COB ABR Journal 2010 by Minh-Tuan Ta

Advances in

Business Research Vol. 1 Num. 1 2010

A Publication of UA Fort Smithâ&#x20AC;&#x2122;s College of Business

Volume 1

ADVANCES IN BUSINESS RESEARCH Number 1

2010

Mohamed Zainuba, Editor

Review Board Members Rebecca Abraham, Nova Southeastern University Lynn Adams, Utah Valley University Lorraine Anderson, Marshall University Amelia Baldwin, University of Arkansas - Fort Smith Jim Beard, University of Arkansas-Fort Smith Isaac Bonaparte, Morgan State University Wayne Buchanan, Defiance College Aaron Buchko, Bradley University William Donoher, Missouri State University Larry Faulk, University of Arkansas - Fort Smith Martha Fowler, Northeast Missouri State University Steve Frankforter, Winthrop University Yoshi Fukasawa, Midwestern State University Susan Gaffney, Governors State University David Gay, University of Arkansas at Fayetteville Thomas Griffin, Nova Southeastern University Jeff Grover, Dynamics Research Corporation Tom Hayes, University of Arkansas - Fort Smith Lewis Hershey, Fayetteville State University Larry Hughes, Central Washington University Joel Jolayemi, Tennessee State University Rita Jones, Columbus State University Gundars Kaupins, Boise State University Robert Kitahara, Troy University Kermit Kuehn, University of Arkansas - Fort Smith Anna Lampe, Rockhurst University Maria Leach-Lopez, Auburn University Montgomery Jennifer Leonard, Montana State University, Billings Erika Marsillac, Old Dominion University Bobby Medlin, University of Arkansas - Fort Smith Melissa Melancon, University of Louisiana at Monroe Yasuo Nishiyama, Woodbury University

Lolita Paff, Penn State University – Berks David Palmer, University of Nebraska at Kearney David Pan, Northeastern State University Jerry Parish, Texas A&M University – Commerce Susan Park, Boise State University Zhuoming Peng, University of Arkansas - Fort Smith Ahmad Rahal, University of Arkansas - Fort Smith Masha Rahnama, Texas Tech University Beth Richardson, Saint Joseph’s College of Maine Dennis Rittle, Kansas Board of Regents Carlos Rodriguez, Delaware State University Donna Schaeffer, Marymount University George Schmidt, University of Arkansas - Fort Smith Cliff Scott, University of Arkansas - Fort Smith Raj Selladurai, Indiana University Northwest Daniel Settlage, University of Arkansas - Fort Smith Latisha Settlage, University of Arkansas - Fort Smith Jon Shapiro, Northeastern State University Larry Stimpert, Colorado College Christine Stinson, Ferrum College Carolyn Stumph, Indiana University - Purdue University Aysar Sussan, Bethune-Cookman University Daniel Talley, Dakota State University Margaret Tanner, University of Arkansas - Fort Smith Ruth Taylor, Texas State University Andrew Tiger, Southeastern Oklahoma State University Norman White, Warner University Turner White, Rockhurst University Tom Tworoger, Nova Southeastern University Kenneth Wiant, Tennessee Tech University Jim Wollscheid, University of Arkansas - Fort Smith Frank Wyrostek, University of St. Francis

Advances in Business Research is published annually by the College of Business, University of Arkansas - Fort Smith, Fort Smith, Arkansas 72913. Views and opinions expressed in the Journal are those of the authors and do not necessarily reflect the views of staff of College of Business, or University of Arkansas - Fort Smith. The authors assume responsibility for the accuracy of facts published in the articles. Manuscripts submitted for possible publication in Advances in Business Research should be electronically submitted to the editor. Please comply with the call for manuscripts guidelines. To order Advances in Business Research, please contact Dr. Mohamed Zainuba, Editor, Advances in Business Research, College of Business, University of Arkansas - Fort Smith, 5210 Grand Avenue, Fort Smith, Arkansas 72913, 479-788-7774, mzainuba@uafs.edu Copyright 2010, College of Business, University of Arkansas - Fort Smith

CONTENTS 1 15 26 36

Improving the Quality of Business Research by Asking Significant Questions: A Review and Suggested Technique for Increasing Relevance Aaron Buchko, Bradley University Kathleen Buchko, Bradley University Appraising Value and Risk of Commercial Assets: Stratifying the Modified Internal Rate of Return in an American and European Put Option Analysis Steven Lifland, High Point University On the Deterministic Model for Planning Production Quantities in a Multi-Product, MultiPlant, and Multi-Warehouse Environment Joel Jolayemi, Tennessee State University

A Review of Intellectual Capital LiteratureÂ Proposing Balance Sheet Disclosures of Intellectual Capital (Plus Evaluative Commentary from a Financial Accounting Measurement Perspective) John Morgan, Winona State University Frederic Ihrke, Winona State University James Hurley, Winona State University

The Jewish Holiday Effect: Sell Rosh Hashanah, Buy Yom Kippur Pan Yatrakis, Nova Southeastern University Albert Williams, Nova Southeastern University

Learning to Recognize and React to Disaster: The CI/Wargame Approach to Strategic Management Brian Huffman, University of Wisconsin - River Falls

Cognition and Decision Making in Diversified Firms Larry Stimpert, Colorado College Irene Duhaime, Georgia State University

Rights and Duties of Employers and Applicants Joseph Gilbert, University of Nevada, Las Vegas G. Stoney Alder, University of Nevada, Las Vegas Daniel McAllister, University of Nevada, Las Vegas

Legal and Ethical Issues Associated with Employee Use of Social Networks Gundars Kaupins, Boise State University Susan Park, Boise State University

103 Developing a University Financial Trading Room: A Case History Bruce McLaren, Indiana State University 114 An Analysis of the Accounting Doctoral Industry: Observations and Unanswered Questions Amelia Baldwin, University of Arkansas - Fort Smith Carol Brown, Oregon State University

133

Does Feedback Increase Students’ Emotional Intelligence? Barbara Burgess-Wilkerson, Winthrop University Keith Benson, Winthrop University Steven Frankforter, Winthrop University

142

152 Wooing Employers with an Experiential Learning Program: Six Steps to Human Resource Management Career Opportunities for Your Students Beth Richardson, St Josephs College of Maine 168 Going Home: New Technology’s Impact on Remote Work Engagement Kenneth Jones, Northeastern State University 176 Cooperative and Instrumental Stakeholder Networks: A Case Analysis of Two Urban Neighborhoods Vanessa Hill, University of Louisiana, Lafayette Steven Frankforter, Winthrop University 188 The Age of the New Entrepreneur: The Case Study Approach to 7 Principles for Boosting Profits, Priorities/ROI Decision Matrix and Business Reality Change Model Rosalie Lober, Nova Southeastern University Thomas Tworoger, Nova Southeastern University J. Preston Jones, Nova Southeastern University 198 A Monolithic Culture: Multiple Voices Behind the Same Card Anna Carol Lampe, Rockhurst University 210 Virtual Community Management and Measurement for Goal-Centric Outcomes (Social Representation Research and Other Metrics) Ruth Lesher Taylor, Texas State University Tyler Laird-Magee, Linfield College 224 The Devaluation of the United States Dollar: Causes and Consequences Rita Jones, Columbus State University Lee L’Oste-Brown, Columbus State University 232 The Evolution of the American Comic Book Industry: Are We Entering the Third Wave? David Palmer, University of Nebraska at Kearney 240 Business Diplomats for the 21st Century S. M. Jameel Hasan, Eastern Washington University

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Improving the Quality of Business Research by Asking Significant Questions: A Review and Suggested Technique for Increasing Relevance Aaron Buchko, Bradley University Kathleen Buchko, Bradley University We suggest that organizational and managerial research tends to suffer from incremental approaches that marginalize the results. We review the history and nature of organizational research as a means of pointing out the limitations of various approaches to the issue of developing high quality research that can significantly impact research and practice. We note that research that tends to affect practice comes from qualitative studies that lack rigor, but frequently provide meaningful insights. We then examine one technique, called Spectrum analysis, as a means of improving the assessment of organizational information and as a basis for improving the quality of future qualitative research efforts. This is demonstrated by applying the Spectrum analysis to the information from the book Built to Last as a way of providing an example of the utility of such approaches to furthering knowledge of organizational and managerial experience. The first decade of the twenty-first century has not been kind to the institution of business and business schools. Beginning with the Enron (bankruptcy filing December 2001) and WorldCom (bankruptcy filing July 2002) scandals at the start of the decade, to the collapse of the financial sector sparked by the Lehman Brothers bankruptcy (September 2008), the Bernard Madoff scandal (charges filed December 2008), the AIG debacle (October 2008), the severe economic recession of 2009, and the bankruptcy of General Motors, once the largest of U.S. corporations (June 2009), the business sector has seen more than its share of problems. While the news hasn’t been all bad, the general perception of business seems to be somewhat negative among the general public (Podolny, 2009). Business schools have not been exempt from the criticism levied against the “greedy Wall Street types” and the performance of corporate management. Ghoshal (2005) asserted that “our theories and ideas have done much to strengthen the management practices that we are all know so loudly condemning” (Ghoshal, 2005). Ian Mitroff suggested that business schools foster an amoral learning environment that does not provide managers with proper tools for decision making (Mitroff, 2004). In seeking to explain the reasons for the erosion of confidence in business and business education, Podolny (2009) suggests that the historical development of the business school is partly to blame. He notes that half a century ago, the Ford Foundation and Carnegie Foundation studies of U.S. business education concluded that the overall quality of scholarship was “terrible.” In the wake of these findings, the reports recommended that business schools adopt a more traditional and more rigorous academic approach to the profession, focusing on disciplines that emphasized more quantitative techniques. This approach has by and large been successfully adopted and implemented in most U.S. business schools. The resulting emphasis on quantitative approaches has created greater rigor in the business schools. But at the same time, the study of business has become fragmented as academics working within functional areas fragmented business problems to fit their areas of expertise. The result has been an inability on the part of managers to properly combine the disciplines in decision making, leading in part to the types of disastrous decisions and public relations nightmares that we have observed over the past months. To address these concerns, it has been suggested that there needs to be more of a qualitative approach to the study of business (Lee, 1999; Morgan & Smircich, 1980; Podolny, 2009). This idea certainly has merit and warrants continued development. However, setting business research and education up as a quantitative versus qualitative issue, implying that these approaches are somewhat in opposition to one another, may miss an essential point (the issue of relevance). In his presidential address to the member of the Academy of Management in 1994, Hambrick challenged academics with a fundamental question: What if the Academy actually mattered? (Hambrick, 1994). The point of his message was to note that much academic research has virtually little or no impact on the practice of organizational management; that it is academics talking to academics, within the confines of the academy, and does not influence managerial behaviors. This theme has been reiterated several times since, but apparently to no effect, because academics continue to raise the same topics, e.g., (Pearce, 2004; Pfeffer, 2007). As academics interested in the organizational sciences, we must ask ourselves if the methods are more important than the information and knowledge that we obtain. Many quantitative research papers are methodologically interesting and complex, but make only minor contributions to our knowledge base. Likewise, qualitative studies provide for a richness of information and understanding that quantitative approaches lack, but do so at the risk of substituting general principles for empirically based information. 1

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We confess that we, like most of our colleagues, find ourselves caught up in the academic lifestyle. The need for publications for tenure and promotion will continue to drive much of the research process (Pfeffer, 2007), and therefore we can expect “more of the same” in business school research. We believe it is important, though to continually challenge ourselves as academicians and as organizational scientists to continuously improve our tools and techniques for performing research so as to produce research findings that will be truly relevant to our field. The purpose of this paper is to present one approach that may facilitate this process by providing a new tool for systematic evaluation of qualitative data, the Spectrum analysis. In addition, we shall illustrate the potential benefit of this tool by applying it to well-known and publicly available qualitative data from the best-selling business book Built to Last (Collins, & Porras, 1994) Approaches to Business Research: A Brief History of Business Education Development of the business schools can be divided into three primary periods: origins and early growth (1880 1914), expansion and diversification (1914 - 1940), and reassessment and reorganization (1940 - present) (Pierson, 1959). In the early years, business schools were primarily in establishing a position within the college or university setting, and many were initially Schools of Commerce with primarily a trade-school orientation. As already noted, a seminal event occurred in the 1950s with the studies commissioned by the Carnegie and Ford foundations on business school education (Schlossman, Sedlak, & Wechsler, 1998). The most important research and curricular outcomes from these studies was the increased emphasis on quantitative techniques. Concerned with the apparent imbalance between advances in mathematics and those in the behavioral sciences, both studies emphasized a change in the academic model from the trade-school approach to a more rigorous academic discipline. As part of the quest for academic legitimacy, the management field has placed a significant emphasis on a discipline-based model for the training and promotion of faculty, with the primary mechanism being contributions to academic journals (Agarwal & Hoetker, 2007). While this has enabled the fields of management and organization science to achieve academic legitimacy, there is a concern that such considerations have overlooked the need for research to impact managerial practice (McGrath, 2007). At the same time, other approaches toward the study of organizations were developing from a qualitative perspective. Whyte’s Organization Man (Whyte, 1956), and the Concept of the Corporation (Drucker, 1945) provided insights into the complex world of organizations. As the organization sciences developed, others working form a more qualitative framework provided insights into the interpersonal nature of organizations and managerial life, a process that continues to the present day (Kleiner, 2008). Such approaches cover a range of methods and techniques, from observation to content analyses to participant studies to the intervention work of organization development practitioners. While all such efforts provide insights on organizations, such methods do not provide the empirical rigor of the quantitative approach. Quantitative, Qualitative, and Mixed Methods By far the dominant debate over the years has been the contrast between the quantitative and qualitative approaches to the study of organizations. While there are numerous distinctions between the two approaches, some of the more significant are as follows (Bryman, 2004; Cassell, 2004; Cavana, Delahaye, & Sekeran, 2001): 1. Qualitative methods seek to provide a complete, detailed description of the phenomena under investigation; quantitative approaches aim to classify features, count these, and construct statistical models to explain what is observed. 2. In many qualitative studies, the research may know only roughly in advance what she/he is looking for; quantitative methods involve clear hypotheses and delineation of the issue under investigation. 3. The research design emerges as the study unfolds in qualitative research efforts; while in the quantitative approach, all aspects of the study are carefully designed before data is collected. 4. In qualitative research the researcher is the data gathering instrument, while in quantitative research, the researcher uses tools, such as questionnaires or equipment to collect numerical data. 5. Qualitative research data is in the form of words, pictures, or objects; conversely, quantitative data is in the form of numbers and statistics. 6. Qualitative studies involve subjective analysis, as the individuals’ interpretation of events is important; quantitative research uses objective means to analyze data, seeking precise measurement and analysis of target concepts.

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7. Qualitative data is more “rich”, time consuming, and less able to be generalized; quantitative data is more efficient and able to test hypotheses, but may miss contextual detail. 8. The research in a qualitative investigation tends to become subjectively immersed in the subject matter; the quantitative researcher tends to remain objectively separated from the subject matter. These (and several other) differences have long been the source of debate in academia, particularly in the social sciences, as these lead to a classic confrontation between competing paradigms in research (Kuhn, 1962). Unfortunately, focusing on this debate frames these two methods in opposition to one another. While each has strengths and benefits, as well as weaknesses and limitations,, it is important to focus on how these can be integrated as in mixed methods research (Sale, Lohlfeld, & Brazil, 2002; Tashakkori, 1998). There is likely greater benefit from social science researchers developing skills in both techniques rather than to debate which of these is superior. Action Science While both qualitative and quantitative approaches are useful for scientific inquiry and investigation - and both have a place within the business school - another approach that has been developed is called Action Science. Developed primarily by Argyris (1995), the concept begins with the study of how human beings design their actions in difficult situations. Human actions are designed to achieve intended consequences and are governed by a set of environmental variables. How those governing variables are treated in designing actions are the key differences between single loop and double loop learning. When actions are designed to achieve the intended consequences and to suppress conflict about the governing variables, a single lop learning cycle usually is used. However, when actions are taken not only to achieve the intended consequences but to openly consider and possibly transform the governing variables, both single and double loop learning cycles are employed. (Argyris, 1995; Argyris, Putnam, & Smith, 2000) The primary benefit of the action science approach to the study of management and organizations is the presumption that the circumstances are complex, dynamic, and uncertain, and that the goal is some action or behavioral outcome. Such methodology fits quite well within the modern business organization, as managerial situations are often difficult, involve numerous environmental variables, and require action. Practitioners in particular tend to view such approaches as useful due to the emphasis on taking action to address specific situations. Such a framework is seen as potentially transformative for the social sciences (Putnam, 1999) and for business education (Ford & Ogilvie, 1997). Clinical Research Models Clinical models of organization research emphasize the role of the researcher in interaction with the organization, and are often based on interventions within organization settings. In the clinical approach to research, the investigator, working with managers, individuals, or the organization, seeks to take the results of organizational experience and combine these with other similar experiences to form an understanding of the phenomena under investigation. This approach offers a more complex or ‘richer” context for investigation; however, it does allow for the introduction of numerous variations which can make for difficulties in interpretation of results, and for the external validation of findings. If properly employed, however, clinical models of research can provide insights into organizations and the practice of management that cannot be obtained in any other manner. The complexity of the situation is closer to the reality of day-to-day organization life, thus affording a more accurate and realistic view of the practice of management. In this sense, clinical research has the advantage being performed in the actual organizational setting. The question of relevance or spanning the boundary between research and practice are largely moot, as the research is being conducted within the organizational setting and within the context of organizational activity. There has been a suggestion that the adoption of a clinical approach may lead to more effective forms of business education, as students are more exposed to the nature of managerial activity (Blaylock, McDaniel, Falk, Hollandsworth, & Kopf, 2009). Indeed, the use of clinical settings has been shown to be useful for research as well, particularly for research that seeks to explore the types of behaviors managers are likely to exhibit in various realworld organizational situations (Sautner & Weber, 2009). Case Study Research Business schools have longed use the case study method as a means of educating students, and certainly some such as the Harvard Business School - have built the business educational model around the case approach. What is

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less known, perhaps, is that the case approach can also be a form of business research. It is suggested that the more a research question seeks to explain some present circumstance, and the more the research question requires an indepth and extensive treatment of some social phenomenon, the more appropriate and valuable the case study approach to research (Yin, 2009). Beyond use a pedagogical tool, case research can be used to develop new knowledge and understandings of the manner in which complex organizations and managers operate. In fact, Christensen and Carlile (2009) have recently suggested that sound case studies can unite the development of theory with teaching. They suggest that teachers and students can be viewed as part of a collective process of building, improving, and using management theory. Further, they believe that instead of compartmentalizing teaching and research into separate categories, the use of case methodology can aid in the theory-building process by providing a structure in which it is possible to display the phenomena under investigation in all its complexity (Christensen & Carlile, 2009). This same capability has been noted by others in the management field as having application for theory-building in the organization sciences (Eisenhardt, 1989). The advantage of case study is that it does allow researchers to probe deeply into the circumstances surrounding a particular organizational issue or managerial situation. One distinct disadvantage, however, is that the uniqueness of each individual case - particular for complex organizations - can make it difficult to generalize from one case study to other organizations. However, case studies have strong appeal due to the realism and the complexity of the case under consideration, and if done in sufficient quantity, can be useful for theory development. Whether in-depth analysis of single companies (e.g.,, (Garr, 1999; Slater, 1999)) or case studies of multiple organizations (e.g., (Chandler, 1962; Collins, 2001; Peters & Waterman, 1982)), such efforts have proven over time to influence both academics and practitioners alike. Evidence-Based Approaches One of the more recent responses to this ongoing debate about research methodology has been a suggestion that managers adopt an approach to managerial practice that borrows from the medical profession: evidence-based management. That is, managers should adopt and embrace those practices which the overwhelming weight of the empirical evidence suggests work consistently, whether this be in financial, human resources, employee development, etc. Much as physicians are encouraged to adopt those medical practices which clinical and empirical research demonstrate to be effective, so likewise should managers and organizational professionals adopt those practices that have been “proven” to be effective (Pfeffer, & Sutton, 2006a; Pfeffer & Sutton, 2006b). This perspective focuses on managerial practice and not on research methods per se. However, the suggestion is that managerial practice be informed by the results of empirical and clinical research in order to produce better organizational outcomes. In this sense, evidence-based management spans the boundaries between academic research and managerial practice, and offers opportunity to develop research grounded in practice, informed by theory, and guided by the rigors of sound research methodology (Rousseau, 2006). This perspective has the potential to re-frame the research process in the business school and to address the issue of research relevance in an effective manner (Rousseau & McCarthey, 2007; S. L. Rynes, Gulik, & Brown, 2007). Table 1: Comparison of Organizational Research Methods Qualitative

Quantitative

Research Objective Complete, detailed description of phenomena Classify features, count, construct statistical models

Results Ultimate results may be unknown Defined hypotheses and research issues Taking action to address issues

Design Process Research design emerges with the study Research is carefully designed in advance Single- and Doubleloop learning

Data Gathering Researcher is the data gathering instrument Researcher uses tools to gather data

Data Format Data is in words, pictures, or objects Data is in numerical form

Interactive – researcher and subjects

Data is narrative and numerical Data is complex; includes experience, words, and numbers Data is narrative, descriptive, objects

Action Science

How human beings define actions

Clinical

Interactively develop understanding of the phenomena

Intervention; address defined organizational issue

Interactive; researcher working with subjects

Interactive – researcher and subjects

Case Study

In-depth, extensive treatment of social phenomena

Case Description and Evaluation

Historical/ Interview narrative format

Researcher as historian; may use tools and experience

Form of Analysis Subjective analysis/ Individual interpretation Objective analysis/ Precise measurement Subjective analysis/ Practitioner defined Subjective; defined by researcher and subjects Subjective; based on selection by the researcher

Researcher Role Researcher is immersed in subject matter Researcher is objectively removed from subject matter Researcher is involved with subject matter Researcher interacts with subject matter

Researcher gathers, selects and interprets subject matter

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To summarize this discussion we present the key elements of the various approaches to conducting organizational research in a comparison table, Table 1 above. This table presents the five major forms of organizational research and compares these over several dimensions of research activity: (1) the research objective, (2) the intended results from the research, (3) the research design process, (4) the data gathering process used, (5) the format of the data, (6) the type of analysis performed, and (7) the role of the researcher in the research. As noted in the preceding discussion, the various forms have different advantages and disadvantages. The nature of the organizational problem and the goal of the research help define the approach that may be used. Regardless of the research methodology employed, the issue remains how to improve the quality of organizational research. Unfortunately, methodology does not guarantee the quality of the research. It is possible for a researcher to employ rigorous methodology and intensive effort and still produce research that is of negligible value to the field. Following a research process does not insure the quality of the outcome. It is akin to employing ISO certification processes; ISO certification process certify that the process used to develop a product or service are documented, under control, and repeatable; but do not determine whether or not the product or service is of any value. It has been observed that it is theoretically possible, using ISO methodology, to have an ISO certified concrete lifejacket. Likewise, we would observe that much organizational research is methodologically sound but of limited utility and therefore does not meet the ultimate test of quality research - does the research matter to the field? Return on Research This question of research relevance caused us to consider the impact (or the lack thereof) of much of the academic research in business. While there has been an increase in the number of outlets, and an increase in the volume of research being produced and published, we asked ourselves, “what is the real or true benefit of this research activity?” We found very little writing that addressed this issue. Much of the existing work has been to simply question the relevance of the work done in the field or organization and management study (Hambrick, 1994; Podolny, 2009). However, no research could be found that addressed the gains of benefits to the field from academic research efforts. We therefore “borrowed” from the business disciplines and would like to suggest a concept for discussion: Return on Research, or ROR. That is, what is the net gain or benefit from research activity? What is the total grain produced from published research? We suggest that these returns take one of three forms: Academic Return on Research. Academic ROR is the type of return most often discussed in the literature. Academic ROR are the returns to the academic field from the research activity. Such returns take the form research activity that advances the body of knowledge of the topic, discipline, or field. Academic ROR occurs when research informs further theoretical development or research activity. “Seminal” books and articles that advance theory, develop new constructs, create new measures of existing constructs, or suggest new avenues for future exploration are examples of academic research with a high ROR. Some potential measures of Academic ROR might include citations in other scholarly works and ratings of the quality of research journals. Pedagogical Return on Research. Pedagogical ROR is research that informs the teaching practice of the academy. Such research is useful for instruction, training, and development. The returns primarily generated from this type of research are the educated students that proceed from academic programs of business study. Examples of such Pedagogical ROR methods would take the form of case studies, textbooks, teaching guides, and curricular materials. Such research furthers the educational mission of the academy and provides returns in the knowledge imparted to students. Potential measures of Pedagogical ROR would include assurance of learning programs that measure students’ gains in knowledge throughout a program of study as well as testing and other academic performance measures. Professional Returns on Research. Professional ROR occurs through the dissemination of academic research that informs business practice. As a profession, business relies upon practice to differentiate from general arts and sciences. Research that contributes to practice by enabling professional managers to do a better job managing organizations represents the primary outcome of Professional ROR. Such contributions as articles in professional journals and professional or “trade” publications, along with trade books and case studies or histories of managerial behaviors and organization activities would be examples of Professional ROR. Measures of such returns might include managers’ self-reports of the publications read, sales records for business trade books, and similar information about managers’ familiarity with and use of such information. Return on Research Observations. What we see from this admittedly brief description of the concept of ROR is that much of the academic research may have a high Academic ROR and have very little pedagogically or

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professionally. Herein lies the issue of research relevance; for while academics might question the value of textbooks, trade books, and articles in professional publications, such outlets often have a high Pedagogical or Professional ROR. For example, there are certain textbooks that are widely adopted and are leaders in the teaching discipline, and which impact thousands of students annually in developing knowledge about the field of business and management. These texts have a high Pedagogical ROR and may have a great influence on students, yet are perceived too often have little value academically for tenure and promotion decisions. Likewise, many trade books and publications are viewed as having little academic significance or research rigor, such as Built to Last (Collins & Porras, 1994) or Good to Great (Collins, 2001); yet these books are widely read by practicing managers and have great influence on managerial behaviors and decision making. However, such books are often lightly regarded by academics as having little theoretical rigor or appropriate research methodologies. It is possible that the field of organization studies has been too narrowly defining the ROR in terms of only Academic returns, when other returns (to students and practitioners) are of real value to the managerial discipline. However, this still begs the question, why does so much business research have low overall returns? Improving the Quality of Business Research This review of the approaches to conducting organization and managerial research does point out the richness of the field. Management scholarship has been successful in incorporating diverse research methods into a body of knowledge that has provided a rich tapestry of information. While criticisms that much of the work is done in the “ivory tower,” social scientists management scholars recognize the need to meet the rigors of quality in conducting their investigations. At the same time, as members of a profession, there is a realization that the research must inform the practice of management to realize true value (Bazerman, 2005). Why then does so much organizational research have very limited utility? The quest for relevant research is no less important today than in 1994 when Hambrick challenged the profession to increase the relevance of research and increase the impact of research on the managerial profession. Yet despite the overwhelming volume of research and papers being produced by business academics today, there is seemingly little change in the influence of that research on organizations and managers. There is no shortage of good, reasonable recommendations for doing so, e.g., (Latham, 2007; D. M. Rousseau, 2007). The field may be building up toward a crucial point at which these dual stakeholders will merge and recognize the value that each can offer to the field of organizational science (Rynes, 2007). We would like to make a modest suggestion for management scholars and practitioners to consider: perhaps the reason that much research is of limited value is because it is based on the wrong questions. Practitioners have long known that the question that one asks, and the manner in which one asks it, can significantly influence the answer or result. For instance, if I ask a child “did you break the glass?” in a threatening tone I will get a very different response that if I ask the same child “who broke the glass?” or “how did the glass get broken?”, and the interaction that follows will be greatly determined by the nature of the question. Likewise managers realize that there is a significant difference between asking “Why are our quality measures so low?” and asking “How can we improve the quality of our products or services?” The question frames the answer - it establishes criteria for resolution, boundaries for inquiry, and the scope of the problem. It seems to us that one reason that so much organization research suffers from limited value is that the questions that are under investigation are limited, weak, or not very interesting to the field. Thus we contend that great research is a by-product of great questions. Once the right question is established, persons trained in research and scholarship can devote significant amounts of time, energy, and resources to developing answers to these questions. Most students who graduate with PhD degrees are capable of doing scientific research. Unfortunately, the tenure and promotion process - which tends to emphasize counting publications rather than the quality of those publications - drives many in academia to pursuing minor iterations of extant research questions with very little thought to the overall value of the research on the discipline. And there is very little in the PhD education process that enables students to learn how to ask interesting research questions; most are simply consumed with a question that will enable them to complete their dissertation and earn their degrees. The end result is a plethora of trite, insignificant, and narrowly focused research that, while of interest to a small body of scholars and perhaps a few practitioners in the discipline, has very little impact on the overall advancement of the body of knowledge regarding organizations and the practice of management. When faced with such outcomes, one response is to look for structural explanations - hence the call for increased relevance and for processes that merge academics and practitioners. However, structural changes will not lead to meaningful research if there is no consideration of the research question. Our experience in reviewing the works of colleagues in the field for

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professional meetings or various journals has led to the inescapable conclusion that much of what is submitted lacks a clear research question or is based on a research question that is, frankly, uninteresting. But what makes for interesting research questions? Bartunek, Rynes, and Ireland (2006) performed survey research of academics and practitioners found that academics found research to be interesting if (in descending order) it (1) challenged existing theory in a counterintuitive manner; (2) was of high quality in theory development or in technical presentation; (3) was well written; (4) provided new theory of findings; (5) had practical implications; and (6) had a measurable impact on the field, either in terms of citations or ability to stimulate new research (Bartunek, Rynes, & Ireland, 2006). This provides some insight on academicsâ&#x20AC;&#x2122; perceived characteristics of interesting research, but does not afford much insight into how one might go about developing research questions that would be of interest. Interesting theories are those which deny certain assumptions about their audience, while non-interesting theories are those which affirm certain assumptions of their audience (Davis, 1971). To develop such theories, a good research question challenges researchers to see matters from a new perspective and see something new (Lipowski, 2008). Proposed research must meet important professional and societal goals, yet be answerable within existing resources and a reasonable time frame. Three steps have been posited for formulating a great research question (Lipowski, 2008): (1) ask interesting questions, (2) select the best question for research, and (3) transform the research question into a testable hypothesis. These are certainly valid guidelines. But how researchers might systematically explore an area of research and develop interesting research questions is not addressed. This has led us to inquire into methods for improving the quality of research questions; that is how, might researchers go about the process of identifying issues for investigation that are significant, meaningful, and would have a real effect upon both the body of academic knowledge as well as the practice of management? Voss (2003) offered some ideas for how this might be done. He suggested that incremental innovations in research (which reinforce existing core concepts and the linkages between those concepts) are less interesting (and less likely to get published); likewise, radical innovations in research (which introduce new conceptualizations and changes in constructs and relationships among constructs) are rare and difficult to implement, and rarely get published. The two types of research most likely to be viewed as interesting (and most likely to be published) are either modular innovations (which define, measure, or analyze core constructs in new ways) or architectural innovations (which examine new situations for focal relationships, or new constructs that may affect focal relationships) (Voss, 2003). It is in these latter categories of modular or architectural innovations that we wish to focus our attention, since research that does not get published - no matter how interesting the question - cannot influence academic research and theory development, organizational knowledge, or managerial practice. We were curious as to whether or not there were any existing approaches that might assist researchers in developing great research questions that would lead to great research. However, there is a remarkable paucity of writing and thought, and very few practical suggestions, as to how researchers might go about developing high quality research questions. We were particularly interested in a process or systematic approach. Finding very little in the available resources, we turned to another approach that has been found to be effective in generating useful research questions from existing research, a technique called Spectrum Analysis. The Spectrum Analysis In order to become empowered to find answers to management and organizational problems, researchers and practitioners must begin with the right questions. Science promises the revelation of a vast amount of information, and developing interesting questions is essential to scientific discovery (Voss, 2003). The best research questions are interesting, fit the research well, can be transformed in testable hypotheses, and involve some concept related to theory or an applied context (Bradley, 2001; Lipowski, 2008). As we have noted, it is the questions that determine research design, conceptual framework, and the methods utilized (Blaikie, 2000; Bryman, 2004; Flick, 1998; Lipowski, 2008; Mason, 2002; Sackett & Wennberg, 1997). One of the benefits of non-quantitative research (qualitative methods, case study research, and action science research) is the ability of such research to discover questions and generate hypotheses that can be tested using quantitative measures (Bernard, 2000; Bryman, 2004; Cassell, 2004). Unlike quantitative methods, techniques, and tools, which emphasize numerical data, statistical analyses, and tools such as scatterplots, graphs, and histograms, qualitative studies generally use descriptive data that may not be immediately revealing. This, however, creates difficulties in generating research questions, as potentially interesting patterns or observations may not be immediately observable to the researcher or manager. As a result, many research issues may go unexplored. While qualitative methods do possess appropriate rigor, the nature of the assessment and evaluation - relying on the insights and knowledge of the investigator - can make it difficult to identify additional research opportunities,

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and to find interesting questions for future research. Hence while many qualitative studies are enlightening and pathbreaking, and may become popular best-selling managerial books such as In Search of Excellence (Peters & Waterman, 1982) or Good to Great (Collins, 2001), such works rarely lead to meaningful follow-on research or develop a systematic, empirical body of knowledge that is of much use to the field of management research. While quantitative data gathered from organizations is analyzed and shared using statistical and related quantitative techniques, qualitative data is often neglected for want of an effective means to analyze such data and to share such data. Researchers and mangers know that this data is valuable, but lack the ability to organize the data and glean from the data important, useful, and interesting research questions. Tools currently available to analyze and present qualitative information, e.g., database sets, narratives, categorical tables, etc. fall far short of matching the analytical power, familiarity, and ease of sharing of traditional quantitative tools such as statistical analyses and numerical graphs. Thus we perceive a gap in existing research techniques, primarily between quantitative empirical studies and qualitative. Each has its defenders and detractors. We would like to suggest that there may be a productive middle ground that might enable the field to grow and develop by leading to new avenues of inquiry and the development of interesting research questions. This middle ground lies in the use of systematic analytic techniques and methodologies on research that is qualitative in nature. By framing qualitative research in novel ways, and by doing so in a systematic and repeatable manner, it may be possible to develop new research questions that lead to productive streams of activity and that provide significant returns to the field. One technique that might be useful for analyzing such qualitative data and generating questions that may be of use for future research is the Spectrum analysis (Slone, 2005). The goal of Spectrum analysis is to make data available to a wide audience of qualitative analysts just as histograms, graphs, and scatterplots are available for use by quantitative researchers. Through pattern recognition, a Spectrum can facilitate analysis by helping researchers share results more efficiently and by supporting inferential interpretations. The Spectrum presents a visual analysis of qualitative data. Key qualities or characteristics of the company or data under investigation are identified and categorized. Within each category, data units are organized on the basis of similarity to others in the same category. Thus the Spectrum provides a systematic way of comparing qualitative data. Spectrum has been used to examine the relationship between mental models, motivation, and search habits of Internet users (Slone, 2002), the association between age group and Internet search goals and experience (Slone, 2007), and categorical differences in the ways end-users searched the Internet and an online library catalog (Slone, 2005). In performing a Spectrum analysis, data or information from qualitative studies are taken as presented by the original researcher and organized according to the researcher’s framework. Thus characteristics of organizations, individuals, or categories of information are used as initially conceptualized by the investigator. Within these categories of data, the information can be organized according to the original researchers’ intentions and then presented in a visual manner that allows for comparisons, analysis, and development of potential research questions. An Example: A Spectrum Analysis of Built to Last Companies To highlight and demonstrate the potential utility of the Spectrum analysis as a tool for organization researchers, a Spectrum analysis was performed on the qualitative data from the best-selling business book Built to Last (Collins & Porras, 1994). There is evidence that this work has had a significant influence on organizations and the practice of management. For example, authors have pointed to this work to clarify the notion of extended high performance for industries (Foster & Kaplan, 2001); to discourage emulating visionary companies without understanding these organizations (Reingold & Underwood, 2004); to support disciplined growth rather than revolutionary breakthroughs (Rooney, 2006); and to promote the development of core values (Gruys, Stewart, Goodstein, Bing, & Wicks, 2008). Using surveys and historical data, Collins and Porras (1994) identified 18 “visionary” companies based on characteristics that helped these companies succeed over decades and compared each of these to a durable but less successful competitor firm in the same industry. Visionary companies were defined as “premier institutions – the crown jewels - in their industries, wide admired by their peers and have a long track record of making a significant impact on the world around them” (Collins, & Porras, 1994, p. 1). While these firms were not free of problems, the visionary companies were resilient in the face of problems and had managed to survive and prosper over an extended period of time. The goals of their qualitative study were to identify characteristics common to highly visionary companies and use these qualities and characteristics to influence managerial practice From surveys of chief executive officers (CEOs) from leading companies in different industries and locations, the Collins and Porras (1994) developed a list of visionary companies, identified the 20 most commonly mentioned by

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the CEOs, and eliminated companied founded after 1950. They then developed a control set of matching companies from the same founding era and industry that were good companies but garnered fewer points from the CEO assessment than the visionary company. After identifying the 2 groups, the authors conducted an in-depth historical analysis of the firms. The final analysis focused on data related to organizational structure, social/cultural practices and norms, physical setting, technology, leadership, products and services, vision/core values, finances, and the external environment. The authors then narrowed the information down to a set of narratives and tables to describe distinguishing characteristics of visionary companies. The results were then presented in tabular form, each table corresponding to one of the six characteristics of success. The data from those tables has been distilled using the Spectrum analysis into one display, shown in Figure 1 below. Figure 1: Spectrum Display of Results from Built to Last AMEX (2)

Pﬁzer (11)

Philip Morris (14)

Texas Instruments (7)

Ford (5) IBM (8)

Bristol-Myers Squibb (9) General Motors (5) Melville (13)

Citicorp (4)

Kenwood (16)

Disney (18)

Colgate (15)

Boeing (3)

Norton (1)

GE (6)

Chase (4) Nordstrom (13) RJR Nabisco (14)

Marriott (10)

Comparison Companies 18 (50%)

Howard Johnson (10) Zenith (12)

Visionary Companies 18 (50%)

Johnson & Johnson (9) 3M (1)

N=36

Westinghouse (6)

Proctor & Gamble (15) McDonnell Douglas (3)

Hewlett-Packard (7)

Wells Fargo (2)

Motorola (12)

Columbia (18) Burroughs (8) Ames (17)

Big

Core Ideology s) AG H ry Au B ( dacious Goals Cultism Purp oseful Evolution y Man agement Continuit Self-Improvement

Ha i

High:

Medium:

Merck (11) Sony (16) Walmart (17)

Low:

In this display, the nucleus (the black circle in the center of the Spectrum) displays the total number of cases or companies (n = 36). The larger semi-circle above the nucleus represents company type (Visionary or Comparison company). Concentric outer semi-circles include symbols, in the form of “bullet points,” that represent ratings of the companies on the various characteristics. Labels identify these characteristics, which include Core Ideology - the principles that drive a company beyond profits; Bif Hairy Audacious Goals (BHAGs) - daredevil-like goals that are in line with a company’s core ideology and within the realm of possibility; Cultism - a cult-like commitment to the company and the core ideology; Purposeful Evolution - the process of evolving and trying new things as the company expands; Management Continuity - filling top management positions from inside the company; and SelfImprovement - the quest to do better today than yesterday. The names of the companies are listed for each row of visual data, and the numbers in parentheses represent the match between the visionary company and the comparison company. Companies rated the highest in each category are shown with the dark black bullets; dark gray bullets mark the mid-range companies; and the light gray bullets the lowest ranked companies. Visionary companies are ranked high (Wal-Mart) to low (American Express, or AMEX) based on the number and location of bullets form the CEO and authors’ ratings. Comparison companies are similarly

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ranked (Pfizer to Ames). The initial impression from the data confirms the findings of Collins and Porras that the visionary companies perform better in key qualitative characteristics than do the comparison companies. More significantly, however, the Spectrum displays present new questions. Why does the retail discount industry contain both the highest-rated company over time (Wal-Mart) and the lowest (Ames)? Does the location of Ford and General Motors at the top of the display suggest there is less qualitative difference between high and low performing firms in the auto industry than in other industries? Do high ratings on Core Ideology and BHAGs distinguish high performing companies in the auto industry from low performing companies? Does the fact the Merck is one of the most successful visionary companies and that its match, Pfizer, is the best of the comparison companies mean that companies in the pharmaceutical industry perform better overall than those in other industries? Why do more companies rank highly on Management Continuity than on any other characteristic? What is the significance of the fact that both the companies in the credit card industry (AMEX and Wells-Fargo) have low Self-Improvement ratings? These types of questions open doors to further inquiry, and can form the basis for new streams of highquality research efforts. In addition, the use of the Spectrum analysis can lead to new avenues for thought and theory development that can enhance qualitative and quantitative research by offering insights into potential avenues for theoretical development. While generating research questions is important in improving the quality of research, and describing organizational phenomena using existing theoretical models is useful, to create a truly significant impact on business organizations requires that the theories and models be applicable. That is, theories and models cannot be merely descriptive, but to have maximum utility should be predictive as well. Relevance to practicing managers comes when the theories of organization researchers can provide insights and answers to the problems and challenges that affect people in organizations. However, for such theories to be valid, they ought to be based on meaningful research. We find that the Spectrum analysis can provide insights to not only descriptive and analytic research, but may be able to offer avenues for theoretical exploration of information that increases the predictive value as well. For example, it has been noted that seven of the eighteen companies cited as examples of outstanding and enduring companies would not have met the authors’ criteria for inclusion in the book a few years later (Reingold & Underwood, 2004). The specific firms were Sony, Merck, Motorola, Nordstrom, Boeing, Disney, and Ford. Interestingly, using the information from the Spectrum analysis, it is possible to find patterns in this list of companies that might suggest avenues for further theoretical development and exploration. All of the firms that would have fallen from the list of “Built to Last” companies were rated high by the authors with respect to Core Ideology and, with the single exception of Nordstrom’s, all were rated highly for having a Big, Hairy, Audacious Goals (BHAG). Why might these patterns be significant? If we combine this information with the knowledge that there have been significant changes in the business environment between 1994 (when the book was published) and 2004 (when the observation about the seven less successful companies was made), we can ask if the presence or a strong core ideology and BHAG might prevent companies from being able to change with shifting business conditions. Perhaps a strong core ideology and lofty aspirational goals might limit the ability to adjust the firm’s business model to respond to conditions. Fully half (7 of 14) and nearly two thirds (7 of 11) of the companies that were rated highest on these two dimensions would not have met the criteria for being a “Built to Last” company. By detecting the patterns in the Spectrum analysis and combining this with other data, researchers can develop theoretical concepts that afford new opportunities for investigation, and that refine the generalizations that tend to characterize many qualitative studies. In the case of “Built to Last,” using the Spectrum analysis might suggest that it is not enough for a company to have a “core ideology” and to focus on “BHAGs,” as strong internal emphases might prevent a company from being able to adapt and modify as needed to meet business conditions. Perhaps a strong core ideology and BHAG is useful only if the firm is in a stable industry or market. In times of turbulence, such forces might prevent firms from having the requisite flexibility for change. Note that this process extends the qualitative assessment of “Built to Last” and adds new theoretical constructs to the framework. It is this type of analysis that can extend existing research techniques and models, create new avenues for exploration, provide prescriptive benefits to managers, and increase the relevance of research - thereby improving the quality of qualitative research. CONCLUSION Data about corporations is gathered continuously. Some of the data, such as financial reports, market share information, and the like provides an independent, relatively objective set of numerical data that is well suited to the types of quantitative methods and analyses that are the basis for much organization research. Additional data, in the form of surveys and in-house studies, provides further data for quantitative research methodology. Such data and

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methods are useful for understanding organization issues, problems, and managerial behaviors, and will certainly continue to form the base for much future knowledge generation. However, there are much more data available regarding organizations and the practice of management that do not fit well into traditional quantitative approaches to research, nor into qualitative or mixed-methods studies. This information is useful, meaningful, and potentially valuable to managers and organization researchers. However, without some means to organize and assess such data, we are often left with broad prescriptive themes or platitudes regarding the practice of management. For the discipline to continue to grow and develop, new ways must be found to take such information and develop meaningful, interesting, and useful questions that can form the basis for continuous research - both quantitative and qualitative. In this paper, we have demonstrated one such tool, the Spectrum analysis. We believe that by pursuing such techniques organization scientists and management researcher will be better able to identify those critical research questions that form the basis for great research - research that impacts theory as well as practice, that is useful for future research as well as for increasing individualsâ&#x20AC;&#x2122; and firmsâ&#x20AC;&#x2122; performance. We are encouraged by these preliminary results of inquiry and urge others to employ such techniques to improve our understanding of organizations and management. REFERENCES Agarwal, R., & Hoetker, G. 2007. A Faustian bargain? The growth of management and its relationship with related disciplines. Academy of Management Journal, 50: 1304-1322. Argyris, C. 1995. Action science and organizational learning. Journal of Managerial Psychology, 10: 20-27. Argyris, C., Putnam, R., & Smith, D. 2000. Action science. San Francisco, CA: Jossey-Bass. Bartunek J., Rynes., S., & Ireland, R. 2006. What makes management research interesting, and why does it matter? Academy of Management Journal, 49: 9-15. Bazerman, M. 2005. Conducting influential research: The need for prescriptive implications. Academy of Management Review, 30: 25-31. Bernard, H. 2000. Social research methods: Qualitative and quantitative approaches. Thousand Oaks, CA: Sage Publications, Inc. Blaikie, N. 2000. Designing social research. Oxford: Blackwell. Blaylock, B., McDaniel, J., Falk, C., Hollandsworth, R., & Kopf, J. 2009. A borrowed approach for a more effective business education. Journal of Management Education, 33: 577-595. Bradley, D. 2001. Dveloping research questions through grant proposal development. Educational Gerontology, 27: 569-581. Bryman, A. 2004. Social research methods. Oxford: Oxford University Press. Cassell, C., Symon, G. 2004. Essential guide to qualitative methods in organizational research. Thousand Oaks, CA: Sage Publications, Inc. Cavana, R., Delahaye, B., & Sekeran, U. 2001. Applied business research: Qualitative and quantitative methods. Milton, Queensland, Australia: John Wiley & Sons. Chandler, A. 1962. Strategy and structure: Chapters in the history of the industrial enterprise. Cambridge, MA: MIT Press. Christensen, C., & Carlile, P. 2009. Course research: Using the case method to build and teach management theory. Academy of Management Learning & Education, 8: 240-251. Collins, J. 2001. Good to great. New York: HarperCollins. Collins, J., & Porras, J. 1994. Built to last: Successful habits of visionary companies. New York: HarperCollins.

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Davis, M. 1971. Thatâ&#x20AC;&#x2122;s interesting! Towards a phenomenology of sociology and a sociology of phenomenology. Philosophy of the Social Sciences, 1: 309-344. Drucker, P. 1945. The concept of the corporation. New York: McGraw-Hill. Eisenhardt, K. 1989. Building theories from case study research. Academy of Management Review, 14: 532-550. Flick, U. 1998. An introduction to qualitative research. London: Sage. Ford, C., & Ogilvie, D. 1997. An action-oriented approach to business education. Career Development International, 2: 80-84. Foster, R., & Kaplan, S. 2001. Creative destruction: Why companies that are built to last underperform the market and how to successfully transform them. New York: Doubleday. Garr, D. 1999. IBM redux: Lou Gerstner and the business turnaround of the decade. New York: HarperCollins. Ghoshal, S. 2005. Bad management theories are destroying good management practices. Academy of Management Learning & Education, 4: 75-91. Gruys, M., Stewart, S., Goodstein, M., Bing, M., & Wicks, A. 2008. Values enactment in organizations: A multi-level examination. Journal of Management, 34: 806-843. Hambrick, D. 1994. Presidential address: What if the academy actually mattered? Academy of Management Review, 19: 11-16. Kleiner, A. 2008. The age of heretics: A history of the radical thinkers who reinvented coporate management. San Francisco: Jossey-Bass. Kuhn, T. 1962. The structure of scientific revolutions. Chicago, IL: University of Chicago Press. Latham, G. 2007. A speculative perspective on the transfer of behavioral science findings to the workplace: The times they are a-changin. Academy of Management Journal, 50: 1027-1032. Lee, T. 1999. Using qualitative methods in organizational research. Thousand Oaks, CA: Sage Publications, Inc. Lipowski, E. 2008. Developing great research questions. American Society of Health System Pharmacists, 65: 1667-1670. Mason, J. 2002. Qualitative researching. London: Sage. McGrath, R. 2007. No longer a stepchild: How the management field can come into its own. Academy of Management Journal, 50: 1365-1378. Mitroff, I. 2004. An open letter to the deans and faculties of American business schools. Journal of Business Ethics, 54: 185-189. Morgan, G., & Smircich, L. 1980. The case for qualitative research. Academy of Management Review, 5: 491-500. Pearce, J. 2004. What do we really know and how do we really know it? Academy of Management Review, 29: 175-179. Peters, T., & Waterman, R. 1982. In search of excellence: Lessons form Americaâ&#x20AC;&#x2122;s best-run companies. New York: Harper & Row. Pfeffer, J. 2007. A modest proposal: How we might change the process and product of managerial research. Academy of Management Journal, 50: 1334-1345.

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Pfeffer, J., & Sutton, R. 2006a. Hard facts, dangerous half-truths, and total nonsense: Profiting from evidencebased management. Cambridge, MA: Harvard Business School Press. Pfeffer, J., & Sutton, R. 2006b. Evidence-based management. Harvard Business Review, 84: 62-70. Pierson, F. 1959. The education of American businessmen: A study of university-college programs in business administration. New York: McGraw-Hill. Podolny, J. 2009. The buck stops (and starts) at business school. Harvard Business Review, 87:62. Putnam, R. 1999. Transforming social practice: An action science perspective. Management Learning, 30: 177-187. Reingold, J., & Underwood, R. 2004. Was built to last built to last? Fast Company, 88: 103-111. Rooney, J. 2006. Being great is not just a matter of big ideas. Advertising Age, 77: 1. Rousseau, D. 2006. Presidential address: Is there such a thing as evidence-based management? Academy of Management Review, 31: 256-259. Rousseau, D. 2007. A stick, leveraging, and scalable strategy for high-quality connections between organizational practice and science. Academy of Management Journal, 50: 1037-1042. Rousseau, D., & McCarthey, S. 2007. Educating managers from an evidence-based perspective. Academy of Management Learning & Education, 6: 84-101. Rynes, S. L. (2007). Let’s create a tipping point: What academics and practitioners can do, alone and together. Academy of Management Journal, 50: 1046-1054. Rynes, S., Gulik, T., & Brown, K. 2007. The very separate worlds of academic and practitioner periodicals in human resource management: Implications for evidence-based management. Academy of Management Journal, 50: 987-1008. Sackett, D., & Wennberg, J. 1997. Choosing the best research design for each question: It’s time to stop squabbling over the “best” methods. British Medical Journal, 315: 1-2. Sale, J., Lohfeld, L., & Brazil, K. 2002. Revisiting the quantitative-qualitative debate: Implications for mixedmethods research. Quality and Quantity, 36: 43-53. Sautner, Z., & Weber, M. 2009. How do managers behave in stock option plans? Clinical evidence from exercise and survey data. The Journal of Financial Research, 32: 123-155. Schlossman, S., Sedlak, M., & Wechsler, H. 1998. The “new look”: The Ford Goundation and the revolution in business education. Selections, 14: 8-28. Slater, R. 1999. Jack Welch and the GE way. New York: McGraw-Hill. Slone, D. 2002. The influence of mental models and goals on search patterns during web interaction. Journal of the American Society for Information Science and Technology, 53: 1152-1169. Slone, D. 2005. A birds-eye view of cross-platform web interaction. Journal of Documentation, 61: 657-669. Slone, D. 2007. The impact of time constraints on web search goals and behavior. Journal of the American Society for Information Science and Technology, 58: 508-517. Tashakkori, A., & Teddlie, C. 1998. Mixed methodology: Combining qualitative and quantitative approaches. Thousand Oaks, CA: Sage Publications, Inc. Voss, B. 2003. Formulating interesting research questions. Journal of the Academy of Marketing Science, 31: 356-359.

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Whyte, W. 1956. The organization man. New York: Simon & Schuster. Yin, R. 2009. Case study research: Design and methods. Thousand Oaks, CA: Sage. Aaron Buchko is a professor of management at Bradley University. He received his Ph.D. in management from Michigan State University. His research interests include knowledge management, institutional theory, and business ethics. He has published in Advances in Strategic Management, the Academy of Management Journal, the Journal of Business Research, the Journal of Business Ethics Education, Management, and several others. Kathleen Buchko is an associate professor of counseling at Bradley University. She received her Ph.D. from Michigan State University. Her current research interests include spirituality and counseling, and exercise and sport psychology. She has published in the Journal of Business Ethics Education, Sport Psychologist, Journal of College Student, and others.

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Appraising Value and Risk of Commercial Assets: Stratifying the Modified Internal Rate of Return in an American and European Put Option Analysis Steven Lifland, High Point University In comparative project valuations, there is an assumption of equality of risk across investments. Two commercial metro office buildings are valued according to both a European and American Put Option, broadening the number of acceptable actions for investors. This paper presents a technique that enhances the final investment decision process. Specifically, this paper posits that, superior to the Internal Rate of Return (IRR), stratifying the Modified Internal Rate of Return (MIRR) provides another layer of risk analysis that facilitates project comparisons even where other techniques have led to conflicting results.

In making commercial real estate valuation decisions, the process of analyzing competitive locations is based upon the unique real estate properties themselves, other available investment opportunities, the expected rates of return, and the degree of risk associated with each of the capital projects. This paper posits that with the appraisal of the value of commercial assets, real options exist for an investor. It compares the existence of a European Put Option where reversion value (gross selling price) can occur only at the end of the lease term and an American Put Option where reversion can happen at any time during the holding period. Specifically, it’s the presence of both the European and American Put Options that gives the investor the right but not the obligation to make a sell decision. Just like with financial options, the value of the real option is contingent on future event(s) such as net lease revenue receipts and the expected future re-sale value. The value of real estate projects are likely to fluctuate stochastically and the investor will choose to exercise the option, there is no obligation, when it is perceived to be ‘in-the-money’ (Dixit and Pindyck, 1994). This paper recognizes and supports prior works which state that investors have the choice to make net capital expenditures with or without the ability to abandon or sell-off the project. It focuses, based on actual real estate data, on a specific mutually exclusive case between two similar office buildings in metro downtown Chicago. In the traditional Discounted Cash Flow (DCF) process, the Internal Rate of Return (IRR) is normally used to rank the desirability of projects. In order to determine the relative weights and timing of the various components of the return, the IRR can be partitioned (Brueggeman and Fisher, 2008). However, the IRR is subject to weaknesses such as producing multiple rates of return depending on the sign of the cash flows, and the rate itself is used as the reinvestment rate of return for the project. This paper advocates the use of the Modified Internal Rate of Return (MIRR) as an alternative because it will not produce multiple rates of return and uses the cost of capital and not itself as the reinvestment rate of return and offers a more conservative return. In an extension of the literature, the stratifying of the MIRR adds another layer to the risk analysis aspect that goes beyond that of the IRR and its partitioning. This paper looks at the related real option literature and the source of the data for the analysis, the methodology section and the empirical results, and the analysis of the empirical results and the conclusion end the paper. RELATED LITERATURE The impact of risk and uncertainty on rational decision rules used in the selection of projects to include in a corporate capital budget has been a major finance topic for discussion and research. Lintner (1965) found that the expected return in a capital budgeting case was an increasing function of the risk-free rate of return, the market price of dollar risk, the project’s variance of returns, the aggregate present value of the project and its co-variance with existing assets of the firm, and the co-variance of the project with other projects included in the capital budget. A situation of certainty exists when the investor knows for sure (100% probability) what his future returns will look like (Levy and Sarnat, 1984). Looking at capital budgeting under uncertainty (Huang and Litzemberger, 1988) and (Lucas and Prescott, 1971), using the Sharpe-Lintner-Black model of capital market equilibrium, Fama (1977) found that the present value of expected future cash flows depends on the risk-adjusted discount rates for each of the periods until the flow of funds is realized. The discount rate experienced adjustments for risk over the time period due to the possible reassessment of the future cash flows. Even though the traditional Discounted Cash Flow (DCF) method takes into account the time value of money, systematic cash flows, and the ultimate resale of the property, it has a weakness in that it tends to be passive and does not capture the ability of the investor to adapt or revise their decisions in response to market 15

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developments. It is generally accepted that investors will follow a set of rigid rules and will not alter a project at any specific stage of its useful operating life (Trigeorgis, 1993), (Trigeorgis and Mason, 1987). Real options allow investors to take a more strategic approach to decision making as they have the right but not the obligation to make an investment decision. Just as financial options derive their value from the underlying asset, the value of real options is contingent on future events (Xie, 2009). In a recent work by Stout, Xie, and Qi (2008), they create a hypothetical example where the managers of a rental car company are faced with the problem of trying to decide whether to buy a fleet of gasoline-powered cars or hybrid vehicles in light of pending new government regulation. They claim that within this situation is an embedded abandonment option. There is an option to sell the gas-powered vehicle in any one year at a specific salvage value. The question becomes how much value is added from the abandonment option (Bonini, 1977). The abandonment option is analogous to an American Put option on a dividend paying security. Berger, Ofek, and Swary (1995) predict that market value is positively related to liquidation value after controlling for the relation between a firm’s market value and its expected future cash flows. Concerned with valuing projects that had several options available and then quantifying their interactions, Trigeogis (1993) found that the value of real options may not be additive. Valuing two options in a toll-road project in Australia, Rose (1998) found that at least one of the options displayed a significant value. The interaction between the options influenced the one significant option value. Ignoring embedded options could result in underestimating the value of a project. The findings of these latter two works imply that the flexibility that accrued to management through the recognition of a real option could be as economically significant as the expected future cash flows of the project. Data Review The data for the comparison of alternative real estate investments is obtained from REIS, Inc. The company is a provider of commercial real estate performance data and analysis. It specifically focuses on the metro (city), submarket (neighborhood), and property level. Their internet site is www.reis.com. The site offers coverage of 80 U.S. metropolitan areas and over 2,300 submarkets for the office, apartment, retail, and industrial sectors. This paper analyzes a mutually exclusive situation that specifically compares two downtown Chicago office building investments, Projects Riverside and LaSalle. Their valuations will follow a traditional discounted cash flow (DCF) process. The physical characteristics for Projects Riverside and LaSalle are presented in Table I while the pertinent dollar per square foot data, used in the DCF model, for each property, is reported in Table II. The initial outlay for Project LaSalle was approximately $108.7 million and the initial outlay for Project Riverside was approximately $144.1 million. These are historical purchase prices from 2008 based on data from REIS, Inc. Table I: Physical Characteristics for Projects Riverside and LaSalle

Project Name City Property Type Building Area (sf) Buildings/Floors Year Built/Renovated

Project Riverside Chicago Multi-Tenant 702,439 1/22 1965/1994

Project LaSalle Chicago Multi-Tenant 621,428 1/30 1984/not yet

Table II: Dollar per Square Foot (psf) Data for Projects Riverside and LaSalle Property Address Net Rentable Area (psf) Sale Price (psf) Average Asking Rent (psf) Vacancy Loss Rate (%) Expense Stop (psf) Free Rent Concessions (psf) Credit Loss (%) Operating Expenses (psf) Capital Reserves (psf) Going-In-Cap-Rate (%)

Project Riverside 702,439 $205.00 $27.51 14.40% $12.89 $0.23 1.00% $14.12 $0.10 5.20%

Project LaSalle 621,428 $175.00 $26.36 9.20% $10.91 $0.25 1.00% $11.89 $0.11 7.50%

Notes for Table Two’s line items: • All per square foot (psf) figures are on an annual basis. • Net Rentable Area (NRA) of a building included in the transaction, expressed in square feet, is an approximation based on verified public records.

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• • • • • • • • • • •

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The potential rent revenue is the product of the building rentable area estimate and the average asking rent which is the market rent paid by a potential tenant. Sale Price (psf) is the purchase price of the property per square foot of net rentable area (NRA). Asking Rent for office properties is a weighted average quoted as annual gross rent per square foot. Vacancy losses are estimated rent losses from unoccupied space and unpaid rents. The Expense Stop creates an upper limit on the amount of operating expenses that the owner will be responsible for. Expense Reimbursement Recovery is the difference between the operating expense psf and the expense stop psf. The excess must be paid by the tenant. The recoverable operating expenses are property taxes, insurance, and maintenance. Free Rent Concession, to induce the lease signing, is the offer of a free rent period during which no rent is required to be paid. It is the total dollar amount or number of months free rent granted per lease terms. Credit Loss is the total amount of rent due that the landlord is unable to collect due to tenant default. Operating Expenses are the average annual costs, per square foot, of operating buildings that include property taxes, energy, janitorial service, insurance, common area maintenance, and management and leasing fees. Capital Reserves is an allowance that provides the periodic replacement of building components that wear out more rapidly than the building itself. They must be replaced during the economic life of the building. The reported estimated Going-in Capitalization Rate (Cap Rate) can be compared to the Reis Indexed Metro Office Cap Rate of 7.4%. The REIS Indexed Metro Office Cap Rate is modeled as a function of risk-free interest rates, metro rent growth expectations, current construction activity, and by running measures of volatility in rents. These measures are proxies for capital conditions, income expectations, and risk.

REIS, Inc. also compiles aggregate metro property data through Metro Analysis, Rent Comparables and Sales Comparables reports. The metro or metropolitan area is a geographical division of the United States that includes a major city, for example, Chicago, and its surrounding communities and counties. These Metro Analysis reports offer reasonable property benchmarks for the time frame of the paper’s study. Relevant facts from their analyses are presented in Table III below. Table III: Relevant Data from Metro Area Analysis conducted by REIS, Inc. Annualized 5-year Rent Growth Annualized 5-year Vacancy Rate Average Lease Term (years) Average Leasing Commissions Annualized 5-year Construction/Absorption Inflation Rate per www.InflationData.Com Stabilization Rate*

2.1% 17.6% 5.5 4.1% 1.9 3.85% 68.18%

Notes: • Vacancy Rate is the amount of available space expressed as a percentage of total inventory. • Lease term is the average term currently being quoted for new leases, in years. • Leasing Commission is an amount paid to a real estate broker in exchange for bringing together the parties of the lease agreement. • Usually it’s paid in the form of a percentage of the yearly rent. • Construction/Absorption is the construction or completions during the time period divided by absorption during the same time period. • *Stabilization is achieved when the average vacancy rate of the properties built in any given year equals or is less than the Metro’s average overall vacancy rate for the last five years. These commercial assets are acquired subject to existing leases as noted by the lease terms and leasing commissions in Table III. Even if this were a new development project, the property lease would be based on typical leases in the marketplace. The lease and its terms, such as rent and expense reimbursements, must be accounted for in the calculation of the property’s relevant future net operating income (NOI) and future reversion (RV) or sale price. The length of the property lease, this study uses an average five year period, plus its other specific terms affect the risk and return of the respective projects and cannot be ignored in the determination of the expected future property cash flows. 17

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METHODOLOGY In order to consider the choice between Project Riverside and Project LaSalle, this paper presents a financial analysis that enables an investor to assess whether the risk associated with these projects is commensurate with their expected returns. The concept of due diligence is critical and is extended by this paper by reviewing the riskreturn tradeoff within an American and European Put Option framework. Within these two real option strategies, a discounted cash flow (DCF) method is followed along with the comparison of both the IRR and MIRR. This comparison is further enhanced by contrasting the partitioning of the IRR with the stratifying of the MIRR. The relevancy of the latter accrues from the overall strengths of the MIRR over the IRR and the ability of an investor to determine how much of the return is associated with the annual future operating cash flows of the project and the timing of the estimated future cash flow from the resale of the property. It’s the weights associated with these two specific cash flow components that allows the incorporation of relative risk which enables an investor to compare projects even where other techniques have led to conflicting results (Plath and Kennedy, 1994). Regarding the two commercial projects, the appeal of the properties is not for the use or occupancy of the owner, they are considered to be income producing assets. Income properties are bought and sold on their ability to generate future income streams. This income stream is a cash flow. Using the discounted cash flow method (DCF), an investor will capitalize the expected future net operating income associated with the property and determine the asset’s estimated net present value (Gallinelli 2009). The DCF analysis helps to determine if a proposed project can generate strong enough risk-adjusted returns. It is a standard framework for multi-period real estate investment analysis. For Projects Riverside and LaSalle, both present changing rent rolls and lease renewals and lease variables (inflation) that can change the level of gross operating income. Also impacted are the operating expenses and expense reimbursements which affect both the net operating income (NOI) for each year and the net terminal value or reversion (RV) (DeLisle, 2009). The basic DCF model to evaluate the property’s net present value (NPV) is: NPV Office Building = ∑ NOIt / (1 + capr)t + RVt / (1+capr)t – IO0 The NPV is equal to the present value of future cash inflows – initial investment, where: NOI = expected net operating income (cash flows) for the office building RV = reversion (resale) value of the property; net terminal value IO = initial investment outlay capr = Capitalization Rate for the office building t = unique time period for each of the expected future cash flows Table IV: Projected Net Cash Flow from Operations: Project Riverside Year

2008 2009 2010 2011 2012 2013 1 2 3 4 5 6

Rentable Area Assumption (sf) 702,439 Average Asking Rate 3.85% $ 27.51 $ Potential Rent Revenue 3.85% $ 19,327,015 $ Vacancy Loss 14.40% 2,783,090 Effective Rent Revenue $ 16,543,925 $

28.57 $ 20,071,105 $ 2,890,239 17,180,866 $

29.67 $ 20,843,843 $ 3,001,513 17,842,329 $

14.12 $ 12.89 1.23 $

14.66 $ 13.39 1.28 $

15.23 $ 13.90 1.33 $

Expense Reimbursement $ 864,00 $ Free Rent Concessions $ 0.23 161,561 Credit Loss 1.00% 193,270 Effective Gross Revenue $ 17,053,094 $

897,264 $ 161,561 200,711 17,715,858 $

931,809 $ 161,561 208,438 18,404,139 $

967,683 $ 1,004,939 $ 1,043,629 161,561 161,561 161,561 216,463 224,797 233,452 19,118,918 $ 19,861,216 $ 20,632,093

Total Operating Expenses $ 9,918,439 $ Capital Reserves $ 0.10 70,244 Total Expenses $ 9,988,683 $

10,300,299 $ 70,244 10,370,542 $

10,696,860 $ 70,244 10,767,104 $

11,108,689 $ 11,536,374 $ 11,980,524 70,244 70,244 70,244 11,178,933 $ 11,606,618 $ 12,050,768

Net Operating Income (NOI) or Net Cash Flow $ 7,064,411 $ *Expected inflation rate is 3.85% **Other variable % and $ from Table II

7,345,315 $

Operating Expense psf 3.85% $ Expense stop psf 3.85% Expense Reimbursement psf $

7,637,035 $

30.82 $ 32.00 $ 33.23 21,646,331 $ 22,479,714 $ 23,345,183 3,117,072 3,237,079 3,361,706 18,529,259 $ 19,242,635 $ 19,983,477 15.81 $ 14.44 1.38 $

7,939,985 $

16.42 $ 14.99 1.43 $

8,254,599 $

17.06 15.57 1.49

8,581,325

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Table V: Projected Net Cash Flow from Operations: Project LaSalle Year

2008 2009 2010 2011 2012 2013 1 2 3 4 5 6

Rentable Area Assumption (sf) 621,428 Average Asking Rate 3.85% $ 26.36 $ Potential Rent Revenue $ 16,380,033 $ Vacancy Loss 9.20% 1,506,963 Effective Rent Revenue $ 14,873,070 $ Operating Expense psf 3.85% $ Expense stop psf 3.85% Expense Reimbursement psf $

11.89 $ 10.91 0.98 $

Expense Reimbursement $ 608,999 $ Free Rent Concessions $ 0.26 161,571 Credit Loss 1.00% 163,800 Effective Gross Revenue $ 15,156,698 $

27.37 $ 17,010,664 $ 1,564,981 15,445,683 $ 12.35 $ 11.33 1.02 $ 622,276 $ 161,571 170,107 15,736,281 $

28.43 $ 17,665,575 $ 1,625,233 16,040,342 $ 12.82 $ 11.77 1.06 $

29.52 $ 30.66 $ 31.84 18,345,699 $ 19,052,009 $ 19,785,511 1,687,804 1,752,785 1,820,267 16,657,895 $ 17,299,224 $ 17,965,244 13.32 $ 12.22 1.10 $

13.83 $ 12.69 1.14 $

14.36 13.18 1.18

635,807 $ 161,571 176,656 16,337,922 $

649,595 $ 663,644 $ 677,956 161,571 161,571 161,571 183,457 190,520 197,855 16,962,462 $ 17,610,776 $ 18,283,773

7,968,667 $ 68,357 8,037,024 $

8,275,461 $ 8,594,066 $ 8,924,937 68,357 68,357 68,357 8,343,818 $ 8,662,423 $ 8,993,294

Total Operating Expenses $ 7,388,779 $ Capital Reserves $ 0.11 68,357 Total Expenses $ 7,457,136 $

7,673,247 $ 68,357 7,741,604 $

Net Operating Income (NOI) or Net Cash Flow $ 7,699,562 $ *Expected inflation rate is 3.85% **Other variable % and $ from Table II

7,994,677 $ 8,300,898 $

8,618,644 $ 8,948,353 $ 9,290,479

Notes for Tables IV and V: • • • • • • • • • •

The estimated average annual inflation rate adjustment is 3.85%. The NOI increases each year even if leases are not renewed. Vacancy losses are estimated rent losses from unoccupied space and unpaid rents. Expense Stop creates an upper limit on the amount of operating expenses that the owner will be responsible for. Expense Reimbursement Recovery is the difference between the operating expense psf and the expense stop psf. The excess must be paid by the tenant. The recoverable operating expenses are property taxes, insurance, and maintenance. Free Rent Concession, to induce the lease signing, is the offer of a free rent period during which no rent is required to be paid. It is the total dollar amount or number of months free rent granted per lease terms. Credit Loss is the total amount of rent due that the landlord is unable to collect due to tenant default. Effective Gross Revenue is determined as the effective rent income plus the operating expense recoveries less the provisions for the free rent period and potential credit losses. Operating Expenses are the average annual costs, per square foot, of operating buildings that include property taxes, energy, janitorial service, insurance, common area maintenance, and management and leasing fees. Capital Reserves is an allowance that provides the periodic replacement of building components that wear out more rapidly than the building itself. They must be replaced during the economic life of the building. Net operating income (NOI) is calculated as the net of the effective gross revenue and both the operating expenses and the provision for future capital outlays.

Even though the worksheet calculates the NOI, the measure is not income as described under generally accepted accounting principles (GAAP) but is cash flow. The term NOI is interchangeable with the net cash flow from operations. If the appraised value of the project is a function of the income stream and the NOI results from the income stream that is generated from the operations of the property, the real estate investment is independent of external factors such as taxes or financing. The investor is deciding upon a property’s income potential not the property itself. The before-tax NOI serves as an objective means of measuring the potential income stream from the property while the going-in capitalization rate acts as an investor’s subjective estimate of how well the capital is required to perform (Gallinelli, 2004). Tax benefits are not ignored, rather, the implication is that an investor will consider the before tax cash flows, understanding that a tax benefit will be realized (Brueggeman and Fisher, 2008). The existing financing terms are assumed to be similar for both properties and as such, the expected returns for any particular group of investors should not be impacted by the financing of the project. It’s not that interest rates or access to debt markets don’t impact value, but under any economic climate, an investor will choose the equity-debt allocation based on the degree of risk that they are most comfortable with (Fisher 2008).

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The net present value (NPV) and the Internal Rate of Return (IRR) are two accepted measures of analyzing the attractiveness of real estate investments. The IRR builds on the NPV framework attempting to find a discount rate which equates the NPV to zero. It is similar to a breakeven point. While it considers both the magnitude and timing of each cash flow, it assumes a cash flow reinvestment rate at the IRR, which can give an unrealistic view of a project’s potential value. A project with positive and negative cash flows delivers multiple IRRs. A conflict between the decision rules of each technique can occur making comparisons between alternative projects, especially mutually exclusive ones, difficult. An investor can partition the IRR (Brueggeman and Fisher, 2008) with the objective of finding out what portion of the return is from the annual operating cash flows and what portion comes from the resale. There generally is more certainty associated with the funds that occur earlier than later in the investment holding period. Hence, the greater the proportion of resale cash flow, the greater the risk an investor must face. However, even partitioning the IRR, its weaknesses are not addressed. The use of the modified internal rate of return (MIRR) gives the investor a potentially stronger technique to analyze the cash flows of a project. It results in a more conservative return than the IRR; negative cash flows are cancelled out by positive ones, and compounds the cash flows forward at a more realistic reinvestment rate based on the project’s cost of capital. It then discounts this future cash flow back to the initial outlay date at a rate that more fairly represents the investment risk of the project. The basic model to find the MIRR is presented below. Zero = FVNOIt / (1 + MIRR)t + RVt / (1 + MIRR)t - IO0

The MIRR is the rate which equates the NPV to Zero Future value of the sum of each NOI @ capr ∑ NOIt (1+ capr)t = FVNOI at the end of the lease term RV = the reversion (sale) value at the end of the lease term NOI = the net operating income or net cash flow for each year in the investment horizon Capr = the capitalization rate used to determine the future value of net cash flows FVNOI = the future value of the sum of each periodic NOI by the end of the lease term RV = the Reversion value for the office building at the end of the lease term MIRR = the modified internal rate of return for each office building IO = the Initial investment outlay T = the time period as of the end of the lease term. This paper puts forth that the relative proportions of the MIRR, represented by the two cash flow sources, can provide another layer of analysis that reveals that the risk differences between the income properties are strong enough to challenge, specifically in the case of the mutually exclusive Riverside and LaSalle projects, the traditional decision rules of the NPV, IRR, and it’s partitioning. The process of the stratifying of the modified internal rate of return is presented below. The Stratifying of the Modified Internal Rate of Return Step 1: Calculate the MIRR as described above. Step 2: Use the MIRR to discount back the NOI cash flows and the RV cash flow Step 3: Formulate the weight or strata of the MIRR [a] PVNOIt + PVRVt = TPVCFt [b] PVNOIt / TPVCFt = relative proportion of MIRR from the discounted total future NOI [c] PVREVt / TPVCFt = relative proportion of MIRR from the discounted future RV, where PVNOIt = present value of future net operating income from the end of lease term PVRVt = present value of future reversion value from the end of lease term TPVCFt = Total present value of both operating and reversion cash flows at time period zero Note: European Put Option - future reversion or sale of the office building can only occur at the end of the holding term. American Put Option - future reversion or sale of the office building can occur at any time during the holding term. The stratification of the modified internal rate of return is strengthened, in this paper, by the fact that all the anticipated future cash flows are partially determined by existing leases, mitigating some of the uncertainty typically associated with estimating these future cash flows. EMPIRICAL ANALYSIS

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This study posits that an investor can approach the income property valuation process either adhering to the European Put Option strategy where each property will be sold at the end of the fifth year (2012) or following an American Put Option strategy that offers the flexibility of choosing to sell the property during any year of the investment holding period. In order to determine the reversion value (RV) for both project Riverside and LaSalle, their net operating income (NOI) for the sixth year (2013), (Tables IV and V) is divided by each property’s estimated going-in capitalization rate (Cap Rate) (Table II). The given cap rate represents the return required for the particular property investment based on its risk when compared to returns earned from competing investments. When direct capitalization is used, the properties being reviewed need to be comparable. The two office buildings appear to be similar in terms of their construction, size, age, location, and functionality. When making estimates of the future property value, the handling of capital outlays is important, too. Here, each property reflects an actual ‘Capital Reserve’ provision (Table II) in determining the net operating income (NOI). Further, consistency is maintained through the use of Table III’s relevant data from the metro area analysis conducted by REIS, Inc on important items as the average lease term and inflation rent escalator. The expected future cash flows from the resale of each property under both the European Put Option and American Put Option are presented in Table VI below. Table VI: Cash Flow from Resale (Reversion Value) for Project Riverside and Project LaSalle Under the European and American Put Option Strategies European Put Option NOI period 6 (2013) Cap Rate Cash Flow from Reversion American Put Option Lease term Year 1 Year 2 Year 3 Year 4 Year 5

Project Riverside $8,581,325 5.20% $165,025,487

Project LaSalle $9,290,479 7.50% $123,873,052

Reversion Value $134,737,369 141,743,712 149,114,386 156,868,334 165,025,487

Reversion Value $92,756,207 99,712,923 107,191,392 115,230,746 123,873,052

Note: European Put Option – Reversion value only at the end of the holding term. American Put Option – Reversion value calculated at the end of each year in holding period. The NPVs of each project under the European and American Put Option strategies is presented next in Table VII: Table VII: Net Present Value (NPV) for Project Riverside and Project LaSalle Under the European and American Put Option Strategies European Put Option Initial Outlay Cap Rate Net Present Value American Put Option Lease term Year 1 Year 2 Year 3 Year 4 Year 5

Project Riverside $143,999,995 5.20% $16,878,443

Project LaSalle $108,749,900 7.50% $10,983,976

NPV ($9,207,428) (2,570,319) 3,989,284 10,471,996 16,878,443

NPV ($15,302,673) (8,384,618) (1,702,722) 4,750,923 10,983,976

Note: European Put Option – NPV based on reversion only at the end of the holding term. American Put Option – NPV is calculated as if reversion can occur at the end of any year in the holding period.

The next step in the DCF process is the determination of both the internal rate of return and the modified internal rate of return. The results for Projects Riverside and LaSalle, under the European and American Put Option strategies, are presented below in Table VIII.

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Table VIII: Internal Rate of Return (IRR) and Modified Internal Rate of Return (MIRR) For Projects Riverside and LaSalle Under the European and American Put Option Strategies European Put Option Capitalization Rate Internal Rate of Return (IRR) Modified Internal Rate of Return (MIRR) Excess of MIRR over Cap Rate Excess of IRR over Cap Rate American Put Option Lease Term Year 1 Year 2 Year 3 Excess of internal return over capr Year 4 Excess of internal return over capr Year 5 Excess of internal return over capr

Project Riverside 5.20% 7.78% 7.56% 2.36% 2.58%

Project LaSalle 7.50% 9.87% 9.59% 2.09% 2.37%

IRR na na 6.21% 1.01% 7.20% 2.00% 7.78% 2.58%

IRR na na na na 8.78% 1.28% 9.87% 2.37%

MIRR na na 6.16% 0.96% 7.06% 1.86% 7.56% 2.36%

MIRR na na na na 8.66% 1.16% 9.59% 2.09%

Note: na is “not applicable” as the NPV < 0. This fact guarantees the MIRR to be < the Cap Rate, capr = going-in cap rate, European Put Option – IRR and MIRR based on reversion only at the end of the holding term, American Put Option – IRR and MIRR are calculated as if reversion can occur at the end of any year in the holding period.

Table IX: Contrasting of the Stratifying of the Modified Internal Rate of Return with the Partitioning of the Internal Rate of Return for Projects Riverside and LaSalle Under the European and American Put Options European Put Option Relative Proportions of the MIRR From operational (NOI) cash flows From reversion (RV) cash flow Relative Proportions of the IRR From operational (NOI) cash flows From reversion (RV) cash flow American Put Option Lease Term Year 1 Year 2 Year 3: From Operational cash flows From Reversion cash flows Year 4: From Operational cash flows From Reversion cash flows Year 5: From Operational cash flows From Reversion cash flows

Project Riverside

Project LaSalle

20.39% 79.61%

27.94% 72.06%

21.21% 28.86% 78.79% 71.14% Stratifying of the MIRR na na na na 13.37% na 86.63% na 17.09% 23.98% 82.91% 76.02% 20.39% 27.94% 79.61% 72.06% Partitioning of the IRR

Lease Term Year 1 Year 2 Year 3: From Operational cash flows From Reversion cash flows Year 4: From Operational cash flows From Reversion cash flows Year 5: From Operational cash flows From Reversion cash flows

na na 13.57% 86.43% 17.50% 82.50% 20.21% 78.79%

na na na na 24.31% 75.69% 28.86% 71.14%

Note: na is “not applicable” as the NPV < 0. This fact guarantees the MIRR and IRR to be < the Cap Rate, European Put Option – based on reversion only at the end of the holding term, American Put Option – based on reversion occurring at the end of any year in the holding period, Partitioning the IRR under-estimates the risk associated with the reversion cash flows under both the European and American Put Options.

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Advances in Business Research 2010, Vol. 1, No. 1, 15-25 ANALYSIS OF EMPIRICAL RESULTS

The decision regarding investing in Project Riverside and Project LaSalle is being made under a mutually exclusive investment situation. In the DCF framework, an accepted rule is to accept the project with the comparative greater positive NPV. Table VII, under the European Put section, reports that Projects Riverside and LaSalle reflect positive net cash flows of $16,878,773 and $10,983,976 respectively. Project Riverside would be favored over Project LaSalle. Under the American Put Option, within the five year holding period, Project Riverside offers a viable positive NPV in each of years three, four, and five in the amounts of $3,989,284, $10,471,996, and $16,878,443 respectively. During the first two years, for both properties, there is an estimated negative net present value, making the choice to sell within that period not a prudent one. For Project LaSalle, under the American Put Option, the investor would realize an opportunity in years four and five as year three was met with negative net cash flows. Its positive NPV in year four was $4,750,923 and in year five was $10,983,976. Investors have more flexibility with Project Riverside. To corroborate the actions dictated by the NPV rule, the internal returns on both investments need to be compared. The expectation is that the respective internal rates of return will be greater than the project’s going-in capitalization rate and be consistent with the NPV ruling. Under the European Put Option, the Riverside property reflects an IRR of 7.78% (Table VIII) while Property LaSalle generated an IRR of 9.87%. Here, Project LaSalle is favored as its IRR exceeds not only its own cost of capital of 7.5% but is greater than that of the Riverside property. A conflict between the NPV and IRR exists. When considering the American Put Option, there is still no resolution, as Table VIII reports that the IRRs of Project LaSalle exceed that of Project Riverside in years four and five. Recognizing that the weaknesses associated with the internal rate of return can be avoided with the use of the modified internal rate of return, Table VIII also reports the MIRR findings as well. Under the European Option, Project Riverside had a MIRR of 7.56% which exceeded its cap rate of 5.2% by a margin of 2.36% (the IRR exceeded the cap rate by 2.58%). The MIRR associated with Project LaSalle was 9.59% and exceeded its cap rate of 7.5% by a margin of 2.09% (the IRR was greater than the cap rate by 2.37%). Project LaSalle is favored by its MIRR but not by its NPV. Within the American Put Option strategy, there is no conflict in year three as Project LaSalle’s MIRR is less that its cap rate while Project Riverside has a MIRR that exceeds its going-in cap rate making it a preferred project. Both properties reflect MIRR values which exceed their cap rates in years four and five. In year 4, Project LaSalle’s MIRR of 8.66% exceeded its cap rate by 1.16% while its IRR of 8.78% had a spread of 1.28%. Project Riverside’s MIRR of 7.06% exceeded its cap rate by 1.86% while its IRR of 7.20% had a spread of 2.0%. During year five, Project LaSalle’s MIRR of 9.59% was larger than its cap rate by a margin of 2.09% while its IRR of 9.87% had a spread of 2.37%. For Project Riverside, its MIRR of 7.56% exceeded its cap rate by a spread of 2.36% while its IRR of 7.78% was associated with a spread of 2.58%. The MIRR delivers a more conservative return measurement as evidenced by the relatively larger cap rate spreads associated with the IRR calculations. The IRR consistently overstates the return associated with each project. Within this environment of conflicting investment decision rules, the property investor needs to be able to further measure a project’s expected future cash flow risk. One method to help address the latter is the partitioning of the internal rate of return. Its objective is to gain some sense of the relative proportion of the components of the return and to view the timing and/or magnitude of a project’s cash flows. This paper extends the literature through the introduction of the stratifying of the modified internal rate of return. Aware of the strengths of the MIRR over the IRR and viewing it in conjunction with other risk factors (such as office building construction exceeds market absorption or there is an expected increase in vacancy rates), it offers an insightful measure of the risk associated with expected operational and reversion cash flows. Within Table IX, the European Put Option reports interesting results. It has been established that both the MIRR and IRR favor Project LaSalle over Project Riverside. Yet, traditional DCF analysis would have the investor defer to the net present value rule to make a final decision and choose Project Riverside. Before making that decision, however, the stratifying of the MIRR and the partitioning of the IRR reveal that approximately 80% and 79% of Riverside’s respective cash flows are associated with the reversion value of the project. On the other hand, for Project LaSalle, the relative proportions of the MIRR and IRR coming from its reversion cash flow are approximately 72% and 71%. A relative greater risk is associated with the future cash flows beyond the holding period for Project Riverside. Within the American Put Option, Project Riverside had the only viable positive cash flow option in year three. The respective stratifying of the MIRR and partitioning of the IRR show relative proportions from the resale of the property to be approximately 87% and 86% respectively. Project Riverside’s relative proportions of the MIRR associated with the expected resale cash flow over years four and five are approximately 83% and 80%. The IRR partitioned according to its reversion value during the same time period was approximately 83% and 79%. Project LaSalle generated relative proportions of its MIRR from the future sales price over years four and five that were approximately 76% and 72%. Regarding the proportions of the IRR over the same time frame, Project LaSalle showed approximate weights of 76% and 71%. 23

Lifland

Advances in Business Research 2010, Vol. 1, No. 1, 15-25

The investor-buyer must be aware of the relative greater risk associated with the key reversion cash flow. The results of the stratifying of the MIRR over years four and five reveal a consistent pattern where the expected reversion cash flow risk of Project Riverside is greater than that of Project LaSalle’s. Under both the European and American Put Option strategies, taking into account this assessment of cash flow risk from the stratifying of the MIRR needs to be performed in recognition of other specific risk factors. From Table II, reporting relevant data from the metro area, REIS, Inc. reported that the annualized 5-year vacancy rate was 17.6%. Project LaSalle is well below this figure with a rate of 9.2% while Project Riverside stands at 14.4%. The annualized 5-year rent growth rate is only 2.1%. The region shows an approximate 2:1 ratio of the construction of office buildings relative to their absorption. This could lead to a future downward pressure on rent revenue as well as an increase in vacancy rates. The area shows a stability rate of approximately 68%. Stabilization is achieved when the average vacancy rates of the properties built in any given year (here, it is 2008) are equal to or less than the metro’s average overall vacancy rate for the last five years. The inflation factor for the period was 3.85% which impacts most of the cash flow estimates in Tables IV and V. The stratifying of the MIRR together with these risk factors, and an investor’s unique aversion to risk, the NPV default rule may not be followed by the investor. The acceptance decision could be directed back towards Project LaSalle and not the Riverside property. CONCLUSION Even though the traditional Discounted Cash Flow (DCF) method takes into account the time value of money, systematic cash flows, and the ultimate resale of the property, it has a weakness in that it tends to be passive and does not capture the ability of the investor to adapt or revise their decisions in response to market developments. With this backdrop, this paper looks at the DCF analysis within the framework of an American and European Put Option strategy. It puts forth the notion that these real options give the property investor the flexibility to make choices at multiple points during the investment holding period. Traditional DCF analysis settles project acceptance conflicts by comparing the NPV with the internal rate of return (IRR). The case is made that the modified internal rate of return (MIRR) is a better technique than the latter. The MIRR delivers a return that is more conservative, can handle a sequence of positive and negative cash flows, and specifies the project’s cap rate as the reinvestment rate. This paper extends the literature with the stratifying of the modified internal rate of return which breaks out the proportion of the MIRR that comes from both the operational and reversion cash flows. It implies that the investor faces more risk the greater the proportion of the MIRR that is comprised of the future resale value. Under conditions of uncertainty the need to have accurate measures of risk is essential. In this study, the IRR consistently overstates the return, as compared with the MIRR, in each of the years in the holding period. The partitioning of the IRR understates the most volatile of the NPV cash flow components facing the investor, as compared with the stratifying of the MIRR, in every year of the holding period, under both the European and American Put Option strategies. The stratifying of the MIRR provides a practical improvement over the IRR partitioning and offers another layer of risk analysis that facilitates project comparisons even where other techniques lead to conflicting results. REFERENCES Berger, P.G., Ofek, E., & Swary, I. 1996. Investor valuation of the abandonment option. Journal of Financial Economics, 42: 257-287. Bonini, C. 1977. Capital investment under uncertainty with abandonment options. Journal of Financial and Quantitative Analysis, 12: 39-54. Brueggeman, W., & Fisher, J. 2008, Real estate finance and investment. New York: McGraw-Hill Irwin. DeLisle, J. 2009. A primer on discounted cash flow analysis. www.jrdelisle.com. Dixit, A., & Pindyck, R. Investment under uncertainty. Princeton, NJ: Princeton University Press. Fama, E. 1977. Risk-adjusted discount rates and capital budgeting under uncertainty. Journal of Financial Economics, 5: 3-24. Gallinelli, F. 2004. What every real estate investor needs to know about cash flows. New York: McGraw-Hill. Huang & Litzemberger. 1988. Foundations for financial economics. Elsevier Science Publishers Co., Inc. 24

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Kierulff, H. 2008. MIRR: A better measure. Business Horizons, 51: 321-329. Lander, D., & Pinches, G. 1998. Challenges to the practical implementation of modeling and valuing real options. The Quarterly Review of Economics and Finance, 38: 537-567. Levy, H., & Sarnat, M. 1984. Portfolio and investment selection: Theory and practice, Englewood Cliffs, N.J: Prentice-Hall International. Lintner, J. 1965. The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. The Review of Economics and Statistics, 47: 13-37. Lucas, R., & Prescott, E. 1971. Investment under uncertainty, Econometrica, 39: 659-681. Plath, D., & Kennedy, W. 1994. Teaching return-based measures of project evaluation. Financial Practice and Education, 4: 77-86. Rose, S. 1998. Valuation of interacting real options in a tollroad infrastructure project. The Quarterly Review of Economics and Finance, 38: 711-723. Stout, D., Xie, Y., & Qi, H. 2008. Improving capital budgeting decisions with real options. Management Accounting Quarterly, 9: 34-41. Trigeorgis, L. 1993. Real options and interactions with financial flexibility. Financial Management, 22: 202-224. Trigeorgis, L, & Mason, S. 1987. Valuing managerial flexibility. Midland Corporate Finance Journal, 5: 14-21. Xie, F. 2009. Managerial flexibility, uncertainty, and corporate investment: The real options effect. International Review of Economics and Finance, 18: 643-655.

Steven Lifland is an associate professor of finance at High Point University. He received his Ph.D. in finance from Old Dominion University. His current research interests include real estate valuation, corporate innovation: R&D and patents, ETFs, REITs, working capital management, and financial education. He has published in the Journal of Managerial Finance and Journal of Academy of Business and Economics. Acknowledgement: The author wishes to acknowledge the comments of the reviewer. The suggestions helped the author provide further insight and clarity in the presentation.

Jolayemi

Advances in Business Research 2010, Vol. 1, No. 1, 26-35

On the Deterministic Model for Planning Production Quantities in a Multi-Product, MultiPlant, and Multi-Warehouse Environment Joel Jolayemi, Tennessee State University In this paper, we restructure and simplify Jolayemi and Olorunniwo’s model (J-O model) to make it more adoptable and applicable in industries. The New model obtained from the restructuring process has only 7 constraints while the J-O model has 11. In each of the examples, the number of iterations before reaching optimality was smaller for the new model than for the J-O model. The examples show that as both models increase in size, the J-O model becomes more and more difficult to solve than the new model. In most of the examples, the optimal solutions produced by the Excel 2007 solver are very close to those produced by LINDO. In recent years, there have been soaring interests in the applications of supply chain (SC) management methods and techniques in industries. These have necessitated the need for the developments of more and new SC methods and techniques, particularly optimization models or techniques that integrate or solve some or many SC problems simultaneously for best decision outcomes. Unlike before, industries are now beginning to realize that modeling and solving SC problems separately lead to sub-optimal solutions and, consequently, “less-than-best” decisions outcomes. Despite these, published works on the developments of models/techniques for integrating and solving SC problems still fall below needs. The few most integrated models in these publications integrate about three to five of these problems. Some of these models can be seen in Armtzen et al. (1995), Attaran & Attaran (2007), Jolayemi & Olorunniwo (2004), Routry et al. (2009), Sargut & Romeijn (2007), Tiwari et al. (2010), Tsiakis & Papageorgiou (2007), and You & Grosmann (2009). Armtzen et al. (1995) developed a mixed integer linear programming (MILP) global SC model for determining: (1) the number and location of DCs, (2) customer - distribution centre assignments, (3) the number of echelons, and (4) product - plant assignments. Attaran & Attaran (2007) provide an overview of contemporary supply chain (SC) management systems through an in-depth overview and analysis of Collaborative Planning, Forecasting, and Replenishment (CPFR). CPFR helps supply chain partners to integrate demand and logistic planning, production scheduling, and new product design. Jolayemi & Olorunniwo (2004) formulate a two-stage SC model that determines the optimal quantities of products to be produced at each plant, transported from each plant to each WH, subcontracted at each WH, and kept in inventory at each WH. The model also determines the optimal amount of extensions needed at each WH. It is one of the few most highly integrated models. However, due to the large numbers of its constraints and binary variables, its size increases rapidly as the numbers of products, plants, and WHs increase. The optimization of a two-echelon SC in which production, inventory, transportation, backlogging, and subcontracting decisions are integrated is the focus of the article by Sargut & Romeijn (2007). Tsiakis & Papageorgiou (2007) developed a model that integrates production, facility location, and distribution alongside with other business issues like import duties, plant utilization and maintenance, and exchange rates. A hybrid Taguchi-Immune approach is applied by Tiwari et al. (2010) to optimize an integrated supply chain design problem with multiple shipping options, distributed customer demands, and fixed lead times. Routry et al. (2009) and You & Grossmann (2009) develop multi-echelon inventory planning models with lead time and demand uncertainties. You and Grossmann’s model differs from the model by Routry et al. by the addition of transportation component. More examples of these types of integrated models can also be seen in Cokelez & Bum (1989), Cunha & Mutarelli (2007), Liang (2008), Rizk et al. (2008), Vidyathi et al. (2007), and Yung et al. (2006), to mention a few. Due to their integrated nature, these models are usually very large and structurally complex. These can make them difficult to apply. Hence, besides the need for developing more integrated supply chain optimization models/ techniques, there is also a great need for re-examining some of the existing ones - particularly the most highly integrated among them - for the possibility of modifying, simplifying, or restructuring them to make them more effective, more efficient, easier to solve and, consequently, more adoptable and applicable in industries. As can be seen from our earlier discussions above, the model by Jolayemi & Olorunniwo (2004) is one of the few highly-integrated models. The model has many constraints and many decision variables - including many binary variables. This makes its size to increase rapidly as the numbers of products, plants, and warehouses increase.

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Advances in Business Research 2010, Vol. 1, No. 1, 26-35

Although, the model is applicable in industries in its present form, after a careful examination, we have observed that its adoptability and applicability will be much more enhanced if its size can be reduced much further. We believe that this can be achieved by carefully examining it and identifying where and how it can be restructured. Therefore, the focus of this research is to restructure and simplify Jolayemi and Olorunniwo’s model (J-O model) to make it more effective, more efficient, more adoptable and more applicable. After a careful look at the model, we find that some special features and structures of the constraints can be exploited to reduce its size very substantially and to simplify it (the model) in order to make it easier to solve. The restructuring of the model will not be focused only on its constraints. We will also redefine and restructure some terms of the model’s objective function. In the way the objective function is presently formulated, it is easy to commit errors in the expansions of some of the terms that have multiple summations. We will clearly illustrate the procedures involved in the restructuring process. Numerical examples will be given to illustrate the restructured model and to compare it with the old model. The comparisons will be done with respect to model size, solution results, and computational efficiency. The LINDO and Excel 2007 solvers will be used for this purpose. One of the major assumptions underlying the developments of the J-O model is that a producer will like to use his capacities to the maximum before subcontracting. While we believe that this is a good assumption that will suit the operations strategies of many producers, we also believe that there are many producers whose decision to produce or subcontract will be based solely on the cost associated with each. We will show how this model can be applied quite easily when the decision to produce or subcontract is mainly based on cost consideration. The J-O Model and Its Restructuring Process In order for the restructuring process to be clearly or well-illustrated, we first present the J-O model and its interpretations before embarking on the process. The J-O model, as developed by Jolayemi & Olorunniwo (2004), is as follows: T

Maximize

∑∑∑∑

sijt ( yipjt - vipt ) +

t =1 j=1 p =1 i =1 P N

∑∑∑(f

∑∑∑ t =1 j=1 i =1 T J

ipt zipt + cipt x ipt ) -

t =1 p =1 i =1

(sijt - h ijt ) vijt-1 + P

∑∑∑(s t =1 j=1 i =1 T

∑∑∑∑k

ipjt yipjt -

t =1 j=1 p =1 i =1

t =1 j=1

ript x ipt ≤ b rpt ,

r = 1, 2, ...., R; p = 1, 2, ...., P; t = 1, 2, ...., T. .... (1.1)

i =1

xipt ≤ u ipt , i = 1, 2, ...., N; p = 1, 2, ...., P; t = 1, 2, ...., T. .... (1.2) P

∑y

ipjt + vijt -1 + q ijt - vijt = d ijt ,

i = 1, 2, ...., N; j = 1, 2, ...., J; t = 1, 2, ...., T. .... (1.3)

p =1

L1zipt - xipt ≥ 0, i = 1, 2, ...., N; p = 1, 2, ...., P; t = 1, 2, ...., T. .... (1.4) J

∑∑v

ijt = 0, t = T. .... (1.5)

j=1 i =1

∑∑ v

ijt -1 = 0, t = 1. .... (1.6)

j=1 i =1

⎛ J ⎞ P ⎜ ⎟ d u ⎜ it ijt ipt ⎟ ≥ 0, t = 1, 2, ...., N; t = 1, 2, ...., T. .... (1.7) ⎜ j=1 ⎟ p =1 ⎝ ⎠

∑

L 2 it -

∑q

ijt ≥ 0, i = 1, 2, ...., N; t = 1, 2, ...., T. .... (1.8)

j=1

27 ⎛ J ⎞ P ⎜ ⎟ q ijt ≤ it ⎜ d ijt u ipt ⎟, i = 1, 2, ...., N; t = 1, 2, ...., T. .... (1.9) ⎜ j=1 ⎟ j=1 p 1 = ⎝ ⎠ J

∑

∑ ∑

∑∑e

subject to

∑a

ijt - g ijt )q ijt

jt w jit

∑∑ j=1 i =1

⎛ J

⎜ Jolayemi

⎞ ⎟

∑d - ∑u ⎜

it ⎜

ijt

⎝ j=1

Advances in Business Research 2010, Vol. 1, No. 1, 26-35

ipt ⎟ ≥ 0, t = 1, 2, ...., N; t = 1, 2, ...., T. .... (1.7)

⎟ ⎠

p =1

L 2 it -

∑q

ijt ≥ 0, i = 1, 2, ...., N; t = 1, 2, ...., T. .... (1.8)

j=1

⎛ J ⎞ P ⎜ ⎟ q ijt ≤ it ⎜ d ijt u ipt ⎟, i = 1, 2, ...., N; t = 1, 2, ...., T. .... (1.9) ⎜ j=1 ⎟ j=1 p =1 ⎝ ⎠ J

∑

∑ ∑

∑y

ipjt - x ipt = 0, i = 1, 2, ...., N; p = 1, 2, ...., P; t = 1, 2, ...., T .... (1.10)

j=1 P

∑∑ p =1 i =1

i yipjt +

∑

i vijt-1 +

i =1

∑

i q ijt -

i =1

∑w

jm ≤ w ojt j = 1, 2, ...., J, t = 1, 2, ...., T. .... (1.11)

m =1

qijt , vijt , w jt , xipt , yipjt ≥ 0; zipt = 0 or 1 and it = 0 or 1 ∀ i, j, p, t where: where: amount of of resource resource r required r required to to produce produce a unit a unit of of product product i ini in plant plant p in p in period period t. t. a ript a ript : :amount total total amount amount of of resource resource r available r available in in plant plant p in p in period period t. t. b rptb rpt : : thethe 3 conversion conversion factor factor in in m3mper per tonton of of product product i. i. production production cost cost perper unit unit of of product product i ini in plant plant p in p in period period t. t. ciptcipt : : thethe

i: i:

demand forfor product product i ini in warehouse warehouse j inj in period period t. t. d ijtd:ijt : demand 3 3

warehouse warehouse j inj in period period t. t. cost cost of of construction/extension construction/extension perper m mof of e jte :jt : thethe setup setup cost cost with with respect respect to to product product i ini in plant plant p in p in period period t. t. f iptf ipt : : thethe unit unit cost cost of of subcontracting subcontracting product product i ini in warehouse warehouse j inj in period period t. t. g ijtg:ijt : thethe holding holding cost cost perper unit unit of of product product i ini in warehouse warehouse j inj in period period t. t. h ijth:ijt : thethe : :thethe cost cost of of transporting transporting a unit a unit of of product product i from i from plant plant p to p to warehouse warehouse j inj in period period t. t. k ijpt k ijpt L1 L:1

: a very a very large large number. number. a very large large number. number. L 2 L: 2 : a very : : a binary a binary variable variable which which is is 1 if1 the if the quantities quantities of of product product i produced i produced in in allall P plants P plants in in period period t cannot t cannot meet meet it it customers’ customers’ demands demands and and zero zero otherwise. otherwise. quantity quantity of of product product i subcontracted i subcontracted in in warehouse warehouse j inj in period period t. t. q ijtq:ijt : thethe s ijts:ijt :

thethe selling selling price price of of product product i ini in warehouse warehouse j inj in period period t. t.

: : thethe maximum maximum possible possible capacity capacity of of plant plant p in p in period period t with t with respect respect to to product product i. i. u iptu ipt amount amount of of inventory inventory of of product product i ini in warehouse warehouse j inj in period period t. Itt. is It is thethe portion portion of ofy ipjt is is setset aside aside to to y ipjt thatthat v ijtv:ijt : thethe kept warehouse period bebe kept in in warehouse j inj in period t. t. 3 3

amount amount of of extension extension in in m mthat that is is needed needed in in warehouse warehouse j inj in period period t. t. w jtw:jt : thethe : :thethe initial initial capacity capacity of of warehouse warehouse j inj in period period t. t. w ojt w ojt : :thethe quantity quantity of of product product i produced i produced in in plant plant p in p in period period t. t. x iptx ipt : :thethe quantity quantity of of product product i (in i (in tons) tons) shipped shipped from from plant plant p to p to warehouse warehouse j inj in period period t. t. y ipjt y ipjt : : a binary a binary variable variable which which is is 1 if1 product if product i isi is produced produced in in plant plant p in p in period period t and t and zero zero otherwise. otherwise. z iptz ipt

Model Interpretation The first term of the objective function is the total revenue from the sales of all products shipped to the warehouses (WHs) (excluding the quantities kept in inventory at the beginning of each period) from all plants in all the T periods. The second term is the total net revenue from the sales of inventory kept in all WHs over the T periods after all the total inventory costs have been subtracted. The third term is the net revenue realized from all products subcontracted during the planning horizon after deducting the total cost of subcontracting. The fourth

Advances in Business Research 2010, Vol. 1, No. 1, 26-35

Jolayemi

is thecost total of production, including setup costs, the TThe periods. The isfifth is the cost of total of cost production, including the setupthe costs, over the Tover periods. fifth term the term total cost of total transporting transporting all products from all plants to all WHs over the T periods. The last term is the total cost of extension all products from all plants to all WHs over the T periods. The last term is the total cost of extension needed in all needed in all thethe J WHs in all the T periods. Thus,function the objective function the total profit obtained after the J WHs in all T periods. Thus, the objective maximizes the maximizes total profit obtained after subtracting the subtracting the production, transportation, inventory, WH constructions, and setup costs from total revenue. production, transportation, inventory, WH constructions, and setup costs from total revenue. Constraint (1.1) ensures ensuresthat thata manufacturer a manufacturer does beyond the resources that are available at each Constraint (1.1) does not not planplan beyond the resources that are available at each plant in plant in eachConstraint period. Constraint (1.2) expresses the no fact thatcan no produce plant canbeyond produce its capacity. maximumConstraint capacity. each period. (1.2) expresses the fact that plant its beyond maximum Constraint (1.3) enables a manufacturer to satisfyfor demands for each product. Constraint (1.4) ensures if product (1.3) enables a manufacturer to satisfy demands each product. Constraint (1.4) ensures that ifthat product i isi is produced plant p in any period t, there will a setup cost charged against him with respect Constraint (1.5) produced in in plant p in any period t, there will bebe a setup cost charged against him with respect to to i. i. Constraint ensures that in stock at the the of planning horizon.horizon. Constraint (1.6) expresses the condition thatno noinventory inventoryremains remains in stock at end the ofend the planning Constraint (1.6) expresses the condition that inventory not befrom carried one planning horizon to the many situations, a producer that inventory should notshould be carried onefrom planning horizon to the next. In next. manyInsituations, a producer would would like to operate histoplants to maximum before subcontracting. Constraints (1.8) this like to operate his plants maximum capacitycapacity before subcontracting. Constraints (1.7) and(1.7) (1.8)and make thismake possible. possible. Constraint (1.9)that ensures thatquantity the totalofquantity of item i subcontracted in all in theperiod J WHs period t isthan not Constraint (1.9) ensures the total item i subcontracted in all the J WHs t isinnot greater greater than the difference between the for total demand forJ WHs i fromand allthe thetotal J WHs and the total of allrespect the P the difference between the total demand i from all the capacity of all the capacity P plants with plants respectt. to item i in period t. This ensures that subcontracting is done onlybewhen demand cannot be met to itemwith i in period This ensures that subcontracting is done only when demand cannot met after all plant capacities after all plant capacities have been fully utilized. have been fully utilized. Every product product produced Every produced at at every every plant plant has has to to be be shipped shipped to to the the WHs. WHs. Constraint Constraint (1.10) (1.10) makes makes this this possible. possible. A A manufacturer would not like WH space to be a constraint to his operations. Constraint (1.11) takes care of manufacturer would not like WH space to be a constraint to his operations. Constraint (1.11) takes care of this. this. The The constraint ensures ensures that that extension extension is WH at at any any period period whenever whenever necessary. necessary. constraint is made made at at any any WH MODEL RESTRUCTURING PROCESS MODEL RESTRUCTURING PROCESS The restructuring of the objective function The restructuring of the objective function In the first term of the objective function, v ijt is supposed to be the portion of yipjt kept in inventory in warehouse first term of the objective function, vijt isthe supposed to of be vthe portion of y that kept in a portion of j in plantIn p. the However, the exclusion of subscript p among subscripts v ijtinisinventory ijt does not showipjt warehouse j in plant p. However, the exclusion of subscript p among the subscripts of vijt does not show that vijt is a y ipjt or that there is any relationship or connection between y ipjt and v ijt . portion of or that there is any relationship or connection between yipjt and vijt. arev being summed over i, p, j, and t, the omission of p among the subscripts since since both yboth ipjt and Additionally, Additionally, yipjtv ijt and ijt are being summed over i, p, j, and t, the omission of p among the to errors expansion of the multiple term, if great is notcare taken. of v ijt mayoflead subscripts vijt may lead in to the errors in the expansion of the summation multiple summation term,care if great is not taken. To correct To correct for these, we replace v with v in the first and second terms of the objective function andand sumsum the for these, we replace v ijt with ijt v ipjt in ipjt the first and second terms of the objective function the second term over i, p, j, and t, like the first term, to obtain: second term over i, p, j, and t, like the first term, to obtain: T T J J P P NN

T T J J P P NN

∑∑∑∑ ∑∑∑∑

Maximize Maximize

t =1t =1j=1j=p1 =p1=i1=1i =1

T TP

PN N

∑∑∑ ∑∑∑ -

T TJ

∑∑∑ ∑∑∑(s (s - g- g )q)q

(s ijt - h-ijt ) v)ipjt (s ijt h ijt v ipjt -1 -+1 +

t =1t =1j=1j=p1 =p1=i1=1i =1 T TJ PN N

∑∑∑∑ ∑∑∑∑

(f ipt(zf ipt - )+ cxipt iptz+iptcipt iptx) ipt

t =1 tp==11 pi==11 i =1

T T J J NN

∑∑∑∑ ∑∑∑∑

s ijts ijt ( y(ipjt ) +) + yipjt- v-ipjt vipjt

ijt ijt ijt ijt ijt ijt

t =1t =1j=1j=1i =1i =1

∑∑ ∑∑

k ipjtkyipjt - ipjtyipjt

t =1 t j==11 jp==11 pi==11 i =1

e jt we jtjtw jt

t =1 t j==11 j=1

where is the amount of product i from kept in inventory inventory in warehouse warehouse tand and where is the amount of product i from plant plant p keptp in inventory in warehouse j in period tperiod and vtipjt is avvipjt portion v ipjt vvipjt where kept in in jj ininperiod ipjt is a ipjt is the amount of portion of y of yipjt .of yipjt portion ipjt . Restructuring of the model’s constraints Restructuring of the model’s constraints In restructuring In restructuring the model’s constraints, identify eliminate variablesand andconstraints constraintsthat that are are redundant. the model’s constraints, we we identify andand eliminate variables redundant. We presented We also also reduce, reduce, merge, merge, and/or and/or reformulate reformulate some some constraints. constraints. The The constraint-restructuring constraint-restructuring process process is is as as presented below. Constraints Constraints and (1.6) are nothing more than bound constraints. Therefore,they theycan canbe bewritten written as as bound (1.5) (1.5) and (1.6) are nothing more than bound constraints. Therefore, statements at the end of the model as follows: v ijt = 0 for t = T and vijt -1 = 0 for T = 1 and for all i, and j (i = 1, 2, .…, N; j = 1, 2, …, J) …. (i). This reduces

the number of the constraints of the model. J

In constraint (1.7), given that

∑ j=1

d ijt >

∑

u ipt and that the values of

p =1

∑ j=1

substituting these known values into the constraint, it simplifies to:

it ≥ 0

d ijt and

∑u

ipt

are known, on

p =1

for all i and t (i = 1, 2, …., N; t = 1, 2, …,

Advances in Business Research 2010, Vol. 1, No. 1, 26-35

Jolayemi

∑d

T), …. (ii). Similarly, if

∑u

ijt

, constraint (1.7) will simplify to:

ipt

it ≤ 0

for all i and t (i = 1, 2, ….,N; t =

p =1

j=1

1, 2, …., T), .… (iii). By definition, it can only be 0 or 1. Therefore, it ≥ 0 ⇒ it is 0 or 1, and it ≤ 0 ⇒ it = 0 . Therefore, if necessary, the constraint can be written as a bound constraint at the end of the model as: it = 0 or 1. for all i and all t (i = 1, 2, ….,N; t = 1, 2, …., T), .... (iv). Otherwise, the constraint can be eliminated completely. Either way, the number of the model’s constraints is reduced by NT. In constraint (1.8), J

L 2 it -

∑

q ijt ≥ 0

⇒

L 2 it ≥

∑

q ijt

∑q

⇒

j=1

≤

ijt

.... (v). In constraint (1.9), it is given that:

L 2 it

j=1

⎛ J ⎞ P ⎜ ⎟ q ijt ≤ it ⎜ d ijt u ipt ⎟ …. (vi). Since L 2 is defined to be a very large number, L 2 it in (v) must be, at ⎜ j=1 ⎟ j=1 p =1 ⎝ ⎠ ⎛ J ⎞ P ⎜ ⎟ u ipt ⎟ in (vi) above. Hence, if constraint (vi) is satisfied, constraint (v) least, equal to or greater than it ⎜ d ijt ⎜ j=1 ⎟ p =1 ⎝ ⎠ J

∑

∑ ∑

must be satisfied. Therefore, constraint (1.8) is redundant and must be dropped. This further reduces the number of the model’s constraints by another NT. J

Recall from the definition of

that

∑

= 0 for

d ijt ≤

∑

q ijt ≤ 0 whenever

j=1

∑

. This implies that, in constraint (1.9),

∑

u ipt . Since q ijt must be equal to or greater than zero for all i, j, and t,

p =1

∑q

ijt

≤

j=1

∑

⇒ q ijt = 0 for all i, j, and t for which

∑u

d ijt ≤

j=1

(1.9) for which

ipt

d ijt ≤

j=1

∑u p =1

j=1

ipt . Thus,

in any application of this model, all constraints in

p =1

∑d ≤ ∑ u ijt

ipt

should be dropped from the model together with their associated variables q ijt ' s

p =1

j=1

This will reduce the size of the model much further. J

As defined earlier in the first sub-section,

∑

= 1 for

d ijt ≥

for which

∑

∑u

ipt

. Hence, 1 can be substituted for any

d ijt ≥

∑u

ipt

in constraint (1.9) during the model’s application

p =1

j=1

Therefore, with 1 substituted for

whenever

∑

d ijt ≥

∑

u ipt and with all constraints for which

p =1

j=1

ipt

∑d

ijt

≤

j=1

∑u

p =1

j=1

completely eliminated in constraint (1.9), all the binary variables

' s will

be eliminated from constraint

p =1

(1.9) during the model’s application. Furthermore, since constraints (1.7) and (1.8) have been deleted from the model, all the binary variables it ' s will be completely eliminated from the model during its application. This will reduce the model’s size drastically. Putting everything together, the restructured or the New model is given as: T

Maximize

∑∑∑∑

s ijt ( y ipjt - vipjt ) +

t =1 j=1 p =1 i =1

∑∑∑ t =1 p =1 i =1

∑∑∑∑

(s ijt - h ijt )vipjt -1 +

t =1 j=1 p =1 i =1

(f ipt z ipt + cipt x ipt ) -

∑∑∑∑ t =1 j=1 p =1 i =1

∑∑∑(s t =1 j=1 i =1

k ipjt yipjt -

∑∑e t =1 j=1

jt w jt

ijt - g ijt )q ijt

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Jolayemi

subjectto to subject N

∑a

ript x ipt ≤ b rpt , r = 1, 2, ...., R; p = 1, 2, ...., P; t = 1, 2, ...., T. .... (2.1)

i =1

x ipt ≤ u ipt , i = 1, 2, .... N; p = 1, 2, ...., P; t = 1, 2, ...., T. .... (2.2) P

∑

yipjt +

p =1

∑

vijt -1 + q ijt -

p =1

∑v

ijt = d ijt , i = 1, 2, ...., N; j = 1, 2, ...., J; t = 1, 2, ...., T. ....(2.3)

p =1

⎛ J ⎞ P ⎜ ⎟ q ijt ≤ it ⎜ d ijt u ipt ⎟, i = 1, 2, ...., N; t = 1, 2, ...., T. .... (2.4) ⎜ j=1 ⎟ j=1 p =1 ⎝ ⎠ L1zipt - xipt ≥ 0, i = 1, 2, ...., N; p = 1, 2, ...., P; t = 1, 2, ...., T. .... (2.5) J

∑

∑ ∑

∑y

ipjt - x ipt = 0, i = 1, 2, ...., N; p = 1, 2, ...., P; t = 1, 2, ...., T .... (2.6)

j=1 P

∑∑

i y ipjt +

p =1 i =1

∑∑

i v ijt -1 +

p =1 i =1

i =1

Where

= 1 for

∑ j=1

∑

i q ijt -

∑w

jm ≤ w ojt , j = 1, 2, ...., J; t = 1, 2, ...., T. ....(2.7)

m =1

d ijt >

∑

u ipt and 0 otherwise, qijt = 0 for

p =1

∑ j=1

d ijt ≤

∑u

ipt , v ijt =

0 for t = T, v ijt -1 = 0 for t

p =1

= 1, and qijt , vijt , w jt , xipt , yipjt ≥ 0 for all i, p, j, and t; zipt = 0 or 1.

As can from thethe above results, the restructuring of the of model reduced number its mainof constraints canbebeseen seen from above results, the restructuring the has model has the reduced theofnumber its main from 11 to 7from through the7elimination four majorof constraints. will amount a very big reduction anyreduction industry constraints 11 to through theofelimination four majorThis constraints. Thistowill amount to a veryinbig application in which many products, many products, plants, many WHs, andmany manyWHs, periods involved. in any industry application in which many many plants, andare many periods are involved. the model, leaving The Therestructuring restructuringhas haslead leadtotothe thecomplete completeelimination eliminationofofthe thebinary binaryvariables variables from the model, leaving onlyonly the it ' s from binary variables This will prevent the model’s size from increasing rapidly with increases in the numbers of products the binary variables z ipt ' s. This will prevent the model’s size from increasing rapidly with increases in the numbers and plants. We believe that this new model will be much easier to solve than the old model, due to its smaller size. Data of products and plants. We believe that this new model will be much easier to solve than the old model, due to its preparations will also and be much withbeit much than with thewith old model. its solution will require smaller size. and Dataentry preparations entryeasier will also easier it than Furthermore, with the old model. Furthermore, its less computer memory to process. solution will require less computer memory to process. NUMERICAL EXAMPLES AND COMPARISONS COMPARISONS In the the first first subsection subsection of of this this section, section, we we give give four four numerical numerical examples examples to to illustrate illustrate the the restructured restructured model model and and to to In compare ititwith withthe theJ-O J-O model. In second the second subsection, we present the results of examples further examples given to compare model. In the subsection, we present the results of further given to illustrate illustrate the new and it compare withmodel. the J-OThe model. The and LINDO Excel 2007 solutions to the examples the new model andmodel compare with theit J-O LINDO Exceland 2007 solutions to the examples are also are also compared in the subsection (i.e. the second subsection). compared in the subsection (i.e. the second subsection). Numerical Examples, Model Illustrations, and Comparisons Numerical Examples, Model Illustrations, and Comparisons The first example (see example 1) in table 1 is on a multi-period and multi-product production-distribution and The firstcapacity exampleproblem (see example 1) in table 1 is2on a multi-period and multi-product warehouse involving 2 products, plants, 2 warehouses, and 2 periods. production-distribution and warehouse capacity problem 2 products, plants, 2 1warehouses, and 2 periods. In the numerical example,involving the total demands for2products and 2 in period are each less than plant capacity for the numerical example, total demands products 1 and 2 are each less thanconstraints plant capacity eachIn product. This made twothe constraints to be for dropped from each2 in of period the model’s subcontract (see constraints (1.8) and of two the J-O model and constraint the of New in subcontract the previousconstraints section) in(see the for each product. This(1.9) made constraints to be dropped (2.4) from of each the model model’s example. This the of number constraints of the new model in the from to 54 and of the constraints (1.8)reduced and (1.9) the J-Oofmodel and constraint (2.4) of the Newexample model in the 56 previous section) in J-O the model from 60reduced to 56. Itthe also reduced the numberofofthe thenew J-Omodel model’s binary variables 10.ofThe example. This number of constraints in the example fromfrom 56 to12 54toand theapplication J-O model of the60 results lastreduced subsection of the previous section relating to constraint (2.4)12 reduced of theofnew from to 56.in Itthe also the number of the J-O model’s binary variables from to 10. the Thenumber application the model’sinbinary from 8. results the lastvariables subsection of 10 theto previous section relating to constraint (2.4) reduced the number of the new model’s As variables shown in from the table, binary 10 tothe 8. numbers of the New and the J-O models’ continuous variables in the example are 40 andAs 36 shown respectively. This is dropping allNew subcontract for continuous which total variables demand is than totalare plant in the table, theafter numbers of the and the variables J-O models’ in less the example 40 and 36 respectively. This is after dropping all subcontract variables for which total demand is less than total plant

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Jolayemi

capacities for the two products. The number of the new model’s continuous variables is greater than that of the J-O capacities for the number new model’s continuous variablesthe is inventory greater than that of the model because (astwo can products. be seen inThe the first and of lastthe subsections of the previous section) component of J-O the model because can be than seen those in theoffirst last subsections of the previous section) the inventory component of former has more(as variables theand latter. the The former has more variables thantothose of optimal the latter. LINDO solver was used obtain solution to each problem. The solver was run on a HP personal The LINDO solver was used to obtain optimal solution to each problem. The solver on ashowed HP personal computer with a Pentium (R) 1.993MH3 processor under Windows XP. The solutions to thewas tworun models good computer with a Pentium (R) 1.993MH 3 processor under Windows XP. The solutions to the two models showed results. good results. The solutions to the New and J-O models were obtained after 111 and 141 iterations respectively. This amounts to a The solutions to the New and J-O models were obtained after 111 and 141 iterations respectively. This amounts difference of 30 iterations. This shows that, with smaller number of binary variables, the new model is easier to solve. to a difference of 30 iterations. This shows that, with smaller number of binary variables, the new model is easier to The optimal value of each of the model’s objective function is $3,536,800.00. This shows that the imperfections solve. in the structures the of J-Oeach model do not affectobjective its abilityfunction to produce good results. They make more difficult to The optimal of value of the model’s is $3,536,800.00. This only shows thatitthe imperfections solve. in the structures of the J-O model do not affect its ability to produce good results. They only make it more difficult The numbers of products, plants, warehouses, and periods involved in example 2 is the same with those in example to solve. 1 (see 1). However, unlikeplants, in example 1, none and of the subcontract variables and constraints of thewith J-O model is Thetable numbers of products, warehouses, periods involved in example 2 is the same those in dropped in example 2. This is because total demand for each product in each period is greater than plant capacity in example 1 (see table 1). However, unlike in example 1, none of the subcontract variables and constraints of the J-O the example. As a result, the number constraints 60 and the of its in continuous andisbinary variables are model is dropped in example 2. Thisofisitsbecause totalisdemand for numbers each product each period greater than plant 40 and 12 respectively. capacity in the example. As a result, the number of its constraints is 60 and the numbers of its continuous and binary Also, since for each product in each period is greater than plant capacity, none of the New model’s variables are 40total and demand 12 respectively. subcontract constraints and variables dropped. the number of the constraints is 56 the model’s number Also, since total demand for eachisproduct in Hence, each period is greater thanmodel’s plant capacity, none of while the New of its continuous variables is now 44 (see 2). However, the number application of the resultsconstraints in the last subsection of the subcontract constraints and variables is table dropped. Hence, the of the model’s is 56 while number of its continuous nowmakes 44 (see table 2).ofHowever, the application of the results theaslast previous section relating to variables constraintis(2.4) the number the new model’s binary variables to be 8 –injust in subsection example 1. of the previous section relating to constraint (2.4) makes the number of the new model’s binary variables to be 8 –outputs just as of in example 1. solutions to the two models in the example show that the number of iterations before The the LINDO The outputs of solutions the LINDO solutions to the models theand example show that the numberinofa iterations obtaining optimal to the new and J-Otwo models are in 120 144 respectively, resulting differencebefore of 24 obtaining optimal solutions to the new and J-O models are 120 and the 144new respectively, resulting in a difference 24 iterations. This result corroborates our conclusion in example 1 that model is easier to solve. Again, theoftwo iterations. This result corroborates our conclusion in example 1 that the new model is easier to solve. Again, the two models produce the same optimal value of the objective function. models produce3,thethe same optimal value of the function. In example number of products is 3objective and the total demand for each product in period 2 is less than plant In example 3, the number of products is 3 and the total demand for each product in period 2 is of lessthe than plant capacity for each product. Like in example 1, this made three constraints to be dropped from each model’s capacity for each product. Like in example 1, this made three constraints to be dropped from each of the model’s subcontract constraints (i.e. from constraints (1.8) and (1.9) of the J-O model and (2.4) of the New model). This subcontract constraints (i.e. from of constraints (1.8)from and 80 (1.9) of and the that J-Oofmodel andmodel (2.4) from of the This reduced the number of constraints the J-O model to 74 the new 74New to 71model). respectively. reduced the number of constraints of the J-O model from 80 to 74 and that of the new model from 74 to 71 The number of J-O model’s binary variables is also reduced from 18 to 14. The applications of the results in the last respectively. The number of J-O model’s binary variables is also reduced from 18 to 14. The applications of the subsection of the previous section relating to constraint (2.4) reduced the number of the new model’s binary variables results in the last subsection of the previous section relating to constraint (2.4) reduced the number of the new from 15 to 12. model’s binary variables from 15 to 12. Table the the LINDO solutions to theto twothe models obtained 185 and iterations respectively, Table 11shows showsthatthat LINDO solutions two were models were after obtained after215 185 and 215 iterations which is a difference of 30 iterations. This supports the results in the first two examples which show that theshow new respectively, which is a difference of 30 iterations. This supports the results in the first two examples which model is easier to solve. that the new model is easier to solve. Unlike thethe twotwo plants hashas enough capacity to satisfy demand for each in eachinperiod Unlike in in example example3,3,none noneofof plants enough capacity to satisfy demand for product each product each in example 4. Therefore, due to the reasons explained for the similar case of example 2, the numbers of the new period in example 4. Therefore, due to the reasons explained for the similar case of example 2, the numbers of and the J-O constraints 74 and 80are respectively the numbersand of their binary variables respectively 12 and newmodels’ and J-O models’ are constraints 74 and 80andrespectively the numbers of theirarebinary variables are 18. The number of each model’s continuous is now 65 and 60 respectively. respectively 12 and 18. The number of each variables model’s continuous variables is now 65 and 60 respectively. Table 1: Results Results of of the the Numerical Numerical Examples Examples on on the the New New and and the the J-O J-O Models. Models. Table 1: Model details and values of solution parameters Number of products Number of plants Number of warehouses Number of periods Number of constraints Number of continuous variables Number of binary variables Number of iterations Objective function value

Examples 1 New 2 2 2 2 54 40 8 111 35360800

2 J-O 2 2 2 2 56 36 10 141 35360800

New 2 2 2 2 56 44 8 120 35661800

3 J-O 2 2 2 2 60 40 12 144 35661800

New 3 2 2 2 71 57 12 185 25020320

4 J-O 3 2 2 2 74 52 14 215 25020320

New 3 2 2 2 74 65 12 179 30580720

J-O 3 2 2 2 80 60 18 285 30580720

As can can be be seen seeninintable table11above, above,the theLINDO LINDOsolver solver produced optimal solutions to the models As produced optimal solutions to the twotwo models (the(the newnew and and the the J-O models) after 179 and 285 iterations respectively. This amounts to a difference of 149 iterations, which is a J-O models) after 179 and 285 iterations respectively. This amounts to a difference of 149 iterations, which is a very

Jolayemi

Advances in Business Research 2010, Vol. 1, No. 1, 26-35

big difference. This remarkable result could be due to the fact that the difference between the new and J-O models’ binary variables is larger in this example than in example 2. We find the LINDO solver to be very good for solving the two models. After entering the input data for each model, the solver produced optimal solution instantaneously at a click on the Solve command. The solver’s reports/statistics on each solution showed the elapse time to be zero. This shows that the CPU time for each solution is virtually zero. Further Examples and Comparisons In this subsection, we use the Excel solver to solve each of the four numerical examples in the previous subsection (the previous subsection of this section). The reasons for these are to enable us: (1) determine the solution time for each of the numerical examples, (2) compare the Excel solutions and solution times for the new model with those of the J-O model in each numerical example, and (3) compare the LINDO and Excel 2007 solutions. Additionally, we use a much bigger numerical example than any of the four numerical examples in the previous subsection to compare the two models. The purpose of this is to give the illustrations and comparisons of the two models some measure of practical reality. Table 2 shows the results of the five numerical examples for each of the two models. In example 1 (see table 2) the optimal objective-function values produced by the excel solver for the two models are the same. These optimal objective function values are also the same with the objective-function values produced for the two models by the LINDO solver. This shows that the Excel 2007 and the LINDO solver are equally good for solving LP problems of this size. The Excel solver produced optimal solution to each model in 2 seconds under the example. This means that the two models are equally easy to solve under this example. Like in example 1, the optimal objective-function values produced by the Excel solver for the two models in example 2 are the same. However, each of the values deviates from the corresponding value produced by the LINDO solver by 0.8% (see table 2). Since this is a very small deviation, it can be inferred that the Excel solver is still as good as the LINDO solver in solving LP problems of these sizes. As can be seen in the table, the sizes of the LP problems for the New and the J-O models in this example are slightly larger than their respective sizes in example1. The numbers of their binary variables are also slightly larger. The Excel-solution times for the New and the J-O models are one and two seconds respectively. This shows that the new model is relatively much easier to solve with Excel than the J-O model. Again, the Excel solver produced the same objective-function values for the two models in example 3. Each of the objective-function values deviates from the corresponding value produced by LINDO by 0.00012%, which is practically zero. This shows that the Excel solver is still as good as LINDO in solving the problems, even though they are larger than the problems in the first two examples. The Excel solution times for the new and J-O models are 3 and 4 seconds respectively. This again shows that the new model is easier to solve than the J-O model. The results in example 4 are similar to those in the three earlier examples. The Excel solutions to the new and the J-O models are the same. The solutions deviate from the LINDO solutions by only 0.0001%. The Excel solution times to the new and the J-O models are 4 and 7 seconds respectively, showing that the new model is relatively much easier to solve than the J-O model. The examples (examples 1 to 4) show that as each model’s size and number of binary variables increase, it becomes more and more difficult to solve; and that the J-O model becomes much more difficult to solve than the new model. To inject some practical realities into the illustrations and comparisons of the two models and of the Excel and LINDO solutions, we increase the sizes of the problems in example 5. The LP problem for the new model has 150 constraints and 144 variables, 27 of which are binary variables. The one for the J-O model has 159 constraints and 153 variables, 36 of which are binary. As can be seen in the table (table 2), the Excel solver produced the same solution to the two models. The optimal objective-function value for each of the two models deviates from the corresponding value produced by LINDO by 1.82%. This is a small deviation for LP problems of these sizes. This shows that Excel 2007 LP solver is almost as good as the LINDO solver in solving big new and J-O models of these sizes. The Excel-solution times for the new and the J-O models in this example are 26 and 42 seconds respectively. This strongly validates our observation in example 4 that as each model’s size and number of binary variables increase, it becomes more and more difficult to solve; and that the J-O model becomes much more difficult to solve than the new model. This means that the adoptions and applications of the new model in industries will result in much bigger time and cost savings than the applications of the J-O model. This can make the new model to be more appealing, more applicable, and more adoptable than the J-O model in industries. 33

Advances in Business Jolayemi much bigger time and cost savings than the applications of the J-O model. This can make the new model toResearch be more 2010, Vol. 1, No. 1, 26-35 appealing, more applicable, and more adoptable than the J-O model in industries. Table 2: The results of the excel and LINDO solutions to the New and J-O models Examples

Model

No. of binary variables

No. of continuous variables

Total No. of variables

No. of constraints

Example 1

New Model J-O Model New Model J-O Model New Model J-O Model New Model J-O Model New Model J-O Model

8 10 8 12 12 14 12 18 27 36

40 36 44 40 57 52 65 60 117 117

48 46 52 52 69 66 77 78 144 153

54 56 56 60 70 72 74 80 150 159

Example 2 Example 3 Example 4 Example 5

Objective functionvalue (Excel) 35360800 35360800 35360800 35360800 25020288 25020288 30580688 30580688 74676055 74676055

Objective functionvalue (LINDO) 35360800 35360800 35661800 35661800 25020320 25020320 30580720 30580720 76060300 76060300

Deviation from the LINDO value 0.0% 0.0% 0.8% 0.8% 0.00012% 0.00012% 0.00010% 0.00010% 1.82% 1.82%

Excelsolution time 2 seconds 2 seconds 1 second 2 seconds 3 seconds 4 seconds 4 seconds 7 seconds 26 seconds 42 seconds

Application in Produce-or-Subcontract Decisions Application in Produce-or-Subcontract Decisions One of the major assumptions underlining the development of our model is that a producer will like to use his Onetoofmaximum the majorcapacities assumptions underlining the development of ouraremodel is thatinawhich producer will like to use his plants before subcontracting. However, there situations produce-or-subcontract plants to maximum capacities before subcontracting. However, there are situations in which produce-or-subcontract decision are based mainly on cost considerations. This model can be very easily modified to make it applicable decision aresituations. based mainly on cost considerations. This model can be very easily modified to make it applicable under under such suchDropping situations. constraint (2.4) from the New model allows the producer to subcontract if it is cheaper than to produce constraint (2.4)offrom the New model the producer to subcontract it is cheaper andDropping vice versa, irrespective whether he has usedallows his plant to maximum capacity orif not. The factthan that to theproduce model and vice versa, irrespective of whether he has used his plant to maximum capacity not. The fact the model can be easily applied under this type of situations further enhances its adoptability andorapplicability in that industries. can We be easily this type situations further adoptability and applicability in industries. wouldapplied like to under recommend hereofthat in applying theenhances model toits make produce-or-subcontract decision, the cost like to by recommend heredue thattoinunused applying the model make produce-or-subcontract decision, the cost thatWe maywould be incurred the producer capacities musttobe factored in. that may be incurred by the producer due to unused capacities must be factored in. Concluding Remarks Concluding Remarks We have examined and restructured the J-O model to correct some imperfections in its formulation. The new model from the restructuring hasmodel only to 7 constraints while the originalinmodel (the J-O model) has We obtained have examined and restructuredprocess the J-O correct some imperfections its formulation. The new 11. The restructuring process leads to the complete elimination of some binary variables from the new model. model obtained from the restructuring process has only 7 constraints while the original model (the J-O model) has We used numericalprocess examples to to illustrate and compare the two models. Thevariables examplesfrom werethe solved with LINDO 11. The restructuring leads the complete elimination of some binary new model. and We Excel 2007 solvers. In each example, the number of iterations before obtaining optimal solution with LINDO used numerical examples to illustrate and compare the two models. The examples were solved with LINDO was smaller for the new model than for the J-O model. In nearly all the examples, the Excel-solution times for the and Excel 2007 solvers. In each example, the number of iterations before obtaining optimal solution with LINDO new model were less than those for the J-O model. In some of the examples, the differences between the numbers of was smaller for the new model than for the J-O model. In nearly all the examples, the Excel-solution times for the iterations for the two models were large. new model were less than those for the J-O model. In some of the examples, the differences between the numbers of As the two models’ sizes increase: (1) the number of the J-O model’s binary variables becomes much larger than iterations for the two models were large. that of the new model, (2) the Excel-solution time increases, and (3) the number of iterations before optimal As the two models’ sizes increase: (1) the number of the J-O model’s binary variables becomes much larger than solutions were obtained (with LINDO) increases. The obvious conclusion from these is that the J-O model becomes that of the new model, (2) the Excel-solution time increases, and (3) the number of iterations before optimal solutions more and more difficult to solve than the new model as the two models’ sizes increase. were obtained (with LINDO) increases. The obvious conclusion from these is that the J-O model becomes more and The Excel solutions to the two models are the same in each of the numerical examples. The LINDO solutions to more difficult to solve than the new model as the two models’ sizes increase. the two models are also the same in each example. These show that the imperfections in the structures of the J-O The Excel solutions to the two models are the same in each of the numerical examples. The LINDO solutions model do not actually affect its ability to produce good solutions. They only affect its processing and computational to the two models are also the same in each example. These show that the imperfections in the structures of the J-O time, and this can be a big problem if it (the J-O model) is large. model do not actually affect its ability to produce good solutions. They only affect its processing and computational It is very obvious from the results of the numerical examples that the applications of the New model will lead to time, and this can be a big problem if it (the J-O model) is large. significant time and cost savings over the application of the J-O model. Apart from the fact that the new model It is very obvious from the results of the numerical examples that the applications of the New model will lead requires less solution/computational time and cost, data preparations and entries will be much easier with it than to significant time and cost savings over the application of the J-O model. Apart from the fact that the new model with the J-O model. Additionally, with the new model’s smaller size, less computer memory will be required for requires less solution/computational time and cost, data preparations and entries will be much easier with it than data storage and processing. with the J-O model. Additionally, with the new model’s smaller size, less computer memory will be required for data A very good advantage of the model is that it can be easily modified for applications in situations where storage and processing. produce-or-subcontract decisions can be based mainly on cost considerations, irrespective of whether there are A very good advantage of the model is that it can be easily modified for applications in situations where produceenough capacities or not. or-subcontract decisions can be based mainly on cost considerations, irrespective of whether there are enough The examples show that Excel 2007 solver produces good solutions to the two models. In most of the examples, capacities or not. the optimal value of the objective function produced by the Excel solver are very close to those produced by The examples show that Excel 2007 solver produces good solutions to the two models. In most of the examples, the optimal value of the objective function produced by the Excel solver are very close to those produced by LINDO. The only obvious drawback is that the former is much slower than the latter. After entering the in-put data in each example, optimal solution was instantaneously produced by LINDO at a click on the Solve command. It took some couple of seconds to solve each example with Excel 2007 solver.

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REFERENCE Armtzen, B., Brown, G., Harrison, T., & Trafton, L. 1995. Global supply chain management at digital equipment corporation. Interfaces, 25: 69-93. Attaran, M., & Attaran, S. 2007. Collaborative supply chain management. Business Process Management Journal, 13: 390-404. Cokelez, S., & Bum, J. 1989. Distribution systems - warehouse location and capacity. Omega, 17: 45-51. Cunha, C., & Mutarelli, F. 2005. A spreadsheet-based optimization model for the integrated problem of producing and distributing a major weekly news magazine. European Journal of Operations Research, 176: 925-940. Jolayemi, J., & Olorunniwo, F. 2004. A deterministic model for planning production quantities in a multi-plant, multiwarehouse environment with extensible capacities. International Journal of Production Economics, 87: 99-113. Liang, T. 2008. Integrating production-transportation decision with multiple goals in supply chains. International Journal of Production Research, 46: 1477-1489. Rizk, N., Martel, A., & Dâ&#x20AC;&#x2122;Amours, S. 2008. Synchronized production-distribution planning in a single-plant multidistribution network. The Journal of the Operational Research Society, 59: 90-104. Routry, S., & Maddala, K. 2009. Multi-echelon supply chain inventory planning with demand and lead time uncertainty. International Journal of Operations Research, 5: 251-254. Sargut, F., & Romeijn, H. 2007. Capacitated production and subcontracting in a serial supply chain. IIE Transaction, 39: 1031-1043. Tiwari, M., Raghavendra, N., Argrawal, S., & Goyal, S. 2010. A hybrid Taguchi-immune approach to optimize an integrated supply chain design problem with multiple shipping. European Journal of Operations Research, 203: 95-106. Tsiakis, P., & Papageorgiou, L. 2007. Optimal production allocation and distribution supply chain networks. International Journal of Production Economics, 111: 468-483. Vidyathi, N., Celebi, E., Elhedhli, S., & Jewkes, E. 2007. Integrated production inventory-distribution system design with risk: Model formulation and heuristic solution. Transportation Science, 41: 392-408. You, F., & Grossman, I. 2009. Multi-echelon supply chain with inventory under uncertainty: MINLP models, computational strategies. AIChE Journal, 56: 419-440. Yung, K., Tang, J., lp, A., & Wang, D. 2006. Heuristics for joint decisions in production, transportation, and order quantity. Transportation Science, 40: 99-116. Joel Jolayemi is a professor of operations and supply chain management at Tennessee State University. He received his Ph.D. in operations research from Case Western Reserve University. His current research interests include supply chain management, total quality management, project scheduling, decision analysis, and mathematical modeling/ optimization. He has published in International Journal of Production Research, International Journal of Production Economics, Applied Mathematics and Computation, Applied Statistics and Data Analysis, Total Quality Management and Business Excellence, Omega: The International Journal of Management Science, Sankhya: The Indian Journal of Statistics, Ecological Modeling, and many others.

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A Review of Intellectual Capital Literature Proposing Balance Sheet Disclosures of Intellectual Capital (Plus Evaluative Commentary from a Financial Accounting Measurement Perspective) John Morgan, Winona State University Frederic Ihrke, Winona State University James Hurley, Winona State University A growing body of academic and popular literature calls for fuller balance sheet reporting of intellectual assets (also known as intellectual capital) in order to provide users of financial statements more complete explanations of total firm value. The purpose of this paper is threefold. First, we review intellectual capital literature calling for broader measurement and reporting of intellectual assets on the balance sheet. Second we review financial measurement theory as it pertains to defining assets and measuring assets. Third we provide a commentary (from a financial accounting measurement perspective) concerning the various proposals from intellectual capital literature suggesting ways to more fully measure and report intellectual assets on the balance sheet. We conclude that intractable measurement difficulties preclude any but spurious measures for most items of internally generated intellectual capital on the balance sheet. Therefore we are against these measurements. Concept “Intellectual Capital” More than one definition of intellectual capital presently competes in mainstream intellectual capital literature (Abeysekera, 2008). Nevertheless, intellectual capital is defined in reasonably similar ways by most of its advocates. For example, Marr (2008) suggests intellectual capital refers to the many intangible factors that contribute to delivery of an organization’s strategy, including three main sub-categories: human capital (knowledge and skills residing within employees), relational capital (formal and informal relationships both internally and externally), and structural capital (databases, production routines, and codified knowledge of all sorts). Stewart (2001 and1997) defines intellectual capital as knowledge, information, intellectual property, and experience put to use by a firm to create wealth. He also conceptualizes intellectual capital as having three broad components - human capital (employees and their knowledge), structural capital (e.g. software, documents, organizational processes), and customer capital (e.g. existing customer relationships). Edvinsson (2002) argues intellectual capital is a combination of human capital and structural capital. He describes human capital as embodied in the knowledge of current employees, whereas structural capital is embodied in customer relationships, production process efficiencies implemented over time, internal databases, and other institutionalized knowledge structures. Webster and Jensen (2006) have suggested the existence of four distinct classes of intellectual capital: 1) human capital residing in the skills and knowledge of the present workforce; 2) organizational capital residing in the architecture of both formal and informal systems used by the organization; 3) marketing capital residing in existing marketing relationships and marketing networks developed over time; and 4) production capital residing in specialized production processes developed internally over time. General agreement seems to exist that intellectual capital refers to value derived from internal knowledge developed and institutionalized over time. Interest in intellectual capital as a critical component of business success is evident from the large and growing number of academic and popular journal articles directed towards it. John Kenneth Galbraith is believed to have coined the phrase intellectual capital in a 1969 letter to fellow economist Michal Kaleck, and thereby initiated a stream of thought about the changing nature of value in modern businesses (Bontis, 2001). Management legend Peter Drucker provided significant momentum to this stream of thought by becoming an early and ardent advocate of the importance of knowledge and its artifacts to growth and success in modern business organizations. Drucker’s writings were among the very first of those which later were to become an avalanche of academic and popular literature concerning the importance intellectual capital, its stewardship, and the related concepts of knowledge management, and knowledge organizations (Grossman, 2006). Drucker and those that followed pointed out that traditional physical assets represent an ever smaller fraction of total value of a firm than they have in the past. In a technology-driven world the increasing importance of internally generated knowledge and its related artifacts are now recognized as being a larger part of the ability to create future cash flows (Roslender and Fincham 2001; McNabb 1998; Stewart 1997). 36

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Notwithstanding the particular definition of intellectual capital one adopts, it is clear that intellectual capital is believed by many of its advocates to add significant value to organizational enterprises. The increasing importance of intellectual capital relative to other assets has been noted by several intellectual capital commentators (Cezair, 2008, Lev, 2003). Lev in particular documents a systematic increase in the ratio “total firm market value to total book value” occurring over the past three decades. Lev reports that the average ratio of “total firm market value to total book value” for all Standard and Poor’s 500 firms since 1980 increased from approximately 1 in 1980 to just over 7 by the year 2000 (Lev, 2005 and 2003). This remarkable increase is interpreted by Lev to be the direct function of growing unmeasured and unreported internally generated intellectual assets, necessary to success in modern high-technology firms, but unmeasured and unreported on balance sheets under traditional accounting rules. Intellectual capital commentators Robert Elliot, Tom Davenport, Leif Edvinsson, and Steven Wallman have all asserted unreported intangibles are growing both in size and relative proportion to total firm value (Maines, Bartov, Fairfield, and Hirst, et. al., 2003).

Calls for Additional Balance Sheet Reporting of Intellectual Assets Intellectual capital advocates over the past two decades have increasingly expressed concerns and frustration about the growing discrepancy between reported balance sheet net assets and total firm value. Most believe that unrecorded intellectual assets are the major source of this discrepancy. For example, Sveiby in his 1997 book, The New Organizational Wealth: Managing and Measuring Knowledge-Based Assets, criticizes traditional balance sheets for failing to report intangible factors that he believes have more to do with a company’s total worth than traditionally reported physical assets. Sveiby’s suggests the total amount of a firm’s unreported intellectual assets (which Sveiby calls invisible assets) are estimable by taking the difference between total market value of aggregate stock shares and the total reported book value of net assets on the balance sheet. Sveiby notes that this difference is often very large, even five to ten times greater than reported balance sheet assets at high tech firms such as Microsoft. Because unreported invisible assets are proportionately so large relative to reported assets, Sveiby suggests balance sheets have become barely relevant in assessing firm value. Holmen (2005) echoes Sveiby’s concern that balance sheets are increasingly irrelevant. He poses the question, “Why must we measure intellectual capital?” Holmen answers his own question by suggesting the variety of decision-making benefits that result from a fuller measurement and reporting of intellectual capital. Holmen says these benefits include assisting buyers in valuing firms during mergers and acquisitions, developing proper incentivebased compensation plans for top managers that recognize stewardship of intellectual assets, and communicating to external stakeholders the fair values of intellectual property held by the firm. If Sveiby and Holmen are to be believed, omitting measures of intellectual capital from an organization’s balance sheet not only reduce its relevance, but violate the basic accounting principle of full and fair disclosure of an organization’s financial position. Other intellectual capital researchers also posit that the balance sheet is largely irrelevant since intellectual assets are not measured and reported under traditional accounting rules. Seetharaman, Sooria, and Saravanan (2002) point out that the biggest challenge facing the accounting profession today is measuring and explaining the growing gap between balance sheet net assets and stock market valuations. Rodov and Leliaert (2002) suggest standard financial reporting provides a totally inadequate accounting for intellectual assets. They believe the total value of unrecorded knowledge assets must be included on standard financial reports if those reports are to be relevant for firm valuation. Ambler (2002) argues that accountants should incorporate unreported intellectual assets into financial reporting or risk financial statements that are no longer relevant to shareholders for assessing firm value. Malhotra (2000) says balance sheets that fail to include intellectual capital are misleading measures of organizational value. Collectively these remarks make quite clear (most coming from mainstream intellectual capital literature) that more comprehensive balance sheet measures of intellectual assets are believed to be desirable, and that the accounting profession has been remiss for not advancing these measures more quickly. Review of Asset Measurement Theory The Financial Accounting Standards Board (FASB), the International Accounting Standards Board (IASB), the Chartered Financial Analyst Institute (CFA Institute), the Federal Accounting Standards Advisory Board (FASAB), and the Governmental Accounting Standards Board (GASB) have all acknowledged in the past the fundamental importance of the concept, asset in financial reporting. In connection with recent efforts to unify FASB accounting standards with IASB international financial reporting standards, a Joint Conceptual Framework Project was undertaken which, among other things, attempts to collaboratively define basic financial reporting elements and their measurement principles. This project resulted in the following statement about the fundamental importance of the concept, asset, to financial reporting: 37

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“Assets are the most fundamental real-world economic phenomena that financial reporting seeks to portray. If the definition is too vague or subject to interpretation, then the foundation of financial reporting is at risk of being undermined. Therefore it is necessary that this definition is as robust as possible.” (Joint Conceptual Framework, Project, Phase B, 2006, paragraph 6). Other authoritative bodies in the past have also remarked on the central importance of the concept asset to financial reporting. The current and operative FASB definition for assets is: “Assets are probable future economic benefits obtained or controlled by a particular entity as the result of past transactions or events.” (FASB Concepts Statement 6, paragraph 25). The current operative IASB definition for assets is: “An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.” (IASB, Framework for the presentation and preparation of financial statements, paragraph 49). The current Federal Accounting Standards Advisory Board (FASAB) in the USA. Definition for assets is: “An asset is a resource that embodies economic benefits or services that the federal government controls.” (FASAB, SSFAC No. 5, Definitions of elements and basic recognition criteria for accrual-basis financial statements, page 1). The current Joint Conceptual Framework Project definition for assets is: “An asset is a present economic resource to which the entity has a present right or other privileged access.” (Joint Conceptual Framework Project, Phase B, 2006, paragraph 26). In their joint project discussions the FASB and IASB agreed that the development of a proper definition of assets was a critical first step, but not the only step guiding the recognition and reporting of assets on financial statements. A second and more difficult step would be to establish rules about the criteria for determining whether particular items meeting the definitional sense of assets could also be usefully measured for recognition and reporting in financial statements (Joint Conceptual Framework Project, 2006, Phase B, paragraph 2). This insight that not all definitional assets should be recognized and reported in financial statements is not new and has a long history in official financial reporting communities. Authoritative around the world bodies recognize that measurement uncertainties inherent to some types of assets will prohibit their useful measure. For instance, the FASB has consistently ruled that merely meeting the definition of asset, although significant, does not automatically qualify an item for inclusion in the financial statements (FASB Concepts Statement 6, appendix B). The FASB reasons that measurement uncertainties can be so large as to destroy any potential usefulness of dollar disclosures made, and may in fact harm other data. In their joint conceptual framework project, both the FASB and the IASB concurred that not every item meeting their jointly developed working definition of asset could be usefully recognized or reported on financial statements because of measurement uncertainties (Joint Conceptual Framework Project, 2006). A similar view was expressed by the Federal Accounting Standards Advisory Board in SSFAC 5: “This Statement establishes two basic recognition criteria that an item must meet to be a candidate for recognition in the body of a financial statement: (1) the item must meet the definition of an element (i.e. asset) and (2) the item must be measurable, meaning a monetary amount can be determined with a reasonable certainty or is reasonably estimable.” (FASAB, SSFAC No. 5, Definitions of elements and basic recognition criteria for accrual-basis financial statements, page 1). In short, the Joint Conceptual Framework Project, the FASB, IASB, and FASAB have all separately at different times concluded that meeting the conceptual meaning of asset is a necessary and important condition for financial statement inclusion, but is not by itself sufficient. Unless the item can also meet certain qualitative measurement criteria, it may not be useful to include the item as part of financial reporting. The FASB summarizes this sentiment very nicely: “The characteristics of information that make it a desirable commodity can be viewed as a hierarchy of qualities, with usefulness for decision making of most importance. Without usefulness, there would be no benefits from information to set against its costs.” (FASB Concepts Statement 2, paragraph 1).

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The FASB, the IASB, and the FASAB have each identified relevance and reliability as the two primary qualities making financial information useful to decision-making. Should either of these two qualities be entirely absent, the information itself can have no decision-making value. (FASB Concepts Statement 2, paragraph 2). With regard to the measurement of intellectual capital, it seems obvious that additional measures of intellectual capital, if possible in a meaningful way, could be relevant to firm valuation decisions and therefore would meet the relevance criterion of useful information. On the other hand, it is the reliability of these measures where the problem exists. Possible measures for most internally developed items of intellectual capital, when examined closely, are so inherently so lacking in reliability as to preclude decision utility. The commentary which follows focuses on the problems of reliability of intellectual capital measures, and not their relevance if reliably measured. In discussing reliability, the FASB suggests information is only reliable to the extent it possesses three qualitative characteristics. The first is verifiability. Reliable information must to some degree be independently verifiable, and not purely the function of the unverifiable subjective judgments of the measurer. Utterly subjective information is thought to be without decision utility because it affords no reasonable basis for determining whether or not it is correct. If there is no reasonable basis to believe information is correct, it is unhelpful. A second related characteristic of reliability is representational faithfulness (i.e. information must be a reasonably accurate description of what it purports to describe). In the case of financial measurement this means the dollars assigned to an item provide a reasonably accurate reflection of the valuation intended (e.g. cost or fair value). To the extent judgments or estimates are involved in establishing dollar amounts (as very often is the case in financial reporting), the judgments or estimates must derive from some logically defensible position that they are reasonably accurate. Reasonable accuracy does not mean absolute accuracy, only that the measurement is expected to contain enough information to offset its error term. The principle of reasonable accuracy, or representational faithfulness, is necessarily subjectively applied and requires some judgment in application. When estimates afford zero expectation that they are accurate, they can be of no decision-making utility. This principle explains why local weather forecasters refrain from predicting weather too far into the future. Beyond a certain future point (though potentially relevant) weather forecasts have little expectation of any accuracy and are assigned no value. A third characteristic important to reliability is that of neutrality. Neutrality refers to the particular environment in which information has been collected and interpreted. Ideally, information is gathered in an environment free of systematic bias. Systematic bias occurs when those responsible for gathering and interpreting information also have a strong personal stake in one particular outcome above others. The environment in which information is collected may in some cases be that of disinterested objectivity and in others may be one of strong personal benefit from a particular outcome. Personal interest is well known to bias measurement especially when the required measurements are subjectively determined by those with a strong personal interest in outcomes of the measures. Concerns about systematic bias explain why tobacco industry studies on the health impacts of tobacco are viewed as less reliable than those of independent university research. In the next section we review proposals from intellectual capital literature concerning how to more fully measure and report intellectual assets on the balance sheet. This is followed by our commentary (from an accounting measurement perspective) on the merits of these proposals. Review of Intellectual Capital Measurement Proposals and Related Commentary Several recent comprehensive literature reviews of intellectual capital literature identify just three broad theoretical approaches for measuring internally generated intellectual assets in that literature (Grossman, 2006; Bontis, 2001; and Petty and Guthrie, 2000). These broad approaches are referred to as: (1) market capitalization models recognizing and reporting intellectual assets in amounts equal to the difference between the cumulative trading price of all outstanding stock of a company and the book value of all its net assets currently reported; (2) return on assets models recognizing and reporting intellectual assets in amounts equal to those implied by comparing a companyâ&#x20AC;&#x2122;s return on assets ratio to an industry benchmark return on assets ratio. Under these models it is assumed that whenever a companyâ&#x20AC;&#x2122;s return on assets ratio is found to be higher than the industry benchmark, it must have unrecorded intellectual assets explaining the higher than average return on assets ratio, the amount of which is inferable using algebra. (Note if a companyâ&#x20AC;&#x2122;s return on assets ratio is lower than the benchmark, no intellectual capital is presumed to exist.) and; (3) individual elements models which attempt to exhaustively identify and list the knowledge assets thought to exist and then assign dollar amounts to each on some basis. Some of these models attempt to estimate the historical cost of developing each item on the list, others estimate current replacement costs, and still others estimate future discounted cash flows associated with each identified item. Grossman (2006) notes a major disadvantage of the first two models is that they provide only lump-sum totals for all intellectual assets combined and provide little insight into the particular or specific assets that have presumably

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been identified and measured. Bhartesh and Bandyopadhyay (2005) note that to overcome the problem of a single undifferentiated total for intellectual capital, some of these models involve a stage 2 disaggregation of total intellectual capital into various sub-groupings (e.g. human capital, structural capital, customer capital, etc). Better known examples of market capitalization models include Sveiby’s invisible balance sheet, the Investor Assigned Market Value (IMVA), and Tobin’s “Q” (Grossman, 2006; Bontis, 2001; Petty and Guthrie, 2000). Protagonists of market capitalization models justify them on the basis that they provide investors information more useful for assessing total firm value than do present day balance sheets (Grossman, 2006). From a measurement perspective market capitalization models appear to be insufficiently reliable to have decisionutility. Values assigned to total intellectual assets under this approach would be unstable and would change over time in ways suggesting the measures themselves have little representational faithfulness. The measured amount of intellectual assets would change as company stock prices fluctuate. Day-to-day changes in stock prices would likely bear little relationship to actual new investments made in intellectual assets (or the expiration of intellectual assets). As stock prices rise, so too would the measured value of intellectual assets even if there have been no new investments made in knowledge assets. If stock prices fall, computed amounts of intellectual capital would decline (or possibly go negative) in spite of the fact there may have been significant new investments made in knowledge assets. These fluctuations would not be small in proportionate terms and in some years would exceed 200% to 300% of beginning of year values. Precisely what market capitalization models are measuring is unclear relative to the specific items of intellectual capital purportedly being valued, and would behave over time in ways inconsistent with underlying inputs and expirations. This suggests to accountants lack of representational faithfulness. Additionally, we note as have Jenkins and Upton (2001), that market capitalization models are circular in terms of underlying logic justifying their use. Market capitalization models typically are justified as useful for providing investors better balance sheet measures of total firm worth. The models then define unrecorded intellectual assets as the difference between reported balance sheet net assets and aggregate stock price (total firm worth) in order to better predict the total firm worth. The definition assumes knowledge of that which it is used to predict. We also note that the decision utility of an extremely large undifferentiated total called intellectual capital measured in this way is highly questionable. No descriptive insight into the specific items purportedly being measured is gained. The undifferentiated total would be a ‘black box’ to users much in the same way that purchased goodwill is now, the difference being that the value would fluctuate widely as stock prices changed. Finally we note market capitalization models are based on the assumption (incorrect in our view) that a complete list of balance sheet assets should equate with total firm value. Finance theory has long posited that firm value is not a function of summed unexpired inputs (assets), rather is a function of expected future discounted net cash inflows (outputs) (Gitman, 2003; Maines, Bartov, Fairfield, & Hirst, 2003). The point being firm valuation approaches from the summation of unexpired inputs, no matter how complete the list of inputs, are theoretically inappropriate for estimating firm value which is appropriately a function of discounted expected future cash flows. As an example, is the value of a $10 million dollar winning lottery ticket its unexpired input cost, or would it be the present value of its expected payout? Gitman (2003) notes the two most widely accepted firm valuation models in finance (e.g. the Gordon Model and the Capital Asset Pricing (CAPM) model) are both based on discounted expected future net cash inflows (adjusted for risk) not the sum of unexpired inputs. Thus, while market capitalization models provide an easy computation for the dollar total of unrecorded intellectual assets, it is not clear the measure itself represents what is purportedly being measured, provides no additional information about total firm worth not already available, and would be a poorly understood undifferentiated total that behaves in counterintuitive ways. The degree of error evident in this measure would be large relative to its information content (if any information content exists). The second of the three measurement models proposed in intellectual capital literature is referred to as the return on assets model. This model compares an individual company’s return on assets ratios to some benchmark return on assets, usually an industry average. Total unrecorded intellectual assets are then inferred through reference to excess return on assets, presumed to exist only because unreported intellectual assets are excluded from the company’s denominator (i.e. total assets). Better known return on assets models for estimating total unrecorded intellectual assets include Stewart’s Economic Value Added model (EVA), the Human Resource Costing model (HRCA), and the Knowledge Capital Earnings model (Grossman, 2006; Petty and Guthrie, 2000). Though return on assets models also provide an easily calculable dollar estimate for unrecorded intellectual assets, they have many of the same inherent measurement shortcomings of the market capitalization models (i.e. lack of representational faithfulness including irrational behavior over time and opaqueness) plus others as well. As with market capitalization models an undifferentiated total value results from this approach that behaves in unstable and unpredictable ways. Additional shortcomings of return on assets models are apparent. Presently there is no theoretical basis for justifying how the benchmark ratio would be established for purposes of comparison

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(Grossman, 2006). What factors should in fact be used to select companies for inclusion in the benchmark (e.g. industry, sector, size, risk, etc.), and how should their weightings be determined? Additionally, regardless of the benchmark selected, the benchmark companies themselves also presumably have unrecorded intellectual assets affecting them as well, a complication ignored by the proponents of the model. Additionally, return on assets models result in valuations that are highly unstable year-to-year as changes in net income occur suggesting very poor representational faithfulness of the underlying intellectual assets presumably being measured (Grossman, 2006). Grossman (2006) also notes return on assets models provide intellectual asset valuations that bear little resemblance to intellectual asset valuations provided by market capitalization models suggesting that whatever has been measured by each model is not the same thing. A final troubling aspect of return on assets models is that companies with return on asset ratios below the selected benchmark norm are presumed to have zero intellectual capital (or negative intellectual capital), an implausible result in the case of high technology companies with good profits and trained employees. These shortcomings combined (e.g. lack of supporting theory, relative instability over time, failure to correct for the unrecorded intellectual assets in the benchmark, etc.) have caused Rodhov and Leliaert, (2002) to conclude that return on assets models hold the least promise of the three proposed approaches for adequately measuring and reporting internally generated intellectual assets. A third approach proposed for measuring unrecorded intellectual assets is known as the individual elements model. These models begin with identification and listing each of the separate component believed to comprise total intellectual capital. In a second step dollar amounts are estimated and assigned to each component is some manner. Each component is assigned a value without reference to any known total value in advance. Better known individual elements models include the Technology Broker, the Value Explorer, Intellectual Asset Valuation, and the Financial Method of Intangible Assets Measuring (FiMIAM) (Grossman, 2006; Rodov and Leliert, 2002; Petty and Guthrie, 2001). Individual elements models have some theoretical appeal in the sense that they carefully elaborate the specific items of intellectual capital purportedly being measured, and are not merely opaque lump-sum totals. Unfortunately, these models are by nature utterly subjective in terms of what items are listed and what values are assigned to them. Widely differing items have been included in many different models of this type that have been developed, and widely different valuations often result, prima facie evidence of the subjectivity inherent to this approach. Rutledge (1997) despairs at the hundreds of elements most of the commercial models include. Commercially developed intellectual capital measurement instruments which have blossomed in recent years purport to identify large numbers of individual components of unrecorded intellectual capital and then value each. These instruments, though universally complex often with several hundred individual elements, lack significant agreement about what the elements are. This alone points to subjectivity in identifying the elements, let alone assigning valuations (Grossman, 2006). Advocates of individual elements models have yet to agree whether it is better to develop a single generic list of intellectual assets for all companies or to develop a unique list for each separate company or each industry (Hunter, Webster, and Wayatt, 2005). Bontis (2001) notes that commercially developed intellectual capital instruments usually include a hundred or more individual factors, and then assign equal value to each factor, a highly implausible valuation scenario in his view. He says such â&#x20AC;&#x2DC;devoid-of-theoryâ&#x20AC;&#x2122; measurements are exercises in complexity without demonstrable validity. Advocates of individual elements models have also not agreed on the best valuation approach for assigning dollars to factors once they are identified. Some researchers argue that dollars should be assigned based historical costs to develop them over time. Others believe dollars should be assigned based on current market values, or replacement costs, or current trading prices (even though none of these values actually exist). Still others believe dollars should be assigned to components of intellectual capital based on the discounted net future cash flows expected to result from their ownership (but provide virtually no guidance as to how this might be reasonably achieved). What proponents of all valuation approaches (e.g. historical cost, replacement cost, discounted cash flows, etc.) fail to consider is that not only are the particular components of intellectual capital highly subjective, their valuations are not reasonably determinable under any valuation approach. Many of these items have been developed internally over decades. Their input costs had multiple objectives, are not easily identified, and may have expired. Any particular valuation would be as justifiable as any other, the essence of complete subjectivity, and with no reasonable basis for accepting one valuation as superior to another. Information of this sort by definition lacks decision utility. Even worse it can masks or destroy the information content of other more valid measures that are grouped with it. In summary, individual elements models are also unacceptable in the sense of measurement reliability. They are highly subjective, and are naĂŻve in terms of their expectations about what can be usefully measured for financial reporting. Hunter, Webster, and Wyatt, (2005), capture this sentiment by suggesting intellectual capital has unclear inputs, has uncertain legal status, is rarely accepted as collateral, is rarely bought or sold, is of uncertain value, and rarely survives separation from the organization that has developed it. Not surprisingly it is among the most difficult of all assets to measure in a decision useful way.

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It seems to the authors that mainstream intellectual capital advocates while highly critical of the accounting profession for not developing better measures of internally generated intellectual assets, have only proposed measures for intellectual assets that ignore of long-recognized and intractable financial measurement constraints which limit their useful measurement and disclosure. Accounting boards around the world concur that not every definitional asset can be usefully measured. We have reviewed and evaluated the proposals coming out of intellectual capital literature and found them wanting in terms of possessing the characteristics of useful information. The fact that a particular goal (e.g. a more complete reporting of internally generated intellectual assets) may be desirable in some sense, does not also mean it is possible in a useful way. Aesop, in one of his most clever fables, relates the story of a mouse who proposed a bell be tied to the cat’s neck so mice would be alerted when the cat was near and thereby avoid danger. The idea of “belling the cat” was widely applauded until one wise old mouse asked who among the mice intended to bell the cat. Aesop’s moral of course was that is easy to propose impossible solutions. A careful analysis of the measurement difficulties surrounding items of internally generated intellectual capital suggests to the authors that intellectual capital protagonists may be guilty of proposing an impossible solution in this case. The present absence of internally generated intellectual capital from balance sheets is not accounting negligence, nor accountants’ resistance to change, nor is it even the accounting profession’s lack of imagination as has been suggested in intellectual capital literature. Rather the exclusion of items of internally generated intellectual capital from the balance sheet results from unfortunate measurement realities that limit what can be usefully measured in financial terms. Intellectual capital protagonists would be well advised to address measurement issues if they ever hope for their calls for broader reporting of internally generated intellectual assets on the balance sheet to be heeded by the accounting community. CONCLUSION This paper has reviewed suggestions coming out of intellectual capital literature for fuller measurement and reporting internally generated intellectual assets on the balance sheet and has found them unworkable from a measurement perspective. Each of the three proposed approaches for measuring intellectual capital found in intellectual capital literature appears deeply flawed. If implemented none would result in decision-useful measures of internally generated intellectual capital, this primarily because of their lack of reliability (i.e. lack of verifiability, representational faithfulness, and/or neutrality). Market capitalization models provide only black box dollar totals that are poor representations of the intellectual assets they purport to measure. Furthermore, market capitalization models have been justified through circular reasoning that assumes knowledge of the very market valuations they are supposed to predict. Return on assets models depend upon benchmark comparisons that have no theoretical basis, do not correct for the unrecorded intellectual assets in the denominators of the benchmarks, provide highly unstable results over time, and fail to explain why some profitable technology companies have zero or negative intellectual capital. Individual elements models are totally subjective in terms of their construction and implementation. Individual elements models provide widely differing outcomes in which no outcome is more justifiable than any other. We conclude by commenting on a study by Lev and Zarowin (1999) in which they published empirical findings showing a consistent decline in the usefulness of historical financial accounting information (book values, cash flows, and earnings) for predicting future stock returns. Lev and Zarowin concluded (among other things) that the decline in usefulness must be in some part due to the failure of accounting numbers to accurately include the value of internally generated intellectual assets and to accurately expense them as they expire. While we readily concede the decline in the correlation between historical financial information and future stock returns, we interpret this decline differently than did Lev and Zarowin. We think a rapidly increasing rate of technological and social change explains the decline in predictability of historical numbers for the future. If rate of technological and social change is accelerating (and we believe it is), the future, itself, naturally entails a higher degree of uncertainty than it has in the past and is less predictable. Historical data in a rapidly changing environment intuitively must be less likely to accurately predict a more uncertain future than it once did in a more slowing changing world. In our view the acceleration of change is the better explanation for the Lev and Zarowin finding. More to the point, declines in the predictability of traditional financial reports would not be reversed and perhaps would even be increased by including in those historical data spurious measures of unrecorded intellectual assets. Since proposals for measuring internally generated intellectual assets provide spurious measures that would not be useful to decision making, and since bright minds have been unable to devise any other suitable approaches to measure intellectual assets, we conclude that including a broader set of internally generated intellectual assets on the balance sheet is unrealistic in a useful way. Accordingly, there is little reason to expect the financial accounting community will change its present position on these matters. Intellectual capital advocates who argue for broader inclusion of internally generated intellectual assets on the balance sheet should first address the expressed measurement concerns of accountants if they are to successfully advance their argument.

Morgan, Ihrke and Hurley

Advances in Business Research 2010, Vol. 1, No. 1, 36-44 REFERENCES

Abeysekera, I. 2008. Intellectual capital practices of firms and commodification of labour. Accounting, Auditing, and Accountability Journal, 21: 36-48. Ambler, T. 2002. Accounting for untouchables. Accountant, February: 16-18. Bhartesh, K., & Banyopadhyay, A. 2005. Intellectual capital: Concept and its measurement. Finance India, 19: 13651375. Bontis, N. 2001. Assessing knowledge assets: A review of the models used to measure intellectual capital. International Journal of Management Reviews, 3: 41-60. Cezair, J. 2008. Intellectual capital: Hiding in plain view. Journal of Performance Management, 21: 29-39. Edvinsson, L. 2002. Corporate longitude: What you need to know to navigate the knowledge economy. Upper Saddle River, NJ: Financial Times Prentice Hall. Edvinsson, L., & Malone, M. 1997. Intellectual capital: Realizing your companyâ&#x20AC;&#x2122;s true value by finding its hidden brainpower. New York: Harper Business. Federal Accounting Standards Board (FASAB). 2007. SSFAC No. 5, Definitions of elements and basic recognition criteria for accrual-basis financial statements. pp. 1-22 Financial Accounting Standards Board (FASB). 1985. Concepts Statement No. 6, Elements of Financial Statements. Stamford, CT: FASB. Gitman L. 2003. Principles of managerial finance. Boston, MA: Addison Wesley. Grossman, M. 2006. An overview of knowledge management assessment approaches. Journal of American Academy of Business, 8: 242-277. Holmen, J. 2005. Intellectual capital reporting. Management Accounting Quarterly, 6: 1-9. Hunter, L., Webster, E., & Wyatt, A. 2005. Measuring intellectual capital: A review of current practice. Australian Accounting Review, 15: 4-22. International Accounting Standards Board. 2001. Framework for the presentation and preparation of financial statements. London, UK, IASB. Jenkins, E., & Upton, W. 2001. Internally generated intangible assets: Framing the discussion. Australian Accounting Review, 11: 4-11. Joint Conceptual Framework Project (IASB and FASB). 2006. Phase B, Elements and Recognition, Attachment F, pp. 1-12. Lev, B. 2005. Intangible assets: Concepts and measurements. Encyclopedia of Social Measurement, 2: 299-305. Lev, B. 2003. Remarks on the measurement, valuation, and reporting of intangible assets. Economic Policy Review, 9: 17-22. Lev, B., & Zarowin, P. 1999. The boundaries of financial reporting and how to extend them. Journal of Accounting Research, 37: 353-385. Maines, L., Bartov, E., Fairfield, P., & Hirst, E. 2003. Implications of accounting research for the FASBâ&#x20AC;&#x2122;s initiatives on disclosure of information about intangible assets. Accounting Horizons, 17: 175-185.

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Morgan, Ihrke and Hurley

Malhotra, Y. 2000. Knowledge assets in the global economy: Assessment of national intellectual capital. Journal of Global Information Management, 8: 5-15. Marr, B. 2008. Intangible assets measurement. Financial Management, June: 32-34. McNabb, D. 1998. Brainpower’s worth soon to be part of the balance sheet. The Dominion, April: 25. Petty, R., & Guthrie, J. 2000. Intellectual capital literature review: Measurement, reporting, and management. Journal of Intellectual Capital, 1: 155-176. Rodov, I., & Leliaert, P. 2002. Fimiam: Financial method of intangible assets measurement. Journal of Intellectual Capital, 3: 323-337. Roslender, R., & Fincham, R. 2001. Thinking critically about intellectual capital accounting. Accounting, Auditing, and Accountability Journal, 14: 383-399. Rutledge, J. 1997. You’re a fool if you buy into this. Forbes, April: 42-46. Seetharaman, A., Sooria, H., & Saravanan, A. 2002. Intellectual capital accounting and reporting in the knowledge economy. Journal of Intellectual Capital, 3: 128-149. Stewart, T. 1997. Intellectual capital: The new wealth of organizations. New York: Doubleday. Stewart, T. 2001. The Wealth of knowledge: Intellectual capital and the twenty-first century organization. New York: Doubleday. Sveiby, K. 1997. The new organizational wealth: Managing and measuring knowledge-based assets. San Francisco, CA: Berrett-Koehler Publishers. Webster, E., & Jensen, P. 2006. Investment in intangible capital: An enterprise perspective. The Economic Record, 82: 82-96. John Morgan is a professor in the department of accounting at Winona State University. He received his Ph.D. in accountancy from the University of Nebraska-Lincoln. His current research interests include the financial reporting issues related to intellectual capital, business school accreditation issues, CPA exam success factors, and measuring teacher effectiveness. He has published in the Journal of 21st Century Accounting, the Journal of Business and Leadership, the Clarion Business and Economic Review, and in Learning and Teaching in Higher Education-Gulf Perspectives. Frederic Ihrke is a professor and chair in the department of accounting at Winona State University. He received his MBT from the University of Minnesota and his J.D. from William and Mitchell College of Law. His current research interests include income tax policy, income tax law, and accounting for intangible assets. He has published in the Journal of Business and Leadership. James Hurley is an associate professor in the department of accounting at Winona State University. He received his Ph.D. in accountancy from the University of Nebraska-Lincoln. His research interests include financial accounting reporting and social audits. He has published in the Journal of Business and Leadership.

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Yatrakis and Williams

The Jewish Holiday Effect: Sell Rosh Hashanah, Buy Yom Kippur Pan Yatrakis, Nova Southeastern University Albert Williams, Nova Southeastern University This paper investigates the validity of the old Wall Street adage, “Sell Rosh Hashanah, buy Yom Kippur.” The authors examine daily returns of the Dow Jones Industrial Average (DJIA) between 1907 and 2008 and evaluate a strategy, based on this heuristic, of selling short before Rosh Hashanah and covering after Yom Kippur. They find that such a strategy would have produced statistically and economically significant returns. On September 19, 1915, The New York Times published one of the earliest stories on the effect of the Jewish High Holy Days on stock market trading. In an article titled, “The London Market Quiet - Jewish Holiday Causes Small Attendance on the Exchange”, the newspaper reported that money and discount rates on the London Stock Exchange were “easy today” and attendance at the exchange was low due to the Jewish holiday of Rosh Hashanah (New York Times, 1915). On September 27, 1935, the Altoona, Pennsylvania Mirror referred to a Wall Street adage, “Sell before Rosh Hashanah; buy before Yom Kippur” (Popik, 2008). On September 17, 1936, the Chester, Pennsylvania Times stated that some of the previous session’s selling on the New York Stock Exchange came from Jewish traders who wanted to get out of the market before the Rosh Hashanah holiday (Popik, 2008). The belief that some Jewish religious holidays impact stock market trading has persisted among Wall Street practitioners, despite the fact that such effects would seem to violate the Weak Form of the Efficient Market Hypothesis (EMH). For example, Schatz (2010) noted in The New Haven Register that “the market tends to be on the weak side” during the period between the two religious holidays. The Almanac Investor discussed on August 29, 2006 the “old saying on the Street, Sell Rosh Hashanah, Buy Yom Kippur” (Hirsch and Brown, 2006). A September 18, 2006 article on The Street.com attempted to explain the rationale behind the Sell Rosh Hashanah, Buy Yom Kippur adage, stating that the days starting with Rosh Hashanah and ending with Yom Kippur are a “period of intense reflection”, during which prominent Jewish financiers such as the Loebs would liquidate their investment portfolios so as to concentrate instead on their prayers (Greenberg, 2006). A biographer of Bernard Baruch notes that, on one occasion, he refrained for religious reasons from covering a short sale on Yom Kippur, despite news which he thought would cause the shorted stock to rise. However, the stock instead fell precipitously during the holiday, and when he finally covered on the following day, he had become a millionaire (Smith, 1947). The explanation of religious holiday observance as the reason behind the Wall Street adage was expanded in the September 14, 2007 edition of The Street.com, which added that the absence of Jewish investors could be perceived negatively outside the Jewish community, since it would reduce the number of potential buyers (Schiller, 2007). Finally, the September 11, 2007 edition of The Wall Street Journal discussed the conventional explanation that traders close out positions prior to Rosh Hashanah “in advance of spending the holidays with family”, but noted that other forces might also be at work, such as the end-of-quarter restructuring of fund portfolios, the beginning of new fiscal years for some businesses, and the return of traders from summer vacations (Gaffen, 2007). In contrast to the plethora of writings by Wall Street practitioners on the supposed Jewish Holiday Effect, there has been scant treatment of this subject by academic researchers. There is, however, evidence to support the influence of holidays on the behavior of stock returns. For example, Lakonishok and Smidt (1984), Ariel (1990), and Cervera and Keim (2000) found higher returns on days preceding market holidays. They attributed this effect to pre-holiday short-covering, as well as positive trader sentiment preceding joyful occasions. Kim and Park (1994) extended these findings to markets in the United Kingdom and Japan; Oguzsoy and Guven (2004) discovered similar effects for Muslim holidays on the Istanbul Stock Exchange; while Cadsby and Ratner (1992), Brockman and Michayluk (1998), Meneu and Pardo (2004), and Lucey (2005) found evidence of this effect on other international markets. In one of only two academic studies of trading on Jewish religious holidays, Loughran and Schultz (2004) examined localized trading behavior in Nasdaq-listed firms headquartered in each of 25 U.S. cities, and found evidence to support the hypothesis of reduced participation by Jewish traders on the most solemn Holy Day, Yom Kippur. Using data from the years 1984-1997, they examined trading volumes on days when Yom Kippur fell on a weekday. The authors found that on such occasions trading in the securities of “firms located in cities with high Jewish population concentrations” experienced a significantly greater decline than did trading in the shares of companies headquartered in cities with smaller Jewish populations. Loughran and Schulz saw evidence in these results of reduced market activity by Jewish investors during Yom Kippur as well as evidence of investors’ tendency to hold securities of local

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firms with which they may be more familiar (see, for example, Coval and Moskowitz (2001); Grinblatt and Keloharju (2001); Huberman (2001); Zhu (2003); and Barker and Loughran (2007)). In what is perhaps the most comprehensive study to date of market behavior around religious holidays on which U.S. stock exchanges remain open, Frieder and Subrahmanyam (2004) studied market volume and daily returns for the Standard and Poor’s 500 Stock Index (S&P 500) on three such occasions, St. Patrick’s Day, Rosh Hashanah, and Yom Kippur. Using data from the years 1946-2000, they examined returns for the S&P 500 on the day of the religious holiday itself, and on each of the two preceding and following days. Their results corroborate those of Loughran and Schulz with respect to the decline in trading volume on Yom Kippur. They found similar declines for Rosh Hashanah as well, but not for St. Patrick’s Day. The authors attribute the declines on the Jewish High Holy Days to traders exiting the market for religious observance, and conclude that their nonfinancial opportunity cost of trading during those occasions outweighs the possibility of financial gains. In examining the daily returns of the S&P 500 during the three religious occasions, Frieder and Subrahmanyam found that median returns on Rosh Hashanah and St. Patrick’s Day were persistently higher than the median returns during other days in the sample period, while returns on Yom Kippur were persistently lower. The authors attribute these results to investor sentiment, which they view as being upbeat on the festive occasions of Rosh Hashanah and St. Patrick’s Day, but more subdued on the somber occasion of Yom Kippur. They also discern investor optimism in the days leading up to the two festive religious holidays: returns on the two days prior to St. Patrick’s Day and Rosh Hashanah were found to be positive and significant; in contrast, returns on the two days prior to Yom Kippur were negative but insignificant. There is evidence in Frieder and Subrahmanyam’s findings that trader sentiment persists on the days following the religious holidays, as well. Positive returns were recorded on the two days following St. Patrick’s Day and Rosh Hashanah, and negative ones on the two days following Yom Kippur, although all these were significant at only the 10% level. The authors also disaggregated their sample into two subperiods, 1946-1972 and 1973-2000, but found that results in these subperiods were similar to those obtained with the full data set. They also examined returns for the Israeli Share and Convertible Index (SCI), and found positive returns on the trading day following Rosh Hashanah and negative ones on the day after Yom Kippur (stock markets in Israel are closed on both of the High Holy Days). As might be expected, the returns were greater in both directions for the SCI than for the S&P 500. Frieder and Subrahmanyam also tested for a possible “Autumn Effect” in the data, but found their results to be robust to regressions that included proxies for return seasonalities. They concluded that the behavior of investors around festive religious holidays suggests optimism, increased confidence, and decreased risk aversion, while the opposite occurs during and after more somber and reflective occasions like Yom Kippur. Analysis Daily closing values for the Dow Jones Industrial Average (DJIA) were obtained for the three trading days before Rosh Hashanah and the three trading days after Yom Kippur during the 102-year period between 1907 and 2008. The DJIA is the oldest stock index compiled in the United States, and was made up of 12 large-capitalization stocks until 1928, when its components were increased to 30, the same number that the index includes today. During this period, the index was adjusted on numerous occasions to delete merged or acquired companies and substitute others in their place. Since Jewish religious holidays begin and end at sundown, the last trading day before Rosh Hashanah was considered to be the day of the sundown marking the start of that holiday. Likewise, the first trading day after Yom Kippur is that which follows the sundown marking the holiday’s end. When any of the three days preceding Rosh Hashanah fell on a weekend or on Labor Day, the preceding Friday was considered to be the prior trading day. An analogous process was applied to observations following Yom Kippur. In 1918, after the United States entered World War I, markets were closed on Thursday, September 12, to facilitate registration for the military draft. Since this market holiday was announced well in advance, it was treated similarly to a weekend or Labor Day. No observations exist for 1914, since markets were closed between July 31 and November 28 of that year, following the outbreak of World War I in Europe. Likewise, markets were closed for four days in 2001 following the attack on the Twin Towers. Since the 2001 closings fell during the Jewish religious holiday period and were unforeseen, the 2001 data were removed from the series so as to avoid a possible distortion of the results due to this extraneous event. The lack of data for 1914 and the removal of the 2001 data reduced the series to 100 observations. Returns were calculated based on short-selling the DJIA Index on one of the three trading days before Rosh Hashanah and then covering on one of the three trading days following Yom Kippur. Since there are 10 days from the start of the first Holy Day to the end of the second, the holding periods for these investments ranged from 12 to 16 days. Nine scenarios were considered, covering the entire range of possibilities of selling short between one and

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three days days before before Rosh Hashanah Hashanah and and covering covering the the short short sales sales between between one one and and three three days days following following Yom Yom Kippur. three three daysscenarios before Rosh Hashanah and1, The nine nine scenarios arelisted listed Table 1,covering below. the short sales between one and three days following Yom Kippur. The are ininTable below. The nine scenarios are listed in Table 1, below. Table Yom Kippur Kippur Table 1: 1: Trading Trading Scenarios Scenarios for for Shorting Shorting Before Before Rosh Rosh Hashanah Hashanah and and Covering Covering After After Yom Table 1: Trading Scenarios for Shorting Before Rosh Hashanah and Covering After Yom Kippur Scenario Day of Short Before Rosh Hashanah (R = Day of Cover After Yom Kippur (Y Scenario Day Day 0) of Short Before Rosh Hashanah (R = =0) of Cover After Yom Kippur (Y 0) =0) 1 R-3 Y+1 12 R-3 Y+1 R-3 Y+2 23 R-3 Y+2 R-3 Y+3 34 R-3 Y+3 R-2 Y+1 45 R-2 Y+1 R-2 Y+2 56 R-2 Y+2 R-2 Y+3 67 R-2 Y+3 R-1 Y+1 78 R-1 Y+1 R-1 Y+2 89 R-1 Y+2 R-1 Y+3 9 R-1 Y+3

Descriptive statistics statistics were were calculated calculated on on the the returns returns for for each each trading trading scenario scenario (Table (Table 2). The mean returns Descriptive returns over statistics were on the returns for each (Table 2). The meanshorting returns three over the Descriptive positive for calculated all nine scenarios, and ranged fromtrading for 2, representing the 100 years were 0.47%scenario for Scenario Scenario representing the 100 years were positive for all nine scenarios, and ranged from 0.47% for Scenario 2, representing shorting three covering twotwo daysdays afterafter YomYom Kippur; to 1.01% for Scenario 4, representing shorting days before before Rosh RoshHashanah Hashanahand and covering Kippur; to 1.01% for Scenario 4, representing days before Rosh Hashanah covering afterday Yom Kippur; to 1.01% for Scenario 4, representing two days before Rosh Hashanah and covering onedays day one after Yom Kippur. shorting two days before Rosh and Hashanah and two covering after Yom Kippur. shorting two days before Rosh Hashanah and covering one day after Yom Kippur. Table Table2: 2:Descriptive DescriptiveStatistics Statisticsof ofReturns: Returns:All All Trading Trading Scenarios, Scenarios, All All Data Data Table 2: Descriptive Statistics of Returns: All Trading Scenarios, All Data Std. Deviation Std. Error Mean Scenario Strategy N Mean Scenario Strategy N Mean Std.0.0540 Deviation Std. Error 0.0082 0.0054Mean 1 R-3, Y+1 100 12 R-3, 0.0540 0.0054 100 0.0082 0.0047 0.0559 0.0056 R-3, Y+1 Y+2 100 23 R-3, 0.0559 0.0056 100 0.0047 0.0064 0.0554 0.0055 R-3, Y+2 Y+3 100 34 R-3, 0.0554 0.0055 R-2, Y+3 Y+1 100 100 0.0064 0.0101 0.0496 0.0050 45 R-2, Y+1 100 100 0.0101 0.0496 0.0050 0.0066 0.0521 R-2, Y+2 0.0052 56 R-2, Y+2 100 0.0066 0.0521 0.0052 0.0518 R-2, Y+3 100 0.0083 0.0052 67 R-2, 0.0518 0.0052 100 0.0083 0.0088 0.0438 0.0044 R-1, Y+3 Y+1 100 78 R-1, Y+1 100 0.0088 0.0438 0.0044 0.0488 0.0049 R-1, Y+2 100 0.0054 89 R-1, 0.0488 0.0049 100 0.0054 0.0071 0.0483 0.0048 R-1, Y+2 Y+3 100 9 R-1, Y+3 100 0.0071 0.0483 0.0048

The returns of the nine scenarios had ranges of between 32.1% (Scenario 7) and 47% (Scenario 1), with a The returns of the nine scenarios had ranges of between 32.1% (Scenario 7) and 47% (Scenario 1), with a1), minimum The returns nine scenarios of between and (Scenario with minimum return of of the -24.4% for any one had yearranges (Scenarios 8 and 9),32.1% and a (Scenario maximum 7) return of47% 31.9% (Scenario 4). Thea return of -24.4% for-24.4% any onefor year (Scenarios 8(Scenarios and 9), and aand maximum return of 31.9% (Scenario 4).(Scenario The distributions minimum return of any one year 8 9), and a maximum return of 31.9% 4). distributions of the 100 observations were found to be positively skewed for three of the scenarios, whileThe no of the 100 observations were found to bewere positively skewed for three ofskewed the scenarios, while significant distributions of the 100skewness observations be positively for distributions three of no thestatistically scenarios, while (fat no statistically significant was evidentfound in the to other six. However, all nine were leptokurtic skewness was evident inskewness the other was six. However, all nine distributions wereall leptokurtic (fat tailed)were at highly significant statistically significant evident in the other six. However, nine distributions leptokurtic (fat tailed) at highly significant levels, implying non-normality (Table 3). levels, at implying non-normality (Table 3). non-normality (Table 3). tailed) highly significant levels, implying

Scenario Scenario 1 12 23 34 45 56 67 78 89 9

Table 3: Additional Descriptive Statistics: All Trading Scenarios, All Data Table AdditionalDescriptive DescriptiveStatistics: Statistics:All AllTrading TradingScenarios, Scenarios,All AllData Data Table 3:3: Additional N Range Minimum Maximum Skewness Kurtosis N Range Minimum Maximum Skewness Kurtosis Statistic Statistic Statistic Statistic Statistic Std. Error Statistic Statistic Statistic Statistic Statistic Statistic Std. Error Statistic 100 0.470 -0.166 0.304 2.102 0.241 10.752 100 0.470 -0.166 0.304 2.102 0.241 10.752 100 0.466 -0.235 0.230 0.415 0.241 7.184 100 0.466 -0.235 0.230 0.415 0.241 7.184 100 0.442 -0.235 0.207 0.052 0.241 6.146 100 0.442 -0.235 0.207 0.052 0.241 6.146 100 0.391 -0.073 0.319 3.077 0.241 15.634 100 0.391 -0.073 0.319 3.077 0.241 15.634 100 0.439 -0.242 0.197 0.206 0.241 8.125 100 0.439 -0.242 0.197 0.206 0.241 8.125 100 0.438 -0.241 0.197 -0.009 0.241 7.657 100 0.438 -0.241 0.197 -0.009 0.241 7.657 100 0.321 -0.095 0.227 2.129 0.241 8.213 100 0.321 -0.095 0.227 2.129 0.241 8.213 100 0.442 -0.244 0.197 -0.301 0.241 9.877 100 0.442 -0.244 0.197 -0.301 0.241 9.877 100 0.449 -0.244 0.206 -0.598 0.241 9.278 100 0.449 -0.244 0.206 -0.598 0.241 9.278

Std. Error Std. Error 0.478 0.478 0.478 0.478 0.478 0.478 0.478 0.478 0.478 0.478 0.478 0.478 0.478 0.478 0.478 0.478 0.478 0.478

Starting with the complete data set of 100 years, one-tailed t-tests were performed to test for the existence of Startingpositive with thereturns complete set of 100 years, before one-tailed were performed to test the Kippur. existenceThe of significant for data strategies shorting Rosht-tests Hashanah and covering afterfor Yom Startingpositive with thereturns complete data set ofof 100 years, before one-tailed t-tests were performed to test for the Kippur. existence of significant for strategies of shorting Rosh Hashanah and covering after Yom The coefficients of all nine scenarios indicatedofsmall but before positiveRosh excess returns.and Three of theafter nine Yom trading scenarios significant positive returns for strategies shorting Hashanah covering Kippur. The coefficients of allreturns nine scenarios indicated small but positive excess returns. Three the nine trading scenarios showed positive that were indicated statistically significant at theexcess 90% confidence level,of the returns another coefficients of allreturns nine scenarios small but positive returns. Three ofwhile the nine tradingof showed positive that were statistically significant at the 90% confidence level, while the returns ofscenarios another two were significant at the 95% level (Table 4). showed returns that were statistically two werepositive significant at the 95% level (Table 4).significant at the 90% confidence level, while the returns of another two were significant at the 95% level (Table 4).

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Yatrakis and Williams

Table Table4:4:T-test T-testResults Resultsfor forReturns Returnsof ofTrading Trading Scenarios, Scenarios, Using Using All All Data Data Table 4: T-test Results for Returns of Trading Scenarios, Using All Data Table 4: T-test Results for Returns Test Value of = 0Trading Scenarios, Using All Data Scenario Strategy Test t Valuedf= 0 Sig. (1-tailed) Mean Difference Value99= 0 1 R-3, Y+1 Test 1.5236 Scenario Strategy t df Sig.0.0654* (1-tailed) Mean0.0082 Difference Scenario Strategy t df Sig.0.2023 (1-tailed) Mean0.0047 Difference R-3, Y+1 Y+2 1.5236 0.8369 99 99 12 R-3, 0.0654* 0.0082 13 R-3, Y+1 1.5236 99 0.0654* 0.0082 R-3, Y+3 1.1575 99 0.1249 0.0064 2 R-3, Y+2 0.8369 99 0.2023 0.0047 24 R-3, 0.2023 0.0047 R-2, Y+2 Y+1 0.8369 2.0321 99 99 0.0224** 0.0101 3 R-3, Y+3 1.1575 99 0.1249 0.0064 35 R-3, Y+3 1.2620 1.1575 99 0.1249 0.0064 R-2, Y+2 0.1050 0.0066 4 R-2, Y+1 2.0321 99 0.0224** 0.0101 46 R-2, Y+3 Y+1 2.0321 99 0.0224** 0.0101 0.0558* 0.0083 5 R-2, Y+2 1.6053 1.2620 99 0.1050 0.0066 57 R-2, Y+2 1.2620 99 0.1050 0.0066 R-1, Y+1 2.0071 0.0237** 0.0088 6 R-2, Y+3 1.6053 99 0.0558* 0.0083 68 R-2, Y+3 1.6053 99 0.0558* 0.0083 R-1, Y+2 1.0980 0.1374 0.0054 7 R-1, Y+1 2.0071 99 0.0237** 0.0088 79 R-1, Y+1 0.0237** 0.0088 Y+3 2.0071 1.4673 99 0.0727* 0.0071 8 R-1, Y+2 1.0980 99 0.1374 0.0054 8 R-1, Y+2 1.0980 99 0.1374 0.0054 9 R-1, Y+3 1.4673 99 0.0727* 0.0071 Y+3 1.4673 99 Because statistical tests9pointedR-1, to the possible distortion of 0.0727* results by outliers,0.0071 the entire data set was sorted and

all values outside threetests standard deviations from the mean return were discarded. On four were statistical tests pointed thepossible possible distortion results by outliers, the entire data set points was sorted Because statistical pointed totothe distortion of of results by outliers, theaverage, entire data setdata was sorted and Because statistical tests pointed todeviations theand possible distortion of results by with outliers, the entire data setfour wasDescriptive sorted and removed from each scenario’s results, thefrom analysis was repeated theOn truncated data andvalues all values outside three standard the mean return discarded. On average, data points all outside three standard deviations from the mean return were were discarded. average, four sets. data points were all values outside three standard deviations from the mean return were discarded. On average, four data points were statistics were calculated for returns obtained with the nine trading with scenarios (Table 5).data The sets. mean returns for were removed from scenario’s results, and analysis wasrepeated repeated withthe thetruncated truncated data sets. Descriptive removed from again each each scenario’s results, and the the analysis was removed from each scenario’s results, andfortheScenario analysis2 was repeated with the 9.truncated data sets.mean Descriptive the different ranged from 0.12% to nine 0.76% for Scenario As expected, returns statistics obtained with with the the nine trading scenarios (Table (Table mean returns statistics werestrategies again calculated for returns returns obtained trading scenarios 5). The the returns for statistics weredeviations again calculated for returns obtained with the than nine those trading scenariosfor(Table 5). The mean returns for and standard of the truncated data sets were lower calculated the entire series. 0.76% forfor Scenario 9. As the mean returns and the different strategies strategies ranged ranged from from 0.12% 0.12%for forScenario Scenario2 2toto 0.76% Scenario 9. expected, As expected, the mean returns the different strategies ranged from 0.12% for Scenario 2 to 0.76% for Scenario 9. As expected, the mean returns standard deviations of the datadata setssets were lower thanthan those calculated for for thethe entire series. and standard deviations of truncated the truncated were lower those calculated entire series. and standard deviations truncatedStatistics data setsofwere lowerAll than those Scenarios, calculatedTruncated for the entire Tableof5:the Descriptive Returns: Trading Dataseries.

Table 5: Statistics of All Trading Scenarios, Truncated Truncated Data Data Table 5: Descriptive Descriptive Statistics of Returns: Returns: All Trading Scenarios, Table 5: Descriptive Statistics Returns: Scenarios, Data Scenario Strategy N of Mean All Std.Trading Deviation Std. Truncated Error Mean 1 R-3, Y+1 96 0.0033 0.0336 0.0034 Scenario Strategy N Mean Std. Deviation Std. Error Mean Scenario Strategy N Mean Std.0.0384 Deviation Std. Error R-3, Y+2 96 96 0.0012 0.0039Mean 12 R-3, Y+1 0.0033 0.0336 0.0034 13 R-3, Y+1 96 0.0033 0.0336 0.0034 R-3, Y+3 96 0.0068 0.0390 0.0040 2 R-3, Y+2 96 0.0012 0.0384 0.0039 24 R-3, 0.0012 0.0384 0.0039 R-2, Y+2 Y+1 96 97 0.0038 0.0321 0.0033 3 R-3, Y+3 96 0.0068 0.0390 0.0040 35 R-3, Y+3 96 0.0068 0.0390 0.0040 R-2 Y+2 0.0036 0.0341 0.0035 4 R-2, Y+1 97 0.0038 0.0321 0.0033 46 R-2, Y+1 97 0.0038 0.0321 0.0033 R-2 Y+3 0.0070 0.0371 0.0038 5 R-2 Y+2 96 0.0036 0.0341 0.0035 57 R-2 Y+2 96 0.0036 0.0341 0.0035 R-1, Y+1 97 0.0033 0.0306 0.0031 6 R-2 Y+3 97 0.0070 0.0371 0.0038 68 R-2 Y+3 97 0.0070 0.0371 0.0038 R-1, Y+2 0.0042 0.0333 0.0034 7 R-1, Y+1 97 0.0033 0.0306 0.0031 79 R-1, Y+1 0.0033 0.0306 0.0031 Y+3 97 98 0.0076 0.0365 0.0037 8 R-1, Y+2 97 0.0042 0.0333 0.0034 8 R-1, Y+2 97 0.0042 0.0333 0.0034 9 R-1, Y+3 98 0.0076 0.0365 0.0037 9 scenarios R-1, Y+3 0.0365 The returns of the nine based 98 on the0.0076 truncated data had ranges of 0.0037 between 19.8% (Scenario 1) and

31.6% (Scenario with a minimum return of -16.1% for anydata onehad yearranges and a of maximum return of(Scenario 15.5%, both for The returns of of2), the nine scenariosbased basedonon truncated between 19.8% and The returns the thethe truncated datadata hadhad ranges of between 19.8% (Scenario 1) and1) 31.6% returns thenine ninescenarios scenarios based on the truncated ranges of between 19.8% (Scenario 1) Scenario 4. The of truncated distributions showed no statistically significant skewness or kurtosis; the removal of and the 31.6% (Scenario 2), with a minimum return of -16.1% for any one year and a maximum return of 15.5%, both for (Scenario 2), with2), a minimum return of -16.1% any one yearone and year a maximum return ofreturn 15.5%,ofboth for Scenario 31.6% (Scenario a minimum return of for -16.1% for (Table any and a maximum 15.5%, both for outliers rendered the with truncated series approximately normal 6). Scenario 4. The truncated distributions showed no statistically significant skewness or kurtosis; the removal of the 4. The truncated distributions showed no statistically significant skewnessskewness or kurtosis; the removal of the outliers Scenario 4. The truncated distributions showed no statistically significant or kurtosis; the removal of the outliers the truncated series approximately normal (Table 6). renderedrendered the truncated series approximately normal (Table All 6). outliers rendered the truncated series approximately normal (Table 6). Scenarios, Truncated Data Table 6: Additional Descriptive Statistics: Trading Table 6: Additional Descriptive Statistics: All Trading Scenarios, Truncated Data Table All Scenarios, Truncated N 6:6:Additional Range Descriptive Minimum Maximum Skewness Kurtosis Table Additional DescriptiveStatistics: Statistics: AllTrading Trading Scenarios, Truncated Data Data Std. N Range Minimum Maximum Skewness Kurtosis N Range Minimum Maximum Skewness Kurtosis Error Scenario Statistic Statistic Statistic Statistic Statistic Statistic Std. Error Std. Std. 1 96 0.1981 -0.0657 0.1324 0.6470 0.2462 1.4568 0.4877 Error Scenario Statistic Statistic Statistic Statistic Statistic Statistic Std. Error Scenario Statistic Statistic Statistic Statistic Statistic Error Statistic Std. Error 21 96 0.3161 -0.1611 0.1550 0.1212 0.2462 5.4542 0.4877 96 0.1981 -0.0657 0.1324 0.6470 0.2462 1.4568 0.4877 13 96 0.1981 -0.0657 0.1324 0.6470 0.2462 1.4568 0.4877 0.2324 -0.0808 0.1516 1.1125 2.8595 2 96 0.3161 -0.1611 0.1550 0.1212 0.2462 5.4542 0.4877 24 96 0.3161 -0.1611 0.1550 0.1212 0.2462 5.4542 0.4877 97 0.2097 -0.0726 0.1371 0.6604 0.2450 2.1332 0.4853 3 96 0.2324 -0.0808 0.1516 1.1125 0.2462 2.8595 0.4877 35 96 0.2324 -0.0808 0.1516 1.1125 0.2462 2.8595 0.4877 0.2443 -0.1140 0.1303 0.5548 3.6709 4 97 0.2097 -0.0726 0.1371 0.6604 0.2450 2.1332 0.4853 46 0.2097 -0.0726 0.1371 0.6604 0.2450 2.1332 0.4853 97 0.2294 -0.1047 0.1247 0.5345 1.6964 5 96 0.2443 -0.1140 0.1303 0.5548 0.2462 3.6709 0.4877 57 96 0.2443 -0.1140 0.1303 0.5548 0.2462 3.6709 0.4877 97 0.2130 -0.0947 0.1183 0.2573 0.2450 1.8223 0.4853 6 97 0.2294 -0.1047 0.1247 0.5345 0.2450 1.6964 0.4853 68 97 0.2294 -0.1047 0.1247 0.5345 0.2450 1.6964 0.4853 97 0.2384 -0.1268 0.1116 0.0964 0.2450 3.2693 0.4853 7 97 0.2130 -0.0947 0.1183 0.2573 0.2450 1.8223 0.4853 79 97 0.2130 -0.0947 0.1183 0.2573 0.2450 1.8223 0.4853 98 0.2386 -0.1176 0.1209 0.2652 0.2438 1.7080 0.4830 8 97 0.2384 -0.1268 0.1116 0.0964 0.2450 3.2693 0.4853 8 97 0.2384 -0.1268 0.1116 0.0964 0.2450 3.2693 0.4853 9 98 0.2386 -0.1176 0.1209 0.2652 0.2438 1.7080 0.4830 9 98 -0.1176 0.1209 0.2438 0.4830(Table 7). Three scenarios based on0.2386 the truncated data showed returns 0.2652 significant at the 95% 1.7080 confidence level

Scenario with a trading of shorting three days returns before Rosh Hashanah covering three level days after Yom Three3,scenarios based strategy on the truncated data showed significant at theand 95% confidence (Table 7). Three scenarios based on the data showed returns significant atat the 95% confidence level (Table 7). Three based strategy on0.68%; the truncated truncated data showed returns significant the confidence level after (Table 7). Kippur, had a mean return of 6, with a trading strategy of shorting two days before Hashanah Scenario 3,scenarios with a trading of Scenario shorting three days before Rosh Hashanah and95% covering three Rosh days Yom Scenario 3, with a trading strategy of shorting three days before Rosh Hashanah and covering three days after Yom Scenario 3, with a trading strategy of shorting three days before Rosh Hashanah and covering three days after Yom and covering after Yom Kippur, had6,awith mean return of 0.70%;ofand Scenario with a trading of Kippur, had a three meandays return of 0.68%; Scenario a trading strategy shorting two 9, days before Roshstrategy Hashanah Kippur, had mean return of Scenario 6, with with trading strategy shorting two days before Rosh Hashanah Kippur, had mean return of 0.68%; 0.68%; Scenario 6, aa trading strategy ofKippur, shorting two days before Rosh Hashanah shorting one aaday before Rosh Hashanah and had buying three days after Yomof had a mean return of 0.76%. and covering three days after Yom Kippur, a mean return of 0.70%; and Scenario 9, with a trading strategy of and three days after Yom had aa mean return of and Scenario Scenario 9, 9, with with aa trading trading strategy strategy of and covering covering three daysRosh afterHashanah Yom Kippur, Kippur, of 0.70%; 0.70%; and of shorting one day before and had buyingmean threereturn days after Yom Kippur, had a mean return of 0.76%. shorting shorting one one day day before before Rosh Rosh Hashanah Hashanah and and buying buyingthree threedays daysafter afterYom YomKippur, Kippur,had hadaamean meanreturn returnofof0.76%. 0.76%.

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Table Table7:7:T-test T-testResults Resultsfor forReturns Returnsof ofTrading Trading Scenarios, Scenarios, Using Using Truncated Truncated Data Data Test Value =0 Scenario 1 2 3 4 5 6 7 8 9

Strategy R-3, Y+1 R-3, Y+2 R-3, Y+3 R-2, Y+1 R-2, Y+2 R-2, Y+3 R-1, Y+1 R-1, Y+2 R-1, Y+3

t 0.9665 0.3168 1.7028 1.1594 1.0341 1.8591 1.0617 1.2341 2.0712

df 95 95 95 96 95 96 96 96 97

Sig. (2-tailed) 0.1681 0.3761 0.0459** 0.1246 0.1519 0.0330** 0.1455 0.1101 0.0205**

Mean Difference 0.0033 0.0012 0.0068 0.0038 0.0036 0.0070 0.0033 0.0042 0.0076

* represents 90 percent confidence confidence level. level. ** represents 95 percent confidence confidence level. level.

In summary, summary, aa strategy strategy of selling short Rosh Hashanah Hashanah and Kippur was was In of selling short before before Rosh and covering covering the the short short sale sale after after Yom Yom Kippur shown to produce statistically significant returns for five trading scenarios when the full data set was used in the shown to produce statistically significant returns for five trading scenarios when the full data set was used in the analysis, and for three scenarios using the truncated data (Table 8). The returns of all nine trading strategies were analysis, and for three scenarios using the truncated data (Table 8). The returns of all nine trading strategies were highly correlated, have been implemented on on anyany of correlated, suggesting suggesting that that aashorting shortingstrategy strategywith withpositive positivereturns returnscould could have been implemented the days preceding Rosh Hashanah, with the covering of the short sale being executed on any of the three days of the days preceding Rosh Hashanah, with the covering of the short sale being executed on any of following Yom Yom Kippur. Kippur. Table 8: 8: Summary Summary of of Return Return Results Results for for the the Nine Nine Trading TradingStrategies Strategies Table Scenario 1 2 3 4 5 6 7 8 9

Shorting before Rosh Hashanah 3 days before 3 days before 3 days before 2 days before 2 days before 2 days before 1 day before 1 day before 1 day before

Buying after Yom Kippur 1 day after 2 days after 3 days after 1 day after 2 days after 3 days after 1 day after 2 days after 3 days after

Results with Complete Data Set Significant Significant

Results with Truncated Data Set Significant

Significant Significant

Significant

Additional analysis was performed to test for a weekend effect that might be influencing the results. We tested tested whether returns might be significantly different if either of the Holy Days occurs on a weekend as compared to a weekday. weekday. Regression Regression analysis analysis was was performed performed on on the the returns returns for for the the nine nine trading trading strategies, strategies, using a dummy variable to test effect. No No weekend dummies werewere foundfound to be significant in any of implying testfor fora weekend a weekend effect. weekend dummies to be significant inthe anynine of scenarios, the nine scenarios, that the results areresults robustare to arobust possible To effect. test forTo robustness over time,over a dummy used implying that the to aweekend possible effect. weekend test for robustness time, avariable dummywas variable was used to the represent lastof50theyears the data (1957-2008). This was also insignificant, implying to represent last 50the years dataof (1957-2008). This dummy wasdummy also insignificant, implying that returns that are returns are not significantly different over theperiods. two time periods. not significantly different over the two time CONCLUSION CONCLUSION This study utilized 100 years of data covering the period between 1907 and 2008 and evaluated trading strategies This study 100index yearsbefore of dataRosh covering the period between 1907 and 2008 and evaluated trading strategies of selling shortutilized the DJIA Hashanah and covering the short sale after Yom Kippur. Mean returns of selling short the DJIA index before Rosh Hashanah and covering the short sale after Yom Kippur. Mean returns for for the nine strategies considered ranged from 0.47 percent for shorting three days before Rosh Hashanah and the nine strategies considered ranged from 0.47 percent for shorting three days before Rosh Hashanah and covering covering two days after Yom Kippur, to 1.01 for shorting two days before Rosh Hashanah and covering one day two days after Yom Kippur, to 1.01 for shorting two days before Rosh Hashanah and covering one day after Yom after Yom Kippur. In tests done with the complete data set, five of the nine scenarios yielded statistically significant Kippur. In tests done with the complete data set, five of the nine scenarios yielded statistically significant results. In results. In tests using the truncated data set, three of the nine trading strategies were significant. tests using the truncated data set, three of the nine trading strategies were significant. The results of this study are in line with the conclusions of Frieder and Subrahmanyam (2004) inasmuch as they The results of this study are in line with the conclusions of Frieder and Subrahmanyam (2004) inasmuch substantiate the comparatively stronger performance of markets prior to the joyous religious holiday of Rosh as they substantiate the comparatively stronger performance of markets prior to the joyous religious holiday of Hashanah, and their weakness following the somber occasion of Yom Kippur. They also tend to support the findings Rosh Hashanah, and their weakness following the somber occasion of Yom Kippur. They also tend to support the of Loughran and Schultz (2004), who observed a reduction of trader participation during the High Holy Days. findings of Loughran and Schultz (2004), who observed a reduction of trader participation during the High Holy Days. Finally, they confirm the existence of a Jewish Holiday Effect and the accuracy of the Wall Street adage, “Sell Rosh Hashanah, Buy Yom Kippur.”

Advances in Business Research 2010, Vol. 1, No. 1, 45-52 Finally, they confirm the existence of a Jewish Holiday Effect and the accuracy of the Wall Street adage, “Sell Rosh Hashanah, Buy Yom Kippur.” In the decades, researchers havehave identified a number of “anomalies” in the Efficient Hypothesis, In thelast lastthree three decades, researchers identified a number of “anomalies” in theMarket Efficient Market similar to the one described in this paper. However, as Fama (1980) and Malkiel (2003) point out, while such situations Hypothesis, similar to the one described in this paper. However, as Fama (1980) and Malkiel (2003) point out, while may be statistically verysignificant, few have proven to be economically significant as well, since transaction costs such situations may significant, be statistically very few have proven to be economically significant as well, since usually negate theusually returns negate of trading on these anomalies. Holiday Effect transaction costs thestrategies returns ofbased trading strategies based The on Jewish these anomalies. The seems, Jewish however, Holiday to withstand criticism. For example, the strongest strategy identified in this study,identified that of shorting the DJIA Effect seems, such however, to withstand such criticism. For example, the strongest strategy in this study, that twoshorting days before Roshtwo Hashanah and covering the day after Yom Kippur, yields return ofyields 1.01%a for a holding of the DJIA days before Rosh Hashanah and covering the day aftera mean Yom Kippur, mean return period of for justa13 days. period of just 13 days. of 1.01% holding strategy of shorting shorting the the DJIA DJIA based based on on the the Jewish Holiday Before the establishment of discount brokerage, a strategy Effect would probably not have been economically viable. A trader trader wishing to take advantage of this anomaly would have had to take positions in all 30 of the DJIA components, and the transaction costs may have equaled or exceeded the trading trading returns. returns.However, However, the the development development of discount brokerage over the last several decades reduced TM transaction costs costs substantially. substantially. For For example, example, one one of of the more popular popular discount discount brokers, brokers, Scottrade ScottradeTM charges aa fee of charges transaction irrespective of the value or volume of a trade, $7 irrespective trade, so the total transaction cost of short selling and then covering each it would have taken an of the 30 component component stocks stocks of ofthe theDJIA DJIAwould wouldhave havebeen been$420. $420.Given Givena amean meanreturn returnofof1.01%, 1.01%, it would have taken investment of about $41,600 to cover transaction costs; costs; however, an investment of $1 million have produced an investment of about $41,600 to cover transaction however, an investment of $1would million would have a return ofa $10,095 in $10,095 just 13 days. The13creation of the Diamonds Trust Exchange Traded Fund (ETF, produced return of in just days. The creation of the Diamonds Trust Exchange Tradedstock Fundsymbol: (ETF, DIA) in 1998 made to reduce transaction costs even further.costs By trading just thisBy onetrading security in this placeone of stock symbol: DIA)itinpossible 1998 made it possible to reduce transaction even further. just the Index’s 30 components, a trader would have reduced at a transaction discount broker to $14. An security in place of the Index’s 30 components, a trader transaction would havecosts reduced costsfrom at a $420 discount broker investment of $14. $1386 have covered costs, and one of $1 million would, have yielded from $420 to Anwould investment of $1386transaction would have covered transaction costs, and oneon of average, $1 million would, on a return of $10,086 foraareturn holding under two weeks. newer brokersnewer are now offering even average, have yielded of period $10,086offor a holding periodOther, of under twodiscount weeks. Other, discount brokers lower transaction fees.lower transaction fees. are now offering even Malkiel (2003) has posited that arbitrage tends to make trading profits from anomalies in the EMH disappear once these these become become known knownand andtradable. tradable.ToTo test whether Jewish Holiday Effect has persisted intoage theofage of test whether thethe Jewish Holiday Effect has persisted into the ETFs ETFs and discount brokerage, the truncated data was disaggregated two 1907 periods: 1907 the to period 1997, the period and discount brokerage, the truncated data was disaggregated into twointo periods: to 1997, before the before of the Diamonds ETF,toand 1998 to 2008, when ETF and discount brokers were inAexistence. creationthe ofcreation the Diamonds ETF, and 1998 2008, when the ETF andthe discount brokers were in existence. t-test for A t-test for in differences in mean returns showed thatpositive significant, positive returns continued recorded for the differences mean returns showed that significant, returns continued to be recordedtoforbethe period 1998 to period 1998were to 2008; these were in those fact higher thanforthose recorded for the for 1907-1988 for six of(Table the nine 2008; these in fact higher than recorded the 1907-1988 period six of theperiod nine scenarios 9). scenarios (Table 9). For example, the mean return for Scenario 1 between andwhile 2008 the wasmean 4.21 return percent, For example, the mean return for Scenario 1 between 1998 and 2008 was 4.211998 percent, forwhile 1907 the meanwas return 1907 toThe 1997 was 0.45 percent. The standard deviations for also all nine scenarios also higher in to 1997 0.45for percent. standard deviations for all nine scenarios were higher in the were 1998-2008 periods the periods than those for 1907 1997, possibly to the stockthe market than1998-2008 those for 1907 to 1997, possibly due totothe stock marketdue boom during latter boom years.during the latter years. Yatrakis and Williams

Table Table9:9:T-T-tests testsfor forDifferences DifferencesininMean MeanReturns, Returns,1907-1997 1907-1997vs. vs.1998-2008 1998-2008 Scenarios 1 2 3 4 5 6 7 8 9

t-statistic 2.1266 1.3344 1.8132 2.0834 1.2078 1.7109 1.6328 0.7110 1.2370

p-value 0.0180** 0.0926* 0.0364** 0.0199** 0.1150 0.0451** 0.0529* 0.2394 0.1095

1-tailed test Mean 1998 - 2008 0.0421 0.0270 0.0362 0.0406 0.0254 0.0346 0.0301 0.0158 0.0250

Std. Deviation 0.0974 0.0598 0.0666 0.1017 0.0639 0.0706 0.0744 0.0422 0.0518

Mean 1907 - 1997 0.0045 0.0022 0.0031 0.0067 0.0045 0.0054 0.0064 0.0042 0.0051

Std. Deviation 0.0463 0.0552 0.0535 0.0397 0.0506 0.0489 0.0390 0.0495 0.0478

* represents 90 percent confidence level. * represents ** represents90 95percent percentconfidence confidencelevel. level. ** represents 95 percent confidence level.

The results of this study raise questions as to the possible reason(s) for the observed Jewish Holiday Effect. An The resultsofofthe this academic study raiseliterature, questions as as to the as possible reason(s)of for practitioners, the observed Jewish An examination well the writings revealsHoliday several Effect. plausible examination of thesimplest academic as well as the writings of picking practitioners, reveals several plausible explanations. explanations. The ofliterature, these is that the results are simply up other, already-identified anomalies, such Theweekend, simplest of these is or thatend-of-month the results areeffects. simplyHowever, picking uptests other, anomalies, that suchthey as weekend, as seasonal, foralready-identified these factors demonstrate are not seasonal, or end-of-month effects. However, tests for these factors demonstrate that they are not significant and that significant and that the results are robust to any influence which they may exert. Another plausible explanation is the results are robust to any affected influencebywhich may such exert.asAnother plausible explanation is that the findings are that the findings are unduly a fewthey outliers, the cascading crash of 2008. But truncating the data unduly by athese few outliers, cascading crash of 2008. truncating data soEffect as to filter out these so as toaffected filter out outliers such fails as to the change the conclusion. NorBut is the Jewish the Holiday an artifact of outliers fails to change the conclusion. Nor is the Jewish Holiday Effect an artifact of selective data mining, since selective data mining, since the analysis uses 100 years of data for the DJIA Index. Moreover, disaggregation of the the analysis uses 100 years of data for the DJIA Index. Moreover, disaggregation of the 100-year series into the two periods described above shows that the “Sell Rosh Hashanah, Buy Yom Kippur” heuristic remained valid during both periods.

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One plausible explanation is perhaps that of nonfinancial opportunity cost cited by Frieder and Subrahmanyam (2004); another is holiday sentiment, discussed by Lakonishok and Smidt (1984) and Cervera and Keim (2000). According to the first explanation, traders observing the High Holy Days would exit the market prior to Rosh Hashanah so as to focus on spiritual matters; their departure would in turn exert selling pressure on securities. An alternative explanation may be found in Ritter’s (1988) suggestion that investor decisions often cluster around holidays. Since the High Holy Days mark the beginning of the Jewish New Year, observant investors might execute previously contemplated sales at yearend, during the days before Rosh Hashanah. An astute trader could sell short in advance of the anticipated decline and cover the short position after Yom Kippur, when the mood of observant traders would remain reflective and cautious, exerting a negative influence on stock prices. These justifications, however, are based on the presumed actions of observant Jewish traders, who in any event comprise a minority of all market participants. One would also probably have to postulate a momentum effect caused by noise traders who were not observing the holidays, but were simply piling on to take advantage of shortterm movements sparked by traders influenced by religious considerations. The actions of the more numerous noise traders would, in turn, amplify the impact of the observant traders’ behavior. Finally, the absence of even a minority of traders and the resulting reduction in volume, which has been documented by both Loughran and Schultz (2004) and Frieder and Subrahmanyam (2004), would tend to make markets thinner, more volatile and presumably less efficient. Risk-averse traders would want to avoid participating in those markets and might also exit in advance of the holidays, magnifying further the impact of the observant traders’ departure. The perception that these factors cause markets to decline during the holiday period might thus become a self-fulfilling prophecy, as traders close their positions to avoid losses. REFERENCES Ariel, R. 1990. High stock returns before holidays: Existence and evidence on possible causes. Journal of Finance, 45: 1611-1626. Barker, D., & Loughran, T. 2007. The geography of S&P 500 returns. Journal of Behavioral Finance, 8: 177-190. Brockman, P., & Michayluk, D. 1998. The persistent holiday effect: Additional evidence. Applied Economics Letters, 5: 205-209. Cadsby, C., & Ratner, M. 1992. Turn-of-month and pre-holiday effects on stock returns: Some international evidence. Journal of Banking and Finance, 16: 497-509. Cervera, A., & Keim, D. 2000. The international evidence on the holiday effect. In D. Keim, & W. Ziemba, (Eds.), Imperfections in worldwide equity markets. Cambridge, UK: Cambridge University Press. Coval, J., & Moskowitz, T. 1999. Home bias at home: Local equity preference in domestic portfolios. Journal of Finance, 54, 2045-2073. Fama, E. 1980. Efficient capital markets: A review of theory and empirical work. Journal of Finance, 25: 383–417. Frieder, T., & Subrahmanyam, A. 2004. Nonsecular regularities in returns and volume. Financial Analysts Journal, 60: 29-34. Gaffen, D. September 11, 2007. Days of awe, but not for stocks. The Wall Street Journal. Greenberg, G. September 18, 2006. Ask the street: Rosh Hashanah selling. Retrieved on November 12, 2008 from the Street.com. http://www.thestreet.com. Grinblatt, M., & Keloharju, M. 2001. How distance, language and culture influence stockholdings and trades. Journal of Finance, 54: 1053-1073. Hirsch, J., & Brown, J. August 29, 2006. September vital statistics report. Retrieved on November 12, 2008 from the Almanac Investor. http://www.trader-talk.com Huberman, G. 2001. Familiarity breeds investment. Review of Financial Studies, 14: 659–680.

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Kim, C., & Park, J. 1994. Holiday effects and stock returns: Further evidence. Journal of Financial and Quantitative Analysis, 29: 145-157. Lakonishok, J., & Smidt, S. 1984. Volume and turn-of-the year behavior. Journal of Financial Economics, 13: 435-455. Loughran, T., & Scuhlz, P. 2004. Weather, stock returns and the impact of localized trading behavior. Journal of Financial and Quantitative Analysis, 39: 343-364. Lucey, B. 2005. Are local or international influences responsible for the pre-holiday behaviour of Irish equities? Applied Financial Economics, 15: 381-389. Malkiel, B. 2003. The efficient market hypothesis and its critics. Journal of Economic Perspectives, 17: 59-82. Meneu, V., & Pardo, A. 2004. Pre-holiday effect, large trades and small investor behaviour. Journal of Empirical Finance, 11: 231-246. Oguzsoy, C., & Guven, S. 2004. Holy days effect on Istanbul stock exchange. Journal of Emerging Market Finance, 3: 63–75. Popik, B. September 30, 2008. Sell on Rosh Hashanah, buy on Yom Kippur - Wall Street Adage. Retrieved on November 12, 2008 from the Big Apple. http://www.barrypopik.com Ritter, J. 1988. The buying and selling behavior of individual investors at the turn of the year. Journal of Finance, 43: 710-717. Schatz, P. September 10, 2010. Sell Rosh Hashanah … buy Yom Kippur. The New Haven Register. Schiller, H. September 14, 2007. Time to sell as last week’s gaps are filled. Retrieved on November 2, 2007 from the Street.com. http://www.thestreet.com. Smith, B. 1947. Pinchhitter for presidents. Retrieved on October 30, 2010 from the Jewish virtual library. http://www. jewishvirtuallibrary.org. Unknown. September 19, 1915. The London market quiet - Jewish holiday causes small attendance on the exchange. The New York Times. Zhu, N. 2003. The local bias of individual investors. Working Paper, University of California - Davis. Retrieved on October 30, 2010 from Scientific Commons. http://en.scientificcommons.org/34332269. Pan Yatrakis is a professor of finance and economics at Nova Southeastern University. He received his Ph.D. in international economics from New York University. His current research interests include behavioral finance, electronic finance, and international financial markets. He has published in the Journal of Forecasting, Business Economics, Financial Decisions, the Journal of Current Research in Global Business, the International Journal of Electronic Finance, and others. Albert Williams is an assistant professor of finance and economics at Nova Southeastern University. He received his Ph.D. in applied economics from the University of Georgia. His research interests include behavioral finance, futures and options, financial literacy, and development economics. He has published in the International Journal of Business and Economics Perspectives, the International Journal of Education Research, Business Quest, and others.

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Learning to Recognize and React to Disaster: The CI/Wargame Approach to Strategic Management Brian Huffman, University of Wisconsin - River Falls Business results are dominated by “Black Swans” (low-probability/high-impact events) both positive and negative. Black Swans cannot be predicted although they look predictable in retrospect. This paper focuses on the negative Black swans, the disasters. Since disasters cannot be predicted the ability to quickly recognize and react to them is the key. This paper recommends the processural strategic paradigm as the correct approach to strategic management in the face of disasters. Specifically, it is recommended that top management improve their ability to recognize and react to disasters by playing wargames designed to incorporate what is learned via competitive intelligence (CI). The wargames represent situations that could, but not necessarily will, happen; they are not intended to be accurate forecasts. This recommendation is called the “CI/Wargame Approach.” The Nature of Disasters and the Correct Approach to Strategic Management Just as money is the root of all evil, risk is the root of all irony. For example, credit default swaps, designed to reduce risks, increased them to a point that the world’s financial system nearly collapsed (Hirsch, 2008). More irony: the Wharton School of Business’ book on decision making recommended a new risk management paradigm emerging in the complex electric power trading environment (Hoch & Kunreuther, 2001). What paradigm? The one pioneered by Enron…a corporation that was bankrupt almost before that book hit the bookstores. When most people think of risk management they think of insuring against foreseeable risks like auto accidents or fire. This thinking instills a false sense of security; we are not able to insure against the real disasters (the ones that could destroy us) because we will never see them coming. A host of authors, including this one (Huffman, 2004), agree that real disasters are simply unpredictable. For example, De Geus (1997) recalls how Shell’s “United Planning Machinery” was dead wrong precisely at the three points in time when the oil company faced disaster. Disasters in this context are equivalent to the negative “Black Swans” described in Taleb (2007). Black Swans are defined as low probability/high impact events that are impossible to predict because they come from outside the realm of regular expectations. Black Swans can be both positive and negative (winning the lottery is a positive Black Swan). A particularly insidious characteristic of the negative Black Swan is it will seem to have been predictable in retrospect. Every armchair quarterback “knows” what should have been done to avoid a disaster after the fact. What is the correct approach to strategic management given the nature of Black Swans? Van der Heijden (2005) describes three competing schools of thought in strategic management: the rationalist, evolutionary, and processural paradigms. The rationalist paradigm is incompatible with the nature of negative Black Swans because it attempts to “predict and control” the future. This paradigm assumes a stabile business environment that no longer exists. Both the evolutionary and processural paradigms reject the belief that managers can improve their corporation’s chances of survival by predicting the future and then crafting the right strategy to meet it. The evolutionary paradigm is completely pessimistic in regard to management; it not only denies management’s ability to forecast disasters, but even recommends that they do not attempt any centralized reaction to them once they happen. This paradigm suggests that strategies must be left to evolve by themselves as businesses adapt to their environment; strategies are not to be developed by top management, but evolve as many employees at various levels muddle through. The processural paradigm is slightly less pessimistic; while it agrees that the right strategy cannot be developed before it is needed, it nevertheless emphasizes that centrally-directed (top management) tactical moves can be effective in handling disasters as long as the decision makers are engage in ongoing perception, thinking, and action. Van der Heijden recommends “scenario planning” (a balanced approach to strategic management compatible with all three schools of thought) as the best way to manage strategy. In contrast, the CI/wargame approach recommended here focuses exclusively on the processural paradigm. Only that paradigm strikes the proper balance between what can and cannot be done. It recognizes that managers can recognize and react to disasters, but cannot predict them. That paradigm emphasizes the importance of focusing management’s attention on negative Black Swans because business results will be determined almost exclusively by how the business responds to them. Taleb (2007) hammers this point too; he notes, for example, that half of the returns in the U.S. stock market over the last 50 years can be explained by only the 10 most extreme days!

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Since disasters cannot be predicted, businesses will either survive or fail not on how they plan and act, but on how they recognize and react. The CI/Wargame approach to be described and recommended here was designed to help top decision makers: 1) recognize disasters early, 2) formulate the correct reaction, and 3) implement that react while there is still time. The next two sections will make the case for the CI/Wargame approach by giving more details about why disasters cannot be predicted and about the resulting need to be able to recognize and react to them quickly. After that, the CI/Wargame approach will be described by looking at wargaming in general, the two component parts of CI/Wargaming (competitive intelligence and wargaming), and finally how the CI/Wargame approach compares and contrasts with scenario planning.

Predicting the Future - Why Nobody Can (at Least When it Counts) When Winston Churchill was asked to name one of the qualities a politician must possess, he replied, “The ability to foretell what is going to happen tomorrow, next week, next month, and next year - and to have the ability afterwards to explain why it didn’t happen.” Walton (1986) notes that the great quality guru W. Edwards Deming was convinced that the most important things (including the future) are unknown and unknowable. When a business manager would ask him how long it might take for Americans to catch the Japanese, Deming would (rather impatiently) reply, “Do you think the Japanese are standing still?” People are often surprised to discover that Deming saw the primary goal of business as mere survival. The quality guru who was endless optimistically about our ability to produce world-class products and about the worker’s desire to do a good job, nevertheless pessimistically though that survival was a lofty enough goal for business. He was clearly well aware of disaster’s potential. There is no doubt that many incorrectly believe the future of a particular business or even the entire economy can be predicted with sufficient accuracy to more or less guarantee business success. Baumohl (2008) offers a book full of economic variables which (according to him) “can, if read correctly, provide timely insights on where the economy is headed…” Vaughan & Vaughan (2008), despite some dark language on pure risk, nevertheless state that the objective of risk management is “to guarantee that the organization is not prevented from achieving its other objectives by the losses that might arise out of pure risk.” If risk management could really guarantee anything, then what explains the BP disaster in the Gulf? We do use forecasting methods to predict a lot of things such as the demand for products in retail, or the weather at an airline. These predictions work fairly well as long as conditions do not change. That is, they work well only in the short run. These predictions are not much more than extrapolations of short-term trends. We can predict the number of gallons of milk that we will sell next week because we will probably have roughly the same number of customers and their buying habits probably will not change that quickly. It would be silly to project milk demand out a decade since any number of disasters could make nonsense of that forecast: our town could lose population due to a factory closing, the percentage of children in the population could change, etc. Disasters can’t be extrapolated since they don’t happen on any regular basis…there is nothing to extrapolate. Furthermore, business disasters invariably involve human interactions which do not conform to a deterministic “physics paradigm.” And finally, even if the physics paradigm did apply, a model that sufficiently captured all the interactions in business and economics (human and otherwise) would be so complex that it would defy mathematical tractability. The physics paradigm refers to the deterministic approach to prediction that works in physics problems. It is possible to accurately predict the future position, velocity, and acceleration of an object using Newton’s Laws of Motion, but it is impossible to predict the actions of humans in the market. Many authors contend that it was economists’ pursuit of the high degree of forecast reliability they saw in hard sciences like physics that temped them to apply the physics paradigm to the world of business and economics. But wishing economics was a hard science didn’t make it one; Friedrich August von Hayek made this point very clear in his speech accepting the first Nobel Prize in economics in 1974. Human interactions caused the BP well blowout in the Gulf. Human interactions caused the stock market to plummet on October 19, 1987. Economists have used the physics paradigm to describe human interaction in aggregate just as physicists use it to describe the motion of atomic particles in aggregate. The problem is that humans do whatever they please while atomic particles always follow the rules. Statistical distributions may be useful to explain motion in a physics problem, but they are useless to explain human interaction. If the sum of human interactions that causes stock market movements were really normally distributed (as had previously been assumed), then that stock market drop in 1987 (a - 27 standard deviation movement) would be expected only once in 10160 days. Since the universe itself is only about 5 trillion days old (5 times 1012 days),

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there are no words adequate to describe how unlikely that drop would have been (Jackwerth and Rubinstein, 1996) Still, the optimist might say that prediction errors are due to overly simplistic assumptions such as assuming that stock market movements are normally distributed. He or she might say that the fault isn’t the physics paradigm per se, but the simplifying assumptions or lack of detail in the prediction models. That might be true, but adding complexity to economic models quickly pushes them to intractability. For example, Ramo (2009) describes how complexity in a very simple but certainly deterministic system, Bak’s sandpile, yields intractability once there are more than just a few grains of sand. The “sandpile effect” states that there is no way to determine whether a single grain of sand added to a sandpile will trigger an avalanche or have no apparent effect whatsoever. Thus prediction methods cannot even distinguish between two polar opposite events. Sandpile complexity quickly gets to the point that “nothing in the history of physics or mathematics could tell you what was going to happen next.” Since nobody would seriously argue that human interactions are more deterministic than the motion of grains of sand in the sandpile the conclusion is simple enough. Business disasters cannot be predicted, period. Recognizing a Disaster and Formulating the Correct Reaction Since disaster cannot be predicted, it is important that businesses quickly recognize and react to them. Recognition guides action. One is to “feed a cold and starve a fever” so if the diagnosis is a cold then the prescription is feeding. But recognition can be difficult because completely different disasters can have the same symptoms…the same “presenting problem” (the initial definition of an unfolding disaster). For example, several completely different disasters might be defined as “rapidly falling sales.” The actual disaster, as might later be discover would more accurately be defined as “the arrival of a strong new competitor”, “the introduction of a new product”, “a slip in product quality”, etc. Incorrect recognition leads to incorrect reaction; therefore it is vitally important to get recognition right. Business must learn to recognize disasters. Learning takes place in a “learning loop” (described by Van der Heijden, 2005). The loop begins with experience, which is followed by reflection (in which mental models may change), which is followed by the formation of theories which are tested by new experiences…and the loop continues for another cycle. To learn to recognize and react to disaster requires learning from disasters. In this case the experience at the beginning of each learning loop is a disaster which may be real, simulated, or vicarious. Real experience comes from having “been there and done that.” Simulated experience comes from having been involved in simulations such as scenario planning or wargames (the experience recommended here). Vicarious experience comes from having absorbed another’s experience (by reading a report or studying history). Hayward (1997) said that one of the keys to Churchill’s leadership was his “historical imagination.” That is, Churchill always knew what to do during WWII because he had previous real and previous vicarious experience with nearly every type of problem he faced. He knew what would work because he knew what had worked. He had previous real experience from having served in government at the highest levels including a stint as First Lord of the Admiralty in WWI; this is the sort of extremely costly-to-obtain experience that very few people have, and cannot practically be provided by trainers. Churchill had previous vicarious experience from his extensive study of history. In fact, if Churchill not been such a great statesman, he would have been remembered as one of the world’s greatest historians (his 1953 Nobel Prize in Literature is a testament to that fact). Those who lack an historical imagination will have trouble both in recognizing a disaster and reacting to it. Prechter (2009) demonstrates the incorrect reactions of those lacking historical imagination in an exercise in which he offers his students a deal with the devil in which they receive a perfect prediction of the news one day in advance. The student in this exercise doesn’t have to worry about properly recognizing the disaster; he/she need only come up with the right reaction. All that Prechter’s devil demands in return is that any reaction the student takes on the ill-gotten news must remain in place for just one day. This is clearly a very generous offer. After all, Churchill was never given the news before it happened, had to properly recognize disasters himself, had to devise and execute a reaction, and his reactions certainly locked him into much more than 24-hour commitments. Despite these disadvantages, Churchill succeeded while the students failed miserably. Business decision makers are generally not as prepared as Churchill was to deal with disasters. They are unlikely to have had either the real or the vicarious experience with disaster that Churchill had. Since disasters are uncommon, it is unlikely that business people would have learned from their own real experience with a WWI when faced with a WWII. Since most business people are not business historians it is also unlikely that they would have read enough history to be able to recall an analogous situation to the disaster they are presently battling.

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Since business decision makers will probably not have the previous real or vicarious experience to recognize and react to a disaster, it is important that they be given simulated experiences. While these simulated experiences will help them recognize and form a reaction to a disaster, there is still no guarantee that they will actually react. That fact is considered next. Failure to React People do not always react even when they know they must. A graphic example of a failure to react can be found in Night, Elie Wiesel’s account of his life as a prisoner in Auschwitz and Buchenwald concentration camps (Wiesel, 1972). Wiesel’s story begins with a clear warning delivered by a foreign Jew, Moishe the Beadle. Moishe lived in Wiesel’s village until he and all other foreign Jews had been rounded up by the Hungarian police. These foreign Jews were taken to Poland where the Gestapo had them dig their own graves before machine gunning them all. Moishe was left for dead, but miraculously survived and returned to Wiesel’s village around the end of 1942. He told everyone of the horror he had survived thus warning them of their impending doom. Despite the fact that the villagers hated the Nazis and expected the worst from them, they nevertheless “not only refused to believe his (Moishe’s) tales, they refused to listen.” Some even attacked him saying that he was telling a lie in search of sympathy. In the end most of the villagers died horribly in concentration camps when they had until the spring of 1944 (more than a year) to save themselves. And as Wiesel himself noted, “In those days it was still possible to buy emigration certificates to Palestine.” Even more incredible: Moishe himself apparently remained in the village too! While Moishe’s ‘tales’ might have been too unbelievable for the villagers to process, what could explain his own failure to react? In late 2004 the U.S. House of Representatives Banking Committee met to discuss the results of bookkeeping problems at Freddie Mac and Fannie Mae. C SPAN 2 (nonpartisan and unedited) video confirms that committee members chose not only to ignore the explicit warnings of improprieties related to them by Armando Falcon, Director of the Office of the Federal Housing Enterprise Oversight (the Government’s own regulator) but actually attacked and chastised him for reporting the bad news (C SPAN 2, 2004). One might argue that the Committee simply didn’t believe Mr. Falcon, but what possible reason would he have had to lie especially when his report made his own agency look incompetent? And this is not an isolated case; what explains Congress’ lack of reaction to a myriad of well-know ticking time bombs: Social Security, Medicare, Medicaid, etc.? All these stories involve a failure to react. This isn’t the sort of panic-driven paralysis one sees in “no pull” parachuting accidents. In those instances sky divers fail to pull their ripcords because they are temporarily unable to react to the flood of unnatural stimulation flowing into their brains (Leach & Griffith, 2008). That sort of paralysis doesn’t last more than a few minutes, but the type of failure to react discussed here plays out over much longer periods of time. Wack (1985a) observed this longer-running failure to react in at least two thirds of the decision makers at Shell. These managers failed to take appropriate measures to reduce refinery and distribution capacity when they were well aware that crude oil supplies would be falling. A second paper by Wack (1985b) mentioned four other major cases in other businesses noting that in each instance the managers “inappropriate behavior (their failure to react) extended over several months or even years...” De Geus (1997) concluded that these failures resulted from “a crisis of perception rather than from poor strategic reasoning.” De Geus outlined the work of neurobiologist David Ingvar on this issue. Ingvar found that humans are constantly and subconsciously making many alternative plans for the future. Billions of pieces of data fly by the typical business person every day so the subconscious mind must be selective, grabbing only those bits that will be useful for the alternative futures it is planning. De Geus describe one example of this process which concerned a traveling business person who intends to take a car ferry from England to France. This person’s subconscious mind locks onto a radio news report about a strike at the ferry port that others would have ignored. The traveler’s subconscious immediately begins to build new plans for the future. It builds not one plan but several alternatives that provide “memories of the future” (possible courses of action that may later be useful to the conscious mind in dealing with the strike). De Geus noted that companies are not hard-wired to produce these memories of the future. Therefore, Shell developed scenario planning to do for the organization what the subconscious mind does for the individual…explore alternative futures in order to build decision makers memories of the future. But scenario planning has failed to take decisions makers all the way around the learning loop. The decision makers had the simulated experiences and may have reflected upon them to some extent, but their existing mental models did not change. Thus they had not learned to form new theories and test their implications. Although Wack (1985b) was optimistic about the power of scenario planning to change a manager’s mental model,

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even he offered some historical examples that called that optimism into question. In one especially worrisome case the majority of Shell executives still considered the supply of oil to be fairly reliable despite having been subjected to a scenario in which it was practically proven that the supplies would not remain reliable. What hope is there for learning in scenario planning when many scenarios will seem a lot less inevitable? The wargame approach recommended here would seem to have more power to affect mental models and therefore get managers to recognize and react to disasters. It will be seen that the decision makers being trained would not be given an inevitability in a prepared scenario, but would have to discover it themselves in the wargame. People are more likely to believe something they discover for themselves; for example, it is one thing to be told that tic-tac-toe is unwinnable against an opponent who knows the trick, but it is quite another thing to discover that inevitability by playing the game. The CI/Wargame Approach The CI/wargame training recommended here consists of three steps: First, competitive intelligence (CI) is used to find out all that can ethically and legally be discovered about the company’s competitive situation. Second, several future scenarios are developed which incorporate what the company knows about itself, and what it learns about its competitive situation from CI. These scenarios are like those used in aircraft simulators; they describe situations that could happen but are not intended to be accurate predictions of the future. We do not worry about whether or not one scenario is more likely than another to actually happen. Third, managers (especially top management) practice their decision making in wargames based on these scenarios. Playing these wargames prepares management to quickly recognize disaster, formulate the correct reaction, and react. Wargaming in General Business wargaming generally involves a role-playing simulation in which teams representing various business stakeholders compete over a series of rounds in which they execute moves and countermoves within the context of a given scenario. This paper will not get into the mechanics of business wargaming, but Kurtz (2003) provides an excellent description of that level of detail. Watson (2008) describes three uses for business wargaming. It can be used to understand changes in the business environment, to facilitate strategic planning, and to find previously undetected threats. None of these three uses exactly fit the purpose here, but the final one comes closest. In CI/wargaming the purpose is not just to find previously undetected (and therefore already existing) threats, but to train managers to find both present and future threats and to react to them. The distinction is significant; first, detection without reaction isn’t enough and second CI/wargaming is valuable even if no threats currently exist since threats are like busses…there is always another one coming. Kurtz, also, describes the uses of business wargaming, but he does it in terms of “hard” and “soft” deliverables. This author is skeptical the ability to achieve the hard deliverables which represent an immediately obvious bang for the buck. Hard deliverables can be documented at its (the wargame’s) conclusion in an ‘after action report’. These are things such as the identification of events or trends that could occur, the probability of their occurrence, and specific steps that could be taken to deal with them. CI/wargames are exclusively oriented towards Kurtz’s soft deliverables. The intention is (as he puts it) to change the participants’ hearts and minds. Other authors, such as Chussil (2007), mention another soft deliverable: a common language. The CI/wargame approach is successful if managers become able to detect and react to disasters, and part of reacting to the disaster will necessarily entail having the common language to be able to describe it to others. Competitive Intelligence in Wargaming Wikipedia defines Competitive Intelligence broadly as the action of defining, gathering, analyzing, and distributing intelligence about products, customers, competitors and any aspect of the environment needed to support managers in making strategic decisions for an organization. In CI/Wargaming, the purpose of CI is to provide information for designing plausible future scenarios for wargaming. In other words, CI is being not used to support strategic decisions directly, but to support them indirectly by building scenarios that can be used to develop managers’ historical imaginations. SCIP (the Society of Competitive Intelligence Professionals) defines CI as the legal and ethical collection and analysis of information regarding the capabilities, vulnerabilities, and intentions of business competitors. Most definitions of CI consist of elements from these two definitions. The definitions stress analysis (which makes CI different from the mere dissemination of information done by libraries and information centers). The definitions also

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stress that the purpose of the analysis is to provide a perspective aimed at keeping the business competitive. Both goals are in keeping with the way CI is used here. It is generally recommended that CI task should be built around Porter’s 5 Forces model and guided by a specific question. The 5 Forces Model provides a generic checklist of environmental factors for the CI professional to research: competitors, potential new entrants, suppliers, customers, and substitute products. The purpose of the specific question is to focus the investigation. While the CI literature and the CI expert this author interviewed both insist that CI must be focused by a question, both also stress that the question should not be such that answering it is tantamount to giving a recommendation for action. Both CI and military professionals agree that those who gather and analyze intelligence should not recommend actions. The feeling is that when CI professionals intend to recommend a course of action, they will be blinded to any new intelligence that argues against their recommendation once they have identified it. As Jeffson (1998) notes, this does not mean those in intelligence should operate ‘in the blind’ in regards to future operations, but it does mean that they should never be given the task of providing support for a particular action. CI practitioners and military intelligence people both emphasize creativity, often referring to their work as an art. Ramo (2009) notes that Spymaster Aharon Farkash, one of the few heads of Israeli military intelligence to serve his full term, succeeded because of his creative use of information that would not normally be regarded of military importance. Farkash tried to look at problems from the both the inside and the outside and to consider qualitative as well as quantitative data. He thought that old approaches to intelligence which consisted primarily of quantitative data viewed from the outside (satellite photos, GNP, etc.), caused analysts to focus too much on what they could measure and not enough on what they could not. Farkash found value in unusual bits of information such as whether or not people were out shopping in Beirut; he reasoned that if his enemy was shopping that was a pretty good indication that their economy was doing well, that they were fairly happy, and thus less likely to launch an unprovoked attack. CI practitioners also emphasize that their discipline is an ethical and legal business practice (in contrast to industrial espionage). Their Code of Ethics requires compliance with all applicable laws, domestic and international; it also requires the accurate disclosure of all relevant information, including one’s identity and organization, prior to all interviews. CI’s use of legal means and publically available information does not prevent it from producing analysis that one might think could only be obtained by espionage. Most managers would be shocked to learn what a clever competitor can find out about them from their publically-available filings with governmental agencies. Johnson (2010) provides a cookbook formula for legally spying on a competitor’s private aircraft with the help of government agencies and private data firms. This author verified Johnson’s formula in obtaining tail numbers, serial numbers, and model names of 13 private aircraft owned by 3M Corporation. The author also confirmed that it is possible to listen in on air traffic control centers and use other legal sources to find the current location, altitude, and speed of aircraft under air traffic control. The author interviewed a former employee of a Fortune 100 firm who had been its only full-time CI employee for many years, and was surprised at the level of detailed knowledge that employee had legally collected concerning his company’s competitors. The employee related how his company had completely figured out the competitive strategy of a particular competitor, and how it had been possible to accurately predict how it would behave under nearly any hypothetical circumstance. In CI/Wargaming, CI is used to design wargames which are to be used to train top decision makers just airplane simulators are used to train pilots. Training on wargames and aircraft simulators both require the simulator itself (the physical model of the environment) and a particular mission/scenario to be explored. CI is used to design both the competitive environment and scenarios to be used in wargames. The scenario-based planning used at Shell also uses information about the environment to develop scenarios, but it is unclear if the information is gathered by methods that amount to CI. Other differences and similarities between CI/Wargaming and scenario-based planning are discussed in the next two sections. Similarities between CI/Wargaming and Scenario-Based Planning Wargaming in CI/Wargaming is similar in some respects to the work done in scenario-based planning at Shell Oil as described in Van der Heijden (2005). Shell planners had initially hoped to develop scenarios that accurately predicted the future. They soon discovered that predicting the future wasn’t possible, but found that there was still value in the scenarios as “stories to explore.” CI/Wargaming likewise rejects the notion that the future can be predicted and also finds value in scenarios as stories to explore. Shell found that the scenarios were helping them to: develop projects and make decisions that were more robust under a variety of possible futures, do more thorough thinking about the future (specifically about what causes oil

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prices to change), and more quickly recognize and react to what was happening. The final benefit (quick recognition and reaction) is the one stressed in CI/wargaming. Scenarios in scenario-based planning and wargaming both combine the predictable or “predetermined elements” and unpredictable “uncertainties.” In both cases all scenarios contain the same predetermined elements while the unpredictable uncertainties vary from one scenario to the next. Using the aircraft simulator analogy, the simulator itself represents the predetermined elements; it is constructed and programmed to react in exactly the same way the real aircraft would to any control action taken by the pilot or any environmental condition provided by the scenario. The simulator itself doesn’t change from one training scenario to the next. Again, using the aircraft simulator analogy, an uncertainty would be something unpredictable like an engine failure on takeoff. Each scenario would present its own unique uncertainties, and should represent something that could conceivably happen. However, prediction isn’t the goal and just as the training scenarios in aircraft simulators are unlikely to exactly match the actual disaster a pilot eventually faces, so to scenarios in both wargames and scenario-based planning are unlikely to exactly match anything that actually ends up happening. That said, if the scenario is sufficiently well done, dealing with it will be useful in building the manager’s historical imagination and his or her ability to recognize and handle real world disasters. For example, despite the fact that US Airways Captain Sullenberger must have had a great deal of previous actual and simulated learning prior to the disaster he faced during Flight 1549, he had never experienced the exact circumstances he faced on that flight. Still his training and experience had formed his historical imagination allowing him to quickly recognize the disaster he faced and execute the proper reaction. Several authors have expressed opinions about the qualities scenarios should and should not have. These qualities would be desired in either scenario-based planning or wargaming. For example, the scenarios must: • • • • •

Cause a broad and intensive debate involving technical issues and strategic repercussions. Be relevant to the company in question. Provoke surprise and even emotion responses … they should be disturbing. Not be sold as exact predictions. Be done with top operating managers as participants.

Dissimilarities Between CI/Wargaming and Scenario-Based Planning Despite the similarities just described, the wargaming recommended here is fundamentally different from Shell’s scenario-based planning in that in the Shell-model the scenario is presented in its entirety before decision makers do their training while the scenario is only slowly revealed in CI/Wargaming. The Shell approach is equivalent to telling the test pilot that the upcoming exercise will involve a dead-stick landing. In that case operating managers train by making strategies, developing plans, or devising projects with the complete scenario in mind. In CI/wargaming decision makers must struggle to recognize the situation while they simultaneously attempt to make decisions. Since they do not know the nature of the scenario, it will be much harder for them to make strategies, develop plans, or devise projects. This difference in the way the scenario is revealed implies a difference in the role of those facilitating the simulation. Wargaming is analogous to the work done by the test pilots in finding the right way to fly. The simulator operator subjects the test pilot to the scenario, but does not give hints as to what is happening and certainly does not presume to give hints as to how to deal with it. Flight simulator operators and wargame facilitators are not equipped to teach test pilots and decision makers respectively how to recognize and react to problems. The test pilot will recognize a problem by the instrument readings, the feel of the aircraft, his/her historical imagination, etc. Likewise the decision maker will recognize the problem by the information flowing from the simulation and his/her historical imagination. In contrast, those facilitating the scenario-based planning begin by telling the decision makers all about the scenario. Since decision makers often have the ego of test pilots, they will most likely have trouble accepting the scenario’s inevitabilities if they are simply given to them. In order to believe in them they must discover them for themselves. The main difference between the scenario planning at Shell and the CI/Wargame approach is that in the wargame approach players must discover inevitabilities for themselves. Aircraft simulators can be used to explore a scenario for the first time and to discover a way to deal with it, or they can be used to teach methods for flying and dealing with scenarios that others have discovered. Both scenario-base planning and wargaming are for exploring scenarios for the first time; both are for “test pilots.” But that said, the type of the exploration is very different. In the Apollo 13 disaster, an earth-based simulator was used to discover the correct way to boot up systems in 59

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the real command module out in space. The procedure developed by trial-and-error in safety on earth was radioed to the actual spacecraft where the astronauts had to get it right the first time. The type of exploration done by the earthbased test pilots in that disaster is similar to exploration done in scenario planning: a completed scenario is presented to business managers who then work out a course of action for dealing with it. In contrast, CI/wargaming is more like the more hectic type of exploration that was done by the Apollo 13 astronauts out in space. They had to find a way to handle the spacecraft after the explosion. They weren’t sure exactly what they were dealing with when they were developing their theories and reacting on the fly. They had to learn as the events happened. Scenario-based planning has its benefits. Shell executives learned to craft solutions tailor-made to handle all aspects of the scenarios they are exploring. The problem is that the executives are not trained to recognize a growing disaster or to react to it as it plays out. Also, as mentioned earlier, this may explain the fact that many Shell executives did not have their mental models changed; they didn’t believe the inevitabilities imbedded in the scenario because they hadn’t discovered them for themselves. Shell executives under their scenario-based planning are like football coaches who have watched game videos of their next competitor. In the actual game the coaches will be quicker than they would have been to recognize what the competitor is trying to do (assuming the competitor doesn’t make any fundamental strategic changes), and can call the play they designed to deal with it. DeGeus (1988) said that the Shell managers trained in scenario-based planning were in fact quicker than their untrained competitors at recognizing a particular situation, but the actual situations they recognized might have been atypically easy to recognize because they happened to resemble the scenarios the managers had trained on; the managers might not have been able to recognize or react to a disaster if it had been quite a bit different from the scenarios. Although the proper application of competitive intelligence in CI/Wargaming is intended to yield scenarios which are plausible and therefore should have some chance of resembling what actually happens, there is always the possibility that a problem will come completely out of left field. Surely those who are trained by CI/Wargaming to formulate a response to an unknown situation would have an advantage over those who are used to having the entire problem laid out for them. Corporate managers who play wargames should be quicker to properly recognize a disaster as it unfolds and better at inventing reactions under pressure. In short, wargaming would have all of the advantages of scenario-based training and leave the manager in a better position to deal with unforeseeable real world disasters. REFERENCES Baumohl, B. 2008. The secrets of economic indicators: Hidden clues to future economic trends and investment opportunities. Upper Saddle River, NJ.: Pearson Education, Inc. Chussil, M. 2007. Learning faster than the competition: War games give the advantage. Journal of Business Strategy, 28: 37-44. C SPAN 2. 2004. U.S. House Enterprises Subcommittee hearing regarding alleged bookkeeping irregularities at Freddie Mac and Fannie Mae. [Youtube Video]. United States: C SPAN 2. Retrieved on February 16, 2010 from http://www.youtube.com/watch?v=_MGT_cSi7Rs&feature=related DeGeus, A. 1997. The living company: Habits for survival in a turbulent business environment. Boston: Harvard Business School Press. DeGeus, A. 1988. Planning as learning. Harvard Business Review, 4: 70-74. Hayward, S. 1997. Churchill on leadership: Executive success in the face of adversity. Rocklin, CA: Prima Publishing. Hirsch, P. 2008. Untangling credit default swaps. Retrieved on June 4, 2010 from http://www.youtube.com/ watch ?v=DdEI6PkGZK8&feature=related Hoch, S., & Kunreuther, H. 2001. Wharton on making decisions. New York: John Wiley & Sons, Inc. Huffman, B. 2004. Why environmental scanning works except when you need it. Business Horizons, 47: 39-48.

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Jackwerth, J., & Rubinstin, M. 1996. Recovering probability distributions from option prices. Journal of Finance, 51: 1611-1631. Jeffson, J. 1998. Operation market-garden: Ultra intelligence ignored. Bolling Air Force Base: Joint Military Intelligence College. Johnson, D. 2010. Tracking private aircraft. Retrieved on May 27, 2010 from http://www.aurorawdc.com/blog/ tracking-private-aircraft-aurora-wdc-director-research-derek-johnson Kurtz, J. 2003. Business wargaming: Simulations guide crucial strategy decisions. Strategy & Leadership, 31: 12-21. Leach, J., & Griffith, R. 2008. Restrictions in working memory capacity during parachuting: A possible cause of â&#x20AC;&#x2DC;no pullâ&#x20AC;&#x2122; fatalities. Applied Cognitive Psychology, 22: 147-157. Prechter, R. 2009. Toward a new science of social prediction: Robert Prechter at the London School of Economics [Socionomics Film Series Volume 3]. United States: Socionomics Institute. Ramo, J. 2009. The age of the unthinkable. New York: Little, Brown & Company. Taleb, N. 2007. The black swan: The impact of the highly improbable. New York: Random House. Van der Heijden, K. 2005. The art of strategic conversation. West Sussex, England: John Wiley & Sons, Ltd. Vaughan, E., & Vaughan, T. 2008. Fundamentals of risk and insurance. Hoboken: John Wiley & Sons, Inc. Wack, P. 1985. Scenarios: Uncharted waters ahead. Harvard Business Review, 63: 73-89. Wack, P. 1985. Scenarios: Shooting the rapids. Harvard Business Review, 63: 139-185. Walton, M. 1986. The Deming management method. New York: The Putnam Publishing Group. Watson, B. 2008. The business battlefield. CIO Insight, 99: 41-44. Wiesel, E. 1972. Night. New York: Hill & Wang. Brian Huffman is a professor of management and chair of the department of management and marketing at the University of Wisconsin - River Falls. He received his Ph.D. in management for the University of Minnesota. His research interests include computer simulation, strategy, and organizational behavior. He has published in INFORMS Transactions on Education, Business Horizons, Review of Business Research, and others.

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Cognition and Decision Making in Diversified Firms Larry Stimpert, Colorado College Irene Duhaime, Georgia State University

The study reported here sought to identify top managers’ beliefs about the management of diversification and to determine whether these beliefs are associated with key decisions. The study identified three broad sets of beliefs or orientations about the management of diversification that are commonly held by the executives of large diversified firms. The study found that these management orientations are significantly associated with a number of strategic choices, including decisions about the extent of diversification, divestment activity, new product development efforts, and research and development spending. The results illustrate the influence of managerial cognition on strategic decision making and shed additional light on the management of diversification and corporate strategy.

Literature reviews, written more than two decades ago, concluded that the study of diversification has been too narrow, largely ignoring the management of diversification even though this is likely to be a much more important influence on performance than the extent of diversification (Datta et al, 1991; Hoskisson & Hitt, 1990; Ramanujam & Varadarajan, 1989). In particular, the influence of managerial decision making has been largely ignored in most diversification studies (Dess et al, 1995). While it was surely hoped that these reviews would stimulate new research on diversification, this literature stream has seen relatively little study in the last decade and too few studies have pursued new approaches advocated by these reviews. By focusing on the influence of managers in diversified firms, the research reported here addresses questions that have received too little attention. Following Hambrick and Mason’s (1984) upper echelons framework, this study asks two key questions. First, what are top managers’ beliefs about the management of diversification? Second, the study then considers whether executives’ beliefs about the management of diversification are associated with their firms’ strategic choices, including decisions about diversification strategy, acquisition and divestment activity, new product development efforts, and research and development spending. Background Research in managerial cognition examines how mental models determine what stimuli are noticed and how they are interpreted, and how mental models influence decision making (Dutton & Dukerich, 1991; Gioia & Chittipeddi, 1991; Levy, 2005; Lounsbury & Glynn, 2001). Thus, the cognitive perspective on strategy argues that insight into decision making requires an appreciation of the beliefs and understandings contained in executives’ mental models. Though a significant body of managerial cognition literature has now accumulated, relatively few researchers have applied this perspective to the study of diversification. More than two decades ago, Prahalad and Bettis (1986) argued that executives would need to learn how to manage diversification “as a distinct process and skill” (1986: 488), and that in doing so, they would develop knowledge structures - mental models or, in their words, dominant logics that contain executives’ beliefs and understandings about the management of diversification. Building on the work of Prahalad and Bettis, a few studies have explored how management beliefs shape understandings of the competitive environment and how their firms are positioned relative to their competitors (Garg et al, 2003; Mason & Harris, 2005; Neill & Rose, 2006). Empirical research by Stimpert and Duhaime (1997) focused on one aspect of dominant logic - how top managers of diversified firms understand their firms’ businesses to be related. They found that the managers of diversified firms hold at least three distinct views of relatedness, based on product and process similarities, a reliance on common marketing attributes, and the application of strict financial controls. More recent studies by Piscitello (2004) and Pehrsson (2006) have found that a coherence or relatedness around a company’s technological competencies is associated with enhanced performance. Many other studies have examined how managers’ beliefs influence decision making in diversified contexts (Kor & Leblebici, 2005; Leavy, 2001; Pehrsson, 2006; Tanriverdi & Venkatraman, 2005). Early work by Duhaime and Schwenk (1985) concluded that managers’ cognitive biases can explain the failure of many acquisitions. More recent research by Levy (2005) concluded that companies are more likely to engage in global diversification if their executives’ mindsets were focused primarily on the external environment. Kazanjian and Drazin (1987) described the relationships among managerial cognition, decision making, and successful diversification. Vanhaverbeke and 62

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Peeters (2005) focused on the need to overcome cognitive inertia when companies face discontinuous change. These studies suggest that some progress has been made in understanding the linkage between managerial cognition and decision making in diversified firms, but they also point to some significant shortcomings. First, relative to other streams of upper echelon and diversification research, the literature examining the influence of managers on decision making in diversified firms is not as well developed, and studies have examined the influence of executives on only a very limited set of strategic choice variables. Finally, much of the research has been conceptual, and too few studies have tested research propositions with empirical data. A decade ago, Hoskisson and Hitt noted that in spite of “compelling theoretical arguments” no empirical studies had examined the influence of executives’ beliefs on diversification and corporate strategy decision making (1990: 482). Over the last decade and a half, researchers have made some good progress toward addressing this shortcoming, but many important and interesting research questions remain to be explored. The Nature of Executives’ Beliefs about the Management of Diversification and How Those Beliefs Influence Strategic Decision Making Research aiming to “get inside the heads” of executives assumes that they carry mental models of phenomena that allow them to make sense of their situations and respond appropriately (Johnson-Laird, 1983). It is widely acknowledged that mental models play key roles in executives’ decision making processes (Walsh, 1995). First, mental models simplify the complexity associated with business environments, and, in the process, they determine which environmental stimuli will be noticed and which will be ignored (Boisot & Child, 1999; Starbuck & Milliken, 1988). The management of a diversified firm is a challenging and complex task (Hall, 1987). To manage this complexity, the executives of diversified companies must have a conceptualization of their firms - their scope, objectives, competitive environment, and management requirements - but in the diversified firm, these demands are compounded both by the number and by the diversity of its businesses (Porter, 1987). Thus, executives of diversified firms must process vast amounts of information and they face an almost unlimited array of choices. As a result, their mental models play a key role in complexity reduction, making comprehensible the challenging task of managing the diversified firm. Mental models also influence how stimuli are interpreted, and suggest appropriate responses or decisions based on these interpretations. So, learning about how the managers of large diversified firms make sense of their situations and tasks is a key to understanding the strategies of their firms (Goold, Campbell, & Alexander, 1994; Prahalad & Bettis, 1986). Mental models are shaped by individual experiences and by unique interpretations of these experiences. Thus, we could expect that mental models about the management of diversification could be quite idiosyncratic. In fact, Barney (1992) suggested that executives could gain advantage by managing their diversified firms in novel ways. On the other hand, researchers have cited a variety of institutional factors to suggest that there may be patterns of management beliefs that are widely held among executives (Huff, 1982; Spender, 1989). Hambrick (1982) also suggested that executives share “a common body of knowledge” that is disseminated through the media and other venues. And, field research by Goold and Campbell (1987) provides support for proposing the existence of patterns of executive beliefs about the management of diversification and that these beliefs influence strategic decisions. For example, the literature highlights the belief that diversification is best managed by seeking to derive synergies from a portfolio of related businesses. In their field study of 16 diversified British companies, Goold and Campbell (1987) identified firms whose executives pursued a “strategic planning management style,” that exploits synergies by closely coordinating common resources and skills across business units. The diversification literature also suggests or implicitly assumes that firms managed by executives who subscribe to the importance of product and process relatedness will make fewer acquisitions and divestments and seek to achieve synergies through the integration and close coordination of functional and operating departments (Jones & Hill, 1988; Tanriverdi & Venkatraman, 2005). Second, researchers have also emphasized the value of managing diversification from a functional perspective, especially in firms that have little commonality across businesses or product lines, while others have emphasized the value of applying a common technology or set of technological capabilities across businesses (Miller et al, 2007; Pehrsson, 2006; Piscitello, 2004). Still other writers have emphasized the importance of developing a set of marketing and differentiation skills that can be applied to all businesses, even though these businesses may lack common product characteristics (Kazanjian & Drazin, 1987; Mason & Harris, 2005; Porter, 1985, 1987; Tanriverdi & Venkatraman, 2005). Such a functional or technological approach to the management of diversification may be embodied in close relationships and coordination between businesses and their marketing channels and end users (Woodruff, 1997), or through the ability to apply knowledge about customers’ needs and buying behaviors across businesses (Farjoun, 1998; Nayyar, 1993). Executives who develop a diversification strategy around a common functional skill or capability that can be

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applied to all businesses will most likely emphasize brand equity, new product development, sales growth, and market share (Kazanjian & Drazin, 1987; Porter, 1987). The generic strategy of differentiation and most portfolio planning frameworks also emphasize market share and sales growth, and specifically advocate allocating cash to new products and growth opportunities. Thus, we could expect that a focus on functional skills or technological capabilities will be associated with more product development (Lamont & Anderson, 1985; Vanhaverbeke & Peeters, 2005), and should also be reflected in higher R&D spending. Finally, Williamson (1975), Teece (1982), Hall (1987), and Hill (1994) all argue that the application of strict financial controls such as ROI and other performance criteria may be the only effective way for executives to manage the complexity of a widely diversified portfolio of businesses. In their field research, Goold and Campbell also identified a number of firms that they labeled as “financial control” companies. They found that these firms view budgets as a “contract” between corporate executives and individual businesses, and “that annual financial performance is the critical measure of achievement” (1987: 133). It’s widely assumed that executives who hold a financial control orientation will pursue more unrelated diversification (Fligstein, 1987). Since they lack operating or technical expertise about individual business units, these executives are also more likely to emphasize growth through acquisition over internal development of businesses (Hayes & Abernathy, 1980). The financial control companies in Goold and Campbell’s (1987) sample were all active acquirers, and they also found that the executives believe that poor-performing businesses should be divested. Hayes and Abernathy were concerned that executives who emphasized financial controls would spend less on R&D and product development. Summary and the Research Questions Addressed by This Study All of this theorizing is already accepted as conventional wisdom, but aside from the detailed field interviews conducted by Goold and Campbell, we have little insight into whether the top managers of diversified firms subscribe to commonly held views about the management of diversification. Thus, we propose the following research question: Research Question #1: Are there patterns of executive beliefs about the management of diversification, and if so, what are those beliefs? Similarly, cognitive theory posits that beliefs influence decisions. Thus, a cognitive perspective on the management of diversification suggests that executives who hold different cognitive orientations will make different decisions, and this reasoning suggests a second question: Research Question #2: If the top managers of diversified firms hold specific patterns of beliefs about the management of diversification, do these beliefs have a discernable influence on the key strategic decisions made by diversified firms, including decisions about diversification strategy, acquisition and divestment, product development, and R&D? RESEARCH METHODOLOGY The Survey Questionnaire and Cognitive Variables Carefully designed surveys can be an effective way to assess executives’ beliefs (Zajac & Shortell, 1989). They are especially effective when researchers hope to obtain large numbers of observations in order to perform rigorous statistical analyses. This study employs a unique set of primary data that was developed in a multistage process that involved field interviews with executives of several large diversified firms as well as surveys of a larger set of such firms. Though developed in 1991, and already used in previous studies, it is ideally appropriate for addressing this study’s research questions. Nor do we believe that its relevance or usefulness has been diminished by time. All other measures used in this study have been gathered for time periods appropriately matched to this primary dataset. The first step in developing the questionnaire was to conduct a thorough search of the literature aimed at identifying all of the processes for managing diversified firms that have been described in past research. This literature search identified four broad categories of management processes, including 1) the sharing of functional skills or technological capabilities across businesses (Goold & Luchs, 1993; Kazanjian & Drazin, 1987; Porter, 1985, 1987; Rumelt, 1974, 1982; Pehrsson, 2006; Piscitello, 2004), 2) encouraging businesses to pursue the same generic strategy (Porter, 1987), 3) a wide range of management and financial control systems (Dundas & Richardson, 1982; Goold & Campbell, 1987; Teece, 1982; Williamson, 1975), and 4) acquisition and internal development as possible

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modes of diversification (Lamont & Anderson, 1985; Song, 1982). This compilation of management processes was followed by interviews with executives from six Fortune 500 firms, which provided corroborating support for the four sets of processes identified in our literature review, while also suggesting a few additional processes. Ultimately, the literature review and the interviews produced a list of 24 survey items to assess executive beliefs about the management of diversification. CEO recipients of the survey were asked to provide their assessments of each of the 24 items on a five-point scale (from “1” for this would almost always be an inappropriate policy to “5” for this would almost always be an appropriate policy). Three top planning officers and a CEO – all from diversified Fortune 500 firms – pretested the survey and offered many suggestions for improvement. Dependent and Control Variables The choice of the dependent strategic decision variables was quite deliberate. Articles by Hambrick and Mason (1984) and Prahalad and Bettis (1986) refer to diversification strategy, acquisition and divestment activity, product development, and R&D efforts as the key decisions that managers must make. All of these decisions are included in this study as dependent variables, and they are measured over a five-year period from 1992 through 1996 in order capture the influence of managerial thinking at a point in time on subsequent strategic activity. Diversification was assessed using the entropy measure of diversification (Palepu, 1985), and is calculated using as: Diversification = Σ[Pjln(1/Pj)], where Pj is the share of sales in each segment j and ln(1/Pj) is the relative weight of each segment j, so that higher values indicate greater diversification. We obtain the necessary data from Mergent Online and calculated a five-year average diversification score for the years 1992 through 1996. To measure acquisition, divestment, and new product development activity, we obtained the number of acquisitions, divestments, and new product introductions made over the five-year period 1992 through 1996 from Moody’s Industrial Manuals and The Wall Street Journal Index. Any shorter time frame seemed to be too narrow a window to assess whether a particular firm was actively acquiring or divesting businesses, and a five-year period also seemed sufficient to capture trends in new product development efforts. R&D spending, coded as a percentage of firm sales, was calculated as the five-year average for 1992 through 1996. Data for these calculations were obtained from Mergent Online. Three control variables were also included. CEO tenure was included because CEO beliefs may be reinforced and their decisions more strongly manifested in their firms over time. ROA was also included because firm success may also reinforce managerial thinking. And, firm size is included because it has been previously shown to be an influence on many of the dependent variables. Data for these variables were also gathered from Mergent Online for 1991. Sample Because diversification is a critical issue for large firms and CEOS are ultimately responsible for their firms’ diversification decisions, we mailed our survey to the CEOs of the largest 1,000 U.S. companies. The use of CEOs as informants is consistent with the research questions posed in this study, and many other studies examining the influence of top executives have also relied on CEOs as informants (e.g., Zajac & Shortell, 1989). From this initial and two follow-up mailings, 174 completed and usable responses were received, for a response rate of just under 20 percent. This compares favorably with most mail surveys reported in the strategy literature that have been addressed to the executives of large firms (Hambrick et al, 1993). Statistical analyses comparing total assets, sales revenues, and return on assets of the responding and non-responding CEOs’ firms revealed no significant differences. Data Analysis Respondents’ ratings of the 24 management belief variables were factor analyzed to identify a more finite set of underlying dimensions, or, in this case, patterns of beliefs about the management of diversification (Hair et al, 2005). Factor analysis is the ideal method for analyzing the survey data. It reduces our 24 variables into a more finite set of factors that show central tendencies in executives’ beliefs about how to manage diversification. Due to the exploratory nature of the study, principal components analysis was employed to factor analyze the data and identify patterns of beliefs. The resulting factors were rotated using the varimax transformation, since orthogonal transformations tend to be easier to interpret and are recommended when factor scores are to be used in subsequent statistical analyses (Hair et al. 2005). The factor scores are standardized (i.e., their means = 0 and their standard deviations = 1) statistical composites representing each of the factors that were used in regression analyses to assess relationships between executives’ orientations and their firms’ strategies.

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RESULTS RESULTS Executives’ Beliefs Beliefs and and Understandings Understandings about about the the Management Management of of Diversification Diversification Executives’ The first first research research question question asked asked whether whether top top executives executives have have discernable discernable beliefs beliefs about about the the management management of of The diversification. Analysis Analysis of of the survey survey data data showed showed that they do. Examining Examining the the results results of of several initial initial factor factor diversification. analyses suggested suggested that that aa three-factor three-factor solution solution offered offered the the most most explanatory explanatory power power and and produced produced the the fewest fewest number number analyses of cross-loadings. cross-loadings. The The original original three-factor three-factorsolution solutionincluded included three threevariables variablesthat thatdid didnot notload load significantly significantly on on any any of of of the factors. factors. Following Following the the recommendation recommendation of of Hair Hair et al (2005), the three-factor solution was rerun omitting omitting these these the three variables. variables. The The resulting resulting solution solution (shown (shown in in Table Table 1) produced a very straightforward and interpretable interpretable factor factor three matrix with with no no cross-factor cross-factorloadings loadingsand andall allbut butone one of of the the remaining remaining21 21 variables variables loading loading significantly significantly on on one one of of the the matrix three factors. factors. Factor Factor loadings loadings with with absolute absolute values values greater greater than than .30 .30 can can be be considered considered significant significant and and are are shown shown in in three bold print print (Hair (Hair etetal, al,2005). 2005). bold Table Table 1: 1: Executive Executive Orientations Orientations or or Beliefs Beliefs about about the the Management Management of of Diversification Diversification VARIABLE Businesses should use the same marketing methods Businesses should use the same distribution channels Marketing should be coordinated at the corporate level Businesses should sell to the same customer groups Businesses should use the same manufacturing processes Manufacturing should be coordinated at the corporate level All businesses should be in the same industry Products and services should have strong brand name recognition Businesses should develop totally new products Businesses should be market share leaders Businesses should emphasize research and development Businesses should be in different stages of the life cycle Businesses should develop extensions of existing products Cash should be reallocated to support new product development Acquisitions should offer opportunities to redirect the firm Businesses should always meet financial goals Businesses should be evaluated primarily by financial criteria Acquisitions should be some minimum size Acquisitions should be in the same industry Acquisitions should strengthen the firm’s existing businesses Businesses can miss financial goals if other objectives are met EIGENVALUES FACTOR NAME

FACTOR 1 .8222 .7953 .7126 .7098 .6902 .6415 .4676 .1767 .0425 -.0017 .1986 .0914 -.0744 -.0004 .0394 .0413 -.0167 -.0173 .2634 .1074 -.0858 3.60 Core Business Orientation

FACTOR 2 -.0569 .1136 .1435 -.0098 -.1441 .1794 .2743 .6335 .6132 .6053 .5774 .5134 .4982 .4894 .3372 .1551 .0722 .0800 .1582 .1674 -.0071 2.60 Marketing Orientation

FACTOR 3 .0399 .0850 -.0982 -.0751 .0258 -.1006 -.0003 -.0265 .1133 .0321 -.0824 .0871 -.0716 .0054 .2219 .7629 .6197 .2939 -.3115 .3187 -.7346 1.91 Financial Control Orientation

Loading significantly on the first factor were beliefs that businesses should use the same manufacturing Loading significantly on theand first factor were beliefs businesses should usethethesame same manufacturing processes, distribution channels, marketing methods; thatthat businesses should sell to customer groups; processes, distribution channels, and marketing methods; that businesses should sell to the same customer that manufacturing and marketing should be coordinated at the corporate level; and that businesses should begroups; in the that manufacturing andbeliefs marketing should be with coordinated at the level; and try thattobusinesses should be by in same industry. These are consistent the view thatcorporate executives should capture synergies the same industry. These beliefs are consistent with the view that executives should try to capture synergies by coordinating activities across their firms’ businesses (Jones & Hill, 1988; Porter, 1985; Rumelt, 1974, 1982). And, coordinating activities firms’ businesses (Jones &style Hill,identified 1988; Porter, 1985; and Rumelt, 1974,(1987). 1982). And, this factor is also similaracross to thetheir strategic planning management by Goold Campbell This this factor is alsocore similar to theorientation. strategic planning management style identified by Goold and Campbell (1987). This factor is labeled business factor is labeled businessfactor orientation. Loading on core the second are principles that products and services should have strong brand name Loadingand on the factorshould are principles that products andthat services shouldshould have strong brandR&D, nameproduct recognition recognition thatsecond businesses be market share leaders; businesses emphasize line and that businesses should be of market leaders; emphasize R&D, product line extensions, extensions, the development new share products, and that the businesses reallocationshould of cash to support product development; that the development new and cycle the reallocation of that cashacquisitions to support product that into businesses should businesses shouldofbe in products, different life stages; and should development; redirect the firm new areas of be in different life cycle stages; and that acquisitions should redirect the firm into new areas of opportunity. opportunity. These beliefs are consistent with the view that the effective management of diversification resultsThese from beliefs area consistent with view that effective management of diversification results from applying a common applying common set of the marketing andtheproduct development skills to all businesses (Farjoun, 1998; Kazanjian & set of marketing and product development skills to all businesses (Farjoun, 1998; Kazanjian & Drazin, 1987; Porter, Drazin, 1987; Porter, 1985, 1987; Prahalad & Bettis, 1986). Other support for the existence of a marketing 1985, 1987;comes Prahalad & aBettis, 1986). Otherand support for the existence of found a marketing orientation comes from a study orientation from study by Stimpert Duhaime (1997), which that many executives considered their by Stimpert and Duhaime which found that many executives considered firms tosetbeofpursuing related firms to be pursuing related(1997), diversification strategies because they were applyingtheir a common marketing and diversification skills strategies they were applyingand a common set of development) marketing andacross differentiation skills (i.e., new differentiation (i.e.,because new product, advertising, brand equity their firms’ businesses, product, advertising, and brandmay equity across their firms’ businesses, though these businesses even though these businesses notdevelopment) share product or process similarities. Thiseven factor is labeled marketing may not share product or process similarities. This factor is labeled marketing orientation. orientation.

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Finally, beliefs beliefs that should consistently meetmeet financial goals goals and that businesses should beshould evaluated Finally, thatallallbusinesses businesses should consistently financial and that businesses be primarily by financial criteria; that acquisitions should not necessarily be in the same industry nor strengthen evaluated primarily by financial criteria; that acquisitions should not necessarily be in the same industryfirms’ nor existing businesses; and that financialand targets should not be missed if other strategic are beinggoals met load strengthen firms’ existing businesses; that financial targets shouldeven not be missed even if goals other strategic are on the third factor. These beliefs are consistent with the view that diversification is best managed by emphasizing being met load on the third factor. These beliefs are consistent with the view that diversification is best managed by financial controls and controls financialand performance objectives (Jones & Hill, 1988;&Williamson, Similar1975). to the emphasizing financial financial performance objectives (Jones Hill, 1988; 1975). Williamson, financial control management style identified by Goold and Campbell (1987), this factor is labeled financial control Similar to the financial control management style identified by Goold and Campbell (1987), this factor is labeled orientation. financial control orientation. Relationshipsbetween betweenExecutives’ Executives’Beliefs Beliefsand andStrategic StrategicDecision DecisionMaking Making Relationships Due Duetotospace spacelimitations, limitations,means, means,standard standarddeviations, deviations,and andcorrelations correlationsamong amongthe thevariables variablesare arenot notshown shownhere, here, but butcan canbe beobtained obtainedfrom fromthe theauthors authorsupon uponrequest. request.The Thesecond secondresearch researchquestion questionasked askedtotowhat whatextent extentexecutives’ executives’ beliefs beliefs about about the the management managementofof diversification diversification would would be be associated associated with with their their strategic strategicchoices, choices, and and regression regression analysis analysiswas wasused usedtotoevaluate evaluatethe theexistence existenceofofrelationships relationshipsbetween betweenthe theindependent independentmanagement managementbelief beliefvariables variables and thethe influence of of thethe independent variables in ain andthe thestrategic strategicdecision decisionvariables. variables.All Allregression regressionmodels modelsexamined examined influence independent variables hierarchical sequence. The control variables were entered first and the management orientation variables were then a hierarchical sequence. The control variables were entered first and the management orientation variables were included. For allFor ofall theofdependent variables except the number of new products, the the control variables produced a then included. the dependent variables except the number of new products, control variables produced significant model. The addition of the cognitive variables significantly improved all of the models except for the a significant model. The addition of the cognitive variables significantly improved all of the models except for the number numberofofacquisitions, acquisitions,and andsosoonly onlythe theresults resultsfor forthe thecomplete completeregression regressionmodels modelsare areshown shownhere. here. The Theresults resultsshow show that thatthe thecognitive cognitivevariables variablesare areassociated associatedwith withmany manykey keystrategic strategicchoices. choices.

Table Table2:2:Relationships Relationshipsamong amongExecutive ExecutiveBeliefs Beliefsabout aboutthe theManagement ManagementofofDiversification Diversificationand andTheir TheirFirms’ Firms’ Strategic StrategicDecisions Decisions(Standardized (Standardizedbeta betaestimates estimatesare arereported; reported;t-statistics t-statisticsare areshown shownininparentheses) parentheses) Independent Extent of Variables: Diversification Tenure .078 (.99) Return on Assets -.211** (-2.74) Log(Sales) .347*** (4.41) Core Business Orientation -.302*** (-3.97) Marketing Orientation -.052 (-.70) Financial Control Orientation -.179* (-2.37) F 6.94*** 2 Adjusted R .26 * ** *** p < .05 p < .01 p < .001

Dependent Variables: Number of Number of Number of Acquisitions Divestments New Products -.096 (-1.15) -.015 (-.19) -.103 (-1.22) .062 (.76) -.159* (-2.01) .169* (2.04) ** *** .281 (3.30) .344 (4.21) .033 (.38) -.115 (-1.44) -.189* (-2.44) -.177* (-2.18) -.050 (-.63) .074 (.98) .167* (2.09) -.090 (-1.13) -.079 (-1.03) -.060 (-.75) 2.49* 4.12*** 2.25* .07 .14 .06

R&D Spending -.117 (-1.24) .305** (3.06) .028 (.29) .245* (2.59) .004 (.04) 3.76** .16

As summarized in Table 2, regression analyses found that the cognitive factors are associated with four of the As summarized in Table 2, regression analyses found that the cognitive factors are associated with four of the five strategic decision variables, including diversification strategy, the number of divestments, the number of new five strategic decision variables, including diversification strategy, the number of divestments, the number of new product introductions, and the level of R&D spending. The core business orientation is negatively associated with product introductions, and the level of R&D spending. The core business orientation is negatively associated with the the extent of diversification, indicating that executives who hold a core business orientation tend to pursue more extent of diversification, indicating that executives who hold a core business orientation tend to pursue more focused focused diversification strategies. The core business orientation is also negatively associated with the number of diversification strategies. The core business orientation is also negatively associated with the number of divestments divestments and the number of new product introductions. The marketing orientation factor is positively associated and the number of new product introductions. The marketing orientation factor is positively associated with the with the number of new product introductions and the level of R&D spending. (Log of sales, was not included in the number of new product introductions and the level of R&D spending. (Log of sales, was not included in the model model examining the variation in R&D spending because this variable is already adjusted for firm size.) examining the variation in R&D spending because this variable is already adjusted for firm size.) Interestingly, the financial control orientation was negatively associated with the extent of diversification, Interestingly, the financial control orientation was negatively associated with the extent of diversification, indicating that firms whose executives hold a financial control orientation are likely to be less rather than more indicating that firms whose executives hold a financial control orientation are likely to be less rather than more diversified. In addition, the results suggest that firms whose executives hold a financial control orientation are not diversified. In addition, the results suggest that firms whose executives hold a financial control orientation are not more likely to make acquisitions and divestments, introduce fewer new products, or spend less on R&D, all quite more likely to make acquisitions and divestments, introduce fewer new products, or spend less on R&D, all quite contrary to the concerns of Hayes and Abernathy (1980) and the view that a financial orientation would result in an contrary to the concerns of Hayes and Abernathy (1980) and the view that a financial orientation would result in an emphasis on acquisition at the expense of new product development and R&D spending. emphasis on acquisition at the expense of new product development and R&D spending. DISCUSSION DISCUSSION Contributions Contributions This study offers important and provocative findings that contribute to our understanding of the key role of top executives in large firms: First, analysis of the surveythat datacontribute revealed three patterns ofofbeliefs about This studydiversified offers important and provocative findings to ourbroad understanding the key role the management of diversification core business, marketing, and financial control orientations that are commonly of top executives in large diversified firms: First, analysis of the survey data revealed three broad patterns of beliefs

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about the management of diversification - core business, marketing, and financial control orientations - that are commonly held by the executives of large diversified firms. Second, subsequent data analysis found that these management orientations were associated with key strategic choices. Specifically, the core business orientation is negatively associated with the extent of firms’ diversification strategies, the number of divestments, and the number of new products introduced. The marketing orientation is positively associated with the introduction of new products and R&D spending. The financial control orientation is negatively associated with the extent of firms’ diversification strategies. These findings lend empirical support to the arguments of Prahalad and Bettis (1986), who suggested that executives’ dominant logics or knowledge structures would be an important influence on their strategic choices. But, our findings also call into question some longstanding conventional wisdom. For example, we do not find evidence that a financial orientation is associated with more acquisition activity or that it is associated with decisions that could be viewed as deleterious such as less product development and lower R&D spending. It is also worth pondering whether the core business orientation places so much emphasis on exploiting linkages and finding synergies across businesses that product development efforts actually suffer as a consequence. Implications Managing the diversified firm is an exceedingly complicated task. The executives of a diversified company must develop a conceptualization of their firm and must create and foster what Porter (1987) calls a “corporate theme” that describes the firm and how its businesses are related. Executives of diversified firms must also develop a set of beliefs about how diversification should be managed (Prahalad & Bettis, 1986). The aim of this study was to learn more about these management beliefs and how they influence strategic decision making. The findings suggest that there are three patterns of beliefs about the management of diversification that are held by executives, and that these beliefs are associated with firms’ strategic choices. Thus, the study provides empirical support for a cognitive perspective on the management of diversification and suggests that firms are not a “faceless abstraction” but that strategic decision making is closely associated with executive beliefs (Bettis & Prahalad, 1995). Given the exploratory nature of this research study, we cannot presume that the three orientations described in this paper constitute a comprehensive set of beliefs about the management of diversification. Nor can we rule out the possibility that executives might combine various elements from these three orientations and other sources to create unique understandings about how they should manage their firms (Barney 1992). Future research can explore the nuances, and ensuing studies can also build on the findings offered here to explore dominant logics, and specifically whether the orientations described in this paper are shared among members of firms’ top management teams. For example, it would be worthwhile to examine how a wide variety of personality and organizational factors moderate or mediate the relationships that have been identified in this study. Specifically, how do executives’ attitudes toward risk taking and focus on short-term versus long-term results moderate the relationship between their beliefs and their firm’s strategies? Like this study, nearly all research on diversification strategy employs samples of very large firms, but many small and medium-sized firms are also diversified. It would also be interesting to know if the relationships identified in this study would also be present in samples of smaller firms? Or, it might even be hypothesized that these relationships would be stronger given that smaller firms are likely to experience fewer communication and coordination challenges. Based on the findings of this study that show such significant links between executives’ beliefs about the management of diversification and their firms’ strategies, it is reasonable to assume that the quality of senior executives’ knowledge structures may be a significant source of advantage for diversified firms. Though performance is likely to be highly dependent on a variety of contextual factors, Barney (1992) has argued that if executives’ beliefs about the management of diversification are effective and difficult to imitate, then they may be an important source of advantage. For some diversified firms, executives’ knowledge structures may foster the creation of unique and valuable sets of administrative practices or the ability to make especially effective decisions (Teece, 1982). These effective decisions and administrative practices are surely an important source of advantage for some diversified companies, and they offer a plausible explanation for the considerable performance variation across samples of large diversified firms. This raises the question of how executives come to have an especially effective (and valuable) set of beliefs about the management of diversification. Does the experience gained from trial and error learning help? If so, we might hypothesize that longer-serving executives would be more effective leaders of diversified firms. Also, while managers may share broad views or beliefs about the management of diversification with the managers of other diversified firms, many management practices, routines, and standard operating procedures that are based on those beliefs might be quite idiosyncratic to specific firms. Thus, we could hypothesize that effectiveness results from experience

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within a specific firm. Do top executives of diversified firms who are insiders enjoy a level of effectiveness not shared by outsiders who have had less time to develop sophisticated sets of process beliefs about effective management practices? Research on these questions would build on the study reported in this paper, and the findings could offer significant theoretical and practical value. REFERENCES Barney, J. 1992. Integrating organizational behavior and strategy formulation research: A resource based analysis. Advances in Strategic Management, 8: 39-61. Bettis, R., & Prahalad, C. 1995. The dominant logic: Retrospective and extension. Strategic Management Journal, 16: 5-14. Boisot, M., & Child, J. 1999. Organizations as adaptive systems in complex environments: The case of China. Organization Science, 10: 237-252. Datta, D., Rajagopalan, N., & Rasheed, A. 1991. Diversification and performance: Critical review and future directions. Journal of Management Studies, 28: 529-558. Dess, G., Gupta, A., Hennart, J., & Hill, C. 1995. Conducting and integrating strategy research at the international, corporate, and business levels: Issues and directions. Journal of Management, 21: 357-393. Duhaime, I., & Schwenk, C. 1985. Conjectures on cognitive simplification in acquisition and divestment decision making. Academy of Management Review, 10: 287-295. Dundas, K., & Richardson, P. 1982. Implementing the unrelated product strategy. Strategic Management Journal, 3: 287-301. Dutton, J., & Dukerich, J. 1991. Keeping an eye on the mirror: Image and identity in organizational adaptation. Academy of Management Journal, 34: 517-554. Farjoun, M. 1998). The independent and joint effects of the skill and physical bases of relatedness in diversification. Strategic Management Journal, 19: 611-630. Fligstein, N. 1987. The interorganizational power struggle: Rise of finance personnel to top leadership in large corporations, 1919-1979. American Sociological Review, 52: 44-58. Garg, V., Walters, B., & Priem, R. 2003. Chief executive scanning emphases, environmental dynamism, and manufacturing firm performance. Strategic Management Journal, 24: 725-744. Gioia, D., & Chittipeddi, K. 1991. Sensemaking and sensegiving in strategic change initiation. Strategic Management Journal, 12: 433-448. Goold, M., & Campbell, A. 1987. Strategies and styles: The role of the center in managing diversified corporations. New York: Basil Blackwell. Goold, M., Campbell, A., & Alexander, M. 1994. Corporate level strategy: Creating value in the multibusiness company. New York: John Wiley and Sons. Goold, M., & Luchs, K. 1993. Why diversify? Four decades of management thinking. Academy of Management Executive, 7: 7-25. Hair, J., Black, W., Babin, B., Anderson, R., & Tatham, R. 2005. Multivariate data analysis. Upper Saddle River, NJ: Prentice Hall. Hall, G. 1987. Reflections on running a diversified company. Harvard Business Review, 65: 84-92.

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Hambrick, D. 1982. Environmental scanning and organizational strategy. Strategic Management Journal, 3: 159174. Hambrick, D., Geletkanycz, M., & Fredrickson, J. 1993. Top executive commitment to the status quo: Some tests of its determinants. Strategic Management Journal, 14: 401-418. Hambrick, D., & Mason, P. 1984. Upper echelons: The organization as a reflection of its top managers. Academy of Management Review, 9: 193-206. Hayes, R., & Abernathy, W. 1980. Managing our way to economic decline. Harvard Business Review, 58: 67-77. Hill, C. 1994. Diversification and economic performance: Bringing structure and corporate management back into the picture. In R. Rumelt, D. Schendel, & D. Teece (Eds.), Fundamental issues in strategy (pp. 297-321). Boston: Harvard Business School Press. Hoskisson, R., & Hitt, M. 1990. Antecedents and performance outcomes of diversification: A review and critique of theoretical perspectives. Journal of Management, 16: 461-509. Huff, A. 1982. Industry influences on strategy reformulation. Strategic Management Journal, 3: 119-131. Johnson-Laird, P. 1983. Mental models. Cambridge, MA: The University Press. Jones, G., & Hill, C. 1988. Transaction cost analysis of strategy-structure choice. Strategic Management Journal, 9: 159-172. Kazanjian, R., & Drazin, R. 1987. Implementing internal diversification: Contingency factors for organization design choices. Academy of Management Review, 12: 342-354. Kiechel, W. 1982. Corporate strategists under fire. Fortune, December 27: 34-39. Kor, Y., & Leblebici, H. 2005. How do interdependencies among human-capital deployment, development, and diversification strategies affect firmsâ&#x20AC;&#x2122; financial performance? Strategic Management Journal, 26: 967-985. Lamont, B., & Anderson, C. 1985. Mode of corporate diversification and economic performance. Academy of Management Journal, 28: 926-934. Leavy, B. 2001. Creating value in the multi-business firm. Journal of General Management, 27: 51-66. Levy, O. 2005. The influence of top management team attention patterns on global strategic posture of firms. Journal of Organizational Behavior, 26: 797-819. Lounsbury, M., & Glynn, M. 2001. Culture entrepreneurship: Stories, legitimacy, and the acquisition of resources. Strategic Management Journal, 22: 545-564. Mason, K., & Harris, L. 2005. Pitfalls in evaluating market orientation: An exploration of executivesâ&#x20AC;&#x2122; interpretations. Long Range Planning, 38: 373-391. Miller, D., Fern, M., & Cardinal, L. 2007. The use of knowledge for technological innovation within diversified firms. Academy of Management Journal, 50: 208-326. Nayyar, P. 1993. Stock market reactions to related diversification moves by service firms seeking benefits from information asymmetry and economies of scope. Strategic Management Journal, 14: 569-591. Neill, S., & Rose, G. 2006. The effect of strategic complexity on marketing strategy and organizational performance. Journal of Business Research, 59: 1-10.

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Palepu, K. 1985. Diversification strategy, profit performance and the entropy measure. Strategic Management Journal, 6: 239-255. Pehrsson, A. 2006. Business relatedness and performance: A study of managerial perceptions. Strategic Management Journal, 27: 265-282. Piscitello, L. 2004. Corporate diversification, coherence and economic performance. Industrial and Corporate Change, 13: 757-787. Porter, M. 1985. Competitive advantage. New York: The Free Press. Porter, M. 1987. From competitive advantage to corporate strategy. Harvard Business Review, 65: 43-59. Prahalad, C., & Bettis, R. 1986. The dominant logic: A new linkage between diversity and performance. Strategic Management Journal, 7: 485-502. Ramanujam V., & Varadarajan, P. 1989. Research on corporate diversification: A synthesis. Strategic Management Journal, 10: 523-551. Robertson, D., & Ulrich, K. 1998. Planning for product platforms. Sloan Management Review, 39: 19-31. Rumelt, R. 1974. Strategy, structure and economic performance. Cambridge, MA: Harvard University Press. Rumelt, R. 1982. Diversification strategy and profitability. Strategic Management Journal, 3: 359-370. Song, J. 1982. Diversification strategies and the experience of top executives of large firms. Strategic Management Journal, 3: 377-380. Spender, J. 1989. Industry recipes. Oxford: Basil Blackwell. Starbuck, W., & Milliken, F. 1988. Executivesâ&#x20AC;&#x2122; perceptual filters: What they notice and how they make sense. In D. Hambrick (Ed.), The executive effect: Concepts and methods for studying top managers (pp. 35-65). Greenwich, CT: JAI Press. Stimpert, J., & Duhaime, I. 1997. In the eyes of the beholder: Conceptualizations of relatedness held by the managers of large diversified firms. Strategic Management Journal, 18: 111-125. Tanriverdi, H., & Venkatraman, N. 2005. Knowledge relatedness and the performance of multibusiness firms. Strategic Management Journal, 25: 1131-1153. Teece, D. 1982. Towards an economic theory of the multiproduct firm. Journal of Economic Behavior and Organization, 3: 39-63. Vanhaverbeke, W., & Peeters, N. 2005. Embracing innovation as strategy: Corporate venturing, competence building and corporate strategy making. Creativity and Innovation Management, 14: 246-257. Walsh, J. 1995. Managerial and organizational cognition: Notes from a trip down memory lane. Organization Science, 6: 280-321. Williamson, O. 1975. Markets and hierarchies: Analysis and antitrust implications. New York: The Free Press. Woodruff, R. 1997. Customer value: The next source for competitive advantage. Journal of the Academy of Marketing Science, 25: 139-153. Zajac, E., & Shortell, S. 1989. Changing generic strategies: Likelihood, direction, and performance implications. Strategic Management Journal, 10: 413-430.

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Larry Stimpert is professor of economics and business at Colorado College. He received his Ph.D. in business administration from the University of Illinois at Urbana-Champaign. His research interests include corporate strategy and diversification, managerial and organizational cognition, and corporate governance. He has published in the Academy of Management Journal, the Journal of Management, and the Strategic Management Journal. Irene Duhaime is a professor in the department of managerial sciences at the J. Mack Robinson College of Business Administration at Georgia State University, where she also serves as the associate dean for administration. She received her Ph.D. from the University of Pittsburgh. Her research interests include corporate strategy, entrepreneurship, and family business. She has published in the Academy of Management Journal, the Academy of Management Review, the Strategic Management Journal, and the Journal of Management.

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Rights and Duties of Employers and Applicants Joseph Gilbert, University of Nevada, Las Vegas G. Stoney Alder, University of Nevada, Las Vegas Daniel McAllister, University of Nevada, Las Vegas The task of hiring new employees presents multiple challenges. Underlying many of these challenges is the need to balance applicantsâ&#x20AC;&#x2122; legal and ethical rights and duties with those of the organization. An array of federal laws faces the U.S. employer, prohibiting discrimination on a variety of bases. Additionally, ethical issues, which extend beyond legal requirements, must be considered in the hiring process. Privacy, personal dignity, and integrity are critical concerns which hiring companies and applicants must balance. This article discusses the rights and duties of employers and applicants, and demonstrates how these rights and duties can lead to better hiring decisions.

An employee has left, voluntarily or involuntarily. A new position has been approved and must be filled. Applicants, some of whom are presently employed, some of whom are recently or not so recently unemployed, and some of whom are just entering the workforce, are seeking jobs. Both the employer and the applicants have needs, but each also has rights and duties incumbent on them as the process of recruiting unfolds in seeking and screening applicants and selecting an employee. Large companies typically have detailed procedures for recruiting including advertising or posting open positions, screening applicants, gathering information, interviewing finalists, and making employment offers. In a small company, all of these tasks may fall to a single manager who also has much else to do (perhaps including the work of the position that is open) and little training in either employment law or human resource practices. Even in a large company, line managers or supervisors with limited knowledge or skills in the hiring process often play some part in this process. In this paper we first identify the major objectives of the hiring process. In the remainder of the paper, we outline the major legal requirements in the United States with regard to hiring, and discuss ethical considerations that go beyond the strictly legal requirements. We also consider the legal and ethical requirements placed on applicants. We accomplish this objective by applying the concept of rights and duties, which has both legal and ethical meanings. We do this, however, not from the perspective of attorneys or philosophers, but from that of the hiring manager, who must operate in the real world, is frequently harried and subjected to multiple demands while operating, and mostly just wants to get on with running the business and making money. Objectives of the Hiring Process It is important that each hiring choice both complies with the many laws that address this function and is fair to all applicants. However, it is insufficient to consider only each hiring decision in isolation. In a larger context, when viewed as a pattern of such decisions the overall hiring process must show legal compliance and fairness. The basic objective of the hiring process, however, is to employ the applicant who will best perform the job. If every position in a company were filled with the best person available to do that job, the company would be in a position to succeed and prosper greatly. The more this ideal can be approximated, the more successful the company will be. Legal compliance is an important, basic goal of the hiring process. This is not a simple thing to accomplish, and as we will show below, numerous laws and regulations apply. A company that hires the right people (and then treats them well) has a strategic advantage over competitors who do not (Pfeffer 1998). A company that follows illegal hiring practices and is subsequently sued loses in several ways, regardless of the outcome of the lawsuit. Negative publicity often accompanies lawsuits for illegal hiring practices, and the cost of defending such a suit, even if the outcome is successful, is often high. The hiring process provides an opportunity for the company to have important dealings not only with the individual it ultimately hires but also with others, sometimes many others, who are applicants. These individuals might apply again for another job, or become customers or suppliers of the company. If they feel they are treated fairly in the selection process they will likely think and speak well of the company, even though they do not get the job. On the other hand, if their experience as an applicant is bad, they will almost certainly not apply again, and may speak poorly of the company to many other individuals (Gilliland 1993). The hiring process, then, is important for a company in other ways than just selecting the best applicant for the open position.

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We recognize that that intelligent intelligent discrimination discrimination based related factors factors is is essential essential in in the the hiring hiring process. process. We recognize based on on job job related However, patterns of of illegal illegal or or unethical unethical discrimination discrimination in the However, patterns in hiring hiring are are aa concern concern of of both both law law and and ethics. ethics. Except Except for for the case wherea acompany company is staffing a new facility or otherwise hiringemployees many employees at once,arise patterns arise case where is staffing a new facility or otherwise hiring many at once, patterns gradually, gradually, hireIfataagiven time.department If a given department hasvacancies seven jobover vacancies overperiod, a one year period, and ends up one hire atone a time. has seven job a one year and ends up hiring seven hiring seven young males, there is at least the appearance of a pattern of discrimination against older applicants and young males, there is at least the appearance of a pattern of discrimination against older applicants and female female applicants. The apparent pattern did not arise the hire, seventh hire, but began with the one and applicants. The apparent pattern did not arise from thefrom seventh but began with the second onesecond and continued continued with each additional hire. Because of this, an individual hiring procedure for a single job opening must with each additional hire. Because of this, an individual hiring procedure for a single job opening must also be also be viewed in a larger perspective as part of a possible pattern. viewed in a larger perspective as part of a possible pattern. In will first review the the paired paired concepts concepts of rights and will then then examine examine the rights In this this paper, paper, we we will first review of rights and duties. duties. We We will the legal legal rights of wewe will extend thethe realm of of applicants applicants and and the the duties duties that thatthose thoserights rightsimpose imposeononemployers. employers.After Afterthis thisdiscussion, discussion, will extend realm applicant rights andand employer duties to include those thatthat go go beyond strict compliance with thethe law, butbut areare based in of applicant rights employer duties to include those beyond strict compliance with law, based ethical theories. After examining applicant rights and corresponding employer duties, we shift our focus and in ethical theories. After examining applicant rights and corresponding employer duties, we shift our focus and consider the legal legaland andethical ethical rights of employers, andduties the duties that rights those impose rights impose on applicants. We consider the rights of employers, and the that those on applicants. We conclude conclude by examining how the rights and duties of applicants and employers bear on the task of finding and hiring by examining how the rights and duties of applicants and employers bear on the task of finding and hiring the best the best candidate for the job. candidate for the job. Rights and Duties Rights and Duties In a discussion of rights and duties, it is valuable to recognize the difference between various types of rights. In a discussion of rights and duties, it is(the valuable the difference between various types rights. Sumner (2000) distinguishes claim-rights right to to recognize have something done, such as being paid forofservices Sumner (2000) right to have something suchtoasdobeing paid for services rendered) rendered) from distinguishes liberty-rights claim-rights (the right to (the do something unimpeded if done, I choose so). Both kinds of rights imply from liberty-rights (the right to do something unimpeded if to I choose to do so). Both of rights A duties. A right to privacy is worthless if no one has a duty leave me alone. Most kinds discussions of imply rights duties. focus on right to privacy is worthless if no one has a duty to leave me alone. Most discussions of rights focus on two sources, two sources, human rights and legal rights. The notion of human rights is that all individuals possess them, simply human rights rights. The notion human rights thatdepend all individuals possess simply they because they and are legal human (Ignatieff 2001).ofSuch rights doisnot on the laws of athem, country or because other formal are human (Ignatieff 2001). Such rights do not depend on the laws of a country or other formal mechanisms. Legal mechanisms. Legal rights are those that are granted by a government to its citizens, whether at the national, state, or rightslevel. are those thatthese are granted bygranted, a government to itsone citizens, whether thenot national, state,and or cannot local level. Unless local Unless rights are and unless is a citizen, theyatare real rights properly be these rights are granted, and unless one is a citizen, they are not real rights and cannot properly be claimed. claimed. While this is the usual division of the sources of rights, it seems both useful and proper in our examination of the hiring process recognize one additional source source of rights,ofnamely, rights. Under rights. appropriate circumstances, hiring processto to recognize one additional rights,position namely, position Under appropriate a policeman hasathe right to make arrests, a teacher to assign grades, to andassign a chiefgrades, financial disburse officer company circumstances, policeman has the right to make arrests, a teacher andofficer a chieftofinancial to funds. These individuals have these rightshave because theirbecause positions, and relinquish themrelinquish when leaving their disburse company funds. These individuals theseofrights of their positions, and them when organizational positions. Table 1 summarizes sources of leaving their organizational positions. Table 1 the summarizes therights. sources of rights. Table 1: Sources Sources of of Rights Rights in in the the Hiring Hiring Process Process Table 1: Source Human Rights Citizen Rights Position Rights

Description possessed by all individuals because they are human granted by a government unit to its citizens by law possessed by an individual because of the position that he or she holds

Applications in Hiring truth-telling, dignity (privacy) non-discrimination based on prohibited categories fair treatment, honesty

and lawlaw provide a treatment of rights, but ethics and law arelaw notare identical (Alder &(Alder Gilbert, Both the the fields fieldsofofethics ethics and provide a treatment of rights, but ethics and not identical & 2006; Lyons one considers the possibility of ethicalofwrong-doing, it is not aitsufficient answer toanswer say (astoa Gilbert, 2006;1984). LyonsIf 1984). If one considers the possibility ethical wrong-doing, is not a sufficient number executives recently said)recently “I did nothing ask mywrong, lawyer!” Laws made by legislators. Many say (as of a number of have executives have said) “Iwrong, did nothing ask my are lawyer!” Laws are made by people would be uneasy thebe idea that their code was made by legislators. We do suggest that, legislators. Many peoplewith would uneasy withpersonal the idea moral that their personal moral code was made bynot legislators. We as anot whole, legislators However, itare may well beHowever, argued that therewell is less complete overlap between do suggest that, asarea corrupt. whole, legislators corrupt. it may be than argued that there is less than our political leaders and those individuals we look as our moral leaders. complete overlap between our political leaders and to those individuals we look to as our moral leaders. consideration that that shows the differences between between law and ethics is illustrated A further further consideration illustrated by the fact that some technical violations of law, such as driving one mile an hour over the speed limit, are not seen by most people as issues when when the the law is less vocal and the ethical code code speaks speaks loudly. loudly. For example, ethical violations. There are also issues many people consider adultery adultery to be a serious ethical ethical matter. matter. However, However, although some federal and state laws cover the issue, these laws are rarely, if ever enforced. Finally, laws vary vary by government jurisdiction (gambling is legal in Nevada but not in the adjoining state state of Utah) or by legislative decision (alcohol production and sale in the United States were legal in in the the 1900’s, 1900’s, illegal in in the the 1920’s, 1920’s, and legal again in in the the 1940’s). 1940’s). Most people prefer that moral codes have more stability stability in in terms terms of of both both geography geographyand andtime. time. Law and ethics deal with many of the same issues, so it should not be surprising that many rights and duties embedded in a moral or ethical code should also be addressed in legal codes. As we saw above, human rights and

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the duties they imply do not depend on laws. They apply to all humans, regardless of the nation or legal jurisdiction in which they live. Citizen rights apply to the citizens of a specific government, whether national or local, but not to citizens of other governments (with some exceptions). There is an ethical or moral duty to obey the law, and thus to observe citizen rights and duties. Were this not so, and obedience or disobedience to the law had equal ethical value, we could not have society as we know it. If it were morally neutral whether we obeyed or disobeyed the law, then we could be ethical people and also be chronic lawbreakers. A person could discriminate in hiring on the basis of characteristics that have nothing to do with the job, violate contracts freely, lie grossly in his or her marketing materials and financial reporting, and still be an ethical person. This makes no sense. Human rights and duties, then, are more basic than those granted by governments. There is also an ethical obligation to observe duties legally imposed by government. Which rights fall under the most basic category, human rights? The United Nations Declaration of Human Rights (Donaldson, Werhane & Cording 2002) lists a considerable number of such rights, including the right to form labor unions and the right to free choice of employment and protection from unemployment. Other authors provide much shorter lists. There seems to be general agreement that all humans, by the fact of being human, have rights to life, dignity, truth-telling and property. Some readers might debate whether the right to truth-telling is a basic human right. While it is clearly also an ethical right, the authors contend that it is more fundamental than that. A momentâ&#x20AC;&#x2122;s reflection will show that if lying and truth-telling are equally valid ways of dealing with others, we could not have society as we know it (Bok 1989). Promises and contracts could never be relied on, and trust would have no basis. Human rights are especially important in the consideration of ethical practices, because they are present, with concomitant duties, regardless of the laws or regulations of a given political unit, and they do not require laws or a certain position for their existence. Citizen rights are numerous and variable. At the national level, even when a law is passed granting or restricting rights, there is often a great deal of ambiguity about how the law applies in various situations. For example, the law prohibiting employment discrimination based on gender provides virtually no guidance as to what kind of actions are or are not covered. It has taken decades of regulation, litigation and interpretation to explain this law, and many would say that it is still not clear precisely where the boundaries are (Halbert & Ingulli 2006). Because these rights and corresponding duties are imposed by specific laws and /or regulations, attorneys are usually more knowledgeable than managers when specific questions arise. Position rights and duties in business are typically granted by the organization in which the position exists, although some are spelled out by law. Title VII of the Civil Rights Act of 1964 specifies that job applicants have a right to be treated in a non-discriminatory manner as to age, religion, gender and other characteristics. Hiring managers, because of the position they hold, have duties to those in the position of applicants. Companies typically determine whether final power to make an employment offer rests with the hiring manager or a human resources representative. In some cases, the decision is made by the hiring manager, but to assure that all legal and regulatory concerns are met, the formal offer of employment is made by a human resources representative. Human Rights of Applicants In this section we will consider the human rights of applicants, those that each applicant possesses as a human being, regardless of the laws of a particular jurisdiction. As we discussed previously, all humans have the right to be told the truth, and the right to have their dignity respected. These are moral rights. They are often reflected in citizen rights (sometimes called legal rights), but citizen rights can vary from country to country or state to state. Moral human rights belong to everyone. As part of the right to be told the truth, applicants have a right to accurate information pertaining to aspects of the organization and the job that will personally affect them. Thus applicants have a right to know the duties, working conditions, and general pay range of the jobs they are applying for. Applicants further have a right to know what qualifications are required of successful job-seekers in a given case. This knowledge can save them the time and effort involved in applying for jobs for which they are not qualified. A clear statement of minimum qualifications can also save employers from the effort of screening out applicants who might otherwise apply even though they are not qualified. Finally, applicants also have the right to know whether the job for which they applied has been filled. It is important to note that not every applicant has a human right to be told all the truth about a company. Most applicants have no need to know, and no right to know, the specifications of a new product to be introduced next month, or the names of all employees who have been terminated over the last three years. Applicants also have a human right to dignity, which includes privacy. Indeed, the right to privacy has been a cherished ideal for centuries (Alder et al., 2007; Warren and Brandeis, 1890). Safeguarding applicantsâ&#x20AC;&#x2122; privacy is important for both ethical and business effectiveness reasons. Alder et al. (2007) found that perceptions of

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privacy invasion related negatively to employees’ perceptions of the appropriateness of human resource programs. Research indicates that privacy and fairness correlate strongly with each other (Bies and Moag, 1986; Eddy et al., 1999; Stone and Kotch 1989). Procedures that violate expectations of privacy undermine perceptions of fairness (Alge, 2001; Eddy et al., 1999; Stone and Kotch, 1989). In turn, perceptions of fairness influence applicants’ views toward the hiring organization, their job choice decisions, and their attitudes and performance after being hired (Gilliland, 1993). Common to most definitions of privacy is the importance of control over personal information (Alder et al. 2007). For example, Sundstrom et al. (1980) suggested that privacy includes control over transmission of information about oneself to others. Westin (1967, p. 7) argued that privacy is, “the claim of individuals, groups, or institutions to determine for themselves when, how, and to what extent information about them is communicated to others.” Thus, the applicant’s right to privacy precludes a hiring company from disseminating information gathered in the hiring process beyond those who have a need to know. Stone-Romero et al. (2003) conclude that there is reason to believe that variants in the application of the same general hiring technique may differ in terms of their invasiveness. That is, the same selection practice may be considered more or less invasive depending on the context and how the technique is applied. One important factor here may be the trade-off between the degree of invasiveness and the organization’s need for the information gathered. In this regard, a company that required drug tests of all applicants, and not just of those who are finalists for a job, might well be violating the applicants’ moral right to privacy. The information gathered from a potentially invasive drug test is more critical at the decision stage than at the applicant screening stage. Similarly, a company that routinely gathers information from applicants that it may not use in hiring decisions (religious or political affiliation; sexual orientation) would be violating its duty to respect the privacy of applicants. Under the right to dignity one could argue that applicants also have a moral right to be treated with respect. An employment process that fails to keep applicants informed of the status of the job search for long periods of time, or fails to notify them promptly when they are no longer under consideration for a job does not show respect for applicants. Equally important, in addition to violating an applicant’s rights, such a process is bad business. Highly qualified applicants who are left waiting indefinitely will likely accept jobs elsewhere thereby diluting the quality of hiring for the original company (Hickens 1998). Additionally, as noted earlier, applicants who are not chosen for a job but who feel that they have been treated well in the process are more likely to think favorably of the company than those who are treated disrespectfully. Such applicants may be or become customers or suppliers of the company, or may apply for subsequent job openings. Citizen Rights of Applicants While laws vary from one jurisdiction to another, major employment law in the United States is Federal in nature. Because of this, we will discuss relevant United States laws and regulations governing employment. Legislators pass laws, and regulators working within the scope of these laws promulgate additional regulations. In the U.S. legal system, many laws that are passed by legislators are relatively brief. Regulatory agencies, such as the Equal Employment Opportunity Commission, promulgate much more detailed regulations that basically have the same force as the original law. Court decisions interpreting these laws in specific cases also add to the meanings of original laws. Thus the citizen rights of applicants (and duties of employers) regarding the employment application process are spelled out in a number of key laws. Among the most important of these laws are the Civil Rights Act of 1964 (Title VII), amendments to this Act passed in 1991, the Age Discrimination in Employment Act, passed in 1967 and amended in 1987, the Pregnancy Discrimination Act, passed in 1978, and the Americans with Disabilities Act, passed in 1990. These laws prohibit discrimination in employment and in other job-related actions based on a variety of applicant characteristics. The Equal Employment Opportunity Commission (EEOC) was created by Congress originally to enforce provisions of Title VII of the Civil Rights Act of 1964 (EEOC Website). The laws referenced above are often recognized for their use in protecting minorities, and some of them obviously do so. For example, only a minority of citizens at any point in time are pregnant. However, Title VII of the Civil Rights Act of 1964 prohibits discrimination based on an individual’s race, color, religion, sex or national origin. Clearly all applicants will be of some race, color, sex, and national origin. Thus these laws give some degree of legal or citizen rights to all job applicants. Concomitantly, these laws impose duties on employers not to use prohibited characteristics as the basis for employment decisions. These laws also give rights to hired employees in such areas as compensation and promotion, but these issues are beyond the scope of the present article. These laws and the regulations interpreting them spell out legal or citizen rights of applicants and duties of employers in the United States. Some individual states provide, through their laws, additional rights to applicants and

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corresponding duties to employers. Other countries obviously provide such rights through their own legal systems. One way to consider non-discrimination is to think of it as providing fair treatment to applicants. Fairness is a term with many meanings (Alder and Gilbert 2006). One such definition, applicable to the hiring process, is that fairness means treating similarly situated people in similar ways regarding both process and outcome and with a sense of proportionality. It is useful here to differentiate between discrimination and legality. Although the term discrimination holds a negative connotation for most management scholars and practitioners, it is important to remember that discrimination per se is not illegal, immoral, or unethical. To discriminate is to distinguish or differentiate among like objects by discerning or exposing differences (Merriam-Webster, 1996). Employers may (and indeed must) discriminate whenever there is more than one applicant for a position. Unless a manager opts to make hiring decisions with a dartboard or a roll of the dice, he or she must do so by exposing differences among candidates. Thus, managers must discriminate every time they make a hiring decision. Indeed, discrimination in this sense is the heart and essence of selection procedures. The key legal and ethical question, then, centers not on whether a manager discriminates in the hiring process but rather on the basis for discrimination. Laws and regulations as well as ethical mores specify several bases that may not be used to discriminate between or among applicants. Often a key distinction is whether the basis for discrimination is a necessary quality for effective job performance. For example, it is legally fair and necessary to discriminate against the sightless if one is hiring airline pilots, or against those who are unable to lift and carry packages of a certain weight if one is hiring delivery truck drivers. In these instances, the hiring organization is distinguishing and discriminating among applicants. However, the discrimination is morally and legally acceptable because the discrimination is based on elements and requirements that are essential to the job. On the other hand, it is not legally fair to require that truck drivers be white or male or Catholic or under forty years old because these requirements are not necessary to perform the job. Any discrimination in the selection of employees must respect the rights granted by these laws and regulations, and must be based on job-related characteristics. The various anti-discrimination laws cited above do not provide applicants with a right to a given job. Obviously if there are thirty applicants and one job, the employer does not have a duty to hire more than one applicant for that job. The laws, and the regulations interpreting them, do grant to job applicants in the United States the right to be treated fairly. They specify various forms of unfair treatment (discrimination based on non-job-related factors such as age, gender, ethnic background or disability) and impose duties on employers to observe the rights of applicants not to be excluded from a job based on any of these factors. Position Rights of Applicants When a person applies for a job, he or she obtains certain rights as an applicant. Many of these rights are reinforced by the legal system, because they are also citizen rights as discussed above. However, they only become relevant when an individual applies for a job. All citizens have a right to keep their life or their property, with some limitations. These rights, granted by the government, are universally applicable. Only those citizens who apply for a job have the right, in any practical sense, to be considered for the job without regard to their race or gender or age. When an applicant is hired for a position, and thus no longer has the status of applicant, some of their rights as applicant no longer apply. Regulations prohibit employers from asking applicants their age. New employees who are eligible for benefits must provide this information for insurance and other benefit purposes. Applicants have a right not to be subjected to random drug testing; employees, at least under certain circumstances such as safety-related positions, no longer have this right. Once an individual’s position changes from applicant to employee, both that individual’s rights and the employer’s duties change in some respects. As we will see below in our discussion of the rights of companies, finalists for positions, while they are still applicants, are in a different situation than the general applicant pool. Finalists may be required to successfully complete drug tests, physical exams, and sometimes other forms of background checks. Citizen Rights of Employers We have been discussing the employment process in companies that already have a number of employees. We have considered the company to be the employer, and not the individual or individuals within the company who actually engage in the process. However, individuals representing the company post jobs, screen applications, conduct interviews and/or make offers. A hiring manager, in that capacity, represents the organization. In a real sense, the hiring manager’s actions are the actions of the organization. A hiring manager who behaves unethically undermines the organization and its pursuit of moral responsibility. In contrast, a hiring manager that acts ethically

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promotes the ethical values of the organization. Thus, it is essential that organizations develop clear guidelines and hiring procedures that adhere to legal and ethical principles and ensure that each hiring manager is carefully trained in these procedures. At the same time, it is imperative each hiring manager seriously consider his or her role as an ambassador for the organization with both those individuals who may ultimately join the organization as well as those who may either be denied that opportunity or turn it down in the application process. This requires that hiring managers take into account the organization’s various rights and duties. Corporations are legal persons: they have legal rights and legal duties. As described above, these may be referred to as the corporation’s citizen rights and duties. They are also sometimes described as having moral or ethical duties, although their moral rights are less often discussed. A corporation’s citizen/legal rights and duties are related to its moral and ethical duties. It is useful to think of moral and ethical duties as a pyramid with legal considerations at the base. There is an ethical or moral duty to obey the law, and thus to observe citizen rights and duties. The law is the starting point. However, to complete the pyramid of ethics and morals, it is essential to go beyond the legal code. In terms of duties, corporate social responsibility is a concept that has been widely discussed in recent years. Its precise meaning varies from author to author, and no generally agreed upon definition has emerged. The broad notion is that corporations owe duties not just to their owners, the stockholders, but also to a variety of additional people and entities including the environment. There is broad overlap between corporate social responsibility and stakeholder theory. The antithesis of corporate social responsibility was spelled out in a famous article by Milton Friedman (Friedman 1970). In it, he maintains that the only duty of corporate managers is to the company’s stockholders, and that any other use of corporate resources is wrong. The only limiting factors mentioned by Friedman are that corporations should act within the bounds of the law and of ethical standards. He does not elaborate on what he means by ethical standards. Beginning in the 1980’s an alternate theory was proposed. According to stakeholder theory, an organization’s stakeholders include those individuals and entities that can affect or are affected by the company’s actions (Freeman 1984). Stakeholder theory maintains that in modern times corporations have obligations to their multiple and varied stake holders. Whether one accepts Friedman’s limited view of corporate duties or the broader views of stakeholder theory and corporate social responsibility, corporations do have some moral duties. As we explained earlier in this paper, duties and rights go together. We have already discussed the rights of applicants and the duties that those rights impose on employers. We now turn to the rights of corporations and the duties imposed by those rights on applicants. As stated above, the most inclusive category of rights is human rights. While corporations are considered under the law as legal persons, they clearly are not human. Hence it does not make sense to speak of the human rights or duties of corporations. A corporation receives its status as a legal person when its charter is approved by a State. This means that a corporation can sue and be sued within the framework of the law. It has both citizen rights and duties under the law. For example, not every corporation has the legal right to conduct a criminal background check on an individual, but a corporation considering the individual as an applicant for a sensitive position does have this right. As legal persons, corporations have citizen rights, or rights granted by law, with respect to applicants for employment. Among these rights are those pertaining to information-gathering. When a corporation is trying to hire someone to fill a position, it has the legal right to gather relevant information about those who apply for the job. A corporation could not legally pick someone from a group of people passing by its offices and demand that they submit to a drug test. However, it can legally require one or several finalists from a pool of applicants to undergo drug testing. The individual involved does not have to take a drug test, but if they refuse to do so, the company can refuse to hire them for the open position and it will be legally justified in doing so. Similarly, companies have the right to ask applicants to provide information relevant to the selection process. An applicant can refuse to provide the information and withdraw from the pool of applicants, but cannot gain a legal judgment against the company for seeking the information. Whether the information requested of applicants pertains to work or educational history, to past criminal convictions, or to the ability to perform physical tasks required by the job, the company has the legal right to the information in the sense that it breaks no laws by asking. The company also has the legal (citizen) right to verify information provided by verifying past employment, running a criminal background check, or requiring the candidate to undergo drug testing. A corporation also has the legal or citizen right to determine the minimum qualifications for a position, as well as the salary. An applicant who is offered a position can request a higher salary than that offered, but it is the company and not the applicant who has the legal right to decide. The same is true of benefits offered for the position. A company’s rights in this area are limited by various laws such as minimum wage provisions, but within the limits of the law the company has the right to determine compensation provisions.

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Position Rights of Employers Corporations also have position rights. Not every corporation has the right to do a criminal background check on an individual, but a corporation considering the individual as an applicant for a sensitive position does have this right. In this section, we consider the position rights of corporations with regard to applicants. While a corporation does not have a human right to be told the truth, and may not have a citizen right to truth-telling (for the most part, lying on an employment application is not illegal), by its position as prospective employer it does have some rights which impose duties on applicants to tell the truth that would not otherwise be present. Since there is usually no contractual relationship between an applicant and a corporation, contract rights are not relevant here. By its position of prospective employer, a company has the right to truthful answers to the questions it asks of applicants. It is not illegal for an applicant to lie on an application. Companies do not sue applicants who are found to have lied. However, a company can refuse to hire an applicant who lies on an application, or terminate an applicant who has been hired and subsequently has been found to have lied on the application. A company does not have this same right to truthfulness from the public at large, so the position of prospective employer does give the company moral rights it would not otherwise have. These rights impose duties of truthfulness on applicants that would not otherwise exist. The applicant has no duty to truthfully disclose his educational background or criminal record to any company that asks, but does have such a duty to the company which is his prospective employer. The rights of corporations in the hiring process are less extensive than those of applicants, but they do exist and their existence explains some procedural aspects of the ways in which applicants provide information and companies verify it. The rights of corporations are limited by various laws and regulations. As a general rule, companies may not request information in the application process which they cannot legally use in making the employment decision. Thus it is acceptable for an application form to require that an applicant provide information about previous employers, but not about churches attended, unless the applicant is applying to be a minister of the church. Once again, the questions simply need to be directly job-related. SUMMARY AND CONCLUSION We have seen that both the law and ethics each provide rights and corresponding duties. These are sometimes but not always the same rights and duties. Ethical rights can arise from law; this is the class of rights that we have called citizen rights. They can also arise from the fact that one is a human (human rights) or from the fact that one holds a certain position, such as applicant (position rights). The range of ethical or moral rights and duties is wider than that of legal rights and duties. In the United States, there is an extensive body of laws, regulations, and court decisions that govern the hiring process. Other countries have such laws, regulations and court decisions also, but their content varies from one country to another. Human rights, such as truth-telling and dignity should apply to job applicants and to employers no matter what country they are in. We stated earlier that the primary purpose of the hiring process is to select the best available applicant for the job that is open. Different companies take different approaches to accomplishing this goal. Stability in the hiring process can help to provide fairness in the way that applicants are treated (Alder & Gilbert 2006). Such fairness is important in respecting the rights of both applicants and the company. Put another way, all applicants have certain rights, as well as duties, in the hiring process. Some of these rights and duties are spelled out by law. We have developed the argument that there are additional rights and duties present in the hiring process, and that these can be identified as ethical or moral rights and duties. If an employer wishes to establish, or to review, its hiring process, the notion of position rights is quite useful in thinking about standard practices such as information-gathering and communication with applicants. Permissible and impermissible actions within the hiring process are determined by law and ethics, with ethics providing a broader framework than law. This framework forces attention to work-related characteristics of the applicants, and to prudent checking of information provided by applicants and used in the decision process. Such a process makes it more likely that the best available candidate will be hired, and whenever this is accomplished the business as well as the candidate benefits. Whether an individual is hired for the position or not, if they complete the process feeling that their rights have been respected and having acted honorably in their duties toward the hiring company, the individual, the company, and observers of the process will all recognize that business has been conducted well.

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Alder, G., & Gilbert, J. 2006. Achieving ethics and fairness in hiring: Going beyond the law. Journal of Business Ethics, 68: 449-464. Alder, G., Schminke, M., & Noel, T. 2007. The impact of individual ethics on reactions to potentially invasive HR practices. Journal of Business Ethics, 75: 201-214. Alge, B. 2001. Effects of computer surveillance on perceptions of privacy and procedural justice. Journal of Applied Psychology, 86: 797–804. Bies, R., & Moag, J. 1986. Interactional justice: Communication criteria of fairness, In R. Lewicki, B. Sheppard, & M. Bazerman (Eds.), Research on negotiation in organizations (JAI Press, Greenwich, CT), pp. 43–55. Bok, S. 1989. Lying: Moral choice in public and private life. New York: Vintage Books. Donaldson, T., Werhane, P., & Cording, M. 2002. Ethical issues in business, a philosophical approach. Upper Saddle River, N.J.: Prentice Hall. Eddy, E., Stone, D., & Stone-Romero, E. 1999. The effects of information management policies on reactions to human resource information systems: An integration of privacy and procedural justice perspectives. Personnel Psychology, 52: 335–358. EEOC website: http://www.eeoc.gov. Freeman, R. 1984. Strategic management: A stakeholder approach. Marshfield, MA: Pitman Publishing. Friedman, M. 1970. The social responsibility of business is to increase its profits. New York Times Magazine, September 13, 1970. In T. Donaldson, P. Werhane, & M. Cording (Eds.), Ethical issues in business: A philosophical approach. Upper Saddle River, N.J.: Prentice Hall, 2002. pp. 33-38. Gilliland, S. 1993. The perceived fairness of selection systems: An organizational justice perspective. Academy of Management Review, 18: 694-734. Halbert, T., & Ingulli, E. 2006. Law and ethics in the business environment. Mason, OH: West Legal Studies in Business. Hickens, M. 1998. The tables have turned. Management Review, 87: 6-8. Ignatieff, M. 2001. Human rights as politics and idolatry. Princeton, NJ: Princeton University Press. Lyons, D. 1984. Ethics and the rule of law. Cambridge, U.K. Cambridge University Press. Merriam-Webster. 1996. Webster’s college dictionary. New York: Random House. Pfeffer, J. 1998. The human equation: Building profits by putting people first. Boston, MA: Harvard Business School Press. Stone, D., & Kotch, D. 1989. Individuals’ attitudes toward organizational drug testing policies and practices. Journal of Applied Psychology, 74: 518–521. Stone-Romero, E., Stone, D., & Hyatt, D. 2003. Personnel selection procedures and invasion of privacy. Journal of Social Issues, 59: 343–368. Sumner, L. 2000. Rights. In H. LaFollette (Ed.), The Blackwell guide to ethical theory. Malden, MA: Blackwell Publishers.

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Sundstrom, E., Burt, R., & Kamp, D. 1980. Privacy at work: Architectural correlates of job satisfaction. Academy of Management Journal, 23: 101â&#x20AC;&#x201C;117. Warren, S., & Brandeis, L. 1890. The right to privacy. Harvard Law Review, 4: 193â&#x20AC;&#x201C;220. Westin, A. 1967. Privacy and freedom. New York: Atheneum.

Joseph Gilbert is an associate professor of management at the University of Nevada, Las Vegas. He received his Ph.D. in business administration with an emphasis in strategy from the University of Southern California. His primary research is in the field of business ethics, with particular emphasis on manager-related issues. He has published in the Journal of Business Ethics, Ethics and Behavior, Business Horizons, and others. G. Stoney Alder is an assistant professor of management at the University of Nevada, Las Vegas. He received his Ph.D. in organization management with emphases in organizational behavior and human resource management from the University of Colorado at Boulder. His current research interests include organizational justice, business ethics, and performance monitoring. He has published in Organizational Behavior and Human Decision Processes, Human Resource Management Review, Journal of Business Ethics, Management Communication Quarterly, Journal of Applied Communication research, and others. Daniel McAllister is an associate professor of management at the University of Nevada, Las Vegas. He earned his Ph.D. in organization theory and management with emphases in organizational behavior and decision theory from the University of Washington in Seattle. His current research interests include performance evaluation strategies, examination question philosophy, and the impact of measurement on goal attainment. He has published in The Academy of Management Journal, Organizational Behavior and Human Performance, and others

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Legal and Ethical Issues Associated with Employee Use of Social Networks Gundars Kaupins, Boise State University Susan Park, Boise State University Social networking sites such as Facebook and Twitter can help employees enhance a company’s marketing, recruiting, security, and safety. However, employees’ use of social networking sites and employers’ access of those sites can result in illegal and unethical behavior, such as discrimination and privacy invasions. Companies must gauge whether and how to rely upon employees’ use of personal social networking sites and how much freedom employees should have in using networks inside and outside of the companies. This research summarizes the latest legal and ethical issues regarding employee use of social networks and provides recommended corporate policies. Online social networks (OSNs) provide employees and job applicants with a powerful vehicle to communicate personal and company information. These Web-based services, which include Facebook, MySpace, Twitter, LinkedIn, Wikipedia, YouTube, Yelp, and Flickr, and others, “allow individuals to (1) construct a public profile..., (2) articulate a list of other users…, and (3) view and traverse their list of connections” (Boyd and Ellison, 2007: 1). A broader definition of OSNs also could include Internet forums, blogs, online profiles, podcasts, e-mail, instant messaging, music-sharing, and voice over IP (Churches, Crockett, and Jukes, 2010). OSN use has seen significant growth in recent years. Facebook especially has grown so much it is number one among OSNs (Churches et al, 2010). As the number of Facebook and other OSN users continues to rise, so too will the amount of personal information employees and job applicants post. A quick Google search of “Facebook” and “employment” results in numerous examples of job applicants or current employees, particularly young ones, who have been denied or lost a job because of personal information posted on an OSN site such as Facebook or MySpace. Moreover, the number of employers who research applicants and employees on the Internet is also on the rise. A recent survey indicates that 75% of U.S. recruiters and human resource professionals research job applicants on the Internet, including social networking sites. A large majority of those surveyed have rejected applicants because of information they have discovered online (Rosen, 2010). Employers may encourage employees’ engagement with personal OSN sites to enhance marketing and recruit new employees. Job applicants may use OSNs to their advantage when seeking employment by posting only information which shows them in a positive light. However, the possible consequences of posting personal information on an OSN, or elsewhere on the Internet, may outweigh the benefits, especially for young college graduates who are more likely to participate in online social networking than older employees. Moreover, posting personal information also can lead to ethical lapses such as privacy violations, inaccuracies, subjectivity, and sharing inappropriate information. Using the Internet to search job applicants and current employees raises legal and ethical questions that both employers and employees should consider, such as privacy, discrimination, fairness, and authenticity. Legal Issues The Internet offers employers with an easy, inexpensive way of exercising their duty to learn as much job-related information about applicants and employees as possible. Employers generally have an affirmative obligation to act reasonably with regard to hiring and supervising employees. Regarding hiring, employers have a duty to exercise reasonable care when researching particular applicants. This means that employers typically have an obligation to do a reasonable investigation of the employee, including job qualifications, work history, and personal character. The employer has a similar obligation with regard to supervising and retaining current employees (AmJur2d Employment, 2009). These obligations may compel employers to “Google” employees (i.e. search the Internet) for information about job applicants and even current employees to avoid subsequent liability should they discover material which indicates that the applicant or employee is unfit for the job. “Googling job applicants offers a compelling substitute for a reference, as a search is more likely to reveal (snippets of) the character of the applicant” (Sprague, 2008: 399). On the other hand, some practitioners advise against searching the Internet for information about applicants and employees. One employment attorney stated that “it’s unlikely employers are going to learn a good deal of job-related information from a Facebook page they won’t learn in the context of a well-run interview, so the potential benefit of doing this sort of search is outweighed by the potential risk” (LegalBlogWatch, 2009: 1). This may be especially true when considering that employers continue to have traditional avenues through which to investigate applicants. If

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employers do search applicants’ OSN sites, they should document a legitimate business reason for rejecting applicants who have been researched on the Internet, and perhaps even disclose the practice to job applicants and employees before doing the search (LegalBlogWatch). At-will Employment An analysis of employment law and employee rights typically begins with the doctrine of employment-at-will. In general, employees in the United States are employed at will, which generally means they may be fired for any reason or no reason at all (Gutman, 2003; Sprague, 2008). This means that an employer may generally have the right to refuse to hire a job applicant or to terminate an existing employee based upon information publicly posted by or about the applicant or employee on Facebook or another OSN site. However, most states recognize two or three common law exceptions to employment-at-will. For instance, a majority of states recognize a public policy exception which generally means that an employer may not take any adverse action against a job applicant or employee for reasons that violate official public policy. A second exception prohibits employers from terminating an employee in violation of an express or implied contract of employment (Gutman, 2003). Finally, in a small handful of states, employers are prohibited from taking action against an employee that violates an implied covenant of good faith and fair dealing. Generally, courts have applied the implied covenant of good faith and fair dealing to situations in which the employer gave the employee a benefit, such as sick or personal leave, and then treated the employee unfairly for taking advantage of the benefit the employer provided (Lee, Thue, et al., 2009). Of these three common law exceptions, violation of public policy is the most likely to apply to a situation in which the employer relies upon information posted by or about the applicant or employee on the Internet (Gutman, 2003; Lichtenstein and Darrow, 2006; Patel 2007). The public policy exception encompasses several different scenarios: whistle-blowing, exercise of a statutory right, performance of a statutory duty, or a refusal to break the law (Zehrt, 2010). This means, for instance, that an employee who posts public information about the employers’ illegal activity on the employee’s personal OSN site, or who mentions being called to jury duty (a typical statutory duty) may be protected from retaliation for such posts (Gutman). With regard to whistle-blowing in particular, many federal statutes specifically provide protection for employees against retaliation for reporting the employer’s illegal behavior. Zehrt reports that “[a]lmost all of the federal civil rights statutes enacted in the twentieth century contain specific provisions protecting employees from retaliation” (Zehrt, 2010; 152). For instance, the Occupational Safety and Health Act (OSHA) (2006), National Labor Relations Act (NLRA) (2006), Employee Retirement Income Security Act (ERISA) (1974), Family and Medical Leave Act (FMLA) (1993), and Sarbanes-Oxley Act (2002) all contain provisions that protect employees from retaliation for simply opposing an unlawful practice and for participating in an investigation, hearing, or proceeding regarding the unlawful act. A small handful of states have limited the application of the at-will employment doctrine by providing specific protection to employees for private legal behavior. For instance, North Dakota and Colorado have enacted statutes which protect employees from adverse employment action for any off-work activities which are otherwise legal and which do not have a negative impact on the employer’s business. However, these statutes typically contain a businessrelated exception which can be far-reaching. As Sprague points out, “[i]mportantly, all of these statutes also condition the conduct of not having any connection with the employer’s business concerns. An employer could argue that information derived about a candidate, from the Internet, had a direct correlation to the employer’s business since it was used in the hiring decision. …Today’s employer may argue it has a legitimate business interest in whether its employees are publishing pictures on the Internet of themselves drinking excessively” (Sprague, 2008; 415). Marsh v. Delta Airlines (1997) provides an example of this. In Marsh, the Colorado Supreme Court held that an employee who was terminated after openly criticizing the employer in a letter to the editor of a local paper was not wrongfully discharged because the letter was a breach of the employee’s duty of loyalty to the employer and was thus work-related. An employee’s duty of loyalty extends beyond a mere duty to refrain from publicly embarrassing the employer. Lee, Thue, et al, point out that: According to the Restatement (Third) of Agency, the duty of loyalty is broad and includes both the duty of obedience and confidentiality. Modern law also interprets the duty of loyalty to include an obligation to refrain from acting in a manner that would adversely impact an employer’s interests. …an employee may also be in breach of the duty of loyalty where he has engaged in ‘[h]armful speech, insubordination, neglect, disparagement, or disruption of employer-employee relations…,’ or where he brings ‘dishonor to the business name, product, reputation or operation.’ In fact, the prevailing rule directs that an employee breaches the duty of loyalty by merely criticizing the employer’s products or services. …In sum, in most cases, an employer is

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justified in terminating the employee for publishing negative or confidential employer information on the Internet (Lee, Thuet al, 2009: 411-12). Discrimination Many federal discrimination statutes, such as Title VII of the 1964 Civil Rights Act (1964), the Americans with Disabilities Act (ADA) (1990), and the Age Discrimination in Employment Act (ADEA) (1967), protect employees and job applicants from discrimination on the basis of personal characteristics, status, and religious beliefs. Various state statutes also protect employees from discrimination on the basis of a wide variety of personal characteristics such as marital status, political affiliation, sexual orientation, and veterans’ status (DeCenzo and Robbins, 2010). Employers who access an applicant’s Facebook or other OSN page may in, many circumstances, discover information that human resource experts routinely advise employers not to ask about in an interview. Personal OSN pages, such as those on Facebook or MySpace, typically reveal all sorts of information about the user’s characteristics, some of which may be protected. For instance, the applicant may reveal information about her marital status, political affiliation, and religious beliefs. Photos may show the applicant’s race, age or gender. Evidence of a possible disability may be available. An employer who has access to such information may find it difficult to avoid relying on it when making employment decisions. As Byrnside states, “employers that make hiring decisions based on applicants’ social networking profiles may find it difficult to defend against a claim that this information was used as the basis for their hiring decisions. This would be particularly true if it was found that applicants with a certain characteristic of a protected class - race, sex, age, or disability - were being systematically refused by employers who viewed applicants’ social networking profiles at the earlier stages of the application process” (Byrnside, 2008: 463). Privacy Privacy is perhaps the most common legal and ethical issue raised in discussions of employers who search the Internet for information on employees and applicants. Invasion of privacy suits generally involve a claim that the defendant intruded into an area in which the plaintiff had a reasonable expectation of privacy (Brandenburg, 2008; Byrnside, 2008), and may take one or more of three possible forms: intrusion upon solitude or seclusion, public disclosure of private facts, or publicly placing an individual in a false light (Gabel and Mansfield, 2003). Recent literature suggests that intrusion upon seclusion is likely the most appropriate tort applicable to situations in which employees have been terminated because of personal social networking (Lichtenstein and Darrow, 2006). In related cases regarding online communication such as computer Internet access and work e-mail systems, most courts have held that employees do not enjoy a reasonable expectation of privacy in these areas because the employer has legitimate interests for monitoring this type of workplace activity, such as protection of property rights, managing employee performance, and protecting employees from workplace harassment (Sprague, 2007). This attitude is likely to apply to social networking as well. The following statement by Sprague (2008) is indicative of the prevailing opinion. “Current privacy law suggests that a job applicant who posts embarrassing or personal information on a blog or within a social networking site which can be accessed by anyone with an Internet connection should have no expectation of privacy, and therefore, no recourse, when that publicly-available information is viewed, and potentially used, in an employment decision” (Sprague, 2008: 407). The limited available case law indicates fairly clearly that employees who willingly post personal information on the internet, even on a personal OSN page which allows access to only friends or others in the user’s contact list, do not have a reasonable expectation of privacy in that material. For instance, in U.S. v. Gines-Perez (2002), the U.S. District Court in Puerto Rico considered whether a criminal defendant whose image was posted on his employer’s public website had a reasonable expectation of privacy in that image. The Court held that “[a] reasonable person cannot place ‘private’ information - such as a ‘private’ photograph - on the Internet, if he or she desires to keep such information in actual ‘privacy.’ A reasonable person does not protect his private pictures by placing them on an Internet site” (Gines-Perez, 2002: 225). More recently, in Moreno v. Hanford Sentinel, Inc., (2009), the California Court of Appeals wrestled with the question of whether publishing information on a social networking site could be considered private if the intent was to reach only a limited audience. In Moreno, the plaintiff posted content about her hometown on her personal MySpace page, which was available only to those she granted access. When the principal of her former high school submitted her post to the local newspaper as a letter to the editor, attributed to the plaintiff, the community responded with violence and death threats against the plaintiff and her family, who subsequently closed the family business and then sued the defendant and school district for invasion of privacy and infliction of emotional distress. In language

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similar to the court’s in Gines-Perez, the Moreno court ruled against the plaintiff’s privacy claim, noting that an individual who published information on the Internet could not have a reasonable expectation that it would remain private, despite the fact that she anticipated only a limited audience (see also Dexter v. Dexter, 2007). Thus, while many applicants and employees who participate on an OSN site may believe they have created a reasonable expectation of privacy by relying upon the privacy settings the site provides them, the law does not appear to support such a claim, absent some additional facts suggesting employer wrongdoing. As discussed below, an invasion of privacy claim may succeed if the employer goes beyond a general Internet search for public information and gains access to the employee’s OSN page through illegal means. Unauthorized Access - Stored Communications Act The Stored Communications Act (SCA) (2000) prohibits any person from intentionally accessing a “facility through which an electronic communication service is provided” without authorization. Two federal courts have considered the definition of “authorized user” in cases in which an employer gained access to an applicant’s or employee’s personal OSN account through questionable means. In Konop v. Hawaiian Airlines (2001), a Hawaiian Airlines pilot (Konop) created a Website through which he and other employees criticized Hawaiian Airlines’ handling of its negotiations with the pilots’ union. Only those Konop approved and provided with a password could access and make comments on the site. The site’s terms and conditions specifically prohibited any Hawaiian Airlines management from accessing it, and also prohibited approved users from sharing information found on the site with outsiders. When two Hawaiian Airlines pilots gave their username and password to the President of the company, who then accessed the site several times without Konop’s permission, Konop sued Hawaiian Airlines claiming, among other things, violation of the SCA. Noting that the SCA provides protection only to authorized users of an internet service, the court held that the Vice President was not such an authorized user and, as such, violated the SCA when accessing Konop’s site through the other pilots’ user information. More recently, in Pietrylo v. Hillstone Restaurant Group (2009), the U.S. District Court of New Jersey considered an issue similar to that in Konop. In Pietrylo, a group of employees created a MySpace page for the purpose of criticizing the employer. The defendant employer was not an authorized friend of the site and so requested, and received, the login information from another employee, who testified at trial that she felt as though she was required to provide that information as part of her job. The court upheld the jury’s decision that the defendant’s access of the site was not authorized because the employee was “coerced” into provide the information, and thus the employer violated the SCA. It is important to make clear that Konop and Pietrylo apply only to situations in which the information was not available to the employer by other means. If the information is publicly available, even though the employer gained unauthorized access, the employee’s claim might fail because the employee was still in control of the information and chose to post it on a quasi-public forum (Byrnside, 2008). Also, the SCA is unlikely to apply to situations in which an employer actually hires students or other young people demographically similar to job applicants for purposes of “friending” the applicants to gain access to their sites. This type of sleuthing, while possibly unethical (see below), is not likely to violate the SCA because the applicant willingly allowed access to the “spy” (Brandenburg, 2008). Fair Credit Reporting Act The Fair Credit Reporting Act (FCRA) (1970) may provide an applicant a cause of action in a limited number of circumstances in which the employer hires a third party to conduct a background search of the applicant. The FCRA provides that job applicants must be notified when employers hire a third-party company to conduct a background check of the applicant. The FCRA is not likely to apply in those cases in which the employer does the Internet searching itself. “However, if an employer hires a third party to search applicants’ profiles, the employer would be bound by the provisions of the FCRA. While the FCRA would not prohibit employers from using the information found in applicant profiles, it would at least require the employer to inform applicants that such an investigation would occur and that information from the investigation resulted in the adverse employment decision” (Byrnside, 2008: 465-66). The FCRA may also be applicable in those situations previously mentioned in which the employer hires outside “sleuths” to connect with job applicants by becoming “friends” of the applicant. Labor Law In Konop (2000), discussed above, the 9th Circuit Court of Appeals also considered whether the employee’s use of an e-bulletin board to criticize the employer Hawaiian Airlines’ negotiations with the pilot’s union violated the

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Railway Labor Act (RLA). Because Konop provided access to the site to other Hawaiian Airlines employees who also used the site to comment on the negotiations, the court held that the site was a form of concerted activity protected by the RLA. The Konop holding could easily be applicable to an OSN or other Internet sites as well, provided that more than one employee has access to the site and is contributing comments (Strege-Flora, 2005). Employer Vicarious Liability Employers would also be wise to consider their potential vicarious liability for posts an employee makes on a personal networking site. Employees who post defamatory or confidential information about others might subject the employer to liability if a court finds that the employee was acting within the course and scope of employment at the time. Even posts made on an employee’s personal social networking page might create employer liability if the employee posted the comments during the time and place of work or by using employer resources, or if the employer’s neglect of the employee’s work performance “made the activity possible” (Gutman, 2003: 151). Employee posts could also give rise to a cause of action against the employer for intentional infliction of emotional distress (Gable and Mansfield, 2003) or criminal liability (Gutman). Defamation Although unlikely, employers should consider the possibility that an applicant denied a job based upon information the employer discovers about the applicant on the Internet could sue the employer for defamation. For instance, if a company relies upon inaccurate information to make an employment decision and shares that information with others, the denied applicant could have a valid defamation claim (Byrnside, 2008). Legal Summary In summary, the legal issues employers may face as a result of employees’ Internet and social networking use are myriad and complex. It remains unclear how traditional law will apply to this relatively new source of information for employers. To avoid legal liability, employers may wish to implement a social media policy, such as the sample found in Figure 1. This may be especially important in light of the various ethical issues employee social networking may raise, as the next section discusses. Ethical Issues Laws and ethics are often closely linked but they involve different goals. Laws provide stability to social institutions. Individuals are penalized for specific acts that do not conform to the published rules. In contrast, ethics involve questions regarding why and how people should behave. They promote social ideas more than laws do (Candilis, 2002). Ethical issues go beyond legal concerns by focusing on the duties society expects of its members (Sims, 2003). Ethical questions frequently arise when existing law is inadequate to address new circumstances, such as the issues related to OSNs. Both legal and ethical considerations are needed to draft adequate employee handbook policies regarding OSNs. The purpose of this part of the paper is to raise and discuss the ethical issues surrounding employees’ and job applicants’ use of OSNs. This portion of the paper is divided into two sections: those ethical issues which point in favor of employers’ research of employees’ private social network sites and those issues which point against such use. A sample employee handbook statement associated with OSN use also is provided. Ethical Benefits Source of Recruits According to Rosen (2010), about 75% of companies research the Internet and social networking sites for recruiting and selection purposes. According to Olson (2007), job candidates may use social networking sites as resume banks for searching for education, experience, and other skills. Source of Information Employers can use OSN sites for selection to see what online behaviors current and potential employees exhibit. 86

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A relevant part of the interview process is to look at applicants in nonformal situations. With such a large investment in employees, the nonformal lifestyle might be a make or break issue to increase the chance of having the employees conform to the culture of the company and to reduce the chance of negligent hiring (Brandenburg, 2008). Accuracy Another argument for relying upon an employee’s or applicant’s social networking is to consider cross-reference accuracy. Beyond the resume and application form, employers need many ways to check applicants such as employment history, credit reports, and criminal activity (Kaupins and Park, 2010). Spotting Inappropriate Behavior Employers also have a simple legitimate interest in employees’ personal online behavior while at work. Numerous examples show up on the Web. Copyright violations, pornographic, obscene, or sexually explicit material, inflammatory language, cyberbullying, and language or images that advocate violence or discrimination toward other people are among the few examples of inappropriate behavior. Employers need to monitor such behavior and provide appropriate discipline (Bissonette, 2009; Kist, 2010; Nitzschke, 2006). Use of social networking sites might reduce the chance of negligent hiring if employers find potential illegal, unethical, unsafe, or dangerous behaviors in a social network that is backed up by hard outside evidence (Kaupins and Park, 2010). Employees might provide confidential information about their organization such as passwords, financial secrets, inventions, marketing programs, and business strategies. Warnock (2007) revealed that about 10% of organizations studied the unauthorized disclosure of financial information via message boards and blogs. Password revelations can lead to considerable hacking of corporate internal operations and Websites (Kaupins and Minch, 2006). Marketing Companies have been known to use social networking sites to market their products and services. They can create company communities on Facebook, post locally relevant updates and photos, read what company fans say about themselves to get clues about their needs, and provide incentives not only to visit the page but to buy the company’s products or services (Quigley, Summerfield, and Tarbox, 2010). Politics Facebook has been instrumental in helping Harvard students share political opinions since 2004. It also helped Columbians lead a campaign against guerillas known as the Revolutionary Armed Forces of Columbia (known by its Spanish initials - FARC). OSNs can potentially allow employees to air negative actions by management. According to Zuckerberg, founder of Facebook, a more transparent world might be governed better (Kirkpatrick, 2010). Ethical Problems Questionable Accuracy Social networking sites do not offer any guarantee that information posted on them is accurate, which can lead to legal and ethical hiring issues. Many sites do not have a verification process, and nearly all allow users to create profiles in another person’s name. Even factual information on a social networking site can be taken out of context (Kaupins and Park, 2010). Subjectivity Screening employees based upon information found on social networking sites may not be objective. Not all job applicants engage in social networking, and those who do often use different sites, each of which has different features and purposes. Thus, fair and equal treatment of job candidates may be difficult (Kaufman, 2008).

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Irrelevant Information According to Kaupins and Park (2010), employers can easily discover job applicants’ identity in terms of age, citizenship, disability, gender, genetic information, marital status, national origin, pregnancy, race, color, religion, sexual orientation, and veteran’s status though social networks. In addition to legal issues that may arise, as discussed previously, this may also pose ethical concerns for the employer. Loss of Company Secrets Current employees may post company secrets such as passwords, new products, or prototypes on their personal network sites. They may also defame competitors, clients, employees, suppliers, customers, or franchisers, or misuse proprietary information of clients (Bauer, 2010). Other inappropriate posts may include employee secrets such as passwords or other personal information, personal customer or stockholder information, such as Social Security numbers, and possibly inside information regarding ongoing labor negotiations. Employers who conduct regular Internet research of employees may discover and demand immediate removal of this type of information, thus limiting the potential damage. Privacy Many social networks are intended for personal use, especially popular sites such as Facebook and MySpace. The personal and professional lives of job candidates might be considerably different. Employers can find out about an employee’s interests, friends, and a host of other personal information that would not be related to the workplace (Whittier, 2006). Moreover, employees and applicants may purposely refuse to friend bosses to protect their privacy. Some companies have engaged in the practice of hiring young people, often college students, to “friend” applicants on behalf of the employer, who then has potentially unethical access to the applicant’s personal OSN page (Brandenburg, 2008). Reduced Productivity Employers may certainly have a legitimate business reason to search when employees are engaging in personal social networking. According to Woolnough (2008), the time employees waste on social networking sites is a main concern of 69% of employers. In addition to the simple personal activities employees engage in on social networking sites at work, they could also social networking at work to find other jobs. According to Gaudin, the use of Facebook in businesses cuts “an average of 1.5% in total employee productivity, according to a new report from Nucleus Research, an IT research company. The survey of 237 employees also showed that 77% of workers who have a Facebook account use it during work hours” (Gaudin, 2009: 1). Moreover, about 87% of those employees claim to have no legitimate business use of the site while on working hours. Ethics Summary In spite of social networking’s association with recruiting, marketing, and monitoring company information and employees, employers should be concerned about questionable accuracy, loss of company secrets, privacy violations, and decreased employee productivity. The foregoing discussion of the ethical considerations raised by employee social networking makes clear that appropriate employee monitoring and discipline are important. Employers would be wise to develop and enforce clear social media acceptable use policies, as discussed in the next section. Social Media Acceptable Use Policies A Peacock (2008) study found that 69% of companies seek more control over employees’ use of the Internet. Of those, approximately 50% have considered limiting Internet use to lunch times, and 33% have considered completely banning the personal use of the Internet at work. Seventy percent reports that they would consider discipline if they saw inappropriate photos on social networking sites that somehow reveal the employer. Deciding on whether to limit social networking inside the business is a function of the strategy of the business, potential positive opportunities, potential negative threats, and managerial ethical preferences. Management leadership styles may range from having complete control over employees by banning social networking to giving 88

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employees free range by offering few restrictions. The strategy of the business might allow considerable social networking inside and outside of the business not only because of the positive ethical considerations, as discussed above, but also because of the enormous amount of outside contacts and input it can create. Marketing opportunities are also significant. Potential negative aspects include legal problems with trade and discrimination laws and ethical problems with inaccuracy, subjectivity, false information, and lack of privacy. Whatever the case, given the increasing prevalence of social networking use, and the potential benefits employers may enjoy, companies should take strategic advantage of such use and create policies to keep up with social networking software challenges. According to Arnold (2009), when drafting such policies, employers should consider the restrictions on employees (the specific behavior both condoned and prohibited), employer monitoring, reporting violations, discipline, and acknowledgements. Below are some examples of major policy provisions developed by Winter Wyman Companies described in Arnold (2009). General Provisions Employees should be restricted in their company-related personal use of social media applications, which are numerous. Such applications include Facebook, MySpace, Twitter, LinkedIn, Wikipedia, YouTube, Yelp, Flickr, Second Life, Yahoo groups, Wordpress, ZoomInfo, Internet forums, blogs, online profiles, podcasts, e-mail, instant messaging, music-sharing, and voice over IP. Training All employees should be informed of organizational policies and be trained on the proper use of social networks. The training could also involve employee monitoring, reporting violations, Employee Monitoring Employees should have no expectation of privacy associated with the use of any social media applications. The company has a right to monitor anything on the Web. Reporting Violations Employees should report any violations of company social networking policy to their supervisors, managers, or HR department. Discipline for Violations The company should reserve the right to discipline employees concerning their behavior on social networks. Discipline may include oral warnings, written warnings, suspension, or discharge. The company should also reserve the right to take legal action for inappropriate Internet behavior by employees. Acknowledgement Employees should sign an agreement acknowledging they have read and understood the employerâ&#x20AC;&#x2122;s social networking policy (Winter, Wyman Companies 2009). Given the major issues shown above, Figure 1 reveals sample social networking policy statements. To avoid legal and ethical problems, corporations should consider implementing this or a similar statement. Figure 1: Sample Social Networking Policy Statements

1. If you have a personal social network and discuss job related materials about the company, identify yourself as a company employee and inform readers that your views do not necessarily match the views of the company. 2. All posts must be truthful. 3. If there are any testimonials concerning endorsing products or services, endorsers must disclose information showing the endorsement relationship (receiving the product for free or being paid to endorse). 4. Make sure that the message about the company is consistent with other messages related to the company.

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5. Ensure that all parties associated with social media within the organization are trained to appropriately use the media. 6. You might have to make a disclaimer that your views do not necessarily represent the company’s views. The views expressed on this website are mine and may not reflect the views of my employer. 7. Employees who have personal social media pages should ensure that such activity does not interfere with work. Employees may express their views as long as they don not conflict with company policies. 8. Employees may engage in social media activity during work if it is directly related to their work, approved by their manager, and does not reveal company clients, customers, or vendors without express permission. 9. Show respect for vendors, customers, managers and employees. 10. Employees may write about their jobs in general but should avoid disclosing confidential information 11. Do not post any financial, confidential, sensitive, or proprietary information about the company. 12. Employees should comply with all laws regarding their behavior, not just with social-media use. 13. Provide respect for current, former, and potential customers, employees, and competitors. 14. Social networks should not be a place to share personal complaints. 15. Forward unfavorable opinions or statements post about yourself or the organization to the human resources department. 16. Do not post obscenities. 17. If you have an in-house policy prohibiting anything other than neutral recommendations, posting online recommendations should be prohibited. 18. Do not post socially unacceptable or criminal behavior such as sharing information about sex or criminal accomplishments such as stealing from the company (Arnold, 2009; Bauer, 2010; Bissonette, 2009; Churches et al, 2010; Manafy, 2010). Future Research This study discussed many of the legal and ethical issues associated with social networking. Much of the focus of this research has been on major federal laws and court cases. Future research should update current federal law and also focus on state, municipal, and international law. The ethics research included some anecdotal and empirical studies. There will be many more studies analyzing organizational attitudes and behaviors. For example, a researcher could gather data on cases in which employees were terminated based on social network use to analyze increasing trends over time. Employers could be surveyed regarding their reactions to various types of information found about an employee such as race, religion, political affiliation, binge drinking, and other characteristics. Their reactions could affect hiring, compensation, training, and other human resource dimensions of an organization. Summary Social networking will be a major challenge for employers. Not only does it provide vital ethical benefits such as improving recruiting, enhancing safety and security, improving accuracy of information, enhancing discipline, and providing inexpensive yet useful marketing, but also it can create significant legal and ethical challenges such as invasion of privacy, discrimination, inaccuracy, and subjectivity. Companies must ascertain how they respond to employee social networking use by examining their corporate strategy, balancing the opportunities and threats of social networks, and by considering their ethical values. A policy might provide employee restrictions, employer monitoring, reporting violations, discipline, specific behavior condoned and forbidden, and acknowledgements. References Age Discrimination in Employment Act. 29 U.S.C. §§ 621 et seq (1967). Americans with Disabilities Act. 42 U.S.C. §§ 12101 et seq (1990). AmJur 2d. (2009). Employment relationship, 27, §§ 392-97. Arnold, J. 2009. Twittering and facebooking while they work: Set clear guidelines about the use of social media in the workplace. HR Magazine, 54: 53-55.

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Bauer, M. 2010. I know I need a social media policy: Now what should it say? Franchising World, 42: 1. Bissonette, A. 2009. Cyber law: Maximizing safety and minimizing risk in classrooms. Thousand Oaks, CA: Corwin. Boyd, D., & Ellison, N. 2007. Social network sites: Definition, history, and scholarship. Journal of ComputerMediated Communication, 13: 210-230. Brandenburg, C. 2008. The newest way to screen job applicants: A social networker’s nightmare. Federal Communications Law Journal, 60: 597-626. Byrnside, I. 2008. Six clicks of separation: The legal ramifications of employers’ using social networking sites to research applicants. Vanderbilt Journal of Entertainment and Technology Law, 10: 445-477. Candilis, P. 2002. Distinguishing law and ethics: A challenge for the modern practitioner. Psychiatric Times, 19. Retrieved September 8, 2005 from http://www.psychiatrictimes.com/display/article/10168/48616?pageNumber=1. Churches, A., Crockett, L., & Jukes, I. 2010. The digital diet: Today’s digital tools in small bytes. Thousand Oaks, CA: Corwin. DeCenzo, D., & Robbins, S. 2010. Fundamentals of human resource management. Hoboken, N. J.: Wiley. Dexter v. Dexter. 2007 WL 1532084 (Ohio App. 11 Dist.). Employee Retirement Income Security Act. 18 U.S.C. § 1001 et seq (1974). Fair Credit Reporting Act. 15 U.S.C. §§ 1581 et seq (1970). Fair Labor Standards Act. 29 U.S.C. §§ 215 et seq (1949). Family and Medical Leave Act. 29 U.S.C. §§ 2601 et seq (1993). Fletcher, D. 2010. Friends without borders. Time Magazine, May 31: 33. Gabel, J., & Mansfield, N. 2003. The information revolution and its impact on the employment relationship: An analysis of the cyberspace workplace. American Business Law Journal, 40: 301-351. Gaudin, S. 2009. Facebook cuts workplace productivity - survey. Computerworld, 25: 17. Gely, R., & Bierman, L. 2006. Workplace blogs and workers’ privacy. Louisiana Law Review, 66: 1079- 1110. Greenbaum, W., & Zoller, B. 2006, July/August. Court decisions impact workplace internet and e-mail. HR Advisor. Gutman, P. 2003. Say what?: Blogging and employment law in conflict. Columbia Journal of Law and the Arts, 27: 145-185. Kaupins, G., & Minch, R. 2006. Legal and ethical implications of employee location monitoring. International Journal of Technology and Human Interaction, 2: 16-35. Kaupins, G., & Park, S. 2010. Legal and ethical implications of corporate social networks. Employee Responsibilities and Rights Journal, Forthcoming. Kirkpatrick, D. 2010. The Facebook effect: The inside story of the company that is connecting the world. New York: Simon & Schuster. Kist, W. 2010. The socially networked classroom: Teaching in the new media age. Thousand Oaks, CA: Corwin. Konop v. Hawaiian Airlines, Inc., 302 F.3d 868 (9th Cir. 2001).

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Lee, K., Thue, M., Oldham, J., & Stephenson, T. 2009. An exercise for teaching the employment law implications of employee blogging. Journal of Legal Studies Education, 26: 399-431. LegalBlogWatch. 2009). Do employers using Facebook for background checks face legal risks? Retrieved August 3, 2010 from http://www.legalblogwatch.typepad.com/legal_blog_watch/2008/03/do-employers-us.html. Lex, R. 2007. Can MySpace turn into my lawsuit?: The application of defamation law to online social networks. Loyola of Los Angeles Entertainment Law Review, 28: 47-70. Lichtenstein, S., & Darrow, J. 2006. Employment termination for employee blogging: Number one tech trend for 2005 and beyond, or a recipe for getting Dooced? UCLA Journal of Law and Technology, 10: 4. Manafy, M. 2010. Social web etiquette. EContent, 33: 1. Marsh v. Delta Airlines. 952 F. Supp. 1458 (D. Colo, 1997). Millier, S. 2009. The Facebook frontier: Responding to the changing face of privacy on the internet. Kentucky Law Journal, 97: 541, 544. Milligan, T. 2009. Virtual performance: Employment issues in the electronic age. Colorado Lawyer, 38: 29. Moreno v. Hanford Sentinel. 172 Cal.App. 4th 1125, 91 Cal.Rptr. 3d 858 (2009). National Labor Relations Act. 29 U.S.C. §§ 151 et seq (1947). Nitschke, B. 2006, June. Investigating staff misuse of district technology. School Administrator, 63: 8. Occupational Safety and Health Act. 29 U.S.C. §§ 651 et seq (1970). Patel, B. 2007. Myspace or yours: The abridgement of the blogosphere at the hands of at-will employment. Houston Law Review, 44: 777. Peacock, L. 2008. Employers watch Facebook usage. Employers Law, 4. Pietrylo v. Hillstone Restaurant Group. 2008 WL 6085437 (D.N.J.). Quigley, K., Summerfield, B., & Tarbox, K. 2010. Tech it up a notch, 9 strategies for doing more with the technology and web sites you already use. Realtor Magazine, September 10: 20-24. Rosen, J. (2010, July 25). The end of forgetting. The New York Times Magazine. Sanders v. American Broadcasting Companies. Inc., 978 P.2d 67 (1999). Sarbanes-Oxley Act. 18 U.S.C. §§ 2510 et seq (2002). Sims, R. 2003. Ethics and corporate social responsibility: Why giants fall. Westport, CT: Praeger. Sprague, R. 2008. Rethinking information privacy in an age of online transparency. Hofstra Labor & Employment Law Journal, 25: 395. Sprague, R. 2007. Fired for blogging: Are there legal protections for employees who blog? University of Pennsylvania Journal of Labor and Employment Law, 9: 355. Stored Communications Act. 18 U.S.C. §§ 2701 et seq (2000). Strege-Flora, C. Wait! Don’t fire that blogger! What limits does labor law impose on employer regulation of employee blogs? Shidler Journal of Law, Commerce & Technology, 2: 11. Title VII of the 1964 Civil Rights Act. 42 U.S.C. §§ 2000d et seq (1964). 92

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U.S. v. Gines-Perez. 214 F.Supp.2d 205 (2002). Warnock, O. 2007. Networking or not working? Contract Journal, 440: 31-32. Whittier, D. 2006. Cyberethics in the Googling age. Journal of Education, 187: 1-86. Woolnough, R. 2008. Get out of my Facebook. Employerâ&#x20AC;&#x2122;s Law, May: 14-15. Zehrt, L. 2010. Retaliationâ&#x20AC;&#x2122;s changing landscape. George Mason University Civil Rights Law Journal, 20: 143. Gundars Kaupins is department chair and professor of management at Boise State University. He received his Ph.D. in human resource management from the University of Iowa and is a certified senior professional in human resources. He teaches human resource management, labor relations, and compensation. His publications include over 300 articles in job evaluation, training and development, Baltic studies, and human resource ethics in journals such as the Academy of Management Perspectives and International Journal of Technology and Human Interaction. Susan Park is a legal studies lecturer at Boise State University. She received her J.D. (summa cum laude) from the University of Idaho College of Law. She has taught legal environment of business, commercial law, and human resource law. Her current research interests include the use of social media in the workplace, employee privacy, and discrimination. Before teaching at Boise State, Professor Park was a law clerk at the Idaho Supreme Court and an attorney in private practice in Boise, Idaho.

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An Exploratory Study: Are AACSB Accredited Schools of Business Teaching Ethics Based on the Ethics Education Task Force Recommendations? Victor Heller, University of Texas - San Antonio Nathan Heller, Tarleton State University Janis Petronis, Tarleton State University Business leaders have tried to use one set of ethics for their professional responsibilities, another for their personal activities and still another for their family responsibilities. This circle of circumstantial ethics has gotten many leaders into trouble. Ethics is ethics! Given today’s ethical challenges, business ethics is the study of how personal moral norms apply to the activities and goals of the business. For purposes of this paper, business ethics is defined as the study of how individuals, at all levels of an business, try to make decisions and live their lives according to a standard of right or wrong behavior, Business ethics is not a separate moral standard, but the study of how the business environment poses its own unique challenges for the moral person who acts as an agent of the business. This paper examines the standards established for business ethics education in AACSB accredited undergraduate programs, the ethical challenges in today’s society, and a review of AACSB accredited business school courses to determine if they are addressing the AACSB standards and the ethical challenges in today’s business world.

Translated from the ancient Greeks, ethics refers to one’s theory of life (DesJardins, 2009). It addresses the question, how should I live my life? (Wicks and Palmer, 2009). Business ethics is often defined as the written and unwritten codes of principles and values that govern decisions and actions within a business. In the business world, the business’s leaders and culture sets the standards for determining the difference between good and bad decision making and behavior. The phrase business ethics is used to describe the actions of individuals within a business, as well as the business as a whole. Thus, business ethics is a vast field of study regarding the business’ situations, activities, and decisions where issues of right and wrong are addressed (Crane and Matten, 2010). Given today’s ethical challenges, business ethics is the study of how personal moral norms apply to the activities and goals of the business. Ethicist Ghillyer, (2009), defines business ethics as the…study of how people try to live their lives according to a standard of or right or wrong behavior, in both how they think and behave towards others and how they would like them to think and behave toward us. For some, it is a conscious choice to follow a set of moral standards or ethical principles that provide guidance on how they should conduct themselves in their daily lives. For others, where the choice is not so clear, they look to the behavior of others to determine what is an acceptable standard of right, and wrong or good and bad behavior. How they arrive at the definition of what’s right or wrong is a result of many factors, including how they were raised, their spiritual orientation, and the traditions and beliefs of their culture and society. Business ethics is not a separate moral standard, but the study of how the business environment poses its own unique challenges for the moral person who acts as an agent of the business. Business ethics deals with the choices of what the laws are verses what they should be and whether or not to follow them or how to follow them. It is the choices about the social and economic issues outside the domain of the law, and choices about the priority of selfinterest over the business’s interest. For decades leaders have tried to use one set of ethics for their professional responsibilities, another for their personal activities and still another with their family responsibilities. This circle of circumstantial ethics has gotten leaders into trouble. A morally educated leader is one, who is “equipped with ethical awareness, ethical reasoning skills…and is postured to shoulder the duties and rewards of (ethical) stewardship, including consideration of multiple stakeholders’ concerns, before making decisions and using power responsibility” (Jackson, 2006). Badaracco (1992) noted that leaders have four spheres of ethical responsibility; as a person, as a business leader, as an economic agent, and as acting beyond the firm’s boundaries. Thus, ethics is ethics! Business exists to make a profit. Without profits, a business could not be sustained. The economic point of view is therefore an essential factor in all business decision-making. However, long-term sustainability requires that business leaders build relationships with key stakeholders. Stakeholders are those individuals and outside organizations essential for the survival of the business. Primary stakeholders include; employees, financial institutions, shareholders, customers, vendors and suppliers, government regulators and community-at-large. Secondary stakeholders include; government regulators, special interest groups, citizens at large, etc., to mention a few. When making an economic

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decision, leaders should ask themselves: Is this decision in the business’s best economic interest, is this decision in my best economic interest as a leader, and is this decision in the business stakeholders’ best economic interest. It is essential that business leaders take into consideration the legal environment within which they operate. “If it’s legal, then it’s OK,” expresses the perception that the law is a sufficient moral compass for business leaders to anchor their decisions. However, is this always true? Is what is legal synonymous with doing what is right? How do business leaders know what is legal and right? Business leaders use laws and government regulations as guides for decision-making. However, governmental rules and regulations are often not definitive and are open for interpretation. Laws may not be clear and law making is slow. They, therefore, have to look to the courts for interpretations of laws and regulations. Court cases can take years to finalize, yet business leaders have to comply with laws and regulations today. However, the strength of the legal point of view, as a guide for business decisions, is that the law is the codification of society’s values. Thus, the law has historically addressed many of the ethical issues that arise in business. Business leaders often respond to pressures from the external political environment within which they operate. They may be challenged to make decisions which may or may not be in their best short-term economic interests, but may be in the business’ long-term economic interests. Additionally, business leaders may make external political decisions based on the best interests of the broader industry needs of which they are a part. Examples can include political contributions to candidates, political parties, political action committees, and industry lobbying efforts. Like all individuals, business leaders may make emotional decisions. External or internal pressures from various stakeholders, personal interests, or personal ego may lead to such decision-making. Such decisions, when not found to be economically feasible, are often disguised as “good public relations” or “good brand awareness” opportunities. Finally, business leaders make ethical decisions based on moral foundations. As ethicist Ciulla, martin and Solomon (2007) noted, what is thinking ethically? It is thinking in terms of compliance with the rules, implicit as well as explicit, thinking in terms of the contributions one can make as well as one’s own possible gains, thinking in terms of avoiding harmful consequences to others as well as oneself. Business decision-making is sloppy. Leaders should examine all points of view without one view dominating the others. For today’s business leaders, three of the five points of view must be balanced against the other two. Economic, legal and ethical decision-making represents an integrated approach. Political and emotional decision making can seldom be integrated into the other three. Often, they stand alone as the sole decision making referent. The integrative approach can maintain consistency and continuity for long-term business sustainability. The beginning of the 21st Century saw unprecedented business scandals in America. Names like British Petroleum, Enron, Adelphia, Halliburton, WorldCom, Tyco, Arthur Anderson, Dynegy, and Quest dominated the public’s awareness of business scandals. Handy (2002) noted that; few business leaders, thankfully, have been guilty of deliberate fraud or wickedness. All they’ve been doing is playing the game according to the new rules. Unfortunately, the American public was uncomfortable with these new rules. The public’s confidence has weakened in business America was shaken by excessive salaries and buyouts for leaders in poor performing companies, exorbitant earning by energy companies, outsourcing of jobs to developing nations, and the failure of financial institutions and the automobile industry. Ethics programs, as was expected, were effective in improving the ethical culture of businesses (Trevino and Brown, 2004; Kaptein and Avelino, 2005; Kaptein, 2008 and Kaptein, 2009). Critics claim that business schools had encouraged their students to focus too much on analytical skills in order to manipulate bottom line performance at all costs without consideration of the ethical implications of their actions (Mitroff, 2004; Ghoshal, 2005). They also argued that the theoretical foundations of business education were linked to ethical lapses of leaders trained in business schools. Business schools traditionally had taught transaction based economics, economic liberalism, or agency theory focusing on short-term profits at the cost of long-term profitability and stakeholders relationships (Mitroff, 2004). Ethicists argued that the teaching of these theories had freed business students from a sense of moral responsibility (Goshal, 2005; Podolny, 2009). Business schools took pride in, and marketed the success of their graduates, but they failed to assume any responsibility for their ethical failures. Another argument for the lack of adequate ethics education in business schools was the competitive nature of national rankings. These rankings of business schools placed emphasis on quantitative analysis courses and scientific research published by the faculty. Bennis and O’Toole (2005) noted the root cause of problems in management education was that business schools had adapted this self-defeating model of business education. Podolny (2009) expanded this argument by noting that business schools taught many technical skills, but they appeared to do little to foster responsibility or accountability. He went on to note that business schools taught leadership as a soft, big picture-oriented course, distinct from the details on which hard quantitative courses focused. Leadership was about setting vision, not the detail work that was done without consciously considering factors such as values and ethics (Podolny, 2009). Another root problem relating to ethics programs in business schools, identified

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by Sutton (2009), was “that too many (business schools) were infested with assumptions that reinforced and brought out the worst in human beings. Most economists are clueless about the nitty-gritty of management, which cannot be captured in elegant mathematical model.” Kerr (2009) advocated that business schools should not be held accountable for today’s financial and economic crisis. However, he noted the public has the right to expect our business schools to teach right from wrong relating to business principles and practices. Donovan (2009) reinforced this reasoning by noting, “Is it the responsibility of schools to teach ethics? I think it is-but only if it is done in the right way…they (students) need a simple tool kit that they can understand and have at the ready, not an impression that all ethics are relative or just intellectual chewing gum.” Jennings (2006) argued that, “it was not the knowledge of business ethics that was lacking in leaders, but a lack of a strong moral character to resist wrong-doing in the face of pressures.” Merritt (2003) and Beggs and Dean (2007) noted that, business ethics education was where careers begin, and it should play a significant role in cleaning up business America. It was where a leader began to understand the importance of becoming a strong moral being. Korten (2009) raised the questions; Do business schools have a responsibility to prepare their students to redesign the business system so that crucial public needs are met? Or are they merely fancy trade schools? Today, business leaders, policy-makers, investors, consumers and other stakeholders are increasingly concerned about the vibrancy of the capital markets and their responsible delivery of products and services. The National Business Ethics Survey (NBES) asks: Are bad business ethical practices threatening the American economic system? There is both good and bad news. The good news is: a) the number of formal ethics and compliance programs in business schools is on the rise, b) the companies that move beyond a singular commitment to just complying with laws and regulations and who adopt an enterprise-wide ethical culture are dramatically reducing misconduct, and c) the characteristics that comprise an effective ethical culture can be identified. (Ethics Research Center, 2009). The bad news, according to the NBES, is: a) ethical misconduct, in general, is high, and b) many employees are observing unethical practices. The most prominent observed ethical issues of misconduct are: business resource abuse, abusive behavior, lying to employees, email or Internet abuse, and conflicts of interest (Ethics Research Center, 2009). AACSB Business Ethics Task Force Recommendation Association to Advance Collegiate Schools of Business International (AACSB) accredited business schools and their undergraduate programs cannot be expected to assume total responsibility for ethical dilemmas in today’s business world. An undergraduate business education is not the only determinant of human behavior, and responsibility for ethics education is not the exclusive province of higher education. Nonetheless, business ethics education is part of a business curriculum; and AACSB International accreditation standards have mandated that ethics be taught as part of management degree curricula. In 2004, AACSB established the Ethics Education Task Force on the premise that the crisis in business ethics was not only a challenge for business America, but was also an opportunity to strengthen management education (Ibid, 2004). This report called for AACSB schools to renew their commitment to the centrality of ethical responsibility at both the individual and business levels in preparing business leaders. Both at the undergraduate and graduate levels, business schools are to encourage students to develop a deep understanding of the myriad of challenges surrounding business, business responsibility, and business governance. Additionally, they are encouraged to provide students with the tools they needed for recognizing and responding to ethical issues, both personally and organizationally and to engage them at an individual level through analyses of both positive and negative examples of everyday conduct in business. Faculty are encouraged to think more deeply and creatively about how to advance ethical awareness, ethical reasoning skills, and core ethical principles that would help to guide business leaders respond to a changing legal and compliance environment, as well as complex, conflicting, and sometimes highly problematic interests and opportunities (Ibid, 2004). AACSB fully recognized that each institution would identify different challenges and would use different approaches to business ethics education concurrent with their institutional mission. Four Broad AACSB Themes Four broad themes were identified as essential for a comprehensive undergraduate ethics program. These were: the responsibilities of business in society; ethical decision-making; ethical leadership; and business governance (AACSB, 2004). These four areas were viewed as the cornerstones of a comprehensive and viable ethics education curriculum in any AACSB accredited undergraduate business curriculum. First, the committee recognized that the first responsibility of business in society, in addition to providing profit

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to owners or shareholders, was to act lawfully, produce safe products and services at costs commensurate with quality, pay taxes, seek opportunities for wealth creation through jobs and investments, new technologies, and minimizes negative social and environmental impacts. Unless business leaders attended to all their responsibilities, achieving fair returns to shareholders was not possible. There was more to the story of business - than making money. Business and society were and are mutually interdependent. Society depends on business for wealth creation. Business depends on society for an environment wherein it can meet its obligation to create wealth. It was essential for undergraduate students to understand the symbiotic relationship between business and society, especially in terms of the moral dimensions of the power placed in the hands of owners and business executives. The decisions of business leaders affected not only the business, but also direct and indirect stakeholders, e.g., customers, employees, investors, suppliers, governments, citizens, and communities. Additionally, the abuse of power by business leaders undermined trust in business and in the markets needed to ensure commercial success. Second, AACSB accredited business schools were expected to help undergraduate students to understand the criticality of ethical decision-making in order to become effective and successful business leaders. Few undergraduates will be in the position to influence situations such as the BP Gulf of Mexico oil spill. But undergraduates, regardless of their levels in the business, will face issues of potential harm and fairness on a regular basis. Preparing students for ethical decision-making was to be a key component of the preparation of undergraduate faculty. Most business school undergraduates are at the conventional level of cognitive moral development, looking outside themselves to peers and leaders for guidance relating to ethical issues and dilemmas. The ethical messages leaders send and the business cultures which they create are potentially the greatest motivating force behind ethical behavior in business. Ethical leaders must be both “moral persons” and “moral leaders.” Additionally, leaders become moral leaders by recognizing and accepting their responsibility for acting as ethical role models. They “manage ethics” by communicating about ethics and values on a regular basis and by holding the business accountable for ethical conduct. Third, undergraduates will not be business leaders early in their careers; but they need to understand that, even as managers or supervisors, they may play a key ethical role in the business by influencing their direct reports. Managers and supervisors demonstrate ethical leadership by being open, fair, trustworthy, and caring with employees; by communicating about ethics and values; by role modeling ethical conduct; by focusing on means as well as ends in reward systems; and by disciplining unethical conduct when it occurs (Ibid, 2004). Undergraduate students often get their information from the electronic media; and, as a result, they are often cynical and skeptical about business ethics. Undergraduate students should learn about scandalous and unethical behavior, as well as business that operate at a higher level of integrity and social responsibility. Undergraduate students need to be familiar with the formal programs that support ethical conduct, such as the Cadbury Code and the King Report, the U.S. Sentencing Guidelines and the Sarbanes-Oxley Act. In many AACSB accredited schools, the commitment to ethics education cuts across the business curriculum. Honor codes for all students, a practice endorsed in the AACSB Standards interpretations, were frequently integrated into the business school curriculum. Such codes emphasized the importance of professional conduct, ethics and civility for administrators, faculty, and students in their professional and personal actions. Several other AACSB accredited schools adopted disciplinary systems, oaths, service projects, and other concepts to stress the importance of ethical behavior. Learning experiences encouraged undergraduate students to explore the cognitive and leadership influences on ethical decision-making in business settings. Additionally, it enabled undergraduate students to envision their responsibilities as business leaders who will manage their own ethics and the ethics of those who report to them. Fourth, although ethics education was vital, it may be unrealistic to assume an undergraduate ethics program will negate the likelihood of future managerial wrongdoing relating to business governance. Situational pressures on undergraduates will occur in the future when a course in ethics is far from the consciousness of the stressed individual. An undergraduate’s knowledge of the principles, practices, and philosophies of sound, and responsible business governance may be an important deterrent to unethical behavior. Additionally, an undergraduate student’s understanding of the complex interdependencies between business governance and other institutions, such as stock exchanges and regulatory bodies, can be an important factor in managing risk and reputation (Ibid, 2004). Several AACSB accredited schools have established centers for business governance, having designed curricula that included governance elements, learning goals, and measured outcomes. AACSB recommended topics included: the role and responsibilities of the governing board of directors, the role and responsibilities of the audit committee, an understanding of internal controls, the role and responsibilities of management, and critical monitoring activities such as internal auditing, elements of an effective code of conduct, understanding of U.S. Federal Sentencing Guidelines and Sarbanes-Oxley, the U.K. Cadbury Code, the King Report from South Africa, and similar regulations and recommendations from other parts of the world (Ibid, 2004). While the AACSB Ethics Education Task Force did not prescribe a particular curriculum, or course, it recommended that AACSB encourage its member schools and their faculties to renew and revitalize their commitment to ethical

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responsibility at both the individual and business levels. Schools were encouraged to demonstrate this commitment throughout their academic programs, assessment processes, research agendas, and outreach activities. The task force recommended that AACSB support and encourage a renaissance in ethics education and exercises its leadership role to ensure the commitment of business schools (Ibid, 2004). METHODOLGY During the fall 2009 and spring 2010 semesters, fifty AACSB accredited business schools were randomly selected, one per state, by the authors to examine the undergraduate business ethics course content, textbooks and related readings Universities ranged in size from approximately 4,000 to 55,000+ students. Syllabi were obtained online. Business school websites were also reviewed for additional information on the philosophy of teaching business ethics at that institution. A database was developed correlating the institutions and the four AACSB broad themes. These four themes were: a) the responsibility of business in society; b) ethical decision-making; c) ethical leadership; and d) business governance. The authors and three graduate students conducted a content analysis on the documents, identifying what four themes were covered in the course. A rating scale of 1 to 5, with one as the lowest and five the highest rating, was designed to evaluate the course content. Each team member scored each syllabus. A consensus was obtained through ongoing dialogues between the five participants of the averages. A second database was designed by the authors listing the institutions on the horizontal axis with identifying textbook(s) and related readings used in each course (see Appendix 1). The twenty-seven National Business Ethics Survey “Specific Forms of Misconduct” were listed on the vertical axis. These were: company resource abuse, abusive behavior, lying to employees, email or Internet abuse ,conflicts of interest, discrimination, lying to ,outside stakeholders, employee benefit violations, health or safety violations, employee privacy breach, improper hiring practices, falsifying time or expenses, poor product quality, stealing, sexual harassment, substance abuse, document alteration, misuse of company confidential information, customer privacy breach, environmental violations, misrepresent financial statements, accept gifts or kick-backs, use competitors’ information, anti-competitive practices, bribe public officials, insider trading, and illegal political contributions. As in the AACSB analysis, the authors and three graduate students conducted a content analysis on the textbook content and the content in the related readings of the course The team identified if the topics were addressed in the textbook and related readings, how they were addressed (text reading, case study, situational analysis, embedded in the reading as an example, or embedded in a question) and the depth of content was rated. Additionally, the team classified the behaviors to the AACSB Four Themes. A rating scale of 1 to 5, with one as the lowest and five the highest rating, was used. Each team member scored each textbook and related reading. A consensus was obtained through ongoing dialogues between the five participants (see Appendix 2). Analysis of Business Ethics Courses The content analysis of the fifty ethics courses revealed that the four broad AACSB themes; responsibility of business in society; ethical decision-making; ethical leadership; and business governance were inconsistently addressed in the courses. The responsibility of business in society was directly addressed in 100% of the courses reviewed. Ethical decision-making was addressed in 84% of the courses reviewed. Ethical leadership was addressed in 92% of the courses reviewed; and business governance was addressed in 88% of the courses. The intensity of content followed a similar pattern as above. The responsibility of business in society averaged 4.8; ethical decision-making averaged 4.2; ethical leadership averaged 4.6; and business governance averaged 3.9. The content analysis illustrated that AACSB undergraduate business ethics courses focused primarily on the: 1) responsibility of business in society, 2) ethical leadership, 3) business governance, and 4) ethical decision making. While ethical decision-making had the lowest scores, many of the other areas addressed the consequences of ethical decision making. Unfortunately, the authors found that most of the discussions evolved around applied decisionmaking with little references to theoretical ethical foundations of decision making. Content analysis of the twentyseven National Business Ethics Survey ‘Specific Forms of Misconduct” revealed a great deal of diversity in their course coverage. Findings The content analysis of the fifty ethics AACSB accredited undergraduate courses revealed that the AASCB four broad standards of the responsibility of business in society, ethical decision-making, ethical leadership, and business

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governance were addressed in all the courses examined. The responsibility of business in society was directly addressed in 100% of the courses reviewed. Ethical decision-making was addressed in 84% of the courses reviewed. Ethical leadership was addressed in 92% of the courses reviewed; and business governance was addressed in 88% of the courses. The authors believed that in the six years that the AACSB broad standards have been implemented, AACSB has been outstanding in communicating their expectations of classroom performance in business ethics education. Perhaps this was due in part to the association’s five year review of business school’s curriculum. SUMMARY AND CONCLUSIONS Given today’s ethical challenges, business ethics is the study of how personal moral norms apply to the activities and goals of the business. For purposes of this paper, business ethics was defined as the study of how individuals, at all levels of a business, try to make decisions and live their lives according to a standard of right or wrong behavior. This paper examined the standards established for business ethics education in AACSB accredited undergraduate programs, the ethical challenges in today’s society as presented in the 2009 National Business Ethics Survey, and a review of AACSB accredited business school courses to determine if they are addressing the AACSB standards and the ethical challenges in business. While the findings demonstrated that AACSB accredited business schools were successfully implementing ethics programs in the undergraduate programs, by addressing the associations four broad themes, added emphases was needed in the classroom to raise students’ awareness of the importance of a broader horizon of ethical issues confronting the workplace and society. The authors recognized the exploratory nature of this paper and the need for more comprehensive research across business disciplines. Further research could be discipline based to determine if what is learned in the general business undergraduate ethics courses is being transferred, by the student, into his/her selected discipline; can business ethics be taught in other ways than in the classroom; and how are AACSB schools accessing their students ethical understanding. REFERENCES Association to Advance Collegiate Schools of Business International. 20004. Ethics education in business schools: Report of the ethics education task force. Tampa, FL. Badaracco, J. 1992. Business ethics: Four spheres of executive responsibility. California Management Review, 34: 64-79. Beggs, J., & Dean, K. 2007. Legislated ethics or ethics education? Faculty view in the post-Enron era. Journal of Business Ethics, 71: 15-37. Bennis, W., & O’Toole, J. 2005. How business schools lost their way. Harvard Business Review, 83: 96-105. Crane, A., & Matten, D. 2010. Business ethics. New York: Oxford University Press. Ciulla, J., Martin, C., & Solomon, R. 2007. Honest work. New York: Oxford University Press. Desjardins, J. 2009. An introduction to business ethics. New York: McGraw-Hill/Irwin. Donovan, A. 2009. Can ethics classes cure cheating? How to fix business schools. Harvard Business Review, April 14: 42-46. Ethics Research Center. 2009. National business ethics survey. Washington, D.C. Ghillyer, A. 2008. Business ethics. New York: McGraw-Hill/Irwin. Ghoshal, S. 2005. Bad management theories are destroying good management practices. Academy of Management Learning and Education, 4: 75-91. Handy, C. 2002. What’s a business for? Harvard Business Review, December 1: 49-55. Jackson, K. 2006. Breaking down the barriers: Bringing initiatives and reality into business ethics education. Journal of Management Education, 30: 65-89.

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Jennings, M. 2006. In their own words: What we learn about ethical lapses and their prevention from the hindsight of those who committed them. Business Finance Review, 10: 44-47. Kerr, S. 2009. Do not blame the business schools, how to fix business schools. Harvard Business Review, April 2: 20-25. Kaptein, M. 2009. Ethics programs and ethical culture: A next step in unraveling their multi-faceted relationship. Journal of Business Ethics, 89: 261–281. Kaptein, M. 2008. Development of a measure of unethical behavior in the workplace: A stakeholder perspective. Journal of Management, 34: 978–1008. Kaptein, M., & Avelino, S. 2005. Measuring business integrity: A survey-based approach. Business Governance, 5: 45–54. Korten, D. 2009. The system is broken. Will B schools help fix it? How to fix business schools. Harvard Business Review, April 20: 47-49. Merritt, J. 2003. Ethics is also B-school business. Business Week, January 27: 3817, 105. Mitroff, I. 2004. An open letter to the deans and faculties of American business schools. Journal of Business Ethics, 54: 185-189. Podolny, J. 2009. Are business schools to blame? How to fix business schools. Harvard Business Review, October 27: 7-15. Sutton, R. 2009. Do economists breed greed and guile? How to fix business schools, Harvard Business Review, April 5: 26-29. Trevino, L., Brown, M. 2004. Managing to be ethical: Debunking five business ethics myths. Academy of Management Executive, 18: 69–81. Wicks, A., & Palmer, B. 2009. An introduction to ethics. Darden Business Publishing, UV1040. Victor Heller is an associate professor of marketing and director of Executive Education at The University of Texas at San Antonio. He received his Ph.D. from Arizona State University. His current research interests include organization ethics, crises management, marketing strategy and tourism marketing. He has published in the European Business Review, Organization Development Journal, Journal of Professional Services Marketing, Journal of Tourism Studies, and Journal of Vacation Marketing and others. He is the author of multiple textbooks. Nathan Heller is an assistant professor of marketing and management at Tarleton State University. He received his Ph.D. from Arizona State University. His current research interests include nonprofit marketing, strategic alliances, and ethics. He has published in Journal of Nonprofit and Public Sector Marketing, Journal of Applied Business and Economics and others. He is the author of multiple textbooks. Janis Petronis is a professor of marketing and international business at Tarleton State University. She received her Ed.D. from Texas A&M University-Commerce. Her research interests include internationalization of the business curriculum, impact of study abroad, and responsibility and liability of study abroad faculty leaders.

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Appendix 1: Course Textbooks and Related Readings

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Association to Advance Collegiate Schools of Business-International. 20004. Ethics education in business schools: Report of the ethics education task force. Tampa: FL.

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Beauchamp, T., & Bowie, N. 2001. Ethical theory and business. Upper Saddle River, N.J.: Pearson / Prentice Hall.

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Boatright, J. 2009. Ethics and the conduct of business. Upper Saddle River, N.J.: Pearson / Prentice Hall.

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Ciulla, J., Martin, C., & Solomon, R. 2007. Honest work. New York: Oxford University Press.

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Appendix 2: How Specific Are Addressed Appendix 2: How SpecificForms Forms of of Misconduct Misconduct Are Addressed in in Textbooks and Classification to AACSB AACSBFour Four Themes Textbooks and Classification to Themes Business resource abuse Abusive behavior Lying to employees Email or Internet abuse Conflicts of interest Discrimination Lying to outside stakeholders Employee benefit violations Health or safety violations Employee privacy breach Improper hiring practices Falsifying time or expenses Poor product quality Stealing Sexual harassment Substance abuse Document alteration Misuse of business confidential information Customer privacy breach Environmental violations Misrepresent financial statements Accept gifts, kick-backs Anti-competitive practices Anti-competitive practices Bribe public officials Insider trading Illegal political contributions

Text 1.3 1.1 4.4 2.6 3.6 4.8 2.6 2.7 4.9 4.7 4.3 2.3 4.5 3.5 4.9 1.5 1.3 3.2 2.2 4.5 4.6 4.7 1.3 4.2 4.6 4.7 3.7

CG = Business Governance CSR = Business Social Responsibility ED = Ethical Decision making EL = Ethical Leadership

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Case X 2.1 2.6 1.5 3.1 3.6 1.6 2.3 3.5 4.6 4.5 2.7 3.2 3.2 4.6 1.4 .6 .5 4.2 4.6 4.4 3.7 1.5 4.3 4.2 4.1 3.2

Situation X X 1.3 x .7 2.4 x .4 .6 .9 .6 x .3 .4 1.7 x x x x .8 .5 x x .4 x .6 x

Embedded X X .5 x x .3 x x x x .2 x x .3 x x x x x x .3 x x x x x x

AACSB EL/CG EL/ED EL/CRS EL/CRS EL/CRS EL/CSR EL/CRS ED/CG CRS/EL ED/EL EL/ED EL/ED EL/ED ED EL/ED ED ED/EL ED/EL ED/EL CRS/EL EL/CG EL/CG EL/ED EL/ED CRS/CG CRS/CG CRS/CG

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Developing a University Financial Trading Room: A Case History Bruce McLaren, Indiana State University The paper represents the experience of creating a financial trading room at the Scott College of Business at Indiana State University. It is intended to provide commentary and advice for those contemplating building a university financial trading room. It addresses design, construction, project oversight/installation, budget, and more. The paper is a case history of our path to operating our trading room with regard to hardware/software, vendors, project management, budget issues, operating policies, and so forth. Although we are pleased with the final product represented in our Financial Trading Room, we stubbed a few toes along the way and began making a list of decisions to avoid for the next trading room. For instance, we have made interim configuration changes. Links to the photos of the trading room and vendors appear in the comprehensive references list. This paper presents the development of the financial trading room in the Scott College of Business at Indiana State University, first opened in 2007. Our trading room is part of the Minas Center for Investment and Financial Education, and was partly funded by a grant from the Lilly Endowment. The paper explores design, construction, project oversight, installation, operations, and budget implications. The lessons we have learned are being applied to the new trading room in the new business building now under construction. THE FINANCIAL TRADING ROOM The financial trading room has been operational since December 2007. The project timeline indicated a completion time early in the semester prior to its first use, and although we hit that semester, it was only functional at the end of the term just in time for our grand opening. Needless to say, it is wise to reserve a wide cushion of just-in-case time. The trading room is located on the first floor in a highly visible area of the business building, something that the dean visualized as valuable for public relations and recruiting. We converted a popular classroom, and most students and visitors walk by the trading room as they enter our high rise building. There are two independent tickers - inside and outside the trading room - and the outside ticker can be used for college messages. For instance, in June it welcomes incoming students and families during summer orientation and in May it congratulates our graduates and their families. We often use it to welcome guests visiting our college. Our display vendor was Rise Display and we have been mostly happy with them. They rated above the other vendors in pre-sale service and continue to give excellent, personalized service. Rise’s personnel offered advice on vendors and continues to make suggestions for the new trading room. The main trading room consists of 20 student trading/analysis stations in five rows of four, and an instructor work station. Each station has two 19” LCD monitors mounted on a specialized monitor arm that holds both monitors in variable configurations. The workstation is a higher end regular Dell Windows PC. We purchased tables for two stations per table, configured in a traditional computer lab setup in rows. At the front of the room are two video projectors that display the instructor’s dual monitor displays. The instructor’s computer also has a television tuner card so the campus cable television signal can be projected for the class. The speakers are located in the ceiling for the cable TV and multimedia (DVD, CD, VHS) audio. Data and software are discussed later. The trading room has a large window in the lobby enabling visitors to see what is going on in the room. The front of the room is at the opposite end, so viewers can see the instructor’s projected screens and the student stations. The last row of four stations is in a separate student practice room with a push button combination lock on the door; our investment club students use this room heavily for individual analysis while class is going on and in the evenings. Figure 1 below shows a general layout for the trading room and the Rise displays. The key indicates the type of display and location. Photographs with captions illustrate the build-out process and show various parts of the finished trading room. A link to the slide show with about thirty photographs appears in the references. The public relations value of the financial trading room is significant – it is a stop on the campus admissions tour, and has given our financial services majors a real shot in the arm in terms of exposure. Interest in our financial services programs has increased significantly since the financial trading room opened. In 2005 the number of undergraduate finance and financial services majors averaged about 55. Since 2007 it has grown steadily to around 90 students in these two majors. Our graduates are finding no lack of positions that utilize their skills.

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Figure 1: Financial Trading Room General Layout

Instructor Station

Financial Trading Room Scott College of Business

KEY

LCD Projector LCD Display Ticker Window

Lobby

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The Design Process There were several champions for this project - a junior finance professor who had access to the trading room at his alma mater, the dean, and two senior finance faculty members. As building coordinator, the associate dean (author) became the project coordinator (but not the project manager - a problem described later). We requested a list of needs as part of the initial planning process. Given the recurring cost of the data and software, it is important that this get nailed down early in the design. Is the facility a faculty research tool, or for teaching students - undergraduate or graduate? Is it only intended for financial services students, or for all business students? How many students should be served at one time? We recommend that you request a formal document expressing what is needed and why, and then ask where the software will be used in the curriculum. Assessment later should be done to confirm the actual use in classes. Formal design can be broken down into four general categories: 1) room design, 2) room equipment design, 3) work station (electronics and furniture) design, and 4) software and data design. They are addressed one at a time. Room Design The room design was based on converting a classroom in a building that was originally a residence hall - not the best shape for a trading room. The size of this existing classroom limited the number of work stations, which in turn, limited which class sections could use the facility. As it turned out, we don’t have enough trading stations and will resolve that in our new building with a much larger space for the trading room. As mentioned earlier, the location of the trading was crucial for us. We’re getting double duty here with the trading room serving as a wonderful publicity tool for the university. By converting a popular classroom in our main lobby, we put the facility in a prime viewing area. The outside ticker is terrific for attracting attention - both for customized messages (visitors, events) and for “announcing” the financial content via normal financial programming. The outside ticker is built into a 90 degree corner so people can see it from two directions - helpful. We often stage photographs there with visitors so that we get the outside ticker (with their names) and the visitors in the shot. The dean and the associate dean visited the trading room at Fairfield University in Connecticut. We saw a larger trading room and got an opportunity to ask lots of questions. We also called some schools to ask questions about design and other issues. We designed the room like a computer lab - five rows of four computers each; it might be good for teaching, but it is not a realistic depiction of actual trading rooms. From visitors, we have learned that trading stations often face each other in clusters so that the analysts can share information easily. However, our purpose is more based on training students in classes, so we might have a similar layout in a new building. Talk to your stakeholders to see what they recommend. If the budget permits, it might be appropriate to have a main teaching facility like the one we built, and then a smaller room with a more realistic financial trading workstation layout. We also designed the trading room with a 4-station “practice” area in the back, accessible from the lobby via a door with a push button lock. Students from the investment club and certain others are given the combination and it is changed each semester. Students can use the trading room practice area after hours or during a class. We have found that the practice room has been heavily used. Remember to leave extra space for the furniture - tables wide enough for two monitors per station, chairs, and room for the computers. Leaving enough space to walk behind the chairs is important, so we ended up with perhaps half the student capacity when the same room was used as a classroom with regular student desks. Sight lines are critical for students. While tickers are not frequently used by financial analysts, the data wall certainly is used. We have two 57” LCD displays arranged side-by-side, as a single logical display, and the side viewing angle is important, especially for the stations located near the wall the displays are mounted on. It might be best to leave an aisle between the display wall and the closest student stations to increase the viewing angle. We advise that you check the side viewing angle of your LCD displays, and possibly audition it yourself at another installation. The electronic equipment used to drive the displays should be located outside the room and not in the teaching station as we did. These devices are noisy, generate a lot of heat, have lots of wiring, and most importantly are not accessible during a class for adjustments. We have had occasional heat-related problems with the equipment in the teaching station. (See the Interim Upgrade section later in this report for our resolution of this problem.) We were fortunate to locate the computer that drives the tickers in an equipment room in our lobby, using an existing Windows XP computer used to drive the lobby PowerPoint message system. It is easy to enter the equipment room at any time to make adjustments to the ticker programming. We discuss more about ticker programming in the Equipment and Software sections.

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Room Equipment Design The room equipment design was based on the room’s layout and overall functional design. The room equipment in our facility includes the tickers, data wall displays, the teaching station, video projectors, and sound equipment. Computer equipment is discussed in a separate section. For our trading room, we selected two three-color LED tickers. The right-most section of each ticker contains the embedded computer module that drives that ticker, and each requires an external IP address with appropriate cabling. The remaining sections of the tickers are identical and they can be hooked together like model train tracks. Because we are ultimately moving to a new building, we will be able to move the old tickers and possibly connect them all together as a single long message ticker for the student center. We chose two separate tickers so we could vary the programming as needed. By default, the outside (lobby) ticker runs the default financial program provided by Rise. We like to display personalized messages for visitors. The ticker inside the trading room always runs the default financial program unless it is turned off. The computer that runs the tickers boots automatically into the default programming for both tickers, so after a power failure we do not have to restart anything manually (fortunately). From a technical standpoint, the tickers are driven by a single computer running Rise ticker software. That software goes to risedisplays.com and retrieves the financial and news data, formatting it per the instructions programmed on that computer. The ticker computer then sends the character stream to the embedded computer in the right-most section of each ticker which controls the message as it cascades down the ticker. We have the ability to make changes to the programs locally. Programming the ticker is a little tricky, and we had to write a two page instruction guide for those who might be asked to put a special message on. From the ticker computer, we cannot view the tickers while working with the ticker software that runs the tickers; now when we make a programming change, and then run around the corner to see if it was doing what we told it to dories suggested we install remote control software such as VNC on the ticker computer, and then access that computer from a laptop running VNC at a table while sitting in front of the ticker. (Note that the interim upgrade discussed later eliminated the extra PC to run the ticker messages.) We have two video data walls provided by Rise Displays - one inside and the other outside, with different programming. We do not have the ability to do our own programming on these displays - the templates were prepared by Rise when we purchased the system. However, we do have the ability to choose from different preprogrammed displays, but haven’t chosen to do that. The displays stay powered up 24/7 but the signal from Rise automatically goes down from 11 PM to 6 AM to extend the video displays’ lives. For our data walls, we chose LCD displays for maximum flexibility of text and graphics. The previous method used alphanumeric LED displays that could only be programmed for words and numbers. Our LCD displays are designed to switch between various program screens, (appearing like tabs in Windows dialog box) that cycle through a variety of information through the day. The inside data wall is composed of two 57” NEC LCD displays ganged together to appear as one logical display. The outside data wall is a 46” NEC LCD display enclosed in a wooden cabinet with large metal letters naming the trading room. Although the letters cost $20 each, it is a suitable welcome to our trading room. Each data wall includes a cable TV picture, typically CNBC. We learned to cover the TV buttons on the bottom of the displays with black tape so wayward students sitting next to the wall aren’t tempted to push any buttons. Better, put the displays on the other side of an aisle from the students to avoid inadvertent tampering and improving the side viewing angle. We took one remote control out of the teaching station and keep it in our office away from the lab, just in case a remote walks off. It is good to have duplicates of key objects. That includes the radio frequency remote control to advance PowerPoint slides while walking around the room. When they went on sale at the campus computer store, we bought some extra remote systems just in case. We have found a number of trading room objects in staff offices after they went missing. The teaching station has many purposes in our trading room - it houses the computer that runs the instructor’s screens, the A/V equipment that controls the side-by-side video projectors, a DVD/VCR combo unit, and acts as the podium and instructor’s desk. It also holds the accessories in a drawer, and housing most of the electronics to drive the two data walls. As mentioned earlier, the electronic devices generate lots of heat and have fans - the noise levels are pretty bad. A faculty member came to my office to ask for directions on how to turn them off during his class, to which we emphatically said that was not a user adjustment. We bought an expensive-looking teaching station and would do that again. Its wood grain surface looks nice and the station itself is large enough to hold lots of books, notes, and so forth on the surface. It is equipped with the campus standard Extron MediaLink push-button video switching system for the A/V equipment - but this is more complicated than most found in other classrooms.

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The teaching station needs to be located in a spot where the instructor is able to see the data wall and the screen, yet not block any of the projected images. The teaching station should be able to be opened from both sides for configuration and maintenance of the electronics. Make sure it is deep enough to contain the devices and the cables, and to be able to close the doors. We have two video projectors in the trading room, mounted on the ceiling. The two are similar Panasonic 3200 lumen XGA models used in newer classrooms, carefully mounted and aimed to provide parallel side-by-side images on the front board. Each projector was designed to display one of the two monitors in the instructor’s teaching station. We suggest being on good terms with the campus A/V technicians at this point because it seems we called them a lot to tweak things. For security purposes, each projector is alarmed with the campus standard 125 dB audio alarm - our building has been faced with a number of thefts of the ceiling mounted projectors. The trading room experienced spontaneous alarms on the ceiling mounted projectors, but the staff was unable to quiet the alarms with the key lock intended for the purpose. Ultimately the alarms were replaced but the alarm sounds continued. After lots of investigation, we found a raccoon in the ceiling had chewed on the alarm wires! We looked for a front wall covering that could do double duty - serve as the projection surface most of the time and also act as a dry erase white board. We chose WallTalkers brand but it didn’t work well: we had trouble erasing the writing. The company instructed us to buy their brand dry erase markers and erasers, and even that didn’t solve the problem. After investigation, it appeared that the wrong product type had been ordered. Ultimately the company agreed to replace it at cost and the original wall covering was removed; a different type was installed that was designed 50/50 for projection and writing, and although it works a little better, it’s still not as effective as we wish. Our college installed Extron panels in most of the smart classrooms to control the projectors. These simple devices have eliminated the use of the remote control for the video projector and also many of the service calls. The instructor pushes the Proj ON button to activate the projector, and selects which video source (Desktop computer in the station, DVD, VCR, or Laptop) should be displayed. This capability is recommended - it greatly reduces the number of trouble calls, and provides some protection to the equipment. The Extron panel has replaced the need for separate remote controls for the projectors and DVD player. At the request of the faculty using the trading room, we modified the Extron panel to temporarily turn off one projector in order to write on half of the white board while continuing to project on the other half of the front board. Because this classroom suffers from low ceilings, the projection surfaces (left and right) share time with the underlying white board. If possible, a trading room should be designed so that the video projection surface does not have to share time as a writing surface. Each data wall display is driven by a engine, a rack-mounted Windows XP computer running dedicated display software. There is a transmitter at the Rise engine and a receiver at the display, and you can locate the display several hundred feet from the engine. The output from the Rise engine is converted to a video signal that is pumped along a low voltage wire (actually a Cat 6 Ethernet cable) to the location of the display where it is converted back into a regular computer video signal. A Rise engine has no peripherals of its own - to work on them you need to attach a keyboard, mouse, and use the large displays as a monitor. As mentioned earlier, locate display electronics outside of the teaching station! Ceiling-mount speakers were installed to play the audio from CDs, DVDs, VHS tapes, and television programming. They also play the sound from the TV tuner card installed in the teacher’s station. The audio volume is controlled both from the instructor’s computer and from the Extron panel. The Rise LCD displays inside the lab (the inside displays) were configured with their own sound panels for the embedded TV display, and occasionally we turn up the sound on the television program. The outside display (lobby) did not have speakers. Rise provided no other sound for their data wall programming, but that may have evolved since we purchased our displays. For our trading room in the new building, we will not order the sound option for those NEC displays - it was very expensive and rarely used. Our advice is carefully audition anything – furniture, monitors, wall coverings, projectors, data wall displays before you commit to it. Check out the functionality and the ergonomics. Instructor and Student Work Station Design This section is divided into computer workstation, display technology, and furniture discussions. Based on our preliminary visit to Fairfield University, we learned that a good high end Windows desktop computer would serve well as the trading work station for the trading room. Much of the analysis that students are doing seems to be in Excel using data extracted from the various financial data sources streaming into the trading room.

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The workstation model initially selected in 2007 was a Dell Optiplex 755 small-footprint system unit that would sit on the desk, beneath the monitors. The current equivalent would be the Optiplex 760 Ultra-Small Form Factor model. Dimensions are 10.3” x 3.5” x 9.95”. The spec included a 3.4 GHz Pentium D processor with 2 GB of RAM and Windows XP, the campus standard O/S. We chose 16X DVD optical drives and 160 GB SATA hard drives. We received assistance from the campus IT department and relied on them to get a good volume quote. They decided to wait until it was time to order and then re-quote the computers. When we did, somehow the standard tower case was ordered. There was little space for them in the trading room, and certainly not on the desk top, blocking view. I did not take enough care to monitor the actual purchase order, even though I carefully reviewed the original quote. The vendor refused to take them back, so we investigated an under-table mounting system (a CPU sling mount), but those were not satisfactory and were returned. We had to move on and installed the system towers on the floor. We were afraid of damage to the plastic bezels from the chair legs, but we haven’t had much of that. However, we have had a problem with cut cables near the floor, and finally tied that to the vacuum cleaner used by the custodian in the lab. He didn’t report it, and we originally diagnosed vandalism and filed a police report! Lesson: be careful with locating cables in the room. The dual monitors we chose were high end Dell 19” LCD displays. We had to make sure the workstations had appropriate graphics cards for dual monitors; we chose ATI Radeon X1300 Pro Dual monitor adapters with VGA and DVI ports and 256 MB of video RAM. We had been solicited by a high end monitor arm vendor (a referral from the Telemet salesperson) but ended up with a significantly less costly solution from Moview. It might be discontinued now, but the cost per station was $170. Be sure to match the monitor arm with the furniture to make sure it fits - we have trouble opening the table cable cover with the monitor arm attached to the table top. In retrospect, we might have been able to do away with the dual monitor arm and go with the monitor’s own stand flat on the table top, but we didn’t evaluate that option even though the ultra small cases did not get ordered after all. We have a storage room with 42 discarded Dell LCD monitor stands! One unexpected problem was the amount of space that dual 19” monitors take up, blocking the view to the front of the room for shorter students. In retrospect we should have auditioned the complete workstation from tables and chairs to the electronics and mounting hardware. We suspect we could have done well with dual 17” monitors that would have permitted some space between work stations. See the photographs. In the new building I anticipate we will drop the monitor arms altogether and go with low-profile monitors on their own stands on the student desks. That way they can be moved as needed. I would want to be sure the stand is compact. The instructor’s computer in the teaching station is the same Dell Windows desktop computer used at each student work station, and has an internal TV tuner card installed. The TV tuner is attached to the campus cable TV system via coax cable and can be used to display CNN or CNBC on the video projectors. Its sound output is amplified and sent to the ceiling mounted speakers throughout the trading room. The tuner card comes with its own remote control, and it is access like other Windows applications. Using two monitors, the instructor can resize the TV window and drag it to either monitor’s portion of the Windows desktop. While it is difficult to say how often it is used in a class, we turn it on prior to every trading room visit and demonstration. We ran into a problem during a recruiting commercial shoot in the trading room. Evidently someone had changed the workstation password in a previous session, and we were unable to log into the teaching station. Everyone sat for more than an hour until one of our OIT student workers hacked into the computer and reset the password. There is a tradeoff between locking it down (to prevent such events) and making it easy enough for a wide variety of individuals to use. We suggest having a backup account name on that computer that can be used in the event of a lock-out situation such as we had. The student tables we used were designed for two computer work stations per table, two tables per row. The vendor was KI, a campus standard, using moderately expensive Datalink training tables that come with a front panel to cover wiring from the wall between tables. There is a hole with grommet in the table top to route cables down to the system unit beneath the table. The adjustable chairs were also from KI, with casters. For 10 tables and 20 upholstered chairs, the KI cost with delivery was about $16,000. We have not had any problems with the KI furniture, but some of the furniture has some stains on the seats. We forbid drinks and food in the rooms but it is sometimes difficult to enforce this policy. The instructor’s teaching station was the Media Director model from Spectrum Industries. There are several photographs of this station. The teaching station looks good and is functional.

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Software and Data Design We asked the finance faculty to provide a list of data and software needed for the trading room, and got lots of suggestions. As mentioned earlier, after we opened the trading room, it became obvious that some of the data requests might not be as useful as others. Nonetheless, it was a learning experience at every stage. It was very helpful to talk to other universities about how they employ their trading rooms. Most are open and willing to share their experiences. As mentioned earlier, the financial data for the data walls and tickers comes from the Rise Display vendor. We used the standard 20-minute delay data from Rise for quotes. We learned from Rise that although we could negotiate a real-time arrangement with each of the exchanges, we would have to sign a contract saying that nobody would use the real time data to make actual trades. This is a potential nightmare, and we quickly determined that this practice was unenforceable, especially with the ticker and data wall display located in our public lobby outside the trading room. We have noticed that many individuals sit at tables in the lobby and watch the financial data come across, including our custodians! We initially believed that Rise provided all of the data for the trading room (including the workstations) but quickly learned we had to arrange for the workstation data. Our Rise consultant provided referrals to vendors for the workstation databases and software. We tried repeatedly to work with a well-known vendor for current market security prices, and had trouble getting them to return our phone calls. Finally, Rise suggested we talk to Telemet North America who offered similar packages; we have worked with them for our trading room. We had originally intended to have one or two high end Bloomberg financial data terminals in the trading room - one on the instructor’s station and perhaps one other. Although the company had offered a 50% academic discount, that price increased significantly just before our trading room was scheduled to open. Despite pleas from a number of universities, the price increase was final (at the time). Although we did not purchase Bloomberg initially, a single terminal was recently ordered for fall 2010. The financial data initially implemented in our trading room falls into these categories: • • •

Historical security prices (CRSP, University of Chicago) www.crsp.com/ Current business data (Compustat, McGraw-Hill ) www.compustat.com/ Current market prices (Telemet Orion) www.taquote.com/

Each faculty member in finance has an international background, and their research is worldwide. We purchased North America and Global versions of each of the financial data sources. We were able to negotiate with the software providers for multi-year pricing concessions if we licensed both North America and Global packages. We quickly learned that the annual data fee is the most expensive component of the financial trading room budget, and it is an annuity - each year, every year. Before choosing the number of licenses for each of the packages, we had to estimate the number of simultaneous users. While equipping every station was ideal, the cost was too high, especially for Telemet. The others were licensed for the campus. We ended up with 8 or 9 Telemet licenses, including one for the instructor station. We found that talking to other universities with trading rooms was helpful in determining how many stations need to have certain software. We also found that each vendor packages these data streams in an assortment of products, and that they often duplicate each others’ data. My role as project coordinator but with limited finance background meant that we needed help from the experts. We asked for a very proposal specifying the data and software be used by each finance and insurance course and asked the faculty to be explicit. It is also important to do assessment to see how the data and software are being used. Based on experience from visits to other universities, we also purchased the FTS Financial Trading System software spun off from Carnegie-Mellon University. This real-time software simulates trades using actual market data and informs students about their virtual portfolios. The FTS system includes many analytics to help student evaluate performance. The annual FTS license fee is less than most of the financial data. There is a helpful FAQ at the FTS web site, listed in the references at the end of the paper. Installation and Project Management Issues The first phase of installation was conversion of the classroom, room 109 in the Scott College of Business. This was a 45 seat classroom with risers in the rear. We decided to remove the risers and reverse front and back; the large window in the lobby offers an excellent view of the room and screens for visitors to the trading room. The campus

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architect had drawn the layout and although we did some checking, we had little experience with actual trading rooms at the time we fixed the design. The classroom shape dictated the layout, more or less. The university bid the renovation project and a local contractor received the work. I knew the contractorâ&#x20AC;&#x2122;s managers personally, and enjoyed visiting them on the job site. The contractor did an excellent job, and the price was very competitive. The campus architect served as project manager, representing all of the campus Facilities Management departments, and was the direct university contact with the Rise project manager. As our building coordinator, I served as the liaison with the business school and was the self-described project coordinator for the faculty. While my trading room knowledge was minimal at first, my experience grew throughout the project. The architect was occasionally slow in following through on items. The project sat on the sideline for many weeks after we thought construction would commence. In fact, we took the classroom out of service nearly a full year before the project actually tied up the classroom. My advice is to lay out the time line and add plenty of safety time in order that the trading room is finished before it is needed. The Rise equipment was not ready to install at the completion of the renovation work. In fact, there was some minor slippage in the delivery date. I presume that is pretty typical, and we had plenty of time before our grand opening. However, the local installation technicians (third party service) were not up to the task, and Rise more or less acknowledged that. The techs installed digital movie theater projectors, and repeatedly had difficulty with our job, calling the project manager many times for clarification. They confessed they had never installed a ticker or a Rise data wall. Some Rise pieces were missing, and we learned that we did not have all of the infrastructure pieces in order. I have technical IT skills, and blame myself for not being in direct contact with Rise. We instead relied on our campus architect who is not a technical IT person. The infrastructure problems occurred in two technical areas: 1. Although we had external IP addresses for each ticker, the cabling was terminated in the teaching station and not at the tickers themselves. We fixed this in 48 hours using campus personnel to rewire, but we should have had that right before the installation started. And because the lobby has a spline ceiling, the cabling extension to reach the ticker was unsightly. 2. Power to the digital signs needed to have an isolated ground, and our old building wiring had shared ground throughout. Even the new wiring used the same shared ground, or so we were told. This was a larger technical problem. We resolved the first problem quickly, but only after the first installation team left campus. The second took longer and the university outsourced installation of six isolated ground circuits at a project cost of $500 per circuit. After that work was finished, Rise confessed that we needed only one isolated ground circuit for all of our signs, not six. They made a price reduction to offset some of the cost, and agreed they shared part of the blame for fuzzy communication. We recommend that you have a very clear understanding of the infrastructure needed, and make sure an IT/networking person signs off on the understanding from the university end. Had we taken the time to chat with Rise about these requirements, I believe we would have caught the oversight and certainly had better working diagrams for things like terminations of Ethernet cables. This is why I believe I should have served as project manager, not just the business schoolâ&#x20AC;&#x2122;s coordinator. Once these infrastructure changes were complete, Rise dispatched a more experienced installation team from Texas to complete the installation. When it was discovered that the third Rise engine that drive the tickers was not included in the shipment, we substituted our own low end PC in an equipment closet elsewhere in the lobby. As it turns out, that was fortuitous because we have access to that computer at all times, even during class, to adjust the ticker programming for the outside ticker - the announcements and events messaging system as needed. Rise credited our account with the cost of the missing Rise engine - about $1000. As you might expect, there were glitches in the initial operations of the trading room, but Rise was good for the task, providing expert assistance from Kansas City for hardware and from Toronto for software support. The initial data wall programming was just to get us started, and the project manager worked with us to finalize the design, per our agreement with Rise - we had credit for so many hours of design and programming time in the original contract. Some of the glitches we experienced were due to not making sure all the connections were made properly - for example, our campus cable system that provided the CNBC programming for both data walls, getting appropriate IP addresses, and so forth. One glitch appeared the day of the grand opening when the TV picture was frozen behind the curtain we intended to remove to unveil the room. Needless to say, we were sweating a little to have Rise get the changes done in time, but in fact it did work shortly before the unveiling. The guests might have wondered why the associate dean kept peeking behind the blue curtain. Rise assisted in solving the problem remotely from Canada. 110

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Initial Operations and Shakedown Period We had the campus IT staff install the computer workstations and monitors in the tables and connect them to the LAN. At first we decided to leave the student stations open (unprotected) to facilitate making future changes as needed to each workstation. However, we found that bootleg software, inappropriate material, and lots of spam quickly appeared on the machines in the lab. We ultimately decided to lock down the hard drives to prevent permanent changes by the users. We purchased a special card for each computer similar to that used in our other Windows computer labs. The cards allow changes to be made to the computer’s configuration during a session, but when that computer is rebooted the hard drive reverts to the original files. Since the initial installation, we have moved to a software lock-down solution for campus computer labs. As with other campus computer labs, we prepared a hard drive image to use with transmit to all stations in the lab at the same time. Thus with one command, we were able to put the same programs on all of the stations in this room. However, we did lots of tweaking as new software is installed, thus requiring the hard drive image to be modified. It might take a semester or two to get up and running in a steady state. We gave ourselves a few months to shake out the bugs, and we pilot tested the lab in the spring semester before assigning regular classes to meet there. The instructors need to become familiar with the resources in this room. Training is always critical, and it took longer than we predicted to get a schedule without time conflicts. We found that Friday mornings are the preferred time when few classes are scheduled. Some training came from campus sources, while other sessions were conducted by our financial data providers. The simplest technology is to have a speaker phone to amplify the voice of a remote trainer. For remote trainers, newer methods are now available that use the instructor’s workstation ceiling speakers; consider Webex and Netmeeting software applications. Maintenance Issues We have experienced some ongoing maintenance issues with the equipment. In each case it resulted in a new piece of equipment being shipped overnight to the college, with installation soon after. Then we sent the old unit back to Rise in the same box. We ended up replacing the following items: • • •

46” NEC LCD display (not failed at the same time as the 57” display) One 57” NEC LCD displays (see explanation below) Both of the two Rise engines (one simply stopped working when the other hard drive failed; the other overheated in our teaching station)

After the fact, we learned that the NEC 57” display was not defective; the Rise engine failure prevented that display from working With some incidents the problem persisted after the new unit was installed and were solved in other ways. However, Rise was very quick to respond and worked well with my staff to coordinate the arrival of parts and a technician to do the installation. Rise provides a web-based monitor report to let us know when various pieces of their equipment do not seem to be working - very helpful but we have had some false indications. For most of the work we had Rise do the repair or equipment swap. I volunteered to reinstall the replacement Rise engine in the teaching station in order to get it back online sooner to meet a deadline. Other than cutting myself inside the teaching station, it was successful. Our own A/V staff was very busy at the time, and in fact with budget cuts has become even busier. The replacement LCD displays are heavy, and we chose not to use our university staff to install the replacement LCD displays; we didn’t want to chance dropping a display. We had many visits from the campus audio/visual staff to do the initial installation and configuration of the teaching station and its Extron control panel, and overall troubleshooting. The Extron panel was more complex than other smart classrooms on campus, and until it functioned we controlled the projectors with a remote control. Our A/V staff is highly overworked and that is typical of most campuses as the classroom technology increases in complexity. Most business schools will not have this expertise internally. One humorous note – one of the two 57” LCD displays stopped working while the other continued to work. Each has its own transmitter/receiver pair, connected by the Ethernet Cat 6 cable. After quite a bit of troubleshooting, our A/V staff narrowed the cause down to a chewed wire to the power supply in the ceiling that fed power to the receiver; the receiver converts the low voltage signal to a regular video output to feed into the monitor. Evidently the same raccoon that chewed the projector alarm wires worked on the display’s power supply wire. Rise was able to provide a replacement power supply at minimal cost to the College of Business. While waiting for the new power supply, we were able to temporarily resolve the problem using a Nikon camera battery charger power cable – same design – to reconnect the receiver to its old charger. Almost two years later we found the hole in the foundation that had allowed several raccoons to enter and solved that problem. 111

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Steady State: Operating the Trading Room Expect to have some issues with operating this complex facility, so reserve time to monitor and respond to problems. Some are inexperience of some faculty who donâ&#x20AC;&#x2122;t know how to operate the systems. Weâ&#x20AC;&#x2122;ve seen settings changed that need to be reset in order to get sound from DVDs and so forth. Having technology and A/V personnel on call is very helpful; a telephone in the room is necessary. Interim Changes After operating the trading room for about two years, we made some changes to room security, the display controller hardware, and data/software. Occasionally we found the trading room door closed but unlocked. Despite pleas to all users to make sure the door was closed and locked, the problem persisted. We decided to replace the lock so that the trading room would remain locked. That is, when the door was opened with a key, it would remain locked from the outside. We contemplated adding video surveillance but did not have the budget at the time. In our new building we intend to add the financial trading room to the building video surveillance system. In analyzing the maintenance issues with our Rise engines in the teaching station, it became evident that we should relocate the Rise engines (and the broadcasters and cable tuner box) from the teaching station inside the trading room to an adjacent equipment room in which we have a full-sized computer rack. Not only did this relocation reduce the heat build-up in the teaching station and lower the noise level (cooling fans in the Rise engines) but the simplicity in programming the tickers was very helpful. We would recommend that anyone considering a similar trading room locate the display hardware elsewhere. Now we are able to work on the hardware at any time, even during a class using the trading room. After speaking with the Rise consultant, we chose to take advantage of his offer to upgrade our tickers to web controllers and eliminate our PC that we used to control the tickers. Once installed, we would program the ticker play lists via a web site rather than on our local computer. Rise sent us the new controllers and dispatched a technician to install them. The new programming method can be done anywhere there is an Internet connection, and it is considerably simpler. The most obvious missing data stream was the Bloomberg terminal. Initially too expensive, in 2010 we decided to adjust the budget and add a Bloomberg terminal in a student accessible area of the trading room. Although Bloomberg offered an attractive multi-unit discount, at this time we were only able to afford a single unit. This added about $20,000 to our annual software and data license budget. Overall Budget Picture We learned that the least expensive part of our trading room project was the room construction. For us, renovating a classroom with a few special features (such as the viewing window and a push button lock for the student practice room) cost about $40,000. The basic computer equipment and furniture cost about $150,000. The display equipment from Rise was a little over $100,000 including a maintenance contract for the hardware and license for the data feeds to the signs. We added another $3000 to upgrade our ticker controllers in 2010. Annual data license fees comprise the largest cost component of our trading room in the first three years. Some licenses are per-station, and others are campus-wide licenses. While it depends on the number of stations licensed for specific software, weâ&#x20AC;&#x2122;re now spending about $86,000 per year on software and data, and would probably spend more if we had the funds. However, we would need to sit down with the financial services faculty and discuss priorities as well as duplicate services. Summary We are pleased with our trading room equipment, and feel that Rise Display was a very good partner. They assisted us initially in considering various design aspects, and other than some glitches in the installation process, Rise has been a joy to work with. The Rise consultant visited after the installation and has been very willing to answer technical questions as they arise. For instance, we had a maintenance glitch in which we were told the unit was not under coverage when it failed. In fact, the consultant quickly intervened and said it was a Rise data entry error - we were indeed covered with a three year service contract. The Rise consultant has referred many potential customers to us and I am more than willing to provide tours, answer questions, and demonstrate the financial trading room. We have had TV and newspaper coverage, and two campus recruiting commercials were shot in our financial trading room. We believe we have a wonderful tool that our

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students can use to competitive advantage in the workplace. We plan to apply the lessons learned to the development of the new trading room in our new building. We always knew that the current trading room was a pilot, and it provided a living laboratory for developing the concept. Equipment and Related References • • • • • • •

Dell Optiplex Workstation Computer (initial selection) www.dell.com/content/products/productdetails.aspx/ desktop-optiplex-760?c=us&l=en&s=bsd&cs=04 Extron Video Switching Panel www.extron.com/product/prodtype14.aspx Instructor Media Director Teaching Station www.spectrumfurniture.com/ KI Datalink Tables and Chairs www.ki.com/products/24/1598/Powered_Tables/DataLink_ Training_Table_ System/.aspx?ncat=4&sitecat=51 Panasonic PT-LB60U XGA Video Projector www.fullcompass.com/product/355253.html model replaced by PTLB80U Rise Display www.risedisplay.com Walltalkers Display/White Board Coverings www.walltalkers.com

Software and Data Feed References • • • • •

Bloomberg Business and Financial Information www.bloomberg.com/?b=0&Intro=intro3 Compustat Data Services www.compustat.com CRSP – Center for Research in Security Prices www.crsp.com FTS – Financial Trading System www.ftsweb.com Telemet Orion www.taquote.com

Additional Information about the Financial Trading Room in the Scott College of Business • • •

Financial trading room description: www.indstate.edu/business/finance/tradingroom.htm Minas Center for Investments and Financial Education www.indstate.edu/business/centers/minas.htm Trading Room photo slide show with captions: www.indstate.edu/business/tradingroom.pdf. click to change slides REFERENCES

Alexander, J., Heck, C., & McElreath, R. 2001. A guide to building a university trading room. Financial Services Review, 10: 209-220. Lyman, R., & Stone, R. 2006. The use of a financial trading room to develop risk management competency. Journal of College Teaching & Learning, 3: 93-98. Siam, J. 2005. University trading centres and their role in business education. Journal of Financial Education, 62: 1-23. Sinha, A., Ferreira, E., & Green, R. 2006. Trading room educational programs: Issues and recommendations. Journal of Business & Economics Research, 4: 59-68. Bruce McLaren is associate dean and a professor of management information systems in the Scott College of Business at Indiana State University. He received his Ph.D. in operations management from Purdue University. His current scholarly interests include assessment, curriculum development, retention of students, and developing student technology skills. He has published fifteen textbooks in the area of information tools, e-commerce, and the Internet. He serves as building coordinator and coordinated the development of the financial trading room in the Minas Center for Investment and Financial Education in the Scott College of Business.

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An Analysis of the Accounting Doctoral Industry: Observations and Unanswered Questions Amelia Baldwin, University of Arkansas - Fort Smith Carol Brown, Oregon State University The shortage of doctoral graduates in accounting is evidence of a problem in the industry as a whole. While demand is up for all accounting graduates, supply is insufficient. This article examines the academic accounting industry as a whole, using a macro perspective to analyze data about doctoral graduates and programs, in order to identify positive and negative attributes of the market and identify further areas for inquiry. Uniquely detailed data on U.S. accounting doctoral graduates 1987-2006 are used in the analysis. Specific trends are identified and future avenues for research are also addressed. The academic accounting industry is in crisis. Some of the problems are good ones, e.g. high demand for accounting graduates at all levels. Others are difficult and puzzling. Despite the demand for accounting graduates and the need for accounting professors to train them, the academic accounting industry is not educating the needed number of accounting doctoral graduates on an annual basis. Rather than measuring the number of graduates or the lack of graduates to meet demand, what happens if the academic accounting industry is examined more deeply? This article investigates accounting academia as an industry that produces accounting graduates, with a focus on the doctoral graduates. The purpose is to identify the characteristics of the important players, doctoral programs and doctoral graduates, as well as, secondarily, other stakeholders, such as universities and colleges, firms, companies, government, and other interested parties. This information may help identify the factors that are driving, aggravating, or potentially alleviating the shortage problem. What is driving the lack of PhD graduates in accounting? What are the defining characteristics of this industry that provides accounting PhDs to the countryâ&#x20AC;&#x2122;s institutions of higher learning? What clues in the past and the present can be found to help solve the accounting PhD shortage problem? These questions are addressed in the following sections, including a literature review, a general discussion of the academic accounting market, research methods, and an extended discussion of the nature of U.S. accounting doctoral market, and its descriptive trends. Literature Review The literature describing accounting doctoral programs is mostly comprised of various studies attempting to rank programs on publishing output of faculty and/or graduates (Brown & Garner 1985; Brown 1996; Everett, Klamm & Stoltzfus 2004; Chan et al. 2007; Brown & Laksmana 2007), initial placement of graduates (Stammerjohan & Hall 2002; Fogarty & Saftner 1993a & 1993b), and faculty representation on editorial boards (Mittermaier 1991). No studies have specifically set out to describe the industry as a whole, although recent articles have generally lamented the state of accounting academia (Fellingham 2007; Fogarty & Markarian 2007; Demski 2007; Grasso 2008; McNair 2008). Fellingham (2007) posits that accounting is moving towards being a vocational discipline rather than an academic discipline. Fellingham notes that accounting journals are internally focused, self referential and rarely referenced by other disciplines and that accounting academics focus on the current generation of students rather than future generations through contributions to the academy. Demski (2007) provides ten indicators that accounting is more a vocational discipline than an academic discipline. Grasso (2008) cites causes of the increase in demand for accounting education, concludes that the demand cannot be met through traditional means due to a shortage of accounting PhDs and posits that the shortage should be viewed as an opportunity for transformational change. McNair (2008) asserts that the root cause of the shortage of accounting Ph.D.s is the death of the teacher-scholar. A teacher-scholar is defined (McNair 2008, 22) as someone who â&#x20AC;&#x153;is as dedicated to teaching as to pursuing new ideas and engaging in scholarly discourse.â&#x20AC;? McNair cites three causes that set up what he calls the loop of doom for the teacherscholar. The three are: AACSB definitions of AQ and PQ faculty, publication in narrowly defined A journals being a key metric for tenure in more schools, and schools adopting student-teacher ratios and number of scholarly publications as key measures of program quality. The loop of doom cycles from: fewer accounting academics reaching higher thresholds; to teacher scholars being pushed lower in the academic hierarchy; to higher quantity teaching being associated with lower salaries; to passion for inquiry declining due to inadequate time, resources and rewards; to waning inspirational teaching and scholarship, a reduction in innovation and a loss of relevance; to reduced pool of potential academics; then back to the start. In other words it is just not as much fun as it used to be.

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In contrast, the recent literature describing the shortage of accounting graduates is quite diffuse. Relevant reports have been prepared by committees of the American Accounting Association, the American Association of Collegiate Schools of Business (AACSB - the primary accreditor of business and accounting programs), and others. These reports have identified the shortage, described the likely future demands for accounting PhDs and described the supply problem in a number of ways. AAA (2008a) cites both the shortage of accounting PhD candidates and a decrease in full-time accounting faculty positions as evidence of the challenges facing the association. AAA (2008b) notes a significant decline in number of accounting faculty (13.3%) and a significant increase in students (12.3%) in the period of study 1993-2004. The decline in faculty is not shared by other business disciplines which increased during the same period. In addition to the significant decrease in the absolute number of accounting faculty members the faculty mix is changing. The decline in numbers of faculty members has primarily been men so the proportion of women has increased even though their absolute numbers has not. The faculty is aging and more faculty members are nearing retirement age. The number of faculty members under 40 is declining while the number of faculty over 55 is growing. The report notes an increase in the percentage of Asian faculty (about 15%), a slight increase in the percentage of black faculty members (1%) with a decrease in the percentage of Hispanic faculty members (3%) and a decrease of about 1% in the other category. While it can be said that the faculty is more diverse due to the shift from white to Asian faculty, the overall percentage of underrepresented minorities has not improved. Pay has improved dramatically for younger faculty (45 and under) but has only improved a little for older faculty (46 and over), resulting in serious salary inversion. The average number of hours worked has increased from a little over 48 hours per week in 1993 to over 52 hours per week in 2004. Both the number of recent publications (14% increase) and total publications (2% increase) occurred between 1993 and 2004. The AACSB (2003) report describes a similar decrease in new business Ph.D.s and an increase in demand for business education. The report indicated that while applications for doctoral programs had increased admissions had not. Lack of funding for doctoral students and availability of faculty were cited as the most important limiting factor in admissions. The lack of outside funding for business research was also noted as a reason for universities lack of willingness to grow business Ph.D. programs. An increasing number of those receiving Ph.D.s are either not available to meet the increasing demand by US educational institutions or are choosing employment outside education. The percentage of those receiving business doctorates that choose industry over academic employment increased from 7.3% in 1990 to 14.8% in 2000. Further, 27.3% of the 1999-2000 graduates had temporary visas and 52.2% of the enrolled Ph.D. students did not have permanent visas. Plumlee et al. (2006) reports the results of three 2004 surveys. The three groups surveyed were accounting doctoral program directors to determine the expected supply in total and by specialization, accounting department heads to determine expected demand in total and by specialization, and accounting doctoral students. They found that the estimated supply of new accounting Ph.D.s was only 49.9% of the expected demand. The shortages over the 2005-2008 period was even more extreme in tax (27.1% of demand met), audit (22.8% of demand met) and multiple specialties (0% of demand met). Differences between students of North American (US and Canada) origin and other students were found. Teaching was more important to North American students while research was more important to non-North American students. North American students felt less well prepared than the non-North American students. North American students incur more debt than non-North American students. About one third of the North American students believed that the support was inadequate while only one fifth of the non-North American students did. About half of all students thought the program was too stressful and 29% thought the program was harmful to their health. Fogarty & Markarian (2007) suggest that accounting as an academic discipline is now in decline based on analysis of data over a 20 year period from 1982 to 1992. The total number of both tenure track and full-time nontenure track faculty has declined. The decline is concentrated at the assistant professor rank (32.7%). From 1982 to 1992 the total tenure track faculty at all ranks increased (assistant 5.5%, associate 12.1%, full 26.3%) while the number of full-time non-tenure track faculty declined by 19.6% giving an overall increase of 7%. From 1992 to 2002 all ranks but full professors declined (assistants -36.2%, associates -3.9%, non-tenure track -26.7%) while full professors increased by a modest 9.6%. These changes suggest an aging professorate without enough new entrants into the field to replace those who will soon retire. The changes are not consistent across different types of schools with the doctoral granting institutions actually increasing their non-tenure track faculty (1982 to 1992 up 11.4%, 1992 to 2002 up 16.1% for a total increase of 29.4%). The number of new doctorates in accounting first increased from 744 in 1978-1982 to 894 in the period 1988-1992 then decreased to 581 in 1998-2002. The distribution of these graduates among schools has also changed. From the period 1988-1992 to the period 1998-2002 graduates from the top quartile of schools declined by 40.8% while graduates from the bottom quartile increased 98.4%. In addition to the overall decline in numbers, accounting is losing ground when compared to the other business

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disciplines. From 1990 to 2004, while the total business faculty increased by 3.3%, the accounting faculty declined by 2.8%. While the fact of the shortage of accounting PhDs seems well documented, what really drives the shortage and what might be done to alleviate it are unclear. In the following section the accounting doctoral market is examined as a whole. The Academic Accounting Market In this section the general academic accounting market is analyzed from a macro perspective. The various players are described, including the doctoral programs, the graduates, the colleges and universities that employ them, and the stakeholders that influence the industry. The purpose of the accounting doctoral market (the left side of Figure 1) is to train accounting doctorates for research and teaching positions, largely in academic institutions. The purpose of the academic accounting market, more generally, is to educate future professional accountants, as shown on the right side of the figure. Figure 1: Academic Accounting Market

While the accounting doctoral market seems simple - doctoral programs train PhDs who are hired by various accounting schools - the accounting doctoral market is heavily influenced by the rest of the downstream academic accounting market, the entry-level professional accountant market. Therefore, this section discusses this downstream academic accounting market, its stakeholders and how they may impact the accounting doctoral market. Accounting Programs Accounting doctoral graduates are hired by accounting programs in at least 900 universities and colleges (AICPA 2008c). In addition, many colleges and universities have business majors or MBA programs without also having the accounting major. Some of these programs also need to hire accounting doctoral graduates. Of course, many foreign schools also hire U.S. accounting doctoral graduates (15% or more). An additional 3% of accounting doctoral graduates leave academia for industry, government or other jobs (Baldwin, Brown & Trinkle, 2010). This group of universities and colleges is not homogenous. Some confer only bachelorâ&#x20AC;&#x2122;s degrees in accounting, others confer master of accountancy or taxation or MBA degrees. Some, of course, are also the 90+ doctoral granting institutions. Even among the non-doctoral granting institutions, the size range is wide; the types of degree programs, teaching loads, research requirements, and salaries all vary widely. No single simple description applies to all of these accounting programs, yet the relatively small number of U.S. doctoral programs is supplying the doctorally qualified accounting faculty to the vast majority of these American institutions. Bachelors and Masters Graduates The demand for accounting graduates at all levels has been steadily rising in recent years. The demand for masters and bachelors graduates should, of course, impact the need for doctoral graduates (i.e. professors). Masters Like the accounting profession, the U.S. academic accounting industry has been undergoing drastic changes in recent years. The institution of the 150 hour requirement for the CPA exam in the majority of U.S. states started a growing trend in masters degrees conferred. Since 1983, 47 of 54 jurisdictions have adopted the 150 hour requirement. New York adopts the requirement in 2009. The only significant exception is currently California (Carpenter & Hock 2008). As seen in Figure 2,

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this trend looks likely to continue: 9,085 masters degrees in accounting were conferred in the 2004-2005 academic year, the most recent year for which data are available from the National Center for Education Statistics (2000-1). If this trend continues, the current academic year could see over 13,000 accounting masters degrees conferred. On the hiring end, in 2007 CPA firms reported hiring over 8,000 masters graduates. The largest CPA firms hire a large proportion of masters graduates, 35% of total hires (AICPA 2008a). Masters graduates are also hired in industry, government and non-profit sectors, so these numbers represent only a subset of graduates. Figure 2: U.S. Accounting Masters Degrees Conferred, 1987-2004

Bachelors More recently, the passage of the Sarbanes-Oxley Act of 2002 has helped drive an increasing demand for bachelors graduates in accounting. While the numbers of accounting bachelors degrees conferred dropped consistently in the 1990s, the trend reversed in 2002, as shown in Figure 3. If the upswing continues, around 50,000 accounting bachelors degrees could be conferred in the current academic year. Figure 3: U.S. Accounting Bachelors Degrees Conferred, 1987-2004

The current demand is so great that CPA firms hired 83% more accounting graduates in 2006-7 than they did in 2003-4 (AICPA 2008a). In addition, almost 60% of companies and firms plan to hire more accounting graduates

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in 2008 (NACE 2008). Within a decade, the number of jobs specifically for accountants and auditors will grow by 18% according to US Department of Labor projections. From 2006 to 2016, an additional 226,000 accountants and auditors will be needed in the USA (US Department of Labor 2008). Employers and Other Stakeholders The demand for accounting graduates by CPA firms and other employers is very high. Many companies are still struggling with implementation of Sarbanes-Oxley. Still others are anticipating the move to XBRL reporting for SEC purposes, and the likely future implementation of IFRS in the U.S. These and other issues drive the need for more accountants. CPA firms, in particular, are going to great lengths to attract majors and graduates. The AICPA has numerous programs for accounting scholarships, as do many other associations, such as the IMA and the ASWA. In addition, some firms endow scholarships at regional universities and colleges to help entice more accounting majors. New accounting graduates in 2008 are being offered an average salary very close to $50,000. Some of the Big Four firms and the national associations (such as the IMA) have noted the shortage in accounting PhDs and have created initiatives, programs and scholarships to encourage doctoral applicants. The PhDProject (2008) is one such initiative, aimed at attractive minorities to careers in business academia. Recently the CPA profession pledged $15 million to help fill the shortage of accounting professors, preferably CPAs with auditing and taxation experience (Accounting Doctoral Scholars 2008). While the shortage of doctorally qualified accounting faculty may severely impact the future stream of professional accounting graduates, the direct relationship between the professional accounting market players (firms, companies, etc.) and the accounting doctoral market does not seem to be a close direct one, but rather an indirect relationship. Doctoral Graduates Clearly, the increasing supply of bachelors and masters degree graduates in accounting has not glutted the market. Firms, companies, government and other organizations are still demanding more accounting graduates. Therefore, the number of professors needed to train these future accountants should be growing as well. In addition, the impending retirement of much of the baby boomer generation (those born from 1945-1964) is also a factor that can impact the number of professors in academia. However, the number of accounting doctorates conferred has not been growing in recent years. Despite the high demand for professional accountants, US accounting doctoral programs have been unable or unwilling to deliver the number of doctoral graduates needed to train these growing numbers of professional accountants. These doctoral programs, as an industry, have generated fewer doctoral graduates over the past decade than in previous decades. The current shortage of accounting doctoral graduates is well documented (AACSB 2003; Plumlee et al. 2006; AAA 2008a, 2008b). The decreasing trend in the number of accounting doctorates produced each year has been sustained for some time and reported in numerous places. The visual picture of the volume of doctorates granted in the past two decades is telling, as shown in Figure 4. Figure 4: U.S. Doctoral Accounting Degrees Conferred, 1987-2006

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Contrast this trend with the trends in accounting degrees at the bachelors and masters levels. Since the year 2000, the number of bachelors degrees conferred in the USA has increased each year. The latest trend is an annual increase of more than six percent. The number of masters degrees conferred in accounting has been growing for decades and has doubled in the last ten years (NCES 2000-1). The demand for bachelors and masters level accounting graduates is expected to continue growing for the foreseeable future (U.S. Department of Labor 2008). The rest of this article describes the accounting doctoral market in more detail, with particular focus on the programs and their doctoral graduates. The research methods are briefly described first. Research Methods The data are described next, followed by a description of the methods used to identify and locate the relevant data and useful sources, and the analysis, which for present purposes largely consists of the generation of descriptive statistics for each item of interest. The basic data consist of recent U.S. accounting doctoral graduates (1987-2006). These graduates were initially identified through Hasselbackâ&#x20AC;&#x2122;s (2007) online listing of doctoral graduates by school. Then, this data was researched and updated with corrections and additions of supplemental variables based on information obtained from doctoral program websites, university websites, general Internet searches, phone calls and emails. Further Internet searches, phone calls and emails enabled the identification of gender for the majority of graduates (>95%). Information on minority status was provided by the PhDProject (2007). For the purposes of this research, minorities are identified as African-American, Native American, and Hispanic American. These are recognized as under-represented minorities and are those specifically encouraged by the PhDProject (2007) to pursue doctorates in business disciplines. Therefore, this study analyzes a unique and extraordinarily detailed dataset. However, this research is not concerned with individual characteristics, but rather with each programâ&#x20AC;&#x2122;s characteristics as described by its graduates. Using this data on individuals, programs are analyzed on the basis of size, of growth, and of prestige. The programs have been divided by size: 1 to 9 graduates (in the 20 year period), 10-19 graduates, and so forth up to programs conferring more than 80 degrees in the 20 year period. Prestige is defined by the institutional prestige measure for doctoral-granting institutions developed by Fogarty & Markarian (2007). In addition to the general demographic statistics, further analysis is provided comparing and contrasting the growing programs, the shrinking programs and those in a relatively steady state. These categories are defined by comparing the number of graduates in the first decade (1987-1996) to the number of graduates in the second decade (1997-2006). Growing programs are those with an increase of at least 60% in the second decade. Conversely, shrinking programs are those with a decrease of at least 60%. Programs falling in between these two categories are defined for the purposes of this study as being in a steady state. The Accounting Doctoral Market The purpose of the accounting doctoral market (the left side of Figure 1) is to train accounting doctorates for research and teaching positions, largely in academic institutions. Therefore, this section discusses this upstream accounting doctoral market by describing and analyzing its two major players, the programs and their graduates. Doctoral Programs As previously shown in the left side of Figure 1, the accounting doctoral market consists of doctoral programs that produce accounting PhDs. As of 2006, 94 programs had conferred doctoral degrees in accounting in the previous 20 years. These programs range in size from 87 graduates during this period to 1 graduate. Shrinking, Steady or Growing Programs By dividing these programs into ten size groups based on the number of doctoral degrees conferred during the 10 year period 1987-1996, they can be analyzed as an industry. Like companies in any industry, some programs are growing in size, others are shrinking and some are relatively steady in terms of their output from the first decade to the second. While one might expect to have some schools in each size category growing and some shrinking, that is not the pattern that emerges from figure 5, which shows the direction and percentage of change for programs in each size group. All of the schools in the three largest size categories (42-51, 33-41, 27-33) decreased the number of graduates from the first to the second 10 year periods. Only one of these larger schools showed a modest decrease (<15%) with the majority showing a decline of 45% or more. In general, the larger programs are more likely to decline in the number of graduates than smaller programs and the percentage decrease is likely to be larger as well. 119

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Figure 5: Supplier Stages: Shrinking, Steady and Growing Programs

Note: Where there was a tie for size at the border of the group the program with the larger number of graduates in the second period was assigned to the larger group. If the decline in graduates was solely caused by fewer individuals wanting to get Ph.D.s in accounting one would expect the changes in graduates to either be relatively evenly distributed across the size categories, or perhaps the smaller less well established schools would be more likely to decline in size compared to their larger, more well established counterparts. That is not the pattern that emerges. Thus, it appears that the decline in the number of accounting Ph.D. degrees is not solely based on lack of interest by potential degree candidates. This conclusion is supported by the AACSB (2003) report that indicated that while applications for doctoral programs in business had increased, admissions had not. Change in Graduate Numbers The industry can be further analyzed by looking more closely at the changes in the number of graduates from the first decade to the second decade in the period of study. Figure 6 graphically illustrates the change in the number of graduates for programs by size and stage. Figure 6: Change in Number of Graduates by Program Size

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Note the large negative change in the number of graduates for the shrinking programs in all the larger size groups. Also note the correspondingly small positive numbers on the top, representing the growing programs (all toward the small end and few showing significant increases). While some might say the solution to the shortage problem is to create more doctoral programs, clearly the larger and longer lived programs are producing fewer graduates than before. The smaller and/or new programs have not been creating enough graduates to overcome the shrinkage of the other programs. PhD Graduates The industry creates two products, effectively: human accounting graduates and knowledge (research). Since the former is more easily measurable, that is the focus here. The human outputs of the academic accounting industry are doctoral graduates, masters graduates and bachelors graduates. Doctoral graduates are then hired to teach/train bachelors and masters degree candidates. Of course, the reality is not this simple, as some schools use masters degree graduates to train bachelors graduates. However, the simple model will do for this discussion. A Gender Gap? While many studies have measured the status or lack of status of women in academic accounting, who still havenâ&#x20AC;&#x2122;t reached parity with males on graduation rates and rank and such, the trends in graduates according to gender are quite interesting. Returning to Figure 3â&#x20AC;&#x2122;s depiction of doctoral degrees conferred, Figure 7 adds the gender dimension. While percentage-wise, the females seem to be making some gains on the males, in fact the number of females graduating is not growing, but is relatively steady or declining slightly. The number of males, however, has been dropping significantly, even though the males still largely outnumber the females, with the possible exception of 2001. What is happening to the males? Figure 7: Accounting Doctoral Graduates by Year and Gender

See, for example, Buchheit et al. 2000; Carolfi et al.1996; Collins et al. 1998; Dwyer 1994; Jordan et al. 2006; Lanier & Tanner 1999; Norgaard 1989; Rama et al. 1997; Streuly & Maranto 1994; Tinker & Fearfull 2007.

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Figure 8: Number of Graduates by Gender and Program Size

To put this drop in the number of male graduates in perspective, Figure 8 illustrates the number of males, females and unknown gender graduated from the first decade to the second decade, by each program size group. For Figure 9 the size of the school was determined by the number of graduates in the first 10 years of our study. This chart shows that all the largest schools decreased both the number of male and the number of female graduates from the first 10 year period to the second 10 year period. With minor exceptions the same is true for the next three size group. Only the smaller size programs show any substantial increase in the number of male or female graduates. Figure 9: Change in the Number of Graduates by Size of School and Gender

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The patterns of growth are evident in the smaller half of the programs, though the growth and the decline in most of those smaller programs appear to zero out. However in these smaller categories the increases in women exceed the decreases. In the larger program groups, no sizable increase in female graduates is evident, while decreases are evident in all categories. An Even Greater Minority Shortage Accounting doctoral programs labor to attract under-represented minorities (Hammond 1995), including African-Americans, Native Americans and Hispanic Americans. For more than a decade, efforts have been made to increase the number of minority graduates of accounting doctoral programs. In 1994, KPMG and others created the PhDProject, whose purpose is increasing faculty diversity in U.S. business schools. The PhDProject provides financial and other support to under-represented minorities such as African-Americans, Hispanic Americans and Native Americans pursuing doctoral studies in business, including accounting (AICPA 2006; PhDProject 2007; Stewart et al. 2008). In addition, professional groups, such as the AICPA and IMA are also involved in minority initiatives with doctoral candidates and faculty (AICPA 2008b). The AASCB, of course, expects accredited schools to define diversity within their missions and cultural contexts (Weisenfeld & Robinson-Backmon 2007). Returning to Figure 4â&#x20AC;&#x2122;s data, Figure 10 adds a dimension for under-represented minorities and non-minorities. The number of underrepresented minorities is increasing in recent years, which is encouraging. However, the increase is not large. Figure 10: Accounting doctoral graduates by year and minority status

Over this twenty year period, the percentage of under-represented minorities earning accounting doctorates is 5.7 percent, 6.7 percent in the most recent year. While progress is encouraging, these percentages fall far short of the related data for the U.S. population. The U.S. population includes more than one-third minorities and has been becoming more diverse over time. The under-represented minorities now comprise about 30%, of which Hispanic Americans are 15%, African-Americans are 13.5%, and Native America/Alaskan/Hawaiians are 2% (U.S. Census Bureau 2008). U.S. society is becoming more and more diverse and, therefore, academic accounting must become more accepting and encouraging of diversity (Blanco and de la Rosa 2008). What can be done to attract more underrepresented minorities to academic accounting? Figure 11 examines the change in minority graduates from decade one to decade two for each program size group. A few programs, mostly in the upper-middle size range, are graduating fewer minorities than in the past. Most programs are graduating more minorities than in the past. Strangely, the programs of the 50-59 group (graduating 2.5 to 3 graduates per year on average) have a net decrease in minority graduates. This group, however, represents a relatively small number of programs.

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Figure 11: Change in Under-Represented Minority Graduates by Program Size

Programs in a steady state have no change in minority graduates. This is primarily due to most of these programs having no minority graduates in either decade. Most programs have increased their minority graduates at least 60% in the second decade. The numbers of minority graduates have decreased 60% or more in some programs. While many smaller programs have no minority graduates, most of the larger programs have at least one minority graduate (Figure 12). Figure 12: Total Programs Compared to Programs with No Minority Graduates by Program Size

Program Prestige and Graduates Having examined these patterns according to program size, a further examination is warranted according to program prestige. Fogarty and Markarian (2007) combined the rankings in two prior studies (Hasselback and Reinstein 1995; Fogarty 1995) to create a diverse prestige construct based on pre-1993 information. Using this measure, the programs are divided into nine groups. The last group includes programs that were not rated, presumably because they did not exist at the time the prior studies were undertaken. Figure 13 shows the number of schools in each prestige grouping that increased and decreased in the number of graduates from the first 10 year period to the second 10 year period. 124

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Figure 13: Program Stage by Prestige Rankings

A very different picture emerges when the programs are viewed by prestige rankings. Fewer of the schools with higher prestige rankings had large declines when compared with schools at the lower end of the rankings. The vast majority of the growth in doctoral graduates is coming from programs that were unranked in the Fogarty and Markarian (2007) study, and presumably these are the newer programs for which data did not exist to be used in the earlier prestige rankings. So, the new (unranked) programs create some growth, but the decline in the number of graduates is fairly consistent across various levels of prestige groups. Figure 14 shows the change in the number of graduates in each prestige grouping. The decline in the number of graduates from the top 10 ranked schools was relatively modest compared to those further down the rankings. Most of the decrease in graduates is from schools in the lower middle of the rankings (41-70), with a smaller but still substantial decrease in the upper middle rankings (11-40).

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Figure 14: Change in Graduates by Prestige Rankings

Prestige and Gender This prestige measure can be further described using gender and minority data. Figure 15 shows the changes in male and female graduates by prestige ranking groups. Increases in women are present in every prestige group and relatively similar in size. Decreases are also present in all prestige categories. In the highest and lowest prestige categories and the programs that were not ranked the increases in women exceed the decreases but in all other categories the decreases in women exceed the increases. In all categories, except unrated programs, the decrease in men far exceeds the increase in men.

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Figure 15: Change by Gender and Prestige Ranking

Minorities and Prestige This prestige measure can be further described using gender and minority data. Figure 16 illustrates only the underrepresented minority graduates according to prestige group and whether the programs are shrinking, steady or growing. Note that no programs appear to have kept the numbers of minority graduates steady from the first decade to the second. The growing programsâ&#x20AC;&#x2122; minority graduates increases far outnumber the decreases in minority graduates of the shrinking programs. Figure 16, however, does not give a complete picture of minorities according to prestige groups. Figure 17 compares the total number of programs in each prestige group to the number of programs that do not appear to have any underrepresented minority graduates in the 20 year period. So, a significant number of programs have not graduated minority graduates. These programs span the range of prestige groups. The unrated programs have a higher total and a higher number of no-minority programs. However, many of these unrated programs are very small, graduating only one or a few Ph.D. students.

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Figure 16: Change in Minority Graduates by Program Prestige

Figure 17: Comparison of All Programs and Those with No Minority Graduates by Prestige

Observations and Unanswered Questions This analysis uses unique and extensive data on accounting doctoral graduates to show that the changes in programs are not uniform whether considered by size or by prestige. While new programs have been created, their volume of graduates is not large enough to replace the established programsâ&#x20AC;&#x2122; decline in volume of graduates. With regard to overall trends, the shrinking programs outnumber both the growing programs and the steady state programs. In general, the new programs are growing, by default, and the older, larger programs, in general, tend to be shrinking. 128

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The majority of the programs with steady graduation numbers are in the middle to smaller size range. This leads to a number of questions: Why are half of the doctoral programs reducing the number of Ph.D. students they have been graduating? Why are most larger programs (40-79 graduates in two decades) shrinking? Is it a funding issue? Is it a choice on the part of these programs to be smaller? Is it a lack of senior faculty mentors to advise graduate students and direct dissertations? With regard to gender, the number of male graduates has been falling for the past two decades, much more sharply than the slight decline in the number of female graduates. The net decrease in male graduates is spread across the board, except for the largest programs and the smaller ones. Why are men less and less interested in pursuing accounting doctoral studies? The decrease in female graduates is similarly spread across the middle sizes of programs but the net decrease (i.e. few programs with growth in female graduates) is pronounced for the programs toward the larger end (50-79 graduates in two decades). Why are relatively fewer women attracted to or recruited by these relatively large programs? With regard to minorities, clearly the accounting doctoral market is falling short on recruiting minorities. The small bit of good news is the recent uptick in minority graduates, as well as the increase in graduates across different program sizes. The impact of the PhDProject seems obvious. However, many programs, including a few large programs and many in the smaller half, have not graduated any underrepresented minorities during the last twenty years. What more can be done to attract African-Americans, Hispanic Americans and Native Americans to careers in accounting academia? With regard to prestige, all of the prestige groups have seen a net decrease in graduates from the first decade to the second. The only group with a net increase is the group of programs that were not rated, presumably the newer programs without enough history to have data for the prestige calculations used by Fogarty and Markarian (2007). The higher levels of shrinkage are in the middle 75% of prestige groups. The highest prestige and lowest prestige groups have smaller decreases in graduates than the intermediate prestige groups. Clearly the problem of decreasing numbers of accounting doctoral graduates is not centered on any one prestige group but is a widespread problem. The newer, unranked programs are not educating enough graduates to overcome the net decreases in graduates from all the other programs. Given these results, some big picture questions still remain to be investigated: What can be done to train more doctoral graduates? How long will this high demand phase last? How can more qualified applicants be attracted to accounting doctoral studies? How can more minorities be attracted to accounting doctoral studies? Proposed Future Research Clearly, much research remains to be done. Hopefully, accounting academicians will become interested in this problem that so concerns us all and will start researching these difficult questions. To this end, this final section describes specific areas for research. Why are the larger programs uniformly shrinking? Are some programs just too large? Have schools determined that moderately sized or small sized doctoral groups perform better or are in some other way better or desirable? Very few programs that graduate, on average, more than one graduate per year, are actually growing. Almost every program, in fact, that graduates more than one person per year is shrinking. Future research should examine this phenomenon and identify whether large size, or some related characteristic that is commonly found in large programs, is a detriment to long term program success and why. Why are all the increases in graduate output coming from smaller programs? About half of the smaller programs (<15 graduates in 20 years) are providing all the growth in numbers of graduates, while the other half of small programs are shrinking in similar patterns to the large programs, which are uniformly shrinking. So, what are these small but growing programs doing right? What characteristics distinguish these growing small programs from their shrinking but similarly-sized counterparts? Future research should survey these programs, comparing a broad range of program features for the purpose of identifying demographics of successful small programs. This information may help new programs and endangered programs find paths toward success. Can we investigate those who are choosing not to pursue doctorates in accounting to find out why? This is most difficult. However, the questions remain. Why are males earning fewer and fewer degrees? Females, while declining in total, have seen increases in the smaller programs (programs graduating less than 18 in 20 years). Of course, this could be the result of changes in recruiting practices over time since many of the smaller programs are also newer programs. Perhaps many of these programs have been working hard to attract more female students. Future research should examine the recruiting practices of doctoral programs to identify what methods of recruitment characterize those programs who have been recruiting most successfully.

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Similarly, a significant portion (more than 40%) of accounting doctoral programs have not graduated any underrepresented minorities in the past two decades (1987-2006). Discussions with doctoral program directors suggest this is due, in part, to the difficulty in recruiting these minority candidates. Future research should examine the recruiting practices of doctoral programs to identify what methods of recruitment characterize those programs successfully recruiting minorities. Growth with regard to prestige of schools, appears to be greatest at schools with programs that are too new to have been ranked in the Fogarty and Markarian (2007) study which used rankings from the early to middle 1990s. Clearly, high prestige schools do not have a corner on the growth market. What are the newer growing programs doing to attract students that is different from more established, high prestige programs? Obviously, these schools are attracting students (accounting for most of the growth among an otherwise dismal picture). An examination of recruitment practices should shed light on how the recruitment practices of these unranked but growing programs differ from the ranked established programs. When further parsing the prestige groups by gender, the biggest area of grown for both males and females is among the unranked, and presumably newer, programs. Similarly, the unranked and lowest ranked program groups, along with the middle ranking programs (21-40) show the most success in increasing minority graduates. Minorities do not appear to be attracted equally by the full range of programs by prestige. Further research should examine how applicants, both minority and non-minority, choose between programs. A survey of current and recent graduates on this topic should provide insight into the factors motivating program choice. Understanding how future doctoral graduates choose their programs will help struggling program identify areas to target for change. References AAA (American Accounting Association). 2008a. American accounting association: Our shared vision. (January 2008). Sarasota, Florida: AAA. http://aaahq.org/about/AAAShareVisionDocumentJan08fnl_4_.pdf. AAA (American Accounting Association). 2008b. Accounting faculty in U.S. colleges and universities: Status and trends, 1993-2004. A report of the American Accounting Association (February 19, 2008). Sarasota, Florida: AAA. http://aaahq.org/temp/phd/AccountingFacultyUSCollegesUniv.pdf. AACSB (Association for the Advancement of Collegiate Schools of Business). 2003. Sustaining scholarship in business schools. A report of the doctoral faculty commission. St. Louis, Missouri: AACSB. http://www.gfme. org/issues/pdfs/SustainingScholarship.pdf. Accounting Doctoral Scholars. 2008. Website: http://www.adsphd.org/. AICPA (American Institute of Certified Public Accountants). 2006. Bernard J. Milano of KPMG receives AICPA special recognition award (news release). http://www.aicpa.org/download/news/2006/Bernard_%20J_Millano_ of_KPMG_Recieves_AICPA_Award.pdf. AICPA. 2008a. 2008 Trends in the supply of accounting graduates and the demand for public accounting recruits (report). http://ceae.aicpa.org/Resources/Publications+Reports/. AICPA. 2008b. AICPA media center - minority initiatives. http://www.aicpa.org/MediaCenter/Minority_ Initiatives. htm. AICPA. 2008c. Colleges and universities offering accounting degree programs. http://www.aicpa.org/collegelist/ index.htm. Baldwin, A., Brown, C., & Trinkle, B. 2010. Accounting doctoral programs: A multidimensional description. Advances in Accounting Education, 11: 101-128. Blanco, R., & de la Rosa, D. 2008. Hispanics in business education: An under-represented segment of the U.S. population. Critical Perspectives on Accounting, 19: 17-29. Brown, L. 1996. Influential accounting articles, individuals, PhD granting institutions and faculties: A citational analysis. Accounting, Organizations and Society, 21: 723-754.

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Brown, L., & Laksmana, I. 2007. Accounting Ph.D. program graduates: Affiliation performance and publication performance. Review of Quantitative Finance and Accounting, 29: 285-213. Brown, L., & Gardner, J. 1985. Applying citation analysis to evaluate the research contributions of accounting faculty and doctoral programs. Accounting Review, 60: 262-277. Buchheit, S., Collins, A., & Collins, D. 2000. Must female accounting faculty publish more to achieve tenure? Women in Management Review, 15: 344-354. Carolfi, I., & Pillsbury, C. 1996. The hiring of women in accounting academia. Journal of Education for Business, 71: 151-156. Carpenter, C., & Hock, C. 2008. The 150-hour requirement’s effect on the CPA exam. CPA Journal, 78: 62. Chan, K., Chen, C., & Cheng, L. 2007. Global ranking of accounting programmes and the elite effect in accounting research. Accounting and Finance, 47: 187–220. Collins, A., Parrish, B., & Collins, D. 1998. Gender and the tenure track: Some survey evidence. Issues in Accounting Education, 13: 277-299. Demski, J. 2007. Is accounting an academic discipline? Accounting Horizons, 21: 153-157. Dwyer, P. 1994. Gender differences in the scholarly activities of accounting academics: An empirical investigation. Issues in Accounting Education, 9: 231-247. Everett, J., Klamm, B., & Stoltzfus, R. 2004. Developing benchmarks for evaluating publication records at doctoral programs in accounting. Journal of Accounting Education, 22: 229-252. Fellingham, J. 2007. Is accounting an academic discipline? Accounting Horizons, 21: 159-163. Fogarty, T. 1995. A ranking to end all rankings: A meta-analysis and critique of studies ranking academic accounting departments. Accounting Perspectives, 1: 1–22. Fogarty, T., & Saftner, D. 1993a. Down the up staircase: US academic accounting prestige and the placement of doctoral students. Accounting Education, 2: 93-100. Fogarty, T., & Saftner, D. 1993b. Academic department prestige: A new measure based on the doctoral labor market. Research in Higher Education, 34: 427–449. Fogarty, T., & Markarian, G. 2007. An empirical assessment of the ride and fall of accounting as an academic discipline. Issues in Accounting Education, 22: 137-161. Grasso, L. 2008. The accounting Ph.D. shortage: Crisis or opportunity? Cost Management, 22: 15-25. Hammond, T. 1995. Some considerations in attracting and retaining African-American doctoral candidates in accounting. Issues in Accounting Education, 10: 143-158. Hasselback, J., & Reinstein, A. 1995. A proposal for measuring scholarly productivity of accounting faculty. Issues in Accounting Education, 10: 269–306. Jordan, C., Pate, G., & Clark, S. 2006. Gender imbalance in accounting academia: Past and present. Journal of Education for Business, 81: 165-169. Lanier, P., & Tanner, J. 1999. A report on gender and gender-related issues in the accounting professoriate. Journal of Education for Business, 75: 76-82. McNair, C. 2008. Unintended consequences: Death of the teacher-scholar. Cost Management, 22: 21-28.

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Mittermaier, L. 1991. Representation on the editorial boards of academic accounting journals: An analysis of accounting faculties and doctoral programs. Issues in Accounting Education, 6: 221-238. National Association of Colleges and Employers. 2008. Job outlook 2008. http://www.naceweb.org/products/info_pages/ joboutlookreport.htm. National Center for Education Statistics (U.S. Department of Education). 2000-1. Degrees and other formal awards conferred survey, and integrated postsecondary education data system, completions survey (IPEDS-C:01). In Higher Education General Information Survey (HEGIS). http://nces.ed.gov/pubs2005/equity/ Section12.asp. Norgaard, C. 1989. A status report on academic women accountants. Issues in Accounting Education, 4: 11-28. PhD Project. 2008. http://www.phdproject.org. Plumlee, R., Kachelmeier, S., Madeo, S., Pratt, J., & Krull, G. 2006. Assessing the shortage of accounting faculty. Issues in Accounting Education, 21: 113â&#x20AC;&#x201C;125. Rama, D., Raghunandan, K., Logan, L., & Barkman, B. 1997. Gender differences in publications by promoted faculty. Issues in Accounting Education, 12: 353-365. Stammerjohan, W., & Hall, S. 2002. Evaluation of doctoral programs in accounting: An examination of placement. Journal of Accounting Education, 20: 1-27. Stewart, M., Williamson, I., & King, J. 2008. Who wants to be a business PhD? Exploring minority entry into the faculty pipeline. Academy of Management Learning & Education, 7: 42-55. Streuly, C., & Maranto, C. 1994. Accounting faculty research productivity and citations: Are there gender differences? Issues in Accounting Education, 9: 247-269. Tinker, T., & Fearfull, A. 2007. The workplace politics of U.S. accounting: Race, class and gender discrimination at Baruch College. Critical Perspectives on Accounting, 18: 123-138. U.S. Census Bureau. 2008. U.S. Hispanic population surpasses 45 million: Now 15 percent of total. http://www. census.gov/Press-Release/www/releases/archives/population/011910.html. U.S. Department of Labor, Bureau of Labor Statistics. 2008. Employment projections: 2006-16. http://www.bls. gov/ news.release/pdf/ecopro.pdf. Weisenfeld, L., & Robinson-Backmon, I. 2007. Accounting faculty perceptions regarding diversity issues and academic environment. Issues in Accounting Education, 22: 429-445. Amelia Baldwin is the Neal Pendergraft professor of accounting at the University of Arkansas - Fort Smith. She earned her Ph.D. in accounting & information systems from Virginia Tech. Her primary research areas are emerging technology impacts on accounting and accounting labor markets. She has published in British Accounting Review, European Accounting Review, Journal of Information Systems, International Journal of Auditing, Journal of Emerging Technologies in Accounting, Information Systems Management, International Journal of Accounting Information Systems, Advances in Public Interest Accounting, and Advances in Accounting Education, among others. Carol Brown is associate dean for programs in Oregon State Universityâ&#x20AC;&#x2122;s College of Business. She earned her Ph.D. in computer science from Oregon State. Her primary research areas are emerging technologies and accounting labor markets. She has published in Journal of Information Systems, Journal of Emerging Technologies in Accounting, Expert Systems with Applications, Financial Counseling & Planning, Management Accounting, Journal of Accountancy, Accounting Education, Journal of Education for Business, Advances in Accounting Education, and Intelligent Systems in Accounting, Finance & Management, among others.

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Does Feedback Increase Students’ Emotional Intelligence? Barbara Burgess-Wilkerson, Winthrop University Keith Benson, Winthrop University Steven Frankforter, Winthrop University This study investigates the extent to which emotional intelligence can be successfully developed through a semesterlong classroom intervention and self-directed learning process among students in a college of business administration. We found that with emotional intelligence training, all students experienced improvement between the administrations of pre-tests and post-tests. This result also held regardless of maturity level (undergraduate or graduate student status), or gender. For most of the past century, the intelligence quotient (IQ) test was the primary method to gauge intelligence and was often used as a predictor for success in the corporate world. Many human resource managers correlated grade point average with IQ, which explains why grade point average was often a requirement in the job application process. However, research in the 1980’s found that cognitive ability, as demonstrated on IQ tests, did not represent a comprehensive picture of human intellect. For example, Hunter and Hunter (1984) found that IQ accounts for approximately only 25 percent of the variance in career success, while Sternberg (1996) pointed out that studies vary and that IQ may account for only about 10 percent of the variance in career success. The question then arose: if IQ is not a very reliable predictor for career success, then what is? Salovey and Mayer’s (1990) study of social (non-cognitive) intelligence presented a framework for emotional intelligence (EI), which was based on the ability to regulate one’s emotion and accurately monitoring other’s emotions. Goleman (1995) examined the relationship between traditional cognitive IQ tests and success in the workplace, finding that IQ by itself was not a good predictor of job performance. Cherniss (2000) found that EI is critical for effective work performance. A national survey found four in ten workers were not able to work cooperatively with fellow-employees and only 19 percent of entry-level applicants have sufficient self-discipline in work habits (Harris Education Research Council, 1991). Considering such findings, perhaps business schools should consider incorporating emotional intelligence development into their curriculums. In this study, we examine whether emotional intelligence feedback can increase students’ emotional intelligence. REVIEW OF LITERATURE Thorndike and Stein (1937) stated that social intelligence is the ability to understand others and act wisely in human relations. Emotional intelligence builds on this concept. According to Salovey and Mayer (1990) Emotional intelligence is “a form of social intelligence that involves the ability to monitor one’s own and other’s feelings and emotions, to discriminate among them, and to use this information to guide one’s thinking and action” (1990:185). Goleman (1995) found that emotional intelligence is a more important determinant of management success than technical expertise or cognitive ability. There is recognition among researchers and practitioners that emotions play a large role in organizational life. For example, emotional intelligence is a key area to help accountants perform better (Akers & Porter, 2003). Additionally, Goleman, Boyatzis, and McKee (2002) found that partners in a large public accounting firm with strong self-management and social skills achieved a 390 percent incremental annual profit versus a 50 percent increase for partners with strong analytical skills. In a study of MBA students, Boyatzis, Stubbs, and Taylor, (2002) concluded that MBA programs should put forth a concerted effort to integrate emotional intelligence training using a more non-traditional holistic approach to positively impact employment outcomes. Research indicates a positive correlation between emotional intelligence and cognitive-based performance among college students. Lam and Kirby (2002) ascertained the level to which emotional intelligence accounts for increases in individual cognitive-based performance above the level attributable to general intelligence. They found a positive correlation existed in three of the four emotional intelligence subscales; overall EI, perceiving emotions, and regulating emotions. A survey of employers conducted by the National Association of Colleges and Employers found that employers rated interpersonal skills as the most desired skill of recent graduates (Shivpuri & Kim, 2004). In a study of accounting students, Bay and McKeage (2006) found the average accounting students did not have a high level of emotional intelligence, and given the critical role of emotional intelligence in career success, those students were ill-prepared 133

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for their futures. They argue that emotional intelligence has relevance for accountants in the areas of decision-making and also suggests that emotional intelligence is a variable that may explain the gap between ethical understanding and ethical behavior in the workplace. While graduates of business programs may be technically prepared for their disciplines, they are not necessarily prepared for the emotional aspects of work. Esmond-Kiger, Tucker, and Yost (2006) revealed that although accounting students on average have higher GPAs than non-accounting counterparts, they reported lower levels of emotional intelligence. They recommend the incorporation of emotional intelligence training into the accounting. The American College Personnel Association called for a response to the mounting evidence of the importance of emotional intelligence in academic and career success and advocated the promotion of a student development model of learning that incorporates emotional intelligence competencies, through engagement in applied research efforts to promote holistic learning through an integrated learning community commonly referred to as Student Learning Imperative, which places student development on par with student learning (Low, Lomax, Jackson & Nelson, 2004). Hypotheses Business schools are creatively infusing emotional intelligence into the business curriculum as a holistic approach to promote student professional development. In one instance emotional intelligence theory was infused into a schoolâ&#x20AC;&#x2122;s business communication curriculum as a strategy for developing interpersonal and intrapersonal communications more effectively (Myers & Tucker, 2005). Vandervoort (2006) advocates improving student emotional intelligence because those with higher self-knowledge tend to make better career choices, have less behavioral/emotional problems, and have higher scores on standardized achievement tests. The purpose of this study is to investigate the extent to which emotional intelligence can be developed through a semester-long classroom intervention and self-directed learning process among selected students in a College of Business Administration. We predict that emotional intelligence feedback will increase student scores on EI tests. We also predict that both graduate and undergraduate students will improve their EI scores. Finally, we predict that both male and female students will improve their EI scores. Accordingly, we offer the following hypotheses: H1: Emotional intelligence feedback will result in increases in student emotional intelligence scores. H2: Emotional intelligence feedback will result in increases for both graduate and undergraduate student emotional intelligence scores. H3: Emotional intelligence feedback will result in increases for both male and female student emotional intelligence scores. DESIGN OF THE STUDY Participants and Assessment Tool Students in two graduate and one undergraduate course at a university in the southeastern United States during the fall semester of 2009 were informed of the opportunity to participate in an emotional intellegence project. The study included 121 students. There were 77 undergraduate and 44 graduate students, whose age ranged from 19 to 47, with an average age of 23. All undergraduate students were either juniors or seniors. Sixty-two students were female and 59 were male. Participants took the Emotional Intelligence Quotient Higher Education Edition (EQIHed) online self-assessment before intervention as a pre-test and then near the end of the semester, after intervention as a posttest. The EQIHed is a self-reporting instrument developed by Bar-On (2000) to measure an array of non-cognitive capabilities, competencies and skills based on the construct model of social and emotional intelligence. The assessment tool is divided into five general components along with several subcomponents. The first general component, intrapersonal, included measures of self-regard, emotional self-awareness, assertiveness, independence, and self-actualization. The second, interpersonal, included empathy, social responsibility, and interpersonal relationship. The third, stress management, included stress tolerance, and impulse control. The fourth, adaptability, included reality testing, flexibility, and problem-solving. Finally, general mood, included optimism and happiness (Mayer, Caruso & Salovey, 2000). Table 1 below shows the variable definitions for the EQIHed report from BarOn Emotional Intelligence Quotient Technical Manual. We reviewed the MHS testing instructions and Internal Review Board (IRB) consent policies for optimal understanding of participation requirements and confidentialty. Each student participant received a passcode and instructions for accessing the EQiHed protocol through the MHS website. There was no time limit for completion of the EQIHed assessment, though the average time was 15 minutes. When the duration of the assessment was under

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10 minutes it was flagged in the scoring organizer for follow-up with the student. Three possible sources of bias were were controlled controlled for. for. First, First, aa positive positive impression impression score, score, to to detect detect the the feigning feigning of of enhanced enhanced emotional emotional functioning. functioning. Next, Next, aa negative negative impression impression score, score, to to detect detect imulation imulation or or malingering. malingering. And And last, last, an an inconsistency inconsistency index, index, to to identify identify respondents who contradict contradict themselves themselves or or respond respond randomly. randomly. In In no no case study have have bias bias respondents who case did did any any respondents respondents in in this this study scores that exceeded exceeded the the critical critical values values set set forth forth by by the theBarOn BarOnEmotional EmotionalIntelligence IntelligenceQuotient QuotientTechnical TechnicalManual. Manual. scores that Table Definitions Table 1: Variable Definitions Variable T INTRA

Variable Name Total Emotional Intelligence Intrapersonal

REG AW ASS IND ACT INTER EMP SOC

Self Regard Emotional self-awareness Assertiveness Independence Self-Actualization Interpersonal Empathy Social responsiblity

INTREL SMGMT STOL IMP ADA REAL FLEX PRSOL

Interpersonal relationship Stress managment Stress tolerance Impulse control Adaptability Reality testing Flexibility Problem solving

MOOD

General mood

OPT HAP

Optimism Happiness

Variable Definition A general indication of a respondent’s level of emotional intelligent. It determines how in touch with your feelings you are, how good you feel about yourself and about what you’re doing in life. The ability to respect and accept oneself as basically good. The ability to recognize one's feelings. The ability to express feelings, beliefs and thoughts and defend one's rights in a non-destructive manner. The ability to be self-directed and self-controlled. The ability to realize one potential capacities. Concerns what are known as people skills. The ability to be aware of, understand, and appreciate the feelings of others. The ability to demonstrate oneself as a cooperative, contributing, and constructive member of one’s social group. The ability to establish and maintain mutually satisfying relationships that are characterized by intimacy and by giving and receiving affection. Concerns the ability to withstand stress without caving in, falling apart, or losing control. The ability to withstand adverse events and stressful situations by actively and positively coping with stress. The ability to resist or delay an impulse, drive, or temptation to act. Concerns the ability to size up and respond to a wide range of difficult situations. The ability to assess the correspondence between what is expected and what objectively exists. The ability to adjust one’s emotions, thoughts, and behaviors to changing situations and conditions. The ability to identify and define problems as well as to generate and implement potentially effective solutions. Concerns your overall outlook on life, your ability to enjoy yourself and others and your overall feelings of contentment or dissatisfaction The ability to look at the brighter side of life. The ability to feel satisfied with one’s life, to enjoy oneself and others, and to have fun.

Intervention Intervention Participants were provided a copy of the Emotional Competence Framework from the Consortium for Research Participants were provided a copy of theasEmotional Competence Framework from the Consortium Research on Emotional Intelligence in Organizations part of a group discussion to fully comprehend the scope for of emotional on Emotional Intelligence in Organizations as part of a group discussion to fully comprehend the scope of emotional itelligence. Assessment instructions and passcodes were emailed to participants with a deadline of one week for preitelligence. Assessment instructionsthe andinitial passcodes were emailed participants with a Summary deadline ofReports, one week for test completion. After completing assessment, studentstoreceived a Student which pre-test completion. After completing the initial assessment, students received a Student Summary Reports, which included a four page summary of the three highest and two lowest scores. Afer one week, participants received a included a four page summary the three an highest and report two lowest Afersubscale one week, participants received Student Comprehensive Report of containing 18-page of allscores. scale and results, instructions for ainterpretation, Student Comprehensive Report containing an 18-page report of all scale and subscale results, instructions for and instructions for the in-class coaching session. interpretation, and instructions for the in-class coaching session. The coaching session was designed to achieve the following goals: to understand the meaning of the EI scales coachingand session was designed achieve the following to understand meaning of the EI scales and andThe sub-scales releated scores, toto receive assistance in goals: identifying strengthstheand growth areas for future sub-scales and releated scores, to receive assistance in identifying strengths and growth areas for future development, development, and to develop a 30 day plan for self-improvement. In-class discussions addressed the impact of and to develop a 30 in dayacademic plan forand self-improvement. In-class discussions addressed the emotional impact ofwell-being. emotional emotional intelligence career success, relationships, family life, and overall intelligence in academic and career success, relationships, family life, and overall emotional well-being. Proposed self-improvement plans were reviewed to ensure feasibility, measurability, and appropriatenessProposed on a set self-improvement plans were reviewed to ensure feasibility, measurability, and appropriateness on a counseling set limit of two limit of two intervention areas. Individuals were also provided an opportunity for individual and intervention areas. Individuals also provided opportunity for report. individual counseling and coaching to address coaching to address anxieties orwere concerns regardinganany aspect of the anxieties or concerns regarding any aspect of the report. Throughout the semester, on-going classroom discussions empasized the relevance of emotional intelligence in Throughout the semester, on-going classroom the the relevance of emotional intelligence in the academic, professional and social realms. At discussions the end of empasized the semester, EQIHed test was re-administered the academic, professional and social realms. At the end of the semester, the EQIHed test was re-administered online. online. Participants were instructed to conduct a comparative analysis of pre- and post-test scores to ascertain the Participants were instructed to conduct a comparative analysis of preand post-test scores to ascertain the extent to extent to which EI scored increased, decreased or remained unchanged. Students were assigned to write a selfwhich EI scored increased, decreased or remained unchanged. Students were assigned to write a self-analysis paper analysis paper that inclueded the outcomes of the 30 day plan: their pre- and post-test scores, the details of the 30that intervention, inclueded themeasurable outcomes of thequalitative 30 day plan: their preand post-test day and outcomes, and future plans.scores, the details of the 30-day intervention, measurable and qualitative outcomes, and future plans. Results Results We computed descriptive statistics for the pre-test and the post-test for the population of 121 students. Table 2 shows pre-test descriptive descriptive statistics Table 3 shows statistics. of 121 students. Table 2 Wethe computed statistics and for the pre-test andthe thepost-test post-testdescriptive for the population shows the pre-test descriptive statistics and Table 3 shows the post-test descriptive statistics.

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Variable T1 Variable INTRA1 T1 REG1 INTRA1 AW1 REG1 ASS1 AW1 IND1 ASS1 ACT1 IND1 INTER1 ACT1 EMP1 INTER1 SOC1 EMP1 INTREL1 SOC1 SMGMT1 INTREL1 STOL1 SMGMT1 IMP1 STOL1 ADA1 IMP1 REAL1 ADA1 FLEX1 REAL1 PRSOL1 FLEX1 MOOD1 PRSOL1 OPT1 MOOD1 HAP1 OPT1 HAP1

Table Descriptive Statistics Statistics Table 2: 2: Pre-Test Pre-Test Descriptive Table 2: Pre-Test Descriptive Statistics

n 121 n 121 121 121 121 121 121 121 121 121 121 121 121 121 121 121 121 121 121 121 121 121

Minimum 62 Minimum 58 62 58 61 58 62 61 52 62 40 52 67 40 66 67 63 66 66 63 67 66 57 67 58 57 64 58 63 64 55 63 63 55 62 63 59 62 72 59 72

T2 INTRA2 T2 REG2 INTRA2 AW2 REG2 ASS2 AW2 IND2 ASS2 ACT2 IND2 INTER2 ACT2 EMP2 INTER2 SOC2 EMP2 INTREL2 SOC2 SMGMT2 INTREL2 STOL2 SMGMT2 IMP2 STOL2 ADA2 IMP2 REAL2 ADA2 FLEX2 REAL2 PRSOL2 FLEX2 MOOD2 PRSOL2 OPT2 MOOD2 HAP2 OPT2 HAP2

121 121 121 121 121 121 121 121 121 121 121 121 121 121 121 121 121 121 121 121 121 121

Maximum 131 Maximum 130 131 127 130 129 127 130 129 126 130 126 127 126 123 127 120 123 127 120 128 127 130 128 129 130 133 129 130 133 131 130 126 131 125 126 124 125 123 124 123

Mean 102.81 Mean 102.99 102.81 105.39 102.99 102.12 105.39 102.21 102.12 99.64 102.21 102.20 99.64 101.73 102.20 98.81 101.73 99.74 98.81 104.14 99.74 102.79 104.14 98.92 102.79 105.88 98.92 102.01 105.88 101.4 102.01 102.99 101.4 100.83 102.99 103.75 100.83 100.30 103.75 106.48 100.30 106.48

Table 3: Post-Test Descriptive Statistics Table Table 3: 3: Post-Test Post-Test Descriptive Statistics 77 74 77 80 74 67 80 68 67 62 68 68 62 60 68 48 60 52 48 73 52 76 73 67 76 76 67 82 76 75 82 74 75 70 74 63 70 55 63 70 55 70

134 132 134 129 132 132 129 130 132 126 130 124 126 127 124 123 127 123 128 123 132 128 133 132 129 133 139 129 132 139 136 132 130 136 132 130 128 132 128 128

110.74 110.67 110.74 110.07 110.67 109.73 110.07 108.96 109.73 104.14 108.96 108.43 104.14 107.12 108.43 104.53 107.12 103.00 104.53 109.34 103.00 108.17 109.34 107.04 108.17 107.24 107.04 109.95 107.24 107.08 109.95 108.17 107.08 109.75 108.17 110.29 109.75 108.08 110.29 111.18 108.08 111.18

Std. Deviation Std. 11.921 Deviation 13.158 11.921 11.982 13.158 14.284 11.982 14.134 14.284 14.605 14.134 13.910 14.605 12.774 13.910 14.069 12.774 13.958 14.069 12.691 13.958 12.430 12.691 14.216 12.430 13.042 14.216 12.397 13.042 13.063 12.397 12.238 13.063 13.188 12.238 10.988 13.188 12.333 10.988 10.708 12.333 10.708

11.153 10.815 11.153 10.446 10.815 13.702 10.446 11.825 13.702 13.160 11.825 10.774 13.160 12.840 10.774 14.663 12.840 13.729 14.663 11.246 13.729 11.039 11.246 13.207 11.039 11.505 13.207 11.912 11.505 12.088 11.912 13.170 12.088 11.727 13.170 10.403 11.727 12.781 10.403 9.335 12.781 9.335

We analyzed student pre-test and post-test scores using a paired sample t-test. Table 4 reports EI difference tWe analyzed studentsignificance pre-test andlevels post-test scores a paired samplet-statistic t-test. Table 4 reports EI difference tstatistics and statistical for all 121 using students. A negative shows improvement from the We analyzed student pre-test and post-test using awould paired sample t-test. Table 4improvement reports statistics significance levels allscores 121 students. A negative t-statistic shows from the pre-test toand thestatistical post-test assessment, while afor positive t-statistic show decline from the pre-test to EI thedifference post-test. t-statistics and statistical significance levels for all t-statistic 121 students. Ashow negative pre-test toofthe assessment, while a positive would decline from pre-test to the post-test. Nineteen thepost-test 20 EI subscores showed statistically significance increases of att-statistic least P the <shows .05 forimprovement students fromfrom the the pre-test to assessment, while a positive t-statistic would show decline thescore postNineteen thethe 20post-test EI subscores showed statistically significance increases of at least Pfrom < .05theforpre-test students from the pre-test toofthe post-test. The only variable not showing improvement was impulse control. The EI to total test. Nineteen the 20These EIThe subscores showedH1, statistically significance at least Pemotional < .05 forEI students from pre-test tobythe only confirm variable not showing improvement was impulse control. The total score improved Pof <post-test. .001. results that intervention doesincreases increase aofstudents’ intelligence. the pre-test post-test. variable was The intelligence. EI total score improved bytoP the <then .001. These The results confirm H1,not thatshowing intervention does increase students’ emotional The study focused on only whether maturity level, asimprovement demonstrated byaimpulse studentcontrol. status (undergraduate or improved by P < .001. These results confirm H1, that intervention does increase a students’ emotional intelligence. The study then focused on whether maturity level, as demonstrated by student status (undergraduate or graduate), influenced EI development. Table 5 reports EI difference t-statistics and statistical significance for The study then focused ontotal whether maturity as demonstrated byt-statistics student or graduate), graduate), influenced EIThe development. Table 5level, reports EIEIdifference and(undergraduate statistical significance for undergraduate students. EI score and 16 of the 20 subscores showed status statistically significance increases influenced Table 5 reports EI16 difference andthe statistical significance for undergraduate undergraduate students. total EI scorestudents and of the the 20t-statistics EI subscores showed statistically significance of at least EI P development. < .05 forThe undergraduate from pre-test to post-test. The variables not increases showing of at leastThe P were < .05 undergraduate students fromimpulse the showed pre-test to and theflexibility. post-test. The variables students. total EIfor score and 16 of the 20 EI subscores statistically significance increasesnot of atshowing least P improvement independence, social responsibility, control, improvement were independence, responsibility, control, and flexibility. < .05 for undergraduate students social from the pre-test to impulse the post-test. The variables not showing improvement were independence, social responsibility, impulse control, and flexibility.

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Table and Statistical Statistical Significance Significance Levels Levels for for All All 121 121 Students Students Table 4: 4: EI EI Difference Difference T-Statistics T-Statistics and Table 4: EI Difference T-Statistics and Statistical Significance Levels for All 121 Students Paired Differences

95% Confidence Interval of the Difference Paired Differences Mean Diff. Std. Dev Std. Error Mean 95% Lower Upper Confidence Interval of the Difference Pair 1

T1 – T2

Pair 12 Pair 32

Intra1 - Intra2 T1 – T2 Reg1 Intra1 -Reg2 Intra2

Pair 43 Pair 45

Aw1 Reg1 -- Aw2 Reg2 Ass1 - Aw2 Ass2 Aw1

Pair 56 Pair 67

Ind1 -- Ind2 Ass1 Ass2 Act1 -- Ind2 Act2 Ind1

-4.504 -6.744 -6.231 -4.504

11.693 12.389 12.327 11.693

1.063 1.126 1.121 1.063

-6.609 -8.974 -8.450 -6.609

Pair 78 Pair 89

Inter1- -Act2 Inter2 Act1 Emp1 - Inter2 Emp2 Inter1

-5.397 -6.231 -5.719 -5.397

11.731 12.327 13.091 11.731

1.066 1.121 1.190 1.066

-7.508 -8.450 -8.075 -7.508

-3.256 -5.719 -2.983 -3.256

12.253 13.091 13.317 12.253

1.114 1.190 1.211 1.114

-5.462 -8.075 -5.380 -5.462

-5.372 -2.983 -8.124 -5.372

10.304 13.317 11.196 10.304

.937 1.211 1.018 .937

-1.364 -8.124 -7.942 -1.364

10.773 11.196 12.267 10.773

.979 1.018 1.115 .979

-7.227 -5.380 -10.139 -7.227 -3.303 -10.139

-5.678 -7.942 -5.174 -5.678

12.658 12.267 12.911 12.658

1.151 1.115 1.174 1.151

-8.926 -5.174 -6.537 -8.926

13.212 12.911 10.174 13.212

1.201 1.174 .925 1.201

-7.785 -6.537 -4.702 -7.785

11.703 10.174 10.133 11.703

1.064 .925 .921 1.064

-4.702

10.133

.921

Pair 910 Soc1 Emp1- -Soc2 Emp2 11 Soc1 Intrel1- Soc2 - Inter2 Pair 10 Pair 12 - Smgmt2 11 Smgmt1 Intrel1 - Inter2 Pair 13 - Stol2 12 Stol1 Smgmt1 - Smgmt2 14 Imp1 Pair 13 Stol1 - Imp2 Stol2 15 Imp1 Ada1 - Imp2 Ada2 Pair 14 16 Real1 Real2 Pair 15 Ada1 -- Ada2 17 Flex1 Pair 16 Real1 - Flex2 Real2 Prsol1--Flex2 Prsol2 Pair 18 17 Flex1 19 Mood1 Mood2 Pair 18 Prsol1 --Prsol2 20 Opt1 - Opt2 Pair 19 Mood1 - Mood2 Pair 21 Hap2 20 Hap1 Opt1 -- Opt2 Pair 21 Hap1 - Hap2

-7.926 11.130 1.012Mean Lower -9.929 Mean Diff. Std. Dev Std. Error -7.678 10.871 .988 -9.634 -7.926 11.130 1.012 -9.929 -4.678 9.416 .856 -6.372 -7.678 10.871 .988 -9.634 -7.612 13.577 1.234 -10.055 -4.678 9.416 .856 -6.372 -6.744 12.389 1.126 -8.974 -7.612 13.577 1.234 -10.055

-5.922 Upper -5.721 -5.922 -2.983 -5.721 -5.168 -2.983 -4.514 -5.168 -2.399 -4.514 -4.013 -2.399 -3.285 -4.013 -3.363 -3.285 -1.051 -3.363 -.586 -1.051 -3.517 -.586 -6.109 -3.517 .576 -6.109

Sig.

-7.833 120 t df .000 Sig. -7.769 -7.833 120 .000 -5.465 -7.769 120 .000 -6.167 -5.465 120 .000 -5.988 -6.167 120 .000 -4.237 120 .000 -5.988 -5.560 120 .000 -4.237 -5.061 -5.560 120 .000 -4.806 120 .000 -5.061 -2.923 120 .000 .004 -4.806 -2.464 -2.923 120 .015 .004 -5.735 120 .000 -2.464 .015 -7.982 -5.735 120 .000 -1.392 -7.982 120 .166 .000 -7.122 120 .166 .000 -1.392

-10.150 -3.303 -7.956 -10.150

-5.734 .576 -3.399 -5.734

-7.497 -7.956 -11.304 -7.497

-2.850 -3.399 -6.547 -2.850

-8.368 -11.304 -9.892 -8.368

-4.706 -6.547 -5.679 -4.706

-6.526 -9.892

-2.879 -5.679

-7.068 120 .000 -7.431 -7.317 -7.068 120 .000 -5.105 -7.317 120 .000

-6.526

-2.879

-5.105 120 .000

-4.934 120 .000 -7.122 -4.408 -4.934 120 .000 -7.431 120 .000 -4.408

Table 5: EI Difference T-Statistics And Statistical Significance Levels For Undergraduate Students Table And Statistical Statistical Significance Significance Levels Levels For ForUndergraduate UndergraduateStudents Students Table 5: 5: EI EI Difference Difference T-Statistics T-Statistics And Paired Differences % Confidence Interval of the Difference Paired95 Differences Std. Dev Std. Error Mean 95 Lower Upper % Confidence Interval of the Difference -5.584 10.992 1.253Mean Lower -8.079 -3.090 Mean Std. Dev Std. Error Upper -5.571 10.992 10.717 1.221 -8.004 -3.139 -5.584 1.253 -8.079 -3.090 Mean

Pair 1

T1 – T2

Pair 21 Pair 32

Intra1 - Intra2 T1 – T2 Reg1 Intra1 -Reg2 Intra2

Pair 43 Pair 54

Aw1 Reg1 -- Aw2 Reg2 Ass1 Ass2 Aw1 - Aw2

Pair 56 Pair 67

Ind1 -- Ind2 Ass1 Ass2 Act1 -- Ind2 Act2 Ind1

Pair 78 Pair 98

Inter1- -Act2 Inter2 Act1 Emp1 - Inter2 Emp2 Inter1

df Sig.

-4.458 76 t df .000 Sig. -4.562 -4.458 76 .000 -3.093 -4.562 76 .003 .000

-3.091 -5.571 -4.701 -3.091

8.768 10.717 13.726 8.768

.999 1.221 1.564 .999

-5.081 -8.004 -7.817 -5.081

-1.101 -3.139 -1.586 -1.101

-5.312 -4.701 -2.286 -5.312

11.374 13.726 11.042 11.374

1.296 1.564 1.258 1.296

-7.893 -7.817 -4.792 -7.893

-2.730 -1.586 .220 -2.730

-5.987 -2.286 -2.948 -5.987

13.948 11.042 12.276 13.948

1.589 1.258 1.399 1.589

-9.153 -4.792 -5.734 -9.153

-2.821 .220 -.162 -2.821

-1.816 76 .000 .073 -4.098 -3.767 -1.816 76 .000 .073 -2.107 76 .000 .038 -3.767

-3.286 -2.948 -1.403 -3.286

13.763 12.276 13.455 13.763

1.568 1.399 1.533 1.568

-6.410 -5.734 -4.456 -6.410

-2.649 -1.403 -3.091 -2.649

11.414 13.455 9.852 11.414

1.301 1.533 1.123 1.301

-5.240 -4.456 -5.327 -5.240

-.162 1.651 -.162 -.059 1.651

-2.095 76 .038 .040 -2.107 -.915 76 .363 -2.095 .040 -2.037 .045 -.915 76 .363

-6.221 -3.091 .662 -6.221

11.260 9.852 9.104 11.260

1.283 1.123 1.038 1.283

-8.776 -5.327 -1.404 -8.776

-.855 -.059 -3.665 -.855 2.729 -3.665

-2.753 -2.037 -4.848 -2.753

-5.896 .662 -3.610 -5.896

12.178 9.104 12.998 12.178

1.388 1.038 1.481 1.388

-8.660 -1.404 -6.561 -8.660

-3.132 2.729 -.660 -3.132

.638 76 .525 -4.848 .000 -4.248 .638 76 .000 .525 -2.437 76 .000 .017 -4.248

-2.636 -3.610 -8.468 -2.636

12.514 12.998 13.409 12.514

1.426 1.481 1.528 1.426

-5.883 -8.468 -7.299 -5.883

10.162 13.409 12.440 10.162

1.158 1.528 1.418 1.158

-5.477 -6.561 -11.511 -5.477 -8.190 -11.511

.204 -.660 -5.424 .204 -3.577 -5.424

-1.849 76 .017 .068 -2.437 -5.541 -1.849 76 .000 .068 -5.080 76 .000 -5.541

Pair 21 Hap2 20 Hap1 Opt1 -- Opt2

-3.844 -7.299

9.919 12.440

1.130 1.418

-10.122 -8.190 -6.096 -10.122

-4.475 -3.577 -1.593 -4.475

-5.148 76 .000 -5.080 -3.401 -5.148 76 .001 .000

Pair 21 Hap1 - Hap2

-3.844

9.919

1.130

-6.096

-1.593

-3.401 76 .001

Pair 910 Soc1 Emp1- -Soc2 Emp2 Intrel1- Soc2 - Inter2 Pair 11 10 Soc1 Pair 12 - Smgmt2 11 Smgmt1 Intrel1 - Inter2 Pair 13 12 Pair 14 13

Stol1 - Stol2 Smgmt1 - Smgmt2 Imp1 Stol1 Imp2 Stol2

15 Ada1 Ada2 Pair 14 Imp1 - Imp2 16 Ada1 Real1 -- Ada2 Real2 Pair 15 17 Real1 Flex1 - Flex2 Pair 16 Real2 Prsol2 Pair 18 17 Prsol1 Flex1 --Flex2 19 Prsol1 Mood1--Prsol2 Mood2 Pair 18 20 Mood1 Opt1 - Opt2 Pair 19 - Mood2

137

-3.006 -3.093 -4.098 -3.006

76 76

.004 .003 .000 .004

.007 .045 .000 .007

Advances in Business Research 2010, Vol. 1, No. 1, 133-141 Table 6 reports EI difference t-statistics and statistical significance levels for graduate students. The total EI score and all 20 EI subscores showed statistically significance increases of P < .05 for graduate students from the pre-test to the post-test. While the results for undergraduates were not as uniform as for graduate student Table 6 reports EI difference t-statistics and statistical significance graduate total EI score participants, both groups total scores improved by at least P < .001.levels Whileforresults are students. somewhatThe consistent with and all 20 EI subscores showed statistically significance increases of P < .05 for graduate students from the pre-test previous research that suggests that older cohorts tend to scale higher to score higher on EI than younger cohorts to the post-test. While the results for undergraduates not astotal uniform as for graduatefor student participants, both (Webb, 2009), we conclude that there is support for H2were because EI scores improved both undergraduate and groups scores improved by at least P < .001. While results are somewhat consistent with previous research that graduatetotal students. suggests that older cohorts tend to scale higher to score higher on EI than younger cohorts (Webb, 2009), we conclude Table 6: Difference and improved Statistical for Significance Levels for Graduate Students that there is support forEIH2 because T-Statistics total EI scores both undergraduate and graduate students.

Burgess-Wilkerson, Benson & Frankforter

Paired Differences Table 6: EI Difference T-Statistics and Statistical Significance Levels for Graduate Students 95 % Confidence Interval of the Difference Lower

Upper

Sig.

Pair 1

T1 â&#x20AC;&#x201C; T2

-12.023

Mean

Std. Dev Std. Error Mean 10.254

1.546

-15.140

-8.905

-7.778

.000

Pair 2

Intra1 - Intra2

-11.364

10.244

1.544

-14.478

-8.249

-7.358

.000

Pair 3

Reg1 - Reg2

-7.455

9.957

1.501

-10.482

-4.427

-4.966

.000

Pair 4

Aw1 - Aw2

-12.705

11.820

1.782

-16.298

-9.111

-7.130

.000

Pair 5

Ass1 - Ass2

-9.250

13.769

2.076

-13.436

-5.064

-4.456

.000

Pair 6

Ind1 - Ind2

-8.386

11.911

1.796

-12.008

-4.765

-4.670

.000

Pair 7

Act1 - Act2

-6.659

8.942

1.348

-9.378

-3.941

-4.940

.000

Pair 8

Inter1 - Inter2

-9.682

9.388

1.415

-12.569

-6.828

-6.841

.000

Pair 9

Emp1 - Emp2

-9.977

10.691

1.612

-13.228

-6.727

-6.190

.000

Pair 10 Soc1 - Soc2

-6.500

9.062

1.366

-9.255

-3.745

-4.758

.000

Pair 11 Intrel1 - Intrel2

-9.659

9.753

1.470

-12.624

-6.694

-6.570

.000

Pair 12 Smgmt1 - Smgmt2

-9.364

9.956

1.501

-12.391

-6.337

-6.239

.000

Pair 13 Stol1 - Stol2

-11.455

10.387

1.566

-14.612

-8.297

-7.315

.000

Pair 14 Imp1 - Imp2

-4.909

12.538

1.890

-8.721

-1.097

-2.597

.013

Pair 15 Ada1 - Ada2

-11.523

11.715

1.766

-15.084

-7.961

-6.525

.000

Pair 16 Real1 - Real2

-9.295

11.292

1.702

-12.729

-5.862

-5.460

.000

Pair 17 Flex1 - Flex2

-9.614

12.518

1.887

-13.420

-5.808

-5.094

.000

Pair 18 Prsol1 - Prsol2

-9.727

12.975

1.956

-13.672

-5.783

-4.973

.000

Pair 19 Mood1 - Mood2

-7.682

10.209

1.539

-10.786

-4.578

-4.991

.000

Pair 20 Opt1 - Opt2

-8.636

10.370

1.563

-11.789

-5.484

-5.524

.000

Pair 21 Hap1 - Hap2

-6.205

10.440

1.574

-9.379

-3.030

-3.942

.000

The study study then reports EI EI difference difference t-statistics The then focused focused on on whether whether gender gender influenced influenced EI EI development. development. Table Table 77 reports t-statistics and statistical significance for female students. The total EI score and 18 of the 20 EI subscores showed statistically and statistical significance for female students. The total EI score and 18 of the 20 EI subscores showed statistically significance increases of at least P < .05 for female students from the pre-test to the post-test. The variables not significance increases of at least P < .05 for female students from the pre-test to the post-test. The variables not showing improvement were social responsibility and impulse control. showing improvement were social responsibility and impulse control. Table 8 reports EI difference t-statistics and statistical significance levels for male students. The total EI score Table 8 reports EI difference t-statistics and statistical significance levels for male students. The total EI score and and 18 of the 20 EI subscores showed statistically significance increases of P < .05 for male students from the pre18 of the 20 EI subscores showed statistically significance increases of P < .05 for male students from the pre-test to test to the post-test. The variables not showing improvement were interpersonal relationship and impulse control. the post-test. The variables not showing improvement were interpersonal relationship and impulse control. While the While the results for female and male students were not completely identical, both groupsâ&#x20AC;&#x2122; total scores improved by results for female and male students were not completely identical, both groupsâ&#x20AC;&#x2122; total scores improved by at least P < at least P < .001. Therefore, we conclude that there is support for H3 because total EI scores improved for both .001. Therefore, we conclude that there is support for H3 because total EI scores improved for both female and male female and male students. students.

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Table 7:Difference EI Difference T-Statistics Statistical Significance Levels for Female Students Table 7: EI T-Statistics and and Statistical Significance Levels for Female Students Table 7: EI Difference T-Statistics and Statistical Significance Levels for Female Students Paired Differences Paired Differences 95 % Confidence Interval of the Difference 95 % Confidence Interval of the Difference Mean Std. Dev Std. Error Mean Lower Upper t Mean Std. Dev Std. Error Mean Lower Upper t df Pair 1 T1 – T2 -6.758 11.719 1.488 -9.734 -3.782 -4.541 Pair 1 T1 – T2 -6.758 11.719 1.488 -9.734 -3.782 -4.541 61 Pair 2 Intra1 - Intra2 -6.581 11.793 1.498 -9.575 -3.586 -4.394 Pair 2 Intra1 - Intra2 -6.581 11.793 1.498 -9.575 -3.586 -4.394 61 Pair 3 Reg1 - Reg2 -4.161 8.679 1.102 -6.365 -1.957 -3.776 Pair 3 Reg1 - Reg2 -4.161 8.679 1.102 -6.365 -1.957 -3.776 61 Pair 4 Aw1 - Aw2 -4.806 14.077 1.788 -8.381 -1.232 -2.689 Pair 4 Aw1 - Aw2 -4.806 14.077 1.788 -8.381 -1.232 -2.689 61 Pair 5 Ass1 - Ass2 -7.032 13.080 1.661 -10.354 -3.711 -4.233 Pair 5 Ass1 - Ass2 -7.032 13.080 1.661 -10.354 -3.711 -4.233 61 Pair 6 Ind1 - Ind2 -3.758 12.999 1.651 -7.059 -.457 -2.276 Pair 6 Ind1 - Ind2 -3.758 12.999 1.651 -7.059 -.457 -2.276 61 Pair 7 Act1 - Act2 -5.968 13.377 1.699 -9.365 -2.571 -3.513 Pair 7 Act1 - Act2 -5.968 13.377 1.699 -9.365 -2.571 -3.513 61 Pair 8 Inter1 - Inter2 -4.194 10.635 1.651 -6.894 -1.493 -3.105 Pair 8 Inter1 - Inter2 -4.194 10.635 1.651 -6.894 -1.493 -3.105 61 Pair 9 Emp1 - Emp2 -4.500 10.773 1.368 -7.236 -1.764 -3.289 Pair 9 Emp1 - Emp2 -4.500 10.773 1.368 -7.236 -1.764 -3.289 61 Pair 10 Soc1 - Soc2 -2.355 10.416 1.323 -5.000 .290 -1.780 Pair 10 Soc1 - Soc2 -2.355 10.416 1.323 -5.000 .290 -1.780 61 Pair 11 Intrel1 - Intrel2 -4.065 11.443 1.453 -6.971 -1.158 -2.797 Pair 11 Intrel1 - Intrel2 -4.065 11.443 1.453 -6.971 -1.158 -2.797 61 Pair 12 Smgmt1 - Smgmt2 -4.903 10.368 1.317 -7.536 -2.270 -3.724 Pair 12 Smgmt1 - Smgmt2 -4.903 10.368 1.317 -7.536 -2.270 -3.724 61 Pair 13 Stol1 - Stol2 -7.839 12.467 1.583 -11.005 -4.673 -4.951 Pair 13 Stol1 - Stol2 -7.839 12.467 1.583 -11.005 -4.673 -4.951 61 Pair 14 Imp1 - Imp2 -.758 8.702 1.105 -2.968 1.452 -.686 Pair 14 Imp1 - Imp2 -.758 8.702 1.105 -2.968 1.452 -.686 61 Pair 15 Ada1 - Ada2 -6.387 12.607 1.601 -9.589 -3.186 -3.989 Pair 15 Ada1 - Ada2 -6.387 12.607 1.601 -9.589 -3.186 -3.989 61 Pair 16 Real1 - Real2 -3.903 12.520 1.590 -7.083 -.724 -2.455 Pair 16 Real1 - Real2 -3.903 12.520 1.590 -7.083 -.724 -2.455 61 Pair 17 Flex1 - Flex2 -4.194 13.254 1.683 -7.559 -.828 -2.491 Pair 17 Flex1 - Flex2 -4.194 13.254 1.683 -7.559 -.828 -2.491 61 Pair 18 Prsol1 - Prsol2 -8.016 12.381 1.572 -11.160 -4.872 -5.098 Pair 18 Prsol1 - Prsol2 -8.016 12.381 1.572 -11.160 -4.872 -5.098 61 Pair 19 Mood1 - Mood2 -6.742 9.554 1.213 -9.168 -4.316 -5.556 Pair 19 Mood1 - Mood2 -6.742 9.554 1.213 -9.168 -4.316 -5.556 61 Pair 20 Opt1 - Opt2 -8.403 10.836 1.376 -11.155 -5.651 -6.106 Pair 20 Opt1 - Opt2 -8.403 10.836 1.376 -11.155 -5.651 -6.106 61 Pair 21 Hap1 - Hap2 -4.419 9.382 1.191 -6.802 -2.037 -3.709 Pair 21 Hap1 - Hap2 -4.419 9.382 1.191 -6.802 -2.037 -3.709 61

df Sig. Sig. 61 .000 .000 61 .000 .000 61 .000 .000 61 .009 .009 61 .000 .000 61 .026 .026 61 .001 .001 61 .003 .003 61 .002 .002 61 .080 .080 61 .007 .007 61 .000 .000 61 .000 .000 61 .495 .495 61 .000 .000 61 .017 .017 61 .015 .015 61 .000 .000 61 .000 .000 61 .000 .000 61 .000 .000

Table 8: EI Difference T-Statistics and Statistical Significance Levels for Male Students Table and Statistical Statistical Significance Significance Levels Levels for for Male Male Students Students Table 8: 8: EI EI Difference Difference T-Statistics T-Statistics and Paired Differences Paired Differences 95 % Confidence Interval of the Difference 95 % Confidence Interval of the Difference Mean S.D. S.E. Lower Upper t Mean S.D. S.E. Lower Upper t df Pair 1 T1 – T2 -9.153 10.433 1.358 -11.781 -6.434 -6.738 Pair 1 T1 – T2 -9.153 10.433 1.358 -11.781 -6.434 -6.738 58 Pair 2 Intra1 - Intra2 -8.831 9.777 1.273 -11.378 -6.283 -6.937 Pair 2 Intra1 - Intra2 -8.831 9.777 1.273 -11.378 -6.283 -6.937 58 Pair 3 Reg1 - Reg2 -5.220 10.180 1.325 -7.873 -2.568 -3.939 Pair 3 Reg1 - Reg2 -5.220 10.180 1.325 -7.873 -2.568 -3.939 58 Pair 4 Aw1 - Aw2 -10.559 12.478 1.624 -13.811 -7.308 -6.500 Pair 4 Aw1 - Aw2 -10.559 12.478 1.624 -13.811 -7.308 -6.500 58 Pair 5 Ass1 - Ass2 -6.441 11.724 1.526 -9.496 -3.385 -4.220 Pair 5 Ass1 - Ass2 -6.441 11.724 1.526 -9.496 -3.385 -4.220 58 Pair 6 Ind1 - Ind2 -5.288 10.196 1.327 -7.945 -2.631 -3.984 Pair 6 Ind1 - Ind2 -5.288 10.196 1.327 -7.945 -2.631 -3.984 58 Pair 7 Act1 - Act2 -6.508 11.227 1.462 -9.434 -3.583 -4.453 Pair 7 Act1 - Act2 -6.508 11.227 1.462 -9.434 -3.583 -4.453 58 Pair 8 Inter1 - Inter2 -6.661 12.750 1.660 -9.984 -3.338 -4.013 Pair 8 Inter1 - Inter2 -6.661 12.750 1.660 -9.984 -3.338 -4.013 58 Pair 9 Emp1 - Emp2 -7.000 15.141 1.971 -10.946 -3.054 -3.551 Pair 9 Emp1 - Emp2 -7.000 15.141 1.971 -10.946 -3.054 -3.551 58 Pair 10 Soc1 - Soc2 -4.203 13.955 1.817 -7.840 -.567 -2.314 Pair 10 Soc1 - Soc2 -4.203 13.955 1.817 -7.840 -.567 -2.314 58 Pair 11 Intrel1 - Intrel2 -3.407 13.787 1.795 -7.000 .186 -1.898 Pair 11 Intrel1 - Intrel2 -3.407 13.787 1.795 -7.000 .186 -1.898 58 Pair 12 Smgmt1 - Smgmt2 -5.864 10.301 1.341 -8.549 -3.180 -4.373 Pair 12 Smgmt1 - Smgmt2 -5.864 10.301 1.341 -8.549 -3.180 -4.373 58 Pair 13 Stol1 - Stol2 -8.424 9.782 1.274 -10.973 -5.874 -6.614 Pair 13 Stol1 - Stol2 -8.424 9.782 1.274 -10.973 -5.874 -6.614 58 Pair 14 Imp1 - Imp2 -2.000 12.637 1.645 -5.293 1.293 -1.216 Pair 14 Imp1 - Imp2 -2.000 12.637 1.645 -5.293 1.293 -1.216 58 Pair 15 Ada1 - Ada2 -9.576 11.786 1.634 -12.648 -6.505 -6.241 Pair 15 Ada1 - Ada2 -9.576 11.786 1.634 -12.648 -6.505 -6.241 58 Pair 16 Real1 - Real2 -7.542 12.640 1.646 -10.836 -4.248 -4.583 Pair 16 Real1 - Real2 -7.542 12.640 1.646 -10.836 -4.248 -4.583 58 Pair 17 Flex1 - Flex2 -6.203 12.571 1.637 -9.479 -2.927 -3.790 Pair 17 Flex1 - Flex2 -6.203 12.571 1.637 -9.479 -2.927 -3.790 58 Pair 18 Prsol1 - Prsol2 -9.881 14.076 1.833 -13.550 -6.213 -5.392 Pair 18 Prsol1 - Prsol2 -9.881 14.076 1.833 -13.550 -6.213 -5.392 58 Pair 19 Mood1 - Mood2 -6.322 10.865 1.415 -9.153 -3.491 -4.469 Pair 19 Mood1 - Mood2 -6.322 10.865 1.415 -9.153 -3.491 -4.469 58 Pair 20 Opt1 - Opt2 -7.136 12.612 1.642 -10.422 -3.849 -4.346 Pair 20 Opt1 - Opt2 -7.136 12.612 1.642 -10.422 -3.849 -4.346 58 Pair 21 Hap1 - Hap2 -5.000 10.940 1.424 -7.851 -2.149 -3.510 Pair 21 Hap1 - Hap2 -5.000 10.940 1.424 -7.851 -2.149 -3.510 58

139

df Sig. Sig. 58 .000 .000 58 .000 .000 58 .000 .000 58 .000 .000 58 .000 .000 58 .000 .000 58 .000 .000 58 .000 .000 58 .001 .001 58 .024 .024 58 .063 .063 58 .000 .000 58 .000 .000 58 .229 .229 58 .000 .000 58 .000 .000 58 .000 .000 58 .000 .000 58 .000 .000 58 .000 .000 58 .001 .001

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Conclusion This research indicates a student development model incorporating emotional intelligence competencies in the curriculum could assist in student development. An important finding is that both undergraduate and graduatelevel students can benefit from the integration of emotional intelligence training. In an increasingly service-oriented marketplace, interpersonal, and intrapersonal skills can significantly increase the probability of career success. Therefore, as higher educators we have a responsibility to increase both the theoretical knowledge and the emotional intelligence of students. REFERENCES Akers, M., & Porter, G. 2003. Your EQ skills: Got what it takes? Journal of Accountancy, 195: 65-70. Bar-On, R. 2000. Emotional and social intelligence: Insights from the emotional quotient inventory. In R. Bar-On, & J. Parker, (Eds.), The Handbook of emotional intelligence. (pp 363-388). San Francisco: Jossey-Bass. Bay, D., & McKeage, K. 2006. Emotional intelligence in undergraduate accounting students: Preliminary assessment. Accounting Education: An International Journal, 15: 439-454. Boyatzis, R., Stubbs, E., & Taylor, S. 2002. Learning cognitive and emotional intelligence competencies through graduate management education. Academy of Management Learning and Education, 1: 150-162. Cherniss, C. 2000. Social and emotional competence in the workplace. In R. Bar-On & J. Parker, (Ed.), The Handbook of emotional intelligence. (pp 433-458). San Francisco: Jossey-Bass. Esmond-Kiger, C., Tucker, M., & Yost, C. 2006. Emotional intelligence: From the classroom to the workplace. Management Accounting Quarterly, 7: 35-42. Goleman, D. 1995. Emotional intelligence: Why it matters more than IQ. New York: Bantam Books. Goleman, D., Boyatzis, R., & McKee, A. 2002. Primal leadership: Realizing the power of emotional intelligence. Boston: Harvard Business School Press Harris Education Research Council. 1991. An assessment of American education. New York: Committee for Economic Development Hunter, J., & Hunter, R. 1984. Validity and utility of alternative predictors of job performance. Psychological Bulletin, 96: 72-98. Lam, L., & Kirby, S. 2002. Is emotional intelligence an advantage? An exploration of the impact of emotional and general intelligence on individual performance. The Journal of Social Psychology, 142: 133-143. Low, G., Lomax, A., Jackson, M., & Nelson, D. 2004. Emotional intelligence: A new student model. A paper presented at the National Conference of the American College Personnel Association. Philadelphia, Pennsylvania Mayer, J., Caruso, D., & Salovey, P. 2000. Selecting a measure of emotional intelligence: The case for ability scales. In R. Bar-On & J. Parker (Ed.), The handbook of emotional intelligence. (pp 320-342). San Francisco: Jossey-Bass. Myers, L., & Tucker, M. 2005. Increasing awareness of emotional intelligence in a business curriculum. Business Communication Quarterly, 68: 44-51. Salovey, P., & Mayer, J. 1990. Emotional intelligence. Imagination, Cognition and Personality, 9: 185-211. Shivpuri, S., & Kim B. 2004. Do employers and colleges see eye-to-eye? College student development and assessment. NACE Journal, 65: 37-44. Sternberg, R. 1996. Successful intelligence. New York: Simon & Schuster

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Thorndike, R., & Stein S. 1937. An evaluation of the attempts to measure social intelligence. Psychological Bulletin, 34: 275-284. Vandervoort, D. 2006. The importance of emotional intelligence in higher education. Current Psychology: Developmental, Learning, Personality, Social, 25: 4-7. Webb, K. 2009. Why emotional intelligence should matter to management: A survey of the literature. SAM Advanced Management Journal, 74: 32-41. Barbara Burgess-Wilkerson is an assistant professor of management and director of student professional development at Winthrop University. She received her Ph.D. in Higher Education Administration from the University of Pittsburgh. Her current research interests include emotional intelligence as a career development strategy, business communications, and student professional development. She has published in the Business Communications Quarterly. Keith Benson is an associate professor in health care management at Winthrop University.Â He received his Ph.D. from Penn State University.Â His research interests include emotional intelligence in the classroom and the use of social media in the classroom. Steven Frankforter is a professor of management at Winthrop University. He earned his PhD at the University of Washington. He has taught business policy, business & society, entrepreneurship, and accounting. His research interests are in stewardship theory, stakeholder management, mergers and acquisitions, emotional intelligence, and diversity management.

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University Commuter Students: Time Management, Stress Factors and Coping Strategies Patricia Forbus, Sam Houston State University John Newbold, Sam Houston State University Sanjay Mehta, Sam Houston State University Universities are evolving from the traditional, residential student population to institutions with a large population of commuter students. This study investigated the stress factors and methods of coping for these commuter students during their university experience as compared to residential students along with the time management capabilities of both sets of students. A survey was conducted at a four-year southwestern state university that was projectable to the entire student population. Respondents were queried with regard to demographics, stressors and coping behaviors. The research indicates that commuter students experienced differing work/family/school role responsibilities than their residential counterparts which related to differing levels of stress and methods of coping between the two groups of students. From a demographic and involvement standpoint, this investigation was similar to earlier research. In studies previously conducted, non-traditional students generally were identified as those who had not followed a continuous educational path into college making them, first of all, characteristically older than traditional students, usually over 24 years of age, working full time, and typically having dependents to support. Many non-traditional students attend college part time (Newbold, Mehta & Forbus, 2010). Commuter students have been shown to have many of the same characteristics as those defined for non-traditional students (Lowe & Gayle, 2007). The increase in commuter student involvement in higher education has driven some reflection on the pressures that students might face through their various responsibilities (Osborne et al., 2001). The experience of the more mature, commuting students and the many challenges that they face in their work, social life, family life, and study are dissimilar to those of the traditional, residential notion of university students upon which higher education principles are usually established (Lowe & Gayle, 2007). Mature students tend to diverge from younger students in their expectations of the college or university, in their motivations for attending, and their experiences with higher education (Compton, Cox, & Laanan, 2006). Adult students have had experiences in life and in their careers that have broadened their general outlook. This study expands the previous research by investigating time management characteristics, the origins of stress in commuter and residential students, and the coping strategies typically used by each group. This paper sheds further light on the consequences of commuting between a work life, social life, and family and child rearing while attending an institution of higher education and the negative outcomes that may arise. The work/life/study balance is central to commuter student participation. An improved understanding of the complexity of the inter-relationship is important to theorizing lifelong learning and policy development. LITERATURE REVIEW The size of the commuter/non-traditional student population has been on the increase (Newbold, Mehta & Forbus, 2010). Between 1996 and 2006, the number of these undergraduate college students increased at a rate of 30% to 50% (Bye, Pushkar, & Conway, 2007). These students bring with them desires and needs that are different from their traditional counterparts on campus (Newbold, Mehta & Forbus, 2009). The shifting campus population toward more mature, married, working, and commuting students necessitates that colleges and universities understand and adapt to the changing student needs in order to improve student satisfaction and involvement with the college experience and their persistence toward degree attainment. Commuter students tend to be typically older than traditional, residential students (Evelyn, 2002). While the demographic characteristics of the commuter student are reasonably well-understood, the sources of their stress with college life and the coping strategies they employ have not been as thoroughly researched. With their maturity come responsibilities associated with careers, social connections, and families. University students, in general, are a very vulnerable group to experience stress (Negga, Applewhite & Livingston, 2007) and the commuter studentsâ&#x20AC;&#x2122; work and family life have both positive and negative consequences. Time management skills have been identified as a possible indication of higher performance and lower stress and anxiety (Kearns & Gardiner, 2007). The significant

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aspects which differentiated commuter students who were achieving controllable work/life/study balance appeared to be their coping strategies and the level of support from their families, employers, fellow students and from the institution (Lowe & Gayle, 2007). These more mature students are apt to be diverse from younger students in their expectations of the college or university and in their incentive for attending (Newbold, Mehta & Forbus, 2010). Adult students have had experiences in life and in their careers that have broadened their general outlook. Commuter university students have considerably more time and role strains than residential college students (Morris, Brooks, & May, 2003). These commuter students often feel stressed, managing their varied roles and responsibilities (Curasi, & Burkhalter, 2009). The external demands and differing responsibilities create time limitations that residential students may not encounter (Lundberg, 2003). With the increase in commuter students attending college, there is a need to understand how the balancing of the multiple demands and roles of work, school, and life affects adult students. Academic stresses for commuter students include being capable of coping at a higher education level, time management, and study skills with additional concerns centered on coping with existing responsibilities and with the added study tasks (Barron & D’Annunzio-Green, 2009). An issue of prominence for commuter students is the stress of balancing multiple demands and roles at work, at school, and in their personal life. In keeping with the resource scarcity theory, entering a university produces another functional realm that competes for limited resources: the student’s time, energy, and finances (Butler, 2007). In contrast to the traditional, residential student, commuter students have additional responsibilities within their job and personal life that can lead to demand overload and inter-role conflict when combined with school (Fairchild, 2003). A few of the numerous difficulties that commuter students face include academic responsibility, family obligations, work, maintaining personal relationships, time management, financial obligations, and becoming acclimated to the university environment (Negga, Applewhite & Livingston, 2007). It has been suggested that, even though commuter students are more apt to work full time, they are not as stressed by working, commuting, or time limitations because they have more experience at time management (Lundberg, 2003). In other studies, more mature students have pointed out the importance of time management and organization and have found that organization and defining priorities are especially significant (Fee, J. F., Prolman, S. & Thomas, J. (2009). To enhance the progress of learning and persistence of commuter students, it is important for higher education institutions to understand the stress of these students and provide resources that can decrease stressors and assist commuters with coping. Student health issues have been found to involve stress management and the development of time management skills (Hai-Jew, 2009). The pressures of maintaining a balance between occupational relationships, academic demands, and maintaining personal relationships can be a tremendous task (Negga, Applewhite & Livingston, 2007). Stress has been recognized as an important variable with significant relationships to grade point average (GPA), intent to persist, and goal commitment (Sandler, 2002). Stress among commuter students may develop from overextended workloads, difficulty with time management, issues with interpersonal relationships, or concern about academic failure (Pierceall & Keim, 2007). Commuter students’ choice of travel mode is influenced by many factors including the availability of public transport which could provide the most environmentally friendly mode of commuting (Kerr, A. Lennon, A. J. & Watson, B. C., 2010). Commuting via automobile is a factor in various ecological and traffic impediment, such as pollution and congestion (Abrahamse et al., 2009). Commuter students have described transportation stress related to the high level of traffic, availability of parking, and the amount of time and energy involved in commuting (Hernandez, 2002). There is also stress associated with the inconvenience of needing to return to campus for access to library or computer facilities (Hernandez, 2002). Commuter students have discussed feelings of guilt, sacrifice and conflict in respect to their family relationships along with hardships in their work environments caused by supervisors requiring extra overtime to compensate for the time spent at the university (Lowe & Gayle, 2007). Differences have been found between commuter and residential students in their perceptions of stressful events (Pierceall & Keim, 2007). This means that a situation regarded as stressful by one student may not be stressful for another (Omura, 2007). This is an important issue when helping students develop coping mechanisms. Stress can have a positive effect allowing individuals to react effectively in times of urgency. Stressed students need to understand that it is an individual’s perception of the demands placed upon them that cause stress and not the demands themselves (Robotham, 2008). The time management experience of commuter students has the effect of improved functioning and alleviation of feelings of stress (Kearns & Gardiner, 2007). Commuter students commonly have a busy life with work and family responsibilities and an established social circle before they enroll in a university course. Study is taken on as an additional commitment (Kember & Leung, 2004). Three successful coping mechanisms work within the environment of career, social life, family life, and study and can be identified as sacrifice, support and negotiated arrangements (Kember & Leung, 2004). The idea of sacrifice comes from the concept that “something has to give,” and it is usually associated with the giving up of

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personal pleasure or the surrender of aspects of one’s social life (Kember & Leung, 2004). Negotiating has been successful at the family level where the household division of labor and childcare are adjusted to accommodate for the changes in schedules and workloads (Sweet & Moen, 2007). But negotiation does not perform as successfully in the work environment because careers are so important that there is limited flexibility for manipulation (Kember & Leung, 2004). Coping in stressful situations can be aided by the support of friends; however, for many mature, commuter students, comparatively little time is devoted to actions traditionally associated with developing support groups. It is the residential students who are more involved with fraternal and social organizations, and dormitories, clubs, teams (Cooper & Robinson, 2000). Commuter students are likely to rely on the same people as they did prior to beginning university, making their new friendships less important for their stress coping. (Buote et. al, 2007). Overall, coping strategies can be classified as either active or passive. Active coping behaviors can lead to constructive outcomes though planning, support and time management (Giancola, Grawitch & Borchert, 2009). For commuter students specifically, task-focused, adaptive coping was related to learning goal orientation, or learning for “its own sake,” which was related to higher GPAs (Morris Brooks & May, 2003). Task-oriented coping action might include engaging a tutor, setting aside more study time, or other active ways to solve the stress-causing problem. With the multiple roles of the commuter student, there is a basic increase in task-oriented strategy in supporting the focus on learning for learning’s sake (Morris, Brooks & May, 2003). There are however, some more maladaptive forms of active coping behaviors. These are types of avoidance or escape and lead to more negative outcomes such as venting, denial, missing meetings or classes, and drinking alcohol, smoking and using illegal drugs.(Giancola, Grawitch & Borchert, 2009; Palmer & Rodger, 2009; and Pierceall & Keim, 2007). Earlier studies found that commuter and residential students utilize different active coping styles with more positive active coping skills being utilized more often by commuter students (Morris, Brooks & May, 2003). Passive coping behavior involves emotional coping or modifying the meaning of events, in order to adapt to or downplay their importance. Again, passive forms of coping can be both positive and negative, depending upon the specific situation. To better understand the issues, concerns, and needs of commuter students, a study was conducted at a southwestern four-year university with a significant proportion of commuter students comparing commuter and residential students and their stressors and coping methods. RESEARCH METHODS Exploratory Research To facilitate the development of the survey instrument, a focus group was conducted with a convenience sample of undergraduate students. The results of the focus group clearly demonstrated that the needs of commuter students may be significantly different from those of residential students. The Survey Instrument The instrument developed for the study was a self-administered, structured, and undisguised questionnaire. Besides the fact that this type of instrument is the fastest, least expensive, and most popular (Aldrek & Settle, 2004), our primary motivation for selecting this form of instrument was that it was the most appropriate methodology (given our sampling frame, targeted sample size, time frame, etc). Recognizing the fact that the instrument was meant to measure ideas and concepts that are abstract and nonobservable, extra care was taken in designing the questionnaire in terms of proper phrasing of the questions, and a neat layout of the various sections. Face validity was conducted with three researchers in the Marketing Department. A pilot study was conducted with a sample of the population to determine the accuracy of instructions, the best wording of the questions, the appropriateness of scales, etc. Since the topic under investigation was somewhat sensitive, extra care was taken to eliminate any ambiguity in the questionnaire. Seven-point Likert scales were used extensively to assess students’ time management strategies, their attitudes toward stress and their stress coping strategies. Approximately 3-4 items were developed to represent each construct under investigation. Nominal to ratio scales were used to obtain classification information. The survey took between 10 and 12 minutes to complete. To encourage participation from respondents, all completed responses were eligible to participate in a random drawing. Operationalizing “Commuter Student” Commuter status has been operationalized a number of different ways in the preceding research. One commonality of all definitions is the requirement that the student not live within 5 miles from the campus. For purposes of 144

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this research, “commuter” was operationalized living outside of the county where the university is located. This constitutes a distance of over 5 miles. It was felt that students some students who, essentially, live “in town” also lived more than 5 miles from campus. These students were not considered commuter students for purposes of this study. Of the overall ending sample of 480 respondents, 124 (26%) are classified as “commuter”, with the remaining 356 being considered “non-commuters” or “residential” students. Operationalizing “Active Coping” and “Passive Coping” A more negative form of “active coping” is operationalized as a factor consisting of two items as follows: 1. “When I get overly stressed, I sometimes skip a class or two.” 2. “When I get overly stressed, I sometimes skip meetings (group meetings, meetings at work, meetings with friends).” The Cronbach Alpha on this factor is .697 (can be rounded to .70) “Passive Coping” is operationalized as a single item as follows: -

“When things aren’t going so well, I put things in a broader perspective, organize, and prioritize.”

This item, representing a form of passive coping behavior, is generally considered to be a more mature, positive form of coping behavior. Since it is a single item (i.e., not a factor), it is not appropriate to compute/report an Alpha score Sampling and Data Collection The study was conducted among a projectable sample of the student population at a mid-sized southwestern fouryear university. The general demographic of the students attending this university include 42% male and 58% female; Whites = 67%, African-Americans = 15%, Hispanics = 14%, and Others = 4%; and Freshmen = 21%, Sophomores = 18%, Juniors = 21%, Seniors = 27%, and Others = 13%. In order to create the ability to generalize the responses and to eliminate any type of bias in the responses, students of an undergraduate marketing research course were trained to obtain 5 completed surveys each. To ensure accuracy of data collection and completion, 5% of each student’s course grade was tied into this process. A stratified sampling plan was deployed, with strata controlling for both year in school (i.e., freshman, sophomore, etc.) and college attending (College of Business Administration, College of Education, etc.). The ending sample was found to represent student population as a whole with a margin of error of ± 4.5%. The validity of the sample was examined by a Chi-square goodness-of-fit test where the sample was compared to the population of the institution on key demographic variables. All Chi-squares were determined to be non-significant at the 0.05 level. This is an indicator that the sample is projectable to the population under study. Data Quality The items in the survey were developed based upon the literature review, focus groups, and the special circumstances of the institution where the research was conducted (Churchill & Brown, 2007). Since this was primarily an exploratory study, a minimum factor loading of 0.30 (Nunnally, 1978) was used as a guideline for including items in a factor. The reliability of each factor was evaluated utilizing an internal consistency measure. Factors with Cronbach Alpha less than 0.70 were not used for the analysis. In some cases, the analysis was performed utilizing individual items. HYPOTHESES Non-Traditional Students The first objective was to determine whether commuter students today are significantly diverse from noncommuter students. Previous research demonstrated that commuter students are more likely to have the characteristics

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of the non-traditional student such as being over 24 years of age, working full time, and usually having dependents to support (Lowe & Gayle, 2007; Bye, Pushkar, & Conway, 2007; and Newbold, Mehta & Forbus, 2010b). This focus leads to the first hypothesis. Hypothesis 1: Commuter students are more likely than residential students to possess the traits of non-traditional students. Stress The differences in the characteristics of commuter and residential students lead to the opinion that there is a variation in the intensity of stress and the coping strategies in the college experience. Stress levels among commuter students were perceived as moderately high, and financial issues are one of the biggest contributors to stress (CanalesGonzales & Kranz, 2008). The responsibilities connected with employment increases students’ stress levels, while a majority of working students reports that they feel an obligation to work (Robotham, 2009). The commuting student tackles challenges that the non-commuting student typically doesn’t face, especially feelings of isolation, multiple life roles and different support systems (Newbold, Mehta & Forbus, 2010a). Another source of increased stress is linked to the fact that commuter students have more time limitations on academics and campus activities because of a more complex lifestyle than residential students (Newbold, Mehta & Forbus, 2010a). Commuter students are traveling from home or work to attend their university courses. For these students, hours are valuable and appreciated resources, and the campus is a place to “rendezvous” for part of their time (Ruchti, Newbold & Mehta, 2008). Time management, balancing multiple roles, getting to campus are all issues that face commuter students. These lead to the next four hypotheses. Hypothesis 2: Commuter students are less likely than residential students to have sufficient time to complete all tasks. Hypothesis 3: Commuter students are more likely than residential students to have a higher level of stress related to a general lack of time. Hypothesis 4: Commuter students are more likely than residential students to have a higher level of stress related to money issues. Hypothesis 5: Commuter students are more likely than residential students to have a higher level of stress related to work issues. Hypothesis 6: Commuter students are more likely than residential students to have a higher level of stress related to commuting issues. Coping Mechanisms: Active vs. Passive Coping Methods A coping style is the usual method in which an individual will deal with a stressful situation. With their characteristics similar to non-traditional and traditional students, commuter and residential students employ dissimilar coping styles with active coping skills being utilized more often by commuter students (Morris, Brooks & May, 2003). With active coping, stress is addressed directly with techniques like time management, planning, and developing solutions. A passive coping style is related to mitigating the emotional impact of the stress, through such techniques as minimizing the importance of the source of stress or placing the whole situation in a broader perspective (Palmer & Rodger, 2009). For purposes of this study, active coping strategies and passive coping are represented by a factor consisting of two items and a single item, respectively, as previously described (see “Operationalizing Active Coping and Passive Coping”). Thus, the final two hypotheses are as follows: Hypothesis 7: Commuter students are less likely than residential students to utilize negative active stress management methods. Hypothesis 8: Commuter students more likely than residential students to utilize positive passive stress management methods.

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Results Tables 1 and 2 summarize the results of the research. The first hypothesis addressed commuter students’ similarity to non-traditional students. To assess this, each respondent was asked about the number of hours spent during a typical week studying, working, and traveling to college, their age, and family status. Table 1 shows that, like nontraditional students, commuter students were more likely to work in excess of 21 hours per week and to spend more than 11 hours per week studying outside of class. Commuter students were also similar to non-traditional students by being older, more be married and tocaring for children. All for of these results be statistically traditional students by likely being to older, more likely be married and caring children. All proved of thesetoresults proved to traditional students by being older, more likely be married and caring for children. All of these results proved to significant. Thus, Hypotheses 1 isHypotheses accepted. be statistically significant. Thus, 1 istoaccepted. be statistically significant. Thus, Hypotheses is accepted.in The next hypotheses investigated the The next five five hypotheses investigated the1differences differences in the the stress stress between between commuter commuter and and residential residential students. students. The next five hypotheses investigated the differences in the stress between commuter and students. Hypothesis 2 was concerned with commuter students feeling less likely to have enough time in a day to complete Hypothesis 2 was concerned with commuter students feeling less likely to have enough time in aresidential day to complete all Hypothesis 2 was concerned with commuter students feeling less likely to have enough time in a day to complete all all the necessary tasks. On a 7-point scale, the mean for Hypothesis 2 was 3.6 for commuter students and 4.1 for for the necessary tasks. On a 7-point scale, the mean for Hypothesis 2 was 3.6 for commuter students and 4.1 the necessary tasks. On a 7-point scale, the mean for Hypothesis 2 was 3.6 for commuter students and 4.1 for residential students. The next four hypotheses addressed stress as it related to time, money, work, and commuting residential students. The next four hypotheses addressed stress as it related to time, money, work, and commuting residential students. Hypothesis The next four hypothesesaaaddressed stress as it had related to time, work, and commuting issues, respectively. 3, addressing general lack lack of time, had mean valuemoney, of 5.2 commuter students issues, respectively. Hypothesis 3, addressing general of time, aa mean value of 5.2 for for commuter students issues, Hypothesis 3, addressing of time, had a mean of 5.2 forof students and 4.8respectively. for students. Stress relatingato togeneral moneylack issues, Hypothesis 4, had hadvalue mean value ofcommuter 5.4 for and 4.8 for residential residential students. Stress relating money issues, Hypothesis 4, aa mean value 5.4 for commuter commuter and 4.8 for students. students. Stress relating to money Hypothesis 4, had astudents mean value of 5.4 for commuter students andresidential 4.8 for Associated with Hypothesis 5, reported higher levels of of students and 4.8 for residential residential students. Associated withissues, Hypothesis 5, commuter commuter students reported higher levels students and 4.8 for residential Associated withstudents Hypothesis 5, commuter reported higher levels of stress related totowork with a mean of 4.6 residential reported a mean of 3.9. Asof suggested insuggested Hypothesis stress related work with a students. mean ofwhile 4.6 while residential students reported astudents mean 3.9. As in stress related6, to work withissues a higher mean of 4.6of students mean 3.9. Asa mean suggested in 6, commuting issues showed level stress residential for commuting students with a mean ofof5.1 compared to 2.6 for Hypothesis commuting showed a while higher level of stress for reported commuting students with of 5.1 Hypothesis 6, commuting issues showed a higher level of stress for commuting students with a mean of 5.1 residential students. All of these differences were statistically significant. Thus each of these five hypotheses was compared to 2.6 for residential students. All of these differences were statistically significant. Thus each of these compared to 2.6was for accepted. residential students. All of these differences were statistically significant. Thus each of these accepted. five hypotheses fiveThe hypotheses was accepted. last two hypotheses showed that The last two hypotheses dealt dealt with with coping coping mechanisms. mechanisms. The The research research showed that commuter commuter students students are are more more The last two hypotheses dealt with coping mechanisms. The research showed that commuter students are apt more apt to utilize more positive passive stress management coping strategies while residential students are more to apt to utilize more positive passive stress management coping strategies while residential students are more apt to apt more positive stress management coping strategies students arefor apt to turn toutilize more negative negative active passive coping methods. methods. The mean mean values values for for passive stress management was 5.3 5.3 commuter turntoto more active coping The passivewhile stress residential management was formore commuter turn to more active coping methods. mean values stress management 5.3 for commuter students and negative 4.8 for residential students. TheThe mean values for for the passive more negative active stress management coping and 4.8 The mean values stresswas students was and 3.5 4.8 for for commuter residential students students.and The4.0 mean values for students. the more These negative active stress management coping strategy for residential results were statistically significant. residential students. strategy was 3.5 for commuter students and 4.0 for residential students. These results were statistically significant. Thus, these two hypotheses hypotheses were were accepted. accepted. Thus, these two hypotheses were accepted. Table of Non-Traditional Non-Traditional Students) Students) Table 1: 1: Commuter Commuter vs. vs. Residential Residential Students Students (Examination (Examination of of Traits Traits of Table 1: Commuter vs. Residential Students (Examination of Traits of Non-Traditional Students)

Related Related Hypotheses Hypotheses H1 H1

Related Related Hypotheses Hypotheses H2 H23 H34 H45 H56 H6 H7 H7 H8 H8

Item Item More than 21 Hours Working More than 21 11 Hours Working Studying More than 11 HoursCommuting Studying 5 Miles More Older than than 525Miles YearsCommuting Older than 25 Years Married Married Caring for Children Caring for Children

Commuter Students Commuter (n= 124) Students (n= 124)54.4% 54.4% 36.8% 36.8% 98.4% 98.4% 33.6% 33.6% 24.0% 24.0% 19.2% 19.2%

Resident Students Resident (n= 356) Students (n= 356) 30.4% 30.4% 26.0% 26.0% 18.7% 18.7% 7.2% 7.2% 3.9% 3.9% 3.9%

Commuter Commuter Students (n = 124) Students3.6 (n = 124) 3.6 5.2 5.2 5.4 5.4 4.6 4.6 5.1 5.1 5.3 5.3 3.5 3.5

Resident Resident Students (n = 356) Students4.1 (n = 356) 4.1 4.8 4.8 4.8 3.9 3.9 2.6 2.6 4.8 4.8 4.0 4.0

ChiChiSquare Square 28.656 28.656 5.247 5.247 247.212 247.212 77.932 77.932 47.447 47.447 30.121 30.121

ppvalue value .000 .000 .073 .073 .000 .000 .000 .000 .000

Table 2: Commuter vs. Residential Students (Comparison of Means on Attitudinal Dimensions) Table 2: Commuter vs. Residential Students (Comparison of Means on Attitudinal Dimensions) Item Item Sufficient time for tasks Sufficient timetofor tasks Stress related lack of time Stress related to lack of issues time money Stress related to money issues work issues Stress related to work issues issues commuting Stress related to commuting issues Item: More positive passive stress Item: More positive passive stress management methods management Factor: Activemethods stress management methods Factor: Active stress management methods

p-value p-value .038 .038 .014 .014 .002 .002 .002 .000 .000 .002 .002 .024 .024

Accept Accept √ √ √ √ √ √ √ √ √ √

Reject Reject

Discussion Discussion Discussion The findings of this research dispute the inclination to see students only as learners, and point instead to a picture The findings of this research dispute the inclination to see students only as learners, and point instead to a picture of aThe student as aof whole person with roles partner, parent, worker, only and money manager for which time be findings this research dispute theasinclination to see students as learners, and point instead to amust picture of a student as a whole person with roles as partner, parent, worker, and money manager for which time must be found in busy schedules (Lowe & Gayle, 2007). The findings also pointed out that educational success can be of a student as a whole person with roles as partner, parent, worker, and money manager for which time must be found found in busy schedules (Lowe & Gayle, 2007). The findings also pointed out that educational success can be realized by students who experience a variety of life stresses if the right support is available. Their success can also in busy schedules (Lowe & Gayle, 2007). The findings also pointed out that educational success can be realized by realized by students who experience a variety of life stresses if the right support is available. Their success can also be relatedwho to the flexibility of the university. Higher education programs that are Their available to students a variety students experience a variety of life stresses if the right support is available. success can alsoinbe related of to be related to athe flexibility of thecourse university. Higher education programs that are available to students in a variety of styles, from defined full time to a personalized program a hybrid of in study wouldofhelp create the flexibility of the university. Higher education programs that areor available tocourse students a variety styles, fromana styles, from athat defined fullneed time for course to ainpersonalized program or a hybrid course of study & would help create an environment students support understanding thecourse work/life/study balance 2007). defined full time course to a personalized program or a hybrid of study would help(Lowe create anGayle, environment that environment students in need supportofinolder, understanding work/life/study balance (Lowe institutions & Gayle, 2007). There is that an increase thefor number working, the commuting students who attend of higher There (Giancola, is an increase in theand number of older, commuting who attend institutions higher education Grawitch Borchert, 2009).working, Only about one thirdstudents of undergraduate students are notofworking education (Giancola, Borchert, Only in about one third of undergraduate studentsthere are not adults (Berker, Horn Grawitch & Carroll,and 2003). With 2009). an increase commuter students attending college, is aworking need to 147 adults (Berker, & Carroll, 2003). an increase in commuter students attending college, there is a need to understand howHorn work/school/life stressesWith impact adult students. understand how work/school/life stresses impact adult students. There is a difference between the coping styles of commuter and residential students. Since they tend to be Thereand is aless difference between the copingare styles commuter and commuting residential students. Since tend to be younger mature, residential students moreoflikely than their counterparts to they choose to “skip younger and less mature, residential students are more likely than their commuting counterparts to choose to “skip

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students need for support in understanding the work/life/study balance (Lowe & Gayle, 2007). There is an increase in the number of older, working, commuting students who attend institutions of higher education (Giancola, Grawitch and Borchert, 2009). Only about one third of undergraduate students are not working adults (Berker, Horn & Carroll, 2003). With an increase in commuter students attending college, there is a need to understand how work/school/life stresses impact adult students. There is a difference between the coping styles of commuter and residential students. Since they tend to be younger and less mature, residential students are more likely than their commuting counterparts to choose to “skip out” on course when they become too stressed. More prone to utilize more positive active coping strategies, commuter college students were found to more often cope through positive, passive methods (i.e., taking a “broader perspective”) than did the younger residential college students who relied more on active coping methods associated with cutting class, leaving homework undone, and drinking more (Morris, Brooks, & May, 2003). Students who reported more effective problem solving skills were more likely to use coping strategies aimed towards task-oriented or problem solving. Learning goal orientations were associated with increased use of taskoriented coping that may imply, for example, that a student, who chooses to cope with stress more actively, sets up plans and maps out solutions (Morris, Brooks, & May, 2003). In reflecting upon this study, it would appear that the commuter students are already engaging in many of these positive, active coping strategies. Success can be achieved by students who experience a variety of life circumstances if the right support is available (Lowe & Gayle, 2007). A key role for higher education institutions in relation to stress is the availability of suitable resources to enable individuals to manage stress (Kember & Leung, 2004). Commuter students are in need of solutions to deal with the increasing encumbrances on their lives and their ability to cope with and juggle competing demands on their time. The time management experience of commuter students has the effect of improved functioning and alleviation of feelings of stress (Kearns & Gardiner, 2007). The multiple functions that friends fulfill, and their provisions of support and well-being, suggest that having a close friend during stressful experiences would help individuals cope (Buote et.lt, 2007). Students who look positively on the openness of administration tend to be more satisfied with the campus environment (Nicolson & Bess, 1997). Commuter students have stronger relationships with administrators and place a greater value on faculty interaction than their non-commuting equivalent (Newbold, Mehta, & Forbus, 2010). Limitations and Future Research The research was conducted concerning the stress and coping mechanisms of commuter and residential students. A further breakdown of the commuter students could be helpful in understanding student needs if a determination were made between the non-traditional commuter students and the more traditional students (many of whom may be first-generation students) who happen to be commuting. Another significant variable between students that would help define their time management capabilities deals with the personality type of the student. By their independent nature, a Type A personality student would seem to be better equipped for goal setting, motivation, and positive thinking. At the opposite end of the spectrum, Type D personality students might experience more uncertainty when faced with change. Controlling this variable within the research of commuter students and residential students would further define the results of future research. Future research is needed to better understand the balance of work lives and school for both commuter and residential students. It is difficult for universities to implement campus activities and programs when they don’t fully understand the lives of either group. Students, in theory, are sharing much of the same burden of work and school commitments and have less time for school functions. Perhaps research should be done on why commuter students and residential students share the somewhat similar stress factors, and have divergent coping methods. Some particular variables that complicate the study of stress in commuter students and residential students relate to the student’s role in the family and the amount of conflict within the family particularly as it relates to sacrificed family time for a student’s studies. To better understand the financial stress of the decision to return to college, it would be advisable to research the income level of the commuter students and residential students and the number of dual income households that are represented in the study. In future research, time as a stress factor could be reviewed from the standpoint of the amount of time a student has allocated for taking university classes as compared to the actual amount of course-work time required. Another variable which would assist in understand the levels of stress relates to the actual commute experienced. It would be important to understand the quality of the commute, the length of the commute as well as whether the commute requires driving in heavily trafficked areas or through a calm country area.

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Research has shown that some universities are developing a framework and assessment tool to evaluate their effectiveness in serving commuter students (Compton, Cox & Laanan, 2006). In fact, some universities are specifically targeting and catering to the needs of a sub-set (i.e., senior citizens) of the commuter students (Brandon, 2006). Along with this, it is pertinent for universities to reexamine the methods for informing students of the programs that could be helpful in managing time and stress more positively and proactively. Perhaps satisfaction as a whole could be increased once the university knows what is desired by each distinct group of students. REFERENCES Abrahamse, W., Steg, L., Gifford, R., & Vlek, C. 2009. Factors influencing car use for commuting and the intention to reduce it: A question of self-interest or morality? Transportation research Part F, Traffic psychology and behavior, 12: 317-324 Aldrek, P., & Settle, R. 2004. The survey research handbook. New York: McGraw-Hill. Barron, P., & Dâ&#x20AC;&#x2122;Annunzio-Green, N. 2009. A smooth transition? Education and social expectations of direct entry students. Active Learning in Higher Education, 10: 7-25. Berker, A., Horn, L., & Carroll, C. 2003. Work first, study second: Adult undergraduates who combine employment and postsecondary enrollment. Postsecondary Education Descrptive Analysis Reports. National Center for Educational Statistics, NCES-2003-167. Brandon, E. 2006. Tips on paying for college as a retiree. US News and World Reports. http://www.usnews.com/ usnews/biztech/articles/061026/26retireescollege.htm Buote, V., Prancer, S., Pratt, M., Adams, G., Lefcovitch, S., Polivy, J., & Wintre, M. 2007. The importance of friends: Friendship and adjustment among 1st-year university students. Journal of Adolescent Research, 22: 665-689. Butler, A. 2007. Job characteristics and college performance and attitudes: A model of work-school conflict and facilitation. Journal of Applied Psychology, 92: 500-510. Bye, D., Pushkar, D., & Conway, M. 2007. Motivation, interest, and positive affect in traditional and nontraditional undergraduate students. Adult Education Quarterly, 57: 141-158. Canales-Gonzales, P., & Kranz, P. 2008. Perceived stress by students in a pharmacy curriculum. Education, 129: 139-146. Churchill, G., & Brown, T. 2007. Basic marketing research. Tampa, FL: Thomson Southwest. Compton, J., Cox, E., & Laanan, F. 2006. Adult learners in transition. New Directions for Student Services, 114: 73-80. Cooper, J., & Robinson, P. 2000. The argument for making large classes seem small. New Directions for Teaching and Learning, 81: 5-16. Curasi, C., & Burkhalter, J. 2009. An examination of the motivation of business university students. Business Education Digest, 18: 1-18. Evelyn, J. 2002. Nontraditional students dominate undergraduate enrollments, study finds. Chronicle of Higher Education, 48: 34. Fairchild, E. 2003. Multiple roles of adult learners. New Directions for Student Services, 102: 11-16. Fee, J., Prolman, S., & Thomas, J. 2009. Making the most of a small midwestern university: The case of transfer students. College Student Journal, 43: 1204-1216.

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Giancola, J., Grawitch, M., & Borchert, D. 2009. Dealing with the stress of college, Adult Education Quarterly, 59: 246-263. Hai-Jew, S. 2009. The university life cafe: Promoting studentsâ&#x20AC;&#x2122; emotional health. Educause Quarterly, 32: 4. Hernandez, J. 2002. A qualitative exploration of the first-year experience of Latino college students. NASPA Journal, 49: 69-84. Kearns, H., & Gardiner, M. 2007. Is it time well spent? The relationship between time management behaviors, perceived effectiveness and work-related morale and distress in a university context. Higher Education Research & Development, 26: 235-247. Kember, D., & Leung, D. 2004. Relationship between the employment of coping mechanixms and a sense of belonging for part-time students. Educational Psychology, 24: 345-357. Kerr, A., Lennon, A., & Watson, B. 2010. The call of the road: Factors predicting studentsâ&#x20AC;&#x2122; car travelling intentions and behavior. Transportation, 37: 1-13. Lowe, J., & Gayle, V. 2007. Exploring the work/life/study balance. Journal of Further and Higher Education, 31: 225-238. Lundberg, C. 2003. The influence of time limitations, faculty, and peer relationships on adult student learning: A casual model. The Journal of Higher Education, 74: 665-688. Morris, E., Brooks, P., & May, J. 2003. The relationship between achievement goal orientation and coping style. College Student Journal, 37: 3-8. Negga, F., Applewhite, S., & Livingston, I. 2007. African American college students an stress. College Student Journal, 41: 823-830. Newbold, J., Mehta, S., & Forbus, P. 2009. Using marketing to understand the needs of non-traditional students. Paper presented at the International Academy of Business and Public Administration Disciplines (IABPAD) Winter Conference Orlando, FL. Newbold, J., Mehta, S., & Forbus, P. 2010. A comparative study between non-traditional students in terms of their demographics, attitudes, behavior and educational performance. International Journal of Education Research, 5: 1-24. Newbold, J., Mehta, S., & Forbus, P. 2010a. Commuter students vs. non-commuter students: A gap analysis examination of differences in satisfaction with higher education. Paper presented at the Association of Collegiate Marketing Educators (ACME) Annual Conference; Dallas, TX. Newbold, J., Mehta, S., & Forbus, P. 2010b. Commuter students: Involvement and identification with an institution of higher education. Academy of Educational Leadership, 14: 33-35. Nicolson, C., & Bess, J. 1997. Stress and anxiety in adult learners and liberal arts schools. Paper presented at the Annual Meeting of the Association for the Study of Higher Education, Albuquerque, NM. Nunnally, J. 1978. Psychometric theory. New York: McGraw-Hill Omura, K. 2007. Situation-related changes of causal structures and the stress model in Japanese college students. Social Behavior and Personality, 35: 943-960. Osborne, M., Brink, B., Cloonan, M., Davies, P., Marks, A., Turner, E., & Williams, J. 2001. For me or not for me in Scotland: a report of mature student participation in higher education, (Glasgow, CRLL). Palmer, A., & Rodger, S. 2009. Mindfulness, stress, and coping among university students. Canadian Journal of Counseling, 43: 198-212. 150

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Pierceall, E., & Keim, M. 2007. Stress and coping strategies among community college students. Community College Journal of Research and Practice, 31: 703-712. Robotham, D. 2008. Stress among higher education students. Higher Education, 56: 735-746. Ruchti, A., Newbold, J., & Mehta, S. 2008. Understanding the special needs of commuter students. Paper presented at 13th Annual Marketing Management Association Fall Educatorsâ&#x20AC;&#x2122; Conference, Louisville KY. Sandler, M. 2002. A structural examination of academic integration, perceived stress, academic performance, and goal commitment from an elaborated model of adult student persistence. Paper presented at the annual meeting of the American Educational Research Association, New Orleans, L.A. Sweet, S., & Moen, P. 2007. Integrating educational careers in work and family. Community, Work and Family, 10: 231-250. Patricia Forbus earned her MBA from the University of Arkansas, and has completed post-graduate work at Sam Houston State University. She is retired from AT&T/Lucent/SBC and has worked as a business development volunteer for the Peace Corps in the Ukraine. Her current research interests include pedagogical research related to first generation, non-traditional and commuter students. John Newbold is an associate professor of marketing at Sam Houston State University. He received his DBA in marketing from St. Louis University. His current research interests include pedagogical research with commuter, non-traditional and first generation students, market research and competitive intelligence, and marketing strategy. He has written cases on the hospice industry, focusing on the for-profit hospice phenomenon. He has published in Journal of Applied Case Research, the Journal of Finance Case Research, the International Journal of Education Research, and the Academy of Educational Research Journal, among others. Sanjay Mehta earned his Ph.D. at the University of North Texas in 1999. Currently, he is professor of marketing at Sam Houston State University. His current research interests include pedagogical research related to first generation, non-traditional and commuter students. Also, he conducts research in the area of small business, entrepreneurship, and franchising.

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Wooing Employers with an Experiential Learning Program: Six Steps to Human Resource Management Career with Opportunities for Your Students Wooing Employers an Experiential Learning Program: Six Steps to Human Resource Management Career Opportunities for Your Students Beth Richardson, St Josephs College of Maine Beth Richardson, St Josephs College of Maine I present in this paper a teaching methodology for introducing students to the workplace through collaboration between present inofthis paperinaBusiness teachingAdministration methodology for introducing the workplace through collaboration aIBachelors Science (BSBA) Human students ResourcetoManagement (HRM) program and an between a Bachelors of Science in Business Administration (BSBA) Human Resource Management (HRM) organization with needs appropriate for entry level employment assignments. My intention is for this article toprogram act as an organization withas needs for entry level employment assignments. My intention for this article aand blueprint for professors, well appropriate as organizational sponsors, in undertaking an experiential learningispartnership. In to actto as a blueprint for professors, wellI as organizational sponsors,for in aundertaking an experientialincluding learning order provide the reader with such a as guide, highlight rubrics necessary successful collaboration, partnership. In from order9 semesters, to provideproject the reader such a guide, frequent I highlight rubricsand necessary a successful anecdotal results topics,with career placements, challenges ongoing for collaborations. collaboration, including anecdotal results from 9 semesters, project topics, career placements, frequent challenges I focus solely on pedagogy appropriate for undergraduate business programs, which adapt well to basic operational and ongoing collaborations. I focus solely on pedagogy appropriate for undergraduate business programs, which and topical research projects. In addition, to provide context and validation, I note applicable academic research on adapt well to basic operational and topical research projects. In addition, to provide context and validation, I note experiential learning. applicable academic research on experiential learning. InIn2007, 2007,with withentry entrylevel leveljobs jobsdrying dryingup upbefore beforemy mystudents’ students’eyes, eyes,I Iinitiated initiateda aHuman HumanResource ResourceManagement Management (HRM) (HRM)major majorwith withthe theintent intentofofcreating creatingan anexperience experiencethat thatwould wouldready readymy mystudents studentsfor forthe theworkforce workforceinina aconcrete concrete and andpractical practicalmanner. manner.Neither Neitherananinternship internshipnor nora acooperative cooperativeprogram, program,yet yetnot nota atraditional traditionalcurriculum, curriculum,my myconcept concept was wasrooted rootedininmy myown owncareer careerprogression progressionand andmy myidentification identificationwith withthose thosestudents studentswho whoentered entereda abusiness businessdegree degree program programwith withfew fewprofessional professionalrole rolemodels. models.The Thesame same“deep “deepobligation” obligation”totomy mystudents studentsthat thatGeorge GeorgeGore Gorearticulated articulated ininhis his1968 1968article articlecalling callingfor formanagement managementeducators educatorstotoprovide providestudents studentsdirect directand andmeaningful meaningfulcontact contactwith withthe the business businessworld world(Gore, (Gore,p.p.164), 164),prompted promptedme metotocreate createa guided a guidedexperience experiencewhere wherestudents studentsunfamiliar unfamiliarwith witha abusiness business environment environmentwere wereintroduced introducedtotothe theworkplace workplaceand andprofessional professionalassignments. assignments.This Thisarticle articleoutlines outlinesmy myexperience experienceinin doing and provides a guide for faculty interested in functioning as a liaison in developing learning opportunities doing and provides a guide for faculty interested in functioning as a liaison in developing learning opportunitiesand and materials materialsthat thatsupport supportexperiential experientiallearning learningsuccess. success.The Thefollowing followingdiagrams diagramspresent presentthe theflow flowofofthe theprogram programfrom from both boththe thestudent’s student’sand andinstructor’s instructor’sperspective. perspective. Student Roles and Responsibilities -‐HRM Experiential Projects-‐

Select projects that match careeer interests & skills Add your project assignment to your resume under "Experience"; if successful, ask your instructor for a recommenda7on

Plan work around dates for check-‐ins, draD submissions, rehearsals & presenta7on

Review guidelines, rubrics & evalua7on standards;compare them to your ﬁnished product; use them as standards of quality

Review evalua7on feedback and grading with instructor; ask "What could I have done diﬀerently?" Prac7ce presenta7on to relieve nervousness; dress professionally; arrive early to check technology and room set-‐up; maintain eye contact

Prepare for rehersals; use draD papers to test ideas and format; use 7me wisely; don't wait un7l last moment

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Take advantage of collabora7ve project updates; ask classmates for feedback; be crea7ve in your approaches and thoughts

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Instructor Roles and Responsibilities -‐HRM Experiential Projects-‐

Match projects with skills & interest Schedule check-‐ins, due dates, rehearsals & presenta7ons

develop prpojects with current and new sponsors for next semester

Review guidelines, rubrics & evalua7on standards with students

Review evalua7on feedback and grading with students

Hold ﬁnal presenta7on at organiza7onal sponsor's workplace

Finesse through rehersals, paper & slide show draDs

Encourage collabora7ve project updates; guide student research and crea7vity toward project outcome

My concept began, quite simply, as a method to insure workplace experience for all students enrolled in the HRM major. began, A resume experience linked to an academic program would,in Ithebelieved, My concept quitereflecting simply, asprofessional a method to insure workplace experience for all students enrolled HRM distinguish my students from the thousands of others in our searching forI entry-level positions. I major. A resume reflecting professional experience linked to metropolitan an academic area program would, believed, distinguish encouraged students in the HRM Saint Joseph’s College of Maine, commit topositions. extended,I10 to 15 week my students from the thousands ofprogram others inatour metropolitan area searching fortoentry-level encouraged internships at HRM local businesses. as the economy faltered, to unearth students in the program at However, Saint Joseph’s College of Maine, to internship commit toopportunities extended, 10 were to 15 difficult week internships the under budgeted functionasofthe human resources. If internship did still exist in the economically challenged atinlocal businesses. However, economy faltered, internshipslots opportunities were difficult to unearth in the area of Southern Maine of thehuman competition was staggering andslots the did positions wereinoften unpaid. The lack of pay, area albeit under budgeted function resources. If internship still exist the economically challenged a position that the often could carrywas academic credit, students’ ability to unpaid. secure these opportunities. offor Southern Maine competition staggering andlimited the positions were often The lack of pay, albeit for a Julianne Malveaux, president of Bennett for Women, notes that “the ultimate consequence of unpaid position that often could carry academic credit,College limited students’ ability to secure these opportunities. internships is an increased opportunity gapCollege between havesnotes and that have-nots” resulting in a situation that is Julianne Malveaux, president of Bennett for the Women, “the ultimate consequence of unpaid “implicitly unfair to lowand moderate-income students because those students need to earn income to pay college internships is an increased opportunity gap between the haves and have-nots” resulting in a situation that is costs” (Malveaux, Indeed, as I informed my human resource management unpaid “implicitly unfair to 2007). low- and moderate-income students because those students need majors to earn about income to payinternship college opportunities at local firms, their answers became “I can’tmanagement give up $9 an hour at the sandwich shop for a costs” (Malveaux, 2007). Indeed, as I informed mypredictable: human resource majors about unpaid internship 45 minute drive onefirms, way to a non-paying job, no matter how it will myatresume” (Paladino, opportunities at local their answers became predictable: “I good can’t give uplook $9 anonhour the sandwich shop 2008). for a with the one possibility academic job, credit, reception to the unpaid remained negative. Additional 45Even minute drive way to for a non-paying no the matter how good it will lookinternship on my resume” (Paladino, 2008). Even credit meant for additional tuition. The between students who could afford negative. unpaid work and those who with theoften possibility academic credit, thedivide reception to thethe unpaid internship remained Additional credit had to workadditional their waytuition. throughThe school grew wider (Yagoda, 2008). often meant divide between the students who could afford unpaid work and those who had to divide my capstone HRM course gave rise to a distinct possibility of creating a workThe their“have/have way throughnot” school grewinwider (Yagoda, 2008). difference in academic achievement. However, I was unwavering my belief that HRM majors ahad to have The “have/have not” divide in my capstone HRM course gave rise toina distinct possibility of creating difference applicable work experience in order to practice in the work place their learning derived from the classroom lectures, in academic achievement. However, I was unwavering in my belief that HRM majors had to have applicable work case studies and guest speakers’ advice. Without experiential students experience in order to practice in the work place theirorganizationally-situated learning derived from the classroomlearning, lectures, these case studies would not, upon graduation, present as attractive candidates for entry level human resource positions. Internships and guest speakers’ advice. Without organizationally-situated experiential learning, these students would not, upon would provide an as experiential or action based approach to learning human resourceInternships theory andwould concepts, critical graduation, present attractive candidates for entry level human resource positions. provide an within the or context a thinning job to market, where reduced budgets translate into lesscritical time and money spent on experiential actionofbased approach learning human resource theory and concepts, within the context Butjob wasmarket, this assumption, basedbudgets on my personal research, substantiated? fromBut my was College’s oftraining. a thinning where reduced translate anecdotal into less time and money spent onData training. this Career Services indicated thatresearch, experience is critical to Data students’ careerCareer success, as internships assumption, basedoffice on myclearly personal anecdotal substantiated? fromeventual my College’s Services office lead toindicated full timethat jobs.experience This connection is also supportedeventual by current literature. clearly is critical to students’ career success, as internships lead to full time jobs. This connection is also supported by current literature. Guiding Literature and Models Internships and co-op programs are, indeed, one of the most effective recruiting tools, offering an expectation of success to the point that some employers will not consider a candidate for employment who has not completed an

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Guiding Literature and Models Internships and co-op programs are, indeed, one of the most effective recruiting tools, offering an expectation of success to the point that some employers will not consider a candidate for employment who has not completed an internship (Gardner, 2008). Employers and students both acknowledge, however, that an internship is successful only when the intern has the benefit of a supportive supervisor, training and responsible, challenging opportunities (Gardner, 2008). The declining economy impacts each step of this cycle: the availability of internship positions; the availability of internship supervision; the level of college hiring, and the availability of university resources to generate a robust internship or co-op program (Fletcher, 2009) (Gardner, 2008). Michael Reynolds and Russ Vince of Lancaster and Hull Universities assert that learning and knowledge in management education are derived from and integral to everyday tasks and experiences at work (Reynolds & Vince, 2004), thus leading to students taking responsibility for their learning (Pfeffer & Fong, 2002). Internships offer a ripe environment for making this learning-experience connection, providing organizations with more valuable employees resulting in higher retention and lower costs (Fletcher, 2009) (Gardner, 2008) (Gutner, 2009). Many firms are interested in hiring new college graduates because it is simply less expensive compared to hiring job seekers with work experience (Gutner, 2009). The ramifications of that hiring decision are complex and time-consuming. Relationships with entry level college graduates cover a spectrum of interaction, from mentor-like guidance on proper behavior and dress, through management guidance on effective and efficient work habits, to supervisory direction on performance standards and training opportunities (Gardner, 2008). Add to this scenario the complexity of introducing college graduates into a workforce suffering from recent layoffs and baby-boomer retirements. Institutional history has been depleted, workloads increased and the number of potential role models reduced. Consequently, relevant work experience in the hiring decision of recent college graduates continues to gain importance (Fletcher, 2009). The financial benefits of the lower pay associated with entry-level positions in an unpredictable economy justifies the hire of a new college grad. Patricia Johnson, Director of Staffing and Development for Fairchild Semiconductor (“Fairchild”), a Fortune 1000 manufacturer of power management computer chips, stated in November, 2008 that the good news from her company was the expansion of its number of entry-level positions geared for new college graduates while reducing its number of experienced hires (Quimby, 2008). The key to such a strategy, noted Johnson, is to hire the recent graduate who possesses skills that allow “an immediate return on the hiring investment” and that applicant most commonly originates, for Fairchild, from a pool of co-op students nurtured through the academic year (Johnson, 2008). Although Johnson hoped to maintain the Company’s 2009 pool of 35 to 40 work study positions for college students, flagging sales resulted in the elimination of several co-op opportunities, with emphasis on reducing work study positions in the company’s administrative departments such as Human Resources. Just a month prior to Johnson’s hopeful prediction, the National Association of Colleges and Employers projected that the number of jobs available for the Class of 2009 would remain flat, with 52 percent of the companies surveyed expecting to hire fewer graduates than last year (Quimby, 2008). Given hiring situations such as that managed by Fairchild, one of only a few large employers in southern Maine, where over 20,000 college students reside, how can colleges support the career aspirations of their students, especially those focused on the non-technical areas of corporate administration? Professors, directing students toward internship assignments, hope and, admittedly, expect, the internships to teach students something that often evades the classroom: how to actually apply classroom concepts to workplace tasks. These expectations, however, are often not realized as companies lack the money for paid internships, the personnel for intern supervision and the time to identify work assignments that actually teach and finesse business skills (Fletcher, 2009). It was the tension between the need for experience and the current economic climate, and the resulting dearth of paid internships that became the foundation of my HRM experiential program. If internships were scarce or unpaid yet represented a necessary action-based approach to business education, especially for students at a small liberal arts college with little notoriety, the development of an alternative model was critical. A hybrid concept based on cooperative education methods with internship-like trappings as a course requirement seemed the only way to secure for the students the experience they needed while avoiding higher tuition costs and unpaid work. Cooperative education programs, which peaked in popularity approximately 15 years ago, are currently in place in 400 colleges and universities in the US, with the vast majority of enrollment in about two dozen relatively large schools, such as Northeastern University and Rochester Institute of Technology (Chapman, 2009). Cooperative education is a structured educational strategy integrating classroom studies with learning through productive work experiences in a field related to a student’s academic or career goals. (About Cooperative Education: NCCE) To fit the models espoused and supported by the National Commission for Cooperative Education, the program must provide progressive experiences in integrating theory and practice, and be a partnership among students, educational

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institutions and employers, with specified responsibilities for each party. (About Cooperative Education: NCCE) These programs provide students an integrative course of work and study, guided by an on-campus cooperative education coordinator, therefore reflecting formal recognition by the school of cooperative education as an educational strategy and the financial support required. (About Cooperative Education: NCCE) However, since the federal government discontinued financial assistance, colleges must now rely on companies and agencies that are able - and willing - to take on young, temporary employees (Chapman, 2009). Consequently, colleges not currently supporting a co-op program are relying instead on computer simulations, case studies, guest speakers and most often, internships, increasingly unpaid, to introduce students to the real world of business (Gore, 1968) (Josji, Davis, Kathruia, & Weidner II, 2003) (Houghton, 2007). Program Development In a serendipitous course of events, I was able to quickly test an HRM experiential program. During a conversation with a former corporate colleague, I listened to her describe her depleted budget and overwhelming amount of work necessary to “keep current”, for which her human resources staff had neither the time, the consulting assistance nor budget to complete. (Johnson, 2008) I immediately proposed that my capstone HRM class of 8 senior business students alleviate her overwhelming workload by taking on projects for her over the course of an academic semester, at no cost to her and under my supervision. Under my supervision, the students could finesse a project statement for corporate approval, conduct research on best practices, current legislative activity - anything required - and present their findings both in a fully supported research paper, as well as conduct a live PowerPoint presentation. All I asked from her were three things: (1) that someone from her human resource department visit the class at the beginning of the semester and talk about the company and its human resource strategies, giving students a context for the projects; (2) that each project have a corporate sponsor who would be available via email for questions or limited direction, and (3) that the students be allowed to present at the company’s offices in front of as many people as possible, all of whom would be willing to fill out an evaluation at the end of the presentations. She agreed to take the concept back to the company’s HR executive. A week later I received a hearty “It’s a go!” email with a list of five potential projects (Appendix 1). Six Steps toward Experiential Learning Success Since the brainstorming lunch of 2007, I have continually refined the HRM experiential program until it clearly presented six definite steps that led to successful experiences for all involved. The partnership projects, now a requirement imbedded in each of the upper level human resource management courses at Saint Josephs College of Maine, follow a standardized process from initiation by the organizational partner through final student presentation and evaluation. This process has evolved over the course of three academic years, finessed and reformulated as results appear. Step One: Develop a Clear and Actionable Project Statement I ask the organizations interested in working with my HRM students to develop a project concept by addressing the following requirements: 1. The project concept must either ask a question or questions that must be answered by the student(s) or clearly state the expected outcome of the work and/or final product. Example - Question: What are some specific ways in which to recruit Generations X & Y to Hospital? What is the preferred source of communication- how can we best reach this target group? What benefits are important to this generation? What do they want to see in an advertisement and where should the hospital advertise in order to get their attention? What are other companies - healthcare and non-healthcare - doing to target these generations? (Author, Recruitment Selection and Training Spring 09 Projects, 2009) Example - Outcome: Conduct quantitative and qualitative research into the use of social media by higher education institutions with a focus on adult students. The outcome of this research will be a fully documented research paper entitled “The Use of Social Media by Higher Education Institutions to Attract Adult Students”. The final presentation will review the research and demonstrate the use of the social media by other institutions (Author, Recruitment Selection and Training Spring 09 Projects, 2009). 155

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The question or outcome requirement has proven to assist organizational partners with framing their projects and clarifying expectations, for themselves as well as for the students. The first set of projects in 2007 resulted in research requests with little articulation of what the students were to conclude from the research. The following project statement was interpreted by the students as a request for pure research with no expected analysis or conclusion: Executive Compensation Comparisons: Historical Research of CEO and Top 5 Executive Pay (Based, Bonus, Equity) against a select peer group (to be provided) using public 10-K and proxy filings (Author, 2007). During the final presentation of this Executive Compensation project, the assigned students were asked by staff members of the sponsoring organization for conclusions that the students did not anticipate and therefore did not address through analysis of the semester’s research. Although the analysis and resulting conclusions may have seemed obvious to seasoned human resource practitioners, the same was not true for undergraduate business students, particularly given the topic of executive compensation. As a result of this first semester’s experience, I instruct my students to establish their corporate partners’ expectations, seeking clarification until the students are able to articulate the expectation in a project statement which is then approved by the sponsoring organization. In addition, I encourage corporate sponsors to present desired outcomes specific enough to give the student guidance toward expectations for the final product, without presupposing conclusions and broad enough to allow creativity and alternate solutions. If the sponsor has not done so, it is the students’ responsibility to work with the sponsor until clarification is reached and a project statement is approved by the corporate sponsor and the course instructor. 2. The project concept must state data requirements or collection processes if critical to the desired outcome. Example: After we have appropriately recruited Gens X & Y- how do we effectively retain them? With the baby boomers beginning to retire in larger quantities and the ever- unstable economy, what can we do to retain our Gen X & Y employees? What makes them stay with an organization/job? A survey taken from people of these generations, with a focus on employees of healthcare organizations, is a requirement of this project (Author, Recruitment Selection and Training Spring 09 Projects, 2009). Example: a) Conduct quantitative and qualitative research into the use of alternative recruitment methods by national law firms, with a focus on internet - based recruitment methods, including, but not limited to, the use of social media tools. b) Conduct interview or survey based research with Law school career service offices into the recruitment methods observed and/or preferred by those offices. c) Conduct interview or survey based research with current law students and current 1st year attorneys to determine the job search methods used and/or preferred for entry level attorney positions (Author, Recruitment Selection and Training Spring 09 Projects, 2009). The desire for specific quantitative processes is helpful direction to those students who have not been exposed to market research techniques in other business courses. No student enrolled in my HRM courses has yet to complete a traditional research methods course, reserved for the social science majors in academic departments such as psychology and sociology and not offered in the BSBA program. This data collection requirement necessitated the addition of rudimentary research methods to the human resource course curricula. This instruction also benefits those students who had not held professional part-time or summer positions, where they would be more inclined to use survey tools or participate in data collection or compilation. Over the course of 7academic semesters in 10 courses, the development of project statements has evolved significantly, primarily through trial and error, embarrassing moments at presentations and fresh thinking of college undergrads. A comparison of the first projects with the second set of projects, undertaken during the spring semester of 2008, and those of spring semester 2009, as presented in Appendix 1 indicates a growing focus on clarity, expectations, outcomes, data, analysis and conclusions.

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Step Two: Develop Project Teams based on Complimentary Skills and Work Styles During the first semester of project assignments, in the fall of 2007, I collaborated with the students to assign projects so that students had a say in what they were doing. I decided, rightly, as I learned, that when they were doing something that they chose they were more likely to excel. A simple concept, yes; but when instructors are accustomed to assigning work to avoid competition for plum topics, research teams made up of best friends, and baseball teammates who don’t necessarily work well together, dictating assignments seems far more preferably than asking the students for preferences. However, this test class had formed, stormed, normed and performed over the course of a few weeks of difficult, action-based assignments and clearly knew who worked well together and what they wanted to do. (Bion, 1968). I made the mistake, after a successful experience with the test class choosing their own subjects and partners, of directing the next class to do the same. Roommates chose roommates and pitchers chose their catchers. Bedlam ensued. Relationships were harmed and roommates moved out after students with superior work ethics saw friends procrastinate, act irresponsibly or ignore project requirements, making their team look bad and receive low grades. Catchers refused to play with certain pitchers. The varsity baseball coach inquired about the course’s impact on his team. I became a counselor, having many frank discussions about work ethic and behavior with students who had never been handed as much responsibility as the experiential projects required. In future courses, when the projects are the semester’s curriculum and there is less time for the group to coalesce, I now intervene more often to insure balanced assignments, complimenting skills and even division of work. This is made easier by the small student population at Saint Joseph’s College of Maine, allowing personal insight into individual skill level and motivation. Step Three: Define a Clear Project Timeline The next question posed after “Who can I work with?” is always “When is this due?” Early in the semester, I set presentation dates with each of the corporate sponsors, allowing me to work backwards in developing the class schedule as I invite guest speakers to share their insights into human resource strategy. This also allows busy executives to schedule the presentation on their calendars and secure access to corporate board or conference rooms. The presentation dates are typically the week before the end of the semester, allowing additional class time following the final presentations for potential rescheduling, debriefing and evaluations. Due dates, however, need to apply to more than just the final presentations. Time management is not uniformly mastered at the college undergraduate level and those practices play a distinct role in educational achievement, having proven to impact the quality of the Project outcome (Britton & Tesser, 1991). Students’ time is prone to interruption. Athletics schedules, campus weekend celebrations, relationships, jobs and late night dorm parties tend to erode the best intentions. Indeed, those students who do not select, prioritize, and monitor their goals, sub-goals, and tasks, and who therefore seem disorganized, regardless of ability and intention, accomplish relatively little (Britton & Tesser, 1991, p. 406). Left to an open-ended project completion schedule and providing only a firm presentation due date, the initial class members were not uniform in their management of the project steps. Consequently, I added to the project curriculum interim due dates for various deliverables and goals: class meetings to check-in on research progress; dates for research completion; drafts of sections of the research paper; student discussions with the entire class on challenges, road blocks and confusion; multiple run-throughs of presentations, with alternate foci on presentation style and slide composition; drafts of final papers and peer evaluation of presentations the day prior to the final presentation. Because students must present their updates orally to the entire class, the dynamics of the session are beneficial in their own right. As others have experienced, “benefits include sharing references and data sources, receiving specific comments on improving draft components, and active classroom discussions about solutions to particular problems” (McElroy, 1997, p. 34). Despite a clear timeline, I found students failing to deliver the assignments required seem not irresponsible but confused and scared. Kolb notes that successful experiential learners must “be able to involve themselves fully, openly, and without bias in new experiences (Kolb, 1984, p. 30). The projects as described above represent drastically new experiences for each student. Institutional demographics indicate that nearly 60% of Saint Joseph’s College’s students are first generation college goers (Hagerman, 2010). My business students have little exposure to formal organizational settings and no exposure, typically, to HRM strategies, issues or concepts outside of classroom instruction. Consequently, the transition from traditional classroom lectures and case-based projects, to self monitored projects based on an expectation of contact with outside professionals leaves students flummoxed. Paralysis caused by fear of the unknown and resulting self doubt leads to procrastination. I have found that the pedagogical cure for

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this initial state has been weekly verbal and written “check-ins” to the entire class, including a mandatory explanation of challenges or, as past students have coined them, “no-clues”. A “check-in” requires addressing the following topics: a) Brief introduction of project, required each session to orient the presentation, as well as provide a context for observation and reflection. b) Work accomplished since previous check-in. c) Progress made on proposed project outcome as a result of work accomplished. Students will find themselves sometimes reporting on work that sounds impressive and important but has little impact of progress toward the final work product. d) Challenges, concerns, lack of knowledge or lack of direction. Step Four: Provide Clear Composition and Presentation Guidelines Admittedly, I had little idea how much assistance students would need in developing the heart of the project assignment - what to do and when to do it. I anticipated - wrongly, it turns out - that the presentation would be the most difficult aspect of the assignment, as students often shake at the concept of presenting in front of others. True, they are nervous when we enter corporate board rooms - no more so than me, it turns out - but where they truly flounder is in choreographing their research methodology and developing their final written product. Research and Composition Guidelines The formats of the research paper and project presentation are tied to the research guidelines, which reflect the project statement. Directions for research techniques have consistently proved necessary due to the recent elimination of the research paper from the college’s Freshman College Writing curriculum. This change in the introductory writing class has left upperclassmen without detailed instruction on research and composition often until their senior year business seminars. Research based solely on internet searches is to be commonly a point of confusion and contention as well. “Just Google it” seems to be students’ answer to anything unknown. The familiarity and ease with which students’ access and use the internet seems to have created a void in the student’s information literacy, leading to a tendency to not verify data or anecdotal information by checking multiple resources (Walker & Engel, 2003). The HRM projects depend on formal, peer reviewed research documentation but often rely on, as well, anecdotal research and data produced from survey and interview sources. A research guide provides students with a uniform starting point for project development and sets requirements for the foundation of research and analysis. (Appendix 2) In addition, a visit early in the semester from the College’s research librarian not only demystifies the peer review academic journal, but divulges the internet accessibility of the library’s research databases (Wellehan Library). Composition guidelines take into consideration the spectrum of the potential readers, ranging from the company’s human resource and senior executives to entry level human resource staff tasked with continuing research. The suggested format presents information in a logical and thorough manner and standardizes the use of: sections and subsections to help make the paper easier to follow or understand; font by using only 12 point Times Roman, and citation guidelines by uniformly following APA guidelines. The research paper format is as follows: 1. Title Page 2. Table of Contents 3. Executive Summary 4. Objective 5. Methodology

6. Findings and Analysis 7. Conclusions 8. Appendices 9. References 10. Author biography

The inclusion of an executive summary acknowledges the limited time available from senior executives to dedicate to review of the material. I use class time to introduce the concept of an executive summary and review samples from previous research papers. The objective is a restatement of the project statement and acts as an introduction to the purpose and content of the paper. A section on methodology is required so the students may explain the process upon which they relied to gather data and information; this assists the corporate sponsor to continue the work, if it wishes, using the same or a purposefully different methodology. Students also include appendices made up of raw 158

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data, examples of best practices, or critical resources. Class time is used to introduce the role of Appendices and differentiate between the use of a resource citation and that of an appendix. The final paper requirement is a brief author biography. Students enrolling in the courses for which projects are required are often interested in employment with the corporate sponsors. The biography gives them an opportunity to put their work in context of their academic major, work experience and honors. The biography must be professional, brief and contain certain basic information; apart from these requirements, I do not edit or recommend changes to the biography. Presentation Guidelines Presentation guidelines are less format driven, relying instead on encouragement of creativity and development of texture. Each student is, or has previously been enrolled in a Business Seminar, the capstone course for the entire BSBA program, where presentation techniques, including the formatting of PowerPoint slides, are one focus of the curriculum. The HRM projects are presented according to these same requirements, noted below. Rehearsals of the presentation are scheduled for the two class sessions prior to the formal presentation; the first rehearsal is an informal rehearsal where students are allowed to ask questions of me and their classmates, discussion potential approaches during the presentation and edit slides. Classmates are encouraged to provide feedback, suggestions and assistance to help make the presentation the best it can be. The second rehearsal is a formal dress rehearsal, in professional dress, where classmates in the audience take notes and offer feedback after the presentation is completed. The collaborative nature of the rehearsals has been one of the most gratifying aspects of this process, as I have seen all students understand that the better their friends present to a potential employer, the better the College is perceived and the more valuable their degree becomes. PowerPoint Presentation Guidelines 1. 2. 3. 4. 5. 6. 7. 8. 9.

Conservative yet appealing template Include the company symbols, logo, etc. to tailor it to the company Presentation should follow format of written report Use bullets with phrases for ideas, not extensive verbiage Slides should contain charts, appropriate pictures, diagrams, etc to illustrate the work Feel free to include audio, video, other examples to peak interest and bring texture to your presentation. Be prepared to discuss the meaning and context of charts, graphs, etc on slides NO READING FROM SLIDES – use slides to prompt a discussion of more detailed info Use note cards if necessary

Step Five: Understand Your Role as Instructor As the academic sponsor, I, as the course instructor, carry full responsibility for oversight of the Project, providing ongoing guidance to insure that the final result addresses the initial project description and follows the direction provided by the organizational sponsor. I have found that the role of teacher in a course containing an experiential learning-based project must be entirely learner-centered and consist of facilitator, questioner, supporter, advocate and devil’s advocate, rather than as a disseminator or imparter of knowledge (Robertson, 2005). The paradox inherent in the role of teacher of an upper level curriculum containing organizationally-sponsored projects is critical to acknowledge (Robertson, 2005). As a former Human Resource executive, I called on former colleagues and professional acquaintances to sponsor student projects, albeit to be completed under my supervision… but not by me. My concern was admittedly egocentric. I initially wanted my students to present a work product that could have been completed by me, evidenced by a facile grasp of industry jargon, and sporting complex critical analyses and flawless grammar, even if my work never actually achieved that level of quality. The clear paradox is that even though companies, by partnering in these projects, are able to have work completed that otherwise may not have been, that work is assigned to a college undergrad with little or no experience in a corporate setting, and rarely exposure to a human resources department. The work is costing the company nothing in actual money spent and little in terms of time allocation. My expectation was that the work should be professional; I admittedly found myself the night before final presentations, heavily editing the students’ drafts, changing simple phrasing to that of a seasoned practitioner. Following Robertson’s advice, I acknowledged the paradox, not only to myself but to the corporate sponsors

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and the students. I could not correct everything. Learning would only occur with risks taken, mistakes made and spectacular blunders such as a company name misspelled on every one of 25 PowerPoint slides. I now teach the tools to prevent the blunders from occurring. Class time is spent reviewing grammar check and change tracking tools in Microsoft Word, typically demonstrated by students. I request corporate sponsors to offer projects appropriate for entry level human resource employees and alert them that mistakes most likely will occur. “To teach is to learn twice” (Robertson, 2005, p. 189). Step Six: Provide Opportunity for Clear, Comprehensive and Timely Evaluation and Feedback Several semesters of HRM projects has shown me that students work better and receive more value from this course when expectations are clearly set. This is true as much for presentation guidelines as it is for evaluation and grading rubrics. Consequently, I review the evaluation forms (Appendix 3) and grading rubric (Appendix 4) with the students during the first month of class, as the projects get underway. They use this information to identify what they expect from themselves as well as their expectations of their teammates. Students view evaluations as the most important aspect of the projects. The feedback from the organizational sponsors is constructive, specific and quantifiable, and useful as much to the instructor as to the students. Feedback from the instructor is also valuable to the student, as it integrates the instructor’s professional perspective on the organizational feedback with the course requirements and personal knowledge of the student’s skills and abilities. As I noted earlier, one of the requirements to act as an organizational sponsor of an HRM project is the completion of evaluations by employees attending the final project presentation. The formal sponsor evaluation form does not relate to the research paper but focuses only the presentation and provides feedback on ten aspects of presentation skills and ten characteristics on the material content. Students examine the evaluation form each semester it is used and critique the format so to illicit the most constructive information possible. Students are keenly interested in my feedback on their work, from content knowledge to dress to presentation skills. My feedback is guided by an evaluation form which is anecdotal and addresses the students’ efforts throughout the entire semester, as well as by a grading rubric which is points-based. I incorporate the paper and presentation guidelines into the entire evaluation, as well as the students’ ability to follow direction from the instructor and peers given during presentation rehearsals. I review the instructor evaluation form and grading with each student during a private feedback meeting. These meetings allow conversation about successes, challenges and frustrations, performance, team dynamics, but no negotiation on grades. A completed instructor evaluation form is attached as Appendix 5. Conclusion In the fall semester of 2010, I found myself in front of a class of 20 students, all enrolled in the capstone HRM course introducing the five experiential projects for the current semester. I had to turn away students in their junior year, to keep the class manageable, and turn down several requests from area businesses for projects, convincing them to hold off until the spring 2011 semester. The Six Steps once again provided guidance, as 15 of the 20 students were close friends through varsity athletics and all 15 wanted to work together…and shouldn’t. A review of the project requirements, evaluation forms and grading rubrics had some of these students rethinking their choice of partner and the rigor of these standards caused two students to drop the course. The first check-in was rampant with “noclues”, but I sensed that the projects would be providing sheltered students with opportunities to experience actual, professional work assignments. The community interest in the programs has led to newspaper coverage and college alumni magazine highlights. Such well known businesses as L.L.Bean, Unum, Fairchild Semiconductor and Woodard & Curran have names that catch students’ attention and add substance to their resumes. Admittedly my experiential courses have benefitted from the current economic need for operational staffing leverage within administrative departments such as human resources. The program has also been served by support of local Society for Human Resource Management chapter which made meetings open to students at no charge, encouraged corporate members to become project sponsors and sponsored a project as a meeting presentation on Social Networking Best Practices for Human Resources. Projects are currently scheduled through the spring semester of 2011 for each 300 and 400 level human resource management course. The projects have provided local companies with not only “free” research, but a clear perspective of Generation Y. The long term impact of the project partnerships is now evident: full time positions have been offered to 7 students participating in the projects by their project sponsors; new annual giving relationships have been established with 4 of the corporate sponsors, and a “permanent” partnership has been established with a local hospital, resulting

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in an internship per semester and one each summer for human resource majors and two projects per semester for the upper level human resource courses. Although the project processes, as reflected in the Six Steps, are continually evolving, the benefits of the curriculum have impacted the entire college. As Mark Cook, Director of Employee Benefits for L.L.Bean noted when discussing his company’s role as an organizational sponsor of a 2010 project, ““It’s work I didn’t have to do and spend time on, and it was very helpful to me. … (this program is) at the forefront of connecting academics to the transition into the work world” (Hardiman, 2010). Andrew Paladino, a student enrolled in one of the 2009 HRM experiential courses, described much more simply and succinctly the impact of the course on him. “It prepared me for life after college” (Hardiman, 2010). REFERENCES About Cooperative Education: NCCE. (n.d.). Retrieved July 29, 2009, from National Commission of Cooperative Education Web site: http://www.co-op.edu Author. (2007, October). Fairchild semiconductor presentation projects HR 320 Fall 2007. HR 320 HR & Organizational Strategy Curriculum, Saint Josephs College of Maine. Author. (2009, January). Recruitment selection and training spring 09 projects. Recruitment Selection and Training Curriculum, Saint Josephs College of Maine. Bion, W. 1968. Experiences in groups: And other papers. Florence, KY: Routledge. Britton, B., & Tesser, A. 1991. Effects of time management practices on college grades. Journal of Educational Psychology, 83: 405-410. Chapman, M. March 23, 2009. One benefit of co-op education: Likelihood of a job. New York Times. Fletcher, B. April 16 , 2009. The importance of internships in a declining economy. Retrieved from : http:// aarjobs.com. Gardner, P. C. (2008). Ready for prime time? How internships and co-ops affect decisions on full-time job offers [white paper]. Retrieved July 20, 2009, from MonsterTrak : http://media.monster.com. Gore, G. 1968. The management internship. Academy of Management Journal, 11: 163-178. Gutner, T. March 30, 2009. Graduating with a major in go-getting. Wall Street Journal, p. D6. Hagerman, R. August 20, 2010. Vice president of enrollment management, Saint Josephs College. (P. B. Richardson, Interviewer). Hardiman, S. June 16, 2010. St. Joseph’s internships give collegians a jump in HR. Portland Press Herald, p. Business Section 1. Houghton, J. 2007. SimProject: A project management simulation for classroom instruction. Academy of Management Learning & Education, 6: 576-578. Johnson, P. December 15, 2008, Director of staffing development, Fairchild Semiconductor. (Author, Interviewer). Josji, M., Davis, E., Kathruia, R., & Weidner, C. 2003. Learning and teaching strategic management through experiential methods. Academy of Management Proceedings, (pp. D1- D6). Kolb, D. 1984. Experiential learning: Experience as the source of learning and development. Upper Saddle River: NJ,: Prentice-Hall. McElroy, J. 1997. The mentor demonstration model: Writing with students in the senior economics seminar. Journal of Economic Education, 28: 31-35.

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Pfeffer, J., & Fong, C. 2002. The end of business schools? Less success than meets the eye. Academy of Management Learning and Education, 1: 78-95. Quimby, B. November 16, 2008. College seniors see tight job market. Portland Press Herald. Reynolds, M., & Vince, R. 2004. Critical management education and action-based learning: Synergies and contradictions. Academy of Managhement Learning and Education, 3: 442-456. Robertson, D. 2005. Generative paradox in learner-centered college teaching. Innovative Higher Education, 29: 181-194. Students Still Choose Business. (1968, February 19). U.S. News & World Report, p. 99. Walker, H., & Engel, K. 2003. Research exercises: A sequenced approach to just-in-time information literacy instruction. Research Strategies, 19: 135-147. Wellehan Library. (n.d.). Library Documents: Saint Josephs College of Maine. Retrieved from : www.sjcme.edu/ libary/documents/identifyingscholarlyjournals.pdf. Beth Richardson is assistant professor of business administration at Saint Joseph’s College of Maine where she oversees the human resource management major and has introduced an experiential component to all HRM courses. She received her JD, cum laude, from American University’s Washington College of Law. Prior to her position at St. Joseph’s College, she held various human resources executive positions, including serving as executive vice president of global human resources and administration at Enterasys Networks in Portsmouth, New Hampshire. In 2006, professor Richardson was a Fulbright Scholar at the Universities of Saints Cyril and Methodius in Skopje, Macedonia.

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Appendix 1: Project Statement Comparison Fall 2007: Presentation Projects 1. Human Resource Metrics : Best practices on use of Metrics in HR departments 2. College Semiconductor Programs: schools with semiconductor related curriculums and the number and type of foreign nationals at these schools 3. Updates to H1B Visa Program Requirements: potential strategies/solutions to deal with our governments H-1B visa caps 4. Deemed Export Regulations: potential strategies/solutions with high tech companies to be in compliance with deemed exports to countries of concern 5. Executive Compensation Comparisons: Historical Research of CEO and Top 5 Executive Pay (Based, Bonus, Equity) against a select peer group using public 10-K and proxy filings Spring 08 Projects 1. Orientation Program - evaluate BANK’s current program and advise whether it is effective. If you determine it is not, develop ideas and a structure that would work better for new employees. BANK will provide the resources for students to use to conduct research with other community banks and survey BANK newly hired employees. Students will attend a BANK orientation program to give them an idea on what BANK includes and the paperwork that is involved. 2. Recruiting venues: what avenues, tools, media, etc to use to recruit successfully for banks. Where did the successful employees come from? New ideas for recruitment. Analysis of present techniques. 3. Testing of BANK employment candidates: is BANK testing adequate for hiring the right people? Analysis of what is being used now versus retention and success on the job; what do other banks and financial services use for testing; recommendations for revisions to current testing protocol. Comparative study of testing results, education and experience with retention and tenure on job. Determine patterns; report on findings, and make suggestions based on findings. 4. Interview protocol: What questions and techniques during interviews will best allow BANK to determine whether a candidate is qualified and will stay in the job? Research state-of-the-art interview techniques, analyze BANK’s current interviewing, and recommend changes. Spring 2009 Projects Hospital Project: Recruitment and retention of Gen X and Y a) What are some specific ways in which to recruit Generations X & Y to Hospital? What is the preferred source of communication- how can we best reach this target group? What benefits are important to this generation? What do they want to see in an advertisement and where should we advertise in order to get their attention? What are other companies – healthcare and non-healthcare - doing to target these generations? A survey taken from people of these generations is a requirement of this project. b) After we have appropriately recruited Gens X & Y- how do we effectively retain them? With the baby boomers beginning to retire in larger quantities and the ever- unstable economy, what can we do to retain our Gen X & Y employees? What makes them stay with an organization/job? Law Firm Project: Alternative methods for the recruitment of law students for summer associate and 1st year associate positions. a) Conduct quantitative and qualitative research into the use of alternative recruitment methods by national law firms, with a focus on internet –based recruitment methods, including, but not limited to, the use of social media tools. b) Conduct interview or survey based research with Law school career service offices into the recruitment methods observed and/or preferred by those offices. c) Conduct interview or survey based research with current law students and current 1st year attorneys to determine the job search methods used and/or preferred for entry level attorney positions. d) Develop an alternative recruitment methods plan for Law Firm, with the necessary detail and guidelines to enable the firm to impellent the pan for its 2009/2010 recruitment year beginning in August 2009 e) Implement the plan for its 2009/2010 recruitment year beginning in August 2009.

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Appendix 2: Human Resource Projects Research Guide Every project must involve these resources and research activities, if appropriate: Recent academic research: look for data, conclusions, etc. Peer reviewed journals are necessary, and the better known, the better your audience will receive the information. Harvard Business Review and other business periodicals by the better known Universities are the place to start. Then, branch out widely. The Research Librarian is always a resource for your work and is aware of these project assignments. Current trends – anecdotal rather than research based. Use SHRM, on-line and hard copy business periodicals, etc. Periodicals that can help you get started include The Wall Street Journal, Fortune, Forbes, Business Week, The Economist, as examples. Also consult industry trade groups (American Banking Association, etc) and any periodical that is relevant to the industry you are working within (Supermarket News, etc). Generated data: Your own research into other companies’ activities. Figure out what companies to approach, and do so as soon as possible. Let people know that you are working on a research project and if they need to hear from me, I am glad to get in touch and verify what you are doing. DON’T RELY ON EMAIL. You may have to make blind calls to companies or find a contact to get info. Feel free to use my office phone to make long distance calls and the fax in the Faculty Secretary’s office is available to you, as well – just tell me and I will set it all up for you. Legal considerations: Make sure to research recent lawsuits, challenges, new legislation, proposed legislation, etc. regardless of your project topic. You might even want to interview an employment lawyer or two – see me for suggestions. Examples: Be ready to have examples of what you are recommending, whether in hard copy, online demonstrations, videos, etc. Think about this now so you get copies of what you need. Be creative.

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Appendix 3: Presentation evaluation form Project Sponsor and Title:

Student name(s):

PRESENTATION SKILLS

Ratings:

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Topic Knowledge Ability to stay focused on the topic Ability to hold your interest Pace of presentation Effective responses to questions Use of relevant examples Clarity of spoken words Evidence of preparation Use of eye contact, gestures, voice Overall presentation performance

OVERALL MATERIAL CONTENT Ratings: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Organization of materials Usefulness of information presented Ability to hold your interest Clarity of information Content of responses to questions Use of time Formatting and relevancy of slides Creativity and originality Accuracy of information Overall material content

Presentation date:

1 (low)

5 (high)

¨ ¨ ¨ ¨ ¨ ¨ ¨ ¨ ¨ ¨

1 (low)

5 (high)

¨ ¨ ¨ ¨ ¨ ¨ ¨ ¨ ¨ ¨

Comments on overall material content: What parts of this presentation were most helpful? What parts of this presentation were least helpful? Suggestions for the presenters: ADDITIONAL FEEDBACK: This presentation is representative of the focus of an experiential upper-level course in the Human Resource major within the Business Dept. at St. Joseph’s College. Students are, for often the 1 st time, exposed to actual issues challenging human resource departments and to the daily workings of businesses. Any feedback you have for the students or the instructor, particularly suggestions for improvement, are very much appreciated.

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Appendix 4: Grading Rubric for HRM Experiential Projects 1. Individual Effort: Everyone gets graded individually on the effort he/she puts into the project: Seriousness, attitude, sense of urgency, meeting deadlines, responding to what is required and suggested, effective team member. 25 points 2. PowerPoint: Shared grade: The PowerPoint presentation guidelines must be followed. In addition, demonstrate professionalism, creativity, techniques to keep people’s attention. 25 points 3. Paper: Shared grade: You must follow the paper format requirements. Each grammatical error (including spelling) in the final paper will result in a one point reduction in the paper grade. 25 points 4. Presentation: individual grade: looking for confidence, expertise on the material, evidence that the role in the presentation has been practiced; clear and articulate presentation; good use of slides; organization; ability to answer questions reflecting knowledge of your material. 25 points The final project grade is an average of these 4.

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Appendix 5: Instructor Evaluation Project evaluation and grade COMPANY

Student: John Doe

Project: Wellness ROI –

Individual Effort: John Doe, I appreciated your enthusiasm and interest. You do need to know, though, that of all of the evaluations that mentioned a part of the presentation that was least helpful, all but one noted that it was your food section. The audience did not see a clear connection between the nutritional section and the ROI research to support COMPANY’s wellness program. I do believe this happened because there was nothing about COMPANY that you specifically mentioned having to do with nutrition. I had suggested to you a number of times that you talk about nutrition-related actions the company could take, like addressing the content of their vending machines, but you never introduced that focus on the company. In addition, you were very slow to do the research on ROI and how it related to nutrition, to the point that I virtually ended up doing it for you…which IS NOT my role. I did a simple Google search – it wasn’t even an EBSCO search through the library database - and I found two very current presentations that contained some of the information you needed…which, unfortunately, you did not use to its fullest potential in your section. Additional constructive feedback I have is that you should have, as a team, paid more attention to Guest Speaker’s presentation and what he planned to do. Guest Speaker was mentioned in one evaluation as the part of the presentation that was least helpful. All others mentioned the food section. Grade: 80 PowerPoint The PowerPoint point was generally creative, used a good mix of text, charts, data and video and related well to the points you were making to the audience. It flowed well, was organized logically and was an interesting part of the entire presentation. John Doe, your slides could have used more variety and creativity – talking about foods and nutrition, you had a good opportunity for pictures, videos, etc. Grade: 90 Paper: The paper took many drafts to get to the final product, but that product was excellent. The paper followed well, was well researched, after some considerable prodding by me, and was formatted in a way that made it easy to read and understand. The one part of the paper that was missing is a discussion of the plan that COMPANY was implementing in January. Ideally, you should have contacted the company and integrated that information into your paper and therefore your presentation. The issue that I have with the process of creating the paper was the need for TEAMMATE 1 to rewrite the short term ROI section and the lack of research and writing that was done by TEAMMATE 2. The section written by TEAMMATE 2 was confusing, poorly organized and used wording that was awkward. From what I can tell, instead of bringing the paper to the writing center and redoing it, nothing was done until TEAMMATE 1 simply re-did the entire section. This is unacceptable as far as the responsibility of the team for the production of the final paper. I am going to consider this, in part, in the grade for the paper as well as in the grade of individual effort for various team members. Grade: 90 Presentation: John Doe, your presentation was good and you demonstrated some solid expertise in your subject matter. You knew your material well, but relied on your note cards too much, sometimes losing track of your place in slides. The evaluations note this tendency a number of times. The evaluations also note that you went into too much detail with the food (recipes) and not enough detail on what they were interested in (ROI). Grade: 85 Project grade: 86

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Going Home: New Technology’s Impact on Remote Work Engagement Kenneth Jones, Northeastern State University This study considers the literature concerning remote employment, how early estimates suggested 30-50% of Americans would be working by the beginning of the 21st Century. Surveys of top executives, though positive in outlook, would lead one to predict just over 13% of the population is involved in full-time remote work practices at the end of the last century and decreasing between 2006 and 2008. This paper suggests a technological solution that offers a means of resolving trust and control issues and/or determining the true underlying management dilemmas that might inhibit the growth of daily remote work. Alvin Toffler wrote in his cult classic The Third Wave: “Until now the human race has undergone two great waves of change, each one largely obliterating earlier cultures or civilizations and replacing them with ways of life inconceivable to those who came before. The First Wave of change - the agricultural revolution - took thousands of years to play itself out. The Second Wave - the rise of the industrial civilization - took a mere three hundred years. Today history is even more accelerative, and it is likely that the Third Wave will sweep across history and complete itself in a few decades” (1980; 10). This work is part of an ongoing research interest of the writer, and reflects a curiosity into the irony of the Unites States’ historical business environment that spent nearly three hundred years leaving home-based employment only to return to it with the advent of open telecommunications and global competition. Home-based/remote work is one form of the many types of remote work or telecommuting. Daniel Pink describes the move away from the “jobs” of the Industrial Revolution, whether freelancing or working from somewhere other than the office, as a state of mind as much as a change of place (Pink, 2001). He describes those that remain in “jobs” do so “under terms closer in spirit to free agency than traditional employment” (2001; 11). In essence he is announcing the death of The Organization Man, a term and a non-fiction work made famous by William J. Whyte, Jr., in 1956 (Pink, 2001). Prediction versus Movement to Remote Work In 1997, 11.6 million employees of U.S. companies worked from home at least part of the time, though some estimated that figure to be more than 14 million (Pink, 2001). In 2004, the number was 23.5 million or about 16% of the American labor force. The self-employed (who often are home-based) also grew from 18 million to about 23.4 million in the same seven-year period (Friedman, 2005). Another recent survey by the International Telework Association and Council noted that the number of remote employees who worked at least one day per month from home doubled during the period from 1997 to 2003 (HomeBased Employees, 2004). Most recently, the Dieringer Research Group, Inc. found that more people were teleworking at least once per month--28.7 million in 2006 to 33.7 million in 2008, but fewer were assigned remotely on a daily basis - 14.7 million in 2006 to 13.5 million in 2008 (Telework Trends 2009). This report also cited a decrease in remote contract labor and an increase in employees working remotely, and 100% of the total workforce working remotely were at least assigned offsite once per month (Telework Trends 2009). Dieringer (2009) also noted remote employment is increasingly taking place at home (up 12%), at the client’s place of business (up 13%), on mass transportation mediums - e.g. trains, planes, and subways (up 8%), and at telework centers (up 3%). Toffler predicted this “electronic cottage” industry would come within thirty years of his publication due to the development and perfection of the information technology that has permeated our society during the last thirty years. He sensed the natural return to the “hearth” at home where history tells us the world worker spent 10,000 years of service versus only 300 years at the factory or office. He had interviewed companies like Western Electric, HewlettPackard, and Ortho Pharmaceutical which felt that the technology would soon be available (this was prior to 1980) that would allow 35-75% of their collective work forces to stay home and be productive (Toffler, 1980). It is now within one year of Toffler’s prediction window, and the United States is barely touching the low end of his “cottage” estimates, relating to daily-assigned to remote work. The technology, on the other hand, has surpassed Toffler’s wildest imagination with the popularity of the Internet.

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Motivations and Drawbacks to Remote Work Since remote work offers a significant savings to those that implement such processes, the interest in working away from the office has received much attention in the last thirty years (Westfall, 1998). This section of the paper will review some of the reported positive and negative results anticipated and/or experienced by remote work applications. Organizational and individual perspectives will be analyzed to include the characteristics of successful remote work assignments and the employee types most likely to succeed. Organizational Motivations Depending on the management philosophy and the relationship the firm has with its employees - remote or nonremote - there seems to be at least six positive attractions. The positive attractions are explained but not listed in any order of magnitude of impact. First, the utilization of remote or remote work offers the organization lower absenteeism rates among employees. Employees are less likely to avoid work if given the opportunity to work remotely or from home (Fitzer, 1997; Moskowitz, 1995; Hoang et al, 2008). Second, the ability to attract and/or retain employees that might otherwise be unavailable to relocate is a strong motivation to allow work from home (Moskowitz, 1995; Hoang et al, 2008). Third, this ability to retain and acquire otherwise lost employment is credited to increasing loyalty to the firm (Moskowitz, 1995). Fourth, the organization should expect increased productivity and quality of work (Hoang et al, 2008). Though Westfall (1998) offers more discrete criteria for actual productivity gains, Huws (in an earlier study) reported that managers rated their teleworking employees as 47% more productive). Five, decreased operational expenses in the normal office environment can be a plus to the firm implementing remote work (Westfall, 1998). Westfall (1998) related the savings to the positive correlation of employee/manager salary and number of days working remotely. He hypothesizes that the higher the rate-of-pay the greater the savings to the firm for that employee/manager to stay at home or work remotely. This is attributed to the office support rendered to higherpaid personnel (Westfall, 1998). Six, the organization should see a positive increase in the ability to respond more quickly to customers and/or unexpected events (Fitzer, 1997). This issue has also been related to the flexibility of the organization to respond or keep operations going when faced with non-business events and, more currently, security issues (Daniels et al, 2001). The aftermath of â&#x20AC;&#x153;9/11â&#x20AC;? has forced many organizations, including the Federal Government to consider the implementation of telework for maintaining operations during a terrorist event. Individual Motivations The individual motivations to engage in remote work are also valuable in understanding the effects of this growing form of work in firms. Three positive motivations are noted here. First, the reduction of commuting costs to the office could represent a rather large savings to the teleworking employee (Christensen, 1992; Moskowitz, 1995). Moskowitz offers a table of the commute savings of 90-minute (one-way) commuting for full-time remote workers could add 15-hours of time to the remote workerâ&#x20AC;&#x2122;s life or work schedule. This could be prime time hours for reaching customers. One study by American Express Travel Services reports that home-based reservation agents handle 26% more calls per day or 46% more business per week than conventional office agents with strong experience (Moskowitz, 1995). Second, closely related to the previous reasoning is the increase in flexibility in work hours (Moskowitz, 1995; Reinsch, 1997). Reinsch reports on a survey that noted the most important motivator for individuals to choose to engage in remote work was the greater freedom and control in their personal schedule. Third, the increased productivity, for several reasons, was cited as making remote work more appealing (Moskowitz, 1995; Reisch, 1997). Nortel reported that 73% of its telecommuting employees reported less stress and 90% reported greater job satisfaction). Drawbacks to Remote Work While there are positive reports of the organizations and individuals that telework, the negative results or expectations are also noteworthy. Most of these items relate to organizational culture and existing practices - the concern of losing current processes or methods.

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Organizational Drawbacks Three organizational impacts of remote work may appear negative to those considering participation. One, having some of the best employees unavailable in the office environment can be negative in that more time may be involved in reaching those remote workers. Fitzer (1997) also suggests that this loss of input or availability can cost the organization synergistic capability otherwise available to all conventional office staff. Two, there is some concern for data security when basing employees out of the office and allowing them to move information via telecommunication technology across the Internet (Gray, Hodsen & Gordon, 1994). Firewall security for intranets has become quite common and very effective, but the systems inside the office can be just as vulnerable to inside threats. Three, managing remote workers creates added cost and time constraints to the organization (Christensen, 1992; Fitzer, 1997; Hoang et al, 2008; Westfall, 1998). Westfall (1998) strongly encourages more research into the reality of this economic cost, and he encourages the promoters of telecommuting to evaluate the real cost to management when presenting findings. This final negative impact creates some difficulty in evaluating the financial benefits of remote work (Daniels et al, 2001). Modeling and economic analysis of transportation and office duplication savings are considered by others too difficult to determine (Westfall, 1998). Individual Drawbacks Reports on remote work have also expressed negative impacts on individuals in the remote work environment. One, the remote worker reports feeling isolated (Fitzer, 1997; Reinsch, 1997; Hoang et al, 2008). Some of the more classical research in this area also relates the reduction of inner-organizational communication (Hoang et al, 2008). Two, individual remote employees report a tendency to overwork with the office at “arm’s length” whenever an idea for solving a problem comes to mind (Fitzer, 1997; Moskowitz, 1995). Three, a very popular concern for the remote worker, and a current obstacle to engaging the best employees in the process, is the concern for being bypassed for promotion when the remote worker is out of the sight of management (Baruch, 2001). This is where the need for the employee’s trust of the manager, or a system of control of manager-provided feedback/evaluation, supported and monitored within the organization’s performance structure becomes relevant. The employee must feel that the work they do in the remote environment, and the recognition for doing that work well, is valuable and contributing to their future stature within the firm (McCloskey& Igbaria, 2003). Characteristics of Successful Implementations of Remote Work This section will prepare the reader to understand what the research has reported as to the managerial and environmental attributes for successful implementation of remote work. The first subsection will define the managerial action or support needed to succeed. The second section will step back to view the overall organizational considerations of implementation of a successful remote work environment - taking the work to the worker. In this portion of the literature the introduction to the eight key elements of successful remote work environments will be introduced - input, evaluation, communication, consistency, defined rules, support/succession, feedback/motivation, control system. These eight elements are also key to measurement of work (remote or non-remote) performance. Managerial Attributes Five attributes of the management environment appear essential to the success of remote work according to the literature. These items all involve the manner in which the employee is treated or accepted by management within the relationship of the organization, manager/employee, or employee/employee. These relationships are only those areas in which the manager can have an impact. One, the most crucial area noted as determining the successful longitudinal implementation of remote work is the necessity of top-management to buy-in to the concept (Adam & Crossan, 2001). Higa and Shin (2003) reported in numerous case studies in Japan that the buy-in of top-management to the success of remote was one of the key reasons for all successful implementations that were examined. This could be key to consistency in the work environment, which is one of the eight elements. Harrington and Ruppel (1997) noted that top-management’s trust of the remote worker is essential to their buy-in. In fact, the obstacle to much implementation of remote work in Europe and Canada is not trust in general (which will be discussed later); but, as a Nextra study found, 23% of top-management does not trust their employees to be productive (Flexible Working, 2002). Two, management should develop a relationship built on confidence and trust with the worker and the remote work environment (Christensen, 1992; Harrington & Ruppel, 1997; Staples, 2001b). This element will be discussed more later, but this control system is a key element to remote work success. Three, the manager should

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work with the remote employee to establish clear and distinct goals and objectives, then make sure the worker has all of the resources to meet the goals established (Staples, 2001b). The input provided by the worker is an element that is key to remote work success. Four, management must provide consistent feedback based on the evaluation of the remote worker’s success at meeting the goals jointly assigned (Gray, Hodson, and Gordon, 1994; Staples, 2001b). The evaluation process in a remote environment provides another element of remote work success. Five, the manager must consider the remote worker to be as capable and available as non-remote workers (Fitzer, 1997; Staples, 2001a). In regards to this effort by management, a strong communication link between workers must be designed and maintained by management (Staples, 2001b). The importance of remote workers being informed and involved in organizational activities is also reported in this regard (Hoang et al, 2008). This communication is another element of remote work measurement. Organizational Attributes If the organization is to implement and sustain a viable remote work option for its employees, there are five success factors that the organization must be prepared to nurture, provide, and enhance. These five items have been reported to secure adequate workers to launch the remote work program while maintaining respect for the program from the non-remote employees. One, goals and objectives for the program and for each employee assigned must be established before implementation (Christensen, 1992, Gray; Hodson, and Gordon, 1994). Determining how the remote workers will be assessed by their performance is part of the important initial phase (Fitzer, 1997, Staples, 2001b). This process is more effective if the remote and non-remote workers are assessed equally and regularly-slated meetings are planned in advance of all workers - remote and non-remote (Staples, 2001a). A calendar available to all members of the organization is suggested (Christensen, 1992). A formal contract with the rules defined between the remote workers and management, on the behalf of the entire organization, is recommended to establish this first success factor (Gerber, 1995). Two, the duration and employee eligibility of the remote-work project should be shared openly within the firm to establish the aura of management approval at the highest level (Christensen, 1992; Higa & Shin, 2003). This feedback provided is motivational for the successful remote work environment. Three, complete training for all members of the firm should be implemented and explained before the program’s initial rollout (Staples, 2001b). This support mechanism is key to remote work and succession of the firm’s leadership, drawing from all workers - remote and non-remote. The previous three attributes are designed to foster a positive viewpoint from all in the firm and seek enrollment (part-time and full-time) in the ongoing remote work process. The communication between remote and non-remote workers is also enhanced by this provision - (See the previous section for further details as to the importance of this relationship). Four, success of the ongoing process requires technical support for the remote worker and the determination by the organization to provide the physical environment needed (Staples, 2001b). This should be well planned before implementation begins (Dooley, 2005). Five, data security must be ensured if the program is to succeed (Hoang et al, 2008). Those impacted by this requirement are those stakeholders along all of the connections of the enterprise - including customers and suppliers (Adam & Crossan, 2001; Dooley, 2005). Will Workforce Performance Management Solutions Encourage the Engagement of Remote Work? Today, technological solutions exist in the form of systems (available online) by firms offering their services as ASP’s or application service providers. Anyone, anywhere can access these Workforce Performance Management Systems (WPMS), in a pay for use environment, which were designed for employers/employees based anywhere on the globe. In this environment, companies do not need to take up large amount of space or manage memory-intensive programs in office-based servers. This is the perfect fit for remote work needs. Employees and managers can create, manage, and store real-time feedback and control processes by going to the service provider’s website from anywhere on the planet (Getting There, 2005). WPMS can provide the eight elements, as highlighted earlier, required to successfully implement remote work. These eight elements are offered by directed input from the performing employee; providing evaluation readily for work performed; allowing communication between remote employees and office-bound workers; encouraging consistency in the availability of performance evaluation; posting defined rules for the workplace not dependent on where the worker is geographically located; directing support to the remote worker as they remain viable candidates for upward mobility within the firm; assessing work and encouraging improvement or rewarding for a job well done via feedback mechanisms; and culminating in system of controls that can be trusted by manager and employee (Getting There, 2005). If this solution was provided, or its availability made known, would this enhance worker interest in accepting/supervising remote work assignments?

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PROPOSED RESEARCH TO DEFINE THE PROBLEM Problem Statement In remote work environments, without temporal/tactile contact, a lack of systematic performance controls between management and employee represents an obstacle to engagement in remote work solutions and to the potential economic and ecological savings they represent. Research Question Can availability of Workforce Performance Management Systems (WPMS) positively affect the decision to engage in remote work environments? Null Hypotheses A paired-sample “t-test” should validate whether there is a statistically significant difference in the survey results between the pre-information and post-information sessions of participants. The results of the test will determine the answers to the two major hypotheses below: H1a: Workforce performance management solutions are not perceived as positively affecting the willingness to engage in remote work. Pre-information µ = Post-information µ H1b: Workforce performance management solutions are perceived as positively affecting the willingness to engage in remote work. Pre-information µ ≠ Post-information µ Necessary ingredients to the pre-information questions: Flow of questions should relate the topic to the participant’s current interest to work remotely based on the validity of the eight elements of remote work performance success. Necessary ingredients to the post-information questions: 1.

System solution relates to the pre-information statement.

The participant is reminded that the technological solution is a part of a systematic approach thoroughly discussed within the Information/Education Element.

The key to success of the system solution will require the conformity, accountability, and integrity of the participant (whether supervisor or employee). People implement systems.

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1. System solution relates to the pre-information statement. 2. The participant is reminded that the technological solution is a part of a systematic approach thoroughly Advances in Business Research Jones discussed within the Information/Education Element. 2010, Vol. 1, No. 1, 168-175 3. The key to success of the system solution will require the conformity, accountability, and integrity of the participant (whether supervisor or employee). People implement systems. Research Questions Before and After Research Questions Before and After

Likert Scale Scale explanation: explanation: Considers Considers willingness willingnessto toconsider considerremote remotework workenvironment environment Likert 0

Unwilling to Consider Remote Work Before - Reflects current remote/non-remote work environment Input: Freedom to choose my schedule and set my goals of productivity within the current work environment has an impact on my willingness to work remotely

4 Indifferent

Most Willing to Consider Remote Work

After - Reflects desirable/non-desirable remote work environment after employing WPMS technology Input: Ability of management systems to allow my supervisor and me to monitor my goals and track my performance in relation to the goals has an impact on my willingness to work remotely

0–1–2–3–4–5–6-7 Evaluation: Level of management awareness of my work habits/ethic and the impact on current work environment

0–1–2–3–4–5–6-7 Evaluation: System capabilities to report work behavior to management and the impact on my willingness to work out of the current environment

0–1–2–3–4–5–6–7 Communication (Technology): The ability to communicate with fellow workers and supervision has an impact on my willingness to work remotely

0–1–2–3–4–5–6-7 Communication (Technology): Access to remote office files and fellow workers/supervisors via telecommunications technology would have an impact on my willingness to work remotely

0–1–2–3–4–5–6-7 Consistency: Feedback with management is sure and focused affecting my willingness to work in a distributed environment

0–1–2–3–4–5–6-7 Consistency: Constant availability of my current performance consistently related with agreed goals and management perceptions would impact my willingness to work in environment

0–1–2–3–4–5–6-7 Rules Defined: Agreed work performance measurement being articulated and implemented would impact my willingness to work remotely

0–1–2–3–4–5–6-7 Rules Defined: Management awareness of what my performance should be with the ability to readily/instantly compare with my daily effort would impact my willingness to work remotely

0–1–2–3–4–5–6-7 Support/Succession: Potential promotion within the company would impact my decision to work outside the office

0–1–2–3–4–5–6-7 Support/Succession: My supervisor’s instantaneous access to my daily performance when making succession decisions would impact my willingness to work outside the office

0–1–2–3–4–5–6-7 Feedback/Motivation: Regular evaluations of my work based on agreed performance measurements would impact my work location

0–1–2–3–4–5–6-7 Feedback/Motivation: Knowing that management can readily provide feedback as to my efforts anytime/anywhere would affect my willingness to work remotely

0–1–2–3–4–5–6-7 Control (System is trusted): Control mechanisms to encourage me to maintain agreed performance goals, possibly realigning my efforts would impact my willingness to work remotely

0–1–2–3–4–5–6-7 Control (System is trusted): Systematic adjustments to my work via comparison to agreed goals and realignment suggestions would affect my willingness to work remotely

0–1–2–3–4–5–6-7

Information/Education Information/Education Element Element All survey participants will watch a ten-minute presentation which is completely Internet based. The presentation All survey participants will watch a ten-minute presentation which is completely Internet based. The presentation will contain information about Workforce Performance Management Systems (WPMS) that provide ready-made will contain information about Workforce Performance Management Systems (WPMS) that provide ready-made communication tools to monitor workforce performance, performance evaluations and automated feedback and communication tools to monitor workforce performance, performance evaluations and automated feedback and control solutions. The purpose of this element is to supply a pedagogical process that encourages the participant to control solutions. The purpose of this element is to supply a pedagogical process that encourages the participant to see that software is already available that can enhance the required feedback and control systems in which to utilize see that software is already available that can enhance the required feedback and control systems in which to utilize and maintain the eight key elements to successful remote work performance. The researcher expects the participants and maintain the eight key elements to successful remote work performance. The researcher expects the participants to become aware that the systems solutions will require considerable additional effort to communicate on the part of to become aware that the systems solutions will require considerable additional effort to communicate on the part of the manager/employee surveyed, if such a system of feedback and controls is to be implemented or does not already the manager/employee surveyed, if such a system of feedback and controls is to be implemented or does not already exist within the culture of the organization in which the participant works. The software will not set up the system of exist within the culture of the organization in which the participant works. The software will not set up the system workforce performance management in the individual workplace, and unless the company employee/supervisor is of workforce performance management in the individual workplace, and unless the company employee/supervisor is willing to contribute to such a system, the impact of the WPMS will be statistically negligible. willing to contribute to such a system, the impact of the WPMS will be statistically negligible. Objective of Research When knowledge of systematic feedback and control173 measures in the form of WPMS is made available to those considering remote work environments, no statistically significant difference in the interest to engage in remote work will be incurred. Thus, by providing information about WPMS in the context of working from remote locations, interest levels will not change before and after such education occurs.

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Objective of Research When knowledge of systematic feedback and control measures in the form of WPMS is made available to those considering remote work environments, no statistically significant difference in the interest to engage in remote work will be incurred. Thus, by providing information about WPMS in the context of working from remote locations, interest levels will not change before and after such education occurs. REFERENCES Adam, F., & Crossan, G. 2001. Teleworking in Ireland: Issues and perspectives. In Telecommuting and Virtual Offices: Issues and Opportunities (pp. 28-49). Johnson, N.J. (Ed.), Idea Group Publishing: Hershey, PA. Baruch, Y. 2001. The status of research on teleworking and an agenda for future research. International Journal of Management Reviews, 3: 113-129. Christensen, K. 1992. Managing invisible employees: How to meet the telecommuting challenge. Employment Relations Today, Summer: 133-143. Daniels, K., Lamond, D., & Standen, P. 2001. Teleworking: Frameworks for organizational research. Journal of Management Studies, 38: 8. Dooley, B. 2005. Telecommuting remote access solutions. Faulkner Information Services, Docid:00018777. Fitzer, M. 1997. Managing from afar: Performance and rewards in a telecommuting environment. Compensation and Benefits Review, 29: 65-73. Friedman, T. 2005. The world is flat: A brief history of the twenty-first century. New York: Farar, Straus, and Giroux. Gerber, B. 1995. Virtual teams. Training, 32: 36-40. Getting there: The business benefits of workforce performance management. 2005. White Paper from Knowledge Infusion, Inc. (September) at: http://www.successfactors.com/info/en/whitepapers/success Gray, M., Hodson, N., & Gordon, G. 1994. Teleworking explained. Chichester, England: Wiley. Harrington, S., & Ruppel, C. 1999. Telecommuting: A test of trust, competing values, and relative advantage. IEEE Transactions on Professional Communication, 42: 223-239. Hoang, A., Nickerson, R., Beckman, P., & Eng, J. 2008. Telecommuting and corporate culture: Implications for the mobile enterprise. Information Knowledge Systems Management, 7: 77-97. Higa, K., & Shin, B. 2003. Telework experience in Japan. Communications of the ACM, 46: 233-242. McCloskey, D., & Igbaria, M. 2003. Does out of sight mean out of mind? An empirical investigation of the career advancement prospects of telecommuters. Information Resource Management Journal, April-June: 19-34. Moskowitz, R. 2007. Cash for telecommuting. Published on the Wachovia web site at: http://www.wachovia.com/ small_biz/page/printer/0,,447_972_1695_1946_1961,00.html Pink, D. 2001. Free agent nation: The future of working for yourself. New York: Warner Business Books. Reinsch, N. 1997. Relationship between telecommuting workers and their managers: An exploratory study. Journal of Business Communications. 34: 343-369. Ruppel, C., & Harrington, S. 1997. The role of trust, communication and corporate culture in telecommuting relationships. Americas Conference on Information Systems.

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Staples, D. 2001b. Making remote workers effective. In telecommuting and virtual offices: Issues and opportunities. (pp. 163-1850, Johnson, NJ (ed.), Idea Group Publishing: Hershey, PA. Telework Trendlines 2009. 2009. Survey brief by WorldatWork. Data collected by The Dieringer Research Group Inc. February. Toffler, A. 1980. The third wave. New York: Bantam Books. Westfall, R. 1998. The microeconomics of remote work. In the virtual workplace. (pp. 256-287), Igbaria, M., Tan, M. (eds.) Idea Group Publishing: Hershey, PA. Kenneth Jones is an instructor of information systems and high-tech marketing at Northeastern State University. He is a doctorate of business administration candidate at Anderson University, with an emphasis in management, employing an information systems approach. His current research interests include remote work environments, impact of telework centers on community/economic development, ethical use of product-specific incentives, pre/ post assessment in course-specific objectives, and generational markers in high-technology adoption rates. He has published in the Journal of the Scholarship of Teaching and Learning for Christians in Higher Education, presented research to the ACBSP (Association of Collegiate Business Schools and Programs) National Conference in Chicago, IL, and co-provided course-specific research models for the OKAIRP (Oklahoma Association for Institutional Research and Planning).

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Cooperative and Instrumental Stakeholder Networks: A Case Analysis of Two Urban Neighborhoods Vanessa Hill, University of Louisiana, Lafayette Steven Frankforter, Winthrop University Drawing on scholarship from resource dependency, social network analysis, trust, and institutional theories, we present a model that describes the factors that shape relationships among organizations and their stakeholders. We propose that networks comprised by companies and their stakeholders can be primarily cooperative or opportunistic in character. The qualities of the organizations in the network as well as the relationships and structure of those relationships determine whether or not the resulting network can be characterized as cooperative or opportunistic. We illustrate the model by comparing and contrasting the stakeholder networks of two neighborhood development projects. In the years following Freemanâ&#x20AC;&#x2122;s (1984) groundbreaking work, stakeholder theory developed rapidly, making significant strides in our understanding of normative and instrumental uses of ethics in managing stakeholder relations (Jones, 1995; Quinn & Jones, 1995). Research during this time suggested that competitive advantages may arise out of successfully recognizing stakeholder traits and adapting strategically to them (Jones, 1995; Wicks, Berman, & Jones, 1999), and create typologies that distinguish between stakeholders pursuing opportunistic ends and those seeking value-based goals (Mitchell, Agle, & Wood, 1997; Phillips, 1998). The pace of advancement in stakeholder research has been remarkable, but in spite of these advances, considerable opportunity to further the power and usefulness of stakeholder theory remains. Cooperative approaches to stakeholder theory or those that evaluate multiple perspectives of firm-stakeholder relations are emerging. While prominent research in stakeholder theory has focused attention on examination of the instrumental side of stakeholder relationships (Freeman, 1984; Jones, 1995; Mitchell et al., 1997), investigation of cooperative relationships are being explored as researchers investigate factors that encourage stakeholders to form alliances to influence organizations (Rowley & Moldoveanu, 2003; Neville & Menguc, 2006). Another focus of stakeholder research has been the development of typologies to identify who a firmâ&#x20AC;&#x2122;s stakeholders are and to determine the types of influences that they have over a firm (Mitchell et al., 1997; Phillips, 1998, Driscoll & Starik, 2004). While they are important avenues of research, cooperative arrangements among stakeholders present an opportunity to advance our understanding of stakeholder relationships further. A network approach to studying stakeholder relations allows us to consider cooperation among stakeholders as well as opportunistic behavior. Social network analysis is a useful theoretical framework for further understanding the other constituents in society. The actors in the network are individual organizations. Each pair of actors in the network is potentially involved in some type of relationship (Markovsky, Willer, & Patton, 1988). A network approach to stakeholder theory is ultimately about how the business develops and maintains relationships with its stakeholders. Rowley (1997) was the first to meld a network approach to stakeholder theory, suggesting that stakeholder ties need to be evaluated on more than a dyadic basis. He also argued that an organizationâ&#x20AC;&#x2122;s stakeholders interact bilaterally. Stakeholders know of, and interact with one another. Some networks will be characterized by cooperative relationships, other networks by instrumental relationships. Organizations in cooperative networks have multilateral stakeholder relationships. Instead of positioning the organization as a member of a network that is solely instrumental thriving only in the short-term, the cooperative network is a value-filled community that may perpetuate indefinitely. Participant organizations must promote cultural values that give it long-term direction and purpose for the cooperative network to endure. With such an ideological fit, contracting stakeholders may develop trust in one another. Eventually, the parties could reduce transaction costs that would otherwise be associated with an opportunistic approach - incentives and monitoring costs (Jones, 1995; Wicks et al., 1999). The result is a more efficient relationship that allows the retention of greater levels of available resources for maintaining unavoidable instrumental stakeholder relationships. While participants in the networks have dyads of exchange, there are repercussions for the other network members through transitivity (Neville & Menguc, 2006). Members in a cooperative network are either directly linked through each other or through a relationship that they have in common with another organization (Rowley & Moldoveanu, 2003). Opportunistic behavior in such a network not only damages the relationship with the stakeholder that is harmed, but any other networked stakeholder the

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injured stakeholder interacts with. The creation of cooperative networks leads to investments embodying long-term commitments which cannot be achieved through remote ties that are based on immediate gain. Instrumental networks on the other hand, are characterized by armâ&#x20AC;&#x2122;s length transactional arrangements between loosely affiliated opportunistic parties (Uzzi, 1997). The primary characteristics of the participants in this arrangement are: remote transactions, an emphasis on self-interest, an absence of loyalty, a focus on competition for limited resources, and impersonal relationships. The potential competitive advantages of remote approaches are the ability to rapidly shift to new conditions, opportunities, and relationships as they emerge (Uzzi, 1997). Among the disadvantages of participating instrumental networks are transaction, monitoring, and inducement costs. Instrumental networks are characterized by remote or loosely joined, short-term relationships, among stakeholders who do not trust each other and who engage in various techniques to monitor behavior of other actors to avoid exploitation. In this paper, we propose a synthesis of social network analysis with stakeholder theory. We present cooperative and instrumental stakeholder models based on actor characteristics, relationships, and position in a stakeholder network. Our model distinguishes between stakeholder networks that are primarily cooperative or opportunistic by how these networks vary on stakeholder attributes, types of relationships, and the structural qualities of the networks. We illustrate the models with a case study of the redevelopment efforts of two urban neighborhoods. Stakeholder Networks This model describes when relationships among stakeholder groups are characterized by either cooperative or opportunistic qualities. For the sake of clarity, we illustrate the model considering a network that is primarily cooperative (Barrio Logan represented in Figure 1), and a network that is primarily opportunistic (Roxbury represented in Figure 2). It is quite possible that cooperative networks will have actors that behave opportunistically, as well as actors in opportunistic networks that behave cooperatively. Our model describes the mechanisms that allow stakeholders to work together in each network situation. Figure 1: Barrio Logan Stakeholder Network Sandag MTDB Developer

City Planner Navy

South of Evans Housing Rep Port

Homeowners

Property Owner Project Area Rep

Arts Rep

Environmental Rep

Social Service Agency Rep Community College School Community Rep Industry North of Evans

Business Caltrans

The nodes, represent the actors, or organizations, involved in the stakeholder network. The lines between the actors represent that a relationship exists between two organizations. The direction of the arrows illustrates the direction of the relationship. For example, in Figure 1, all of the relationships among actors in the network are bidirectional. This means that each organization in the network has a relationship with every other organization in the network. Figure 2 is characterized by both uni-directional and bi-directional relationships. In this figure, the mayorâ&#x20AC;&#x2122;s office is noted as having a relationship with community development, but community development does not reciprocate this relationship. Finally the placement of the nodes in relation to each other represents a stakeholderâ&#x20AC;&#x2122;s position in the network relative to other actors. The distinction does not matter when considering Barrio Logan. Actors in this network are connected to each other in exactly the same way. However, in Roxbury we see that the network is partitioned into two groups, with the Oversite Committee, the Project Review Committee, and the

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Roxbury Neighborhood Council (RNC) as parts of both groups. This is represented by the nodes for these actors being placed in the center of the network graph between two groups of actors. The placement of the nodes indicates that theseNeighborhood actors may serve as intermediaries between groups. This discussion has used examples to illustrate Roxbury Council (RNC) as parts of both groups. This is represented bybroad the nodes for these actors the interpretation of the nodes, lines, and position of the lines. The nature of these relationships which provide the being placed in the center of the network graph between two groups of actors. The placement of the nodes indicates context foractors the networks is discussed more extensively in subsequent sections. has used broad examples to illustrate that these may serve as intermediaries between groups. This discussion the interpretation of the nodes, lines, and position of the lines. The nature of these relationships which provide the Figure 2: Roxbury Network context for the networks is discussed more extensively in Stakeholder subsequent sections. Figure 2: Roxbury Stakeholder Network Neighborhood Organizations

Boston Redevelopment Authority

Oversite Committee

Human Services

Corporations

Community-at-Large

Roxbury Neighborhood Council

Tenant Organizations

Project Review Committee Religious Organizations

Community Development

Mayor

Merchants

Smart Growth: Growth: An Smart An Illustration Illustration of of Stakeholder Stakeholder Networks Networks Smart Growth Growth is is an an emerging emerging paradigm paradigm and and social social movement movement in in the the discussion discussion of of urban urban development development and and Smart redevelopment. Smart Growth emerged of a concern that key stakeholders were excluded from decisions and policy redevelopment. Smart Growth emerged of a concern that key stakeholders were excluded from decisions and policy making regarding regarding community community economic economic development. development. Critiques Critiques of of traditional traditional approaches approaches to to economic economic development development making charge that that emphasis emphasis is is put put on on creating business friendly friendly environment environment limited limited in in its its focus focus to to creating creating favorable favorable charge creating aa business corporate tax tax and and zoning zoning policies. policies. An An imbalanced imbalanced emphasis emphasis on on creating creating business business incentives incentives resulted resulted in in harmful harmful corporate externalities affecting affecting the the environment, environment, public public health, health, and and community community vitality vitality (EPA, (EPA, 2008). 2008). Ten Ten Smart Smart Growth Growth externalities principles are are widely widely accepted accepted as as benchmarks benchmarks behavior behavior for for community communitydevelopment developmentplans. plans.Table Table 11 shows shows those those ten ten principles principles. Table Table 1: 1: Smart Smart Growth Growth Principles Principles Principle 1 Principle 2 Principle 3 Principle 4 Principle 5 Principle 6 Principle 7 Principle 8 Principle 9 Principle 10

Mixed land uses Take advantage of compact building design Create a range of housing opportunities and choices Create walkable neighborhoods Foster distinctive attractive communities with a strong sense of place Preserve open space farmland natural beauty and critical environmental areas Strengthen and direct development towards existing communities Provide a variety of transportation choices Make development decisions predictable fair and cost effective Encourage community and stakeholder collaboration in development decisions

Smart Smart Growth Growth is is based based on on relationships relationships among among key key stakeholder stakeholder groups, groups, which which can can be be either either cooperative cooperative or or opportunistic. We examine the development of two urban neighborhoods; Barrio Logan in San Diego California, opportunistic. We examine the development of two urban neighborhoods; Barrio Logan in San Diego California, and and Roxbury, in Boston, Massachusetts. Roxbury, in Boston, Massachusetts. Barrio Logan Case Barrio Logan was recognized by the Environmental Protection Agency as a redevelopment project that demonstrated Smart Growth principles (EPA, 2008). Barrio Loganâ&#x20AC;&#x2122;s largest constituencies are the residents, the U.S. Navy, and industry. The residents are primarily Latino and earn modest incomes. Barrio Loganâ&#x20AC;&#x2122;s proximity to the

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Barrio Logan Case Barrio Logan was recognized by the Environmental Protection Agency as a redevelopment project that demonstrated Smart Growth principles (EPA, 2008). Barrio Logan’s largest constituencies are the residents, the U.S. Navy, and industry. The residents are primarily Latino and earn modest incomes. Barrio Logan’s proximity to the Port of San Diego attracted the interest of the Navy. In the 1940’s U.S. Navy appropriated land to bring Port of San Diego attracted the interest of the U.S.U.S. Navy. In the 1940’s thethe U.S. Navy appropriated land to bring in in defense industries, changing Barrio Logan an industrial than residential community. TheofCity San defense industries, changing Barrio Logan to antoindustrial ratherrather than residential community. The City San of Diego Diego supported this industrialization by passing zoning allow Navyand andbusiness businesstoto develop develop supported this industrialization by passing mixedmixed zoning lawslaws thatthat allow thethe Navy residential areas. Business owners took advantage of the favorable zoning laws to build junkyards next to schools and residential areas. Business owners took advantage of the favorable zoning laws to build junkyards next to schools residences, transforming the neighborhood into an industrial rather than residential center (Delgado, 1998). and residences, transforming the neighborhood into an industrial rather than residential center (Delgado, 1998). Influenced by by the the Civil Civil Rights workers movements, movements, Barrio Barrio Logan Logan residents residents organized organized to to lobby lobby Influenced Rights and and agricultural agricultural workers for development plans and services to revitalize the community. The residents successfully petitioned the city of for development plans and services to revitalize the community. The residents successfully petitioned the city of San San Diego to build a park under the Coronado Bay Bridge. This was the first time that residents had fought for Diego to build a park under the Coronado Bay Bridge. This was the first time that residents had fought for something and and won to to thethe creation of something won (Barrio (Barrio Logan Logan in in San San Diego, Diego,2000). 2000).However, However,subsequent subsequentevents eventseventually eventuallyledled creation cooperative relationships among Barrio Logan’s stakeholder groups. of cooperative relationships among Barrio Logan’s stakeholder groups. In 1968 1968 the an In the City City of of San San Diego Diego enters enters the the Model Model Cities Cities Program. Program. Entering Entering the the program, program, the the city city performed performed an extensive study study of of Barrio Barrio Logan. Logan. Barrio Barrio Logan Logan was was designated designated as as aa redevelopment redevelopment area area and and the the residents residents were were extensive formally recognized recognized by by the the city city government government as as aa stakeholder stakeholder group. group. In In 1974 1974 the formally the City City recognized recognized the the Community Community Planning Association comprised of Barrio Logan property owners, businesses, small industry, and large industry Planning Association comprised of Barrio Logan property owners, businesses, small industry, and large industry stakeholders. This This association association contracted contracted consultants consultants who who provided provided recommendations recommendations for for the the redevelopment redevelopment of of stakeholders. Barrio Logan. This plan was an important first step in the development of a cooperative stakeholder network. For the Barrio Logan. This plan was an important first step in the development of a cooperative stakeholder network. For firstfirst timetime a plan including input from all all keykey stakeholders was proposed forfor implementation. The plan the a plan including input from stakeholders was proposed implementation. The planarticulated articulateda healing asetsetofofguiding guidingprinciples principlesthat thatthe thekey keystakeholders stakeholderscontributed contributed to to developing. developing. This This went went aa long long way way toward toward healing hard feelings, feelings, and and developing developing trust resulting in in the the current current realization realization of of the the Smart Smart Growth Growth principle principle of of stakeholder stakeholder hard trust resulting inclusion. Consequently, Consequently, we we use Barrio Logan’s Logan’s approach the cooperative cooperative stakeholder stakeholder inclusion. use Barrio approach to to development development to to illustrate illustrate the network. Table Table 22 defines defines the the key key actors actors represented represented by by the the nodes nodes in in the the network. network. network. Table Network Table 2: 2: Key Key Actors Actors in in the the Barrio Barrio Logan Logan Stakeholder Stakeholder Network Actor Residential Property Owners Residential Tenants Non-Residential Property Owners Business Owners/Representatives Industrial Owners Environmental Representative Community Representative Arts Representative Project Area Committee Representative Housing Representative San Diego Unified School District San Diego Unified Port District Center City Development Corp United States Navy Southeaster San Diego Planning Committee San Diego Association of Governments/Metropolitan Transit Development Board California Department of Transportation San Diego Community College District

Corresponding abbreviation Homeowners North of Evans, South of Evans Property Owner Business Industry Environmental Rep Community Rep Arts Rep Project Area Rep Housing Rep School Port Developer Navy City Planner Sandag MTDB Caltrans Community College

Roxbury Case

Roxbury At firstCase glance, it would appear that Smart Growth development projects would favor a cooperative stakeholder network. Jennings’ (2004) case study of the Roxbury Master Plan shows that adherence to Smart Growth principles At first glance, it wouldofappear that Smart Growth development would favor a cooperative stakeholder emphasizing participation all stakeholder groups is not always partprojects of Smart Growth initiatives: “Another reason network. Jennings’ (2004)Plan caseisstudy of theinRoxbury Plandevelopment shows that adherence to Smart that the Roxbury Master important the fieldMaster of urban is that it serves as aGrowth lens byprinciples which to emphasizing participation of all stakeholder groups is not always of Smart initiatives: reason critique planning theories that call for community participation butpart ignore socialGrowth and class obstacles“Another to participatory that the Roxbury PlanIn is fact important the field urban development is athat it serves as a lens bystructured which to democracy at the Master local level. Smart in Growth andofNew Urbanism can be cover for perpetuating critique planning that(Jennings, call for community inequalities at the theories local level” 2004: 14).participation but ignore social and class obstacles to participatory democracy level. In fact Smart Growth and New can beblack a cover for perpetuating structured Roxburyatisthe onelocal of seventeen neighborhoods in Boston. It isUrbanism predominantly neighborhood located in close inequalitiestoatdowntown the local level” (Jennings, 2004:by 14).a high concentration of poverty. The neighborhood reports the proximity and is characterized highest proportion of families living on public assistance in Massachusetts. This is in stark contrast to redevelopment efforts that focus on building luxury homes to attract high income professionals, escalating property taxes that push current lower income residents out of their homes (Jennings, 2004). Small businesses in the 179 neighborhood also struggle, as they are less able to afford higher leases for their retail/work space. As in the case of Barrio Logan, the residents of Roxbury had little political influence as they are poorly represented among elected

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Roxbury is one of seventeen neighborhoods in Boston. It is predominantly black neighborhood located in close proximity to downtown and is characterized by a high concentration of poverty. The neighborhood reports the highest proportion of families living on public assistance in Massachusetts. This is in stark contrast to redevelopment efforts that focus on building luxury homes to attract high income professionals, escalating property taxes that push current lower income residents out of their homes (Jennings, 2004). Small businesses in the neighborhood also struggle, as they are less able to afford higher leases for their retail/work space. As in the case of Barrio Logan, the residents of Roxbury had little political influence as they are poorly represented among elected officials in proportion to their population Barrio Logan, the residents of Roxbury organized and lobbied for participation in officials in (Jennings, proportion 2004). to theirLike population (Jennings, 2004). Like Barrio Logan, the residents of Roxbury organized the process for the redevelopment of Roxbury. Unlike Logan, recognition of Roxbury residents as a and planning lobbied for participation in the planning process for the Barrio redevelopment of Roxbury. Unlike Barrio Logan, stakeholder involuntary as a result constituency of contractualisobligations. Roxbury development process recognition constituency of Roxbury isresidents as aand stakeholder involuntaryThe and as a result of contractual is characterized by distrust and limited participation by key stakeholders (Jennings, 2004). Stakeholder relationships obligations. The Roxbury development process is characterized by distrust and limited participation by key are managed (Jennings, by rules and layersStakeholder of oversightrelationships (Roxbury Strategic Master Thus,oftheoversight Roxbury(Roxbury planning stakeholders 2004). are managed byPlan, rules2008). and layers process an illustrative an instrumental/or opportunistic network. Table defines the key actors by the Strategicas Master Plan, of 2008). Thus, the Roxbury planning process as3 an illustrative of an embodied instrumental/or nodes in the network shown in Figure opportunistic network.(as Table 3 defines the1). key actors embodied by the nodes in the network (as shown in Figure 1). Table Network Table 3: 3: Key Key Actors Actors in in the the Roxbury Roxbury Stakeholder Stakeholder Network Actors Boston Redevelopment Authority Mayor Oversite Committee Project Review Committee Roxbury Neighborhood Council Merchant Association Tenant Organizations Religious Organizations Human Service Organizations Neighborhood Organizations Corporations

Corresponding abbreviation Boston Redevelopment Authority Mayor Oversite Committee Project Review Committee Roxbury Neighborhood Council Merchants Tenants Religious Organizations Human Services Neighborhood Organizations Corporations

Network Actor Qualities Network Actor Qualities We propose that variation on two network actor qualities describe the members of cooperative and opportunistic stakeholder networks. First, legitimacy motivates stakeholders to forge and maintain relationships with other We propose that variation on two network actor qualities describe the members of cooperative and members of a stakeholder network. Second, reputation is perceptual and is attributed to organizations the opportunistic stakeholder networks. First, legitimacy motivates stakeholders to forge and maintain relationships with stakeholders interact with. Legitimacy and reputation are important because they encourage relationships to develop other members of a stakeholder network. Second, reputation is perceptual and is attributed to organizations the and endure among network actors. stakeholders interact with. Legitimacy and reputation are important because they encourage relationships to develop Legitimacy: Legitimacy is an important consideration in any relationship between organizations and and endure among network actors. stakeholders. Maurer (1971:361) defined legitimacy as “the process whereby an organization justifies to a peer or Legitimacy: Legitimacy is an important consideration in any relationship between organizations and stakeholders. superordinate system its right to exist.” Legitimacy is essential to an organization’s survival because stakeholders Maurer (1971:361) defined legitimacy as “the process whereby an organization justifies to a peer or superordinate are most likely to supply resources to organizations, whose values are congruent with their own (Parsons, 1960) or system its right to exist.” Legitimacy is essential to an organization’s survival because stakeholders are most likely which fulfill an important instrumental need (Pfeffer & Salancik, 1978). to supply resources to organizations, whose values are congruent with their own (Parsons, 1960) or which fulfill an Suchman, (1995) distinguishes between two types of organizational legitimacy; institutional and strategic. important instrumental need (Pfeffer & Salancik, 1978). Institutional legitimacy is a set of constitutive beliefs, cultural definitions that determine how the organization will Suchman, (1995) distinguishes between two types of organizational legitimacy; institutional and strategic. act. Institutional legitimacy is an essential component of the cooperative network. This form of legitimacy helps to Institutional legitimacy is a set of constitutive beliefs, cultural definitions that determine how the organization will assure the participating stakeholders that the cooperative network has an existence that extends beyond the act. Institutional legitimacy is an essential component of the cooperative network. This form of legitimacy helps to attainment of any particular task. Strategic legitimacy is accomplished partly through the organization’s espousing assure the participating stakeholders that the cooperative network has an existence that extends beyond the attainment goals that are consistent with guiding principles and partly through its own value system (Pfeffer & Salancik, 1978). of any particular task. Strategic legitimacy is accomplished partly through the organization’s espousing goals that Strategic legitimacy is externally focused as an operating resource to attain some desired outcome. In this respect, are consistent with guiding principles and partly its oppositional. own value system & Salancik, 1978). Strategic strategic legitimacy is purposive, calculated and through frequently In this(Pfeffer light, value similarity between the legitimacy is externally focused as an operating resource to attain some desired outcome. In this respect, strategic focal organization and stakeholders is not very important because the relationships are inherently low-trust and legitimacy is purposive, calculated and frequently oppositional. In monitoring this light, and value the focal remote. Accordingly, parties protect their interests through contracts, thesimilarity pursuit ofbetween legal remedies. organization and stakeholders is not very important because the relationships are inherently low-trust and remote. Considering Barrio Logan, the value congruency necessary for institutional legitimacy is established through Accordingly, parties protect their interests through contracts, monitoring and the pursuit of legal remedies. several mechanisms. Firstly, common values for the Barrio Logan project emanated through the 1968 Model Cities Considering Barrio the value necessary forGeneral institutional legitimacy established through Program which over the Logan, years evolved intocongruency the City of San Diego’s Plan. While everyisneighborhood has the several mechanisms. Firstly, common values for the Barrio Logan project emanated through the 1968 Model every Cities flexibility to identify and define a development plan to address the unique concerns of each neighborhood, Program which over the years evolved into the City of San Diego’s General Plan. While every neighborhood has the neighborhood development project in San Diego is guided by the Strategic Framework Core Values defined in San flexibility to identify and define a development plan to address the unique concerns of each neighborhood, every Diego’s general plan. Secondly, state law requires that all cities in California adopt a general plan to guide its future neighborhood development in San Diego guided by the Strategic Framework Corestrengthened Values defined in development. Finally, value project congruency among keyis stakeholders in Barrio Logan was further by the establishment of a Community Planning Association in 1974. The Community Planning Association who created the development plan for Barrio Logan represents a broad cross section of residents and businesses in Barrio Logan. These stakeholders commissioned studies that were used to inform the development plan adopted in 1978. 180 Consequently, the key stakeholder groups were involved in defining the goals and principles associated with the current plan. Key stakeholders in Barrio Logan community planning network perceive that key stakeholders have the same goals and principles.

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San Diego’s general plan. Secondly, state law requires that all cities in California adopt a general plan to guide its future development. Finally, value congruency among key stakeholders in Barrio Logan was further strengthened by the establishment of a Community Planning Association in 1974. The Community Planning Association who created the development plan for Barrio Logan represents a broad cross section of residents and businesses in Barrio Logan. These stakeholders commissioned studies that were used to inform the development plan adopted in 1978. Consequently, the key stakeholder groups were involved in defining the goals and principles associated with the current plan. Key stakeholders in Barrio Logan community planning network perceive that key stakeholders have the same goals and principles. The key stakeholders in the Roxbury network are united by common strategic goals, to redevelop the neighborhood providing housing and business opportunities. However, the criteria for success among key stakeholders varied significantly. Based on past history, the residents of Roxbury believed that city government and large business interests desired to displace them to acquire cheap land proximally located to downtown. The city government and large businesses worked together to create policies that addressed their interests to the exclusion of residents. Mixed zoning laws encouraged apartment conversions to condominiums and construction of expensive homes. The residents of Roxbury were interested in redevelopment; however, they wanted plans that emphasized affordable housing, building public schools, improved transportation, and economic development. This is an example of stakeholders having the same strategic goal, redevelopment, but different interpretations and values regarding its attainment. Proposition 1: Actors in cooperative networks will tend to exhibit institutional forms of legitimacy to other actors in their stakeholder network while actors in instrumental networks will tend to exhibit strategic forms of legitimacy to other actors in their stakeholder network. Reputation: Reputation is not an attribute, but a perception of the focal organization by other stakeholders in the network. Reputation is derived from information accessed through other relationships. Reputation is defined as the summation of other actor’s perceptions and beliefs about the characteristics and behaviors of the focal organization (Knoke, 1998). Reputation is theoretically important to a stakeholder network because it provides information about a potential stakeholder partner in lieu of actual past experience with that organization. On an organizational level, reputation enhances the goodwill of other organizations toward the focal organization in rough times. Larsen (1992) observed the willingness of other organizations to assist a business whose property was destroyed by fire. The business’ reputation assured the assisting organizations it would not be opportunistic, and would someday be in a position to reciprocate the favor. Without past experience to go on, organizations in this network used reputation to predict risk associated with assisting the ailing focal organization. Reputation has multiple dimensions. According to Knoke (1998) reputation can be thought of in terms of influence, the extent to which the actor is perceived as having the ability to get things done or to shape outcomes. Reputation can also be conceptualized as the degree of ethical behavior exhibited by the organization during interaction with others in the network. Thus, reputation is a surrogate for quality control. In terms of evaluating prospects for new membership, reputation is an effective screen for inappropriate members. For actors within Barrio Logan and Roxbury stakeholder networks, past experience and sullied reputations were obstacles to overcome. Actors in the Barrio Logan stakeholder network came to an understanding that cooperation was to everyone’s benefit. When it was accepted that the exclusion and mistreatment of key stakeholders resulted in failed redevelopment, it led to a revised governance which was transparent, representative, and inclusive (Barrio Logan Harbor 101: Community Plan, 1978). This is not meant to imply a utopia. Disagreement regarding priorities and implementation still existed. However, unlike before, the disagreements were acknowledged and documented even if they are not acted on, maintaining the voice and contribution of all stakeholders. These norms enhance good reputations of actors in this network. Instead of repairing reputations, actors in the Roxbury stakeholder network accepted poor reputations as an unavoidable reality. Interactions among actors in this stakeholder network were mediated by rules and procedures to keep other actors at arm’s length so that unethical treatment persisted. Past injuries and injustices were not reconciled. Instead, stakeholders remained vigilant, informed by the reputations of other stakeholder network actors. Proposition 2: Actors in cooperative networks will tend to attribute good reputations to other actors in their stakeholder network while actors in instrumental networks will tend to attribute poor reputations to other actors in their stakeholder network. Relationships Among Network Actors Cooperative and instrumental stakeholder networks vary in trust and power relationships. Relationships among stakeholder network members will influence the manner in which any single organization functions in the network. The nature of the relationships influences the frequency and the quality of interactions between actors in a stakeholder network.

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Trust: Organizations must be careful to avoid relationships that will leave it vulnerable to opportunistic behavior. Trust determines how stakeholder network members will respond to mitigate the risk involved in exposing vulnerabilities in the process of interacting with other stakeholder network members. We enter this discussion by acknowledging that the definition and conceptualization of the trust construct has been an elusive task (Gill, Boies, Finegan, & McNally, 2005; Mayer, Davis, & Schoorman, 1995). Therefore, we begin the examination of the influence of trust relationships in cooperative and instrumental stakeholder networks by defining the trust concept and identifying the components of trust that are relevant to our model. In our model, we use Mayer et al. (1995:712) definition of trust as: “…the willingness of a party to be vulnerable to another party based on the expectation that the other will perform a particular action important to the trustor irrespective of the ability to monitor or control the other party.” This definition allows us to focus on the relational aspects of trust separate from the concept as a qualitative attribution. Accordingly the attributes of ability, benevolence, and integrity increase the likelihood of trust. However Mayer and his colleagues very clearly point out that these attributes do not constitute trust. The behavioral manifestation of trust is the assumption of risk. Factors that promote trust facilitate the behavioral manifestation of trust realized in risk-taking behavior. In situations characterized by trust, there is a high level of confidence that the other party involved will behave in a cooperative manner. The assumption of risk is easier in this situation. Conversely, in situations characterized by distrust, there is a high level of confidence that the other party will behave opportunistically, exploiting vulnerabilities to one’s disadvantage (Lewicki, McAllister, & Bies, 1998). Trust provides the glue that holds relationships together in cooperative stakeholder networks. High levels of trust are demonstrated by stakeholder network members making themselves vulnerable to other members. This results in an absence of contracts and other monitoring processes. In instrumental stakeholder networks, low levels of trust necessitate interactions that function with the use of contracts and monitoring. Comparing and contrasting the governance structure of the Barrio Logan and the Roxbury stakeholder networks illustrates the impact of trust on relationships among stakeholder actors. Barrio Logan’s Community Plan is governed by a Stakeholder Committee. The stakeholder committee consists of 25 voting members and eight non-voting members representing five stakeholder groups. The 25 voting members are chosen by a popular vote. Everyone eligible to vote is eligible to run for a seat on the stakeholder committee. The eight non-voting members are appointed to the committee by their organization. Leadership and representation is accessible to all stakeholders involved in Barrio Logan. The process is simple, easy to understand, and few rules. The high level of trust that this process of popular vote indicates is represented by lines linking every actor of the Barrio Logan stakeholder network to each other in Figure 1. There are risks involved with this approach to governance. If there is an imbalance of power, or unethical behavior, the integrity of the popular vote could be compromised. This could result in electing committee members that represent the interest of other stakeholder groups to the detriment of others. In order for this process to work, actors in the network have to be willing to take a risk and a leap of faith trusting that other actors will support the process, participating in good faith and acting with integrity. Alternatively, stakeholder networks that are characterized by low levels of trust require formalized processes and oversight structures to facilitate actor’s willingness to interact with others in the network. Roxbury’s governance structure and selection of representatives is more complex than Barrio Logan’s. Residents of Roxbury are less willing to be vulnerable to other stakeholders in their network. Many community residents, however, believed that while lofty, the ideal planning concepts did not answer ipso facto, two basic questions facing Roxbury residents: Who would benefit? And who would control decision making regarding the application of these ideas.

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Alternatively, stakeholder networks that are characterized by low levels of trust require formalized processes and oversight structures to facilitate actor’s willingness to interact with others in the network. Roxbury’s governance structure and selection of representatives is more complex than Barrio Logan’s. Residents of Roxbury are less Advanceshowever, in Business Research Hill and to Frankforter willing be vulnerable to other stakeholders in their network. Many community residents, believed that 2010, Vol. 1, No. 1, 176-187 while lofty, the ideal planning concepts did not answer ipso facto, two basic questions facing Roxbury residents: Who would benefit? And who would control decision making regarding the application of these ideas. Figure Figure 3: 3: Formation Formation Process Process for for Roxbury Roxbury Master Master Plan Plan Oversight Oversight Committee Committee Group 1 Tenant Organizations Merchant Associations Neighborhood Associations Religious Organizations Human Service Organizations Community Development Corporations Corporate

Group 2 Community at large and other stakeholders

At least 2 nominations from each category

Unlimited Nominations

Roxbury Neighborhood Council (RNC) & Elected Officials At least 30 Nominations Mayor Appoints 15 Members and Chair Roxbury Strategic Plan Oversight Committee From The Roxbury Strategic Master Plan: Building a 21st Century Community

Instead of a popular vote, various groups are asked to nominate candidates. These candidates are then screened by the neighborhood council. The neighborhood council advances 30 or more nominations to the mayor. The mayor appoints 15 members and a chair. From individual to committee there are three degrees of separation. In the Barrio Logan process, members of the community vote for representatives on the stakeholder committee directly. According to Jennings (2004) the protocol for this process was hard fought. The mayor and local government were accustomed to appointing their candidates to leadership positions in the planning process. A formalized structure like the one described was an attempt to ensure that the composition of the oversight committee represented the broadest crosssection of affected stakeholders as much as possible. High levels of distrust among actors in the Roxbury stakeholder network made these procedures necessary to ensure cooperation. The lines drawn among actors in Figure 2 represent both trust and power relationships. The position of the actors is important to note here. While in the Barrio Logan network actors are drawn in a circle and are connected to each other, in the Roxbury stakeholder network, the proximity of actors to each other indicate the level of trust and the relative power of the organizations. The pockets of trust are indicated by the pockets of actors on opposing sides of the network. The voting procedures seem to indicate that members of groups1 and 2 would be inclined to trust each other and trust the oversight committee, the project review committee and the RNC. On the other hand the Boston Redevelopment Authority, Corporations, and the local government through the mayor’s office would trust each other and the Oversight Committee, the Project Review committee and the RNC. Trust is essential for stakeholders to maintain their position in a cooperative network. Absent trust, stakeholder cooperation in any context will be short-lived and transitory. Trust connects actors together in a cooperative network, while resource dependence is essential to the instrumental network. Proposition 3: High levels of trust will tend to be exhibited in cooperative stakeholder networks and low trust will tend to be exhibited in instrumental stakeholder networks. Power: Podolny & Page (1998) suggest that the primary reason organizations must enter into alliances is to acquire access to a resource that is essential to its success. Based on resource dependence theory (Pfeffer & Salancik, 1978), power in the context of the stakeholder network is determined by the extent to which an actor controls a resource that other actors’ desire or need. Powerful stakeholders can set the terms of the relationship with other stakeholders. They are able to define agendas and set priorities to address their needs and concerns. Traditional approaches to economic and community growth emerged from networks where power is concentrated or centralized among a few stakeholders. These approaches to economic development focused on the concerns of large business and industrial stakeholders to control labor costs, provide tax breaks and subsidies and to de-regulate. Local governments in doing so act on a belief that the large and industrial business sector possesses the resources (job creation, tax revenue, investment) that make urban centers thrive (Jennings, 2004). Despite governance processes that seek to be inclusive, power in Roxbury’s stakeholder network is still concentrated in the local government who gets to make the final selection of members to serve on the oversight committee. Power concentration is characteristic of an instrumental stakeholder network.

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The Smart Growth paradigm seeks to diffuse power among network actors. Planners for the Barrio Logan Project recognized that centralization of decision making to the exclusion of other stakeholder groups resulted in failed attempts at redevelopment. In the community plan, planners state that the concentration of decision making to a few key stakeholders resulted in â&#x20AC;&#x153;â&#x20AC;Śa lack of coordination between key government agencies that often work at crosspurposes, ignoring everything outside of their territorial limitsâ&#x20AC;? (Barrio Logan Harbor 101: Community Plan, 1978: 9). Past failures motivated the decentralization of power in two significant ways. The first: an attempt would be made to give voice to all affected stakeholder groups in planning decisions. The second: representation on the stakeholder committee represented the proportion of that constituency in Barrio Logan. For example, Barrio Logan residents had the most voting members on the Stakeholder Committee followed by Non-Profits and Community Organizations, and Business and Industry, with Non-Resident Property Owners having the fewest votes (Barrio Logan Community Plan Update, 2009). In this manner, the influence in decisions was not primarily decided by the amount of material resources that a stakeholder could bring to the table. The decentralization of power in the Barrio Logan Stakeholder network is represented by the circular structure of the network and the bi-directional lines emanating from each node to the other. In the Roxbury Network, power is centralized in the oversight committee, project review committee and the Roxbury Neighborhood Council. This is demonstrated by the position of these actors relative to the others. These actors are a bridge from the community stakeholder groups to the government and corporate stakeholder groups. In this capacity the oversight committee, project review committee and the RNC have influence on all of the network actors as a clearinghouse for ideas, final decisions, and implementation of strategy. Proposition 4: Power tends to be decentralized in cooperative stakeholder networks, and centralized in instrumental stakeholder networks. Structure of Network Relationships We propose that the intensity of the relationships among network actors influence behaviors of organizations embedded in the network. Intensity of relationship among network actors is a product of the number of relationships between dyads of actors and the degree to which actors in the network interact with each other. Multiplexity occurs when actors have two or more relationships with other network actors. There may be more than economic reasons for a firm to enter a partnership. The more types of relationships actors are involved in, the higher the cost of behaving unethically (Brass, Butterfield, & Skaggs, 1998). Furthermore, having multiple relationships reinforces the strength of ties among other stakeholder partners (Husted, 1994). Multiplexity: Actors in the Barrio Logan stakeholder network interact with each for reasons other than the realization of the redevelopment plan. Business owners interact with residents as customers and employees as well as members of the planning committee. Non-profit organizations interact with businesses as patrons and clients as well as members of the planning committee. Multiple relationships with stakeholder actors increases the importance of that relationship, as harm to the relationship in one context - the planning project - could harm the relationship in other contexts, as customers, employees, or clients. The increased complexity of the relationships discourages unethical treatment of other network actors. According to Jennings (2004) a point of contention was the one dimensional quality of relationships among actors in the Roxbury stakeholder network. For example, residents complained that the city provided incentives to encourage large businesses to move in that did not offer jobs that residents could compete for with their current level of education and skills. As a result large business stakeholders saw the relationship with residents as a means (or possibly, obstacle) to their development ends instead of as a rich interaction that provided a context for multiple relationships. Lack of interest on the part of large business was noted by their absence in community and neighborhood meetings (Jennings, 2004). Real estate developers pushed projects for housing that current residents could not afford and commercial projects that would push leases to rents that current small business owners could not afford. In this manner Roxbury relationships with Roxbury residents and small business owners were only sought as it related to redevelopment. Proposition 5: Relationships in cooperative networks are more likely to be multi-dimensional than relationships in instrumental networks. Density: Density is a social network measure that identifies the degree to which members of a network interact with each other. A dense network is characterized by strong ties among all its members. A network is dense to the degree that all actors have relationships with each other. A network is sparse if actors are not well connected with each other. High levels of interconnectedness among stakeholder partners reduce the need for costly legal forms of network governance. Instead the high level of density in the stakeholder network creates a macro-culture where stakeholder partners have similar values, norms, and thus experience a relationship characterized by high levels of trust (Jones, Hesterly, & Borgatti, 1997). Density increases the level of trust as knowledge of other stakeholder partners which comes through interactions with them, increases the amount of information, and reduces the amount

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of ambiguity regarding the stakeholder partner’s behavior (Burt & Knez, 1995). Unethical behavior is most likely to occur where relationships are absent among members (Brass et al., 1998). Density ensures monitoring because members are passively informed about the activity of other members through their routine interactions. In the event of unethical behavior on the part of a member, other members quickly learn about the breach because of frequent interactions. Dense networks produce strong constraints on the focal organization’s actions because as linkages multiply, communication cross the network becomes more efficient (Rowley, 1997). A consequence of this is the transfer of fine-grained information. As a result, the need for overt monitoring to ensure compliance with agreed-upon actions ebbs away. While information about stakeholder partners is increased through higher density, high levels of interconnectedness also present problems for the flow and accuracy of information among stakeholder partners. Burt & Knez (1995) contend that information about a network member is attenuated by the other members of the network. That is, a stakeholder’s perception of another stakeholder partner is influenced by the perception of other stakeholder network members. Gossip positively or negatively influences the assessment of a stakeholder network member. High levels of density make the behavior of stakeholder partners more transparent, making it more difficult to conceal unethical behavior. Unethical behavior in a dense network leads to strict sanctions, loss of legitimacy among other stakeholder network members, and even expulsion from the network. Density is important in the stakeholder network because it provides information about the behavior of partnered stakeholders, decreasing the probability of opportunistic behavior. In dense structures, norms are diffused across the network (Meyer & Rowan, 1977; Oliver, 1991). Density increases constraints. It also makes it difficult for organizations to conceal information. Increasing density leads to an increase in the number of inter-organizational linkages, leading to greater communication efficiency. Proposition 6: Cooperative stakeholder networks are characterized by high density of relationships among actors, instrumental stakeholder networks are characterized by low density of relationships among actors. CONCLUSIONS Current conceptualizations of managing relationships among stakeholders do not fully integrate theoretical insights regarding the importance of social context in driving socially responsible behavior. An application of network theory to the stakeholder model advances current thinking by providing a dynamic framework explaining factors that contribute to how organization’s define a strategy to attending to stakeholder needs. This application of network theory to the stakeholder model incorporates insight from the rich body of research conducted in both literatures. Building from this rich tradition, we have provided a framework that describes the process of forging and maintaining relationships that influence whether or not stakeholders will work together to meet their individual needs. The stakeholder network addresses theoretical issues of how stakeholder partners are identified, what relationships actors engage in and how the structure of those relationships influences the strategies that are used to address stakeholder concerns as well as the likelihood that stakeholder partners will behave opportunistically. Cooperative networks enjoy added efficiency and effectiveness. Jones (1995) argues that long-term relationships with stakeholders will outperform competitive arrangements. The examples of urban redevelopment projects presented in this paper demonstrate that mutual adjustment occurs as stakeholders develop complex multidimensional relationships that encourage balance of power, trust, value congruency, and frequent interactions. Our model attempts to describe how organization’s behavior is shaped under conditions of cooperation in the cooperative stakeholder network and opportunism in instrumental stakeholder networks. Additionally, it examines the impacts of stakeholder attributes, relationships and network structure simultaneously. The primary limitation of this model is that it is limited to description of boundary conditions, networks that are primarily cooperative and those that are primarily instrumental. Many networks will be hybrids exhibiting elements of both. Within a network that is primarily instrumental, there may be pockets of cooperation among actors who trust each other, are equal in power, share principles, regard each other well, and interact with each other frequently. Conversely within cooperative networks there may be pockets of opportunism among actors who don’t trust each other, unequal in power, don’t share or acknowledge principles, think poorly of each other and interact with each other infrequently. Our model is less helpful in describing how organizations behave under these conditions. We suggest four areas for future research. First, to test the propositions proposed in this paper, a case study of two urban development projects should be used to illustrate the propositions proposed here. An empirical test of the propositions would yield more insight. Second, to continue to advance stakeholder typologies that offer predictive value. Third, to continue the development of models that further refines an analysis of relationships between corporation and stakeholders. And last, to undertake the ambitious task of formulating a workable stakeholder theory of the firm.

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Barrio Logan Harbor 101: Community plan. 1978. In P. Department (Ed.), City of San Diego: CA. Barrio Logan Community Plan Update: Attachment A. March, 2009. http://www.sandiego.gov/planning/ barriologanupdate/ stakeholder/pdf/stakeholderscompositionfinal.pdf Barrio Logan in San Diego. 2000. http://history.sandiego.edu/GEN/projects/178/barriologan00.htm Brass, D., Butterfield, K., & Skaggs, B. 1998. Relationships and unethical behavior: A social network perspective. Academy of Management Review, 23: 14-31. Burt, R., & Knez, M. 1995. Kinds of third-party effects on trust. Rationality and Society, 7: 255-292. Delgado, K. 1998. A Turning point: The conception and realization of Chicano Park. The Journal of San Diego History, 44: 12. Driscoll, C., & Starik, M. 2004. The primordial stakeholder: Advancing the conceptual consideration of stakeholder status for the natural environment. Journal of Business Ethics, 49: 55-73. EPA. November 19, 2008. Barrio Logan, San Diego, CA. Smart Growth Illustrated. Freeman, R. 1984. Strategic management: A stakeholder approach. Englewood Cliffs: Prentice-Hall. Gill, H., Boies, K., Finegan, J., & McNally, J. 2005. Antecedents of trust: Establishing a boundary condition for the relation between propensity to trust and intention to trust. Journal of Business and Psychology, 19: 287-302. Husted, B. 1994. Transaction costs, norms, and social networks: A preliminary study of cooperation in industrial buyer-seller relationships in the United States and Mexico. Business & Society, 33: 30-58. Jennings, J. 2004. Urban planning, community participation, and the Roxbury master plan in Boston. The Annuls of the American Academy of Political and Social Science. 594: 12-33. Jones, C., Hesterly, W., & Borgatti, S. 1997. A general theory of network governance: Exchange conditions and social mechanisms. Academy of Management Review, 22: 911-946. Jones, T. 1995. Instrumental stakeholder theory: A synthesis of ethics and economics. Academy of Management Review, 20: 404-437. Knoke, D. 1998. Who steals my purse steals trash: The structure of organizational influence reputation. Journal of Theoretical Politics, 10: 507-530. Larsen, A. 1992. Network dyads in entrepreneurial settings: A study of governance exchange relationships. Administrative Science Quarterly, 33: 345-369. Lewicki, R., McAllister, D., & Bies, R. 1998. Trust and distrust: New relationships and realities. Academy of Management Review, 23: 438-457. Markovsky, B., Willer, D., & Patton, T. 1988. Power relations in exchange networks. American Sociological Review, 53: 220-236. Maurer, J. 1971. Readings in organizational theory: Open system approaches. New York: Random House. Mayer, R., Davis, J., & Schoorman, F. 1995. An integrative model of organizational trust. Academy of Management Review, 20: 709-734. Meyer, J., & Rowan, B. 1977. Institutionalized organizations: Formal structure as myth and ceremony. American Journal of Sociology, 83: 340-363.

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Mitchell, R., Agle, B., & Wood, D. 1997. Toward a theory of stakeholder identification and salience: Defining the principle of who and what really counts. Academy of Management Review, 22: 853-886. Neville, B., & Menguc, B. 2006. Stakeholder Multiplicity: Toward an understanding of the interactions between stakeholders. Journal of Business Ethics, 66: 377-391. Oliver, C. 1991. Strategic responses to institutional processes. Academy of Management Review, 16: 145-179. Parsons, T. 1960. Structure and processes in modern societies. New York: Wiley. Pfeffer, J., & Salancik, G. 1978. The external control of organizations: A resource dependence perspective. New York: Harper & Row. Phillips, R. 1998. Normative stakeholder theory: Toward a conception of stakeholder legitimacy. Academy of Management Proceedings, D1-D6. Podolny, J., & Page, K. 1998. Network forms of organization. Annual Review of Sociology, 24: 57-77. Quinn, D., & Jones, T. 1995. An agent morality view of business policy. Academy of Management Review, 20: 22-42. Rowley, T. 1997. Moving beyond dyadic ties: A network theory of stakeholder influences. Academy of Management Review, 22: 887-910. Rowley, T., & Moldoveanu, M. 2003. When will stakeholder groups act? An interest- and identity-based model of stakeholder group mobilization. Academy of Management Review, 28: 204-219. Suchman, M. 1995. Managing legitimacy: Strategic and institutional approaches. Academy of Management Review, 20: 571-610. Uzzi, B. 1997. Social structure and competition in interfirm networks: the paradox of embeddedness. Administrative Science Quarterly, 42: 35-68. Wicks, A., Berman, S., & Jones, T. 1999. The structure of optimal trust: Moral and strategic implications. Academy of Management Review, 24: 99-116. Vanessa Hill is an assistant professor of management at the University of Louisiana, Lafayette. She holds the J.J. Burdin, M.D. & Helen B. Burdin (BORSF) professorship of professional ethics. She received her Ph.D. from Carnegie Mellon University. Her research interests include corporate social responsibility, ethical leadership, organizational culture, and workplace diversity. Steven Frankforter is a professor of management at Winthrop University. He received his PhD at the University of Washington. He has taught business policy, business & society, entrepreneurship, and accounting. His research interests are in stewardship theory, stakeholder management, mergers and acquisitions, emotional intelligence, and diversity management.

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The Age of the New Entrepreneur: The Case Study Approach to 7 Principles for Boosting PROFITS, Priorities/ROI Decision Matrix and Business Reality Change Model Rosalie Lober, Nova Southeastern University Thomas Tworoger, Nova Southeastern University J. Preston Jones, Nova Southeastern University Students apply the 7 PROFITS Principles, the Priorities/ROI Decision Matrix and the Business Reality Change Model to three business cases with various capital structures. These principles and tools guide entrepreneurs to transform their business to the next level of success and profitability by exploiting practical solutions adopted by Fortune 100 companies. Instructors introduce students to the principles and tools and then assign teams of students to work on the cases. Students play the role of the company’s entrepreneur in making long term profitable decisions and to avoid self-defeating patterns. According to the U.S. Government Small Business Office of Advocacy, there are approximately 25.8 million small business enterprises in the United States with approximately 10.6 million enterprises owned by women, 37 million baby boomers, former corporate employees, small manufacturers, service providers and future Generation X and Y entrepreneurs. In 2002, there were 22.9 million small businesses providing 75 percent of new jobs in the economy. Small business entrepreneurial endeavors represent 99.7 percent of all employers and 97 percent of all US exporters (Small Business Administration, 2006). Demands on entrepreneurs appear to be greater now than at other times in the history of business. Customers can be increasingly demanding and fickle in their changing desires, better educated and more sophisticated than previously. Global competition, decreasing product life cycles, new and innovative technology and creative strategic alliances threaten even the most established businesses. Superstores with one-stop shopping supplant quality and customer service for the harried consumer. Conquering the challenges of leadership, structuring and understanding the capital and commodity markets and dealing with ambiguity separate the winners and losers. There is a new emphasis for entrepreneurs to be change leaders who can influence and mobilize stakeholders, both in and out of their business. They adapt to changing strategies based on demands for flexibility, requirements for innovation and provisions for strategic partnering. The fittest entrepreneurs who are willing to innovate and take risks will be the survivors. Today, it appears that entrepreneurs must balance the day-to-day tactical operations with the larger strategic issues of vision and building customer relationships. Delegating responsibilities, building a leadership base and focusing on employee accountability, all very quickly, result in today’s entrepreneurial pressures. Students apply the 7 PROFITS Principles, Priorities/ROI Decision Matrix and the Business Reality Change Model (Lober, 2009) to the case studies. These principles provides entrepreneurs with a systematic approach to making solid decisions that incorporate strategy, tactics and key conclusions, ensuring the most promising opportunities and turning them into profitable ventures. Students can apply the principles, matrix and model CEOs of Q Products Inc., Aguru Images and K2M to illustrate effective use of the model. Each CEO faced different challenges and opportunities. Key Assumptions Provide Context for the Priorities/ROI Decision Matrix and Business Reality Change Model (BRCM) The authors suggest the following key assumptions for effectively using both decision-making models: •

Balance stability and change to avoid unnecessary chaos.

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Accept that your people may have difficulty moving beyond an internal focus.

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People overestimate the capabilities of their own company.

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Challenges and goals are like dynamic, living organisms.

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Learning is continuous.

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High Return on Investment

Optimize

Low

Transform PROFITS Opportunity

Keep as is Low

Priority

High

The Business Reality Change Model is an iterative process. The BRCM is a process that is non-linear and requires continuous adjustment based on new information becoming available. As new information is discovered, the information is incorporated into the already existing framework. Many times, this information will challenge hypotheses and direction for solving the problem or approaching an opportunity. By first using the ROI/Priorities Decision Matrix, the entrepreneur may first plot some of the ‘top of mind’ options and fine tune their choices using the Business Reality Change Model. Clarity and focus, the hallmark of both the graph and the model will enable the new entrepreneur to make wiser, targeted and faster decisions with an emphasis on growth and profitability in their markets. This matrix helps one move beyond the first instincts and guides to the most pressing problem or greatest opportunity. Not all problems require the same investment of time and money. For example, a product line may be losing market share. Should you invest more money in this product or leave it ‘as is’, or even liquidate the product to use the money elsewhere? The answer depends on what else is happening in the business. Another product may be selling well, generating high margins and projecting a continuous high revenue stream for the next few years. Further investment in the successful product may be a better alternative than adding money to a declining product. ROI/Priorities Decision Matrix The ROI/Priorities Decision Matrix keeps the focus: Invest in transforming changes to the business that are both high priority and provide a high return on investments. As a result of the ROI/Priorities Decision Matrix, the new entrepreneur, striving to boost business to its maximum profit potential will become focused on the intersection of what is most profitable for the customer and what is most profitable for their business. The decision matrix systematically identifies strategic opportunities for taking action. Some of these opportunities are: Do nothing and keep as is, hire a consulting company to do the work, hire more staff, add missing capability (buy or develop it), obtain financing, merge with another company, acquire another company, outsource the function needed, sell the company and form strategic alliances with other companies. There is less risk for a business when it has systematically evaluated its priorities and the probable returns on investment with the ROI/Priorities Decision Matrix. The axes of the matrix are Priorities and Return on Investment. Priorities Priorities options (investment options) must lead to creation of customer value. The questions to ask when plotting the priorities axis are: • •

How will this change benefit the customer? How does the entrepreneur know this?

The priorities selected may result in a strategic change in direction or operational actions resulting in more efficient processes that produce greater margins and/or pricing adjustments. Return on Investment The project actions plotted on this axis may result in financial, people, time and other return on investments. The four quadrants of the matrix represent options for actions to take right now. Prior to taking action, the BRCM is recommended (see below). The quadrants of the matrix provide information for return on investment (high or low) and priority (high or low) for each possible option and subsequent actions. The four quadrants are:

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•

Keep As Is. A business is running well with no pressing problems may choose to remain at the current level of profitability and not make changes to grow the business. If assigned to this quadrant, it may be wise to challenge if the business is becoming complacent. Are opportunities missed to create greater customer value? The key learning is not to drift into the “Keep As Is” mode of operating.

•

Optimize. When profitability is the result of efficient and effective operations, then return on investment is high and there is low priority to change at this time. The message of this quadrant is to ‘keep your eye on the ball’ and manage the current situation well. Optimize actions by ensuring continuous efficiency and improvement. Keep abreast of market trends and changes to avoid complacency and have a clear frame of reference and time frame.

•

Act Quickly. Within this quadrant, a business faces immediate threat from within or from outside market forces. If a business misses the opportunity to act quickly, it may never recoup revenue or market share lost to the threat. Threats can be new entrants or competitors that emerge in the market with a superior solution or unanticipated expenses that may reduce the funds available to address the threat. Threats may include a key employee may leave, sales may fall, misreading the market or unexpected customer market changes may occur. There may also be changes in government regulations to address. Though the return on investment for changes required to meet any of these threats may be low, failure to change may result in a big loss. It is important to stay aware.

•

Transform. A solution in this quadrant requires a dramatic strategic shift. Return on investment is high when the solution is effective. Action is a high priority because to remain a key player in the marketplace, there must be change. Balancing risks is essential. A business must have the core capabilities for changing right now. If not, the transformation may be too disruptive for employees. There may not be sufficient funding commitments either. However, with this matrix, the entrepreneur knows that a dramatic shift is important for the company’s future. This matrix becomes the roadmap for a company to take the actions required to ‘get prepared’ and position the company for the transformation as quickly as possible.

Circumstances can change quickly. Focusing on one quadrant can affect another quadrant and the marketplace can shift in a matter of weeks or months. The decision-matrix exercise is best utilized every three months. Criteria for business priorities and return on investment may also change over time. Business Reality Change Model The Business Change Reality Model consists of three essential phases that underscore the critical thinking required for excelling at problem solving and decision-making. Though there are similarities to other models, the Business Change Reality Model is unique in its emphasis on linkage, alignment and integration of every phase. The phases are the following: PROFITS Principles Analysis – What is happening and why? What are the conclusions of the analysis? The analysis requires at least one key objective, which addresses the question, what are the expected outcomes? As with most well designed plans, at least one strategy is developed. How should the objective be met and what approach is taken? Every good strategy calls for a plan. What are the details for the plan? The next phase is executing the plan. What actions make it happen? Monitoring progress and critical measures assess and evaluate success. What milestones are important as the analysis and project move forward? What selection of measurement criteria lead to successful results? LITERATURE REVIEW Though businesses continuously evolve, the current demand for entrepreneurs to radically adapt occurred when the dot-com bubble burst. With new precedence, the ability to speedily synthesize surplus information and to arrive at mission critical decisions intelligently became criteria for success or failure. Global connectivity became a commodity. The tipping point (Gladwell, 2002) for this world-wide connectivity arrived with the superabundance of global fiber optic cable networks. A computer and capability to connect to the internet gave equal access to information quickly and easily for all across the globe. Additionally, the ‘free agent generation’ coined in the late 1990’s (Pink, 1998) chronicles a multitude of people,

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many previously employed in traditional work settings who now look for work that is profitable, feasible and structured with variety and alternative work arrangements. Today, opportunities abound for those who want to expand businesses into the emerging markets, for those with mental and physical challenges that public workplaces may view as a liability and for those who start businesses with extremely limited resources. Businesses can outsource just about anything. Big companies can act small and small companies can act big. However, there is a downside to so many choices. “We have to sort out what to keep, what to discard, what to adapt, what to adopt, where to redouble our efforts and where to intensify our focus” (Friedman, 2006). The implication is that unless we do this well and fast, we will fall behind. With more options coupled with the need for fast decision making, it is difficult to catch up once you fall behind. Most businesses are moving as fast as they can to merely keep up and for many, there may be trouble ahead. The ability to take bold action with urgency, while maintaining strategic flexibility within a realistic context has never been more important. Results of studies emphasize that entrepreneurs are motivated by independence and intrinsic factors. These include creating a job for themselves, increasing their income opportunities, being one’s own boss, controlling one’s own destiny, growing and achieving (Bowen, 2009) along with defining and living a commitment to a high standard of excellence (Fahed-Sreih, 2009). The process of entrepreneurship today has been defined as managerial behavior that consistently exploits opportunities to deliver results that seem to be beyond one’s own capabilities. Today’s entrepreneur is a change leader spearheading progressive strategies to capitalize on competitive advantages fueled by innovation, technology and the emergence of the global marketplace (Charan, 2008). There are several studies on business failures that provide lessons for entrepreneurs to learn about opportunities missed of less fortunate colleagues. Some of the pitfalls cited are denying reality and not recession proofing their business (Berson, 2009). Entrepreneurs tend to be optimistic and action oriented, many times denying warning signals. Entrepreneurs are individuals that sometimes are overly optimistic with unrealistic “desired expectations” (Carland, 1996; Massa & Testa, 2007). They suggest the premature use of joint alliances, acquisitions and other ventures to maintain competitive advantage to respond to rapidly changing environments without adequate ability to manage the people and design issues that ensure success. ‘Hunkering down’ and going into survival mode may not be appealing to action oriented entrepreneurs. However, taking the time to re-engineer processes (Hammer & Champy, 1993), shoring up your business finances and operations by re-evaluating every part of the business plan including contracts, suppliers and customers (Fried, 2009; Berson, 2009) helps entrepreneurs deal with changes in availability of capital and changes in laws and regulations that can change the net worth of a company. Many times the entrepreneur does not relinquish authority over functions that can be delegated to others (McGarvey, 1998) because they have their own vision for how the work should be done. However, this takes time and energy from developing strategy and future positioning of the company. It is not always easy for entrepreneurs to work on teams. Clute and Garman (1980) examined reasons firms fail. They studied the effects of federal policy on businesses including variations in the money supply, the volume of bank loans and changes in interest rates. They concluded that two of the variables (money supply and bank loans) have an inverse, lagged relationship with the business failure rate. It is essential that entrepreneurs make informed financial decisions. When entrepreneurs perceive themselves as marketing and sales or product and engineering specialists, many times they believe they can delegate financial decisions. Modifying marketing strategy can maintain or improve sales, market share and profitability (Köksal & Özgül, 2007). A lack of attention to ‘market orientation’, such as identifying customer needs, wants, aspirations and delivering offerings that are competitively better than rival firms (Blankson, Motwani & Levenburg, 2006) is another shortcoming that leads to failure. Avoiding failure means balancing external and internal focus with the correct emphasis on strategy and tactics. The balance between tactics and strategy is a major issue for many entrepreneurs. «Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat”, (Sun Tzu, Chinese General, 500 B.C.). When one is tactical, it appears that work is taking place. This proposes a question: What is productive or merely ‘rat in the maze’ activity? Studies including The Stitch House: A Case of Entrepreneurial Failure (Kampschroeder, Ludwig, Murray, Padmanabhan, 2008) and Looking Before Leaping (Leaptrott, McDonald, 2008) highlight characteristics of poor decision-making on business success and failure. How can today’s entrepreneur enhance the decision making skills for optimal success? Below are the details for each phase of the Business Reality Change Model, followed by three case studies. We apply the Business Change Reality model to the following three different capital structured business models:

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Q Products Inc.: $3 million condiments company (private investment funding).

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Aguru Images: $5 million company offering realistic representations of human facial characteristics for visual effects in the film, gaming, computer and industrial markets (private equity, technology transfer, university funds).

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KM2 Solutions: $20 million company providing customer service, collections and call center operations (owner owned).

A problem/opportunity question addresses a critical business issue. The question initiates an intensive analysis of the market, customers and company. If it is ambiguous or incorrectly focused, this problem/opportunity question will not be relevant and/or actionable. Examples of problem/opportunity questions are: how can we increase market share in the X product line in X timeframe and how can we enter the X market within X months? The frame of reference is one of the most important features of a problem statement. It is overlooked frequently. The frame of reference is essential to provide boundaries for the analysis. The frame of reference of a particular market, industry, location or product and includes a time frame. PROFITS Principles Analysis PROFITS Principles Analysis is the heart of the process. The first step of the analysis is to gather both external and internal vital information. This process is iterative, and information is tested and revised often to make sure it links to the problem statement and frame of reference. Linkage is critical. External Analysis includes significant information beyond direct control, such as the environment for the industry and business, the competition, customers, and end-users (the customer’s customers). It may include size of market, targeted segments, current and future trends, growth, relevant historical influences on present circumstances and legal and government considerations. It may also include demographic changes and trends in financial markets along with global, industry, cyclical and profitability considerations. A summary statement of the most important key conclusions from this analysis is written to address the problem statement. Additional information should be investigated. What do you know about the competition? Who is the competition? Where do they compete? Are there recent entrants to the industry? What are competitors’ strengths and weaknesses? How do competitors respond to change? How do they do differ from other competitors? Do they provide the same services for your customers as you do? Who are your customers? Why do they need your product or service? What else do they buy? What is important in their lives and how does it affect their relationship with your company? Think about other customers in the chain, especially those who may buy from your customers. How well do you understand what motivates them? What do trends indicate about potential new customers? Internal Analysis is the review of internal processes and systems that include operations, human resources (policies, compensation, training, development, recruitment, selection, succession planning), logistics, (distribution and transportation systems), product development, financial systems, product building, marketing (promotions, advertising) and sales. What are the systems’ strengths and weaknesses? How effective are the processes and systems in helping complete tasks on time and within budget? Do they help accomplish specific goals? Does the company have available financial liquidity and working capital? What are the constraints? What is the debt-to-equity ratio? How do financial ratios interrelate? What does it cost to produce each product? How do material and labor costs affect the value chain? What are the opportunity costs of various projects, including breakeven analysis, payback period and net present value? How do these things affect your profitability over the duration of your frame of reference? What combinations of financial measures (such as performance against goals to increase margins, inventory turn or cash by lowering operational costs) affect profits? How do operations, sales, marketing, human resources, technology, research and development interact? Consider plant locations, machinery, distribution, production capacity, warehousing, materials, purchasing, logistics, packaging, and other relevant value chain components. Marketing analysis includes demographics, segmentation, brand management, pricing, advertising and public relations, media, promotions, market research. Technology may include engineering, database and computer software, and the capacity to innovate. Human resources are accountable for organizational structure and culture including how people work together individually and in teams. This consists of assessments of capability and talent, employee census and company policies. 192

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Sales analysis includes information about the sales organization, including size of the sales force, strength of customer relationships, expectations of the sales force, sales training, forecasting and selling patterns across your frame of reference. Summarizing the Analysis Chart internal Strengths and Weaknesses and external Opportunities and Threats (SWOT analysis). It is critical to take SWOT information directly from the external and internal analysis and that all the data link directly to the problem statement. The Business Reality Change Model derives its power from the connections among its components. It is also useful to do a SWOT analysis for each of the key competitors. This competitor analysis will highlight critical vulnerabilities. Summarize the SWOT analysis. The components of the summery are the following: •

Limitations resulting from threats and weaknesses must be addressed. Strategies and plans are designed to remedy them.

•

Horsepower includes those strengths and opportunities that help build the business. These address how to maximize the opportunity.

•

Sustainable Competitive Advantage is unique to the company and is the basis for long-term profitability. It should be the primary focus for your next steps. CASE STUDIES Q Products, Jonathan Soares, CEO

Q Products was founded in 2005 when Jonathan Soares decided to market his mother’s homemade Original Honey BBQ Sauce recipe and developed the Hickory Teriyaki and Spicy Cajun flavors. In May of 2005 when Jonathan was 20 years old, he invested all of his $10,000 in savings and started Q Products which marketed Jonathan’s Q™ All Natural BBQ Sauces. Jonathan and Q Products represent the new entrepreneur. With his passion and ambition, Jonathan exemplifies new independent thinking. He designed a fully outsourced business model, built upon relationships and social media. At the same time, Jonathan blends these attributes with a conservative style of operating his business. The company is financially independent and returns all profits back into the business. When CEO Jonathan Soares plotted opportunities on the Priorities/ROI Decision Matrix, he found the opportunity for growth in the Southeast region of the United States, in the Act Quickly quadrant. Using the Business Reality Change Model, Jonathan found the following key conclusions that link to and support his problem statement, frame of reference, external and internal analyses. His opportunity statement became: Q Products: How can we grow in the Southeast region within the next three months? Jonathan wanted to grow Q Product’s bottom line for revenues and top line growth for stability, based on consistent pricing, excellent customer service and quality products. At that time, the company enjoyed revenues of $2 million and increased placement penetration three-fold, transitioning from 1500 - 4500 stores primarily as a result of Q Products’ new manufacturing partner. Q Products increases opportunities through promotion and public relations. The condiment/BBQ sauce category is growing 3 - 5% per year as people are purchasing more at the grocery store and going out to eat less often. The external analysis supports the following key conclusions: Q Products anticipates growing the Southeast region with the potential for penetrating 1500 new stores with revenues between $500,000 and $750,000 within three months (in a $351 million market, with 69% mainstream BBQ sauce products (10 brands), 10% private label and 21% premium brands). As groceries are losing margin, Q Products’ principle strategy is to build relationships with customers and consumers using social media (e.g., YouTube, Facebook, Twitter). Key findings based on the internal analysis demonstrate strong capital infrastructure based on $10,000 seed money with no external funding has provided stability within the company including validation of a fully outsourced business model, cost efficiencies and independence with 20% profitability. Jonathan is looking for new manufacturing partners to increase efficiencies by utilizing distribution, warehousing and logistics of the new partners. Additionally, he plans to decrease pricing by 10% or greater, particularly in the Southeast in the short term. The outsourcing model works well with additional support from an advisory board and an outside sales force. The above analyses provide the information for the SWOT Analysis. Q Products’ strengths are: cash on hand,

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the knowledge and experience of the holding company advisory board and the new volume-centric model with a new manufacturing partner. Weaknesses include Jonathan being ‘spread too thin’ by coordinating all the outsourced functions and different company cultures without sales loyalty specifically to Q Products. Promotions and social networking are essential marketing opportunities and the main threat to sales (in the Southeast) is customer loyalty to mainstream brands. Q Products also lacks some of the manufacturing efficiencies of competitors. However, Jonathan is rectifying this as he seeks a new manufacturing partner with greater capacity than Q Products currently has. To win, Q Products must have a local following and presence in the Southeast (equal to local restaurants and other regional players) and generate volume, while also competing in selected mainstream venues (warehouse clubs, supermarkets). Q Products requires a stronger sustainable competitive advantage. The compelling reason to be in business and to address: Why must consumers buy Q Products BBQ sauce? The next steps for Q Products include addressing the objective. What will success look like? How will Jonathan generate volume in 4500 stores within the next 60 - 90 days in the Southeast, with revenues of $750,000 based on manufacturing efficiency and through intense advertising, promotion and public relations? Notice how this strategy links back to the problem statement and frame of reference and the key external and internal conclusions. Next, we review the strategies. Q Products must increase volume, build share, increase funding for marketing activities within 60 - 90 days. Q Products requires plans for each strategy. These are the following questions: What needs to be done? Who is responsible? When/timing is it expected to be completed? What are the costs and resources required? The plans also need to link back to external/internal analysis and reconfirm the objective and strategic direction. Aguru Images, Saul Orbach, COO COO Saul Orbach describes himself as a problem solver with innate analytic ability, inexhaustible drive, persistence, highly competitive and self-confident. Saul worked diligently when the economic downturn was imminent to decrease Aguru Images debt. He sought other investors for funding and other companies with which to partner and/or create strategic alliances. Aguru Images offers the first and only complete solution to capture and process all possible lighting conditions of real world textured surfaces for use in 3D computer generated imagery. The technology was discovered at New York University and the University of Southern California and later transferred with an initial funding by ANGLE Technology Ventures for commercialization. Applications for the technology include visual effects for film, computer and video games and industrial materials. At one time, this privately held company had revenues of approximately $4 million. As he looked at the possibilities on the Priorities/ROI Decision Matrix, particularly for the next three months, Saul and his board decided to focus more strategically and act quickly to find other companies with complementary applications and ‘roll them up’ to form one company, a one-stop shop for their customers in the fragmented visual effects industry. Based on the downward economy and a promising investor that did not close an expected deal, consolidation appeared to offer the best potential opportunity within the next few months. Using the Business Reality Change Model, Saul summarized the following conclusions that link to and support his opportunity statement, frame of reference, external and internal analyses. The opportunity statement became: Aguru Images: How can we find complementary companies to consolidate with within the next three months? During the process of discovering opportunities, another company presented the option of acquiring Aguru. The company that wanted to acquire them was not interested in the industrial products in Aguru’s business model. Though this was not one of Aguru’s initial considerations, Saul and the Board of Directors assessed the options again. Thus, the opportunity statement changed, as it should, since problem-solving is an iterative process. New information offers other possibilities and opportunities. The external analysis offered important information. Aguru was in a recessionary economy and there were difficulties in the movie world (i.e., a prolonged writer’s union strike and a similar strike threatened by the actors’ guild). Furthermore, the visual effects market had no financial analysts to determine the size of the market and investment money was scarce. On the upside, there were no competitors and Aguru’s management team had good knowledge of Hollywood’s customers. The conclusions noted as a result of the internal analysis include top in-house talent with a Board of Directors represented by management from Pixar, Dreamworks, Microsoft, Adobe, NYU, University of Southern California and other industry notables. However, missing was a CEO with industry experience who could spur sales and shape the industry. With two synergistic but different industries, a bifurcated sale seemed imminent with two buyers and double work. Acting as their own investment bankers, Aguru could minimize sales related expenses. The SWOT analysis, must utilize the conclusions of the external and internal assessment. Thus Aguru’s strengths

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included a strong management team and Board of Directors, an interested buyer for the visual effects film and gaming business, the ability to be its own investment banker and no threatening competition. Weaknesses highlighted a poor investment environment with no analysts paying attention to the visual effects market, capital structure relying heavily on debt and less on profitability in the higher revenue division. The greatest opportunity was to sell the business as quickly as possible. To win, Aguru Images needed to find a buyer with sufficient capital to reduce Aguru debt and increase pricing that would in turn increase profitability without decreasing revenues. Aguru Images sustainable competitive advantage was its state-of-the-art visual effects which is unique in both the entertainment and industrial arenas. For Aguru Images to become more attractive to other buyers, they must have a more directed strategy in place for sales and marketing. Up until now, both these areas occurred organically, rather than by plan. If possible, Aguru should hire an interim CEO with a recent background in the entertainment side of the business to help increase profitability immediately and who can serve as a first adopter in developing strategies that clearly define and shape its industry with specific metrics and milestones. KM2 – David Kreiss, CEO A true entrepreneur, David Kreiss became disillusioned when working with private equity groups to structure deals with small companies for Citibank and American Express. David’s experience led him to believe that private equity groups with their own financial models rarely joined strategic forces successfully with the management teams they funded. David observed much potential profitability left behind. Taking an opportunity to consult with AOL and then becoming their outsourced vendor for collections and customer care, David realized his entrepreneurial competencies as he built his own company. Today, David’s fully self-funded company, KM2, based in the Caribbean, with projected revenue of $20 million in 2010, serves the world’s largest companies in customer care (previously known as call centers) and billing collections. David Kreiss utilizes the Priorities/ROI Decision Matrix and the Business Change Reality Model. His success appears to be directly related to his ability to incorporate the comprehensive perspective for his business. Earlier it was stated that the new entrepreneur blends the characteristics of a new way of thinking that incorporates alternative and creative business models, speed and flexibility. A successful ‘new’ entrepreneur melds this new way of thinking with business models from the past. David’s experience at Fortune 100 companies, Citibank and American Express, helped him learn the importance of continuously testing and revising his strategies. The KM2 opportunity statement has always been the same, to grow a self-funded business by focusing on continuously improving error-free processes and excellent execution of deliverables. For each frame of reference, the opportunity varies, yet the underlying opportunity statement is always consistent. As he looked at the possibilities on the Priorities/ROI Decision Matrix, for the next six months, David focused strategically and observed that the KM2 current situation fit best into the quadrant, Act Quickly. To, Act Quickly, KM2 will continue their current methods and standards of operation, yet on a greater scale. Using the Business Reality Change Model, David summarized the following key conclusions that link to and support his problem statement, frame of reference, and external and internal analyses. The current opportunity statement is: Grow KM2 to support the new client (confidential) with 600 new KM2 operators within six months. The external analysis conclusions are the following: KM2 is now the premier customer care call center business in the world. Based in the Caribbean, it has many advantages over similar businesses in India and the Philippines. Their stable workforce has less than a 15% turnover. As compared with India and the Philippines where workers are educated and seek better opportunities quickly, those in the Caribbean appear happy to have jobs, take pride in their work and rarely leave the island. KM2 builds relationships with local governments and is incentivized for providing local employment opportunities. Many workers in India and Philippines have difficulty with the English language, are frequently misunderstood by customers in the U.S. and are not familiar with the U.S. culture. Training in these areas is often inadequate. In contrast, people in the Caribbean, primarily in the service and hospitality industry and catering to English speaking Americans, can speak English beautifully. They are almost always well received by U.S. customers. KM2 brings in U.S. workers to train and work alongside their Caribbean counterparts and to integrate them into the company culture and norms. KM2 feeds their inbound calls to other island facilities through a sophisticated infrastructure that is much advanced compared to competitors. This infrastructure includes T-1 lines, which move data at a high rate of speed at low cost. Internal analysis conclusions include excellent operational processes that are modeled after Fortune 100 companies. KM2 requires its managers to work in the Caribbean and train local employees. It participates in government and local community building which strengthen relationships and provide incentives

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to the KM2 business because it is perceived as a socially responsible company. KM2 has the capability to transfer sufficient U.S. workers to train approximately 600 island workers within the next six months. The SWOT analysis utilizes analyses and conclusions of the external and internal assessment. Thus KM2’s strengths include a strong management team with a local presence, U.S. client company acceptance of the Caribbean workers in the customer care and call centers, KM2 strong government relationships and self-funding. Weaknesses are minimal. There are few threats. Though barriers of entry are low, as the first adopter, KM2 is far ahead of any company that may decide to conduct business in the Caribbean, both in terms of local presence and sophistication of processes. To win, KM2 must maintain its current level of operational business and people excellence in its work execution. KM2 must be able to do this as they scale up within the next six months and bring approximately 600 new workers on board. CONCLUSIONS Today’s entrepreneur incorporates new business models with outsourced and strategic alliances, technological savvy using the Internet and extensive databases and unprecedented speed in decision making. They must learn from mistakes of the past and build strong customer and stakeholder relationships. The 7 PROFITS Principles, the Priorities/ROI Decision Matrix and the Business Change Reality Model offers the entrepreneur an integrated, systematic and comprehensive critical thinking tool for making realistic choices for both problems and opportunities. The key message is to have a well-integrated business where all company functions linking efficiently and effectively in profitable economic times and downturns. Though focused integration is vital for all companies, it especially has critical implications for companies that seek funding, especially those requiring additional capital. Typically, investors want to take only calculated risks. When something appears lacking integration, whether it is technology, people or marketing strategy, investors will decline the opportunity. In the article, Capitalism to the Rescue - Green Tech Rising (New York Times: October 5, 2008), an interview with venture capitalists makes it extremely clear. The well-integrated company both justifies its actions and demonstrates the ability to focus, organize and execute the business vision. This paper gives students an opportunity to apply the principles to the case studies where they can practice the role of the entrepreneur to make long term profitable decisions Future Research Future research could result in a longitudinal study of the three cases presented. How successful were the decisions as viewed two years from now. Were the companies flexible in the ever changing environment? Have the achieved long run profitable sustainability? REFERENCES Berson, S. (2009. Recession-proof your Practice. ABA Journal, January: 1. Blankson, C., Motwani, J., & Levenburg, N. 2006. Understanding the patterns of market orientation among small businesses. Marketing Intelligence & Planning, 24: 572-590. Bowen, M. 2009. Heart entrepreneurs: An assessment of their training, motivations and problems. Global Entrepreneurship Monitor - Global Report. Carland, J., Carland, J., & Stewart, W. 1996. Seeing what’s not there: The enigma of entrepreneurship. Journal of Small Business Strategy, 7: 1-20. Charan, R., & Lafley, A. 2008. The game-changer: How you can drive revenue and profit growth with innovation. Crown Business. Clute, R., & Garman, G. 1980. The effect of U.S. economic policies on the rate of business failure. American Journal of Small Business, 5: 6-12.

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Fahed-Sreih, J. 2009. Leadership in small business: The importance of the need for achievement as a motive in predicting success of owner-managers of small businesses. Lebanese American University, Allied Academies International Conference. Fried, C. 2009. The would-be entrepreneur’s handbook. Money, 38: 91. Friedman, T. 2006. The world is flat. New York: Farrar, Straus & Giroux. Gladwell, M. 2002. The tipping point: How little things can make a big difference. Boston: Back Bay Books. Hammer, M., & Champy, J. 1993. Reengineering the corporation: A manifesto for business revolution. New York: Harper Business Books. Kampschroeder, K., Ludwig, N., Murray, M., Padmanabhan, P. 2008. The stitch house: A case of entrepreneurial failure. Journal of the International Academy for Case Studies, April: 1. Köksal, M., & Özgül, E. 2007. The relationship between marketing strategies and performance in an economic crisis. Marketing Intelligence & Planning, 25: 326- 342. Leaptrott, J., & McDonald, J. 2008. Looking before leaping: The effect of owner decisiveness on small business performance. Academy of Entrepreneurship Journal, 14: 1-12. Lober R. 2009. Run your business like a fortune 100: 7 principles for boosting PROFITS. New York: John Wiley & Sons. Massa, S., & Testa, S. 2008. Innovation and SMEs: Misaligned perspectives and goals among entrepreneurs, academics and policy makers. Technovation, 28: 393-407. McGarvey, R. 1998. Ready, set delegate!: Handing our tasks is the key to growing your business. Entrepreneur, 26: 77-79. Pink, D. 2002. Free agent nation: The future of working for yourself: Business Plus, 1st ed. Small Business Administration. 2006. U.S. Government Small Business Office of Advocacy. Stangler, D. 2009. The coming entrepreneurship boom. Kaufman Foundation Study. Sun T. 1983. The art of war, Edited by James Clavell, Reprint edition. New York: Delacorte Press. Rosalie Lober is an associate professor of doctoral psychology at Carlos Albizu University and adjunct professor at Nova Southeastern University. She received her Ph.D. in applied Psychology, specializing in human resource management and organizational development at New York University. She has published Run Your Business Like a Fortune 100: 7 Principles for Boosting PROFITS (John Wiley & Sons, 2009). Her forthcoming book is: Deliverance: From the Valley of Death to Sustainable PROFITS in Bioenergy. Thomas Tworoger is an associate professor and chair of the entrepreneurship department at Nova Southeastern University. He received his DBA at Nova Southeastern University. His current research interests include entrepreneurship, microfinance, and leadership. He has published in Journal of Leadership & Organizational Studies, Journal of Business and Leadership, Academy of Information Management Sciences Journal, and the Academy of Information and Sciences Journal. J. Preston Jones is an assistant professor of business administration and the executive associate dean at Nova Southeastern University. His current research interests include business turnaround strategies, leadership, and organizational culture. He has published in the Journal of Applied Management and Entrepreneurship, Accounting Net, and Journal of Small Business Management.

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A Monolithic Culture: Multiple Voices Behind the Same Card Anna Carol Lampe, Rockhurst University Gold Coast, Inc. is a multinational company that sells products under brand names such as Gold Coast, Silver Border, and Brownstone. The founder created a culture; but, as the corporation grew over time, a number of smaller subcultures blossomed. No stronger subculture existed than the Silver Border brand, which at one time was the third largest category brand in the world. Much organizational literature exists today that takes exception to the assumption that monolithic cultures even exist within corporations. This research, however, not only clearly shows the existence of a monolithic culture in a corporation but also provides insight into its strength when its behaviors are threatened by a more efficient and effective subculture.

Since the 1950s, the term “culture” has flourished in the language of sociologists and anthropologists in the broad sense of civilizations, customs, and artistic achievements of people. Today, the term “corporate culture” flourishes in organizational literature, as well. From their concept of culture, many anthropologists have argued that a corporation’s shared values and beliefs, the hows in the way people do business, and patterns of behaviors do not constitute a “culture.” But those of us who have lived and studied corporations recognize that the factors that result from enculturation from the time of a person’s employment do manifest themselves in a culture construct. No corporate culture is incidental to anyone who spends a great deal of time living in it. It impacts physical and mental health and may be tied to a person’s sense of self-worth. Culture is perhaps the most stable element in corporations because it is the product of past success. It defines the values, beliefs, and behaviors which people use to interpret the world in which they work. Its symbols, language, and dress help to identify its employees and serve to help them behave in ways to ensure the bottom line success of the company. Although corporate cultures may have subcultures that deviate from the espoused ways of the monolithic culture, it is the monolithic culture that defines the ways and calls “foul” when any of them are challenged. And if the company’s bottom line begins to erode, a subculture may become a target. Sadly, depending on the strength of the monolithic culture, a subculture may even be destroyed under the disguise of a cultural transformation that senior management deems necessary to increase the bottom line. LITERATURE REVIEW Applying the term “culture” to organizations is not new. Arnold (1937) and Barnard (1938) moved below the conscious level of organizations to capture a deeper, more powerful force in everyday life. The aspects of organizational culture have been explored by Deal and Kennedy (1982) and Wilkins & Ouchi (1983); the levels of culture by Sackman (1992) and Kilmann & Saxton (1986); the impact of culture by Schein (1984) and Ouchi & Price (1978); culture and organizational effectiveness by Marcoulides & Heck (1993) and Galbraith & Kazanjian (1986); culture as related to strategic change by Burgelman (1991), and corporate culture and managerial action by Sathe (1983). Deal & Kennedy (1982) have created numerous culture models, and Wilkins (1983) developed a culture audit. While some research exists that supports the notion of a monolithic culture, many others propose something different. Instead of the existence of a monolithic culture, Martin & Siehl (1983) believe organizational cultures are “composed of various interlocking nested, sometimes conflicting subcultures.” Some support the notion that some organizations are not accurately described as having a “monolithic dominant culture but rather a web of interwoven and hierarchical cultures.” Stoyko (2009) believes that organizations rarely have monolithic cultures that can be “aptly described with a tidy label.” Martin, Sitkin, & Boehm (1985) refer to organizations as “umbrellas for, or arbitrary boundary lines around, collections of subcultures.” Researchers have depicted subcultures as detracting from a strong organizational culture although “the very existence of a strong organizational culture, one whose members agree and care about their organization’s values, seems to preclude subcultures” (O’Reilly, 1989). Some believe that large organizations often have many subcultures, which form over time as a result of “segmentation, importation, technological innovation, ideological differentiations, and career filters” (Van Maanen & Barley, 1985). Culture can take different forms within the same organization, often setting up potential conflicts between subcultures (Martin, Sitkin, & Boehm, 1985). Using the metaphor of a parent and child, Wolfgang and Ferracuti (1970) suggest that a “subculture, like a child, could never be entirely different from its ‘parent’ because it emerges from the parent culture’s values. Therefore, some subculture values may conflict with the parents’ cultures’ values while others may not.”

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Studying a culture can reveal the richly textured fabric of meaning and attachment that persons associate with their work life. Stern (1988) scrutinized the Gold Coast brand in the form of an encyclopedia of graphic styles, a chronicle of the history of the brand, and a course in language, and [Founder] and Anderson (1992) delved into the life of the Gold Coast, Inc. founder. These books, however, give little attention to brands other than the Gold Coast brand and ignore the magnitude and importance of the subbrand, Silver Border, which at one time was the world’s third largest brand in its industry. Lampe and Givan (1995) conducted a cultural audit within Gold Coast, Inc. Lampe (1996) explored the culture of managerial women in the Operations Division of Gold Coast, Inc., which provides a context for the caste system which exists within the corporation; Lampe (1996) also explored the pay policies and practices toward Gold Coast, Inc. non-treasury employees; and Eschrich (1996) delved into the posting system of Gold Coast, Inc. non-treasury employees both of which additional give credence to the fact that some groups are treated differently. Finally, Lampe (2002) explored the pervasive impact the culture of an organization has on its financial performance and how people defend against knowing, emotionally and cognitively, precisely what they need to know in order to impact the bottom line. For this research, culture is defined as “the way we do things around here” (Bower, 1966). Through the study of a large Midwest company, the paper will investigate whether a corporation can have a monolithic culture, whether its strength can be a detriment to the corporation, and how management can leverage these findings to ensure corporate health. Data Collection and Methodology As part of a corporate culture initiative, Gold Coast’s, Inc. vice president of Human Resources brought together a team of individuals to create the Cultural Core Team: director of Organizational Development; director of Corporate Finance; vice-president of Public Affairs and Communications; director of Employee Relations; director of Corporate Education and Training; director of Compensation and Benefits; strategist for Marketing and Strategy; an outside consultant who supported the cultural change effort for another hundred year old company; and a Research Manager. The outcomes of the cultural renewal efforts of the Culture Core Team would be the basis for a multi-year initiative. The first phase would create the compelling case for change and begin with understanding the company’s financials, products, distribution, sales, and brands. Because employees learn to perceive their world through their own cultural glasses the first phase would also include seeing Gold Coast through the eyes of others: employees, retailers, suppliers, and subsidiaries. The Research Manager was charged with delivering a research plan and interviewing the stakeholders. According to Guba and Lincoln (1989), using multiple data sources is advantageous because it allows anthropologists to deepen their understanding of the culture, as well as providing the material that contributes to credible interpretation (Eisner, 1991). This research included multiple data sources including participant observation (Burawoy, 1991); current public and confidential documents (Bogdan & Biklen, 1992); focus groups and small group discussions (Merton and Kendall, 1946; Calori & Sarnin, 1991); telephone focus groups (Collis, 1996); interviews (Calori & Sarnin, 1991; Bogdan & Biklen, 1992); conversations (Atkinson and Heritage, 1984), archival documents, artifacts (Eisner, 1991), questionnaires (Hofstede, 1980) and the ‘intersubjective resonance of unconscious processes between anthropologist and client” (Ogden, 1989). The Research Manager also reviewed the results of the corporately administered morale survey questionnaires exploring the organizational climate of a stratified population (Gallup, 2006). Finally, the discovery process included empathic listening, interpreting, gently confronting, asking questions, and spending time in safe places with stakeholders inside and outside the corporation. Early on in the process, it became apparent that many employees had a difficult time talking about the “Gold Coast” culture because the culture in which they worked (i.e., the Silver Border) was very different than the one we were asking them to describe. It also became apparent that most employees saw Gold Coast brand and Gold Coast, Inc. as one and the same. The Culture Core Team made the decision to initiate a separate cultural audit which would delve into both and ask questions about both cultures using the same interview guide. The Research Manager conducted eight focus groups with a total of 59 participants (Merton and Kendall, 1946). Participants were invited from a stratified sample of corporate employees at the corporate facility: Silver Border brand managers; Silver Border brand treasury; Silver Border brand non-treasury; Gold Coast brand managers; Gold Coast brand treasury; and Gold Coast brand non-treasury. The Research Manager also conducted 20 one-on-one interviews (Bogdan & Biklen, 1992) that included an artist who had made the company a great deal of money; a man who had spent 30 years in the Research department; a manager from the Silver Border brand; a female manager in the Gold Coast brand; a manager in the operations division; a female executive from the Silver Border brand; a merchandising manager; a manager who had worked on both brands; an treasury employee who had worked on both

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Advances in Business Research 2010, Vol. 1, No. 1, 198-209 man who had spent 30 years in the Research department; a manager from the Silver Border brand; a female manager in the Gold Coast brand; a manager in the operations division; a female executive from the Silver Border brand; a brand; a non-treasury employee whowho hadhad worked on on both brands; andansomeone had awho “reputation” for on “telling merchandising manager; a manager worked both brands; treasury who employee had worked both it like it is.” The Research Manager also had a number of formal and informal conversations (Atkinson & Heritage, brand; a non-treasury employee who had worked on both brands; someone who had a “reputation” for “telling it 1984)it with people throughout the corporation. Some ofofthese tookand place over lunch, over the phone late at and like is.” The Research Manager also had a number formal informal conversations (Atkinson & night, Heritage, even inwith the people restrooms. 1984) throughout the corporation. Some of these took place over lunch, over the phone late at night, and collected data was interpreted using narrative analysis. Once the recorded conversations were transcribed, evenThe in the restrooms. descriptors that referenced Gold Coastusing or Silver Border were highlighted. These descriptors werewere entered into an The collected data was interpreted narrative analysis. Once the recorded conversations transcribed, excel spreadsheet into one Gold of several of culture that the Culture Core Teamwere identified including descriptors that referenced Coastbuckets or Silver Border elements were highlighted. These descriptors entered into an teamwork, customer communication, results, management style, and organizational design. When excel spreadsheet intofocus, one of several bucketsachieving of culture elements that the Culture Core Team identified including approximately 75% of the people used similar descriptors, were considered valid and entered design. into theWhen final teamwork, customer focus, communication, achieving results,they management style, and organizational narrative analysis (See Figure 1). Later, these findings were triangulated with other stakeholders’ data (i.e., suppliers, approximately 75% of the people used similar descriptors, they were considered valid and entered into the final retailers, and subsidiaries). narrative analysis (See Figure 1). Later, these findings were triangulated with other stakeholders’ data (i.e., suppliers, retailers, and subsidiaries). Lampe

Figure 1: Narrative Analysis Figure 1: Narrative Analysis

Organizational Behaviors

Communication

Achieving Results

Teamwork Management Style

Customer Focus

Organizational Design

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Gold Coast Culture Focal point is your neighbor Neighbor is the competition Arrogance Dictates what a retailer needs Must believe in the program Have to have a meeting Don’t know top accounts Never see the numbers Can’t lose temper People must be same level at meetings Nice people don’t have conflicts Run like government Focuses on system Everything perfect Complicated systems Promoted without results Tired: takes so much energy to get things done Managers own projects Individual competition Arrogant Cocky Secretive Self-promoting Breeds face time Talks customer focus Dictates what retailer needs Talks innovation Lots of contacts for a few dollars Internal focal point Big and cumbersome Silo-driven and compartmentalized Linear Lots of management layers

• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Silver Border Culture Focal point is the other card companies Other card companies are the competition Partnering Do anything to help the retailer Can speak up against a program Do business at water fountain Always know top account See numbers daily Talks open and honestly Everyone from secretary to VPs at meetings Conflict handled at team level Run like business Focus on getting job done Doesn’t have to be perfect Just get it done Promoted with results Fun, energizing, lighter walk Team owns projects Camaraderie Down to earth All are equal Candid and open Team decisions Done when done Walks customer focus Do what will help retailer Sometimes too eager to help One contact for lots of dollars External focal point Smaller Self-contained Team based Fewer layers of management

Birthing a Monolithic Culture

Birthing Monolithic Gold aCoast, Inc. isCulture located in the Midwest and sells products to enrich people’s lives and enhance their relationships. Products are written in several languages and distributed internationally under brands including Gold GoldSilver Coast,Border, Inc. is located in the Midwest and sellsFlowers. productsIts to enrich enhance Coast, Evening Calls, and Spring parentpeople’s brand, lives Goldand Coast, wastheir one relationships. of the most Products are brands writtenininAmerica. several languages and distributed internationally under brands including Gold Coast, Silver recognizable Border, Evening Calls,industry and Spring Its aged, parentconsumers brand, Gold wastime one to of shop; the most brands As this company’s and Flowers. population hadCoast, less free andrecognizable they were reducing in America. the number of the relationships they were sustaining. Distribution choices continued to increase. Furthermore, large As this company’s industry and population consumers less free time to and they retailers were able to get better wholesale terms,aged, resulting in profithad margin pressures forshop; suppliers. Thewere total reducing industry the number of the relationships they were sustaining. Distribution choices continued to increase. Furthermore, large retailers were able to get better wholesale terms, resulting in profit margin pressures for suppliers. The total industry

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sales was declining by roughly ½% a year, and the price of Gold Coast products were increasing at a rate faster than many other consumers products. As a result of these economic and market environment changes, Gold Coast, Inc. had failed to meet several of its performance targets over a seven-year period. In fact, one year it had failed to meet all but one. “Although our performance in the past has been good, in fact enviable by some measures, it has not matched the growth of some of America’s best companies,” stated Gold Coast’s vice president - Finance. And to that, Gold Coast, Inc.’s CEO, added, “Either the company has set poor targets or we need to change the ways we do things around here.” The corporate culture of Gold Coast Greetings had been reinforced over time by decades of market leadership. When the marketplace began to change, however, Gold Coast, Inc. experienced difficulty identifying where change needed to occur. The literature told Gold Coast, Inc. management that organizations that had cultures with the ability to anticipate and respond effectively to changes in the business environment significantly out performed those that did not (Kotter & Heskett, 1992). If Gold Coast, Inc. was to be transformed into a culture that was able to adapt to changes in the business environment, it required understanding its culture. Shortly thereafter, the CEO formally announced a cultural initiative with the side note that Gold Coast needed to build into the culture a continuing ability to adapt behavior to changing business circumstances “without losing our timeless core values.” From the moment the founder envisioned Gold Coast, he birthed what would become a monolithic culture - the right way to do business. Making the very best products was reflected in the core value of quality and was evidenced in all areas of the corporation. Although never referred to as a monolithic culture, everyone understood that the Gold Coast brand’s way of doing business was the right way to do business and the only one that senior management openly acknowledged. And although the Silver Border brand generated significant revenue for the company, its way of doing business was never officially acknowledged. When first queried, all the employees interviewed described the culture of Gold Coast, Inc. with positive words such as “polite, caring, and full of bright and creative people.” But when they talked about the individual brand cultures in which they worked, their cultures began to sound very different. Creating a Subculture In the mid-1950s, Gold Coast commissioned the Birger Widman Company to analyze the industry’s growth potential and Gold Coast’s current and future industry position (Managerial Leadership Course, 1992). The research showed that Gold Coast products were being sold in only one out of every ten stores selling a similar product. The other nine stores in most cases were drug stores, variety stores, and supermarkets. After careful analysis, the founder decided selling the Gold Coast brand in these other stores would not be a wise marketing decision. It could erode the carefully nurtured position Gold Coast had attained with its brand name recognition, customer preference, and quality image. Instead, the founder decided to create another brand, designed to sell to as many as possible of those nine out of ten stores in which the Gold Coast brand was not represented. In 1959 the Silver Border brand was launched (Anniversary 25th). The creative artwork on the cards was comprised of designs that had appeared in the Gold Coast line three to four years earlier. Sales of the new brand increased substantially each year, and by 1969, the Silver Border brand was shipping 2 million products a week to 12,000 accounts (Anniversary 25th). Selling the new unknown brand was not easy. At first, salesmen began selling to any business that would give them space, even beauty shops, flower shops, and gasoline stations. Eventually, these channels of distribution became the exclusive focus but selling to them was not the same as selling to Gold Coast accounts. Silver Border did not have the brand recognition of the Gold Coast brand. Therefore, new selling strategies had to be developed to help Silver Border compete with the other companies selling in these channels. Silver Border began offering sales incentives, “terms” consisting of free freight, free fixtures, returns on seasonal products, store planning, and merchandising assistance. These were all terms, which the Gold Coast brand would never have to offer. But no matter how well the Silver Border culture worked, as one long-tenured employee said, “We were always thought of as a ‘step child’.” Experiencing the Card Shopping Cultures As a young mother wheels her shopping cart through the supermarket in Des Moines, Iowa, a colorful display catches her eye. Positioning the cart beyond her toddler’s reach, she scans the rows of greetings, selects one, opens it, and smiles. Her best friend will love it. She doesn’t know or probably care whether it is a Silver Border or Gold Coast card because it’s “just fine.” Later, as she continues her shopping, she makes a mental note for next week’s shopping

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list: laundry detergent, a congratulatory card for her nephew who is graduating from college, a bottle of Chardonnay, a gift bag, and party goods for her three-year-old’s birthday. This is the convenience shopper, the person whose needs the Silver Border brand tries to anticipate and meet in drug stores, variety stores, and supermarkets. Silver Border’s success in meeting those needs, and thus its growth, was phenomenal. At one time, the brand ranked third in sales, right behind the Gold Coast and Amnity brands, Silver Border’s and Gold Coast’s biggest competitor. In a strip mall in Cleveland, Ohio a young woman dressed in a business suit makes visits the Gold Coast store over her lunch hour. Inside she sees neat orderly aisles of fixtures filled with cards for every occasion and for everyone from her son’s soccer coach to her administrative assistant. She browses through the beautiful store enjoying the shopping experience that she doesn’t get when she’s buying a head of lettuce with her birthday card at the grocery store. Today she’s looking for a birthday card for her sister. She pulls a card from one of the display fixtures. It has a beautiful gold heart on the front of the card with the word “Caring” embossed into the heart. Inside it reads: True caring - the quality of being patient, gentle, and kind to another - is a virtue, which can change lives, mend hearts, and strengthen love. It only takes a moment to perform a caring act, but its impact can last a lifetime. Happy birthday to the most caring of sisters. She’s glad she made the special trip to the Gold Coast store. Navigating the Gold Coast and Silver Border Cultures Employees described the Gold Coast brand as “paternalistic,” “ponderous,” “tradition-bound,” “singular in its pursuit of quality,” and “eminently successful.” One woman who had been at the Lake Louise corporate headquarters for over two decades reflected on what it was like to work for both the Silver Border and Gold Coast brands. I knew so little of what went on outside my area of responsibility when I worked on the [Gold Coast] brand. In [Silver Border] I always know who to go to ask questions. On the [Gold Coast] side I always felt like I was in handcuffs. The ever-existing paternalism of the [Gold Coast] brand, coupled with its sheer size, stifles everyone’s creativity. Many of my friends abandoned the [Gold Coast] ship early on for the [Silver Border] brand where innovation has always been welcomed and encouraged. Randy Collins (1984), one of the early presidents of Silver Border known as Mr. Personality, was known for the energy and enthusiasm he brought to the company. He believed in taking an active part in the company’s operations and frequently travelled around the country to meet the Silver Border sales force and many retailers face to face. He exemplified the style of management of the Silver Border brand, that of managing by walking around and making his information public information. In the Gold Coast corporate magazine, (Coastal Magazine, 1984), Collins talked about the “close-knit atmosphere of [Silver Border], the necessity of meeting consumers’ and retailers’ needs, and [Silver Border’s] ability to meet and beat the competition based on the hard work and customer focus of the [Silver Border] people.” Jeff, a Silver Border product development manager, spoke with enthusiasm about the certain energy and special dynamics that went on inside Silver Border: [Silver Border] people work hard and we make every minute count. It’s an exciting, competitive environment and we have no choice but to be very aware of the marketplace. We make sure we are constantly ready not only to react, but also to act. Amy, a recent college graduate who worked on the Silver Border for only a short time, smiled enthusiastically as she talked, It seemed like everyone enjoys working in [Silver Border]. We complained sometimes because we worked some long hours, but it was wonderful to be part of a still-growing brand with tremendous potential in channels of distribution with unlimited growth potential. And it was fun to be operating in such a dynamic and changing environment where we were continually challenged by the increased sophistication of our retailers and retail customers alike. Tom, one of the salesmen who had been with the company for 30 years, described the challenges Silver Border had in the early days: Our challenges were a lack of identity and acceptance. We were new in the marketplace and we couldn’t always utilize the techniques that proved successful for [Gold Coast]. It took a lot of persistence and determination that

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ultimately created a [Silver Border] culture very unlike our [Gold Coast] counterpart of today but very similar to the [Gold Coast] culture that the [Gold Coast] founder created. Employees who had lived and breathed the Gold Coast brand throughout their careers used very different words to describe their brand and told very different stories. They talked about the “captive buyer mentality” with the “mom-and-pop retailers” who owned the stores where the Gold Coast brand was sold: We could sell them anything. They would ask us all the time, “How much should we order?” It was a very long time before we were forced to focus on the retailer or the consumer. Steve, a senior manager, who had been assigned a new job in the Gold Coast brand every two years, described his frustration: I’ve had a new job every two years, and it seems to be like it took me six months to learn the system, six months to try to change the system, six months to try to beat the system, and six months to make the best of it. I use to get so frustrated. That frustration was heard in the Silver Border organization. Ellen, a Silver Border manager, described empowerment in the Silver Border environment: I was given the opportunity to take over an area that was performing poorly. I felt bad for the employees who were in the group because they were feeling pretty frustrated because they knew they weren’t performing. One of the first things I did was bring the group together to ask them about the current level of performance and what they thought needed to be done. Many of the ideas they suggested turned out to be very simple things that could be implemented in a short time frame and which allowed for some early successes. Once people started to see the impact they could have on the operation, ideas to improve ‘snowballed,’ and it was hard to keep up with them. We didn’t have to go through the many layers of [Gold Coast] management to make things happen and in less than nine months, our performance measures showed impressive results. Mary, an employee who left Silver Border for what she referred to as the “real brand,” described the frustration that she, like Steve, experienced first-hand working for the Gold Coast brand: On the [Gold Coast] side, you work to please your manager and not necessarily the consumer. I begged my manager to let me put a stitched card into the line because I knew it would sell. My manager said, ‘No. On the [Silver Border] side everyone had input into product decisions.” Leanne, a Gold Coast card planner, added: On the [Gold Coast] side, managers told us what we could make. We couldn’t even change basic signing on a Christmas boxed card display without a vice-president’s approval. When I moved to [Gold Coast], we spent a day deciding what color a PID should be. That decision went on to the management team that ultimately decided on yet another color! That would never happen on the Silver Border side. Operating Inside and Outside the Cultures Ted, a researcher, came to Gold Coast in 1967. With an MBA from the University of Illinois, his professional choices were narrowed to becoming a sales rep for IBM; marching in line with the US army and ultimately visiting the rice paddies of Vietnam War; or taking a job with Gold Coast, Inc. He chose Gold Coast, Inc. Ted came into the company as a career development person. He had several rotations including product management, where he helped create the first Gold Coast calendars; research, where he did a major analysis of birthdays; and at the Town Hall Store, where he said, “I found lost pocketbooks.” I came back to work in research in 1968. We had a system called the Product Information System. It kept track of every single [Gold Coast] card. It was a great big monster of a system that could generate the value of a rose or orchid, flitter flock or foil, the editorial, and the number of layers of design. And it was driven by the [Gold Coast] brand. Ted never questioned why no one did the same kind of research for the Silver Border brand. “The assumption was that if the cards sold in the Gold Coast channels, they’d sell in the Silver Border channels. Other things existed, as well, that neither he nor others questioned. One of those things was the tradition of the coffee break. The coffee break 203

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process was a very interesting social phenomenon at Gold Coast and Ted likened the communication that transpired during these breaks to the unstructured communication of Silver Border today: It was at the same time everyday. The… ladies would ring the bell and you’d line up and get your coffee. You would find out what was going on and sometimes a piece of information you needed to get your work done. It really helped us do business. [Silver Border] does business at the water fountain today. On the other hand [Gold Coast] is compelled to call a meeting to discuss every little decision. And there’s never a room large enough for all the people who supposedly need to be there. Similar to the coffee break, Ted talked about an informal mode of communication similar to one he enjoyed in college: Research analysts had a tradition of breaking around 3 p.m. on Thursdays, going to a small bar on King Street, having a few brewskies, and talking about what was going on. It was a really good way to talk about what was going on with our projects. Today the people in [Silver Border] are still comfortable with doing business that way. The only difference is you can’t have alcohol until after hours. On the other extreme was the formal behavior of the [Gold Coast] brand management. Ted experienced it first hand as a fledgling researcher: I can remember working on a presentation that needed some figures from a [Gold Coast] management report. It was confidential because it had sales volume by units and dollars for the brand. Anyway it was kept under lock and key, and I had to sign for the report when I took it out. And then because I really needed the information to do my assignment, I went to the copier to copy a few pages. About that time a [Gold Coast] vice-president from another area went by the copy machine and recognized the report. He demanded to know who I was, who my supervisor was, and what authority I had to be reading that report. I doubt that would have happened if I had been copying a [Silver Border] report. Ted told me to talk to Jenny, a Silver Border strategist, who had a similar tale to tell: I had been with [Silver Border] for a few years and had been assigned to an important and highly visible project. I forged ahead on it without a ton of meetings because I knew who to call and whose input to get. I wrapped it up by binding all the presentations myself, hopping on the corporate jet, flying to Indianapolis and presenting the project to the retailer’s management team. On the [Gold Coast] side, it would have taken five levels of management to work and rework a project that a strategist began. Ultimately, a general manager would have flown on the jet and presented the project to the retailer. Ted is one of the few “outsiders,” who had close working relationships with both the Gold Coast and Silver Border brands without actually being on the organizational chart of either one. Having spent 25+ years in the Research department, Ted had an opportunity to watch both brands: [Silver Border] was always smaller and relatively self-contained so communicating was easier. There was always a team spirit—a real camaraderie. [Gold Coast] became and still is big, cumbersome, and silo-driven. It is linear, compartmentalized, and burdened with a lot of layers of management. Julie, a Gold Coast line designer, added with empathy, The drive for quality and a very structured system of checks and balances made quick operational decisions the exception, not the rule, and innovation remained in the hands of designers, new product developers and executives, instead of being widespread. But on the [Silver Border] side, everyone from the secretaries to the president was held responsible for coming up with new ideas, ways to make things better for the customer and for the company. Throughout the many interviews and focus groups done to explore the cultures of these two brands, no one described the reasons for the cultural differences as eloquently as Ted. He seemed to get at the heart of the issue, separating the organizational culture from the people. His description gives credence to the theory that an organizational culture comes first and that the people follow (Van Maanen & Barley, 1985). Every social organization needs some target upon which to vent its frustration. In Orwell’s 1984, no one saw the enemy that no one participated in the war. Every time you needed to get mad at someone you got mad at the war that

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never touched anyone. It served, however, as a focal point for aggression and negativity. In [Silver Border], that focal point is [Amnity]. [Silver Border] has always known who the villain was and he was ‘outside’ the building. On the [Gold Coast] side, it’s your neighbor. Because [Gold Coast] doesn’t recognize the existence of competition, your need for competition is directed at the person in the next cubicle. And the whole idea that there could be anyone out there worth competing with whose decisions and opinions mattered was just an anathema to the [Gold Coast] side. Like I said, in that kind of culture, you have to focus your aggression and negativity on someone. If there is no recognizable competition, you have to find someone inside to win or lose against. [Silver Border] won or lost based on business outside the building. [Gold Coast] won or lost based on whether you can get your program through the guy in front of you. Karen, who began her career on the Gold Coast side and went on to become one of the first female Silver Border executives, further describes the differences between the two brands: On the [Gold Coast] side, we told, and still do to a certain extent, the retailers what to do. It is an arrogance thing. You’ll hear that from a lot of people when they talk about the [Gold Coast] brand. And you can see the arrogance. It’s big corporate [Gold Coast] against a little card shop. And so the whole culture is built around that kind of attitude. What we’re all concerned about …I mean if this integration thing really happens, is losing touch with the outside world. Being in touch is what [Silver Border] has always been good at. One of the Silver Border secretaries, who had worked on both brands, voiced it this way: When someone gets a new account in [Silver Border], everyone knows about it within 24 hours. Everyone is pumped. The linkage is there. In [Gold Coast], people can’t name their top accounts because they aren’t in touch with them. Ted goes on to proudly describe his participation in helping to “win” an account: When one of the chains like the [Avondale] food stores visits corporate headquarters for a yearly visit or a contract renewal, we have always done ‘dog and pony’ shows to sell the [Silver Border] brand. The entire [Silver Border] brand rallies together and pulls every bit of research and information they have to win or keep the account. It doesn’t matter whether you are an artist or a field rep or a marketing vice-president; everyone associated with the brand makes it happen for [Silver Border]. [Gold Coast] doesn’t have to sell the brand to anyone. Ted summarized the differences like this: At [Gold Coast], you need a license to fish. At [Silver Border], all you need is a worm”. Karen summarized them with a little different twist: “At [Silver Border] you can ask executives why they are all tan and bald. You better not ask that of the [Gold Coast] executives!” Integrating the Wrong Culture into the Right One The results of the cultural audit of the Gold Coast brand and the Silver Border brand were presented to senior management. Less than two weeks later, senior management decided to integrate the brands. In the face of declining profits brought on by declining market share, senior management believed that restructuring efforts could delete organizational redundancies and reduce costs. The daily corporate newspaper quoted the CEO concerning what he referred to as the “transformation of the company.” His personal vision for the company was that Gold Coast, Inc. could apply the principles of teamwork across divisions, creating a community of partnerships. Analysis One of the functions of any subculture is to create a sense of group cohesion to protest against the monolithic culture. It reflected what Alasuutari (1995) called “intergenerational conflict.” Nowhere was there a greater sense of group cohesion than within the Silver Border culture. Its own ways of doing business both manifested and resolved the conflicts of the Gold Coast brand culture. The Silver Border brand took the initiative to create its own ways of working, its own set of meanings, demonstrate that the hierarchy and formality of the monolithic culture could be reworked so that a culture with fewer systems and rules could be just as profitable. The new internal slogan, “One organization, one team, one greeting” suggested an integration of the two brands resulting in a culture of what the CEO believed offered limitless potential. But to the people inside the Silver Border brand, it became clear that all the goodness of their culture would be usurped by what people inherently knew to be

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the culture of the Gold Coast brand, steeped in systems, structure, and what senior management believed was the only way of doing business. Silver Border voices from all levels of the company feared what employees had always recognized as the monolithic culture. And despite all the goodness inherent in the ways the Silver Border brand did business, few ways of their “doing business” would survive in the integration. The culture of the Gold Coast brand totally usurped the Silver Border culture. To employees, it was devastating and a clear indication of just how powerful the monolithic culture was. Silver Border employees realized they would soon be working in a culture laced with arrogance, controlling systems, bureaucracy, and inflexibility while losing their open and honest ways of communicating, their definition of customer-focus, and their sense of true teamwork. The Gold Coast culture validated America’s department store theory that “bigger is better.” Ironically, not too long after Silver Border’s integration into the monolithic culture, Gold Coast, Inc. introduced the power of brand equity by launching Communications by Gold Coast. The new brand was created to leverage Gold Coast, Inc.’s high recognition brand name. The Silver Border brand, which sold in more than 20,000 stores, was positioned as getting a boost from new products including new cards and gift wrap. But Silver Border employees knew it was lip service and recognized all too well that their brand’s culture was not only being integrated but was also being pushed to the back of the brand portfolio. Afterall, “Silver Border from Gold Coast” had never once been considered for the new brand. Conclusion An organization’s founder creates a culture that reflects his or her beliefs and values, ways of knowing, and behaviors of how to do business. Over time, the characteristics which are collectively created through years of interaction and which unconsciously direct every activity performed by its employees add strength to the monolithic culture. Subcultures, on the other hand, are born when groups of people, who live vertically and horizontally within an organization, find better ways of doing business, albeit different from the monolithic culture, that ensure their own success. This research not only clearly validates the existence of a monolithic culture in one corporation but also provides insight into Goliath behaviors that can rear their ugly heads. Identifying and understanding the differences between the Gold Coast brand and the Silver Border brand provided insight into the strength of the monolithic culture and the inherent oppressive power of a monolithic culture, as well. Given that corporate culture is crucial to organizational effectiveness, it follows, therefore, that a key task for the leadership of the company is to understand the dynamics between the monolithic culture and the subcultures. By giving employees permission to do what works and actively leveraging the strengths of both the monolithic and subcultures, everyone wins. To accomplish this, senior managers must recognize that when they develop personal stakes in a monolithic culture, they may also unintentionally send messages that discount the subcultures. If these managers are heavily vested in the monolithic culture, they may conspire to protect everything in the culture no matter how outdated their ways of knowing and working may be. Because of their intense emphasis on their own future in management and the monolithic culture lenses through which they want to see themselves, these senior managers are often blind to the goodness inherent in the subcultures. It is this blindness that can create confusion and conflict and my result in an “us vs. them” mentality. When a monolithic culture usurps a subculture that serves to create meaning and significance for groups of employees, all employees lose. Senior management must take responsibility for recognizing and validating all the subcultures, especially when they are generating revenue. If done judiciously, the corporation can adapt and thrive. If not the corporation will become filled with resentment and disappointment. This challenge is profound and personal, and its potential for impact on the company’s performance is enormous. Gold Coast, Inc. went on to endure declining sales and revenues. In 2008, revenues were off 2 % from 2007; in 2009 revenues were off 8% from 2008. In 2009, Gold Coast, Inc. - a company with a reputation of holding onto employees for decades - dropped 8 % of its work force. Gold Coast will never know for sure whether the revenue drops and layoffs were due to the recession, due to the generational shift to more immediate forms of communication, or due to its inability to recognize and leverage the strengths of the Silver Border subculture.

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REFERENCES Adams, G., & Ingersoll, V. 1985. The difficulty of framing a perspective on organizational culture. In P. Frost & L. Moore (Eds.), Organizational culture (pp. 223-234). San Francisco: Sage Publications. Alasuutari, P. 1995. Researching culture: Qualitative method and cultural studies. London: Sage Publications. Arnold, T. 1937. The folklore of capitalism. New Haven: Yale University Press. Atkinson, J., & Heritage, J. 1984. Structures of social action: Studies in conversation analysis. Cambridge: Cambridge University Press. Barnard, C. 1938. Organization and management: Selected papers. Cambridge: Harvard University Press. Bogdan, R., & Biklen, S. 1992. Qualitative research for education: An introduction to theory and methods. Boston: Allyn & Bacon. Bower, M. 1966. The will to manage: Corporate success through programmed management. New York: McGrawHill. Burawoy, M., Burton, A., Ferguson, S., Fox, K., Gamson, J., Gartell, N., Hurst, L., Kurzman, C., Salzinger, L., & Schiffman, S. 1991. Ethnography unbound: Power and resistance in the modern metropolis. Berkeley, CA: University of California Press. Burgelman, R. 1991. Intraorganizational ecology of strategy making and organizational adaption: Theory and field research. Organizational Science, 2: 239-261. Calori, R., & Sarnin, P. 1991. Corporate culture and economic performance: A French study. Organization Studies, 12: 49-74. Collins, R. 1984. A team that knew its task. President Randy Collins analyzes Silver Border’s success story. Coastal Magazine, August: 10-11. Collis, C. 1996. Confessions of a telephone focus group skeptic. Quirk’s Marketing Research Review, 10: 12-13. Deal, T., & Kennedy, A. 1982. Corporate cultures: The rites and rituals of corporate life. Reading, MA: AddisonWesley. Eisner, E. 1991. The enlightened eye: Qualitative inquiry and the enhancement of educational practice. New York: Macmillan. Eschrich, J. May, 1996. Human resources stakeholders. (96AD002). Lenexa, KS: Catalyst Qualitative Services, Inc. (Available from the Business Research Library, [Gold Coast], Inc., [Lake Louise].) Founder, & Anderson, C. 1992. When you tell. River City: Gold Coast, Inc. Galbraith, J. & Kazanjian, R. 1986. Strategy implementation: Structure, systems, and process. St. Paul: West Pub. Gallup. 2004, 2006, 2008. Employee survey. Lincoln: NE: The Gallup Organization. Glaser, R. 1983. The corporate culture survey. Bryn Mawr, PA: Organization Design and Development. Guba, E., & Lincoln, Y. 1989. Fourth generation evaluation. Newbury Park, CA: Sage. Guba, E., & Lincoln, Y. 1994. Competing paradigms in qualitative research. In N. Denzin & Y. Lincoln (Eds.), Handbook of qualitative research (pp. 105-117). Thousand Oaks, CA: Sage. Hofstede, G. 1980. Culture’s consequences. Newbury Park, CA: Sage Publications.

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Kilmann, R., & Saxton, M. 1986. Measuring a company’s culture-gap: Pinpointing the directions for cultural change. The Human Resources Planning Newsletter, 6: 1-2. Kotter, J., & Heskett, J. 1992. Corporate culture and performance. New York: Free Press. Lampe, A. February, 1996. Operations division: Diversity issues affecting women. (96RU003). Available from the Business Research Library, Gold Coast, Inc., Lake Louise. Lampe, A. August, 1996. Employees in administrative positions: Proposed compensation model. (96RU004). Available from the Business Research Library, Gold Coast, Inc., Lake Louise. Lampe, A. June, 2002. The silencing of voices: The corporate “darkness” nobody hears. Culture and Organization, 8: 129-144. Lampe, A., & Givan, L. April, 1995. Cultural audit focus groups. (96RU005). Available from the Business Research Library, Gold Coast, Inc., Lake Louise. Managerial Leadership Course. 1992. The Silver Border story. Gold Coast, Inc., Lake Louise. Martin, J., & Siehl, C. 1983. Organizational culture and counter-culture: An uneasy symbiosis. Organizational Dynamics, 12: 52-64. Martin, J., Sitkin, S., & Boehm, M. 1985. Founders and elusiveness of a cultural legacy. In P. Frost & L. Moore (Eds.), Organizational culture (pp. 99-124). San Francisco: Sage Publications. Merton, R., & Kendall, P. 1946. The focused interview. American Journal of Sociology, 51: 541-57. Ogden, T. 1989. The primitive edge of experience. Northvale, NJ: Jason Aronson. O’Reilly, C. 1989. Corporations, culture and commitment: Motivation and social control in organizations. California management review, 31: 9-25. Ouchi, W., & Price, R. 1978. Hierarchies, clans, and theory Z: A new perspective on organizational development. Organizational Dynamics, 7: 25-44. Sackman, S. 1992. Culture and subcultures: An analysis of organizational knowledge. Administrative Science Quarterly, 37: 140-161. Sathe, V. 1983. Implications of corporate culture: A manager’s guide to action. Organizational Dynamics, 12: 5-23. Schein, E. 1984. Coming to a new awareness of organizational culture. Sloan Management Review, 25: 3-16. Silver Border. Anniversary, 25th, C4G.3, Historical Collections & Archives, Gold Coast, Inc., Lake Louise. Stern, E. 1988. The very best from the greeting cards through the years. New York: Harry N. Abrams, Inc. Stoyko, P. 2009. Organizational culture and the management of organizational memory, Organizational culture in an age of diversity. Ottawa, ON: Fugitive Knowledge Press. Van Maanen, J., & Barley, S. 1985. Cultural organizations: Fragments of a theory. In P. Frost & L. Moore (Eds.), Organizational culture (pp. 31-53). Beverly Hills, CA: Sage Publications. Wilkins, A. 1983. The culture audit: A tool for understanding organizations. Organizational Dynamics, 12: 24-38. Wilkins, A., & Ouchi, W. 1983. Efficient cultures: Exploring the relationship between culture and organizational performance. Administrative Science Quarterly, 28: 468-481.

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Wolfgang, M., & Ferracuti, F. 1970. Subculture of violence: An integrated conceptualization. In D. O. Arnold (Ed.), The sociology of subcultures: 135-149. Berkeley, CA: The Glendessary Press. Anna Lampe is a visiting assistant professor of management at Rockhurst University. Her current research interests include organizational culture. She has published in Journal of Culture and Organization, Journal of Gender, Work and Organization and others. She spent 30 years working in corporate America.

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Virtual Community Management and Measurement for Goal-Centric Outcomes (Social Representation Research and Other Metrics) Ruth Lesher Taylor, Texas State University Tyler Laird-Magee, Linfield College Business use of virtual communities (VCs) is a contemporary and fast-growing internet phenomenon. Web 2.0 technologies enable easy creation, management, and measurement of VCs using external- or proprietary-hosted platforms. Some marketers, however, may be violating several hallmarks of sound goal-, customer- and outcomecentric strategies. Perhaps this is due to a near void in academic business literature regarding VC-centric goal and assessment methods. We address these issues and provide basic explanations of VCs, their management, and VC-centric goals and metrics for interested marketers, other business disciplines, academics and practitioners who otherwise may not be familiar with this area. Netnography-based social representation research as an assessment metric is also emphasized. Astute virtual community (VC) marketing managers, social network managers and others, ensure goal-centric outcomes by supporting their business decisions to build, monitor, and manage these communities as they continuously modify their strategies to exploit emerging opportunities. As contemporary marketers augment traditional marketing plans to incorporate greater utilization of virtual strategies, it is incumbent upon them to transform their traditional assessment arsenal to include VC-centric metrics. Many new VC marketers may not be familiar with this virtualmetric realm; this paper addresses that issue by specifically focusing on the hallowed benchmark principles of sound marketing strategy: aligning both business and marketing strategy metrics. This paper’s focus is threefold: 1) Introduce virtual communities, their development, management and marketing to those unfamiliar with these concepts; 2) Discuss the need to align VC marketing strategy goals with business strategy goals as the initial step to accomplish VC-centric outcomes; and 3) Introduce both quantitative-based and qualitative-based VC-centric metrics, specifically, qualitative social representation research (SRR) which is applicable to the measurement of investments made to build, maintain, and grow virtual communities. New VC-centric metrics are not offered, rather, this paper’s focus is to introduce VC-related issues and related outcome metrics, and provide empirical examples. Construct Definitions Rheingold (1993) and Singh & Cullimnane (2010) defined virtual communities (VC), also known as social networks, as aggregations or groups, of social, interactive, like-minded folks, that emerge on the Internet when enough people interact on a common topic long enough, eventually forming a web of virtual personal relationships in cyberspace. While this definition reflects more of a Consumer-to-Consumer (C2C), model, Armstrong and Hagel (1996) identified Business-to-Consumer (B2C) communities as having four basic types depending upon need. Jenkins (2010) distinguish VCs as either being purposefully branded (by marketers) or unbranded and identify some problems and pitfalls with each type. Schouten and McAlexander (1995), referred to communities, virtual or copresent, as collective groups of admirers of a brand, product, or cultures of consumption. Porter (2004) identified Business-to-Business (B2B) VC applications, that are the least of all examined VC types within academic literature (Arnone et al, 2010; Kollock, 2002). In all cases these categories are not geographically bound, but structured with like-minded individuals who develop on-line, social- content-, and/or professional-based relationships. Depending upon type (C2C, B2C or B2B), a community can be facilitated by the use of external public platforms such as Facebook, Twitter, and others, or internal proprietary built-out platforms, around which admirers of a brand, product, object, or advocates of an idea, collectively surround (Muniz & O’Guinn, 2001). The term social representation was coined in France by Moscovici (1961) and is understood to mean the collection of the elaborations (or meanings) of a social object, such as a brand, product, service, behaving, etc., by a community of members for purposes of communicating and behaving. Social representation theory assumes people in communities need a common system to understand and interact with one another regarding some product, brand, etc. that is outside of what is normally common to them. Over time, through these social interactions, cultural (community) members create unique, cultural- or community-specific meanings for formerly unfamiliar concepts (words, objects, symbols, behaving, etc.), thus the formerly-unknown concepts become imbued with special meaning within that particular 210

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social group (Moscovici, 1961). Social representations can be used in the study of communities to elaborate contextrelated meaning on several levels: individual or community, or the former shaped by the latter, or even the later shaped by the former. Additionally, social representation might be elaborated to refer to “consumption meanings in community contexts;” or, a preferred term might be “socially-constructed product/brand meanings’ (Anonymous Reviewer, January, 2009). By extension, social representation research (SRR) is based on social representation theory and is a methodology used to study what meaning culture members (community members) assign to certain objects, products or brands, which values they associate with them, and which norms they follow in using them (Penz, 2006; Bauer & Gaskell, 1999). The concept of SRR is multifaceted. Not only is SRR a study of the social process of collecting and communicating meanings of concepts and objects as socially-generated and elaborated, it is also empirical, context-oriented research that allows the analysis of why social events happen and social-specific meanings come about. Such assessments have crucial implications (Wagner, 1995) whether studying co-present or virtual communities, and whether studying communities for business-related or other discipline-related implications. An example of applying SRR to study of community is provided by Schau et al (2009). These researchers studied nine brand communities to identify common value-creating practices across communities where their research revealed the process of collective value creation within and among brand communities. The value of and goal in applying SRR is three fold or greater: 1) Its ability to gain access to community members’ mind-set of brand/product meanings; 2) Its theoretical applicability to study either virtual or co-present community contexts; and 3) Its theoretical adaptability to the use of either direct or indirect elicitation methodologies, e.g., use of interviews, observations, classic projective techniques, or Web-related content-analysis of virtual communications and interactions (Anonymous Reviewer, 2010). SRR is popular among European social psychologists and marketers but is less well-known in America; perhaps this is because many years passed before Moscovici’s 1961 work in French was translated into English. Today, however, SRR use by North American researchers is growing steadily and is applicable to the study of VCs and other on-line marketing efforts. A theory closely linked with SSR is consumer culture theory (CCT), a relatively new field of study. By definition, CCT is a diversity of research approaches addressing the co-constituting relationships among consumers, consumption practices, cultural meaning systems, market structures, and their contextualizing socio-cultural and historical conditions, and that addresses the relationship between consumer actions, marketplace (co-present and virtual) and cultural meanings (Arnould & Thompson, 2005). Informally defined, as adapted from Wikipedia (2010), CCT is a certain approach to the study of consumers, culture, and consumption that is other than based on psychological and economic consumption phenomena. Rindell (2008) offers a short introduction to brand research with consumer culture theory (CCT). Traditionally, ethnographic research is an anthropological research method used to investigate human, social and cultural patterns as well as meanings in communities, organizations and other social settings. Researchers primarily use an etic (outsider) approach, remaining objective, rather than an emic (insider) one that is sometimes considered a ‘slippery slope’ that can compromise a researcher’s objectivity (Fetterman, 1998). In ethnographic research, data is gathered through first hand observation, daily participation, artifact examination, and/or use of discussions, interviews, or questionnaires given to and responded by memberships within a cultural (community) context (Schensul et al, 1999). By extension, netnography research is the Web-related application of ethnography research designed specifically to study consumers’, organizational buyers’, or other members’ behavior in online communities (Kozinets, 1998; 2002). According to Kozinets (2002), netnography is primarily used for observation of textual discourse determined by accessing and analyzing the expression of sentiments and opinions by consumers who have expressed them in writing via digitally chatting in blogs, forums, online discussion and other digital venues (Osofsky, 2007). Netnography, whether observational, participatory, or autonetnography in nature, and whether practiced from an emic or etic perspective, is a fast growing methodology used to study the effect that online variables have on formation of product/brand meanings in computer-mediated community environments. Web 2.0 technology is defined as a technology innovation enabling efficient creation and distribution of user-generated content (UGC) (Hanlon & Hawkins, 2008) that allows ordinary citizens to take online or virtual social actions and interactions to communicate with and influence audiences. Thus, Web 2.0 technology enables researchers to gain virtual community member behavior insight (Stokburger-Sauber, 2010; Daugherty et al, 2008). Examples of Web 2.0 external platform technologies include well-known community hosts: Facebook, You Tube, My Space, Wikipedia, Flickr, Blogger and others. Virtual communities can be hosted on these external platforms and also can be hosted on external proprietary platforms, internal propriety platforms, and ‘open-source’ platforms.

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LITERATURE REVIEW REVIEW LITERATURE Virtual Communities: C2C, B2C and B2B Tapping need for for individuals individuals to to access access or or create create information, information, remain remain socially-connected, Tapping the the need socially-connected, and/or and/or to to share share resources, virtual communities are growing in response to several converging trends: rapid increase in the resources, virtual communities are growing in response to several converging trends: rapid increase in the use use of of digital pseudo-family connection digital technologies; technologies; decline decline of of family-based family-based community community influencing influencing the the need need to to make make pseudo-family connection elsewhere; personal interests, interests, elsewhere; seeking seeking of of like-minded like-minded groups groups with with whom whom to to connect connect regarding regarding professional, professional, hobby hobby or or personal and and the the growing growing power power of of technology-enabled technology-enabled individual individual consumers consumers in in marketplace marketplace transactions transactions(SSRIV, (SSRIV, 2010). 2010). Virtual Virtual community community members members generally generally have have one one or or more more common common goals: goals: share share information, information, increase increase product product or or brand brand usage usage and and enjoyment, enjoyment, gain gain project project expertise, expertise, and/or and/or extend extend their their lifestyle lifestyle (Ovwersloot (Ovwersloot & & Odekerken-Schoder, Odekerken-Schoder, 2008; 2008; Daughtery Daughtery et et al, al, 2008). 2008). In identifying and In identifying and responding responding to to the the above above digital-related digital-related behavior behavior trends trends and and goals, goals, large large companies companies like like Dell, Dell, Coca Cola, IBM, Starbucks, UPS, Ford Motor, JetBlue, Best Buy, Pfizer, Novartis, Bayer and others have embraced Coca Cola, IBM, Starbucks, UPS, Ford Motor, JetBlue, Best Buy, Pfizer, Novartis, Bayer and others have embraced B2C as fundamental fundamental to These international international businesses B2C VCs VCs as to their their consumer consumer marketing marketing strategies strategies (Caras, (Caras, 2010). 2010). These businesses are are using VCs to better manage their global consumer brands (Arnone, Colet, Croquet, Geerts, & Pozniak, using VCs to better manage their global consumer brands (Arnone, Colet, Croquet, Geerts, & Pozniak, 2010) 2010) by by harnessing both digital digitaland and brand power, as reflect both reflect technology-based and social-based and harnessing both brand power, as both technology-based and social-based proceduresprocedures and influences influences (SSRIV, 2010). and medium-sized enterprises usemedia-based, social media-based, consumer-centric (SSRIV, 2010). Small and Small medium-sized enterprises likewise likewise use social consumer-centric brand brand and product virtual communities. Individuals, too,VCs create VCsseek as they seek to gain and/orinformation contribute and product virtual communities. Individuals, too, create as they to gain and/or contribute information and skill advancement advice digitally with like-minded forthe example, VCweavers of handhosted weavers and skill advancement advice digitally with like-minded others, for others, example, VC of the hand by hosted by Interweave.com (2010). Interweave.com (2010). Virtual industry example, Virtual communities communities are are also also aa growing growing phenomenon phenomenon with with B2B B2B applications. applications. In In one one industry example, electrical electrical engineers using Electronic Design Automation (EDA) software to perform their jobs of designing engineers using Electronic Design Automation (EDA) software to perform their jobs of designing chips chips and and printed printed circuit circuit boards boards for for the the electronics electronics industry industry initiated initiatedaa VC VC to to share share insights insights with with each each other other on on specific specific software software usage. usage. The marketers recognized recognized this marketing efforts efforts and transformed that The company’s company’s marketers this collaboration collaboration as as vital vital to to its its marketing and transformed that initial initial community, full-time, company-paid community manager Virtual community, fully fully supporting supporting itit with with aa full-time, company-paid community manager (Laird-Magee, (Laird-Magee, 2002a). 2002a). Virtual communities communities can can range range in in size size from from aa very very few few home home country country members, members, to to multi-country multi-country regional regional VCs, VCs, to to colossalcolossalsize global virtual communities. Regardless of community type C2C, B2C or B2B four elements remain size global virtual communities. Regardless of community type - C2C, B2C or B2B - four elements remain commons commons to all types: 1) Shared purpose; 2) Networked interactions; 3) Hosts as contributors; and 4) Continuous to all types: 1) Shared purpose; 2) Networked interactions; 3) Hosts as contributors; and 4) Continuous and evolving and evolving (Radian6.com, 2010). (Radian6.com, 2010). Virtual Communities: Creation and Management Virtual Communities: Creation and Management Much has been written about virtual communities and how they form (Algesheimer et al, 2005; Kozinets & Much been and written virtual to communities and how they consistent: form (Algesheimer et al,or2005; Kozinets & Sherry, Sherry, Jr.,has 2003) twoabout approaches VC origination remain 1) Organic Member-created, those Jr., 2003) two approaches to VC origination consistent: 1) Organic Member-created, thosewho whose VC whose VCandmembers ‘pull’ information from remain manufacturers and/or other orlike-minded members create members ‘pull’ information from manufacturers and/or like-minded members who create communities based communities based upon their lifestyles or interests, and other 2) Engineered or Organization-originated, those developed upon their lifestyles or interests, andinto 2) Engineered or target Organization-originated, those developed marketers to by marketers to ‘push’ information the hands of VC members (Laird-Magee, 2002b;byPorter, 2004). ‘push’ information into the hands of VC members (Laird-Magee, Porter, 2004). Despite the VCs cycles origin Despite the VCs origin - organic or target engineered - community members2002b; pass through different development - organic - community pass Development through different development and roles as they interact and roles or asengineered they interact within themembers community. stages appear to cycles be typical across VC type as within themove community. Development stagesbased appear be typical across VC type as members move from one stage & to members from one stage to another on to discretionary interactions with others (adapted, Madanmohan another based on discretionary interactions with others (adapted, Madanmohan & Nevekar, 2010) as noted in Table 1. Nevekar, 2010) as noted in Table 1. Table Table 1: 1: Virtual Virtual Community Community Member Member Development Development Stages Stages -- Organic Organic or or Engineered Engineered Stages Newbie Intermediate Advanced Expert

Characteristics/Skills of Community Member Has little knowledge of the community workings Has sufficient knowledge of the community system and other online community members and has a willingness to learn more Is capable of solving others’ problems; is involved in propagation of community virtue Community member is one in the community whose word matters to others; has deep community/product/function knowledge

Not only do individual VC members go through developmental stages, according to Madanmohan & Navelkar (2010), VCindividual members can in administrative or quasi-administrative roles as shown in Table 2: & Navelkar Not some only do VC serve members go through developmental stages, according to Madanmohan (2010), some VC members can serve in administrative or quasi-administrative roles as shown in Table 2:

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Table Table2: 2:Community CommunityManager ManagerRoles Rolesand andResponsibility: Responsibility:Organic Organic Table 2: Community Manager Roles and Responsibility: Organic Role Table 2: Community Responsibility Manager Roles and Responsibility: Organic Role Organizer Responsibility Core Organizes the community; initiates talks and group formations Core Organizer Organizes the community; initiates talks and group formations Expert Has tacit knowledge and shares knowledge Role Responsibility Expert poser Has tacit knowledge and shares knowledge Problem Brings problems to the platform; poses queries Core Organizer Organizes the community; initiates talksqueries and group formations Problem poser Brings problems to thevalidity platform; poses Implementer Establishes empirical of .suggestions made; informs members Expert Has tacit knowledge and shares knowledge Implementer Establishes of limitationsempirical and bugsvalidity of .suggestions made; informs members Problem poser Brings problems to the platform; poses queries of limitations and bugs Integrator Collates several rules/suggestions; builds taxonomy and manual Implementer Establishes empirical validity of .suggestions made; informs members Integrator Collatesfor several rules/suggestions; builds taxonomy Institutionalizer Pushes standardization and regulatory support and manual of limitations and bugs Institutionalizer Pushes for standardization and regulatory support Philosopher Someone who pontificates about VS standards; doesn’t necessarily use Integrator Collates several rules/suggestions; builds taxonomy andnecessarily manual use Philosopher Someone who pontificates about VS standards; doesn’t the technology but has vision of its usefulness and communicates it Institutionalizer Pushes for standardization andofregulatory support the technology but has vision its usefulness and communicates it Philosopher Someone who pontificates about VS standards; doesn’t necessarily use speaking, engineered communities by an organization have a itcommunity the technologycreated but has vision of its usefulness and will communicates

Generally manager tasked Generally speaking,(Laird-Magee, engineeredcommunities communities created byan an organization organization willhave have aa community community manager manager tasked tasked engineered created will withGenerally eight job speaking, activities 2002a) itemized inby Table 3. with eight job activities (Laird-Magee, 2002a) itemized in Table 3. with eight job activities (Laird-Magee, 2002a) itemized in Table 3. Generally speaking, engineered communities created by an organization will have a community manager tasked Table 3: Virtual Community Manager Engineered with eight job activities (Laird-Magee, 2002a) itemized in TableResponsibilities: 3. Table Table 3: 3: Virtual Virtual Community Community Manager Manager Responsibilities: Responsibilities: Engineered Engineered

1.Table Promote the VC Community Manager Responsibilities: Engineered 3: Virtual 1. Gather Promote the VCcontent 2. editorial 2. Manage Gather editorial content 3. content authors 1. Promotecontributing the VC 3. Produce Manage newsletters contributingtocontent authors 4. 2. Gather editorial contentencourage repeat visits 4. Produce newsletters to encourage repeat visits their relative insights 5. incentives to entice members to contribute 3. Test Manage contributing content authors 5. Moderate Test incentives to entice members to contribute their relative insights 6. message boards for adherence to posting guidelines 4. Produce newsletters to encourage repeat visits 6. Maintain Moderatean message boardsfor fororganic adherence to posting guidelines 7. environment growth 5. Test incentives to entice members to contribute their relative insights 7. Set Maintain an environment for organic growth 8. and monitor performance measuring VCguidelines effectiveness and efficiency 6. Moderate message boards for metrics adherence to posting 8. Set and monitor performance metrics measuring VC effectiveness and efficiency 7. Maintain an environment for organic growth Strategy, &performance ROI 8. Set andGoals monitor metrics measuring VC effectiveness and efficiency

Virtual Communities: Virtual Communities: Strategy, Goals & ROI Virtual Communities: Strategy, Goals & ROI ManyCommunities: marketing managers who use & VC marketing strategies often fail to specify expected outcomes before Virtual Strategy, Goals ROI Many marketing managersa VC, who asuse VC marketing strategies(2010), often fail specify expected before originating and implementing advocated by Amisampath yet atosuccessful VC is alloutcomes about managing originating and implementing a VC, as advocated by Amisampath (2010), yet a successful VC is all about managing Many marketing managers who use VC marketing strategies often fail to specify expected outcomes before Many marketing managers who use VCoutcomes, marketinga strategies often consider fail to specify outcomes before expectations. As examples of VC-expected manager might one ofexpected the following VC-related expectations. As examples of VC-expected outcomes, a manager might consider one of the following VC-related originating and implementing a VC, as advocated by Amisampath (2010), yet a successful VC is all about managing originating and implementing a VC,expects as advocated Amisampath (2010), yet a successful is or allprofit; about managing expectation scenarios: 1) Our firm a directby monetary benefit of X dollar amount ofVC cash or 2) Our expectation scenarios: 1) Our firm expects a outcomes, direct monetary benefit of X consider dollar amount cash or profit; or 2)later Our expectations. As examples examples of VC-expected outcomes, manager might consider one(ending ofofthe the following VC-related expectations. As of VC-expected aa manager might one of following firm is expecting increased brand awareness during the period (beginning date) to date), thatVC-related will firm is expecting increased awareness during the (beginning date) toexpenses (ending date), thateffectively will expectation scenarios: 1) Our Ourbrand firm expects expects adirect direct monetary benefit ofXXmarketing dollar amount ofcash cash orprofit; profit; or 2) 2)later Our expectation 1) firm ameasuring monetary of dollar amount of or or Our translate intoscenarios: a monetary outcome. Metrics ROIperiod ofbenefit traditional have been translate into a employed monetary outcome. measuring ROI of marketing expenses have been effectively firmefficiently is expecting expecting increased brand Metrics awareness duringathe the period (beginning date)metrics (ending date), that will later firm is increased brand awareness during period (beginning date) toto (ending date), that will later and for years. Today, however, shift to traditional online VC-centric is required. Using virtual and efficiently for years. Today, or however, a ROI shiftof totraditional onlinemarketers VC-centric metrics is required. Using virtual translate into monetary outcome. outcome. Metrics measuring ROI of traditional marketing expenses haveseveral been effectively translate into monetary Metrics measuring marketing expenses have been effectively consumerandaaemployed marketer-centric collectives communities, today’s seek to accomplish goals. A consumerand marketer-centric collectives or communities, today’s marketers seek to accomplish several goals. A and efficiently efficientlysampling employed shift to VC-centric is required. Using virtual virtual and employed years. Today, however, shift to online online representative offor academic researchhowever, keyed toaathis issue is shown in Table metrics 4: representative sampling of academic research keyed to this issue is shown in Table 4: consumer- and and marketer-centric marketer-centric collectives collectives or or communities, communities,today’s today’s marketers marketers seek seek to to accomplish accomplish several several goals. goals. A A consumerTable research 4: VC-Centric Marketing and Business Goals representativesampling samplingof ofacademic academic research keyedto tothis thisissue issueis isshown shown Table representative keyed ininTable 4:4: Table 4: VC-Centric Marketing and Business Goals 1. Use budget-sensitive VCs to reach target customersMarketing and potentialand customers. (Munz & O’Guinn, 2001 - according to Table 4: VC-Centric and Business Goals Table VC-Centric Marketing Business Goals 1. Thomson Use budget-sensitive to reach4: target customers and potential customers. (Munz & O’Guinn, 2001 - according to Scientific &VCs Healthcare, this is one of the most cited papers in the fields). Thomsonincreased Scientificcustomer & Healthcare, this is one of thea most cited papers virtual in the fields). 2. Generate traffic by facilitating customer-centric community. (Stokburger-Sauber 2010). 1. Use budget-sensitive VCs to reach target customersa and potential customers. (Munz & O’Guinn, 2001 - according to 2. Increase Generate increased customer traffic by facilitating customer-centric community. (Stokburger-Sauber 2010). 3. product, brand service through of avirtual Thomsonauthenticity Scientific &ofHealthcare, this and/or is one of the most citeduse papers inVC. the(Founier fields). & Lee, 2009). 3. Increase authenticity of product, brand and/or service through use of a VC. (Founier & Lee, 2009). 4. though a customer request-driven virtual community. (Hanlon & Hawkins, (Stokburger-Sauber 2008; Wells, 2009; 2010). 2. Enhance Generatesales increased customer traffic by facilitating a customer-centric virtual community. 4. Algesceimer Enhance sales&though a customer request-driven virtual community. (Hanlon & Hawkins, 2008; 2010. Wells, 2009; Hermann, 2005; Founier & Leeservice 2009; Veloutsou 2009; and SSRIV 3. Increase authenticity of product, brand and/or through use&ofMoutinho a VC. (Founier & Lee, 2009). Algesceimer & product Hermann, 2005; Founier & Lee 2009; Veloutsou & Moutinho 2009;etand SSRIVHanlon 2010. Hawkins 2008). 5. Source for new innovation ideas by analyzing use of VC strategies. (Fuller al, 2008; 4. Enhance sales a customer request-driven virtualuse community. (Hanlon(Fuller & Hawkins, 2008;Hanlon Wells, & 2009; 5. Serve Sourceasfor newthough product innovation ideas by analyzing of VC strategies. et al, 2008; & Hawkins 2008). 6. a customer retention strategy. (Laird-Magee, 2002a, 2002b). Algesceimer & Hermann, 2005; Founier & Lee 2009; Veloutsou & Moutinho 2009; and SSRIV 2010. 6. Serve as a customer retention strategy. (Laird-Magee, 2002a, 2002b). 5. Source for new product innovation ideas by analyzing use of VC strategies. (Fuller et al, 2008; Hanlon & Hawkins 2008). Quantifying theasinvestment value strategy. of a VC and its marketing strategy is not easy as it remains a topic of ongoing 6. Serve a customer retention (Laird-Magee, 2002a, 2002b).

Quantifying theasinvestment valuenotes, of a VC andcompanies its marketing strategy is not easyorasincreasing it remainscorporate a topic ofresources ongoing debate. However, Connor (2010) many continue maintaining debate. However, as Connor (2010) notes, many companies continue maintaining or increasing corporate resources Quantifying value of VC and its strategy not as remains aa topic of to support VCs the and social media tools. few quantitative VC-centric have offered by advertising Quantifying theinvestment investment value ofaaA and its marketing marketing strategyismetrics is not easy easy as itbeen it remains topic of ongoing ongoing to support VCs and social tools. AVC few quantitative VC-centric metrics have been by advertising debate. However, as Connor (2010) notes, many companies continue maintaining or increasing increasing corporate resources online service providers withmedia tools and platforms to track specific metrics which measure for offered factors such as ‘dwell debate. However, as Connor (2010) notes, many companies continue maintaining or corporate resources online service providers with tools and platforms to track specific metrics which measure for factors such as ‘dwell to support VCs and socialmedia media tools. ADwell few quantitative VC-centric have beenlength offered scores’ andVCs other virtual-related metrics. scores are determined bymetrics combining the of by timeadvertising a viewer to support and social tools. A few quantitative VC-centric metrics have been offered by advertising online scores’ and other virtual-related metrics. Dwell scores are determined by combining the length of time a viewer online service providers withand tools and platforms tospecific track specific metrics which factors such as 2010). ‘dwell spends actively engaged an platforms online advertisement times the rate at which themeasure viewer isforengaged (Caras, service providers with tools to track metrics which measure for factors such as ‘dwell scores’ spends actively engaged with an online advertisement times the rate at the viewer engaged 2010). scores’ andvirtual-related other virtual-related Dwell scores are determined bymember combining theislength ofa (Caras, time a viewer Dwell score metrics can reasonably be applied to are the measurement VCwhich Although advances and other metrics.metrics. Dwell scores determined byof combining theengagement. length of time viewer spends Dwell score metrics can reasonably be applied to the measurement of VC member engagement. Although advances spends actively with an metrics, online advertisement times the at which the viewer engaged (Caras, 2010). have been madeengaged in VC-centric and positive results ofrate brand communities areiswell-documented in the actively engaged with an online advertisement times the rate at which the viewer is engaged (Caras, 2010). Dwell have been made in can VC-centric metrics, and positive results of quantitative brand communities are well-documented in the Dwell score metrics reasonably be applied to the measurement of VC member engagement. Although advances literature (Stockburger-Sauber, 2010), little is known about and qualitative VC-related issues, score metrics can reasonably be applied to the is measurement of VC member engagement. Although advances have literature (Stockburger-Sauber, 2010), little known about quantitative and qualitative VC-related issues, have in VC-centric metrics, and positive results ofcommunities brand communities are well-documented in the specifically: 1) VC-centric Similarities and differences between organic or engineered VCsare with regard to consumer motivation been been made made in and positive results of brand well-documented in the literature specifically: 1) Similaritiesmetrics, and differences between organic or engineered VCsand with regard to consumer motivation literature (Stockburger-Sauber, 2010), little is known about quantitative qualitative VC-related issues, (Stockburger-Sauber, 2010), little is known about quantitative and qualitative VC-related issues, specifically: 1) specifically: differences between organic orVCs engineered VCs to with regard tomotivation consumer motivation Similarities 1) andSimilarities differencesand between organic or engineered with regard consumer for joining

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them; 2) Attitudes and commitment of members to VCs (Munz & O’Guinn, 2001); 3) The influence of online wordof-mouth membersand (East et al, 2008;ofDemembers Bruyn &toLilien, 2008); & 4) O’Guinn, and other issues. for joiningamong them; VC 2) Attitudes commitment VCs (Munz 2001); 3) The influence of Additionally, few academic papers have (East been et published setting VC-centric strategies online word-of-mouth among VC members al, 2008;about De Bruyn & goals Lilien,for 2008); 4) and marketing other issues. andAdditionally, selecting applicable goal-centric From a literature to Radian6.com (2010), it few academic papersmetrics. have been published aboutsurvey, setting and goalsaccording for VC-centric marketing strategies appears that goal-centric VC metricsmetrics. have been largely ignoredsurvey, in theand academic business literatures, (2010), although and selecting applicable goal-centric From a literature according to Radian6.com it goal-centric measurementVC is metrics a hallmark sound business strategy. measuring engagement, level of appears that goal-centric haveofbeen largely ignored in the Metrics academicforbusiness literatures, although goalengagement, and engagement outcomes the use of VC marketing and overall business level strategy centric measurement is a hallmark of related sound tobusiness strategy. Metrics strategies for measuring engagement, of fulfillment must understood, and disseminated academicians and and VC practicing marketers. engagement, andbe engagement outcomes related to among the usemarketing of VC marketing strategies overall business strategy fulfillment must be understood, and disseminated among marketing academicians and VC practicing marketers. Virtual Community Metrics: Radian6 Community Managers’ Contributions Virtual Community Metrics: Radian6 Community Managers’ Contributions Radian6.com’s community managers (2010) advocate spelling out VC goals and how aligned they are to a Radian6.com’s managers specific (2010) advocate spelling out metrics VC goals and howasaligned they or arefailed to a company’s businesscommunity strategy. Articulating VC-centric goals and is requisite, a successful company’s business strategy. Articulating specific VC-centric goals and metrics is requisite, as a successful or failed VC strategy can impact many organizational functions. Radian6 VC managers advocate creating SMART goals: S VC strategyMcan impact manyAorganizational Radian6 managers advocate creating goals:there S= = Specific; = Measurable; = Actionable; functions. R = Realistic; and TVC = Timed. These managers, likeSMART others, know Specific; M = Measurable; A = Actionable; R = Realistic; and T = Timed. These managers, like others, know there are no universally applicable metrics for every VC strategy, thus benchmarking, an estimate of where the virtual are no universally metrics for every VC strategy,is thus an estimate of where thesuccess virtual community is now,applicable is critically important. Benchmarking also benchmarking, employed to create a baseline of those community is now, is critically important. Benchmarking is also employed to create a baseline of those success factors applicable to a marketer’s VC efforts, as for example, with customer retention (Laird-Magee, 2002a,b). factors applicable to a marketer’s VC efforts, as for example, with customer retention (Laird-Magee, 2002a,b). Radian6 virtual community managers stress that managers need to go beyond just counting VC members and hits Radian6 virtual community managers stress that managers need to go beyond just counting VC members and hits on on the firm’s VC site, to looking in depth at ‘engagement’ trends and engagement activities over time, and taking the firm’s VC site, to looking in depth at ‘engagement’ trends and engagement activities over time, and taking robust looks at community health, community member sentiments, key community member conversation topics, robust looks at community health, community member sentiments, key community member conversation topics, community lead generation, and community customer relationship management issues. These evaluation efforts community lead generation, and community customer relationship management issues. These evaluation efforts require both quantitative and qualitative metrics. Radian6 community managers further advocate that the entire require both quantitative and qualitative metrics. Radian6 community managers further advocate that the entire purpose of measurement is to give VC managers intelligence about what is working, what needs fixing, and what is purpose of measurement is to give VC managers intelligence about what is working, what needs fixing, and what is not working, goal-centric wise from both day-to-day and strategic perspectives. not working, goal-centric wise from both day-to-day and strategic perspectives. Virtual Community: Virtual Community: Quantitative Quantitative Metrics Metrics Several quantitative VC metrics exist for tracking and measuring VC strategies and their impact on overall Community managers managers at at Radian6 Radian6 (2010), (2010), for marketing and business goals. Community for example, example, offer offer that that virtual virtual community community metrics can be divided into eight groups, as shown in Table 5. Appendix Appendix A shows shows the the several several individual individual goal-centric that relate relate to to each each of of the the eight eight A-H A-H groups. groups. metrics that Table of Quantitative Quantitative Virtual Virtual Community Community Metrics Metrics Table 5: 5: Eight Eight Groups Groups of For Measuring: A. Conversation and Engagement B. Community Health C. Buzz and Competition D. Sentiment and Trends E. Issue Resolution Time and Costs F. Lead Generation and Sales G. Website Analysis H. Content Performance

For a further explanation of these metrics, consult the Radian 6.com website (2010). Radian6 virtual community managers stress that each of of these listed metrics or measurement ideas website still take(2010). a lookRadian6 at VC outcomes through a For a further explanation these metrics, consult the Radian 6.com virtual community distinct single lens. They suggest that any metrics used and any resulting outcomes statistics should not be used toa managers stress that each of these listed metrics or measurement ideas still take a look at VC outcomes through demonstrate that a VC or VC marketing strategy was a success, or failure, rather that each quantitative or qualitative distinct single lens. They suggest that any metrics used and any resulting outcomes statistics should not be used to metric and outcome be viewed as a part a continually-evolving eco-system within the demonstrate that a VCmeasured or VC marketing strategy wasof a success, or failure, rathermeasurement that each quantitative or qualitative firm. measurement eco-system would integrate multiple measurement measurement eco-system participantswithin and the multiple metricThis and outcome measured be viewedideally as a part of a continually-evolving firm. quantitative and qualitative measurement toolsintegrate and platforms to help firms trackparticipants VC-centricand spending andquantitative the impact This measurement eco-system ideally would multiple measurement multiple these expenditures have on the tools firm’sand overall marketingandfirms business-centric goals. spending and the impact these and qualitative measurement platforms to help track VC-centric expenditures have on the firm’s overall marketing- and business-centric goals. Virtual Community: Qualitative Metrics Many qualitative research metrics are directly adaptable to VC study and can be used. This paper’s focus is netnography, its qualitative rather than a quantitative use, and its application to marketing-related, social

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Virtual Community: Qualitative Metrics Many qualitative research metrics are directly adaptable to VC study and can be used. This paper’s focus is netnography, its qualitative rather than a quantitative use, and its application to marketing-related, social representation research (SRR)-related understanding of VC members’ thoughts about and meanings assigned to certain objects, brands or products. One of its benefits is that SSR enables marketers to identify which values are associated with VC members and what norms are used within the context of their community (Penz, 2006). Several researchers confirmed that SRR-centric study was also very useful in identifying cultural differences when considering context and diversity of cultural members (Stewart & Lacassagne, 2005; Wagner & Haynes, 1999; Herche et al, 1996; Plank, 2009; Langer & Beckman, 2005). Whether a researcher remains an outsider observing only and does not participate in community “life”, an etic and traditional approach, or engages in VC discussions, an emic approach, really depends upon the researcher’s comfort level of becoming a member in his or her own VC study. If one employs a community manager, for example, who is readily identifiable by VC members, then an emic approach seems reasonable. SRR as an American research methodology has grown slowly but steadily since the 1980s, especially from the emic point of view. It has replaced studies that formerly were based on the observations of cultural participants by others (etic view) to its current state of being aimed at understanding the research constructs from a socially- and culturally-shared knowledge perspective and how they influence individual and collective perceptions, expressions, and actions (Hofstede et al, 1999; Flick, 2006). Results from previously conducted VC-centric studies demonstrate the usefulness of the SRR methodology and validate that VC management and SRR principles are universally applicable. Based on this universal applicability, Flamet (1992) argued that in the world of changing social and cultural conditions, researchers must also learn how other SRR investigations have been conducted; VC-related study must change if researchers are to interpret, understand, and compare findings in the context of social representations used and communicated among community members. SRR can be conducted using one of several formats: word associations, sentence completion, Thematic Apperception Tests (story completion), cartoon dialog balloons, and role playing Additionally, and third-party techniques are generally found to eliminate the social pressure of respondents’ giving a standard, ‘right.’ or politicallycorrect responses (Klopfer & Davidson, 1962), however some researchers debate whether the use of such third-party projective research techniques reflect valueless subjectivity or insightful reality (Boddy, 2005). To illustrate a VCrelated application of SRR methodologies, a researcher might present to a VC member a term, brand, product or other object prompt and asked the member to, in the context his or her own culture or community (an emic approach), discuss the prompt’s importance in his or her own various work, home, play, or to society settings. Afterwards, the researcher would analyze the gathered data and develop insights into values, meanings, and beliefs community members’ individually and collectively attach to the brand, product, or other object prompt. It appears SRR methods translate almost seamlessly to the study of virtual community members with little adaptation required, however, SRR has limitations in either co-present or virtual environment. One set of limitations relate to translation problems when using society-specific words, symbols, and other prompts in another cultural settings. To minimize these issues SRR researchers have used visual-based prompts such as pictures, projective techniques, associations, or other non-verbal data gathering instruments free associations are especially plagued with translation problems cross cultures (Penz, 2006). Although no data gathering tool is perfect, the generallyaccepted value of visual-based prompts lies in gaining a respondent’s indirect revelation of his or own underlying motivations, beliefs, attitudes and/or feelings when asked to respond as to an ‘other-party’s probable response’ when presented with the physical or online prompt. Further elaboration of applications of SRR-based methodologies is beyond the scope of this study. Interested readers are referred to Tsoukalas’s (2006) study published in Quality and Quantity (December). Tsoukalas creatively used elicitation and elaboration of free associations to determine the semantic field and cognitive organization of given social representations and shared with readers the complete survey script as a model to follow, creating a common ground for discourse. Gillespie (2008) pointed out the existence of ‘alternative representation’ research that is a sub-component of SRR and offers an etic perspective. Here alternative representation image-based prompts are intended to elicit from one cultural group (or one virtual community) respondents’ thoughts, ideas, beliefs, associations, and such about a prompt that they would attribute to being the same or similar to that of how second cultural group (or virtual community’s) members would respond. As with the parent SRR concept, Gillespie (2008) cautioned that several semiotic barriers may work to neutralize the affect on behavior regarding alternative representations. Although both parent representations and alternative representations are faced with barriers, both fields of study are experiencing use growth in the U.S.

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Social Representation Research: Marketing Application Social representation research methodologies are used increasingly to study social construction of diverse marketing phenomena as the links between social representations and social practices are well-established (Abric, 1994). One of its important applications is in market segmentation research as it can be used to analyze VC group formations based on shared beliefs, emotions, lifestyles, and consumption and relationship market segments can be formed at all geographical levels, domestic to global. Widely-used internationally, although rarely thus far in America, SRR researchers are beginning to make significant contributions to the SRR literature by linking segmentation and other useful and practical marketing application. Appendix B offers several empirical examples and serve to document SRR-marketing links, and address a near void in marketing literature. SRR researchers enthusiastically responded to Flamet’s 1992 call, during the first conference for international marketing SSR researchers, for building a communal repository of SRR-related studies and the sharing of the open-source sharing of these among SRR researchers. Today, many SRR-related papers are published as ‘open source’ on a website entitled, Papers on Social Representation Research, available from http://www.psr.jku.at/ (PSR, 2010). Applying SRR in marketing research in the U.S. is a relatively new phenomenon, however, it is SRR methodologies could be applied to study a variety of virtual and co-present community consumption practices: health, education, philanthropy, cultural events, and many other required and discretionary consumption practices. What business disciplines beyond marketing social representation theory-based research could be appropriately applied? The empirical examples presented in Appendix B are good starting places. Social Representation Research: Future As applied to virtual or co-present community, qualitative-based SRR is experiencing steadily use-growth in America, although it has not, for the large part as we know it, become a widely-offered course of study in U.S. academic curricula. Just five years ago Wagner & Hayes (2005), an Austrian team, published the first single text addressing the theoretical, epistemological and empirical frameworks, major concept issues, and debates of modern social representation research. Their work, entitled, Everyday Discourse and Common Sense - The Theory of Social Representations, is a 472-page text published by Palgrave Macmillian in 2005. CONCLUSIONS, IMPLICATIONS, AND RECOMMENDATIONS Conclusions This paper should be of interest to American educators and marketing practitioners as it introduces many to new research tools and topics - mostly from Europe - and may encourage them to become involved in these new technologies, methodologies, and metrics of assessing virtual community strategy outcomes. Virtual communities, the role of VC managers, how marketing researchers can utilize goal-centric quantitative and qualitative metrics to measure VC marketing strategies to produce goal-centric outcomes that are aligned with overall business goals, and other VC-related issues were discussed throughout the paper. Additionally, this paper introduced SRR as a social representation theory-based practice and the use of netnography in practice and how these practices allow marketers access to VC members’ mind-set (and the mind-set of co-present community members) for identifying consumercentric value-added experiences and satisfaction improvement strategies. Through these practices top customer concerns can be identified and addressed and customer relationship management improved. Implications The growing importance of virtual communities, social representation research, consumer consumption theory, and netnography implies that marketing educators and researchers are pressed to stay current with technological developments and research advancements and proactively integrate information about and training regarding these into marketing and other educational curricula. The study of virtual communities is relatively new, however, these concepts have begun to appear in consumer behavior texts. Some take away thoughts and experiential project ideas for incorporating virtual community and social representation knowledge into marketing courses are offered in Table 6. Students could be asked to conduct ethnographic, netnographic, or both types of research, on brand or product community in these marketing courses: consumer behavior, marketing research, and international marketing. As was shown, growing attention is being devoted the virtual/ brand community phenomenon increasing the likelihood research will grow in relevance with practitioners and educators alike. 216

Advances in Business Research Taylor & Laird-Magee marketing. As was shown, growing attention is being devoted the virtual/ brand community increasing 2010,phenomenon Vol. 1, No. 1, 210-223 the likelihood research will grow in relevance with practitioners and educators alike. Table Table6: 6: Possible PossibleExperiential ExperientialProjects ProjectsInvolving InvolvingSocial SocialRepresentation RepresentationResearch Research(Taylor, (Taylor, 2009) 2009) A. Virtual community research projects that give trainees experience in analyzing on-line blogs, chat rooms, and virtual communities with open source memberships. Here the trainees could be asked to identify top-rated virtual community member problems or concerns, and learn what product- or brand-related information is being exchanged. B. Online projects to help trainees realize the importance of and growing necessity of the link between virtual community platforms , marketing, and overall business strategies and customer relationship management. These projects might take the form of interviews with or job-shadowing projects with virtual community managers. C. Projects to help trainees realize that virtual communities can serve as a channel of communication. In conducting such study, trainees come to realize that there is a link between devoted product or brand users and firm sales, profit, and image enhancement.

Full implications of ofvirtual virtualcommunities communitiestotomarketers, marketers,other otherbusiness business administrators,and and academics Full implications administrators, to to academics areare not not yet yet known. The boundary-less nature of virtual communities crossing geographic, time, gender, nationality, known. The boundary-less nature of virtual communities crossing geographic, time, gender, nationality, ethnicity, ethnicity, and boundaries, education boundaries, richly need regarding for research regarding virtualsocial community, social and education richly endows the endows need for the research virtual community, representation representation research and related study. research and related study. Recommendations Recommendations Since one of the practical application of SRR is in measuring VC-centric outcomes, marketing academician and Since oneresearchers of the practical application of SRRand is in measuring outcomes, and practitioners should read, discuss, become moreVC-centric familiar with virtual marketing communityacademician strategies, VC practitioners researchers should read, discuss, and become more familiar with virtual community strategies, VC management, community manager responsibilities, social representation research, netnography, and other applicable management, community manager responsibilities, social representation research, netnography, and other applicable research methodologies. Knowledge of VC community management and VC-centric metrics, specifically SRR and researchconcepts methodologies. Knowledge of VCincommunity management and As VC-centric metrics, specifically and related and skills, are requisite today’s global workplace. many marketers, due to costSRR cutting related concepts skills, requisite in on today’s global workplace. As many dueadvertising to cost cutting measures, measures, move and from theirare dependency outsourcing creative and mediamarketers, services to agencies and move from virtual their dependency on outsourcing creative and media services to advertising agencies and specialized specialized media suppliers, they are pressed to become more self-sufficient with skills in-house, and should virtual new media suppliers, they arein,pressed become more self-sufficient with skills in-house, and should expect expect hires to be skilled digital tomarketing infrastructures and go-to-market virtual functionalities and new hires Investing to be skilled in, digital marketing infrastructures go-to-market virtual functionalities and initiatives solutions. solutions. in digital demand generation and virtualand relationship communities ranks among top Investing in to digital demand andvalue virtual ranks among top initiatives being taken being taken maximize thegeneration impact and of relationship marketing incommunities coming years (Farrell, 2010). In our opinion, it is to maximize impactand and future value ofmarketers marketingwill in coming years be (Farrell, 2010). our opinion, itstockholders is expected and that expected thatthe present continually directed by Inmanagement, present and future marketers will continually be directed by management, stockholders and stakeholders to do more stakeholders to do more with less, and be continually asked to justify marketing investments, VC-centric or with less, and continually these askeddirectives, to justify marketing investments, or otherwise. To accommodate these otherwise. To be accommodate many marketers shouldVC-centric transition without hesitation toward immediate directives,ofmany marketers should transition without(Farrell, hesitation toward execution execution virtual community marketing strategies 2010), and immediate many are asked to do of so virtual withoutcommunity applicable marketing strategies (Farrell, 2010), and many are asked to do so without applicable training. training. Perhaps it is time for academic community platforms. platforms. Perhaps academic business business departments departments to build out out proprietary proprietary virtual community like-minded people people to Ideally, these platforms would enable marketing educator, marketing practitioner, and other like-minded interaction and and free-flow of ideas - thus engaging and connecting have collective, 24-hour, seven day discourse, interaction university, business business world, world, and and community communityatatlarge. large. university, Directions Directions for for Future Future Research Research Future research investigations could examine a multitude of ofvariables visualizing, Future research investigations could examine a multitude variablesregarding regardingthe the tracing, tracing, visualizing, analyzing, and explaining and permanently capturing of virtual community textual and visual elements and analyzing, and explaining and permanently capturing of virtual community textual and visual elements and member member relationships VC members’ members’ behavior behavior performance performance or or hindrance hindrance of performance. Data relationships and and the the influence influence of of these these on on VC of performance. Data mining mining VC VC textual textual data data through through both both qualitative qualitative and and quantitative quantitative research research is is of of utmost utmost importance, importance, as as itit eventually eventually enables of virtual virtual communities, multimillion enables the the ability ability to to quantify quantify the the economic economic value value of communities, ranging ranging from from negligible negligible up up to to multimillion dollar values, and offers the possibility of securitizing the future streams of income of these values to obtain dollar values, and offers the possibility of securitizing the future streams of income of these values to obtain working working capital debate thethe treatment of VC space as whether it is personal or public. Other capital for for today. today.Future Futureresearch researchshould should debate treatment of VC space as whether it is personal or public. related ethical issues regarding researcher access, acquisition, quotation, and storage of textual and/or visual Other related ethical issues regarding researcher access, acquisition, quotation, and storage of textual and/or visual information information exchanged exchanged among among VC VC members members in in VC VC space space should should be be examined. examined. As As VC-user VC-user benefits benefits increase increase and and as as users share increased information between VC members, spammers and scammers are attracted, thus research users share increased information between VC members, spammers and scammers are attracted, thus research on on securing securing virtual virtual communities communities isis of of utmost utmost importance. importance. Many Many research research streams streams surrounding surrounding ethics, ethics, privacy privacy issues, issues, social responsibility, standards of conduct, member participation in and marketer use of virtual communities social responsibility, standards of conduct, member participation in and marketer use of virtual communities are are needed. suggest researchers researchers consider needed. We We suggest consider virtual virtual communities communities as as aa broad broad research research domain, domain, open open to to aa variety variety of of

researcher disciplines by looking more in detail at any of the above mentioned and other virtual community issues. Additionally, researchers could look further at VC-centric metrics, including customer retention, appropriate for assessing individual and group performance of virtual community strategies and the ‘so what’ impact on businesses, VC-members, and society members at-large. As the use of virtual communities continues its rapid expansion, and additional functionalities within user bases grows, the demand for VC-centric research studies, both quantitative and qualitative, will grow proportionately for longitudinal and comparative studies. 217

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REFERENCES Abric, J. 1994. Pratiques sociale el representations. Paris: Presses Universaries de France. Algesheimer, R., Dholakia, U, & Hermann, H. 2005. The social influence of brand communities: Evidences from European car clubs. Journal of Marketing, 69: 19-34. Amisampath. 2010. Why do online brand communities fail? (June 21). Retrieved from http://www.amisampath.com. Armstrong, A., & Hagel, J. 1996. The real value of on-line communities. Harvard Business Review, 84: 276-30. Arnone, L., Colot, O., Croquet, M., Geerts, A., & Pozniak, L. 2010. Company managed virtual communities in global brand strategy. Global Journal of Business Research, 4: 97-112. Arnould, E., & Thompson, C. 2005. Consumer culture theory (CCT): Twenty years of research. Journal of Consumer Research, 31: 868-882. Audebrand, L., & Iacobus, A. 2004. The social representation of fair trade in a business student population. ISTR Conference Proceedings, (July 11-14, Toronto, Canada). Retrieved from: http//atlas-conferences.com/c/a/m/k/93.htm. Bauer, M., & Gaskell, G. 1999. Toward a paradigm for research on Social Representation. Journal of Theory of Social Representation, 2: 263-186. Boddy, C. 2005. Projective techniques in marketing research: Valueless subjectivity or insightful reality. International Journal of Marketing Research, 3: 239-254. Breakwell, G., & Canter, D. 1993. Empirical approaches to Social Representations. Oxford Science Publications, Editors, Illustrated Edition, Clarendon Press. Caras, A. 2010. Evaluating the effectiveness of digital advertising. Retrieved from www.community. Microsoft Advisor.com. Daughtery, T., Eastin, M., & Bright, L. 2008. Exploring consumer motivation for creating user-generated comment. Journal of Interactive Advertising, 8: 16-25. De Bruyn, A., & Lilien, G. 2008. A multistage model of word-of-mouth influence. International Journal of Research in Marketing, 25: 151-163. East, R., Hammond, K., & Lomax, W. 2008. Measuring the impact of positive word-of-mouth on brand purchase probability. International Journal of Research in Marketing, 25: 215-229. E-mint. 2010. Association of online community professionals. Available from: http://www.e-mint.org.uk/. Farrell, M. 2010. Digital marketing driving transformation in global marketing organizations. CMO Council. Retrieved from http://www.marketwire.com/press-release/digital-marketing-driving-transformation-glo. Fetterman, D. 1998. Ethnography. Thousand Oaks, CA: Sage Publications, Inc. Flamet, C. 1992. Request to all researchers on social representations. Papers of Social Research, 2: 137. Retrieved from http//.www.psr.jku.at/. Flick, U. 2006. An Introduction to qualitative research. London: Sage Publication. Founier, S., & Lee, L. 2009. Getting brand communities right. Harvard Business Review, 87: 105-111. Fuller, J., Matzler, K., & Hoppe, M. 2008. Brand community members as a source of innovation. Journal of Product Innovation Management, 25: 608-619. Gillespie, A. 2008. Social representations, alternative social representations and semantic barriers. Journal for Theory of Social Behavior, 38: 375-391. 218

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Godet, G., Meurgey, B., & Lacassagne, M. 2009. Brand social representations: Strategic perspectives for a fitness club, International Journal of Sports Management and Marketing, 5: 369-383. Hanlon, P., & Hawkins, J. 2008. Expand your brand community online. Advertising Age (Midwest Region Edition): Chicago, 79: 14-16. Herche, J., Swenson, M., & Verbeke, N. 1996. Personal selling constructs and measures: Emic versus etic approaches to cross-national research. European Journal of Marketing, 30: 83-97. Hofstede, F., Steenkamp, J., & Wedel, M. 1999. International market segmentation based on consumer-product relations, Journal of Marketing Research, 34: 1-17. Interweave. 2010. Interweave communities - hand woven. Retrieved from: http:www.weavingtoday.com/user/ member.asp. Jenkins, L. 2010. 3 ways Facebook administrators can avoid complicated situations with fan posts. (August). Retrieved from: www.lindajenkins.com Klopfer., B., & Davidson, H. 1962. The Rorschach technique: An introductory manual. Harcourt, Brace and World. Kollock, P. 2002. Communities cyberspace ten years later. Taylor and Francis. Kozinets R., & Sherry, J. 2003. Teaching old brands new tricks: Retro brand and the revival of brand meaning, Journal of Marketing, 67: 19-33. Kozinets R. 2002. The field behind the screen: Using netnography for marketing research in online communities. Journal of Marketing Research. 17: 252-264. Kozinets R. 1998. On netography. Initial reflections on consumer investigations of cyberculture. In J. Alba & W. Hutchinson, (Eds.). Advances in Consumer Research, Association for Consumer Research, Provo, UT. 25, 336-371. Laird-Magee, T. 2002a. Online communities build customer loyalty and support customer retention goals. White Paper, Confidential case study (August). Laird-Magee, T. 2002b. Winning Internet strategy addresses customer acquisition and retention. White Paper. Confidential case study. (August). Langer, R., & Beckman, S. 2005. Sensitive research topics: Netnography revisited. Qualitative Market Research: An International Journal, 8: 189-203. Levin-Rosalis, M., & Bar-on, N., & Hartaf, H. 2003. The structuring process of social responsibility on violence in abusive men. Psychology and Culture, 9: 361-382. Madanmohan, T., & Navelkar, S. 2010. Roles and knowledge management in online technology communities: An ethnography study. IIMB. Retrieved from http:www.citeseerx.lst.psu.edu. Moscovici, S. 1961. La psychanalyse, son image et son public. Paris: Presses: Universitaires de France. Muniz, A., & Oâ&#x20AC;&#x2122;Guinn, T. 2001. Brand community. Journal of Consumer Research, 27: 412-432. Osofsky, M. 2007. Enhance marketing research with netnography. Retrievable at http://www.media connection. com/content/17211.asp. Ovwersloot, H., & Odekerken-Schoder, G. 2008. Whoâ&#x20AC;&#x2122;s who in brand communities. Journal of Marketing, 42: 571-585.

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Penz, E. 2006. Researching the socio-cultural context: Putting social representation into action, International Marketing Review, 23: 418-437. Penz, E., Neir-Pesti, K., & Kirchler, E. 2004. Itâ&#x20AC;&#x2122;s practical but no more controllable: Social representation of the electronic purse in Austria. Journal of Economics Psychology, 25: 771-787. Plank, R. 2005. The emic vs. etic dilemma in cross cultural marketing research: A personal construct theory perspective. Retrievable from http://www.sbaer.uca.edu/research/1998/MMA/98mma089.htm posted 5/7/2004. Porter, E. 2004. A topology of virtual communities: A multi-disciplinary foundation for future research. Journal of Computer Mediated Communication. Retrieved from http://jcmc.indiana.edu/vol10/issue1/porter.html. PSR. 2010. Papers on Social Representation. Open access journal. Retrieved from http://www.psych.lse.ac.uk/psr/. Radian6. 2010. Measuring community impact. Ch. 6. Building and Sustaining Brand Communities - Radian6 E Book. Retrieved from http://www.radian6.com/wp-content/uploads/2010/02radian6_ebook_Feb2010.pdf. Rheingold, H. 1993. The virtual community homesteading on the electronic frontier. Rheingold. Rindell, A. 2008. What do brands mean to us? A short introduction to brand research with consumer culture theory. Haaga-Helia. Schau, H., Muniz, A., & Arnould, E. 2009. How brand community practices create value. Journal of Marketing, 73: 31-51. Schensul, S., Schensul, J., & LeCompte, M. 1999. Essential ethnographic methods: Observations, interviews and questionnaires. Lanham, MD: AltaMira Press. Schouten, J., & McAlexander, J. 1995. Subcultures of consumption: An ethnography of the new bikers. Journal of Consumer Research, 22: 43-61. Singh, T., & Cullinnane, J. 2010. Social setworks and marketing: Potential and pitfall. International Journal of Electronic Marketing and Retailing, 3: 202-220. SSRIV. 2010. Brand community concept. SSRIV, (Abstract). Retrieved from http://ssrn.com/abstract=1444833. Stewart, I., & Lacassange, M. 2005. Social representation as a diagnostic tool for identity of cultural and other group differences. Psychology and Marketing, 22: 721-738. Stockburger-Sauber, N. 2010. Brand community: Drivers and outcome. Psychology and Marketing, 27: 347-368. Taylor, R. 2009. Social representation research: Uses, importance and relationship to netnography and marketing communities. Conference Proceedings, Marketing Educatorsâ&#x20AC;&#x2122; Conference, Seattle (April). Tsoukalas, I. 2006. Methods for studying social representation. Quality and Quantity, 40: 1089-1095. Veloutsou, C., & Moutinho, L. 2009. Brand relationship though brand reputation and brand tribalism. Journal of Business Research, 62: 314 -322. Wagner, W. 1995. Description, explanation and method in social representation research. Papers on Social Representation Research. 156-176. Retrieved from http://www.psr.jku.at/. Wagner, W., & Haynes, N. 2005. Everyday discourse and common sense - The theory of social representation. Palgrave Macmillian: US.

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Wells, J. 2009. Building brand communities, Business Opportunities. Retrieved from http://www.businessopportunities.biz/2009/05/19/building-brand-communities. Wikipedia. 2009. Social representations. Retrievable from http://en.wikipedia.org/wiki/Social_representations. Ruth Taylor is a professor of marketing at Texas State University - San Marcos. She received her Ph.D. in marketing from University of North Texas. Her current research interests include international marketing, branding, marketing education, and hand woven textile marketing and virtual community analysis. She has published in Journal of Brand Management, Journal of Marketing Education, Marketing Education Review, Journal for Advancement of Marketing, Competitiveness Review, Journal of Contemporary Business Issues, Journal of Global Competitiveness, Journal of Professional Services Marketing,Â and others. Tyler Laird-Magee is an assistant professor of marketing and management at Linfield College. Tyler is completing her doctoral studies in business administration at George Fox University and holds an M.A. in communication and marketing from the University of Portland. She has over 25 years of experience in strategic marketing management in settings ranging from Fortune 500 companies to venture capital start-ups. In 2000, she built the first online communities for the Electronic Design Automation (EDA) industry. Tylerâ&#x20AC;&#x2122;s research is focused on the management of international virtual communities, the intersection of organizational culture and brand, and outcomes-based teaching in marketing and management, domestically and internationally.

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Appendix A: Quantitative-Based Virtual Community Metrics (Adapted from: Radian6 E Book (2010), Building & Sustaining Brand Communities, â&#x20AC;&#x153;Measuring Community Impact,â&#x20AC;? Chapter 6)

A. Measuring Conversation and Engagement 1. Proactive blog posts or conversation treads initiated by the firm. 2. Tweet and Retweet ratios. 3. Length of comment strings per company-initiated posts. 4. % of community members engaged on topic posts per week/month. 5. # total monthly/type conversations & their ratios: Support; Topical; Goodwill: Others 6. Presence by media type. B. Measuring Community Health 1. Growth rates for different properties. 2. Community member satisfaction/ renewals/retention and attrition. 3. Average community member engagement time. 4. Community member connections: actual (friends) and implied (conversations). 5. Ratio of company to community posts/conversations. C. Measuring Buzz and Competition 1. Number of posts and % positive posts vs. competitive virtual communities. 2. Recommendations and referrals versus competitive virtual communities. 3. Share of conversation. 4. Reviews of product or service D. Measuring Sentiments and Trends 1. Sentiments toward product or service per product/service review analyses 2. Positive/negative/neutral ratios over various time periods and as compared to competitive VCs. 3. Recovery time for sentiment rations after an encountered crisis. 4. Emergent evangelists (% positive posts) and distracters (% negative posts) from a single source E. Measuring Issue Resolution Time and Costs 1. Posts and issues addressed in social media channels. 2. Resolution of first contact; average resolution time. 3. Issues initiated and reached online and offline (like phone contact) and comparative cost per issue. 4. Cost per issue (as compared to offline mechanisms like phone contact). 5. Peer-resolved issues (support). 6. Supportive comments/defending gestures by community members. F. Measuring Lead Generation and Sales 1. Community membership overlap with sales; Referrals via online channels. 2. % leads originating through online channels; % leads closed though online channels. 3. Cost per dollar raised. G. Measuring Website Analysis 1. Referral traffic volume from virtual community site. 2. Time on virtual community site for online referrals. 3. Conversations/click through % for various referral channels. 4. Inbound links. H. Measuring Content Performance 1. Downloads from site: Uploads of User-generated content (UGC) 2. Revenue and paid out count. 3. Shares (share of Tweets; Retweets; Inbound links; bookmarks; votes, etc. 4. Unique conversations about community created content & external or user-generated content.

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Appendix B: Empirical Social Representation Applications 1. Penz, Neir-Pesti and Kirchler’s study (2004) in Austria concerning consumer behavior toward the ‘electronic purse’ (the chip card). 2. Godet et al (2009) work with social representation research methodologies in the UK where they sought consumer opinions and prejudices toward fitness clubs to learn of salient elements of a particular sports brand and the way these elements are structured the community members themselves. 3. Houtilainen, Pirttila-Backman and Tourill’s (2006) study in Finland regarding the marketing of new foods to consumers based on consumers grouped into their suspicions of new foods, adherence to natural foods, adherence to technology, eating as an enjoyment activity vs. eating as a necessity; and other eating behaviors. Research findings of this study were used an attempt to predict community consumers’ willingness to try/use new foods. 4. Levin-Rosalis et al (2003), showed how social representation research was used as a therapeutic process in conditioning a community of habitually violet men to understand and manage their own aggression tendencies. 5. Audebrand (2004) describe how social representation research was used to show how ‘fair trade’ was elaborated among student community member interactions based on free associations. 6. Breakwell and Canter (1993) in their book, Empirical Approaches to Social Representation Research, illustrates the multi-functionality of social representation research. 7. Many other phenomena as subjects of social representation research: a. Brand/product building and brand/product mapping - indirectly or directly elicit from community members reality- based values, perceived benefits attitudes, and other such information about particular brands or products to aid brand image building, brand image mapping, and other brand-related endeavors. b. Building sales volume – indirectly or directly elicit information about barriers to consumption from community members and to determine important reasons for non-consumption. c. Others

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The Devaluation of the United States Dollar: Causes and Consequences

The Jones, Devaluation of the United States Dollar: Causes and Consequences Rita Columbus State University Lee L’Oste-Brown, Columbus State University Rita Jones, Columbus State University Lee L’Oste-Brown, Columbus State University

This paper identifies many of the challenges that the U.S. dollar faced between 2002 and 2008, and also the consequences Americans are facing because of the dollar’s free fall in value. Implications of the United State’s current activities, both in- and outside of its borders, are examined in order to determine the causes of the decline of This paper identifies many of the challenges that the U.S. dollar faced between 2002 and 2008, and also the the U.S. dollar. In addition, a potential remedy is presented and includes the formation of a coalition with other consequences Americans are facing because of the dollar’s free fall in value. Implications of the United State’s current countries to begin allowing all currencies to float freely in the exchanges, thereby letting the market dictate activities,prices. both in-Ofand outside its borders, are examined in order remedy to determine causes the decline currency course, theoflikelihood of this is small. Another that isthe within theofpower of the of U.the S., U.S. but dollar. In addition, a potential remedy is presented and includes the formation of a coalition with other countries to also unlikely to take place, is to reduce government spending as well as the ever-increasing deficits. If drastic begin allowing all currencies to float freely in the exchanges, thereby letting the market dictate currency prices. Of actions such as these are not instituted, further declines in the dollar’s value will take place, and the ramifications course, the likelihood of this is small. Another remedy that is within the power of the U. S., but also unlikely to take will be severe. place, is to reduce government spending as well as the ever-increasing deficits. If drastic actions such as these are not instituted, further declines in the dollar’s value will take place, and the ramifications will be severe. The beginning of the Twenty First Century has seen a tumble of the United States currency that, if it continues, threatens to knock the dollar out of its position as the primary currency of the world. From a high in 2002 to the recent in the of summer of 2008, U.S. has dollar has taken aofdramatic dive, onecurrency that may continue for the Thelow beginning the Twenty First the Century seen a tumble the United States that, if it continues, foreseeable thedollar causesout accredited with itsasdecline are notcurrency rectified.ofThe the aU.S. is already threatens tofuture knockifthe of its position the primary thedecline world. of From highdollar in 2002 to the affecting ofof millions of Americans. Thetaken rapidarise in oil prices thatthat hasmay taken place infor 2008 probably recent lowthe in prosperity the summer 2008, the U.S. dollar has dramatic dive, one continue the is foreseeable the most effect of the currency to losing itsdecline title as the bloodline of global commerce and future if notable the causes accredited with itsdecline. declineIn areaddition not rectified. The of the U.S. dollar is already affecting security of the of world, the of American dream at stake, strengthen value of the U.S. the prosperity millions Americans. Theisrapid rise and in oilaction pricesmust that be hastaken takentoplace in 2008the is probably most dollar. notable effect of the currency decline. In addition to losing its title as the bloodline of global commerce and security This paper the dream causesisthat haveand besieged the U.S. dollar between 2002 and of2008, anddollar. also the of the world, theshows American at stake, action must be taken to strengthen the value the U.S. consequences Americans are facing because of such a free fall. The implications of the current activities both in- and This paper shows the causes that have besieged the U.S. dollar between 2002 and 2008, and also the consequences outside of the States must be examined order to determine causesactivities of the decline theoutside U.S. dollar. Americans are United facing because of such a free fall. in The implications of thethe current both in-ofand of the Remedies mustmust be instituted or else further in the its value takedecline place, and theU.S. ramifications will be must severe. United States be examined in order to declines determine causeswill of the of the dollar. Remedies be Drastic action must be taken to strengthen thewill U.S. Dollar. instituted or else further declines in its value take place, and the ramifications will be severe. Drastic action must This paper is divided be taken to strengthen the into U.S. three Dollar.main sections. The paper will first describe the causes that have led to, and continue to foster, the deterioration the U.S. currency the world markets. Thisthe includes for This paper is divided into threeofmain sections. The inpaper will first describe causesAmerica’s that have appetite led to, and imported goods, thethe federal government’s policies, in thethe emergence of the This European Union and China, and the continue to foster, deterioration of the fiscal U.S. currency world markets. includes America’s appetite for general of the government’s world market.fiscal Next,policies, the paper describeofthe thatand have comeand about importedglobalization goods, the federal the will emergence theconsequences European Union China, the because of the sharp drop of world the U.S. DollarNext, and its value in describe comparison other currencies the come world.about The general globalization of the market. thelow paper will the toconsequences that of have consequences consist of high import prices, including commodities, diversification of currency because of current because of the sharp drop of the U.S. Dollar and its low value in comparison to other currencies of the world. The globalization perceived risk of theprices, dollar,including and an increase in exports by U.S. manufacturers. paperof will then consequencesand consist of high import commodities, diversification of currencyThe because current conclude withand suggested, andrisk common-sense, remedies which in will combat decline of the U.S.The Dollar and help it globalization perceived of the dollar, and an increase exports bythe U.S. manufacturers. paper will then reaffirm titlesuggested, as the dominant currency of theremedies world. which will combat the decline of the U.S. Dollar and help it concludeits with and common-sense, reaffirm its title as the dominant currency of the world. Chart 1: Major Currencies Index Chart 1: Major Currencies Index $120 $110 $100 $90 $80

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Brief History Brief History According to the Federal Reserve Statistical Release, during the current decade, the U.S. dollar has seen one of the most severetoand in its history. In during six short its weighted average value has in the world According thedrastic Federaldevaluations Reserve Statistical Release, theyears current decade, the U.S. dollar seen one market, represented by the major currencies index, has declined average high of $112 in February to a of the most severe and drastic devaluations in its history. In sixfrom shortanyears its weighted average value in 2002 the world low of $70 in July 2008 as shown in Chart 1 above. U.S. dollar is now worth 38% thaninitFebruary was in 2002 when market, represented by the major currencies index, One has declined from an average high less of $112 2002 to a looking at the broad2008 spectrum of major world currencies that make the Major Index (MCI). The when MCI low of $70 in July as shown in Chart 1 above. One U.S. dollarup is now worthCurrencies 38% less than it was in 2002 islooking issuedatbythethe Federal Reserve Statistical andthat includes Canada, Japan, and many of the countries in theis broad spectrum of major worldRelease, currencies make up the Major Currencies Index (MCI). The MCI Euro such as theReserve UnitedStatistical Kingdom,Release, Switzerland, Australia, and Japan, Sweden, of other issuedarea by the Federal and includes Canada, andwith manytheof addition the countries in themajor Euro currencies developed countries.Switzerland, When looking at the currency exchange rate between the U.S. dollar and the area such asinthe United Kingdom, Australia, and Sweden, with the addition of other major currencies in European (the Euro), decline is staggering (Chart 2).rate As between seen fromtheChart below, thethe dollar hit a high in developedUnion countries. When the looking at the currency exchange U.S.2dollar and European Union 2002, wherethe one dollariswas worth over 1.1 2). Euros. Sincefrom then,Chart the dollar has the been on a hit steep decline, shedding (the Euro), decline staggering (Chart As seen 2 below, dollar a high in 2002, whereover one 45% its worth value, over to the reached Julythe 2008 of has lessbeen than on 0.6a steep Euros.decline, Only recently the45% dollar rebounded dollarofwas 1.1low Euros. Sinceinthen, dollar sheddinghas over of its value, to against currencies, not due to athan change in the fundamentals below, but due against to a change incurrencies, the global the lowworld reached in July 2008 of less 0.6 Euros. Only recently described has the dollar rebounded world market. Investors are flocking to the U.S. because, currently, they deem us to be one of the best of the worst in the not due to a change in the fundamentals described below, but due to a change in the global market. Investors are current financial crisis. After the current financial crisis has passed though, there is nothing to keep the dollar from flocking to the U.S. because, currently, they deem us to be one of the best of the worst in the current financial crisis. continuing its downward against the world’s major the dollar dissipates. its downward After the current financialtrend crisis has passed though, therecurrencies is nothingas todemand keep thefor dollar from continuing trend against the world’s major currencies as demand for the dollar dissipates. Chart 2: Value of 1 USD to Euro

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The U.S. Trade Deficit

CAUSES OF THE DEPRECIATION OF THE U.S. DOLLAR CAUSES OF THE DEPRECIATION OF THE U.S. DOLLAR

TheThere U.S. are Trade Deficit many factors that can be attributed to the relentless devaluation of the U.S. dollar, but the one that is having a profound effect is the trade deficit that continues to plague the U.S. economy. In the current decade the There aretrade-weighted many factors that canhas becontinued attributedto to fall the as relentless devaluation of the U.S. dollar, but up thehistorically one that is value of the dollar “the United States has continued to rack having a profound effect is the trade deficit that continues to plague the U.S. economy. In the current decade the unprecedented trade deficits” (Rogoff 2008). As Chart 3 depicts, the deficit has more than doubled since the early value of the trade-weighted dollar has continued to fall as “the United States has continued to rack up historically 2000’s, even as the value of exports has been increasing (Foreign Trade Statistics). The U.S. trade deficit is unprecedented trade deficits” (Rogoff 2008). of AsGross Chart Domestic 3 depicts, Product the deficit has more since the early currently running between 5 and 6 percent (GDP). Withthan the doubled American consumer’s 2000’s, even as the value of exports has been increasing (Foreign Trade Statistics). The U.S. trade deficit is currently addiction to cheap goods and services and their current ability to spend as they please through endless amounts of running between 5 between and 6 percent of Gross Product WithThis the imbalance American has consumer’s to debt, the imbalance the trade deficit Domestic and GDP will only(GDP). get worse. the effectaddiction of pouring cheap goods and services and their current ability to spend as they please through endless amounts of debt, the massive amounts of U.S. dollars into the world, which in turn, pushes down the value of the dollar. Since the imbalance trade by deficit and GDP will only get worse. This imbalance has theimported, effect ofcountries pouring massive products or between services the exported the U.S. are not equivalent to the net goods and services are left amounts of U.S. dollars into the world, which in turn, pushes down the value of the dollar. Since the products or holding dollars which they may either use to rack up currency reserves or to purchase U.S. Debt. Countries, such as services exported by the U.S. are not equivalent to the net goods and services imported, countries are left holding those in the Persian Gulf, are finding themselves with huge stockpiles of U.S. dollars due to oil sales. These dollars which may either use to rack up currency reserves or to them purchase Countries, as debt, thoseor in countries mustthey either stockpile endless reserves of dollars or invest backU.S. intoDebt. the U.S. throughsuch trade, the Persian Gulf, are finding hugedollar stockpiles U.S. dollars oil sales. These countries must equity purchases. With largethemselves quantities with of the beingofinjected into due the to world market because of trade either stockpileinvestors endless reserves of dollars or invest them back into the U.S. through debt, or equity purchases. discrepancies, from foreign countries are demanding increased returns on trade, their investments. They do this With large quantities of the dollarrates being injected additional into the world marketpower because tradenative discrepancies, investors by either requiring higher interest or through purchasing withoftheir currency. With the from foreign countries are demanding increased on their later), investments. They do this by either requiring federal government artificially keeping interest ratesreturns low (discussed investors are left to push down the value higher interestThis ratespushing or through additional purchasing powerincreases with theirtheir native currency.power With the federal government of the dollar. down of the value of the dollar purchasing when investing in the artificially keeping interest rates low (discussed later), investors are left to push down the value of the dollar. This U.S. or purchasing goods from the U.S. An insufficient inflow of dollars back into the U.S. leads to a further pushing down of the value of the dollar increases their purchasing power when investing in the U.S. or purchasing

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goods from the U.S. An insufficient inflow of dollars back into the U.S. leads to a further depreciation of the dollar. This depreciation gives foreigners an incentive to purchase goods or services, invest in government or corporate debt, or take equity stakes in U.S. corporations. The dollar will continue this process until its value is low enough to attract needed buyers or investors who are willing to purchase dollars. This will generate inflows of dollars back into the U.S. economy (Mouhammed 2008). Chart 3: U.S. Imports & Exports (in Millions)

Tying the deficit and government debt with the need for the global community to embrace the dollar, Ronald McKinnon (2008) writes: “The sustainability of the huge U.S. current account deficit depends on the continuance of the dollar as the world standard. If the United States as center country maintains a stable price level, countries with trade surpluses are loathe letting their currencies appreciate against the dollar for fear of losing mercantile competitiveness in the short run while risking deflation in the long run. If private inflows are insufficient to fund the U.S. current account, then foreign central banks step in to buy dollar assets to prevent their currencies from appreciating. Thus, the deficit could continue indefinitely with no well-defined upper bound on America’s net international indebtedness.” As McKinnon points out, the dollars’ reliance on foreign capital pouring into the U.S. to fund its account deficit is helping the dollar value in the short run, but in the long run, it is setting the dollar up for a huge downward correction. Once countries lose faith in the dollar, they may be less willing to invest their funds in the U.S. economy. This point has been proven in the first part of 2008 when most believed that the financial crisis was contained only to the U.S. During this period alone, the dollar fell almost 15% against major currencies. Foreign Investors around the world were dumping dollars for fear of a significant correction due to the financial crisis. They were also hedging their dollar holdings against commodities that generally move in the opposite direction of the dollar. This is a contributing factor to the commodities bubble that grew at the beginning of 2008 and one of the main reasons the American public was paying over four dollars per gallon for gasoline at that time. Low Interest Rates The Federal Governments’ deliberate intervention to keep interest rates low in addition to injecting funds into the money supply in the U.S. is also compounding the problem of the devaluation of the dollar. At a time when interest rates should be rising, because foreign investors are in need of additional returns due to of the decline in the value of the dollar, the federal government is keeping rates at artificially low levels. With interest rates low, the rate of return required by foreign investors is not being satisfied. Foreign investors then look to other markets such as the European Union, where interest rates are much higher, and as a result, demand for their currency goes up while the U.S. dollar goes down. This imbalance is causing foreign investors to either flock to European countries for superior returns or drive down the dollar to get additional value out of their native currency. Financial Globalization Financial globalization is also a key ingredient that continues to promote the devaluation of the dollar. Many economists argue that the dollar is destined to lose its value and its position as a key currency in the world economy (Danailova-Trainor 2007). They believe that the U.S. cannot continue to maintain the demand needed by the rest of the world to keep new foreign investment pouring into the U.S. Economists argue that the reliance on the U.S.

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for their own well being is being eroded, because of the emergence of other markets such as the European Union and China. They also believe that as a result of the foreign investment in the U.S., any perceived threat on the U.S. economy, and thus depreciation of the U.S. dollar, is compounded because foreign investors are likely to quickly withdraw their money. Allen Greenspan, former Federal Reserve Chairman, argues that, “foreign accumulation of U.S. assets will slow as dollar-denominated assets occupy a larger share of the world’s store of value. As investors refuse to buy U.S. assets, interest rates will rise or the dollar will depreciate” (Danailova-Trainor 2007). This scenario may already be playing out. Because of the high trade deficit and the U.S. budget deficit, the global market is being saturated with U.S. dollars. Foreign investors are feeling pressure to diversify their positions. New global markets, such as China and Europe, have given the dollar a real rival for the first time in over a century, and thus foreign investors have an alternative to the dollar (Bergstein 2008). The China Syndrome The emergence of China as the number one exporter of manufactured goods in the world has also contributed to the decreased value of the U.S. dollar. During the short period of the eight years between 2000 and 2008, China has surpassed the United States as the number one exporter of the world. China has turned into a manufacturing “juggernaut,” taking a huge global market share away from the U.S. and leaving the U.S. manufacturing base in ruins. The “Made in China” mark on goods has replaced the “Made in America” mark and can be found almost everywhere that consumers spend their money. This transfer to China has fundamentally changed the way dollars are handled in the world. Before China, U.S. dollars were needed and demanded because the United States was the primary exporter of the world. Dollars kept flowing back into the U.S. by the purchase of goods and services by the consumers in foreign countries. This inflow has now slowed. China has now become the primary exporter in the world, and the U.S. has turned into a huge importer of goods and services from China, only second to Europe (Preeg 2008). This has significantly reduced the inflow of trade dollars back into the U.S. economy. This has also enabled China to accumulate vast amounts of U.S. debt, and China is now number two, behind Japan, as the largest holder of U.S. Treasury securities. The China effect has also been compounded by China by not letting their currency, the yuan, float freely against the U.S. dollar. Letting the yuan float would make Chinese products and services more expensive to the U.S. and to other foreign consumers (Moody 2006). Although letting the yuan float freely in the currency markets would further pull down the U.S. dollar in the short run, it would also enable the U.S. to gain back some of its competitive edge by being able to compete with China on the price of exported and domestically produced goods. With the yuan able to appreciate in relation to the U.S. dollar, the prices for Chinese products and services would increase and the prices for U.S. goods would decrease. This would cause exports to gain significant strength in the U.S., bringing dollars flowing back into the U.S. economy. Although China has recently let their currency appreciate against the dollar by a small increment, the yuan still has a considerable amount to appreciate to put the yuan and dollar in a correct relative position that matches their respective imports and exports (Bergstein 2008). The Emergence of the European Union Another significant factor that is contributing to the decline of the dollar is the emergence of the European Union. The integration of countries in Europe has created an economy that is now bigger than that of the U.S., and it has given the world an alternative currency than that of the U.S. dollar. The European Union has also taken demand away from the U.S. in the form of foreign investments and exports, and it has overtaken the U.S. in currency holdings of the world. Up until now, the Euro has provided greater returns than the U.S. dollar when higher interest rates and currency appreciation is factored in. In an article by Fred Bergstein (2008), he warns that: “…we should expect a steady and sizable portfolio diversification from dollars into euro’s as private investors, central banks, and sovereign wealth funds seek to align the currency composition of their assets with the new structure of the world economy and global finance. One result will be steady upward pressure on the euro and downward pressure on the dollar...” The move to euro’s from dollars has already started and is a continuing cause for the decline in the value of the U.S. dollar. In 2006, the “global foreign exchange reserves totaled $4.35 trillion, of which 66.3% were held in U.S. dollars; but, as recently as 2002, the U.S. dollar accounted for over 70% of total foreign exchange reserves. The euro’s increasing stature has provided foreign central banks [investors] with an alternative, and the diversification trend is likely to continue” (Moody 2006). 227

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The U.S. Economy Recent perceived instability in the U.S. economy is also contributing to the depreciation of the dollar. The U.S. dollar has historically been viewed as a “safe” currency in that the risk of default or wild swings in its economy are low, and returns are almost guaranteed. Recently however, the housing crisis, along with huge trade and budget deficits, have soured the confidence that foreign investors have in the U.S. economy. In the past, investors were willing to sacrifice some of their returns by investing in the U.S. because of its reliability and security. Recently though, with confidence eroded investors are demanding higher returns by means of higher interest rates or more purchasing power of their native currency. CONSEQUENCES OF THE DEVALUATION OF THE U.S. DOLLAR The Dumping of U.S. Dollars Many consequences arise because of the impact of the depreciation of the U.S. dollar. Each has the potential to deliver a severe shock to the economy of the United States and the world. One such shock would be the dumping of U.S. dollars by foreign investors. The imbalance of dollars pouring out of the U.S. with dollars pouring back in, whether through debt issues or exports, is only minor in comparison to what could happen if foreigners jettisoned their dollar holdings. Ronald McKinnon (2008) adds to his previous remarks regarding this imbalance: “…, this uneasy equilibrium could be upset if the Federal Reserve loses monetary control by some ‘accidental’ domestic event, say, pumping too much liquidity into the economy to avoid a cyclical downturn-as might be the case with current subprime mortgage crisis. Alternatively, if U.S. protectionists succeed with bashing China or Japan to force the dollar down, then foreign holders of liquid dollar assets would again become nervous. There could be a tipping point where investors in Asia or the Persian Gulf so fear the loss of the dollar’s international purchasing power that they jettison their dollar holdings-despite the short-run pain of letting their own currencies appreciate. Such deep and general dollar devaluation would then cause massive inflation in the United States itself.” As Ronald McKinnon (2008) suggests, there could be a tipping point where foreign investors feel the dollar is destined to continue to depreciate, and rather than continuing to take loses, they may decide to dump their dollar holdings to invest in more secure and stable currencies. Also, “having accumulated such vast quantities, foreigners may, at some point, lose their appetite-particularly for U.S. government debt” (Moody 2006). Without a purchasing base for debt of the U.S., the pipeline of dollars flowing back into the U.S. economy would be cut off, and the funds needed to run the government would not be available. Currency Diversification The euro has already surpassed the dollar as the primary reserve currency in the world. The drop in value and the uncertainty in risk has stifled the dollar’s ability to provide the returns required by potential investors. Investors have been forced to diversify their holdings among other currencies of the world. As discussed earlier, foreigners have been willing to finance the U.S. trade imbalance by acquiring and accumulating large quantities of U.S. government debt, and stockpiling vast quantities of U.S. reserves; however, with strong rivals to the dollar, such as the euro and the yuan, the dollar now has competition, and investors have an alternative for investment. Foreign investors can, and are, diversifying their holdings among various currencies. As investors further diversify their holdings, the demand for dollars will further depreciate, and the cycle will keep replicating itself, thus putting the dollar in a steep, downward spiral (Bergstein 2008). The Rise in Commodities One of the most visible signs of the depreciation of the dollar, and the consequence it is having on the U.S. consumer, is the rapid rise in the prices of commodities that has taken place during the past few years. When the exchange rate for the dollar falls, commodities, such as oil which is traded in dollars, rise. The sellers of commodities in foreign countries refuse to let their revenues decline because the value to the dollar has gone down, so they demand

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more dollars. The recent rise in commodity prices has been fed by fear that the U.S. dollar will continue to drop, and investors will take huge losses. Investors started to hedge their positions by purchasing commodities, thus fueling the bubble that recently burst. Even though commodity values have recently come back down to a manageable level, the upward trend continues, and higher prices are still likely in the near future as long as the dollar continues its decline (Mouhammed 2008). Increased Import Prices Cheap imports of goods and services, which U.S. consumers have come to expect, are also being hurt by the devaluation of the U.S. dollar. With the dollar losing its value to currencies all across the world, dollars paid for goods and services must be increased so that revenues will not be sacrificed once they have been converted to the importerâ&#x20AC;&#x2122;s native currency. This is especially true for goods and services coming out of Europe. U.S. consumers will eventually see prices rise in the U.S. for foreign goods. Inflation Inflation will also increase. The downward spiral of the dollar is increasing the cost of foreign exports entering the U.S. and contributing to the overall inflation of the U.S. economy. As seen in Chart 4 below, compiled by Timothy McMahon (2008), inflation has been on a six year upward trend, since 2002 when the dollar peaked. At the same time, the U.S. dollar has been on a six year downward trend. This shows a correlation between the decline in the value of the U.S. dollar and the rise of inflation in the U.S. economy. Foreign investors are requiring higher and higher prices in terms of dollars for the goods and services they export to the U.S. This pushes up the costs of goods and services entering the U.S., which leads to a rise in inflation. Amid the depreciation of the dollar, inflation will continue. Consumers have already started to curtail their spending which is leading to a slowdown of the U.S. economy. Chart 4: Annual Inflation Rate

Timothy McMahon (2008)

Cheap U.S. Goods With the help of the weak U.S. dollar, U.S.-made products have become more competitive in the world arena, leading to a short term increase in U.S. exports. In Addition, U.S. goods and services are essentially on sale to the rest of the world. This effect can be seen on Chart 3, presented earlier in this paper, where the account deficit has taken a breather from its rapid increase and has leveled off for 2007. But the increased exports by the U.S. and the strengthening of foreign currencies, in contrast to the U.S. dollar, are also hurting foreign countries who rely heavily on their exports as a significant portion of their GDP. Such countries as Germany, Japan and South Korea are finding their completive edge evaporate as the U.S. dollar declines and their goods and services are becoming more expensive to their crucial customers in the U.S. (Roubini 2008). This increases the possibility of potential dispute between the United States and some European countries. Seeing their currencies appreciating against the dollar, along with their

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higher rates of interest, many of the countries’ economies will be affected. This will lead to a contraction of export industries, causing their unemployment to rise, and their GDP to fall. In this regard, Mouhammed (2008) offers the example that, “Airbus received a $40 billion contract from the U.S. Air Force in order to grease its economic wheels [of European countries] at the expense of the American workers.” Conclusions With the prosperity of the U.S. at stake, action must be taken to strengthen the U.S. dollar and reverse the direction it has taken over the past six years. Action must be implemented to combat the depreciation of the dollar. One such action would be to restore the trade balance in the world by letting all currencies float freely in the exchanges, thereby letting the market dictate the price of currencies. Although this would hurt the U.S. dollar in the short run, in the long run the U.S. would gain back some of its competitive edge and be better able to compete in the global market place. Exports, in addition to the flow of dollars back into the U.S., would increase. This action would require a willingness by other countries, such as China, not to artificially manipulate their currencies. Secondly, the U.S. government must reduce its spending and get rid of the budget deficits it has been plagued with. By reducing excess government spending, the need to increase the money supply in the U.S. would be reduced. This would cause interest rates to rise and lead to a strengthening of the dollar. This would also correct the imbalance of interest rates by allowing them to rise to a realistic level that will prevent significant inflation and increase the return on capital needed by foreign investors. To do this, the U.S. government would need to be willing to curb spending and refrain from capping interest rates at very low levels. Implications for Future Research Implications for further research include presenting the global needs of the U.S. as a world consumer of goods and services. Additional research could also be devoted to the implications to foreign countries which refuse to give “credit” to the U.S. Further research could also be done concerning the belief that the dollar has recently been over-valued, and its recent downward trend is simply a correction to a more realistic value in comparison to other currencies of the world. REFERENCES Bergstein, F. 2008. A call for an “Asian Plaza. The International Economy, 22: 12-17. Danailova-Trainor, G. 2007. The exhaustion of the dollar and its implications for global prosperity. Eastern Economic Journal, 1: 154-157. Federal Reserve Statistical Release. Foreign exchange rates. The Federal Reserve. http://www.federalreserve.gov/ releases/h10/Summary/. Foreign Trade Statistics. Historical series. U.S. Census Bureau. http://www.census.gov/foreign-trade/statistics/ historical/index.html. McKinnon, R. 2008. The Dollar problem. The International Economy, 22: 53. ABI/Inform Complete, via Galileo, http://www.galileo.usg.edu. McMahon, T. 2008. Annual inflation rate. Inflation Data, www.InflationData.com. Moody, R. 2006. Dollar diversification: Threat to the U.S.? American Bankers Association. ABA Banking Journal, 98: 76. Mouhammed, A. 2008. Mitchell’s general theory of the business cycle and the recent crisis in the U.S. economy. The Journal of Applied Business and Economics, 8: 30-50. Preeg, E. 2008. The shifting sands of American competitiveness. The International Economy, 22: 63-66.

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Rogoff, K. 2008. Goodbye to the Dollar? The international Economy, 22: 51-52. Roubini, N. 2008. The coming financial pandemic. Foreign Policy, 165: 44-49. Rita Jones is an associate professor of accounting at Columbus State University. She received his Doctorate in accounting from Mississippi State University. Her current research interests include ethical issues in accounting and education, financial stress in healthcare, and teaching pedagogy in business. She has published in Journal of Business, Industry and Economics; Journal of Accounting and Finance Research, Journal of Business and Leadership: Research, Practice, and Teaching; Decision Sciences Journal of Innovative Education, and others. Lee Lâ&#x20AC;&#x2122;Oste-Brown is financial officer for Denim North America L.L.C. Lee is member of the top management team for National Security Associates Inc. Lee holds a master of business administration from Columbus State University.

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The Evolution of the American Comic Book Industry: Are We Entering the Third Wave? David Palmer, University of Nebraska at Kearney Since its origins in the 1930s the comic book industry has been a part of American popular culture. The industry itself can be thought of as having existed in three distinct waves. Wave 1 describes the industry from its beginnings, with a focus on mass distribution supporting high volume sales of an inexpensively priced product. Wave 2 is defined by a niche approach narrowly focusing on a target audience of committed fans and collectors. A nascent Wave 3 driven by technological forces (e.g., internet) may augur further changes for the industry. The American Comic Book Industry The comic book is a well recognized part of American popular culture. The comic book industry has produced such familiar cultural icons as Superman, Batman, Spider-Man, Wonder Woman, and the X-Men. The comic book as it first appeared in the 1930s was very similar in form to its present day incarnation. An early example is Famous Funnies #1 published by Eastern Color in 1934. Famous Funnies reprinted newspaper comic strips, but it was not long before publishers began commissioning original material. With the success of the Superman character, introduced in Action Comics #1 (June, 1938), the comic book established itself as a newsstand staple for generations of children and adults (Benton, 1989). The comic book of 2010 would generally be recognizable to a purchaser from 1940, or any other year since. It remains a printed periodical, generally in color and combining prose and pictures derived from the comic strip format. Aspects of content, and the quality of the actual printing (e.g., reproduction, paper stock) have changed, as well as the price, but the product is essentially the same as it was when Action Comics #1 debuted in 1938. Carr (2010) reported that sales of comic books in the North American (United States and Canada) market for 2009 were $680 million. The impact of the comic book industry goes well beyond the size of its sales. Comic book properties are licensed for a wide range of products (e.g., clothing, food, theme parks, toys), and these licensing revenues can be substantial. The current industry is dominated by two publishers, Marvel Comics and DC Comics (Gabilliet, 2010). Illustrating the importance of licensing their comic book properties to other media both Marvel and DC are parts of major entertainment conglomerates. Marvel is part of The Walt Disney Company and DC is part of Time Warner. For example, the linkage between comic books and film is well established in the history of the industry. Movie serials and animated shorts featuring comic book characters began in the 1940s (e.g., Adventures of Captain Marvel [1941], Batman [1943], Superman [animated shorts, 1941-1943; serial, 1948]). This relationship carried over into television with live action series (e.g., Batman [1966-1968], Adventures of Superman [1952-1958], Wonder Woman [1976-1979]) as well as animated series (e.g., Spider-Man [1967-1970], Super Friends [1973-1986], Teenage Mutant Ninja Turtles [1987-1996]). Recently the importance of comic book properties to the film industry has increased, including films based on such properties as Batman (DC), Hulk (Marvel), Spider-Man (Marvel), and X-Men (Marvel) (Gabilliet, 2010). Despite the seeming stability of the product and its impact on the larger culture, over the intervening seventyfive years or so the comic book industry has experienced many changes. In fact, it can be argued that over those seventy five years there have been three somewhat distinct comic book industries, or, more appropriately, three different waves of the industry. Wave 1 describes the industry that grew out of the 1930s. That wave transformed into Wave 2 in the 1970s and 1980s, although it continues to this day in much reduced form. Today, Wave 1 is greatly overshadowed by Wave 2 and its industry/business model that emerged thirty five years ago. Within Wave 2 a Wave 2.1 is identified which combines elements of Waves 1 and 2. Wave 2.1 could be viewed as a resurgence of Wave 1, but given its reliance on Wave 2 sensibilities and content it is more properly defined as an outgrowth of Wave 2. Driven by societal and technological changes the industry may again be on the cusp of another transformation, the beginning of a third wave. A nascent Wave 3 is discernible but has yet to eclipse Wave 2 in the way that Wave 2 eventually eclipsed Wave 1 as the dominate form of the industry. Wave 3 represents a transformation that may not only, as did the prior one, transform the industryâ&#x20AC;&#x2122;s underlying business model, it may also lead to fundamental changes in the core product, the now familiar printed periodical known as the comic book. Some of the defining characteristics of these three waves are summarized in Table 1.

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Table Table 1: 1: Summary Summary of of Characteristics Characteristics of of the the Three Three Waves Waves of the Comic Book Industry Wave 1: Mass Market (Print) Wave 1 (1930s-present) Product: printed periodical Price: inexpensive Distribution: mass (returnable) Customer: casual Wave 2 (& 2.1): Niche Market (Print) Wave 2 (1970s-present) Product: printed periodical/book Price: moderate Distribution: specialty stores (“direct” –not-returnable) Customer: collector Wave 2.1 (1990s-present) Product: printed book Price: variable (depends on format/length) Distribution: returnable Customer: casual, collector Wave 3: Internet (Digital) Wave 3 (1990s-present) Product: digital Price: ??? Distribution: Internet Customer: specialty, mass market potential

Examining the Definition of Industry Examining the Definition of Industry Intuitively, defining an industry and the fundamental nature of its key product would appear to be a fairly straightforward exercise. an However, and the products (andofthe of distribution) thattodefine Intuitively, defining industryindustries and the fundamental nature its channels key product would appear be a those fairly industries changeexercise. over time. Sometimes the change is products incremental and sometimes change is straightforward However, industries and the (andand theevolutionary, channels of distribution) thatthe define those truly radicalchange and revolutionary. These changes and transformations so radical and revolutionary thatchange people’s industries over time. Sometimes the change is incrementalcan andbeevolutionary, and sometimes the is basic of the industry and its product is challenged. can be so radical and revolutionary that people’s truly conceptualization radical and revolutionary. These changes and transformations A conceptualization vivid illustration ofofthis is the that is haschallenged. played out in the case of recorded music. Technological basic the point industry andprocess its product advances have fundamentally conceptualization of thisout industry, and its structure music. and business models A vivid illustration of thischanged point is our the process that has played in the case of recorded Technological have undergone profound changes. Thisour is conceptualization an industry defined by technological Early were advances have fundamentally changed of this industry, and advances. its structure and recordings business models made using Thomas Edison’s phonograph technology, that technology gave way to the gramophone have undergone profound changes. This iscylinder an industry defined but by technological advances. Early recordings were disc, produced shellac,phonograph and then ofcylinder vinyl. The record industry gave way to to 8-track tapes, and disc, then madefirst using Thomasof Edison’s technology, but that partially technology gave way the gramophone cassette tapes before being almost completely by the compact changes have first produced of shellac, and then of vinyl. Theeclipsed record industry partiallydisc. gaveEven way more to 8-track tapes, andbeen thenwrought cassette by MP3 technology. Today, it would be inappropriate to discuss a record industry per se, butbeen it would certainly be tapes before being almost completely eclipsed by the compact disc. Even more changes have wrought by MP3 appropriate discuss a music recorded music) industry. Theindustry physicalper product the certainly attendant be infrastructure technology. to Today, it would be (or inappropriate to discuss a record se, but-itand would appropriate to product - has changed, the core essence of the industry to deliver discussthat a music (or recorded music)but industry. The physical product - andremains. the attendant infrastructure to deliver that The forces of technological change have also roiled the broader product - has changed, but the core essence of the industry remains. publishing industry. Books, newspapers, and magazines are under increasing change pressurehave fromalso the roiled internet, the radically different methods publishing and The forces of technological the and broader publishing industry. Books,ofnewspapers, and distributing content that it facilitates. As a from form the of printed matter, theradically comic book is experiencing same forces. magazines are under increasing pressure internet, and the different methods ofthe publishing and In all meaningful aspects comic book is essentially a physical when the examined over its distributing content that it the facilitates. As a form of printedunchanged matter, theas comic book isproduct experiencing same forces. In seventy five year history. However, of the comic and product the comic book industryover may all meaningful aspects the comic booka isredefinition essentially unchanged as abook physical when examined itsbecome seventy necessary. Just asHowever, the recorda redefinition industry may (or, arguably, has)book veryindustry little to may do with phonographic five year history. of have the comic book andalready the comic become necessary. records, it is possible that the comic book industry may ultimately have very little to do with books per se. The Just as the record industry may have (or, arguably, already has) very little to do with phonographic records, it is industry be experiencing a third wave. To better have understand the to possibility for change in The the industry, it may possible may that the comic book industry may ultimately very little do with books per se. industry may be help to look atathe industry’s phases or waves. experiencing third wave. Toprevious better understand the possibility for change in the industry, it may help to look at the industry’s previous phases or waves. Description of the Three Waves of the American Comic Book Industry

Description of the Three Waves of the American Comic Book Industry Wave 1 Wave The1 first wave of the American comic book began with the origins of the industry and its defining and now familiar product, the comic book, in the 1930s. The peak of this wave was in the 1940s and 1950s. The industry The first wave the American comic bookinto began thebut origins of the industry and its defining andfirms now familiar continued with fewofmajor structural changes thewith 1960s stresses were becoming evident (e.g., leaving product, comic book, in the 1930s. The the peakdecline of thiswas wavepartially was in the 1940s 1950s. The boost industry the field).the Sales were declining, although offset by and the short-lived thecontinued industry with few from majorthe structural changes the 1960s but stresses evident (e.g., leaving theBy field). received popularity of theinto Batman television series were in thebecoming 1960s (1966-1968) (J.firms Eisner, 1986). the Sales were declining, although the decline was partially offset by the short-lived boost the industry received from

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the popularity of the Batman television series in the 1960s (1966-1968) (J. Eisner, 1986). By the 1970s these declines were (Benton, 1989; Palmer,(Benton, 1987). It1989; can bePalmer, argued1987). that byItthe 1990s this wave had wave been 1970saccelerating these declines were accelerating can be argued thatofbythe theindustry 1990s this greatly reducedhad andbeen had become marginalized. of the industry greatly reduced and had become marginalized. Throughout this wave, the form of the physical physical product product stabilized, stabilized, although over the years the number of interior interior pages declined. Using Action Comics as an example, Table Table 22 provides provides some some information. information. The number of interior interior pages slowly decreased decreased from 64 to 32. Interestingly, the price of a comic book, in constant 2010 dollars, which were further adjusted adjusted for for page page length, length,remained remainedfairly fairlystable stablefrom from1938 1938until untilapproximately approximately 1971 range $.77 1971 in in thethe range of of $.77 to to $.92. industry came under increasing pressure 1970s,the theprice pricedoubled doubledtoto$1.44. $1.44. By By the the 1980s the $.92. AsAs thethe industry came under increasing pressure in inthethe1970s, industry was well into its transformation transformation to Wave 2 where prices would eventually eventually reach four times their previously stable Wave 1 levels. Generally, in Wave 1 the price of a comic book was relatively low and itlow was and correctly Wave 1 levels. Generally, in Wave 1 the price of a comic book was relatively it wasconsidered correctly an inexpensive and disposable The predominant Wave 1 pricing made sensemade givensense the industry’s considered an inexpensive and product. disposable product. The predominant Wavescheme 1 pricing scheme given the general mass market/saturation model of distribution. In this business model high model sales volume would compensate industry’s general mass market/saturation model of distribution. In this business high sales volume would for low prices margins. compensate forand lowlow prices and low margins. Table 2: Price Price of of Action Action Comics Comics over over Time, Time, Constant Constant Dollars Dollars (2010) (2010) Table 2: Cover Date (year) 1938 1943 1944 1951 1954 1962 1969 1971 1972 1975 1976 1977 1978 1978 1980 1981 1983 1991 1992 1993 1995 1998 2000

Cover Price $.10 .10 .10 .10 .10 .12 .15 .25 .20 .25 .30 .35 .50 .40 .50 .60 .75 1.00 1.25 1.50 1.95 1.99 2.25

Interior Pages 64 56 48 40 32 32 32 48 32 32 32 32 44 32 32 32 32 32 32 32 32 32 32

Cover Price adjusted to 32 interior pages $.05 .06 .07 .08 .10 .12 .15 .17 .20 .25 .30 .35 .36 .40 .50 .60 .75 1.00 1.25 1.50 1.95 1.99 2.25

Cover Price in 2010 Dollars $.77 .72 .83 .67 .81 .87 .89 .92 1.04 1.01 1.15 1.26 1.20 1.34 1.32 1.44 1.64 1.60 1.94 2.26 2.79 2.13 2.85

CPI Inflation Calculator, http://data.bls.gov/cgi-bin/cpicalc.pl; Sources:Sources: CPI Inflation Calculator, http://data.bls.gov/cgi-bin/cpicalc.pl; Grand Comics Grand Database, http://www.comics.org/. Comics Database, http://www.comics.org/.

To achieve achieve mass mass market market distribution, distribution, comic comic books books were were distributed distributed through through the the newsstand, newsstand, or or ID, ID, system. system. To Regional distributors distributed the product to retail outlets and the comic books were displayed for sale for aa Regional distributors distributed the product to retail outlets and the comic books were displayed for sale for prescribed time period until the next issue was distributed. The unsold copies were returned for credit. If twenty prescribed time period until the next issue was distributed. The unsold copies were returned for credit. If twenty copies of a title (e.g., Walt Disney’s Comics and Stories #188, May 1956) were distributed and ten were returned, copies of a title (e.g., Walt Disney’s Comics and Stories #188, May 1956) were distributed and ten were returned, then then the retailer was charged for the ten that were presumed to have been sold. Some titles reportedly sold over one the retailer was charged for the ten that were presumed to have been sold. Some titles reportedly sold over one million million copies per issue, while many routinely sold in the hundreds of thousands (Benson, 1989; Palmer 1987). copies per issue, while many routinely sold in the hundreds of thousands (Benson, 1989; Palmer 1987). In the late 1940s and early 1950s, comic books became increasingly popular among children as well as adults. In the late 1940s and early 1950s, comic books became increasingly popular among children as well as adults. This popularity brought with it greater scrutiny of the impact of the then ubiquitous comic book on American This popularity brought with it greater scrutiny of the impact of the then ubiquitous comic book on American society, society, and particularly its impact on American youth. Educators and parents raised concerns about the violent and particularly its impact on American youth. Educators and parents raised concerns about the violent content and content and gratuitous nature of some comics. These concerns were given voice by psychiatrist Fredric Wertham, gratuitous nature of some comics. These concerns were given voice by psychiatrist Fredric Wertham, most sensationally most sensationally in his 1954 book, Seduction of the Innocent. 1954 also witnessed an investigation by the United in his 1954 book, Seduction of the Innocent. 1954 also witnessed an investigation by the United States Senate into these States Senate into these matters, specifically with hearings before the United States Senate Subcommittee on matters, specifically with hearings before the United States Senate Subcommittee on Juvenile Delinquency. Publishers Juvenile Delinquency. Publishers and distributers became concerned about a possible backlash against comic books. and distributers became concerned about a possible backlash against comic books. To head off possible government To head off possible government intervention into the industry, many key industry players created the Comics intervention into the industry, many key industry players created the Comics Magazine Association of the America Magazine Association of the America (CMAA) and created a code so that the industry could police itself (Hajdu, (CMAA) and created a code so that the industry could police itself (Hajdu, 2008; Nyberg, 1998). 2008; Nyberg, 1998).

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The creation creation of of the the Comics Comics Code Code Authority Authority (CCA) (CCA) and and the the CMAA CMAA helped helped to to calm calm the the fears fears of of distributors distributors and and The retailers. Comic books that were approved by the CCA and which conformed to the enumerated standards could retailers. Comic books that were approved by the CCA and which conformed to the enumerated standards could prominently display display aa seal seal on on their their cover. cover. From From this that their their primary primary audience audience prominently this point point forward forward publishers publishers assumed assumed that was children. children. Interestingly, Interestingly, one one publisher publisher never never joined joined the the CMAA CMAA and and its its comic comic books books never never carried carried the the CCA CCA seal. seal. was The company company was was Dell, Dell, which which had had always always advertised advertised the the high high quality quality and and standards standardsof of its its comic comic books; books; comic comic books books The specifically aimed aimed at at aa younger younger audience. audience. Through Through licenses licenses Dell Dell published published such such characters characters as as Mickey Mickey Mouse, Mouse, Bugs Bugs specifically Bunny, Lassie, Lassie, and andthe theLone LoneRanger. Ranger.Dell Dellwas wasthethelargest largest publisher at the time, powerful enough Bunny, publisher at the time, andand waswas powerful enough that that it didit did need not need so to as to assure distribution. Additionally, timeDell’s Dell’scomic comicbooks bookswere were perceived perceived as as not the the sealseal so as assure distribution. Additionally, at at thethetime wholesome and and appropriate appropriate for for children, children,something somethingthat thatwas wasnot notnecessarily necessarilytrue truefor forallallpublishers. publishers. wholesome Over the the years years the the Code Code was was revised revised many many times times(e.g., (e.g., 1971) 1971) to better reflect contemporary contemporary mores. mores. Approval Approval by by Over the Code was critical in the 1950s and 1960s to assure distribution. Over time the imprimatur of wholesomeness that the Code was critical in the 1950s distribution. Over time the imprimatur of wholesomeness that Code approval approval supplied supplied diminished diminished in in importance. importance.For ForWaves Waves 22 and and 33 Code Code approval approval isis of of little little consequence. consequence. To To Code illustratethe thescope scopeof ofthe theCode CodeTable Table 33 lists listssome somesample sampleprovisions provisionsoriginally originallyset setforth forthinin1954. 1954. illustrate Table Table 3: 3: Sample Sample Provisions Provisions from from the the Code Code of of the the Comics Comics Magazine Magazine Association Association of of America, Inc, 1954 Code Of The Comics Magazine Association Of America, Inc., 1954 Code For Editorial Matter General standards - Part A 1. Crimes shall never be presented in such a way as to create sympathy for the criminal, to promote distrust of the forces of law and justice, or to inspire others with a desire to imitate criminals. 7. Scenes of excessive violence shall be prohibited. Scenes of brutal torture, excessive and unnecessary knife and gunplay, physical agony, gory and gruesome crime shall be eliminated. General standards - Part B 2. All scenes of horror, excessive bloodshed, gory or gruesome crimes, depravity, lust, sadism, masochism shall not be permitted. 3. All lurid, unsavory, gruesome illustrations shall be eliminated. General standards - Part C All elements or techniques not specifically mentioned herein, but which are contrary to the spirit and intent of the code, and are considered violations of good taste or decency, shall be prohibited. Dialogue 1. Profanity, obscenity, smut, vulgarity, or words or symbols which have acquired undesirable meanings are forbidden. Costume 1. Nudity in any form is prohibited, as is indecent or undue exposure. Marriage and sex 2. Illicit sex relations are neither to be hinted at nor portrayed. Violent love scenes as well as sexual abnormalities are unacceptable. Code For Advertising Matter These regulations are applicable to all magazines published by members of the Comics Magazine Association of America, Inc. Good taste shall be the guiding principle in the acceptance of advertising. 1. Liquor and tobacco advertising is not acceptable. Source: Gabilliet, 2010

Wave 2 Wave 2 Wave 2 emerged as a reaction to the forces impinging upon the industry throughout the 1960s and which came to a head in 2the 1970s as (e.g., declining sales). Theimpinging mass market was breaking down. Slowlycame the Wave emerged a reaction to the forces upondistribution the industrymodel throughout the 1960s and which industry a new(e.g., business model, one The predicated on an entirely different distribution system, withSlowly attendant to a headmoved in theto1970s declining sales). mass market distribution model was breaking down. the changes audience, pricing, and model, content.one Arguably thisontransformation from the Wave 1 system, model towith the attendant Wave 2 industry in moved to a new business predicated an entirely different distribution model saved the industry fromand disappearing altogether (Gabilliet, 2010; Palmer, changes in audience, pricing, content. Arguably this transformation from the1987). Wave 1 model to the Wave 2 model Wave 2 is very much defined by its distribution model, which came to known as direct distribution. The direct saved the industry from disappearing altogether (Gabilliet, 2010; Palmer, be 1987). distribution system arose defined in the 1970s by the 1980s was the dominant of distribution (Palmer, 1987). The Wave 2 is very much by its and distribution model, which came to beform known as direct distribution. The direct new system addressed some structural problems in the industry that, in hindsight, were becoming evident as early as distribution system arose in the 1970s and by the 1980s was the dominant form of distribution (Palmer, 1987). The the 1950s and 1960s. These problems became acute in the 1970s (Benton, 1989; Palmer, 1987). The model of new system addressed some structural problems in the industry that, in hindsight, were becoming evident as early as selling a low margin product to a mass market wide distribution was becoming untenable. the 1950s andpriced/low 1960s. These problems became acute in thethrough 1970s (Benton, 1989; Palmer, 1987). The model of selling A number of margin factors product were involved. Traditional retail wide outletsdistribution such as small newsstandsuntenable. and “mom and pop” a low priced/low to a mass market through was becoming drugstores wereofclosing. the outlets that remained, many such were as dropping comic booksand from theirand product A number factors Also, were of involved. Traditional retail outlets small newsstands “mom pop” mix because the margins simply were too small. The price of a standard comic book had held steady at ten drugstores were closing. Also, of the outlets that remained, many were dropping comic books from their productcents mix

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because the margins simply were too small. The price of a standard comic book had held steady at ten cents from its introduction in the 1930s until 1962, when it increased to twelve cents, where it remained until 1969. Undoubtedly, part of the reason the price had remained at such a low level because, as noted in Table 2, was that the product had essentially shrunk in half. The market and consumers were accustomed to viewing comic books as inexpensive. Another problem was affidavit fraud in the distribution system. Typically, affidavits where used to claim credit for unsold copies. Some distributors would claim credit for unsold copies, but instead of destroying the unsold copies they would sell them to second-hand dealers. Publishers lost the revenue from these comic books which had actually been sold, albeit at a discount. Furthermore, these comics were in the marketplace competing against legitimate sales and cutting into what would have been legitimate sales at full price, further exacerbating the sales decline. Additionally, with the general rise in affluence in the United States other forms of inexpensive entertainment became more readily available such as television which served as a competitor for childrenâ&#x20AC;&#x2122;s time as a substitute product (e.g., Palmer 1987). As the customer base for comic books shrank, publishers began to rely more upon a core of fans and collectors. These were not the casual buyers of the first wave who were assumed to be younger children. By the 1960s there had developed an organized fandom among a group of committed and devoted comic book readers and collectors. This fandom developed along lines similar to the longer established fandom for science fiction. These fans produced their own amateur publications (fanzines), and created a network that shared information and sold each other back issues (Schelly, 1997, 1999). Some contributors eventually graduated to jobs within the industry, or became involved entrepreneurially with the creation of the direct market (e.g., distributors and retailers). The importance of this segment to the overall health of the industry continued throughout the 1970s and heightened into the 1980s. Many long established publishers whose titles were not highly prized by collectors left the industry (e.g., Charlton, Dell, Gold Key) (Palmer, 1987). Not only were these customers committed to comic books, they also tended to be older, and to have more disposable income. They were also willing to spend more for comic books and did not necessarily view them as disposable. Being older they possessed the wherewithal to seek out comic books (e.g., they were old enough to drive) in the dwindling number of outlets that still stocked them. Three effects flow out of this change in the customer base of comic books. One, customers were willing to spend more. This is reflected in Table 2 as the price of comic books rose steadily from the 1970s onward. Two, being older, the restrictions of the Comic Code were less germane. These were not children who needed to be protected from the material that they read. Actually, to some degree, the lack of Code approval was seen as a sign of legitimacy; a signal that the comic books were different (e.g., more mature) than those targeted to the Wave 1 market. Three, given that the customers were more willing to travel to where comic books were available, in contrast to comic books being available everywhere, specialty stores catering to a customer base of committed fans and collectors became viable. These specialty stores became the backbone of Wave 2. These retail outlets were typically independently-owned, although large chain bookstores (e.g., Barnes & Noble, Borders, Hastings) did eventually begin stocking comic book material with Wave 2.1. The key defining attribute of the direct system is distribution to the comic book specialty stores. In the 1970s it was very much a chicken and egg situation. Direct distribution was not viable until there were enough stores, and opening a store was not viable until there was a distribution system outside of the traditional newsstand (i.e., returnable) system. What differentiated the direct system from the newsstand system was that the retailers took ownership of the comic books and could not return unsold copies for credit. The direct system shifted the risk of unsold product to the retailer and away from the publisher and distributor. As a result, retailers received a larger discount than under the traditional system. Additionally, given the existence of a then thriving market for older comic books, any unsold product could eventually be sold in that market, sometimes at a substantial markup (Gabilliet, 2010; Palmer, 1987). Another aspect of the direct system is that it allowed publishers to better control print runs, and, thus, costs, since comic books are preordered and the print run can match sales. Under the ID system print runs may, for example, be twice what the actual sales turn out to be (allowing for returns), thus adding to costs and heightening forecasting and budgeting uncertainty. This aspect of the system changed the cost structure of publishers and allowed many new, small (and often times under-capitalized) publishers to enter the field. Some of these new companies came from the ranks of fandom. Wave 2 saw the industry move from a mass market model to a specialty focus; one targeted to fans and collectors. Wave 2 came to dominate the comic book industry throughout the 1990s and 2000s, as Wave 1 shrank in importance, and became only a secondary focus for DC and Marvel, although it remained the primary focus of Archie. DC, Marvel, and Archie were the only publishers to survive from Wave 1. Most of the new publishers spawned by Wave 2 never bothered with a Wave 1 approach by attempting newsstand distribution.

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Wave 2.1 In many ways Wave 2.1 is an adjunct to Wave 2. Generally, it is a reaction to the very valid realization that Wave 2 in many ways limited the industry’s market. Wave 2’s focus on hard core fans may have saved the industry, but it also condemned it to a very limited niche. Wave 2.1 reflected attempts to reach out to new audiences with new formats and content. Sometimes these were audiences that Wave 1 once appealed to (e.g., girls) but that had been forsaken by the industry as it remade itself due to the demands of Wave 2. Also driving Wave 2.1 was the success of Wave 2 to achieve greater cultural acceptance for comic books. The new customer base (as well as the creators) of Wave 2 was committed to comic books as an art form, and wished for comic books to be seen as legitimate. Throughout Wave 2, these efforts to achieve greater legitimacy bore fruit. The comic book format has increasingly come to be viewed as a legitimate storytelling and entertainment medium, and is more accepted as a form for serious literary expression. It is no longer viewed as a format fit only for disposable entertainment. For example, Alan Moore and Dave Gibbon’s Watchmen won a special category Hugo Award (Other Forms) in 1988. The Hugos recognize outstanding works in the field of science fiction. Providing even stronger evidence of the acceptance of the comic book form as a means for serious literary expression was the selection of Art Spiegelman’s Maus, A Survivor’s Tale, for a Pulitzer Prize Special Award in 1992. Maus is a comic book which told a story of the Holocaust, using anthropomorphized characters (e.g., Jews as mice, Germans as cats) (Gabilliet, 2010). Maus also illustrates another trend: the growth of the graphic novel. Graphic novels are essentially comic books, but they may be upwards of 500 pages long. Since the advent of the direct market the industry has experimented with a variety of format, page lengths, and production values (Weiner, 2003). Wave 2.1 reflects the diffusion of graphic novels and comic books in general into chain bookstores (e.g., Barnes & Noble, Borders). Another facet of Wave 2.1 is the increasing popularity of manga and manga style graphic novels. Manga is a term describing Japanese comic books. These comic books cover a wide range of genres and appeal to a variety of audiences (e.g., women, young children) beyond the core Wave 2 audience (i.e., males) (Schodt, 1986). Many of these graphic novels are translated from Japanese, although many are original and simply done in the style of Japanese manga. As Wave 2 has gained ascendency in the comic book industry it represents a fundamental shift in the basic business model of the industry from the one that propelled Wave 1. The industry is no longer defined by mass distribution but by targeted, niche distribution and focus. However, despite much experimentation (e.g., graphic novels) the product remains essentially unchanged. The product of the comic book industry is comic books. It seems almost ludicrous to make such a statement, since, of course, it must, on its face, be true. However, any analysis of the comic book industry should be chastened by remembering developments in the record industry. The record industry ultimately was not about phonograph records but recorded music. It is possible that the comic book industry may be entering a new wave, a third wave, focused not on comic books, as printed material but on graphic narrative or sequential art as a storytelling technique (W. Eisner, 1985/2005; McCloud, 1993). Wave 3 Wave 3 reflects ongoing attempts and experiments to leverage the power of the computer and the internet to the creation and distribution of comic books. These efforts grew in importance and magnitude from the 1990s to the present day (McCloud, 2000; Thorne, 2010). Graphic storytelling or sequential art reflects attempts to define comic books independent of the confines of the printed page, and to explore the nature of the underlying art form. Printed comic books are constrained by the physical dimensions of the printed page. The internet affords a page that is not limited in size and scope and thus is not constrained by the physical realities of a traditional comic book (McCloud, 2000). Additionally, it allows for the inclusion of sound and motion which contemplates a merger of the comic book and film. Computers have been a part of the industry for decades. Shatter was a digitally produced comic book from First Comics that first appeared in 1985. Today, computers are used in all facets of the creation of comic books. However, there are many comic books that exist only in digital form on the internet. Currently, the creators of web comics are exploring the potential of the computer and the internet as alternatives to the traditional printed comic book and the Wave 1 and Wave 2 distribution models. Just as the computer and the internet are remaking the broader publishing industry (e.g., books, magazines, newspapers), it has the potential to substantially transform the comic book industry (McCloud, 2000; Thorne, 2010). The computer affords different ways to approach the creation of graphic storytelling or sequential art (McCloud, 2000). The internet affords new ways to distribute those stories. A search of the internet reveals that literally thousands of web comics exist. Generally, this aspect of the industry has yet to find a way to make web comics financially viable. Of course, traditional comic books can be digitized and made available over the internet, which

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also raises the risk of piracy. However, wholly new forms may evolve, and new distribution (and payment) models may be found to be viable. Concomitant with the ongoing experimentation with new forms of ebooks, it may become appropriate to consider ecomic-books. Wave 3 then is the next step in the evolution of the comic book industry. Where Wave 2 was essentially a different distribution model as opposed to Wave 1, Wave 3 may entail not only a radically different distribution and business model, but, also, a radical transformation of the comic book itself. In microcosm the comic book industry may be a special case of the profound changes rippling through the entertainment industries, in general, and publishing specifically. Examining the history of the comic book industry provides insight into the evolution of industries, as they transform in response to technological, cultural, political, and societal changes. The potential for the comic book industry to provide further evidence of change, both evolutionary and revolutionary remains high. Given this potential continued observation of the industry by business and management scholars seems warranted. REFERENCES Benton, M. 1989. The comic book in America: An illustrated history. Dallas, TX: Taylor Publishing Company. Carr, A. 2010. Wham! Bang! Pow! Fast Company, 147: 120. CPI Inflation Calculator. 2010. US Bureau of Labor Statistics. Retrieved from http://data.bls.gov/cgi-bin/cpicalc. pl. Eisner, J. 1986. The official Batman batbook. Chicago: Contemporary Books. Eisner, W. 1985/2005. Comics & sequential art. Tamarac, FL: Poorhouse Press. Gabilliet, J. 2010. Of comics and men: A cultural history of American comic books. (B. Beaty & N. Nguyen, Trans.). Jackson, MS: University press of Mississippi. (Original work published 2005). Grand Comics Database. 2010. Retrieved from www.comics.org. Hajdu, D. 2008. The 10-cent plague: The great comic-book scare and how it changed America. New York: Farrar, Straus and Giroux. McCloud, S. 1994. Understanding comics: The invisible art. Northampton, MA: Tundra. McCloud, S. 2000. Reinventing comics: How imagination and technology are revolutionizing an art form. New York: HarperPerennial. Nyberg, A. 1998. Seal of approval: The history of the Comics Code. Jackson, MS: University Press of Mississippi . Palmer, D. 1987. A case study of the American comic book industry. Unpublished masterâ&#x20AC;&#x2122;s thesis. Bowling Green State University, Bowling Green, Ohio. Schelly, W. 1997. Fandomâ&#x20AC;&#x2122;s finest comics: A treasury of the best original strips from the classic comics fanzines 1958-1975. Seattle, WA: Hamster Press. Schelly, W. 1999. The golden age of comic fandom. Seattle, WA: Hamster Press. Schodt, F. 1986. Manga! Manga! The world of Japanese comic books. New York: Kodansha International. Thorne, A. 2010. Webcomics and libraries. In R. Weiner (Ed.), Graphic novels and comics in libraries and archives: Essays on readers, research, history and cataloging. Jefferson, NC: McFarland & Company. Weiner, S. 2003. Faster than a speeding bullet: The rise of the graphic novel. New York: Nantier Beal Minoustchine. Wertham, F. 1954. Seduction of the innocent. New York: Rinehart.

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David Palmer is a professor of management at the University of Nebraska at Kearney. He received his Ph.D. in organizational behavior/human resource management from Purdue University. His research interests include staffing and selection, job choice and workforce development, and organizational perceptions and uses of time. He has published in the Journal of Management, Personnel Psychology, Current Directions in Psychological Science, Journal of Managerial Psychology, Journal of Business and Psychology and others.

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Business Diplomats for the 21st Century S. M. Jameel Hasan, Eastern Washington University The paper will provide many informative, illuminating, and illustrative examples of cross-cultural misunderstanding that cost literally hundred of millions of dollars of business to their rivals who are more culturally and cross-culturally nimble and savvy, enjoying a competitive sustainable advantage in the market place. The paper will examine the feasibility and applicability of two practical models - useful to all supervisory and managerial personnel from the foreman of the plant to the Chairman of the Board - to minimize cultural clumsiness in the global business context of the 21st century - driven by the economic forces of liberalization, marketization, privatization, and the information revolution that drove democratization and globalization of the flow and content of information. Cultural diversity is a truism now, and recognition of this fact is paramount in cross-cultural business relations around the globe. Each culture has different origins, language, dress, social behavior patterns, and customs. Cultural clumsiness, or cultural ignorance, is a significant factor in maintaining ethnocentric assumptions. One cannot establish one culture as being superior to any other. It is necessary for people involved in cross-cultural communication to feel the continuous nature of behavior in the new era of global connectedness (Friedman, 2005) in order to gain awareness and insight into social/business situations and accompanying circumstances. Nicholas Beryaev writes: Science and scientific foresight give man power and security, but they can also devastate his consciousness and sever him from reality. Indeed, it might be said that science is based upon the alienation of man from reality and of reality from man. The knower is outside reality, and the reality he knows is external to him. Everything becomes an object, i.e., foreign to man and opposed to him…the meaning of things is revealed not through their entering into man who is passive in relation to them, but through man’s creative activity reaching out to meaning beyond an unmeaning world (1960, pp. 7-8). In other words, there is a necessity of cross-cultural sensitivity at home and abroad in a new era of globalism. The peculiar problem that global business firms face is that people are usually raised, trained and educated, and indoctrinated and oriented in one culture - whereas global business management scenarios of the early decades of the 21st century and beyond require effective and efficient cross-cultural communication, supervision, and coordination (Drucker, 1999). The writer of this paper believes in creative adaptation of interpersonal relations in cross-cultural context. The challenge to American business and over 4,500 foreign corporations operating in the U.S. is to practice cultural empathy - which is the ability (knowledge and skill) to understand the “habit of mind and heart” and coherence of foreign peoples’ ways of life, plus the determined and willful restraint “not to judge them as bad because they are different: from one’s own way of thinking, feeling, and behaving. The purpose of the paper is to pose a challenge to global business managers to be cultured, cross-cultured business diplomats of the 21st century - at home and abroad. The problem is how to live together not how to become alike - “a world in which our success as well as our very survival depends on our respect and understanding for each other” (Adler, 1991: xii). Let us take a look at some informative and illustrative examples of cross-cultural misunderstanding and then examine the feasibility and applicability of two practical models to minimize cultural clumsiness or blindness in the global business context of the 21st century. Cross-Cultural Misunderstandings The scope of cross-cultural communication involves the whole complex of human life with a myriad of individual variation within and between significantly diverse and dynamic cultural systems. As such, by necessity, the gist and focus of the following cross-cultural examples is basically on the dominant, broad, central viewpoint/interpretation based on research, observations, and impressions of scholars and practitioners of cross-cultural communications around the globe. For the convenience of the readers, the examples will be presented under ten general headings. The sequence of the following informative examples is unimportant.

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1. Eye Contact An American supervisor, while talking to an employee, feels that the employee should look him/her in the eye. In fact, if the employee evades his/her direct glance, the supervisor judges that the employee is “shifty,” and may be trying to hide something. In many Asian and Latin American countries, however, it is a long-established habit for a person never to look an elder or superior in the eye. To do so is considered impertinent. Consequently, an American supervisor who tries to deal directly with his/her employees in this manner may find that he/she cannot establish good human relations with them. 2. Culture-bound Language of Gift The Japanese, everyone acts according to the rules, are great gift givers and one cannot outgift them - the lose face if they are outdone. On the other hand, the Arabs want to be outgifted “If you outdo him he loves it.” Never give gifts with the left hand in Saudi Arabia (the left hand is a toilet hand); never give a pig-skin brief case or luggage set or Scotch whiskey in the Arab world. Give the gift with both hands in Japan and in many Pacific Rim countries. One never gives an unwrapped gift in Japan or visits a Japanese home empty-handed - also do not open the gift in front of the giver. Japanese never give four of anything or an item with four in the name because the word sounds like the one for death; also, do not give a potted plant when your Japanese business friend is in a hospital, since you do not wish his illness to take “deeper roots” and get sicker (Business Week, Dec. 6, pp. 91-92). In Spain and most of Latin America, if a visitor expresses admiration of a vase or a picture, the host is likely to pick it up immediately and hand it to his guest with such words as “Take it…it is yours”; the latter may mistake this polite gesture for a genuine gift and go off with the object, much to the chagrin of the unwilling donor. “Take it… it is yours” does not mean just that - it is simply a polite gesture with no real intent to give it away to the admiring guest. On the other hand, in the Arab countries, “do not admire an object openly, you may be the recipient of it, for example a camel!” (Klineberg, 1964: 134-135; Axtell, 1990, p. 80). Bargaining over price (for a gift you plan to give to your foreign business friend/partner) is practically taboo in Britain or in the United States; it is not only permitted but expected in many parts of Europe, Africa, Latin America and the Far East (Hall, 1959; Klineberg, 1964, p. 135). A gift of cutlery, in Latin America, conveys that you want to end a relationship; a handkerchief means that you wish the recipient tears. Cutlery is a friendship cutter for the Russians and French also. In Germany, however, if you give cutlery, always ask for a coin payment so that the gift will not cut your friendship. Red roses for a German lady mean “I’m in love with you!” White and yellow flowers are not good choices in many areas because they connote death (Reardon, 1984). In France, yellow flowers suggest infidelity and should never be given’ odd numbers of flowers are given as gifts, but not 12, and not an unlucky 13 (Business Week, December 6, 1976, p.91). 3. Business Card - “Don’t Leave Home Without It” In overseas business relations, your business card is the ultimate proof of your identity, rank, and profession. In Italy, even a bachelor’s degree entitles you to put a Dr. in front of your name (Axtell, 1990, p. 8). In Mexico titles are also important. An individual with a bachelor’s degree in business administration is entitled to use the term “Licenciado” before his or her name. In Pakistan, a person will print his name: John Doe, B. A. and even add an attempt as: John Doe, B.A., M.A. (failed). In the U.S., this sort of personal “advertising” is not an accepted expression by an individual. In Asia, it is not so much who you are as where you are in the pecking order of a given situation - for example an interview, meeting/ negotiation. “In most of Southeast Asia, Africa, and the Middle East (except Israel), never present the card with your left hand. In Japan, present it with both hands, and make sure the type is facing the recipient and is right-side-up,” (Axtell, 1990, p. 8). 4. Non-Verbal Behavior The East Indians shudder at the American Hearty and “bone-breaking” handshake. In many Moslem countries, linking arms or putting your arm around the shoulders of your wife would in most cases cause some embarrassment, since such physical contact is regarded as a private matter that should be confined to private quarters. Japanese grimace when a foreign business friend walks into a home without removing his shoes at the doorsill, and American men shudder with distaste at the warm embrace of greeting men in some of the Latin American and South Asian 241

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countries (Klineberg, 1964, pp. 134-36). In Thailand, Laos, Pakistan, and in many Muslim countries, it is considered insulting and rude to display the sole of the foot. A Pakistani may not eat with his left hand. At social gatherings, if a hostess offers food it is expected that at first the guest will refuse. The hostess is then expected to offer it again. The guest must refuse once more but not quite as forcefully. The hostess then offers the food again whereupon the guest is supposed to thank the hostess for her hospitality. In both the United States and Pakistan (also in other countries) it is customary to spontaneously ask friends out for a cup of coffee/tea. In America it is understood that each person will pay for his drink. However, in Pakistan (and other countries) such an invitation implies that the person who suggests will pay for both drinks. Belching and noisy eating habits (unacceptable in the U.S. culture) are expected as evidence of “satisfaction” in others. Some Chinese cultures feel it is polite to take a portion of each food served. One American businessman learned of this custom only after taking some Chinese businessmen to a cafeteria. Each Chinese would up with three trays of food and the American exceeded his daily expense account (Knotts, 1989, p. 32). Widely accepted as the American “okay” sign (Fingers circle), except in Brazil, where it is considered vulgar or obscene. The gesture is also considered impolite in Greece and the USSR, while in Japan, it signifies “money,” and in southern France, “zero” or “worthless,” (Axtell, 1990 p. 47). Has body language changed much over the years? The simple answer is yes - it changes constantly, just as spoken language changes, for example the “V for victory” sign used by Winston Churchill during World War II became a peace sign in the 1960s. Not too many people would use the “V” sign any more (Mazur, 1983, p. 57). According to the editor of a best selling book on “Do’s and Taboos Around, the World,” the smile is “one universal action, one signal, one form of communication that is used and understood by every culture and in every country, no matter how remote,” (Axtell, 1990, p. 181). However, thirty three years ago world-renowned social scientist Otto Klineberg (of the University of Paris) observed this about the meaning of smile in the Japanese culture: “A Japanese will smile when he is amused, but he will also smile on certain other occasions; for example, it is customary for a servant to smile when he is scolded by his master. A smile is the appropriate response under these conditions, and serves the purpose of smoothing over an otherwise unpleasant situation. To a Westerner who employs a Japanese, such a response may be infuriating; he interprets it to mean that the servant is making fun of him. The Japanese servant will also smile when he is forced to report an unfortunate event, for example, the death of his child. This has been interpreted as a polite gesture meaning that the servant does not wish to burden his master with his personal tragedies and therefore smiles in order to indicate to his master that it is not necessary to take the tragedy too seriously; the servant himself can smile at it. This also may be interpreted by Westerners in contact with the Japanese that they see smile as a sign of cynicism or lack of concern for the most fundamental human relationships,” (Klineberg, 1964, p. 136). 5. Grey Hair—A Symbol of Great Respect In Japan and several other Asian countries, many young business men take along an older man with grey hair to lend his prestige to their cause. In the U.S., competence and performance on the given task counts - whether or not you have grey hairs (Hall, 1960, pp. 5-12). Many students ask in our international management classes about the market potential of hair-coloring products in these countries! 6. Colors Communicate Each society has special meanings which it attaches to certain colors. Red, white, and blue are thought of as special colors when used together in the U.S.A. since these are the colors of the national flag. To the Chinese, red is a lucky color; the Thai would prefer yellow for the same reason. The combination of green and purple is acceptable throughout Asia. The combination of black, white, and blue is suggestive of a funeral to the Chinese. The combination of red and white is widely regarded as appropriate to happy and pleasant occasions in Japan. The whole idea of color to an Asian is coupled with beliefs. Many promotional, as well as social, efforts have failed as a result of using wrong colors in other cultures. For international business purposes, one cannot ignore the cultural meaning of color. For example, Pepsodent reportedly tried to sell its toothpaste in regions of Southeast Asia through a promotion which stressed that the toothpaste helped enhance white teeth. In this area, where some local people chewed betel nut in order to achieve the social prestige of darkly stained teeth, such an ad was understandably ineffective. The slogan “wonder where the yellow went” was also viewed by many as a racial slur (Ricks, 1979: 65).

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7. Status—Size of the Office The size of an office in relation to other offices conveys a great deal about the status of an American businessman. In the Arab world, the size and location of an office are poor indicators of the importance of the man who occupies it. Professor Athos verbalized the implicit assumptions of American spatial language: Private is better than public, higher is better than lower, near is better than far, and in is better than out (Athos, 1968: 67). Intel Corporation is a maverick in terms of compliance of the American language of objects and space; Intel’s former President Andrew S. Grove explained: “We don’t have many of the visible perks prevalent in more traditional industries. We have no reserved parking spaces, no executive dining rooms, no corporate jets. We all fly coach. We don’t even have any offices in the company. Instead we live in a maze of cubicles separated by five-foot-high soundproofed partitions - all of us, from the chairman of the board and the president on down. A journalist puzzled by all this once asked me, “Mr. Grove, isn’t your company’s emphasis on visible signs of egalitarianism just too much affectation?” My answer was that it is not affectation, but a matter of survival” (Grove, 1983: 23). In Japan, the top floor of a department store is reserved for the “bargain basement” and not for top management. The French prefer to locate key managers in the center of activities, with their assistants located outward “on radii from this center,” (Ball & McCulloch, 1990: 288). Contrary to the American open-door policy, Germans regularly keep their office doors closed. Anthropologist Hall indicates that the closed door does not mean that the manager/ executive behind it does not wish to receive visitors but only that he or she deems open doors disorderly and sloppy (Hall, 1969: 134-135). 8. Proxemics—Conversational Distance In the U.S.A., the “proper” distance to stand when talking to another adult male you do not know well is about two feet, at least in a formal business conversation. To a Latin American, a distance of two feet seems to him approximately what five feet would to an American. To him, Americans seem distant and cold. To Americans, he gives an impression of pushiness. As soon as the Latin American moves close enough for him to feel comfortable, the American feels uncomfortable themselves enough “to outwait the silence of his hosts. It may be thirty minutes, perhaps more.” (Nation’s Business, March 1989, p.54). In Ethiopia, the more important a business matter, the more time is taken; whereas in the U.S.A., a delay in answering a communication is interpreted by the other party as a lack of interest. In Turkey, where a degree of fatalism seems to arise from the Muslim concept that tomorrow is in the hands of Allah, there is a propensity to do little forward planning. What happens tomorrow is decided by God, “Insallah,” [God-willing; With the help of God.] (Ball & McCulloch, 1990, pp. 261-263). Punctuality is a virtue in the United States, Holland, Switzerland, and in many other countries, but is relatively unimportant in Spain. The only time you must take punctuality seriously is when attending a bullfight. Most offices and shops close for siesta all the way from 1:30 to 4:30 P.M., and restaurants do not open until after 9 P.M. or “get into full swing until 11.” (Axtell, 1990, pp. 29-32; Klineberg, 1964, p. 135) 9. Direct and Clear Versus Vague but Polite Talking The Japanese businessmen/executives often express themselves in a vague and ambiguous manner in contrast to specific, direct language typically used by the American businessmen/executives. In the United States, many feel it is not only desirable but natural to speak up to your superior, to tell the boss exactly what you think, even when you disagree with him/her. American culture emphasizes the thrashing out of differences in face-to-face contacts. In many countries/cultures around the globe, people communicate on a more interpersonal system and a part of this system is to avoid disagreements or embarrassment by being polite, agreeable and submissive at the expense of accuracy and directness. A Japanese who is too specific runs the risk of being viewed as rudely displaying superior knowledge. The Japanese “avoid independent or individual action and prefer to make decisions based on group discussions and past precedent. The Japanese do not say no in public, which is why foreign business people often take away the wrong impression. For example, Mr. John Nevin, Chairman of Firestone, which was bout out by the Japanese Bridgestone for $2.6 billion, explains a major communication breakdown between the two companies: “I’m seen as terribly abrupt and abrasive. If you’re very direct, you’re admired in American culture. The Japanese culture is much more subtle. I can never get them to tell me what the actually mean, and they may think I’m rude and crass. But both sides are only behaving in ways familiar to their own cultures.” (TIME, October 9, 1989, pp. 72-73; according to the same TIME report 50% of American managers either resign or are fired within 18 months of foreign takeover. Foreign bosses in the U.S., like American managers who landed in post-war Europe, will have to learn the

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right balance between “leadership and accommodation: in a culturally appropriate fashion. In other words, every managerial task is culturally determined (Adler, 1991, pp. 39-62). 10. “Can I Sleep With You?! The following is a powerful story of a Scottish businessman’s relationship with a Japanese colleague - an example of the cross-cultural communication process in terms of description, interpretation, evaluation, and empathy. The story is told by the Scottish businessman in the following words: “One memorable evening my host and I had finished our meal together in “my” room. I was expecting him to shortly make his “good-night” and retire, as he had been doing all week, to his own room. However, he stayed unusually long and was to me, obviously in some sort of emotional crisis. Finally, he blurted out, with great embarrassment, “Can I sleep with you?! As they say in the novels, at this point I went very still! My mind was racing through all the sexual taboos and prejudices my own upbringing had instilled, and I can still very clearly recall how I analyzed: “I’m bigger than he is so I can fight him off, but then he’s probably an expert in the martial arts, but on the other hand he’s shown no signs of being gay up until now and he is my host and there is a lot of business talk at risk and there’s no such thing as rape, et cetera…!” It seemed a hundred years, though it was only a few seconds, before I said, feeling as if I was pulling the trigger in Russian roulette, “Yes, sure.” Who said that the Orientals are inscrutable? The look of relief that followed my reply was obvious. The he looked worried and concerned again, and said, “Are you sure?” I reassured him and he called in the maid, who fetched his mattress from his room and laid it on the floor alongside mine. We both went to bed and slept all night without any physical interaction. Later I learned that for the traditional Japanese one of the greatest compliments you can be paid is for the host to ask, “Can I sleep with you?” This goes back to the ancient feudal times, when life was cheap, and what the invitation really said was, “I trust you with my life. I do not think that you will kill me while I sleep. You are my true friend.” To have said “No” to the invitation would have been an insult - “I don’t trust you not to kill me while I sleep” or, at the very least, my host would have been acutely embarrassed because he had taken the initiative. If I refused because I had failed to perceive the invitation as a compliment, he would have been out of countenance on two grounds: the insult to him in the traditional context and the embarrassment he would have caused me by “forcing” a negative, uncomprehending response from me. As it turned out, the outcome was superb. He and I were now “blood brothers,” as it were. His assessment of me as being “ready for Japanization” had been correct and his obligations under ancient Japanese custom had been fulfilled. I had totally misinterpreted his intentions through my own cultural conditioning. It was sheer luck or luck plus a gut feeling that I’d gotten it wrong, that caused me to make the correct response to his extremely complimentary and committed invitation.” [Footnote citation number omitted], [Adler, 1991, pp. 87-88). The above examples illustrate many pitfalls inherent in the cross-cultural communication process surrounding international business relationships around the globe. The root cause of many international business problems is the unconscious reference to one’s own cultural values. The international businessmen’s natural tendency to interpret nearly all developments as if their foreign partners or competitors function within their own system - self-reference criterion (SRC), the term coined by Professor James A. Lee (1966), is associated with studying foreign cultures from one’s own frame of reference. While one cannot avoid and escape completely from one’s own cultural heritage, international business managers should try to be aware of how their own cultural conditioning may be biasing their interpretation of behavior in other cultures. Two Promising Practical Models There are two promising, practical approaches to minimize cultural myopia and/or cultural blindness so common in international businesses operating in multicultural environments around the globe. Professor James A. Lee’s Model of Reducing Cultural Bias. Here is a systematic 4-step operational model for U.S. businessmen for cultural adaptation:

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1. 2. 3. 4.

Define the business problem or goal in terms of the American culture traits, habits, norms, or values. Define the business problems or goal in terms of foreign cultural traits, habits, or norms. Make no value judgment. Isolate the SRC biasing influence in the problem and examine it carefully to see how it complicates the problem. Redefine the problem without the SRC influence and solve for the optimum business goal situation. Its use must necessarily be flexible to produce the tolerance level necessary to the objectivity required for adaptation of an individual or a product in international business operations Lee, J. 1966. Cultural Analysis in Overseas Operations. Harvard Business Review, March-April: 107-114.

Professor Nancy Adler’s “Cultural Synergy” Model. Here is a 3-step model for culturally synergistic problem solving in international business situations: 1. Situation Description. What is the situation from your cultural perspective? From the other cultural perspective(s) 2. Cultural Interpretation. What are the cultural assumptions that explain your perspective and behavior? What are those that explain the other culture’s perspective and behavior? What are the cultural similarities and differences? 3. Cultural Creativity. Create new alternatives based on, but not limited to the cultures involved. Does the potential solution fit your cultural assumptions? Does it fit the other cultures’ assumptions? Is it new? Implement solution(s), and observe the impact from more than one cultural perspective. Refine the solution based on multicultural feedback (Adler, 1991). Professor Nancy Adler’s 3-step “cultural synergy” model incorporates the best aspects of all members’ cultures in their strategy, structure, and process without violating “the norms of any single culture. Managers in synergistic organizations use diversity as a key resource in solving problems (Adler, 1991). APPLICATION OF THE ABOVE TWO MODELS Under the SRC model, how can we deal with an example of a foreigner who makes an appointment to see an American businessman in the American’s (overseas) office, but shows up 45 minutes late? 1. Know the U.S. SRC about time—Americans have had means (good public transportation, cars, clocks and watches, freeways, etc.) to be on time for several generations. Also, many Americans are the descendants from time-conscious ancestors going back several centuries. 2. Know the foreign culture’s SRC about time. One can often readily see poorer transportation and communications facilities and make less sense to set right time schedules. Also, in some foreign cultures there will be some kind of fatalism and get-through the day carryover from centuries of survival struggles which serves as a deterrent to the development of planning skills. 3. Compare Step 1 and Step 2 to determine how it complicates the problem of lateness for appointments; isolate the SRC biasing influence. The American SRC can be seen to have blinded the basis on which on-time behavior depends, thereby generating inconsistent expectancies in relation to the actual situational (foreign culture) demands. Moral judgment as to a foreigner being lazy, irresponsible, untrustworthy should be avoided. 4. Redefine the problem with the SRC influence and solve for the optimum business goal situation. Under the circumstances certain looseness in the other culture’s time system is both “desirable and functional.” How can the American adapt to the system? Several strategies are open for the American. Begin to plan on lateness in others as a rule; arrange to be busy with other work until the foreigner arrives. As Professor Lee correctly observed, “He should also try to take comfort in the knowledge that his foreign visitor, when he does finally arrive, will be patient until the American’s substituted activity can be broken off. This is because the foreigner has developed a patience to fit the necessary looseness of his own culture’s time system” (Lee, 1966: 113). Under the “Cultural Synergy” model, how can one create a culturally synergistic solution to the following problem between a male Uruguayan doctor (the doctor) and a female Filipina nurse (the nurse) at a major California hospital? 1. Situation Description. The doctor became worried when he found out that the nurse was improperly using a particular machine for patient treatment. He explained the proper procedure to the nurse and asked if she understood. She said she did. Due to the nurse’s continued improper administration of the treatment, the patient was doing poorly within two hours; the doctor again asked the nurse about her understanding of the procedure, and she again said yes. Do we have a problem?

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2. Cultural Interpretation. The doctor, in analyzing the situation, became aware of the fact that many Filipinos will not contradict authority figures. Based on the nurse’s cultural assumptions (e.g. the doctor was an authority authority figure, a man, and she older, was in an ainferior woman, and younger), she the could not figure, a man, and older, while waswhile in anshe inferior role, woman,role, andayounger), she could not tell doctor tell the doctor that she did not understand without implying that he had given poor instructions and thus that she did not understand without implying that he had given poor instructions and thus causing him to lose causing him to lose face. On the other hand, based on his cultural assumptions (e.g. open, direct clear face. On the other hand, based on his cultural assumptions (e.g. open, direct clear communication expectation communication expectation of the nurse to ask questions if she did not understand his instructions) the doctor of the nurse to ask questions if she did not understand his instructions) the doctor considered it “a sign of considered it “a sign of incompetence to assume responsibility for a patient’s care without fully incompetence to assume responsibility for a patient’s care without fully understanding the manner of treatment” understanding the manner of treatment” (Adler, 1991: 113). 1991:Creativity. 113). 3.(Adler, Cultural The hospital administrator solved the problem without violating either culture’s 3. Cultural Creativity. hospitalsynergistic administrator solved thethat problem without violating culture’s assumptions. assumptions. TheThe suggested solution was the doctor, upon giving either his initial instructions to the Thenurse, suggested synergistic solution was that the doctor, upon giving his initial instructions to the nurse, to ask was to ask the nurse to describe the procedure that she would follow. The doctor, whilewas listening thecarefully, nurse to describe the procedure that sheofwould follow. The doctor, whileand listening carefully, could assess the could assess the accuracy the nurse’s comprehension identify areas needing further accuracy of the nurse’s comprehension and identify areas needing further explanation. “The nurse, never having explanation. “The nurse, never having been asked directly if she understood, would not be forced to say “no” been directly if she1991: understood, to aasked superior” (Adler, 114). would not be forced to say “no” to a superior” (Adler, 1991: 114). Conclusion The improvement via via creativity creativity is The table table found found on on the the next next page page identifies identifies seven seven cultural cultural The quest quest for for improvement is never never over. over. The variables considered in intercultural business relations and their purpose and effect. “We don’t look so much at what variables considered in intercultural business relations and their purpose and effect. “We don’t look so much at and where people have studied, but rather at their drive, initiative, cultural sensitivity…” (Green, Stephen, CEO, what and where people have studied, but rather at their drive, initiative, cultural sensitivity…” (Green, Stephen, HSBC, Interview with with Harvard Business Review, AugAug 2003). It It might highly CEO, HSBC, Interview Harvard Business Review, 2003). mightenlighten enlightenthe thereaders readersabout about aa highly surprising finding of a cross-cultural study of 377 Chinese and Russian entrepreneurs that women entrepreneurs surprising finding of a cross-cultural study of 377 Chinese and Russian entrepreneurs that women entrepreneurs have have networks for advice and resources. But men, surprisingly haveemotional larger emotional the largerlarger socialsocial networks for advice and resources. But men, surprisingly have larger networks,networks, the complex complex associations thatwarmth, provide praise, warmth, praise, and encouragement and men apparently these associations that provide and encouragement - and men-apparently profit moreprofit frommore thesefrom emotional emotional attachments than do. University (Harvard University Gazette Archives, attachments than women do.women (Harvard Gazette Archives, February February 8, 2007). 8, 2007). Table 1 below shows these cultural variables considered in intercultural or Table 1 below shows these cultural variables considered in intercultural business business relations relations have have positive positive or negative results depending on whether or not conflicting systems interact through individuals. In relations between negative results depending on whether or not conflicting systems interact through individuals. In relations between individuals different individuals from from different different cultural cultural areas areas they they are are crucial crucial since since each each variable variable is is contradictory contradictory as as aa result result of of different environmental circumstances. environmental circumstances. Cultural Variable Colors Bribes & Gifts Business Manners Physical Objects Pride & Status Proxemics Temporal

Purpose Superstition associates magical powers or qualities to color, good or bad. Increase income, prestige, or status through language of objects, social position, etc. Ways of doing business customary to a society. Communicates semantic meaning nonverbally - language of objects. Methods of self-identification and confirmation. Social in origin. Methods of structuring interpersonal relations; public, private, personal, social. Reference unit of time; day, year, fortnight, etc.

Effect Determines outcome of program. Implicit cognitive associations for luck, good or bad signs, etc. Ensure administrative process. Indicated degree of flexibility inherent in a business system. Sets the tone of the inter-cultural interaction. Relationships and status of the individual defined. Established position of individual in society and interpersonal relations. Indicates degree of involvement in interpersonal relations. Different time priorities may disrupt communication channels.

REFERENCES REFERENCES Friedman, T. 2005. It’s a flat world after all. The New York Times Magazines, April: 33.

Friedman, T. 2005. It’s a flat world after all. The New York Times Magazines, April: 33. Graham, J., & Herberger, R. 1983. Negotiating Abroad: Don’t shoot from the hip. Harvard Business Review, JulyAugust:J., 160-168. Graham, & Herberger, R. 1983. Negotiating Abroad: Don’t shoot from the hip. Harvard Business Review, JulyAugust: 160-168. Hall, E., & Hall, M. 1987. Hidden differences: Doing business with Japanese. New York: Anchor Press Doubleday. Hall, E., & Hall, M. 1987. Hidden differences: Doing business with Japanese. New York: Anchor Press Doubleday. Hofstede, G. 1991. Cultures and organizations: Software of the mind. New York: McGraw-Hill. Hofstede, G. 1991. Cultures and organizations: Software of the mind. New York: McGraw-Hill. Lewis, R. 2003. The cultural imperative. Yarmouth, ME: Intercultural Press. Lewis, R. 2003. The cultural imperative. Yarmouth, ME: Intercultural Press. Lindstrom, G. 2002. Diplomats and diplomacy for the 21st century. Doctoral Dissertation. RAND Graduate School. 246

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Hasan

Lindstrom, G. 2002. Diplomats and diplomacy for the 21st century. Doctoral Dissertation. RAND Graduate School. Lusting, M., & Koester, J. 2005. Intercultural competence: Interpersonal communication across cultures. Needham Heights, Ma: Allyn and Bacon. Martin, J. 2004. Intercultural communications in contexts. New York: McGraw-Hill. Moran, R., Harris, P., & Moran, S. 2007. Managing cultural differences: Global leadership strategies for the 21st century. Maryland Heights, MO: Elsevier Inc. Weiss, S. 1994. Negotiating with â&#x20AC;&#x153;Romansâ&#x20AC;?: Part 2. Sloan Management Review, 35:85-99 Jameel Hasan is a professor of management at Eastern Washington University. He has taught international business, multinational people management, organizational behavior, and business and society for the past 41 years. Prior to his academic career, he was an industrial analyst for the U.S. Department of State.

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Advances in Business Research Symposium October 26-27, 2011 Fort Smith, Arkansas Call for Proposals THE SYMPOSIUM

The annual advanced in business research (ABR) symposium will be held Wednesday, October 26, 2011, and Thursday, October 27, 2011. The symposium is sponsored by the College of Business, University of Arkansas - Fort Smith, and will be held at the University of Arkansas – Fort Smith, 5210 Grand Avenue, Fort Smith, Arkansas 72913. The symposium provides a forum for exchanging ideas about, identifying emerging trends in, learning new approaches to, and examining issues about the various disciplines of business administration, entrepreneurship, and leadership. Academicians, practitioners, and experts in the areas of business administration, entrepreneurship, and leadership are invited to submit manuscripts to be considered for presentations before faculty, staff, students and non-academic professionals. Authors should submit their manuscripts electronically by September 15, 2011 to: abr@uafortsmith.edu OR mzainuba@uafortsmith.edu

WHO SHOULD ATTEND

Faculty: Anyone interested in the following areas should attend: Business administration; leadership issues; accounting; management; marketing, advertising and sales; finance; economics; entrepreneurship; family and small business enterprises; business information systems (MIS); business education; business law; business ethics; international business; human resource management; operations management; research/statistics; organizational behavior and theory; organizational development; strategic management policy; technology/innovation; pedagogy; e-commerce; health care administration; non-profit organizations; public administration, business and organizational communication, case studies related to business, decision sciences, taxes, teaching (all areas of business), and cross-disciplinary areas of business with other areas are also encouraged. Non-Academic Professionals: This symposium is designed to offer non-academic professionals, i.e., corporate executives and managers, entrepreneurs, leaders of not-for-profit organizations, and the like an opportunity to increase their awareness about the world of business. This symposium will offer these participants to network with peers and other professionals.

SYMPOSIUM REGISTRATION

Symposium registration fee is $325.00. (This includes meals and refreshments). The symposium welcomes participation of doctoral students as session presenters, reviewers, or attendees. Doctoral students in any related discipline will find the symposium very stimulating and enlightening. The Symposium registration fee for doctoral students is $100.00. The symposium is also setup to process registration payments using credit cards. To pay by credit card, please call 479-788-7807.

TYPES OF SUBMISSIONS

Research Papers: Completed research papers in any of the topic areas listed above. Abstracts: Abstracts of completed or proposed research in any of the topic areas listed above or related areas. The abstract for proposed research should include the research objectives, proposed methodology, and a discussion of expected outcomes. Student Papers: Research done by students in any of the topic areas listed above or related areas. Case Studies: Case studies in any of the topic areas listed above or related areas. Work-in-Progress or Proposals for Future Research: Incomplete research or ideas for future research in order to generate discussion and feedback in any of the topic areas listed above or related areas. Reports on Issues Related to Teaching: Reports related to innovative instruction techniques or research related to teaching in any of the topic areas listed above, or related areas. Publications: Advances in Business Research Symposium makes available to symposium participants two publication outlets. Participants may submit manuscripts for presentation at Advances in Business Research Symposium, and possible inclusion in Advances in Business Research Journal. Also, Participants may submit manuscripts for presentation at Advances in Business Research Symposium, and possible inclusion in Advances in Business Research Proceedings.

ADVANCES IN BUSINESS RESEARCH (ISSN: 2153-6511)

It is a research journal that provides a forum for current thoughts, techniques, theories, issues, trends, and innovations in the business administration, entrepreneurship, leadership, and other related fields as listed above. All manuscripts submitted to this journal will be subject to a double-blind peer review process. All manuscripts should be original and not under consideration for publication elsewhere. The journal requires that manuscripts follow the style and format outlined in the Publication Manual of the American Psychological Association. The journal is listed in Cabell Publishing. Submission guidelines is also available at: http://cob.uafortsmith.edu Inquiries should be directed to:

Dr. Mohamed Zainuba Advances in Business Research Symposium University of Arkansas - Fort Smith 5210 Grand Avenue Fort Smith, Arkansas 72913 Phone: 479-788-7774 // Fax: 479-788-7818 // mzainuba@uafortsmith.edu

College of Business University of Arkansas - Fort Smith 5210 Grand Avenue Fort Smith, AR 72913 (479) 788-7807 cob.uafortsmith.edu ISSN: 2153-6511