th
4 Annual International
Business Conference
Sustainable Development in a Global Economy
Creating Vibrant Economies
2013
CONFERENCE PROCEEDINGS
SAINT LEO UNIVERSITY
February 13th-15th
THANK YOU TO OUR SPONSORS
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TABLE OF CONTENTS
1. GENDER DOMINATED INDUSTRIES: BRIDGING THE GAP
By: Yusimit Barrios and Toni DiDona…………………………………………………p. 6
2. THE IMPACT OF COUNTRY OF OWNERSHIP ON BRAND PERSONALITY: DOES IT
MATTER WHO OWNS THE BRAND?
By: Luis Francisco Casas, and John Robert Lax…………..….………………………p. 13
3. AN EXAMINATION ON THE EDUCATIONAL AND TRANNING REQUIREMENTS OF
PROSPECTIVE CERTIFIED PUBLIC ACCOUNTANTS: THE REDESIGN OF THE
ACCOUNTING CURRICULUM
By: Dr. Lamine J. Conteh and Dr. Passard Dean…………..……..………….………..p. 29
4. SERVANT LEADERSHIP IN MULTINATIONAL CORPORATIONS: A GLOBAL
MANAGEMENT PERSPECTIVE
By: Dr. Oris Guillaume, DBA, Dr. Ike Udechukwu, DBA, and Dr. Dorothy J. Williams,
Ed.D…………………………………………………………….……..………..……. pg. 47
5. LEADER MEMBER EXCHANGE: RAMIFICATIONS IN THE GLOBAL
ORGANIZATIONAL ENVIRONMENT
By: Barry Hoy, Ph.D……………………………………………..…………....….… pg. 58
6. UNIVERSITY/COMMUNITY PARTNERSHIPS: ENGAGING BUSINESS STUDENTS IN
LEADERSHIP AND SOLUTION BASED APPROACHES
By: Susan Kinsella, Ph.D., MSW, HS-BCP and Dr. Nancy Wood, Ph.D. …..…..….pg. 71
7. JAPAN REVISITED BEFORE AND AFTER THE 90’S: THE IMPORTANCE OF THE
JAPANESE ENTERPRISE KEIRETSU MODEL
By: Hakan Kislal PhD ……………………………………………………………..pg. 80
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8. THE IMPACT OF NATIONAL CULTURE ON WORK GROUPS: EFFECTS OF
CULTURAL DIVERSITY, TASK AND LEADERSHIP ON INDIVIDUAL PERCEPTIONS
OF GROUP MEMBERS
By: Georg Kodydek , Ronald Hochreiter, Helmut Kasper and Jürgen Mühlbacher....pg.82
9. USING TOOLS OF GOVERNMENT FOR SUSTAINABILITY MANAGEMENT IN
CENTRAL FLORIDA
By: Nick Lebredo PhD, CPA ……………………………………………………… pg.92
10. KNOWLEDGE SPILLOVER THROUGH THE USE OF LOCALIZED AND VIRTUAL
ALLIANCES AND FIRM SUCCESS
By: Sarit J. Levy, Ph.D. and Aaron D. Joyal Ph.D ………………………….…….pg. 120
11. “LIKE” A GLOBAL ENDORSEMENT. HOW CLICKING “LIKE” INFLUENCES
FACEBOOK USERS BRAND RECALL AND FUTURE PURCHASING INTENTIONS.
By: Dr. Ronda Mariani ……………………………………………..……………. pg. 131
12. INDUSTRY AND FIRM INFLUENCES ON PERFORMANCE: EVIDENCE FROM
POLISH PUBLIC FIRMS
By: Zbigniew Matyjas, Phd ……………………………………………………… pg. 133
13. THE IMPACT AND IMPLEMENTATION OF E-COMMERCE IN GOVERNMENT &
LAW ENFORCEMENT
By: Phillip Neely, Ph.D. …………………………………………..……………….pg. 145
14. GLOBALIZATION AND COMPETITIVENESS: CHALLENGES OF SMALL AND
MEDIUM ENTERPRISES IN KENYA
By: Dr. Margaret A. Oloko ……………………………………...……….………. pg. 165
15. PARTNERING INTERNATIONALLY TO DELIVER A HYBRID MBA PROGRAM
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By: Dr. Debra Petrizzo and Dr. Wendell Seaborne ………………...……….……. pg. 176
16. CRISIS LEADERSHIP: AN ORGANIZATIONAL OPPORTUNITY
By: James Prewitt DBA, Richard Weil DBA, and Anthony McClure ……...…… pg. 183
17. SIZE EFFECT ON EMERGING MARKETS WHILE ESTIMATING THE SIZE
PREMIUM OF COMPANIES STUDY OF THE RUSSIAN MARKET
By: Antonina Shepeleva ………………………………………………..………… pg. 205
18. ECONOMIC CONTIBUTION OF IMMIGRANTS
By: Nisha Singh Ph.D. and Rajeshwar Sharma Ph.D. …………………………..…pg. 218
19. THE THREAT OF NEGATIVE SYNERGY IN INTERNATIONAL PROJECT
MANAGEMENT DECISION-MAKING
By: Craig Winstead, PhD, Shannon O. Jackson, PhD, and Mayes Mathews, PhD ..pg. 229
20. CORRUPTION BEGETS CORRUPTION IN DEVELOPING COUNTRIES ECONOMY HOW COULD THE USE OF TECHNOLOGY CHANGE THE LANDSCAPE
By: Dr. Okey Igbonagwam…………………………………………………………pg. 245
21. CELEBRITY ENDORSEMENT AND CONSUMER BUYING BEHAVIOUR;
ENHANCING THE PROMOTION FUNCTION OF MARKETING IN THE CENTRAL
BUSINESS AREA OF ACCRA, THE CAPITAL CITY OF GHANA
By: Wilson Edzorna Dzisah, MBA, B.Ed and Chosniel Elikem Ocloo, MBA, BA..pg. 254
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GENDER DOMINATED INDUSTRIES: BRIDGING THE GAP
Yusimit Barrios
Carlos Albizu University
[email protected]
Toni DiDona
Associate Professor
Carlos Albizu University
[email protected]
6
Abstract
Previous research suggests that gender compositions have different effects on men and women in
the workplace. Social norms regarding gender roles have a potential to create bias evaluations of
individuals who violate their particular accepted gender role. This bias can affect the individual
in a way that causes them to experience work stressors that may affect their performance. This
study explores the differences between the type of stressors nontraditional men and women may
experience based on their gender, providing a glimpse of the bridging gap between male and
female dominated industries. Men in nursing were compared with women in construction based
on their responses to the
Workplace Stressor Assessment Questionnaire (WSAQ) developed and validated by
professionals from Critical Path Institute which measures categories of work stressors. A oneway between subjects ANOVA was conducted to compare the effect of gender on workplace
stressors in different categories of stressors: Demands, Control, Support, Role, Relationships,
and Rewards on the conditions of either male-dominated industry (construction) or female
dominated industry (nursing). There was a significant effect of IV gender on DV workplace
stressors at the p<.05 level for the “Demands” stressors [F(3,105) = 5.308, p = 0.002], Control
Stressors [F(3,105) = 4.803, p = 0.004], Support Stressors [F(3,105) = 9.151, p = 0.000], and
Role Stressors [F(3,105) = 3.426, p = 0.020].
Keywords: gender, sex-role, occupation, conflict, job satisfaction
7
Taylor (2010) introduces the concept of an occupational minority, defined as a worker
who is a numerical rarity in his or her occupation. Examples of occupational minorities include:
male nurses, female construction workers, male teachers, and female surgeons. This concept
focuses on minorities at the occupational level and does not take into account actual gender
composition of their specific organization. This view involves perceptions of appropriate gender
roles, interactions, and support. It suggests that gender compositions have different effects on
both men and women in the workplace.
In accordance with this theory, women are more likely to receive social backlash when
successful in a male-dominate occupation (Heilman, Wallen, Fuchs, & Tamkins, 2004). This
negative response stems from social norms regarding gender roles and stereotypes, which has a
potential to create bias in evaluations of women in the workplace (Heilman et al., 2004). This
bias can lead women to be perceived as having less workplace support than their male
counterparts, which can create obstacles in accessing information and gaining assistance in the
workplace (Taylor, 2010). Surprisingly, both men and women are prone to see women who
violate social gender norms as not likeable, and both have a tendency for hostility against women
who are successful in male-dominated occupations (Taylor, 2010; Heilman et al., 2004).
Negative evaluations of women may affect certain occupational rewards, such as salaries
and promotions (Heilman et al, 2004). Research further suggests that it is not generally the same
when the situation is reversed; when men are successful at female-dominated occupations, it
does not produce social disapproval and when it does, it is of benefit to them (Heilman et al.,
2004).
Current literature illustrates, for example, women in male-dominated industries are seen
as less competent in their occupation when expressing stereotypical femininity. However, when
expressing a stereotypically masculine leadership style, women are viewed as successful but not
well liked by their peers (Bergman, 2008). Women in these industries seem to have the choice
of conforming to unpopularity or viewed as incapable of performing their duties. Men in femaledominated industries face a different dilemma, to the extent that because co-workers or
supervisors may feel that they are violating social norms, they are pushed into higher leadership
type positions that are more in line with male gender roles (i.e., Director of Nursing) (Taylor,
2010). This process, labeled as access and treatment discrimination (Mclean & Kalin, 1994),
occur when women and men are selected by employers into gender-traditional occupations, and
include as well exclusion from gender-nontraditional occupations.
Furthermore, another form of this type of discrimination is evident in the formation of
network ties in which women in male-dominated industries are at a disadvantage in the creation
of these ties because in order to establish networking opportunities, one would need to express
similar interests and characteristics to the target population. This is difficult for women to reach
out to their male supervisors whom they do not express shared interests. Men, on the other hand,
do share interests with their same-sex supervisors and therefore have more resources available to
obtain assistance/information than their female counterparts (Taylor, 2010).
A 1999 study conducted by Graham & Welbourne found that women have a higher pay
satisfaction compared to men, despite women’s pay rate being significantly less than men.
Additionally, women generally tend to have lower expectations on what they are worth
compared to men (Major & Konar, 1984). This lower expectation is assumed to be a result of
8
feelings of alienation and inadequacy in the workplace which stems from the inability of women
to receive social support in their male-dominated industry (Bergman, 2008). As a result, women
may feel less compelled to seek or ask for promotions and/or pay raises which further hinder
their ability to advance in their careers leading to the creation of the glass ceiling effect (Cotter,
Hermsen, Ovadia, & Vanneman, 2001). The glass ceiling effect refers to the phenomenon of
women receiving a wider gap in earnings and status as they gain more experience compared to
their male counterparts (Morgan, 1998). Even those who surpass the glass ceiling still
experience less authority and fewer benefits compared to their male counterparts (Zhang,
Schmader, & Forbes, 2009). In another study conducted regarding gender gap conerning
garnishments, it was reported that women choose to stay in occupations that are compatible with
female gender stereotypes because they earn more than in a male-dominated occupation (Gabriel
& Schmitz, 2006). For example, if they were to pursue a career in a male-dominated occupation
they would more than likely only receive two-thirds of the pay rate of men in the same industry
(Gabriel & Schmitz, 2006).
Apart from these consequences, there are three other factors on how the minority status
may have adverse effects on individuals (Mastekaasa, 2004). The first is visibility, in which the
minority will stand out in contrast, receiving more attention which can lead to higher
performance pressure. The second is assimilation, in where a minority member is perceived as a
representative of their category and therefore more subject to stereotyping. The third is
polarization, in which the presence of minority members is in sharp contrast to the similarities
between the members of the majority (Mastekaasa, 2004). These factors can cause increase in
work stressors, add negative effects in health, and decreases motivation which can result in
negative evaluations further hindering the minority and adding to the stereotype (Mastekaasa,
2004).
Also to consider is gender differences in family-work conflict. Family-work conflict is a
source of stress that can affect an individual’s work productivity, emotional and physical well
being, as well as parenting performance (Duxbury & Higgins, 1991). Even though more women
are working full time and there is a sharp increase in dual earning couples today, society still
holds traditional gender specific perceptions of work and family responsibilities (Duxbury &
Higgins, 1991). This view can create a unique stress for women who are compelled to balance
work and family life effectively, almost to impossible standards. Dusbury’s and Higgins (1991)
study reports that a redistribution of family responsibilities within the home has not occurred,
despite the redistribution of responsibilities outside the home. What this means is that women
still have all the responsibilities of the home, with the added bread-winning responsibilities.
Other researchers have also found that women receive less support from family than men in their
respective fields (Mallincrodt & Leong, 1992). This can be particularly stressful to handle when
women are involved in male dominated occupations which are notorious for investing more time
and resources to the organization rather than their home life
Given the current literature, women in male dominated industries face a plethora of
dilemmas and obstacles that can add stress to their workplace, many of which men in female
dominated industries do not experience. This study seeks to measure the scope of workplace
stressors between men and women in gender dominated industries, specifically construction and
nursing. Based on previous research, it is hypothesized that women in male dominated industries
will have a higher score in overall workplace stressors than that of men in their industry. It is
9
also hypothesized that the gap between the stressors of female construction workers and male
construction workers (male-dominated industry) is wider than that of male nurses and female
nurses (female-dominated industry).
Method
Participants
Due to the specific nature of the study, participants were selected on the basis of their
occupational status in either the industries of construction or nursing. Because of the rarities of
the participants in this field, both a paper-and-pencil and an online survey were administered.
Participants were selected from construction companies and hospitals in the South Florida area.
The National Association of Women in Construction and the Male Nursing Association were
also contacted.
Respondents demographics included forty four female nurses, nine male nurses, thirty
seven female construction workers, and eighteen male construction workers totalling one
hundred and eight participants.
Instrument
The Workplace Stressor Assessment Questionnaire (WSAQ) and scoring guide were
developed and validated by professionals from Critical Path Institute, permission was granted for
use by Executive Director, Stephen Joel Coons, PhD. The WSAQ is a 22-item likert scale based
questionnaire, included with the WSAQ there is also seven additional questions designed to
measure participant demographics. The WSAQ measure stressors according to categories:
demands, control support, rewards, relationships, and role.
Procedure
Participants were handed a package containing the informed consent form, demographic
questionnaire, and WSAQ. When meeting with participants personally at associate meetings,
instructions were given verbally to fill out survey and return to researcher; where participants
were not present physically, they were given written instructions via email with a link to the
online survey that included the same. The web based data was extracted from the website
(Kwiksurveys.com) and kept in a secure location by the researcher a long with the collected
paper formats.
The data was then scored and coded in accordance to the WSAQ scoring guide provided
by the Critical Path Institute and the demographic information was also coded for analysis.
Results
A one-way between subjects ANOVA was conducted to compare the effect of (IV)
gender on (DV) workplace stressors in different categories of stressors: Demands, Control,
Support, Role, Relationships, and Rewards on the conditions of either male-dominated industry
(construction) or female dominated industry (nursing). There was a significant effect of IV
gender on DV workplace stressors at the p<.05 level for the “Demands” stressors [F(3,105) =
5.308, p = 0.002], Control Stressors [F(3,105) = 4.803, p = 0.004], Support Stressors [F(3,105) =
10
9.151, p = 0.000], and Role Stressors [F(3,105) = 3.426, p = 0.020]. The relationship stressors
[F(3,105) = .418, p = .741] and Rewards stressors [F(3,105) = .634, p = .595] were not
significant.
Tukey Scheffe Post hoc test revealed on only one level was female construction workers
significantly different in their stress levels compared to their male counterparts, and that is on the
Demands stress level category. On all other categories of control, support, role, relationships,
and rewards, the female minority did not represent significant results compared to their male
counterparts. A closer look at the analysis reveals that the female construction workers
represented less stress levels than that of male construction workers, therefore, we cannot accept
the study’s hypothesis.
Discussion
Based on the results, the hypothesis that women in a male dominated industry would
experience higher levels of workplace stressors than that of their male counterparts, was not
supported by the study. Also not supported, was the hypothesis that males in female dominated
occupations will significantly less workplace stressors than that of their female counter parts.
One possible explanation based on these findings is that gender roles are changing with women
increasingly becoming less stigmatized in the workplace, even in a male dominated industry.
Ulku-Steiner, Kurtz-Costes, & Kinlaw (2000) note that because of recent changes in gender
ratios, the experiences of men and women could be more similar now than previously, a
prominent theme in the present findings.
Researchers have illustrated that role-model relationships are more important to women’s
professional development than that of men (Ulku-Steiner, Kurtz-Costes & Kinlaw, 2000). Given
that the majority of females who partake in male dominated industry were contacted through
associations like the National Association of Women in Construction (NAWIC), this may
explain the study’s reported findings of low relationship and role stressors in female construction
workers.
In support with these findings, a study conducted by Goyder, Guppy, and Thomson
(2003) claimed that they found no differences in the allocation of male and female occupational
prestige. They stress, however, that the overall equality of scores in their study of prestiges
occupational titles do not mean “sex-role factors” have disappeared entirely. Nonetheless, it
does hold interesting implications, along with the current study, that there is a growing
acceptance of conflicting gender roles in occupations, with a breakdown of gender stereotypes.
Future implications for research should include a broader range of participants, perhaps
an addition of more classes of gender dominated occupations to compare between groups; for
instance, McCleean & Kalin (1994) detail how men are generally over presented in professional
and technical occupations while women are largely found in clerical, sales and service
occupations.
11
References
Bergman, B. (2008). Polarized gender thinking – visions or norms in male-dominated
workplaces? International Journal of Qualitative Studies on Health and Well-being, 3,
165-175.
Cotter, D.A., Hermsen, J.M., Ovadia, S., & Vanneman, R. (2001). The glass ceiling effect.
Social forces, 80(2), 655-682.
Gabriel, P.E., & Schmitz, S. (2006). The impact of gender differences in occupational
attainment on the relative earnings of young workers. Applied Economics Letter, (13),
615-619.
Goyder, J., Gruppy, N., & Thompson, M. (2003). The allocation of male and female
occupational prestige in an Ontario urban area: a quarter-century replication. Canadian
Review of Sociology & Anthropology, 40(4), 417-430.
Graham, M.E., & Welbourne, T.M. (1999). Garnishing and women’s and men’s relative pay
satisfaction. Journal of Organizational Behavior, 20, 1027-1042.
Heilman, M.E., Wallen, A.S., Fuchs, D., & Tamkins, M.M.2.(2004). Penalties for success:
reactions to women who succeed at male gender-typed tasks. Journal of Applied
Psychology, 89 (3), 416-427.
Major, B., & Konar, E. (1984). An investigation of sex differences in pay expectations and their
possible causes. Academy of Management Journal, 27 (4), 777-792.
Mastekaasa, A. (2004). Sickness absence in female – and male-dominated occupations and
workplaces. Social science & Medicine, 60, 2261-2272.
Mclean, H. M., & Kalin, R. (1994). Congruence between self-image and occupational
stereotypes in students entering gender-dominated occupations. Canadian journal of
behavioural science, 26(1), 142-162.
Taylor, C.J. (2010). Occupational sex composition and the gendered availability of workplace
support. Gender & Society, 24, 189-212.
Ulku-Steiner, B., Kurtz-Costes, B., & Kinlaw, C. R. (2000). Doctoral student experiences in
gender-balanced and male-dominated graduate programs.Journal of educational
psychology, 92(2), 296-307.
Zhang, S., Schmader, T., & Forbes, C. (2009). The effects of gender stereotypes on women’s
career choice: opening the glass door. In M. Barreta (Ed.), The glass ceiling in the 21st
century: Understanding barriers to gender equality (pp. 125-150). Washington, D.C.:
American Psychological Association.
12
THE IMPACT OF COUNTRY OF OWNERSHIP ON BRAND PERSONALITY:
DOES IT MATTER WHO OWNS THE BRAND?
Luis Francisco Casas
Doctoral Candidate
Nova Southeastern University
[email protected]
John Robert Lax
Instructor of Marketing
Saint Leo University
[email protected]
13
Abstract
Firms from emerging economies are increasingly acquiring established consumer brands,
often with little fanfare or media promotion. China’s Wanda Group recently purchased AMC
Theatres and its over 5,000 North American movie screens, and India’s Tata Motors now owns
Jaguar and Land Rover, both iconic British automobile brands. In this paper, the authors seek to
determine if knowledge of country of ownership of a brand, a heretofore unexplored dimension,
distinct from country of origin or manufacture, influences consumer perception as measured by
Aaker’s brand personality scale.
The authors seek to fill a gap in the literature by determining if brand personality
perceptions change as a result of the consumers’ knowledge of country of ownership of a wellknown brand. Through a survey of 150 students in a U.S. university, the study shows that
country of ownership does not affect perceived brand personality. Managerial implications
include brand positioning, public relation activities and marketing communication strategies
when acquiring brands based in developed countries.
Keywords: country of ownership, country of origin, brand personality
14
Introduction
A group of teens shop for the latest blouses in a trendy boutique; a middle-class mom
takes her kids to a local multiplex to see the latest blockbuster; an affluent car shopper
deliberates which luxury sports car will take up residence in his garage. A considerable body of
academic research (Rosenbloom & Haefner, 2009) as well as business practices question if any
of these consumers are aware where their products originated and—if so—do they care? Does
the origin of their latest purchase have any significant influence on their perception of the
product, the brand or their purchase intent? Given the evolving state of global products and
firms and the interchange between them, this issue becomes increasingly important, not only for
those researching the impact—if any—of country of origin (COO) but also for practitioners
seeking to develop brand positioning and the marketing communications supporting that
positioning.
The nationality of a firm or an individual has historically mattered in business
transactions. Whether it was Rupert Murdoch having to become a U.S. citizen in order to be able
to purchase U.S. television stations in 1985 or Haier having to back off of its bid to purchase
Maytag in 2005, the fact is that a crucial issue in both cases was the nationality of the would-be
owners.
The purpose of this paper is to explore whether the country of ownership of a product or
company matters to the consumer. The COO literature in marketing has extensively explored the
impact on consumers of the country of origin of a brand/product as well as the country where it
is manufactured (Pharr, 2005). However, a review of marketing research has not yielded any
studies assessing the impact of the country of ownership of the brand/product/company on
consumers. This paper aims to fill this gap in the literature.
Using the case of the very British-centric Jaguar and Rover brands which are now owned
by India’s Tata Motors, this study empirically explores if attitudes and perceptions of these
brands vary when consumers are aware that the brand is owned not by the expected British firm,
but rather by a firm in an emerging economy (India). Using a sample of undergraduates at a
small private U.S. university and J. L. Aaker’s (1997) brand personality scale, the authors
investigate if the growing phenomenon of well-known brands being acquired by firms
originating in emerging countries influences consumer perceptions and attitudes.
The paper is structured as follows. After this brief introduction, the next section will
develop the concept of country of ownership (CON) and discuss its potential influence on
consumers. The third section will review the concept of brand personality and present the
paper’s hypotheses. The following section will then describe the methodology and the
experiment. The fifth section presents the results. The paper will then conclude with a
discussion of the findings and their implications.
Country of Ownership
One of the more widely researched issues in the marketing literature is country of origin
(COO), and whether or not consumers’ perceptions and attitudes are influenced by where
15
products are manufactured (Fetscherin & Toncar, 2010; Magnusson, Westjohn, & Zdravkovic,
2011). While researchers have yet to reach unanimity on the matter (Magnusson, et al., 2011;
Rosenbloom & Haefner, 2009), anecdotal evidence would suggest advertisers do indeed believe
consumers care about where products originate, and in fact, associate products with specific
countries. Orbit chewing gum has made their British spokeswoman a television regular and
Volkswagen frequently reminds viewers of their engineering heritage with German-accented
announcers in their advertisements (Magnusson, et al., 2011), to name but two examples.
This paper introduces the related yet unique dimension of country of ownership (CON),
defined as the country in which the parent firm that holds a majority ownership is headquartered,
regardless of where the company’s products are manufactured or what country is most closely
associated with the brand.
The country of ownership of a firm clearly has relevance in the economic and political
fronts. Countries seek to attract investment from foreign companies. Even developed economies
benefit from foreign direct investment (FDI).
Foreign direct investment into the U.S., while decreasing during the recession, has
nonetheless been substantial in the last ten years, totaling $1.7 trillion (Payne & Yu, 2011).
While none of the top ten countries investing in the U.S. are classified as emerging, a recent
report from the U.S. Department of Commerce suggests the most likely candidates for FDI
growth are countries with substantial trade surpluses, including China, Mexico and members of
OPEC (Payne & Yu, 2011). These emerging countries are not only increasing their U.S. FDI,
they are also acquiring brands which are American or British in origin, including China’s
Lenovo’s acquisition of IBM’s ThinkPad, Qatar Holding’s purchase of Harrod’s department
store, and India’s Tata Steel’s purchase of British Steel. China’s Wanda recently acquired
America’s second largest movie theater chain, AMC, for $2.6 billion, giving them access to over
6,600 screens (Weissmann, 2012) and, in an ironic reversal of stereotypes, India’s Aegis has
purchased U.S. based call centers employing over 5,000 Americans.
In February of 2006, a political firestorm erupted when DP World, owned by the
government of Dubai in the United Arab Emirates (UAE), attempted to purchase Britain’s
Peninsular and Oriental Steam Navigation Company (P&O). This acquisition would have given
Dubai indirect control of six of the U.S. largest ports. Seemingly, American legislators and the
general public had no objection to the British operating U.S. ports, yet had strong opposition to
them being operated by an Arab country because of potential ties to terrorists. As a result of the
reaction from both the American public and Congress, based on the perceptions of the country of
ownership, DP World divested itself of the U.S., ports, damaging UAE/American relations and
drawing the condemnation of the U.S. throughout the Middle East ("Dubai seeks to calm the
storm over ports," March 10, 2006).
Given the rise of global brands and the increasingly common acquisition of brands
closely associated with one country by a buyer outside of the original country (Fetscherin &
Toncar, 2010; Rosenbloom & Haefner, 2009), the question this study addresses is whether or not
country of ownership matters to consumers. The impact, and thus the need for investigation,
16
may well be exacerbated when the acquiring firm is from an emerging economy (Magnusson, et
al., 2011).
Influence on Consumers
Lacking substantive literature on the dimension of CON, this paper turns in part to the
extensive body of literature on COO in explaining the foundations of the concept and its possible
influence on consumer brand perception and behavior. Despite the lack of research on CON,
given the obvious commonalities with COO the authors anticipate that consumer behavior will
be similarly impacted.
The traditional view of COO, supported by the majority of the academic literature, holds
that consumer perceptions and attitudes, and in turn their buying behavior, is undeniably
influenced by the origin of the product (Samiee, 2011). Much of the research over the last two
decades suggests that the origin of a product provides consumers with both cognitive and
emotional cues regarding products (Fetscherin & Toncar, 2009). Consumers may reach product
evaluations based on what they believe to be objective facts about a product category such as
“Japanese cars have superior customer satisfaction ratings”, or from emotional beliefs such as
“women’s fashions from France are more exciting and sexy”, even when these beliefs or
assumptions are inaccurate (Louis & Lombart, 2010).
The origin of a product can influence consumers cognitively and emotionally, not
necessarily resulting from product attributes themselves, but rather from the consumer’s
assumptions regarding the country (Fetscherin & Toncar, 2009; Verlegh & Steenkamp, 1999)
(ADD Rosenbloom & Haefner, 2009). Products originating in countries that have favorable
perceptions among consumers may benefit from more positive brand images than do products
originating in countries with less favorable perceptions, regardless of the actual quality or
attributes of the item (Yasin, Noor, & Mohamad, 2007). Research also suggests that lacking
knowledge of the product itself, consumers will substitute their beliefs regarding the country as a
heuristic to make product evaluations (D. A. Aaker, 1996). Pharr (2005) suggests that the
dimension of COO includes country stereotypes and perceived elements of national culture such
as those described by Hofstede’s study.
Consider a recent report in the Washington Post regarding competing bids by Indian auto
manufacturer Mahindra & Mahindra Ltd. and European investment firm Investindustrial for a 40
percent equity stake in Aston Martin (Kirchfeld & Philip, 2012), the British sports car made
famous by decades of James Bond films. Assuming that Mahindra is successful in their bid (as
seemed to be the case at the time of publication), what are the implications for consumer
perception of one of the most famous British brands being owned in large part by a firm from
emerging India, once a British colony? Were this not ironic enough in its own right, the firm that
currently owns the brand is Investment Dar, a Kuwaiti firm. While the product may still be built
in the country that consumers associate most closely with the brand, will they be influenced by
their perceptions of the country (or countries) that own the firm? In the case of Aston Martin, is
it still a “Bond” car, with all that suggests, despite being owned by two countries that consumers
likely view far differently—and perhaps more negatively—than they do the United Kingdom?
17
According to some researchers, not only is COO a factor in product evaluations, its
influence may vary across product categories (Fetscherin & Toncar, 2009; Magnusson, et al.,
2011). Consumers may associate a given product with a specific country (perfume with France,
for example) or conversely, associate a given country with a specific product category such as
Germany with beer (Pappu, Quester, & Cooksey, 2006). These authors argue that these country
and category specific association may vary considerably depending on consumers’ preconceived
notions of what products are “right” for which countries. Extending this idea, they also suggest
that these associations may vary by specific brands according to the COO of the brand and that
consumer perception of quality may vary with COO.
Despite the prevailing literature, several researchers are increasingly arguing that the
influence of COO in consumer behavior and product perception is considerably overstated
(Magnusson, et al., 2011). There is a growing school of thought that COO has little, if any,
genuine impact on consumer product perceptions, brand image or purchase intention (Samiee,
2011). In a study often cited by researchers subscribing to this position, Liefeld (2004) found
that the majority of consumers were overwhelmingly oblivious of their purchase’s country of
origin. The study revealed that a mere six percent of consumers were aware of the product’s
COO before making the purchase and that 88 percent had no plans to investigate the matter. In
short, they could have cared less about where their product originated. This is but one of several
studies supporting this position. Research by Balabanis and Diamantopoulos (2008); Samiee,
Shimp, and Sharma (2005); and Usunier (2006) all suggest that not only has past COO research
been flawed in its conclusions regarding the impact of COO and that COO has little influence on
consumer perception but, perhaps more importantly, that consumers are largely indifferent and
unmotivated to investigate the origin of their acquisitions. Samiee et al. (2005) may best sum up
this school of thought by referring to previous research as “inflating” the importance of COO and
how practitioners should apply the research in making managerial decisions.
As firms in emerging economies increasingly acquire high visibility brands originating in
developed countries, the controversy regarding the impact of COO and the related concept of
CON becomes increasingly important to marketing theory and practice. This paper contributes
to this discussion, potentially opening a new stream of research around the country of ownership
concept.
Brand Personality
A substantial body of marketing research, particularly in the areas of branding and
consumer behavior, has been devoted to determining if consumers do indeed assign human
personality traits to inanimate products and, if so, how that attribution influences their perception
of, and relationship with, a given brand (Fetscherin & Toncar, 2009; Magnusson, et al., 2011;
Samiee, 2011).
Marketers have long since adopted brand personality as a strategy for connecting
products to consumers (J. L. Aaker, 1997; Arora & Stoner, 2009), using the technique to
emphasize the “humanness” of a brand as opposed to mere physical characteristics or feature
functionality (Keller, 1993). The physical characteristics of a Harley Davidson “hog” may be
18
reliability and comfort; however, the firm’s marketing focuses far less on those attributes than it
does on building a brand perception that the products are adventurous and exciting.
Given the difficulty of connecting consumers to inanimate objects and thus creating a
brand relationship, advertisers resort to anthropomorphism, turning the brand images into living
beings with human characteristics (J. L. Aaker, 1997; Louis & Lombart, 2010). This
personification allows the consumer to view the brand in the context of their own personality and
thus develop an affinity with the product (Caprara, Barbaranelli, & Guido, 2001).
In her seminal article introducing the scale employed in this study, J. L. Aaker (1997)
suggests the foundation of the phenomenon is the consumer’s tendency to assign human traits to
inanimate objects. Aaker initially identified 309 traits believed to contribute to brand
personality. Subsequent research involving a representative sample of the U.S. population and a
large variety of consumer products ranging from toothpaste to luxury cars allowed her to reduce
the dimensions to a far more manageable five—Competence, Excitement, Ruggedness, Sincerity,
and Sophistication—, composed of 15 sub-dimensions and 42 total personality traits. The
resulting concept, which Aaker defines as “the set of human characteristics associated with a
brand” (J. L. Aaker, 1997, p. 347) offers what many researchers consider to be a generalizable
and valid scale for measuring brand personality (Fetscherin & Toncar, 2009).
The authors selected the Aaker brand personality scale for several reasons. First, it
allows for the measure of a variety of product personality attributes that appear to “fit” the two
vehicles in question. Second, the scale’s generalizability allows the measurement of if, and how,
brand perceptions change in the case of a transnational brand acquisition. Third, brand
personality can be measured regardless of a consumer’s ability or intention to actually purchase
the product. Finally, despite some criticism, the scale is widely accepted in the school of
branding research and has been successfully employed by previous researchers specifically
investigating the automobile industry in emerging economies (Fetscherin & Toncar, 2009).
This paper suggests that for products originally from industrialized countries that are now
owned by firms from emerging economies, consumers who are aware of the country of
ownership will evaluate brand personality more negatively than will consumers who are not
aware of the country of ownership.
Bringing together the new dimension of country of ownership, the expectation that COO
and CON will have a similar impact on consumer behavior, and Aaker’s well established brand
personality scale, this paper suggests that for products originally from industrialized countries
that are now owned by firms from emerging economies, consumers who are aware of the country
of ownership will evaluate brand personality more negatively than will consumers who are not
aware of the country of ownership.
This leads to the following five part hypothesis:
H1: Consumers who are aware that India is the country of ownership of Jaguar or Land
Rover will evaluate the brand as being less (a) competent, (b) exciting, (c) rugged, (d) sincere,
19
and (e) sophisticated than consumers who are not aware that they are owned by an Indian
company.
Methodology
A 2 x 2 between subjects experiment was designed to test the hypotheses. One
dimension was the type of automobile: Jaguar (luxury passenger car) or Land Rover (utility
vehicle). The other dimension was the country of ownership: either identified as India (subjects
were explicitly told that Tata—an Indian company—had acquired the brand in 2008) or not
identified at all (all subjects were asked in what country they thought the brand’s headquarters
was located to test for prior knowledge).
A scale developed and validated by J. L. Aaker (1997) was used to measure perceived
brand personality of the cars (see Figure 1). The scale consists of five dimensions of brand
personality broken down into 42 items: Competence (9 items), Excitement (11 items),
Ruggedness (5 items), Sincerity (11 items), and Sophistication (6 items). All items were
measured using a five-point Likert type scale (1 = not at all descriptive, 5 = extremely
descriptive).
A three part questionnaire was developed as the measurement instrument. The first
section had questions regarding demographics of the participant.
The second part had a brief description and photo of the automobile (Jaguar or Land
Rover), and questions regarding country of manufacture and country of ownership (location of
parent company headquarters) of the brand to test for previous knowledge.
The third section had the 42 questions of the Aaker brand personality scale, randomized
to avoid potential bias in the clustering of items from the same dimensions. At the beginning of
the section, for those in the relevant experimental groups, the Tata Motors logo was displayed
and the purchase of the brand (Jaguar or Land Rover) by Tata in 2008 was disclosed along with a
brief description of the firm that emphasized the fact that it is an Indian company. At the end of
the section, participants were asked to match the country of ownership (four countries: USA,
Germany, India, Japan) to three brands of automobiles (Lexus, Jaguar/Land Rover, BMW) as a
manipulation check.
The survey was pretested with two undergraduate students that did not participate in the
subsequent study in order to refine the format of the instrument.
Data were collected from a sample of 150 undergraduate business students at a small
private U.S. university who were randomly assigned to one of the four experimental groups.
Results
In total, 49 subjects completed the survey for Jaguar with Tata ownership not disclosed,
42 for Jaguar with Tata ownership disclosed, 25 completed the instrument for Land Rover with
Tata ownership not disclosed, and 34 for Land Rover with Tata ownership disclosed.
20
The sample was composed of 37% females and 63% males. English was the first
language of 84% of the participants, and 49% of the subjects considered the USA to be their
home.
A manipulation check of the country of ownership was designed as noted above; 85.5%
of the subjects who were told that Jaguar or Land Rover had been acquired by Tata correctly
identified India as the country of the parent company’s headquarters.
An assessment of possible common method bias was performed using Harman’s single
factor test (Gaskination, 2011) with IBM SPSS Amos 20. The single factor accounted for only
27.8% of the total variance explained, well below the 50% threshold and thus supporting the
absence of common method bias.
Reliability and Validity
The reliability and validity of the measurement model were assessed with partial least
squares (PLS) using SmartPLS 2.0. The criteria to gauge the acceptability of the constructs’
psychometric properties require that (1) composite reliabilities be greater than .70, (2)
standardized factor loadings of measured variables in a confirmatory factor analysis (CFA)
exceed .70, (3) loadings be greater than cross-loadings, (4) average variances extracted (AVE)
exceed .50, and (5) AVEs be greater than the squared inter-construct correlations (Hair, Black,
Babin, & Anderson, 2010; Srite & Karahanna, 2006).
Several of the brand personality scale items did not meet one or more of these criteria and
were eliminated from the analysis. The final model consisted of 22 items: Competence (5
items), Excitement (5 items), Ruggedness (4 items), Sincerity (5 items), and Sophistication (3
items). The values for each of the brand personality dimensions were calculated as the average
of their items.
Table 1 shows the results of the CFA for the final model which is depicted graphically in
Figure 2. All items exceed the .70 loading criterion with the exception of SiW2 which was
retained for the analysis since it had a loading of .68. These results demonstrate convergent
validity.
Discriminant validity can be partially assessed by the fact that the items have a higher
loading on their corresponding factor (brand personality dimension) than on the other factors
(Table 1). Additionally, the AVEs for all dimensions are greater than .50 and larger than the
corresponding squared inter-construct correlations (see Table 2). The brand personality
dimensions thus exhibit adequate discriminant validity.
Finally, assessing reliability, Table 2 shows that composite reliabilities for all dimensions
exceed .70.
With all of these results, one can conclude that the measurement model has suitable
psychometric properties.
21
Hypotheses Tests
To test the hypotheses, a comparison of means through analysis of variance (ANOVA)
was performed with IBM SPSS Statistics 20.
Table 3 shows the results for the four experimental groups, where there is a significant
(p < .001) difference in the evaluation of ruggedness and sophistication between the four groups.
A closer analysis reveals that, for each individual brand (Jaguar and Land Rover), there
are no significant differences in the perceived personality dimensions between those that were
aware of the Indian country of origin and those that weren’t (see Table 4).
The differences detected in the ANOVA of the four experimental groups are in fact due
to differences between the brands, with Jaguar being perceived as more sophisticated but less
rugged (and also less sincere) than Land Rover (see Table 5).
None of the hypotheses (H1a, H1b, H1c, H1d, and H1e) are thus supported.
Discussion and Conclusions
The results of this study clearly add to the controversy in the country of origin literature
on whether or not it is relevant to consumers. It suggests that the effect of brand attributes and
perceptions is stronger than the influence of the country of ownership of the product. Consumers
care more about the brand itself than about the nationality of who owns the brand.
The implication for companies is that marketing resources need not be diverted to either
highlighting or hiding the nationality of the parent firm. Similarly, when assessing potential
acquisitions, firms need not consider the change in the nationality of the brand’s ownership as a
potential factor in consumer’s perceptions. Consumers will continue to form their opinions
about products and brands based on their attributes and performance without regard to the
country in which the parent company is headquartered.
This paper presents an initial and very specific study of country of ownership (CON)
effects and therefore has a number of limitations that also constitute opportunities for future
research. For example, studies could be designed to compare the effect of CON across different
product categories. Other relevant aspects of brands could be measured and compared such as
perceived brand attributes. The impact of CON on consumer behavior variables including
purchase and word-of-mouth intentions could also be studied. Subjects other than undergraduate
students in the U.S. could be surveyed to see if the findings are generalizable. The impact of
media coverage, especially social and online channels, of the change in ownership might also be
evaluated.
The authors were surprised not to find any country of ownership studies in the extant
literature and anticipate that this paper could initiate a new stream of research around this
increasingly relevant and topical concept.
22
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24
Figure 1. A Brand Personality Framework (J. L. Aaker, 1997, p. 352).
Figure 2. Final Measurement Model from CFA in SmartPLS 2.0.
COMP = Competence, EXCIT = Excitement, RUG = Ruggedness, SINC = Sincerity, SOPH =
Sophistication. Numbers on the arrows from the latent constructs to the measured variables are
standardized factor loadings.
25
Table 1
Confirmatory Factor Analysis (CFA) Results
Brand
Personality
Dimension/
Item
Competence
Excitement
Ruggedness
Sincerity
Sophistication
CI1
0.81
0.56
-0.03
0.45
0.54
CR2
0.72
0.44
0.39
0.57
0.19
CR3
0.71
0.40
0.37
0.50
0.19
CS1
0.78
0.56
-0.01
0.38
0.50
CS3
0.74
0.47
-0.01
0.28
0.43
ED1
0.54
0.77
0.39
0.50
0.34
ED2
0.35
0.71
0.05
0.33
0.47
ED3
0.49
0.84
0.17
0.53
0.56
ES2
0.52
0.71
0.16
0.42
0.49
EU1
0.54
0.76
0.00
0.30
0.52
RO1
-0.05
0.06
0.81
0.27
-0.29
RO3
0.09
0.17
0.73
0.41
0.02
RT1
0.30
0.30
0.86
0.48
-0.01
RT2
0.07
0.01
0.73
0.26
-0.28
SiC1
0.46
0.51
0.25
0.77
0.43
SiC3
0.39
0.26
0.39
0.75
0.11
SiH3
0.42
0.48
0.38
0.74
0.22
SiW1
0.58
0.42
0.31
0.80
0.16
SiW2
0.31
0.38
0.49
0.68
0.21
SoC1
0.35
0.39
-0.01
0.37
0.72
SoU1
0.44
0.54
-0.12
0.21
0.83
SoU2
0.40
0.56
-0.15
0.18
0.83
Note. Numbers shown are standardized loadings. Loadings > .60 are bolded and in a shaded
cell. SmartPLS 2.0 was used for the analysis.
26
Table 2
Reliability and Discriminant Validity Assessment
Brand
Personality
Dimension
Composite
Reliability
Competence
Competence
0.87
0.57
Excitement
0.87
0.42
0.57
Ruggedness
0.87
0.03
0.05
0.62
Sincerity
0.87
0.34
0.31
0.23
0.56
Sophistication
0.84
0.25
0.40
0.02
0.10
Excitement
Ruggedness
Sincerity
Sophistication
0.63
Note. First column shows composite reliabilities. Diagonal elements (in bold) in the correlation
matrix are the average variances extracted (AVE). All other figures are the squares of interconstruct correlations. For adequate discriminant validity, AVEs should be greater than the
corresponding off-diagonal figures.
Table 3
ANOVA Results – Means Comparisons of the Four Experimental Groups
Experimental Group
JTU
JTD
LTU
LTD
ANOVA
Mean
Std. Deviation
N
Mean
Std. Deviation
N
Mean
Std. Deviation
N
Mean
Std. Deviation
N
F
Sig. Level
Competence
3.98
0.86
49
3.81
0.62
42
3.74
0.82
25
3.90
0.61
34
0.78
0.509
Excitement
3.85
0.66
49
3.84
0.77
42
3.76
0.84
25
3.83
0.69
34
0.10
0.961
Ruggedness***
2.10
0.74
49
2.35
0.93
42
3.60
0.85
25
3.84
0.70
34
43.17
0.000
Sincerity
Sophistication***
3.16
0.84
49
3.25
0.75
42
3.38
0.70
25
3.52
0.63
34
1.65
0.181
4.26
0.62
49
4.20
0.67
42
3.60
0.84
25
3.64
0.85
34
8.54
0.000
Note. JTU = Jaguar with Tata ownership undisclosed, JTD = Jaguar with Tata ownership
disclosed, LTU = Land Rover with Tata ownership undisclosed, JTD = Jaguar with Tata
ownership disclosed. Results are statistically significant for Ruggedness and Sophistication.
IBM SPSS Statistics 20 was used for the analysis.
*** p < .001.
27
Table 4
ANOVA Results – Independent Means Comparisons for Jaguar and Land Rover
Jaguar
Country of Ownership
Mean
Std. Deviation
N
Mean
Std. Deviation
N
F
Sig. Level
Not
disclosed
India
disclosed
ANOVA
Competence
Excitement
3.98
0.86
49
3.81
0.62
42
1.20
0.277
Ruggedness
3.85
0.66
49
3.84
0.77
42
0.00
0.946
Sincerity
2.10
0.74
49
2.35
0.93
42
2.05
0.156
Sophistication
3.16
0.84
49
3.25
0.75
42
0.28
0.597
4.26
0.62
49
4.20
0.67
42
0.22
0.640
Land Rover
Country of Ownership
Mean
Std. Deviation
N
Mean
Std. Deviation
N
F
Sig. Level
Not
disclosed
India
disclosed
ANOVA
Competence
Excitement
3.74
0.82
25
3.90
0.61
34
0.78
0.380
Ruggedness
3.76
0.84
25
3.83
0.69
34
0.12
0.729
Sincerity
3.60
0.85
25
3.84
0.70
34
1.43
0.236
Sophistication
3.38
0.70
25
3.52
0.63
34
0.66
0.419
3.60
0.84
25
3.64
0.85
34
0.04
0.839
Note. No results are statistically significant.
Table 5
ANOVA Results – Means Comparisons Between Jaguar and Land Rover
Brand
Jaguar
Land Rover
ANOVA
Mean
Std. Deviation
N
Mean
Std. Deviation
N
F
Sig. Level
Competence
3.90
0.76
91
3.83
0.70
59
0.35
0.555
Excitement
3.85
0.71
91
3.80
0.75
59
0.16
0.691
Ruggedness***
2.22
0.84
91
3.74
0.77
59
124.79
0.000
Sincerity**
Sophistication***
3.20
0.79
91
3.46
0.66
59
4.14
0.044
4.23
0.64
91
3.62
0.84
59
25.70
0.000
Note. Results are statistically significant for Ruggedness, Sincerity, and Sophistication.
** p < .05. *** p < .001.
28
AN EXAMINATION ON THE EDUCATIONAL AND TRANNING REQUIREMENTS OF
PROSPECTIVE CERTIFIED PUBLIC ACCOUNTANTS: THE REDESIGN OF THE
ACCOUNTING CURRICULUM
Dr. Lamine J. Conteh
Dr. Passard Dean
Saint Leo University
29
Abstract
The purpose of this paper is to examine the educational and training requirements of
prospective certified public accountants (CPA) and the overhaul and redesign of accounting
curriculum at U.S. colleges and universities. A survey of accounting students revealed that the
extra education was essential for passing the CPA exam (Reckers, 2006). Although the AICPA’s
150-hour rule did not directly address the accounting educational qualification of a Uniform
CPA candidate, all the 50 states, and the American Samoa, the District of Columbia, Northern
Mariana Islands, and Puerto Rico, Quam now require CPA candidates or licensure for the CPA
designation to have at least 150 credit hours of education (AICPA, 2013). According to the
AICPA (2013), the educational requirements for CPA licensure in the U.S. Virgin Islands
indicate that the candidate must have a diploma from a 4-year high school or a diploma from a
recognized college or university, and that the candidate must also complete 30 or more semester
hours in the study of accounting, economics, business law, and finance of which the 20 hours
must be in accounting. The imbalance of supply/demand was especially greater in Florida where
more than 2.300 students took the CPA exam under the old rule. According to Reckers (2006),
only 12 candidates met the 150-hour rule requirement in Florida before it was implemented in
2000. Candidly, the implementation of the 150-hour rule in 2000 increased the success rates of
CPA candidates in Florida and Utah (Reckers, 2006).
30
The purpose of this paper is to examine the educational and training requirements of
prospective certified public accountants (CPA). This paper also advocates the overhaul and
redesign of accounting curriculum at U.S. colleges and universities. For this reason, the
redesign and overhaul of accounting courses should include in information technology,
international accounting, ethics, and oral and written communications. Consequently, the
redesign of the accounting curriculum will enhance the success rates of CPA candidates, the
offering of similar accounting subjects across business schools, and preparing accounting
graduates to meet the changing dynamics of employment in professional accounting.
During the last century, the accounting profession debated the educational and training
requirements of certified public accountants (CPAs). In the mid-1980s, employers of accounting
graduates and academicians were concerned about the competency level of accounting graduates
(Bui and Porter, 2010). Subsequently, Munter and Reckers (2009); Brown and McCartney
(1995); Hurt (2007)); and Albrecht and Stack (2001) have called on accounting educators to
make adequate improvements in the perceived deficiencies of accounting graduates.
In retrospect, the AICPA’s approval of the 150-hour rule in 1989 did not specifically
address the types of courses that accounting majors should take beyond the minimum credits that
are required for an undergraduate accounting degree. Furthermore, the level of accounting
education as well as courses and topics from one accounting program to the other continues to
differ considerably. Correspondingly, some business schools have redesigned their entire
accounting curriculum with the hope of increasing the mastery proficiencies of accounting
majors (Hyman, Superville, Ramsey, and Williams, 2005; DeFelice, 2010).
A survey of accounting students revealed that the extra education was essential for
passing the CPA exam (Reckers, 2006). While the National Association of State Boards of
Accountancy (NASBA) and the AICPA have called for changes in the accounting curriculum for
CPA candidates, a significant number of accounting educators and practitioners have rejected a
proposal to revise the accounting curriculum (Reckers, 2006). Although the AICPA’s 150-hour
rule did not directly address the accounting educational qualification of a Uniform CPA
candidate, all the 50 states, and the American Samoa, the District of Columbia, Northern
Mariana Islands, and Puerto Rico, Quam now require CPA candidates or licensure for the CPA
designation to have at least 150 credit hours of education (AICPA, 2013). According to the
AICPA (2013), the educational requirements for CPA licensure in the U.S. Virgin Islands
indicate that the candidate must have a diploma from a 4-year high school or a diploma from a
recognized college or university, and that the candidate must also complete 30 or more semester
hours in the study of accounting, economics, business law, and finance of which the 20 hours
must be in accounting.
Accounting graduates rushed to take the CPA exam before the AICPA’s implementation
of the 150-hour rule in 2000 (Reckers, 2006). The imbalance of supply/demand was especially
greater in Florida where more than 2.300 students took the CPA exam under the old rule.
According to Reckers (2006), only 12 candidates met the 150-hour rule requirement in Florida
before it was implemented in 2000. Candidly, the implementation of the 150-hour rule in 2000
increased the success rates of CPA candidates in Florida and Utah (Reckers, 2006).
In order to increase the passing rates of first-time CPA examination candidates and to
ensure that accounting graduates are meeting the challenging demands of the workplace, high
priority should be given to the redesign of the accounting curriculum. Consequently, the
following research questions will seek address this endeavor:
31
1. Does the disparity between the CPA examination content and the accounting curriculum
significantly contribute to high failure rates of first-time CPA examination candidates?
2. Are accounting majors adequately prepared to meet the challenges demands of the
workplace?
3. Should international accounting be included in the redesign of the undergraduate
accounting curriculum?
4. Should accounting ethics be taught exclusively by accounting faculty?
The formulation of research questions on the need of revamping the accounting
curriculum is vitally important to the investigation and the findings of the research hypotheses.
As a result of this critical assessment, the following hypotheses are depicted:
H1o: There is no statistically significant difference between the high failure rates of first-time
CPA examination candidates and the disparity between the CPA examination content and the
accounting curriculum.
H1a: There is a statistically significant difference between the high failure rates of first-time
CPA examination candidates and the disparity between the CPA examination content and the
accounting curriculum.
H2o: Accounting majors are not adequately prepared to meet the challenges demands of the
workplace.
H2a: Accounting majors are adequately prepared to meet the challenges demands of the
workplace.
H3o: International accounting should not be included in the redesign of the undergraduate
accounting curriculum.
H3a: International accounting should be included in the redesign of the undergraduate
accounting curriculum.
H4o: Accounting ethics should not be taught exclusively by accounting faculty.
H4a: Accounting ethics should be taught exclusively by accounting faculty.
The public accounting profession started in Great Britain around the mid nineteenth
century, and in 1896 the State of New York passed the first legislation on the title of “certified
public accountant” (Dennis, 2000, p. 97). This law paved the way on the state regulation of the
public accounting profession in the United States. In 1916, the American Institute of
Accountants (AIA), the predecessor of the AICPA structured the first organizational membership
of the CPA profession. By 1984, the first joint model bill between the AICPA and the NASBA
was published.
There are still differing requirements on the aspect of accountancy in the 50 states and
Puerto Rico, the District of Columbia, Guam, Northern Mariana Islands, Puerto Rico, and the
U.S. Virginia Islands. Due to these differing requirements, the mobility of CPAs has resulted in
the artificial barrier to the practice of public accounting (Shelton, Thompson, and Serrett, 2012).
Research on the educational requirements of the 50 states has revealed a lack of consistency on
the CPA examination requirements. According to Shelton et al. (2012), some of the states have
implemented the general requirements of the National Association of State Boards of
Accountancy, while other states have instituted different requirements for prospective CPA
candidates and licensure.
Prospective CPA candidates are usually advised to adequately prepare for the
examination. However, most of the candidates are given different views on the extent of their
32
practical experience and academic training (Frisbee, 1947). According to Frisbee (1947), some
CPA candidates are even advised to have more training in tax, auditing and accounting studies
than in non-accounting courses. Some even have advised the candidates to combine liberal arts
and business management courses that include core accounting courses within the curriculum.
Interestingly, a number of colleges and universities have implemented comprehensive five-year
programs for the undergraduates to have thorough knowledge of accounting (Frisbee, 1957).
The understanding of knowledge-based depreciation would significantly influence the
structuring of business law and tax courses so that the passing rates of accounting graduates can
increase. For example, the scheduling of macro and micro-economics courses for accounting
undergraduate students in the sophomore year and accounting information in the junior year
could be the contributing factors of the candidate failure rates in these two important parts of the
CPA examination. The minimization of knowledge-based depreciation could contribute
significantly to the structuring of accounting programs; thereby paving the way of program
alteration in the course content and instructional delivering methods (Kohen and Kipps, 1979).
While it is a generally accepted theory that the passage of time places significant role in the
knowledge depreciation of a learner, program improvements and increase faculty productivity
could also increase the student knowledge and retention (Kohen and Kipps, 1979). Thus, in
order to improve the proficiency of accounting graduates, it is imperative for business schools to
have courses in information technology, forensic and fraud examination, international
accounting. In addition, more courses should be taught in finance, and oral and written
communication beyond the undergraduate general education requirements.
Information technology (IT) has been a prominent force in business and non-business
productivity. IT, defined as the use of hardware and software, has greatly influenced the
production and performance of products and services, respectively. Thus, IT continues to have a
leadership role in manufacturing and distribution of financial and non-financial data across
businesses. Bagranoff et al. (2005) argued that companies interpret their success or failure rates
squarely on the workers’ use or misuse of information. For example, effective use of accounting
information should be accurate and that is properly disseminated to stakeholders (Bagranoff et al.
2005).
The Bedford Report highlighted how the development, disclosure and collection of data
should be understood (AAA, 1986). In addition, the Bedford Report addressed the importance of
how future accountants should understand the design, nature and implementation of information
systems.
The business environment continues to use information technology (IT) as the primary
driver of change and few business organizations have escaped the sudden advances of IT
processes and protocols. The use of IT has drastically changed the structural and operational
functions of business enterprises (IFAC, 2003). For example, the exchange of transactional data
in real time between businesses has now allowed efficient dissemination of data. Furthermore,
the use of XBRL allows business entities to share information via the Internet (e-commerce),
perform automatic inventory updates, centrally coordinate databases, and use enterprise resource
planning (ERP) tools to organize financial and operational functions.
Though recent progresses in IT have elevated business processes, the accounting
profession continues to face several integral challenges. With the inexpensive development of
software for the dissemination of tax returns and financial information, the demand for
accountants continues to decrease dramatically (Albrecht & Sack, 2001). Candidly, accountants
are now required to be knowledgeable in information technology as a consequence of performing
33
non-rudimentary work (IFAC, 2003; Jackson and Cherrington, 2002). The current business
environment requires prospective employees to be proficient in databases, computer operating
systems, groupware and spreadsheets. Thus, without the mastery of computer protocols, it
would be practically impossible for accounting graduates to effectively perform in the current
business environment. Additionally, a professional accountant is now expected to be
knowledgeable in the design and support of the business information systems. Unfortunately,
the rapid technological and structural organizational changes have made it increasingly difficult
for accountants to efficiently render their services (IFAC, 2003).
The apparent consensus of requiring professional accountants to have IT skills does not
specifically address the IT skills that are needed to be taught in the accounting curriculum.
However, in 1995, the International Federation of Accountants issued the International
Education Guide (IEG) on specific IT skills that are required for accounting majors (IFAC,
1996). Additionally, the AICPA’s Technology Curriculum and Competency Model Tax Force
agreed that the memorandum of the (IFA) were profoundly applicable to accounting professional
education in the U.S. According to IFAC (2003), the Technology Curriculum and Competency
Model Tax Force have provided the following IT competency and knowledge requirements that
professional accountants are required to be equipped with:
1. A general IT knowledge in business systems
2. A set of knowledge on IT related controls
3. A set of competency in IT related controls
4. A set of user role competency; and
5. A set of role-related competency relative to as IEG 11 designer, evaluator or
manager.
The IEG study revealed that at least two courses should be taught on competencies and
skills in the above three noted areas and that competencies and skills should cover related roles
as a designer, evaluator or manager. The IEG 11 has categorically indicated that IT skills and
competencies should not be relegated to one or two courses, but instead distributed in a variety
of courses.
Since 1959, the American Accounting Association (AAA) has considered including
computerized data processing in accounting education (Wu, 1983. In fact, Nestman and White
(1978) suggested that that accounting information system (AIS) is an essential component of
accounting curriculum. Both accounting practitioners and educators have extensively concluded
that AIS courses increase the ability of students to proficiently understand the protocols of
information systems (Albrecht and Sack, 2000; Borthick, 1996. Unfortunately, due to continuous
evolution, widespread proliferation, and different aspects of information technology in business
processes, accounting educators are challenged in determining the appropriate AIS courses that
should be included in the accounting curriculum.
According to O’Donovan (1995), there was a source of disagreement and discussion
about the proper definition of how computers should be incorporated into the accounting
curriculum. Similarly, discussions had shifted to the clarity and relevant topics that should be
used in accounting courses (Bhaskar, 1982; Er and Ng, 1989). Collins, 1983; Collier et al., 1990;
Bromson, et al, 1994 (1987) argued that due to the changing dynamics of the business
environment, accounting information courses are needed in the accounting program. In other
words, the incorporation of accounting information systems should pay specific attention to
several curriculum proposals (William, B. C., 1991), as well as proper understanding of the
34
importance of AIS in business and nonbusiness undergraduate education (Armitage and Boritz,
1986; Collier et al., 1990; Bromson et al., 1994; Harrison, 1994).
Yaverbaum (1996) argued that accounting educators need to change their ideas about IT
and that accounting students are better served when technology is introduced in the classroom.
Ideally, Najjar (1998) examined whether there is a direct correlation between the use of
technology in the classroom and the performance of students. For instance, the general argument
has indicated that testing without using technology did not conclusively indicate that student
performance has increased. Another argument confirmed that there was a possibility that a
computerized test is more visual than a non-computerized test.
The Accounting Education Change Commission (AECC) discussed about the inclusion of
international business and accounting as part of accounting education (AECC, 1990). Likewise,
executive officers of major public accounting firms have supported this idea. In fact, in a
document on the perspective on education, it was stated the success of a practitioner depends the
general education requirements as well incorporating issues in economics and political thought.
More specifically, the American Assembly of Collegiate School of Business (AACSB)
recommended the inclusion and coverage of global issues in accounting courses (AACSB, 1991,
p. 18).
It is of profound interest if accountants and auditors in the US are familiar with the
accounting principles of other countries. The premise of this argument is that the financial
statements of several US companies include consolidated data of non-US subsidiaries.
Furthermore, a US company seeking external financing may be required to prepare financial
statements that are in conformity with the generally accepted accounting principles of these
countries. Finally, a US company may prepare two sets of financial statements that are in
conformity with the generally accepted accounting principles of domestic and foreign countries.
Table 1 provides valuation information on different accounting treatments. For example, before
Canada adopted international financial reporting standards (IFRS), it had similar methods with
the US on foreign currency translation and accounting treatments on gains and losses. With
regard to recognition of gains and losses as income or adjustments in the stockholders’ equity,
companies in the US and Canada had previously used either the current rate or the temporal
methods. For instance, the foreign currency translation gains and losses in the UK, Australia,
and the Netherlands are surprisingly similar to those in the US. In France and Germany, there
were no prescribed accounting treatments for foreign currency translation gains and losses. Wu
(2001) has stated that Japanese companies use the “modified temporal method” while foreign
currency translation gains and losses are treated as adjustments and then disclosed as assets or
liabilities in the balance sheet.
As stated by Meek (1985), topics such as transfer pricing, performance evaluations and
planning should be discussed in international managerial accounting courses. Meek (1988) has
advised accounting instructors to use international accounting materials in other courses. Other
advocates have called for the incorporation of international accounting topics in introductory
accounting courses (McClure, 1988). However, adversaries argued that students in other courses
may have insufficient knowledge of international accounting (Wu, 2000). In surveys by Burns
(1979) and Mintz (1980), respondents have called for the integration of international
35
Table 1: Accounting Topics That Can Be Integrated into Financial Accounting Courses
Topics
US
Canad Australi
UK
France German Netherland
a
a
y
s
Required
Financial
Statements
Balance
Sheet
Income
Statement
Cash Flow
Statement
Statement
Of Changes
Historical
Financial
Statements
Lower-OfCost-OrMarket for
Marketable
Securities
Lower-OfCost-OrMarket for
Inventories
Provisions
For Bad
Debts
Straight-Line
Depreciation
Excess
Depreciation
Over Book
Value
Permitted
Financial
Leases
Capitalized
Deferred
Taxes
Recorded
Equity
Method Used
For
Japan
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
N
N
N
N
N
N
√
√
√
√
N
N
N
N
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
N
√
√
√
Modified
√
√
√
√
√
√
√
√
√
36
Investment of
20% - 50%
accounting in accounting program instead of merely discussion international accounting topics in
other undergraduate accounting courses. In addition, Wu (2001) argued that accounting
instructors are unfamiliar with international accounting topics and that insufficient materials are
available for class instructions.
In order to strengthen undergraduate accounting knowledge, Wu (2001) has suggested the
incorporation international accounting topics in upper-level financial accounting courses.
Accounting students should be introduced to the dimensions of international accounting that
include accounting for marketable securities, goodwill, deferred taxes, segment reporting,
foreign currency translation, consolidation, and inventory valuations (Wu, 2001). Instructors
should be able to present the use selected countries when discussing international accounting
topics in the classroom.
Due to the accounting scandals in the early late 1990s, the reputation of the accounting
profession suffered a setback. More specifically, the public perceived these scandals squarely on
a lack of ethics in the accounting profession. Similarly, Russell and Smith (2003) pointed their
fingers at academia and depicted the following:
If we are looking for a primary contributing course of corporate malfeasance at firms
such as Enron, Equity Funding, WorldCom, Sunbeam, Arthur Andersen, and
HealthSouth, we need to look no further than the classrooms at colleges and university
accounting programs that have not significantly adapted their methods of instruction or
approach to accounting and management education over the last 50-60 years (p.1).
Ever since the issuance of the Bedford Committee report in 1986, there have been calls
by the American Accounting Association (AAA), the Accounting Education Change
Commission (AECC), the American Institute of Certified Public Accountants (AICPA), and the
National Commission on Fraudulent Financial Reporting (NCFFR) to include ethics courses in
the accounting curriculum. Admittedly, subsequent to the accounting scandals in the late 1990s,
there were no meaningful changes of incorporating ethics in the accounting curriculum
(Blanthorne, Fisher & Kovar, 2007).
The proposed changes to Rules 5-1 and 5-2 of the Uniform Accountancy Act have been
proactive in addressing the ongoing ethical deficiencies in accounting education. In inevitably,
the exposure draft have highlighted discussions on the accounting curriculum and also sparked
needed attention within the accounting profession. One of the major proposals of the exposure
draft had suggested the inclusion of ethical conduct and professional responsibilities of CPA in
proposed 150-hour curriculum. In effect, NASBA’s Board of Directors created task forces to
specifically revisit the content of the 150-hour requirement for the accounting education.
However, after a prolong three-year discussion, the board declined to approve the three
additional hours of accounting ethics into the 150-hour accounting education requirement.
Similarly, proponents of change have contended that the impact of ethical behavior of the
accounting profession far outweigh the cost of including ethics education in the accounting
program.
37
As part of this study, the researchers will examine the impact of not offering ethics to
accounting students and the subsequent unethical behavior of accountants in the workplace. In
addition, the study would like to assess whether accounting ethics should be offered as a single
or multiple courses. In order to ensure success in the accounting profession, accounting
programs should use rudimentary tools (Albrecht and Sack 2000). As a result, there has been a
long standing argument that accounting programs should focus on ethics, values and integrity
(Albrecht & Sack, 2000). Unethical behavior has tarnished the image of the accounting
profession and during the first few years of employment, accounting graduates have continued to
face ethical challenges (Chang and Leung 2006). In addition, Chang and Leung (2006) have
asserted due to the reluctance of identifying ethical issues, accounting students and graduates
may be unable to determine what is ethically right or wrong. Hence, accounting educators
should evaluate the impact of ethical issues on the accounting profession than merely arguing the
lack of resources and additional costs of offering ethics courses to not including accounting
ethics in the curriculum (Bean & Bernardi, 2005). Likewise, accounting educators must further
evaluate the impact of unethical behavior as a primary threat on professional accounting.
Research studies have revealed that many accounting programs continue to struggle with
methodology of including accounting ethics into the curriculum (Blanthorne et al., 2007). For
example, Blanthorne et al.’s (2007) study concluded that 98.1% of accounting professors
affirmed that at least one course in ethics should be included in the accounting curriculum, and
that the course should be three credit hours.
The accounting academic community has raised questions on who should teach ethics to
accounting students. A group of proponents has suggested that accounting faculty should teach
accounting ethics because it believes that accounting instructors are knowledgeable and
experienced with the ethical dilemmas that accounting practitioners face (Callahan, 1980). In
fact, the National Commission on Fraudulent Financial Reporting (NCFFR) and the American
Assembly of Collegiate School of Business (AACSB) have agreed that accounting ethics should
be taught by accounting educators and that the teaching of ethics should be offered in all
accounting courses (Callahan, 1980). Candidly, the flexibility of AACSB’s standards has called
for incorporating ethics as an existing or stand-alone course.
Since ethics involves moral development and reasoning, Callahan (1980) has cautioned
whether accounting faculty can effectively teach ethics because the author has contended that
ethics is intertwined with human actions, which in effect may be different from accounting. In
addition, accounting faculty may not have the necessary training to teach ethics as a subject to
accounting majors. Callahan (1980) pinpointed that since anecdotal evidence has revealed that
few accounting educators are interested in teaching accounting ethics, the accounting students
will have minimal exposure to ethics if ethics is taught only by accounting educators. Another
argument is that accounting professors are more comfortable in teaching courses that they have
technical competence in (Callahan, 1980).
More specifically, accounting faculty who lack adequate preparation in teaching ethics
will most likely avoid the topic or superficially discuss it (Owens, 1983). However, a survey of
accounting department chairpersons, Cohen and Pant (1989) revealed that accounting faculty is
relatively qualified to teach ethics. Conversely, in another study by Carver and King (1986),
52% of respondent accounting practitioners do not believe that accounting faculty is capable of
adequately addressing the ethical issues that accountants face. Langenderfer and Rockness
(1989); Loeb (188), Klein (1988); and Lawson (2002) countered because philosophers are
trained in the subject matter, they should be allowed to teach ethics to accounting majors.
38
Similarly, Klein (1998) argued that ethics teaching is more than discussing ethical dilemmas and
cases, and that it would be more of a fraud if a philosopher is not allowed to teach ethics to
accounting students. In addition, Klein (1998) prefers an accounting and philosophy professor to
“team-teach” ethics to accounting majors.
According to Klein (1998), the use of team teaching has significantly reduced the
inherent weaknesses that are associated with depending on accounting faculty to teach ethics.
This pedagogical approach greatly enhanced cross-disciplinary format of disseminating course
content to accounting majors. Moreover, team teaching has greatly influenced the ethical
perception of business students (Ducoffe, Tromley & Tucker, 2006; Helms, Alvis & Willis,
2005; Loeb & Ostas, 2000; Wenger & Hornyak, 1999). Remarkably, team teaching has been
perceived to be time consuming (May, 1980) and a considerable challenge on how it should be
managed (Callahan, 1980)
In a study by Lawson (2002), 92.1% of respondent business faculty surveyed confirmed
that a joint venture of other schools should assist business schools to teach ethics to accounting
majors. In other words, “team-teaching” approach exposes accounting students to ethical issues
in accounting increase their moral reasoning skills (Lawson, 2002). Likewise, due to the limited
interest of accounting educators in ethics, Loeb (1988) accentuated that ” team-teaching” is a
viable approach to teaching accounting ethics. Thus, colleges and universities should provide
monetary or other incentives to faculty to accounting ethics in a “team-teaching” format.
Grimstad (1964) disputed whether ethics should be taught as a single course and that
limited space has been another controversial debate of including ethics in a four-year accounting
curriculum. Prior research studies have indicated that many accounting educators were reluctant
to include ethics-related topics in their courses because of insufficient materials and inadequate
space in an already full accounting program (Cohen and Pant, 1989; McNair and Milam, 1993;
Tan and Chua, 2000).
Research studies have discovered that only 8.5% of 281 accounting chairpersons believed
that there is a significant value of offering ethics as a separate course. Despite a call by the
AAA’s Bedford Report and the AACSB’s Treadway Commission to have increased coverage of
ethics in the accounting program (Karnes and Sterner, 1981), majority of the responding
chairpersons agreed that little time has been spent in teaching ethics and that a separate ethics
course should not be offered to accounting majors. In fact, a survey by Armstrong and Mintz
(1989) disclosed that 7.3% of the respondent 137 AACSB schools have supported the idea of
offering ethics as a separate course to accounting students. In the same survey, nine of the
participating schools disclosed that that they have offered ethics to graduate students, and only
one institution has offered ethics to both graduate and undergraduate students (Armstrong and
Mintz, 1989). In fact, in a similar survey by Karnes and Sterner (1988), respondents established
the same conclusion that Armstrong and Mintz (1989) discovered.
Unfortunately, most accounting courses do not require writing assignments (Rothenburg,
2000). Thus, upon graduation, a successful accounting major may not have the necessary
writing skills that employers expect from newly hired accounting graduates. Consequently, this
might hinder a new accounting graduate from drafting a letter to a vendor or even to a
governmental agency on accounting or tax related issues.
In order to improve the writing abilities of accounting students, accounting departments
should adopt writing across the curriculum. Colleges and universities should incorporate writing
in all the disciplines instead of relying on the English department to perform the task. By
assigning papers in each of the subject areas and allowing students to do peer reviews, student
39
writing ability will significantly improve (Ashbaugh, Johnstone, and Warfield, 2002). In
addition, accounting students should be encouraged to keep a log on what they have written, and
accounting instructors should allow their students to submit their assignments in piecemeal so
that prompt feedback is given, instead of waiting for feedback at the end of the semester.
Previous research studies have described that writing skills are developed through
repeated practices (e.g., Schank and Abelson, 1977; Tulving, 1985; Riesbeck and Schank, 1989;
Boshuizen and Schmidt, 1992). In addition, other researches have concluded that relevant
professional tasks are important to the development of cognitive skills (e.g., Brown et al., 1989;
Collins et al., 1989; Bedard and Chi, 1993; Johnstone and Biggs, 1998). Flower and Hayes
(1981) have stated that cognitive skills are integral in the long-term memory of a writer. This is
especially true because long-term memory development enhances greater gains in the writing
and communication skills of a writer.
Ashbaugh et al. (2002) suggested that professional writing experiences for accounting
majors improve student writing skills than general writing experiences because professional
writing experiences require students to adhere to relevant content and strict business
conventions. In addition, research studies have confirmed direct link between professional
writing demands and the ability of students to how they were able to complete previous writing
assignments (Ashbaugh et al., 2002).
Other research studies have called for improvements on writing programs in higher
education (Williams, 1988). Several of these research studies have called for accounting
programs to improve the quality of student writing and communication skills so that their
graduates can be professionally successful (Hirsch, Jr., & Collins, 188; Brown & Paapanen,
1996). According to Riordan, Riordan, and Sullivan (2000), interviews with accounting
graduates and their employers revealed the need of effective writing and communication skills in
the workplace. In retrospect, both the Graduate Management Admission Test (GMAT) and the
Uniform CPA Examination content have now moved to meet the writing demands of the
business environment.
Carson (1997) indicated that writing across the curriculum has been considered as one of
the most successful educational reforms in US colleges and universities. Proponents believe that
the incorporation of writing assignments explore student writing skills (Stocks et al., 1992).
Riordan et al (2000) argued that writing activities in the accounting programs enable students to
understand accounting procedures, improve analytical skills in accounting concepts and issues.
Thus, this article is keenly interested in the restructuring of writing and oral communication
programs so that accounting students can develop the skills that are required in the workplace.
Accounting education research has called for communications programs within the
accounting program that is similar to the accounting program at J. M. Tull School of
Accountancy at the University of Georgia (May and Arevalo, 1983). May and Arevalo (1983)
stated that the J. M. Tull School of Accountancy require accounting students to complete in-class
writing memoranda on accounting topics and that the students are also required to write six-to
ten-page technical papers on selected topics outside of class. In intermediate accounting, the J.
M. Tull School of Accountancy grade students on problem simulations and a writing expert is
available to assess student writing and communication skills (May and Arevalo (1983).
Accounting faculty at Adrian College stated that the writing ability of their students has
improved and that the institution should continue to have letter-writing assignments for their
students (DeLespinasse (1985). In the letter-writing assignments, accounting faculty were
required to use proper business formats of writing and to also assess oral communication in the
40
context of business client communication. Though the student writing assignments at Adrian
College were graded and returned to them, the college did not provide any objective assessment
on student writing (DeLespinasse (1985). However, DeLespinasse (1985, admitted that the
writing assignments had positive impact on student performance and learning process.
Consequently, students have expressed their interests in additional writing courses and that most
Adrian College graduates have impressed their respective employers on their writing and
communication skills.
Southern Illinois University at Edwardsville requires general writing assignments in
managerial and cost accounting classes (Hirsch and Collins, 1988). Accounting students at
Southern Illinois University at Edwardsville are also required to write memoranda to
management, conduct critical assessments on their classmates’ papers, and prepare case analysis.
Hirsch and Collins (1988) argued that there was no empirical test to validate the writing abilities
of auditing classes at Southern Illinois University at Edwardsville. However, the university has
used consultants to evaluate student writing assignments.
Riordan et al (2000) stated that the skills test from the GMAT is an objective measure of
student writing ability. Research studies have concluded that inclusion of essays in quizzes and
exams subjectively improve student writing skills. At Saint Leo University, writing across the
curriculum is now required for all the students at the main campus, continuing education centers
and center for online learning.
This research suggests that the writing initiative in the accounting curriculum should
begin in the junior year, and ends with a three-month intensive writing at the end of the senior
year. Since writing in a professional context is an important part of a writing initiative,
accounting departments should require their students to write in a professional context and also
assume that that the writing assignments are for a professional audience. For example, a writing
assignment in an auditing class should take the role of an audit staff member writing an audit
report to a supervisor.
In addition, there should be coordinated lectures to students that emphasize the
importance of professional writing in accounting and provide writing assistance resources to
students. The researchers believe that the lectures are important because they give perspectives
and purposes on the importance of writing and oral communication. Another dimension is to
give consistent feedback to students after they submit their writing assignments. A successful
writing requirement should consider having two graders to evaluate the different dimensions of
each writing assignment. In order to have continuous improvement on student writing, one
grader should be an English or Journalism professor and the other should be accounting
instructor. The objective is that the two-grader system provides both technical and general
feedback to students on their writing experiences.
Accounting research has historically relied on research methodology for empirical
testing. In addition, experimentation on controlled variables and statistical prediction on the
outcomes are also used in the format of research methodology. On the other hand, the influence
of social science has greatly influenced research methodology in accounting (e.g., see Chua
1986; Lodh and Gaffikin 1997; Tinker et al. 1982; Hopper et al., 1987). Furthermore, the
appropriateness of a research method cannot be judged without placing much emphasis on the
exploration of research questions. Conceptually, routine research questions provide greater
opportunity for respondents to answer the research questions.
In the 1970s, there was a shift from quantitative (positivist) research to subjective
(qualitative) thinking in accounting research (Laughlin, 1995). Thus, qualitative applied research
41
has gain popularity in the management accounting areas (Parket, 2012). Accounting researchers
have used alternative or nonmainstream research to understand the aspects of accounting
practices. In addition, different sets of steps are used to achieve the outcome of a research
study.
Research methodology uses underlying sets of beliefs to guide the researcher to choose
one set of research methods over another. Thus, the use of a research design is valuable in
connecting research methodology. An appropriate set of research methods should be used so
that proper research questions and or hypotheses are established to examine the research study.
Research questions are the starting points for developing a research design (Berry and Otley,
2004; Saunders, Lewis and Thornhill 2009; Yin 2012). Ideally, Wahyuni (2012) asserts that
when collecting data, a multiple case study design should be used. The rationale is that
descriptive modes and suggestions efficiently observe research subjects.
In this study, a random selection of 1000 accounting academicians from US colleges and
universities and accounting practitioners from private and public business entities will be drawn.
The objective of this study is to examine whether the redesign of the accounting curriculum
would enhance the success rates of CPA candidates and prepare recent accounting graduates to
meet the changing dynamics of employment in the accounting profession. For this reason, the
study will focus on the redesign and overhaul of accounting courses, such as information
technology, international accounting, forensic and fraud examination, accounting ethics, and oral
and written communications.
A postal questionnaire containing demographic data, institutional or company data,
educational data, age, marital status, sex, years of teaching, years in professional accounting
practice, and attainment of professional certifications will be asked. Research questionnaires on
whether the disparity between the CPA examination content and the accounting curriculum has
negatively impacted the success rates of passing the CPA examination. In addition, the research
questionnaires will investigate when accounting programs adequately prepare accounting
graduates to meet the challenges demands of the workplace.
42
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46
SERVANT LEADERSHIP IN MULTINATIONAL CORPORATIONS: A GLOBAL
MANAGEMENT PERSPECTIVE
Dr. Oris Guillaume, DBA
Adjunct Professor of Business and Management
Saint Leo University
[email protected]
Dr. Ike Udechukwu, DBA
Lead Faculty in Management
Columbia Southern University
Ike.Udechukwu@columbiasouthern
Dr. Dorothy J. Williams, Ed. D.
Adjunct Professor of Business Communication
Argosy University
[email protected]
47
Definition: Leader, Multinational, Global Management, Servant Leadership, Management
Perspective, Service
Abstract
The world in which we live seems to be growing smaller – places and societies once
viewed as distant are now just hours away. In every aspect of our lives, we are bombarded with
new ideas, new concepts, and new ways to view old problems. Leaders are constantly faced with
the issue of how to increase productivity, whether on a national or multinational level. Different
approaches such as training, rewards, and coercion, are used. In addition, leaders must find ways
to motivate and inspire employees towards achieving success in the workplace. This paper will
reflect on servant leadership from an international management perspective. Global competition
has forced businesses to change how they manage at home and abroad. The increasing rate of
change, technological advances, shorter product life cycles, and high-speed communications are
all factors that contribute to these changes. The aim of this paper is to discuss the value of a
potential global servant leader in multinational corporations.
48
Introduction
The purpose of this paper is to reflect on how Servant Leadership might impact
Multinational Corporations within a Global Management Perspective. According to Deng and
Gibson (2008), we are living in a century where the era of globalization of the world economy is
partly focused on leadership. The new management approach focuses on establishing a new
communication system that features a high level of employee involvement. Leaders need to
develop a global mindset, develop a self-authored identity, while developing an adaptive
worldview. Story (2011) states that these features are challenging as developmental activities.
Management values are constantly evolving. Managers must now have a vision and be
able to communicate the vision to everyone in the firm. In the twenty-first century, leaders in
organizations, governments, and many professions face a phenomenon called “globalization”
(Moran, Harris, & Moran, 2007). Hill defines globalization as, "The shift toward a more
integrated and interdependent world economy" (2009, p. 7). He further indicates that, from a
market standpoint, historically distinct and separate national markets are being replaced by
barrier free trade that diminishes or eliminates distinctions based on nationality.
The range of problems confronted in an international business setting is broader, while
the problems are more complex than those in a domestic business setting (Hill, 2009). Research
indicates that the range of problems faced by mangers is greater and more complex in an
international sphere. For example, corruption is one complex issue associated with international
business.
Many countries have become increasingly concerned with the subject of corruption, and
managers today must deal with changes in ethical norms and laws. New laws and international
agreements seek to create a worldwide shift towards the reduction of corruption. Servant
leadership could be a panacea because it seeks to serve the interests and parties involved in an
exchange relationship and transaction, rather than the self-interested private gains associates with
complex international business transactions.
Background
49
Understanding Servant Leadership from a global perspective
The term servant leadership originated from an essay entitled “The Servant as Leader”
written in 1970 by Robert Greenleaf (Spears, 2004). Greenleaf created this theory soon after
reading Hermann Hesse’s fictional novel “Journey to the East” (Spears). This fictional book
chronicles the journey of a group searching for spirituality (Spears). Greenleaf (1977) defined
servant leadership as:
The natural feeling that one wants to serve, to serve first, then conscious choice
brings one to spire to lead. The difference manifest itself in the care taken by the
servant first to make sure that other people’s highest priority needs are being
served. (p.8)
Leaders who consider themselves servant leaders take a transformational approach to
leadership. Spear lists the following characteristics that make a servant leader: listening,
empathy, healing, awareness, persuasion, conceptualization, foresight, stewardship, commitment
to the growth of people, and building community. The possession of these characteristics allows
the servant leader to lead others by serving them and the community. Servant leaders ensure that
the needs of others are their highest priority.
These leaders also communicate a moral and ethical vision (Savage-Austin & Honeycutt,
2011). The servant leader serves the people they lead, which imply that employees are an end in
themselves rather than a means to an organizational purpose or bottom line. Servant leadership is
meant to replace command and control models of leadership, while being more focused on the
needs of others (Greenleaf, 1977). Story (2011) reveals that the literature on global leadership
provides many articles that state traits, characteristics, and attitudes of successful global leaders,
one of which may not be servant leadership. Robinson & Harvey (2008) asserted that leaders are
exposed to many complex challenges, and what we know about leadership theory and
development may no longer be effective in this global context or global environment. Barbuto
and Wheeler (2006) found that the servant leader‘s behavior moves beyond transforming
leadership with the objective of aligning the leaders and followers motives.
International and Global Management can be considered from the perspective of the
different functions of the organization: marketing, operations (often called production), human
resources, finance, other support activities like research, development, and legal issues (Hill,
2009). In any event, it is important that global managers understand these and many other
international institutions because they could have an impact on their decision making - perhaps
directly through negotiations and certainly indirectly through decisions taken by other
international organizations. For some managers, the impact of other global institutions or host
country governments may be more direct. There may be a need to negotiate directly with an
individual host nation organization; it may be over a tax issue or a proposed acquisition.
Bargaining between companies and countries then becomes a major issue. Hill asserts that to be
50
successful, you have to be able to conform and adapt to the value system and norms of the host
country. One way of gaining knowledge of the local culture is to hire local citizens. Developing a
cadre of cosmopolitan managers who have been exposed to different cultures can also be helpful.
Servant leadership may allow for this broad view of leadership, particularly in an international
setting where the host nation and their demands should be met. Thus, it is important for
international businesses to avoid engaging in any form of ethnocentricity, which servant
leadership, by its very characteristics, eschews.
What are the main risks of a globalization model?
According to Hill (2009) International managers must considers the following:
1. Political risk is the likelihood that political forces will cause drastic changes in a
country’s business environment that adversely affects the profit and other goals of a
company. Clearly, this type of risk is going to be higher in countries that are in the midst
of social unrest or disorder, and its effects can be sudden and dramatic
2. Economic risk is the likelihood that economic mismanagement will cause drastic changes
in a country’s business environment that adversely affects the profits and other goals of a
company. They might think of the Asian financial crisis and its implications.
3. Legal risk is the likelihood that a trading partner will opportunistically break a contract or
expropriate property rights. They have already talked about the importance of a strong
legal system to make a country an attractive market.
These risks can be pre-empted by a servant leader, because the characteristics of servant
leadership encourages collaboration in service of the needs of the host nation. According to
North (2004), there are 10 characteristics of a servant leader drawn from Greenleaf’s writing that
can serve as traits for a global servant leader:
 listening – servant leaders clarified a group by listening receptively to what is being said
 empathy – servant leaders strived to understand and empathize with others
 healing – servant leaders had the potential for healing self and others
 awareness – servant leadership was strengthened by general awareness, and especially
self-awareness
 persuasion – servant leaders relied upon persuasion, rather than positional authority, in
making decisions within an organization
 conceptualization – servant leaders sought to nurture their abilities to dream numerous
dreams
 foresight – servant leaders could foresee the likely outcome of a situation in the future
 stewardship – servant leaders‘ ultimate commitment was to serve the needs of others


commitment to the growth of people – servant leaders were deeply committed to the
personal, professional, and spiritual growth of every individual within the institution
building community – servant leaders sought to identify means of building community
among those who work within a given institution
51
Servant leadership, by its very nature can contribute to a global business environment where
collaboration rather than competition may be the norm. It has the potential to do so if the servant
leaders see the world stage as a forum to serve others rather than a forum to compete fiercely
with others. The model below presents five factors an international leader can undertake in the
framework of servant leadership below:
Factor 1: A servant’s heart (humility & selflessness) – Who we are (Self-identity)
Factor 2: Serving and developing others globally– Why we want to lead (Motive)
Factor 3: Consulting and involving others globally – How we lead (Method)
Factor 4: Inspiring and influencing others globally– What affects we have (Impact)
Factor 5: Modeling integrity and authenticity – How others see us (Character)
Wong, P. T. P (2007) Servant leadership and positive management. Retrieved from
http://www.meaning.ca/archives/archive/art_servant-leadership-positivemanagement_P_Wong.htm
From an international environment, this five-factor model of servant leadership captures the
essential aspects of servant leadership and provides a useful conceptual framework for practice
(Wong, 2002).
Methodology and approach
The researchers use a qualitative approach. To develop international, multinational and
global business strategies, the researchers used three key questions:
1) Will Servant Leadership enhance global perceptions of global corporations?
2) Can Servant Leadership improve relationships between global corporations and
communities in their host nations?
3) Can value be found in managers of global corporations adopting a Servant Leadership
approach?
52
Servant Leadership is an expression of genuine emotion from a leader to create and
develop positive trust to followers while encouraging high motivation and strong spirit to
followers. In practice, there are five main areas in analyzing international opportunities for
servant leaders:





Customer demand in the main broad geographical areas: market size, growth and history;
including special customers such as large multinationals already involved as customers in
a particular region. These factors include, but go beyond, the population and wealth
issues identified in the film.
Competitors - local and international companies already in country markets, their market
shares and basic facilities; what major competitive advantages do they have?
International and regional infrastructures: what are the major costs involved in
communicating, transporting, and distributing in various parts of the world?
Country politics and economic trends: some basic considerations only at this stage such
as political risk and economic growth; too much to analyze in depth at this stage.
International trade barriers, tariffs and quotas: are there any major issues here that will
support or block the market opportunity?
Discussion
International leaders may experience a range of exciting roles throughout their business
interactions in foreign countries. Servant leaders can serve to manage pricing and promotion.
Servant leaders can help navigate troubled waters and make inevitable changes less stressful for
the employees. In a research study, Romig (2001) showed that thousands of employees have
demonstrated practices of servant leadership implemented through leadership training in a
business. The findings indicated that the overall performance improved by 15 - 20% and work
group productivity by 20 –50%. This could mean an increase in profitability. According to Wong
(2004), based on theoretical analysis, empirical research, and case studies, there is sufficient
evidence to suggest that Servant Leaders may indeed qualify as the best leadership style in a
domestic or foreign country for all situations for the following reasons as described by Wong
(2007):




Being freed from egotistic concerns, such as insecurity and self-advancement, Type
Servant leaders are able to devote their full attention to developing workers and building
the organization.
Servant leaders have a positive view of workers as individuals who are capable of
developing their full potentials and becoming leaders, if they are given a supportive and
caring work environment.
Being concerned with individual needs and sensitive to individual differences in
personality, servant leaders are able to bring out the best in the workers.
Being situational leaders, servant leaders recognize situations in which absence of their
power actually facilitates self-management and productivity.
53

Being good stewards, servant leaders will do whatever necessary and appropriate to
maximize leadership effectiveness in all kinds of situations.
 Being worker-centered and growth-oriented, servant leaders can turn ordinary workers
into future leaders by developing their strengths.
 Servant leaders serve as an antidote to corruption and abuse in power positions.
 Servant leaders can help reduce burnout and build an emotionally healthy organization.
Servant leaders focus on cultivating the intrinsic motivation through inspiring workers to
believe in their own growth and embrace the vision and purpose of the organization.
 Servant leaders seem most suitable for the next generation of workers, who are very
cynical of authority and demand authenticity from their bosses.
 Servant leaders seem most suitable for knowledge workers, who value independence and
creativity.
 Servant leaders recognize that leadership is a group process, which should not be
centralized in one or two individuals. Therefore, servant leadership is based on teambuilding.
 Servant leaders are deeply rooted in humane, spiritual and ethical values.
 Servant leaders represent the most effective and comprehensive approach to human
resources management and development.
Managers who adopt a servant leadership approach strive to serve the needs of others, and
place the needs of others above the attainment of organizational or individual goals. Servant
leaders appear to be driven by core personal values of honesty and integrity, and by their nature;
they value humility, equality, and respect for others (Russell, 2001).
Conclusion
As Wong (2007) wrote previously, servant leadership is not new, because it was practiced
and taught by Jesus more than 2000 years ago; however, it is new and revolutionary in today’s
competitive consumer driven society in a globalized world. Servant leadership is about influence
rather than power and control. It is about inspiration rather than position and title. It is about
character and caring rather than skills. SL is about creating a climate of love rather than a culture
of fear, it focuses on others’ strengths rather than weaknesses, it is about listening rather than
giving orders, it is about humility rather than pride, it is about long-range benefits rather than
short-term profits, it is about global vision rather than territorial instinct. Servant leadership is
about creating new futures rather than maintaining the status quo. From a global perspective,
servant leadership seems to offer an answer to recent concerns about corporate scandals, toxic
work environment, employee-burnout, and retention problems (Wong, 2007). It is hoped that
these attributes of servant leadership will find utility in an increasingly connected global business
environment where the needs of multiple stakeholders will be have to be met.
54
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greatness. New York, NY: Paulist Press.
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56
Authors._
1- Dr. Guillaume Oris is currently an Adjunct Professor of Business at Saint Leo University.
He has earned a Master in Organizational Leadership from Shorter University and a
Doctorate in Business Administration with an emphasis in International Business, from
Argosy University. Dr. Guillaume has taught Strategic Management, Ethics, Business
Law, International Business, Leadership, in both non-traditional and online college level
settings at various universities, past and present at Voorhees College, Argosy University,
Shorter University, Columbia Southern University, and Strayer University. He has
presented several scholarly papers at academic conferences. He has also served in various
executive capacities in for-profit and non-profit organizations.
2- Dr. Ike Udechukwu is a Lead Faculty in Management at Columbia Southern University.
He earned his doctorate from Nova Southeastern University in Florida. He teaches
courses in International Business, Business ethics, and Strategy at the graduate and
undergraduate levels. He is published in several referred journals such as Human
Resources Development Review (HRDR), Journal of Applied Management and
Entrepreneurship (JAME), Public Personnel Management (PPM), and Journal of
Business Studies Quarterly (JBSQ).
3- Dr. Dorothy J. Williams is currently the CEO/Owner of WRITING WITH EASE, LLC
located in Atlanta, Georgia and has served as Adjunct Professor of Business
Communication at Argosy University, University of Phoenix, and Strayer University.
57
LEADER MEMBER EXCHANGE: RAMIFICATIONS
IN THE GLOBAL ORGANIZATIONAL ENVIRONMENT
Barry Hoy, Ph.D.
Associate Professor of Human Resources
Saint Leo University
[email protected]
58
Leader Member Exchange: Ramifications in the Global Organizational Environment
Abstract
Leader member exchange (LMX), a concept fostered beginning in 1975 and then largely
marginalized because of some associated limitations, is enjoying a resurgence in its appeal.
Much of the credit for the renewed popularity of the concept attaches to successful efforts to
quantify the quality of the leader-to-member relationship and hence to quantify the impact upon
organizational effectiveness in the organization under scrutiny. This ability enhances LMX as a
tool for success.
Scholars, worldwide have proposed ways to overcome some challenges remaining in the
measurement tool. The concept is now the subject of scholarly investigation in cultural
economies which are at an early stage in development. Indeed some major advancements in our
ability to measure LMX performance and the connection to organizational performance have
emerged from work being done in these econo-cultures. While the work extant is by no means
comprehensive in terms of its cross cultural coverage, a more complete picture emerges in this
work. In particular, authors in New Zealand, Turkey and Malaysia are attempting with some
success to establish a positive correlation between LMX quality and Organizational Citizenship
Behaviors (OCB). Researchers in China examine trends in job performance with an eye toward
the impact of LMX quality as a progenitor. In Australia and India, studies examine the effect
upon turnover intention created by the quality of LMX relationships. Korean scholars cite job
satisfaction as one of the factors driven by LMX. This article examines the progress reported in
these contributions. It goes on to suggest some additional strategies for investigation.
59
Leader Member Exchange: Ramifications in the Global Organizational Environment
A Brief History of LMX
From the very beginning of organized scholarly examination of supervisory relationships,
Dansereau, Graen and Haga (1975) saw the tenets of Leader Member Exchange as a force
multiplier in working toward organizational effectiveness. Scholars reasoned that the quality of
the relationship between a supervisor and the persons he or she supervises will have a correlative
impact upon the quality of work those supervised will produce. They set about describing the
relationship permitting their description to settle upon the understanding which survives to this
day.
A model emerged which embodied dyadic relationships between one supervisor and one person
supervised. To clarify, the relationship involves only two individuals; the supervisor or “leader”
and the person being supervised, referred to as the “member”. Dansereau, et al. postulated that
the relationship will take on a uniqueness that is driven by the behaviors, traits and interests of
the leader and the member and the ways in which these features impact the human interaction
between the participants in the dyad. In instances where one leader supervises more than one
member, a unique relationship will develop between that leader and each of the members. That is
to say that a leader who supervises, for example, four members will be a participant in four
different leader member exchange dyads. Further, each dyadic relationship will be unique.
The model embodies a natural extension. Since these relationships are unique, it will be assumed
that some relationships will be positive involving quality interaction between leader and
member. Conversely some relationships suffer from deficiencies engendered by poor interaction
between the leader and the member. Where multiple Vertical Dyadic Linkages (VDL) exist, an
organizational climate will develop in which members with positive VDLs will be perceived to
be members of the “Ingroup” and members with negative VDLs will be perceived to be members
of the “Outgroup” (Graen & Cashman, 1975; Liden & Graen, 1980).
60
The Effect upon Organization Effectiveness
Researchers found a weak but demonstrable correlation between the quality of the leader
member exchange climate manifested in good relationships as reported by participants in the
study and productivity in the organization (Graen, Novak, & Sommerkamp, 1982; Scandura &
Graen, 1984). In one of these studies researchers noted an improvement in performance which
roughly matched the administration of a training program for supervisors which was intended to
enhance the quality of the VDL in leader member linkages within the organization ( Scandura &
Graen, 1984). The correlation demonstrated in these studies was tenuous, nonetheless the
correlation did exist.
Challenges in Measuring the Quality of the LMX Relationship
Expansion of the initial concept of LMX (Graen & Cashman, 1975) found its place as scholars
hypothesized that behaviors on the part of the supervisor that serve to influence the quality of the
relationship in a positive way should be engaged to more clearly define the role into which a
member gravitated. Serving as the antecedent to the studies mentioned previously, the concept
took its place in leadership training strategies contemporary to those explorations. The objective
of the associated strategies was to reduce, ultimately to zero, the number of VDLs in which the
member perceives him or herself to be part of the outgroup to the extent that organizational
effectiveness suffers.
After more than ten years, scholars continued to struggle with three weaknesses in LMX
methodology and theory (Dienesch & Liden, 1986). Initially, authors on the topic complained of
a lack of data to support continued thought. Secondly, measurements failed to focus on
organizational outcomes attaching to LMX climate. Possibly the most damaging weakness was
that little commonality in LMX operationalization was identified. Dienesch and Liden (1986)
proposed a partial remedy to their primary concern as they suggested three dimensions of LMX
which they proposed to subject to quantification.
(a) Perceived contribution to the exchange – perception of the amount, direction, and
quality of work oriented activity each member puts forth toward the mutual goals of
the dyad.
61
(b) Loyalty – the expression of public support for the goals and the personal character of
the other member of the LMX dyad
(c) Affect – the mutual affection members of the dyad have for each other rather than
work or professional values. (Dienesch and Liden, 1986)
While these two researchers presented a model (See Figure 1.) by which the dimensions of LMX
can inform the understanding of VDL development, they were mute on the topic of how the
development or ultimate quality could be measured.
Leader
Characteristics
Initial
Interaction
Member
Characteristics
Member
Behavior
Leader
Delegation
Leader
Attributions
Nature of
LMX
Leader
Response
Figure 1. Model of the Leader-Member relationship developmental process.
62
As has been shown the ultimate pay-off flowing from high quality LMX relationships is
enhanced performance of the organization. As has also been shown we do not need to rest upon
that assumption of a positive correlation since one has been shown to exist. What has more
consistently eluded efforts to quantify and what is capably informed in Figure 1. as the
measurement of those factors impacting the nature of LMX (the inputs) as well as the
measurement of the quality of the LMX in the first place.
Early attempts to examine the inputs focused on the traits of the leader (Fielder, 1961) and the
traits of the member (Zaccaro, Foti, & Kenny, 1991). Two studies conducted in relative close
chronological proximity looked at leader behavior (Yetton, 1984) and member behavior (Yukl,
1988). These were preceded as has been said by the analysis of the actual interactions, from
Dansereau et al (1975) and the impact of charisma in the leader (House, 1977).
Bhal and Ansari, (1996) developed a scale which they used to more clearly establish the quality
of the interaction between leader and member. They developed construct definitions of
relationship factors, however their work suffered in that it considered only two of the dimensions
mentioned above, leaving out dimension b; Loyalty. Their work did add substantively because of
the definitions and the features of the measurement.
Leader member exchange relationship measurement continues to suffer from two impediments.
Primarily, the methodology to measure the psychometric factors present in the LMX
relationship (Schriesheim, Castro, and Cogliser, 1999) do not adequately consider all factors
which might contribute to the participant’s responses in the survey. The tool extant makes use of
a question and response survey in which participant response may be challenged as succumbing
to mood. Finally, measurements may not be consistently appropriate to measure the relationship
(Graen & Uhl Bien, 1995). Survey data analysis may lead one to conclude that the relationship is
good, when performance of the organization indicates otherwise. LMX7 the most recent tool has
been challenged on these grounds. Law, Wang, and Hui (2009) suggest an amendment which
revises the dimensions of LMX including professional respect as the fourth dimension. They cite
the need for more research to validate their hypothesis.
Why is the Quality of the LMX Relationship Important?
63
As has been said, the original researchers on the topic of LMX believed that an understanding of
the relationship and the antecedents to which the relationship responds could serve two essential
purposes. Initially they successfully attempted to show that there is a positive correlation
between high quality LMX relationships over a broad spectrum of dyads within an organization
and the effectiveness of that organization. Additionally, they developed strategies to influence
supervisory behaviors in ways which promoted the development of universally positive
relationships. The ultimate goal of these strategies was and is to reduce “outgroup” membership
to zero.
We are informed by Varma, Stroh and Schmidt (2001) of two pivotal observations which relate
to the globalization of business and commerce. These authors concluded that women are chosen
for international assignment most often because their past performance including their LMX
performance has been laudable. The researchers also demonstrated that there appears to be
continued superior performance of these female managers while executing their foreign
assignments.
A perhaps unanticipated outcome of high quality LMX relationships is to be found as we learn
that negotiations between supervisors and workers enjoy more positive outcomes when LMX
quality is high. In their study, Mieners, and Boster, (2012) found that leader member exchange
quality was a predictor of the occurrence of mutual concessions during the negotiation process.
The correlation was direct and positive implying that when those relationships can be described
as being of high quality, the likelihood of a positive outcome in a negotiation event was also
high.
Low quality LMX impacts employee’s intention to remain with the organization. Studies by
Brunetto, Farr-Wharton, and Shacklock, (2010) and McWilliams, (2011) drew a parallel between
low quality LMX and turnover intention. These two studies examined a sample population from
different industries and from different cultures. Brunetto, et al, studied an international sampling
of medical field workers. McWilliams reviewed information technology workers in Australia.
Nevertheless, their conclusions were identical. Both studies demonstrated that LMX relationship
quality is a factor in employee retention. Those organizations in which long term employment is
part of the organizational strategy are informed by these studies which suggest the application of
measures to positively influence LMX relationships.
64
The connection between Organizational Citizenship Behavior (Organ, 1988) and LMX has been
long established (Dansereau et al., 1975; Liden & Graen, 1980; Vecchio & Gobdel, 1984, and
Deluga, 1994) and has recently been confirmed not only in organizations domestic to the United
States, but in developing econo-cultures as well (Lo, Ramayah, and Kueh, 2006). In their study,
Lo et al. confirmed once again that positive LMX relationships lead to increased frequency of
occurrences of organizational citizenship behaviors. One additional dimension of Lo et al is that
the relationship between LMX and OCB appears not to be influenced by the gender of the
supervisor, the gender of the member, or the fact that the gender of supervisor and member may
be different.
While the above cited study examined the manufacturing industry, a more recent parallel study,
also conducted in Malaysia, (Kandan & Ali, 2010) confirmed these findings in public sector
employees. Bhal and Gulati, (2007) writing in India, obtained similar results from a very robust
study which examined members of the information technology industry. This robust study made
use of a sample of 700 IT professionals from all over India.
LMX as a Tool for Success.
In a study in South Korea, researchers identified a profound effect in that high quality LMX
relationships were demonstrated to cause enhanced career satisfaction and hence lower turnover.
The authors suggested employment of techniques which are useful in improving supervisory
behaviors leading to improved LMX relationships as a way of reducing turnover (Joo & Ready,
2012). This study is particularly useful in that it served to confirm the moderating effect of LMX
upon those workers who are goal oriented. Those employees who are able to positively visualize
their future in the industry were more likely to view that future as facilitated by remaining with
the organization when high quality LMX relationships were part of the picture.
Opportunities for Future Research
A common thread in the research and literature on the topic of leader member exchange assumes
that the organizational model involves one leader and several members. This thread is woven
through the fabric of LMX and informs the studies upon which the research is based. The idea of
ingroup versus outgroup has always implied that members of the group may see themselves as
being in competition with one another. Those in the ingroup see ways in which they can prevail
65
or succeed in the organization relative to those who they perceive to be members of the
outgroup. Conversely members of the outgroup are at pains to find ways to maintain control over
their personal situation while occupying the disadvantaged position in which they perceive
themselves to be.
However, it has always been the case that many organizations include at least one LMX dyad in
which the member has no parallel. The situation in which an office manager is supervising one
and only one administrative person is quite common. It is not a strenuous undertaking to imagine
similar situations. Indeed these situations which may be awarded the moniker, “single dyad
Structures” may actually be more numerous than the multiple dyad model which is suggested in
the literature.
In these cases, the member has two alternatives. He or she can view the organizational structure
as being devoid of ingroup and outgroup. Hence the member’s self-image has nothing to do with
the perception that he or she is performing in a way that enhances or diminishes personal
affection of the leader relative to other members of the organization, since there are no other
members. In this case, turnover intention, occurrence of OCBs, and task effectiveness rest not
upon competition on the one hand or frustration on the other. They rest upon the ability of the
supervisor to create a dyadic relationship which is positive. One might argue that the techniques
which might be employed by the supervisor in this endeavor are very similar to those which
would reduce the number of members who perceive themselves to be in the out group in multiple
dyad situations. This presents a potential gap in the body of knowledge which calls for additional
experimentation.
The second alternative presented to the member who is in a single dyad situation is to consider
him or herself to be a member of a multiple dyad situation in which the other members are
imaginary employees. This presents two possibilities as personified by the parameters of the two
imaginary employees. The first of the imaginary employees is the member’s own
conceptualization of what a perfect employee is and how a perfect employee would behave. The
second possibility is the member’s own conceptualization of the supervisor’s desires in a perfect
employee. The member is including him or herself in the ingroup or outgroup in comparison to
the two imaginary employees. This latter situation can lead to some interesting and indeed
humorous mental gymnastics.
66
Again the gap in the research inferred by this train of thought leaves us with a clear direction for
future research. One potential hypothesis might be:
Techniques which enhance leader member exchange relationships in multiple dyad situations
will enhance the quality of the leader to member relationship in a single dyad situation.
One additional consideration addresses the application of the precepts of leader member
exchange to group self-perception and hence group leadership. The research has always
addressed the dyadic relationship between leader and member as individuals. However, this need
not be the case. It is entirely plausible that the commonalities in the perceptions of a team of
employees about the team of which they are members can be described in ways that are not
dissimilar to the perceptions of an individual. In this way, the team is taking on the persona of a
member in a dyadic relationship with a leader in the organization. Group members are
comparing themselves as a group with other groups. As an example, we might envision a sales
organization with several different teams, each responsible for a different geographical region.
In one of the teams does consistently well in comparison with other teams, the members of the
team might assume membership in the ingroup while viewing members of other teams as
outgroups. We are prompted to imagine which of the techniques that a supervisor my use to
enhance the LMX relationship with an individual might be useful in enhancing the relationship
with members of the team.
Taking it “Global”
It is interesting to note that the exploration of LMX precepts has gone global. Of the sources
cited in this paper, fully half of them originated in nations other than the United States.
67
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70
UNIVERSITY/COMMUNITY PARTNERSHIPS:
ENGAGING BUSINESS STUDENTS IN LEADERSHIP
AND SOLUTION BASED APPROACHES
Susan Kinsella, Ph.D., MSW, HS-BCP
Professor of Human Services
Saint Leo University
[email protected]
Dr. Nancy Wood, Ph.D.
Assistant Professor of Human Services
Saint Leo University
[email protected]
71
ABSTRACT
This paper will address the importance of engaging business students in new approaches to
problem solving that will enhance their ability to create vibrant economies and collaborate with
other professionals in an effort to sustain development in a global economy. These approaches
include service-learning opportunities, teaching about microenterprises, and applying business
principles to social entrepreneurship. A review of the literature regarding how service learning
can benefit business students is included.
In the last few years, companies have implemented this phrase, Integrated Talent
Management, to describe an integrated system approach to recruiting, employee development,
performance management, compensation, and overall training and development of their
workforce (Bricout, 2004). Besides creating a more efficient talent management system,
organizations require the ability to rapidly address and effectively respond to business needs.
Just as companies are in desperate need of a critical thinking workforce and abled leaders,
business schools have come under more scrutiny for teaching practical and critical thinking skills
to their students. Courses where students can apply theory to practice are becoming popular as
universities respond to issues of sustainable community development and social responsibility.
Leadership is a key topic in global business (Pless, Maak, & Stahl, 2011). While the literature
review provides much inquiry on leadership, little is known about responsible leadership.
72
The new challenge in global management is to develop a new model of leadership
training that provides the ‘out of the box’ experience (Pless Maak, & Stahl, 2011a). This has
become a challenge for educators as well. While some schools are using virtual courses to teach
students about practical business problems and solutions, others are offering their students the
opportunity to test their newly acquired skills in areas of the world where leadership and
business solutions are lacking.
The scholarship of engaging students in the learning process has become more important
in institutions of higher learning. Due to changes in awareness, teaching of ethical issues and
values, and a sense of social responsibility, universities have an increasing interest and often a
social mandate to develop courses on student leadership, sustainable community development
and social enterprise. It is not unusual to see a multi-disciplinary approach to teaching this
plethora of skills. Harvard University (2010) now offers a summer institute every few years to
bring human services and business professionals together to collaborate on social problems and
combine their expertise. Teaching human services professionals about marketing, budgeting,
working with a nonprofit agency, or conducting a program evaluation, the Harvard Institute
brings new business skills to the social service profession.
At the same time they develop the business professionals’ skills in interpersonal helping,
group dynamics, an understanding of social policy, and current social problems. Combined
groups of human services and business professionals tackle real life problems using a
combination of skills that each discipline possesses. Role plays are sometimes used but a
common thread in the development of these leadership skills for both human services and
business students is the service-learning opportunity. This enables the student or professional to
visit an agency and put into practice the knowledge, values, and skills they have learned to assist
the program in some way.
The literature review reveals that service learning programs foster student engagement
within the community and promote leadership, social, and civic responsibility. Several studies
have presented their findings regarding the engagement of students in these activities.
Experiential education and service learning activities is an area which can easily complement the
traditional business classes, by enhancing business students’ learning outcomes (Manring, 2004).
Specifically, these engagement activities would include service learning projects embedded
within courses while providing community service opportunities and leadership training.
These activities would enhance the learning and allow students to apply what they have
learned in the classroom to a real life situation. An evaluation of the activity would occur in the
classroom at another time, giving students the opportunity to learn a concept, practice it, and then
evaluate the outcome. This type of learning is seen as beneficial at all levels of higher education.
The development of university and community partnerships has been studied indicating that
service learning and internships allow students the opportunity to link theory to practice at both
the micro and macro level. Students receive invaluable community practice opportunities and
when universities and communities work together, they have the necessary resources to enable
residents to strengthen the capacity for control over their lives (Brown and Kinsella, 2006).
73
Brown and Kinsella (2006) talk about two separate Service Learning Projects which were
developed in Georgia with a focus on university and community partnerships. In one project, a
neighborhood family support center was established in a disadvantaged neighborhood near the
University of Georgia in Athens. Approximately 163 residents who were African American,
Latino, or Anglo shared a resource center that provided English classes, day care, parenting
classes, legal assistance, case management, needs assessments, counseling, as well as social
activities for the children and adults in an attempt to develop a cohesive neighborhood. The goal
was for people to benefit from locating resources, and to meet and sustain good relationships
with their neighbors in an effort to become empowered to maintain a healthy and vibrant
neighborhood by working together with other residents. Students from a variety of disciples
were recruited to use their expertise in working with the residents, assist with the creation of the
center, complete the landscaping, develop a playground for the children who attended the after
school program, teach the children in the day care center, translate both the English and Spanish
languages for the immigrant families who lived nearby, help with issues like family budgeting,
tax preparation, or banking, and finally to assist with the legal aspect of citizenship for many of
the families.
The Center was an ongoing project coordinated by the School of Social Work with other
university faculty, students, and community resources collaborating for a number of years to
benefit both the residents of the community as well as the students who completed volunteer and
service learning activities at the center. A number of project grants enabled the continued
development of the program for 8 years, after which the Center was incorporated as a local Boys
and Girls Club. Successful outcomes for the residents included a more engaged and safer
community with parental involvement in school and educational activities for their children.
English as a second language was useful for immigrants who needed the skills to obtain jobs and
acquire citizenship. Local gangs were deterred from entering the neighborhood since parent,
community and university cohesion was strong.
The occurrence of crime decreased and the availability of local resources was beneficial
to the residents who were not aware of all the community services. Outcomes for the university
students included learning about a variety of community development models, learning about
and using advocacy models, assisting in the development of cultural diversity curricula and then
teaching residents the program, facilitating groups, using business accounting techniques with
the residents like tax preparation, budgeting, and maintaining a check book. Student assessment
methods included observation of students by a faculty member, writing assignments that focus
on theories used in practice, evaluating peers in their teams, conducting research projects,
reviewing service learning journals, and obtaining resident feedback about student contact.
A second project at another public institution, Georgia Southern University, also involved
a partnership with the university and several rural counties surrounding the school. As a result of
an increasing Latino population in southeast Georgia due to agricultural needs, services were
seen as vital for this population. The goal of the partnership was to increase practice on the
individual, family, and community level with the Latino population. Academic and social
supports for the children were seen as essential since many of the children did not speak English
and could not participate in school assignments. English as a second language was seen as
74
imperative for the families and seminars on work permits and immigration law was also
necessary.
Community support was needed as well since businesses and local residents were not
knowledgeable about Hispanic culture, language or customs. The Center for Latino Outreach
and Research Services was developed and included faculty from such disciplines as political
science, sociology, social services, business, education, nursing, and dental hygiene. Many
grants were received to continue providing basic services like English classes, tutoring for the
children, an afterschool program and summer camp, immigration and legal services, referrals to
local resources for food, clothing, or housing, banking information, and other socialization
programs for the families. The community was provided with interpretation services and
information on the Hispanic culture.
Businesses were informed as to immigration law and worker permits so they were in
compliance with federal and state policies. Student learning outcomes included increased
knowledge of cultural diversity, community problem solving, better skills in observing,
interviewing, and researching, and increased empathy and knowledge regarding social issues.
Assessment techniques included reflective journaling, writing assignments, and observations by
faculty members.
A program called Project Ulysses was launched by PriceWaterhouseCoopers to
explicitly link leadership development to global community development and channel the
resulting learning back to the organization to assist in strategic management. Using an integrated
service-learning program, small teams were sent to developing countries to apply their business
expertise to complex social and economic challenges. The cross-cultural
PriceWaterhouseCoopers teams worked on a pro bono basis in field assignments for eight weeks
with Non-Government Organizations, community-based organizations and intergovernmental
agencies where communities were facing the effects of poverty, political conflict and
environmental devastation. Some of the learning outcomes indicated that cultural differences
should be an enabler, not an inhibitor; team collaboration will bring success; and leadership is
about building sustained relationships (Pless, Maak, & Stahl, 2011a).
After interviewing 70 of the participants about their experiences of living and working
abroad, a learning narrative was produced and highlighted six key areas. This evaluation of the
service-learning project revealed that learning occurred in ethical literacy, cultural intelligence,
global mind-set, self-development, and community building. A postprogram survey was sent to
the participants and later confirmed that the project had the long term effect of developing and
enhancing these six competencies which are seen as necessary for global leadership.
International service-learning is recommended in this study as a valuable tool in developing
global leaders.
There have been several successful collaborations between business students and servicelearning projects which involved non-profit, human services agencies (Hagan, 2012; n.d., 2010).
In one project, business communication students used their skills to incorporate Facebook and
Twitter into the non-profit’s communication profile. They improved their public image and
visibility, allowing people to donate to the non-profit’s fundraising campaigns as well as promote
75
their annual activities. The students marketed a new Facebook slogan for the agency and
encouraged people to donate to several of their events bringing a visibility to the nonprofit that
had not existed beforehand.
Outcomes for the students included learning how to think critically, write more
consistently, and to use social media in a constructive and socially responsible way. They also
learned about the agency’s mission statement, history, and purpose of their service (Crews and
Stitt-Gohdes & Wanda, 2012). In some projects human services professionals have worked with
business students as they interned with non-profit agencies and learned about Board of Trustee
governance, developed leadership skills, and an understanding of the value of community service
(Purdy and Lawless, 2012). This article discusses how a course in Board Governance combines
an internship with a non-profit organization to create a service-learning activity. Students learn
about community needs, social responsibility, and how working with other disciplines can
produce unique results. The community also benefits because students now recognize the value
of service and leadership.
Microenterprises have also become increasingly important in social development and
have helped to alleviate some poverty in developing countries. This concept can be utilized in
business classes to teach both financial and nonfinancial issues to students as they embark on a
humanitarian service-learning activity. The value of stimulating entrepreneurs and the impact
this has on student learning has been discussed in several papers (Mungaray, Ramirez-Urquidy,
Texis, Ledezma, & Ramirez, 2007).
Students can participate as a class in making a loan to a small enterprise in a developing
company. For as little as $25 a class can make an investment in a microenterprise and learn
about models of finance. As the class proceeds the students can get updates as to how their
company is doing. Within time, they may even see their money repaid and the fruits of their
labor realized in the continuation of an enterprise in a developing country. Many
microenterprises in developing countries can be accessed online for further research.
Along these same lines, service-learning can be used to teach sustainable development
(Brower, 2011). Students may spend time actually studying abroad or in a local indigenous
community where they experience poverty, malnutrition, education that lacks resources, and
other social problems. In her study Holly Brower (2011) took 2 faculty members and 8 students
to such a community in a third world country and spent one month studying the issues and then
worked with her class to develop a plan of sustainable change. She then developed a framework
for a business elective that includes service learning as a component of change. As an
alternative, they may study about the experience of living abroad but then learn to apply the
same techniques to bring sustainable change to a local indigenous community.
Building upon recent developments in entrepreneurship education, business students can
be taught how to use the same skills they have learned in private entrepreneurship to develop
social entrepreneurships. This will involve learning about three competing and distinct logics.
These include learning about social welfare, the public sector, as well as commercial strategies.
In her article she discusses how students need to create new and innovative hybrid strategies in
the development of social entrepreneurships. Since business students need to address the services
76
that are necessary for all people, the social entrepreneurship is another avenue for building a
business within a community that may be lacking in such services as affordable housing, job
skills training, or health care. In the article she addresses the strategy of adapting pedagogical
tools to the goal of teaching students how to combine the three logics successfully (Pache &
Chowdhury, 2012).
Creating vibrant global economies is a challenge that affects everyone. Using a multidisciplinary approach and applying techniques like service learning, as well as teaching about
social entrepreneurships, and microenterprises will enhance the traditional method of teaching to
engage business students in leadership and solution based approaches that will be necessary if we
are to sustain development as we move forward in the twenty-first century.
77
References
Bricout, V. (April, 2010) Developing an integrated talent management program. Retrieved from
http://www.exec.gov.nl.ca/exec/hrs/publications/developinganintegratedtalentmanageme
ntprogram.pdf
Brower, H. (March, 2011). Sustainable development through service learning: A pedagogical
framework and case example in a third world context. Academy of Management
Learning & Education, 10 (1), 58-76.
Brown, E. & Kinsella, S. (Fall, 2006) University/community partnerships: Engaging human
services and social work students in service learning. Human Service Education, A
Journal of the National Organization for Human Services, 26 (1), 59-73.
Crews, T. & Stitt-Gohdes, W. (March, 2012) Incorporating facebook and twitter in a servicelearning project in a business communication Course, Business Communication
Quarterly, 75 (1), 76-79.
Hagan, L. (Sept/Oct, 2012) Fostering experimental learning and service through client
projects in graduate business courses offered online. American Journal of Business
Education, 5 (5), 623-632.
Harvard University (2010). The next generation of human services: Realizing the vision.
Retrieved from
http://nstore.accenture.com/public_service/integratedservicedelivery/Accenture_HS_The
_Next_Generation_of_Human_Services_Realizing_the_Vision.pdf
Manring, S. (April, 2004). Using academic service-learning in a business school curriculum to
foster development of emotional intelligences. Retrieved from
http://www.aacu.org/meetings/pdfs/POE04Manring.pdf
Mungaray, A., Ramirez-Urquidy, M., Texis, M., Ledezma, D., & Ramirez, N. (2007).
Promoting learning in small entrepreneurs and higher education students through service
78
learning programs. International Journal of Business Research, 7 (3), 10-28.
n.d. (January, 2010) Microsoft and the Corporation for National and Community Service Launch
New Initiative to Promote Student Leadership in the Classroom. Retrieved from
http://www.microsoft.com/en-us/news/press/2010/jan10/01-25STARTPR.aspx
Pache, A. & Chowdhury, I. (Sept, 2012). Social entrepreneurs as institutionally
embedded entrepreneurs: Toward a new model of social entrepreneurship education.
Academy of Management Learning and Education, 11 (3), 494-510.
Pless, N.M., Maak, T., & Stahl G.K. (2011). Promoting CSR and sustainable development
through service learning programs. Academy of Management Best Paper Proceedings,
Montréal.
Pless, N.M., Maak, T., Stahl G.K. (2011a). Developing responsible global leaders through
international service learning programs? The Ulysses experience at
PricewaterhouseCoopers. Academy of Management Learning & Education, 10 (2), 237260.
Purdy, J. & Lawless, J. (Feb, 2012). Learning about governance through nonprofit board service.
Journal of Management Education, 36 (1), 33-65.
79
JAPAN REVISITED BEFORE AND AFTER THE 90’S: THE IMPORTANCE OF THE
JAPANESE ENTERPRISE KEIRETSU MODEL
Hakan Kislal PhD, Ms.in M, MBA
Associate Professor of Management
Saint Leo University, SHRC
[email protected]
80
Abstract:
Japan became a developed nation in the late 70’s and 80’s. Japan’s experience had been studied
by business academics very closely throughout the late 80’s and 90’s. Since the economic
bubble of the early 90’s, Japan has been having major economic difficulties. While the Japanese
model developed under the high growth environment of the 50’s and continued through the 80’s,
it has been under pressure since the major down turn of the Japanese economy. Today Japan has
very low growth and a high debt to GDP ratio, (230%). In this presentation, we will examine
Japan’s post WWII model of development in two segments. The first segment will be the early
development of the Japanese Enterprise System as a main pillar of the Japanese Model. The
second part will be examining what has happened since the early 90’s bubble period. The
Keiretsu model provided the main source of dynamism to Japanese development until the bubble
period, when it apparently became a burden to the Japanese economy. This study also touches
on the USA experience of financial difficulties of 2008 and analyzes differences with the
Japanese bubble.
81
THE IMPACT OF NATIONAL CULTURE ON WORK GROUPS: EFFECTS OF CULTURAL
DIVERSITY, TASK AND LEADERSHIP ON INDIVIDUAL PERCEPTIONS OF GROUP
MEMBERS
Georg Kodydek
Research and Teaching Assistant
Department of Management, WU Vienna University of Economics and Business
[email protected]
Ronald Hochreiter
Assistant Professor
Department of Finance, Accounting and Statistics, WU Vienna University of Economics and
Business
[email protected]
Helmut Kasper
Full Professor
Department of Management, WU Vienna University of Economics and Business
[email protected]
Jürgen Mühlbacher
Associate Professor
Department of Management, WU Vienna University of Economics and Business
[email protected]
82
ABSTRACT
In this article, we focus how graduates and young professionals experience and perceive
cultural diversity, task and leadership in homogeneous and heterogeneous group settings in an
experiment. We review and evaluate current management research on the effects of cultural
diversity in various group compositions by investigating the diversity of leaders and followers in
terms of culture, gender, race and ethnicity. Furthermore, we diagnose group direction, group
norms, and strength and weaknesses of the different work groups. Moreover, we also aim to
make a contribution to followers’ perception of leadership and leaders’ coaching behaviors.
We conducted an experiment at a large European university with 80 students from
Austria, Turkey, China, and the United States with a fairly even gender split. Participants had to
work on tasks in homogeneous and heterogeneous settings. We assess participants’ ratings
following a modified version of the Team Diagnostic Survey (Wageman, Hackman & Lehman,
2005) that we enhanced accordingly. Results are analyzed and discussed with relation to
diversity, leadership and cross-cultural differences. Furthermore, we emphasize important
implications for future research, teaching and development in this field.
KEY WORDS
Diversity, Cross-Cultural Studies, Work Groups
INTRODUCTION
Nowadays, many organizations expand into foreign markets and focus on a global
business strategy (Knight & Cavusgil, 2004). Hence, managers and employees are exposed to
global strategic decisions and cross-cultural interactions (Bücker & Poutsma, 2010). In this
competitive situation, companies face the challenge to adapt quickly to the challenges of their
environment to remain successful on the market (Bartlett & Ghoshal, 2002). Organizations are
aware of the fact that they need an outstanding staff with excellent competences, skills and
abilities to gain a competitive advantage (Mühlbacher, Kodydek, Kovac, Putnová & Novotny,
2012). Therefore, employees have to develop appropriate skills and competences to meet the
requirements and needs of their firms (Currie, 2007; Mühlbacher et al., 2012). The heterogeneity
of national cultures of group members ultimately brings value to organizations and improves
their performance when cultural diversity is properly used (Shachaf, 2008). For this reasons,
globally operating firms try to find the best internationally oriented and multiculturally educated
staff that generates a substantial output to cope with challenges and complexities of global
competitors, different cultures and languages and international business activities (Bachmann,
2006). They focus on workgroups and teams that are composed of people with diverse
backgrounds and experiences to deal with the challenges and issues of a competitive
environment (Jehn & Bezrukova, 2004).
83
WORKING UNDER DIFFERENT CONDITIONS
By globalizing their operations, organizations face two important trends: a growing
influence of diversity and diversity management and an increased preference for group work
(Sippola & Smale, 2007; Jehn & Bezrukova, 2004; Milliken & Martins, 1996). The first aspect
of a work group is to determine the appropriate composition and size. One of the most important
reasons for groups and teams is the fact that every member possesses certain skills, abilities and
competences that influence processes, quality and outcome of groups (Horwitz, 2005). In this
paper, we focus on two different group compositions – homogeneous and heterogeneous work
groups. “Groups with all members from the same nationality and ethnic background are referred
to herein as culturally homogeneous groups.” (Watson, Kumar & Michaelsen, 1993, p. 593)
Otherwise, groups consisting of individuals from two or more nationalities and three or more
ethnic backgrounds underline certain heterogeneity and are known as culturally diverse groups or
multicultural groups (Stahl, Mäkelä, Zander & Maznevski, 2010; Watson et al., 1993). To
understand possible differences in group composition it is important to define and emphasize the
research topic “diversity”.
We illustrate diversity as the differences between individuals that may lead to the
interpretation and attribution that certain differences exist (Homan, Greer, Jehn & Koning,
2010). It is an all-inclusive term that incorporates people from many different classifications
(Herring, 2009). The wide impact of diversity can be generally found in identity group
memberships (e.g., race or sex), organizational group memberships (e.g., hierarchical positions
or organizational function), and individual characteristics (e.g., idiosyncratic attitudes, values,
and preferences) (Ely & Thomas, 2001). We underline that, in principle, diversity refers to a
number of different dimensions – from task skills to relational skills, and from political
preferences to sexual liking (van Knippenberg, De Dreu & Homan, 2004). In any case, diversity
is dependent on the context and situation and thus, group and organizational factors have to be
considered (Jehn & Bezrukova, 2004; Ely & Thomas, 2001). Cultural diversity comprises
different backgrounds of members of work groups and teams related to national cultures
(Barinaga, 2007). “National culture acts as the frame of reference, which societal members
utilize to comprehend and understand in organizations, the environment, and their relationships
with one another.” (Kreiser, Marino, Dickson & Weaver, 2010, p. 961) The active management
and handling with issues such as culture differences and value, interpersonal interaction, bridging
differences, or the challenges of leader-member exchange is called “diversity management”
(DiTomaso & Hooijberg, 1996). “Diverse organizations possess a wider range of knowledge
and perspectives and thus are able to make better decisions and exhibit greater creativity,
innovation, and performance than homogeneous ones.” (Gonzalez, 2010, p. 198) Organizations
focus on implementing diversity management to follow strategic advantages of plurality and
different views and opinions (Jehn, Northcraft & Neale, 1999). In summary, multicultural work
groups are task-oriented groups consisting of individuals of different national cultures (Matveev
& Nelson, 2004). “People of different ethnic backgrounds possess different attitudes, values, and
norms that reflect their cultural heritages.” (Cox, Lobel & McLeod, 1991, p. 828) Thus, in a
culturally diverse team, all team members have to know the cultures with which they interact.
They also have to appreciate the personalities, behaviors, and experiences of all team members
(Matveev & Nelson, 2004). Hence, we emphasize the importance of intercultural competence
which has been pointed out many times (e.g., Bachmann, 2006).
84
Individuals as group members interact within a group by communicating, influencing,
making decisions, cooperating, and competing. All these processes influence group performance
and group dynamics (Hopkins & Hopkins, 2002). In comparison with individual work group
processes can lead to greater efficiency (e.g., increasing speed in decision-making, effective
brainstorming processes, reducing costs) or greater effectiveness (e.g., making better decisions).
Group processes can be influenced by diversity by having positive and negative effects on group
cohesion, creativity, innovation, frequency and quantity of communication, or conflicts within
the group (Knight, Pearce, Smith, Olian, Sims, Smith & Flood, 1999). Group members
contribute to outcomes through social inputs and task inputs. Thus, challenges and issues within
groups could lead to interpersonal or relationship conflicts, task oriented conflicts, and
agreement-seeking (Greer, Caruso & Jehn, 2011; Yang & Mossholder, 2004; Jehn, 1997). An
interpersonal conflict relates to personal or emotional relationships between people whereas
some groups struggle with conflicts that are task oriented in nature, such as disagreements about
distributions of resources, procedures and policies, and judgments and interpretations of facts
(De Dreu & Weingart, 2003; Knight et al., 1999). In addition, the task setting has a substantial
influence on the understanding of the situation among members of a work group. Furthermore, a
certain level of group information process leads to a better understanding of the task setting
(Rico, Sánchez-Manzanares, Gil & Gibson, 2008). Group work is also influenced by leaders who
create and manage groups and foster the integration of subordinate action (Zaccaro, Rittman &
Marks, 2001). Researchers in this field have explored how leaders help groups through different
coaching-related activities, such as promoting team learning and adaption, managing events that
occur in the group context, the role of team leaders in managing team boundaries, or leadership
roles shared in teams (Morgeson, DeRue & Karam, 2010). Leader coaching “can directly affect
team members’ engagement with their task, their ability to work through interpersonal problems
that may be impeding process, and the degree to which members accept collective responsibility
for performance outcomes.” (Wageman, 2001, p. 561)
In any case, whether it is a diverse or a homogeneous work group – working in different
group settings is often a challenge for many individuals (Pelled, Eisenhardt & Xin, 1999). Hence,
proactive leadership and coaching could affect group processes and outcomes substantially
(Wageman, 2001). There are many opinions underlying the influence of national culture and
ethnic background on individuals’ perceptions, attributions, and expectations of group work,
tasks, and leadership (Hackman & Wageman, 2005).
In this study, we investigate these challenges and mainly focus on the different
perceptions and attributions of group members to their leaders in an experimental setting. We
concentrate on four different groups, participants from Austria, Turkey, China, and the United
States of America. Our goal is to find reasons and answers for the following research question:
“How do members of work groups perceive the influence of cultural diversity, task and
leadership on group work in homogeneous versus heterogeneous groups?”
85
METHODOLOGY
In our study, we analyzed the perceptions of students concerning their group work and
their attribution of leader coaching during a task in an experimental setting. Participants were 80
undergraduate students from four nations (Austria, Turkey, China, and USA) at WU Vienna
University of Economics and Business, Vienna, Austria. Eight work groups consisted of 72
participants while eight students were selected as leaders in this experiment (N = 72, 33 male and
39 female; mean age = 22.43 years). All participants were full-time or exchange students at WU
Vienna at the time of the experiment and could speak English fluently.
At the beginning of the study we divided the participating students into eight
homogeneous work groups and selected eight leaders for the task that took two rounds. Every
participating nation (Austria, Turkey, China, and USA) was represented by two leaders and an
identical number of followers for every group. The subordinates had to work in a homogeneous
and heterogeneous work group. In order to prevent learning effects we decided to compose
groups differently (e.g., in the first round “American leader A” led a homogeneous team while
“American leader B” led a multicultural team). In the second round the leaders remained stable
but the followers had to move to a predefined specified group. The experiments took place in
different rooms and were observed by experienced instructors. The task was handed over by
these people. The assignment was to design and build a tower made of cardboard and predefined
tools within 30 minutes. The leadership style and the working process were not specified by the
instructors. After 30 minutes the leaders of the work group handed over the output of the group
to the observer. The followers adjourned themselves to another specified room and worked on
the task within another group. After every round the participants were asked to complete a
questionnaire asking them to rank their own personal view of their group performance, the task
and the leader coaching.
The questionnaire consisted of 28 items based on selected scales from the Team
Diagnostic Survey (TDS) of Wageman et al. (2005) – an instrument intended for the diagnosis of
the strengths and weaknesses of groups and for research on group behavior and performance
(Wageman et al., 2005). The TDS has been used in numerous studies and was shown to be an
ideal instrument to assess group or team members’ perceptions of the group’s socio-structural
features, such as compelling direction or enabling structure (Higgins, Weiner & Young, 2012;
Wageman et al., 2005). We adapted the TDS for our experiment and research context. All items
in this questionnaire were rated on a five-point Likert-scale, ranging from “disagree strongly”
(response score = 1) to “agree strongly” (response score = 5). Demographic information
regarding age, sex, and nationality was also collected. In this study, we measured “clarity”,
“challenge” and “consequentiality” using the six-item scale “compelling direction”. Furthermore,
group members rated the task design by focusing on sub-scales “the whole task”,
“autonomy/judgment”, and “knowledge of results” using eight-item scale “enabling structure”.
We also measured direct interactions with groups that usually intend to shape group processes to
produce good performance (Wageman, 2001) by using 14-item scale “leader coaching”. We
investigated “task focused coaching”, “operant coaching”, “interpersonal coaching” and
“unhelpful directives”.
86
RESULTS
Tables 1 to 4 show two-sample t-Tests for all comparison groups (homogeneous and
heterogeneous) and settings. The analyses outline the differences of attributions and perceptions
of group members relating to group work. We also investigate the work and appearance of the
leaders.
Table 1: Analysis of dimensions of TDS – Austrian Leaders
Items
1. There is great uncertainty and
ambiguity about what this work
group is supposed to accomplish.
5. The purposes of this work
Consequentiali
group don’t make much of a
ty
difference to anybody else
20. The leader provides positive
Operant
feedback when the work group
Coaching
behaves or performs well.
21. The leader provides
Operant
corrective feedback when
Coaching
needed.
23. The leader instructs the work
Unhelpful
group in detail about how to
Directives
solve its problems.
24. The leader helps members
Interpersonal
work on improving their
Coaching
interpersonal relationships.
26. The leader helps the work
Task Focused
group identify and use well each
Coaching
member’s unique talents.
*p < .05; **p < .01; ***p < .001.
Clarity
Mean_
hom
SD_h
om
Mean_
het
SD_h
et
pValue
3,00
1,64
3,94
0,80
0,038*
3,28
0,83
2,39
0,61
0,001*
**
2,72
1,27
3,61
0,85
0,020*
3,00
1,28
3,94
0,64
0,010*
*
1,83
0,62
2,72
1,41
0,022*
1,94
0,73
2,61
1,09
0,039*
1,94
1,06
2,67
0,77
0,025*
Mean_
hom
SD_h
om
Mean_
het
2,56
0,86
3,89
0,96
3,5
0,86
2,39
1,04
3,28
1,23
2,06
1,21
Table 2: Analysis of dimensions of TDS – Turkish Leaders
Items
Clarity
Operant
Coaching
Unhelpful
1. There is great uncertainty and
ambiguity about what this work
group is supposed to accomplish.
21. The leader provides corrective
feedback when needed.
23. The leader instructs the work
SD_h
pet
Value
0,000
***
0,001
**
0,005
87
Directives
group in detail about how to solve
its problems.
24. The leader helps members
Interperson
work on improving their
al Coaching
interpersonal relationships.
Task
25. The leader keeps the work
Focused
group alert to anything that might
Coaching
require a change of work strategy.
Task
26. The leader helps the work
Focused
group identify and use well each
Coaching
member’s unique talents.
27. The leader tells the work
Unhelpful
group everything it is doing
Directives
wrong.
*p < .05; **p < .01; ***p < .001.
**
3,06
1,16
1,89
0,83
0,002
**
3,33
0,91
2,56
1,10
0,027
*
3,33
1,03
2,22
0,94
0,002
**
3,28
1,36
1,94
1,11
0,003
**
Mean_
hom
SD_h
om
Mean_
het
2,67
1,14
3,83
0,79
0,001
**
2,72
1,07
3,39
0,61
0,030
*
3,22
0,81
3,72
0,57
0,041
*
3,06
0,80
3,72
0,89
0,025
*
2,50
0,92
4,00
0,77
0,000
Table 3: Analysis of dimensions of TDS – Chinese Leader
Items
Clarity
Task
Design
Task
Design
Task
Design
Task
3. This team’s purposes are
specified so clearly that all
members should know exactly
what the work group exists to
accomplish.
8. The work of this work group
leaves little room for the exercise
of judgment or initiative.
9. Carrying out our work group’s
task automatically generates
trustworthy indicators of how well
we are doing.
11. The work itself provides
almost no trustworthy feedback
about our work group’s
performance.
15. The leader helps members
SD_h
pet
Value
88
Focused
Coaching
learn from one another and from
the work group’s work
experiences.
Task
16. The leader works with the
Focused
work group to develop the best
Coaching
possible approach to its work.
Task
17. The leader helps the work
Focused
group build a high shared
Coaching
commitment to its purposes.
18. The leader micromanages the
Unhelpful
content and process of work group
Directives
discussions.
Operant
21. The leader provides corrective
Coaching
feedback when needed.
23. The leader instructs the work
Unhelpful
group in detail about how to solve
Directives
its problems.
24. The leader helps members
Interperson
work on improving their
al Coaching
interpersonal relationships.
Task
25. The leader keeps the work
Focused
group alert to anything that might
Coaching
require a change of work strategy.
Task
26. The leader helps the work
Focused
group identify and use well each
Coaching
member’s unique talents.
*p < .05; **p < .01; ***p < .001.
***
3,56
0,92
4,28
0,57
0,009
**
3,33
0,77
4,00
0,84
0,018
*
2,94
0,80
3,67
1,03
0,025
*
3,00
1,03
3,72
0,75
0,022
*
2,61
1,14
3,89
0,83
0,001
***
2,22
0,81
3,00
1,14
0,025
*
2,61
0,92
3,44
0,98
0,013
*
2,44
0,92
3,50
1,04
0,003
**
89
Table 4: Analysis of dimensions of TDS – US American Leaders
Items
Clarity
Challenge
Consequent
iality
Task
Design
1. There is great uncertainty and
ambiguity about what this work
group is supposed to accomplish.
2. This work group’s purposes are
so challenging that members have
to stretch to accomplish them.
6. This work group’s purposes are
of great consequence for those we
serve.
7. We do a whole, identifiable
piece of work.
12. The only way we can figure
out how well we are performing is
for other people in the
organization to tell us.
13. The work we do requires the
Task
team to make many “judgment
Design
calls” as we carry it out.
15. The leader helps members
Task
learn from one another and from
Focused
the work group’s work
Coaching
experiences.
Task
16. The leader works with the
Focused
work group to develop the best
Coaching
possible approach to its work.
19. The leader helps members
Interperson
resolve any conflicts that may
al Coaching
develop among them.
20. The leader provides positive
Operant
feedback when the work group
Coaching
behaves or performs well.
Operant
21. The leader provides corrective
Coaching
feedback when needed.
Task
22. The leader helps the work
Focused
group sustain the motivation of all
Coaching
members.
Unhelpful
23. The leader instructs the work
Task
Design
Mean_
hom
SD_h
om
Mean_
het
SD_h
pet
Value
4,17
1,10
2,83
1,20
0,001
**
2,17
0,86
3,00
1,08
0,015
*
1,89
0,68
2,83
1,04
0,003
**
4,39
0,70
3,11
0,90
0,000
***
4,17
0,71
2,78
1,11
0,000
***
3,94
0,54
3,33
0,97
0,027
*
3,78
0,55
3,11
1,18
0,040
*
4,28
0,89
3,56
1,04
0,033
*
3,72
0,67
2,89
1,02
0,007
**
4,11
0,58
3,06
1,21
0,003
**
3,83
0,99
2,94
1,06
0,013
*
4,06
0,54
2,67
1,14
0,000
***
3,89
0,76
2,56
1,20
0,000
90
Directives
group in detail about how to solve
its problems.
Task
25. The leader keeps the work
Focused
group alert to anything that might
Coaching
require a change of work strategy.
Task
26. The leader helps the work
Focused
group identify and use well each
Coaching
member’s unique talents.
Operant
28. The leader gives inappropriate
Coaching
or undeserved praise or criticism.
*p < .05; **p < .01; ***p < .001.
***
3,94
0,64
3,00
1,08
0,004
**
4,00
0,91
2,61
1,20
0,000
***
4,67
0,49
3,83
1,10
0,007
**
The analyses of the dimensions show different significances related to the cultural
background of all participants. The results illustrate that the responses of group members led by
Austrian and Turkish leaders show fewer significant differences than answers of individuals led
by Chinese and American leaders. We examine that there exist significant differences for item 1
(sub-scale “clarity”) in groups led by Austrian, Turkish, and American leaders. The scales
“clarity”, “challenge” and “consequentiality” generally illustrate the averaging group member
responses that assess the degree to which the direction of a group is clear, challenging, and
consequential. The highest significant difference can be identified in groups led by the Turkish
participants. Obviously the reasons for the group work and the intention were communicated
differently in their homogeneous and heterogeneous work groups that they led during the task.
Results for the groups led by Chinese students show a significant difference concerning the clear
communicated purposes what the work group exists to accomplish (item 3). Participants who
worked in groups led by American leaders show some significant differences between
homogeneous and heterogeneous groups concerning a possible challenge so that group members
have to stretch to accomplish the groups’ purposes (item 2). Moreover, we also identify
significant differences in these groups related to consequentiality (item 6). The results also show
significant disparities between homogeneous and multicultural groups led by Austrians
concerning the proposition that the purposes of the work groups didn’t make much of a
difference to all followers. In this case, the difference between the attributions of the
homogeneous and the heterogeneous work groups refers to the engagement of the full range of
the group members’ talents.
Significant differences of our analyses for items of the scale “task design” are only
identified in groups led by Chinese and American leaders. Participants who worked in groups led
by Chinese leaders mainly attribute a disparity relating to the knowledge of results. We argue
that followers attribute the allocation of knowledge differently on a regular basis. They think that
the task design itself was communicated unequally. On the other side, group members led by
American students show the most significant differences in item 7 and 12. Obviously, there is
lack of motivational leadership and insufficient autonomy to exercise judgment about work
procedures. We also argue that the duties and the task itself within the work group were
communicated inadequately.
91
The analyses of our third scale show the most significant differences of our study. We
investigate three items of leader coaching that illustrate varying perceptions and attribution of
operant coaching (item 21), unhelpful directives (item 23), and task focused coaching (item 26)
in all work groups that we investigated. The results show that in every group composition existed
significantly different perceptions of leader performance. We argue that leaders provide
corrective feedback when needed and coaching that focuses on performance strategies, group
effort, and the use of knowledge and skills in homogeneous versus heterogeneous groups
differently. Interpersonal coaching focuses on reasonable intervention of leaders concerning
challenges of relationships in a group. Significant disparities in this aspect of coaching can be
identified in homogeneous and multicultural groups led by Austrian, Turkish and Chinese
participants. The biggest significant differences concerning leader coaching are shown in groups
that were led by Chinese and American leaders. This led to the situation that some leaders found
themselves many times excluded from the group, failed to stress out the competitive character of
the setting and neglected agreeing upon rules and improvement opportunities.
CONCLUSION AND MANAGEMENT IMPLICATIONS
The empirical findings showed obvious significant differences of attributions and
perceptions of followers with different backgrounds in relation to group direction and leader
coaching. The compelling direction of groups is the specification of its overall purpose
(Wageman et al., 2005). We analyzed that group directions and the accomplishments of group
work were communicated and perceived differently in various group compositions. We
emphasize that the example of leading homogeneous work groups by American participants was
attributed and perceived considerably different than the leadership in multicultural groups under
the same leadership. Moreover, we underline this finding with reference to the behaviors of
leaders that are learned and developed in their own culture. We also argue that languages and
communication issues can always lead to different interpretation of meanings. Some people find
it difficult to understand and follow an English native speaker. Furthermore, some leaders could
not motivate the followers appropriately. Our results also show that the influence of leaders in
homogeneous versus heterogeneous groups vary significantly. As mentioned before, leader
coaching was also assessed differently. As a result, we highlight that some students have more
experience in leading and working with people. Moreover, we also stress that some participants
have more knowledge about cultural differences and are more satisfied with the outcome,
direction, and performance of their leaders in this experiment than others. Overall, we argue that
cultural diversity leads to varied perceptions and experiences of diversity, task and leadership.
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96
USING TOOLS OF GOVERNMENT FOR
SUSTAINABILITY MANAGEMENT IN CENTRAL FLORIDA
Nick Lebredo PhD, CPA
Associate Professor of Accounting
Saint Leo University
[email protected]
97
Abstract
This paper considers the problem of local sustainability management and examines how
various tools of government are used in Orange County, Florida. Sustainability management is a
complex, multi-dimensional concern that impacts both the private and public sectors. As such, it
is highly suitable to the governance approach of public administration and the application of
diverse tools of public action such as strategic planning, social regulation, contracting, grants,
government corporations, vouchers, performance measurement and benchmarking considered in
this paper. The implications are that the resourceful and results-oriented public manager should
(1) adapt the right combination of tools to a particular situation; (2) persistently measure
performance and learn from experience; (3) develop leadership skills that facilitate motivation
and coordination of multiple stakeholders; and, (4) consistently strive to maintain the highest
standards of accountability and transparency.
98
Using Tools of Government for Sustainability Management in Central Florida
Introduction
There is considerable ambivalence regarding the definition of sustainability. As defined by
the landmark Brundtland report over twenty years ago, sustainable development is realized when
it meets the needs of the present without compromising the ability of future generations to meet
their own needs” (World Commission on Environment and Development, 1987, p.8). This
widely cited definition is quite useful in emphasizing the inherent intergenerational equity
concerns associated with sustainability. Yet, this broad characterization may not sufficiently
address the multiple tradeoffs between evaluation criteria (e.g., equity versus efficiency) that
often prevail in policy making nor does it provide explicit reference to varied aspects of
sustainability that governments typically confront.
More recently, a multi-dimensional definition of sustainability has emerged. The private
sector in corporate social responsibility reporting frequently makes reference to the triple bottom
line as planet, people, and profit while the public sector often alludes to the three pillars of
sustainability as being environmental protection, social progress, and economic growth
(Elkington, 2004: United Nations General Assembly, 2005).
The aim of this discussion is to suggest that sustainability should not be about swinging the
pendulum from the extreme pursuit of greed is good towards the other extreme of tree hugging
but more about the difficult task of finding the right balance between these different facets of
sustainability and their respective evaluation criteria. Sustainability is thus promoted when we
seek to move towards adopting a more balanced and long-term approach to social progress,
economic growth, and environmental protection (Adams, 2006). While a universally accepted
definition of sustainability is widely acknowledged to remain elusive in the literature, we rely on
this conceptualization as we consider how various Central Florida communities have recently
employed various tools of governance in their attempts to pursue sustainability management.
The Problem and Need for Governance
Economists have long been advocating market-based policies to help clean up the
environment. To address the issue, the economist simply applies the fundamental rule of
economic rational decision-making to the problem. If the environmental transgressor faces
marginal costs that are higher than their marginal benefits of producing the environmental
damage they will find it in their economic self-interest to change their behavior. From an
economic standpoint, this result is viewed as more efficient than a directive or regulatory
standard since the overall cost of reducing environmental damage may be lowered given that the
economic incentive will be in place for it to be borne by entities that have lower abatement
related costs.
99
A negative externality arises when third parties (i.e., parties other than those directly
involved in an economic transaction) are detrimentally impacted by a private transaction.
Consequently, a negative externality is a case of market failure since allocative efficiency is
distorted due to private costs not fully reflecting social costs (Coase, 1960; Steinemann, Apgar,
& Brown, 2005). Of equal or greater significance, equity concerns also surface as a result of
externalities. In the case of a negative externality, costs and benefits may not be fairly
distributed among different segments of the population (Steinemann et al., 2005, p.200).
Steinemann suggests that there are eight common approaches for addressing an externality.
These typical approaches are: (1) voluntarism; (2) prohibition; (3) separation; (4) directive; (5)
regulation; (6) taxes; (7) subsidies; and, (8) marketable permits (Steinemann et al., 2005, p.209).
Environmental resources are generally classified as either public or common pool goods.
Common pool goods are a special type of public good. While pure public goods lack the
exclusive and rival nature of private goods, common property resources lack only the former
attribute (Steinemann et al., 2005). Examples of common property resources or collective goods
include groundwater basins, fisheries, forests, pastures, lakes, public parks, and public beaches.
As Hardin noted in his classic essay on the tragedy of the commons, unrestricted (i.e.,
nonexclusive) consumption of common pool goods can eventually lead to severe degradation
and, ultimately, destruction of the resource (Hardin, 1968). Consequently, according to
Steinemann, "effective management [of common pool resources] usually requires some sort of
public intervention to protect the resource from being depleted or destroyed by
overconsumption." (Steinemann et al., 2005, p.225).
Effective management of common pool resources is facilitated when there are (1) low
costs of resource use monitoring, (2) moderate rates of change in resources, resource-user
populations, technology, and socio-economic conditions, (3) high levels of social capital, (4)
low cost means of excluding outsiders, and (5) users that support compliance and enforcement
(Dietz, Ostrom, & Stern, 2003). With respect to the import of social capital, it is worth
mentioning that high performance social networks have already had a profound effect at local
and regional levels. In her research, Pretty has documented nearly half a million, mostly
successful, cases of such local groups organizing at the community-level with the goal of
addressing environmental related concerns (Pretty, 2003). While governments are needed to
adequately coordinate global environmental issues (e.g., climate change), smaller scale
environmental concerns may be appropriately addressable at the community level (Pretty, 2003).
Research has shown that thoughtful analytical deliberation between scientists and
interested parties including resource users; a variety of institutional types (e.g., public, private,
community self-governance); and, complex and nested institutional arrangements are
indispensable principles that tend to promote vibrant governance of environmental resources
(Dietz, Ostrom, & Stern, 2003). The importance of a supportive institutional structure, effective
personal communication, and the use of coordinating mechanisms are paramount and have been
shown to promote sustainable resource use (Ostrom, Gardner, & Walker, 1994; Hackett,
Schlager, & Walker, 1994).
According to Paavola, a fundamental challenge with public goods (either pure or
common pool) is that these resources create interdependencies among users due to their joint
100
consumption (i.e., nonexclusive nature). While the detrimental aspect of this relationship is
often raised as the free rider or exploitative effect, recent studies articulate that the same
interdependency creates an opportunity to potentially seek favorable outcomes by exploring
varied institutional types and arrangements (Dietz, Ostrom, & Stern, 2003; Paavola, J. 2007).
Furthermore, institutional theory research indicates this governance decision may be facilitated
by consideration of principles of social justice as well as economic efficiency (Paavola, J. 2007).
“Although social invention is incredibly difficult, the way is open for new concepts of the
role of government to liberate our thoughts and guide our actions.” (Wildavsky, 1969, p.200)
These words resonate as veritable today as they did when written by Wildavsky so many years
ago. Notwithstanding the vital role of government, it is also imperative to distinguish when
sustainability initiatives may not be within the scope of government and when they are best left
addressed by resources from the private sector or individual citizens. While there are differing
views on the proper role of government, there is not a shortage of policy instruments (e.g., taxes,
permits or allowances, mandates, subsidies) available to address environmental externalities
(Goulder & Parry, 2008). Goulder and Parry state that “no single instrument is [universally]
superior” and acknowledge that selection of the appropriate instrument is as much art as science
(Goulder & Parry, 2008, p.25). While consensus among economists may tend to support more
“flexible, incentive-based policies” as opposed to direct regulatory mandates or standard setting,
many trade-offs and challenges remain with implementation (Goulder & Parry, 2008, p.25). In
addition to efficiency differences, there are frequently notable distributional disparities (e.g.,
regressive taxes, intergenerational equity concerns) that impact not only fairness or equity, but
also political viability (Goulder & Parry, 2008, p.15).
Byrne, et al suggest that state and local governments are where we are seeing the greatest
successes on the sustainability agenda (Byrne, Hughes, Rickerson, & Kurdgelashvili, 2007).
Legislative gridlock and the power of special interests appear to offer greater opposition to
sustainability related policies at the national level than the regional level (Byrne, et al, 2007).
The 2009 Nobel Prize winner in economics, Elinor Ostrom, was actually a political scientist that
focused her research on improving governance of the commons. As Ostrom noted, the most
effective sustainability policies adapt to local cultures and institutional arrangements (Ostrom,
2008). Substantial research supports this notion that sustainability development may potentially
be best addressed at the local level (Banerjee, 2003; Gibbs, 2002; Goldman, Thompson, and
Daily, 2007).
Salamon characterizes the governance paradigm as being associated with the employment
of tools rather than programs or agencies as well as the generation of networks that enable
greater collaboration between public and private sectors (Salamon, 2002). Salamon defines a tool
of government as an "identifiable method through which collective action is structured to address
a public problem" (Salamon, 2002, p.19). With this framework in mind, several applications of
the governance model and the corresponding uses of multiple tools of government, as they relate
to sustainability management in Central Florida, will now be further examined.
101
Strategic Planning as a Tool
In the public sector, strategic planning is typically more mission oriented and frequently
more constrained by political, social, and economic conditions (Cohen and Eimicke, 1998). The
importance of organizational mission cannot be underestimated. Strategic planning efforts that
lack a clear sense of organizational purpose are likely to fail (Bryson and Roering, 1996). Cohen
and Eimicke include strategic planning as an essential innovation tool that is essential for
effective public management (Cohen & Eimicke, 1998). While strategic planning is also seen as
a more established and traditional management tool, it is included in this discussion since it is
typically considered a prerequisite for organizational change. Peter Drucker, often called the
father of management, described planning as an entrepreneurial activity that involved actions
that must be taken now to achieve tomorrow's objectives (Drucker, 1973). The process of
organizational strategic planning typically involves a self-assessment of strengths and
weaknesses as well as developing a better understanding of the organization's environment. In
MBA and MPA programs worldwide, students studying management undertake SWOT analyses
(assessments of strengths, weaknesses, opportunities, and threats) to model the strategic planning
process of private businesses and public organizations. More comprehensively, the strategic
planning process involves (1) environmental scanning (for problems and opportunities); (2)
identification and analysis of key stakeholders (to better understand sources of support and
opposition); (3) historical analysis (to gain perspective); (4) organizational and situational
analysis (to help formulate operational objectives); (5) operational strategy (to develop a work
plan to accomplish objectives); (6) feasibility analysis (to assess likelihood of success); and, (7)
evaluation (to determine results and facilitate needed adjustments) (Cohen and Eimicke, 1998).
Strategic Planning - Tool Application
The Orange County, Florida serves a county of nearly 1.1 million residents (Orange
County EPD, 2010). The county government has shown recent strong support for sustainability
management through various related projects such as promoting commuter rail, the Convention
Center solar panel project, combating urban sprawl (e.g., Wekiva Parkway and Econlockhatchee
River), green building programs, and energy efficiency incentives (Orange County EPD, 2010).
In 2007, the county hosted a climate change summit and committed to addressing climate
change by adopting a strategic plan. The resulting Climate Change Plan formally stated Orange
County’s commitment to become a leader in environmental stewardship (Crotty, R. and Orange
County Board of County Commissioners, 2009). Specifically, the plan called for reducing
greenhouse gas emissions by 15%, 28%, and 40%, by 2010, 2015, and 2020, respectively, by
embracing eight pro-environment initiatives (Crotty, R. and Orange County Board of County
Commissioners, 2009). The initiatives encompass three primary themes: (1) implementing
environmental practices; (2) adopting environment related incentives and ordinances; and, (3)
providing environment related education. In a recent performance report, while acknowledging
102
some challenges, the county reported that it had accomplished or was on track to complete most
of their outlined environmental goals (Crotty, R. and Orange County Board of County
Commissioners, 2009).
With respect to the key elements of strategic planning, the Orange County climate change
strategic plan quite thoroughly covers environmental scanning, key stakeholders, historical
analysis, organizational and situational analysis, operational strategies, and performance
measurement intentions. The county is to be commended for developing a separate sustainability
plan as opposed to integrating it within a broader strategic plan. However, the Orange County
plan limits itself to primarily targeting environmental sustainability whereas recent local
sustainability literature suggests that the most effective and enduring sustainability practices tend
to more fully balance the three dimensions of sustainability, i.e., environment, economic, and
equity (Saha & Paterson, 2008).
Another area where the Orange County plan appears to have shortcomings is on the
integration of budgetary considerations as well as feasibility analyses. Clearly, garnering
political support is immensely important to the ultimate success of a strategic planning process.
Without political support, it will be difficult, if not impossible, to attract the interest of key
stakeholders as well as needed resources to implement a given strategy. Strategic planning also
necessarily involves integration of budgetary constraints. Mercer argues that strategic planning
without consideration of the realities of the budget is merely abstract wishful thinking rather than
a pragmatic, actionable plan (Mercer, 1991). In this regard, the Orange County climate change
strategic plan could be strengthened by greater consideration of resource allocation trade-offs as
well as providing the findings of feasibility studies. To be most effective, a strategic plan should
be very explicit in aligning mission with resources (Cohen and Eimicke, 1998). The ultimate
sustainability of any strategic plan may well depend on this critical factor.
Social Regulation as a Tool
The traditional view of social regulation as a tool of government is associated with firm
directives, i.e., the stick approach of government, that attempt to mandate compliance with rules.
Rules, standards, sanctions, and enforcement are the four key aspects of any social regulation
(May, 2002). Notwithstanding, the current trend in social regulation is towards integrating the
use of incentives, i.e., the carrot approach of government, to reach desired standards (May,
2002).
May indicates that the distinction between social and economic regulation is “somewhat
artificial” and “increasingly blurred” (May, 2002, p.157). There are, however, some noteworthy
distinctions. The latter is generally associated with promoting the competitiveness of markets
while the former is usually targeted at protecting quality of life. Social regulation also tends to
have a broader scope in terms of its effect. While economic regulation is typically limited to
influencing the action of businesses, social regulation is frequently aimed not only at changing
the behavior of business but also lower levels of government and individuals (May, 2002).
With respect to sustainability, social regulation has been used to address numerous public
concerns such as air pollution, water quality, land conservation, green construction, and waste
management. While advocates of increasing social regulation regularly emphasize the
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environmental benefits of regulation, opponents suggest that regulations are often poorly
designed and that the total costs of compliance are frequently overlooked. While it is difficult to
capture the total effects of compliance, a 1997 OMB study concluded that the benefits of social
and environmental regulation exceeded the costs (OMB, 1997). Nonetheless, Ayres suggests that
social regulation environmental improvements may be more difficult to churn out since most of
the initial objectives that were cost-effective have been already addressed (Ayres, 2008).
Social Regulation - Tool Application
Local governments have considerable experience with using social regulation for
environmental protection. One local example of social regulation designed to promote
environmental sustainability is the recent fertilizer management ordinance which became
effective in March 2010 in Orange County, Florida. The new fertilizer ordinance is designed to
protect surface waters from the harmful effects of two fertilizer related chemicals, phosphorous
and nitrogen. The county ordinance regulates the quantity, strength, as well as periods when
fertilizer can be applied. The ordinance applies to both commercial and residential users and
requires that commercial users complete a best practices training program. All new hires of
commercial applicator business are required to complete the training within six months of
employment. The training is also open to residential applicators and the general public (Orange
County Environmental Protection, 2010).
The ordinance does provide for limited exemptions such as golf courses, parks, athletic
turfs, and bona fide farm operations outside the authority of Orange County regulations. The
ordinance includes a variance section that provides guidance on requesting exceptions to the
ordinance on a case by case basis. With respect to enforcement, the ordinance indicates the
written warnings will be issued for the first two violations while fines of $50 and $100, may be
assessed for the third and subsequent violations, respectively (Orange County Environmental
Protection, 2010).
While it is too soon to evaluate the impact of the regulation, information on the new
ordinance is clearly explained on a well-designed Orange County Environmental Protection
website. The ordinance website includes information on FAQs, the required training program,
fertilizing tips, a fertilizing video, and a link to the actual ordinance. The informational website
also briefly describes how clean lakes, streams, and watersheds are associated with protecting the
environment, enhancing quality of life, and economic prosperity. One constructive criticism
would be that this information could be expanded to further educate the public on the damaging
effects of non-compliance in order to promote greater awareness of the problem as well as
encourage voluntary compliance. In this regard, it also bears mention that enforcement is likely
to be a weak aspect of the regulation. The sanctions for violators are relatively minor and
unlikely to serve as major deterrents so education and reliance on voluntary compliance are
likely to be key determinants of the success of this local example of a social regulation.
Contracting as a Tool
Contracting is one the most common tools of government. While some agencies of
government may find little need for several of the other tools of government, it is difficult to
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imagine any public or private organization that can do its work without using the tool of
contracting (Kelman, 2002). As a tool of government, contracting involves an economic
transaction between a public and private entity where the latter promises to provide either
products or services to the public entity or to others on the behalf of government in exchange for
financial remuneration (Kelman, 2002). It is important to note that the private entity that
contracts with the government can be either a for-profit or a non-profit establishment (Kelman,
2002).
Kelman insightfully describes three key characteristics of government contracting. The
first characteristic is that contracting involves a choice by a public entity to not make a product
or render a service. The second characteristic is that government contracting involves an
economic transaction in a manner similar to the type of exchange between two private entities. In
other words, unlike some of the other tools of government, contracting is not uniquely associated
with government. Lastly, government contracting can involve procurement contracting
(contracting for goods or services for government use) or purchase of service contracting
(government funded provision of goods or services by a third party to non-governmental
recipients) (Kelman, 2002).
Contracting - Tool Application
The county has a well-designed purchasing and contracting website that provides detailed
guidance to contractors on how to conduct business with the county. Annually, Orange County
contracts out nearly half a billion dollars of goods and services (Orange County Purchasing and
Contracts Division, 2010). With respect to the physical environment budget, Orange County
annually contracts out its refuse and recycling services for approximately $34 million dollars.
This service provides collection services to approximately 200,000 homes located in the
unincorporated areas of Orange County. The county contracts out the refuse and recycling
collection services to four private haulers. Each hauler is assigned approximately one-fourth of
the households. Invitations for bids (IFBs) are solicited every seven years. The stated selection
criteria for IFBs are price and responsiveness. The refuse and recycling services are paid via user
charges assessed to households as a non-ad valorem tax on property tax bills. A special revenue
fund is established for this purpose and is self-sustaining i.e., user fees fully offset the expenses
of the fund (Orange County, 2009).
The Orange County Environmental Protection Division also frequently contracts with
outside vendors for land and water restoration and remediation projects within the county. One
example of a water restoration project was the Rio Pinar Wetland Restoration Project. In 2007,
the wetland was overgrown with vegetation and had become increasingly unsightly for local
citizens. The Environmental Protection Division along with the Orange County Utilities
Division, the owner of the property, hired a private contractor to restore the wetland with more
aesthetic as well as functional vegetation that would also serve to promote local wildlife. After
completion of the project, the area remained under an annual maintenance contract (Orange
County Environmental Protection, 2010).
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This latter type of contracting (purchase of service) has, in particular, fostered a greater
degree of interdependency between public and private (including non-profit) entities that raise
important questions about their respective roles in our society (DeHoog & Salamon, 2002). For
example, to what extent should government relinquish its control over the delivery of public
services? To what degree does financial reliance on government funds potentially create moral
hazard or distort the self-sustaining nature of private enterprises? This loss of control and role
ambiguity are two of the recurring challenges that impact government contracting decisions
(DeHoog & Salamon, 2002).
Recent national studies also claim that there are significant inefficiencies in government
contracting. In a report to Congress, the Government Accountability Office (GAO) recently
indicated that nearly a third of federal government contracts were non-competitive contracts
(GAO, 2010). A 2009 survey of National Institute of Governmental Purchasing (NGIP) members
(N=614) found that while performance contracting is well known procurement approach in the
literature, it continues to lack widespread practice. In fact, over 60 percent of survey respondents
reported no use of performance contracting by their respective purchasing departments (Martin,
McCue, Allaf, & Borger, 2009). The three most commonly cited impediments for lack of use
revealed a need for performance based contract training for purchasing staff, contractors, and
senior administrators (Martin, et al 2009). As Martin asserts, performance contracting can be
potentially beneficial for both contractors and governments. With performance contracting that
targets performance outcomes rather than design specifications, contractors have greater
flexibility to perform their work and are potentially compensated at higher levels for exceptional
work. Similarly, with performance contracting, governments can spend less time (and cost) on
contract monitoring and pay only for results obtained (Martin, et al 2009). With the significant
future fiscal hurdles facing governments at every level, it is likely that future trends in
contracting will, by necessity, require greater use of competitive contracting methods as well as
performance based contacts that focus more attention on cost-efficient outcomes.
Grants as a Tool
Grants, as a tool of government, are a means of a donor government (i.e., grantor)
encouraging the performance of a desired activity by a recipient (usually a public or non-profit
entity). Since grants incentivize rather than restrict activity, they are generally deemed to be
relatively non-coercive tools with a high degree of automaticity, i.e., grants strive to make use of
existing administrative infrastructure rather than necessitating creation of a separate delivery
mechanism (Beam & Conlan, 2002). Grants can be provided in-kind but cash payments are most
common and are considered primarily indirect tools since they often leave considerable
discretion to the receiving government or organization (Beam & Conlan, 2002). While grants
appear on budgets and are quite visible from a funding perspective, some grants are not as well
publicized as others.
In terms of the restrictions placed on the use of funds (from most to least), the three broad
types of grants are categorical grants, block grants, general purpose assistance. Based on
allocation methods, grants can be classified as formula or project grants. The former frequently
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take on the nature of an entitlement program, lasting longer and less controllable, by the donor
government while the latter tend to be associated with a controlled, competitive selection
process, more narrowly confined to a specific purpose, and usually of limited duration (Beam &
Conlan, 2002). The level of donor control for grants is usually determined by the application
process, requirements for matching contributions or maintenance of effort, required financial
reporting, and related audits (Beam & Conlan, 2002).
Grants - Tool Application
In 2009, the Orange County Convention Center (OCCC), the second largest convention
center in the United States, completed the installation of a nearly $9 million dollar solar array
system designed and built by Johnson Controls. This completed OCCC project is now the largest
rooftop solar photovoltaic (PV) system in the southeastern United States (Orange County
Convention Center, 2010). While the convention center directly contributed nearly half of the
cost of the project, this environmental project was realized through the funding and collaboration
of multiple organizations at the local, state, and federal levels.
From a financing perspective, nearly 30 percent of the total cost of the project was funded
by an intergovernmental grant. The Florida Department of Environmental Protection (FDEP)
provided a $2.5 million renewable energy grant for the OCCC project. This funding was related
to the Renewable Energy Technologies Grants Program that was established by the Florida state
legislature in 2006. A total of $15 million dollars was awarded annually by the state under this
program and the maximum grant per project was $2.5 million. The convention center project
received the maximum grant in two installments. These grants were intended to "provide
renewable energy matching grants for demonstration, commercialization, research, and
development projects relating to renewable energy technologies in Florida" (Florida Department
of Environmental Protection, 2010).
There were also multiple, smaller in-kind grants including non-cash contributions from
the Florida Solar Energy Center, a research institute of the University of Central Florida, and
U.S. DOE (related to technical assistance), the Orange County Environmental Protection
Division (related to creation of a climate change education center) and Orange TV (related to
promotion and public service announcements on the local government network). The total
aggregate cash value of all of these in-kind grants was estimated to be less than $500,000.
From a purpose, allocation, and control perspective, the FDEP grant was a state-level
categorical, project grant with a limited three year duration that required an application as well as
matching funds (Florida Department of Environmental Protection, 2010). Among the items
required in the application process were a project description and objectives, project measures of
success, a detailed budget, and any commitment letters from third parties. To further control the
funding process, the FDEP paid the recipients of this grant on a cost reimbursement basis up to
the award amount. With respect to cost sharing, during the recipient selection process, projects
that had greater proportions of matching funds to grant funds received preferential consideration.
In fact, the cost sharing percentage was the most important criteria used in ranking the
applications. Other significant criteria used in ranking the applications were economic
development potential, technical feasibility, use of an innovative technology, renewable energy
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production potential, energy efficiency, fostering awareness potential, and project management
capacity (Florida Department of Environmental Protection, 2010).
When evaluating the effectiveness of the grant, it is important to keep in mind that the
intent of this project was to serve as a research, demonstration, and educational project. In that
regard, while it has been barely a year since completion, the solar project has received significant
attention. As indicated earlier, Orange County was the first municipality in Florida to achieve
gold level certification by the Florida Green Building Coalition, a nonprofit dedicated to
providing green building programs (Florida Green Building Coalition, 2010). The project itself
received national recognition from the U.S. Department of Energy as a "Solar America
Showcase" and the City of Orlando was selected by U.S. DOE as one of only 25 "solar cities" in
the country and the only "solar city" in Florida (U.S. Department of Energy, 2010). The
convention center was also the host site of the 2009 Green Cities convention. Accordingly, the
OCCC solar project and related climate change education center appears to have had some
degree of success in meeting one of its stated objectives of increasing familiarity with renewable
technologies. From an economic standpoint, the cost-effectiveness of solar power remains
challenging. The energy cost savings represent a small proportional amount of the total energy
costs and the simple, undiscounted financial payback is likely to exceed 40 years. While the high
visibility of the solar project (in the second largest convention center in the United States) clearly
has the promising potential to attract renewable energy industries and related jobs to Florida,
more time and metrics are needed to properly evaluate this important economic development
objective, which, arguably, over time, may be the ultimate measure of success.
Government Corporation as a Tool
There are a variety of organizational forms that can be used to help government
accomplish its objectives. The four principal organizational forms are a government agency, a
government corporation, a government sponsored enterprise, and a private corporation. While
little confusion exists between the opposite extremes of this spectrum (i.e., a government agency
versus a private corporation), the differences between a government corporation and a
government sponsored enterprise are less obvious. One way to distinguish a government
corporation from a government sponsored enterprise is by considering ownership rights and
control. A government corporation is owned and directly controlled by the government whereas
a government sponsored enterprise typically is privately owned and only indirectly controlled by
government via regulatory oversight (Stanton, 2002). While government corporations, as
governmental entities, have the explicit backing of the government, government sponsored
enterprises are also viewed by the credit markets as having implicit public financial support
which facilitates their access to capital. The recent failures of Fannie Mae and Freddie Mac, two
major government sponsored enterprises, have highlighted the potential moral hazards that may
accompany government sponsored enterprises when profits are privatized while risk is
nationalized. Stanton suggests that transforming these two government sponsored enterprises
into wholly owned government corporations may be the best solution available (Stanton, 2009).
According the U.S. General Accounting Office, most government corporations are
separate legal entities that may be best suited for revenue producing, potentially self-sustaining
financial activities with the public. As Stanton states, "the essence of the government corporation
is its ability to keep its accounts and manage its affairs on a business-like basis" (Stanton, 2002,
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p.23). This revenue producing, business-oriented nature of a government corporation generally
translates into greater flexibility to conduct its affairs (Stanton & Moe, 2002). While government
corporations typically have a higher regard for equity considerations than government sponsored
enterprises and private companies, government corporations are generally not appropriate for
inherently governmental purposes such as law enforcement or tax collection since their businesslike culture and greater operational flexibility may tempt them to subordinate non-profit seeking
mission oriented objectives to protect or enhance the bottom line (Stanton & Moe, 2002).
Government Corporation - Tool Application
The Orlando Utilities Commission (OUC) is a municipal utility owned by the City of
Orlando within Orange County. OUC is an electric and water utility with more than $2 billion in
assets and annual operating revenues in excess of $673 million (Orlando Utilities Commission,
2009). The utility was previously a privately owned company prior to being acquired by the city
of Orlando in 1922. According to the U.S. Energy Information Administration of the U.S.
Department of Energy, there are over 2,000 publicly owned electric utilities in the United States.
As of 2008, according to the American Public Power Association, OUC was the 16th largest
utility in the country based on customers served.
OUC has been an innovative local leader in renewable energy. Its newly designed
customer service and administrative center in downtown Orlando is perhaps the most
environmentally conscious building in the city. In 2009, the local chapter of the U.S. Green
Building Council selected the OUC building as the Leadership in Energy and Environmental
Design (LEED) New Construction Project of the Year. In the aforementioned Orange County
Convention Center solar panel project, OUC was an integral partner and providing $1.5 million
in funding or approximately 17 percent of the total cost. In partial consideration for its support,
OUC received ten years of renewable energy credits (i.e., form of social or environmental
regulation) associated with the project. These renewable energy credits may have future value to
the utility if the state or country transitions to a cap-and-trade system (Orlando Utilities
Commission, 2009).
OUC has been significantly involved with several renewable energy projects. Since
partnering with OCCC on the solar panel project, OUC has continued to develop similar, albeit,
in most cases, smaller-scale, partnerships with others in the community. Among its many related
renewable energy initiatives, OUC has partnered with the local science center, the county public
school system, an apartment complex, as well as Harris Engineering firm and a IKEA
furnishings store to install solar arrays. OUC is also partnering with Florida State University to
develop a solar and biomass hybrid power plant in nearby Harmony, Florida. The municipal
utility is also encouraging its local residential and business customers to install solar systems by
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providing low cost financing terms as well as monthly energy credits (Orlando Utilities
Commission, 2009).
OUC's financial strength has enabled it to be a leader and reliable partner in sustainability
management. The utility maintains a high quality, AA and Aa1 credit rating from Standard &
Poor's and Moody's, respectively (Orlando Utilities Commission, 2009). Before consideration of
financing and investing related cash flows, net cash flow from operating activities in 2009 was
over $245 million. In 2009, in spite of the challenging economy, OUC was not only selfsustaining, but generated nearly $73 million dollars of income. This income figure was after
payment of a revenue based dividend of over $27 million to the City of Orlando and other
smaller payments to the local governments of Orange County and the City of St. Cloud. In
addition, an income based dividend equal to 60 percent of income is also paid to the City of
Orlando. Even after paying all expenses and dividends, the net assets of OUC increased by over
$38 million in 2009. The utility held over $169 million dollars in cash or cash equivalents at the
end of 2009 (Orlando Utilities Commission, 2009). If performance and accountability for a
government corporation are measured to a large extent by the bottom line, Central Florida city
and county governments are fortunate to have the well-managed and financial strong Orlando
Utilities Commission as a valued strategic partner in sustainability management. OUC has
clearly demonstrated through its multiple initiatives that it desires to be on leading edge of
sustainability practices, particularly as they relate to renewable energy technologies.
Vouchers as a Tool
A voucher is a type of subsidy. One of the key differences between a voucher and other
tools is the greater level of control and choice extended to the intended beneficiary or consumer
Notwithstanding, a voucher is not a regarded as a blank check but, rather, typically comes with
restrictions such as eligibility criteria, the type and amount of goods or services that can be
purchased, as well as a limited period of use. Vouchers can, therefore, be used to encourage a
desired activity and to aim assistance at specific segments of the population. To prevent frivolous
consumption, vouchers frequently require that the recipient share some of the cost of the
subsidized product or service (Steurele & Twombly, 2002).
To implement a successful voucher program, several administrative decisions must be
considered. Clearly, the first step is to decide which product or service should be subsidized.
Additionally, it will be necessary to determine initial recipient eligibility; establish distribution
methods; institute, if applicable, a mechanism for recertifying eligibility; recruit authorized
suppliers; provide consumer information; and, set up monitoring, enforcement, and evaluation
programs (Steurele & Twombly, 2002).
Vouchers - Tool Application
Orange County has recently utilized a variety of voucher programs in their local
sustainability management practices. Two such voucher programs are the toilet voucher
exchange program and the Orange County Homeowner Energy Efficiency Program (OCHEEP).
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The toilet voucher exchange program is aligned with water conservation efforts by inducing the
replacement of high-flow, inefficient toilets. Newer low-flow toilets can yield water savings of
more than 60 percent. To qualify for the voucher, a homeowner must replace an older high-flow,
low efficiency toilet that utilizes 3.5 gpf (gallons per flush) or more with a new low-flow, high
efficiency model with a water usage of 1.28 gpf or less (Orange County Utilities Water Division,
2010). Under U.S. Federal law, new toilets must not use more than 1.6 gpf so high efficiency
toilets are well above this requirement.
The voucher provided by the toilet voucher incentive program ranges between $100 and
$125. To receive the voucher, an application to the Orange County Utilities Water Division is
required. The program restricted consumer choice by providing designated suppliers as well as
approved models that qualified for the voucher. The program was set up to provide two vouchers
(replacement of two toilets) for each household (Orange County Utilities Water Division, 2010).
The EPA has stated that if every home in the United States replaced one low efficiency toilet
with a high efficiency toilet, the annual water savings would be almost one trillion gallons of
water (EPA, 2010). The EPA estimates that a family of four would save approximately $90 per
year on their water bill by upgrading to a high efficiency toilet (EPA, 2010). Based on online
pricing available from the major home improvement stores, most high efficiency toilets cost
between $200 and $300.
It is not surprising that toilet replacement voucher programs have been quite popular and
spread across the nation since the combination of the voucher and the annual water savings make
the decision economically sensible as well as environmentally friendly. Unfortunately, Orange
County has temporarily suspended the program due to fiscal year budget constraints and lack of
available funding. To measure the success of the program and to evaluate its cost-effectiveness,
it would be helpful for the county to publish relevant metrics such as the participation rates
across different communities within the county as well as the estimated savings in water usage
and cost.
In contrast to the toilet voucher incentive program, the Orange County Homeowner
Energy Efficiency Program (OCHEEP) is set up as a rebate program. While rebates work similar
to vouchers there are some important differences. The main disadvantage of a rebate to the
beneficiary is paying the full cost of the product or service upfront. This may discourage some
participants especially those that are low-income so it may disproportionately benefit more
affluent households. The advantage of a rebate to the government entity is that coordination
between suppliers and the government is minimized since reimbursement to the beneficiary is
made directly by the government rather than via the supplier.
The OCHEEP program was set up as a social networking, educational program. The
program was open to a minimum of ten participants that would form a group to attend a
workshop on energy efficiency. Following the workshop, each interested participant would hire
an energy efficiency consultant to perform a Class I energy rating and recommend any necessary
upgrades to their home. If a contractor was subsequently hired by the homeowner to complete
any of these recommended energy efficiency upgrades, the homeowner would be eligible for a
rebate of up to $1,000 (Orange County Environmental Protection, 2010). The program, which
began in April 2010, was funded with $600,000 of federal stimulus funds and was designed to
promote energy efficiency as well as generate work for contractors. By October 2010, the
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program had already trained over 600 participants and future workshops have been currently
suspended due to the uncertainty of future funding (Orange County Environmental Protection,
2010).
Both the toilet voucher incentive program and OCHEEP underscore a main concern
associated with voucher (and rebate) programs. The beneficial impact of vouchers may be offset,
to some degree, by the problem of asymmetrical information. Higher income, better informed
citizens may benefit disproportionately from a voucher or rebate program unless there is an
adequate outreach and eligibility criterion that proactively seeks a representative group of
participants (Steurele & Twombly, 2002). If this problem is not properly addressed, adverse
selection can result that may serve to further “reinforce existing inequities of knowledge and
resources” (Steurele & Twombly, 2002, p.457).
Performance Measurement and Benchmarking as a Tool
Since Frederick Taylor, frequently revered as the father of scientific management,
developed time and motion studies nearly a century ago, performance measurement has been
viewed as an essential responsibility of effective management (Taylor, 1911). Much more
recently, in the reinventing government movement of the 1990's, Osborne and Gaebler stressed
that the need for performance measurement was as critical in the public sector as it is in the
private sector (Osborne & Gaebler, 1992). Performance measurement is vital if an organization
wishes to know where it stands and how to distinguish success from failure (Osborne & Gaebler,
1992).
There are multiple uses of performance measurement as a tool of government.
Performance measurement can be used to identify gaps between desired levels of effectiveness,
efficiency, and equity and their respective actual levels. Consequently, performance
measurement serves an important control function that can provide invaluable information to
decision-makers on needed changes in course. In this regard, performance measurement can be
useful as a motivational tool by providing appropriate recognition to those that are performing
beyond expectations as well as corrective guidance to those that may be falling short. Regular
performance measurement in government may also serve to promote transparency,
accountability, and legitimacy (Salamon, 2002). The highest level of assessing strategic
management capacity in government has also been associated with the control and evaluation
aspects of performance measurement (Vinzant & Vinzant, 1996). Notwithstanding all of these
potential benefits, it remains a disappointing, if not surprising outcome, that two recent studies
revealed that less than one quarter of local governments surveyed reported "using performance
measures across the board in conjunction with strategic planning efforts" (Poister & Streib, 2005,
p.49; Willoughby & Melkers, 2001).
Innovative, high performing public organizations seeking best practices and continuous
improvement frequently utilize a more sophisticated technique of performance measurement
called benchmarking (Cohen & Eimicke, 1998). Regular performance measurement is a
prerequisite for benchmarking since the latter compels the public manager to look beyond their
own program or government to compare relative performance. Comparing performance to those
that are doing similar things better enables an organization to more readily recognize the
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possibilities for improvement. There are many other potential positive outcomes associated with
benchmarking that include, but are not limited to, fostering internal collaboration, creating an
externally oriented competitive culture, identifying priorities, encouraging creative thinking, and
building a commitment to on-going performance measurement (Cohen & Eimicke, 1998).
Performance Measurement and Benchmarking - Tool Application
Since developing a strategic sustainability plan and holding a related summit in late 2007,
Orange County has produced and released two annual performance updates. In the initial plan,
the leaders of Orange County clearly indicated a commitment to on-going performance
measurement and evaluation (Crotty and Orange County Board of County Commissioners,
2007). With the assistance of ICLEI (formerly International Council for Local Environmental
Initiatives), Orange County developed baseline indicators of sustainability performance. ICLEI,
now known as Local Governments for Sustainability, is an international non-profit organization
dedicated to promoting sustainability at the local level. The ICLEI is headquartered in Germany
with U.S. offices in Boston and Washington, D.C. In addition to assisting local governments
with sustainability initiatives, ICLEI also seeks to help local communities improve their disaster
risk management processes which the organization believes is a necessary prerequisite to
sustainability efforts (ICLEI, 2010). The organization strives to cost effectively advance
sustainability at the local level through information sharing and capacity building (ICLEI, 2010).
The latest performance update discusses how each of the goals outlined in the strategic
plan are progressing by indicating the current status, measurement basis, anticipated timeline for
completion, and cost estimate. Contacts for each goal are also provided to promote
accountability and transparency. In terms of reduction of greenhouse gas emissions, the 2009
performance plan indicated the county's rate of progress was slowing from the baseline year but
still appeared within reach of the 15 percent reduction goal by 2010 (Crotty and Orange County
Board of County Commissioners, 2009).
One clear shortcoming of the Orange County performance report is the lack of precision.
While the report uses easy to interpret color coded symbols (e.g., green, yellow, red) to denote
whether a goal has been achieved, is on track, or behind schedule, more detail on costs as well as
percentage of completion could be provided on certain objectives. Notwithstanding this
suggested improvement, Orange County appears to be one of the relatively few local
governments that appreciates the importance of linking performance measures to a strategic plan
(Poister & Streib, 2005).
With respect to benchmarking, Orange County is a member of the Florida Green Building
Coalition (FGBC), a non-profit 501(C)3 corporation. The FGBC provides green building training
and certifications for those working in the construction industry as well as green standards and
certifications for commercial and residential construction, land development, and local
governments. The local government green standards were developed in conjunction with the
Florida Solar Energy Center, a research institute of the University of Central Florida, as well as
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other local governments. Orange County became the first local government in Florida to achieve
the gold standard certification in 2009 (Orange County Environmental Protection, 2010; Florida
Green Building Coalition, 2010).
There are multiple opportunities to benchmark local sustainability progress. The
aforementioned ICLEI has over 1,200 city and town members worldwide and provides
informational and training resources to local governments. The International City/County
Management Association (ICMA) recently completed a survey of nearly 2,200 local
governments. In addition, ICMA Center for Performance Measurement allows members to
benchmark their sustainability performance against 200 participating communities (ICMA,
2010).
Closer to home and, perhaps, with the most promising future due to the narrower Florida
focus, the Florida Benchmarking Consortium (FBC) offers a unique opportunity to Orange
County government. FBC consists of approximately 50 local governments in Florida and collects
and shares metrics across 14 different service areas with over 300 performance measures. One of
the service areas is environmental management and it currently has over 90 related performance
measures (Martin & Mikovsky, 2009). While FBC is a relatively young organization,
participation is voluntary, and there is plenty of room for growth in membership, FBC has the
distinct advantage of being a source of benchmarking indicators that are, arguably, most
comparable to Orange County since "local governments are creatures of their respective states"
(Martin & Mikovsky, 2009, p.11).
Lessons Learned
Multiple Tools
For a complex issue such as sustainability management, there are no silver bullets or one
size fits all approaches. It is not uncommon for sustainability management initiatives to
necessitate the use of multiple tools. The aforementioned OCCC solar panel project illustrates
how multiple tools such as (1) contracting (private vendor provision and installation of the solar
panels); (2) grants (intergovernmental renewable energy grant funding from the state); (3)
government corporation funding; and (4) social regulation (renewable energy credits granted to
government corporation in exchange for funding assistance) can be effectively used within a
single project. As Cohen and Eimicke suggested, finding the right combination of tools for a
given purpose may be the most important determinant of success (Cohen & Eimicke, 1998).
Evidence-based Persistence
Challenging problems are not easily solved. Sometimes tools will not work entirely as
intended and unforeseen implementation difficulties will develop or related funding may lapse. It
is always uncomfortable to recognize when we fall short of expectations, but this humility is
essential to create a culture of continuous improvement. Public managers need to not only be
persistent in pursuing their objectives, but should actively seek to learn from their experiences as
well as those of other similar entities. Implementing a performance measurement system and
practicing the art of benchmarking should go a long way in this effort. As discussed previously,
114
there is considerable opportunity for progress in this area (Poister & Streib, 2005; Willoughby &
Melkers, 2001; Cohen & Eimicke, 1998).
Leadership
Effective management of multiple tools and partnerships demands more than technical
knowledge. Competency with strategic planning, team building, negotiation, and persuasion can
be enormously helpful when working within environments that have multiple, interdependent
stakeholders. Clearly, the ability to identify, mobilize, and coordinate resources is vital. Perhaps,
equally important is developing the art of wise judgment to distinguish between when enough
has been done versus when more is needed which ultimately may serve to promote the most
effective and efficient use of scarce resources (Salamon, 2002).
Accountability
Citizen confidence and the allocation of future resources depend heavily on
accountability. Yet, the various tools of public governance frequently relinquish considerable
discretion and control to outside entities. The public manager must resist the temptation to
associate this loss of control with a lack of ownership over results or outcomes. More
decentralized structures have a greater, but also more elusive, need for accountability. With
interdependent networks, this challenge may be further complicated by the necessity for
horizontal as well as vertical accountability. Unfortunately, there are no simplistic answers here
except to suggest that an unswerving focus on measuring performance as well as a firm
commitment to transparency may help put the odds in our favor.
Conclusion
Sustainability management is well suited to the new governance approach of public
administration. The experiences of Orange County, as illustrated by the recent use of various
tools discussed in this paper, provide credence to the belief that sustainability management can
be successfully pursued with various tools of public action. Overall, Orange County has
generated a supportive strategic management capacity that encompasses all levels of an
efficacious model from the development of a strategic plan to an aligned performance
measurement system (Vinzant & Vinzant, 1996). A 2003 study indicated that Orlando, the
largest city in Orange County, Florida was among the U.S. cities not taking sustainability
seriously (Portney, 2003). While much remains to be done, Orange County, Florida, through its
creative use of multiple tools of government since adopting a strategic plan in 2007, has made
notable progress in helping the county and City of Orlando alter that perception. Given these
recent efforts, it is likely that the county and city would welcome a reassessment of their joint
commitment to local sustainability management.
115
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119
KNOWLEDGE SPILLOVER THROUGH THE USE OF LOCALIZED AND VIRTUAL
ALLIANCES AND FIRM SUCCESS
Sarit J. Levy, Ph.D.
Lecturer, Department of Marketing
University of Miami
[email protected]
Aaron D. Joyal
Ph.D. Candidate
University of Memphis
[email protected]
120
The degree of participation of local alliances defines formal and informal relationships designed
to share the knowledge base of a particular region. Local alliances have played an
unprecedented role in firm performance in the past. A firm's involvement with those alliances
can often be a measurable component to overall success (Levy, 2011). Today, the inclusion of
virtual alliances may often serve as a supplement to the facilitation of relationships and support
networks.
121
The access to relationships often serves as an entry way for new product introduction (Acs,
Audretsch, & Feldman, 1994). The knowledge spillover when engaged in a business or personal
relationship with a party in the same or similar industry can often encourage innovative activity.
This notion that a reciprocal relationship amongst alliances exists has been demonstrated
amongst firms in similar geographic locations. The localization of the relationship and the
strength of the tie is what ultimately encourages this knowledge spillover (Levy, 2011). Yet,
today the communication barrier of support networks has extended far beyond the geographically
bounded region into the virtual universe. This research embodies the significance of local
alliances on firm performance with a new perspective on the inclusion of virtual relationships in
future firm success.
The theoretical underpinning of the aforementioned research stems from the knowledge based
theory (Decarolis & Deeds, 1999). Knowledge generation is seen as source for superior
performance. Moreover, the knowledge that flows within the organization is seen as a constant
flow. In order to achieve this flow, access to knowledge generators such as; educational
institutions, research labs, suppliers, partners, and so forth must be a part of the foundation for
decision making and organizational action. These generators are seen as an entrepreneurial
support system whereby the encouragement of the relationship fosters innovative activity.
While the spatial context of the firm plays a role on corporate performance (Delios & Beamish,
1999), it is the strength of the tie (Sternberg & Litzenberger, 2004) and commonality amongst
the relationships that formulate a clustering, allowing the potential for growth of the firm. The
research within this article demonstrates the dependence on alliances in a spatially concentrated
area. However, the need for supplemental alliances and resources is demonstrated by an increase
dependency on virtual alliances.
The conceptual foundation for this research is proposed in the theoretical background of the
knowledge based theory. An internet survey assessing firm performance of senior managers and
executives in the professional business and technology service sector in South Florida serves as
the basis for determining entrepreneurial support systems, including alliances.
Herein, the hypotheses are identified:
H1: Senior management of professional business and technology service firms in the NAICS
541 category view accessibility to alliances as a prime component of a successful firm.
H2: As the number of alliances increases for professional business and technology firms in the
NAICS541 category so does the performance outcome of that firm.
The literature has argued that senior management has generally viewed alliances as a very
important contributor to success (Boasson, Boasson, MacPherson, & Shin, 2005). The
propensity to engage in alliance networks will encourage knowledge spillover, and contribute to
a business model of high performing and innovative firms.
At the descriptive level, the survey findings display a high level of importance on local alliance
building as a key to success. It is important to note that these findings relate to local alliances,
122
which is perceived as an important value for the localization of a professional business or
technology service firm. However, there is some evidence that virtual alliances also play a
contributory role. The notion that virtual alliances can be considered a proponent for local
success or virtual success of a firm is of significant value in that it can be explored further in
future research.
The mean percentage of alliances each firm in South Florida indicated they have is roughly
76.6% and of those alliances 81.7% of them are located in South Florida. This illustrates that the
majority of firms appreciate the value of strategic alliances. When the total number of firms is
examined, each firm had a mean of 8.8 alliances that they consistently network with (refer to
table one).
Q2 Firms with
Alliances
Mean
Median
Number of Cases
Don't have
alliances
Percent having
alliances
Total No. of Cases
Table 1 - Firms with Alliances
Descriptive and
Q3 Number of Alliances in
Frequencies
S. Florida
8.8
Mean
3.0
Median
Number of Cases
53
Don't have alliances
76.6%
73
Percent having alliances in
S. Florida
Total No. of Cases
Descriptive
Statistics
43%
15%
49
81.7%
30
Table two illustrates that respondents find particular alliances significant to their overall success.
It is clear that business partners are ranked the highest in terms of importance of alliance with a
percentage of importance of 93.1%. Professional associations as well as complementary
business are also highly valuable as their percentage of importance is ranked second and third
consecutively with a percentage of 86.5% and 81%.
123
Table 2 - Importance of Alliance by Type of Alliance
Important
Not Important
Q5
(Top 3 categories)
(Bottom 2 categories)
Research institutions
54.80%
46.20%
Universities & Colleges
39.10%
61.90%
Supplier Partnerships
78.80%
21.20%
Business Partners
93.10%
7.90%
Professional
86.50%
13.50%
Associations
Complementary
81.00%
19.00%
Business
Table 2 is based on a Likert type 5-point scale ranging from Not Important (1) to Very
Important (5)
In addition to determining the importance of alliances, the type of alliances was examined.
Business partners were seemingly the most important alliance in that the firms in South Florida
had over 44% of their alliances from that category. Professional associations, again was a close
second with 43.5% and complementary business at 42% (refer to table three).
Profession
al
Associatio
ns
43.5%
Complementary
Business
4.2%
Table 3 - Types of Alliances
Universities Supplier
Busine
&
Partnershi ss
Colleges
ps
Partne
rs
19.2%
33.4%
44.1%
72
73
73
72
Q4
Research
Institutio
ns
% of Firms In
Each Category
Total Number
of Cases
72
72
42.8%
One of the significant elements of the research illustrated the importance of the strength of
alliances within each category as it pertained to entrepreneurial success (refer to table four).
Although all the categories were important in terms of choosing a location for a business, access
to business partners, suppliers, and professional associations were the strongest networks that
encourage alliance building. A Kendall’s Tau-b correlation was executed to show the linkages
between the importance assigned to each category. The correlation table demonstrates the
importance placed on links between universities/colleges with research institutions, and between
business partners and complementary business (refer to table five).
124
Q5
Table 4 - Importance of Strength of alliance by Type of Alliance
Research Universities Supplier
Busine Profession
Institutio &
Partnershi ss
al
ns
Colleges
ps
Partne Associatio
rs
ns
Comple
mentar
y
Busines
s
3.5
19.0%
Mean
2.1
2.7
3.5
4.1
3.7
Not Important 46.2%
61.9%
21.2%
7.9%
13.5%
(Bottom 2
categories)
Important
54.8%
39.1%
78.8%
93.1% 86.5%
81.0%
(Top 3
categories)
Number of
21
26
33
38
37
42
Cases
Table 4 is based on a Likert type 5-point scale ranging from Not Important (1) to Very
Important (5)
Table 5 - Inter-correlations (Kendall’s Tau-b) Between the Importances of Specific Types
of Alliances
Kendall Tau-b Correlations
Q5A Q5B
Q5A Universities
1.00 .67*
Q5B Research Institutions
1.00
Q5C Business Partners
Q5D Professional Associations
Q5E Suppliers
Q5F
Q5C
-.07
.04
1.00
Q5D
.14
.12
.21
1.00
Q5E
.04
.24
.34*
.11
1.00
Q5F
.26
.36
.36*
.27
.27
1.00
* Represents correlations that are significant at the 95% level of confidence or higher
The usefulness of alliances with research institutions, universities, business partners, and so forth
is empirically confirmed in the descriptive analysis. It is clear that the tables provide strong
evidence for alliance building and clustering in the South Florida region.
The emergence of other types of alliances, such as distant alliances and virtual alliances also can
have significant impact in decision making processes within an organization. When the firm has
access to these supplemental knowledge generators, there is a reaffirmation that they are
contributory to the overall success of the firm. Although they are secondary to local factors,
firms in the sample acknowledged that they have virtual alliances and their significance. 21.1%
percent of the firms sampled indicate that they have virtual alliances (refer to table six).
125
Table 6 - Firms Having Virtual Alliances
Q6
Virtual Alliances No. of Firms
Percent with Virtual Alliances 21.1%
16
Total Cases
76
The importance of these virtual alliances among those firms that acknowledge that they have
virtual alliances also plays a role in admitting that the common practice of going to the local
supply house or neighbor for business advice has changed. While the localization of a business'
immediate economy is communal, the dialog that is now being reached virtually helps to
enhance the innovative environment through knowledge spillover. This is not to say that the
local firm will no longer be a source of stimulation for practical operations, but the ability to
access additional knowledge resources may play a deciding factor in business decisions. Table
seven illustrates that 43.8% of the firms sampled feel that their virtual alliances are of
significance to their entrepreneurial effort.
Table 7 - Importance of Virtual Alliance Among those having Virtual Alliances
Q7 If established virtual alliances, how important Virtual Alliances No. of Firms
To entrepreneurial effort?
Not at all important
6.3%
1
Somewhat Important
31.3%
5
Important
43.8%
7
Very Important
18.8%
3
The second phase of the analysis concentrates on structural equation methodologies to determine
the effects of a firm’s adoption of traditional alliances coupled with the significance of virtual
alliances as it impacts organizational performance. As previously stated, the research determines
both the accessibility to alliances and the impact of alliances on firm success.
H1: Senior management of professional business and technology service firms in the NAICS
541 category view accessibility to alliances as a prime component of a successful firm.
H2: As the number of alliances increases for professional business and technology firms in the
NAICS541 category so does the performance outcome of that firm.
A two-step approach for modeling (Anderson & Gerbing, 1988) was utilized in this procedure.
Firstly, an adequate measurement model was established and later tested for adequacy of fit
(refer to figure one).
126
Figure 1 - Measurement Model
Figure two indicates a model with path coefficients. Note that the path coefficients are not
correlation coefficients. In this case, the model demonstrates a statistically significant path
relating to the establishment of traditional alliances to business performance. As the number of
traditional alliances increase, a firm gradually increases its’ performance. The meaning of the
path coefficient (e.g., 0.803 in figure 2) is that as the number of strategic alliances is increased by
one standard deviation from its mean, business performance is expected to increase by 0.803 of
its own standard deviation from its own mean (Bullmore et al., 2000). The data was screened for
skewness, kurtosis, and possible outliers to avoid any violations of the assumptions identified.
Figure 2 - Model with Path Coefficients
Once the measurement in the model was defined, the hypotheses were then tested. When tested,
the first hypothesis test confirmed the significance of alliances has a positive impact on the
establishment of alliances. Moreover, the second test confirmed that the number of strategic
alliances is positively related to performance in firms. As discussed below, the model was
supported by various fit indices. Table eight indicates a significant relationship between
traditional alliances and virtual alliances and business performance outcomes with a t-value of
>2.00, and p<0.05.
Table 8 - Hypotheses Test Results
Standard
tTwo
Path
Coefficient
Error
Value
Tailed
127
p Value
H1: Significance of Alliances → Strategic
Alliances
H2: Strategic Alliances →
Organizational Performance
Note: df = 25
0.503
0.066
7.621
0.803
0.092
8.730
<
0.0001
<
0.0001
The analyses also provided evidence of model fit. With respect to commonly accepted fit
statistics, all are suggestive of a well-fitting model. The χ2 test for goodness of fit measures how
well our model fits our set of observations. In other words, a measure of goodness of fit
summarizes the discrepancy between the observed values and the expected values with regard to
the postulated model. Bollen and Long (1993) explain that for models with 75 to 200 cases, the
χ2 test provides for a reasonable measure of fit. The significance of the χ2 test for goodness of fit
value is determined by examining the χ2 statistic (here, χ2 = 30.779), the predetermined alpha
level of significance (α = 0.05), and the degrees of freedom of the model (here, df = 25). Given
these values (and a critical value of the χ2 statistic of 37.653) for a model with 25 degrees of
freedom (Hill & Lewicki, 2007), the null hypothesis indicating that business performance is
independent of the establishment of alliances and that neither the proximity to resources nor
organizational culture have an impact on the establishment of alliances.
Moreover, in table nine an examination of the fit model is done using the comparative fit index
(CFI). The CFI compares the fit of the model we developed to the fit of a null model, in which
the variables are assumed to be uncorrelated. With values exceeding 0.930 (Byne, 1994), it is
considered to be an acceptable fit, and the current model is deemed to be a better model than the
null. In this case, the CFI was 0.968 implying that the model fits the data collected better than
the null. This challenges the original notion that local alliances are the only acceptable form of
alliances to achieve firm performance. The CFI indicates that the presence of virtual alliances is
significant in predicting and influencing firm performance.
Lastly, the root mean square of approximation (RMSEA) and the standardized root mean square
residual (SRMR) were also examined. The RMSEA had a measurement of 0.033 indicating a
good fit, according to MacCullum, Browne, and Sugawara (1996). The SRMR also ranges from
zero to 1.0, with well fitting models attainable at 0.05 (Byrne, 1998). The aforementioned model
has a SRMR of 0.035, which again indicates a good model fit.
128
Table 9 - Model Fit Indices
Fit Statistic
Value
χ2
30.779
CFI
0.968
RMSEA
0.033
SRMR
0.035
Conclusively, the significance of alliances is a positive predictor of the establishment of alliances
and the establishment of alliances is a positive predictor of firm performance. This conclusion is
based upon the adequate fit of our model to the data and the significance of the t-Values
associated with the path coefficients demonstrated in table nine. Thus, the two hypotheses of
this study are supported and the model is valid.
Although this study was geared toward the acknowledgement of local alliances as a contributing
factor to entrepreneurial and innovative development, the research suggests that there are
different types of alliances and knowledge generators that encourage spillover. The analyses
clearly demonstrate the need for alliances in organizational decision making, and ultimately firm
performance. However, the studies’ mere glimpse into types of alliances shows the inclusion of
virtual alliances as a supplemental knowledge generator, and possible contributor to nurturing an
innovative culture within an organization.
129
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130
“LIKE” A GLOBAL ENDORSEMENT. HOW CLICKING “LIKE” INFLUENCES
FACEBOOK USERS BRAND RECALL AND FUTURE PURCHASING INTENTIONS.
Dr. Ronda Mariani
Saint Leo University
Donald R. Tapia School of Business
131
Abstract
Social media has become a global phenomenon. Facebook alone boasts over 100 billion
connections worldwide. Each day Facebook users flock to their timeline flaunting their activities,
pictures, and likes. Dye (2010) states “Facebook has already provided us with innovative
meanings for words such as “friend” and “poke.” Now, it’s aiming to put its own spin on the
word “like”. According to jeffbullas.com (2012) Facebook users contribute to 2.7 billion “likes”
every day. Many of these likes represent a personal cause, picture, or something a friend wrote.
But then there is the “like” brands desire, the endorsement, users clicking “like” broadcasting
their favorite brands among their friends. This form of marketing engagement has become a
global force which has left many marketers wondering how to measure its effectiveness. One
Nielson study found “people who viewed ads with a friend’s endorsement were 68% more likely
to remember the ad than people who viewed ads with no endorsement” (Hof, 2012). What was
even more startling was people who viewed ads with their friends endorsements, “where more
than four times likely to develop the intent to purchase the product sometime in the future” (Hof,
2012). Burson-Marsteller (2012) found “the largest global companies were mentioned on
Facebook a total of $10,400,132 times in one month. With the average Facebook user having at
least 130 friends on their friends list, this type of reach is profound. Traditional forms of
marketing reaches a limited amount of individuals and is even more limited when it comes to
global brands outside the individual’s domain. The purpose of this study is to conduct a
quantitative survey among Facebook users to explore and analyze the impact of friends clicking
“like”. This study will test brand recall and the impact a friend’s endorsement, “like” has on
future purchasing decisions of global brands.
132
INDUSTRY AND FIRM INFLUENCES ON PERFORMANCE:
EVIDENCE FROM POLISH PUBLIC FIRMS
Zbigniew Matyjas, Phd
Assistant Professor of Strategic Management
University of Lodz, Poland
[email protected]
133
Abstract: This study examines the influence of industry and firm effects on performance of
Polish listed companies. The study uses data on 387 companies listed on the Warsaw Stock
Exchange in the period 2007-2010 (companies from financial and commercial industries were
excluded). Each of the companies has also been classified into a specific industry according to
the Polish PKD classification (similar to NACE Rev.2). The study employed panel data analysis
with the use of the financial data of industries and Polish listed companies. The results of this
research shows that industry effects have non-significant influence on companies performance
while one of the used models (with ROA as a dependent variable) showed significant influence
of company effects.
Keywords: industry effect; company effect; company performance; Poland.
JEL classification: C22; D21; L21.
134
INTRODUCTION
Strategic management has been based on some basic assumptions that in a smart way
explain the scale and complexity of the problems affecting today’s companies. However, for
some of these assumptions there are some difficulties with finding empirical confirmation. One
of such assumptions is the importance of the industry factors for strategic decisions making, as
well as companies performance. Strategy textbooks usually do not devote attention to this
subject, occasionally you can see the importance of this issue in the extensions of the chapters
(Grant, 2005).
Meanwhile, there has been a mayor discuss on the empirical confirmation of the industry
impact for the last 30 years. Many research articles addressed this issue but the results are
usually significantly differentiated. Most of the research was based on the results of U.S.
companies, some related to the example of other mature economies (e.g. the UK, Japan). There
is, in principle, lack of research confirming the importance of industrial factors on the
performance of companies on the example of the emerging economies, particularly in Central
and Eastern Europe.
Hence, the purpose of this study is to examine the impact of the firm and industry effects on
the performance of Polish companies (listed on the Warsaw Stock Exchange). Given the
significant differences in the development of the Polish capital market, you can also expect
differences in the results of the proposed research. To the indicated differences between the
markets (and companies) we can include, for example: a much greater level of concentration of
ownership in the case of Polish companies in comparison to mature markets (Jeżak, 2010b), a
two-tier board model as the only one in Poland to the dominant one-tier board model (Jeżak,
2010a), or the gender differences in the composition of management and supervisory boards
(Bohdanowicz, 2012).
LITERATURE REVIEW
The first study to analyze the impact of firm- and industry factors on companies
performance was conducted by Schmalensee (1985). The sample was the population of U.S.
industrial companies, the reference year was 1975. The results strongly influenced future debate
within this issue – it turned out that industry effects explained over 20% of the performance of
examined companies compared to just less than 1% of firm effects. In Schmalensee’s opinion
“the apparent nonexistence of firm effects is somewhat surprising. […] The absence of firm
effects […] means that knowing a firm’s profitability in market A tells nothing about its likely
profitability in randomly selected market B. This is consistent with the conglomerate bust of the
past decade […]: wise firms do not diversify beyond their demonstrated spheres of competence”
(Schmalensee, 1985).
Schmalensee’s research caused a mayor impact in industrial organization and strategic
management research. The first response was prepared by Rumelt (1991). In his research the
time frame was a bit longer (4 years), with the same sample. The results showed by Rumelt were
135
almost completely inverse – this time firm effects were extremely important (explained almost
44% of the total performance of examined companies), with industrial effects responsible for just
4% of it.
Such a large discrepancy between these two articles caused an ongoing debate among
researchers within industrial organization and strategic management areas. Rumelt’s research
took into account a longer time horizon, allowing to average the results - any deviation from the
long-term annual average was much less important for the final result. But the question how
much industry-level effects are influencing firms’ performance remained open. These early years
of research were in fact summarized by McGahan and Porter (1997) – on the basis of their
research they stated that both firm (32%) and industry (19%) effects are important for companies
performance. This time the time period was much longer (covered the years 1981-1994), the
sample was much larger (covered all but financial industries).
The above results of early studies were just a prelude to a huge body of research within this
area for the next 15 years. For over a decade there has been conducted many research articles
which results are summarized in table 1.
Based on the data contained in the table we can see significantly increased interest in the
problem of the industry (and firm) effects on companies performance. The samples were larger,
time horizons longer than in the previous research, moreover some samples took into
consideration data from SME’s (small and medium-sized companies) beside public companies.
Table 1. Summary of the results of previous research
Author
Mauri and
Michaels
(1998)
Chang and
Singh (2000)
Sakakibara
(2002)
Ruefli and
Wiggins
(2003)
Hawawini et
al. (2003)
McNamara et
al. (2005)
Short et al.
(2007)
Lee (2009)
Method
VCA (1988-92)
VCA (1978-92)
VCA (entire sample)
VCA (small firms)
VCA (medium firms)
VCA (large firms)
Cox maximumlikelihood proportional
hazard
OLS
VCA
ANOVA
VCA
VCA
ANOVA
HLM
OLS
Sample/
country
Time
horizon
Industry
Effect
Firm
Effect
264
(USA)
19781992
6,2%
5,8%
36,9%
25,4%
709
(USA)
19811989
7,3%
4,0%
40,6%
19,3%
47,2%
44,2%
8,8%
47,6%
312
(Japan)
19691992
1797
(USA)
19841996
0,14%
12,33%
562
(USA)
2686
(USA)
19871996
19871996
8,1%
16,0%
35,8%
16,7%
9,1%
43,8%
1165
19911997
7158
1987-
19,3%
16,9%
19,2%
10,0%
65,8%
71,8%
65,8%
10,0%
136
Bamiatzi and
Hall (2009)
Entire sample (SIC4)
Micro firms (SIC4)
SMEs (SIC4)
Large firms (SIC4)
(USA)
2006
71 750
(UK)
20022004
9,2%
10,2%
1,8%
1,8%
28,3%
28,2%
10,3%
21,2%
The above mentioned key research results allow to draw some general conclusions:
- generally the initially assumed (both in strategic management and industrial organization)
impact of industry effects on performance of companies can be confirmed in research, although
it’s not as large as it was assumed;
- as in the early studies, the results of the recent ones indicate a large spread of the results.
Industry effects range from 0.14% (almost complete lack of effect) to 40.6% (a very large
effect). This implies the need for further research in this area;
- it should be noted that in general more important factors are firm effects – usually two to three
times larger influence. However, it is also possible for most of the research to overlook the
impact of intra industrial level – the level of strategic groups. The inclusion of this level in the
studies could reduce the role of firm effects.
DATA AND METHODS
The primary objective of the study is to verify the impact of industry and firm effects on
performance of listed Polish companies. Data for this study were gathered from all Polish public
companies whose values were listed at the end of the years 2007- 2010 on the Warsaw Stock
Exchange. Each company selected for the study was also classified into a specific industry
according to Polish PKD classification (analogous to NACE Rev. 2). Financial and commercial
companies were excluded from the data due to preliminary assumptions of the study. Data were
collected from the Amadeus database (companies listed on the Stock Exchange), a PONT-info
database (industrial data), as well as the consolidated annual reports or reports of individual
companies, if the company did not prepare consolidated reports (both of them were handcollected).
Given the above assumptions the sample comprises 387 companies and 1208 observations.
The composition of the companies changed from year to year depending on the availability of
data. Hence the individual company may be subjected to from one to four observations. The
industrial data and assignment of companies into selected industries are presented in Table 2.
Table 2. Companies according to industries
PKD
No.
10
11
13
15
16
17
Industry
Manufacture of food products
Manufacture of beverages
Manufacture of textiles
Manufacture of leather and related products
Manufacture of wood and of products of wood and cork, except
furniture
Manufacture of paper and paper products
No. of
companies
22
2
5
2
8
5
137
18
19
20
21
22
23
24
25
26
27
28
29
31
32
33
35
36
38
41
42
43
52
55
56
58
59
60
61
62
63
68
Printing and reproduction of recorded media
Manufacture of coke and refined petroleum products
Manufacture of chemicals and chemical products
Manufacture of basic pharmaceutical products and pharmaceutical
preparations
Manufacture of rubber and plastic products
Manufacture of other non-metallic mineral products
Manufacture of basic metals
Manufacture of fabricated metal products, except machinery and
equipment
Manufacture of computer, electronic and optical products
Manufacture of electrical equipment
Manufacture of machinery and equipment n.e.c.
Manufacture of motor vehicles, trailers and semi-trailers
Manufacture of furniture
Other manufacturing
Repair and installation of machinery and equipment
Electricity, gas, steam and air conditioning supply
Water collection, treatment and supply
Waste collection, treatment and disposal activities; materials recovery
Construction of buildings
Civil engineering
Specialized construction activities
Warehousing and support activities for transportation
Accommodation
Food and beverage service activities
Publishing activities
Motion picture, video and television programme production, sound
recording
and music publishing activities
Programming and broadcasting activities
Telecommunications
Computer programming, consultancy and related activities
Information service activities
Real estate activities
TOTAL
5
3
10
5
15
13
6
21
9
6
17
4
3
3
5
12
2
4
35
15
16
7
2
8
10
6
3
20
44
12
22
387
VARIABLES
The analyzed variables were divided into three basic groups: characterizing the profitability
of individual companies (thus representing firm effects), the profitability of the industry
(industry effects) and the control variables describing the size of the companies. List of all
analyzed variables can be found in table 3.
138
Table 3. Variables used in research
Acronym
Description of the variable
ROA – firm level
Return on assets – firm level
ROS – firm level
Return on sales – firm level
ROA – industry level
Return on assets – industry level
ROS – industry level
Return on sales – industry level
Revenues (log)
Overall revenues – firm level (natural logarithm)
Total assets (log)
Total assets – firm level (natural logarithm)
The list of the variables is similar to that used in previous studies, particularly in research by
Bamiatzi and Hall (2009). The decision on the use of certain variables in the study was dictated
by the availability of these variables within the research project.
METHODS
The study was conducted with the use of panel data analysis. The general panel data model
was specified as:
πit = α + pπi,t-1 β Xit + εit
for i = 1,…,N; t = 1, … , T
where πit is the dependent variable for firm i’s profit rate in period t (ROA and ROS in two
different panels), vector Xit includes independent and control variables such as: ROA and ROS
of industry and scale of firm. The error term εit may vary across the N individual firms
(individual effects) as well as across the T time periods (time effects).
Panel data analysis enables simultaneous analysis in two dimensions (temporal and spatial),
which makes possible to effectively analyze cross-sectional data. As pointed out by Lee (2009) it
offers two advantages over traditional least-squares models: allows to control for unobserved
factors (constant over time but differ from one firm to another), and allows to control for
variables that vary through times, but not across companies.
EMPIRICAL FINDINGS
DESCRIPTIVE STATISTICS
Table 4 gives the mean, standard deviation, minimum and maximum values of the variables
across all firm-years in the sample. There is a significant standard deviation within variables
ROA and ROS at the firm level (it is particularly the case with ROS variable) – it is due to a
financial performance of two small firms. All results are depicted in graph 1.
139
Table 4. Descriptive statistics
Variable
ROA – firm level
ROS – firm level
ROA – industry
level
ROS – industry
level
Revenues (log)
Total assets (log)
Mean
4.35369
5.19941
6.118493
Std. Dev.
26.59072
1619.051
3.595412
Minimum
-388.5294
-55220.00
-9.590000
Maximum
150.6329
3918.239
32.34000
Observations
1208
1208
1208
5.783212
3.523021
-12.03000
24.13000
1208
3.997107
4.116757
2.257319
2.288549
0.000000
0.000000
11.34236
10.90500
1208
1208
Table 5 gives the correlation matrix between the variables. As we can observe there is a
significant correlation between relative types of variables: ROA and ROS at firm level, ROA and
ROS at industry level, and control variables (revenues and total assets).
Table 5. Correlation matrix
ROA –
ROS –
ROA –
firm
firm
industry
1.000000
ROA – firm
0.112221*** 1.000000
ROS – firm
ROA – industry -0.007651 0.044352 1.000000
0.003940 0.026215 0.776551***
ROS – industry
Revenues (log) 0.153865*** 0.064667**
0.075285***
Total assets (log) 0.124243*** 0.041427
0.146717***
Variable
ROS –
industry
Revenues
Total
(log)
assets (log)
1.000000
1.000000
0.145312***
0.934934*** 1.000000
0.149876***
Notes: * significant at 10% ** significant at 5% *** significant at 1%
140
Graph 1. The distribution of data
REGRESSION ANALYSIS
Results of estimation are reported in table 6. Analyses were conducted separately for two
dependent variables: ROA and ROS of the firm. These two models gave different results,
particularly in terms of the significance of firm-level effects influencing firm performance. In
model 1 (ROA) there is a significant influence of the lagged profit rate (ROAi,t-1) as an important
factor influencing its performance. There is also a significant influence of the second firm-level
141
effect used within this study – ROS at the level of the firm. The results of model 1 strongly
support the thesis about the advantage of firm-level effects over industry-level effects.
Results for model 2 doesn’t show any significant influence, both at the company, as well as
on the industry level, on firm performance. The only significant variable is a control one
(revenues calculated as natural logarithm). But the adjusted R2 statistics indicate that this model
accounts for less than 1% of the overall variance of the dependent variable.
The results of these study are somewhat consistent with an earlier results obtained in the
research conducted by Matyjas (2011) on the sample of 85 Polish public companies for the years
2005-2007.
Table 6. OLS regression results
ROA – firm level (t-1)
ROA – firm level
ROS – firm level (t-1)
Model 1
Model 2
ROA – firm level
ROS – firm level
0.299175
***
-
(11.90120)
-
-
5.310779
-
(1.552311)
-
-0.007222
-
(-0.209117)
**
-
(2.295157)
-
-0.212950
45.96916
(-0.524315)
(1.274500)
0.333530
-23.34856
(0.929721)
(-0.733731)
1.131654
181.4452**
(1.116383)
(2.055591)
-0.280116
-139.0507
(-0.281674)
(-1.599789)
-3.450780
-359.5576*
(-1.516869)
(-1.787077)
0.170802
0.008046
Observations
842
839
Log likelihood
-3778.579
-7521.904
F-Statistics
29.87216
2.132885
ROS – firm level
ROA – industry level
ROS – industry level
Firm size – revenues (log)
Firm size – total assets (log)
Constant
2
Adjusted R
0.000901
142
Notes: t-statistics are in parentheses. * significant at 10% ** significant at 5% *** significant at
1%
CONCLUSIONS
To sum up the above studies conducted with regard of the current state of knowledge it
should be noted that the great interest of researchers in the world taking up the issue of industry
effects on companies performance is not a coincidence. Theoretically the level of an industry has
a strong influence on strategic decision-making in every company – that’s one of the key
principles of strategic management.
Further research in this area seems to be appropriate, with particular emphasis on Polish
(and other Central and Eastern Europe markets) specificity. The development of emerging
economies often took place in a completely different way from established routines of many
developed economies. And it can also affect the results of similar studies. Further studies in this
area should take into account somewhat broader spectrum of the analyzed variables, particularly
at the level of individual companies (for example, expenditure on R & D, capital expenditures, or
advertising expenditures).
In addition, further studies should benefit from a comparison of the simultaneously
conducted quantitative tools (e.g. nonparametric methods or variance components analysis). This
would increase the accuracy of the conclusions based on the results of similar studies with
simultaneous use of several statistical tools.
ACKNOWLEDGEMENTS
This work was supported by a grant from the National Science Centre in Poland (No. N N115
401440)
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144
THE IMPACT AND IMPLEMENTATION OF E-COMMERCE IN GOVERNMENT & LAW
ENFORCEMENT
Phillip Neely, Ph.D.
Adjunct Professor of Criminal Justice
Saint Leo University
[email protected]
145
ABSTRACT
This paper examines the success and restraints in implementing a fully integrated government
through the usage of the Internet and various technologies in law enforcement. Information
technology has become a key element in the success of e-commerce and has brought many new
developments into the idea of an Internet government. This research is designed to evaluate
various components of a citizen-oriented government that will present services that mimic
private sector programs while maintaining the traditional scope of what government provides for
citizens. Research into e-government is moderately new; however, research has illustrated
various access and skill divides that will help assist law enforcement & public administrators
when shifting towards an Internet based government. Using data from various scholars and egovernment enthusiast, the comparison between e-commerce and e-government will illustrate the
correlation between services that are geared towards customers and their success.
Keywords: E-Commerce, E-Government, Law Enforcement
INTRODUCTION
The U.S. Constitution represents an attempt to codify the social contract between the
government and its citizens in an enduring document that supports a functioning government and
society. The expansion of federal power has been by accelerating development and use of
technology. From curing disease and increasing food quality and supply, to the space shuttle and
the iPhone, technology has revolutionized how individuals live and communicate (Thompson
and Wilkinson, 2009). Governments are going on-line and using the Internet to provide public
services to its citizens (Layne and Lee, 2001). Ultimately, the Internet has the capability to
delivering the traditional model of government while also taking advantage of incorporating
services that are citizen-oriented.
The struggle between the governments-to-citizen relationships has forever been prevalent
since the establishment of the United States. The purpose for Internet government, egovernment, is to bridge the gap of communication and awareness between the citizens and the
government. Restoring a healthier balance can best be accomplished by strengthening the
146
citizens or by limiting the government. Changing technology, such as facebook, twitter, social
media, and e-advertisements, creates opportunity for citizens to speak and mobilize, even during
economic turmoil and heated political debates (Thompson and Wilkinson, 2009).
E-government is the use of technology to enhance the access to and delivery of
government services to benefit citizens, business partners and employees. It has the power to
create a new mode of public service where all public organizations deliver a modernized
integrated and seamless service for their citizens (Silcock, 2001). Daily people utilize emails and
text messages because response times are, in essence, immediate; therefore, obtaining results in a
shorter span of time. Citizens manage their personal finances through bank applications for cell
phones or through the Internet at any time of day that is convenient to them, not their bank.
People have grown accustom to having services readily available through these types of services
that are available through the Internet. Do to this modern mentality of immediate responses, egovernment can provide everything a citizen needs at the click of a finger; therefore, the ability
to fully integrate e-government is what must first be established.
Technology is not a solution in and of itself, but is a set of tools to achieve particular
goals. The aim is not to sidestep government with technology, but rather to make government’s
size and physical scope more consistent with principles of liberty while using technology to
achieve societal goals- old and new alike- more effectively (Thompson and Wilkinson, 2009).
CONTEXT OF THE PROBLEM
The primary justification for the move toward e-government, an electronic channel of
service delivery that has proven tremendously successful in the private sector … is the belief that
it holds considerable potential for positively transforming government service delivery in a
manner that is consistent with recent market-centered theories of public sector reform.
Governments worldwide are moving toward e-government and implementing services that can
be utilized through various social media websites and agency websites. The digital divide that
exists today is between the computer literate and computer illiterate and the haves and have-nots.
(Belanger and Carter, 2009).
The lack of access to the Internet is a major element of the digital divide. Making the
Internet accessible to every square inch of the United States is a divide that can never be
147
satisfied. However, making information technology accessible in certain venues in communities
can and will allow access to all those that are able to take advantage of.
These divides can be identified as ethnicity, income, age, and education as significant forecasters
of admittance to technology (Belanger and Carter, 2009).
There are a significant amount of citizens that lack the dexterity necessary to effectively
and efficiently navigate online government sites (Belanger and Carter, 2009). Unlike the private
sector, government agencies have a charge to make their information and services available to
everyone; therefore, the digital divide has to be minimized in order to maintain transparency
amongst those who are being governed.
Accountability plays a very important role in the implementation of e-government.
Government accountability equates government openness, transparency, and interactivity. Wong
and Welch suggest that transparency refers to the extent to which an organization reveals work
and decision processes and procedures.
Website transparency is equivalent to a basic map of an organization as it reveals the depth of
access it allows, the depths of knowledge about processes it is willing to reveal, and the level of
attention to citizen response it provides. Interactivity refers to the relation between government
and citizen (Wong and Welch, 2004).
A transparent government allows citizens to monitor the performance of public
organizations more easily though the increase in the availability of information. A more
interactive public organization enhances accountability by being more responsive to the
preferences of the citizenry (Wong and Welch, 2004). The amount and caliber of information
that is accessible on the websites gives citizens the impression that the agencies are providing all
information necessary to maintain transparency.
STATEMENT OF PROBLEM
Governance is moving from traditional methods of tangible communication to
technology, which has become “one of the core elements of managerial reform” (Moon, 2002).
With this new technology implemented into the way that citizens are governed, come many
challenges such as accessibility, accountability, restraints, and whether the services will promote
and increase citizen participation. Individuals are hesitant to trust information technology
because of the many negative connotations that come along with Internet services: stolen
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identity, credit card fraud, non-secure sites, etc. E-government, though in its current
developmental stage, will provide general information for government agencies, local, state, and
federal, policy updates and regulations, online voting, online voter’s registration, and other
services. The availability of information and services that can be obtained through the Internet
and its accessibility to the citizens are key components to the citizen-to-government relationship.
Movements towards government agencies on the Internet through facebook, twitter, and other
social media’s have already begun to be implemented and accessed. Moving towards the fully
integrate and interactive websites is the e-government administrative goal.
SIGNIFICANCE OF THE STUDY
The significance of this study is to illustrate how dramatic changes in technology over the
past few centuries have affected the strain that the Framers built into our system. There has
always been a functional limit on democratic government because it is difficult to muster the
resources for a full referendum whenever an issue needs to be decided. Nonetheless, the Internet
allows and provides a venue for citizens to have a collective voice that can be heard at
unimaginable levels that have not been seen before (Thompson and Wilkinson, 2009).
Technologies can go further to transform both the delivery of services and the more efficient and
transparent regulation of market participants (Thompson and Wilkinson, 2009).
There is a genuine concern among policy makers that developing electronic service
delivery and communications will lead to already excluded groups becoming, if anything, further
disadvantaged. Disadvantaged citizens are those of lower income and those that live in
communities with limited Internet access. There are innovative possibilities for ensuring better
access to those said disadvantaged groups (Silcock, 2001). In addition to social disadvantaged,
the digital divide is not so much a question of access but of education.
You can put computers in libraries or community centers, but they cannot be utilized if
individuals do not know how to use them (Silcock, 2001). In order for e-government to be
successful, all disadvantage groups must be satisfied.
Technology is democratically neutral. Used wrongly, it could stifle diversity or reinforce
current patterns of power and debate; used well, it could create new ways for people to interact,
particularly at the global and local level (Silcock, 2001). Just as citizens have matriculated from
simply searching information on the internet to purchasing items; soon, citizens will move from
simply searching information on government agencies to expecting to be able to cast online votes
(Silcock, 2001).
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In addition, the major goal for government is to gain more participation with the citizens
and constituents to better service the nation. Unlike traditional structures, which are hierarchical,
linear, and one-way, Internet delivery systems are nonhierarchical, nonlinear, two-way, and
available 24 hours a day, seven days a week. The nonhierarchical character of Internet delivery
frees citizens to seek information at their own convenience, not just when a government office is
open (West, 2004). By allowing this type of access to information, citizens will be more incline
to interact with these government sites at their leisure. Moreover, this study will examine the
new technologies and how they enhance communication by overcoming geographical distance,
promoting ideological variety, opening citizens to more diverse viewpoints, and encouraging
deliberation (West, 2004)
Literature Review
There have been many challenges as to why the traditional model of government is
shifting to e-government. Traditional governments are departmentalized and emphasize
routinization (Ho, 2002). This form of government is centralized with a hierarchy of power
placed in the office of fiscal affairs, mayor’s office, and city council. Through traditional
government, backroom meetings take place in order to determine what is best for the citizens.
The ideas and pleas from the citizens are barely heard simply because there is no power in the
citizen’s voice. However, all is not lost in traditional government. Two advantages of traditional
government are that the cost of communication is reduced drastically because all communication
is departmentalized and all procedures are routine.
Many times citizens complain about the long waits in line at the county court house or
county tax office and this is due to the routine procedures of checks and balances. The fact that
one form had to go through four different offices before returning to the citizen was quite
extensive; however, those checks and balances insured that the form was filed correctly. The
problem with this process is that fraud, human error, and other acts of negligence would occur,
resulting in paperwork being filed incorrectly and ruining the government-to-citizen relationship.
Attending council meetings, hand-writing feedback, and responding to surveys are all deterrents
to citizen participation.
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The revamping of the government is an effort to re-establish the government-to-citizen
bond. Governments have to consider citizens as customers and try to understand what they need
in order to better participate and trust the government. Governments have to think about ways to
empower the citizens and allow them to take ownership of community and regional problems.
Citizens seem to think that only people in that area can actually facilitate the needs of that
community; therefore, by giving those citizens ownership of that problem and giving feedback
and suggestions to the government will allow citizens to view the government-to-citizen bond as
a partnership.
Technology has forever altered the structure of daily activities; constantly revitalizing the
way businesses, social media, and governments handle daily activities. Appealing to the modern,
technology sound person has become the main purpose for government agencies. Five years ago,
touch screen cell phones were hardly tangible articles; today, it is unheard of a flip phone or a
non-touch screen phone. Social media sites such as facebook, twitter, and other sites, allow
individuals to maintain and remain in contact with friends and family, all at the touch of a button.
Emails have almost become a thing of the past since text messages and various instant messaging
programs have become such popular means of communication. Everything is at the click of a
button, swipe of a bank card, or tip of the finger, technology continues to revolutionize how
individuals live and communicate.
Governments, state, local, and federal, have grown to realize the shift in which the world
is turning towards. Since the changes and advancements of technology, governments are shifting
towards services that are available and accessible through the same media programs that
individuals are custom to utilizing during their daily routines. Ultimately, the internet or World
Wide Web has allotted the possibility for these services to be available. Nonetheless, the
problems with these technological advancements are the social and technological disconnects
between generations and ongoing struggle with citizen-to-government relations.
The purpose for integrating technology into the disbursement of government information
and services is to create a link between the citizens and the government to establish a better
relationship and connection. Restoring a healthier balance can best be accomplished by
strengthening the citizens confidence and illustrating government transparency through medias
that are frequently utilized; facebook, twitter, social media, and e-advertisements, etc. By
utilizing these medias, the government is ultimately mobilizing its information and accessibility
through the information highway. Currently, President Obama has a twitter account, and though
he personally does not update his account, he is utilizing that particular social media to present
information to the public in an effort to keep them informed. E-government will not decrease the
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amount of information or news presented on television or radio; it simply presents information to
the citizens who are constantly on-the-go. The purpose for integrating the internet is not to
diminish traditional means of obtaining information, rather, to increase the outlets for maximum
delivery.
Before the Internet emerged in the late 1980’s, the government was already actively
pursuing information technology to improve operating efficiency and to enhance internal
communication (Ho, 2002). After the internet evolved and the World Wide Web was developed,
internal communication was not longer the goal and the shift to external dissemination of
information became the goal. By allowing the shift to give access to fiscal information, missions
and updates on current programs and projects, and contact information to citizens, governments
began to realize that internet government was the shift in citizen relations they had been waiting
for.
The availability and rise of e-commerce also contributed to the shift to internet
government. Companies began to allow customers to conduct business through the internet by
making payments, money transfers, account management, and provided access to purchasing
merchandise. The rise and establishment of e-commerce shifted how citizens viewed shopping
and fiscal management. No longer did citizens have to physically go to stores during holiday
seasons and fight the crowd, rather, sit in the comfort of their own homes and purchase items
through secure payment sites that protected their identity, privacy, and fiscal information. Instead
of going to the bank and transferring funds to different accounts; customers can go the banks
website, sign in with a unique username and pass code, and electronically transfer funds. It was
e-commerce that illustrated to the government that in order to increase in value, citizens must
increase in worth. As they say in sales, the customer is always right.
The modern government has transitioned from a period of being active and having the
mentality that only the people can help the people, to currently being in an activated period
where the government is intertwined with its citizens. Governmental information and
transparency has been a progression with the citizens. In the modern government model, citizens
are empowered and governments are negotiators (Bannister & Wilson, 2011). The key
component to a well working government-to-citizen relationship is the way information is
delivered.
One of the purposes for e-government is to establish a two way interaction between
citizens and government agency. The problem with this relationship is that governments have a
plethora of department and agencies within, which illuminates the complexity of government
structure within itself. In Rachel Silcocks article, “What is e-Government,” she suggests that
there are six stages that government agencies will have to pass as electronics develop internally
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and externally. Information publishing/dissemination is the first stage in which government
departments and agencies set-up their websites with their designated information services and
contacts.
This is considered one way communication because there is no interaction with the citizen. One way communication is just like the billboards that line the interstate; not interactive, simply
informative.
After one-way communication is established, two-way transactions, which allow citizens
to submit personal data, such as, change of address, paying a parking ticket, or enrolling in
school. At this stage of e-government, citizens have to be reassured that the information that is
being inputted will remain safe and private. With so many Internet hackers roaming around the
World Wide Web, providing private information such as birth dates and maiden names has
caused citizens to be hesitant. In order for two-way communication to work, government
departments and agencies have to keep the site piracy free. In this stage, citizens are looking for
accountability.
Governments cannot assume that all because technology is increasing, that citizens want
to use or have government services through the Internet. This is the main restraint that prohibits
e-government from being utilized as projected. Though the Internet accounts for the majority of
the “e” in e-government, the proper channels have to be met in order for maximum access and
utilization. The gap between fully integrated systems and the perception of fully integrated
systems is what keeps citizens hesitant. Silcock states that citizens are looking for electronic selfservices that offer all the traditional procedures for service from an employee and be fully
automated from intake to uptake (Silcock, 2001). Meaning, citizens do not want to file
electronically and then have to physically file the same papers again. Citizens need to be assured
that e-government is truly a reality.
The skill divide is when citizens lack the knowledge and ability to successfully navigate a
computer and/or internet services. This is called technical incompetence because a person lacks
the general technique and knowledge of how to use a mouse, keyboard, or navigate basic
functions. Secondly, citizens that lack basic knowledge of technology vocabulary and resources
are at a disadvantage. Most of these citizens that represent this divide are grandparents and
members of rural/agricultural communities. Members of these communities could utilize the
internet to project growth of crops, find new ways to manage their land, or increase productivity.
Using the internet has limitless capabilities and once the divide is decreased, e-government will
see an increase just as e-commerce has.
In addition, governments could utilize incentive programs that will encourage citizens to
utilize the internet services. Citizens will be more inclined to utilize the internet services if they
knew that there was an incentive to gain. Another avenue to gain participation from the
disadvantaged group is by having tutorials to give a step-by-step instruction on how to fully
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utilize the internet and the benefits from the services. Along with the tutorial, citizens have to be
able to navigate department and agency websites effortlessly. The biggest deterrent for citizens
when searching for information is the inability to easily navigate to the site or service that needs
to be accessed. Norris and Moon stated that in 2000, 83.6 percent of local governments had
websites, and in 2002, that number increased 4.1 percent to 87.7 (Moon &Norris, 2005). Many
times, the availability of local websites is contingent upon the population and regional size.
Data accuracy is another restraint that disables the ability to obtain accurate and efficient
information. In a 2002 survey on the age of government web sites, 68.5 percent of web sites were
three year old or less, 27.1 percent were 4 to 5 years old, and 4.4 percent were more than five
years old. In order to maintain some sense of impartiality or fairness, the gap between five years
or older and three years and younger needs to be drastically decrease. Updating websites has to
be a priority when moving towards a fully integrated government system that provides services
to the general public. In order to keep customers/citizens content with e-government,
departments and agencies will have to spend more money for IT personnel.
Information Technology plays a vital role in the implementation, sustainability, and
accountability of e-government. It is the key component that links the government-to-citizen
boundary which leads to the government’s openness and accountability. Change in the level of
website openness represents the revealed level of change in accountability of the public agency
(Welch & Wong, 2004). The ability to interact with the government allows the citizens to view
what various departments and agencies are doing. If the government limited the information, it
would show a lack of transparency and accountability.
Technology is attempting to put the individual back at the center of life, liberty, and
government (Thompson & Wilkinson, 2009). Dating back to the development of the United
States Constitution to the Supreme Court’s decision to overturn the “separate by equal” doctrine
in the Brown v Board of Education case in 1954, the citizen has always been the determinant in
what the government will stand for. The history of this nation illustrates the struggle between
government and citizen relations. Birthed into a land of slavery and inequality, to the current
President being an African American citizen, and this rebirth of citizen being a priority has again
illustrated that citizens control government.
Finally, citizens have to choose to adopt e-government and accept the shift in how
information is delivered. Do to the digital divide, it can be said that the acceptance of egovernment is going to be more prevalent in certain groups, such as, younger, better educated,
and have higher income status. Demographics such as age, education, and income help determine
the divide and illustrate how technology has influenced America. Citizens that represent the
divide as listed above are inclined to utilize e-government because they utilize e-commerce sites;
eBay, twitter, facebook, social media, online banking, and purchasing other goods. The younger
generation has embraced technology because technology assisted in the world in which they
grew up.
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Individuals, whose education and community upbringing was established on traditional
means of communication, are the same individuals that represent the digital divide and lack the
knowledge to fully accept e-government and all that it offers. Currently, administrators are
shifting from the traditional operations of physically filing, setting up appointments in books,
and typing out speeches, to moving everything to electronics. Office phones are now internet
driven and e-files are emailed across the nation. Personnel can now receive monthly checks on a
credit card instead of receiving a tangible check. All this to illustrate that the digital divide is not
what is prohibiting e-government from being fully integrated into daily lives; rather, the digital
divide lack the skills and knowledge to help fully integrate e-government.
Citizens who represent the digital divide, between the ages of 50-75, do not trust egovernment because they lack the knowledge of how e-government can increase their voice and
input in their own communities. Therefore, the quality of performance that citizens anticipate
receiving should not overshadow the ability of services that can be delivered. One thing that
most citizens have to realize is that, technology, though it appears to move very quickly, is very
slow in implementation because there has to be consideration on security, privacy, and ability.
For instance, anyone can suggest that e-government should be able to allow citizens to register to
vote, vote, and see the number of voters in their community. Though it sounds fine in nature, the
problem still exist that how a person votes is personal preference and is not public knowledge.
Also, even with unique usernames and passwords to acknowledge yourself, online voting is still
a long ways in the future. There are expectations as this that illustrate the restraints of how far egovernment can go.
Nevertheless, e-government aims to satisfy the citizens of the United States. Undeniably,
satisfaction represents the predominant concept in contemporary marketing research (Morgeson
& Mithas, 2009).Citizen satisfaction is e-governments foundation. The purpose for e-government
is to re-establish the government-to-citizen relationship; therefore, the implementation of egovernment relies heavily on the services provided and satisfaction of those services. Inevitably,
e-government cannot be an effective influence on citizen’s behavior if the citizens are not
satisfied with their services.
In addition, the view that citizens have on their local or state government and their trust
in Washington, dictates their general trust in government all together. Many times people distrust
the government because of what they have heard on the radio or television; not realizing that the
radio and television are forms of e-government. Citizens distrust the nation’s federal
government, which trickles down to distrust in state and local governments as well. Though there
is no obvious connection to e-government and Washington that can account for the distrust in
both governments, it can be said that if the perception of one is changed, the perception of both
will change as well. In other words, the perception of government holistically has to be positive
in order for e-government to work and increase citizen participation. There are many models that
scholars have used to illustrate the connection between human behavior and the acceptance of
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traditional government and internet government, and they all are surrounded by the citizen’s
perception of government and their satisfaction level.
The implementation of e-government has to be real and practical. Governance through
the internet is going to happen, internally and externally. Internal governance is going to focus
on system efficiency and security, while externally, citizens will determine if the government is
transparent and effectively presenting information and services. Internally, the power conflicts
over departmental boundaries and control of services will surface as integration progresses
(Layne & lee, 2001).
In e-government, citizens must have the option and freedom to express services and
effectiveness of sites. Layne and Lee suggest that fully integrated government sites should have
check boxes for citizens to determine whether they want other agencies to be able to view their
information or not. By putting this power in the citizen’s hand, various agencies and departments
are allowed to understand the citizen’s wants and needs. Rethinking how e-government works
and the key components of its implementation into the World Wide Web, it can be said that in
order for it to succeed, the government-to-citizen relationship has to be good, citizen input has t
be respected, and total system integrity has to be accomplished.
Methodology
The practice and implementation of e-government is moderately new and has a long
while before its adaptation to the world is fully integrated and accepted. Avenues in which
researchers have gone down to determine the best strategy for implementation has been
presented through surveys, focus groups, case studies, and simply analyzing data in reference to
governmental styles and its effectiveness. Various governmental sites began to pop up in the
early 1990’s which simple one-way information that the general public could access. Information
included contact information, general information on department, and very little access to the
inner workings of the department or agency. With technology progressively transforming and
evolving, the delivery methods and services provided have begun to shape what the modern
economy views as government.
RESEARCH QUESTION
Research Question: Will e-Government decrease or increase public interaction with local, state,
and federal governments in the United States?
Implementation of anything that is new will surely present its restraints and constraints after a
couple practice runs. Just as in sports, a basketball team can only shape its strategy based off of
the height and size of its team members; therefore, it would not be in the best interest of the team
to establish a game plan that centers on speed when the team consist of tall and bulky members.
This same strategy has been applied to e-government and the technology that surrounds the
implementation and longevity of the transforming government. Websites are the common place
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to view and obtain information dealing with local, state, and federal government; however, not
all local governments have websites dedicated to their citizens needs.
In 2004, 96.2 local governments were affianced in some sort of internet government,
providing minimum information to its citizens (Coursey and Norris, 2008). Nonetheless, this
percentage was also based off of populations of no less than 10,000, which leaves out quite a few
rural communities whose population is less than 10,000. It is suggesting that communities,
whose population is small, do not utilize the internet or need to communicate via internet
because they have a ‘family” oriented community. These types of communities suffer from the
geographic digital divide because their voices are too little to be heard. Meaning, in the hierarchy
of government, local yields to state and state yields to federal; in political terms, small cities do
not yield large voting power and luxuries are given to those who present to have power to
change.
In addition, of these local governmental Web sites, only 23 percent of the citizens
actually utilized the sites (Coursey and Norris, 2008). Researchers believe that local and state
governments have bought into the ‘field of dreams” mentality that if they build it, the citizens
will come; however, this mentality it not the one to utilize when presenting information in a
capacity that costs and its success is based off of participation. It seems as though public
administrators and the government combined have missed the point that the services and
information that is being provided has to be something that the citizens want and need. If the
demand is low, e-government officials have to recognize this demand and present something that
will encourage citizens to utilize the services.
The findings suggest that the movement of e-government not be rushed, rather, allow the
shift to progress in increments. As stated before, e-government needs to mimic the tortoise in
regard to maintaining a steady pace and making changes when it best suits the administration.
Electronic government is continuously evolving which is why it is important that
researchers continue to develop and uncover different models to analyze for implementation to
ensure that the best model is adopted. As Web sites mature, so will the technology and the ability
to fully integrate government sites. The restraints or barriers that have been discussed are not
deterrents of e-government, rather, tools to sharpen the blade of e-government so that when it has
come out of the fire, e-government will be a well practiced way of governing it citizens. The
ability to give citizens what they want will always be the demand of government; therefore, egovernment sites will continue to be tested to ensure that its citizens are obtaining the services in
the manner in which they feel is best or most convenient.
Simply providing classes illustrating the types of services that are and can be available
could assist in increasing the likelihood of a better e-government. Table one illustrates a survey
given to a diverse group to identify the demographic characteristics that differentiate users from
non-users of e-government services (Belanger and Carter, 2009).
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Table 1: Internet and Web Experience. Percentage of respondents
who…
had convenient access to the Web
96%
used the Web everyday
80%
used the Web to gather information several times a week
67%
used the Web to make a purchase never or less than once a month
61%
used the Web to gather information from the government
83%
had used the Web to complete a government transaction
66%
E-government, unlike the private sector, has a duty to ensure that citizens have full access
to information and services that is available to everyone, but because of the various restraints in
the implementation of technology, the adoption of e-government has been limited. With further
research on gaining access to the internet and decreasing the amount of computer illiterate
citizens, e-government should see an increase in services used. The internet has proven to
improve the citizen-to-business interaction by providing citizens with online payments, online
banking, e-commerce, and other various services. With the same technologies implemented by
the government, the government-to-citizen interaction will increase as well.
The digital divide accounts for many of the setbacks in regard to the implementation of egovernment; however, e-government has proven to be a hindrance of its own. Some theorist
believe that with the implementation of an internet based government, the physical size of the
administration will decrease as well. Therefore, the modern public administrator has to battle the
issue of various digital divides and current administrators that are, in essence, fighting for their
careers. Not only are current administrators thinking of their own careers, but these are the same
citizens who lack the knowledge of computer usage and capabilities. In order to alleviate this
divide, government agencies and departments need to implement continued education classes
that assist with current employees learning the internet and services that are available.
Digital Divide and E-Government Usage
ACCESS DIVIDE
SKILLS DIVIDE
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Ethnicity
Income
Computer Experience
Intention to
Use EGovernment
Education
Age
General Internet Use
Online Purchases
Gender
Online Information Search
Technology has afforded citizens the opportunity to look at government beyond the
physical structure and has begun to usher in a new era of government that can be accessed 24
hours a day and seven days a week. Once the technology has been fully integrated and has
proven to provide services that the citizens want, brand new technologies can be implemented to
continuously increase the limitless possibilities of technology and the internet. The increasing
possibilities of technology and internet, offers the ability to aggregate in a new way and take the
social contract of individual rights and the power in the citizens voice to new bounds.
Conclusion
Governments are beginning to utilize social media to begin the process of allowing
citizens to understand their office/department and provide needed information on a daily or
weekly basis. Some social media sites that are being utilized are twitter, facebook, and linkedin.
Not only are governments providing needed information on these sites but also they are slowing
shifting their way of disseminating information into an internet based method. This way of
disseminating information is very effective because citizens utilize these social medias hourly, if
not sooner.
Not only are social networks utilized but news companies have also engaged in
disseminating information through the internet because it allows companies to deliver
information in “real-time.” CNN, FOX, and other major news organizations have applications
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that can be downloaded to any smart phone, and information can either scroll on the home screen
as a marquee or text messages can be delivered to the handheld to keep the citizen informed.
These capabilities have only scratched the surface as to what technology can bring to the citizen.
The capabilities and services that can be provided for citizens are limitless, public administrators
just have to realize this potential.
The world has shifted towards the instant gratification model in regards to making
money, seeing results, marriage, and a plethora of other aspects of life, and this same instant
gratification has spread to governments and the services that they can provide. Private sectors
have solidified their ability to provide services to their customers that are customer-oriented and
have limitless availability. Services such as personal banking through banking applications,
eBay, and Amazon; customers are no allotted the privilege to deposit and transfer funds while
shopping for merchandise. Some bigger metropolitans have even begun to provide online
grocery shopping to prevent customers from standing in lines or having to go to grocery stores
early in the morning or late at night to avoid the lines and crowds. It is this type of forward
thinking that has catapulted e-commerce and the private sector into the leading organizations in
regard to online services that customers want.
If e-government was to mimic the forward thinking that the private sector has presented,
citizen’s utilization of internet government services would definitely increase. The question is
not so much if e-government will increase or decrease citizen interactions, rather, what can
citizens do to assist the government during the shift and implementation of e-government in the
United States. As stated before, the private sector has been successful simply because they have
listened, polled, and researched customer feedback and have developed services based solely off
of what those evaluations stated. The fact that the government is grossly larger than the private
sector does account for many of the drawbacks when shifting to fully integrated government
sites; however, with time, e-government will be able to develop internal programs that will
intertwine departments to assure a smoother transition to other departments that can be related.
By developing this type of program, e-government public administrators will be able to provide
departmental transparency and accountability.
In addition, e-government officials must also take into consideration the financial savings
as well as the decrease in personnel. Utilizing the internet to provide services will grossly
decrease the amount of salaries, operational costs, paper usage, office equipment, and actually
office space. Though the economy will be gaining more funds to allocate to different
departments in which would see an influx of money that can be reallocated into the economy;
however, on the backside is that unemployment would increase as well. Research suggests that
though the sheer size of government would decrease drastically, the physical government would
not totally die. There would be two forms of government: those that monitor internet services
and those that handle the physical aspect. With this new government, some positions will be
duplicated simply because administrators will not be able to handle both internet clients and
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physical clients; resulting in a system that is fully integrated with both technology and traditional
forms of governing.
Also, public administrators and other officials can research and apply for grants that can
fund programs to assist citizens that are victims of the digital divide. Most grandparents are not
able to navigate the Internet, let alone, have the knowledge or skills to use the basic operations of
a computer. These grants can provide needed assistance to citizens and illustrate how the basic
usage of computer components and after that skill mastered, usage of the internet will be taught.
Many senior citizen programs have classes that teach patrons how to use a computer; therefore,
that same system could be adopted into programs that are geared to but not limited to senior
citizens or individuals who lack the knowledge of computer usage.
AUTHOR INFORMATION
Dr. Phillip Neely is the recipient of the Doctor of Philosophy in Public Policy and
Administration from Walden University and the Masters of Science in Public Administration
from Central Michigan University. He is an adjunct Professor at Saint Leo University in Duluth,
Georgia. Dr. Neely’s expertise comes in the field of criminal justice and public policy.
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doi:10.3233/IP20110225
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Bélanger, F. (2009). The Impact of the Digital Divide On E-Government Use.
Communications Of The ACM, 52(4), 132-135.
3.
Cook, Meghan E. (2000). What Citizens Want From E-Government. October 2000
Center for Technology in Government, Pages 1-7. Retrieved from
http://netcaucus.org/books/egov2001/pdf/citizen.pdf.
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164
GLOBALIZATION AND COMPETITIVENESS: CHALLENGES OF SMALL
AND MEDIUM ENTERPRISES IN KENYA
Dr. Margaret A. Oloko
Senior Lecturer,
Jomo Kenyatta University of
Agriculture and Technology,
Department of Commerce and Economics Studies,
[email protected]
165
Abstract
Globalization, increased competitive pressure and rapid technological changes have brought the
business world to a point in history where managers are painfully aware that none of them can
succeed in a vacuum. With the onset of regional economic integration experienced the world
over, businesses today face immense pressure for survival. Thus, the small and medium
enterprise (SMEs) sector in Africa and Kenya are the hardest hit and are now experiencing new
challenges as they attempt to globalize their operations and become competitive. There were two
objectives to this study. The first objective was to determine the critical challenges facing SMEs
in Kenya and the second objective was to establish the extent to which the challenges affect
small and medium enterprises’ level of globalization and competitiveness in the global market.
The total number of SMEs in Kenya was 3127. The study focused on the 213 SMEs that were
involved in export business. Out of this, 176 SMEs responded for the study. A structured
questionnaire was used to collect data on the SMEs and analyzed using descriptive statistics
including means and standard deviation. A correlation analysis was also used to determine the
extent the challenges affected the SMEs in their attempts to become global and competitive. The
study revealed that globalization and competitiveness of the SMEs was affected greatly by the
level of competition, advancement in information and technological change, lack of a clear rules
and procedures governing business transactions and uncertainty in the market environment. The
study recommended that for the SMEs to become global and competitive, they need to put in
place the right strategies in order to embrace the changing circumstances in the world market
place.
Key Words: Globalization, Competitiveness, Competitive Advantage, Small and Medium
Enterprises
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Introduction
Globalization has led to the spread of business and cultural activities across the globe. The term
is rather confusing. Globalization is used by some to refer to the efforts of the International
Monetary Fund (IMF), the World Bank and others to create a global free market for goods and
services. However, many believe the current situation is of a fundamentally different order to
what has gone before. Craig and Douglas (1995) assert that globalization is no longer an
abstraction but a stark reality that virtually all firms, large and a small, face. The researchers
further suggest that in order for the SMEs to survive in the 21st century they must confront this
all encompassing force that pervades the global environment. In a wide range of industries from
manufacturing to food and clothing, firms face the pressures of global competition at home as
well as in international markets. Choosing not to participate in global markets is no longer an
option. Therefore, all firms must anticipate, respond and adapt to the competitive environment
the world over.
To date, globalization has largely been perceived as the preserve of large multinationals with
operations in all parts of the global market (Yip, 1995). Of key importance to all firms is the
need to remain responsive to local markets, while at the same time achieving global efficiency
through integrating and coordinating operations across world markets and allowing for the
transfer of learning from operations in one part of the world to another (Prahalad and Doz, 1987).
Scholte (2000) and Bataoel (2003) report that globalization has triggered an economic order,
describing ways in which business concepts and events are organized around the world. It thus
amounts to an effective opening up of national borders for economic activities. Pasricha (2005)
suggests that the world has become a global market place that is open to everyone. It is a state
whereby national boundaries turn totally porous with respect to the movement of goods and
services.
Statement of the Problem
With increased economic interconnection has come a deep-seated world change to the extent that
poorer nations have become even more dependent on activities of the developed nations of the
world. To this extent, there has also been a shift in power away from the nation state and towards
multinational corporations. Globalization involves the diffusion of ideas, practices and
technologies. Firestone et al. (2009) state that the Kenyan market is less saturated and as such,
offers a significant demand for more products from overseas firms, like the mitumba (second
hand) business. Given this fact, Kenya has attracted many global/international firms entering the
market with superior products, for example, clothing, cheap electronics and many other items.
When these high quality products are put to compete in the Kenyan market, they get a higher
acceptance than those from local firms. This hinders the Kenyan SMEs from competing
effectively against other players. In addition, Bokea et al. (1999) state that the infrastructure
which relates to provision of access roads, adequate power, water, sewerage and
telecommunication has been a major constraint in the development of SMEs in Kenya.
The 1999 National Baseline Survey conducted by Central Bureau of Statistics, provide the most
recent comprehensive picture of SMEs in Kenya. Research shows that majority of small and
medium enterprises in Kenya are not quite well equipped in terms of education and skills. A
study by King and McGrath (2002) suggests that those with more education and training are
more likely to be successful in the SME sector. Greenwald and Kahn (2005) suggest that that
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competitiveness of SMEs has been constrained by a range of well-known and studied factors
which include size, limited managerial capacity and their inability to obtain information about
the market. Bowen et al. (2009) conducted a study on the challenges affecting SMEs in Nairobi
and concluded that factors like competition, insecurity, debt collection, and lack of working
capital and power interruptions were the top five factors that affected buiness performance.
Despite the few studies that have been conducted on SMEs in Kenya, no study has addressed the
extent that the challenges have affected the firms in their attempt to join globalization and
become competitive in the market place. It was with this in mind that this study was conducted to
understand the extent of these challenges on SMEs in Kenya.
Objectives of the study
1. To examine the critical challenges facing SMEs in globalization and competitiveness.
2. To establish the extent to which the challenges affect SMEs in and globalization and
competitiveness.
Research Questions
1. What are the challenges facing SMEs in globalization and competitiveness?
2. What is the extent to which the challenges affect SMEs in globalization and
competitiveness?
Literature Review
Globalization
The concept of globalization now cuts across the entire spectrum of academic thinking as it is
being defined differently by different scholars. For example, Levitt’s (1983) in his seminal paper
describes globalization as a common village. Despite the fact that globalization has now been in
use for several years, its contemporary connotation is rooted in the study of international
relations (Burns and Holden, 1995; Youell, 1998). According to Bayo (2000), globalization is a
process that affects firms, industries, economies and nations. Further, Awake (2002) concurs
with Levitt (1983) and reports that globalization will heighten the level of interconnectedness
between and among nations through a systematic integration of autonomous economies into a
global system of production and distribution. Therefore, globalization refers to the shift toward a
more integrated and interdependent world economy.
SMEs in Africa
Most economies in both developed and developing countries acknowledge the role and
importance of SMEs in generating employment, stimulating growth and creating social cohesion.
Moreover, interest in SMEs also seems to have been further revived in the face of globalization,
which is increasingly becoming an influential force in world trade. Because of their flexibility
and quick adaptability to change, SMEs are viewed as instruments capable of responding to
globalization. While it is true that globalization creates opportunities for SMEs to be effectively
involved in global markets, it also poses numerous challenges and problems.
Czinkota et al. (1983) argue that SMEs are weak in Africa because of small local markets, entry
of many firms into their markets with sometimes superior products, undeveloped regional
integration and very difficult business conditions, which include cumbersome official
procedures, poor infrastructure, dubious legal systems, and unattractive tax regimes or difficult
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business conditions. That is, many firms stay small and informal and use simple technology that
does not require great use of national infrastructure. This is a fact that hinders them from
becoming competitive in the market place.
SMEs in Kenya
National Micro and Small Enterprise Baseline Survey (1999) define small and medium
enterprises to include businesses employing up to 50 employees. This definition covers a range
of establishments including informal sector which employees one or more persons and,
enterprises in the formal sector employing up to 50 employees. Kenya has a developing
economy, agriculture being the chief economic activity. Most people in Kenya work in
agricultural sector. Some practice subsistence farming while a very small number practice largescale farming. For those who practice small scale farming, their source of income is mainly from
the sale of the farm produce. Some are in small businesses like selling of agricultural goods in
market places while others trade in livestock and selling of milk while others are involved in
petty trade and other wares. The Jua Kali (term referring to the hot sun) sector, is comprised of
low scale artisans who mostly apply appropriate intermediate technology. This sector, given all
conditions for growth can bring about industrial revolution in Kenya. For example, most SMEs
are slowly and steadily moving towards embracing the technology evidenced everywhere in the
major Kenyan towns with the rate at which cyber café and other information and communication
technology businesses are coming up. The SME sector employs close to 80 per cent of Kenya’s
total workforce and contributes about 20 per cent to the gross domestic product, according to the
Kenya National Bureau of Statistics (2010). The survey reveals that sale of goods and services in
neighbouring Uganda and Tanzania is the top most driver of revenue growth for Kenya’s
economy.
Globalization and Competitiveness
According to Samuelson and Nordhaus (2001) competitiveness refers to the extent to which a
nation’s goods can compete in the market place, which largely depends on the relative prices and
quality of domestic vis-a-vis foreign goods and services. That is, a firm’s products and services
must have an edge over other competitors for continued survival in the marketplace. Today,
globalization has increased competitive pressures on all firms. Together with rapid technological
change, globalization has altered the environment in which firms operate. While globalization
offers unprecedented opportunities for firms to act successfully, it simultaneously heightens the
risks for firms lagging behind. Thus, in an open and liberalized world, increasing firm
competitiveness has become a major challenge to the SMEs.
On the other hand, competitiveness has become a central concern in an increasingly open and
integrated global economy. Porter (1990) defines the concept as firm’s ability to attract and
maintain activity which increases the prospects for achieving a competitive edge. Krugman
(1994) refers to competitiveness as a complex, multidimensional and multilevel concept while
scholars like Greenwald and Kahn (2005) agree that competitiveness can refer to the ability of
firms to compete for markets, resources and revenues.
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Challenges of Globalization
According to OECD (1997) the process of globalization has presented new opportunities for
those enterprises most able to respond flexibly and adaptively to rapidly changing regional and
global markets but, it has also presented new challenges. It presents large and small firms with a
number of challenges which may influence their competitive advantage in a global market. This
is likely to determine how readily the SMEs can achieve economies of scale and scope as well as
realize synergies from operation in an ever changing environment. It is generally recognized that
SMEs face unique challenges, which affect their growth and profitability and hence, diminish
their ability to contribute effectively to participate in globalization and competitiveness. There
are many problems inherent in SME operations in Africa and Kenya. Some of the challenges
include;
Market Liberalization and Competition
According to Adrien (2005) liberalization of markets is influenced by globalization, which is the
free flow of factors of production across borders. Globalization is today forcing companies to
compete at global standards of efficiency, productivity and quality. With its advent, most
markets are now open to free trade thereby increasing competition in each market making it
almost impossible for SMEs from the less developed countries like Kenya to survive the stiff
competition. As markets open up and become more integrated, the pace of change accelerates,
technology shrinks distances between markets and reduces the scale advantages of large firms
making all markets accessible, thus creating new sources of competition. It has generally been
noted that, through cross-border trade and investment, Kenyan consumers have been buying
more foreign goods and most local traders have found themselves selling goods from other
countries. Their local markets have been invaded with secondhand and cheaper products,
especially textiles and clothing, electronics among others particularly from South East Asia,
China and the Western countries. To this extent, small scale enterprises have been even more
vulnerable than larger enterprises from the effects of liberalization, globalization and
competition.
Advancement in Information Technological Change
Globalization has come with advancement in information technology which has resulted in the
opening and exposure of the people of the world to more fronts than ever before. According to
Levitt (1983), a powerful force drives the world toward a converging commonality and that force
is technology. It has facilitated communication, transport and travel. Almost everyone
everywhere wants all the things they have heard about, seen, or experienced via the new
technologies. Change of technology has posed a great challenge to small and medium
enterprises. Since the mid-1990s there has been a growing concern about the impact of
technological change on the work of SMEs. Even with change in technology, many small
businesses appear to be unfamiliar with new technologies particularly those in the less developed
countries. On the contrary, foreign firms still remain in the forefront in accessing the new
technologies.
Market Environment
Globalization has dramatically changed the business landscape facing both large and small firms
throughout the world. In addition, the impact of industrial activity on the environment has also
170
heightened, adding to the complexity of doing business in today's world. The basic competitive
challenge to SMEs in the emerging global environment is how to participate in global markets in
a way that leads to sustained profitability. The emerging global environment is changing in
fundamental ways including the very nature of exports. The world market place today is faced
with market liberalization, accelerating technological change, more intense and diversified
market demands, increasing mobility of capital all leading to a more complex and demanding
competitive environment at home and abroad. Ohmae (1995) and Drezner (1998) assume that
globalization has dissolved borders and rendering the nation-state and traditional concepts of
sovereignty irrelevant or obsolete. Aina (1999) states that globalization is a complex process that
has created new conditions of proximity, intensity and even intimacy with what used to be a
distant faraway.
The turbulent market environment poses new challenges to managers that require different
organizational responses depending on the degree of involvement in global business particularly,
new forms of packaging, demand for recycling, more efficient use of resources, greater
responsibility for protecting the environment, as well as to educate consumers and to develop
more user friendly products are all compounding the tasks and demands placed on the SMEs.
Through globalization, companies have also faced stiffer competition from larger multinationals
hence rendering most of the local companies less competitive (Porter, 2008). Wanjohi and
Mugure (2008) also indicate that business environment is among the key factors that affect the
growth of SMEs.
Market Information
Lack of sufficient market information poses a great challenge to small enterprises. Despite the
vast amount of trade-related information available and the possibility of accessing national and
international databases, many small enterprises continue to rely heavily on private or even
physical contacts for market related information. According to Muteti
(2005) connecting
indigenous small enterprises with foreign investors and speeding up technological upgrading still
persists. The researcher reiterates that there is a digital divide between the rural and urban
Kenya, and with no power supply in most of the rural areas, it is next to impossible to have
Internet connectivity and access to information and networks that are core in any enterprise.
Sampling, Data Collection and Analysis
The population of SMEs was 3127. Out of this, only 213 SMEs were engaged in export and
import businesses which were the focus for the study. Data was collected from the managers or
owners of the businesses who carried out the firms’ daily activities. Questionnaires were sent out
to the 213 SMEs. And only 176 firms responded for the interviews. This represented a response
rate of 82.6% which compares well over another empirical study where the response rate was
65% (Bhunian, 1996). Data was collected through the use a semi structured questionnaire. The
questionnaire was used as a main procedure to gather accurate, less biased data and increased the
quality of data being collected (Sekaran, 2006). A pilot study on 25 firms (25 managers or
owners) was conducted to ascertain the clarity of the questions. The study employed descriptive
171
statistics, percentages and mean scores. The key challenges facing SMEs were identified and
measured using 5 point Likert scale ranging from greatest influence denoted by 5 to least
influence denoted by 1. This scale tested the extent to which the managers perceived the
challenges as being very extensive or critical on their operations. Mean scores were calculated to
determine the challenges affecting SMES and helped in identifying the factors with the highest
weights. Further, correlation analysis was used to determine the extent of challenges on SMEs’
operations in Kenya.
Results and Discussions
The study was conducted with the aim of identifying critical challenges affecting SMEs and the
extent to which the challenges mentioned affected SMEs in their attempts to globalize their
operations. A total of 176 SMEs were interviewed. They were categorized as follows; food and
beverage 41, textile and leather 58, retail and wholesale 53 and real estate 24. The results of the
study indicated that out of the 176 firms interviewed, 35 (19.9%) had been in existence for less
than 5 years, 87 (49.4% ) firms between 5 and 10 years and 54 (30.7%) firms over 10 years.
This showed that over 80% of SMEs in Kenya had been in existence for more than 5 years
experiencing the challenges from the globalized market with increased levels of competition in
their backyards.
From the findings, 78% of the SMEs reported experiencing stiff competition from firms outside
the country while only 22% SMEs reported competition from the domestic firms. This implied
that globalization of markets has increased competition for all firms in the Kenyan market and
for they need to reconsider their position in globalization.
Table 1: Challenges of globalization and Competitiveness
N
Minimum
Maximum
Mean
Std.
Deviation
Market Environment
176
1
4
2.75
.745
Poor Infrastructure
176
3
5
3.44
.602
Insufficient Market Know
176
3
5
3.88
.586
Information and Changing Technology
176
4
5
4.72
.452
Increasing Competition
176
4
5
4.84
.367
Table 1 showed the analysis of objective one using descriptive statistics. The objective focused
on establishing the critical challenges that affect SMEs in their attempt to become globalized and
competitive. The SMEs that participated in this study acknowledged that they faced various
challenges in their attempts to join globalization and be competitive. The results showed that
there were many challenges facing SMEs in Kenya. The respondents interviewed rated the
challenges in terms of the most critical to least critical. From table 1, the greatest challenges
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facing SMEs were increased competition (mean score of 4.84. This is because most markets have
opened up their borders for free trade thereby increasing entrants into the Kenyan market. This
was followed by advancement in information and technology change (mean of 4.72) and lack of
market knowledge (mean of 3.88). That is, increasing level of competition, increasing
technology, lack of market knowledge were the top three cited challenges facing SMEs in
Kenya. From the analysis, it is evident that SMEs in Kenya are facing hindrances that make them
unable to compete well with other firms in the global arena (Muteti, 2005).
The second objective was analyzed using correlation analysis to establish the extent of the
challenges on SMEs’ level of globalization and competitiveness. Pearson’s product moment
correlation r, a measure of linear association between two variables, was performed on the
variables of study where, the challenges of SMEs were the independent variable and
globalization and competitiveness was the dependent variable. Values from the Pearson product
moment correlation range from -1 and +1. Thus, a correlation coefficient of +1 indicates that two
variables are perfectly related in a positive linear sense, while, a correlation coefficient of -1
indicates that two variables are perfectly related in a negative linear sense.
The results indicated that the relationship between increasing competition and globalization and
competitiveness in the Kenyan market was r = -0.723, showing an inverse relationship between
variables. That is, it indicated a significant negative relationship between the variables. For the
other variables tested, the r values were more than negative 0.6. That is, -0.676 and -0.664; p <
0.05 for advancement in information and technology change and lack of market knowledge
respectively. This showed a moderate relationship with globalization and competitiveness. Thus,
the negative correlation indicated that as the level of challenges facing SMEs increased,
globalization and competitiveness decreased. That is, most SMEs faced with these challenges
now find it difficult to compete effectively in the market with other firms.
Conclusion
Globalization and competitiveness is highly crucial for the survival of SMEs in Kenya in order to
be at par with the rest of the firms from across the world now that the market place is open to all
players. Thus, in an increasing globalization and in the face of competition from bigger firms
with plentiful resources, the survival and growth of the SMEs hinge on the formulation of
effective competitive strategies. However, for SMEs to fully develop and use this potential, they
need to have a global look, develop strategies for success and improve ways of gathering
information about the global market to ensure their competitiveness.
173
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PARTNERING INTERNATIONALLY TO DELIVER A HYBRID MBA PROGRAM
Dr. Debra Petrizzo
Franklin University
Dr. Wendell Seaborne
Franklin University
176
Franklin University in Columbus, Ohio brought on its fourth president, Dr. David R. Decker in
August, 2007. Dr. Decker was a visionary leader that wanted to know where our student body
was then and where it will be in the future. Although that was a good question to ask, not many
in the education community had thought to ask at that point in time. What he found changed the
way Franklin thought about its business model, although we were never the university with
traditional students that many are. He found the trend to be one of older students, already
engaged in their chosen profession, with a need for a degree to compete in the marketplace. No
big surprise there. What he also found was the growth of the for-profit education sector and they
had targeted the same students as Franklin. Layer on top of that, the lower population growth and
it was soon obvious that there will not be enough students for the growing education system to
remain amply supplied as we had historically. But, Franklin had an advantage in Dr. Decker and
his having been with institutions that had students around the globe. He was not tied to the
vision that students of an English-speaking, American university must be native English
speakers, or Americans. The Association of International Educators predicts that by 2020, from a
year 2000 base, global higher education demand for seats will double to 200 million, suggesting
a growth market in international higher education (Redden, 2009). Much of this growth will be
in distance education.
So, one of his early steps was to recruit two former colleagues experienced in the recruitment of
partner universities in other countries, Drs. Klaus Heberlich and Godfrey Mendes. Their new role
was to find prospective partners in areas of the world where we could gain a steady supply of
new, qualified students and each partner could gain from the collaboration. The first partners
they found were in Poland, Slovakia, China, Viet Nam, Oman and Macedonia. Some of these
177
partners—and their governing structures politically and educationally—were easier to work with
and we found our MBA program offered in some sooner than others. The School of Banking in
Wroclaw, Poland was our first—and to date most successful—partner. (WHY were they first??
Talk about EU support) To date, we have had two cohorts, totaling 52 students, to complete the
MBA program and graduate with a third cohort of 23 students scheduled to finish in June 2013.
There is also a fourth cohort of 18 students that are about one-quarter of the way through the
program. In addition to these students, we work with the School of Banking in an advisory role
for their own polish-language MBA and our professors also have taught undergraduate courses
while in Poland.
Our additional partners include University of Economics in Bratislava (EUBA), and their
Bratislava Business School, where we have graduated a cohort of seven students with a second
cohort of ten scheduled to finish in July. They are recruiting for a third cohort now, with plans to
start in late spring 2013. Also among our partners in the Modern College of Business and
Science in Muscat, Oman, where the first cohort of 14 students just finished their final class, a
second cohort of 16 students is about one-third finished and a third cohort began in February,
2013. Our final active partner is University St. Kliment Ohridski in Prilep, Macedonia where the
first cohort of eleven students will finish in August, 2013. Our additional partners with
recruitment of student efforts going on now are Megatrend University in Belgrade, Serbia and
Vienna, Austria, and the National Mining University in Dnepropetrovsk, Ukraine. Each of these
partners has a goal of launching cohorts in 2013 as well. Our relationships mentioned earlier in
China and Viet Nam proved too difficult to arrange governmental approvals and those have
lapsed, even though we had Higher Learning Commission approvals in place.
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When our new global expansion team went out and visited with institutions, we found that a
100% online education was not approved in many parts of the world, so we had to build a new,
hybrid format for our course offerings. In each of the four partners already mentioned, we have
used this hybrid structure. Our MBA program consists of ten courses, four-credit-hours each.
And, these courses are taught by both Franklin University professors and qualified partner
university professors; specific courses depend on the location and the agreement between our
two institutions. In Poland, we teach eight courses and the local faculty teaches two, while in
both Slovakia and Macedonia, we teach seven and the local faculty teaches three and in Oman
we each teach five courses. These arrangements have all met the approval of the Higher Learning
Commission here in the USA and the various ministries of education in our partner countries, as
well as the IACBE, our accrediting body. Our initial format was five weeks in an online
environment followed by two weeks in a face-to-face environment and a final week in the online
environment for each class, with a new class starting immediately upon completion of the former
one. There have been a few exceptions in the earlier cohorts to accommodate varying national
and religious holidays. However, the second cohort in Oman wanted to change the structure to
accomplish each class in a six-week total length, so we revised our format to four weeks total in
the online environment and maintained the two weeks in the face-to-face environment. This
made a slightly heavier work load for the students and professors during each week of each class,
but the students also have a one-week break between the end of one class and the beginning of
the next. This seems to work very well for them and they have maintained this format for the
new third cohort.
Global distance learning is facilitated by the fact that many countries teach English in addition to
their own native languages, making English a de facto standard in the global distance education
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marketplace. International students not only become part of the fabric of university and
classroom life, but the curriculum incorporates global learning themes across disciplines (Rovai,
2009).In order to meet the needs of the students in this hybrid format, we had to be careful in
selecting the professors assigned to these classes. Those professors had to show proficiency in
both the online and face-to-face environments as well as a mastery of the materials covered. We
need to explain our teaching faculty; we have two full time lead faculty members assigned to the
MBA program with three courses each, an additional three full-time Franklin faculty members
assigned to one of the courses each and the Management & Marketing Department Chair/MBA
Program Chair assigned to one as well. Our lead faculty members have responsibility to oversee
their assigned courses for content and materials. They each work with a dedicated, doctoralqualified course designer faculty member—also assigned to the MBA program—to develop the
courses in their various formats. We deliver the same content to our students in each of our
formats: domestic face-to-face, domestic online and global hybrid. Beyond these
responsibilities, each lead faculty member oversees a body of adjunct faculty members that
comprise our teaching faculty. So, while our assigned fulltime faculty members do travel and
teach these courses, as well as other full time faculty members without specific responsibilities
for the MBA program, we also assign some of our adjunct teaching faculty to these global
courses. One of our full-time MBA faculty members has the responsibility to train those faculty
members that are traveling and teaching how to be successful in this effort. And, one of our
operational staff members holds cultural training with each faculty member before going. Our
future goal is to assign our teaching faculty into undergraduate, domestic graduate and global
graduate based on abilities and training.
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This two-week face-to-face assignment adds a degree of complexity to our offerings. We fly the
faculty member to the partner country through one of our internal departments and a travel
agency. When the faculty member arrives in the country, the partner institution has arranged
transportation from the airport, hotel accommodations, transportation to and from the school for
classes, and return trip to the airport. All personal activities while visiting in the country are at
the faculty members’ discretion, although if requested the partner will help arrange sightseeing
trips during the faculty members’ free time. Many persons have thought the faculty members
were “going on vacation” but those traveling retain responsibility for their other duties while
away. We each stay connected through e-mail and often by phone to be certain that everything
stays running smoothly in our other areas of responsibility. For the adjuncts traveling, this part
varies depending on their personal arrangements.
Our future goal is to have established credibility for the Franklin MBA program and gain
acceptance of online education in other parts of the world, and be able to move to a more online
environment. We know this will increase our scalability to offer our program in more places and
to more students. In fact, we are able to start this move to a future state with new agreements we
are just launching in Guatemala and Nepal. We have identified partner universities in these two
countries where we will launch a 100% online MBA later this spring. Hopefully, we will be back
to report on that program’s success in the future.
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References
Redden, E. (2009, May 29). In global recession, global ed still growing. Inside Higher Ed.
Retrieved May 29, 2009 from http://www.insidehighered.com/news/2009/05/29/
International
Rovai, A. P. (2009). The Internet and higher education: Achieving global reach. Oxford, UK:
Chandos Publishing.
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CRISIS LEADERSHIP – AN ORGANIZATIONAL OPPORTUNITY
James Prewitt DBA
Assistant Professor of Management
Saint Leo University
[email protected]
Richard Weil DBA
Assistant Professor of Management
Saint Leo University
[email protected]
Anthony McClure
Instructor in Administration of Justice
Penn State University-Beaver
[email protected]
183
Abstract
Reactive leadership and crisis management have been synonymous for years. This flows
from the belief that crisis is unpredictable and unexpected, which is simply not true. Crisis has
its genesis in the values, beliefs, culture, or behavior of an organization which become
incongruent with the milieu in which the organization operates. A leader, who is able to read the
signals of looming crisis and understands how to harness the exigency brought on by the
situation, can diminish the potential dangers and take full advantage of the resulting
opportunities.
This paper presents a generic crisis lifecycle as a representation of overall crisis. Since a
crisis can be broken down into three unique phases, crisis lifecycles can be understood and
utilized for the benefit of the organization. In the first phase of the lifecycle, the organization
finds itself mired in a static phase which equates to a comfort zone. In this first phase leaders
struggle when they attempt to introduce change or learning due to the organizations preference to
avoid conflict and maintain stasis. When a crisis engulfs an organization then the stasis that
envelops the organization evaporates and gives rise to the second phase or the disaster phase.
The disaster phase often threatens the very existence of the organization. When the organization
successfully eliminates the immediate organizational threat, the organization is able to enter the
adjustive phase of the crisis lifecycle. In this third phase, the leader has the undivided attention
of the organization and the underlying urgency to solve the issues that led to the crisis in the first
place. Regrettably, many leaders don’t take advantage of this golden opportunity and push the
organization back toward the status-quo which ensures that the crisis will return in force.
The study of crisis leadership has become more important since the dawn of the new
millennium because leaders in all areas face differing degrees of crisis in their daily work life.
This emphasis on crisis leadership has spawned many books and academic journal articles which
has resulted in a wide-ranging body of work from which we have divined the three stages of
crisis and six strategies crucial for organizational success. These strategies are illustrated with
examples of crisis leadership and how leaders saved their organization and tailored them for
long-term significance.
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Crisis Leadership - An Organizational Opportunity
This paper addresses the challenges that leaders face before, during, and after crisis by using a
generic crisis lifecycle model. Effectively dealing with a crisis is a competitive advantage, while
ineffective crisis response can place the existence of an enterprise in jeopardy. Unfortunately
many leaders that have garnered credit for leadership tools such as vision, strategic focus, and
discipline preside over undisciplined crisis responses, often at great risk to the leader’s career
and the enterprise’s future. We collectively recognize the immense significance inherent in
understanding crisis theory and the leadership strategies that can be employed in these situations.
Our hope is that this paper will improve the reader’s theoretic and practical understanding of
crisis and be of value as they prepare, lead, and adapt their organizations to face challenges and
crisis, but also grow from those same challenges and crisis.
Crisis, for the scope of this paper, is defined as an unexpected, dramatic, and unprecedented
event that forces and organization into chaos and may destroy the organization without urgent
and decisive action.
The study of crisis leadership is important today due to the unpredictability, intensity, duration,
and cost. Leaders throughout the world struggle with the challenges of crisis from the corporate
boardroom to the nonprofit board, the small businessman to the city hall. Decisive action is
demanded immediately from organizational leaders due to globalization, organizational
transparency, and technological advances. As a consequence, leaders are required to endure
intense public examination while weathering the disrupting forces of catastrophe. Leaders must
get ready for the inevitable, unforeseen, and unprecedented.
Organizational leaders at all levels will be able to exploit this paper for the benefit of their
organizations. It provides a structure to better comprehend the crisis lifecycle and institute
strategies for leaders to use as they plot a course through the crisis. The research presented
herein provides organizations and leaders with an opening point to study and refine their
leadership knowledge, skills, and abilities in preparation for the imminent crisis their
organization will inevitably face.
Crisis Lifecycle
Crisis is a worldwide reality. Crisis is simply an ineffaceable part of the human condition
(Mitroff, 2004). Thomas Kuhn (1996) described how crisis begins in his book on the scientific
revolution, The Structure of Scientific Revolution. In it Kuhn states that “existing
(organizations) have ceased to adequately meet the problems posed by an environment that they
(in part) have created…the sense of malfunction that can lead to crisis” (p. 92). The failure to
take note of the preliminary signals or tremors and recognize that our connection with the
surroundings has changed is what leads us headlong into crisis.
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Disequalibrium
(Stress or Choas)
Preparation Phase
Emergency Phase
Adaptive Phase
Time
Figure 1
Our research indicates that crisis can be defined by a generic model of a crisis lifecycle, as
represented in Figure 1 (Heifetz & Linsky, 2002). This crisis lifecycle model represents a single
event. It also needs to be understood that organizations face a repeated bombardment of
overlapping conflicts or small crises. Likewise, most crises can’t be defined by one event and
the fundamental challenge may rematerialize numerous times, overlapping its beginning and
ending phases (Pinsdorf, 2004). For the purposes of this paper and clarity, our discussion will
revolve around a single, cataclysmic crisis event that threatens an organization’s very existence.
The crisis lifecycle is defined over time and disequilibrium. The vertical axis represents
disequilibrium and it illustrates the amount of stress felt by organizational members. This axis
can further be divided into the comfort, learning, and danger zones. The comfort zone is the
status quo, where organizations and bureaucracies prefer to remain. The comfort zone is a state
of equilibrium or stagnation. Most organizations endeavor to dissipate conflict or stress in order
to preserve the status quo. Ronald Heifetz (1994) notes “there is nothing ideal or good about a
state of equilibrium…achieving adaptive change probably requires sustained periods of
disequilibrium” (p. 35). Regrettably, organization that remain locked in the comfort zone keep
their values, culture, or operating archetype static in relation to the ever-shifting environment.
Above the comfort zone is the learning zone. The learning zone is a critical area flanked by
equilibrium and danger. This zone is where a minimum amount of stress is desirable for an
organization to elicit change and it causes anxiety and conflict within the organization. It is the
conflict linked with change that facilitates an organizations growth and the size of an
organizations learning zone is directly correlated to its capacity to handle stress. Responsive and
flexible organizations have larger learning zones and are better able to handle organizational
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chaos and conflict. Organizations that are large and bureaucratic are less able to handle change;
therefore they have much smaller learning zones.
Above the learning zone is the danger zone. The line separating the learning zone and the danger
zone is represented by the amount of stress that may cause an organization to implode and
disintegrate. Crisis characteristically causes the stress level in an organization to hurdle into the
danger zone. Perhaps the most complicated and illusive key to effective leadership is creating
sufficient stress within the organization to transform it into a learning organization but not
enough stress to rocket it into the danger zone.
Leaders can change organizational stress using technical or adaptive techniques. Technical
responses provide quick solutions and harness a set of procedures toward well-understood
problems. When a leader applies technical responses to problems, organizational stress typically
abates (Heifetz, 1994). However, an adaptive solution is used when a predicament is not well
understood or there is no adequate response, expertise, or procedure. Adaptive solutions address
the fundamental issues that are creating the conflict. Heifetz explains, “adaptive solutions tend
to demand a more participative mode of operating and shift responsibility to the primary
stakeholders (and) problem solving takes place in their hearts and minds” (Heifetz, 1994, p. 121)
. Adaptive challenges compel people within the organization to face “dysfunctional habits,
values, and attitudes;” thus escalating organizational stress. In essence, crisis leadership is
recognizing that technical solutions may be essential to diminish immediate danger, but are
insufficient for long-term organizational growth; which requires innovative and adaptive
approaches (Goethals, 2004, p. 291).
The horizontal axis of the crisis lifecycle model is composed of three phases: preparation,
emergency, and adaptive. Prior to any crisis, an organization is in the preparation phase. During
this time, leaders should be cognizant of tremors or signals of misplaced values and behaviors.
Complacent organizations are ripe for crisis.
The transition point from the preparation phase to the emergency phase begins when an eruption
is followed by institutional awareness of the crisis (point A on Figure 1). Stress and
disequilibrium become unendurable and the survival of the organization is at stake. The
transition point from the emergency to adaptive phase (point B on Figure 1) is difficult to
distinguish and occurs when the pressing danger is controlled. Sadly, leaders and followers
don’t want to face these hard challenges, particularly after overcoming the immediate crisis.
They do not take into account the urgency, attention, and opportunity gained. Staying in the
learning zone after the crisis is the most complicated, least understood and largest delineator of
leaders who effectively navigate crisis.
The preparation phase
Once you understand why leaders are ineffective at adapting their organizations during the
preparation phase, then you can understand crisis. Without a crisis it is extremely difficult to
move an organization from a state of comfort to a state of growth. Change threatens stable
relationships, balance of power, standard operating procedure, and/or the current distribution of
resources (Heifetz, 1994). Even when leaders are aware of their organization’s need for change,
they struggle with the paradoxical requirement to provide direction without causing pain to the
organization (Heifetz & Linsky, 2002). Leaders must also continually balance the severe
pressure to remove stress from their organization while fighting the tendency to return to the
status quo. In order to facilitate organizational adaptation or prior to crisis, the leader must
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establish credibility and create an atmosphere that allows people to face change in relative safety.
It requires them to lead from the front.
Another way that a leader can prepare an organization for crisis is to recognize, prioritize, and
mobilize awareness for change. The leader must understand and focus on the core purpose of the
organization. This strategy is at the crux of understanding how an organization’s values are
related to a changing environment. Positive illusions, self-serving biases, and a tendency to
discount the future often prevent leaders from listening to their environment and gaining much
needed feedback. Sometimes leaders are unable to overcome the state of denial or the awareness
of indicating tremors (Bazerman & Watkins, 2004).
Organizations need a structured dialog, systematic decision analysis, and they must conduct
continuous planning in order to ensure that actions are prioritized toward the organizations longterm health. Unfortunately, leaders often tend to ignore problems and avoid making the much
needed hard choices; this is why it is important to build the team within the organization.
Leaders who construct effective teams are able to rapidly respond to crisis in an unified manner.
It is the leader that overcomes these obstacles and mobilizes resources toward learning, who may
avoid crisis altogether.
Emergency Phase
The emergency phase begins when the crisis erupts. If an organizational leader fails to examine
their fundamental assumptions of the world, connect the dots to see the big picture, or think
differently from everyone else, that leader risks experiencing devastating tragedy and crisis. The
most important factor during the emergency phase is to mitigate the threat and reduce
disequilibrium to a level where the organization and people within are at a safe level (Stern,
1999). A leader can leverage an organization’s high expectations for security as capital for
autocratic and technical solutions that will reduce the immediate stress; unfortunately, without
addressing the underlying misalignments, crisis will return to the organization. A timely
intervention is key to mitigating the immediate threat and limiting long term danger (Stern,
1999). At this time it is perfect for a leader to use quick, technical fixes to reduce organizational
stress to levels that are tolerable. The leader must, however, weigh the need for action against
the uncertainty that surrounds the event.
First impressions of the crisis are usually accompanied with limited factual information that
often misses the underlying causes. Because of this, it is advantageous to focus on the core
purpose when formulating the initial response (Mitroff, 2004). A leader must not be overcome
by the urgency of the crisis; instead the leader must step back and draw from the guiding
principles of the organization. The leader must weigh the quick decisions against the realization
that stress reduces cognitive abilities (Goethals, 2004). Even when they do not apply perfectly,
utilizing standard operating procedures may help to lower the tension due to the routine being
calming and reassuring to people within the organization (Heifetz, 1994). As information
becomes available that helps to clarify the situation, action and communication become even
more essential so the leader can tell the story to the organization and get their backing. Leaders
must explain the facts of the situation and the actions that are being taken. People begin to relax
when they see a calm, poised leader relating to their loss (Heifetz). All of these responses are
crucial to seizing the initiative during the emergency phase.
The Adaptive Phase
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The adaptive phase begins when the organization returns to a sense of stability. The leader must
take advantage of the fleeting organization mandate to address the underlying cause of the crisis
so that the event will not be repeated, even though the immediate crisis and danger is under
control. The leader has an opportunity during this phase to change and grow, develop new
procedures, alter the organizational culture, and help the organization to profit from the crisis.
Technical solutions may still be needed during this phase, but the leader must focus on
reorienting the organization to face tough choices. The adaptive phase requires a balancing act
between maintaining urgency for change while at the same time fostering a sense of safety and
security.
Crisis provides us with the ultimate signal that we have ignored, avoided, or failed to recognize
the most pressing issues of the changing environment. As situations worsen, signals and tremors
foreshadow impending disaster, giving us an opportunity to prepare for or adapt to it. Sadly,
most institutions resist the needed change and prefer to chimera of safety that is provided by the
status quo. When disaster strikes, the leader must refocus the organizations resources and
attention on survival. The leader must use this small window of opportunity to seize the
initiative. Yet when survival seems assured, leaders face a crucial choice. The leader can either
harness the urgency and attention provided by the crisis to alter the organization with the
environment or risk the return of crisis and danger.
Crisis Leadership Strategies
Our research has led us to uncover some essential strategies that a leader must apply to lead their
organization out of crisis. These strategies were identified from historical crisis situations that
have been written about in the existing body of research. Not every strategy is applicable to
every crisis situation and the strength of the strategy varies with the crisis. Similarly, these
strategies are not confined to use during a certain, prescribed phase in the crisis lifecycle model.
A strategy may fit neatly into one phase of the crisis or it may span the boundaries of several or
all phases of the crisis.
Each strategy should be viewed as another tool that the leader has in their tool kit for crisis
leadership. The strategies show that it is not important that the leader hit the nail squarely on the
head to be effective, the leader must just hit the nail head in some way to make it useful for the
organization.
Lead from the Front
“During periods of crisis, people look for a strong leader. They don’t look to committees or to
teams; they look for a confident, visibly engaged leader to pull them through” (Harvard business
essentials: Crisis management, 2004). Unfortunately, leaders that are hit by crisis often
withdraw behind the protective curtain of their peers and lawyers or blame their subordinates and
the media (Pinsdorf, 2004). Analysis of crisis situations shows how common and costly this
mistake is (Pinsdorf, 2004). The leader must be many things at many times and during a crisis,
at an irreducible minimum, the leader must be visible, poised, courageous, committed, and
attentive. If an individual’s job during a crisis is to lead, then he must assume the role and do it
well (Harvard business essentials: Crisis management, 2004). The leader must understand the
importance of people seeing him face the challenges head on, walking the walk and talking the
talk as it were (Witt, 2002). The leader must create opportunities for visibility and use the power
of his role as a leader to provide assurance, direction, and inspiration.
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Visibility & Image
Peter Arfenti conducted a study of the September 11, 2001 tragedy in New York City and this
study clearly validates the power of a visible leader (Harvard business essentials: Crisis
management, 2004). Arfenti found that “the most effective leaders during the crisis displayed
high levels of visibility” (Harvard business essentials: Crisis management, 2004, p. 87). Those
leaders understood that people needed concrete evidence that their leaders were concerned about
their distress and were working to make things better (Harvard business essentials: Crisis
management, 2004).
However, a visible leader must present the right image. “A crisis can quickly expose a leader’s
hidden strengths as well as his core weaknesses” (Klann, 2003, p. 1). Former Federal
Emergency Management Agency (FEMA) director James Lee Witt wrote that leaders who
handle crisis best are the ones that think of others before they think of themselves (Witt, 2002).
Fortunately, “crisis frequently brings out courage, honor, selflessness, loyalty” (Klann, 2003, p.
8) and many other positive behaviors in leaders. “During a crisis, a leader’s first mechanism to
contain distress must be to contain himself. If a leader remains poised and indicates through his
calm demeanor that the situation is serious but that there is no cause for panic, he reduces the
possibility of one” (Heifetz, 1994, p. 140).
Demonstrate Courage
Courage is not the absence of fear, but the ability to act in its presence (Collins, 2003). Whether
a leader is the departmental director or a corporate CEO, if the resources are being threatened, it
is imperative that he demonstrates courage and accept responsibility for dealing with the
situation (Witt, 2002). John Kennedy reminded us that courage is the willingness to speak “truth
to power.” “Demonstrating courage is one action that is indispensable if a leader expects to
mobilize people” (Bazerman & Watkins, 2004, p. 215) to prevent, mitigate, or learn from a
crisis. Many great leaders throughout history made their reputations through their courageous
actions before, during, and after crisis; often in the face of significant uncertainty and resistance
(Bazerman & Watkins). A demonstration of courage is central to crisis leadership because it
signals the leader’s “willingness to act against one’s own and other’s short-term interests to
avoid heavy long-term costs” (Bazerman & Watkins, p. 12). Additionally, it puts members on
notice of the need for action (Bazerman & Watkins).
Show Commitment
A leader must show that he is committed to see the task through to successful completion. A
leader that demonstrates the ability to accept the harsh reality brought on by the crisis, yet
continues to persevere, demonstrates a personal investment in the team and their mission.
Perseverance sends a clear message about the leader’s commitment and creates an opportunity
for the team to rally to achieve a common goal. Similarly, if a leader signals a lack of personal
investment in the team and mission, “he presents an invitation to the people who are
uncommitted” (Heifetz & Linsky, 2002, p. 51) to dismiss his perspectives and push his agenda
aside.
Maintain Perspective
Leaders must ensure they don’t lose sight of their ultimate goal. Regardless of where a leader is
in the lifecycle of a crisis, it is imperative that he maintain perspective. “Occasionally, leaders
get so caught up in the action and energy that they lose their perspective, their wisdom” (Heifetz
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& Linsky, 2002, p. 165). Franko Bernabe, CEO that successfully transformed Italy’s large
energy industrial group Eni, was very much aware of this trap (Harvard business essentials:
Crisis management, 2004). He understood that executives leading their companies through crisis
often don’t have time to think. They don’t have the time to tune-in to their organization and
environment; they only have time to react. Consequently, he walked to work every day. He said
that this gave him an extra half hour to think (Harvard business essentials: Crisis management).
Bernabe believed that the ability to step away and think clearly is “one of the most critical skills
a crisis leader must have (Harvard business essentials: Crisis management). Heifetz describes
this stepping away or need to get perspective as “getting off the dance floor and going to the
balcony” (Heifetz & Linsky, 2002, p. 51). The intended “image captures the mental activity of
stepping back in the midst of action and asking, ‘What’s really going on here?’” (Heifetz &
Linsky, p. 53).
Focus on the Core Purpose
When people understand and pursue their purpose, a purpose that puts meaning into their life,
they can weather any storm. Victor Frankel (1987) discovered this in a Nazi concentration
camp. As a trained psychologist he observed that when a person has a greater meaning for
living, they lived (Frankl, 1985). Those that had lost purpose died (Frankl). The same can be
said of organizations.
Know and Understand the Core Purpose
An organization that has a relevant, acknowledged purpose can survive even the worst crisis. On
the contrary, an organization which has no clear purpose, or a valueless purpose such as simply
raising capital – as in the Enron scandal, will eventually fail. Successful leaders know they must
understand their organization’s core purpose and then ensure that their people appreciate and
support it. Both the leader and the people of an organization must believe in something higher
than themselves. In planning for crisis, identifying the organization’s core purpose is essential
for it will provide a foundation for every action and decision.
Instill Value and Align with Reality
An organization’s purpose must align its values and its reality. If a company’s leaders or
personnel are acting contrary to the business’ core purpose, values, or environmental reality;
crisis, in some form, is sure to develop. The leader must define what the future should look like,
align structures and processes, and inspire people to make it happen despite obstacles (Mitroff,
2004). In this case, leadership is influencing the organization to face its problems (Heifetz,
1994). According to Heifetz (1994), “tackling tough problems – problems that often require an
evolution of values – is the end of leadership; getting the work done is the essence” (p. 26). The
leader must confront and close the gaps between his organization’s values, its behaviors and its
realities. This may require the organization to endure a period of significant, adaptive change.
In this situation, “it becomes critically important that the leader communicates, in every way
possible, the reason to sacrifice” (Heifetz & Linsky, 2002, p. 94). He must justify “why they
need to sustain losses and reconstruct their loyalties” (Heifetz & Linsky, p. 94). People need to
be reassured that the final results are worth it (Heifetz & Linsky).
Provide Vision and Embody Values
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Where the purpose and values are the foundation of the organization’s vision, a leader can
leverage this vision as a rallying point to provide stability to employees during a crisis. But to
make this vision truly credible, the leader must embody and be seen living the organization’s
purpose and values. Successful crisis leaders know that a purpose, value, and vision system that
have been effectively communicated so employees understand them, feel ownership of them, and
endorse them, become a powerful influencing tool during all phases of a crisis. The vision,
grounded in values, will clarify what is, and is not important to the organization. Additionally it
can serve as a compass for action, providing direction and stability to people who become
unhinged by the crisis (Klann, 2003, p. 14). A leader must also remain mindful of his
organization’s purpose and vision when overseeing the crisis planning. The vision will ensure
that crisis actions are in line with the mission, goals, and objectives of the organization (Klann).
During the crisis, a successful leader can provide stability and security as well as reduce anxiety
by consistently returning to the organization’s values and vision (Klann).
Consistently Assess and Update Purpose
A leader must periodically reassess the organization’s purpose and values to ensure they remain
relevant to the current and future environment. He should look at how well the purpose prepared
the organization to identify or avoid a crisis and if it enabled or hindered the response. Based on
the outcome of the analysis, the leader may want to realign or redefine the organization’s
purpose to make it more relevant to the environment, current and future operations, and
especially crisis (Klann, 2003, p. 63).
Build a Team
The success of any business organization hinges upon successful organizational team
building. The question is sometimes ask, why have a team? And the answer is rather simple; the
success of any organization cannot be accomplished by managers or leaders alone. To build a
successful team begins with the leader who has been placed in the position to build a bona fide,
competent, and resourceful team for the development, improvement, and the eventual fulfillment
of the desired mission of the organization (George & Jones, 2005).
Before an appointed leader can begin the team building process, the leader must first
recognize the mission of the organization and then organize the people and resources to fulfill
the mission of the organization. This idea of fulfilling a team based mission is supported upon
the notion of having a vision. A leader must first develop the vision and have that vision in place
before she can identify people, skills, and behavior needed to meet challenges of the organization
(Heller & Hindle, 1998).
Once the leader has developed the mission vision for the team concept, the process of
team building must now focus on bringing together the right people with the right skills. The
selection process of team members must be focused on four critical areas:
 Intellectual integrity
 Results
 The ability to make decisions
 The ability to think conceptually
Leaders must select team members, who are superfluous with intellectual integrity and
who are willing to confront reality at all times with total honesty. Leaders want to select team
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members who are results based oriented, i.e., not only are they willing to talk the talk, but they
are also willing to walk the talk. Results based team members are doers and they focus on
finding the right solutions. Leaders want to select team members who are not afraid to make
decisions. They cannot be afraid to make decisions that are based upon empirical evidence
whether in whole or in part.
Furthermore, a leader should select team members who are willing to step up to the plate
despite the possibility that their decision just might be wrong in spite of their best efforts.
Leaders should also select team members who have the ability to just use good old plain
common sense and wisdom. Finally leaders should select team members who have the uncanny
ability at conceptual thinking. Teams should be superfluous with conceptual thinkers who can
put the pieces of the puzzle together and figure out the right answers in timely fashion.
Once a leader has selected teams members based on the fundamental skills needed to
accomplish the task at hand, the leader is now put back under the microscope and she is now the
being assessed by her followers based on her own leadership style. You see, one of the key
ingredients a leader must possess in their attempt to build a successful team is the element of
transparency. This must be apparent from the very start of the team building process. Leadership
transparency is just not only about honesty, credibility, and integrity; it is also about interacting
with team members through straight talk, openness, and accountability. Leaders must understand
people are not willing to follow them until that indispensable element of transparency is
exhibited in her style of leadership early on the process (Klits, Mandredi, & Lorber, 2007).
Furthermore, leaders have to realize the members of the team are not willing to follow
them until they are satisfied and know that she truly care about them. In this aspect of team
building relationships, leaders must adhere to the principles of Abraham Maslow hierarchy of
needs and these needs must be incorporated into the team building process. From an
organizational perspective the hierarchy of needs reflect:
a) Physiological Needs – In bona fide organizational settings, team members
want to know that they are being adequately compensated for their
participation towards the mission of the organization. Fair and equitable
compensation is a means to buy food, clothing, and have adequate and fair
housing.
b) Safety Needs – In bon fide business organizational setting, team
members desire to know they have job security, adequate medical
benefits, and safe working conditions.
c) Belongingness Needs – In bon fide organizational settings, team
members desire to have a good relationship with each other and their
leader. They desire to be a member in good standing with a cohesive
work group, and they want to be included in organizational social
functions such as company picnics and holiday parties.
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d) Esteem Needs – In bona fide organizations, team members desire to
know that their work product may someday offer a chance for
promotions; moreover, team members desire to be readily recognized
for job performance.
e) Self-Actualization Needs – In bona fide organizational setting, team
members desire to know that they will have the opportunity to use their skills
and abilities to the fullest and they strive to be all that they can be in job
performance (Mears & Voehl, 1997).
The next important steps in the process team building process, is the leaders’
responsibility to nurture the relationships among team members and promote internal team
building. Leadership nurturing and internal team building is supported by giving team members
the required training, education and development needed so that team members can enhance their
knowledge, skills, and abilities to assist the leader in accomplishing the mission of the
organization. Astute leaders of authentic organization understand the future success of the team
hinges on how effectively each member of the team is developed. The right training, education,
and development helps the internal system thinking process whereby team members learn how
their knowledge, skills, and abilities will affect the organization in whole and part through
intellectual conceptualizing and application. Undergoing this team building process allows team
members to develop their natural talents and advance their careers. The nurturing and internal
team building process from a team perspective must be superfluous, i.e., leaders must continually
coach and motivate followers with the notion to help them find meaning in their work, and to
instill in them that their efforts do in fact matter for the good of the organization.
The external process of building a team gives team members the opportunity to view how
their mission task affects others and organizational systems outside the walls of their own
organization. Again this manner of system thinking is but one motivational factor that
encourages creative thinking among team members and generates new ways of doing things.
External team building provides opportunities to build relationships outside the parent
organization in an organized fashion, and it offers a way for teams from multi-variant
organizations to work on critical problems that can and will have long term globalize effects on
business organizations (Ponder, 2001).
Lastly, continuous successful team building still rest upon Abraham Maslow hierarchy of
needs, but of one that I would like to point out that is especially important and that is “Esteem
Needs”. To maintain the continuity of the team and its mission, recognition of team members go
a long way with stabilizing the mission of the team, and in this 21st Century the idea of using a
holistic approach in recognizing and rewarding team members will play an important part in
building and maintaining an effective team.
Continuous Planning
In addition to leadership vision and organizational mission statements, every thriving
organization succeeds by having a clear plan that allows the organization the wherewithal to
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march forward towards its goals and objectives (Lewis, Goodman, & Fandt, 2004). Therefore,
unambiguous planning leads to greater and sustained goal achievements. Peter Drucker once
said “Long range planning does not deal with future decisions, but with the future of present
decision” (Griffith, 1990, p. 254).
Organizational planning must incorporate SWOT techniques that allow the organization
to sustain a clear path towards reaching its goals from year to year. SWOT is the acronym that
stands for Strengths, Weaknesses, Opportunities, and Threats. Applying SWOT techniques in
the business realm is but one aspect that helps business organizations conduct the kind of
organizational analyses that helps to mitigate or prevent organizational crises.
From a team perspective the notion of identifying organizational strengths and
weaknesses in the planning process, offers leaders and team members an opportunity to
internally assess and identify those probabilities and mechanisms that will assist or hinder the
organization from attaining its goals. Some examples of organizational strengths possibly
include:
 Competent personnel possessing relevant knowledge, skills, and abilities;
 Staff development and training programs;
 Customer loyalty; and
 Capital investments and strong balance sheets; and
 Efficient procedures, systems, and social responsibility, etc.
Some examples of weakness:
 Personnel lack of awareness of organizational missions, objectives, and policies;
 Deficiency in IT department;
 Lack of new product and services;
 Non-compliance with appropriate legislation; and
 Inadequate leadership, etc,
Taking into consideration opportunities and threats in the planning process provides leaders and
team members the opportunity to scan the external environment related to the industrial
conditions aiding in identifying and evaluating those elements that may positively or negatively
impact the organization (Heal, 2000).
Some examples of opportunities include:
 New customer base and new markets;
 New products and service lines;
 New technology; and
 Personnel training opportunities, etc.
Some examples of threats include:




New legislation;
Lack of training, education, and development;
Price competitions; and
Customer rejection, etc.
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Coupled with organizational planning is the importance of continuous planning which
integrates the continuation for contingency planning. Continuous planning within the context of
business organizations should be directed in such a manner in which all processes within the
organization is connected, a condition which reflects system thinking. Continuous planning
further incorporates the continuation of applied SWOT techniques that allow organizational
leaders and team members to adjust to the sudden impact of changes that ultimately affects the
organizations position locally as well as globally.
Considering the broad base of continuous as well as contingency planning, the gravity of
these important tenets is principled in the following:




Identifying Risk and Potential Crises
Establish and Sensor Monitoring
Developing a Crises Action Plan
Testing the Crises Action Plan
The idea of continuous external environmental scanning coupled with SWOT techniques;
allow leaders and team members the opportunity to obtain information about events, trends and
relationship, which can be assimilated into the continuous planning process. These congruencies
enhance and sustain the present and future goals of the organization, and they greatly assist with
mitigating potential crises through appropriate crises management measures. The
aforementioned tenets, among many other flexible elements, are essential for organizational
survival. Moreover, the aforementioned tenets aid in balancing the scorecard as the process of
ongoing planning continues within the organization.
The amalgamation value of applied SWOT and Environmental Scanning techniques in an
organizations continuous planning process provides a systematic approach that helps to identify
risk and potential areas for crises. To identify those risk and potential areas for crises,
organizational leaders and team members must consistently perform organizational audits both
internally and externally. Auditing must occur throughout all levels of the organization and it
must take into consideration all personnel, customers, suppliers, and external competition. As
part of the ongoing planning process, organizational leaders and team members must take on the
role of an assassin. Taking on this role allows for the proverbial thinking out of the box concept,
i.e., thinking of creative ways in which internal and external conditions can drastically bring
about a negative change to the organization (Crisis management: Master the skills to prevent
disaster, 2004).
Applying SWOT and external environmental scanning techniques contributes to establishing
and putting in place those sensory monitoring processes that significantly aid in mitigating
potential crises situations. Sensory monitoring includes, but is not limited to:

Adherence to effective internal and external communications from all constituents of
the of the organization regarding potential areas of concern;
 The development and periodic review of comprehensive business data; and
 A total organizational audit from top to bottom to flesh out potential areas of crises
concern (Leading through a crisis, 2009).
Throughout the continuous planning process, organizational leaders and team members must
be able to develop the foresight for crises anticipation. The progressive development of this
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foresight should lead to the development and preparation of action plans designed to neutralize
and contain perceived potential areas of crises. The crises plan must be able to:

Identify obstacles and fail points, i.e., what factors can and will fuel a potential
area of crises;
 Create a resource plan, i.e., identify those resources the organization might need
on board to aid in a crises;
 Create a communication plan, i.e., create a communication plan that is designed
on a need to know basis both internally and externally; and
 Distribute the resource and communication plan, i.e., all the key players who are
part of the crises action process should be issued a copy of the resource and
communication plans and measures must be taken to ensure those key players
understand the resource and communication plans (Leading through a crisis,
2009).
Once organizations has identified those obstacles and fail points that can have a drastic
effect on the operations of the organization, the plan for defeating those obstacles and fail points
are not complete until the leaders and team members test those plans under simulated and
rigorous conditions. Scenario test activities is a means by which organizations can measure the
future outcome of a crises situation, and actual simulated scenario activities help to improve the
quality of continuous organizational planning.
Creative simulated test plan activities will reveal with clarity what can actually go wrong in the
environment, and testing the plan offers a chance for organizational personnel to train and
prepare for the future crises events. Creative scenarios activities ensures that organizational
members are focused on priorities and the plans that have been developed are aligned with
changes that can take place both inside and outside the organization. Moreover, organizational
creative scenario activities allow for organizations to project negative events that could possibly
affect its environment 5, 10, 15, and even 20 years down the road. Continuous planning as well
as the testing of those plans through scenario training ensures that each potential crises event has
a developed strategy to suppress its effects and increases the survivability of the organization
(Tracy, 2010).
Mitigate the Threat
“Procrastination is the archenemy of crisis management” (Witt, 2002, p. 1). Frequently, crises
emerge or go from bad to worse, simply because someone failed to act (Witt). When a crisis
presents itself, leaders must take action. “Tough decisions must be made and made fast”
(Harvard business essentials: Crisis management, 2004, p. 20). Successful crisis mitigation
requires immediate triage – the bleeding must be stopped (Harvard business essentials: Crisis
management, 2004).
A crisis event can threaten any organization at any time during the business life cycle
(Hargis & Watt, 2010). Therefore, it is important to understand the actions that may be taken to
mitigate any loss and facilitate a speedy recovery for the organization. For our purposes, let us
define the term, crisis, as any situation or event that creates disruption to the organization’s
normal operations. We would also suggest that a time element exists in a crisis event. This time
pressure is the result of the perceptions of the business managers/leaders of “the amount of time
they have to search, deliberate, and take action before losses being to occur or escalate (Ford,
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1981). Therefore, mitigation of the events occurring becomes of paramount importance. With
this in mind, it is critical for business leaders/managers to have an understanding on how to lead
and manage crisis events. It is obvious that no organization can “totally control or prevent the
occurrence of any potentially negative crisis event” (Louden, 1992). Moving forward with this
theory, we suggest in order to navigate these events strategic planning and strategic leadership
are of vital concern.
Rigorous strategic planning can assist your organization to clarify its goals and deploy
the available resources in a manner that is consistent with the planning. It also assists in
maintaining the focus of your organization on those issues. It may also assist in averting some
unexpected developments and help mitigate others. Thus, sound strategic planning can enable
your organization transcend the circumstances you are encountering and avoid the panic of
entering crisis management (Lettow & Mahnken, 2009). Realistically, situations, large or small,
can enter our lives instantly. More recently, the economic situation we are facing is very real
and has affected virtually every type of organization at some level. “The attitude of those
responding to the crisis and the cohesive nature of the teams involved is critical to the success of
the effort” (Van de Walle & Turoff, 2007). To mitigate any encountered situation, the
organization must first recognize what is being encountered. It is this detection that influences
the organization’s ability to mitigate the encountered event(s). Clearly, the scale and scope of
the event can and most likely will produce complex and difficult situations that must be handled.
In some instances, the initial response by organizational leaders/managers is to deny that an
event has taken place that requires the organization to respond. This assumption results in the
belief that no changes or reactions are needed within the organization. These leader/managers
suggest that the issue is outside their realm of influence and that by “pulling together they can
weather the storm” (Ford, 1981). There is a very large body of both literature and practical realworld experience that indicates that ignoring an event will not make the event disappear.
The organization’s reputation among its various stakeholders (employees, stockholders,
customers, the community where the organization is located, etc) and what those stakeholders
believe regarding the previous behaviors demonstrated by the organization will also affect the
mitigation and recovery effort. There is evidence that suggests that an organization’s reputation
is a strategic resource to be used wisely and that same reputation may assist organizational
leaders/managers during the mitigation and recovery phases of a crisis.
Take Action
“When crisis strikes, a leader must initially think like an EMT. He must quickly identify the
problem and determine what actions his organization can take to stabilize the situation” (Crisis
management: Master the skills to prevent disaster, 2004, p. 67). These actions may only be
technical solutions, but they will buy the crisis action team time to implement the appropriate
actions form the crisis action plan (Crisis management: Master the skills to prevent disaster,
2004). With the crisis action team in execution mode, the leader should continue to search for
new and decisive ways to facilitate damage control and move the crisis out of the danger zone
(Bazerman & Watkins, 2004). At this point, information is critical to the leader but it’s also one
of his biggest challenges. His problem may be that there is too little information available, or it
may be that there’s far too much, with no way to sift out what is important (Crisis management:
Master the skills to prevent disaster, 2004). Consequently, the requirement for the leader to
bring clarity to a murky situation might well be describe the early phase of most crises (Crisis
198
management: Master the skills to prevent disaster, 2004). Despite this information challenge,
the leader must continue to shape the response through actions, even when the response may be
based on inaccurate or incomplete information (Bazerman & Watkins). Decisive, identifiable
action is critical at this point because it reduces individuals’ perceived level of disequilibrium.
Additionally, it gives the appearance that responsibility for the problems has been shifted to the
individuals taking action. People will feel that the danger is retreating when they see the leader
is paying attention (Heifetz, 1994).
Be On the Scene
Individual’s need to know the leader is involved. This critical point cannot be overstated.
People want to see their leaders in a crisis (Harvard business essentials: Crisis management,
2004). The leader should be physically on the scene as soon as possible. His physical presence
sends a loud and clear signal that he thinks this situation is extremely important (Harvard
business essentials: Crisis management). Similarly, a leader’s absence sends the message that
he has other priorities (Harvard business essentials: Crisis management). Physically being at
the scene also gives the leader the opportunity to embrace his central leadership role, capture the
initiative, seize power and take control (Bazerman & Watkins, 2004). During periods of crisis,
people look for a strong, confident, and visibly engaged leader to pull them through (Harvard
business essentials: Crisis management). Sadly, analysis of crisis after crisis repeatedly reveals
that leaders hit by crisis often withdraw behind the protective shell of peers and lawyers or they
play the blame game with subordinates and the media (Pinsdorf, 2004).
Consult the Team/Find Experts
During crisis mitigation, a leader will find himself deluged with time sensitive decisions.
Information quality may be marginal at best and there is little time to consider alternative courses
of action or think about unintended consequences. The organization’s crisis action team exists to
address this challenge and take pressure off the leader. Never the less, a leader’s capacity to
make good decisions will undoubtedly be strained, making it imperative that he seek expert
advice and council (Harvard business essentials: Crisis management, 2004). Small group
decision making can provide a backstop to help curb a leader’s impulses, encourage reflection
and critical dialogue, and point out problematic assumptions and unrecognized implications of a
potential course of action (Stern, 1999). Likewise, engaging subject matter experts from outside
the organization as well as individuals, companies, or industries that have an interest related to
the crisis can bring fresh, critical thought and ideas to the table (Mitroff, 2004). But leaders
should also consider the warning to “beware of conventional wisdom – it may be wrong” (Stern).
Tell the Story
Another issue that must be part of any discussion on crisis management and leadership is
the issue of communication. The communication process is critical during normal business
operations; however, it takes on an even more criticality during a crisis. On June 28, 1863, three
days prior to the Battle of Gettysburg, General George Meade was made the commanding officer
of the Army of Potomac by President Abraham Lincoln. Realizing that a major battle was close
at hand, Meade needed information- accurate and complete information – in order to prepare the
Army for the forthcoming task. General Meade treated his subordinates as colleagues rather than
as subordinates. Meade believed that “important plans may be frustrated by subordinates, from
their ignorance of how much depended on their share of the work” (Coddington, 1968). As
history shows, Meade did receive accurate and complete information and passed that information
199
on to his subordinates, which resulted in the defeat of Confederate forces under General Robert
E. Lee. What was true then is true now; communications must be accurate and complete for
senior leaders/managers within the organization to formulate appropriate responses to the
situation and the recovery effort. It is equally important that senior leaders/managers also
provide subordinates and with complete and accurate information. As Ford (1981) suggests,
information distribution and distortion is likely to place the organization at an even greater
disadvantage.
Effective communication is critical to leaders through all phases of the crisis. A leader should
capitalize on all forms of communication to tell the story and ensure the widest reception. If a
leader communicates effectively, he can at least help to frame, if not control the story. Failing to
communicate will result in a misinformed public that may go so far as to damage or destroy the
organization (Harvard business essentials: Crisis management, 2004).
In the end, how well or how poorly a crisis goes for an organization will have much to do with
its communication. If an organization’s communications seem open and truthful and the leader
is seen as genuine, compassionate, and confident in the future, the leader has already gone a long
way towards successfully managing the crisis (Witt, 2002).
Be the Spokesperson
Selecting the correct spokesperson is also central to the effectiveness of an organization’s
communications. It is imperative that the spokesperson have inner discipline and poise. Crisis
will escalate the stress for both the spokesperson and the audience. Despite the stressful
environment, a spokesperson must not show distress; he must have the emotional capacity to
endure the uncertainty, frustration, and pain that is ever present in a crisis (Heifetz & Linsky,
2002). Whenever possible, the spokesperson should be the identifiable leader, usually the CEO
(Harvard business essentials: Crisis management, 2004). When the crisis involves highly
technical issues that the CEO cannot effectively address, a team approach should be used
(Harvard business essentials: Crisis management). General Tommy Franks used this technique
very effectively during the Iraq Campaign. General Franks would provide the strategic overview
and key points but would hand-off detailed questions to subject matter experts (Harvard business
essentials: Crisis management).
Be Honest and Timely
Rapid, honest, and transparent communication is the lifeblood of successful crisis management
(Witt, 2002). The crisis leader must provide all available information as timely as possible. His
message must always be forthright, accurate to the best of his ability and reinforced with
understandable facts (Harvard business essentials: Crisis management, 2004). If there is ever
any doubt, his guiding principle should be to err on the side of over disclosure (Harvard business
essentials: Crisis management). The leader must also get his side of the story into the public’s
mind early and often (Harvard business essentials: Crisis management). When he doesn’t, his
organization is often convicted by the court of public opinion because a statement by the leader
is too late or overcome the medias’ negative story and the perceptions that have been fostered
(Mitroff, 2004). Warren Buffett’s advice is to “first state clearly that you do not know all the
facts. Then promptly state the facts that you do know. One’s objective should be to get it right,
get it quick, get it out, and get it over” (Harvard business essentials: Crisis management). An
organization’s crisis management team may be great and its crisis management plan may be
200
complete, but if a leader cannot communicate his message during the crisis, the organization will
fail (Harvard business essentials: Crisis management).
Shape the Message
A leader must also determine the principle message he wants to convey in the story. For starters,
it should reduce fear and contain empathy for the victims of the crisis. Many victims will sustain
incredible loss; financial, emotional, and spiritual. When a leader genuinely conveys a feeling of
empathy to the victims, it bolsters the confidence, will, and character they need to recover (Witt,
2002). The story should also tie into the organizations core purpose and values. A message
developed from the organization’s purpose and values will be calming and reassuring because of
its consistency. Organizations that know what they stand for and know where they are going
before a crisis hits, inevitably mange it better (Crisis management: Master the skills to prevent
disaster, 2004).
Profit from the Crisis
Time is not a leader’s friend. The longer a crisis drags on, the more likely it is that the
organization will be associated with trouble and conflict in the public’s mind. Similarly, while
the organization is embroiled in crisis, it is likely that it is not working at peak efficiency.
Employees will become increasingly concerned with the health of the company and defections
will increase. Relationships the leader has developed with suppliers, customers, investors, and
stakeholders, which strengthened in the early stages of the crisis, will become increasingly
strained. The leader must press on to the next move; he must resolve the crisis, quickly
(Harvard business essentials: Crisis management, 2004).
At some point the crisis will end and the leader should declare the crisis is over. The leader’s
declaration serves to stand-down the crisis action team, turn off the crisis mind-set, and focus on
adapting the organization while searching for opportunities. To give closure, a leader should
meet with his organization. He should explain what happened and why it happened. He should
describe how things have been resolved and where they stand today. Finally, he should reiterate
the company’s core purpose and values and ask everyone to do his best moving forward
(Harvard business essentials: Crisis management, 2004).
Keep Moving
Once a leader has mitigated the threat, that is, moved the crisis out of danger zone, he can begin
efforts to profit from it. He must keep an eye on the threat, but his primary goal should be to
move forward as quickly as possible with actions to end the crisis completely. Failure to guard
against the threat and move forward gives the crisis an opportunity to mutate and break through
the holding actions (Crisis management: Master the skills to prevent disaster, 2004).
Learn From the Crisis
A lessons learned session, or after action review should follow any significant event, especially a
crisis. Participants should identify what went right, what went wrong, and what should be
learned from the event. The leader should add the notes from the after action review, as well as
all relevant crisis documents, to the historical record so valuable experiences are not lost (Crisis
management: Master the skills to prevent disaster, 2004).
Adapt the Organization
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The leader may feel a lot of internal and external pressure to see the crisis as a technical problem,
with straight forward, technical solutions that can quickly restore the balance (Heifetz & Linsky,
2002). But he must not squander the urgency, attention, or opportunity the crisis has given him
to address the difficult adaptive task of reinvention and simply return to status quo.
Conclusion
During a time of uncertainty, opportunities are available for those organizations that are
prepared. As was previously stated, managers tend to be protective and hope that over time
things will work out. Leaders/managers that use their imaginations, pay attention to the
indicators, and listen to understand experts both inside and outside their organizations will find
recovery faster than those that enter into a protective state of mind. Those leaders that
understand what caused the crisis and work to create a lasting value for the organization’s
customers, employees, and shareholders will be successful when compared to those that use
protectiveness as a method of dealing with the crisis. A true leader understands that the world
that existed prior to the crisis will not return to its original condition, therefore, we need
leaders/manages that will understand how to benefit from those events that occurred during the
crisis. During a crisis, true leaders are those who believe in people; create a feeling of belonging
and confidence that the organization will emerge from the crisis in a stronger position than it was
before the crisis. Leadership exists because of people. It is for people and with people that we
get the concept of leadership. Leadership does not exist as a concept in a vacuum; it exists
because it is with this concept that we, as a people, are able to achieve great things.
For years crisis management has been synonymous with reactive leadership. While this type of
leadership is often an unavoidable reality, this paper introduced a model that may be used to
understand the general life cycle of a crisis, but what is the utility of such a model?
Applied to specific situations, this model can serve as a lens through which leaders may view
their organizations. This lens can frame the crisis and help leader’s understand the situation they
are facing. Further, the model provides the leader perspective and context during the crisis. This
perspective gives the leader a birds-eye view of the situation. The crisis life cycle model
addresses the theory of crisis analysis, but the strength of the tool is put into practical terms when
the crisis leadership strategies are applied to the model. The strategies represent the prescriptive
portion of the paper. Knowing where an organization is in a crisis is not helpful unless the leader
also knows how to manage this new reality.
We believe that each crisis situation is unique and therefore it is impossible to develop a
checklist that can be universally applied. However, the theory and strategies addressed in this
paper may serve leaders well, if used to think about where their organization may be in the life
cycle of a crisis and the appropriate strategies to be employed to meet their unique challenges.
The intent of this paper is to provoke thought within leaders at every level concerning the
management of crisis situations and leadership in this environment. The skills required to lead
through disaster must be continually honed to prepare for, respond to, and learn from crisis.
202
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Ponder, R. D. (2001). The leader's guide: 15 essential skills (2nd ed.). Central Point, OR: The
Oasis Press.
Stern, E. K. (1999). Crisis decision making: A cognitive institutional approach. Boston, MA:
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Tracy, B. (2010). How the best leaders lead. New York, NY: AMACOM.
Van de Walle, B., & Turoff, M. (2007). Emergency response information systems; Emerging
trends and technologies. Communications of the ACM, 50(3), 29-31.
Witt, J. L. (2002). Stronger in the broken places. New York, NY: Henry Holt and Company.
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SIZE EFFECT ON EMERGING MARKETS WHILE ESTIMATING THE SIZE PREMIUM
OF COMPANIES
STUDY OF THE RUSSIAN MARKET
Antonina Shepeleva MA in Economics
Financial analyst at Russian corporate group “RU-COM”
[email protected]
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The study investigates the existence of size effect and size premium of Russian public
companies. While most Russian companies facing the problem of proper evaluation of size
premium of companies and then integrating it in required rate of return on equity, the study
of size effect on the Russian market is actual and on the agenda for corporate finance
research.
The first step of size effect investigation is the determination of size criteria of Russian
public companies. Probably, market capitalization is not the only and the best size criterion
for companies from riskier and less developed emerging market. Conducting regression
analysis, three size criteria were found out.
Secondly, using chosen size criteria, the existence of size effect on the Russian market was
examined and detected. On the whole, obtained results demonstrate the adequacy of chosen
size criteria and inspire to further study.
Thirdly, according to size criteria, industry concentration was studied on the Russian
market, which characterized by predomination of extractive industries. It was proved that
big-sized Russian companies dominate in extractive industries such as oil and gas industry
and basic materials, while small-sized companies dominate in public health industry and
utilities’ industry.
Understanding the relation of industry concentration and size of companies as well as other
results of the study will allow developing a complex approach in the sphere of size
premium evaluation on emerging markets. As a result, financial experts could more
accurately estimate the rate of return on equity of companies from emerging markets.
Consequently, the further in-depth research with the extended sample of data from
emerging market is needed.
Key words: size effect, size premium, size criteria of companies, industry concentration.
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Over the last decades researchers (Fama and French, Gordon, Banz, Grabowski, King and
others) have been pointed out the necessity of considering additional risk factors in the value of
rate of return on equity of a company. Risks associated with the size of a company were among
these factors. According to the famous researchers from developed markets (among which worth
mentioning analysts of U.S. companies Ibbotson Associates and Duff &Phelps) size of company
and so-called size effect have a significant impact on enterprise value. Size effect appears in the
fact that yields of small companies are higher than the yields of large companies. Thereby, size
premium is a quantitative measure of size effect for a specific company (individualized risk
assessment of business scale) that should be integrated in rate of return on equity of a company.
With the development of theory and practice of corporate finance in Russia the decision on
considering the risk in financial values, associated with company's size and scale of its business,
and consequently the estimation of size premium have become on a special urgency on the
emerging markets and especially in Russia.
In fact, the in-depth research has not been conducted in Russia. Unfortunately, in the
absence of fundamental research in this area, Russian experts have to use values for size
premiums of U.S. companies, which are much lower than estimated values of size premium of
emerging market companies. For example, the most common practice of Russian analysts
nowadays is to take the values of size premium from Ibbotson Associates Yearbook (calculated
on a huge sample of U.S. public companies) for evaluating rate of return on equity of Russian
companies. Thus, the specificity of Russian business is not taking into account at whole.
There are two key features of the Russian market as an emerging market:

Russian economy has sectorial imbalances: generally, most of large companies are
extractive companies (according to key size criteria used in this study);
 There is a little of available data on Russian public companies in comparison with
data on companies from developed markets.
Considering above characteristics of Russian emerging market, it is important to conduct
the analysis of size effect on the Russian market as a basis for further investigation of size
premium of Russian public companies.
The data of Russian public companies for size effect analysis were taken from Bloomberg
database and cover the period of 2006-2010. Size criteria (chosen set of companies’ performance
indicators) were investigated on these data. Industry classification of small and big companies as
well as research of existence of size effect as a whole was conducted on data of 2010 year. A
2010 year was a year of stabilization of the Russian market after the deep fall in 2008-2009. In
fact, lots of Russian public companies’ yields fell much more than companies’ yields on
developed market during financial and economic crisis.
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Thus, for my analysis it was important to exclude potential financial distressed Russian
companies.
The key prerequisites for selecting Russian public companies are following:
1. a public company quoted on the Russian RTS and MICEX, which demonstrate
transactions on public market;
2. a company is legally registered in the territory of Russia;
3. companies that have shown positive performance during the last 5 years (this
assumption allows us to consider companies that will continue to operate after the time
of analysis);
4. Non-financial companies (financial industry of Russian companies is excluded from
the analysis, as the business of the industry is very specific).
The final sample of analyzed Russian companies consists of a very small number of 70
companies:
 Industry of «Basic Materials» (20 companies);
 Industry of «Oil and gas» (10 companies);
 Industrial industry (10 companies);
 Industry of «Consumer goods» (8 companies);
 Industry of «Consumer Services» (2 companies);
 Industry of «Utilities» (11 companies);
 Industry of «Public health» (4 companies);
 Industry of «Telecommunications» (5 companies).
Situation with a small number of data in the sample is still typical of Russian studies. This
is due to the low transparency of information and less developed financial market.
Before determining the existence of size effect and also industry concentration of
companies, we should investigate size criteria upon which we could carry out the analysis. It
should be mentioned that for determining the size criteria of Russian public companies it is
important to examine absolute indicators (e.g., market capitalization of the companies.) of
company’s performance.A key disadvantage of relative indicators (e.g., liquidity ratios,
profitability ratios, etc.) is that they liquidate the size characteristic while comparing the
performance of companies. Thus, these indicators allow us to value and compare the
performance of companies regardless of size.
Probably, market capitalization is not the only and the best size criteria, especially for
Russian undeveloped financial market. Obviously, balance indicators could be also very
informative indicators, revealing the size of companies.
I use the logarithmic equation that shows the relation of absolute performance indicators
(probable size criteria) of companies and actual yields of its stocks (i.e., returns on equity):
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( )
( )
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( )
( )
( )
( )
( )
( )
( )
( )
( ),
where y – actual stock returns of companies (%); x1 – market value of common equity
(mln.dollars); x2 – book value of common equity (mln. dollars); x3 – EBITDA (mln. dollars);
x4– sales (mln. dollars); x5– net income (mln. dollars); x6 – total assets (mln. dollars); x7–fixed
net assets (mln. dollars); x8 – net working capital (mln. dollars); x9 – total debt (mln. dollars); x10
– invested capital (mln. dollars); x11 – number of employees; a – constant; bi – numerical
coefficients.
Based on regression model, I have got the following result. The model is significant as a
whole (according to F-statistics) and the most significant parameters (based on t-statistics for the
coefficients bi of variables) were six out of the nine variables (Figure 1).
Figure1. The significance of the dependent variables in regression model
number of employees
invested capital
total debt
net working capital
fixed net assets
total assets
net income
sales
EBITDA
book value of common equity
market value of common equity
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
Thus, according to the significance of the dependent variables in regression, I identified the size
criteria (most significant variables) of Russian companies on the basis of analysis of annual
performance of companies over a five year period of time (from 2006 to 2010):
 book value of common equity
 number of employees
 market value of common equity
Relying on investigated size criteria for analyzed Russian public companies, graphic
analysis was conducted to identify the size effect on the Russian market. Charts 1 -3 show ranked
(from big-sized companies to small-sized companies - on the chart from the left to the right)
seventy selected Russian public companies on the basis of actual annual returns on stocks in
2010 according to three size criteria. Charts 4 –6 also show the same ranked companies but yet
on the basis of actual average monthly returns on stocks in 2010 according to size criteria.
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According to the general definition of size effect, yields of small-sized companies are
constantly higher than the yields of large companies. Charts 1 –3 slightly reflect this regularity.
Actually, we could not state, that size effect exists, based on these actual annual data. We
even could not specify which size criterion best reflects the existence of size effect on the
Russian market. Charts do not show steady or sharp increases of returns on stocks when we trace
the yields from the left to the right (from big-sized companies to small-sizedcompanies).
Chart1.Actual annual returns of the analyzed
Chart2. Actual annual returns of the
ranked companies according to the size
analyzed ranked companies according to
criterion of book value of common equity
the size criterion of number of employees
Chart3. Actual annual returns of the analyzed
ranked companies according to the size
criterion of market value of common equity
Contrary, Charts 4 – 6 explicitly proves the existence of size effect on the Russian market.
All size criteria of companies show increase in actual average monthly returns on stocks of
smaller companies. Minor exception makes the size criterion of book value of common equity:
the increases in returns are shifted to the left on Chart 4 in comparison to other Charts 5-6.
One of possible reasons of this could be the biases due to small sample and non-stable
time-period of analysis. Moreover, average monthly returns analysis smoothes out possible
fluctuations of returns in comparison to the analysis of annual returns on stocks. Thus, it is
possible to see more clearly the existence of size effect on the Russian market.
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Chart 4.Actual average monthly returns of
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Chart 5. Actual average monthly returns of
the analyzed ranked companies according
to the size criterion of book value
the analyzed ranked companies according to
the size criterion of number of employees
of common equity
Chart6. Actual average monthly returns of
the analyzed ranked companies according to
the size criterion of market value of common equity
In fact, the evidence of size effect existence on emerging markets is more difficult to obtain
due to existing variable risk factors in contrast to developed market. These factors may be
interlinked and intertwined, that is why it is harder to spot the size effect. Therefore it is
important to understand the drivers and sources of size effect and purify it from of concomitant
effects and other market effects anomalies. Therefore it is necessary to conduct further empirical
research in this area, especially in emerging financial markets (particularly in Russia), as well as
at different time intervals. This will allow making the output about qualitative and quantitative
characteristics of size premium of companies from emerging markets and, consequently, better
calculating the value of the required return on equity of companies.
While purifying size effect from possible industrial risks, it is important to conduct the
analysis of industry concentration of companies and then to investigate size effect and size
premium of companies from emerging markets within each industry group in future research.
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Understanding an existence of sectorial peculiarities, it is reasonable to assume that the
small-sized companies are likely to be concentrated in a relatively less profitable sectors where
there are probably some lower barriers to market entry. Therefore a high competition does not
allow companies to earn relatively large profits. In contrast, larger companies are concentrated in
more profitable, stable and less risky industries (probably, with higher entry barriers) and thus in
more oligopolistic industries. This assumption is generally consistent with the basic theoretical
postulate, observable in practice: the greater the risk of a company (in our case, we mean that a
company is operating in a high-risk industry), the higher company’s return on equity.
The analysis of industry concentration could help to identify the relationship between firm
size (and, therefore, its risk and return) and firm’s belonging to a particular industries. Earlier
this type of research has not been conducted on the Russian market that is why the results of this
study will be of interest to specialists in the field of corporate finance.
Previously we have detected the existence of size effect on the Russian market in 2010.
Industry concentration was studied on the Russian market based on the same sample and
investigated size criteria of Russian public companies. Russian industries were grouped
according to the Bloomberg industry classification: basic materials, oil and gas, industrials,
consumer goods, consumer services, utilities, public health and telecommunications.
With the use of investigated size criteria, Russian companies were grouped in descending
order by breaking into ten deciles: the first decile represents the largest companies, and the
tenth - the smallest companies for each size criterion (are presented in Tables 1-3).
Table1. Industry concentration according to the size criterion of book value of common equity
decile
1
2
3
4
Oil and gas, %
47
20
27
14
Consumer goods, %
1
Industrials companies, %
16
21
Basic Materials, %
38
21
26
Telecommunications, %
1
15
31
Utilities, %
12
23
5
20
15
55
52
18
28
7
8
9
8
6
19
32
21
18
18
19
10
43
58
47
24
19
27
Consumer Services, %
Public health, %
6
30
36
27
7
30
10
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Table2. Industry concentration of Russian public companies according to the size criterion of
market value of common equity
decile
1
2
3
4
Oil and gas, %
88
28
17
24
6
7
15
15
14
28
46
15
15
26
14
31
Consumer goods, %
Industrials companies, %
22
Basic Materials, %
9
22
71
46
Telecommunications, %
2
12
12
15
Utilities, %
2
15
5
13
9
10
12
18
14
34
44
36
13
44
Consumer Services, %
8
11
13
42
47
14
Public health, %
41
Table3. Industry concentration of Russian public companies according to the size criterion of
number of employees
decile
1
Oil and gas, %
64
Consumer goods, %
15
Industrials companies, %
2
3
5
6
7
8
14
46
19
17
18
29
12
29
28
15
47
14
30
15
15
41
44
40
15
14
Basic Materials, %
14
44
43
Telecommunications, %
7
28
12
Utilities, %
4
9
10
54
14
Consumer Services, %
14
Public health, %
12
9
41
69
10
50
According to three size criteria, companies of oil and gas industry as well as basic materials’
industry are the largest. Particularly interesting to note, that telecommunications industry is also
represented by big companies.
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With the size decrease, companies are generally concentrated in relatively less profitable
industries with higher competition: consumer goods and consumer services, as well as industrial
companies. Generally, public health and utilities are industries with small-sized firms.
However, the first exception is the basic materials industry: probably the explanation of it is
biases in analysis due to small sample of analyzed companies and the unstable period of
analysis.This fact requires further study. The second exception is the industrials companies.
Apparently the dominance of extractive industries in Russia is inversely proportional to the level
of development of manufacturing. Probably, performance of manufacturing enterprises confirms
the current undeveloped condition of the Russian national manufacturing. On the other hand,
perhaps it is also the bias of analysis that could be overcome in future studies with larger sample.
Thereby, despite the exceptions and biases of analysis, our general industry concentration
assumption was confirmed in all investigated sized criteria of Russian public companies. In this
case, the most profitable industries of the Russian economy (which are mainly extractive
industries) are oil and gas industry and basic materials, and the least profitable are public health,
utilities, consumer goods and consumer services. Thus, small-sized Russian companies are
concentrated in the less profitable and relatively weak and more risky industries of the Russian
economy, while larger companies are concentrated in the most profitable and less risky
industries.
Summing everything up, research of size effect as well as investigation of size criteria
of Russian companies and industry concentration of all-sized companies are the first steps
on development of methodic of size premium estimation for the Russian market as well as
for other certain emerging markets. Since the study was conducted on data of unstable
period in 2010, the various risk factors could cause biases in results. Nevertheless, they do
not contradict each other but, of course, require further comprehensive research.
Finally, future research of method of size premium estimation will accounts for obtained
results of this study and will provide flexible to changes and modifications algorithm for
companies from emerging markets. Considering risks associated with the size of a company,
financial experts could estimate more accurately the rate of return on equity of companies from
certain emerging markets.
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ECONOMIC CONTIBUTION OF IMMIGRANTS
Nisha Singh Ph.D.
Assistant Professor, Business Administration
Livingstone College,
[email protected]
Rajeshwar Sharma Ph.D.
Chair, Division of Business
Livingstone College,
[email protected]
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Abstract
Many scholars have studied the economic activities of immigrants in the United States of
America. (Borjas, 1986; Schuetze and Antecol,2007; Fairlie and Robb, 2008 and others). They
found that approximately 10% 0f the total businesses in the United States are owned by
immigrants. They are important part of the U.S. economy and contribute to its productivity
growth and technological advancement (Bureau of labor Statistics, American Community
Survey). The main objective of this research paper is to study the contribution of immigrants in
the following three areas of the US economy and to find the opportunities for future growth: Real
estate businesses, Restaurant business, and White color jobs.
For the purpose of this study, the US census reports from 2000-2011 have been used.
According to the 2011 census report, the maximum number of immigrants is from Mexico,
which is 11,711,103 million people or 29.33% of the total immigrant population. The number of
Chinese immigrants is 2,166524 million and they make 4.20% of the business owner and labor
force. The number of Indian immigrants is 1,780,322 and they make 5.71% of the businesses
owner and labor force in the United States. The main reason of Chinese’ and Indians’ low
percentage of the total business owner and labor force is due to the fact that majority of them are
highly educated and, therefore, get well paid white color jobs. This study is designed to evaluate
the contribution of immigrants from Mexico, China and India in US economy.
Research Methodology
The findings in this research study are supported by the historical data. The major data sources
have been US census 2000 - 2011, US Government Data, International Monetary Fund, authentic
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websites and published research studies. The data sources are reviewed and analyzed to draw
conclusion with the help of graphs and tables.
Introduction
Economic contribution of immigrants has been one of the most debated topics for
economists, researchers and Think Tank (Center for Economic and Policy Research). United
States is known as a nation of immigrants. The review of American history indicates that
immigrants have contributed greatly to the economic vibrancy and strength of the nation. The
impact of immigrants is more discernible in recent years. According to David Dysegaad Kallick,
immigrants make up 20% of the population and are responsible for 20% economic outputs in 25
largest metro areas combined together. These metro areas comprise 49% of the total population
of the country, 66% of all immigrants and one-half of the country’s total GDP (Jason Richwine,
02/24/09). The 21st century has witnessed a concrete sign of the economic contribution of
immigrants in USA. Recently, there is also a positive shift in the US immigration policy from
economic point of view. The liberal immigration policy is one of the most important reasons for
continuous economic growth as compared to many European countries. (Quentin Peel, 2005)
Literature Review
Immigrants’ contribution to US economy has been widely discussed. There could be
varying opinions in this area but it is clear that it has been a matter of constant evaluation. There
are number of research studies and updates on this topic. Immigrants are nearly 30 percent more
likely to start a business as compared to non immigrants, and they represent 16.7 percent of all
business owners in the United States. Immigrant business owners make significant contribution
to business income, generating $ 67 billion of the $577 billion in US business income, as
estimated from 2000-2011 US census data. Ten high-tech companies started by immigrants
earned 831 billion in revenue during 2002.
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Indian immigrants have founded more engineering and technology companies in the
United States during the past decade, 1995-2005, than immigrants from the United Kingdom,
China, Taiwan and Japan. The largest groups of immigrant investors were Chinese. Indian
immigrants were second followed by Canadians and British. According to Saxenian findings, the
percentage of firms with Indian and Chinese founders in the Silicon Valley had increased from
24% to 28% in 1999. Indian immigrants outpaced their Chinese counterparts as founders of
engineering and technology companies in Silicon Valley. Saxenian reported that 17 percent of
Silicon Valley startups from 1980-1998 had a Chinese founder and seven percent had an Indian
founder. The new study found that from 1995-2005, Indians were key founders of 15.5 percent
of all Silicon Valley startups and immigrants from China and Taiwan were key founders of 12.8
percent businesses. There was at least one immigrant key founder in 25.3 percent engineering
and technology companies established in the United States between1995-2005. This pool of
immigrant funded companies was responsible for generating more than $ 52 billion in 2005 sales
revenue and creating almost 450,000 jobs. Roughly, 26 percent of all immigrant funded
companies during the last ten years were founded by Indian immigrants. Immigrants from the
UK, China and Taiwan contributed to 7.1%, 6.9% and 5.8% of all immigrant funded businesses,
respectively (Borjas, Schuetze & Antecol,2007)
Findings
The majority of immigrants in the United States of America are from China, India, Mexico,
Philippines and Vietnam (Table1&2). There has been mixed reaction and debate whether these
immigrants really contribute to the US economy or not, and if at all they contribute, then in
which area of economy. According to David Dysegaad Kallick, Director of Immigration
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Research at the Fiscal Policy Institute, New York, analyzed the data on immigrants and
concluded that “the US is getting a more varied and economically important flow of immigrants
than the public seems to realize”. Table1 shows the increasing flow of immigrant in US labor
force from 1970-2011.Table 2 provides a detail description of immigrants regarding their total
population and their number as labor force and business owners. According to this table Mexico
is on top, which is 29.33%. Chinese have 5.42% and Indians 4.46% of the immigrants’
population in the United State.
Table 1
Immigrants as a Percentage of the Total US Population and of the US Civilian Labor
Force, 1970 to 2011
Year
1970
1980
1990
200
2010
2011
Share of the civilian labor force
5.30%
6.70%
9.30%
12.50%
16.50%
16.60%
Share of the total population
4.80%
6.20%
7.90%
11.10%
12.90%
13.00%
Sources Fiscal Policy Institute analysis of American community Survey 2010 five year
estimate.
Table 2
Immigrants as a Percentage of the Total US Population and of the US Civilian Labor Force
2011
Country
Population
Labor Force
business
owners
% business
owner & labor
force
population %
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US-Born
ForeignBorn
Total
Mexico
Korea
India
China
Vietnam
Canada
Cuba
Germany
Philippines
Italy
El Salvador
Poland
Colombia
Dominican
Republic
Jamaica
Guatemala
Others
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269,432,814
130,511,865
4,035,346
3.09193804
87.09652008
39,916,875
309,349,689
11,711,103
1,100,422
1,780,322
2,166,526
1,240,542
798649
1,104,679
604,616
1,777,588
1796255
1214049
475,503
636,555
25,461,093
155,972,958
7,598,985
573,202
1,093,220
813,492
765,074
444,091
554,356
293,691
1,142,099
170,509
843,880
297,433
411,871
899,842
4,935,188
105,247
56,073
62,526
34,181
31,283
27,648
35,769
14,980
19,788
16,910
13,858
17,448
16,578
3.534184491
3.164130541
1.38501392
9.782415274
5.719434332
4.201762279
4.08888552
6.225751029
6.452351918
5.100598929
1.732599363
9.917365066
1.642176613
5.866195076
4.025046677
12.90347992
100%
29.33872704
2.756783942
4.46007359
5.427594219
3.107813425
2.000780372
2.767448604
1.51468771
4.453224357
4.49998904
3.041442999
1.191233031
1.594701489
879,187
659,555
830,824
11,422,700
501,968
450,777
546,460
9,552,321
11,451
10,659
8,907
1,870,379
2.281221114
2.364583819
1.629945467
19.58036167
2.202544663
1.65232123
2.081385379
28.61621808
Sources Fiscal Policy Institute analysis of American community Survey 2010 five year
estimate.
Our findings are directed to three important areas where immigrants play a vital role in
US economy, which are real estate business, restaurant business and white collar business.
Chinese and Korean immigrants dominate restaurant business; whereas Indian immigrants hold
most white collar jobs. It is worth observing that more than 50% restaurant businesses are
owned by Asian immigrant (Graph-1 & Tables 3, 4).
Immigrants Population in Restaurant Business Census 2010.
Graph -1
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% Share in restaurants business
35
30
25
20
15
% Share in restaurants
business
10
5
0
Sources: Fiscal Policy Institute analysis of American community Survey 2010 five year
estimate. www.fiscalpolicy.org
Table 3
Immigrants Population in Real Estate Business Census 2010
Immigrant in Real
Country
estate
% Share in real state
Mexico
2,354
2.23
India
1,308
2.09
Korea
1,278
2.23
Cuba
1,863
5.2
China
1,274
3.72
Vietnam
1,153
3.68
Canada
2,128
7.69
Iran
1,651
6.52
Philippines
1,175
5.93
Poland
732
4.19
Sources: Fiscal Policy Institute analysis of American community Survey 2010 five year
estimate.www.fiscalpolicy.org
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The contribution of the immigrant in the area of real state is very low. It is not clear from table-3
it is not clear how much percent of real estate owned by immigrants and how much is the
percentage of the labor force.
Immigrants Business Owners in White Collar Jobs
Table-4
Country
Mexico
India
Korea
Cuba
China
Vietnam
Canada
Iran
Philippines
Poland
% share in white color jobs
1.79
29.93
5.71
6.76
9.14
8.95
17.55
17.05
17.13
3.19
Sources: Fiscal Policy Institute analysis of American community Survey 2010 five year
estimate.www.fiscalpolicy.org
Conclusion
It is clear that Chinese, Korean and immigrants from several other countries contribute a
great deal to the US economy through the restaurant businesses. This is one of the important
areas where immigration policies need to be liberalized for immigrants to boost up the US
economy. The second area of consideration is white color jobs where Indian immigrants
dominate. Americans are inclined to welcome upper tier immigrants, realizing that they
contribute to economic growth without burdening public services. Nearly half of foreign born
workers in America work in white color jobs, including management, sales, technology and
administration. They bring new ideas, start businesses and contribute to the economic growth of
the country. This view is supported by Kallman Moore. David Dysegaad Kallick also examined
the contribution of immigrants in the work force in 25 largest metropolitan areas. His study
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which was published in New York Times supports our conclusion. Our research study also took
into account the real estate business where immigrants do not seem to be very much interested.
However, real estate business can be converted as a source of attraction for immigrants,
enabling them to contribute to the economic growth. We recommend that a further research
needed in this area.
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References:
1. Astebro Thomas and Irwin Bernhardt. 2003. Start-Up Financing, Owner Characteristics and
Survival, Journal of Economics and Business, 55(4), 303-320.
2. Borjas, G., The self employment experience of immigrants, Journal of Human Resources, 21
(1986) 487-506.
3. Black, Jane, David de Meza, and David Jeffreys. 1996. "House Prices, The Supply of
Collateral and the Enterprise Economy." The Economic Journal. 106 (434):60-75.
4. Estimating the Contribution of Immigrant Business Owners to the U.S. Economy-Robert W
5. Fairlie, R & Robb, (2008) Race and entrepreneurial success: Black, Asian-, & White-owned
businesses in the United States, Cambridge, MA: MIT Press.
6. Fairlie, Robert W. 2008. Estimating the Contribution of Immigrant Business Owners to the
U.S. Economy, U.S. Small Business Administration, Office of Advocacy, Washington, D.C.
7. Fiscal Policy Institute analysis of American community Survey 2010 five year estimate.
8. David Dysegaad Kallick (2010)-“Immigrants and the Economy”
3
http://m.today.duke.edu/2007/01/engineerstudy.html)
4 http://www.researchtriangle.org
9. http://www.stephen-knapp.com
10. Jason Richwine (02.24.09, )- National Research Initiative fellow at the American Enterprise
Institute in Washington
8. (KamleshJain,Robert H. Smith &Vinod Jain-http://www.iaccindia.com/userfiles/)
9 .The Economics of Immigration: Theory and Policy –by Orn B Bodvarsson, Henric Van Den
(Chapter9,page221)
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10 . National Research Council, The New Americans: Economic, Demographic, and Fiscal
Effects of Immigration, ed. James P. Smith and Barry Edmonston (Washington, D.C.:
National Academies Press, 1997), p. 337.)
11 .Schuetze, H.J. and H. Antecol, Immigration, entrepreneurship and the mixture start up
process, the life cycle of entrepreneurial ventures: International handbook series on
entrepreneurship, Vol. 3, Parker, ed., Springer, New York (2007).
12 . Stevea G. Koven& Frank Gotzhe ,”American Immigration Policy”( Book-Chapter4.Page53)
13 .US Department of Homeland Security office of Immigration Statistics 2010 year book of
immigration Statisti.
14 .www.dhs.gov/ximgtn/statistic/publications/yearbook.shtm>
15 .Wadhwa, Vivek, AnnaLee Saxenian, Ben Rissing, and Gary Gereffi. 2007. "America’s New
Immigrant Entrepreneurs," Duke University Report
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THE THREAT OF NEGATIVE SYNERGY IN INTERNATIONAL PROJECT
MANAGEMENT DECISION-MAKING
Craig Winstead, PhD
Assistant Professor of Project Management
Saint Leo University
[email protected]
Shannon O. Jackson, PhD
Associate Professor of Business
Saint Leo University
[email protected]
Mayes Mathews, PhD
Professor of Computer Information Systems
Saint Leo University
[email protected]
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Abstract
Presented is a paradigm shift in the effective decision-making processes that evolves as a result
of the effect of negative synergy in the ever-growing environment of international project
management. The authors introduce the concept of negative synergy as a special case of
synergy where the whole is less than the sum of its parts. A discussion of the emerging role of
project management in international business, an emerging model of decision making under
conditions of negative synergy is suggested, and finally introduced are recommended ways to
reverse situations where decision making is sent into a destructive spiral due to the effects of
negative synergy. Negative synergy presents an interesting new way to increase comprehension
and understanding of the complexities of decision making in international project management
that may create more effective group decisions within international management.
Background
Three topical areas are significant contributors to an investigation into the impact of
negative synergy upon groups in international project management and the group decisionmaking process. Indicated first is a summary of the rise of project management in international
business and major business decision-making models in order to establish an environment that
encompasses decision makers. Indicated second is a likewise review of the fundamentals of
synergy and associated applications of synergy in various selected settings. Finally, the third area
of discussion indicated is a review of the importance of negative synergy on the international
project management decision making processes and protocols. Presented is a paradigm shift in
the effective decision-making processes that evolves as a result of the effect of negative synergy
on decisions made in international project management situations. A review of the literature
centering on project management, the development of global standards, decision-making
protocols, and the application of such project protocols to other industries is considered. Several
examples of the effect of negative synergy on decisions are introduced. An emerging model of
decision-making under conditions of negative synergy is suggested. Finally, ways to reverse
situations where decision-making is sent into a destructive spiral due to the effects of negative
synergy is introduced. Negative synergy and the application of project decision-making
principles present an interesting new way to increase comprehension and understanding of how
groups may make effective group decisions.
Introduction
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Groups working together to make decisions, to arrive at conclusions, to make
recommendations, and to derive policy have made spectacular progress in such diverse fields as
medicine, engineering, finance, and project management. The spectacular events and
accomplishments seen since the Industrial Revolution and those decisions stand in silent tribute
to the efficacy of managers capturing the positive aspects of synergy and synergistic
relationships to advance goals and objectives of firms (Buchholz & Roth, 1987). Nevertheless,
sometimes things go wrong generating spectacular errors and colossal failures as weaknesses in
decision-making occur (Kuhn & Poole, 2000). This paper will examine negative synergy as a
proposed explanation for such an event in terms of international project management, will
present a model of decision-making under conditions of negative synergy, and will suggest some
countermeasures that might be useful to improving the chances for future success under
conditions exhibiting features of negative synergy. Among such countermeasures is the potential
application of project management standards to the decision-making process in response to an
increasingly global practice.
Literature Review
The management of projects, defined in part as temporary, unique endeavors to achieve a
specific goal within scope, on-budget, and on-time, has grown in significance for industries
worldwide (Project Management Institute, 2012). As the international community embraced
standards set by the U.S.-based Project Management Institute (PMI), the foremost authority on
the subject, other organizations in counties such as China, Japan, and Australia developed their
own standards for specific industries that continue to add to the field (Crawford & Pollack,
2008).
The researchers reviewed the existing literature related to the growing significance of
project management on a global scale, the creation of various industry standards, and the use of
those standards and related processes to aid in decision-making activities. The objective of this
review is to link decision-making activities espoused by project managers (PMs) to better
decision making for teams experiencing negative synergy.
Overview of Project Management
The temporary, unique nature of projects typically creates an environment where the PM
forms a project team consisting of individuals who often do not work together on a regular basis.
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Their goal is not only to complete the project, but also to connect project results to business
goals. Participating in formal processes contained in PMI’s A Guide to the Project Management
Body of Knowledge (PMBOK Guide), creates a framework from which project teams learn to
compete at a higher level within their markets (Project Management Institute, 2012). PMs use
numerous tools such as Gantt charts or network diagrams to visualize project progress and to
manage time, cost, resources, and quality (Arden, 2008).
Crawford and Pollack (2008) submit that the use of such standards is a clear sign of
maturity in any industry. Classic project management processes promoted through the PMBOK
Guide occur within the five process groups of initiation, planning, execution, monitoring/control,
and closing. Each of these process groups requires in-depth knowledge of such variables as cost,
quality, scope, risk management, and communications (Project Management Institute, 2012).
Such skills may add to the decision-making capabilities of project and marketing managers alike.
Increasingly Global Nature of Project Standards
Organizations worldwide continue to realize progressively the benefits for prescribed,
professional standards related to project processes and implementation techniques (Arden, 2008).
The mid 1900s saw a noticeable surge of projects with international consequence including ones
with global operations and project management. The PMI remains the largest professional
organization related to project management and their PMBOK approach is still the most widely
used in the field (Crawford & Pollack, 2008). However, PMs have begun to take notice of
alternative approaches such as Value-Driven Change Leadership (VDCL) that encourages the
measurement of the value/outcome of a project over the traditional budget/schedule
measurements. This approach then places emphasis on outcomes of a project as opposed to cost
and schedule performance (Nicholas & Hidding, 2010).
VDCL is but one example of a host of alternative approaches to project management in a
growing field of study. Other approaches and decision-making activities developed by
professionals in organizations across the globe are beginning to take root. Some notable,
professional organizations include Project Management South Africa (PMSA), the United
Kingdom’s Association for Project Management (APM), the Japan Project Management Forum
(JPMF), the Australian Institute of Project Management (AIPM), China’s Project Management
Research Council (PMRC), and the International Project Management Association (IPMA),
which operates not only in Europe but also in Africa and Asia (Crawford & Pollack, 2008).
Members of these organizations number well into the hundreds of thousands and add greatly to
the discussion on project management processes and to decision-making techniques in particular.
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Project Management Decision Protocol
Frequently, PMs face the challenge of managing both the technical aspects of the project
(budget, resources, scope, schedule, etc.) and the human factors of interpersonal relationships
among a diverse team. This may include working with team members from differing departments
within the firm to those with varying organizational, ethnic, generational, or cultural
backgrounds (Wong, 2007). Skills required of PMs include “…problem-solving, teamwork,
leadership, critical analytical thinking, time management, managing relationships, attitudes, and
expectations, and the ever-critical communications, to the problems raised in the day-to-day
managing of projects, programs, and portfolios (Kraus, 2007, p. 3). Adherence to strict project
controls and standards to manage the technical and human factors adds to the decision-making
capabilities of PMs (Wong, 2007).
Major decisions required by PMs include input into the selection of projects,
monitoring/control, resource, risk, conflict, and stakeholder management (Ardren, 2008; Wong,
2007). Regardless of the type of decision required, PMs often follow the project management
protocol of a) establishing decision criteria, b) producing and analyzing alternative approaches,
c) weighing alternatives to decision criteria, d) determining the favored alternative, and e)
implementing the decision. PMs base such decisions on historical data from past projects and
previous project outcomes if applicable to the decision criteria (Ardren, 2008). Jankovic, Stal-Le
Cardinal, and Bocquet (2010) add that project decisions include realistic objectives that
correspond to the market; and that decisions are often made using collaborative efforts as no one
team member often has the technological ability to make the decision alone. This common
decision-making approach is part of a growing standard that creates a sense of reciprocity
between established professional standards in other management fields with the field of project
management (Crawford & Pollack, 2008).
Classical Decision Making
There are four widely accepted models of business decision-making: the Rational or
Classical Model, Simon’s Bounded Rationality Model, Vroom and Yetton’s Normative Model
and the Intuitive or Heuristically based model. In addition, there are a number of protocols for
enhancing group decision-making. This section of the paper will discuss the four decision
models and various suggestions for improving the efficacy of group decision-making.
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The Rational Model. has been the dominate model of decision making since WWII
(Prusak, 2005). The model is based on the following eight steps:
1.
2.
3.
4.
5.
6.
7.
8.
Identification of the problem
Identification of the decision criteria
Allocation of weights to criteria
Development of alternatives
Analysis of alternatives
Selection of an alternative
Implantation of the alternative
Evaluation of the decision effectiveness (Robbins & Coulter, 2005).
The model, however, has inherent flaws. For instance, it assumes that the exact problem to be
dealt with can be clearly identified. Therefore, for example, according to the Rational Model, if
the manager sees there is a problem with turnover in the organization, the model assumes that
turnover is the problem to be solved, not, perhaps, a symptom of a larger problem in the
organization. Possible errors in the identification of the problem can, obviously, lead to
problems with the rest of the model since the original assumption in the eight-step process may
be erroneous. Other problems with the model lie in its assumptions of rationality; that , for
instance, there is only one single-well defined goal to be obtained; all alternatives and
consequences can be known; preferences are always clear and those preferences remain constant;
there is unlimited time and monies available and that the final decision can be an optimal
decision (Robbins & Coulter, 2005).
The Bounded Rationality Model. The problems with the Rational Model, led some, like
Herbert Simon, a political scientist, to explore the limits of rationality in the model. Simon
suggested, in his investigation of the model, that the Rational model “leaves no room for regrets,
second thoughts or ‘weakness of will’” (Simon, 1986). He suggested, instead, that business
decisions are made under conditions of “bounded rationality” (Simon, 1947). In this model of
Bounded Rationality, the inherent flaws of the Rational Model are taken into consideration in the
decision making process and suggests that managers make decisions rationally, but are
“bounded” by their inability to process the information required to make an optimal decision.
Simon (1947) coined the term ”satisfice” to mean that managers, because of their limitations to
process information, are not able to make an optimal decision, but merely a satisfactory and
sufficient decision (Robbins & Coulter, 2005).
The Intuitive Model. The third widely accepted model of decision making in the
business literature is the Intuitive or Heuristically based model. The Intuitive model also points
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to problems in the Rational model. For instance, Nutt said that when manager’s use the Rational
model to make decision they “struggle to reach the 50% success mark.” (Sinclair, Ashkanasy,
2005). The literature (Wally & Baum, 1994; Tomer, 1996; Kuo, 1998; & Agor, 1984) suggests
that the Rational model is being replaced by a more “holistic model” (Sinclair, Ashkansy) model
that takes into account the threat of high decision costs, increased time constraints and more
ambiguous, dynamic environments. The Intuitive model suggests that managers make “gut”
decisions or decisions based on past experiences so they can “act quickly with what appears to be
limited information” (Robbins & Coulter, 2005). One study “revealed that almost one-third of
(them) emphasized ‘gut’ feelings over cognitive problem solving and decision-making” (Robbins
& Coulter, 2005).
The Normative Model. Whichever the model followed, the individual decision maker is
emphasized. Vroom and Yetton’s Normative Model is one of the few business decision-making
models that emphasizes consultation and group dynamics (Vroom & Yetton, 1973). Vroom and
Yetton based their group decision-making model on the ideas that situational factors cause
“almost unpredictable leader behavior” (faculty.css.edu, 2006). The authors explain that five
different decision procedures are followed: two autocratic, two consultative and one totally
group based:
A1: Leader takes known information and then decides alone
A2: Leader gets information from followers, and then decides alone
C1: Leader shares problem with followers individually, listens to ideas and then decides
alone.
C2: Leader shares problem with followers as a group, listens to ideas and then decides
alone
G2: Leader shares problems with followers as a group and then seeks and accepts
consensus agreement.
Vroom and Yetton (1973) assumes that participation of those involved in the decisionmaking process increases acceptance of the decision and that increased acceptance increases
commitment to the decision.
Nevertheless, even with the increased attention to participation by others in the decisionmaking process, there are factors that suggest that the results of group decision making are
different from individual decision-making. For instance, there “are some decisions which
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employees simply accept because they are indifferent to them” (Hoy, Tarter, & John, 1993). In
addition, if there is little group commitment to a decision, then participation in the decision
making process should be limited because it may influence the direction in which the decision
maker wishes the solution to turn (Hoy, Tarter, & John, 1993).
In order to increase the efficacy of group decision making there are several suggested
conditions. For instance, giving groups “task –relevant information that simplifies…their
tasks…, more cohesive groups tend generally to be more productive, group norms that favor
productivity...” (Kerr, Tindale, 2004); group commitment to organizational goals and tasks and
group expertise all enhance the quality of group decision making. In fact, even seemingly
simplistic suggestions like larger groups allow for more diverse input, having an odd number of
people in the group helps to avoid stalemates and having a group large enough to allow for
members to “shift roles” but small enough for “quieter members to participate” (Robbins &
Coulter, 2005) all enhance the group decision making process.
Forms of Synergy
Usually synergy is thought of as getting more done with less (Francis & Young, 1979).
In reality, synergy is found abundantly in a variety of natural systems. The idea that the whole is
somehow greater than the sum of the subsets of a system and the concept is divergently applied
universally across such disciplines as engineering, medicine, chemistry, business, leadership,
psychology, and social work. The benefits of shared energies are apparent. For example, a
monkey and a gorilla stand under a banana tree each hungry for a piece of ripe fruit. Neither can
reach high enough to gather it. However, if the monkey stands on the shoulders of the gorilla,
they can accomplish together what neither of them could have accomplished alone.
Doctors know that certain medications are useful in treating diseases. A diabetic may
reduce the risk of death through damage to their heart, liver, eyes, nerves and kidneys by taking
insulin injections. Alternatively, the patient may reduce the risk of death through blood clots that
can induce strokes and heart attacks by simply taking a children’s strength dose of aspirin every
day. However, when both are taken together, the risk of death is dramatically reduced to levels
that greatly enhance longevity.
A business that has a potential advertising budget of two million dollars might spend the
entire amount on magazine ads and expect to gain an additional five million dollars in revenue.
Alternatively, they may elect to apply the increase to their personal selling budget by that amount
and obtain a four million dollar increase in revenue. However, the more powerful result might
be to apply one and a half million to advertising and the other half million to personal selling
with a resultant increase of revenue of twelve million dollars. Why? The marketing manager
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would say that each promotion method reinforces the other. However, in reality, this is but an
excellent example of synergy. The whole is greater than the sum of the parts.
Synergy has an important place in all aspects of systems theory and its application to
science, medicine, and business. Understanding when and how to apply synergistic relationships
may be a key success factor for implementing strategic, tactical and operational planning at all
levels and functions throughout a firm.
Negative Synergy
Negative synergy may be thought of as the logical opposite of synergy. (Phillips, 2001)
What is often not as well recognized nor appreciated is this reverse effect: represents a condition
where the sum of the subsets of a system is less than the sum of the whole. However, this
negative synergy concept, too, has widespread but under recognized applications. For example,
the loss of a right eye has serious consequences. The beholder may lose peripheral vision, there
may be a loss of depth perception, and some disfigurement may exist. Likewise, the loss of a left
eye may result in similar serious consequences: the beholder may lose peripheral vision, there
may be a loss of depth perception, and some disfigurement may exist. Either eye is obviously a
subset of the whole vision system. The loss of either subset is not desirable. Now consider the
loss of both eyes. The consequences are much more severe than the loss of either subset alone.
The combined loss and concurrent resulting total blindness then has a negative synergistic effect
that is much more adverse to the total visionary system than that experienced by the loss of either
individual subsystem.
In the Sudan, relief efforts are frustrated for years. The region is characterized by
overpopulation, too many people. Additionally, pool soil conditions coupled with low annual
rainfall; result in overgrazing by the animal population to the point that herdsmen loose a
significant number of animals each year due to malnutrition and drought. Likewise, the region
will not provide enough surface crops to sustain the number of people living in there. An epic
surge of HIV/AIDS related deaths has left entire generations of children without any surviving
parents or home life of any form. Any of these issues would be difficult to overcome but the
sum of all is devastating. The cumulative effect of negative synergy is so overwhelming that the
solution to the situation in the Sudan is almost beyond human comprehension or understanding.
The result of the effect of negative synergy leaves policymakers without a clue as to how to
proceed best (Mathews, 2006).
Negative synergy is a force to be reckoned with. Managers must be aware of its potential
impact. They must be as aware of the possibility negative synergy appearing in relationships as
they are of the occurrence of the effects of positive synergy.
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Group Manifestations of Negative Synergy
When someone is involved in making decisions in a group setting, the possibility exists
that the group or team may come to a better decision than any one individual may. This
approach using the concept of synergy underlies the models previously discussed. However,
none addresses the effect of negative synergy. This, and its ramifications, will be discussed in a
setting roughly based upon the popular communications model, the JoHari Window (Luft &
Ingham, 1955).
The JoHari Window is, “a model named after its creators, Joseph Luft and Harry Ingham
(hence Joe/Harry…), and is a way of describing how we give and receive information about
ourselves and others”(Team Building Tips, 2006). The metaphorical model is a tool that is used
to help people understand better relationships in groups and is used primarily as a heuristic
exercise (Chapman, 2006). The model has been adapted into many forms (e.g.; NoHari (Hase,
Davies & Dick; 1999) and JoHari (Luft & Klett, 1972).
Figure 1 titled Negative Synergy Group Decision Model, shows one variation that has
been developed to facilitate discussions of negative synergy in group decision-making settings.
Four quadrants are used to categorize the relationships among self and groups on two dimensions
– action and feelings. Hence, the four quadrants may be described as follows:
How I Act. This quadrant is where I project myself to the group. It is the outward set of
clues as to my identifiable, open communications in either verbal or nonverbal form. If I
am attentive, open, strong, secure and engage in imaginative solutions to problems then
that message is sent to the group.
How the Group Feels. The second quadrant shows how the group reacts inwardly to the
actions that I have processed. Such a reaction might be feelings of being conceptually
supportive, seeking inward concurrence, striving to remain engaged, or identifying areas
of future discourse. The reaction is inward with no outward manifestation of the secret
internal process.
How the Group Acts. This quadrant gives the external or public response to the
internalization that has taken place within the group (minus me). The result might be to
convey sympathy of concurrence. Alternatively, the group might convey confusion or a
need for clarification. Again, this quadrant represents a public manifestation of the secret
internalization that has taken place.
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How I Feel. Finally, it is here that I process the communications from the group.
Inwardly I may either accept or reject an interim decision. I may feel confused and ask
for clarification or I may accept a degree of finality towards a decision.
Figure 1- Negative Synergy Group Decision Model
When a group is in a state of equilibrium in their decision-making processes, it remains
stable. How I feel or react is appropriate to how the group has acted. My actions are proportional
to how I reacted. The group properly reads my external messages and reacts accordingly.
Finally, the group endeavors to continue the decision-making process and working towards an
eventual decision.
However, a different reaction occurs when positive synergy is a factor in the decision
process. A new element has resulted in a new dynamic that is better than that seen before. A
new advertising slogan has been suggested or a new line of products proposed. The key here is
that the cumulative effect of the decision making process was as expected. The whole increased
over its initial position. However, the shift does not continue indefinitely since such an action is
resource constrained. Finite reality serves as a buffer or limit on unbounded increases due to a
synergistic effect and such a model is beyond the scope of this paper.
However, there exists a third possibility – that of negative synergy. If How I Feel is
smug, cynical, inflexible, or unethical. That reaction is not positive. How I Act then adds to the
unfavorable situation. My actions may be loud, cowardly, aloof, or insensitive. Moreover, those
actions will not be well received. The group might react in unimaginative, impatient, callous, or
insecure ways. In addition, that reaction could be shown through group actions that are selfish,
loud, lethargic, or cruel. However, negative synergy does not stop here. How the group acted
affects how I react and the cycle continues repeatedly. A spiral of negative synergy may set in
and the group decision-making process spirals inward until the system decomposes into absolute
failure.
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There is a popular model of group decision making gone awry, such as that described in
Irving Janis’ Groupthink (Janis, 1977). Janis describes how too much group cohesion can result
in limited alternatives being considered in group decision making behavior and could result in
the incorrect decision being made. However, if Groupthink is but a special case of negative
synergy, at least the concept of Groupthink gives cause to consider the possibility for remedies
under conditions or situations where negative synergy has resulted in a downward spiral in the
decision making process.
What to do About It
An examination of the four quadrants in Figure 1 quickly reveals that three of the four
represent states beyond “my” control. The only quadrant that I can effectively influence is How I
Act.
How should I act? Avoid situations that increase the probability of increased,
unwarranted risk. At least avoid giving an impression of being overly optimistic as to the
outcome when, in fact, it is not nearly as certain as it is being presented by the group. Act with
caution to defuse risky adventures. Be aware of warning signs. Do not let the groups actions
discredit or rationalize away those warning signs for prudent action. The advice to take a deep
breath before going forward may be a simple heuristic that might give time to reflect on
assumptions made in the decision process to evaluate if they really are as true as they were
assumed to be initially. Be careful that the moral actions proposed by the group are indeed also
ethical. It is easy for the ethical opinions of individuals to become confused and even accepted as
equal to the external ethical standards of a group. You need to raise the criteria to the appropriate
group standard.
It is important not to underestimate the competition and the competitive atmosphere that
surrounds a firm in decision making. Do not let the group lead you to the assumption that your
team in invincible. You probably are not. Also, do not let the group persuade you that
expressing an opposing viewpoint represents disloyalty to the group process. In reality, the
reverse is true. Giving a good counter argument is a very effective way to turn aside a cycle of
negative synergy. In the same regard, do not let your silence be misread as concurrence with the
action by the group. Shift the focus. Do not let the group encourage complacency. If you not
concur with the signals sent by the group’s actions, stop the spiral.
The only element of negative synergy that you can influence is how you act. Therefore,
each action must send a clear signal as to where you see actions going. Otherwise, only you can
reverse the effects of negative synergy. You must make the choice.
Summary
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Presented here has been a small step proposed to advance the decision making paradigm
by expanding the original conditions assumed in major models to incorporate negative synergy
into the dynamics of conventional approaches. This paper does not attempt to derive proofs for
the new models but instead proposes a paradigm shift that would accommodate negative
synergistic effects within the framework of the existing body of knowledge. It advances only the
concept.
This paper proposes, perhaps for the first time that internationally accepted project
management principles might provide a framework for better decision making among those
managers experiencing negative synergy. Knowing that numerous project managers make
decisions through team consensus or some other collaborative method due to the highly technical
nature of many international projects contributes to the concept of synergy directly (Crawford &
Pollack, 2008). The researchers suggest additional field research and observations connecting
project management principles to negative synergy to increase the value of this observation.
Furthermore, a new challenge in the group decision-making process is the addition of
electronic meetings. According to a study done by PricewaterhouseCoopers, cited in Fortune
(Fisher, 2004), 45 % of “lucrative “ ideas come from employees via email and chat sessions; to
stimulate that “in-house” gold mine of ideas is a new frontier for managers concerned with
decision making. No work is known to exist examining the effect of negative synergy in such a
rich environment for decision making in international project management. Therefore, a large
balance of the work remains yet to be done in subsequent expanded versions of the material
presented here.
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Chapman, A., (2005) Window models of awareness and group relationships.
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Simon, H. (1847) Administrative Behavior. Macmillan: New York.
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Wong, Z. (2007). Human factors in project management: Concepts, tools, and techniques for
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CORRUPTION BEGETS CORRUPTION IN DEVELOPING COUNTRIES ECONOMY HOW COULD THE USE OF TECHNOLOGY CHANGE THE LANDSCAPE
Dr. Okey Igbonagwam
Department of Computer Information Systems, Saint Leo University
Virginia Beach, VA, USA
[email protected]
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Abstract
This paper is intended to investigate what role technology can play in fostering good business
practices that could deter economic corruptions and extortions in the developing countries. This
paper first will provide a problem statement with a brief description of the corruptions in form of
bribery and extortions based on Foreign Corrupt Practices Act (FCPA) and its provisions.
Second propose defines bribery and extortion. Our definitions have the consequence that,
contrary to what is often claimed, many of the kinds of payments forbidden by the Foreign
Corrupt Practices Act are not instances of bribery, but rather extortion. Thirdly we will present
an economic analysis of bribery and extortion and explain why they are thought to be
undesirable practices from an economic point of view. Fourth, present two case studies to
support the use of technology to mitigate and facilitate business in the developing nations;
subsequently presume will improve economic practices and sustain business.
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Introduction
The Saint Leo University International Business Conference (IBC) theme is “Sustainable
Development in a Global Economy: Creating Vibrant Economies.” In accordance with the IBC
theme, the main research problem this study will address is some economic deterrent issues in
the developing nations. More specifically, this study will investigate any contributions of
perceived bribery (PB), perceived extortion (PE), and targeted aids/assistance (TAA) to the
perceived business practices (PBP) for developing nation’s economic growth.
This paper introduces corruptions and extortions could retard sustainable economies
vision in the developing nations. In some developed nations there might be perceived strong
moral presumption against either making or accepting bribery payments. Thus, the United States
Congress 1977 responded to the public detest of corrupt practices by passing the Foreign Corrupt
Practices Act (Gustman, 1977; Thomas, 1985).
This paper will also argue that there is perceived presumption for extortion payments
hindering economic growth in many of these developing nations. An issue might be in some of
these nations some forms of payments forbidden by the FCPA are morally permissible,
emanating from cultural norms. We assert in this paper that corruption and extortions is a
boomerang contributing to economic retardation of the developing nations.
This paper first will provide a problem statement with a brief description of the
Corruptions and extortions based on Foreign Corrupt Practices Act" (FCPA) and its provisions.
Second propose definitions of bribery and extortion. Our definitions have the consequence that,
contrary to what is often claimed, many of the kinds of payments forbidden by the Foreign
Corrupt Practices Act are not instances of bribery, but rather extortion. Then, third it will present
an economic analysis of bribery and extortion and explain why they are thought to be
undesirable practices from an economic point of view. Fourth, present two case studies to
support the use of technology to mitigate and facilitate business in the developing nations;
subsequently presume to improve economies in the developing nations.
The definitions of bribery and extortion issues have been studied in the past, (Thomas,
1985; Annals of the American Academy of Political and Social Science). Thomas (1985) defined
them by contrasting "extortion" with bribery. Thus, “a clear case of extortion could be gangster
threatening to blow up one’s store unless I pay him for "protection" e ach month, and a
policeman threatening to frame someone for a crime unless he pays him money.” He further
explained that extortion is times construed in a very narrow sense as an official's demanding
payment for services that he is obligated to perform without payment.
In contrast, bribery could start from the favor sicker to an officer payment for doing
something contrary to the duties of his position. However, this paper will define, extortion as not
just when an official demands payment for doing something that he ought to do without being
paid but also when criminals demand money or favor in exchange of goods and services
protections. This is still supported by Thomas’s suggestion of extortion as “an act of threatening
someone with harm in order to obtain payment or other benefits to which one has no prior
entitlement.” Other studies have also indicated what bribery could be, including a source for
common forms of corruption (Wated and Sanchez, 2005; Walzer, 1997; Association of Certified
Fraud Examiners, 1997; Sullivan, 1999). Rose-Ackerman (1999) qualified a bribe as “a payment,
in money or in kind, that involves a reciprocal obligation and that aims at inducing the unethical
behavior of the person receiving the bribe.” This paper will base further discussions on
perceived bribery and extortion with the support of these literature reviews.
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Our research found little or no studies on targeted assistance, as Woodward and Ribar
(2012) noted, “… much less, however, about whether targeted assistance, such as the SBP,
NSLP, and WIC, affects out-comes for non-targeted household members.” Their study suggested
that social scientists conceptualize that targeted and non- targeted food assistance may impact
each individual differently in regards to food consumption. Other researcher by Oliveira and
Gundersen (2000) investigated the relationship between WIC participation and young children’s
food consumption, comparing outcomes for targeted and non-targeted children in WIC-receiving
households. This latter comparison suggests that non-targeted children do not benefit from
household WIC participation.
Therefore, this research will investigate to what extent TAA benefits recipients; and any
impact to PB and PE to positively influence PGBP. In our hypothesis section will discuss some
of the relationships between independent and dependent variables.
Since few studies have developed and empirically tested theoretical models of the PB,
PE, and TAA, however, Wated and Sanchez (2005) study explained the manner in which
managers handle an employee bribery behavior; their study was based on Fishbein and Ajzen’s
(1985) theory of reasoned action. The fundamental overarching argument of this research is that
the nature and scope of the PB, TAA, and PE impact the nature and scope of PBP and possibly
economic improvement outcome.
Study Framework
In this section, we will build the hypotheses for our research model (see Figure 1) for
sustainable economic in the developing nations through technologies. All the hypotheses pertain
to actions on the perceived good business practices. These are extant literature on PB, PE, and
TAA. Just the threat of PB and PE could discourage sustainable economic; reflecting from
researches in information security suggested that people can be discouraged from using the
Internet because of perception of vulnerability to threat that they are not even familiar with
(Downs et al. 2006; Lee and Geistfeld 1999). Since perception of threat is an essential
component of assessing the threat in order to take the appropriate decision (Liang and Xue 2009;
Woon et al. 2005), we propose to test the following hypothesis:
H1: Higher the targeted aids/assistance, the less reliant on bribery
H2: Higher the targeted aids/assistance, the more potential for perceived good business
practices and sustainable economy.
H3: Higher the targeted aids/assistance, the less extortion in perceived good business
practices and sustainable economy.
H4: Higher bribery, the less for perceived good business practices and sustainable
economy.
H5: Higher extortion, the less for perceived good business practices and sustainable economy.
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PERCEIVED
BRIBERY
Saint Leo University 2013
H
H1
H4
TARGETTED
AIDS/ASSISTANC
E
PERCEIVED
EXTORTION
H3
H2
PERCIEVED GOOD
BUSINESS PRACTICES
SUSTAINABLE
ECONOMIC
H5
Infections, Lack of community, Personal responsibility and Economic retardation
INSECURITY
CULTURAL NORM
CAPITILISM
Figure 1. A Perceived Good Business Practice Framework
Method
The proposed study involves an exploratory case study that will qualitatively
search for complex variables in order to understand the process by which a technology-driven
case could impact other variables formed (Glesne 2006). The qualitative approach allows an indepth examination of the policy-related phenomenon, while recognizing the issues in their
multifaceted forms, dimensions, and layers, without simplifying the phenomenon observed from
multiple participants and their individual experiences within an organizational setting (Creswell
2003; Leedy and Ormrod 1985).
According to Benbasat et al. (1987), much insight can be gained from case study
research, especially when the research is not preceded by numerous related studies. This case
study comprises an all-encompassing method, which covers the logic of design, data collection
techniques, and specific approaches to data analysis (Yin 2003).
Data will be collected using multi-methods (i.e., survey, observations, document reviews)
to strengthen the results through triangulation (Creswell 2003; Kaplan and Duchon 1988; Yin
2003). Since qualitative research is assessed on the quality and rigor of the research (Creswell
2003; Yin 2003; Guba and Lincoln 2005), Tables 2 and 3 briefly identify the validity and the
reliability criteria important to the credibility of this case study.
Case Studies
This study would believe that impact of technology would positively influence PGBP
through TAA devices, especially on a small scale for small businesses. Studies suggested
collation between technology and business productivity, Stadler (1990) study on business cycle
models with endogenous technology assumed that random changes in or "shocks" to productivity
or technology cause output fluctuations in perfectly competitive environments. Even though
technology maybe independent of economic forces; thus, exogenous to the economic
environment. However, Stadler study indicated that there is “substantial theoretical and empirical
literature that emphasizes the dependence of technological progress on economic factors,
implying that technology is, to a large degree, endogenous.” Other works that suggested the
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importance of technology and innovation include (Arrow, 1962; Eltis, 1971; Schmookler, 1966;
Utterback, 1974).
Studies showed technology as such the Internet offers great possibilities through manyto-many" communication model beyond traditional marketing media, in which the flow of
information is unidirectional (Berthon, Leyland, and Watson, 1996; Hoffman and Novak 1996;
Hoffman, Novak, and Chatterjee 1995). Thus, the two case studies in this paper also are Web
enabled to provide detailed product information, establish a presence in new markets, enhance
small businesses and encourage consumer involvement in developing their products, establish
interactivity with the consumers.
Eliminating the human element in services is a key to this paper, and Watson, Pitt, and
Berthon (1996) suggested that the Internet and the Web can offer such capability through
customization. According to Watson, Pitt, and Berthon (1996, p. 00), this will "eliminate
variability ... by allowing [information technology to create and deliver the precise service that
the customer desires."
This paper is investigating case one, MPESA, a low cost secured real-time fund transfer
via the cell phones. According to (http://www.safaricom.co.ke/?id=257). An early assessment of
the money transfer system indicated three major lessons have emerged from M-PESA. First, it
demonstrates the value of leveraging mobile technology to extend financial services to large
segments of unbanked poor people. Second, it shows the importance of designing usage-based
rather than float-based revenue models for reaching poor customers with financial services.
Unlike a traditional bank, which typically distinguishes between profitable and
unprofitable customers based on the likely size of their account balances and ability to absorb
credit, M-PESA serves any Safaricom mobile customer who pays for an account. And third, MPESA reveals the need for a low-cost transactional platform that enables low-income customers
to meet a range of payment needs.
Case two to investigate is Kiva Micro Finance, a nonprofit organization, promoted as a
link between small individual lenders and small individual borrowers. Which has been extolled
by personalities like (Oprah Winfrey, talk-show host; David Roodman, a research fellow at the
Center for Global Development; Nicholas D. Kristof, a columnist for The New York Times).
According to Nicholas D. Kristof, who “lent $25 each to the owner of a TV repair shop in
Afghanistan, a baker in Afghanistan, and a single mother running a clothing shop in the
Dominican Republic.”
Ogden (2009) extensively described Kiva as “the person-to-person micro-lending site,
has been held up as something of a poster child for social entrepreneurship. The site lets users
choose an entrepreneur in a developing country and make a loan to them. This ability to
personally help someone escape poverty has obvious appeal. The site has caught the eye of
celebrities like Oprah Winfrey and New York Times columnist Nicholas D. Kristof with
predictable results: explosive growth for Kiva. The organization has also drawn praise for being
a model of Web 2.0 thinking. Kiva has built APIs so that anyone can create a mashup with its
data. And it has cultivated user interaction through such sites as kivafriends.org.”
Thus, this paper believes with the direct person-to-person connection Kiva, it facilitates
TAA without PB and PE risks. One intended outcome would be truth-in-impact to facilitating
economic growth in the developing nations.
Investigating practical approaches to supporting economic growth in the developing
nations is a new endeavor. Economist Paul Romer ted talks, August, 2009 presented, “Why the
world needs charter cities.” He wondered how a struggling country breaks out of poverty if it's
trapped in a system of bad rules. Economist Paul Romer unveils a bold idea: "charter cities,"
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city-scale administrative zones governed by a coalition of nations. (Could Guantánamo Bay
become the next Hong Kong?).
NPR, November 09, 2012, Episode 415: Can a Poor Country start over, Virginia Mayo
discussed with Paul Romer, a radical new model of growth and governance, which calls for the
establishment of city-scale special administrative zones.
Base on the success of these cases, we will argue that government policies should support
individuals’ legal rights to facilitate these case studies phenomena, thus, protect the sanctity of
economic environment. Jenks (1908) wrote “…much personal comfort in a discussion of their
"natural rights", as if they had rights opposed to the legal rights given them by the state. Such an
expression is, of course, an excellent talking point as a basis for argument to convince people,
and perhaps through them to change the opinion of the government as to what should be done.”
Though, he argued that the immediate principle to direct governmental action, the theory
of natural rights, as interpreted by the individual beyond what is laid down in law is a vagary of
enthusiasts, a breeder of fanaticism; and it is harmful, because it turns aside from practical means
the minds of many of our most unselfish, high-minded, public-spirited citizens.
The only sound basis for advocating a change in governmental policies is that the welfare
of society will be improved by the change advocated. Let all arguments for social reform be
made on this basis; let the weight of argument show the practicability of securing the desired
benefit; convert thereby as many of the citizens as possible; thus you may convert the
government. The whole question of governmental activity in business matters is not one of the
"natural right" of an individual as against his government or against his fellow citizens; it is one
of the thoughtful judgment of the few men who are directing the affairs of political society as to
the practicable means for doing their duty under the powers laid down in the constitution and
laws.
An online and/or paper survey will be administered to local business owners in two
developing countries where the study participants will be requested to recruit additional
participants for the study.
Conclusions and Findings
This study’s findings would either support any evidences that technology influences
TAA, subsequently facilitates elimination or reduction in PB and PE. With support of these
variables, this study would conclude that a developing nation economy could improve base on
this model.
Then, it would be prudent to build a business model to take advantage of intended
business growth; hence, the world is now a global village. Thus, most of the transaction
processing could be based in better secured technological advanced places to ensure that PB and
PE are not in play.
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CELEBRITY ENDORSEMENT AND CONSUMER BUYING BEHAVIOUR;
ENHANCING THE PROMOTION FUNCTION OF MARKETING IN THE CENTRAL
BUSINESS AREA OF ACCRA, THE CAPITAL CITY OF GHANA
Mr. Wilson Edzorna Dzisah, MBA, B.Ed
Lecturer in Marketing
Accra Polytechnic
[email protected]
Mr. Chosniel Elikem Ocloo, MBA, BA
Lecturer in Marketing
Accra Polytechnic
[email protected], [email protected]
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Abstract
This paper examines the phenomenon of celebrity endorsement in advertising as part
of marketing promotions. The concept is considered as a measure of positively
influencing consumers’ behaviour towards making a purchase of a company’s offer.
The major considerations in this paper were to unravel the factors or variables
considered in selecting a celebrity or making a purchase; the extent to which a
celebrity’s endorsement influences consumers’ purchase or re-buy behaviour; as well
as its influence generally on marketing promotions. The reviewed literature and the
data captured from about a hundred and forty-eight respondents covering
management, internal customers and external customers give the findings a high level
of validity and reliability. The results indicates that company’s select celebrities
based on credibility, brand match and attractiveness whiles consumers’ are
influenced by price, celebrity endorsement, quality and packaging. There was
overwhelming agreement for a greater extent of influence on behaviour as well as
marketing promotions. The paper concluded on the positive relationships celebrity
endorsement has with consumer behaviour and marketing promotions in general. It is
recommended that companies using celebrities should ensure that the celebrities
match the brand, that is, the celebrity must have the value and image required to
advertise the brand. It is only when adverts are matched up by attractiveness and
expertise that the brand attitude would be more favourable, and find greater purchase
intentions shall be replicate this study in Togo and Nigeria to gauge the regional view
of the influences of celebrity endorsement on consumers’ purchase behaviour.
Key Words: Celebrity Endorsement; Consumer Behaviour; Marketing promotions; Accra,
Ghana
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1. Introduction
In marketing promotions, most especially in advertising, a testimonial or an endorsement
consist of a written or spoken statement, sometimes from a person figure or private citizen,
extolling the virtue of one product or the other.
Celebrity endorsement according to Solomon (2009) is the use of famous athletes, movie
stars, music icons and television stars in promoting or advertising of goods and services. It is
also significant to know that celebrities can also play a devastating role that can lead to the
collapse of the company or product. Recently, companies that have their products endorsed
by Tiger Woods and Lance Armstrong in advertising their products have experienced a
drastic decline in sales as a result of the negative moral questions that hanged over the necks.
Indeed, the two personalities were named as the worst celebrity endorsement of year the
2010, a U.S study revealed. Therefore in choosing a celebrity to endorse, the credibility of
the person should be considered since any mishap can affect the buying behaviour of
customers (McCracken, 1989).
Central to every economic system are exchanges between suppliers and purchasers or
consumers. The actual satisfaction of a want or need comes about through the exchange
process, and occurs when suppliers and purchasers give to each other something else of
value. It is in this light that marketing functions are inevitable.
Advertising is seen as the non-personal communication of information usually paid for and
usually persuasive in nature about products, services or ideas by identified sponsors through
the various media. Or a form of non personal promotion that is delivered through selected
media outlets that, under most circumstances, require the marketer to pay for message
placement (Belch & Belch, 2004).
Advertising has three main objectives; differentiating, reminding informing and persuading.
Through advertising, potential buyers are informed about the availability and nature of a
product. And when an existing product is being improved in any way, it has to be
communicated to potential buyers. Once buyers have been informed, they need to be
persuaded to purchase the product. This is accomplished by transmitting a positive set of
beliefs about the key attributes of the product. Then, knowing that potential buyers are not
constantly thinking about its products and brands, marketers continually remind them of its
existence and availability (Belch & Belch, 2004).
Research Questions
The study seeks to address the following questions;
•
What is the influence of celebrity endorsements on consumers’ buying behaviour?
•
To what extent do promotional variables are considered by companies and consumers?
•
Does celebrity endorsement affect company’s promotion and actual purchases?
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2. Literature Review
2.0 Introduction
This literature review employs a framework which provides a comprehensive account of
consumer behaviour. It also reviews how celebrity endorsement affects consumers’ buying
decisions. The concept of consumer behaviour is critical in the marketing of goods and
services. This is because; companies deal with consumers who vary in nature. Therefore, an
understanding of consumers’ behaviour, helps in identifying what is important to the
consumers, and suggests the important influences on consumers’ decision-making. This will
enable marketers to provide goods and services that meet the needs of their target market.
Loudon and Bitta (1994), defined consumer behaviour as “the decision process and physical
activity individuals engage in when evaluating, acquiring, using or disposing of goods and
services”. It encompasses concepts drawn from psychology, sociology, anthropology,
history and economics. This means that, in developing products that consumers would obtain
value, marketers requires good understanding of how consumers treat their purchase
decisions.
2.1 How Consumers Buy
The understanding of decision – making process continues to be a significant variable in the
study of consumer behaviour. This therefore makes the model proposed by Engel et al
(1985) worthy of discussion. This model views consumers’ purchase as a process that goes
through several steps. However, depending on the purchase decisions faced by the consumer,
each of the process is carried. Therefore, in presenting these steps marketers should realize
that, depending on the circumstances surrounding the purchase, the importance of each step
may vary.
Problem Recognition
Engel et al (1985) explained that, a consumer can be said to experience a problem when he or
she perceives a discrepancy between an actual state and a desired state. For example, when
someone is thirsty and needs water or car run out of fuel and needs to ne fill. Problem
recognition can originate inside the consumer, but can also be influenced by external sources,
which includes marketing tools such as advertising and product displays.
Search
After problem recognition has been stimulated, the consumer will usually begin the search
process in order to solve the particular problem. The optimality of consumer’s search
strategy is reflected in the perceived benefit and cost of search Alba & Hutchinson, (1987).
The benefit of search is driven by how a consumer perceived the uncertainty in choice
environment, the importance given to the product category, and risk aversion (Moorthy,
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Ratchford & Talukdar, 1997). Hoyer and McInnis (1997) explained the search process as
having two dimensions; internal search and External search.
Internal search involves retrieving stored information, feelings and previous experience
from memory. External search involves acquiring new information about purchase options,
their characteristics, and consequences.
Within external search, a further distinction can be made between active search and passive
search. In active search, the consumer takes the initiative to acquire information – by asking
a salesperson, obtaining a brochure, asking a friend. This type of search mostly occurs in the
context of purchases that have some subjective importance for the consumer. Since many
purchases are not of that nature, and sellers nevertheless want to inform consumers about
their offerings, they have to find means where the seller takes over the active role and
channels information to the consumer, who remains mostly passive. Therefore, getting the
consumer’s attention is a major task in this type of market communication.
Evaluation of alternatives
At this stage, the consumer compares the various brands of products or services that are
capable of satisfying or addressing the identified problem or needs. (OB Series, 2007, p32).
In the simplest case, a consumer remembers what has been bought on earlier occasion and
repeat purchase. In other cases, a real comparison between alternatives is involved. This
again may be rather simple or rather complex.
Choice/ Purchase
According to Engel et al (1985), as an outcome of the alternative evaluation stage, the
consumer may develop a purchase intention or predisposition to buy a certain brand.
Purchase intention is generally based on a matching of purchase motive with brand attribute
and consequence of decision. Once consumers choose which brand to buy, he or she must
still implement the decision and make the actual purchase. Additional decision may be
needed, such as when to buy, where to buy, how much money to spend etc. Often, there is a
time delay between the formation of a particularly purchase intention or decision and the
actual purchase, particularly for highly involved and complex purchases such as automobile,
personal computer, a house and consumer durables. For non-durable products, which include
many low-involvement items such as fast-moving consumer goods, the time between the
decision and the actual purchase may be short.
Outcome/post-purchase
Outcomes are usually characterized by the degree of the consumer’s satisfaction or
dissatisfaction with the item bought. According to Kotler (2004), satisfaction is a person’s
feelings of pleasure or contentment resulting from comparing a product’s performance to
expectations. Expectations are influenced by advertising, packaging, the store where the
product is sold, the price, and the physical appearance of the product. The performance of
the product as perceived by the consumer is, of course, affected by the physical
characteristics of the product. It is in the interest of marketers that the expectations created
do not exceed how the product can be expected to perform once bought and used. Having
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satisfied customers is one of the main determinants of business success, because it has a
major influence on whether the consumer will buy the product again.
2.1.2 Post-purchase dissonance
Victor Zalakos (2002) defines dissonance as the unpleasant feeling you get when you have
just bought something and is not quite right. It might be that it doesn’t do what the sales
representative said it would or you found out that you paid too much or your friends don’t
like the colour of the product. This can be expressed in terms of bad feels, ashamed, silly,
dumb, annoyed, furious, hurt, betrayed etc.
Hence marketers with the help of celebrity endorsement can alleviate post-purchase
Dissonance in three easy steps;
1. Selling only good stuff for fair price.
2. Being open and honest with our prospects.
3. Implementing a good follow up programmes.
2.2 Factors that influences Purchasing
Consumer behaviour involves much more than understanding what products a consumer
buys. It embraces factors, which can affect the decision-making process as a person works
through the purchase decision. The number of potential influences on consumer behaviour is
limitless. However, marketers are well served to understand the key influences. By doing
so, marketers are in a position to tailor their marketing efforts to satisfy the consumer and
their organizations. The numerous factors that influence consumer’s behaviour can be
represented by the elements such as: Internal, External and Marketing.
Internal Influences
The discussion of internal influences explores the most important internal factors that affect
how consumers make choices.
Perception
Perception is a process of giving meaning to sensory stimuli. People act and react on the
basis of their perception. Consumers’ perception is fundamental to understanding acquisition,
consumption, and disposal of goods and services. The symbols used in writing marketing
communication, and all its forms, gain meaning by reference to perception. Hence, in a basic
way, perceptions underlie preferences (Armound & Zinkhan, 2004).
Again, Armound & Zinkhan (2004) suggest that, Perception begins with selective attention to
perceptual stimuli in the marketing landscape. Through selective exposure and attention,
consumers form basic images of brands, products and marketing communications. They
draw basic perceptual inference about the attributes of these marketing stimuli. Through
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learning and experience, consumers eventually form summary perceptual judgment that links
the sensory stimuli to outcomes they consider.
Attitude
Attitudes are a person’s enduring favourable or unfavourable evaluation, emotional feelings,
or action tendencies towards some object or data. As they form over time through individual
experience and group contacts, attitudes become highly resistant to change (Boone & Kurtz,
1999). Consumers also hold attitudes towards a variety of objects that are important to
marketers, including individuals (celebrities). Attitudes are important to marketers because,
they theoretically summarize a consumer’s evaluation of an object/brand or company (Belch
& Belch, 2004). Marketers’ keen interest in attitudes is based on the assumption that, they
are related to brand preference and consumer’s purchase behaviour. Considerable evidence
supports the basic assumption of a relationship between attitudes and behaviour. Advertising
and promotion are used to create favourable attitudes, towards new products or brands,
reinforce existing favourable attitudes or change negatives attitudes. In fact, the decision to
purchase a product is strongly based on currently held attitudes about the product, store and
salesperson.
External Influences
The consumer does not make purchase decisions in isolation. A number of external factors
have been identified that may influence consumer decision making.
Cultural Influences
Cultural influences represent effects that are imposed on a consumer by other individuals in
the society. It is a complex whole that includes knowledge, beliefs, art, morals, customs and
any other capabilities and habits acquired by people as members of the same society over
time (Ueltschy & Krampf, 2001). For example, when the images, concepts and signals of
celebrities advertised by media are accepted by the general public, they tend to be symbol of
a particular product culture (Mowen & Minor, 2003). Secondly, humans are inherently
social animals and can be said to acquire information from others by teaching, imitation, and
other forms of social learning. According to Solomon et al (2002), the desire to 'fit in'
through identifying desirable people are the primary motivation for purchasing behaviour in
relation to social status products.
Social Status
Social Status is an important concept to marketers, since consumers within each social
stratum often have similar values, lifestyle, and buying behaviour. Thus, the various social
class groups provide a natural basis for market segmentation. Consumers in the different
social classes differ in the degree to which they use various products and services and their
leisure activities. Advertisers often show how the benefits of their products help to perform
certain roles. Most often, promotional messages suggest that, using the advertiser’s product
will help raise one’s status in the eyes of others, while using a competitor’s product may have
a negative effect on state (Solomon et al, 2002).
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2.3 Celebrity
McCracken (1989) defined a celebrity endorser as, "any individual who enjoys public
recognition and who uses this recognition on behalf of a consumer good by appearing with it
in an advertisement, irrespective of the required promotional role." Advertisers recognize the
value of using celebrities, and think; they draw attention to advertising messages in a much
cluttered media environment. In the United States, about 20% of adverts feature celebrities
(Solomon 2009). Moreover, stock price have been shown to increase when companies
announce celebrity-endorsement contracts (Agrawal & Kamakura, 1995). The use of
celebrities in marketing communication can be explained based on the following;
 Celebrity endorsement increases the attention paid to an advert.
 Celebrities are generally attractive, which helps persuasion when the product is attractiverelated.
 Celebrities are often well-liked, possibly leading to identification and consumer
persuasion in an attempt to seek some type of relationship with the celebrity.
 Also celebrity endorsement may lead media weight to have an impact on sales.
How Celebrity Endorsements Influence the Consumer
The image celebrities’ project to consumers can be just as important as their ability to attract
attention. While brand marketers with positive experiences would tend to believe that
celebrity endorsements work and some would disagree, one would be sure that the magnitude
of its impact is difficult to measure even if sales figures are at our disposal.
An interesting perspective on celebrity endorsement and how they impact on consumers’ was
developed by McCracken (1989). According to this model, a celebrity’s effectiveness as an
endorser depends on the culturally acquired meaning he or she brings to the endorsement
process. Each celebrity contains many meanings, including status, class, gender, and age as
well as personality and lifestyle. In his study of thousands of media commercials, especially
TV commercials that are viewed in the US, Europe and in Africa, it was mentioned that the
most viewed adverts or in other word, which are most enjoyable to be viewed and can
capture viewers attention has the following characteristics:
1. Humour: it is proved that humour in adverts increases viewer enjoyment and
involvement.
2. Music: music is an important element in more than 50 percent of adverts that are
categorized as watchable.
3. Celebrities: it was found out that celebrities are excellent in terms of attention-getters, as
they attract both male and female, in addition to different age groups. “There is no doubt that
advertisers everywhere continue to queue for the services of Celebrities hoping that some of
their magic will tub off on the brand persona” In recent times, marketers in Ghana have made
increasing use of celebrities in their advertisement. More and more brands, whether product
or services are banking on the mass appeal of celebrities. As soon as new faces ascend the
popularity charts, marketers queue up to have them endorse their products or services. One
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would ask, if advertising really influence consumer? And what influence do the celebrities’
endorsements have on the consumers’ behaviour? It is in this regard that, this study is worth
undertaken
Corporate Credibility
Central to the study of purchase intentions is the dual credibility model. The dual credibility
model offers a causal sequence-attitude toward the advertisements, which leads to attitude
toward the brand, which leads to purchase intentions (Goldsmith, Lafferty & Newell, 2000).
The model as Goldsmith et al. (2000) presented, explains the influence of corporate and
endorser credibility on the formation of brand attitudes and purchase intentions.
Goldsmith et al (2000) also argued that, corporate credibility plays an important role in
purchase intentions, and so, companies should allocate money previously earmarked for
celebrity endorsements to ensuring the company has a positive and credible image. They also
stated that, consumers tend to be more influenced by corporate credibility than endorser
credibility (Goldsmith et al., 2000).
2.4 Marketing Influence on Consumer Behaviour
Marketing Strategies are often designed to influence consumer decision making and lead to
profitable exchanges. Each element of the marketing mix can affect consumers in various
ways. It is in this regard that, Peter and Donnelly Jr. (2004) explain how the marketing mix
(4Ps) affects consumer behaviour.
Product
Many attributes of a company’s products, including brand name, quality, newness and
complexity, can affect consumer behaviour. The physical appearance of the product,
packaging and labelling information can also influence whether consumers notice a productin-store, examine it, and purchase it. One of the key tasks of marketers is to differentiate their
products from those of competition and create consumer perceptions that the product is worth
purchasing.
Price
The price of products and services often influence whether consumers will purchase them,
and what competition offering should be selected. Stores such as Wal-Mart, which is
perceived to charge lowest price attract many consumers. For some offerings, higher prices
may not deter purchase because consumers believe that, the products or services are higher
quality or are more prestigious. However, many of today’s value –conscious consumers may
buy products merely on the basis of price than other attributes.
Promotion
Advertising, sales promotion, sales people, and publicity can influence what consumers think
about products, what emotions they experience in purchasing and using them, and what
behaviours they perform including shopping in particular stores and purchasing specific
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brands. Marketing communication play a critical role in informing consumers about products
and services, including where they can be purchased, and in creating favourable image and
perceptions.
Place
The marketer’s strategy for distributing products can influence consumers in several ways.
Products that are convenient to buy in a variety of stores increase the chances for consumers
finding and buying them. When consumers are seeking low-involvement products, they are
unlikely to engage in extensive search. Therefore, availability becomes very important.
Second, products sold in exclusive outlets, may be perceived by consumers as higher quality.
In fact, one of the ways marketers create brand equity is by selling them in prestigious
outlets. Third, offering products by non-store methods such as on the internet or in
catalogues, can create consumer perceptions that the products are innovative, exclusive, or
tailored for specific target market.
2.5 Consumer behaviour and Advertisement
Lee (1997) pointed out that, although consumer’s perceptions of price, quality and value are
considered as vital determinates of shopping behaviour and product choice; research on these
concepts and their linkages has provided few conclusive findings.
On the other hand, there is marketing literature which has developed a group of models
known as Persuasive Hierarchy Models that predict the opposite. These models conclude
that if advertising is to promote sales, it must inform and then persuade consumers. The
underlying pattern of these models is that, consumer buying intentions are affected by
advertisements
3. The Methodology
This research adopts a survey research strategy and a hybrid of quantitative and qualitative
research approaches. The population for the study was the customer, workers and marketing
managers of corporate organisations within the Central Business area of Accra.
The researchers applied three sampling techniques Snowball, Judgmental, and Simple
Random sampling. Snowball technique which is a non-probability technique required to
select people with the requisite knowledge in the subject area. This technique began with an
identification of a customer who was able to pinpoint another customer who he/she believes
has the influence to purchase or re-buy depending on celebrity endorsement of an offer. This
technique was used to select a sample size of ninety (90) customers. Purposive or Judgmental
sampling technique was employed as an additional non-probability technique tool to settle on
fifteen (15) organizations or companies. These companies that feature prominently in
Ghana’s prestigious Club 100 were Globacom, MTN, Samsung, Sikkem Paint, Unilever,
Interplast, Fan Milk, Tropical Cable and Conductor Limited, PZ Cussons, Kinapharma
Camelot Ghana Limited. Others are; Kama Health Services, Kasapreko Company, Produce
Buying Company and Vanguard Assurance.
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The purposive technique was also used to select twelve (12) marketing managers. The simple
random, a probability technique was used to select sixty (60) employees of the selected
organizations. This brings the sample to One hundred and sixty-two (162). However, the
questionnaires retrieved and the interviews granted reduced the sample size to 148
The data captured was used to test the influence celebrity endorsement has on consumers’
purchase behaviour as well as marketing promotions/purchase.
4. Main Findings
This study identified the following variables considered by the surveyed companies in their
promotional campaigns. Celebrity endorsement has being considered an important
promotional variable after price. These findings are presented below;
4.1 Factors Considered by companies for Promotion and consumers’ for a purchase
Figure 4.1.1:
Promotional Attributes Considered by Companies
Percentage,
Usefulness of
product, 8, 8%
Percentage,
Quality, 17,
17%
Percentage,
Price, 34, 34%
Percentage,
brand name, 8,
8%
Percentage,
celebrity
endorsement,
25, 25%
Percentage,
Packaging, 8,
8%
Source: Survey data, October, 2012
The results show that, majority of respondents 17% consider Quality, 8% consider
Usefulness of product, 34% based their purchase on Price, 8% indicated Brand name.
Celebrity endorsement represented 25%, thus, considered the second most important after
price.
Figure 4.1.2:
Consumer Preferences
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Frequency,Consumers Rating of their preference
Frequency, brand
Usefulness, 16,
name, 10, 7%
12%
Frequency,
Frequency,
celebrity
Quality, 18, 13%
endorsement, 30,
22%
Frequency,
Price, 40, 30%
Frequency,
Packaging, 22, 16%
Source: Survey data, October, 2012
The figure above shows proportions of factors that consumers consider most, when buying a
product or service. The results did not vary that much from what the marketing managers
consider to be their interest area of promotion. The data show that, majority of respondents
14% consider Quality, 12% consider Usefulness of product, 30% based their purchase on
Price, 7% indicated Brand name. Celebrity endorsement represented 22%, whiles 16% of
respondents buy based on packaging.
Figure 4.1.3:
Attributes considered in using celebrities
Celebrity attributes
Cost of
Endorsement
Credibility
Attractiveness
Celebrity/Brand
match
Frequency
3
4
2
3
Percentage
25
33
16.7
25
Source: Survey data, October, 2012
The figure above shows the proportion of attributes, marketing managers consider most when
employing celebrities. Three companies consider cost of endorsement, representing 8.3%;
another three considers celebrity credibility (50%), three other companies also considers the
celebrity/brand match up (25%), and one company considers celebrity attractiveness
representing 16.7%.
4.2 The Extent to which Celebrity Endorsement Influences Consumers’ Behaviour
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In order to ascertain whether celebrity usage influences customers’ behaviour, a number of
questions were asked and the results depicting a relationship are presented below;
Table 4.2.1:
Response to the question: I am a fun of celebrities.
Response to: I am a fun of celebrities
Strongly
Disagree
Agree
Neutral
Disagree
Strongly
Agree
Frequency
16
Percentage
10.8
55
18
34
25
37
12.2
23
17
Source: Survey data, October, 2012
The figure above shows that, 54% of respondents are fan of celebrities either strongly or
otherwise, 12.2 % were not decisive, whiles 33.8% are not fan of celebrities. Interestingly,
when the percentage of those who stood neutral, disagree and strongly disagree are added
together, the result still proved that respondents liked celebrities usage in marketing
promotions
Table 4.2.2: Response to: Celebrity Endorsement influences consumer behaviour
percentage,
Strongly Agree,
37, 37%
percentage,
Disagree, 12,
12%
percentage,
Strongly
Disagree, 1, 1%
percentage,
Agree, 44, 44%
percentage,
Neutral, 6, 6%
Source: Survey data, October, 2012
The figure above shows the response by all the 148 respondents to the statement that:
celebrity endorsement influences consumer behaviour. In total, 44% of the respondents
agreed, 37% agreed strongly resulting in over 80% agreement. This figure left less than 20%
of respondents dissenting out of which 6% remain neutral. This goes to indicate the vital role
of celebrities in marketing promotions.
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Figure 4.2.3:
Percentage,
Low extent, 11,
11%
Percentage,
Large extent,
43, 43%
Percentage,
Very large
extent, 30, 30%
Percentage,
Very low
extent, 16, 16%
Source: Survey data, October, 2012
Figure above shows the extent of celebrity endorsement on consumer buying decisions. Thus,
out of 148 respondents the 91 per cent who indicated that, they are influence by celebrity
endorsement in Figure 4.2.2, Sixteen per cent (16%) indicated that, the extent of the celebrity
influence is very low, 11% indicated low extent, 30% very large extent, and 43% indicated
that they were influenced to a large extent.
4.3 Celebrity Endorsement and its Influence on Company’s Promotions/purchases
This section relates to the organizations using celebrities in their promotions. Therefore, the
data presented here relates only to the respondents working within the selected companies
surveyed in this study. That is the twelve managers and the sixty employees. The result of
this data is to indicate the extent to which celebrity endorsement influences marketing
promotions and actual purchases.
Figure 4.3.1: Employees’ response to: The Influence of Celebrity Endorsement on
Marketing Promotions is positive
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Strongly
Disagree
Agree
Neutral
Disagree
Strongly
Agree
Frequency
2
3
3
20
32
Percentage
3.33
5
5
33.3
53.3
Source: Survey data, October, 2012
The figure above indicates the responses of only employees hitherto referred to as the
internal customers. The data shows the agreement to the statement that: celebrity
endorsement positively influences marketing promotions. In all, almost 58% of the
respondents agreed, either strongly or otherwise. On the other hand, those in disagreement
recorded 36.7% with 5% remaining.
Figure 4.3.2
Managers' response agreed to positive influence
Strongly
Disagree
Agree
Neutral
Disagree
Strongly
Agree
Frequency
0
3
0
1
8
Percentage
0
25
0
8.33
66.67
Source: Survey data, October, 2012
The rating by managers is overwhelmingly over 90% with only one (1) dissenting voice
representing 8.3%. The difference in the response of the managers and employees is not
significantly different. However, it shows that some of the employees are not that enthused
with celebrity usage. This apathy could be for further research.
Figure 4.3.3: Managers’ Response to: The Extent of Influence on Company’s
Promotions/purchase
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Series1, very
low extent, 0,
0%
Series1, very
large extent,
2, 33%
Saint Leo University 2013
Series1, low
extent, 1, 17%
Series1, large
extent, 3, 50%
Source: Survey data, October, 2012
Almost all the organizations that are surveyed in this study admitted that celebrities did bring
some influence in their promotional gains. There was no very low ranking signifying a
sizeable return on the promotional budget. 17% rated their influence to a low extent. Fifty
(50%) per cent agreed that the influence is to a large extent and for a very large extent
represented 33%. These findings are overwhelming signifying a positive influence of
celebrity endorsement on marketing promotions of companies.
5. Conclusion
From this study, it becomes clear that the use of celebrities to endorse a marketing offer
creates a very favourable influence on the consumers and it creates a connection which forces
a consumer to patronize a product. However, as several failures show, it is essential for
advertisers to be aware of the complex processes underlying celebrity endorsement.
It has been proved from the discussion that celebrity endorsements are a powerful and useful
tool that magnifies the effect of a campaign but the word of caution to be followed seriously;
celebrities alone do not guarantee success nor does a great advertising campaign or the best
possible product. It is the combination of several factors especially the price and other
elements that work together for the success of a brand and its acceptance in the minds of
consumers as well as for its market offering.
Modern day consumers are well educated and smart, they know celebrities are being paid for
these endorsements and this knowledge makes consumers, especially internal customers as
shown in the data, rather more cynical about the product and celebrity endorsements.
Despite the obvious economic advantage of using relatively known personalities as endorsers
in advertising campaigns, the choice of celebrities to fulfil that role has become common
practice for brands competing in today's cluttered media environment. There are several
reasons for such extensive use of celebrities. Because of their high profile, celebrities may
help advertisements stand out from the surrounding clutter, thus improving their
communicative ability.
To achieve this, the marketer needs to be really disciplined in choice of a celebrity. Hence the
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need to consider critical factors that will make celebrity selection less problematic.
Obviously, the right choice and use of celebrity can escalate the unique selling proposition,
that is. It can act as a source of building a brand to new heights when it is replicated within
the entire West African region.
References
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