
1.21(NS)
2.03
N. Sakthivel 185
0.855
18.65**
F-Value SE
Estimate R
2
Adjusted R2 R EVA Intercept
Year
Table 6 Results of Simple Regression Showing the Relationship between EVA and MVA for Information Technology Industry from 1997-98 to 2006-07.
DW Stat
184 The Impact of Economic Value Added (EVA) on...
after a gap of 8 years. That is, between 1997-98 and 2006-07, future growth of companies in respect of fundamentals was not considered for value creation for Information technology industry. At the same time, the result of DW test has revealed positive serial correlation during the years 199899, 1999-00, 2002-03 and 2004-05 among the companies under IT industry. The regression for pooled years is fitted significantly at 1 per cent level (F value = 35.88, p < 0.01). According to the fitted model, the EVA could have explained 47.2 per cent of the variation in MVA (Adjusted R2 = 0.472) from 1997-98 and 2006-07. This is because, in the beginning (R2 = 0.950, Adjusted R2 = 0.855) and end year (R2 = 0.984, Adjusted R2 = 0.953) of the study, there has been very high association between the two. Overall, from the above inferences, it is concluded that there has been positive relationship between MVA and EVA of companies under Information technology industry. Table 7 Results of ANOVA Showing the Difference in Value Added among Company Groups with Low, Moderate and High EVA under Oil and Gas Industry Level of Economic Value Added (EVA)
N
Market Value Added (MVA) Mean SD
Low
12
-126.19
504.92
Moderate
16
-62.11
1757.93
High
12
11806.10
21204.10
All
40
3478.59
12786.00
F-Value
p-Value
13.13*** 0.0000
SD: Standard Deviation; ***Significant at 1% level. Source: Capitaline OIL AND GAS INDUSTRY Table 7 portrays mean MVA and F-value showing the significance of the difference in MVA across low, moderate and high EVA company groups under Oil and Gas Industry. According to table, the mean MVA has been negative for low (MVA = 126.19) and moderate (MVA = -62.11) and positive for High (MVA = 11806.10) EVA group of companies. Though negative, the MVA has been remarkably higher for moderate group compared to low EVA group. The MVA is positive and much higher for high EVA group. The calculated F value, 13.13 is also significant at 1 per cent level. From the entire picture Management & Change, Volume 14, Number 2 (2010)
8853.70
131.18***
1.09
above, it is well apparent that there has been significant relationship between MVA and EVA among companies under Oil and Gas industry during the period of study.
**Significant at 5% level. ***Significant at 1% level. NS: Not Significant Source: Capitaline
0.521 0.724 All Years
-1473.118
-1.61
5.248***
11.41
0.525
1.21 2374.20 1091.10*** 0.990 0.995 2006-07
-1500.387
-1.85
6.982***
33.03
0.991
1.04 89.09*** 8133.10 0.889 0.948 -0.33 -972.511 2005-06
-0.13 -225.151 2004-05
9.034***
9.44
0.899
1.74 2.87(NS) 5122.50 0.146 0.472
Management & Change, Volume 14, Number 2 (2010)
1.117
1.69
0.223
2.39 2.18(NS) 5065.10 0.097 0.423 2003-04
813.140
0.48
1.348
1.47
0.179
2.70 0.87(NS) 9076.10 -0.012 0.283 2002-03
1859.708
0.60
-1.952
-0.93
0.080
2.56 0.48(NS) 9389.80 -0.095 0.069 2001-02
1192.199
0.36
-0.729
-0.22
0.005
1.87 8.11*** 2499.50 0.393 0.669 2000-01
140.816
0.14
-3.758***
-2.85
0.448
1.72 5.58** 4646.80 0.294 0.599 1999-00
-1086.915
-0.59
6.638**
2.36
0.358
1.46 0.55(NS) 3029.10 -0.042 0.229 -0.12 -145.074 1998-99
-0.20 -250.253 1997-98
1.520
0.74
0.052
1.65 2.96(NS) 3223.50 0.151 0.478
0.229
N. Sakthivel 187
1.72
‘t’ Value Beta ‘t’ Value Value
4.043
F-Value SE
Estimate R
2
Adjusted
R2 R EVA Intercept
Year
Table 8 Results of Simple Regression Showing the Relationship between EVA and MVA for Oil and Gas Industry from 1997-98 to 2006-07
DW Stat
186 The Impact of Economic Value Added (EVA) on...
From regression analysis on yearly basis between MVA and EVA for Oil and Gas industry, results of which are depicted in Table 8, it is evident that there does not exist significant relationship between MVA and EVA in 199798, 1998-99, 2001-02, 2002-03, 2003-04 and 2004-05. Even adjusted Rsquare is negative in 1998-99, 2001-02 and 2002-03. DW stat values are also in the indecisive range (> 1 and < 3) indicating non-existence of serial correlation between the two in these years. That is, in 6 out of 10 years, there existed no relationship between MVA and EVA. However, the regression model for the years 1999-00 (F value = 5.58, p < 0.01), 2000-01 (F value = 8.11, p < 0.01), 2005-06 (F value = 89.09, p < 0.01) and 2006-07 (F value = 1091.10, p < 0.01) is fitted significantly indicating strong relationship between MVA and EVA in these years. Also, the regression model for pooled years is also significant at 1 per cent level (F value = 131.18, p < 0.01). According to the significantly fitted model for all years, 52.1 per cent of the variation in value creation is explained by EVA. Hence, from the results of regression analysis, it is found that the association between MVA and EVA on yearly basis has not been consistent but on the whole for 10 years, there has been significant relationship between the two in respect of Oil and Gas industry. PAPER INDUSTRY Table 9 provides the results of one way ANOVA comparing mean MVA across low, moderate and high EVA company groups belonging to paper industry in India. Table 9 Results of ANOVA Showing the Difference in Value Added among Company Groups with Low, Moderate and High EVA under paper industry Level of Economic Value Added (EVA)
N
Low
30
-54.85
120.88
Moderate
38
-22.77
127.59
High
32
4.89
270.94
All
100
-23.54
184.15
SD: Standard Deviation; Source: Capitaline
Market Value Added (MVA) Mean SD
F-Value
p-Value
0.81(NS) 0.4468
NS: Not Significant.
Management & Change, Volume 14, Number 2 (2010)
1.15 1.250 -1.68 All Years
-35.471*
3.56 4.444*** -1.74 2006-07
-50.476
-2.53 -4.737** 0.15 2005-06
6.044
-3.99 -3.727*** -0.76 2004-05
-19.034
-2.17 -1.616* -1.75 2003-04
-38.828
-3.97 -5.268*** -1.29 2002-03
-33.184
1.37 7.975 2001-02
-36.940
-0.74
1.44 6.509 -2.01 2000-01
-62.176*
3.46 12.712*** -0.89 1999-00
-36.039
-0.15 -1.315 -0.15 -11.564 1998-99
Management & Change, Volume 14, Number 2 (2010)
*Significant at 10% level. **Significant at 5% level. ***Significant at 1% level. NS: Not Significant Source: Capitaline
1.28 1.33(NS) 0.013 0.116
0.003
183.84
1.26 12.70*** 0.614 0.783
0.565
74.87
1.48 6.41** 0.445 0.667
0.376
96.99
2.10 15.90*** 0.665 0.816
0.624
62.01
1.48 4.73* 0.371 0.609
0.293
58.29
1.53 15.77*** 0.663 0.815
0.621
66.27
0.87 1.89(NS) 0.191 0.437
0.090
150.69
1.41 2.06(NS) 0.205 0.453
0.106
97.62
1.46 11.99*** 0.600 0.775
0.550
126.12
2.54 0.02(NS) 0.003 0.052
-0.122
188.63
0.69 9.08** 266.91 0.532 3.01 17.957** -0.56 1997-98
-71.515
Beta Value
‘t’ Value
‘t’ Value
0.729
0.473
F-Value SE
Estimate R
2
R2
Adjusted
N. Sakthivel 189
R EVA Intercept
Year
Table 10 Results of Simple Regression Showing the Relationship between EVA and MVA for Paper Industry from 1997-98 to 2006-07
DW Stat
188 The Impact of Economic Value Added (EVA) on...
It is shown in table that MVA, on an average is negative for low and moderate EVA groups but positive for high EVA group. At the same time, the EVA, which stood at -54.85 for low group has increased to -22.77 for moderate group and then to 4.89 for high EVA group. This clearly reveals the existence of positive relationship between the two. However, F value obtained from the analysis is very low and insignificant statistically, in turn indicating that difference in MVA is independent of the level of EVA for companies under Paper industry. On the other hand, from the results of year-wise regression of MVA on EVA for paper industry, results of which are portrayed in Table 10, it is apparent that there has been significant influence of EVA on MVA in 7 out of 10 years. The fit of the regression models for 1997-98 (F value = 9.08, p < 0.05), 1999-00 (F value = 11.99, p < 0.01), 2002-03 (F value = 15.77, p < 0.01), 2003-04 (F value = 4.73, p < 0.10), 2004-05 (F value = 15.90, p < 0.01), 2005-06 (F value = 6.41, p < 0.05) and 2006-04 (F value = 12.70, p < 0.01) is found to be significant at required hypothetical level. This in turn provides evidence of significant association between MVA and EVA of companies under Paper industry in most of the years. But when time series data for all ten years are pooled together, the fit of the regression model becomes insignificant (F-Value = 1.33, NS). From DW test values, it is understood that there exists no serial correlation is most of the years between the two variables. Therefore, overall from the above inferences, it is found that value creation based on the EVA happened on year on year basis in respect of companies under paper industry. Table 11 Results of ANOVA Showing the Difference in Value Added among Company Groups with Low, Moderate and High EVA under Pharmaceutical Industry Level of Economic Value Added (EVA)
N
Low
46
35.01
193.01
Moderate
59
46.89
294.37
High
45
1607.80
3852.46
150
511.52
2224.02
All
Market Value Added (MVA) Mean SD
F-Value
p-Value
8.61***
0.0003
SD: Standard Deviation; ***Significant at 1% level. Source: Capitaline Management & Change, Volume 14, Number 2 (2010)
N. Sakthivel 191
The difference in value creation (MVA) with respect of change in EVA of companies under pharmaceutical industry is evaluated using one-way ANOVA and the results of the analysis are presented in Table 11.
*Significant at 10% level. **Significant at 5% level. ***Significant at 1% level. NS: Not Significant Source: Capitaline
1.79 26.36*** 2055.90 5.13 -0.06 All Years
-12.486
17.192***
0.389
0.151
0.146
1.32 2.31(NS) 5816.70 1.52 0.72 2006-07
1300.243
27.076
0.388
0.151
0.086
1.34 3.36* 1490.40 1.83 0.34 2005-06
183.291
10.855*
0.453
0.205
0.144
1.16 5.72** 1208.10 2.39 -0.18
Management & Change, Volume 14, Number 2 (2010)
2004-05
-69.021
9.889**
0.553
0.306
0.252
1.64 0.38(NS) 1836.40 0.62 0.36 2003-04
235.317
7.610
0.169
0.029
-0.045
1.62 8.03*** 360.28 2.83 -0.83 2002-03
-103.319
6.838***
0.618
0.382
0.334
1.67 1.97(NS) 478.29 1.40 1.33 2001-02
203.142
8.212
0.362
0.131
0.065
1.36 0.24(NS) 259.29 -0.49 1.16 2000-01
103.642
-1.697
0.135
0.018
-0.057
1.70 5.50** 105.48 -2.35 0.52 1999-00
18.852
-4.422**
0.545
0.297
0.243
1.98 0.02(NS) 124.54 -0.13 -0.62 1998-99
-35.658
-0.738
0.037
0.001
-0.076
1.84 0.97(NS) 108.88 0.069 0.263 0.98 -1.12 1997-98
-56.123
4.903
‘t’ Value ‘t’ Value Value
Beta
-0.002
DW Stat
PHARMACEUTICAL INDUSTRY
F-Value SE
Estimate R
2
Adjusted
R2 R EVA Intercept
Year
Table 12 Results of Simple Regression Showing the Relationship between EVA and MVA for Pharmaceutical Industry from 1997-98 to 2006-07
190 The Impact of Economic Value Added (EVA) on...
It can be observed from the table that value creation tend to increase with increase in the levels of EVA for companies under pharmaceutical industry. The companies with high level of EVA are very highly valued and differ from valuation of companies with low and moderate EVA groups. Further, the above difference is statistically significant as F value obtained from the analysis, 8.61 is significant at 1 per cent level. So, it is clear that there is a significant association between MVA and EVA for companies under pharmaceutical industry. Table 12 provides the results of regression on yearly basis and also for all years between MVA and EVA for companies under pharmaceutical industry. From the perusal of the results, it is evident that correlation between MVA and EVA (R-values) is above 0.40 in 1999-00, 2002-03, 2004-05, 200506. Also the fit of the regression models for these years is also significant providing evidence of significant influence of EVA on MVA. However, adjusted R square values of the insignificantly fitted models for 1997-98, 1998-99, 2000-01 and 2003-04 are found to be negative, in turn providing evidence of poor association between the two variables. No serial correlation between the two is identified in all the years as DW statistic values are in the indecisive / no auto correlation range. On the other hand, the regression model for all years is fitted significantly (F-value = 26.36, p < 0.01) with R, R2 and Adjusted R2 values of 0.389, 0.151 and 0.146 respectively. This provides evidence for strong association between MVA and EVA. On the whole, value of shareholders of the companies under pharmaceutical industries has gone up based on their EVA leading to the conclusion that there is a strong association between MVA and EVA. SHIPPING INDUSTRY The mean MVA of low, moderate and high EVA of companies under shipping industry is compared with ANOVA test and the results of the test are presented in Table 13. It is seen from the table that there has been value destruction on the average for low, moderate and high EVA groups as mean Management & Change, Volume 14, Number 2 (2010)
Management & Change, Volume 14, Number 2 (2010)
0.78 2.39(NS) 458.87
**Significant at 5% level. ***Significant at 1 % level. NS: Not Significant Source: Capitaline
0.015 0.027 0.163 1.55 0.701 -3.33 -178.324*** All Years
2.72 5.80** 347.97 0.345 0.453 0.673 2.41 1.271** -91.678 2006-07
-0.65
2.06 17.24*** 428.92 0.670 0.711 0.843 4.15 4.485*** -115.479 2005-06
-0.69
2.21 2.36(NS) 349.74 0.146 0.253 0.503 -1.54 -3.584 -125.573 2004-05
-0.90
2.84 0.30(NS) 262.43 -0.096 0.041 0.202 -0.55 -0.593 -118.934 2003-04
-1.19
1.09 19.38*** 288.81 0.697 0.735 0.857 -4.40 -3.922*** -68.491 2002-03
-0.62
1.26 22.73*** 325.24 0.731 0.765 0.874 -4.77 -16.406*** -76.860 2001-02
-0.64
2.80 27.05*** 225.87 0.765 0.794 0.891 -5.20 -8.253*** -1.41 -120.939 2000-01
2.74 1.18(NS) 270.59 0.022 0.144 0.380 -1.09 -1.730 -127.351 1999-00
-1.23
1.20(NS) 243.30 0.024 0.146 0.383 -1.10 -1.644 -1.38
2.24(NS) 166.38 0.134 0.243
-126.436
The above picture has exhibited a notable association between MVA and EVA negatively from 2000-01 to 2002-03 and positively from 2005-06 to 2006-07. Negative valuation indicated lack of confidence in companies under shipping industry among investors. No serial correlation in any of the
1998-99
The simple regression analysis between MVA and EVA year on year basis for shipping industry is provided in Table 14. From table, it is observed that the beta coefficient of EVA in all study years except 2005-06 and 200607 is negative indicating inverse relationship between MVA and EVA. In 2005-06 and 2006-07, the relationship between the two is positive. The fit of the regression model is found to be significant only for 2000-01 (F-value = 27.05, p < 0.01), 2001-02 (F-value = 22.73, p < 0.01), 2002-03 (F-value = p < 0.01), 2005-06 (F-value = 17.24, p < 0.01) and 2006-07 (F-value = 5.80, p < 0.05) with the adjusted R-square value of 0.765, 0.731, 0.697, 0.670 and 0.345, respectively.
0.492
The decline in MVA with increase in the levels of EVA provides evidence of inverse relationship between the two variables. It seems from the above picture that the share prices of companies under shipping industry have been undervalued over the period of time. The F-value, 2.96 obtained from the analysis is significant at 10 per cent level. This reveals that the inverse relationship between MVA and EVA has been at mentionable level.
-1.50
MVA for all EVA groups is found to be negative. Further, MVA, which stood at -12.54 for low EVA group has declined further to -120.93 for moderate group and again to -306.26 for high EVA group.
-1.430
SD: Standard Deviation; *Significant at 10% level. Source: Capitaline
-0.47
462.44
-29.923
-142.80
1997-98
90
F-Value
All
Estimate
756.24
R
-306.26
‘t’ Value
27
0.0570
Beta
High
2.96*
‘t’ Value
276.54
Value
-120.93
SE
35
2
Moderate
Adjusted
113.86
R2
-12.54
R
28
p-Value
EVA
Low
F-Value
Intercept
Market Value Added (MVA) Mean SD
Year
N
Table 14 Results of Simple Regression Showing the Relationship between EVA and MVA for Shipping Industry from 1997-98 to 2006-07
Level of Economic Value Added (EVA)
DW Stat
Table 13 Results of ANOVA Showing the Difference in Value Added among Company Groups with Low, Moderate and High EVA under Shipping Industry
2.76
N. Sakthivel 193 1.61
192 The Impact of Economic Value Added (EVA) on...
Management & Change, Volume 14, Number 2 (2010)
Management & Change, Volume 14, Number 2 (2010)
0.63 0.25(NS) 2030.50
**Significant at 5% level. ***Significant at 1% level. NS: Not Significant Source: Capitaline
-0.009 0.003 0.054 -0.50 -0.484 -301.502 All Years
-1.32
1.49 0.102(NS) 3687.30 -0.126 0.015 0.120 0.32 0.903 288.503 2006-07
0.18
1.95 0.10(NS) 3763.20 -0.141 0.001 0.037 -0.10 -0.692 441.586 2005-06
0.27
1.88 3.29(NS) 1779.10 0.222 0.320 0.565 -1.81 -7.247 200.590 2004-05
0.28
1.52 1.96(NS) 1843.50 0.107 0.219 0.468 -1.40 -2.977 -295.975 2003-04
-0.48
1.81 2.90(NS) 1496.40 0.192 0.293 0.541 -1.70 -5.329 -375.437
-0.70
1.62 1.04(NS) 1558.20 0.004 0.129 0.359 -1.02 -4.129 -1.16
1.64 0.53(NS) 1508.10 -0.063 0.070 0.265
1.80 11.60*** 666.79 0.570 0.624 0.790 -3.41
1.62 2.29(NS) 844.74 0.139 0.246 0.496 -1.51
6.07** 931.22 0.388 0.465 0.682 -2.46
R2
F-Value SE
Estimate
Adjusted
R2 R ‘t’ Value
-0.73
2002-03
An examination of the Table 16, in which results of year-wise linear regression analysis between MVA and EVA for steel and aluminium industry is portrayed, shows that the beta coefficient for EVA is negative in all years
-606.970
From the above inferences, it is summed up that there is no relationship between value creation and EVA of companies under steel and aluminium industry.
2001-02
SD: Standard Deviation. NS: Not Significant. Source: Capitaline
-2.916
2022.01
-1.95
-341.93
-985.789
90
2000-01
All
-12.318***
3526.14
-0.24
-832.43
-63.854
28
1999-00
High
1.22(NS) 0.3016
-7.548
518.11
-0.73
-83.26
-234.612
35
1998-99
Moderate
-10.978**
593.27
1.47
-168.57
640.394
27
p-Value
1997-98
Low
F-Value
EVA
Market Value Added (MVA) Mean SD
Beta
N
‘t’ Value
Level of Economic Value Added (EVA)
Intercept
Table 15 Results of ANOVA Showing the Difference in Value Added among Company Groups with Low, Moderate and High EVA under Steel and Aluminium Industry
Value
Regarding significance of the difference in value creation among the company groups with low, moderate and high EVA under steel and aluminium industry, Table 15 shows the results of ANOVA. It can be seen from table that MVA on the average is negative and stood at -168.57, -83.26 and -832.43 for low, moderate and high EVA groups. The MVA has been more for moderate compared to low EVA groups but it has been much lesser for high groups compared to low and moderate groups. This shows some relationship between MVA and EVA. But obtained F-value is found to be insignificant in turn revealing the fact that the difference in MVA is independent of the EVA for companies under Steel and aluminium industry.
Year
STEEL AND ALUMINIUM INDUSTRY
Table 16 Results of Simple Regression Showing the Relationship between EVA and MVA for Steel and Aluminium Industry from 1997-98 to 2006-07
study years is found as DW values are above 1 and below 3. On the other hand, the regression model for whole study period is fitted insignificantly (Fvalue = 2.39, Not significant). This shows that there is no long-term association between MVA and EVA. Hence, it is concluded from the above inferences that EVA tend to play a notable role in value creation in recent years for companies under shipping industry.
1.63
N. Sakthivel 195 DW Stat
194 The Impact of Economic Value Added (EVA) on...
Management & Change, Volume 14, Number 2 (2010)
Management & Change, Volume 14, Number 2 (2010)
1.24
*Significant at 10% level. **Significant at 5% level. ***Significant at 1 % level. NS: Not Significant Source: Capitaline
29.69*** 249.41 0.244 0.252 0.502 5.45 6.988*** -3.74 -112.603*** All Years
2.29 8.93** 490.70 0.498 0.560 0.749 2.99 12.945** -113.695 2006-07
-0.48
1.60 1.13(NS) 234.84 0.016 0.139 0.373 1.06 3.926 -71.295 2005-06
-0.69
1.60 0.0004(NS) 146.53 -0.143 0.000 0.007 0.02 0.052 -129.742** 2004-05
-2.54
1.79 14.33*** 71.87 0.625 0.672 0.820 -3.79 -5.756*** -27.752 2003-04
-0.94
1.84 41.50*** 51.18 0.832 0.853 0.923 -6.36 -8.215*** -23.231 2002-03
-1.03
0.88 9.01** 77.83 0.500 0.563 0.750 -3.00 -6.840** -56.517 2001-02
-1.86
0.76 2.01(NS) 83.75 0.113 0.223 0.473 -1.42
1.72 10.64** 60.26 0.547 0.603
5.89** 63.77 0.380
1.34 -0.142
R
217.70
0.007(NS)
F-Value Estimate
SE
2
Adjusted R2
0.457 0.676
0.777 -3.26 -6.807**
-3.039 -2.85 -85.273**
On the other hand, an examination of the year-wise regression results for MVA with EVA for sugar industry portrayed in Table 18 shows that estimated coefficients of EVA is negative in 7 years and significant at required
2000-01
It seems from the perusal of the table that there has been increase in MVA with increase in the levels of EVA for companies under Sugar industry. The MVA with average of -63.99 for low groups has increased to -50.72 for moderate and then to 23.15 for high EVA groups, in turn showing positive relationship between the two. However, F value obtained from the analysis for the difference in MVA is insignificant. So, it is apparent from the inferences that change in MVA is independent of EVA for companies under Sugar industry.
-2.25
Table 17 provides the results of ANOVA comparing MVA across low, moderate and high EVA company groups under sugar industry.
-53.089*
SUGAR INDUSTRY
1999-00
SD: Standard Deviation; NS: Not Significant. Source: Capitaline
-2.43
286.81
-6.592**
-32.84
-2.10
90
-52.008*
All
1998-99
503.36
0.001
23.15
0.031
27
-0.08
High
0.75(NS) 0.4766
-0.876
119.84
-0.07
-50.72
-6.791
34
1997-98
Moderate
‘t’ Value
69.64
Beta
-63.99
‘t’ Value
29
p-Value
Value
Low
F-Value
R
Market Value Added (MVA) Mean SD
EVA
N
Intercept
Level of Economic Value Added (EVA)
Year
Table 17 Results of ANOVA Showing the Difference in Value Added among Company Groups with Low, Moderate and High EVA under SUGAR Industry
Table 18 Results of Simple Regression Showing the Relationship between EVA and MVA for Sugar Industry from 1997-98 to 2006-07
except 2006-07. The correlation between the two is found to be moderate (R > 0.40 and <= 0.60) in 1998-99, 2002-03, 2003-04 and 2004-05 and strong (R > 0.60 and < 0.80) in 1997-98 and 1999-00. However, the fit of the regression models is significant only for 1997-98 (F-value = 6.07, p < 0.05) and 1999-00 (F-value = 11.60, p < 0.01), revealing existence of relationship between the two in these two years. The negative adjusted R square values in some years and insignificant fit of the regression models in the remaining years as well as for all years have provided evidence that the relationship between MVA and EVA is not at mentionable level for companies under Steel and Aluminium industry.
1.64
N. Sakthivel 197 DW Stat
196 The Impact of Economic Value Added (EVA) on...
Management & Change, Volume 14, Number 2 (2010)
Management & Change, Volume 14, Number 2 (2010)
1.11
*Significant at 10% level. **Significant at 5% level. ***Significant at 1% level. NS: Not Significant Source: Capitaline
3.03* 276.51 0.022 0.033 0.183 1.74 1.464 0.52 15.186 All Years
0.64 32.05*** 118.03 0.795 0.821 0.906 5.66 20.146*** -105.713* 2006-07
-2.18
1.00 31.75*** 133.28 0.794 0.819 0.905 5.63 37.468*** -253.126*** 2005-06
-3.53
1.57 34.12*** 68.40 0.805 0.830 0.911 5.84 16.131*** -92.341*** 2004-05
-3.34
1.95 0.82(NS) 146.70 -0.023 0.105 0.324 -0.91 -8.606 6.441 2003-04
0.12
1.80 177.54*** 25.86 0.957 0.962 0.981 13.32 4.408*** -60.136*** 2002-03
-6.66
1.86 0.009(NS) 140.86 -0.141 0.001 0.035 0.09 0.053 0.12
1.99 0.27(NS) 169.05 -0.100 0.037 0.193
1.95 8.98** 139.06 0.499 0.562 0.750 3.00
242.70*** 48.12 0.968 0.972 0.986
0.076 -0.20
15.58
1.90 0.006
-0.136
720.80
0.04(NS)
F-Value SE
Estimate R
2
Adjusted R2 R
‘t’ Value
-0.52
6.117
Perusal of the table shows that there has been a positive relationship between MVA and EVA. This is because average MVA is -60.85 for low group, 14.86 for moderate and 67.05 for high EVA group of companies under textile industry. However, from insignificant F-value (1.52), it is evident that the difference in MVA across three company categories with different EVA levels, 1.52 is due to some other reasons and not due to MVA. In sum, it is
2001-02
SD: Standard Deviation; NS: Not Significant. Source: Capitaline
-0.862
279.66
-0.82
11.54
-51.524
90
2000-01
All
4.752**
229.04
-0.24
67.05
-11.778
32
0.2242
1999-00
High
1.52NS
16.568***
355.11
-5.77
14.86
-95.310***
32
1998-99
Moderate
-23.041
218.16
0.53
-60.85
238.969
26
p-Value
1997-98
Low
F-Value
Beta
Market Value Added (MVA) Mean SD
‘t’ Value
N
Value
Level of Economic Value Added (EVA)
EVA
Table 19 Results of ANOVA Showing the Difference in Value Added among Company Groups with Low, Moderate and High EVA under Textile Industry
Intercept
For textile industry, the value creation by low, moderate and high EVA levels is compared and the results of comparative analysis are depicted in Table 19.
Year
TEXTILE INDUSTRY
Table 20 Results of Simple Regression Showing the Relationship between EVA and MVA for Textile Industry from 1997-98 to 2006-07
hypothetical level in 5 out of 10 years. In the last three years, the relationship of EVA with MVA is positive (coefficient is positive) but significant only in 2006-07 (ß = 12.945, t = 2.99, p < 0.01). The linear regression models between MVA and EVA is fitted significantly for 1998-99 (F-value = 5.89, p < 0.05), 1999-00 (F-value = 10.64, p < 0.05), 2001-02 (F-value = 9.01, p < 0.05), 2002-03 (F-value = 41.50, p < 0.01), 2003-04 (F-value = 14.33, p < 0.05) and 2006-07 (F-value = 8.93, p < 0.05). Correlation between the two is in between moderate and strong in the years mentioned above. Further, the regression equation model for entire sample periods is also fitted significantly at 1 per cent level (F-value = 29.69, p < 0.01) explaining 24.4 per cent of variation (Adjusted R2 = 0.244) in MVA by EVA. From the observation of DW stat, it is understood that there has been serial correlation between the two variables in 2000-01 and 2001-02. Hence, from the interpretation of the entire results, it is found that investors have exhibited confidence in the functioning of companies under Sugar industry and value creation has incurred on the basis of their confidence during the period under study.
2.01
N. Sakthivel 199 DW Stat
198 The Impact of Economic Value Added (EVA) on...
Management & Change, Volume 14, Number 2 (2010)
200 The Impact of Economic Value Added (EVA) on...
N. Sakthivel 201
concluded that MVA and EVA is independent with each other for companies under textile industry. Table 20, which presents the linear regression results year-wise for companies under textile industry, evidences significant positive coefficient for EVA in 1998-99 ( ß =16.568, t = 15.88, p < 0.01), 1999-00 (ß = 4.752, t = 3.00, p < 0.05), 2002-03 ) (ß = 4.408, t = 13.32, p < 0.01), 2004-05) (ß = 16.131, t = 5.84, p < 0.01), 2005-06) (ß =37.468, t = 5.63, p < 0.01) and 2006-07) (ß =20.146, t = 5.66, p < 0.01). Overall models in these years also fitted significantly (F values are significant at required level). Further correlation between MVA and EVA is very strong in 1998-99 (R = 0.986), 2002-03 (R = 0.981), 2004-05 (R = 0.911), 2005-06 (R = 905) and 2006-07 (R = 906) while it is strong in 1999-00 (R = 0.750). Despite poor association between the two in 4 out of 10 years (adjusted R2 values are negative), from significant fit of the models in addition to positive significant estimated coefficients in the remaining years have clearly revealed the existence of relationship between MVA and EVA for companies under Textile industry. That is, the shareholders' values have increased only with strong fundamentals as far as the companies under textile industry are concerned during the period under study. The significant fit of the regression model for pooled years is also found to be significant at minimum required hypothetical level of 10 per cent though estimated coefficient for EVA is insignificant with positive sign. Overall, from the above inferences of the regression results, it is concluded that value creation has happened only if fundamentals, which have the ability to create economic value added, are strong. ALL SELECTED INDUSTRIES For all pooled companies under selected industries, mean MVA in company groups with low, moderate and high EVA is compared with F test and the test results are presented in Table 21. It can be seen from table that there has been value destruction for shareholders of companies with low and moderate EVA. However, value destruction is much lesser for moderate group compared to that of low EVA group. However, average MVA is 2025.11, indicating value creation for High EVA group in Indian companies during the period of study. Further, the increase in MVA with increase in the levels of EVA has indicated a positive relationship between the two. The significant F-value of 15.79 (p < 0.01) further supported that the above relationship between the two is statistically at mentionable level. With the interpretation of the entire results, it may be Management & Change, Volume 14, Number 2 (2010)
Table 21 Results of ANOVA Showing the Difference in Value Added among Company Groups with Low, Moderate and High EVA under All Selected Industries Level of Economic Value Added (EVA)
N
Market Value Added (MVA) Mean SD
Low
283
-76.39
348.23
Moderate
360
-1.22
957.73
High
287
2025.11
9229.94
All
930
601.23
5246.44
F-Value
p-Value
15.79*** 0.0000
SD: Standard Deviation; ***Significant at 1% level. Source: Capitaline concluded that there has been a positive association between MVA and EVA for companies in India. The above relationship between MVA and EVA can be further evidenced from the observation of linear regression results presented in Table 22. It is apparent from the table that the regression model for all years except 200102 and also for pooled years are fitted significantly (F values are significant with levels ranging between 10 per cent and 1 per cent). The estimated coefficients for EVA on MVA are also significant in all years except 2001-02. The sign of significant coefficient is negative in 2000-01 (ß =-3.506, t = -8.43, p < 0.01) and 2002-03 (ß =-1.239, t = -1.91, p < 0.10). For pooled years, the estimated coefficient of EVA is significant with positive sign (ß =5.025, t = 28.15, p < 0.01). Correlation between the two is very strong in 2005-06 (R = 0.952) and 2006-07 (R = 0.848), strong in 1999-00 (R = 0.615), 2000-01 (R = 0.662) and moderate in 1997-98 (R = 0.469), 2003-04 (R = 0.441) and 200405 (R = 0.477). For all years, the correlation between MVA and EVA is fount to be strong (R = 0.679). From adjusted R2 square values, it is understood that maximum of 90.5 per cent of the variance in MVA is explained by EVA in 2005-06 followed by 71.6 per cent in 2006-07 and 43.2 per cent of the variance in 2000-01. For all years, 46.1 per cent of variation in MVA is determined by EVA for Indian companies. At the same time, no serial correlation is identifiable over the period as DW test values are neither in the positive correlation range (< 1) or negative correlation range (> 3). STUDY FINDINGS l
It is found that value creation for companies under cement industry is independent of the EVA of these companies during the period from Management & Change, Volume 14, Number 2 (2010)
28.18 5.025*** -1.30 All Years
-167.923
15.25 6.904*** 0.78 2006-07
497.579
29.55 8.855*** -0.70 2005-06
-229.734
5.18 1.108*** -0.26 2004-05
-54.905
4.69 1.536*** 0.57 2003-04
127.713
-1.91 -1.239* 0.51 2002-03
176.324
-0.01 -0.013 0.87 2001-02
346.910
-8.43 -3.506*** -0.94 2000-01
-105.704
7.43 5.571*** -1.63 1999-00
-289.060
2.54 1.393** -1.32 -153.816 1998-99
Management & Change, Volume 14, Number 2 (2010)
1997-98 to 2006-07. It is also found that there was no association between MVA and EVA in most of the years but overall in ten years there has been notable positive association between MVA and EVA in respect of Cement Industry.
*Significant at 10% level. **Significant at 5% level. ***Significant at 1% level. NS: Not Significant Source: Capitaline
1.26 793.88*** 3853.60 0.461 0.679
0.461
1.83 232.45*** 5920.10 0.719 0.848
0.716
1.36 873.33*** 3077.40 0.906 0.952
0.905
1.91 26.85*** 1974.70 0.228 0.477
0.219
1.84 21.98*** 2100.20 0.195 0.441
0.186
1.67 3.67* 3248.90 0.039 0.197
0.028
1.98 3754.20 0.00013(NS) 0.000001 0.0012
-0.011
1.83 71.00*** 1038.30 0.438 0.662
0.432
1.60 55.25*** 1637.00 0.378 0.615
0.371
1.44 6.44** 1068.30 0.066 0.257
0.056
1.58 25.69*** 1196.60 0.220 5.07 3.447*** -0.59 -77.541 1997-98
Beta ‘t’ Value Value
‘t’ Value
0.469
0.212
DW Stat Estimate R
2
R2
Adjusted
SE
F-Value
N. Sakthivel 203
R EVA Intercept
Year
Table 22 Results of Simple Regression Showing the Relationship between EVA and MVA for All Selected Industries from 1997-98 to 2006-07
202 The Impact of Economic Value Added (EVA) on...
l
It is found that value creation in low and high EVA groups is much lower than moderate EVA group. It is also found that EVA has played a vital role in creating value from 1997-98 to 2000-01 but afterwards market has not considered the fundamental characteristics of companies fixing the share prices of companies under chemical industry.
l
It is found that MVA differs significantly with difference in the level of EVA in respect of companies under information technology industry. Also found that there has been positive relationship between MVA and EVA of companies under information technology industry.
l
It is found that there has been significant relationship between MVA and EVA among companies under Oil & Gas industry during the period of study. It is also found that the association between MVA and EVA on yearly basis has not been consistent but on the whole 10 years, there has been significant relationship between MVA and EVA in respect of Oil & Gas Industry.
l
It is found that difference in MVA is independent of the level of EVA for companies under paper industry. It is also found that value creation based on the EVA happened on year basis in respect of companies under paper industry.
l
It is found that there is significant association between MVA and EVA for companies under pharmaceutical industry and also found that value of shareholders of the companies under this industry has gone up based on their EVA leading to the conclusion-strong association between MVA and EVA.
l
It is found that the inverse relationship between MVA and EVA has been at mentionable level and also found that EVA tend to play a notable role in value creation in recent years for companies under shipping industry.
l
It is found that the difference in MVA is independent of the EVA for companies under steel & aluminium industry. It is also found that the relationship between MVA and EVA is not at mentionable level for companies under steel & aluminium industry. Management & Change, Volume 14, Number 2 (2010)
204 The Impact of Economic Value Added (EVA) on... l
It is found that the change in MVA is independent of the EVA for companies under sugar industry. It is also found that there has been serial correlation between MVA and EVA in 2000-01 and 2001-02.
l
It is found that MVA and EVA are independent with each other for companies under textile industry. It is also found that value creation has happened only if fundamentals, which have the ability to create economic value added, are strong.
l
It is found that there has been positive association between MVA and EVA for companies in India. It is also found that 46.1 percent of variation in MVA is determined by EVA for Indian companies.
N. Sakthivel 205
Bhattacharya, Dipak Kumar (2006) Research Methodology. New Delhi: Excel Books. Donald, H. & Mc Burney (2003) Research Methods. Singapore: Thomson Asia Pte Ltd. Gerald, Keller. (2008) Statistics for Management and Economics. Australia: Brooks/Cole Cengage Learning. Ghosh, T.P. (1999) Economic Value Added: A Tool for Business Planning. Kolkata: The Institute of Cost and Works Accountants of India (ICWAI).
CONCLUSION Gupta, S.P (1995) Statistical Methods. New Delhi: Sultan Chand and Sons. On the whole, from the inferences of the entire results, it is found that there has been a remarkable relationship between MVA and EVA in turn lead to the further finding that there has been a notable improvement in the value creation for shareholders in Indian companies and investors have believed that fundamentals of the companies in India have ability to generate economic value added in the future. REFERENCES Banerjee, Ashok & Jain (1999) “Economic Value Added and Shareholder Wealth: An Empirical Study of Relationship”, Paradigm, 3 (1): 114. Bao, B.H. & D.H. Bao (1999) “The Association between Firm Value and Economic Value Added”, Indian Accounting Review, 3 (2): 161-164. Banerjee, Ashok (2000) “Linkage between Economic Value Added and Market Value: An Analysis”, Vikalpa, 25 (3): 23-36. Bardia, S.C. (2002) “EVA as Performance Indicator: A Case Study of Infosys”, Indian Journal of Accounting, 32: 57-61. Bardia, S.C. (2002) “Economic Value Added: Overall Consideration”, Economic Challenger, 1-7. Copeland, T., T. Koller & J. Murrin (1992) Valuation, Measuring and Managing the Value of Companies. New York: John Wiley and Sons. Dhanasekaran, K. (2006) Econometrics. New Delhi: Vrinda Publications (P) Ltd. Management & Change, Volume 14, Number 2 (2010)
Ghanbari, M. Ali & Narges Sarlak (2006) “Economic Value Added: An Appropriate Performance Measure in the Indian Automobile Industry”, The Icfain Journal of Management Research, 5 (8): 45-57. Khan, M.Y. & P.K. Jain (1998) Financial Management: Text and Problems. New Delhi: Tata Graw Hill Publishing Company Limited. Kramer, K. Jonathan & George Pushner (1997) “An Empirical Analysis of Economic Value Added as a Proxy for Market Value Added”, Financial Practice and Education, 7 (1): 41-49. Lenn, K. & A.K. Makhiija (1996) “EVA and MVA as Performance Measures and Signals for Strategic Change”, Strategy and Leadership, 24: 3438. Michael, F. Spivey & Jeffrey J. Mc Millan (2003) “Value Creation and the Entrepreneurial Business”, The Icfain Journal of Management Research, 2 (6): 21-34. Malik, Madhu (2004) “EVA and Traditional Performance Measures: Some Empirical Evidence”, The Indian Journal of Commerce, 57 (2): 32-37. Niranjan, Swain, C.S. Mishra & Mukesh Kumar (2002) “Market Response to Economic Value Maximization: A Study of Indian Chemical Industry”, The ICFAI Journal of Applied Finance, 8 (4): 30-50. Management & Change, Volume 14, Number 2 (2010)
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Parasuram, N.R. (2000) “Economic Value Added: Its Computation and Impact on Selected Banking Companies”, The ICFAI Journal of Applied Finance, 6 (4): 171-178.
N. Sakthivel 207
Thampy, A. & R. Beheli (2001) “Economic Value Added in Banks”, The ICFAI Journal of Applied Finance, 7 (1): 180-189. WEB SITES
Singh, Karam Pal & Mahesh C. Garg (2004) “Disclosure of EVA in Indian Corporates”, The Indian Journal of Commerce, 57 (2): 39-49.
Pablo, Fernandez & Alvaro Villanueva (1997-2004) “Shareholder Value Creation in Europe”. EuroStoxx 50. (www.ssrn.org, http://www.iese.edu).
www.bseindia.com; www.eva.com; www.financeindia.com; www.iese.edu; www.indianindustry.com; www.sebi.com/www.sebi.gov.in; www.strenstwart.com;
Pablo, Fernandez & Laura Reinoso, “Shareholder Value Creators and Shareholder Value Destroyers in USA”, www.ssrn.org, http:// www.iese.edu.
Great Women Leaders of India
Panigrahi, Anupam (2005) “Supremacy of Economic Value Added (EVA) over Market Value Added (MVA)”, Abhigyan, 23 (1): 26-35.
Pablo, Fernandez (2003) “EVA, Economic Profit and Cash Value Added Do Not Measure Shareholder Value Creation”, The ICFAI Journal of Applied Finance, 9 (3): 74-88. Reddy, B. Ramachandra & B. Yuvaraja Reddy (2007) “Financial Performance through Market Value Added (MVA) Approach”, The Management Accountant, 42 (1): 56-59. Singh, K.P. & M.C. Garg (2004) Economic Value Added (EVA) in Indian Corporates. New Delhi: Deep & Deep Publications Pvt. Ltd. Agarwal, Sony (2004) Value Added Statement. Jaipur: RBSA Publishers. Sahu, R.K. (2001) “Accounting Profitability vs. Shareholders’ Value Creation: An Empirical Study”, The Management Accountant, 36 (9): 655-659. Saxena, Pankaj (1998) “Economic Value Added and Performance Evaluation”, The Management Accountant, 33 (5): 341-342. Kumar, A. Suresh & Simi John (2003) “Impact of EVA on Shareholders Value”, Business Research Conference, 3.67 – 3.77. Thenmozhie, M. (1999) “Economic Value Added as a Measure of Corporate Performance”, The Indian Journal of Commerce, 52 (4): 72-85. Management & Change, Volume 14, Number 2 (2010)
www.business.com; ww.economictimes.indiatimes.com; www.iupindia.org; www.indiainfoline.com; www.rbi.org.in; www.ssrn.com; www.valuebasedmanagement.net
SISTER NIVIDITA: A CRUSADER FOR EDUCATION AND SOCIAL DEVELOPMENT Sister Nivedita (1867-1911) was the first western woman to be initiated into an Indian monastic order. She came into contact with Swami Vivekananda in England in 1895 when she was the headmistress of the Ruskin School, member of the 'Fee Ireland' group and Secretary of the Sesame Club. After coming to India in January 1898, she opened a Girls' School in Calcutta (1898), helped the victims of bubonic plague (1899) and of famine and flood in East Bengal (1906), supported the Swadeshi Movement (1905) and inspired nationalist activity. When the signing of 'Vande Mataram' was banned, she made the students of her school recite it as a daily prayer. Much before Mahatma Gandhi popularized the spinning wheel; she introduced it in her school and appointed a lady teacher (charkha-mai) for the same. She mooted the idea of a national flag, with the embroidered emblem of the thunderbolt (vajra) of Indra, at the annual session of the Indian National Congress held at Calcutta in 1906. She protested against the illiberal provisions of the Universities Act passed during the viceroyalty of Lord Curzon in 1904. She remained associated with such radical organizations as the Dawn Society and the Anushilan Samiti, and was close to Aurobindo Ghosh (1872-1950), and Benoy Sarkar (1887-1949), a noted economist. Management & Change, Volume 14, Number 2 (2010)
208 The Impact of Economic Value Added (EVA) on... She exhorted women to worship Mother India. “Dedicate some part of every puja to this thought of the mother who is Swadesh. Lay a few flowers before her, pour out a little water in Her name”… “Let us realize all that our country has done for us – how she has given us birth and food and friends, our beloved ones, and our faith itself. Is she not indeed our mother?” Source:
Kapoor, S.K., Women Warriors of India's Feedom I, Bhavan's Journal, Vol. 57 No. 18, April 30, 2011
RAJKUMARI AMRIT KAUR: CHAMPION OF HEALTHCARE AND SPORTS (1889-1964) Rajkumari Amrit Kaur who was born in 1889 who received her early education in England and she was a lover of sports. When she returned to India after her studies, she took part in organizing and promoting sports and games first in Punjab and later areas outside Punjab as well. She was one of the leading freedom fighters from Punjab who along with other distinguished women of the country was responsible for setting up All India Women's Conference (AIWC) in 1926. Her father, Sir Harnam Singh, who hailed from a royal family of the Kapurthala State, was a friend of Gopal Krishna Gokhale, the doyen of freedom movement, who Mahatma Gandhi regarded as his political guru. She underwent imprisonment several times and was imprisoned during 'Salt Satyagrah' launched by Mahatma Gandhi from Bombay in 1930. During Quit India Movement on the night of August 8, she was arrested along with other veteran leaders and detained at Kalka and Ambala jails during which she had to bear several hardships including deterioration in her health and loss of her brother. After Independence, Rajkumari Amrit Kaur was made the Union Minister of Health by Pt. Jawaharlal Nehru, first Prime Minister of free India, a portfolio which she held for several years. She played leading role in setting up New Delhi's famous All India Institute of Medical Sciences (AIIMS) which today stands out a living testimony to her passion for creating world class medical institutions in the country, which has emerged as a model to set up more institutions of this type in the country. She breathed her last in 1964. It was a strange coincidence that her years of birth (1989) and death (1964) coincided with those of Pt. Nehru, a leader she always held in high esteem. - Editor Management & Change, Volume 14, Number 2 (2010)
SIGNIFICANCE OF TECHNOLOGY MANAGEMENT AND CORE COMPETENCE FOR COMPETITIVE SUSTENANCE Anjana Kak Technology is important for competition as it significantly affects an organization’s competitive advantage. It is embodied in every activity in an organization and its change can affect competition through its impact on virtually any activity. An organization as a collection of activities is a collection of technologies. If a better technology is discovered for performing an activity than its competitors, a competitive advantage is gained. The basic tool for understanding the role of technology in competitive advantage is the value chain. Technology management is a set of management disciplines that allows organizations to manage its technological fundamentals to create competitive advantage. Managing technologies effectively requires the capacity to integrate functional and specialists groups for the implementation of innovations and continuous testing of skills for the exploitation of technological opportunities. There is a need to develop competencies to identify promising new technologies, and transfer and absorption of right type of technologies. The effective management of technology, in the domain of flexibility, provides a means to create competitive advantage for corporate success and growth. Competitive advantage is a position of a company in a competitive landscape that allows the company earning return on investments higher than the cost of investments. It has to be relevant, unique, and sustainable.When an organization sustains profits that exceed the average for its industry, it is said to possess a competitive advantage over its rivals. The ultimate goal of any business strategy is to achieve a sustainable competitive advantage. It is is the ability gained through core competencies to perform at a higher level than others in the same industry or market .The study of such advantage has attracted profound research interest due to contemporary issues Management & Change, Volume 14, Number 2 (2011) Change, 14, Number 2 (2010) © 2010 IILM Institute for HigherManagement Education. & All RightsVolume Reserved.
210 Significance of Technology Management and Core Competence...
regarding superior performance levels of firms in the present competitive market scenario. In this research paper a case study has been developed to highlight learning issues related to core competence and technology management. The study is based on Flexible Systems Methodology and has been conducted through interviews. The study depicts that the organizations that want to achieve competitive sustenance need to create an advantage from its technology by building core competencies, overcoming inertia and creating an organization that enhances technological development and commercialization. Keywords:Core competence, management of technology, competitive sustenance, competitive advantage, & flexibility. INTRODUCTION The technology management provides a means to use new technology to generate sustainable competitive advantage. Managing technologies effectively means setting and communicating strategic priorities, managing projects to get timely results and effectively using linkages inside and outside the organization. In dynamic environment, organizations that are incompetent are unlikely to survive in the near future. Since the scope of competition gets broader day by day, the organizations are heading towards fierce competitive challenges by those organizations that have higher competencies. The successful management of technology requires the capacity to orchestrate and integrate functional and specialist groups for the implementation of innovations, continuous testing of appropriateness of existing markets and skills for the exploitation of technological opportunities. Failure to improve the internal systems and processes leaves an opportunity for competitors to move ahead with technology-based strategies and create a foundation of competitive advantage. In a typical organizationâ&#x20AC;&#x2122;s technological portfolio there exist three broad classes of technologies, viz., base technologies, key technologies, and pacing technologies. Base technologies are necessary, but not sufficient to achieve competitive advantage. These technologies are widely known and readily available. Key technologies provide competitive advantage and permit the producer to have differentiating features or functions in the product. Pacing Management & Change, Volume 14, Number 2 (2010)
Anjana Kak 211
technologies could become tomorrowâ&#x20AC;&#x2122;s key technologies. It differentiates the leaders from the followers, as every organization cannot afford to invest in pacing technologies. Managing technologies effectively means setting and communicating strategic priorities, managing projects to get timely results and effectively using linkages inside and outside the organization. A good fit between a patent and its business can create value while a bad fit can destroy it. Patents often create value as they have people with unique capabilities. The organizations that are on a quest for patenting advantage can achieve the competitive advantage for corporate level strategy. The basic tool for understanding the role of technology in competitive advantage is the value chain. An organization, as a collection of activities is a collection of technologies. Technology is embodied in every activity in an organization and technology change can affect competition through its impact on virtually any activity. An organization that can discover a better technology for performing an activity than its competitors thus gains competitive advantage. As the generation, dissemination and the application of technology is to be accepted as predominantly global, all nations will adjust toward a more open world of technology exchange, alliances and research. It is important to note that today successful organizations are not necessarily those that create new technologies but those that rapidly absorb them. Thus it requires an organizational capacity to identify promising new technologies worldwide and absorb them into new products and processes quickly and effectively. Organizations need to be constantly oriented towards improving their critical competencies or capabilities to absorb new technologies and improve and combine existing technologies. A competitive advantage exists when a company can distinguish itself from rivals, thereby succeeding in making a profit. Technological pioneering is the creation and commercialization of new technology. It enables a company to create and maintain a technological gap, allowing it to produce at lower cost than its rivals, offer innovative products, and change product designs, or features. The pioneerâ&#x20AC;&#x2122;s success in creating an advantage from its technology depends on its progress in building capabilities, overcoming inertia, and creating an organization that enhances technological development and commercialization. A strategy that stresses technology is not necessarily the best, but if a company decides to exploit technology as a competitive weapon, it had better to do more than merely investing in R&D. In earlier days, R&D management was considered to be at par with the management of technology. Management & Change, Volume 14, Number 2 (2010)
212 Significance of Technology Management and Core Competence...
Anjana Kak 213
But now the management of technology is deemed to have a much broader charter. The important functions like marketing, finance, personal, production and even R&D merged into it. The successful pursuit of the technology based opportunities for competitive advantage are not the result of a single set of decisions or a single product being introduced at a single moment of time, but of numerous product releases and many decisions. There is a requirement for continuous learning in order to exhibit the strategic consistency.
required and desirable actions, and visualize the effect of suggested actions on the performance of the organization under study. The system conceptualization is followed by syntheses of actions, learning issues and expected performance. The combination methodology covered the following attributes: history of the organizations, human resources, in-house R&D, core competence, flexibility, globalization, processes leading to generate competitive advantage, technology absorption and implementation processes, core competence development process, etc.
Technologies change very fast so advantage can last only through competence enjoyed at the very roots of products. Core competence represents the nature and direction of company’s continual efforts to enhance and maximize its technological strengths and organizational sustainability. The management of technology ensures the organization’s ability to command the technologies relevant to its purposes. Close cooperation between university and industry is a key requisite in technology transfer so as to get quicker pay off from R&D. Successful pursuit of technology based opportunities for competitive advantage requires continuous organizational learning.
In this research paper a case study of CMC has been presented. A brief past history of the organization has been obtained and case has been prepared based on interviews and observation. The case analysis has been done applying SAP-LAP paradigm to bring out the finer issues regarding core competence, management of technology and flexibility.
This research paper is proposed to aim at an in-depth analysis of effective technology management and core competence leading to competitive sustenance of the organizations. It also describes the relationship between flexibility, technology management, core competence, competitive advantage and corporate performance. METHODOLOGY The methodology of this study has been derived from Flexible Systems Methodology (Sushil, 1994). The case has been analyzed applying the Situation- Actor-Process–Learning–Action—Performance (SAP-LAP) paradigm (Sushil, 1997) to bring about the finer issues. A brief past history of the organization was obtained to understand the background and case has been prepared based on interviews and observations. The interviewing method consisted of an interview schedule prepared on the basis of SAPLAP Model of Inquiry (Sushil, 1998) as shown in Figure 1. The interaction of SAP-LAP framework is shown in Figure 2. The current situation of the organization, the operating environment and the capabilities of the main actors involved has been described. SAP analysis is done on the case generated. LAP syntheses is being done to facilitate the system conceptualization which has helped in bringing out the learning issues, suggest Management & Change, Volume 14, Number 2 (2010)
Fig. 1 SAP-LAP Model of Inquiry Situation 1. How does the accurate business environmental assessment help in improving corporate performance? 2. How your organizational flexibility help in diversification? 3. In what way diversification aids in the growth of the organization? 4. How does the capacity utilization contribute towards the competitive advantage? 5. Is cost advantage a main factor for deriving a sustainable competitive advantage? 6. How customer consciousness helps in technology assimilation? 7. How does the technology leadership help in developing core competence? Actor 1. What are your main organizational core competencies? 2. Does it believe in diversification? Management & Change, Volume 14, Number 2 (2010)
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3. Has it got faith in its in-house R&D? 4. What capabilities are exhibited by the management to develop core competencies? 5. In what domains freedom of choice is available to the managers? 6. How does top management encourage the development of core competence?
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3. What is your understanding about the core competence of the organization? 4. What are the potentials to develop the core competence in your organization? 5. What is the existing strategy formulation pattern?
Processes
6. Where lies the essence of core competence in strategy formulation and implementation?
1. Does the process of globalization lead to corporate success?
Action
2. How economies-of-scale contribute towards the generation of competitive advantage?
1. What should be done to improve the situation? 2. What ought to be done to improve / implement the processes?
3. Does the assistance from technology providers make the absorption and implementation of new technology easier? 4. How is the collective learning responsible for developing core competence? 5. How does your in-house technology development contribute towards core competence? 6. What are the various organizational processes that help in developing core competence? Learning
3. How to initiate a process that leads towards the core competence development? 4. What role does your organizational core competence play in order to be ahead of the competitor? 5. How your organization achieves corporate success with the help of a sustainable competitive advantage? Performance 1. What are the key performance indicators?
1. What are the key issues related to situation?
2. What is the impact of your performance on the situation?
-
Environmental assessment -
Diversification
-
Organizational flexibility
-
Customer consciousness
3. How the performance of the processes will be affected?
-
Technology leadership
-
Capacity utilization
-
Customer value
-
Cost advantage
4. How core competence is affecting key performance indicators in your organization?
2. What are the key issues related to the processes? -
Globalization
-
Coordinated actions of all functions -
Collective learning
-
In-house technology development
Organizational processes
Management & Change, Volume 14, Number 2 (2010)
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5. How to look ahead of the competition? SUFFERING You canâ&#x20AC;&#x2122;t lead a true life without suffering. - M. K. Gandhi Management & Change, Volume 14, Number 2 (2010)
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Fig. 2 Interaction of SAP-LAP Framework
Process
Situation
communications, networking, parallel architectures, etc. It is the totality of expertise that has enabled it to develop a variety of superior IT products and to execute a number of complex and challenging projects, not only in India, but also in Europe, America, Africa, the Middle East, and South East Asia. In the light of the growth of the communications sector and its importance to the liberalized economy, CMC revamped its communication network INDONET, in terms of new protocols, communication equipment as well as host systems. Besides the need of highly specialized software engineering skills has triggered increased thrust on education and training activities. In order to focus on above mentioned business areas, It has formed the following five Strategic Business Units (SBUs) :
Actor
Learning
Action
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Performance
Customer Services: The major activities in customer services business unit include hardware / software support, environmental engineering, total networking solution including structured cabling, equipment supply and facilities management.
CASE STUDY OF CMC LIMITED CMC Limited is a leading IT solutions company and a subsidiary of Tata Consultancy Services Limited (TCS LTD), one of the world’s leading information technology consulting, services and business process outsourcing organizations. It is a part of the Tata Group, India’s best-known business conglomerate. With 18 offices, 150 service locations, 520 non-resident locations and over 5,551 employees worldwide, it provide a wide spectrum of unique Information Technology solutions and services to a clientele of premier organizations in the government and private sectors. Since its incorporation in 1975, CMC has an enviable record of successfully building IT solutions for massive and complex infrastructure and market projects. It took up the challenge to serve all installations left by IBM, when IBM decided to wind up its operations in India in 1978, and took over the maintenance of over 800 IBM installations spread across the country. It also maintained computers supported by scores of other foreign manufacturers. While maintenance activities progresses apace, encouraged and enthused it has spread its attention to other areas of computer support. While hardware maintenance continues to play a major role, its activities have advanced in many new directions. It is one of the leading System Integrators in the country with the multi-faceted expertise in Information Technology. It also continually updated expertise in real-time, on-line systems, process control, transaction processing, image processing, data Management & Change, Volume 14, Number 2 (2010)
Systems Integration: The services offered under systems integration are systems consultancy, systems study, software design, development & implementation, Software maintenance and Turnkey projects. International Operation: The international operation at the CMC is a thrust area for the company. Other areas being handled by the International Business Unit include off-shore & on-site projects, professional services and IT solutions in niche areas like ports cargo, banking & finance, fingerprint identification systems, automation of stock exchanges, insurance, etc. INDONET: The services that are offered presently by the Indonet Services SBU of the CMC are: E-mail / E-mail fax services, File transfer (FTP), Database service, creation of websites / home pages using INTERNET technologies. Education & Training: CMC offers a wide range of education & training services both in India and abroad. The courses are for customers as per their specific requirements. Education & Training SBU mission is to provide quality IT education and to reach wider sections of the society. CMC has started franchising some select education and training programmes. CMC’s strength lies in both innovation and process. It provides innovative and effective solutions that meet all its customers’ needs. Its competitive Management & Change, Volume 14, Number 2 (2010)
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edge comes from linking innovation with its technology competencies and understanding of industry and service verticals. It has combined its domain knowledge and technology competencies to engineer innovative solutions, which exactly match the unique requirements of its customers.
Anjana Kak 219 l l l
l
Caters to the IT requirements of customers from wide variety of fields. Provides support to customers with multiple vendor system installations. Supports equipment of more than 40 international manufacturers for the past two decades. Globalization of CMC’s products and services is thrust area.
CMC’S Vision Main Actors’ Capabilities l
l
To be a vibrant organization where openness, trust, teamwork, simplicity and innovation are valued and promoted. To operate globally and bring the benefit of IT to improve productivity of its customers and quality of their products and services.
CMC’S Mission l
l
l l
l
To provide comprehensive and cost-effective IT solutions and services to organizations and institutions in India and rest of the world. To constantly endeavour to delight its customers through excellence in service industry and achieve to complement internal efforts towards expansion and growth. To renew market opportunities and worldwide recognition. To improve price performance and market share, maintenance will continue to be a key business area. To enter into new business alliances technology trends to focus on niche areas and direct its R&D efforts towards cost-effective and timely products and packaged solutions to meet customer requirements.
SAP – LAP Analysis Rapid changes in technology make it imperative for IT companies to keep pace with the latest developments worldwide, and to develop new applications with the aim of enabling clients to improve their business. At CMC, finding newer and better ways of delivering value to our customers is a way of life. Prevailing Situation The existing situation at CMC has been observed as under l Leads in computer maintenance in the country. l Ranks number two in domestic software development in the country. l Organizational flexibility is quite high. l International business keeps on showing significant growth over the previous years. Management & Change, Volume 14, Number 2 (2010)
Managers at CMC are very creative. Innovation is the very essence of success as well as of survival. The management believes that the successful exploitation of new ideas, incorporates new technologies, design and best practices. It is the key process that enables companies to compete effectively in the global environment. Innovation is a catalyst that can create and sustain wealth. However, it is only a catalyst; without process and other ingredients, even revolutionary innovations cannot create or sustain anything. The actor (management) puts the emphasis on the following strengths: Core Competence Core competence of the organization is not yet established but would revolve around following: Large IT projects management and solutions conceptualization, and deploying and developing IT service strategies. CMC is able to develop a variety of superior IT products and execute a number of complex and challenging projects in India as well as abroad. Concept of core competence has not been properly communicated to people in the organization. Top management encourages development of core competence by trying to retain key people. It operates to bring benefit of information technology to its customers and improve quality of its products and services. Exports are a critical area for the healthy growth of CMC and receive priority in resource allocation and competence building. The capabilities exhibited by the management to develop core competencies include things like managing people under adverse environmental conditions. It is an organization where teamwork and innovation are valued and promoted. In-house R&D CMC has a sound R&D centre at Hyderabad. It has emerged as a champion in new technologies which include: distribution automation, Internet, off-line signature verification, networking areas – spanning satellite, microwave, digital radio, fiber optics, VHF / UHF communication, etc. R&D centre Management & Change, Volume 14, Number 2 (2010)
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undertakes research in select niche areas in the frontiers of technology with a view to provide the cutting edge to the CMC. It forms an integral part of the company’s medium and long – term strategy. R&D also develops special hardware and software products, which form the building blocks for the turnkey solutions offered by CMC in various application areas in core sections. Focus of the R&D efforts of the organization has been in technology areas based on market needs identified by the strategic business units with emphasis on short to medium term projects. The R&D center consolidated its technology development activities and continued its effective role in development of unique solutions on a proactive basis. Strategic Flexibility The individual flexibility of the managers and of the system allows adding capability in the organizational system. Managers are creative in developing and deploying IT services, and flexible enough to tailor their use of such services as per the requirements of the customers. The management works closely with the Tata Council of Community Initiatives (TCCI) to initiate programmes for development, education and healthcare. It has set up a core committee for corporate social responsibility to spearhead its efforts to integrate corporate sustainability concerns into the company’s values, culture, operations and business decisions, with requisite flexibility at all levels of the organization. Processes Various strategic processes in the company are drawn up through a participative process of involving functional and business units. The processes emerge from the analysis of market, emerging business and existing competencies. Strategy formulation is based on processes that provide additional value to the customer, improve productivity, strengthen management processes and globalize the business. Process of Globalization Professionals in the organization play very important role in the process of globalization. Services are provided to customers around the globe, e.g., Korea, Hong Kong, Mauritius, Switzerland, Netherlands, and UK, etc. It enables the organization to improve significantly performance by enhancing Management & Change, Volume 14, Number 2 (2010)
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business presence in number of countries. There has always been always a continuous effort directed towards the joint ventures and subsidiaries to increase the market share. Processes leading to generate Competitive Advantage A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of competing products (differentiation advantage). Thus, a competitive advantage enables the firm to create superior value for its customers and superior profits for itself. At the CMC, synergy is a very key cultural attribute for organizational success. The Personnel Development Group of the organization directs its efforts to meet the organizational goal of becoming globally competitive. Reuse of resources, better deployment of people and the reuse of existing software helps in overall cost reduction, thus contributes towards generation of competitive advantage. Differentiation of products is created by giving more semi-customizable solutions and services. In IT industry constant differentiation is only way to be able to give customer value. Consistency and time factor also provides a cutting edge to the organization. Technology Absorption, Assimilation & Implementation Process Role of the technology management function in an organization is understand value of certain technology for the organization. Continuous development of technology is valuable as long as there is a value for the customer and therefore the technology management function in an organization should be able to indicate when to invest on technology development and when to withdraw. The CMC through its R&D division pro-actively develops technology for CMC’s business needs. It also uses available state-of-the-art technology in conceptualizing solutions. The technologies developed by in-house R&D are extensively used for providing solutions to its customers. Work done at the R&D center forms core of most of the solutions provided by various SBU’s and hence are directly responsible for improved productivity. As there is no arrangement for technology transfer from other countries, the only technology that needs to be absorbed is the one developed in-house. Many new technologies developed at R&D centre have been used in projects in India and overseas. Technology assimilation is aided by customer Management & Change, Volume 14, Number 2 (2010)
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consciousness as in IT industry the customer or the end user is driving the technology changes. Combination of a wide spectrum of information technology skills, industry knowledge and infrastructure strengths has enabled the CMC to execute a number of significant projects in different economic sectors. They range from complex feasibility studies, hardware installations and support to the design and implementation of total turnkey solutions. R&D centre develops special hardware and software products, which form building blocks for turnkey solutions offered by the CMC in various application areas in core sectors. Focus of R&D efforts has been in technology areas selected based on market needs identified by medium term projects. Processes leading towards Core Competence Development An organizationâ&#x20AC;&#x2122;s resources and capabilities together form its distinctive core competencies. These competencies enable innovation, efficiency, quality, and customer responsiveness, all of which can be leveraged to create a cost advantage or a differentiation advantage. In order to develop a competitive advantage the firm must have resources and capabilities that are superior to those of its competitors. Without this superiority, the competitors simply could replicate what the organization was doing and any advantage quickly would disappear. At the CMC, there are two main processes that lead towards the core competence development, i.e., development of skills, and development of in-house technology. A concerted effort is made to develop and upgrade the available managerial skills in the organization. Several training programmes such as management development, Communication Skills Development, etc. are being conducted. Various organizational processes that help in developing the organizational core competence are training, retention, and recruitment. The competence at the level of technology is attributed to its in-house R&D initiatives.
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quality, high-value IT services and products. Its computerized reservations, ticketing and accounting systems for the Indian Railways, scheduling and timetabling system for the London Underground, and online securities trading system for the Bombay Stock Exchange, are outstanding success stories of the 1980s and 1990s. Learning issues in the organization are outlined in Table 1. The key issues related to the situation and processes are: environmental assessment, capacity utilization, cost advantage, customer value, time factor, and, globalization, coordinated actions of all the functions, in-house technology development, and organizational processes. Table 1 Learning Issues in case of CMC Limited Area
Issues
Key issues related to situation
Environment assessment, capacity utilization, cost advantage, time factor.
Key issues related to processes
In-house technology development, globalization, organizational processes.
Core competence
i. Large IT projects management and solution conceptualization, ii. Deploying and developing IT service strategies.
Processes leading towards core competence development
Training, retention of key people, and recruitment.
Product differentiation
Constant differentiation is the only way to achieve competitive advantage and is created by giving semi-customizable solutions and services.
Customer consciousness
Improved customer consciousness acts as a driving force for technology changes.
Coordinated actions
Synergy is a very key cultural attribute for organizational success.
Economies-of-scale and scope
Economies-of-scale provide a cost advantage while economies of scope gives the benefit of product differentiation. Economy of scale is generated by reuse of resources and the existing software products. Economies of Scope is created by providing semi customizable products.
Learning Issues The CMC has built, managed and supported IT systems and end-to-end solutions across the value chain. More than three-fourths of its clients reward its reliability, creativity, and unique ability to handle anything, from small and medium installations to very large and extremely complex systems, by constantly extending and deepening their partnerships with them. It has achieved this by perfecting deployment and delivery of customized, high Management & Change, Volume 14, Number 2 (2010)
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Capacity utilization
Enables to achieve competitive advantage by cost reduction and better deployment of HR.
Time factor
Consistency and time factor enables the CMC to be ahead of the competition.
Indigenization and technology absorption
In-house technology development helps the organization to excel in the market as the focus has been in technology areas selected based on the customer needs identified by SBUs. There is no arrangement for technology absorption.
Capabilities of management
Managing conditions.
people
under
adverse
Organizational learning
It helps to retain and improve competitiveness in uncertain technological and market circumstances. It enables to have a close interchange between customer needs and organizational capabilities for achieving competitive advantage. Training and development aids in creating a learning culture in the organization.
Collective learning of the organization, although difficult to measure, may be helpful for developing core competence at the CMC. The rates at which organizations learn increasingly determine its prospects for survival. As the CMC is involved in customer’s project management teams, there is a close interchange between what customer needs (customization) and the required configurations of organizational capabilities, that enables it to be ahead of the competition. Core competencies that have been identified at the CMC meet all the three tests (Table 2) that a skill or a capability of an organization has to qualify for being considered as a core competence. CMC’s know-how in IT project management and, development and deploying IT services creates value for customer by delivering benefits of IT in the form of services and products. The company is able to create competitor differentiation by giving more semi-customizable solutions and services. The core competence at the CMC is extendable as it can form the basis for entry into new product markets. Since the capabilities in the organization are competitively unique, and have a superior and higher level of competence than others in the industry, they qualify as core competencies of the organization. The core competence acts as a source of competitive advantage in that it is competitively unique and makes a contribution to customer value. Table 2 Tests of Core Competence for CMC Limited
Core Competence The CMC has constantly endeavored to delight its customers through excellence in service delivery and achieve worldwide recognition. Core competence of the organization lies in “ large IT project management and solution conceptualization” and “ deploying and developing IT service strategies”. Although there is very little understanding about the core competence but the efforts are on to identify the potentials to develop competencies by focusing on specific desirables and sticking to them for a few years. Processes of core competence development involves too much of time and cost, thus top management needs to have a lot of patience. The CMC caters to customer requirements in area of information technology and provides a cutting edge in India and abroad. The competence of the organization resides in persons and processes; the technology leadership is a by-product of this competence. Since the CMC is a service-oriented organization, people are its strength that enables it to achieve worldwide recognition. The major guidelines for hiring the key people are the cultural fit and skill set in the organization. Management & Change, Volume 14, Number 2 (2010)
Tests
Conformance to Tests of Core Competence
Customer value
Delight customers through excellence in service and delivery.
Competitor differentiation
Project management teams provide customized solutions to customers
Extendibility
Execute significant projects in different sectors.
Strategy Formulation with Core Competence An organization is said to have a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential player. The existing strategy formulation pattern of the CMC is through a process of strategic planning. A participative approach is adopted in which all functional and business unit heads’ are involved. A rigorous market analysis is carried out to find the exact needs of Management & Change, Volume 14, Number 2 (2010)
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the customers. In IT industry constant differentiation gives value to the customer, which is provided by the core competence of the organization. The core competence of the organization enables it to improve productivity, strengthen management processes and globalize the business. The strategy formulation is linked with the organizational core competence, e.g., due to the growth of the communication sector; CMC revamped its communication network (INDONET) by developing new communication network. Since the company has core competence in both Solution Conceptualization and Developing and Deploying IT services, the strategy is formulated based on this competence that enables CMC to decide what the customer needs and, how that need can be satisfied by developing the solutions and delivering them effectively. Action In order to operate globally and bring the benefit of information technology to customers, CMC needs to take certain actions to strengthen its area of IT project management and solutions conceptualization. l
l
l
l
l
The key leverage points have to be found out, e.g., exports, appropriate business alliances, keeping updated technical infrastructure, joint ventures and subsidiaries to increase market reach. There is a greater need to involve people at all levels to meet the organizational goal of becoming a globally competitive company. The empowerment given to the people would encourage the staff members and improve overall productivity. Competencies need to be building on a pro-active basis. It should form a team with a clear focus on core competence development and then empower and enable it with resources. Since core competence cannot be developed overnight, top management need to be patient and give the team sufficient time for the competence development. In IT Industry it is difficult to have a sustainable competitive advantage, (sustenance is only in the short terms, may be less than three years), so there is a need to focus on core competencies to be ahead of the competition. CMC needs to formulate the strategies keeping in view its competencies so that it is able to conduct business more effectively and ensure growth and reasonable returns to the stakeholders.
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Performance l
The key performance indicators are EVA (Economic Value Added)
Growth Growth in intelligent capital l
l
l
The performance of the processes will be affected by the interaction of the contributing variables. CMC develops and deploys its own IT services to customers which in turn will effect the key performance indicators. CMC can be ahead of competition by keeping innovative and challenging mindset.
CONCLUSION Companies need to learn to manage tomorrowâ&#x20AC;&#x2122;s opportunities as competently as they manage todayâ&#x20AC;&#x2122;s businesses. The discovery of new competitive space is helped when a company has a class of technology generalists that can move from one discipline to another. Due to fierce global competition, senior management must understand not only the technologies but also the competencies and motives of competitors. Building successful alliances requires identifying core competencies of both the partners and developing strong interpersonal skills and values needed to manage them. If an organizationâ&#x20AC;&#x2122;s capabilities are scarce, defensible, or hard to imitate, these can form the basis for competitive sustenance and surplus profits. Technology is an important parameter for corporate growth and performance. Process of successful technology acquisition requires special skills, competencies, knowledge, and experience. It is a managerial responsibility and should be done with tact, patience, will and efficiency in best interest of better organizational performance. Technology addresses application of science and engineering knowledge to the solution of problems. A sustainable competitive advantage comes from the organizational learning and core competencies, i.e., how constantly an organization can improve its technology acquisition and deployment capabilities. The transaction of technical knowledge into useful things or processes involves knowledge that is non-technical. Such knowledge is used to deliver products and Management & Change, Volume 14, Number 2 (2010)
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services, e.g., managing people and facilities, assuring that products or services are consistent with customer desires, etc. A Successful management of technology requires capacity to orchestrate and integrate functional and specialist groups for the implementation of innovations, continuous testing of appropriateness of existing markets and competencies for exploitation of technological opportunities. Failure to improve internal systems and processes leaves an opportunity for competitors to move ahead with technology-based strategies and create a foundation of competitive advantage. A strategy that stresses technology is not necessarily the best, but if a company decides to exploit technology as a competitive weapon, it had better to do more than merely investing in R&D. The successful pursuit of the technology based opportunities for competitive advantage are not the result of a single set of decisions or a single product being introduced at a single moment of time, but of numerous product releases and many decisions. There is a requirement for continuous learning in order to exhibit the strategic consistency. The technology management provides a means to use new technology to create competitive advantage REFERENCES Armstrong, M. (1993) A Handbook of Management Techniques. New Jersey: Nicholas Publishing Company. Campbell, A., M. Goold & M. Alexander (1995) “Parenting Advantage”, Harvard Business Review, March-April, pp 121-132.
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Kroonenberg, H.H. (1989) “Getting a Quicker Pay-Off from R&D”, Long Range Planning, 22(5): 51-58. Kumar, V. (1994) “Managing Technology Acquisition”, Vision, July, 7(2): 35-41. Morone, J. (1989) “Strategic Use of Technology”, California Management Review, summer, pp 91-109. Pavit, K. (1990) “What we know about Strategic Management of Technology”, California Management Review, spring. Porter, M.E. (1987) “From Competitive Advantage to Corporate Strategy”, Harvard Business Review, May-June, pp. 43-59. Rastogi, P.N. (1995) Management of Technology and Innovation. New Delhi: Sage Publications. Schoemaker, P.J.H. (1992) “How to Link Strategic Vision to Core Capabilities”, Sloan Management Review, fall, pp. 60-81. Sushil (2000) “SAP-LAP Model of Inquiry”, Management Decision (Emrald Publication), 38(5): 347-353. Sushil (1994) “Flexible System’s Methodology”, Systems Practice, 7(6): 633-652.
Ericson, T.J., J.F. Magee, P.A. Roussel & K.N. Saad (1989) “Managing Technology as a Business Strategy”, Sloan Management Review, 31(3): 73-64.
Werther, W.B., E. Berman & E. Vasconcellos (1994) “Future of Technology Management”, Organisational Dynamics, winter, pp 20-32.
Hamel, G. & C.K. Prahalad (1991) “The Core Competence of the Corporation”, Harvard Business Review, May-June, pp 79-91.
Zahra, A.S., S. Nash & D.J. Bickford (1994) “Creating a Competitive Advantage from Technological Pioneering”, EMR, spring, pp 76-85.
Hamel, G. & C.K. Prahalad (1994) Competing for the Future. Boston, MA: Harvard Business School Press. Kak, A. (2000) Strategy Formulation with Core Competence and Flexibility: A Study of Select Organizations, PhD theses, IIT Delhi. Kak, A. & Sushil (1999) “Look Within to Build an Effective Organization”, Indian Management Journal, March-April, pp 39-43. Management & Change, Volume 14, Number 2 (2010)
AIM PERFECTION
It is the quality of our work which will please God and not the quantity. - M.K.Gandhi Management & Change, Volume 14, Number 2 (2010)
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BE FLEXIBLE
AN EMPIRICAL STUDY OF E-COMMERCE PRACTICES OF INDIAN ORGANISATIONS
True wisdom is less presuming than folly. The wise man doubts often, and changes his mind; the fool is obstinate and doubts not; he knows all things but his own ignorance… Be capable of change in that which is right and men will rely on you. Establish in yourself principles of action and see that you ever act according to them. First know that your principles are just and then act. - Akhenaton, King of Egypt, 14th century
PRACTICE WHAT YOU PREACH My preaching and teaching are not emotional or non-practical, for I teach what is ancient and strive to practice what I preach. And I claim that what I practice is capable of being practiced by all, because I am a very ordinary mortal, open to the same temptations and liable to the same weaknesses as the least among us.
Rajendra Prasad Sharma
Gajendra Chittora
Karunesh Saxena
E-commerce has become the latest buzz word in recent times. Organisations, large or small, new or old, offering consumer or industrial products, are striving to switch to the potent e-commerce technology. The writing on the wall is clear that if the business organisations have to thrive in this age of globalization and information explosion, they have to embrace judicious use of e-commerce applications. The study of e-commerce related practices of some large, reputed Indian organisations throws interesting results about their extent of adoption. The age of the organisation has been found to have an impact on the level of e-commerce practices score of the organization leading to the fact that relatively younger organizations have been more adept at implementation of e-commerce practices.
- M.K.Gandhi, Young India, December 15, 1927
Keywords:e-commerce, e-marketing, e-commerce related practices score (ECOMPS) BE ALWAYS HOPEFUL INTRODUCTION Most of the important things in the world have been accomplished by people who have kept on trying when there seemed to be no hope at all. - Dale Carnegie
EXPERIENCE I don’t want men of experience working for me. The experienced man is always telling me why something can’t be done. He is smart; he is intelligent; he thinks he knows the answers. The fellow who has not had any experience is so dumb he does not know a thing can’t be done - and he goes ahead and does it. - Charles F. Kettering
Management & Change, Volume 14, Number 2 (2010)
In the era of information and globalization, the world has been shrinking due to proliferation of e-commerce applications throughout the world. On the one hand e-commerce platforms are acting as information carriers, on the other, they are facilitating disintermediations among trading partners all over the world (Kotler, 2008). International Trade Administration defines e-commerce as an activity that utilizes some form of electronic communication for exchange, advertisement, distribution and payment for goods and services. WTO defines e-commerce as a commercial process that includes production, distribution, marketing, sale or delivery of goods and services through electronic means. An important corollary of e-commerce, e-marketing is defined as a company’s efforts to inform, communicate, promote and sell its products and services over the Internet. Management & Change, Volume 14, Number 2 (2011) Change, 14, Number 2 (2010) © 2010 IILM Institute for HigherManagement Education. & All RightsVolume Reserved.
232 An Empirical Study of E-Commerce Practices...
This empirical paper attempts to trace evolution of e-commerce in India, and study the extent of adoption of e-commerce practices in Indian organisations. Further, it seeks to assess the impact of organisation’s age on its level of e-commerce practices and finally, suggest some measures for improving the efficacy of the e-commerce practices. India is poised to become an IT superpower. Saxena and Bhatt (2000) are optimistic that the growth in the telecom sector augurs e-commerce applications. According to Chopra (2001), internet subscribers in the country increased exponentially from 2.6 million in 2001 to 21.6 million by 2005. Convergence of technology has led to increased use of m-commerce which is yet in a nascent stage in India (Kumar & Jacqueline, 2005). Kalakota and Whinston (2003) explained about the different types of e-commerce applications as well as information interactions which are taking place among the channel partners. The same is exhibited in Fig. 1 Fig 1 Different types of e-commerce applications Global Suppliers Classic EDI
Engineering and research Private Commerce
Advertising
Internal Publishing
Sales
Customer Service
Consumer oriented electronic commerce
Source: Kalakota & Whinston(2003), “Frontiers of electronic commerce” Management & Change, Volume 14, Number 2 (2010)
Rajendra Prasad Sharma, Gajendra Chittora & Karunesh Saxena 233
REVIEW OF LITERATURE The subject being related to the new age economy, a lot is being talked about it everywhere but hardly anything exists pertaining to the practices of Indian organisations. According to Saxena & Bhatt (2000), trade and commerce through electronic transmission demand telecom facility. They forecasted e-commerce share in the world and Asian Markets by 2010 at $5663 billion and $987 billion, respectively. Chopra (2001) discussed various government initiatives such as privatizing Internet Service Providers, undersea fiber optic cabling, establishment of cyber regulatory authority and cable Internet through T.V., etc. K. Chakravarthi (2002) emphasized productive use of IT to automate routine tasks and to deliver value in terms of cost, quality, service and delivery. Kotler (2004) has explained about four specific drivers of modern world economy viz. digitalization & connectivity; disintermediation & reintermediation; customization as well as customerization and industry convergence. Mehta and Shah (2001) discussed growth of e-commerce and its advantage to small business firms including tools for trade and strategies for e-commerce. Serafini (2002) found that there are four recurring themes viz. awareness development, workforce development, infrastructure development and financial limitations for e-business implementation for rural manufacturers. Liuying (2004) confirmed that organisational characteristics influence the e-commerce adoption level. O’ leary (2004) in an attempt to understand the managerial implications of success and failure of an e-business found seven important factors including management, marketing, market and finance related factors. Cohn (2004) maintained that internet as a sales tool will always increase. Marks (2003) suggested that traditional off-line promotion should be integrated with on-line marketing to simultaneously achieve the objectives of building brand awareness and personalization. Rao (2004) examined consumer concerns of buying on-line, such as ethical and legal issues. Sakkthivel (2004) has outlined the impact on global commerce. Orlando (2004) has opined that many on-line businesses commit mistakes while promoting their on-line business by focusing only on on-line promotions forgetting traditional methods of selling. Kumar & Jacqueline (2005) have shared about various M-commerce applications like mobile shopping, advertising and content providing, etc. A US consulting firm’s report affirms that there were 1 billion Internet Management & Change, Volume 14, Number 2 (2010)
234 An Empirical Study of E-Commerce Practices...
connections in 2005 worldwide. The US is leading the tally by having 200 million Internet connections. China is at second and India is at the fourth place. According to Corbin (2007) financial institutions continue to explore new models for conducting their business in the on-line environment. Celent, a consulting firm had predicted that by 2010 mobile banking will attain a critical mass of over 30 per cent customers. There will be an estimated 71.6 million Internet users in India by 2011 representing 6.0 per cent of the population. B2C e-commerce sales will reach $5.66 billion in India by 2011, according to e-marketer. Future Bazaar is currently India’s largest online retailer. E-commerce transactions, which are currently growing at the rate of 30 per cent to 40 per cent in India, were expected to reach $100 billion in 2008, according to CEO of the B2B Portal Trade in India. RESEARCH METHODOLOGY The study has used exploratory research design followed by causal study. The main objective is to take stock of e-commerce related practices in a cross section of Indian organisations. A sample of 24 leading organisations having marketing operations or production units in Rajasthan were selected. Organisations existing before 1980 were termed as relatively ‘old’ as against born after 1980 termed as relatively ‘New’ organisations. By this definition, the sample set comprised 9 new and 15 old organisations. An instrument containing 35 statements pertaining to seven critical factors was developed on the basis of intensive literature survey to measure the extent of adoption of e-commerce practices and these statements were rated on 4 point interval rating scale. The reliability of the instrument was tested using Chronbach ( ) coefficient whose value was found to be 0.7. The validity of the instrument was tested using content validity method. The instrument was administered to the senior managers of the selected respondent organisations. The data was analyzed for the influence of organisation’s age on their e-commerce related practices. E-commerce Related Practices Score (ECOMPS) was computed on the basis of e-com related factors indicated by the respondents. Higher score corresponds with high level of e-commerce practices of the organisation. Management & Change, Volume 14, Number 2 (2010)
Rajendra Prasad Sharma, Gajendra Chittora & Karunesh Saxena 235
ANALYSIS AND RESULTS ECOMPS was computed for the sample 24 organisations. The frequency distribution of the ECOMPS is shown in the Table 1 below. Mean ECOMPS stood at 98.79 and mode at 118.2. The median value 105.5 was chosen as a measure of central tendency. 58.32 per cent organisations having ECOMPS of more than 100, exhibiting high level of e-commerce practices. Table 1 Frequency Distribution of ECOMPS S. No.
Organisations
ECOMPS
Number
Per cent
1
60 – 69
2
8.33
2
70 – 79
4
16.67
3
80 – 89
2
8.33
4
90 – 99
2
8.33
5
100-109
7
29.16
6
110 – 119
7
29.16
24
100
Total
As an evaluation of the impact of e-commerce related practices on overall organisational growth, the value of ‘r’ (Karl parson’s correlation coefficient) at +0.193 (as in table 2 below) indicates a positive correlation, though not quite significant. Table 2 Test of Significance of Coefficient of Co-relation Factor
Value of ‘r’
ECOMPS and Effectiveness of not organisation’s e-commerce practices
+ 0.193
Value of test statistics (t) 0.922
Remarks Coefficient of correlation is significant
Table 3 shows the mean scores of the seven critical factors facilitate the growth of e-commerce practices. Among various facilitating factors the role of top management, organisational structure and infrastructural support are ranked high.
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Rajendra Prasad Sharma, Gajendra Chittora & Karunesh Saxena 237
Table 3 Ranking of Factors for E-Commerce related Practices Critical Factor
Mean Scores
Rank
Role of top management
2.743
I
Organisation structure
2.556
III
Infrastructure support
2.570
II
Competitive advantage
2.380
V
Employee participation
2.480
IV
CR management
2.310
VI
E-marketing practices
2.180
VII
Whether the organisational age influenced the e-commerce related practices, a cause and effect analysis was carried out using the following null hypothesis: H01: The new and old organisation do not differ significantly with respect to e-commerce related practices in aggregate. Table 4 Test of Difference between Means of New and Old Organisations’ E-Commerce Practices Null Hypothesis Ho Ho1
Test
Value
Degree of Freedom
t
3.05
22
For two-tailed test: tabulated value of
Result at Level of Significant @ 5% @ 1% rejected
rejected
t22 (0.025) = 2.07 t22 (0.005) = 2.82
The result in Table 4 shows that the ‘new’ and ‘old’ organisations differ significantly with regards to e-commerce practices in aggregate. Further, to explore the relationship between age and e-commerce practices, following hypothesis was formulated. H0 2: There is no relationship between new and old organisations and their e-commerce practices. r1 =
Coefficient of correlation between age of the organisation and Ecommerce Practices Score (ECOMPS) (r1 = - 0.113) (Table 5)
Management & Change, Volume 14, Number 2 (2010)
Table 5 Test of Correlation between Age & ECOMPS Factor Combination Age & ECOMPS
Computed Value of r
Test Value of t at d.o.f.22
-0.113
2.9
Result at Level of Significant @ 5% @ 1% Significant (rejected)
Since there is significant relationship found between the organisation’ age and ECOMPS, the null hypothesis is rejected. FINDINGS AND DISCUSSION There has been higher level of e-commerce adoption in the selected Indian organisations. Organisational factors like the role of top management, infrastructure support and organisational structure played a primary role. Further, new and old organisations differed significantly with regard to ecommerce practices in aggregate and there was significant relationship found between the organisation’s age and its ECOMPS. The new and old organisations do differ significantly with regards to their e-commerce related practices in aggregate at both 5 per cent and 1 per cent significance level. Further, the correlation between organisational age and e-commerce practice score is negative but the coefficient of correlation is significant at 5 per cent and 1 per cent level of significance. The results might be attributed to the sample selection since mostly big organisations in their initial stage of e-commerce implementation were studied. The new organisations tend to embrace latest technological knowhow and are relatively more adaptive to the environmental changes, including the e-commerce practices. Though the old organisations with their sound base of experienced management, strategic leadership and resources are also having good ecommerce practices, the negative correlation shows that new organisations are slighting ahead of them with regards to overall e-commerce practices. This is evident from many multinational organisations entering India with advanced stages of e-commerce implementation. Internet is changing the way business is done. Amidst changing business practices, organisations have to adopt e-business, though at a pace in consonance with their own needs. Even the organisations with high level of e-commerce adoption are advised to go in for advanced stage of CRM Management & Change, Volume 14, Number 2 (2010)
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Rajendra Prasad Sharma, Gajendra Chittora & Karunesh Saxena 239
and e-marketing implementation rather than remaining in the initial stage of e-commerce. They should initiate appropriate measures for increased employee participation with top management’s support and monitoring. Cultural changes are required for a smooth transition from information control to information sharing.
O’Leary, Bay (2004) “Factors Separating Winners and Losers in EBusiness”, Diss. Abs. Int., April, 64 (10): 3763-A.
CONCLUDING REMARKS
Sakkthivel, A.M. (2004) “E-Commerce in the Millenium-Shifting Paradigms”, South Asian Journal of Management, 9 (4): 60-66.
There is a growing realisation among business organisations that they cannot succeed without making optimal use of e-commerce applications. With the largest English speaking youth population and excellent technical education coupled with expertise in software development, India is at the threshold of becoming economic superpower of the world by riding the technological bandwagon. The organisations need to revive their strategy towards development of e-commerce. The older organisations need to work on employee skill upgradation, CRM and e-marketing practices whereas the new generation business organisations are expected to employ more sophisticated state-of-the-art IT tools to reap the benefits of the e-commerce. REFERENCES Chopra, P.N. (2001) “Internet: Challenges, Opportunities and Prospects for India”, Bitcom India, July-Aug., 2: 39-40.
Rao, Srinivas J. (2004) “Instilling Consumer Confidence in E-commerce”, The ICFAI Journal of Marketing Management, May, 13-20.
Saxena, V. & T.P. Bhatt (2000) “E-Commerce: Implications for India”, The Indian Journal of Commerce, Oct-Dec., 53 (4): 70-87. Serafini, T.M. (2002) “Electronic Business Issue in Rural Manufacturing”, Diss. Abst. Int.; Nov., 64 (5): 1447-A. Liuying, S. (2004) “Internet Based E-Commerce Adoption for Supply Chain Management among US Apparel Companies”, Diss. Abs. Int., Jan., 64 (7): 2593-A. Kumar, V. & G. Jacqueline (2005) “E-Commerce Extends to M-Commerce”, Indian Journal of Marketing, January, 20 (1): 15-18. www.ecoItemmmerce-guide.com. Accessed on 29.7.2008.
Cohn, JG. (2004) “Virtual Selling: Where are we? Where are we going?” Diss. Abs. Int., May, 64 (11): 4117-A. BE POSITIVE Kalakota and Whinston (2003) Frontiers of Electronic Commerce. New Delhi: Pearson Education. Kotler, P. (2008) Marketing Management (twelfth edition). New Delhi: Prentice Hall of India / Pearson Education. Mark, J L. (2004) “Examination of Internet Marketing Relative to Traditional Promotion in the Development of Website Traffic”, Diss. Abst. Int., May, 64 (11): 4130 A. Mehta, K.T. & V. Shah (2001) “E-Commerce: The Next Global Frontier for Small Businesses”, Journal of Applied Business Research, Winter, 17 (1): 87-94. Management & Change, Volume 14, Number 2 (2010)
Do you remember the things you were worrying about a year ago? How did they work out? Did not most of them turn out all right after all? - Dale Carnegie Source: Dale Carnegie, How to Stop Worrying and Start Living, Vermillion, London, UK, 1998.
If you would not be forgotten, as soon as you are dead and rotten, either write things worth reading or do things worth writing. - Benjamin Franklin
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NEVER LOOSE HEART It is wise to keep in mind that neither success nor failure is ever final.
EXTRAPOLATING GROUP DECISION MAKING: MEANS TO OVERCOME GROUP-THINK
- Roger Babson
Anjali Ganesh
DREAMS The only thing that will stop you from fulfilling your dreams is you. - Tom Bradley Keep your dreams alive. Understand to achieve anything requires faith and belief in yourself, vision, hard work, determination, and dedication. Remember all things are possible for those who believe. - Gail Devers
SILENCE IS GOLDEN Over-eloquence generates contempt. Silence generates esteem. The noisy anklet is fixed at the feet while the silent jewel adorns the neck. (Maukharya laghavkaram maumunnatikarkam; mukhram nupuram pade kanthe haro virajate). -Nitya Neeti (165)
INDIAN VALUES Anger is God of death incarnate (vaivasvato raja); thirst (or greed) is vaitarana (a river in the hell); learning is Kaamdhenu (wish-fulfilling cow) and contentment is Nandanavana garden (i.e ever pleasant). (Krodho vaivasvato raja trushnaa vaitarni nadi; vidyaa kamadhushaa dhenuh santosho nandanam vanam). - Shukraneeti
QUESTIONS It is not the answer that enlightens, but the question. - Eugene Lonesco Decouvertes
INJURY VERSUS INSULT An injury is much sooner forgotten than an insult. - Lord Chesterfield Management & Change, Volume 14, Number 2 (2010)
In the modern organizations knowledge workers, who are multitasked and multiskilled, would not like the structure of autocratic decision-making where they lack the sense of autonomy. In such cases, group decisions are more appreciated and accepted. This paper gives insight into the ways to strengthen the group decision-making. A bird’s eye view on the literature of group decision making, furnishes thoughts not only to conduct the research in the relevant field but intuitive to the academicians, practitioners as well as the students. Through the conceptual framework, the paper gives insight to overcome the situation of ‘group think’. Keywords: Group decisions, group-think. INTRODUCTION Organization is incessantly faced with multifarious circumstances and ill structured tribulations. There are several conditions which are within the control of the organization and can be handled effectively. There are other conditions which are uncontrollable and unavoidable which requires the group of specialists to handle the matter diligently and effectively. Since organization can be considered as the social entity in the environment, the decision making in group carries broader ramifications. Group decision making is substantiated based on the logic, ‘Ten heads are better than one’. Decision made by the individual can often be prejudiced resulting in antipathy by those who may have to put into operation those decisions. Modern organizations are replete with knowledge workers, who are multitasked and multiskilled. Under the circumstances, they would not like the structure of autocratic decision-making where they lack the sense of autonomy. In such cases, group decisions are more appreciated and accepted. This paper gives insight in to the ways to strengthen the group decision making. It also takes a bird’s eye view on the literature of group decision making, that furnishes thoughts not only to conduct the research in the relevant field but intuitive to the academicians, practitioners Management & Change, Volume 14, Number 2 (2011) Change, 14, Number 2 (2010) © 2010 IILM Institute for HigherManagement Education. & All RightsVolume Reserved.
242 Extrapolating Group Decision Making...
as well as the students. Through the conceptual framework, the paper provides insight to overcome the situation of ‘group think’. According to John (1988), the three assumptions that form the basis of higher quality decisions in group can be attributed to: (i) Groups are more vigilant than individuals, (ii) Groups can generate more ideas and develop more alternative solutions than individuals, (iii) Groups can evaluate ideas better than individuals. However, as per Chandan (2006), groups are valuable when they can maximize the unique contribution of each individual. When each individual’s contribution is enhanced, his/her commitment to the resulting decision is increased or internalized. When organizations make decisions it is important to find the balance between the parameters of control mechanisms and the ethical principles which ensure best outcome for individuals and communities impacted by the decision. Controls may be set by elements such as legislation, historical precedents, available resources, standards, policies, procedures and practices. Ethical elements may include equity, fairness, transparency, social justice, choice, least restrictive alternative, and empowerment (Bent, 2006). From a cognitive perspective, the decision-making process must be regarded as a continuous process integrated in interaction with environment. From a normative perspective, the analysis of individual decisions is concerned with the logic of decision making and rationality and the invariant choice it leads to. It’s important to differentiate between problem analysis and decision making. The concepts are completely separate of one another. Problem analysis must be done first, and then the information gathered in that process may be used towards decision making (Kepner & Tregoe, 1965). PROBLEM ANALYSIS • • • • • • •
Analyze performance, what should the results be against what they actually are. Problems are merely deviations from performance standards. Problem must be precisely identified and described. Problems are caused by some change from a distinctive feature. Something can always be used to distinguish between what have and haven’t been affected by a cause. Causes to problems can be deducted from relevant changes found in analyzing the problem. Most likely cause to a problem is the one that exactly explains all the facts.
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Anjali Ganesh 243
DECISION MAKING • • • • • • •
Objectives must first be established. Objectives must be classified and placed in order of importance. Alternative actions must be developed. The alternative must be evaluated against all the objectives. The alternative that is able to achieve all the objectives is the tentative decision. The tentative decision is evaluated for more possible consequences. The decisive actions are taken, and additional actions are taken to prevent any adverse consequences from becoming problems and starting both systems (problem analysis and decision making) all over again.
Group decision making is a type of participatory process in which multiple individuals act collectively, analyze problems or situations, consider and evaluate alternative courses of action, and select from among the alternatives a solution or solutions. The number of people involved in group decision-making varies greatly, but often ranges from two to seven. The individuals in a group may be demographically similar or quite diverse. Decision-making groups may be relatively informal in nature, or formally designated and charged with a specific goal. The process used to arrive at decisions may be unstructured or structured. The nature and composition of groups, their size, demographic makeup, structure, and purpose, all affect their functioning to some degree. The external contingencies faced by groups (time pressure and conflicting goals) impact the development and effectiveness of decision-making groups as well (Luthans, 2005). In organizations many decisions of consequence are made after some form of group decision-making process is undertaken. GROUP DECISION MAKING-LITERATURE REVIEW The survey of related literature becomes imperative to understand the previous research work carried out by various researchers in the field of group decision making and their findings mainly help to identifying the research gap in order to continue further research in the field. An insight into the available literature in the field throws light on improving the process of group decision making selected for study. These studies can establish a research agenda for those working in this area. Management & Change, Volume 14, Number 2 (2010)
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Pressures for early consensus during group decision processes often lead to poor choices. Priem, et al. (1995) stated that consensus as an outcome of group decision processes was often desirable for implementing choices. Various authors proposed and tested hypotheses that structured decision making techniques designed to enhance the expression of cognitive conflict would, paradoxically, (i) strengthen group consensus about and individual acceptance of the groups eventual choices, and (ii) increase member satisfaction with the group. Faced with a realistic managerial scenario, nineteen groups in this study deliberated using the structured, conflict-enhancing dialectical inquiry (DI) approach; nineteen used the consensus (C) approach. Group consensus on the decision, individual acceptance of the decision, and member satisfaction with the group were higher in the DI than in the C conditions. Authors have discussed implications for group decision aids and for future laboratory and field studies of group consensus on a course of action. Emergency-response systems for hazardous technological emergencies are generally comprised of a number of organizations with varying degrees of control over information and resources. Implementation of such systems and the need for coordination impose various conflicts on decision makers and response personnel. Using the example of nuclear power plant accidents, four critical categories of performance-shaping factors that can enable decision failures are identified: structural, affective, informational, and task and resource characteristics (Tuler, 1988). A review of individual, group, and organizational decision-making literature suggests that many such factors may have important negative influences on performance. The role of training and exercises is discussed as a means for improving emergency-response system effectiveness and reliability. Mohammed (2001) consolidated and integrated what has been learned about group-level interpretation into a common theoretical language and conceptual foundation on which future research could be based. The term cognitive consensus refers to similarity among group members regarding how key issues are defined and conceptualized. In addition to addressing neglected definitional issues, the article embeds cognitive consensus in an input-process-outcome framework, and propositions are offered concerning the variables that both impact and result from its development. It is argued that the notion of cognitive consensus provides a valuable means for understanding how decision makers collectively make sense of ill-structured issues in a group setting and is conceptually appealing because it integrates group, cognitive, negotiation, and decision-making research. Management & Change, Volume 14, Number 2 (2010)
Anjali Ganesh 245
Erffmeyer and Lane, (1984) in their study compared the quality and acceptance of group decisions on an evaluative problem (NASA lost on the moon exercise). Four decision-making formats were employed: interacting, consensus, the nominal group techinique (NGT), and the Delphi technique. No idiosyncratic modifications were made in any of the formats. The results indicated that the Delphi groups produced the highest quality decisions followed by those of consensus, interacting, and NGT groups. The decisions of the consensus groups had a higher level of acceptance than did those of the other three formats, which did not differ in terms of acceptance. Predictions based on past studies using unmodified decision-making techniques were consistently supported. Kolb (1999) described a small group decision-making/problem-solving assignment that is suitable for use in any class in which decision making is a topic of interest. Students were given information on a variety of decisionmaking techniques and were then assigned to groups of four to six people to choose and demonstrate a technique that is appropriate for an organizational decision-making situation that they develop. Class members observed and evaluated each group’s performance on criteria such as choice and explanation of situation, choice and demonstration of technique, and quality of resolution. Hirokawa and Rost (1992) carried on the study to determine whether relationship between group interaction quality and group decision performance. Four hypotheses derived from previous historical and laboratory studies of group decision-making efficacy were examined using nine established, ongoing decision-making groups obtained from a large utility company in the mid west. The results of the study generally support the process-outcome relationship. Specifically, it was discovered that group decision performance was directly related to a group’s efforts to analyze and understand its task and objective(s) as well as identify the positive and negative qualities of alternative choices. These findings reaffirm the claim that group decision performance is enhanced by a group’s ability to engage in vigilant interaction prior to arriving at a decision. Strategic decision-making is a critically important aspect of top managers’ jobs. Although researchers have addressed the issue of how groups ought to be constructed to handle strategic decision making effectively, there has been little attention paid to the idea that different subtasks of the strategic decision-making process might have different task requirements. Research on small groupsby Milliken and Vollrath (1991) shows that the nature of the Management & Change, Volume 14, Number 2 (2010)
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task a group has to perform is a critical factor in determining the types of groups and group procedures that are likely to yield effective group performance. This paper analyzes the various tasks involved in strategic decision making and draws on small group research to suggest some hypotheses about how groups might be designed to enhance their effectiveness on each of these tasks. The analysis highlights the key role of managerial beliefs about the nature of strategic decision making. Alby and Cristina Zucchermaglio (2006) in their paper proposed an ethno-methodological approach for study of naturalistic decision-making. We present an analysis of design practices in an Internet company, showing that, besides professional design of technological systems, designers are continually involved in an activity of maintenance and re-planning of these same systems (design-in-use). Through an interaction-based analysis, they describe a serious emergency design-in-use situation. Results show that (i) decision-making activities are not clearly identifiable in ongoing problemsolving action but are embedded in complex work practices; (ii) work practices and organizational features shape when, how and which decisions are made, underlying the situated character of the decision-making process; (iii) considering the group of designers as unit of analysis allows the complex and distributed nature of decision-making in organizations to be described. Nemiroff and Donald C King (1975) in their study investigated the effects of (i) instructions outlining procedures to be followed in group decision-making and (ii) level of self orientation among group members upon the quality of group decisions. Groups receiving consensual instructions systematically performed better than uninstructed groups however instructed groups utilized about 50 per cent more time in making their decisions. While no significant overall effect was found for self orientation among uninstructed groups high self oriented ‘groups’ resorted to averaging significantly more often than low groups. The efficacy of laboratory training in group dynamics as a technique for modifying group processes in the direction of theoretically more effective practices was explored by Hall and Martha S. Williams (1970). Thirty groups trained in group dynamics were compared with thirty untrained groups with respect to their performance on the ‘twelve angry men’ decision-making task. Within each of the trained and untrained samples three populations of decision-makers were studied (twenty groups each of college, management, and neuron psychiatric subjects) in order to provide varying levels of substantive and procedural skills relative to the task. The groups within each Management & Change, Volume 14, Number 2 (2010)
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population and trained/untrained conditions were evenly split between established entities and adhoc assemblies. The data were analyzed according to both performance and process criteria. Trained groups consistently performed more effectively than untrained groups on measures of decision quality, utilization of superior resources, and creativity. No tradition effects were discernible, and only expected population differences were obtained. Several differences among covarying performance and process variables were identified for trained versus untrained groups. ‘Led like Sheep’demonstrates how group decision-making schemes relate to the type of task assigned. Participants, working in groups of five to seven persons, are assigned several different tasks that represent varying degrees of demonstratability. On completion of these tasks, groups share their ‘right answers’ – which often aren’t – and share their observations of the group decision-making processes that led to these responses. ‘Led like Sheep’ never fails to emphasize the extent to which influence and persuasion lead groups to a group outcome (Dodd-McCue, 1991). Previous research has examined the effect of participation in decision making on various psychological and managerial variables, but has often overlooked levels of analysis. Levels of analysis were considered explicitly from theoretical and empirical perspectives by Yammarino and Naughton, (1992) to better understand participation in decision making. In a first demonstration of a new method to the participation literature, results from ‘Within and Between Analysis’ (WABA) suggested that relationships between participation in decision-making and several job activities and employee outcomes were based on between-groups differences. Some support also was obtained for an individual view of the associations between participation in decision-making and activities and out comes. A quasi-experiment was conducted by Smith and Hayne (1997) in which groups made business decisions under time pressure. Half of the groups were supported with a group support system (GSS) called the electronic discussion system; half had no computer support. The groups consisted of college students who had considerable experience with the GSS and the decision task and had worked together for the previous ten weeks. Decision quality, decision speed, and leadership emergence were measured. All groups received significant financial rewards in direct proportion to their decision quality and decision speed. GSS groups used more time to arrive at their decisions but made decisions of higher quality than non-GSS-supported groups. In addition, there was some evidence that under time pressure, GSSManagement & Change, Volume 14, Number 2 (2010)
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supported groups used a more leader-directed decision process than did other typical users of GSS. Maznevski (1994) developed a model to explain performance in decisionmaking groups characterized by high diversity in composition. It began with a brief discussion on the nature and effects of diversity. Previous research on group performance is then reviewed with the general conclusion that diverse groups perform less well than homogeneous ones do. This conclusion was challenged by closely examining a small group of studies specifically researching the effects of diversity, and it is shown that diversity can enhance a group’s performance if it was integrated. Basing their hypotheses on information processing theory, the authors, Olson, et al. (2007), incorporated important group processes within strategic decision making. They examined the interrelationships of cognitive diversity, task conflict, and competence-based trust and their effects on decision outcomes. Their survey included top management teams from 85 US hospitals. They found that cognitive diversity has a strong positive relationship with task conflict and that competence-based trust strengthens this relationship. In addition, these results suggest that task conflict mediates the effects of cognitive diversity on decision outcomes. Roberto (2004) examined how managers make strategic decisions efficiently and simultaneously build the consensus often required to implement decisions successfully. The findings suggested that groups employed two critical processes one substantive cognitive and the other symbolic, political to achieve high levels of efficiency and consensus. On the substantive dimension, they gradually structured complex problems by making a series of intermediate choices about particular elements of the decision. On the symbolic dimension, they took steps to preserve the legitimacy of the decisionmaking process. Hornsby, et al. (1994) in their research investigated the impact of different consensus decision-making methodologies and individual needs on compensation committee decisions using the Factor Evaluation System (FES), the US Civil Service’s nine-factor job evaluation system. Differences between subjects’ initial evaluations and final group evaluations were assessed to investigate the impact of three consensus decision-making techniques (the traditional consensus approach, Nominal Group Technique, and Delphi Technique) on job evaluation outcomes. Also, subjects’ scores on a job evaluation decision-making satisfaction questionnaire were used to assess Management & Change, Volume 14, Number 2 (2010)
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their perceived satisfaction of the decision-making process. Results indicate that the traditional consensus approach yielded higher evaluations, the Nominal Group Technique yielded lower evaluations, and no change was found using the Delphi Technique. Furthermore, differential levels of satisfaction were found across the techniques. Several recent studies have examined the managerial characteristics associated with different strategy types. Roth (1992) extends these studies by identifying the decision-making characteristics of top level management that are related to the strategic archetypes for competing in a global industry. The utility of three decision-making characteristics-risk taking, openness in decision making, and group consensus-are evaluated for global and multi domestic strategies. A contingency framework is also proposed, examining the simultaneous fit of all three characteristics to both international strategy types. Support was found for increased organizational performance as the decision-making characteristics are aligned more closely to the requirements of the organization’s international strategy. While the use of teamwork and group decision-making increases in organizations, managers find meetings increasingly inconvenient. Davin (1997) discussed ‘group decision support systems’ (GDSS) that are computer programs designed to improve processes, outcomes, and speed of group decisions. The purpose of this field experiment, using restaurant managers as subjects, was to determine if the GDSS could help managers make decisions more quickly and help them produce more ideas and information. The research involved two face-to-face meetings and two GDSS meetings. Results indicated no significant difference in decision time or participation quantity. However, when those two variables were combined into an efficiency index, the face-to-face decision discussions were found to be more efficient than the GDSS discussions. Author expressed that future research should include more field experiments to reveal which decision types and group types can be assisted by the GDSS. Bushe, et al. (2007) conceptualized the theory of group development for application to task groups and proposed two key sequential phases: membership and competence. A method for measuring developmental progress in task teams based on congruence in group cognitive representations of the team as it is, the ideal team, and the team as it ought to be is proposed. A system for computing group states based on structural connections among member cognitive representations is offered. Measures of group state representations in 49 project teams were collected at beginning, Management & Change, Volume 14, Number 2 (2010)
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midpoint, and end of each team and related to team effectiveness. Hypotheses based on group development theory predicting effects of convergence and congruence in group state representations on team effectiveness is supported. Further insights into the developmental process of group states are discussed. The authors conclude by arguing for the return of group development theory as an explanation for disparate findings in team research. Suar (2001) justified the need for argumentative dialogues in groups to resolve ethical dilemmas. Examining earlier work on argumentative dialogues, further evidence has been added to explain the process. A decision on an ethical dilemma during argumentative dialogue depends on: (a) the dissemination of arguments related to facts, value judgments and reflective world-views to group members; (b) access to new arguments; and (c) persuasive and self-generated arguments that favour a choice. For effective argumentative dialogues in a group, ethical imperatives are derived for: (a) group composition; (b) exchange of reasoned dialogues; and (c) behaviour of group members. Differences between argumentative dialogues and group discussions are specified, and the superiority of the former process over the latter is stated. London and Sessa (2006) explored relationships between feedback, group learning, and performance. They considered how feedback to individuals and the group as a whole supported continuous group learning. Feedback source, purpose, clarity, and valence might affect perceptions, processing, and outcomes of feedback. How feedback was processed and used might be influenced by group and individual conditions, such as demands and goals, accountability for performance, learning orientation, and whether the group is engaging in adaptive, generative, and/or transformative learning. Implications for human resource development practice focus on interventions to improve the use of feedback. Directions for research include examining the content and process of feedback at the individual and group levels of analysis and exploring the effects of feedback source, feedback specificity, leader behaviour, and member interactions on group learning. The following studies were conducted to understand the aspect of group think in group decision-making. Bernthal and Insko (1993) attempted to examine the role of taskoriented cohesion and its relationship to social-emotional cohesion within the groupthink framework. Specifically, it was predicted that the symptoms of groupthink would be least likely to appear when task-oriented cohesion exceeded social-emotional cohesion. In addition, it was predicted that the Management & Change, Volume 14, Number 2 (2010)
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symptoms of group-think would be most likely to appear when socialemotional cohesion was high. The design manipulated type of cohesion (social-emotional cohesion: high vs. low; task-oriented cohesion: high vs. low) with the symptoms of groupthink serving as dependent variables. Group members were asked to indicate the degree to which they experienced the symptoms of groupthink after completing a decisionmaking task. Results indicated that the combination of low social-emotional and high task-oriented cohesion resulted in the lowest perception of groupthink symptoms. In addition, groups high in social-emotional cohesion were more likely to experience the symptoms of groupthink than were groups high in task-oriented cohesion. Leana (1985) identified effects of group cohesiveness and leader behaviour on Janis’ (1982) symptoms of defective decision making, which were investigated within a laboratory setting. Two-hundred-eight college students were divided into four-person groups to solve a hypothetical business problem during tape-recorded group discussion sessions. Results showed that members of non-cohesive groups engaged in more selfcensorship of information than did members of cohesive groups. Teams with directive leaders proposed and discussed fewer alternative solutions to the problem than did groups with leaders who encouraged member participation. Groups with directive leaders were also willing to comply with the leaders’ proposed solutions when the leaders stated their preferences early in the group discussion. These results only partially support Janis’ groupthink model. Neck and Moorhead (1995) reviewed the research on groupthink and analyzed the results and identifies areas of inconsistency. Based on these analyses and integration of research on the effects of time pressure on group decision-making, a revised groupthink framework was presented. The revised framework altered the role of the leader, adjusted the linkages between groupthink antecedents and symptoms, and focuses attention on the importance of time pressure and methodical decision-making procedures on the prevention of groupthink. The revised framework attempted to correct a fundamental flaw of Janis’ (1983) model - that is, to explain why within the same group, groupthink could occur during one decision-making situation and not another. The above research studies enrich us with lot of knowledge and practicalities with respect to group decision making, which is valued beyond any boundaries. Management & Change, Volume 14, Number 2 (2010)
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Groupthink-a major derivative of Group Decision Making One of the significant derivatives of group decision making is group think which has the capacity distress the group’s ability to evaluate alternatives neutrally and to arrive at quality decisions. According to Janis (1982), a well known social psychologist, who coined the word,” Group-think is a mode of thinking that people engage in when they are deeply involved in a cohesive in-group when the members’ striving for unanimity, override their motivation to realistically appraise alternative courses of action”. As per Robbins, et al. (2007), “Group-think is the phenomenon in which the norm of consensus overrides the realistic appraisal of alternative courses of action”. It is a phenomenon related to norms. Groupthink is a disease that attacks many groups and can dramatically hinder the performance. The current trend toward increasing use of teams in organizations may increase the instances of group-think because of susceptibility of self managing teams (Moorhead and Griffin, 2007). According to Harrison (1986) not all cohesive groups exhibit ‘group-think’ characteristics. But those who do are fraught with the potential of many unfavourable consequences. These consequences result from such groups exhibit the following symptoms of groupthink.
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According to Janis (1972), the following are the major symptoms of Group think. • • • • •
Pressure on dissidents to give in and confirm to the group. Stereotyping others outside the group or stereotyping the view of enemy leaders. Collective efforts to rationalize or discount warnings that might lead members to reconsider assumptions. Illusion of unanimity without testing for it. Reliance on self appointed mind guards (Members who protect the group from adverse information that might shatter their shared complacency).
MEANS TO OVERCOME GROUP-THINK There are different ways to minimize the group-think. Some important strategies to overcome groupthink are mentioned below. •
Groupthink results from the pressures on individual members to conform and reach consensus. According to Luthans (2008) the three primary conditions that foster the development of groupthink are cohesiveness, the leader’s promotion of his or her preferred solution and insulation of the group from expert’s opinion.
Monitor the group size: People grow more intimidated and hesitant as group size increases. Although there is no magic number that will eliminate groupthink individuals feel to own up responsibility when the size of the group is larger than ten members (Maier, 1952).
•
Impartial role by the group leaders: Leaders should actively seek input from all members and avoid expressing their own opinions, especially in the early stages of deliberation.
Groupthink can be detected by watching for some of its classic symptoms.
•
Devil’s advocate: Appointment of one group member to play the role of Devil’s advocate to overtly challenge the majority position and offer divergent perspectives (Janis, 1982).
•
SYMPTOMS OF GROUP-THINK
•
Self–censorship of critical thoughts: Groupthink occurs when there is inclination to minimize the importance of his or her doubts and counter arguments (Newstrom, 2007).
•
An illusion of invulnerability: Illusion of invulnerability is shared by most or all members that creates excessive optimism and encourages risk-taking to extreme.
Stimulating active discussion of diverse alternatives: Stimulating active discussion of diverse alternatives without threatening the group and intensifying the identity protection helps the group members to talk about dangers or risks involved in a decision and delaying a discussion of any potential gains.
•
An unquestioned belief in the group’s inherent morality: This type of unquestioned belief inclines members to ignore the ethical and moral consequences of their decisions.
The members of the group need to focus on the negatives of the decision alternatives. By this, the group is less likely to stifle dissenting views and more likely to gain an objective evaluation.
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Decision Making to Different Types of Tasks, Journal of Management Education, 15 (3): 335-339.
CONCLUSION There is no contrary to the fact that the groups generally produce better solutions than individuals. Especially in case of non-programmed decisions, due to the complexity involved, groups can make qualitative decisions. Effectiveness of group decision making comes from leader, individual, organization and process perspectives. If the purpose of the group is well defined and clearly understood by all the members of the group decision making will be more effective and efficient. Group size, group leader, group’s accessibility to necessary resources of information, commitment of the members to the decisions made are also the anvil upon which the effectiveness of group decision making relies upon. REFERENCES Bradley J. Olson, Satyanarayana Parayitam and Yongjian Bao (2007) Strategic Decision Making: The Effects of Cognitive Diversity, Conflict, and Trust on Decision Outcomes, Journal of Management, 33 (2): 196-222. C.A.P. Smith and Stephen C. Hayne (1997) Decision Making under Time Pressure An Investigation of Decision Speed and Decision Quality of Computer-Supported Groups, Management Communication Quarterly, 11 (1): 97-126. Carrie R. Leana (1985) A Partial Test of Janis’ Groupthink Model: Effects of Group Cohesiveness and Leader Behavior on Defective Decision Making, Journal of Management, 11 (1): 5-18. Charles H. Kepner, Benjamin B. Tregoe (1965) The Rational Manager: A Systematic Approach to Problem Solving and Decision-Making. New Delhi: Tata McGraw-Hill. Christopher P. Neck and Gregory Moorhead (1995) Groupthink Remodeled: The Importance of Leadership, Time Pressure, and Methodical DecisionMaking Procedures, Human Relations, 48 (5): 537-557.
Flyvbjerg Bent (2006) From Nobel Prize to Project Management: Getting Risks Right, Project Management Journal, 37 (3): 5-15. Frances J. Milliken and David A. Vollrath (1991) Strategic Decision-Making Tasks and Group Effectiveness: Insights from Theory and Research on Small Group Performance, Human Relations, 44 (12): 1229-1253. Francesca Alby and Cristina Zucchermaglio (2006) ‘Afterwards we can understand what went wrong, but now let’s fix it’: How Situated Work Practices Shape Group Decision Making, Organization Studies, 27 (7): 943-966. Francis J. Yammarino and Thomas J. Naughton (1992) Individualized and Group-Based Views of Participation in Decision Making, Group & Organization Management, 17 (4): 398-413. Fred Luthans (2008) Organizational Behaviour. New York: McGrawHill/Irwin. Gervase R. Bushe and Graeme H. Coetzer (2007) Group Development and Team Effectiveness Using Cognitive Representations to Measure Group Development and Predict Task Performance and Group Viability, The Journal of Applied Behavioral Science, 43 (2): 184-212. Gregory Moorhead, Ricky W. Grifin (2007) Organizational Behaviour Managing People and Organizations. New Delhi: Biztantra. Harison E. Frank (1986) Policy, Strategy and Managerial Action. Boston, MA: Houghton Mifflin. I. L. Janis (1982) Groupthink: Psychological Studies of Policy Decisions and Fiascoes. Boston, MA: Houghton Mifflin. Irving L. Janis (1972) Victims of Groupthink. Boston, MA: Houghton Mifflin.
Damodar Suar (2001) Resolution of Ethical Dilemmas through Argumentative Dialogues in a Group, Journal of Human Values, 7 (2): 147-157.
Irving L. Janis (1982) Groupthink. Boston, MA: Houghton Mifflin.
Diane Dodd-McCue (1991) Led Like Sheep: An Exercise for Linking Group
Jay Hall and Martha S. Williams (1970) Group Dynamics Training and
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Improved Decision Making, The Journal of Applied Behavioral Science, 6 (1): 39-68. Jeffrey S. Hornsby, Brien N. Smith and Jatinder N. D. Gupta (1994) The Impact of Decision-Making Methodology on Job Evaluation Outcomes A Look at Three Consensus Approaches, Group & Organization Management, 19 (1): 112-128. Jit S Chandan (2006) Organizational Behaviour. New Delhi: Vikas Publishing House. John Garry (1988) Organizational Behaviour: Understanding Life at Work. Scott, Foresman and Company. John W. Newstrom (2007) Organizational Behaviour-Human Behaviour at Work. New Delhi: Tata Mc Graw-Hill. Judith A. Kolb (1999) A Project in Small Group Decision Making, Journal of Management Education, 23 (1): 71-79. Katie Davin (1997) Effects of Computer Support On Group Decisions, Journal of Hospitality & Tourism Research, 21 (2): 44-57. Kendall Roth (1992) Implementing International Strategy at the Business Unit Level: The Role of Managerial Decision-Making Characteristics, Journal of Management, 18 (4): 769-789. Luthans, F. (2005) Organizational Behaviour. Boston, MA: McGraw Hill Irwin. Manuel London and Valerie I. Sessa (2006) Group Feedback for Continuous Learning, Human Resource Development Review, 5 (3): 303-329. Martha L. Maznevski (1994) Understanding Our Differences: Performance in Decision-Making Groups with Diverse Members, Human Relations, 47 (5): 531-552. Michael A. Roberto (2004) Strategic Decision-Making Processes beyond the Efficiency-Consensus Trade-Off, Group & Organization Management, 29 (6): 625-658. Management & Change, Volume 14, Number 2 (2010)
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N. R. F. Maier (1952) Principles of Human Relations. New York: Wiley. Paul M. Nemiroff and Donald C King (1975) Group Decision-Making Performance as Influenced by Consensus and Self-Orientation, Human Relations, 28 (1): 1-21. Paul R. Bernthal and Chester A. Insko (1993) Cohesiveness without Groupthink The Interactive Effects of Social and Task Cohesion, Group & Organization Management, 18 (1): 66-87. Randy Y. Hirokawa and Kathryn M. Rost (1992) Effective Group Decision Making in Organizations Field Test of the Vigilant Interaction Theory, Management Communication Quarterly, 5 (3): 267-288. Richard L. Priem, David A. Harrison, Nan Kanoff Muir (1995) Structured Conflict and Consensus Outcomes in Group Decision Making, Journal of Management, 21 (4): 691-710. Robert C. Erffmeyer and Irving M. Lane (1984) Quality and Acceptance of an Evaluative Task: The Effects of Four Group Decision-Making Formats, Group & Organization Management, 9 (4): 509-529. Seth Tuler (1988) Individual, Group, and Organizational Decision Making in Technological Emergencies: A Review of Research, Organization & Environment, 2 (2): 109-138. Stephen P. Robbins, Timothy A. Judge, Seema Sanghi (2007) Organizational Behaviour. New Delhi: Pearson Education Inc. Susan Mohammed (2001) Toward an Understanding of Cognitive Consensus in a Group Decision-Making Context, The Journal of Applied Behavioral Science, 37 (4): 408-425.
GREATNESS IS PERSISTENT HARD WORK It takes twenty years of hard work to become an overnight success. - Diana Rankin Management & Change, Volume 14, Number 2 (2010)
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TEACHER What we need are educationists with originality, fired with true zeal, who will think out from day to day what they are going to teach their pupils. - Mahatma Gandhi, Harijan, Feb 18, 1939 Teachers are reservoirs from which, through the process of education, students draw the water of life. - Sri Sathya Sai Baba I bow at His feet constantly, and pray to Him, the Guru, the True Guru, has shown me the way. - Guru Nanak The grace of the guru is like an ocean. If one comes with a cup he will only get a cupful. It is no use complaining of the niggardliness of the ocean. The bigger the vessel the more one will be able to carry. It is entirely up to him. Ramana Maharshi When you are pulled towards a guru you suddenly feel that you are being pulled inwards, not outwards. - Osho Source:
The Times of India, Respect Your Teacher (Sacred Space), March 12, 2011
Suresh Chandra Bihari
Amrita Basu
With the onset of the global financial crisis in 2008, the Indian financial services also showed signs of slow down. The ill effects of the collapse of the global financial system in second half of the financial year 2008 coupled with the subsequent slowdown in the domestic markets had its shadows cast on the Indian banking sector with a moderation in its growth rates. However, as the public sector banks had negligible exposure to global markets and related instruments, they were well insulated from the global crisis. Indian banks are heavily reliant on interest income, which accounts for over 80 per cent of their total income. As for the component of non-interest income, the share of trading profits in such income has assumed significant importance during the last few years, given the declining interest rates in the economy. Over the same time horizon, the proportion of core fee income in the total non-interest income of banks has remained fairly stable. Now with the recession almost gone and the scope of further reduction in interest rates being rather limited, it can be expected from banks to diversify their income profile so that the current levels of non-interest income may be maintained. The public sector banks have already become very proactive in exploring ways to raise their fee income. As for bank customers, always expecting lower fees and higher service levels will certainly stand to gain from this. Keywords: Global financial crisis, public sector banks, treasury income
ABILITY, MOTIVATION AND ATTITUDE Ability is what you are capable of doing. Motivation determines what you desire or aim at. Attitude determines how well you do it. - Lou Holtz
Management & Change, Volume 14, Number 2 (2010)
IMPACT OF THE GLOBAL FINANCIAL MELTDOWN ON THE TREASURY INCOME OF INDIAN PUBLIC SECTOR BANKS
INTRODUCTION The last decade has seen many positive developments in the Indian banking sector. The policy makers, which comprise the Reserve Bank of India (RBI), Management & Change, Volume 14, Number 2 (2011) Change, 14, Number 2 (2010) Š 2010 IILM Institute for HigherManagement Education. & All RightsVolume Reserved.
260 Impact of The Global Financial Meltdown on The Treasury...
Ministry of Finance and related government and financial sector regulatory entities, have made several notable efforts to improve regulation in the sector. The sector shows some favourable figures on metrics like growth, profitability and reduction in non-performing assets (NPAs). Indian public sector banks have compared favourably on growth, asset quality and profitability with other regional players over the last few years. Policy makers have made some notable changes in policy and regulation to help strengthen the sector. However, the cost of intermediation remains high and bank penetration is limited to only a few customer segments and geographies. Structural weaknesses such as a fragmented industry structure, restrictions on capital availability and deployment, lack of institutional support, restrictive labour laws, weak corporate governance and ineffective regulations beyond Scheduled Commercial Banks (SCBs), unless addressed, could seriously weaken the health of the sector. The report on â&#x20AC;&#x2DC;India Banking 2010â&#x20AC;&#x2122;1 stated that the challenges for players in this sector include new skills in sales and marketing, credit and operations for new products and services like credit cards, consumer finance and wealth management on the retail side, and in fee based income and investment banking on the wholesale banking side. Secondly, banks will no longer enjoy windfall treasury gains that the decade-long secular decline in interest rates provided. This will expose the weaker banks. Third, with increased interest in India, competition from foreign banks will only intensify. Fourth, given the demographic shifts resulting from changes in age profile and household income, consumers will increasingly demand enhanced institutional capabilities and service levels from banks. Banks normally generate their income from three different sources including Wholesale /corporate banking, retail banking and finally treasury banking. First, wholesale banking are the banking services like cash management, fleet and equipment leasing, large sum loans, merchant banking and trust services provided only to corporations with strong balance sheets and sound income statements, government agencies and other institutional customers. Secondly retail banking is more mass driven and includes services like savings account, consumer loans, credit cards, debit cards/ATM card, etc provided to individuals. Finally, treasury investments are categorized 1.
www.mckinsey.com/ideas/articles/India_Banking_2010.pdf
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into government securities, other approved securities, shares, debentures and bonds, commercial papers, and mutual funds. The March 2008 quarterly results2 of some of the public sector banks started showing high return on treasury segment income when the Indian economy started showing signs of the slowdown. The Indian banking sector caught the public eye with its performance by the public sector as well as the private sector banks despite the onslaught of global financial meltdown casting its ugly shadow on the fundamentally sound Indian economy . At a time when corporate India has seen its net profits shrink by 24 per cent, banks reported a 43.83 per cent net profit growth in the quarter ending December 2008. A rising share of it was attributed to the treasury income of the banks. The quarterly results of most of the Indian banks in first two quarters of 2009 3 have shown a tremendous growth in treasury segment. This is especially true for most of the Public sector banks including State bank of India, Punjab National Bank, UCO, Bank of India, and Union Bank of India etc. For example, Union Bank of India reported a growth of 93.86 per cent in its first quarter (2009) net profit at Rs 442.19 crore due to a jump in its non-interest income, driven mainly by gains from treasury and foreign exchange operations. Banks in India continued to ride on gains from trading in bonds (treasury operation) as economic slowdown hurt the demand for loans. Indian banksâ&#x20AC;&#x2122; loan growth fell to single digit for a few fortnights from 30 per cent seen in the three fiscal years preceding the economic slowdown. The yields on the government securities started declining sharply since June, 2008. The price movement of a government security has an inverse relation with the movement of market yields. Therefore this means that as yields fall, price of the government securities rise correspondingly. As a result, most banks rode on profits on their treasury books. However the rising bond yields on the back of a record government borrowing plan announced in the recent budget could depress the income from the treasury operation in the subsequent quarters. Bond yields, which move inversely to prices, have risen by 20 basis points since mid-June after the government set a 4.51 trillion rupees target for borrowing in 2009-10 to bridge the highest fiscal deficit seen in the past 16 years. 2. 3.
www.iba.org.in-results of public sector banks www.livemint.com/2009/07/.../Banks-see-mixed-June-quarter-e.html Management & Change, Volume 14, Number 2 (2010)
262 Impact of The Global Financial Meltdown on The Treasury...
This paper aims to study the trend in treasury/non- interest income and check its significance as an important source of profit for Indian banks at a time when rest of the world was trying to find its way out of the global slowdown. OBJECTIVE OF THE PAPER To study the trend of the rising importance of treasury/non-interest income as a major contributor to the profits made by Indian public sector banks using regression analysis especially after the onset of the slowdown in the Indian economy (March 2008-September 2009). l
To analyze the growth of non-interest income as a source of revenue
l
To find out statistically that how much of the profits of the public sector banks over a period is determined by non interest income and interest income.
l
To find out the contribution of interest and non interest income towards the total income.
METHODOLOGY
Suresh Chandra Bihari & Amrita Basu 263
The balance sheet of banks categorizes the total income of banks as interest income and the non interest income. The treasury income comes under the non interest income. By taking net profit as the dependent variable and interest and non interest income as the independent variables, a regression analysis can be run by using SPSS on all these 10 banks and check for the significance of the non interest income of these banks for each quarter since the initial signs of the global meltdown i.e. March 2008 till the end of September 2009. The same regression analysis will also be run by taking profitability measure, the ROA (return on assets), as dependent variable. Regression analysis is the statistical technique that identifies the relationship between two or more quantitative variables: a dependent variable, whose value is to be predicted, and an independent or explanatory variable (or variables), about which knowledge is available. The technique as shown in Fig 1 is used to find the equation that represents the relationship between the variables. A simple regression analysis can show that the relation between an independent variable X and a dependent variable Y is linear, using the simple linear regression equation Y= a + bX (where a and b are constants). Multiple regression will provide an equation that predicts one variable from two or more independent variables, Y= a + bX1+ cX2+ dX3. Fig 1 Main Steps Involved in Performing a Regression Analysis
The study involves a study of the performance of the treasury segment of some of the major public sector banks in India over the time period that covers the global meltdown(March 2008-September 2009). The sample size of the banks taken is 10 since all these banks in their quarterly results (AMJ) had reported a rise in their net profits and especially due to the increased income from the treasury segment. The list of banks includes: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
Andhra Bank Bank of Baroda Bank of India Indian bank Allahabad Bank Corporation Bank Punjab National Bank State bank of India UCO Bank Union Bank of India
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264 Impact of The Global Financial Meltdown on The Treasury...
Regression analysis is used to understand the statistical dependence of one variable on other variables. The technique can show what proportion of variance between variables is due to the dependent variable, and what proportion is due to the independent variables. In this paper, regression analysis is run 2 times for the combinations of dependent and independent variables as shown in Table 1 and gets an understanding of the trend in the significance of the non interest income and treasury income as a major source of income for the Indian public sector banks. Table 1 List of Dependent and Independent Variables S.No.
Dependent Variable
Independent Variable
1.
Net profit
Net interest income Non –interest income
2.
ROA
Net interest income Non –interest income
The information regarding the global slowdown, the Indian banking industry and the performance of the treasury segment of all these Indian Banks will be acquired from various secondary sources including authentic and reliable sources (eg. Cygnus Business Consulting and Research Pvt. Ltd) and the banks quarterly reports and also simultaneously monitoring industry news and developments, articles, journals, research papers, industry reports and government websites. Limitations of the Study l
l
There is a possibility that the regression model might overlook certain other independent factors which have affected the net profit of the banks.
Suresh Chandra Bihari & Amrita Basu 265
financial crisis and finally a global economic crisis. India too had to face the negative impact of the crisis, but to a very limited extent. The important difference between the crisis in the advanced countries and the developments in India is that while in the advanced countries the crisis spread from the financial to the real sector, in India, it was the slowdown in the real sector that affected the financial sector, which in turn, had a second-order impact on the real sector. The Indian banking system was not directly exposed to the sub-prime mortgage assets. It had very limited indirect exposure to the US mortgage market. The Indian banks, both in the public sector and in the private sector, are financially sound, well capitalized and well-regulated. The average capital to risk-weighted assets ratio (CRAR) for the Indian banking system was at end-March 2009, 12.6 per cent, as against the regulatory minimum of nine per cent and the Basel norm of 8 per cent. Even with the limited exposure, India experienced some of the side effects of the global crisis, through the monetary, financial and real channels, all affecting the growth rate of the Indian economy. RBI’s policy stand4 Reserve Bank’s monetary policy stance has consistently been to balance growth, inflation and financial stability concerns. When inflation surged in the early months of 2009, the RBI had moved quickly to tighten policy. Then again, reflecting on the changing global situation and expectation of a decline in inflation, RBI adjusted its monetary stance again. The objective was to manage liquidity, both domestic and Forex and to ensure that credit continued to flow for productive activities. Some of the measures taken by the RBI with the advent of the crisis and which helped ease the liquidity and credit flow situations considerably in India include: l
Expanding the rupee liquidity through significant reduction in the cash reserve ratio (CRR), reduction of the statutory liquidity ratio (SLR), opening a special repo window under the liquidity adjustment facility (LAF) for banks for on-lending to the non-banking financial companies (NBFCs), housing finance companies (HFCs) and mutual funds (MFs), and extending a special refinance facility, which banks can access without any collateral.
l
The Reserve Bank also started off with the Market Stabilisation Scheme
4.
www.rbi.org
The study suffers from the lack of adequate information regarding the various individual components comprising the treasury income which also stands as a limitation to the study.
THE GLOBAL MELTDOWN The global meltdown started off as a sub-prime crisis in the US housing mortgage sector and turned successively into a global banking crisis, global Management & Change, Volume 14, Number 2 (2010)
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266 Impact of The Global Financial Meltdown on The Treasury...
(MSS) securities in addition to the government borrowing programme, in order to manage liquidity. l
l
For managing the Forex liquidity, an upward adjustment of the interest rate ceilings on the foreign currency non-resident (banks) [FCNR(B)] and non-resident (external) rupee account [NR(E)RA] deposits was done Relaxation of the external commercial borrowings (ECB) regime and allowing the NBFCs and HFCs access to foreign borrowing and allowing corporates to buy back foreign currency convertible bonds (FCCBs) to take advantage of the discount in the prevailing depressed global markets.
l
Encouraging flow of credit to sectors facing a capital crunch including extending the period of pre-shipment and post-shipment credit for exports, expanding the refinance facility for exports and expanding the lendable resources available to the Small Industries Development Bank of India (SIDBI), the National Housing Bank (NHB) and the Export-Import Bank of India (EXIM Bank).
l
Lowering of the interest rate structure by reducing the key policy rate viz., the repo rate and reverse repo rate.
Suresh Chandra Bihari & Amrita Basu 267 l l l l l l
Commission/ exchange and brokerage Profit or loss on Sale of investments Profit or loss Sale of land& buildings Profit/loss on revaluation of investments Profit or loss on Exchange transaction etc. Miscellaneous income source which includes advisory, trading etc.
Trend in the NII and the Non Interest Income As shown in the Fig 2, the interest income overall for the public sector banks has been seeing a continuous rising trend except in the December 2008 quarter when it saw a slowdown as a result of the peak in the recession. However, the non interest income has been seeing a constantly rising phenomenon even during the recessionary period. It has been rising in the period from Sep 08 to mar 09 when the interest income of the banks saw slowdown in its trend. Hence the non interest income has almost acted as a cushion for the Indian public sector banks during this global meltdown. Fig 2 Trend in Interest and Non-Interest Income
QUALITATIVE ANALYSIS There are two broad sources of bank revenues, namely, (i) interest income, and (ii) non-interest income. Interest income is generated from what is known as â&#x20AC;&#x153;the spread.â&#x20AC;? The spread is the difference between the interest a bank earns on loans extended to customers, corporate etc and the interest paid to depositors for the use of their money. It is also earned from any securities that the banks own, such as treasury bills or bonds. Non-interest income is earned by providing a variety of services, such as trading of securities, assisting companies to issue new equity financing, securities commissions and wealth management, sale of land, building, profit and loss on revaluation of assets etc. As compared to the developed world, the Indian banking sector, apart from the relying on traditional sources of revenue like lending are also focusing on the activities that generate fee income, service charges, trading revenue, and other types of noninterest income. The major components of non interest income in our banking sector are as follows: Management & Change, Volume 14, Number 2 (2010)
It is evident from the Fig 3 that the growth rates in interest and non interest income were almost the same in the September 08 quarter. The December 08 results which capture the peak of the recessionary period show that the non interest income showed a much higher growth rate than the interest income which saw a slowdown and hence registered a low growth rate of approx 10%. The non interest income has shown a positive growth form Sep 08 to March 09 after which- with economy starting to revive- the banks returned back to source their income for the core banking activities. During the recovery period it is found out that the interest income has started to rise again while the non interest income has again started to fall behind. Management & Change, Volume 14, Number 2 (2010)
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Fig 5 Trend in ROA
Contribution of interest income and non interest income of the Public Sector banks
Fig 6 Trend in Net Profit
Fig 3 Growth in NII and Non-Interest Income
Influence of net interest and non interest income on profits To understand the significance of the non interest income as an important alternate source of income during this meltdown, it is found out that the contribution of non interest income in the total income showed an increase of 6% while interest income showed a fall of around 4% in the same period from September 08 to march 09 as shown in Fig 4.
The output of the multiple regression equation is shown in Table 2 where it is tried to find out that how much of the net profits of the sample public sector banks are determined by interest and non interest income. Table 2 Influence of Interest and Non-Interest Income on Profits Coefficientsa
Fig 4 Share of Interest and Non-Interest Income Model
Unstandardized Coefficients B
Std. Error
(Constant) -9036.322 Non Interest Income .711 Interest Earned .079
14862.584 .289 .101
Standardized Coefficients
t
Sig.
-608 2.458 .781
.570 .057 .470
Beta .717 .228
a. Depdendent Variable: NET PROFIT
l
It is found out that non-interest income to be a significant variable in explaining the profits as the Probability value (sig) is less the .05 (.0095) and the value of t stat is more than 2(2.458)5
Trend in net profits and ROA The relation between interest and non interest income with the net profits can be written in terms of a linear function.
Both the net profit and ROA have showed a jump in the Dec 08 quarter as shown in Fig 5 & 6. This can solely be attributed to the rise in the non interest income of 70% in this quarter. 5.
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Rule: an independent variable is said to be significant is its prob value is less than .05 or the t-stat is more than 2. Management & Change, Volume 14, Number 2 (2010)
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Net Profit = constant +.717*(non interest income) + .228*(interest income) Hence it is seen that during the global meltdown a 1% increase in noninterest income would lead to an increase of 71.7% while the same in case of interest income would result in an increase of only 22.8%. Therefore it would not be wrong in saying that it was the non interest income of the public sector banks that acted as a saviour during the period of meltdown.
l
Between interest income and total income The correlation between NII and total income is even higher and positive at 0.983.
l
Between non interest income and ROA The correlation stands at .729 which is lower than its correlation with total income. Hence, the impact of non interest income on ROA does not seem to be so strong.
l
Between interest income and ROA There does not seem to be much of a strong correlation between interest income and the ROA with a correlation coefficient of .45 which is less than the required .8.
It is found out in regression model as shown in Table 3 that the percentage of variation in the net profits explained by net interest income and noninterest income is 81.1%6
l
Table 3 Model Summary Matrix Model Summary Model 1
R
R Square
Adjusted R Square
Std. Error the Estimate
.900a
.811
.735
4117.8661
Influence of net interest and non interest income on ROA From coefficients and model summary tables of the multiple regression equation i.e. Table 5 and 6, it is found out that how much of the return on assets of the sample public sector banks taken are determined by interest and non interest income. l
It is found that non -interest income not to be a significant variable in explaining the ROA as the Probability value (sig) is not less the .05 (.0095), though the value of t stat is slightly more than 2(2.143)7
l
It is also found out that in our regression model the percentage of variation in the ROA explained by net interest income and non-interest income is only 56.9%8
a. Predictors: (Constant), INTEREST EARNED, NON INTEREST INCOME
From the above output it is found out that Noninterest income had a significant influence on the profits. Correlation
From the above output it is found out that Non-interest income has no significant influence on the ROA of the public sector banks.
By referring the correlation Table 4 it is found out that Table 4 Correlation Matrix
l
6.
Coefficientsa
Correlation
Item Total income ROA
Table 5 Coefficients Matrix of Non-Interest and Interest Income
Interest Income
Non-Interest Income
0.983 0.415
0.854 0.729
Model
Unstandardized Coefficients
Standardized Coefficients
B
Std. Error
Beta
(Constant) .930 Non Interest Income 2.23E-005 Interest Earned -2.4E-006
.535 .000 .000
.944 .289
t
Sig.
1.737 2.143 -.655
.143 .085 .541
Between non interest income and total income There is a very positive correlation between non interest income and the total income of the Public sector banks of 0.854 which shows that higher the non-interest income higher the total income.
7.
Rule: an independent variable is said to be significant is its prob value is less than .05 or the t-stat is more than 2.
(Rule: for a regression model to be efficient the r-square shall be at least .6)
8.
(Rule: for a regression model to be efficient the r-square shall be at least .6)
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a. Depdendent Variable: ROA
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Table 6 Model Summary Statement Model Summary Model 1
R
R Square
Adjusted R Square
Std. Error the Estimate
.754a
.569
.396
.1483
a. Predictors: (Constant), INTEREST EARNED, NON INTEREST INCOME
CONCLUSION It is seen that the contribution of non interest income of our banking sector has increased significantly over this recessionary period. It is also seen that for the public sector banks, the contribution of non interest income towards the total income has increased over the period of time under study and that of the interest income has decreased over the same period. Looking at the total banking sector, it is found out that in our banking system especially the public sector banks, the non interest income is having a significant influence on the profits of the banks.
The challenges involved include the unaggressive direct customer interaction of public sector banks, high cost and less expertise involved in launching of innovative products/services as per the customers’ expectations and technology requirements. After studying the non interest growth pattern of the Indian banking sector over a period of 8 quarters it can be said that it is slowly and gradually becoming one of the important avenues for our Indian public sector banks to generate revenue from. So it can be an important source available with our banking sector to respond to the squeezing margins and meeting the shareholders expectations. REFERENCES Rudra, Sensarma & M. Jayadev (2009) “Are Bank Stocks Sensitive to Risk Management?” The Journal of Risk Finance (Emerald Group Publishing Limited), 10 (1): 7-22. Sharma, Gaurav (2008) “Banking Sector in Emerging Economies” Assocham Financial Pulse (AFP), Assocham Research Bureau.
On an average the non interest income of the banking sector has grown at a CAGR of 46% as compared to interest income which has grown at a CAGR of 26 % for the period dec07 to mar09. It is also found out that there is a positive correlation between the non interest income and the total income of the banking sector. It is also found out that in case of public sector banks, the non interest component was found to be statistically significant enough to influence the profits over the period.
Arora, Sangeeta & Shubpreet Kaur (2009) “Internal Determinants for Diversification in Banks in India: An Empirical Analysis”, International Research Journal of Finance and Economics (ISSN 1450-2887), 24.
The reason for increase in the non interest income includes l the increased pressure on net interest margins of the banking sector,
Mittal, Manish & Aruna Dhade (2007) “Profitability and Productivity in Indian Banks: A Comparative Study”, 1 (2): 137-152.
l
With economy growing at more than 8 per cent during 2006-07 and acceleration in the growth rate being attributable to the optimism in the industrial and service sector, the demand for fee-based services of banks has gone up and as a result of which the non interest income has also risen up.
l
Noninterest income is an effective way used by banks to respond to its squeezing margins
l
At the bank level, greater reliance on noninterest income, particularly trading revenue, is associated with lower risk-adjusted profits attached to it.
Management & Change, Volume 14, Number 2 (2010)
Ramasastri, A.S. & Achamma Samuel (2006) “Banking Sector Developments in India, 1980-2005: What the Annual Accounts Speak?” RBI Occasional Papers, 27 (1 & 2).
PHILANTHROPY One is asked to take a lesson from the trees, which themselves suffer the fierce rays of the sun and give shade to those who take shelter under them. To those who throw stones at them, they respond by dropping fruit. That is true philanthropy. - M. K. Gandhi
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BOOK REVIEWS
BEAUTY Man's beauty in his character, that of a beast in its bodily form. The basis of goodness or badness in the case of man lies in his heart, not in the body or even in accumulated wealth. - To Ashram Sisters, Navajivan Trust, Ahmedabad, 1952 Beauty is an internal quality which is not visible to the physical eye. - Diary of Mahadev Desai, Navajivan Trust, Ahmedabad, 1932 If you see inner beauty, the outer will pale into insignificance. - Bapu-ke-Ashirwad, Sep 15, 1946
IT IS DAYDREAMING THAT MATTERS We have to ask ourselves what should keep us awake us at night. - Amartya Sen (Excerpt from the Hiren Mukherjee Lecture in New Delhi on August 11, 2008)
Dreams are not those which you see in sleep but those that don’t let you sleep. - Akhil Kumar, Beijing Olympic Star All men dream, but not equally. Those who dream by night in the rusty recesses of their minds wake in the day to find that it was vanity; but the dreamers of the day are dangerous men, for they may act their dreams with open eyes, to make it possible. - T. E. Lawrence
OUTSHINE YOUR GURU Poor is the pupil who does not surpass his master. - Leonardo da Vinci
Management & Change, Volume 14, Number 2 (2010)
Morgen Witzel, Tata: The Evolution of a Corporate Brand (Foreword by Prof. Ram Charan). New Delhi: Penguin Portfolio, 2010, index+213pp. Rs. 599 hardbound. The book came out at a time when the name of the Tatas are in the media front page for all the wrong reasons, but that does not take away at all the importance of the work which deals with the most iconic brand that India has ever had. But that precisely is the problem of the brand that is ‘Tata’ which has created a level of expectations that is almost impossible to maintain indefinitely or to scale it up, as the domains of expectation go much beyond the product or service that is on offer, but are really in the realm of abstract, such as ‘trust’ as perceived by the society, a part of which may in fact have nothing to do with the Tatas. Prof Nirmalya Kumar of London Business School observed – “The Tata Group is a source of Indian pride, a hugely successful global company run on ethical business principles. It is a company that has never been tainted by bribes. Its trusts provide substantive philanthropic projects in the alleviation of poverty, disaster relief and the creation of Indian, scientific and cultural institutions” (p.9). The task of managing the corporate brand is much more difficult because the Tata Group is a behemoth spanning a most diverse landscape of industrial and services sub-sectors, having global footprints. In the year ending fiscal 2009, the total revenues of the Tata Group amounted to USD 70.8 billion of which a staggering 65 per cent came from businesses outside India. Where lies the mystique of the Tata as a corporate brand? To get a feel of this, it is necessary to go back to the philosophy of the founder, J. N. Tata. Even after more than a century and manifold expansion of its business, the DNA of the Tata Group is what the founder had given to it. This is what JRD Tata wrote in his foreword to the first and possibly till today the most complete biography of Jamsetji Nusserwanji Tata by Frank Harris in 1957. “If to this day his policies continue largely to be followed, it is not merely out of personal loyalty to the memory of a great leader but because, despite the passing of time, his basic philosophy and his ideas on industrial Management & Change, Volume 14, Number 2 (2010)
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management have been found to be sound and applicable even to the changed circumstances of the present day. His anticipation of modern thinking is a continuous source of surprise and admiration to the present generation of Tata management; his emphasis on the application of science and modern techniques and methods in industrial management; his generous and yet realistic understanding and acceptance of the needs and rights of workers at a time when they were frequently exploited in the West as well as in India; his insistence on absolute standards of integrity; his sense of trusteeship and his realization that to survive and prosper, free enterprise must serve the needs of society; are remarkably in tune with modern thinking and with the ethical and social standards of the most advanced societies of today.”1 To a very large extent, this tradition of finding and working out a fine balance between the business needs and the societal responsibilities has been kept alive, not as a mere principle, but as a ‘lived’ premise in the entire Tata Group, though there might have been exceptions - most saw them as mere aberrations. No doubt, this was helped by the fact that there has been continuity at the top. The current Chairman of Tata Sons is only the Fifth Chairman in 122 years (p.179). Prof. Ram Charan who contributed a Foreword to this book also highlighted this aspect: “What makes Tata different is that its social work is a key part of its total mission. Tata organisations will identify the societal needs of the region whenever the company operates. They identify what rests underneath the society each individual company operates within and how it can create hope and value in the society as well as create economic value for its shareholders and for its constituencies, employees, partners and the like (p.xi).” One advantage of having a strong corporate brand is that it allows the company to secure a high brand valuation. Brand valuation is a dicey exercise and based on the methodology one uses, very different results can be obtained. For example, Tata Corporate brand has been valued at $5.4 billion in 2005 by Interbrand, a major consultancy organization. According to London based Brand Finance, the Tata Brand is worth $11.2 billion in 2010. On the other hand, Prof. Gary Davies of Manchester Business School suggests that a strong brand is worth about the equivalent of a years turnover (and if this Management & Change, Volume 14, Number 2 (2010)
Book Reviews 277
rule were to be followed, Tata would have a corporate brand worth over $70 billion (p.11). The current perception of the Tata as a corporate brand is massively due to what Ratan Tata did after he assumed charge at a time when the hold of JRD Tata was on the wane and several very strong corporate chieftains were straining to break the corporate chain. To bring back the previous authority, and, in fact, to make it stronger by raising the share of equity held by the Tata Sons in the most important units of the Tata empire had been one of the two outstanding achievements of Ratan Tata. One tool that he developed and used with efficiency is the concept of Tata Code of Conduct since 1998 which every Tata company has to sign, if they want to use Tata brand. This provides: “The use of the Tata name and trademark shall be governed by manuals, codes and agreements to be issued by Tata Sons. The use of the Tata brand is defined and regulated by the Tata Brand Equity and Business Promotion agreement. The agreements allowed member companies the right to use the Tata name and mark, and set out the conditions under which they could do so. In return, companies signing the agreement paid a subscription equivalent to 0.25 per cent of annual turnover (less, if the company does not use Tata directly in its name, such as Titan, Trent or Taj). The revenues gained from these subscriptions are ploughed back into promoting and protecting the brand and providing several support services, including the administration of the Tata Business Excellence Model (p.65 – 66). This a model which, with some adaptations, are being looked at by several large diversified indian business groups, such as Mahindra & Mahindra, Larsen & Toubro, among others.” The other distinct and substantive contribution of Ratan Tata which actually changed the basic structure and strategy of the somewhat laidback character of the Tata enterprises, was his early recognition that the Tata group had to internationalise and that too soon. The highly visible acquisitions, starting with Tetley and then followed by Corus and Land Rover – Jaguar, changed the investments, revenues and global perceptions of the Tata Group for all time to come. One relevant issue in this context is whether seamless transfer of the India-based perceptions of the Tata corporate brand to the foreign shores where Tatas have now major footprints is feasible and if so, how. This is a complex and vexed question, answer to which lies in the future. The conclusion that the author has drawn seems to be right and cautious in Management & Change, Volume 14, Number 2 (2010)
278 Book Reviews
its prediction. “Western consumers know very little about Tata and therefore associate the brand with Indian culture, Indian heritage and mythology rather than ‘Tata-ness’ provide the psychological background. Few as yet have direct experience of the Tata brand. The attributes they are likely to associate with the brand will vary depending on the experience of India. They might see the brand as exciting, exotic and new, as they might associate it with the perceived low cost / low quality, as with the poverty and hardship that they see in the western media (p.119)”. His recommendation is that “somehow, Brand Tata must find way to become both Indian and global, capitalising on “Asian heritage and Western modernity” while remaining true to its own values and traditions (p.121).”This is easier said than done, but that will continue to be a matter of reflection and action for the top Tata management for several years to come. Finally, to end this review, the reviewer will go back to where we started, the current media focus on the Tatas which directly impacts their corporate branding. In India, quite habitually, names of many big business houses get embroiled with some controversy or the other. But in the eyes of the Indian public, the Tatas can’t do anything wrong and that is where the problem lies. The most perceptive comment on the dilemma faced by the Tatas on how to deal with a brand which is legally owned by the firm but emotionally by the society as a whole has been made by Santosh Desai in one of his columns and the reviewer can’t do anything better than quote him verbatim: “The Tata business operates in the real world with its share of influence peddling and deal making while the Tata brand lives in a moral fantasy where righteousness and straight-forwardness are still valued and pay dividends. In one world, without engaging in lobbying and various ways of managing the government, success is impossible while in the other, any act of associating with murkiness becomes a blot on a spotless reputation.
Book Reviews 279
B.Bhattacharyya, Distinguished Professor & Vice-Chairman, IILM Institute for Higher Education. Sharad Sarin, Strategic Brand Management for B2B Markets: A Road Map for Organizational Transformation. New Delhi: Response Books (B1/I-1 Mohan Cooperative Industrial Area, Mathura Road, New Delhi 110 044), 2010, xx+262 pp. Rs. 375 paperback. This book by Sharad Sarin aims to uncover hidden and unexploited power of leveraging from the concept of brand and brand building for B2B marketers. It deals with need for B2B marketing from the view-point of Indian markets and economic conditions at home. The book aims to motivate the marketers deeply entrenched in B2B marketing to unleash the underleveraged power of brand to create competitive advantages for growth. The purpose of this book is to convince of B2B marketers that no matter that your market is - crane or crank shaft (an auto component) - the idea of brand is useful. The author shares his views, anecdotes and experiences to create a proper perspective for the readers to understand the challenges in managing brand driven businesses. This book is divided into five parts. Part I contains three chapters which highlight brand and branding issues for B2B marketers.
1.
Frank Harris (2007), Jamsetji Nusserwanji Tata: A Chronicle of His Life. Penguin Enterprise Edition (p. ix).
Part II deals with the role and importance of the most strategic asset of any organization: the corporate brand. The three chapters in this part discuss the brands of Tata, Larsen & Toubro (L&T) and Infosys. With extensive discussions on these three most respected corporate brands in India, the author demonstrates how these companies have created value through brands and how their branding initiatives are benchmarks in their journey to success. After reading the story of these three great brands, readers should feel rejuvenated to achieve their dreams and aspirations. Tata Steel’s actions are in line with what Kotler and Keller (2006), great marketing gurus had suggested: ‘Building a strong brand requires careful planning and a great deal of long term investment. At the heart of a successful brand is a great product or service, backed by creatively designed and executed marketing.’
2.
Santosh Desai (2010), The Problem With Being Ratan Tata, The Economic Times, December 13, 2010.
The power of a unified approach to build a strong, new brand Tata was easy to comprehend, but to achieve alignment of all the 106 units needed
The biggest issue for brand Ratan Tata is not whether he has an answer to the questions that are being asked, it is the fact that there is at all a question” 2.
Management & Change, Volume 14, Number 2 (2010)
Management & Change, Volume 14, Number 2 (2010)
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adherence to frameworks which could provide both endurance and performance without compromising with the ethical standards of the Group. The Group conceived of two initiatives to achieve excellence and integrity. One was the introduction of the J.R.D. Tata Business Excellence Model or TBEM (on the lines of famous Malcolm Baldrige award of the US) for corporate leadership and the other was the development of Tata code of conduct to ensure integrity and honesty in behaviour and practices of its enterprises and executives. Part III deals with brand communications within brand building which are critical in brand management. Efficient management of the ‘small spends’ on the communications elements can go a long way in creating a strong brand. In view of important role played by Internet and websites, a separate chapter is devoted for these aspects. Product quality, service and good value for money coupled with effective communication plans help in creating strong brands. However, more than the decisions on what needs to be done, is the firm’s ability to execute what it desires to achieve. Part IV deals with holistic brand management which is a core concept in creating and sustaining strong brands. Six cases of B2B brands discussed include: Sintex, Motor Starter Type MK1 of L&T, Tata Steel’s Structura brand for steel tubes, L&T Eutectic, OTIS Elevators in India and Elgi Equipments – an air compressor company. Collectively the cases provide a variety of perspective and help readers grasp the point that brand is much more than having just a communication programme. Tata Exports, which was set up in 1962 and later became Tata International, was the group’s first attempt to unify the exports from group companies. Tata Steel became the sixth largest steel maker in the world after the acquisition of Corus. Tata Motors is amongst the top five commercial vehicle manufacturers in the world. Tata Tea is the second largest branded tea company in the world along with its UK-based subsidiary, Tetley. Tata Chemicals is the world’s second largest manufacturer of soda ash. TCS is one of the leading global software business companies with delivery centres in the US, the UK, Hungary, Brazil, Uruguay and China, apart from India. Tata Group has always believed in returning wealth to the society it serves. Two-thirds of the equity of Tata Sons is held by philanthropic trusts. These have created national institutions in science and technology, medical research, social studies and in performing arts. Contribution to social causes Management & Change, Volume 14, Number 2 (2010)
Book Reviews 281
works out to nearly 8-14 per cent of the Group’s net profit. Each and every group company associated with brand Tata is alive to the needs of the society and their role in improving the quality of living. Disasters and crisis are common occurrences in a country like India. The House of Tatas has set up Tata Relief Committee (TRC) to mobilize and provide relief work from its group companies in cases of major disasters like the Gujarat earthquake in 2001, Tsunami of 2004 or floods in Bihar in 2008. Each crisis required massive interventions to rehabilitate the victims on a permanent basis. These interventions go beyond the CSR activities of individual companies like Tata Steel and Tata Motors. Part V discusses future challenges of B2B brands. There exists a very wide gap between the global and Indian B2B brands. The challenges would demand global competitiveness, global awareness and global recognition. The B2B marketers from India need to reorient their entire effort to recast themselves in order to play in the global market arena. The book has a separate chapter devoted to inspiring B2B marketers in India to dream and become big brands and transform into great companies. The last chapter of this Part is a reflection on brand mystique, and is followed by closing suggestions. With three decades of experience as an academician and consultant in B2B marketing, the author argues that a brand-driven business can accelerate the transformation of all the big and small B2B marketers to gain competitive advantages. He advocates the need for a holistic brand management approach and illustrates his point through six case studies of leading brands. The book provides useful insights to managers from both developed and developing economies engaged in business brands; entrepreneurs belonging to small and medium enterprises; students opting for specialized course in B2B markets both in India and abroad; students desiring to enhance their knowledge of brand management for creating B2B brands vis-a-vis Businessto-Consumer (B2C) markets. The book addresses professional needs of managers from both developed and developing economies engaged in business brands; entrepreneurs belonging to small and medium enterprises, students opting for specialized course in B2B markets both in India and abroad; and students in brand management wanting to expand their horizon to know and understand the challenges of creating B2B brands in contrast to Business-to-Consumer (B2C) markets. Management & Change, Volume 14, Number 2 (2010)
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The book aims to create intellectual capital rooted in the Indian context with local examples; and to fill a glaring void in the field of B2B marketing. The book is an excellent text on brand management and it also derives insights from a famous Kabir couplet. Karta tha to kyon kiya, Ab kare kyon pachtaye Boya ped babool ka, to aam kahan te paye When you were doing, you did not question as to what you are doing. Having done what you have done, there is no point repenting on it. When you sowed the seeds of bitter babool tree (Acacia), how can you expect sweet mangoes from that tree Kabir’s message is simple that it is not a chance which would you give a strong brand, i.e., mangoes, if you in the first place never thought of creating strong brands, i.e., planting and nurturing a mango tree. The book attempts to motivate the marketers deeply entrenched in B2B marketing to unleash the underleveraged power of brand to create competitive advantages for growth. The book is distinctive in presenting western perspectives with Indian insights. While Indians value consumption at the same time they also wish to be prudent buyers, which sometimes makes it difficult for marketing professionals to understand Indian consumers, which in turn makes it difficult to convince Indian buyers of the value of purchase. In Indian context marketers need to simultaneously convince Indian buyers of standardized brand quality being offered and at the same time keeping their long ingrained behaviour of economic spending intact. The book has all merit to be recommended as a supplementary text book for UG and PG students on ‘Strategic Brand Management for B2B Markets’. Sapna Popli, Director & Executive Dean, IILM Institute for Higher Education. Pingali Venugopal, Marketing Management: A Decision-making Approach (First Edition). New Delhi: Response Books (B1/I-1 Mohan Cooperative Industrial Area, Mathura Road, New Delhi 110 044), 2010, xviii+245pp. Rs. 395 paperback. Starting with the understanding of consumer needs, the book provides the reader on a smooth journey of how to understand the market and develop Management & Change, Volume 14, Number 2 (2010)
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appropriate strategies. While doing so it provides an in-depth analysis of how to build a sustainable customer base in the ever growing competitiveness and dynamism of the present-day marketing arena. According to the author, marketing strategies should start by converting the technical product to a marketing product by linking to the needs of the target customer. The author has reclassified the subject particulars according to the need hierarchy to suit marketing professionals and has also come out with a concept what he calls the concept of ‘rebel need’. Marketing is all about delighting the customer and ensuring that the consumers become loyal to the brand in question. As a company influences the consumer, its competitors also try to influence the customers about their products. As a result, companies should not only focus on acquiring customers, but should also reinforce their behaviour so as to ensure customer loyalty. This means that satisfying customers not only involves understanding the needs of the customers, but also ensuring that the company’s products satisfy the customers’ needs better than the competitor’s. In satisfying customer needs better than the existing products (competition), the company may have to tackle several externalities in marketing the product. Thus, marketing also needs to be done without deviating from the company objective and working within the capabilities of the company. Thus, marketing includes all activities associated with identifying the needs of the target customers and ensuring they buy the product (by satisfying the customers better tan the competitors) by working within the capabilities of the company. According to the author, underlying principles of the marketing can be represented by satisfying the needs of the customer, outperforming the competitor and working within the company’s capabilities. Marketing is not merely advertising and selling. Advertising needs to be further supported by other activities of marketing. Unnecessary advertisements can degenerate into a nuisance many a times. Selling is another major component of marketing. Completing a sale does not necessarily imply accomplishing a good marketing. While selling is a short term objective, marketing involves a long term perspective. Customers should be satisfied with what they are buying; they should not feel cheated after the purchase and later create a negative propaganda for the product purchase. An unsatisfied customer is the worst advertisement for a brand. Marketing should start by creating a ‘want’ for the product by associating Management & Change, Volume 14, Number 2 (2010)
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it to one’s need and converting a technical product into a marketing product. Having developed the marketing product, marketing plans need be formulated to satisfy needs of the customer in a more professional manner than the competing product. Factors which could help or deter the company in marketing the product ought to be taken into account while analyzing the marketing environment. Finally, looking at marketing from the company’s perspective, the company is expected to market the product at a low cost. According to the author marketing should include all activities associated with identifying the needs of target customers and making them ‘want’ the product (by satisfying the customers better than the competitor) at the lowest possible cost. The book is divided into three sections. Section 1 deals with basics. Thus, the ‘hierarchy of needs’ is redefined to suit marketing requirements. The book also introduces the concept of rebel need, which could provide a basis for introducing new products that are not currently accepted by the society. This section also discusses the process of modifying technical products into several marketing product, thus providing an option of choosing the ideal marketing product. Chapter 2 on Needs, Wants and Need Hierarchy, describes the satisfaction of a need as the base for any purchase. Starting by defining the different needs as described by Maslow, chapter introduces the concept of a ‘rebel need’, which could form a basis for the entry of innovative or new products from different cultural settings. Chapter 3 on Marketing Product spells out the concept of the marketing product which is different from the technical product. The chapter discusses several marketing products are possible from one technical product. The levels of the marketing product, the competition at the different levels and the process of identifying the ideal marketing product also are discussed in this chapter. Section 2 deals with information required for the marketing planning process. Environmental analysis and SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis are integrated to give a more meaningful analysis of this information. Similarly, consumer behaviour and competition are discussed to provide inputs for decision-making. Management & Change, Volume 14, Number 2 (2010)
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Chapter 4 on Marketing Environment discusses various external factors that could impact the marketing process. It highlights the significance of scanning the environment on continuous basis and discusses its marketing implications. The marketing environment is typically classified as the ‘macroenvironment’, the ‘micro-environment’ and the ‘internal environment’. Chapter 5 on SWOT Analysis presents a framework to combine marketing environment variables with internal capabilities of the company. SWOT analysis should be linked to the environment analysis to make it meaningful. Understanding environment and SWOT analysis is one of the most important parts of any marketing planning process. Chapter 6 on Purchase Process discusses different stages involved in the consumer decision process and highlights three important decisions possible during the decision process (product decision, brand decision and store decision). Buyers develop simple thumb rules or heuristics when making repeat decision. These days with the Internet gaining importance, buyers gather information about competing brands from Internet. Chapter 7 on Competitive Advantage: Building Entry Barriers reviews the purpose of different entry barriers. Competitive advantage would mean that a company is able to maintain its position despite competition; an advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers than its competitors. Barriers to entry have the effect of making a market less contestable. Section 3 covering marketing decision describes a process of developing loyal customers by building a multilayered positioning process. Chapter 8 on Segmentation and Targeting presents a decision making approach for segmentation after discussing the basis of segmentation and different variables that could be used for segmentation. The important decisions that the marketer has to take a build a strong competitive position can be summarized as segmenting, targeting and positioning (STP). While segmentation is a process of dividing the market into homogenous groups, targeting is a decision. Once the segments have been identified, the product should be positioned in the market such that it has a competitive advantage. Chapter 9 on Positioning reviews the concept of positioning and the way a company should differentiate itself from the competitors’ at different Management & Change, Volume 14, Number 2 (2010)
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stages of the product life-cycle. Positioning is a decision of how the company wants to differentiate its products from that of the competitors in the minds of the consumer. Chapter 9 also discusses the impact of marketing using the analysis of intended positioning and actual positioning. Chapter 10 on Marketing Planning Process is based on concepts discussed in previous chapters, which involves moving a product from a low involvement product to a high involvement product by changing the way consumers evaluate quality. This chapter discusses how companies should plan their marketing programmes to remain market oriented. Market orientation is concerned with the processes and activities associated with creating and satisfying customers by continually assessing their needs and wants, and doing so in a way that there is a demonstrable and measurable impact on business performance. The book can be considered as unique as it redefines the need hierarchy to suit the marketing context, develops the marketing product concept, which would allow marketers to convert a technical product into more than one marketing product, combines marketing environmental variables and SWOT analysis findings to arrive at better understanding of information for making marketing decisions and evolve a multilayered positioning strategy for companies. The book has all merit to serve as a valuable resource book in marketing area for undergraduate and postgraduate students and it can also serve as a valuable guide for marketing managers in the field. Sapna Popli, Director & Executive Dean, IILM Institute for Higher Education. David W. Cravens & Nigel F. Piercy, Strategic Marketing (Eighth Edition). New Delhi: Tata McGraw-Hill Publishing Company Limited (7 West Patel Nagar, New Delhi 110008), 2009. Price not indicated paperback. Companies around the world are making efforts to achieve high levels of performance due to changing and diverse customer needs, changing technology and intense competition emphasizing the need for strategy. It will thus not be inappropriate to mention one of the quotes right at the beginning to emphasize the importance of strategy. “All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved.” - Sun Tzu. Management & Change, Volume 14, Number 2 (2010)
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The book on ‘Strategic Marketing’ examines concepts and processes in designing and implementing market driven strategies which means that market and customers that form the market should be the starting point in strategy formulation. The book is divided into six parts-I, II, III, IV, V and VI covering a total of fifteen chapters. Part I on Strategic Marketing includes two chapters, Part II on Market Segments and Customers Value (three chapters), Part III on Designing Market-Driven Strategies (three chapters), Part IV on Market Driven Programme Development (five chapters), Part V on Implementing & Managing Market driven strategies (two chapters), and Part VI on Cases has 25 comprehensive case histories. The book is thus a rich repository of content and depth of topics covered. Chapter 1 of the book deals with fundamentals and components of market driven strategies, it also mentions about the need for innovation and shun the conventional ways of doing business citing a classic example of Apple i-pod and i-tunes. The process of strategy formulation is discussed in Chapter 2 that reviews important topics like targeting, segmenting and positioning; and discusses how to make a marketing plan. Chapter 3 examines nature and scope of defining product market structure to have better understanding of customers, product interrelationships, industry structure, distribution approaches, and key competitors. In Part II the authors discuss about Market Segmentation (Chapter3&4) and points out that if effectively implemented, it gives an important competitive edge to an organization. These are explained with number of charts and examples which makes it a rich reading experience. Chapter 5 discusses information systems and the strategic role which information plays in an organization. In short it gives a message that “Information is life-blood of business”. Chapter 6, 7 and 8 are covered under one category dealing with Market Targeting and Positioning Strategies based on the product life-cycle (i.e. strategy for growth market, mature market, etc.). According to authors (Chapter 7) business and marketing strategies extend beyond one single organization. Accordingly, in order to survive and prosper in the complex and rapidly changing business environment, cooperative strategic relationships (between partners like suppliers, producers, customers) assume considerable significance. In chapter 8, the authors discus new product planning which is possible only with innovative and creative highlighting the message that in order to survive “innovate otherwise doom”. Management & Change, Volume 14, Number 2 (2010)
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Market driven programme development is covered in Chapters 9 to13 and begins with ‘Strategic Brand management’ with a pertinent example of BMW and goes on to discuss private branding, corporate branding, and product line branding. It is followed by value chain strategy wherein an organization decides whether to use distribution intermediaries or go direct to end users, reviews supply chain management and impact of Internet on globalization of distribution channels. Chapter 11 deals with Pricing Strategy & Management. An organization can be a market leader following three main reasons, namely, superior product quality, customer service or low cost, and price advantage. Thus, decision making for pricing strategy (penetration, skimming, etc) is strategically important in an environment where the cost of luxury product or service delivery is significantly dropping (like low cost airline carriers). The next challenge for an organization is to communicate its offering to the target audience, which is discussed appropriately in Chapter 12, which reviews promotion and advertising strategies and takes stock of available methods. Chapter 13 deals with the importance of direct selling by organization to connect to consumers, highlighting the salesforce strategy, role of Internet in forging ties between buyers and sellers for creating awareness, improving customer service, and enlarging distribution network. Last part of the book underscores the significance of having a proper organizational design involving hierarchy of management levels, reporting relationships, departmental coordination for strategy formulation, implementation and control. It reviews planning and implementation process, discusses different analytical approaches and highlights the importance of commitment by managers for the same. In short, ‘implementation is what separates winners from the losers”. All the chapters begin with a introduction and a classic example relating to the topic under discussion, concludes with summary of ideas discussed and a set of pertinent questions for discussion. The book includes numerous charts, graphs, pictures and flow diagrams. The book ends with around twenty five comprehensive cases though total cases are forty four spanning more than 250 pages. Indeed the book is very valuable text for academicians as well as MBA core marketing students that provides wealth of information on topics covered. The author has succeeded in producing a book of high merit with numerous marketing ideas and tools for students, teachers and industry professionals. Sujit Sengupta, Professor (Sales & Marketing) & Area Chair, Sales; and Sonia Takkar, PGP Student, IILM Institute for Higher Education. Management & Change, Volume 14, Number 2 (2010)
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T N Srivastava & Shailaja Rego, Business Research Methodology (First Edition). New Delhi: Tata McGraw Hill Private Limited (7, West Patel Nagar, New Delhi 110 008), 2010, xx+696pp. Rs. 350 paperback. This book makes an important contribution to the business management profession by addressing key methodological issues, insights, and challenges involved with the changing landscapes and developments of our time. As the authors point out in the preface, “the contents of the book are perceived to be ideal blend of theory and practice of business research and research methodology not only in size but also in depth”. Material provided in the sixteen chapters in this book definitely live up to this promise and make for highly recommended reading (and practice) for researchers looking to strengthen their methodological rigor and to complement their existing methods toolkit in triangulating new insights to important strategic areas of research. Each chapter, written meticulously, presents focused insights on their chosen topic and encourages the reader to think beyond the issues addressed. Contents of these chapters are stimulating, engaging, and thought provoking, written in a style that is nicely crafted and easy to understand. The chapters can be read standalone or in sequence, but much is gained by reading this book in the order the authors have masterfully arranged. First is a outline of the volume arranged into various parts: first five chapters look at major scopes and opportunities inherent in particular content areas. These chapters review objective of research, type of research, concept and tools for business research, defines research process, and then research design and measurement scales. The step by step progression of these chapters would certainly help anyone desiring of pursuing research to get a lucid idea about the whole spectrum of business research. The next four chapters again systematically try to sensitize the researcher to the process of data collection, presentation and analysis. Next five chapters prepares a framework for a clear understanding about use of statistics and statistical tools for data analysis. Another unique feature about this book is that it gives a separate chapter on report writing which will provide necessary help to the scholars in order to design and develop their research findings in a appreciable report format. By adding another chapter on “Ethics in Business Research”, the authors have tried to make it contextual and contemporary. Management & Change, Volume 14, Number 2 (2010)
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The genius of this book is the deliberate arrangement of the chapters in the order that they appear taking the reader on a journey of discovery and rediscovery from one methodological corner of strategy to the next. It is a breathtaking read that will stretch your thinking about research methods in business and management to a whole new level. Dr. T. N. Srivastava and Ms. Shailaja Rego should be commended not just for their ability to bring together a compendium of their intellectual contributions but for their careful and skillful arrangement and flow of the chapters that is quite compelling. The opening chapter provides an intriguing look at various types of research starting from basic to applied to business, exploratory, descriptive and so on. The chapter focuses on central tenants of the theory that resources only have the potential to generate economic value if they are used to help an organization create and implement strategies and that resources can be a source of sustained competitive advantage if they possess attributes that are costly to imitate. The authors provide exemplary evidence from the literature where scholars have been able to test the theory by linking specific resources and capabilities to specific strategies. In developing the field, the authors encourage scholars to ‘get inside’firms and engage more at the level of resources through more primary data collection rather than the over-reliance on publicly available secondary sources. The next chapter presents a meaningful differentiation between “Research Methodology” and “Research Methods”. The chapter also describes different types of variables, besides throwing sufficient light on collaborative approach, creativity and use of tools like PERT/ CPM. Chapters 3 and 4 deal with research processes and research designs, respectively. Under the chapter on research process, authors have tried to take the reader step by step in understanding components of research processes, critical issues relating to identifying the problem and other related issues. Chapter 4 describes types of research designs, relevance and historical development of experimental designs which are very useful for giving a holistic view to the beginners. Chapter 5 gives characteristics of good measurement scale and various types of measures and measurement scales. The next three chapters deal with data classification, data sources, collection and preparation of data, and presentation of data. The guidance provided by the authors for framing questionnaires is really useful for research practitioners. Management & Change, Volume 14, Number 2 (2010)
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Chapters 8 to 13 relate to statistical topics that are covered, to a varying degree, in various institutions, prior to discussion on the subject of Business Research Methodology. These topics have been elucidated in the book with an orientation towards conducting business research studies in various areas/ fields. Next chapter deals with multivariate analysis techniques, which are essential for providing completeness to any kind of research. Chapter 15 provides guidelines for report writing, which is another important feature of this book. Another unique feature of the book is its coverage of ethical issues associated with various levels of hierarchy involved with research projects. The appendices and tables are also very useful. Appendix I, for example, describes indicative topics for carrying out business research. Appendix 2 explains the role of EXCEL in statistical calculations. Templates have been provided that make the toil of calculations very simple and convenient. Appendix 3 explains the role of SPSS in statistical calculation packages in business research. Indeed, authors through this book have articulated that without clear mechanism, theories are ill-formed and incomplete. They have used the method of reflective and philosophical look involving how the integration between theory and method can be improved. The book is filled with clear examples that advocate the need to go beyond simply testing theories to looking at testing the underlying explanations of our aggregate theories. Good empirical tests of explanations should examine all three features of preconditions (facts), mechanisms, and predictions as close to the phenomena of interest as possible. This book is recommended for use by any research scholar and seasoned researchers interested to take their methodological rigor to a whole new level. Shayamanuja Das, Professor, Strategy & Operations Management, IILM Institute for Higher Education, Gurgaon. Rajesh Ray, Enterprise Resource Planning, New Delhi: Tata McGraw Hill Education Private Limited (7, West Patel Nagar, New Delhi, 110008), 2011, xvii+602 pp. Rs. 395 paperback. Enterprise resource planning systems have revolutionized the way organizations operate and are increasingly becoming necessary to run any business enterprise, small or big, manufacturing or service. ERP is an integrated packaged software solution covering business processes and functions of diverse industry needs, and has transformed the way Management & Change, Volume 14, Number 2 (2010)
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organizations treat information today. Most organizations have realized that their success depends on embracing mechanisms for generation, storage, dissemination and utilization of information for effective decision making. ERP is not about IT alone. Rather it encompasses all functional domains of an organization. Due to the wide applicability and tremendous potential of ERP, it has become imperative for all professionals to acquaint themselves with ERP systems and the issues related to their deployment. The book by Rajesh Ray is a welcome addition to the literature available on Enterprise Resource Planning. Despite the increasing interest in ERP systems in organizations of all sizes and operations, not many books are available which give a comprehensive description of ERP systems. This book aims to fill this gap. It has been written in a very simple, easy to read and understand format. Apart from dealing with basic concepts of ERP, the book also gives useful insights into emergent areas and add-on enterprise applications such as PLM, CRM, SCM, SRM, etc. The text would be useful both for students and for practicing managers, and would give them a very comprehensive description of the potential of ERP systems and the underlying issues. The book is organized in six sections. The first section introduces the reader to ERP and their benefits. Along with giving genesis of ERP systems, the section also apprises the reader with the challenges faced by organizations in deploying ERP solutions. This section gives a peep into the world of ERP systems and their implication for organizations. It also gives a lucid description of the issues faced by the ERP vendors such as need for SME based ERP, vertical specific solutions and new deployment models. The second section of the book deals with the most critical aspect of any information system, namely, implementation and support. All these issues are covered in 18 chapters, from chapter 2 to chapter 19. The success of any information system, and hence the organization, depends heavily on selection of the right product, its effective deployment and maintenance. This section is extremely important as it covers all managerial aspects and challenges of ERP. The section begins with chapter 2 which gives a good description of the ERP life-cycle. Each phase of the life-cycle has activities, critical deliverables and major milestones. The methodologies and strategies for implementation such as ASAP and Ascendant are discussed citing examples of ERP roll outs at Nestle, etc. Chapter 3 delves on the ROI analysis for ERP and gives a very comprehensive description of the direct and the indirect costs incurred and the tangible and the intangible benefits of ERP, thus building the business case for ERP. Management & Change, Volume 14, Number 2 (2010)
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Chapter 4 deals with defining criteria for selection of a consulting partner for ERP roll-outs. Selecting the right consulting partner is a very important decision. Consulting partners can be chosen for RFP, implementation, or for post-implementation support. Various methods for vendor selection are listed, including a listing of some of the popular contemporary vendor or consultants. The chapter also discusses the role of offshoring in ERP implementation. Chapter 5 deals with the process of ERP package selection. Selecting the right ERP package is a two-tier process beginning with initial package selection to finalization of the deal. The chapter gives a complete description of the ERP package selection process. Inclusion description of the available ERP packages would have added much more value to the chapter. A brief mention of cloud computing and Open Source ERPs would have made the discourse more meaningful. Effective roll-outs of large information systems such as ERP require tremendous organizational support. Chapter 6 discusses the role of the project management team detailing the roles and responsibilities of different team members. Success or failure of ERP depends heavily on the composition of various teams such as the project management team, the core team and the steering team. The chapter lists the organizational structure required for effective deployment of ERP systems. The role of the consultant and criteria for consultant selection are also highlighted. The roadmap for ERP implementation is laid out in Chapter 7. It is crucial that an ERP project is managed well within the budget, time and scope. Most large project implementations are afflicted by scope creep. The book discusses scope creep in detail eliciting various categories of scope creep such as location, business, process, application, interface, report, data migration, user and technology. The chapter gives a very good understanding of the two deliverables of the Project plan for ERP: resource plan and project procedure. Keeping the role of governance in mind, the chapter includes a lucid description of standards of governance. Use of an example to describe the project charter has made it more comprehensible. For identification of the appropriate ERP product and its effective utilization it is very important to list the functional requirements of the project in advance. Chapter 8 lists various categories of requirements of ERP systems, namely, business, functional, legal, user and maintainability. Deployment of ERP in an organization results in re-design of some process. In some cases, the business processes undergo radical redesign. Chapter 9 Management & Change, Volume 14, Number 2 (2010)
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introduces the concept of re-engineering in terms of fundamental rethinking, radical redesign and dramatic improvements. Benchmarking is discussed as a mechanism of BPR. Though all theoretical concepts of BPR have been covered, inclusion of some case studies would have definitely made it a better reading. Chapter 10 deals with Business Process Modeling, the first step to BPR. It describes the standards for modeling various business processes, elucidating various standards for business and business process modeling. The reader is also introduced to the various available process modeling vendors and products such as Microsoft Vision, etc and their comparative analysis. Chapter 11 discusses in detail issues of identifying gaps in ERP model and actual delivery, types of gaps and how they can be handled. Once the business requirements and company’s expectations from the ERP is known, the system has to be configured as per the requirements. Chapter 12 takes the reader through the issues regarding testing of ERP systems detailing three categories of testing viz. functional, technical and integration. A very cursory description of offshore and automated testing is given. One of the most critical challenges for ERP systems is managing the security. ERP systems connect the entire organization and result in transparency and fluidity of information. They are expected to provide transparency of information at the click of a button on one hand and security on the other hand. The types of security challenges of ERP systems and methodologies deployed for enforcing security are highlighted in Chapter 13.The chapter gives a brief description of different security techniques such as authorization, data masking, etc. Though the chapter does delve upon various security issues, more detailing along with case studies would have given the reader a better understanding of the critical role of security in the context of ERP systems. While chapters 2 to 13 give an overview of pre-implementation issues, the next few chapters deal with the actual process of implementation. Chapter 14 deals with migration of data from the old or legacy system into the new system. The extract, transform and load cycle of data migration is discussed in this chapter. Chapter 15 deals with preparation of checklist for actual transformation or “going-live”. Identification of training needs of the employees, developing a training strategy and training technology are discussed in chapter 16. The chapter apprises the reader with managerial Management & Change, Volume 14, Number 2 (2010)
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concepts such as “train the trainer”, “content development”, and “training evaluation”. Statistics show that almost one-third of ERP implementations fail. These failures are attributed to either improper project management or inability of the organization and the employees to adapt to changes brought in by ERP. The issues pertaining to and steps for handling change management are illustrated in Chapter 17. With the help of case snapshots from various sectors, the author brings forth the causes of failure and success of ERP systems in Chapter 18. The last chapter of this section completes the discussion on ERP life cycle by introducing the activities of postimplementation stage in Chapter 19. All application support activities and methodologies are discussed in this chapter. While section 2 of the book treats ERP systems as a “black-box” and deals with the managerial aspects of ERP solutions, the next section gives the reader a glance into the various functional modules of the ERP software. Enterprise Resource Planning systems integrate all the functional aspects of an organization facilitating seamless flow of information. Contemporary ERP solutions provide modules for all main business functional areas. Chapters 20 to 31 discuss these functional modules of ERP systems. Apart from highlighting the basic functional modules such as HR, Financial Management, procurement and material management, sales and service management, production and manufacturing management, the chapters also give a description of the functionalities of the add-on modules such as Customer Relationship Management, Supply Chain Management, ERP maintenance and Asset Management. The book has also given the leading contemporary solutions for each functional module. All in all, this section has given a very good overview of all the functional modules, basic as well as add-on of ERP. Section 4 of the book deals with the changing capability and look of ERP systems and introduces all emerging tends. As time has progressed, ERP systems have become more and more complex. Users want ERP systems that can store more data and can do complex business analysis. At the same, these ERP solutions should be simple and easy to use, and should be accessible everywhere. This has led to two major changes: ERP packages with Business Intelligence and Data warehousing capabilities, and availability of ERP services through portals. Chapter 32 of the book discusses the role of portals, managing content on portals and knowledge management through portals. While the chapter gives good theoretical insights, the lack of any Management & Change, Volume 14, Number 2 (2010)
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tangible ERP based orientation renders the chapter very superficial. Inclusion of discussion on MySAP and eBusinesss Interface of Oracle would have added more to the body of knowledge. Chapter 33 gives the theoretical background of data warehouses, and introduces the reader to the architecture of data warehouses and their logical structure. Concepts such as extraction, transformation and loading are covered quite comprehensively. The chapter also introduces OLAP and Data mining and Analytics in a language which is easy for an amateur to grasp. Discussing the new deployment models, Chapter 34 introduces the reader to Cloud Computing, Software-as-aService (SaaS) model, SOA, ERP on demand and RFID. Section 5 is a very welcome addition to any ERP textbook. The section highlights the industry specific ERP solutions. ERPs started their journey as “One solution that fits every industry”. Certain processes donot differ much across industries. But in case of country – specific and industry- exclusive processes, the business processes donot remain same across industries. Owing to such requirements major ERP vendors such as SAP, Oracle, etc have started offering industry specific solutions. Chapter 35 gives a very good description of different industry verticals and specific offerings for these verticals. The book covers ERP solutions for verticals such as petroleum, auto, pharma and consumer goods. Chapter 36 gives description of the ERP packages used in various services industries such as retail, education, telecom, banking, insurance, healthcare and utilities. The chapter is replete with excellent illustrative case studies and examples. No book for management education is complete unless it substantiates theory with real life examples and case studies. The last section of the book discusses five case studies on implementation of ERP across various Indian organizations such as Nestle’, ITC, Maruti Suzuki, Bharti Airtel and Asian Paints. The inclusion of Indian cases is a welcome addition which will result in better appreciation of a complex system such as ERP in the local context. The book has given a very detailed and comprehensive description of all managerial aspects of ERP. There are very few books on ERP which have dealt with the subject to this level of detail. However, some vital technical areas such as architecture of ERP systems, open source ERP and security enforcement mechanisms have been left unaddressed. The author can contemplate addressing the technical aspects of ERP and including case-lets in all chapters to make it more interesting and real in the forth coming versions of the book. The book also has some typographical errors which need to be corrected. The book will be an excellent reading for Management & Change, Volume 14, Number 2 (2010)
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management students and practitioners trying to understand the world of Enterprise Resource Planning systems. This book can serve as a text book for students of ERP. Vandana Srivastava, Associate Professor & Area Chair (Information Technology), IILM Institute for Higher Education. Ajeet Khurana, Information Technology for Retailing, New Delhi: Tata McGraw Hill Education Private Limited (7 West Patel Nagar, New Delhi 110008), 2010, xii+140 pp. Rs. 150 paperback. The last couple of years have been witness to the proliferation of the organized retail. Organized retail in the form of large stores has altered the shopping landscape of the country and has introduced the consumers to a new form of retail shopping experience with superior customer service, efficient people management strategies, automated data management and faster moving queues at the point of sales. All these are a result of extensive and varied use of Information and Communications Technology. The burgeoning retail sector has also opened immense employment opportunities for the youth of the country. It is, therefore, imperative for a professional seeking to be a part of the retail sector to acquaint himself with the advances in information technology and its applications. Information Technology requirements of the retail sector are very specific in nature. While several texts are available highlighting the use of information technology in businesses in general, books discussing the technology requirements of the retails sector are very limited. The book by Prof. A. Khurana is a welcome addition since it is very comprehensive book detailing the use of the technology in the retail sector. The book has been written in a simple and easy to understand format, enabling the reader to better understand IT and its application in retail industry, rather than treating IT as a “black – box”. The book is organized in ten chapters. Chapter 1 begins with explanation of the traditional Management Information Systems which were designed to capture data, process data, store, and, disseminate information in the required format for the purpose of management reporting. It then moves on to describe the Retail Information Systems (RIS), an MIS specifically used for the retail industry. The reader is introduced to the crucial components of RIS such as point of sales, sourcing, inventory management, networks, CRM and payroll. Management & Change, Volume 14, Number 2 (2010)
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The most crucial aspect of a retail outlet is the Point of Sales or the place where the customer pays for the transactions. Chapters 2 and 3 titled “ IT @ PoS” introduce the hardware and software used at the point of sales. Chapter 2 discusses the hardware at PoS and begins with a detailed description of the components of the cash register and its implication for the customer and sales manager. This gives the reader a very good insight into the expectations of the customer and cash manager. However, today most large retail outlets use the electronic equivalent of the cash register, known as the Electronic Point of Sales or EPoS. These computerized point of sales systems and their advantages, hardware and software requirements vis-à-vis the cash register are illustrated with the help of several examples. Chapter 3 describes the software used at the Electronic Point of Sales. The transaction related and management related capabilities of the EPoS are highlighted. A variant of the EPoS, the Self–Checkout EPoS is also discussed and its advantages and disadvantages are listed. The chapter also introduces legacy, Best of Breed and fully integrated systems and attempts to compare them. However, owing to the absence of specific examples, the difference is difficult to comprehend. The different payment options and mechanisms are discussed in Chapter 4. Starting from the time-tested mode of payment ie cash payment, the chapter deals with payment modes such as cheques and credit cards. The actual payment mechanism involved in use of credit cards is discussed in detail. The chapter also lists a very good set of guidelines for employees of retailers for prevention of credit card frauds. The reader is also introduced to new age payment mechanisms such as electronic fund transfers, electronic wallets and mobile payments. The descriptions of these are, however, very cursory. Effective capturing of data and identification of product is essential in the retail industry, whether at the point of sales or in the inventory. Chapter 5 introduces Automatic ID and Automatic Data Capture techniques such as Bar Code and Radio Frequency Identification (RFID). The chapter gives a very good explanation of the bar codes, their types and the hardware requirements. RFID is discussed in detail giving a very explanation of its advantages, disadvantages and challenges. While Chapters 1 to 5 discuss the basic information technology requirements of the retail industry, from Chapter 6 onwards the book focuses Management & Change, Volume 14, Number 2 (2010)
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on more contemporary and futuristic topics. Chapter 6 introduces Enterprise Resource Planning (ERP) systems which integrate all the information technology resources of retailers, and are more specific to large retail organizations. The chapter lists the benefits of the ERP to a retailer, components of an ERP and also gives a very good explanation of the pitfalls of an ERP for a retail organization. The components of total cost of ownership of an ERP are discussed along with the implementation strategies. The chapter also discusses the critical success factors for ERP implementation. The discourse is at a very basic level with the purpose of acquainting the reader with all concepts with no references to any specific solutions. With the customer being at the heart of all retail activities, Chapter 7 gives an introduction to Customer Relationship Management. The chapter begins with a retail episode to exemplify the importance of CRM. The chapter discusses briefly the five major applications of CRM software ie marketing applications, sales applications, customer service and customer contact applications, call centre and customer interaction management applications, and e-commerce applications. Chapter 8 introduces “Data Mining” i.e. discovering patterns and correlations in data. The chapter introduces the significance of data mining and how it is used for unearthing hidden relationships and for predicting relationships. Caselets have been used to illustrate effectively the applications of data mining in retail management. The chapter gives a very brief yet succinct introduction to data mining, its applications, limitations and privacy concerns. Chapter 9 highlights the role of effective supply chain management in retails stores. The distribution of good within the store, logistics management, vendor management and supplier relationship are some of the critical components of supply chain management. The chapter gives a glimpse of the objectives of IT in retail supply chain management such as reducing inventory, forecasting demand, optimizing route and delivery, scheduling manufacturing, logistic, etc. Chapter 10, the last chapter of the book moves to the description of the newest form of retailing ie e-tailing. Starting with the advantages of etailing such as 24x7 presence, global reach, customized shopping experience and reduced cost; the chapter moves on to discussing the parties involved in or the stakeholders of e-tailing. The chapter ends with tips on creating an effective e-tailing website and the factors influencing the growth of e-tailing in India. Management & Change, Volume 14, Number 2 (2010)
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In all, the book provides a preview of the world of information technology for the retail sector. Written in a very simple, easy-to-understand format, the book is replete with examples and cases to illustrate each aspect of information technology starting from the most basic to the extremely contemporary issues. The book can serve as a text book for students of the introductory course on information technology in retail. It will also be extremely useful for retail professionals having no prior knowledge of information technology. Vandana Srivastava, Associate Professor & Area Chair (Information Technology), IILM Institute for Higher Education. D.N. Dwivedi, Macroeconomics: Theory and Policy. New Delhi: Tata McGraw Hill Education Private Limited (7 West Patel Nagar, New Delhi 110008), 2010, xx+250 pp. Rs.235 paperback. Amongst other array of subjects which management students study, economics holds a place of pride. Economics has a unique way of explaining the world’s financial activities. There are three areas of economics every manager should understand: macro, micro and international. Microeconomics is a study of the decisions made at an individual or firm level. On the other hand macroeconomics presents the larger picture about how all these decisions sum together. It is the branch of economics concerned with aggregates, such as national income, consumption, and investment. As a method of economic analysis macroeconomics is of much theoretical and practical importance. It gives a bird’s eye view of the economic world and explains the main economic problems related to the behaviour of total income, output, employment and the general price level in the economy. For the formulation of useful economic policies for the nation, macro-analysis is of utmost significance; economic policies cannot be obviously based on the basis of the fortunes of a single firm or even a single industry or the price of individual commodity. The book under review is a textbook for macroeconomics both for under-graduate and post-graduate students. The book, is different from other books in two important ways-first, in organisation of the subject matter and secondly in explanation of macro-economic theories. In terms of subject matter, this book is very comprehensive and covers all aspects of macroeconomics. The subject matter has been organised on the basis of different stages of growth of macroeconomics - classical, Keynesian, post-Keynesian and the issues related theories Secondly, in terms of explanation, the book Management & Change, Volume 14, Number 2 (2010)
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uses a very systemic approach and begins with the basics and proceeds to explain macroeconomic theories step by step by using graphics and algebraic examples. The book is spread over thirty one chapters. Macroeconomic theories can be grouped broadly under four categories viz. product market analysis, money market analysis, integrated analysis of the product and money markets and macroeconomic problems and policies. Part one of the book comprises of first four chapters. Chapter one to four lay down the foundation and develops a basic framework for the study of macroeconomics. Chapter one gives a detailed discussion on the definition, origin and growth of macroeconomics as a separate branch of economics. This can be helpful for the students who do not have a background in economics. Chapter two presents a brief discussion about basic concepts of macroeconomics and the process of macroeconomic model building. This provides a very useful insight into the insight to the process of model building by economists to study macroeconomic issues. Chapter three explains the graphical explanation of the circular flow of income. Chapter four explains the measurement of national income which especially became important after the publication of Keynes ‘The General Theory’ in 1936. Part two of the book (chapters five to eight) deals with the theory of national income determination. Chapter five deals with the classical theories of output and employment determination. Chapter six takes the discussion further and explains the Keynesian theory of income determination. Keynes had developed his theory of income determination to formulate a new theory of employment in contrast to the classical theory. The theory of income determination has been explained through a discussion of three models: a simple economy model i.e. an economy without government and foreign transactions in chapter six; and the multiplier effect of the change in investment expenditure in a closed economy model i.e. an economy without foreign sector in chapter seven; and an open economy i.e. an economy with including foreign sector in chapter eight. In the Keynesian theory of national income determination, the two most important determinants of national income are consumption and investment expenditure. Part three of the book comprising of chapter nine and ten deals with the theories of consumption and investment. Chapter nine explains in detail the aggregate consumption expenditure which is the second most important factor macro variable used in macroeconomic analysis and helps in determining the level of economic activities in an economy. This chapter further explain the various theories of consumption-absolute income Management & Change, Volume 14, Number 2 (2010)
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hypothesis, relative income hypothesis, permanent income hypothesis and life cycle hypothesis in detail. These theories occupy a significant place in the economics literature on the aggregate consumer spending and in macroeconomic analysis. The chapter also throws light on the non-income factors affecting consumption. Chapter ten brings up the discussion on the theory of investment and capital accumulation. Investment is another aspect of Keynesian Theory. Theory of Investment is a vast subject in itself and thus a variety of theories have tried to explain the investment behaviour. This chapter tries to explain this complex topic in a simple manner and explains the various determinants of investment and how it changes with a change in any one of them. Part four of the book comprising of chapter eleven to fifteen is devoted to the money market analysis. This part covers topics like definition and functions of money, the supply of money, classical and Keynesian theories of money and interest and post-Keynesian theories of demand for money spread over chapter eleven to fifteen. Chapter eleven defines money through various approaches and explain the various kinds of money. Money has four important functions like medium of exchange, measure of love, as a store of value and as a standard of deferred payments. Chapter twelve stresses the need for balance between supply and demand for money. This chapter makes the students aware about the importance of money supply in an economy, how its shortage or over supply can create a dis-balance in the economy. It explains the various sources of supply, the power of commercial bank to increase money supply through credit creation. Chapters thirteen and fourteen discuss classical and Keynesian theories of demand for money and the determination of the interest rate, respectively, given the supply of money. Keynesian theory of demand for money explains the reason for the demand for money i.e. his liquidity preference theory. According to Keynes, money is demanded for three reasons-transaction, precautionary and speculative demand for money. Chapter fifteen presents a brief discussion on the post-Keynesian developments in the theory of demand for money and includes theories like portfolio theory, Baumol-Tobin, Tobin’s theory of speculative demand form money and Friedman’s quantity theory of money. Part five of the book is related to the integration of the product and money market equilibrium. As discussed earlier, part two of the book is devoted to the theory of product market equilibrium and part four deals with the theory of money market equilibrium. These two market equilibrium conditions were considered by Keynes in isolation which is not true in real situation. There exists an inter-dependence between these two and for a Management & Change, Volume 14, Number 2 (2010)
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stable equilibrium both the product and money market need reach equilibrium simultaneously. Chapter sixteen explains in detail the integration of these two markets. This is explained using the IS-LM model of J. R. Hicks. This chapter explains the basic model. Chapter seventeen makes the model further complex by introducing the government sector. Chapter eighteen introduces the foreign sector and makes it a four sector model. Chapter nineteen presents the synthesis of the Keynesian and classical theories of output and employment determination. This is important since both theories have their own shortcomings, classical theories lays emphasis on supply side and the Keynesian theory pays attention to demand side of the economy. In reality, however both the demand and supply factors of the market play an equally important role in determining the equilibrium level of output and employment and price level. Chapter twenty explains the post-Keynesian developments in macroeconomics, viz., the modern monetarism, new classical economics and the supply side economics. Part six of the book goes beyond the theoretical aspects of macroeconomics and discusses major issues like problems of achieving and sustaining a high growth rate of economy and preventing the recurrence of business cycles. These issues are usually associated a branch of economics known as “Growth and Development Economics”. Thus this book is useful for students to understand important growth models like Harrod-Domar Model, neo-classical theory of growth and Solow model growth. With growing globalisation, all countries of the world have become inter-connected and hence business cycles today affect all the major economies of the world. It thus becomes important for the business managers of today to understand the nature and causes of business cycles so that the adverse effects of recession and inflation can be minimised if not prevented. Chapter twenty two explains in detail the various theories of business cycles. This chapter is very current and covers the latest global recession, its causes and impact. Part seven of the book deals with the most important problems confronting most of the economies of the world- the problems of inflation and unemployment. These two twin problems have gained significance in the current world economic scenario and thus require attention. Chapters twenty three and twenty four deals with the meaning and measurement of inflation, theories of inflation and method of intervention to put a check on the inflationary spiral. Chapter twenty five presents a brief account of causes and kinds of unemployment and its relationship with inflation as traced by A.W. Philips and its modifications by various other economists later. Management & Change, Volume 14, Number 2 (2010)
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Part eight is related to international aspects of macroeconomics. In todayâ&#x20AC;&#x2122;s globalised world no economy works in isolation and they are inter-linked and inter dependent on each other. Chapter twenty six brings up the issue of foreign exchange determination and explains in detail how the equilibrium is achieved. Chapter twenty seven is related to balance of payment (BOP). It covers the accounting methods of BOP, Indiaâ&#x20AC;&#x2122;s BPO position in recent years, method of assessing the BOP position and the causes and kinds of disequilibrium in BOP. These two topics have important implications on macroeconomics aspects like GDP, employment and price level of the country. The world has witnessed that free market mechanism does not ensure general equilibrium and stability in the economy. Thus government needs to adopt macroeconomic policy measure like monetary and fiscal policy. Part nine of the book deals with these two policies in detail. Chapter twenty nine explains the meaning, objectives and formulation of the macroeconomic policy. Chapter thirty explains in detail various instruments and target variables of monetary policy, it also highlights the effectiveness and the limitations of monetary policy. The chapter ends with a discussion on monetary versus fiscal policy controversy. Chapter thirty one brings up various issues related to fiscal policy like its working, its scope, use of fiscal measures for achieving the macroeconomic goals and the limitation of fiscal policy. The subject matter of macroeconomics is complicated and thus students require a textbook which explain the various principles simply, clearly and distinctly. This book is an ideal tool for converting sometimes confusing economic concepts into very practical, and very instructive experiences. Each chapter ends with suggested readings which can be very helpful for students to pursue the topic concerned in greater complexity. The graphs in the book are large and very clear. One thing which is important to mention is that the book has been very current wherever such topics required it to be. At the end of the book, there is a detailed appendix along with the glossary of important terms. The appendix provides solutions to certain numerical questions which are pretty useful for the students understanding. Revieser, however, finds that for some more sophisticated questions from students, the answer is not in this book. In a nutshell the book is fantastic completely readable and enjoyable; yet totally college level. But one must admit that writing a text book on macroeconomics when plenty of such books are already available, is not an easy work. The author with his vast experience has done a very pioneering work. He provides the student all the essential material in a comprehensive way. Management & Change, Volume 14, Number 2 (2010)
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Sangeeta Yadav, Assistant Professor, Economics Area, IILM Institute for Higher Education. Prasanna Chandra, Fundamentals of Financial Management (Fifth Edition). New Delhi: Tata Mc Graw Hill Education Pvt Ltd (7 West Patel Nagar New Delhi 110008). xvi+505 paperback. Financial Management also referred to as corporate or managerial finance has assumed great significance in recent times as the complexity of business organisations has increased rapidly. Several pertinent issues such as deciding the form of capital investment, sources for raising capital and handling day to day financial transactions can be understood through proper understanding of concept of financial management. The book entitled Fundamentals of Financial Management by Prasanna Chandra (fifth edition) covers the theories, methods and practical considerations that are helpful in addressing various issues in financial management. Part I: The book opens up with an overview of the forms of business organisation. All the firms have basic common problems related to managing finance but they become more complex for companies than other forms of organisation. Chapter 1 has introduced an understanding of financial decisions of the firm namely capital budgeting, capital structure and working capital management and how do they help in deciding the wealth maximisation goal of the firm in modern day context of business environment. The later part of the chapter has dealt with key functions of finance managers and exhibit 1.3 supports it with depiction of organisation of finance function. The last section has clearly established relationship of finance with economics and accounting and all investment and financing decisions are guided by set of regulatory frame work. Chapter 2 has given an insight on the understanding of financial system as it is relevant to financial manager for taking financing decisions. The components of financial system, namely, financial Institutions, markets and intermediaries have been introduced. Classification of markets presented through Exhibit 2.2 gives an overview of Indian financial markets. An investor may require help of middlemen or agencies to find suitable alternative for investment and a section of the chapter titled financial intermediaries provides understanding for its rationale and also financial institutions acting as intermediaries have been highlighted. Financial system is regulated by government and a very brief introduction of RBI and SEBI is stated. Management & Change, Volume 14, Number 2 (2010)
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Part II: This part has dealt with introduction to financial statements, their analysis, fund flow and cash flow analysis, financial break even analysis and preparation of forecasted statements based on financial planning by the business organisation. Chapter 3 has introduced financial statements, namely, balance Sheet and profit and loss account through exhibits and components of these statements have been explained comprehensively. Financial management is based on the objective of wealth maximisation and therefore it is important to distinguish between accounting profit and cash flow. Section 3.3 has taken into consideration this aspect but a more detailed explanation is taken in Chapter 12. Financial statements do not provide a complete picture of the organisation; hence lenders, investors, security analysts, managers and others would be interested in further analysing these statements to have a more comprehensive assessment of the firm. Chapter 4 has discussed the various tools of financial analysis like ratio analysis, comparative analysis, Du Pont analysis and common size statements. An imaginary balance sheet and profit and loss account (Exhibit 4.1 and 4.2) has been taken as the basis for explaining and calculating all the ratios. Du Pont analysis used for measuring key performance parameters is also briefly explained. The solved problems at the end of the chapter would help students to analyse financial statements of any organisation. Previous chapter focussed on analysis of financial statements. The chapter titled Fund Flow Analysis provides an insight as to how movement of funds into and out of the organisation affects changes in capital structure of the firm. This has been explained through Fund Flow statement on total basis, working capital basis and cash basis using comprehensive illustrations. Cash flow statement format as prescribed under AS-3 to be adopted by companies as part of annual reports is discussed in the last part of the section with suitable solved exercises and problems. Finance Manager would like to understand the impact of changes in output, costs, selling prices on income, profits and earnings to shareholders through the use of financial break even point. Chapter 6 briefly introduces concept of CVP analysis to find break-even point of production and Leverages (operating and financial) to establish relationship between incomes and earnings to shareholders for alternative cost structures. Financial break even point is explained later in Chapter 16 under the topic EBIT-EPS analysis. Management & Change, Volume 14, Number 2 (2010)
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Financial Planning and Forecasting chapter has discussed need for planning, and the methods to prepare forecasted profit and loss account and balance sheet. The firms may not be inclined to raise funds externally as it involves huge cost. Therefore they need to sustain a growth rate and concept of sustainable growth rate covered in the Chapter the generate an understanding of the same. Part III of the book has covered the valuation aspects for all the investments a firm may propose to make and also methods for measuring risks associated with them to earn a desired rate of return. All these methods have been supported by very basic illustrations to understand the concepts. Every decision maker should have a thorough understanding of the concept of time value of money in terms of its present value and future value as the value of money does not remain constant and thus affects financial decision-making. Chapter 8 titled time value of money has covered various aspects as present value of a single amount and annuity, future value of a single amount and annuity and present value of perpetuity through formulas and illustrations to make one familiar with these concepts. The concept of time value of money explained in previous chapter lays foundation for investors and managers to understand how to value securities (bonds and equity) as buying and selling of them depends on its value both in terms of present returns and expected future returns. Chapter 9 has discussed discounted cash flow methods applicable to bonds and equity for its valuation to help investors maximise their value. Bond valuation has been explained through basic model and return on it through the concept of yield to maturity (YTM). Dividend capitalisation, earnings capitalisation, book value, and liquidation value approaches have been discussed for equity valuation with solved exercises. Every investment has some uncertainties associated with it and thus an element of risk exists. Chapter 10 on risk and return has introduced the idea of expected return and calculation of risk through standard deviation. The other half of the chapter incorporates the concept of portfolio and risk and return measures for 2 security and n securities case. Measurement of market risk is explained separately. Relationship between risk of a security and its return is depicted through security market line using capita asset pricing model. Management & Change, Volume 14, Number 2 (2010)
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Part IV deals with techniques of capital budgeting for evaluating investment proposals, estimating project cash flows, calculation of cost of capital and risk analysis in capital budgeting. Chapter 11 introduces the concept of capital budgeting by relating it to capital expenditures as they involve substantial outlays which are long term in nature and it is not easy to reverse these decisions. Capital budgeting process has been explained through six phases right from identification of investment opportunities to performance review. In later part criteria for evaluating investment proposals have been discussed under two broad heads discounting and non-discounting methods. Under discounting criteria NPV, IRR and benefit cost ratio have been covered with their respective accept reject rules using illustrations. A comparison of NPV and IRR in terms of similarity and dissimilarities has been done. The last part deals with discounting methods, namely, payback period and Accounting rate of return. Cash Flows are an important component for evaluating any investment proposal. Chapter 12 deals with the estimation of cash flows-investment outlays and cash inflows which is the most difficult aspect of capital budgeting. Cash flows estimation of a project involves various principles like separation, incremental, post tax and consistency to be followed which have been discussed in this chapter. Cash flow estimation for new projects and replacement projects have been discussed in the last with suitable solved problems to provide a total understanding of the topic. Chapter 13 covers risk analysis in capital budgeting. Investment proposals differ in risk depending upon the nature of project like R&D project may be more risky than replacement project even if the investment is similar. This chapter discusses basic techniques of risk analysis, namely sensitivity analysis, scenario analysis, break even analysis and decision tree analysis. All these techniques analyse the impact of change in a variable or variables under different conditions on the decision to accept or reject a investment proposal. Decision tree analysis technique has been explained through an illustration of decision tree to evaluate alternative proposals. The last part has explained two methods whereby an element of risk has been incorporated to discounting methods to decide about acceptance or rejection of a proposal. All investment alternatives have a cost associated with them which is one of the main components of any capital budgeting exercise. Chapter 14 has dealt with methods for calculating cost of various forms of capital to be Management & Change, Volume 14, Number 2 (2010)
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used for investment. Methods for calculating cost of equity, cost of debt, and cost of preference capital have been explained with formulas supported by examples. The cost of equity method has been covered using CAPM approach, risk premium approach and dividend growth model with suitable illustrations. All the firms using various forms of funds for investment purpose would like to minimise the overall cost of capital and this has been explained in the last section under weighted average cost of capital (WACC). The concept of WACC has been discussed using market value weights rather than book value supported by comprehensive examples. Part V deals with approaches to determine capital structure, how to plan an optimum capital structure using EBIT â&#x20AC;&#x201C; EPS analysis, factors determining dividend policy and its impact on share prices. Chapter 15 discusses the relationship between capital structure and value of the firm through various approaches. There are two viewpoints one argument is that capital structure does not affect the value of the firm as suggested by Net Operating Income (NOI) and another viewpoint believes that capital structure affects value of firm through net income (NI) approach. Both these approaches have been explained through assumptions, costs of different forms of funds and through diagrams depicting behaviour of different cost of funds. Modigliani and Millerâ&#x20AC;&#x2122;s approach to capital structure which is a modification of NOI approach has been explained through the process of arbitrage through an illustration which shows how equilibrium can be attained through buying and selling in different markets so that value remains unaffected. Implications of corporate and personal taxes on capital structure is discussed in the last section of chapter. An optimal capital structure cannot be easily defined or planned as there is no suitable technique to find out optimal structure. Chapter 16 explores some tools and factors which can help a firm to choose an appropriate capital structure. EBIT- EPS analysis explains how sensitive earnings per share is to change in earnings before interest and taxes and using different combination of debt and equity an appropriate structure can be identified. Besides this interest coverage, cash flow coverage and debt service coverage ratios have been discussed to identify relevant capital structure. Two theories namely trade off theory and pecking order theory related to real world corporate financing have also been explained. Factors having an affect on capital structure decisions are stated towards the end of chapter. Management & Change, Volume 14, Number 2 (2010)
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Chapter 17 deals with dividend policy of the firm and its impact on choosing the form of financing and thus valuation of its equity shares. Walter and Gordon models have been explained to determine whether payment of dividend is relevant or irrelevant in valuation of shares. Walterâ&#x20AC;&#x2122;s model has been explained through valuation formula and numerical example concluding that dividend policy of the firm has a bearing on share valuation. Gordonâ&#x20AC;&#x2122;s model has been discussed by taking dividend capitalisation approach to explain payment of dividends and its impact on value of shares. Irrelevancy of dividends i.e dividend policy has no impact on valuation of shares /firm as proposed by Modigliani and Miller (MM model) is discussed thereafter in detail supported by mathematical formula and appropriate conclusions and comparisons with other models. The MM model was criticised on several grounds which has been discussed after the explanation to model. Chapter18 delineates key dimensions of dividend policy and discusses the factors relevant for formulating an appropriate dividend policy. Two important dimensions of any firmâ&#x20AC;&#x2122;s dividend policy dividend payout ratio and stability of dividends have been discussed under separate headings. Factors such as liquidity, control, taxes, shareholder preference and access to external source of financing have been taken into consideration for deciding payout ratio. Rationale for stability of dividends has also been considered. A brief overview of approaches related to dividends as a residual payment is provided. No firm is allowed to pay any amount of dividend as it is governed by law. A section of the chapter provides an insight to the legal procedures and provisions to be considered by firm before paying dividends. Lastly the concept of bonus shares, stock splits and buyback of shares has been provided with their effect on equity portion of balance sheet using examples. Part VI of the book focuses on long term financing in terms of sources of finance, forms of raising funds externally as well as internally and functioning of securities market and its regulation. Chapter 19 deals with main features of two broad sources of long term finance, namely, equity and debt and comparison among them. The first part relates to equity capital its types, rights of equity holders and the advantages and disadvantages of using equity as a means of financing. A brief overview of preference capital follows it. Debt as source of funds can be in the form of term loans and debentures. The features of both these forms of debt have been discussed and also its advantages and disadvantages pointed out. The latest form of debt instruments have been stated under the Management & Change, Volume 14, Number 2 (2010)
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topic innovation in debentures. Exhibit 19.1 provides a summary of comparison of all the forms of long term finance covered in this chapter. Firms raise funds initially from promoters and financial institutions but as it grows may require raising funds from public. Chapter 20 discusses the procedures involved in issuing securities and raising term loans with major emphasis on equity as to when, how and to whom securities are issued. Venture capital as source of funds has been discussed in the first part followed by Initial Public offer (IPO). Firms may decide to go public and the eligibility norms for bringing out an IPO and steps involved in it have been discussed in detail under the concerned heading. It has also covered role of lead manager, costs of issue and pricing issues in a brief manner. Rights issue its characteristics; procedure, conditions and its consequence on value of share and shareholders wealth have been explained separately. Private placement of shares and bonds are briefly stated. Section 20.6 of the chapter has discussed the procedure for obtaining a term loan followed by the issues considered by financial institutions for approving the funding. The last section has provided an insight into investment banking in context of Indian scenario. Chapter 21 titled securities market has covered equity and debt market and a brief insight has been provided for derivatives market. Equity market includes primary and secondary market and the chapter has covered various aspects of them particularly secondary market in detail. Functions of NSE and BSE the main stock exchanges in India have been discussed in point form. The trading and settlement process on exchanges have been stated precisely. Types of stock market indices and an understanding of quotations of individual stocks have also been provided. Section 21.6 focuses on SEBI the regulating agency and the challenges it might face in near future. Topic of debt market has covered government securities market, corporate debt market and money market. Trading in derivative markets in India has seen tremendous growth in short time span since its inception and a section of chapter has provided an insight into options and futures market. Part VII has covered aspects of short term financial management like working capital and its management, cash and credit management , inventory management and financing of working capital as compared to Part IV, V and VI which covered aspects of long term financial management. Chapter 22 titled working capital policy initially focuses on two concepts gross working capital and net working capital and its constituents. All firms Management & Change, Volume 14, Number 2 (2010)
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need to have minimum level of working capital which can be decided after considering various factors and separate section has explained these factors. The level of current assets to be maintained by firm depends upon its policy of aggressive buying or strict conditions may exist which in turn decides the way of financing these assets. Section 22.4 has explained different strategies for it. Operating cycle and cash cycle are the components which decide the investment in working capital have been explained through exhibit 22.6 and solved illustration. Method for calculating working capital requirement has been done discussed in the last part of the chapter using an example followed by solved problems. Chapter 23 has dealt with management of cash as it being most liquid asset and vital to operations of firm on daily business. Various tools of cash management have been discussed therafter. Short term cash forecasting or cash budgeting has been explained through receipts and payments method supported by examples. A brief overview of long term forecasting has been provided. A section is focussed on achieving efficiency of cash management through proper monitoring of collections and control payables. Various investment options available to firm to invest surplus funds like commercial paper, deposit schemes, bills discounting are highlighted towards the end of chapter. Firm’s credit policy helps to understand the credit management aspect. Chapter 24 has covered various aspects of firm’s credit policy, approaches for credit analysis and methods to control receivables. Credit policy is decided after considering factors as time allowed for credit, cash discount for early or prompt payments and standards for granting credits which have been discussed in 24.2. Topic of credit evaluation has identified methods of assessing credit risks to decide credit limits using two approaches, namely, traditional credit analysis and numerical credit scoring. The first approach uses five C’s character capacity, capital, collateral and conditions for assessing prospective customer. The other approach uses numerical score as the basis for assigning ratings to customer. The last section has dealt with two methods, namely, days’ sales outstanding and ageing schedule for controlling receivables. Chapter 25 has dealt with management of inventories. Inventory constitutes 15-30 per cent of total assets of any business thus its importance cannot be ignored. It has many financial implications thus manager needs to monitor and control its level through proper planning. EOQ model discussed in the chapter focuses on different costs associated with inventories and mathematical formula for calculating optimum order size, reorder level and Management & Change, Volume 14, Number 2 (2010)
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safety stock. Techniques like ABC analysis, just-in-time are covered in section on monitoring and control of inventories. Exhibit 25.3 & 25.5 explains these techniques through illustrated examples. All businesses need to maintain a minimum level of current assets to ensure smooth conduct of its operations but the level varies a great deal at different times. Financial mangers need to monitor the level to arrange funds for them. Chapter 26 identifies sources to fund working capital requirements or in other words options for trade credit. Section 26.3 has covered the entire process followed by commercial banks for financing working capital requirements. Another section points out regulations by RBI to be considered by banks for short term financing. Public deposits, inter corporate deposits, commercial paper, factoring are other sources discussed in the chapter. Part VIII covers special topics like lease, hire purchase, mergers, acquisitions and an overview of international financial management. These topics are very important in the context of dynamic scenarios in business situations. Chapter 27 covers special forms of financing options available to business enterprises, namely, lease, hire purchase and project finance. The introductory section describes all types of lease arrangements followed by various considerations to evaluate a lease option. Procedure for financial evaluation of lease has been explained through working examples in section 27.3 followed by explanation for non financial considerations in leasing buying situation. A brief overview of hire purchase and project finance is discussed in last section of the chapter. Corporate restructuring has become a major global theme in the financial world in present times. Chapter 28 covers mergers, takeovers, buyouts as major forms of restructuring. First section of the chapter covers plausible and dubious reasons for mergers. Merger involves understanding of various complex procedures for making it effective and the process for the same has been discussed under the topic mechanics of merger. Financial aspects involved in merger have been explained through illustration. Procedure for valuation of a purchase has been discussed using NPV method. Motive and rationale for takeovers divestitures and demergers are covered in last part of the chapter. Chapter 29 provides an overview of financial management from international perspective by discussing multinational corporations and world Management & Change, Volume 14, Number 2 (2010)
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monetary system. Exchange rate concepts domestically and internationally have been introduced in one section. Section 29.4 deals with sources available to Indian firm for raising foreign currency finance, namely, euro issues, term loans, commercial borrowings, and export credit schemes from international financial institutions. International trade involves use of various documents and these have been covered briefly. Foreign exchange exposure created with the use of floating rates are discussed under a separate heading including its types, namely, transaction, translation and operating exposure. Forward market contracts and swaps used by firms on account of imports and exports have been discussed under management of foreign exchange exposure in the last section of the book. The book provides a total understanding of the concepts of financial management which can be applied to real world situations. The author has put across his ideas using simple sentences which can be understood by all users irrespective of the fact whether one has basic knowledge of finance or not. Every concept and technique covered in the book has been supported by examples and illustrations followed by practice questions at the end of the chapter. The book can be prescribed as core text book for any course in business management in finance area for the electives such as Financial Management or Corporate Finance. Girish Ahuja, Assistant Professor, Finance Area, IILM Institute for Higher Education. Y. V. Reddy, India and the Global Financial Crisis: Managing Money and Finance. Hyderabad: Orient Blackswan, 2009, xx+ 397pp. Rs. 595 hardbound. Y. V. Reddy was Governor of the Reserve Bank of India (RBI) from 2003-2008. This book is a collection of the twenty three speeches that he delivered during this period. These years are also important because they represent a period of high-growth when India emerged as a global player. Reddy's reflections are therefore of importance in helping readers understand what the policy options were before RBI on a range of issues comprising monetary policy, the regulation of the banking sector, reforms in the financial sector, globalization, and so on. These 23 speeches were delivered in a number of national and international forums, and reflect Reddy's commitment to opening up an intellectual discussion on the thought processes and policy options that throw light on the RBI's management of the economy during this period. A number of important policy questions Management & Change, Volume 14, Number 2 (2010)
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that have not yet been fully-resolved in the domain of central banking are addressed in this book; understanding theoretical and practical rationale that guided discussion of these important questions at the RBI will keep academics, bankers, consultants, economists, and the media fully-occupied in the years to come. The over-all impression created by the book is that the RBI's engagement on these matters was of the highest possible standards as is evidenced by the academic rigor that Reddy brings to each of these speeches. Not only is Reddy interested in what central bankers have to tell each other on a range of policy options, but he is also able to integrate the latest academic thinking on matters comprising monetary theory, monetary policy, central bank communication practices, regulatory frameworks, etc in his speeches as the RBI Governor. The most important questions addressed in this book include: What are the prospects for the Indian economy? What are the challenges of banking and financial sector reforms? How does the globalization of the Indian economy affect monetary policy? How do monetary and regulatory policy relate to each other? What are implications of developing a formal communication policy for the RBI? What are modalities of managing capital account liberalization in India? How do global imbalances affect India? What are the uncertainties and dilemmas in managing globalization, money, and finance? In addition to the 23 chapters mentioned above, the book also has an epilogue on the global financial crisis as it relates to India. All these questions are addressed not only from the RBI's point of view, but also incorporate a review of the theoretical framework, the academic literature, a list of policy options, and Reddy's take on what the relation between cause and effect is in any given situational analysis of the macro-economy. While RBI's monetary policy stance gets a lot of media coverage, not much is known about how it manages questions and forms of institutional autonomy including organizational design, styles of leadership, modalities of governance, steps involved in formulating and implementing its regulatory responsibilities, work done so far to generate a greater understanding of financial literacy, financial inclusion, rural banking, rural credit, role of micro-finance institutions, and pros and cons of central bank communication. Furthermore, RBI's success in preventing a collapse of the Indian banking sector during the crisis of 2008 by putting in place prudential norms of banking has been commented upon repeatedly, but not discussed sufficiently since RBI was accused of being too conservative during the years of heady Management & Change, Volume 14, Number 2 (2010)
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expansion. It is all the more important then to identify these prudential approaches and ask to what extent these can serve as best practices in retail banking in emerging economies. It is important to remember that not all central banks are invested with regulatory responsibilities; some focus only on price stability and maximizing employment while the rest like the RBI have a range of responsibilities. It is therefore important to differentiate amongst institutional functions of central banks and not assume that all are alike. A part of the reason that central bankers have discovered the importance of talking incessantly to each other in a number of academic and international fora is because of the institutional anxiety that is generated by the different policy agendas that they are asked to fulfill by their national governments. Given the endemic differences in policy agendas, central banks are bound to differ substantially in what they understand to be the most effective forms of decision making: this is reflected, for instance, in the structural dynamics of how monetary and fiscal policy makers carve out the macroeconomic policy agenda amongst themselves. These then are some of the reasons for which central bankers feel compelled to explain their actions to a wider public that goes beyond fellow professionals. Reddy also argues in his 'random thoughts' that nothing less than financial stability is at stake in communicating effectively with the relevant stakeholders. The modalities involved in segmenting information and communicating with different types of stakeholders however is not the same; the main advantage of having a formal communication policy is that it will become possible to institutionalize different approaches involved in doing so. Reddy provides a number of important examples when attempts were made by central bankers to talk up the economy or talk down the rupee. Amongst the challenges of developing such a policy include questions of what should be communicated, when it should be communicated, the timing of the communication to maximize impact, and the 'quality of information', in forging effective communications. An unusual aspect of the communication policy in the Indian context also involves making known the availability of facilities like that of the banking Ombudsman in order to address, the deficiency, if any, in the provision of banking services to the people at large. Reddy's take on the RBI's communication policy was influenced by the comments of former RBI Governor I.G. Patel who argued in 2004 that 'communication is not just about transparency', but that 'it is also about education, guidance, and steering things in the right direction' so that 'the central bank can be an honest broker between the government Management & Change, Volume 14, Number 2 (2010)
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and the public'. It is this form of honest brokerage then that Reddy is attempting from both a policy and theoretical point of view in these addresses as governor albeit with an acute sense, as Reddy himself puts it, of 'what RBI means to the common person', whose interests and savings that it feels must be protected, and which, in fact, it succeeded in protecting during the recent crisis. Shiva Kumar Srinivasan, Visiting Assistant Professor, Managerial Communications, IIM Kozhikode, Kerala, E-mail: shiva@iimk.ac.in B.L. Agarwal, Theory and Analysis of Experimental Designs (First Edition). New Delhi: CBS Publishers & Distributors (CBS PLAZA, 4819/XI, Prahlad Street, 24 Ansari Road, New Delhi). xv + 493pp. Rs. 350 paperback. Experimental designs are inevitable part of research methodology. As an instance in point, often an important element in sampling studies, such as an assignment of sample units to treatments is referred to as randomization. For example, in evaluating the effectiveness of training programmes, it is important to account for the differences among instructors. This can be accomplished by randomly assigning a particular training programme to each instructor. One way of reducing the number of sample units is to use an incomplete design where not all combinations of treatments and blocks are represented. An efficient procedure for doing this is the Latin square design. The primary advantage of the Latin square design is that it reduces the number of sample units needed in testing with three factors. Latin square design is however limited to situations where exactly the same number of levels are used for both the blocking variables and the treatments. Given this background, this book offers comprehensive coverage of the key elements of experimental design used by applied researchers to solve problems in the field. This book shows students how to use applied statistics for planning, running, and analyzing experiments. The text of the book gives students valuable practice with real data and problem solving. This book also focuses on computer usages in terms of statistical software package SPSS. The author presents the material clearly, uses interesting examples and gives activity questions at the end of each chapter. This book is ideal for students and also appeals to professionals and researchers doing experimental work. Management & Change, Volume 14, Number 2 (2010)
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Chapter 1 covers basics of experimental designs like requirements of a good design, orthogonal design, statistical models, contrasts, and methods for post-hoc tests, etc. in a systematic and lucid manner. The knowledge of the topics will prepare inquisitive minds for designing and analysis of experiments. Chapter 2 provides details of all basic designs such as completely randomized design, randomized complete block design with missing values and sub-sampling, Latin square design, cross over design to enable students and researchers grasp and apply them easily. Step by step analysis of live experimental data is demonstrated manually as well as through SPSS package. Chapter 3 deals with non-parametric procedures as an alternative to analysis of variance which can be very useful in marketing research and behavioural sciences as observations are often based on nominal scale. This chapter has given analysis for one-way and two-way classification. Chapter 4 discusses factorial experiments in details including the concept of main effect and interaction, expected mean squares and their interpretation. Layout and analysis has been explicated using direct method, modulo technique, contrast method and Yates' method in case of 2n factorials. A distinctive feature is the break-up of effects and interaction into linear and quadratic components. Chapter 5 explains the methods of complete confounding through contrasts and modulo technique. However, the complicacies of confounding of asymmetrical factorials have been given by some well known approaches and also through recent and easy method of collapsing of blocks. This will make the job of researchers and learners much more convenient than ever. Chapter 6 has eased out complexities of fractional factorial experiments through proper explanation and a practical example, which will enable users to design and analyze them in desired manner. Chapter 7 provides requisite knowledge of all aspects of split plot design with manipulations. Split plot design has considerable utility in applied sciences. Analysis of data is well explained and is expatiated further through solved examples. Chapter 8 on nested classification is seldom used in practice. Hence, its treatment in brief as presented is justifiable to an extent with a numerical example. Chapter 9 presents some commonly used transformations which help analyze non-normal data. Advantage of these transformations is that they are applicable in all designs. Transformations supported by proper illustrations Management & Change, Volume 14, Number 2 (2010)
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further elaborate the matter. Chapter 10 on analysis of covariance enables readers know its purpose and basic principle underlying this method in any experimental design. Solved examples furthers enhance the understanding of analysis of covariance. Chapter 11 pertains to incomplete block designs, which deals with complex aspects of experimental designs in a very clear manner. Furthermore, it deals with only such aspects which are of practical utility. The analysis of balanced incomplete block design (BIBD) and partially BIBD with live examples makes the analysis procedure amply clear. Chapter 12 is unique in the sense that it includes multivariate analysis of variance presented in a very easy to understand manner and further supported by solved examples. On the whole, it is a path-breaking book in the field of statistics which deals with theory and practice of experimental designs in easy to learn manner. The book is free from much of the statistical jargon to drive the points straight into the reader's mind. The book is supported by numerous solved examples at each stage to facilitate learning going through self efforts. The chapters have been constructed to make it easy for the instructor to design a course to fit individual needs. With the understanding gained students will be able to apply techniques logically. The book has all merit to serve as text book for experimental design within the broad field of statistics and quantitative techniques taught at graduate and post-graduate levels in business schools, engineering colleges; and science, arts and commerce colleges. Sumit Rastogi, Assistant Professor, QT & OR Area, IILM Institute for Higher Education. Jayavenugopal, Can We Tackle? An Insight into Learnerâ&#x20AC;&#x2122;s Life through Teacherâ&#x20AC;&#x2122;s Perspective by Educationist and Social Scientist (ISBN â&#x20AC;&#x201C;978-81-906577-1-6). Published by PACT, Rs. 100, E-Book. Every book needs to be reviewed for further improvement and research on the topics covered. The reviewer feels that in view of author's very rich and varied background the author is very competent to write a book on this subject. Being an educationist and social scientists for over four decades, Dr. Jaya Venugopal is very eminently suited to write authoritatively on this subject on e-book format, which has its own peculiarities such as accuracy and precision in presentation of ideas. She is an educationist who has experience on the diversified fields of education having risen from Management & Change, Volume 14, Number 2 (2010)
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kindergarden teacher level to a college professor and finally as one who later set up several business schools or provided new orientation to existing business schools. The uniqueness of the present author is that she not only surmounted difficulties which she came across but also suggested very effective solutions expected from a person of her background. The book addresses diverse needs of students, parents, teachers and management alike. Students perspective: Right from the first chapter the author focuses upon conventional form of teaching its paramparas (traditions) which helps them inculcate human values from country's rich cultural heritage and transforms them into all round person. The author takes into account feedback from a student survey made for eliciting their perception about the existing standards of education. Many aspects such as students' responsibility, sacred relationship, code of conduct and responsibilities, cultural ethos, etc, which according to the author, are necessary for bringing necessary transformation in students. Parent's perspective: Next, the students another group of beneficiaries are parents. In this world of greedy parents, the book tries to enlighten them on what a parent need to do and what a parent need to avoid. The point like how can parent help in the home work of the child reduces stress on the child and parent. The most important issue worth noting is the care taken by parents on transition period from school to college. The role of parents in imparting values such as cultural, social, physical, and spiritual are aptly highlighted. Teacher's perspective: The book brings awareness about so many unknown factors which teachers often fail to address. This book makes teacher realize that teaching a subject alone is not their cup of tea, it is much more than mere teaching. The chapter on 'Learning Differences' highlights the need to teach differently to different learners. Strategy, skills, learning standards, models for 21st century, etc., may help teacher in developing them for meeting future challenges. In essence, the author has clearly put forth what a teacher should do for building strong citizens for the world. Management's perspective: The author has highlighted role of school management in fulfilling aspirations of students, teachers and parents. She also specifies a few programmes such as LOIC, CLIP, ELASTIC, etc, created and designed by her over past several decades, which have been adopted by many institutions across the country. The school management Management & Change, Volume 14, Number 2 (2010)
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needs to come out with strategy to address aspirations of students, parents and teachers in holistic manner. Survey report: The author has surveyed needs of present and future generation by analyzing expectations of student, parent, teacher and management. The responses reported in the survey could be interpreted according to diverse needs and contexts. This e-book in the pdf format in multiple colours is interspersed with diagrams and photographs to deliver the message with precision. It presents hundreds of concepts and ideas covered under different categories in its sixteen chapters spanning over 650 pages (The e-book can be procured from: No 2 RR Flats, No 5 Anthu Street, Santhome Road, Mylapore, Chennai 600 004, Mob: 09380684431, E-mail pappujaya@gmail.com). The author has reviewed global practices of teaching-learning process, particularly those which are relevant to the Indian context. She has described views of eminent personalities at national and global level from culling out from numerous national and international sources. The book is appropriate for anyone interested in the broad field of education, training and development, be it, he or she as an industry practitioner or a student from business school at graduate or post-graduate level. Sambamuthy Padmavathi, Associate Professor, Department of Commerce, Shri Shankarlal Sundarbai Shasun Jain College for Women, T. Nagar, Chennai. Aruna Koneru, English Language Skills. New Delhi: Tata McGraw Hill Private Limited (7, West Patel Nagar, New Delhi 110 008), 2011, xvi+492pp. Rs. 299 paperback. Communication is a process by which a leader or a manager transfers and receives information in managing business. In fact, communication is the nervous system of an organization. Communication processes within an organization are vital for achieving organizational goals. They are the processes that link different areas of the organization together, they are relevant for all levels, and they affect all individuals working in any capacity. The effectiveness of the communication system â&#x20AC;&#x201C; the way in which it is managed â&#x20AC;&#x201C; has a significant impact on the ultimate effectiveness of an organization. Information is power which is conducive for problem solving, decision Management & Change, Volume 14, Number 2 (2010)
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making, change management, and building trust and relationship. In an organization typically a message from the leader may be a directive to complete a pending job on priority; it may be an advice to change a procedure; it may be an approval or disapproval of the proposal submitted; it may be new business policy to be in force, or a feedback about the company performance from the top. In organization individuals deal with superiors, equals and subordinates at regular intervals through verbal and written communication, involving horizontal and vertical communication. Horizontal communication is as important as vertical communication. This book on English Language Skills provides a new and fresh approach to meet day-to-day requirements of the use of English language. It aims to help readers acquire proficiency in all the four language sills – listening, speaking, reading and writing (LSRW). The book is designed to help readers in using language for specific purposes of listening with concentration, speaking, reading with different speeds and writing correctly. In addition to the LSRW skills, the author also elucidates on studying as a skill and business communication, which forms the backbone of an organization or running any industry. Author develops this approach following his long teaching experience in teaching English Language Skills. Apart from reviewing the concepts involved the book includes instructions and guidelines to employ all the four language skills. The book is based on learning by knowing, doing and practicing. The book has divided into six units with each unit containing several chapters: Unit I (one chapter), Unit II (six chapters), Unit III (eight chapters), Unit IV (one chapter), Unit V (four chapters), and Unit VI (four chapters). Unit I entitled ‘Listening Skill’ has only one chapter under the same title ‘Listening Skill’. It gives an idea how phonetic features of language create ambiguity for the listener. It further explains the barriers to listening and how to overcome them. Unit II entitled ‘Speaking Skill’ has six chapters: Chapter 2 entitled ‘English Sound System’, Chapter 3 entitled ‘Accentual Pattern of Words and Sentences’, Chapter 4 entitled ‘Effective Speech’, ‘The Art of Conversation’, Chapter 5 entitled ‘Debate’, and Chapter 7 entitled ‘Group Discussion’. Unit II discusses most desired requirement now-a-days. It prepares and equips one for participation in speaking activities (Chapters 2 to 4). The attention given to the sound system and stress patterns is planned and designed to make the learner’s pronunciation intelligible nationally and Management & Change, Volume 14, Number 2 (2010)
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internationally and also to increase the speaker’s average rate of delivery of words per minute (which is commonly called the ‘rate of speech’). Effective speech is the ultimate goal. The other chapters (Chapters 5, 6 and 7) in this unit are actual speech activities to prepare the learner to participate effectively in the art of conversation, debate and group discussion. Unit III entitled ‘Study Skill’ has eight chapters: Chapter 8 entitled ‘Dictionary: Its Use’, Chapter 9 entitled ‘Prepositions and Phrasal Verbs’, Chapter 10 entitled ‘Vocabulary Extension’, Chapter 11 entitled ‘Effective Use of Words’, Chapter 12 entitled ‘Effective Sentences’, Chapter 13 entitled ‘Learning Spellings’, Chapter 14 entitled ‘Punctuation’, and Chapter 15 entitled ‘Common Errors in English’. Unit III (Chapters 8 to 15) mainly covers ‘study skills’ that provide sound knowledge to equip the learner with the necessary competence to read and comprehend effectively, to speak efficiently and to write correctly. This unit also provides the basic material that helps the learner in developing competence in all four language skills. Chapter 9 and Chapter 10 provide substantial knowledge of the English language. The Chapters 11 and 12 helps the learner know-how to use correct word and then how to make correct and effective sentences. Chapter 13 helps the learner avoid not only spelling errors but also spelling confusions of English language. Chapter 14 guides in writing correctly and helps in understanding exact meaning of sentence. Chapter 15 is useful for non-native language learners. Unit IV entitled ‘Reading Skill’ has one chapter i.e. Chapter 16 under the same title ‘Reading Skill’, which describes ways, purposes and speed of reading given material and comprehending it. It will also help the learner to acquire a sound vocabulary, as well as word usage and sentence construction skills. It also helps in avoiding spelling errors. Unit V entitled ‘Writing Skill’ has four chapters (Chapters 17 to 20): Chapter 17 entitled ‘Paraphrase Writing and Précis Writing’, Chapter 18 entitled ‘Note-Making and Summary Writing’, Chapter 19 entitled ‘Paragraph Writing’, and Chapter 20 entitled ‘Writing and Essay’. Chapters 17 to 20 guide learner in developing different types of ‘writing skills’. Chapters 17 and 18 teach different types of summarization techniques which are useful at workplace. Chapter 19 discusses different types of paragraphs with examples and guides the learner in writing different types of paragraphs based on requirement. Chapter 20 deals with techniques of writing essays and types of essays. Management & Change, Volume 14, Number 2 (2010)
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Unit VI entitled ‘Business Communication’ has four chapters: Chapter 21 entitled ‘structure and Style of Business Correspondence’, Chapter 22 entitled ‘Various Types of Letters’, Chapter 23 entitled ‘Sales Letter’, and Chapter 24 entitled ‘Job Application’. Chapter 21 gives detailed information on the structure, layout and style of writing business letters. This unit further includes discussions on various types of business letters. It specially explains how sales letters should be written. Writing job applications and resume preparation, which are the most important topics for any learner, are also discussed in detail. It is exceptional aid to teachers and students and/or readers of this book to explore the Appendices A – I which are at the end of the Units providing supplementary as well as additional information of great help. There are total of nine Appendices (Appendix A, B, C, D, E, F, G, H, and I): Appendix A (Grammar and Usage: A Review), Appendix B (Speech Acts), Appendix C (One Word Substitutes), Appendix D (Lexical Items), Appendix E (Commonly Confused Words), Appendix F (Idiomatic Expressions), Appendix G (Semantic Problems of Singular and Plural Nouns), Appendix H (American and British English), and Appendix I (Foreign Words). As this book relates to improving communication skills its message and role in life is immense. Much of the success in life depends on communication skills. One may be as bright as Albert Einstein, but if one’s communication is weak, one is weak. Communication skills, are also needed while drafting reports, manuals and everyday official and personal letters. Individuals are often judged on the basis of how effectively they communicate. Proficiency in language which is vital for any communication is very important for business communication. Students can use this book as a self-help tool over and above their class-room teaching. The book can also be used for preparing for entrance examinations. In industry training and development departments can use it as a reference book for professionals undergoing training. The book is doubtless a very welcome supplementary text for courses on ‘business communication’ in business schools both for UG and PG Courses. As long as people or society will exist, significance of effective communication shall always persist, and contents of the book shall always be relevant. Pallavi Ghosh, Assistant Professor, Life Skills and Business Communication, IILM Institute for Higher Education. Management & Change, Volume 14, Number 2 (2010)
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Subesh Das, Managing People at Work: Employment Relations in Globalizing India (First Edition). New Delhi: SAGE Publications India Pvt. Ltd (B1/I-1 Mohan Cooperative Industrial Area, Mathura Road, New Delhi 110 044), 2010, xviii+248pp. Rs. 695 hardbound. The rapidly changing global work practices have led to transformations in employee relations and human resource management in India. This book maps out these changes since the opening up of the economy and the subsequent liberalization. This book presents changes in employment relations in India in the post-reform period. The term “Employment Relations” encompasses both Human Resource Management (HRM) and Industrial Relations (IR). Important issues in this book include behaviours of workers and managers, their interactions, nature of work organizations, work practices, union representation, and their changes over time. Combining field practices in actual workplaces with frontline theoretical arguments in HRM and industrial relations, the book examines the validity of the “converging divergences” thesis in employment relations for India. Through this study, it identifies the sources of variations in employment relation practices. It also studies important developments such as increased use of contract labour over regular workers, business management methods of MNCs and how their employment relations practices differ from those of Indian firms. The first chapter entitled ‘Convergences and Divergences in Employment Relations’ presents the theoretical framework for the study and puts objectives and scopes of the study in the context of work already done. It deals with the changing employer-employee relations over last two decades. The author uses a ‘systems approach’ to look at major issues in managing people at work concerning all categories of workers and employees, trade unions and associations, and their changes over time. This chapter looks at ‘employment relations’ systems and associated aspects such as work place rules, management style, complaint procedures, work organization, pay procedures, job security and worker manager relations. It analyzes global convergences and the local divergences by describing growing similarities in employee control, work rationalization, and task and time flexibility in specific industries in different countries. The chapter sums up by examining trends in changing employment relations, post liberalization scenario in India by way of shift to lean production, downsizing of employment, contracting out of jobs, emphasis for labour flexibility, linking wages to skill and productivity, increasing variation in wages, focus on training, and introduction of innovative employment practices. Management & Change, Volume 14, Number 2 (2010)
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The second chapter entitled ‘Changing Contexts of Employment Relations and Shifts in Capital-Labour Power Balance’ briefly describes changes in global and national contexts of employment relations in India. It reviews them within the backdrop of economic, technological, legal, social and political contexts. Indian IR developed in an environment that protected both industry and labour from internal and external competition. But worldwide production system by multinational firms and national efforts to reduce trade barriers (GATT, NAFTA, EU) have helped the integration process. This chapter identifies a set of interrelated contextual factors that influence firms’ employment systems. These contextual factors change over time and induce changes in firms’ employment systems. However, firms differ in way the external forces influence their employment relations and the way the changes are mediated both inside and outside the firms. The third chapter entitled ‘Union Decline, Growing Inequality, and Divergences in Employment Relations’ analyzes shifts in capital - labour power balance, which has a major influence on firms’ employment relations. It presents an account of the structure and functions of trade unions and their changes over time. It analyzes impact of union in terms of union membership and union density. Author then discusses legal and political influences in shaping trade unions, not only in India but across different countries. It also reviews unionization across sectors and across states, which differ in terms of density, intensity and strength of unions. The levels of unionization in India are higher in manufacturing, transport or public administration than in agriculture, trade or financial services. The more formalized a sector, the higher is its unionization rate. At the chapter end, author compares decline of union and increase in income inequality with increased variation in employment relation practices in industrialized nations and also in India. The fourth chapter entitled ‘Divergences in Employment Systems in the Indian Textile Industry’ reviews a textile industry from the days in British India. The author has chosen this industry over automobile industry or telecommunications industry despite their being very fast growing sectors as they still represent a small proportion in terms of both employment and industrial production. It then goes on to critically analyze many units such as Bharti and Jyothi, Aarvee Denim, Eastern Spinning and Vikram Spinners, Reliance Textile and Jayashree Textiles. It examines these in terms of their structure, lack of unionization, HRM practices and conflict resolution, etc. It describes four dominant practices Management & Change, Volume 14, Number 2 (2010)
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of employment relation systems in India, namely, low wage policy, conflict pattern, collective participation and HRM policies. The chapter finally ends with raising questions about generalizing findings of the Textile Industry with other industries in India. The book discusses these issues in different chapters individually. The fifth chapter entitled ‘Restructuring of Firms and Transformation of Employment Relation Systems’ examines the rapid and fundamental changes in employment relations in capital-intensive firms. ICT has rewritten the agenda for industrial world and has evolved new ideas of employee management. The chapter starts with outlining pressures for change starting with five year plans and takes the reader through deregulation to major aspects of closure, divestment, modernization, downsizing and voluntary retirement. With the help of an example of the BOC India, author discusses effects of changes in the organizational structure. It also touches contracting out of jobs following introduction of new technology, fragmentation of activities and strategies that involve large scale reduction in regular employment and increased use of contract labour. With the help of the same example it highlights the changing role of unions and employees, networking and MIS, introduction to HRM practices as a result of changes in the deep structures of its employment relations. In the six chapter entitled ‘Employment Relations in IT-enabled Services’ the author discusses the world market for ITeS which is expected to grow further with India taking a large pie of this market. Global factors now have major influence on firms’ operations and it is not uniform across firms. The influences are more in MNCs than in local firms. The chapter starts with growth of IT and ITeS in India. It outlines the comparative advantage that India has in terms of low employee costs, availability of a large pool of workers and supportive government policies. The author has divided ITeS in India into three broad segments: customer interaction, back-office operations and content development and briefly explains how IT enabled firms differ from other firms. The chapter also provides case studies of call centers and analyzes them in terms of selection and recruitment, employee training, compensation and rewards, performance measurement and management, employee motivation and grievance redressal. It finally concludes with identifying dominant pattern of employment relations and making a case for global convergence in employment relations. Chapter seven entitled ‘Multinationals - Convergences and Divergences Management & Change, Volume 14, Number 2 (2010)
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in Employment Relations’ examines the global-local issues in employment relations and finds their impact on the growing variations in employment relations in India. Majority of workers in India work in small firms where employers most often directly control all aspects of workers’ work-life. It looks at change from family dominance in private sector to foreign investments introduced post-1990s, especially FDIs. The chapter then delves into the global-local debate in employment relations in the context of strategic HRM and international HRM. This chapter again utilizes the case study of a Japanese transplant, Mitsubishi Chemical PTA India (MCPI), a subsidiary of Mitsubishi Chemical Corporation (MCC). Author looks at global and local practices which are influenced by several endogenous and exogenous factors including scores of Japanese manufacturing practices. It also describes Kaizen proposal system, 5S for housekeeping, quality improvement programmes, etc. This is followed by a discussion on various aspects of human resource management followed by delineating the differences between core and periphery contract labour. MCPI’s unionization strategy is to avoid external unions and to promote workers’ committees. This they have been able to do not only in Japan but also in India. With the help of this case, author has addressed the debate of global vs local. MCPI has struck a balance between the two. For example, in wage fixation it follows the local practices while in manufacturing practices is follows international standards. Chapter eight entitled ‘Employment Relations in Small Firms’ examines changes in employment relations in small firms. Ninety per cent of all workers in India work in small and medium firms but most studies often indicate that they work in large firms. Author adopts a new approach and describes in detail workforce engaged in informal sector. Chapter 8 covers workers from different segments such as agriculture and construction, sweepers and scavengers, casual workers and contract workers. It also gives a brief outline of various legislations and type of intervention in this sector, taking up employer associations and trade unions as well. This is followed by a relook of collective bargaining process from 1920s onwards till date. It then analyzes small firms as contractors for large firms and goes on to look at the network of small firms consisting of sharing of indirect costs in marketing, design, material procurement and maintenance of machinery. This is then followed by a description of different systems of employment relations in small firms: those without any external influence, dual control in small contractor firms, loosely coordinated employment systems in small firms and strongly coordinated employment systems. Thus, this chapter reviews growing changes people are experiencing at work in informal sector and resulting impact it is causing on employment relations seen in informal sector. Management & Change, Volume 14, Number 2 (2010)
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Finally the end chapter entitled ‘Conclusion: Convergences and Divergences’ aggregates the findings of the preceding chapters. It concludes that there are growing variations in employment relations within India and at the same time growing similarities of variations with those in other countries. Globalization and the liberalization policies have changed the contexts of employment relations in India. The forces of globalization and localization are however not uniform across firms. Changes in employment relation practices in industrialized countries indicate growing variations in employment relation practices within the countries. In India firms differ in term of types of unions-internal unions, external unions, or multiple unions. In summary, the author confirms the validity of the converging divergence theory for India by saying that variations in employment relations and their changes in India are similar to those seen in the industrialized countries. They indicate growing variations in managing people at work within countries and growing similarities in managing people at work across countries. The book is appropriate for students, professionals, academicians, and researchers. The global convergence issues in the book will attract readers interested in international and comparative employment relations. Various case studies included in the book enlighten reader about the contemporary practices in HRM and how they differ across firms and across industries. These case studies highlight how new practices in HRM and how some firms have been successful in restructuring the organizations in the competitive environment. They explain how some firms have been successful in improvement of productivity, quality, and labour flexibility, while others have not. They describe how some firms have introduced modern practices like teamwork, multi-skilling, kaizen, quality circle (QC), total quality management (TQM), and 5S for house-keeping. The book covers important issues in managing people at work like selection and recruitment compensation, performance appraisal, training and retraining, employee communication, managing contract labour, dealing with unions, etc, which every professional in personal management would like to know. The strength of this book lies in its comprehensive coverage of contemporary issues within the framework of rich theoretical argument. The book is recommended as a supplementary text for courses on HRM and Employment Relations both for graduate and post-graduate courses in business schools. Swati Sinha, Assistant Professor, HR & OB Area, IILM Institute for Higher Education. Management & Change, Volume 14, Number 2 (2010)
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Kenneth M. York, Applied Human Resource Management: Strategic Issues and Experiential Exercises (Sage South Asia First Edition). New Delhi: SAGE Publications India Pvt. Ltd (B1/I-1 Mohan Cooperative Industrial Area, Mathura Road, New Delhi 110 044), 2010, xix+412pp. Rs. 475 paperback. Strategic issues in human resource management cover issues that organizations should deal with to effectively manage their human resources in the long run. Each strategic issue includes a set of related questions for students to answer. These questions could be used as a basis for class discussion, homework assignments, topics for group exercises, or as class team assignments. HRM projects are applications of a concept learnt for a practical situation. Each application gives students an opportunity to apply what they have learned in a real-life situation. These exercises could be given as homework assignments; instructor illustrations and demonstrations; or done in class by students, individually or in teams. Experiential exercises are more extensive hands-on interactive learning experiences in which students learn by doing. The experiential exercises by way of classroom assignments provide a realistic framework for learning different facets of HRM. Creative exercises are open-ended projects with specific deliverables, but with multiple possible solutions. The creative exercises are designed to go beyond the typical experiential exercise; they are “weak situations” in which each student or team may develop a different solution to the problem, and students learn both from their solution to the problem and the different solutions of others. Each chapter presents ten different issues that organizations need resolve to manage their human resource effectively. These chapters offer four different type of interactive learning experiences: strategic issues in HRM, applications of HRM, experiential exercises, and creative exercises. Four strategic issues in HRM exercises in each chapter can be used for class discussions, assigned as homework problems, used as topics for group presentations, or incorporated into tests as essay questions. Each chapter includes two case applications involving brief projects that require students to apply a human resource management concept to a realistic situation, which are ideal for use as homework assignments, instructor illustrations/demonstrations, or in-class projects. Each chapter also provides two experiential exercises to equip students with hands-on learning experiences within a realistic framework. This apart, each chapter has also two open-ended creative exercises involving Management & Change, Volume 14, Number 2 (2010)
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students or teams to develop unique solutions for practical problems with the help of techniques learnt. Chapter 1 entitled “Introduction to the Management of Human Resources” deals with ‘historical overview of HRM’ and ‘functions and roles of HRM’ under strategic objectives; ‘HRM as a partner in strategic planning’, ‘frontiers of HRM’, ‘cost of efficiency’, and ‘HR scorecard’ under strategic issues in HRM; ‘HRM in motion pictures’ and ‘key Supreme Court cases and implications for HRM’ under applications; ‘developing mission statements’ and ‘developing strategic objectives from mission statements’ under experiential exercises; and ‘factors for good place to work’ and ‘running an effective meeting’ under creative exercises. The chapter thus highlights the importance of HRM and how it forms one of the important assets of an organization. Chapter 2 entitled “Equal Employment Opportunity” deals with strategic issues in HRM, ‘unavoidable lawsuit’, ‘sexual harassment in the workplace’, ‘age discrimination, retirement, and bridge emplyment’ and ‘checking references and giving references’ under strategic objectives; ‘completing the EEO-1 report’ & ‘determining the adverse impact of a selection procedure’ under applications; ‘identifying barriers to access in the workplace’ & ‘internet applications and ‘illegal pre-employment inquiries’ under experiential exercises; and ‘making reasonable accommodations under the Americans with Disabilities Act’ & ‘Creating a Sexual Harassment Prevention Program’ under Creative Exercises. Chapter 3 entitled “Job Analysis” deals with Strategic Objective; ‘essential and nonessential job functions’, ’ job descriptions in team-based organizations’, ‘personality traits as a position requirement’, ‘selecting for the job or the organization’, under Strategic Issues in HRM; ‘matching job titles and job descriptions’ & ‘a TQM approach to writing job descriptions’ under Applications; ‘mission to mars’ & ‘job analysis interview of a college or university professor’ under Experiential Exercises; and ‘writing job descriptions’ & ‘job analysis’ under Creative Exercises. The chapter thus highlights the relevance of job analysis in today’s society and its importance so that the workforce is satisfied and it contributes to the profitability of the organization as a whole. Chapter 4 entitled “Recruitment and Socialization” deals with Strategic Objective; ‘recruiting for executive positions’, ’ volunteer employees’, ‘recruitment and turnover’, ‘on-boarding’, under Strategic Issues in HRM; ‘job hunting’ & ‘applicant pools for part-time workers’ under Applications; Management & Change, Volume 14, Number 2 (2010)
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‘realistic job previews’ & ‘writing and effective radio advertisement’ under Experiential Exercises; and ‘socialization of newcomers’ & ‘measuring the effectiveness of recruitment’ under Creative Exercises. Chapter 5 entitled “Selection” deals with Strategic Objective; ‘equal employment opportunity postures’, ‘adverse impact in mortgage lending’, ‘what is a fair selection test?’, ‘when is an applicant really an applicant?’, ‘honesty testing’ and ‘predictive and concurrent validation studies’ under Strategic Issues in HRM; ‘using the mental measurement yearbook to choose a selection test’, ‘measuring the reliability of a selection test’, ‘measuring the validity of a selection test’, ‘determining whether a selection test has adverse impact’, ‘evaluating whether to upgrade to a new test’, ‘using an affirmative action plan’ and ‘expanded protection for workers in state equal employment opportunity laws’ under Applications; ‘test validation’ & ‘creating and using a structured interview guide’ under Experiential Exercises; ‘developing an in-basket’ & ‘creating an assessment center’ under Creative Exercises. The chapter therefore brings forth the difference between recruitment and selection. It also highlights various measures employed by organizations for selecting and shortlisting candidates, various tools employed for conducting a selection test and concludes by highlighting relevance of interviews and the assessment centre. Chapter 6 entitled “Performance Appraisal” deals with Strategic Objective; ‘reward, develop, promote’, ‘graphic rating scales versus behaviorally anchored rating scales’, ‘rater error training versus rater accuracy training’, ‘sex discrimination in performance appraisal’, under Strategic Issues in HRM; ‘developing performance dimensions’ & ‘rating errors in performance appraisal’ under Applications; ‘selecting players for the all-star game’ & ‘using a graphic rating scale’ under Experiential Exercises; and ‘developing a graphic rating scale’ & ‘creating a faculty evaluation form’ under Creative Exercises. Chapter 7 entitled “Training and Developing Employees” deals with Strategic Objective; ‘employee development and turnover’, ‘ways to manage’, ‘the role of the manager’, and ‘systems thinking’, under Strategic Issues in HRM; ‘calculating the utility of a training programme’ & ‘my dream job’ under Applications; ‘conducting a training needs assessment’, ‘assessment center for management development’, and ‘dealing with a plateaued employee’ under Experiential Exercises; and ‘developing management talent’ & ‘creating team-building exercises’ under Creative Exercises. The chapter accordingly highlights relevance Management & Change, Volume 14, Number 2 (2010)
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of training & development for upgrading and polishing workforce of organizations. Chapter 8 entitled “Compensation and Benefits” deals with Strategic Objective; ‘a fair day’s work for a fair day’s pay’, ‘pay secrecy’, ‘sharing salary information and antitrust’, and ‘equal pay and comparable worth’, under Strategic Issues in HRM; ‘federal and state minimum wage laws’ & ‘evaluation of exempt versus nonexempt jobs’ under Applications; ‘choose the investments for your 401(k) plan’ & ‘gender bias in wage rates’ under Experiential Exercises; and ‘developing a merit pay for teams’ & ‘job evaluation for university professors’ under Creative Exercises. Chapter 9 entitled “Occupational Safety and Health” deals with Strategic Objective; ‘selecting safe employees’, ‘repetitive strain injury’, ‘drug testing’, and ‘biorhythms and accidents’, under Strategic Issues in HRM; ‘what are the most hazardous occupations?’ & ‘calculating incidence rates’ under Applications; ‘OSHA compliance’& ‘drug testing’ under Experiential Exercises; and ‘stress and burnout’ & ‘reducing the risks of high-risk employees’ under Creative Exercises. Chapter 10 entitled “Employee Relations and Labour-Management Relations” deals with Strategic Objective; ‘interest-based bargaining’, ‘graduate student unions’, ‘unions, wages, and financial performance’, and ‘unionized professionals’ under Strategic Issues in HRM; ‘national labour relations board cases’ & ‘family-friendly workplaces’ under Applications; ‘assessment of employee opinions’ & ‘indie phenom makes jump to big bucks pic’ under Experiential Exercises; and ‘redesigning a job’ & ‘dancing is life’ under Creative Exercises. Chapter 11 entitled “Organizational Change and Development” deals with Strategic Objective; ‘professional employer organizations’, ‘entropy in organizations’, ‘technology-driven change’, and ‘downsizing’, under Strategic Issues in HRM; ‘cross-functional organizational development’ & ‘re-engineer this’ under Applications; ‘the new manager’ & ‘the value of a college education’ under Experiential Exercises; and ‘managing change’ & ‘developing a valuing diversity programme’ under Creative Exercises. The chapter thus highlights the relevance of change in an organization for constant improvement and development of employees as well as the organization as a whole. Chapter 12 entitled “International HRM” deals with Strategic Management & Change, Volume 14, Number 2 (2010)
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Objective; ‘global recruiting on the internet’, ‘global compensation’, ‘global virtual teams’, and ‘adapting to life in the United States’, under Strategic Issues in HRM; ‘international business literacy’ & ‘host country employment laws’ under Applications; ‘expatriate selection’ & ‘expatriate socialization’ under Experiential Exercises; and ‘training employees for an international assignment’ & ‘returning to headquarters’ under Creative Exercises. HRM plays an important role in the formulation of strategy by identifying individuals needed to support strategic plans, by helping them develop necessary capabilities to enact the strategy, and playing a role in strategy implementation and change management. Effective HRM means focusing on quality and meeting customers’ expectations, improving productivity, fostering innovation and creativity, and promoting flexibility in design of work processes. HRM has all along provided support for recruitment and performance appraisal in an organization though historically HRM is not linked with strategic management process. The scenario is however changing fast with the growing realization of strategic role of HRM. The author has very aptly succeeded in projecting HRM as a strategic management function pertaining to human resources by highlighting strategic issues and presenting scores of experiential exercises. The book is eminently suited to serve as a supplementary text for graduate and post-graduate courses on human resource management and public administration in business schools. The book offers management students an in-depth, and hands-on experiential learning applications to help them develop the skills they will need as human resource professionals who deal with people in diverse settings and situations. The book has thus identified one of the key result areas for development of an organization, namely, Human Resource Management. It also throws lights on how HR professionals form an integral backbone of an organization and highlights various phases and stages that an employee goes through while working in an organization. The book will therefore provide a valuable guidance to students who want to pursue a career in the field of HRM. As the book is written by a foreign author it lacks typical Indian case examples, accordingly it is suggested that in next edition an attempt should be made to include some Indian cases as well as experiences of other SAARC (South Asian Association for Regional Cooperation) countries to make it as an all round text book suited for South Asian Region as its name suggests. Management & Change, Volume 14, Number 2 (2010)
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The book is recommended as a supplementary text for HRM students for business schools in India both at graduate and post graduate levels. Vini Kirtani, Faculty Associate, IILM Institute for Higher Education. Jasmine Kaur, IFRS: A Practical Approach. New Delhi: Tata McGraw Hill Private Limited (7, West Patel Nagar, New Delhi 110 008), 2011, xii+388pp. Rs. 595 paperback. The book has a very distinctive style. The chapters do not begin with the goals or objectives – rather they start with the background of each standard to make things more comprehensible. After the initial orientation with the respective standard, each chapter contains important definitions related to that standard. A major problem with accounting standards is that they are several in numbers. There are so many standards that it becomes difficult for a student to categorize them into ‘must-to-know’ standards with knowledge of practical implementation and those that require only brief overview. This book caters to this need. In initial chapters, the regulatory framework, differences between IAS (International Accounting Standards) and IFRS (International Financial Reporting Standards) and their respective overview. This is followed by explanation of important ‘must-to-know’ IAS & IFRS which students can easily understand. The book has 14 chapters. Chapter 1 entitled ‘Introduction to IFRS’ provides legal, regulatory and institutional framework for accounting standards. Every standard under the IFRS has introduction, standards, basis of conclusion (BC), implementation guidelines (IG) and illustrative examples (IE) to facilitate reading, interpretation and application. Chapter 2 entitled ‘Framework’ identifies the qualitative characteristics that make information in financial statements useful. The Framework identifies four principal qualitative characteristics, understandability, relevance, reliability and comparability. Chapter 3 entitled ‘A Brief Overview of Accounting Standards’ prescribes the basis for presentation of general purpose financial statements to ensure comparability both with the entity’s financial statements of previous periods and with the financial statements of other entities. It sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content. Chapter 4 highlights differences between IFRS/GAAP and accounting standards. Management & Change, Volume 14, Number 2 (2010)
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Chapter 5 entitled ‘Presentation of Financial Statements’ comes out with overall framework for presenting general purpose financial statements, including guidelines for their structure and the minimum content. It also prescribes the components of the financial statements that together would be considered a complete set of financial statements. Chapter 6 entitled ‘Inventories’ deals with accounting of inventories which has always been a complex issue on account of high volume of activity in the account, choice of cost flow assumptions, time at which items to be included inventory (ownership), etc. Chapter 7 entitled ‘Cash Flow Statement’ discusses how cash flows provide information about the operating cash receipts and cash payments of an entity during a period as well as providing insight into its various investing and financing activities. Chapter 8 entitled ‘Accounting Policies, Changes in Accounting Estimates and Errors’ views the criteria for selecting and changing accounting policies, together with the accounting treatment and disclosures of changes in accounting policies, changes in accounting estimates and corrections of errors. The Standard is intended to enhance the relevance and reliability of an entity’s financial statements and the comparability of those financial statements over time and with the financial statements of other entities. Chapter 9 entitled ‘Events after Balance Sheet Date’ details the postbalance sheet events and how they should be recorded. Post-balance-sheet events happen in the period starting immediately after the balance sheet date and ending at the date of approval of the financial statements. Chapter 10 entitled ‘Construction Contracts’ aims to prescribe the accounting treatment of revenue and costs associated with construction contracts. This is because nature of activity undertaken in construction contracts, the date at which the contract activity is entered into and the date when the activity is completed usually fall into different accounting periods. Thus, the primary issue in accounting for construction contracts is allocation of contract revenue and contract costs to the accounting periods in which construction work is carried out. Chapter 11 entitled ‘Property, Plant and Equipment’ aims to prescribe the treatment for property, plant and equipment (PP&E) so that users of the financial statements can discern information about the entity’s investment in its PP&E and any changes in those investments. Chapter 12 entitled ‘Revenue Recognition’ aims to determine when to recognize revenue. Revenue is recognized when it is probable that future economic benefits will flow to the entity and these benefits can be measured reliably. Management & Change, Volume 14, Number 2 (2010)
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Chapter 13 entitled ‘Provisions, Contingent Assets and Contingent Liabilities’ aims to provide recognition criteria and measurement bases for provisions contingent liabilities and contingent assets; and to specify the information to be disclosed in the notes to the financial statements to enable users to understand the provisions made. Chapter 14 entitled ‘Intangible Assets’ aims to prescribe accounting treatment for intangible assets (without physical substance) that are not dealt with specifically in another standard. This standard requires an entity to recognize and intangible asset if, and only if, specified criteria are met. The standard also specifies how to measure the carrying amount of intangible assets and requires specifies disclosures about intangible assets. The most common of all intangible assets is goodwill – the difference between the value of a business as a whole and the aggregate of the fair value of its separable net assets. The book is very student friendly. Apart from discussing any particular standard(s), each chapter also tells the story behind it – enabling a better understanding of its importance and implications. The book provides comprehensive discussion on IFRS issued by IASB (International Accounting Standards Board). Each chapter contains certain memory devices in the form of cloud diagrams or stories to make things more simplified and easy to remember. It makes IFRS/IAS accessible to students, emphasizes on must-to-know standards, elaborates the need for and the story behind the standards, focuses on key essential points that help students in preparing for the examination, and provides memory devices. The book offers invaluable aid to students to understand, remember and revise the step-by-step process of implementing the standard in accounting practice. The book includes pedagogical aids like key definitions, memory tips, and worksheets. Learning from your own mistake is time consuming but learning from others’ mistake leads to early success. There are some common errors that almost every student makes at some point. Each chapter highlights these mistakes so that the students are forewarned and they do not follow the same path. This book aims at introducing the International Financial Reporting Standards (IFRS) to the students of accounting at various levels. The book has been particularly written with the primary objective of serving the needs of the students from the examination point of view but at the same time it also provides valuable aid to industry practitioners. It offers a much needed practical approach with the help of plenty of examples within the text. To ensure understanding to related issues of a standard, various solved examples Management & Change, Volume 14, Number 2 (2010)
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are given to highlight tits relevance in case of practical implementation. The book is very valuable tool for management students and teachers in commerce colleges and business schools to study and teach International Finance Reporting Standards through a practical approach. Industry practitioners can also draw enough insights from this book. K. M. Mital, Professor, Strategy & CSR, IILM Institute for Higher Education. Sunil Sharma, Supply Chain Management: Concepts, Practices, and Implementation. New Delhi: Oxford University Press (YMCA Building, Jai Singh Road, New Delhi 110001), xiv+566 pp. Rs. 325 paperback. Supply chain management over the years has evolved from the conventional materials management, to physical distribution management, to integrated logistics management, to its present form what it is today. SCM requires mapping, re-engineering, and integration of processes, both within and outside the organization. These processes range from sourcing and manufacturing to transportation and distribution of products and services. The real push to SCM came following advent of ICT and web-enabled technologies linking customers and suppliers online at all levels. SCM is basically a strategy for customer satisfaction as any delays in material or product supplies may lead to customer dissatisfaction. Accordingly, the author has highlighted several â&#x20AC;&#x2DC;best practicesâ&#x20AC;&#x2122; in SCM area for achieving greater responsiveness and effectiveness of supply chains. This book is a comprehensive textbook on the strategic, practical, and managerial perspectives of SCM. Designed for the students of business management, it explains concepts through exhibits, flow charts, diagrams, and case studies. Divided into nine chapters, the book begins by introducing supply chain management (SCM), its evolution, and planning framework. It includes important concepts, such as customer order management and bullwhip effect, as also covers different kinds of SCM software, which include those from SAP, QAD, and SSA. The linkage between customer relationship management (CRM) and SCM has also been well explained. There is a detailed discussion on the best practices in SCM, such as hub and spoke and radio frequency identification. The book also includes separate chapters on procurement and outsourcing comprising topics, such as vendor rating and development, e-procurement, and purchasing; issues, challenges, and opportunities in SCM; world-class practices; and implementation and performance benchmarking. Management & Change, Volume 14, Number 2 (2010)
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The book consists of nine chapters. The main contents and the focus of each chapter are discussed below. Chapter 1 starts with the introduction of SCM, its evolutionary patterns, objectives, and the size and potential of SCM market in India. The chapter also provides the framework for supply chain planning and decision-making. The strategic aspects and managing the uncertainty in SCM are also dealt upon. Chapter 2 focuses on the dynamics of SCM, particularly the alignment processes involved and various elements of customer order management. It also covers the supply chain integration through push and pull mechanisms and the demand inflating bullwhip effect. Chapter 3 covers various information and communication technology (ICT) tools, software, and descriptions of their modules. Trends in ERP application in India and the future of IT in SCM are also outlined. Chapter 4 is a treatise on the world-class best practices in SCM, such as supplier tierization, reverse logistics, vendor-managed inventory, milk round system, hub and spoke, third-and fourth-party logistic (3PL & 4PL) provisions, cross-docking, drop-shipping, and radio frequency identification (RFID). It also discusses lean operations, techniques, and corporate experiences. Chapter 5 focuses on procurement and outsourcing strategies, and operational decisions and trends. Topics like strategic outsourcing and partnerships, bidding and negotiation processes, vendor rating and development, and e-procurement and purchasing in a lean environment have been focused. Continuous improvement of suppliers, together with waste elimination actions, value analysis/value engineering (VA/VE), and integrated supplier quality assurance (SQA) system are also discussed. Chapter 6 addresses the concept of customer relationship management (CRM) and its linkage with SCM. Strategies oriented towards achieving superior customer value accomplished through SCM have been elaborated. The marketing implications, such as value added services, new product development, and strategic pricing, are duly addressed. Chapter 7 unravels a comprehensive implementations plan of SCM in an organization. The other section of this chapter discusses the supply chain operating reference (SCOR) model followed by performance benchmarking Management & Change, Volume 14, Number 2 (2010)
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in SCM, the metrics used, and how the corporate goals are linked to SCM performance. It also has an appendix on a checklist for SCM implementation, generated out of a real-life project that would serve as a ready reference for professionals.
has all merit to be used as text book for courses on supply chain management in business schools both at under-graduate and post-graduate levels. The book is must for libraries of all business schools worldwide for theoretical insight and practical aspects for implementing supply chain solutions.
Chapter 8 uniquely presents a miscellany of a number of industrial snapshots of SCM implementation in some of the best-known Indian and global companies. These snapshots provide an inside out view of the dynamics of SCM implementation and the solutions achieved. Chapter 9 addresses various issues and challenges in SCM implementation and maps out a scenario particularly in the Indian industry.
K.M.Mital, Professor, Strategy & CSR, IILM Institute for Higher Education.
Each chapter begins with introduction, followed by exhibits and case studies, summary of topics discussed under ‘recapitulation’, ‘concept review questions’, ‘critical thinking questions’, ‘project assignments’, and ends with a global case study and an Indian case study to illustrate the SCM implementation in detail and lastly followed by discussion questions. ‘Recapitulation’ summarises key concepts and issues covered in the chapter; ‘concept review questions’ enable readers to grasp conceptual framework; ‘critical thinking questions’ enable readers to correlate their understanding with related practices; ‘project assignments’ assist readers to gain deeper insights into implementation aspects; ‘global case study’ introduces best practices, and ‘Indian case study’ family rises reader with state of art of SCM applications in the country. Every chapter ends with references and internet resources providing valuable source list on SCM for readers and researchers in the area. The book ends with a glossary of key concepts used in SCM. The book is reader friendly, which very aptly introduces the entire field of supply chain management. The topics covered emphasise both theoretical and practical aspects in easy to learn manner. The author has done a balancing act by including information from large body of literature, at the same time succeeding to keep the book within practical limits. The book however lacks mathematical rigor for model building for topics such as logistics management, inventory management, fleet management, etc. which is typical in any supply chain management or operations management text of which SCM is a part. The book should serve as a valuable text book in business school, industry petitioners and government officials dealing with transport and logistic issues. The book enumerates all related issues, examples, questions, implementation problems and case studies to facilitate learning by ‘case method’. The book Management & Change, Volume 14, Number 2 (2010)
William B. Werther & Jr. David Chandler, Strategic Corporate Social Responsibility: Stakeholders in a Global Environment (Second Edition). New Delhi: SAGE Publications India Pvt. Ltd (B1/I-1 Mohan Cooperative Industrial Area, Mathura Road, New Delhi 110 044), 2010, xxxii+415pp. Rs. 550 paperback. By addressing business ethics, corporate governance, environmental concern, and other issues, society creates a dynamic context in which firms operate. The context is dynamic because the ideal mix of business goals and societal expectations is constantly evolving...Between the great good and terrible harm business produce, therefore, lies concern about the proper role of corporation is society, especially as globalization and technological innovation expand the reach and potential of multinational corporations. Moreover, this concern has gained renewed attention after the high-level accounting and other scandals that emerged in the early years of the new century, followed by the global economic crisis less than a decade later. Strategic Corporate Social Responsibility provides a framework within which readers can explore and debate these questions. This book identifies the key issues of CSR, models them around conceptual frameworks, and provides both the means and the resources to investigate this evolving and important topic...CSR embraces an external environment made up of many constituent groups, all of whom have a stake in the firm’s profit-seeking activities. It demonstrates the value to firms of defining CSR in relation to their operational context and then incorporating a CSR perspective into their strategic planning and all aspects of the organization. Blending theory with practical application, this comprehensive text supports courses at the intersection of corporate social responsibility (CSR), corporate strategy, and public policy. Part I provides an overview of the field, defining CSR and placing it in the context of wider corporate strategy. Part II contains chapters on CSR issues related to the organization, the economy, and society, and provides detailed case studies on a variety of Management & Change, Volume 14, Number 2 (2010)
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well-known firms. Adopting a stakeholder perspective, the authors explore CSR issues within the complex global business environment in which corporations operate today. Chapter 1 and 2 of Part I lay the foundation for this book by defining CSR and providing a broader understanding of the context from which it emerged. Chapter 1 introduces CSR, providing details on where this topic originated and how it has evolved over time. In discussing the evolution of this topic, three different arguments for CSR are presented – moral, rational, and economic. This chapter identifies why CSR is a growing concern to students and leaders of business. Chapter 2 reflects the importance of stakeholder perspective in Strategic CSR. CSR is a subset of corporate strategy. The ideal vehicle for the integration of SCR and strategy is a multistakeholder perspective that enables firms to respond to the dominant trends in society, namely, globalization and increasingly free flow of information. In Chapter 3, authors seek to explore this assumption in more detail and examine some of the more contentious elements of the CSR debate. Chapter 4 and 5 conclude Part I of Strategic CSR by outlining how firms integrate CSR into day-to-day operations. Chapter 4 places CSR within a strategic context, arguing that CSR exists, or should exist, within the strategic framework of the organization. CSR is an integral part of this strategic process because it serves to filter how businesses interact with their environments and implement their ideas. While strategy seeks competitive success, CSR acts as a screen that helps ensure the profit motive does not harm the firm’s long-term viability. Chapter 5 explores the challenges of integrating CSR into the firm’s competitive strategies and its organizational culture. Authors intend to identify the factors that strengthen or impede the creation of a strategic CSR orientation at the firm level. Central to this integration process is the commitment of senior management. Strategic direction, mission statements, and day-to-day operating policies should all reinforce this commitment to attaining the CSR goals. Part II reflects the range of issues that define CSR in practice, each segmented into one of the three stakeholder groups; organizational, economic, or societal stakeholders. Chapter 6 contains issues primarily involving organizational stakeholder; Chapter 7, economic stakeholders; and Chapter Management & Change, Volume 14, Number 2 (2010)
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8, societal stakeholder. Each issue is illustrated with a real-life case study and supporting sources. Interspersed throughout Parts I and II of the book, authors introduce the reader to the CSR Newsletters that are distributed by the authors as a dynamic environment in the text. Each Newsletter represents a mini-case study as teaching content related to the issues at the cutting edge of the CSR debate, providing stepping stones to help the anxious reader reflect more into this complex subject. In addition to the two parts that constitute Strategic CSR, the second edition is accompanied by an interactive Web site. This Web site is designed to enhance the content provided in these pages. Primarily, the Web site does this by archiving the CSR Newsletters, which are distributed regularly during the fall and spring academic semesters and provide newspaper articles and commentary on contemporary issues and case studies that characterize current debate within the CSR community. On the whole the book is concise, handy and valuable source of information for graduate and post graduate students of business schools in the area of business ethics and CSR in India. The book is equally valuable for teachers from class room teaching perspective. The book is supported by updates from Web site providing instructors with secure access to the Instructor’s Manual that accompanies this text and other resources of relevant and topical materials that can be used in the classroom. Web site provides an additional dimension to Strategic CSR that complements its use in the classroom. This should prove to be a welcome feature for those learners who would like to access the net for more information on issues covered in this book. K.M.Mital, Professor, Strategy & CSR, IILM Institute for Higher Education. GOD HELPS THOSE WHO HELP THEMSELVES The moment one definitely commits oneself, and then Providence moves too. A whole stream of events issue from the decision, raising in one's favour all manner of unforeseen incidents and meetings and materials assistance, which no man could have dreamed would have come his way. - Goethe Management & Change, Volume 14, Number 2 (2010)
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VALUE BASED MANAGEMENT
Eminent Scientists of India
Any business that does not have values cannot endure. This is perhaps the mother of all business principles. Integrity, ethics, humility, and compassion are the primary colors that form the rainbow of business success. -Kiran Mazumdar Shaw (S.N.Chary Foundation Lecture at IIMB, p.10) Good governance does not come from a crook. Integrity and character are essential. It can come from a Tata company. -Dr. Verghese Kurien (quoted in Chary 2002: 186). At Wipro we walk the talk. For example, we are not flexible about boosting our sales by securing orders the non-Wipro way. . .The core Wipro values include: respect for the individual, humility, integrity (individual and company), and hard work. - Azim Premji (quoted in Chary, p.10). Great businesses are never built on the quick sands of opportunism. I reiterate that if living by our values means perhaps growing at a pace slower than we would otherwise have liked, so be it. For us, leadership lies at the heart of knowing what we stand for. - K.M. Birla (Twenty-seventh Vikram Sarabhai Memorial Lecture, Ahmedabad Management Association) Source:
T.V.Rao, Managers Who Make a Difference: Sharpening Your Management Skills, IIMA Business Books, Random House, Noida 201301, UP.
Money can't buy back all your wealth when you are old, a friend when you are lonely, or peace to your soul. The wealthiest person is pauper at times compared to the man with a satisfied mind. - Jeff Buckley Management & Change, Volume 14, Number 2 (2010)
CHANDRASEKHARA VENKATARAMAN: INDIA'S PRIDE IN PHYSICS Venkata Ramana was born on November 7, 1888 in Tiruchirapally in Tamil Nadu. His ancestors on the paternal side worked for farming but his father R. Chandrasekhara Iyer was more attracted to the western style education. His mother, Parvathi Ammal, hailed from scholarly family of 'Satris' or Sanskrit Pandits. C.V. Raman thus had scholarly links and influences both at the paternal and maternal side. Soon after Venkata Raman was born, his father took his bachelor's degree in physical science and secured a position as a teacher in one of the local colleges. He was also deeply interested in South Indian music and learned to play it on the violin. Given this family environment C.V. Raman was naturally drawn towards the study of natural science and also developed interest towards music. His father later on decided to move to Vizagapatnam (now called Vishakhapatnam) in Andhra Pradesh on the advice of his friend Mr. P.T. Sreenivasa Iyenger, who had preceded him and held the position of Principal, Hindu College at Vizag and invited him to become Lecturer in Physics at the same college. In a very serene environment on the seashore at Waltair, Chandrasekhara Iyer and Sreenivasa Iyenger lived in two houses in close proximity that provided a very ideal environment for C.V. Raman to grow. Thus, C.V.Raman grew up amid scenes of natural beauty and in an atmosphere of scholarly life and creative endeavours. Sreenivasa Iyengar was a brilliant scholar and teacher, who took the English classes at the College, while Chandrasekhara Iyer taught physics and mathematics. The environment was thus favourable for the speedy recognition of young C.V. Raman's creative abilities and developing them to their full potential. At a very early age he had acquired the remarkable mastery of English language and an insatiable urge for scientific studies, which in later years helped him immensely to grow as a physicist of highest academic standing. After acquiring a graduate degree from Andhra, C.V. Raman later moved to Presidency College in Calcutta. He soon attracted the attention of the professors, who were astonished by the maturity of knowledge shown by one who was scarcely old enough to be a student in the degree classes. A useful result of this impression was that the routine of lectures and practical classes was partly set aside in his favour, thus allowing more freedom to pursue studies of his choice. This laid strong foundations for his entry into theoretical physics and later making an indelible mark on its growth with his contributions. At the degree examination of 1904 he was the sole first class Management & Change, Volume 14, Number 2 (2010)
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Book Reviews 347
of his year in science and was awarded the University Gold Medal for physics, besides receiving the college prize for English essay writing.
carry out scientific investigations immensely with greater autonomy and freedom, C.V. Raman very wholeheartedly accepted the offer.
For the next two years he was a student working for his post-graduate degree, getting opportunity to read such classics of physics as Helmholtz's Sensations of Tone, Rayleigh's Theory of Sound and Ewing's Magnetic Induction in Iron and other Metals. At Presidency College he developed skills to act as independent scientific investigator. The Philosophical Magazine of London for November, 1906, contains his first formal paper on â&#x20AC;&#x153;The Unsymetrical Diffraction bands due to a Rectangular Apertureâ&#x20AC;?.
C.V. Raman joined the Calcutta University as a Professor under the Palit Trust in July, 1917. Following the death of Mr. Amrita Lal Sircar in November, 1919, he was made as Secretary of the Indian Association for the Cultivation of Science. These two positions, one paid and the other honorary, were ideally suited for the growth of C.V. Raman. While the University position freed him from the drudgery and drabness of work at the Finance Department, the Association work led him to pursue his favourite interests in free and frank environment. The fifteen year period between 1917 to 1932 became most fruitful for his scientific milestones and attaining global standing in physics.
As a means for supporting his family, Raman had to take up job in an area other than research in Physics. In the next ten years between 1907 and 1017, C.V. Raman took up job in the Indian Finance Department serving successively at Calcutta, Rangoon, Nagpur and again at Calcutta in varied capacities. Though his official duties took up most of his time, Raman's zeal for scientific never showed any sign of let-up and in his private time he kept on pursuing his interests in Physics. From the very first year he was on the look-out for opportunities for carrying out experimental investigations began by him at the College. Soon after he joined the service at Calcutta, he discovered the existence of the 'Indian Association for the Cultivation of Science' in that city and sought an interview with the son of the original founder, Dr. Mahendra Lal Sircar, who was then Secretary of the Association. To his great joy he obtained permission to work in its laboratories in the mornings and evenings, out of office hours that enabled him to harness his full creative potential. Even when he was transferred out of Calcutta, first to Rangoon and then to Nagpur, C.V. Raman continued his investigations, converting part of his house virtually into a laboratory and investing on enhancing power of various instruments and devices used at home. Much to his advantage he was transferred back to Calcutta in 911 that put him back to utilize the laboratory facilities of the Science Association for carrying out the scientific investigations to the next level, which became the center stage of his activities for the next 20 years. The steady stream of original papers coming out from the laboratory of the Association soon established C.V. Raman as a very distinguished scientist of international repute. C.V. Raman's enthusiasm for scientific work and his success in original research despite numerous hurdles, could not fail to attract the vigilant eye of another eminent scholar, Asutosh Mookerjee, the then Vice-Chancellor of the Calcutta University. When the Palit Endowment Fund was created and the VC wanted a Professor capable of organizing and directing research to fill the Chair of Physics, he decided to offer the position to C.V. Raman. Although financially the offer was not lucrative, but realizing that it would help him to Management & Change, Volume 14, Number 2 (2010)
School of Research in Physics at the Calcutta University flourished under his guidance to greater and greater heights paving the way for numerous committed physicists to join the school and adding newer equipment of higher level and capacity at its different laboratories. C.V. Raman devoted a good deal of his time towards study of diffusion of light in liquids and other transparent substances. Gradually, from these experimental studies, a new phenomenon was observed, namely, that in the process of diffusion, light may also change its colour. This was observed as early as 1923, but it was not until towards the end of 1927 that it became clear that this was a universal phenomenon and was entirely different from the well-known effect of florescence exhibited by many chemicals. The final step was taken by Raman in February, 1928, when he used the light of the mercury lamp for these experiments, and found in the spectrum of the light scattered by various substances, new lines or bands not present in the incident beam of light. These new lines or bands are now known as the Raman lines or bands, and the spectrum containing them as the Raman spectrum in the substance analyzed for the light diffraction. Mathematicians hailed the discovery with delight, as they saw in it a confirmation of the new quantum mechanics, which they had framed to replace the dynamics of Newton. Royal Society of London elected him as its fellow in 1924. He was knighted by the British Government in 1929. He received the Matteucci Medal of the Italian Society of Sciences in 1928, Hughes Medal of the Royal Society in 1930, and the Nobel Prize for Physics same year in 1930. He received the D.Sc degree of the Paris University honoris causa, the LLD degree of Glasgow, and the PhD degree from Freiburg. The Universities of Calcutta, Bombay, Madras, Benares and Dacca also conferred on him honorary doctorates. He was conferred honorary fellowship of the several societies including Royal Philosophical Society of Glasgow, Zurich Physical Society, Royal Irish Management & Change, Volume 14, Number 2 (2010)
348 Book Reviews Academy, Deutsche Akademie of Munich, and the Hungarian Academy of Sciences, Indian Mathematical Society, and the Indian Science Congress. In later years his ripe experience as a scientific leader was enriched by his frequent travels outside India, which afforded him opportunities of visiting the leading research laboratories and of cultivating personal relations with the leaders of Europe and America. His first visit to Europe was in the summer months of 1921, when he attended the Congress of the Universities of the British Empire held at Oxford. In 1924 he was invited to pen a discussion on the Scattering of Light at the Toronto meeting of the British Association and of the International Congress of Mathematicians. Later Raman visited the United States to represent India at the Centenary of the Franklin Institute at Philadelphia. Before returning to India, C.V. Raman spent four months at Pasadena as Visiting Professor at the California Institute of Technology. In the autmn of 1925, C.V. Raman was invited as the guest of the Russian Academy of Sciences, to represent India at the bicentenary celebrations of the Academy in Leningrad and Moscow. In 1929, C.V. Raman was invited by the Faraday Society to open a discussion on molecular spectra at Bristol. He later visited Europe in the winter of 1930 to receive the Nobel Prize at Stockholm; in 1932 to receive the honorary doctorate at Paris; and in 1937, as an invitee to take part in the International Congress of Physics at Paris and Bologna. C.V. Raman later moved from Calcutta to Bangalore in 1933 where in 1934 he established the Indian Academy of Sciences, which over the years has emerged as body to publish much of the scientific work done in India today. Life of C.V. Raman had been one of unswerving devotion to the cause of knowledge, unceasing service to the growth of science, and promotion of research in India. Various awards received place him in select list of famous men, the record of whose discoveries is also the history of modern science. A distinctive feature of the life of C.V. Raman was that he started his career as an investigator without any external stimulus and attained eminence as a scientist by his own individual effort, sustained by the work of his devoted pupils. The fact that he had no training in foreign laboratories endowed him with a fire for knowledge ignited from within and originality in shaping the career of young men and women interested in physical sciences. He inspired a whole group of investigators, and creating a distinctive school of scientific research in India. C.V. Raman envisioned securing a proper place for India on the scientific map of the world for which his contributions are unparalleled and unique.
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Source: Ghosh, J.C., Sir Chandrasekhara Venkata Raman: His Work in XRay and Radio Activity (1864-?). In: Williams, L.F. Rushbook, Great Men of India. Calcutta: The Times of India - The Statesman, Associated Newspapers of Ceylon Ltd (1940), p.590-599.
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