Brajaraj Mohanty Professor, Xavier Institute of Management Bhubaneswar

John C.Camillus, Donald R.Beall Professor of Strategic Management, University of Pittsburgh, Pittsburgh,U.S.A. S.K. Chakraborty, Founder- Convenor, Management Centre for Human Values, Indian Institute of Management, Kolkata Keith D’Souza, Director (Organizational Effectiveness), Pfizer Limited, Mumbai J.M. Denton, Professor & Head of International Affairs, University of Stellenbosch Business School, Bellville, South Africa, email:md2@belpark.sun.ac.za Ranjan Ghosh, Director, Management Education Centre, Heritage Institute of Technology, Kolkata M.G. Jomon, Associate Professor, XLRI, Jamshedpur Jerome Joseph, Professor, Indian Institute of Management, Ahmedabad Oswald A. Mascarenhas, s.j., Kellstadt Professor of Marketing, University of Detroit-Mercy, Detroit Sasi Misra, Distinguished Fellow, Entrepreneurship Development Institute of India, Ahmedabad Amar KJR Nayak, Associate Professor, Xavier Institute of Management, Bhubaneswar Gopal Krishna Nayak, Director, International Institute of Information Technology, Bhubaneswar H.K. Pradhan, Professor, XLRI, Jamshedpur V.Ranganathan, Professor, Indian Institute of Management, Bangalore Latha Ravindran, Professor, Xavier Institute of Manavement, Bhubaneswar Subhash Sharma, Dean, Indian Business Academy, Bangalore W.S. William, Professor & Dean (Academic), Xavier Institute of Management, Bhubaneswar For inquiries, subscriptions and contributions, please write to Editor,
ILAKSHAN XIMB Journal of Management Xavier Institute of Management Xavier Square, Bhubaneswar - 751 013, India Ph. : 91-674-3983893 (Direct), 3012345 (Pilot) Fax : 91 674-2300995 E-mail : brajaraj@ximb.ac.in

Volume V Issue No. 1 March, 2008

Xavier Institute of Management
Bhubaneswar - 751 013

March, 2008

THE CREST OF THE XIMB The lamp on the book stands for the spread of knowledge, the chimney for industrial development, the two plants for rural development and the IHS logo for the Jesuit Society which manages the institute.

ISSN 0973-1954

Regd. No. : ORIENG/2006/18251

Publisher Dr P. T. Joseph s.j. Director Xavier Institute of Management Bhubaneswar

Printer Dr P. T. Joseph s.j. Director Xavier Institute of Management, Xavier Square, Bhubaneswar - 751013

Editor Dr. Brajaraj Mohanty Professor, Xavier Institute of Management Bhubaneswar - 751013

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Mohanty 23 1 . B. Private Equity — Gaining Momentum Naliniprava Tripathy 147 Bibhu Prasan Patra 125 Sreekumar.Shahida. Rajendra Nargundkar & Gaurav Hiremath J. Beyond Whistleblowing: A Study on Socrates. Nayak. PERSPECTIVES 9.P . Mishra 8. 7. Satyendra and Manjunath 10. Measuring Technical Efficiency of Coal Mines using Data Envelopment Analysis – A Case Study of Mahanadi Coal Fields Ltd. Munmun Mohanty & B. FII and Stock Index Relationship in India Attribute Based Perceptual Mapping of Cement Brands: an Empirical Study 5. Rajnish Ranjan & Shivi Negi 2. Factors Affecting Emotional Intelligence:An Empirical Study for Students of Secondary Schools and Professional Colleges 3. 6. Rohita Kumar Mishra & Debendra Kumar Mahalik 113 93 Ajaysingh Rajput & Keyur Thaker P . K. Work Role Characteristics as Determinants of Job Satisfaction: An empirical analysis Empirical Examination of A Cost Allocation Model: using the Theory of Planned Behaviour Valuation of Intellectual Capital: The case of Financial Services Industry in India Nikhil R.R. Ajay Kumar Pillai 75 65 57 43 Shamira Malekar & R. An Analysis of Microfinance Rating Models S. 4.Contents ARTICLES 1. Reeves Wesley & P Muthuswamy . Exchange Rate. Mitra.

Mohanty & Rajeev Roy M. Tripathi Debadutta Kumar Panda 167 179 157 . BSNL – Making the Elephant Dance 13. Chakraborty A. Fabindia Overseas Private Limited 12. Managing Creativity 15. Abani 189 195 B. The Case of Raw Material Supply in the Wood Carving Clusters of Orissa BOOK REVIEWS 14. New Mantras in Corporate Corridors D.MANAGEMENT CASES 11.S. N.

1) 1. microfinance has come to include a broader range of services (credit. 2008 Professor. and NBFCs. (For the abbreviations used in this paper see Appendix . and rating scales for assessing the performance of client MFIs. But a lack of transparency in the microfinance sector and information asymmetry between microfinance institutions (MFIs) and lenders have made lenders apprehensive of lending to MFIs. etc. Diverse operating models. who were until recently outside the coverage of formal banking institutions. Institute of Rural Management. insurance. especially women.ac. Over time. in India only two agencies are involved in MFI rating. At present. the term microfinance institution has come to refer to a wide range of organisations dedicated to providing these services. Institute of Management Technology. email: skmitra@imt. private commercial banks. These rating agencies adopt different methodologies. Anand.1 Rajnish Ranjan2 and Shivi Negi3 Abstract Microfinance has emerged as a very important paradigm for meeting the credit requirements of poor people. * 1 2 3 In other words. There are around 16 rating agencies the world over. and between them most of the ratings are done by M-CRIL.) as it was realised that the poor people who lack access to traditional formal financial institutions require a variety of financial products. It also examines the feedback received from different stakeholders with respect to the ratings and the key challenges related to MFI rating. such as NGOs.com . a microfinance institution (MFI) is an organisation that offers financial services to low-income populations.0 INTRODUCTION Microfinance is being accepted increasingly as a powerful tool for the social and economic empowerment of marginalised communities. Mitra. rating models. Nagpur. email: rajnish2555@yahoo. Anand. and financing arrangements have resulted in significant variation in the depth and Received November 20. credit unions. MFI rating is designed to remove such constraints. Institute of Rural Management. co-operatives. and does a comparative analysis of these. K. Within the microfinance industry. It looks at some of the popular rating agencies and their models.in PG PRM Student (26th Batch). savings.com PG PRM Student (26th Batch). email: koolkiwi_08@yahoo.An Analysis of Microfinance Rating Models* S. This study examines the increasing importance of MFI ratings in the development of the microfinance sector. legal forms.

In the early phase of the development of MFI ratings. XIMB Journal of Management . that is. It involves a detailed assessment of an MFI’s creditworthiness and forming an opinion on the relative ability of the MFI to make timely repayments of all loan obligations to lenders. In this case. 2008 breadth of financial disclosure across these institutions. it was mainly main stream raters that used to rate MFIs. The large majority of these are situated in Latin America and Asia. Other than the leading institutions. A rating represents an assessment of a specific debtor’s creditworthiness. the MFIs were benchmarked against the banking sector. 2.1. March. It is estimated that by 2005–06 more than 650 MFIs (around more than half of all MFIs in the world) will have been evaluated by an external rating agency and will have also updated their rating with a second evaluation (Microfinance Rating and Assessment Fu nd 2006). This calls for an evaluation mechanism that can rate the credibility of an MFI in terms of both credit and social deliverables. As the microfinance rating industry matures. All these issues have encouraged the recent development of MFI rating agencies as these ratings have emerged as a solution in this regard. The importance of MFI ratings can be gauged from Figure . microfinance rating services have drawn attention increasingly from investors and donors (Rating Fund 2005). MFI rating is a tool designed to overcome problems with the availability. with instances of differences in the rates of interest charged to the members being brought to light. Concerns have been expressed about the methods adopted by MFIs to gain business. It has been now acknowledged that MFI ratings are important not only for MFIs and investors but also for the entire sector. few MFIs follow global financial disclosure guidelines for microfinance. This situation has led to the need for finding a way to identify good MFIs from the point of view of both donors and investors. reliability. it has been observed that microfinance has had an asymmetric growth across the country. This has resulted in growing disparity and information asymmetry among the whole spectrum of MFIs in terms of the way in which they conduct their operations. The term rating is used usually as shorthand for credit rating.0 MFI RATINGS : A BRIEF of how likely it is that the MFI (debtor) will repay the debt. which raises doubts about their long-term sustainability. This indicates the growing realisation about the importance of MFI ratings. from 152 in 2001 to 281 in 2005 (Rating Fund Market Survey 2005). and quality of information on the risks and performance of MFIs. The total number of ratings and assessments has grown by 84 per cent in a span of four years recently. .2 Vilakshan. Donors and investors also want to know how well their money is being managed by an MFI. in recent years. In addition.

al. 3. their methodologies have been compared with the following objectives in mind: • To gain an in-depth understanding of the different MFI rating models of the various rating agencies.Mitra et. Specialised rating for microfinance most closely resembles main stream rating. An Analysis of Microfinance . If the MFI industry is still young. many other MFI rating agencies have come into the market with their own models and methodologies for assessing the performance of the client MFI. Sixteen rating agencies are now active in this market. Since the first rating agency was established in 1996. In addition. an analysis of various microfinance rating agencies has been done. • . For instance. The idea of creating a specialised rating agency (oriented toward investors) emerged only later with the creation of Micro Rate in 1996. ACCIÓN International adapted the CAMEL approach to the analysis of financial institutions in evaluating their affiliate MFIs in the early 1990s. although it goes beyond mere payment capacity to capture aspects of institutional performance particular to microfinance. To do a comparative study of the different rating agencies and their models. 3 Figure-1: Utility of MFI Rating UTILITY OF MFI RATING For MFI • • For Investors • • • • • For the Sector Improved access to data Gaining trust from sector and outside • Obtaining funding Comparing performance with other MFIs Assessing performance Identifying MFIs Evaluating MFIs Follow-up on funded MFIs It was only later when the demand for rating agencies catering specifically to the microfinance sector arose that specialised MFI raters emerged to meet the needs of this niche market.. MFI rating agencies are even younger..0 OBJECTIVES OF THE STUDY In the study.

Grameen Koota 90 165 18 365 (Nov. 2008 • To learn about the viewpoints of the stakeholders with respect to MFI ratings. ‘Bereke’ Kazakhstan Microcredit organisation 2. CMF 280 Microfinanza srl Planet Rating CRISIL M-CRIL GIRAFE MICROS - 1.ratingfund. as it had done only five MFI ratings until 2005 (www. Consequently. SEF International Ltd 2.89/ 5 αβ BB+ BBB+ AD mfR5 mfR2 α+ β - 1.1 Rating Agencies Selected for the Study To meet the first two objectives of our study. Of the six rating agencies selected for the study. BASIX 1. The second parameter is the availability of secondary information about the rating agency on the Internet and through other sources. which is given by the number of MFI ratings that it has conducted. we have taken three parameters into consideration. Consequently. March. ESAF 2. we have taken two reports of the Table-1: List of the Rating Agencies Studied Rating Agency Rating Model Rated MFI Rating Obtained Number of MFI Ratings done until 2005 NA ACCIÓN International MicroRate CAMEL 1. SOEGSOL 3. 3.4 Vilakshan. banks. and capital providers like Units and NABARD. it could not be studied. it could not be studied.42 / 5 2. In choosing the rating agencies. Amhara Credit & Savings Institution 2. XIMB Journal of Management . The first parameter is the experience of the rating agency. There is very little information available about PEARLS. the MFIs themselves. 2006) . ACME 1. Spandana 2.org). that is. A rating agency like Apoyo and Asociados does not have its rating reports and related articles available in English on the Internet. ABA 2. The third parameter is the availability of the reports in English on the Internet. we chose six rating agencies (see Table-1) out of the 16 rating agencies that are involved in MFI rating the world over. ECLOF 1. A rating agency like JCR-VIS was not considered because of this reason.

2 Micro Rate Micro Rate is a US company specialising in the rating of Latin American MFIs.2. Micro Rate has evolved a riskdriven methodology that combines the measuring of credit worthiness with an assessment of an institution’s excellence in microfinance. as well as a complete assessment of the different organisational.. and legal environments. and in both rural and urban contexts. 3.2. Rather than following a formula. management. and financial performance.3 MicroFinanza MicroFinanza Rating was created in 2001 as a division of MicroFinanza Srl. and management aspects. portfolio quality. 3. political. asset quality. 12 rating or assessment reports (two from each of the six rating agencies) completed between 2000 and 2006 were selected for our study (see Table . but uses CAMEL as an institutional assessment tool. 5 MFI rating for each (www. ACCIÓN CAMEL reviews and rates five areas of financial and managerial performance: capital adequacy. Micro Rate analyses five areas of MFI performance and risk: microfinance operations. governance. Care has been taken to take one report with a rating on the higher side of the rating scale and another with a rating on the lower side.mixmarket.al.1). we have taken the help of the technical guides issued by these agencies. 3. and market positioning. The rating scale and grades are synthetic evaluations of the credit risk and fiduciary risk profile of the MFI rated by MicroFinanza. In 1993. For a better understanding of the rating methodology of each of the rating models used by these agencies. It is the leading and also the oldest rating agency specialising in the evaluation of . ACCIÓN adapted CAMEL to the needs of microfinance. Its rating methodology is based on quantitative and qualitative assessment factors. and most of their reviews are conducted in Africa and Latin America. An Analysis of Microfinance . governance and strategic positioning. Thus. Mic roFinanza Rating has wide experience in rating and assessing MFIs with different legal structures and in operating in various economic. operational. The quantitative analysis is always integrated with the description and put in the context of the used indicators. earnings.com). evaluation teams use their experience to identify those areas critical to the performance of the particular MFI.2 An Overview of the Selected Rating Agencies MFIs.1 ACCIÓN International The original CAMEL was developed in 1978 by the US Federal Reserve to evaluate the solvency of US banks. and liquidity management.. The majority of ACCIÓN’s clients are affiliates of their network.Mitra et. The qualitative analysis includes a careful evaluation of institutional ownership. 3. ACCIÓN does not issue credit ratings.2. management and organisation.

Operational effectiveness. March. and financial strength to sustain and scale up operations. also features among the top four rating agencies in the world in terms of both its coverage and its analytical strength. which was established . M-CRIL’s methodology groups 30 indicators under three broad areas— governance and organisational aspects.5 CRISIL CRISIL was established in 1987. 4. XIMB Journal of Management . and to promote transparency in the microfinance sector. All are recently established agencies. to build the capacity for MFI self-evaluation. Its goal is to help MFIs attract new sources of financing. which started MFI ratings in 1993. municipal bodies. It was the first credit rating agency to undertake ratings for entities such as banks. 3. CRISIL uses the MICROS methodology. and Scalability and sustainability. Planet Rating provides rating services based on the GIRAFE methodology. 3. only one (CRISIL) is a main stream rater while the other five are specialised rating agencies.org). insurance companies.6 Vilakshan. R-Risk management. Micro Rate. CRISIL. 1 microfinance rating agency (http:// www. Capital adequacy and asset quality.4 Planet Rating Planet Rating was created in 1999 as a department of the international microfinance NGO. F-Financing and liquidity. Later on it became an independent agency specialising in MF ratings. which takes into account G-Governance. Planet Rating currently is testing a new component for its evaluation system. Resources. I-Information.2.1 Market Share of the Rating Agencies Out of the six rating agencies studied. GIRAFE-S is an assessment of an MFI’s effort to make a positive social impact on its clients’ welfare by meeting unsatisfied demand for credit and other financial services and by expanding the overall opportunities for clients. management systems and human resources.0 COMPARISON OF THE DIFFERENT RATING AGENCIES AND THEIR MODELS 4. and green-field projects. The thrust is on the MFI’s management ability. utilities. which stands for Management. Institutional arrangement. specifically designed for MFIs. 2008 3.2.6 M-CRIL M-CRIL is the world’s no.mixmarket. and E-Efficiency and profitability. and financial strength. The mission of MCRIL is to facilitate the delivery of microfinance services in the developing countries of Asia by minimising information asymmetry and mitigating the limitations caused by lack of relations between commercial investors and MFIs. with the oldest being ACCIÓN CAMEL. A-Activities and services. Planet Finance. financial institutions. Planet Rating is a European company that evaluates MFIs worldwide. institutional arrangement.2. which is India’s premier credit rating agency. as well as for new instruments such as asset and mortgage-backed securities and other structured obligations.

Micro Rate comes second. it started MFI ratings only in 2001. that is. only three claim to study the social performance of MFIs: MicroFinanza. ACCIÓNCAMEL uses CAMEL. An Analysis of Microfinance . 7 in 1996 and which started MFI ratings in 1997. is the first and oldest specialised MFI rating agency in the world. with their own definitions. in 2005. and consistency (in terms of a clear methodology). Amongst the six rating agencies examined in this study. and hence it is difficult to relate the scores assigned to MFIs by several raters. with 44 per cent of global assessments performed in 2004–2005. Different rating agencies use different scales. with 19 per cent and 13 per cent respectively. In recent times. Planet Rating has developed the GIRAFE-S model. M-CRIL is the most active specialised agency. variety (in terms of coverage). while CRISIL uses the MICROS model.. M-CRIL . CRISIL contributed 20 per cent of all credit risk ratings performed globally in 2004–05 (Rating Fund Market Survey 2005). from Tunisia.. The Fund Market Survey 2004–05 has done the rating of rating agencies and the top three rating agencies in different regions of the world are shown in Table-2 Table -2: Top Three Rating Agencies in Different Regions of the World (2004–05) First Asia Sub-Saharan Africa CEE/NIS MENA M-CRIL (75%) Micro Rate (66%) MicroFinanza (64%) Planet Rating (91%) Second CRISIL (21%) Planet Rating (31%) Planet Rating (34%) MicroFinanza (9%) Third JCR-VIS (3%) MicroFinanza (3%) M-CRIL (3%) 4.2 Regarding Rating Models and Reports Most of the MFI evaluations reviewed here demonstrate depth. Among the main stream rating agencies. the social performance of MFIs has also gained importance. Planet Rating uses GIRAFE. and M-CRIL. These are difficult to compare because those using the same grades do not always assign the same meaning to the grades. Planet Rating. The first MFI assessed under this methodology was Enda. Ratings and assessments of MFIs focus more on asset quality and efficiency in order to attract investments. Out of the six MFI rating agencies.al. As per the findings of the Rating Fund Market Survey 2004–05. Planet Rating and MicroFinanza follow next.Mitra et. Though CRISIL was established in 1987. CRISIL and MicroFinanza entered the MFI rating industry most recently. in 2001. All rating agencies have chosen to establish their own methodologies to rate MFIs. which includes social evaluation and is based on CERISE. with 24 per cent of total assessments completed worldwide. The scales are very different.

8 Vilakshan. These parameters and our findings on these parameters are as follows: 4. One is the credit rating report and the other is the risk assessment report.3. four (CRISIL. 4.3. In these reports.3 Rating Parameters Rating reports consider certain common parameters in assessing the performance of the client MFI for the purpose of rating. 2008 has recently launched a new social rating service for MFIs.1 External Risks Three rating agencies (MicroFinanza. CRISIL. The portfolio . and MicroFinanza) give credit rating reports that present their views on the creditworthiness of MFIs. the depth of outreach to lowincome clients. evaluating the social performance of Bullockcart Workers Development Association (BWDA). M-CRIL. This social rating considers the MFI’s adherence to its social mission. and the suitability of products to client needs. Two agencies. and their methodologies concentrate on evaluating the financial soundness of the organisation. and Planet Rating) give risk assessment reports that are broader than credit reports but that may not include some points that are of interest to investors.3 Credit Risks All rating reports give details about the financial condition of MFIs. All the models examined these two aspects in detail. Out of the six rating agencies that we studied.2. the agencies issu e an assessment of different components along with the item sc ores of the component.2. suc h as probability of default by MFIs.2 Internal Risks The most important systems for avoiding internal risks are internal control systems and MIS. Micro Rate. Micro Rate. They also give details about the kind of MIS and loan-trac king system that an organisation has. two kinds of reports are offered by rating agencies. They also study the levels of competition and regulation in the sector. They provide sufficient information about the organisations’ internal control system designed to avoid fraud and to keep a check on operations.3. In 2004. 4.1 Credit Rating Report. and Planet Rating) give their opinions on the c onditions of the cou ntry’s ec onomy and the microfinance sector. M-CRIL conducted a pilot rating exercise in India. CRISIL. They all give overall credit rating reports. 4. Some agencies also issue a c omposite sc ore (ACCIÓ N with CAMEL. have adapted their methodologies to offer both a credit rating and a global risk rating. M-CRIL.2 Risk Assessment Report Five rating agencies (ACCIÓN. 4. and Planet Rating with GIRAFE). XIMB Journal of Management . Generally. 4. Micro Rate and M-CRIL. March. CRISIL with MICROS.

Africa 2001 South Asia. all ratings use Operational Self-Sufficiency (OSS) and Financial Self. South-east CEE/NIS Asia. South-east Asia 1998 South Asia. 9 at risk (PAR) has emerged as the most important ratio for representing the quality of a portfolio. East Asia. 4.4 Profitability All the reports give details of the profitability of MFIs. CRISIL M-CRIL Micro Finanza 2001 CEE/NIS.. Latin America.4 Comparison of the Rating Models The six rating agencies and their models along with rating methodologies have been shown in a comparative manner in Table -3.3.6 Adjustments All the rating agencies make the following adjustments in the financial statements of the MFI in order to present the true picture: • • • Loan write-offs removed from the balance-sheet portfolio Inflation adjustments Adjustments for subsidised debt interest (example: reflect what the MFI should have paid to clients for mandatory savings) Shadow expenses of the value of implicit subsidies • 4.3. South-east Asia .Mitra et.5 Efficiency Cost per borrower and loan officer per account are two important parameters that are used to judge the efficiency of MFIs. Africa ABOUT THE MFI RATING AGENCY Started MFI rating from Regional coverage (2004) 1997 Latin America. all reports give the write-off ratios and the loan-loss reserves..3. An Analysis of Microfinance . In addition.Sufficiency (FSS) to show whether an organisation is earning enough revenue to meet its expenses or not. All the ratings use Return on Equity (ROE) and Return on Assets (ROA) to show the profitability of MFIs. 4. MENA. In addition. Table-3: Comparative Analysis of the MFI Rating Agencies and their Models Parameter ACCIÓN International 1993 Latin America. Latin America.al. Africa Micro Rate Planet Rating 1999 Africa. Operating expense ratio is also used by all rating agencies to find the level of expenses. 4.

000– $8.000 1. Consultancy work for apex institutions 5. Annual updates $5. Training 1. XIMB Journal of Management . of indicators used for rating 21 C-capital adequacy A-asset quality Mmanagement E-earnings L-liquidity management 26 •Microfinance G: governance operations •Portfolio quality I:information R: risk management •Management A: activities & & services organisation F: financing •Governance & liquidity & strategic positioning E: efficiency & •Financial profitability performance M: management I: institutional arrangement C: capital adequacy & asset quality R: resources O: operational effectiveness S: scalability & sustainability 30 The indicators cover three main areas: • Organisational & governance aspects •Managerial & resource strength •Financial performance •Governance & operational structure •Assets structure & quality§ Internal control & risk management •Financial structure Strategic objectives & financial needs . Customised evaluation services 6. Credit ratings 2. SPA (Social Performance Assessment) Fee for global risk assessment $8.Institutional diagnostic 2.Credit rating 2.000– $15.International Best Practices Advisory Services 5.500 Price range NA Fees for credit rating $15. 2008 Products and services offered 1. Risk assessment 2.800 ABOUT THE RATING MODEL No. Highest charge: $10.000– $15. Global risk assessment 1.000.10 Vilakshan. March.Credit rating 2.Risk assessment 1.Quarterly monitoring 6. GIRAFE-S 1.Social rating Fee for credit ratings $5.500 Fee for global risk assessment Lowest charge: $6. Training 4. Pro-forma rating 3.000 Fee for global risk assessment $8. Ratings 2.Rating 4.Specialised studies of the MF sector 4.000– $11.500.For global risk assessment $7.000– $15.Risk assessment 3.Assessment/ private rating 3.000.

with mfR1 being the highest rating and mfR8 being the lowest rating KEY DIFFERENTIATING FACTORS Highlights of Very report comprehensive • Short • Exhaustive analytical factual detail report with benchmarking comparisons •Well balanced in both factual and performance analysis •Well balanced in both factual and performance inputs •Clear definition of risk level •Strong on comments in capacity constraints. 45% 55% 51% 49% 40% 60% 10 grades.Mitra et. and consider carefully the specific operational environment and the target market of the MFI ..al. from AAA (highest) to D (lowest From α+++ 8-point to y grading scale of mfR1 to mfR8. 11 Quantitative 46% Qualitative Rating scale 54% Rating is given on a scale of 0 to 5. management.. best practices. This corresponds to an alphabetical rating of AAA to D. governance.Global rating is given ranging from G1 to G5. 30% 70% Excellence in Microfinance – α++ to γCredit rating – AAA to DDShortterm debt – A1+ to C 43% 57% Issues a composite score ranging from 0 to 5. An Analysis of Microfinance . track record. Composite rating is given ranging from e to a. and benchmarking •Rating opinion geared more towards credit risk and repayment capacity •Benchmarking of key parameters against MFIs in MCRIL’s existing database •Comments on the risk grade and the suggested lending amount and conditions Ratings include a risk profile and bench marking analysis.

the rating recommendations keep in view the long-term prospects of •Assesses the the rated organisation achievement of •Maintains the MFI’s a compredouble hensive bottom database of line all its rating through actions. and risk •Does not apply a rigid rating formula. its social which is rating used for benchmarking MFIs Strong on capacity constraints based on specific issues •Ratings include a risk profile and benchmarking analysis. governance. rating teams use their experience to identify those areas critical to the performance of the particular MFI Approach bias Strong on management. • Methowhich dology includes focuses both credit more on management risk and than on risk risk assessments for MFIs •Has very good understanding of the MF sector •High domain knowledge of the financial sector •M-CRIL is the pioneer in social rating. •Although M-CRIL ratings are valid only for one year.12 Vilakshan. . and best practices Strong on financial parameters What it does not take into account •Does not currently rate the credit risk of an MFI and make it •MF grading is not a credit rating and does not indicate the •Does not take into account external environmental factors •Less focus on internal control system. and benchmarking practices •Does not measure credit risk •Does not rate the institution Strong on financial track record and benchmarking against peers •Does not provide real ratings but rather offers a rationale •Tracks changes in MFI funding sources •Rates MFIs/ NGOs internationally to take into •Offers account variety of external products and risks services factors •Gives more •Has weight to adopted ‘fiduciary’ hybrid MF risk rating model. March. and consider carefully the specific operational environment and the target market of the MFI Strong on management. profitability. 2008 Salient features •Conducts a very detailed assessment •Focuses •Benchmarks more on sustainability MFIs to peers in a •Very semistrong on annual MFI financial comparison aspects like •Compares capital MFIs on adequacy performance and asset management. XIMB Journal of Management .

banks. The social impact of the MFI is not taken into account while conducting a rating. In general. Unitus. The general feedback on the present rating model was that it is skewed towards the financials.al. Some MFIs like . and to benchmark performance with other institutions.Mitra et. Only a few MFIs like Grameen Koota have gone in for a rating from the view of performance evaluation. to appear more transparent to current and potential partners and funders. MFIs were satisfied with the services of the rating agencies. 5.. Rating reports are also used to attract new sources of funding. 13 in terms of its impact at the client level •Only those aspects that the ‘market’ assesses as important are included in the rating for an opinion on the MFI’s credit worthiness •Does not provide consulting services available to investors credit worthiness of an MFI (obligor) •MF grading cannot also be compared with a credit rating assigned to a debt instrument of the same MFI •Less focus on systems and procedures 5. The trend that emerged was that the MFI would go in for a rating only when it was in need of funds and the creditor had laid out the rating as essential.1 Feedback of MFIs on Ratings Outreach have not gone in for a rating for the last few years as they were in a consolidation phase and were not in need of funds. Thus.. An Analysis of Microfinance . and NABARD—on the issue of MFI ratings. All the MFIs agreed Feedback was sought from the eight MFIs situated in and around Hyderabad and Bangalore on their experience with ratings. MFIs found the rating reports very helpful in identifying the strengths and weaknesses of their organisations and in identifying the areas for improvement. Some of the MFIs also demanded that their performance should be measured in terms of the achievement of their mission and vision.0 VIEWS OF STAKEHOLDERS ON MFI RATINGS Meetings were set up to elicit the opinions of the different stakeholders—MFIs. many MFIs like Outreach have gone in for a rating only when it was required for SIDBI funding. The list of the various stakeholders visited is given in Appendix 2.

The raters only interview board members and do not interact much with the field staff and SHG members. the rating by M-CRIL came in handy as M-CRIL is a specialised rating agency for MFIs and has a good brand value in this sector. MFIs feel that too much attention is paid to past activities and operations and that . Ujjivan. In this situation. Ujjivan felt that it would be better to have different ratings for credit and social purposes. but they have different opinions on the question of how this should be done. It only helps to confirm what the organisation already feels and knows about its strengths and weaknesses. the raters had not been in this field long enough to understand the intricacies of the microfinance sector well. Until recently. Among the things that MFIs did not like about the raters’ methodology was the lack of flexibility in adapting the methodology to the local context. which extends beyond the microfinance sector in India. and Sharada’s Women’s Association for Weaker Section were not satisfied with the qualifications and field experiences of the raters. because of rapid growth. BSS felt that the same rating should incorporate both credit and social parameters. The MFIs also expressed the need for more experienced and professional raters. she said. some MFIs like Grameen Koota felt that there is a lack of practical recommendations in the final report. There is a demand and a need for a flexible rating model that provides reasonable scope for customisation according to the needs of the client MFI. For this reason it is on the lookout for international lenders and for funds from the capital market. both national and international. According to them. there are no surprises in the rating report for the organisation. SKS was that CRISIL has a wider appeal than M-CRIL. SKS was able to meet its credit requirements through national lenders like banks. VP Finance. XIMB Journal of Management . is very important. The CEO of Grameen Koota expressed the view that the rating does not bring out anything new for them. 2008 that social rating is important. On the other hand. The reason given for this by Jennifer Leonard. For global transactions. This point was brought to light by ASP and Sharada’s Women’s Association for Weaker Section It was felt that the current rating models are too rigid in their approach. This fact came to light through the experience of SKS. In addition. Grameen Koota. the time spent on site was too short. the credit requirement of SKS has grown tremendously. But now. The MFIs felt that to get the full picture. Keeping this in mind. SKS would go in for a rating by Fitch in the future. Thus. ASP. March. An often repeated complaint of the MFIs regarding the rating agencies is the lack of interaction between MFIs and field workers. In their opinion.14 Vilakshan. the raters should interact more with the people working at the grass-roots level in the organisation. Recognition of the rating by the lenders. SKS has decided to go in for a CRISIL rating this year.

He said that the degree of awareness among MFIs about their weaknesses should also be considered in the rating. social indicators and impact. ICICI carries out an internal assessment procedure to find out the credit worthiness of an MFI.. A separate rating model is required for co-operative-based MFIs. monitoring. it generally checks the history of the credit performance and reliability of the promoters. For example.2 Feedback of Banks and Investors on Ratings of them consider rating reports as complementary to their own due diligence. Grameen Koota brought forth the issue that the ratings done. and investment picking. It was stressed that grades could be very useful. principal process..Mitra et. All Through its funding requirements. MFIs (Grameen Koota. and environment analysis in the rating reports was expressed by Ujjivan. and financial markets. thus . internal risks. ASP pointed to the fact that current ratings are not suitable for measuring the performance of a cooperative.al. 15 not enough attention is paid to the future prospects of the organisation. 5. are too conservative in their projections. but added that it should be done with respect to legal form as well as to the geographical environment in which an MFI is operating. regulation. which is confusing for investors who are not familiar with the different rating agencies. profitability and efficiency. The importance attributed to the grading in rating reports varies. portfolio composition. The CEO of Grameen Koota said that there is a need for a more optimistic outlook. In general. APMAS with a strategic alliance with MCRIL is catering to this niche market. investors use and appreciate access to rating reports. SIDBI has contributed significantly to the demand for ratings by MFIs. interest rate risk. Ujjivan) expressed the view that it is helpful. With regard to the issue of benchmarking. PAR. Benchmarking should also be done on the social performance of the MFI. Investors save some duediligence time by using rating reports. country risk. The need for sensitivity analysis. and systems. but only when the reports are standardised and are based on probability of default. management. 5. Investors would like to see more information on cash flow and solvency projections. The most useful sections in rating reports are credit risk. competitor analysis. and law. This consists of nine-point assessment criteria. there seems to be too much diversity in the methodology used by specialised raters. At present. Investors use reports mostly for initial background screening. especially those conducted by M-CRIL.3 Feedback of NABARD on Ratings Investors require a rating report before investing in an MFI. but would prefer it if rating reports adopted a more standardised format. Another dimension brought to light was by ASP. An Analysis of Microfinance .

and reducing their costs. March. 6. However. Unitus personnel also expressed the view that the rating market in India is now mature enough to bear some cost of the ratings. one of the key factors for the success of MFIs is their capacity to deliver.16 Vilakshan. The success of an MFI rests on two pillars: scale and sustainability. or client coverage. The industry has much work to do in developing appropriate and reliable internal information systems. relatively small financial base. These constraints militate against any attempt to reach a greater number of the target clientele in an effective and efficient manner. the rating parameters need to be standardized in line with the CGAP guidelines on financial ratios. we realised that several challenges with regard to ratings require attention: improving information. Sustainability refers to the cost of providing financial services after suitable adjustments have been made. and huge investment requirements in staff training and client orientation. Another point is that in the very short run. Nevertheless. However.0 KEY CHALLENGES FACING MICROFINANCE ASSESSMENTS Microfinance assessments can contribute to improving transparency in the field of microfinance. the effort cannot be sustained. Some of the problems faced by MFIs in this context are: weak institutional capacity. as well as . 2008 enhancing transparency in the sector.1 Improving information Microfinance assessments begin with the information provided by the MFI in its financial statements and operational records. increasing the frequency of assessments. lack of a viable and sustainable delivery system. 5. 6. The above problems faced by MFIs are the key risk factors that need to be assessed in evolving a suitable rating methodology for them. According to Mr Krishnan Jindal. MFIs may be able to expand their present reach because of donations and other subsidies. small and medium-sized MFIs and their potential bank partners are reimbursed for the professional fee of obtaining an MFI grading from CRISIL. Scale refers to the MFI’s reach among the target market. Under this scheme. whereby it agrees to fund the ratings of small and medium-sized institutions with the purpose of increasing the amount of bank credit available to them. Deputy General Manager. but unless they become viable and sustainable. XIMB Journal of Management . standardising indicators and definitions. funding would be required for some more time.4 Feedback of Unitus on Ratings The opinion of Unitus was that for any MFI rating model to be successful. The most extensive information on the microfinance sector is held by SIDBI (40 MFIs) and NABARD (>100 such organisations). NABARD has recently followed suit with the establishment of the MFI Grading Scheme in partnership with CRISIL. this information is not always accurate or complete.

17 strengthening internal controls and audits. An Analysis of Microfinance . with loan terms as short as three months. 7. while the CRISIL rating costs around Rs 9 lakh. In light of this. which comes from being an established and specialised rating agency. since the volume and type of financing needed by an MFI—as well • This study of different MFI rating agencies and their methodologies has brought out several key issues pertaining to ratings.. From an investor’s point of view. semi-annual. 6. Micro Rate.3 Increasing frequency of reporting The cost of rating an MFI according to best standards is estimated by ACCIÓN. . there is a need for coming up with new rating agencies that can deliver ratings at a reasonable cost.0 KEY FINDINGS MFI assets tend to be short term. 6. the report is meaningful only for a short period of time.al. reducing costs without unduly lowering quality standards. This pattern makes it hard to monitor MFIs effectively. The resulting confusion leads to frequent misinterpretation of indicators. M-CRIL has done the majority of the ratings.000 and US$25. 6. The first issue relates to the current scenario of rating in India. and return on average assets. The challenge for the agencies is to reengineer their assessment systems. In addition. These are M-CRIL and CRISIL. Thus. Because micro loans are typically unsecured.000 In India. loan repayment can be much more volatile in the case of MFIs than in the case of commercial banks. and Planet Finance at between US$5. adjusted return on assets. the M-CRIL rating costs around Rs 2 lakh. Definitions of indicators will have to be clarified and standardised so that the microfinance industry can have a language for evaluation that everyone can speak and understand.2 Standardising indicators and their definitions as the risk of that MFI—are changing continuously. or even yearly—are often not frequent enough. such as average loan balance. The factors that have contributed to its popularity are lower pricing and a good brand name. In India. once an MFI has been rated or evaluated. a yearly update is a minimum requirement. the prevailing reporting cycles for MFIs—quarterly. Between the two.. Thus. there are only two players active in the rating market.4 Reducing costs of assessments It has been found that widely agreed upon definitions exist only for a few terms. Interactions with MFIs revealed that the key factors that could provide a comparative advantage to a new rating agency in India are pricing. operational efficiency. adjusted return on equity.Mitra et. generally for one year. Most of the ratings are still subsidised by either SIDBI or NABARD. the financial position of MFIs can deteriorate seriously over the course of a month or two.

only two MFI rating agencies—MicroFinanza and Planet Rating—used to provide social ratings. Most of the MFIs also have a social mission. . This gap is sought to be filled by social ratings. Second. As a result of this product diversification and the expansion into new areas. such as providing credit support to families hitherto excluded from the banking sector and thus reducing their vulnerability and poverty. it helps in In recent years. 8. But seeing its potential and the demand from both MFIs and donors. Other add-ons like institutional diagnostics. 7. Social rating basically assesses how far an MFI has been able to achieve its social mission in accordance with accepted social values. Though financial sustainability is no doubt important. credit rating combined with social rating enables a comparison of both the financial and social performances of MFIs. and field experience of rater personnel. although at present only M-CRIL and CRISIL are active players in this market. Thus. 2008 time taken. M-CRIL has recently introduced a social rating product to meet this requirement of various interest groups. it reveals only half of the microfinance story. the demand for microfinance ratings has increased in both India and abroad. Thus. which would ensure healthy competition. March. XIMB Journal of Management . many specialised rating agencies are now extending their range of rating services to include social performance assessments for donors and MFI management.0 CONCLUDING REMARKS Credit rating and global risk assessment both pay more attention to the financial sustainability of the organisation. Third. country analyses. and investment fund ratings are being incorporated currently into the rating report to present a more holistic view. there is room for new entrants. Previously. the performance of any MFI needs to be understood in the context of its social mission in order to get a complete picture.18 Vilakshan. In this way.1 Social Ratings benchmarking social performance across the whole microfinance industry. In India. Many rating agencies have invested in product diversification and have expanded the range of services they offer to meet the new demands of MFI clients. social rating helps in assessing the double bottom line of MFIs. Realising the importance of meeting the specific requirements of the microfinance sector. it is a useful aid for both investors and donors in evaluating an MFI and accordingly making effective use of their microfinance resources in terms of investments in this sector. it serves three purposes. it also helps MFIs in improving their social performance just as credit ratings help them in improving their financial performance by providing a valuable basis for assessment. First. Thus. and mini-ratings for smaller and/or younger MFIs that are not yet ready to go in for a full-fledged rating.

htm Ghate. CRISIL (2006) “The NABARD-CRISIL MFI Grading Scheme.cgap. w w w . o r g / document_view. r a t i n g f u n d . These agencies play a very important role as they provide valuable information to both donors and investors about MFI performance.” Accessed from the website of Microfinance India.” Accessed from the website of Planet rating.” Accessed from the website of CRISIL. http://www. m i x m a r k e t . is expected to become more intense.php Rating Fund (2005) “Key data on the MF Rating Industry and the Rating Fund-II Forum on MFI Ratings: Towards a Sustainable Market.com/ services.” . http://www.microrate. 19 competition among the rating agencies. www.al. Prabhu (2006) “Microfinance in India: A State of the Sector Report.aspx?id=42 Rating Fund Market Survey (2005) “The Microfinance Rating Market Outlook. h t t p : //w w w .” Accessed from the website of Microrate.. p l a n e t r a t i n g .asp?P=L&ID=38 M-CRIL (2006) “Rating of Microfinance Institutions.quick.com/creditratings-risk-assessment/nabard-crisil-mfigrading-scheme. r a t i n g f u n d .” Accessed from the website of ACCION. which is an indispensable quality.org/ index. http://www. o r g / document_view.asp Planet Rating (2006) “GIRAFE methodology. w w w . 2006.m-cril. o r g / e n /p a r t n e r s / partners.accion.” Accessed from the website of Microfinanza.aspx?id=70 .html Microfinance Rating and Assessment Fund (2006) “Microfinance Ratings: Raising Awareness Among MFIs. they contribute to promoting transparency in the microfinance sector. o r g / document_view. http:// w w w .com/Site/Inglese/ Services. Accessed from the website of The Mix Market. w w w . The development of MFIs has in turn led to the emergence of specialised MFI rating agencies.microfinanza.. ratings should be encouraged as these are beneficial for every stakeholder in this field. for the development of the microfinance sector. and Adjustments for Microfinance” Accessed from the website of http://www. especially in India.search.epicentric.html MixMarket (2006) “Partners (Market Facilitations)”. REFERENCES ACCION (2006) “Accion Camel.” Accessed from the website of Rating Fund.asp CGAP (2003) “Definitions of Selected Financial Terms. r a t i n g f u n d .org/camel. Thus.microfinanceindia. http:// www.aspx?id=79 MICROFINAZA (2006) “Microfinanza Rating. Co nt en tD el iv er ySe rv le t/Do cume nt s/ Guideline_definitions.com/ rat-metho.htm MICRORATE (2006) “The MicroRate Methodology. co m /E N / methode.” Accessed from the website of Rating Fund. By doing so.contentmanagement.servlet. Accessed from the website of Rating Fund.org/portal/binary/ com. An Analysis of Microfinance . www.” Accessed from the website of M-Cril.crisil.Mitra et. Ratios. September 2003.pdf Microfinance Consensus Guidelines.

XIMB Journal of Management .th e m ix. h ttp://w w w .org/ p o r t a l / b i n a r y / c o m . Co nt en tD el iv er ySe rv le t/Do cume nt s/ Core_Performance.html . Sanjay et al (2003) “Risk management in microfinance: How M-CRIL supports the provision of financial services to low income clients.com/publications. 2008 Rosenberg.pdf Sinha.contentmanagement. http://m-cril.pdf Rosenberg.org /s tan d a rd s / CGAP_2003_Microfinance_Consensus_ Guidelines_Disclosure.” Accessed from the website of MCRIL . Richard (2003) “Core performance indicators for Microfinance. epicentric.” Accessed from the website of CGAP.” Accessed from the website of CGAP. Richard et al (2003) “Microfinance consensus guidelines: Disclosure guidelines for financial reporting by microfinance institutions. servlet. March.20 Vilakshan. http://cgap.

.. An Analysis of Microfinance .al.Mitra et. 21 APPENDIX 1 LIST OF ABBREVIATIONS APMAS ASP BSS CEE CEO CERISE CGAP FSS ICICI M-CRIL MENA MFI NABARD NBFC NGO NIS OSS RBI RoA RoE SHG SIDBI SKS SPA VP Andhra Pradesh Mahila Abhivruddhi Society Ankuram-Sangamam-Poram Bharatha Swamukti Samsthe Central and Eastern Europe Chief Executive Officer Centre for Russian International Socio-Political and Economic Studies Consultative Group to Assist the Poor Financial Self-Sufficiency Industrial Credit and Investment Corporation of India Micro-Credit Ratings International Ltd Middle East and North Africa Microfinance Institution National Bank for Agriculture and Rural Development Non-Banking Financial Company Non-Governmental Organisation Newly Independent State Operational Self-Sufficiency Reserve Bank of India Return on Assets Return on Equity Self-Help Group Small Industries Development Bank of India Swayam Krishi Sangam Social Performance Assessment Vice President .

XIMB Journal of Management .CEO G. Sharada’s Women’s Association For Weaker Section 6. Ujjivan 3.General Name of Person . Rama LakshmiAssociate VP. Quality Assessment J. SKS 2. C. Finance Ajit GrewalDirector S. Mahila Abhivruddhi Society Andhra Pradesh (APMAS) 4. Swamy Project Executive Radhakrishnan A. Ankuram-SangamamPoram (ASP) 5. 2008 APPENDIX 2 List of Stakeholders Interacted with Name of Organisation Place Interacted with MFIs 1. Vice President. C. Outreach Banks UNITUS NABARD Bangalore Mumbai Hyderabad Bangalore Hyderabad Secunderabad Secunderabad Manager Bangalore Bangalore Bangalore Suresh K. March. MF Activities Abhijit RayCapital Markets Krishnan Jindal Deputy General Manager Jennifer Leonard. K. Bharatha Swamukti Samsthe (BSS) 8. NeelaiahCEO Ramamurthy S. Grameen Koota 7.22 Vilakshan.Project Manager.

“Emotional intelligence is the ability to perceive emotions. “Emotional intelligence reflects one’s * 1. 2008 Research Scholar.Factors Affecting Emotional Intelligence:An Empirical Study for Students of Secondary School and Professional Colleges* Shamira Malekar1 & R. email: rpmohanty@gmail. 1997). Revised February 18. and for managing emotions well in ou rselves and in our relationships. to ac cess and generate emotions so as to assist thought.Mohanty 2 Abstract Researchers and human resource management professionals across the world are actively engaged in studying emotional intelligence (EI) and its applications in various organizational settings to improve managerial performance. It is found from literature that a very few studies are available relating to the application of EI among the school and management students. This paper is an attempt in that direction to make a comparative empirical study to identify important determinants of EI in students of professional colleges and secondary certificate schools in the metro city of Mumbai. Mumbai. Emotional intelligence describes abilities distinct from. 2. Institute for Technology and Management (ITM) Group of Institutions. Institute for Technology and Management (ITM) Group of Institutions. academicians and other authorities to better meet the future needs of the society. to understand emotions and emotional knowledge.com . academic intelligence or the purely cognitive capac ities measured by IQ” (Goleman. 1. Mumbai. for motivating ourselves. Received November 11. but complementary to.0 INTRODUCTION Emotional intelligence (EI) has emerged as an important subject of research investigation during the last several years. Such a study has the potential to contribute in providing feedback to the parents. Some of the pioneering researchers have defined EI as follows: “Emotional intelligence is the capacity for recognizing our own feelings and those of others.P.com Dean and Adviser. 2007. 1998). email: shamira_malekar@yahoo. and to reflectively regulate emotions so as to promote emotional and intellectual growth” (Mayer and Salovey.

Further. March. and attend to its members’ emotions. XIMB Journal of Management . EI has been studied scientifically in the past decade. the world may miss out on this person’s special gift. understanding and choosing how we think. EI is often used to motivate employees and to create a cu ltu re of high performing work place. EI has also been used in education to lay the fou n dati ons to bu ild the cul tu re of a sc h ool c ommi tted to learning (Parker 2004). EI has been used as a predictor of ability by parents as it has been found to be a predictor of life satisfaction. It defines how and what we learn. but is never giv en a c h a nce to d evel op t hat potential. The way a child is raised can dramatically affect what happens to the potential in each of these components. 2001). EI improves managerial practices as well as helps in leadership development (Druskat and Wolff. 2000). Goleman’s 1995 book “Emotional Intelligence” substantially added to the popular interests in accumulating knowledge regarding EI. 2008 ability to deal with daily environment challenges and helps predict one’s success in life. it determines the majority of our daily actions” (Freedman. Huy (1999) introduced the concept of emotional capability to capture an organization’s ability to ac knowledge. monitor. positive interactions with peers and family. Children raised in an emotionally abusive home or from a lower economic strata home may use their emotional potential in destructive ways later in their lives. Kroek. and it is manifested in the organization’s norms and routines related to the feeling. emotional processing and problem solving ability. em otio nal memory.24 Vilakshan. 1996). 1997). We have observed from an extensive survey of literature that a lot of studies have been conducted to measure EI and testing its validity with bu siness . All these pioneering definitions lead us to conclude that EI is important in shaping one’s personality. feel and act. and higher parental warmth (Warwick and Nettelbeck. “Emotional intelligence is a way of recognizing. It shapes our interaction with others and our understanding of ourselves. Every child ent ers the worl d wi th a u n i qu e c om bina tion of c ompon ents of em otio nal inte lli genc e su c h a s: emo tion al se nsit ivit y. discriminate. Business organizations have used EI for organizational development and for enhancing organization effectiveness (Lowe. behaviour. For example. rec ognize. it allows us to set priorities. including professional and personal pursuits”(Bar-On. and Sivasubramaniam. healthy psychological adaptation. if a child is born with a high potential for the arts. style and abilities. 1998). emotional learning ability (Mayer. 2004).

Therefore. emotional fac ilitation of thinking. We also intend to develop a normative empirical relationship of EI with key factors with a comparative study of students of professional colleges and secondary certificate school. We could find that no study is available to demonstrate the important determinants of EI amongst the school students of age grou p 9-14 years.. Ability model proposes that emotions c an make thinking more intelligent and can intelligently handle emotions.27 years whose measurement is done with Bar – On’s (1997) Emotional Quotient Inventory (EQi) We attempt here to measure EI of school and professional college students coming from different socio-economic backgrounds and a large metro city like Mumbai. 2001).al. There are studies that demonstrate the link between EI and ac ademic ac hievement in stu dents making transition from high school to a post secondary environment (Parker et al. We find a very little evidence of EI application for school students and students of B. Such models define EI in a traditional sense (e. 25 organizations. They contribute to logical thought and intelligence in general. Emotional perception and expression. Ability models c onceptu alize intelligenc e that involves emotion (cited in Goldenberg et. Goleman 1995. They are a conceptually related set of mental abilities with emotions and processing of emotional information. 2004). 1998. EI is a form of intelligence involving cognitive processing of emotional information and is defined as a set of cognitive abilities in emotional fu nctioning. We also compare the EI levels of school students with professional student’s age grou p 22 . A finding by Newsome.g. emotional u n derstanding and emotional regulation are the essential elements of the ability model..schools. Mayer and Salovey 1997). EI has a number of . Day and Catano (2000) and Van der Zee et al (2002) proves that EI is uncorrelated to cognitive ability relating to academic performance (cited in Petrides et al 2004). Another study by Reiff et al 2001 showed that students with learning disabilities had lower EI scores than their non disabled counterparts.al 2006). Factors affecting emotional . According to ability models.0 FACTORS AFFECTING EI Salovey and Caruso (2000a) categorized models of EI into two types. namely ability model (Mayer and Salovey 1997) and mixed trait ability (or personality) model (Bar-On 2001. Petrides and Furnham. we attempt here to measure EI by modifying Bar – On and Parkar’s Emotional Quotient Inventory Youth Version questionnaire (EQi YV).Malekar et. 2. We intend to understand the important determinants of EI and evaluate the strength of each factor.

Mixed trait ability models are important as they acknowledge the importanc e of mu ltiple aspects of personality that may pertain to emotion. Mixed trait ability models also make references to abilities in the processing and use of emotional information but combine these abilities with other traits and characteristics such as optimism. be aware of and understand one’s emotions. It’s the ability to be aware of and understand others’ emotions and feelings. or behavioural disposition. reflecting on and monitoring one’s thou ghts and feelings and regulating them effectively. Interpersonal ability It is defined by Shearer (2006) as the ability to recognize the feelings of other people that are facilitated by linguistic skill. stress management. It consists of related abilities like identifying emotions in others and having empathy towards others. In comparison. Here we are u sing factors outlined by Bar-On to find out the relationship of emotional intelligence with interpersonal ability. adaptability and general mood. feelings. March. 1998). to be aware of one’s strengths and weaknesses and to plan effectively to achieve personal goals. It consists of related abilities like recognizing and labeling one’s feelings. Intrapersonal ability includes emotional awareness and the ability to identify them correc tly. Interpersonal ability deals with the relationship with peers. su ch as intrapersonal ability. They do not relate to the c onc ept of emotion spec ifically (Matthews. interpersonal ability. Intrapersonal ability Shearer (2006) defined intrapersonal ability as an ability to think about and understand one’s self. 2000. Goleman 1995. They define EI as a mixtu re of emotion related competencies and personality traits. motivation and social relationships (Bar-On. adaptability and general mood tested with stu dents of professional colleges and secondary certificate schools. mixed trait ability models have EI as partly or wholly a personality-like trait. 2001. subordinates . Skill in managing relationships with other people is also a factor in one’s overall mood and emotional wellbeing. Individuals scoring high on intrapersonal ability tend to understand their emotions and are able to express and communicate their feeling and needs. XIMB Journal of Management . It’s the ability to monitor one’s self in interpersonal relationships. intrapersonal ability. 2008 similarities to other types of intelligences and abilities and develop with age and experience.On (2000) has identified 5 factors.26 Vilakshan. Bar. and ideas and to act with personal efficacy. Roberts and Zeidner. stress management. 2004).

It is argued that performance measures are more valid if EI is a type of ability.Malekar et. Higher levels on general mood feel satisfied with their lives and maintain a positive outlook. Some have argued that measurement approach rather than the theoretical approach ultimately determines the nature of EI model being assessed (Matthews et al 2004. are good listeners and are able to understand and appreciate the feelings of others.. Adaptability It is defined as the ability to feel and express positive emotions and remain optimistic (Bar –On.al. High on the interpersonal ability are likely to have satisfying interpersonal relationships. Individuals with high adaptability sc o res are flex ible . They use different measurement approaches including performance tests. they are rarely impulsive and can usually respond to a stressful event without an emotional outburst. Thus. good at A number of assessment devices purporting to measure EI have been developed. re alis tic and effective in managing change. It consists of abilities like being to adjust one’s emotions and behaviuor to changing situations or conditions. Individuals who sc or e high o n this d imension are impulsive rarely and work well under pressure (Bar –On. It represents the ability to enjoy life and maintain a positive disposition.. 1997. . Those with high stress management are generally calm and work well under pressure. Happiness and Optimism are two aspects of general mood including maintenance of positive aspects and brighter side of life. there has been a lot of debate concerning the most suitable method to be used for measuring EI. 2000. Factors affecting emotional . Petrides and Furnham 2000). Managing change involves th e ab ilit y to ma nage str essf u l situations in a relatively calm and proactive manner. 27 and superiors. Stress Management finding positive ways of dealing with everyday problems. Measures of EI Day and Livingstone (2005) defined ada ptab ilit y as the abi lity to be flexible and alter one’s feelings with c hanging situ ations. self report inventories or observer ratings. 2. 2002). They are based on different conceptual frameworks. 1997). The devises differ in two significant ways: 1. General mood It is defined as the ability to be flexible and alter one’s feelings with changing situations (Day and Livingstone 2005). Adaptability involves skills related to management of change. It consists of abilities like delaying or resisting an impulse.

Schutte et al. XIMB Journal of Management . but is often referred to as a measure of trait EI because it relies upon self-perceptions of ability (MacCann et al. They are determined to assess emotions within the personality framework and to assess cross .. Robert Cooper’s (2000) EQ map divides EI into 5 attributes emotional literacy. Similarly. b. a.. (2001) assesses a single c onstru c t rather than the fou r branches. Performance based measures of EI pertain to ability models for instance Mayer. • • • • . emotions direct cognition. emotional management and emotional control.18 years similar to ability and mixed trait ability models are classified as: a. The SUEIT gives scores on five facets of EI: emotional recognition and expression.Emotional Accuracy Researc h Scale by Mayer and Geher. Salovey. self-report measures of EI. (1996) modified by Geher. 2003). An a-priori self-report instrument intended to extend the education model of emotional intelligence. emotional competency. adult self-report measures of EI were: • Personal excellence inventory (PEI)of Nelson and Low (2003). (1998) developed a 33 – item Emotional Intelligence Scale (EI scale) for use with older adolescents and adults. et al.situational consistencies in behaviour (Petrides and Furnham 2000) for instance Emotional quotient inventory: Youth Version (EQ-i YV) by Bar-On and Parker (2000) For adults above 18 years performance based report measures of EI were: • The instru ment most strongly modeled on this theory is the performance-based MayerSalovey-Caruso Emotional Intelligence Test (MSCEIT. Mayer et al. The EARS . EQ values. The questionnaire was derived from the Salovey and Mayer (1990) model of EI. performance based measure of EI b. A measure of workplace EI is the Swinburne University Emotional Intelligence Test (SUEIT) of Palmer and Stough (2001) (cited in Palmer et al 2002). Thus. March. Caruso Emotional Intelligence Test (MSCEIT YV) by Mayer. Self-report measures are pertaining to mixed models of EI. 2008 whereas self-report instruments can be used if EI is viewed of comprising a number of non ability related traits or attributes (Goldenberg et al 2006). Salovey and Caruso (2006) which is yet in the sampling stage. EQ attitudes and EQ outcomes. understanding emotions..28 Vilakshan. the measures of EI for the age group 8 . 2002a).

however. 1998).g. scientific • 3. (cross validation of a modifies version by Austin et al 2004) It contains 33 items measuring appraisal and expression of emotion. to be positively correlated with relations with others. 1999). EI as a concept has been included in literature by Salovey and Mayer (1990). more frequent promotions. The roots of EI can be traced back to the concept of ‘social intelligence’ coined by Thorndike (1920) to refer to the ability to understand. Factors affecting emotional . perceived parental support and fewer negative interactions with close friends (Lopes et al. 1998) have typically been the most vocal in making claims about the predictive promise of EI and what EI means in terms of ‘life success’. among other things. constru ct along with theoretical literature. parental warmth and positive peer and family relations (Mayer et al.. utilization of emotion and regulation of emotions. higher income. many su c h c laims appear to be unrealistic and to extend beyond what could be reasonably attributed to the EI construct.. 1995. more satisfying interpersonal relationships and better physical and psychological health) is representative of EI.0 REVIEW OF LITERATURE EI has attracted a lot of interest in academic literature (cited in Petrides 2004). The field of EI..al. Diversity and anger management and organizational responsiveness. higher empathic . is still relatively new and thus many of these claims have not been su bstantiated. more optimism (Schutte et al.. Assessing emotions scale (AES) is also a measure to test EI devised by Schutte et al (1998). Bar-On. pro-social behaviour. Fu rthermore. work / life stress management. 2003). Along with Goleman’s 1995 best selling book. Gardner (1983) introduc ed the c onc epts of intrapersonal and interpersonal intelligence. These models have generally appeared to assume that just about any variable other than IQ that has been found to show propensity towards predicting some degree of success (i. BOEI analyses job happiness. 1997. there has been a lead article in the same year by Gibbs in TIME magazine. 1997. organizational cohesiveness supervisory leadership.e. Cooper and Sawaf. manage and act wisely in human relations.. EI has been found. On the basis of this research on school students in the western context. higher tertiary attainment. 29 • The Benchmark of Organizational Emotional Intelligence (BOEI) is a powerful organizational survey – a self report measure designed by Stein (2006).. Thereafter articles on EI began to appear with increasing frequency with empirical work on the Proponents of mixed models of EI (e.. higher academic achievement.Malekar et. compensation. Goleman.

1998).30 Vilakshan. Parental socializations take effect through explicit lessons or informal conversations about regulation of emotion.2000. Schutte et al.1 Participants The sample consisted of a total number of 948 students of Anjuman Islam’s Allana High School (Muslim Trustees .. Salovey and Sluter 1997) Parental socializations has been found to impact directly child’s social and emotional competency as well as work indirectly on the understanding of emotions and gaining social knowledge (Cited in Zeidner et al 2002). which could be implemented for directing students to attain higher EI. To achieve our final aim.. In this paper. In the process of emotional learning the individual develops the aptitudes.. EI proponents also claim that family socialization practices determine the development of EI in children (Saarni 1999. March.27 years. higher social skills (Schutte et al. Additionally. Mayer and Geher (1996) hypothesized that those who are low in emotional intelligence could be educated to recognize. 4. 2001).0 DESIGN OF EXPERIMENT This statistical experiment designed in the study involves the use of correlation coefficients determination followed by multiple regression analysis. attitudes and values necessary to acquire higher emotional intelligence. we have tested Bar–On and Parker’s questionnaire of EI in the Indian school students and differentiated the EQ levels of school students (9-14 yrs) primarily focusing upon to provide a relationship between its factors. Parental influences also occur through the child’s observational capacity.. unauthorised absences and exclusions from school (Petrides et al. We have attempted to identify these factors. We have also attempted to compare EQ level of school and professional college students and assert that similar relationship exists between EI and its factors for professional students in the age group of 22 . XIMB Journal of Management . express and regulate their feelings better. 2000. The basic assumption is that a child whose parent displays constructive EI related behaviour in everyday life is most likely to implement it as a part of its own behaviour. defiant behaviour and poor relationships with friends (Brackett et al. skills. negative correlations have been reported with illegal drug and alcohol use. school setting is one of the most important contexts for learning emotional skills and competencies (Mayer and Salovey 1997). 2008 perspective taking and self-monitoring in social situations. It helps in assessing the individual and the combined effect of independent variables (factors) on the dependent variable (EQ). 4. we have tested Bar–On’s (1997) questionnaire of EI in the Indian professional college students and also differentiated the EQ levels. 2004) and depression (Dawda and Hart. In addition to parents. 2004).

Bar-On. ranging from 1 for ‘’very seldom or not true of me. professional college students were also asked to complete the EQi after their lecturing hours in the premises of their institute.YV has a replicable factor structure (developed with a normative sample of 9172 school-aged children and adolescents). Participants completed the Bar-On Emotional quotient inventory: Youth Version (EQi YV) (Bar .YV also has a 14-item general mood scale and a 6-item positive impression validity scale. Professionals between the ages of 22 and 27 are asked to respond to the statements which best describe the way they feel. In exchange for their participation. Sir Jacob Sassoon High School (Jewish Trustees Board).YV is a 60 item self-report measure of EI developed by Bar-On and Parker (2000). individuals were provided with a confidential feedback report on their results of the instrument.al. School students who participated completed the EQi:YV during a zero period in the premises of their school. 4. Along with a total EI scale (the sum of the four previous scales). The EQ-i. a 12-item stress management sc ale. the various scales on the instrument correlate highly with comparable scales on the adult version of the inventory (the Emotional Quotient Inventory. Sharon High School (Christian Trustees Board) and Gandhi Shikshan (Hindu Trustees Board). 2000) or the Bar-On’s (2000) Emotional quotient inventory (EQi) in July and August 2005 depending on their age. The sample also consisted of a total number of 319 professional college students of Institute of Technology and Management (1st year Post Graduate Diploma in Business Administration) and Institute for Management and Computer studies (1st year Master in Management studies and 1st year Master in Computer Application). Responses are rated by the participant on four-point Likert scales.On and Parker. A high score on any individual ability scale (or the total score) reflects a high level of social and emotional competency. think.Children and adolescents between the ages of 9 and 14 are asked to respond to the statements which best describe the way they feel.Malekar et. Similarly. think.’’ The instrument has a 6-item intrapersonal scale. The EQ-i is a 133 item self-report measure of EI developed by Bar-On (1997).2 Procedure 4. a 12-item interpersonal scale.1997).’’ to 4 for ‘’very often true or true of me. or act in most . 31 Board). Bar-On and Parker (2000) report that the EQ-i. Factors affecting emotional . individuals were provided with a confidential feedback report on their results of the instrument.3 Measures Participants were asked if they would volunteer to study on “emotional intelligence”. In exchange for their participation.. the EQ-i.. or act in most situations. and a 10-item adaptability scale.

616 (64.31 90.18 87.55) for males and 12.22 88.094 16.474 16. the main sample size got reduced to 948 students – all of them belonging to age groups 9. Responses are rated by the participant on five-point Likert scales. 4. Hence.550 14.95 15.434 13.92 95.63) for females. interpersonal scale. School students ranged from 9-14 years of age.9 88.025 . We computed the scores with the aid of SPSS statistical package and Excel work sheets.97%) of respondents were male and 332 (35.32 Vilakshan.73 87.115 students did not complete the main battery of measures and therefore could not be considered.543 17.57 90. the mean age was 12.55 90.57 years (SD1. EI scores of school students had to be calculated by the methodology developed by Bar –On and Parker (2000) for his youth version of the test.4 Computation of EI scores. Table-1 shows the descriptive statistics of the individuals with its EI and its factors scoring sheet scores.’’ The instrument similar to its YV has an intrapersonal scale. EI scores of professional college students had to be calculated by the methodology developed by Bar –On (1997).88 96. ranging from 1 for ‘’very seldom or not true of me.14 years.989 14.34 91.32 Standard Deviation Male 1. stress management scale. 2008 situations. XIMB Journal of Management .949 14.876 16.54 97.783 12.425 Female 1. The sample size of professional college students consisted of a total number of 356 students of 4 different schools. adaptability scale and general mood scale.06 97.’’ to 5 for ‘’very often true or true of me. The sample size consisted of a total number of 1062 students of 4 different Table-1: Statistics for School students Minimum Male AGE EQ General mood Adaptability Stress Management Interpersonal ability Intrapersonal ability 65 65 65 65 125 130 9 65 65 65 65 Female 9 65 65 65 65 schools. Thirty Maximum Male 14 130 122 130 126 Female 14 130 122 130 126 125 130 Mean Male 12.968 15.34 years (SD1.630 13.85 Female 12. Table-1 denotes descriptive statistics of EQ along with its factors having 65 as lowest score and 130 as maximum. March.03%) female.

4 90.203(**) 4 0. 33 eight students did not complete the main battery of measures and therefore could not be considered.27 years of age.32 Standard Deviation Male 1. Professional college students ranged from 22 .67 15.540(**) 0.27 yrs.57 years (SD1. Factors affecting emotional .360 13.36) for females.530(**) 0.50 15.49 11.44 15.83 12.43 13. Table-2 denotes descriptive statistics of EQ along with it factors has 3 as lowest score and 130 as maximum.0 RESULTS A confirmatory Pearson’s Correlation is conducted as seen in Table-3 for School students.26 Female 1.593(**) 3 0.. *** 1 = EQ 2 = Intrapersonal ability 3 = Interpersonal ability.679%) female.262(**) 0.707(**) 0.. 195 (61.al.25) for males and 24.7 61.94 16.86 16.8 126.57 94.25 14.209(**) 6 0. Table-2: Statistics for professional college students Minimum Male AGE EQ General mood Adaptability Stress Management Interpersonal ability Intrapersonal ability 22 3 2 3 2 3 5 Female 22 3 2 3 2 3 5 Maximum Male 27 130 75 112 81 124 167 Female 26 130 75 112 81 124 167 Mean Male 25.4 97.368(**) 0.660(**) 0.32%) of respondents were male and 123 (38.22 68.554(**) 1 .6 121.99 12. Hence the main sample size got reduced to 318 students – all of them belonging to age groups 22.639(**) 0.245(**) 0.135(**) 5 0.099(**) 0.85 Female 24. 5. 4 = Stress management 5 = Adaptability 6 = General mood 1 1 2 0.4 years (SD1.8 62.01 level (2-tailed).601(**) 0.05 Table-3: Correlations of EI and its factors for school students Factors*** 1 2 3 4 5 6 ** Correlation is significant at the 0.Malekar et.31 13.55 90.31 90.92 95.73 67. the mean age was 25.

869(**) 3 0.653(**) 0. 2008 There is a range of correlation coefficients between the factors as described below: 1. general mood) on the dependent variable (EQ).308(**) 0. 1 1 2 0.863(**) 0.522(**) 5 0. Intra-personal ability correlates moderately with EQ and the extent to which stress management and general mood correlate is nearly the same similar to the study conducted by Parker et al (2004) Table-4: Correlations of EI and its factors (Professional college students) Factors# 1 2 3 4 5 6 ** Correlation is significant at the 0.751(**) 1 As shown in Table-4 of correlations of EI and its factors for professional college students. This is in contrast to correlations obtained for school students in which adaptability has the highest correlation coefficient. Intrapersonal ability has highest correlation with EQ followed by general mood similar to the study conducted by Bar-On (2000). XIMB Journal of Management .766(**) 0. As the objective of this paper is to identify and assess the effect of factors on EI. 4 = Stress management 5 = Adaptability 6 = General mood # Factors here are same as in Table .01 level (2-tailed).755(**) 0.708(**) 0. In that 2. as it helps in assessing the individual and the combined effect of independent variables (interpersonal. *** 1 = EQ 2 = Intrapersonal ability 3 = Interpersonal ability.679(**) 6 0. intrapersonal.553(**) 4 0.850(**) 0.604(**) 0.3. the method of multiple regression analysis has been chosen. The steps used in conducting the regression analysis on the above sample of school students are as follows: . March. study the former correlates highest with EQ. Adaptability realm has highest correlation with EQ followed by interpersonal ability compared to the study conducted by Parker et al (2004) where r = 0.660 for interpersonal ability. stress management.34 Vilakshan.558(**) 0.707 for adaptability and 0.589(**) 0. adaptability.

stress management and adaptability are significant factors affecting EQ. + Ui (1) Y = dependent variable representing the emotional intelligence B1..al. in order to improve and get more significant results it was essential to omit the fac tors that were not significant.. Interpersonal ability. B3...e. Y = A + B1X1 + B2 X2 + B3 X3+ B4X4 + ……… + Ui (2) Table-5 summarizes the results of the regression analysis for 4 factors of EI. The F-test results showed that the regression as a whole was significant for the first 4 factors. stress management and adaptability by omitting general mood.. • • The steps used in conducting the regression analysis on the sample of professional college students are as follows: . So... The regression equation for school wise analysis with 5 factors is as follows: Y = A + B1X1 + B2 X2 + B3 X3+ B4 X4 + B5 X5 . General mood is not significantly affecting EQ and hence cannot be considered as a factor for school students. to test whether the EI is dependent on the Intrapersonal ability. (i. Interpersonal ability. B4 and B5 are the coefficients of the regression equation X1 = Intrapersonal ability X2 = Interpersonal ability X3 = Stress management X4 = Adaptability X5 = General mood Ui = Disturbance term A = Constant term The regression was then tested for its signific anc e u sing F-test for the regression as a whole.. Interpersonal ability. regression analysis with 4 factors (as explanatory variables) of EI was carried out with the following equation. School wise analysis with 5 factors (as explanatory variables) of EQ was done. General mood does not seem to impact EI... 35 Firstly. it could be seen that general mood was not a significant factor of EI. Four explanatory variables intrapersonal ability.Malekar et. Hence. From the t-ratios in the above regressions.. Stress management. Factors affecting emotional . The following points are worth mentioning: • The results were found to be significant in the data of 948 school students. B2. Further the overall impact of General mood can be overcome by using and calculating EI as a function of the intrapersonal ability. adaptability and general mood at 5% level of significance. This was followed by t-test to test the significance of each of the drivers at 5% level of significance.

to test whether the EI is dependent on the Intrapersonal ability.346 .336 . Stress management..000 . F 1092.015 .000 t Sig. + Ui (3) The regression was then tested for its significance u sing F-test for the regression as a whole.631 8. March.36 Vilakshan. The regression equation for school wise analysis with 5 factors is as follows: Y = A + B1X1 + B2 X2 + B3 X3+ B4 X4 + B5 X5 + . Error 1.162 .826 19.000 .164 7.016 .504 20.019 21.200 ..490 5.. 2008 Table-5: Results of the regression analysis using four independent variables (4 factors of EI for school students) Independent Variables (Constant) * Intrapersonal * Interpersonal * Stress Management * Adaptability Unstandardized Coefficients B -28. Error 1.017 .000 .874 . Interpersonal ability.823 Dependent Variable: EQ Firstly.035 . Table-6: Descriptive statistics with regression analysis for 5 factors of EI for professional college students Independent Variables (Constant) *Intrapersonal *Interpersonal * Stress Management * Adaptability *General Mood Unstandardized Coefficients B 7. F 675.590 8.195 .927 R Square 0..325 Std.151 .301 .492 .000 .e.145 .298 .172 . (i.827 .195 ... Institute wise analysis with 5 factors (as explanatory variables) of EQ was done.000 .324 .118 .356 Standardized Coefficients Beta -15.646 12.000 .341 .000 t Sig.000 ..000 .311 Std.260 Standardized Coefficients Beta 4.914 Dependent Variable: EQ . adaptability and general mood at 5% level of significance.024 .000 .322 . The F-test results showed that the regression as a whole was significant for all 5 factors.602 R Square 0.026 . This was followed by t-test to test the significance of each of the drivers at 5% level of significance.612 .016 . XIMB Journal of Management .290 ..444 19..015 .016 .

b. All the five explanatory variables intrapersonal ability.707. Results of the present study suggest that adaptability.593.0 CONCLUSION In this paper. intrapersonal ability. d.14 years) and arranges the factors affecting EI in descending manner.863. This pa per also revi ews the applic ability of EI for the sc h ool children in Mumbai (age 9.Malekar et. stress management and general mood are important factors affecting EQ in contrast to 4 factors for school students. Adaptability was found to be very highly significant with EQ with correlation coefficient of 0. adaptability and general mood are significant factors affecting EQ.530 respectively.al. a.660. The following points are worth mentioning: • The results were found to be significant in the data of 318 professional students. stress management. interpersonal ability and intrapersonal ability are important factors affecting EQ for school students. interpersonal ability. Secondly.. The following remarks are worth mentioning: 1.540 and 0. The objective was to derive significant and consistent factors of EI. we have attempted to decompose EI into its factors and they have been statistically validated to test the significance of each of the factor in 4 school students and 2 professional institutes. . General mood and stress management were found to be moderately significant with EQ with correlation coefficient of 0. e. Secondly.. 37 Table-6 denotes the descriptive statistics for professional college students with regression analysis for 4 factors of EI.869. Factors affecting emotional . interpersonal ability. b. general mood was found to be highly significant with EQ with correlation coefficient of 0. The EQ of students can be enhanced if the 4 factors identified in the regression model are strengthened with the help of inputs and training imparted to them. interpersonal ability was found to be highly significant with EQ with correlation coefficient of 0. Comparatively results of professional students suggest that adaptability. a. Intrapersonal ability was found to be significant moderately with EQ with correlation coefficient of 0. A comparative stu dy is also done with stu dents studying for professional courses (age 22 -27 years). Intrapersonal ability was found to be very highly significant with EQ with correlation coefficient (r) of 0. 2. • c. 6.

J. Canada. J. eac h fac tor can be disaggregated or fac tored into attributes at operational level. pp. R.. In Ciarrochi. (2000). H. H. Psychology Press.D. (2000). and Mckenney. S.653 in contrast to school students wherein these two factors have the highest correlation.0 KEY LEARNINGS in the form of training the future of India. (2001).A. XIMB Journal of Management . Bar-On. (Eds. setting up a correlation model for emotional intelligence with strongly influencing factors can actually be a longer journey involving a study of the evolution of human values as we grow physically and mentally. Joe Forgas. J. Saklofske. Jossey – Bass. Such studies are available for adults (Bar-on 1997) by following the same methodology depic ted in the selfreport. Stress Management was found to be highly significant with EQ with correlation coefficient of 0. Cananda. San Franscisco. March. Bar-On. In Reuven Bar On and Parker.708 and interpersonal ability has r = 0.A. ‘Handbook of emotional intelligence’. and Parker J. J. allowing the requirements of the situation and the resources at hand to dictate what he or she needs to do. Multi-Health Systems. “Emotional intelligence and self-actualization”. We have denoted that EI depends on these 4 factors and if we implement it . D. REFERENCES Austin. R. There is some scope as to whether emotional intelligence in children can be developed or it is innate – for if it is the former. Haung.. 7.). S. 2008 c. Bar-On. “Emotional and social intelligence: Insights from the Emotional Quotient Inventory (EQ-i)”. R. However. “Bar-On emotional quotient short form (EQ-i: Short) Technical manual”. (2002). and Maye.).’ s (19 98) Me as ure ”. J.D. This study is a guiding study in suggesting that without the measure of more intrinsic and complex human behaviour. there is real hope in literally catching them young as far as EI / EQ is concerned.D. (2004). (1997). our students will be bright. In this study we have only identified factors affecting EI of students and measured them at aggregate level.38 Vilakshan.850. D. E. Multi-Health Systems. “The Bar-On EQ-i: YV: Technical manual”. d. Bar-On. “Measurement of Trait Emotional Intelligence: Testing and Cross-Validating a Modified Version of Schutte et a l. Personality and Individual Differences. R. 555–562. “Bar-On Emotional Quotient Inventory: Technical manual”. Toronato. Adaptability has r = 0. The emotionally intelligent leader evolves into someone with the ability to move seamlessly from one approach or style to another. ‘Emotional intelligence in everyday life: A scientific inquiry’. R. 36. Multi-Health Systems. Bar-On. (Eds.

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2008 Management Consultant. Using simple correlation and regression analysis it is found that no long run positive correlation exists between exchange rate and Stock Index except for year 2002 and 2005. The flow of foreign investments affects the exchange rate and the stock market performance. negative and mixed relationship amongst those variables. Revised February 23. e mail: rajput_ajay@yahoo. 2007.0 INTRODUCTION For a global and liberal economy. Indian Institute of Management. contemporary to third generation reforms in India.in.level share values are thus influenced by exchange rate.co. FII and Stock Index Relationship in India* Ajaysingh Rajput1 & Keyur Thaker2 Abstract In globalized world. though evidences of causal relationship are mixed. 1. Foreign * 1. FII and Stock Index are important economy variable and reflect underlying strength and stability of business and an economy. Assistant Professor. For example. FII and Stock Index show positive correlation. 2005. Indore . (Dominguez. Classical economic theory suggests a relationship between the stock market performance and the exchange rate behaviour. Firm level and industry. Ahmedabad. Researches support prevalence of relationship. exchange rate. investments in stock market is driven by the valu ations of the stocks and underlying growth and profitability of the business in an economy. but fail to predict the future value. 2. Substantial research is found in context of developed economies. “flow oriented” models of exchange rate determination affirm that currency Received May 6. Mott MacDonald. Such changes affect the business transactions and competitiveness and ultimately cash flows and market value. Adoption of floating exchange rate system leads to free determination of the Exchange rate changes by market forces. Earlier study findings reveals positive. We measure the relationship and its predictive power for the period from January 2000 to December. but studies for emerging market are rare. Exchange rate is increasingly important economy metric as it reflects underlying strength and competitiveness with world economies. email: thakerkeyur@yahoo.com .Exchange Rate. 2001) Stock Index reflects underlying stability and growth of economy and strength of businesses in an economy.

Equities. investigating the relationship between stock prices and exchange rates. concluded a negative relationship between real domestic stock returns and real exchange rate movements. the study concluded that there was no significant increase in the correlation of stock market returns as a result of the abolition of exchange control. Ma and Kao (1990).0 REVIEW OF LITERATURE In the context of a developed economy the research studies on this relationship can be traced back to 1970s. using the monthly data from 1973 to 1983 on six major industrialized countries. Similar work by Solnik (1987). 2. The earliest contribution was found from Frank and You ng (1972). Money supplies and demand theory emphasise the relationship of exchange rate and FII investment. Six different exchange rates were analyzed to find that there existed no relationship between these two variables. and consequently the real output of the country. 1980). 2008 movements affect international competitiveness and the balance of trade position. The study found that exchange rates display signific ant jump components. By employing the G ranger Cau sality and Engel Granger cointegration tests over the two sub periods. which are more manifest than in the stock market. employing regression analysis on monthly and quarterly data for eight industrialized countries from 1973 to 1983. Movements in the stock market may also affect exchange rates. XIMB Journal of Management . However. 1989). may affect the behaviour of exchange rates through the demand for money according to the monetarist models of exchange rate determination (Gavin. Jorion (1988) attempted to analyze and compare the empirical distribution of returns in the stock market and in the foreign exchange market by using the maximum likelihood estimation procedure and ARCH model in daily data of exchange rates and stock returns spanning from June 1973 to December 1985. for monthly data over 1979– 83. The statistical analysis of the study for the foreign exchange market and stock market suggests important differences in the structures of these markets. the Netherlands. spanning from April 1973 to September 1979 and October 1979 to June 1986 respectively. Japan and the US. he observed a weak but positive relation between the two variables. found that domestic currency appreciation negatively affected the domestic stock .44 Vilakshan. Taylor and Tonks (1989) studied the impact of the abolition of the UK exchange control on the degree of integration of the UK and its overseas stock markets such as West Germany. which in turn affects current and future cash flows of companies and their stock prices (Dornbusch and Fisher. March. being part of wealth. The co-integration test confirmed that the UK and foreign (nonUS) stock-market indices were cointegrated in post-1979 period but not before that.

However. Abdalla and Murinde (1997) observed the interaction between exchange rates and stock prices in the cases of India. Exchange Rate. The co-integration analysis revealed that there is no long-ru n relationship between these two variables. Bartov and Bodnar (1994) concluded that contemporaneous changes in the dollar have little power in explaining abnormal stock returns. and (c) currency depreciation has negative short-run and long-run effects on the stock market. (b) sustained increase in domestic stock prices will induce domestic currency appreciation in the long ru n. study was silent on exchange rate effect on stock index. 1994. Korea. 45 price movements for an exportdominant economy and positively affected an import-dominant economy. Ajayi and Mougoue (1996) examined the inter-temporal relation between stock indices and exchange rates for a sample of eight advanced countries during the period April. 1985 to June. the study found that (a) an increase in aggregate domestic-stock price has a negative short run effect on domestic currency values.al.. while an appreciation would have the opposite effect. Ong and Izan (1999) employed the Non-linear Least Square method to examine the association between stock prices and exchange rates. They concluded that depreciation in a country’s currency would cause its share market returns to rise. However. This finding suggests policy implications. The study found the unidirectional causality from exchange rate to stock prices in all the countries except in the Philippines. 1998. 1985 to July. this result suggests a very weak relationship between the US equity market and exchange rates. The regression results showed that a lagged c hange in the dollar has explanatory power with respect to errors in analysts’ forecasts of quarterly earnings. Ibrahim (2000) investigated . They also found that a lagged change in the dollar is negatively associated with abnormal stock returns. 1973 to Dec ember.. Pakistan and the Philippines by applying bi-variate Vec tor Auto Regressive models on monthly observations of stock price index and the real effective exchange rate over January. at least in the short run.Rajput et. that the respective governments should be cautious in their implementations of exchange rate policies in such a way that these policies have ramifications in their stock markets. 1991. FII and . By employing the cointegration and causality tests on daily closing stock market indices and exchange rates. BahmaniOskooe and Sohrabian (1992) employed co-integration analysis and the Granger cau sality test on stoc k prices and effective exchange rate of the dollar on the US economy from July. They fou nd a bidirectional causality between stock prices and the effective exchange rate of the dollar. They found that US share price returns fully reflected the information conveyed by movements in both the Japanese Yen and the French Franc after four weeks.

The analysis of the study confirmed that industries from traded sectors are usually more sensitive to exchange rates than industries from nontraded sectors. Fang and Miller (2002) attempted to investigate empirically the effects of daily currency depreciation on Korean stock market returns during the Korean financial turmoil of 1997 to 2000. the study concluded that the influence of the foreign exchange market on the mean and to a lesser extent on the volatility of industry stock returns is modified when exchange rate innovations are abnormally large. first. the study found that (a) there exists a bidirectional causality between the Korean exchange market and the Korean stock market. three exchange rate measures viz.46 Vilakshan. The results from bi-variate models indicate that there is no longrun relationship between the stock market and any of the exchange rates. 1979 to June. and reserves during the period January. the level of exchange rate depreciation which negatively affects stock market returns. both in mean and volatility. Regarding the volatility spillovers. exchange rate and reserve policy is vital for stock market stability and that there is informational inefficiency in the Malaysian stock market. when the models are extended to include money supply and reserves. a concerted stance on monetary policy. By employing the Granger causality test and an unrestrictive bi-variate GARCH-M model over the period spanning from January 3. money supply. second. (b) both the exchange rates and the stock index are Granger-caused by the money supply and reserves. and third.. The multivariate test suggests that (a) there is unidirectional causality from stock market to exchange rate. the nominal effective exchange rate and RM/US$. However. (b) currency depreciation has statistically significant effects on stock market returns through three channels such as. This finding indicates that in the short run. 1998. stock market returns volatility responds to exchange rate depreciation volatility. 2008 interactions between stock prices and exchange rates in Malaysia using bivariate and multivariate cointegration and the Granger Causality test. 1990 to November 12. there is some evidence of cointegration. 1997 to December 21. (c) there is bidirectional causality between variables only in the case of nominal effective exchange rate. Apte (2001) investigated the relationship between the volatility of the stock market and the . 2000. March. exchange rate depreciation volatility positively affects stock market returns. Multiple variables such as stock price. XIMB Journal of Management . Bodart and Reding (2001) investigated the impac t of foreign exchange markets on the conditional distribution of industry stock returns for a set of European countries by using the bi-variate GARCH model over the period January 5. In Indian context. the real effective exchange rate. 1996 were analyzed.

FIIs are found to follow positive feedback strategy and to have return chasing tendency. Narayan and Smyth (2005) examine the long run relationship and granger F tests to examine any causal relationship between exchange rates and stock price in four South Asian Countries. When the study extended its analysis to verify if liberalization in both the markets brought them together. Exchange Rate. 2004. FII and . A gap analysis of FII investment in Indian stock market. So researcher sum up with the view that domestic investors like mutual fund affect Indian stock markets to a greater extent than FIIs and the recent boom in Indian stock market could not be mainly because of larger FII inflows. (India.al. 47 nominal exchange rate of India by using the EGARCH specifications on the daily closing USD/INR exchange rate. The study suggests that there is no causal linkage between stock prices and the three variables under consideration. Nath and Samanta (2003) employed the Granger causality test on daily data during the period March 1993 to December 2002. exchange rate. FIIs investments do not affect BSE sensex rather it is affected by the latter. Sharma (2004). 2001 and 2002 during when a unidirectional causal influence from stock index return to return in forex market is detected and a very mild causal influence in the reverse direction is found in some years such as 1997 and 2002. shows that the FIIs investments are highly concentrated in terms of their market value in a very small number of companies and there is a wide gap between the actual investments by FIIs and the investments allowed as per the cap. foreign exchange reserves and value of trade balance in India from 1990 to 2001 by applying the co-integration and long-run Granger Non-causality tests.Rajput et. on closing data of S & P CNX NIFTY 500 of September 30.. However. In fact. To examine the dynamic linkages between the foreign exchange and stock markets for India. BSE 30 (Sensex) and NIFTY-50 over the period 1991 to 2000. except for the years 1993. it found no significant causal relationship between the exchange rate and stock price movements. he does not find a clear causality between FIIs and NSE nifty.. Panda (2005) found that the returns on Indian stock market indices such as BSE sensex and NSE nifty are relatively more affected by mutual fund investments than FIIs investments. . The study suggests that there appears to be a spillover from the foreign exchange market to the stock market but not the reverse. Bhattacharya and Mukharjee (2002) studied the nature of causal relation between the stock market. The empirical finding of the study suggests that these two markets did not have any causal relationship.

FII investment in stock market was also studied along. Dollar –Rupee exchange rate and net FII investment in India using monthly data from April 1993 to March 2004. not vice versa.48 Vilakshan. Study also shows that exchange rate long term granger causes FII investments flow and vice versa. XIMB Journal of Management . FII investment has positive correlation with NIFTY. Also.0 RESEARCH METHOD price over a long period coinciding 3rd gener ation re forms i n India. 2000 to December. BI-directional long-term c au sal ity was fo u n d betwee n FII investment flow and stock pric es. It su gges ts that FII u se positive feedbac k trading in respe c t to exchange rate. Regression analys is is u sed to develo p the regression model to find prediction power of relationship between the variables. Each Relationship predicts the future value of Stock Index. Stu dy shows that the short term causality runs from change in exchange rate to stock returns. Granger cause stock prices in India in both the long run and short run and in Pakistan in the short run. 2005 collected. Causal research to find out correlation between exchange rate and stock price is performed. 3. However no long-term relationship was found between exchange rate and stock prices. March. Study finds long term relationship between FII investment flow and stock prices and between FII investment flow and exchange rate. The study finds that there is no long run equilibrium relationship between these two financial variables in three of the four countries studied. 72 monthly data NIFTY performance and FII investment from January. Hypotheses Exchange rate has positive correlation with stock price i. Data analysis of Year 2000-2005 This study reexamines the relationship between two fundamental economic variables.0 ANALYSES AND INTERPRETATION a. Sri lanka and Bangladesh). Badhani (2005) examines the long term and short-term relationship among stock prices. Exchange rates. stock market index nifty. Same causal researc h is adopted to find correlation between FII investment and stock market index. 4. Data and Sample Data for six-year period consisting of total 1564 daily closing data of NIFTY and daily data of exchange rate from January 2000 to December 2005 were collected. exc hange rate and stock The select descriptive statistics of regression analysis is given in Table -1.e. 2008 Pakistan. no short-term cau sality could be traced between above two pairs of variables using monthly data. . However.

. Exchange Rate.Rajput et.884290224 1988.936412998 -1.2: Correlation ship between NIFTY Closing and Daily Exchange Rate n r statistic 95% CI 2-tailed p 1563 -0.76 -0.125 1.3 4 4 .1 4 8 .0001 To -0.0588 43.1: Relationship of NIFTY CI with Exchange rate .053507729 0.6 2306283.027592925 5.71359651 2.4 4 7 .2919 -0.11912494 0.4 4 7 .5 EX C H A N G E R A T E Fig.3 4 5 .7413 43.3175 49.al.4 4 5 .6 854. 49 Table-1: Descriptive statistic of NIFTY Closing and Daily Exchange Rate NIFTY CLOSING Mean Standard Error Median Mode Standard Deviation Sample Variance Kurtosis Skew ness Range Minimum Maximum Sum Count Largest (1) Smallest (1) Confidence level (95.04333015 46.0588 72130.35 1067 462.4 854.084991417 N IF T Y Table-2 contains the correlation statistics between Nifty and Exchange rate while Figure-1 is the graphical representation of regression relationships and Table -3 contains regressing analysis.5 4 3 .3114 1564 49.145765392 -0.0%) EXCHANGE RATE 46.70637494 1349.1269 47. Table.7 4 8 .78 <0. . FII and .2 22.54936 11.65 1563 2842.8091312 214192.74 (t approximation) C L O S IN G 2800 2300 1800 1300 800 4 3 ..0%) 1475.5 45 4 6 .2 2842.96187284 Mean Standard Error Median Mode Standard Deviation Sample Variance Kurtosis Skew ness Range Minimum Maximum Sum Count Largest (1) Smallest (1) Confidence level (95.3175 0.

3590 SSq 193548207. Figure-3 gives the Histogram of the NIFTY and Exc h ange rate relationship.58 0. Table .5 -4.5 43 45 47 EXCHANGE RATE 49 0 200 400 600 There is a negative correlation between NIFTY Closing and Daily Exchange Rate as depicted in Figure-2 over the six years.5767 -205. fails to predict any future trend in dependent variable Y based on independent variable X.5 -0.3 6 x + 1 0 9 4 7 250 0 200 0 150 0 100 0 50 0 0 43 4 5 4 7 49 EX C H A N GE R A T E Fig.5 -1.5 -3.276 90339. The correlation is – 0.024 SE 204. It means upward movement in one variable while downward movement in the other variable.50 Vilakshan.748 334568360.624 95% CI of Coefficient 10544. N IF T Y C L O S IN G Fig.75 4.4 gives the descriptive statistics of regression results while Table-5 gives the c orrelation and the test results. The Tables 4 and 5 and figures depict various statistics and graphical view of regression analysis output on FII and NIFTY relationships for 6-year period.5655 Coefficient 10946.276 141020152. the regression model Y = -205. XIMB Journal of Management .45 to 11348.2 to -196.0001 MSq 193548207.2 : Relationship Between NIFTY closing & Daily Exchange Rate 4.65 P <0.58 300.5 Standard iz e d re s iduals 1.3 : Histogram showing relationship of NIFTY with Exchange Rate .9467 -214.76.5 3. . Based on this c orrelation.0001 <0.0001 Adjusted R2 SE Term Intercept Slope Source of variation Due to regression About regression Total 300 0 y = .2 0 5 .0615 F 2142. March.5 2.36X+10947. .5 0.5 -2.4367 DF 1 1561 1562 P <0. 2008 Table -3 : Regression analysis of NIFTY Closing and Daily Exchange Rate n R 2 1563 0.

0%) NIFTY 1477.6813 0.634 1132. Regression results show a low predictive power.4: Descriptive statistic analysis of FII and NIFTY (based on monthly data) FII Mean Standard Error Median Mode Standard Deviation Sample Variance Kurtosis Skew ness Range Minimum Maximum Sum Count Largest (1) Smallest (1) Confidence Level (95.4 depicts the graphical manifestation of the relationship and slope.43 107. Figure.741143 7261629.906903156 1823..994485 54. Exchange Rate. 1 200 1 000 800 1 84 -424 10 31 37 0 4 22 12 33 2493 28 16 -587 FI I Fig.181 949..2334363 Mean Standard Error Median Mode Standard Deviation Sample Variance Kurtosis Skew ness Range Minimum Maximum Sum Count Largest (1) Smallest (1) Confidence Level (95.53 N IF T NAFTY Y 2 600 2 400 2 200 0.555961 211191.43 2772.6029 72 2772.0001 To 0.4 : Relationship Between NIFTY & FII .34 <0.611 949.0%) 1939.9904098 Table-5:Correlation between NIFTY and FII 2 800 N r statistic 95% CI 2-tailed p 72 0.027778 317.5782893 1161.Rajput et.611 106415. 51 Table .5 #N/A 2694. .al.027968328 0.15918939 1359.692289239 0.68 (t approximation) 2 000 1 800 1 600 1 400 Similarly the Table-6 shows relationship between N ifty and FII.898835174 13423 -3808 9615 139610 72 9615 -3808 633.83 0.1 459. FII and .

b.732 14994609. .0546 0. By looking at Figure-5 one can observe the graphic depiction of the 35 00 y = 0 . It means nifty increases as FII investment increases in nifty.639 154256.0557 to 0. Based on this correlation the regression model Y = -0.371 0.6 : FII and Standardised Residuals Over six-years period the Exchange rate and stock price has negative correlation and they this is not helpful to predict future trend. 1 30 00 25 00 NIF TY N IFT Y 20 00 regression slope.0001 95% CI of Coefficient 1189. This fails to predict any future trend in dependent variable Y based on independent variable X. The year wise correlation statistic between NIFTY and FX Rate can be viewed in Table-7.0001 <0.653 A positive correlation is found between NIFTY and FII investment over the six years of data. For better result.0 9 0 2 x + 1 3 0 3 . The correlation statistic is 0.1609 0.7552 SE 57. an analysis on yearly data is performed.0902X+1303.53. while Figure-6 shows the histogram of the relationship.0508 to 1417.28 0. Table-8 shows the correlation statistic between FII and Nifty. . Yearly data analysis interpretation of 2000-2005 and 15 00 10 00 5 00 0 -40 00 1 00 0 60 00 FII Fig.639 10797965. .0001 Source of variation Due to regression About regression Total MSq 4196643.0584 0.52 Vilakshan. The data used in this analysis is varied largely (as shown in descriptive statistics) because of long time period taken for study.5 : Representation of Regression Slope 4 3 Standardize d r e s iduals 2 1 0 -1 -2 -3 -4 -4000 1000 FII 6000 0 10 20 30 Fig.21 p <0. XIMB Journal of Management .0173 DF 1 70 71 P <0. While FII and NIFTY show a positive relation. the regression model is not able to predict the future trend. March.1247 F 27.27 392.1 is developed.0902 SSq 4196643. 2008 Table-6 : Regression analysis of NIFTY and FII R2 Adjusted R2 SE Term Intercept Slope Coefficient 1303.

FII and . Positive correlation found between FII and NIFTY tempts one to think about the relationship between Exchange FII and NIFTY show continuous positive correlation over six years. while only two years show positive correlation between these two variables.76 correlation in year 2005 between NIFTY and Exchange Rate..745564413 -0. Exchange Rate. 5.599925 0.812194488 0.0 CONCLUSION AND LIMITATIONS Stock market and exchange rate are important factors in the economy and FII flow affects both the variables. Continuou s p ositive correlationship exists between these two variables.351061 0. While no continu ou s relationship between NIFTY and Exchange Rate provide a very weak relationship between both the variables. But the regression model is not able to predict the future trend.al. one can find that the FII significantly affects the NIFTY performance and is one of the important driving forces of the stock market. Table-8 : Correlation between FII investment and NIFTY YEAR 2000 2001 2002 2003 2004 2005 2000-05 CORRELATION 0. Over the six years it shows negative trend but in year 2002 and 2005 a positive correlation between these two variables is found. But 0.780370385 -0. 53 Table .228477 0. and heavy investment of FII in Indian stock market during this time.7 : Correlation between DAILY CLOSING NIFTY and DAILY EXCHANGE RATE YEAR 2000 2001 2002 2003 2004 2005 2000-05 CORRELATION -0. .780056 0.760592682 Out of six years four years show negative correlation between NIFTY and Exchange Rate. From the analysis of FII investment and NIFTY performance.38007965 -0.. It means FII is affecting the NIFTY performance. Our study found no long run positive correlation between Exchange Rate and NIFTY.Rajput et.826445 0. Research findings differ and lack consensus.53 The positive correlation between FII and NIFTY implies a causal relationship between these two variables.839731013 -0.627766231 0. provide the evidence of c orrelation ship between these variables.416388 0. The entire regression model is not able to predict the future trend.

R. Journal of Foreign Exchange and International Apte. M. but not only one significant factor affecting NIFTY. December 17. If we consider recent boom in Indian stock market and movement in exchange rate. 960-971. (1997). P. XIX(2). K. and Vegad. March.G. REFERENCES Abdalla. This is because in last two years 200405 and 2005-06. ‘Currency Exposure and Stock Prices’. X. Vector Auto Regression and Granger Casualty are warranted. Ajayi. (2005) “Dynamic Relationship among Stock-Prices. XII(2): 135–43. Sum me r: 193–207. Bollerslevb.. Dieboledc. C. and Mougoue. M. F. This result provides evidence that FII is one of the important factors. We hope this study will provide a good work to carry out more vigorous analysis in this field with more effective statistical tool and with latest data of boom period. 24(4): 459–64. 2008 Rate and NIFTY. (1992). Ajayi. Investment Flow in India”. c o m / s o l 3 / papers. and Mougoue. (1996). (2001). 7: 25–35. 70. ‘Stock Prices and the Effective Exchange Rate of the Dollar’.S. and Urinde. . A. American Economic Review. P. ‘Exchange Rate and Stock Price Interactions in Emerging Markets: Evidence on India. (1981). Th e Journa l of Fi na nci al Re sea rch . ‘On the Dynamic Relation between Stock Prices an d Ex cha nge Rat es’. Applied Economics. ‘Exchange Rates and Stock Prices: A Study of the US Capital Markets under Floating Exchange Rates’. Paper presented at The Conference on Research in Finance and Accounting Indian Institute of Management. Journal of Foreign Exchange and International Finance. Available at http:// p a p e r s . (1992). Sum me r: 193–207. G. ‘Currency Exposure and Stock Prices’. Bahmani-Oskooee. 24(4): 459–64. I. Akron Business and Economic Review.G. A. ‘Stock Prices and the Effective Exchange Rate of the Dollar’. For the analysis of financial market and with voluminous data to predict the interrelation ship between variables.Sohrabian. FII flows fails to predict the future value of NIFTY. Exchange Rate and Net F. 12: 7–12.I. s s r n . and A. a positive c orrelated movement is observed. Applied Economics. Th e Jou rnal of Fi nan cial R esearc h. Badhani. (2004). ‘Real-Time Price Discovery in Stock. We wish to extend the research with those tools. M. Andersen.cfm?abstract_id=560642 Apte. (1996). Lucknow. Bond and Foreign Exchange Markets’. A. Applied Financial Economics.. Korea. Bahmani-Oskooee.R. Aggarwala. N.A. V. T. T. XIMB Journal of Management . (1997).R.54 Vilakshan. M. and Sohrabian. FII invested heavily in market and their inv estment influenced the supply and demand position of Indian rupee. Pakistan and the Philippines’. more effective tools such as GARCH.. XIX (2 ).I. ‘On the Dynamic Relation between Stock Prices an d Exchan ge Ra tes ’.

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Lafarge (France). customers and partners what the company believes in and what to expect from the company. The objective is to develop a sustainable competitive advantage on product attribute(s) in the consumer’s mind. 2008 . ACC. Brand positioning is a crucial decision for a company. of MBA. Bangalore. Research in brand management has gained prominence in India in the last decade. Dept.com . the domestic demand will be 140 million tonnes. It defines to the stakeholders. By 2008. Received January 29. For many industries.Attribute Based Perceptual Mapping of Cement Brands: an Empirical Study* Shahida P.com Director. Ultratech Chemco.1. Dept. Grasim. The Brand helps a company to differentiate itself from competition. Birla etc. Branding is applicable to all categories and industries and even applies to commodities. namely. Gujarat Ambuja. Bangalore. Kotler (2002) defines * 1. 2008 Assistant Professor. The relative importance of various brand attributes is studied.0 INTRODUCTION A brand is a strategically potent weapon.com Area Sales Manager. The managerial implications and directions for future research are discussed. Bangalore. Italicementi (Italy) have invested 10-50% in Indian Companies.74@gmail. 2. PESIT. email:ghgaurav@gmail. PESIT. Multinational companies such as Holcim (Switzerland). Rajendra Nargundkar2 & Gaurav Hiremath3 Abstract The Indian cement industry has seen an explosive growth backed by heavy investment in Infrastructure development in the last decade. email: shahida. A brand’s positioning is designed to occupy a unique and distinctive place in the consumer’s mind. 1. The industry is expected to grow by 12 % every year. This study is an attempt to find out the factors. Revised February 13. email: rnargundkar@gmail. which influence the choice of cement brand. The consumers’ perception towards the leading brands of cement is analyzed through an attribute based perceptual map. Reliance Communications. There are some established brands in the market. 3. branding offers the best opportunity for creating growth. of MBA. Brand management has been extensively researched in the western countries and several research papers have been written on different aspects of branding.

The Indian cement industry is a mixture of mini and large capacity cement plants. with an installed capacity of around 157 million tonnes per annum (mtpa) at endMarch 2006. (IBEF.58 Vilakshan. The Ordinary Portland Cement (OPC) enjoys the major share (56%) of the total cement production in India followed by Portland Pozzolana Cement (PPC) and Portland Slag Cement (PSC). At present there are 124 large rotary kiln plants in the country. 2002). unique and competitive. ACC was the largest player with a capacity of 18. According to Perreault and Mc Carthy (1999) positioning refers to how customers think about proposed and / or present brands in a market.” The result of positioning is the successful creation of a customer focused value proposition.0 OVERVIEW OF INDIAN CEMENT INDUSTRY The Indian Cement industry is the second largest cement producer in the world. Although a number of different approaches and methodologies for positioning are possible. which is sustainable. 2007). they all typically define the nature of the target market and relevant competitors and the means by which the brand should be seen as similar as well as distinct from those competitors. 2. As on March 2006.64 mtpa. which are defined as plants having capacity of more than 600 tpd. UltraTech CemCo Ltd occupied the second slot with a capacity of 17 mtpa (now a part of Aditya Birla corp.). Keller (2003) defines brand positioning as all about creating the optimal location in the minds of existing and potential customers so that they think of the brand in the “right way. Developing an effective positioning strategy. Majority of the production of cement in the country (94%) is by large plants. The Gujarat Ambuja group has emerged as . is not easy. XIMB Journal of Management . March. Schnedler (1996) states “Positioning products in a complex market can be one of a company’s most difficult decisions.” Brand positioning requires thoughtful analysis of competitors and consumers to determine the desired image for the brand to maximize its chances for success. ranging in unit capacity per kiln as low as 10 tpd to as high as 7500 tpd. 2008 brand positioning as “the act of designing the company’s offer and image so that it occupies a distinct and valued place in the target customer’s mind. Brand positioning sets the direction of marketing activities and programs—what the brand should and should not do with its marketing.” Brand positioning involves establishing key brand associations in the minds of customers and other important constituents to differentiate the brand and establish (to the extent possible) competitive superiority (Keller et al. A positive trend towards the increased use of blended cement can be seen with the share of blended cement increasing to 43%.

the positioning decision is often a crucial decision for a company or brand because the position can be central to consumer’s perception and choice decisions. and Aditya Birla Corp. Other leading players include India Cements. the growth in capacity utilization has continued in the current fiscal 2007-08. installed capacity of the c ement industry is expected to increase to 186 million tonnes per annum (mtpa) by end of 200708. 59 the third largest player with a capacity of 14. up from 142 mt in the previous fiscal. Growth of 9% per annum from FY200610 would result in cement production increasing to around 196 mt in FY2010. dispatches (including exports) have also jumped by 8.24 mt.0 SIGNIFICANCE OF BRAND POSITIONING Rising noise levels in the media and extensive advertising by different companies lead to a c lu tter in the consumer’s mind.19 per cent to reach 80. a marketer needs to consider four things: the target market. Multinational players have invested in Indian companies and the Planning Commission’s Working Group on Cement Industry predicts cement production in India to grow at a rate of 10% during the Tenth Five-Year Plan (2002-2007). . while developing a positioning. 219 mtpa by end of 2008-09. According to G win and G win (2003). Grasim ranks fourth with a capacity of 14. the value of this difference to the target market and the ability to demonstrate or communicate this difference to the target market. 2007) Simultaneously. According to the latest ICRA Industry Monitor report. Net sales of cement companies went up by 50. thereby recording a growth of 10 per cent.12 mtpa. Century Textiles. Madras Cements. Lafarge. A clear positioning strategy can ensure that the elements of the marketing program are consistent and supportive. Jaypee group. 2007) 3.al. the average monthly capacity utilisation during fiscal 2006-07 was 94 per cent. Attribute Based Perceptual . According to Cement Manufacturers Association (CMA)..5 per cent during 2007 while profits zoomed by 183.. cement dispatches in 2007 were at an all-time high of 155 million tonnes (mt).Shahida et. how the produ ct is different or better than competitors.86 mtpa.4 per cent. And due to the sustained demand levels. the brand will fall in the consideration set of the c onsumer but may fail to bu ild customer loyalty without a unique brand position. the cement industry is expected to grow at around 8-10% during the 2003-07 periods. By comparison. During the first half of 2007. If brand awareness and recognition is good. with 94 per cent capacity utilization for the period AprilSeptember as against 90 per cent during the corresponding period quarter last fiscal (vBulletin. According to Aaker and Shansby (1982). and up to 241 mtpa by end of 2009-10 (IBEF.

The following were our research questions: 4. To find out the relative importance of various attributes of cement considered while purchasing a branded cement. In this study we have used discriminant analysis. Keon (1983) has described four methods for measuring and evaluating a brand’s current or potential positioning. Table 1 shows the relative importance of different attributes based on their mean scores. To find out the relative importance of various attributes of cement considered while purchasing branded cement. Positioning and segmentation are treated as different concepts in practice and in literature.0 ANALYSIS AND DISCUSSION R1. 20 dealers and 10 consumers. A seven point rating scale with 1 being “Worst” and 7 being “The Best” was used for rating the attributes on different brands of cement. factor analysis. Aaker (1996) in the brand identity planning model suggests that a brand position has to be built on five parameters. which are: positioning by 1) Attributes 2) pricequality 3) use or applications 4) productuser 5) the product class and 6) the competitors. Brand position is extremely important to create a defined identity for the brand. R2. To find out the brand positioning of different brands with attribute based perceptual mapping using discriminant analysis. 1998). covering major commercial and residential areas in Bangalore city. Aaker and Shansby (1982). 2008 Acc ording to Aaker (1996) brand position is the part of the brand identity and value proposition that is to be actively communicated to the target audience and that demonstrates an advantage over c ompeting brands. discriminant analysis determines the linear combinations of attributes that best discriminate among brands. Perceptual maps provide a visual picture of the brand positioning activity and help brand managers understand the position of the brand in comparison to competing brands. The methods are Multi dimensional scaling. identify points of leverage. create the value proposition: benefits that drive relationships.0 RESEARCH QUESTIONS 5. XIMB Journal of Management . The sample size was 30 retailers.0 RESEARCH METHODOLOGY A questionnaire was administered personally to collect primary data from dealers and consumers. Positioning has no value unless it is appropriate for the target segment (Rao and Steckhel. propose six approaches to positioning strategy.look to the core identity.60 Vilakshan. discriminant analysis and multi attribute compositional models. target audience and active communic ation. . The ratings of brands on attributes are used to develop the perceptual map. R1. March. 6. Non-probability judgmental sampling technique was used.

Shahida et.al, Attribute Based Perceptual ... 61

Table 1: Relative Importance of Different Attributes
Sl No 1 2 3 4 5 6 Attribute Price Setting time Strength Availability Sand-cement-water ratio colour
Color Sand-cement-water ratio Avaliability Strength Setting time Price

Mean 5.38 4.28 6.90 5.10 3.44 4.60

R2. To find out the brand positioning of different brands with attribute based perceptual mapping using discriminant analysis. We performed discriminant analysis and found significant differences between three leading brands of cement in Bangalore- ACC (Associated Cement Company), Ultratech ( Aditya Birla Corp) and Zuari (Italicimenti group). The Wilks lambda test revealed, two functions (1 and 2) both are statistically significant. The Chi square value for function 1 is 171.572 at 12 degrees of freedom with significance of 0.000 and Chi square of function 2 is 18.98 at 5 degrees of freedom with significance of 0.002
Table 2: Standardized Canonical Discriminant Function Coefficients
Attributes 1 Price of The Brand Setting Time Strength of the cement Availability of Cement Sang Cement Water Ratio Colour of the Cement .823 -.954 .109 .787 -.091 -.096 Function 2 .027 .225 1.121 .045 -.302 -.647

4.6 3.44 5.1 6.9 4.28 5.38 0 2 4 6

Chart 1: Relative Importance of Different Attributes

The most important attributes of cement are strength of the cement (mean; 6.9), followed by price (mean; 5.38) and availability (mean; 5.10). N ext in importance is colour (mean; 4.6). The least important attributes are, setting time (mean; 4.28) and sand-cementwater ratio (mean; 3.4). The strength and price of the cement appear to be the most important attribu tes that customers will focus on while choosing a cement brand. This finding indicates that cement brands need to focus their marketing c ommunic ations predominantly on “Strength” of the c ement, as strength is the most important attribute of cement.

From the standardized discriminant function coefficients (table 2); it appears that there are two different functions based on five attributes. Function 1 consists of price of the brand, setting time and availability. Fu nc tion 2 consists of strength and colour of the cement.

62 Vilakshan, XIMB Journal of Management ; March, 2008

Table 3: Functions at Group Centriods
Brand Name 1 Ultratech ACC Zuari -1.916 .918 .998 Function 2 -.013 .460 -.448

(or Brand, in this c a se). Vec tors pointing in the opposite direction from a given grou p c entroid r epresent lower association with the concerned group. Variables with longer vectors in a given dimension, and those closer to a given axis are contributing more to the interpretation of that dimension. Looking at all variables that contribute to a given axis (dimension), we can label the dimension as a combination of those variables. As seen from the graph (chart 2) Ultratech (Birla Plus before October 2007), ACC and Zuari have their unique position on the map. In addition on the map we have values of the attributes on the same two dimensions (each discriminant function represents a dimension). From the figure we can see that dimension 1 seems to be a combination of Availability and Price (closest to the x-axis). Dimension 2 seems to comprise Strength, Sand-CementWater ratio and colour.

A perceptual map is drawn using the standardized canonical discriminant function coefficients (table 2) and the functions at group centroids (table3).

1 0.8 0.6

Function 2

0.4 0.2

Attributes Brands 2

0 -1 -0.2








-0.6 -0.8 Function 1

Chart 2: Attribute based Perceptual Map of Cement Brands


The above graph represents the vectors for each of the attributes- strength, price, availability, setting time, sandcement-water ratio, and colour. These vec tor s represen t the effe c t of discriminating on each dimension. Longer arrows pointing more closely toward s a given grou p c ent roid, represents variables most strongly associated with that particular group

ACC seems to be stronger in both Dimension 1 (Availability) and Dimension 2 (strength). Ultratech seems to be strong in dimension 2 (strength, in comparison to Zuari). Zuari seems to be weak in both the dimensions as compared to its competitors. Aaker (1996) defines brand position as follows: Brand position is part of the brand identity and value proposition

Shahida et.al, Attribute Based Perceptual ... 63

that is to be actively communicated to the target audience and that demonstrates an advantage over competing brands. The respondents in our survey associate ACC brand as strong cement which is easily available in the market. Ultratech is perceived to be high on strength compared to Zuari. The brand Ultratech was known by many other brand names in the past. In 2004, Grasim bought 51% stake in L&T cement and named L&T cement as Ultratech Cement. According to O.P. P uranmalka, Group execu tive president, Grasim Industries and chief marketing officer, UltraTech Cement Ltd, “The name UltraTech was the outc ome of an in-depth researc h conducted throughout the country. The research study indicated that in the c ustomers’ mind, L&T stood for quality, technology and expertise. The name UltraTech with the signature line ‘the engineer’s c hoic e’ admirably captured the premium nature of the brand and its salience.” In October 2007 Birla Plus brands was rechristened as Ultratech. Though regional brands were retained such as Vikram Cement in the north zone and Birla Super in Bangalore, P une and Mysore, and Rajashree Cement in the west and south zone (Business India, 2008). Ultratech became the national brand. The recent name c h ange from Birla P lu s to Ultratech may have had an influence on the brand positioning of the same.


The study confines itself to Bangalore city only. Though eight or more brands were researched for brand awareness, we considered only three regional brands for attribute based perceptual mapping.

From this study we can conclude that Customer considers Strength of the cement as the most important attribute of the cement. Second is Price of the cement and the third is Availability of the cement brand. Cement manufacturing companies need to focus on these attributes. From the perceptual map, we can conclude that ACC is having an edge over Ultratech on Price and Availability, which is a serious concern for Ultratech as it may lose its market share to ACC du e to non availability of cement in the market. Both Ultratech and Zuari cements are not perceived highly on both dimensions. With the entry of global giants such as Holcim, Lafarge, the current positioning of Indian brands may have to be reconsidered. From this study, we can interpret that except for ACC, other brands do not have good attribute based positioning. Aaker (1996) and Keller (2003) have emphasized on the importance of not only selecting a suitable positioning strategy for a target segment but also on the importance of updating the brand over a period of time, to ensure that the brand stays relevant at all times.

64 Vilakshan, XIMB Journal of Management ; March, 2008

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it may be seen that economic survival. come in on Received November 11. and job involvement influence job satisfaction. stay late at night. email: jreeveswesley@yahoo. satisfying the interest of the unremunerated work domain * 1 2 (family) of an individual’s life and selfinterest stimulates an individual to work (Meda. Unfortunately.e. Dean. 1995). there is no denying the fact that the most important reason why an individual works is in order to survive. 2005.com. So. relish the challenge of work. explicit and implicit. 1998).. Muthuswamy2 Abstract In this article. we have developed a model based on prior literature and examined the relationship between work role characteristics and job satisfaction. However. Revised January 17. 1996). 2003). 1. Coimbatore. self-esteem and a validating experience for men and women (Kanter.0 INTRODUCTION Work is deemed as an unavoidable aspect of human being. Work lends meaning to one’s lives and fulfils it (Rifkin. Coimbatore. work which is deemed to be a sou rc e of life-g iving to individuals and in turn to families with which an individu al is attac hed is working just in opposite direction.com . Organisations put pressure. Human beings by working also contribute to the work world with their intellectual stimulation. the financial stability of the family (Pratt and Rosa. Using multiple regression analysis it was found that work conflict. 1977). Karunya University.R. Reeves Wesley1 & P. and get the financial benefit it provides (Gordon and Whelan. on employees to put more time. since work is the only means of meeting the end i. email: kmchms@gmail.Work Role Characteristics as Determinants of Job Satisfaction: An empirical analysis* J. KMCH Institute of Health and Hospital Administration. The results are discussed and implications to the institutions as well as to the individuals are suggested. Data was collected from 230 faculty members from self-financing Engineering colleges in and around Coimbatore city. It is a source of life’s purpose. 2008 Associate Professor. seek personal growth. supervisory support. All social relationships are built around work.

as part of the daily routine . 1990). Job involvement (JI) and supervisor support (SS) and their impact on job satisfaction (JS). 1999. assessing the characteristics of work role (hereafter referred to as Work Role Characteristics. The norm of a 35-44 hour/week has given way to longer hours in the full-time working week. bringing with it new norms of work and longer hours of work involving harder and more challenging tasks and the need to be mu lti-skil led. 2008 weekends. the information age is rapidly replacing the industrial age. however. Accordingly. take work home and so on to help the firm impr ove its competitive position (Hall. becomes essential because of its very nature of being a factor influencing reactions to job related outcomes like job satisfaction. 2000) shows that such incompatibility result in increase in work demand thus. when faced with increasing role demand and time pressures. Carlson and Kacmar.66 Vilakshan. Organisations put tremendous pressure on employees resulting in longer hours of work and increase of the work load. have often captured only one or two WRC. Work Conflict (WC). With the dawn of a new century. By and large. the researcher hypothesizes as follows: H1: Work demand is negatively related job satisfaction Higher work overload . labeled as WRC. A review of the extant literature (Aryee. The global isation pr oc ess whic h has resu lted in increased and intense competition has brought in significant c hanges in the workplac e. Therefore. They affect the level of control individuals exert. Accordingly. affecting job satisfaction. Researchers earlier have studied the relationship between WRC and job satisfaction. Fields and Luk. 1999. This results in incompatibility within the work role as well as life’s other domain. 1) 2) 3) 4) To study the relationship between work demand and job satisfaction To study the relationship between work conflict and job satisfaction To study the relationship between job involvement and job satisfaction To study the relationship between Supervisor support and job satisfaction. it is believed that humankind spends a major portion of his or her time and energy in this realm due to the c h an ging natu re of work in respons e to new dema nds and environmental pressures. the researcher attempts to study the following objectives. Carlson and Perrewe. Fields and Luk. Keeping this in the background and after a careful investigation of prior literature (Aryee.which is referred to as a condition where an individual is expected to do too many things within a limited time. XIMB Journal of Management . 1999) the researc h er examines fo u r su c h characteristics: Work demand (WD). March.

and perceiving job performance to be important to selfworth (Blau. It includes identifying with the job. The time pressure and role pressure at workplace may inhibit the individual’s requirements to satisfy the obligations of the job. Purohit.b. The most important inference that could be made from the above definitions is that job involvement refers to the individual’s mental and emotional involvement in the job in an attempt to fulfill its demands. Fields and Luk. seeking support on issues related to work and affecting the individuals. an insightful investigation into the role theory (Katz and Kahn. 67 (Sekaran. the researcher hypothesizes as follows: H4: Supervisor support is positively related to job satisfaction. 1992) reveals that an increase in demand in the work role results in conflict affecting job satisfaction. Moreover. Accordingly. Russell and Cooper. 1978) reveals that incompatible expectations from the supervisors would leave the individual unable to influence the supervisor’s actions. such as time pressure which is a characteristic of the work (Kickul and Posig 2001) and role pressure which is a combination of expectations and demands that individuals either place upon themselves or have placed upon them by other people such as the supervisors (Matteson and Ivancevich 1987). H3: Job involvement is negatively related to job satisfaction Studies have reported that job involvement represents an internal or self-induced source of pressure (Frone. Godhalk and Beutell. Accordingly.1999. 1996) to achieve a desired need. actively participating in it. leading to increased devotion of time and energy in the work role. in which all the work demands cannot be met in the available span of time. 1985. the researcher. a review of prior literature (Aryee.al. The issues that could affect the individual might be work environment stressors.. could also lead to conflict within the work domain. it is imperative that when employees experience role pressure or time pressure. thus experiencing conflict at work. supervisors should attempt to provide emotional support (Kickul and Posig. hypothesizes as follows:.1999. Therefore. Supervisor support involves the interpersonal transaction that takes place between the members of the organisation and the supervisor. 2000. Rabinowitz and Hall. The model describing this relationship is depicted in figure. Carlson and Kacmar. Fields and Luk. 2004). 2001). Parasuraman and Simmers. the researcher hypothesizes as follows: H2: Work conflict is negatively related to job satisfaction 1977) resulting in incompatibility with the expectations of the job thus. Work Role Characteristics as.Wesley et. 1992a. Subsequently.. Accordingly. affecting job satisfaction (Aryee. 2001). Parasuraman. Higgins and Duxbury. 1 .

(1992) consisted of 4 items and supervisor support (Cronbach α = 0.1 Model depicting the relationship between work role characteristics and job satisfaction Dependent Variable: The dependent variable is job satisfaction.77) adopted from Higgins. This was done based on the suggestions given by the respondents in the pilot study. It is measured on a 5 point scale (eg. Sumithra and Varkey. 5 = Strongly agree to 1 = Strongly Disagree). Oomen. XIMB Journal of Management . 2008 Work demand Work conflict Job involvement Supervisor + Job Satisfaction Figure . & Duxbury. work conflict (Cronbach α = 0. job involvement (Cronbach α = 0. 8 items are used to measure the job satisfaction (Cronbach α = 0. through whom the questionnaires were distributed. These items were quoted in Wesley. quoted in Lobel and Clair. The data for this article were collected in course of doctoral work.61) originally developed by Shinn.0 METHODS Measurement of the Variables under study A questionnaire consisting of items capturing the work role characteristics and job satisfaction was used to collect data. Sample and Data Collection 2. in giving complete and accurate information. in order to encourage and solicit the kind cooperation of the respondents. The various factors constituting the work role characteristics were measured as follows: Work demand scale Cronbach α = 0.68 Vilakshan.65) consisted of four items adopted from Williams and Alliger (1994). (2003). They were given the assurance that their responses would be used only for academic purpose and were assured absolute confidentiality and anonymity on the information will be maintained. Wong. Accordingly. Simko and Ortiz-Torres (1989) and adopted from Batt and Valcour (2003) consisted of 6 items.78). However. Yet some of the questionnaires were not returned and . the researcher personally met the respondents or contacted them over phone.66) was a shortened form of Lodahl and Kejner (1965) scale. the questionnaire was administered to 403 faculty members working in Engineering Colleges in and around Coimbatore city. to solicit their kind cooperation in filling up the questionnaire. A thorough followup was done in person and over telephone to expedite the process of filling up the questionnaire. The items were measured on a five point Scale (5 = Strongly agree to 1 = Strongly disagree). Independent variables: The work role characteristics are the independent variables. March. (1992) consisted of 8 items. Almost half of the questionnaires were administered in person and the remaining by choosing a contact person in each college.

The coefficients provide support for the suggested linkages between the work role characteristics and JS when viewed as simple associations. 0.11 . 3.15* .68) 2.Wesley et.86 (0.01 level (2-tailed). It was seen that they are educated and economically stable because of the even salary structure prescribed by their governing body (i. Piotrkowski.38(0.1% (230 usable questionnaires).18** .30 between WD and JI). Roopnarine.e.00 between WD and JS) to moderate values (0. The inter-correlations range from very low (e.17** . there is no evidence of multicollinearity. 2004). the respondents from academia are appropriate because of the likelihood of experiencing higher work role characteristics such as work demand (Wesley and Muthuswamy. Buesig and Bennett. 1990. the standard deviations and the intercorrelations among the study variables. Work Role Characteristics as.. Further. All India Council for Technical Education). 1987).23** 1 2 3 4 5 * Correlation is significant at the 0.al.22** .69(0. especially for women who often report greater demands in life (Dressel and Clark.69 for SS) to a high score (3.65) 2. and Rapoport. ** Correlation is significant at the 0. (1996). Correlations are meaningful within the conceptual framework of the study. Rapoport.60) .0 RESULTS Data were analyzed using SPSS Version 11. Theoretically. yielding a response rate of 57.30** -. It is found that the means range from a moderate (2. academic realm holds unique challenges.15* -.05 level (2-tailed). 69 some were unusable and incomplete. Table-1 presents the means.00 .70) 3.98. However... Table -1: Matrix of inter correlations among study variables Mean (& Standard Deviation) Work demand Work conflict Supervisory Support Job involvement Job Satisfaction 3.24** . the results of the multiple regression analyses is taken for discussing the model in the next chapter because of its advantage over correlation in explaining the simultaneous effects of two or more variables in the model.. The standard deviation of the variables measured on a 5-point scale appears to be slightly higher with factors like SS reporting 0.83 (0. The justification for choosing engineering college teaching faculty as the respondents. was based on the pattern of reasons given by Suppal.g. reaching statistical significance.98) 3.83 for WD). Moreover. Standard deviations given in parenthesis .78(0.

70 Dependent Variable: Job satisfaction.05) are positively related to job satisfaction supporting hypothesis H3 reversely and H4 respectively.170 shows that any time another independent variable is added to this model. The adjusted R² = 0. 2008 Table-2 presents the results of the regression analysis examining the antecedents of job satisfaction.0 DISCUSSION The goal of this study was to examine relationship between work role characteristics and job satisfaction occurring as a function of the work role characteristics.05).219 R² = 0.25.29. hypothesis H1 is not supported.258 . in spite of the model being fit. constant (y intercept) = 3. Beta Coefficients (β) -. Work demand is non- significant predic ting and henc e.00 .00 . by evaluating a hypothesized model.26 t -.05) and JI (0. any change in job involvement and supervisor support result in change in the positive direction.4% of the variance in the dependent variable and R² seem to be significant as indicated by the Fvalue. It equals the change in job satisfaction for any level of change in the predictor variables. p < 0.00 F = 12.05) is significant negatively supporting hypothesis H2 and SS (β = 0.07 3.25 . .588 . The R² = 0. the R² will increase (even if only slightly). Similarly.33 . The decline in the adjusted R² and smaller difference between R² and adjusted R² are due to the relatively larger number of observations compared to the number of predictors.74 4. March. Sig.184. it is found that WC (β = -0. XIMB Journal of Management . In order to increase R². It indicates that any c hange in work conflict would affect change in job satisfaction in the reverse direction.2: Regression results predicting job satisfaction Unstandardised B Work demand Work conflict Supervisory Support Job involvement -. The decline in the adjusted R² may also be due to the less contribu tion to the explained deviation by the additional variable to the degrees of freedom.170. On examination of the standardized beta coefficients. p < 0. 4.70 Vilakshan.06 -.184 indicates that the regression model explains 18.0572 -. This study reported a smaller R². Work conflict is the strongest predictor of JS followed by JI and SS.26. (p < 0. work role characteristics may be expanded to include variables such as work role ambiguity and include life’s other role characteristic variable such as Table.29 .99 -4. The slopes given by the B values quantify the steepness of the regression line. p < 0.97 adjusted R² = 0.153 .

. it has significance as its prevalence increases job satisfaction. quality is deemed to be the focal point for survival for both the faculty and the institution. The reward value of the SS is evidenced in its prediction of job satisfaction. consultancy and publishing papers in journals. 71 family role characteristics. The multiple roles may be in the form of conducting extra coaching for weak students.. In view of this. Further. While multi-skilling and multitasking are present day phenomena. It points to the benefits associated with a workforce where faculty members appear psychologically involved in their work efforts are satisfied with their jobs.0 IMPLICATIONS. resulting in a smaller R². the researchers assert that job satisfaction is an universal and pervasive phenomenon predicted by many other organizational factors such organisation culture and climate and work role characteristics is one of those many significant others that account for variance in the dependent variable thus. the genre of supportive climate that exists in educational institutions. institutions can help increase job satisfaction by making adjustments in the work role through sufficient supervisory support. students and management) leading to dissatisfaction in their job. the SS . but work demand. Moreover. doing research. Job Involvement’s (JI) positive relationship with JS is a notable finding. they experience incompatible expectations from two or more significant others in the work role (e. predict job satisfaction.. thus increasing job satisfaction. This suggests that the supervisors in educational institutions are empathetic whose support could be used as a coping mechanism aimed at accommodating the faculty’s multiple role pressures (WC). In the context of WC affecting JS. The results report that all the work role characteristics.JS relationship indicates in general. roles interfering with each other can be reduced by applying unity of command principle. This may also help to enhance the effective flow of communication from the superiors to . Although SS is found to be lowest as reported by the mean value. increasing competition and the indication of foreign universities making forays into the Indian soil this year. It suggests the perceptions of supportive leadership practices that influence feelings of personal emotional state of the faculties directly.Wesley et. Going by the number of institutions offering higher educations.al. The strongest prediction of JS by WC indicates that the faculty members are subjected to multiple roles within the work role. 5. administrative work such as attendance maintenance of the students and informing parents about the performance of the students. Work Role Characteristics as. combined with clear job description and supervisor support.g. LIMITATIONS AND FURTHER RESEARCH This study has important implications for both organizations and individuals as it has the potential to benefit both of them.

72 Vilakshan. given the structural and educational differences in the characteristics of the employment of other non-teaching professions. 2008 the faculty members. so effective. the link between the conflict arising out of the participation of men and women in multiple roles and its impact on JS may be complex. Firstly. Fourthly. which limits the generalisability of the findings of the study. March. Taking into consideration the number of engineering colleges spread over the state of Tamilnadu. this is a smaller sample. realistically.0 CONCLUSION This study is one among the pioneer tests gleaned from several literatures. Institutions can also resort to newer initiatives. which include the supervisors and the faculty jointly setting time and ethical standards that would meet the organizations expectations and match the faculties’ abilities. XIMB Journal of Management . Fifthly. Therefore. A structural equation modelling may be applied to understand the complex nature of this relationship and thus eliminate measurement errors. eliminating dual reporting relationships. future research shall include other work-related factors such as age. researchers in the future shall have a gendered approach while studying the relationship. Thirdly. the sample is limited to Coimbatore city alone. Sixthly. which may reveal a better picture on the work role characteristics and their effect on job satisfaction. This would to a greater extent make the faculty a multi-faceted personality. the resources and support required from their colleagues and supervisors to complete the tasks effectively. Further. However. years of experience etc. attempt was not made to measure the cultural values and beliefs of Indians on work. in giving solution to reduce work conflict and enhance job satisfaction. the sampling focus is on the teaching faculty. institutions to induce multiskilling and multi-tasking may resort to job rotation rather than assigning simultaneous multiple roles. it is seen that supervisory support may be a mechanism. they can also jointly decide on the optimum number of roles to be assigned to the faculty. in studying this relationship. 6. although this study is conducted in a different culture (Indian). In addition to this. Hence. A major contribution of this study is that it . Future studies shall focus on capturing these factors too. future studies should focus on larger samples across the state and later across India. providing insights into the importance of job satisfaction while understanding the work role characteristics. research should focus on occupationally heterogeneous sample of individuals possessing diverse skills. Avoidance of work conflict would also to greater extent enhance the faculty members’ involvement in one particular job rather than sharing their psychological involvement with more than one job. Secondly.. This would also effectively promote two-way communication between the supervisors and their faculty.

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2007. Revised February 26. Overall. Not much research has been done on the attitude of managers in India towards cost allocation. Muttom. Ajzen’s theory of planned behaviour provided the conceptual basis for this study into manager’s attitude towards cost allocation. the results of the study suggests that targeting identified underlying beliefs may serve to strengthen the intentions of managers to participate in cost allocation.com Management. literature reveals interest in attitude generally and specifically to certain techniques such as * 1.Empirical Examination of A Cost Allocation Model: Using the Theory of Planned Behaviour* Ajay Kumar Pillai1 Abstract This study examines the behavioural. 1998). Another factor that has been neglected.0 INTRODUCTION Attitude is an important concept that is often used to understand and predict people’s reaction to an object or change and how their behaviour can be influenced. 1. . In the Received October 4. SCMS School of Technology and email:ckrishjay@hotmail. In the first phase. norms and perceived behavioural control can be adapted to the context of cost allocation. 2008 Lecturer. It is proposed that the concepts of behavioural intentions. Darwin defined attitude as the physical expression of an emotion. The study is conducted in two phases. Activity Based Costing (Kaplan. a procedure was used to determine the outcome beliefs that underlie manager’s attitudes. A major advantage of the TPB is its ability to identify the underlying beliefs that distinguish between individuals intending and not intending to perform a specified behaviour. Interest in this concept can be observed not only among social psychologists but of late among management accounting scholars. normative and control beliefs of managers related to cost allocation. The study of attitude’s influence on behaviour began in 1872 with Charles Darwin. In cost allocations. Cochin. but has a significant impact on the performance of cost allocation systems is the concept of behaviour.

March. social psychologists no longer believed that they had a theory to explain the relationship between attitude and behaviour. The theory of planned behaviour models behavioural intention as depending on three factors: (1) attitude towards the behaviour (AB). XIMB Journal of Management . By the late 1960’s.76 Vilakshan. 1991). 2001). 1975) and the theory of planned behavior (Ajzen. with considerable success (Baron et al. This is followed by the methodology and the analysis and discussion of this study. 2. 1987. and indicates the important variables in the attitude-formation process (Teo and Loosemore. The theory of reasoned action suffered from a number of limitations which made Ajzen propose the Theory of Planned Behaviour. Ajzen and Fishbein (1973) proposed that a person’s behaviour was determined by his intention to perform the behaviour and that this intention was. The paper identifies areas for further research before concluding with a brief summary. (2) subjective norms (SN) . These two theories (reasoned ac tion and planned behaviour) have been applied to predict behaviour in many settings. This paper is organized as follows: the next section describes the Theory of Planned Behaviour and then the concept of cost allocation is introduced. Most of the research. the results of a study conducted by a leading psyc hologist demonstrated that attitude was not a good predictor of behaviour. N u merou s studies have conducted belief-based analyses using the TPB framework to understand behaviour. Then. It was considered that attitudes were multidimensional systems consisting of beliefs about the attitude object and action tendencies towards the object. 1985. Of special importance are the theory of reasoned action (Fishbein and Ajzen. In 1934. 2006). a model for cost allocation is proposed and recommendations are made to help improve manager’s attitude towards cost allocation. a fu nc tion of his attitude towards the behaviour and subjective norms. 2008 1930’s psychologists defined attitude as an emotion or thought with a behavioural component.. in this context. The theory of planned behaviour (TPB) provides a conceptual vocabulary to help organize empirical observations.0 THEORY OF PLANNED BEHAVIOUR (TPB) Social psychologists theorized that attitude included behaviour and cognition and that behaviour and attitude were positively related. has been in the health area. there has been considerable research and theorizing on attitude from diverse perspectives. in tu rn. There are a number of psychological theories that explain behaviou ral intentions. It was in this environment that Ajzen and Fishbein created the Theory of Reasoned Action in 1967. Sinc e then.

the relative importance of each determinant would vary based on the circumstances and the behaviour studied. Behavioural beliefs are the expected consequences of a behaviour (e.. 77 and (3) perceived behaviour control (PBC).. For example.0 COST ALLOCATION Attitude (AB) Social & Moral Values Subjective Norms (SN) Behavioural Intention Actual Behaviour Perceived Behavioural Control (PBC) (Figure 1: The Theory of Planned Behaviour) Each of these determinants of behavioural intention (ie. In turn. This factor is modelled as capable of influencing behaviour directly as well as through it’s effects on intentions. Subjective norms are a function of an individual’s perception that one or more relevant people would approve of a particular behaviour and the extent to Companies have to routinely allocate costs of common corporate resources and for this purpose they use a variety of allocation methods reflecting different attitudes concerning cost allocation. each with a positive attitude toward cost allocation. Attitudes relate to one’s own personal views about the behaviour.Pillai. A basic question often asked is: why cost allocation? Management accounting scholars have attempted to offer different explanations for it. 3. Empirical Examination of A. a belief that it is good for managers to be cost conscious).g.. 1991). Cost allocation arises whenever there exists common resources which are difficult to measure by the central management. Perceived behavioural control refers to an individual’s perceptions regarding the extent of control he or she has over a particular behaviour. may engage in different behaviours if they face different pressures in their environments.g. The important fact about common cost was recognized more than three quarters of a century ago. Although each determinant would have an impact on a person’s intentions towards a behaviour. SN. and reemphasized many times since then in leading . two managers. a belief that managers allocating costs will increase cost consciousness) and outcome evaluations are the actor’s assessment of those consequences (e.. AB. PBC) is itself a function of an individual’s salient belief (Ajzen. This theory is diagrammed in Figure 1: Beliefs & Factual Knowledge which the individual’s behaviour would be influenced by that. Managers may hold certain beliefs and may form attitudes about cost allocation based on these beliefs. intentions to comply or resist may relate to attitudes as well as norms about these behaviours. The antecedents of attitudes include both behavioural beliefs about the action and outcome evaluations.

2008 economic and accounting journals (Bonbright.. Additionally. It has often been stated that one of the likely explanation for the prevalence of cost allocations within organization is motivation and that cost allocation could be used to motivate managers to consume less or more of the company’s resources. 1977). Despite these apprehensions. Blocher et al.78 Vilakshan. 2006 and others) and studies (Zimmermann 1979. 2002). 1997) and a higher level of managerial motivation (Morse and Zimmermann. there is growing evidence that companies do allocate costs for a variety of reasons and that there are arguably certain benefits associated with it (Modell.1 Behavioural Considerations in Cost Allocation It was in 1977 that Bodnar and Lusk (Bodnar and Lusk. Cost allocation must be done carefully because the motivational dimension present in any allocation affects financial performance (Bodnar and Lusk. Another point made by researchers was that managers must consider cost consciousness while allocating costs. Their research addressed the study of cost allocation in terms of a specific behavioural theory. 3. Since then most management accounting scholars have been guided by a behavioural perspective while examining cost allocation systems. One of the commonly cited criticism of cost allocation is its arbitrariness (Thomas. it is important to identify the behavioural dimensions before examining attitudes in cost allocations. Since cost allocation methods are components of the overall performance evaluation system. 1971). However. Managerial accounting books (Horngren et al. The literature also states that there are two basic outcomes from allocating costs: better economic decisions (Snyder and Davenport. the position that all cost allocations are necessarily arbitrary has been subject to debate. 1997) Researchers exploring the adoption of various cost allocation practices across a wide range of companies provide support for behavioural considerations in cost allocation systems. cost allocation serves as a communication mechanism to let managers know how their actions were affecting costs in the rest of the organization. March. 2005. There has been an everlasting debate about cost allocation and many arguments have been put forth to show why common costs cannot be meaningfully allocated. 2005 and others) on cost allocation have documented the widespread practice of cost allocation. Drury and El-Shishini. the economic explanation was intertwined with the statistical reason why serious problem can arise with the allocation of common costs. 1961). XIMB Journal of Management . 1977) first introduced behavioural considerations in cost allocations. There was also suggestions that the . However..

Critics of cost allocation interpret the word arbitrary to mean unfounded or without justification. proponents of cost allocation feel that it provides the right incentive for managers to make decisions that were consistent with the goals of top management (Blocher et al. 79 problem of arbitrariness has been compounded by the institutionalization of various allocation practices. This could lead to unnecessary tensions. (2003) × × × Horngren et al (2005) Drury and ElShishini (2005) Thomas (1971) Zimmermann (1979) Cost allocation can lead to optimal utilization of resources Cost allocation can lead to cost consciousness Cost allocation can lead to a high level of motivation Cost allocation is not always accurate Cost allocation causes unnecessary tension Cost allocation often leads to conflict × × × × × × × × × × × Hilton et al. In addition to arbitrariness. In spite of this. (2003) ...Pillai. However.. it has also been pointed out that poorly designed cost allocations could be the subject of disputes among departments and their constituents (Hilton et al. They argue that cost allocation could result in misleading information that causes poor decisions and therefore should be avoided (Hilton et al. A recent survey conducted in UK found that companies allocated costs to remind managers that such costs exists and to stimulate them to economize in usage of corporate services (Drury and ElShishini. Building upon the behavioural considerations. 1999). 2006). 2003).. Empirical Examination of A.. but that the adoption of more sophisticated techniques such as activitybased costing might mitigate against this (Kaplan. the literature identifies the following popular beliefs regarding cost allocation (See Table-1) Table-1: Belief variables along with the related literature) Abbas and AbdAllah (1999) Atkinson at al.. such as the prevalent use of direct labour or other volume-dependent bases for overhead allocations. many managers allocate costs to divisions and other departments.. Surveys c onduc ted around the world report that companies allocate costs for a number of reasons. 2003). 2005).

it should correspond to the behavioural intention criterion in target. XIMB Journal of Management . An attitude measure based on these beliefs is tested to determine the influence of attitudes on specific behavioural intentions. referents and control) in the TPB is the multiple dependent variable in the model. Ajzen’s theory of planned behaviour provided the conceptual basis for this study into manager’s attitude towards c ost allocation. Accordingly.0 METHODOLOGY This stu dy employs the theory of planned behaviour to identify beliefs that comprise a manager’s attitude towards cost allocation. March. 4. action. context and time (TACT) variables. 2008 The literature on cost allocation identifies two types of intentions regarding cost allocation. Ajzen and Fishbein (1980) argue that for an attitude measure to be useful at predicting behaviour. an elicitation study was conducted to confirm the identified beliefs that were salient to the target population when confronted with cost allocation. data are collected in two stages. These beliefs were incorporated into an attitude measure used in the second phase. An Elicitation study is a qualitative investigation of a subset of a population under investigation. The dependent and independent variables are shown in Figure-2. a combination of qualitative and quantitative methods is used in this study. to discover the . This group can be called non-intenders. Personal Intentions Intenders Non Intenders (to allocate (not to costs) allocate costs) beliefs and the second stage develops the attitude measure.80 Vilakshan. attitudes are examined for cost allocation keeping in mind the above argument. a procedure was used to determine the outcome beliefs that underlie manager’s attitude towards cost allocation. In this way. In the first phase. Phase One – Belief Elicitation Procedure Referents Control (Figure 2: Dependent and Independent Variables) The intention to allocate or not to allocate costs is the independent variable and each of the three constructs identified earlier (personal. The first stage identifies the In accordance with the procedures outlined by Ajzen and Fishbein (1980). The data collected is further analyzed using multiple regression. One group supports cost allocation and can be called intenders while the other group considers cost allocation arbitrary and do not want to allocate costs. in this study. For this reason.

Data for elicitation can be collected by arrangin g a foc u s grou p. . Respondents were asked to list the advantages and disadvantages of allocating costs. 1991). This study used a combination of focus groups and individual interviews to collect data for the belief elicitation study. there is a possibility that data could be biased. Respondents were from both indu stry and ac ademic background so that the focus session was effective and there was adequate representation. The sample for the elicitation study was 22. Table-2: Responses for Belief Elicitation Study Respondent source Number of Subjects (Response rate) 15 (70%) 7 (30%) 22 control beliefs for participation intentions. Careful management of the focus group sessions was required because in case of homogeneous groups.Pillai. Phase Two – Main Experiment Industry Academicians Total Respondents The responses were independently analysed by labelling the themes and listing them in order of frequency for each of the following: • • • behavioural beliefs sources of social pressure (reference individuals or groups) control belief strength The belief elicitation study consisted of an open-ended questionnaire to elicit salient behavioural.. Flexibility was ensured from the ability to explore unexpected leads that emerged from focus group discussion. 81 salient behavioural. These were explored further in the second phase during which data were collected using a questionnaire. normative and control beliefs about the behaviour (Ajzen. The value of qualitative data produced in the first phase complemented and enric hed this part of the researc h enabling deeper explanations between the variables. normative and Although the elicitation study result provides information about the belief variables. beliefs and feelings about any subject. Table-2 sh ows the responses by group. they provide little insight abou t as soc iations bet ween the attitu de and behaviou r variables. or by individual interview or by mailing questionnaires (Ajzen.. The focus groups were carefully structured into two distinct groups of intenders and non-intenders. enabling greater insights into people’s attitudes. Participants were from both in du stry and a c ademic bac kgrou nd. 1991). like the ones used in this study. Empirical Examination of A. This part of the study was conducted in conjunction with a focus group.

1989).g. The assumption is that inferences about a . other managers and staff. optimal use of resources) and the three most commonly reported disadvantage (e. Referents included top management. Respondents for this part of study were from different industries..82 Vilakshan. Questionnaires were sent to 75 managers.g. Another fifteen were not returned so the total respondents were fifty.. The response scale was a 1-5 Likert scale with extremely likely on one end and extremely unlikely on the other. Five control beliefs were further identified. Respondents were asked to list the persons who would approve or disapprove of cost allocation. The managers allocating costs formed a group (intenders) while the other group consisted of managers who did not intend to allocate costs (nonintenders). Content analysis based upon Ajzen’s Theory of Planned behaviour was performed. XIMB Journal of Management . top management) were used as a measure of normative beliefs in the main questionnaire. The sample consisted mainly of finance mangers who have handled cost allocation.. causing unnecessary tension) formed the behavioural beliefs in the main questionnaire. Table-3 provides the sample demographics. motives and beliefs can be made from the content of the communication with others. data were collected on the six outcome belief measures by two groups based on their intention to allocate costs. This technique is particularly useful for highly unstructured data. The three most frequently reported advantages of cost allocation (e. and involves categorizing communication content into its component part and quantifying it (Berg. Elicitation Study Table-3: Sample Demographics Sample Age 30 & Below 31-40 41-50 51 & Above Gender Male Female Income Below 2 lakhs 2-4 lakhs Above 4 lakhs Industry Manufacturing Service Others 50% 45% 5% 26% 54% 20% 57% 43% 25% 55% 15% 5% person’s behaviour. March. values. The most common referents (e. 2008 After identifying the belief variables and further confirming them by the belief elicitation study.g. out of which ten were returned incomplete.

participants’ responses on the behavioural items were averaged.. would result if they participated in allocating costs. identified from the elicitation study (e. Behavioural beliefs: The measure of behavioural belief comprised six behavioural belief items. Based on these findings. the belief elicitation procedure was performed in conjunction with a focus-group study. Participants were asked to rate how likely two external and three internal factors obtained from the elicitation questionnaire were to prevent them from allocating costs from extremely unlikely [1] to extremely likely [5]. The six most frequently reported barriers to allocating costs (e..Pillai. Empirical Examination of A. ranging from extremely unlikely [1] to extremely likely [5]. Control belief: The measure of control belief was obtained from six control belief items. Table-4 su mmarizes the most commonly mentioned advantages and disadvantages for c ost alloc ation.. Normative belief: The measure of normative belief was assessed by four normative items.0 RESULTS As stated previously. normative and control beliefs for intentions to perform the behaviour of allocation.g. Most belief items were positively worded with some negatively worded items included to reduce participant response bias. ‘I intend to allocate costs’) ranging from strongly disagree [1] to strongly agree [5]). Participants were asked how likely they thought four different referents. All TPB items were scored on 5-point Likert scales.. Intention: Two items were used to assess the strength of participants’ intentions to perform the target behaviour (e.. The main questionnaire assessed cost allocation intentions and measured behavioural. Respondents were asked to indicate how likely it would be that three benefits and three disadvantages obtained from the elicitation study. Participant’s scores on the control belief items were averaged to provide the indirect measure of PBC. the six belief variables identified by the literature were c onfirmed as the outc ome variables to be included in the main questionnaire.g. The participant’s scores on the normative belief items were averaged to provide an indirect measure of subjective norm. top management) would think that they should allocate costs and the answers varied from extremely unlikely [1] to extremely likely [5]. 5.g. 83 Respondents were then asked to list any factors or circumstances that might discourage or encourage them in allocating costs. . lack of awareness) formed the measure of control beliefs in the main questionnaire for the behaviour. To obtain an overall measure of attitude belief.

there was a significant multivariate effect of intentions on behavioural beliefs for cost allocation. According to Wilk’s criterion. The distributions for the behaviour was split into intenders and non-intenders. Univariate analysis revealed that intenders and non-intenders differed significantly on their assessment of positive and negative outcomes. three separate MANOVAs were performed to examine the belief-based differences between managers intending to allocate costs and those not intending to allocate. those managers who did not intend to allocate costs were more likely to feel that conflicts (4. p < . On the other hand.82) = 4. a significant multivariate effect was found between groups for . Behavioural beliefs On the basis of TPB research..84 Vilakshan. normative and control beliefs. In each analysis. As regards motivating managers. intenders (4. the dependent variables were examined at the univariate level. Three one-way multivariate analyses of vari ance (MAN O VA s) were c ondu c te d with intention s as the independent variables and the beliefbased measu res as the dependent variables. The mean beliefs for intenders and non-intenders are shown in the form of graph in Figure-3. the set of beliefs (i. 2008 Table-4 : Summary of most Frequent Responses confirmed in the Belief Elicitation Procedure Particulars Advantages Optimum resource utilization Motivates managers Promotes cost consciousness Disadvantages Is not always accurate Causes unnecessary tension Often leads to conflict 10 (45%) 7 (31%) 5 (24%) 9 (40%) 8 (36%) 5 (24%) Number of responses (%) differences between the groups. F (6. Normative beliefs The second MANOVA examined normative beliefs on allocation intentions. Wilk’s Lambdas were significant for the three MANOVAs (p<.88) felt it is an important consideration and non-intenders (4.92) and cost consciousness (4.001. To further explore the According to Wilk’s criterion. XIMB Journal of Management .58) and the inaccurate results of cost allocation (4.927.90) would result if they participated in cost allocation.e.53) would prevent them from allocating costs. Table-5 analyses examining beliefs differentiating intenders and non-intenders. March.00) considered it as not influencing cost allocation. Managers allocating costs were more likely to believe that optimum utilization of resources (4. were examined in an exploratory manner to identify those beliefs differentiating between managers intending and not intending to allocate costs. Overall.001) on measures of behavioural. behavioural beliefs. normative beliefs or control beliefs).

20 4.51 0.51 0.00 3.15 4.03 0.44 0.69 6 5 4 Intentions 3 I intend to allocate costs I do not intend to allocate costs 2 1 0 Cost consciousness Optimum use of resources Motivating managers Not always accurate Causes unnecessary tension Often results in conflict Figure 3: Graph Showing Mean Beliefs for Intenders and Non.53 4.95 0.58 2.66 4.92 4. 85 Table-5: Mean beliefs for non-intenders and intenders in allocating costs Beliefs Non-Intenders (n=50) Mean Behavioural belief Optimum resource utilization Motivating managers Promoting cost consciousness Not always accurate Causes unnecessary tension Often leads to conflict Normative belief Top management Other managers Staff Control belief Lack of awareness Inability to allocate Arbitrary Type of Industry Time restraints Intenders Intenders (n=52) SD 0.21 1.25 4.58 2.52 0.68 0..25 4.81 0.Pillai. Empirical Examination of A.99 0.88 4.41 0.50 3.25 SD 0.10 3.34 4.96 0.85 0..00 3.Intenders .70 0.25 4.04 4.70 0.08 4.71 0.50 0.50 4.80 1.41 1.50 0.63 0.95 3.30 4.49 3.86 0.33 3.90 3.83 4.77 0.44 0.88 Mean 4.83 4.84 0.50 4.85 4.

Control beliefs intenders to report that arbitrariness of cost allocation would prevent them from allocating costs.001. 166 . p < .92) = 2. a multiple regression analysis was conducted to determine which of the behavioural. the belief’s predicting intentions were not identified. the results of this study provide information regarding beliefs to target in formulating . p < .06 df 3. normative and control belief sets contributed most to the prediction of intentions.568.56. Regression analysis examining the role of beliefs in allocation intentions While the MANOVA analysis determined the beliefs that differentiated between those managers intending to and those not intending to allocate costs. The results of multiple regression analysis is shown in Table-6. as shown in Table-5. normative and control beliefs.001. March.52*** . The most important predictor of allocation intentions was behavioural beliefs. F (5.86 Vilakshan. XIMB Journal of Management .39** -. a significant multivariate effect was found between the groups for control beliefs.42 F 27. 2008 normative beliefs. Managers allocating costs were more likely to be influenced than those not allocating costs.0 DISCUSSION The aim of this researc h was to determine the beliefs differentiating managers who intended to allocate (intenders) and managers who did not intend to allocate (non-intenders). Univariate analysis revealed that intenders and non-intenders differed significantly in their perceptions of people who would influence them in allocating costs as shown in Table-5. Therefore.21 β 6. F (3. Therefore. The findings of this study suggests that intenders and non-intenders differed signific antly on measu res of behavioural.65 R2 . Nonintenders were more likely than Table-6: Multiple regression analysis predicting allocation intentions Variable Prediction of intentions Behavioural beliefs Normative beliefs Control beliefs *** denotes very strongly significant ** denotes strongly significant R .91) = 1. Finally. Univariate analysis revealed that intenders and non-intenders differed significantly on some of the control beliefs.

it should be noted that failure to allocate costs is often attributed to the fact that often managers have no control over certain costs and that they object to charges they cannot influence and control.e time restraints. However.. Thus.Pillai. a potential strategy is to encourage participation in cost allocation involving both the top management and the employees. Empirical Examination of A. For control belief.. When considering the applied implications of the findings of the present study. promoting c ost consciousness). costs can be distinguished into controllable or uncontrollable to reduce unnecessary conflicts).. results from MANOVA revealed that only few control variables distinguished between intenders and non-intenders. 87 strategies to increase allocation among those currently not intending to allocate costs in their organizations. Therefore. intenders and non-intenders differed significantly on beliefs regarding both the advantages and disadvantages of cost allocation. it may be useful to develop strategies to combat the impact of conflicts on cost allocation (e. Intenders were more likely to believe that cost allocation will result in optimum utilization of resources and at the same time promote c ost consciousness whereas non-intenders were more likely to focu s on the negative belief (causing conflict).g. if c osts are allocated in an efficient manner then . to increase participation in cost allocation. future strategies should consider the costs and benefits of cost allocation.g. 1979). Intenders were more likely to be influenced by the top management. other managers and staff while allocating costs. to shift the perceptions of managers not intending to allocate costs. For behavioural beliefs. then it is difficult to justify any reason for cost allocation. If cost allocations in an organization are unrelated to either the use of resources or influencing desired behaviour. A primary focus should be to decrease perception of the c osts (i. The findings that behavioural beliefs predicted allocation intentions suggests that. Examination of normative beliefs identified in the study revealed that different sources of perceived normative pressures were apparent. However.. Examination of control beliefs revealed a significant difference between intenders and non-intenders. non-intenders were more likely to report that lack of awareness and arbitrariness of information would prevent them from allocating costs. lac k of awareness) and inc rease the perc eived benefits of alloc ating (e. This finding is in accordance with previous research suggesting that both costs and benefits influence allocation (Zimmerman.

Cost allocation can lead to optimum utilization of resources 2. 2008 organizations can achieve the desired outcomes. 7.88 Vilakshan. Cost allocation is not always accurate 5. Cost allocation promotes cost consciousness 4. Beliefs about cost Allocation 1. Cost allocation causes unnecessary tension 6. This study uses this ability of the TPB model to identify the beliefs regarding cost allocation that distinguish between managers intending and not intending to allocate costs. XIMB Journal of Management . The manager should formulate a cost allocation system that results in optimal decision making and encourages all levels of management to make decisions that are optimal from the organizational perspective. normative and control beliefs that distinguish between individuals intending and not intending to perform a specified behaviour. Cost allocation often leads to conflict Intention with respect to Cost Allocation Behaviours with respect to Cost Allocation Attitude towards Cost Allocation I intend to A allocate costs B Influence Feedback Figure 4: Schematic Presentation of Conceptual Framework relating beliefs. The notion of beliefs and attitu des are an important consideration in constructing a cost allocation system for performance evaluation purpose. Cost allocation can motivate managers 3. intentions and behaviours with respect to Cost Allocation (Source: Adapted from Ajzen's Theory of Planned Behaviour) . attitudes.0 A MODEL FOR COST ALLOCATION A major advantage of the TPB is its ability to identify the underlying behavioural. March.

Each of these intentions relates to a certain behaviour. The core propositions of this model are derived from the theory of planned behaviou r. 89 Based on the literature reviewed and the findings which have emerged from this study. the overall affect expressed by the pattern of a person’s actions with respect to the object also corresponds to his attitude towards the objec t.0 LIMITATIONS OF STUDY AND SCOPE FOR FURTHER RESEARCH The strength of this study has already been highlighted.Pillai. Finally. 8. For instance. since a person’s attitude is assumed to be related to the total affect associated with his beliefs. The findings of the present study. It is proposed that the concepts of behavioural intentions. highlight several areas for future . However. attitudes and intentions. This study is the first effort to consider beliefs. The limitation of this study should also be kept in mind. a model for cost allocation is proposed. intentions and behaviours. Empirical Examination of A. so care should be exercised while generalizing the result. The fac tors influencing intentions and behaviour for cost allocation is illustrated in Figure-5. attitudes. The Figure-4 shows that beliefs about cost allocation leads to formation of attitude towards allocating costs which in turn leads to a set of intentions that indicates intention and non-intention to allocate costs.. intentions and behaviour in cost allocation. with the attitudes formed as a result of the beliefs. norms and perceived behaviou ral control can be adapted to the context of cost allocation. A leads to the behaviour that: “I will allocate costs as it will lead to optimum utilization of resources and a higher level of motivation which will ultimately lead to cost consciousness”. This has led to two different set of intentions popu larly assoc iated with c ost allocation systems. It is for the first time that the theory of planned behaviour has been used in cost allocation. Ajzen (1991) views attitude as leading to a set of intentions that indicate a certain amount of affect towards the object in question. the model identifies the actual behaviour which will occur as a result of the beliefs. Each of these intentions is related to a specific behaviour and thus. Ajzen (1991) and other researchers have described attitude as a learned predisposition to respond in a consistently favourable or unfavourable manner with respect to a given object. This model relates the behavioural beliefs identified earlier in this study. along with the limitations noted above. The sec o nd intention l eads to behaviour B which is :”I will not allocate costs as it will not always be accurate and causes unnecessary tension which will finally lead to conflict”..

0 CONCLUSION In conclusion. March. . XIMB Journal of Management . deficits and provide support for the use of the theory of planned behaviour model as a framework for understanding differences in underlying beliefs that distinguish between individuals who intend and do not intend to allocate costs.90 Vilakshan. 2008 Figure-5: Schematic Presentation of Conceptual Framework for the Prediction of Specific Intentions and behaviours research. the results of the present study suggests that targeting identified underlying beliefs may serve to strengthen the intentions of managers to participate in cost allocation. Overall. results of the present research highlight important knowledge. Future reseac h c an fu rther c onsider the antecedents to attitudes and behaviour and determine how they can be best targeted to improve cost allocation. Replication of this study with a greater representation of managers from across industries would improve the generaliability of findings. 9. While the focus of the present study was only on specific beliefs of cost allocation. more insights is needed into the perspectives of other beliefs which influence managers to allocate or not to allocate costs.

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productivity. Bhubaeswar. business competitiveness and economic performance. growth.Valuation of Intellectual Capital: The case of Financial Services Industry in India* Nikhil R. This paper is a preliminary attempt at measuring the value of intellectual capital of firms belonging to the financial services sector of India.com Reader. the source of competitive advantage lies in channeling the intellectual capital towards achieving the organization goals. Nayak1. the value of company was at least somewhat related to the value of its physical capital. plant and equipment (PPE) or stock and financial assets such as receivables. there is an increasing realization that knowledge represents the most important factor in creating value that underpins a firm’s value creation performance (Nonaka and Received April 19. Finance. that is 2003-2006. email: nikhilranjannayak@rediffmail. Also known as intangibles or knowledge assets. highly innovative and be able to develop proactive strategic approaches. Since it is a fact that. Institute of Business and Computer Studies. intellectual capital is being considered the hidden treasure of most businesses. These assets are distinguished from physical assets such as property. 1. Department of Business administration. email: munmunmohanty@rediffmail. Munmun Mohanty2 & B. email: bidhumishra2006@yahoo. past.0 INTRODUCTION In today’s knowledge based economy. 2. Department of Business administration. But in today’s turbulent and complex business environment where companies are required to be flexible. Mishra3 Abstract It is well understood that in today’s economy which is more knowledge based.com Assistant professor. investments and cash. Hence. . these are now increasingly becoming important factors in innovation. The data consists of information collected from the financial statements of companies over a three-year period. 2008 Research scholar. Bhubaneswar. Bhubaneswar. Revised January 10.co. B. 2007.in. what cannot be measured cannot be controlled and hence cannot be channeled. Utkal University. 3. Utkal University. In the * 1. businesses primarily invested in the tangible means of production like buildings and machines. the importance of valuing intellectual capital cannot be overemphasized.

many accounting standard setters oppose the recognition of it on balance sheets. companies that invest in intangibles may reap the benefit without any additional investment.94 Vilakshan. However. XIMB Journal of Management . Hence. That a firm is more than the sum of its equipments and tangible assets is not in doubt. available methods of intangible valuation and their pros and cons. 2.0 INTELLECTUAL CAPITAL DEFINED Intellectual capital covers a multitude of areas and economists. But how to measure the intangible part is a problem that continues to vex academics. although most companies acknowledge that intellectual capital (IC) is their most valuable asset. The fact that all the stakeholders of the organization are now interested in the value of intellectual capital has increased the importance of valuation. 2008 Takeuchi. March. We have attempted to address the difficult area of valuing the IC of the Indian companies belonging to the various financial services sectors by using a suitable methodology. under these circumstances the importance of valuation of intellectual capital can hardly be overstressed. Indeed. no further investment is needed to ship the product to yet another customer. the difficulties normally faced during the valuation of IC. economics and the practice of management. 1995). this difficulty in valuation gives rise to increased volatility of the stock prices. This intangibility of a company’s most important asset makes it extremely hard to figure out what company is really worth. the results and the summary and conclusion have been presented in the following sections. the research method with model. accountants and standard setters are yet to agree on a . The ascent of stock markets around the world driven by dotcom companies was as spectacular as the crash. measures of it are highly subjective and lack sufficient reliability. On the other hand. On one hand. They claim that even if intangible assets are identifiable. we are witnessing an era where there is a lot of investment in intangibles. M&A advisors. once the company designs a chip or writes a code for a new operating system. accountants. intellectual property lawyers and joint venture and licensing negotiators. This experience is a potent reminder of the perils of overvaluation of knowledge rich companies. The question of classifying and measuring intangible assets remains an important unresolved issue in finance. This confusion gives rise to problems of valuation in two different dimensions (Sudarsanam. Hence. Sorwar and Marr. This reflects in the phenomenal growth of market value of some knowledge driven internet companies in the second half of 1990s and the subsequent crash in 2000. 2003). Definitions of IC and its various components. thus leading to under or over valuation of a company. conventional accounting systems have no capacity to incorporate it on balance sheets. the needs of measuring IC. For example.

1994).Nayak et. captured and leveraged to produce a higher valued asset’ (Klein and Prusak. however. experience that can be put to use to create wealth’ (Stewart. however. However.. R&D. organizational capital may be too embedded within organizations to be traded separately. Often there may be a secondary market in IP. intellectual capital or knowledge in reference to a set of factors that represent sources of corporate earnings. it is necessary to understand the different components that make up for intellectual capital. However. design approaches. Intellectual capital (IC) can be described simply as knowledge that can be converted into profits. This model developed in the early 1990s. a multitude of other definitions and experts have yet to reach a consensus on a commonly accepted definition. ideas.al. 1998) ‘Knowledge that can be converted into value’ (Edvinsson. Intellectual property (IP) is a subset of IC and it comprises assets such as patents. divides IC into three parts: human capital. In this paper we use the terms intangibles. computer programmes. One of the most popular models of classifying IC is the Hubert Saint-Onge model (1996) which is largely based on Sveiby’s (1997). other intangibles such as goodwill. these two terms tend to be used differently: Intangibles is an accounting term. these terms are frequently employed indifferently and often applied to different concepts. intellectual assets and knowledge assets interchangeably. The terms Intangibles and Intellectual Capital are used to refer to the same concept.knowledge. copyrights and trademarks and its property rights are established under the law and ownership of IP may be transferred. 1996) ‘Intellectual material that has been formalized. Valuation of Intellectual . 2. structural capital and customer capital. In contrast. whereas the Intellectual Capital was coined in the human resources literature and is mainly used in this field. be transferred as part of the organization in which they are embedded. general know-how. intellectual property.1 Components of IC In order to arrive at the objective of valuing and measuring IC. For this reason it is essential to agree upon common definitions. However. our focus here is on the Intellectual Capital. During the last few decades we have witnessed an unprecedented increase in the use of the terms intangibles. There is. Their ownership may. restates customer capital as relational capital to include relationship with . information. Both are applied to non-physical sources of future economic benefits that may or may not appear in corporate financial reports. A slight variant of this model devised by Nick Bontis (1999). Intellectual capital includes or encompasses inventions.. 95 global definition. Some other definitions used in practice are : ‘Intellectual capital is the intellectual material. IC. processes and publications.

It includes the knowledge. These are discussed in greater details below and are depicted in figure-1. plus the perceptions that they hold about the company. Examples are organizational flexibility. March. experiences and abilities of people. knowhow and previous experience. tolerance for ambiguity. Networks Structural Capital 1. suppliers or R&D partners. etc. customers’ loyalty.). 8. 3. skills and experience of employees. etc. a documentation service. suppliers. Distribution relationships and agreements 4. 7. with customers. cultures. Customer loyalty and satisfaction 3. Knowledge. 2008 suppliers and other strategic partners and stakeholders. Organisational processes Databases and Software Manuals and Trademarks Laboratories and Market Intelligence Leadership Organisational learning capacity Leaseholds Franchises Licenses and patents Mineral rights Relational Capital 1. It comprises the organizational routines. negotiating capacity with financial entities. creditors. etc. etc. Human capital is defined as the knowledge that employees take with them when they leave the firm. 2. XIMB Journal of Management . Competence.96 Vilakshan. loyalty. employee flexibility. procedures. creativity. customer satisfaction. Customer relationship 2. databases. linkages with suppliers. 2. customers. legally owned by the firm under separate title. 4. the general use of Information Technologies. Examples are innovation capacity. satisfaction. learning capacity. organizational learning capacity. skills. 9. Structural capital is defined as the knowledge that stays within the firm at the end of the working day. It comprises that part of Human and Structural Capital which is involved with the company’s relations with stakeholders (investors. 6. Relational capital is defined as all resources linked to the external relationships of the firm. the existence of a knowledge centre. systems. environmental activities. commercial power. formal training and education. Figure. 5. some may be generic. Some of them may be legally protected and become Intellectual Property Rights. Some of this knowledge are unique to the individual. Examples of this category are image. 10.1 Classification of Intellectual capital INTELLECTUAL CAPITAL Human Capital 1. teamwork capacity. motivation. Relationships with other partners and other stakeholders . Training 3.

3. Alignment of IC resources with strategic vision i.0 WHY MEASURE IC? To gain a complete picture of the operational performance and value of an organisation. In order for an organisation to attain its full potential for value creation the intellectual capital components must not only be measured but also utilized effectively and efficiently (Contractor. intellectual capital can have two dimensions: the stock dimension (the stock of IC) and the flow dimension (the intellectual activities). the actual value needs to be calculated because it is not just the physical assets that are transferred but there is a cost of knowledge transfer over the years. 6. merger or acquisition of one company by the other. Valuation of Intellectual . 5. What is valuable for one company may be worthless for another. To place a value on separable intangible assets such as brands.e. The first reason is historical. This has resulted in diverse measuring systems that make comparability across companies and sectors difficult.. a static notion. 4. product and process innovation play a key role in market differentiation. public or private. Accounting rules. 97 3. This leads us to the third problem: the idiosyncratic nature of IC. for example. 2000). Creativity. patents. some intangibles are hard to measure. all aspects of the organisation must be considered. databases and technology in the event of their sale. The intangible resources of a company. In case of lawsuits involving intellectual property infringement. To influence stock prices. Young knowledge intensive organizations encounter great difficulty in attracting external financiers because of the lack of sufficiently large physical asset base and hence need to develop a way to quantify their IC so as to be able to raise finance. by making several competencies visible to current and potential customers.Nayak et.. purchase and licensing. although revised on a regular basis.al. During the sale. Finally. The specific reasons for which companies are interested in measuring intellectual capital are as follows: 1. copyrights. Second. For companies such as Sony and 3M.1 Difficulty in Valuing IC 2. were initially designed for assets such as plant or machinery – tangible things that represented a source of wealth during the industrial age. to support the implementation of a specific strategy via a general upgrading of the work with the company’s human resources. It can manifest itself in many ways. . proper value must be calculated to determine the infringement costs and penalties. is at the heart of a knowledge-generation process yet is essentially an unpredictable process with unpredictable outcomes. 3.

But investment in intangibles is treated as a cost. land and natural resources. they might be worth little unless accompanied by a strong distribution network. For accountants and accounting standard setters. such as computers. land and equipments as assets. Some of these methods are suitable to be applied with . the ‘goodwill’ line on the balance sheet provided a convenient accounting place for intangibles. a company may have good programming skills that enable it to build software. intellectual property rights (structural capital). Intangible resources can also be analysed in a dynamic sense. These dynamic activities thus imply an allocation and use of resources that are sometimes not expressed in financial terms and. This dynamic nature of IC means that its individual components are often not valuable by themselves but work only as a system. where the value of its intellectual capital is more than the sum of its individual parts. These include plant.98 Vilakshan. So as a concluding remark on the difficulty of valuing the stock and flow aspects of IC. The global transition to knowledge based economies has made this costbased accounting of assets increasingly irrelevant. consequently. Companies are undertaking activities to acquire or internally produce intangible resources. Conventional accounting treats tangibles. loyalty and commitment from its employees and a powerful brand name. “There is no correlation between how much you know and how good you are at transforming that knowledge into something useful for somebody else” (Chatzkel. XIMB Journal of Management .0 A REVIEW OF AVAILABLE IC VALUATION MODELS Conventional accounting systems were developed for manufacturing economies and measure the value of financial and physical assets. It is almost impossible to match investments and costs in one period with profits in another period. the problem with intangibles is that it is difficult to account for the rate of change. Historically. equipment. laboratories. it is the intellectual capital elements interacting that generate value for companies. Accordingly several researchers and practitioners have attempted to put a value on the intangibles of a company. But the increasing complexity of business and finance mean that this is no longer appropriate. In other words. March.tangibles that can be quantified. 4. 2002). to sustain and improve existing ones and to measure and monitor them. However.assets that are easily identifiable and can be sold for an agreed price. customer satisfaction or agreements with suppliers (relational capital) would be considered under this category. There are currently no widely accepted methods for accounting for intangible assets. Thus worker competencies (human capital). 2008 can be measured at any given time. may or may not appear in the corporate financial reports. we would like to quote Roos. This dynamic combination of intangibles is often the recipe for success in companies such as Microsoft. For example.

According to IAM. Williams and Weir.a company’s relationships with its customers and suppliers. thus enabling the design of human resource management system to follow and evaluate the consequences of various HR management principles. some other methods can be applied by using publicly available knowledge about a company. HRA supports accounting for investments in staff.a company’s organizational assets i. concepts and • . the Skandia navigator and the balanced scorecard.Nayak et. It aims at improving the management of human resources from an organizational perspective i. The most common internal measures of intellectual capital focus on budgeting. Valuation of Intellectual . the intangible asset monitor. brand names. output measurement and replacement values. Human Resource Accounting: Human resource accounting (HRA) is an accounting method that describes the management of a company’s staff (Hermanson.al.. whereas. The four most popular internal measures of intellectual capital are: Human resource accounting. However. Internal structure. 1989). competence and remuneration (Sackmann et al. 99 the help of lot of internal information about the company. We will also be discussing a newer approach to valuing IC. investments and outcomes in traditional financial statements. It attempts to improve the basis for investors’ valuation of the company.the real option based approach (Luu.1 Internal Measures Companies that have a deep understanding of the role of knowledge in their business treat it as an asset. training and human resources. The Intangible Asset Monitor: Karl-Erik Sveiby developed the intangible assets monitor (IAM) as a management tool for organizations wanting to track and valu e their intangible assets.. Accordingly we have segregated the models into the internal measures and the external measures. the intangible part of a c ompany’s balance sheet consists of three parts: • External structure. partic ularly acc ounting for the difference between market and book value. It focuses on employees’ education. The difficulties for any model of human resource evaluation include input measurement. 4.e.e. 2001). Financial value of groups. trademarks and organizational reputation or image. patents. There are four basic HRA models: Anticipated financial value of individuals to the company. processes. systems. the difficulties associated with several major human resource evaluation methods cast doubt on HRA’s accuracy. Wykes. 1964). by increasing the transparency of human resource costs. Staff replacement cost and Human resource accounting and balancing. Measuring and reporting information on their intangibles has the potential to improve their management and decision making and creates significant business opportunities.

It is designed to provide a balanced picture of financial and intellectual capital. The focus on financial results. it incorporates measures in categories similar to those of the balanc e scorecard. These involve four areas and two dimensions.e skills.and its effort to improve processes. education. renewal and development and finance. . Individual competence.the virtual binding force of customer. learning and innovation. March. internal business processes and organizational growth. customers.100 Vilakshan. customer satisfaction and business processes. are the result of human action and depend ultimately on people for their continued existence. Renewal and development focuswhat is being done to renew and develop the intellectual asset base. In addition to the skills and expertise of its workforce. motivate and educate employees and enhance its ability to learn and improve. • and administrative • • • Customer focushow the organization views its customers. The BSC translates a business’s vision and strategy into objectives and measures across four balanced perspectives namely. The BSC allows an organization to monitor its current performance. All assets and structures. process. These are: • The Balanced Scorecard: The balanced scorecard (BSC) is an organizational framework for implementing and managing a strategy at all levels of an enterprise by linking objectives. It is a structured way of communicating measu rements and targets. But it also has below the line measures of intellectual capital. and Human focus.financ ial. Process focus-key aspects of organisation’s process performance. The IAM is based on the assumption that people are an organisation’s only profit generators. experience and values. 1997). financial performance. c apital and monetary flows is complemented by a desc ription of intellectual capital and its development. 2008 computer systems. XIMB Journal of Management . it also includes the systems and processes that it has put in place to capture and exploit all the knowledge it can (Edvinsson and Malone. The Skandia Navigator: The Skandia navigator is perhaps the best known business model developed to identify intangible assets. It is used as a tool for managing. whether tangible physical products or intangibles. 1996). The navigator framework has at its top end a series of measures about financial focus.a person’s ability to act in various situations i. measuring and c ommunicating a company’s financial and non-financial information. initiatives and measures to an organisation’s vision and strategy (Kaplan and Norton. Consequently. A featu re of the navigator is its definition of intellectual capital.

Market-to Book Values: The value of intellectual capital is commonly expressed as the difference between the market value (MV) of the company. The external perspective on the gap between the MV and the BV is primarily due to the company’s future opportunities and these are currently not valued in the conventional balance sheet. 3.. independent of macroeconomic conditions such as interest rates. It uses the ratio to analyse dynamic firm behaviour. There is evidence that market value and book value are usually incorrectly stated.al. Valuation of Intellectual . Market-to-book value valuations can be affected by timing inconsistencies. It can be a useful . relationships and image. Market-to-book values.. 101 4. 2. From an internal perspective. The stock market is volatile and can react strongly to factors outside the control of management.Nayak et. By reporting on its IC. Tobin’s Q: Tobin’s Q compares a company’s market value with the replacement cost of its assets. The growing disparity between market value and book value is largely based on the intangibles of the business providing the foundation for future growth. The replacement cost of fixed assets can be calculated by adding the reported value of a company’s fixed assets to its accumulated depreciation and adjusting the result for inflation. and its book value (BV). Tobin’s Q and Calculated Intangible Value (CIV) are the most common intra industry measures. differences between MV and BV are primarily due to assets that are not currently included in the conventional balance sheets such as knowledge. The marketto-book value is limited as a tool for measuring intellectual capital for three reasons: 1. Conventional accounting practices incorporate this difference as goodwill on the balance sheets. calculated by the market capitalization of the firm. a company can give itself a market advantage. Market value is determined and revised constantly whereas book values are only updated periodically. Recent acquisitions show that price paid for an acquired company is invariably higher than its book value. The largest disparity occurs in high-tech and knowledge-intensive industries where investment is heavily concentrated in intangible assets such as R&D and brands. The development of measurement and reporting models enables comparisons to be made between firms in the same industry. attract investment capital more easily and improve its stock price by giving market and potential customers a more accurate picture of its assets.2 External Measures The growing influence of intangibles in company performance is perceived as a major factor in explaining the exceptionally large differences between the market and book values currently seen in our capital markets. also known as equity value.

It can help assess whether an organization is fading or indicate value not reflected in traditional financial measures or whether the company is generating the capacity to produce wealth in the future. expand or abandon investment. defer. but not the obligation. 2008 measure of IC because it can reflect the value market places on assets which are not typically reported in conventional balance sheets. these indicators can act as performance benchmarks and be used to improve a company’s internal management or corporate strategy.102 Vilakshan. A real option is an option that is based on nonfinancial assets. businesses can discipline their investment decisions and align them with the investment decisions of the market. with similar tangible assets. It relies on averages to determine value and this means that it lacks the precision provided by balance sheet numbers. can be used as a benchmarking tool. supplying the same markets. to buy or sell an underlying asset at a fixed price for a predetermined period of time. as such. By making intra-industry comparisons between a firm’s primary competitors. By drawing on financial market techniques.3 Real Option Based Approach A real option is a recent approach which uses the methodology and the theory of financial options to value intangible assets. When the ratios of a company fall over time. Deciding on how . it is a good indicator that a firm’s intangible assets are depreciating. Unlike the previous methods. It assigns a value to intangible assets by comparing the firm’s performance with an average business competitor with similar tangible assets. This approach is similar to that used to evaluate brand equity. the real option provides an approach which values the opportunities arising from intellectual capital. An advantage of CIV approach is that it allows firm-tofirm comparisons using audited financial data and. They are best suited to comparing the value of intangible assets of firms within the same industry. Real options can be applied to determine the value to proceed. XIMB Journal of Management . this method has several limitations. benchmarks and information. March. Tobin’s Q and market-to-book ratios are most revealing when like companies are compared over several years. However. A financial option is the right. Calculated Intangible Value: Calculated intangible value (CIV) is a model for calculating a fair dollar value for intangible assets. 4. over a number of years. It might tell investors that a particular company is not managing its intangible assets effectively and lead them to adjust their investment portfolios towards companies with climbing or stable Qs. It is also applicable to only those industries or sectors that are not dominated by a small number of companies. The information provided by these ratios facilitates internal benchmarking and enables the organization to track its progress in an area it defines as integral to its success.

The use of real options presents two fundamental problems: one of quantifying real option value and the second one is of persuading an organization to change the way it traditionally thinks about valuation and investment. These methods are suitable for our purpose since it needs the audited financial statement and share price data of the respective companies. The market-tobook value method has a major limitation that since market value is stock market dependent. for which market information is readily available. translates to the valuation of opportunities. The real option approach is still in its infancy and there are limits to its usefulness. The problem with the internal measures is that. or the kind of R&D to invest in. real option pricing is often too complex to be worthwhile for minor decisions.. The measurer has to be very closely associated with the company to understand the internal dynamics and the way the components interact in the organization. This is largely a result of their ability to link the future value of their assets to traded commodities. its tends to fluctuate to factors that are outside the control of the management and hence is very volatile. despite the attractiveness of this method. Substantial difficulties remain in valuing non-financial assets accurately at the firm level. Companies with new technologies. 103 much to spend on R&D.Nayak et. Tobin’s Q is quite similar to the marketto-book value method with the only . which are readily and publicly available. Determining the value of real options remains an inexact science. or access to potential new markets own valuable opportunities. The only reliable way to finding a similar option is to construct one. 5. There is not a single model that is free of problems normally faced during valuing the IC. For some companies. The challenge for the companies is converting opportunity to reality. there are significant drawbacks. which can be used against them by their competitors. Furthermore. As most business opportunities are unique. opportunities are the most valuable things they own. the likelihood of finding the similar option is low.al. However.. For the investor the challenge is to quantify the opportunity. That leaves us with the external measures of IC valuation. to value the IC of a company a lot of internal information has to be collected about a company. product development ideas. defensible positions in fast growing markets. This proves to be difficult since most of the people have reservations regarding sharing intimate details of their organization. The problem of real options has been discussed in details in the previous sections and hence has been overlooked as a possible research method. Valuation of Intellectual . Natural resources companies have been the early experimenters in the use of real options. 0 RESEARCH METHOD A discussion of the available models for valuation of IC reveals that all the models have inherent advantages and limitations.

For the sake of simplicity the same percentage (10 %) has been used for all the industries. The value is a measure of company’s ability to use its IC to succeed better than the other companies within the industry. 4. 5. 1997). Hence the availability of genuine data has motivated us to pick the CIV method as our model of IC valuation. That leaves the calculated intangible value (CIV) method as the only suitable tool that can be easily applied by someone external to the company without company specific (internal) information. The CIV of a company can be calculated as follows: 1. 2008 difference that instead of book value. Subtract the excess return from the pretax earnings from Step (a) i. Deduct the result from the excess return. That is to say by utilizing tangible assets. According to RBI the service industry is divided into the finance sector and the other sector.1 Calculated Intangible Value (CIV) 3. However the calculation of replacement cost of assets is a very tedious job. This method is very useful since it readily lends itself to comparison across the companies in an industry. 6. Calculate the net present value (NPV) of the after-tax excess return by using the company’s cost of capital as a discount rate.2 Data 2. March. CIV is designed for valuing a company’s IC. The result of executing the seven step calculation is the calculated intangible value (CIV). The data covers the entire Indian financial services sector. a company can reach only an average level of earnings whereas the premium is generated by the IC. the earnings greater than the average companies within the industry. e. Calculate the average year-end tangible assets of the company for the past three years (b). 5. Calculate excess ROA by multiplying the industry average ROA by the average tangible assets (b). It was originally developed for increasing the interest of lenders towards knowledge-intensive business in which majority of assets consists of intangible ones (Stewart. 7. Calculate the company’s return on assets (ROA) denoted as ‘c’ as follows c = a / b Calculate the industry average ROA (d) for the same three-year period as in Step 3. In the financial service sector we have selected the Banking services (134 . the replacement cost of assets is considered. XIMB Journal of Management . The method is based on the assumption that a company’s premium earnings i. Calculate the Company’s average pretax earnings for the past three years (a). 5.104 Vilakshan.e. result from the company’s IC. excess return =a – (d * b) Calculate the three-year average corporate tax rate and multiply by the excess return.

Mumbai district central Co-operative bank Ltd. Henc e we have tried to calculate the relative value of IC by dividing the value of IC by the value of tangible assets (TA) and are presented in the last column of table1.1 Banking Services The CMIE database lists a total of 134 companies in banking sector. leading among them are South Indian Cooperative bank Ltd. 6. it is a method which depends upon the industry average ROI and only those firms that have higher ROI than the industry ROI are eligible for this method.7 Crores) and Allahabad Bank (8823. The CIV only represents an absolute amount and it does not take into account the size (balance sheet value) of the company. only 53 banks were found to have a higher ROI than the industry average ROI.38 percent. 105 banks). This . In fact the highest CIV have been reported in case of all public sector banks which do not have astoundingly high ROI. However. These banks and their corresponding ROI and CIV are listed in Table-1. There are six banks which have RO I in exc ess of 100.Nayak et. none of these are the big and popular banks.. Model Co-operative bank Ltd and City Cooperative bank Ltd.0 RESULTS AND ANALYSIS includes both government and private banks. Hence. We will discuss each of the sectors separately and compare the firms within each sector to find out which company has the highest value of IC. The highest CIV is reported in c ase of State Bank of India (Rs. This shows As we have already discussed in the calculation of CIV.al. in this filtering process a good number of companies have been eliminated from ou r orig inal data set of 1223 companies. It can be seen from the above table that the highest ROI have been reported by mostly the co-operative banks. The pe riod for which data has been collected covers a three year period from March 2003 to March 2006. Financial institutions (37 companies).8 Crores). A look at the third column of table reflects that the ones having very high ROI have very low CIV.. However. The industry ROI of the banking sector was found to be 37. 6. The financial information of the said c ompani es and the i ndu stry classification has been obtained from the PROWESS database compiled by the Cent er for Monitorin g Indian Ec onomy (CMIE). Valuation of Intellectual .13572. The focus is to find out the IC of all these companies and also find out which companies in a particular sector has been able to create more value as compared to the average ones. N on-banking finance corporations (270 companies) and the Sec urity houses and Stock brokers segment (782 companies) as our data set.21 Crores) followed by Canara Bank (17189.

26317 0.5526 281.7678 982. Federal Bank Ltd. City Co-Op.526699 2.87 53.7199 175.86 39.127 337.99 57.39652 0. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Company Name Allahabad Bank Andhra Bank Bank Of Baroda Bank Of India Bank Of Madura Ltd. The banks having the highest CIV have reported average CIV to TA ratio of about 2.5 79.86916 3.54 71.88 94. City Union Bank Ltd.236408 3.395821 1.513 3210.68279 1774. 2008 that the banks reporting the higher ROI are also the ones having highest CIV to TA ratio.996 5910.2527 26. Corporation Bank Deccan Merchants Co-Op.1 43.722939 0. Dena Bank Dhanalakshmi Bank Ltd.66 54. Canara Bank Catholic Syrian Bank Ltd.7 733.666 1146.0522 143. Indian Overseas Bank Jain Sahakari Bank Ltd. No.51328 876.7 39.334828 0. Janakalyan Sahakari Bank Ltd.73 43.871595 1.28205 1.0657 2. highest ROI.17 915.71 56.802 3073.16 58.05285 0. Bank Ltd. [Merged] Bank Of Maharashtra Bank Of Rajasthan Ltd.84 58. XIMB Journal of Management .3506 17189. The highest ratio is reported in case of South Indian Co-operative bank which incidentally also had the Table-1: CIV of banking companies Sl.845 120.924541 . ROI 87.3616 CIV / TA 2. Bharat Co-Op.106 Vilakshan.11847 0.21 83.09 109.3686 2553. Bank Ltd.0805 47.09 63. Citizen credit Co-Op.872224 0.853989 1.672715 0. indicating that their IC twice as much as that of the physical assets of the company.969118 0. H D F C Bank Ltd.6 47.039227 1.12 40.18 54.6009 454. March.091856 0.24 CIV 8823.804 19. Janata Sahakari Bank Ltd.68 68.97 81.534 418.29 55.25 67. Bank (Mumbai) Ltd.647004 2.33404 0.629467 2. Karur Vysya Bank Ltd.9875 7531. Bank Ltd.212 10.827279 0.

107 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 Lakshmi Vilas Bank Ltd..843941 0.2736 29.39 66. Bank Ltd.01 71. Oriental Bank Of Commerce Patan Co-Operative Bank Ltd.73242 10. State Bank Of India State Bank Of Indore State Bank Of Mysore State Bank Of Travancore Syndicate Bank Tamilnadu Mercantile Bank Ltd.260033 0.55635 0.24 110.0038 7379.831668 1.57 44.08 55.217953 0.178798 32. Bank Ltd.86415 2.33 91. Maratha Sahakari Bank Ltd.103 179.34 236.422848 0.91814 2028.06 62. Vijaya Bank Zoroastrian Co-Op.521351 1.2236 484.88 160.312344 0. Veerashaiva Co-Op.05 45. Bank Ltd.14 52.08 65. Bank Ltd.43 59.485926 4.48254 0.344808 3.649813 1.212163 3.912 215.047077 7.477 42.926463 .9767 2176.69 48. Sangli Bank Ltd. Shree Suvarna Sahakari Bank Ltd.63 57. Mahanagar Co-Op.57 46.2063 0.1767 5387.42292 202.33285 1.7 75.357088 0.36047 13572. South Indian Co-Op. U T I Bank Ltd.7 59.661 666.17 46.48 88.Nayak et.86 68.788 705.9271 1455. Mumbai District Central Co-Op.01 111.9972 32.al.435 1673.23872 30.821664 1.54 46.906 4.418881 1.54318 0.8464 2701.21 960.44 128. Bank Ltd.968773 1.424722 0.159613 0.681 6326. Model Co-Op.102665 1.8 55.02 96 74.45 54.1907 870.197485 4. Pinakini Grameena Bank Punjab & Maharashtra Co-Op Bank Ltd. Punjab & Sind Bank Ratnakar Bank Ltd.. Bank Ltd.6837 293.14059 48.95 65.391216 5. Uco Bank United Western Bank Ltd.485049 1. Valuation of Intellectual . N K G S B Co-Op.58 65.8154 276.1522 3536. South Indian Bank Ltd. Bank Ltd. Shamrao Vithal Co-Op. Bank Ltd. 43.

6.2 Financial Institutions There were originally 37 firms in this sector and the industry average ROI was calculated to be 9. XIMB Journal of Management . March. These firms and their corresponding values are presented in Table-2.4 Security Houses and Stock Brokers According to CMIE there are 270 firms in this sector and the industry ROI was calculated to be 11. 1 2 3 4 5 6 7 Company Name firms were found to be having higher ROI than the industry average.105279 0.07126 Andhra Pradesh State Financial Corporation.17792 A perusal of Table-2 reveals that all the firms have ROI in the similar range unlike the banking sector where there were many extreme values of ROI. The highest CIV has been reported in case of HUDCO followed by Power finance Corporation and Indian railway finance Corporation.22 97.55 1155. (699.09 10.062284 0.22813 0.108 Vilakshan.58 percent.301 356.17 11.9523 1893.65 Crores) followed closely by Reliance Capital Ltd.733 658. 2008 6.31 Percent) is also showing the highest CIV/ TA ratio (1. Karnataka State Financial Corporation.58 percent. (30.2568 131. Power Finance Corporation Ltd. The CIV to TA ratio is highest in case of Karnataka state financial Corporation.091001 0. 11.4231 CIV / TA 0. The table reflects that the highest CIV is reflected in case of Ashok Leyland Finance (714. Again the same peculiarity in case of CIV to TA ratio has been observed here i.43 11. Rural Electrification Corporation Ltd. Tamil Nadu Power Finance & Infrastructure Development Corporation Ltd. Housing & Urban Development Corporation Ltd.3 Non-Banking Finance Corporations (NBFC) industry ROI and these are presented in Table-3.069658 0. which also reported highest ROI in the segment. Dhandapani Finance Ltd. the firm reporting highest ROI in the group..e.25).6 11. There are only 11 firms reporting higher than There is a whooping 782 firms listed in this sector in the CMIE database and the industry ROI was calculated to be a very .54 CIV 98.53 13. No.79587 2100.02926 0. Only eight Table.86 10. 6.2: CIV of Financial Institutions Sl. Indian Railway Finance Corporation Ltd.89 Crores). 8 Tourism Finance Corporation Of India Ltd.287327 0. ROI 11.

[Merged] ROI 20.044205 modest 8. Magma Leasing Ltd.5 Crores) having a ROI of 30 percent.218162 1. Tata Finance Ltd.09 14. 1 2 3 4 5 6 7 8 9 Company Name Arihant Capital Markets Ltd.13536 64.47029 4.3884 134.9067 92.303397 Table -4: CIV of Security Houses and Stock Brokers Sl.5741 452. Manappuram General Finance & Leasing Ltd. S R E I Infrastructure Finance Ltd.83 146.52 29.800134 4.22 20. Emkay Share & Stock Brokers Ltd.46 15.221084 0. Shriram Investments Ltd.83 Crores) having a ROI of 50.59361 0.07513 CIV / TA 0. Networth Stock Broking Ltd.315332 0.356168 0.184752 582.61 61. Table-4 reveals that the highest CIV is reported by DSP Merrill Lynch (Rs.6797 699.12 19.68 19. Dhandapani Finance Ltd. J R G Securities Ltd. ROI 32.Nayak et.64 percent. [Merged] Bajaj Auto Finance Ltd.6426 15.31 17.9 CIV 714.75 13. Reliance Capital Ltd. Valuation of Intellectual .481187 0.591952 20.. This means that the industry is dominated by few players and the average is affected by the extreme values of ROI. D S P Merrill Lynch Ltd.66 16.3285 3.5 11.209262 0.53375 36.003516 0.8949 143.4622 CIV / TA 1. Indbank Merchant Banking Services Ltd.166788 0. Ltd.65 185.9 percent followed by SBI capital markets (Rs.362945 1.99 CIV 9.22 15. 1 2 3 4 5 6 7 8 9 10 11 Company Name Ashok Leyland Finance Ltd.No.458928 0. Mafatlal Finance Co.32 25. After analysis it was found that only 9 firms have higher ROI than the industry ROI. B L B Ltd. S B I Capital Markets Ltd. N P R Finance Ltd.27 17. Ltd.48863 1554.9769 13.308325 0. The highest ROI is reported in .al. [Merged] Shriram Transport Finance Co..208757 0.11 18.76 50.1698 35.257081 0.808838 2.270478 2.3215 349.9 86.582. No.15 30.1554. 109 Table-3: CIV of NBFCs Sl.373738 0.

110 Vilakshan, XIMB Journal of Management ; March, 2008

case of Emkay Share and Stock Brokers at 86.75 percent and also has the highest CIV to TA ratio at 4. After observing the peculiarity of the behavior of ROI in relation to the CIV and CIV/TA ratio, we decided to run the correlation test on both the series. The results are presented in Table-5.
Table-5: The Coefficients of Correlation
Sector Correlation between ROI and CIV -0.026 -0.314 0.011 0.25 Correlation between ROI and CIV/TA 0.86 0.81 0.89 0.97

Hence they are segregated in the correlation test. The firms adding value due to higher earnings are showing high CIV and low correlation to ROI. The firms showing high ROI due to low tangible assets are not adding value as evident from their low values of CIV and hence high correlation to CIV to TA ratio.

Banking Financial Institutions NBFC Security Houses and Stock Brokers

It is quite apparent from the table that firms have a very low correlation between their ROI and their IC value, meaning that a firm having high ROI does not necessarily have high value of intellectual capital, Whereas, firms are showing very high correlation between ROI and CIV to TA ratio. The reason is obvious. The higher ROI reported by firms can be assigned to either higher pre-tax earnings or lower tangible assets. The firms having higher ROI due to the first reason are considered to be creating value whereas; the same is not necessarily true for the second reason.

The CIV method has a lot of practical utility because the data needed for calculation is readily found from the financ ial statement of a c ompany. However, this can sometimes act as a double edged sword. On the one hand, data are relatively easy to access and the results of different organizations are comparable with each other at least within the same industry. On the other hand, the financial statement is not nec essarily the best sou rc e of information regarding the valuation of IC due to the fact that only a minor part of IC is inclu ded in the financial statement. In addition, the CIV also suffers from the limitations like it uses average industry ROA as a basis of determining excess return. By nature, average values su ffer from outlier problems and could result in excessively high or low ROA. However, CIV is a quantitative method, which gives some kind of estimate of the monetary value of IC (Antola et al., 2005). There is not much of evidence about utilizing CIV in practice. Stewart (1995) has

Nayak et.al, Valuation of Intellectual ... 111

calculated the value of Merck’s IC ($1.1 billion). In the present study, we have tried to put a monetary value on the intellectual capital of an organization. We have considered the Indian Financial Services Sector as our data set. The sectors that we have selected for our study are the banking service, the financial institutions, the non-banking finance corporations and the security houses and stock brokers. We have used the calculated intangible value method (CIV) for valuing the IC. It was seen that the firms having highest ROI were not the ones having the highest CIV. The reason is simple. ROI is a ratio that is dependent on tangible assets and earnings of a company. The company’s tangible assets do not affect the intellectual value of the company.
Antola, J., Kujansivu, P., Lonnqvist, A. (2005), Management Accounting for Intellectual Capital. Proceedings of the 7 th Conference on Manufacturing Accounting Research, May30 – June 1, Finland Bontis, N. (1999), “Managing Organisational Knowledge by Diagnosing Intellectual Capital: Framing and Advancing the State of the Field”, International journal of Technology Management, Vol.18, No.5/6/7/8. Chazkel, J. (2002), “A Conversation With Goran Roos”, Journal of Intellectual Capital, Vol. 3, No. 2 Contractor, F. J. (2000), “Valuing Corporate Knowledge and Intangible Assets”: Some

General Principles, Knowledge and Process Management, Vo. 7, No. 4, pp. 242-255. Edvinsson, L. (1996), Skandia, Pat Sullivan, European Management Journal, Vol. 14. Edvinsson, L. and Malone, M. S. (1997), “Intellectual Capital: Realizing your Company’s True Value by Finding its Hidden Brainpower”, Harper Business Press, New York. Hermanson, R. (1964), “Accounting for Human Assets,” Bureau of Business and Economic Research, Occasional paper No.14, Michigan State University. Kaplan, R.S. and Norton, D. P. (1996) “The Balanced Scorecard: Translating Strategy into Action,” Boston: Harvard Business School Press. Klein, D.A. and Prusak, L. (1994), “Characterizing intellectual capital,” Working Paper, center for Business innovation, Ernst and Young LLP, March. Luu, N., Wykes, J., Williams, P. and Weir, T., (2001), “Invisible Value: The Case for Measuring and Reporting Intellectual Capital,” ISR New Economy Issues, Paper no. 1, July. Nonaka, I. and Takeuchi, H. (1995), “The Knowledge creating Compay,” Oxford University press, New-York. Roberts, H. (1999) “The Control of Intangibles in the Knowledge-intensive Firm.” Paper presented to the 22nd Annual Congress of the European Accounting Association, Bordeaux. Roberts, H. (2000) “Classification of intellectual capital.” In: J.E. Gröjer and H Stolowy (Eds) Classification of Intangibles. Groupe HEC, Jouyen Josas, France, pp. 197-205.

112 Vilakshan, XIMB Journal of Management ; March, 2008

Sackmann, S., Flamholtz, E. and Bullen, M. (1989), “Human Resource Accounting: A State-ofthe-Art Review,” Journal of Accounting Literature, No.8, pp.328-340. Saint-Onge, H. (1996), “Tacit Knowledge: the Key to the Strategic Alignment of Intellectual capital”, Strategy and leadership, April. Stewart, T.A. (1995), “Trying to Grasp the Intagible”, Fortune, Vol. 132, Issue 7. Stewart, T.A. (1997), “Intellectual Capital: The New Wealth of Organisations,” Doubleday, New York.

Stewart, T.A. (1998), “Intellectual Capital Vs. Knowledge Management”, Presentation at the DCI Knowledge Management Conference, Boston, June. Sudarsanam, S., Sorwar, G. and Marr, B. (2003), “Valuation of Intellectual Capital and Real option Models,” Paper presented to PMA Intellectual Capital Symposium, October, Cranfield University. Sveiby, K. E. (1997), “The New Organisational Wealth: Managing and Measuring knowledge based Assets,” Berrett -Koehler: New York

Measuring Technical Efficiency of Coal Mines using Data Envelopment Analysis – A Case Study of Mahanadi Coal Field Ltd.*
Sreekumar1, Rohita Kumar Mishra2 & Debendra Kumar Mahalik3

Abstract Coal Industry in India plays a significant role for socio-economic growth and industrial development, as power generation in the country is mostly through coal. The extraction of coal from the coal mines depends upon the peoples and technology involved in that particular site. The quality of the coal not only depends upon the nature but also the efficient utilization of people, process and technology. This paper attempts to examine the efficiency of various collieries of a leading Government owned Indian Coal Company - Mahanadi Coal Field Ltd (MCL). The data collected shows that there is no significant difference between both input and output factors over the periods considered. A non-parametric method called Data Envelopment Analysis is used for calculating the efficiency score of collieries or decision making units (DMUs). Two scale of assumptions CRS (Constant Return to Scale) and VRS (Variable Return to Scale) of DEA are used to compare the relative efficiency of collieries. The results obtained through application of DEA shows that many of the DMUs are performing consistently over the periods considered.


India’s gross domestic product rising at 9 percent this year reflects the good economic health of the country. This growing economy has to be supported by continuous supply of energy. The per capita energy consumption in India remains low in comparison to countries
* 1. 2. 3.

like the United States and China. But India, the world’s fifth biggest energy consumer, is projected to surpass Japan and Russia to take the third place by 2030. [1] This situation will lead to continuous and growing reliance on fossil fuel – coal and greater energy imports. In India, generally half of the energy is produced

Received March 19, 2007; Revised December 24, 2007 Associate Professor, Rourkela Institute of Management Studies, Rourkela, email: sreekumar42003@yahoo.com Assistant Professor, Institute of Management and Information Science, Bhuabneswar, email: rohitkmishra@rediffmail.com Lecturer, Department of Business Administration, Sambalpur University, Burla, Sambalpur, email:debendramahalik1@dataone.in

The regulatory framework for this industry was conceived in 1923. since it was considered of strategic importance for rapid industrial development. is presented and explained. while there is not much of difference in recoverable coal reserves between two countries. Mahanadi Coal Field Ltd (MCL). The slack analysis is also done for better insight. India and China. Power generation accounts for most of the coal consumed in India. Besides.2 Kilograms The Table-1 shows clearly a wide gap between the coal production and consumption between the two countries. The Government is encouraging industries to switch over from coal based power generation to natural gas based power generation. coal price being lower than the equivalent natural petroleum product prices. XIMB Journal of Management . such as high ash. First. but such switch over is India is the third largest producer of coal in the world. the use of beneficiated coal has gained acceptance in steel plants.214.7 million short tons 2. The Brookings report estimates that India’s coal reserves could run out in forty years. After that it elucidates. how the DEA approach can be used to measure efficiency of individual collieries.114 Vilakshan. Indian coal industry shall continue and operate.156.4 million short tons per year 2.2 million short tons 403.0 INDIAN COAL INDUSTRY AN OVERVIEW Source: Forbes magazine. the Indian government nationalised the coal industry. with heavy industry a distant second. 2008 through coal. This paper attempts to evaluate the efficiency of twelve collieries of government owned coal company.903. 2006 1 Short ton = 907. Coal India Ltd (CIL) was . pollution and low efficiency.062. March. 2.4 million short tons per year India 101. In 1972-73. but such continuance has to be more efficient with improved quality and through adoption of latest available technology. a brief overview of Indian coal Industry and MCL is presented and then the method. The paper is organized as follows. The use of coal accounts for a number of problems. Beside power generation. The following table shows a comparison between two countries. Table-1: Comparison of India and China on coal production and consumption China Recoverable Coal Reserves Coal Production Coal Consumption 126. Nov. A nonparametric method called Data Envelopment Analysis (DEA) is used to measure the efficiency of each colliery. DEA. Coal mining in India dates back to the 18th century. whose industrial development is powered by energy consumption [2].6 million short tons per year happening at a slow pace due to the hindrance of reliable supply from overseas and the presence of India’s own natural gas field under deep seas.1 million short tons per year 430. primarily to develop the sector.

Gr. It is engaged in mining of coal from a total of 495 working coal mines which account for nearly 88 percent of total production [3]. in Orissa. C LF..1. The earliest coal mining started in 1909 by private parties. In India coal is used for power generation to meet the industry and domestic needs.4 37. Table-2: Demand and Availability of coal in India Demand Year Steel Electricity Cement Others Total Availability Availability Imports (From Existing Coal Companies) 298 371 443 530 10 19 19 Gap 1997-98 2001-02 2006-07 2009-10 41. In the year 1973. The coal demand and availability over a period of time is shown in Table-2 below [4]. Mahanadi Coalfields Ltd.48% (62. In the year 1992 it came under Mahanadi Coalfields Limited (MCL) having headquarters (HQ) at Sambalpur in Orissa. 115 incorporated as a holding company for seven coal producing subsidiaries and a focused institute for planning and design.0 287.F at Talcher field and IB field. at present.2 21.31 million tonnes per year (MTY) of coal. E & Gr. 2.6 68. The estimated share in the reserve is around 24.1 Mahanadi Coal Field Ltd (MCL) The state of Orissa has two coalfields viz. Measuring Technical Efficiency.92 crore and out of this 16 (capacity =43. Gr. This is expected to go up to 140000 MW by 2009-10.49 crore.00 Billion Tonnes) of total of 253.4 51. The coal based electricity generation capacity sharply increased from 8000 MW in 1970 to 51000 MW in 1995. B LF.23 MTY) have been completed with a sanctioned capital investment of Rs.al. the country faces an average energy shortage of about 15% and peak shortage of 30%. Gr. The coal discovered goes back to the year 1900. D LF..78 51.0 222.2006[5]. it came under South Eastern Coalfields Limited (SECL). There are 33 sanctioned mining projects in MCL with a capacity of 103.0 323. produces non-cooking coal of Gr.0 41. MCL put sustained . IB and Talcher under MCL. after nationalization of Coal Industry it became part of Western Coalfields Limited (WCL). However. 1714.2 563 690 10 22 101 160 All data are in Million Tonnes The wide projected gap in the coming years call for efficient use of coals in the years to come. Then in the year 1986. For marketing of their products.8 500.30 billion tonnes of coal reserves as estimated by GSI as on 1.4 85.0 18.38 412. The total capital outlay of 33 projects is Rs 3436.Sreekumar et.

Despotis. are quality. It has been seen that during the last three years the company has shown growing PAT (Profit after tax). 2008 efforts and customer satisfaction is given top priority. then other DMUs should . Taluri (2000). 1978). Ramanathan (2001). " A" . is capable of producing Y ( A) units of output with X (A) inputs. A score of unity indicates technical efficiency and any score less than unity indicates technical inefficiency. generally referred as decision-making unit. The three factors. Debreu and Farrell defined technical The application of Data Envelopment Analysis (DEA) was initiated after the seminal work by Charnes. Tamil Nadu Electricity Board. each of them consuming similar inputs to varying level to produce. and a sound financial health. A fundamental assumption behind this method is that if a given DMU. But this approach fails to give information regarding the degree of inefficiency of an inefficient DMU. March. This concept was reformulated as a mathematical programming problem called Data Envelopment Analysis (Charnes. then other DMUs shall also be able to do the same if they were to operate efficiently. we can consider number of DMUs. Maharastra Electricity Board and West Bengal Power Development Corporation Ltd. 4. In DEA. The major customers at present are: Orissa Power Generation Corporation. Similarly. Koopmans (1951) defines a decision making unit as technically efficient if – (i)an increase in any output requires a reduction in atleast one other output or an increase in at least one input (ii) reduction in any input requires an increase in at least one other input or else it results in a reduction of atleast one ouput. which are taken care. XIMB Journal of Management . Cooper. Charnes and Cooper (1984). Dimitris and Smirlis. quantity and size of coal.0 DATA ENVELOPMENT ANALYSIS Modern efficiency measurement began with Farrell (1957) who drew upon the work of Debru (1951) and Koopmans (1951) to define a simple measure of firm efficiency. DEA can be used to evaluate the efficiency of a number of producers. (2002) and Seiford and Thrall (1990). and Rhodes (1978) and subsequent evidence can be found in Banker. which account for multiple inputs. which is better than the comparison with average of the group. 3. DEA compares each producer with only the “best” DMU in the group. Farrell (1957) took motivation from the definition put forward by Koopmans (1951) and treated technical efficiency relative to best practices in the group under consideration. Debreu addressed this issue. This definition is not sufficient to determine the absolute efficiency frontier (Sahoo and Mohapatra.0 CONCEPTS OF TECHNICAL EFFICIENCY efficiency as one minus maximum feasible equiproportionate reduction in all inputs that still allows the continued production of given outputs. 2001). if DMU B is capable of producing Y (B ) units of output with X (B) inputs.116 Vilakshan. Cooper and Rhodes.

Measuring Technical Efficiency. DMUs A ..... i u = (u1 . 117 also be capable of the same... .. Rhodes 1978)... n} s = Number of outputs {r = 1... vi ≥ 0 ∀ r .. n ur . .. v) = ∑u y r =1 m r s rj 0 ∑v x i =1 i ij 0 . virtual producer with composite inputs and composite outputs. The emphasis of DEA is on finding the “best” virtual producer for each real producer. Cooper... we use the following parameters and variables: n = Number of DMU { j = 1. v m ) the weights given to the s outputs and to the m inputs. i This model is called CCR output maximization DEA model (Charnes... .2.2. If the virtual producer is better than the original producer by either making more output with the same input or making the same output with less input then the original producer is inefficient To develop the DEA model we define the following notations. . u 2 . The fractional program (1) can be reduced to Linear Programming Problem (LPP) as follows: To develop the DEA model.Sreekumar et. m} y rj = Quantity of r th output of j th DMU max h j0 = ∑ u r y rj0 r =1 s subject to s m ∑v x i =1 m i ij 0 =1 (2) x ij = Quantity of i th input of j th DMU ur = weight of output vi = weight of input DEA Model ∑ u r y rj − ∑ vi x ij ≤ 0 r =1 i =1 j = 1. v 2 . s} m = Number of inputs {i = 1. The routine computation of DEA can be performed using generalized LP software or specialized DEA software... u s ) (1) The decision variables are respectively and v = (v1 . . n ur .. The non-computational aspects are also important in the application procedure of DEA. and others can then be combined to form a composite producer i...al..2.. B ....e. for one unit at a time...2. u r .... Notations subject to ∑u r =1 s r y rj − ∑ v i x ij ≤ 0 i =1 m j = 1. the model is solved n times. The relative efficiency score of j 0 DMU is given by max h j 0 (u . v i .2. To obtain the relative efficiencies of all the units. . vi ≥ 0 ∀ r .

Lajkura. Lingaraj OCP. or any other outcomes obtained as a result of the processing of resources can be taken as output. The inputs and outputs taken along with notations are shown in Table -3. The criteria of selection of inputs and outputs are quite subjective.3: The inputs and outputs taken and notations Input for j th DMU Output for j th DMU u1 : earning per man shift ( Rs. orchard. The number of DMUs to be selected depends on the objective of the DEA study. March.118 Vilakshan. pisciculture etc.2 Input-Output Definition Descriptive Analysis and According to Ramanathan (2003). Nandira. The thumb rule to find the number of DMUs is that the number of DMUs shall be larger than the product of number of inputs and number of outputs. Bharatpur. To achieve this. 5. any factor. Deulbera. which describes the amount of goods. inputs and outputs. Table.) u2 : electricity consumption ( LKWH ) v1 : net reliazablesales price per tonne( Rs. 2008 5. By homogeneity we mean the DMUs must have same objectives and perform the same task. In general any factor used as the resou rc es by the DMUs for producing something of value and also. XIMB Journal of Management . Lilari. Lakhanpur. We have taken data from twelve collieries and used DEA to calculate the technical efficiency. while at the sametime improving the quality of coal produced and fulfilling social responsibility like using the mined out land for afforestation. These units are Talcher. Similarly.1 Selection of DMUs MCL. Jagannath.) . to make the post-mining land more useful than the pre-mining land.0 CASE OF MCL The vision of MCL states consumer’s delight as its ultimate goal. any environmental factor that bears a strong effect on how the resources are consumed can be considered as the input. there are two factors which influence the selection of DMUs for the study – homogeneity and number of DMUs. company shall operate efficiently. services.) v2 : productivity − output per manshift (tonne) u3 : disel consumption (ltrs. 5. Belpahar. Kalinga OCP. We have taken twelve units of For our analysis the data are classified into two categories viz. Ramanathan (2003) indicates that there is no specific rule in determining the procedure for selection of inputs and outputs.Balanda.) u4 : exp losive used ( Kg . Sambalpur for efficiency calculation.

345 IQR 73.453 125.70.398 492.592 42.259 47.903 61.987 12. 2003-04 and 2004-05 is shown in appendix. v 2 : productivity − output per manshift (tonne): The amount of coal produced per man shift.169 455. .2169 t = -0.023 19.1949 t = -1.980 13.780 11.41.345 648.455 824. p = 0.122 25.35.) : Amount of explosive used for blasting the hard stone shaped coal.415 118.289 13. The data collected is subjected to descriptive statistics.5159 t = -1.1949 t = -1.441 19.185 Mean 2004-2005 Median 801.435 IQR 123.297 537.933 19.645 11.048 18..010 14.066 We have used paired sample t-test to know the difference between the mean Table-5: Results of the t –tests and median across the years. the results are tabulated in Table-6 below. p = 0.604 14. v1 : net realizable sales price per tonne( Rs.900 12.Sreekumar et..al.904 13. p = 0. p = 0.568 Mean 647.050 22.515 25.50.480 IQR 77.825 118.953 428.573 12.626 14.055 43.172 The data collected from the collieries over three-year period i.799 373. Measuring Technical Efficiency.e.333 96.18.) : It is the average wage paid to the workers : u2 : electricity consumption ( LKWH ) Amount of electricity consumed for coal extraction.920 127. the results are tabulated in Table-4 below. it Table-4: Descriptive Statistics 2002-2003 Mean 594.398 627. p = 0.183 22. u 4 : exp losive used ( Kg. Next the correlation analysis is done between the parameters.149 119.): The selling price of coal per tonne.016 126. The results are tabulated in Table-5 below.50. u 3 : disel consumption (ltrs.735 49. 2003-2004 Median 647.286 25.170 21.953 376.2895 t = -1.545 25.354 12.435 19. p = 0. 119 u1 : earning per man shift ( Rs.) : Amount of diesel consumed for coal extraction. generally depends upon the quality of coal. Mean Median t = -1.2352 It is observed that there is no significant difference between both input and output factors over the period considered. 2002-03.345 550.603 Median 595.

For calculating the efficiency scores of each DMUs we have used a software Frontier Analyst [6] .27(c) 0. constant return to scale and variable return to scale to calculate the efficiency of collieries over three periods.02(a) -0. But there is a low degree of insignificant positive correlation between v 2 and u 2 . (b) for year 2003-04.10(a) 0.22(a) -0. and low degree of insignificant negative correlation between v 2 and u1 . March.( c) for year 2004-05 1 The Table-6 indicates that there is a high degree of significant positive correlation between the variable v 2 and u 3 .78*(b) -0.94*(b) 0.75*(c) u2 1 u3 1 u4 1 v1 1 v2 *indicates p is significant at 0.18(c) 0.47(b) 0.10(c) -0.84*(b) 0.60*(a) 0.05.70*(b) -0.24 (b) -0.69*(c) u4 0. u 4 over all the periods.05(a) 0. (a) for year 2002-03.49(a) 0.80*(c) -0.90*(a) 0. Moreover it is interesting to observe many of the negative correlation occurring in the column v1 .31(b) 0.83*(a) -0.04(b) -0. 2008 Table -6: Correlation Matrix u1 u1 1 u2 -0.85*(c) 0.13(c) 0.06 (c) u3 -0.72*(c) 0. .75*(b) -0.72*(a) -0.e.43(b) 0.80*(a) 0.06 (a) 0.96*(c) v1 -0.36(b) -0.40(c) -0.90*(b) 0.15(a) 0.11(a) 0. XIMB Journal of Management .50(c) 0.14(b) -0. The efficiency scores of both the scales are tabulated in Table-7 below.3 Efficiency Analysis of Collieries under MCL We have used both the sc ale assumptions i.38(a) 0. 5.02(b) -0.64*(a) -0.120 Vilakshan.13(b) -0.79*(c) v2 -0.74*(c) -0.

6 CRS Eff.4.6 3.4.2..6 1.6.7 0.883 0. 1 2 3 4 5 6 7 8 9 10 11 12 1 1 1 1 0.6 2.7 1.4.798 2.3.7 2.3.12 2.6 1 1 1 1 0.4 2. DMU4. DMU8 with efficiency score less than unity in all the periods is getting a score of unity in the year 2004-05 under VRS. The efficiency trend plot over three periods under CRS assumption is shown in Figure -1.4 2.574 1 1 peers 2.733 0. Measuring Technical Efficiency.12 1 1 1 1 0.7 0.6 1 0. 1 1 1 1 1 1 1 0.7 0. DMU11. The inefficient DMUs can refer their peers for improvement and becoming efficient units e.867 0.4.g.4. peer 2.4. 121 Table -7: Efficiency scores of DMUs and their Peers for CRS and VRS. DMU2. DMU4 and DMU6.6 2. 1 1 1 1 0.813 2.6 0.508 0.6 2. has become inefficient in the subsequent period.820 1 0. 2002-2003 CRS DMUs Eff.al.862 0.734 2.4.7 0.6 3. which was operating efficiently in the year 2002-03.839 0..765 0.6.582 1 1 2004-2005 CRS Peer 1.626 1 1 2003-2004 VRS Eff.4 3.7 1.6 - 0.Sreekumar et. So these units are utilizing their resources in a right way to produce the outputs.7 2.6 Eff. DMU3. peer 2.811 1 It is observed that DMU1.4.6 2.6 1.4.643 0.6.653 1 1 VRS Eff.650 0. DMU5 for the year 2002-03 shall refer DMU3. DMU6 and DMU7 are coming out to be efficient over three periods under both the scales.6.638 0. peer 2.884 0. Figure-1 : Efficiency trend under CRS .4 0.4.954 0.612 1 1 0.781 2.2.781 peer 3.556 3.734 0.7 1 1 1 1 0.815 1 VRS Eff.5938 3.6.

05 13.7 36. the potential improvement for the inefficient units is calculated for the year 2002-2003 under CRS assumption. Next.46 -20.03 28.15 0 14. DMU1 to DMU7 are performing consistently over three periods. 103.74 17.71 -26.44 -32. Table.28 44.9 -27.62 484.54 0 552.28 v1 370. Imprv.99 0 56.12 19.55 18. Imprv.88 607.93 552.02 -35.99 36. The performance of these DMUs has gone down with increasing period with the exc eption of DMU12 whose performance has gone up in the year 2004-05. DMUs DMU5 Improv.93 131.55 371. explosive used (u4) for DMU-5 should be 634.8: Potential Improvement on various parameters for the year 2002-2003 Ineff.91 0 137.99 u4 24. Imprv.97 -68.01 98. u1 634.64 -79.15 34.16 14.89 355.72 3.83 63. 2008 The figure makes it clear that some of the DMUs namely. Required Actual Target Pot.05 v2 12.87 4. DMU9 Actual Target Pot. Hence the .17 798.08 82.9 459.08 24.36 17.47 24.73 22. DMU8 Actual Target Pot.47 15.4 respectively.93 0 u2 178.13 676.4 -44. DMU12 Actual Target Pot. Imprv.e.92 u3 34.15 and 13. electricity consumption (u 2 ).72 0 676. Imprv.13 0 601.29 0 605. diesel consumption (u3).86 63.26 36.38 23. DMU10 Actual Target Pot.17 2. earning per man shift (u 1).122 Vilakshan.67 55.26 16.89 9. XIMB Journal of Management .77 -65.54 601.16 0 15.82 159. and is shown in Table- 368.86 respectively.09 20.14 28.63 -21.54 28.39 1088.91 131.72 605.65 36.83 476.05 It is observed that (Table-8) the target of inputs i.68 36.75 103.54 -42.21 102.84 5.29 12.83 and 19. The target of outputs for DMU-5 will be 607. March. 34. Some kind of variation is observed in the rest DMUs.56 36.61 3.99 12.29 634.

.33 respectively. Two approaches of DEA viz. European Journal of Operational Research. experience etc. 6. C. quality of manpower. Debreu. 30 1078-1092. it is evident that the efficiency of coal mines depends u pon the performance in every parameter which is direc tly or indirectly linked with the system. DMU 2. 24-36. other DMU’s target inputs and outputs are mentioned in Table-8. Cooper W. explosive used. The value of stock. wages..al. “Analysis of Production as an Efficient Combination of Activities” in T. 120(3). “Data envelopment analysis with imprecise data. Similarly. a methodology based on DEA is discussed to find the technical efficiency of various collieries of an Indian coal company. Smirlis. T. Koopmans. R.e.63. C.W. Charnes. There is a scope for improvement in both the outputs for all the inefficient DMUs.5.08 units and u4 by 44. 429-444..E. From the perusal of the above analyses and results. European journal of Operational Research. The methodology facilitates to identify the benchmarking collieries which can be referred by inefficient units to become efficient units.G.”The Coeffcient of Resource Utilization”. Econometrica. DMU 6. (2001).K. 273-292. Despotis. (1957). Management Science. (2002). (1978). 9.26 units and increase the outputs v1 and v2 by 63. DMU 3. 2. (1951). “Measuring efficiency of decision making units”. Charnes. REFERENCES Banker R. Cooper W. (1951). M. So in order to maintain their efficiency they have to formulate proper strategies by proper utilization of inputs to produce desired outputs. Dimitris.W and Rhodes.Yiannis.63. 123 management should decrease the input u2 by 42. (1984). and DMU 7 are relatively efficient. New Haven: Yale University Press.0 CONCLUSION potential improvement regarding the input u4 i. 19. 38 (2). The study will be more interesting if one would take the non-discretionary aspects like the location. Other units are relatively inefficient.A . Ramanathan. 160-182 In this paper.89 units each for the DMU. “A Data Envelopment Analysis of comparative performance of schools in Netherland” Opsearch. 140. DMU 4. Koopmans (ed.) Activity Analysis of Production and Allocation:Proceedings of a Conference.Sreekumar et.290. “Some models for estimating technical and scale efficiencies in Data Envelopment Analysis”. and 248.A . Constant Return to Scale (CRS) and Variable Return to Scale (VRS) are c onsidered to obtain effic ienc y of DMUs. 254 . G.”The measurement of productive efficiency”. and floor space for DMU-1 should be 30. Journal of Royal Statistical Society.D. It is interesting to observe here that no inefficient DMU demands for potential improvement in input u1 which is earning per man shift but all the inefficient units has scope for . Farrell. DMU 1. Measuring Technical Efficiency.J.

7-38. “Recent developments in DEA: the mathematical programming analysis. n i c . and R. (2001) “Measuring Technical efficiency in Data Envelopment Analysis”. Srinivas. “India’s Energy Crunch” .com). K J Pratap.asp [5] h t t p : / / m a h a n a d i c o a l . Former Chairman.M. (2003). L.w or ld en er gy . (. [4] Coal in India. Council on Foreign Relations.M. 38.com Publication.org /w ecge is / p ub l i c a t i o n s / d e fa u l t / t e c h _ p a p e r s / 17th_congress/2_1_20. http:/ /w ww . Chowdhary S. December 8. Taluri. END NOTES [1] Zissis Carin .banxia. (2000). 2008 Ramanathan. March.com/infra/coal. Forbes magazine.124 Vilakshan. 27 November 2006. “An Introduction to Data Envelopment Performance Analysis: A tool for Sage Measurement”. 456-482.” 46. Coal India Limited.5).diehardindian. . approach to frontier Journal of Econometrics. “Data Envelopment analysis –Model and Extension” Decision Line 8-11. Thrall.00pm. Sahoo. K Biresh and Mohapatara. A Resource for Nonpartisan information and Analysis. R. [2] Energy and Environment. (1990). Seiford.htm [6] www. i n / egocoalfield. India.K.htm. New Delhi. accessed on 09-02-07 at 7. XIMB Journal of Management .. [3] Coal Industry (diehardindian. 2006. Opsearch. http:// www.

Individual decision makers as moral agents at times decide -which way to walk off. Their act is based on the inside information and the documented evidence they have as a member of the organization (see De George. At every point of our life we encounter the dilemma that deals with the finer question of our living. 2006. between loyalty and free speech. 2008. 2006). Velasquez. and duty at times transcends the ordinary criteria of whistle blowing. permissible and obligatory for an individual manager to do in a business situation. Xavier Institute of Management. violating the traffic rule. Whistleblower’s commitment to justice. 1999). rather one is the part of the other. ordinary dilemma of the whistleblower i. The basic purpose of this paper is to analyze the other side of the notion and highlight that whistleblowing reflects the finer element of our moral life. Jubb.0 INTRODUCTION Whistleblowers are just like umpires or traffic police who blow the whistle when they observe a fou l being committed on the field or some one rushing through. 2008. Satyendra and Manjunath* Bibhu Prasan Patra1 Abstract Business ethics text books trivialize the concept of whistleblowing by stating some morally justifiable criteria for whistleblowing. This obviously is not like resolving simple. Associate Professor. In this paper an attempt has been made to look at the issues that are more valuable than life itself. It goes beyond the ordinary question of what is morally defensible.Perspective Beyond Whistleblowing: A Study on Socrates. 2006. are not poles apart. Living a moral life is not just what is morally defensible or justifiable. email: bibhu@ximb. An insight into leading a moral life and addressing issues in business ethics. Bhubaneswar.ac. Revised February 29.in . Bu siness ethic ists define whistleblowing as an act of disclosure made by a person about some wrong doings by a corporation to an external agency which is difficult for the public to know otherwise. 27. 1. The argument is that following these standards makes our action morally defensible (See appendix-1-De George. 1.e.which ditch they want to die. fairness. As Elaine Sternberg (1994) points out the efficacy of whistleblowing is not just its moral justification. Business ethicists state that the act of whistleblowing should be based on what is desirable. For example Cynthia Cooper is the whistleblower who exposed massive accounting fraud at WorldCom in 2002. Sherron Watkins the “Enron * Received February.

126 Vilakshan. The false charge against him is that he is corrupting the youths of Athens and instigating them against the rulers. when other options like escaping from prison. The c ommon understanding of justice and right is that wh o are depriv ed and disadvantaged in society struggle hard for thei r right and the ric h and powerfu l extract what they want. March. political. begging apology to the jury and living in exile elsewhere were available to him. ‘the wisest and most just of all men’ in 399 BC has shown the unreliability and undesirability of the democratic rule of Athens. Whistleblowers are generally hardworking people who believe in the social. The jury voted for death as the penalty and Socrates carried out his own execution by drinking the poison called Hemlock given to him. But these whistleblowers do not agree with this thesis and are ready to face even death for an ideal. Socrates is seen as a wise and benevolent citizen martyred for raising his voic e against inju stice and corruption. “We’re such a c rooked c ompany. helds on to his intellectual and moral beliefs. They are aware that fighting against corruption and injustice may deprive them from the ordinary materialistic pleasure. XIMB Journal of Management . The act of whistleblowing is valued for its moral desirability. trickery and profit maximization achieved by corrupt means.” These whistleblowers mainly inform the society about the different types of fraud. The aim in this paper is to discuss the concept of whistleblowing which goes beyond the ordinary morally defensibl e ac t of whistle blowing. laments. and they go beyon d what is ju st e thic ally defensible. 2. These whistleblowers often travel the difficult path and make the hard choice of adopting the path of truth. and legal system and have loyalty to their organization. 2008 whistleblower”. Inequality is inbuilt in the social system and people reject the Socratic pursuit for justice and equality. The basic point of their moral c h art is b ased on a c lear u n derstanding of virtu es that are essential for living a life which is worth living. But he chose to die as a law abiding citizen and because of his respect for the system. Common men ridicule Socrates for undermining hu man pleasu re and criticize him as an impractical man. He accepted the verdict and decided to die. People see him neglecting life and ignoring the most pragmatic aspect of human l ivings. justice and reason force them to speak out when they see something wrong. Their strong faith in the system. People think that they take unnecessary liability and invite injury to themselves. Their lives are guided by principle.0 THE DEATH OF SOCRATES The death of Socrates. For them his .

But Socrates is well aware of these facts.. Beyond Whistleblowing: A .Plato. On the other hand. Socrates was worried about what our priorities ought to be if our lives are to really go well. These virtues are traits of character that are central for everyone everywhere to obtain. This Socratic wisdom is still alive and asserted by the two you ng Indian professional who defy the common men’s understanding of living well and adopt the path of virtu e and dec ided not to compromise with principle.1957). Those who put them to death by unjust means really confer on them the honor of immortality. Soc rates argu ment for his acc eptanc e of execution reveals his commitment to truth and deep sense of moral virtue. that I am speaking the tru th… they hate me because I am speaking the truth and the reason of their slender of me…. That is the wisdom necessary to comprehend the value of virtu e in human life. What . Every person and every profession should start from the understanding of virtue and why they matter in our lives. Living well for Socrates is to have an understanding of virtue and transc ends what is ju st ethic ally defensible.. 127 fight wa s a fu tile effor t. people seem to ignore the truths about the deeper aspect human living and human desires. They laid down their lives fighting against corruption and injustice. They lack the knowledge that there is something more than living well with wealth and power. Their commitment to virtue and living a life that is worth living was unequivocal. In his explanation he says: “I have c oncealed nothing I have dissembled nothing. They faced the ultimate end for holding on to their ‘ideal’. Like Socrates they spoke out when saw something wrong. He highlights the deeper aspects of living well and the limits of the shallow understanding of the common men. In fact. Virtues matter in every aspect of our life.Patra. He was stru ggling hard to convince people that in order to live a good life attachment to virtu e is essential. He goes on and says… the greatest good for man in daily life is to converse about virtue… and the life whic h is unexamined is not worth living. which the common men thought that he does not know. I know. Moral virtues are all encompassing and necessary for living well. A life which is worth living is also worth dying for (Apology. Mere surviving and living a life with ordinary pleasure failed to allure them. It is unnecessary to bring life to an untimely end like Socrates did. proper use of the wealth and power should be based on rational judgment and moral virtues.” The above account of Socrates explains the value of moral virtues and how they are essential for our living well.

He was posted at Koderma. and we go our ways – I to die and you to live. the hour departure has arrived. He was working with the National Highway Authority of India and assigned to the G olden Q u adrilateral projec t that connects the four corners of India. Du bey had requested to keep his name secret. But PM’s office circulated his letter along with the file among the bureaucracy. Just after two years in November 19. 3. 2005. was gunned down by unidentified assailant (Gaya Bihar. He was working for Indian O il Corporation as an area sales manager. The fact finding team of Indian Express revealed another fact which is more puzzling that the young engineer wrote a second letter to PMO expressing his . a 31 year old civil engineering graduate from IIT. 2002.128 Vilakshan. Satyendra Dubey was working as an engineer with the NHAI Bihar and assigned to this pet projec t of the then P rime Minister Atal Bihari Vajpayee. an ordinary life with pleasure. Both of them died in the moth of November. XIMB Journal of Management . 1957).1 Satyendra Dubey In what follows I shall elaborate the cases of these two martyrs referred above. Jharkhand. Kanpur. 2003. India) on November 27. S Manjunath was gunned down by Pawan Kumar Mittal (alias Monu) the son of a Petrol pump owner in Lakhmipur Kheri in Uttar Pradesh. The honest officer who was working with all good intention and dedicated to the cause of nation building lost his life for blowing the whistle against the offender. Noting on the file. Satyendra Dubey. of national Highways Authority of Indian (NHAI) was considered as the dream project for every Indian. He was trying to expose the poor implementation of work and rampant corruption and irregularities to PM’s office. Dubey had written a letter to the P rime Minister Atal Bihari Vajpayee exposing the low qu ality work and other irregularities in the construction of the four-lane road. which is better. March. None of the officers of the PM’s office realized the gravity of the situation and the danger to whic h Du bey was exposed to by the movement of the file that contained his letter. Golden Quadrilateral. He was trying to prevent adulteration of petrol. 2008 is better?. The construction work of this project was taking place under the direct supervision of the office of the Prime Minister (PMO ).0 SATYENDRA S. Manjunath was 27 years old and an MBA from IIM – Lucknow. He wrote a letter to the PM’s office which was received on N ovember 11. MANJUNATH DUBEY AND 3. the state of the art infrastructure project. bears witness to this. God only knows” (Apology – Plato. without any ideal or a life with an ideal? This is what “Socrates says just before his death….

In some c ases the contrac tors have been given mobilization advance just a day after signing the contract agreement. Bihar. “Though the NHAI is going for international competitive bidding to procure the most competent civil contractors for execution of its projec ts.” he said Everyone in the NHAI is aware of the phenomenon of subcontracting but turned the other way. Beyond Whistleblowing: A . A patriot with strong commitment to duty believed the projec t was of “unparalleled importance to the nation”. and the result is that the advance remains lying with contractors or siphoned to their other activities”. when it c ame to actual execution. two days before he was to take over as Project Manager in G aya. In another letter to the P roject Director. The big contractors have been able to get all sorts of help and secret information and documents from NHAI officials and even note sheets carrying approval of chairman have been given. He was anticipating some troubles and thinking that the mischief makers may cause physic al harm to him (The Indian Express. I will keep on addressing these issues in my official capacity in the limited domain within the powers delegated to me.Patra. because the c ontent of his letter c ontained information about wrong doings of the contractors and NHAI officials. it was found that most of the works. He was afraid. 30. However.” he clarified. The entire mobilization advance of 10% of contract value. The letter said: “The NHAI officials showed great hurry in giving mobilization advance to selected contractors for financial c onsideration. Dubey expressed displeasure over the transfer saying it was baffling and would not serve the interest of the project in Jharkhand. NHAI. Koderma. Dubey categorically put the . 129 concern that his first letter was leaked and he was exposed to wrath of the offender. 2003). he had drawn the attention of the Project Director to some ‘irregularities’ c ommitted by contrac tors and consu ltant for the project. Authorities of NHAI closed their eyes to the ways in which the work of the prestigious project was progressing which forced Dubey to do the right thing by alerting the PMO. (sometimes even up to 100 percent) were subcontracted to petty contractors who did not have sufficient expertise of exec uting su ch big projects.In his letter also... which goes up to 40 crore in certain cases are paid to contractors within a few weeks. Dubey also highlighted the problems of sub-c ontrac ting by the primary contrac tors. But there is little follow u p to ensu re that they are actually mobilized at the same pace. Nov. Jharkhand. on July 26. “I have written all these in my individual capacity.

was asked to conduct an inquiry and submit the report within three weeks . Satyendra K. and the level of transparency in the CBI probe. he believes that the law enforcement authorities will protect him. March. I always do what my conscience tells or compel me to do. . The State ought to ensure this at all level (personal and professional life)”. The sequence of events leading to Satyendra Dubey murder is given in Table-1 The National Human Rights Commission issued notices to the Bihar police and the National Highways Authority of India in connection with the Satyendra Dubey murder case. 2008 whole activity in black and white that explained the gravity of the situation and the rots that needs be cleaned in from this big project. my wealthiest treasure and my best guide or friend. he also made a special request to be kept secret when the PMO investigated the matter.130 Vilakshan. IITians ganged together to generate support for one of their dearest fearless friends who laid down his life for national interest. Dubey (BT/CE/1994/IITK) for his exemplary life and supreme sacrifice. Media reporters Table-1: Sequence of Events of Satyendra Dubey Murder Case November 2002 Satyendra Dubey sent a letter to the PMO detailing system in the National Highway Authority of India.The prime minister immediately asked the CBI to investigate the case ( rediff. The commission has asked NHAI why Dubey’s identity was not protected. After effects exposed the lapses of the Bihar police and the NHAI’s for their failure to act on Dubey’s complaints. They questioned the responsibility of the police and the Prime Minister’s office.’’ The hero’s story was a shocking one with a sob ending. The minimum expectation of a citizen from the State is a reasonable level of safety and protection for his life and property. The tragic u ntimely demise of the young IIT. XIMB Journal of Management .). In a handwritten letter to his friend. The entire alumnae raised their general voice of concern that “as law abiding citizens and having faith on the system when one files a complaint or brings some wrong doing before the local police. Dubey Memorial Award was instituted by IIT Kanpur in the memory of Mr. director general. Dubey got national and international attention as a whistle blower. Satyendra K. the hero of this story had written: “My conscience is my biggest virtue.Kanpur engineer put the entire nation to reflect on the kind of risk one has to take to fight against corruption. He named four contractors and their misdeeds. Santosh Kumar. In order to protect himself.com. Investigations. I want to keep this candle of humanity ever glowing in my heart.

2003 Bihar govt. 131 Satyendra’s name was not protected and the file containing his complaint was circulated among various offices. “disappeared”. 2003 December 9. Accused. Dubey murder figures in Parliament. CBI to probe Dubey Case: PM Narayana Murthy calls for probe into Satyendra Dubey’s murder. denies leaking Dubey’s identity. 2004 Dubey case: FIR against CBI officials. Patna High Court to monitor security on highway project in Bihar. Beyond Whistleblowing: A . 2004 . 2003 December 11. 2003 December 18. Govt. 2003 Satyendra was murdered in Gaya. News reports about Satyendra’s murder stirred the Nation and unleashed the outrage. 2003 January 5. 2004 February 05. CBI team in Gaya to probe Dubey’s murder. Centre. Dubey Case: ‘Suicides hampering CBI probe”. Within days the Prime Minister’s Office and NHAI issued statements defending and trivializing Satyendra’s death. November 27. the place where he lived and worked for NHAI. who were interrogated by the CBI in this case. Satyendra Dubey killed for resisting robbers. 2003 December 28.. Pradeep Kumar. 2004 January. How will you ensure smooth completion of Golden Quadrilateral Project? Hearing of PIL on Satyendra Dubey on January 5. CBI detains one person in Dubey murder case. Satyendra had been killed when resisting thieves who were trying to kill him. Bihar govt.Patra. 2003 December. Dubey Case: CBI rules out change of officials. SC notice to PMO. wakes up to IITian’s murder. key witness. This was like issuing a public contract for his life. on Dubey. allegedly committed suicide within a day in the end of January. February 02. Pradeep Kumar. Most people refused to believe this and the CBI’s explanation further intensified the outrage. Dubey case: CBI denies hand in suicides. 2004 January 6. 2004 February 04. 2003 December 16. The case was handed over to the CBI. 26. December 12. The CBI said that according to the evidence given by Mr. 2003 December 10. Why was not Dubey protected: NHRC. Bihar submits highway security plan. December 5. Two other witnesses. 2003 December 14th..

2004 CBI files charge sheet in Dubey murder case. which is basic to the well being of a society. which is evidently diverted. There has been no public investigation of the alleged corruption within the NHAI to attempt to set things right. Dubey Case: SC notice to CBI. the CBI again repeated the investigation in June. Bihar government.132 Vilakshan. Satyendra was the prime mover of our nation reason for the affluence of the Developed nations is also Dubey’s letter contained the names Centrodosity of Russia. Key Issues Raised by Satyendra Dubey are Still Unanswered Shailesh Gandhi. 2008 March 03. It admits mistakes than to pretend we are infallible. 2004 October 27. 2004. we do not compromise our honesty. Organizations. Centre. March. Bihar College named after Satyendra Dubey. 2004 September 29. China Coal of China. the truth will come out. September 03. 2004 March 12. As individual society. others must challenge them. 40 crores being given to contractors as mobilization advance. After keeping quiet for about six months. an aggrieved citizen expressed his worries and says: “The minimum ethical standard is that when as Institutions. The corrupt practices highlighted by Dubey are routine in most of the infrastructure projects of the Government of India. To refuse to admit errors is the characteristic of our entire leadership from the political. He also talks of up to Rs. Honesty is a value. There is no justification for giving advances to contractors if they do not have capacity to do the jobs. whenever these Institutions deviate. we have to bring it to the centre stage of our National agenda and debate five decades of the last century. as being guilty of taking the contracts by means of bribing and subsequently giving it away to subcontractors and making enormous profit without doing any value adding work. 2005 September 13. Why investigation has not been done on the detailed allegations made by Dubey? . partly to pay equ ipment advances. January 13. XIMB Journal of Management . 2005 Charges filed in Satyendra Dubey murder case. 2004 Centre Okays security plan for Golden Quadrilateral Project. There was no investigation of these murky happenings or the CBI’s role in these deaths. or Media. bureaucratic and business class. Dubey murder accused escapes. If all the institutions which honoured Satyendra’s memory raise their voice for the sake of their own credibility. Case against NHAI project director named by Satyendra Dubey. and Pioneer Constructions Ltd.

133 an insistence on home and publicly. Government promised to protect future Dubeys bu t we all witnessed another Dubey just after two years. In order to accomplish truth one needs legal and moral support from the system.But Dubey opted to travel on the path of truth did the right thing by alerting the PMO(Indian Express).dated: 11/3/ 2007). At an unglamorous location in Lakhimpur Kheri. It was this passion. Beyond Whistleblowing: A . states “Manjunath -a man who broke free. i n fo / Satyendra_Dubey. He would often visit me with questions beyond personal success or career… …… He was like a wild bird looking beyond the nest for an adventure in the wilderness.Patra. unlike his classmates who had cushy marketing jobs in MNCs. But he took his work rather seriously. if we have nothing to die for?” Manjunath’s question regarding the finer aspect of human living dig up values that goes beyond ordinary. ‘Break Free(2007). Satyendra Kumar Dubey was killed for telling the truth .Http”// s at yam e v aj a ya t e.2 S. Manjunath had a very modest beginning. monotonous way of living.. and about making a difference to Society. to his f ormer stu dent. that cost him his life. this standing up for what he believed was right. Manjunath Case The 27-year-old young engineering graduate asked his teacher a month before he was gu n n ed down on November 19.” In the preface of his book he writes that: “M anju was not the typic al business school wonder boy who had a way with cold statistics and fuzzy logics. In India “Satyameva Jayate”is the basic principle we adopt to regulate our conduct in public and private life. for standing up against corruption .”Sir. . 2005. 3. The fundamental duty of any democratic government is to protect its citizens from the evil force of the soc iety and encourage them to travel the path of truth. He could have continued doing his job as a deputy general manager in the Centre’s National Highway Authority of India (NHAI) and shut his eyes to all the wrong doings taking plac e in the prestigious project . In premium Business Schools “the job you get at the end of the placement process determines your worth in the pee r grou p.” . He was passionate to a fault. Who will defend Satya? And without Satya can there be a better India?” (Shailesh Gandhi.He could have chosen to keep quiet.htm.” Manjunath was an upright and honest man – an idealist and passionate about values. tell me what life is this. Professor Debashi s Chatterjee o f IIM-L dedicating his book.. The organized workers have alternatives to defend their own turf. su pervising distribu tion of petrol and diesel in several filling stations. like the majority of young professionals of this country.

50 lakh bribe from the petrol mafia”(The Indian Express).20 lakh litres of kerosene. the sole fair price shop catering to Mainhan Gram Sabha— comprising Khotena. with a warning from Manjunath that a second offence would invite permanent shutdown. We don’t even get our due of two liters a month. is given only 800 litres. The Scam the sidelines.” The district supplies inspector has alleged involvement in the racket. The siphoning of kerosene is supported by a PDS scam on “Manjunath was staying at a hotel in Gola on November 19. “The rest. a great deal of it is not distributed. Every month. Manjunath had cultivated cordial relations with the locals in order to develop a network of informants. The shop owner. Mahesh Kumar. Around 4 pm.134 Vilakshan. Seth also owns the sole kerosene depot which serves the 2 lakh population of the surrounding 132 villages. manager of the L D Service Station. the depot receives about 1. Said Devendra Prasad Misra in Udehra village: “Everyone cheats us. And going by the fair price shop owners of the area.000 litres of kerosene per month. 40 a litre in the black market. Manjunath’s drive was acquiring an avalanche of support from villagers across Lakhimpur Kheri. it was a young customer who blew the whistle on the L D Service Station. Rajendra Singh. the day he sealed the Mittal outlet (the owner’s son Monu Mittal is prime accused in his murder).” Incidentally. In fact. 4. one of the many whom he had organized as informants. Predictably. Don’t you know about that IOC officer Manjunath? The one who was murdered because he cracked down on petrol pumps? We have heard he refused a Rs. Like the Mittal pump. The IOC officer was alerted by a local youth. he went to check the samples at the Mittal . And the youth had called on Manjunath’s cell phone to alert him about the L D Service Station. owned by one Dinesh Seth. March. said their samples “were found clean. a 200litre drum of kerosene. so we were allowed to start work. For example. PDS kerosene which should sell for Rs. XIMB Journal of Management . said he is not given any receipt. Manjunath had sealed another petrol pump in the area— Mitauli’s L D Service Station.” he said. 10 a litre fetches Rs. Ranibehr and Mainhan villages—which should get 1. the L D Service Station was also allowed to open a month later. The Plot to Kill On September 13. “No one in Lakhimpur gets more than two litres of kerosene a month even though the official entitlement is five litres. has to be surrendered. 2008 He had outdone his classmates because of what he died for. on October 15.

He was accompanied by Devesh Agnihotri. He decided to kill him then”.” As Monu and Agnihotri accompanied Manjunath back to his car.. and the father had advised him “to let go of some things” because he was all alone. Then they pushed him into the rear seat and asked two of their employees to dispose of the body. Monu waited till 8 pm but Manjunath did not turn up. on his way back home. “He told me many times that he was working in an area with many mafia gangs and that anything could happen to him. “We have c h ec ked the genera tor and it has a pro blem. it gives out a sequence of loud bursting sounds for so me 5-8 sec onds. 135 Petrol Pump and started watching the India-South Africa cricket match on a TV set there. They had driven almost 50 km before being caught. Manjunath turned up at the pump around 9.” “ The ac c u sed ev en threw Manjunath’s spectacles into a nullah and planned to throw his body in the Katna River—the river flows into Barabanki district..” He was killed for doing his duty for IOC and Satyendra Dubey—the IIT engineer and NHAI official was killed in Gaya after he complained of corruption on the Golden Quadrilateral. Monu knew that Manju would definitely come back to get it. fighting to regain his composure.30 pm and the employees told him that the keys of the almirah were with Monu. Monu then left the pump. So a s the generator started booming and the lights w ent off. “He used to tell me about the lack of proper controlling systems and official support when it came to stopping adulteration and booking wrongdoers in . Beyond Whistleblowing: A . had told his father about the risks.” he said. Reaction from Family and Friends Manjunath. They talked to Manjunath and even treated him to tea. Whenever it is switched off. they executed the plan. “He was killed for doing his duty. One of the employees called Monu and he arrived in 10 minutes.” However.Patra. The trick worked. He alerted his other accomplice to be ready for his phone call. Monu locked the instrument in his almirah. one of his employee s ru shed to tu rn off the generator.” said a tearful Shanmugham after the cremation. “But Monu didn’t come alone. the eldest of three children. both Monu and Agnihotri pulled out their guns and shot Manjunath. I never thought it could happen. a criminal with 10 cases against his name. “He knew that Manjunath would have to meet him to get the instrument back. around 10 pm. he called Manjunath on his cell phone and reminded him that he had forgotten his measuring instrument. Unfortunately he forgot the measuring instrument on Monu Mittal’s table and left the Pump. He saw the entire first session till almost 6 pm. Then.

Manjunath’s family was ready to fight the accused in the high court or even in the Supreme Court. finding the accused guilty and convicting them on merit. Abidi to god for conducting a fair trial. It is a great relief the case was handled in a record time and the judgment delivered soon after conviction. He has done a great justice to my brave son Manju. You fought the odds real hard. A Great relief from Uttar Pradesh that the main accused in the murder was sentenced to death. one has to keep mum even if there are irregularities. Expressing satisfaction at the pace the case was taken up with and justice delivered. about 100 km from here). let some things go’. XIMB Journal of Management .”It has been a long and anxious day for us waiting to know the quantum of sentence. the district police. After an anxious wait for the Shanmugham family.” Manjunath’s death has shocked and outraged all those who knew him. “He was suc h a free spirit. March. “He sang from the bottom of his heart. He is one of those singers who made the listeners experience the song. condemned to jail for life.”(Manjunath’s father M. “Justice Abidi is like god for us.We are relieved to learn that at least the main accused has been given death sentence and the other accused are. Manjunath’s father said his family compares Lakhimpur Kheri District Judge S.” “He would always keep his mind on the silver lining of a dark cloud. He had no enemies and yet he suffered such a heinous fate.M. Though all the accused deserved death for the heinous crime. Goodbye Machan.A.136 Vilakshan. and with a catching enthusiasm. he ensured the main killer (Pawan Kumar Mittal) did not escape capital punishment. especially his friends from the Indian Institute of Management (IIM). He said it is a lawless world and for survival.” Lauding Manju’s friends.P. He loved the challenge. The criminals must be brought to justice and Manju’s sacrifice must be given the respect it deserves. always laughing and joking around. Singh) for their moral and financial support in fighting the case. public prosecutor and the company’s counsel (D. 2008 UP. He was a responsible manager and committed to his company and its sales. but his father used to tell him ‘you are alone. Just because he was doing his duty. Shanmugham told IANS on phone from Kolar Gold Fields (KGF). “He wanted the dealers to follow all norms.” wrote Karthik Parthasarathy. Monday turned into a great relief when the news trickled . don’t get worked up. IIM-L Batch of 2003.” his IIM classmate Sunit Sapra wrote in an e-mail to The Indian Express. Lucknow. “The case is no less than the killing of Satyendra Du bey.” said Shanmugham.

Shanmugham hoped the sacrifice his son made and the judgment in his murder case would ensure honesty. batch mates and well wishers. young. Giving full credit to the Manjunath Memorial Trust. to mourn the death of its alumnus. Beyond Whistleblowing: A . first time in 29 years Pall of gloom at IIM-L Had it not been for prior commitments made to corporate houses.000. INDEX ’05. many of them former classmates of the slain Manjunath This system of ours Wanted: bright. the Indian Institute of Management-Lucknow would have cancelled its annual festival.Sequence of Events Relating to Death of Manjunath November 22. S Manjunath. an employee of the stateowned Bharat Earth Movers Ltd (BEML) at KGF. he was killed for doing his duty for IOC’ Adulterated Fuel Father of IIM graduate killed for shutting down petrol pump says he knew of danger. Manjunath killing: angry IOC demands action against mafia Anger and frustration were the two overriding emotions at the meeting of 100-odd Indian Oil Corporation officials held today. 2005 Manjunath had evidence to close pump down.Patra. November 24. The sequence of events relating to death of Manjunath is given in Table-2.” said Shanmugham. Table: 2.. 2005 ‘My son told me about the mafia. integrity and fight against corruption carried on as a crusade to cleanse the system and the country from such evils ( March 26 IANS). in the wake of the murder of S Manjunath — their area sales manager in Lakhimpur Kheri district. honest Indians willing to die in vain . owner’s son called him to his murder IOC Dealer whose son prime suspect in murder had been fined Rs 75. batchmates say can’t let him vanish into the night November 25. pump owners kill fuel inspector An Indian Oil Corporation sales manager was shot dead last Saturday by the owners of an Uttar Pradesh petrol pump whose operations were suspended for a month in September after its fuel samples failed quality tests. 137 “We will fight it out till the last to ensure Manju’s soul rests in peace. ‘Where do we see such courage’ We have received an outpouring of letters from readers in India and overseas.. 2005 Samples fail test. set up by his lifelong friends.

lower ‘adulteration’ incentive We can only direct states. recommended increasing the number of petrol pumps in Lakhimpur Kheri district. 2005 Local youth helped Manjunath seal third violating pump in Lakhimpur Kheri L D Service Station owner also sole kerosene supplier for 132 villages IOC shuts down Mittal pumps in Lakhimpur The Indian Oil Corporation has terminated the retail dealerships of the two pumps owned by the Mittals in Lakhimpur Kheri. says Patil Rajya Sabha debate: Members demand security for PSU officials on duty One life. condemning Manjunath’s murder. The fuel tank machines at both pumps are in the process of being dismantled. main accused in the murder of Indian Oil Corporation official S Manjunath — a graduate from IIM-Lucknow. the murdered IOC executive. police search Manjunath’s house in Kheri. take his computer. masked sound of gunshots with generator ‘The last such sacrifice’ Letters continue to come in to The Indian Express. 2005 . two prices December 1. Govt for 2 kerosene rates Proposal: Rs 10/l for BPL. despite his own financial constraints. PMO steps in. 30. November 29. official files November 28. 2008 November 26. and calling for justice November 27.. 2005 ‘My poor sales officers are helpless. When S Manjunath.it’s very dangerous to raid’ Three months before IIM graduate Manjunath was hired by IOC as sales officer. Manjunath okayed seven new pumps in Lakhimpur Kheri The young sales manager might have thought he was killing two birds with one stone. Monu’s phone records evidence enough: Police The Lakhimpur Kheri police will move court to seek remand of Monu Mittal. orders raids on petrol pumps District officials to crack down on all petrol pumps. commiserating with his bereaved family. 2005 Manjunath has one debt after death: his IIM MBA loan While the oil mafia tried to entice him with bribes to turn a blind eye to fuel adulteration.138 Vilakshan. XIMB Journal of Management . March.. Rs 20/l for rest to reduce price gap with diesel. November. 2005 To loosen cartel hold. murdered IOC sales manager S Manjunath refused to waver in the line of duty. he would not only have addressed the sliding diesel sales figures but also loosened the grip of the cartel that controlled oil business in the region. 2005 Murder most foul was also murder most planned Manjunath They called him back to collect measuring instrument. his chairman had told a Parliamentary committee: State wakes up.

Govt issued an SOS Just five days before IIM graduate S Manjunath was shot dead for blowing the whistle on kerosene adulteration in a petrol pump. 2007 Manjunath’s father relieved. Beyond Whistleblowing: A . 2005 IOC. December 17. including Manjunath’s Indian Oil Corporation.. A son of a Congress party leader holding ministerial status is alleged to be involved in the racket.Patra. 2006 Chargesheet against 8 in Manjunath murder case We feel the case would reach its logical end. PNB to pay off Manjunath’s MBA debt Consolation. 2005 Role of Cong leader’s son alleged in petrol racket A young IAS officer caught two oil tankers allegedly involved in oil adulteration in Haridwar. the Petroleum Ministry had ordered oil companies. to test a series of stringent measures meant to curb adulteration. Even a tragic death can’t drive this home December 2. December 16. if any. February 22. was murdered. Chief Secys will meet today December 10. say make income criterion December 12. security. 2005 States. NSA will attend. 139 Distorted pricing is the lifeblood of economic crime. December 09. 2006 At Mumbai marathon. the Indian Oil Corporation Lakhimpur Kheri sales manager who died on the job last year. Centre begin talks on how to check doctored diesel Manjunath All states agree on more security. many oppose 2 kerosene rates. 2005 Manjunath murder: ‘pricing is key’ Oil Either 2 kerosene rates or give cash/coupons to BPL customers: Aiyar January 1. 2006 Manjunath murder: Forensic tests confirm police stand It’s official now: S Manjunath.. say cops March 27. compares judge with God Source: The Indian Express . 2005 Five days before Manjunath’s murder. 2005 Manjunath’s death reaches the Prime Minister’s desk Murder Singh calls special meeting to discuss pricing. he runs for friend Manjunath IIM batchmate and football team mate Dharmendra comes all the way from Bangalore February 16. for murdered IOC officer S Manjunath’s family came yesterday when Indian Oil Corporation chairman S Behuria handed over a cheque of Rs 26 lakh to his father M Shanmugham.

“The Autonomy Defense of Free Speech”. 27 March 2007. and Bowie. Journal of Law and Economics. J. Upper Saddle River. (1999).0 BEYOND WHISTLEBLOWING Satyendra Dubey – who had reported the wrong doing to the PMO in the National Highway Authority of India project. XIMB Journal of Management . Tr. The Indian Express. Hugh Tredennick. Journal of Business Ethics 76: 413 -426. Penguin Books.L. S. and Kaler. Harmondsworth. REFERENCES Aristotle (1954) The Nicomachean Ethics. Coase. Oxford University Press. 09 December 2005 The Indian Express. G. Journal of Business Ethics 21(1). Nash. Ethical Theory and Business 3rd edn. Law Ministry is coming up with whistleblower protection act (see Appendix-2). Penguin. (2002). Oxford. 10 December 2005 . 25-36. (1996). 77-94.S Manjunath will continue to live for ever for cleaning up the mess. Elaine. H. 179-185. S. Journal of Applied Philosophy. Business Week (2007) A man Called Manchan (Case study) Special Issue on Business Ethics. 2008 4. ‘The Problem of Social Cost’. Cambridge: Oxford University Press. commitment to ethics and dedication for the common good. ‘The Value of Loyalty’. Oxford. little. T. (1859). (1994) Just Business. J. Essentials of Business Ethics. 1998. Brison. Lindbolm. P.(1959) in last days of Socrates. Lars.1—44. Jubb. March. Tuesday. Plato Phaedo’. is still alive. Ruth F. J. Socrates’ Defense. A. bu t mu ch beyond . (2006). tr. McGraw-Hill Book Company. W. Beauchamp. 312-339. in On Liberty and Other Essays.A. Mill. (2007) Dissolving the moral Dilemma of Whistle blowing. 994) pp. Coope. E. (1999). (1998). Englewood Cliffs. Penguin. Hart. De George. London.D. Nuyen. (1988). 02 December 2005 The Indian Express. R.Ross. Sternberg. (1990) Good intentions Aside. —— ‘Apology’(1959). Business Ethics 6th edn. H. the concept of law. ‘Loyalty in Business?’.140 Vilakshan. India Asia News Service. L. Prentice Hall. Chadwick. London. Journal of Business Ethics 41(1-2). Laura. Pre-ntice Hall. Chryssides.2nd edn. 01 December 2005 The Indian Express. J. T. (1961). Philosophical Papers 28(1). ‘Whistleblowing: A Restrictive Defi-nition and Interpretation’. They were not merely whistleblowers. Harvard Business School Press. Ethics 108(2). 3(1). R. Chatarjee Debasis (2007) Broke Free.’ Justice and jobs: three skeptical thoughts about rights in employment’. Christopher Miles (11. N. last days of Socrates Translated by Benjamin Jowett. Like Socrates these two young martyrs were guided by their wisdom and have the shown highest form of professionalism. Corvino. Boston. (1960).71-7. Aldershot. T. Harmondsworth. Brown. Avebury. B. Oxford University press. On Liberty. (ed) (1994) Ethics and the professions.

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The two additional conditions for Whistle blowing to be morally obligatory: Whistleblower must have accessible documented evidence that would convince a reasonable. The employee must have good reason to believe that by going public the necessary changes will be brought about. and two additional conditions that must hold for it to be morally obligatory. impartial observer that one’s view of the situation is correct. The three conditions that must hold for it to be morally permissible are: The firm through its product or policy will do serious and considerable harm to the public. an innocent bystander. or the general public. he or she should report it to his or her immediate superior and make his or her moral concern known. . whether in the person of the user of its product.142 Vilakshan. the act of Whistle blowing is not justifiable. The chance of being successful must be worth the risk one takes and danger to which one is exposed. XIMB Journal of Management . Unless he or she does so. March. 2008 APPENDIX 1 Criteria For Justifiable Whistleblowing According to Richard T De George (2006) there are three conditions that must hold for whistle-blowing to be morally permissible. and that the company’s product or practice posses a serious and likely danger to the public or to the user of the product. Once an employee identifies a serious threat to the user of a product or to the general public.

or any other person including any nongovernmental organisation. The disclosure or complaint shall contain as full particulars as possible and shall be accompanied by supporting documents or other material. the Central Government hereby resolves as under: 1. Protecting future Dubeys The full text of the government resolution. If the complaint is anonymous. The Public Interest Disclosure and Protection of Informers’ Bill.371/12/2002-AVD-III: Whereas while hearing Writ Petition © No. empowering the Central Vigilance Commission to act on the complaints of whistle-blowers and to protect them: (Ministry of Personnel. Beyond Whistleblowing: A . Now. 1923. Notwithstanding anything contained in the Official Secrets Act. if it deems fit call for further information or particulars from the persons making the disclosure. any public servant other than those referred to in clauses (a) to (d) of Article 33 of the Constitution. the 21st April. 2002.. therefore. the Supreme Court desired that pending enactment of a suitable legislation. 2004).. The Central Vigilance Commission (CVC) is hereby authorized as the designated agency to receive written complaints or disclosures on any allegation of corruption or of misuse of office by any employee of the Central Government or of any corporation established by or under any Central Act. societies or local authorities owned or controlled by the Central Government. 143 APPENDIX 2 Government Action.Patra. 2. Public Grievances and Pensions (Department of Personnel and Training Resolution New Delhi. . may make a written disclosure to the designated agency. government companies. 3. No. the designated agency shall not take any action in the matter. issued on April 21. The designated agency may.539/ 2003 regarding the murder of Shri Satyendra Dubey. drafted by the Law Commission is under examination. suitable machinery should be put in place for acting on complaints from “whistle-blowers”.

7. March. 2008 4. These shall. The identity of the complainant will not be revealed unless the complainant himself has made the details of the complaint either public or disclosed his identity to any other office or authority. After obtaining the response of the concerned organisation. if the designated agency is of the opinion that the investigations reveal either misu se of offic e or su bstantiate allegations of c orru ption. the designated agency shall not disclose the identity of the informant and also shall request the concerned head of the organisation to keep the identity of the informant secret. in the first instance. While doing so. XIMB Journal of Management . include following: Appropriate proceedings to be initiated against the concerned government servant. discreet inquiries to ascertain if there is any basis of proceeding further with the complaint. 5. the concerned head comes to know the identity. if for any reason. if the designated agency is of the opinion that the matter requires to be investigated further. 6. the designated agency shall rec ommend appropriate action to the concerned government department or organisation. . After concealing the identity of the complainant. If the complaint is accompanied by particulars of the person making the complaint. For this purpose. the designated agency shall devise an appropriate machinery. 8. the designated agency shall officially seek comments or explanations from the head of the department of the concerned organisation or office.144 Vilakshan. inter alia. a) b) Appropriate administrative steps for redressing the loss caused to the Government as a result of the corrupt act or misuse of office. or on the basis of the complaint itself without any inquiry. Either as a result of the discreet inquiry. the designated agency shall take the following steps: The designated agency will ascertain from the complainant whether he was the person who made the complaint or not. as the case may be. the designated agency shall make.

who shall take such action. Either on the application or the complainant. only if the complaint is received under this machinery. However. 12. if the designated agency is of the opinion that either the complainant or the witnesses need protection. or . if warranted by the facts and circumstances of the case. or on the basis of the information gathered. The designated agency shall not entertain or inquire into any disclosure: (a) In respect of which a formal and public inquiry has been ordered under the Public Servants Inquiries Act. The designated agency may give suitable directions to the concerned public servant or the public authority as the case may be. as deemed fit. In case the designated agency finds the complaint to be motivated or vexatious. 10. the designated agency shall be at liberty to take appropriate steps. the designated agency shall issue appropriate directions to the concerned government authorities. 11.Patra. to render all assistance to complete the investigation pursuant to the complaint received. 9. 13. he may file an application before the designated agency seeking redress in the matter. secrecy of identity shall be observed. 1850. d) Recommend taking of corrective measures to prevent recurrence of such events in future.. Beyond Whistleblowing: A . 145 c) Recommend to the appropriate authority/agency initiation of criminal proceedings in suitable cases. the designated agency shall be authorized to call upon the CBI or the police authorities. If any person is aggrieved by any action on the ground. The machinery evolved herein shall be in addition to the existing mechanisms in place.. as considered necessary. that he is being victimized due to the fact that he had filed a complaint or disclosure. 14. For the purpose of making discreet inquiry or obtaining information from the concerned organization.

1952. The machinery created herein shall operate till Parliament passes a law on the subject. 15. March. the designated agency is authorized to initiate appropriate action as per extant regulations against the person or agency making such disclosure. In the event of the identity of the informant being disclosed in spite of the designated agency’s directions to the country. 16. 2008 (b) In respect of a matter which has been referred for inquiry under the Commissions of Inquiry Act. . XIMB Journal of Management .146 Vilakshan.

email: nalini@iimidr. 1.ac. poor infrastructure. etc. At present. this paper also throws some light on how the PE firms are facing challenges in India in form of bureaucracy norms. 2008 Associate Professor. most importantly. corporate governance and organizational development by generally bringing in best practices. regulatory limits in certain sectors.in . languages. They believe that partnering with the right team can improve c ompany’s presenc e and competitive edge by providing insight into the local decision-making process. Revised February 23. markets and laws. This paper concludes that there is a high potential in terms of more mature and convenient environment for private equity in India. Indore. etc.Perspective Private Equity — Gaining Momentum* Naliniprava Tripathy1 Abstract Indian financial markets have progressively become more attuned to the international market forces. Private equity funds are the pools of capital invested by private equity firms. this paper highlights major role played by the PE firms for improving the efficiency of companies in the business world of India. sophisticated investors are looking out for more localized investment and alliance opportunities for new targets and markets for investing in innovative asset classes.0 INTRODUCTION The robust financial markets of India are now experiencing a strong growth. In this process the private equity firms and private equity funds have played key roles in providing access to funding. Indian Institute of Management. PE firms usually have long experience and they are able to help immensely with the business strategy. Another benefit of partnering with locals is that they will know how to approach and talk to promising entrepreneurs. Keeping these in view. interpreting laws and. Secondly. overcoming cultural barriers. enc ouraged by domestic and international investments. who might * 1. resources. 2007. Received August 3. maintaining important relationships that will add value to a company’s expansion strategy. At present both foreign and domestic companies look to expand into the emerging markets in Asia and globally integrate a business plan across a broad spectrum of cultures. In the present environment of competition many companies need help of PE firms to increase their market competence and value of brand for strengthening market ability. operational expertise. expansion.

as Fig-1 Source: http://venturechoice. Private Equity falls into two broad groups: venture capital and other private equity.htm . which are in turn u sed by private equity firms for investment in target companies. bonds. active investment strategy. It refers to the manner in which the funds have been raised. and often bring in new management teams that focus on making the company more valuable. 2008 be reluctant to bring in outside capital and foreign advice to enable growth of their young company. mezzanine c ap ital and others. P rivate equity has arrived as a major component of the alternative investment universe and is now broadly accepted as an established asset class within many institutional portfolios. Passive institutional investors may invest in private equity funds. Private equity is a broad term that refers to any type of equity where the equity is not freely tradeable on the public market. Private equity funds typically control management of the companies in which they invest. namely on the private markets. Private equity is the universe of all venture and buyout investing. growth capital. Private equity is generally part of an LP’s(Limited Partners ) overall investment strategy that may include real estate.who are high networth investors seeking higher rates of return. March. XIMB Journal of Management . Private equ ity executives face increasing professional and personal liability for the performance of their funds and Portfolio Company. angel investin g. and publicly traded company stock. Private equity investment is typically a transformational. 2.0 WHAT IS PRIVATE EQUITY? opposed to the public markets. One of them is private equity. whether such investments are made through funds. venture capital. Most other private equity is invested in more mature or later-stage companies. It is the mode of financing private companies by third parties. Private equity investing is often divided into the categories described in Fig-1.com/articles/why_n_how_to_inv_in_priv_equity. valueadded.Categories of private equity investment include leveraged buyout. funds of funds or secondary investments.148 Vilakshan.

3 billion out of 68 funds in the first quarter of 2007.0 IS PRIVATE EQUITY A SENSIBLE INVESTMENT FOR THE AVERAGE INVESTOR? Private equity is a favoured asset class for professional managers because it has historically produced superior returns. the score is 11. Its investment risk is spreading over long time periods. Over the past ten years.5 percent for the year ended March 31. in multiple industry sectors. up front. even in conservative ones like those of pension funds. They are looking for a quick.8 percent (Fortune Magazine. 5. often de-listing their acquisitions if they were quoted on any In the U. profitable sale. private equity shops have raised $44. The Dow Jones Private Equity Analyst recently reported that U. and in a large number of investments. buyout funds averaged gains of 25. many private equity firms recently have been gobbling up retail businesses.2 percent vs.6 percent for the past three years. According to Thomson Financial.The Private Equity Analyst study found that on top of the first quarter another 400 other funds are trying to raise another $130 billion. 6. The Economist reported recently that during 1980 – 2001 the top quartile of private-equity funds produced an annual rate of return of 23 percent.. Hence they are accountable only to small groups of private investors and lenders. In 2007. The Carlyle . (Fortune Magazine.0 INTERNATIONAL SCENARIO In many ways. 149 3. Private Equity Gaining . 2006 and 17. that is why private equity has a prominent place in large investment portfolios. The first quarter’s $44 billion mark signals a 67% increase from the 46 funds that raised $26. October 24. 9. 14. and then rely on the bank to lend them the rest.Tripathy.. Private-equity deals are making investors rich. And they do things in relative privacy. 2006).S.0 HOW PRIVATE EQUITY GROUPS WORK? stock market.6 percent. Professional money managers know how to do so.4 percent a year vs. which usually perform well in market downturns. 4. The amount of money private-equity firms have spent buying companies totals just over $900 billion in 2006 according to financial data provider Dealogic. After a historic for private equity professionals in year 2006. They are looking for bargains. They usually stump up a bit of money.6 billion in the first quarter of 2006. This means they can make tough or controversial decisions without having considered the shareholders without releasing sensitive information. industry magazine Private Equity International launched a ranking of the largest 50 private equity firms in the world called the PEI 50. November 27. there are no signs that 2007 will be any different.S. usually within three to seven years. a deposit. 2006). over the past 20 years. private equity groups operate just like house buyers. They do not even release information to outside people and journalists to interfere and making enquiries into their personal business affairs. rather than to stock market investors and company employees.

The PEI 50 found that the largest 50 firms in the world had raised $551 billion over five years. Goldman sahs Black stone.com/magazines/fortune/fortune_archive/2007 . Texas pacific Cerberus Caryle.7 31.1 27. Carlye.Providence Year 2007 2006 1989 2006 2006 2006 2006 2006 2005 2005 SOURCE: http://money.9bn. took over the control of Equity office properties trust. the global Private equity market observed the biggest ever deal as Blackstone. 2008 Group ranked at the top.7 21. followed by KKR and then Goldman Sachs. Riverstone. thus adding to the industry’s prestige. On February 07. The numbers of such high profile deals are ever-rising.cnn. Permira. KKR.150 Vilakshan.permira. Merrill Lynch KKR Apolo. Blackstone. beating the Vornado Realty Trust. 2007.Of America RJR Nabisco Harrah’s entertainment Clear channel communications Kinder Morgan Free scale Semiconductor Albertson’s Hertz TDC Value ($bn) 38.6 17. a (PE) firm.4 25. Merrill Lynch Apax.90 32. 2 3 4 5 6 7 8 9 10 The Carlyle Group Kohlberg Kravis Roberts Goldman Sachs Investment Area The Blackstone Group TPG Permira Apax Partners Bain Capital Providence Equity Partners CVC Capital Partners Principal Source: www. Texas pacific Caryle.KKR.9 Table-1: PEI 50’s (Private Equity International) 1. XIMB Journal of Management .com The Table-2 depicts the top 10 deals of all-time Acquirer Blackstone Bain. Table-2: Top 10 deals of All-time Company Equity office Properties trust Hospital Corp. March.privateequityinternational.6 17.4 15 13. Clayton Bubillier and Rice. the largest Real estate Investment Trust (REIT) in USA for $38. The top 10 constituent firms in PEI 50’s (Private Equity International) 2007 rankings are shown in Table 1.

which grew by 37 per cent to $6. in the same period. Table-3 provides the data regarding the top PE investments in Indian market. Private Equity Gaining . has witnessed strategic M&A deals worth of $24.has invested in Amtec Auto. Apart from this. 2006 Today.7 80 66 65. the largest private equity investor in India. Mostly PE firms are improving their presence in the real estate and also in infrastructure and telecom business.145 crore) announced. lured by the massive opportunity and high returns. compared with $2.Moser . rose by 150% from $20 billion in 2005 to $50 billion. Private equity deals rose 230% to $7.0 INDIAN SCENARIO Global PE firms are exploring opportunities of investment in India due to expanding consumer market in India. And now. private equity (PE) is foraying into Indian real estate in a big way. They need to invest fast and they need the people to help them do it.62 billion have taken place till November 2006. The Business Process Outsourcing (BPO) industry. reforms and slowdown of US market. 26 deals were worth more than $50 million compared to just nine such deals of its previous year.080 crore). the first six months of 2007 have already seen deals worth about $755 million (Rs 3. The last three years have seen unprecedented private equity inflows into India. October11. Kotak mahindra. both within the country as well as overseas.8.5 billion by the end of FY07. Warburg Pincus. there are more than 150 private equity players in the local ring and all of them have carted in corpulent corpuses..Tripathy. 151 6. has actually been a runaway success..26 billion in 2005.ICICI Venture Chrys capital Warburg Pincus Others Source: The economics Times. India Inc.2 Investors Olympus Capital Bank Muscat. Out of the total 299 deals of the year 2006. M&As involving Indian companies. PE investments to the tune of $6. Private equity firms have made lucrative returns from early bets on companies. While 2006 saw private equity investments worth $500 million (Rs 2.46 billion in 2006 in India.06 billion in the first 11 months of 2006.3 billion in FY06 and touched $8 . Table-3: Top PE investments (July-Sept 2006) ($ mn) Company Quattro BPO Solutions Centurion bank of Punjab UTI bank Aryan Coal Beneficiations Gujarat Pipavav port Amount 100 90.

insurance. the private equity funds are interested in different sectors in economy and are holding diverse types of companies in their portfolio. engineering and construction. real estate and telecom among other sectors.Nearly $135 billion of private equity was invested globally in 2005. followed by construction $418 million with 9 deals.enabled services.. max Indi a and N ic holas Piramal. textiles $309 million in 7 deals. financial services.780 395 1. the data relating to series 1 and series 2 are given in Figure -1. Today.152 Vilakshan. Information technology and IT.1H2007 (US$ millions) 8000 7000 6000 5000 200 4000 3000 110 2000 1000 0 Series2 Series1 1160 937 78 591 56 470 1650 71 146 2200 161 150 100 50 0 280 7500 299 5648 350 300 250 Fig-1 Growth of PE/VC In India 2000-1H2007 (US$ Millions) Source: TSJ Venture Intelligence India October 2007 PE deals are rising in India in various sectors. banking. Financial services sector continued to score as a favourite sector for PE firms in 2007 containing 37percent followed by 16 percent by IT and ITES.114 Growth of PE/VC in India 2000 . ie. Table-4:Top Cities attracting PE Investments in 2006. Fig-2 PE Investments by Industry (First Half of 2007) Source: TSJ Venture Intelligence India October 2007 . March. 2008 Baer.Fin ance sec tor has been the biggest recipient and has attracted $2 billion with 11 deals. XIMB Journal of Management . 5% 1% 4% 2% 16% 1 2 3 4 5 6 7 8 9 10 11 12 37% 14% 7% 2% 3% *National Capital Region Source: TSJ Venture Intelligence India October 2007 7% 2% With regard to growth in PE/VC in India during 2000 – 07.525 354 492 1.4. City Mumbai Delhi/NCR* Bangalore Chennai Hyderabad Pune Number of Deals 69 41 40 22 17 10 Value (US$M) 1. Buyou ts by private equ ity players accounted for 8% of the total M&A ac tivity in India du ring the year 2007. 14 percent by shipping and logistics as shown in Fig-2. PE funds are showing greater interest in Indian companies in the major cities which is depicted in Table.

widespread knowledge of English and a deep pool of expatriates experienced in Western businesses.91 2. democratic government.27 5.. 6 6 440 47 Source: TSJ Venture Intelligence India October 2007 • Global private equity firms in the Indian market are continuously on the rise. Private Equity Gaining . averaging around 9 % over the last three years. Early-stage investments accounted for about 24 deals during first half of 2007 as shown in Table-5. robust and transparent capital markets. India obtained the number two positions only after Japan with respect to the receipts of private equity flows according to Center for Asia’s private equity research. which saw investments of $2. and low gearing are a few other reasons. Annual GDP growth. Private equity deals in India is greatly attributed to its strong corporate performance. low volatility in ROE. Table-5: PE Investments by Stage: 2007 (First Half) Stage of Company Early Stage Growth Stage Late Stage PIPE (Private investment in public equity) Buyout Others No. a strong education system.6 3.com/ ?Publications:Asia_Private_Equity_Review:APER0706MY . A rapidly growing economy with a superior rate of Return on Equity (ROE) vis-à-vis other markets in the region. Of Deals 24 25 67 34 Amount (US$M) 154 1082 2162 1714 Table-6..89 8.asiape.7 • • Source:http://www. and burgeoning middle-class.71 2006 10.0 MAJOR GROWTH DRIVERS OF PE INVESTMENT IN INDIA The performance of stock market.87 1.65 3. a strong financial system.Tripathy. has made the country among the fastest developing major economies in the world. 7. buoyant economy. 153 Late-stage investments accounted for 67 while PIPE (PE investments in Public Equity or in listed companies) accounted for 34 of the deals. possibility of fast growth and maturing of the mergers and acquisitions activity has played a key role in the development of private equity market in India. PE investments have increased recently in comparison to investment in china.6 billion as per Table-6: Private Equity Inflows to Asia (USD Billion) Destination Japan China India 2005 4. The following are some of the key points: • India is rapidly turning out to be an investment driven economy due to solid underpinnings for economic growth.44 2007(July) 4.

which provide genuine liquidity option. which is attracting PE investments.000 in 2007. India is also developing some retail financial service businesses. ICICI PE.The price-to-earning ratio for India stocks is increasing. GVFL Ltd etc. The government has also decided to lift the limit on foreign direct investment for the development of airports. • In India. becomes manifest in the kinds of businesses they develop. India’s Sensex 30 — that country’s version of the U. Competition in the market and the strategy to improve cost effectiveness has generated the feeling of security • • • • • • • • • . Kotak Mahindra PE. It has changed the face of the Indian corporate that have not only weathered global competition. but also managed to influence the steep hike in fuel prices. no doubt. March. India has firmly established itself as the world’s IT super power with almost all major software development companies having an Indian development centre. Main economic forces. There are strong PE funds in India like HDFC PE. usually by founders. 2008 • One of the biggest triggers for the rise of the Indian economy is the low interest rate regime. The nature of entrepreneurship in India is different because large numbers of Indian entrepreneurs have been able to work abroad as expatriates in many roles.154 Vilakshan. IPO norms are stringent and SEBI is bringing in future reforms like IPO Grading and easier de-listing norms to make the investment climate attractive. XIMB Journal of Management . engineering and construction which have attracted a significant chunk of PE investments. Dow-Jones Industrial Index — broke through 21. banking. mining for diamonds and other precious stones. pharmaceuticals. India made an all-out push to promote itself as a business-friendly environment for investment. particularly in information technology. The first generation of private equity players has significant success in last several years.S. Again India has an advantage in healthcare including biotech. which are fuel for attractive private equity growth and investment opportunities in India. UTI Venture. which is encouraging to foreign private equity firms to make their India investment destination. This. telemedicine. are combination of a growing Indian consumer class and an evolving set of differentiated Indian skills. many listed companies act more like privately held firms because they are under tight control. and power trading which leads to growth of PE investments in India.

and plot a flexible course to exit for the .e. Out of these China believes that 300. As there are multiplayer authorities like RBI. Department of Industrial Policy and Promotion. the Indian public markets lack liquidity and many Indian companies are thinly traded in markets which are controlled by powerful local brokerages. It is needed to target the beneficiaries of a growing consumer class. Hence it is an imperative need for Indian business to unlock the value of their business and expand for global competition. there are more Internet users and engineers in China than any other country. Oct. Liquidity of the stocks becomes a major issue. 2006). China also has a strong entrepreneurial culture. Most of the private equity investors draw a comparison across both the countries. Private Equity Gaining . The Indian market is already one of the expensive markets in Asia today. 9. its plan is not always matched by its ability to implement changes. Oct 2006) Apart from this. with minority private equity investors having less scope to hire and fire. This is resulting in high cost deals. SEBI. Lastly.. Foreign Investment Board. Further cheap labour and foreign direct investment have made China the world’s manufacturing powerhouse. The equity purchased by the fund is not freely tradable if the portfolio of the company is not listed in the stock exchange. because it has provided spectacular private-equity returns in recent years (Source: Knowledge Wharton. in investment circles.0 PROBLEMS OF PE INVESTMENTS Thirdly.000 would qualify to list on NASDAQ or NYSE. Secondly.there is no listed public market available for the vast majority of private equity investments in india.. Mid-cap funds are often constrained by several factors i. Fifthly. Finance Ministry. 8.0 EMERGING CHALLENGES Although India is an integral part of the global economic chain. Most of private equity investors are now seriously considering China. Indian corporate is by and large family owned business. thus China is a direct competitor of India. 155 and many companies seek the help of private equity investment to improve their performance. Chinese companies with good management are growing at a rate of 30% internally and 30% globally and there are at least 3 million privately owned companies in China.Tripathy. which may in long run affect the return on investment of private equity companies. it is advisable to have separate regulatory authority for smooth growth of PE space for the development of the economy. This changed “growth foc used” mindset of Indian entrepreneurs will give rise to continued and growing demand for PE in future. leverage global networks. Fourthly. forge key local relationships. (Source: Knowledge Wharton. India’s economy is largely being built by closely held family businesses.

warton. “European Private Equity Tax Survey. October 115.”.in There is a good potential for PE firms in India as a result of sustained economic growth drivers across sectors. a s i a p e . Issue 1.isb. PE firms are facing a few challenges in the form of bureaucracy norms.com/magazines/fortune/ fortune_archive/2007 http://n. vol. October 24 2006 Heel.cnn.1. Joachim Kehoe.09:00. In the near future PE funds will have direct or indirect funding in the infrastructure sector.com/articles/ why_n_how_to_inv_in_priv_equity.156 Vilakshan. 2006 .net h t t p : / / w w w .com http://knowledge. There is a huge demandsupply gap and there is increasing demand for investment in infrastructure.wikipedia. poor infrastructure. October 2007. The Economist.com/magazines/fortune/ fortune_archive/2006/11/27 http://money. Private Equity: Capitalism’s New Kings.altassets. The economy’s size from $800 billion in 2005 is estimated to increase to $5040 billion in 2020 (source: Evalueserve).com www.” Mc Kinsey Quarterly. c o m ? Publicati ons:Asia_Private _Equity_ Review:APER0706MY http://www. March.edu http://money.3.privateequityinternational. 2005.ventureintelligence.cnn. Evalueserve Research Publication.org www. No. Issue no. Indian companies are successfully integrating non-Indian entities and M&A are likely to grow at a rapid pace. Conor. November. Apart from this. . 2006. India’s conduciveenvironment are the basis for private equity to grow and this in turn is likely to lead to a virtuous cycle of further improvements in the economic and infrastructure environment. 2006 Fortune Magazine.upenn. etc. 2007 Knowledge Wharton. In addition. Oct 2006 Price water house Coopers. so multinational private equity funds should leverage global networks to maximize their ‘network effect’ and influence management teams. February 2005 Business Development | Sub-Saharan AfricaOctober 05. 2004 TSJ Venture Intelligence India.incrementaladvantage. regulatory limits in certain sectors.edu Just IN PRINT. XIMB Journal of Management .org http://venturechoice. November 27.com www. Vast majority of private equity investments in India involve minority control. 2008 growth of PE investments in India.indiavca. 10.illinoisvc. July. “Central Europe Private Equity Confidence Survey” (2007). CONCLUSION Deloitte. 2004.htm http://www. “Why Some Private Equity Firms do Better than others. November 25. http://allafrica. www. REFERENCE Abe de Ramos “The Answer is Private” CFO Asia.org http://www. Fortune Magazine.

Management case

Fabindia Overseas Private Limited*
B. Mohanty1 & Rajeev Roy2

In July 2007, a TNN reporter broke the news that a private investment fund led by the former World Bank President James Wolfensohn, had picked up a 6% stake in Fabindia, an Indian ethnic wear company, for $11 million. That put the value of the company at around $183 million or Rs.730 crore. Fabindia, in fact, was approached by a number of potential investors but they chose to go with the investment vehicle promoted by Wolfensohn because they were keen to choose an investor who shared their values. Various reports mentioned that the funds so raised by Fabindia would be used for financing the expansion plans of the company. The fund would also be used to develop support structure particularly for providing advanced technology and training to the artisans, who were the prime suppliers of fabrics and other raw materials to the company.

educated at the Brooks School in North Andover, Massachusetts, and at Yale. He was introduced to India by his father, who told him stories of his time in India when he was posted there during the Second World War. John Bissell worked as a buyer for the American departmental store, Macy’s. In 1958, under a programme run by the Ford Foundation, he came to India to advise the Central Cottage Industries Corporation which was formed by the Indian government mainly to showcase Indian handlooms and handicrafts. His role was to advise on issues relating to marketing Indian handicrafts. He was new to India and he did not know any Indian language. In spite of these inconveniences, he travelled extensively over India and met several craftsmen. He came across a lot of skill, but he could see that the talented craftsmen had no idea about marketing their products and they were in no position to access distant urban or international markets. He liked his experiences in India and kept coming back.

John Bissell who founded Fabindia was born in Hartford in Connecticut and was
* 1. 2.

Received January 29, 2008; Revised March 3, 2008; Both authors have contributed equally to the development of this case. Professor, Xavier Institute of Management, Bhubaneswar, email: brajaraj@ximb.ac.in Associate Professor, Xavier Institute of Management, Bhubaneswar, email: rajeev@ximb.ac.in

158 Vilakshan, XIMB Journal of Management ; March, 2008

His experience in the retail business allowed him to recognize an entrepreneurial opportunity and he decided to set up a business based on Indian crafts, particularly traditional weaving and handlooms. Initially his goal was to export to the US and to other western countries. With that aim in mind, he incorporated Fabindia in 1960. The c ompany operated from Bissell’s residence in the posh Golf Greens locality in New Delhi. The company was mainly into exporting and initially its business was concentrated on upholstery fabrics, durries and rugs. Growth was slow for the company and in 1965 the company moved out of his house and into a proper office. By then, Fabindia had an annual turnover of rupees 20 lakh. Most of this turnover was accounted for by a single buyer and a single supplier. A. S. Khera made durries and other home furnishings in his workshop in Panipat and most of the output was purchased by the UK based Habitat, which was founded by a famous interior designer, Sir Terence Conran. On the personal front, Bissell married Bimla Nanda, who served as the social secretary to the American Ambassador in India. Soon, they had a daughter, Monsoon, and a son, William.

outlet in the Greater Kailash market, an upmarket shopping area in South Delhi. During the early days, merchandising was not a planned activity. Whenever Bissell saw something of interest, he procured it for display at the store. Sometimes he would invite the craftsmen also, to display the products and assist in the sale. This orientation of customer relationship later became a part of the culture in the company. Bissell’s Greater Kailash shop was a success and he attracted a distinct type of visitors to his shop. But in spite of such success in its direct retail business, Fabindia remained dependent on exporting and Habitat continued to be their single major buyer. In the early 80’s, Fabindia made a signific ant addition to their range by adding ready to wear garments in their retail offerings. From late 70’s, Bissell had thought of marketing readymade garments. In an interview in 1977, he had said, ‘’The greatest thing that happened to our business was the move in Europe and America a few years back to the natural look - natural textures, natural fibres - and away from things like polyester and nylon’’. Similarly, in India, a distinct group was emerging like in Europe and America. Some of India’s new young politicians patronized Fabindia and were able to provide Fabindia with nationwide exposure for its products. In spite of all that, their domestic retail business grew slowly and they continued to focus their primary efforts on their export business.

Bissell’s business continued without much of change in its approach till about 1976, when he opened the first Fabindia retail

Mohanty et.al, Fabindia Overseas Private ... 159


All that changed in 1992. An unexpected development came as a shock to Bissell. Habitat, with whom a close business relationship had grown over the last more than 30 years, was acquired by a larger firm and the new entity abruptly ended the long buying arrangement with Fabindia. Fabindia had not tried to develop any strong relationships with other foreign buyers and even in the face of such a crisis, it was unable to find any bulk buyer, who could provide an alternative buying support. One viable option was to aggressively develop their domestic retail operations. But, before Bissell could come up with a strategy for his business, he suffered a paralytic stroke. This led to William Bissell, his son, to step in to run Fabindia. Very quickly, he was able to set Fabindia on the path towards domestic expansion. Eighteen years after opening their first store, Fabindia opened their second store in Delhi in 1994. John Bissell’s bad health continued and in 1998, he succumbed to aneurism - a disease related to blood vessels. In 1999, at the age of 32, William formally took over as the Managing Director of Fabindia. The Company’s domestic expansion had been spectacular after William’s taking over. By 2001, Fabindia had six stores concentrated in the metro cities. By the end of 2004, these had increased to 20, and the company was seriously considering expanding its

stores into the tier-II and tier-III cities as well as overseas. By the end of 2007 Fabindia had 75 retail stores across India and in addition stores in Dubai, Rome and Guangzhou in China.

The products of Fabindia in the initial years consisted of only upholstery fabrics for export to overseas markets. Then in the early part of 1980s readymade garments were added to its product line and in 2004 organic products were added. In 2006 body care products were introduced. Thus, the product mix of Fabindia could be divided into three broad groups, namely Garments, Home Products and Organics.

Though Fabindia was the supplier of upholstery fabrics initially, it gained popularity as a retailer of readymade garments. It started with men’s wear which occupied a shelf in some select stores. Gradually a whole corner was occupied with men’s wear, women’s wear and kid’s wear in all the stores. In October 2007 teen’s wear was also launched which comprised camisoles in beautiful prints, khadi salwar sets in vibrant colours and kalamkari skirts. In 2006 70% of the Fabindia’s revenue came from garments segment. Along with readymade garments Fabindia stores have a wide collection of accessories like dupattas in a variety of colours, weaves, fabrics and prints, scarves and stoles in silk and cotton ,neck ties and shawls.

160 Vilakshan, XIMB Journal of Management ; March, 2008

Fabindia’s garments were known for their ethnic look. These garments used vegetable-based and other natural dyes and were generally in soft colours. There was a fine-tuned balance between tradition and modernity. Hand block printed short kurtas, mix and match churidar kurta sets with or without dupattas, straight skirts in raw cotton, long crinkled skirts and white cotton or chanderi dupattas were some of the very popular items among garments. Some Fabindia customers who used Fabindia garments said that these were very comfortable to wear and were fine combinations of Indian aesthetics and western design sensibility.
Home products

East rated Fabindia very highly, saying ‘If I can tempt you away from the malls for just one visit – then I urge you to put Fabindia on your list’ (www.7days.ae, 2007)

Fabindia entered into the Organic product market with full commitment in 2004. Its product range comprised ready to eat items like dry fruits, cereals, honey, jams, pickles and coffee. In 2006 it added a range of body care products to its product mix. It included shampoos, soaps, hair oils, moisturizers, body scrubs, face packs, hair conditioners and skin care products. Fabindia promoted its products, mostly through posters, word of mouth and events. The youth leaders who patronized Fabindia garments were like brand ambassadors for Fabindia. The news reports also to a certain extent worked as advertisement for Fabindia. One such news item which described the organic products is given in Box 1.

In India there were hardly any organized outlets for home furnishings be it upholstery, curtains, linens or home furniture. Mostly the local carpenters dealt with the local demand where furniture was made as per customer specification. Similar was the case with curtains and linens. There were local showrooms which catered to the need. Fabindia was one of the first retailers in India that offered a “complete home solution”. The Fabindia range of home products comprised upholstery, curtain fabric and readymade curtains and bed linens. Home furnishings comprised furniture made of only wood and metal, which went well with the philosophy of Fabindia. Fabindia was into almost all elements of home décor and furnishing. A web story on a website popular in the Middle

Most Fabindia stores are owned or leased by Fabindia and Fabindia operated the stores. There are a few exceptions like the joint venture in Rome and the franchise outlet in China. The number of Fabindia stores has increased over the years, particularly under William Bissell. From three stores in 1996 it has gone up to 75 stores in 2007. The growth can be seen from Figure-1. The growth in sales and profit are shown in Figure 2.

Mohanty et.000 tonnes of organic food products. Chandigarh. teas and coffees.According to Dilraj.al. Statistics are predicting that the global market was only $17 billion in the year 2000. sugar and jaggery. right across India to the natural forests of Coorg region in Karnataka and the plains of TamilNadu. the demand for organic goods is tremendous. pulses. groundnuts. 80 70 60 50 40 30 20 10 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 140 120 100 80 60 40 20 0 2002 2003 2004 2005 2006 Turnover Profits Figure 1: Growth of Stores since William took over as MD Figure 2: Profit and Turnover in Rupees Crores (2002 to 2006) . according to government statistics. “Through the certification process. the pioneers in the field of promotion of cottage industry on a mass scale.” she added. vitamins and anti-oxidants.. honey. cashew. farmers are supplying us with organic varieties that are ideally suited to their own local conditions. peppers.Fabindia has launched organic food products after due certification as per the standards set by the International Federation of Organic Agriculture (IFOAM) and the National Programme for Organic Production (NPOP). and herbs at Fabindia stores across the country. manager. We believe in giving farmers a fair price for their produce. has made available organically grown and certified varieties of rice. including the Sector 9 outlet at Chandigarh..001 percent. flour. may touch the $31 billion mark by 2005 and India’s current share is only 0. from a total food production of over 200 million tonnes. Saturday. walnuts. We have worked to build relationships with farmers and farm cooperatives. and in supplying the very highest quality food to our customers. we have ensured that the customer actually gets organic food. salts. beans. This latest initiative by Fabindia. the country produced only 14. Fabindia Overseas Private . Our policy of fair trade makes traditional organic farming a viable modern economic option. March 5. Fabindia. The Indian Express. Worldwide. ensuring that our fair trade policy is maintained. From the pristine slopes of Himachal Pradesh and the fertile valleys of Punjab. Organic food is better due to its nutritional levels and exclusion of toxic chemicals and GMOs and contains higher levels of essential minerals. 161 Box 1: News Item on Fabindia Organic Products. In 2002. 2005.

when it invited the designer. With regard to the management of stores. Store budgets are set centrally after consultations with the store managers. They also attend regular training programmes where the accent is on learning modern methods of retail management as well as remaining true to Bissell’s vision for the firm. Overall. These are typically small stores with very few types of products in stock. However. the proportion of high end goods is much more than in the case of regular stores. They are given budgets for buying and for operational costs. weavers and craftsmen are invited to interact with the designers and to hold demonstrations and exhibitions in Fabindia stores. Budgets are determined primarily on the basis of previous year’s sales. representatives of Fabindia met local weavers and traders. Riten Mazumdar. Ilford House in Chennai and Charles Correa’s house in Bangaluru. Many of these stores are located in famous historical landmarks. the managers are given a lot of independence in the way they operate. to design and make a calligraphy-based home furnishings collection. The stores themselves have décor and layouts that highlight their traditional and natural focus. Both premium and regular stores carried the full range of merchandise but in premium stores. The ‘mystery shopper’ technique is used to keep a watch on operations in stores. They stressed on the importance of product innovation and diversification. 2008 Fabindia has primarily three different kinds of stores. Managers regularly go for field visits to explore new possibilities. no single store carried all the items. In a recent buyer-seller meet in Varanasi. This was a highly successful endeavour and it encouraged the company to bring about new innovations in its products. Taking this further. 7. Fabindia suggested a prototype development project. next year’s forecasts and other external factors. premium stores. March. Fabindia stores focused on creating the right ambience. XIMB Journal of Management . This practice of inviting designers has continued to this day. Fabindia dealt in over 150. Very often.162 Vilakshan.0 DESIGN Fabindia made its first foray towards incorporating contemporary design in 1977. The Fabindia representatives gave inputs on current market trends and emerging designs. A small display and demonstration of local weaves and crafts was organized. such as in Jeroo in Mumbai.000 stock keeping units (SKU’s). Merchandisers from Fabindia indicated their preferences and the local weavers’ . Concept stores have been opened to test new markets. Even store personnel are encouraged to wear clothes that reflect the Fabindia ethos of traditional and natural look. Store managers interact continuously with merchandisers to stay abreast of anticipated new styles and trends. regular stores and concept stores. namely.

business sense dictated a change in their established practice. Now they pay within 15 days of delivery. The procurement team talks with others in the organization and tries to find some way to gainfully use the fabric. This can play havoc with centralized planning. So if there are some minor changes in the originally agreed upon design. It sees itself as an enabler of a certain way of life. Fabindia used to make spot payments for all deliveries. For fabrics.. especially from the West. Till recently. could mean storing it for almost a year. On the other hand. As many of its suppliers are uneducated. William was able to convince them that for such a large organization. The weaver’s statement regarding the length was generally accepted and only random checks were occasionally carried out to cross check the statements. Also a number of times the supplies are delayed. 8. Weavers sent their fabric in ‘thaans’. the goods are not rejected or returned. meant for winter. 9. Fabindia sourced its organic products from farmers. it is trying to demonstrate that the urban living model is not the only path to development for a society. much of Fabindia’s purchasing is carried out without written contracts.. Fabindia does not turn away suppliers who deliver late. In spite of such issues. He reiterated that Fabindia was a ‘for profit’ organization with social motives. There are some practices in Fabindia which might seem like ad hoc procedures.0 SUPPLY CHAIN dependent on the prevailing season. Getting a delayed supply of fabric. especially when sales and demand patterns are heavily Fabindia believes that it does more than just collect and sell handicrafts.0 PHILOSOPHY Fabindia’s supply chain is uniquely designed keeping in mind its unique business model and its ideology. Many old employees at Fabindia resented this move and said that this is not in keeping with the ideology of Fabindia. Fabindia is far more flexible and forgiving than many other procurers. Most of its suppliers are based in rural India.Mohanty et. 163 cooperative worked with a designer from the National Institute of Design (NID) to develop samples as per Fabindia’s specifications. Fabindia understands the limitations of its weavers and small suppliers. The project was very successful and Fabindia placed an initial order for fabric worth Rs. small scale manufacturers and non government organizations (NGO).24 lakh. the suppliers are mainly weavers but there are also a few larger fabricators. It is trying to prove that old patterns of living do not have to be sacrificed for . By doing its business in a certain way. The system operates on trust and verbal commitments. Fabindia Overseas Private .al. A thaan was a roll of fabric that could be 20 to 25 metres long. that is till the next winter.

The companies will be of varying sizes and 49 % of their equity will be held by AMFPL. March. Within a few months of its launch in 2007. AMFPL had already established nine companies in Faridabad. . etc. The small and medium scale artisans. bringing out the village based skills which were hitherto hidden from the world. Fabindia is trying to present an alternate vision. One is not necessarily better than the other. The companies will have access to a maximum investment of two crores rupees and they can avail a loan of another one crore rupees. AMFPL will also work to establish a new trading system. were some of its activities symbolic of its socially responsible and ecofriendly practices. The company has tied up with ICICI Bank’s Sandhi Craft Foundation. Jodhpur. Production of organic products. A corporate structure will help artisans to raise funds for working capital. Apart from finance. The first 20 are targeted to be set up in the first 18 months itself. who quite often run short of funds could trade their shares to obtain funds for running their businesses in the times of need. Fabindia practised these concepts.0 COMMUNITY-OWNED ENTERPRISE Fabindia is trying to establish community owned enterprises in which artisans will be the shareholders of newly formed companies. Both need each other.100 crores over five years to Artisans Micro Finance Private limited (AMFPL). which will provide Rs. Long before corporate social responsibility and eco-friendly business practices were seriously talked about in management. 10. Jaipur. There exists a symbiotic relationship.164 Vilakshan. and This is in line with the company philosophy and mission. 15% by outside investors and the balance 36% by the local craftspersons. Fabindia also hopes to improve quality standards and supply Gandhiji had a vision of an India built around its villages but the model of development followed in India and elsewhere led to the growth of an urban centric economy. which will help establish these community owned companies. 2008 the sake of modernization development. to enable shareholders to buy or sell their shares a few times a year. XIMB Journal of Management . providing equitable employment to traditional artisans and market for their products. AMFPL has a long term goal of establishing 100 community owned enterprises. enabling the rural craftsmen to form self sustaining community based organizations and promoting natural dyes. Fabindia will guarantee 8% of the 100 crores through a bank guarantee of 4% and an FDR for the other 4%. natural fabrics. Providing a market for trading shares will enhance the value of their shareholding. Bikaner and Bhuj. Growth of urban areas does not necessarily mean the death of the village.

11. Reliance and Birla are expanding their retail businesses. For Fabindia William Bissell has set a very ambitious target of reaching 250 stores and a turnover of Rs. such as Shoppers Stop and Pantaloons. Ltd.0 AWARDS AND ACCOLADES doing well for a while and could pose a challenge by expanding.10-15 crore. Growth in locations was expected to come from expansion in promising Fabindia’s main competitors are the ethnic wear retailers like Khadder. Fabindia has grown to having a turnover of Rs. 165 technological know-how.0 COMPETITION From a turnover of 36 crore rupees in 2000-01. The inspiration to set up AMFPL came from the success of Delhi Artisans Handicrafts Pvt.0 FUTURE Fabindia is very careful to maintain its brand and its brand has won a number of accolades.. who are also expanding at a rapid pace. Also. A design panel was to be set up to help artisans to create designs in sync with market demand. W. The government has already permitted single brand retailers to set up shop and others like Carrefour. New competition is expected from overseas retailers also. It has also won awards for ‘Designer Promoting Indian Craft or Technique’ at the Idea Zee Fashion Awards. That increase will be achieved by increased emphasis on premium products. heads of the companies were to undergo a course on business administration in a leading business school. 13. for example. 12. has well over 30 exclusive stores now.Mohanty et. in addition to being available at some multi-brand outlets. It was established in the early 90’s and it currently has a turnover of Rs. W and Good Things. Currently organic foods. Such phenomenal growth has not come at the cost of profits.. Fabindia Overseas Private . There is also severe competition from the ethnic wear labels of modern Indian retail chains.. The profitability has been maintained at a rate of 6% for the entire period (See Figure2). Also. Stand alone stores like Shristi and Biba in Bangalore.al. body care products and handicrafts form a significant part of its total sales. Fabindia has attempted to decrease its dependence on fabric based businesses by increasing its other product lines. Artisans held shares and the share prices had seen a 25-fold increase over this period.130 crore in 2005-06. Prapti in Kolkata and Sadka and Shoma in Delhi have been . Walmart and Metro have devised ways to get into the Indian market.1000 crore by 2011. Fabindia won the ‘Best Indian Retail Brand’ in 2005 and 2006. The growth is expected to come from new stores as well as increase in sales from existing stores. It registered a CAGR of about 38% in the period 2002-06. Powerful Indian business houses like Tata.

Hindustan Times. Outlook India. G.A. 3 October Chakravarty.com Singh. weavers happy over good prospects. (2002) A school may be a harbinger of change in rural Rajasthan. The Times of India. 27 November 2007 http:// globalicity. There are estimated to be over 120 lakh stores in the country. 24 September TNN (2002) Straight answers. the Indian market for ethnic wear is likely to be a about Rs. The Hindu Business Line. 24 March The Telegraph (2007) Store casts ethnic spell.ae Indian Express (2005) Fab food. R. 4 June Bajaj. T. (2007) Fabindia set to spawn community companies. The Times of India. 16 September . (2007) Fabindia’s fabulous march. May Bagchi. N. 25 May Fabindia (2007) 7 May 2007 www. India Together. The Telegraph. (2007) Wolfensohn’s private fund picks 6% in Fabindia. XIMB Journal of Management . 9 July Deshpande. (2007) Fabindia charts out global expansion plan. This organized retail sector is vying for a share of the spending of India’s rapidly growing middle class whose purchasing power is estimated to be around Rs. 10 lakh crore. 20 January The Hindu Business Line (2007) Fabindia. 2008 overseas markets as well as a greater penetration of the markets in smaller towns in India.net Kaimal. Calcutta Times. The Telegraph. R. (2005) Artisans.166 Vilakshan.A new marketing support to handloom weavers. The Hindu Business Line. SME World. T. U. March.blogspot. Fabindia planned to expand significantly in tier-II and tier-III cities in India. The Indian Express. (1999) Weaving a new life. 18 December Varghese. India Today. May 2007 http://indianhandloomsclusterdchl. Economic Times. (2005) Be Indian. (2005) Fabindia plans more outlets in South. An estimate made by a professional demand forecaster shows that out of the total retail business potential. Varanasi Handloom fabric marketing with Fab India. Footloose. N. ICICI start fund for craft cos. The Fabindia Model: Ghandi Lives.7days. Of this. India has a flourishing retail business but most of it is in the unorganized sector. 9000 crore. organized retail is only 3% but is growing at the rate of 18%. (2007) Design: Retail. 5 March Indian Handloom Cluster. 4 November Kale. but Indian. Business Today. 26 September Rynne. C. 16 August Singh. REFERENCES Acharya. Business Standard. S. K.

Ex PGP 2001-2004 and Mr. Bhubaneswar. 1. The Telecom Authority of India (TRAI) is the regulatory body which determines toll rates and acts as an arbitrator. 2007. a thing of the past. telecommunications was state run in India. Xavier Institute of Management. The author gratefully acknowledges this help. Associate Professor. Following that. telephone penetration in India was 3. His brow was creased with anxiety at the prospect of the new developments in the telecom sector and the rapid strides that competition had taken. his major concern now was what steps he needed to take urgently to prevent yielding any further space to competition. N. In fact. Mr. In 1986.25%. Even after a protracted meeting. the writing was on the wall as far as what the future held for the organization. The Indian Union Ministry of Communications oversees operations of this industry and determines policy guidelines.5 % and cellular phone distribution was a meagre 0. compared to 85% in UK and almost 95% in some Scandinavian countries. Learning from the experience of developed countries. a public sector corporation. Mobile telephony grew from 10 million subscribers in 2001 to 150 million subscribers in 2007. BSNL had just come out of a strategy meeting with some of his senior colleagues. the Government launched Bharat Sanchar Nigam Limited (BSNL) in an effort to Until the last decade. Alok Ranjan Mahapatra. the private sector was reluctant to invest in long gestation industries like telecom. 2008 This case has been prepared with the help of inputs provided by Mr. The monopolistic hold that the company enjoyed all these years. India moved towards privatization of the * 1 Received November 28.0 THE INDUSTRY telecom industry by adopting the Telecom Policy of 1994. Harsh Laad of Ex PGP 2005-2008. Chief General Manager.Management case BSNL – Making the Elephant Dance* M.in . Revised February 25. Both GSM and CDMA technologies contributed to this growth of the cellular telephone sector. there was still no consensus on what should be done to stem the rot. In 2001. He knew that although there was still no cause for extreme alarm.ac. was for ever. telecom operations for Delhi and Mumbai were moved out of the Department of telecommunications (DoT) and given to Mahanagar Telephone Nigam Limited (MTLN). Tripathi1 In April 2003. emali:mnt@ximb. wherever necessary. Anil Sawant.

Progressive reforms such as the removal of restrictions on foreign investment and industrial delicensing are responsible for this growth (Exhibit I). “In the last quarter of 2001. Such structural changes have had a positive impac t on the telecommunication sector and a CAGR of 13% is estimated for the period 20022006. radio. fax. empowering the new company to venture into new areas like basic. The future of the industry lies in the mainline and cellular segments and constant technological innovations such as Internet Protocol (IP) based services. Fully automatic national and international subscriber dialing service is available almost everywhere in the country. 2008 corporatize the remainder of DoT. This trend is expected to continue in the next five years. Since even average telecom services were difficult for the Government to provide. driven by a favourable business policy environment in terms of tax cuts. The gradual opening up of the economy post-reforms ensured steady growth even at a time when other countries were in the grip of a massive slowdown. V-SAT and leased line facilities. basic and value-added services were thrown open to private players. XIMB Journal of Management . due to inexperience in dealing with such developments. radio paging. achieving . However. The new Telecom Policy of 1999 remedied the flaws in the earlier policy along with opening up the bandwidth segment for overseas communication to the private sector. including 100.000 km of terrestrial network. broadening tax base and a soft interest regime. cellular and internet services. accusations of ineptitude by private players. mobile. Despite the political interference. International communication has improved through use of satellite communication and submarine links. The Indian economy is on a path of resurgence.168 Vilakshan. challenges to its authority. Tailoring the EXIM policy to promote exports and aligning the import duties to meet WTO commitments further contributed to this development. The Telecom Policy of 1994 saw liberalization of the sector. As per a recent report from Frost and Sullivan. some policy steps to regulate competition. The country now has a total capacity of 29 million lines.000 km of optical fibre. March. transparency and competence. The voice and non-voice telecom services include data transmission. Revenues from voice services will experience sustained growth even as those from data services are expected to increase sharply due to a surge in usage. The Long Distance transmission network has 300. this regulatory body has been able to weather the storms and has carved out the road map for the telecom sector. the number of cellular subscribers had reached the 5 million mark due to the continuous fall in airtime rates. The TRAI has earned a growing reputation for independence. led to confusion.

wake-up/reminder services and many more. and is expected to cross Rs. Provide telephone on demand by March 2003 Provide telephone in all villages of India by Dec 2002 . because subscribers had the option to go mobile at local rates. BSNL had been at the forefront of this revolution by ushering in changes. alarm clocks.0 THE CURRENT SITUATION In the last few years the telecommunications scenario had vastly changed. 5. 90000 crores (US $ 20. 169 0.000 crores (US $ 21. the market meanwhile had changed in the last five years. voice mail service. Raise telephone density from 3.. 6.. Simultaneously. BSNL – Making the Elephant . with higher data usage and multimedia services. However. 3.0 CORPORATE MISSION AND VISION 4.64 billion). apart from a host of corporate services. BSNL is the largest public sector undertaking serving 34 million consumers. which until a few years ago would have been thought well nigh impossible.” 2. Technological advances had enabled the company to offer services such as faster access to internet users as against the dialup modem connections.0 THE COMPANY 3. annual capital investment of over Rs 16000 crores (Exhibit III) and a cumulative investment in gross fixed assets (Exhibit IV) over Rs. which was a pioneer in bringing these services. the reduction in mobile telephony rates encouraged customers to go mobile.5 to 7 by 2005 and 15 by 2010 Provide bandwidth on demand Build customer’s confidence through quality and reliable service Provide world infrastructure class telecom BSNL was formed on 1st October 2000 from the erstwhile Department of Telecommunications. Revenues from cellular phones are expected to grow at a CAGR of 37% during the period 2002-2006. Basic landline telephones double up as answering machines.2 billion) in 2001-02. BSNL. With revenues of Rs 22000 crores (Exhibit II) in 2001-02.Tripathi. With new technology such as CDMA. 100. Objectives 1. it was possible for mobile telephony to get a major fillip. which saw the c ustomer base swell to gigantic numbers. Cumulative fixed assets has grown at an average annual rate of over 20% in the last 15 years. BSNL Mission – To provide world class telecom services on demand using stateof-the-art technology for our valued customers at affordable prices Vision – BSNL would like to be a hightech customer oriented company with emphasis on value addition.5% mobile penetration in India. 2. offered all these services. 4.

Being a government owned company. BSNL was the monopoly operator offering a basket of products and services to customers who had no choice but to select from this basket. without the ‘Navratna’ status it had constraints in choosing the agency. BSNL decided to go on a branding exercise to give its product and itself a distinct identity amongst the u sing pu blic. The product range consisted of • • • • • • • • • • Basic services Cellular services (Post paid and prepaid) National Long Distance Internet service provider Phone plus services Answering machine services ISDN Centrex Intelligent Network services Leased Lines During 2002. 6. In fact. etc Exhibit VII indicates the companywise distribution of revenues for the year 2002-03. XIMB Journal of Management . As a resu lt all . since it had to go through a bidding process.0 BRANDING BSNL is present in almost all product categories in the telecom market of India (Exhibit VI). there has never been any serious attempt made by the organization to identify any particular customer segments for its range of produ c ts. with the contract going to the lowest bidder. Earlier. But now BSNL was one among many others who offered consumers a wide choice of products and services in this over Rs 50000 crores telecom market. a Delhi based agency got the contract to handle this branding exercise. The c ampaign was sporadic since the territorial circles were authorized to carry the advertisements as per the local festivals and holidays in their respec tive circles. Soubhagya. March. but now several players had joined the fray. (Exhibit V) 5.0 PRODUCTS • • • • • Managed Leased Lines Network Webfone Services DIAS MPLS-VPN Broadband Services. where it entered last and is today the second largest operator behind Bharti Telecom. DoT was the only player then. it had launched most of the products that dominate today in the market except for cellular services. O wing to its monopoly status till late 2002. The company’s efforts to woo its customers is reflected in a minutes of a vendor conference held in the corporate office at Delhi.170 Vilakshan. The advertising objectives centred round the range of products and services offered by the company withou t trying to get in any differentiation with competition. 2008 through its predecessor.

which kept away the high-end customers. Except for giving information. lethargic working styles and were looking forward to retirement.X. Employees used to working lethargically for years were unable to cope with the changes that technology and competition brought in upon them. BSNL never cared to identify the profitable customer segments. While positioning its c ellu lar services ‘Cellone’. were shunned by employees since morale had sunk in to such levels that they did not appreciate the value of such programmes. He knew it was possible. family serials and sports programmes were used to run this campaign. prime time slots were taken in BBC. CNBC and Star News channels in the 9 – 10 pm slots. Training programmes designed to upgrade skills at the various levels in most cases. ill trained and demotivated manpower.. 171 c ommunic ation was direc ted at everybody. Sometimes these advertisements from different circles. He was just not sure as to how to go about climbing this seemingly steep mountain. the company has been spending more on promotions with competition hotting up. Also. he also knew that the service aspects of the business and getting his employees to perform would be critical to the success of this venture. While the younger employees found it easier to learn and cope with the new changes it was exceedingly difficult for the senior employees who had fixed mind sets. Within the constraints posed by the organization he had to bring this turnaround in BSNL. thereby losing focus on the partic ular cu stomer segments that needed to be addressed. and pushed for its coverage and pricing only. because BSNL had a lot of strengths. . These campaigns were for spec ific periods and the frequency was limited to 2-3 runs during the course of the programme. BSNL continued to Mr. To keep up with competition the organization needed to step up efficiency by using the latest technology. However. It has resorted to use of TV and radio apart from extensive outdoor advertising. to manage this transformation. Lately. which could be leveraged to bring about this transformation. To attract numbers. Exhibits VIII .0 PERSONNEL have a lot of baggage in terms of inefficient. 8. thereby confusing the public.. there was no common message carried by different circles.0 THE ISSUES Being a government department before it was corporatised.Tripathi. BSNL – Making the Elephant . In TV. there was very little persuasion to bring in new cu stomers. Since it was left to the respective circles to advertise as per their local needs. the campaign had a distinct middle class slant. but the manpower was ill trained to take advantage of it. appeared in the same medium. supposedly its strengths. Anil Sawant knew that there were no easy solu tions. 7.

6 2.5 9.5 8.8 -5. Dept of Economics and Statistics.8 3. March.3 -5.7 7.3 7.6 4.1 6.3 -25.8 6.7 3.6 5.0 5.9 7.3 5.1 4.8 4.7 4.9 18.2 0.5 5.7 9.1 5.6 -0.2 1.0 Industrial Production Index 8.8 5.0 GDP 5.3 6.8 8.5 6. XIMB Journal of Management .7 -6.9 Foodgrains Production Index 3.0 5.2 -4.0 7.1 3.2 4.0 -2.0 3.3 8.2 7.5 7.7 5.0 3.1 5.7 7.1 5.1 13.4 9.0 Electricity generation 7.0 -6.5 -14.5 6.7 5.6 2.1 8.9 5.172 Vilakshan.2 3.9 7.4 6.4 5. Mumbai EXHIBIT II Bharat Sanchar Nigam Limited Revenues (Rs crores) 25000 20000 15000 10000 5000 0 86-87 94-95 95-96 96-97 97-98 98-99 99-00 00-01 2-Jan .5 -3. 2008 EXHIBIT I Major Economic Indicators of the Indian economy (Year-on-year Percentage Changes) Year 90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 GNP 5.2 5.8 21.0 6.6 -6.7 -17.9 7.0 6.8 7.1 5.3 6.6 1.2 4.8 9.9 8.8 -2.1 Source: Statistical Outline of India.0 9.0 2.6 6.5 1.3 7.8 10.2 7. Tata Services Ltd.4 9.0 4.0 7.0 Agri Production Index 3.1 6.0 8.9 3.9 6.

BSNL – Making the Elephant .Tripathi. 173 EXHIBIT III Bharat Sanchar Nigam Limited Annual Capital Investment (Rs crores) 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 86-87 94-95 95-96 96-97 97-98 98-99 99-00 00-01 2-Jan EXHIBIT IV Bharat Sanchar Nigam Limited Cumulative Gross Fixed assets (Rs crores) ...

......05. (hereinafter called “the Bidder”) has submitted its bid dated..for the Appointment of Advertising agencies & media House for BSNL Corporate office..02 at 3..……….174 Vilakshan.I) . Concept Note on the creative or Media brief given for Business brief given with the Tender Document is uploaded on BSNL website. new Delhi vide Tender No 12-4/2005-Mktg dated .05. Statesman House.....).. 6. Following representatives of Advertising agencies were present:1. Shri Harish Sharma & Divendra Srivastava Shri Subhash Gulati & Arjun Mukherjee Shri Gopal Vyas & Ms...05. 5. 2008 EXHIBIT V Minutes of the Vendor Conference held on 19. Section II Clause 21... Clarifications Format is Ok. Swamy M/s Pressman M/s Triton M/s Grey Worldwide M/s Lintas 2. Minutes of the Vendor Conference held on 19.00 PM regarding Empanelment of Advertising Agencies in BSNL Corporate Office in presence of DDG(Mktg.. 12-4/05-Mktg. 2... Following clarifications were made during the Conference in which the following issues were raised: Points Raised by Vendors 1. XIMB Journal of Management . 4. 3.. (Annexure ‘A’ please) (Ashok Maheshwari) Jt. A Vendor Conference was held on 19.. March.. The above mentioned representatives have taken participation in above mentioned Vendor Conference. DDG(Mktg..00 PM at BSNL Corporate Office regarding Empanelment of Advertising Agencies for BSNL Corporate Office. Section VIII – Bid Security Form : Whereas .. DDG(Mktg. New Delhi.. 2..……... which is “Concept note on the creative or media brief given for business brief given with the Tender Document. Posted on: 2006-05-23 No...I) in conference hall 9 th floor.02 at 3...00 PM at BSNL Corporate Office regarding Empanelment of Advertising Agencies for BSNL Corporate Office..2 & Section XI clause 23. DDG(BBF) & Jt.. Shikha Jain Shri Jhoy Roy & Subodh Pal Singh Shri Rajakumar Shri Ashutosh & Ms Jaya M/s Percept H M/s R. The wordings to be reworked. Clarification about the point 4.K..02 at 3.

.2 & Section XI clause 23 Brief for Mobile services BSNL is no.Tripathi. Brief for Landline services BSNL is facing problem of declining demand for BSNL landline services. Problems are manifold ranging from service consideration to positioning of landline vis-a-vis mobile and FWP of CDMA providers. so that BSNL can utilize additional capacity to generate higher revenue and customer satisfaction. You are requested to submit a concept note on advertising strategy for BSNL GSM services. Brief for media BSNL intends to spend approximately Rs 150 crores in next two years. BSNL is facing declining demand in bigger cities. • • • The revenue from value added services is less in comparison of other operators. 2 GSM operator of India. In fact BSNL is loosing approximately 30 lakh customers every year.Empanelment of Advertising Agencies for BSNL Corporate Office Please refer to Section II Clause 21. BSNL – Making the Elephant . Concept note on media strategy and planning is required to improve overall brand image and brand image of its various services. Further provide strategy to create distinct Brand image and generate higher revenue from value added services. Most of the users who subscribed for BSNL services in 2002 were new users of BSNL. Sub : . BSNL wants a answer to Aggressive marketing of competitor so that the slide of landline services can be stopped. Now BSNL has planned 60 million capacity and already floated tender for the same. However landline offers distinct advantages like voice clarity and broadband services. 175 ANNEXURE ‘A’ No. After launch of GSM services BSNL was able to create a new market for its services.. 12-4/02-Mktg. However BSNL is facing following problems. The high user and sec A customer segment prefers other service providers.. Since launch BSNL had high demand for its GSM services and BSNL was not able to meet the demand except Punjab.

3 1.1 1. 2003) (Source: Business Standard: 8th National Telecom Survey – 31 July. 2003) EXHIBIT VIII .4 9 51 (21) EXHIBIT VII Company wise Telecom Revenues (2002-03) Sl No.31 July.6 1.176 Vilakshan. March.1 1. (Rs Cr) bution rate (%) 1 2 3 4 5 6 Basic Services Cellular Services NLD ILD Internet Others Total 28704 8057 6043 5539 1285 730 50358 57 16 12 11 2. 2008 EXHIBIT VI Breakup of Telecom Revenues (2002-03) Sl. 1 2 3 4 5 6 7 8 9 10 11 Company BSNL MTLN VSNL Bharti Idea Hutchinson Max Data Access Spice BPL Mobile Hutchinson Essar Others Total Revenue (Rs Cr) 27500 6022 4183 3083 1080 711 632 550 522 483 5592 50358 Share % 55 12 8 6 2.0 1. Category Revenue % contri Growth No. XIMB Journal of Management .0 11 (Source: Business standard: 8th National Telecom Survey .4 1.

.. BSNL – Making the Elephant .Tripathi. 177 EXHIBIT IX .

178 Vilakshan. XIMB Journal of Management . March. 2008 EXHIBIT X .

These items are made with light varieties of wood and painted with vegetable dye and mineral colours. the major centres of wooden handicrafts include Bhubaneswar. Ranchi. educational Received December 10. 2. masks. In the first phase. toys. Khalikote. The wood and sculptors use the simple carpentry tools like hammer. Supply of the right type of wood and at right time is one of the major reasons. Mayurbhanj. Barpali. and Cuttack. Xavier Institute of Social Service. Phulbani and Nayagarh areas. chisel etc. Puri. This art is practised mainly in Bhubaneshwar. Revised January 19. Berhampur.0 METHODOLOGY INVOLVED IN THE STUDY This study is based on both primary and secondary information. images of gods and goddesses. Cuttack. The objective is to find out the problems in the supply chain and possible approaches to alleviate these problems. Koraput. The mapping of artisan clusters and the uses of different types of raw materials were done through collection of information from government departments. wood carving clusters were identified from secondary sources. animals like elephants. nongovernment organizations. Plain woodcarvings are largely seen in Puri-Konark – Bhubaneswar clusters and Bargarh cluster. 2008 Faculty. email: debaduttakp@gmail. In Orissa. Konark. boxes and bowls are all extremely well designed and there exemplify the art of wood carving in the state of Orissa. Bhograi. and Sambalpur among others. analysis of the supply chain has been the prime focus of the study. Khandapara. 2007. and horses.com . peacocks. Wood carvers as well as the wood carving industry have been suffering due to various reasons. Wood sculptures. Mainly white teak and rosewood is used for plain woodcarvings. Phulbani. In the present case. Puri. Wood Carving in Orissa is broadly grouped into plain woodcarvings and wooden items. Wood articles are usually made from harder and darker wood and this craft is practised mainly in Daspalla.Management case The Case of Raw Material Supply in the Wood Carving Clusters of Orissa* Debadutta Kumar Panda1 1. * 1.0 BACKGROUND The Woodcarving profession has existed in Orissa since ancient times and developed under the influence of Bengal and South India.

Khallikote. traders and educational institutions. i. For the primary study. PuriBhubaneswar-Konark cluster. 2008 institutions and development consulting firms which are working on handicrafts. Then the cumulative average was taken and later the cumulative average was multiplied with the number of artisans. Puri-BhubaneswarKonark. wood to the artisans. Three woodcarving clusters namely. Khairapadar.e. the artisans of Puri-Bhubaneswar-Konark cluster and Nayagarh-KhandapadaDasapalla clu ster. Basudevpur -Chandabali – ThidiDhamnagar. The demand estimation was made by taking average demand of 25 artisans chosen randomly from the three clusters. type of raw material use.0 METHODOLOGY FOR DEMAND ESTIMATION total raw material chanellised from each source. The average uses of wood artisans varied widely and largely dependent upon intricacies and complexity of craft.Narla.. involved in the supply of the raw materials. The Limitations in the Demand Estimation 1. There are 4795 artisans in the practice of woodcarving in Orissa. different clusters of woodcarving were chosen based on the types of raw material used. non-government organization. In-depth discussions were carried out with the middlemen. The major wood used for carving is white teak (locally known as Gambhari) and the rose wood (locally known as Sisu). Moreover.DebugaonChandanhandi.BerhampurDharakote and Sambalpur. In-depth personal discussions were made with artisans. Government reports and policy documents were also reviewed to understand the policies and current status of the craft. 5. 3. Other types of wood used for carving are sandal wood.BhawanipatnaRengalpalai. neem .0 WOOD CARVING CLUSTERS IN ORISSA The demand estimation was based on the annual potential of raw material use per artisan. KhairapadarRengalapalli cluster are found to be the most active and the artisans/artisan families are almost fully dedicated to their profession. Personal discussions were held with the key informants from various sources of supply of raw material for woodcarving. and number of artisans and their preferred kind of raw materials. The supply of raw material is calculated based on the The major wood carving clusters are located in Cuttack. March.0 RAW MATERIAL FOR WOOD CARVING There are several types of wood used for carving in Orissa. Artisans kept on changing the types of raw material based on the sales demand. XIMB Journal of Management .180 Vilakshan. Cuttack cluster and Naygarh-DaspallhaKhandapada cluster were chosen for the study. Nawarangpur.Kandargarh. 4. per are the the 2. Khandapada – DasapallaNayagarh. Consultations and discussions were conducted with various government organizations.

The stages involved in the official supply chain in explained below: Orissa Forest Development Corporation is responsible for cutting and selling of the timber. This process involves a number of stages. mango wood. development of industries etc. Depot/Saw Mills Private Sawmills Auction of Timber Timber Merchants ARTISANS Figure-1: Supply chain of Wood for Artisans .0 SUPPLY CHAIN OF RAW MATERIAL IN WOOD CARVING forms in different dimensions from their specified depots.. The supply chain of wood is shown in Figure – 1. Villagers and Others Setting Up of Interim Depot Hardwood & Soft Wood Transportation of Logs/Wood to the Govt. The Orissa Forest Development Corporation Limited (OFDC) permits the use of only non-fruit bearing trees in the forest. The plain woodcarvings are mostly done on a soft creamish wood called Gambhari or white teak. Unofficial Supply Wood Supply From Other States Wood Felling by tribals. 7. jack fruit etc can be done if the OFDC gets an order from the government to cut the forest for a specific purpose for example. Cutting of fruit bearing trees like mango. construction of new highways. 181 wood (Nimba). It is the sole authority to trade timber both in round as well as in sawn Official Supply Felling of Wood by Forest Dept.. Akasia and Kendu (local). The case of raw material .Panda. Wood carved articles using the creamish Gambhari and the harder and darker Sisu or rose wood is a specialty of the artisans from Daspalla and Puri clusters. Kurum (local). Katrang (local).

then a mixed lot is formed. Generally.I: During cutting of the trees. and girth class. After that the individual places an order for the log/wood. Stage – II: The forest department depot sells the timber through auction and retail selling. Auction takes place at the timber depot site where purchasers gather and bid the purchase price in the presence of the Divisional Manager and the subordinate staff of a particular division. the artisans buy the wood from the timber merchants. each lot of wood is numbered and transported to the forest department depot. Then permission is issued by the divisional manager and after that a price is fixed for the selected log. There again before sawings the previous chalan is verified and another new chalan is issued. After reaching a truckable point. which has the permission to saw the timber and convert it into different sizes. species and girth class of the wood. XIMB Journal of Management . Also the artisans prefer to purchase according to requirement or order placed on the artifacts. After the payment. first the artisan goes to the depot of the forest department and takes the permission . Once every month there is a general auction of round timbers from each depot on a pre-fixed date. The timber is transported to sawmill. March. The auction is conducted twice every month and the buyers in the auction are usually timber merchants. For the direct purchase of wood from the forest depot. lots are formed comprising different girth classes’ species wise. Then the ‘lot’ formation is collated based on species. The auction details are advertised in the local dailies both in Oriya and English. The prices quoted by the bidders are tabulated and sale is ratified in favour of the highest bidder.182 Vilakshan. an individual goes to the Depot of the forest department and takes permission from the supervisor to get information about the availability. the OFDC sets up an interim depot where initially the timber is stored. If a particular species of wood falls short for a lot. type. the log is transferred to the purchaser. Before announcing the auction. The price of the wood purchased by the artisans from the timber merchant is more than the government price as it includes commission and profit of the merchant involved. At the time of purchase a chalan is issued in the name of the person containing the number of the timber which he has purchased.0 DRAWBACKS IN THE SUPPLY CHAIN The artisan may buy timber from the forest depot through retail selling or from the timber merchant. In the retail selling. 7. 2008 Stage . Stage – III: The purchased timber is then transported to the Government permitted sawmills by the purchaser. as they cannot afford to participate in the auction due to lack of finance. as the auction is based on a huge quantity and at least not less than one lot at a time.

type. Sisu and local wood like Katrang. 8. a major chunk of wood is taken by the private parties. contractors and individuals like to purchase the wood/timber as soon as possible and are ready to pay more. So these private parties. 183 from the supervisor to get information about the availability. and supply at the doorstep. At times. Permission is issued by the divisional manager after a price is fixed on the selected log. villagers and forest dwellers. But many times the carvers do not have enough money to pay the security amount and bid for the highest price. In case he fails to succeed as the highest bidder. Unofficial sources of wood supply were very much appreciated by artisans as it ensured timely supply. the security amount is adjusted from the sale price. Nayagarh district. Moreover the sculptors do not have enough time to enter into the legalities of bidding and formal transactions.. 40 cubic feet of wood is supplied every month to carvers of the above districts unofficially by traders. species.0 MAJOR BOTTLENECK IN TIMBER SALE AND SAW MILLS Among the total timber or wood produced. It is a time taking process as sometimes the divisional manager is not available and the permission process is delayed. who are basically nonartisans. Kalahandi district and Dhenkanal districts get wood (mostly Gambhari. Most of the time the carver has to wait for a month or even longer to get the wood and incurs huge expenses in repeated visits to forest depot and timber merchants. remain unavailable with the forest depot or private timber merchants. After the payment. Sal etc. timely availability of raw material is more important than high price of wood. . Teak.. housework and other purpose.) from local villagers and traders. when artisans get good orders. for furniture. Now-a-days the White Teak (which is mostly used for carving purpose) is often used for furniture and other wood work that leads to the diversion of wood from the artisans to non-artisans. size and shape of the wood.Panda. his security amount is refunded and in case of a successful bid. After that the artisans places an order for the log/ wood. On an average. thus making it unaffordable for small artisans. Rose Wood. is supplied unofficially from village areas (unofficial sources). In order to participate in the auction. The case of raw material . contractors and individuals. On an average 45 % of the total timber used for carving.. the log is transferred to the artisan. Kurum etc. So unofficially the cost of the wood is escalated. The carver often visits the forest depot and private timber merchants a number of times to get the desired wood. A majority of the clusters from Phulbani district.e. Supply chain (unofficial) Generally the wood used for carving i. one has to get registered and deposit a fixed percentage of the security deposit in the form of Bank Draft.

whatever timber was available it was chanellised for housing. At a particular time. carvers were unable to purchase in bulk due to lack of financial strength. even if timber was available. From the year 2000 to 2005. The major issue in timber was the availability at a particular time at sawmills or forest godown. Sometimes. As the production and sale of timber decreased. which led to a short supply in the market. which led to less raw material being available for woodcarving. The merchants purchased the wood from other neighbouring states (mostly from Chhattisgarh) and sold the timber at an escalated price in the market. Though the production was high in 2001.e. 10. Bhubaneswar. 2008 9. furniture (by price escalation in the market) and other industrial purposes. furniture and house construction. March. Sawmillers gave greater preference to furniture and house construction as they were purchasing in bulk and they happened to be high value customers.. At a particular time. based on the amount and intricacy of the carving work. 2003 and 2004. a price escalation in the market was largely seen in private The consumption of wood for carving varied depending on the size and intricacy of the work.184 Vilakshan. Again. then the potential consumption of wood per . the production has shown negative growth.0 PRODUCTION AND SALE OF TIMBER WOOD Annual Timber Production and Sale Year 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Production (Cubic Meter) 34411 20503 22017 19047 5727 NA Sold (Cubic Meter) 22043 21020 13203 9883 12594 10089 sawmills. there was a continuous decline (except slight variation) in the production and sale of timber. 2007) The production of timber varied from year to year. But assuming that the market demand is created properly for the sale of the wood carved product and the supply is maintained properly. The shortage of raw material was due to high industrial uses i. carvers could not store it in their work place or home due to legal difficulties.0 ESTIMATION OF ANNUAL DEMAND OF WOOD FOR ARTISANS (Source: Orissa Forest Development Corporation Limited. Also the production and sale of timber were not in the same proportion. Often this happened when all the timber cut in a year or season was not fully sold as some of the timber remained as stock either due to bad quality or remained unpurchased. the timber sale was much lower than the production. At times even a small size wood took a long time for carving and vice versa. when there was timber shortage in the market. XIMB Journal of Management .

Kendu. However.34.114 Cft 13.. no sawmill could saw any wood unless permitted by the Government even though all sawmills could sell the timber after fulfilling all legal formalities. instead of supporting people for subsistence requirement. Teak) (23%): Average demand of other wood Neem.260 Cft1 44. of carvers: Average demand for wood for carving/Annum: Some details about the wood carving industry and wood supply are given below: 40 Cft 4795 1. but are to be conserved for soil and environment and meet the subsistence requirement of the people”. The distinctive distribution of sawmills and carvers are shown in Figure -2.800 Cft 1. The government had cancelled the license of 17 sawmills. This hampers the timber supply to poverty stricken artisans who depend on wood carving for a living.91. where most of the wood carvers were located. Average demand for wood per carver/annum: Total No. On the other hand 15 sawmills (10 %) were present in Baripada (Mayurbhanj) and 66 sawmills (42 %) were located in Rajnagar where there were no wood carvers (According to the report of Orissa Forest Development Corporation. Bhubaneswar. Figure-2: Distinctive Distribution of Sawmills and Carves The forest policy says that– “Forests are not to be exploited. There was no sawmill in Nayagarh division. The case of raw material . timber is supplied mostly to big wood based industries and urban households. 037 cubic feet 14805 cubic meter 5. 185 carver per annum was about 40 cubic feet and about 80% of this was in rose wood.426 Cft 20341 cubic meter 7. 18. and Kalahandi division. There were 173 sawmills in Orissa but 156 sawmills only had valid license.. Mango. Piasal.Panda. Government of Orissa. . Chakunda) (7 %) The average production of timber wood from OFDC: The average sale of timber wood from OFDC As per the policy of Department of Forest. Kurum. white teak and local varieties. 616 cubic feet Average demand for Rose wood & White Teak (70%): Average demand for hard wood (Sal. 2007). Sandal. Phulbani division. 22. Dhenkanal division.

The competing demand for raw material (i. The major sources of supply of raw materials to the artisans (where sawmills are not located or there is no institutional supply mechanism) remained out of the stock and to fill the gap wood were chanellised illegally from the forest. The overarching raw material constraints could be traced to rapidly shrinking of stock at institutional sources. mostly the timber wood. regulation. The farmers and community producers were also affected by policies related to regulation of felling and transportation of forest produce. March.. The types of species of wood used for carving depended upon three factors. as there was a high scarcity of wood in institutional sources. XIMB Journal of Management . The institutional and legal framework in timber wood supplies was in the favour of large wood based industries than poor artisans. This led to insufficient appreciation by the farmers and community producers. and pushed down the artisans at the lower end. and timber harvesting and marketing. But unfortunately. (2) availability of a particular species of wood. The 1988 National forest policy stated that the forestry enterprises should not be supplied with raw material from the state forests and they should instead meet their requirements through adopting alternative raw materials.186 Vilakshan. there was no concrete policy in the state regarding supply of wood for artisans. To some extent. Also there was an unplanned exploitation of forest resources particularly timber wood. (2) choice and expertise of the carver. and lack of access were the principal constraints in . and (3) Availability of wood at a particular place.e. It further stated that no new forestry enterprises are permitted except village and cottage level enterprises. (1) availability of the species. locational mismatch between availability and need. monitoring. poor geographical distribution and large scale supply to wood based industries. imports or from farmland. as they were unable to raise large-scale plantations for meeting their raw material needs. (1) The regularity in supply of wood. 11. Prior permission was needed for felling of trees even on private land and special transit permission are needed to transport such timber. and (3) market demand or sales demand. the demand of wood was met from unofficial sources. Universal policy for large wood based industry and small artisans had increased the gap.0 SOME OBSERVATIONS relation to wood availability for wood carving artisans. Within the Absolute scarcity. the state government did not have any record on the end user (whether artisans or commercial enterprises) of the forest timber. Three major issues remained as the biggest hurdles in the provision of raw material for wood carving. The state government retained almost all of the control over timber wood management. 2008 The Land Ceiling Policy of government has seriously affected the wood carver artisans. Timber Wood) kept the large wood based industries and urban consumer at higher end. Moreover.

6. SIDBI and Microfinance Institutions may extend their arms to the artisans with customized repayment schedules. Keli Kadamba etc. Financial institutions like 4. (where there are less legal restrictions) through social forestry and through trees grown on farm land. Farm Forestry and Village Forestry: These could be helpful to meet the growing demand of local wood like Kurum.. private and nongovernment institutions/organizations could be encouraged to afforest species (Gambhari. Provision of formal financial assistance: Financial assistance could be provided to wood carving clusters. the department of forest could consider making provision in its policy for systematic and planned felling of softwood trees like Gambhari and Rosewood with appropriate regenerating measures to meet the artisans’ raw material demand. Some of these are briefly narrated below: 1. Though wood and timber are symbolically related to rural areas and rural enterprises. Encouragement of Social Forestry. . Establishment of Wood Banks in artisan clusters: With the Interdepartmental initiatives from the government. most emphasis is given to large wood based industries even though the “small wood carving sector” had employed more number of people and kept on bringing huge revenue from national and international tourists. Systematic Felling of Trees with Proper Regenerating Measures: Seeing the importance of wood carving sector and social security of wood carvers. 2. Use of Information and Communication Technologies for Forward and Backward Linkage: A major thrust could be given for In the light of developments. NGOs and cooperatives could be encouraged for establishment and management of Wood Banks in artisan clusters. 187 forestry sector. Government and financial institutions can extend financial support to Wood Banks for artisans.Panda. Sisu and other locals) largely used for woodcarving. the agencies were considering several possibilities to help the wood carving industry and the artisans. Afforestation of Softwood Trees: Ground level survey with the help of GIS technologies could be made to identify large tract of wasteland.. Katrang. 5. The case of raw material . wood banks could be set up in wood carving clusters. there was a sharp decline in timber uses by rural households 12. Department of forest could ensure supply of softwood to wood banks and Department of Handicrafts could play a supportive and supervisory role in the procurement and supply of wood through wood banks. and government. 3.0 PROPOSAL FOR CONSIDERATION commercial banks.

There will be a regular flow of money from tourists to artisan and it will enable the artisans to purchase raw materials with minimum time gap. Stringent action should be taken in case there is an increase in transition period in wood supply to artisans from the forest godowns. XIMB Journal of Management . March. 10. 2002. Forward Linkage and Backward Linkage: Government and nongovernment organizations. Shanghvi Presentations National Forest Act.188 Vilakshan. . Orissa Bhubaneswar Annual Report. 2008 linking the wood carving clusters with markets (raw material suppliers and carved product purchasers) with the help of information and communication technologies. should be engaged in backward linkage also. who are currently engaged in forward linkage of wood carving products. Linking Artisan Clusters with Tourism: Tourists have inquisitiveness about seeing the carving process and places of production of wood carved products. Bhubaneswar Handicraft and Cottage Industries of Orissa. 1927 documents 8. organized by Development Commissioner of Handicraft. Directorate of Handicraft and Cottage Industries. 2006 of Orissa Forest Development Corporation. The authorities. 2005. REFERENCES Action plan on self employment through Development of Handicrafts in Orissa (2004-09). March. Minimum Time Period for Delivery: The forest policy possibly could address the importance of raw material for wood carvers and department of forest should tailor minimum time period for delivery of wood to the artisans from forest godowns under retail sale. Orissa Forest Development Corporation could come up with wood seasoning and wood preservation plants. Apart from sawmill and godowns. 2003 The Indian Forest Act. 2004. 7. Orissa Bhubaneswar Investment Climate for Handicraft Production in Orissa. 2003. Directorate of Handicraft and Cottage Industries. Establishment for Wood Seasoning Plants: There could be initiations from government and private sectors for wood seasoning and wood preservation plants. 2002 document Orissa Industrial Policy. 9. 2001 document Report on the State Level Workshop on craft clusters development in Orissa. tourists might be able to buy the wood carved products from the artisans directly (No middleman will be involved) and the tourists could have an impression and confidence of buying the original products from the carvers. Entrepreneurs could be encouraged and government could come out with appropriate modalities for wood seasoning and wood preservation plants under public private partnerships. 1998 document National Forest Policy. with the above facts and suggestions were pondering over what policy changes should be made and what steps should be taken to make the changes work. the tourist inflow will be increased and the artisans concern for sale of carved products will be solved. Also. In the process. 2003. 2001.

email: debu_0876@rediffmail. Accordingly. it is usually the culmination of a group effort. Macmillan. is a meaningful contribution to the subject of enhancing the creative talents of the practising managers. 3). brings out a vital difference between ‘individual creativity’ and ‘group creativity’ (pp. Chakraborty1 Managing Creativity. and not artists. 2007. * 1. the chapters have been laid-out thoughtfully to enable even a lay reader to follow the line of thought developed by the author. comprise the target audience of this book. authored by Rastogi.Book Review Rastogi.198. “Creativity is not restricted to thinking. his inputs will not be considered valuable. Its scope and application extend to all facets of human endeavour … imaginative exploration … testing their solutions … and implementing the solutions by securing the willing cooperation of others” (p. has also been highlighted. 2008 Lecturer. Therefore. P. it needs to be cultivated ‘in a systematic and sustained manner’ (p. New Delhi. “ Creative thinking involves the ability to find solutions to problems by changing one’s point of view when normal approaches … fail to provide the needed answers” (p.. However. of which most are ignoramous. Another fundamental aspect of creativity. The author admits in the preface that since creativity does not come automatically. In Chapter 1 (Introduction) the author lucidly explains the meaning of ‘creativity’ thus. Thus. It is true that so long as a manager cannot translate his thoughts/ ideas into workable solutions. (2003): Managing Creativity. 166.N. Working in an organization implies working in group(s). Kolkata.3). Revised January 14. Rs.9 11). it is equally true that some individuals facing challenge succumb to anxiety. “ Most human beings are potentially creative in the areas of their strong Received November 11. The probable reason is that managers. with ‘Creativity as a Competitive Resource’ as its title. Chapter 2.00* Reviewer: D. Unless a group leader takes an unilateral stance in decision-making. Kolkata Centre of BIT (Mesra). the creativity-instinct is believed to be triggered when the conventional methods for fixing problems are challenged.v). pp.com . the author remarks. The author has made the intentions clear by not adhering to the commonly held view of creativity for its sake only.

Moreover.g. ‘Traditional logical thinking operates in terms of dichotomies. … in group settings” (p.190 Vilakshan. Hence.16) required for creativity. … must discover. make or seek out non-familiar and nonhabitual linkages among unrelated facts and objects.10). and contradictions … Creative thinking. Creativity has even been considered to be a ‘resource’ because it adds to the competitive edge of a company in terms of new product development. The author elucidates two different types of approaches (pp. XIMB Journal of Management .22). Even the example pertaining . (i) ‘To get out of our automatic mode of thinking. receptivity. March.” But a couple of questions remain unanswered: How do the skills of relating unrelated facts be ‘discovered’? How does a person ‘create a vision’? The author offered a useful insight when he observed. this view invites a deeper question: is creativity a ‘resource’ or a ‘source’? It will be takenup later. (pp. at times reading has been a bit tedious due to lack of interesting examples e.” (ii) “… try to create a vision of what a solution might look like. The author has done a commendable job of lucidly explaining the techniques. polar categories. disorderly and parallel. … embraces both sides of a contradiction or dichotomy in order to generate. there is a word of encouragement for those who feel that they are not creative. One fails to identify the distinction between ‘ thinking in terms of dichotomies’ and ‘embraces both sides of a contradiction’. PMI Approach (pp. and flexibility” (p. ‘Generating Creative Ideas in Individuals’ (Chapter 4) has identified seven different ‘techniques’ (p. But the second difference. promotional strategy etc. ‘ The ability to find the positive potential in a problem is a mark of creative openness.28) to facilitate generation of creative ideas for solving problems. 2008 interest. 36-7). the distinctions between ‘traditional thinking’ and ‘creative thinking’ (pp.38) etc..21-2 and 24-5) the author suggests. 11-12). For example.256) are quite helpful and relevant. ISA Perspective (p. However. the former is orderly and sequential and the latter. 16-20) to creative thinking: (a) Convergent Thinking (a problem with plural solutions) (b) Divergent Thinking (uncommon thinking resulting in novel solutions) Lack of corporate examples in explaining the points (a and b) will cause a little difficulty for a general reader to understand the ‘process’ of creative thinking. However. Chapter 3 on the Cultivation of Creativity throws light on the ‘thought-skills’ (p. The concepts of ‘forced relationship’ and ‘visualizing future solution state’ (pp. Their creative potential can be brought out and amplified. which states.25) is ambiguous. … a new way forward’ (p.

70).. or doing any research work on it.34-5).60-2). no effort was made to explain what does the ‘blank state’ mean and how can it be achieved. Another technique involving ‘Ishikawa Diagrams’ despite lucid exposition remains only partly comprehensible to a reader as there is lack of any diagrammatic representation (pp. Managing Creativity .Chakraborty. Genetic Learning Approach etc. One feels that the techniques discussed in the chapter cannot be appreciated in entirety unless someone is a part of such creative processes in any organization.) being a bit sketchy will remain incomprehensible to those who are unfamiliar with the subject. However. especially the idea of cotton buds that came to Leo Gerstenzang when he noticed his wife wrapping cotton on toothpicks to clean their baby’s ear. and highly uncertain process” (p. the name of the technique suggests that there should have been diagrams. “… technique … to systematically map out the full range of paths and tasks that need to be accomplished for achieving an overall goal” (pp.47). ‘Heuristics for Stimulating Creative Ideas/Insights’ (Chapter 8) is a .36) could have been enriched if the process involved in it had been highlighted.. The contents of chapter 6 comprising the technical processes for enhancing creativity are more advanced and hence demand rigorous mental discipline. But is it not true that systematic charting-out of the options for accomplishing a goal calls for adequate experience? The author could have referred to a positive correlation between creativity and experience. 65-9) sans application in real life cases poses a similar drawback. “ Technovation is a messy. However. The technique of induced dissociation involves keeping the mind in a blank state. barring only ‘Induced Dissociation’. The author himself admits. 191 to ‘Envisionment Approach’ (p. it would have been of some help to an avid student of the subject had the author identified those techniques that are presently popular. Deliberation on the ‘Matrix Diagrams’ (pp. This apart. Chapters 6 and 7 (Diagrammatic Methods for Creative Problem Exploration and Coping with Uncertainty in Technovation) provide an outline to the process of creativity. disorderly. Chapter 7 deals with uncertainties thrownup due to technological innovations. Therefore. a person unless exceptionally interested to know about creativity. may even skip reading the chapter. However. have been explained adequately (p. related to ‘Using Random Matching’ (pp. The ‘Tree or Systems Flow Diagram’ has been explained as a. However. In chapter 5 (Generating Creative Ideas in Groups) twelve different approaches for generating ideas in groups have been discussed. were of immense learning value. Some of the techniques (like Morphological Method. Of all these approaches.62-4). all the five techniques have been highlighted and explained in simple terms. the examples.

the line of argument viewed human beings to be the source of creative ideas. idealizing etc. Emphasis has been added to depict the importance of sustained training programmes with the objective of making creative problem solving in groups a part of an organization’s culture (pp. Then how come the employees be deemed as ‘valuable resou rc es’ when they are in effect sources of creativity? . The meaning assumes significance because. 2008 meaningful contribution towards enriching the book. some tactics. Under such conditions. The mainstream scholars contend that creativity cannot be developed in this manner because it then becomes a matter of chance. So far. This indicates the possibility of getting confined to the conventional mode of thinking by adhering to a predetermined path.) occur at random. Therefore. situations and demands to remain ahead of the c ompet itors (p. one observes that there has not been much effort by the author to outline the methods to enc ou rage individual creativity in the book. However. Suc h an approach appears to be handicapped considering that a group is a sum total of individuals. This observation sounds a bit jarring. XIMB Journal of Management . insights. Despite these odds the author admits.121). learning from nature. or viewpoints. means or rules which may serve to stimulate the production of new and fresh ideas. March. meditation.122). Heuristics are tactical rules for guiding creativity along the line of empirical experience (p. “ …organizations view their employees as valuable resources …” (p. the focu s has been on grou p. conventional.192 Vilakshan. may be very useful” (p. These methods have been explained crisply in a readerfriendly manner with suitable examples. the quality of creative output of a group should have direct bearing on the quality of creative output of an individual. creativity based on heuristics cannot be subjected to any defined process. unlike the techniques mentioned earlier. Naturally this goes against the very spirit of creativity.82). 82). it has been suggested that the employees be dealt with in a more humane manner and not just as labour inputs. The author adds. there is a general perception that the creative sparks based on such methods (like intuition. “ The individuals and groups may get locked into older. The author has taken great pains to pen down thirty-five different methods to creative problem solving. Chapter 11 (Creativity as the Core of Competitive Excellence) deals with the importance of creatively handling new problems.108-9. 114). Hence. Chapters 9 and 10 (Utilizing Creativity of Groups and Fostering Creativity and Innovation in Organizations) essentially highlight the relevance and importance of formation of groups to facilitate creativity. Throughout. and familiar modes of thought … . Therefore.

on the other hand. 193 Appendices (I and II) essentially distinguish between the Japanese and American approaches to managing creativity. Wilkins (Nobel Laureate in 1962). The Indian companies adopt American management concepts and techniques instead of adapting them. Later the author adds. One of the fundamental distinctions between the Japanese and American approaches is that through creativity the former aims at developing motivation. it is argued that these two concepts represent a certain degree of culture-specificity – brain storming depicts the Western and brain stilling the Eastern approaches. ‘… sustain high level of innovation and commercial success’ (p.Chakraborty. This allows the right lobe of the brain (which is the seat of direct intuition and synthesized comprehension) to become active. The Japanese firms however offer negligible sum as incentives (p. The concept of brain stilling essentially involves different types of breathing techniques to quieten the mind from fleeting thoughts. This apart. That the Indian companies have been clubbed together with American and not Japanese companies.130).. Hence.H. The author has not mentioned if monetary rewards are doled out to the employees serving American firms for generating creative ideas.140). The latter. 1989): (a) adaptive or incremental creativity (AC) (b) break through or quantum creativity (BC) It is felt that creativity techniques applied in business organizations are mostly of AC type and rarely of BC type. This technique is not as unscientific as yet it is made out to be. job satisfaction and teamwork (p. encourages creativity to. Associated with creativity are two phrases (Chakraborty. (Chakraborty. “The logical and rational is a very important element in science. Managing Creativity . “ Most American and Indian managers do not understand the importance of involving employees in early phases of problem finding activities’ (p.132). 1989).130).129). Modern day management practices (borrowed heavily from America) hardly repose any faith in brain stilling as a technique for creative problem-solving. It is now appropriate to have a little more of conceptual clarity on creativity which has so-far been ignored in this book. M. For the former while technique like brain storming is crucial and for the latter brain stilling is essential. the transition from Boeing 707 to Boeing 747 represents AC whereas shift from propeller plane to jet plane is BC. It is pertinent to listen to Prof. although Indian and Japanese are culturally more in tune with one another.. For instance. Bu t emphasis of that tends to make people . “… hierarchically lower level employees are invited to participate in the problem finding phase” (p. the other unique feature of Japanese approach is that even.

Nobody u nderstands the nature of creative process. … In the quiet mind there will be a progressive preparation for the experience. 264-5 Wilikins. (1986). Part I (Pondicherry: Sri Aurobindo Society). you have then to call it down into you. 1973). 2008 not notice the absolutely essential role of intuitive. the above statement from a Nobel Laureate refutes the commonly held notion that since intuitive decisions cannot be objectively verified therefore they are unreliable. (New Delhi: Himalaya). p. But you must not bec ome impatient” (Aurobindo. asserts. “In … Yoga the whole principle is to open oneself to the Divine influence.39 .K. S. Chakraborty. pp. in any creative activity you can never analyze the whole proc ess c ompletely bec ause psychological and other dimensions are at work. Sri Aurobindo. (1989). the leading seer-philosopher of modern India. XIMB Journal of Management . if you once become conscious of it. Thus. Thus. M. March. REFERENCES Aurobindo. On Self-Perfection. Foundations of Managerial Work: Contributions from Indian Thought. It is there above you and. In fact. Certainly not the rational scientist” (Wilkins. 1986).H. Sri (1973).261-2. Interviews With Nobel Laureates and Other Eminent Scholars (Bombay: Bhaktivedanta Institute).194 Vilakshan. it is evinced at once how significantly different the oriental temper is as compared to the occident at ones when it comes to problem solving by adopting creative techniques.23-4. pp.

M. indicates how Indian concepts. because he has penetrated into the studies of Veda. College of Management. It is pioneering . * 1. Shou ld management t eac h ing move from mind colonization to liberali zation or exte nsion of master – master process of learning from each other? The integrated model presented in Fig 1. New Delhi. to develop these ideas with reference to management. Mahabharata. Gandhi and others such as C V Raman.558. New Mantras in Corporate Corridors: From Ancient Roots to Global Routes forces management intellectuals to raise following thought provoking issues. Bhaskaracharya. A journey from Taylor’s scientific era to new age management era highlighting Indian concept of management mantra and shaping these in an integrated ‘new model’ of management by Professor Subhash Sharma is a pioneering contribution in management literature. Surat. Price Rs. He has worked towards ‘model building’ frameworks throu gh a ‘creative and meditative research’ approach. Mahavir.) h ave influ enc ed and awakened western scholars and how Indian scholars have gained from this heritage as well as from intellec tu al interac ti on with western sc h olars an d made significant achievements. Aryabhat.com .295/-* Reviewer: A.3 of New Mantras in Corporate Corridors. Director. Received March 3. New Age International.Book Review Subhash Sharma (2007). Vivekanand. Tulsi. Vinod Dham of Pentium chips. . pp. Kabir’s work etc. Sabir Bhatia of free mail service etc . Ha rgovind Khuran a. Panchtantra stories. Ramanuja. Kabir. Kautiya. email:amarsabani@yahoo. 1. thinkers and sc holars (Su labh Sutra. J C Bose. Meghnad Shah. Geeta. Aurobindo.S. Abani1 P aradigm shift in management education is the need of today’s global environment. B. 2008. Buddha. Sharma’s attempt in his rec ently published integrated research work. New Mantras in Corporate Corridors. Deepak Chopra of alternative medicine. Chandrashekhar. Ramayana.

Y. The author has made efforts towards ‘modulation’ of thoughts on Enlightened Leadership (Fig. The Human Quantity Development (HQD) model rotates around ‘manas’. p. 2008 The proposed models with ancient roots have global appeal. Indian model for corporate development (Fig. 2. the book is full of simple models for easy learning and easy practice of management concepts. S vec tor (Strategy. Vistas. Systems) and P vec tor (P urpose. 9 T framewor k of TRM yantr a. CINE Matrix.4.106) has also been excellently presented.77) as well as in Kautilaya’s theory of motivation (Sam. p. Model of ‘hierarchy of men’ representing HOPE (Higher Order Purpose of Existence) is a model for transformation to better world which works towards the self-actualization paradigm. Durga) model of leadership and OSHA model of self awareness and its relevance to X. The Kautilayan strategic model (p. There are a number of other impo rtant models. What strategies should be adopted in teaching and practice by modern managers with greater intensity to again re-institutionalize Indian management mantras with roots in . Theory K (Kutumb). FATE Analys is. P eople).5.SO window (iv) StimulusVivek-Response (v) G/T Ratio (vi) Relationship analysis and (viii) E-N-U Action analysis.3. (i) ThoughtAction analysis. 9. 18. he has also gone be yond Mc Kinse y’s 7 S framewo rk and su gge sted a c omprehensive framework of VSP yantra that suggests co-alignment of nine elements represented by V vector (Visio n. p.177).196 Vilakshan. Veda etc. Saraswati. Arthashastra. Thus. This is reflected in the model of complementary approach of Holistic Development ( Fig 2. EP IS (Enterprise Performance Improvement Systems) based on value chain matrix and mana gement c ontrol system. Structure. 4. Dand) approximating itself to theory X and theory Y. (ii) Negergy. XIMB Journal of Management . Bheda. such as KPCL.Synergy grid (iii) SO . P rocess. Using the brain metaphor. March. BEST. Y in trinity (Laxmi. 37). vachan and karam with subset of seven c omponents.Z theories. These are c lassic examples of modulation for corporate management. Dam. namely.301).2. Valu es). BCG matrix model of strategy replaced by growth rate and value addition with the help of plant life metaphors by the au thor is a step to wards simplific ation of present ation of c omplic ated ideas for better understanding (Fig. p. The book reflects the type of changes that are required in terms of revision of courses focusing on value based internalization of management ideas with roots in Subhasitani.

Abani, New Mantras in Corporate ... 197

wisdom and knowledge from ancient texts? In what ways resurfing of ‘Indian Management mantras’ can be achieved in the era of Holistic Globalization or Viswanisation? The book su ggests the need for a paradigm shift from Darwin to Dharma, Maslow to Moksha and Marx to Mahatma. The totally different and unique work, presented in the book is based on ‘Gap Analysis’ of management ideas and is the first step towards revolu tionary thinking and contribu tion in re-surfing and‘resurfacing’ Indian management mantras and its Viswanisation. This approach opens new vistas of researc h opportunities based on Kabir Ke Dohe, principles followed in Mahabharat, Kautilaya’s Arthasastra, Geeta, Vedas and many folk stories of local civilized societies (some are reflected in children literatu re like old Chanda Mama magazine ). 3. “Challenging with confidence” is another issue which needs to draws our attention. There is a need to c hallenge and replace existing concepts and thou ghts and establish new ones. Academicians must take the lead in this context. The author with great confidence raised an issue based on Geeta. He has sharply contrasted, “Arrival of

the best to lead the rest” from Geeta with Darwin’s “survival of the fittest to eliminate the rest”. It can be perceived that both views are correct but in Geeta it is said with a positive approach and in Darwin’s philosophy with negative approach. G eeta represents the Dharma to protect the people and lead them. Quite often, we go for critical analysis, we get divergent thoughts and ideas. We hesitate and demonstrate lack of confidence and thus ideas remain in cell. We need to overcome this hesitation and the book amply demonstrates that this can be achieved. 4. Towards A N ew Researc h Approac h: The author’s work amply demonstrates a new research approach viz. approach of creative and meditative researc h . This approach can be u sed as a supplement to quantitative and qualitative research approaches. This approac h leads to meta synthesis of ideas and opens new opportunities for creative synthesis for development of new knowledge.

The metaphor of recent Hindi movie, ‘Taare Jamin Pe’ applies to Sharma’s creative and innovative work in management education as well as in related social sciences. The book proposes teaching through ‘corporate

198 Vilakshan, XIMB Journal of Management ; March, 2008

rhymes’. By raising certain issues for management education, as raised in this book, we can carry forward this new revolution of India’s mind liberation and creative churning in the field of

management. Then India’s contribution to management will become world known just as its knowledge workers and knowledge professionals are world known.


Xavier Institute of Management
Xavier Institute of Management, Bhubaneswar (XIMB) has completed 20 years of purposeful existence, offering management education “with a human face”. During this period, XIMB has established an identity of its own and a consistent position among the best B-schools in the country. It is known not only for its Post-Graduate Programmes but also for developmental projects. The institute owes its origin to a “Social Contract” between the Government of Orissa and the OJS (Orissa Jesuit Society). The Management of the institute is in the hands of a Board of Governors, consisting of Jesuit Fathers, senior representatives of the Government of India and Government of Orissa, eminent industrialists and educationists. The institute offers three post graduate programmes, two certificate programmes and one doctoral programme (known as Fellow Programme). These are :

PGDM : Two-Year Full-Time Post-Graduate Diploma Programme in Management (Residential); PGDMCRMS : Two-Year Full-Time Post-Graduate Diploma Programme in Rural Management (Residential); PGDM for Executives : Three-Year Post-Graduate Diploma Programme in Management for Working Executives. This is offered in two mode-one involves week-end classes and the other 15 days class in every term. PGCBM : One year Post-Graduate Certificate Programme in Business Management using Video Conferencing Technology. PGPMI : XIMB in collaboration with ICICI is offering a one year Certificate programme namely, “Post Graduate Programme in Management and Insurance” to nurture professionals for the emerging insurance industry. FPM : Fellow Programme in Management (Residential).






All PGDM courses along with the Fellowship Programme of the institute are approved by the All India Council for Technical Education (AICTE), Government of India. Since XIMB is an autonomous institute not affiliated to any university, it does not grant degrees. The fulltime PGDM of XIMB is recognised by the Association of Indian Universities (AIU) as equivalent to an MBA degree from an Indian University. National Academic Recognition Information Centre for the United Kingdom (UK NARIC) recognises XIMB’s PGDBM as comparable to British Master’s degree standard. XIMB has a tie-up with several European, American and Afrian Schools for student exchange programmes.

200 Vilakshan, XIMB Journal of Management ; March, 2008

MDP CALENDAR (2008-2009)
Sl. Programme No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 MIS Skills for Competitive Advantage of Business Managers Emotional Intelligence for Managerial Effectiveness Innovation as a tool for organizational effectiveness Credit Risk Management Meeting Corporate Objectives through the Balanced Scorecard Transnational Business Strategies Personal Growth & Effectiveness Lab. Selling Skills Strategic Compensation Management Teamwork Competency for Star Performers Business Analytics : Scoring & Customer Segmentation Logistic & Supply Chain Management Lab on Entrepreneurship Marketing Research for Sales Professionals Journey towards excellence for professional women Customer Service Management Train the Trainers Counselling skills using Neuro – Linguistic Programming techniques Demand Estimation, Forecasting & Market Data Analysis Mentoring & Coaching for Performance effectiveness Negotiation Skills Project Implementation & Monitoring Effective Communication & Presentation Skills Basic Leadership Skills Days 3 5 3 3 3 2 5 3 3 3 6 3 3 3 3 2 6 5 3 5 3 3 3 5 Dates May 20-22, 2008 June 2-6 , 2008 June 24-26, 2008 July 21-24, 2008 July28-30 Aug. 12-13, 2008 Sept. 1-5, 2008 Sept. 04-06, 2008 Sept. 8-10, 2008 Sept. 15-17, 2008 Sept. 22-26, 2008 Nov. 3-5,2008 Nov. 11-13, 2008 Nov. 19-21, 2008 Nov. 3-5,2008 Nov. 21-22, 2008 Nov. 24-29, 2008 Dec. 1-5, 2008 Jan. 08-10, 2009 Jan. 12-16, 2009 Jan. 15-17, 2009 Jan. 19-21,2009 Jan. 20-22, 2009 Jan. 20-24, 2009 Programme Venue Bhubaneswar Bangalore Bhubaneswar Bhubaneswar Bhubaneswar Bhubaneswar Puri Bhubaneswar Bhubaneswar Bhubaneswar Bhubaneswar Bhubaneswar Bhubaneswar Bhubaneswar Bhubaneswar Bhubaneswar Bhubaneswar Bhubaneswar Bhubaneswar Bhubaneswar Bhubaneswar Bhubaneswar Bhubaneswar Bhubaneswar Prog. Cordinator Prof. Dipak Mishra Prof. Sanjay Mohapatra Fr. P.T. Joseph, SJ Prof. Jacob D Vakkayil Prof. Sridhar Dash Prof. Snigdha Pattnaik Prof. Sanjay Mohapatra Prof. Amar KJR Nayak Fr. P.T. Joseph, SJ Prof. M.N. Tripathi Prof. S.S. Ganesh Fr. Tony Uvary Fr. George Joseph Prof. Sridhar Dash Prof. Subhajyoti Ray Prof.S K Bishwal Prof. Rajeev Roy Prof. Sandip Anand Prof. Snigdha Patnaik Prof. M.N. Tripathi Prof. Saveeta Mohanty Fr. P.T. Joseph, SJ Prof. P. Mishra Fr. P.T. Joseph, SJ Prof. M.N. Tripathi Prof. W.S. William Prof. I. Kumar Fr. George Joseph, Sj Fr. Tony Uvary, Sj Prof. Jacob D Vakkayil Prof. S. Peppin Prof. Snigdha Pattnaik Prof. P. K. Bala Res Fees Non-Res 9000 NA 9000 9000 9000 6000 NA 9000 9000 9000 18000 9000 9000 9000 9000 6000 18000 NA 9000 NA 9000 9000 9000 15000

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