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VOLUME 2, NUMBER 3
March 2011
Contents
A Comparison of Artificial Neural Network (ANN) Model & Auto Regressive Integrated
Moving Average (ARIMA) Model For Forecasting Indian Stock Market
Dr. Tripathy.N. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6
ABSTRACT
INTRODUCTION
Small and medium-scale enterprises (SMEs) are critical in the economic and social development
of most countries. They are especially important for their role in job creation with low
investment, entrepreneurship development, regional development, and as suppliers to large
companies. Technology-based SMEs also play important roles in the innovation of new products
and processes (Sanda, 2006). Institutions, such as the Organization for Economic Co-operation
and Development (OECD) provide guidance for donors on support for the private sector in
development which emphasizes the importance of SMEs (OECD, 1994). The United Nations
Industrial and Development Organization’s (UNIDO) defines small-scale enterprises in
developing countries as firms that employ 5 to 19 workers. UNIDO also defines a medium-scale
enterprise as firms that employ 20 to 99 workers. In Ghana, SME’s form a great percentage of
businesses in both the formal and the informal sector. The Ghana Statistical Services defines
small scale enterprises as businesses that have less than 10 employees. Ghana Statistical Services
also defines medium and large scale enterprises as businesses with more than 10 employees. The
Ghana National Board for Small Scale Industries (NBSSI) uses this definition to identify small
business. The NBSSI also uses the value of a firm’s fixed assets as a definition criterion. For
example, the NBSSI defines a small-scale enterprise as a firm with maximum of 9 workers that
has plant and machinery (excluding land, buildings and vehicles) assets whose total value do not
exceed 10 million Ghanaian cedis (Kayanula and Quartey, 2000; Abor and Quartey, 2010).
LITERATURE REVIEW
The concept of competence is viewable from several perspectives. For example, competence is
quantifiable as predictive competence (i.e., testing the characteristics and aptitudes that are
Conceptual Framework
The study uses the term, “competent”, to identify someone who is efficient and effective in
performing to a standard (Kagire and Munene, 2007). Competency refers to a specific behavior
and characteristics of a person that result in effective or superior performance. Boyatzis (1982)
The dominant approaches in the management literature to identify competence build from the
scientific principles of rationalistic research tradition that focus on job analysis (Armstrong, 1991;
Cascio, 1995; Ferris, Rowland, and Buckley, 1990; Fine, 1988). Three main approaches are
distinguishable. These approaches include the worker-oriented approach, the work-oriented
approach, and the multi-method oriented approach (Sandberg, 1994; Veres, Locklear, and Sims,
1990). The worker-oriented approach is the operant approach (Munene, 1996). Although
advocates of the worker-oriented approaches take the worker as the point of departure, advocates
of the work-oriented approaches take the work as the point of departure (Fine, 1988; Flangan,
1954). In the work-oriented approach, activities that are central to accomplishing specific work
are firstly identified, and then transformed into personal attributes. By doing so, more concrete
and detail descriptions of what constitutes competence are generated and, this, largely overcome
the problem of generating descriptions of competence that are too general. One basic criticism of
the work-oriented approaches is that, a list of work activities does not sufficiently indicate the
attributes required to accomplish those activities efficiently (Raven, 1994). Proponents of the
multi-method oriented approaches also stipulate that a specific set attributes constitutes
competence. What distinguishes the multi-method approaches from the other approaches is that
they adopt a more comprehensive approach to competence. In attempts to avoid the criticism
against the worker approach and the work-oriented approach, the multi-method approach draws
from both of these approaches (i.e., the worker approach and the work-oriented approach). Veres
et al.(1990) note that within the worker-oriented approaches, competence is primarily constituted
by attributes possessed by workers, typically represented as knowledge, skills, abilities and
personal traits required for effective work performance. For example, a commonly used worker-
oriented approach is the job element method (Veres et al., 1990). The relevant attributes are
captured through the use of a group of job incumbents and supervisors. The attributes identified
are organized into predefined categories. The attributes are then rated to allow quantitative
measurement of the correlation between success in accomplishing the work and possession of the
designated attributes.
Data Collection
The participants (i.e., data sources) are executives of SMEs in Ghana. Random sampling method
was used to draw 100 participants to whom a standardized self-completion questionnaire (Kagire
and Munene, 2007) was administered. The questionnaire entails an amalgamation of
competencies attributes which allow quantitative measurement of the correlation between success
in accomplishing the work and possession of the designated attributes. For instance, “Preparing
work plans and establishing activities to be executed in the budget”; Cronbach alpha was 0.95.
For instance, “find new ways of doing things, and being practical”; Cronbach alpha was 0.85.
The response rating in the questionnaire follow the five-point Likert scale from 1 (strongly
disagree) to 5 (strongly agree). Scale scores were computed by averaging across responses to the
items in each scale. The duration for data collection was five weeks.
Females, 23,
32%
Males, 49,
68%
The distribution in Figure 2 shows that majority of the respondents (71%) are in their middle-ages
(i.e., 30 years and above).
50-59 yrs, 5,
7%
20-29 yrs, 21,
29%
Other, 4, 6% Certificate,
16, 22%
Postgraduate,
13, 18%
Diploma, 12,
17%
Degree, 27,
37%
to 6 years. Thirteen (18 %) were executives for periods of one to two years. Seven (10 %)
respondents have been managing their firms for less than one year.
7 to 8 yrs, 8, 11%
5 to 6 yrs, 8, 11%
3 to 4 yrs, 20, 28%
The executives exhibit competences in motivating their employees to work together to achieve
organizational goals by using the medium of delegation and staff empowerment, and quick
decision-making. They also ensure that activities in their firms are planned so as to create a
desired work environment by involving their staff in decision-making as well as putting
organizational resources to their efficient and effective use. The executives show their
competence towards enhancing clear communication with their staff by listening to the ideas of
their employees, and giving them feedback. The executives also ensure that they manage their
emotions and behaviors as executives in a social interactive context. They do this by trying very
well to understand employees’ issues that do not relate to work but which impact on work
performance. The executives exhibit the requisite competences of communicating clearly with
their staff. They executives also manage their self-emotions, self-behaviors, and that of their
employees in a social interactive manner. They do not take offence when employees criticize
them.
C o m m u n i c a ti n g t h e o rg a n i s a t i o n
m is s io n a n d v is io n 1
I n i ti a t in g s t ra t e g i c i d e a s ,
r e v i e w i n g a n d u p d a ti n g th e .6 8 * * 1
o b je c t i v e s o f t h e d e p a rt m e n t .
I d e n t i f y i n g re so u rc e s a n d
d e v e lo p in g p ro g r a m s , p o l i c ie s .6 2 * * .8 3 * * 1
a n d p r o c e d u re s
F o l l o w i n g u p , m o n it o r i n g a n d
a s s e s s i n g t h e p ro g re s s o f .5 8 * * .6 5 * * .7 5 * * 1
o p e ra t i o n s
* * . C o rr e l a t io n i s s i g n i fi c a n t a t t h e 0 .0 1 l e v e l ( 1 -t a i l e d ).
their firms. These competences are also very significantly correlated (see Table 2), and as such
the executives’ exhibition of a specific competence is positively influenced by their ability to
exhibit the other competences.
D ev e lo p in g p ro p e r c la ss ifica tio n o f
a ss ets fo r m ain ten a n c e a n d b u d g e tar y .7 9 * * .7 3 * * 1
p u rp o se s
O rg an iz in g an d a tte n d in g to sta k eh o ld e r
.5 8 * * .5 1 * * .6 2 * * 1
c o m m u n ica tio n s
P ro v id in g fe e d b a ck to m an a g e m e n t a n d
s ta ff o n o r ga n is atio n -b u sin e ss tren d s . .7 1 * * .6 2 * * .7 4 * * .8 2 * * 1
The implication here is that SME executives in Ghana exhibit the requisite competences that
enhance their capacities to develop, mobilize and produce financial resources and budgets for
their firms. The executives also exhibit the requisite competences that facilitate their efforts
towards developing and maintaining profitable cooperation and relationship with key
stakeholders of the organization. Correlation analysis between these competences that the
executives exhibit shows that they correlate significantly (see Table 4). As such, the exhibition of
a specific competence by the executives is positively influenced by their ability to exhibit other
competences.
Correlation analysis between these competences exhibited by the executives shows that they are
very significantly correlated (see Table 6), and as such the exhibition by the executives of a
specific competence are positively influenced by their ability to exhibit the other competences.
D ev e lo p , m o b iliz e a n d p ro d u c e
fin a n cia l res o u rc e s a n d .5 1 * * - .7 2 * * -
b u d g e ts.
C re a te a w o rk en v iro n m e n t fo r .4 2 * * - .7 8 * * .5 2 * * - .7 7 * * -
h ig h p e rfo rm a n ce .
D ev e lo p a n d im p le m en t
s y stem fo r u tiliz in g p h ys ica l
re so u rc e s, a n d a lso m a in tain .4 0 * * - .7 1 * * .4 5 * * - .6 9 * * .3 9 * * -.6 8 * * -
p ro fita b le c o o p e ratio n a n d
re latio n w ith k e y sta k eh o ld ers .
M ain ta in an d a c c es s .4 4 * * - .6 4 * * .5 6 * * - .7 2 * * .5 3 * * - .7 2 * * .5 7 * * - .8 1 * * -
in fo rm a tio n .
P ro d u c e a n d a n a lyz e re p o rts,
p ro p o sa ls , p o licie s a n d .1 4 - .6 7 ** .1 5 - .6 6 * * .1 4 - .7 3 * * .1 7 - .8 2 * * .2 9 * * - .8 4 * * -
p ro c e d u re s.
* * . C o rrela tio n is sig n ific a n t a t th e 0 .0 1 le v el (1 -ta iled ).
* . C o rrela tio n is sig n ific a n t a t th e 0 .0 5 le v el (1 -ta iled ).
From the correlation coefficients ranges shown in Figure 7 above, the specific competences in
five of the competence attributes used by the executives to carry out specific tasks are
significantly correlated to each other. These concern the competence attributes the executives
exhibit in carrying out the following five functions: (1) strategically planning for the firm; (2)
developing, mobilizing and producing financial resources and budgets for the firm; (3) creating a
work environment for high performance and utilization of the firm’s human resources and the
management of their individual developments; (4) developing, reviewing, maintaining and
implementing a system for the acquisition, utilization and safeguarding physical resources, as
well as maintaining profitable cooperation and relation with key stakeholders of the firm; (5)
maintaining and accessing the firm’s information and communication systems.
The only exception is that some specific competences in this competence attributes do not
significantly correlate with the executives’ specific competence in conducting research and
surveys of their firms’ products, services and operations. Correlation analysis shows that the
executives’ competence in conducting research and surveys of their firms’ products, services and
operations is not significantly correlated (α = .14) to their competences in initiating strategic
ideas, reviewing, and updating their firm’s objectives. Similarly, the executives’ specific
competence in conducting research and surveys of their firms’ products, services and operations
is not significantly correlated (α = .18) to their specific competence in identifying resources and
developing programs, policies and procedures. The implication here is that the executives cannot
use their competences in producing and analyzing reports, proposals, policies, and procedures to
reinforce their capacity to strategically plan for their firms.
The executives’ specific competence in conducting research and surveys of their firms’ products,
services and operations is not significantly correlated (α = .15) to their specific competence in
preparing work plans and establishing activities to be executed in the budget. The implication
here is that the executives cannot use their competences in producing and analyzing reports,
proposals, policies and procedures to reinforce their capacity to develop, mobilize and produce
their firm’s financial resources and budgets.
The executives’ specific competence in conducting research and surveys of their firms’ products,
services and operations is not significantly correlated (α = .14) to their specific competence
reviewing the capacity of staff, setting and communicating performance targets. The implication
here is that the executives cannot use their competences in producing and analyzing reports,
proposals, policies and procedures to support their ability to create a work environment for high
firm performance, and the utilization of human resources.
The executives’ specific competence in conducting research and surveys of their firms’ products,
services and operations is not significantly correlated (α = .17) to their specific competence in
organizing and attending to stakeholder communications like management and staff meetings.
Similarly, the executives’ competence in conducting research and surveys of their firms’
products, services and operations is not significantly correlated (α = .19) to their competence in
exploiting opportunities and making recommendations on how to compete or cooperate
effectively. The implication here is that the executives cannot use their competences in producing
and analyzing reports, proposals, policies and procedures to compliment their capacity to develop
and maintain profitable cooperation with their firm’s key stakeholders.
DISCUSSION
The SME executives exhibit competence in working to achieve results and to improve individual
and organizational contribution. This relationship is due to their ability to meet deadlines, praise
good performance, encourage excellence among the team, and take risks in the interest of the
organization. The executives also show the requisite competence in ensuring smooth set up of
operational systems by deciding the kind of tools and equipment necessary to do a job. They also
decide causes of operational errors and deciding what to do, and conducting tests and inspections
of products and services. The executives’ show their managerial competence for motivating
employees to work together to achieve organizational goals by delegating tasks and empowering
staff. They also engage in quick decision-making and work hard to set pace for the teams in their
firms. Involving staff in decision making and putting resources to their efficient and effective use
portrays the executives as possessing the requisite competence for ensuring planning activities to
create a desired organizational/work environment. By delegating, the executives need to allow for
the existence of freedom in work activities within their firms’ contexts of directions. This
delegation is necessary, according to Kim (2004), because, once freedom, support from
management, and directions are present, the context empowers workers to achieve high
performance for the organization. As Dennison (1984) argues, empowering employees provides
them with high work meaningfulness, competence, self-determination and impact that lead to
organizational effectiveness (Lee and Koh, 2001). Empowerment within organization is another
way to give rise to the intensity of effort (Kim, 2004). In this respect therefore, most SME
executives in Ghana exhibit the requisite organizational citizenship behavior attributes that enable
them to plan activities in their firms. They create a desired-organizational/work environment and
also motivate their employees to work together to achieve organizational goals.
The executives’ tendency to listen to the ideas of others, and also give feedback is reflective of
their competency in making efforts to communicate clearly with every staff. Also, their ability to
find new ways of doing things, as well as being practical shows them as possessing the
competence for finding and creating valuable new products, services, ideas, procedures and/or
processes. Finally, the executives portray their competence in ensuring that emotions and
behaviors of oneself and others are managed in a social interactive context by valuing and
working with subordinates without taking personal offence when criticized. They also show an
understanding of workers issues not related to work, but which impact on work performance.
Thus, Ghanaian SME executives possess the requisite managerial competence attributes that
allow them to function effectively. The executives show specific behaviors and characteristics of
persons that result in the effective or superior performance (Mansfield, 1999). In this respect, the
executives are competent in their handling of the following four interrelated aspects of jobs
outlined by Mansfield (1999): (a) technical expectations, (b) managing change, (c) managing
different work activities and (d) managing work relationships. As Organ (1988) argues, business
executives need to have the requisite competences that differentiate them from their subordinates.
The business executives must use these competences to engage in behaviors that are important to
the well-being of their organizations. They must also use it to motivate and increase their
employees’ in-role performances.
The conceptual importance of the observations made above is the emergence of the executives’
competences as reflective of those characteristics that signifies superior performance. The
executives’ perceptions of their influence on work activities and the use of their discretionary
competencies had a strong independent positive influence on the mobilization of competences.
Organizational citizenship behavior is the individual’s behavior that is discretionary, and which in
the aggregate promotes the effective functioning of the organization (Organ, 1988). Such
discretionary behaviors are more strongly mobilized when the employees have a strong level of
affective attachment to the organization (Tremblay, 2000). In this regard therefore, this study has
shown that SME executives in Ghana possess the competences to enhance the performances of
their firms. This postulation builds on Barney’s (1991) resource-based theoretical argument that,
competencies lead to firm performance for sustained competitive advantage. But the analysis of
the executives’ managerial competences indicates that their specific competence in conducting
research and surveys of their firms’ products, services and operations do not relate significantly to
their competences in undertaking some managerial tasks. These tasks include the following: (1)
initiating strategic ideas, reviewing and updating the firm’s objectives; (2) identifying resources
and developing programs, policies and procedures; (3) preparing work plans and establishing
activities to be executed in the budget; (4) reviewing the capacity of staff, setting and
communicating performance targets; (5) organizing and attending to stakeholder communications
like management and staff meetings; (6) exploiting opportunities that add value to the
organization and making recommendations on how to compete or cooperate effectively. Yet, the
analysis of the executives’ operant competences shows the executives as exhibiting innovative
competence when trying to find and create valuable, useful new products, services, ideas,
procedures or processes. They exhibit innovative competence by finding new ways of doing
things well and also being practical in their approaches. These activities represent a limitation to
the functionality of the firm, and perhaps an indication that the executives engage themselves in
finding new ways of doing things for their firms without much emphasis on conducting research
and surveys of their firms’ products, services and operations. This observation, as Barney (1991)
argues, raises the issue of how competency can lead to firm performance for sustained
competitive advantage.
The term, competent, identifies someone who is efficient and effective or who has the ability to
perform to a standard (Kagire and Munene, 2007). By this definition, an executive’s competence
can become visible if she is efficient and effective in whichever competence attribute that she
exhibits. This view brings to the fore the efficiency-effectiveness dilemma in management,
whereby executives are challenged in their attempt to be efficient and effective in managing their
workplaces.
CONCLUSION
Based on the results and discussion, the executives of SME in Ghana appear to show a high level
of autonomy and influence on the work they manage by appreciably combining their operant
competences and their organizational citizenship behaviors. The executives’ use of their operant
competencies has a strong independent positive influence on the mobilization of their
discretionary behaviors (Tremblay, 2000). By implication, and in consonance with the
suggestions of MacKenzie, Podsakoff and Fetter (1991), organizational citizenship behavior
(Organ, 1988) is apparently an important class of behavior that reflects on the overall managerial
performance of SME executives in Ghana. Thus, the findings that the executives possess the
requisite competence and organizational behavior attributes, but which characteristics did not
impact positively on their performances towards making their organizations competitive is of
phenomenal interest .
Since SME executives in Ghana possess the requisite competences and discretionary behaviors to
enhance the performances of their firms, it is hypothesized that their inability to make such
competences reflect in the performances of their businesses might be due to their inabilities to
simultaneously attain efficiency and effectiveness in the management of their workplaces. For the
competencies inherent in SME executives to become visible and impact positively on the
business they manage, then they must be seen to be efficient and effective in complementing
whichever competence attribute they exhibit with their competence for conducting research and
surveys of the firms’ products, services and operations. For the executives to be efficient, they
should have the capability to use their managerial competences for conducting research optimally
(i.e., without wastage) in order to achieve organizational goals. Also, for them to be effective,
they should have the capability to use their requisite competences in carrying out research to
complement their other managerial competences toward attaining the firm’s set goals.
Nurturing competency of SME executives may be possible by establishing what they (i.e.,
executives) can do to overcome the limitations relating to their inability to complement their
managerial competences in conducting research efficiently and effectively.
LIMITATION
Focusing the study on SME executives in Ghana alone is a limitation, since a study of other
countries could provide findings with a broad perspective, and which could have had an impact
on the results.
SIGNIFICANCE OF RESEARCH
This research is relevant in its practical and theoretical insights into aspects of the challenges
facing executives in Ghanaian SMEs. The findings made on the competences and organizational
citizenship behavior among the executives can help sustain and support the achievement of the
intended organizational and individual outcomes required of Ghanaian SMEs within a
competitive world of work. The outcome of this research contributes to the sum total of
knowledge in the study and practice of organizational citizenship behavior and operant
competences in the field of human resource management. Specifically, for Ghana, this research
provides a platform for the development of a database that will help inform policy-makers on the
requisite competences and organizational citizenship behavior to be required of SME executives
in managing businesses.
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ABSTRACT
Today the accuracy in forecasting the stock market and predicting the trend
correctly is of crucial importance for any future investment. The use of
computational intelligence based techniques for forecasting has been proved
extremely successful in recent times. So keeping in view the present study
has been undertaken to forecasting the next day’s close value of Stock price
by using ANN Model and ARIMA Model in Indian Stock Market. We have
also use Mean absolute error (MAE) and Mean absolute percentage error
(MAPE) to evaluate the performance of the models and compare the results
and trends between the ANN &ARIMA model for forecasting stock market
in India .The paper concludes that ANN model is very useful for predicting
stock markets than the ARIMA models in India
INTRODUCTION
In recent years, with the introduction of online trading, the stock market has become one of the
avenues where even small investors can earn good profits. Therefore Stock market prediction is
one of the demanding applications of modern time series forecasting. However, because of the
high volatility of the underlying laws behind the financial time series; it is not an easy task to
build such a forecasting model. Over the last few decades, a large number of studies have
proposed and developed different methods to analyse and forecast stock market activity. The
stock market are inherently noisy, non-stationary and deterministically chaotic (S. Yaser and A.
Atiya 1996). These characteristics suggest that there is no complete information that could be
obtained from the past behaviour of such markets to fully capture the dependency between the
future rates and that of the past. One general assumption is made in such cases is that the
historical data incorporate all those behaviour. As a result, the historical data is the major player
in the prediction process. According to Efficient Market Hypothesis (Samanta and Bordoloi,
2005; Fama, 1965 and Fama, 1970) all available market information are factored immediately
into the formation of stock price and therefore, the best predictor of future stock price is the latest
stock price is the latest available price. Technical analysis, (Murphy, 1999) refers to the various
methods that aim to predict future price movements using past stock prices and volume
information. It is (Mills, 1990; Priestley, 1988) possible that non-linear models are able to explain
this residual variance and produce more reliable predictions of the stock price movements. In the
last few decades; many forecasting models have been developed. For more than two decades, Box
and Jenkins’ Auto-Regressive Integrated Moving Average (ARIMA) technique has been highly
popularized, widely used and successfully applied in economic time series forecasting. ARIMA
model has been used as a benchmark to evaluate many new modelling approaches (H. B. Hwarng
and H. T. Ang 2002). However, ARIMA is a general univariate model and it is developed based
on the assumption that the time series being forecasted are linear and stationary. Recently, it is
well documented that many economic time series observations are non-linear while, a linear
correlation structure is assumed among the time series values therefore, the ARIMA model
cannot capture nonlinear patterns and, approximation of linear models to complex real-world
problem is not always satisfactory. While nonparametric nonlinear models estimated by various
methods such as Artificial Intelligence (AI), can fit a data base much better than linear models
and it has been observed that linear models, often forecast poorly which limits their appeal in
applied setting. The Artificial Neural Networks, the well known function approximates in
prediction and system modelling, has recently shown its great applicability in time-series analysis
and forecasting (J. Yao, Y. Li and C. L. Tan, 2000, S. Yaser and A. Atiya, 1996, G. Zhang and
M. Y. Hu, 1998). Neural network can mine valuable information from a mass of historical
information and can be efficiently used in financial areas, so the applications of neural networks
to financial forecasting have become very popular over the last few years (Zhang, et al, 2004,
Windrow, et al, 1994, Refenes, 1995; Kate, et. al, 2000, J. T. Yao, et al, 1996; Abu- Mostafa, at
el, 2001) ANN assists multivariate analysis. Multivariate models can rely on greater information,
where not only the lagged time series being forecast, but also other indicators (such as technical,
fundamental, inter-marker etc. for financial market), are combined to act as predictors. Artificial
neural networks have been used in stock market prediction during the last decade. One of the first
projects was by Kimoto.et.al (1990) who had used ANN for the prediction of Tokyo stock
exchange index. Mizuno, H., Kosaka, M., Yajima, H. and Komoda NMizuno et.al (1998) applied
ANN again to Tokyo stock exchange to predict buying and selling signals with an overall
prediction rate of 63%. Phua, P.K.H. Ming, D., Lin, W. Phua and friends (2000) applied neural
network with genetic algorithm to the stock exchange market of Singapore and predicted the
market direction with an accuracy of 81%.Though many studies have been carried out to examine
the prediction of Stock market but none of the studies so far in India has applied ANN and
ARIMA model to predict the Indian stock market volatility. Specifically we raise three research
questions. First the present study develop models for forecasting the next day’s close value of
Stock price by using techniques of artificial neural network and autoregressive integrated moving
average. Secondly, we examined and compare the results and trends of actual and predicted
values of stock market indices.Thirdly we use mean absolute error (MAE) and mean absolute
percentage error (MAPE)to evaluate the performance of the models and compare the results and
trends between the ANN &ARIMA approach for forecasting stock market in Indian context to
obtain new insights. Therefore, the present work offers a value addition to the existing literature
and proves to be useful to the investors as well as regulators. The remaining of this paper is
structured as follows: the next section describes the literature review Section three introduce the
methodology and data used in this study. Section four presents the empirical results of the study.
Concluding observation is presented in final section.
LITERATURE REVIEW
ANN represents one widely used soft computing technique for stock market forecasting. In fact,
(White, 1998) first used Neural Networks for market forecasting. He used the IBM daily common
stock returns and found that the training results are over optimistic. Kohzadi, Boyd, Kermanshahi
and Kaastra (1996) compared neural networks with ARIMA using monthly live cattle data and
wheat prices from 1950-90. The neural network models achieved significantly lower mean
squared error than the ARIMA model.. Wun-Hua Chen, Jen-Ying Shih and Soushan Wu (2006)
used AR (1) model, support-vector machines and back propagation neural networks for
forecasting the six major Asian stock markets. FFNN and SVM outperformed AR (1) in mean
square error and mean absolute error but AR(1) is better in directional symmetry. On the other
hand, O’Connor and Madden (2006) evaluated the effectiveness of using ANNs with external
indicators, such as commodity prices and currency exchange rates, in predicting movements in
the Dow Jones Industrial Average index. Their results show that there are only a few benefits by
using these indicators over traditional methods based on historical data output. Jinyuan Shen ,
Huaiyu Fan ,and Shengjiang Chang(2007) tapped delay neural network (TDNN) with an
adaptive learning and pruning algorithm was proposed to predict the nonlinear time serial stock
indexes ,The Simulation and comparison shows that this optimized neuron network model can not
only reduce the calculating complexity greatly but also improved the prediction precision. . Asif
Ullah Khan, T.K.Bandopadhyaya and Sudhir Sharma(2008) compared a Backpropogation
neural network and Genetic algorithm based backpropogation neural network and showed that for
stock rate prediction Genetic algorithm based backpropogation neural network gives more
accurate prediction. BirolYildiz, Abullah Yalama & Metin Coskun(2008) developed an efficient
three layer Neural Network with revised Back propagation Algorithm to predict the direction of
Istanbul Stock Exchange National-100 Indices (ISE National -100) and the model forecast an
accuracy of 74.51%. Qing Cao ,Mark E.Parry and Karyl B. Leggio (2009) examined the
predictive ability of several well-established forecasting models, including dynamic versions of a
single factor CAPM – based model, Fema and French’s three-factor model , compared these
models with artificial neural network(ANN) models that contains the same predictor variables but
relaxes the assumptions of model linearity. They find no statistical difference in the forecasting
accuracy of CAPM and three factor model and found that neural networks may be useful tool for
stock price prediction in emerging markets. Thus literature gives varying results as far as the
comparative performance of the ANN and ARIMA is concerned. In this study, we apply the
ARIMA and ANN models for evaluating the forecasting performance of the S&P CNX Nifty and
try to establish the superior model amongst the two in the Indian context.
BYt = Yt−1.
Akaike’s information criteria (AIC) and Schwarz’s criteria (SC) is utilized for selecting lags of
the model.ARIMA (p, d, q) has the general form:
Ф p(B)(1 − B)dYt = μ + q(B)"t
Or
Ф p(B)Wt = μ + q(B)"t
The parameters for a tentative model have to be estimated. After selection, the model must be
checked for adequacy by considering the properties of the residuals whether the residuals from an
ARIMA model have normal distribution and are random. An overall check of model adequacy is
provided by the Ljung-Box Q-statistic. If the p-value associated with the Q statistic is small, the
model is considered inadequate. Otherwise it is needed to consider a new or modified model and
continue the analysis until a satisfactory model has been determined.
We have used the feed-forward back propagation neural network (also known as a MLP network)
is the neural network model. Input layer is composed of a set of inputs that feed input patterns to
the network. Following the input layer, there is at least one or more intermediate layers, often
called hidden layers. Hidden layers are then followed by an output layer are presented in fig-2. In
feed forward networks all connections are unidirectional. MLP network is made up of an input
layer, an output layer and one or more hidden layers of neurons. As the fig2 shows, each input is
weighted with an appropriate w. The sum of the weighted inputs and the bias forms the input to
the transfer function f.
Where F is the output function of the output layer unit, βo is the bias unit (equal to 1), G is the
output function of the hidden layer units j , γkj denotes the weight for the connection linking input
k to the hidden unit j , βj is the weight of outputs from the hidden layers in the output layer unit,
and X is the input vector.
Multi Layer Perception (MLP) networks are layered feed-forward networks typically trained with
static back propagation. These networks, also known as back propagation networks, are mainly
used for applications requiring static pattern classification. In the MLP, neurons are organized in
different layers. The inputs are fed to an input layer, the outputs of the network are given to the
output layer, and in between, there are an arbitrary number of hidden layers. For the MLP
network to be able to map nonlinear functions, some hidden layers must have nonlinear transfer
functions, such as the hyperbolic tangent function. The training phase of the network is an
unconstrained nonlinear optimization problem. The inputs are fed forward through the layers.
Their outputs are compared to a known target vector and an error function is computed. The error
is propagated backwards through the network (the most common iterative algorithm is the ‘back
propagation algorithm’) and the weights are adjusted to minimize the error function. Since the
weights are adjusted iteratively, the network is said to be ‘‘learning’’. This procedure is repeated
several times until the network outputs match the targets with the desired accuracy.Standard
back-propagation use a gradient descent algorithm. This basic algorithm adjusts the weights in the
direction in which the performance function is decreasing most rapidly. This method does not
necessarily produce the fastest convergence. Conjugate gradient algorithms are another search
method that can be used to minimize network output error in conjugate directions.The problem is
to find the optimal architecture, that is, the optimal number of hidden layers and neurons. If the
function is continuous with a finite number of discontinuities, then only one hidden layer of
sigmoid neurons is needed. This is not necessarily the most efficient number of layers. The use of
more hidden layers may result in a smaller number of neurons in total and thereby faster training.
ANN is very sensitive to the number of neurons in the hidden layers. Too few neurons can lead to
under-fitting but too many neurons can contribute to over-fitting, implying that it might achieve a
superior forecasting accuracy over the estimation period, but will generate poor out-of-sample
forecasts. For the application of ANNs to any area, following are the parameters one needs to
consider and tune through the experimentation:
Transfer functions: The majority of current neural network models use the sigmoid (S-shaped)
function, but others such as the hyperbolic tangent, step, ramping, arc tan, and linear have also
been proposed. The purpose of the transfer function is to prevent outputs from reaching very large
values which can paralyse neural networks and thereby inhibit training. Linear transfer functions
are not useful for nonlinear mapping and classification. It has been found that financial markets
are nonlinear and have memory suggesting that nonlinear transfer functions are more appropriate.
This paper has used the transfer function hyperbolic tangent which is commonly used for time
series data because it is nonlinear and continuously differentiable which are the desirable
properties for network learning. Model estimation is performed using historical data, and then
latest data is used for the long run forecasting performance. The data needs to be in the format of
set of input-output vector i.e. each vector contains the input for the model and the output that the
model should produce. This is the basic requirement of supervised learning.The Input neurons
here are the previous day index values for Nifty. For instance, if xn; xn-1; ..; x2; x1represent scaled
value input set for the output xn+1. Here n denotes the window size. The window size determines
that how many trailing data points (last n day’s Nifty values) have been used to forecast the
current value. In case of ANN, window size is equal to the number of input layer neurons. This
study has used the following window sizes/input layer neurons: 3, 5, and 8,10,15,20,24,34,49.By
‘3’, it means that last 3 days of Nifty values are being used as inputs for that particular model. As
only one-day-ahead forecasting is to be performed, output contains only one data value.
Training of ANN
Training is the process by which the free parameters of the networks (i.e. the weights) get optimal
values. In these models input layer units distribute input signals to the Network. Dependent
variable is the daily Nifty values while the covariates are the last n days Nifty values where n is
the window size. Activation function used is hyperbolic tangent. Online type of training is used to
train the model. In holdout verification, vectors are chosen randomly from the initial sample to
form the validation data, and the remaining observations are retained as the training data.
Normally, less than a third of the initial sample is used for validation data.
Performance Measurement
To evaluate the performance of the ARIMA and ANN model, two statistical tests are carried out.
These tests are Mean Absolute Percentage Error (MAPE) and Mean Absolute Error (MAE).
These models are used for evaluating the prediction accuracy of the model. The performance of
the fusion method is measured in terms of Mean Absolute Percentage Error (MAPE). It is
calculated by first taking the absolute deviation between the actual value and the forecast value.
Then the total of the ratio of deviation value with its actual value is calculated. The percentage of
the average of this total ratio is the mean absolute percentage error. The following equation shows
the process to calculate the MAPE.
∑ observed t − predicted t
MAE = t =1
100 n
n t − predicted
observed
MAPE =
n
∑t =1 observed t
t
Where:
Empirical Analysis
In our study, a forecasting tool ANN and ARIMA is used for forecasts of stock prices. To obtain
forecast value we input the daily closing price to this tool. This tool then automatically become
accustomed with the training datasets and makes forecast, given the current day’s stock prices.
The same data is used to educate established statistical tool ARIMA. Then we produce forecast
values for the test data using this ARIMA model. Fig 3 show the daily S&P CNX Nifty index for
the experimental dataset respectively.
Figure 3 S&P CNX Nifty (31 Dec 2004 to 31st July 2010)
Time S e r ie s P lot of C 1
6000
5000
C1
4000
3000
2000
1 138 276 414 552 690 828 966 1104 1242 1380
In d e x
ARIMA Model
Model identification in ARIMA is performed using ACF and PACF plots to identify p, d and q
values for the series before model estimation. Generally p, d and q values range between 0 and 2
for time series. From these plots, the model identified is ARIMA (1, 1, 2). (Refer Fig. 3 & 4)
Model estimation is however performed for all possible combinations of p, d and q values each
ranging between 0 and 2.
Forecast error is the difference between the actual value and the forecast value for the
corresponding period,
Et = Yt - Ft
Where E is the forecast error at period t, Y is the actual value at period t, and F is the forecast for
period t.
The forecasting performance of the various models is evaluated using Mean Average percentage
error (MAPE) and Mean average error (MAE). Lower the MAPE and MAE values, better is the
forecast. The models of ANN and ARIMA are used to forecast the next day Index Value for S&P
CNX Nifty.
Figure 4 shows ACF and PACF plots for S&P CNX Nifty. From ACF plot it's clear that there is
no need of further differencing. Here ACF and PACF both plots are mixtures of exponentials.
Figure 4: ACF and PACF plots for Nifty for ARIMA (1, 1, 2)
A utoc or r e la tion F unc tion for C 1
(w ith 5% significa nce lim its for the a utocorre la tions)
1.0
0.8
0.6
0.4
Autocorrelation
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0
1 10 20 30 40 50 60 70 80
La g
1.0
0.8
0.6
Partial Autocorrelation
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0
1 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80
Lag
Table1 shows the forecasting performance of different ARIMA models on S&P CNX Nifty using
error measures like MAPE and MAE. It is observed from table-1 that MAPE is least in ARIMA
(1, 1, 2) model. so it is experiential that ARIMA(1,1,2) has performed better than all the other
ARIMA models.
ANN Model
ANN models with different network parameters are created, trained and tested for each series is
presented in table-2. For ANNs, the forecasted values are used to calculate MAPE and MAE. It is
observed from table-2 that ANN Window size 15 is 0 .672%
MAPE MAE
ANN (Window size 15) 0.67% 34.89
ARIMA (1,1,2) 3.46% 181.12
CONCLUSION
This study compare the forecasting performance of ARIMA and the ANN models.. These
experiments are performed on the S&P CNX Nifty closing price values. In case of ANN, the most
suitable model for forecasting comprised of 15 Input Neurons. In case of ARIMA, the most
suitable model identified is ARIMA (1, 1, 2).The study also found from the comparison analysis
that ANN’s outperformed all the ARIMA models used in the forecasting of the next day Index
value for S&P CNX Nifty. This is observed by the MAPE (Minimum Average percentage Error)
and MAE (Minimum Average Error). Lowest MAPE for ARIMA (1, 1, 2) was 3.46% and MAE
was 181.118. While for the 15 Input neuron Model, MAPE is 0.672% and MAE was 34.89. So
the study concludes that ANN model is found to be more appropriate for the prediction in the
Indian stock market.
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Idea Generation:
A Catalyst for Productivity and Innovation in
Advertising
Jahanzeb Shah (Corresponding author)
Shaheed Zulfiqar Ali Bhutto Institute of Science & Technology (SZABIST),
Plot # 67, Street # 9, H-8/4, Islamabad 44000, Pakistan.
Tel: +92-51-9067-26230
ABSTRACT
Idea generation and creativity in today’s hi-tech organizations is expected
to boost up productivity and equip the firms to face modern times global
challenges of a business world. The study is based on the assumption that
certain job related dimensions which serves as impediments to creativity
needs to be minimized that may opens the doors for far-reaching
innovation and sustained competitive advantage. The research was
conducted on Advertising Firms based in four major cities of Pakistan. The
data was collected through a self-administered questionnaire using
stratified random sampling technique. The analysis of data and results
contended the assumption that a hypothesized structural regression model
of impediments to creativity is validated when tested in Pakistani
perspective using Structural Equation Modeling technique. However, the
demographic characteristics and attitude/ interest taken as moderators upon
working style of advertising professionals were found unimposing i.e. not
serving the purpose of a catalyst for improving idea generation and
creativity.
Likewise, it is stressed (Ford, 1999) that there are certain crucial factors required for a creative
output, which are often overlooked. He summed up the factors that are essential from the
perspective of collective creativity. His discussion about ‘competitive paranoia’ in the same study
deals with the creation of joint feeling by a group of common interest people having a common
goal of surviving against the competition faced. This approach emphasizes a creative
environment on one side, by linking group members towards the long-term goal of organizational
survival that encourages generation of new ideas, on the other hand, it reinforce the commitment
of members towards organizations facing external threats.It is a dilemma that organizations
cannot handle a creative people having great ideas because there is an unknown fear of chaos in
the organizational settings. Due to this factor, people who try to be creative often are discouraged
and creativity initiatives are usually placed in cold storage (Claude & Rob, 2008). The study aims
to further improve the understanding of how managers in organizations tackle and figure out the
impediments to creativity in this rapidly changing environment. This study will be unique from
the previous research about creativity as it will underpin an Asian, non-western developing
country’s context. By having a clear understanding of the impediments to creativity, one can gain
a sustained competitive advantage in terms of innovative solutions to cope with market demands
in the South East Asian Developing Nations.
Although numerous studies have attempted to identity the personal and organizational
characteristics that explained creative endowment in the western world, little research has focused
on determining the factors that negatively affect organizational creativity in the developing world.
The purpose of this investigation is to address this core issue in developing world context. Thus, a
distinct contribution to the literature is to identify the potential barriers that affect idea generation
and creativity in the developing world having special emphasis on Pakistani Organizations.
This classification will lead also to a better understanding of the job-related impediments to
creativity as suggested by (Amabile, Jennifer, William, Constance, Steven, & Lee, 2002) as if a
manager reduces time pressure, organizational political problems, and criticism on newly
developed ideas; it will augment idea generation and creativity. Likewise, a manager needs to
foster the freedom of action, having challenging tasks in the work for employees; abundant
resources provision like work-group supports, having diversified skillful teams, help in improving
commitment of employees towards their job, and discuss and encourages useful ideas contributed
by them. Moreover, if a manager values those individuals who actively contributes more,
creativity will increase manifolds. If he/she provides and ensures job security among group
members within the organizational settings by settings, clear and workable goals while giving
free hand in completion of these goals, a positive reinforcement can induce creative ideas for a
better future and finally, he/she needs to persuade top management to give rewards and
recognition to those who produces creative outputs.
Advertising plays a dominant role in the developing positive or negative perception and attitude
towards purchase decision making by the consumers.Advertising must focus on social and
economic dimensions of consumers and advertisers should create advertisements that are realistic
and resourceful. This relationship emphasize that advertisers should be sensitive to the issues that
may generate consumer indecision (Nicholas & Ugur, 2005).
Creative advertisement in media, can be classified in to two types of groups, one are effective and
creative, and on other side neither effective nor creative. In advertising, creativity and
effectiveness go side by side in order to penetrate the consumer’s minds where efficiency of a
commercial ad is measured by the proper combination of its creativity and effectiveness. Thus, a
commercial advertisement is to be a creative one, which turns out, well in both streams. An
important aspect is that even if creativity in advertising is a significant ingredient, however,
creativity just for sake of creativity can be of no use if it is not efficient. In order to be creative, an
idea, a thought or a piece of knowledge derived from research can trigger a thought provoking
impact upon potential buyers.
Therefore, as creativity and advertising has a strong link and ties, it needs to be empirically
investigated in Pakistani context as well. To the best of researcher’s knowledge, no study on
impediments to creativity in advertising industry has been carried out in the Pakistani context in
past. The objective of the study is based on this notion and a search of the literature revealed a
huge gap in the measurement of impediments to creativity particularly in advertising industry in
Pakistan.
Due to this potential vacuum, need is there to empirically identify the impediments to creativity
that may be of great use in future by this industry in improving time pressure constraints,
removing organizational political problems like lobbying and backstabbing. This would help in
creating an environment of constructive criticism on new and creative ideas. Removing
impediments to creativity will fosters the freedom and challenging assignments will be done in
befitted manner. This will ultimately improve commitment towards the job, and members will
openly discuss and encourages useful ideas.
Moreover, by encouraging those individuals who actively contributes more by providing and
ensuring job security, organization can move forward in rapidly changing global arena. This will
make certain that how advertising firms may flourish by introducing new novel ideas and creative
advertisements as per their customer’s needs and wants, if and only if, the impediments to
creativity are effectively removed. Therefore, developing a creative environment for the
advertising firms in the industry is of greater importance and there is a need to empirically
measure the key impediments that undermine creativity in these firms.
Problem Statement
The purpose of this paper is to empirically measure and identify the impediments of creativity
that obstruct idea generation with specific focus on advertising industry firms in Pakistan.
The statements of the problem are given as follows:
1. What are the key impediments that inhibit idea generation in advertising industry
of Pakistan?
2. What is the impact of demographic variables and attitude/interest on the behavior
of employees towards idea generation in Pakistani advertising firms/organizations?
LITERATURE REVIEW
Skimming through the literature on creativity studies, an exhaustive list of impediments to
creativity is available. However, let us have a look as to why idea generation/creativity itself is
important for organizations.
The concept of creativity generally means a move towards achieving a practical and unique
result, which is quality oriented. The creativity is nothing else but the generation of novel and
useful ideas (Amabile T., A model of creativity and innovation in organization, 1988). Likewise,
it is commented that various scientists characterize creativity as a source of generating novel or
useful ideas by individuals or teams members. This manifests that idea generation and creativity
are two sides of a same coin (Greenberg & Baron, 2003).
Creativity is an approach that abridges an organization systems and processes which leads
towards a competitive advantage (Cook P., 1998). Moreover, creativity is a vital characteristic
related to life that we act upon in daily routine. It covers a problem at workplace that become
pleasure or an imagination that becomes a reality in a hi-tech world (Bonnardel, 1999). Creativity
and productivity are highly correlated due to which firms strongly believe in the effects creativity
has on better performance and due to this conviction, they spends a lot of money on creativity in
firms (Dennard, Creativity in the 2000s and beyond, 2000).
However, in order to foster the idea generation process and creativity the organization are
compelled to identify the underlying elements. For creating such environment various factors
have been identified & explored by the scholars (West, Sparkling fountains or stagnant ponds: An
integrative model of creativity and innovation implementation in work groups, 2002a); (West,
Ideas are ten a penny: its team implementation not idea generation that count, 2002b); (Mumford,
2003); (Gilson & Shalley, 2004); (Amabile, Barsade, Mueller, & Staw, 2005); (Shin & Zhou,
2003), and (Cheng, 1994).
Impediments to Creativity
In line with review of literature related to creativity, the various impediments are influencing idea
generation/creativity and can have an extremely strong positive or negative impact if altered.
Based on the studies conducted by (Eisenberger & Aselage, Incremental effects of reward on
experienced performance pressure: positive outcomes for intrinsic interest and creativity, Journal
of organizational Behavior, 2008), (Mostafa, 2005), (Amabile, Jennifer, William, Constance,
Steven, & Lee, 2002), (Eisenberger & Rhoades, Incremental effects of reward on creativity,
2001), and (McNeely & Meglino, 1994), four dimensions of job related issues that serves as
impediments to creative environment are operationalized as given below:-
Low commitment
Commitment of organizational member to their work teams and to the organization can influence
team and organizational performance. Building employee commitment to the workplace is one
important goal of human resource policies and practices. The previous research study presented
that commitment has a positive effect on productivity, turnover and employees willingness.
However, the downsizing, wage erosion and high productivity demands of recent years have
reduced this commitment. Therefore, the issue is not to enhance commitment to the organization
but to the specifically focused on commitment in work group or teams. A person might be
committed to organizations but he will not be contended if his team performance is low. Due to
this, commitment level can be enhanced by re-arranging the organizational structures in
organization to foster creative endowments (Bishop J. W., 1997). It is evident that having low
commitment due to lack of management support continuously reduced employee’s commitment
towards the organization. If the working atmosphere led to low morale, employees would become
less committed to the organization and it would directly discourage them from being creative.
They would not want to serve the company whole-heartedly, nor would they like to help the
company, which focus on creative thinking (Mostafa, 2005).
Nevertheless, no study had been done to explore the causes of both team and organizational
commitment and the effect they have on productivity, willingness to help team members, and
intention to quit in Pakistani perspective.
Moreover, Amabile (2002) studied the connection between time pressure and creativity by
employing a new methodology for investigating daily thinking patterns, experiences, and dealings
made in organizations. The most notable and unique finding of the same study is that generally,
time pressure seems to have an important impact on creativity, but, surprisingly, this pre-
supposition was found contradictory. The participants of her study were giving confirmations of
being less creative when time-pressure is not there, while, more creative, when time pressure is
escalated on order to meet certain deadlines in organizational settings. In addition, it is a reality
that risk aversion is deeply rooted in every culture and researchers have reported that managers
are often risk avoiders (Al-Nimir & Palmer, 1982); (Ali & Krishna, 1997). Excessive workload
dominates most of the employees’ time and in fact, no spare time is available to settle down and
think of any creative idea for talking the problem.
Threatening evaluation
In organizations where coercive management is used a way of doing things, a high level of
negative energy produces. Creativity is used to work against autocratic leaders in spite of
contributing positively to the organization (Wheatley, 1999). Therefore, participative
management approach and threat free environment is conducive for creativity.
According to Bishop (2005), short-term time pressure may be bad option to steer the mind as it
does not provoke the mindset to engage in the making an effort at various cognitive levels and
consequently, powerless ideas popped up through this process. However, individuals who feel
themselves intrinsically motivated can perform better in short-term time pressure by setting
cognitive forces in to motion and can generate more affluent ideas through this process.
Likewise, Weiner (2000) contended in a study that management has a tendency to preserve the
established traditions, and therefore many rules and standard procedures were set for the
employees to follow and keep them under rigid control. In fact, corporate bureaucracies often
became rigidly formal and thus greatly inhibit creativity. So, based on the relevant literature
review and the resulting theoretical framework, it has been argued that the various job related
issues/dimensions like Low commitment, Risk aversion and time pressure, Threatening
Evaluation and Mechanistic Organizational Structures are influencing the ability of employees to
foster/obstruct idea generation, which is the starting point of creativity.
HYPOTHESIZED MODEL
The framework of this study includes a hypothesized model based on impediments to creativity as
four independent variables that are assumed to have a significant impact on idea generation
(dependent variable). In addition, the two other variables i.e. demographics characteristics and
attitude/interest of respondents have also been hypothesized to check their impact upon dependent
variable.
The path model of impediments to creativity as presented in Fig.1 includes four independent
variables including Low Commitment (Y1), Risk Aversion and Time Pressure (Y2), Threatening
Evaluation (Y3) and Mechanistic Organizational Structure (Y4). Idea Generation being a
predictor of creativity is the dependent variable in this hypothesized model. Demographics
Characteristics (Z1) and attitude/interest (Z2) are moderating variables.
Path analysis models are usually conceived only for testing the observed variables not the latent
one (Stein, 2007). The purpose of this research study using path analysis and structural regression
model is to examine the empirical influence of Low Commitment (Y1), Risk Aversion and Time
Pressure (Y2), Threatening Evaluation (Y3) and Mechanistic Organizational Structure (Y4) on
Idea Generation (X) of employees working in advertising industry in Pakistan.
Hypotheses of the Study
By looking to the path model above, there would be 07 hypotheses of our interest that would
reflect the influence and predictive power of various independent variables such as Low
Commitment (LC), Risk Aversion and Time Pressure (RA & TP), Threatening Evaluation
(TREV) and Mechanistic Organizational Structure (MOS) on the dependent observed variables
and BTC as latent variable for these four independent observed variables. Idea generation (X) is
an observed variable along with moderating effect of two other latent variables named as
demographics characteristics (Z1) and attitude/interest (Z2) that will check interrelated
characteristics of idea generation.
The hypotheses are as follows:-
METHODOLOGY
This exploratory study is based on survey research design in which potential impediments to
creativity that affect idea generation were analyzed using LISREL 8.8 and SPSS 14.0 softwares.
The study is comprised of testing certain hypotheses and overall proposed model investigation
using Structure equation modeling technique.
Sample
Based on the fact that advertising firms in Pakistan represent a large segment of the market in
today’s era of piquant media and technological environment, which has a great deal of influence
upon masses, and they deserve considerable attention by researchers in the field, therefore, the
sample from advertising firms has been chosen for this study.Based on their ROI/ financial
returns in the past decade, the sample was drawn from Top 5 firms of Pakistan’s advertising
industry. The questionnaire was developed by researcher and distributed via emails to the
professionals like copy writer, art directors, media manager etc. in top five advertising firms who
details were extracted from industry directory available online or via Yellow Pages (The
Advertising Agencies in Pakistan, 2010).
Procedure
For content validity, primarily, the survey questionnaires developed by researcher were pre-
tested, using expertise of professional like researchers and practitioners in the field. After the pre-
testing procedure done, some minor modifications were made in consultation with experts and the
language as well as flow of questions was changed.
Then pilot study was conducted on 15 respondents from advertising firms and Cronbach’s alpha
values for scales developed for independent variables i.e. Low Commitment (Y1), Risk Aversion
and Time Pressure (Y2), Threatening Evaluation (Y3) and Mechanistic Organizational Structure
(Y4) and dependent variables i.e. Idea Generation (X) of employees were found in a range of 0.65
and 0.78.
Finally, the revised survey instrument was distributed initially among 80 potential professionals
of five advertising firms via email as per details provided by concerned HR department of firms.
Initially, the number of returns of questionnaire from the same survey had disappointing response
rate of less than 10 per cent, then a self-administered approach for collection of data was adopted
from the rest of the initial sample selected with the help of various professional colleagues at
Lahore, Karachi, Islamabad and Peshawar.
While utilizing two types of data-collecting procedures, the researcher got 99 self-administered
questionnaires. 04 questionnaires having certain ambiguities in responses being less suitable for
analysis were discarded, which finally left 95 usable questionnaires with us for analysis using the
LISREL 8.8 and SPSS 14.0 softwares.
MEASURES
The instruments/questionnaire developed consists of three parts. Firstly, the demographic part is
containing respondents name, age, gender, post field/cadre, education level, job tenure,
organizational name/sector, and organizational size. Secondly, Attitude/ interest variable was
measured by adopting a scale developed by Holt et al. (2002).Thirdly, the researcher developed
the instrument based on a study conducted by Mostafa (2005). The developed instrument includes
03 dimensions used as independent variable derived from a study conducted by Mostafa (2005)
containing dimensions such as Low Commitment, Risk Aversion and Time Pressure, Threatening
Evaluation. Fourth dimension used as independent variable was adapted from a study by Ali
(2008) having a dimension of Mechanistic Organizational Structure. Moreover, a 13 items scale
for idea generation and creativity were developed from few creativity-based studies such as
Eisenberger and Aselage (2008), Eisenberger & Rhoades (2001) and McNeely & Meglino (1994).
The responses for 50 items scale, after pilot testing, were calculated on five points Likert-type
scale, which ranges from 1-5 i.e. ‘Strongly Disagree’ to ‘Strongly Agree’. By using ten different
scales developed by the researcher, which has different ranges between two-points (e.g. gender)
to five points (Likert Scale), the data from respondents was collected in five weeks.
Likewise, Nunnally and Bernstein (1994) suggested that in order to test unidimensionality for
internal consistency and reliability of items used in the measures, one has to calculate Cronbach’s
alpha statistics, which should be above the acceptable threshold of 0.70. Similarly, George et al.
(2000) showed in their study that Cronbach’s alpha is the basic measure for testing reliability
issue of scales used.For this study, the items of instrument in each variable were clubbed together,
and coefficient alpha was calculated for each dimension given in Table 1 as follows:
The Cronbach’s Alpha calculated values for instruments used in this study are ranging from 0.70
to 0.82 as shown in Table 01, which predicts reliability of measures developed. In addition,
Bagozzi and Yi (1988) also recommended that all composite reliabilities measures of constructs
must exceed the recommended level of 0.70 only then one can rely on the results obtained.
Moreover, for discriminant validity, the correlations of likely related constructs were also
calculated to check potential multicollinearity issue in the data. According to Hair et al. (1998),
no single pair of measures should have correlations among them exceeding the criterion (0.9 and
above). The results shown below entails that there is no issue of multicollinearity among the
study constructs that we used.
The correlations are shown in Table 02 given as follows:-
Table 2: Correlations
Therefore, the results of the various tests for checking the unidimensionality, reliability and
discriminant validity show concrete evidence of the internal and external validity of the
measurement scales which have been used in this paper.
ANALYSIS OF DATA AND RESULTS
Descriptive Statistics
Table 3 to 7 represents descriptive statistics of sample under consideration, which include
demographic characteristics such as gender, employees’ age, education level, job tenure and
organizational name.
Table 3: Gender
Gender Frequency Percent
Male 51 53.7
Female 44 46.3
Total 95 100
Chi-square/
Independent Variables GFI AGFI CFI RMSR RMSEA Remarks
df
LC, RATP, TREV, (20.204 /18) = 0.95 0.90 0.98 0.09 0.036 Model fit
MOS, Interest, 1.122 for
Education, Gender prediction
Note: (χ2/df) ≤ 3, GFI and CFI > 0.9, AGFI >0.8, RMSR < 0.1 and RMSEA ≤ 0.08.
Where as GFI = goodness-of-fit index; AGFI = adjusted goodness-of-fit index; NNFI = non-
normed fit index; CFI = comparative fit index; RMSR = root mean square residual; RMSEA =
root mean square error of approximation.
Figure 2: Path Estimates of Research Model
Figure 3: T‐values for Research Model
Hypothesis Testing
Hypothesis 1 and 2 are postulated that Low Commitment and Risk Aversion/Time Pressure are
barriers to creativity and have negative effects on idea generation. However, the direct paths
between Low Commitment towards barriers to creativity and Risk Aversion/Time Pressure
towards barriers to creativity are insignificant since the regression coefficients (β11 and β12) are
(0.14 and 5.28) with insignificant t-values for both of them. These shows an insignificant
statistical result and conclude that Low commitment and Risk Aversion/Time Pressure issues
does not hampers idea generation in our chosen sample.
However, Hypothesis 3 and 4 are postulated that Threatening Evaluation and Mechanistic
Organizational Structure is a barriers to creativity and negatively affect Idea generation. The
regression coefficients (β13 and β14) are (6.14 and 5.56) with t-values of 4.37 and 4.47. This
clearly portrays a significant statistical result and deduces that when there is a high level of
Threatening Evaluation and Mechanistic Organizational Structure in organizations, it serves as
impediments/barriers to creativity.
Table 9 shows relative hypothesis test results for research model under study.
various dimensions play a decisive role in impeding the workforce to think creatively and reduce
novel idea generation. This study is being an empirical investigation popped up with results that
various dimensions of barriers to creativity undermine idea generation.The most prominent
finding of the study is that a high level of importance and value that has been calculated for
threatening evaluation and Mechanistic Organizational Structures i.e. two important variables of
creativity barriers. It is concluded in our study that least concern was reported about Low
Commitment, and Risk Aversion & Time Pressure, which is totally in line with studies conducted
by Bishop (1997) and Amabile (2002).
Low commitment has no affect upon idea generation in our sample just because in order to be
creative, employee not only needs to be committed to the job but require freedom, trust and idea
support. As our chosen sample predicted that there is no issue of commitment among advertising
firms’ employees and a climate having higher level of freedom, trust and supporting new ideas,
employees are purposely doing their job in such a manner as they like so they are creative and
exercise organic control for strategic alignment towards organizational goals.
Secondly, the sample of study have not clearly acknowledged one of the hypotheses i.e. Risk
Aversion and Time pressure does not affect idea generation activity as a better motivating/
instrument, and they are least concerned with Risk Aversion and Time pressure issues at
workplace for idea generation and creativity. This is also in line with surprising results already
investigated by Amabile (2002). So, this hypothesis has been validated in connection with
previous research done.
In this study, it has been concluded that, tough and rigid climate characterized by threatening
evaluations, mechanistic structures and rigid rules is potential threat for advertising firms that
needs to focused and overpowered for better productivity. Workers who execute their activities in
a predefined way having no autonomy to alter or redefine their assignments will ultimately
impede creativity.
Based on the analysis and results obtained, it is concluded that an approach to enhance and boost
up idea generation for achieving innovation in work performance with the help of reducing
Threatening Evaluations and Mechanistic Organizational Structure is a simplest way. It is
suggested that the Top Level Leadership of advertising firms must exert their focus upon further
humanizing their organizational environment by reducing impediments/barriers to foster idea
generation and creativity.
The HR and Marketing experts may revise and improve their organizational environment and its
working in order to achieve a competitive advantage. For that reason, this study shows empirical
results that may be useful for the Top Level decision makers in organizations, as the results have
clearly showed the considerable relationships and links between various dimensions of barriers to
creativity and idea generation process for creativity in organizations. This study contributed to the
literature by discovering a model having key facts regarding the insight about employees of
Advertising Industry of Pakistan, which were not empirically investigated in Pakistani context up
until now.
The academic implication of this study is that a new dimension was explored in developing
country context and knowledge on the subject field has been enlarged. Through this approach, an
organizational culture can be altered by applying this tested model in order to cope up with latest
challenges and threats faced by 21st century organizations. Moreover, an empirical investigation
will further provoke the issue under consideration to further enumerate the impediments to
creativity in a better way in other social and scientific field of studies and will make effort to
reduce them in order to gain competitive advantage.
RESEARCH LIMITATIONS
A sample chosen for this study was reasonable in number/size, but due to limited resources like
time factor and financial resources, the study was restricted to a sample chosen from only Top
five advertising industry firms of Pakistan. This study was conducted in Pakistani perspective so
it is not a better idea to generalize the results to other Asian Countries as the economic,
technological, environmental and political situations are very much different from Pakistan.
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Professor,
School of Mgmt. & Social Sciences,
Thapar University, Patiala.,India
Ph. 91-175-2393080 (O),Fax 91-175-2393005
Anupam Sharma
ABSTRACT
With the introduction of globalization and liberalization the concept of
corporate social responsibility is coming into light. What business
enterprises think of corporate social responsibility and how they
perceive others who are going for socially responsible behavior has
comes under scanner. As the global scenario is changing day by day the
business enterprises are looking for making a strong case for their
investments to sustain as well as to grow. The present work is an attempt
to capture the use of corporate social responsibility to promote socially
responsible image of the organization from the society’s prospective and
the study will also through light on the benefits that corporate
organizations gain by implementing a socially responsible practices.
Quite often the other factors such as human factor support from
stakeholders, collateral assets, customer satisfaction and evaluation
methodologies play an important role for determining the functionality
of corporate social responsibility practices followed by the business
enterprises. Most of the business enterprises ignore these factors and are
not able achieve suboptimal share of market and customer support.
There is an urgent need for extending the due attention to these factors
and evaluate corporate social responsibility in light of the policies
adopted by Multinationals,corporate social responsibility as a
philanthropic approach as community investment.
INTRODUCTION
With the introduction of globalization the concept of corporate social responsibility (CSR) has
been reinforced. The campaign of corporate social responsibility (CSR) has been actively
supported by global agencies like the World Bank, OECD and the European commissions.
Modern corporations are putting considerable focus on the economy, politics and on society of a
nation (Baxi 2006).CSR can be defined as a conducting business in an ethical way and in the
interests of the wider community. In brief, the concept of CSR has evolved considerably since it
first emerged in the 1950s (Carroll 1999; Freeman 1984; Carroll and Beiler 1977; Sturdivant
1977). There appears to be a disagreement about what CSR means, whether it should be
implemented, how it should be implemented, or why it should be implemented. (Welford 2004;
Stigson 2002) Corporate social responsibility is a commitment to improve community well-being
through discretionary business practices and contributions of corporate resources.
Developing countries need to create alternatives for social sector development and one of the
suggested route for doing so is to develop viable and strategic public-private partnership. One of
the biggest challenges for the governments in the developing countries like India is to create and
nurture a durable framework which will help in translating public policies into deliverables. India
needs a strong institutional framework for meeting the multiple objectives of economic growth
and development into practices. The implementation of the developed framework requires strong
commitment and support from the top-management side also.
From the last two decades the rise in popularity of the term ethical consumerism can be linked to
the rise of corporate social responsibility (CSR) concept globally. As the global population is
increasing, pressure on limited natural resources for meeting the rising consumer demands is also
increasing. Industrialization in many developing countries is booming as a result of technology
and globalization (Grace and Cohen, 2005). With the changing market scenario, consumers are
also becoming more and more aware about the environmental and social implications, of their
day-to-day consumer decisions and are starting to make their purchasing decisions according to
products environmental and ethical concerns.
The role among corporate stakeholders to work collectively is exerting pressure on corporations
to change. Shareholders and investors themselves, though socially responsible are exerting
pressure on corporations to behave responsibly. Now a day’s Non-governmental organizations are
also by using the power of the media and the Internet are increasing their attention towards social
corporate behavior. Through education and dialogue, the development of community in holding
businesses responsible for their actions is growing.Porter and Kramer introduce two approaches a
company may apply in choosing its CSR agenda. As shown in the following table:
Table1: Companies approaches towards CSR agenda
According to responsive CSR, a company may choose to act as a good corporate citizenship that
has to serve social concerns of stakeholders. A company may pursue agenda that help it mitigates
existing or anticipated adverse effects from its business activities along its value chain. Strategic
CSR focuses on a small number of initiatives which social and business advantages are large and
distinctive. Some companies adopt CSR agenda where the business innovation to benefit society
converges with improved company’s competitiveness in the product company is offering and the
value chain.
As India entered the phase of liberalization, all the agencies and organizations including the
multinational firms have started the social sector development in India. Our economy is exposed
to changing market structures and competition forces. Now India would relook at the cumulative
experience of promoting corporate social responsibility (CSR) action in a transparent and
accountable manner as early as possible. To face these challenges the need of the hour is the
development of a corporate social responsibility (CSR) framework that may help organizations in
putting their concepts of corporate social responsibility (CSR) into practice. Another helpful
technique in drawing up a CSR plan is to create a matrix of proposed CSR actions (Hohnen, Paul
2007). The matrix can be set out by different aspects like environmental, social and economic
aspects, though there may be some overlap. The matrix plots out current and possible CSR
activities, processes, products and impacts which can then also be used to check the cross-
reference against a company’s current activities and structure. An example of this type of matrix
is illustrated in the following table:
Association System
Products/ Some products products to be None at SA 8000 Use of Keep abreast
undertaken undertaken
Focal point Environmental Affairs Department Human Resource Department Quality Assurance Department
Fukukawa The study throws light on Japanese Japan is considered to be lagging behind in its
and multinationals and their corporate social understanding and adoption of corporate social
Teramoto responsibility practises. responsibility and it needs to achieve a more
(2009) global mode of transparency.
Muller and The study is based on survey conducted among Results of the study shows that six of the nine
Kolk (2009) companies in the Mexican auto industry.CSR corporate social responsibility dimensions are
performance was investigated across three intercorrelated, which suggest that CSR in the
dimensions: environmental, labour and Mexican auto parts industry is more structural
community. than incidental.
Lather, The study covered the corporate social Corporate social responsibility practices of
(2007) responsibility initiatives taken by multinational multinationals in India and back home were
corporations in their home country and makes different. Multinationals were more concerned
a comparison of their efforts in India. particularly in implementing socially
responsible programs in their home country.
Krishnan and The study explores the impact of emerging Consumers prefer to boycott the company’s
Balachandran markets on corporate social responsibility. products and services in case of negative
(2004) corporate citizenship behavior.
Last but not the least, firms all over is beginning to grasp the importance of corporate social
responsibility into practice to enhance more market share and enhanced reputation in the market.
In the near future only those firms will remain in the markets that have gained the goodwill in the
general public.
clear metrics or framework for formulating and evaluating their actual impact in improving social
conditions. Maon et. al. (2009), suggest an integrative framework of corporate social
responsibility design and implementation. The qualitative case-study approach was used to
understand the contextual issues that surrounded each organization. The research proposed a
integrative framework for designing and implementing corporate social responsibility
incorporates nine steps: raising corporate social responsibility awareness inside the organization,
assessing corporate purpose in a societal context, establishing a working definition and vision for
corporate social responsibility, assessing current corporate social responsibility status, developing
an integrated corporate social responsibility strategic plan, implementing the corporate social
responsibility integrated strategic plan, maintaining internal and external communication,
evaluating corporate social responsibility related strategies and communication and
institutionalizing corporate social responsibility policy.
Lewis, (2003) Study explores that corporate social Customers buying behavior is very much
responsibility is established as a fundamental affected by the brand loyalty towards social
addition to stakeholder’s criteria for judging and environmental responsibility.
companies reputation and company’s brand
reputation management.
Porter and The study stated that strategically CSR becomes Successful corporations need equal
Kramer (2006) a source of tremendous social progress, as the opportunities for a productive workforce. Safe
business applies its considerable resources, products and working conditions not only
expertise and insight to the activities that benefit attract customers but lower the internal rate of
society, accidents.
Lichtenstein, The study through the light on the concept that a There is a significant relationship between
Drumwright corporation’s socially responsible behavior can customer-corporations and non-profit
and Braig positively affect consumer’s attitude towards the donations. It should engage in the CSR
(2004) corporations. initiatives as a part of a genuine effort to
change its market position.
Chaudhary The study shows that though the number of Corporates are collaborating with NGO’s, local
(2009) corporate social responsibility projects has self-government bodies to ensure the better
increased in India but, there is a lack of clear strategy formulation and for getting inputs
metrics or framework. from the government.
Maon, The study suggests an integrative framework of Study contributed by giving a integrative
Lindgreen and corporate social responsibility design and framework for designing and implementing
Swaen (2009) implementation. corporate social responsibility.
All the themes of the CSR use can exist simultaneously in the organizations in this changed
globalized world but the organizations that are socially responsible have a dominant position in
the market. These organizations can focus of customers and resources of the organization and
influence the performance of the organization in the market. It can be expected that with time
and experience the organizations opting for CSR practices, will graduate from Social
entrepreneurship to new philanthropy.
From the above studies nine factors have been identified and how these influence organizations
corporate social responsibility practices has been explained below:
Customer satisfaction-
High Considerable
loyalty
Reduced regulatory
Relatively Difficult Easy
interventions
On the basis of studies undertaken a framework has been designed to highlight the factors
influencing CSR. The framework also presents the differences in the prospective of the influence
these factors with regard to the two approaches i.e. CSR and multinationals and the CSR as a
philanthropy and community investment. Although all these nine factors influences the
organizations but the extent or the purpose for which they are adopted is different.
CONCLUSION
This research will portray the real picture of corporate social responsibility practices opted by
companies. Due to globalization and liberalization corporate social responsibility practices are
becoming essential for the survival of every company. Foreign multinationals are adopting
corporate social responsibility practices at higher level and customers are preferring their
products more than the national/local companies products, so this research will help the
companies as well as customers both by designing a framework for socially responsible behavior.
So its concluded that by opting a corporate social responsibility practices or a framework for
implementing firms corporate social responsibility practices corporates will be able to enchance
their market reputation and social image.
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Dr (Ms) Ravi Kiran is M.phil, Ph.D. She has published 52 papers in refereed Indian/International journals
and around thirty papers in Conferences. Her area of specialization is industrial management, productivity
and e-business. Five Ph. D. Scholars have completed their research work with her and & eight Ph D.
Scholars are pursuing their research. She has finished five R& D projects. She has organized Five National
Conferences and Fifteen Short term training programmes.
Ms Anupam Sharma is B.Tech in Computers and MBA with specialization in Human Resource and
Marketing Management. She has presented two papers in refereed International Conferences. Currently she
is pursuing Ph.D. on Corporate Social Responsibility from School of Mgmt. & Social Sciences, Thapar
University, Patiala, India.
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