THE JOSIP JURAJ STROSSMAYER UNIVERSITY OF OSIJEK

,
FACULTY OF ECONOMICS IN OSIJEK  CROATIA
HOCHSCHULE PFORZHEIM UNIVERSITY
_____________________________________________________________
INTERDISCIPLINARY MANAGEMENT RESEARCH VII
INTERDISZIPLINÄRE MANAGEMENTFORSCHUNG VII

Osijek 2011.

Published by:
Josip Juraj Strossmayer University in Osijek, Faculty of Economics in Osijek, Croatia Postgraduate
Studies “Management”
Hochschule Pforzheim University
For the Publisher:
Rudi Kurz, Ph.D., Dean, Germany
Željko Turkalj, Ph.D., Dean, Croatia
Editors:
Urban Bacher, Ph.D., Pforzheim University, Business School, Germany
Dražen Barković, Ph.D., Faculty of Economics in Osijek, Croatia
Karl – Heinz Dernoscheg, Ph.D., International Business School Styria, Austria
Maja Lamza - Maronić, Ph.D., Faculty of Economics in Osijek, Croatia
Branko Matić, Ph.D., Faculty of Economics in Osijek, Croatia
Norbert Pap, Ph.D., University of Pecs, Hungary
Bodo Runzheimer, Ph.D., Pforzheim University, Business School, Germany
Review Committee:
Luka Crnković, Ph.D., Faculty of Economics in Osijek, Croatia
Ivan Ferenčak, Ph.D., Faculty of Economics in Osijek, Croatia
Nino Grau, Ph.D. University of Applied Sciences, Fachhochschule Giesen-Friedberg, Germany
Slavo Kukić, Ph.D., University of Mostar, Faculty of Economics in Mostar, Bosnia and Hercegovina
Hartmut Loffler, Ph.D., Pforzheim University, Business School, Germany
Brano Markić, Ph.D., University of Mostar, Faculty of Economics in Mostar,
Bosnia and Hercegovina
Frane Mitrović, Ph.D., Faculty of Maritime Studies in Split, Croatia
Bela Orosdy, Ph.D., University of Pécs, Faculty of Business and Economics, Hungary
Ivan Pavlović, Ph.D., University of Mostar, Faculty of Economics in Mostar,
Bosnia and Hercegovina
Slavica Singer, Ph.D., Faculty of Economics in Osijek, Croatia
Vladimir Srb, Ph.D., Faculty of Economics in Osijek, Croatia
Jusuf Šehanović, Ph.D., Juraj Dobrila University of Pula, Croatia
Dirk Wentzel, Ph.D., Hochschule Pforzheim University, Germany
Technical editors:
Jerko Glavaš, Ph.D. candidate, Faculty of Economics in Osijek, Croatia
Hrvoje Serdarušić, Ph.D. candidate, Faculty of Economics in Osijek, Croatia
Language Editing and Proofreading:
Ljerka Radoš, Faculty of Economics in Osijek, Croatia
A CIP record is available from the electronic catalogue of the City and University Library Osijek
under number 130120055
The publication of this book was approved unanimously by the Senate of Josip Juraj Strossmayer
University in Osijek at the Senate meeting of 23 May 2011 under number 26/11
ISSN 1847-0408
ISBN 978-953-253-096-4
Indexed in: EBSCOhost, RePEc, EconPapers, Socionet

Program committee:
Mate Babić, Ph.D., University of Zagreb, Faculty of Economics in Zagreb, Croatia
Heinrich Badura, Ph.D., President, The European Academy for Life Research, Integration and
Civil Society, Austria
Firouz Gahvari, Ph.D., University of Illinois at Urbana-Campaign, Department of Economics,
USA
Gunther Gottlieb, Ph.D., University of Augsburg, Germany
Rupert Huth, Ph.D., Pforzheim University, Business School, Germany
Zoran Jašić, Ph.D., Ambassador of the Republic of Croatia to the Republic of Austria
Zlatko Kramarić, Ph.D., Ambassador of the Republic of Croatia to the Republic of Kosovo
Rudi Kurz, Ph.D., Pforzheim University, Business School, Germany
Željko Turkalj, Ph.D., Faculty of Economics in Osijek, Croatia
Mladen Vedriš, Ph.D., University of Zagreb, Faculty of Law, Croatia

CONTENTS
VORWORT ......................................................................................................................... 11
FOREWORD ...................................................................................................................... 12
Management
Christian P. Runzheimer, Bodo Runzheimer
KONZEPTIONELLE VORSCHLÄGE ZUR VERBESSERUNG VON PLANUNG
UND KONTROLLE INTEGRATIVER PRODUKTENTWICKLUNGEN .....................15
Mladen Jurišić, Dražen Barković, Ivan Plaščak
METHODOLOGY OF DEVELOPMENT OF THEMATIC MAPS
FOR RESOURCE MANAGEMENT AND SELECTION OF
NEW LOCATIONS  PURPOSE MAPS IN GIS ENVIRONMENT ...............................62
Željko Turkalj, Ivana Fosić, Marija Ham
CORPORATE SOCIAL RESPONSIBILITY AND BUSINESS ETHICS
APPLICATION OF ECONOMIC ENTITIES IN THE REPUBLIC OF CROATIA...........76
Mane Medić, Igor Medić, Mladen Pancić
MARKETING DETERMINANTS OF BRAND .................................................................86
Gerd Grau
ROADMAPPING AS A TOOL FOR NEW PRODUCT INTRODUCTION NPI
ILLUSTRATED BY THE EXAMPLE OF THE SEMICONDUCTOR INDUSTRY ........95
Sonja Keppler, Timo Keppler
HOW DO VENTURE CAPITALISTS EVALUATE NEW MEDICAL
TECHNOLOGY VENTURES? A PROCESS AND
ACTIVITY BASED APPROACH .......................................................................................107
Marijana Zekić-Sušac, Slavko Vulić
PREDICTING THE SALE OF BREAD BY USING NEURAL NETWORKS ................118
Maja Lamza-Maronić, Jerko Glavaš, Igor Mavrin
MARKETING ASPECTS OF THE EUROPEAN CAPITAL OF CULTURE
PROGRAMME....................................................................................................................130
Dražen Kostelac
PROJECT PORTFOLIO MANAGEMENT IN
FAST-GROWING COMPANIES ........................................................................................140
Hrvoje Serdarušić
FINANCIAL ANALYSIS AS AN INSTRUMENT OF
VALUATION OF CROATIAN COMPANIES ..................................................................149
Nino Grau
STANDARDS UND EXZELLENZ  UNVERSÖHNLICHE GEGENSÄTZE? .............160
Nikola Papac, Marija Čutura, Anela Čolak
SPECIFICITIES AND DEVELOPMENT OF INSTITUTIONAL FRAME FOR
CORPORATE GOVERNANCE IN BOSNIA AND HERZEGOVINA .............................169

Meike Mogk
MIT ACTIVOTE ZUR HANDLUNGSKOMPETENZ  NEUE
LEHRMETHODEN IM STUDIUM .................................................................................180
Bruno Dernaj
TIME MANAGEMENT QUALITY - MANAGERS OF
SLAVONIJA CITIES vs CROATIAN MANAGERS ............................................................194
Zvonimir Strnad
EFFECT OF PRINCIPAL-AGENT PROBLEM ON
THE BANKING CRISIS IN 2008 ......................................................................................206
Miodrag Streitenberger
THE ANALYSIS OF FINANCIAL RATIOS’ UTILITY IN PREDICTION
OF LOAN DEFAULTS USING T-TEST .............................................................................217
Nedeljko Kovačić
MARKETING RESEARCH IN HEALTHCARE INDUSTRY ...........................................231
Martina Briš, Nino Bošnjak, Jozo Krajina
APPLYING THE AHP METHOD IN THE PROCESS OF DECISION
MAKING WHEN SELECTING THE LOCATION OF A GEOTHERMAL WELL ........241
Miljenko Brekalo, Zvjezdana – Penava Brekalo, Gordana Kurtović
SOME PSYCHOLOGICAL ASPECTS OF CELEBRITY MARKETING ..........................254
Mario Župan
IMPACT OF TECHNOLOGY AND NEW LICENSING MODELS ON ERP
EVOLUTION......................................................................................................................261
Marko Šostar
DECIDOPHOBIA AS A LIMITING FACTOR OF MANAGEMENT ...........................272
Branimir Kos
QUALITY MANAGEMENT IN THE SUGAR INDUSTRY .............................................283
Anita Kulaš, Sanja Knežević
CORPORATE SOCIAL RESPONSIBILITY ACTIVITIES IN THE
CONDITIONS OF RECESSION .......................................................................................293
Mirko Cobović, Berislav Bolfek, Lena Sigurnjak
ANALYSIS FOR TIME-COST OPTIMIZATION OF CONSTRUCTION
PROJECTS IN REPUBLIC OF CROATIA .........................................................................304
Ivica Zdrilić, Milan Puvača, Dinko Roso
HUMAN RESOURCES MANAGEMENT IN HETEROGENEOUS
INDUSTRIES BUSINESS CASES IN THE BANKING, TOURISM
AND SECURITY SERVICES ............................................................................................315
Slobodan Stojanović, Ivan Penava
LIQUIDITY MANAGEMENT IN SMALL COMPANIES ................................................326
Mario Banožić
METHODS AND TECHNIQUES FOR CALCULATING A
PRICE - MARKETING MIX OF TOURISM PRODUCTS ...............................................337

Dinko Jukić, Božica Dunković
A HOLISTIC APPROACH TO CORPORATE IDENTITY AND BRAND ...................347
Davor Dujak
STRATEGIC SOURCING IN SUPPLY CHAIN MANAGEMENT
- CONTEMPORARY MODELS OF SOURCING STRATEGIES .....................................359
Kata Ivić
CHANGE MANAGEMENT IN ACADEMIC INSTITUTIONS – PROS
AND CONS OF THE BOLOGNA PROCESS ...................................................................371
General Economics
Zoran Jeremić, Đankarlo Milokanović
PERSPECTIVE OF THE TOURISM DEVELOPING IN ISTRIA
REGARDING GLOBAL TENDENCIES............................................................................383
Microeconomics, Macroeconomics and Monetary Economics
Octavian Jula
FECONOMIC SYSTEMS AND DEVELOPMENT .........................................................395
Flavius Rovinaru, Mihaela Rovinaru, Liviu-Daniel Deceanu
THE ECONOMIC CRISIS ELEMENT OF ECONOMIC CYCLE. STUDY CASE:
ELECTORAL CYCLES IN ROMANIA ..............................................................................408
Ana Udovičić
SMALL AND MEDIUM ENTREPRENEURSHIP SME IN CROATIA AS AN
IMPORTANT COMPONENT FOR ECONOMIC GROWTH .....................................422
International Economics
Jasmin Hošo, Dženan Đonlagić
IMPACT OF THE CREATION OF NATIONAL CURRENCY ON BUSINESS
TRANSNATIONAL COMPANIES IN THE WESTERN BALKANS ................................435
Thomas Bauer
THEORY AND EVIDENCE OF LABOR MIGRATION IN EUROPE ..........................449
Katarina Arnold Bratić, Mirko Pešić
OVEREIGN WEALTH FUNDS  THE ACTIVITY AND ITS
CINTERNATIONAL COMPETITIVENESS OF CROATIAN ECONOMY
IN TIME OF RECESSION .................................................................................................475
Financial Economics
Saša Vujić, Slobodan Vujić
A CRITICAL EVALUATION OF MICROCREDITING IN
BOSNIA AND HERZEGOVINA ......................................................................................489
Izabela Pruchnicka-Grabias
DILEMMAS OVER FINANCIAL INNOVATION DEVELOPMENT.
THE CASE OF CREDIT DERIVATIVES .........................................................................498
Cornelia Pop, Maria-Andrada Georgescu
ROMANIAN MUNICIPAL BOND MARKET ..................................................................512

Alexander Moheit, Dirk Wentzel
THE STABILITY PERFORMANCE OF EASTERN EUROPEAN EU MEMBERS
WHO CAN JOIN TO THE EURO AREA? .......................................................................545
Urban Bacher, Christopher Pohl
FÜR EIN NEBENEINANDER VON PRIVATEN UND
STAATLICHEN RATINGAGENTUREN .........................................................................570
Markus Häfele, Jan Helge Schmeisky
DIE BERÜCKSICHTIGUNG VON FRAUDRISIKEN IM RAHMEN DER
RISIKOORIENTIERTEN ABSCHLUSSPRÜFUNG .......................................................581
Branko Matić, Hrvoje Serdarušić, Maja Vretenar
DMPACT OF FINANCIAL CRISIS ON CREDIT
LENDING OF CROATIAN BANKS .................................................................................598
Ivo Mijoč, Željko Požega, Boris Crnković
CASH FLOW STATEMENT ACCORDING TO IASB
RECOMMENDATIONS AND CROATIAN ACCOUNTING STANDARDS .................608
Health, Education and Welfare
Jasmina Osmanković, Amra Rizvić, Hatidža Jahić
A STUDY OF MOTIVES, EXPECTATIONS AND ACADEMIC
PERFORMANCE OF STUDENTS AT SCHOOL OF ECONOMICS
AND BUSINESS, SARAJEVO .............................................................................................619
Jelena Legčević
CULTURE OF ORGANISATION AS A DRIVING FORCE FOR IMPROVING
MANAGEMENT RESULTS................................................................................................627
Antun Šundalić
EDUCATION, MANAGEMENT AND MERITOCRACY ..............................................638
Mira Majstorović, Marija Tokić
GUARANTEE OF EDUCATION FOR EVERYBODY......................................................652
Sanela Ravlić, Ivana Zelenko
IMPORTANCE OF HUMAN RESOURCES IN ENTREPRENEURIAL
SUPPORT INSTITUTIONS FOR ADAPTATION OF SMEs TO BUSINESS
ENVIRONMENT IN THE EU ...........................................................................................663
Ivana Ivančić, Nada Bosanac, Srđan Petrić
VOCATIONAL EDUCATION AND TRAINING IN CROATIA:
A NEW CONCEPT FOR THE LABOUR MARKET REQUIREMENTS ......................672
Law and Economics
Păun Ciprian Adrian
THE CONTRIBUTION OF ROMANIAN LEGAL ELITES FROM THE 20TH
CENTURY TO THE DEVELOPMENT OF THE ECONOMIC AND
LEGAL SYSTEM .................................................................................................................685
Renata Perić, Emina Konjić
FINANCIAL MEASURES TO MITIGATE THE NEGATIVE
CONSEQUENCES OF UNEMPLOYMENT ...................................................................695

Ivana Barković Bojanić
APPLICATION OF THE GAME THEORY TO LAW: SELECTED EXAMPLES...........704
Katarina Marošević, Josip Romić
GENDER DISCRIMINATION IN THE LABOR MARKET:
CROATIAN EXPERIENCE................................................................................................713
Vjekoslav Puljko
ROME II REGULATION....................................................................................................727
Industrial Organization
Ivan Kristek, Domagoj Karačić, Dražen Ćućić
MEASURING COMPETITION IN CROATIAN BANKING INDUSTRY ..................... 743
Slavko Matanović
CHALLENGES IN MANAGING INFORMATION SYSTEMS OF
GLOBAL COMPANIES ..................................................................................................... 753
Business Administration and Business Economics
Vesna Bučevska, Jasmina Bučevska
A LOGIT MODEL OF ELECTRONIC BANKING ADOPTION:
THE CASE OF KOMERCIJALNA BANKA AD SKOPJE ............................................... 765
Kasim Tatić, Merima Činjarević
CONSUMER ETHICS: ATTITUDES TOWARD COUNTERFEIT
LUXURY FASHION PRODUCTS..................................................................................... 775
Florin Duma, Dragoş Păun
COMPANY FINANCING THROUGH CAPITAL INCREASE
IN THE HOSPITALITY INDUSTRY............................................................................... 787
Gavriletea Marius
PRACTICAL ISSUES REGARDING
INSURANCE INTERMEDIARIES IN ROMANIA .......................................................... 797
Thomas Cleff, Christoph Grimpe, Christian Rammer
LEAD MARKETS IN THE EUROPEAN TEXTILE INDUSTRY  IMPLICATIONS
FOR EUROPEAN INNOVATION POLICY ................................................................... 807
Hans-Joachim Hof
GESETZTE ORDNUNG VS. SPONTANE ORDNUNG
EINIGE GEDANKEN ZUM THEMA SYSTEMTRANSFORMATION UND
INTERNATIONALER WETTBEWERB.......................................................................... 831
Boris Marjanović, Barbara Marušnik, Klaudio Tominović
MODERN ORGANIZATIONAL MODELS BASED
ON A NEW PARADIGM ................................................................................................... 846
Hrvoje Budić
MEASURING CUSTOMER SATISFACTION USING
THE TEST METHOD ...................................................................................................... 855

Economic Development, Technological Change, and Growth
Guy Fournier, Matthew Stinson
THE FUTURE THINKS ELECTRIC DEVELOPING AN ELECTRIC MOBILITY
VALUE CHAIN AS A FOUNDATION FOR A NEW ENERGY PARADIGM ..............867
Mladen Vedriš, Ružica Šimić
CROATIA AT THE DOOR OF THE EU:
CURRENT RISKS AND NEW POSSIBILITIES ...............................................................900
Marina Budimir, Irena Bosnić
NEW WORLD ORDER INFLUENCED BY GLOBALIZATION AND
INFORMATION – COMMUNICATION TECHNOLOGIES ........................................924
Vlasta Šibalić
PUBLISHING IN E-ENVIRONMENT.............................................................................933
Urban, Rural and Regional Economics
Mirjana Radman-Funarić
IDENTIFICATION OF CRITICAL INDUSTRIAL ACTIVITIES
CONCENTRATION IN THE CROATIAN PANONIAN REGION ................................947
Vladimir Cini, Nataša Drvenkar
ANALYSIS OF REGIONAL NONCOMPETITIVENESS OF PANNONIAN
CROATIA ............................................................................................................................956
Kralik I., Marković B., Tolušić, Z.
MODELS FOR PREDICTING THE USAGE OF IPARD PROGRAM FUNDS
IN THE REPUBLIC OF CROATIA...................................................................................969
Anton Devcic
THE CHALLENGES OF REGIONAL DEVELOPMENT OF POZEGASLAVONIA
COUNTY BASED ON THE EUROPEAN UNION FUNDS ..........................................979
Dominika Crnjac Milić, Goran Martinović
OPTIMIZATION OF THE NUMBER OF CLIENTS
IN INSURANCE COMPANIES ........................................................................................991

Vorwort
Es ist uns ein Vergnügen, das Konferenzband „Interdisziplinäre Managementforschung
VII/ Interdisciplinary Management Research VII“ vorstellen zu können. Ein Buch aus
dieser Reihe ist zum ersten Mal 2005 erschienen, als Resultat der Zusammenarbeit
zwischen der Wirtschaftsfakultät in Osijek, Kroatien und der Hochschule Pforzheim,
Deutschland, und insbesondere durch das Magisterstudium des Management. Die
Zusammenarbeit der zwei genannten Partnerinstitutionen ist unter anderem durch
jährliche wissenschaftliche Symposien gekennzeichnet, auf welchen interessante
Themen aus verschiedenen Bereichen der Wirtschaft und des Managements
vorgestellt und folglich in einem Band veröffentlicht werden. Jedes Jahr ziehen die
wissenschaftlichen Symposien Akadamiker anderer kroatischer, sowie ausländischer
Universitäten, einschließlich Ungarn, Polen, Rumänien, Slovenien, , Montenegro,
Bosnien und Herzegovina, Serbien, Indien, Irland, Czechien, Israel, Italien, Südafrika,
Belgien an, die ihren wissenschaftlichen und profesionellen Beitrag zur Diskussion
über zeitgenössische Fragen aus dem Bereich des Managements leisten. Die Aktualität
der behandelten Fragen, der internationale Charakter im Hinblick auf Themen und
Autoren, die höchsten Standards der Forschungsmethodologie sowie die Kontinuität
dieser Konferenzreihe wurden auch von der internationalen akademischen Gemeinde
erkannt, weswegen sie auch in internationalen Datenbanken, wie Thomson ISI,
RePEc, EconPapers und Socionet, zu finden ist.
Die neueste Ausgabe von „Interdisziplinäre Managementforschung VII/
Interdisciplinary Management Research VII“ umfasst 74 Arbeiten geschrieben von
134 Autoren. Der Erfolg früherer Ausgaben ging über die Grenzen der Länder
hinaus, deren Autoren schon traditionell Teil der Reihe waren und zog neue Autoren
aus USA, Slowakei, Dänemark, Mazedonien, Schweiz und Großbritannien an.
Jedes der Autoren leistete einen bedeutenden Beitrag zu diesem fachübergreifenden
Managementforum.
Als Herausgeber dieses Bandes hoffen wir, dass diese Reihe auch weiterhin
Akademiker und Profesionelle dazu bewegen wird, in Forschung und Beruf die
höchsten Standards zu beanspruchen, und dass es weiterhin als Ansporn zu weiteren
Formen von Zusammenarbeit unter Teilnehmern dieses Projektes dienen wird.

Prof. Dr. Dražen Barković
Prof. Dr. Bodo Runzheimer

Foreword

It is our pleasure to introduce the book “Interdisziplinäre Managementforschung
VII/ Interdisciplinary Management Research VII” to you. The first volume appeared
in 2005 as a result of co-operation between the Faculty of Economics in Osijek
(Croatia) and Pforzheim University (Germany), particularly through the postgraduate
programme “Management”. The co-operation between these partnering institutions
has been nurtured, amongst else, through annual scientific colloquiums at which
interesting topics in various fields of economics and management have been presented
and later published in the proceedings. Over the years, the scientific colloquiums have
drawn the attention of academic scholars from other Croatian universities, as well as
from other countries including Hungary, Poland, Romania, Slovenia, Montenegro,
Bosnia and Herzegovina, Serbia, India, Ireland, Czech Republic, Israel, Italy, South
Africa, Belgium, each making a contribution in academic and professional discussion
about contemporary management issues. Actuality and importance of the issues
discussed, the international character of the book in terms of authors and topics, the
highest standards of research methodology and continuity in publishing have been
recognized by the international academic community, resulting in the book now
being indexed in world-known data bases such as Thomson ISI, RePEc, EconPapers,
and Socionet.
The latest edition, i.e. “Interdisziplinäre Managementforschung VII/ Interdisciplinary
Management Research VII” encompasses 74 papers written by 134 authors. The
success of former editions has echoed beyond the traditionally participative countries
and authors and now includes new authors from USA, Slovaky, Denmark, Macedonia,
Schweiz and the United Kingdom, each providing a valuable contribution to this
interdisciplinary management forum.
As editors we hope that this book will continue to encourage academic scholars
and professionals to pursue excellence in their work and research, and to provide an
incentive for developing various forms of co-operation among all involved in this
project.

Prof. Dr. Dražen Barković
Prof. Dr. Bodo Runzheimer

MANAGEMENT

KONZEPTIONELLE VORSCHLÄGE ZUR VERBESSERUNG VON PLANUNG UND ...

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KONZEPTIONELLE VORSCHLÄGE ZUR VERBESSERUNG
VON PLANUNG UND KONTROLLE INTEGRATIVER
PRODUKTENTWICKLUNGEN
Dr. Christian P. Runzheimer
Professor Dr. Bodo Runzheimer

Abstract

The paper will investigate whether a planning and control concept in medium
and large industrial enterprises with batch and mass production can be used to
design a planning and control system for the development of complex technical
products and associated processes, and whether such a system could bring about
better solutions and/or require less effort and input. The paper refers to the result
as “integrative product development”. Particular emphasis on anticipatory control
at the expense of planning function allows one to expect noticeable improvements
in control as well as timely reactions to possible missing of targets. A step-by-step
“procedure methodology for checking and improving planning and control concepts in product development” proposes a solution in the form of a planning and
control concept for the integrative product development.
JEL classification: D24, L 29, M 11,
Keywords: product development planning and control system, meta-planning
and control of the integrative product development planning and control system, planning and control systematics and methodology in integrative product
development, organisation of the planning and control of the integrative product
development
Einleitung

Ein erster Teil-Schritt zur Verbesserung der Planungs- und Kontrollsystematik
dient der Festlegung der Grobstruktur des Planungs- und Kontrollsystems. Mit
der Durchführung weiterer Teil-Schritte werden zugleich Gestaltungsempfehlungen unterbreitet. Diese basieren sowohl auf den heuristischen Lösungsprinzipien,

Christian P. Runzheimer • Bodo Runzheimer

16

die elementare Bestandteile eines bewährten Verfahrens (vgl. Grünig, R., S. 186ff.)
darstellen, als auch auf logischen Schlüssen, die sich aus den Prämissen ergeben.
Hierzu zählt insbesondere die Erkenntnis, dass eine Anwendung der „Neugefassten Managementkonzeption“ (vgl. Runzheimer, C., I, S. 56ff.) im Kontext der
Entwicklung von industriellen Serienprodukten die größten Vorteile bietet.
Um das Verständnis der Planungs- und Kontrollkonzeption zu erleichtern, orientiert sich der Beitrag primär an den in der Grobstruktur identifizierten Planungsund Kontrollsubsystemen. Die Durchführung der Verfahrensschritte auf der Ebene
der identifizierten Planungs- und Kontrollsubsysteme und nicht auf der Ebene der
Planungs- und Kontrollkonzeption insgesamt zu dokumentieren, ist vorteilhaft, da
sich alle im Kontext der Planung und Kontrolle von Produktentwicklungen relevanten Schritte auf diese Planungs- und Kontrollsubsysteme beziehen (Abb. 1).
Detaillierungsgrad und Gewichtung der folgenden Ausführungen orientieren
sich an zwei grundsätzlichen Empfehlungen von Grünig:
• Betrachtet werden in den folgenden Ausführungen nur die am Ende eines
(Teil-) Planungsprozesses verabschiedeten Pläne.
• Die Planungs- und Kontrollsystematik sollte vergleichsweise detailliert festgelegt werden und hinsichtlich der Planungs- und Kontrollmethodik und
der Planungs- und Kontrollorganisation auf wesentliche Empfehlungen
beschränkt werden (vgl. Grünig, R., S. 201).

Teilschritte zur Verbesserung der Planungs- und Kontrollkonzeption für die Integrative Produktentwicklung
Verbesserung der Planungs- und Kontrollsystematik
1 Bestimmung der Grobstruktur des Planungs- und Kontrollsystems durch Festlegung
- der Planungs- und Kontrollhorizonte und Planungs- und Kontrollebenen
- der Verkettung der Planungs- und Kontrollebenen
- der vertikalen Entwicklungsfolge und
- der vertikalen und horizontalen Schnittstellen
2 Verfeinerung der Struktur des Planungs- und Kontrollsystems durch die Bestimmung der Planungsobjekte, der Planungsform,
der Pläne, der horizontalen Entwicklungsfolge
3 Bestimmung der Planungsgrundlagen (Festlegung akzessorischer Informationsquellen der Planung und des Informationsaustauschs mit anderen Planungs- und Kontrollsubsystemen)
4 Festlegung der Kontrollart, der Kontrollobjekte und der Kontrollform

KONZEPTIONELLE VORSCHLÄGE ZUR VERBESSERUNG VON PLANUNG UND ...

17

5 Bestimmung der Kontrollgrundlagen (Festlegung akzessorischer Informationsquellen der Kontrolle und des Informationsaustauschs mit anderen Planungs- und Kontrollsubsystemen)
6 Bestimmung des Anlasses
- der Planerstellung und Planrevision
- der Durchführung einer Kontrolle
Verbesserung der Planungs- und Kontrollmethodik
Verbesserung der Planungs- und Kontrollorganisation
Bestimmung der Planungs- und Kontrollträger
Festlegung der Empfänger der Pläne und Kontrollberichte

Insgesamt
Bestimmung der Ablauforganisation (Ablauf und Timing) der Planung und Kontrolle

Abb. 1: Konkretisierung der Vorgehensmethodik bei der Verbesserung der Planungs- und Kontrollkonzeption
Quelle: in Anlehnung an Grünig, R., S. 186 ff.

1 Bestimmung der Grobstruktur des Planungs- und Kontrollsystems

Zur Bestimmung der Grobstruktur des Planungs- und Kontrollsystems ist es
erforderlich, die Planungsebenen, ihre Planungshorizonte, ihre Verkettung und
ihre Entwicklungsfolge festzulegen (vgl. Grünig, R., S. 193 sowie 210f.). Bei der
Festlegung der Grobstruktur des Planungs- und Kontrollsystems ist zunächst zu
entscheiden, ob die Primärstruktur der Pläne sich an der Struktur der Sachzielhierarchie, der zeitlichen Dimension (z. B. den Phasen des Produktlebenszyklusmodells) oder der Struktur der Formalzielhierarchie orientieren sollte. In letzterem Fall
erscheint in Anbetracht der Formalziele
• eine Finanzplanung und -kontrolle, die Auswirkungen auf das Liquiditätsziel
des Unternehmens aufzeigt,
• eine auf das Gewinnziel gerichtete Erfolgsplanung und -kontrolle sowie
• zumindest eine Kontrolle der Auswirkungen auf die Erfolgspotentiale des Unternehmens als unverzichtbar.
Eine geeignete Basis für die Festlegung einer sachzielorientierten Primärstruktur des Planungs- und Kontrollsystems bildet die Strukturierung der Entscheidungstatbestände der Produktentwicklung mit folgender Unterscheidung:
(1) Planungs- und Kontrollsubsystem des Entwicklungsprojektes

Christian P. Runzheimer • Bodo Runzheimer

18

(2) Planungs- und Kontrollsubsystem des innovativen Produktes sowie
(3) Planungs- und Kontrollsubsystem der (auf das innovative Produkt
bezogenen)
Kombinations- und Transformationsprozesse (einschließlich der
zugehörigen
Produktionsfaktoren).
Den Bezugspunkt der Entscheidungen, die Kombinations- und Transformationsprozesse (einschließlich zugehöriger Produktionsfaktoren) betreffen, bilden
die produktbezogenen Pläne. Da sowohl die Entscheidungen der Produktentwicklung als auch der Prozessentwicklung wiederum durch Pläne auf der Projektebene
koordiniert werden müssen, entspricht die genannte Reihenfolge auch der hierarchischen Anordnung der drei Planungs- und Kontrollsubsysteme.
Da die drei sachzielorientierten Planungs- und Kontrollsubsysteme die Formalziele beeinflussen, sind ihre Auswirkungen durch die drei formalzielorientierten
Planungs- und Kontrollsubsysteme (Gewinn, Erfolgspotentiale und Liquidität) zu
erfassen.
Durch eine Überlagerung der Strukturierungsdimensionen entsteht die in Abb.
2 dargestellte Grobstruktur der Planungs- und Kontrollkonzeption für die Integrative Produktentwicklung. Damit wird zugleich der Empfehlung nach einer
konsequenten Trennung von finanzieller und nicht-finanzieller Planung und
Kontrolle Rechnung getragen.

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Metaplanung und -kontrolle des
Planungs- und Kontrollsystems
der Integrativen Produktentwicklung

Planung und Kontrolle des
Entwicklungsprojektes

Sachzielorientierte
Primärstruktur
Legende:
Systembildende
Koordination
(Metaplanung
und -kontolle)

Planung und Kontrolle des
innovativen Produktes
Planung und Kontrolle der
Kombinations- und
Transformationsprozesse
(einschließlich zugehöriger
Produktionsfaktoren)

Formalzielorientierte
Sekundärstruktur

Abb. 2: Dimensionen der Grobstruktur der Planungs- und Kontrollkonzeption für die Integrative Produktentwicklung
Quelle: Runzheimer, C., I, S. 286

Es wird empfohlen, Sachzwänge, die eine strukturelle Anpassung des Planungsund Kontrollsystems während des Produktentwicklungsprozesses erforderlich machen könnten, möglichst antizipativ durch systembildende Koordination zu
vermeiden. Diese den anderen Planungs- und Kontrollaufgaben der Produktentwicklung übergeordnete Aufgabe wird als Gegenstand des Subsystems der „Metaplanung und -kontrolle des Planungs- und Kontrollsystems der Integrativen
Produktentwicklung“ gesehen. Aufgabe dieses Subsystems ist es, festzulegen,
„wie“ im konkreten Fall geplant werden soll.

20

Christian P. Runzheimer • Bodo Runzheimer

Die Veränderung der Produktlebenszyklen und die damit einhergehende zunehmende Bedeutung des Entsorgungszyklus lässt es zweckmäßig erscheinen, dass
die Planungshorizonte der Planungsebenen des innovativen Produktes sowie
der Kombinations- und Transformationsprozesse mindestens alle Phasen des
Produktlebenszyklus - also auch die Entsorgungsphase - einschließen.
Als das Ende der Realisationsdauer des Planes des Entwicklungsprojektes wird
in der Literatur häufig die Markteinführung des innovativen Produktes angesehen
(vgl. Runzheimer, C., I, S. 94ff.). Zwei Gründe sprechen jedoch dagegen, dass hier
auch der Planungshorizont der Planungsebene des Entwicklungsprojektes angesiedelt werden sollte:
(1) Zählt zu den Aufgaben der Produktentwicklung auch die Entwicklung innovativer Prozesse, so kann das Realisationsende der Prozessentwicklung erst mit
der Einführung neuer Entsorgungsprozesse zu Beginn der Entsorgungsphase
erreicht sein.
(2) Auch nach dem Realisationsende treten relevante Zielwirkungen des Produktentwicklungsprojektes auf. Erwähnt sei die Auswirkung der Dauer der Produktentwicklung auf den Markterfolg des innovativen Produktes.
Es wird empfohlen, den Planungshorizont der Planungsebene des Produktentwicklungsprojektes - falls notwendig - so festzulegen, dass er nicht nur die Einführung des („materiellen“) Produktes am Markt, sondern auch die Einführung
der zugehörigen innovativen Prozesse (z. B. Entsorgungsleistungen) erfasst.
Um die durch den gewählten Planungshorizont verursachten Selektionsrisiken
(vgl. Runzheimer, C., I, S. 56ff.) zu begrenzen, sollte der Zeithorizont der Kontrollen jeweils über den an der Realisationsdauer orientierten Zeithorizont der Pläne hinausgehen und die Prognosereichweite einschließen (vgl. Abb. 3).

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Ebene

Zeithorizonte der Planung und Kontrolle

Metaplanung und -kontrolle
des Planungs- und Kontrollsystems der Integrativen
Produktentwicklung
Planung und Kontrolle
des Entwicklungsprojektes
Planung und Kontrolle
des innovativen Produktes
Planung und Kontrolle
der Kombinations- und
Transformationsprozesse
Legende:
Planungshorizont
Kontrollhorizont

Zeit
Ende des Entstehungszyklus des
innovativen Produktes
(Markteinführung)

Beginn des Entsorgungszyklus
(spätestens jetzt:
Ende der Prozeßeinführung)

Ende des Entsorgungszyklus

Prognosereichweite

Abb. 3: Zeithorizonte der Planungsebenen der Integrativen Produktentwicklung
Quelle: Runzheimer, C., I, S. 288

Eine zentrale Eigenschaft des Planungs- und Kontrollsystems wird implizit mit
der Festlegung der vertikalen Entwicklungsfolge ebenfalls festgelegt: die Flexibilität der Planung. Diese ist von besonderer Bedeutung, wenn
• das Problemfeld sich im Zeitablauf verändern kann (Dynamik),
• die Umweltentwicklung nicht sicher voraussagbar ist (Unsicherheit),
• die Realisierbarkeit sowie der Erfolg von Plänen vom Eintritt bestimmter künftiger Zustände (Planungsprämissen) abhängig sind (Bedingtheit) (vgl. Bleicher, K., Sp. 1125; Wild, J., S. 176).
Da diese Merkmale auf die Produktentwicklung zutreffen, wird hier mit dem Gegenstromverfahren eine Kombination beider Ableitungsformen – Schachtelung
und Gegenstromverfahren (vgl. Runzheimer, C., I, S. 69f.) empfohlen; dies sichert
die notwendige Anpassungsfähigkeit der Planung: Aus Plänen der übergeordneten
Planungsebenen werden vorläufige Pläne der unteren Planungsebene deduktiv
abgeleitet. Die endgültige Planfestlegung erfolgt erst durch eine Prüfung der Realisierbarkeit durch die untere Ebene und die progressive Plankonfirmierung (induktive Ableitung).

Christian P. Runzheimer • Bodo Runzheimer

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Da es sich bei der Planung und Kontrolle einer Produktentwicklung um ein
Subsystem der Unternehmensplanung handelt, ist diese Empfehlung für die zu
entwickelnde Planungs- und Kontrollkonzeption auf drei Ebenen umzusetzen:
1) Es gilt, die Beziehung zu übergeordneten Plänen des Unternehmens zu
klären.
2) Es ist notwendig, die Verkettung und vertikale Entwicklungsfolge der Planungsund Kontrollsubsysteme innerhalb der Planungs- und Kontrollkonzeption
beziehungsweise des Planungs- und Kontrollsystems festzulegen.
3) Schließlich sind die nachgeordneten operativen Planungsebenen zu
beachten, in denen konkrete Handlungsziele formuliert werden.
Zu 1):
Die Impulse zum Beginn einer Integrativen Produktentwicklung können von
drei übergeordneten Plänen ausgehen:
• Wegen der strategischen Bedeutung eines innovativen Serienproduktes ist
davon auszugehen, dass die Integrative Produktentwicklung Gegenstand eines
übergeordneten strategischen Plans ist (Schachtelung), aus dem wesentliche
Ziele der Produktentwicklung zunächst deduktiv abgeleitet werden. Wichtige
Resultate, die über die Schnittstelle zur strategischen Planung „top down“
übernommen werden, betreffen die Beiträge der Produktentwicklung zum
Gewinnziel und zur angestrebten Entwicklung externer und interner Erfolgspotentiale des Unternehmens.
• Als Teilfunktion von Forschung & Entwicklung (F&E) ist die Integrative
Produktentwicklung Bestandteil eines übergeordneten F&E-Plans (deduktive
Ableitung und Schachtelung). Geben die Resultate der „Vorentwicklung“ (innovative produkt- oder prozessbezogene Techniken) den entscheidenden Impuls zur Produktentwicklung, so handelt es sich um einen „Technology push“.
In diesem Fall wird durch induktive Schlussfolgerungen versucht, innovative
Techniken und Prototypen zu marktfähigen Produkten weiterzuentwickeln.
• Unter der Annahme eines hohen Konkurrenzdrucks ist davon auszugehen, dass
der Absatzplan den primären Engpassplan darstellt, auf den hin die Planung
der Integrativen Produktentwicklung zu erfolgen hat (deduktive Ableitung
und Schachtelung). Zu den wesentlichen Input-Informationen (top down)
für die Integrative Produktentwicklung zählen insbesondere die zu realisierenden Kundenwünsche, die erwarteten Einsatzbedingungen des Produktes, die

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vorgesehene Dauer des Produktlebenszyklus, die geplanten Stückerlöse und
Absatzmengen über die Zeit, der geplante Zeitpunkt der Markteinführung
und die Bedeutung von Zeitverzögerungen für die Produkterlöse.
Zu 2):
Da der übergeordnete Projektplan auch die zeitliche Abfolge der Produktplanung und der Prozessentwicklung regelt, kann für die zeitliche Verkettung die
Schachtelung angewendet werden. Hinsichtlich der vertikalen Entwicklungsfolge
wird die Anwendung des Gegenstromverfahrens dergestalt präzisiert, dass aus
der Projektaufgabe zunächst ein vorläufiger Produktplan und Produktsubpläne (z.
B. für Baugruppen) deduziert werden. Aus diesen Produkt(sub)plänen wiederum
werden Prozesspläne (z. B. für Fertigungs- und Montageprozesse) abgeleitet. „Bottom up“ findet eine Rückkopplung von Informationen über die Realisierbarkeit
der geplanten Ziele (Zielkonfirmierung), über die Prozesspläne, über die Produktpläne bis zu den Projektplänen statt.
Die auf das Liquiditätsziel gerichtete Planungsebene der Integrativen Produktentwicklung bildet ein Subsystem des Finanzplanungs- und -kontrollsystems des
Unternehmens.
In dem Finanzplan des Unternehmens werden für die Entwicklung des Produktes beispielsweise in Form eines Budgets finanzielle Mittel in einer bestimmten
Höhe und für einen bestimmten Zeitraum vorgesehen (top down). Umgekehrt
(bottom up) liefert die finanzielle Planung und Kontrolle der Integrativen Produktentwicklung dem übergeordneten Finanzplan des Unternehmens wiederum Informationen über die tatsächlichen oder zu erwartenden Mittelzu- und -abflüsse des
Produktentwicklungsprojektes (Gegenstromverfahren).
Zu 3):
Für die bei der Integrativen Produktentwicklung vertikal untergeordneten
Pläne bietet sich ebenfalls das Gegenstromverfahren an: Diese untergeordneten
und auf die unmittelbare Realisierung des innovativen Produktes gerichteten Pläne
erhalten ihre Zielvorgaben aus den Resultaten der Integrativen Produktentwicklung
(top down) und liefern ihrerseits Informationen über die Realisationsmöglichkeiten
oder die tatsächliche Realisation des innovativen Produktes und der zugehörigen innovativen Prozesse. Schließlich sind noch die horizontalen Schnittstellen des Planungs- und Kontrollsystems für die Integrative Produktentwicklung zu definieren.
Die drei sachzielorientierten Ebenen der Integrativen Produktentwicklung lassen

Christian P. Runzheimer • Bodo Runzheimer

24

mögliche unternehmensinterne Schnittstellen zu weiteren Entwicklungsprojekten,
weiteren Produkten sowie weiteren Kombinations- und Transformationsprozessen
des Unternehmens erwarten (vgl. Abb. 4).
Schnittstellen zu unternehmensexternen Planungsund Kontrollsystemen

Schnittstellen zu unternehmensinternen Planungsund Kontrollsystemen

Planung und Kontrolle von Subsystemen des Produktentwicklungsprojektes

Planung und Kontrolle des
Entwicklungsprojektes

Planung und Kontrolle von Subsystemen des innovativen Produktes

Planung und Kontrolle des
innovativen Produktes

Planung und Kontrolle weiterer
Produkte des
Unternehmens

Planung und Kontrolle von Teilprozessen und zugehörigen Produktionsfaktoren

Planung und Kontrolle der
Kombinations- und
Transformationsprozesse

Planung und Kontrolle weiterer
Kombinations- und
Transformationsprozesse

Planung und Kontrolle der unmittelbaren Realisierung
von Subsystemen
des innovativen
Produktes

Planung und Kontrolle der
unmittelbaren Realisierung
des innovativen Produktes
Beschaffung
Fertigung
u. Montage

Legende:

Planung und Kontrolle weiterer
Entwicklungsprojekte

Laterale Schnittstelle

Verkauf, Wartung, EntsorDistribu- Service gung
tion, Installation

Horizontale Schnittstelle

Vertikale Schnittstelle

Abb. 4: Mögliche vertikale, horizontale und laterale Schnittstellen der sachzielorientierten Planung und Kontrolle einer Integrativen
Produktentwicklung
Quelle: Runzheimer, C., I, S. 292

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2 Metaplanung und -kontrolle des Planungs- und Kontrollsystems der Integrativen Produktentwicklung
2.1 Planungs- und Kontrollsystematik

Durch den spontanen und innovativen Charakter einer konkreten Integrativen
Produktentwicklung erscheint es notwendig, entweder ein neues Planungs- und
Kontrollsystem zu gestalten oder bereits existierende Planungs- und Kontrollsysteme der Integrativen Produktentwicklung in Kenntnis der situativen Kontextfaktoren einer kritischen
Überprüfung zu unterziehen und gegebenenfalls Anpassungen vorzunehmen.
Diese systembildende Koordinationsfunktion ist Aufgabe der Metaplanung
und -kontrolle der Integrativen Produktentwicklung.
Bei der kritischen Überprüfung von Ansätzen zur Planung und Kontrolle von
Produktentwicklungen werden zwei zentrale Kritikpunkte und ein entsprechender
Verbesserungsbedarf identifiziert:
• die mangelnde Effizienz des (mehrstufigen) Entscheidungsprozesses und
• die (weitgehende) Vernachlässigung des Phänomens der Unsicherheit.
Originäre Gestaltungsempfehlungen

Eine Verfeinerung des Planungs- und Kontrollsubsystems der Metaplanung
und -kontrolle der Integrativen Produktentwicklung wird durch die Festlegung
der Planungsobjekte, der Planungsform, der Pläne und der horizontalen Entwicklungsfolge vorgenommen:
• Planungsobjekt der Metaplanung ist das Planungs- und Kontrollsystem einer konkreten Integrativen Produktentwicklung. Gemäß Grobstruktur zählen
hierzu die drei sachzielorientierten Planungs- und Kontrollsubsysteme
des Entwicklungsprojektes, des innovativen Produktes, der (auf das innovative Produkt bezogenen) Kombinations- und Transformationsprozesse (einschließlich der zugehörigen Produktionsfaktoren) sowie die der formalzielorientierten Planungs- und Kontrollsubsysteme (Gewinn, Erfolgspotentiale
und Liquidität ). Die Metaplanung regelt jeweils die Art und Weise, „wie“
geplant und kontrolliert werden soll (vgl. Bleicher, K., Sp. 1121).

Christian P. Runzheimer • Bodo Runzheimer

26

• Die Beschreibung der Art und Weise wie geplant und kontrolliert werden soll,
legt eine ausschließlich qualitative Planungsform nahe.
• Bei der Festlegung der einzelnen Pläne sollte eine Kongruenz von Führungsund Planungsbereichen angestrebt werden, um einerseits Verantwortungen besser
definieren zu können und andererseits die Verständlichkeit des Planungs- und
Kontrollsystems für die Planungs- und Kontrollträger zu erhöhen.
• Hinsichtlich der horizontalen Entwicklungsfolge wird empfohlen, zuerst die
Systematik, dann die Methodik und abschließend die Organisation des Planungsund Kontrollsystems festzulegen. Auf derselben Hierachieebene sollten zuerst die
sachzielorientierten Planungs- und Kontrollsubsysteme und anschließend die
zugehörigen formalzielorientierten Planungs- und Kontrollsubsysteme festgelegt
werden.
Metaplan des unternehmensinternen
Planungs- und Kontrollsystems
der Integrativen Produktentwicklung
Plan der sachzielorientierten Planung und Kontrolle

Plan der formalzielorientierten Planung und Kontrolle

Legende:
Empfohlene
Pläne
Mögliche zusätzliche Pläne
Horizontale
Entwicklungsfolge

Abb. 5: Pläne der Metaplanung
Quelle: Runzheimer, C., I, S. 295

Als Planungsgrundlagen der Metaplanung kommen Basislösungen im Sinne
von in dem jeweiligen Unternehmen bereits bei Produktentwicklungen erfolgreich
eingesetzten Planungs- und Kontrollsystemen sowie konzeptionelle Vorschläge der
einschlägigen Fachliteratur in Frage.
Wichtige Hinweise auf den unter Risikoaspekten erforderlichen und den aus
Wirtschaftlichkeitsüberlegungen vertretbaren Umfang der Planung und Kontrolle
der Produktentwicklung liefern die Planungsergebnisse der vertikal übergeordneten
Pläne der Bereiche Absatz, F&E und Strategische Planung.
Die Planfortschrittskontrolle überprüft mitlaufend Teilergebnisse; die Ergebniskontrolle die abschließenden Ergebnisse der Planung und Kontrolle der Integrativ-

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en Produktentwicklung durch einen Vergleich der tatsächlichen mit der angestrebten Erreichung von Planungs- und Kontrollzielen (z. B. Risikoreduktion, Koordination). Als Kontrollobjekte der Ergebniskontrollen und der Planfortschrittskontrollen sind die Systematik, die Methodik und die Organisation des Planungs- und
Kontrollsystems für die Integrative Produktentwicklung anzusehen.
Die Kontrollintervalle sind so anzusetzen, dass die Kontrollresultate als Grundlage der
Neuerstellung beziehungsweise der Revision der Planung zur Verfügung stehen
(vgl. Grünig, R., S. 194; Wild, J., S. 44).
Kontrollart der
Metakontrolle
Ergebniskontrolle
Planfortschrittskontrolle

Gemeinsame Kontrollobjekte

Spezifische Kontrollobjekte

Systematik, Methodik und Organisation
des Planungs- und Kontrollsystems für die
Integrative Produktentwicklung

Endergebnisse
Zwischenergebnisse (Meilensteine) der Metaplanung

Prämissenkontrolle

Prämissen der Metaplanung des Planungs- und
Die den Informationen und Informationsquellen
Kontrollsystems der Integrativen Produktentwicklung
der Metaplanung zugrunde liegenden normaund ihre Begründungen (insbesondere Lageanalysen
tiven Aussagen, Erklärungen, Prognosen,
und Lageprognosen)

Überwachung

faktische Aussagen und Begriffe

Von Prämissenkontrollen wegen ihrer vermeintlichen
Irrelevanz nicht erfasste Kontrollobjekte

Tabelle 1: Übersicht über die Kontrollarten der Metakontrolle und die zugehörigen Kontrollobjekte
Quelle: Runzheimer, C., I, S. 296

Ergänzende Gestaltungsempfehlungen zur Erhöhung der Effizienz der
Entscheidungsprozesse
Auf der Basis entscheidungstheoretischer Überlegungen lassen sich zwei ergänzende Verbesserungsvorschläge formulieren:
1) Ergänzung der Entscheidungsziele
Die Entscheidungsziele sollten so ergänzt werden, dass im Entscheidungsprozess
alle relevanten Unternehmensziele berücksichtigt werden. Auf jeden Fall sind
- von den Formalzielen das Gewinnziel, die Entwicklung von Erfolgspotentialen und das Liquiditätsziel sowie

Christian P. Runzheimer • Bodo Runzheimer

28

- die projektspezifischen Sachziele
zu berücksichtigen.
Ergänzende Gestaltungsempfehlungen zur Behandlung des Phänomens der
Unsicherheit
Eine zentrale systembildende Koordinationsaufgabe der Metaplanung ist
auch in der Behandlung von Unsicherheit zu sehen, also:
• einen Beitrag zur Risikoerkennung zu leisten,
• eine Risikoanalyse und -bewertung zu unterstützen und
• sicherzustellen, dass mögliche Sicherungsmaßnahmen bei der Planung und
Kontrolle Integrativer Produktentwicklungen berücksichtigt werden, d. h. als
Planungsobjekte in das zu gestaltende Planungs- und Kontrollsystem integriert werden (Risikohandhabung beziehungsweise -politik).
Einen wesentlichen Beitrag der Planungs- und Kontrollsystematik der Metaplanung und -kontrolle zur Risikoerkenntnis und -reduktion leisten die vorgenannten Gestaltungsempfehlungen. Die folgenden Ausführungen konzentrieren
sich auf ergänzende Maßnahmen. Der Begriff „Unsicherheit“ kennzeichnet Entscheidungssituationen, in denen der Entscheidungsträger nur über unvollkommene Informationen verfügt.
Im Mittelpunkt der Risikoanalyse stehen häufig die mehrwertigen Zustände,
die von dem Entscheidungsträger nicht kontrolliert werden können (vgl. Runzheimer, B., Operations Research, S. 289ff.; Runzheimer, B., Berücksichtigung des
Risikos, S. 69ff.; Werners, B./Zimmermann, H.-J., Sp. 1743). Als Bestandteil der
Planungssystematik der Metaplanung und -kontrolle wird auch die Aufgabe gesehen, methodische Vorschläge zu unterbreiten, die eine Risikoerkennung in den zu
planenden Planungs- und Kontrollsystemen gewährleisten.
Ein wichtiger Schritt ist in der Offenlegung der jeweiligen Planungsprämissen zu sehen.
Neben der Identifikation der Risiken von einzelnen Entscheidungen zählt zu
den Aufgaben der Risikoerkennung auch die Analyse der Gesamtrisikolage. Bei
der Analyse mehrerer unabhängiger Einzelrisiken ist im Kontext der Produktentwicklung auch die Risikoerkennung in mehrstufigen Planungsprozessen von Inter-

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esse. Bei mehrstufigen Planungsprozessen werden Abweichungen der realisierten
(Zwischen-)Ergebnisse von den geplanten Ergebnissen - so genannte Störungen
(Chancen und Gefahren) - verursacht durch (vgl. Schneeweiß, C., S. 122f.):
• Primärstörungen, die direkt - entweder durch exogene Größen oder durch
ungenaue Prognosen - verursacht werden, und/oder
• Sekundärstörungen, die sich von Primärstörungen ausgehend vertikal und
horizontal im Planungssystem ausbreiten und Planveränderungen bedingen.
Der Risikoerkennung im Rahmen der Metaplanung und -kontrolle kommt daher die Aufgabe zu, mögliche Primärstörungen zu identifizieren, in Modellen abzubilden und anhand von Kausalketten ihre Ausbreitung zu analysieren.
Für diese komplexe Aufgabe können zwei substantielle Gestaltungsempfehlungen abgeleitet werden:
(1) Aus entscheidungstheoretischer Sicht ist eine vertikale Ausbreitung von
Sekundärstörungen nur in Sachzielhierarchien möglich, da lediglich hier empirischkausale Relationen in Form von Ziel-Mittel-Beziehungen bestehen. Formalzielhierachien beruhen hingegen lediglich auf definitionslogischen Beziehungen.
Wegen der (horizontalen) Abhängigkeit der Formalzielerreichung von den sachzielerreichenden Maßnahmen wird empfohlen, zunächst die Sachzielhierarchie
auf die Entstehung und Ausbreitung von Störungen hin zu untersuchen und erst
anschließend die weitere Ausbreitung der primären und sekundären Störungen
der Sachzielhierarchie auf die Formalzielhierarchie zu analysieren.
(2) Ursache der Ausbreitung von Störungen sind Interdependenzen innerhalb der zu planenden Entscheidungen der Integrativen Produktentwicklung sowie zwischen der Integrativen Produktentwicklung einerseits und dem unternehmensinternen und -externen Umsystem andererseits. Ein „Grundmodell“ (vgl.
Runzheimer, C., I, S. 184ff.) wird als Basis für die Formulierung eines planungsund kontrollsystemspezifischen Interdependenzmodells empfohlen.
Eine nur statische Analyse wird jedoch nicht der Tatsache gerecht, dass sich bei
der Analyse eines innovativen Produktes die möglichen Störungsquellen und die
Interdependenzen im Zeitablauf verändern (vgl. Wurl, H.-J., Betriebswirtschaftliche Projektanalysen, S. 366). Auch im Hinblick auf die Untersuchung der Ausbreitungsgeschwindigkeit von Störungen erscheint eine Ergänzung der auf die sachlichen Interdependenzen gerichteten konstitutiven Dimension um eine zeitliche

30

Christian P. Runzheimer • Bodo Runzheimer

Dimension notwendig. Für die Strukturierung der dynamischen Risikoerkennung
empfiehlt sich
• für die Erkennung von produktbezogenen Einzelrisiken der Einsatz des
Produktlebensphasen-Ansatzes und
• für die Aggregation dieser Einzelrisiken und die Erkennung der Gesamtrisikolage der Produktentwicklung und -realisierung der Einsatz des
Produktlebenszyklus-Ansatzes.
Die anschließende Risikoanalyse und -bewertung erfolgt mit dem Ziel, Lage
(Erwartungswert) und Streuung (Varianz, Standardabweichung) der erkannten
Risiken zu analysieren und die Risiken zu bewerten. Eine Aufgabe der Planungssystematik der Metaplanung kann diesbezüglich in der Definition geeigneter methodischer Vorgaben für das zu planende Planungs- und Kontrollsystem gesehen
werden. Neben der Durchführung von Experimenten und der Auswertung von
Statistiken sind als potentielle Methoden beispielsweise spezielle Risikoanalysen
- z. B. Risikoanalyse nach Hertz, FMEA, Lückenmodelle zur Analyse mangelnder
Produktqualität (vgl. Zeithaml, V. A./Parasuraman, A./Berry, L. L., S. 49ff.) -, Zustands- und Entscheidungsbaumtechniken, Simulationen sowie Sensitivitätsanalysen zu nennen (vgl. Bamberg, G., Sp. 887ff.; Bauer, C., Sp. 1658ff.; Koch, H., Sp.
2063ff.; Runzheimer, B., Operations Research II, S. 13ff.; Runzheimer, B., Operations Research, S. 244ff.; Wurl, H.-J., Betriebswirtschaftliche Pojektanalysen, S.
363ff.).
Hinsichtlich der nachfolgenden Risikopolitik kommt der Metaplanung die
Aufgabe zu, sicher zu stellen, dass die Handhabung der relevanten Risiken und
die zugehörigen Entscheidungen über alternative Sicherungsmaßnahmen als Planungsobjekte Eingang in das zu planende Planungs- und Kontrollsystem finden.
Bei der Betrachtung einer einzelnen Entscheidung oder Planungsstufe kommt
in erster Linie eine Verringerung der Unsicherheit durch die Beschaffung zusätzlicher Informationen über die (unsicheren) Elemente der Entscheidungsmatrix in
Frage (vgl. Adam, D., S. 220; Mag, W., S. 13).
Durch eine Plangestaltung sollte die Metaplanung Vorsorge gegen unerwünschte Auswirkungen der Unsicherheit treffen; dies könnte durch die Planung von
Maßnahmen des Risikoausgleichs unterstützt werden. Dabei können verschiedene
(Teil-)Pläne beziehungsweise Maßnahmen analog wie ein Wertpapier-Portefeuille

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so konfiguriert werden, dass sich die Risiken der einzelnen Elemente insgesamt
tendenziell neutralisieren (vgl. Wild, J., S. 141).
Weitere Stichworte hierzu: Bevorzugung flexibler Maßnahmen und Ressourcen, Präventivmaßnahmen, Sanierungsmaßnahmen (vgl. Runzheimer, C.,
I, S. 309ff.).
Bei mehrstufigen Planungsprozessen - und um solche handelt es sich bei der
Integrativen Produktentwicklung - bietet sich ergänzend zum Gegenstromverfahren die flexible Planung als weitere Gestaltungsmöglichkeit zur Risikoreduktion an (vgl. Dinkelbach, W., Sp. 508ff.; Runzheimer, C., I, S. 310ff.). Charakteristisch für die flexible Planung ist, dass der Zugang von Informationen während
des (mehrstufigen) Planungsprozesses ex ante von vornherein als Möglichkeit in
Betracht gezogen wird und Planrevisionen in Form von Eventualentscheidungen
vorgesehen werden. Dabei geht es in erster Linie um die flexible Gestaltung des
Planungsprozesses und in zweiter Linie um die Erstellung flexibler Pläne. Eine flexible Planung ist bei mehrstufigen Entscheidungen notwendig, wenn das endgültige Planergebnis von nachfolgenden Entscheidungen und (unsicheren) Umweltzuständen abhängt, die späteren Entscheidungsmöglichkeiten aber wiederum von
den früher festgelegten Plänen beeinflusst werden.
Tabelle 2 enthält eine Zusammenfassung der zur Behandlung von Unsicherheit
vorgeschlagenen Kategorien von Planungsobjekten und die zugehörigen Gestaltungsansätze. Es wird empfohlen, im Rahmen der Metaplanung und -kontrolle alle
Gestaltungsansätze auf ihre Anwendbarkeit hin zu überprüfen, da sie sich nicht
gegenseitig ausschließen, sondern simultan eingesetzt werden können.

Christian P. Runzheimer • Bodo Runzheimer

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Kategorie
Elimination
oder
Evasion
Externalisierung

Gestaltungsansätze
Gestaltung des Entscheidungsfeldes
Ausweichen auf „sichere“ Handlungsfelder (z. B. Wahl ausgereifter Techniken)

Immunisierung durch Risikoüberwälzung (z. B. Fremdbezug störanfälliger Leistungen, Abschluss
von Versicherungen)
Bei einer Entscheidung oder einer Planungsstufe:
1) Gestaltung des Planungsprozesses
Beschaffung zusätzlicher Informationen
Internalisierung
Zeitaufschiebung der Planverabschiedung
(Risikopolitik
2) Plangestaltung
durch GePlanung
Gefahrenausgleich durch Maßnahmenkombination
staltung der
Steigerung der Flexibilität durch
Managementfunktionen):
- Präventivmaßnahmen (z. B. Sicherheitsreserven) zur Vermeidung von
Sekundärstörungen
- Geplante Sanierungsmaßnahmen zur Beseitigung oder Begrenzung der
Störungsfolgen
Zusätzlich bei mehrstufigen Entscheidungs- und Planungsprozessen:
Flexible Planung (rollende Planung)
Beginn mit robustem (Teil-)Plan
Kontrolle
Insbesondere Prämissenkontrolle, Überwachung
Andere Manage- Bereitstellung von Flexibilitätspotentialen z. B. durch:
mentfunktionen
Präsituative (Vor-)Steuerung von Informationsströmen durch Bildung von
(Organisation,
interdisziplinären Projektteams und Einbindung von Promotoren
Führung,
Absenkung von Wahrnehmungsschwellen durch interdisziplinäre Besetzung
Personaleinsatz) des Projektteams

Tabelle 2: Maßnahmen zur Behandlung von Unsicherheit und Risiko sowie ihrer Folgen
Quelle: Runzheimer, C., I, S. 312

2.2 Methodik und Organisation der Metaplanung und -kontrolle
Originäre Empfehlungen zur Methodik und Organisation

Die zentrale methodische und (ablauf-)organisatorische Grundlage für die
Metaplanung eines Planungs- und Kontrollsystems bildet die in Tabelle 3 vorgeschlagene Vorgehensmethodik.

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Empfohlene Schritte und Schrittfolge
1 Sammlung von Informationen über
- die Planungs- und Kontrollkonzeption der Integrativen Produktentwicklung
- im Unternehmen bei Produktentwicklungen bereits verwendete Planungs- und Kontrollsysteme
2 Bildung eines Bezugsrahmens für die Überprüfung bestehender Vorschläge und ihre Verbesserung zu einem Planungs- und Kontrollsystem für die Produktentwicklung
3 Definition von Anforderungen an das Planungs- und Kontrollsystem
3.1 Anforderungen an die Planungs- und Kontrollsystematik
3.2 Anforderungen an die Planungs- und Kontrollmethodik
3.3 Anforderungen an die Planungs- und Kontrollorganisation
4 Überprüfung und Verbesserung der Planungs- und Kontrollsystematik, -methodik und -organisation der
4.1 Sachzielorientierten Planungs- und Kontrollsubsysteme
4.2 Formalzielorientierten Planungs- und Kontrollsubsysteme
5. Dokumentation der Unterlagen zum Planungs- und Kontrollsystem

Tabelle 3: Empfohlene Vorgehensmethodik zur Gestaltung eines Planungs- und Kontrollsystems für die Integrative Produktentwicklung
Quelle: in Anlehnung an Grünig, R., S. 184 ff.

3 Planungs- und Kontrollsystematik der Integrativen Produktentwicklung

Die folgenden Ausführungen dienen der Konkretisierung eines konzeptionellen
Vorschlags für die Planungs- und Kontrollsystematik der Integrativen Produktentwicklung. Mit Bezug auf die in Abb. 1 vorgestellte Vorgehensmethodik werden
für die in der Grobstruktur abgegrenzten Planungs- und Kontrollsubsysteme
Verfahrensschritte durchgeführt und die zugehörigen Gestaltungsdimensionen
festgelegt.
3.1 Planungs- und Kontrollsystematik auf der Ebene des innovativen Produktes

Gegenstand des Produktplans ist die Operationalisierung der an das Produkt
gestellten Anforderungen. Um zunächst ihre vollständige Erfassung zu sichern und
beispielsweise eine selektive Berücksichtigung lediglich der vom Kunden bei der
Kaufentscheidung wahrgenommenen und gewünschten Produkteigenschaften zu
verhindern, sollte der Produktplan gemäß den Produktlebensphasen vorstrukturiert werden. Hierdurch wird gewährleistet, dass alle Lebensphasen in die Planung
der Anforderungen an das Produkt einbezogen und beispielsweise für die Kunden-

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Christian P. Runzheimer • Bodo Runzheimer

bindung wichtige Produkteigenschaften in der Wartungs- und Servicephase sowie
gesetzliche Auflagen der Entsorgung nicht vernachlässigt werden.
Hinsichtlich der Planungsform kann jeweils sowohl von einer qualitativen als
auch quantitativen Planung ausgegangen werden.
Um Planalternativen hinsichtlich der Unternehmensziele bewerten und auswählen zu können, ist ein Informationsaustausch mit der formalzielorientierten
Planung und Kontrolle notwendig (vgl. Runzheimer, C., I, S. 325ff.). Neben
den Ergebnissen der planbezogenen Kontrollen (Ergebnis-, Planfortschritts- und
Prämissenkontrolle) können auch die Ergebnisse der ungerichteten Überwachung
- soweit sie für den jeweiligen Plan relevant sind - zu den Planungsgrundlagen
gezählt werden.
Die konkrete Festlegung des Anlasses der Erstellung eines Planes und der
Durchführung einer Kontrolle auf der Planungsebene des innovativen Produktes wird in zeitlicher Hinsicht durch den übergeordneten Projektplan definiert.
In einem hierarchischen System von Plänen muss der jeweils übergeordnete Plan
mindestens soweit operationalisiert sein, dass erste Planungsschritte auf der unteren
Ebene durchgeführt werden können. Vergleichbare Überlegungen gelten auch bei
der Kontrolle hinsichtlich der Vergleichsobjekte.
Planrevisionen sind immer dann vorzunehmen, wenn die jeweils situativ festgelegten Satisfaktionsziele nicht erfüllt werden.
In Tabelle 4 sind die wichtigsten Gestaltungsmerkmale der Planungssystematik
des innovativen Produktes zusammengefasst.

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Gestaltungsobjekte

Produktplan (nach den Produktlebensphasen strukturiert)
Plan der materiellen Produktbestandteile (nach DienstleistungProduktlebensphasen einer repräsentativen
splan (nach
Produkteinheit strukturiert)
Produktlebensphasen
einer repräsentativen Produkteinheit
strukturiert)

(zusätzliche
Elemente und
Eigenschaften des
Produktplans)

auf Dienstleistungen - Aufteilung der
bezogene Teilziele
Produktziele in Ziele
des Produktkerns und
Dienstleistungsziele
- Koordination der
beiden Teilpläne

Planungsobjekte

- von Produktkern zu erfüllende Teilziele
- komplexe und elementare Gestaltungsmittel des materiellen Produktkerns einschließlich
Produktstruktur

Planungsform
horizontale
Entwicklungsfolge

nach Produktlebensphasen strukturiert
qualitativ/quantitativ
wird durch Projektplan determiniert und kann nur situativ in Kenntnis der konkreten Planungsprobleme festgelegt werden
Tendenzaussagen bezüglich der horizontalen Entwicklungsfolge:
zeitlich: zunächst diejenigen Phasen planen, in denen das Produkt in Kontakt mit Kunden steht
(insbesondere Nutzungsphase)
° Produktteilpläne derselben Hierarchieebene: zunächst Pläne der materiellen Produktbestandteile erstellen,
° anschließend Dienstleistungen planen
vertikal übergeordnete Pläne (Strategischer Plan, Absatzplan, F&E-Plan, Pläne der Ebene des
Entwicklungsprojektes)
(erste) Planungs- und Kontrollergebnisse vertikal untergeordneter Pläne (Ebene der Kombinations- und Transformationsprozesse)
Formalzielplanung und -kontrolle
bei Teilplänen des Produktplans: soweit vorhanden ebenfalls vertikal über- und untergeordnete
Pläne, Pläne derselben Ebene
° akzessorische Informationsquellen

Planungsgrundlagen

Kontrollart
Kontrollobjekte, Kontrollform

Prämissenkontrolle
° Planfortschrittskontrollen
Ergebnisse übergeordneter Pläne
(Zwischen-)Ergebnisse der Teilpläne (vgl. Planungsobjekte)
Prämissen der Pläne

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Christian P. Runzheimer • Bodo Runzheimer

Kontrollgrund- Plangrößen:
lagen
bei Prämissenkontrolle: im Plan unterstellte Umweltzustände, Ressourcen, Ergebniswirkungen
bei Planfortschrittskontrolle: Soll-Zwischenergebnisse
Vergleichsgrößen:
bei Prämissenkontrolle: Ist- oder Wird-Größen der Prämissen
bei Planfortschrittskontrolle: Ist-Zwischenergebnisse
akzessorische Informationsquellen:
Prognosen, Beobachtungen (z. B. Testergebnisse)
-- für Ermittlung der Abweichungsursachen: Erklärungsmodelle
Anlässe der:
Anlass der Planerstellung und Durchführung von Kontrollen ist das Vorliegen bestimmter Pla- Planerstelnungsergebnisse; Startzeitpunkte werden durch übergeordneten Projektplan festgelegt und
lung/Plankoordiniert
° Planrevisionen sind durchzuführen, wenn Satisfaktionsziele (Sach- oder Formalziele) nicht
revision
- Kontrollen
erfüllt werden

Tabelle 4: Systematik der Planung und Kontrolle des innovativen Produktes
Quelle: Runzheimer, C., I, S. 327

3.2 Systematik der Planung und Kontrolle der Kombinations- und
Transformationsprozesse

Bei der Planung der Kombinations- und Transformationsprozesse (einschließlich
der zugehörigen Produktionsfaktoren) handelt es sich um eine sachzielorientierte
Planung. Es gelten weitgehend analoge Überlegungen wie bei der Produktplanung,
so dass sich die folgenden Ausführungen auf die wesentlichen Unterschiede zum
Produktplan beschränken.
Da zunächst Lösungen für produktspezifische Kombinations- und Transformationsprozesse gefunden werden müssen, um anschließend die zu ihrer Durchführung benötigten Produktionsfaktoren zu planen, werden zwei Planungs- und
Kontrollsubsysteme unterschieden: ein produktlebensphasenbezogener Leistungserstellungsplan und ein produktlebenszyklusbezogener Bedarfs- und Bereitstellungsplan (vgl. Tabelle 5).
Der produktlebensphasenbezogene Leistungserstellungsplan knüpft an den
vertikal übergeordneten Produktplan an. Für eine als repräsentativ angesehene
Produkteinheit und die im Produktplan für die verschiedenen Produktlebensphasen definierten Soll-Leistungsergebnisse ist jeweils eine Make-or-Buy-Entscheidung zu treffen: Diese führt im Fall des „Buy“ zur Beschaffung der entsprechenden
materiellen Produktkomponenten und/oder Dienstleistung. Im Fall des „Make“

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ist eine Verfahrensplanung für die zugehörigen Leistungserstellungsprozesse
durchzuführen.
Folgende Argumente sprechen dafür, in dem produktlebensphasenbezogenen
Leistungserstellungsplan neben den innovativen Prozessen - die originäre Gestaltungsobjekte der Produktentwicklung sind - auch „nicht-innovative“, jedoch für die Erstellung des Produktes notwendige Prozesse zu erfassen:
(1) Welche der produktbezogenen Prozesse „innovativ“ (im Sinne von subjektiv
neu für das Unternehmen) sind, kann nur in Kenntnis der bereits im Unternehmen
praktizierten oder bekannten Prozesse festgelegt werden.
(2) Durch die Erfassung nicht nur der innovativen, sondern aller für die Erstellung des innovativen Produktes notwendigen Beschaffungs- und Leistungserstellungsprozesse in einem gemeinsamen Plan, wird eine frühzeitige Integration der
ausführenden operativen Bereiche in den Planungsprozess gefördert. Die analoge
Gliederung nach Produktlebensphasen wie bei dem Produktplan sichert einerseits, dass von der Beschaffung über die Fertigung und Montage bis zur Entsorgung
alle betrieblichen Funktionsbereiche in den Planungsprozess einbezogen werden.
Andererseits erleichtert die analoge Gliederung bei sich abzeichnenden Realisationsproblemen auf der operativen Ebene den Informationsfluss zurück zur Produktplanung (vgl. Runzheimer, C., I, S. 328ff.).
Zu den Planungsobjekten des produktlebenszyklusbezogenen Bedarfs- und
Bereitstellungsplans zählt die Bestimmung von Qualität und Menge der zur Realisierung des innovativen Produktes benötigten Produktionsfaktoren (Potential-,
Zusatz- und Repetierfaktoren).
Die Planungsgrundlagen für die Bedarfsermittlung bilden
• die Planungs(teil)ergebnisse des produktlebensphasenbezogenen Leistungserstellungsplans, aus dessen Vorgaben sich Informationen über Zeitpunkte,
Quantität und Qualität der benötigten Produktionsfaktoren je Produkteinheit gewinnen lassen;
• die zeitliche Verteilung der von der Absatzfunktion geplanten Absatzmengen
des innovativen Produktes.
Auf Basis der Beziehung der Produktlebensphasen einer einzelnen Produkteinheit zum gesamten Produktlebenszyklus kann mit den genannten Informationen
einerseits die zeitliche Struktur des Produktlebenszyklus und andererseits der

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Christian P. Runzheimer • Bodo Runzheimer

Bedarf an Produktionsfaktoren für den gesamten Produktlebenszyklus abgeleitet werden.
Bei Produktvarianten ist zunächst jeweils ein „Variantenlebenszyklus“ zu ermitteln. Um bei Varianten explizit auf mögliche Unterlassungsalternativen hinzuweisen, kann zwischen „Kann- und Mussvarianten“ unterschieden werden.
Die Strukturierung des Bedarfs- und Bereitstellungsplans nach Produktlebenszyklen erleichtert auf der einen Seite die am objektiven Informationsbedarf
orientierte Weiterleitung der Planungsergebnisse an die jeweils zuständigen Funktionalbereiche (z. B. der Planungsergebnisse bezüglich des Entsorgungszyklus des
Produktes an den für die Entsorgung zuständigen Funktionalbereich) des Unternehmens. Auf der anderen Seite fördert die ganzheitliche Betrachtung des gesamten
Produktlebenszyklus in einem gemeinsamen Plan die produktlebenszyklusübergreifende Koordination der Entscheidungen.
Bei den Planungsgrundlagen der Bedarfs- und Bereitstellungsplanung
spielen Informationen über die verfügbare qualitative und quantitative Kapazität
der Potentialfaktoren eine zentrale Rolle. Zur Beurteilung der quantitativen
Kapazität sind Informationen über die Dimensionen des Leistungsquerschnitts,
der möglichen Nutzungsdauer und der Nutzungsintensität der Potentialfaktoren
notwendig. Die qualitative Kapazität der im Unternehmen vorhandenen Potentialfaktoren äußert sich im potentiellen Produktionsprogramm und beruht auf
einer Vielzahl von Eigenschaften der Potentialfaktoren, deren Relevanz nur situativ
ermittelt werden kann. Als wichtigste Informationsquellen über die verfügbare
quantitative Kapazität - die auch durch andere Produkte des Unternehmens beeinflusst wird - sind die Pläne der jeweiligen operativen Bereiche und die mittelbis langfristigen Absatzpläne zu nennen. Tabelle 5 fasst die wichtigsten Aspekte
der Planungs- und Kontrollsystematik zusammen. Dabei ist zu beachten, dass der
produktlebensphasenbezogene Leistungserstellungsplan dem produktlebenszyklusbezogenen Bedarfs- und Bereitstellungsplan sachlogisch übergeordnet ist.

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Gestaltungsobjekte

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Plan der Kombinations- und Transformationsprozesse
Leistungserstellungsplan einer reBedarfs- und Bereitstellungsplan
präsentativen Produkteinheit (nach Produktleben- (nach Produktlebenszyklen und eventusphasen strukturiert)
ell auch nach Varianten strukturiert)

- Bedarf an Produktionsfaktoren (Menge
und Qualität) während des Produktlebenszyklus ; bei Varianten: zusätzlich
auch für Variantenlebenszyklus
Planungs- qualitative und quantitative Kapazitätsobjekte
gestaltung (Vorkombination) für das
innovative Produkt
- Bereitstellung von Potential- und Verbrauchsfaktoren
nach Produktlebenszyklen strukturiert
Planungsnach Produktlebensphasen strukturiert
qualitativ/quantitativ
form
quantitativ/qualitativ
evt. Muss-/Kannvarianten unterscheiden
wird durch Projektplan determiniert und kann nur situativ in Kenntnis der konkreten Plahorizontale Entwick- nungsprobleme festgelegt werden
lungsfolge
wegen relativ kürzestem Zeitraum für Planaufstellung: tendenziell zuerst Kombinations- und
Transformationsprozesse des Fertigungs- und Beschaffungszyklus
vertikal übergeordnete Pläne (Strategischer Plan, Absatzplan [insb. zeitliche Verteilung der
Absatzmengen], F&E-Plan, Pläne der Ebene des Entwicklungsprojektes; Pläne der Ebene des
innovativen Produktes; bei Bedarfs- und Bereitstellungsplan: zusätzlich auch Leistungserstellungsplan und Finanzplan)
vertikal untergeordnete Pläne (operative Ebene)
Formalzielplanung und -kontrolle
Planungsgrundlagen
bei Teilplänen des Leistungserstellungsplans (soweit vorhanden): ebenfalls vertikal über- und
untergeordnete Pläne (Verfahren - Teilverfahren - Aktivitäten), Pläne derselben Ebene (z. B.
Pläne anderer Teilverfahren)
bei Bedarfs- und Bereitstellungsplan: quantitative und qualitative Kapazität der vorhandenen
Potentialfaktoren; Bedarfs- und Bereitstellungspläne für andere Produkte des Unternehmens
akzessorische Informationsquellen
Prämissenkontrolle
Kontrollart
Planfortschrittskontrollen
Ergebnisse übergeordneter Pläne
Kontrollobjekte,
(Zwischen-)Ergebnisse der Teilpläne (vgl. Planungsobjekte)
Kontrollform
Prämissen der Pläne
- Make-or-Buy von materiellen Produktbestandteilen oder einzelnen
Dienstleistungen
- bei „Make“: (für jede Produktlebensphase)
Konkretisierung der Teilverfahren und des Ablaufs
aller Verfahren der Leistungserstellung des innovativen Produktes

Christian P. Runzheimer • Bodo Runzheimer

40

Plangrößen:
bei Prämissenkontrolle: unterstellte Zustände, Ressourcen, Ergebniswirkungen
bei Planfortschrittskontrolle: Soll-Zwischenergebnisse
Vergleichsgrößen:
bei Prämissenkontrolle: Ist- oder Wird-Größen der Prämissen
Kontrollgrundlagen
bei Planfortschrittskontrolle: Ist-Zwischenergebnisse
akzessorische Informationsquelle:

Anlässe der:
- Planerstellung/
Plan-revision
- Kontrollen

Prognosen, Beobachtungen (z. B. Testergebnisse)
für Ermittlung der Abweichungsursachen: Erklärungsmodelle
Anlass der Planerstellung und Durchführung von Kontrollen ist das Vorliegen bestimmter
Planungsergebnisse; Startzeitpunkte werden durch den übergeordneten Projektplan festgelegt und koordiniert
Planrevisionen sind durchzuführen, wenn Satisfaktionsziele (Sach- oder Formalziele) nicht
erfüllt werden

Tabelle 5: Systematik der Planung und Kontrolle der Kombinations- und Transformationsprozesse
Quelle: Runzheimer, C., I, S. 332

3.3 Planungs- und Kontrollsystematik auf der Ebene des Projektes der Integrativen Produktentwicklung

Hinsichtlich der vertikalen Entwicklungsfolge innerhalb der Planung und
Kontrolle Integrativer Produktentwicklungen bilden die sachzielorientierten
Pläne den Ausgangspunkt des Planungsprozesses. Hier wiederum beginnt die Planung auf der Ebene des Entwicklungsprojektes: Zunächst werden die Projektziele
und -teilziele definiert und zugehörige Aufgaben abgeleitet. Diese in einem Projektstrukturplan zusammengefassten Ergebnisse bilden die Basis für einen Projektablaufplan, der die Aufgabenerfüllung zeitlich strukturiert und den zu erfüllenden
Aufgaben die notwendigen Kapazitäten zuordnet (vgl. Tabelle 6).
Der zunächst zu erstellende Projektstrukturplan - in der Literatur zu Forschung & Entwicklung zutreffend auch als „der Plan aller Pläne“ bezeichnet (vgl.
z.B. Brockhoff, K., S. 283; Platz, J., S. 142) - umfasst auch die Aufgabe der Aufstellung der Pläne der Ebenen des innovativen Produktes, der Kombinations- und
Transformationsprozesse sowie die Durchführung der Kontrollen. Drei mögliche
Dimensionen zur Strukturierung der Gesamtaufgabe des Entwicklungsprojektes
sind:
1) bei einer inhaltlichen Strukturierung kann zwischen Aufgaben

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• der formalzielorientierten Planung und Kontrolle und der
• sachzielorientierten Planung und Kontrolle unterschieden werden. Letztere
lassen sich weiter differenzieren in die
- Produktplanung und -kontrolle,
- Planung und Kontrolle der Kombinations- und Transformationsprozesse.
2) Funktional kann unterschieden werden zwischen
• Planungsaufgaben,
• planbezogenen Kontrollaufgaben
Prämissenkontrollen),

(Ergebnis-,

Planfortschritts-

und

• Überwachungsaufgabe.
3) Hinsichtlich ihres zeitlichen Bezugs können die Aufgaben nach Lebensphasen oder Lebenszyklen geordnet werden (vgl. Runzheimer, C., I, S. 334ff.).
Abb. 6 zeigt die Grundstruktur der Planungs- und Kontrollaktivitäten der Integrativen Produktentwicklung.

(ungerichtete) Überwachung

Planung und
Kontrolle der
materiellen
Produktbestandteile

Formalzielorientierte
Planung
und
Kontrolle

Planung und
Kontrolle
der Dienstleistungen

Planung und Kontrolle der
Leistungserstellung

Planung und Kontrolle
des innovativen
Produktes

Planung und Kontrolle
der Kombinationsund Transformationsprozesse (einschließlich
zugehöriger Produktionsfaktoren)

Bedarfs- und Bereitstellungsplanung und -kontrolle

Abb. 6: Grundstruktur der Planungs- und Kontrollaktivitäten der Integrativen Produktentwicklung
Quelle: Runzheimer, C., I, S. 335

42

Christian P. Runzheimer • Bodo Runzheimer

Zu den Planungsgrundlagen zählen neben dem Produktstrukturplan auch der
Finanzplan und der F&E-Plan.
Wichtige Planungsgrundlagen bilden insbesondere der im Absatzplan
vorgesehene Zeitpunkt der Markteinführung des innovativen Produktes, Informationen über die (Kalender-)Termine der periodischen Planungs- und Kontrollaktivitäten des Unternehmens (so genannter „Planungskalender“) sowie Erfahrungen
aus bereits abgeschlossenen Projekten.

Gestaltungsobjekte
Planungsobjekte

Planungsform
horizontale
Entwicklungsfolge
Planungsgrundlagen

(gemeinsame
Planungsgrundlagen)

Kontrollart
Kontrollobjekte, Kontrollform

Systematik der Planung und Kontrolle des Entwicklungsprojektes
Projektstrukturplan
Bedarfs- und
Projektablaufplan
Bereitstellungsplan
- aus den Projektzielen
- Kapazitätsbedarf
- Dauer/Termine der
abgeleitete Teilziele und Arbe- der Arbeitspakete und
Arbeitspakete und des
itspakete und deren Struktur Entwicklungstiefe
Projektes insgesamt
- Kapazitätsbereitstellung - (zeitliche) Abstimmung
mit Umsystem
qualitativ
qualitativ/quantitativ
qualitativ/quantitativ
zur Grundstruktur vgl. Abb. 6
Projektstrukturplan ist logisch übergeordnet; die Frage der horizontalen Entwicklungsfolge beschränkt sich daher auf Bedarfs- und Bereitstellungsplan und Projektablaufplan,
kann jedoch nur situativ beantwortet werden
Projektstrukturplan
Produktkonzept
Projektstrukturplan
Erfahrungswissen
Finanzplan
verfügbare Kapazitäten
des F&E-Bereichs
vertikal übergeordnete Pläne (Strategischer Plan, Absatzplan, F&E-Plan)
(erste) Planungs- und Kontrollergebnisse vertikal untergeordneter Pläne (Ebene des
innovativen Produktes, Ebene der Kombinations- und Transformationsprozesse sowie
Ebene der Formalzielplanung und -kontrolle)
akzessorische Informationsquellen
Prämissenkontrolle
Planfortschrittskontrollen
Ergebnisse übergeordneter Pläne
(Zwischen-)Ergebnisse der Teilpläne (vgl. Planungsobjekte)
Prämissen der Pläne

KONZEPTIONELLE VORSCHLÄGE ZUR VERBESSERUNG VON PLANUNG UND ...

Kontrollgrundlagen

Anlässe der:
- Planerstellung/
Planrevision
- Kontrollen

43

Plangrößen:
bei Prämissenkontrolle: im Plan unterstellte Umweltzustände, Ressourcen, Ergebniswirkungen (vgl. auch Systematik der Planung und Kontrolle auf den Ebenen des
innovativen Produktes und der Kombinations- und Transformationsprozesse in Tabelle 4
und Tabelle 5)
bei Planfortschrittskontrolle: Soll-Zwischenergebnisse
Vergleichsgrößen:
bei Prämissenkontrolle: Ist- oder Wird-Größen der Prämissen
bei Planfortschrittskontrolle: Ist-Zwischenergebnisse
akzessorische Informationsquellen:
- Prognosen, Beobachtungen
für Ermittlung der Abweichungsursachen: Erklärungsmodelle
Entschluss zur Realisierung eines innovativen Produktkonzeptes
Planrevisionen sind durchzuführen, wenn Satisfaktionsziele (Sach- oder Formalziele)
nicht erfüllt werden

Tabelle 6: Systematik der Planung und Kontrolle des Projektes der Integrativen Produktentwicklung
Quelle: Runzheimer, C., I, S. 337
3.4 Systematik der formalzielorientierten Planung und Kontrolle

Der formalzielorientierten Planung und Kontrolle der Integrativen Produktentwicklung kommt die Aufgabe zu, die Auswirkungen der Produktentwicklung
auf die Formalziele des Unternehmens zu planen und zu kontrollieren. Auf den
praktisch-normativen Zielen von Industrieunternehmen aufbauend, kann eine
Präzisierung erfolgen und als Aufgabe die Planung und Kontrolle der Auswirkungen auf
• das Gewinnziel des Unternehmens
• die Entwicklung seiner Erfolgspotentiale und
• sein Liquiditätsziel
• definiert werden (vgl. Runzheimer, C., I, S. 338ff.).
Es ist zweckmäßig, in der formalzielorientierten Planungs- und Kontrollsystematik einen Gewinnplan und einen Plan für die Entwicklung der Erfolgspotentiale - kurz: einen Erfolgspotentialplan - vorzusehen (vgl. Tabelle 7). Wegen ihrer
vergleichbaren Ausrichtung und interdependenten Beziehungen wird empfohlen,

Christian P. Runzheimer • Bodo Runzheimer

44

beide Pläne in einem übergeordneten Erfolgsplan zusammenzufassen und durch
diesen zu koordinieren.
Liquidität wird im Sinne einer dynamischen Liquidität definiert: Zu sichern
ist daher die Fähigkeit des Unternehmens innerhalb des Planungszeitraums jederzeit alle fälligen, („nicht abweisbaren“) Zahlungsverpflichtungen termingerecht
begleichen zu können. Dies bedeutet, dass auf Unternehmensebene alle Ausgaben
durch Einnahmen oder Liquiditätsreserven gedeckt sein müssen (vgl. Wurl, H.-J.,
Liquiditätskontrolle, S. 37ff.). Die Lösung der hiermit verbundenen Koordinationsprobleme ist Aufgabe eines zentralen Finanzplans.
Zur Gewinnung von Informationen über formalzielorientierte Soll-Vorgaben
kommen neben vertikal übergeordneten Plänen (Finanzplan, Gewinnplan, strategischer Plan) als akzessorische Informationsquellen auch Dokumente mit Informationen zur Unternehmenspolitik (z. B. Jahresabschlüsse) in Frage.
Wegen der Abhängigkeit der Formalzielerreichung von der Sachzielerreichung
bilden die erwarteten oder realisierten Teil-, Zwischen- und Endergebnisse der
Planungs- und Kontrollaktivitäten der sachzielorientierten Planungsebenen die
Planungsgrundlage für die formalzielorientierten Pläne.
Für jeden sachzielorientierten Plan ist jeweils eine Prämissen- und Planfortschrittskontrolle vorzusehen. Da die formalzielorientierten Pläne auf den sachzielorientierten Plänen aufbauen, stellen die sachzielorientierten Kontrollergebnisse eine der Grundlagen der formalzielorientierten Kontrollen dar.
Gestaltungsobjekte:

Systematik der formalzielorientierten Planung und Kontrolle
Finanzplan
Erfolgsplan
Gewinnplan
Erfolgspotentialplan
Kostenplan
Leistungsplan

Planungsobjekte

- Einnahmen
- Ausgaben

Planungsform

nach Produktlebenszyklen strukturiert
quantitativ
(primär) quantitativ

horizontale Entwicklungsfolge

tendenziell: zunächst Finanzplan
horizontalen Entwicklungsfolge kann endgültig jedoch nur situativ festgelegt werden

Planungsgrundlagen

Vorgaben des
Finanzplans

- Kosten

- Leistungen

Vorgaben des Gewinnplans
des Unternehmens

- externe Erfolgspotentiale
- interne Erfolgspotentiale
qualitativ

Langfristige Gewinnvorstellungen (strategischer Plan)

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(gemeinsame
Planungsgrundlagen)

Bewertungsobjekte: erwartete oder realisierte Teil-, Zwischen- und Endergebnisse der
sachzielorientierten Planungs- und Kontrollaktivitäten
akzessorische Informationsquellen

Kontrollart

Prämissenkontrolle
Planfortschrittskontrollen
bei Finanzplan: zusätzlich Ergebniskontrolle

Kontrollobjekte, Kontrollform

Ergebnisse übergeordneter Pläne
(Zwischen-)Ergebnisse der Teilpläne (vgl. Planungsobjekte)
Prämissen der Pläne

Kontrollgrundlagen

Plangrößen:
bei Prämissenkontrolle: im Plan unterstellte Umweltzustände, Ressourcen,
Ergebniswirkungen
bei Planfortschrittskontrolle: Soll-Zwischenergebnisse
Vergleichsgrößen:
bei Prämissenkontrolle: Ist- oder Wird-Größen der Prämissen
bei Planfortschrittskontrolle: Ist-Zwischenergebnisse
Akzessorische Informationsquellen:
Ergebnisse der sachzielorientierten Prämissen- und Planfortschrittskontrollen
- Prognosen, Beobachtungen
für Ermittlung der Abweichungsursachen: Erklärungsmodelle

Anlässe der:
- Planerstellung/Planrevision
- Kontrollen

Entschluss zur Realisierung eines innovativen Produktkonzeptes
Planrevisionen sind durchzuführen, wenn Satisfaktionsziele (Sach- oder Formalziele) nicht
erfüllt werden

Tabelle 7: Systematik der formalzielorientierten Planung und Kontrolle
Quelle: Runzheimer, C., I, S. 341

Christian P. Runzheimer • Bodo Runzheimer

46

4 Planungs- und Kontrollmethodik der Integrativen Produktentwicklung

Die folgenden Ausführungen verfolgen das Ziel,
• methodische Vorschläge für eine geschlossene, widerspruchsfreie und rationelle Methodik für die fomalzielorientierte Planung und Kontrolle zu
entwickeln und
• den Schwerpunkt dabei insbesondere auf die finanzielle Planung und Kontrolle der Integrativen Produktentwicklung zu legen.
Bei der Untersuchung der Auswirkungen der Produktentwicklung auf die Formalzielerreichung des Unternehmens ist zu beachten, dass die zu bewertenden sachzielorientierten Pläne der Produktentwicklung insgesamt nur einen Teil des gesamten Entscheidungsfeldes des Unternehmens (Totalmodell) abdecken - es handelt
sich also um ein Partialmodell (vgl. Abb. 7):
- in zeitlicher Hinsicht erfasst es mit dem Produktlebenszyklus des innovativen
Produktes (von Beginn des Entstehungszyklus bis Ende des Entsorgungszyklus) nur einen Teil der Totalperiode des Unternehmens,
- inhaltlich werden von allen Handlungsmöglichkeiten des Unternehmens nur
diejenigen betrachtet, die im Zusammenhang mit der Entwicklung des innovativen Produktes stehen.

Formalziele des Unternehmens

(1)
(2a)
"Totalmodell" des
Unternehmens

"Rest" des
Entscheidungsfeldes

Inhaltl. Extension
der Produktentw.

Inhaltliche Extension des
Unternehmens

(3)

"Partialmodell"
der Produktentwicklung

(2b)

Zeit t
t=0

Planende

subjektiver
Planungshorizont
(Prognosereichweite)

Ende der
Totalperiode

Abb. 7: Zielwirkungen der Entscheidungen im Partialmodell „Produktentwicklung“
Quelle: in Anlehnung an Mahlert, A., S. 31

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Neben einer unmittelbaren Beeinflussung der Formalziele des Unternehmens
durch Entscheidungen im Partialmodell (1) kann daher auch eine mittelbare Beeinflussung der Formalziele (3) auftreten, die durch Entscheidungsinterdependenzen zwischen Partial- und Totalmodell verursacht wird: durch Entscheidungen im
Partialmodell werden Handlungsmöglichkeiten „im Rest des Entscheidungsfeldes“
verändert (Pfeile (2a) und (2b)). Obwohl die Veränderung (2a) innerhalb der Planperiode liegt, wird sie wegen der eingeschränkten inhaltlichen Extension des Partialmodells der Produktentwicklung nicht berücksichtigt. Pfeil (2b) symbolisiert
alle diejenigen Veränderungen der Handlungsmöglichkeiten „im Rest des Entscheidungsfeldes“, die aufgrund der begrenzten zeitlichen Reichweite des Partialmodells nicht erfasst werden.
Hinsichtlich der Erfassung der Auswirkungen der Produktentwicklung auf das
Liquiditätsziel des Unternehmens können folgende Schlussfolgerungen gezogen
werden:
• In der Regel kann unterstellt werden, dass die zeitliche Reichweite der quantitativen Finanzplanung des Unternehmens deutlich geringer ist als die Dauer des gesamten Produktlebenszyklus, und dass quantitative Informationen
daher lediglich über die Auswirkungen vor dem Planende einer Integrativen
Produktentwicklung bereitzustellen sind. Die mittelbaren Zielwirkungen (2b)
müssen daher nicht, die Zielwirkungen (1), (2a) nur in dem für die Erstellung
des Finanzplans des Unternehmens notwendigen zeitlichen Rahmen quantifiziert werden.
• Wegen der langfristigen Komplementarität von Liquiditäts- und Gewinnziel des Unternehmens kann in zeitlicher Hinsicht (2b) davon ausgegangen
werden, dass eine Berücksichtigung der mittelbaren Beeinflussung des Liquiditätsziels jenseits des Planungshorizontes (2b) durch die Berücksichtigung der
mittelbaren Auswirkungen auf das Gewinnziel beziehungsweise die Entwicklung von Erfolgspotentialen mit abgedeckt wird.
Dem entscheidungsspezifischen Informationsbedarf soll konzeptionell durch
eine allgemeine und flexible Methodik begegnet werden, welche die Entscheidungsträger in die Lage versetzt, in Kenntnis der situativen Determinanten den
Informationsbedarf zu analysieren und die jeweils entscheidungsrelevanten Informationen zu generieren.

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Christian P. Runzheimer • Bodo Runzheimer

In einem Totalmodell lässt sich am Ende der Totalperiode der Totalerfolg des
Unternehmens durch eine Ermittlung des aus Einnahmen und Ausgaben resultierenden Kassenbestandes ermitteln.
Folgende drei Schritte der Vorgehensmethodik werden vorgeschlagen:

1) Planung und Kontrolle der Auswirkungen auf die Wettbewerbsposition des
Unternehmens
Die Auswirkungen der sachzielorientierten Entscheidungen im Rahmen der
Produktentwicklung auf fünf fundamentale Wettbewerbskräfte sind zu erfassen
(vgl. Runzheimer, C., I, S. 346ff.).
Hinsichtlich der zu erwartenden unmittelbaren und mittelbaren Ausgaben
steht - neben der Analyse des Faktors Arbeit - die Untersuchung der Beziehung
zu Lieferanten im Mittelpunkt. Eine Beeinflussung der Verhandlungsmacht der
Lieferanten ist dabei von den Bedarfs- und Bereitstellungsplänen auf der Ebene der
Kombinations- und Transformationsprozesse sowie des Entwicklungsprojektes zu
erwarten.
Einen wesentlichen Einfluss auf die zu erwartenden unmittelbaren und mittelbaren Einnahmen geht von dem Preisdruck aus, den aktuelle und potentielle Konkurrenten auf das Unternehmen ausüben. Zur „Abschreckung“ kann das Unternehmen versuchen, so genannte Markteintrittsbarrieren aufzubauen (z.B. kann das
Unternehmen zu diesem Zweck den Projektstrukturplan um zusätzliche Aufgaben
erweitern, die den Schutz von Markennamen und Gebrauchsmustern oder die Beantragung von Patenten zum Gegenstand haben). Von zentraler Bedeutung für die
unmittelbaren und mittelbaren Einnahmen ist die Beziehung zu den (potentiellen)
Abnehmern. Wettbewerbsvorteile sind zu erwarten, wenn die Kunden das PreisLeistungsverhältnis als überlegen wahrnehmen. Zum Beispiel kann durch einen
frühen (vor den Konkurrenten) Markteintritt (Projektablaufplan) eine (temporäre)
Monopolstellung aufgebaut oder durch produktspezifische Werbemaßnahmen vor
der Markteinführung (Produktstrukturplan) die Wahrnehmung spezieller Produkteigenschaften durch die Kunden beeinflusst werden. Von zentraler Bedeutung ist
jedoch die Gestaltung des Produktplans. Überdurchschnittliche Preise kann ein
Unternehmen beispielsweise dann erzielen, wenn der Wechsel der Abnehmer zu
Konkurrenzprodukten nicht möglich oder mit hohen Kosten verbunden ist. Der
Produktplan ist auch kritisch dahingehend zu untersuchen, welche Gefahren von
Substitutionsprodukten für die unmittelbaren Einnahmen ausgehen. Auch hier

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KONZEPTIONELLE VORSCHLÄGE ZUR VERBESSERUNG VON PLANUNG UND ...

kann versucht werden, der Substitutionsgefahr durch die Einbindung des innovativen Produktes in ein Leistungssystem entgegenzuwirken.
Planungs- und
Kontrollebene
Kombinationsund Transformationsprozesse
(einschließlich
zugehöriger Produktionsfaktoren)

Sachzielorientierte
Pläne

Leistungserstellungsplan

Fundamentale Wettbewerbskräfte

Bedarfsund Bereitstellungsplan

Bedarfs- und
Bereitstellungsplan
Projekt der
Integrativen
Produktentwicklung

Projektablaufplan
Projektstrukturplan

Innovatives
Produkt

Produktplan

Formalzielwirkungen

1) Beziehung
zu Lieferanten
Unmittelbare
und mittelbare
Ausgaben

Verhältnis zu:
2) (aktuellen)
Konkurrenten
und
3) potentiellen
Konkurrenten

Unmittelbare
und mittelbare
Einnahmen

4) Beziehung
zu Abnehmern

Plan der materiellen
Produktbestandteile
Dienstleistungsplan

5) Bedrohung
durch Substitutionsprodukte

Abb. 8: Auswirkungen der Entscheidungen im Rahmen der Integrativen Produktentwicklung auf die Wettbewerbsposition des Unternehmens und die zu erwartenden Zielwirkungen
Quelle: Runzheimer, C., I, S. 348

2) Methodische Vorschläge
Produktentwicklung

zur

Finanzplanung

der

Integrativen

Innerhalb der Formalziele kommt dem Liquiditätsziel eine Sonderstellung zu:
da es sich um ein Satisfaktionsziel handelt, ist aus Gründen der Effizienz des Entscheidungsprozesses zunächst seine Erfüllung zu prüfen (vgl. Coenenberg, A. G./
Raffel, A., S. 80). Zur Erfassung der Auswirkungen der Integrativen Produktentwicklung auf das Liquiditätsziel des Unternehmens müssen innerhalb der zeitlichen Reichweite der quantitativen Finanzplanung des Unternehmens alle durch
Entscheidungen im Rahmen der Integrativen Produktentwicklung verursachten

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Christian P. Runzheimer • Bodo Runzheimer

Einnahmen und Ausgaben hinsichtlich des Zeitpunktes ihres Eintretens und ihrer
Höhe (quantitativ) erfasst werden. Um den Finanzierungsbedarf der Produktentwicklung erkennen und gestalten zu können, sind zusätzlich die Einnahmen zu
planen. Die erwarteten Umsatzerlöse stehen also im Vordergrund; eine Integration der Absatzfunktion ist mithin zweckmäßig: die geplanten Absatzmengen und
-preise (zeitbezogen) bilden die Basis der Einnahmenplanung.
3) Methodik der Erfolgsplanung der Integrativen Produktentwicklung
Für die formalzielorientierte Bewertung der Integrativen Produktentwicklung
können zwei Konsequenzen gezogen werden:
(1) wegen der ex ante nur näherungsweise erfassbaren mittelbaren Zielwirkungen
ist die Bewertung stets mit Unsicherheit behaftet;
(2) neben quantifizierbaren sind auch qualitativ prognostizierbare Erfolgswirkungen bei der Beurteilung konzeptionell zu berücksichtigen. Dieser Gedanke
korrespondiert mit Ergebnissen der deskriptiven Zielforschung und der hieraus
abgeleiteten Empfehlung neben einem (quantitativen) Gewinnplan auch einen
(qualitativen) Erfolgspotentialplan zu erstellen und beide in einem Erfolgsplan zusammenzufassen.
Die quantitative Größe „Gewinn“ berechnet sich als Differenz von Leistungen
und Kosten.
Bei der Ermittlung der mit der Realisierung der sachzielorientierten Pläne der
Produktentwicklung zu erwartenden Zielwirkungen in Form von Leistungen erscheint es zweckmäßig,
• zwischen Absatzleistungen, die sich direkt in Einnahmen - unmittelbaren Zielwirkungen - manifestieren, und
• innerbetrieblichen Leistungen, die nur indirekt Einnahmen zur Folge haben mittelbare Zielwirkungen durch „Wiedereinsatzgüter“ (vgl. Coenenberg, A. G./
Raffel, A., S. 80) -,
zu unterscheiden (vgl. Wurl, H.-J., Originäre Leistungsrechnungen, S. 186ff.).
Die entscheidungsrelevanten Erfolgswirkungen werden quantitativ in Form von
Leistungen und Kosten erfasst (vgl. Abb. 9):
• Die Absatzleistungen lassen sich aus den Informationen der Finanzplanung der
Integrativen Produktentwicklung (unmittelbare Einnahmen) und die innerbe-

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trieblichen Leistungen aus den Finanzplänen anderer Unternehmensbereiche
(mittelbare Einnahmen) ermitteln.
• Analog stellen die bei der Erstellung des Finanzplans der Integrativen Produktentwicklung erfassten unmittelbaren Ausgaben und bei der Finanzplanung
anderer Unternehmensbereiche berechneten mittelbaren Ausgaben die Basis für
die Ableitung der jeweils entscheidungsrelevanten pagatorischen Kosten dar.
• Entsprechende Überlegungen gelten für die Bestimmung der
Opportunitätskosten.

Beziehung zu Lieferanten
Verhältnis zu Konkurrenten
Verhältnis zu potentiellen Konkurrenten
Nicht
quantifizierbar

Quantifizierbar

Beziehung zu Abnehmern
Bedrohung durch Substitutionsprodukte

Erfolgspotentiale

Leistungen

Mittelbare
Einnahmen

Unmittelbare
Einnahmen

Mittelbare
Ausgaben

Unmittelbare
Ausgaben

Mittelbare
Zielwirkungen

Unmittelbare
Zielwirkungen

Prognosereichweite
Ende des Produktlebenszyklus

Gewinn
Kosten

Zeit

Planende der
finanziellen Planung
0

Entscheidungsrelevante
Wirkungen auf Erfolgsziel

Legende:
Vor Planende der finanziellen Planung
ist Übernahme der Einnahmen und
Ausgaben aus
1) den betreffenden Finanzplänen
des Unternehmens
2) dem Finanzplan der integrativen
Produktentwicklung
möglich.

Abb. 9: Methodik der Erfassung der entscheidungsrelevanten Wirkungen auf die Ziele „Gewinn“ und „Entwicklung von Erfolgspotentialen“
Quelle: Runzheimer, C., I, S. 354

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Christian P. Runzheimer • Bodo Runzheimer

In Form von Leistungen und Kosten werden nach dem Planende der Finanzpläne bis zum Ende des Produktlebenszyklus die quantifizierbaren unmittelbaren und mittelbaren Zielwirkungen erfasst. Da Entscheidungen im Rahmen der
Produktentwicklung nach dem Ende des Produktlebenszyklus nur noch mittelbar
den Erfolg des Unternehmens beeinflussen, können im Zeitraum zwischen dem
Ende des Produktlebenszyklus und der Prognosereichweite nur noch mittelbare Zielwirkungen durch Leistungen und Kosten erfasst werden. Für die abschließende Bewertung und Auswahl der Alternativen sind die Gewinnwirkungen
einerseits und die Auswirkungen auf die Erfolgspotentiale andererseits in der übergeordneten qualitativen Nutzenkategorie „Erfolg“ zusammenzufassen. Als Zielkriterien (vgl. Abb. 8) dienen neben dem Gewinn die Auswirkungen auf die fünf
fundamentalen Wettbewerbskräfte (vgl. Runzheimer, C., I, S. 354ff.).
Folgende zentrale Wesensmerkmale der vorgeschlagenen Methodik lassen sich
identifizieren:
• der entwickelte Modellansatz ermöglicht eine gemeinsame Analyse sowohl der
Liquiditäts- als auch der Erfolgswirkungen auf derselben Informationsbasis (fundamentale Wettbewerbskräfte, unmittelbare und mittelbare Einnahmen
und Ausgaben). Hierdurch können nicht nur die Auswirkungen zwischen den
sachzielorientierten Entscheidungen und den Formalzielen, sondern auch die
Zielinterdependenzen zwischen Liquiditäts- und Erfolgsziel aufgezeigt werden.
Neben der Konsistenz der Bewertung sprechen für diese Vorgehensweise auch
Effizienzüberlegungen, da Informationen über die Gewinnwirkungen aus der
Finanzplanung abgeleitet werden können.
• Die Berücksichtigung der Auswirkungen auf die Erfolgspotentiale stellt sicher,
dass auch die qualitativ erfassbaren Erfolgswirkungen bei der Bewertung berücksichtigt werden, und eine Analyse der Erfolgswirkungen bereits im Stadium der Grobplanung methodisch unterstützt werden kann. Einer Doppelerfassung beziehungsweise Vernachlässigung von Erfolgswirkungen sowohl in
quantitativer als auch in qualitativer Form wird durch die gemeinsame Informationsbasis entgegengewirkt.
• Der Modellansatz erfasst alle sachzielorientierten Pläne auf den Ebenen des
innovativen Produktes, der zugehörigen Kombinations- und Transformationsprozesse und des Entwicklungsprojektes. Hierdurch wird eine explizite Berücksichtigung der Zielwirkungen des Produktentwicklungsprojektes selbst und
der Interdependenzen der sachzielorientierten Pläne in Bezug auf die Formal-

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ziele gefördert: der den gesamten Produktlebenszyklus umfassende Zeithorizont
ermöglicht auch die Analyse zeitlicher Interdependenzen (z. B. die Auswirkungen der Verwendung „preiswerter“ Materialien im Fertigungszyklus auf die
Ausgaben im Wartungs- und Servicezyklus oder im Entsorgungszyklus).
• Eine Koordination mit unternehmensexternen Interaktionspartnern (Lieferanten und Kunden) ist auf der Basis unmittelbar beobachtbarer Größen - also
Einnahmen und Ausgaben - durchzuführen. Die Herleitung der für die innerbetriebliche Koordination notwendigen Kosten und Leistungen aus Einnahmen
und Ausgaben ermöglicht eine konsistente Verknüpfung einer unternehmensinternen mit einer unternehmensexternen Analyseperspektive: Beispielsweise stellt die vorgeschlagene Methodik bei Make-or-Buy-Entscheidungen
sicher, dass nicht nur die Veränderungen der unmittelbaren Ausgaben, sondern
auch die daraus resultierenden Auswirkungen auf andere Unternehmensbereiche sowie die Erfolgspotentiale des Unternehmens (z. B. Abhängigkeit von
Zulieferer) bei der Bewertung berücksichtigt werden (vgl. Betz, S., S. 399ff.).
• Die Berücksichtigung mittelbarer und unmittelbarer Einnahmen führt
zu einer Integration der Absatzfunktion in den formalzielorientierten
Planungsprozess.
• Einen Vorteil für die Kontrolle bietet nicht nur die Ausrichtung der Methodik an beobachtbaren Größen (Einnahmen und Ausgaben). Wegen des langen
Zeithorizontes des Partialmodells und der dynamischen Sichtweise können insbesondere Planfortschritts- und Realisationskontrollen über den gesamten
Produktlebenszyklus hinweg mit Kontrollinformationen über Zeitpunkt und
Ausmaß der - beispielsweise mit Hilfe des Erfahrungskurveneffektes (vgl. Runzheimer, C., I, S. 356) - prognostizierten Zielwirkungen versorgt werden.
5 Organisation der Planung und Kontrolle der Integrativen
Produktentwicklung

Im Kontext arbeitsteiliger Prozesse wie der Entwicklung komplexer technischer
Serienprodukte ist ein Planungs- und Kontrollsystem ohne
• die Zuweisung der Planungs- und Kontrollaufgaben zu ihren Trägern sowie
• Regelungen zum Ablauf des Planungs- und Kontrollprozesses
nicht funktionsfähig (vgl. Grünig, R., S. 217f.; Runzheimer, C., I, S. 73ff.).

Christian P. Runzheimer • Bodo Runzheimer

54
5.1 Aufbauorganisatorische Empfehlungen

Hinsichtlich der Festlegung der Planungs- und Kontrollträger wird zur Gewährleistung kurzer Reaktionszeiten vorgeschlagen, die Verantwortung für Beginn, Revision und Abbruch von Planungs- und Kontrollaktivitäten einer Stelle
(Projektleiter) und nicht einem Gremium (Entwicklungsteam) zu übertragen.
Weiterhin sollte einer Selbstkontrolle gegenüber einer Fremdkontrolle der Vorzug gegeben werden: für die Selbstkontrolle sprechen motivationale Aspekte und
die Überlegung, dass Kontrollresultate eine zentrale Grundlage für die Revision
eines Planes darstellen. Die unmittelbare Rückkopplung dürfte sich auch positiv
auf den Zeitbedarf für die Produktentwicklung auswirken. In den Prozess der Erstellung beziehungsweise Revision der sachzielorientierten Pläne sollten jeweils die
Leiter der von dem Plan betroffenen organisatorischen Einheit einbezogen werden (vgl. Grünig, R., S. 220f.).
Di

e pauschale Empfehlung mehrerer Autoren Lieferanten und Abnehmer in das
Produktentwicklungsteam zu integrieren, ist umstritten; sie wird hier mit dem
Hinweis weitergegeben, dass diese Empfehlung situativ kritisch reflektiert werden muss. „Open Innovation“ nennen Experten den Prozess, wenn Kunden,
Lieferanten sowie externe Experten mit eingebunden werden, damit mehr Ideen generiert werden, die helfen, Probleme schneller zu lösen. „Den radikalsten
Schritt machte Procter & Gamble (P&G). Früher arbeiteten fast ausschließlich
unternehmenseigene Forscher an neuen Produkten. Dann öffnete sich der Konzern für Innovationen von außen und begann, Kunden, Lieferanten sowie externe Experten mit einzubinden. … Heute kommen bei P&G mehr als die Hälfte
aller Innovationen von außen.“ (WirtschaftsWoche Nr. 41, 2010, S. 114).
Hinsichtlich der Festlegung der Empfänger eines Planes und der zugehörigen
Kontrollberichte wird empfohlen:
− sowohl den Verantwortlichen für Beginn, Revision und Abbruch von Planungsund Kontrollaktivitäten (Mitglieder des Top-Managements beziehungsweise
Projektleiter)
− als auch den an der Planumsetzung beteiligten Stellen
die entsprechenden Informationen zukommen zu lassen.

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5.2 Ablauforganisatorische Empfehlungen

Die ablauforganisatorischen Empfehlungen beziehen sich auf die Bestimmung
von
Bearbeitungsreihenfolge und Timing der Planungs- und Kontrollaufgaben
im Rahmen der Integrativen Produktentwicklung. Es empfiehlt sich, lediglich den
frühestmöglichen Zeitpunkt des Beginns und die späteste, noch zulässige Beendigung einer Teilaufgabe festzulegen. Um Flexibilität zu gewährleisten, sollte dem
Verantwortlichen (hier: dem Projektleiter) für Beginn, Revision und Abbruch von
Planungs- und Kontrollaktivitäten die zeitliche Fixierung der Teilaufgaben überlassen werden.
Die Reihenfolge der Bearbeitung wird in vertikaler Hinsicht durch sachlogische
Verknüpfungen zwischen den Aufgaben und Teilaufgaben der Produktentwicklung
(z. B. Produkt - Baugruppe - Einzelteile) determiniert.
Das Timing der Integrativen Produktentwicklung ist von essentieller Bedeutung und mit der Absatzfunktion abzustimmen, da Beginn, Dauer und Ende der
Produktentwicklung den Handlungsspielraum der Absatzfunktion bei der Festlegung des Zeitpunkts des Markteintritts begrenzt.
Zur Koordination der Dauer, Anfangs- und Endzeitpunkte des Gesamtprojektes und seiner Teilaufgaben sowie der Kapazitätsplanung und Kostenplanung stehen mit den Netzplantechniken leicht handhabbare und praktisch bewährte Planungs- und Kontrollmethoden zur Verfügung (vgl. Cordes, H.-P., S. 143; Domsch,
M./Gerpott, T. J., S. 89; Runzheimer, B., Operations Research, S. 241f.; Runzheimer, B./Cleff, T./Schäfer, W., 143ff.). Um Netzplantechniken für die Zeitplanung
einsetzen zu können, werden jedoch neben den Angaben des Projektstrukturplans
und des Bedarfs- und Bereitstellungsplans des Entwicklungsprojektes zusätzliche
Informationen über zeitliche Restriktionen der Teilprojekte und des Projektes
insgesamt benötigt (vgl. Runzheimer, B./Barkovic, D., S. 265ff.).
Um die Ergebnisse der „aperiodischen“ Produktentwicklung in die periodischen Planungs- und Kontrollprozesse des Unternehmens einfließen zu lassen,
müssen die Teilergebnisse der Produktentwicklung zu bestimmten Zeitpunkten
den Trägern periodischer Planungs- und Kontrollaufgaben als Planungsgrundlagen
zur Verfügung gestellt werden.
Sachlogisch ist die Entscheidung über den Zeitpunkt des Markteintritts und
den Beginn beziehungsweise die Dauer der Produktentwicklung insgesamt („Ti-

Christian P. Runzheimer • Bodo Runzheimer

56

me-to-Market“) der zeitlichen Fixierung der Teilprojekte übergeordnet; sie stellt
daher die zentrale Fragestellung für das Timing dar.
Auf der Basis von Forschungsergebnissen muss die Hypothese, dass ein früherer
Markteintritt generell zu höheren Gewinnen führt, als widerlegt - oder zumindest
als sehr fraglich - angesehen werden (vgl. Runzheimer, C., I, S. 362ff.): die Vorteilhaftigkeit eines frühen Markteintritts als „Pionier“ beziehungsweise eines späten
Markteintritts als „Folger“ hängt sehr stark von situativen Ausprägungen mehrerer
Einflussfaktoren ab (vgl. Abb. 10).
Merkmalsausprägung bei
idealtypischer Situation A

Situationsmerkmale

Merkmalsausprägung bei
idealtypischer Situation B

Marktentwicklung
niedrig
schnell
niedrig
stark
kurz
hoch
kontinuierlich/
sichere Industriestandards
alt/bekannt

Marktwachstum
Diffusionsverlauf
Marktöffnungskosten
Preisverfall
Vermarktungsdauer
Technologiebedingte Eintrittsbarrieren
Technologischer Entwicklungsverlauf
Kundengruppen

hoch
langsam
hoch
schwach
lang
niedrig
diskontinuierlich/
unsichere Industriestandards
neu/unbekannt

Wettbewerbsposition
hoch
stark
stark
hoch

Wettbewerbsintensität
Relative Technologieposition
Realtive Wettbewerbsposition
Bedeutung Produkttechnologie
im Wettbewerb

niedrig
schwach
schwach
niedrig

Produktcharakteristika
hoch
hoch
niedrig
eng

Produktkomplexität
Dienstleistungsanteil
Produktwechselkosten für Kunden
Beziehung Produktinnovation
zu vorhandenen Produkten

Maximale Erfolgswahrscheinlichkeit
bei Markteintritt als Pionier 
hohe Innovationsgeschwindigkeit

niedrig
niedrig
hoch
locker

Maximale Erfolgswahrscheinlichkeit
bei Markteintritt als Folger 
geringe Innovationsgeschwindigkeit

Abb. 10: Empirisch festgestellte, idealtypische Situationsmerkmale für die Ableitung eines optimalen Markteintrittszeitpunktes
Quelle: in Anlehnung an Gerpott, T. J., S. 62

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Bei dieser Sachlage erscheint es nicht möglich, konkrete und zugleich allgemeingültige Empfehlungen zum Timing des Produktentwicklungsprojektes insgesamt zu unterbreiten. Die zeitliche Fixierung des Projektablaufs ist von den
Unternehmen projektspezifisch in Kenntnis der konkreten Ausprägungen der
Situationsmerkmale einerseits und des eigenen Erfahrungswissens über günstige
Markteintrittszeitpunkte (z. B. Termine einschlägiger Messen, Saisonbeginn, Aktivitäten der Konkurrenten) andererseits festzulegen. Die Zusammensetzung der
Situationsmerkmale legt zugleich nahe, in diesen Entscheidungsprozess neben dem
Projektleiter auch Fachpromotoren aus den Bereichen Strategische Planung, Forschung & Entwicklung sowie Absatz zu integrieren.
6 Zusammenfassung

Ziel des Beitrags ist die Fragestellung, ob die Entwicklung einer Planungs-und
Kontrollkonzeption mittelgroße und große Industrieunternehmen mit Serienund Massenfertigung bei der Gestaltung eines Planungs- und Kontrollsystems für
die Entwicklung komplexer technischer Produkte und der zugehörigen Prozesse
unterstützt und zu einer besseren Lösung und/oder einem geringeren Lösungsaufwand führt als die Problemlösung ohne diese Unterstützung. Das Resultat wird
in diesem Beitrag als „Integrative Produktentwicklung“ bezeichnet. Die hiermit
verbundene starke Gewichtung einer antizipativ ausgerichteten Kontrolle zu Lasten der Planungsfunktion lässt deutliche Verbesserungen bei der Kontrolle und
der frühzeitigen Vermeidung von Zielabweichungen erwarten.
Zur Festlegung der Grobstruktur des Planungs- und Kontrollsystems ist es
notwendig, die Planungsebenen, ihre Planungshorizonte, ihre Verkettung und ihre
Entwicklungsfolge festzulegen. Den Bezugspunkt der Entscheidungen, die Kombinations- und Transformationsprozesse betreffen, bilden produktbezogene Pläne. Dimensionen der Grobstruktur der Planungs- und Kontrollkonzeption für die
Integrative Produktentwicklung sind die sachzielorientierte Primärstruktur und
die formalzielorientierte Sekundärstruktur.
Die systembildende Koordinationsfunktion mit Gestaltungsempfehlungen ist
Aufgabe der Metaplanung und –kontrolle der Integrativen Produktentwicklung.
Eine zentrale systembildende Koordinierungsaufgabe der Metaplanung ist auch die
Behandlung von Unsicherheit.
Die Konkretisierung der Planungs- und Kontrollsystematik der Integrativen Produktentwicklung und des Kombinations- und Kontrollprozesses erfolgt

58

Christian P. Runzheimer • Bodo Runzheimer

über Subsysteme, und zwar auf der Ebene des innovativen Produktes und der
Ebene des Projektes der Integrativen Produktentwicklung. Die Systematik der
formalzielorientierten Planung und Kontrolle zeigt die Auswirkungen auf das Gewinnziel, auf die Entwicklung der Erfolgspotentiale und das Liquiditätsziel des
Unternehmens.
Ebenso sind die Auswirkungen der Entscheidungen im Rahmen der Integrativen Produktentwicklung auf die Wettbewerbssituation des Unternehmens zu
analysieren und in der Planungs- und Kontrollmethodik zu erfassen.
Die Erörterungen zu Organisation der Planung und Kontrolle der Integrativen
Produktentwicklung beinhalten aufbauorganisatorische und ablauforganisatorische Empfehlungen.
Mit der Darstellung empirisch festgestellter, idealtypischer Situationsmerkmale
für die Ableitung eines optimalen Markteintrittszeitpuntes schließt der Beitrag.
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des Entscheidungsbaumverfahrens, in: Runzheimer, B./Barkovic, D. (Hrsg.): Investitionsentscheidungen in der Praxis, Wiesbaden 1998, S. 69-137
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für die mittelständische Wirtschaft (KMU), 4. Ilmenauer Wirtschaftsforum, Ilmenau 1994, S. 129-137
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Wurl, H.-J.: Betriebswirtschaftliche Projektanalysen durch Simulation; in: ZfbF,
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und New York 1992

62

Mladen Jurišić • Dražen Barković • Ivan Plaščak

METHODOLOGY OF DEVELOPMENT OF THEMATIC MAPS
FOR RESOURCE MANAGEMENT AND SELECTION OF NEW
LOCATIONS  PURPOSE MAPS IN GIS ENVIRONMENT
Mladen Jurišić1, Dražen Barković2, Ivan Plaščak1
1

Faculty of Agriculture in Osijek – Mechanization Institute, Department for Agrotechnics and Precision Agriculture, University of J.J. Strossmayer in Osijek, Trg Sv. Trojstva 3, 31000 Osijek – Croatia;
mjurisic@pfos.hr
2
University of J. J. Strossmayer, Faculty of Economics, Trg Sv. Trojstva 3, 31000 Osijek – Croatia;
barkovic@efos.hr

ABSTRACT

The purpose of this research was to determine the methodology of land capability evaluation with regard to an array of objective limiting factors when growing,
for example, perennial crops.
The methodology of relief parameterization was used in the method for calculating geomorphological parameters, and pedometric mapping methods were used to
calculate pedological variables. Inventory of the actual condition of land cover was
made based on sketches and maps that were gathered during field research. These
sketches were then geo-referenced and overlapped with LANDSAT satellite images
to determine the actual situation.
The best locations for a particular type of perennial plantation were selected
by using logic and spatial queries. Best locations (in this example for vineyards)
were identified as an area overlap (areas with, according to the spatial plan, either
valuable, especially valuable or other arable soils, southern relief exposition with
the total annual incident light >1,208 KWh m2, and the location where the relief
slope is not higher than 12% and lower than 2%, or where elevation exceeds 110
m and soil acidity does not exceed 5.6 pH). The query resulted in a simple map.
The map shows areas which are either suitable for viticulture (1) or not suitable for
viticulture (0). Similar approach could be used also for thematic maps of different
purposes, for example, urbanization maps, or mapping valuable sources of water,
gas, thermal wells and other resources of special importance for the country.

METHODOLOGY OF DEVELOPMENT OF THEMATIC MAPS FOR RESOURCE ...

63

According to the results obtained in our example of finding the methodology
for development of thematic maps in GIS environment, the total of 17,782 ha in
the County area is suitable for viticulture.
The best way of developing spatial plans for particular crops would be to develop maps of negative scores for all crops, and then to standardize these values to
find the best possible crop for each location. Thematic GIS layers can be used as
the foundation for loans, advice on what crop to choose, making decisions on land
re-allocation and land use, reconstruction i.e. modified land use.
JEL classification: D83, O13
Keywords: Geo-Information Systems (GIS), Methodology, Thematic maps,
Resource management, Spatial plan, Purpose map; EU pre-accession funds;
INTRODUCTION

To improve efficiency and competitiveness of an industry, i.e. efficiency of resource management in a country, governments of these countries (especially EU
member states) adopt the so-called operative programmes to stimulate loans to
such industries. The goal of such programmes is to increase efficiency of different
aspects of management. For example, it is of great importance for the Republic
of Croatia to make an inventory of resources, that is, to improve their use and
efficiency. Through various projects (supported by the EU and its programmes
related to the use of pre-accession funds), the Croatian Government stimulates an
increasing number of small and large entrepreneurs, even family farms, to increase
their plantations and to become serious producers with a higher share in the market
economy.
To allocate funds from such sources in the best possible way, the following is
required: to educate economic operators (land owners and company owners, especially those related to resource management) on the possibilities and to carefully
choose among the received loan applications. Among other, it is necessary to have
a good knowledge of production potentials of a particular location (land owned by
the requesting party) so that as much funds as possible is invested into areas with
the highest production potential related to targeted production.
Accelerated development of geo-information technologies has taken place also
in our country (application in various fields, especially in natural resource management). Inventory of large areas can be made very quickly either by using satellite

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Mladen Jurišić • Dražen Barković • Ivan Plaščak

images or by positioning by means of GPS device or digital aero-photogrammetry
[Jurišić et al., 1999 and Jurišić, 2005; Husnjak and Bogunović, 2002].
Thematic maps of different purposes in Croatian agriculture have been already
in the process of making, although not to a sufficient extent. Among organized
systems of implemented geo-information technologies, a digital land registry, LPIS
(part of the AIACS systems), better known as ARKOD, should be mentioned here.
For example, Croatian Institute of Viticulture and Enology has started to develop
a detailed Vineyard Register, which should provide a general statistical overview of
all vineyard areas on a single production area as well as potential areas.
The only issues here are what methodology should be used in the process and
what funds and human resources are required. These issues are addressed in this
paper. The methodology of carrying out the land capability evaluation while considering an array of limiting factors of production for strategic types of perennial
plantations is presented on the example of Osijek-Baranja County.
WORK METHODOLOGY

GIS has been in use in Croatia for the purpose of planning at the regional level
for some ten years. The methodology used in this example and used for the purpose
of planning in the field of management of resource use is specific in the part that
parameters for land evaluation are clearly and precisely defined – geomorphological, pedological and actual condition of land cover. The methodology of parameterization of relief is used for calculation of geomorphological parameters [Hengl et
al., 2003], and pedometric mapping methods are used for calculation of pedological variables [Hengl, 2003]. Inventory of the actual condition of land cover is made
by using sketches and plans obtained during field data gathering. These sketches are
then geo-referenced and overlapped with LANDSAT satellite images to determine
the actual situation.
Methodology of raster GIS modelling was used throughout the study, which
means that the basic decision making unit was pixel or cell grid square (see the image). The methodology of preparing thematic layers is presented in the following
subchapter.

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Figure 1. Raster – based GIS: each thematic layer consists of the smallest unit of pixel or grid square which is
determined by the field resolution.
Field data collection

To evaluate (locate) the current situation in the field in the best possible way, the
field was recorded during the visit to the main economic operators.
Shorter surveys can be carried out in the process with economic operators (technologists). In addition to obtaining important technical data, this also provides an
insight into the main issues in production. Also, each organization is required to
submit a map showing the current situation and the location. These mostly include
sketches or old plans that were either copied by hand or photocopied and diminished from the original cadastral maps.
Maps very often include a legend on the plot boundaries showing the sorts
grown, and each plot has its own identification number.
Preparation of the thematic GIS layers

In the process of preparing GIS layers several raster resolutions should be used: (a)
basic resolution for calculation of suitability - 100 m; (b) LANDSAT image at 30 and
15 m resolution; (c) a detailed topographic map 1:100K, also at 15 m resolution.
Boundaries of the area are set to Xmin= 6490027; Ymin= 5005476; Xmax=
6587527; Ymax= 5088076 (Gauss-Krueger system, zone 6), which means that the total area is 97×83 km. Panchromatic image is at 15 m resolution (5508×6501 pixels).
According to this methodology the following thematic layers are made:

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Mladen Jurišić • Dražen Barković • Ivan Plaščak

Topographic map 1:100K [topo100K] – Sheets of 1:100K topographic map,
scanned and geo-referenced to the coordinate system (zone 6), are used as GIS
foundation. In our example the total of 19 sheets of topographic map of the Republic of Croatia were geo-referenced and joined together.
Scanned sketches [tables] – They present the current condition of perennial
plantations. In our example sketches and maps of four economic operators were
gathered for the purpose of this study. After geo-referencing all scanned sketches
were transferred into the vector format.

Figure 2 and 3. Importing and assessment of old sketches and maps into GIS. Left: An example of an old plan;
Right: The map of plots can be represented in a satellite image after geo-referencing.
Digital relief model and relief parameters [DMR, slope, light] – digital relief
model (DMR) is produced based on the combination of SRTM DMR [NASA,
2005a] and DMR which was developed based on digitalized contour lines from
1:100K topographic maps.
In this case the DMR based on topographic maps has greater absolute accuracy,
while SRTM DMR shows greater local detail (changes in the mezzo relief ). SRTM
DMR was not used in areas with rich vegetation, because SRTM DMR usually
shows also the surface of such objects, and not the real elevation of the terrain. Two
geo-morphological factors were calculated based on DMR: slope (%) and the total
annual amount of incident light.

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The slope was calculated by means of ILWIS GIS software, and incident light
(KWh/m2) by SaGa GIS software [http://geosun1.uni-geog.gwdg.de/saga/]. Even
these two parameters (slope and exposition) are sufficiently important for finding
the best locations for some production (viticulture).
Northern exposition

Relief slope

Figure 4. Geomorphological parameters calculated on the basis of digital model of the relief of the County
Planned purpose of the land [Purpose] – The planned purpose of the land was
taken over based on the spatial plan developed by the Institute for Spatial Planning of Osijek-Baranja County [Institute for Spatial Planning of Osijek-Baranja
County, 2002]. This is a 1:100K scale map which was scanned, geo-referenced in
ILWIS and then digitized and polygonized. The total area statistics was calculated
after that, with special emphasis on agricultural land in the County.
The map of the planned purpose of the land is important to limit selection of
the best locations for fruit/vine growing on the locations where valuable and especially valuable soils are found.
Pedological parameters [soil_type, soil_pH, soil_carb] – In addition to soil type
(deep, fertile, gravel or dry), when selecting the soil in the process of vineyard planting it is of utmost importance to know the content of lime in the land envisaged for

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Mladen Jurišić • Dražen Barković • Ivan Plaščak

planting, for the depths 0 – 30 cm and 30 – 60 cm. Maps of soil acidity and carbonate content wee made by interpolation of a limited number of pedological profiles.
The database of soil types in Croatia was used [Martinović and Vranković, 1997];
the total of 124 profiles from this database can be found in the County area.
The data were interpolated so that a map of soil types was made in the beginning (Alluvial, Chernozems, District Brown Soil, Eutric Brown Soil, Colluvial Soil,
Loess Soil, Meadow Soil, Wetland Gley Soil, Pseudo-gleyed Soil, Rendzina, Wetland Black Soil, Semi-gley) by classifying geomorphological parameters, and then
the mean value of pedological parameter was calculated for each soil type (pH,
carbonates).
Satellite image [Panchromatic] –LANDSAT panchromatic satellite image was
used at 15 m resolution. The image was made in September 1999, but it is still relevant for development of the basic studies. LANDSAT images (185×185 km scene)
can be ordered and downloaded on-line via NASA server [http://edcimswww.
cr.usgs.gov/pub/imswelcome/]. Such an image is especially suitable for this kind
of projects because it can be compared to the photo mosaic, which would be more
expensive. Boundaries between the plots of agricultural land are clearly visible in
the image as well as larger furrows within vineyards. To provide easier recognizing
of orchards and vineyards, aero or Ikonos images should be used in future.

Figure 5. An example of Ikonos image, 1m resolution, that can be used to make fast inventory of plots (Erdut
vineyards).

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Map importing, geo-referencing and integration were carried out by using the
unique methodology as described below:
• Maps are scanned at 150 DPI resolution and more;
• Scanned maps are imported into a GIS software ILWIS and geo-referenced to
the local coordinate system, 1:100K scale;
• Parts of maps are joined and modified according to the desired basic resolution
and detail level;
• Different thematic layers are used for simple (for example, slope maps) and
more complex calculations (for example, annual amount of direct solar
radiation);
• Ultimately calculated thematic maps are used for decision making by using
the so-called spatial queries; these queries are carried out in ILWIS directly via
command line;

Figure 6. Integration of GIS layers after importing for the purpose of group representations by using transparency in ILWIS: Erdutsko brdo as an example – vineyards owned by the wine-making company Erdutski
vinogradi
Selection of best locations

Selection of the best location for a particular type of perennial plantation can
be carried out by using logical and spatial queries. Locations for vineyards will be
defined as overlapping areas between locations:

Mladen Jurišić • Dražen Barković • Ivan Plaščak

70

• Locations where, according to the spatial plan, either valuable or especially
valuable soils and other arable land can be found, and
• Southern exposition of the relief with the total annual amount of light incidence > 1208 KWh/m2, and
• Locations where the slope is not higher than 12% and lower than 2%, and
• Where elevation above the sea level is not lower than 110 m and soil acidity
does not exceed 5.6 pH units.
This means that locations will be found that satisfy several important criteria in
the same area (good exposition and good slope, and good elevation...). Such spatial
enquiry can be expressed by means of the following ILWIS commands (so-called
ILWIS sytnax):
SUITABLE_VINEYARDS {dom=Bool} = iff( ((purpose=”ESPECIALLY
VALUABLE SOIL “) or (purpose=”VALUABLE SOIL “) or (purpose=”OTHER
ARABLE SOILS “)) and (light>1220) and (slope<12) and (DMR>110) and (soil_
pH>5.6), 1, 0)

Table 1. List of GIS layers used in the development of the study.
GIS layer

Unit

Description and characteristics
Scanned and geo-referenced topographic map
1:100K. Raster map in real colours. Map size –
5508×6501 pixel.

topo100K

table

DMR

m

slope

%

Application
Basic foundation for preparation of all
other GIS layers.

Scanned, geo-referenced and vectorized plot
Showing the current situation and
boundaries. Vector map; total around 200 tables/ locations of perennial plantations (PP)
plots.
in the County area.
It can be used for calculation of
Digital relief model is a raster map showing the
geomorphological and hydrofield elevation for each point in the space. Map
logical parameters, but also for 3D
size - 827×976 pixels.
representations.
A very important agro-environmental
Raster map developed on the basis of DMR,
parameter because it is related to
showing field inclination. Also in this case 100 m
agricultural production (>12% is not
grid was used.
suitable for mechanization application).

METHODOLOGY OF DEVELOPMENT OF THEMATIC MAPS FOR RESOURCE ...

light

purpose

soil_type

soil_pH

tlo_karb
Panchrom.

71

It can be used to locate the areas suitKWh/ Raster map calculated on DMR basis and knowlable for vineyards. Southern exposition
m2 edge of the solar radiation model.
shows the highest values.
Spatial planning of agricultural producPolygon map showing land purpose classes
class
tion should be limited to the locations
according to the spatial plan.
where agricultural land is found.
Based on the soil type, a conclusion on
Raster map showing soil types from alluvial to
class
other soil characteristics can easily be
chernozem and renzina soils in mountains.
made.
Raster map produced by interpolation of obAcidity is usually the key limiting factor
0-15 served values. In this case average was made
for agricultural production.
according to soil type map.
Vineyards require more carbonate
Raster map produced by interpolation of ob% served values. In this case average was made
soils. Acid soils may result in underaccording to soil type map.
performance.
Raster image. The smallest detail 15 m. Map
Useful for recognizing the boundaries
0-256
size–5508×6501 pixels.
between agricultural land plots.

This is the so-called “Boolean” operation, because the result of the query will
be a simple map showing areas which are either suitable for viticulture (1) or not
suitable for viticulture (0). If the user wishes to increase the selection criteria, he/
she can simply change any of the parameters directly in ILWIS command (for example, slope <10% instead of <12%). Of course, the more strict criteria will result
in smaller area of suitable locations.
Alternative to this Boolean procedure would be the use of limitations scores. In
that case every parameter, limiting agro-environmental effect, is translated into a
limitation score according to a mathematical or empirical formula. Use of limitation (negative) scores in this case is considerably more complex, because relations
among the negative scores and limiting parameters are unknown. In addition, the
number of agro-environmental factors can be pretty large, which means considerably larger calculations in GIS.
RESULTS AND DISCUSSION

A map of the best locations for vineyards was developed based on a formula. This
map is the ultimate result of work (Figure 3.). According to an estimate, around
17,782 ha in the County are suitable for viticulture. If this is compared to data on

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Mladen Jurišić • Dražen Barković • Ivan Plaščak

actual situation (1,612 ha), it can be observed that the current utilization rate of
resources in viticulture is around 10%.
Locations in Baranja that are unsuitable for vineyards are all locations situated
on the sea level below 120 m, on the localities oriented toward north, north-eastern
and eastern sites, unprotected against penetration of cold air; in Erdutsko brdo
area), all locations where water is stagnant and frost can occur (depressions, furrows, micro-coves). Areas unsuitable for vine grape growing can also be found in
Đakovo and Našice region – all locations where slopes exceed 12% and soil is acid
or very acid (pH<5.0). In terms of slope and suitability for use of mechanization,
only the area around have issues due to the above described micro-relief.
• EXISTING VINEYARDS
• POTENTIAL NEW
LOCATIONS

Figure 7. The existing and potential areas under vineyards in 2004. Vineyards are currently planted on 1.612 ha
out of the potential area of 17.782 ha.

These scales can be used to find the best locations for planting new vineyards.
However, the areas that are not coloured green in the figure 7 show areas which
could not be recommended as suitable for viticulture, i.e. loans or incentives for
them should not be provided by the County or Government.
Analysis and processing of climate and edaphic parameters points to a very favourable climate and land conditions for vineyards as well as existence of great

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resources and the possibility for intensifying as well as rationalization of future production. A conclusion can be made as the end result of this research that utilization
rate of natural resources in viticulture is around 10% and that the most suitable
locations for planting vineyards is the area of Erdutsko brdo and numerous locations between Đakovo and Našice.

Figure 8. Best purpose map for viticulture (the current situation – red and possibilities – the green colour) in
Osijek-Baranja County.
CONCLUSION

This scientific research is mostly of methodological character, i.e. the goal is to
bring the methodology of detailed spatial planning in GIS closer to the employees
of the County Department for Agriculture and Forestry and other stakeholders.

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Mladen Jurišić • Dražen Barković • Ivan Plaščak

Unlike the methodology used by the Croatian Institute for Viticulture and
Enology, this research was conducted in the geo-information system. Relief data
and satellite images were also used to verify the situation. Integration and combination of orto-photo images and Wine register with relief and satellite images would
provide even better results than the results presented in this paper. If aero images
are too expensive solution for development of the County GIS, use of Ikonos images should also be considered.
Nowadays there is a large number of potential users and applications which are
based on updated geo-information, i.e. digital purpose maps. Decisions about the
land use and its change are still not made based on objective queries and criteria.
Unfortunately, in our country there are no updated and detailed maps of areas
which would show the actual situation in land use, the real potential of natural
resources (soil, water, relief ). All of the basic foundations of geodesy as the cadastre, aero photos and topographic maps also have not been transformed into digital
form and made available to these services. Tools for relatively urgent and objective
monitoring of changes in land use (satellite images), changes of the boundaries
between agricultural units (aero-photos), positioning (GPS) and general condition
of natural and human resources are not used.
Problems with the cadastre, land restitution, allocation and undefined ownership structure of land in the state ownership are a limiting factor in the process of
determining the status and future purpose of these areas. Raising new perennial
plantations and stimulation of potential producers (legal and physical entities) requires an extremely fast engagement at both national and county level in an extremely short period of time (a few years – EU accession).
In this example of development of a thematic map showing land suitability
for growth of grape vine, the main microclimate factors limiting successfulness of
production in the entire County area are: (a) local frost areas; (b) slope, over 15%;
(c) insufficient carbonate content in the soil, i.e. excessive soil acidity. Ideal soil for
grape vine production is mildly sloped (2-12%), of southern, south-western and
western exposition, calcareous or mildly calcareous, with humus content around
3%, and of light texture (powdery/sandy loam).
Further steps shall include development of the full multidisciplinary GIZIS
(Geographic and Cadastral Information System) of regions with agricultural production, and education of all key users, primarily employees of the County Development Department on how to use these tools.

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References

Borovac I. (2002). Veliki Atlas Hrvatske, Mozaik knjiga, Zagreb, p. 480.
Dražavni zavod za statistiku (2005). Popis poljoprivrede 2003. On-line www.hzs.
hr
Hengl T., Gruber S., Shrestha D.P. (2003). Digital Terrain Analysis in ILWIS. Lecture notes and users’ guide, International Institute for Geo-Information Science &
Earth Observation (ITC), Enschede, Netherlands, p. 45.
Hengl T. (2003). Pedometric mapping: bridging the gaps between conventional
and pedometric approaches. PhD thesis, University of Wageningen, Enschede, p.
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Jurišić M., Hengl T., Duvnjak V., Martinić I. (1999). Agro-ecological and land
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Jurišić M. (2009). Geoinformacijski sustavi GIS u poljoprivredi i zaštiti okoliša,
Udžbenik, Poljoprivredni fakultet Osijek, p. 145-176.
Jurišić M., Hengl T., Stanisavljević S. (2005). Prostorno planiranje poljoprivredne
proizvodnje – Vinogradarstvo: metodološki vodić i GIS za odabir novih lokacija za
sadnju vinograda, Studija za potrebe Osječko baranjske županije, Osijek
Martinović J., Vranković A. (1997). Baza tala Republike Hrvatske. I-III, Ministarstvo zaštite okoliša i prostornog planiranja, Zagreb, p. 365.
Miklos F. (1989). Physiology of temperate zone fruit trees. John Wiley & Sons, p.
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Mirošević N. (1993). Vinogradarstvo. Nakladni zavod Globus, Zagreb, p. 247.
NASA (2005a). Moderate Resolution Imaging Spectroradiometer (MODIS) imagery, On-line http://edcimswww.cr.usgs.gov/pub/imswelcome/
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server ftp://edcsgs9.cr.usgs.gov/pub/data/
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županije: korištenje i namjena prostora, Županijski glasnik br.1/2002.

Željko Turkalj • Ivana Fosić • Marija Ham

76

CORPORATE SOCIAL RESPONSIBILITY AND BUSINESS
ETHICS APPLICATION OF ECONOMIC ENTITIES IN THE
REPUBLIC OF CROATIA
Željko Turkalj, Professor
Ivana Fosić, Assistant
Marija Ham, Assistant
Faculty of Economics in Osijek

Abstract:

Social responsibility and its component business ethics are imposed as an unavoidable and dominant area of activity in the globalization of economic entities
operating conditions. Each economic entity seeks long-term sustainable business,
but with the condition to be recognized and positively evaluated in the environment to which they positively contribute with their activities. Realization of these
goals is possible, inter alia, by knowing ethical principles and codes of conduct,
but more importantly, their implementation. Economic entities should be aware of
the fact that the more ethical organizations - organizations serving economic communities, consumers and the environment, are also more successful organizations.
The paper is intended to clarify the meaning of social responsibility and ethics of
economic entities, and highlight the benefits of such a concept of business. We also
want to show the presence of corporate social responsibility and ethical behavior of
economic entities in the Republic of Croatia.
JEL classification: M14
Key words: social responsibility, ethical business, socially responsible marketing, promotion, economic entity
1. CORPORATE SOCIAL RESPONSIBILITY

Corporate social responsibility is today a widely adopted business practice in developed countries. Modern business systems are now called upon to exercise more than
what they are required by the owners. They must comply with the demands placed
upon them by society. Philip Kotler in his new book “Corporate Social responsibil-

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77

ity“, states that the global idea of corporate social responsibility grew into a worldwide
movement. However, society and the business world have gone a long way to the establishment and general acceptance of this new social and managerial paradigms.
1.1. The concept and meaning of corporate social responsibility

In the broadest sense of the definition, corporate social responsibility means that
the company takes responsibility for its actions in a social context, and is driven not
only by their own profits but also by its influence on the environment, community,
employees, human rights, supply chain and market in general. (Meštrović; 2009 a,
p. 46) It is a very broad concept whose precise understanding and definition often
depends on the particular context. Krkač (Krkač, 2007, p. 224) pointed out that
sometimes the terms “business ethics” and “social responsibility” are used synonymously, and sometimes radically different. In other case business ethics relates to
the decisions of individuals or working groups whose decisions are assessed as being morally correct or incorrect, while the social responsibility refers to the broader
context, within which the totality of business in relation to the totality of society is
being assessed as morally correct or not. The analysis of different definitions leads to
the following constituent elements that reflect the social responsibility of business:
(1) continuous and voluntary commitment of a company, (2) business practices
beyond the legal and ethical norms, and (3) the company’s efforts to balance the
effects of business activities and interests of different stakeholder groups of society
in three dimensions, economic, environmental and social. (Ivanković, 2010, p. 26)
Whether the concept of corporate social responsibility is observed in practice or in
theory, we can conclude that it is an interdisciplinary field, which is within the economic entity cared by experts of various kinds, as well as being the point of interest
for researchers from different scientific disciplines. Since it is a strategic guideline
of operation, it is necessary to ensure involvement, dedication and competence of
high and senior management, with a special highlight to the importance of individual functions or departments, such as human resource management, supply chain
management, quality management, and marketing and its various components.
1.2. Socially responsible marketing as a prerequisite for corporate social
responsibility

The opinion is that CSR and marketing should be considered causally related,
because without social responsible marketing (as the dominant process, function,
policy and business philosophy), a company can not be considered socially responsible. In the extreme case, it would mean that company does not control all of its

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Željko Turkalj • Ivana Fosić • Marija Ham

effects (in this case, the effects of marketing activity) on the society and the environment. Furthermore, it is believed that socially responsible marketing strategies
should be the starting point of corporate social responsibility. (Ivanković; 2010, p.
72) Many authors point out the connection of marketing and corporate social responsibility primarily due to the scope of marketing effects (marketing strategies are
directed not only to consumers but also to all other stakeholder groups) and longterm marketing orientation in terms of meeting the long-term socially positively
graded needs. It is believed that the concept of socially responsible marketing refers
to the commitment of the company to take care and strive to achieve a balance between meeting the interests of consumers, society as a whole (including the natural
environment) and the company, or a balance between economic, environmental
and social effects through marketing (philosophy and process). (Ivanković, 2010,
p. 76) Corporate social responsible marketing has the necessary tools, models and
expertise to achieve the objectives of corporate social responsibility and promote
social responsibility within the company (internal marketing) and / or within the
value chain in which the company operates (supply chain management). Also important is the role of marketing in communicating (to the consumers and the general public) the achievements and contribution of the company to the sustainable
development and welfare of the community. Because of its integrative function, we
can say that it is a prerequisite for CSR.
2. ETHICS  AN ECONOMIC ENTITY

Man wants his work to be appreciated and that through his work he is appreciated and respected. If we carefully study the ethics and codes of conduct and
consistently apply them, we can with certainty say that this will be achieved. Just as
there are general rules of conduct, the business world has its own rules of conduct
which should be followed. Business “etiquette” or the art of behavior is the smallest
possible investment which each employee of the organization can invest, primarily for himself because he himself becomes one of the decisive factors in achieving
successful business of the organization. Ethics is imposed as an unavoidable and
dominant area of activity within the organization. In order to perceive ethics as
science, and later on business ethics, we will first clarify the meaning of the terms
themselves. Ethics is (greek Ethos = custom, habits, temperament), the science of
morality, its task is to familiarize us with the morality, its basic components, but also
take a critical position towards the existing moral practice. (Bebek & Kolumbić;
1983,p. 395.) “Ethics is a philosophical discipline, related to morality, dealing

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with the moral will and goals, and explores the origins and foundations of morality.” (Bebek & Kolumbić; 1983,p.3.) Today, the ethics and morale are often used
synonymously, but these terms are different. “Morality is one of the fundamental
ways of the human relationship to the world. Ethics on the other hand is the theory
or philosophical reflection on this relationship. “ (Čehok; 1997, p. 27.) “Business
ethics is defined as a way of designing, assembling, communicating and conducting
simultaneous operations in accordance with the spiritual, social, biological and natural laws of man and environment or, more simply, business ethics can be explained
as a natural business management and business in harmony with nature.” (Čehok;
1997, str. 27.) Ethics have an increasing role in successful business operations of
the organization, not only in managerial positions in the organization, but at all
levels of staff hierarchy. The biggest problem of business ethics is the implementation of ethical principles in practice. Ethical / unethical behavior is the result of
multiple influences. Ethical / unethical behavior the employee forms using his own
system of values, so it’s not only the organizations responsibility. Potential impacts
of the organization are reflected in the code of ethics, culture of the organization,
role models, perceptions of pressure to achieve certain results and reward system or
otherwise, system of punishing employees. The behavior of employees is affected by
a number of cultural factors that an individual gained through family, education,
religion and the media, but also through political, legal and economic impacts. All
these influences ultimately create ethical or unethical behavior of individuals. Why
is there unethical behavior in an organization? We will not get a a unique answer
to this question. There are many factors that encourage unethical behavior in the
organization. The most common factors to encourage such behavior include: (Fox;
2001, p. 117.) preference for short-term benefits over long-term goals, the absence
of a written code of ethics, solving ethical problem quickly and superficially; unwillingness taking ethical attitude if it means additional costs, understanding of
ethics as a purely legal question, or part of public relations, lack of clear procedures
for resolving ethical problems ; compliance with the requirements of shareholders
at the expense of other stakeholders (consumers, employees, community).
2.1. Institutionalizing ethics

The institutionalization of ethics seeks to create a positive organizational environment that will encourage ethical decision-making of individuals and organizations
in general. By institutionalizing ethics we consider the development and application
of ethical codes and the establishment of ethical committees and teaching of ethics. Code of Ethics - Code is to establish basic guidelines for ethical behavior, set

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Željko Turkalj • Ivana Fosić • Marija Ham

up certain criteria, its own ethical principles or codes in order to achieve better and
more efficient operations. Rules relating to the area of ethics must be clarified and
presented to all employees and accepted to become an integral part of work and
business. There are strongly placed so called rules of conduct and presented to each
employee to encourage ethical behavior within the organization. Code of Ethics
is trying to determine general principles (the principle of responsibility, honesty,
efficiency, transparency, etc.), relations between business entities, the internal relations within the organization and the way of dealing with violations of the Code
(methods of sanctioning). These guidelines are intended for all employees and their
understanding is of the utmost importance for every individual, but also for the
collective as a whole, because the respect of ethical rules is aimed at achieving harmonious interpersonal relations and a maximum of employee satisfaction and the
organization as a whole. The Code of Ethics determines the attitude of the organization towards the following individual categories: basic fairness, compliance to the
regulations, workplace safety, conflicts of interest, relations to employees, financial
reporting, relations of the organization towards suppliers, pricing policy, contractual
relationships, handling of information, myth, political activities, caring for the environment. (Fox; 2001, p. 116.) Code of the organization related to ethics is based on
the following principles: (Fox, 2001, p. 116) principle of justice: every decision must
be based on truth, objectivity and consistency, the principle of individual rights: the
foundation of every decision must be to protect human rights; principle of utilitarianism: the decision must lead to promoting the greatest good for the greatest number of people. The Croatian Chamber of Commerce advises its members to accept
the rules of the Code: (www.hgk.hr) acceptance of the importance of responsible
and ethical behavior of business entities as necessary prerequisites for the efficient
functioning of markets and integration of the Croatian economy in the international flows, promoting the development of quality relationships and fair competition
among business partners and the business environment in which businesses operate, respecting the particularities of individual businesses and activities, emphasizing
the need for open public dialogue that will determine the basic ethical guidelines
as well as to encourage business people to make decisions for the benefit of their
businesses and society as a whole, promoting the proper care for the environment.
Ethics Committee - in practice, much less frequent are ethics committees appointed
in organizations. Ethics Committee consists of internal and external directors, and
the basic functions are: (1) hold regular meetings to discuss ethical issues, (2) dealing with “gray areas”, (3) transmitting the Code to all members of the organization,
(4) verification of possible violations of the Code, (5) ensuring the implementation

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of the Code, (6) rewarding implementation and punishing violations of rules, (7)
reviewing and updating the Code, and (8) reporting to the Board on the activities of
the Ethics Committee. (Weihrich & Koontz; 1994., p. 74.) Teaching ethics - nowadays unfortunately very rarely used. Factors that raise ethical standards - in addition
to institutionalizing ethics, the literature states several factors that raise ethical standards. “Two factors that raise the highest ethical standards are: (1) public exposure
and publicity and (2) increased interest in well-informed public. Following them are
government regulations and education, to increase the professionalism of business
managers. “(Weihrich & Koontz; 1994. str. 74.)
2.2. The application of ethics in economic entities of Croatia

Ethical business practice must come to life in practice in order to maintain on
the market and provide the basis of entrepreneurial freedom and competitiveness in
the post-industrial, global conditions. There are more and more companies in the
world which should serve as an example to domestic companies. The fact is that in
Western countries the ethics is increasingly taken into account by applying ethical
codes, organizing courses and employment of counselors. The introduction of ethics
in business is becoming more common in the European Union. The fear of immorality, corruption and fraud initiated the employers to protect the legacy of capitalism and free markets. Public opinion, which means consumers and shareholders,
starts strongly penalizing companies for frauds by the management, fraudulent data,
flaws in environmental policy or non-compliance to social standards. (http://www.
manager.hr/defaul.asp?ru=111&gl=200511010000003&sid=&jezik=)
Today there is a stock valuation of ethical principles by which management is
conducted in the politics of corporate governance, protection of the environment
and social standards. Namely, the Dow Jones World Index introduced the Sustainability called DJSI World Index, which comprises three hundredths of companies,
a kind of leaders in ethical business. European DJSI Stoxx Index nowadays includes
about one hundred and sixty-seven such companies. The Croatian Chamber of
Economy has published the Code of Business Ethics and thereby encouraged all
economic entities on the Croatian territory by signing a statement of acceptance of
the Code accept its guidelines. All major economic entities in Croatia have codes
of ethics, which they follow and strive to improve. Taking care of business ethics is
a task of the government and the economy as a whole. Unfortunately, according
to international criteria, on the list comprising 159 countries, Croatia is in 70th
place. Business Ethics tackles all those involved in business operations, so we all need

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Željko Turkalj • Ivana Fosić • Marija Ham

to work on improving ethics in business. (http://filaks.hr/index.php?option=com_
content&task=view&id= 25&Itemid=72) The Code of ethics in business in the Republic of Croatia was to the end of 2010. signed by 670 economic entities, and
the Community for Corporate Social Responsibility CCC brings together about a
hundred businesses. But it is important to note that the biggest problem of business ethics in the Republic of Croatia is implementing ethical principles in practice.
For ethical business are responsible all those involved in business activities, from
individuals, the economy in general and the state itself. Croatian Committee for
Business Ethics states: “If a company is not ethical, it can not be responsible; therefore, ethics is a necessary prerequisite for the construction of a socially responsible
business environment.”( http://filaks.hr/index.php?option=com_content&task=vie
w&id=25&Itemid=36)
3. CORPORATE SOCIAL RESPONSIBILITY IN CROATIA

Recognizable CSR in the business community in Croatia corresponds with the
process of European integration, which began in 2001. with the signing of the
Stabilization and Association Agreement. A key event in Croatia - the first national
conference on CSR (Agenda 2005.) held in December 2004. thus enabling the formulation of common priorities for the development of CSR in Croatia. (UNDP;
2007, p. 13) The purpose of the conference was to create the basis for the Croatian
campaign to promote socially responsible business - Agenda 2005. which will have
the following objectives: 1 Increase understanding of the importance of CSR in
the context of Croatian inclusion in the EU and raising competitiveness of the
Croatian economy; 2. Create an enabling environment for CSR, 3. Expanding the
scope of CSR in the following areas: working environment, supply chain and consumer protection, economy for environmental sustainability, community relations
and corporate management; 4. Increase the scope of knowledge on CSR. (http://
www.poslovniforum.hr/agenda/prijedlog_inicijativa.asp) When it comes to legislative and political framework for corporate social responsibility in Croatia it can
be said that some progress is visible in the past two decades. But also it should be
noted that this improvement mainly refers to the removal of barriers that previously
made it difficult for / or unmotivated the implementation of social responsibility in
business. With regard to direct measures to encourage socially responsible business,
we can conclude that they are still insufficient. Also there is still a gap between the
declared strategy and existing laws. Extensive research of development and application of CSR in Croatia was conducted in 2007. within the project “Accelerating

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83

CSR practices in new EU member states and candidate countries as means for
harmonization, competitiveness and social cohesion in the EU”, which was funded
by the European Union. The findings of this research (shown in the figure 1) indicate that a systematic and structured approach to CSR is only at the beginning.
Companies with good CSR management practices are exceptions, but even they
do not have a uniformly high quality in all dimensions. CSR reporting practices
are carried out by one third of companies, with a big difference in systematic and
coverage thoroughness. While the interest in the application of international standards for sustainability reporting is increasing, Croatian companies still do not
have a mechanism of verification of reports by independent professional authorities
and therefore it is not surprising that the verification dimension was bottom rated.
The development of management structures for CSR and the related quality of
performance were rated as very low, which is the main indicator that the shift from
spontaneous to a systematic approach to CSR has not yet occurred in the group of
the most successful Croatian companies. (UNDP; 2007, p. 37.)

Figure 1 The development of CSR in Croatia

Source: United Nations Development Programme (2007), Accelerating CSR practices in new EU member states and candidate
countries as means for harmonization, competitiveness and social cohesion in the EU, Report for Croatia, p. 37.

In December 2008. the market research agency Hendal conducted a survey
which polled 403 businesses. In the results of this study in particular the attention

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Željko Turkalj • Ivana Fosić • Marija Ham

is attracted to data that shows that even 44.2% of surveyed managers never heard of
the concept of socially responsible business enterprise. (Meštrović; 2009 b, p. 45.)
The results of this study indicate a relatively low level of theoretical knowledge of
Croatian managers on the concept of social responsibility. It can be assumed that
this is a consequence of the weakness of the educational system and a relatively
weak representation in the media. The lack of knowledge is evident from the high
percentage of responses “do not know” to the question on intent of involvement
in CSR and to the question on impact of CSR to the company image. The study
conducted in 2003. in Croatia established the 5 main benefits of CSR from the
perspective of Croatian companies, which are: (Bagić et al., 2004, p. 27.) 1. Reputation management and risk management; 2.Operational efficiency - reducing costs
while improving quality control methods and products themselves, 3.Recruitment
of new staff, motivating and retaining the workforce; 4.Access to Capital and Investor Relations, 5.Competitiveness and market positioning.
4. CONCLUSION

Economic entities should become more aware that the reputation of the organization is achieved by fair and long-term work with great sacrifices and considerable
effort, and can be lost in just a moment by making hasty decisions. We conclude
that due to the still under-representation of corporate social responsibility and ethical conduct of Croatia’s economic entities, there is a need for substantial investment in the promotion of the same. Therefore, it is primarily necessary to provide
more intensive work with the media, in order to achieve the level of knowledge and
raising awareness on social responsibility and ethical economic entities. Corporate
Social Responsibility in Croatia is undoubtedly recognized by business leaders and
we conclude that the necessary conditions and a favorable climate for its wider application is slowly created. However a significant gap between a few leaders (usually a
large export-oriented enterprises and enterprises with foreign ownership), and other
companies that make up the majority, is still evident. This gap is primarily caused by
differences in available resources, but also the motivation for implementing and reporting on CSR. Also evident is the lack of systematic efforts by the state, especially
in the field of concrete and transparent sanctions for malpractice, which are just as
necessary as incentives and rewards for positive steps forward. The role of marketing
is important in communicating (towards consumers and the general public) and due
to its integrative function, we can say that it is a prerequisite for CSR.

85

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5. Literature

Bagić, A. et al. (2004.), Pregled društvene odgovornosti poduzeća u Hrvatskoj,
AED - Academy for Educational Development, Zagreb.
Bebek, B., Kolumbić, A. (2000). Poslovna etika, Sinergija d.o.o., Zagreb, ISBN
953-97944-2-0
Čehok, I. (1997). Etika, Školska knjiga, Zagreb
Fox, R. (2001). Poslovna komunikacija, Hrvatska sveučilišna naklada, Zagreb
Ivanković, J. (2010). Društveno odgovorna strategija marketinga i konkurentnost poduzeća prehrambene industrije Republike Hrvatske, doktorska disertacija,
Sveučilište u Rijeci, Ekonomski fakultet, Rijeka.
Klaić, B. (1983).: Rječnik stranih riječi, Nakladni zavod Matice hrvatske, Zagreb
Krkač, K. (2007). Napomena: paradoks interesnog dionika i europska poslovna
etika, u: Uvod u poslovnu etiku i korporacijsku društvenu odgovornost, Krkač, K.
(ur.), Mate d.o.o/ZŠEM, ISBN 978 Zagreb.
Meštrović A. (2009) a, Što je društveno odgovorno poslovanje?, Poslovni savjetnik,
Tema broja - siječanj: Društveno odgovorno poslovanje.
Meštrović, A. (2009) b, Koliko su hrvatski manageri društveno odgovorni?, Poslovni savjetnik, Tema broja - siječanj: Društveno odgovorno poslovanje.
United Nations Development Programme (2007), Ubrzanje praksi društveno
odgovornog poslovanja u novim zemljama članicama EU i zemljama kandidatkinjama kao sredstvo usklađivanja, konkurentnosti i društvene kohezije u EU, Izvještaj
za Hrvatsku.
Weihrich, H. & Koontz, H. (1994). Menedžment, Mate, Zagreb
www. hgk.hr Access:(12-01-2011)
http://www.manager.hr/defaul.asp?ru=111&gl=200511010000003&sid=&jezi
k=1 Access: (15- 12- 2010)
http://filaks.hr/index.php?option=com_content&task=view&id=25&Itemid=36
Access: (17- 12-2010.)
http://filaks.hr/index.php?option=com_content&task=view&id=25&Itemid=72
Access: (10-1-2011.)
http://www.poslovniforum.hr/agenda/prijedlog_inicijativa.asp
2010.)

Pristup:

(10-4-

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Mane Medić • Igor Medić • Mladen Pancić

MARKETING DETERMINANTS OF BRAND
Prof.dr.sc. Mane Medić
Faculty of Economy in Osijek
31000 Osijek, Gajev trg 7, Hrvatska
Phone: +385 91 2244-047 Fax: +385 31 224-408
E-mail address:mmedic@efos.hr
Mr.sc. Igor Medić
GPP d.o.o. Osijek, Faculty of Economy in Osijek
31000 Osijek, Gajev trg 7, Hrvatska
Phone: +385 99 206-4252 Fax: +385 31 224-408
E-mail address:igor.medic@gmail.com
Mladen Pancić, dipl.oec.
Faculty of Economy in Osijek
31000 Osijek, Gajev trg 7, Hrvatska
Phone: +385 91 2244-092 Fax: +385 31 224-408
E-mail address:pancic@efos.hr

Abstract

Stemming from the new marketing paradigm, i.e. placing the emphasis in the
marketing campaign on the customer preference, the customer’s comprehension of
products and services which satisfy their needs is placed foremost.
Therefore, the notions of product, trademark, mark and brand are considered
and contrasted in the paper, i.e. the most common meanings of the aforementioned notions in the domestic and foreign literature are given.
Up until today, marketing has mainly been based on the product quality, trademark development and brand creation. The contemporary marketing starts more
frequently from brand creation, which is then added the characteristics of trademark, mark and product.
This paper is based on the conventional marketing theory postulates, those being the consumer’s needs and desires that must be satisfied, as well as stimulated by

MARKETING DETERMINANTS OF BRAND

87

the experiential and emotional aspect of the consumer-brand relationship viewed
through tendencies, lifestyle and motives governing the contemporary society.
Theoreticians’ marketing definitions review leads us to the conclusion that all
mainly abide, with minor modifications, by the American Marketing Association
definition from the beginning of the 1960s in which the mark treatment is too
static and represented as the mere recognition device, whereas the contemporary
life talks of strategists’ aspiration in mark specificity, superiority and value creation,
as well as consumer identity and relationship creation.
Today, brands are owned by their manufacturers, whereas in the future they
will more frequently be owned by the consumers. The aforementioned statement
reminds us of the Walter Landor quote: Products are created in the factory, but brands
are created in the mind.
The majority of marketing theoreticians conclude their research with the mark;
something the authors of this paper are not satisfied with, but rather point to the
brand features as the foundations in defining marketing activity of contemporary
conceived companies.
JEL classification: M31, M37
Key words: new marketing paradigm, mark, trademark, brand, branding
Introduction

Stemming from the new marketing paradigm, i.e. placing the emphasis in the
marketing campaign on the customer preference, the customer’s comprehension of
products and services which satisfy their needs is placed foremost.
Therefore, the notions of product, mark and brand are considered and contrasted in the paper, i.e. the most common meanings of the aforementioned notions in
the domestic and foreign literature are given.
In the general atmosphere of Anglicisation not only of the marketing but other
areas as well, the term brand is used more frequent as a synonym of the term mark,
which, being the baseline of this paper, we cannot agree with.
Up until today, marketing has mainly been based on the product quality, trade
mark development and brand creation. The contemporary marketing starts more
frequently from brand creation, which is then added the characteristics of trademark, mark and product.

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Mane Medić • Igor Medić • Mladen Pancić

This paper is based on the conventional marketing theory postulates, those being the consumer’s needs and desires that must be satisfied, as well as stimulated by
the experiential and emotional aspect of the consumer-brand relationship viewed
through tendencies, lifestyle and motives governing the contemporary society.
Term definitions and controversies

Kotler and Keller believe that marks exist for centuries as means of individual
producers’ goods diversification. The earliest signs of mark creation in Europe appear in the Middle Ages when the guilds demanded that the artisans mark their
products with trademarks in order to protect themselves and the customers form
the lower quality products (Kotler & Keller; 2008, 274).
Consequently, the authors believe that “the brands also represent a certain
quality levels which simplify the satisfied customer’s repeated purchase” (Erdem;
1998, 131-157). Mark loyalty provides the company with anticipated demand
security and creates obstacles inhibiting other companies in entering the market
(Kotler & Keller; 2008, 275). Consequently, it may be inferred that the mark is
the element which creates a loyal customer faithful to certain marks.
Pavlek’s historical view of the mark’s role is that “in the past, the mark was
considered first and foremost, a product or service identification means which
guaranteed the promised performance or, so called, functional quality by the
manufacturer or the owner (Pavlek; 2008, 89).
We will begin the mark definitions review with Meler (2005, 278), whose
mark definition has foundations in Kotler’s mark definition. By stating that the
mark serves the purpose of product identification, it places it with other advertising and promotion components, such as the economic agent title, trade mark
and mascot, façade colour and style.
Kesić (2003, 116) accepts the Aaker, D. A., Mayers mark definition stating
that mark is “exclusive name and/or symbol (like logo, trademark or package
design) intended to identify products and services of an individual seller and
differentiate them from competition“.
Previšić et.al. (2001, 297) define mark similar to the aforementioned authors
and state that a mark is a name, sign, symbol, form or their combination enabling
the diversification of a single product (producer, country) from many others.

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89

Ružić et al. (2002, 118) identify the definitions of mark and brand and state
that “brand is a name, term, sign, symbol, design or combination of all of the
above, the purpose of which is to identify product and/or service of an individual
manufacturer or seller towards other participants in the market.“
Theoreticians’ marketing definitions review leads us to the conclusion that all
mainly abide, with minor modifications, by the American Marketing Association
definition from the beginning of the 1960s in which the mark treatment is too
static and represented as the mere recognition device, whereas the contemporary
life talks of strategists’ aspiration in mark specificity, superiority and value creation,
as well as consumer identity and relationship creation. (Pavlek, 2005, 100)
Subsequent to the previously stated in relation to mark definition through contemporary references, we consider it important to emphasize that the only two
authors who do not refer to the modified AMA definition are Vranešević in his
book Mark Management (Upravljanje markama) and Pavlek in his book Branding
– how to construct the best mark (Branding - kako izgraditi najbolju marku). Although Vranešević continues to use the term mark in his paper, he does not refer to
the 1960s term at all but rather to the contemporary mark. Under the term mark,
Vranešević understands the title, symbols and all sensory perceptible stimuli related
to product and service features, as well as their functional or psychological utility
(Vranešević, 2007, 10), also providing the definition stating that “the mark is the
sum of all mental association people have as response to surroundings stimuli or in
short term, their attitude towards the product (Vranešević, 2007, 11). The above
definitions tell us that for proper definition of a complex term such as the mark,
one must consider tangible and intangible values.
While Pavlek successfully flirts throughout his book with terms mark, brand
and branding, where the aforementioned terms are sometimes used synonymously
and in other instances a great distinction is made, however unargumentatively,
unclearly, without providing a clear distinction between the terms mark, contemporary mark, trademark, brand and branding.
The proposed definitions of mark streaming from the AMA mark definition “do
not reflect contemporary consumer-mark and company-mark relations” (Pavlek,
2008, 120). The above features are actually trademark, whereas the sign R represents a registered trademark.
A new connection is required because contemporary marketing demands a
new category of a mark that no longer satisfies the consumer needs and desires,

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Mane Medić • Igor Medić • Mladen Pancić

but rather creates emotional links to the consumer streaming from contemporary
mark-consumer relationship.
The Contemporary mark includes a significantly broader number of values
than it is the case with the “classical” mark, trademark or product. The contemporary mark is significantly more than that which can be registered and makes up
the system of elements and activity affecting the diversification, affection, loyalty,
connectedness, adornment of product on the part of the client. The clients are prepared to pay a larger price for such a mark rather than for an identical unbranded
(unmarked) product; or they are more likely to purchase a branded rather than
unbranded product (Vranešević, 2007, 15). The manner in which the consumer
senses a mark becomes the key element of its diversity and subsequently a valuable
intangible company asset.
Mark treatment and creation has been in synced with the time and trends. At
that period, the mark was considered a feature of diversification, while the relationship towards the mark today has become ever so dynamic that even many authors
dealing with marketing cannot follow up (Pavlek, 2008, 120).
Today, mark has its own equity which is more related to psychological than it is
to functional added value. If we are to honestly answer the following questions: Is
a Rolex more accurate than a Citizen? Is the structure of a Mercedes of a superior
quality if compared to that of a Toyota? Is Pasta Barilla better than any other pasta?,
we come to a conclusion that as far as the technical, palpable, objective and other
similar features are concerned, there are not as many differences as consumers and
customers want to see. The basic distinction is primarily on the level of perception,
the level of additional features offered by the product we are emotionally attached
to, we believe in, we trust to and we live with. Such an attitude towards the products
demands also an the individual product-consumer relationship that is no longer
satisfied by the classical understanding of a mark as a basic means of distinction but
the contemporary mark concept based on a belief, emotions and perception of the
very mark dependant on our experience, impressions and attitudes. The contemporary approach to the mark definition the term “brand” is used more frequently in
order to express the dynamic of the consumer relations, and trademark is associated
with the classical approach of feature identification (Pavlek, 2006).
Brand is not represented by a distinction mark. Rather, it is a cluster of values
that need to be displayed. Should that not be the case, then a brand is nothing more
but a name of some well promoted product and one that is bound to fail at the
reaching its final destination – the consumer (Predović, 2007., 13).

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91

Brand represents a group of tangible and intangible product or service features.
Tangible features include a logo, specific colour, package shape (Kirin; 2006) and
all other elements making up the advertising constants of a certain mark. When
we talk about intangible elements, we primarily refer to the sum of the consumer’s
irrational attitudes; emotions, associations and certain values developed by the consumer towards a brand that become evident through consumer-brand interaction.
It is the intangible part that is special and unique because one can feel indifference
towards a brand, one may fall in love with a brand, envy it, despise it, laugh at it,
admire it, depend on it, copy it, identify with it, be bored by it, be afraid of it, avoid
it, be proud of it, adore it... (Kirin; 2006); this includes many other features making up a very clear distinction between a mark, unable to do any of the above, and
a brand that is capable for all of the above.
Everything can be a brand and everyone wants to become a brand. A brand
can be soap, a brick, salt, coffee, a newspaper, a beach, shoes, a person, a band, a
city, the government, a state; because all of the aforementioned have their own socalled functional qualities (structure, equipment, characteristics, purpose, appearance, duration…), but may entail emotional connectedness (our attitudes, habits,
first impressions, the manner of conduct) that make them a different and a unique
brand. Also, according to Shaun Smith, a brand represents a promise that must
be fulfilled in every part of the process beginning with asserted product quality,
which is then upgraded by good service and is finally acknowledged through the
consumer’s experience and attitudes created towards a product (http://www.suvremena.hr/10557.aspx).
In a contemporary environment, a brand becomes the highest equity of a company. However, “unfortunately, our written discourse, practice and profession are
still far from the contemporary events occurring in the field globally.”1 By following
the contemporary trends in brand development, the managers of many multinational companies are trying to create and maintain a strong brand which is especially well thought through.
The consumers’ attitudes towards brand is best described and depicted by
Arnold:2 if you were to ask a consumer about a branded product, they will not
1

Pavlek, Z.: Suvremeni brand management (1),
12.02.2007.)

http://www.suvremena.hr/528.aspx (accessed

Pavlek, Z.: Suvremeni brand management (1), http://www.suvremena.hr/528.aspx (accessed
12.02.2007.)

2

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Mane Medić • Igor Medić • Mladen Pancić

mark it with a symbol, design and similar terms, but will rather use adjectives describing the brand quality. Brand is recognized and “understood” on an emotional
level and in such a way that many of its founders would be amazed. Davis3 adds
that: in general, the consumers do not have a relationship to a product or a service;
they want to have a relationship to a brand. For them, brand is a set of promises.
That includes trust, consistency and a set of expectations.
From all of the above it may be inferred that brand, as well as branding, is a
comprehensive process that does not only include labelling, titles or even quality per se, but rather a complete experience that a certain product stimulates in
the consumer’s consciousness. We are dealing here with an emotional relationship
based on quality, appearance and total identity of a product, which is finally formed
only in the human consciousness...4
Various brand value research indicates the superiority of the brand to the
mark, i.e. trademark; that is, its higher level because there is not a single mark
(name, design…) that can measure the emotions and beliefs offered by the
brand. Similarly, Kotler claims that the brand equity measure represents the
level up to which the client is willing to pay more for a brand. That is substantiated by the research results according to which 72% of clients would pay 20%
higher price for their chosen brand (Kotler; 2006, 556). The higher price of
an ordinary generic product based on a brand is justified through rational and
emotional added value felt by the company employees and clients towards the
brand.
In place of conclusion

Presently, brands are owned by their manufacturers, while “in the future they
will mainly be owned by the consumers”. During the 1990s, brands achieved great
significance which resulted in brand based sales. Brand achieved greater importance
than the physical dimensions of a product. Brand names started to appear on linen
and toothbrushes, on wallpapers and cosmetic products. Not counting the books
and movies, the consumer has become attached more to the brand than to the story
(Lindstrom; 2009, 13).

3

Pavlek, Z.: Suvremeni brand management (1), http://www.suvremena.hr/528.aspx (accessed
12.02.2007.)
4
http://www.suvremena.hr/10341.aspx (accessed 15.10.2009.)

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93

The aforementioned is best acknowledged by Walter Landor „The products are
made in factories, but brands are created in minds” (Lindstrom; 2009, 13).
In the last couple of years, the domestic marketing experts seem to diverge in
claiming whether the terms “mark” and “brand” are synonymous or whether they
signify different notions. While some claim that the term “marka” represents a
translation of the English word “brand”, because despite the diversity of the Croatian language, it does contain a large number of foreign words. The term “branding” (Cro. “brandiranje”) corroborates this statement, because there is no adequate
translation; one possibility being “stvaranje marke” (“mark creation”). One of the
more precise definitions has been given by Pavlek in his book „Branding“, where
he claims: branding is a complex process of identity creation, diversity and mark
idea feature, its relevance for the consumers and signal management which communicates the idea to the consumers in order to make them feel, experience and
accept (Pavlek, 2008, 121). However, recently we are witnesses to the practice of
superimposing the term “brand” to the term “marka”, with what the authors of this
paper agree to an extent at the same time emphasizing the superiority of brand in
relation to mark through all its fundamental features; the basic one being belief.
Bibliography

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Kesić, T. (2003) Integrirana marketinška komunikacija, Opinio, Zagreb
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Lindstrom, M. (2009.): Brand Sense, M.E.P., Zagreb.
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ROADMAPPING AS A TOOL FOR NEW PRODUCT INTRODUCTION NPI ILLUSTRATED ...

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ROADMAPPING AS A TOOL FOR NEW PRODUCT
INTRODUCTION NPI ILLUSTRATED BY THE EXAMPLE OF
THE SEMICONDUCTOR INDUSTRY
Gerd Grau
Master student, Department of Engineering, University of Cambridge, Trumpington Street, Cambridge CB2 1PZ, UK. From fall 2011 PhD student, Department of Electrical Engineering and Computer
Science, University of California, Berkeley, Berkeley, CA 94720, USA.
Email: gerd_grau@gmx.de

Abstract

When considering New Product Introduction (NPI), one has to analyse very
different activities ranging from strategic decisions down to the implementation
on the project and work package level. This makes it such a challenging and complex process. This article summarises some of the techniques that can be used in
NPI projects highlighting difficulties such as the fact that customers often cannot
anticipate a truly innovative product that does not exist yet. Roadmapping is one
technique for strategic NPI. This is analysed in detail taking the semiconductor
industry as an example. The International Technology Roadmap for Semiconductors (ITRS) has been instrumental in sustaining the growth of the semiconductor
industry over the last decades according to Moore’s Law. Competitors come together to formulate the aims of the whole industry since they all benefit from the
health of the industry and standardised equipment. However, one could also see
the ITRS more critically as a gate-keeper for established companies. With classical CMOS reaching its limits “More-than-Moore” (MtM) could become the new
paradigm in addition to “More Moore”. Whether a similar Roadmapping success
will be possible is discussed using five criteria, which are not only interesting for the
semiconductor industry but for any other industry that considers such a roadmapping exercise.
JEL Classification: M51, L21
Keywords: semiconductor industry, roadmapping, product introduction

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1 INTRODUCTION

New Product Introduction (NPI) is a very challenging and complex process. It
consists of a large number of individual activities or steps that need to be mastered.
However, these activities also need to be coordinated and the work of different experts needs to be brought together to create a technically and economically successful product. Two main levels can be differentiated: Strategic planning and practical
implementation of these strategic goals. The first step has to be the identification of
possible future technologies and markets and a strategic decision about which technology paths to pursue. The resulting engineering, manufacturing, marketing, sales
and service work needs to be managed to meet cost, time, quality or other goals.
This process is often iterative, even though engineers would often like to think in
more linear terms. This report will describe the main challenges and techniques
used to control these two levels. In some cases individual companies’ research strategies also depend on the industry they operate in. The semiconductor industry
is taken to explore a very successful example of industry wide roadmapping. The
International Technology Roadmap for Semiconductors (ITRS) was crucial in following Moore’s Law for the past decades. However, fundamental limits are being
reached at the moment and there are plans to integrate non-digital devices with
standard CMOS circuits. This makes it a very interesting and challenging case of
technology management at the moment.
2 ISSUES AND METHODS FOR NPI
2.1 Strategic Planning

The question that has to be asked at the beginning of any NPI process is: ‘What
kind of product will be introduced?’ This immediately relates to questions such as
‘Is there a market for a certain product?’, ‘What kind of technology shall we use?’,
‘Do we have the capability to pursue this technology or how can we acquire it?’.
There is a myriad of variables that will determine the answers to these and other
questions. Decisions will be different in large corporations and in small start-ups,
in mature and in emerging markets or for investment intensive technologies and
for technologies that require less initial investment. It is therefore very difficult to
have any generic answers. The other main problem with strategic planning is the
fact that predictions of the future are required. This is naturally a process with a
large degree of uncertainty. There are some general methods to help managers with
these difficult decisions.

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Fig 1 S-curves for different lithography technologies in semiconductor processing (Bowden 2004)
The performance evolution of many technologies follows an s-curve trend. They
initially take some time to take off during which performance improves only slowly.
Once a certain critical mass is reached some rapid progress can be made. This
slows down as a product matures and technical or fundamental physical limits are
reached. At this point another technology might take over. Fig 1 shows a set of
s-curves for different lithography technologies for semiconductor fabrication. It is
very important for managers to know that this general trend exists. The main challenge is to know which part of the s-curve a technology is on. Switching to a new
technology makes most sense shortly before the take-off of the new technology and
when the old technology is sufficiently matured. In investment intensive industries
companies will try to extend the lifetime of a technology for as long as possible to
reduce the need for reinvestment. It is thus crucial to know whether a technology
has really reached its fundamental limits or whether the limit reached is merely of
an engineering nature that can be overcome.
One way of anticipating the evolution of a technology is roadmapping. Experts
on a technology come together to predict how this technology will change in the
future. They consider different possibilities and try to identify the most likely outcomes. They determine the necessary technological advances that need to be made
to reach a certain goal. Ideally this should map out the technological path a com-

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pany is going to take in the future. There is of course still considerable uncertainty
in this process. Breakthroughs in fundamental research can always occur that prove
a previously insurmountable technological barrier to be a mere engineering challenge. Equally likely previously unknown physical limits can halt progress. These
uncertainties can only be minimised by trying to get the best expertise possible.
Roadmapping has been employed in a wide variety of sectors ranging from semiconductors (ITRS 2009) to construction (PATH 2003).
Besides the uncertainty associated with technology and the underlying science
there is considerable uncertainty associated with the market. It is crucial for a company to not only create an innovative product but also to make a profit from it.
If there is no market for a product, the producing company will have a severe
problem. How well the market for a new product can be predicted depends to a
large extent on the degree of innovation. For only incremental innovations market
trends can be extrapolated from the past. This cannot be done with radically new
products where there is no previous experience to build on. Market experts can still
be asked for their evaluation of the new market, but it gets less reliable the more innovative the new product. The classical solution is market research – simply asking
the potential customers about a future product. However, customers cannot always
anticipate a product that does not exist yet. In such cases managers have to rely on
all the information they have got and ultimately their judgement. This will separate
mediocre from truly great, visionary companies. A case where major corporations
such as GE, IBM, Kodak and RCA failed at this was the photocopier. They could
not imagine that this technology, which was in its infancy, would be able to replace
carbon copying (Gehani 1998, p.92).
However, even if a potential market has been identified and if the technology seems to be in reach, there are still plenty of strategic decisions to be made.
An important question is whether a company wants to lead the market or rather
follow the innovator. This decision mainly depends on the potential benefits for
innovators and the associated risks. Threshold and network effects can mean that
it will be much easier for the innovator to increase its market share than for followers. Intellectual property can also give the innovator a crucial advantage. However,
these benefits can be outweighed by a high degree of risk, in which case it can be
sensible to wait and learn from the innovator’s mistakes. The larger and financially
stronger a company, the easier it will be to catch up with a smaller start-up. Such
large corporations can adopt a more conservative approach. For example Texas Instruments and Hewlett Packard were able to push into the pocket calculator market

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that had just been started by the small specialist company Bowmar/ALI Inc (Teece
1986, p.286).
2.2. Practical Implementation

Fig 2 Triangle of conflicting project aims: Cost, quality, time (Lock 2007, p.21)
In addition to the difficult strategic decisions on whether, how and when to
pursue a new technology the implementation of these decisions is also crucial. In
the UK only 23% of all new products in 1993 were introduced on time (The 1993
Manufacturing attitude survey). This shows how difficult it is to perform a NPI
project to specification. The other main project performance criteria are quality and
cost. Unfortunately these three targets are conflicting and a compromise needs to
be found (see Fig 2). In order to optimise the project outcome there are a number
of well established project management practices. The project work is first broken
down into tasks, work packages and activities (Caupin et al. 2006, p.56). Network
diagrams (e.g. PERT diagram) are then used to evaluate the dependencies between
work packages and to create a preliminary schedule (Richman 2006, p.89 ff.). Real
time and resource constraints then need to be taken into account. A responsibility
matrix can be used to assign work packages to people or positions in the organisation (Motzel 2006, p.215). This is a very simplified description of the real project
management process. The real process usually isn’t linear but iterative.

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NPI projects utilise the above methods just as any other project. However, there
are also more specific problems and solutions. One challenge in NPI projects is that
a variety of different departments are involved ranging from marketing over basic research and development to sales and service. Good communication between
these different experts is crucial. Everyone needs to be aware of the consequences
of his decisions for the work of the others. It is important to have good communication not only when the product moves from one sub team to the next but also
throughout the project until after launch. Cross-functional, co-located teams serve
this purpose. This is ideally embraced by top management and the culture of the
organisation. Project managers should have knowledge of as many of the project’s
aspects as possible. Ideally they should have had training in both engineering and
business aspects.
Another problem of NPI is the associated uncertainty. Projects often start with
a number of different ideas that need to be narrowed down and concretised as the
project goes along. The stage-gate process can be utilised to ensure this. The project is divided into several different phases. At the end of each phase it is checked
whether the project team has completed the phase as planned. This check needs to
be performed by outsiders who are not members of the project, ideally members
of the top management. It has to be ensured that this process is not merely seen as
a compulsory exercise without any real benefit for the project (Tennant & Roberts
2001). There are other techniques for the NPI project such as control of the fuzzy
front end or having a process improvement team (PIT) that cannot be explored in
detail here due to space constraints. Energex is an example of a company with a
working NPI process utilising these different concepts including cross-functional
teams and stage gates (Mahadevan 2010, p.204 f.).
3 EXAMPLE FOR INDUSTRY WIDE ROADMAPPING: SEMICONDUCTOR IN
DUSTRY

The semiconductor industry is one of the most successful industries at the above
described technology forecasting and research planning – not only on a company
but also on an industry wide level. They have managed to follow Moore’s Law for
the last decades. This is a remarkable achievement. In 1965 Gordon Moore predicted that the “number of components per integrated function” would increase
exponentially for digital applications (Moore 1965). This ‘Law’ was initially only
an extrapolation of an empirical trend. The reasons for the persistence of this trend
and the potential future of it are explored here drawing mainly from two sources

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– the latest International Technology Roadmap for Semiconductors (ITRS 2009)
and the “More-than-Moore” White Paper (Arden et al. n.d.).
3.1 Successes in the Past

One of the key factors in maintaining Moore’s Law for such a long period is the
ITRS. It goes back to the first US National Technology Roadmap for Semiconductors (NTRS) in 1992. Nowadays it is sponsored by the leading chip manufacturers
of the world via their regional organisations. This is coordinated by the International Roadmap Committee (IRC). As semiconductor performance increased exponentially so did the required investment and technical complexity. In terms of
s-curves this could have resulted in an eventual levelling off. The NTRS and later
the ITRS were a successful attempt to prevent this. The necessary research goals
and technological steps to continue Moore’s Law were laid out. The character of
this was that of a challenge for the involved engineers to find the necessary solutions. It helped focus the research funds of industry, government agencies and universities on the most important problems. It contained different confidence levels
for the viability of different potential solutions to any problem. However, overall
confidence in the success of the industry was immense. Moore’s Law thus became
a self-fulfilling prophecy. It led to the ITRS, which in turn led to the continuation
of Moore’s Law.
A remarkable feature of the ITRS is its industry wide scope. Competitors come
together to formulate the aims of the whole industry. Companies realised that they
profit individually from the health of the ‘ecosystem’ that they operate in. There is
still plenty of competition between individual companies on how their integrated
circuits are used and on detailed technological solutions. The ITRS considers a
timeframe of 15 years. This gives everyone in the industry including suppliers of
manufacturing equipment planning security for their R&D investments.
A more critical view of the ITRS would see gate-keeping as one of its main functions. Disruptive technologies are not embraced to protect the current main stream
technology (Walsh 2004). This is always the case for any standard. Those setting
the standard will try to limit it to their own solution. This is only natural and the
outcome has been very beneficial for the whole semiconductor industry. However,
now that limits of traditional scaling are being reached, more disruptive solutions
are also considered.

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3.2 Emerging Challenges

Traditional Moore’s Law scaling was a rather one-dimensional process. The goal
of every technology node was the miniaturisation of a critical dimension such as
the transistor gate length. This increases density and speed and saves power. Unfortunately pure geometrical scaling becomes increasingly difficult. Fundamental
limits are being reached. For example silicon dioxide as the gate dielectric becomes
too thin to prevent electrons from tunnelling through it into the channel. These
problems can be solved to a certain extent by so-called equivalent scaling. Geometry and material changes can have the same effect in terms of performance increase
as classical scaling without the decrease in a critical dimension. The most recent
versions of the ITRS have thus abandoned the concept of a technology node. There
are now more parameters than just a critical dimension to describe a new technology generation. Future generations of digital circuits might also change more
radically replacing classical complementary metal–oxide–semiconductor (CMOS)
technology with concepts such as spin as the new state variable. This paragraph
shows how difficult it is to discuss technology management without a fundamental
understanding of the technology, because technical issues are always one of the key
drivers and it can get very technical very quickly. A good introduction to the topic
can be found in (Streetman & Banerjee 2005).
These technological changes don’t only change the focus of the roadmap but
also create interesting business questions. A number of different CMOS generations exist nowadays. Migrating from one to the next involves considerable investment. This is done as soon as possible for high performance products such as
computer processors. However, the increased cost might not be justified for less
demanding products. For an individual company this is just a question of return on
investment as with any other investment. However, this has consequences for suppliers and equipment manufacturers as well. They need to support technology at
the leading and the trailing edge and anywhere in between. A similar problem is the
migration to a larger size of wafers. Companies are currently considering the move
from 300mm to 450mm wafers. This is necessary to reduce production cost and
cycle time significantly. However, the required investments are reaching staggering
dimensions. For the last transition to 300mm wafers only investments of around
$4 billion resulted in fabrication plants large enough to create the anticipated productivity gains. The next transition will require even larger investments. Another
problem is the long lead time needed between the decision to start work on a next
generation of wafer size and the start of production. This took seven years for the

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last transition. Increasing coordination between different chip manufacturers and
equipment suppliers is required to ensure that the transition occurs at the right moment in time for all companies involved. The last transition saw the introduction
of industry wide standards for some equipment. It will be interesting to see what
kind of new technology management solutions will be found by the industry for
the 450mm migration.
3.3 Generalisation of Roadmap to a New Paradigm: “More-than-Moore”

Because of the increasing difficulties with traditional “More Moore” and advances in other fields a new paradigm is being investigated by the semiconductor community: “More-than-Moore” (MtM). This encompasses the integration of
not only digital circuits, which are the focus of “More Moore”, on semiconductor
chips but also other applications such as analogue circuits, biochips or microelectromechanical systems (MEMS). These different devices don’t compete but rather
complement each other. CMOS acts as the ‘brain’ of the chip whilst the MtM
components provide interfaces to the outside world or other functions not possible
with pure CMOS. There is also considerable interest in micron scale technologies
that utilize fabrication techniques very different from standard silicon processing
and that have a very different cost structure such as printed electronics. The most
interesting question regarding MtM – apart from the technical viability – is whether a similar roadmapping success will be possible as for CMOS. The IRC “Morethan-Moore” White Paper (Arden et al. n.d.) identifies five criteria for a successful
industry wide roadmap. This is not only interesting for the semiconductor industry
but for any other industry that considers such a roadmapping exercise:
- The first criterion is the existence of a clear “figure of merit”. The whole
roadmap is aimed at optimising some figure of merit. For digital circuits feature
size was accepted by everyone in the industry as the key driver for higher transistor
densities, lower power consumption and lower cost. Different MtM devices with
different functionalities will have different figures of merit. The industry first needs
to agree on the specifications for these different figures of merit before any roadmapping process can begin.
- The second criterion is the industry wide agreement on a “law of expected
progress”. Moore’s Law is the widely accepted trend that everyone in the semiconductor has confidence in. Such a general overarching trend is more difficult to find
if different applications require different trends. For example different sensor appli-

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cation could emphasise either sensitivity or speed. Digital circuits are also used in
very different applications, but Moore’s Law covers the requirements of all of these
different applications.
- A “wide applicability of the technology” is the third criterion. The effort
of the roadmapping process is only justifiable for big enough markets. The key to
creating an industry of comparable size to the traditional semiconductor industry
is the identification of functionalities that are shared between different markets and
applications so that the same device can be re-used and considerable effort can be
put into optimising it. This has been a major factor in making the global semiconductor industry a $226 billion sales industry in 2009 (Semiconductor Industry
Association 2010).
- Fourthly there needs to be a “willingness to share” information. Companies
have to believe that the benefits will outweigh the lost advantage of secret information. There still has to be room for competition apart from the common ground
agreed on in the roadmap. The ITRS achieves this balance by agreeing on the
common goal of miniaturisation and rough paths to achieve it. Detailed processes,
however, are well kept trade secrets. Companies also build integrated circuits for
very different applications and have different business models. For instance ARM
and Intel both sell processors, but for different ends of the cost, performance and
mobility spectrum. Intel invests huge sums into its fabrication plants whilst ARM
is a fabless semiconductor company outsourcing production.
- The last requirement is an “existing community”. There needs to be an awareness of the other players in the area to initiate the roadmapping process. This can
be a problem especially if a diverse set of markets is targeted by different companies
that still provide a similar functionality. Personal contacts and trust are very helpful
in establishing any form of cooperation between competing companies.
These five criteria now need to be applied to potential devices and functionalities to evaluate where a roadmapping exercise makes sense. The latest ITRS already
contains a section on “Radio Frequency and Analogue-Mixed Signal Technologies
for Wireless Communications”. It will be interesting to see how many other areas
will follow and whether the semiconductor industry will be able to repeat its past
successes or whether this was a unique stroke of luck in the history of technology
management.

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4 CONCLUSIONS

New product introduction is such a challenging process because of its wide
scope. It spans very different activities from strategic decisions down to the implementation on the project and work package level. Each individual level is challenging but they need to be brought together to make a new product successful. This
report investigated a number of problems met in NPI processes and methods for
solving them.
The example of the semiconductor industry was taken to explore one aspect of
NPI processes in detail: strategic technology forecasting on an industry wide level.
The International Technology Roadmap for Semiconductors was identified as a
major success factor in sustaining Moore’s Law for decades. Current challenges
and new opportunities in the “More-than-Moore” regime were discussed. It will
be exciting to see how the semiconductor industry copes with these challenges and
whether its successes with classic “More Moore” can be repeated.
References

Arden, W. et al. eds., “More-than-Moore” White Paper. Available at: http://www.
itrs.net/Links/2010ITRS/IRC-ITRS-MtM-v2%203.pdf.
Bowden, M.J., 2004. Moore’s Law and the Technology S-Curve. Current Issues in
Technology Management, Stevens Alliance for Technology Management, 8(1).
Caupin, G. et al. eds., 2006. ICB IPMA Competence Baseline Version 3.0, Nijkerk
NL: International Project Management Association.
Gehani, R.R., 1998. Management of Technology and Operations, John Wiley &
Sons.
ITRS. International Technology Roadmap for Semiconductors, 2009 ed. Available
at: http://www.itrs.net/Links/2009ITRS/Home2009.htm.
Lock, D., 2007. Project Management 9th ed., Aldershot: Gower Publishing
Limited.
Mahadevan, B., 2010. Operations Management: Theory and Practice 2nd ed., Pearson India.
Moore, G., 1965. Cramming More Components onto Integrated Circuits. Electronics, 38(8), pp.114-117; reproduced in Proceedings of the IEEE, 86, 82-85
(1998).

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Motzel, E., 2006. Projektmanagement Lexikon 1st ed., Weinheim: Wiley-VCH.
PATH, 2003. Technology Roadmapping for Manufactured Housing. Available at:
http://www.pathnet.org/sp.asp?id=7351.
Richman, L., 2006. Improving Your Project Management Skills, New York: American Management Association.
Semiconductor Industry Association, 2010. Industry Fact Sheet. Available at:
http://www.sia-online.org/cs/industry_resources/industry_fact_sheet
[Accessed
January 5, 2011].
Streetman, B. & Banerjee, S., 2005. Solid State Electronic Devices 6th ed., Prentice
Hall.
Teece, D.J., 1986. Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy. Research Policy, 15(6), pp.285305.
Tennant, C. & Roberts, P., 2001. A faster way to create better quality products.
International Journal of Project Management, 19(6), pp.353-362.
The 1993 Manufacturing attitude survey. Management Summary, Initiated by
Computervision, Undertaken by Benchmark Research, January 1993 (As cited in
Tennant & Roberts 2001).

Walsh, S.T., 2004. Roadmapping a disruptive technology: A case study: The
emerging microsystems and top-down nanosystems industry. Technological Forecasting and Social Change, 71(1-2), pp.161-185.

HOW DO VENTURE CAPITALISTS EVALUATE NEW MEDICAL TECHNOLOGY VENTURES?

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HOW DO VENTURE CAPITALISTS EVALUATE NEW MEDICAL
TECHNOLOGY VENTURES?
A PROCESS AND ACTIVITY BASED APPROACH
Sonja Keppler and Timo Keppler
Comenius University Bratislava, Faculty of Management

Abstract

Venture capital decision-making has been in the focus of researchers since the
1970s, but mainly focused on decision-making criteria applied by venture capitalists. So far, only few researchers tried to investigate the decision process and activities performed by venture capitalists to evaluate new ventures. There is also a lack of
research taking into account the industry focus of venture capitalists and investigating the evaluation of new ventures belonging to a certain industry.
JEL classification: G24
Keywords: Venture capital, decision making, distinct investment process, deal
generation, screening , evaluation, cashing out or exit.
Introduction

Venture capitalists (VCs) are specialized financial intermediaries allocating funds
to mostly young, growing companies that have developed new and outstanding
technologies or business models promising fast growth and high returns. VCs have
to make their investment decisions under a high degree of uncertainty. Technology
start-ups are difficult to evaluate since they do not have a track record, which outsiders can use to evaluate their potential, they are often years away from revenues,
their assets are mostly intangible and they are plagued by a high failure rate (Haeussler et al.; 2009, p. 4). VCs therefore spend a great deal of effort and time in assessing a ventures’ potential for success. They apply a set of specific criteria that need to
be fulfilled by a venture, and use sequential steps in their investment process.
So far, researchers only identified generic criteria, activities, and investment
processes covering all industries (e.g. Tyebjee and Bruno 1984; Fried and Hisrich

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1994; Hall 1989; Silva 2004; Klonowski 2007), although criteria, activities and
processes might vary depending on the industry the fund-seeking company belongs
to. Industry-specific knowledge also seems to be crucial for successful VC investments (Gompers et al.; 2006, Norton and Tenenbaum; 1993). This research shall
help to identify industry-specific process steps and activities by analysing five case
studies of investment proposals from the medical technology industry that were
evaluated by a Swiss VC firm between 2008 and 2010. The medical technology
(“medtech”) industry is in the focus of many VCs as it has shown stable growth
rates in the past and is expected to grow continuously in the future, main reasons
being the demographic development of the population in highly developed societies, the improved medical treatment in emerging countries and the technological
progress allowing better treatment and diagnosis of diseases. This research starts
with deal origination and covers the decision process till the investment is made or
the deal is rejected. Post-investment activities and exit are not covered.
Research on the VC Investment Process

VCs apply a distinct investment process consisting of a number of stages (Wells;
1974; Tyebjee and Bruno; 1984, Hall; 1989, Fried and Hisrich; 1994, Boocock
and Woods; 1997, Bliss; 1999, Klonowski; 2007), ranging from a five-stage process (e.g. Tyebjee and Bruno; 1984, p. 1051) to a nine-stage process (Klonowski;
2007, p. 361). The investment process starts with the “deal origination” and ends
with the “closing” of the investment or the “exit”/“cashing out”, depending on the
researcher’s focus. The assessment of investment proposals comprises at least two
stages of the process: screening and evaluation / due diligence. The stages on which
the majority of the scholars are in agreement can be described as follows:
(1) Deal generation relates to establishing good sources of referrals that will
provide prospective investment opportunities. VCs are actively working on creating a network of referrers and make themselves known to companies through the
internet and membership in industry associations. A great number of deals are
received “cold”, i.e. without any introduction (Fried and Hisrich; 1994, p. 31).
(2) Screening involves a precursory review of an investment proposal. It involves a perusal of a proposal’s executive summary and/or business plan to determine whether a closer evaluation is worthwhile (Hudson and Evans; 2005, p.
3). Many VCs have firm-specific criteria on investment size, industries, in which

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they invest, geographic location of the company, and stage of financing1. Proposals
passing through the firm-specific screen undergo a generic screen based on the
reading of the business plan (Fried and Hisrich; 1994, p. 32). Most proposals are
rejected at this stage (Dixon, 1989, p. 339) without investing too much time. A
GO /NO-GO decision is reached in an average of less than six minutes on initial
screening and in less than 21 minutes on proposal assessment (Hall and Hofer;
1993, p. 25).
(3) Evaluation involves a greater scrutiny of the business plan, a detailed evaluation of the investment proposal and due diligence. However, VCs gather additional
information about the proposal, meet the management to develop a thorough understanding of the business and to assess the management’s understanding of the
industry. Furthermore, VCs check references of the management, contact existing
and potential customers and do formal market studies. A technology assessment is
either done by experts affiliated to the VCs or by the VCs themselves. Additional
sources of information are other VC firms (also in the context of syndication) and
existing portfolio companies active in the same industry as the fund-seeking company (Fried and Hisrich; 1994, p. 34). VCs maintain networks including other
VCs, university and research establishments, financial institutions and consultants,
which are frequently used as sounding boards for information produced by management teams. These are a rich source of relevant information and help reducing
uncertainty surrounding the proposal under evaluation (Sweeting; 1991, p. 613).
(4) Deal structuring and Closing occurs after the VC has decided to proceed
to invest in a company. It includes the valuation of the company determining the
VC’s equity stake in the company (Hudson and Evans;2005 ,p. 4). Usually, a Term
Sheet is presented to the entrepreneur, summarising the terms and conditions of
the deal. Conditions presented to the entrepreneur are designed to mitigate the
VC’s risk and to align the entrepreneur’s behaviour to the interests of the VC,
which are, overall, to increase the company value. One means of structuring is a
milestone-based payment of the funds, i.e. funding is not paid in a lump sum, but
is only released if the company achieves predetermined targets (Trezzini; 2005, p.
303). When the due diligence is successfully completed, the final investment contracts and the shareholders’ agreement are signed. This is referred to as “Closing”.

1
Stages of venture financing are usually referred to as seed, start-up and expansion phase, which is
divided into first and second stage (Schefczyk, 2004)

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(5) Post investment activities: include the VC’s involvement with its investee
company. This may include site visits, mentoring, monitoring, raising additional
capital, providing strategic advice and representation in the company’s board of
directors (Hudson and Evans; 2005, p. 4). VCs also provide their portfolio companies with organizational resources such as helping in building internal accounting
and reporting systems, key account management systems, and incentive schemes
(Achleitner and Fingerle, 2004, p. 14-15). VCs play an important role for the
development of the start-up firms, not only providing capital, but also support in
building up human resources and choosing a new CEO, even if this often means
that the founder of the company has to leave (Hellmann and Puri; 2000, p. 25).
(6) Cashing out or exit involves the VC divesting its investment to obtain an
economic gain. VCs play an active role in directing and assisting a company towards a merger, trade sale, initial public offering or other exit strategies (Hudson
and Evans; 2005, p. 4). One exit option has not been mentioned by any researcher,
but very often occurs in practice: If a company does not develop favourably, the
VC’s exit is to depreciate the investment if he/she does not see a chance to sell it to
make it develop successfully. According to data presented by the European Venture
Capital and Private Equity Association (EVCA), European VCs divested EUR 11.1
billion in 2009 – thereof EUR 4.0 were write-offs (EVCA; 2010, p. 76).
The investment process is time-consuming and labour intensive. It takes on
average 97.1 days (s.d. = 45.0) for an investment to pass through the process from
deal origination till closing. On average the lead investor for a funded proposal
spends 129.5 hours (s.d. = 99.8) (Fried and Hisrich; 1994, p. 31).
The strongest disagreement among scholars is on the process steps performed between the initial screening and the closing of the investment. Table 1 gives an overview on the process stages described in prior studies. Klonowski (2007) also includes
the documentation used, the approval process, and the VC firm’s decision bodies.
Research on VC Investment Criteria

Substantial research in the US has identified four main categories of information
that are crucial to the VCs investment decision: 1. Entrepreneur / team capabilities, 2.
Product / service attractiveness, 3. Market / competitive conditions, and 4. Potential
returns if the venture is successful (Poindexter ;1976, Tyebjee and Bruno; 1984, Mac-

111

HOW DO VENTURE CAPITALISTS EVALUATE NEW MEDICAL TECHNOLOGY VENTURES?

Millan et al.; 1985, Hall and Hofer; 1993, Bachher; 2000)2. Some studies researched
the decision process and the decision criteria, and found that criteria and their importance vary according to the stage of the decision process (Tyebjee and Bruno; 1984;
Fried and Hisrich; 1994; Sweeting; 1991; Boocock and Woods; 1997; Silva; 2004).

Table 1: The VC Evaluation Process
Tyebjee
& Bruno
(1984)
Deal
Origination

Silver
(1985)

Hall
(1989)
Generating a deal
flow
Proposal
Screening

Fried & Hisrich
(1994)

Boocock and
Woods (1997)

Bliss (1999)

Klonows-ki
(2007)

Origination

Generating a
Deal Flow

Origination

Deal Generation

Generic
Screen

Initial
Screening
Feedback from
Investment
Committee
(Due Diligence
Phase I)
Feedback
from Supervisory Board (DD
Phase I)
Pre-Approval
Completions
Formal Approvals and DD
Phase II
Deal
Completion

Process
Step

Wells
(1974)

1

Search

2

Screening

Screening

Initial
Screen

3

X

X

X

Proposal
Assessment

Generic Screen

4

Evaluation

Evaluation

X

Project
Evaluation

First-Phase
Evaluation

5

X

X

Due
Diligence

Second-Phase
Evaluation

Due Diligence

X

6

X

Deal
Structuring

Deal
Structuring

X

Deal
Structuring

X

7

X

X

X

X

Closing

X

Closing

Post
Investment
Activities

Monitor
Progress

Venture
operations

X

Ongoing
Monitoring of
Investments

X

Monitoring

X

Cashing
out

Cashing
out

X

Cashing Out

X

Exit

8

9

Venture
Board
meetings
Venture
Operations
Cashing
out

Search

Due
Diligence
Deal
Structuring

VC-Firm
Specific Screen

Initial
Screening
First Meeting
with the firm
Second Meeting with the
firm
Presentation
to the Board of
Directors

First-Phase
Evaluation
SecondPhase
Evaluation

Sources: Hall & Hofer 1993, Table 2, p. 28; Fried & Hisrich (1994); Boocock and Woods (1997); Bliss (1999); Klonowski (2007)

Methodology

The objective of this exploratory study was to gather information on the VC
decision-making process from a process perspective and to shed light on the ac2
For a detailed overview over all studies since the 1960ties on VC investment criteria, see Khanin et
al. (2008).

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Sonja Keppler • Timo Keppler

tivities performed by the VC when evaluating a medtech venture. Therefore five
case studies of medtech ventures evaluated between 2008 and 2010 were analyzed.
All cases were taken from a Swiss venture firm focusing on medtech ventures in
the market entry phase (first stage) in Switzerland and Germany. All cases were
evaluated in detail, two reached the due diligence phase, and one company finally
received funding.
One of the authors was a member of the investment team and had access to all
documents received and produced during the process, such as e.g. business plans,
investor presentations, and internal proposals to the investment committee. In addition, the author attended all meetings with the management, the investment
team and the investment committee and joined visits at the company. In all cases
the evaluation of the venture was done by the author herself. This methodology
may on the one hand be subject to a certain self-reporting bias, but on the other
hand, it allows insights into the process that could not be gained by any external
researcher.
The evaluation process itself had been defined by the VC’s investment team and
had been laid down in writing. Thus, the five case studies also followed this process. For the present research, in a first step, all written documentation (including
e-mail communication) was reviewed and sorted chronologically in order to allow
an assignment to a particular process step. Then the activities performed to generate this documentation (e.g. reports on visits on site, documentation of reference
calls) were assigned to the respective process step. In a second step, all documented
internal meetings and decisions were listed in chronological order to filter out decision criteria. The case studies were then compared with each other based on defined
categories (documentation received, activities performed, criteria used), and similarities and differences were identified for each process step.
Results and Discussion

The formal decision process to be applied for each proposal assessment had been
defined by the VC as follows:
1. Deal Origination
2. Screening
3. Evaluation

HOW DO VENTURE CAPITALISTS EVALUATE NEW MEDICAL TECHNOLOGY VENTURES?

113

4. Proposal to the investment committee (→ to reach a Go/No go decision of
the investment committee)
5. Due Diligence & Deal Structuring
6. Closing
Origination: Three out of five cases analyzed were obtained through referral or
by the VC’s active sourcing like e.g. attending of investors’ conferences where fundseeking companies presented themselves. In the screening phase, the VC reviewed
the documentation received, which was either an executive summary of the business case or a complete business plan, and had a telephone conversation with the
management on questions left open by the documentation. In one case, the VC
immediately got to know the management of the company as the company had a
booth at a conference. The following criteria needed to be fulfilled to proceed in the
evaluation process: innovative and patented technology with a clear unique selling
proposition (USP), product ready to market or already sold, great market potential
due to the prevalence of the disease addressed by the technology, KOL supporting
the company, technical and commercial skills of the management, exit opportunities. The less information was provided by the company on the fulfillment of these
criteria, the more time the VC needed to invest to find out whether the criteria
were met.
In the evaluation phase, the VC asked for a detailed business plan and tried to
verify the management’s statements by some desk research on market (e.g. prevalence of the diseases addressed) and competition. In addition, management CVs,
information on the company’s intellectual property (IP), clinical studies performed
with the product and scientific papers on the medical problem addressed by the
technology were requested from the company. Historical financials and the financial planning were analyzed and checked for plausibility, also in view of the financing need expressed by the company. Again, the higher the quality and detail of
information provided by the company, in particular from reliable external sources,
the less time the VC had to invest in own research. Additional questions were clarified by phone or email and a meeting with the management was agreed. In one
case, the investor met the company at an industry fair together with an expert, who
did a first assessment of the technology and the management.
In all cases, 1-2 reference calls at customers, independent experts and/or KOLs of
the company were made by the VC to learn more about the field of application and

114

Sonja Keppler • Timo Keppler

potential problems of the technology. The VC also attended live presentations of
the product and its functionalities at the customer/KOL, or visited the company`s
premises and production facilities. This involved travelling in four cases. The VC
talked to the existing investors and potential co-investors and started reviewing the
most relevant legal documents (e.g. license agreements). At this point, discussions
of the deal structure and the company valuation started. Decision criteria at this
stage were management skills, trust in the management’s capabilities and fit of personal chemistry, a well-functioning product with a clear USP, high market potential
and medical need (confirmed by KOLs), low competition, existence of IP, reasonable valuation, and plausibility of the business model and strategy (including e.g.
the product’s potential for reimbursement by the health insurances).
Two cases were selected for presentation to the investment committee. The VC
therefore had to prepare a formal investment proposal including a summary of the
business case, financials, proposed deal structure, amount of investment and valuation of the company. In both cases, the decision was positive and the formal due
diligence (DD) process was started. The committee also gave recommendations on
what to check in detail during DD.
The due diligence involved further reference calls at customers, KOLs, industry
experts from the VC’s network, distributors, and members of the company’s board.
Independent patient associations were also contacted to verify the medical need
from a patient perspective. In addition, meetings with existing investors took place
to check if there was a “common understanding”. Furthermore, the VC visited the
company’s suppliers to get a better understanding of the quality of the production
process. The company had to provide all relevant legal, tax and financial documents
as well as the DD documents previously produced by the existing investors. DD
focus was laid upon IP, CE certification and contracts with most relevant suppliers.
Criteria at this stage were mainly based on risk-exclusion, but also aimed at confirming the fulfillment of the criteria defined in the evaluation process.
During the subsequent structuring phase the terms and conditions of the deal
were negotiated, the contracts were finalized and the closing was prepared.
Conclusion

Selection criteria applied to medtech investment proposals seem to overlap criteria identified in literature and go into more detail. In particular IP, clinical studies
and KOLs seem to play an important role, KOLs being either future users of the

HOW DO VENTURE CAPITALISTS EVALUATE NEW MEDICAL TECHNOLOGY VENTURES?

115

product or needing to recommend the latter to their patients. The decision process
is much in line with literature findings. The evaluation phase is the most intensive
and time-consuming phase of the process, during which the VC must build enough
confidence in the quality of the deal to present it to the investment committee.
Activities performed during the process were similar in all cases, but sometimes appeared in both the evaluation and the DD phase. Some were just intensified in the
DD phase, which mainly serves the identification of potential risks. The length of
the investment process varied between two and nine months, and was very much
dependent on the management’s cooperation, quality of documentation provided,
and the VCs trust in the management’s capabilities. The latter caused the VC to
check even more references and to spend more time on research. The investment
process of the case, in which the VC invested, only lasted five months.
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Wells, W. A. (1974): Venture Capital Decision Making. Unpublished doctoral dissertation, Carnegie Mellon University, Pittsburgh, USA

Marijana Zekić-Sušac • Slavko Vulić

118

PREDICTING THE SALE OF BREAD BY USING NEURAL
NETWORKS
Marijana Zekić-Sušac
Faculty of Economics, University of J.J. Strossmayer in Osijek,
Gajev trg 7, 31000 Osijek, Croatia, marijana@efos.hr
Slavko Vulić
Konzum d.d. M. Čavića 1a, 10000 Zagreb, Croatia, slavko.vulic@konzum.hr

Abstract

The aim of the paper is to suggest a model for predicting the next-day sale of
bread in retail by using artificial neural networks. The effective prediction of sale
or demand is directly connected to customer relationship management and to cost
management. According to previous research, intelligent nonlinear methods such
as neural networks have advantages over classical statistical methods in situations
when the data are noisy and often uncertain. In the model preparation phase, different factors that influence bread sale were analyzed in order to find potential predictors that could be used to manage the bread demand. Unsold quantities of bread
that a retailer returns to the producer have a direct impact to the profitability of the
bread production company. The improved management of bread stocks also means
better customer service and the increase of income for a retailer. The suggested
model uses input variables describing past sales, day of the week, sale promotions
and actions, as well as existence of competition in order to predict the next-day
sale of bread. Different architectures of multilayer perceptron neural network were
tested. The results show that the model is able to predict the next-day bread sale,
although the model accuracy should be the the focus of further research. The paper
could be useful to both researchers and practitioners in this area as a guideline in
designing an effective decision support systems in bread sale.
JEL classification: L81
Keywords: artificial neural networks, bread sale, multilayer perceptron, sensitivity analysis

PREDICTING THE SALE OF BREAD BY USING NEURAL NETWORKS

119

1. Introduction

One of the most important challenges in retail is to manage the demand. If
the fluctuations in demand are not predicted, the company faces serious risks to
loose profit. The availability of goods at the stock is important to satisfy customers and to eliminate the missed sales. If the situation with a lack of goods occurrs,
it implies not only the loss of present margin, but also the loss of future income,
due to a high possibility of loosing a customer. The accurate future demand for a
product is difficult to predict by relying on existing reports on previous sales data
retrieved from the company database, since those data only record past transactions
without analyzing trends or causal relationships. Managers in sale often need more
advanced reports that will include prediction models of demand, and be able to
effectively support their decisions on ordering the goods. Nowadays it is required
that management information systems satisfy the criteria of fast reporting, integration and adding value (Spremić, 2004), but also that they include intelligent
methods that learn from historical data and are capable of adaptation to new conditions (Dalbelo-Bašić, 2004). Classical decision support systems therefore evolve
into business intelligence systems that incorporate models and business analyses
enabling to find the causes of problems, predict future movements of variables, and
assist managers in making business decisions.
The focus of this paper is in creating a neural network model that will be able
to predict future demand by finding hidden relationships among data, and assist in
realizing business objectives of a company. The purpose of the model is to predict
desired next-day quantities of bread in retail, in order to have enough bread at
shelves, and to keep the quantities of unsold bread minimal, i.e. that the surplus
of bread is minimal in order to lower the costs. The model is designed such that it
aims to predict the desired quantity, while the objective function in the learning
phase of modeling is to minimize the prediction error. Besides creating the model,
this research also analyzes its accuracy and gives directions for further research. The
paper also aims to emphasize the importance of using prediction modeling in retail
in order to increase the company efficiency.
2. Review of previous research

As one of the frequently used methods of artificial intelligence, neural networks
(NNs) are able to solve the problems of prediction, classification, and association
(Russell, Norvig, 2002). They also have the ability to overcome the proportional-

120

Marijana Zekić-Sušac • Slavko Vulić

ity and linearity constraints imposed by parametric methods in prognoses (Detienne et al., 2003). According to Doganis et al. (2006), the initiative of a few large
companies in food industry in the last decade that aimed to improve prediction
in their business processes identified that 48% food processing companies have
undeveloped prediction processes (Adebanjo & Mann, 2000). Methods used in
sale prediction are usually statistical time seria forecasting methods, mainly linear
or nonlinear. Linear models such as ARMA (eng. AutoRegressive Moving Average) and ARIMA (eng. AutoRegressive Integrated Moving Average) are the most
popular models for those purposes, although their prediction accuracy is limited
by the assumed linearity in data (Zhang, 2003). A number of research has proven
the advantages of intelligent methods, such as NNs, over statistical methods that
do not include artificial intelligence, in sense of prediction accuracy and ability to
generalize. The main advantage of NNs is their ability to approximate any nonlinear mathematical function (Masters, 1995). However, Doganis et al. (2006) report
on numerous studies in which the comparison of NNs and statistical methods
showed different results that do not give full advantage of one method over another.
According to a literature review conducted by Zhang et al.(1998) NNs produced
the same accuracy as linear statistical methods in 30% of researches, while in 56%
of researches they outperfomed other methods. Zekić-Sušac and Musser (2002)
noticed that NNs in business were mostly used in the area of production, finances,
investments, and marketing, while their usage in sales of food products was not
investigated enough. The reasons could be found in frequent variations of factors
that influence the sale, which are often interrelated, such as sale price, seasonality,
advertising, competition behaviour, changes in customer habits, or even weather
changes because in (Van der Vorst et al., 1998, Doganis et al., 2006). Some of the
successful applications of NNs in food processing industry were observed in the
prediction of peanut butter and ketchup sales, which investigated the influence of
promotion acitivities and customer selection to the sale volume in retail (Agrawal
& Schorling, 1996). Luxhoj et al. (1999) used NNs in predicting a company total monthly sales of food products of a Denmark company, where the NNs outperformed other tested methods. Filić and Zekić-Sušac (2009) investigated a NN
model for prediction of beer sale. They tested 29 different NN architectures of the
multilayer perceptron NN. The output variable was the financial value of a montly
sale of beer in a town of Vukovar-Srijem county in Croatia. The best model yielded
a normalized mean square error of 11,73% on the out-of-sample data, implying
that this methodology has potential in sale prediction. However, Zhang (2003)

PREDICTING THE SALE OF BREAD BY USING NEURAL NETWORKS

121

emphasizes that none of the methods is successfull enough in every situation if
used individually, and that the combination of different methods is the most effective way of achieving the most accurate prediction. Following these guideliness,
Doganis et al. (2006) used GA-RBF method which combines a radial basis NN
(RBF) with a specially designed genetic algorithm (GA) which selects the important features in order to obtain an accurate nonlinear model. The methodology is
used to predict the daily volume of fresh papaya milk sale. The model showed an
improvement in accuracy when the combined methods were used comparing to
the individual methods’ results. Kuo et al. (2009) presented a hybrid evolutionary
algorithm for sale prediction integrating main features of PSO (eng. Particle Swarm
Optimization) algorithm and GA in order to improve the performance of the RBF
network, which was also found successfull.
On the basis of previous research, it can be concluded that there is a variety of
domains in which NN methodology was used in business, and that authors use
different algorithms to predict sale. Since there are no paradigms on using one NN
architecture over another in certain area, one of the main difficulties is that testing
different architecture is often time consuming and model dependent (Li, 1994).
The comparison of NNs to statistical methods showed that in most cases the NNs
outperfom other methods, especially linear ones.
3. Methodology

The performance of different architectures of the multilayer perceptron (MLP)
NN is tested in this paper in order to predict the sale of bread. The MLP is a type
of a feed forward NN which is able to use different algorithms in order to minimize
the objective function, such as backpropagation, conjugate gradient, and other algorithms. The backpropagation algorithm is based on deterministic gradient descent algorithm originally developed by Werbos in 1974, extended by Rumelhart
et al. (in Masters, 1995). The NN architecture consists of two or more layers of
processing units (i.e. neurons). The input layer of a NN consists of n input units
xi ∈ R , i=1,2,..., n, and randomly determined initial weights wi usually from the
interval [-1,1]. Each unit in the hidden (middle) layer receives the weighted sum of
all xi values as the input. The output of the hidden layer denoted as y c is computed
by:

⎛ n
y c = f ⎜ ∑ wi xi ⎟
(1)

⎝ i =1

Marijana Zekić-Sušac • Slavko Vulić

122

where f is the activation function selected by the user, which can be logistic, tangent hyperbolic, exponential, linear, step or other (Masters, 1995). In our experiments, the sigmoid and tangent hyperbolic transfer functions were used in the
hidden layer. The sigmoid activation function is computed according to (Masters,
1995):
1
f ( x) =
(2)
1 + e g ⋅x
where g is the parameter defining the gradient function. The computed output is
compared to the actual output ya, and the local error ε is computed as ε=yc-ya. The
error is then used to adjust the weights of the input vector according to a learning
rule, usually Delta rule according to (Masters, 1995).:
∆wi=η·yc·ε

(3)

where ∆wi is weight adjustment, η is the learning parameter that could be experimentally determined. The above process is repeated in a number of iterations
(epochs), where the gradient descent or other algorithm is used to minimize the
error.
The output layer of all NN models in our experiments consisted of a continuous value representing the quantity of the bread sold in one working day. The
backpropagation and conjugate gradient algorithms were tested, by varying the
activation function in the hidden layer (sigmoid, tangens hyperbolic, exponential,
and linear). The NN structure and training time was optimized by a split-sample
procedure. The maximum number of training epochs was set to 1000. Overtraining is avoided by a cross-validation process which alternatively trains and tests the
network (using a separate test sample) until the performance of the network on
the test sample does not improve for n number of attempts (n=10). The optimal
number of hidden units is determined in a cascading procedure which gradually
increases the number of hidden units during the training phase, starting from a
minimum to a maximum value. The minimum value was set to 2 and the maximum was set to 50 in all experiments. After the best network is selected, it is tested
on a new validation sample to determine its generalization ability.
The modeling strategy of NNs included experiments by varying the NN algorithm, activation function in the hidden layer, and network topology. The accuracy
of prediction was measured by the MSE error, which is the standard measure of
performance for all regressive-type NN algorithms, computed by:

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PREDICTING THE SALE OF BREAD BY USING NEURAL NETWORKS

MSE =

1 n −1
( yd − yc ) 2

n i =0

(4)

where n is the number of observations in the test set, yd is the desired output, yc is
the output computed by the model. If the data are normalized to interval [0,1], the
computed error represents a normalized mean square error (NMSE) indicating a
percentage deviation from the desired values. The advantages of NN methodology
are in its performance even when the data are noisy and uncertain, as well as in
capability to learn complex nonlinear relationships among data, while their limitations are in the need for time consuming experiments in the modeling phase.
4. Data description

For the purpose of modeling, the data on sold quantities of one sort of bread
(called „white bread of 700 grams“). were used. Data were collected in a retail store
placed in Osijek-Baranya county of Croatia, covering the period from March 1st,
2005, to May, 1st, 2006. The total of 296 daily observations were included in the
sample, with 8 input variables. All input and output variables with their descriptive
statistics are presented in Table 1. The output variable contains the quantities of
bread sold in the next day (yt+1) obtained from the real sale reports of the company.
The descriptive statistics given in Table 1 presents means and standard deviations
for continuos variables, while the frequencies for each category are given for categorical variables.

Table 1. Descriptive statistics of variables used in the models (source: authors)
Variable code Variable description
Day in the week (1=Monday, 2=Tuesday, 3=WedDay
nesday, 4=Thursday, 5=Friday, 6=Saturday,
7=Sunday)
Purchase
Purchase quantity of bread
Return
Returned quantity of bread
Sale_t
Sold quantity of bread in the current day t
Sold quantity of bread in the same day of the last
Sale_lm
month
Sold quantity of bread in the same day of the last
Sale_lw
week

Descriptive statistics
1=14.19%, 2=14.19%, 3=14.19%,
4=14.19%, 5=14.19%, 6=14.52%,
7=14.52%
Mean=45.206, st.dev=27.999
Mean=5.567, st.dev=8.935
Mean=39.638, st.dev=25.698
Mean=39.510, st.dev=24.567
Mean=39.476, st.dev=25.2189

Marijana Zekić-Sušac • Slavko Vulić

124

Holiday
Weekend
Sale_t+1

Indicator of a holiday
Indicator of a weekend
Sold quantity od bread in the next day (t+1)

0=95.61%, 1=4.39%
0=57.43%, 1=42.57%
Mean=39.684, st.dev=25.733

The variable Holiday is introduced in the model because some extreme quantities of sale were observed in historical data on some holidays and days before
holidays. In order to enable the NN to predict those extremes, an indicator of a
hoilday is used in the model such that the value of 1 indicated that the current
day is a holiday or a day preceeding the holiday, while the value of 0 is assigned
otherwise. Similar although not so large increases in sale were observed during the
weekends, therefore the variable Weekend is also used, valued as 1 if the current
day is Saturday or Sunday, and 0 otherwise. The total dataset (296 observations)
is divided into three subsamples aimed for NN training, crossvalidation and final
testing. The train sample used for NN learning consisted of 60% of data (first 180
observations), the cross-validation sample consisted of 20% of data (60 observations), while the models were finally tested on the test sample which consisted of
the rest of the data (56 observations). The MSE obtained on the test sample is used
to assess the model performance.
5. Results

The results of individual models obtained by each NN architecture are presented in this section, followed by their comparison and selection of the best model
according to accuracy measured by the MSE. The total of 20 NN architectures was
tested in order to select the best model. Table 2 presents only 10 selected NN architectures tested in experiments, as well as the results of each architecture obtained
on the train and test sample. Due to the fact that the results obtained on the test
sample are used for evaluating NN successfullness, the best model is selected on the
basis of the minimal NMSE error on the test sample.

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PREDICTING THE SALE OF BREAD BY USING NEURAL NETWORKS

Table 2. Results of the NN architectures obtained on the train and test sample (source: authors)
Train results

Test results

Sigmoid

Normalized mean
square error
(NMSE)
0.0174

Normalized mean
square error
(NMSE)
0.3372*

2000

Sigmoid

0.0139

1.015

6

1000

Tangens hyperbolic

0.0192

0.4128

2

2

2000

Tangens hyperbolic

0.0221

0.3828

5

2

4

2000

Tangens hyperbolic

0.197

0.439

6

2

4

2000

Tangens hyperbolic

0.0186

0.3425

7

2

4

2000

Tangens hyperbolic

0.0307

0.6865

9

2

6

2000

Tangens hyperbolic

0.0155

0.4377

8

2

4

3000

Tangens hyperbolic

0.0161

0.3899

10

2

2

3000

Tangens hyperbolic

0.0206

0.7322

Architecture
no.

Number
of
hidden
layers

Number
of
hidden
units

Maximal
number
of
epochs

Activation function

1

2

4

1000

2

2

4

3

2

4

* the best result obtained on the test sample
It can be seen from Table 2 that the best result in sense of the NMSE is obtained
by the NN architecture containing two hidden layers and 4 processing units in
each hidden layer. The maximal number of epoch (iterations) was 1000, while
the activation function in hidden layers was sigmoid. This network produced the
NMSE of 0.0174 on the train sample, while the test NMSE was 0.3372. The error
value represents the average deviation of predicted values from the desired values
when the data were normalized to the [0,1] interval. Another measure of model
performance could be the Pearson correlation coefficient, which measures the correlation among the predicted and desired values in the sample. The correlation coefficient obtained for the best NN model was 0,8307 (obtained on the test sample).
In order to more clearly present the accuracy of the model, a chart of the real and
predicted values is given in Figure 1, where the full line presents the real values of
the output variable, while the dotted line presents the predicted values of the output variables i.e. sale quantities of bread. It can be seen from Figure 1 that the NN
predictions closely follow the real values of sale, although there are observations in
the test sample where the deviations are visible and significant.

Marijana Zekić-Sušac • Slavko Vulić

126

120

100

Output

80
Sale of bread - real

60

Sale of bread - predicted

40

20

0
1

6

11

16

21

26

31

36

41

46

51

56

Exemplar

Figure 1. Real and predicted values of the sale of bread obtained on the test sample (source: authors)
Especially large deviations of predicted values from the real values are observed
in days when a sudden high increase or decrease of sale occurs. In order to get more
insight into the importance of input variables in the best selected model, a sensitivity analysis is conducted in the way that the average change of the output variable is
computed if an input variable values varied in the range +-5%. Figure 2 shows the
chart of sensitivity coefficients obtained for each input variable.
60
50

Sensitivity

40
30
Sensitivity

20
10
0

ol

ke
nd

w

m

se

ay

_l

_l

id

le

le

_t

ee
W

H

Sa

Sa

le

ha

n
ur
et

Sa

R

rc

ay

Pu

D

Input variable name

Figure 2. Results of the sensitivity analysis of the output variable (source: authors)

PREDICTING THE SALE OF BREAD BY USING NEURAL NETWORKS

127

It can be seen from Figure 2 that the output is the most sensitive to the input
variable Weekend, which has the higher influence to the output (sensitivity coefficient is 52.7461). The next variable according to its importance for the model is the
variable Day which indicates the day in the week (sensitivity coefficient 12,7093),
closely followed by the variable Holiday (sensitivity coefficient 11,6531). All other
input variables have much lower importance for the model, and their coefficients
range from 0.01 to 0.15. This analsyis shows that the decision makers should take
much care about type of the days in the week, weekends, and holidays, since those
are the periods where the output values change significantly.
The above results are only preliminary and should be considered as a starting
point for further research in this area.
6. Conclusion

The paper deals with creating a model for predicting sale of bread and analyzing the features that influence the model performance. The multi layer perceptron
NN methodology is used for modeling purposes, and more than twenty different
architectures were tested in order to obtain the best model. Due to a relatively small
number of input variables used, the performance of the best model is not sufficient
for a practical implementation, but is a promising starting point for further research. The model accuracy could be improved by adding more predictors containing information about the promotion activities, competition activities, macroeconomic factors and other variables, as well by integrating NNs with other intelligent
methods, such as genetic algorithms, expert systems, and others. Sensitivity analysis
conducted in this research shows that more focus should be directed towards the
untypical days in which the sale drastically increases or decreases, such as weekends
and holidays. One of the guidelines for further research could be to build separate
prediction models for such untypical days, and therefore enabling the method to
capture some specific inherent relationships in data existing in those time periods.
The paper reveals that there are potential benefits of the NN model for bread
sale prediction. However, for practical usage the model should be integrated in a
decision support system with a user-friendly interface that will enable the user to
control the input data, observe the output values, and use them as a support in
decision making process. In that way, a sale manager will enhance the quality of its
decision process, and be able to satisfy the customers’ needs by providing them with
an accurate quantity of bread in shelves, and in the same time to decrease the cost

128

Marijana Zekić-Sušac • Slavko Vulić

of bread returns to the supplier. The model could also be used as a simulation tool
that will be integrated in demand management system, and therefore contribute
the sucessfulness of a company in a long term.
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Maja Lamza-Maronić • Jerko Glavaš • Igor Mavrin

130

MARKETING ASPECTS OF THE EUROPEAN CAPITAL OF
CULTURE PROGRAMME
Maja Lamza-Maronić, Ph.D.
Jerko Glavaš, PhD student
Igor Mavrin, PhD student

SUMMARY:

The European Capital of Culture (ECoC) is one of the most successful cultural
programmes of the European Union, having numerous profound impacts upon economic and social development of a city. Certain cities have used their titles to raise
their visibility and profile on the European and international scale, as cities with
rich cultural offer. Cities included in the programme since its beginning in 1985
have been securing various funds for programme implementation. During the programme development, marketing budgets of ECoC cities have varied. The development of the Internet as a new medium, and especially certain online services, has
changed the approach to information dissemination – EcoC title-holders. A part of
communication strategy of ECoC cities has been transferred into the online sphere,
which was not available to previous ECoC cities. This paper aims to investigate marketing aspects of the ECoC programme. Furthermore, it analyses the use of online
services for ECoC title promotion in candidate cities in the 2016 – 2019 period.
JEL classification: Z11
KEY WORDS: European Capital of Culture (ECoC), urban marketing, city
branding, cultural management, online services, promotion
1. Introduction:
The European Capital of Culture as a city’s development potential

The European Capital of Culture (ECoC) has proved to be the longest-lasting,
as well as the most successful programme of the European Union in cultural, i.e.
creative sector. The programme was launched in 1985. Up until 2011, 44 cities
have been designated as holders of this prestigious title. According to the research

MARKETING ASPECTS OF THE EUROPEAN CAPITAL OF CULTURE PROGRAMME

131

carried out in ECoC cities in 2004, the following aspects were the top priorities:
raising international profile of a city/region; implementing programmes for cultural
activities and art events, long-term cultural development of a city/region; attracting
domestic and foreign tourists; enhancing feelings of belonging and self-confidence;
the growth and expansion of local cultural audience; creating a festive atmosphere.
2. The change in urban image through European Capital of Culture

City branding represents a long-term process, where local government in cooperation with the private sector and local community determine the future path
of the city image. Moreover, they influence local and international visibility of the
urban surroundings. Baker (2007:73) names seven steps in defining destination
brand, also called 7As. The acronym includes the following elements, as well as
questions that should be answered in the branding process: assessment and audit
– What is the position of the brand in the world?; analysis and advantage – What
will make a city famous?; alignment – What are the relationships of the brand?;
articulate – How can the brand be expressed visually and verbally?; activation –
How can the brand come to life?; adoption and attitudes – How can stakeholders
contribute to the brand?; action and afterwards – How can the brand remain fresh
and relevant?.
Cultural projects, i.e. mega-events, can significantly contribute to defining and
developing a city brand. This makes the European Capital of Culture one of the
key programmes. One of the most successful ECoC cities is Glasgow, which used
its 1990 title to redefine its urban image thus ultimately achieving city branding.
It possesses visibility and high profile in general public. While Glasgow was “...undoubtedly a place of significant cultural value for Scotland, it was not internationally acknowledged as a cultural centre”. Its image was reduced to being “a proactive
industrial city with certain social problems and the economy undergoing a painful
process of contraction and restructuring”. As a result of the basic idea conceived by
the local government to use the programme for “...promoting economic regeneration and image transformation”, the British government decided to support Glasgow as the European Capital of Culture, i.e. the European City of Culture as it was
called in 1990. (Griffiths; 2006:417-418)
It should be mentioned that Glasgow started redefining its urban image even
before the year it became the Capital of Culture – the development of the new city
image “...started with ‘Glasgow’s Miles Better Campaign, and was followed by the

132

Maja Lamza-Maronić • Jerko Glavaš • Igor Mavrin

National Garden festival in 1988”. The capital of culture was later continued in
1990 by the new strengthening of the city image – “...the last episode in the series
was rebranding Glasgow in 2004 (an investment of £1.5 million) as Glasgow: Scotland With Style”. (Mooney, 2004:328)
ECoC programme in Glasgow and related projects have resulted in the change
of city image from an industrial/post-industrial city into a creative centre, as well as
in higher employment in cultural and creative sector and long-term increase in the
number of tourist visits and stays.
3. Marketing as a priority of the European Capitals of Culture

The rise in visibility and profile of a city on international scale is one of the top
priorities of most ECoC title-holders. From the perspective of public relations and
promotions, four major goals of the European Capitals of Culture can be outlined:
“raising a city’s international profile; changing a city’s image; the growth of domestic
and foreign tourism; the growth of cultural audience.” The cities – European Capitals of Culture – have mostly emphasised the following communication priorities:
“promoting a city’s profile; promoting the European Capital of Culture brand/image; promoting cultural programme of the European Capital of Culture.” (Palmer;
2004:79) Marketing costs of some cities included in the ECoC programme vary.
Attracting each single tourist of this annual event has its price. According to data
from Richards and Palmer (2010:289), Graz spent the most, with even 63 Euros
(its marketing costs were around a third of the city’s total budget for the ECoC programme – 191 Euro per inhabitant was invested.) Nevertheless, when the number
of visitors is taken into account – 2.76 million – the cost seems justifiable. The best
ratio between the invested and the acquired is that of Danish Copenhagen, which
invested 3 euros per inhabitant in marketing and had almost 7 million visitors
(costs per visitors were reduced to 0.70 euros). (Richards&Palmer; 2010:289) Liverpool (ECoC in 2008) stands out as a successful example of good communication
strategy. The key effects of the ECoC programme on the image and the perception
of Liverpool were the following: “65 percent of British population was aware that
Liverpool became the European Capital of Culture; 77 percent of visitors said that
the city was safer than they had expected; 99 percent of visitors liked the ‘general
atmosphere’ and 97 percent of visitors liked ‘the feeling of being welcome; 68 percent of British companies thought that ECoC had a positive effect on Liverpool”.
(Garcia et al.; 2010: III)

MARKETING ASPECTS OF THE EUROPEAN CAPITAL OF CULTURE PROGRAMME

133

4. Promotion models of the European Capital of Culture

Cities, the European Capitals of Culture, have used various means of communication to promote themselves. These means can be sorted into several groups (Palmer;
2004: 80-82): “printed materials and broadcasting; new technologies and new media;
trade; special events; other initiatives”. Promotion via printed materials and TV and
radio broadcasting remain in the spotlight, although the new medium – the Internet
is assuming a more and more significant role. The annual European Capital of Culture programme is diverse, rich and aims at manifold public, which can significantly
influence the communication with potential audience. It is impossible to summarise
a one-year programme into a short brochure or TV commercial. Therefore, it is necessary to communicate with the public on monthly, weekly and daily bases. Creative
teams in some cities have used various methods for programme promotion – the city
of Burges used a short song “...adding programme details at the back of a publication,
sorted according to a discipline and calendar”; on the other hand, Lille “...created
programmes in various formats, including monthly programmes and fliers about certain projects”; while Graz in 2003 “...printed more than 3,000 different advertising
materials”. Moreover, each city had a special logo as part of communication with the
public, which featured basic information on the city and the year when the European
Capital of Culture was implemented. (Palmer; 2004:80)
Other internationally recognisable events can also be used to promote the city
as the European Capital of Culture. Liverpool “...developed interesting ways for
promoting the ECoC, by attracting other events interesting to media into the city
during 2008”. It took advantage of MTV Awards – an award presented by a famous
music television channel – to promote itself as the Capital of Culture. Turkish
megalopolis Istanbul (ECoC in 2010) “...exhibited at Biennale in Bonn, Germany,
as well as EXPO 2008 in Zaragoza, Spain”. (Palmer&Richards; 2009:40)
The Slovenian city of Maribor, the European Capital of Culture in 2012, participated in the World Travel Market in London, in 2010, together with 21 Slovenian tourist organisations. “ECoC Maribor was presented by Mitja Čander, a
programme director, who also took part in a well-attended press conference.” The
emphasis of the Slovenian stand, expanding over 173 square metres, was placed on
Slovenia as a country, but also on the Maribor programme in 2012. Nine ECoC
cities in 2000 (AECC) jointly participated in a number of fairs, representing the
ECoC programme, as well as cities themselves. Furthermore, TV advertising is
becoming more important, not only for advertising an already designated ECoC,

Maja Lamza-Maronić • Jerko Glavaš • Igor Mavrin

134

but candidate cities as well. For instance, the Polish city of Łódź, a candidate for
the title in 2016, has developed a 30-second TV commercial ‘Would You in Łódź’,
which “...has been broadcast on BBC World and CNN, way before the official
candidacy ceremony in Brussels (...) advertising campaign has three goals: the promotion of the city as a vibrant urban centre, raising viewer awareness of the city
location in Europe and educating viewers how to pronounce this rather difficult
name of the city”. (Palmer&Richards; 2009:39-40)

Figure: A model of successful communication of the European Capital of Culture
Inicial
Candidacy

Internet Communication

ECoC
Programme
Development

Citizens
&
Institutions

Internet
Communication

Citizens
&
Institutions

Formal
ECoC
Candidacy
Know-how
Transfer

Lobbying
EU Selection
Authority

ECoC
Event
Consultants

Selection
Process

Foreign
Tourists

Domestic
Tourists

ECoC
City

MARKETING
COMMUNICATION
(Internet,
TV & Radio
Advertizing,
Media
Coverage)

Time

Local
Audience

Participation
ECoC
Year

Source: Edited by authors

MARKETING ASPECTS OF THE EUROPEAN CAPITAL OF CULTURE PROGRAMME

135

The figure above shows key elements of successful communication model of the
European Capital of Culture:
• after initial candidacy using the Internet communication tools, citizens and
institutions participate in the creation of the official candidacy programme;
• joint efforts lead to the official candidacy, while continuing to disseminate
further information to citizens and institutions, along with the communication with consultants – ECoC experts, whose guidance, together with formal
means, are used to lobby for the selection process for the Capital of Culture
title;
• the next phase comes after awarding the ECoC title to a city, when marketing communication activities directed towards the local public, domestic and
foreign tourists take place via different channels (the Internet, advertising,
media reports, etc.)
• if the communication in the preparatory period proves successful, the ECoC
programme is well-attended, the number of tourists is on the increase, which
means the inflow of money for private and public sectors; marketing activities
are continued.
5. Internet communication as a means of the European Capital of Culture
promotion

In some cities, the Internet was of significantly low priority as a means of communication, especially in those cities that carried the title before the growth of
global network. “Almost all European Capitals of Culture have created Internet
sites after 1995”. Following 1997, most cities “...have sent e-mail messages or electronic newsletters”. Helsinki and Graz have fully exploited the potentials of the
Internet by using “...e-conferences and debated, Internet broadcasting” and other
elements of e-communication. Certain Internet sites created by the Capitals of
Culture have recorded significant number of visits. Since social networks play an
important role on the Internet lately, some cities have decided to use this segment
of online promotion in their ECoC campaigns, as well as in researching the scope of
their projects. For example, Liverpool (ECoC in 2008) generated the following results: “flickr (50,000 ECoC photographs of Liverpool, YouTube (2,200 videos, 2.5
million clicks); Facebook (500 new group sites, 13,000 members); Google (ECoC
Liverpool searches comparable to football searches)”. (Garcia et al.; 2010: III)

Maja Lamza-Maronić • Jerko Glavaš • Igor Mavrin

136

The same city generated the following results related to the Internet in 2008:
“at least 50 percent of all researched institutions have used Facebook; 100 percent
of researched cultural institutions have used Facebook in the development of their
community; this Facebook community has become especially active as 2008 was
nearing; 25 percent of cultural institutions used Twitter for the development of
their community by the end of 2008; cultural institutions in Liverpool generally
accept new applications of social media a year after they become well-known; all
cultural institutions gather a common audience of around 1,000 members; this
critical mass indicates that there is a common, local online audience throughout all
institutions”. (Miah&Adi; 2009:3)
6. The analysis of Internet use as a marketing tool by ECoC candidate cities in
the period 2016 – 2019

Host countries for ECoC have already been designated for the 2016 – 2019
period, and in most cases, candidate cities for the title have been nominated. The
following table shows the analysis of Internet communication of candidate cities,
the multilingualism of the portals, as well as the use and support of the social network Facebook.

Table: Internet communication of ECoC candidate cities from 2016 to 2019
CANDIDATE CITY
Poland 2016
Białystok 2016
Gdańsk 2016
Katowice 2016
Lublin 2016
Łódź 2016
Poznań 2016
Szczecin 2016
Toruń 2016
Varšava 2016
Wrocław 2016
Spain 2016
Alcala 2016
Burgos 2016
Cáceres 2016
Cordoba 2016

INTERNET SITE

NUMBER OF
LANGUAGES

FACEBOOK
(number of ‘likes’/ group members)

YES
YES
YES
YES
YES
YES
YES
YES
YES
YES

3
4
5
3
3
3
1
2
2
3

4,398
1,026
1,859
2,532
3,180
5,926
6,836
3,240

YES
YES
YES
YES

1
7
3
3

11,593
3,356
303

137

MARKETING ASPECTS OF THE EUROPEAN CAPITAL OF CULTURE PROGRAMME

Cuenca 2016
Malaga 2016
Las Palmas 2016
Oviedo 2016
Palma de Mallorca
2016
Pamplona 2016
Santander 2016
San Sebastian 2016
Segovia 2016
Tarragona 2016
Zaragoza 2016
Denmark 2017
Aarhus 2017
Sønderborg 2017
Cyprus 2017
Pafos 2017
Netherlands 2018
Almere 2018
Brabantstad 2018
Den Haag 2018
Maastricht 2018
Utrecht 2018
Malta 2018
Malta 2018
Italy 2019
L’Aquila 2019
Matera 2019
Siena 2019
Venice 2019
Bulgaria 2019
Varna 2019

YES
YES
YES
YES

5
5
2
5

9,170
131
305
18

YES

1

2,346

YES
YES
YES
YES
YES
YES

4
4
5
1
3
2

1,503
6,233
4,255
1,172
837
9,224

YES
YES

1
3

448
587

NO

-

394

YES
YES
YES
YES
YES

1
2
1
4
2

-

NO

-

-

NO
YES
YES
YES

1
1
1

11,427
4,986
-

NO

-

-

Source: Edited by authors

As it can be observed from the table above, Internet communication is used
more often by those cities that will learn sooner about the success of their candidacy
(Spain and Poland) – each candidate city from these countries have an Internet site,
most of them is multilingual and almost all of them have created their Facebook
profile. Burgos is special among them, with its site in seven languages and the support of more than 11,000 Facebook fans. The delayed decision on ECoC candidate
cities/countries, from 2017 to 2019, has as a result both a smaller number of candi-

138

Maja Lamza-Maronić • Jerko Glavaš • Igor Mavrin

date cities and low Internet support. L’Aquila should definitely be singled out, since
it does not have an Internet site, but is already supported by 11, 427 members on
Facebook. This widespread support is surely connected to the destruction of this
city the earthquake of 2009.
7. Conclusion

A large number of European cities are recognising the development potentials
of European Capital of Culture programme, which induces greater participation
of cities within nominated countries. Furthermore, new communication trends
have imposed new ways of information dissemination on events in ECoC cities,
directed towards programme users. Attracting the local audience, as well as domestic and foreign tourists, has also become possible over the Internet. Similarly, the
Internet has become a mediator for accumulating quality ideas for the programme
development, which can be critical when deciding on ECoC title-holders. After
2019, Croatia will join the European Capital of Culture programme for the first
time (in 2020 or 2021), and the ‘battle’ for a nomination among Croatian towns
will partly be fought on the Internet, which will probably undergo certain changes
by then, i.e. improvements. It can be expected that the town with the best vision
of the ECoC year, as well as of its development afterwards, will be chosen. Moreover, good communication with the inhabitants themselves will certainly be of key
importance.
LITERATURE

Books:
Baker, B. (2007.): Destination branding for small cities; Creative leap books, ISBN:
978-0-9797076-0-5, Portland, USA
Richards, G., Palmer, R. (2010.): Eventful Cities: Cultural management and urban
revitalisation; Elsevier, ISBN: 978-0-7506-6987-0, Oxford, UK
Reports:
Palmer/Rae Associates (2004.): European Cities and Capitals of Culture (Part I);
European Commision, EU
Palmer, R., Richards, G. (2007.): European Cultural Capital Report; ATLAS,
ISBN: ; Arnhem, Netherlands

MARKETING ASPECTS OF THE EUROPEAN CAPITAL OF CULTURE PROGRAMME

139

Palmer, R., Richards, G. (2009.): European Cultural Capital Report 2; ATLAS,
ISBN: ; Arnhem, Netherlands
Garcia, B., Melville, R., Cox, T. (2010.): Creating an Impact; University of
Liverpool
Miah, M., Adi, A. (2009.): Liverpool 08 Centre of the Online Universe; Impacts
08
Papers:
Griffiths, R. (2006.): City/Culture Discourses: Evidence from the Competition to
Select the European Capital of Culture 2008; European Planning Studies, vol. 14,
no. 4; pp 415-430
Mooney, G. (2004.): Cultural Policy as Urban Transformation; Critical Reflections
on Glasgow, European City of Culture 1990; Local Economy, vol. 19, no. 4, pp
327-340
Internet:
http://www.maribor2012.info/; pristup: 17.11.2010.
http://www.candidatecities.com/; pristup: 16. 11. 2010.
http://www.facebook.com/; pristup: 15. 01. 2011.

140

Dražen Kostelac

PROJECT PORTFOLIO MANAGEMENT IN
FAST-GROWING COMPANIES
Dražen Kostelac mag.tech.ing
JGL d.d. Rijeka
Pulac b.b. Rijeka, Hrvatska
Email: drazen.kostelac@jgl.hr

ABSTRACT

Many organizations are not getting a good return on investment from their
project portfolios. Without formally considering, through project portfolio management, what collection of projects the organization has the resources to execute,
the executives often push more projects into the organization well beyond its capacity. As a result, projects become slow to execute, and the various parts of the organization are constantly fighting each other over resources. One of the key strategic
values of a portfolio manager is to guide the Governance Board to a balanced project portfolio. Portfolio management is unquestionably at the heart of the projects
success or failure. This article deals with portfolio management in fast-growing
companies’ with one case study in the pharmaceutics company.
JEL classification: O22
Key words: project management, project portfolio, organization management,
growing companies
1. INTRODUCTION

Today, after 20 years on the market, JGL has transformed into an agile, projectoriented pharmaceutical company. According to its own estimate, the company
holds 4 % share of the Croatian market and is third indigenous manufacturer in
Croatia.
The total revenue growth rate for the last eight years of about 30% per annul
makes the company one of the fastest growing and one of the most stable in the
country.

PROJECT PORTFOLIO MANAGEMENT IN FAST-GROWING COMPANIES

141

JGL holds many projects in our portfolio (e.g. more than 50 projects) so it is
sensible to define several project portfolios for different types of projects e.g. (contracting projects, product development projects, IT projects etc.).
A project portfolio presents a point in time-related analysis.
The general objective of project portfolio management is the optimization of
project portfolio results. Different objectives are pursued in the various business
processes of project portfolio management. The central objectives of assigning a
project or program are the selection of a favorable investment and the adequate
organization form for initializing the investment.
The objectives of the project portfolio coordination are the coordination of the
objectives of the projects of the portfolio, the coordination of the internal and
external resources used on these projects, the organization of learning from and
between the projects, and the determination of the project priorities.

Picture 1:

Source: Internal JGL document (02.02.2011.)

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Dražen Kostelac

2. MATURITY AND ORGANIZATIONAL PERFORMANCE

The concept of maturity brings the question whether increasing maturity leads
to increasing performance. Work in that area has been done at the University of
California in Berkley. They found that increasing maturity did lead to increasing
performance. Their performance curve followed a learning curve, so the performance improvement going from one level to the next is only half what was obtained coming for the previous level to this. Cost of achieving the performance
improvement is twice what it was at the previous level. In their research Bill Ibbs
and Justin Reginato defined a project management return on investment (PM ROI)
as the performance improvement obtained divided by the cost of obtaining increased maturity:

The efficiency gain is the combined improvement from cost and schedule performance improvement. Companies with fewer projects need to stay at Maturity
Level 3.

Table 1: Levels of Maturity
Level
1
2
3
4
5

Requirements
Ad hoc processes, no guidance, no consistency
Procedures for individual processes, minimum guidance
Full procedures manual, group support
Process measured, collection of experiences and learning through reviews
Benchmarking, continuous improvement

Source: www.pmi.org (01.02.2009.)

3. ECONOMIC PROJECT SELECTION CRITERIA

We could say that project benefits can be measured in either financial or nonfinancial terms. The process of identifying the financial benefits is usually called
capital budgeting. Capital budgeting may be defined as the decision-making process
by which organizations evaluate projects. In this article we will restrict ourselves to
discuss the following topics:
• Net Present Value (NPV)
• Internal Rate of Return (IRR)

PROJECT PORTFOLIO MANAGEMENT IN FAST-GROWING COMPANIES

143

3.1. Net present value (NPV)

The Net Present Value (NPV) method is a sophisticated capital budgeting
technique that equates the discounted cash flows against the initial investment.
Net present value is widely used across industries in evaluating and comparing
investments.
FV = Future value of an investment
II = Initial Investment
k = Investment interest rate (or cost of capital)
n = Number of years
Present value approaches are based on the principle that money in hand should
be valued more highly than an identical amount that would be received in the
future. It is assumed that money in hand can in principle be invested immediately
and because of that achieve an additional return or interest in the future. The value
of money that is receivable at some future point in time is discounted to reflect its
lesser value - equivalent to it’s in hand value.
NPV approaches compare the present value of the cost streams associated with a
project with the present value of the revenue streams. The cost stream is subtracted
from the revenue stream to obtain the net stream of returns, which can then be
discounted to calculate the net present value.
Three key variables are required to calculate a project’s NPV:
• The future costs and their timing;
• The future revenues and their timing;
• A discount rate.
If a project’s NPV is positive (i.e. greater than zero) then the current value of the
net future returns generated by the project exceeds investment expectations, indicating a positive investment opportunity. All other things being equal, the higher
the NPV, the more financially valuable the project opportunity.
The decision-making criteria using NPV are:
• If the NPV is greater than or equal to zero €, accept the project.
• If the NPV is less than zero €, reject the project.
A positive value of NPV indicates that the firm will earn a return equal to or
greater than its cost of capital.

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Dražen Kostelac

3.2. ROI

Today more and more clients are asking what value their IT investment will bring
the company because they are authorizing the capital to fund a project. Increasingly,
project managers are now requested to inform Executive board what their likely returns would be because the project managers are managing the proposed project.
Project Example:

A pharmaceutical company has assigned a project manager to replace a company’s
software and procedures that are used for developing R&D products. The executive
team assigned a task to PMO Manager to perform a ROI, as the project could have
great influence on company. PMO Manager begins to quantify several things.

Table 2: Cost with NEW Solution
Cost with NEW Solution
Hardware
Software
Project Implementation
Support
TOTAL

Yr0
Project [1]
300 000
400 000
500 000
1 200 000

Yr1
Support

Yr2
Support

Yr3
Support

200 000

200 000

200 000

400 000
600 000

400 000
600 000

400 000
600 000

Author’s calculations: example

Table 3: Cost with CURRENT Solution
Yr0
Yr1
Yr2
Yr3
Cost with CURRENT Solution
Support
Support
Support
Support
Database Administrators
700 000
700 000
700 000
700 000
Operational Support
900 000
900 000
900 000
900 000
TOTAL
1 600 000
1 600 000
1 600 000
1 600 000
The Net Savings if Project is Chosen
[2]
1 000 000
1 000 000
1 000 000
Now Calculate the Discounted Net Savings - assuming a rate of 9% [3]
Year 1: 1,000,000 /(1 + .09) = 917 431.19
Year 2: 1,000,000 /([1 + .09) + .09)] = 841 679.99
Year 3: 1,000,000 /[((1 + .09) + .09) + .09)] = 772 183.48
NPV TOTAL: 2 531 294.66
ROI
Discounted Net Savings at 9%
2 531 294.66
Initial Cost of New Solution
1 200 000.00
ROI
210%
(positive)
Author’s calculations: example

PROJECT PORTFOLIO MANAGEMENT IN FAST-GROWING COMPANIES

145

[1]The comparison of the initial cost of the new solution to the cost of the current solution is not appropriate because the new solution will not be available until
the end of Year 0. The comparison of the two solutions is not meaningful until the
new solution is complete.
[2]Assumes that the project will be completed by the end of Year 0 and will be
available starting Year 1.
[3]There are several options for choosing the discount rate, such as the cost of
capital (e.g., borrowed from a bank), the rate of return of alternative projects, or
the investment yield rate.
3.3. Internal Rate of Return (IRR)

The internal rate of return (IRR) is perhaps the most sophisticated capital budgeting technique and also more difficult to calculate than NPV. The internal rate of
return is the discount rate where the present value of the cash inflows exactly equals
the initial investment.
Mathematical formula for IRR:

FV = Future value of an investment
IRR = Discount rate when the NPV=0
II = Initial Investment
k = Investment interest rate (or cost of capital)
n = Number of years
3.4. Comparing IRR and NPV

Both IRR and NPV for most projects will generate the same accept-reject decision. However, there are differences that can exist in the underlying assumptions
that can cause the projects to be ranked differently. The major problem is the differences in the magnitude and timing of the cash inflows.
NPV assumes that the cash inflows are reinvested at the cost of capital, while
IRR assumes reinvestment at the project’s IRR. NPV tends to be a more conservative approach.

146

Dražen Kostelac

The timing of the cash flows is also important. Early year cash inflows tend to
be at a lower cost of capital and are more predictable than later year cash inflows.
Because of the downstream uncertainty, companies prefer larger cash inflows in the
early years rather than the later years. Magnitude and timing are extremely important in the selection of capital projects.

Picture 2:

Source: Internal JGL document (03.02.2011.)

PROJECT PORTFOLIO MANAGEMENT IN FAST-GROWING COMPANIES

147

Picture 3:

Source: Internal JGL document (03.02.2011.)

4. CONCLUSION

PMO manager suggests creating new overview of all projects developed by PPM
model (marketing, sales, etc…), recognizing familiarities and differences between
these projects, recognizing synergetic and / or competing relationship between the
projects. Also identifying barriers such as organizational climate, perceptions, customer pressure, too many communication links, and too many projects, and working to avoid or minimize them by talking with the middle managers.

148

Dražen Kostelac

Senior management must be willing to hear bad news and have the courage to
possibly cancel a project. Since changes can alter expectations, project portfolio
management must be integrated with the project’s change management process.
Main benefits for fast growing company (in this case JGL):
• Optimization of the project portfolio results,
• Controlling of the structure of the project portfolio,
• Control of the project portfolio risk,
• Coordination of the project objectives with the strategic objectives of the project-oriented organization,
• Coordination of the objectives of individual projects,
• Coordination of the resources used both internally and externally in the projects, and determination of project priorities,
• Any potential stop or interruption of projects.
REFERENCES:

Englund, Randal L. & Graham, Robert J & Dinsmore, Paul C. (2001.) “Creating
the PMO”, USA, San Francisco
Gareis, Roland (2005) Happy Projects!, Wien, Austria
Rad, Parviz F. & Levin, Ginger (2002.), The advanced PMO, USA, Washington
PMA baseline Wien www.p-m-a.at/ ( 20.02.2010)
ICB IPMA Competence Baseline Version 3.0 www.ipma.ch ( 11.01.2010)
Project Management Institute www.pmi.org (01.02.2009.)
Stanleigh, Michael (2006.), Process Management vs. Project Management , Wien,
Austria
Kerzner, Harold (2001.),A Systems Approach to Planning, Scheduling, and Controlling, USA, Ohio
Turner, J. Rodney (2009.), The Handbook of Project-Based Management - 3rd
Edition, London, England

FINANCIAL ANALYSIS AS AN INSTRUMENT OF VALUATION OF CROATIAN COMPANIES

149

FINANCIAL ANALYSIS AS AN INSTRUMENT OF VALUATION
OF CROATIAN COMPANIES
Hrvoje Serdarušić M.Sc., Zagrebačka banka d.d., Croatia, hrvoje.serdarusic@zg.t-com.hr

Abstract

When considering problem – question from the area of financial decisions (how
to finance – capital structure question) and problem – question from the area of
a corporate governance (so called agency problem), one of key roles has financial
analysis.
In the research presented, question was asked: « Do companies make their owner’s wishes come true in a manner that they increase owner’s wealth and, in the
long-run, do they accomplish it in a sustainable manner? » Companies manage
when they are creating real economic value for theirs owners and when they are
creating value investing capital where return rate is greater than cost of capital.
Therefore it is of vital importance that financial management deeply understands
what the value is, how it is created and what is the role and responsibility of financial management in front of owners. Professional experiences in the risk assessment
and business relationship with numerous clients indicate that the vast part of the
problem of weak Croatian national economy lies on a micro-level – in companies
which are not success-driven, on a continuous and sustainable frequency, meaning
lack of a long-term value increase.
JEL classification: G11, G24, G32
Keywords: Financial analysis, valuation
1. INTRODUCTION

Normative goal, according to theory of financial management, is increase of
owner’s wealth or, differently put, maximisation of owner’s equity. This maximisation is considered socially desirable aim, which tangs interests of all participants
when deciding on how to finance, in what to invest, do we or do we not pay dividends and in what a manner is a corporation governed.

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Hrvoje Serdarušić

Value is a defining dimension of measurement in market economy. Valuation, as
a process which derives out of that dimension, is consisted of five steps:
1. understanding the business and current financial profile;
2. forecasting company performance;
3. selecting the appropriate valuation model;
4. converting forecasts to a valuation;
5. making the investment decision.
When considering problem – question from the area of financial decisions (how
to finance – capital structure question) and problem – question from the area of
a corporate governance (so called agency problem), one of key roles has financial
analysis.
Financial analysis contributes in two first steps of valuation. Fundamental equity-analysis is engaged in a estimation of operating performance and equity of a
company in order to asses relative attractiveness of an equity (companies’ shares) as
an investment. Analysts use different valuation methods in order to estimate equity,
including different approaches:
- valuation ratios (such as P/E ratio);
- discounted cash flow (DCF Method);
- residual income (comparison of ROE vs. cost of capital).
In the research presented, question was asked: « Do companies make their owner’s wishes come true in a manner that they increase owner’s wealth and, in the
long-run, do they accomplish it in a sustainable manner? » Companies manage
when they (1) are creating real economic value for theirs owners and when they (2)
are creating value investing capital where return rate is greater than cost of capital.
Therefore it is of vital importance that financial management deeply understands
what the value is, how it is created and what is the role and responsibility of financial management in front of owners. Professional experiences in the risk assessment
and business relationship with numerous clients indicate that the vast part of the
problem of weak Croatian national economy lies on a micro-level – in companies
which are not success-driven, on a continuous and sustainable frequency, meaning
lack of a long-term value increase.
2. UNDERSTANDING THE BUSINESS AND CURRENT FINANCIAL PROFILE

Creators and analysts of financial statements are playing “cats and dogs” game:
the analyst can not take statements for granted, in the first place because financial
statements are presented in the nominal (face) regarding equity-valuation.

FINANCIAL ANALYSIS AS AN INSTRUMENT OF VALUATION OF CROATIAN COMPANIES

151

On the other hand, financial statements standards enable managers (owners’
agents) that financial position and profitability of a company are flexible communicated up to the certain level. Moreover, their position enables also hiding some
bits of information from their competitors, analysts and investment public. Here
is the choice presented:
- potential benefits (revelation of data decreases insecurity (e.g. risk), and therefore, cost of capital is decreased, which enlarges value) or
- potential costs (revelation of data decreases current and future competitive and
market position, what can possibly destroy value).
The way people treat data come out from accounting process divides them into
two groups: ones who treat this data as a rich source in valuation process, and the
ones who do not.
„A company’s value is driven by its ability to generate cash flows in the long
term.
At the same time, the ability to generate cash flows (and hence its value creation
ability) is driven by long-term growth and the returns a company earns on invested
capital relative to its cost of capital.”
Out of 10 valuation methods based on discounting of cash flows, in the research two were used: Free Cash Flow or shorted FCF) and economic value added
(EVA)1.

1
Paragraph citated from Doctor of Business Administration Thesis, author Andrej Grubišić: „ValueBased Management: Is it embraced in practice?“, Business Scholl Lausanne, 2007., mentor: Dr. Alkis
Tsiklis.
Author gave 10 methods in his work:
1) Free cash flow discounted at the WACC;
2) Equity cash flows discounted at the required return to equity;
3) Capital cash flows discounted at the WACC before tax;
4) APV (Adjusted Present Value);
5) The business’ risk-adjusted free cash flows discounted at the required return to assets;
6) The business’ risk-adjusted equity cash flows discounted at the required return to assets;
7) Residual income discounted at the required return to equity;
8) EVA discounted at the WACC;
9)
The risk-free rate-adjusted free cash flows discounted at the risk-free rate; and
10
) The risk-free rate-adjusted equity cash flows discounted at the required return to assets.

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Hrvoje Serdarušić

FCF is closely connected with the basic valuation principle: net present value.
Furthermore, FCF is forward-looking, based on expectations, not on what was done
in past. Equity investors (owners of the company) are just doing right that: they are
expecting their investment to be paid back. They are grounding their choices on the
promise of payback of the future cash flow.
Equity investors in the capital markets are reasoning on future expectations,
while the very same equity investors in the persons of the company owners pay
their agents (board members whom is value creation entrusted) by the results, not
promises, by past actions, not future expectations. There is a risk that the board
(management) is being paid while they are destroying value for the owners. In order to resolve this matter, companies are implementing value metrics conceptually
close to free cash flow model.
Early was mentioned that two methods will be used forward on, so:
- NPV:
Based on DCF technique, so in corporate valuation we say it is a
bottom-up approach. Every investment is contemplated through the time horizon
in terms of future expected economic benefit (cash flow). NPV analysis looks on
the project through the long-term period (e.g. 5-year, 6-year etc.) in order to consider all project effects. It is concentrated on a question: do we have a go for this
project? It puts a weigh on decisions, not on a time period.
- EP:
Short of economic profit. Calculated as a difference of net operating profit after tax (“NOPAT”) and price of a capital. Uses top-down approach
and is usually calculated fore definite time period (most frequent on a yearly basis),
more on the level of a company, rather than on a project-level. Economic profit
calculations are trying to allocate value creation on the specific time period.

Table 1. Comparison of two principles (NPV vs. EP)2

2

Typical application
Time period
Basis

NPV
Project or decision
Whole life cycle
Cash flow

Investor benchmark

Cost of capital as a hurdle rate

EP
Company or division
Defined calendar period
NOPAT
Capital charge (Amount of capital
times cost of capital)

Table from study case »Value Creation, Net Present Value, And Economic Profit», author: Prof.
Robert S. Harris, Copyright University of Virginia, Darden School Foundation, Charlottesville, VA,
1997, Page 3.

FINANCIAL ANALYSIS AS AN INSTRUMENT OF VALUATION OF CROATIAN COMPANIES

Cos of capital
Amortisation and deprecation
Working capital
Primary scope

Decreases cash flow
Added to NOPAT
Affects cash flow
Valuation of future decisions

153

Increases level of capital
Decreases level of capital
Affects level of capital
Valuation of current performance

Formulas in use are:
NPV =

Net present value of future cash flows – Initial investment;

Cash flow = NOPAT + Amortisation and Depreciation – Increase of Net
Working Capital – CAPEX

Economic profit

= NOPAT – Cost of capital =
= NOPAT – Cost of capital * Level of capital»3

For the forecasting of the future performance which will affect company value it
is vital that financial analyst understands economic and industrial context (macro
economical analysis, effects of monetary policy, industrial analysis) and to analyse
financial statements. More, it is needed to make a sensitivity analysis, what is tangible with probability (e.g. Bayes’ theorem).
3. UNDERSTANDING OF CURRENT FINANCIAL PROFILE

When considering issue of a profile, we can say that it is an understanding of
current financial position (Balance Sheet) and profitability (Income Statement).
Through financial analysis it is possible to assess ones buyers and build conclusions
into a business relationship.
It can be done through financial ratios as well. Relative valuation models use
principle that assets that are alike have prices that are also alike. That is why relative
valuation uses ratios or rational numbers.
3.1. Relative valuation models

Worlds’ authority on a filed of valuation, professor Aswath Damodaran, writes
in his book «Damodaran on valuation» that most valuations in practice is relative,
3
Cited from »Value Creation, Net Present Value, And Economic Profit», professor Robert S. Harris,
Copyright University of Virginia, Darden School Foundation, Charlottesville, VA, 1997.

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Hrvoje Serdarušić

so no point to argue against it. While DCF valuation has an end to reach to an
asset value, considering its cash flow, growth and risk characteristics, at a relative
valuation side there is an objective to value assets based on how similar assets are
currently priced by the market.»4
Here are listed key ratios:
1) Price/Book Value Ratio (P/B)
2) Price/Cash Flow Ratio (P/CF)
3) Price/Earnings Ratio (P/E)
4) Price/Earnings To Growth Ratio
5) Price/Sales Ratio (P/S)
6) Dividend Yield (Yd)
7) Enterprise Value Multiple
8) EPS
9) DPS
The most used ratio is P/E, which is connected with growth of sales and earnings (e.g. Gordon’s growth model), with cost of capital and CAPM, ROE and
DuPont analysis, etc...
3.2. Absolute valuation models

Task of these models is to come up with the real (intrinsic) asset value, the
result which comes in the form of a number in monetary is being compared with
the market price of the particular asset. In financial theory, the most important
are NPV models. The method is DCF method or The Discounted Cash Flow
Method).
Cash flow is defined on a company level: the first definition Free Cash Flow and
the other is residual income.
The first definition arises on an operative cash flow and it considers principle going-concern: reinvesting in the capital (long-term) assets and working capital needs.
It is based mostly on the Statement of the Cash Flow.

4
Damodaran, A. (2006.). Damodaran on valuation: security analysis for investment and corporate
finance, New Jersey: Wiley and Sons. (pages 231-233), text adapted.

155

FINANCIAL ANALYSIS AS AN INSTRUMENT OF VALUATION OF CROATIAN COMPANIES

The other definition is residual income based on an accrual category of earnings versus the opportunity cost which are generating those same earnings. So, the
second definition is mostly based on the Income Statement.
In valuation, Free Cash Flow method is suitable when a company does not pay
dividends, if dividends are significantly adverse from the Free Cash Flow To Equity
(FCFE), when Free Cash Flow correlates with the profitability and when investor
takes majority in a company.
Residual income method (approach) can be used in valuation when company
does not pay dividends as alternative to the first method or free cash flow is a negative one.
Here it is compared Return on Equity (ROE) versus cost of capital. The helpful
DuPont analysis can detect generators of profitability.5
4. RESEARCH RESULTS

Here down is presented analysis of Croatian tourism companies in the period of
2002 – 2004. Calculation is based on the cost of Equity of 11%.

Table 2. Key results of Free Cash Flow and Economic Value Added
(values in HRK)
EBIT
2002.

2003.

2004.

2002.

2003.

2004.

7.209.096

14.188.721

12.722.416

9.394.450

9.545.804

14.096.234

min

-67.926.361

-17.732.344

-11.407.867

-66.440.769

-79.610.425

-8.728.205

max

45.649.838

66.360.629

61.085.089

52.023.083

84.052.080

60.959.101

count +

26

32

33

25

25

33

count -

10

4

3

11

11

3

median

4.013.588

8.974.369

8.856.571

7.306.374

6.208.861

10.095.806

AVG - MED

3.195.508

5.214.352

3.865.846

2.088.077

3.336.944

4.000.428

average

5

Free Cash Flow

See author’s article in magazine “Računovodstvo i financije”, December 2010: «Measurement of
profitability».

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Hrvoje Serdarušić

NOPAT

(FD + Equity) x WACC

2002.

2003.

2004.

2002.

2003.

2004.

6.390.629

13.766.623

12.220.750

38.936.245

39.470.172

42.947.165

min

-67.926.361

-17.732.344

-11.407.867

164.435

453.826

690.765

max

45.649.838

66.360.629

61.085.089

154.022.941

158.496.162

161.042.051

count +

25

32

33

36

36

36

count -

11

4

3

0

0

0

median

2.351.668

8.702.307

8.738.289

24.157.269

23.236.433

28.655.639

AVG - MED

4.038.961

5.064.316

3.482.461

14.778.975

16.233.739

14.291.526

average

average
min
max
count +
count median
AVG - MED

2002.
-32.545.615
-126.240.542
359.374
1
35
-18.641.552
-13.904.063

EVA
2003.
-25.703.549
-92.135.533
7.408.183
3
33
-18.674.363
-7.029.186

2004.
-30.726.415
-118.371.773
6.032.893
5
31
-22.648.677
-8.077.738

Source: Author’s calculations
Although FCF (Free Cash Flow varies from 9.4m HRK to 14.1m HRK in average and most of 36 companies researched are FCF positive (minimum 25 of 36),
on the other hand, EVA is in the negative territory ranging from -32.5m HRK to
– 30.7m HRK in average, with only 5 EVA positive companies in 2004, what was
the best year. The reason is that the level of capital is bigger than NOPAT.
ROE analysis showed that average was between -5,8% and 4,6%. Upper level
(first 12 by the revenue size) have ROE ranging from 3,8% to 6,0%, what is better
than average. Out of 36, there are 25 companies with increased ROE.

FINANCIAL ANALYSIS AS AN INSTRUMENT OF VALUATION OF CROATIAN COMPANIES

157

Correlation coefficient between change of revenues and change of ROE is 0.02,
what is low and gives a conclusion that there is no significant connection between
increase in revenue and profitability.
Profitability comes from high leverage (2,2 – 1,9) and the amount of EBT
(Earnings before taxes) which powerfully injects in value of tax burden ranging
from 3,5 to 0,5 and interest burden (values close to 1: 0,94 – 0,96). EBT is high
because of tax shield.
5. CLOSING THOUGHTS

Valuation is forward looking business; going for forecasts is company performance what will generate future paybacks to owners. Depending on inputs, results
will vary from bad to good. This is no revolutionary revelation. Professor Damodaran in one interview said in February this year: « Keep it simple! »6 So valuation
should be done this way.
After research conducted, results for period 2002 – 2004 for biggest Croatian
tourist companies are that they are not EVA positive business. Free cash flow and
EVA, by theory, should give same or pretty same results. Results presented in this
article are totally opposite, so it is not possible to firmly state which result is to be
taken into account.
Bibliography:

Andrej Grubišić, DBA Thesis: „Value-Based Management: Is it embraced in practice? “, Business Scholl Lausanne, 2007, mentor: Dr. Alkis Tsiklis
Bradley, M., Jarrell, G. A., Han Kim, E.: On the Existence of an Optimal Capital
Structure: Theory and Evidence, The Journal of Finance, Vol. 39, No. 3, Papers and
Proceedings, Forty-Second Annual Meeting, American Finance Association, San
Francisco, CA, December 28-30, 1983 (Jul., 1984), pp. 857-878
Brealey, R. A. i Myers, S. C.: PRINCIPLES OF CORPORATE FINANCE,
McGraw-Hill/Irwin, New York, 2003.

6

Interview given by CFA Institute with the Professor Aswath Damodaran called «Criticisms of Traditional Discounted Cash Flow Analysis” can be viewed at: http://www.facebook.com/#!/video/video.p
hp?v=190412274322472&oid=387464390460&comments.

158

Hrvoje Serdarušić

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CFA Level 1, Study Guide, Study Sessions 1-18: Corporate Finance, Portfolio
Management, Equity Analysis, Part 11-29, Edition 2010., DeVry/ Becker Educational Development Corp., 2009.
Copeland, T.: VALUATION, Wiley John & Sons: McKinsey&Company Inc.,
New York, 1991.
Damodaran, A. (Vol. 25, No. 3, September 2008). The Anatomy of an LBO: Leverage, Control, and Value. CFA Institute Conference Proceedings Quarterly (str.
16-27). Charlottesville, Virginia: CFA Institute
Damodaran, A. (2006). Damodaran on Valuation, Wiley and Sons, New Jersey,
ISBN 978-0-471-75121-2
Helfert, E. A.: TEHNIKE FINANCISJKE ANALIZE, Hrvatska zajednica
računovođa i financijskih djelatnika, Zagreb, 1997.
Hirst, D. E., Hopkin, P. E.: Earnings: Measurement, Disclosure, and the Impact on
Equity Valuation, 2000., The Research Foundation of the Association for Investment Management and Research, CFA Publications, www.cfapubs.org
Hrvatska udruga financijskih analitičara: PRIRUČNIK ZA POLAGANJE ISPITA ZA OBAVLJANJE POSLOVA INVESTICIJSKOG SAVJETNIKA, Zagreb,
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Koller, T., Goedhart, M. et Wessels, D. (2010). VALUATION, Measuring and
Managing The Value of Companies, John Wiley & Sons, Inc., McKinsey & Company, New Jersey, ISBN 978-0-470-42465-0
Modigliani, F., Miller, M. H.: The Cost of Capital, Corporation Finance and
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XLVIII.
Modigliani, F.; Miller, M. H.: The Cost of Capital, Corporation Finance and the
Theory of Investment, The American Economic Review, Vol. 48, No. 3. (Jun.,
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Novak, B.: Mjerenje i upravljanje dodanom ekonomskom vrijednošću tvrtke,
EKONOMSKI PREGLED, Zagreb, 53 (3-4) 269-291 (2002)
Peterson, P. P., Peterson, D. R.: „Company Performance and Mesaures of Value
Added“, The Research Foundation of The Institute of Chartered Financial Analysts, December 1996.
Serdarušić, H. (2010). Measurement of profitability, Računovodstvo i financije,
Zagreb, December 2010.
Young, D. S. & O’Byrne, S. F. (2001). EVA and value based management: a practical guide to implementation, McGraw-Hill, ISBN 0-07-136439-0
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ISBN 978-0-470-35426-0

160

Nino Grau

STANDARDS UND EXZELLENZ  UNVERSÖHNLICHE
GEGENSÄTZE?
Prof. Dr. Nino Grau
Technische Hochschule Mittelhessen - University of Applied Sciences
Fachbereich Wirtschaftsingenieurwesen

Abstract:

This paper presents two different approaches to improving the project namely
the standards for project management and the model for the project excellence.
There is evidence that both standards in useful combination can dramatically increase the quality of projects
JEL classification: O22
Keywords: Project management standards, Excellence Award, IPMA
1. Einführung

Die Globalisierung und die internationale Zusammenarbeit führen dazu, dass
die Erwartungshaltung der Kunden und Auftraggeber ein bisher kaum vorstellbares Niveau erreicht hat sowohl in Bezug auf das Angebot der Sach- als auch der
Dienstleistungen.
Einerseits soll alles so schnell und möglichst so preiswert angeboten werden,
wie nie zuvor. Dies wird durch internationale Arbeitsteilung und Anwendung
komplexer Methoden und Technikum (inklusive Informations- und Kommunikationstechnologie) für die Koordination der verteilten Arbeit erreicht. Die Arbeit
in verteilten und virtuellen Teams ist für Kommunikationsprobleme und Missverständnisse besonders anfällig. Deshalb ist es sehr wichtig, in solchen Projekten Standards zu verwenden, die die gemeinsame Projektarbeit auf eine von allen
anerkannte Basis stellen. Es ist nicht verwunderlich, dass solche Standards nur den
kleinsten gemeinsamen Nenner darstellen. Zusätzlich wird noch als negatives Element die starke Bürokratisierung der Vorgehensweise empfunden. Die Benutzung
der Standards wird nicht selten eher als eine Einengung als eine Hilfe empfunden.

161

STANDARDS UND EXZELLENZ  UNVERSÖHNLICHE GEGENSÄTZE?

Andererseits wird die höchste Qualität erwartet. Dies bedeutet, dass die Projektteams durch ein exzellentes, herausragendes, alles Bisherige in den Schatten stellendes Projektmanagement glänzen sollen. In jeder Hinsicht sollen sie die Erwartungen der Auftraggeber erfüllen oder noch besser übertreffen. Erwartet wird also hoch
innovatives, flexibles Vorgehen und herausragende Projektergebnisse.
Wie stehen nun die Forderung nach Standards einerseits und die nach Exzellenz
andererseits zueinander?
2. STANDARDS FÜR DAS PROJEKTMANAGEMENT

Schließt man sich der Definition des BSI (British Standards Institute) an, so
istein Standard “a published specification that establishes a common language, and
contains a technical specification or other precise criteria and is designed to be used
consistently, as a rule, a guideline, or a definition” (BSI,2011).Diese Definition
klingt so einleuchtend, dass man leicht auf die Idee kommen könnte, es gebe einen
für alle verbindlichen Standard für das Projektmanagement. Wenn von Standards
für das Projektmanagement gesprochen wird, so macht dies aber deutlich, dass es
nicht einen allumfassenden Standard gibt, sondern eine Fülle von verschiedenen
Standards (s. Abb. 1)(s. GRAU, E. & GRAU, N. 2011)..
Abb. 1: unterschiedliche Standards für das Projektmanagement
De facto Standards
ICB 3.0

special Standards

PRINCE 2

Scrum
V-Modell XT

PMBOK

PM-Kanon

ProjektManager
PM3

De jure Standards

VDA 4.3
HOAI
VOB/FIDIC
Maturity-Models
project excellence

DIN 69900 / 69901
ISO 10.006
IEC 62198
ISO 21.500 …

PM-Delta

CMMI

SPICE
OPM 3

162

Nino Grau

Verschiedene Standards für das Projektmanagement (z.B. DIN 69.900/69.901
und die in der Entwicklung befindliche ISO 21.500) legen zwar vieles fest, erlauben
aber dem Anwender, selbst zu entscheiden, welche dieser Prozesse für sein Projekt
sinnvoll sind. Dabei unterscheidet die deutsche DIN 69 900 zwischen Prozessen,
die verbindlich sind und zusätzlichen Prozessen, deren Anwendung empfohlen
wird.Dadurch wird einerseits so vieler festgelegt wie nötig andererseits wird aber so
viel Flexibilität gewährt wie nur irgendwie möglich. Durch die Beteiligung breiter
Kreise an der Entwicklung der Normen (vgl. WASCHEK, 2009) wird darüber
hinaus eine weiterhin konsensfähige Lösung gefunden
3. MODELL OF PROJECT EXCELLENCE

Das Modell für die Bewertungder Exzellenz in Projekten (PEM – ProjectExcellence Modell) wurde Ende des 20. Jahrhunderts von der GPM (Deutsche Gesellschaft für Projektmanagement e.V.) entwickelt. Das Modell wurde zunächst
im Rahmen eines Auswahlverfahrens dazu benutzt, exzellente Projekte zu finden
und im Rahmen eines Award-Prozesses zu würdigen. Im Vordergrund stand die
gerechte Bewertung der Bewerber. Das Modell ist deswegen so klar, dass es einerseits für die Assessoren als klare Grundlage für ihr Vorgehen dient. Andererseits
ist es auch für die Bewerber gut nachvollziehbar (Grau&Hutterer, 1999).Darüber
hinaus war es wichtig, ein Verfahren zu entwickeln, mit dem in einem „Train the
Trainer“ Prozess verhältnismäßig schnell eine größere Anzahl von Assessoren für
ihre Aufgabe vorbereitet werden konnte. Das Modell sollte auch so gestaltet sein,
dass es von vielen Projektmanagern akzeptiert werden konnte, ohne dass sie eine
aufwändige Ausbildung dazu brauchen. So bot es sich an, dass weit verbreitete
Modell von EFQM-Modell zum Vorbild zu nehmen. Dieses Modell konnte durch
verhältnismäßig wenige Änderungen an das Thema Projektmanagement angepasst
werden. Es standen auch viele EFQM-Assessoren zu Verfügung, die durch verhältnismäßig wenig Training zu PEM-Assessoren ausgebildet werden konnten. Das
Modell, das mehrere Jahre in Deutschland im Einsatz war, wurde 2002 beim Weltkongress in Berlin an die IPMA übergeben, wo es als Bewertungsgrundlage für den
IPMA International Award dient.
Aus der Tabelle 1 ist deutlich sichtbar, dass das Modell für Projekte verschiedenster Größenordnung anwendbar ist. Es kann auch unabhängig von der Branche
bzw. von der Projektart angewendet werden. Es handelt sich also um ein offenes
Bewertungsmodell, das heißt das Modell lässt viel Spielraum bei der Bewertung.

STANDARDS UND EXZELLENZ  UNVERSÖHNLICHE GEGENSÄTZE?

163

Tab. 1: Unterschiedliche Kategorien von Projekten, die am IPMA Award
teilnehmen

3

Das PEM-Bewertungsmodell (siehe Abbildung 2) sieht für das zu bewertende
Projekt die Möglichkeit, maximal 1000 Punkte zu vergeben. Die neun Kriterien,
die zur Bewertung herangezogen werden, werden dazu in zwei Gruppen eingeteilt,
wobei in jeder Gruppe 500 Punkte vergeben werden können. Bei den beiden Gruppen von Kriterien handelt es sich um die Kriterien zur Bewertung der Projektergebnisse bzw. des Vorgehens im Projektmanagement.
Abb. 2: Das PEM 

The IPMA Asse ssme nt Mode l for
„Proje ct Exce lle nce “

164

Nino Grau

Pro Kriterium gibt es unterschiedliche Anzahl von Bewertungspunkten (s.Abb.
edes Kriterium setzt sich aus mehreren Teilkriterien zusammen, die jeweils einzeln
bewertet werden. Die Teilergebnisse werden dann zu Ergebnissen pro Kriterium
zusammengefügt
Abb. 3: Punkteverteilung im PEM
200
180
160
140
120
100
180

180

80
140

140

60
40

80

70

70

People

Resources

80
60

20
0
Project
Objective

Leadership

Processes

Customer
Results

People
Results

Key
Results of
other parties Performance
I
l d
dP j

Da es sich hier um ein sehr offenes Bewertungsmodell handelt, kommt dem Bewertungsprozess besondere Bedeutung zu. In einem aufwändigen Prozess bewerten
die Assessoren die Bewerbungsunterlagen zunächst individuell. Danach überprüfen
Sie Ihre individuellen Bewertungen in einem Konsensprozess aller Mitglieder des
Assessorenteams. Gegebenenfalls werden die Bewertungen bei einem Vorortbesuch
beim Projektteam endgültig erhärtet (siehe Abbildung XX). Bei diesem Prozess
bilden das Wissen und die Erfahrung der Assessoren neben dem Modell die zweite
wichtige Voraussetzung für das Gelingen der Bewertung. Ähnlich verhält es sich
beim internen Einsatz des Modells zur Verbesserung des Projektmanagements
eigenen Unternehmen.

STANDARDS UND EXZELLENZ  UNVERSÖHNLICHE GEGENSÄTZE?

165

Abb. 4: Vorgehen beim Award-Prozess der IPMA 

Neben der Möglichkeit, ganze Projekte im Detail so ausführlich und damit aufwändig zu analysieren wie im Awardprozessgibt es noch andere Möglichkeiten,
vom PEM zu profitieren. So kann man z.B.:
1. aus Berichten von Award bzw. Prize Winnern bzw. Finalisten deren Projekte
kennen lernen und aus deren Erfahrungen im Sinne von bestpractices lernen.
2. Kleinere Segmente eines Projektes identifizieren und versuchen, von Anfang
an in diesen Bereichen Projekt möglichst exzellent zu arbeiten
3. Last But not least kann man sich mit seinem Projekt um den sofort auch dann
bewerben, wenn man sich keine allzu großen Hoffnungen macht, den Award
zu gewinnen. Schon der Benchmarkingbericht durch das Assessorenteam hilft,
das eigene Projektmanagement zu verbessern mit einem vergleichsweise moderaten
Aufwand für die Teilnahme am Award.
Dadurch, dass sowohl das Modell als auch das Bewertungsverfahren bekannt
sind, kann jenes Projektteam das Verfahren nutzen, um sein Projekt zu verbessern.
Einen Anhaltspunkt für die Bewertung des Projektmanagements bekommt man
aus der Bewertungstabelle für die Kriterien 1-5 (s. Tab. 2). Vergleichbare Tabelle

166

Nino Grau

gibt es auch für die Kriterien 6-9. Entsprechende Tabellen und Hinweise zur Bewertung sind aus der Bewerbungsbroschüre für den Award der IPMA ersichtlich.
Tab. 2: Bewertungstabelle für die Qualität des Projektmanagements 

Criteria 1-5 – Assessment Table

Obwohl das Modell und das Bewertungsverfahren öffentlich bekannt sind, lebt
dieses Bewertungsverfahren von dem Wissen der Assessoren. Dies bedeutet das das
Modell den größtmöglichen Nutzen dann erbringt, wenn das Modell und das Bewertungsverfahren zumindest ansatzweise so kombiniert werden, wie dies bei dem
Assessment vorgesehen ist (s. Abb. 5). Dazu sollen die diejenigen, die im Unternehmen das Modell anwenden, sinnvollerweise ein Training durchlaufen haben. Noch
besser ist es, wenn sie alles Assessoren im Rahmen des in Award Prozesses ihre
Erfahrungen gesammelt haben.

STANDARDS UND EXZELLENZ  UNVERSÖHNLICHE GEGENSÄTZE?

167

Abb. 5: Zusammenspiel zwischen Verfahren und Modell für PEM

Excellence = Model + Process

4

FAZIT

Die Anwendung des Modells und des Prozesses für Projekt Exzellenz verhilft
den Projektteams, ihre Projekte deutlich zu verbessern und sie zumindest auf lange
Sicht exzellent zu machen. Diese Exzellenz kann allerdings nicht darauf verzichten, bei den Grundlagen die geltenden Standards zu berücksichtigen. Die Standards sind heutzutage so flexibel, dass sie die Projektarbeit nicht unnötig durch
bürokratische Hürden erschweren und die Initiative der am Projekt beteiligten zu
ersticken (Grau, 2011). Sinnvolles Projektmanagements wird deshalb die Standards als die Basis ihrer Arbeit anwenden, um dadurch die Freiheit zu erlangen,
durch innovative und kreative Vorgehensweisen die Exzellenz in der Projektarbeit
zu erreichen.
Beide Bereiche helfen aber nur insoweit, als sie von den gut ausgebildeten, kompetenten Projektbeteiligten sinnvoll angewendet werden.

168

Nino Grau

Literatur

Barkovic, D. &Runzheimer, B. (Hrsg.), Interdisziplinary Management Research
VI Osijek –Porec
BSI British Standards Institute Educational Website available at: www.bsieducation.org/.../what-is-a-standard.shtml
GPM Deutsche Gesellschaft für Projektmanagement Frau/Gessler, M. (Hrsg.)
Kompetenz passierte es Projektmanagement (PM3), Nürnberg, ISBN 978-3924841-40-9
Grau, E. &Grau, N. (2010: Projektmanagementnormen in internationalen ProjektenBedeutung, aktueller Stand und zukünftige Entwicklungen. In:Barkovic, D.
&Runzheimer, B. (Hrsg.), Interdisziplinary Management Research VI (S. 86-94)
Osijek –Porec
Grau, N. &Hutterer, E. (1999): Vorstellung des “Deutschen Award” in Mertins,K.
B Kohl, H. (Hrsg.) Benchmarking 99 Steigerung der Wettbewerbsfähigkeit privater
und öffentlicher Unternehmen, IPK (Fraunhofer-Institut für Produktionsanlagen
und Konstruktionstechnik) Berlin Eigenverlag, ISBN 3-8167-5275-6
Grau, N.:(2011) Project Management Standards – New DevelopmentsincludingISO 21.500 Vortrag in Zagreb Tagungsband in Vorbereitung
Mertins,K. & Kohl, H. (Hrsg.)(1999) Benchmarking 99 Steigerung der Wettbewerbsfähigkeit privater und öffentlicher Unternehmen, IPK (Fraunhofer-Institut für
Produktionsanlagen und Konstruktionstechnik) Berlin Eigenverlag, ISBN 3-81675275-6
Otmann, R.&Shelle, H. (2011): professionelles Projekt-Management die besten
Projekte, die erfolgreichsten Methoden in ISBN 978-3-406-61988-5
Waschek, G.(2009): Normen und Richtlinien in GPM Deutsche Gesellschaft für
Projektmanagement Frau/Gessler, M. (Hrsg.) Kompetenz passierte es Projektmanagement (PM3) (Seite 1299-1327), Nürnberg, ISBN 978-3-924841-40-9

SPECIFICITIES AND DEVELOPMENT OF INSTITUTIONAL FRAME FOR CORPORATE ...

169

SPECIFICITIES AND DEVELOPMENT OF INSTITUTIONAL
FRAME FOR CORPORATE GOVERNANCE IN BOSNIA AND
HERZEGOVINA
M.sc. Nikola Papac, Faculty of Economics, University of Mostar
Ph.D. Marija Čutura, Faculty of Economics, University of Mostar
M.sc. Anela Čolak, Faculty of Economics, University of Mostar

Abstract

This paper will analyze corporate governance in Bosnia and Herzegovina, i.e.
it will analyze the institutional or the legal frame of the corporate governance in
Bosnia and Herzegovina. The goal is to show the state and the perspectives of institutional or the legal frame of the corporate governance.
JEL classification: G34
Keywords: corporate governance, Bosnia and Herzegovina
1. Introduction

Corporate governance, in the broadest sense, represents a relation between the
manager (the governance) and the people or the institutions which invested the
capital in the corporation. The theory of corporate governance is getting more and
more important because of the large corporations whose income is significantly
above GDP of many countries and the fact that the government is daily getting
harder and more complex because the issue of separating the ownership and the
government in large corporations is emphasized daily. The necessity for corporate
governance reached its peak after the ruination of large global corporations followed by the malversations of management and crises and turbulences on global
market (ENRON and WorldCom in USA and Parmalat in Italy).
In countries in development the routs of what is now called corporate governance lay in the initiatives for privatization which grew stronger from late 70s and
during 80s till today. Transformation (privatization) of state or social ownership to

170

Nikola Papac • Marija Čutura • Anela Čolak

private ownership is one of first and very important steps or phases in the whole
process of transition or changing the state-planned and administratively regulated
economy to market economy.
Corporate governance in one country consists of laws and other rules that regulate this field, these are the formal rules, and of the informal rules which are defined
inside of or between corporations by various contracts and agreements.
This paper will analyze corporate governance in Bosnia and Herzegovina, i.e.
it will analyze the institutional or the legal frame of the corporate governance in
Bosnia and Herzegovina. The goal is to show the state and the perspectives of institutional or the legal frame of the corporate governance.
The legal frame for corporate governance in Bosnia and Herzegovina is determined by entity laws. The existing laws which regulate this issue offer only partial
and incomplete solutions and are not completely harmonized with the supranational regulations and recommendations.
2. The definition, role and the meaning of corporative governance

The term firm /business/company/enterprise can be defined as an independent
economic, technical and social whole in the ownership of certain subjects which
produces goods or services for the need of the market using available resources and
bearing the economic risk with the goal of making profit and accomplishing other
economic goals.
The corporation (in B&H “dioničko društvo” or “Joint Stock Company” in
English) is a legal person and represents the most complex organizational form in
market economy. The company’s capital is shared on stocks and one may become
a co owner by buying stocks on the market. The owners of the corporation, i.e. its
stock-holders, have a limited responsibility, i.e. they are responsible for the corporation’s business success only to the level of their capital invested in the stocks.
According to Demb and Neubauer4 corporate governance is a kind of process
in which corporations respond to rights and wishes of its interested groups – the
stockholders.

SPECIFICITIES AND DEVELOPMENT OF INSTITUTIONAL FRAME FOR CORPORATE ...

171

According to the definition of the Organization of Economic Cooperation and
Development (OECD)1 the corporate governance consists of “group of relations
between the management, the direction, the board of directors, stockholders and
other interested parties. Corporate governance also represents a structure inside
which the goals of corporation are set as well as the patterns for accomplishing these
goals and monitoring the results. Good corporate governance should be a stimulus
to board of directors, the direction and the management in accomplishing the goals
which are in the best interest of both - the corporation and the stockholders and
should ease efficient monitoring for them. The existence of efficient corporative
governance inside a particular corporation and the entire economy helps secure a
degree of trust necessary for proper functioning of the market economy.”
Making efficient corporate governance includes three fields: (1) management
control – management board controls the choice of directors and evaluates the
work of directors; (2) reports to stockholders – audit and including them in important decisions of the owner; (3) monitoring and the evaluation of long-term
strategies and evaluation of company’s work.5
3. Systems of corporate governance – the influence of legislative or institutional frame on the model of corporate governance in
Bosnia and Herzegovina

The system of corporate governance is determined according to the person
which has the leading position and role on the relations in the corporation. The
systems of corporate governance are differentiated by the system of allocation of
power, the level of separating the owner and the management structure, and finally
by the problem of efficient decision making. Considering weather the interior or
exterior structures have the leading position, we differentiate an open and closed
system of corporate governance.
3.1. Convergence of opened and closed system - their advantages
and disadvantages

To claim that one of these systems is better than the other is very hard, first of
all because they have developed in different situational frames, but also because

1

Organisation for Economic Co-Operation And development, OECD Principles of Corporate Governance, OECD, 2004

172

Nikola Papac • Marija Čutura • Anela Čolak

partially they overlap in their characteristics. Based on everything said so far we can
conclude that closed system is based on
Table 1 – Comparison of opened and closed system of corporate governance
OPENED SYSTEM
CLOSED SYSTEM
Ownership
dispersed
concentrated
Concentration of voting
Weaker
stronger
power of stock - holders
Control and ownership
developed
connected
Owners of controlling packages of
power
management
stocks and stock - holders
The role of owner in corpora- Usually small because of the free-rider Preferably high because of the no
tive management
effect
transparency
Instrument of corporative
mostly external
mostly internal
government
Interests of other interested
lesser level of representation
higher level of representation
influence-group
Major stock-holders vs. Minor stockBasic agency relation
Stock-holders vs. management
holder
Accomplishing the goals of manageAccomplishing the goals of major ownment (preinvesting) at the damage of
ers and other groups at the damage of
efficiency and profitability
interests of minor stock-holders
Institutional investors are prevalent and First companies, then financial instituIdentity of stock-holders
then the individual investors follow
tions and then individual investors
Medium developed with secondary
Market of capital
Very developed with primary role
role
It exists with a significant part of hostile It does not have a relevant role, hostile
Market for corporative control
takeovers
takeovers are rare
Source: Tipurić, D. (2006): Nadzorni odbor i korporativno upravljanje, Sinergija, Zagreb, page 88

After seeing all this we can conclude that the system of corporative government
in B&H is closer to closed system. That can be the consequence of experiences
gathered from central European countries, but also the low level of the development of financial market in countries with dominantly opened system of corporate
governance.

SPECIFICITIES AND DEVELOPMENT OF INSTITUTIONAL FRAME FOR CORPORATE ...

173

4. Regulation of corporate governance at the level of European Union

By the regulations of the contract about the establishing of EU as the primary
source, the frame of supranational regulative and the rights of corporation and
corporate governance are determined, as well as through numerous regulations of
secondary legislative of EU and the verdicts of the court of EU.
Most of the initiatives at the level of European Union at the area of corporation
and corporative government are based on the article 44 part 2 point g (chapter
54.) of the Contract about the establishment of European Union. Article 43 of the
contract about the establishing of EU regulates the freedom of corporation to establish Daughter Company, branches of a company or agency in another countrymember. In the court practice of the Court of EU the establishment of a business is
defined as “an actual performance of economic activity through constant business
activity in another country-member through undetermined period”.2
The court of EU took a stand that it is an obligation of a country-member to
admit the companies and their branches of a company established by the right of
another country-member and to give them freedoms by the Contract about the establishing of EU.3 In the middle of the year 2003 the European commission issued
a document titled “Modernization of the Rights of Companies and Improvement
of corporate governance in European Union – The Plan of Moving Forward” with
the goal of advancing and equalizing the practice of corporative government in
countries-members which have different systems of corporative governance. This
document is known in public under the title “Action Plan”. In Action Plan it is
clearly stated that its intention is not to create a unique codex of corporate governance at the level of EU, but to set some special regulations and principals and to
coordinate national codex of government to encourage future.
Tipurić and Horak4 emphasize the following directives, decisions and recommendations which, as secondary legal norms, regulate corporate governance at the
level of EU:
- Directive 2006/46/EC determines the obligation of reporting on financial and
other crucial issues,

2

Mlikotin Tomić, D, et al. (2006): Europsko tržišno pravo, Zagreb: Školska knjiga, page 35-37

3

Tipurić, D. et al (2008): Korporativno upravljanje, Sinergija nakladništvo d.d., Zagreb, Page 199

4

Tipurić, D. et al, (2008), Page 207-217

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Nikola Papac • Marija Čutura • Anela Čolak

- Directive 2006/68/EC determines the conditions that must be fulfilled concerning the preservation of basic capital with the purpose of protecting the creditor
and the principle of equal position of stock-holders,
- Directive 2004/25/EC gives a minimum of standard considering the matter of
taking over the stocks of companies with stocks on the stock-market,
- Directive 2005/56 on international merging of corporation tries to solve the
problems of international activities in European Union,
- Directive 2004/109/EC on harmonizing the demand for transparency of data
about the issuers whose loan stock are part of trading on set market,
- Recommendation about the compensation to directors of corporation whose
stocks are at the stock-market (Recommendation 2004/913/EC),
- Recommendation which determines basic principles of independence of auditors who perform legal audit of financial reports (Recommendation 2002/590/EC),
- On February 15. 2005 the European commission brought a recommendation
on basic qualities that non executive members of board of directors must have.
Besides numerous directives and recommendations in the field of trade law,
finances, accounting, audit, etc. which contain regulations directly linked to corporative government in European law, there is a regulation on importance of corporative government called Directive of EC Council (EU) number. 2157/2001 October
8th 2001 on the statute of European company.5 European company is corporation
whose capital is shared on stocks, and the company is based on the frame of European supranational law. The regulation clearly determines the organization of the
company. Obligated organs are determined, but the choice is left between monistic
and dualistic government system according to national regulations. Along with the
regulation a Directive, that complete Statute of European Company about joint
decision-making, was brought.
5. OECD’s principals of corporate governance

Organization for Economic Cooperation and Development (OECD) gives the
most important stimulus to building of good practice of corporate governance on
global level through representing non obliging standards, practice and instructions
5
Council Regulation 2001/2157/EC of 08 October 2001 on the Statute for a European Company SE,
Official Journal of the European Union, 294, 10/11/2001, page 1-21

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175

for implementation that can be adopted to specific circumstances of individual
countries and regions.
OECD brought the Principals of corporate governance for the first time in
1999, but they are revised to adapt to changes and in 2004 new were adopted.
The principals are not obliging, they are based on the principals and recommendations that do not determine anything strictly, and their importance is not slashed
if social, economic or legislative context is changed. The forum for stability marked
the Principals as one of twelve key standards for worthy financial systems.
The principals of corporate governance are divided into two parts. The first part
of the document considers I) securing basics for efficient frame of corporate governance; II) the rights of stock-holders and key owner structures; III) equal treatment
of the stockholders; IV) the role of interested parties (stockholders); V) announcing
the data and transparency; VI) the responsibility of the board. Every one of those
six principals has several sub-principals. In the second part of the document the
Principals are contain comments on principals and their intention is to help the
readers to understand the argumentation.
6. Regulative of corporate governance in Bosnia and Herzegovina

In countries in development the roots of what is now called corporate governance lay in the initiatives for privatization that grew stronger from the late 70s,
during 80s and are still lasting. The core questions related to the success of corporative government in countries in transition are: (1) transparency or opened access to
key information related finances or business results, (2) conflict of interests which
includes boards, directors and managers, (3) rights of owners, (4) corruption and
stealing.6
Institutional basics of corporate governance in one country consist of implying supranational documents that the state accepted signing certain international
contracts, national laws and sub legal acts and other codex that regulate this
field.
In Bosnia and Herzegovina in the field of accounting there is a state Law on
accounting and audit of Bosnia and Herzegovina, it determines the standards for
6

Nezirić, D. (2005): Korporativno upravljanje – pokretač razvoja tržišne ekonomije, Poduzetnička
ekonomija, Volume IX, 12/2005, page 238-354

176

Nikola Papac • Marija Čutura • Anela Čolak

performance of accounting and audit in Bosnia and Herzegovina, the way of gaining certificate and training in your profession, harmonizing the executive regulations and activities in the entities and forming an independent committee for
supervision and performance of standards in the entire Bosnia and Herzegovina.
Besides the mentioned law on the state level, there are entity laws, Law on audit
and accounting in the Federation of Bosnia and Herzegovina entity14 and the Law
on accounting and audit in Republic of Srpska entity.
International accounting standards, i.e. International standards of financial reporting are the basic for making our own accounting regulations which than regulate everything connected to making financial reports.
In the field of internal audit it is differently defined depending on the area of
work. Laws on banks and Laws on public companies regulate obligated forming of
the department of internal audit. If we observe public companies we must observe
the structure of state ownership in public companies which also enforces the need
for internal control and surveillance. Other companies, depending on their needs
can form a department of internal audit.
The primary legislative frame for corporate governance in Republic of Srpska
consists of: Law on companies in Republic of Srpska entity, Law on public companies in Republic of Srpska entity Law on banks in Republic of Srpska entity.
In Republic of Srpska entity in 2006 the commission for securities has accepted
and announced the codex of corporative government under the title: Standards of
managing in corporation. These codexes’s are made at the initiative of stock-market
in Banja Luka and are mostly compatible with international standards.
The primary legislative frame that defines this field in the Federation of Bosnia
and Herzegovina entity is a group of laws consisting of: Law on corporation, Law
on banks, Law on taking over corporation. In Federation of Bosnia and Herzegovina entity in 2009 at the initiative of stock-market in Sarajevo has created, accepted
and announced the codex of corporative government under the title: Codex of corporate governance for corporation listed on the market of Sarajevo stock exchange.
These codexes’s are made at the initiative of stock-market in Sarajevo and are mostly
compatible with international standards.
Bosnia and Herzegovina does not have a harmonized interior legislative frame,
but it is based on entity laws. In the following table we can see the legal framework for
both entities (Federation of Bosnia and Herzegovina and the Republic of Serbian)

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Table 2 - Legislation in the field of corporate governance in the Federation of Bosnia and Herzegovina and the
Republic of Serbian
Federation of Bosnia and Herzegovina
Zakon o gospodarskim društvima
(„Official Gazette of FB&H, Num.
23/99, 45/00, 2/02, 6/02, 29/03,
68/05, 91/07 i 84/08)

Republic of Srpska
Zakona o preduzećima („Official
Gazette of RS“ Num. 24/98, 62/02,
38/03. 97/04 i 34/06. )

Fields of application
These laws regulate the establishment, operation, management
and termination of companies, the
concept and forms of economic
society.

Zakonu o privatizaciji državnog
kapitala u preduzećima („Official
Gazette of RS“ Num. 51/06, 1/07,
53/07 i 41/08)

These laws determines the general
rules of privatization

2.

Zakon o privatizaciji poduzeća („Official Gazette of FB&H, Num. 27/97,
8/99, 32/00, 45/00, 54/00, 27/01,
27/02, 61/01, 33/02, 28/04, 44/04,
42/06 i 4/09 )

3.

Zakon o početnoj bilanci stanja
poduzeća i banaka („Official Gazette
of FB&H, Num. 12/98, 40/99, 47/06
i 38/08 )

Zakon o početnom bilansu stanja
Republike Srpske („Official Gazette of
RS“ Num. 24/98)

These laws regulate the procedure
and method of preparing the initial
balance sheet of enterprises and
banks.

Zakonu o stranim ulaganjima („Official
Gazette of FB&H, Num. 61/01, 50/03 )

Zakon o direktnim stranim ulaganjima („Official Gazette of RS“ Num.
17/99); Zakonu o stranim ulaganjima
(„Official Gazette of RS“ Num., br.
25/02 i 24/04)
Zakon o bankama Republike Srpske
(„Official Gazette of RS“ Num. 44/03)

These laws regulate the rights,
obligations and privileges of foreign
investors in entity of Bosnia and
Herzegovina.

1.

4.

5.

6.

7.

8.

(„Official Gazette of FB&H, Num.
39/98, 32/00, 48/01, 41/02, 58/02,
13/03, 19/03 i 28/03)
Zakon o preuzimanju dioničkih
društava („Official Gazette of FB&H,
Num. 7/06)
Zakon o računovodstvu i reviziji u FBiH
(„Official Gazette of FB&H, Num. 2/95,
12/98 i 32/05);
Zakon o stečaju i likvidaciji („Official
Gazette of FB&H, Num. 23/98)

Zakon o preuzimanju akcionarskih
društava („Official Gazette of RS“
Num. 65/08)
Zakon o računovodstvu („Official
Gazette of RS“ Num. 18/99, 62/02
i 67/05)
Zakona o prinudnom poravnanju,
stečaju i likvidaciji („Official Gazette
of SFRJ“ Num. 84/89”), which is
used in Republic of Srpska on the
basis of Article 12 Constitutional Law
for the implementation of the Constitution of the Republic of Srpska
(„Official Gazette of RS“ Num.
21/92”)

These laws regulate the establishment, supervision, operation and
management of banks.
These laws regulate the conditions
and manner of taking over companies in the entities of Bosnia and
Herzegovina.
These laws govern matters of accounting and auditing in entities of
Bosnia and Herzegovina.
These laws regulate the conditions
for enforcement and bankruptcy.

Nikola Papac • Marija Čutura • Anela Čolak

178

9.

Zakon o tržištu vrijednosnih papira
(„Official Gazette of FB&H, Num.
85/08)

Zakon o tržištu hartija od vrijdnosti („Official Gazette of RS“ Num.
92/06)

These laws regulate the securities
markets in the entities of Bosnia and
Herzegovina.

10.

Kodeks korporativnog upravljanja za
društva uvrštena na tržištu Sarajevske
burze vrijednosnih papira

Standardi upravljanja akcionarskim
društvima, („Official Gazette of RS“
Num. 3/06)

Codes of Corporate Governance.
Detailed establishes mechanisms to
protect the interests and functioning of the mutual relations of all
stakeholders.

11.

MRS and MSFI

International standards for the preparation and publication of financial
statements.

Source: Papac, N.: Master thesis, Faculty of Economics, University of Mostar, 2009., page 118

Based on this we can conclude that in Bosnia and Herzegovina are two systems
of corporate governance based on the entity laws and codes. This is a unique example in the world and is determined by the structure of Bosnia and Herzegovina
as a state. Therefore, the most important recommendation is to create a uniform
system of corporate governance
7. Conclusion

Legal frame has a great influence on the quality of corporate governance through
the protection of stockholders (especially minor), behavior of investors, behavior of
management and the forming of national codex.
Bosnia and Herzegovina does not have a harmonized interior legislative frame,
but it is based on entity laws (Republic of Srpska and Federation of Bosnia and
Herzegovina) which solve certain problems only partially. They are not harmonized
mutually or with the supranational standards. That is also confirmed by the fact
that Bosnia and Herzegovina has no established common codex of corporate governance, and in Federation of Bosnia and Herzegovina and Republic of Srpska they
are not harmonized among themselves and with supranational recommendations.
Observing the importance of corporate governance we may conclude that the
basic perspective in Bosnia and Herzegovina is to make models and mechanisms
that will enable stabile financial market and attract foreign investors. As basic
presupposition we can take the making of joint Codex of corporate governance
of Bosnia and Herzegovina and its harmonization with supranational codex and
demands.

SPECIFICITIES AND DEVELOPMENT OF INSTITUTIONAL FRAME FOR CORPORATE ...

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The importance of corporate governance is in the core of development of market economy and the democratic society and it is there fore the foundation of economic and social development of Bosnia and Herzegovina.
References

1. Buble, M. (2006): Osnove menadžmenta, Sinergija, Zagreb
2. Channdler, A.D.Jr. (1990): Scale and Scope: Dynamics of Industrial Capitalism,
Harvard University Press, Cambridge
3. Council Regulation 2001/2157/EC of 08 October 2001 on the Statute for a European Company SE, Official Journal of the European Union, 294, 10/11/2001
4. Čengić,D. (2001):Vlasnici, menadžeri i kontrola poduzeća, Institut društvenih
znanosti Ivo Pilar i Hrvatska sveučilišna naklada, Zagreb
5. Demb,A., Neubauer,F. (1992): The Corporate Bord: Confronting Paradoxes,
Oxford University Press, London
6. Mlikotin Tomić, D., Horak,H., Šoljan,V. i Pecotić-Kaufman,J. (2006): Europsko tržišno pravo, Školska Knjiga, Zagreb
7. Nezirić, D. (2005): Korporativno upravljanje – pokretač razvoja tržišne ekonomije, Poduzetnička ekonomija, Volume IX, 12/2005
8. Organization for Economic Co-Operation and development, OECD Principles
of Corporate Governance, OECD, 2004
9. Tipurić, D. et al. (2008): Korporativno upravljanje, Sinergija nakladništvo,
Zagreb
10. Tschopp,H.G. (2005): Corporate Governance – The Key to Success of Failure,
Boardroom – Magazine for Corporative Governance, Leadership and Quality of
Life, Num 1
11. White Paper on Corporate Governance in South East Europe - © OECD
2003
12. Laws and regulations in B&H

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Meike Mogk

MIT ACTIVOTE ZUR HANDLUNGSKOMPETENZ  NEUE
LEHRMETHODEN IM STUDIUM
Meike Mogk
Fachbereich Wirtschaftsingenieurwesen
Technische Hochschule Mittelhessen, Campus Friedberg

Abstract

A new educational concept for training in the field of project management has
beenused by us for several semesters. Using this concept, we want to achieve an
improvement of the quality of education. Therefore we study constantly how this
structure contributes to the activation of students. This paper examines how the
teaching at universities for the students can make the content of teaching as interesting and efficient as possible. We believe that, the results of the first 2 semester
show us that we are on the right track.
JEL classification: I21, I28
Keywords: Project Management, Education, PM standards, IPMA ICB 3.0
Blended Learning
1. Einleitung

Der Gedanke einer kompetenzbasierten Lehre (nicht nur) an Hochschulen ist
verschiedentlich umsetzbar. Bereits im Projekt „Weiterentwicklung der Lehr- und
Lernformen: Blended Learning in grundständigen Studiengängen unter realen
Bedingungen“ wurden erste Erfahrungen in der grundständigen Lehre gemacht,
die als Grundlage für das neuartige Konzept dienten. Als Schlüssel für den Erfolg
wurde hierin bestätigt, dass ein stringentes Anwenden und Weiterentwickeln eines
didaktischen Konzeptes notwendig ist, um Studierende zum aktiven Lernen „zu
zwingen“.
Daher wurde im Modul „Projekt- und Prozessmanagement“, an der Technischen Hochschule Mittelhessen, Campus Friedberg eine Weiterentwicklung der
Unterrichtsform gestaltet, die neue Medien und deren Möglichkeiten einbringt.

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Die grundsätzliche Idee ist, Wissen, Kompetenz und Reflektion des eigenen
Tuns auf verschiedenen Ebenen zu vermitteln und den Studierenden mit einer
Kombination aus Lehr- und Lernmethoden über das gesamte Semester hinweg in
das Thema einzubinden.
Auslöser der Änderung des „gewohnten“ Vorlesungsmodus war im Sommer
2009 unser selbst gestecktes Ziel, die Studierenden zur Handlungskompetenz zu
führen und somit weg vom reinen Auswendiglernen bestimmter Definitionen und
Methoden. Diese Handlungskompetenz soll als Grundlage für die Studierenden
gelten, wenn sie im späteren Berufsleben auf Projektmanagement-Kompetenzen
angewiesen sind.
2. Vorlesung „Projekt- und Prozessmanagement“

Derzeit wird das Modul Projekt- und Prozessmanagement (PPM) in15 Vorlesungenà 3 Stunden pro Semester für die Diplomstudierenden des Fachbereichs
Wirtschaftsingenieurwesen gelehrt. Es finden zwei Vorlesungen statt (Vorlesung A
und Vorlesung B).Die Teilnehmerzahl an Vorlesung A ist auf 20 Studierende limitiert. Eine größere Anzahl lässt ein intensiveres Arbeiten mit den Teilnehmern nicht
zu.Neben der Vorlesung A, bietet der Fachbereich, auch auf Grund der Restriktion
auf 20 Teilnehmer eine alterative Möglichkeit an und hat hierfür einen Lehrbeauftragten eingestellt.Die Vorlesung B ist als klassische Frontalvorlesung strukturiert.
Die Inhalte der Vorlesung sind angelehnt an die des deutschen PM 3 (Deutsche
NCB (National Competence Baseline) abgeleitet aus der ICB 3.0 (IPMA Competence Baseline (IPMA = International Project Management Association)) einem
weltweit verbreiteten PM Standard. Die Klausur besteht aus offenen und Multiple
ChoiceFragen, die Verwendung des Skripts in der Klausur wird zugelassen.
3. Didaktisches Konzept der Vorlesung

Bei der Entwicklung des didaktischen Konzeptes lehnen wir uns an das Konzept
von Franke an, der als Voraussetzung die Berücksichtigung folgender Dimensionen nennt: wissenszentriert, Performanz zentriert und handlungszentriert.(Jenert;
2008: S.38 nach Franke;2005)Diese Dimensionen haben wir in Ebenen der Lehre
in Vorlesung A umgesetzt. Die Ebenen werden nachfolgend erläutert sowie die
eingesetzten Instrumente genannt. Zunächst musste die Vorlesung unter diesen
Gesichtspunkten neu gestaltet und die Leistungsbewertung angepasst werden.

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Meike Mogk

Ein interaktiven Whiteboards (zum IWB, s. Kapitel 4)bietet hierfür die idealen Voraussetzungen. Wir versprachen uns im ersten Schritt die Aktivierung der
Studierenden durch die neue, unbekannte Methode und somit ein „spielerisches“
Erlernen des definitorischen Grundwissens.
Im zweiten Schritt wird das Gelernte in Übungen angewendet. Im dritten und
letzten Schritt wird die Reflektion des Gelernten in Form einer mündlichen Prüfung getestet. Dies führt im idealen Fall zum gewünschten Erfolg – der Handlungskompetenz.Nachstehend zeigt die Graphik das didaktische Konzeptund den
Aufbau der Bewertungen in der Vorlesung.
Das Schema ist so aufgebaut, dass die Mindestanforderung, das Erlernen des
PM Basiswissens von jedem Studierenden erfüllt ist, der dieses Modul bestanden
hat. Dies bedeutet konkret, dass ein Studierender, der an den Übungen teilnimmt,
sowie die Kurztests erfolgreich absolviert, das Modul bestanden hat.
Die Inhalte, die in der Vorlesung gelehrt werden basieren grundsätzlich auf
der ICB 3.0 sowie der deutschen DIN für das Projektmanagement (DIN 69900 /
69901).

Abb. 1 Struktur der Vorlesung

Mündl.
Prüfung
Ausarbeitung

Übung/Präsentation

Basiswissen durch Activote

(eigene Darstellung)
Die nächste Stufe beinhaltet die Anfertigung einer Hausarbeit, die in der Gruppe erstellt werden soll. Hier ist das Erfahren der Teamarbeit ein weiteres Lernziel

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der Vorlesung. Die Studierenden können weitere 30 Punkte erreichen, so dass sie,
mit den Punkten des Kurztests und der Mitarbeit im Labor bislang insgesamt 90
Punkte erreichen konnten.Die verbleibenden 10 Punkte werden in einer mündlichen Prüfung vergeben.
4. Interaktives Whiteboard
4.1. Einführung des Interaktiven Whiteboards

Wie in Kap. 3 beschrieben, ist als Neuartigkeit in der Vorlesungsgestaltung das
Instrument des Whiteboards mit dem dazugehörigen Abstimmungssystem zu sehen. Im Folgenden wird der Aufbau sowie die Anwendung kurz vorgestellt.
Als einfache und zutreffende Erklärung des IWB dient an dieser Stelle ein Zitat
von Wikipedia: „An interactive whiteboard is a large interactive display that connects to a computer and projector. A projector projects the computer’s desktop
onto the board’s surface, where userscontrol the computer using a pen, finger or
other device. The board is typically mounted to awall or on a floor stand.”(o.V.;
2009b, S. )
In der Phase der Konzeptionierung und der Entscheidung pro/contra für das
Interactive Whiteboard (IWB) fällt auf, dass der überwiegende Teil der Erfahrungsberichte und Studien im schulischen Bereich angesiedelt sind. Die Vorreiterrolle
bei der Anwendung der IWBs fällt hier den Engländern zu, denn „in England sind
bereits 60 Prozent aller Klassenräume mit interaktiven Whiteboards ausgestattet“
(o.V.; 2009a, S. ), während es in Deutschland 2009 gerade mal 5% waren.(vgl.
o.V.; 2009a, )Mit unserem Konzept versuchen wir, einige Vorzüge, die sich in Studien im Sekundarbereich herauskristallisiert haben, in den Hochschulbereich zu
übertragen.
Zunächst im Folgenden einige grundlegenden Vorteile eines IWBS im Unterricht: „In einer Erhebung im Jahr 2002 nahmen 10 Mittelschullehrer und deren
197 Schüler an einer Untersuchung mit anschließender Fragebogenerhebung, zur
Verwendung von IWBs im Unterricht und deren Beeinflussung an der Beteiligung
der Schüler, teil. Die Ergebnisse der Studie belegen eindeutig, dass IWBs die Beteiligung der Schüler am Lernprozess steigern. Folgende positiven Eigenschaften wurde
dem Unterricht mit Unterstützung von IWBs von den Schülern zugeschrieben.
Diese Vorteile sind unseres Erachtens, auf den Hochschulbereichübertragbar:

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Meike Mogk

- bessere Möglichkeit der interaktiven, visuellen Darstellung von (multimedialen)Inhalten
- intensivere Teilnahme der Schüler resp. Studierende am Unterricht
- gelerntes wird besser im Gedächtnis verankert“ (Wieden-Bischof; 2008, S.4)
Studien über die Nutzung als Ersatz für die Tafel finden sich häufiger als der
Einsatz der anschließbaren Geräte, wie das Activote. (Als Bsp: Cutrim-Schmid;
2006, S.)Die Literatur zeigt Vorteile auf, die zwar nicht den Kern der Vorlesungsgestaltung treffen, dennoch sich mit demFeedback der Studierenden decken. (s.
Kap. 7).
Selbstverständlich existieren Vorteile nicht ohne Nachteile und so zeigt sich,
dass allein die Anschaffung des IWB nicht genügt, um einen guten Unterricht durchzuführen. Vielmehr ist es die Umsetzung eines didaktischen Konzepts, das die
Schüler resp. die Studierenden einbindet und hierin die Möglichkeiten der interaktiven Lehre nutzt (vgl. o.V.; 2009a, S.).Als zweiter Nachteil wird das aufwendigere
Vorbereiten des Unterrichts genannt. Es lässt sich bestätigen, dass der betriebene
Aufwand größer als bei einer klassischen Frontalvorlesung ist.Er hat dennoch seinen Nutzen.
4.2. Zeitlicher & finanzieller Aufwand

Neben den Anschaffungskosten für die Hardware haben wir bei der Nutzung
des IWB festgestellt, dass ein erhöhter personeller und damit zeitlicher Aufwand
betrieben werden muss.
Im Folgenden möchten wir diesen kurz darstellen.
Kosten:

Beamer
Anschaffung Whiteboard: Größe 78“q
Anschaffung Activotes: 32 Stück
Schulung: 1 Tag

bereits vorhanden
ca. 1800 €
ca. 1800 €
ca. 1000 €

Zeitlicher Aufwand

Jede Vorbereitung eines von 4 Votes mit 25 Fragen nimmt etwa 3 Stunden
in Anspruch. Die Nachbereitung, mit Auswertung für jeden Studierenden ca. 1
Stunde. Die Konzeption der Fragen ist im Nachhinein nicht messbar. Veranschlagt

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man 10 Minuten pro erstellte Frage, ist das bei momentan vorhandenen 120 Stück
ein Zeitaufwand von 20 Stunden. Diese Zeit „amortisiert“ sich über die eingesetzten Semester hinweg.
Die mitgelieferte Software ist nicht vollständig selbsterklärend. Mittlerweile
gibt es eine neue, komplett überarbeitete Softwareversion. Diese verfügt allerdings
noch nicht über die Möglichkeit, eine Datenbank mit allen Fragen anzulegen. Das
bedeutet, dass vor jedem Vote sämtliche Fragen und Antworten erneut einzugeben
sind. Nach Rücksprache mit der Hotline wird dies im nächsten Update angedacht,
zugesichert werden kann es aber nicht. Daher werden wir weiterhin mit der alten
Software arbeiten müssen.
Für den Bereich anderen Elemente der Vorlesungen können wir lediglich die
zeitliche Einbindung überschlägig benennen. Diese ist:
Vorlesung:

Prof. Grau hält an 11 (11x 3 Std.) Terminen im Semester die Vorlesung, die die
Grundlagen des PM vermittelt.
Übungen:

An den 4 Übungen stehen Prof. Grau und Frau Mogk als Betreuer zur Verfügung. (4 x 3 Std.). Zusätzlich ist min. eine Person nach den Übungen noch für die
Studierenden erreichbar, die länger arbeiten wollen und Rücksprachebedarf haben.
Überschlägig sind das zusätzlich 3 Stunden je Übung.
Ausarbeitung:

Die Korrektur bzw. Bewertung der Ausarbeitung erfolgt zeitnah nach Abgabe.
Je Ausarbeitung sind diesca.3 Stunden. In jedem Semester sind min. 4 Gruppen
zu bewerten.
4.3. Das IWB im PM-Labor

Wir nutzen einen fest installierten Beamer, der hauptsächlich auch für die
Darstellung der Präsentationen und sonstigen digitalen Inhalten während anderer
Vorlesungen zur Verfügung steht. Neben den von uns genutzten Funktionen des
sog. votens bietet das IWB weitere Funktionen. Unter www.promethean.com findet sich die gesamt Produktpalette der Promethean Ltd. Daneben existieren noch
mehrere Anbieter dieser Technologie. Informationen über mögliche Alternativen
bietet Wieden-Bischof. (Wieden-Bischof; 2008, S.3)

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Meike Mogk

Wir möchten im Folgenden nur auf die von uns genutzte Funktion des votens näher eingehen.Hierzu mussten neben dem Board periphere Geräte gekauft
werden, die den Abstimmungsgeräten bspw. bei „Who wants to be a millionaire?“
ähneln.Promethean stellt zur Bearbeitung eine Software zur Verfügung.
Durch die Komplexität des Programmes und die Neuartigkeit des Produktes
wurde eine Produktbezogene Schulung nötig. Hier wurden die Basisanwendungsmöglichkeiten vorgestellt. Primär werden durch das Angebot Lehrer in den
unterschiedlichen Stufen des Schulsystems angesprochen, die im Unterricht die
Basisfunktionen (Mitarbeit der Schüler am Board, etc.) nutzen möchten
Im Gesamten ist der Umgang mit dem Board und den Abstimmungsgeräten
für jeden erlernbar. Es hat sich aber gezeigt, dass erst mit dem Einbringen in den
Unterricht, Verbesserungspotentiale erkannt wurden. Diese haben wir dann konsequent umgesetzt und so ein stabiles, didaktisch sinnvolles System gestaltet.
4.4. Integration in das didaktische Konzept

Die Integration des IWB findet in der ersten der drei Ebenen statt, dem sog.
„know what“, da es, wie in Kap. 4.3 beschrieben, die Möglichkeit bietet, mit Hilfe
von Abstimmungsgeräten einen interaktiven Test durchzuführen. Das Ziel dieser
Test ist es, definitorisches Basiswissen zu schaffen, so dass eine eindeutige Kommunikation und Verständnis der wichtigsten, grundlegenden PM-Begriffe (orientiert
weitestgehend an den o.g. Standards) erzielt werden kann.
Dieser Überlegung liegt die Beschreibung von Vorteilen (o.V.; 2004, S. 10).)
zu Grunde, die besagen, dass Studierende resp. Schüler das erlernte Wissen in den
Vorlesung durch höhere Motivation und Engagement besser behalten. Zudem
stellt die elektronischen Notenauswertung sicher, dass die Studierenden ein transparentes, zügiges Feedback über Ihren Stand des Wissens erhalten, dass zur langfristigen Sicherung des Wissens beiträgt.
Die Studierenden, die die Stufe „know what“ erfolgreich absolviert haben,
sind jetzt in der Lage, in den nächsten Stufen dieses Wissen einzusetzen.Die zweite
Stufe des anwendungsorientierten Wissens ist in den Übungen verankert.In diesen
4 Übungen werden die Grundbausteine zur Planung von Projekten thematisiert
und anhand eines selbstgewählten Projektes umgesetzt. Hierfür wird die Gesamtgruppe in max. 4 Studierende starke Teams aufgeteilt Die Inhalte der Übungen

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sind:Teambildung, Projektdefintion, Zieldefinition, Projektstrukturierung und
Projektablaufplanung.
Resultierend aus den Übungen soll neben der praktischen Anwendung und
somit dem Aufbau des Anwendungswissens dieses in einer theoretischen Ausarbeitung gefestigt werden. Diese Anfertigung ist für die Studierenden optional. Es ist
bislang noch nicht vorgekommen, dass ein Studierender nach dem Stattfinden der
Übungen die Vorlesung quasi beendet hat, da sein persönliches Ziel erreicht war.
Dies lässt den Schluss zu, dass Studierende von den anderen Gruppenmitgliedern
mitgetragen wurden und somit, zumindest Teilpunkte erlangt haben.
Das bislang erworbene definitorische Wissen, eingehend in die Anwendungskompetenz der 2. Ebene soll in der letzten Stufe „know why“ in die gewünschte
Handlungskompetenz führen. Mit dem Wissen der Tests und der Übung resp.
Ausarbeitung ausgestattet, werden die Studierenden als Gruppe zu einem Prüfungstermin eingeladen. Als Ergebnis sollen die Studierenden das gelernte Wissen reflektieren und die Anwendung in konkreten Fällen erläutern.
Die zeitliche Struktur der Ebenen haben wir nachfolgend abgebildet.
Abb. 1 Zeitlicher Verlauf des Vorlesungskonzeptes

(eigene Darstellung)

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Mit diesen 3 erläuterten Ebenen, möchten wir ein Umdenken erreichen, das bei
den Studierenden die Basis schafft, Gelerntes länger zu behalten und im konkreten
Anwendungsfall nach dem Studium, auf dieses Wissen zurückzugreifen, bzw. es
auszubauen.
5. Überprüfung der Zielerreichung

Nach 2 Semestern, in denen 75 Studierende am Labor teilgenommen haben,
lassen sich erste Tendenzen erkennen. Davon als Auszug einige Fragen, die wir uns
in diesem Zusammenhang gestellt haben:
- Besteht ein Zusammenhang zwischen der individuellen Note und der Mitwirkung in der Projektarbeit?
- Ist das über das Semester hinweg konstant geprüfte Wissen „haltbarer“?
- Sind die Studierenden der Meinung, dass Sie mehr gelernt haben?
- Wer ist schwach in den Votes und partizipiert von den Ausarbeitungen?
- Welche Gruppe nimmt tendenziell eher an den mündlichen Prüfungen teil?
Die Starken oder Schwachen?
Im Folgenden möchten wir diese Fragen mit Hilfe der Daten, die wir aus
den Leistungen der Studierenden sowie aus den Evaluationen gewonnen haben,
beantworten.
6. Vergleich des Leistungsniveaus auf den 3 Ebenen
Ebene „know what“

Ziel der Votes in der Vorlesungsgestaltung ist es, definitorisches Wissen als Basis
für die weiteren Ebenen zu schaffen. In diesem Zusammenhang ist interessant zu
beobachten, ob alle Studierenden diese Kurztests mit der vollen Punktzahl bestehen. (Hinweis: 70 aus 100 Fragen müssen richtig beantwortet werden, was einem
Leistungsniveau „C“ entspricht. Genauso steht die Frage im Raum, ob die Studierenden mehr als nötig leisten.
Von 75 Studierenden hatten nach den 4 Votings 33 Studierende mindestens die
erforderlichen 70% erreicht. Bislang ist es keinem Studierenden gelungen, bereits
nach 3 Votings die volle Punktzahl zu erreichen.

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Nach dem ersten Voting wurden den Fragen maximale Beantwortungszeiträume
vorgegeben. Dies hat zunächst einen Einbruch der Studierendenleistungen hervorgerufen. Im 4. Vote haben die Studierenden wieder höhere Punktzahlen erreicht.
Diese Zahlen decken sich mit den Aussagen der Studierenden hierzu (s. Kap.7).
Es lässt sich noch die Frage stellen, wie viel an Mehrleistung die Studierenden
in das Lernen investieren. Genügen den Studierenden die 70% oder sind Sie an
zusätzlichem Wissen interessiert?
Dies lässt sich nicht einwandfrei beantworten. Wir haben dazu den Vergleich
der ersten 3 Votes gegenüber den Ergebnissen des vierten Votes genommen. Zum
Zeitpunkt des vierten Votes hatte noch KEIN Studierender die notwendigen 70
richtigen Fragen beantwortet (bei insgesamt 75 gestellten Fragen).
Lediglich 11 der 75 Studierenden hatten im letzten Vote nicht mehr die Möglichkeit die volle Punktzahl durch max. 25 richtige Antworten zu erreichen. Die Chance
im letzten Vote die angestrebten 70% im gesamten zu erreichen, nutzen lediglich
33 und somit ca 45% aller teilnehmenden Studierenden.
Es lässt sich hier vermuten, dass jeder Studierende das letzte Vote genauso ernst
nimmt wie die ersten 3, da die notwendigen Punkte noch erreichbar sind.
Ebene „know how“

Die Teams bilden sich derzeit nach Sympathiewerten und nicht nach dem Anspruch, eine Gruppe zu finden, die den gleichen Leistungsstand aufweist. Es wird
daher unbewusst von den vermeintlich „Starken“ oder denjenigen, die Arbeit investieren wollen, hingenommen, dass sie die mittragen, die sich auf Grund des
Leistungsniveaus oder auch der mangelnden Motivation nicht einbringen.
Es stellt sich also die Frage: Partizipieren die „Schwachen“ aus dem Vote von
der Ausarbeitung?In diesem Fall wird als Schwach eingestuft, wer nach den 4 Votes
weniges als 36 Punkte hatte. Die Anzahl der Studierenden liegt bei 33% aller Teilnehmenden (25 Studierende absolut) – hingegen 33 Studierende und somit ca.
46% hatten bereits nach den Votes die volle Punktzahl erreicht.
Ausarbeitungen

Im Bereich der durchschnittlichen Punkte der Ausarbeitungen bilden die 25
Studierenden der Gruppe den Durchschnitt nahezu ab (17,5 Punkte von 30 möglichen Punkten, gegenüber 17,9 über alle Studierenden hinweg).

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Ebene „know why“

Zum Teil der mündlichen Prüfung lassen sich noch keine validen Aussagen machen. Diese Möglichkeit der Leistungsbewertung wurde größtenteils von denjenigen Studierenden wahrgenommen, die durch die zu erreichenden Punkte einen
Notensprung erreichen konnten. Insgesamt nahmen von den 75 Studierenden bislang 35 teil, was ca. 47% entspricht. Hierbei wurden die möglichen Punkte von
0-10 vergeben, im Schnitt haben die Studierenden 4,75 Punkte erreicht.
Zur Frage der Leistung der Gruppe der „Schwachen“ Studierenden kann gesagt
werden, dass die Punkte dieser Gruppe in der mündlichen Prüfung im Schnitt
geringer ausgefallen, 2,44 gegenüber 4,75 im Gesamtdurchschnitt. Das kann aber
auch daran liegen, dass diese Studierenden auf Grund des nicht möglichen Notensprungs nicht angetreten sind, denn von den 25 haben 14 nicht teilgenommen.
Pauschal kann man anmerken, dass durch das fehlende definitorische Wissen
aus der Ebene „know what“ die Grundlage für die Reflektion des Wissensin der
mündlichen Prüfung gefehlt hat. Daher könnte es eine gute Selbsteinschätzung der
14 Studierenden, die nicht teilgenommen haben, sein, dass sie die diese Prüfung
nicht bestehen und erst gar nicht dazu antreten.
Gesamtnotenvergleich
Die Notenverteilung ergibt sich wie folgt: Insgesamt haben in der Vorlesung B
84 Studierende in den 2 Semestern die Leistungsnachweise erbracht, in der Vorlesung Agelten die Vergleichszahlen der Semester WS 09/10 und SS 10 mit einer
Grundgesamtheit von 75 Studierenden.
Inder Vorlesung A wurde unter bislang 75 Studierenden als Bestnote ein Avergeben. Die große Masse der Studierenden, knapp 70%haben 76 bis 90 Punkte
erreicht, Das bedeutet im Schnitt ein C+.
Notendurchschnitt

Im Notendurchschnitt zeigt sich, dass die „Schwachen“ auch alles in allem
schwächer bleiben – liegt auch an der Vergabe der Teilpunkte im Semester. Die
Durchschnittsnote liegt bei C gegenüber B- über alle Studierenden hinweg.
Die Gesamtnoten der Vorlesung B sind tendenziell schlechter als die der Vorlesung A. Die 84 Studierenden, die an der Vorlesung und Prüfung teilgenommen
haben, wurden im Schnitt mit einem C- bewertet. Der Hauptanteil der Punkte
liegt bei der Vorlesung B zwischen B- und C+. Im Gegensatz zu den Punkten der

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Vorlesung A sind hier am unteren Rand der Notenskala vermehrt Bewertungen
vorhanden, so haben 31% ein D+ und schlechter.Der Gedanke der Studierenden,
dass durch die Mitnahme von Unterlagen der Vorlesung eine bessere Note erzielt
werden kann, wird hier nicht bestätigt. Es scheint eher so, dass trotz Vorlesung das
Verständnis für PM Themen geringer ist, weil diese nicht angewendet werden.
Hier zeigt sich ein klarer Vorteil der direkten Arbeit mit den Studierenden und
der Anwendung des Votings als Prüfungsinstrument. Denn zieht man alleinig den
erreichten Notendurchschnitt als Vergleichskriterium hinzu, ergibt sich folgendes
Bild.In den beiden Semestern ist der Schnitt in der Vorlesung B bei einem C-. In
Vorlesung A bewegt sich der Punkteschnitt über die beiden Semester bei einem
C+.So wird damit deutlich, dass unsere Art des Lehrens und Lernen erfolgreicher
ist.
7. Erste Erkenntnisse der Studierendenbefragung.

Bezüglich der Ergebnisse des Votes hat die Befragung der zwei Semester (WS
2009/10 und SS 2010) folgendes ergeben:
Ca. 63% geben in der Evaluation an, dass sie sich in den Votes verbessert haben,
davon sind ca. 83% der Meinung, dass dies auf Grund der Tatsache geschehen ist,
dass die Art der Fragen bekannt war und sie sich darauf einstellen konnten.
Von den ca. 37% der Studierenden, die angegeben haben, dass sie sich in den
Votes verschlechtert haben, sind 57% der Meinung, dass dies daran liegt, dass sie
nicht genug gelernt haben
Der Aufwand, der für die einzelnen Ebenen durch die Studierenden betrieben
wurde, wird im Durchschnitt wie folgt angegeben:
25% der Vorbereitungszeit wird für die Ebene „know what“ investiert
63% für die Ebene „know how“ und
12% für die Ebene „knwo why“.
Es lässt sich tendenziell sagen, dass die Wertigkeit der Ebenen dem Aufwand
dafür annähernd entspricht.
Wir möchten in den nächsten Semestern diese Werte weiterhin erheben und
hoffen, über einen längeren Zeitraum hinweg, eine solide Datenbasis für die Aussagen zu schaffen.

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Meike Mogk

Aus der Erhebung des Wintersemester 2010/11 möchten wir an diese Stelle
noch einige Aussagen der Studierenden stellen, die belegen, dass das Konzept und
die Art der Lehre von den Studierenden als positiv empfunden wird.
„Die Votes waren gut, auch dass sich die Fragen wiederholt haben.So konnte
man es sich besser merken.“
„Ein sehr gut ausgearbeitetes Konzept, können sich andere Professoren eine
Scheibe davon abschneiden. Eins der wenigen Fächer meines Studiums wo es nicht
darum ging auswendig zu lernen, sondern um aktive Mitarbeit und Interesse,
spiegelt sich ja auch in den Endnoten wieder. Die Atmosphäre im Labor war sehr
gut, man hat sich gefreut morgens hin zu kommen. Weiter so!“
„Sehr positiv fand ich, dass das Arbeitspensum über das gesamte Semester
verteilt war und nicht nur stumpfes auswendig lernen vor der Klausur angesagt
war!(so ist es leider in den meisten anderen Fächern) Bei einer solchen Einteilung
bleibt eindeutig mehr hängen als beim standartmäßigen Klausurschreiben.“
8. Fazit

Mit Hilfe dieses Konzeptes wollen wir eine Verbesserung der Qualität der Lehre
erreichen. Des Weiteren untersuchen wir laufend, wie diese Strukturierung zur
Aktivierung der Studierenden beiträgt und deren Leistung länger bzw. konstanter
abgerufen werden kann.Die Lehre an Hochschulen sollte für die Studierenden (als
auch für die Lehrenden) derart gestaltet sein, dass die zu vermittelnden Lehrinhalte
interessant gestaltet sind. Die Studierenden sollten aktiviert werden und ein selbständiges Lernen gefördert werden.
Die Qualifikation der Studierenden soll vom reinen Wissen bis zur Handlungskompetenz gefördert werden. Eine Frontalvorlesung ist dafür ein ungeeignetes
Mittel, so dass die Vorlesung PPM derart gestaltet wurde, dass dieses Ziel erreicht
werden kann. Neben dem Erlernen der wichtigsten PM Basics ist die Teamarbeit
ein Aspekt, der im Labor und in der Zusammenarbeit gelernt und erfahren werden
soll.
Wir sind der Meinung, dass uns die Ergebnisse der ersten 2 Semester Recht
geben und wir auf dem richtigen Weg sind.

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Quellennachweis:

Cutrim Schmid, E. (2007): Enhancing Perfomance Knowledge and Self-Esteem in
Classroom Language Learning: The Potential of the ACTIVote System Component
of Interactive Whiteboard Technoloy.In: System. Elsevier Vol 35,2, S. 119 -133
Franke, G. (2005): Facetten der Kompetenzentwicklung, Bielefeld; Bertelsmann
Grau. N., Mogk, M. (2010): Active vote – A New method in teaching Project
Management at Universities; Vortrag beim24th IPMA World Congress
Jenert, T. (2005): Eine pädagogisch-psychologische Perspektive auf das Kompetenzkonstrukt; unter: (http://www.imb-uni-augsburg.de/files/Jenert_Kompetenzentwicklung_Bologna_08.pdf )
o.V. (2004): Interactive Whiteboards – A Review of Classroom Cases Studies and
Research Literature; SMART Technologies, Ltd, unter:
(http://peremarques.pangea.org/pdigital/es/docs/Research%20White%20Paper.
pdf )
o.V. (2009a): Interaktive Tafeln: Hardware allein genügt nicht – Lehrer brauchen
Fortbildung und passende Inhalte. Unter: (http://bildungsklick.de/a/66638/
interaktive-tafeln-hardware-allein-genuegt-nicht/)
o.V. (2009b): Interactive Whiteboard, unter:(http://en.wikipedia.org/wiki/
Interactive_whiteboard)
Wieden-Bischof, D. (2008): “Interaktive Whiteboards” – Überblick und Einsatzmöglichkeiten im Unterricht, unter (http://virtuelleschule.bmukk.gv.at/uploads/media/UEberblick_SR_Interactive_whiteboards.pdf )

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TIME MANAGEMENT QUALITY - MANAGERS OF SLAVONIJA
CITIES vs CROATIAN MANAGERS
Bruno Dernaj – PhD student

Abstract

This paper will show the level of time management skills of managers in the
cities of Osijek and Vukovar, whose self-assessment results are compared with results of previous studies on the overall territory of Republic of Croatia. It is an
indisputabile fact that the cities of Osijek and Vukovar among the least developed
in the Republic of Croatia, compared with the situation twenty years ago. There
are many reasons that lead to such results. Among them are the embarrassment
of the war, emigration of educated and skilled population, however, the reason of
underdevelopment can be found in unskilled management of time at all levels of
management. We hereby wish to explore the need for additional training of managers in the cities of Osijek and Vukovar, the time management skills so that they
can be educated on time and accordingly facilitate rapid development. This paper
consists of three parts, of which the first is about theory of time management and
people who manage it. The second part contains the functions of a successful time
management as form of presentation of instructions for organizing a quality time.
The third section presents the results of research conducted in a way self-assessment
managers of personal time management and compare them with previous studies
performed on the entire Croatian territory.
JEL classification: C22
Key words: Quality, management, time management, manager, selfassessment
INTRODUTION

Time is needed for everything. All working activities happen throughout time
and take time. Nevertheless, most people take this unique, irreplaceable and necessary resource for granted. (Drucker; 2005., p 194.)

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Time is completely irreplaceable. One resource can be replaced by or substituted
for another to a certain extent, e.g. copper for aluminium, wood for plastic etc. Human work can be replaced by machine. We can use more knowledge or more physical
strength, but when it comes to time, there is no such possibility. (Drucker; 2005., p
193.)
Today’s lifestyle and working habits will definitely indicate even more that every
manager has to posses the skill of time management as one of the basic skills. The
production process has to fulfil certain quality standards in order to be competitive;
equally every manager has to possess time management skills to fulfil their function.
1. TIME MANAGEMENT

Time management (Ger. Zeit Management) is a discipline focused on using
time, as a precious and scarce resource, economically and rationally and on improving methods and techniques in order to improve work methods, efficiency and
time usage. Its starting point is task planning, priority setting, time distribution in
accordance with importance and urgency of its completion.1 Time management
ensures that managers deal with the right tasks and crucial problems. The following picture provides answer to the question how often managers are interrupted
by the associates with the good reason, and how often their problems can be solved
in other ways.

Image 1. Contacts between menagers and associates in solving problems
Problems which associates can solve by themselves
35%

23%

Problems which can be solved with the help of
colleagues
Problems which can be solved on the phone
20%

22%

Problems which can be solved with the help of the
manager

Source: Sikavica, P.& Bahtijarević-Šiber, F. (2004.) Menadžment, MASMEDIA, ISBN 953-157-455-3, Zagreb, p 412.

Time management is an exceptional tool since it can always be improved and is
never perfect; furthermore it is an irretrievable resource. It is a skill that has to be
developed and one has to strive to advance it. According to Gorupić and Bošković
1

http://www.poslovni.hr/84384.aspx (20 April 2010)

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Bruno Dernaj

time management is a work and life technique of behaviour and self-organisation
in order to achieve the biggest possible success. (Gorupić, Bošković; 2006., p 13.)
Drucker claims that there might be nothing that differentiates efficient managers more than their relation towards time. Therefore, an efficient person foremost
has to know on what they spend their time to be able to manage it. (Drucker;
2005., p 194.) Time management is not a choice; it has become a requirement and
necessity. Unfortunately there is no universal plan that would satisfy all needs and
solve all difficulties regarding time management. The most difficult part is to find
the right combination between the nature of the individual and the nature of the
tasks that need to be done.2
Time is the only factor whose demand is not elastic. No matter how big the demand for time is, the amount of time will not change, therefore it has to be learnt
to manage it better. (Bahtijanović Šiber; 2008., p 7.)
2. FUNCTIONS OF SUCCESSFUL TIME MANAGEMENT

Since in each organisation, in which efficiency is missing, the problem is
not equally set, it is necessary to start reorganising according to the following
functions.
2.1. Planning and target Setting

“If you are not planning, you are planning to go bankrupt.” (Kotler; 2006., p
171.) The opinion that planning is inevitable for successful business generally prevails nowadays, but it is also highlighted that the execution of the plan mostly does
not work out. (Drucker; 2005., p 215.) If a manager creates plans regularly (daily,
weekly, monthly, permanently), he/she definitely plans to execute them. However,
the future cannot be foreseen, so it can come to difficulties which can influence
the scheduled plans. Sometimes it is enough to reprogram or adjust those plans
to a minimum extent, but there are situations when everything has to be thought
trough and planned from scratch.
2.2. Target sorting

Although it seems at first that there is one target, which is unique, every manger
has plenty of tasks which he/she needs to fulfill, namely, targets that need to be
2

http://www.zorantomic.net/index.php?option=com_content&view=article&id=299:upravljanjevremenom-u-odnosima-s-javnou&catid=48:pr-blog

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achieved in order to not waste time, without fulfilling all obligations and solving
the business case on which he/she is working. The best way to sort targets is to write
them down on paper, arranging them according to: (Bahtijanović Šiber; 2008., p
11.)
2.2.1. Priorities – which are the fundamental targets of the organisation and to
which the non-priority targets have to be subordinated. Priorities should not be
delegated to others since they are the most demanded and therefore the most valued, which can largely contribute to the manager’s reputation.
2.2.2. Time obligations – these are including meetings, business trips, phone
calls, writing letters and reports. Managers should delegate most of the time obligations to their associates, so they have more time to solve the priorities. (Bahtijanović
Šiber; 2008., p 11) Nevertheless, time obligations are not tasks that can or may be
neglected.
2.2.3. Desired activities are activities which are largely enhancing the business
operations and by applying them regularly, time and concentration can be saved,
which is evident in the efficiency and effectiveness. (Bahtijanović Šiber; 2008., p
11.)
2.3. Minimising the so-called “Time Stealers”
“Time stealers” are undesired activities which do not contribute to the achievement of the organisation’s goals at all (searching in the untidy workspace, perfectionism etc.). Time spent on such activities has to be minimised or completely
eliminated. (Bahtijanović Šiber; 2008., p 11.)
2.4. Task Realisation and Urgency

“Time management is not difficult. As long as you are capable (physically and
mentally) to concentrate completely, you will find out that it is possible to manage
time better.”
The complicated and important things needs to be done first in order to not
leave them for the end when there is a lack of time, which increases the pressure
and can influence the quality. “If something is really important, it may never be urgent.” (Srića; 2003., p 176.) The opposite attitude says that “creating a strong feeling of urgency often requires courage or risky activities which are usually associated
with good leadership.” (Kotter; 2009.,Vođenje promjena, p 47. and 48.) A genuine

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Bruno Dernaj

feeling of urgency occurs rarely because it is not the natural state of things, but
this feeling has to be created and recreated. According to Kotter urgency does not
stay and cannot stay at a high level without conscious effort, except if it is strongly
rooted in the organisational culture, which is rare nowadays. (Kotter; 2009.,Smisao
hitnosti, p 149.)

Image 2. Urgency problem destroyed by the success

Source: Kotter J.P.(2009.) Smisao hitnosti; Lider press d.d.; Zagreb; p 151.
2.5. Controling

The plan of the business operations has to provide time for the controling of
the existing situation in order to ascertain whether we are on the right track and
whether we are going in the right direction. Regular checking of the execution is
emphasized because it provides a better insight on how to master every step successfully and the path that is leading us to the goal. (Gorupić, Bošković; 2006., p
34. and 35.)
The checking process consists of two very significant procedures: (Kotler; 2006.,
p 191.)
1. evaluation and interpretation of the current results and correction of the
mistakes
2. audit of the efficiency and plan development for improving weak but significant components.
2.6. Information and Communication

“Information and communication are key functions of every management process including time management.” (Gorupić, Bošković; 2006., p 36.) When carry-

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ing out a task, timely information is the key factor. Communication directly influences the success of a particular organisation, therefore it is necessary to establish
proper communication within the organisation as well, but also with its surrounding. Proper communication means free, informal and intensive communication,
but also insisting on active participation in the communication, establishing new
relations and improving the existing communication. (Lamza, Glavaš; 2008., p
20.)
One of the most successful ways of enhancing communication within an organisation is team building. People communicate more easily in an informal surrounding, and since it contains various social, sports and recreational activities, the
members of the organisation find to have many things in common, which in most
cases results in successful communication and finally enhances the information
exchange.
3. RESEARCH

The emphasis of this research is put on the quality of time management of
managers in the cities Osijek and Vukovar – mostly managers working in little
private enterprises. The companies were chosen in Osijek and Vukovar since Osijek
is the biggest city in eastern Croatia and therefore it is a significant representative,
whereas Vukovar is the city that suffered the most because of the war, therefore it
participates in today’s market under difficult conditions.
Three goals were set for this research: 1. to illustrate how managers in the cities
Osijek and Vukovar perceive successful time management based on self-evaluation;
2. establish transparent data on how much time during the working day managers
spend on so-called “time stealers”; and 3. compare the results with the research on
time management conducted by Nina Pološki-Vokić and Robert Mrđenović with
the title “Differences in Time Managements of Croatian Managers in regard of
their sex and Hierarchical Level”, conducted in the entire Republic of Croatia.
For the purposes of the research referred to, managers of companies in the cities
Osijek and Vukovar have filled in questionnaires at the end of the year 2010. The
research instrument was a questionnaire for self-evaluation created by the authors
of the paper on the basis of generally accepted viewpoints on successful time management. The questionnaire consisted of two separate parts – the first part included
questions regarding the evaluation of time management activities, done by individ-

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uals, according to their importance for the success of the organisation. The second
part included question on “time stealers”.
One of the reasons why this research was conducted was the fact that no such
research had been conducted in eastern Croatia. The second reason were the constant indicators in the media claiming that this region has made the least progress
in the latest history3, and most valued, the data in the attachment of the County
Development Strategy of Osijek-Baranja County for 2011. – 2013. shown in the
following figure.

Image 3. Assessment and classification of county and local governments to development

Source: http://www.slavonija.hr/ (access - 21.02.2011.)

That document shows that the development index of Vukovar-Srijem County
is 20.57% and of Osijek-Baranja County 52.88%, whereas the most developed
counties – The city of Zagreb and the Istrian County – have an index several times
bigger (197.54 % and 156.10 %).
The research was conducted in order to find out whether the lack of time management skills of managers in this region is the reason for such results and whether
they need to be educated on time management. The research included 98 managers, which is considered to be sufficient to draw conclusions since the average

3

http://www.glas-slavonije.hr/vijest.asp?rub=1&ID_VIJESTI=124225
http://www.sib.hr/Ostalo-Vijesti/sluzbeno-potvrdjeno-slavonija-i-baranja-najsiromasnija-regija.html
http://www.osijek031.com/osijek.php?topic_id=30347

TIME MANAGEMENT QUALITY - MANAGERS OF SLAVONIJA CITIES vs CROATIAN MANAGERS

201

number of participants in time management researches is 90 (Classens et al., 2007.
in Pološki-Vokić, Mrđenović; 2008., p35.- 47.)
3.1. Research Results

The research consisted of two parts: 1. The importance of particular time management activities for the organisation’s success; 2. Working time spent on activities
which are not contributing to the organisation’s success, namely, “time stealers”.
The research results will be illustrated, commented on and compared with the previous research.
The average rating of all time management activities is 4.04, which is an indicator that they are, according to the participants, very important for the organisation’s functioning. Determining the priorities was rated the most important with
an average rating of 4.46, meaning that only 2% of the participants do not consider
it to be very important or the most important for the organisation’s success. The
second most important was rated long term and short term planning with an average rating of 4.39, which 94% of the participants considered very important or
most important for the organisation’s success, followed by daily tasks setting and
realisation with an average rating of 4.32, which was not considered the least important or of little importance by any participant.

Table 1. The importance of time management activities for the organisation’s success

Source: made by author

In contrast to the research conducted by Nina Pološki-Vokić and Robert
Mrđenović, because of the average result of 3.06, we can claim that when it comes
to theoretical knowledge about time management skills, manager in the cities
Osijek and Vukovar are more educated. The similarities between this research and

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the previously mentioned research are that the activities with the highest ratings in
both are determining the priority tasks, followed by goal setting and planning.

Image 4. Time management activities of the Croatian managers

Source: Pološki-Vokić, N.; Mrđenović, R.: Razlike u upravljanju vremenom hrvtaskih menadžera s obzirom na spol i hijerarhijsku
razinu», Ekonomska istraživanja, VOL.21., NO.1., march 2008., p 35.- 47.

It is also interesting that in both researches the participants had a very similar
opinion on delegating (average rating: 3.94 and 3.85).

Table 2. Working time spent on “time stealers”.

Source: made by author

This table says that managers of companies in Osijek and Vukovar spend on
average around two hours of their working time on “time stealers”. If we assume
that one year includes 200 working days and a fourth is spend on time stealers that
means that 50 days annually are wasted. When we compare this research to the
research done throughout the Republic of Croatia, we can establish several similarities and differences.

TIME MANAGEMENT QUALITY - MANAGERS OF SLAVONIJA CITIES vs CROATIAN MANAGERS

203

Image 5. “Time stealers” activities of the Croatian managers

Source: Pološki-Vokić, N.; Mrđenović, R.: Razlike u upravljanju vremenom hrvtaskih menadžera s obzirom na spol i hijerarhijsku
razinu», Ekonomska istraživanja, VOL.21., NO.1., march 2008., str. 35.- 47.

Both researches established that managers spend plenty of time on unplanned
meetings. The difference is that this research has shown that managers spend the
most time on analysing past events, namely, thinking about things that cannot be
influenced anymore.
4. CONCLUSION

The aim of this paper was to establish, by means of research in form of self-evaluation of mangers, whether time management skills are the reason of the poorer
development in the cities Osijek and Vukovar, in regards to their development in
the past, and whether it is necessary to education managers from this region on
time management skills.
The results have lead to the following conclusion:
1. managers are very well educated on time management, however, there is
room for improvement; 2. the obvious problem of eliminating the so-called “time
stealers”. Although the awareness of activities which do not contribute to the organisation’s progress exists, the theoretical knowledge is not properly implemented
in practice; 3. it is possible that the level of mastery of time management is one
of the reasons of the slower development in the cities Osijek and Vukovar. As a
precaution and in order to achieve better results it would be useful to systematically
educate managers on all managing levels about time management activities and
so- called “time stealers”.

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Bruno Dernaj

5. REFERENCES

Books
-Bahtijanović Šiber, F. (2008.) Suvremeni menadžment, Školska knjiga, ISBN 978953-0-30352-2, Zagreb
-Drucker, P. (2005.) Najvažnije o managementu, M.E.P. Consult, ISBN 9536807-24-6, Zagreb,
-Gorupić, D. & Bošković, M.(2006.) Management ciljeva i vremena, Horizont,
ISBN 953-95312-0-9, Zagreb
-Kotter, J. P.(2009.) Smisao hitnosti; Lider press d.d., ISBN 978-953-95472-5-5,
Zagreb
-Kotter, J. P.(2009.) Vođenje promjena; Lider press d.d., ISBN 978-953-95472-93, Zagreb
-Kotler, P. (2006.) Kotler o marketingu, MASMEDIA, ISBN 953-157-494-4,
Zagreb
-Lamza-Maronić, M. & Glavaš, J. (2008.) Poslovno komuniciranje, Ekonomski
fakultet, Studio HS Internet, ISBN 978-953-253-053-7, Osijek
-Sikavica, P.& Bahtijarević-Šiber, F. (2004.) Menadžment, MASMEDIA, ISBN
953-157-455-3, Zagreb,.
-Srića, V. (2003.) Inventivni menadžer u 100 lekcija, Znanje, ISBN 953-195-3694, Zagreb
Articles in conference proceedings:
-Pološki-Vokić, N.; Mrđenović, R.: Razlike u upravljanju vremenom hrvatskih
menadžera s obzirom na spol i hijerarhijsku razinu, Ekonomska istraživanja,
VOL.21., NO.1., march 2008., str. 35.- 47.
http://hrcak.srce.hr/index.php?show=clanak&id_clanak_jezik=33767
- 15.12.2010.)

(accessed

websites:
*http://www.budi.in/3669-clanak-upravljanje-vremenom-2-dio.aspx
- 15.04.2010.)

(accessed

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205

*http://www.zorantomic.net/index.php?option=com_content&view=article&id
=299:upravljanje-vremenom-u-odnosima-s-javnou&catid=48:pr-blog (accessed
16.02.2011)
*http://www.poslovni.hr/84384.aspx (accessed - 20.04.2010.)
*http://wmd.hr/rjecnik-financijski/pojmovi/poslovi (accessed - 10.04.2010.)
*http://www.glas-slavonije.hr/vijest.asp?rub=1&ID_VIJESTI=124225
- 04.05.2010.)

(accessed

*http://www.sib.hr/Ostalo-Vijesti/sluzbeno-potvrdjeno-slavonija-i-baranja-najsiromasnija-regija.html (accessed - 16.02.2011)
*http://www.osijek031.com/osijek.php?topic_id=30347 (accessed -21.02.2011.)
*http://www.slavonija.hr/ (accessed - 21.02.2011.)

206

Zvonimir Strnad

EFFECT OF PRINCIPAL-AGENT PROBLEM ON THE
BANKING CRISIS IN 2008
Zvonimir Strnad, M.Sc. Ministry of finance, Croatia
Zvonimir.Strnad@mfin.hr

Abstract

Principal-agent problem is one of the most pressing and difficult problems in
the world of business and banking today. Principal-agent problem always occurs
when there is a relationship in which the benefit of one person depends on another
person. Such a relationship where one person (agent) acts / intervenes in the interest/welfare of other persons is present in many other areas of life such as political,
health, social, etc. Operations of large companies are increasingly dominated by
managers who are not their owners, while their selection and supervision is left
to the supervisory boards that are too often staffed mostly by people who have
no stake in the companies whose operations they monitor. This distance between
principals / owner of the business and decision-makers/ agents as well as information asymmetry creates more room for moral hazard. The aim of this paper is to
show the reasons which lead to the breakdown of mutually beneficial relationship
between principal and agent and consequences of such an occurrence. The banking
sector has proven to be most critical in terms of moral hazard and principal-agent
problem and will be in the focus of this article.
JEL classification: G01
Key words: principal-agent problem, financial crises, moral hazard,
deregulation
Introduction

Principal and agent relationship is one of the most pressing and acute problems
in the world of business and banking today. Relation of principal-agent always occurs when there is a relationship in which benefit of one person depends on another
person [Barković; 2009, 65]. Such a relationship where one person (agent) acts /

EFFECT OF PRINCIPAL-AGENT PROBLEM ON THE BANKING CRISIS IN 2008

207

intervenes in the welfare of other persons present in many other areas of life such as
political, health, social, etc. Since beginning of time people are living and working
in groups and there is a need for mutual interaction and mediation. Principal-agent
problem that occurred throughout history was settled mostly by social and other
sanctions in case of abuse of trust by an agent. Reputation that the agent has painstakingly built and the price for its loss was simply too great to be easily squandered
or lost. Development of society and its growing complexity in almost all areas has
led to definition of completely different relationships in almost all areas of human
activity. The economy has changed with the appearance of stock companies and
created increasingly complex ways of doing business. Principal-agent problem is becoming more and more acute as the distance between these two functions increases.
Operations of large multinational financial companies are increasingly dominated
by managers who are not their owners while their selection and supervision is left
to the supervisory boards that are too often staffed mostly people who have no stake
in the companies whose operations they monitor. This distance between agent /
owner of the business and decision-making principals creates more room for moral
hazard. Information’s about the business practices and strategies may be available
to shareholders but in limited form and always after the fact. Principals in the 2008
banking crises can be put in three categories:
• Shareholders
• Investors
• Tax payers
Agents in the 2008 financial crises would accordingly be:
• Banks/Financial companies
• Rating agencies
• Government/regulators
Principals have tried various modes of action to reduce the potential consequences of the principle-agent problem through the reward system. Principals tried
to promote positive and benevolent behavior of an agent in promoting the interests
of principals by adequately rewarding them. The aim of this paper is to show the
reasons which lead to the breakdown of mutually beneficial relationship between
principal and agent and possible solutions for agent-principal problem. Dangers
which such breakdown presents are most visible in the events that led to a major

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Zvonimir Strnad

United States banking crisis in the 2008. The banking and financial sectors have
proven to be particularly susceptible in terms of breaking bonds of the principalagent and they are in the focus of this article.
Effect of Principal-Agent Problem on Banking Crisis In 2008

Unfortunately crises that began in the United States then spilled over to almost
the entire world and caused the recession of scale comparable only with the Great
Depression in the early 20th century. Banks and other companies had problems in
relations of the principal and agent which proved to be more than disastrous for the
entire world economy. Collapse of Lehman Brotherson, one of the largest and oldest financial institutions in the United States, on September 15, 2008 set off chain
of events that proved to be beyond anything previously seen in terms of financial crises. Lehman Brothers was just one of many financial institutions or investment banks that lived dangerously in age of financial deregulation and real estate
boom in a period 2001-2008. Deregulation of financial sector reached final stage
in the United States with enactment of Gramm-Leach-Bliley Act which in its first
paragraph states: Amends the Banking Act of 1933 (Glass-Steagall Act) to repeal
prohibitions: (1) against affiliation of any Federal Reserve member bank with an
entity engaged principally in securities activities (securities affiliate); and (2) against
simultaneous service by any officer, director, or employee of a securities firm as an
officer, director, or employee of any member bank (interlocking directorates).
This deregulation allowed banks and other financial institutions to do retail and
investment banking at the same time. Investment banks on the other hand started
to be involved in all sorts of business down to basically giving out mortgages than
repackaging them and selling them on to investors. In theory deregulation should
have led to more efficient financial system and innovations such as securitization to
safer one. In practice it meant numerous conflicts of interests and huge systematic
risks. Testifying before the Oversight Committee of U.S. Congress Alan Greenspan, former governor of the U.S. central bank popularly called the Fed, said at the
time for the observers almost incredible statement : “Those of us who have looked
to the self-interest of lending institutions to protect shareholders’ equity, myself
included, are in a state of shocked disbelief,“ (Andrews;2008). Furthermore he
stated that this error in judgment stemmed from flaw in his personal ideology that
markets should be left to their own devices. But is it really true? Many observers
will notice something interesting in the Greenspens statement that banks are act-

EFFECT OF PRINCIPAL-AGENT PROBLEM ON THE BANKING CRISIS IN 2008

209

ing in their own interest and interest of their shareholders. It seems that the former
governor believes that banks are rational, intelligent, responsible and aware. Banks
are not any of those things. Banks are the companies that operate as determined
by the people who work in them and those people are indeed rational, intelligent,
responsible and aware of first and foremost their own interests . What Mr. Greenspan seems to have totally missed is that what is in the interest of the people running the bank is not in the interest of banks and its shareholders. Classic example
of principal-agent problem to which, during his presidency of the Fed, he greatly
contributed by use of legendary Alan Greenspan “put” or a tendency of the Fed
that when the economy sank, or ran into a problem, to reduce interest rates. This in
turn would, in the short-term, “rescue” the U.S. economy and the banks that lent
money to the left and right using lower lending criteria. In the long run this meant
huge supply of cheep credit that had to be lent to someone. That someone ended
up being people who couldn’t afford loans or simply victims of predatory lending1.
Many of irregularities present in banking system should have been picked up
by regulators but political clout of banking system made them ineffective. The
theory of mediation as sometimes principal-agent problem is also called relies
on the efficiency of the contract between the agent and principal, taking into
account the assumptions about people, organizations and information. Given
these assumptions, the question is which contract is most effective? - One focused on the behavior (eg, wages, the hierarchic organization) or one focused on
results (eg, commissions, options to purchase shares, transfer of property rights)
(Ottan; Wanpe; pg 8.). The manner staff remuneration is therefore an essential
tool which tries to solve the principal-agent problem through manipulation of
incentives.
Bank management proved however exceptionally susceptible to taking advantage of information asymmetry it has in relation to shareholders and other investors. Bank managers successfully used their privileged position in order to secure
for themselves more lavish bonuses. Big investment banks pay and reward their
employees with performance linked bonuses. Such incentive system is very popular
both in theory and practice because, on the face of it, it encourages employees to
give it their best while fix pay does not. It is reasonable to claim that paying for
example sales people by number of items sold will lead to more sales however it is
1

Predatory lending is a practice where lenders originate loans with fraudulent, unethical and deceptive practices. Target of such lending practices are usually people with no means to qualify for normal
credit and therefore have to pay higher interest rates.

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Zvonimir Strnad

questionable how prudent is such pay structure for all business models. Medical
filed is good example how performance based salaries may not give better performance. For example let’s take a surgeons salary and let as link it to number of
surgeries preformed. It is reasonable to assume this will lead to more surgeries but
not necessarily to more healthy people. In the matters of medicine one does give
more weight to safety and favorable outcomes than in sales. Banks should be more
like medical profession and less like sales. It would be naïve to say that the number
of loans that bank made is the only indicator of how well management is doing
its job but somehow that became the norm. Banks balance sheets got bigger and
bigger according to IMF in the space between 2001-2008 U.S. Commercial Banks
consolidated assets almost tripled (Stella; 2009:16-17). Shareholders/agents where
and are interested in the price of shares they own so naturally they want the price
to go higher and higher. Markets are on the other hand concerned with profits and
therefore management/principal is concerned with maximizing profits and keeping
the share price on in a constant upward trajectory. Boards of companies presumably acting on behalf of shareholders set up remuneration committees that set management pay structure in such a way that management is maximally motivated to
run business successfully. Management is awarded in addition to fixed salary stock
options, performance related bonuses, interest free loans etc. Some companies and
their boards because of the fear of public outcry camouflage various benefits managers get so probably many remain unknown. It is important to say that none of
the remuneration packages mentioned above are illegal. Criticizing in high insight pay structures performance based sat up in banking is easy but what is wrong
with paying people in accordance with their results? Shouldn’t one reward hard
work and promote meritocracy? Like everything else it depends. It turns out bank
managers had undue influence on make up of boards and therefore remuneration
committees. Business practice showed that pay packages implicitly encouraged
management to maximize market capitalization (Fried;Bebchuk; 2004:74) which
in interest earning institution almost always means bigger profits. Such a trend can
easily be seen demonstrated by the fact that ten of the world leading banks in a period between 2003-2007 more then doubled their balance sheets(Economist; January 2011:71). This is a direct consequence of bad oversight by boards which didn’t
take into consideration sustainability of profits made. Bank managers decided to
take on more risk in order to increase profits which in turn resulted in higher share
prices and bonuses. Information asymmetry which accurse in relations between
shareholders/agents and companies management/principals greatly contributed in

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211

emergence of moral hazard. Moral hazard can be defined as a situation in which
one side is responsible for interests of another but has the incentive to put its own
interests first: one example would be employee who is slacking on the job. Examples in the realm of finances would be (Dowd; 2009:142):
• Sale of financial product (e.g. mortgage) knowing that it’s not in the client’s
best interest,
• Paying large bonuses from funds under ones management: or
• Taking on risks without being responsible for consequences.
Management is generally very concerned with perception shareholders and markets get about its business decisions so it is not surprising that informing the investors about decision to take on more risks is not easy. Bankers are therefore very
reluctant to say anything that might be interpreted as increasing risk exposure. In
order to hide the fact that any balance sheet expansion naturally means taking on
more risks bankers devised process known as securitization as sort of black box in
which risky loans came in on the one end and AAA rated bonds out the other. This
is not however just public relations because exercise regulator would demand of
banks to hold more capital on their books for lower rated in order to offset possible
loses bonds which would in turn lead to smaller profits. Investors liked securitization because jumbo mortgages provided higher yields than usual for an AA default
rating (Williams; 2010:101). Bankers and financial institutions in general couldn’t
pull this trick on their own. Assistance came from two places of extreme power one
is of course politics the other rating agencies. Since deregulation become a norm
in the world of finance and politics banks and other financial institutions and even
whole markets of sophisticated financial products went relatively unchecked by
regulators. This was possible by the fact that finance in the developed world became large part of national wealth and was therefore given special treatment by the
politics and regulators which is also example of agency problem. Great Britain and
London city on one side of the Atlantic Ocean and New York in USA on the other
present prime example of this fact. From 1973 to 1985 the financial sector (in the
US) never earned more then 16 percent of domestic corporate profits. In 1986, the
figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30
percent, higher than it had ever been in the postwar period. This decade (2010),
it reached 41 percent (Lanchester; 2010:13).But there was another culprit, rating
agencies. There job was to asses credit wordiness of banks and their assets in order
to give information to the markets about stability of this vital institutions and qual-

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Zvonimir Strnad

ity of financial products. Problem as always turned out to be wrong incentive structure or plainly put money. Rating agencies where and are paid usually by issuers of
financial instruments and not by investors so they want to make their clients happy.
Issuers of financial instruments could therefore go “shopping for ratings”. This gave
agency problem a whole new meaning because while during the boom years ratings
holed up but when crises hit in 2008 they where exposed as worthless.

Table 1. CDOs from bonds with subprime mortgages as collateral for the period 2005-2007, %
Credit rating
AAA
AA+
AA
AAA+
A
ABBB+
BBB
BBB-

Estimated percentage of defaults in the period of three years
0.001
0.01
0.04
0.05
0.06
0.09
0.12
0.34
0.49
0.88

Actual default rate
0.10
1.68
8.16
12.03
20.96
29.21
36.65
48.73
56.10
66.67

Source: Number-crunchers crunched, Economist, Vol.394, No.8669, 13.-19 February 2010.A special report on financial risk; 5-6.

Bankers however had no interest in doubting rating agency because it was precisely those rating that made them look so successful. Remember asset backed securities with AAA rating had higher yields then government bonds. It seemed as
if risk has gone away by this powerful new financial engineering techniques and
rating agency where just stating that fact. Reality was that a lot of loans were made
to people, especially mortgage loans, with no means to pay them back. Those loans
where called sub-prime loans because bankers knew they were risky. The fact that
they knew presents strong indication that this was not some usual hard to predict crises that happened in 2008 but agent-principal problem fueled one. Bankers basically convinced markets and shareholders that their exposure to risk was
not significantly rising along with their profits by taking advantage of information
asymmetry about quality of loans and investments they where making. Another
problem regarding principal agent relationship is how to count the profits. This
seems a small matter but as we said earlier profits are the prime indicator for evaluation of just how successful is CEO. Accounting, as even most uninterested observer
is aware, makes for uninteresting reading therefore it is very suited to obscure facts
about business performance. One can easily count future profits as today’s and
give himself bigger bonus although actual profits may or may not be made in the

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213

future. This however gives even more importance to short term performance. Long
term risks which should be most relevant to principal whose assets are on the line
is suppressed by short term nature of agent’s incentives. Examples of reckless risk
tasking and imaginative accounting during 2008 financial crises where: Lehman
Brothers (Untied States), Northern Rock (United Kingdom) and AIG (Untied
States/ United Kingdom). First mayor bank run in United Kingdom for more
then a hundred years happened when Northern Rock under CEO Adam Applegarth become insolvent in the September of 2007. Applegarth’s distinctive business model involved rapid growth, large-scale reliance on the capital markets for
finance, and an innovative and very accommodating mortgage, the racy “together
loan,” in which customers could borrow 125 percent of their property value and
up to six times their annual income: the boring days when customers could borrow
only 75 percent of their property value and a maximum of three times their income
were over (Dowd; 2009, pg. 151.). This all work well when times where good but
when subprime crises broke in the summer of 2007. Northern Rock went under
and had to be nationalized. So what happened to CEO of Northern Rock Adam
Applegarth? While the Northern Rock workforce could anticipate major job losses,
Applegarth was able to retire on a generous settlement package. It also transpired
that he had been quietly cashing in his own Northern Rock shares—a nice vote of
confidence in his own leadership. He managed to get £2m for his shares while other
shareholders lost everything (Dowd; 2009:152.).
Lehman Brothers on the other hand was not small bank with ambitious management but financial institution with a hundred years of history and managed by
veteran CEO and Wall Street legend Richard S. Fuld Jr. With Fuld at the helm
(prior to recent events), shareholders had been rewarded with an impressive annual return on equity of more than 24 percent (Williams; 2010:5.). Unfortunately
for investors this was done by use of leverage that once the crises struck destroyed
entire shareholder equity and caused biggest bankruptcy in US history. Lehman
started to originate mortgages during the market boom which it then repackaged
and sold off to investors. How ever in order to increase volume of its business Lehman Brothers took on more and more debt. Lehman Brothers leveraged it self to
the tune of 30:1 at the end of 2007(Lehman Brothers Annual Report 2007:29.)
which meant any sort of drop in value of its assets could very quickly render it insolvent. Lehman Brothers as we said repackaged and then sold off a lot of CDOs
however it had to keep some of exposure on it books. A typical synthetic collateralized debt obligation (CDO) has an equity or first loss tranche (absorbing approxi-

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Zvonimir Strnad

mately the first 3 percent of the losses), mezzanine tranche (absorbing between 3
percent and 7 percent of the losses), a senior tranche and possibly a super senior
tranche absorbing the rest. Thus the senior tranche will not suffer a loss unless
losses exceed 7 percent of the notional amount of the assets (Raghuram; 2005:7.).
Lehman Brothers executives believed that housing market boom would lest for ever
so asset prices they had on their books would never fall and for almost a decade they
where right. Between 1997 and 2006, the average home price in America increased
by more than 120 percent. The leveraged real estate boom screeched to a halt, and
Lehman was stuck holding billions of dollars in junk loans on its books (Williams;
2010:118.). When the fall of house prices eventually did come it rendered Lehman
Brothers insolvent. Richard S. Fuld Jr. didn’t face any charges and made only one
public appearance before the Congress on October 6, 2008. When the touchy
subject of his remuneration then came up, he went on to defend the compensation
system that had paid him about $350 million between 2000 and 2007. (Dowd;
2009:151.). American Insurance Group fall victim to its incentive structure. Insurances it sold on mortgage backed securities and CDOs soured as house prices began
to fall. Making matters even worse for AIG was that it sold multiple Credit Default
Swaps for just one asset therefore multiplying its losses.
Conclusion

Principal-agent problem proved central in origins of 2008 banking crises. Given
that incentive structure and other polices instituted by regulators have not given
desired results these are the areas where most can be done. For example why pay
bonuses on the basis of short term results or give CEO massive golden parachutes
when simple modification of time frame for both instruments can possibly give
better results. Bonuses should be more correlated to sustainability of results so for
example if CEOs company has made spectacular profits in one year it shouldn’t automatically result in massive bonuses but rather in potential for big pay off further
down the line. This could ensure more conservative behavior even in highly competitive settings. Rating agencies should be paid from interests that bonds they rate
should yield. That means for example if bond has an annual yield of say 5 percent
rating agency should gat 0,2 percent until maturity. This would put rating agency
interest in line with those of principal/investor and not like today with those of issuer/agent. Making sure that government and regulators do their job properly can
be done by prohibiting any major lobbying or donations to political campaigns.
Regulators should not be permitted to take jobs at financial institutions after they

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215

leave public service and of course should be paid more in order to insure maximum
competence.
Bibliography

Books
Barković, D;(2009).Menadžersko odlučivanje, Ekonomski fakultet u Osijeku,
ISBN: 978-953-253-069-8, Osijek
Bebchuk, L; Fried J. (2004). Pay Without Performance, Harvard University Press,
ISBN:0–674–01665–3, Cambridge, Massachusetts and London, England
Lanchester, J ;( 2010).Whoops-Why everyone Owes Everyone and No One Can
Pay, Penguin Group, ISBN: 978-0-141-04571-9, London
Williams T. Mark ;(2010). Uncontrolled Risk- The lessons of Lehman Brothers and
how systemic risk can still bring down the world financial system; The McGrawHill Companies, Inc. ISBN: 978-0-07-174904-6
Articles in journals
Dowd, K.(2009). Moral Hazard and the Financial Crises; Cato Journal Vol.25
No¸1.
Stella, P.(2009). The Federal Reserve System Balance Sheet: What Happened and
Why it Matters; IMF Working Paper
Raghuram G. Rajan ;( 2005) Has Financial Development Made the World Riskier? National Bureau Of Economic Research Working Paper 11728; Cambridge
Massachusetts
Available at: http://www.nber.org/papers/w11728
Wolf, M. (2008) Regulators should intervene in bankers’ pay; http://www.ft.com/
cms/s/0/73a891b4-c38d-11dc-b083 0000779fd2ac.html#axzz1BsDpEWXm –
accessed 11.1.2011.
Number-crunchers crunched, Economist, Vol.394, No.8669, 13.-19 February
2010.A special report on financial risk
The great unknown, Economist, Vol.398, No.8716, 15. -21 January 2011.

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Zvonimir Strnad

Andrews, L.E. (2008).Greenspan Concedes Error on Regulation; The New
York Times; http://www.nytimes.com/2008/10/24/business/economy/24panel.
html?_r=1
- accessed 11.2.2011.
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Available at: http://thomas.loc.gov/cgibin/
bdquery/z?d106:SN00900:@@@D&summ2=m&
Internet
Lehman Brothers Annual Report 2007.
Available at: http://www.secinfo.com/d11MXs.t5Bb.htm#1stPage
Otten, J; Wempe B; Corporate Governance and the Politics of Agency Theory,
RSM Erasmus University Rotterdam
Available at:
http://www.uu.nl/faculty/leg/nl/organisatie/departementen/departementeconomie/onderzoek/seminarserie/previousseminars/extjan08jun08/Documents/
The%20politics%20of%20agency%20theory%20in%20corporate%20governance%20sub.pdf

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THE ANALYSIS OF FINANCIAL RATIOS’ UTILITY IN PREDICTION
OF LOAN DEFAULTS USING T-TEST
Mr. sc. Miodrag Streitenberger, Team leader Credit risk, Hypo Alpe Adria Bank d.d.,Croatia
miodrag.streitenberger@hypo-alpe-adria.hr

Abstract

This paper explores predictive potential of financial ratios in discrimination of
companies which pay bank debt on time from companies that have difficulties in
loan repayment. Research was conducted by using the purposive sample of Croatian SME companies. Research aim was to find financial ratios effective in identification of companies which will not be able to pay due debt on time, before the
loan has been granted. Identified ratios would help bank analysts in assessment of
credit risk of potential clients. On the basis of conducted research and results of
univariate analysis, discriminatory and predictive power of a certain number of
analysed ratios have been proven. Discriminatory power of 12 out of 16 financial
ratios analysed, has been confirmed. Net working capital to Total assets and Equity
ratio are shown as statistically significant and relevant for prediction of difficulties
in loan repayment. Predictive power is also confirmed for following ratios: Return
on investment, Times interest earned, Current ratio, Liabilities to Revenues, Bank
debt to Assets and Equity to Fixed assets. On the basis of conducted research it
can be concluded that financial reports small and medium-sized enterprises deliver
to the bank provide sufficient information for efficient estimation of credit risks.
However, it is advisable to use all other available sources of business information
besides financial reports.
JEL classsification: G21
Key words: financial ratios, banking, loan defaults, small and medium-sized
enterprises (SME)
1. INTRODUCTION

Banks analyse their commercial borrowers’ financial statements to assess credit
risks and estimate probability of loan defaults. They do so before loans are granted

218

Miodrag Streitenberger

and, occasionally, during the entire period of contractual relationship. The main
purpose of analysis is to avoid granting loans to defaulting debtors, which could
result in risk provisioning and losses (CNB decision)1. One of most commonly applied tools banks use to analyze financial statements, for the purpose of predicting
loan defaults, is ratio analysis. Therefore, it is very important to correctly assess financial ratios’ utility in prediction of loan defaults (predictive potential of financial
ratios).
There is a large body of scientific research in the world (somewhat less in Croatia) in the field of ratios’ predictive potential assessment. Since the mid 1960’s
there is a great expansion of similar research studies whose popularity became
such that a whole new, independent broad research field is created - bankruptcy
prediction studies. The earliest studies (Beaver2, Altman3) use univariate and multivariate discriminant analysis (MDA), later, conditional probability methods are
introduced (Ohlson4, Zmijewski5), non-parametric methods (Barniv & Raveh6),
neural networks (Zapranis & Ginoglou7), multidimensional scaling methods (Novak8), etc...
Such research resulted in universally accepted conclusion that ratios are useful in discriminating companies with good financial standing from problematic
companies. Moreover, it is concluded that ratios can predict companies’ financial
difficulties or bankruptcy even few years before they occur.

1

Narodne Novine (2009) Decision on the classification of placements and off-balance liabilities of credit
institutions. Zagreb: Narodne Novine d.d., 1/2009, pp. 20.
2
Beaver, W. (1966) Financial Ratios as Predictors of Failure, Journal of Accounting Research, 4 (3),
pp71-111.
3
Altman, E. (1968) Financial Ratios, Discriminant Analysis, and the Prediction of Corporate Bankruptcy, Journal of Finance, 23 (4), pp589-609.
4
Ohlson, J. (1980) Financial Ratios and the Probabilistic Prediction of Bankruptcy, Journal of Accounting Research, 18 (1), pp109-131.
5
Zmijewski, M. (1984) Methodological Issues Related to the Estimation of Financial Distress Prediction Models, Journal of Accounting Research, 22 (1), pp59-82.
6
Barniv, R. & Raveh, A. (1989) Identifying Financial Distress: A New Non-Parametric Approach,
Journal of Business Finance & Accounting, 16 (3), pp361-383.
7
Zapranis, A. & Ginoglou, D. (2000) Forecasting Corporate Failure with Neural Network Approach:
The Greek Case, Journal of Financial Management and Analysis, 3 (2), pp11-20.
8
Novak, B. (2003) Predviđanje poslovnih teškoća banaka u Republici Hrvatskoj na osnovi javno
dostupnih financijskih pokazatelja, Ekonomski Pregled, 2003 (54), pp904-924.

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219

Although general subject of all bankruptcy prediction studies is the same,
methodology and research design vary considerably. There is a variety of statistical
methods, sample selection methods (scientific method, pragmatical empiricism)
and research sample designs (paired sample, random sample) that are used in bankruptcy prediction studies. Furthermore, different definitions of companies’ failure
are used: Beaver defines failure not only as bankruptcy, but also as bond or preferential shares defaults, while Kahya and Theodossiou9 define failure as loan default
or loan restructuring.
The reason why different definitions of failure are used is time-lag between first
occurrence of financial difficulties and actual bankruptcy. Bankruptcy is usually
preceded by longer period of financial weakening and deterioration. Fitzpatrick
described the process that leads to bankruptcy and identified five stages in the
process: (1) incubation, (2) financial difficulties, (3) financial insolvency, (4) total
insolvency and (5) confirmed insolvency (bankruptcy)10. However, not all companies with financial difficulties end up in bankruptcy: some recover and some are
taken-over before bankruptcy is declared. In some cases, bankruptcy is not a consequence of business difficulties, but can be the way of protecting companies from
litigation. Such vagueness in bankruptcy definition is recognized long time ago, but
is commonly overlooked in empirical researches.
To proect themselves from losses in case of loan defaults, banks need to detect
their clients’ financial difficulties as early as possible (preferably with occurrence of
Fitzpatrick’s stages 1, 2 or 3). Therefore, it is important for banks to concentrate
on prediction of early stages of bankruptcy process (which can be detected by loan
defaults), in stead of concentrating on predicting the actual bankruptcy. However,
there is a large body of research in the world that explore power of ratios in bankruptcy prediction, while there is a very few studies that explore power of ratios in
predicting loan defaults (in Croatia, particularly, such studies are very rare, almost
non-existent). Therefore, the primary objective of this study is to close this gap and
explain some specific relationships that exist between content of companies’ financial reports and companies’ actual loan repayment behaviour.

9

Kahya, E. & Theodossiou, P. (1999) Predicting Corporate Financial Distress: A Time-Series CUSUM Methodology, Review of Quantitative Finance and Accounting, 13 (4), pp323-345.
10
Fitzpatrick, P. (1934) Transitional Stages of a Business Failure, The Accounting Review, 9 (4), pp337340.

220

Miodrag Streitenberger

2. RESEARCH SUBJECT, OBJECTIVES AND HYPOTHESES

Basic subject of this research is asesment of ratios’ utility in prediction of loan
defaults (delays of 90 days or more). In other words, it will be explored whether or
not ratios can discriminate between companies that orderly repay debt from those
that will have significant delays. That way the question will be answered whether or
not content of companies’ financial reports adequately represents companies’ actual
loan repayment behaviour.
Research objectives were following:
• To asses the power of individual ratios to discriminate between companies that
orderly repay debt from those that have significant delays.
• To asses predictive power of individual ratios, i.e. to explore whether or not
ratio analysis can result in accurate predictions of loan defaults.
• To asses whether or not financial reports companies deliver to the bank can
be trusted. Can they serve their ultimate purpose – objective and accurate
representation of companies’ financial situation. Can they be used in credit
risk estimation or not. Should other available sources of information about
companies’ business be used to complement financial reports.
In accordance with research objectives, following research hypotheses are set:
H1:There exist financial ratios with sufficient information content for discriminating between companies that orderly repay debt from those that have significant delays.
H2:There exist financial ratios with sufficient information content for predicting
loan defaults.
H3:Financial reports companies deliver to the bank provide sufficient information
for efficient estimation of credit risks.
Using adequate statistical methods, hypothesis will be tested that ratios’ mean
values in the sample of companies that orderly repay debt, significantly differ from
ratios’ mean values in the sample of companies that have significant delays.
3. METHODOLOGY

Research methodology is adapted to research design and objectives. The research
is quantitative and uses secondary data, for the purpose of analysing differences in
ratios’ means between two dependent (paired) samples.

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3.1. Research design

Data was extracted from bank’s databases about loan repayment behaviour for
60 small and medium sized enterprises (SME’s) in a three-year period, which begins from the day of loan disbursement. Initial sample was split in two samples of
30 companies. Sample of risky companies is formed from 30 companies that start
with the delays shortly after loan is approved, and are constantly late so that till the
end of observed period, delays get significant (180 days or more). Sample of good
companies is formed from 30 companies that orderly repay debt throughout the
observed period and are never significantly late (max. delay is 60 days). Samples are
paired by industry (min. first 3 numbers in NKD11 is equal) and size to avoid negative influence of ratios’ heteroscedasticity on the results of statistical analysis12.
Companies’ financial reports from banks databases in three-year period are used:
(1) for the year-end that preceded loan approval (this reports were used for credit
risk estimation prior to loan approval), (2) for the next year-end when there were
already many delays in the sample of risky companies and (3) for last year-end
when there were significant delays in the sample of risky companies, while good
companies still orderly repaid debt.
16 financial ratios are used:

Table 1: Financial ratios
Ratio groups No.
1
2
Profitability
3
4
5
Efficiency
6
7
8
Liquidity
9
10
11

Ratios
ROS
ROI
ROE
TIE
E
Eo
L1
L2
L3
NWC/Assets

Description
Return on sales
Return on investment
Return on equity
Times-interest-earned
General efficiency
Efficiency of ordinary activities
Cash ratio
Quick ratio
Current ratio
NWC to Total assets

Formulae
EBIT / Revenues
EBIT / Total liabilities
EBIT / Equity
EBIT / Interest expenses
Revenues / Costs
Rev. from ord. act. / Costs of reg. act.
(CA-I-A/R) / (CL+Accruals)
(CA-I) / (CL+Accruals)
(CA+P&AI) / (CL+Accruals)
(CA+P&AI) - (CL+Accruals)) / T. Assets

Narodne Novine (2002) Odluka o nacionalnoj klasifikaciji djelatnosti – NKD-2002. Zagreb: Narodne Novine d.d., 13/2003, pp161.
12
Narodne Novine (2005) Zakon o računovodstvu. Zagreb: Narodne Novine d.d., 146/2005,
pp2736.

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Miodrag Streitenberger

11
12
13
Indebtedness
14
15
16

If
Liabilities/
Rev.
EQ/Liabilities
BD/Assets
EQ/FA
EQ+LtL/FA

Indebtedness factor
Liabilities to Revenues
Equity ratio
Bank debt to Assets
Equity to Fixed assets
Equity+liabilities to Fixed
assets

(LtL+Stl+Accruals-Cash) / CF1
(LtL+Stl+Accruals) / Revenues
EQ / T. Liabilities
(LtD+StD) / Total Assets
EQ / FA
(EQ+LtL) / FA

Source: Author

Research design can be comprehensively presented by following graph:

Graph 1: Research design
Days of delay

Dates of financial reports

360

Risky
companies

180
120
90
60
30
0

Good
companies

t-2
31.12.2006

t-1
31.12.2007.

t

Time

31.12.2008.

Source: Author

On y-axis are indicated days of delay in debt repayment, while on x-axis are
indicated financial reports dates, starting from date of loan disbursement. Dashed
line indicates increase in delay of risky companies, while solid line indicates orderly
repayment of good companies. Three vertical lines indicate dates of financial reports (year-ends).
3.2. Sample selection methods

Research sample is not randomly selected, but it is purposive sample, i.e. it
consists of population units with required properties. Sample elements are dichoto-

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223

mously classified (risky/good) and thus, paired sample is designed. Basic drawback
of such design and selection method is that it implies equal distribution of risky
and good companies in general population (probability of loan default is 50%)13.
Since exact proportions in Croatia are unknown, it can not be stated with certainty that research sample proportions are equal to population proportions. Due
to limitations inherent in sample selection methods, research results can not be easily generalized. In order to increase validity of research results, sample of SME’s is
selected. Thus better control of research variables is assured. Due to distinctive lack
of theoretical background, ratios for the research are selected by author’s discretion,
but still using some guidance from previous studies.
3.3. Applied statistical methods

Statistical methods of analysis of variance were used to explore whether significant differences exist in two samples’ ratios mean values, all in accordance with research objectives and hypotheses. Specifically, univariate method – t-test for paired
samples was used.
4. RESEARCH RESULTS

Before application of t-test, it was necessary to verify that all prerequisites for
statistical validity of research results were fulfilled. Main prerequisite for validity of
t-tests is normal distribution of ratios’ mean values differences.14
The simplest normality test is a visual analysis of statistical distribution graphs
(histograms). Such analysis indicate that, in general, ratios’ mean value differences
are approximately normally distributed. However, there is a number of ratios which
were not normally distributed. Therefore, it was necessary to test hypothesis of normality of ratios’ mean values differences. Shapiro-Wilks W-test15 is used in which
probability p for W statistic less than 0,05 indicates that normality hypothesis can
be rejected. Results of Shapiro-Wilks test are summarized in following table:

13

Joy, M. & Tollefson, J. (1975) On the Financial Applications of Discriminant Analysis, Journal of
Financial & Quantitative Analysis, 10 (5), pp725.
14
Mc Clave, J.T., Benson G.P. & Sincich, T. (2001) Statistics for Business and Economics. New York:
Prentice-Hall Inc., pp414.
15
http://www. statsoft.com.

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Miodrag Streitenberger

Table 2: Shapiro-Wilks W-test results
Ratio groups
Profitability
Efficiency
Liquidity

Indebtedness

No.

Ratios

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

ROS
ROI
ROE
TIE
E
Eo
L1
L2
L3
NWC/Assets
If
Liabilities/Rev.
EQ/Liabilities
BD/Assets
EQ/FA
EQ+LtL/FA

t-2
0,00015
0,00027
0,00000
0,02883
0,00026
0,00810
0,00000
0,00000
0,00000
0,37626
0,00000
0,00000
0,21003
0,66158
0,00023
0,00000

p – values for W statistic
t-1
0,00240
0,04272
0,00000
0,10028
0,00149
0,00004
0,44268
0,05781
0,01589
0,95299
0,00015
0,04476
0,32825
0,67626
0,00073
0,00492

t
0,00009
0,02008
0,00000
0,03162
0,00173
0,03688
0,00045
0,11612
0,00000
0,92901
0,00000
0,11901
0,92219
0,77282
0,00088
0,00000

Source: Author

On the basis of Shapiro - Wilk W – test results, normality hypothesis was rejected for majority of tested ratios. Hypothesis was accepted only for ratios: Net
working capital to Total assets, Equity ratio and Bank debt to Assets.
Visual analysis of histograms, as well as statistical tests, prove that basic prerequisite for t-test is not fulfilled. However, that sole fact does not mean that results of
t-test would be completely false. They would just be less reliable. Since several ratios
passed normality test, t-test is conducted.
T-test results are summarized in following table:

Table 3: T- test results
Ratio groups

No.

Ratios

Profitability

1
2
3
4

ROS
ROI
ROE
TIE

t-2
0,143808
0,010024**
0,210477
0,010204**

p – values
t-1
0,640449
0,014524**
0,259695
0,051432*

t
0,094412*
0,000741***
0,873723
0,001937***

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Efficiency

Liquidity

Indebtedness

5
6
7
8
9
10
11
12
13
14
15
16

E
Eo
L1
L2
L3
NWC/Assets
If
Liabilities/Rev.
EQ/Liabilities
BD/Assets
EQ/FA
EQ+LtL/FA

0,478199
0,114997
0,105758
0,124843
0,058758*
0,003686***
0,150353
0,028748**
0,000058***
0,069025*
0,018688**
0,776221

0,989575
0,861446
0,005468***
0,008512***
0,004460***
0,004428***
0,496298
0,000233***
0,000399***
0,116805
0,016468**
0,150751

225

0,202326
0,098675*
0,052936*
0,000747***
0,023566**
0,000694***
0,267766
0,004213***
0,000255***
0,018188**
0,075406*
0,722323

*** Significant at 99% confidence level
** Significant at 95% confidence level
* Significant at 90% confidence level
Source: Author

Out of 16 ratios tested, 12 were found significant in at least one period (at 90%
or more confidence level). Furthermore, 8 ratios were found significant in at least
one period at 99% confidence level. Only two ratios were found significant at 99%
confidence level in all three periods: Net working capital to Total assets and Equity
ratio. Since these ratios were also found normally distributed, it can be concluded
that ratios Net working capital to Total assets and Equity ratio have strong discriminating power in all three periods.
As ratio normality hypothesis was not universally accepted, t-test results had to
be validated by alternative method. For that purpose, non-parametric Wilcoxon
Matched Pairs Test16 was chosen. It is most commonly used test for small paired
samples, because central limit theory does not apply to it17. Wilcoxon Matched
Pairs Test results are summarised in following table:

16
17

Ibid.
Kazmier, L.L. (2003) Schaum′s Outline of Business Statistics. New York: Mc Graw Hill, pp319.

226

Miodrag Streitenberger

Table 4: Wilcoxon test results
Ratio groups

Profitability

Efficiency

Liquidity

Indebtedness

No. Ratios
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

ROS
ROI
ROE
TIE
E
Eo
L1
L2
L3
NWC/Assets
If
Liabilities/Rev.
EQ/Liabilities
BD/Assets
EQ/FA
EQ+LtL/FA

p – values
t-2
0,135909
0,006035***
0,184623
0,002415***
0,155837
0,147041
0,031604**
0,005460***
0,004682***
0,004992***
0,198611
0,003162***
0,000359***
0,059836*
0,002958***
0,082207*

t-1
0,271156
0,013195**
0,253645
0,152862
0,688360
0,280215
0,004422***
0,003379***
0,007051***
0,004992***
0,893644
0,000332***
0,000895***
0,184623
0,004390***
0,051932*

t
0,054463*
0,001287***
0,262300
0,001484***
0,035010**
0,049499**
0,007575***
0,000895***
0,001114***
0,001287***
0,338857
0,001382***
0,000664***
0,021827**
0,011080**
0,097773*

*** Significant at 99% confidence level
** Significant at 95% confidence level
* Significant at 90% confidence level
Source: Author

Out of 16 ratios tested, 14 were found significant at least in one period at 90%
or more confidence level. 8 ratios were found significant in at least one period at
99% confidence level. 5 ratios were found significant at 99% confidence level in
all three periods: Quick ratio, Current ratio, Net working capital to Total assets,
Liabilities to Revenues and Equity ratio.
Non-parametric test was used to validate results of parametric t-test. That
way, validity and reliability of results obtained by testing research hypothesis was
assured.
5. CONCLUSIONS

On the basis of conducted research and statistical testing, it can be concluded
that sufficient evidence exist to accept research hypothesis (H1). There exist finan-

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227

cial ratios with sufficient information content for discriminating between companies that orderly repay debt from those that have significant delays. These are
all ratios that were found significant in periods (t-1) and (t) when delays of risky
companies were at their peak. Out of 16 ratios analyzed, hypothesis (H1) can be
accepted for following 12: Return on sales, Return on investment, Times interest
earned, Efficiency of ordinary activities, Cash ratio, Quick ratio, Current ratio, Net
working capital to Total assets, Liabilities to Revenues, Equity ratio, Bank debt to
Assets and Equity to Fixed assets.
It was also found that there exist financial ratios with sufficient information content for predicting loan defaults. Hypothesis (H2) can be accepted for all ratios that
were found significant in period (t-2), before loan is approved. These are following
8 ratios: Return on investment, Times interest earned, Current ratio, Net working
capital to Total assets, Liabilities to Revenues, Equity ratio, Bank debt to Assets and
Equity to Fixed assets.
Although sufficient evidence was not found to confirm predictive power of Return on sales, Efficiency of ordinary activities, Cash ratio and Quick ratio, it can be
concluded that they have certain discriminating power. Evidence was found that
Return on equity, General efficiency, Indebtedness factor and Equity+liabilities to
Fixed assets have neither predictive, nor discriminating power.
Best predictive and discriminating power is confirmed for Net working capital
to Total assets and Equity ratio, which were found significant at 99% confidence
level in all three periods. Moreover, the distribution of these ratios’ mean value
differences was found normal. Net working capital to Total assets and Equity ratio were found useful also for bankruptcy prediction purposes in a number of renowned studies, such as: Beaver (1966)18, Altman (1968)19, Deakin (1972)20 (used
analysis of variance methods), Ohlson (1980)21 (logit method), Zapranis i Gino-

18

Beaver, W. (1966) Financial Ratios as Predictors of Failure, Journal of Accounting Research, 4 (3).
Altman, E. (1968) Financial Ratios, Discriminant Analysis, and the Prediction of Corporate Bankruptcy, Journal of Finance, 23 (4).
20
Deakin, E. (1972) A Discriminant Analysis of Predictors of Business Failure, Journal of Accounting
Research, 10 (1).
21
Ohlson, J. (1980) Financial Ratios and the Probabilistic Prediction of Bankruptcy, Journal of Accounting Research, 18 (1).
19

228

Miodrag Streitenberger

glou (2000)22 (neural networks method), which additionally confirms validity of
this research results.
Using t-test it was found in 60% cases that ratios have either predictive or discriminating power (even higher proportion of 71% is found using Wilkinson test).
Therefore, hypothesis (H3) can be accepted. Financial reports companies deliver
to the bank provide sufficient information for efficient estimation of credit risks.
However, due to vagueness of results in certain periods, it is advisable to use all
other available sources of business information besides financial reports.
On the bases of this research results, following recommendations can be issued
to bank credit risk analysts in Croatia:
1. Best results in predicting delays in loan repayment for SME’s in Croatia can
be achieved using Net working capital to Total assets and Equity ratio. Return
on investment, Times interest earned, Current ratio, Liabilities to Revenues,
Bank debt to Assets and Equity to Fixed assets can be used to complement
them;
2. It is not advisable to use Return on equity, General efficiency, Indebtedness
ratio and Equity+liabilities to Fixed assets ratio since they have neither predictive nor discriminating power;
3. Financial reports SME’s in Croatia deliver to the bank can be trusted in general, but it is advisable to use all other available sources of business information to complement them.
By accepting these recommendations, quality of loan decisions in SME segment
in Croatia can be improved, which could, consequently, reduce bank losses and
increase resource allocation efficiency in Croatia.
This research results provide much needed theoretical underpinning for selection of ratios in further researches. According to some authors23, acceptable theoretical underpinning for ratio selection has yet to be developed. Furthermore, this
research results may be applied in multivariate studies and rating models used in

22

Zapranis, A. i Ginoglou, D. (2000) Forecasting Corporate Failure with Neural Network Approach:
The Greek Case, Journal of Financial Management and Analysis, 3 (2).
23
Kaminski, K.A., Sterling W.T. & Guan, L. (2004) Can Financial Ratios Detect Fraudulent Financial Reporting?, Managerial Auditing Journal, 19 (1), pp22.

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banks, where it is essential to have predictive power assured before selecting ratios
for model development.
These research results leave certain open questions for future researchers to answer. It would be interesting to test these research hypotheses on a sample of large
corporates. Furthermore, it would be interesting to monitor the sample of risky
companies and investigate how many of them will eventually end up in bankruptcy
and how many will recover. That way, the prospective study could be developed,
instead of much used retrospective studies (retrospective studies are much more
used than prospective, even though it does not make much sense to use retrospective studies for the purpose of investigating predictive power of ratios).
Finally, it is necessary to emphasize that this research results should be interpreted with caution, due to ratios’ statistical properties, limited availability of research
data, sample selection method, research design and statistical method applied.
LITERATURE

Books
Mc Clave, J.T., Benson G.P. & Sincich, T. (2001) Statistics for Business and
Economics. New York: Prentice-Hall Inc., pp 888.
Kazmier, L.L. (2003) Schaum’s Outline of Business Statistics. New York: Mc
Graw Hill, pp 319.
Articles
Altman, E. (1968) Financial Ratios, Discriminant Analysis, and the Prediction
of Corporate Bankruptcy, Journal of Finance, 23 (4), pp 589-609.
Barniv, R. & Raveh, A. (1989) Identifying Financial Distress: A New NonParametric Approach, Journal of Business Finance & Accounting, 16 (3), pp 361383.
Beaver, W. (1966) Financial Ratios as Predictors of Failure, Journal of Accounting Research, 4 (3), pp 71-111.
Deakin, E. (1972) A Discriminant Analysis of Predictors of Business Failure,
Journal of Accounting Research, 10 (1).
Fitzpatrick, P. (1934) Transitional Stages of a Business Failure, The Accounting
Review, 9 (4), pp 337-340.

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Joy, M. & Tollefson, J. (1975) On the Financial Applications of Discriminant
Analysis, Journal of Financial & Quantitative Analysis, 10 (5), pp 725.
Kahya, E. & Theodossiou, P. (1999) Predicting Corporate Financial Distress: A
Time-Series CUSUM Methodology, Review of Quantitative Finance and Accounting, 13 (4), pp 323-345.
Kaminski, K.A., Sterling W.T. & Guan, L. (2004) Can Financial Ratios Detect
Fraudulent Financial Reporting?, Managerial Auditing Journal, 19 (1), pp 22.
Novak, B. (2003) Predviđanje poslovnih teškoća banaka u Republici Hrvatskoj na
osnovi javno dostupnih financijskih pokazatelja, Ekonomski Pregled, 2003 (54), pp
904-924.
Ohlson, J. (1980) Financial Ratios and the Probabilistic Prediction of Bankruptcy,
Journal of Accounting Research, 18 (1), pp 109-131.
Zapranis, A. & Ginoglou, D. (2000) Forecasting Corporate Failure with Neural
Network Approach: The Greek Case, Journal of Financial Management and Analysis, 3 (2), pp 11-20.
Zmijewski, M. (1984) Methodological Issues Related to the Estimation of Financial Distress Prediction Models, Journal of Accounting Research, 22 (1), pp 59-82.
Laws, Decisions
Odluka o nacionalnoj klasifikaciji djelatnosti – NKD-2002. Narodne Novine
d.d., 13/2003, pp 161.
Zakon o računovodstvu. Narodne Novine d.d., 146/2005, pp 2736.
Odluka o Klasifikaciji Plasmana i Izvanbilančnih Obveza Kreditnih Institucija. Narodne Novine d.d., 1/2009, pp 20.
Internet sources
http://www.snz.hr/test/test4/datoteke. Kujundžić-Tiljak, M. i Ivanković, D. (2006)
Multivarijatne Metode.
http://www. statsoft.com

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MARKETING RESEARCH IN HEALTHCARE INDUSTRY
Kovačić Nedeljko Public Health Center Donji Miholjac, ravnatelj@dz-donjimiholjac.hr

Abstract

Any marketing effort will inevitably involve marketing research. The term marketing research, often used interchangeably with market research, encompasses
market, product, pricing, research and distribution research. Marketing research
is undertaken to identify the nature of the product or service to be marketed, the
characteristics of consumers, the size of the potential market, the nature of competitors and other essential parts of the marketing puzzle. Marketing research can
take a variety of forms and is not always a formal, expensive process. Any type of
information gathered on the marketplace constitutes marketing research. Research
can be conceptualized as a multistage process. The exact number of stages varies
from marketing analyst and from problem to problem. The steps in the marketing
research process are similar to those in other industries, although they may need
to be modified for use in healthcare. The nature of the research plan is a function
of the objectives of the marketing initiative. This work discusses the marketing
research process and it’s role in the healthcare industry.
JEL classification: H51, H75, I11
Key words: marketing research, product research, pricing research, promotional
research, distribution research, healthcare industry.
1. INTRODUCTION

The area of marketing has experienced it’s unheard of development in the 20th
century, which continues with no smaller intensity at the beginning of the 21st
century. During the last few decades, changes observed from the marketing point
of view, directly or indirectly refer to the implementation of marketing or have
been related to the concept of marketing1. Changes in this area have led to perma1

Meler, M. (2003) Nonprofit marketing, Faculty of Economics and Business in the Osijek, p.10-15

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nent development of interesting events including the area of marketing research.
The scope of marketing research in the industry of healthcare reflects as well as implementations of marketing in other industries. As healthcare workers have higher
expectations of marketing, from the simpler forms of marketing advertising, the
areas of marketing research have considerable widened. Researchers today are focused on issues which will consider their knowledge of different scopes of application. Furthermore, technological innovations of the 90-ties of the passed century,
such as the marketing database and the internet, have widened the possibilities of
feasibility for the marketing researcher.
Under the concept scope of application, the goals of a marketing researcher can
be in the span of replying to simple questions, all up to more complex forms of
research. From the marketing research in healthcare is expected to contribute to
the functioning of limited conducting surveys about the satisfaction of patients, up
to extensive definitions of the strategically functioning of health service facilities.
Examples of marketing research in healthcare include2:
• The determining of an adequate location for the center of emergency medical
services
• The recognizing and determining the needs of employees in medicine,
• Determining the level of demand for surgeons and appropriate medical surgery supplies.
• Valuating the satisfaction with the achieved healthcare plan,
• The recognizing of the appropriate market “nicha” for smaller clinics on the
competitive market of medical services and similar services
The above mentioned list shows that areas of marketing investigation can also be
applied to healthcare industry. Marketing investigation in healthcare has considerably expanded in the view of their users. The users are in this context organization,
institutions which perform the marketing research and professionals which use the
results of the mentioned research. Marketing research, from the historical point of
view, has been limited to large hospital systems, clinical hospital centers, and some
profit-making health service facilities (in pharmacology). Recently, health service
facilities which directly carry out healthcare services, have been included in the
marketing research. Today, networks and IT connect almost all health service facilities, clinics, as well as emergency medical facilities and with the state department
2

Thomas, R. (2010) Marketing Health Services, Health Administartion Press, Chicago, p. 381-387

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233

in the area of healthcare research, so that data which is obtained from marketing
research in healthcare, can be used.
2. DEFINITION OF MARKETING RESEARCH

A widely pointed out definition of marketing is suggested by the American
marketing society in 1985. in which stands that marketing is a process of planning
and realization of conception, prices, promotion and distribution of ideas, goods and
services in order to create the possibility to interchange which will satisfy single and organizational goals3. Furthermore, the definition has been modified 2004, it claims
that marketing is a function which allows creation, communication and delivery
of values to consumers and for managing the relationship with buyers in a way
that will satisfy the need of an organization and it’s owner. Therefore, a marketing conception demands the satisfaction of a customers needs, rather than making
maximum profit for an organization. In other words, an organization should be
oriented towards customers and should try to understand their requests and needs
so that they can be satisfied in an efficient manner for both customer and organization. This means that such an organization needs to get the necessary information
about the customers’ needs, in order to be able together with the knowledge of
marketing, help satisfy these needs. Research should be the basic tool for achieving
efficiency and effectiveness.
Nowadays the market has become more complex, as are the decisions which
are made each day. This kind of dynamic sequence of marketing effects is continuous because of the changes in the external environment. Because of these constant
changes in the environment it is difficult for managers to make good decisions.
For example, exogenous factors of changeability of the character of the market,
growing concern for the quality of the environment, the appearance of activists of
consumer protection, growing competition, the growing deficiency of raw materials, instability of political relationships, changes in technology and in international
relations contribute to the growing difficulties while making quality-driven marketing decisions.
Marketing research specifies the obtained information, creates a model for gathering information, manages and implements the process of data acquisition, analyses the obtained information and informs of the results and their consequences.
3

Ibid

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Kovačić Nedeljko

Therefore, there are several characteristics which are very important for the understanding of marketing research such as it’s role in the understanding of the environment. first of all, we must point out that marketing research is one of the most
important elements in the entire field of marketing information. This means that
there are other elements that can help us in the process of decision making and the
marketing research and from which we can largely benefit in the whole process of
marketing.
3. MARKETING RESEARCH AND DECISION MAKING IN HEALTHCARE

The greatest meaning of marketing research development in healthcare is its
significant contribution to the process of decision making. Healthcare has become
market-driven and the data which generates from the marketing research is marketing directed. The importance of the market in healthcare could no longer be
neglected. More and more, the needs of the market have determined the types of
products and services which are offered in the healthcare industry.
Today, the encirclements in the healthcare industry request a more aggressive
approach to the market research. Researchers must constantly be ready for new
market possibilities and needs, at the same time they must be aware of the danger
which threatens health organizations who hold back market shares or financial viabilities, before it is recognized as a problem.
The growing diversity and disparity of the consumer in the Republic of Croatia,
including the consumers of medical services, have induced the importance of marketing research4. Once the importance of the consumers is recognized in healthcare, they will be exposed to the same process of segmentation as are other groups
of consumers. In spite of envisaging in the past about the growing homogeneity,
today in the Republic of Croatia there is a growing racial and ethnic division the
regional diversity and unequal adjustments of ways of living additionally daunt
every researcher. As a result, the characteristics of product and service consumers
in the healthcare industry have changed significantly, and their behavior is less
predictable.
Therefore, all factors which participate in the procedure of collecting marketing data are a significant support for the decision making in healthcare. For health
service facilities high expenses can occur because of the inadequate location of the
4

Roberts, P. (2010) Healthcare Research, John Wiley & Sons, New Jersey, p. 39-52

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235

facility, the wrong timing of the marketing initiative, neglect of the market or the
development of inadequate products. Costs which include the equipping with
medical supplies, implementation of marketing activity and the development of
products are growing and because of the losses which are related to the making of
wrong decisions, it can take years for the health institution to recover.
4. NEED FOR MARKETING RESEARCH5

Understanding the customer and more important finding out who they are,
what they wish in the sense of products, where and when they want them to be
available and delivered to them, and at what cost they want them are some of the
criteria which a manager must be aware of when bringing operating decisions.
However, because of the complete globalization and very complex forms of organization of branch offices, a disagreement can be created between the manager
and his, very widespread and scattered particular category of consumers. For this
reason, most managers are separated from their consumers, or individuals who
eventually determine the success or failure of the organization.
Organizations throughout the world loose half of their consumers every five
years. But most of the managers do not succeed in understanding and recognizing
the reasons why this is happening. More than two thirds of organizations do not
succeed in satisfying the needs of consumers because they are not able to recognize
the perception of their consumers, or what they really want. This is not because they
do not care about the consumers needs, but because they are trying to achieve this
the wrong way and eventually with the wrong meaning. Very frequently, because of
this organizations initiate a research so that they can understand why they went in
the wrong direction. Because of this, they apply different kinds of research. Based
on all the above mentioned information, marketing research can help organizations
during the process of decision making which can be divided in two basic phases: a)
noticing the problem to research, solving the researched problem.
Noticing the problem to research is done so that it helps to notice a possible
problem which may be a latent danger in the future. On the other hand, problem
solving is done to get rid of certain problems which came up during research. This
kind of division of marketing research helps us to understand the theory which can

5
Thomas, R. (2010) Marketing Health Services, Health Administartion Health Press, Chicago,
p- 385-387

236

Kovačić Nedeljko

be applied in practice. Still, between these two distinctive concepts there is no big
difference. Research can enclose them both at the same time, the noticing of the
problem and its solution.
5. Phases of marketing research6

Marketing research can have many forms; the most important is the system
analyses. System analysis requires careful planning as a support to the research.
Marketing researches, as well as any scientific research are components of interconnected activities. Phases in the research process constantly coincide, and represent
a simplified state in which every project often follows a series of appropriate activities. In spite of this, marketing research often follows the general model. Phases in
research are: definition of the problem, setting up goals of the research, determining a plan of research, analyzing the data and coming to conclusions and preparing
a report.

Diagram 1: Phase of process of marketing research (Adjusted towards Zikmund, W., Exploring marketing
research, The Dryden Press)
Presentation
of result of
marketing
research

Defining
problem

Planing form
of research

Analyzing
Data

Data
collecting

Sample
planing

The above mentioned diagram shows six phases of the research process of marketing as a cycle process. The concept of circular sequences is used because the
completion of a research usually creates new ideas and problems which need to be
investigated. In practice, phases chronologically cover each other and are mutually
functionally connected, sometimes; later procedures in the research finish earlier.

6
Thomas, R. (2010) Marketing Health Services, Health Administartion Health Press, Chicago, p.
35-39

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237

5.1. Defining the problem to research

The process of marketing research starts with the discovering of the problem.
Recognizing the problem is the first step in discovering its solution. Generally we
can say, the term problem suggests that something is wrong. In marketing, this
term does not imply a new marketing possibility, because it exposes a new marketing segment. In reality, the task of research may explain the problem, determine the
possibility or monitor and carry out current activities. The conception of discovering and determining of the problem is used in a much wider context. It needs to be
emphasized that the initial stage discovers the problem rather than just determines
it. In the initial phase of research, it usually demands the general understanding of
the problem of the organization, its characteristics, products and services, as well as
the market surroundings. In usual research, literature usually refers to professional
magazines in which scientific substance is indexed. Unfortunately, in the healthcare
industry such scientific literature does not yet exist, as in other industries7. Literature about marketing research in the healthcare industry does not include expert
monthlies, but only bulletins, government reports, technical pieces, presentations
from scientific symposiums, annual reports and publications of professional associations (the chamber). Today, researchers can approach scientific databases as well
as other appropriate sources via the internet.
5.2. Setting up goals for research

Once a problem is noticed, research goals need to be set up. As a rule, these goals
need to determine the formation of the research process. The goal of the research is
to recognize the significance of the problem or the opportunity to study and associate to other important factors. This research has characteristically a high degree
of flexibility and usually it relies on data from literature, smaller surveys, unofficial
interviews, debates and subjective evaluations of available data. The goals of this
type of research are to achieve an insight in the context of marketing and to gather
information which can limit the usefulness to other types of research.
5.3. Research plan

When the preceding processes are carried out, a plan of research is carefully
thought out. Concepts developed in previous steps need to be operationalized in
7

Mullner, P. (2008) Encyclopedia of Health Services Research, Sage Publication, London, p. 719723

238

Kovačić Nedeljko

a research plan. Now that the conceptions have been implemented as to the data
type, a plan needs to be developed for the collection and analyzing of data for the
purpose of research. The categories of data which can be used, it means the collection of relevant data, indicators and analytical techniques, among others also the
characteristics, which have been included in the research plan. The research plan
classifies a series in which the data collection and statistical analysis which need to
be carried out, the responsible participants, the right resources as well as time scale.
Considering that the data collecting supports the research, decisions must be made
using the primary data, secondary data or a combination of both. If the primary
research is viewed independently, it will limit the technique of collecting data and it
will be necessary to carry out procedures which refer to the forming of a questionnaire, sampling, training the examiner ect. in order to implement this process.
5.4. Data acquisition

Collecting information is getting unprocessed data which needs to be adjusted
to fit into the information necessary for the marketing analysis. In the selection
for the best technique for the data collection to be used in the project, researchers
must determine different advantages and disadvantages of the different approaches
and consider only the ones that are going to be reliable and valid. The process of
collecting data usually includes the collecting of primary data, as well as the use of
secondary data. Secondary data is usually collected prior to primary data because
it doesn’t demand big financial expenditure. Primary research will be applied when
information can not be obtained from secondary research. Because of the great
amount of information that can be gathered about an unlimited number of topics, the researchers must allow for all the information to be at disposal, which are
related to the problem8. They must be especially careful, that the gathered data is
useable. In particular, the researcher must point out which are the questions that he
needs answered so that he can finalize the study. Furthermore, he should determine
the possible use of any information.
5.5. Analysis of data and the bringing of conclusions

The basic purpose of analyzing data which has been gathered is to carry out conclusions that refer to the problem of marketing research. The writing of conclusions
will be based upon the analysis which will be pointed out in the forming of the
8

Scoble, R.;“The New Rules of Marketing & PR”, John Wiley & Sons, New Jersey, 2007

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239

research. Appropriately chosen techniques should produce useful results, whether
these results refer to the market share, the use of trends or the change in market
characteristics. These conclusions need to be ensured on base of a series of marketing activity. Some of them, in any case, become part of the solution which should
be indicated and confirmed through this process.
5.6. Presentation of the result of marketing research

The knowledge obtained through marketing research is useless, if it is not used
in form of presentation which allows decision makers to understand it and to undertake appropriate activities. If the corresponding target segment does not benefit
from the research, then the efforts of the researcher were in vain. Regardless of the
quality of the research process, the precision and usefulness of the presented data,
the results of the research will not be used appropriately unless they are presented to
individuals who are making the decisions. Furthermore, many executive managers
can not easily establish the quality of the research, the questionnaires or experiments. Nevertheless, they can of course, recognize the quality of the report. Because
of this, the quality of the report is often used as an indicator of the quality of such
research. A successful presentation of the results of a research to health professionals
is a challenge of the research market in the area of healthcare.
6. CONCLUSION

Marketing investigating includes market research, product, price of promotion
and distribution. Healthcare professionals have become aware of the advantage
which is provided by marketing research in a positive sense, and as a result marketing research is used on a wide scope9. Requests for marketing research have become
highly demanding and illustrate the growing trend of miscellaneous users of this
data in healthcare. Mostly, opportunity costs of incorrect strategic decisions in the
strengthened competitive market encourage the growing demand. Marketing research should be a constituent part of the existing functions in healthcare service
facilities, and not just appear when it is considered that something should be done
without delay.

9
Medić, M. (2010) Notes with the lecture on Postgraduate Doctoral study – Course Management,
Faculty of Economics Osijek

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Kovačić Nedeljko

Marketing research can acquire different forms and is not always a formal and
expensive process. Any kind of information which is gathered at the market is marketing research. Research can be conceptualized as a process that consists of several
steps. The real number of steps oscillates and depends on the researcher and the
problem that is investigated. The process starts with the noticing of the problem
and ends with a strategic decision. The steps in the process of marketing research
are similar to the steps taken in other industries, although they can be adjusted for
the purpose of the healthcare industry. The nature of the plan for research is in the
function of goals stimulating marketing. The majority of the market research projects include primary research and numerous techniques which can be used with all
their advantages and disadvantages. Qualitative techniques include observations,
testing and group focus. Quantitative techniques emphasize polling, which can be
done by post, over the telephone, personally or online.
Literature:

Kotler, P., & Lee, N.(2006) Marketing in the Public Sector, Wharton School
Publishing, ISBN 0-13-187515-9, New Jersey
Meler, M. (2003) Neprofitni marketing, Faculty of Economics and Business in
the Osijek, ISBN 953-6073-79-X, Osijek
Mullner, R. (2008) Encyclopedia of Health Services Research, Sage Publication,
ISBN 978-1-4129-5179-1, London
Scoble, R. (2007) The New Rules of Marketing & PR, John Wiley & Sons,
ISBN 978-0-470-11345-5, New Jersey
Shukla, P. Marketing research, Ventus Publishing, ISBN 978-87-7681-411-3,
Brighton
Roberts, P., & Priest, H. (2010) Healthcare Research, John Wiley & Sons, ISBN
978-0-470-51932-5, New Jersey
Medić, M. (2010) Notes with the lecture on Postgraduate doctoral study –
Course Management, Faculty of Economics and Business in the Osijek
http://en.wikipedia.org/wiki/Marketing_research (Access 14.3.2011.)
http://www.ijmr.com/Samples/Sample3.pdf (Access 14.3.2011.)

APPLYING THE AHP METHOD IN THE PROCESS OF DECISION MAKING WHEN ...

241

APPLYING THE AHP METHOD IN THE PROCESS OF
DECISION MAKING WHEN SELECTING THE LOCATION OF A
GEOTHERMAL WELL
Martina Briš, Ph.D. Candidate
Teaching Assistant
J. J. Strossmayer University in Osijek
Faculty of Economics in Osijek
Nino Bošnjak, univ.spec.oec.
INA d.d. Zagreb
Jozo Krajina, Ph.D. Candidate
J. J. Strossmayer University in Osijek
Faculty of Teacher Education in Osijek

Abstract

Decision making is a process of evaluating the alternatives that satisfy a certain
group of set goals, i.e. criteria. As the situation described in this paper involves
multiple criteria, this is then a multiple criteria decision making. One of the most
important or probably the most important multiple criteria method is the AHP
method, i.e. Analytical Hierarchy Process. This method makes it possible to integrate and interpret both the quality and quantity criteria of comparison. A complex
problem comprising multiple criteria and alternatives was presented in this paper,
and influence and relations among them were determined. A decision was made as
a result of recognizing the influence among the factors.
JEL classification: O13, Q20
Key words: decision making, AHP – Analytical Hierarchy Process, pairwise
comparison, alternatives, criteria, geothermal energy, wells
1. On geothermal energy

Below the earth’s surface there are huge reserves of heat energy - geothermal
energy. The word geothermal comes from the Greek words geo, meaning earth, and

242

Martina Briš • Nino Bošnjak • Jozo Krajina

therme, which means heat. Geothermal energy is heat generated in Earth’s crust
by slow decay of radioactive elements, chemical reactions or friction in the movement of tectonic masses. The amount of this energy is so great that it can be almost
inexhaustible, and geothermal energy is therefore considered a renewable energy
source. The potential of geothermal energy is enormous; 50,000 times more energy
can be obtained from this source than from the oil and gas worldwide. Geothermal
resources are found in a wide range of depths, from shallow finds to several kilometres deep reservoirs of hot water and steam, which can be led to the surface and
exploited. Renewable energy, although still significantly more expensive to use than
fossil fuels, already accounts for more than 10% of total world energy consumption with increasing tendency. Areas that have the largest number of geothermal
resources are at the same time those that are still geologically active. These include
the areas around the Pacific (Pacific Ring of Fire: the western parts of the United
States and Canada, Central America, the west coast of South America, New Zealand, Indonesia, Philippines, Japan and eastern Siberia), Central Atlantic Ridge
(Iceland and Azores Islands), mountain ranges such as the Alps and the Himalayas,
East Africa, Central Asia and some Olympia islands. Due to very high pressures
it would be possible to exploit the mechanical, thermal, and chemical energy, but
with today’s technology it is still not considered viable.
The availability of geothermal energy in the Republic of Croatia from deep
wells suitable for economic use has been known for forty years. Geothermal water
has been used on the Croatian territory since ancient times mostly in spas. Major
studies of geothermal reservoirs were made in order to examine possible applications for a variety of purposes, not just health tourism. Sources of geothermal water
in Croatia are not adequately used for heating residential buildings, agricultural
production and industry and for the production of electricity. The National Energy
Programme, as a part of the project “Development and Organization of Croatian
Energy Sector” conducted by the Energy Institute, has proposed a more detailed
analysis of all deposits discovered during research of oil and gas by INA1. The use
of geothermal energy, which is a renewable and environmentally friendly source of
energy, will significantly accelerate the accession of Croatia to the European Union.
One of the conditions for EU accession is harmonization of national legislation
regarding renewable energy, energy efficiency and environmental requirements in
the selection of energy sources.
1

INA d.d. (public limited company), the national oil company of Croatia.

APPLYING THE AHP METHOD IN THE PROCESS OF DECISION MAKING WHEN ...

243

The entire area of the Pannonian sedimentary basin is characterized by relatively
high geothermal gradient. Numerous wells were drilled with water temperature
between 120 and 170 °C at depths from 2000 to 2800 m, as well as those with
water temperature 68-96 °C at depths from 1300 to 1900 meters. Today, when
new technical solutions have been developed and when renewable resources are put
under global view, some economic models will be used to reach the best decision
for investing in renewable resources sector. Figure 1 shows drilled geothermal wells
in Croatia.

Figure 1: Drilled geothermal wells in Croatia

Source: Energy Institute Hrvoje Požar, www.eihp.hr (accessed on February 24, 2011)

2. AHP Method - Analytical Hierarchy Process

Among multiple criteria methods, Analytical Hierarchy Process - AHP (Saaty,
1980) is one of the most important ones. It was developed some 30 years ago and it
has been in the focus of scientists’ attention since then. This method is popular due
to the fact that it is very close to the way of intuitive thinking of an individual, and
there are many software solutions supporting the work with this method.

Martina Briš • Nino Bošnjak • Jozo Krajina

244

The process of solving complex multiple criteria problems is based on their
decomposition to elements; goal, criteria (sub-criteria), and alternatives. These elements are integrated in a model with multiple levels; a hierarchical structure is
created. In the last phase the method treats the structure of MxN matrix (where M
stands for the number of alternatives and N for the number of criteria). This matrix
is constructed based on a relative importance of the alternatives with respect to each
criterion. Vector ( ai1, ai2, ..., aiN) for each i is the main vector of eigenvalues of the
reciprocal matrix NxN which is formed based on pairwise comparison of influence
of M alternatives on i criterion. The aij values are defined in a specific way. The
starting point here is that all aij values are already known. In MxN matrix the aij
value presents a relative value of the alternative Ai with respect to the criterion Cj.
N

The sum

∑a

ij

in the standard AHP equals one. In the case of maximization, the

i =1

best alternative is the one with the highest value:
N

A * (AHP) = max

∑a w
ij

j

for i = 1, 2, ..., M.

j =1

One of the most important segments of the decision making process is the creative part – determining the factors that are included in the hierarchy system. The
simplest way is to structure the problem as a three-level hierarchy: goal, criteria,
and alternatives.
Application of the method can be presented in the following steps (according to
Barković, 2009, p. 242):
1. The first step in the process of finding a solution to a problem is to recognize
the request, i.e. define what should be achieved (goal). It is also necessary to
determine the alternatives that best satisfy the set requests. Finally, priorities
of the request have to be defined to implement the alternatives and achieve a
higher, global goal. Therefore, it is necessary to develop a hierarchy model of
the decision making problem with a goal at the top, criteria (sub-criteria) at
lower levels and the alternatives at the bottom of the model.
2. In every node of the hierarchy structure parts of that node that are immediately below the node are pairwise compared by means of the Saaty scale,
and their local weights are calculated. Criteria are pairwise compared in the
process in relation to the number of times that one of them is more important
for achieving the goal than the other one. The alternatives are pairwise com-

APPLYING THE AHP METHOD IN THE PROCESS OF DECISION MAKING WHEN ...

245

pared with respect to each criterion, evaluating to what extent one of them is
in advantage of the other with respect to that criterion.
3. Local weights of the criteria and sub-criteria are calculated from estimated
relative importance of the parts of a corresponding level of the hierarchy
structure of the problem, and priorities of the alternatives are calculated at
the last level. Global priorities of the alternatives are calculated in the way
that their local priorities are weighted with the weights of all nodes to which
they belong, starting from the lowest level in the hierarchy model towards the
highest level, and then they are added up.
4. The so-called sensitivity analysis is carried out.
Different scales of values are used to compare parts of the hierarchy. The only
one that is of interest here is the Saaty’s scale of values (Saaty, 1980), according
to which elements are compared by means of verbal grades: ’equal’, ’moderately
dominant’, ’strongly dominant’, ’very strongly dominant’ and ’extremely dominant’. Verbal grades correspond to numerical values (1, 3, 5, 7, 9). The scale also
includes mid-values (2, 4, 6, 8) as well as reciprocal values to express the grades that
are opposite to the above ones.
AHP is a good way of structuring and explaining, and then mathematically solving a decision making process, i.e. a way of limiting improvisation and inconsistent
judgement of factors important for decision making. It determines the best of the
alternatives in a rational and intuitive way within a consistent procedure of evaluating all the alternatives with respect to criteria.
3. An example of making a decision by means of the AHP method

Practical application of the Analytical Hierarchy Process is shown below in an
example where a decision about the location of drilling a geothermal well is made
with respect to the set criteria.
Defining the project goal: production of electricity by using renewable source, i.e.
geothermal energy - the development of new technologies, increased price of fossil
fuels and encouragement by legal entities (the government, EU, various funds …) has
resulted in a positive economic environment for utilization of geothermal energy.
Utilization model: drilling of a geothermal well will result in production of
geothermal medium which will be used to power turbines for production of
electricity.

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Martina Briš • Nino Bošnjak • Jozo Krajina

Decision about selection of the location for drilling of the well should be made
by means of the AHP. Based on available information and after processing all input
parameters, the outsourcing partner submitted three locations that are adequate for
drilling of a geothermal well. The entrepreneurial idea envisages investment into a
pair of wells for a start (a production well and an injection well). It is possible to
choose among three locations: location A, location B and location C, for which
there are five criteria that will be considered in the process of selecting the best
location.
All three locations are situated in Croatia and their characteristics are given
below:
1. Location A; medium-temperature reservoir, 88˚C, with optimum production
4000 m3/day of geothermal medium, which could (by means of conventional
methods) generate 2.53 MWe and 13.5 MWt power.
2. Location B; medium-temperature reservoir, 120˚C, with optimum production 2000 m3/day of geothermal medium, which could generate 3.10 MWe
and 7.4 MWt power.
3. Location C; high-temperature reservoir with overheated steam, 140˚C, with
optimum production 1100 m3/day of geothermal medium, which could generate 4.82 MWe and 2.1 MWt heat power.
All three reservoirs are at the approximately 1980m depth and they have similar
thickness and properties. The selling price of both electricity and heat is equal for
all three locations.
As there is an array of criteria which can be used in the decision making process,
the five most important are taken into consideration.
C1: Thermodynamic properties of the geothermal medium; temperature of the
medium on the surface as well as phase property (gas/fluid) is a characteristic which
may significantly influence the efficiency of electricity production. High-temperate
reservoirs with steam (overheated) are best for production of electricity.
C2: Re-injection of the geothermal medium; depending on the reservoir characteristics in a particular area, the possibility of injecting the produced geothermal
medium back into the reservoir may change. According to the legislation, the produced geothermal medium has to be returned back to the reservoir and it must not
come into contact with surface water. Therefore, in addition to production well it
is also necessary to have a injection well. The cost of re-injection of geothermal me-

247

APPLYING THE AHP METHOD IN THE PROCESS OF DECISION MAKING WHEN ...

dium may change depending on water properties (injection pumps, maintenance
works, cost of electricity used to power pumps, and costs of construction of injection pipeline)
C3: Utilization rate of heat resources in the produced geothermal medium; geothermal medium used for electricity production still has a great potential that can
be used in various technological processes (for heating, drying, processing industry,
pools, etc.). What is most interesting is that economic operators can use geothermal medium for heating, and if we succeed in using it, this could increase the level
of economic efficiency to a great extent.
C4: Chemical properties of the geothermal fluid: corrosion rate, toxic gas content (if any), water hardness, and presence of hydrocarbon require construction of
special stations and purchase of more expensive materials
C5: Attractiveness of the location; it is not that much important, it includes
infrastructure, vicinity of settlements, etc. It was used in this paper only to show
how a less important criterion can affect decision making.
The hierarchy of the problem is simple. As it is shown in Figure 2, there are
three levels. The highest hierarchy describes the ultimate decision, i.e. the set goal.
In many problems criteria can also have a hierarchical structure. However, in the
observed problem the criteria C1, C2, …, C5 are all at the same level. The location
alternatives (A, B and C) are at the bottom level of the hierarchical scheme.

Figure 2: Structure of hierarchical processes
GOAL

C1

LOCATION A

C2

C3

LOCATION B

C4

C5

LOCATION C

Martina Briš • Nino Bošnjak • Jozo Krajina

248

The estimated ratio of criteria importance, which will be used as the basis for
ranking the locations for drilling of a well, is given in Table 1. The criteria were
compared based on the already mentioned Saaty’s scale. In the process of comparing the five criteria it can be observed that the criterion C1 was highly preferred
in relation to the criterion C5 (number 8), while the criterion C4 was moderately
preferred in relation to the criterion C5 (number 2).

Table 1: Estimated ratio of criteria importance

C1
C2
C3
C4
C5

C1
1
0.200
0.333
0.143
0.125

C2
5
1
3
0.250
0.200

C3
3
0.333
1
0.200
0.167

C4
7
4
5
1
0.500

C5
8
5
6
2
1

The value score (priority) vector for the criteria will be found by solving the
eigenvalue problem (Saaty: 1980, 49-52) of the matrix consisting of the pairwise
comparisons to evaluate the mutual importance of the criteria (Table 2).

Table 2: Weights of criteria calculated from their estimated ratios
Thermodynamic properties of geothermal medium
Restoration of geothermal medium
Efficiency of heat capacity of the produced geothermal medium
Chemical properties of geothermal medium
Attractiveness of the location

0.497
0.149
0.255
0.059
0.040

As it can be observed, the evaluation factor or relative weight for the criterion
C1 is 0.497, while it is lowest for the criterion C5, 0.040.
The consistency ratio (CR) is 0.093. As it is below 0.10, it is fully acceptable.
In the next step the ratios of priorities of the alternatives were estimated by
means of pairwise comparison with respect to each criterion, and priorities were
calculated (Tables 3-7).

APPLYING THE AHP METHOD IN THE PROCESS OF DECISION MAKING WHEN ...

Table 3: Priorities of the alternatives according to the criterion C1
C1
A
B
C
A
1
0.333
0.200
B
3
1
0.500
C
5
2
1
The consistency ratio (CR) is 0.004

Priorities
0.110
0.309
0.581

Table 4: Priorities of the alternatives according to the criterion C2
C2
A
B
C
A
1
7
5
B
0.143
1
0.500
C
0.200
2
1
The consistency ratio (CR) is 0.021

Priorities
0.738
0.094
0.168

Table 5: Priorities of the alternatives according to the criterion C3
C3
A
B
A
1
3
B
0.333
1
C
0.143
0.250
The consistency ratio (CR) is 0.042

C
7
4
1

Priorities
0.656
0.265
0.080

Table 6: Priorities of the alternatives according to the criterion C4
C4
A
B
C
A
1
0.200
0.143
B
5
1
0.333
C
7
3
1
The consistency ratio (CR) is 0.083

Priorities
0.074
0.283
0.643

249

Martina Briš • Nino Bošnjak • Jozo Krajina

250

Table 7: Priorities of the alternatives according to the criterion C5
C5
A
B
C
A
1
0.250
0.143
B
4
1
0.333
C
7
3
1
The consistency ratio (CR) is 0.042

Priorities
0.080
0.265
0.656

Local priorities of locations were calculated based on estimated ratios of priorities that can be found in the Tables 3-7. Global priority of a particular location is a
result of aggregated local priorities weighted with criterion importance.
Local priorities of all locations, criteria importance and global priorities of locations are given in the Table 8.

Table 8: Local and global priorities of the alternatives
Alternatives

C1
0.497
A
0.110
B
0309
C
0.581
Chart 1: Overview of all priorities

Criteria and their importance
C2
C3
C4
0.149
0.255
0.059
0.738
0.656
0.074
0.094
0.265
0.283
0.168
0.080
0.643

C5
0.040
0.080
0.265
0.656

Global priorities
of the alternatives
0.339
0.263
0.399

APPLYING THE AHP METHOD IN THE PROCESS OF DECISION MAKING WHEN ...

251

Based on the above it can be concluded that location C will be selected for production of electricity based on geothermal energy obtained from a geothermal well
and from production of geothermal medium.
4. Conclusion

As a method of multiple criteria decision making, Analytical Hierarchy Process
– AHP has been in the focus of scientists’ attention since its first appearance, as it
is close to the way of thinking of an individual. This method makes it possible to
structure and explain the decision making process, and then to solve it mathematically, thus limiting improvisation and inconsistent judgement about the factors
important for decision making. It rationally and intuitively determines the best of
the alternatives within a consistent procedure for evaluation of all alternatives with
respect to the criteria. One of many additional advantages of using the method
described above is also the fact that there are many software solutions facilitating
the work with the method. All of the above makes it possible for the AHP method
to be applied in almost all fields of human activities.
This paper provides an overview of practical implementation of the AHP method in the decision making process of selecting the location of a geothermal well,
taking into account the given criteria. The entire decision making process was presented, from problem definition to interpretation of results. Three possible locations of a well were assumed - location A, location B and location C. As there was
a whole set of criteria that could be taken into account when making the decision,
the 5 most important ones were selected. The decision was made that location C,
a high-temperature reservoir with overheated steam, would be selected for drilling
of a geothermal well to produce electricity from renewable source, i.e. by using
geothermal energy.
5. References

Akash, B. A., Mamlook, R., Mohsen, M. S. (1999) Multi-criteria selection of
electric power plants using analytical hierarchy process. Electric Power Systems
Research 52, pp. 29–35
Barković, D. (2009) Menadžersko odlučivanje. Faculty of Economics in Osijek,
Grafika, Osijek

252

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Blodgett, L., Slack, K. (2009) Geothermal 101: Basics of Geothermal Energy
Production and Use. Geothermal Energy Association, Washington
Bošnjak, N. (2010) Ekonomsko vrednovanje korištenja geotermalne energije
na lokalitetu Sječe u Osječko-Baranjskoj županiji – Final paper, Osijek
Čaklović, L. (1998) Teorija odlučivanja (AHP metoda). Zbornik radova 4. susreta nastavnika matematike, HMD, Ministarstvo prosvjete i sporta, Zagreb
Dickson, M., Fanelli, M. (2005) Geothermal energy: Utilization and Technology, Earthscan Publications Ltd
Duffield, W. A., Sass, J. H. (1994) Geothermal Energy – Clean Power from the
Earth’s Heat, American Geological Institute, Alexandria
Energy Institute Hrvoje Požar, www.eihp.hr (accessed on February 24, 2011)
Golub, M. et al. (1998) GEOEN - Program korištenja geotermalne energije –
prethodni rezultati i buduće aktivnosti. Energy Institute Hrvoje Požar, Zagreb, pp.
124
Golub, M., Kurevija, T. (2007) Strategija razvitka geotermalne energije u RH
sukladno poticajnim mjerama EU za korištenje obnovljivih izvora energije.
Rudarsko – Geološko – Naftni zbornik, vol.19
Haralambopoulos, D. A., Polatidis, H. (2003) Renewable energy projects: structuring a multi-criteria group decision-making framework. Renewable Energy
28, pp. 961–973
Harsh, K., Sukanta, R. (2006) Geothermal Energy: An Alternative Resource for
the 21st Century. Renewable Energy Institute, Austin Texas
Hokkanen, J., Salminen, P. (1997) Choosing a solid waste management system
using multicriteria decision analysis. European Journal of Operational Research
98, pp. 19–36
Huang, J. P., Poh, K.L., Ang, B.W. (1995) Decision analysis in energy and environmental modeling. Energy 20 9, pp. 843–855
Karni, R., Feigin, P., Breiner, A. (1992) Multicriterion issues in energy policy
making. European Journal of Operational Research 56, pp. 30–40

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253

Kurevija, T., Golub, M.: Iskorištavanje geotermijskih ležišta - skripta, http://
rgn.hr/~tkurevi/PDF/SKRIPTA-GEOTERMALNA%20ver%201.1.pdf (accessed
on October 13, 2010)
Mills, D., Vlacic, L., Lowe, I. (1996) Improving electricity planning —use of a
multicriteria decision making model. International Transactions in Operational
Research 3 3/4, pp. 293–304
Render, B., Stair, R. M. (1997) Quantitative Analysis for Management, Prentice
Hall, New Jersey
Saaty, T.L. (1980) The analytic hierarchy process. McGraw-Hill, New York
Saaty, T.L. & Vargas, L. (1982) The Logic of Priorities. Njihoff Publishing,
Kluwer
Saaty, T.L. (1990) How to make a decision: The Analytic Hierarchy Process.
European Journal of Operational Research, No. 48
Voropai, N. L., Ivanova E. Y. (2002) Multicriteria decision analysis technique in
electric power system expansion planning. Electrical Power and Energy Systems
24, pp. 71–78

Miljenko Brekalo • Zvjezdana – Penava Brekalo • Gordana Kurtović

254

SOME PSYCHOLOGICAL ASPECTS OF CELEBRITY MARKETING
Dr. sc. Miljenko Brekalo,1
Mr. sc. Zvjezdana – Penava Brekalo,2 Mr. sc. Gordana Kurtović3

Abstract

When planning or conducting celebrity marketing psychological aspects have
to be carefully taken into account. The results of the researches show that there are
strong emotional bounds being created in the interaction between a celebrity and
fans. These emotional bounds can be so strong that some fans compare them with
those they cherish for their family members or even their children. This becomes a
somewhat strange connection since there is mostly no true, real life interaction or
relationship between some celebrity and his/her fan. However there is a true feeling
of intimacy created with fans. The reasons for such behavior lie in the psychological
needs for identification with a celebrity.
JEL classification: M31
Keywords:
commtiment

emotional

bounds,

psychological

needs,

identification,

The celebrities play an important role and have a strong influence on the public
life, regardless whether we talk about art, music, film, TV, sport, culture, politics or
even religion. These celebrities could be actors, athletes or singers, but also people of
no profession who are physically attractive and are regular visitors of some events.
The celebrity marketing refers to the people who are in public limelight, like in
culture, showbiz or sport. We talk about the people who would have their rating
enhanced with the professional marketing among certain group, or generally in
public, which would either promote them as individuals or the profession they are
1

Independent scientist, Osijek, the Republic of Croatia, miljenko.brekal@os.t-com.hr

2

II. Gimnazija u Osijeku, the Republic of Croatia, zvjezdana.prenava@os.t-com.hr

3

Credit risk menager, Hypo-Alpe-Adria bank, Osijek, the Republic of Croatia, gordana,kurtovic@hypoalpe-adria.hr

SOME PSYCHOLOGICAL ASPECTS OF CELEBRITY MARKETING

255

in, as we can see in the case of the singers. With the right marketing they would sell
their CD better, their concerts would be more visited or in the case of actors, the
visitors would rush to the cinemas, likewise the famous athletes would have their
sport event more attended.
Since the marketing definition clearly states that marketing means an exchange
of one value for anther one, we should closely examine what is exchanged in the
case of personal marketing. In the conventional marketing, we talk about every
product which preferably should be also a brand and should differ from any other
products produced by the same company. This product is exchanged for certain
amount of money, meeting the needs of the consumers, and bringing profit. In
non-profitable marketing we would usually have a service exchanged which would
appear under different name, depending on the activity, like theater repertoire,
museum exhibition, etc.
In the personal marketing, it is difficult to define what the product is, since we
operate with non materialistic values that person might bring on the market and
which could meet certain social or psychological needs of targeted social group.
Some of these non materialistic values would include singing qualities, good acting,
high sport performance, attractive look of a model and they would be interpreted
as a success and suggesting a perfect life control, what would result with a fame of
a certain person. These values are then emotionally transferred from the celebrities
on other individuals in the targeted social group. As we could see, the personal
marketing is based on psychological characteristics and therefore difficult to be
precisely evaluated. However, the conducted studies have showed what connects
the fans and the groupies with their famous role model.4
Thomson’s marketing survey has studied the relationship between an individual
and a celebrity who he calls a “human brand”³. His study has showed that the fans
nourish a rather strong bond to their celebrity what could turn into a strong affection, since the examinees in the study describing the feelings they have toward their
celebrity, used words and expressions, which are widely used in the relationships
toward a partner or children. It is rather surprising because the relationship toward
a celebrity is a virtual one and most of the examinees have never met in person their
icons, although they might have attended their concert. Nevertheless their feelings
toward “their celebrity” are so strong and devoted like in a real love relationship, so
4

Ekman, P.: Emotions Revealed, Second Owl Book Edition, New York, 2007.

256

Miljenko Brekalo • Zvjezdana – Penava Brekalo • Gordana Kurtović

we are confronted with a rather strange concept of interaction. Namely, the fan and
his celebrity would almost never converse; they would not exchange their thoughts,
feelings and secrets like in a real life relationship. The fan would pretend as if the
celebrity addressed him personally in a televised interview, despite the fact that
the interview is watched by millions viewers worldwide. This feeling of intimacy
experienced by the fan toward “his celebrity” would not be affected by the physical
distance.
Thomson explains the psychological reasons for this type of emotional bonding and is the first who mentions the interpersonal vulnerability or sensitivity of
a celebrity for the needs of the other person (somebody in the audience) and consequently the ability of the celebrity to meet the needs of his fans in the audience.
The key question is which of these psychological variables bring fans and celebrities
together and keep them emotionally bonded.
The first variable would be a human wish to be independent, to express your
own personality and shape your own life. So, one famous person leaving an impression of someone who controls his life well and is highly respected because he can
express himself freely and makes good life decisions, would pass this message to
another one. We can say that independence, actually the personal autonomy is very
important and has strongly influence on how the celebrity would be emotionally
perceived by the fans.
The second variable refers to attachment or a human need to be close to someone. If an examinee perceives a celebrity as a close person who would take care of
him emotionally, he would be strongly devoted and attached to “his idol”.
The third variable, observed in the study is a competence of celebrity which is
of no importance in the case of strong fan attachment, meaning that talent, qualities; skills of celebrity are irrelevant in emotional bonding between fan and his idol.
Even more they did not affect the fan’s feelings and there was no emotional transfer
toward a celebrity.
In his study, Thomson has come up with the following conclusions:
- An intensive personal relationship toward a celebrity, such as being attached to
the celebrity would turn them into so called “human brands”5. The celebrity
fans describing their emotions toward their idol would use the words normally
used to express love toward a love partner or a child

SOME PSYCHOLOGICAL ASPECTS OF CELEBRITY MARKETING

257

- The celebrity usually meets two basic needs of their fans; the first one would be
the need to express your own personality and a feeling of having a control over
your life though identifying with the celebrity. The second need would be wish
to be close to someone, to be taken care of and be accepted for who you are.
- It should be pointed out that the fans do not satisfy the competence need of
their fans. The celebrities would be adored for their talent and abilities, but the
feeling of the competence among the fans would not turn into self admiration
or respect for self competence.
- The fans would be attracted to a celebrity who is rather authentic, trustworthy;
the fans are extremely sensitive if their idols are fake in the public and they
would eagerly condemn them for being so.
- the fan feeling of the attachment would have to be rewarded with a satisfying
and deep, devoted relationship of a celebrity toward his fans
- the celebrity market experts would have to come up with new way to stimulate a direct, real relationship between the celebrity and his fans in order to
strengthen the attachment among the fans5
The conventional marketing definition of the image means an emotional perception or an idea about a certain marketing item: product, company or a person.
So we could say that image is a compilation of beliefs, ideas, opinions, impressions,
stereotypes and prejudices about certain item, shared by marketing subject like
consumers or public in general. “Image can be defined as a perceived picture about
a product, company, person, process or situation, created by an individual, based
on his previous experience, beliefs, opinions and prejudice which match more or
less the real product features.
In personal marketing, the image is defined as an emotional perception or picture which marketing target group or individuals might have about an item which
is presented on the market.6 Since a personal marketing means that an individual is
a marketing object, it is necessary to make a clear distinction between the marketing aspect of certain celebrity and his self image which would be a psychological
5

Cfr. Thomson, M.: Human brands:Investigating antecedents to consumers stronger attachements to celebrities,
Journal of Marketing, Volume 70 (3), p 23-34.

6

Cfr. Prema: Hunter, E.: Celebrity entrepreneurship and celebrity endorsement: Similarities, differences and
the effect of deeper engagement, Jönköping International Business School, ARK Tryckaren, Jönköping 2009., p
17-25.

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Miljenko Brekalo • Zvjezdana – Penava Brekalo • Gordana Kurtović

aspect. The personal image is an emotional perception, picture or opinion which a
person might have about another marketing exposed individual. Simply, it means
that a personal trait of a celebrity would be perceived as marketing quality either by
an individual or public.
Self image is an emotional perception which person has about himself. In the
further text, the self image, the image level, the image content and the forming of
the image would be discussed, as well as how the celebrities communicate their
image to the public.
The celebrities have their personality which makes them different when compared to the rest of the people and based on this personality in the public or in the
target group, the preferences are created, as well as positive opinions or avoidance.
There are three image levels which should be particularly looked into when an image is created:
1. The physical level which describes functional, physiological and sense appealing features, like: looks, manners, body language and etc.
2. The social level refers to targeted groups, appearance context and engaging in
social issues, etc.
3. the psychological level represents needs, wishes, emotions and conduct of
targeted audience or an individual7
The basic image structure is consisted of perception, identity and attitude. These
three psychological elements are essential to have an image successfully communicated to the public and have already been discussed within psychological terminology. Within this context, the perception means receiving, interpreting and
memorizing the verbal and non verbal communicative contents about some celebrity. Therefore the perception represents an important link between an outside
world, in this case celebrity, and psychological structure of a person who observes,
listens and fully experiences. It is obvious that this kind of perception can not be
compared to a simple or total sensory input of some stimuli, since people tend to
add or take away some characteristic from outside stimuli, depending on their own
expectations or motives.
The perception is a personal phenomenon, since every person chooses which
stimuli to notice and then have them organized depending on their psychological
7

Ibidem, p 31-35.

SOME PSYCHOLOGICAL ASPECTS OF CELEBRITY MARKETING

259

features. The interpretation of the stimuli is rather individual and based on the previous experiences and the expectations of the perceiver, convincing explanations,
his motives and interests at the time of perceiving. This is called a selective perception. To what extent the individual perception of the stimulus would correspond
to the reality, would depend on how clear the stimulus is, the past experiences of
the perceiver, his motives and interests at the moment of perceiving.
The definition of identity stands for all individual traits of a person which differ
him from the rest of the group. According to this definition, the identity describes
an individual which helps us to distinguish one person from the other. The attitude
however is an internalizing process of values and behavior patterns according to the
internal values of every person.8
“Image is formed by many factors. It is a result of hierarchical systematizing and
factors’ evaluation, “like a hallo effect” or simple inference”. Historically speaking,
hallo effect was used to describe situations in which the evaluation of one object or
person, with many dimensions was perceived based on one or just few dimensions
(for e. g. a man is described as a trustworthy and sophisticated, with good manners because he looks people in the eye when he talks). Hallo effect is misleading
generalization, or a tendency to evaluate isolated character features, based on the
general impression a person might leave. When we create an opinion about somebody based on one character feature, like; intelligence, social skills or looks, we talk
about hallo effect.9
“Hallo effect”10 was confirmed in the classical study, when the examinees were
given a list of a character traits like: intelligent, skillful, pragmatic, hard-working,
decisive and warm and then asked to evaluate the person who these traits would
refer to. They would describe this person as wise, with sense of humor, friendly and
imaginative. If the list of the traits was changed, for e.g. warm was replaced by cold,
the person was perceived differently. The examinees, obviously, influenced just by
one trait change, would perceive the person differently. However, the tendency
to evaluate the person based on the hallo effect is not random. According to the
study, hallo effect would be more present, in the case when the personal characteristics suggest ambiguous behavioral pattern, when the characteristics raise moral
8

Sternberg, J. R.: Kognitivna psihologija, Naklada Slap, Jastrebarsko, 2005., p 19-21.

9

Cfr. Goleman, D.: Emocionalna inteligencija u poslu, Mozaik knjiga d.o.o., Zagreb, 2000., p 7-9, 21-33.

10

Ibidem, p 56-61.

Miljenko Brekalo • Zvjezdana – Penava Brekalo • Gordana Kurtović

260

issues and when the perceiver, evaluating the personal traits, lacks or has limited
experience.11
As previously stated, we could conclude saying that the first impression, either in common interaction with people or with the celebrity, would influence the
opinion about the person. Therefore, it is essential to pay close attention to the first
impression and other previously mentioned psychological factors, since it would
determine the behavior (acceptance or rejection) toward a celebrity. Celebrities and
their managers/ marketers should be aware of the psychological aspects and create
the strategy to make the best out of that knowledge.
References:

Arnold, J.: Work psychology, Pearson Education Ltd., Essex, 2005.
Ekman, P.: Emotions Revealed, Second Owl Book Edition, New York, 2007.
Goleman, D.: Emocionalna inteligencija u poslu, Mozaik knjiga d.o.o., Zagreb,
2000.
Hunter, E.: Celebrity entrepreneurship and celebrity endorsement: Similarities,
differences and the effect of deeper engagement, Jönköping International Business
School, ARK Tryckaren, Jönköping 2009.
Rowe, A. J.: Creative Intelligence, Pearson Education Ltd., New Jersey, 2004.
Sternberg, J. R.: Kognitivna psihologija, Naklada Slap, Jastrebarsko, 2005.

Thomson, M.: Human brands:Investigating antecedents to consumers stronger attachements to celebrities, Journal of Marketing, Volume 70 (3)

11

Supra note, br. 6, p 34-37.

IMPACT OF TECHNOLOGY AND NEW LICENSING MODELS ON ERP EVOLUTION

261

IMPACT OF TECHNOLOGY AND NEW LICENSING MODELS
ON ERP EVOLUTION
Mario Župan dipl. oec.
Polytechnic of Požega

Abstract

Implementation costs of Enterprise Resource Planning (ERP) software are usually very high and require a lot of time and effort to put in. Even after the system is
up and running, Enterprises grows and changes, acquiring new business lines and
divesting themselves of others. Business processes are changing, some components
of ERP become unnecessary, so the costs of the adjustments continue to mount.
But today, Enterprises have a lot of alternative solutions when they choose ERP.
Choices are result of technology progress (Web service, SOA), innovative applications of existing technology (Cloud computing) and new licensing models based
on service, open source and free software licensing. All of the above, together with
Enterprise specifics have an impact on their choice and also redefine the meaning
of ERP.
This work will try to recognize new models of delivering ERP solutions, new
capabilities and disadvantages of ERP evolution, comparing with the capabilities
and deploying traditional ERP.
JEL classification: L70
Keywords: Enterprise Resource Planning, Cloud computing, Software as a Service,
business processes, licensing model, cost, investment
1. Introduction

In December 2009 CFO Publishing Corp. has published research on annual
costs, spent by 157 US midsized Enterprises on modifying and updating their ERP
systems. As Picture 1. shows 52% of the respondents estimate internal costs alone
at between $100.000 and $500.000 per year. 43% of respondents estimate addi-

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tional external costs and maintenance and support fees to be in that range. Neither
time to complete change projects is not satisfied. 41% say that time to complete is
worse than expected and half of all respondents say that moderate modifications
take more than 20 person-days of effort.
It is evident that costs and complexity of modification are the key factors which
should be taken into account while evaluating ERP offers. On the other hand,
quality ERP software is developing on the best practice and represents optimal
solution for specific business. So, adapting processes and procedure of the built-in
capabilities and strengths is more convenient than adapting the ERP system to own
business processes.
Croatian medium Enterprises size and IT budget definitely cannot be compared
with the US respondents because 48% of surveyed companies have annual revenue
from $100 million to $500 million. However, Croatian companies also have a need
for ERP upgrades that comes from security needs, legislative changes, changes in
accounting methods and other financial management policies and practice, level of
entrepreneurial activity or mergers and acquisition activities.

Picture 1. Annual Costs of modifing and updating ERP

Source: http://www.unit4.be/files/The_High_Cost_of_Change_of_ERP.PDF (Access: Feb 1 2011)

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2. ENTERPRISE RESOURCE PLANNING ERP

Enterprise resource planning (ERP) is the method of integrating the different
functional activities of an organization into a unified structure or system by using
software and hardware applications (Glenn; 2008; 14). Enterprise resource planning (ERP) is a system that integrates information and processes of an organization
into a single database or unified system (Glenn; 2008; 21).
In the past, ERP systems were normally used by larger industrial types of companies. However, its purpose eventually have changed and become extremely comprehensive to any type of organization (Glenn; 2008; 17). Even more, it affects
reengineering of business processes correcting the wrong defined processes. In that
way, through the implementation process, Enterprises can learn how similar processes are seen by many different firms because ERP is mostly based on the best
practices.
Technically, modern ERP is a multilayer application. Its presentation layer
could be desktop graphical user interface or web interface (Picture 2.). It is composed of modules that follow business logic. Modules are connected, communicate synchronically and write into database calling SQL procedures. 20 years ago,
accounting department module as accounting information system was the main,
standalone application. Today, accounting information system is losing monopole
on accounting information and becomes integrated with other modules. Every user
sees accounting information from its own aspect. Sales department creates orders
from which put-away lists and invoices are generated. Cash management module closes paid invoices. System automatically posts in general ledger, according to
documents posting setup. During the invoice creating, users also have an access to
supplies or general ledger accounts connected to the customer.
As the time goes by ERP gets more and more modules and capabilities like
project management, intercompany posting and consolidation reports, XBRL taxonomies, intrastat journals. Microsoft Dynamics NAV ERP application has the
following basic modules: Financial Management, Sales & Marketing, Purchase,
Warehouse, Manufacturing, Jobs, Resource Planning, Service, Human Resources.
Compiere (product of the Consona Corporation, significant and globally widespread open source firm) looks on the ERP system through slightly different set
of modules and capabilities: Standard reports, Business view layer, Manufacturing,
Purchasing, Material Management, Order Management, Global Financial Management, Sales. All solutions usually have capabilities of integration with other

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applications (Customer Relationship Management (CRM) or analysis tools), inhouse or third party. Planning is the part of every module (purchase, finance etc.).
Customizing reports are necessary as regulatory bodies heighten oversight and as
companies expand across the border. So, typical ERP solution supports customization, but the question is how quickly can adjustments be made and what stresses do
such changes place on the organization (CFO Publishing Corp.; 2009)?

Picture 2. Develop Web ERP Software using ASP.Net 3.5, C# & SQL Server

Source: http://www.vkinfotek.com/develop-erp-asp-software.html [Acess: Feb 7.2011]

Choosing right software depends on business specifics of Enterprise, industry
specifics, all together with the emphasis on specific business aspect of the ERP. It
also depends on user interface, ability of customization appearance and options
within software with the aim of reducing complexity, ability to integrate the data
stored within the other applications, own or partners.
3. CLOUD COMPUTING

“A cloud is a type of parallel and distributed system consisting of a collection
of interconnected and virtualized computers that are dynamically provisioned and
presented as one or more unified computing resources based on service-level agreements established through negotiation between the service provider and consumers” (Buyya, R. et al.; 2008). It is a service model delivered in real time, on demand,
independent of device and location. The term „Cloud“ has been already mentioned
in the 60s of the last century, representing the Internet and the world of centralized servers without human intervention (Antonic, J.; 2009). As a revitalized term,
cloud computing today represents different application of existing technologies,

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more than serious technological step ahead. It appears with decreasing cost per unit
of computer power and with the frequent rises and falls of business activities, so
investments in IT infrastructure and experts become uneconomical. Software and
hardware become subject of leasing which is more flexible to a turbulence of business needs.
Cloud computing is based on virtualization. Virtualization means software
emulation of hardware, so one physical machine can emulate more virtual servers,
different capabilities assigned by virtualization software (VMware, for example).
Another precondition of cloud computing growth is a Web service which realize
Service-Oriented Arhitecture (SOA) design of system development.
Cloud computing is based on the fact that computers become exponentially
more powerful but less exploited. Six corporate data centers use just 10-30% of
servers power, desktop computers have an average capacity utilization of less than
5%. So, Gartner Research expects cloud computing to be $150 billion business by
2014. Small and medium businesses are expected to spend over $100 billion on
cloud computing by 2014 (Marston, S. R. et al.; 2009).
4. SOFTWARE AS A SERVICE SAAS

Cloud computing can take five forms: Software as a service (SaaS), web service, utility or on-demand computing and Platform as a service (PaaS) (Kim, W.;
2009).
Focus of this work is on SaaS although SaaS ERP cannot operate without platform (Windows Azure operating system, for example) and it is more than obvious
that it is necessary to cooperate with some web service on Infrastructure as a Service
(IaaS).
SaaS comes with massive centralization to take advantages of economies of scale
in number of users, computing power, energy consumption, cooling and administration. Model is characterized with vendor control of application upgrading, paying for a month service according to a number of users,
SaaS is a web application that deploys on a server farm. Server farm can be a
vendor property or a third party property. Software upgrading is a vendor care. That
release Enterprises of any technical demands (hardware and software infrastructure
maintenance). But renting instead of buying, devoids Enterprises from any customizations or rewriting the software according to business processes needs. That

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may be a problem for large business subjects with well-defined processes (Panorama
Consulting Group; 2009). Low initial costs and simplicity could be attractive for
small businesses which do not have needs for integration with existing legacy applications, but cost effectiveness is a questionable on a long period as it is shown
with short cost analysis of Croatian ERP offer (Picture 2.).
SaaS demands live data transfers through the Net, which depends on bandwith
rate and carries some security risks. Traditional ERP exchange data through the
Local Area Network guaranted the stability of bandwith and security. On the other
hand, if if we are talking about dislocated departments like outsourced accounting service firm, than exporting and importing data on another database was the
regular procedure. That procedure carries a great risk of redundancy of two database. SaaS n-tier applications (Picture 2.) have an advantage against the traditional
way because all users write in the same database and SQL server is charged for
redundancy.
Spreading of the business software on a Cloud will have to catch with one
problem that is not technical. National and international privacy laws could be
the problem during tax inspections or investigating some illegal activities, if some
private data is stored in a country other than its owner. Which country’s privacy
laws would be followed by the cloud’s parent organization? (Marston, S. R. et al.;
2009)

Picture 3. Cost analysis of 2 Cloud and 1 traditional ERP systems through 10 years period of exploitation

Source: Author

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5. OPEN SOURCE LICENSING MODEL & ERP

Open source achieves great success in infrastructure software development but
what about the business software?
Majority of open licenses, General Public License (GPL) for example, allow
private customization of the software. GPL allows redistributing/selling own software, which include some other GPL software but only if all source of new work is
distributed. So, it does not mean free. Open source means that code is distributed
with the software and it is allowed to change it or use it. But it is the usually practice that open source based software firms offer its standard edition with no charge.
Compier, Inc., for example, has an ERP SaaS free edition, but full functionalities
are available in Enterprise Edition that costs $995 per year, per user. As Compiere
stated on official web site, costs of Enterprise Cloud Edition are still 64% lower
than the Microsoft midmarket ERP. Comparison is made for 3-year period and
includes implementation and training.
“Open” also means that system is developed on the open and free platforms
such as Linux, using Integrated Developments Environments such as Eclipse, connected with the open databases (MySQL, PostgreSQL), what results with the lack
of operating costs. Linux is well known as secure platform without viruses and with
the great performance even on slower machines.
Open source ERP solutions should provide a flexible migration component, allowing import of data from multiple sources (txt, xml, xbrl, csv, excel files, database
files). In addition, they should provide a validation layer, acting as a gatekeeper,
stopping low quality data from entering the new system and an exception reporting tool.
Most open source solutions are free to download and use but require some
consulting service for customization. There is a long debate between supporters
of open source software and commercial software vendors over the question “how
much does free, open source software, actually cost”.
Open source solutions do not have the level of integration as commercial software, which uses the middleware for communications with other systems like mail
servers or ERP systems of partners. They usually use web service and xml files for
import/export data such as customer or product records.
An open source ERP solution differs in robustness and capabilities of modules,
user interface has to be intuitive with the context-based help and knowledge around

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product which is result of the implementation in similar organizations. New solutions could be great but without experienced consultants return on investment is
not so great. Because there is no such thing as installation wizard in a free open
source ERP, it generally rejects micro subjects without great knowledge of system
administrators in its first steps.
The one who decides to base its business on open source solutions, must have
strong IT lifeware and in-house development. Even then adjustments should be
minimal (reports designing, for example). To change the core of the software and
to develop new modules it is more than necessary to become a member of development community and share that code to be accepted and incorporated in the next
version. That is the only way to avoid incompatibility of upgrading on a new version of the core.
ERPs are complicated and unique, because every business has its own needs, so
the core of the open source ERP must be understandable and simple for development, upgrading and adding modules, which enterprises should share freely or for
a charge. In that way will pick up the best things of in-house development which
is needed for the adjustments to the organization and the support of community
developers for the best practice implementation. ERP will naturally grow and the
best bug fixes and modules will be in the repository.
OpenBravo, Compiere, ERP5, OpenERP, xTupple and Opentaps are names
mentioned by CIOs who do not care anymore for the fact that it is an open source,
mostly SaaS solutions. OpenBravo, for example, has started as a project in 2001,
received $6,4 million in venture capital funding in 2006.
6. OPEN SOURCE AND SAAS SITUATION IN CROATIA

Weakening of Croatian economic activity stops the IT investments, integrations
and digital data exchange between business subjects and even between subjects and
the government entities. Croatian small businesses mainly do not have demands
for management functions (planning, analysis) inside ERP, they only tries to satisfy
requirements set by state and acts. Also, there is no Cloud computing infrastructure (IaaS) public provider in Croatia. But Croatia has a few business Software as
a Service (SaaS) providers. N-Lab and DataLab software vendors have ERPs in a
Cloud which are rent for a month, per user (Picture 3Error! Reference source not
found..). Potential users have opportunity to explore high end application through
the online demos.

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The only Croatian free open source ERP solution is a desktop application Spa-Erp
developed on Java platform, but without quality documentation, code comments
and strong community of developer and users it is not so reliable for adjustments
without parent firm. There are also no significant efforts for Croatian localization
of global open source ERP projects, neither Corporate-sponsored nor independent
projects. OpenBravo, for example is localized in more than 50 countries.
Although academic environment, government and Association of Employers
work on elimination of complex administration and business obstacles, and introduce measures to simplify starting of a business and to strengthen entrepreneurial
activities, open source and free software projects are not recognized as part of a
strategy.
7. CONCLUSION

Despite the literature (Nesbit, T.; 2009) and vendors (Compiere, Inc.) dealing
with ERP Software as a Service (SaaS) highlight lower costs, that cannot be taken
as a premise, at least, for Croatian conditions. Croatian ERP vendor N-lab, for
example, offers traditional property license for 2.995 € (5 users). They also have
the same product as SaaS and they rent it for 33 €/month (5 users), plus 250 €/
year for web application upgrading. Neglecting the advantages of SaaS, traditional
property license buying is still better option in a long term (Picture 3.). But small
businesses almost always outsource accounting function to accounting firms. Small
businesses could prosper through the flexible contracts with the accounting firm
which has ERP SaaS in its offer. That may result with the savings through the flexibility of labor division, efficient access to information and shared knowledge inside
of a common database.
There is no doubt that quality and capabilities of ERP SaaS will increase. It is the
golden age of Internet and mobile development, with lots of tools and technologies (MS ASP.NET, Java, a dozen of Ruby frameworks, Python frameworks,) and
Enterprises will prosper from that. Mobile devices already have lots of capabilities
as their operating systems progress and they already offer powerful and cheap client
for the SaaS ERP system.
So, why should not open source be used in combination with SaaS, when SAP
and Microsoft consulting firms need to implement propriety software anyway? Today, ERP implementation lasts too long even in a small and medium Enterprises.

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Why then firms don’t choose the long term strategy of developing Know-how database based on mostly free open source projects?
Open source and SaaS are today’s alternatives to a traditional licensing model.
But not for every organization. Open source ERP solutions are usually free but demand more efforts, learning and custom programming and servers. Servers could be
own or as a service, but definitely demand spending money. SaaS model facilitates
deployment and new releases, but it comes without customization options. Both
are Service-Oriented for easy interoperability with external or legacy application.
Business critical applications based on open source are not always so “lower in
cost“ and ”flexible in many ways“. Open source solutions usually have a large
population of users who are always ready for support, but also demand greater
knowledge of IT department compared with legacy software adjustments. Open
source critics suggest that open source ERP systems cannot compete with the commercial competitors without long-term business strategy, full technical and professional support, training and partners programs.
ERP in Clouds presents the first step to simplification. Complexity is not result
of volume of entries, but rather of how data is handled. The need for accurate information results with the volume and lots of complex queries sent to database. ERP
will become simpler for implementation, customization and usability, or it will be
less customizable but vendors will specialize in branches.
Cloud hosting of open source solutions have potentials to eliminate much of the
technical complexity.
Literature

Antonic, J. (2009) A Brief History of Cloud Computing
Available on: http://www.undertheradarblog.com/blog/a-brief-history-of-cloudcomputing/
Access: (Jan 4 2011)
Buyya, R. et al. (2008) Market-oriented cloud computing: vision, hype, and reality
or delivering it services as computing utilities. 10th IEEE International Conference
on High Performance Computing and Communications September 2008, Dalian,
China.

IMPACT OF TECHNOLOGY AND NEW LICENSING MODELS ON ERP EVOLUTION

271

Available on: http://www.buyya.com/papers/hpcc2008_keynote_cloudcomputing.
pdf
Access: (Jan 19 2011)
CFO Publishing Corp. (2009) The High Cost of Change for ERP
Available
PDF

on:

http://www.unit4.be/files/The_High_Cost_of_Change_of_ERP.

Access: (Jan 11 2011)
Glenn, G. (2008) Enterprise Resource Planning 100 Success Secrets, Emereo Publishing, ISBN-978-098049718, Newstead
Kim, W. (2009) Cloud computing: Today and tomorrow. Journal of Object Technology, 8 (1), 65-72.
Available on: http://www.jot.fm/issues/issue_2009_01/column4.pdf
Access: (Jan 18 2011)
Marston, S. R. et al., (2009) Cloud computing: The Business Perspective
Available on: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1413545
Access: (Jan 4 2011)
Panorama Consulting Group (2009) SaaS ERP vs. on-premise ERP software: Six
key differentiators
Available on: http://searchmanufacturingerp.techtarget.com/news/1350684/SaaSERP-vs-on-premise-ERP-software-Six-key-differentiators
Access: (Feb 3 2011)
Nesbit, T. (2009) Web-Based Accounting Information Systems for Small Businesses: A Proposed Model. AFAANZ Conference, 5-7 July 2009, Adelaide, Australia
Available
on:
http://www.afaanz.org/openconf/2009/modules/request.
php?module=oc_program&action=view.php&id=224
Access: (Feb 3 2011)

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Marko Šostar

DECIDOPHOBIA AS A LIMITING FACTOR OF MANAGEMENT
Marko Šostar, Croatia,
marko.sostar.hr@gmail.com

Abstract

Management itself is a very complex category which includes planning, organizing, staffing, leading and controlling. To make high-quality decisions, every manager have to possess intellectual capacity, ability to interpret information, not to be
limited, should know to plan, have ability to understand and communicate with
other people, have presentation skills, should be able to lead, motivate employees,
should be flexible, informed, interested and should know how to control available
resources. During this process, every manager faces many challenges that must be
solved in a satisfactory manner by making right decisions at the right time based on
available information. This work was carried out of the research on Decidophobia
as a limiting factor of quality management of each company. In today’s world of
rapid changes in the market economy, every business decision can have a dramatic
impact on the company’s business, by irrational fear which leads us to making bad
business decisions and losing a step with the others. Modern Decidophobia appears in all aspects of our lives. It appears in various forms, in private and public
companies, manifesting itself in a special way, the way of the new era, in a form of
making wrong decisions due to pressures of political power. Decidophobia must be
treated as a long-term process of building a healthy environment in which we are
all equal and have equal rights and we don’t have to make decisions based on fear
of mistakes, loss of social status or political harassments. One of the solutions is reflected in the total elimination of evil of politics from private and state companies,
employing capable and not suitable, promising and motivating creative people and
transparency in every public enterprise, every spent Kuna’s and every and every
made decision to the public. Political and other pressures to the managers in the
companies should not be such as to affect business decision making.
JEL classification: M51
Keywords: Decidophobia, management, company, politics, transparency

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1. INTRODUCTION

Decision making in management is obviously one of the most important aspects
of the management. Every manager should strive to improve their decision making
skills. We are often facing with situations in which managers have a fear of making
decisions. This type of phobia in management is called decidophobia. In this paper
we conducted a research to determine what types and forms of decidophobia appears in management in Croatia. The interview method was used on a sample of
54 business owners and managers.
2. FUNDAMENTALS OF DECISION MAKING IN MANAGEMENT

Management itself is a very complex category, and includes five major (sub)
functions: planning, organizing, recruitment of employees, management and control. These (sub) functions are relating to all levels of management- highest, lowest
and middle management of the organizations in all businesses, information and
management functions of economic entities (Deželjin et al.; 1995, p. 37).
By planning we identify goals of an organization, formulate programs, policies
and strategies for its achievement, organizing and deciding which resources are
needed to reach the goals of the organization, creating working groups and providing them the necessary competence and responsibility for achieving objectives, including completion of employee selection, training , development, positioning and
managing employees within the organization, investing in its personal resources,
including management employees, which will lead to realizing what is expected
from them (Barković; 2009, p. 13-14).
To bring high-quality decisions, every manager must have an intellectual ability, the ability to interpret information, not to be limited, should know to plan,
the ability to understand and communicate with other people, presentation skills,
should be able to lead, motivate employees, should be flexible, informed, interested
and should know how to control the available resources.

3. Decision making as a process
Making decisions as a concept is in a very wide use, so we can speak about the
decision-making in various areas of work and life, such as deciding on a personal
life, decision making in family, businesses, various organizations, institutions, etc.
Unlike by making decisions in personal or family life, in all other cases of decisionmaking, it is possible to speak in a certain way of business decision making, regard-

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less of whether the decision are in the company, bank, school, hospital, government
or the Croatian Parliament (Sikavica; 1994, p. 2).
The environment in which decisions are making can be safe, risky and uncertain. In a safe environment there is enough information to be able to predict the
consequences of each of the possible alternatives when they start to implement in
practice. In the risk environment we talk when the manager was not entirely sure
what are the consequences of different possible courses of action, but he is aware of
the likelihood of certain consequences. The uncertainty environment is when the
managers are missing information and they are not able to assess the likely consequences of certain alternatives. This one is the most difficult situation in which he
must rely on his creativity, and creativity of the group, in order to fix the problem
(Rijavec & Miljković; 2001, p. 2-3).
When we talk about operational business decisions; their success depends on
managing with knowledge and information, the proper understanding of corporate
culture, fostering creativity and innovation, focusing on continuous improvement
of responsibility and mobilizing people, integration of operational decisions in the
overall strategy (Tomčić; 2007, p. 98-99).
Decisions procedure can be classified into three types: oriented towards the
problem (to encourage understanding of the issues, develop solutions, evaluate
alternatives, prepare decisions, project formulation and process), oriented to the
power (defending own position, the implementation / realization of own interests,
activities by influencing , the implementation of the project through the threat of
sanctions), consensus-oriented (elimination of resistance, conflict resolution, facilitating consensus, strengthen readiness for rehabilitation / willingness to change)
(Barković; 2007, p. 16).
3.1. Programmed and non-programmed decisions

Different problems require different kinds of decisions. Thus, H. Simon differs
programmed and non-programmed decisions (Simon; 1960, p. 5).
Programmed decision-making is one of the ways of deciding what is used to
solve routine problems. So, in all situations of decision-making when the decision
maker is faced with the familiar, everyday, routine problems, he will use the programmed decision-making (Sikavica et al.; 1994, p. 84).

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Unlike programmed decision-making non-programmed decision is applied in
situations which are not regular and not repeated (Mescon et al.; 1985, p. 172).
For non-programmed decision-making, managers use a process of problem solving,
evaluation, intuition and creativity (Brookfielf; 1987, p. 113).

Table 1. Comparison of programmed and non-programmed decisions
Decision type

Type of
problems

Methods

Examples

Programmed

Programmed,
routine

Standard
Rules of
operative
methods

Nonprogrammed

Complex,
new

Creative:
Troubleshooting

Job: Processing of vouchers
Faculty: The process of enrolment
Hospital: Preparing a patient for surgery
Government: Use of State motor vehicles
Job: Introducing a new product
Faculty: Construction of classrooms
Hospital: Reaction to the regional outbreak of influenza
Government: Solving the spiral problems of inflation

Source: Donelly, J., Gibson, J. L., Ivancevich, J. M.: Fundamentals of Management, BPI Irwin, Homewood, Illinois., str. 533

3.2. Phases of decision-making

Phases of decision making can be classified as follows: Defining problems
and objectives; Gathering information; Identifying alternative actions; Evaluation of alternatives; Selection of best alternatives; Application of selected alternative; Assessment of results (Barković; 2009, p. 48).
Defining problems and objectives relating to the process of accurate identification and clarification of the issues and opportunities facing the person who makes
decisions. It is necessary to first define the objectives to be achieved. Gathering
information is processing in order to determine the relevant facts relating to the
decision, which often reduces the search problem. Identifying alternative actions
expressed through creativity as a key in this phase of decision making. When decision makers gather information it is starting to crystallize possible alternative solutions. Evaluation of alternatives when the decision maker compares the elements
of the pros and cons of each alternative action. It is estimating costs and benefits
and discusses its impact on organizational goals. Selection of the best alternatives
is classic point of decision. Decision-maker must be clear which alternative offers

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is the best solution. Based on the best personal assessment decisions are made. Application of selected alternative is when the decision maker runs the direction of the
activities involved in managerial tasks: planning, organizing, leadership, control.
Assessments of results are made on the basis of the achieved objectives.
3.3. Creativity in decision-making

Decisions of managers and other employees can be creative if they are creative,
they are continuously improving and developing their creativity, encouraging creativity within the company and overcoming obstacles to the organizational creativity. Creative people has folowing characteristics: they are flexible and not prone to
the authority, are gifted, above-average intelligence is not a necessary condition,
they have a positive image of themselves, they refrain from expressing an opinion
before gathering all information’s, they are more prone to thinking, are emotional,
sensitive to the world around them and have feelings for others people, they are
original in their thoughts, they are interested in the nature of the problem, they are
motivated on challenging with problems, they are often nonconformists and appreciate their independence, they have a constant need to be praised by the group,
they lead a rich, almost bizarre and fantastic life, they are interested in the meaning
and effect and not the small details, they tolerate ambiguity and complexity, they
have curiosity of young even they are older (Barkovic; 2007, p. 35).
3.4. Traps and mistakes in making decisions

Mistakes with which managers can meet are (Rijavec & Miljković; 2001, p. 28-41):
1. Ignoring the problem- we are talking about complacency and defensive avoidance, which may be in the form of rationalization, storing and transferring responsibility to another, 2. Accepting the first solution- when a problem arises, we tend
to accept the first solution that comes to mind, 3. Persistent use of old solutionswhen a problem arises, most people are trying with some solutions that worked in
the past. Sometimes this solution is successful, but sometimes a mistake, 4. Finding the perfect solution- some people are perfectionists and do not want to make
a decision while they are not fully satisfied, 5. Excessive security and optimism- it
is not secret that people tend to overestimate their knowledge, 6. Supporting an
already taken decision- people tend to stick to a taken decision even when it is
obvious that it has negative consequences, 7. Resistance beliefs- this is an error that
refers to the tendency to cling to our beliefs even when we are confronted with the

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evidence to the contrary. When a belief is formed, it is hard to change it, 8. Representativeness mistake- when we estimate the probability of something we compare
it with the mental representation of the entire category while neglecting the other
data, 9. Availability mistake- if we can easily recall something we assume that it is
something often and usual, and its good, 10. The manner of presentation- in these
cases, people do not make decisions based on information available to them, and
the decision affects with the way information are displayed. The most usual traps
are confusion in priorities, not consulting the others, not using the experience of
predecessor, not admitting the made mistakes, promising the impossible, regretting
for the taken decision, creating a crisis, not collecting and not checking the available information.
3.4. Theories and models in making decisions

Overall theory of decision making can be divided into normative and descriptive, bearing in mind that some authors propose the introduction of the third subset of decision theory, i.e. the distinction of normative, descriptive and prescriptive
theory. (Bell et al.; 1989, p. 9).
To make the decision acted in a manner that is satisfying, over the years researchers developed numerous models that contribute to making accurate decisions
with minimal errors as (Barković; 2009, p. 38-39): 1. Elements of decision making model- decision making with pure uncertainty, decision making with the risk,
decision making by purchasing of reliable information, a decision making tree, 2.
Decision making in safety- linear programming, graphical solution method, algebraic method, solving problems of carpenter on computer using program LINDO,
a linear integer optimization, assignment problem, the critical path in the network
plan, making the multiple objectives, 3. Game Theory- person game with a zerosum, game with a saddle, a game without a saddle, 4. The basic model of supplies, 5.
Tail theory- the basic elements of the model tails, combined arrivals and services
4. DECIDOPHOBIA IN MANAGEMENT

The word decidophobia was first mentioned by Princeton University philosopher Walter Kaufmann in his 1973 book “Without guilt and justice” in which he
writes about the phobia in length. In Without Guilt and Justice, Kaufman describes
people with decidophobia as people who lack the courage or will to sort through
the different sides in disagreements to find the truth. They would rather leave the

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deciding of what is the truth to some authority. This might be a parent or spouse.
It might be a church or university or a political party. Once the decidophobe has
relinquished authority to decide the truth then they will accept as truth anything
argued by that authority (Kaufmann; 1973, p. 273).
4.1. Causes of Decidophobia

The person coping with Decidophobia has experienced a traumatic, real-life
event. That experience is then automatically associated with making decisions.
Perhaps, as a child, the decidophobic individual was never encouraged to make
independent decisions that were well thought out. Maybe this person was consistently encouraged to simply go along with the majority or the status quo. Perhaps
the person coping with Decidophobia has made unwise decisions that have led to
devastating consequences. This individual may have knowledge of someone else
making decisions that resulted in severely negative consequences. Whatever the
cause, the decidophobic person can experience anxiety and emotional turmoil that
is completely disruptive to daily functioning (Duffey; 2008, p. 1).
4.2. Symptoms of Decidophobia

The symptoms of Decidophobia are individual and will vary from person to
person. Some people, when confronted with their fear, may feel slightly uncomfortable, become nauseated or begin to perspire. At the opposite end of this spectrum, other people are so severely impacted by their fear of making a decision, that
they can experience full blown panic and/or anxiety attacks. Other symptoms of
Decidophobia can include: a dry mouth, heightened senses, breathlessness, feeling
dizzy, muscle tension, hyperventilation, trembling, rapid heartbeat, feeling out of
control, feeling trapped and unable to escape, and intense feeling of impending
disaster (Duffey; 2008, p. 1).
4.3. How to diagnose and treat Decidophobia

The vast majority of cases of Decidophobia are self-diagnosed. The phobic individual realizes that their fear of making decisions is irrational and is severely
compromising their ability to function on a daily basis. The decidophobic person may speak to their primary physician about their phobia. Rarely would the
doctor diagnosis Decidophobia based on the initial discussion with their patient.
More routinely, after ruling out any physical reasons for the phobia, the doctor

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would refer the individual to a mental health professional for further evaluation
and assessment.
When the fear of making decisions becomes so intense as to disrupt an individual’s
ability to function, there are a number of different ways to treat Decidophobia.
These can include: a referral from the primary physician to a therapist who
specializes in the treatment of phobias, traditional “talk” therapy that will teach
the person to recognize and control their phobia, hypnotherapy, exposure therapy,
self-help techniques, support groups with other people who are coping with this
specific phobia, cognitive behavioural therapy or desensitization therapy, relaxation
techniques such as deep breathing, in severe cases of decidophobia, anti-anxiety
medication can be prescribed.
Decidophobia is an intense, irrational fear of decisions. Sometimes that fear can
become so overwhelming as to completely halt a person’s ability to maintain any
level of daily functioning. Unchecked, Decidophobia can become a debilitating
condition that interferes with an individual’s social life, their personal life and job
responsibilities. Untreated, Decidophobia touches every aspect of an individual’s
life (Duffey; 2008, p. 1).
4.4. Impacts on Decidophobia

Research was conducted on a sample of 54 business owners and managers to determine what affects their decision-making. The study was conducted in the form
of interviews and the results showed that 42 respondents had some form of decidophobia, which is 78 % of all interviewed businesses.
Based on the research results we notice four forms of decidophobia in
management:
1. Fear of making decisions- managers in private companies
2. Fear of making decisions- the owners of private companies due to fear of
competition
3. Fear of making decisions- the owners of private companies due to the pressures of politics
4. Fear of making decisions- managers in public companies due to the pressures
of politics

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Fear of making decisions- managers in private companies; In today’s world of
big changes every mistake is particularly observed. No one is irreplaceable and
managers of companies are changing very often. In this case we are talking about
managers and directors who are afraid to make specific business decisions for fear
of error. Rather they tend to go to a secure version without risk, although the risk is
minimal. Such a company should change the managers as soon as possible because
of the impossibility of progress in the market.
Fear of making decisions- the owners of private companies due to fear of competition; As we know, in many companies the key business decisions are not made
by employed directors, but business owners. Some owners have fear of errors and
losing of their position in the market from the competition. In this way, they bring
the wrong business decisions, always go to a safer version without risking and the
growth is insignificant. Such persons should be treated as soon as possible from that
fear, and in the meantime to employ a quality manager who will make the right
business decisions.
Fear of making decisions- the owners of private companies due to the pressures
of politics; Unfortunately, the political situation in Croatia is very poor, corruption and crime are on every step, and private companies are strongly influenced
by unscrupulous politicians who want to extract the personal financial gain. This
is Croatian reality, and nowadays many private companies does not making their
own decisions. Politics can do everything, and even destroy a successful company,
and it is evident that fear of the owner in making certain strategic decisions exists.
If you do not “play” how the politicians wants political power often affect other
companies to end cooperation with the “disobedience” and they do everything to
destroy that businesses. We are aware that this form of decidophobia manifest in
a strange way, through fear of the political structure which is entering the “pores”
of enterprises and creates fear of making different decisions, which disagrees with
the politics.
Fear of making decisions- managers in public companies due to the pressures of
politics; Public companies are the source of corruption, crime and business decisions which is shameful for Croatia. Public companies have become a retarding factor of development in Croatia. It needs to change the whole structure of politicians
who gives that pressure in order to avoid the public companies collapsing. Every
day we encounter in the media with various scandals of illegal money laundering
through these companies. Here we can see entirely different type of decidophobia.

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In these enterprises are working “eligible” people who work for politics. The way
the are employed, the same way they act. On the one hand, they have a fear of
making “real” decisions that are not in vertical and horizontal with the political
decisions, and on the other hand they do not want to make the right decisions.
Mostly these are people which enjoy a big support of the politics in illegal actions to
achieving personal financial benefits and benefits for their supporters. Proof of such
facts show the current investigation in Croatia carried out against the top political
structures and relates on financial crime.
5. CONCLUSION

In today’s world of rapid changes on the market every business decision can have
a dramatic impact on business enterprises, whether privately or state owned. Making the right decisions at the right time is crucial for the survival in the competitive
environment and knowledge, experience and managerial skills are the key factor of
success. This way of thinking, each company would be willing to bear the burden
of this society more successfully than we can imagine. But the truth is somewhat
different, for several reasons. Various influences, internal and / or external lead to
a situation that the companies fail or they went in foreign hands. Crime, bribery,
corruption, went into the pores of our society, and politics as one of the main leaders destroys the foundations of Croatian democracy.
Decidophobia, fear of making business decisions, must be treated with longterm process of building a healthy environment in which we are all equal and have
equal rights. The person is afraid to make specific business decisions because of
fear of mistakes, loss of social status or political harassment, which is quite normal
for the Democratic Republic of Croatian citizens. One of the solutions is reflected
in the total elimination of evil policies from private and state companies, employing capable and not suitable, motivating creative people and transparency in every
public enterprise. Political and other pressures onto managers in companies should
not be such strong to influence decision-making.
Croatian accession to the EU legislation and policies will have to adapt to the
community they expect to enter. Therefore we hope that there will be some changes
in society and that each company will be able to think healthy and plan their future
in a free European market. Detecting a variety of scandals linked to the large number of companies in Croatia show us how we can move from the dead spot where
we were for ages. Managers within the public and private companies should moni-

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tor changes and with lifelong learning and training be ready for everything and be
able to make key decisions for the company. They need to confront to their fears,
decisions should be made promptly with a certain amount of risk and fight with
their phobia at the beginning. Decidophobia as such is certainly curable, and quick
acting in the early stages is crucial to reduce decision-mistakes to the minimum.
The only question is whether manager wants to admit that he has a problem.
6. Bibliography

Barković, D. (2009). Menadžersko odlučivanje, Ekonomski fakultet u Osijeku,
ISBN 978-953-253-069-8, Osijek
Bell, D. E., Raiffa, H., Tversky, A. (1989). „Decision Making: Descriptive, Normative and Prescriptive Interactions“, Press, ISBN 978-0521368513, Cambridge
Brookfield, C. A. (1987). Developing Critical Thinkers: Challenging Adults
to Explore Alternative Ways of Thinking, Jossey-Bass, ISBN 0335155510, San
Francisco
Deželjin, R.D., Taylor, R.R., Ferrel, O.C. (1995). Management, Comprehesion,
Analysis, And Application, Irwin, ISBN 0256137846, 9780256137842, Chicago
Donelly, J., Gibson, J. L., Ivancevich, J. M. (1997). Fundamentals of Management,
BPI Irwin, Homewood, ISBN 978-025623237, Illinois
Duffey, T. (2008). Decidophobia: The fear of making decisions, Available: http://
healthmad.com/mental-health/decidophobia-the-fear-of-making-decisions/, Accessed: (20-02-2011)
Kourdi, J., prijevod Tomčić, S. (2007). Poslovna strategija, Masmedija, ISBN 978953-157-503-4, Zagreb
Mescon, M., Albert, M., Khedouri F. (1985). Management, Harper and Row,
ISBN 9780060444150, New York
Rijavec, M., Miljković, D. (2001). Kako rješavati probleme i donositi odluke?,
Edicija Obelisk, ISBN 953-97820-5-8, Zagreb
Sikavica, P., Skoko, H., Tipurić, D., Dalić, M. (1994). Poslovno odlučivanje- teorija i praksa donošenja odluka, Impresum, ISBN 953-170-008-7, Zagreb
Simon, H. (1960). The New Science of Management Decision, Harper & Row,
ISBN 978-0060360009, New York

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QUALITY MANAGEMENT IN THE SUGAR INDUSTRY
mr.sc. Branimir Kos, dipl.iur. bkos@sladorana.hr

Abstract

Market globalization, opportunity and competition increasing cause a necessity for achievement of better goods and services in all area of human operating.
Standards, quality, improvements, competitive advantage are the words which are
involved in a very big part of scientific and expert discussions.
Changes in a management philosophy have an influence in all organization
levels. In a last few years, Total qualitymanagement – TQM becomes popular in all
over the world. Definition of TQM is “Philosophy of commitment and loyalty of
all organization to constant improvement in all areas”.1 Management of Sladorana
d.d. recognized the importance of quality managing in a way of cost decreasing
and organization efficiency increasing. Quality managing in a business processes
opened a possibility of entrance on the new markets. Standards and certificate,
which some markets insist, are becoming strategic orientation of the company.
Sladorana`s motive for systematic quality managing in its business strategy is entering to foreign market.
JEL classification: L15
Keywords: quality, standardization
Introduction

The globalisation of markets, increased opportunities, as well as the increased
competition, cause the need to create increasingly better goods and services in all
areas of human activity. Norms, quality, improvement, competitive advantage, are
words that are nowadays present in many expert discussions.
Changes in the philosophy of management bring changes to all levels of organisation. In the last few years the Total quality management – TQM has become
1

Bahtijarević-Šiber. F, Management ljudskih potencijala, Zagreb, Golden marketing, 1999., str. 103

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Branimir Kos

popular worldwide. The definition of TQM is „philosophy of commitment and devotion of the whole organisation to the continuous improvement in all aspects“.2
Management of the sugar factory Sladorana d.d. has recognized the importance
of quality management as a way of decreasing of expenses and increasing of the efficiency of the organisation. Quality management in business procedures has opened
the opportunity for going to new markets. Standards and certificates requested by
some markets have become the strategic orientation of the company. Sladorana’s
motive for the systematic management of business quality is going out on the foreign market.
Sladorana is an export oriented company that effectuates 65% of its revenues
on the foreign markets. Significant is the anecdote whose actor was a Head of Sales
Service, where he was asked by a potential buyer from Italy in an advanced stage of
negotiation, when they had already agreed upon some essential stipulations of the
Sales contract: “You, of course, already have the ISO certificate?!”. It should not be
mentioned that when he heard a negative answer, their business failed.
At any time one should be aware of the fact that companies from the Republic
of Croatia are unknown on the EU market. This is even more radical in the case
of Sladorana, because the end buyer is being sold a consumable product, sugar, to
which every customer is extremely sensitive.
Very often is the certificated system of quality management a conditio sine qua
non for concluding of a Sales contract. The reason for this is that in this way the
foreign partner reduces or fully eliminates his own risk of purchasing a low-quality
product and achieves significant savings on input control.
Therefore ISO 9000, HACCP, Halal and Kosher represent a necessity for a company which wants to consider itself a global player and compete on the market.
Knowledge and experience gathered over many years and generations, have been
summarised in the norms and standards which generally do not have mandatory
application, but which until now have been adopted by a large number of countries
in the world, including The Republic of Croatia. Establishing of an own company
according to the quality systems indicates to the buyer that the seller has accepted
the modern business organisation, that provides a good product quality.
2
Bahtijarević-Šiber. F, Management ljudskih potencijala, Zagreb, Golden marketing, 1999, page
103

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Benefits provided by a quality management system are numerous. Here are
some of them:
- competitiveness through quality,
- better acceptance by buyers before signing a contract,
- international recognition of the applied system,
- reducing of technical testing at realisation of the contract,
- lower costs of poor quality,
- ensuring of constant and reproducible quality,
- more effective coordination of employees,
- less scrap and waste,
- less anxiety and haste,
- continuous improvement and training, of products as well as of work
procedures.
Considering all above mentioned it can be concluded that the quality management is a strategic aim of every company, as well as a condition without which the
further survival and development in the EU surroundings simply is not possible.
1. PROCEDURE SCHEMA

Procedural approach to management ensures primarily better understanding of
buyers’ needs and expectations, but also fulfils their requests. The advantage of the
application of the procedural approach to management is exactly in breaking of the
fixed slow bureaucratic hierarchy in organisations, which significantly contributes
to reducing of costs and increasing of efficiency of resources and procedures. It also
contributes to clearer division of responsibilities through the “ownership of the
procedure” and the recognition of procedure which do not create new values. The
procedural approach facilitates the individuals to identify their roles in the organization, enables the measuring of their contribution and strongly encourages the
motivation. The most important benefit from the procedural approach is realized
precisely by eliminating of bottlenecks that can usually be found on the places of
connecting of two or more procedures, and by easier identification of internal buyers and suppliers.
Recognition of the ownership of the procedures should stimulate the budget
approach to planning of resources what would considerably increase the efficiency
and decrease the costs of business activities as a whole.

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Procedural approach brings “order” into the organisation, assigning the most
important role to the main procedures with appropriate positioning of functions
representing secondary procedures, which become service to the main procedures,
and not the “the reason of their existence”.
With the help of the procedural approach overlapping of businesses can be reduced. In one facility an analysis of the health status of high school pupils has
been conducted. Due to individual approach the same data has been taken eight
times in different departments from each student. Obviously the procedure has
been multiplied. Some departments do not communicate properly. The aim of the
procedural approach is to turn from the existing classical “vertical” organisation to
“horizontal” organisation.
Procedures can be divided into three groups:
- main procedures,
- auxiliary procedures,
- management procedures.
Main procedures are these that represent the essential procedures for the organisation under consideration. They contribute to the increase of the product value.
The buyer is at the beginning and at the end of these procedures, and he is willing to pay to get the result of these procedures. The type of the main procedures
depends indeed on the type of production. These procedures can be procedures of
development, supply, production, assembling, after-sales services, etc. Depending
on the type of work they are practising, each organisation will have its specific main
procedures.
Auxiliary procedures follow the main procedures and are used for collecting of
data or for administrative procedures. These are, for example, management of suppliers, accountancy, etc.
2. STANDARDS, NORMS AND CERTIFICATES

TQM represents the next step to which this company wants to devote itself. Quality management related to products and production procedures in Sladorana has
already been adopted. Sladorana has the ISO 9000 certificate and is the first Croatian
sugar factory that has introduced the HACCP. Moreover, the sugar produced in Sladorana has the Kosher and the Halal certificate. In the following part these norms
and certificates owned by Sladorana will be briefly listed and described.

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2.1. ISO 9000

Series of international norms ISO 9000 for quality management and quality
assurance have been adopted by more than 120 countries and have been applied in
thousands of productive and service enterprises of the public and private sector.
One of the most successful series of norms in the history of the International
Organisation for Standardization (ISO), ISO 9000 arouse a lot of attention in public and made the name ISO widely known in the business community.
ISO 9000 is a norm among more than 110.000 international norms which have
been published by the International Organization for Standardization – ISO since
the beginning of its activity in 1947. ISO develops and publishes norms for the following technical sectors: engineering, chemistry, metals, non-metals, construction,
agriculture, graphic and photography, health and medicine, information flows, environment, packing and distribution of goods.
ISO is a non-governmental International Organization for Standardization:
“ISO” is not an acronym, but a name derived from the Greek word “isos”, meaning “equal”; which is the root of the prefix “iso” that is contained in many terms
like “asymmetrical“ (equal measures and dimensions ) and “isonomy” (impartiality
of laws, i.e. equality of all people before the law). It is not hard to follow the flow
of thinking from the word „equal” to “norm”, which leads to the choice of “ISO”
as the name of the organization. In addition, the name ISO is used worldwide to
denote the organisation, avoiding in this way the excess of acronyms, which are the
result of translating of the full name „International organization for Standardization” into different national languages of the member states. In this way the short
name of the organization is always ISO.
All norms developed and published by ISO are voluntary. They are a result of
the needs of the market and are developed as an agreement, whereby the foundation on the consensus ensures a very wide application of the norms.
ISO 9000 is neither a label of product quality nor a quality warranty. When a
company has a certified managing system, this means that an independent assessor
has confirmed that the procedures affecting the product quality (ISO 9000) are
compatible with the corresponding requirements in norms.
2.2. HACCP

One of the most important aspects in food production and distribution is certainly its quality and safety. Each producer is obliged to put on the market quality food

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with certain nutritive and organoleptic properties, but at the same time hygienically
straight, safe food, which will favourably influence the health of the consumers. The
Food and Objects of common Use Safety Act stipulates an obligatory control of the
health safety of food, which is based on the testing of final products. Regardless of its
universality and rigor, this system is not able to prevent the appearance of accidents
and poisoning by food, microbiological, as well as chemical and physical agents. Also,
this kind of control is expensive, demands a lot of time and considerably slows down
the procedure of food production and distribution. This is a reactive approach and
less efficient than the proactive HACCP system, that is applied in the world.
HACCP represents an integrated food safety control system in all procedural
stages of its production and distribution. It is based on the preventive approach,
what contributes to the reduction of the risk to the health of the population.
HACCP (Hazard Analysis Critical Control Points) is a logical, scientifically
based system of controlling of food production and distribution procedures, which
ensures:
- identification and assessment of all possible hazards,
- determining of necessary measures for their prevention and control,
- assurance of implementation of measures in an effective manner.
HACCP system is adjusted to all kinds of food and to all stages of production
and handling – „from the farm to the table“.
HACCP is of great importance to food producers from the position of consumer protection, ensuring the production and marketing of healthy food. Its use is
widespread in the developed world, whereas it is legally binding in the EU (Council
Directive 93/43/EEC).
The ultimate goal of HACCP is a production of what is possible safer product
by using the safest procedures possible. This means that applying of HACCP does
not always ensure a 100% safety for users, but it also means that the company produces food in the best and safest way possible.
According to the provisions of the Directive, any individual who owns, manages, or works in food production in EU must introduce the HACCP safety system.
The application of this directive forces the importers to import only food products of higher quality and greater safety, but also to require continuous improvements in countries of origin.

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2.3. Halal

- “O people, eat from the earth’s products all that is lawful and good...” Qur’an3,
2:168
Halal is to be understood in the linguistic, religious, cultural traditional and
health care context, and the word itself means permitted. Halal quality can be
confirmed only by the Islamic community or a certification company authorized
by the Islamic community. The Islamic community in Croatia has established a
specialized institution, the Center for Halal Quality Certification, with the following activities:
- education on Halal,
- certification of Halal products and services including the expert help in activities of implementation of the requests of the Islamic regulations and Halal
standards,
- scientific and expert researches,
- promoting of certified products and producers.
Halal can refer to different kinds of products (food, cosmetics, medicaments,
and objects of common use) and services (commerce, catering, banking…). Characteristics of Halal products are: they are present in all dietary habits, acceptable for
all ages and members of other religions, healthy products, present in all areas of the
world, and additional control guarantees quality assurance.
Halal market is one of the most perspective markets. Despite the global crisis,
the global Halal market has increased for 40% in the last few years, and in the next
ten years its growth is expected to be 20 to 25%. Currently, the global Halal market is estimated at 635 billion USD. Halal market can be divided into:
1. Arab-Islamic market
2. Halal market EU
3. Regional Halal market
The most interesting market for the Sladorana’s products is the regional Halal
market: Bosnia and Herzegovina, Serbia, Montenegro, Macedonia, Albania and
Kosovo. Kosovo has lately become the market that shows an increasing interest in
Halal products.
3

Holly book in Islam

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Branimir Kos

A good example of the size of the Halal market is the example of some Croatian companies which have, through certification of its products according to the
requirements of Halal quality and applying of the Halal quality sign to the packaging, raised its export up to 40% on the regional Halal market.4
2.4. Kosher

Kosher is based on the book of Torah5 which strictly defines what is permitted,
i.e. what is Kosher and what is not. Whereas the HACCP and ISO are dealing with
analysis of hazards and critical points control, as well as with self-control system for
ensuring of the food safety, kosher is engaged in the origins of the raw materials,
and respecting of various Jewish regulations on diet such as: the origin of the raw
material, strict separation of the meat products from the milk products, etc. Kosher
standard differs from the ISO, HACCP standards because it is based on Jewish
dietary regulations which are based on the divine revelation and it does not contain
only health and safety aspects. Therefore, an authorized rabbi, who is also an expert
for Kosher issues, has to supervise the input raw material, the manufacturing facility and the production procedure itself, to assure that everything is in accordance
with the requirements and regulations of the Laws on Kosher diet. According to the
valid legislation in the Republic of Croatia all with food dealing subjects in order
to assure the health safety of food are obliged to carry out the food production,
preparation and serving procedures that are based on the principles of the HACCP
system, whereby food production according to Kosher standards makes additional
upgrade with all its specificities. Kosher certificate can be issued by a rabbi who is
an expert in Jewish dietary rules. He visits the manufacturing facility, to check the
conditions of production, and give advice on how the production can be adapted to
kosher rules. Rabbi checks the list of all products, raw materials and suppliers, and
keeps all data which he becomes insight in – as strictly confidential
Conclusion

Setting quality as the supreme principle and priority of a company requires
fundamental changes in organizational culture, goals and daily operations. The
only way to adopt this is to move forward by small steps, each of which will be
made possible by success of the prior one. Persistence is the key to success: many
4
5

HGK (Croatian Chamber of Economy) County Chamber Split, Halal brochure
Holly book in Judaism

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291

programs and project were due to initial discouragement, lack of the support of
management, confusion, cynicism and complacency, terminated before any progress could be observed. The established quality system allows the company more
efficient use of resources, resolving of long-standing problems and improvement of
the general state of the company.
In the past few years Sladorana has become a company that introduced the
norms and standards in its production procedures. The next step is the introduction of TQM.
TQM represents a necessity for sustainable development of sugar production
and the assumption of readiness for responses from environment. The soon entering of Croatia into the EU will be a test for both the management and all employees. The assumption is that the competitive advantages achieved through TQM will
be sufficient for survival in the turbulent markets of the EU.
Literature

Bahtijarević-Šiber. F, Managament ljudskih potencijala, Zagreb, Golden marketing, 1999.
Crosby, B. P, Kvaliteta je besplatna, Privredni vjesnik, Zagreb, 1989.
Glavaš G., Erceg A., Zadovoljstvo korisnika – primarni cilj sustava kvalitete Zbornik
radova treće hrvatske konferencije o kvaliteti, Cavtat, 2001.
HGK županijska komora Split, Halal brošura, Split
Ignjac N., Sustavi kvalitete 2000, velika revizija normi ISO 9000 Oskar, Zagreb,
1999.
Juran, J. M. And F. M. Gryna, Planiranje i analiza kvalitete, Third Edition, MATE
Zagreb, 1999.
Klasinc A., Lekič Z., Kako usvojiti i primijeniti procesni pristup u normi ISO 9001
: 2000, documents from the seminar, BVQI Slovenija, 2001.
Kondić Ž., Kvaliteta i pouzdanost tehničkih sistema, Tiva Varaždin, 2001.
Skoko H., Upravljanje kvalitetom, Sinergija, Zagreb 2000.
http://www.ziljak.hr/tiskarstvo/tiskarstvo09/Clanci09web/ReparAgicKurecic/
ReparAgicKurecic.html, December 2010.

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http://kvaliteta.inet.hr/t_pv3071b.htm, December 2010.
http://www.hrvatski-izvoznici.hr/?CategoryID=566&NewsID=7212&LanguageI
D=-1,Halal presentation

CORPORATE SOCIAL RESPONSIBILITY ACTIVITIES IN THE CONDITIONS OF RECESSION

293

CORPORATE SOCIAL RESPONSIBILITY ACTIVITIES IN THE
CONDITIONS OF RECESSION
Anita Kulaš, BSc, Assistant and Associate at the University of Applied Sciences of Slavonski Brod, at
the University of Applied Sciences of Slavonski Brod
Sanja Knežević, BSc, Assistant and Associate at the University of Applied Sciences of Slavonski Brod

Abstract

One of the requirements imposed by globalization processes in the 21st century
is the transparency, apropos complete openness to the world. The world is possible
to observe from different levels, but this paper will be devoted to recent changes in
the business level caused by the recession.
The purpose of this paper is to discuss the corporate responsibility and activities
related to this area. Then will be discussed whether the social responsibility regulated and how. It will be discussed about socially responsible areas that companies
need to deal with in order to leave a good impression on the entire community.
This, primarily refers to the well-set core values of the company, then to concerns of
human resources, to the relation between market, to the environmental impact, to
community relations, and to respect for human rights. These areas of consideration
will be substantiated by survey results, conducted at the University of Applied Sciences of Slavonski Brod, direction Management.
JEL classification: M14
Keywords: corporate social responsibility, recession, socially responsible areas
1. INTRODUCTION

One of the requirements imposed by globalization processes in the 21st century
is the transparency, apropos complete openness to the world. The world is possible
to observe from different levels, but this paper will be devoted to recent changes in
the business level caused by the recession. The purpose of this paper is to discuss
the corporate responsibility and activities, their legal regulation, socially responsible

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areas that companies need to deal with in order to leave a good impression on the
entire community.
2. CORPORATE SOCIAL RESPONSIBILITY

Today’s companies are subjected to continuous questioning of the public. It
is, therefore important that they take care of their impact on the entire community. That is very hard to achieve because the business world for several years have
struggled with the recession, which represented each decrease of the gross domestic product (GDP) for at least two quarters. Some companies can not take care
of everything, respectively of issues that are not necessarily associated with their
existence. This is the primarly task of the manager who manages the company. If
managers are socially conscious and familiar with all the possibilities provided by
corporate social responsibility should ,,...to inform all members of the organization about it.“ (Certo & Certo; 2008, p. 55). Only on this way workers will be
well informed with advantages which allows social responsibility and ethics. Ethics, its levels and its correlation with social responsibility will be mentioned in the
following.
2.1. Ethics in business

Ethics is actually a system of principles, values and norms of behavior, observed
from the perspective of fundamental values and criteria of correct or wrong, good
or bad. Attention will be devoted to business ethics, considering that the paper is
observed from an economic point of view. „Business ethics can be defined as a system of fundamental values and rules of individual, organizational social behavior
associated to business and for the realization of its objectives and for judging the
consequences of business behavior and decision making for other participants in
the business environment.“ (Bahtijarević-Šiber et al.; 2008, p. 533) According to
Bahtijarević-Šiberu (Bahtijarević-Šiber et al.; 2008, p. 532) business ethics can be
viewed from the:
- social level, which includes all the basic institutions of society, the position of
ethnic minorities, a fair allocation of resources, the role of government in the
market regulation, etc.
- level of interest group influence, which includes all individuals and groups on
which can affect decision of the company (employees, customers, suppliers,
shareholders, partners, governments, media, etc.)

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- level of internal policy, which includes the entire relatinship between the company and its employees, and
- individual or personel level, which includes every day life of the company,
openness and honesty among employees.
One of the main parts of the business ethics is managerial ethics. “Managerial
ethics is a system of fundamental values, rules and criteria applied by managers in
decision making, in judgment of correct procedures and decisions, and in a wider
impact assessment of these decisions and their impact on other participants in the
business and the social environment.“ (Bahtijarević-Šiber et al.; 2008, p. 534). It
can be seen from this that the manager should make such a decision that will please
everyone. It is no wonder that managers are often under pressure and that for every
manager is easier to work in a team, with the people who will help him in making
important decisions.
2.2. Corporate social responsibility activities

In the mid 20th century appeared the need for care about sustainable development. „Sustainable development is the development that satisfies the needs of
today, without jeopardizing the needs of future generations.“ (Strategy for Sustainable Development of the Republic of Croatia, the Environmental Protection Act,
OG 110/07) So, corporate social responsibility got an important role and regarding
that, various organizations were established. The main goal of these organizations
is to encourage social responsibility activities. They set up specific initiatives and
standards that all companies should respect in order to be competitive in the future.
„Social responsibility is an obligation and the duty of management to every important decision not only valorizes on the basis of its economic but also social effects
and to make decisions and to take only those actions that at the same time increase
the benefit of society and organizations.“ (Bahtijarević-Šiber et al.; 2008, p. 561)
Regarding the standards, initiatives and organizations related to this topic are
numerous and here will be mention only a few: Standard SA 8000 (SAI), Global reporting initiative (GRI), The Ethnical Trading Initiative base code (ETI), Account
Ability 1000 (AA1000) Foundation for social and ethnical responsibility, The Dow
Jones sustainability group index (DJSGI), The international ISO standard 14001,
etc. The Republic of Croatia (hereinafter: RC) has encouraged the development of
social responsibility accepted by the Montreal Agreement, Stockholm Convention,
ISO 14001, European Eco-Management and audit scheme and etc. The Croatian

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government has in September 2010. made an adoption decision of the Code of
Corporate Governance-Trade associations in which the RC has shares, where one
of the principles is the corporate social responsibility. (The adoption decision of
the Code of Corporate Governance-Trade associations in which the RC has shares,
art2. Low on Government OG 101/98, 15/2000, 117/2001, 199/2003, 30/2004
i 77/2009)
It is important to emphasize that corporate social responsibility activities are not
required but voluntary. When a company conducts only activities determined by
law is not socially responsible. The analysis that follows shows the area which every
company needs to deal with if it wants to be socially responsible. Analysis is substantiated by survey results, conducted among employed and unemployed students
at the University of Applied Sciences of Slavonski Brod, direction Management, in
December 2010.
2.2.1. Company values

The fundamental values of the companies are mission, vision and objective. The
mission is the purpose of the existence of the company, vision is of what company
wants to achieve with the possibility of change, while the objective is of what the
company stands for and supports.
While making business decisions a company needs to take into account appointed mission and fundamental values of its company, aspiration of society (fundamental human values are universal, and applied in different cultures, religions
and nations), social standards and voluntary standards and best practice systems.
As company is more complex, it is defining its fundamental values more important because it is the only way to successfully manage risk (risk of losing the
confidence of its business).
The following chart will demonstrate the most important values on which every
company should consider.

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297

Chart 1 Mission and company values

Source: Made by authors

Chart 1 shows that approximately 50% of respondents considered listed values
very important, about 36% considered little important, while 14% considered not
at all important.
2.2.2. Concern of human resources

„Human resources are the people who work for the organization. Skills they
possess and understanding an operating system for managers are priceless.“ (Certo
& Certo; 2008, p. 9) Human resources of the company are workers. A worker, in a
terms of the Labour low is a person employed to perform certain tasks for the employer. While the employer is „a physical or legal person who employs workers and
for which the employee performs certain tasks“ (Labour low, OG 149/09) Labour
Low prohibits direct and indirect discrimination in the area of work and working
conditions, and terms of employment, advancment, professional directing, professional education, training and retraining. It is important that every company has a
good Human Resource Management, and refers to „policies, practices and systems
that affect employee’s behavior, their attitudes, and work performence.“ (Noe et al.;
2006, p. 4)
Today’s companies have realized that with the departure of employees, also goes
their intellectual equity in which company invested. In order to keep such employees, company needs to convince them of the existence of positive reasons for staying. These reasons are presented in Chart 2.

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Anita Kulaš • Sanja Knežević

Chart 2 Human resource

Source: Made by authors

Chart 2 shows that even more than 53% of respondents considered listed reasons little important, about 30 % considered very important, while 17 % considered not at all important.
2.2.3. Market relation

Considering that the market is a place where supply and demand meets, in this
paper companies and society, it is important that society has a positive thinking
about the company. The company can attract interested in various ways, based on
their function in the market, whether they are consumers, investors or business
partners.
„Consumer is every physical person who concludes a legal business or operates on the market that is not in the scope of his business activities or performs
proffesional activity.“ (Consumer protection act OG 79/2007) It is important for
consumers to purchase products from a company they trust and that’s the reason
they remember a company that violates their rights or behaves irresponsible on the
market.
In the conditions of recession, consumer will in its product basket leave the
product of socially sensitive company and socially responsible company. Investors
are physical or legal persons that are interested in financial investments in particular
companies. Many companies depend on investors because they provide companies

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to improve their business. It is therefore important that the company takes care
about its corporate social responsibility activities.
The relationship with business partners and suppliers is important for every
company because one organization cannot operate itself, so neither the company.
Today, company has to take care of everything and do not make any wrong step.
Because, it is important company to collaborate with suppliers that follow the
value system of the company. The company with its market behavior directly and
indirectly affects on the entire supply chain, and so signifincantly contributes to the
development and regulation of the market. Chart 3 shows how much is an important for respondents that the company takes care about the market.

Chart 3 Market

Source: Made by authors

This chart shows that the distincion between respondents where the ratio is very
important (44%) and those whom is a little important (42%) is negligible.
2.2.4. Concern about environmental impact

The environment is of special interest for every country and it has its special
protection. „Environmental protection ensures the complete preservation of environmental quality, preservation of biological and landscape diversity, rational use
of natural resources and energy on the best way for the environment, as the basic

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Anita Kulaš • Sanja Knežević

condition of healthy life and a basis for sustainable development.“ (Environmental
protection act OG 110/07) The aim of this kind of protection is to prevent environmental hazards, to prevent the damage and/or pollution of the environment,
reduction and/or elimination of damage to the environment and return the environment to the state before the occurence of damage.
Although it is believed that the greatest polluters of the environment are mostly
large companies, it has been noticed that the proportion of small and medium-sized
companies signifincantly exceeds proportion of large companies and they also need
to start specific environmental protection programs. Therefore, it is the duty of every
company timely to inform the public about the pollution, including information on
activities of dangerous substances and information about measures taken.
The negative environmental impact can be reduced by reducing noxious substances, by reducing the amount of waste produced and more rational use of expensive and non renewable resources. In this way companies can win the race against
competition. Chart 4 shows what respondents think about it.

Chart 4 Environment

Source: Made by authors

This chart shows that corespondents considered that care about environment is
a little important (44%) while 37 % considered that fact very important.
2.2.5. Concern about community relations

All companies impact on the social, particularly on the local community in
which they operate and it is important to have a good relationship to it, because in

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301

that way all participants will be satisfied. This relationship helps companies to improve their business functions (marketing, human resources, public activities, public relations). During the investment implementation in local/social community
must be careful on the way of implementation. As good implementation strengthen
and enhance the company, so bad or wrong implementation can negatively affect
the business. It is important that company shows a specific interest for the marginal
groups, consumers and the environment. Respondents also gave their opinion.

Chart 5 Community relations

Source: Made by authors

Chart 5 shows that approximately the same numbers of respondents considered
the concern about community relations very important (43%) and little important
(41%).
2.2.6. Respect for human rights

The (European) Convention for the Protection of Human Rights and Fundamental Freedoms has many human rights and freedoms that are of extreme importance to every person. (Convention for the Protection of Human Rights and Fundamental Freedoms IA 18/97, 6/99, 14/02, 13/03, 9/05, 1/06, 2/10) To companies are important that human rights that are primarily related to employees. (The
Low on Gender Equality OG, 116/03), to community (Constitutional Law on the
Rights of National Minorities OG 155/02, 47/10, 80/10) and political order. The
following chart will demonstrate what respondents think.

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Anita Kulaš • Sanja Knežević

Chart 6 Human rights

Source: Made by authors

An equal number of respondents considered very important and little important
the importance of respect for human rights (37%). Unfortunately, 26% considered
not at all important.
3 CONCLUSION

Respecting the new rules for global market, Croatian companies should in their
development strategies increasingly involve social responsibility activities and recognize them as an opportunity to create competitive advantages. However, it is not
possible, because at the end of the first decade of the 21st century business world
was hit by the recession which affected the Croatian economy. It is therefore naive
to expect companies to deal with something new while themselves struggling to
survive on the market, both global and national.
It is concluded from the survey that the Croatian society (respondents) is still
unaware of benefits obtained by implementing social responsibility activities because their managers are still not suffincieltly informed about this area.
4 REFERENCES

Bahtijarević-Šiber, F. & Sikavica, P. & Pološki Vokić, N. (2008). Suvremeni
menadžment – vještine, sustavi i izazovi, Školska knjiga, ISBN 978-953-0-303478, Zagreb

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Certo, S. C. & Certo, S. T. (2008). Moderni menadžment, Mate, ISBN 978-953246-062-9, Zagreb
Kotler, P. & Lee, N. (2009). DOP Društveno odgovorno poslovanje – Suvremena
teorija i najbolja praksa, M.E.P. d.o.o., ISBN 978-953-6807-39-0, Zagreb
Krkač, K. (2007). Uvod u poslovnu etiku i korporacijsku društvenu odgovornost,
Mate, ISBN 978-953-246-036-0, Zagreb
Noe, R.A. & Hollenbeck, J.R. & Gerhart, B. & Wright, P.M. (2006). Menadžment ljudskih potencijala: Postizanje konkurentske prednosti, Mate, ISBN 953246-012-8, Zagreb
Northouse, P.G. (2010). Vodstvo – Teorija i praksa, Mate, ISBN 978-953-246066-7, Zagreb
Sikavica, P. & Bahtijarević-Šiber, F. (2004). Menadžment – Teorija menadžmenta
i veliko empirijsko istraživanje u Hrvatskoj, MASMEDIA, ISBN 953-157-455-3,
Zagreb
Letica, B. (2010). Doba odgovornosti – Korporacijska društvena odgovornost u
vrijeme svjetske financijske krize, MATE, Zagreb
Ustavni zakon o nacionalnim manjinama NN 155/02, 47/10, 80/10
(06.12.2010.)
Zakon o radu, NN 149/09 (05.12.2010.)
Zakon o zaštiti potrošača, NN 79/07 (06.12.2010.)
Zakon o ravnopravnosti spolova, NN 116/07 (06.12.2010.)
Zakon o zaštiti okoliša, NN 110/07 (28.11.2010.)
Strategija održivog razvitka Republike Hrvatske, Zakon o zaštiti okoliša, NN
110/07
http://www.zakon.hr/z/364/(Europska)-Konvencija-za-zastitu-ljudskih-prava-i-temeljnih-sloboda (06.12.2010.)
http://narodne-novine.nn.hr/clanci/sluzbeni/2010_09_112_2965.html
(13.01.2010.)

Mirko Cobović • Berislav Bolfek • Lena Sigurnjak

304

ANALYSIS FOR TIME-COST OPTIMIZATION OF
CONSTRUCTION PROJECTS IN REPUBLIC OF CROATIA
Mirko Cobović, BSc, University of Applied Sciences of Slavonski Brod, Croatia
Berislav Bolfek, PhD, University of Applied Sciences of Slavonski Brod, Croatia
Lena Sigurnjak, BSc, University of Applied Sciences of Slavonski Brod, Croatia

Abstract

The construction sector is one of the largest and most significant sectors in
Republic of Croatia. Business in this sector has largely declined in the past few
years as a result of the global economic crisis. Because the goal is to achieve a cost
leader strategy, a lot of attention has been focused on decreasing operating expenses
through the optimization of production planning.
This study examines linear and matrix planning methods. The most common
linear planning method is the Gantt chart, while CPM/PERT analysis is the most
common matrix method. Based on the use of these methods, the type of planning and project execution in the context of construction business is researched.
Analysis is based on testing which is conducted in large and medium construction
companies.
Results of this study indicate that linear and matrix planning methods are equally utilized in planning. Construction companies are more likely to use matrix planning methods when dealing with complex and long term projects where significant savings can be achieved both in terms of time and expenses. Linear planning
methods are only used when dealing with smaller projects or for certain groups of
activities within large projects.
JEL classification: C51, L70
Keywords: construction sector, planning, planning method, optimization
1. INTRODUCTION

“Construction contractors rely on a number of processes to prepare a project for
successful performance. These processes typically include bid preparation/tender-

ANALYSIS FOR TIME-COST OPTIMIZATION OF CONSTRUCTION PROJECTS IN REPUBLIC...

305

ing, pre-construction planning, project execution and management, project control, jobsite management and project closeout.” (Menches, L. et al; 2008, p. 853)
While all of these processes are essential, pre-construction planning is especially
important because it sets up the systems that are used to manage and control the
work during the project execution phase. In the first part of the paper it is present
the theoretical point of view and meaning of models for time-cost optimization
and how to use them. In second part of the paper it is present results of research
conducted in construction companies.
2. MONITORING OF PROJECTS IN THE CONSTRUCTION SECTOR IN REPUBLIC
OF CROATIA

“Construction project scheduling is a set of activities that are focused on construction of facilities. An important aim of project scheduling analysis is to develop
and evaluate alternative schedules and determine an optimum one, considering existing time constraints for project or subproject completion.” (Medanić, B; 1997.,
p. 36)
An objective is to optimize project duration and to develop a schedule that
leads to the minimum total project cost. Although construction project scheduling
represents a small percentage of the total project cost, it leads to reduction in the
range of possible project durations, optimization of resources that will be used, risk
reduction and achievement of desired levels of quality. Project scheduling enables
fast and efficient construction.
Minimization of the duration and maximization of the profitability of construction projects are two vital objectives that often determine project success or
failure. Project scheduling should provide enough time for production of technical
documentation. Planned investment in improvement of documentation quality is
justified by savings of project total costs. The construction project is necessary for
all stakeholders that will participate in future project realization. For many projects,
additional information is needed to reduce risk and uncertainty to an acceptable
level prior to commencement of work. Planning is not just a necessity, it’s also an
obligation. Pre-construction planning involves, among other things, selection of
the project team, creation of the project documentation system, initiating the purchasing of materials, development of the schedule and milestones, and several other
activities that prepare a project for execution. Consequently, project planning is

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Mirko Cobović • Berislav Bolfek • Lena Sigurnjak

critical to completing a project successfully. All project participants have to strictly
follow planning assignments.
3. MODELS FOR COST OPTIMIZATION ANALYSIS

There are many models and methods for planning and monitoring of projects.
In the next section, we will be present and explain main characteristics of linear
planning method and matrix planning method.
3.1. Linear planning method

Linear planning methods are the first that emerged in the development of planning methods. They are based on one-dimensional graphs of activities. This group
includes the following methods: Gantt chart, transplants, the line of balance - LOB,
Gary Kidd algorithm, Ciklogram. At the beginning of this century H.L.Gantt introduced the application of line graphs. Gantt chart is an effective tool for product
planning or business planning with a small number of activities that are not in a
complex interdependence. Advantages of Gantt chart are: visibility, simple and easy
to produce (for a small number of activities), and a simple application of readiness.
Line charts are suitable for a smaller number of activities, although it is still used
in planning of the activities in the construction industry. However, if the construction procedure has a number of activities and if the project is planned in a larger
number of line diagrams it becomes complicated and immense.
3.2. Matrix planning method

“Development of matrix planning methods arose from graph theory, modern algebra and mathematical statistics. Today there are many methods of network planning, but most used are CPM and PERT. PERT (Program Evaluation and Review
Technique) and CPM (Critical Path Method) is a vital technique used in scheduling construction projects. These techniques are very common and currently used in
the processes of project planning and control within the construction industry. The
most recent software for planning and scheduling construction projects, is based
mainly on PERT/CPM.” (Omar; 2009; p. 30)
Need for project planning of hundreds, sometimes thousands of activities, puts
linear planning methods in the background. In developed countries, methods of
matrix planning have become essential in the analysis of commitments during the
contracting process and for obtaining loans for business, to control execution dead-

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307

lines, and for monitoring and analysis of costs and resources. The time required for
completing an activity in a project depends on many factors, including the following: resources, methods, technology, weather, and regulations. The main benefits of
applying matrix planning methods are: they are easy to understand and include a
clear plan of development, and they uniquely represent the logical flow of work and
interdependence of activities. The matrix diagram is a picture or graphic presentation of ideas on the preparation of production and manufacturing. There are two
basic variants for displaying network diagrams: network diagram oriented toward
activities and a network diagram oriented toward events.
3.3. Croatian construction industry

Tradition of construction in Croatia is characterized with rich experience and
workforce skills in using state-of-the- art equipment, materials and organizational
concepts. Croatian construction companies work on building sites globally, where,
by constructing the most complex of buildings, they have demonstrated their capacity to meet all demands made upon them by investors. Croatian construction
companies have earned an enviable reputation by meeting deadlines and high standards in performing various tasks and constructing a variety of buildings: geotechnical engineering, industrial plants, power facilities and hydraulic structures,
transport infrastructure, residential and commercial buildings.
According to Table 1. annual figures from 2009, the total of performed construction work amounted to HRK 30,714,772,000 or € 4,193,472,000 (according to
the CNB exchange rate). This indicates a 10.40 % drop in comparison with 2008
(34,915,314,000 HRK). The year 2002 marked the beginning of positive trends in
construction industry in Republic of Croatia, which is reflected in the continuous
growth of all three indicators analyzed until 2008: the value of construction work,
number of employees and productivity. The beginning of 2009 marked a fall of the
sector’s activities. In 2009 employment dropped by 9.94% compared with 2008,
while productivity per employee dropped by 4%. This change is a consequence of
the global economic crisis that influenced the whole economic system and construction industry, which is one of the most prosperous Croatian industries.

Mirko Cobović • Berislav Bolfek • Lena Sigurnjak

308

Table 1.: Value of construction project carried out in the country, number of employed persons, productivity
and share of GDP 2002 – 2009
Year
2002.
2003.
2004.
2005.
2006.
2007.
2008.
2009.

Value of projects Construction industry’s
(EUR )
share of GDP
1.553.852.670
4,5
2.140.572.890
5,4
2.254.686.052
5,7
2.406.335.517
5,6
2.926.470.432
5,9
3.312.308.079
6,0
4.766.970.000
6,2
4.193.472.000
7,0

No. of employed
persons
71.788
78.276
81.893
85.025
93.297
99.257
108.260
97.503

Productivity per employee
(EUR )
21.645
27.346
27.532
28.302
31.367
33.371
44.032
43.008

Source: http://hgk.biznet.hr/hgk/fileovi/19299.pdf (accessed 15.02.2011.)

4. ANALYSIS OF SAVINGS IN CONSTRUCTION COMPANIES THROUGH TIME
COST OPTIMIZATION MODEL

Research and analysis of savings were conducted in six successful construction
companies in Republic of Croatia. Questions were based on models that firms can
use in planning, monitoring and control of projects, in achieving success of the
compliance deadlines, and the possibilities for project optimization and possible
savings. Also, there were questions which model for time cost optimization is most
used in business, and how achieve through these models keep on project deadlines
and how to achieve savings.
First assumption is that there is a positive correlation between company’s size
and use of models for time-cost optimization to respect deadlines of construction
projects. It means that the larger enterprises are more common to use models for
time cost optimization. Second assumption in this paper is that there is no correlation between company size and use of linear and matrix planning method.
4.1. Characteristics of the analyzed companies in the construction sector

According to Croatian law acts, a classification of small, medium and large enterprises exists. Small businesses are those that do not exceed two elements from
Criteria 1 from Table 2.

ANALYSIS FOR TIME-COST OPTIMIZATION OF CONSTRUCTION PROJECTS IN REPUBLIC...

309

Table 2.: Criteria for determining the size of the company
Total Asset (kn)
Criteria 1
Criteria 2

32.500.000,00
130.000.000,00

Average number of employees during the current
year
65.000.000,00 50
260.000.000,00 250

Total Revenue (kn)

Source: Made by authors (based on our own research)

Medium enterprises are those that exceed the two conditions from Criteria 1,
but do not exceed two of Criteria 2. Large enterprises are those that exceed the two
conditions of Criteria 2.
The analysis was conducted on two construction companies with headquarters
in Zagreb, and four construction companies in Slavonski Brod, while the projects
are performed on the entire Croatian area. Companies C1 and C4 are from Zagreb.
The characteristics- total asset, total revenue, average number of employees in fiscal 2010, number of construction sites per each company in 2010, average project
duration expressed in months- of construction firms are shown in Table 3.

Table 3.: Characteristics of construction companies
Company Total Asset (kn)
C1
C2
C3
C4
C5
C6

131.135.000,00
133.285.000,00
98.156.000,00
130.125.000,00
58.481.000,00
54.456.000,00

Total Revenue
(kn)
265.546.000,00
252.350.000,00
189.215.000,00
232.378.800,00
122.318.000,00
112.012.000,00

Average number of employees in 2010.
534
330
170
280
120
70

The number of
construction
sites in 2010.
20
15
10
12
20
8

Average project duration
(months)
15
12
11
10
10
6

Source: Made by authors (based on our own research)

According to law acts three of six companies are large, and three are classified
as medium size. Research was conducted through research papers and interviews
with competent people in each company who gave information about company.
Although, business in this sector has largely declined in the past few years as a result
of the global economic crisis. It is expected to restore the positive trend of doing
business during 2011 and 2012 year, because crises ended in most western European countries. Sample of companies in this paper are also affected by the crisis

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310

and suffered huge financial and human resource losses. The aim is to reduce costs
through more rational use of resources, pre-construction planning, and timing the
procurement of various construction sites in order to achieve a more favorable purchase price. Although the goal is cost reduction, quality of the works should not be
questionable.
4.2. Application of models in companies

Research instrument used in this study was surveys. According to a survey conducted, the professional representatives of construction companies had the opportunity to express the level of implementation methods scores of 1 to 5. Level values
are: 1 - Never; 2 - Rarely; 3 - Sometimes extent; 4 - Implement, 5 - Conducted
in a fully satisfactory way. Companies are marked with C1, C2, C3, C4, C5, C6
because of confidentiality of individual firms. Results of research are presented in
Table 4.

Table 4. Results of the extent of optimization models
Company
C1
C2
C3
C4
C5
C6

Linear planning method
Gantt chart
Transplan
Balance Line
5
2
2
5
2
2
4
2
2
5
3
5
4
2
1
4
1
1

Matrix planning method
CPM
PERT
3
3
4
3
2
2
3
3
2
1
1
1

Source: Made by authors (based on our own research)

Table 4. shows that most construction companies apply linear methods in their
business which are simpler than the network method. Almost in daily use and
implementation is Gantt chart. Transplan and the line of balance are used to a
lesser extent. Network diagrams in relation to the line are rarely used in businesses.
Linear planning methods are only used when dealing with smaller projects or for
certain groups of activities within large projects and matrix planning methods are
used when dealing with complex and long term projects. Because of economic crisis, the goal is to achieve a cost leader strategy, because attention has been focused
on decreasing operating expenses through the optimization of production planning
in construction firms.

311

ANALYSIS FOR TIME-COST OPTIMIZATION OF CONSTRUCTION PROJECTS IN REPUBLIC...

Figure 1.: Linear planning method
5
4

C1
C2

3

C3
C4

2

C5

1

C6

0
Gantt chart

Transplan

Balance Line

Source: Made by authors (based on our own research)

Figure 1. presents the results of our research of linear planning method use in
companies with three types of charts: Gantt chart, Transplan, and Balance Line.
There are plenty of other linear planning methods, but these three are the most
present in everyday business. Results show that Gantt chart is common and the
most frequently used in all six companies. The reason is its simplicity, the fact that
it is easy to understand to all participants of project, and it does not require much
time to create. In small projects, there may not be enough activities defining the
project duration to make the assumption of a normal distribution for the project
duration. Medium companies usually use only linear planning methods because
they don’t have complex projects like large companies. Other two methods aren’t in
frequent use and most companies use them only sometimes.

Figure 2.: Matrix planning method
5
4
C1

3

C2
C3

2

C4

1

C5
C6

0
CPM

Source: Made by authors (based on our own research)

PERT

312

Mirko Cobović • Berislav Bolfek • Lena Sigurnjak

According to Figure 2. only large companies permanently use matrix planning
methods - CPM and PERT. Medium ones use those models only sometimes depending on the situation. The reason why the matrix method are usually not
used by medium businesses is because they are complex and require a lot of time,
knowledge, extensive planning. Matrix methods require much more information
that must be provided by the planners.
4.3. Dependence of the methods and performance of implementation of construction projects within the given

Research conducted on a sample of six companies, two large and four medium,
in the area of Zagreb and Slavonski Brod clearly illustrate the dependence of the
methods for time cost optimization and performance of works within given deadlines. Large enterprises use linear planning methods for smaller projects or activities inside larger projects. Use of linear and matrix methods enable cost reduction
because of complex planning structure which includes almost any element that can
affect the cost structure. Pre-construction planning ensures better project organization which leads to cost restrictions and performances within deadline. Besides
resources and cost control, company should avoid idle time, and implement the
possibility of adverse weather conditions. If companies use these models they will
achieve better business results, savings and what is most important, it will all be
done within deadline.
5. Conclusion

Time-cost analysis is an important element of project scheduling, especially for
lengthy and costly construction projects, as it evaluates alternative schedules and
establishes an optimum schedule considering existing deadlines for project completion. In order to develop realistic time-cost curves for such projects, typical activity
and project characteristics, such as generalized precedence relationships, external
time constraints, activity planning constraints, and bonuses/penalties for early/
delayed project completion should be modeled. In this study, a project schedule
optimization model is presented that takes into consideration scheduled cost components of all resources including time. A project scheduled by these models would
have an optimal duration and resource use through linear and non-linear/ matrix
cost functions.

ANALYSIS FOR TIME-COST OPTIMIZATION OF CONSTRUCTION PROJECTS IN REPUBLIC...

313

Matrix methods do not guarantee the continuity of work in time, which may
result in crews being idle. There is an uncertainty in every construction project.
Uncertainty has become one of the major factors that influence a project’s performance and ultimate success. Despite general awareness of the consequences of
uncertainty on a project, little attention has been paid to its effect on construction
management, particularly on the planning aspect. The conventional models for
time cost optimization are very common and widely adopted management tools
being used in project planning and control. Models are used for resource allocation, and as an alternative for reducing costs without causing negative impacts on
project duration.
According to the performed analysis the conclusion is that the first assumption
is correct, and that there is a positive correlation between company’s size and use
of models for time-cost optimization to respect deadlines of construction projects.
It means that the larger enterprises are more common to use time models for cost
optimization. Medium businesses commonly used linear method. The reason why
the matrix method are usually not used by medium businesses is because they are
complex and require a lot of time, knowledge, extensive planning. Matrix methods
require much more information that must be provided by the Planners.
References

Barković, D. (2001.) Operacijska istraživanja, Ekonomski fakultet u Osijeku,
Osijek, ISBN 953-6073-51-X
Hyari, K.& El-Rayes, K, (2006.) Optimal Planning and Scheduling for Repetitive,
Construction Projects Journal Of Management In Engineering © ASCE, p. (1119), DOI: 10.1061/ASCE 0742-597X 2006 22:1
Medanić, B (1997.) Management u građevinarstvu, Osijek, ISBN 953-96691-2-X
Menches, L. & Russell, J.: (2008.) Impact of pre-construction planning and project characteristics on performance in the US electrical construction industry, Construction Management and Economics 26, p. (853–867), ISSN 0144-6193
Vila, A; Leicher, Z (1983): Planiranje proizvodnje i kontrola rokova, Zagreb,
Omar, A (2009) Uncertainty in Project Scheduling - Its Use in PERT/CPM Conventional Techniques, Cost Engineering Journal Vol. 51 No 7, AACE International, 2009, p. (30-34), ISSN 0274-9696

314

Mirko Cobović • Berislav Bolfek • Lena Sigurnjak

Senouci, A. & El-Rayes, K (2009.) Time-Profit Trade-Off Analysis for Construction Projects, Journal Of Construction Engineering And Management © ASCE,
2009, p. (718-725), DOI: 10.1061/ASCE, Co.1943-7862.0000031
Zakon o računovodstvu, Narodne novine 109/07
http://hgk.biznet.hr/hgk/fileovi/19299.pdf (accessed 15.02.2011.)

HUMAN RESOURCES MANAGEMENT IN HETEROGENEOUS INDUSTRIES...

315

HUMAN RESOURCES MANAGEMENT IN HETEROGENEOUS
INDUSTRIES BUSINESS CASES IN THE BANKING, TOURISM
AND SECURITY SERVICES
Ivica Zdrilić, Ph.D. student
Adriatic Security Ltd., Zadar, Croatia
ivica.zdrilic@adriatic-security.com
Milan Puvača, Ph.D. student,
Ofir Ltd., Osijek, Croatia
milan@ofir.hr
Dinko Roso, Ph.D. student,
Jet Osijek Ltd., Osijek, Croatia
roso@jet.hr

Abstract

Today, in conditions of globalization, when the world has become “a small village accessible on the palm”, reinforced with enormous technological progress and
development that is accessible to all, the question is; what brings competitive advantage to companies?
Human resource management theory and organizational behaviour suggests
that usage of employee’s knowledge and experience improves organizational excellence. Also, a large number of scientific studies show a significant interdependence
between human resource management and organizational performance. Others,
however, show the relationship between human resource management (training,
wages, and opportunities for development) and business excellence.
In this paper we made an analysis of four Croatian corporations that operate
in three different industries: banking, tourism and security services. The testing
was done on the basis of polls, a set of 36 questions addressed to company directors or human resources managers, with which we wanted to determine facts and
opinions.

316

Ivica Zdrilić • Milan Puvača • Dinko Roso

With business cases in the banking, tourism and security services the aim of the
paper is to show how theoretical knowledge is used in practice, and whether industry has an impact on the implementation of adopted theory into practice.
JEL classification: O15
Keywords: Human resource management, business excellence, competitive advantage, human capital, knowledge
1. RESEARCH OF THE CASE STUDIES IN BANKING, TOURISM AND SECURITY
SERVICES
Research methodology

The analysis was conducted in four Croatian companies operating in three different industries: banking, tourism and security services. The analysis was done
based on a questionnaire consisting of 36 questions directed at company directors
or human resource managers1, and answers were filled in to determine the facts and
attitudes. Questions used for this purpose were closed questions with suggested intensity answers (five intensity levels). A discretionary scale was used in answers, which
is considered the best solution when developing such questionnaires also in theory.
(Zelenika, 1998, p. 371). The results were presented in tables. If answers from the
two security companies were in two immediate scale levels, then the lower value
was presented in the table, and if the difference between the levels was higher, then
the average level was taken into account.
Basic data on companies in the analyzed case studies

Banking
According to its size, the bank presenting the banking sector in this paper occupies the seventh position on the Croatian banking market. The total value of its
assets amounts to HRK 12.87 billion. The bank employs about 1,000 people in
over 100 branch offices all over Croatia and works with over 400,000 clients in
both retail and corporate banking sector.
Tourism and hospitality industry
The company analyzed in this paper represents the diversity of the Croatian
tourism offer on a small scale. It employs 50 people throughout the year and ad1

Interviews were conducted in the first half of 2010.

HUMAN RESOURCES MANAGEMENT IN HETEROGENEOUS INDUSTRIES...

317

ditional 150 people in the tourist season. It operates throughout Croatia in several
tourism facilities, with bed capacity about 1,100.
Security services
Two companies were analyzed; the seventh and the ninth security company in
Croatia, ranked by size. Companies employ 550 and 480 employees respectively.
Both companies have gone through significant expansion in the past 10 years.
2. STRATEGIC APPROACH TO HUMAN RESOURCE MANAGEMENT

The importance of human resource management in achieving organizational excellence could be presented in the following relation (Briggs, 1999, p. 451):
Work plan - (defined strategies) = business results
Defined strategies include: product strategy, marketing, quality, financing and
human resource management strategy. The last one is expressed by relations among
employees, their development, work plan, management characteristics and pay and rewards system for employees.

Figure 1: Human resource management practices

Source: (Noe, Hollenbeck, Gerhart, & Wright, 2006, p. 4)

Empowering employees, i.e. increasing their authorities and responsibilities,
offering opportunities to present own ideas and creations based on their knowledge, skills, experience and motivation for organizational development will help
organization to increase its own organizational potential, thus increasing its own
competitiveness. Therefore it is necessary to make continuous investments into
own employees and to encourage them to changes by allowing them to participate
in all changes, using all their resources. The theory of human resource management
provides excellent guidelines on how to systematically and strategically develop human potentials.

Ivica Zdrilić • Milan Puvača • Dinko Roso

318

An overview of management practices in Croatian companies will be given in
the paper, aiming to determine the differences in practices of the industries (banking, tourism and security services), with an overview of deviations from theoretical
knowledge.
3. HUMAN RESOURCE PLANNING

The process of human resource planning consists of forecasting, goal setting and
strategic planning, programme implementation and evaluation.

Table 1: Human resource planning by industries
Questions

No

Mostly no 

Do you envisage staffing requirements?
Do you use methods of statistical planning?
Do you pay more attention to human resource
planning for management positions?
Do you have employment strategy in written
form?

To some
extent  

Mostly yes

Yes       

Legend:  - Banking  - Tourism  - Security services
Source: Results of analyzed case studies

The results show that banking industry has best planning, followed by security
industry and tourism. Considering the number of highly educated people in banks,
but also competition within this industry, such results were expected.
4. RECRUITMENT

Recruitment activities were formed in such a way as to influence: (1) the number
of people applying for a position, (2) type of people applying and/or (3) likelihood
that people applying for the position will accept the job offered. (Breaugh, 1992)2
The key aspect of the whole company’s recruitment strategy refers to the sources
from which the company recruits potential employees. It is important that the
company chooses between internal or external sources, i.e. whether it will allow
2

Quote in (Noe, Hollenbeck, Gerhart, & Wright, 2006, p. 160)

319

HUMAN RESOURCES MANAGEMENT IN HETEROGENEOUS INDUSTRIES...

promotion of the existing employees or hire new employees; whether recommended candidates will be employed, whether the company will advertise vacancies in
newspapers, use the Croatian Employment Bureau or private agencies and universities, if looking for highly educated people.

Table 2: Ways of recruiting human resources
To some

No Mostly no
Questions
extent
Is a recommendation of great importance to you? 

Do you advertise vacancies in newspapers? 

Do you use employment agencies? 

Do you advertise on the web?
Legend:  - Banking  - Tourism  - Security services

Mostly yes

Yes    

Source: Results of analyzed case studies

Vacancies are advertised through the Croatian Employment Bureau and web
portals, very often also in daily newspapers. The recruitment process is best implemented by banks. This can be explained by the fact that a large number of unemployed people are looking for their future job in banks, then in tourism, and then
in security service industry, because security industry is often considered to be an
industry of workers with low qualifications and very low average salaries, which is
to a great extent true. On the other hand, jobs in financial institutions are very desirable nowadays, so that supply greatly exceeds the demand. Besides, tourism and
security industry are industries with a great deal of seasonal oscillations (especially
tourism), considerable staff turnover and a large number of jobs for a limited time
period, which makes these industries less desirable.
5. SELECTION

Selection is a process of selecting future employees of the company. The following five generic standards have to be met in each new selection process (Noe, Hollenbeck, Gerhart, & Wright, 2006, str. 180): Reliability, Validity, Generalizability,
Utility, and Legality.

Ivica Zdrilić • Milan Puvača • Dinko Roso

320

Table 3: Selection of human resources by industries
Questions

No

Mostly no

Do you use interviews in the selection process?
Is CV important for you during selection? 

Do you carry out personality tests? 

Do you carry out tests with work tasks?  

Do you carry out integrity testing? 

Legend:  - Banking  - Tourism  - Security services

To some
extent 

Mostly
yes  

Yes  

Source: Results of analyzed case studies

Research showed that selection methods in banking industry are more sophisticated than those in tourism and security industry.
6. TRAINING AND DEVELOPMENT

Good implementation of human resource management implies correct positioning of an employee within an organization in circumstances of accelerated
development of science, technical science and technology. This means that employees have to be continuously trained and prepared for “traps” of a particular job.
Besides, employees should be offered additional education so that their own potentials
could be developed.

Table 4: Training and development by industries
Questions

No

Mostly
no 

Do you have a written training strategy?
Do all employees have at least two weeks of training per year? 
Do you often use a classroom as a training method? 

Do you use simulations of virtual reality as a training method?  

Do you keep written records after the training? 

Are there any written plans for development of trainees within 

a one-year period?
Legend:  - Banking  - Tourism  - Security services
Source: Results of analyzed case studies

To some
extent 

Mostly
yes   

Yes    

HUMAN RESOURCES MANAGEMENT IN HETEROGENEOUS INDUSTRIES...

321

The above case studies show that employees do not have much influence on
decisions about additional education, and that additional education is more available to employees at higher hierarchy levels than to those at lower levels. The bestdeveloped procedures for monitoring training and development of employees were
found in the bank.
7. REWARDING

Postolov (Postolov, 2008, p. 80) concluded that the easiest way to achieve employee
satisfaction with the purpose of achieving organizational excellence is by providing them
with adequate financial income. In today’s global environment there are three basic principles on which employee rewarding is based. These are (Postolov, 2008, p.
80):
1) Higher ratio between salaries at different levels within a company. This difference between two levels (for example, the first and the second level) may be
200-400%, i.e. two or more times higher salary at the higher level in relation to
the lower level salary;
2) Motivation for achieving team work; and
3) Rewarding knowledge.
In relation to salary structure, changes are made to result in higher motivation,
which leads to organizational excellence. The fact is that employees are the most
important link in this chain providing organizational excellence. Salaries based on
performance are preferred. This should provide realization of strategic goals of an organization, strengthening of organizational standards, motivation of employees, and
differentiation between good and poor performances.
The highest level of flexibility is found in tourism, especially during the season,
which is often used. The largest limitation in tourism currently is that it is impossible to reward a good, successful and diligent seasonal worker with a permanent
job. Reward schemes in banks are well-regulated, and there are different ways of
rewarding. Due to specific qualities and fixed arrangements in the security industry
where it is not possible to find additional sources of income, it is also not possible
to provide as wide a range of rewards as in other companies. A large proportion of
employees cannot be rewarded because it is not possible to achieve prices for better
and more successful employees.

Ivica Zdrilić • Milan Puvača • Dinko Roso

322

Table 5: Ways of rewarding by industries
Questions

No

Mostly no

Do you have a written reward scheme? 

Do you publish the names of rewarded employees? 

Can any employee receive a monthly reward?
Do you provide financial rewards?
Do you reward employees with days off?
Do you reward employees with trips? 

Do you reward employees with shares? 

Can monthly reward reach the amount of basic salary  

(100% stimulation)?
Legend:  - Banking  - Tourism  - Security services

To some
extent  

Mostly
yes     

Yes  

Source: Results of analyzed case studies

8. EXCELLENCE MANAGEMENT

The goal of the performance measurement system is to achieve the set business
plans of the company, i.e. to meet strategic goals. Further, the system will provide
relevant foundation for further steps toward rewarding of employees, and in the
end it will assist in developing the employees who are efficient in their jobs.
To establish a good system, it is necessary to determine performance criteria,
and use this as the base to prepare models (approaches) of performance measurement. Finally, it should be determined which model of performance measurement
will be successfully used as a source of performance measurement.

Table 6: Excellence management by industries
Questions

No

Mostly no

Do you have elaborated performance criteria for all jobs? 

Do you think that your current performance criteria are fair?
Do you follow trends in performance measurement? 

Do you use outside consultants to create performance mea
surement system?
Are successful employees promoted sooner than others? 

Legend:  - Banking  - Tourism  - Security services
Source: Results of analyzed case studies

To some
extent  

Mostly
yes     

Yes 

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HUMAN RESOURCES MANAGEMENT IN HETEROGENEOUS INDUSTRIES...

Being highly profitable financial institutions, banks have all the possibilities for
excellence management. Banking industry is very concentrated, because the first
eight banks hold almost 80% of banking assets, so that competition is very fierce.
In tourism it is difficult to manage excellence, because successful and good employees often cannot be kept due to the number of permanent employees that is too
high in relation to the needs in the period from November to March.
Employer-employee relations
The necessary requirement for development of good employer-employee relations is development of organizational culture. Organizational culture (Skoko, 2000,
p. 100) consists of core values and beliefs accepted by all members and it is a uniting
factor for all organization members. Organizational culture is a wide-spread model of
activities, interactions, standards, feelings, opinions, beliefs, approaches, values and
processes in an organization. Unfortunately, many managers want to ignore the culture. Therefore one of the most difficult tasks of top management is to understand
the impact of changed culture on their strategies.
Organizational culture (Bahtijarević-Šiber, 1999, p. 706) is that segment of an
organization which sends “signals” to employees on what is desirable and what is undesirable behaviour, and what is appreciated and valued in a specific organization.

Table 7: Organizational culture and relation development by industries
Questions
No Mostly no
Are all your employees familiar with the company’s mission and vision?
Do all employees know about long-term plans of the 

company?
Do you systematically take care of relations among em
ployees within the company?
Do all employees know exactly what is expected of them?
Do employees view the company as a desirable company
within its industry?
Legend:  - Banking  - Tourism  - Security services

To some
extent

Mostly
yes 

Yes       

Source: Results of analyzed case studies

A bank as a large organization has problems with so-called “functional walls”.
It often happens in practice that employees are “closed” according to organizational scheme into departments or sectors, which at some moment start acting

324

Ivica Zdrilić • Milan Puvača • Dinko Roso

as companies within the company. This is a consequence of frequent changes of
organizational scheme, which causes shocks among employees, and justified fear
for their jobs. During privatization, banks made a significant number of employees
redundant and changed their organizational schemes several times. In tourism and
security industry it is difficult to develop organizational culture and direct it toward
all employees, because these industries have high level of staff turnover. In tourism
it is caused by seasonal character of business, while in security industry it is caused
by low price of services which then lead to low labour costs.
10. CONCLUSION

The results of this brief research in different industries clearly show that human
resource management in Croatian companies is at lower level than in developed
countries of the Western Europe, USA or Japan. This is partially due to the long
transition period lasting almost 20 years.
When industries are analyzed more closely (banking, tourism and security services), a difference can be observed. As a developed industry in Croatia banking
has higher level of human resource management in relation to tourism and security industry. This is mostly due to the fact that more than 90% of banking assets
are owned by foreign companies with high level of human resource management
in their home countries. Upon entering our market they brought their rules and
procedures from their countries (know-how) and implemented them in Croatia.
As labour supply in Croatia is still larger than demand, these rules and procedures
are used up to the extent that is suitable for owners who do not want to implement
them in full volume and functionality. However, even such limited implementation
provides an advantage to the banking industry in relation to tourism and security
industry.
On the other hand, tourism has been also going through the privatization process, but the difference is that investors into Croatian tourism are primarily foreigners whose main areas of interest are land and real estate. Tourism development
is less important, which then results in lesser interest in development of human
resources within companies. Human resource management thus becomes a less important part of the strategy, i.e. key manager positions are important, while vertical
development of human potential is often left out.
Security industry is often considered a lower class industry. Work of a security
guard is often described as “sitting on a chair and staring at the walls”. Security

HUMAN RESOURCES MANAGEMENT IN HETEROGENEOUS INDUSTRIES...

325

industry has not started its development yet. Development will start upon entering the EU and market liberalization, because current Croatian regulations do not
allow a foreign security company to operate in Croatia, whether owned by another
company or a physical person. Security industry in developed countries has developed many other forms of work in addition to physical protection, for example,
technical protection systems, occupational safety, fire-fighting, transport of money
and other valuable possessions, and services of processing and storing cash for banks
and other financial institutions. The expansion of such activities in Croatia will create the need for accelerated development in human resource management, because
a considerable need for good and highly educated people in security industry will
arise. Therefore it is no wonder that not much attention is paid to human resource
management in security industry, especially considering the fact that the two analyzed companies are leaders in development of human resources in this industry.
11. REFERENCES

Bahtijarević-Šiber, F. (1999). Management ljudskih potencijala. Zagreb: Golden
marketing.
Breaugh, A. J. (1992). Recruitment: Science and Practice. Boston: PWS-Kent.
Briggs, S. K. (1999). Integrating human resource strategy and strategic planning to
achieve business cxcellence. Total Quality Management , 4/5 (10), 440-459.
Cartin, J. (1999). Principles and Practices of Organizational Performance Excellence.
Milwaukee (WI): ASQ Quality Press.
Drucker, P. (2003). The New Realities. New Jersey: Transaction Publishers.
Knežević, B. K. (2007). Znanje o poslovnom okruženju kao temelj za unaprjeđenje
kvalitete donošenje strateških odluka u trgovačkim poduzećima. Poslovna izvrsnost,
2 (2), 9-27.
Noe, A. R., Hollenbeck, R. J., Gerhart, B., & Wright, M. P. (2006). Menadžment
ljudskih potencijala. Zagreb: Mate.
Skoko, H. (2000). Upravljanje kvalitetom. Zagreb: Sinergija.
Zelenika, R. (1998). Metodologija i tehnologija izrade znanstvenog i stručnog djela.
Rijeka: Ekonomski fakultet u Rijeci.

Slobodan Stojanović • Ivan Penava

326

LIQUIDITY MANAGEMENT IN SMALL COMPANIES
Slobodan Stojanović1, Ivan Penava2
1
University of Applied Sciences “Lavoslav Ružička” in Vukovar,
Croatia, stojanovic@vevu.hr
2
High-school of Economics, Vukovar, Croatia, ivan.penava@vu.t-com.hr

Abstract

Liquidity management is one of the main financial management tasks of the
companies, which must be executed efficiently and methodically in everyday business environment. The liquidity can be defined as the ability of an asset or its part
to be converted into cash, quickly and without any price discount, in the amount
sufficient to fulfill company due liabilities. The importance of the liquidity position is especially noticeable in today’s business circumstances where effects of postglobal financial crisis are still widely felt. Managing and maintaining favorable and
optimal liquidity situation in order to realize main business objectives is particularly important for small enterprises that are confronted with strong pressures on its
profitably and existence from bigger companies and other competitors alike.
Due to their size, small companies don’t have financial strengths and sufficient
reserve funds that could be tapped to overcome negative and unplanned business
developments over the long run. Therefore, different factors that are influencing
their business activity, such as sudden particular and/or general fall in products
and services demand, an increase in uncollected receivables, inflationary pressures,
price increases of specific raw materials and other inputs, “frozen” credit markets
and other unfavorable business conditions, results in negative cash flow dynamics,
thus threatening liquidity and survival of the company.
In order to avoid negative liquidity trends, small companies must pursue strong
liquidity management, which in turn requires strict and systematic financial planning of cash flows in certain period of time. Effective cash flow management should
secure the ability of the small company to pay its liabilities on time as well as to
recognize potential financial risks in the future period and prepare adequate measures to react accordingly. There are different methods and tools that can be used

LIQUIDITY MANAGEMENT IN SMALL COMPANIES

327

in liquidity management and planning, such as cash budgeting, management of
net working capital, cash-gap management and others. Usage of these liquidity
management techniques would help and support small company business operations as well as prevent adoption of poor decision that could have lasting negative
consequences, especially in economies faced with not so positive prospects. Therefore, the aim of this paper is to present basic liquidity management techniques
that small companies have at their disposal and their implementation in everyday
business operations.
JEL classification: G32
Keywords: liquidity and cash management, small enterprises, cash budgeting
1. INTRODUCTION

Maintaining adequate liquidity is one of the main financial management tasks
in any company. Its importance is especially noticeable in today’s business circumstances where effects of post-global financial and economic crisis are still widely
felt. Managing favorable and optimal liquidity situation along with realization of
the main business objectives is particularly important for small enterprises. Due
to their size, small companies don’t have financial strengths and sufficient reserve
funds needed to overcome negative market developments and crisis periods over the
long run. Different unfavorable factors, such as sudden particular and/or general
fall in products and services demand, an increase in uncollected receivables, raising
prices of specific inputs, “frozen” credit markets and similar, have negative impact
on cash flow dynamics, thus threatening liquidity and survival of the company.
The importance of cash, which is the ultimate liquid asset and only suitable one
for fulfillment of due liabilities, is reflected in today’s cash positions of corporate
America. According to the Federal Reserve, nonfinancial companies held $1.8 trillion in cash and other short-term assets at the end of March 2010. Cash accounts
for 7% of company assets, which is the highest level in nearly 50 years. Due to the
fact that “Cash is king”, small companies must use different methods and tools in
utilization of liquidity and cash management and planning.
2. THE ROLE AND IMPORTANCE OF SMALL AND MEDIUM ENTERPRISES

The sector of small and medium enterprises (SMEs) is of great importance for
overall growth and development of any modern market economy. Due to significant flexibility and adaptability to rapidly changing circumstances in today’s busi-

Slobodan Stojanović • Ivan Penava

328

ness activities, the SMEs are one of the major contributors in terms of number of
registered companies and employees. Furthermore, the sector strongly participates
in an increase of overall level of production and exports, as well as in creation of
added value realized by business in certain regions. Thus, SMEs contribute to more
than half of the total value-added created by businesses in the EU. According to
European Union Annual Report on SMEs (EIM, 2010:15), there were over 20 million companies in 2008, of which only 43000 were large companies, meaning that
99.8% of all enterprises in the EU are SMEs that employ almost 68% of the total workforce. Additionally, within the non-financial business economy enterprise
population, almost 92% are micro enterprises having less than 10 employees and
employing almost 30% of the total workforce, while small scale companies account
for almost 7% of all enterprises and employ 21% of the workforce. On average,
micro scale enterprises employ 2 persons and SMEs, as a whole, 4.3 persons, which
clearly indicate their importance in the overall economic activity.
European Union defines small and medium enterprises using three quantitative
and financial criteria in accordance with Commission Recommendation (Official
Journal of the EU, 2003/361/EC). Those criteria are (1) number of employees, (2)
annual turnover and (3) annual balance-sheet total. The criteria for SMEs are summarized in table 1.

Table 1. Classification criteria for SMEs in the EU
Enterprise category
Micro scale
Small
Medium-sized

Number of
employees
< 10
< 50
< 250

Turnover
≤ € 2 million
≤ € 10 million
≤ € 50 million

or

Balance sheet total
≤ € 2 million
≤ € 10 million
≤ € 43 million

Source: European Commission Recommendation (2003/361/EC)

The official definition of SMEs in Croatia is provided by the Small Business Development Promotion Act (Official Gazette, 29/02, 63/07). The law distinguishes
also between micro, small and medium-sized enterprises using the same three criteria as EC Recommendation, but with amounts adapted to local conditions (see
table 2).

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LIQUIDITY MANAGEMENT IN SMALL COMPANIES

Table 2. SMEs classification in Croatia
Enterprise category
Micro scale
Small
Medium-sized

Number of
employees
< 10
< 50
< 250

Turnover
≤ 14 million HRK
≤ 54 million HRK
≤ 216 million HRK

or

Balance sheet total
≤ 7 million HRK
≤ 27 million HRK
≤ 108 million HRK

Source: Small Business Development Promotion Act, Official Gazette 29/02, 63/07

The importance of SMEs in Croatia can be seen in data presented in table 3. According to the Croatian Chamber of Economy, in 2009 SMEs as part of the small
business sector make 99.5% of all registered enterprises and employ 66.01% of the
total workforce in Croatia. Furthermore, their share in total profit is almost 58%,
of which about 42% was realized by small sized companies. All observed indicators
show an increase in 2009 when compared to 2007, which clearly indicates an ever
growing influence of small business activities in the overall market.

Table 3. Indicators of small business sector for 2007 and 2009 in Croatia
Enterprise category
Small sized
Medium sized
Small business – in total

Number of
enterprises
2007 2009
81,467 89,438
1,590 1,446
83,057 90,884

Share in no. of
Number of
Share in no. of
enterp. %
employees
employees %
2007 2009 2007
2009 2007 2009
97.5 98.0 410,103 422,720 44.6 47.52
1.9 1.5 181,214 164,515 19.7 18.49
99.4 99.5 591,317 587,235 64.3 66.01

Share in profit
in %
2007 2009
35.0 41.90
18.7 15.82
53.7 57.72

Source: Small and Medium Enterprises, Croatian Chamber of Economy, Industry and Technology Department (2008 and 2010)

The importance of SMEs sector is further stressed when presented numbers are
analyzed in the context of global financial and economic crises of 2007/2009, which
negatively influenced all economic trends and conditions in the whole world. The
companies were faced with simultaneous problems of strongly reduced demand
and consumer consumption on one hand and “frozen” credit markets and luck of
liquidity on the other, thus making double blow to companies’ bottom line. Especially micro and small-sized enterprises have been subjected to negative developments in relation to their liquidity position due to their individual size. Generally,
their cash reserves are small and cannot sustained prolonged period of unfavorable
market conditions. Due to limited resources and their size, micro and small sized
enterprises are regularly under the strong pressure to maintain and achieve suffi-

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cient liquidity and adequate cash flows that support their everyday business operations. Therefore, in order to avoid negative liquidity trends, small companies must
pursue strong liquidity management, which in turn requires strict and systematic
financial planning of cash flows in certain period of time.
3. REASONS OF ENTERPRISES FOR HOLDING CASH BALANCES AND CASH
MANAGEMENT

Although every business must maintain adequate liquidity, small enterprises are
even more compelled to undertake appropriate liquidity measures due to their size.
The liquidity can be defined as the ability of an asset or its part to be converted into
cash, quickly and without any price discount, in the amount sufficient to fulfill
company’s immediate liabilities. Cash is the most liquid asset and only with cash a
company can fulfill its obligations. Therefore, cash and liquidity management aims
at maintaining suitable liquidity position of the company in order to minimize its
risk of insolvency. There is s trade-off between liquidity and profitability. Profitability refers to ability to make an adequate return on capital and assets invested
in the business, while liquidity relates to having an adequate cash flow that allows
the company to make necessary payments and ensure the continuity of operations
(Reider; 2005, 15). The objective of cash management can be defined as maintaining investment in cash at a minimum level while securing efficient business operations (Vidučić; 2006, 327). Liquidity position is visible in company’s balance sheet
in items such as cash on hand and demand deposits, as well as cash equivalents
and marketable securities. Every company must have certain cash balance in order
to operate efficiently reconciling optimal level of profitability and liquidity at the
same time.
Generally, the firms hold cash for reasons of transactions, compensations, precautions and speculations, thus creating transactional, compensating, precautionary and speculative cash balances (Brigham & Houston; 2003, 698). Transactional
balance is associated with routine payments and collections. Receipts and payments
are rarely perfectly synchronized both in time and amounts, so the business generally needs to hold certain stock of money to meet current expenditures. The
amount of cash needed depends on the nature of business and varies from industry
to industry. Compensating balance must be often maintained by the company in
order to compensate the bank for providing loans and services. Banks may require
the customer/borrower to hold some minimum deposits at the bank as a sort of
protection and a tool for better assessment of client’s credit risk. Precautionary bal-

LIQUIDITY MANAGEMENT IN SMALL COMPANIES

331

ance is associated with cash held by the company in reserves for random, unforeseen fluctuations in cash payments and disbursements. This safety stock needs to be
larger if company’s cash flows are less predictable and vice versa. Additionally, if the
company can easily borrow on short notice, the precautionary balance can be reduced. Speculative cash balance is held by the company in order to take advantage
of any bargain purchases and profit making situations that might arise. Speculative
reasons are especially important in times of financial crisis when the rise of interest
rates and decline of security prices are expected. Companies today are often using
combination of cash balances, marketable securities and excess borrowing capacity
for speculative purposes.
4. LIQUIDITY AND CASH MANAGEMENT TECHNIQUES

In order to achieve optimal level of liquidity, companies must pursue strong
liquidity management, which in turn requires strict and systematic financial planning of cash flows in certain period of time. Effective cash management is essential
to the success and survival of the business. Effective cash management must maximize cash generation for the business by applying basic principles and liquidity
and cash management methods and techniques of which some are presented in
following text.
4.1. Cash budget

The cash budget (CB) details the expected cash receipts and disbursements for
a designated period of time, which helps avoid the problem of either having idle
cash on hand or suffering a cash shortage (Shim & Siegel; 2009, 78). It is one of
the basic and most comprehensive tools for cash planning, management and control. Basically, the CB is a forward-looking management chart showing supply and
demand for liquidity within the company (Vernimmen; 2005, 942). Cash budgeting is especially important tool for small companies with insufficient reserve funds
to maintain liquidity position over the long period. At the same time, many small
companies do not have educated and experienced staff able to deal with the task of
financial planning, which is usually, along with accounting, outsourced to outside
contractors. As a result, data on flow of revenues and expenses, cash inflows and
outflows and their interrelations are not sufficient, as well as they are accompanied
with poor degree of interpretation (Marković & Stojanović; 2009, 75). According
to size and type of operations, the company should choose time horizon to forecast

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future sources and uses of cash. In many cases, quarterly cash budget can be suitable
for small enterprise, although shorter period of time, e.g. month or a week, can be
used as a basis. Producing CB in small enterprises does not require complex models
and calculations. A simple spreadsheet programs will suffice. No matter of methods
used, there are three common steps in making the cash budget: (1) forecast the
sources of cash, (2) forecast uses of cash, and (3) calculate cash surplus or deficit in
analyzed period (Brealey et al.; 2001, 177). Cash inflows mostly originate from the
sale of goods and/or services. Therefore, accuracy and objectivity of sales forecasting
is the precondition for making usable CB. Number of factors, both external and
internal, must be taken into consideration, such as overall market and economic
situation, competitors’ influence, price level of products and services, marketing
efforts, credit policy, etc. In determining cash inflows, the structure of sales must
be defined. Goods sold on credit become accounts receivables, while cash inflows
come from cash sales and collections on accounts receivables. Generally, the aim
of the firm in this area should be speedy conversion of achieved sales into the cash
receipts. Other sources of cash, such as proceeds from fixed assets sale, tax refunds
and similar also make cash inflows. Cash outflows usually can be determined more
precisely than inflows because the expenditure structure is well-known and elaborated for the small company. There are basically three categories of cash uses: (1)
payments of accounts receivables (cost of goods sold) for different production inputs, (2) operational expenses, such as labor, sales, administrative, and other regular
business expenses, (3) capital expenditures, and (4) interests and loan repayments,
taxes, dividends and similar (Brealey et. al.; 2001, 179). Costs must be structured
according to time and payment methods. Only costs that are simultaneously cash
disbursements can be part of the CB. In order to minimize cash outflows, the company must insist on tight monitoring and cost control while maintaining normal
business operations. General scheme of preparation and calculation of cash budget
is summarized in table 4.

LIQUIDITY MANAGEMENT IN SMALL COMPANIES

333

Table 4. General scheme of cash budget calculation
No.
1.
2.
3.
4.
5.
6.
7.
8.
9.

Description
Cash balance at start of period
+ Cash inflows during period
= Cash at disposal before current funding
- Cash outflows and minimum operating cash balance
= Cash surplus or cash shortage
+ financing of cash shortage
- repayment of loans out of cash surplus
- investing of cash surplus
= Final cash balance

Amounts (in HRK)

Source: Gulin et al. (2004), Poslovno planiranje, kontrola i analiza, 61-66

Difference between cash inflows and outflows determines the cash balance. Depending on positive or negative cash balance, the company undertakes steps in
terms of investing a surplus or short-term financing to cover cash shortage. To
avoid zero cash balance at the beginning of the period, the minimum operating
balance is introduced, which allows for absorption of unexpected cash flows. Shortterm financial plan is a result of cash budgeting process. It depicts liquidity position
of the company and prepares it for necessary decisions. The company can react in
advance, thus preventing negative liquidity developments.
4.2. Net working capital management

The difference between current assets and current liabilities is defined as net
working capital (Ross et. al.; 2006, 22). The liquidity position is better if value of
net working capital (NWC) is higher. Positive NWC means that part of current
assets is financed with long-term financial sources. By managing working capital,
the company must strike a balance between profitability and liquidity, i.e. between
costs of maintaining current assets and costs incurred from their shortages. Constituent parts of NWC management are management of receivables, management
of short-term liabilities and inventory management. Each management segment
consists of different procedures and tools that support decision making in order
to achieve desired level of liquidity. Management of accounts receivables includes
measures that aim at maximizing sales and collection of receivables. The objective
is to increase credit sales without endangering business operations, as well as to
shorten average accounts receivables period, which is defined as a period between

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Slobodan Stojanović • Ivan Penava

product sale and collection of receivables. Position of receivables is strongly influenced by existing credit policy of the company. Credit policy which is too restrictive or too lax has negative effects either on profitability or liquidity. Four elements
make credit policy: (1) credit period, i.e. time given to buyers for paying goods
bought, (2) discounts given for early payment, (3) credit standards that define acceptable credit customers, and (4) collection policy, which determines procedures
used in collection process (Brigham & Houston; 2003, 714). Small enterprises
especially must insist on adequate payment and collateral instruments, thus making collection more predictable and secure. All credit policy elements must be in
agreement in order to achieve optimal results. Inventory management covers three
types of inventories, i.e. materials, unfinished production and finished goods. Efficient inventory management implies management of all inventory segments.
Generally, the company must decide on quantity and ordering dynamics of inventory. The key is to achieve a balance between variable carrying costs associated
with costs of space, insurance, losses, etc., and order costs associated with fixed
handling and delivery expenses charged for by supplier. Company would minimize inventory costs by determining the economic order quantity (Novak; 2001,
122). Assuming the sale is perfectly predictable and new order is delivered in full
when inventory reaches zero and without delays, EOQ can be calculated as follows:

EOQ =

2 × sales × cost per order
. Presented model is usually the first step in
carrying cost

defining more elaborate inventory policy. In order to efficiently manage inventory,
efficiency indicators must be followed, such as inventory turnover ratios and inventory periods. Management of short-term liabilities includes dealings with suppliers
and short-term lenders. The structure of accounts payable reveals time schedule
and future cash disbursements. Comprehensive analysis should indicate what type
of activities to undertake in order to get favorable terms of sales from suppliers,
such as payment prolongations, bigger discounts and other benefits. Sometimes,
company is using “stretching accounts payable” technique, deliberately not paying its bills on time, thus decreasing cash outflows. However, if unselectively used,
the company might be branded as “slow payer” and not trustworthy for business.
Careful planning and selection of short-term financing sources in terms of selected
banks, lending institutions, credit types, interest rates and similar, contribute to
minimizing of costs and achieving of needed liquidity positions.

LIQUIDITY MANAGEMENT IN SMALL COMPANIES

335

4.3. Cash gap (cash conversion cycle) management

Cash gap (CG) is closely related to NWC management. CG or cash conversion
cycle is defined as the number of days between a business’s payment of cash for
goods and services bought and the receipt of cash from its customers for goods or
services sold. CG increases when inventory and receivables periods are longer while
it decreases with the duration of accounts payable. Liquidity position is improving
when CG is shorter because cash inflows are accelerated while outflows are delayed.
Additionally, shortening of cash gap directly decreases the cost of financing through
reduced interests and other costs. CG indicator provides company with a powerful
tool for liquidity and cash management. Tradition and the nature of the business
often set the typical CG in a given industry. Some industries have inherently higher
cash gaps than others.
5. CONCLUSION

Liquidity management is one of the main financial management tasks, which
must be executed efficiently and methodically. Company’s inability to fulfill its
obligations results in insolvency and subsequent discontinuation of business operations. The liquidity and cash management is especially important for small enterprises that cannot sustain prolonged periods of negative cash flows. Insufficient
liquidity (cash) reserve funds of small companies require efficient management of
cash receipts and disbursements in order to survive. Therefore, strict and systematic
financial planning of cash flows must be implemented. Effective cash flow management would secure the ability of small companies to pay liabilities on time as well
as to recognize potential financial risks ahead and prepare adequate response measures. However, lack of professional and experienced staff prevents many small enterprises in proper using of different liquidity and cash management methods and
tools, thus endangering their business survival. Presented management techniques
should contribute to and support decision making process in relation to liquidity
issues and must be integrated in everyday business operations. After all, the company can miss earning targets and survive, but it can only run out of cash once.
REFERENCES

Brealey, R. et al. (2001). Fundamentals of Corporate Finance, McGraw-Hill, ISBN
0-075-53109-7, USA

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Brigham, E. & Houston, J. (2003). Fundamentals of Financial Management,
South-Western College, ISBN 0-324-17829-8, USA
EIM Business & Policy Research (2010). European SMEs under Pressure – Annual Report on EU SMEs 2009, Available on: http://ec.europa.eu/enterprise/
policies/sme/facts-figures-analysis/performance-review/pdf/dgentr_annual_report2010_100511.pdf , Access: (09-02-2011)
Gulin, D., Tušek, B. & Žager, L. (2004). Poslovno planiranje, kontrola i analiza,
HZRiFD, ISBN 953-648-066-2, Zagreb
Marković, B. & Stojanović, S. (2009). Financijsko planiranje kao način optimizacije novčanih tokova u malim poduzećima. In: Zbornik radova Financije i
računovodstvo u zaštiti hrvatskog gospodarstva od recesije, Gulin, D. (ur.), str.
72-80, ISBN 978Novak, B. (2001). Odlučivanje u financijskom upravljanju, Ekonomski fakultet u
Osijeku, ISBN 953-6073-63-3, Osijek
Reider, R. (2005). Understanding effective cash management, Journal of Corporate
Accounting & Finance 17, 7-15, ISSN 1097-0053
Ross, S. et.al. (2006). Fundamentals of Corporate Finance, McGraw-Hill/Irwin,
ISBN 0-071-25450-1, USA
Vernimmen, P. et al. (2005). Corporate Finance: Theory and Practice, John Wiley
& Sons, ISBN 0-470-09225-4, England
Vidučić, Lj. (2006). Financijski menadžment, RRiF, ISBN 978-953-6121-85-4,
Split
953-277-028-5, HZRiFD, Zagreb
Shim, J. & Siegel, J. (2009). Schaum’s Outline of Financial Management, McGrawHill, ISBN 0-071-63531-9, USA
Small Business Development Promotion Act, Official Gazette 29/02, 63/07

METHODS AND TECHNIQUES FOR CALCULATING A PRICE - MARKETING MIX OF ...

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METHODS AND TECHNIQUES FOR CALCULATING A PRICE MARKETING MIX OF TOURISM PRODUCTS
MSc Mario Banožić
Vukovar-Sirmium County
Department for International Cooperation and Regional development
Division of regional and tourism development
Županijska 9, 32000 Vukovar
Tel: +385(0)98 792 869; e-mail: mario.banozic@vk.t-com.hr

Abstract

Marketing as a social process engages people’s needs and finding ways to satisfy their needs and desires. Marketing activities are expressed and took the form
by elements of the marketing mix which is a combination of controlled marketing elements. Some business subjects use this combination of marketing elements
to achieve the required level of sales and the achievement of goals on selected
markets.
This paper will be present the price from aspect of stakeholder who offering tourism programs on the tourist market, as one of the most important elements of marketing mix. Specifically, development of the tourism market has impact on growing
interest for methods and techniques to calculating price of tourist operators. That
has significantly influence on the formation of tourist programs, operating costs of
all tourism subjects in the destination or the correction of prices that are already established on the market. When stakeholders who offering tourist programs create a
price often has it base in the market prices and try to influence on tourism subjects
in destination to reduce their costs, in order to make lower and acceptable prices
on the market. Tourist product price has formed to cover total cost of all subjects,
but that doesn’t mean that it height can be well accepted on the market, especially
when we talking about tourist destination that are not recognized on the market.
Also, tourist product price formed as favorable doesn’t mean that it will offer or accomplish consumer’s perception and satisfy their needs and desires.

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Mario Banožić

Certainly it’s very important how much the tourist program provider or travel
agency on the market will be interested in the crating of tourist product prices for
which sales will be responsible.
JEL classification: E31, L83
Keywords: marketing mix, price, tourist product, destination marketing
1st Introduction

Generally, international and national literature accepted fact that the definition
of marketing mix consists of four key elements: Product, Price, Distribution and
Promotion (4P, product, price, place, promotion), which businesses entities use to
increase own business results on the target markets. Also, business entities how are
oriented to the target market must adapt their marketing mix to needs, attitudes,
perceptions and beliefs of their consumers. Every single element of the marketing
mix deserves a special approach to its creation and placement of product in order
to fully leave the satisfaction of needs and desires consumers.
2nd Definition of Price as element of marketing mix of tourism product

The basic elements of any market are market subjects, object exchange and price.
(Ruzic, 68, 2007) “Interactions of these elements in time and space, ie the relation
between supply and demand (subject), products (services) as objects of exchange
and price as the monetary value of the expression show certain peculiarities in certain markets, regardless to what every market in freight economy general can be
defined such the completeness of relations between supply and demand. “
As in the introductory part indicated, the classical concept of marketing, marketing mix includes four basic elements 4P: product, price, promotion and place.
According to Ph. Kothler (Kothler, 2001, 38), “Marketing mix is a combination of
controlled marketing variables used by the company to achieve the required level of
sales in the target market. There is literally a number of elements marketing mix. “
Other authors in the marketing mix include more elements, Bittner and Booms
(Booms, Bittner, 1981, 49) suggest additional 3P: people, physical evidence,
processes.

METHODS AND TECHNIQUES FOR CALCULATING A PRICE - MARKETING MIX OF ...

339

Figure 1st Marketing Mix 7P

Made by author

Marketing mix is based on the “7 P”(product, price, place, promotion, people,
physical evidence, process):
• Determining tourists needs and desires in order to develop tourism product;
• Pricing of tourism products;
• Deciding on the best place to sell tourism products;
• Deciding on how best to promote the tourism product;
• Decisions of the people that create tourist attractions;
• Physical evidence, the presentation of quality tourism products;
• Decisions about the types of processes.

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Mario Banožić

The tourism product is a central part of the tourist marketing mix, and consists
of certain elements. The element of the tourism product can be offered directly to
tourists, or in a combination with other elements as an integral tourist product.
Authors in the international literature prefer integrated tourism product, because
it represents (Uskokovic, 2001, 18) “the right mix of material and immaterial elements of the supply (of goods and services), which meet the needs of tourists”.
For tourism product are characteristic two marketing strategy, differentiation
and diversification. Strategy differentiation of tourism product consists on the formation of the product, which according to a number of characteristics, different
from the competitive tourism product. Implementation of this strategy comes to
the fore when creating an integrated product, i.e. adding an immaterial part of the
tourism product. Strategy diversification of tourism product should be based on
more tourism products which are offered in the tourist destination, also which are
carried out in multiple markets or more potential segments in exist market.
(Kothler, 1989, 510) “For services is characteristic hers internal (immanent)
properties (inseparability from natural resources, impossibility to cover, etc.), the
service is impossible to store, but must be sold together with the momentum of
“production “. Also, for some services there are no substitutes.”
There are opinions, and also practice has shown how on the different markets
and depending on the situation favored certain elements of marketing, compared
to the other. The prevailing opinion is that price and promotion are more effective
tourism marketing mix elements, because they are adaptable to possible changes
on the tourist market, and that their use is effective in the short term. However,
the price must be set up on something “material”, while the purpose of promotion
is to promote the facility, or specific characteristics. In both cases, the price and
promotion depend on the products, because they are based on the product. Price
immediately produces the total income, so it can be concluded that price is a key
element of marketing mix.
Determining a certain price, tourist operator decides which of the marketing
goals wants to pursue (Kothler, 2001, 496): the survival of the tourist operator on
the market, the maximization of “collecting of cream” on the market, maximization of current profit, maximization of current income, maximization of sales and
leadership in quality of products and different prices goals.

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341

Price is a very important factor in determining the position of tourism products
in comparison to competitive. (Dibb, 1995, 514) Most of the factors how have
influence on decisions to determining the price can be classified into one of eight
groups as shown in Figure 2nd:

Figure 2nd Factors which influence on the decision to determining the price

Made by author

In practice exists many different methods for determining the price. No matter which of these methods for determining the price tourism subject will select,
ultimately he must make the final decisions, what is the price that will compete on
the market. In the same time he must providing compatibility of price with other
elements of marketing mix.
When tourism subject take decision about access on the tourism market, he determining the price on way that he can cover the total costs during creation tourist
product, but also achieve a certain profit. (Datar, 2008, 429) In determining the
price of their product, the tourism subject can be focus on several factors:
• customers or market
• competition
• costs
While determining the price it is necessary to take into consideration effect of
a large number of factors, which a significant part is outside of the control from
tourist subjects. (Ruzic, 2007, 230) “The specific conduct of pricing policy as an
element of marketing mix, it is important to determine which factors operate, how
they work and whether and to what extent can predict.”

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3rd METHODS AND TECHNIQUES FOR CALCULATING THE PRICE OF TOURIST
PRODUCT ORIENTED TO THE MARKET

Starting from the generally accepted fact that tourists are the most important
person in tourism, the tourism is concentrated on the market, i.e. the decision
on the settlement price is made from the viewpoint of consumers. Also, it is very
important to accept the fact that too high a price can tourists turn to competitive
markets. In the same time too low price can take wrong impression about the quality of tourist attractions. The low price offered tourist product on the market can
reduce possibility for potential income.
There is two methods for determining the price of the product or service, and
they oriented to the market (http://web.efzg.hr/):
• method of pricing according to demand,
• method of the lowest prices.

Table 1st Review of methods for determining the price tourist product oriented to the market
METHOD OF PRICING ACCORDING TO DEMAND

METHOD OF THE LOWEST PRICES

The method is applicable in cases when tourist subject
want take strategy differentiation of price.
The main precondition for the effectiveness of the
method is carried out research on the potential demand
in the tourist market.
Lack of method is when the provided demand is lower
than actual, because a certain price is too high. Otherwise it may happen that the price is set low, and the
provided demand also did not reflect in the planning
volume.

Method can be used when tourist subjects create
tourism product, and then must be good coordination
between all stakeholders at all levels, regardless on the
level distribution of tourism products.
The basic goal is that the holder of a tourist offer determines the lowest price, and that price will be equal in
all markets. Tourist subject at the local level can only
increase price (depending on the objectives, market
opportunities, competition and business costs).

Made by author

4th METHODS AND TECHNIQUES FOR CALCULATING THE PRICE OF TOURIST
PRODUCT ORIENTED TO THE COMPETITION

The competition is an important factor in the environment of tourism subject,
and it is necessary to be vigilant and monitor their activities, as well as the price of
the product. For example, lowering prices by one tourist subject in destination may
reduce the demand for tourist products of another tourist subject. In this case, each
tourist subject was forced to reduce prices, which may result that tourist subjects

METHODS AND TECHNIQUES FOR CALCULATING A PRICE - MARKETING MIX OF ...

343

may not cover the costs of the period. Another possible case is the existence of only
one tourist subject in destination, where he is able to impose their own price, who
is usually too high.
Methods for determining the prices that is focused on competitors (http://web.
efzg.hr/):
• Method of determining the price below the price level of competition,
• Method of determining the price above the price level of competition,
• Method of determining the price on the same price level of competition.

Table 2nd Review of methods for determining the price tourist product oriented to the competition
METHOD OF DETERMINING THE
PRICE BELOW THE PRICE LEVEL OF
COMPETITION

METHOD OF DETERMINING THE
PRICE ABOVE THE PRICE LEVEL OF
COMPETITION

METHOD OF DETERMINING THE
PRICE ON THE SAME PRICE LEVEL OF
COMPETITION

With this method tourist subject
seeks to reduce prices to the lower
level than the price of competitors,
or to leave price at the same level no
matter what competition increase
own price.
With this approach, the holder of
tourism seeks to increase the sales
of tourism products and attract
tourists to the destination, while the
weakening or eliminating competition from the market.

In cases where the tourist operators
offering on the market specific tourism products, the possibility exists
that they are valued very highly
priced. It may arise from activities of
branding a tourism destination.
Because of the pronounced specific
destinations, tourists will stay in the
destination and allocate a higher
amount, no matter what the other
tourist subjects in the same destination has formed the lower price.

At each destination exist tourist
subject who is emerging as a leading because of its specifics (size,
traditions, business, organization)
that can be an excellent base for
determining price to other tourist
subjects in the destination.
The impact of the leading tourist subject is significant for other
tourism subjects in the destination.
Determine the prices at the level of
price competition. Pricing is left to
the leading tourism operator.

Made by author

5th METHODS AND TECHNIQUES FOR CALCULATING THE PRICE OF TOURIST
PRODUCT ORIENTED TO THE COSTS

Already be mentioned that the price must be high enough that income from the
sale cover all costs and made some gains. In business, incomes are product of subject,
but the gain / loss is always own product. In other words, incomes are the result a split
of circumstances on the market, and gain is own ability in the management of available resources. (Crnkovic, 2006, 322) It is the result of the economic equation:

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Mario Banožić

Figure 3rd Economic equation for gain/loss

Made by author

Transparency cost of sales is especially important for marketing planning. It
should be aim a clear classification of costs, i.e. a clear delimitation between the
cost, just a grouping of homogeneous elements, and the classification of expenses
by type, and not according to holders like in most cases in the tourism industry.
There are four methods of determining prices for products that are focused on
costs:
• Cost-plus method,
• Method of adding a profit margin,
• Method of equal price,
• Method of target return.

Table 3rd Review of methods for determining the price tourist product oriented to the costs
COST-PLUS METHOD
The holder of the tourist
offer must first determine
total cost, and then
specify a certain size or
percentage of total costs,
which will increase these
costs.
The advantage of this
method is reflected in the
constant realization of
profits if the cost is exactly
and precisely estimated.
The disadvantage of this
method is recklessness by
competition and market,
particularly by tourists,
because tourist subject no
need rationalize costs.
Made by author

METHOD OF ADDING A
PROFIT MARGIN

Is similar like cost plus
method, but in this
method percentage of
increase costs is based on
expected sales.
Typically, the rate of profit
that applied is variable
depending on the tourism
product by the holder of
tourist offers, using a fixed
rate of profit for individual
tourism products greatly
accelerates and makes it
easy determine the prices.

METHOD OF EQUAL PRICE

METHOD OF TARGET
RETURN

Applying this method,
the holder of tourist
offer, wants to achieve a
unique price his products
in all markets where it
appearance.
methods widely ignore
the competition and
market conditions where
offer the product, considering that the established
price in accordance with
the coverage of costs and
the state of the domestic
market.

Holders of tourist offer
use this method after
investing in infrastructure,
equipment, vehicles, additional promotion on the
market or any other forms
of investment, trying to
achieve cost-effective
return on investment.
The method of target
return need a time, time
in which tourism subject
wants to recover invested
funds.

METHODS AND TECHNIQUES FOR CALCULATING A PRICE - MARKETING MIX OF ...

345

6th CONCLUSION

A method does not exist to be one selected and blindly used. Rather, with their
application at the same time will be observe the essential signals to management in
tourism, the potential adverse events.
Based on only three factors, like the basis for determining the prices, there are
nine methods arising from them. Each is different, reason is in different assumption, and each is focused to achieve different goals. For example, a tourist subject
or a holder of the tourist offer, when looking at situation on the market during
determining a price, has two options: attempt to most accurately predict demand,
in order to properly set the price, or a single rate (or lowest) price in all markets.
The methods which are focused on competition are nothing more than election
strategy for performance on the market. Definitely, the selection depends about
type of tourist product which tourist subject offering on the market. Even if it is
tourist product accepted on the market, holder of tourism offer cannot afford highcost ranking of products. However, if tourism product does not have any specifics
(such as tourism product of our coast, “sun and sea”), holder of tourism offer can
decide to set the price lower than the competition (more attractive to consumers)
or on the same level as competitors.
Methods for determining prices, which are the most interesting to holders of
tourist offers, related to costs. Each holder of tourist offer first will be decide that
the costs will be cover, and then select whether to be operating on a certain profit
on the total costs.
Price is an extremely important factor in the business of tourism subjects, and
the is necessary to pay attention on the all possible factors that have influence
(either internal or external), because the unit price of products will depend on the
determination of operating income. Higher product prices for tourist subjects will
mean a higher amount of income generated from operating activities, and therefore
higher gain.
7th LITERATURE

Booms, B.H., Bitner M.J. (1981) Marketing Strategies and Organizational
Structures for Services, American Marketing Association, Chicago, ISBN 9780877571483

346

Mario Banožić

Crnković L., Mesarić J., Martinović J.(2006), Organizacija i primjena računovodstva,
Sveučilište J.J.Strossmayer u Osijeku, Ekonomski fakultet u Osijeku, Osijek, ISBN
953-253-015-0
Datar S. M., Foster G., Horngren C. T., Ittner C., Rajan M. Cost Accounting: a managerial emphasis. New Jersey: Pearson Education, Inc., 2008. ISBN:
0135046343
Ekonomski fakultet Zagreb, Katedra za marketing, (2007.), Cijene, http://web.
efzg.hr/dok//mar/kolegiji/marketing/predavanja/MKT-08-Cijene.pdf Pristupano
07.03.2011.
Kotler Ph,(2001): Upravljanje marketingom: analiza, planiranje, primjena i kontrola, 9. izdanje, Mate, Zagreb, ISBN 953-6070-65-0
Kotler Ph.(1989): Priciples of Marketing. Englewood Cliffs: Prentice Hall, ISBN:
013708059
Meler, M.(2005), Osnove marketinga, Sveučilište J.J.Strossmayera u Osijeku,
Osijek, ISBN 953-6073-94-3
Ružić D.(2007), Marketing u turističkom ugostiteljstvu, Sveučilište J.J.Strossmayer
u Osijeku, Ekonomski fakultet Osijek, ISBN 978-953-253-022-3
Sally Dibb, Lyndon Simkin, William M. Pride, O. C. Ferrell; (1995) Marketing,
Europsko izdanje , MATE, Zagreb, ISBN: 953-6070-13-8
Uskoković B.(2001): Marketing - menadžment u turizmu Crne Gore.Ekonomski
fakultet, Institut za društveno - ekonomska istraživanja, Podgorica

A HOLISTIC APPROACH TO CORPORATE IDENTITY AND BRAND

347

A HOLISTIC APPROACH TO CORPORATE
IDENTITY AND BRAND
Dinko Jukić, univ.spec.public. admin.
School of merchant “Davor Milas” in Osijek
Ph.D. candidate
Faculty of Economics
Božica Dunković, univ. spec. public. admin.
Agency for Development
Osijek-Baranya County in Osijek
Ph.D. candidate
Faculty of Economics

Abstract

The brand is a very complexed symbol. Corporate brand creates a great number of associations to the consumers that are used in positioning. The brand is a
promise made by the company and it must be fulfilled. A key element in creating the corporate image category is the brand personality. Links between internal
branding, corporate image and employees and the performance benefits of brand
is found in corporate reputation. The interaction with the consumer is important
for internal corporate image building, but also because of the relationship with
the consumer. Corporate branding is the basic assumptions of holistic marketing
because it encompasses the essence of an integrated perspective that is desperately
needed. Corporate brand excels through its existence and operation, and reflects
the values and employees actions, both individually and collectively.
JEL classification: M31
Keywords: brand, corporate branding, corporate image, corporate identity,
customer
1. INTRODUCTION

Brand is a very complex symbol. The strategy of building brand begins whit
a clear understanding of what brand represents to producer and consumer

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Dinko Jukić • Božica Dunković

(Keller;2008,35). Brand strength is based on a good brand positioning, its most
important components: consumer associations. Since the association of consumers
can be seen from the point of metaethics(Jukić;2010), we can conclude that the association analyzed in terms of emotional and rational impressions according to the
brand. Positioning as the act of creating brand superiority in the consumer’s mind,
greatly depends on associations and perceived brand image. To build a brand equity
there are three key components: identity, image and brand personality. Only creating a brand indicates creating differences (Kotler & Keller;2008,275).
In the postmodern marketing consumption becomes the primary in shaping
the consumer’s awareness of others and their own ideas. An abstract code of consumption differs objects as characters, not as an expression of individual needs and
pleasure. The concept of inner devotion includes internal branding, organization,
corporate image, employee interaction and profitability of the brand as ideas. Positioning refers to the perception and associative components of consumer brands.
Brand reputation may results from judgments according to the corporate brands
(Dowling;1995), and usually includes three categories: perceived quality, credibility and attraction. To create a holistic approach to corporate branding the crucial
are: image, symbol and identity.
2. CORPORATE BRAND

Corporate brand, according to Balmer is one of the most fascinating phenomena in the business environment of 21st century. According to the model, which
Baudrillard calls ambient consumer (Baudrillard; 2001), the importance of branding as a social phenomenon that interacts with consumers is a form of manipulation of symbols. Signs (brand) in his being are perceived as an exchange and use
value. However, analysis of the characters refers to the two levels, ie, the signifier
and the signified. Brand itself is, by definition (Bennett, 1995:85), a static segment
of products in its integration of images, characters and symbols exceeds the present, postmodern understanding the brand as a phenotype. A new concept of brand
management does not observe the brand as a way of marking products. Often the
buying decision are emotionally based (Milas; 2007:41). The consumer with that
kind of purchase is actually built up a picture of themselves, regarding, symbolic
purchase exceeds the utilitarian criterion. Corporate brand in the consumer’s mind
establishes a number of valuable associations that can be used in positioning. Pre-

A HOLISTIC APPROACH TO CORPORATE IDENTITY AND BRAND

349

cisely because of this, the key element in creating the corporate image category is
the brand identity.
Brands are therefore an integral part of social and everyday consumer. Brands
in the broad sense can be viewed as a manufacturer, private and corporate. Corporate brands differ from one manufacturer’s brand in several key factors. First
of all, it differs in strategy management of marketing and strategy of marketing
communications. To satisfy the consumer’s needs or desires, it is necessary to make
market research and according to him plan the production program (Kotler &
Armstrong; 2006). Because of importance of four components in a holistic marketing, namely: relationship marketing, integrated marketing, internal marketing and
socially responsible marketing, priority is given to internal marketing. Therefore,
we conclude that the three categories are important for building a corporate brand:
personalization, integration and internalization.
2.1. From product brands to corporate branding

Corporate branding we must observe first from the aspect of the brand itself, so
the promise set by the brand and the relationship between producers and consumers. The center of each brand is its vision (de Chernatony; 2002,19) of providing
a clear sense of direction on how this will bring a better perspective. One of the
main segments of the development vision for the brand in the culture of employees
who believe in a certain vision and brand managers who have, along with staff, the
mental model of how the market works. Therefore, the focus in corporate marking
is placed on the internal branding, ie relations between employees and consumers. In fact, corporate branding is the very essence of holistic marketing because it
brings together management, brand, consumers and the community. However, this
means that organizational behavior can be seen at all levels, especially in interaction with consumers. With such a holistic understanding of corporate branding,
where the relevant employee’s attitude and a promise that sets the brand, are actually “healthy” aspects (Balmer;2001). Precisely this difference between the products
(brands) and corporate branding represents a shift in brand management.

Dinko Jukić • Božica Dunković

350

Table 1. The difference between product and corporate brand
Product brand
Focus on the product (middle manager)
Customers
Marketing communications
Functional importance
Consumer Loyalty
Living in the present

Corporate brand
Focus on the company (CEO)
Multiple stakeholders
Relationship marketing (CRM)
Strategic importance
Consumer and employee loyalty
Living in the present and future

Source: author

Differences between product brand and corporate brand are reflected in terms
of attracting and support. While brands target to consumers, corporate brands also
include consumers, but also contribute to the formation of images of the entire
organization and community. Consequently, corporate branding including suppliers, investors, partners and other interested parties. Understanding this we can
conclude that a corporate brand represents the realization of the basic settings of
holistic marketing (Kotler et al, 2006). In this communication, instead of appealing to consumers, corporate branding includes all participants. Corporate brand
increases the company’s visibility, recognition and reputation.
However, corporate branding also requires much more strategy and organization unlike the brand (Balmer, 2001). A successful corporate brand is formed on
the relationship between strategic vision, brand image and organizational culture
(Hatch & Schultz, 2003.1045). Corporate branding requires the integration of
internal and external communication, ie, is in the region of brandsphere (Jukić &
Dunković; 2010) that examines the cognitive value of brands. The first factor that
influences the development of brandsphere (de Chernatorny; 2006,185-222) is
certainly corporation itself that directly affects consumers and other participants.
Brand is seen as part of the added value that enables the distinction. The unquestionable values, the very essence of a brand, makes up 80% of success, and at the
same time, the expenses make up 20% (De Chernatony & McDonald; 2005).
Therefore, employee and customer loyalty is only the initial segment of corporate
branding, because we find the key to success in the corporate image.
3. CORPORATE BRANDING

The success of the brand is closely associated with the employee’s behavior (Motion et al; 2003.1081), where uninterested staff resulting gap between the expectations of their customers and the brand promise. This process is called internal

A HOLISTIC APPROACH TO CORPORATE IDENTITY AND BRAND

351

branding and includes the role of motivation of staff with a vision of the brand and
its promise that is given. Employees are linked to the performance of the organization and they are marketable (Meier, 2005), especially in services and their interaction with customers is considered a very important factor. There are several definitions that are relevant to internal branding, such as knowledge, behavior and skills
of employees, but the main categories derived from three elements: cognitive, affective and connotative. Cognitive elements include a functional level of the employee
or involvement in decision making, affective are the working conditions or psychological contracts while the connotative elements include communication skills and
cultural differences. Brands are closely associated with employees, especially when
viewed through the nonprofit marketing (Meler; 2003,65), as well as providing services in a wider sense. Achieving brand promise in services largely depends primarily on the company’s employees (de Chernatony & Segal-Horn;2001,645-669) and
the organization must ensure that employees are “delivered” brand promise that it
offers. Corporate brand reflects the corporate personality(Keller & Richey; 2006)
and unlike from characteristics of the brand (Keller et al; 2008,420) develop a kind
of corporate performance, ie employee.
The concept of corporate brands from a holistic point of view can be seen through
two approaches: focus on customers and focus on the company. If the concept of
corporate brand development viewed through the concept of focus on the consumer, then the brand image and brand identity imposed as the most relevant settings.
If we look at the concept development through focus on business, priority is given
to the corporate image(Kotler & Pfoertsch; 2006,73-91) and internal branding.
The employee’s role is crucial in fulfilling the promise set by the brand. In such an
environment of internal branding that emphasizes the corporate image, identity
and reputation, there is the concept of corporate marketing mix (Balmer;1998)..
The concept developed by Balmer (Balmer;2001b) in order to show the properties
of the so-called corporate brands CCIT(cultural, commitment, intricate, tangible,
ethereal) model best illustrates the characteristics of the brand.

Table 2. The characteristics of corporate brand
Cultural
Intricate
Tangible
Ethereal
Commitment

Corporate brand tend to have strong “cultural roots”
Impact on stakeholders
All tangible value
Intangible values, consumer emotional component
From all personnel

Source: Adapted from Balmer (2001b)

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Dinko Jukić • Božica Dunković

Internal marking depends on employees. Such implications warn us of the importance of human capital management (Punjaisri & Wilson; 2007), which means
that management must pay attention to employee values that are in synchronicity
with the corporate values (de Chernatony; 2002,20) and corporate image. The
concept of corporate branding must be observed multidisciplinary, combining elements of strategy, communication and culture (Balmer;2001a), and is understood
by the context, of vision, culture and image(Knox & Bickerton;2003). Therefore,
corporate branding is based on the interaction of three elements:
a) strategic vision – is the central idea of a company that incorporates and expresses the managerial aspirations
b) organisational culture – the internal values, beliefs and assumptions that
make up the company and communication skills
c) corporate image - a common impressions of the company which include
consumer, public, employees and shareholders aspects

Figure 1. The elements of corporate branding

Source: author

3.1. Brand image, corporate image and corporate identity

Positioning of the brand marks a place that brand occupies in the market. Positioning is not just a product as such, but rather what think of him the target market
customers. Brand awareness in the consumer obtains a certain position and gets his

A HOLISTIC APPROACH TO CORPORATE IDENTITY AND BRAND

353

image. Consumers are sensitive to properties of brand and the perception created
by the promotion. Product position is the result of the perception of consumers
that is influenced by corporate image (Keller & Richey; 2006,75) and depends on
the internal branding (Dowling;1995). Positioning of the brand observed through
the context of brand as a symbol of where it is, according to the strategy of creating
a brand, divided into five factors:
a) properties - qualitative allusions
b) value - the perceptual allusions
c) cultures - qualitative and prestige allusions
d) personality - the essence of the brand.
The term “super brand” alludes to the concept of corporate reputation (Dowling;1995,379). Dowling distinct corporate identity that represents a symbol and
a sign, actually very similar to the definition of trademark, which the organization uses to identify. Corporate image, as a subordinate concept of identity, includes consumer beliefs and emotions, so the overall impressions. And finally,
corporate reputation presents image evaulation which is maintained in the consumer. Using the de Chernatony’s and Segal-Horn’s settings (de Chernatony &
Segal-Horn;2001,665-669), external branding requires a balance between internal
branding to achieve a vision of the brand. Corporate brand reflects the corporate
personality and develops properties of the corporation.
However, Kotler and Keller define positioning as an act of forming supply and
corporate image so that it takes a special place in the minds of consumers in the
target market (Kotler & Keller; 2008,310). Keller’s model of development of brand
strength (Keller et al; 2008,57), Customer-Based Brand Equity (CBBE) which includes the brand’s personality, image and brand identity, a way in which knowledge
of the brands affected by the reaction of consumers in relation to the presentation
of the brand. Brand image, as the last part of Aaker’s model of brand positioning,
always reflects the current perception of the brand, therefore, includes three distinctive features of communication:
a) extended image
b)increased and used image
c) soft and extensive image.

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Dinko Jukić • Božica Dunković

Extended image indicates a situation where the brand identity does not match
the brand image, which is usually the case in demographic segmentation. In this
case, brand identity, its visual elements and symbolism, they must expand associativity under the condition not to disturb the existing core brands. In contrast to
the extended image, amplified and used image includes a specific added association
that consumers are developing. However, the brand image should not be assigned
a position in the market. Increased image enhances the brand’s personality (Aaker;
1997,347-357). Soft and extensive image is actually the opposite of increased and
used image and the occurrence of mixing segments of the consumer tells us that
brand image is not always well integrated into marketing communications. Such
transfer of consumer categories in the post-modern marketing is actually normal,
because the consumer trends change, so accordingly, and brand image must be
adjusted.
Brand identity includes a message which brand transmits through the name,
visual and audio elements, and advertising. Brand identity is not the same as brand
image, because image includes the beliefs and feelings toward specific brands and
consumer impression. The very essence of brand identity is based on three levels (Kapferer; 2008,42-47): the core brand, brand style and branding issues. The
brand core is the very essence of the brand , and its fundamental genetic code
(Smith;2003,99) that eventually builds and repairs. Brand style indicates culture
of brand transmitting the totality of brand value, personality and brand image and
its reflection on the consumer. Brand topic includes how to communicate through
advertising, physical appearance, reflection and the relationship.
There is a key difference between corporate branding and corporate identity. The
concept of corporate identity refers to the different properties of the organization.
However, corporate identity is necessary dependent on corporate brands (Balmer
& Gray; 2003,980). Corporate identity also includes a message transmitting by
corporate brand and he is, looking at it in terms of brand performance, constantly
developing, unlike the corporate brand. Also, the focus of corporate identity is
based on external stakeholders, unlike the internal stakeholders. Core of corporate brand is an explicit covenant between an organisation and its key stakeholder
groups, including customers(Balmer; 2001a). This covenant can be viewed as a
promise that sets the brand (Kapferer; 2008) or so called. “brand mantras”(Keller;
1999,43).

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A HOLISTIC APPROACH TO CORPORATE IDENTITY AND BRAND

Table 3. Usporedba korporativnih i proizvodnih karakteristika marke
Corporate
brand
Organizational
identity

Product
brand

Corporate
identity

Brand
identity

Corporate
image

Brand
image

Brand identity

Visual

All elements

Association

Association

Cultural mix

Marketing
mix

Goodwill

Symbol

Business
identities

Brand
essence

CCITE model

CBBE model

Corporate
reputation
Corporate
image

Perceived
quality
Brand image

Corporate
Brand
personality
personality
Corporate
Brand culture
culture
Corporate
Marketing
communication communication

Source: author

4. CONCLUSION

Corporate brand, as it enters the sphere of management, can provide sustainable competitive advantage to companies, if understood as a form of organizational
identity that transcends the setting of brand management. However, in order to
achieve corporate branding it is necessary to to pay attention to organizational
behavior which is evident at all levels, especially in interaction with customers,
clients and stakeholders. A successful corporate brand is formed on the relation between strategic vision, brand image and organizational culture (Hatch & Schultz;
2003,1045). The concept developed by Balmer in order to show the properties
of so called corporate brand CCIT is a mix of corporate marketing and corporate communications. In corporate reputation we find links between the internal
branding, corporate image and employees and benefits of brand design themselves.
The interaction with the customer is important for internal corporate image building, and relationship with the consumer
The concept of corporate branding must be considered multidisciplinary, combining elements of strategy, communication and culture (Balmer;2001a), and is being realized through the context of the vision, culture and image. The success of the
brand is closely associated with the employee’s behavior, and corporate reputation
(Motion et al;2003,1081),represents image evaluation that is retained in consumer.
Corporate brand is characterized through its existence and activity, and reflects
the values and actions of employees, both individually and collectively. Corporate
branding is a holistic approach to creating brand personality, corporate reputation,

356

Dinko Jukić • Božica Dunković

image and identity that reflects the society. Or simpler, Vultus est index animi (The
expression on one’s face is a sign of the soul). (Balmer & Gray;2003,991).
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STRATEGIC SOURCING IN SUPPLY CHAIN MANAGEMENT - CONTEMPORARY MODELS ...

359

STRATEGIC SOURCING IN SUPPLY CHAIN MANAGEMENT CONTEMPORARY MODELS OF SOURCING STRATEGIES1
Davor Dujak, M.Sc., Faculty of Economics in Osijek
ddujak@efos.hr

Abstract

Sourcing is one of four key groups of activities in the modern supply chain
management (Plan - Source - Make - Deliver) whose significance is growing each
day due to today’s highly variable economic conditions and even more unpredictable demand. Sourcing activities are seen through a phases of strategic sourcing
process as a key process of supply chain management. The most important stage of
the strategic sourcing process is the selection of sourcing strategies that will affect
all other activities at the firm. In the last twenty years there has been development
of numerous variations of sourcing strategies that reach the full range of complete
insourcing to complete outsourcing of a manufacturing or service processes.
The goal of this paper is to highlight the growing importance of choosing proper
sourcing strategies, and to offer for consideration contemporary models of sourcing strategies, their main advantages and disadvantages, and recommendations for
implementation.
JEL classification: L1
Key words: sourcing, supply chain management, sourcing strategies models,
insourcing, outsourcing
1. INTRODUCTION

Development of collaboration with business partners is essential for success in
performing today’s contemporary business activities. Supply chain management
(SCM) is managerial conception built on collaboration in activities of improving
1

this paper is part of project “Retail trade in value chain of food”, 010-0000000-3353, funded by
Ministry of science, education and sports of the Republic of Croatia

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flow (physical, informational, value) that are taking place between supply chain
members. Hill gave a comprehensive definition of SCM as activities required to
manage the flow of materials, information, people, and money from the suppliers’ suppliers to the customers’ customers. SCM is the integration of and coordination between a
number of traditional business functions, including purchasing, operations, transportation/distribution/logistics, marketing/sales, and information systems (Hill; 2010, 314).
Sourcing is one of four key groups of activities in the modern supply chain management (Plan - Source - Make - Deliver) whose significance is growing each day
due to today’s highly variable economic conditions and even more unpredictable
demand. Sourcing activities are seen through a phases of strategic sourcing process.
The most important stage of the strategic sourcing process is the selection of sourcing strategies that will affect all other activities at the firm. This paper is aimed to
highlight the growing importance of choosing proper sourcing strategies, and to
offer for consideration contemporary models of sourcing strategies, their main advantages and disadvantages, and recommendations for implementation.
2. SOURCING IN SUPPLY CHAIN MANAGEMENT

Certainly one of the most important steps in establishing a successful supply
chain management are sourcing activities. The term “sourcing” is often equated
with the term “procurement”. But in principle, two different approaches to relation
of these two concepts are:
1) sourcing as an umbrella term that implies a broader process than procurement (wider view), and
2) sourcing as a process which precedes the procurement (narrower view), and
is a part of Supplier Relationship Management (SRM).
First view is much more expanded and according to numerous authors (mostly
from areas of supply chain management), sourcing has a wider scope of procurement. Sourcing is the entire set of business processes required to purchase goods and
services (Chopra & Meindl; 2010, str. 392). In the literature the concept of “strategic sourcing” is widely used (Ray, 2010; Lambert, et al., 2008; Ayers & Odegaard,
2008; Da Rold & Berg, 2003). In their definition, Ayers and Odegaard emphasize
a broader look at sourcing than just the orientation on the purchase transaction,
and state that strategic sourcing is the use of the overall acquisition function as a tool
for strategic improvement rather than one focused on transaction only. Involves both cost
reduction from better purchasing and effective partnerships across the supply chain (Ayers & Odegaard; 2008, 392).

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Sourcing can also be seen from the angle of the SRM. Sourcing is a part, and
significant factor of SRM (Ray; 2010, 220-221). Specifically, as is evident from
Figure 1, strategic sourcing, procurement and financial arrangements are constitutional parts of SRM.

Figure 1. Difference between purchasing, procurement, strategic sourcing and Supplier Relationship Management
Purchasing
(Transaction)

Procurement
(Transaction and
Post Transaction)

Strategic Sourcing
(Pre Transaction)

SRM
(Pre Transaction,
Transaction and
Post Transaction)

•Research: analysis
spend, market

•Purchasing
Transaction to
buy product
/services

•Materials
management
i.e. goods
receipt, quality
inspection

• Develop sourcing
strategy
• Supplier qualification:
identification and
evaluation
• Supplier negotiation

•Strategic
sourcing

•Procurement

•Financial
Settlement

• Contract management
• Manage and develop
suppliers
• Collaborative design

Source: (Ray; 2010, 221)
It is important to emphasize that according to the author, the act of purchasing
applies only to the period of the transaction, procurement (as a broader term) applies to the period of the transaction, and after the transaction, while sourcing is responsible for what happens before the transaction. Consequently, SRM includes all
activities in relations with suppliers that occur before, during and after the transaction (Ray; 2010, 220). Lambert et al (2008) also involve sourcing in SRM strategic
and operational sub-processes. This is of special significance because precisely SRM
and CRM (Customer Relationship Management) are key SCM processes that form
critical relationships that connect companies in supply chain.
From the above-mentioned different views it can be concluded that sourcing
are all activities of organizations that aim to find, select, and provide long-term
sources of specific products and/or services necessary for transformational
process.

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3. STRATEGIC SOURCING DECISIONS

There are several classifications of sourcing processes/activities, but they all encompass same area that is divided into different number of elements (Ray, 2010,
224; Chopra & Meindl, 2010, 393; Da Rold & Berg, 2003, 7; Monczka, Handfield, & Giunipero, 2009, 230). Common phase to all classifications is the decision
(or decisions) of whether a product or service (or his / her part) to provide internally
(within the firm) or externally from the supply chain partners. These strategic decisions are made on high-level of organization, often for a long period and called
sourcing decisions. Sourcing decision are also known as make or buy, insourcing or
outsourcing, in-house or outsource decisions. Sourcing decisions significantly impacts
the competitiveness of companies and if they are taken too quickly and without
sufficient consideration of all possible consequences, can lead to company business
failure (e.g. loss of core competencies or because of outsourcing activities to a supplier who cannot meet the requirements of our customers). That is a reason why
cross-functional teams are needed to make sourcing decisions, that will take into
account different considerations from long-term business strategy of a company to
in-depth cost analysis, as much as numerous other factors (Handfield & Nichols;
2002, 117 - 118).
Very notion of outsourcing, simply defines Professor Hill as buying products
and services from a supplier that is not owned by a firm (Hill, 2010, 220). What appears as a major issue in outsourcing is why the company would buy the product
or service outside of their company from a third party? The answer is because the
third party increases the value for the company and for the supply chain more than
they could do themselves! Increasing value is not only through decreased price, but
also through enhancing different quality aspects, cycle speed or other characteristics important for customer, company and whole supply chain. Different ways of
«growing the surplus» (other through increasing value or decreasing cost) in supply
chain are aggregation of capacity, inventory, transportation by transportation intermediaries or storage intermediaries, aggregation of warehousing, procurement,
information, receivables and relationships (Chopra & Meindl; 2010, 394-397).
We should bear in mind that the value companies receive from outsourcing to a
third party, is depending on (Chopra & Meindl, 2010, str. 398):
a) scale of product or service outsourced - third party will provide a higher value
if the volume (quantity) of outsourced products or services is smaller,

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b) uncertainty of company needs - third party always provide a higher value
through outsourcing for the company if the demand is less predictable (and
less secure).
c) specificity of assets required by the third party - if a company seek for extremely specific goods that do not require other companies, third party will
provide a lower value because it actually holds only the quantity of goods
(services) that company seeks.
In real situations companies should take into account all three factors that may
simultaneously affect the outsourcing of an item and weigh the value that third
party provides.
The decision on outsourcing of some functions is not made only at the start
of operations of a company. This decision may be also initiated in the following
situations (Handfield & Nichols; 2002, 118-121):
a) development of new product - usually it is a technology or process with
which the company is not familiar and is part of a new product or service
(does not possess the machinery and / or know-how so they outsource it);
b) strategy development - new directions for the company determined by its
top management may require some outsourcing (for example, the decision to
focus on the most cost-effective);
c) poor internal or external performance - new decision whether to outsource
can result from poor achievement of certain suppliers or some internal part
of company (they do not meet the target achievement);
d) changing demand patterns - if there is a significant decrease in demand for
certain products / services, the company will consider outsourcing to specialized third party, and vice versa;
e) shifting technology life cycle - if the life cycle of technology (from the perspective of users of the same this is time from the introduction to the moment when it is no longer viable and must be replaced with a new improved
technology) is a relatively long2, for company is worth investing in it because
company expect that it will return the investment in it. But if the technology
life cycle is short, usually it is better to outsource to specialized third party

2

long life cycle of technology is enabled by low rate of technological change in industry, while the
short life cycle is characterized by high rates of technological change

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In all these cases of deciding whether to outsource it is necessary to know what
the company cannot give in outsourcing. These are core competences. Core
competences are defined by Coyne, Hall and Clifford as combination of complementary skills and knowledge bases embedded in a group or team that results in
the ability to execute one or more critical processes to a world-class standard3. Core
competence is not a product or service, but rather the processes, abilities, and unique
attributes that allow the organization to develop and deliver differentiated “core products” (Hill; 2010, 74). What is also interesting is that the core component capability of a company can change over time, and usually has to be changed in response
to the environment (primarily competition) which is also constantly changing in
order to achieve better results.
4. SOURCING STRATEGIES

After making insourcing or outsourcing decision, company must develop sourcing strategy. Sourcing strategy is the set of scenarios, plans, directives and decisions that
dynamically defines and integrates the internal and external resources and services required to continuously fulfill an enterprise’s business objectives (Da Rold & Berg; 2003,
7). Sourcing strategy is actually a further development of sourcing decisions where
company selects the best of many alternatives. These alternatives are different combinations ranging between insourcing and outsourcing decisions. Two important
classifications of sourcing strategies and one map of sourcing opportunities will be
discussed.
Most common classification of sourcing strategies is based on the number of
suppliers to whom company outsource its product or service related process. Handfield and Bozarth recognize four major sourcing strategies (Bozarth & Handfield;
2006, 302-304):
a) single sourcing,
b) multiple sourcing,
c) cross sourcing,
d) dual sourcing.

3 Coyne, K.p., Hall, S.J.D., Clifford, P.G.(1997): «Is your core competence A MIRAGE?»,
McKinsey Quarterly, 1, 40-54 citirano prema (Hill; 2010, 74)

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When starting outsourcing, company can decide on the strategy of buying almost all of a particular product or service from only one company and that strategy
is called single sourcing. If the buying company decides to purchase the same product or service from multiple vendors, then we are talking about multiple sourcing.
An interesting choice is cross sourcing strategy, because in this case the company for
a specific part or service is using one supplier (single) in one area of businesses, and
other supplier with equal opportunity for a similar part or a service in another area
of business. Each supplier is rewarded with a new job (new orders) on the basis of
its achievements thus creating incentives for both suppliers. A simpler version is the
dual sourcing strategy in which to purchase the same product or service company is
using two suppliers. One does have the advantage, and from him company acquires
70% of the required amount, while another supplier receives orders for about 30%
of the required amount. This will ensure constant readiness and vigilance of “main”
supplier (because he knows that there is competition that “blows to the neck”),
while also encouraging “supplier companion” in the best achievements in order to
obtain a greater percentage of orders.
Second classification is made by Gartner, Inc., world’s leading information technology research and advisory company. Basis of their classification is combination
of number of suppliers and portion of outsourced product or service in the total
volume of products needed. In excellent Gartner research, the authors observed a
shift from the past when companies who wanted to outsource used only full outsourcing, to the present practice that has created various transitional models, so
companies usually uses so called selective outsourcing. As a result of their study,
the authors state that sourcing is a much more complex decision, and identify eight
sourcing models, which they say are actually models of relationships, and are therefore applicable to different business and IT processes (Da Rold & Berg; 2003, 8).
Each of these models shown in Figure 2 represents a different balance of relations
between the service recipient (client) and service providers (regardless of whether
he is inside or outside the company).

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Figure 2 The sourcing strategies space and the sourcing models
(Demand management and sourcing governance)

Multiple players /
open market

Multisourcing

Brand service
company

Competition level

Prime
contractor

Best-of-breed
consortium

Joint venture

Single player /
captive market

Internal
delivery

In-house

Insourcing or
shared services

Build vs. Buy

Full outsourcing

Outsourcing

Source: (Da Rold & Berg; 2003, 9)

As stated earlier, these models are developed in relationship to two significant
organizational variables, that are also axis of coordinate system constitute sourcing
strategies space. Ordinate shows the level of competitiveness, i.e. the number of
suppliers for outsourcing. On the abscissa is Build or Buy (Make or Buy) decision,
which represents the level of organization will to outsource (portion of outsourced product or service in the total volume of products needed). Basic description
of these eight sourcing strategies models can be found below (Da Rold & Berg;
2003,12-13):
1. Internal delivery – all services and products are provided through internal
organization, and their new projects. This is most flexible model but with limited
opportunities for economies of scale and acquiring new knowledge
2. Multisourcing – or “selective outsourcing”, where companies look for bestof-breed services and products to establish contract for, mostly IT sourcing

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3. Insourcing – or “shared services”, is creating new separate but organizationowned business unit that will provide parent organization with services according
to semiformal contracts, service-level agreements or similar arrangements
4. Joint venture – in collaboration with a market provider, organization builds
a separate service company and shares it with him. Usually, this partner (external
service provider) gets majority of joint venture shares that allows him managing of
new company.
5. Full outsourcing – or “classic outsourcing model” is done with only one
external service provider for majority of services. One long-duration contract is
usually signed (five to ten years).
6. Best-of-breed consortia – consortium of external service providers that arises
when one providers’ capabilities cannot satisfy client requirements. Usually one of
external service providers takes the role of main contractor
7. Brand services company – this model is similar to insourcing model, but
newly establish service company serves as certain intermediary between a large organization or even a group of companies, and lot of external service providers on
the market. This company selectively outsources part of their services to the best
external service provider, ensuring best services for their parent organization, or for
other clients on the market.
8. Prime contractor – this is a company that manages multiple external service
providers and integrates their different services into one tailor service for its client
It is necessary to point out that there is no “one perfect model” (a perfect sourcing strategy) for the company, which will permanently solve the problem of sourcing decisions. As the market situation changes, and thus the market power of companies which decides changes, and in line with its overall business strategy it is
necessary to review, adapt and use these sourcing models / strategies.
An interesting model is provided in an article published in Harvard Business
Review (Gottfredson, Puryear, & Phillips; 2005). The authors propose using this
model to decide which function or process to outsource. By putting it in relation
to the proprietary nature of the process or function (feature on the ordinate), and
the uniqueness of the process or function of the market (mark on the abscissa) they
construct sourcing opportunities map.

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Figure 3 Sourcing opportunities map
High Priority:

Not
proprietary

Strong outsourcing
candidates

functionprocess
of
nature

Data are
proprietary

Medium Priority:
outsourcing opportunities dependent
on industry and company dynamics
Business process
is proprietary

Profit model is
proprietary

LowPriority:

Proprietary

Captive sourcing candidates

Unique to self

Common across
industries

Uniqueness of business process or function

Source: (Gottfredson, Puryear, & Phillips; 2005, 138)

With this map it is possible to determine the potential of business functions or
processes, and thus decide which functions or processes, and what proportion to
keep under their own control. The function will be better candidate for outsourcing if the company’s ownership stake is smaller, and if it is more common in the
market (less unique).
4. CONCLUSION

Under constant pressure of dynamic market and ever changing customer requirements, sourcing strategies are becoming more and more important issue for
collaboration in SCM. As companies are turning to outsourcing as a solution for
most effective way of doing business, they face different issues related to potential number of suppliers (third parties), amount (or portion) of product or service
to outsource, and type of relationship with a third party. To successfully navigate
through sourcing process, key factors are truly exploring of the possible alternatives

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(sourcing strategies) in the implementation of outsourcing and their positive and
negative sides. Companies could use different sourcing strategies to find winning
combination, and they shouldn’t stop doing it as long as they are on the market.
Bibliography

Ayers, J. B., & Odegaard, M. A. (2008). Retail Supply Chain Management. New
York, London: Auerbach Publications, Taylor & Francis Group., ISBN 978-08493-9052-4
Bozarth, C. C., & Handfield, R. B. (2006). Introduction to Operations and Supply
Chain Management. Upper Sadle River, New Jersey: Pearson Education, Inc. ISBN
0-13-944620-6
Chopra, S., & Meindl, P. (2010). Supply Chain Management : Strategy, Planning,
and Operation (4th Edition ed.). Upper Sadle River, New Jersey, USA: Pearson
Education, Inc., Prentice Hall., ISBN 978-0-13-608040-4
Da Rold, C., & Berg, T. (2003). Sourcing Strategies: Relationships Models and Case
Studies, Strategic Analysis Report. Gartner, Inc. Gartner Research., available at
http://www.gartner.com/DisplayDocument?doc_cd=113035&ref=g_fromdoc (accessed 11-06-2010)
Gottfredson, M., Puryear, R., & Phillips, S. (2005). Strategic Sourcing - From Periphery to the Core. Harvard Business Review , 132-139., available at http://web.ebscohost.com.floyd.lib.umn.edu/ehost/pdfviewer/pdfviewer?hid=119&sid=ac55b4112c2f-47af-9a6f-977c22890f99%40sessionmgr111&vid=3 (accessed 11-03-2011)
Handfield, R. B., & Nichols, E. L. (2002). Supply Chain Redesign : Transforming
Supply Chains into Integrated Value Systems. Uper Saddle River, New Jersey: Financial Times Prentice Hall., ISBN 0-13-060312-0
Hill, A. V. (2010). The Encyclopedia of Operations Management - 2010 Edition : A
field manual and encyclopedic glossary of operations management terms and concepts.
Clamshell Beach Press., ISBN 978-0-9793105-2-2
Lambert, D. M., Garcia-Dastugue, S. J., Croxton, K. L., Knemeyer, M. A., Rogers, D. S., Goldsby, T. J., et al. (2008). Supply Chain Management. in D. M.
Lambert, S. J. Garcia-Dastugue, K. L. Croxton, M. A. Knemeyer, D. S. Rogers, T.
J. Goldsby, et al., & D. M. Lambert (Ed.), Supply Chain Management : Processes,

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Partnerships, Performance. Sarasota, Florida: Supply Chain Management Institute.,
ISBN 978-0-9759949-3-1
Monczka, R. M., Handfield, R. B., & Giunipero, L. c. (2009). Purchasing and Supply Chain Management (4th Edition ed.). (J. W. Calhoun, Ed.) South Weastern,
Cengage Learning., ISBN 978-0-324-38134-4
Ray, R. (2010). Supply Chain Management for Retailing. New Delhi, India: Tata
McGraw Hill Education Private Limited., ISBN 978-0-07-068210-8

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CHANGE MANAGEMENT IN ACADEMIC INSTITUTIONS –
PROS AND CONS OF THE BOLOGNA PROCESS
Dr. sc. Kata Ivić
Faculty of Economics in Osijek

Abstract

Globalisation processes and the wealth of information have become a part of
our daily life and work, thus resulting in the general occurrence of “knowledge and
information society”. The existing educational programmes at the secondary and
especially higher education level can no longer meet the growing needs of science
and education. An educational reform and the development of a new education
paradigm have become a necessity. The Bologna process has become one of the answers to the challenges of the new education paradigm in Europe. Reorganisation
and restructuring of academic institutions, universities and faculties in Europe has
been systematically carried out as the Bologna process. Nevertheless, this ongoing
process is neither unambiguous nor without problems. This process of a continuous knowledge and educational process management has put forward certain hypotheses of competitive advantages of knowledge acquisition, the creation of new
organizational advantages in knowledge management, as well as the highest level of
efficacy in implementing new findings.
Knowledge management requires all stakeholders (teachers and students) to use
economic categories in the educational process. Intellectual capital represents the
totality of knowledge and abilities of teachers, scientists, experts and students in
academic institutions. Intellectual capital is simultaneously the initial step in the
educational process and the factor that can effectively contribute to the creation
and development of new competitive advantages of an academic institution, university or faculty. Financial capital, without which it is impossible to organise the
process of higher education, is at the heart of each economic activity. In the Bologna process, it guides the successful implementation of the new higher education
paradigm. The reform of the existing knowledge is always a challenge – how to
effectively transfer new knowledge into a new organisational structure.
Keywords: change management, Bologna process, higher education, academic
institutions, university

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Kata Ivić

1. Introduction

Being under pressure of overall changes in general as well as their own attitude toward future, academic institutions, universities and faculties are building
a unique system of higher education in Europe. By uniting Europe according to
the principles of positive viewpoints of the European Union, European academic
institutions follow the set goals for building of united Europe and reform of higher
education cycle. The Lisbon strategy published in 2000 was preceded by the Sorbonne Declaration in 1998, the Bologna Declaration in 1999 and the latest one,
the Prague Declaration, was published in 2001. Although not all of the strategies
and policies of the European Union related to higher education were successful, in
the end they have still produced some positive results. Changes cannot be stopped,
but accepting changes and good change management as well as cohesion policy
in the European area contributes to new adaptations to changes on a daily basis,
successful dealing with the global economic crisis, creating better condition for innovation, research and scientific work, and building of additional education levels.
The Programme of the Lisbon Treaty Strategy includes higher education, research,
innovation, social policy, market and competitiveness, environmental protection,
etc.
Good information links, i.e. networking and successfully organized communication in every academic community, internally at first, but also externally, at the
level of environment, is a prerequisite of successful implementation of new organizational changes.
A relatively new paradigm of knowledge management leads us to the source of
information and new determinants of intellectual capital.
Transformation of the existing, acquired knowledge is always a challenge for a
new, more successful organizational form, which can be expressed by hypotheses
based on:
- Knowledge management
- Competitive advantages
- Building of a unique higher education system.
Knowledge management from the viewpoint of academic institutions is analyzed and understood as a process of continuous knowledge management. There
were some more determinants that have contributed to building and implemen-

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373

tation of the Bologna process in European academic institutions, institutions of
higher learning.
The knowledge management system can be identified as a process of gathering
and analyzing of gathered data with the purpose of good planning, making and
implementing decisions as well as efficient and successful organization of academic
activity. One should here bear in mind the specific qualities owned by intellectual
capital. Power of knowledge is here reflected in integrated approach of identification, management and exchange of all information possibilities, including classic forms of information (all sorts of documents, series and monographies, and
similar), electronic information in the form of databases; studies (expert opinions),
and, what is very important in academic life – experience of eminent professors,
scientists, participants in the process of academic education and organization of
academic life for years.
2. Intellectual capital – the starting point of academic process

Intellectual capital has always been the primary unavoidable factor in organization of an academic process. Changes accepted within the Bologna process in academic activities had to respect, among other, the market value of an institution, as
follows: financial capital, i.e. material values that academic community possesses.
On the other side there is an intellectual capital, which is recognized as capital of
knowledge and experience owned by holders of academic education (professors,
scientists, experts) on one side; and organizational structure within which the institution realizes its activity on the other side. According to Figure 1, organizational
capital may be analyzed as the process capital and the innovation capital. Innovation
is a key lever which contributed to development and acceptance of entirely new hypotheses of development and organization of academic life and work. Participants
in the new process, along with initiators and strategy makers, are in the middle, as
well as those who are “implementers” of the planned reform of academic education.
The 20-year long period of reform and reorganization of European universities offers possibilities, but it also creates the need for certain analyses of academic life and
work in conditions of Bologna Declaration implementation. This is also an opportunity to observe not only positive, but also negative phenomena which follow the
process of implementing the determinants of the Bologna Process.
In light of the Bologna, market and organization of academic institutions that
respect the market patterns as well as supply and demand patterns are mentioned

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increasingly often. The market value of an academic institution has two types
of capital: financial and intellectual. As Croatian universities are financed from
government funds (Ministry of Science, Education and Sports), only additional
programmes in the process of higher education can have impact on the increased
financial capital of an academic institution. However, it is intellectual capital that
gives undreamt opportunities to development of academic institutions. According
to the proposed organizational scheme, intellectual capital can be analyzed as human resources, i.e. capital owned by employees of academic institution together
with students, and structural capital which includes organizational structure and
capital which lies in the needs of those who are stakeholders of the academic institution. In addition to the process capital, the capital which has been invested into
organizational structure is an important part of innovation capital. It is the intellectual capital which is invested into finding new, better solutions for academic
community as a whole. Intellectual property, intellectual capital and overall nonmaterial assets of an academic institution have always been the driving force of the
entire university, academic life and work. Implementation of the Bologna process
nowadays in terms of competitiveness and mobility of participants having higher
education gives additional significance to both intellectual and financial capital.

Figure 1. Division of a firm’s market value

market value of a firm
financial capital

intellectual capital
human capital

structural capital

organizational capital
process capital

customer capital

innovation capital

intellectual property

intangible assets

Source: Čater, T.: Knowledge Management as a Means of Developing a Firm’s Competitive Advantage; u: Management, Vol. 6, 2001,
1-2, p. 144, ISSN 1331-0194

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375

Although the proposed scheme has been envisaged for economic operators, it
is still of some value for institutions of higher education as well. The main determinant of the market value is also significant for academic institutions, considering the intellectual capital as an important determinant of successfulness of a new
higher education system.
3. Bologna process – implementation and challenges
(advantages and disadvantages)

Implementation of the new education system in the European Union and other
European countries introducing a new organizational higher education scheme
has been going on for years. This process also brings in its implementation many
new challenges and advantages, but also a range of deficiencies. The content of a
complex process such as Bologna is demanding, multileveled, multilayered, and its
implementation into higher education is neither simple nor limited in time; it is
a long-term and complex process. The current European school system, including
also our, Croatian system, still has elements of the traditional, former system of
higher education. However, in implementation of the Bologna Process some positive determinants of the system can be observed. We experience that system not
only as our own turning point, but also as transformation into a new, more efficient
and mobile system of higher education. The process of implementing the Bologna
Declaration has been gradually developed. The initial steps of the Bologna process
are reflected in the signed Magna Charta Universitatum in 1988 in Bologna, which
was signed by rectors of most of the European universities. It was followed by the
Erfurt Declaration on University Autonomy in 1996 and the University Charter for
Sustainable Development signed in Geneva in 1994. Reconstruction of European
universities, i.e. higher education system started with the signing the Sorbonne
Declaration in 1998 (“Joint Declaration on Harmonization of the Architecture of
the European Higher Education System“). The Bologna Declaration emphasized
the need for strengthening intellectual, cultural, social, scientific and technological
aspects of European society, i.e. for establishing a “Europe of knowledge”. Priorities
that have been placed before higher education system in Europe are:
“ - social dimension: equitable access and completion,
lifelong learning,
employability,

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Kata Ivić

student-centred learning and teaching mission of higher education,
education, research and innovation,
international openness,
mobility,
data collection
multidimensional transparency tools,
funding”.
The implementation of the Bologna process in countries participating in the
Bologna reform has brought certain progress, but there are also numerous difficulties. The main issues in the work plan and programme of the Bologna process for
the period 2009-2012 are:
“ - Social Dimension
Qualifications Frameworks
International Openness
Mobility
Recognition
Reporting on the Implementation Bologna Process
Transparency Mechanisms”(4)
Continuity of processes and application of the Bologna process has been implemented in an increasing number of European countries. According to Figure 2, the
Bologna process is implemented into an interactive process in institutions of higher
education involved in reorganization of institutions of higher education. Change
management has positive impact not only on institutions within the system, but
also on the development of cultural, social and economic determinants as well as
the transparency of the process in terms of harmonization of academic education
process in participating countries.

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Source: High Educ (2008) 56, p. 500 (5)

According to the National Council for Higher Education, the Bologna process
in the Republic of Croatia does the following:
- Proposes and encourages measures for the development of higher education;
- Proposes a network scheme of public higher education institutions;
- Approves the conditions of the Rectors’ Conference and the Council of Polytechnics and for obtaining academic-educational, artistics-educational and
educational titles;
- proposel to the minister of education rules on standars and criteria for establishment and evaluation of new higher education institutions and study
programs;
- Appoints reviewers and advises on the establishment of new higher education
institution and programmes of study;
- Evaluates institutions and programmes of study and proposes the issuance of
licences to the Minister.”
Introduction of a radically new system into a centuries-old European tradition
of universities and higher education always brings dilemmas and questioning to
the participants of the process (to professors and assistants, and even more to students). However, it is unquestionable that advantages of implementing the Bologna
process have multiple meanings and they cannot be immediately seen as a whole.
Resistance toward the new European university system has acquired negative connotations on many European universities. According to critics, the negative features of the Bologna process are:

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- The traditional university has been brought to the level of professional and
vocational courses,
- New programmes have been imposed on the universities (for example, 3+2
system)
- Democratization and emancipation of the university has ultimately proved as
simple manoeuvres leading the university into the situation with no way out,
- Higher education institutions require additional funds and conditions which
are not present at our universities (seminar halls, material resources for a larger
group of students, etc.),
- grading system based on ECTS points which still allows grading as it was done
in the past (1 – 5),
- mobility (of students and teaching staff) which has been accepted according to
the Bologna process, but not fully implemented,
- “The tragedy that happened owing to ideologization and politisation in the
past century repeated now, considering its economization – but as a farce.
Large words that follow establishing of European high education space cannot
provide comfort with that farce. But it could happen at the end of the Bologna process the farce becomes a social and political as well as educational and
political tragedy again.”7
Structural changes of introducing a new system of higher education in form
of the Bologna process demand constant care about achieving the quality of intellectual work at all organizational levels within academic community. What is
recognizable in the process of achieving certain quality is the respect for an individual’s creativity (professors and students), and proper evaluation of individual
(intellectual) work. The Bologna process demands us to build a new and an entirely
independent evaluation system. Unfortunately, organizational design of academic
institutions according to the determinants of the Bologna process, cannot work
without obstacles and organizational problems. Constant adjusting and partially
falling behind the development guidelines should be made up by applying a certain
work plan for more efficient implementation of the Bologna process. Several work
groups have been established with certain tasks for the period 2009-2012. They are
in charge of implementing tasks according to: social circumstances, qualification
framework, international openness and mobility of participants in the Bologna
process.

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379

4. Conclusion

Advantages of implementing a new system in institutions of higher education
and universities are subject to much criticism. Bologna process, regardless of the
long European academic and university tradition, organizes a new educational
process in three cycles: undergraduate study, graduate study, postgraduate study.
Doctoral study is an additional programme whose implementation at universities
adds new quality to higher education. Lifelong learning as an integral part of the
programme emphasizes continuity in building and enrichment of intellectual capital. Intellectual property, intellectual capital and entire non-material assets of an
academic institution have always been the driving force of entire university and
academic life and work. Advantages of implementing the Bologna process have
multiple meanings and they cannot be immediately seen as a whole. Resistance
to a new European university system has gained negative connotations at many
European universities. Implementation of the Bologna process today in terms of
competitiveness and mobility of participants in higher education provides additional importance to capital, both intellectual and financial. Implementation of
the Bologna process in countries participating in the Bologna reform brings certain
progress, but there are also numerous difficulties.
References

1. Čater, T.: Knowledge Management as a Means of Developing a Firm’s Competitive Advantage; u: Management, Vol. 6., 2001, 1-2, p. 144, ISSN 1331-0194
2. prema Polić Bobić, M.: Početak i tijek Bolonjskog procesa, Rođenje Europe
znanja, http//docs.google.com (8.3.2011.)
3. http//www.ehea.info/article-details.aspx (3.3.2011)
4. isto (3.3.2011.)
5. Heinze, T.& Knill, Ch.: Analysing the Differential Impact of the Bologna Process: Theoretical Considerations on National Conditions for International Convergence, u: Higher Education, 56. 2008. 493-510. ISSN 0018-1560
6. Orosz, A.: The Bologna Process in Croatia, u: European Education Vol. 40, No.
2. 2008 56., ISSN 1056-4934
7. Liessmann, K. P. (2008.) Teorija neobrazovanosti, Zablude društva znanja, Jesenski i Turk, Zagreb ISBN 978-953-222-285-2

GENERAL
ECONOMICS

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383

PERSPECTIVE OF THE TOURISM DEVELOPING IN ISTRIA
REGARDING GLOBAL TENDENCIES
Zoran Jeremić, univ.spec.oec.
Visoka poslovna škola Višnjan
jeremic_zoran@net.hr
Đankarlo Milokanović, bac.oec.
Visoka poslovna škola Višnjan
d.milokanovic@manero.hr

ABSTRACT
Tourism represents one of the most important economy activities in the region of
Istria.A long-term tourism development in Istria has to take a lot of facts into consideration and the global tendencies in the world tourism is one of the most important
fact. As all other industries tourism was hardly affected due to global financial crisis
and economic recession. But international tourism has recovered faster than expected
and will have a good future in the next period. Also, there are some new tendencies
in the tourist market request such as tourism of the “motivation”, travelling with lowcost companies, make more short travels during the year etc. This article deals with
all these facts and their impact on the tourism development in Istria.
JEL classification: L83, R11
Key words: tourism, Istria, development, global tendencies, tendencies
1. INTRODUCTION

For many areas in the world tourism is one of the most important economy
activities. The same case is with Istria, which is the most important and most developed tourist region in Croatia. Given this importance of tourism to the overall
life in Istria, for his long-term stable development it is necessary to closely monitor
global trends in the development of world tourism. This section applies in particular to tourism demand, which is very elastic, heterogeneous, mobile and extremely
seasonal. Like all other industries, tourism industry was badly hit by the global financial crisis and economic recession in the world. However, international tourism

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Zoran Jeremić • Đankarlo Milokanović

has been able to recover faster than expected time, proved his resilience in the crisis
and it is expected to be one of the world’s major industries in the future. Also, there
are some new trends in demand tourist market such as tourism “motivation”, more
frequent trips with low-cost airlines and more short trips during the year. All these
facts also apply to tourism in Istria, because it is an integral part of international
tourist flows. It is therefore necessary to study and research in detail all these new
elements. Also it is very important to incorporate these elements into the development concept of the Istrian tourism in order to stay the leading tourist region in
this part of Europe. This article deals with all this elements.
2. GENERAL AND GLOBAL TENDENCIES IN THE TOURISM

For further discussion about tourism in the world it is necessary to define the
general settings of the term tourism, determine the global tendencies of development and research the changes in tourist demand.
2.1. General settings of tourism

Tourism is one of the most progressive and dynamic social processes and one
of the most important economy branches in the World. Travel and tourism have
grown today in the world’s largest industry in which many countries see the possibility of solution of problems of growing unemployment, increase exports and
stimulate investment (Bartoluci & Čavlek, 2007, 1). These claims are supported by
the following graph on the movement of international tourist arrivals worldwide:
Graph 1: Trends in international tourist arrivals worldwide in the period since
1995. by year 2010.

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385

Source: World Tourism Organitation (UNWTO), http://www.unwto.org/facts/eng/barometer.htm( 24.02.1011.)

The graph shows that the tourist traffic in the world reached a figure of 935
million international tourist arrivals in year 2010. The conclusion is that million of
people deal daily with phenomenon of tourism and therefore the definition of tourism is not so easy. There are not so many terms in use so often such as terms a tourist and tourism (Dulčić, 2002.3). World Tourism Organization (WTO) defines
tourism as follows: ... tourism is a set of activities of people during their travel and
stay outside his place of habitual residence, without interruption, and no longer
than one year, and for leisure or for business and other reason. From these definitions it follows that tourism comes from the phenomenon of movement of seeing
and experiencing the world. Tourism as a social phenomenon and a special social
relationship, can be the simplest and also the most fully defined as a set of relationships and phenomena arising from the travel and stay of a visitor canter if the team
room is not based as a permanent residence and, if such a room is not connected
to any of their economic activity (Dulčić, 2001.38). This definition is expressed
in all the complexity of tourism as a social phenomenon, and it can be concluded
that tourism will in future be one of the most important drivers of global economic
levers. Based on this definition of tourism there can be observed global trends in the
development of world tourism that must be applied on the Istria tourism as well. .
2.2. Global trends and tendencies in the World travel & tourism industry

For modern tourism it is important to note that it is rapidly spread to an increasing number of participants, both tourists and the countries that receive and

Zoran Jeremić • Đankarlo Milokanović

386

provide tourists. (Ružić,2005,4). Tourism is, due to its specificity and distribution, in constant dynamic change and as such it has a very large role in the global
marketplace. Its strength influence on the process of globalization is particularly
expressed by rate of exchange of economic and cultural impact between tourists
and local communities (Magaš, 2003,7). Based on these processes of globalization,
global tendencies and trends are perceived in travel and tourism industry which
have been shown in the following chart:

Chart 1: Global trends and tendencies in the World travel and tourism industry
Global trends and tendencies in the World
travel & tourism industry
Environments quality become most important factor
in choosing of the tourist destination

Globalization of tourism business

Increase of the population mobility

Increased number of low-cost airline

Better connection between tourist destinations

Changes in the travel art – often and shorter travel

Increase of travel to mega-events

Increase of internet booking

Changes in consumer perception about travel value

Integration of service providers

Increase of traveling with special interests

Increase of “motivation” tourism
Segmentation of tourist markets will become more

Increase of last-minute booking

diverse

Source: composed and rearranged according to Grgona & Senečić, 2006, 306-308, and Razrada master plana turizma za grad
Rovinj-Rovigno, 2010,18.

From the graphic of the global tendencies and trends in the travel and tourism industry it is evident there are lot of changes and lot of diversity in tourism
demand. Consumers in tourism (tourists) are very inhomogeneous group (Grgona
& Senečić, 2006, 14). On this basis, tourist offer of Istria has to build its position
on the global tourism market and the next chapter takes into consideration the correlation between touristic demand and tourist offer.

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3. TOURISM DEVELOPING IN ISTRIA REGARDING GLOBAL TENDENCIES

As the Croatian and Istrian tourism markets are integral parts of the global
tourism market, of course that the above trends and tendencies have a big impact
on relationships and the functioning of the entire tourism industry in our country.
Therefore, it is necessary to research these influences on the tourism in Istria.
3.1. Basic information about Istria tourism

Istria is the most developed and the most important tourist region in Croatia,
which is clearly concluded from the data of tourist traffic in Croatia and Istria for
the year 2010. The share of Istria in the total tourist traffic in Croatia is also clearly
visible from the following graphs:

Graph 2: Share of Istria tourist arrivals in the total Croatian tourist arrivals for year 2010.

Source: made by authors

Graph 3: Share of Istria tourist overnight in the total Croatian tourist overnight for year 2010.

Source: made by authors

Zoran Jeremić • Đankarlo Milokanović

388

The graphs shows that from a total of 10.604.116 tourist arrivals recorded in
Croatia in year 2010, Istria recorded 2.627.918 tourist arrivals, which amounts to
24.78% of the total number. Also, the number of tourist overnights in year 2010 in
Croatia totalled 56.416.379 while Istria accomplished 17.731.881 stays overnight,
which amounts to 31.43% of the total number (Istria tourist board1,2011). The
next important component of tourism in Istria is the schedule of emissive countries
that have shown in the following table:

Table 1: Number of tourist arrivals and overnight stays by country in 2010.year
COUNTRY
GERMANY
SLOVENIA
ITALY
AUSTRIA
NETHERLAND
CZECH
RUSSIA
POLAND
DENMARK
GREAT BRITAIN
HUNGARY
FRANCE
SWITZERLAND
BELGIUM
SWEDEN
SERBIA
CROATIA

NUMBER OF THE
VISITORS
594.267
417.227
394.775
344.612
138.724
99.660
69.481
54.936
38.790
42.726
54.224
50.989
37.042
27.008
27.017
18.760
164.702

NUMBER OF THE
OVERNIGHTS
5.363.404
2.606.117
2.091.809
2.031.186
1.496.535
647.562
698.015
392.825
345.058
301.159
296.449
239.544
229.542
210.196
177.375
124.839
881.868

% OF THE TOTAL OVERNIGHTS
28,39
13,80
11,07
10,75
7,92
3,43
3,70
2,08
1,83
1,59
1,57
1,27
1,22
1,11
0,94
0,66
4,67

Source: Tourist board Istria, http://www.istra.hr/hr/ostalo/pr/statistika/arhiva_2010 (09.03.2011.)

The table shows that the German market is the most important tourist market
for Istrian tourism, because 28.39% of tourists come from there and therefore it
can be called strategic tourism market. Besides, key tourism markets for Istria are
those of Italy, Austria and Netherlands, and markets with high or medium potential for Istria are those of: Russia, France, Great Britain, Slovenia, Scandinavian,
Czech, Hungarian, Poland and Serbia.

1

Source of data: http://www.istra.hr/hr/ostalo/pr/statistika/arhiva_2010 (09.03.2011.)

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389

Graph 4: Schedule of arrivals and overnight stays per month in Istria for year 2010.

Source: made by authors

The next important information about Istrian tourism is shown above in the
Graph 4 and it is the schedule of arrivals and overnight stays per months for year
2010.(Istria tourist board2,2011). The graph shows the greatest affliction of Istrian
tourism, which is too pronounced seasonal tourist traffic because most of the tourist traffic is made in summer months (54.57% of tourist arrivals and 63.50% of
tourist overnight).
3.2. Impact of trends and tendencies of the World travel and tourism industry
on the tourism in Istria

Istrian tourism operates in the global tourism market and therefore all trends
and tendencies of the World travel and tourism industry (set forth on the Chart
1) have a big impact on the development of Istrian tourism as well. This impact is
taken into consideration as follows:
• The quality of the environment and ecology will become the most important
factors in choosing tourist destinations, which means that modern tourists are
choosing a destination definitely considering these factors. A growing awareness of the need to care for the environment will affect the planning policy and
the tourism demand (Jeremić & Mešić, 2007, 117). Istria with its preserved
beaches, clean air and sea may well compete in the global tourist market.
• Globalization of world tourism business has directly affected the business activities in tourism sector in Istria. These changes are primarily manifested in
2

Source of data: http://www.istra.hr/hr/ostalo/pr/statistika/arhiva_2010 (09.03.2011.)

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Zoran Jeremić • Đankarlo Milokanović

the ever more present tendency for consolidation in the agency business and
hospitality industry. It is associated with the grouping and linking providers
vertically and horizontally. From the world’s leading corporations in the Istria
region currently operate Sol Melia, TUI Group and Kempinski Group.
• Increase of the population mobility and increasing number of low-cost airlines
are also significantly contributing to the development of tourism in Istria. A
large number of low-cost airlines like Ryan Air and Germanwings are flying
from Pula airport, but the big problem is that those flights are mainly concentrated in the period of high tourist season.
• Better connection between tourist destinations is also a very important factor.
The construction of Istrian “y road” made Istra good connected with main
road corridors in Europe. The railway infrastructure is totally neglected and
does not provide international connectivity. Pula Airport is connected with
relatively small number of destinations, especially in the off-season period.
• Changes in the art of travelling –the tendency to make more frequent but
shorter trips is favourable because Istria has a good geographic position due
to the proximity of large emissive markets such as northern Italy, Austria and
southern Germany and others.
• Increase of travel to mega-events such as World and European football championships, Olympic games, Formula 1, etc. has more negative impact on the
Istrian tourism, because tourists from emissive countries are occupied with
these manifestation.
• Increase of internet booking brought many positive changes in speed and
realization of the tourism business. This tendency is also in connection with
the increase of last-minute booking. In this domain Istria follows the global
tourism trends. There are operating tourist companies web-sites, booking sites
and destination travel site’s such as web-sites of tourist boards, municipalities,
cities and tourist board of Istria as the main organization of tourism in Istria.
• Changes in the perception of consumers about the value of travel are also becoming an important factor in choosing holiday destination. Value for money
has become a critical factor for guest’s satisfaction and there are some new
products that have a very specific relationship within the principle value for
money and form a separate culture products, distribution, communication
and commercialization. Istria with its tourist resources has the potential to
develop such products.

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• Segmentation of tourist markets is becoming more diverse and one of the
dominant trends in contemporary tourism. World tourism market is not a
homogeneous entity, but it is necessary to recognize that the market consists
of a group of buyers who differ in their needs, habits and behavior. Common
forms include market segmentation: geographic, demographic, and psychographic segmentation based on consumer behavior. This is very important
because the possibility of segmented specialization can significantly extend
the season in Istria.
• Increase of travelling with special interests and increase of “motivation” tourism have also a large part in the World tourism. In this segment Istria has a
lot to offer. Istria is recognized as a destination with a rich gastronomy, wines
and olive oils. Also, Istria offers rich sporting facilities such as bike-tours, tennis, diving, hiking trips, extreme sports, riding and more. Unfortunately, golf
offering with the existence of only one true golf courts in Istria is not enough
and offer in this segment is quite small. Istria has ideal conditions for the development of cultural tourism because of its rich history, culture and cultural
monuments. Mild climate and clean environment offer ideal conditions for
the development of health tourism as well. It is also important to note that
one of the leading publishers of tourist brochures, Lonely Planet published a
list of top cities, regions and countries should be seen in 2011 year and on the
list about regions Istria took a second place.
CONCLUSION:

Tourism will continue to be one of the major industries of the World. Like all
other industries, tourism has gone through a difficult period of global financial crisis and economic recession in the World, but it managed to recover faster than in
the expected time and proved his resilience in the crisis. It was due to the fact that
the modern tourism has been expanding rapidly including an increasing number of
participants, both tourists and the countries receiving and providing tourists. Tourism is due to their specificity and distribution in constant dynamic change and has
a very large role in the global marketplace. These dynamic changes are reflected in
the form of global trends and tendencies in the travel and tourism industry. Those
changes need to be particularly considered in order that the tourist destination is
competitive in the global tourism market. Istria is the Croatian most important
tourist region and all these trends and tendencies have also a significant impact on
the development of tourism in Istria. These trends and tendencies have an impact

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Zoran Jeremić • Đankarlo Milokanović

on tourism in Istria in the growing globalization of the tourism business, increasing population mobility, increasing number of low-cost airlines, better connections between destinations, changes in travel, increasing travel to the mega-event,
an increase in internet bookings, increase in last-minute bookings, changes in the
perception of consumers in relation to value for money during the travel, increasing travel to special interests, rise of tourism motivation and diverse segmentation
of the tourism market. Istria as a modern tourist destination, is trying to respond
to all these trends and tendencies in order to remain competitive in a demanding
international tourist market.
REFERENCE:

Bartoluci, M. & Čavlek,N(2007).Turizam i sport – razvojni aspekti, Školska knjiga, ISBN 978-953-0-30-32-3, Zagreb
Dulčić, A.(2001).Upravljanje razvojem turizma, Mate, ISBN 953-6070-77-4,
Zagreb
Dulčić,A.(2002). Nautički turizam i upravljanje lukom nautičkog turizma, Ekokon,
ISBN953-98920-0-7, Split
Grgona,J. & Senečić,J.(2006).Marketing menadžment u turizmu, Mikrorad, ISBN
953-6286-74-2, Zagreb
Jeremić,Z. & Mešić,A.(2007). Strategic management of the tourist destination
Istria, Zbornik radova Interdiscplinary Management Research III, Barković, D.
& Runzheimer, B. (ur), str. 112-122, ISBN 978-953-253-026-1, Poreč, 2527.09.2006, Ekonomski fakultet u Osijeku & Hochschule Pforzheim University
of Applied Sciences, Osijek
Magaš, D.(2003).Management turističke organizacije i destinacije, Adamić, ISBN
953-6198-39-8, Rijeka
Ružić,P.(2005). Ruralni turizam, Institut za poljoprivredu i turizam, ISBN 95397050-3-7, Pula
http://www.unwto.org/facts/eng/barometer.htm(24.02.2011.)
http://www.mint.hr/default.aspx?id=976(08.03.2011.)
http://www.istra.hr/hr/ostalo/pr/statistika/arhiva_2010 (09.03.2011.)
Razrada master plana turizma za grad Rovinj-Rovigno(2010)

MICROECONOMICS,
MACROECONOMICS
AND

MONETARY
ECONOMICS

ECONOMIC SYSTEMS AND DEVELOPMENT

395

ECONOMIC SYSTEMS AND DEVELOPMENT
Octavian Jula
Department of Economics
Faculty of Economics and Business Administration
Babes Bolyai University
Cluj Napoca, ROMANIA

Abstract

The paper aims to stress if a certain economic model can lead towards economic
development. We will try to understand and explain if certain economic measures
taken by well developed countries can be used by emerging countries.
We will take into consideration along the public policies also the influence of
foreign trade into development of different countries.
Is it possible that one country to have economic decrease and in the same time
to have an important increase in the international trade? Seems like the answer in
the case of certain Eastern European Countries to be yes.
Even so it is a matter of reestablishing importance of different fields in national
economies in order to use the outcome in increasing the level of well-being of
individuals.
Can we create a public policy that will support the development using the vehicle of exports? Can this be the solution for decreasing deficits and be a start for a
new development even in conditions of economic crisis?
JEL classification: O1, P10
Keywords: Economic systems, development
1. Public policies

What is more important in the development of one country? What should be
the final goal? Our opinion is that the most important thing is the level of wellbeing of all citizens within a geographical and economic space.

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Octavian Jula

This being said the next step that we should take into account is the size and
shape of the economy defined as public or private sector. For sure if it would be to
define the type of economy that will probably determine the highest benefit of its
citizens the answer cannot be 100% public or 100% private. From the experience
of the countries that are the most developed in the matter of the well-being of its
citizens we can say that the wealthiest countries and the countries with the highest
living hope are experiencing a mixture of public and private economy.
Of course the percentage of the national economy for those two major parts is
very different from country to country. But what can be very obvious if we analyze
the top economies is that the one’s to have the minimum percentage of the public
spending policy will direct those public investments exactly to those sectors of the
national economy onto which the beneficiaries of this public sector are the highest
in number.
We can make a comparison between the percentage of public spending in GDP
and the real GDP per individual and also the living hope and the result will be
striking.
For instance if we need to make a comment on the evolution of the public sector as percentage of GDP we can easy say that, with the exception of the periods
in which the world has experienced the two World Wars the public sector has a big
and huge increase into the last 100 years.
You can see below the example of UK public spending as percentage of GDP.
The analysis is providing the proof that the public sector basically doubled from
20% to 42-43% in 2010. This is also valid for USA. Why have I taken into account
those two countries?
Well let me say that between the countries to have the highest living standard
the two countries are considered to be the most liberal countries in organizing the
economy
In the graphs below you can see the development of the public sector.

ECONOMIC SYSTEMS AND DEVELOPMENT

397

Graph 1
UK Public Spending as % of GDP – 100 years

Source: CIA factbook

Graph 1
US Public Spending as % of GDP – 100 years

Source: CIA factbook

And if we take into account only the last 10 years the increase is even higher.
Why this happened?

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Octavian Jula

Maybe from the need of governments to finance the budget deficits or maybe in
order to try to try a new path of the national economies, a path that will lead to a
higher dependency of the individuals to the national entities and also to ensure the
power of national governments in respect to the irreversible process of globalization.

Graph 3
UK Public Spending as % of GDP – 10 years

Source: CIA factbook

Graph 4
US Public Spending as % of GDP – 10 years

Source: CIA factbook

ECONOMIC SYSTEMS AND DEVELOPMENT

399

What about government failures? Can one government failure in public policy
to redirect the investments into certain emerging countries? Our reply is yes. For
instance if the public policy regarding education is not in close link with the labor
force market that a public failure will occur. Usually the education field is one of
the most conservative fields and this is why the link between the education and
labor force market has a gap of at least 4-5 years. From where this gap comes? Well
first we need to say that only a few countries have a national policy regarding education and only a few countries are trying to connect the education with the request
of the economy. This is happening because the labor force market reacts quite rapidly at the changes of the economy. The companies, employers are requesting what
is necessary and useful. Why the educational field reacts with a small gap? Because
the specialization of individuals can take from 4-5 years and even more so we can
speak about educational cycles.
Can this gap be decreased? Yes one possibility is to produce national educational
programs even if this can seems a limit of the liberty of individuals. It is only a plan
to reduce unemployment due to the linkage of education to economy.
So if this is an example of governmental failure what can we put in balance in
order to strive the economic development? Here can be the influence of fiscal public policies in sustaining the development of the national economies and one the
possible ways is the policies in link with foreign trade.
2. International trade a tool to decrease/increase deficits

International trade is maybe the most important tool to increase or decrease
deficits. The international trade policy is usually influenced by the public and fiscal
policies inside one economical area (national area).
If we analyze the world’s area in which the international trade is having the highest impact on GDP we for sure might say that also those countries are experiencing
a high degree of economic development. Also in respect to the public sector those
countries are having high degrees of public deficit.

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Octavian Jula

Graph 5
International trade as percentage of GDP

Source: CIA factbook

Levels of gray
45% or more; 35.0–44.9%; 20.0–34.9%; 15.0–19.9%; Less than 15%; No
data;
There are situations in which a positive situation in respect to international
trade can occur from the point of view of trade balance. It is possible to have a
positive trade balance and still economic decrease. How this can be possible? Well
in the situations of goods that have maximum imposed prices onto the domestic
market, they are imported from the producers with a low cost and then re-exported
to other countries in which the prices for those types of products are floating free.
This is the case of medicines for example. What will happen with the profit taken
from this business? It will be send to the mother company so that the added value
to economic development of that specific country will be basically 0.
The costs and benefits of international trade also depend on factors such as the
size of a country’s domestic market, its natural resource endowment, and its location. For instance, countries with large domestic markets generally trade less. At
the same time, countries that are well endowed with a few natural resources, such
as oil, tend to trade more. Think of examples of countries whose geographic location is particularly favorable or unfavorable for their participation in global trade.
Despite the risks, many countries have been choosing to globalize their economies
to a greater extent.

ECONOMIC SYSTEMS AND DEVELOPMENT

401

And this led to economic dependency in link with development and/or economic
decrease. This is why so called new countries, emerging countries, have dwelt with
the biggest problems in the last 2 years. If in the period of economic development the
linkage with the most developed countries from the international trade point of view
is a tool of economic increase for themselves, in the period of economic decreases this
gap does not narrow but increase. And this because usually those countries to have
such a large domestic market tend to develop first the domestic consumption with
the domestic production and only after to extend again to other areas.
If we take into account the development of international trade in the last 10
years we are able to conclude that it will be an important tool for the future possible
economic development and the globalization process of the last and future years
will be the cause of increasing role of trade.

Graph 6 International Trade to GDP ratios – difference 1998-2008

Source OECD Factbook 2010: Economic, Environmental and Social Statistics

How international trade can be used in order to decrease the public deficit and
what is the link with the public sector? In order to reveal the possibilities of using
this vehicle of decreasing public deficit we must say that policies of investment into
exactly those fields of economics that are destined to have the most important role
in international trade must be made with priority.
One of the possible solutions can be either the public spending policy to create
jobs in the fields that are providing goods with a high degree of manufacturing and

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Octavian Jula

also goods that are requested for export or some fiscal or environmental policies to
diminish the amount of imports. This can became an important solution to equilibrate the trade balance and maybe for a short period of time to have also a trade
balance surplus.
Of course increasing international trade is not always a positive solution for the
future and sustainable economic development. If the goods that are exported are
mainly material raw for a short period of time it is possible to equilibrate the trade
balance, but in future this will lead in the end at a very high degree of dependency
with other economies exactly onto those economic fields that have exported previously the material raw. So this is why our proposal was goods and services with a very
high degree of manufacturing and to limit the imports, if possible, to material raw.
What we can outline also in the bases of the graphs presented above is that
the countries to have the highest rate of economic development and well-being of
theirs citizens are those to have a high percentage of international trade in the GDP.
Of course it is not the only cause for economic development but it can be called the
top of the arrow of the increase.
3. Deficits and economic development

Can we make a link between public deficits and possible economic development? In the days that we are live in there are two main paths that economies are
following. There is the situation in which on country is deciding to cut down expenses in order to decrease public deficits and they are considering this as the best
tool to fight economic decrease. But there are a few other countries to consider that
increasing deficit and public spending higher than before will be the starting engine
of the economic development.
We need to stress that the economic development of the future cannot be similar with the economic development that came after the big economic crisis from
1929-1933. First let us say, on the basis of data presented above that we had a
period 1940-1944 with a huge spending from the public sector, coming not from
economic but other reasons, so that the periods cannot be similar.
There two ways to understand this matter.
One is the Keynesian way that stresses that governmental spending leads to economic development and also it is one of the causes, and the other economists that
are presenting the case vice versa. In their opinion the economic development will

ECONOMIC SYSTEMS AND DEVELOPMENT

403

make the government to spend more than in early days. Our proposal is a mixture
of those two ideas.
The public spending policy should represent a solution for the future economic development. Governmental expenditure is composed of current expenditure
and development expenditure. The current expenditures of the government are to
maintain basic services that the government provides to the public including the
payment of salaries to the civil servants (this is the largest component of current
expenditures). Therefore, these expenditures not only facilitate growth prospects
but in part promote growth as well. The development expenditures on the other
hand are allocated by sector to provide basic infrastructures (such as roads, railways,
bridges, ports and airports) to facilitate movement of goods and services across the
country. During the early stages of economic growth, these expenditures increased
in tandem with economic growth. However, in the 90 s, the development expenditures in particular increased significantly to generate the growth of the economy.
What can we use as a public policy in close link with the development?
Some macroeconomic policies and investment-friendly policies are necessary,
although not sufficient in today’s world of increasing competitiveness in attracting
investment. The crucial role for the host Government is to create conditions as well
as be proactive in developing these new drivers to attract international production
and services in the light of the fact that contract manufacturing has grown rapidly
to take advantage of differences in costs and logistics.
Well one possibility is to make the national economy much more competitive
using the fiscal policy. If it is possible a solution of lowering taxes and holding wages
down, it might be possible to boost profits and therefore encourage private investment. But the rate of return of capital is equally dependent on the productivity of
the input factors that enter the production process. Since what mainly determines
gross profitability is the productivity of the input factors, taxes can be high insofar
as productivity remains high enough to deliver the highest net profits (compared to
other places) to capital. Capital will always prefer a country where taxes are high, as
long as productivity is very high, to a country where both taxation and productivity
are low. As a matter of fact, and in sharp contrast to the prediction that higher levels
of internationalization lead to lower levels of public spending, a highly influential
model of public expenditure in political economy has positively related the level
of government intervention to the degree of openness in the economy. In order to
conclude we can say that the Eastern European case is one of the most striking in

404

Octavian Jula

this matter. Even if the inflow of foreign direct investment was one of the greatest,
also the rate of growth was important but also the percentage from GDP of public
spending policy was increasing. The Eastern European Economies have developed
and also have opened to globalization.
Government spending grows in open economies as a mechanism to compensate
for the adjustment costs of trade openness. Small and open countries, which are
affected intensely by world business cycles from which they cannot easily insulate
themselves through standard macroeconomic policies, choose to maintain high levels of public consumption and transfers to protect workers in their losing economic
sectors. High levels of spending are therefore understood nearly as a functional
requirement for the maintenance of internal stability and peace. Moreover, high
levels of government intervention are seen as a way of overcoming market failures
in the provision of skills and infrastructures: they ease the transition of the unemployed to the more dynamic areas of production in countries that need to compete
in world markets to survive.
4. Conclusion

Is it possible that one country to have economic decrease and in the same time
to have an important increase in the international trade? Seems like the answer in
the case of certain Eastern European Countries to be yes. What should be the solution? An analisys of the international trade in close link with the public deficit and
also woth the economic sectors of the economy is necessary.
Public policies that will drive the production and trade, national or internationa, with goods that will be
Even so it is a matter of reestablishing importance of different fields in national economies in order to use the outcome in increasing the level of well-being of
individuals.
Can we create a public policy that will support the development using the vehicle of exports? Can this be the solution for decreasing deficits and be a start for a
new development even in conditions of economic crisis?
The reply should be definitely yes. The problem is the mean by which we can
make this.
The public policies should be driven towards those fields that will be start engines for the future economic development. Our proposal is that those public poli-

ECONOMIC SYSTEMS AND DEVELOPMENT

405

cies that right now have as beneficiaries’ individuals to experience decrease in their
incomes should be left on the last place and to increase the governmental spending
in the fields that will create jobs and economic outcome. We have as an example
the public policies taken by Ronald Reagan in USA and we can be influenced by
that. Maybe the investment into production of public goods can be a solution but
also the investment on production plants to sustain also the increase of jobs and in
the meanwhile an increase in the aggregate supply and not in the end an increasing
competition on domestic markets.
Yes public goods production is important but maybe the number of individuals
to benefit from such an activity is quite less than the beneficiaries of a production
plant or even public services. It can be the case of a public stadium in comparison
with public transportation. We must have the decision not only deciding by using
the social outcome for the society but also considering the economic outcome, such
as possible profit and jobs created.
Governments should take into account, and leave for the period of time after
the economic development, to diminish the spending for social benefits and to
increase the spending for investments in public sector. Of course this solution will
not have the public support, maybe it will not have the same image impact in the
society, but for sure it will have a higher impact of the economics of that society.
Also the way that taxes and subsidies are considered right now should be changed.
Taxes on property must increase in the same time with decreasing taxes on production and direct labor. Yes the first ones are the most sure but they will not generate
economic outcome. The solution can seem both liberal and social. Our proposal is
to have a liberal solution for production and public field investment and a social
solution for social problems of society. If there is an agreement between economists
that public and private economy can and will live together maybe in future we will
reach the conclusion that also liberal economics and social economics can be a part
of the same market and for a single market.
The debate should not be whether to have a higher degree of public intervention
or a lower one, but the debate should be what the benefits of the public policies
are.
In the problem of international trade we should take as a help and inspiration
the classical economy promoted by Smith and Ricardo. Globalization as a process
comes hand in hand with international trade and highest degree of dependency

406

Octavian Jula

between national economies of today. If in the first moments, on short term, the
degree of openness of one economy can harm it for sure it will provide a higher
degree of economic development in future.
5. Bibliography:

Books:
Colander (2004), Economics, ISBN 0-07-254902-5, New York
Afxentiou, PF (1982), Economic development and the public sector: An evaluation, OI: 10.1007/BF02300192, Atlantic Economic Journal
Allen F., D. Gale (2007), Understanding Financial Crises, ISBN-13: 9780199251414,
Oxford University Press
Articles:
Allen, Franklin and Gale, Douglas M., An Introduction to Financial Crises (August 14, 2007). Wharton Financial Institutions Center Working Paper No. 07-20.
Available at SSRN:
http://ssrn.com/abstract=1008311
Babus, Ana, Carletti, Elena and Allen, Franklin, Financial Crises: Theory and Evidence (June 8, 2009). Available at SSRN: http://ssrn.com/abstract=1422715
Gorton H., L. Huang (2004), “Liquidity, Efficiency and Bank Bailouts”, American
Economic
Review 94,
(05.01.2010)

455-483,

http://fic.wharton.upenn.edu/fic/papers/02/0233.pdf

Gonzalez-Paramo, Jose Manuel (2009), Financial market failures and public policies - a central banker’s perspective on the global financial crisis, http://www.bis.
org/review/r090210e.pdf (05.03.2010)
Trichet, J.C. (2008), International Interdependencies and Monetary Policy: A
Policy Maker’s view, Speech at the Fifth ECB Central Banking Conference, Frankfurt am Main, http://www.ecb.int/press/key/date/2008/html/sp081114.en.html
(28.02.2010)

ECONOMIC SYSTEMS AND DEVELOPMENT

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*Committee on the Global Financial System (CGFS) (2008), Central bank operations in response to the financial turmoil, CGFS Publications No. 31, http://www.
bis.org/review/r090210e.pdf (05.01.2010)
Sites:
http://thinkexist.com/quotation/it_is_just_as_important_that_business_keep_
out_of/195403.html (25.02.2010)
http://www.indexmundi.com/ (28.02.2010)
Economic Crisis In Europe: Causes, Consequences and Responses
http://ec.europa.eu/economy_finance/publications/publication15887_en.pdf
(25.02.2010)
Onaran, O, 2009, Global crisis and global reaction in Western and Eastern European Union, http://www.internationalviewpoint.org/spip.php?article1797
(28.02.2010)
Salzmann, M, Deepening Economic Crisis in Eastern Europe, 2009) http://www.
wsws.org/articles/2009/nov2009/euro-n24.shtml (05.03.2010)
http://samvak.tripod.com/nm05.html (01.03.2011)
http://www.ukpublicspending.co.uk/uk_20th_century_chart.html (15.12.2010)
http://www.crei.cat/files/filesOpuscle/20/090429182029_ENG_op5ang.pdf
(15.12.2010)
http://www.unescap.org/pdd/publications/apdj_10_2/kumar.pdf(18.12.2010)

Flavius Rovinaru • Mihaela Rovinaru • Liviu-Daniel Deceanu

408

THE ECONOMIC CRISIS ELEMENT OF ECONOMIC CYCLE.
STUDY CASE: ELECTORAL CYCLES IN ROMANIA
Flavius Rovinaru
Mihaela Rovinaru
Liviu-Daniel Deceanu1
Faculty of Economics and Business Administration, Babes-Bolyai University
Cluj-Napoca, Romania
flavius.rovinaru@econ.ubbcluj.ro
mihaela.rovinaru@econ.ubbcluj.ro

Abstract

The economic crisis proved to be an omnipresent subject nowadays. In order to
understand the phenomena, it is necessary to master the concepts related to crisis,
to have them very clear in your mind. That is why we considered opportune to
study the economic crisis as a key element of the economic cycles.
In order to support our theoretical approach, we will be analyzing the electoral
cycles in Romania, and try to emphasize the relation between the spending made
by governmental sector, the budgetary deficit and other macroeconomic indicators.
Generally speaking, the periodicity of the electoral process – inducing effects in the
economic environment – gave birth to a new type of economic cycle, known under
the name of electoral cycle.
The central idea that revolves around this particular species of business cycles
is that in the modern democratic society, the dynamics of the electoral process
strongly influence the economic activity.
In the particular case of Romania, we have identified the following time intervals corresponding to election cycles: 1990 - 1992, 1992 - 1996, 1996 - 2000,
2000 - 2004, 2004 – 2008, 2008 – 2012.
1

Ph.D Candidate, Faculty of Economics and Business Administration, Babeş-Bolyai University, Cluj-Napoca, Romania, Ph.D. scholarship, Project co-financed by the SECTORAL OPERATIONAL PROGRAM
FOR HUMAN RESOURCES DEVELOPMENT 2007 – 2013.

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409

At the present time, we are interested in a survey of inflation, and the current
paper continues the chain of studies that we began last year with the electoral
cycles-unemployment relationship analysis. Taxation will also be taken in consideration by a future paper.
JEL Classification: H12
Keywords: Cyclicity, economic cycle, electoral cycle, inflation, disinflation, economic policies, government, fluctuations, economic crisis.

The economic life is undergoing a continuous process of creation and development. Human needs can not be dissociated from the evolution of the human society and the economic life, as the needs are permanently stimulating the circulation
and distribution of goods.
The temporal existence of the human society’s economic performances, although ascendant and continuous, can not be perceived as linear because phases of
prosperity are succeeded by economic setbacks, so it might be said that the evolution of the society is undergoing cyclical developments. Along with the industrial
revolution, because of the unprecedented growth in production and circulation of
goods, business cyclicity becomes a reality more and more common, manifesting
itself in various forms, intensities and consequences, in different periods of time
and locations.
In general, an economic cycle underlines the results achieved by the human
society in a certain period of time, cyclicity being a specific evolution of economic
activity, characterized by successive alternation between the states of economic expansion and economic contraction. The economic expansion-contraction alternation generates a wavy revolutionary motion at the macroeconomic level, growth
periods are followed by lower ones, stagnation or even regression ones.
Economic cyclicity differentiates itself from random fluctuations of the economic activity. Its induced effects and manifestations are aggregated and cumulative, the contraction or the expansion of a particular area spreads to others, following the links and dependence between variables and real flows and monetary or
financial flows. All these lead to the conclusion that the evolution of the economic
phenomena and processes is non-linear, but it is developing in a wavy manner, cyclical, implying a repetition of the state of the economy every now and then.

Flavius Rovinaru • Mihaela Rovinaru • Liviu-Daniel Deceanu

410

The economic cyclicity is the result of the interaction of a multitude of natural,
technical, psychological, economic, social, political, cultural and even religious factors. We underline the fact that the economic cyclicity is a reality most seen in the
case of the production of goods. In the absence of goods production, we can not
speak of economic cyclicity, as it has, first of all, causes and manifestations that
can be rationally explained only using categories of values. This feature is put in
evidence only when the recession is triggered, as it can not be noticed during economic expansion.
If we were to represent the economic activity at macro and mondo economic
level using a line, we would obtain an ascending, but not a right one, because the
expansion is interrupted occasionally by periods of reduced economic performance,
booms and depressions, regression, ecc.
All these economic fluctuations are part of the economic dynamics characterized
by alternative phases of growth, decline and slowdown of the economic activities.
They are an expression of the uneven amplitude of the economic activity, generated
by a series of exogenous or endogenous factors: socio-political events, technological events, innovation, economic scarcity, ecc. They evolve under the action of the
dominant trends on the long term, including seasonal fluctuations.
This graphical representation of the economic life evolution in time indicates
that it is subject to cyclical developments. We can see that the phases of economic
boom are followed by recession, and the maximum of economic activity is followed
by minimum points. We underline here that the overall economic life is an upward
trend, but tortuous.
The level of economic activity

maximum
minimum
maximum
minimum
Time
t1

t2

t3

t4

Fig.1 General evolution of the economic life
The ciclycity of the economic life is a specific evolution of the wavy economic
life characterized by the temporal regeneration in a certain sequence and regularity
of features, of its own state. The study regarding economic cyclicity allows conclud-

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411

ing that the evolution of the economic life is wavy, stages of economic expansion
being followed by periods of economic recession. It’s considered a form of normal
development of the economic activity, being the result of interdependence of natural, technical, economic, socio-political and psychological factors.
Cyclicity represents a „whole” made of economic phenomena and processes,
and it can only be studied in a uniform manner. Non-linear evolution of the economic life can be accounted to the phenomena which affect it negatively - these
are the economic crises. But we have to ask: Do economic crises have a key role
on cyclicity? In order to answer to this question, we consider Arthur Spiethoff’s [1]
opinion regarding the economic cyclicity. Starting from the work of Clement Juglar, Spiethoff has focused his efforts on highlighting three axioms about cyclicity:
1. When explaining the cyclicity, the exclusive study of crises and overproduction is not relevant; only a unitary analysis, of the „whole system”, of the cycling
fluctuations, is considered relevant
2. In explaining the economic cyclicity the primary role should be granted to the
study of capital investments
3. The economic boom - and the economic depression can not be accepted as
accidental elements of the economic life, but must be understood as being the essential form of life of the capitalist society.
The causes of cyclicity and crises are either endogenous or exogenous. In the
present paper we intend to capture the validity of the influence of the endogenous
political factors on the performance of the national economy, with a case study on
Romania.
The Romanian history after ‘89 began with a change of the political regime,
with a shift from a totalitarian-centralized regime to a democratic regime. One of
the rules of democracy is linked to the existence of an electoral process, conducted
with a certain periodicity, which is intended to allow free choice for people with
voting rights (those considered to have the ability to represent their interests).
The periodicity of the election process has given birth to a new type of economic
cycles, specifically the electoral cycles.
The central idea that revolves around this special species of economic cycles is
the fact that in the modern democratic society and especially in the contemporary
one, the evolution of economic activity as a whole is affected – sometimes in a

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Flavius Rovinaru • Mihaela Rovinaru • Liviu-Daniel Deceanu

visible manner – by the dynamics of the electoral process. In Romania, we have
identified the following time intervals that correspond to electoral cycles: 1990 –
1992, 1992 – 1996, 1996 – 2000, 2000 – 2004, 2004 – 2008 and 2008 – 2012.
Although the electoral cycle is the result of political factors that interact on three
distinct levels: inflation, unemployment and taxation, in this paper we will study
only the first factor – inflation. The electoral cycles-unemployment relationship
was analized in a precedent paper, while taxation and its impact will be studied in
a future study.
Inflation, from the etymological perspective comes from the Latin “inflatio”
which means to increase, to inflame. The using of the term in the economic vocabulary is perfectly normal and correct as inflation – seen as an economic phenomenon – is characterized by an imbalance in the overall economy manifested through
the increasing cleavage between the existing money supply in the economy and the
actual goods supply, compared to a situation that has previously existed.
Analyzed from the perspective of the economic process, inflation generates two
major interrelated trends: a decrease in the purchasing power of money combined
with a generalized increase in prices.
The nature and causes of the inflation are varied, but contemporary inflation has
a few general characteristics: it affects all national economies but to varying degrees,
its causes are both internal and external, and are usually sustainable (durable).
In studying this phenomenon, what it’s being used are the so called inflationary institutionally agreed methods for its determination and development, its size,
based on a price index. This is nothing but a weighted average of prices of a number
of goods and services. In this regard the following indexes may be considered: the
consumer price index (CPI), GDP deflator (or GNP), the cost of living index, price
index of capital goods, the lowering of the purchasing power of money ecc.
Out of these the most used index to measure the inflation is the consumer price
index – by using it, we will try to determine a link between electoral cycles and the
possible influence of inflation induced at the end of such a cycle.
Methodologically speaking, the consumer goods price index is determined using
the bodies empowered for that purpose based on a “basket of goods” (materials and
services) which includes consumer goods, household and goods for personal use,
durable, transport services, cultural, health goods [2] ecc. In Romania, the inflation
measurement is done using the Laspeyres type consumer price index (CPI):

413

THE ECONOMIC CRISIS ELEMENT OF ECONOMIC CYCLE. STUDY CASE: ELECTORAL ...
n

∑q

p 0i

∑q

p 0i

1i

IPC =

i =1
n

⋅ 100

0i

i =1

Legend:
q = quantity of goods
p = unitary prices
i = the share each category of goods has in the family budgets of the employees
0,1 = current period
Inflation rate= CPI- 100
The Laspeyres index shows which was the influence of prices provided in order
to maintain the quantity constant in the current period. The index enables comparability over time “indicating the upper limit of the relative changes of prices,
which means that it shows with how many percentage points have increased at
most or decreased the least the prices [3]. “ Using the Laspeyers Index we have
sketched the temporal evolution of the inflationary phenomenon in our country
for the period 1990 to 2010 [4].
Inflation rate (%)

350
300

295.5

250
228.8
199.2

200

151.4

150
100
50

61.7
37.3

56.9
27.8

0

40.6

54.8

40.7

30.3

17.8

14.1

9.3

8.6

6.6

4.8

5.9

5.6

7.9

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Fig.2 Inflation rate in Romania, 1990-2010.

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Flavius Rovinaru • Mihaela Rovinaru • Liviu-Daniel Deceanu

It has been noticed that since 1990 Romania has experienced a long inflationary process on a larger scale than in all the countries in transition. This has various
causes such as the rigid price system promoted until 1989; the decision adopted
in 1990 to establish a fixed exchange rate at 21 lei (Romanian currency) / dollar,
given that on the free market the exchange rate was about 80 lei / U.S. dollar. That
resulted in the collapse of exports and unprecedented increased imports [5]. This
has facilitated the depletion of the currency reserve. As a consequence a large scale
economic recession has been triggered for a period of approximately two years
between 1990 and 1992, with inflation rates of three digits. These high rates of
inflation are in matter of fact met in all countries in transition.
The next interval, 1993 – 1996, was characterized by an increase of the domestic
production combined with a decrease in inflation, factors that have led to some
improvements in the overall macroeconomic climate. It should be noted that this
period has been marked by the difficulties arising from external debt, more exactly
the many problems involved by its financing.
The year 1997 sits under the sign of the problems generated by the financing
of the external debt, the National Bank reserves had dropped to about 700 million
U.S. dollars, which will reverberate negatively in the economy, again. Next, a new
period of economic decline, which resulted in reducing the population’s income
and the standard of living, with an inflation rate of 151.4% in 1998.
In 1999, we can see an improvement in the general economic climate, this year
being considered to have fostered the relaunch of the Romanian economy, although
growth has exceeded GDP by only 1.8%. The process began in 1999 and continued in 2000; basically, this was the moment when sustainable economic growth
begun to consolidate, having as starting point the reduction of the inflation rate.
From 2000 until the second period of 2008, following the developments in the
inflation rate, we can say that inflation has followed a descendent trend with only
small breaks [6].
If we were to take an overview of a period of approximately a decade (1990 –
2000), we can summarize some conclusions:
• the liberalization of prices began in 1990 and was largely completed by the
end of 1998;

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415

• the depreciation rate combined with the liberalization of prices and lack of
restructuring in the real economy led to high rates of inflation, the maximum
was recorded in 1993;
• three-digit inflation rate has characterized several countries in transition;
• the 1998 inflation rate entered a downward trend.
The interval between the years 2000 – 2004 shows a clear decrease in the rate
of inflation, which culminated in 2004 with a long-expected performance: the rate
of inflation of a single digit (9.3%), which has exceeded with only 0.3 percents
the forecasted target. The inflation rate recorded for 2005 exceeds the range of
variation (± 1%) established by the National Bank, the recorded value was 8.6%
higher, clearly exceeding the projected target of 7.5% [7]. The year 2006 is the year
with the most notable developments in the process. The inflation rate recorded was
4.87% and was below the target: 5.0% due to the fact that the economic growth
has exceeded the most optimistic forecasts.
The year 2007 brings back into focus an upward trend of the inflation rate, the
accounted value being of 6.57%, with 2.57 percentage points above the target proposed by the National Bank, virtually marking an interruption of the deflationary
process.
The unfavorable trend was continued in 2008, 2009 and 2010, the inflation
rising to 8.63%, over the initial target of 3.5%, and then to 7,9%, at the end of
2010. This was due mainly to the international economic situation, which was in
a process of degradation due to the financial crisis triggered in the United States.
This brief picture made on the inflation rate for the 1990 – 2010, combined with
the electoral moments in Romania, whishes to establish a possible link between the
populist politics present at the end of the electoral cycle and the negative effects
induced at the macroeconomic level, seized using the inflation rate.
Thus we recall the periods of electoral cycles, until today, in Romania:
• 1990 – 1992;
• 1992 – 1996;
• 1996 – 2000;
• 2000 – 2004;
• 2004 – 2008;
• 2008 – 2012.

Flavius Rovinaru • Mihaela Rovinaru • Liviu-Daniel Deceanu

416

In order to determine a possible correlation, we’ll make a graphic representation
to underline the inflation rates during the 1990 – 2010 period, and consider the
start or the end of the electoral cycles in Romania.
Inflation rate (%)

350
300

295.5

250
228.8

200

199.2

150

151.4

100
61.7

50
0

37.3

56.9

54.8
40.6

40.7

27.8

30.3
17.8

14.1

9.3

8.6

6.6

4.8

5.9

5.6

7.9

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Fig. 3 Economic and electoral cycles linked to the inflation.
The mechanisms of the appearance and evolution of the electoral cycles have
few moments in common, general for all cases studied, or that may be subjected
to analysis. After the election polls a clear power structure is authorized for a given
time to govern the country. During the first phase of the mandate thus obtained,
the elected tends to implement the most important part of their own election goals,
more precisely parts of the electoral promises on which they have assured their access to governing. In particular, the measures pursued are those that affect important categories of the population, in areas such as employment, taxation, inflation.
In general, the application of a package of measures of electoral inspiration in
the first part of the mandate leads to an improvement of the economic situation,
the effects reverberating on the target. Still these measures generate a growth of the
deficitary spending caused by the authorities, spending that will later be corrected
through a series of measures and policies that in the short term will be negatively

THE ECONOMIC CRISIS ELEMENT OF ECONOMIC CYCLE. STUDY CASE: ELECTORAL ...

417

perceived by the population (decrease in the share of public spending in GDP, review of tax policies aimed at increasing taxation, ecc.)
However, the elected seek to generate long-term beneficial effects in the economy, effects which are meant to be felt on the eve of a new election moment, which
would result in the possibility of maintaining the position held, if the electorate is
aware of the beneficial effects induced thereby.
Starting from these considerations, we will try to establish a correlation between
electoral cycles in Romania and possible influences associated with them at macrolevel, concentrating on inflation.
In the first electoral cycle (only two years) from 1990 to 1992 we are facing
high rates of inflation, whose value can be explained by the fact that the period
coincides with the end of a type of political regime (totalitarian) and its replacement with another (democracy). Moreover, we deal with a shift in the organization
of the economy, passing from the centralized – planned economy to a free market
economy.
But an evolution of the inflationary phenomenon can be noticed, that complies with the practical-theoretical correlation between the running of the electoral
process and a possible distortion of the inflation rate. In the first half of the 1990
– 1991 electoral cycle, inflation growth was accelerated, registering a growth of
191.5 percentage points. The second half of the cycle 1991 – 1992 doesn’t follow
the same tendency, when we are dealing with a distinguishable deflationary process,
resulted in a difference of - 29.6 percentage points (see Fig 2, the interval from
1990 to 1992).
For the second electoral cycle 1992 – 1996, it is notable that with the completion of the electoral process the negative trend of inflation is not being kept, but
instead, again there is an increase in the rate of inflation during 1992 – 1993 with
a positive difference of 96.3 percentage points. From 1993 to 1995, a new deflationary process is distinguishable, of - 238.6 percentage points, being in fact the
most important of the entire analyzed period (1990 to 2008). The approaching of
the elections is accompanied by recurrence of the inflationary phenomenon, the
inflation rate in 1996 increases by 29.1 percentage points compared to the corresponding inflation rate of 1995. The tendency will be kept after the elections, and
during the next cycle.

418

Flavius Rovinaru • Mihaela Rovinaru • Liviu-Daniel Deceanu

Thus, the third electoral cycle considered, 1996 – 2000, starts with a clear inflationary trend: the inflation in 1997 was 151.4%, with 94.5 percentage points
higher than in 1996. From 1997, a deflationary process runs almost continuously
for a period of almost 10 years, until 2008.
The fourth studied cycle, 2000 – 2004, falls on the same deflationary coordinates
and it is impossible to establish a correlation between the electoral phenomenon
and the appearance of the inflationist one. This is a fact, because in our opinion the
general economic climate changed, the performance of the economy has improved
considerably. Moreover we underline again that the analysis on the relationship
between the electoral cycles – the induced effects in the national economy can
only be complete by studying several aspects of inflation, employment, taxation,
budget deficit. The present paper analyzes only the first component of the general
analysis.
In order to prove this through an example, we mention the introduction in
2004 of the „flat tax”, which had negative effects on the amount of money cashed
by the state budget.
The next electoral cycle: 2004 – 2008, due to the international economic situation that generates exogenous negative influence on the Romanian economy, reenters the general pattern of shown correlations between the electoral cycles – inflation. After a period of a decade of almost continuous disinflation (except 1999),
2008 (an election year) is marked by the resurgence of the inflationary phenomenon, inflation in 2008 was 5.9%, higher by 1.1 percentage points that the one in
2007 [8].
For the last two years, some remarks can also be made: the infusion of money
from the IMF, in order to maintain the exchange rate, was accompanied by a direct
intervention on the inflation rate, all done for political reasons. Policies aimed at
restricting consumption resulted in an apparent rate stability, in the context of a
possible accession to the eurozone.
In this context, we believe that the promoted economic policy is inappropriate;
it is rather suitable to overheating phases and not to the phase of recession, when
consumption should be stimulated. From this perspective, we can mention the
case of Hungary, whose growth - even inflationary - lead to an apparent wealth in
the society, contributing to the socio-political aspirations. We emphasize here that

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419

social cohesion shows great importance in the case of eastern Europe economies,
now member states of the EU.
An overview of the interval 1990 – 2010, allows us to establish a possible link
between the electoral process and the development of the national economy, noticed through the analysis of some phenomena (factors) of importance, in this case
the inflation. For the first two cycles 1990 – 1992, 1992 – 1996 and the first part
of the third 1996 – 1997, the causal relationship between the electoral process –
inflation is confirmed. This relationship is also confirmed by the last period of the
2004 - 2008 electoral cycle, and the first part of the 2008 to 2012 cycle.
In our opinion, the analysis of all proposed components: inflation, employment (unemployment), taxation, budget deficit, will be intended to give us a full
picture of the problem. This study is intended as a first step in the general study
proposed.
ACKNOWLEDGMENTS

The authors wish to thank for the financial support provided from the program
co-financed by THE SECTORAL OPERATIONAL PROGRAM FOR HUMAN
RESOURCES DEVELOPMENT, Contract POSDRU 6/1.5/S/3 – “DOCTOR
AL STUDIES, A MAJOR FACTOR IN THE DEVELOPMENT OF SOCIO
ECONOMIC AND HUMANISTIC STUDIES”.
References

Arthur August Kaspar Spiethoff (1873-1957), representative of the German School
of History, assistant of Gustav von Schmoller, later universitary teacher of Economic sat the University of Prague (1908) and Bonn (1918). Among his fields
of interest and studies we encounter economic cyclicity and its causes, in the following papers: „Die wirtschaftlichen Wechsellangen: Aufschwung, Stockung, Krise”,
Zurich, 1955
Popescu C., Gavrilă, I., Ciucur, D., Teoria economică generală, vol. 2, Ed. ASE,
Bucureşti, 2005, p. 616
Baron, T., Statistică teoretică şi practică, Ed. Didactică şi Pedagogică, Bucureşti,
1999, p. 357
The source for the inflation rates values: www.insse.ro and www.bnr.ro

420

Flavius Rovinaru • Mihaela Rovinaru • Liviu-Daniel Deceanu

Money Channel,
http://www.tmctv.ro/articol_26006/raport__esecurile_si_realizarile_economiei_
romanesti_intre _1990___2007.html, May 2008
These small breaks prove to be fundamental for determining a correlation between
the business cycles and the possible effects induced al microeconomic level.
Among the factors that caused the interruption of the deflationary process, the following are worth being nominated: the growth of the price for gas (petroleum) on
the international markets, the insufficient supply for fruits and vegetables caused
by unfavorable meteorological conditions (low temperatures, storms, floods), the
implementation of a new stage of taxation for matching the level of excise taxes at
EU level, with a result of growth in taxes for gas, cigarettes, and tobacco.
The tendency is kept in 2009 also, the forecast on inflation being negative
General papers:

Angelescu, C., Ciucur, D., Dicţionar de Economie, Ed. Economică, Bucureşti,
2001.
Băcescu, M., Băcescu – Cărbunaru, A., Macroeconomie Intermediară, Editura
Universitară, Bucureşti, 2004.
Bernanke, B., Woodford, M., Inflation targeting, Princeton Universitz Press, Princeton, New Jersy, 2006.
Bernard, Y., Colli, J.-C., Vocabular economic şi financiar, Ed. Humanitas, Bucureşti,
1994.
Bodea, G., Sistemul economic, între dezechilibru şi dezvoltare, Ed. Dacia, Cluj-Napoca, 1999.
Bodea, G. (coord.), Economie Politică, sistematizări şi aplicaţii, Ed. II, Risoprint,
2004.
Bremond, J., Gelean, A., Dicţionar economic şi social: 100 articole tematice, 1500
definiţii , Ed. Expert, Bucureşti, 1995.
Cioarna, A., Haiduc, C., Economie, Ed. Servo-Sat, Arad, 1998.
Ciobanu, Gh. (coord.), Macroeconomie, Editura Risoprint, Cluj-Napoca, 2009.

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421

Enache, C., Lazăr, C., Gorincu, Gh., Economie, Editura International University
Press, Bucureşti 2003.
Iordache, S., Lazăr, C., Curs de Economie Politică, Editura Economica, Bucureşti,
1999.
Kiriţescu, C., Dobrescu, M. E., Băncile. Mica enciclopedie, Ed. Expert, Bucureşti,
1998.
Luţaş, M., Câlea, S., Economie Europeană, Ed. Imprimeria Ardealul, Cluj-Napoca,
2005.
Moroianu, N., Inflaţia Contemporană, Ed. Economică, Bucureşti, 2003.
Ploae, V., Economie Politică – Macroeconomie, Editura Ex Ponto, Constanţa, 1999.
Popescu C., Gavrilă, I., Ciucur, D., Teoria economică generală, vol. 2, Ed. ASE,
Bucureşti, 2005.
Postelnicu, Gh., Economie politică vol. 2, Litografia UBB, Facultatea de Ştiinţe Economice, Cluj-Napoca, 2000
web References:

ASECIB, http://www.asecib.ase.ro/Roman/am/cap6.pdf
Banca Naţională a României, www.bnr.ro
Banca Central Europeană, http://www.ecb.int/home/html/index.en.html
Euroactiv, www.euroactiv.ro
Euromoneda, http://www.euromoneda.ro/default.asp
Eurostat, http://epp.eurostat.ec.europa.eu
Infoeuropa, http://www.infoeuropa.ro/jsp/page.jsp
Institutul Naţional de Statistică, www.insse.ro
Money Channel, www.tmctv.ro
Wikipedia, http://ro.wikipedia.org/wiki/Pagina_principal%C4%83

422

Ana Udovičić

SMALL AND MEDIUM ENTREPRENEURSHIP SME IN
CROATIA AS AN IMPORTANT COMPONENT FOR ECONOMIC
GROWTH
Ana Udovičić univ.spec.oec

Abstract:

Entrepreneurship in Croatia represents a huge potential for the economic growth
and overall economic improvement due to the high unemployment rates and economic inefficiency in Croatia. SME sector provides possibility of implementation
of modern practices and solution by following the examples of developed countries
on which those countries have built their economic strengths and competitiveness.
Developed counties are concerned with modern technology transfer, importance of
research and development investment, continuous innovation, easier adjustment to
market changes and the most important, the growing present of the entrepreneurship spirit that has a main role in crossing boundaries of economy of the entire
county. This paper explores the possibilities and pitfalls of the Croatian entrepreneurship and defines the unique features of the SME sector in Croatia.
JEL classification: D23, L25
Keywords: entrepreneurship, economic growth, SME, entrepreneurship
economy
INTRODUCTION

Large numbers of developed countries in EU as well as the other modern developed countries have embraced entrepreneurship as a leading force which can
bring prosperity for economic system and can enhance the competitiveness of a
certain county. Modern world is motivated with the ideas and entrepreneurship is
perceived as a leading force toward innovations. SME sector provided possibilities
of implementation of modern solutions led by successful examples of the developed
countries. Entrepreneurship has a positive effect on employment rate; it enhances
the effectiveness, the quality and competitiveness of the economy system and it

SMALL AND MEDIUM ENTREPRENEURSHIP SME IN CROATIA AS ...

423

enhances the export and adjusts the system to the modern world market. But with
the globalization process the position of small and medium enterprises become
more complex with the growing competition and more complex and demanding
customers.
Croatian economy is still in a process of transition toward an entrepreneurship oriented system but this system represents a huge potential for the economic
growth together with the economic improvement. Croatian economy is still characterized with the high unemployment rate, overall economic inefficiency, lack of
innovations and technical support, privatization problems, lack of government
understanding of need for businesses, insufficient government tax incentives and
insufficient employment initiatives. Even though, Croatia has to find solutions
in resolving the mentioned problems by enhancing the economic effectiveness of
small and medium enterprises, with the investment in technical equipment, investment in research and development, investment in innovations, and enhancement
of employment together with the managerial expertise.
1. CHARACTERISTICS OF SMALL AND MEDIUM ENTREPRENEURSHIP IN
CROATIA

Due to the long and complex path of resolving the problems concerning the effects of War (1991-1995) together with the transitional and privatization problems,
Croatia has neglected the needs and requirements of the small economic sector. In
2002 Croatia started the process of making the legal regulative where the small and
medium companies can find their base for further business activity. The key step
was publication of the Small Business Development Promotion Act (The Official
Gazzete- NN 29/02, 63/07). This Act has arranged the basics for the implementation of the economy politics incentive measures oriented toward development,
restructuring and market adjustment together with the foundation of the Croatian
Agency for Small Business (HAMAG) (Kersan-Škabić & Banković; 2008, 59).
The defined goals for small economy development were (Kersan-Škabić &
Banković; 2008, 59):
1. Growth of employment possibilities,
2. Increasing export and adjustment to the world market,
3. Increasing efficiency, quality and competitiveness of small economy,

424

Ana Udovičić

4. Research, development and implementation of modern innovations and
technology,
5. Increasing the number of subjects in small economy,
6. Encouraging the business activities which are environment friendly.
Small business economy in Croatia includes more than 78.000 trades associations and makes 99, 5% registered business subjects in Croatia. SME sector keeps
generating the larges and fester growth concerning the numbers of entrepreneurship and the number of employees, revenues and profits. SME become the sector
which stimulates and motivates the overall national economy (Kersan-Škabić &
Banković; 2008, 60).
But the situation in Croatia is far from ideal. The reason is layering between
the economic activities. Over the time, entrepreneurs have concentrated just in
few economic activities in which they have recognized the potential of market expansion together with the encounter of the minimum barriers on the path for
their final goal achievement. An example is the most expanded sector of retail and
wholesale trade which represents 35% of the total entrepreneurship amount while
the electric energy supplies represent only the 0.16% (Kersan-Škabić & Banković;
2008, 60).
The statistics has shown that the 80.55% of the overall number of entrepreneurs
are concentrated in four business activities: already mentioned retail and wholesale
trade (35%), real-estate business (22%), processing industry (13, 2%) and architecture (10, 35%) (http://hgk.biznet.hr/hgk/).

%
2009.
%
0,5
436
0,5
1,6
1,446
1,5
97,7
89.438
98,0
99.5
90.884
99.5
99,5
99.884
99.5
http://www2.hgk.hr/en/

Number of Employees
Companies
2003.
%
2004.
%
2005.
%
2006.*
%
2007.
%
2008.
%
2009.
&
Large
375.081 47,1
386.980 47,7
391.219 48,1
305.263 35,2
328.856 35,7
315.117 33,7
302.161 33,97
Medium-Sized
158.971 19,9
156.407 19,3
159.746 19,6
172.345 20,0
181.214 19,7
170.038 18,2
164.515 18,49
Small
262.844 33,0
268.389 33,0
262.797 32,3
388.275 44,8
410.103 44,6
448.803 48,1
422.720 47,52
Total
796.896 110,0 811.776 100,0 813.762 100,0 865.883 100,0 920.173 100,0 933.958 100
889.396 100,0
Small businesses
421.815 52,9
424.796 52,9
422.543 51,9
560.620 64,8
591.317 64,3
618.841 66,3
587.235 66,01
*structure of entrepreneurs based on their size changed significantly in 2006, compared to 2005 and previous years due to amendments to criteria for determining the size of enterprises in accordance with new Accounting Act which makes these criteria similar those to EU. Implementation of these criteria has caused the number of big and medium-sized enterprises
to mote than halve, while the number of small enterprises has increased.
Source: FINA; Compiled by: CEE
Source: Official web site of Croatian chamber of economy Industry and Technology Department: Small and medium enterprises (SM’s); page 5.; available at: http://www2.hgk.hr/en/
depts/industry/Malo_gospodarstvo_10_web.pdf

Table 2. Number od Employees – according to size – from 2003 to 2009

Companies
2003.
%
2004.
%
2005.
%
2006.
%
2007.
%
2008.
Large
889
1,3
962
1,4
1,074
1,5
441
0,6
475
0,6
453
Medium-Sized
2.597
3,8
3.692
3,9
2.969
4,1
1.480
1,9
1.590
1,9
1,396
Small
64.698
94,9
65.327
94,7
67.760
94,4
76.588
97,5
81,467
97,5
87,807
Total
67.295
98,7
68,019
98,6
70,729
98,5
76,068
99,4
83,057
99,4
89,203
Small businesses
67.295
98.7
68.019
98,6
70.729
98,5
78.068
99,4
83.057
99,4
89.203
Source: Official web site of Croatian chamber of economy Industry and Technology Department: Small and medium enterprises (SM’s); page 5.; available at:
depts/industry/Malo_gospodarstvo_10_web.pdf

Number of Entrepreneurs

Table 1. Number of Entrepreneurs– according to size – from 2003 to 2009

SMALL AND MEDIUM ENTREPRENEURSHIP SME IN CROATIA AS ...

425

426

Ana Udovičić

In accordance with the employment rate, above mentioned four business activities still dominate with the slightly change in percentage (trade holds 28.8% and
processing industry holds 22,45%) (Kersan-Škabić & Banković; 2008, 60).
SME economy in Croatia is characterized also by regional layering with the
large dominance of the Town of Zagreb (33% of the overall SME economy by
the overall registered companies). The percentages of the registered small and medium companies in other Croatia’s counties are: Split-Dalmatia County 10, 9%,
Primorje-Grski Kotar County 9,4%, Istra County 9,2%, Osijek-Baranja County
4,3% and Zagreb County 6%. Other 15 Counties hold 27,2%. Dominance of the
Town of Zagreb is present in other SME economy indicators – in revenues, profit,
lost, import, export, investments and employment rate (Lozić, 2007, 7).
2. DEVELOPMENT OF THE CROATIAN ECONOMY WITH THE SIGNIFICANT OF
ENTREPRENEURSHIP

Entrepreneurship’ significance for the Croatian economy development includes
the same settings as in remaining European countries or the countries in the rest
of the world (Škrtić & Mikić, 2006, 200). In Green book1 “Entrepreneurship in
Europe” the European committee outline the following social entrepreneurship’
significance (Škrtić & Mikić, 2006, 200):
a) Entrepreneurship supports and helps the job creation and economic growth
New job opportunities are created in small new companies rather than in large
companies. Countries which have realized a meaningful entrepreneurship increase
have a significant unemployment rate. During the 12 years period (from 1994.
until 2006.), Croatia has ensured around 77 000 new working places which is extremely important in the terms of the 18% unemployment rate.
b) Entrepreneurship has critical meaning for the competitiveness
Productivity is increased with the new entrepreneurship initiatives which motivates new company or redirects the existing one. These incentives strengthen the
competiveness’ pressure, encourages the rest of the companies to respond with the
improvement of the efficiency or implementation of innovative solutions.

1

The Commission’s Green Paper is the most recent of a series of Reports from the European Commission designed to encourage entrepreneurship; whole document available at: http://www.publications.
parliament.uk/pa/ld200203/ldselect/ldeucom/142/142.pdf

427

SMALL AND MEDIUM ENTREPRENEURSHIP SME IN CROATIA AS ...

c) Entrepreneurship develops personal potentials
Individuals have different criteria concerning the career, as safety, level of independence, variety of task and the level of interests. Individuals can find satisfaction
if they decide to embrace the entrepreneurship activity while for the others the
entrepreneurship activity is result of the economic need.
d) Entrepreneurship develops general social interests
Entrepreneurs are motivating strength for the market-oriented economy and
their results bring prosperity for the society, create new job opportunities and ensure the wider choice for the consumers. Small and medium enterprises have embraced a more informal “entrepreneurship responsibility spirit” together with layering the frames and base for many other communities.

Table 3. Businesses in 2009.
Description

No. of
Entrepreneurs

Share in no. of
entrepreneurs
%

No. of
employees

Share in no. of
employees %

Share in profit
in %

Small Entrepreneurs (S)*
89,438
98,0
422.720
47,52
41,90
Medium sized Entrepreneurs (M)*
1446
1,5
164,515
18,49
15,82
Large Entrepreneurs (L)*
436
0,5
302,161
33,97
42,26
Entrepreneurs-Total
91,320
100,0
889,396
100,00
100,00
Small Business (S+M)
90,884
99,5
587,235
66,01
57,72
Source: P.T.L. –FINA, CBS _ Compiled by: CCE
*companies-legal entities
Source: Official web site of Croatian chamber of economy Industry and Technology Department: Small and medium enterprises
(SM’s); page 5; available at:
http://www2.hgk.hr/en/depts/industry/Malo_gospodarstvo_10_web.pdf

According to Peter Drucker2, the essence of entrepreneurship is consistent in
creation of new organizations capable for profitable business with the possibilities
self-maintenance. Entrepreneurship is concerned with business practices done at
different way but not doing something better which is already done. Trough this
context the basics of entrepreneurship behavior is defined as a constant search for

2
One of the most influential writer on the subject of management theory and practice in 20.
Century.

428

Ana Udovičić

changes, reaction on changes and using changes as new possibilities (Kružić, 2007,
172).
Small and medium enterprises today are perceived as a major force that can enable fast and valued change of economic structure in a certain national economy.
Croatian small and medium economy represents a possible economic development
and employment generator with its innovations, flexibility and economic effectiveness. In this moment of economic development, Croatian’ small and medium enterprises drastically lag for economic effectiveness of small entrepreneurship of EU
countries, the European Union represents a vital chance for Croatian’ enterprises
(Škrtić & Mikić, 2006, 202).
In collaboration with the enterprises situated in some of the EU countries, Croatian entrepreneurship can and must use its’ individuality, creativity and business
spirit. Small and medium enterprises in Croatia have to reduce their business costs,
enhance quality, invest in new products and service and explore new markets and
new channels of distribution in order to come close to the business practices and
business results as those in enterprises in EU countries (Škrtić & Mikić, 2006,
202).

Table 4. Small Business in Croatia and the EU (According to definition)*
Criteria

Micro scale companies in Croatia

Small Economic
Entity in Croatia

Medium sized
Economic Entity in
Croatia

Micro EU

Small EU

Medium
sized EU

Number of
<10
<50
<250
<10
<50
<250
Employees
Total annual
< 50
turnover up to
14 HRK
54 HRK
216 HRK
<2 EUR < 10 EUR
EUR
(mil.)
Fixed assets
value up to
7 HRK
27 HRK
108 HRK
<2 EUR <10 EUR <43 EUR
(mil)
Business independence If other are not the owners of more than 25% ownership share or power of decision-making in the
small economic entity, individually or jointly, and are not, small economic entities themselves
*Small Business Development Promotion Act (The Official Gazzete- NN 29/02, 63/07)
Source: Official web site of Croatian chamber of economy Industry and Technology Department: Small and medium enterprises
(SM’s); page 5
2.; available at: http://www2.hgk.hr/en/depts/industry/Malo_gospodarstvo_10_web.pdf

SMALL AND MEDIUM ENTREPRENEURSHIP SME IN CROATIA AS ...

429

3. CHARACTERIZED BARRIERS FOR SME IN CROATIA

Despite the global recession, small businesses are still the most dynamic segment
of Croatia economy. Small businesses are one of the most important impetuses
of overall economic development which stimulates private ownership and entrepreneurship, employment growth and significantly contributes to an increase of
production and exports (http://www2.hgk.hr).
The main problem and the most important problem in Croatia (as well in EU)
is complex and very slow administration. This is the main reason why Croatia
has implemented a series of continuous measures of simplification. Croatia has an
imperative to establish the simplification of establishment of business subjects in
order to motivate a larger number of entrepreneurship activities (it takes 7-10 days
in Croatia for business registration while in the most of the EU countries it takes
1-7 days for business registration) (Kersan-Škabić & Banković; 2008, 65).
Main areas in Croatian economic system that are in need for improvements are
(Kersan-Škabić & Banković; 2008, 67):
• Poorly functioning of the legal state, high corruption index which discourages the entrepreneurship since it enhances the risk, uncertainty and business
expanses,
• Dawdle of jurisdiction,
• Uncoordinated government politics for creation of favorable entrepreneurship
environment
• Undeveloped financial market for satisfaction the SME needs.
Croatian economy is still in a transition process towards the entrepreneurship
trade system. It is crucial to establish and maintain an effective corporation between small and medium enterprises with the high education institutions and other
scientific and professional institutions in order to enhance the development and
trade exchange of the scientific results as a hypothesis for development of the new
structure of the economic and scientific system (Zekić & Bukovac, 2008, 107).
Croatia has to enforce and enable institutions to use the funds available form
EU and needs to enforce the small and medium entrepreneurs to enhance the competitive strength and corporation in order to maintain the system of SME (KersanŠkabić & Banković; 2008, 67).

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Ana Udovičić

CONCLUSION

Entrepreneurship in Croatia represents a huge potential for the economic
growth and overall economic improvement due to the high unemployment rates
and economic inefficiency in Croatia. Croatia has fully embraced the concept of
entrepreneurship during the 2002. Since then, government has introduced a number of legislative and tax incentives in order to promote and to help the SME. These
incentives are perceived as insufficient since a large amount of entrepreneurs have
failed in maintaining a positive balance and successful business activities. Croatian
businesses still has major problems with administration and with the large corruption index. Entrepreneurship is concerned with the innovations and with the
constant search for something new and improved. Entrepreneurship has a positive
effect on employment rate, enhances the effectiveness, quality and competitiveness
of the economy system, enhances the export and adjusts the system to the modern
world market
Croatia has to invest in innovations and research together with the investment
in employment and managerial expertise in her path of becoming a member of the
European Union.
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UCD: 65.012:330.34
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Official web site of Croatian chamber of economy Industry and Technology Department: Small and medium enterprises (SM’s); pages 1- 5; available at: http://
www2.hgk.hr/en/depts/industry/Malo_gospodarstvo_10_web.pdf
Retrieved: (21-02-2011)
http://hgk.biznet.hr/hgk/)
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The Commission’s Green Paper is the most recent of a series of Reports from the
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encourage entrepreneurship; whole document available at: http://www.publications.parliament.uk/pa/ld200203/ldselect/ldeucom/142/142.pdf

INTERNATIONAL
ECONOMICS

IMPACT OF THE CREATION OF NATIONAL CURRENCY ON BUSINESS TRANSNATIONAL ...

435

IMPACT OF THE CREATION OF NATIONAL CURRENCY ON
BUSINESS TRANSNATIONAL COMPANIES IN THE WESTERN
BALKANS
Hošo, Jasmin
Đonlagić Dženan
School of Economics and Business Sarajevo
E-mail: hoso.jasmin@tondach.ba
Tel: 387 61 13 64 63

Acknowledgements

This paper has not been possible without the enormous help Jasmina
Osmanković.
Abstract

The current situation regarding the euro and the dilemmas „Will the Euro survive the current crisis” opens questions common currency or national currency? In
parallel with the process of creating a common currency and the abandonment of
national currencies in the European Union, on the Western Balkans unfolded took
process abandoning the common currency and variation of national currencies.
Both processes offer experience and lessons. Ex Yugoslavia had a common currency
the Yugoslav dinar. It was the currency area with over 22 million inhabitants. In
the early nineties, countries that have made the dissolution of Yugoslavia, inter
alia, monetary sovereigns establish their national currencies and took control of its
monetary policy. Dissolution of Yugoslavia was accompanied by leaving Yugoslav
dinar as a common currency and the creation of national currencies. In this paper
we tested the hypothesis that the existence of national currencies has negative effects on business of the Trans national companies. The theoretical framework is
the theory of optimum currency areas (Beyoumi, 1994, Honhan & Lane, 2003,
Levin, 2000, Krugman, 2009). The focus is on companies Tondach experience in
the Balkans. Period is 2004 – 2010. The basic method is case method. Research
includes the Republic of Slovenia, Croatia, Bosnia and Herzegovina, Serbia, and

436

Jasmin Hošo • Đonlagić Dženan

Macedonia. We used panel 5 x 7 x 5. (Five years, seven countries, five variables:
income, investment, exports, imports, exchange rate)
JEL classification: E42, F23
Key words: common currency, national currency, transnational companies
INTRODUCTION

In parallel with the process of creating a common currency and the abandonment of national currencies in the European Union, on the Western Balkans unfolded took process abandoning the common currency and variation of national
currencies. Both processes offer experience and lessons. A number of papers, books,
contributions and publications have been written on the position and role of
transnational companies and foreign direct investment (Young, 2004; Lall, 1974,
Barnet,& Muller, 1975; Korten, 2001; Todaro & Smith, 2006; Hošo : 2010.;
Krugman&Obstfeld, 2009). As with most issues in economics, opinions vary and
range from extremely affirmative to extremely negative in terms of the contribution of foreign direct investment and transnational companies to the host country’s
economy. The paper checks the transnational companies’ contribution to economic
development of transition countries on the example of contribution by Tondach
Company to the development of countries formed by dissolution of former Yugoslavia in the 1990s, including Bosnia and Herzegovina, Croatia, Serbia, and Macedonia. Primary research pertains to the research of Tondach Company documentation, while secondary one involves the use of official statistical and other publications. The hypothesis is tested by means of relevant statistical methods. The testing
procedure uses the following data set exchange rate Croatia Kuna HRK per 1 EUR,
Serbia Dinars RSD per 1 EUR, Bosnia and Herzegovina C Mark BAM per 1 EUR
and Macedonia Denars MKK per 1 EUR last ten years,: income, investment, and
Tondach Company’s exports and imports for the 1996-2008 period in Croatia,
1997-2008 in Bosnia and Herzegovina, 2000-2008 in Macedonia, and 2003-2008
in Serbia respectively.
The paper is organized in three main parts, including: introduction, test and
conclusion. Paper has for part: case Croatia, Case Serbia, Case Bosnia and Herzegovina and Case Macedonia. The spatial, time and topic framework of the paper
is presented in the introduction, The second part deals with testing the postulated
hypothesis by analyzing data set (exchange rate, total revenue, investment, exports,

437

IMPACT OF THE CREATION OF NATIONAL CURRENCY ON BUSINESS TRANSNATIONAL ...

imports) for each analyzed country from the company’s entry to 2008. Finally, the
conclusion provides an overview of the test results.
TEST

In parallel with the process of creating EUR like common currency and the
abandonment of national currencies in the European Union, on the Western Balkans took process abandoning the common currency and variation of national currencies. Both processes offer experience and lessons. Slovenia and Montenegro have
EUR. Croatia established Croatia Kuna HRK. Serbia founded Serbia Dinars RSD.
Bosnia and Herzegova has Bosnia and Herzegovina C Mark BAM, and Macedonia
has Macedonia Denars MKK. Further in the text, results of the research exchange
rate national currencies, total income, total investment, and the value of exports
and imports of companies from the Tondach system, followed by cumulative values
of exports, investment in the analyzed countries are provided.
Case Croatia
Tondach Company has been present in Croatia since 1996. National currency
in Croatia is Croatia Kuna HRK. Figure 1 shows exchange rates Croatia Kuna
HRK per 1 EUR.
Figure 1 Croatia Kuna HRK per 1 EUR 2001-2011
35.000
Source:
http://www.xe.com/currencycharts/?from=EUR&to=HRK&view=10Y
30.000
25.000

The total income increased eight times. In 1996, its income was 4 million Eu20.000
ros, while in 2008 it amounted to 32.2 million Euros. Figure 1 shows the trend of
1 5.000
total income growth.
1 0.000
5.000

Figure0 2 Tondach Company income in Croatia, 1996-2008 (EUR, thousands)
1 996

1 997

1 998

1 999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Jasmin Hošo • Đonlagić Dženan

438

Total income growth is due to expansion through acquisitions, modernization
of existing manufacturing capacities, green field investment at Đakovo site, and
inter-company exchange. Total investment of Tondach Company in Croatia for
the 1996-2008 period amounted to about 70 million Euros. The largest investment
was made in 1997, in the amount of ca 19 million Euros. The investment of almost
the same amount was also made in 2006.

Figure 3 Tondach Company investment in Croatia, 1996-2008 (EUR, thousands)
25.000

20.000

1 5.000

1 0.000
R² = 0,31 83

5.000

0
1 996

1 997

1 998

1 999

2000

2001

2002

2003

2004

2005

2006

2007

2008

From 1996 to 2008, products in the value of 32 million Euros were exported
from Croatia. The biggest part of this amount, 52%, was exported to Hungary and
32% to Bosnia and Herzegovina, while the remaining part was exported to other
countries. Figure 3 shows the increase in the value of exports for the 1996-2002
period, followed by the stagnation over the following couple of years. In 2008,
though, a significant increase in exports was registered.

Figure 4 Tondach Company exports from Croatia, 1996-2008 (EUR, thousands)

IMPACT OF THE CREATION OF NATIONAL CURRENCY ON BUSINESS TRANSNATIONAL ...

439

In the 1997-2008 periods, products in the value of over 8 million Euros were
imported to Croatia. Out of this amount, 54% was imported from Hungary, 38%
from Slovenia, and the rest from Serbia, Czech Republic and Romania.

Figure 5 Tondach Company imports to Croatia, 1999-2008 (EUR, thousands)

Figure shows the increase in the value of imports to Croatia. The key years
are 2002, 2004, and 2007. In 2008, Tondach achieved a record result in Croatia.
Market acceptance of large-sized roof tiles from Đakovo plant was excellent. As
early as after the second year, more than the amount of annual production was
sold. Thus Đakovo II contributed to the significant growth of total income in its
second year already. It was the first time in Tondach history that such a fast success
was registered. The success of this investment also shows that Tondach’s strategy
was correct. Products at the latest and highest technology level, manufactured in
state-of-the-art, highly-productive plants are the basis for the company’s long-term
successful and progressive development. Dispute between Russia and Ukraine early
in the year had an adverse effect, which indicates the significance and gravity of
global crisis.
Case Serbia

In October 2003, upon obtaining 92.7% shares of Kanjiža-based Potisje Kanjiža
enterprise at Belgrade Stock Exchange, Tondach Company entered the very promising Serbian market. In 2004, company income amounted to 21.3 million Euros.
In 2008, it grew 1.6 times. After 2006, the company registered a significant income increase. National currency in Serbia is Serbia Dinars RSD. Figure 6 shows
exchange rates Serbia Dinars RSD per 1 EUR.

Jasmin Hošo • Đonlagić Dženan

440

Figure 6: Serbia Dinars RSD per 1 EUR 2001-2011

Source: http://www.xe.com/currencycharts/?from=EUR&to=RSD&view=10Y

Income growth in Serbia is due to investment in new technologies and increase
in production capacities. Tondach Company manufactures 65 million pieces of
clay tiles.

Figure 7 Tondach Company income in Serbia, 2004-2008 (EUR, thousands)
35.000
33.000
31 .000
29.000
27 .000
25.000
23.000
21 .000
1 9.000
1 7 .000
1 5.000
2004

2005

2006

2007

2008

Tondach Company started to modernize manufacturing plants (Potisje Kanjiža).
The total value of investment in 2003 was 38 million Euros. Figure 6 shows the
trend of change in investment value from 2003 to 2008.

441

IMPACT OF THE CREATION OF NATIONAL CURRENCY ON BUSINESS TRANSNATIONAL ...

Figure 8 Tondach Company investments in Serbia, 2003-2008 (EUR, thousands)
40000,000
35000,000
30000,000
25000,000
20000,000
1 5000,000
1 0000,000
5000,000
0,000
2003

2004

2005

2006

2007

2008

From 2004 to 2008, products in the value of 15.1 million Euros were exported
from Serbia. Bosnia and Herzegovina was the main export market for Serbia-made
products. About 86% of the mentioned amount (of 15.1 million Euros) ended up
on the roofs of B-H houses, 9% in Romania, and the rest in other countries of the
region. Figure shows the increase in the value of exports, with a particularly significant growth in 2005.

Figure 9 Tondach Company exports from Serbia, 2004-2008 (EUR, thousands)

In the observed period, products in the value of 1.1 million Euros were imported to Serbia. Out of this amount, 40% was exported from Croatia, 32% from
Hungary, 27% from Slovenia, and the rest from Romania and Macedonia. Figure
shows the linear increase in imports to Serbia from 2004 to 2008.

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Jasmin Hošo • Đonlagić Dženan

Figure 10 Imports to Tondach Company in Serbia, 2004-2008 (EUR, thousands)

In 2008, imports were significantly higher than in 2004. The most part of imports includes products from Đakovo-based plant in Croatia. This plant manufactures large-size roof tiles in different colours, which are not manufactured in Serbia.
In Serbia, the investment in Potisje Kanjiža valued at 65 million Euros was successfully completed in 2008. Trade increased by 18% compared to the previous year.
The positive trend was, however, decreased by the increase in energy sources. For
instance, average cost of gas in Serbia is higher than average cost of gas in Austria.
In the moment of acquisition, in October 2003, the gas price amounted to about
50% of Austrian level. Due to the Euro-based financing, unstable dinar contributed to great losses as a result of exchange rate differences.
Case Bosnia and Herzegovina

Tondach Company has been present in Bosnia and Herzegovina since 1997.
In the period to 1998, the total company income increased almost 20 times (from
0.5 million Euros in 1997 to 9.8 million Euros in 2008). Figure shows the linear
trend of total income growth, with a significant income increase in 2002, 2005,
and 2008 respectively. National currency in Bosnia and Herzegovina is Bosnia and
Herzegovina C Mark BAM. Figure 11 shows exchange rates BAM per 1 EUR.

443

IMPACT OF THE CREATION OF NATIONAL CURRENCY ON BUSINESS TRANSNATIONAL ...

Figure 11: Bosnia and Herzegovina C Mark BAM per 1 EUR

Source: http://www.xe.com/currencycharts/?from=EUR&to=BAM&view=10Y

In the 1997-2008 period, 469 thousand Euros were invested in the company.

Figure 12 Tondach Company income in B&H, 1997-2008 (EUR, thousands)
1 2.000

1 0.000

8.000

6.000

4.000

2.000

0
1 997

1 998

1 999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Tondach Company does not have a plant in Bosnia and Herzegovina, and therefore the value of investment is exceptionally high compared to the other observed
countries.

Jasmin Hošo • Đonlagić Dženan

444

Figure 13 Tondach company investment in B-H, 1997-2008 (EUR, thousands)
1 40
1 20
1 00
80
60
40
20
0
1 997

1 998

1 999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Investment was mainly related to the acquisition of fixed assets (cars, computing equipment). In the 1997-2008 periods, products in the value of 21 thousand
Euros were exported from Bosnia and Herzegovina to Macedonia (2005). This
amount is the only Tondach Company’s exports from Bosnia and Herzegovina to
another country in the 1997-2008 periods. In the 1997-2008 periods, products
in the value of about 32 million Euros were imported to Bosnia and Herzegovina.
Out of this amount, 40% was imported from Serbia, 32% from Croatia, 26% from
Hungary, and the rest from Slovenia and Hungary.

Figure 14 Imports to Tondach Company in B&H, 1997-2008 (EUR, thousands)

Figure shows the linear trend of the increase in the value of imports to Bosnia
and Herzegovina. The key years are 2002, 2005, and 2008 respectively. Tondach
significantly increased the total income compared to the previous year. Products

IMPACT OF THE CREATION OF NATIONAL CURRENCY ON BUSINESS TRANSNATIONAL ...

445

from Đakovo II plant are now particularly well-established in the market, and thus
the product portfolio as well.
Case Macedonia

Tondach Company has been present in Macedonia since 2000. In the period to
2008, the company income increased by about three times (from 3 million Euros
in 2001 to 9 million Euros in 2008). National currency in Macedonia is Macedonia Denars MKK. Figure 15 shows exchange rates MKK per 1 EUR.

Figure 15: Macedonia Denars MKD per 1 EUR

Source: http://www.xe.com/currencycharts/?from=EUR&to=MKD&view=10Y

Jasmin Hošo • Đonlagić Dženan

446

Figure 16 clearly shows the linear increase in income from 2001.

Figure 16 Tondach Company income in Macedonia, 2001-2008 (EUR, thousands)
1 0.000
9.000
8.000
7 .000
6.000
5 .000
4.000
3.000
2.000
1 .000
0
2001

2002

2003

2004

2005

2006

2007

2008

The income growth is due to the reconstruction and modernization of manufacturing plant on Vinice site, capacity increase from 12 to 20 million pieces of
roof tile, and increase in sales both in the local and international markets. After the
initial investment in improving the dated machinery, more significant investment
started in 2003 and ended in 2004. In the observed period, the company invested
about 16 million Euros. Figure shows the changing trend in the investment value
in the 2000-2008 periods.

Figure 17 Tondach Company investment in Macedonia, 2001-2008 (EUR, thousands)
7 .000,000
6.000,000
5 .000,000
4.000,000
3 .000,000
2 .000,000
1 .000,000
0,000
2 000

2 001

2 002

2 003

2 004

2 005

2 006

2 007

2 008

The value of exported products amounts to 18 thousand Euros, out of which
89% was exported to Bosnia and Herzegovina and the rest to Serbia. In the 20012008 periods, products of the value of about 468 thousand Euros were imported
to Macedonia. Out of this amount, 59% was imported from Hungary, 22% from
Slovenia, 10% from the Czech Republic, and the rest from Croatia, Serbia and
Bosnia and Herzegovina. Figure reveals the significant increase in imports in 2003,
and decline from 2005.

IMPACT OF THE CREATION OF NATIONAL CURRENCY ON BUSINESS TRANSNATIONAL ...

447

Figure 18 Tondach Company imports to Macedonia, 2001-2008 (EUR, thousands)

The increase in imports in the observed period is due to reconstruction and
demand for certain products (tiles for roof tops and wedges). Tondach plant in
Macedonia achieved excellent results four years in a row. Product sales increased
significantly both in the local and international markets.
CONCLUSION

We provided the creation of national currencies had impact on business transnational companies in the Western Balkans on the case Tnodach Company. We
research of exchange rate national currencies Croatia, Serbia, Bosnia and Herzegovina and Macedonia during the last ten years per EUR, and we research investment,
income etc., on the example of Tondach Company in Bosnia and Herzegovina,
Croatia, Serbia and Macedonia. Company invested over 150 million Euros in the
four analyzed countries – Bosnia and Herzegovina, Croatia, Serbia and Macedonia,
directly generated over a thousand jobs, and exported about 50 million Euros. It
invested into the facilities reconstruction and modernization, and into the introduction of new technologies. The exports, valued at about 50 million Euros, had
favourable repercussions to the countries’ balance of payment. In 2008, all legal obligations to budgets were paid on the achieved income of about 65 million Euros.
Thus, generating tax revenues is also obvious.

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References

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Corporations. New York: Simon & Schuster, New York
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Korten, C. D. (2001): When Corporations Rule the World. Berrett-Kohler, San
Francisko
Krugman, R. P. & Obstfeld, M. (2006). International Economics – Theory &
Policy. Seventh Edition, Pearson International Edition, Boston
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Pelević, B. (2006): Uvod u međunarodnu ekonomiju. Ekonomski fakultet u
Beogradu, Beograd
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Sarajevo
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INTERNATIONAL COMPETITIVENESS OF CROATIAN ECONOMY IN TIME OF RECESSION

475

INTERNATIONAL COMPETITIVENESS OF CROATIAN ECONOMY
IN TIME OF RECESSION
Katarina Arnold Bratić, dipl.oec
Mirko Pešić, mag.oec

ABSTRACT

At the threshold of accession to the European Union the task of Croatia is to
improve standard of living and to enable its economy the appearance in the international economy market. Therefore, various development policies, rules and strategies are created as well as other social important processes that influence a building
of national economy competitiveness.
Accordingly, the aim of this paper is to provide a review on factors that influence national economy competitiveness as well as how to increase competitiveness
of Croatian economy on international level.
JEL classification: D40, F12
KEY WORDS: competitiveness, international competitiveness, national economy, recession
1. INTRODUCTION

The global economic crisis did not happen overnight. Thought announced as
a possibility, the economic crisis has come in the middle of 2008 as a great surprise for the countries all over the world, attacking first the most developed countries and afterwards Croatian national economy as well. The appearance and rapid
growth of the crisis pointed out the cohesion and interdependence of national and
regional economies worldwide and thereby broke down the theory of neoliberal
capitalism.
The Croatian economy was completely unprepared for the recession. After a
long time since the establishment of Croatia as a country, all investments in national economy with the aim of increasing the standard of living and accessing the

476

Katarina Arnold Bratić • Mirko Pešić

European Union begun to stagnate. The first sign of the crisis has been noted in
export when demand for the products and services was reduced on the international market. Surprised by that fact the Government of the Republic of Croatia
has reacted by various strategies and recommendations in order to preserve and
increase the level of international competitiveness of national economy and thus
remain a part of the market game. When observing world economic trends in the
21st century, Croatia is at the turning point, so it is important to estimate its own
position and ability of propagating on global competitive scale. Therefore, Croatian economy requires greater attention as well as investment in order to become
as competitive as possible in international market and thereby create preconditions
for the accession to the European Union.
This paper defines the term of competitiveness and the models of measuring it,
analyses the position of competitiveness of Croatia in the time of recession and suggests some of steps necessary to increase the competitivness of Croatian economy.
2. DEFINING COMPETITIVENESS

The national economy competitiveness in a modern economy is the central
point for consideration in developed and less developed countries, since the future
brings more complex process of globalization and sharper international competition. Therefore, in the last couple of decades a special attention has been paid to
competitiveness as to one of the most analyzed terms.
There are different interpretations by different authors concerning national
economy competitiveness. The development of the contemporary term of competitiveness, that has a historical meaning, begins already with the economist Adam
Smith who spoke about the international exchange. However, today’s global economy is to complicate to be explained by the traditional theories. According to a
new competitiveness theory the national prosperity is not inherited but created by
strategic choices. He also believes that the international competitiveness is based on
export and investing in other markets based on abilities and resources built in once
own country (Porter, 1998). All his ideas of competitiveness Porter encircled in one
model, so-called „Porter’s diamond“. One of the possible definitions of international competitiveness is the country’s ability to maintain and enhance a share of national economy on the world market by implementation of international standards
(Velloso, 1991). OECD defines competitiveness as a measure of country’s ability to
produce products and services in free market conditions, which can pass the test of

INTERNATIONAL COMPETITIVENESS OF CROATIAN ECONOMY IN TIME OF RECESSION

477

international market, remaining at the same time long-lasting enhancement of the
actual inhabitant’s income. Therefore, based on various definitions and opinions,
the competitiveness can be defined as a country’s ability of utilization of its own
resources, presenting them on the international markets by implementation of international standards with a view to enhance the life standard. Strictly speaking, the
term competitiveness represents the country’s ability to export its products to the
international market, whereas generally speaking the emphasis is on productivity
that results on the foundations of macroeconomic indicators and life standard.
In globalization processes the attention is paid to the cohesion of different national economies in trading goods and services and capital movement. Consequently the enterprises develop a need to compete with various competitors worldwide.
Therefore, each economy must develop its own competitive advantages, if it wants
to retain the position on the world’s competitive scale.
3. THE COMPETITIVENESS OF CROATIAN ECONOMY IN THE INTERNATION
AL ARENA

The competitive scale can be taken into consideration and analyzed from different aspects and by numerous methods of various international institutions. The
aim of the analysis is to represent a real condition of national economies towards
the indicators of competitiveness and to provide the decision-makers with information of main strengths and weaknesses for specific countries.
The evaluation of researches concerning position of a specific competitive indicator is based on methodology implemented to get results of the competitiveness
rate, which should be seriously considered, because they are used as a frame for the
next moves with the aim of productivity enhancement and economy competitiveness. The researches of international institutions concerning the rate of competitiveness can be classified into two groups; the one that analyses competitiveness
according to the development of business activities implemented by World Bank,
the other according to the role of the state, institutions and economic system researched by World Economic Forum (WEF) and International Institute for Management Development (IMD). While some of these researches use the term competitiveness in their title, such as WEF Global Competitiveness Index (GCI), other
methodologies use the term such as economic freedom, improvement in transition
or in business conditions (Lovričević, Mikulić, Rajh, 2008). Those methods are
also called the methods for determination of competitiveness, thought they do not

478

Katarina Arnold Bratić • Mirko Pešić

have the term competitiveness in their title. Among the most sophisticated models
for measuring of competitiveness, the GCI is the prominent and includes micro
and macroeconomic factors of national competitiveness, implemented by WEF,
giving comprehensive situation report of competitiveness worldwide. This method
consists of twelve pillars of national competitiveness, classified into three groups of
factors, which may be implemented to the life cycle of economic system undergoing through them depending on a particular phase.
The economy based on basic factors includes four basic pillars (institutions, infrastructure, macroeconomic environment, health and primary education) that have
undeveloped countries with the largest weight in the final index of 30 – 50 %. This
factor takes the institutional environment into consideration or the quality of the
institutions, respectively, which is manifested in legislative measures within which
the individuals, companies and the government mutually have influence on each
other in order to create and enhance the economic growth. The efficient and developed infrastructure is important for the functioning of economy, and the indicators
are transport and communication-infrastructure network, which is a precondition
for less developed countries to be able to connect the basic economic activities. The
stability of macroeconomic environment represents the evaluation of national economy, and is estimated by the government budget balance, national savings rate, inflation, interest rate spread, government debt, and country credit rating. The health
and primary education represent the fourth pillar of basic factors of competitiveness
(business impact of HIV/AIDS, malaria incidence, tuberculosis incidence), since
poor health and lower education level has a great impact on business activity.
The largest weight of efficiency of the 2nd factor (higher education and training, good market efficiency, labor market efficiency, financial market development,
technological readiness, market size) are the characteristics of the middle-developed
countries. Nowadays economic globalization requires high educated people that are
ready to adjust to the rapidly changes in the market, and so the total quality and
level of investment in educational system is measured on the level of competitiveness of higher education and training. The sixth pillar is focused on production
and trade of products and services on the market dictated by the rules of supply
and demand. The goods market efficiency is evaluated by market size, total tax rate,
foreign investment, buyer sophistication and degree of customer orientation, customs procedures and other procedures required to start a business. The next level
of competitiveness evaluates market flexibility (female participation in labor force,
cooperation in labor-employer relations, rigidity of employment, hiring and firing

INTERNATIONAL COMPETITIVENESS OF CROATIAN ECONOMY IN TIME OF RECESSION

479

practices, and brain drain). Especially in a time of economic crisis, the important
role for economic activity goes to sophisticated financial market as the eight pillar
of competitiveness with the analysis of confidence in banking sector, protection of
investors, ease to access to loans, availability of financial services. However, in order
to evaluate economy as successful, the banking system must be transparent and
reliable, whereas financial markets have to have the list of investor’s protection and
others in economy in general. Information-communication technology is becoming increasingly a relevant element for the economic prosperity and competitiveness. Availability of latest technologies, firm-level technology absorption, FDI and
technology transfer, Internet users, broadband Internet subscriptions and Internet
bandwidth are relevant economic components of the total level of technological
readiness of the national economy. Not less important level of competitiveness is
the market size, since in the era of globalization the international markets have
become a substitute for domestic markets, especially for small countries. Market
access considered as variable of competitiveness is specific for economic growth, because the increasing of buying quantity of goods among countries results in growing demand.
Besides the importance of the first two factors; basic requirements and efficiency
enhancers, the third innovation factor (business sophistication and innovation) has
a significant weight principally characteristic for less developed countries. The pillar of business sophistication evaluates the quality of total business network in the
country as well as the quality of specific companies and strategies. The last evaluated pillar consist of innovations, investment in research and development, quality
of scientific research institutions, university-industry collaboration, and intellectual
property protection, that ensure long term enhancement of life standard of the
population. While less developed countries improve their productivity by adopting
already existing technologies, developed countries have to create and develop highquality products and processes to maintain and increase competitive advantages.
By this method for calculating competitiveness WEF gives a report for better
understanding of key factors that determinate economic growth and reveal the
reason for some countries to be more successful than other.
3.1. Comparison of competitiveness of Croatia and selected countries

In the last years since the recession began so suddenly and staggered the world
economies, the consequence was repositioning of countries on international mar-

Katarina Arnold Bratić • Mirko Pešić

480

kets and thus enhancement of creating a new order of competitiveness. Analyzing
a position of the level of competitiveness of Croatia, the most competitive countries, new EU member, and transitions countries during the period from 2008
till the last Global Competitiveness Report in 2010/2011, according to the above
described methodology, the expected changes on the world scale have been noticed
(according to the last Global Competitiveness Report the ranking of top 10 most
competitive countries in the world is as follows: Switzerland, Sweden, Singapore,
United States, Germany, Japan, Finland, Netherlands, Denmark, Canada).
According to the research data (Global Competitiveness Report 2008 – 2011),
after a longer period of time being the most competitive economy in the world,
the USA loses its position and moves to 4th position of competitiveness in 2010,
primarily due to the crises that affected world economy. Switzerland takes over the
position of the most competitive country in the world that was spared by recession,
and therefore reaches the best position of competitiveness in almost all pillars of
competitiveness. Some of the numerous factors of competitiveness of this country
are: almost unexisting corruption, strong property rights protection, perfect developed infrastructure, quality of educational system, satisfying macroeconomic
environment, financial market development, and enviable technological readiness.
The heaviest fall in the first ten most competitive countries experienced Denmark
that falls 6 places, concerning its high 3rd position in 2008, immediately after USA
and Switzerland. Other developed countries slowly overcome the economic crisis
and slowly come back to the market game of competitiveness. The exceptions are
Sweden and Singapore, which used their potentials during the crisis and improved
by 2 places.

Table 1 Comparison of competitiveness of new EU and transitional countries
Country

Rank 2010
(out of 139)

Rank 2009
(out of 133)

Rank 2008
(out of 134)

Estonia

33

35

32

-1

Czech Republic

36

31

33

-3

Slovenia

45

37

42

-3

Hungary

52

58

62

+ 10

Romania

67

64

68

+1

Change 2008 - 2010

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INTERNATIONAL COMPETITIVENESS OF CROATIAN ECONOMY IN TIME OF RECESSION

Bulgaria

71

76

76

+5

Croatia

77

72

61

- 16

Serbia

96

93

85

- 11

Montenegro

49

62

65

+ 16

Bosnia and Herzegovina

102

109

107

+7

Source: The Global Competitiveness Report 2008 - 2011, www.weforum.com
(5.3.2011)

The recession stroke the new EU member fast and unexpected, however those
countries have also a faster economic recovery (Table 1). Positive examples of such
economies are those in Romania, Bulgaria, Slovenia, and especially in Hungary
which according to the researches and statistic indicators had not highly experienced
the crisis, and so improved by ten places in the ranking of global competitiveness.
The best ranking transition country Estonia is at the high 33rd position according to the last Report, with a high productive economy and which was almost
spared by recession. Other transition countries feel greatly the consequences of economic crisis, especially Croatia which recorded a dramatic fall in ranking of competitiveness, as well as the neighboring Serbia, whereas Bosnia and Herzegovina
and Montenegro recorded unexpected positive trend of movement.
The global economic crisis reflected greatly also Croatian economy. Fist signs
of crisis concerning export decrease have been noted in the middle of 2008, when
Croatia was placed at 61st position according to The Global Competitiveness Report. With further deterioration of macroeconomic indicators, Croatia falls 11
places. The negative trend continued in the following year 2010, when we fall additional 5 places. This negative trend is not only a consequence of the recession but
also of domestic problems. The results of this year are alerting to the highest fall in
goods and labor market efficiency, financial market development, and business
sophistication. On the other hand, we have better results in infrastructure, technological readiness and higher education and training.
3.2. Evaluating the position of Croatia

The process of globalization had a great impact to world markets, developing
requirements for mutual competition. Therefore, it is important for each country
to create strength of competitiveness and ensure the best possible and higher position in ranking of global competitiveness.

Katarina Arnold Bratić • Mirko Pešić

482

Analyzing the positions of Croatia of international competitiveness, we note
not only weaknesses but also strengths which we can use to compete with many
countries in the world (Table 2).

Table 2 Strengths and weaknesses of competitiveness of Croatia 2010 - 2011
STRENGHT
HIV prevalence, business impact of
malaria
Business impact of HIV / AIDS, business
costs of terrorism
Mobile telephone subscriptions, Internet
bandwidth

RANK
1
14

WEAKNESS
Cooperation in labor-employer relations,
burden of government regulation
Extent and effect of taxation, agricultural
policy costs

RANK
136
134

20

Extent of staff training

128

Quality of math and science education

22

Efficiency of legal framework in settling
disputes and challenging regulations

126

Fixed telephone lines

24

Brain drain

122

Quality of roads, infant mortality

31

Wastefulness of government spending,
rigidity of employment

121

Utility patents per million population

35

Intensity of local competition

114

Quality of primary education

37

Buyer sophistication

113

Business costs of crime and violence,
Internet users

40

Prevalence of foreign ownership

110

Internet access in schools, life expectancy

44

Venture capital availability

108

Source: The Global Competitiveness Report 2010 - 2011, www.weforum.com (5.3.2011)

The greatest strength of Croatian economy is in the pillar of health and primary
education where we record high positions in the ranking of competitiveness, especially concerning HIV prevalence, malaria incidence, business impact of HIV/
AIDS, first of all because those diseases do not have high rate of development in our
country. Moreover, we are good evaluated concerning infant mortality, and life expectancy, which is the result of higher life quality in Croatia. The quality of primary
education is at the high level of competitiveness and more than satisfying, which
has afterwards a great impact on higher education in the field of quality of math

INTERNATIONAL COMPETITIVENESS OF CROATIAN ECONOMY IN TIME OF RECESSION

483

and science education, Internet access in schools, as well as more Internet users in
general. The competitiveness of economies is growing because of various scientifictechnological patent and intellectual properties high standards. In a framework of
infrastructure, which is a key for connection and establishing communication, the
economy competitiveness strength is proved in quality of built roads and in high
number of telecommunication network users. Croatia is relatively safe country
with almost low costs for business costs of terrorism, crime and violence, which is
proven with a high position in the ranking of competitiveness.
There are numerous weaknesses of competitiveness. Beginning with institutional
indicators, Croatia is poorly evaluated concerning first of all complex bureaucracy
regulations, which are a burden for business freedom for entrepreneurs, and efficiency of legal framework in settling disputes and challenging regulations. In the
goods market that should be free, competitive and efficient for business start-up
there have been recorded high weaknesses in intensity of local competition, weak
distribution of foreign capital, high agricultural policy costs, and low level of buyer sophistication, which repulses the investors. Moreover, the financial market is
poorly evaluated in section of ease of access to loans, which is crucial for economic
activities. The largest weakness of labor market is cooperation in labor-employer
relations, for instance outstanding salaries in private sector for several months. On
the other hand, presently there is a rigidity of employment resulting in higher
number of unemployment at employment office, and thus brain drain as one of
the largest problems of the economy. One of the state’s struggling problems is also
a high number of employees in civil services resulting in crowd and ineffectively
state institutions on the one hand, and on the other hand the trades union makes it
impossible to reduce a number of employees. The paradox is that we have too many
employees in public administration, while work productivity is at minimum, which
makes contra effect, since there is yet no attempt of development or application of
„business“ model in public administration which could enhance work efficiency.
Extent and effect of taxation is too high for the life standard in Croatia, and with
tax rate of 23% for value added tax higher consumption cannot be stimulate.
Thereby, Croatia can be evaluated as typical national economy in transition between two phases, one efficiency-driven and the other innovations-driven. In the
development phase with respect to efficiency factor its competitiveness is high lightened in quality of higher education and training, market size, and ability of using
available technologies which have high positions, whereas slightly weaker evaluated
are goods and labor market efficiency, and financial market development in the

484

Katarina Arnold Bratić • Mirko Pešić

ranking of global competitiveness. Since Croatia is still developing, the increasing
standard is resulting in increasing personal income, and thereby it comes near to the
level of development with innovations, ability of creating new and unit products as
well as with application of up-to-date technologies and technological processes.
4. CONCLUDING REMARKS: SELECTED POLICY SUGGESTIONS

The recession which occurred at the world market has gravely disturbed regular
flows of functioning of national economies both in world economy and in Croatian economy, leading to structural changes in the ranking of global competitiveness. The international competitiveness of national economies represents country’s
own ability to enable international exchange by means of various factors, conditions, stimulations, and thus to increase the life standard, build competitive spirit
among countries, and as lager as possible comparative qualities through the pillars
of competitiveness.
Croatia is a small country with exceptionally large and rich potentials which have
to be utilized and emphasized in the world market game. Accordingly, a state and
various institutions have to take various measures and stimulations to ensure competitive advantage of national economy. One of the largest potentials of Croatian
economies, but not the only one is tourism that requires long-term investments. The
building of elite tourism requires implementation of new activities, attracting world
hotel chains, investment promotion of domestic and foreign investors to set up new
trends and thereby extension of the tourist season in order to put Croatia to world’s
top tourism destinations. Promotion of tourism development manifests through
investment in agriculture with a special emphasis on organic food production which
shall not only enhance the health and wellbeing of the population, but also influence
directly the enrichment of gastronomic offer of Croatian original products. Every
reform requires instructions of our entrepreneurs, how to invest and manage, but
first of all to promote development of small and medium-sized economies by means
of various stimulations and tax reliefs, and by cutting taxes and other state deductions and excise duty. The higher education which came with Bologna process is very
important for instruction of entrepreneurs. The modernization of higher education
and further investment in science and education increase the number of specialists
and scientists which will use the acquirement and skills in their work in creating
macroeconomic policies, resulting as an extraordinary contribution for enhancing
the competitiveness of Croatian economy on the international level. Moreover, there

INTERNATIONAL COMPETITIVENESS OF CROATIAN ECONOMY IN TIME OF RECESSION

485

is a necessity for large investments in researches, and intellectual property protection
that contributes to the development of the society on higher level.
The urgent priority for Croatia is to define national strategic goals, and to implement a line of structural reforms in order to enhance factors of competitiveness,
that influence enhancing the productivity and competitiveness of economy with
the aim of accessing the European Union as soon as possible.
Literature

Radošević D. (2010), Kriza i ekonomska politika, Jesenski i Turk, Zagreb: pp. 7294
Smith J., L., Flaganagan,W.G. (2007), Kako stvoriti konkurentsku prednost, Ljevak, Zagreb: pp. 24-43
Porter, M. E. (1998), The Competitive Advantage of Nations, New York: The Free
Press: pp. 543-573
Porter, M. E. (2008), On Competition, Boston, Hard Business School Press: pp.
123-133
Stubbs, R., Underhill, G.R.D. (2006), Political Economy and The Changing Global Order, 3rd edition, Oxford: Oxford University Press: pp. 42-68
Baletić, Z. (2009), Kriza i antikrizna politika, Ekonomski pregled, Vol. 60, No. 1-2:
pp. 99-106 http://hrcak.srce.hr/index.php?show=clanak&id_clanak_jezik=52410
(7.3.2011.)
Luminita, C.D. (2007), Recent Advances in Territorial Competition and Competitiveness Analysis http://papers.ssrn.com/sol3/papers.cfm?abstract_id=963286
(5.3.2011.)
Kulić, S. (2001), Društveni obzor hrvatskog gospodarstva, Ekonomski pregled, Vol.
52 No. 9-10: pp. 1113-1125 http://hrcak.srce.hr/index.php?show=clanak&id_
clanak_jezik=45152 (26.2.2011.)
Lovričević, Ž., Mikulić, D., Rajh, E. (2008), Usporedba metodologija mjerenja
konkurentnosti nacionalnog gospodarstva i položaja Hrvatske, Ekonomski pregled
Vol. 59 No.11: pp. 603-645 http://hrcak.srce.hr/index.php?show=clanak&id_
clanak_jezik=53080 (1.3.2011.)
The Global Competitiveness Reports 2008-2011, http://www3.weforum.org/docs/
WEF_GlobalCompetitivenessReport_2010-11.pdf (1.3.2011.)

FINANCIAL
ECONOMICS

A CRITICAL EVALUATION OF MICROCREDITING IN BOSNIA AND HERZEGOVINA

489

A CRITICAL EVALUATION OF MICROCREDITING IN BOSNIA
AND HERZEGOVINA
Saša Vujić, Ph.D.
University “Vitez” Travnik, Bosnia and Hercegovina
Školska 23, 72270 Travnik
sasa.vujic@unvi.edu.ba
vujic.sasa1@gmail.com
Slobodan Vujić Ph.D.
University “Vitez” Travnik, Bosnia and Hercegovina
Školska 23, 72270 Travnik
slobodan.vujic@unvi.edu.ba
VB Leasing BH, Director
Fra Anđela Zvizdovića 1, 71000 Sarajevo
slobodan.vujic@vbleasing.ba

ABSTRACT

This aim of this paper is to use academic research to analyse and critically evaluate microfinance in Bosnia and Herzegovina. Although microfinance has been
present in BiH for about ten years, there is some difference of opinion as to its
justification. While there have been negative criticisms of its results in BiH, the
work of microcrediting organizations and their results have also received positive
assessment.
A serious critical evaluation of the results of microfinance means gathering and
analysing data from loan recipients. We present our scientific research into and
analysis of the impact of microfinance on: self-employment, job creation, small
business start-up, small business development and success, increased income from
small businesses, poverty reduction amongst loan recipients, and the costs of microfinance – the interest rate and the high percentage of microbusiness failure.

490

Saša Vujić • Slobodan Vujić

Based on the results of our survey of micro-credit recipients, we draw secure
conclusions as to whether and to what degree micro-credits have a positive or negative impact in Bosnia and Herzegovina.
The aim of this study is a critical evaluation of the justification for developing
microfinance in Bosnia and Herzegovina and for supporting the microfinance sector generally.
JEL classification: E51, H81
Keywords: microfinance, poverty reduction, self-employment, small business.
1.INTRODUCTION

The emergence of microcrediting is conditioned by attempts to alleviate negative effects of various natural, economic and social disturbances and accompanying
consequences. In Bosnia and Herzegovina, microcredits1 and microcredit organizations (MCOs)2 first emerged in 1995, after the war in B-H and unspeakable economic and social disturbances caused by war activities. In the post-war period, state
and population faced enormous problems of poverty, devastated economic capacities and destroyed material and human potentials. “Microcredit organizations base
their goals on the combination of banking and social causes.3 According to a report
by Federal Reserves Bank of Dallas, institutions that approve such loans are the socalled ‘Grameen’ banks, a term which derives from Bengali word for ‘village’. These
banks also expanded to countries such as India, Mexico, Philippines and USA in
order to approve credit to individuals fighting for their lives.“4 World Bank started
a microcrediting project named „Local Initiative Project» LIP 5 with the following
1

Law on Microcredit Organizations, „Official Gazette of FB-H“, issue 59/06, Art. 15
«Microcredit organizations (MCOs) in B-H are registered as non-profit and non-governmental
organizations that do not take deposits, and the basic activity of which is porviding microcredits for
socially neediest population, for the purpose of entrepreneurship development»
3
Vujić mr. Saša,(2008) „Mikrokreditne organizacije i mikrokrediti“, Ekonomski fakultet Sarajevo,
ISBN 978-9958-25-014-9, COBIS BH-ID16804358, pp. 40. - 42.
4
Peter S. Rose i Sylvia C. Hudgins, (2005),„Bankarski menadžement i financijske usluge“, 6. izdanje,
ISBN 86-7478-009-1,COBIS ID 120805644 „Datastatus“, p. 730.
5
LIP I and LIP II are World Bank projects implemented in FB-H and RS, through LOIN foundation in the Federation and Republika Srpska (LIP I), and through Microfinance units of OdRAZ
Sustainable Development Foundation in the Federation and Microfinance unit of Development and
Employment Fund in Republika Srpska .
2

A CRITICAL EVALUATION OF MICROCREDITING IN BOSNIA AND HERZEGOVINA

491

goals: (1) to allow access to credits for entrepreneurs to needy population (poor
citizens), (2) to encourage the development of independent, financially sustainable
microfinance institutions that would continue to provide access to such loans, and
(3) to creates proper legal framework for providing credits and other finanical service to low-income