0

Proceedings of the UTM-IBS Business

Postgraduate Colloquium 2015

KUALA LUMPUR 2015

1
 UNIVERSITI TEKNOLOGI MALAYSIA

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eISBN 978-983-44732-9-7

2
Proceedings of the UTM-IBS Business
Postgraduate Colloquium 2015

UTM-International Business School,

Universiti Teknologi Malaysia
16th December 2015

Editors:

Rohaida Basiruddin

Adriana Mohd Rizal

Organizers:

IBS PGSS Committee

3
Table of Contents

PREFACE 5

PROGRAM OVERVIEW 6

Dynamic pricing in airlines ticketing browsing history: An ethical perspective 8

Mobile Payments through Telecom Industry in Pakistan 19

Material Flow Cost Accounting as a Useful Innovation 33

Relationship between National Talent Retention and National Value Proposition with

Life Satisfaction as a Mediator 45

The Mediating Effects of Job Satisfaction on the Relationship between Job Crafting

and Job Performance: A Conceptual Analysis 64

Employee Retention in Malaysian Small and Medium Enterprises 81

The Determinants and Aftermath of Employee Engagement in Some of the Nigeria

Private Companies: A Review 91

Influence of Context on Strategic Flexibility – A Critical Review 102

Relationship of Charismatic Leadership and Organizational Change on Business

Transformation among Malaysia Small and Medium Enterprises (SMES) 118

Comparison between Western and Islamic Spiritual Leadership 139

A Literature Review on Historical and Conceptual Evolution of Emotional

Intelligence 147

Halal Food Choice Process by the Non-Muslim Consumers in Malaysia 168

Conceptual Study on Malaysian Male Consumption Behaviour towards Skin Care

Products 182

Factors that cultivate youth intention to be social entrepreneur 196

Strategic Entrepreneurship in Family Business 208

4
 PREFACE

All praise be to Allah, the Lord of the Worlds, and may His Blessings and Peace be
upon our Prophet Muhammad. We thank Him for the blessings and for honoring us
with His guidance in order to complete this proceeding book.

The 6th UTM IBS Business Colloquium was organized by International Business
School (UTM IBS), Universiti Teknologi Malaysia. As a part of ongoing UTM IBS’s
effort to promote research and publication, this Colloquium served as a platform the
researchers and postgraduate students in exchanging the information and knowledge.

The Colloquium comprised parallel sessions based on these four tracts: Track A
(Accounting and Finance), Track B (Human Resource Management), Track C
(Strategic Management) and Track D (Marketing and Entrepreneurship). Each parallel
session was facilitated by a chair person and two reviewers. The setting provided an
opportunity for students to present their research works to a panel of distinguished
reviewers, for getting useful comments and feedbacks. This book contains proceedings
of the articles discussed and reviewed in the Colloquium.

We wish to express our gratitude to all students and supervisors for their relentless
efforts in responding to the reviewers and editors in producing this proceeding book.
We would like to thanks also all UTM IBS lecturers for their efforts as reviewers. We
would like to extend our sincere thanks especially to Prof. Wan Khairuzzaman Wan
Ismail, Dean of UTM IBS and the organizing committee, IBS-PGSS for supporting this
colloquium and publications effort. Similarly, our gratitude goes to all administrative
staff of UTM IBS especially Mr. Khairul Annuar Md Yusof and Pn. Siti Rahmah
Othman. In the end, we thank Allah s.w.t for His Blessing and the opportunity for
making this small contribution.

Proceeding editors,
Rohaida Basiruddin
Adriana Mohd Rizal

August 2016
International Business School (UTM IBS), Universiti Teknologi Malaysia

5
 PROGRAM OVERVIEW
UTM-IBS Business Postgraduate Colloquium 2015

16th December 2015

8:30 am – 9:00 am
Registration and Breakfast

9:00 am – 10.00 am
Opening remarks by Dean and Deputy Dean of IBS

10:00 am – 10:15 am
Break

10:15 am – 13:00 pm
Colloquium Parallel Session:
Accounting and Finance
Human Resource Management
Strategic Management
Marketing and Entrepreneurship

13:00 pm – 13:30 pm
Lunch

13:30 pm – 14:00 pm
Remarks by Dean of IBS
Photo Session

14:00 pm
End of UTM-IBS Business Postgraduate Colloquium 2015

6
 TRACK A:
ACCOUNTING AND
FINANCE

7
 ARTICLE A1

Dynamic pricing in airlines ticketing browsing history: An ethical

perspective

Nor Shahniza binti Shahbudin

ABSTRACT

The phenomenon of the global airlines operators worldwide has over pricing strategies especially on
online booking considered to be ethical provides the context for further exploration of the issue and the
means to improve online booking in an ethical perspective. This study’s literature analysis narrowed
several research gaps: lacks of exploration of the effect of browsing history in the dynamic pricing to
business ethics in particular if it is used in a negative aspect; lacks the understanding how this affects
the theory of distributive justice and rule-consequentialist ethics; and lacks general public and
regulators perspective of the phenomenon. Refers to the analysis, present literature lacks evidence on
understanding the relationship between dynamic pricing influences by browsing history to business
ethics, thus provides an opportunity to explore the phenomenon. This study will contribute: for
practitioners, to improve the general public’s future decision making; provides e-commerce industry
better perspective regarding fairness and business ethics; and for regulators in the airline industry to
make policy changes; and second for academia, to expand the theories of distributive justice and rule-
consequentialist ethics incorporating browsing history and business ethics; provides a broad theoretical
framework on dynamic pricing relationship; and provides quantitative perspective especially on
business ethics.

Keywords: Browsing History, Dynamic Pricing, Business Ethics.

1.0 INTRODUCTION

Consumer throughout the world demands for a just price for goods and services that
were offered in the market. Despite the maturity of the pricing mechanism in most
industries, the debate on fair prices still continues. For example, in the airline industry,
fare prices fluctuate regularly due to market forces especially on consumer demand and
supply. The fare price will be more expensive during peak time and also at the time of
departure. This is usually associated with pricing strategy tactics employed by many
Airlines operator worldwide known as dynamic pricing. According to Weiss and
Mehrotra (2001) dynamic pricing is pricing mechanism created by recent advancement
of information technology.

The advancement in innovate pricing mechanism systems; despite of its best

intention, has raise some concerns on fairness of price. For instance, there are also
cases, where different travelers are charged with separate rates at the same time of

8
booking for the same destination. To cite some example in addition to present
researcher’s own experience, a YouTube video (with 295 likes difference advantage)
has reported that this is a scam by the airline industry using browsing history function
in the online booking system.

The utilization of this technological tool was initially to support the operations of
an online industry. As an example, using ‘online micro-marketing’ application which
uses computer application that tracks browsing history. According to Weiss (2011) this
application distinguishes how users arrive at a given site, and what other sites they visit
before and after; and databases that store a ‘vast amount of information’ on previous
purchases. Therefore, the author concluded that online companies including Airlines
have potential power to use an unparalleled amount of consumer information in altering
their pricing strategies.

In relation to this and the rising concern, it could be argued that, does the leverage
that the global airlines operators worldwide have over pricing strategies especially on
online booking, is considered to be ethical? These phenomenon provides the context
for further exploration of the issue and the means to improve online booking in an
ethical perspective, which will be discussed in the following sequence of sections:
literature review; research gap; aims and objectives; significance of study; and
conclusion.

2.0 LITERATURE REVIEW

As a foundation to the study, this literature review section covers key words related to
the topic to identify theory as well as key concepts which are under research to be
identified for further discussions in the research gap section. This literature analysis
comprises understanding: business ethics; online business ethics; airline and other
transportation; dynamic pricing, price fairness; and, law and policy.

2.1 Business Ethics

Miller (2014) explained ethics is a habit learned through mentoring and developed
through practice. The author explained that in a world of conflicting influences, we
each carve out our own ethical space that can serve as an example to others as they face
their own individual ethical challenges, but at the corporate level, a moral exemplar
will inform the larger corporate ethical space only when the leadership of the
corporation consciously adopts and constantly reinforces the example of its moral
exemplar. In addition to this, Gerald (2011) argued that leaders who identify and take
precautions on preventing future ethical issues first as compare to the rival, have
stronger position to avoid future.

In relating to business ethics in an organization, Jenning (2006) pointed out that

the nature of ethical dilemmas can be categorized into two; unethical acts vs. ethical
mistakes. An unethical act happens when something is done with immoral intention
which fundamentally is wrong in societal or organizational culture. In contrast, an

9
ethical mistake happens when something is done unintentionally unethical and later,
they regret and fully accountable on it inclusive taking any corrective actions. Gerard
(2011) provided a framework consists of five questions which each of them views an
ethical issue from a different perspective; self-interests, interests of others, principles,
reciprocity and long term interests.

In determining business ethical perspective, Koch (2010) argued that the

important action should be taken is by considering the appropriate ethical theory for
present situation, where the methodology and approach is one of the critical
argumentation. Therefore, in terms of ethical nature of profit maximization, the author
argues using the rule-consequentialist ethics; it is ethically justifiable for business profit
maximization as their main objective in operating their businesses, as long as it does
not violate the precedent law or social customs.

2.1.1 Online Business Ethics

The internet is increasingly being accepted as a medium for various types of businesses;
similarly, this could be link to the rising ethical issues among the online businesses. In
this context, Roman (2010) explained perceived deception influences consumer trust
and creates a strong negative effect on satisfaction which further affects consumer
loyalty intentions. Prior to this, the author (Roman 2007) had developed a scale for
measuring the perception of an online retailer’s integrity. In other development, Limbu
et al. (2011) argued that perceived online ethics comprises of four dimensions: security,
privacy, non-deception, and fulfillment. The author suggested that online retailer
should know that violation of any of the four dimensions may raise ethical concerns
about them.

2.1.2 Airline and Other Transportation Industry Ethics

Trust plays an important consideration in the online transaction (Sangeeta, 2013).

According to the author, based on previous works, contributory factors to formation of
consumer trust for online buy transaction includes prospective buyer, company
competency reputation, willingness to customize, web site competency (private and
security; website design; reliability; easy for use, hedonic pleasure and perceived
usefulness; and, legal and regulatory compliance) and process attributes (transaction
security, data safety and privacy) as highlighted in table 1. In addition, the author
highlighted following the study on online reservation of railway tickets in the Indian
context, four decisive factors that contribute towards development of trust in consumers
for generating online buying intention includes transaction security, consumer data
privacy and safety, credible return policies and web site’s image. In contrast, lack of
trust according to Chen and Barnes (2007) is a barrier and would discourage online
buying among the consumer.

In another aspect, Nataraja (2011) in examining the competitive advantage of

Emirate Airlines suggested that appropriate strategies’ formulation and its proper
implementation have contributed to the success of the Airline. The author added that
these strategies which include operational, generic, and intensive and diversification

10
are aimed to be different from other airlines and more focused on sustainable dynamic
pricing. In contrast, Hannigan et al. (2014) indicated that price has a positive
relationship with firm’s performance, whereas quality has a negative relationship.
Using data from the US airline industry from 1997 to 2011, the author concluded that
price is the driving force behind performance. However, firms that share numerous
routes are likely to charge higher prices (Gimeno & Woo, 1996). Price elements will
be discussing further in the next section.

2.2 Dynamic Pricing

In recent years, numerous businesses have adopted dynamic pricing strategies in the e-
commerce market (Elmaghraby and Keskinocak, 2003). The author pointed out one of
the factor that contributes to the adoption of dynamic pricing is the advancement of
technologies. For example, click-stream technology: for gathering and analysing
consumer traffic, demographic, and preferences. The stored data enables businesses to
perform real-time setting and adjust dynamic pricing with marginal cost. Therefore,
according to authors (Fudenberg & Tirole, 2001; Pitt et al., 2001) with the use of the
technology businesses could alter prices to target certain niche markets. Based on Lee
and Illia (2011), there is a positive relationship between consumers’ perception on
illusion control in price determination and lateral consumer relationship with price
fairness.

In addition to this, dynamic pricing also allows price to be determined during the
transaction between buyers and sellers’ interaction. They can now monitor the price
changes using shopping agents such as Shopbots (Kephart et al., 2000), evaluate
various options (Kautz et al., 1997), and negotiate terms and conditions (Chavez &
Maes, 1996). According to the authors, such interaction allows online buyers perceived
control in prices which were not possible in the traditional market. They argued that
this contributes to a fair purchase of product or services.

2.3 Price Fairness

Cox (2001) viewed with the popular increase to dynamic pricing in the e-commerce
market; there has also been an increase in consumer complaints in perceived price
unfairness. Other authors (Kannan & Kopalle, 2001; Suter & Hardesty, 2005) added
that these perceived perception of price unfairness lead to negative outcome: consumer
dissatisfaction; the spread of negative information; loss of relationship; and
deteriorating trust in sellers. As such, to help overcome such responses by consumer
due to the dynamic pricing, Kung et al. (2002) recommended businesses to pay closer
attention to the issue of price fairness. A similar view by Reinartz (2001) is observed
where the author indicated that the most important condition that must be upheld for
the operational ability of dynamic pricing is attention to consumer perceived fairness.

One argument which is in tandem with perceived fairness is the distributive

justice theory. According to Cox (2001) this theory focused on perceived fairness of
how resources and rewards are distributed. The author suggested that fairness
perception is developed only when all investors engaged in the relationship share the

11
same rewards. In this aspect, this adds the earlier work on this theory by Martins and
Monroe (1994) that suggested consumer perceive price fairness when they paid the
same price with others for the purchase of the same particular product or services. In
more recent study in online businesses, authors (Lee & Illia, 2011) concluded by price
fairness is perceived by focussing on illusion of control and lateral relationship.

2.4 Law and policy (Malaysian perspective)

In Malaysia, the competition Act 2010 [Act 712] was in force since January 2012
coupled with the establishment of the Malaysian Competition Commission (MyCC) as
the regulating body on competition matters. The principle in the country’s competition
law follows the prohibition on enterprises: In engaging in conduct of dominant position
such as imposing unfair purchase or selling price; limiting or controlling production,
market outlets or market access, refusing to supply; applying discriminatory conditions
that discourage new market entry; engaging in predatory behaviour towards
competitors; or buying up scarce supplies in excess oif the dominant enterprise’s own
needs. Despite the act is newly introduced, the establishment of the Act has paved many
decisions on resolving enterprises’ conflicts and protecting consumer rights.

In relation to the local airlines industry, the typical competition issues include
price-fixing and predatory pricing. For example, in the case of Malaysian Airlines and
Airasia 2011 collaboration agreement, MyCC imposed a Malaysian Ringgit 10 million
fine to each airlines operator. MyCC view that the agreement which originally was
intended for cost savings has violated Competition Act with the creation of an anti-
competition agreement for market dominance at the expense of the consumers. Despite
there are some precedent cases on competition; however, it could be argued that the
provision of the act does not cover e-commerce price fairness issue.

3.0 RESEARCH GAP

The literature analysis section on the major theme of the topics suggest rule-
consequentialist ethics (Koch, 2010) as a primary theory in business ethics, which
justifies profit maximization as long as the running of the business do not violate law,
norm or social customs. Violation of any four dimensions of security, privacy, non-
deception and fulfillment compromise ethics in the online business (Limbu et al.,
2011). In analyzing the transportation perspective, studies suggest transaction security
is an element of decision by the buyers (Sangeetha, 2013) and transaction privacy,
security and scam in online risks vulnerabilities and this could also lead to lack of trust
in the online medium (Chen & Barnes, 2007). One of the key highlights is the adoption
dynamic pricing strategies with the use advanced technologies for browsing history
(e.g. cookies, click-stream technology) for data to be used to adjust the pricing strategy
for minimal cost. However, present literature does not highlight the use of such
technology on price discrimination, which contradicts the theory of distributive justice
(Cox, 2011) for fairness when paying for the same price with other consumer for
purchasing the same products or services. In addition to this, using Malaysian

12
perspective, the existing law on competitive also does not cover aspects of online
booking.

Based on the synthesis, it could be argued that the present literature gaps are as
follows:

It lacks the exploration of the effect of browsing history in the dynamic pricing to
business ethics in particular if it is used in a negative aspect;
It lacks the understanding how this affects the theory of distributive justice and rule-
consequentialist ethics; and
It lacks general public and regulators perspective of the phenomenon.

Therefore, this under researched area provides for further exploration of the
problems highlighted in the introduction section. The key words comprise of dynamic
pricing, browsing history (as a technology) and effects to business ethics which invites
a study on the relationship of the identified constructs.

4.0 AIMS AND OBJECTIVES

The suggested topic for future research is presented as follows:

4.1 Problem Statement

A major question remains to be explored is “Does dynamic pricing influenced by

browsing history in airline online booking is ethical in business practice?”

4.2 Research Questions and Research Objectives

The main aim of this study is to identify the relationship of dynamic pricing influenced
by browsing history to business ethics.

This is supported by the following questions to meet its objectives:

The following research question (RQ) is to achieve research objective (RO) 1:

RQ 1 : What is the association between dynamic pricing and business

ethics?

The following Hypothesis (H) are representing RQ1:

Hypothesis 1օ : There is no association between dynamic pricing and business

ethics.
Hypothesis 1a : There is association between dynamic pricing and business ethics.

13
 RO 1 : To identify the association between dynamic pricing and business
ethics.

The following research question (RQ) is to achieve research objective (RO) 2:

RQ 2 : What is the relationship of dynamic pricing influenced by

browsing history to business ethics?

The following Hypothesis (H) are representing RQ2:

Hypothesis 2օ : There is no relationship between dynamic pricing influenced by

browsing history to business ethics.
Hypothesis 2a : There is a positive / negative relationship between dynamic
pricing influenced by browsing history to business ethics.

RO 2 : To identify the relationship of dynamic pricing influenced by

browsing history to business ethics.

4.3 Theoretical Framework

Dynamic Pricing Business Ethics

Independent Variable Browsing History Dependent Variable

Cookies

Intervening Variable

Figure 1: Theoretical Framework of the relationship between Dynamic Pricing influenced

by Browsing History to Business Ethics

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5.0 SIGNIFICANCE OF STUDY

5.1 Contribution to Practice: Reasons for Result is Important in the Field

In terms of practical contribution, this study provides public better perspective

regarding the practice of pricing strategy in online business. Thus, it will improve the
general public’s future decision making. Secondly, this research may provide evidence
on understanding the issue of computer cookies and the relationship with fairness and
ethics. The evidence will provide e-commerce industry, better perspective regarding
fairness and business ethics in relation to gain the customer trust. Besides that,
regulators in the airline industry could use the evidence as a base to make policy
changes on airlines’ online pricing for future pricing strategy by the airline operators
in line with consumer rights.

5.2 Contribution to Theory: Reasons for Result is Important for Other Researchers

This research will contribute to academia in providing a general definition of business

ethics which includes the use of browsing history on dynamic pricing that could be
used across the board. It also expands the theories of distributive justice and rule-
consequentialist ethics incorporating browsing history and business ethics. In addition,
it will provide a broad theoretical framework on dynamic pricing relationship and
provides quantitative perspective especially on business ethics to be further explored
by future researchers.

6.0 CONCLUSION

Based on the literature review analysis and research gap, present literature lacks
evidence on understanding the relationship between dynamic pricing influences by
browsing history to business ethics. This provides an opportunity for a research to be
conducted to explore the phenomenon. The study is expected to contribute to creating
new knowledge on the impact of browsing history to the dynamic pricing to business
ethics. Furthermore, the study also proposes a quantitative design on a theoretical
framework which could be a significant contribution to academia. Ultimately, the
phenomenon of global airlines operators worldwide has over pricing strategies
especially on online booking provides the context for further exploration of the issue
and the means to improve online booking in an ethical perspective.

15
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17
APPENDIX

TABLE 1

No. Contributory Factors to Formation of Consumer Trust For Online Buy

Transaction
1. Prospective buyer
Prior online experiences, consumers’ familiarity with online buying and
resultant satisfaction develop consumers’ trust (Yoon, 2002; Chen and
Barnes, 2007).

2. Company competency
Reputation. Reputation of the company invokes trust in consumers (Resnick
and Zeckhauser, 2001). A good reputation reduces the transaction risk
involved in online buying (Constantinides, 2004).
Willingness to customize. The company’s willingness to customize has a
positive relationship with consumers’ online trust and loyalty (Chen and
Barnes, 2007) and further motivates consumers to buy online (Koufaris and
Hampton-Sosa, 2004).
Size. It is believed that the larger a company, the more capable it is and better
at fulfilling demands (Jarvenpaa et al., 2000; Chen and Barnes, 2007) and
increasing their online trust (Koufaris and Hampton-Sosa, 2004).

3. Web site competency

Private and security. Security and privacy elements are key drivers of online
trust (Hoffman et al., 1999).
Web site design. A web site with good graphic design in terms of structure
and content, as well as easy and quick navigation attracts potential buyers;
navigation is an important aspect of web site design (Sultan et al., 2002).
Reliability. Reliability of a web site is measured in terms of credibility and
consistency of service leading to customer loyalty.
Ease of use, hedonic pleasure and perceived usefulness. The easier the
technology is to use, the more likely the consumer is to trust the organization
behind it (Corritore et al., 2003).
Legal and regulatory compliance. The web site’s adherence to legal and
regulatory norms, through acceptance and commitment of government
regulation regarding misuse of personal and financial information, also lead
to consumers’ trust in the web site.

4. Process attributes
Transaction security, data safety and privacy. The web site owner must
make clear promises at their sites and take measures to prevent misuses of
data, be it personal or financial.

18
 ARTICLE A2

Mobile Payments through Telecom Industry in Pakistan

Muhammad Shujah ur Rehman

Zarina Abdul Salam
Mohammad Ali Tareq

ABSTRACT

Mobile money transfer is becoming essential part of daily life and is currently being done through
telecom-bank collaboration model. Literature reveals that this model can be used to serve 3.5 billion
people all over the world, especially out of 140 million Pakistani people to those who do not have access
to formal banking facilities. Telecom and bank collaboration model is chosen for this study because it is
secured, fast and meets the regulations of regulatory bodies. Despite the increase usage of mobile
payment system, people are not aware of its existence. Various models on the adoption of technology
were taken into consideration to ascertain the breach of the existing researches. It is excepted that some
indicators such as trust, social influence and acceptability has also influencing on the mobile adoption
which need to be identify along with other indicators stated in TAM and TAM 2. Therefore this study is
designed to identify the factors which are affecting the adoption of mobile payment. The implication of
this study will be financial inclusion among people who do not have formal banking facility.

Keywords: Mobile payment, banking, telecom.

1.0 INTRODUCTION

New inventions are the result of technology revolution. Every industry tries to get
benefited from technology adoption to reduce the cost and enhance the service
accessibility. Banking industry also makes financial services easier and accessible with
the involvement of technology of telecommunications to approach those people who
was not access before due to their remoteness and inaccessibility. Bank and telecom
companies are providing financial service under mobile payment services. Mobile
payment service was firstly introduces in Kenya in 2007 and celebrated the pioneer
success of mobile payment in developing countries. It was provided by one of the
Kenya’s telecom company Safaricom with the product name M-PESA (Kimenyi &
Ndung, 2009). After the success story of M-PESA other countries like India, China and
Pakistan adopt this service for their financial inclusion.

The procedure of the mobile payments through telecom sector is facilitated by

mobile services provided by particular network. The telecom customer who has mobile
and registered mobile’s “Subscriber Identity Module” (SIM) can transfer money
immediately and directly to other mobile phone user which does not required any bank
account. The customers simply have to go any nearest agent of Telecom Company and
give them cash money which will be transfer to the receiver through e-money services.
The instruction and confirmation regarding the transfer of money is provided to the
users on his mobile. The purpose of making process simpler is to promote mobile

19
payment service for adoption. This study focuses on the adoption of mobile payment
services in Pakistan.

The population in Pakistan is almost 180,854,781 million and mobile phone users
reach 140 million in 2014 which shows that tele-density is 76.6% as per Pakistan
Telecommunication Authority (PTA). Mobile payment through telecom companies
fills a big gap in the market. It is the best alternate available to provide the basic
financial transaction in low cost. Mobile payment services were introduced by Telecom
Company with the collaboration of bank in 2009.

Figure 1: Six years revenue trend of telecom sector of Pakistan

The above figure shows six years revenue generation of telecom sector of
Pakistan. It shows continues growth telecom industry in term of revenue from 2009 to
2014. It shows that this industry has potential to further grow. Now it has opportunity
to grow faster with integration of banking services. Mobile payment adoption by
customer through telecom companies are not as much as it was expected or required.
To investigate the reason to enhance mobile payment services the following objectives
have been design for this study:

i. To identify the different models used for mobile payment services.

ii. To identify the factors that influence customers to adopt mobile payment
services.
iii. To identify the trust, compatibility, social influence and accessibility factors
directly affect adoption of mobile payment Services, and indirectly via
perceived usefulness and/or; Perceived ease of use.

2.0 LITERATURE REVIEW

Mobile payment is the service to give financial access through branch less banking or
telecom industry. This service is suitable for providing service to the people who do
not have financial access especially in remote areas. In mobile payments there are few
factors which are important for promoting the mobile payment adoption (Schierz et al.,
2010).

20
2.1 Different model for mobile payment

2.1.1. Bank centric model

Mobile-payments through banks are usually done by authorized agents in the market
and are the best source for the existing customers to avail this service at their nearest
places (Anyasi & Otubu, 2009). However, in the developing countries bank centric
model is difficult because of the reason to reach people who do not have financial
services access due to their remote locations and lack of infrastructure with -the pace
which is required. Beside this, for banks, it is not possible to expand their banking
network in the rural areas due to high operational costs as Nigerian banks are the
examples in rural areas which unable to operate the business due more operational cost
than profits (Acha, 2012).

2.1.2 Operator centric model

Telecom starts providing financial services like fund transferring through their existing
retailers in rural areas. Kenya is the founder of mobile payment service through
operator led model (Hughes & Lonie, 2007). This is the new avenue as the telecom
industry has huge customer range, it is expected 6 billion mobile users and almost 80%
of the world population starts using mobile service in 2020 (Friedrich et al., 2011).
Mobile services growth is evident that mobile payment service also grows with the time
and awareness. In comparison to banks accounts half of the world don’t access to
financial services via banks (Chaia et al., 2013). At this stage mobile payment through
telecom companies is more convenient and less costly; M-PESA of Kenya is the best
example of it. In some countries, mobile payment services through operator led model
difficult to implement due to regulations imposed by the statutory bodies. Insufficient
statutory reserve in central bank, systematic risks and fraud cases are some of the
reasons why regulations were imposed on telecom companies alone to provide mobile
payment as financial service. While providing financial services to know your
customer (KYC)’ is also one of the most important aspects to avoid the terrorist
financing and that can only done by banks ( Donovan, 2015).

2.1.3 Third party service providers

Third party based financial service or mobile payment service providers (MPSP) of
fund transfer were introduced which combine both bank and telecom service under the
umbrella of a private limited company to facilitate the customers but due to high risk
involved in MPSP model its acceptance is inadequate (Zhou, 2013). MPSP has
advantage that it is provided by many providers in many places and cost of providing
services will be less as compare to other models. But the major drawback is lack of
trust by customer on service provider (Lu et al., 2011)

21
2.1.4 Telecom-bank collaboration model

To overcome the deficiencies of above discussed three models direct collaboration

between bank and telecom service providers give solution for mobile payment services
by starts providing financial service of funds transfer collectively. Collaboration model
is fast, secure and reliable due to its monitoring by regulatory body. Telecom and bank
collaboration combined the expertise of banks financial security and telecom
technology advancement of 3G and 4G along with its massive distribution of agent in
different geographical locations (Oh et al., 2003). The disadvantage is that if there is
some dispute arises in this horizontal integration of telecom-bank collaboration it
causes management issues (de Reuver et al., 2014).

This study focuses on telecom and bank collaboration model in Pakistan also
adoption of mobile payment services. For success of mobile payment in Pakistan
teleco-bank collaboration model is already implemented but adoption by customers’
needs to be improved. It fulfil the objective of this study that model which is being used
in Pakistan is already secure and backed by bank. It is recommended in future other
banking services like micro finance loans and insurance can be offered through mobile
services.

2.2 Factors Influencing Adoption of Mobile Payment

Now the financial transaction for users is not limited to the place and time. Wherever
at any time they want to transfer the money, they can do by visiting the telecomm agents
or merchant shops which are providing their services across the country. The process
can be done through mobile phone by customers own which is very convenient but
need the security code to ensure the money has been transferred to the actual receiver.
The high hopes of mobile payment faced security issue for` acceptance (de Reuver et
al., 2014). Customer is accepting the technology directly or indirectly while adopting
mobile payment services. The next section describes the advantages of technology
adoption.

The usage of mobile phones is growing fast and the customers are preferring the
mobile technology with number of option of audio video call, internet services, mobile
payment services and other related technologies such as text messaging, gaming and
downloading (Carlsson, 2006; Vesa, 2005). Due to the increasing numbers of mobile
users, in future all types of services will be available on mobile phone through wifi
(Bouwman et al., 2007).

The cost of any service is also important to influence on intention to adopt

technology. The services provider achieved this goal through equipping themselves
with advanced technology to provide efficient services in low cost. But if the selection
of technology is not appropriate and users have to pay high cost for that it can resulted
with dissatisfaction of customer. Therefore the biggest challenge for service providers
is to focus on provision of such services which benefited users in terms of cost and
access which influences on the customer’s behaviour to adopt the services (Khraim et
al., 2011).

22
2.3 Global Aspects of Mobile Payment

Globally, with the advancement of mobile technology, financial arrangements are

escalating by adopting mobile payments. In many of developed countries such as
Europe and US, bank customers have moved to the mobile payment via using WAP
and GPRS providing by telecom industry. The trend of mobile banking is also
progressing in developing countries like India 900 million people are using mobile
phone that could have financial access through mobile. Whereas now only 400 million
have access to banking services (Kumar et al., 2015). Also in Pakistan, the telecom
sector is facilitating mobile payments which increasing with the passage of time. The
following section describes the trends of mobile banking in Pakistan

2.4 Mobile Payment Applicability in Pakistan

The telecom’s customers are thrice than banking customers which is 140 million and
37 million respectively, it seems benefited to promote mobile payments through
telecom sector. Hence telecom has started provision of financial services in terms of
fund transfer by using mobile networks and formulated the procedures for it. Currently,
the banking sector in Pakistan is just covering 12% of financial transactions so it is
acceptable for the bank to adopt the alternate financial channels. The estimations shows
that after every 11 minutes a person joins cellular services which is 3% contribution to
the GDP, whereas the total revenue of telecom sector has -reached to Rs 357.7billion
in a year. These figures show that Pakistan is immensely impending in mobile banking
(Hassan & Naz, 2012). The government allows telecom sector to expand their services
for banking through mobile payments. Presently, five major telecom companies
namely; Mobilink, Telenor, Zong, Ufone and Warid is providing their services of
mobile payments with varied number of subscribers and services mentioned in the table
below (Baloch, 2014).

Table 1.List of Telecom companies in Pakistan

Company Ownership Total Services
Subscribers
in Millions
Mobilink Pakistan Mobile 38 Post-paid, Prepaid, Mobile
Communications Ltd. Banking (Mobi Cash)
Telenor Telenor Pakistan 35 Post-paid, Prepaid, Mobile
(Telenor Group) Banking (Easy Paisa)
Zong CMPak (China Mobile) 25.6 Postpaid, Prepaid, Mobile
Banking (Time Pey)
Ufone Pakistan Telecom 24.6 Postpaid, Prepaid, Mobile
Mobile Limited Banking (U-Paisa)
(PTCL & Etisalat)
Warid Warid Pakistan (Warid 12.9 Postpaid, Prepaid, Mobile
Telecom International) Banking (Mobile Paisa)

23
3.0 THEORATICAL FRAMEWORK: MODELS OF TECHNOLOGY
ACCEPTANCE

The theoretical groundings to study adoption of mobile payments are based on factors
of technology acceptance which have been identified through different models.
Number of research oriented models has been identified to explore this phenomenon
that the success of mobile payment can be achieved by technology acceptance.
Technology adoption by customers is the core issue for enhancement of mobile
payment services.

The literature highlighted that all over the world, the most widely used model to
explore the usage of technology adoption is known as Technology Adoption Model
(TAM). TAM was derived from Theory of Reasoned Action (TRA) which focuses on
perceived usefulness (PU) and perceived ease of use (PUE). PU is indication of user’s
confidence that adoption of technology will increase their performance. In adoption of
Mobile payment, an intention to use is an important factor that can only be achieved
when the perceive value is higher (Ho Cheong & Park, 2005).

Furthermore, the use of technology by individual can be determined by the

individual’s intention to use the particular innovation as explained by the Schematics
of the theory of reasoned action (TRA). The relationship between the attitude toward
action and intention were found to perform that action. It can be positive or negative
feelings about the particular act which based on the individual’s beliefs and subjective
norms. It can be defined as:

Figure 2: Theory of Reasoned Action (TRA)

TRA is basically originated from learning theory of attitude which reflects the
individual attitude to learn and perform specific behaviour. It also explains the function
of TRA which based on the assumption that behaviour toward a particular object is due
to intention to perform such behaviour. Intention is known as individual’s conscious
effort or plan to act. Originally this theory was adopted by social psychology to study
the individual’s behaviours and attitude towards specific intention (Fishbein & Ajzen,
1975). In number of researches and theories TAM is described as the Figure .

24
 Figure 3: TAM model (Davis et al., 1999)

Ramayah et al. (2003) investigated the acceptance of TAM for predicting

intention to use internet banking influences on the acceptance of technology. The study
was conducted at 180 bank customers. They found that intention to use technology is
correlated with perceived usefulness and perceived ease of use. The findings supported
the TAM model which is more useful in accessing the usage of internet banking by the
consumers. The model supported the relationship between users’ beliefs about the
usefulness of technology and the attitude and the intention to use the technology.
Perceived usefulness demonstrated stronger and reliable relationship with the usage as
compare to relationship shown by the other variables.

Besides TAM, Yu (2012) adopted Unified Theory of Acceptance and Use of

Technology (UTAUT) model in his study to investigate social influence affects use
behaviour via behavioural intention as other factors like facilitating condition directly
affect use of behaviour as follow:

Figure 4: Unified Theory of Acceptance and Use of Technology Model

Wu and Wang (2005) further added perceived compatibility is another important

factor influences on Technology adoption which is explained in Innovation Diffusion
Technology Model (IDT) that explains user adoption. The innovation diffusion
technology model is a theory proposed by Rogers (1983) and frequently used in
technology adoption researches.

25
4.0 CONCEPTUAL FRAMEWORK

On the basis of above mentioned theoretical understanding of using model i.e.; TAM,
TRA, UTAUT etc., the fallowing model has been proposed for this study:

Figure 5: Proposed model for mobile payment adoption

The factors mentioned as Independent variables have not been studied as one
model, but have significance influence on each other. Perceived usefulness and
perceived ease of use are the basic factors influence on technology adoption with
different other factors such as trust, compatibility, social influence and accessibility
which is needed to be studies in order to measure their vice versa influence. The
interpedently relationship of these factors is crucial to study in Pakistan, because of
rapidly changing society towards modernization. Although, the people in Pakistan
quickly adopt new technology but certain social, economic factors influence on it
usage. For instance, despite the availability of technology certain population does not
have access to that, due to mobility, security risk as trust etc., these are common
influencing factors on adoption of mobile payments in Pakistan.

Therefore, the study is intended to measure the relationship of factors related to

trust, accessibility, compatibility and social influences with perceived usefulness and
perceived use of ease. Following is the description of these variables supported by
various researches and hypothesis formulated to measure in the study:

In addition to the previous researches discussed in literature, the extended TAM,

TAM2, UTAUT and Trust is adopted as the theoretical foundation of the research
model. The focus of this study is to know the user’s intention to adopt mobile payment
services. The following hypotheses are designed to measure the objectives of the study
which are supported by the preceding literature:

26
4.1 Trust:

H1: Users’ trust has positive influence on perceived usefulness

H2: Users’ trust has positive influence on perceived ease of usefulness

Due to security risk and services quality of mobile, trust plays an important role in the
adoption of mobile transactions. Due to its important contribution in adaptation, trust
is considering an important variable in latest researches related to use of information
technology (Yang, 2015). Agent behaviour and trust are closely correlated if the
behaviour of agent will improper that means failed to develop customer relationship
and as a result trust of customer cannot gained (Donovan, 2012).

4.2 Compatibility:

H3: Users’ perceived compatibility has positive influence on perceived

usefulness.
H4: Users’ perceived compatibility has positive influence on perceived ease of
use.

Rogers (1962) defined compatibility as the level to which can assume the innovation is
reliable on individual’s values, needs and past experiences. Perceived behavioural
control is the concept that condition offers to an individual as a resources and
opportunities for adoption of certain behaviour Ajzen (1991). Benbasat (1991) defined
image as one’s perceived the degree to which use of an innovation to enhance status in
one’s social system and adoption of innovation has an impacted on image.
Compatibility has positive impact on perceived ease of use and it is evident that
innovation is associated with the previous value and needs. If the compatibility will be
higher that indicates the more chances of adoption (Sonnenwald et al., 2001).
Compatibility has positive role to extend technology acceptance model such as
perceived usefulness (Oh et al., 2003). It is hypothesis that a person who perceives
technology as compatible will experience increased behavioural intentions.

4.3 Social influence:

H5: Social influence has positive relation with perceived usefulness

H6: Social influence has negative relation with perceived use of ease

Social influence defined as for adoption of specific behaviour imagines a social

pressure (Ajzen, 1985). Pervious empirical researches indicated that social norms or
social influence has positive influence on adaptation of mobile payments (Venkatesh
& Davis, 2000). Some researchers inspect that for predicting technology value of TAM
uses social influences as subjective norms (Lee et al., 2003). In another study of (Liker
& Sindi, 1997) they took subjective norms as social influences and symbolize
perceived external pressure to use the system and it has positive impact on perceived
usefulness. Social influence has positive relation with perceived use of ease. Social
influence has indirect influence on adoption of mobile payment (Teo & Milutinovic,

27
2015). Therefore it is hypothesized that social influence has negative relation with
perceived ease of use and has positive effect on perceived usefulness.

4.4 Accessibility:

H7: Accessibility has positive relation with perceived usefulness.

H8: Accessibility has positive relation with perceived use of ease.

Accessibility is the tendency that how ease of access to specific medium (Sivunen &
Valo, 2006). Accessibility is the availability of service with less effort or more readily
for use and it has direct effect on perceived ease of use. (Karahanna & Straub, 1999).
Accessibility is one of the important factor for determining the belief of user for
usefulness and it is found to have positive effect on perceived usefulness (Lin & Lu,
2000). On the basis of previous researches it is hypothesized that accessibility has also
positive relation on perceived usefulness.

4.5 Perceived Usefulness:

H9: Perceived usefulness has positive influence on user’s intention to adopt

mobile payment services.

It is defined as person believes that adopting particular services will be beneficial for
individual’s performance. Perceived usefulness and perceived ease of use both has
positive influence on adoption of the technology (Son et al., 2012).

4.6 Perceived Ease of use:

H10: Perceived ease of use has positive relationship with perceived usefulness.
H11: Perceived ease of use has positive influence on user’s intention to adopt
mobile payment services

It is defined by Davis (1989) as person scale his believe that use of particular system
would not need extra effort. Use is defined as something which is required for the
fulfilment of requirement. Perceived ease of use and perceived usefulness are both
important aspect for adoption of technology and perceived ease of use has positive
impact on perceived usefulness (Saade & Bahli, 2005).

Number of previous studies supported the perceived ease of usefulness as crucial

factors to adopt the mobile services. Rogers (2003) further added that innovation is
important to distinguish the individual’s attitude toward the ad option of new services.
(Dunlop & Brewster, 2002) further added the visual factor of the innovation which is
important to consider as the size and colour of the innovative technology influence the
decision to adopt. Ling (2001) also illustrated another determinant of social aspect by
which people are influenced by other people and their surrounding environment. The
social factor of adoption of technology is explained by a “Theory of Fashion” which
relates the social factor with the perceived ease of use that leads towards the attitude to
adopt the certain innovation.

28
5.0 METHODOLOGY

5.1 Research Design

The research will be quantitative in nature in which “new proposed model” will be used
to study the adoption of mobile payment services by the customers. Number of previous
studies used quantitative study to test the relationship between usage of mobile
payment services as dependent variable with the independent variable; attitude towards
self-efficacy, compatibility, results demonstrability, technology facilitation condition,
resource facilitation condition, perceived ease of use, image, use, subjective norm,
testability, relative advantage and visibility of services.
The dependent variable of the study is adoption (use) of mobile payments. The
independent variables for the study will be perceived usefulness, perceived ease of use,
perceived computability and Social norms. Perceived usefulness and perceived ease of
use are adopted form TAM and the perceived Compatibility is from Innovation
diffusion theory whereas social influence is intergraded from UTAUT model.

5.2 Data Collection

A survey based data will be collected from the users who are using the services of
mobile payment provided by five telecom companies’ i.e.; Ufone, Mobilink, Telenor,
Zong and Warid operating in the area of twin cities (Rawalpindi and Islamabad) in
Pakistan.

5.3 Instrument of the Study:

The self-administered questionnaire will be used to collect the data from the customers
regarding intention to adopt the mobile payments services as well as their perceived
usefulness of the services. The questionnaire will be designed on five likert scale points
i.e.; Strongly Disagree, Disagree, Neutral, Agree, Strongly Agree. The questionnaire
will design in English Language as the respondents can read and write English.
As the reliability of the instrument is an important consideration in quantitative
research, the reliability of the questionnaire will be tested by doing pilot study on the
small sample size which will not be included in the final study.

5.4 Population and sampling

5.4.1 Sample Size:

Sample size will be two hundred and fifty customers of mobile payments services;
comprises of fifty customers from each company including both male and female.

29
5.4.2 Sample Characteristics:

The sample of the study will be consisted of the respondents using mobile services for
making any payments or utility bills as well as money transfers and transactions. The
respondents will be approached from the outlets of telecom companies. The data will
be collected after taking inform consent from the respondents. The telecom markets
offering the services of mobile payment will be visited to approach the sample of the
study.

5.4.3 Sampling Technique:

Simple random sampling technique will be used on the basis of conveniently available
customers in the market.

5.5 Data Analysis

The correlation and multiple regression analysis will be performed in order to discover
the relationship between the dependent and independent variables. The data will be
analysed by using SPSS software, which is expedient and widely used package to
conduct quantitative analysis.

5.0 CONCLUSION

The foremost purpose of this paper is to comprehend the user’s intention toward the
adoption of mobile payment by using telecom services in Pakistan. A concept has been
built on identifying adoption of the mobile banking services by using mobile
technology, its benefits and risk for the users. Various models on the adoption of
technology were taken into consideration to ascertain the breach of the existing
researches. Some indicators such as trust, social influence and acceptability has also
influencing on the mobile adoption which need to be identify along with other
indicators stated in TAM and TAM 2. In addition to that, it is also expected that all
these indicators have their direct and indirect influence on each other as well. Still there
is need to create awareness among people that this telecom-bank collaboration model
is more secure and faster than other as from telecom expertise of customer acquisition,
distribution and marketing and bank give their service of regulation, cash management
and compliance so to promote this service will be helpful for poor to reduce their
poverty. Collaboration model is recommended for having more satisfied customer
because of financial security provided by central bank.

30
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 ARTICLE A3

Material Flow Cost Accounting as a Useful Innovation

Muhammad Kashif Khan
Siti Zaleha Abdul Rasid

ABSTRACT

Improvement in environmental performance is the need of the hour for businesses worldwide. However,
it is generally accepted by businesses that environmental and economic performance is negatively
correlated and mutually exclusive and therefore it is not economically viable to practically implement
any such measures that can improve the ecological performance. Material Flow Cost Accounting
(MFCA) is a novel environmental management tool that can increase not only profitability but also
environmental performance. This paper aims to evaluate the features of Material Flow Cost Accounting
(MFCA) as an innovation as well as the factors that can facilitate its adoption in practice using five
different innovation adoption frameworks. In addition to that the barriers that hamper its practical
adoption by majority of businesses worldwide are also briefly discussed throughout the paper as it is
surprising that only few of the global businesses introduced this simple and acceptable environmental
management tool practically.

Keywords: Material Flow cost Accounting (MFCA), Environmental Management Accounting (EMA),
Innovation, ISO 14051

1.0 INTRODUCTION

The necessity to increase productivity together with minimal environmental hazards

led to the introduction of a new field in management accounting that is environmental
management accounting (EMA). Likewise, Management accounting that helps
management in making internal decisions such as pricing of products, cutting costs,
budgeting etc. Environmental Management Accounting (EMA) aids businesses to
improve their economic performance and at the same time becomes environmental
friendly.

Key fields in which EMA data can be applied are reporting of sustainability
measures to local authorities, measurement of annual environmental expenditures,
product pricing, budgeting, investments options appraisal, design and implementation
of environmental management benchmarking, calculation of savings and costs of
environmental projects, implementation and designing of environmental management,
benchmarking, evaluation of environmental performance, disclosure of environmental
costs, setting performance targets, designing eco-friendly products, liabilities and
investments, reporting to external stakeholders etc. (PWC, 2012). EMA is a significant
factor not only in the appraisal of future projects but also in the long-term planning
because in addition to past information it also predicts future information (Burritt et al.,
2002).

EMA uses several tools for reporting environmental performance such as

sustainable balance scorecard, environmental life cycle costing, activity based costing

33
etc. but all these tools are focused on environment only with no consideration on
economic performance of the entity with the exception of Material Flow Cost
Accounting (MFCA) that not only helps in environmental protection but also focuses
on the efficiency of a business (Altham, 2007; Schaltegger et al., 2012; Burritt et al.,
2009; Deegan, 2003; Ditz et al., 1995; de Beer and Friend, 2006; Van and Gartner,
2011). Thus it can easily be assumed that MFCA as a tool helps making an organization
Eco-Efficient.

An organization’ environmental expenses are those expenses that are intended to

minimize adverse impacts on environment. It is interesting to note that the cost of
wasted materials can amount to up to 70% of the total environmental expenses of an
entity which means that the lions’ share among all the environmental expenses is the
cost of material wastage (Burrit et al. 2014; Jasch 2010). Thus manufacturing and
production processes are principal parts that not only use vast resources but also
produce huge quantities of wastages which is a big challenge to most businesses.
MFCA is explained as an starting point for implementation of material management
with an environmental perspective (Jasch et al.,2010) because according to MFCA all
procured materials should be consumed in the production process either in the shape of
the product for which it was purchased or as wastage (often referred to as negative
product or non-product).

According to ISO 14051, MFCA is a “tool for quantifying the flows and stocks
of materials in processes or production lines in both physical and monetary units” (ISO,
2011, p.3). Resultantly, based on the discussion it can easily be claimed that the use of
MFCA as an effective tool for the management of energy and material flows represents
a significant promise for current organizations in an economical and environmental
friendly way simultaneously (Altham, 2007; Schaltegger et al., 2012; Burritt et al.,
2009; Deegan, 2003; Ditz et al., 1995; de Beer and Friend, 2006; Van and Gartner,
2011).

The purpose of this paper is to analyse the features of Material Flow Cost
Accounting (MFCA) as an innovation and its adoption by the target market after
reviewing available literature related to MFCA and to understand the reasons behind
its non-adoption by a majority of businesses worldwide despite its proven utility as an
effective EMA tool that not only maximize shareholders’ wealth (economic dimension)
but also reduce environmental hazards. Even in the countries that pioneered this
approach such as Germany and Japan, MFCA is not in practical use by most of the
businesses.

In light of the above developments, it is appropriate to consider the following

objectives:
i. To determine the enablers/factors behind the adoption of an innovation in
general with particular focus on MFCA.
ii. To analyse the problem of non-implementation of MFCA in practice by a
majority of businesses globally despite its economic and environmental
utility.

34
2.0 LITERATURE REVIEW

2.1 Brief Overview of the development of Material Flow Cost Accounting

MFCA was introduced by the Institute für Management und Umwelt (IMU) Germany
in late 90s viz. ‘flow cost accounting’ (Federal Ministry for the Environment, 2003;
METI, 2007). MFCA grabbed the attention of Japanese in early 2000s because it
seemed explicitly relevant to manufacturing sector and the Japanese Ministry of
Economy, Trade, and Industry (METI) started to promote an altered version according
to Japanese context with a focus on Japanese manufacturing sector (Kokubu and
Tachikawa, 2013) because MFCA is visibly more beneficial for manufacturing
industry. Subsequently, it is claimed that MFCA can be as valuable and applicable to
service sector and not for profit organizations as it is for the manufacturing sector
because it not only manages material flows but also energy flows such as electricity
and water (Jasch, 2009; Papaspyropoulos et al., 2012).

2.2 MFCA and its associated benefits

MFCA runs on the basic principle of conservation of Physics that states that “Energy
can neither be created nor destroyed but it can be transformed”. Likewise MFCA
emphasize that whatever goes in the production process as Input should come out as
useful Output minimizing wastage or non-products. According to ISO 14051: Material
Flow Cost Accounting; “MFCA is a tool for quantifying the flows and stocks of
materials in processes or production lines in both physical and monetary units” (ISO,
2011, p.3).

In traditional cost accounting, cost of waste and its disposal is dumped into
overhead account which hides the resultant significant cost (Nakajima M. et. al.; 2014).
However, MFCA classify the output into two categories that are “intended product”
and “non-product/negative product”. The reporting of this negative product (Waste)
helps in better understanding of waste costs and consequently helps in reduction of this
waste either through product improvement or process improvement (Sulong F. et. al.;
2014). Thus the MFCA logic is simple; “Less waste leads to less inputs which reduces
costs and environmental hazards.”

In a study by Nakajima M. et al (2014); it is observed that MFCA identified two

types of material losses. First are such material losses that can be tackled directly by
production department itself as such losses may be reduced/improved at the production
site. The other types of material losses are such that require cooperation from outsiders
such as suppliers and involve further technical and financial studies. However, it is very
difficult to attain the collaboration/cooperation of suppliers in such markets where there
is high bargaining power of suppliers (Porter’s five forces). This proposition is also
confirmed by Sulong F. et. al. (2014) in their case study of a Malaysian SME, Alpha,
and an automotive parts manufacturer, where Alpha while decided to change the
technical design of its process to minimize waste experienced non-cooperation by its
supplier which resulted in a delay of procurement of material required for that specific
process.

35
 The benefits of MFCA implementation are: proper understand ability and
identification of inefficiency areas, reduced costs of waste production and disposal,
reduced costs of direct materials; reduced adverse environmental impacts, innovation,
accuracy in product costing, improvement in inter departmental communication
regarding the use of resources and increased internal and management control (IFAC,
2005; Scavone, 2005; Kokubu and Tachikawa, 2013; METI, 2007; Schaltegger et al.,
2002, 2012).

2.3 ISO 14051: Material Flow Cost Accounting

The importance of MFCA is also manifested by the fact that International organization
for standardization (ISO) introduced a new standard “ISO 14051: Material Flow Cost
Accounting” in September 2011 as a guide to businesses and as a source of awareness
for businesses operating globally. ISO believes in the universal application of MFCA
to all businesses regardless of their type as manufacturing or services. The ISO 14051
is a guidance standard rather a certification standard which means that it is not binding
on the organizations and it is up to the will of the corporate to introduce MFCA in their
organization voluntarily through “self-motivated implementation” (Kokubu and
Tachikawa, 2013).

The involvement of ISO provides MFCA reliability and credibility which has so
far been absent. Moreover, the standards proposes by ISO from time to time has a wider
impact not only because of its huge membership portfolio of more than 160 countries
(ISO, 2014) but also because of the consultants that are involved in interpreting these
standards thus provides businesses an opportunity to obtain more knowledge and
information about potential marketing opportunities (Heras-Saizarbitoria & Boiral,
2013). Schaltegger et al. (2011) verifies the notion that the better known and publicized
an environmental management accounting tool is, the more the probability that it is
adopted by businesses.

2.4 Evidence of low practical implementation

Keeping in view the above discussion on the benefits and usefulness of MFCA as a
useful EMA tool it can be assumed that MFCA is adopted by most of the organizations
of the world however the reality is different. For example, a 2005 survey of Japanese
companies conducted by Kokubu and Nashioka (2005) revealed in their survey of
Japanese businesses that in spite of having knowledge (because of rigorous publicity
efforts in Japan by METI) of MFCA as a useful EMA tool by 73.5% of businesses,
MFCA was actually implemented by a meagre 6.5% and that too partially in their
operations, sadly MFCA was not implemented in totality by any company which is
really a serious concern. Similarly, a German study conducted in 2010 by Schaltegger
et al. (2011) in their study on the same topic revealed that in Germany only 51.6% of
industry respondents showed that they do have knowledge of material flow analysis
(MFA) and, out of these businesses, only 56.3% applied MFCA method in their
operations.

36
 The possible factors behind such low implementation of MFCA may be lack of
awareness among businesses about MFCA, businesses considers MFCA as a tool that
is not aligned with their fundamental business goal of maximizing shareholders’
wealth, MFCA may affect their profitability negatively, MFCA is complex enough and
difficult to implement etc. (Scavone, 2005; Kokubu and Tachikawa, 2013; Schaltegger
et al., 2002, 2012; Burrit et. al. 2014). It is expected that the recently released ISO
standard as well as survey based case studies may help in removing several
misconceptions related to MFCA.

2.5 Adoption of MFCA as a useful Innovation

Material Flow Cost Accounting (MFCA) is one of the innovative tools of

Environmental Management Accounting that not only helps in environmental
protection but also increases the efficiency of a corporate. Several innovation adoption
frameworks have been proposed by past researchers to better understand the features
behind an innovation to be adopted fully and rapidly in practice. Following five
innovation adoption models will certainly help understand the enablers/barriers of
MFCA as a compatible innovation to be adopted by most of the businesses globally.

2.5.1 Extension theory

MFCA like any innovation has been facing the problem of non-awareness and lack of
communication and currently falls in the ‘early adopter’ category (Burrit et. al.; 2014).
According to “Extension Theory”, an innovation is adopted at a rapid pace once
information about it is communicated through networks. A recent research by (Sulong
et. al; 2015) showed that awareness about MFCA as an innovation is communicated
rapidly among businesses and it is reasonably expected that adoption of MFCA at an
accelerating pace will occur in future. ISO 14051 being a standard released by an
international organization will also help in spreading awareness about MFCA (Burrit
et. al.; 2014).

2.5.2 Bounded Rationality

One of a common misconception that hinders businesses adopt any environmental

friendly initiative is that any environmental friendly measure depletes their profitability
and both economic profitability as well as eco efficiency are negatively correlated
(PWC, 2012). Simon (1991) proposed that human or corporate decide to adopt an
innovation using their minds and that rationality is limited according to the structure in
which it operates. Consequently, MFCA can be adopted by the businesses because of
its inherent economic dimension and thus aligned with the basic goal of businesses that
is “maximization of shareholders’ wealth through a reduction in overall costs and
enhancing profitability (Nakajima M. et al., 2014).

2.5.3 Theory of perceived attributes

Because of its wider scope, theory of perceived attributes addresses almost all of the
barriers behind the adoption of MFCA as a useful innovation. Rogers (2003) proposes
a theoretical framework according to which a given population accepted an innovation

37
follows an S curve that involves five categories that are innovators, early adopters,
early majority, late majority and laggards. Initially the acceptance is slow and later on
the adoption increases until a saturation point is reached when laggards adopted it. It
can thus easily be assumed that keeping in view the poor adoption of MFCA by
businesses as a useful tool (Burritt & Tingey-Holyoak,2012; Kokubu & Nashioka,
2005; Schaltegger et al., 2011), MFCA is in its early stages of S curve (Sisaye &
Birnberg, 2012). Rogers (2003) further argues that while adopting innovation,
businesses go through a process involving four steps that are, “knowledge; persuasion;
decision; implementation; and confirmation”.
Rogers (2003) proposed five characteristics of an innovation that can either
facilitate or hinder its adoption which are as follows: “relative advantage over current
practice; compatibility with existing values, experience and needs of the potential
adopter; overall complexity; observability, and, finally, trialability” (Rogers, 2003).
Let’s analyze each of these characteristics in order to gain a better understanding.

1- Relative advantage: it includes the costs of implementation, expected

profitability through cost reduction, expected duration for benefits to be realized,
resources such as labour and time needed for implementation, user friendliness
etc. (Rogers, 2003). According to Sulong et al. (2015) the adoption of MFCA
will be quicker if managers understand the environmental and economic
advantages that a single EMA tool such as MFCA provides, as other EMA tools
such as life cycle costing, environmental balanced scorecard etc only focuses on
either environmental responsibility or economic profitability.

2- Compatibility: can be understood if innovations like MFCA are consistent with

the goals, vision and values of the business (Sulong et al. 2015). Because of the
potential of MFCA to not only minimize manufacturing concerns’ processes’
hazardous effects on environment but also produce monetary gains which are
consistent with the values of most of the businesses such as efficient resource
utilization, reduction in costs etc (Christ & Burritt, 2013). Like other ISO
standards series such as 14000 and 9000; ISO 14051 also focuses on “plan-do-
check-act cycle (PDCA) “to encourage continuous improvement (ISO, 2011).

3- Complexity: Rogers (2003) proposed that diffusion of innovation among

population is negatively related to complexity of the innovation. Those who
adopt innovation favours simplicity because if an innovation is difficult to
understand, it is highly probable that the prospective adopters abandon the idea.
The ISO standard contains clear definitions of terms and examples to clearly
understand the relationship of material flow and costs once the tool is put in
practice. (ISO, 2011) The case study of a Malaysian SME who implemented
MFCA by Sulong et al. (2015) also strengthen this belief as it was observed that
“employees from various units in the [case organisation] were able to understand
the concepts in MFCA comparatively easily”.

4- Observability: this trait as being “whether MFCA results are easily observed and
communicated to others” (Rogers; 2003) it has been found by previous
researches that unlike life cycle analysis which lacks any monetary incentive and
much complicated; MFCA is much easy to explain, observed and understood as
per case study conducted by Sulong et al. (2015) on case SME, Alpha that can

38
 easily describe the benefits to other businesses that are a part of “Malaysia
Productivity Corporation”. (Sulong et al.; 2015) MFCA project.

5- Trialability: MFCA can be experimented by a business before it decides to adopt

it fully. It was also mentioned in the case study of Sulong et al. (2015) in which
Alpha (the case SME) conducted three trials initially on limited basis before it
is adopted fully and included in all the processes of that SME. It is therefore easy
to conclude that MFCA can be assessed before it is implemented in its full
entirety by an organization for all of its processes or for its entire supply chain.
(METI, 2007). According to ISO 14051 “The boundary can encompass a single
process, multiple processes, an entire facility, or a supply chain at the discretion
of the organization. However, it is advisable to focus initially on a process or
processes with potentially significant environmental and economic impacts –
emphasis added”. (ISO, 2011, p. 10)

2.5.4 Theory of Reasoned Action

According to this theory, the more a business considers an innovation useful; the more
the chances that it will adopt it and vice versa. (Parminter & Wilson; 2003) Keeping in
view the benefits that MFCA as an innovation offered such as profit enhancement and
environmental friendliness, it is likely that businesses adopt it in the future as is
mentioned at the website of ISO; “turning waste into gold with new ISO standard for
environmental management accounting.”

2.5.5 Consumer Behaviour Theory

One of the biggest hurdles behind MFCA practical implementation is the understanding
that it would be very difficult and complex to introduce MFCA. Likewise, Kaine (2004)
proposed that if an innovation needs complex decision making, it needs high
involvement and more effort and vice versa. However, Sulong et al; 2015 in their recent
paper were of the view that MFCA as an innovation is not such complex that consumes
much time and efforts in its adoption. Therefore it is highly likely that businesses will
adopt this useful innovation to serve not only their corporate social responsibilities but
also increases their profitability through effective waste management.

3.0 LIMITATIONS

Although utmost care has been taken to cover most of the aspects of MFCA in this
paper including a description of the whole MFCA process, history of its development,
reviewing of case studies of businesses related to the pioneer countries that are Japan
and Germany and suggestions of areas associated with MFCA that need to be explored
further by future researchers for a more better understanding; it is understandably
assumed that this review is not exhaustive. Several reasons are associated with this
assumption such as mostly researches done on the subject are in foreign languages
(Japanese and English) and very little relevant literature is available for analysis and
review.

39
4.0 CONCLUSION AND FUTURE RESEARCH DIRECTIONS

It can easily be seen that despite proven advantages of MFCA theoretically, this tool of
EMA has not been implemented by businesses in practice to a large extent as expected.
Moreover, although several researches have been made on the topic, they are limited
mostly to case based studies. There is a need to undertake survey based as well as
interview based research using sophisticated statistical tools for analysis on the topic.

Keeping in view the reviewed literature, it is quite evident that its focus has been
so far on manufacturing concerns and it is suggested that MFCA is more appropriate
in traditional manufacturing processes where there are complex material flows (IFAC,
2005). However it is also suggested by some writers that MFCA has its utility in service
and not for profit organizations alike. (ISO, 2011; Jasch, 2009; Papaspyropoulos et al.,
2012). Therefore it will be interesting to find out that how MFCA can be implemented
in service sector as material flow in such settings in not obvious. The appropriate
research question(s) may be: What are the benefits and costs of implementing MFCA
in manufacturing/ service sector/ not for profit organizations/ SMEs etc? What will be
the problems in implementing MFCA in practice in manufacturing/ service sector/ not
for profit organizations/ SMEs etc?

Another area that may be of interest for future research is who will prepare the
MFCA information and for whom it is prepared in businesses and how MFCA
information is communicated across different departments of organization where
MFCA is implemented as it will facilitate the implementation if it is aimed towards
appropriate personnel. (Burrit et al., 2013)

In addition to that it is also disappointing to note that MFCA as a useful EMA

tool is theoretically recognized by the businesses yet it is not adopted in its spirit
practically by most of the enterprises even in its pioneering countries that are Germany
and Japan. There is a need to know: What are the hurdles in implementing MFCA by
businesses? How much is the awareness of MFCA as a useful tool by businesses in
developed/developing countries? Etc. There is a need to examine whether there are any
enterprises present that adopted MFCA earlier but abandon it afterwards. What were
the reasons of abandoning MFCA? Does the perceived benefits from MFCA
implementation smaller than the costs of adopting it? Etc

Moreover, it is also yet to see that whether MFCA can be used as a routine tool
in business settings or as a one off tool (ad hoc basis) because MFCA is seen by the
researchers as a routine tool for generating information. However it is suggested that
MFCA can be used as a contingent tool for special one off occasions and as the authors
suggested the MFCA implementation “does not need too much effort”. So there is a
further need to know that on what occasions and purposes MFCA can be used as an Ad
hoc tool? Does the application of MFCA as a one off tool affect its effectiveness? Etc

The above mentioned research questions can be answered mostly through

qualitative research and case studies (carried out through interviews and comparative
case studies) however in some instances such as to ascertain the current level of

40
awareness of MFCA, benefits of MFCA anticipated by businesses etc survey based on
questionnaires may be used.

It is reasonably expected that MFCA because of its utility as an effective

environmental management tool that not only enhances the productivity but also
reduces the hazardous effects on environment will be applied by most of the global
businesses in practice soon which certainly aid in better and environmentally
responsible decisions by businesses .

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 TRACK B:
HUMAN RESOURCE
MANAGEMENT

44
 ARTICLE B1

Relationship between National Talent Retention and National Value

Proposition with Life Satisfaction as a Mediator

DzulFahmi Md Nordin
Rosmini Omar
Jihad Mohammad

ABSTRACT

This conceptual paper coined and explores the relationship between National Talent Retention as the
dependent variable with National Value Proposition as the independent variable. Life Satisfaction is
introduced as a mediating variable to explore mediating possibilities between National Value
Proposition and National Talent Retention. National Talent Retention is a study on factors that
contribute towards promoting “Willingness to Stay” of a nation’s high skilled talents in relation to
National Value Proposition. Migration Theories, Value Propositions Theories, Life Satisfaction, Human
Resource Management and Resource Based View are some of the theories referred to in order to
understand and explore the concept of National Talent Retention. Malaysia is chosen as the background
of this study since Malaysia represents a developing nation with a multi-racial and multi-cultural
background for this exploratory paper. Malaysia experiences the phenomenon of Brain Drain which
could hinder its Vision 2020 to progress as a fully developed nation by year 2020. Mixed methodology
analysis is adapted in this paper to include both qualitative face-to-face interview as well as quantitative
survey questionnaire to study on the value proposition factors explored. Target respondents are strictly
confined to Malaysia’s local high skilled talents either residing in Malaysia or migrated abroad.

Keywords— National Talent Retention, National Value Proposition, Life Satisfaction.

1.0 INTRODUCTION

The originality of this paper lies in the exploratory nature to explore; firstly, the
influential items that represent National Value Proposition and secondly, the
relationship between National Talent Retention and National Value Proposition with
Life Satisfaction introduced to test any possibilities of mediating effect of Life
Satisfaction. To date, no such study has been explored to link these three variables.
This study tends to expand Value Proposition theory to the scope of nations. In
understanding the concept of National Talent Retention, the definition of Talent
Retention is adapted from the study of Organizational Talent Retention which refers to
an organization’s ability to retain hired high skilled talents. In Organizational Talent
Retention, the most common factors given by talents when they wish to stay with a
company are career growth, learning, career development, exciting work and challenge,
meaningful work, making a difference and a contribution, great people, being part of a
team, good boss, recognition for work well done, autonomy, sense of control over one’s
work, flexible work hours and dress code, fair pay and benefit (Ashton & Morton, 2005;
Samuel & Chipunza, 2009).

45
 National Talent Retention as the dependent variable extends the concept of
Organizational Talent Retention to the scope of nation in terms of national policies and
practices designed to meet the diverse needs of high skilled talents and the environment
that encourages them to stay in a nation. Much of available thesis and studies covers
the concept of talent retention from the perspectives of firms and organizations. There
is still an eclipse in the study of national factors that influences high skilled talents’
willingness to stay and contribute their skills and knowledge towards the development
of their home country.

Therefore, in this exploratory study, the researcher defines National Talent

Retention as “willingness to stay in a country” with the hope to explore the influential
independent variable factors (Güngör & Tansel, 2014). By introducing Life
Satisfactory as a mediating variable, it is hoped that this thesis would shed some
understanding the relationship between National Talent Retention as the dependent
variable, National Value Proposition as the independent and Life Satisfaction as the
mediating variable.

It will become significant in the years ahead to recognize the importance of

talents to a nation, as well as the nation’s need to create an environment in which one
would be willing to stay. Nations will need to either create an intellectual capital
environment where the transmission of knowledge takes place throughout the nation,
or continue to lose important individual knowledge through migration. The findings of
this research are what the researcher hopes will assist nations on understanding the
contributing factors towards National Value Proposition as well as expectations high
skill talents of towards Nation Value Proposition. Today, talent management has
become an ever more important tool to gain a sustained competitive advantage through
human capital (Collings & Mellahi, 2009).

2.0 PROBLEM STATEMENT

Since this is a new exploratory study, there is a lack of study or literature reviews that
can directly define National Talent Retention and National Value Proposition as the
concept and construct of interest. As such, cross-disciplinary approach is applied in
order to support the understanding of both concept and construct. The references
include theories such as Migration Theory (Ravenstein, 1889), Theory of Reasoned
Action (Fishbein & Ajzen, 1975; 1985), Talent Management (Thunnissen, Boselie, &
Fruytier, 2013) and Push and Pull Theory (Güngör and Tansel, 2014; Jauhar & Yusof,
2014) for National Talent Retention concept. Value Proposition (Anderson, Narus, &
Van Rossum, 2006; Ballantyne, Frow, Varey, & Payne, 2011; Kowalkowski,
Kindström, and Brehmer, 2011) and Resource Based View (Barney, 1991; Barney &
Zajac, 1994; Barney, 2002) theories are referred to support the construct of National
Value Proposition. In order to understand why Life Satisfaction is selected as the
mediating variable in this thesis, Social Exchange Theory (Saks, 2006; Walczak, 2015)
is referred.

Despite over a decade of debate and hype about the ‘war for talent’ as a pressing
concern (Michaels, Hanfield-Jones, & Axelrod, 2001) there has been strikingly little

46
theory development, not to mention the lack of robust empirical evidence (Collings, &
Mellahi, 2009) on National Value Proposition. Today, interdisciplinary science
encourages the combination of cross-discipline theories to be combined to study
theories, concepts and ideas. In studying the relationship between National Value
Proposition and National Talent Retention, Life Satisfaction is introduced as a mediator
that links National Value Proposition as the Independent Variables and National Talent
Retention as the Dependent Variable to explore and relate both dependent and
independent variables.

Theoretical gaps on migration at country level arise because most of the

migration studies mentioned earlier covered the issues of migration by bundling labor
from all skills levels, including low skilled labors and general workers but none has
specifically focused on selected high skilled group of talents that is critical in
supporting a nation transition from a manufacturing based to a knowledge based
economy. Early migration theories such as Ravenstein’s Law of Migration (Ravenstein,
1889), (Lee’s Theory of Push and Pull Factors (Lee, 1996), Neoclassical Economic
Theories (Harris & Todaro, 1970; Hicks, 1932; Lewis, 1954) and Migration Network
Theory (Dustmann, & Glitz, 2005; Massey, et al., 1993; Vertovec, 2002) are the
referred fore-founding theories on general skills and migration. Related to migration
theories, researches also discussed on the concepts of Brain Drain (Simon Fan, & Oded
Stark , 2007; Davis, & Weinstein, 2002) and Brain Gain (Cheshire, & Magrini, 2006;
Saxenian, 2005). This study tends to bridge the migration theoretical gap between the
national value proposition factors and the nation’s high skilled talents willingness to
stay. Cross-disciplinary approach from the perspective of combined overarching theory
of Social Exchange Theory and the fields of Value Proposition, Talent Management,
Resource Based View, Theory of Reasoned Action and Life Satisfaction theories are
referred to in order to support the concept and variables introduced in this study.

The theoretical contributions aimed in this thesis is to contribute towards

forwarding a replicative framework that can be used in the study of talent retention in
nations as well as to forward the understanding on factors that could influence the life
satisfaction of talents in a nation. Narrowing the population sample, there is still a gap
in the migration study specific to a nation’s high skilled talents migration factors,
specifically with life satisfaction as a mediating variable.

In terms of policy gap, the Asian Four Economic Tigers such as Singapore, Hong
Kong, South Korea and Taiwan have shown that human resource is a critical intangible
resource that contributes towards the economic development and progress of their
nations through their knowledge, experience and innovative contributions (Helpman,
Elhanan, 2004; Paul, 1990; Robert, 1956). These nations have successfully attracted,
retain and develop talents in their respective nations to support their economic growth.
Yet, other developing nations have failed to attract, retain and develop talents with
talents migrating, resulting in Brain Drain phenomenon including Malaysia. Some
nations have acknowledged the importance of recognizing the crucial contributions of
talents towards supporting the economic development and have begun to initiate Brain
Gain initiatives to attract, retain and develop talents through implementations of the
nation’s policy changes. Hopefully, the findings in this thesis could contribute towards
filling in the policy gap.

47
 In terms of societal gap, it will be interesting to explore the relationship between
the value propositions offered by Malaysia and perceived life satisfaction by
Malaysia’s high skilled talents as well as how life satisfaction, as a mediating variable,
influences their decision to stay in a nation. It is interesting to study the differences of
perspective view between these local talents that make them decide on their choices.
Failure to address brain drain phenomenon will lead to a wider societal gap and worsen
a nation’s brain drain issue. Talents might end up dissatisfied in the value propositions
projected by a nation and thus, spiraling the issue of brain drain in the nation. It is
crucial to explore the relationship between National Value Proposition, National Talent
Retention and Life Satisfaction in order to understand the factors that could contribute
towards achieving a successful National Talent Retention.

3.0 RESEARCH QUESTIONS

The research questions explored in this thesis revolves around the research problems
mentioned earlier. Firstly, the researchers are concerned with exploring the items that
are viewed by high skilled talents as the potentially influential factors to represent
National Value Proposition as the independent variables. National Value Proposition
is represented by three dimensions namely Firm Value Proposition; Higher Education
and Training Value Proposition; and National Attractiveness Value Proposition. Upon
exploration of National Value Proposition items, the relationship is studied with
National Talent Retention as the dependent variable as the concept of interest. With
reference to Social Exchange Theory, Life Satisfaction is introduced as the mediating
variable to further explore the relationship between the independent and dependent
variables. The exploratory nature of this study invokes a number of research questions.
This study lists four research questions of interest as listed below.

• Research Question 1: What are the influential National Value Proposition items?
• Research Question 2: Is there any positive relationship between National Value
Proposition and Life Satisfaction?
• Research Question 3: What is the relationship between Life Satisfaction with
National Talent Retention (Willingness To Stay)?
• Research Question 4: What is the relationship between National Value
Proposition with National Talent Retention (Willingness To Stay)?
• Research Question 5: Does Life Satisfaction mediate the relationship between
National Value Proposition and National Talent Retention (Willingness To
Stay)?

4.0 RESEARCH OBJECTIVES

The objective of this study is to pioneer the relationship between the concept of
National Talent Retention and National Value Proposition, with Life Satisfaction as a
mediator. It is hoped that the findings of this research could contribute towards
understanding the influential factors that could influence a high skilled talent’s
willingness to stay in a nation. To address the research problems and research

48
questions, this study focuses the research participants to Malaysia’s local pool of high
skilled talents that are considered as critical to support Malaysia’s aim to be a fully
developed nation by the year 2020. The participants include Malaysian citizens having
at minimum Bachelor degree and professional certifications. In specific, the objectives
of this study are:

• Research Objective 1: To explore the influential items for National Value

Proposition.
• Research Objective 2: To predict the relationship between National Value
Proposition and Life Satisfaction.
• Research Objective 3: To predict the relationship between Life Satisfaction with
National Talent Retention.
• Research Objective 4: To predict the relationship between National Value
Proposition with National Talent Retention.
• Research Objective 5: To test mediating effect of Life Satisfaction between
National Value Proposition and National Talent Retention.

5.0 SIGNIFICANCE OF THE RESEARCH

There are three stages of gaps that this study is interested with. The first stage is the
theoretical gaps that are related to this study as mentioned earlier in the problem
statement section. This thesis adapts Social Exchange Theory as the over-arching
theory and refers to several other related theories in tandem with the current practice
of cross-disciplinary approach rather than the traditional approach of applying single
theory to pioneer the construct of National Talent Retention. These theories can help
to support the concepts and variables explored and it is hoped that the gap in
understanding National Value Proposition would contribute towards bridging the
theoretical gap for this pioneered concept and constructs with Life Satisfaction as the
mediating variable.

Another interesting theoretical gap related to this study is the theory of Social
Exchange Theory where Life Satisfaction has been introduced in this research as a
mediator. Social exchange theory posits that human relationships are formed by the
use of a subjective cost-benefit analysis and the comparison of alternatives. The theory
has roots in economics, psychology and sociology. Social exchange theory features
many of the main assumptions found in rational choice theory and structuralism [29,
72]. Most migration studies applied push and pull factors in explaining the causal and
effects of migration. Life satisfaction is a cognitive assessment of an underlying state
thought to be relatively consistent and influenced by social factors [24].

Value Proposition Theory has been widely applied in the field of marketing in
terms of the promise of value to be delivered and acknowledged and a belief from the
customer that value will be appealed and experienced. Mostly, value proposition is
being applied to organizations, customers, products or services [2, 55]. There is still a
gap in applying the value proposition theory in studying the relationship between
National Value Proposition and National Talent Retention in terms of the value
proposition projected by National Value Proposition factors. It is hoped that this study

49
could contribute towards bridging the gap within the context of Value Proposition
Theory.

Earlier migration studies that consisted of general labors are no longer replicable
to today’s knowledge based economy. This paper shall contribute towards the
migration theory by focusing on selected group of talents that is defined by high skilled
talents which are deemed critical to support a nation’s move towards a knowledge-
based economy. Adapting the Theory of Reasoned Action [26, 27] in exploring
decision making factors, hopefully this thesis could bridge the gap in understanding the
factors that contribute towards migration of high skilled talents in the era of knowledge
economy. National Talent Retention, hopefully would turn as a new discovery aimed
to be built in this study as the researcher bridge the understanding of explored value
proposition factors that would lead to the success of a nation to retain its high skilled
talents.

The second objective of this paper is to contribute towards bridging the policy
gap of talent management in Malaysia. There is still a gap in Malaysia’s policy since
Malaysia is still losing its local high skilled talents alarmingly. It is hoped that the
findings would shed some lights to the government of Malaysia to further understand
issues of National Talent Retention and provide some understanding on the influence
of National Value Proposition. Such a potential situation may also precipitate the
development of higher learning and training institutions, which if robustly managed,
could supply firms and industries with the right talents who ultimately progresses a
nation to a better state of condition socially and economically with improved
institutional practices.

Thirdly, this thesis hopefully would bridge the societal gap in understanding how
Malaysia’s high skilled talents perceive the National Value Propositions projected by
the nation. As for the societal gap, there is still a gap in understanding how Malaysia’s
High Skilled Talents perceive the National Value Propositions projected by the nation.
Administrators in other agencies can also benefit by understanding how critical
National Talent Retention is, and that, as a positive construct, it can be measured in a
variety of settings. Understanding and bridging these theoretical, policy and societal
gaps could contribute towards a successful National Talent Retention. It is also hoped
that upon completion of this study, the same model could be replicated to identify the
influential factors specific to other countries.

6.0 LITERATURE REVIEW

In order to explore the concept of National Talent Retention, several literatures related
to human migrations theories, marketing theories (related to value proposition),
resource based view, employee retention, employee engagement and life satisfaction
are referred to as references to explore and define the concept of National Talent
Retention. The international labor migration theories and findings are being
investigated in different ways for a long time. Various theoretical studies more or less
investigating mechanism of migration push and pull determinants could be found in the
recent literature [1, 48]. Highly-skilled migration is also being analyzed in a number of

50
different ways [13, 15, 38, 46, 70]. However, none has been carried out specific to this
study. National Value Proposition as the independent variable is represented by three
dimensions which are Firm Value Proposition, Higher Education and Training Value
Proposition as well as National Attractiveness Value Proposition.

The first dimension to represent National Value Proposition; Firm Value

Proposition, is introduced to represent the value propositions offered by companies and
organizations to high skilled talents in terms of professional assistance and support
from the company or organization for a satisfied working environment. This is to avoid
confusion with Employee Value Proposition which is the expectations of employees or
talents towards a company or an organization. From modern human resource
perspective, human capital is viewed as the most valuable assets for organizations [60].
Human assets are difficult to duplicate, so they become the key competitive advantage
for an organization in the intensive competition. According to Mello (2011), finding
and hiring the right employees are prerequisite to the establishment of organization, but
retaining the effective workforce will be more important for the organization’s
development [50]. Today, however, retention of valuable employees is a global
challenge. Retention of skilled employees has been of serious concern to organizations
in the face of high employee turnover rate [60]. Even nations are challenged with the
issue of retaining talents.

In relation to the second dimension which is Higher Education and Training

Value Proposition, higher education and training institutions play an important role in
producing knowledge workers. Knowledge workers are versatile, autonomous, highly
skilled and are able to leverage and build knowledge to produce useful action with very
strong analytical skills. They are expected to be flexible and have a high tolerance for
ambiguity. For Malaysia to produce a pool of k-leaders and k-workers, the educational
system needs to be revamped and restructured. The focus should be directed to making
the existing curriculum more innovative to help students to invent and develop a critical
and analytical mode of thinking and ultimately create a sufficient pool of well-
educated, highly skilled and strongly motivated workers [39]. It is also observed that
education and training is the fundamental factor that could realize the creation of a
productive and innovative high skilled human capital for nations.

However, it is equally important for nations to promote a conducive environment

to retain its high skilled talents after all the investments to develop and train these
talents in tandem with the economic development policies. Hence, the third dimension;
National Attractiveness Value Proposition is introduced to explore the influence of
National Attractiveness Value Proposition factors that influence high skilled talents’
willingness to stay in a nation. The fundamental reality is that nations need talent to
ensure innovation and support economy development as well as a sustainable long-
term development. However, when a nation’s skilled people leave at a high rate, it is
invariably a signal of deep and significant problems. In source countries, the emigration
of talent can reduce their human capital base. Developing countries that see their
entrepreneurs, scientists, technology experts, medical doctors emigrate can experience
a retard in their development potential. As such, nations will need to be sensitive to the
perception of talents and deliver a value proposition that could produce, attract and
retain high skilled talents to stay and contribute their skills, knowledge and experience
to the nations. Should these locally groomed high skilled talents migrate abroad it will

51
be a loss to the nation and might hinder its plan to be a developed nation by the year
2020.

Life satisfaction can be defined as the cognitive component of subjective well-

being [47]. This is consistent with [10] who say that life satisfaction reflects both the
extent to which basic needs are met and the extent to which a variety of other goals are
viewed as attainable. Ziegler and Britton (1981) assumed that people view the
migration decision as one of utility maximization, i.e., people migrate to find better life
satisfaction in some subjective sense [76]. From the study on job satisfaction,
Greenwood's (1985) review of the migration literature reports that migration across
labor market areas is related to changes in the extrinsic reward characteristics of jobs
and earnings [28].

In relation to education, [21] highlighted that small but significant correlations

between education and subjective well-being have often been found. They argued that
education may affect subjective well-being by allowing individuals to make progress
towards their goal or to adapt to changes. Individuals who attained relatively higher
levels of education and income also experience greater life satisfaction because they
appear to be more optimistic in their outlook on life and have more realistic
expectations for life in general [45]. Witter et. el. (1984) discovered that education
contributes to subjective well-being primarily by affecting occupation [74]. These
findings are supported by [75], who says that education appears to be highly related to
life satisfaction in poor nations, but also among individuals with lower income levels.
It is to be expected that education will generally have a greater impact on life
satisfaction among individuals. Nonetheless, the above studies merit a current
investigation as they are conducted in more than 10 years ago.

With regards to National Attractiveness Value Proposition, the influential factors

are related to micro-level surroundings, [8] says that country level characteristics
account for approximately 19 percent of the variance in personal life satisfaction, with
the remainder, 81 percent, being attributed to micro-social life domains. [33] argue that
macro-social and political conditions may have a particularly significant effect on life
satisfaction. Their study concerning the effects of five macro-social life dimensions on
life satisfaction that include wealth of a nation, the growth of wealth, economic
inequality, social expenditures and political freedom shows that life satisfaction is
usually higher in countries that are relatively rich, countries that have a generally equal
distribution of income, well-developed welfare states, and countries with political
freedom.

This conception can be reduced to Maslow’s hierarchy of needs and the theory
of post-materialism. Profound government action on a regional scale is required to
satisfy these materialistic, psychological and safety needs (example: by making
additional investments in a stable economy, sovereign legal system, reliable social and
security system). From the perspective of life satisfaction, potential migrants compare
perceived satisfaction in existing residence to an alternative place and will consider
relocating to an area that promises greater life satisfaction. In addition, the literature on
residential preferences has shown that increased life satisfaction is related to
community services, natural amenities and neighborhood facilities. These types of
factors have been shown to be related to the destination chosen by some migrants [73].

52
The main focus of this thesis is to explore the willingness of high skilled talents to stay
in Malaysia based on the perceived National Value Proposition items explored with life
satisfaction as a mediator.

Malaysia is chosen as the background of this exploratory study as it presents a

multi-racial, multi-cultural developing nation that is facing the brain drain phenomenon
even with all the policies in place to nurture, develop and retain its local talents. It is
interesting to explore how efficient Malaysia forwards its value propositions and how
influential these value propositions are as perceived by Malaysia’s high skilled talents
towards contributing to a nation’s National Talent Retention.

7.0 THEORETICAL FRAMEWORK

The conceptual framework of this study identifies three dimensions to represent

National Value Proposition as the independent variable to be explored that could
contribute towards a nation’s National Talent Retention. The three dimensions are Firm
Value Proposition, Higher Education and Training Value Proposition as well as
National Attractiveness Value Proposition respectively. Each dimension is further
represented by three sub-dimensions. The three sub-dimensions are further tested for 5
items that will be explored in the qualitative analysis. Specific items, either adapted
from existing scales or developed especially for this study will be used to test the
relationship between National Value Proposition as the independent variable and
National Talent Retention as the dependent variable. Life Satisfaction is introduced to
predict the mediating effect of Life Satisfaction influence on the relationship between
National Value Proposition and National Talent Retention. Based on the review of
literature, this conceptual paper generates the following research inquiries and
propositions: Research questions and propositions are developed to measure and
explore the relationship of the independent variables as below:

Research Question 1: What are the influential National Value Proposition

items?
To apply semi-structured qualitative interview with high skilled talents to explore
potential items at third order that will then be tested further in the quantitative
analysis
Research Question 2: Is there any positive relationship between National Value
Proposition and Life Satisfaction?
Hypothesis 1: National Value Proposition has a positive relationship with Life
Satisfaction.
Research Question 3: What is the relationship between Life Satisfaction with
National Talent Retention (Willingness To Stay)?
Hypothesis 2: Life Satisfaction has a positive relationship with National Talent
Retention.
Research Question 4: What is the relationship between National Value
Proposition with National Talent Retention (Willingness To Stay)?
Hypothesis 3: National Value Proposition has a positive relationship with
National Talent Retention.

53
 Research Question 5: Does Life Satisfaction mediate the relationship between
National Value Proposition and National Talent Retention (Willingness To
Stay)?
Hypothesis 4: Life Satisfaction mediates the relationship between National Value
Proposition and National Talent Retention.
The research framework proposed for this exploratory study is per Figure 1:

Figure 1: Proposed conceptual framework of National Talent Retention

8.0 PROPOSED METHODOLOGY

8.1. Mixed Methodology Applied

8.1.1 Qualitative Inquiry

For this exploratory study, face-to-face interview is selected by asking open ended
questions to a small sample and exploring individual experiences or opinions regarding
the researched variables of National Talent Retention, National Value Proposition and
Life Satisfaction. The qualitative research interviews tend to be flexible. Semi-
structured interviews mostly focus on the interviewee’s opinion and experience, aiming
to get rich and in-depth data [11]. Thus, this study depends on the characteristics of
conversations, trying to deal in-depth with the individual case [56]. According to [66],
exploratory studies need to be less structured than confirmatory studies. Thus, the
questions for this study are not standardized and are rather open structured. The
qualitative methodology is applied as a mean to gather background knowledge and
characterizations of the “National Value Proposition” items.

54
 The study choose open ended face to face interviews among other types of
qualitative methods because it has the potential of providing rich data, especially on
issues which were still exploratory in nature [63, 19]. Employing open ended face to
face personalized interview method, the qualitative phase of this study employed
purposive sampling to meet the objective of this thesis of exploring the perception of
high skilled talents on the nation’s National Value Proposition. The qualitative
sampling includes participants with at minimum Bachelor degree and is serving the
National Key Economic Area sectors. For convenience, the qualitative interview
participants will include 20 high skilled talents from various industries all located in
the Klang Valley area.

Purposive sampling is chosen as the type of sampling for the qualitative method
where the researcher actively selects samples that meet the criteria as defined by high
skilled talents since this thesis is mainly interested to study National Talent Retention
from the perspective of Malaysia’s high skilled talents.

The unit of analysis in the qualitative method is based on individual that consists
of Malaysia’s local high skilled talents. In conducting qualitative research, the purpose
of corroboration is not to confirm whether people’s perceptions are accurate or true
reflections of a situation but rather to ensure that the research findings accurately reflect
people’s perceptions, whatever they may be. The purpose of corroboration is to help
researchers increase their understanding of the probability that their findings will be
seen as credible or worthy of consideration by others [67]. With the aim to conduct the
qualitative interview in a natural setting, the researcher imposes minimal interference
onto the data collection process where manipulation of questions are unnecessary due
to minimal disruptions with the normal work flow or daily activities in the environment
of study [64].

Non-contrived study setting is conducted in this thesis since data collection is

carried out in open field settings as compared to causal studies that are carried out in
structured and controlled environment [64]. Cross-sectional study is applied in this
thesis where a one-time study lasting for weeks or months is done to explore a
phenomenon with selected purposive samples [9, 64]. This method is selected since
this study is interested to explore the phenomenon at the particular period that
represents the condition and environment of the study.

All respondents will be contacted during the development of the current study’s
thesis write up progress. Due to the sensitivity on the privacy of the interviewees, the
qualitative data collected from the interview will be carried out through audio recording
and written notes only without any video recordings, as most of the respondents
objected the usage of video recorders as video recordings will make them feel
uncomfortable. Prior to each interview session, participants will be briefed on the
definition of the variables and concept explored in order to provide a clear
understanding of the terms.

Prior to conducting the interviews, existing literatures were intensively reviewed

in the literature review. The gained insights were used as an inspiration for open ended
questions in order to understand the concept and variables of interest. Relevant theories
or related themes were collected and to each of them several questions were developed.

55
In order to prepare fluent interviews, the questions were distributed into different
categories. During the interviews, the order of questions in the interview guide was not
strictly followed. Due to the open and semi-structured character of the study, it seemed
to make more sense to let the interviewees answer the questions in an unconstrained
way, mentioning everything that came into their mind.

It is expected that many interviewees will bring up themes that were planned for
a later part of the interview in the beginning so that it seemed appropriate to advance
the questions regarding that certain topic. The interview guide was, thus, much more
used as a tool to support orientation during the interview and to make sure that all areas
of the research are covered [53]. Furthermore, as the interviewees came from different
cultural backgrounds, possible misunderstandings regarding the interview questions
had to be taken into consideration [53]. Hence, clarifying questions were asked
whenever it seemed necessary to check how the interviewees understood the questions
and whether the interviewer understood the questions.

Prior to proceeding with the pilot interview sessions, the qualitative interview
guide was forwarded to external qualitative lecturers in order to get their feedback on
the face validity of the interview guide. Face validity is an estimate of the degree to
which a measure is clearly and unambiguously tapping the construct it purports to
assess. Thus, face validity refers to the “obviousness” of a test where the degree to
which the purpose of the test is apparent to those taking it. Tests wherein the purpose
is clear, even to naive respondents, are said to have high face validity; tests wherein the
purpose is unclear have low face validity [52]. As such, the qualitative interview guide
for this thesis was forwarded to two senior lecturers in the field of talent management
to gather their comments on the questions structured. Based on the comments received,
the qualitative interview guide is revised prior to carrying out the pilot interview.

After developing the interview guide, a pre-test was conducted in order to test
the qualitative interview questions and the analyzing method. Five participants will be
interviewed in the pilot test session. This pilot test resulted in some minor changes,
such as omission of question on each respondent’s name as they might rather be
anonymous in order to be able to speak freely on their views and opinions. Accordingly,
the structure of the interview guide and the formulation of the questions will be
reconsidered and changed. However, the qualitative interview guide will still include
details on gender, age, education level and profession in order to get to a quick
overview of the interview person’s demographic background. It is expected that the
pilot interview will give several interesting insights for this study. Upon revision of
qualitative questions, the actual qualitative interview will be carried out with twenty
participants.

After conducting the qualitative interviews, they will be transcribed in order to

process them for the subsequent analysis. The qualitative analysis will utilize NVivo,
a Qualitative Data Analysis (QDA) computer software package produced by QSR
International. It has many advantages and may significantly improve the quality of
research. The aim of the qualitative analysis is to list out the third order items to
represent National Value Proposition factors to be tested further in the Quantitative
method.

56
8.1.2. Quantitative Inquiry

The quantitative survey aims at gathering demographic data on the respondents,

including their education and occupation to record the skills levels of the talent
samples. Country of origin is included in this section as responses could not be limited
to Malaysia, enabling the results to be filtered and comparison to be done with
respondents from different countries of employment. Questionnaires are used to
examine people’s perception, which are not easily evaluated or quantified. Likert scale
is applied to the rest of the sections of this study’s quantitative survey questionnaire to
determine the value proposition influential factors that could contribute towards
achieving Malaysia’s National Talent Retention. In order to minimize biasness of
collected data, the Likert scales for each variable are varied. SEM-PLS will be the
major tool used to analyze the quantitative data.

In the quantitative research method, a cross-sectional survey is applied by

adapting a number of pre-tested and adapted scales combined with newly created scales
for areas and questions that have not been explored in previous researches. The
objective of the quantitative analysis was to namely measure the relationships among
the variables to include samples and participants from Malaysia’s high skilled talents
and industry experts. Secondly, the data will be used to determine the validity of third
order items explored to represent National Value Proposition in the qualitative analysis.
Finally, the quantitative findings will be used to analyze the patterns of relationships
between the independent, dependent and mediating variables.

Similar to the qualitative analysis, the unit of analysis for quantitative method is
based on individual since this study is interested to explore high skilled talent’s
individual’s perception of the National Value Proposition. The researcher aims to
gather 225 respondents for the pilot survey for reliability of the newly created survey
instrument. Specifically, their industrial backgrounds ranged from the various 12
National Key Economic Areas (NKEAs). All of the participants have at least five years
professional working experience in their respective industries.

The type of investigation nature of this thesis is correlational as the aim is to test
the relationship between each variable where change in one is accompanied by a change
in the other. If so, this will determine the direction, variance and form of the observed
relationships [9]. Hair et. el. (2010) stated that research based on co-varied relationships
requires a simultaneous analysis of path relationships (i.e. multivariate-analysis with
SEM) to explain the strengths of relationships [32]. This form of investigation is
correlational in nature [64]. With the aim to conduct the qualitative interview in a
natural setting, the researcher imposes minimal interference onto the data collection
process where manipulation of variables are unnecessary due to minimal disruptions
with the normal work flow or daily activities in the environment of study.

Similar to the qualitative method, the quantitative method applies non-contrived

study setting in this thesis since data collection is carried out in open field settings as
compared to causal studies that are carried out in structured and controlled environment
[64]. Cross-sectional study is applied in this thesis where a one-time study lasting for
weeks or months is done to explore a phenomenon with selected purposive samples [9,
64]. This method is selected since this study is interested to explore the phenomenon

57
at this particular period that represents the condition and environment of the variables
and concept at the particular point of time of the study.

Prior to proceeding with the pilot interview sessions, the quantitative survey
questionnaire will be forwarded to external quantitative lecturers in order to get their
feedback on the face validity of the quantitative survey questionnaire. Based on the
comments received, the qualitative interview guide will be revised prior to carrying out
the pilot interview. Since the researcher designed the survey instrument for the
intention of this study, a pilot or feasibility study will be carried out on the quantitative
survey questionnaire to test logistics and gather information prior to the actual survey
in order to improve the latter’s quality and efficiency. A pilot survey can reveal
deficiencies in the design of a proposed experiment or procedure and these can then be
addressed before time and resources are expended on large scale studies [64].

A group consisting of Malaysian high skilled talent, and academicians

specializing in statistics, talent management, marketing and commerce from various
industries and universities in Malaysia will be asked to peruse the initial draft
questionnaire. The researcher will include a cover letter to ask them to comment on and
criticize the questionnaire. The responses from such group of practitioners and
academicians will determine the changes and improvements for the final survey
instrument.

Referring to [31], minimum 5 cases for each sub-dimension item will be required
to test new quantitative instrument. Since each dimension for National Value
Proposition is represented by 3 dimensions and each dimensions will be represented by
5 sub-dimensions from the qualitative survey finding, the total items explored in the
quantitative survey is expected at 45 numbers. As such, the pilot study aims to test the
questionnaire to 225 minimum samples for the 45 items tested for National Value
Proposition. The pilot test will be carried out through personally handing over the
questionnaires to each respondent in order to test and validate the questionnaires that
were used. The aim is to gather feedbacks from the 225 respondents to test the
reliability and validity of the pilot survey instrument. Exploratory Factor Analysis will
be carried out to test the reliability and validity of the pilot survey instrument. Based
on the data gathered, amendments will be made on the quantitative survey questions to
incorporate any changes necessary.

With regards to the actual quantitative survey, referring to [31] with the intention
to apply the rule of thumb of 7 cases for each item, the actual quantitative research
process will be continued with the distribution of 400 questionnaires to Malaysia's high
skilled talents locally and globally with the aim to gather at minimum 315 respondents
to represent Malaysia's high skilled talents locally and globally. General guides include
[68] rule of thumb that suggests having at least 300 cases are needed for factor analysis.
Hair et. el. (1995) suggested that sample sizes should be 100 or greater [30]. Comrey
(1973) stated in his guide to sample sizes that 100 as poor, 200 as fair, 300 as good,
500 as very good, and 1000 or more as excellent [17].

58
9.0 PRELIMINARY CONCLUSION

National Talent Retention, hopefully would turn as a new discovery aimed to be built
in this study as the researcher bridge the understanding of explored value proposition
factors that would lead to the understanding of National Talent Retention. This
research explores Talent Retention from a nation’s macro level perspective and aims
to provide a contribution to the existing human resource management theories. The
major contribution which is metrological will be the development of a new scale to
measure the construct of National Value Proposition. Another major contribution
which is theoretical is to examine the mediating role of satisfaction in relation to
National Value Proposition and Talent Management.

This research would add additional insights to nations on the influential factors
that will contribute towards achieving National Talent Retention. It shall also provide
a theoretical guide to industries and universities on the factors and attributes that
contribute to achieving National Talent Retention. It is hoped that the findings would
shed some lights to the government of Malaysia to further understand issues of talent
retention and provide some understanding on the influential factors.

The results of this study will provide insight and information for administrators,
practitioners, and researchers about employee engagement in the human resource
management field from the survey feedback, and could implement strategies for change
that address participant responses. Administrators in other agencies can also benefit by
understanding how critical National Talent Retention is, and that as a positive
construct, it can be measured easily in a variety of settings. It is also hoped that upon
completion of this study, the same model could be replicated to identify the influential
factors specific to other countries.

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 ARTICLE B2

The Mediating Effects of Job Satisfaction on the Relationship

between Job Crafting and Job Performance: A Conceptual Analysis

Homa Khorasani Esmaeili

Abu Bakar Abd Hamid
Rosillah Binti Jamil
Iraj Soltani

ABSTRACT

The issues regarding job-crafting, job satisfaction and employee’s performance are a cause of concern
for organizations. Further, job-crafting is associated with stronger employee satisfaction and job
performance. However, less attention has paid to employee’s job performance and its relationship with
job-crafting and job satisfaction in the organization. Job-crafting is the variable that has a potential
power to influence on employees’ job satisfaction and their behavior in the workplace. However, there
is no broad integrating framework of job performance at the individual level. The objective of this paper
is to highlight the relationship between job-crafting, job satisfaction and job performance (i.e. task,
contextual and counterproductive work behavior) at individual level. Particularly, job satisfaction as an
intervening variable improves the relationship between job-crafting and job performance. This study
contributes to job-crafting and individual job performance literature as well as to the managerial
practices by providing a good way for employees to improve their work motivation and other positive
work outcomes.

Keywords--- Job-Crafting, Job Satisfaction, Task Performance, Contextual Performance,

Counterproductive Work Behavior, Employees

1.0 INTRODUCTION
Organizations are frequently confronted with the issue of how to enhance employee’s
performance. Based on self-determination theory, a framework is proposed that states
the relationships between job crafting by autonomy and the need for work satisfaction
and employee well-being [73]. Job performance, and attempting to understand its
underlying structure, has received much attention [22]. However, no previous
researches have captured the full array and complexity of behaviors that constitute
performance of employees at work [42, 43]. In other words, research on the outcomes
of job-crafting is still in its infancy [23]. Wisecarver et al. [91] stated that job-crafters
are satisfied workers, to raise positive work for better job performance. One important
aspect and an affective motivator among the variables is job-crafting that has the
potential power to influence job satisfaction in the workplace [28]. Job crafting is a
relatively unexplored approach and a new construct that, employees can utilize to
increase satisfaction of their job and well-being, and researches are mostly theoretical
or qualitative. Although there is a dearth of studies, there is still a need to explore what
drives employees to excel in their jobs [10,49,92].

64
 Ghitulescu [26] found a, positive link between job-crafting and attitudinal
outcomes. Moreover, [23] suggest that there is scarce evidence that job-crafting is
beneficial for attitudinal outcomes, such as organizational commitment and job
satisfaction. Organizations can only operate within the capabilities and limitations of
their employees. Therefore, it is essential that organizations attract employees that are
capable of anticipating organizational needs and implementing organizational
objectives and strategies [41,54,58], since employees are active initiators of their own
work environment [92].

Based on theory of job redesign, [92], employees through crafting their jobs can
raise work-attitudes (job satisfaction) and their job performance [83]. This is because
job-crafting is oriented behavior toward proactive changing in their work context, [31],
and by making changes job-crafters can solve their problems creatively, learn new tasks
and technologies, deal with unpredictable work situations and physical surroundings.
Job-crafting arose from needs and interests of employees to make changes in their jobs
[92]. However, job-crafting in this study, represents a job redesign that does not include
managers in decision making [49]. If managers become sensitized to job-crafting
behavior the knowledge attained may lead to more effort to control employee behavior.
Therefore, in some work environments additional control may lead to employee
perceptions of being micro-managed, closely supervised, and so on. Among
employees, these perceptions may lead to decreased morale and lower job satisfaction
[4,51].

Thus, the research questions are formulated accordingly: (1) Is there a

relationship between job crafting and job performance with mediating effect of job
satisfaction? (2) Is there a relationship between job satisfaction and job performance?
The research aims to state relationship between job crafting, job satisfaction and job
performance.

2.0 INDIVIDUAL JOB PERFORMANCE

An individual job performance would be operationalized and conceptualized

differently in various disciplines. Yet, there is no integrated job performance
framework within individual level. In addition, regardless of its importance, there is no
comprehensive and conceptual framework related to individual job performance. Since
no research in literature review could demonstrate complexity and complete array of
behaviors, it will shape the employee performance in work context [42].

In field of organizational and work psychology, explaining the job performance

concept, and also trying to recognize its structure, has been considered by many
experts. The main emphasis, traditionally, was on task performance [16] that could be
described as proficiency that is performed by individuals in terms of the technical and
substantive central tasks to their own jobs. Based on the definition developed by [40],
it would be the capacity, functionality, desire and opportunity to accomplish a task. The
other presented definition by [68], explains that performance is the task realization by
employees or firms. There is another type of definition which says that performance is
the amount of products or services which are produced in a specific time period [84].

65
Even though it was understood that job performance has many dimensions [4.74], only
recently have studies [12,17,63], demonstrated the role of staff behavior which is
outside of the task performance rubric.

Murphy [59] and Campbell et al. [16] were those first experts who described
individual work performance domain through presenting main aspects of generic
individual job performance. As noted by [59], domain of job performance can be
developed by means of task behavior dimensions, downtime behaviors (behaviors of
work avoidance), interpersonal behaviors (cooperating and communicating with
others), and hazardous/destructive behaviors (that result in an obvious productivity loss
risk, many setbacks and damages.). Framework of job performance has been suggested
by [16], who provided task proficiency, job specific model, model of non-job specific
task proficiency, demonstrating effort, oral and written communication model,
facilitating team and peer performance model, maintaining personal discipline model,
administration and management and finally supervision models, as aspects that can
appropriately define the latent performance structure at general levels. Moreover, they
also asserted that eight variables could have various sub-dimensional patterns and their
salience and content also might be different in various jobs.

Viswesvaran [86] presented ten individual work performance dimensions. In

addition to a general variable of job performance, he also defined many dimensions
such as work quality, productivity, communication competence, job knowledge,
leadership, effort, interpersonal competence, administrative competence and
acceptance of/compliance with authority. Moreover, [12], noted that the overall job
performance aspect can include many comprehensive dimensions of both contextual
and task performance. They defined task performance as those behaviors which have
indirect or direct contribution to technical core of organization as well as contextual
performance since those behaviors can support social, psychological and organizational
environments in which technical core should be functioning. [87] and [72] explained
three main aspects of individual job performance including organizational citizenship
behavior (OCB), counterproductive work behavior (CWB) and task performance.

Moreover, many frameworks have been designed that were for particular jobs
and especially targeted professions in managers, army and service or scale industries
such as [16]. Borman and Motowidlo [12] defined only two job performance
dimensions which are contextual and task. Maxham and colleagues [53] explained
retail employee performance (extra role performance into organization, extra role
performance into customers and in role performance). Such dimensions are much
narrower than comprehensive aspects of contextual performance and task performance.

Job performance is a multifaceted concept. These kinds of behavior could be

assumed to be able to capture all of the behavior that shapes the individual work
performance within any type of job context. However, their importance and their
indicators might be different in various contexts. Also, the current study provides a
well-updated conceptual framework of work performance in individual level [42,43].
This review briefly follows based reviews [42,43,59,72], and employs three main
aspects of individual work performance that can be defined as contextual performance,
task performance and counterproductive behavior.

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2.1 Task performance

In almost all frameworks, task performance is known as a critical aspect of individual

work performance. We can define task performance as the competency or proficiency
through which an individual performs key job tasks [16]. Other existing labels which
are used for task performance are technical proficiency [16,44], job specific task
proficiency [16,33,91] and role performance [6,53]. Even though task performance was
the main focus of previous studies, scholars started to believe that individual work
performance is beyond achieving defined work objectives [12,87].

2.2 Contextual Performance

Contextual performance could be identified as those individual behaviors which can

support social, organizational and psychological context through which the technical
cores should function appropriately [12]. Many labels are available for this aspect, for
example, extra role performance [6,53], non-job specific task proficiency [18,91],
interpersonal relations [59] or organizational citizenship behavior [25,72,87].
However, all of these concepts point to those behaviors which are more than being
prescribed formal work objectives, for instance taking on extra tasks, demonstrating
some initiative and providing job training for newcomers.

2.3 Counterproductive Work Behavior Definition

The final dimension here is consideration of counterproductive work behavior known

as (CWB), explained as a behavior which is harmful to firms and in recent years this
type of behavior has been increased [72]. It contains those behaviors such as being late
for the work, absenteeism, theft, participating in off-task behaviors and substance
abuse. However, current review utilizes contextual performance, task performance and
counterproductive work behavior as the individual job performance dimensions. [70]
Deviance in the workplace has been described as the voluntary behavior of the
organizations’ employees which violates specific organizational norms and then
threatens the organization as well as its members.

3.0 JOB SATISFACTION

One of the leading dilemmas facing many of today’s top organizations is managing the
declining job satisfaction of its employees [36]. According to [78], job dissatisfaction
stems from either a problem with the employee or a problem within the job. Job
dissatisfaction is due, in part, to supervisors frequently criticizing and openly judging
employees, neglecting to recognize positive contributions, failing to provide support,
or failing to follow through or help an employee with his or her problem [19].
Dissatisfaction in employees can lead to numerous challenges both personally and
organizationally. Dissatisfied employees can experience aggression, regression,
complaining, fighting, psychological withdrawal, or turnover. They often contribute to

67
counterproductive behaviors either intentionally or unintentionally which ultimately
sway one’s job performances and undermine the effectiveness of the organization
[45,78].

Job satisfaction can be defined as “a pleasurable or positive emotional state

resulting from the appraisal of one’s job or job experiences” [48] (p. 1304). It is often
used to describe the extent that employees “like” (satisfaction) or “dislike”
(dissatisfaction) their job overall or specific facets of their employment relationship
[94]. Job satisfaction is a widely researched topic as it relates to organizational behavior
and employer-employee relations. [78] identified it as a critical element in both
research and theory of organizational behavior. This is not surprising given its
applicability to all types of organizational structures that employ human capital.
Although many studies have been conducted on employee satisfaction, results are
inconclusive as to the existence of any direct relationship between employee
satisfaction and job performance [94].

The low level of job satisfaction is responsible for four types of unwanted
behaviors [15]. As a result, unhappy employees may utilize their working time for
doing other activities, use the resources of the company for illegal purposes. Second,
the workers are psychologically diverted from the work, which cause them to become
engaged in unprofessional activities such as wandering around pretending to be busy,
drinking at work and skipping meetings. Third, the discontented individuals may divert
from work in the form of early retirement, intention to leave, absenteeism and turnover.
Lastly, direct behaviors intended to change the working condition or request for job
transfer are common responses of unhappy employees [52].

4.0 JOB CRAFTING

Job crafting, in fact, demonstrates active modifications that are made by employees to
their job designs in such ways that could generate positive results such as job
satisfaction and resilience, engagement and thriving at workplace [92]. Job crafting is
the process of redefinition and re-imagination of employees of their jobs deign in many
personally meaningful ways [92]. The concept of meaningfulness is used in order to
demonstrate the extent of significant beliefs of employees about their work [71]. The
concept of meaningfulness is related to many work specific advantages such as
motivation, increased job satisfaction and performance [29,34,71]. In fact, a job is a
series of interpersonal relationships and tasks of an individual in a company [39]. In
general, job crafting is an activity at individual level through which the staffs decide
when and how to form interactions and job tasks [92].

Because of many modifications in current business context, jobs are remarkably

being characterized by complexity, uncertainty and require higher levels of
interdependence and more relations with other workers. It can be said that firms
significantly expect staff to respond to unpredicted conditions by showing some
proactive behaviors, for instance understanding the opportunities, revealing initiative,
looking for challenging situations, or more broadly to construe work roles and be able
to define tasks to provide new goals and tasks [61]. Based on previous experiences, it

68
was noted that one of the important types of proactive behavior is known as job crafting
[10,47,66,75]. Job crafting which is a proactive behavior viewpoint is assumed as a
self-starting behavior which emphasizes how staff perceive their work context and act
based on their own values, preferences and abilities rather than only performing the
task which is developed by the organization [81,88].

There are many different types of job crafting behavior. [81] explained job
crafting within theoretical framework of model of job demand-job resource (JD-R) that
asserts “the modifications made by employees for balancing their job resources and job
demands with their personal needs and capabilities” [5] (p.174). This model can
classify all of the job characteristics into two main groups: job resources and job
demands. Job demands means the mental and physical persistent (emotional and
cognitive) skills or effort that induces psychological and physiological costs for staff,
while job resources are social, organizational, psychological and physical qualities of
a job that can support obtaining the work objectives, learning, development and
personal growth, reducing job demands and the psychological and physiological costs
[5].

Job crafting is also defined as the methods through which staff have an active
role in developing the cognitive and physical changes for approaching their work.
Instead of making modifications to the job’s structural characteristics, job crafting is a
type of informal process which concentrates on positive changes which are made by
employees to a certain task, cognitive or relational aspects of a job. They generate such
informal changes for shaping their work practices to be aligned with their idiosyncratic
values and interests and finally increase the meaning, enjoyment and satisfaction they
achieve from their jobs. Therefore, job crafting is a type of proactive behavior which
is derived by staff instead of managers [30].

This would be a critical difference between job crafting and the relevant
constructs including job enrichment and job enlargement that are concentrating on
design of the work and so making changes to structural aspects of a job. The job
enlargement consists of horizontal job expansions and thus improving the performed
activities by an individual at work, but job enrichment includes vertical job expansion
to improve responsibility of individuals for making decisions. Job crafting on the other
side, is the discretion of a person who finally will mold and shape their work
experiences for aligning it with their personal desires and needs.

One of the important job crafting aspects is that employees will make or develop
changes in jobs in a bottom to top order rather than managers making some changes in
a top down order similar to many job redesign interventions. Previous efforts for
developing a measurement have emphasized particular populations of interest, for
example teachers [46], manufacturers [26], and blue-collar workers [61] and is thus not
suitable for the general working population. Therefore, despite job crafting
demonstrating a promising process which can be used by employees to improve their
experiences, beyond their jobs [81,66,61], there is currently a dearth of studies on
relationship between job crafting and critical employee results, especially well-being.

Given that staff have to take-on difficult and multi-directional tasks in their work
procedures, they should develop and utilize their roles under current circumstances.

69
Thus, job crafting can be assumed as a key factor to achieve organizational success and
job satisfaction. The organizations, however, start to seek employees who are creative
and initiative. [81] stated that job crafting can be closely related to positive outcomes
in an organization, more job satisfaction, job engagement and suggested that job
crafting behavior might have negative relationship with burnout and negative outcomes
in an organization. The main goal of this article is to emphasize the process through
which supervisors and firms change something in jobs, conditions or tasks of
employees through suggesting that the employees take the opportunity to accomplish
it themselves. This is called job crafting process and it could be assumed as a certain
type of proactive behavior through which the staff can generate some changes to their
jobs and tasks in order to make these jobs more engaging, meaningful and satisfactory.
Thus, the goal of this paper is to improve efforts of supervisors to improve their overall
performance and satisfaction through improving the autonomy in the process of
production.

5.0 CONCEPTUAL FRAMEWORK

5.1 Relationship between Job-Crafting and Job Satisfaction

Understanding the relationships with well-being results is critical to define if the extent
to which staff participate in the job crafting behaviors is relevant to their own well-
being and it is a critical phase in process of validation. It has been well developed
[21,67] that working contexts have close relationship with burnout and job
engagement. In the proposed theoretical framework by [80], according to the job
redesign theory, job crafting behaviors might result in many positive consequences for
instance thriving and resilience, job satisfaction and work engagement [9].

According to [5], the motivational process explains that resources are potentially
motivated such that those who possess resources would mobilize them to achieve more
resources and so reach improved well-being. Based on theory of Conservation of
Resources (COR) [37], increasing the task resources and social job resources can have
a positive impact on wellbeing since larger amounts of resources enables individuals
to protect themselves from depletion of resources and to cope with environmental
demands more appropriately.

[77] stated that if there are sufficient challenging things to do at work, staff will
put in more effort and hence feel a sense of greater participation in workplace
processes. Those employees who use job craft for enhancing their resources and to
avoid any resource depletion will demonstrate more work engagement and job
satisfaction and less burnout. In addition, [21] identified that job resources can predict
low burnout levels and increased work participation.

[82] understood that job satisfaction and work engagement might improve as a
result of job crafting. Some scholars demonstrated that having less challenging jobs
will lead to job dissatisfaction and boredom [5]. Hence, those employees who are
participating in crafting challenging jobs will have a greater sense of wellbeing in terms

70
of job satisfaction, job engagement and low burnout levels. [10] in addition noted that
crafting the challenging jobs might be necessary for improvement of job satisfaction.
[67] explained that challenge demands have positive relationship with job satisfaction.

P1: Job-crafting has positive influence on job satisfaction.

5.2 Relationship between Job Satisfaction and Job Performance

Job satisfaction can impact both organizational and individual behaviors other than
performance of the firm. Literature review demonstrated that there is a relationship
between levels of job satisfaction and specific dimensions of employee behavior such
as turnover and absenteeism [13,65,78]. According to [2], Planned Behavior theory,
job attitudes into behaviors, behavioral intentions and theory of Social Exchange [79],
assume that staff respond to those working conditions which are more satisfactory and
those processes, interactions and results which are fair through behaving in such paths
that would benefit both employees and organization (contextual performance and task)
and by showing more commitment to their organization. On the other hand, as theories
explained, staff will retaliate in opposite ways to unsatisfying conditions and
unjustified work contexts through participating in such behaviors which are harmful
for other employees and organizations (counterproductive behavior) and through low
organizational commitment. [3] accomplished a direct empirical research on job
satisfaction, contextual performance and task relationship, according to theory of
Social Exchange.

H2: Job satisfaction has significant influence on job performance

5.2.1 Relationship between Job Satisfaction and Task Performance

The relationship between task performance, contextual performance and job

satisfaction [12], has been defined by way of a two-factor theory regarding job
performance as most jobs include contextual and task performances. Task performance
means those behaviors which are role prescribed and differentiate between different
jobs and help the organizational technical core [12]. As mentioned by Bakker et al. [7],
work attitudes have positive relationship with in-role performance. [90] also surveyed
job satisfaction as a suitable predictor of in-role performance. The conducted study by
[41], and meta-analysis by [36], demonstrated that increased job satisfaction will result
in increased job performance (task performance), in-role behavior and extra-role
behavior and job attitudes (organizational commitment and job satisfaction). Those
who have more job satisfaction will demonstrate more effective task performance
compared to those who have less job satisfaction [43]. Therefore, job satisfaction is
related to task performance.
H2a: Job satisfaction has positive influence on task performance.

71
5.2.2 Relationship between Job Satisfaction and Contextual Performance

Contextual performance is defined as those behaviors which can support more broad
social, psychological and organizational contexts in which a technical core is operating
[12,85]. Many scholars have suggested that there is a rational relationship between job
satisfaction and organizational citizenship behavior [8,62,64]. In particular, theory of
social exchange, [1,11], explains that individuals attempt to balance the give and take
of social exchanges. Also contextual behaviors are considered as a means by which an
individual will be able to give back to the organization, thus, if employees have job
satisfaction, they might reciprocate highly through contributing with others by way of
their own contextual performance. The employees might perform fewer extra roles,
support, endorse or defend organizational goals or participate in other behaviors if they
do not have sufficient job satisfaction. So, overall job satisfaction is related to
contextual performance.

H2b: Job satisfaction has positive influence on contextual performance:

5.2.3 Relationship between Job Satisfaction and Counterproductive Work Behavior

One of the critical classes of behaviors which show one component of work
performance of employees is the behavior of counterproductive work (CPBs). Such
voluntary behaviors are violating organizational norms and are detrimental to
organizational interests and will hinder achievement of organizational objectives.
These types of behaviors have been conceptualized differently as deviance [70],
antisocial behavior [27], keeping personal discipline [17], destructive/hazardous
behavior [60] and unruliness [38].

Counterproductive work activities consist of some minor behaviors including

inappropriate use of Internet, spreading of rumors or littering in addition to some severe
behaviors such as sabotaging equipment, harassment, physical acts of violence and
employee theft. Those employees who hold negative appraisal of their job experiences
and jobs will participate more in such counterproductive behaviors. According to a
theoretical viewpoint, even though many theories suggest such relationship, we
consider a motivational method in describing it. The theory of social exchange assumes
that those people who consider that they are obtaining unfavorable treatment are more
vengeful, angry and dissatisfied. Based on reciprocity norms, when a person is not
satisfied with the boss or the organization, they might demonstrate some negative
behaviors in workplace such as coming late to work, withholding effort, leaving early
and taking longer break times [57].

Counterproductive behaviors (CPB) are a set of behaviors which are

discretionary, meaning that employees make some conscious choices about whether or
not to participate in behaviors such as swearing at colleagues, playing mean pranks,
sabotaging other’s work or falsifying expense reports. Here, we suggest that this kind
of factor is the general attitudinal evaluation of a person in terms of their job
satisfaction. Hence, job satisfaction and counterproductive work behavior have a direct

72
relationship with each other so that those employees who are more dissatisfied, will
demonstrate more deviant behavior.
H2C: Job satisfaction has negative influence on counterproductive work
behavior.

5.3 Mediating Effects of Job Satisfaction between Job-Crafting and Job

Performance

According to theory of self-determination (SDT) [73], job crafting, employee well-being and
satisfaction have significant relationship with each other. This theory explains that
psychological requirements and developing implementation intentions on crafting a certain job
characteristic into improvement of work context and increasing employee satisfaction will
generate better performance [55]. [80], in their proposed theoretical model suggested that job
crafting may result in many positive outcomes for employees as well as organizations.

For individuals, process of job crafting has better consequences for example task revision or
organizational citizenship behavior (OCB), because it might modify conception of an
individual’s work. Also job engagement and job satisfaction might be increased if employees
successfully create a work context through crafting in jobs. There is a relationship between
attitude (job satisfaction, job engagement) and job performance since satisfied and engaged
employees will fulfill their roles at high levels- of both in-role and extra-role performances,
based on their tasks and sense of self-investment [20,69]. Although employees are affordable
their in-role performance was improved and they will show more efficient performances.

[69] stated that extra-role performance and organizational citizenship behavior (OCB)
would take place more often between the participated employees since they are concerned
about facilitating the organization and its employees. In any type of occupational domain,
individuals who engage in process of job crafting will change as well as create their jobs in
such ways that improve the significance of their tasks at workplace and as a result will enhance
their job satisfaction level. Those employees who are crafting their jobs will show better
performance in their decisions and task strategies compared to what they make in their jobs
[24,92].

Many different researches focused on relationship between job performance and job
crafting. Some qualitative interviews [10,49], and quantitative surveys [7,46,81] demonstrated
that job crafting and job performance have a positive relationship with each other. As [46],
noted, those teachers that craft their own tasks will achieve more care quality. Also, job crafting
is positively related to job performance since employees modify their jobs and tasks in order
to improve overall performance and will be more effective and capable of accomplishing the
new and rewarding tasks. [89], asserted that job crafters expend effort to alter and change job
characteristics for achieving their goals as well as the values that lead to rewarding results.

Job satisfaction is a broad concept which shows a positive attitude [7] and has been
revealed to have a positive relationship with job performance [41]. In addition, it has a key role
in recognizing the counterproductive behaviors (CPBs) [22,57]. [32] mentioned that proactive
personality can predict in-role performance by means of need satisfaction. Another conducted
study by [76], showed that job crafting can predict wellbeing of employees by means of need
satisfaction. Current paper expands previously conducted studies through analyzing the job
crafting which can facilitate job performance and job satisfaction.

73
P3: Job satisfaction mediates the relationship between job crafting and job
performance.
P3A: Job satisfaction mediates the relationship between job crafting and task
performance.
P3B: Job satisfaction mediates the relationship between job crafting and contextual
performance
P3C: Job satisfaction mediates the relationship between job crafting and CWB

Job Performance

Task
Job Performance
Job-Crafting
Satisfaction
Contextual
Performance

Counterproducti
ve Work
Behavior
Figure 1. Conceptual framework of relationship among the individual variables in this study

6.0 CONCLUSION AND MANAGERIAL IMPLICATION

Today’s work environment will increasingly changed by the necessity for more
employees to actively craft their own work lives as opposed to having them created by
others. This study has practical implications for managing and increasing the feeling of
creation and satisfaction of individuals in the workplaces. Such an opportunity creation
and crafting in their work would not only improve the feeling of satisfaction level, but
simultaneously increase performance level of staff. Job-crafting is associated with
higher levels of satisfaction. It may be that employee-initiated changes in the redesign
of jobs result in more complex, challenging and meaningful work, which is likely to
nurture positive work and better work performance.

However, if changes in jobs is not aligned with organizational objectives, then

the job-crafting activity could become a problem for other employees, work groups,
and the organization. Therefore, active changes in job crafting results positive changes
in performance and accrues other benefits to the organization. Moreover, this research
helps organizational practice by providing guidelines for practitioners to design work
to promote performance and well-being of employees.

74
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 ARTICLE B3

Employee Retention in Malaysian Small and Medium Enterprises

Malar Gunasegaran

ABSTRACT

Companies are making efforts to retain their talents by implementing effective retention strategies that
would meet the aspirations of employees and at the same time enhance their productivity. Therefore, for
a business to succeed in today’s economy, finding and retaining the best employees is fundamental. This
is especially true for small businesses competing with large companies, and sizeable budgets, for top
talent. The interest on employee retention strategies has shown a consistent increase among academic
practitioners because of its potential in creating competitive advantage and also improving
organizational performance for SMEs. However, there is inadequate research on strategies regarding
retaining employees in relation to small and medium enterprises to provide significant impact for the
companies to improve their organizational resources as well as competencies to assist them in becoming
more competitive and innovative. Therefore, the purpose of this paper is to review the literature
pertaining to employee retention, the significance of employee retention and the approaches which can
be implemented in Malaysian SMEs.

Keywords: Small and medium enterprises (SMEs), employee retention, top talent, competitive
advantage

1.0 INTRODUCTION

Researchers largely agree that SMEs play a vital role in terms of economic
development in most countries. However, Malaysian SMEs still appear to be
inadequate in terms of competitive performance. In order to sustain competitiveness,
SMEs should focus on best human resource practices. SMEs also need to work
consistently to support Malaysia in becoming a high-income and developed nation by
2020. Hence, SMEs have to improve their organizational resources as well as
competencies which would assist them in becoming more competitive and innovative.
(Sakinah Mat, Zin, et al., 2012 & Beynon et al., 2015).

As a matter of fact, the researchers noted that employee retention needs to be

considered by SMEs in order to sustain their businesses in today’s emerging
environment. According to Schlosser (2015), most of the SME owners have efficient
employees that they trust more than others and who actually became their key
employees over time. Nevertheless, very little has been written or researched on these
important elements in the context of SMEs. This study also emphasized that employees
are an important part of strategy implementation and indeed reflect a firm’s culture, but
to date, there has been little research which examined the phenomena of key employees
critical to the success of small businesses. Even though human capital is known to be
an important indicator of organizational success there is escalating evidence that small
firms manage their human resources (HRs) relatively different from large companies.

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 Apart from that, SME managers also encounter numerous distinctive human
resource management (HRM) challenges, such as hiring as well as retaining capable
staff. Small medium enterprises (SME’s) can create a practicable atmosphere in this
competitive free market economy by maintaining talented workers which would
eventually increase their earnings. Understanding staff viewpoints and scrutinizing
their retention causes are definitely important to an organization’s success. Small
enterprises may risk their efforts to attain organizational objectives even if they have
to miss a single key worker (Sakinah Mat, Zin, et al., 2012).

Besides these challenges, Dutta and Banerjee (2014) in their study stated that
staff maintenance problems are becoming the most serious workforce administration
challenges which are abrupt and forthcoming. Researches have revealed that in the
future, successful companies will be those which adjust their authoritative conduct to
the realities of the present workplace where sturdiness and achievement rely on
advancement, imagination and adaptability. In fact, the elements of the workplace will
need to mirror a different populace involving people whose inspirations, convictions
and quality structures contrast sharply with the past and between each other. This
phenomenon is particularly valid in the light of the current economic instability
following corporate downsizing when the effect of mislaying crucial staff rises
exponentially. Therefore, it is essential to develop a comprehensive strategy for SMEs
to become successful. Research on employee retention in Malaysian SMEs is important
as a new approach in managing and retaining staff especially in small firms (Mehta et
al., 2014). The purpose of this paper is to review the literature pertaining to employee
retention, the significance of employee retention and the methods which can be
implemented in Malaysian SMEs.

2.0 DEFINITION OF EMPLOYEE RETENTION

Based on a study by James and Mathew (2012), employee retention is a process in

which employees are encouraged to remain with an organization for a maximum period
of time. Every organization invests time and money to groom a new recruit, to make
him corporate ready and bring him at par with existing employees. The organization is
completely at a loss when employees leave their jobs once they are fully trained.
Employee retention takes into account the various measures taken so that an individual
stays in an organization for a maximum period of time.

Besides that, employee retention has also been viewed in a different context that
is as “an obligation to continue to do business or exchange with a particular company
on an on-going basis”. There are ample and current descriptions for the concept of
retention - “customer liking, identification, commitment, trust, readiness to
recommend, and repurchase intentions, with the first four being emotional-cognitive
retention constructs, and the last two being behavioural intentions” (Dutta & Banerjee,
2014). Gupta and Ladia (2012) in contrast have a different perception on employee
retention where it involves taking measures to encourage employees to remain in the
organization for a maximum time period. Employee turnover often results in a drain on
management time, and creates pressure on workforce planning. Intangible costs

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include: negative impact on employee morale; adverse effect on social capital and
erosion of organizational memory.

On the other hand, Chandranshu and Ruchi (2012) in their study stated that
employee retention is a complex concept and there is no single recipe for keeping
employees with a company. Retention too has been viewed as “an obligation to
continue to do business or exchange with a particular company on an on-going basis.
In addition, the researchers found that other findings have also shown that retention is
actually caused by some crucial factors, which should be administered congruently:
communication, strategy, organizational culture, benefits and pay, flexible career
development schemes and work schedule. Their approach to defining employee
retention seems to be dissimilar compared to the other researchers.

Studies on employee retention started some time ago but has only been
recognized when Walker (2001) identified seven factors that could enhance employee
retention in his book titled, “Perspectives” Human resource planning in which he stated
that retaining and handling talented employees seem to be the ultimate intent of
attaining competitive advantage among organizations. According to Cutler (2001), a
standout amongst the most essential requests on administration today in any company
is keeping the most fundamental human resources element persuaded and committed.
It is not critical to see who the association enlists but rather what tallies is who are kept
in the organization.

3.0 THEORIES ON EMPLOYEE RETENTION

There are actually many theories which can be linked to employee retention and the
famous ones seem to be Maslow's Hierarchy of Needs, Motivator-Hygiene Theory, and
also X-Y Theory and this particular theory which is clearly discussed by Sandya and
Pradeep (2011) in their paper. According to them, Maslow's Hierarchy of Needs aids a
person to be content with his elementary wants. These needs have been translated into
five levels. Each level comprises the following: physiological, safety, social, esteem
and self-actualization. Each has their own functions which contribute to the
motivational levels of employees in an organization. The theory also identified
development necessities which have durable motivational consequences on staff,
assisting them to keep up and improve their work presentation. The second level of the
pyramid describes the safety needs. Contentment in these particular needs is not as
influential as the first level of needs in persuading an individual’s behaviour. However,
although the needs are at the lower level, they are actually highly important in nature.
The highest level of needs in the hierarchy is self-actualization. This need has immense
influence on staff interest and commitment. Therefore, an organization needs to look
at all these needs seriously so that their employees especially their good employees will
remain with them for quite some time.

Apart from that, based on the study by Sandya and Pradeep (2011), they also
found that the Motivator-Hygiene Theory developed by Frederick Herzberg was
closely related to Maslow’s Hierarchy of Needs. In this particular theory, there are
variables also known as motivators that a firm ought to promote that would specifically

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propel workers to show their commitment towards their organization. Nevertheless,
there are definite factors that demotivate workers as well in performing their jobs. The
theory basically describes that hygiene elements are the most crucial motivators
especially when workers are extra apprehensive about the actual work itself. Hygiene
elements are factors which ‘encompass the employment’ instead of the occupation
itself. There have been numerous times when staff performed well at work if a firm
provided a sensible level of salary and looked after their well-being. However, these
elements would not improve work performance. In this theory as well as payment has
been viewed as a hygiene factor which is in direct contrast to Frank & Taylor (2004)
who observed that salary or payment produced specific results. The hygiene factor or
payment for work performed is the biggest motivator that helps employees to remain
at a particular workplace for a longer period of time. In this theory, it is deemed that
firms should motivate staff by adopting an egalitarian approach in management and by
enhancing the content as well as nature of the actual job through definite approaches.
A motivating approach that superiors could use to achieve this is through job
enlargement where staffs are given a variety of assignments to perform which if not
inexorable, was thought-provoking which could prove additionally fascinating.
Another approach is job enrichment in which staffs are given a more extensive scope
of mind-boggling, intriguing and testing undertakings encompassing a complete unit
of the company’s work. This gives a more noteworthy sense of accomplishment.
Besides these approaches, the theory also states that empowerment plays an important
role as it can be executed by delegating more authority to staff to manage a specific
scope of work on their own.

McGregor's X-Y Theory also seemed to contribute towards employee retention.

According to this particular theory, X refers to an "authoritarian" style of overseeing
staff at work, where the normal worker does not care for going to work. Only the fear
of penalty compels him or her to perform. This kind of individuals who fit into X
category of the theory prefer coordination. They attempt to maintain a strategic distance
from their obligations if possible at each opportunity, which makes for a considerable
measure of anxiety at the work place. On the other hand, Theory Y is a type of
participative supervision style of staff. Theory Y category of staff normally guide
themselves to accomplish organizational objectives. They have the self-driven desire
to perform extra duties as they have a dynamic attitude. Therefore, by looking at these
two categories of employees, the organization can actually distinguish employees to
retain for the benefit of the organization in the long-run. In order to retain them,
companies need to relook into the two theories discussed earlier which are Maslow's
Hierarchy of Needs and Motivator-Hygiene Theory (Sandya & Pradeep, 2011).

4.0 SIGNIFICANCE OF EMPLOYEE RETENTION

According to Zabeda, Abdul Hamid et al. (2011), in today’s uncertain and competitive
environment, employees are the assets of any organization and an organization cannot
afford to lose its key performers especially SMEs as they become their competitive
advantage in order to sustain the business. Hence, the key challenge in organizations
today seems to be on employee retention, especially crucial employees. Apart from
that, employees who seem to be crucial to organizations are likely to demand for more

84
pay since they are highly skilled, so that they are motivated to work for the company.
However, companies tend to lose them as a competitive source, to their competitors by
failing to meet their most important needs. The shortage of knowledge workers and the
increasing mobility of people in today’s labour market contribute to making this
challenging situation even more critical. In fact, many huge firms have already been
affected by a chronic shortage of key employees as shown in recent studies (Ogunyomi
& Bruning, 2015).

Besides this, there are also other reasons why employee retention is important to
organizations. According to Mansor, Rahman and Idrus (2014), the expense of
replacing workers who leave can be high where the turnover can actually affect
company employment relationships as well as result in losses in terms of training
investment. It is sensible to contend that the advantages of long haul maintenance of
information labourers exceed the expense of losing and replacing them. The expense
of replacing workers can be high as organizations have to endure the loss, and turnover
could affect work relationships.

The significance of employee retention has been a subject of debate by other

researchers in reducing high turnover rates in organizations. Long, Ajagbe, and
Kowang (2014) in their research found that proper HRM practices drive such
circumstances by ensuring that all key practices such as managing performance,
administration of compensation policies, and training, are in place by managers, so that
turnover issues can be substantially decreased. The correlation between impact on
turnover intentions by employees and HRM practices are significant. The impact with
regards to high employee turnover rate can have harmful consequences on companies
due to several factors. As a result, implementing effective HRM practices to retain
employees especially the high performers need to be given serious concern by
organizations.

A key dispute encountered by employers nowadays is maintaining employed

staff in the company. In the era of ferocious rivalry, every firm attempts its level best
to provide the finest abilities to its staff. Fulfilling human resource is inevitably a
challenging responsibility which the majority of firms face today. Understanding
human behaviour is rather difficult. Besides that, there are ample opportunities
accessible for experienced and talented staff that it is becoming very challenging for
superiors to satisfy and retain them. There is no one approach or retention design which
can please each and every staff in a firm. As there are diverse traits as such there are
differing demands and anticipation from each firm (Lakar & Baruah, 2013).

A noteworthy test confronting representatives today is holding on to procured

workers in the company. In these times of ferocious rivalry, each organization tries its
level best to give the best offices to its workers. Staff satisfaction is one of the difficult
issues confronting most companies today. Recognizing and understanding human
behaviour is exceptionally difficult to fathom. Apart from this, there are also numerous
opportunities available for the talented and additionally capable HR that it becomes
exceptionally intense and troublesome for businesses to fulfil their needs and retain
them. There is no single technique or maintenance arrangement which can satisfy each
worker in an organization. Since workers comprise diverse identities, all things
considered there would be differing needs and wants from them.

85
 Most of these researches do not focus specifically on employee retention in
Malaysian SMEs and therefore are viewed no differently from other large companies.
As a result, more studies need to be conducted in order to conceptualize employee
retention in SMEs, especially in Malaysia.

5.0 EMPLOYEE RETENTION IN MALAYSIAN SMES

Based on a study by Zabeda, Abdul Hamid et al. (2011) and Deery and Jago (2015)
organization superiors should leverage on entrenched workers as they may be in a good
place to offer advice, by way of providing employees with challenging jobs, developing
positive work-group cultures as well as making each and every worker feel appreciated.
Other approaches such as giving above-market reward or offering well-defined career
paths may be more difficult for smaller companies to implement.
Based on these researchers’ opinions and standpoints and a study by Mehta and
Dhankar (2014), it was found that not all of the approaches discussed in their studies
are applicable to retain employees especially in Malaysian SMEs. However, some of
them seemed more practical to be implemented as they have positive implications for
companies. They are as follows.

5.1 Work-life balance

Promoting work-life balance by implementing a policy on flexible working hours

seems to be one of the strategies with practical implications in terms of employee
retention especially in the context of Malaysian SMEs. In addition, it can also be
extended to a non-fixed dress code for employees and no fixed desks so that employees
can sit and work wherever they feel comfortable in an organization. Any amount of
money would not be able to retain an employee if a job starts to become more important
than family members. The employers or the management of an organization should
emphasis on striking a balance between work and one’s personal life. Thus, HR
solutions which follow should be about sustaining such a balance. Organizations too
can consider providing facilities for working from home by looking at the suitability of
their business operations (Whyman, & Petrescu, 2014).

On the other hand, according to Baharin, Jais and Mohamad (2014),

organizations with family-friendly work-life balance programs such as on-site
childcare, flexible working hours, job sharing, training opportunities, and fully-paid
month off as well as adequate breaks usually attract employees to remain in an
organization. This kind of approach was also found to be beneficial for female
employees as well as the disabled who had to quit their jobs due to maternity or family
matters. Such a strategy actually provides more practical implications especially in
Malaysian SMEs for retaining employees since it becomes an expectation as well as a
preference for most employees, in particular female employees.

86
5.2 Offer attractive facilities, compensation and benefits packages

With reference to a study conducted by Sakinah Mat Zin et al. (2012) in Malaysia, it is
not easy to compete with large firms in terms of salary and therefore SMEs have to
focus on employee compensation as a strategy for retaining their staff. Compensation
and benefits could be additional motivational factors for more efficient implementation
since they signal the importance and care for employee welfare by superiors. It is
possible to establish employee commitment and loyalty by taking into account these
elements in human resource management strategies as well as in practice. According
to the researcher, for the past two decades, SME employees have been demotivated due
to managers’ non-awareness of elements of compensation and benefits. Compensation
system advocates material gratifying employees. Small and medium industries place
greater importance in illuminating motivational values through their compensation
schemes.

Apart from that, in order to encourage employees to remain, organizations should

come up with various ideas. One of them is to provide various facilities such as
shopping discounts, coupons, gifts on celebrations, 24 hours free Wi-Fi, company
transport, free meals and snacks as well as day-care centres for children. Such facilities
as well as packages that fulfil employee needs like health insurance, life insurance, and
retirement savings plans also seem to be part of employee retention strategies as these
have more practical significance in Malaysian SMEs (Atul Mathur, 2013).

5.3 Employee engagement with organization

According to Sakinah Mat Zin et al. (2012) and Arokiasamy (2013), retaining talents
in a company can also be conducted by strengthening employee engagement within the
organization. Engaged employees trust that their employers value their contributions,
take pride in the company, are satisfied with their jobs and enjoy their work in the
organization. This kind of approach also tends to be practical in Malaysian SMEs as
they see themselves as being valued and that their employers engaged them to boost
company performance. According to a report at Intuit on gauging engagement, it was
found that workers who were engaged to be married were five times less possible to
leave their jobs than those who were not engaged.

5.4 Excellent career prospects

Employees need to be encouraged and groomed by their employers to take up higher

positions in the organization. Talent in Malaysian companies seem to give more
priority to this factor so that they have a clear career path in building their future. They
will look elsewhere for it if they fail to secure opportunities for growth within the
organization. Therefore, a proper room for employees to grow should be in place
(Oqunyumi & Bruning, 2015). Based on a study by Arokiasamy (2013), workers in
SMEs especially in Malaysia attach serious importance to this element where they are
more likely to remain in a company if this particular element is looked into by their
organization.

87
5.5 Inculcate a positive culture

Organizations should forge a chain of values by means of a culture such as teamwork,

honesty, respect, positive attitude and other related values which are suitable to be
practised in the organization. Companies tend to have an advantage when it comes to
attracting and keeping good employees by creating the right organizational culture.
Malaysian SMEs however construct such type of culture and climate for the purpose
of company efficacy, intensifying staff performance outlook plus output and also
managing employee turnover. These kinds of practices by the organization seem to be
another factor that influences employees to remain. Employees of an organization may
leave anytime if they are not satisfied with the company they are serving sometimes
without considering the financial value. As a result, organizational culture may affect
retention, attraction or turnover in the firm (Arokiasamy, 2013).

6.0 CONCLUSION AND FUTURE RESEARCH

Regardless of the large number of studies on employee retention, there is still a lack of
research on Malaysian SMEs even though it represents the largest contributor in
Malaysia’s economic development. The literature review examined this concept, its
importance and how it can be implemented among SMEs in Malaysia. In sum, the
organization and employees seem to benefit from the analyses of employee retention
tactics. Based on a study by Cascio (2014), people begin to develop a sense of
belonging when they feel their actions are fulfilling their aspirations. As a result, the
organizations will not be losing their potential leaders as well as their exceptional
talents. The current study however reviewed papers regarding employee retention in
relation to Malaysian SMEs. This study has contributed knowledge to the academic
world on employee retention in SMEs especially in the context of Malaysian SMEs.
For future research, this study could be extended further via a case study approach in
order to enhance knowledge as well as to have a better understanding regarding
employee retention in SMEs.

REFERENCES

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the implementation of talent management practices at Malaysia companies.
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Anvari, R., Mansor, N. N. A., Rahman, S. A. P. A., Rahman, R. H. A., & Idrus, M. I.
S. (2014). The Impact of Learning and Development Initiatives on the Retention
of Engineers in Malaysian Firms. Procedia-Social and Behavioral Sciences, 129,
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Arokiasamy, A. R. A. (2013). A qualitative study on causes and effects of employee
turnover in the private sector of Malaysia. Middle-East Journal of Scientific
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Baharin, N. L., Jais, J., & Mohamad, M. (2014) What Women Want? Exploring
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Sinha, C., & Sinha, R. (2012). Factors Affecting Employee Retention: A Comparative
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 ARTICLE B4

The Determinants and Aftermath of Employee Engagement in Some

of the Nigeria Private Companies: A Review

Okeke Emmanuel Obumnaeme

ABSTRACT
The world`s increasing globalization demands for more relationship and interaction among people from
diverse backgrounds, beliefs and cultures than ever before. Engaging them to be effectual in worldwide
economy with the current intense competition coming from almost all the continent is an issue. The main
aim and objective of this paper is to critically and empirically study the latest issues of talent
management and managerial leaders in the 21st century. It is based on current academic journals and
some mini empirical study on some private companies in Nigeria. This paper would commenced by a
simple and coherent definition of talent management and some of its basic contemporary and
fundamental challenges. In this study, the writer has channeled to focus on the determinant and
aftermath of employee engagement in private companies. A family-owned company in Nigeria was
investigated as regard to some of its negative impact of employee engagement. Furthermore, the
description and its relevant theoretical explanations, the practical implications of employee engagement
on both organization and society at large will be analyzed. In sum, conclusion of the whole write-ups
will summarize how much importance all the business stakeholders should embrace and strategically
collaborate to enhance employee engagement in workplace.

Keywords: Employee engagement, Leadership, performance, Society, Private/family-owned business,

talent management.

1.0 INTRODUCTION

The basic aim of this paper is to pinpoint and analyze some of the factors that influence
and enhance employee engagement in most private companies in Nigeria. Moreso, the
impediment of lack of employee engagement will be divulging as well in terms of its
aftermath on organizational talent management. Some significant model will be
explained in context to its attribution to talent management. It has been authenticated
that nowadays the society in which organizations situated is constantly on wide-
spreading evolutions. It is quit pertinent and essential to denote that we are living in an
era where technological advances are at fastest pace, thus, political, social, cultural and
technological changes are unavoidable and inescapable.

The traditional approach of business has evolved tremendously recently and

business we know has become so difficult and complex, and adapting of companies in
this rapid unpredictable environment is so hazardous and danger fraught. The
sustainability and innovation of businesses should be based on engaging every ounce
intelligence on day-to-day mobilization. It is of a greater value to identifying and
managing the new issues in talent management in this growingly globalized business
environment. The success and survival of today`s business organization in this unstable
global economy is the factor of effective talent management. Due to the intense global
business competitiveness, the effective and efficient use of talent management

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enhances an organization to achieve it cooperate goals and objectives. In this 21st
century, new challenges emerged on business organization due to globalization, and
enormous issues to deal with on talent management as well.

Moreover, businesses are changing trend to maintain competitive advantages in

this 21st century adverse business competitions. This study will emphasize some basic
models which many private companies in Nigeria have adopted for advancing their
talent management by engaging their employees to out-perform the set target and
organization objective.

2.0 LITERATURE REVIEW

2.1 Awareness and meaning of Talent Management (TM) is of a high importance

It has been notified that how talent management is defined in organizational context
has been a complex issue; no agreement has been concluded based on each business
environmental practices on what talent management is. Some writers argued that most
companies have not come up on how to define “talent” hence, let alone its ways of
management. According to McDonell (2011), the most important way or factor of
ensuring a competitive and sustainable organizational success is through talent
management. Furthermore, Shirkhani and Nazari (2014), argued that Many
organisational activities have been attributed into talent management such as employee
loyalty and trust, human resource and succession planning, employee performance
management etc. The dynamic and systematic process of attracting, managing and
developing high potential incumbent and high performer in an organization is talent
management (Al Ariss, Cascio, & Paauwe, 2014; Chitsaz-Isfahani, & Boustani, 2014).
Moreover, talent management can be characterized as the exercises and procedures that
include the methodical recognizable proof of key positions which differentially add to
the organization`s manageable upper hand, the advancement of an ability pool of high
potential and high performing officeholders to fill these parts, and the improvement of
a separated human asset construction modeling to encourage filling these positions with
able occupants and to guarantee their proceed with responsibility to the organisation
(Collings & Mellahi, 2009).

Employee engagement is of a significant importance to both the performance and

productivity of a company. Any organization with high employment engagement will
surely demonstrates high levels of organization performance. Employee with full job
engagement tends to be enthusiastic and inspired in their works. Engrossment and
energy are some of added drive for such employees and individual pride comes from
organizational success. According to Gruman and Saks (2014), one of the most current
issues to the 21st century business environment is employee engagement. Its first
definition in academic literature was done by Kahn in the year 1990. He discovered
that there are some psychological requisite of employee engagement and
disengagement in an organization. In employee engagement, workers tend to express
and employ themselves emotionally, physically and cognitive in their performance.

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 In this 21st century business evolvement, the complicatedness of business
environment has one of its challenges to be poor workforce engagement which possess
greater disadvantages to organisations due to the reduction pace in employee
productivity and well-being (Brad & Thomas, 2014). Talent management has been
undergoing business evolution to people management which enhances the
organizational productivity. This emphasizes the relationship between talent
management, people management, strategic human resource management with
organization performance and profitability.

2.2 Classification of 21st century issues and challenges of talent management and
leadership in organizations

Nowadays, business organizational environment has grown and evolved from

predictability. There are many internal and external challenges faced to organization
by hiring the right talents with right strengths and skills which best described talent
management. According to Derry (2009) in the contemporary organizations skill gaps
and shortages have been demanded in most functional areas of the industry and
geographical locations this places inability to have appropriate skills and knowledge
that organization needs or demands to survive the dynamic competition in the global
economy.

There have been substantial and enormous changes in the practice and profession
of Human resources management (HRM). Hence issues of talent management should
not be left to only strategic human resource management, other managements should
be included as well. Noe, Hollenback, Gerhart & Wright (2015) categorized all the
talent management issues into three main groups, which are sustainability issues, global
issues and technological issues. Sustainability issues deal with challenges of an
organization to succeed and survive in dynamic competitive environment.

Global issues relate to the widespread of companies to different countries and its
ability to maintain a diversified organizational culture, outsourcing challenges and
intensified global talent war. Furthermore, technological issues deal with the challenges
on developing a HRM practices that support and enhance the use of technology in
fulfilling organizational objectives and high performance accomplishment. These
issues are the main threats which firms are being faced in this contemporary business
environment. Organizations should adhere to invest more on engaging their employees
and acknowledge their employees as a resource not as cost which will eventually
enhance their ability to compete in the global labour market and sustain their valuable
returns.

2.3 Theoretical explanations and challenges of employee engagement in private

companies, its critical summary and analysis of relevant contemporary
literatures

Engagement of talent to business organizations has contributed to some of their

competitive advantages and sustainability. In an empirical study on a family-owned
business in Nigeria, Engagement of talented employees had seen to be a major

93
challenge of its talent management. According to Yuan et al., (2012), they argued that
when an organization has a transformational leadership, the employees tend to increase
in their engagement in the work. It was denoted from them that an increase in
organizational service performance is always as a result of increase work engagement
development.

Figure 1: Relationships associated with transformational leadership and employee

engagement.
Source: Taesung et al., 2015

It was identified that characteristics of the organizational leadership enhance their

employees’ engagement and contribution towards accomplishing outstanding
performance. A transformational leader must have identified an organization needs or
needs for changes, must inspire and commit employees for the vision to achieve need
objectives. In most private companies in Nigeria, based on the writer`s mini empirical
study discovered that good managerial leadership enhances the performance and
employee engagement to the company. In the research done by Wang and Hsieh (2013),
they suggested that leadership authenticity enhances the employee engagement and
trust which in turns generate high performance in their workplace. It is pertinent to
know that when an active thinking has been promoted within an organization by
managers or supervisors, consequently workers tend to be more involved in their job.
Effective and satisfying managerial leadership has been identified to increase
employees` cohesiveness, potency, feelings of involvement and outstanding
performance. Furthermore, Popli and Rizvi (2015) discovered on their research that
“perceived leadership style has a direct bearing on employee engagement which in turn
has a significant impact on their performance”. They emphasized on their findings that
employees that discern their higher-ranking leaders as transformational tend to be more
engagement and performance oriented. Consequently, the issue of employee
engagement in some private companies has been suggested to be controlled by
incorporating a good leadership style.

Managers and leaders in organization should invest more in employee

engagement if the competitive advantage of the company in performance is to be
achieved. In some family-owned (private) companies in Nigeria, it was discovered that

94
leadership style contributed to performance and profitability of an organization.
Leadership in the 21st century should connote many factors to be able to sustaining and
engaging its employees. In relating to EL Badawy (2014), he suggested that a
transformational leadership has four factors which are idealized influence, inspirational
motivation, intellectual stimulation and individualized consideration. All these enhance
its ability to coordinate and empower employee engagement.

He emphasized that “employees who feel engaged experience high levels of

involvement and enjoyment; perhaps the positive state of mind is not the only reason
for modern organizations to attempt to improve employee engagement, however high
levels of employee engagement have a positive effect on business outcomes like
customer satisfaction, productivity and profitability”. Employees have the most impact
on organization well-being and sustainability because they contributed to the culture of
the organization which portrays the organizational brand, values and image to the other
stakeholders.

De Lange and Bal (2015) distinguished on their survey that employees engaging
to their works deals on the flexibility of the human resource management of the
company. They discovered that the high job performances by the employees were as a
result of direct availability and appropriate implementation of flexible human resource
management practices. Employee disengagement from their jobs can be attributed to
age gap, millennium workers and generation wise. Traditionally, Workplace flexibility
is one of the HR practices; this enhances the employees to jointly put together their job
and non-job responsibilities (Leslie et al., 2012). The employee performance and
motivation have been attributed to the use of flexibility human resource management
in an organization. Moreover, according to Allen e t al., (2013), they argued that work
flexibility was traditionally designed for younger generation or middle-age workers
with children. Hence, Bal et al., (2012) disagreed that work flexibility was designed for
21st century employees (younger employees) only. They agreed with above mentioned
researchers that flexibility in human resource management enhances employee
engagement but it is beneficial or designed for both younger generation workers and
older workers as well. Furthermore, Lyons and Kuron (2014) commented that
“Flexibility is becoming more important among the younger generations as well as
ageing workers across the world”. Hence flexibility of HRM combined with work-life
balance has tremendously enhanced employee engagement and this has grown over
generations, but there are great differences in perception of such concept among
different generation age gap.

In sum, the issue of employee engagement in some of Nigeria private companies

can be curtailed by deploying flexibility human resource management and this will
increase the performance of both younger workers and older workers in the
organization. Recently, enormous employee turnover in most private companies in
Nigeria was traced to the absence of employee engagement. It is quite obvious to
understand that talent is the most essential key for organizational growth and
sustainability in this stiff global competition. All leaderships in organization know the
outcome of engaging and motivating their employees to perform at their best.
Employees tend to engage themselves in an organization where its leadership and
culture appreciate their positive contributions. In private companies in Nigeria,
employee engagement has been discovered to be the fastidious factors of 21st century

95
business success. There are many factors that enhance employee engagement, this was
identified by research done by (Pandita and Bedarkar, 2014) in which they discovered
three main driver of employee engagement. More explanation with diagram about the
drivers of employee engagement (engagement model) will be illustrated below shortly.
It is essential to understand that organization and employee depend on each other for
goals and objectives achievement.

Figure 2: Integrated Model of Employee Engagement.

Sources: Pandita & Bedarkar, 2014

In the diagram Fig.2, the three drivers of employee engagement were identified,
which are leadership, communication and work-life balance. In relating to leadership
which has no different from above mentioned outcome from other researchers, there is
a coherent relationship between employee engagement and leadership.

Furthermore, the antecedent of employee engagement is effectual and effective

leadership, (Griffin et al., 2010) commented that certain leadership behaviors have
clear association with engagement constructs such as motivation, job satisfaction,
organizational commitment, proactive behaviors and organizational citizenship
behavior. It can be emphasized that private companies` financial success ties and links
to employee engagement. In relating to second driver communication, it was
discovered that poor communication from superior tends to produce poor employee
engagement. Effective internal communication which comes with clear organizational
goals, practices and objectives enhances and ensures employee engagement. The last
driver is work-life balance, this deal in agreement with above write-ups. Work-life
balance contributes to the employee performance at organization and this relates
employee having quality balance time for his family and work.

According to Townsend, et al., (2014), they discovered that managerial strategies

enhance talent management in the aspect of employee engagement. This can be
achieved by creating a good workplace where employees would be excited and
motivated to work having being initiated by the top management into achieving the
major objectives and goals of an organization. In conjunction with this, Shuck and
Alagaraja, (2015) suggested that there is an essential linkage between organizational
strategies, employee engagement and organizational performance. They identified the

96
reason for the connection is wholly based on HRD alignment of employee skills and
job knowledge characteristics. It was discovered that employee engagement operates
on three interrelated psychological facets which are behavioral energies, emotional
energies and cognitive energies. Furthermore, “the application or organizational
alignment theory to employee engagement provides ample opportunity to advance
theory development in HRD” (Shuck et al., 2014).

2.4 Discussion and Practical Implications of employee engagement to

organizations and society at large

Organizations and societies have observed enormous implications of employee

engagement and it has been discovered based from the above theoretical explanation
of determinants of employee engagement that it is a difficult process which demands
dedication to all departments and management levels in the organization, it should not
be left only to strategic human resource management for enforcement. In this 21st
century business environment, effective leadership and managerial system should be
institutionalized. Firstly, implications of employee engagement to organizational
leadership for policy making; according to Saks (2006), he stated that managers should
understand that employee engagement is a long-term and on-going process that
requires continued interactions over time in order to generate obligations and a state of
reciprocal interdependence. Most of the implications of the employee engagement to
most private companies in Nigeria was, mostly all organizations failed to recognize
that employee engagement is a wide cultural and organizational strategy that connotes
all organization levels.

The practical implications of employee engagement in private companies can be

curtailed when there is an implementation of effective management system that
enhances competent information flow, good problem solving, collaboration, trust and
strong communication. Organizations with all these strengths and implement it
effectively have tremendous pathway to achieve an effectual and effective employee
engagement which will sustain their competitive advantage, profitability and achieve
high performance.

There are massive practical implications of engagement to employees as well.

According to Perera and Wickramasinghe (2014), suggested some organization
perceived supports which encourage employees to have the sense of organization
citizenship behavior (OCB) and this enhances their engagement for enormous
performance. They observed some significant relationship between organizational
support, quality performance and employee engagement. In this 21st century business
environment, talent management has been evolving towards people management. This
emphasizes a great benefit for organization to retaining their employees as the main
key for their sustainability in the market.

Many factors enhances employee engagement as discussed above but much

attention should be given to employee satisfaction, attitude and commitment within the
organization because these are some vital drivers which draw the cognitive attention or
behavior of employee either to engaged or dis-engaged on their work. Traditionally,
we have noted that whenever employees are treated well, they will engage on their

97
work which will in-return generate high financial performance to the organization.
Furthermore, it has been identified among the human resource executives that effective
communication within the organization and the systematic implementation of such
internal communication to the employees matters. It has a dramatic impact on how the
employees are engaged to their works as well. Hence, it is obvious that the ability of
organizational leadership to maximize its communication effectively across the
company increases employee engagement.

Employee engagement has some practical implication to organization

stakeholders. This generates the notion that advancing and developing employees can
enhance their skills and abilities to engage on their work. Organizations which
encourage training and development in their system tend to have employees with high
level of engagement, retention and low turnover. In this 21st century business
environment, the most critical factor driving the success of organization and its
competitive advantage in this advance competition is employee engagement. The
performance and success of the organization depends on it. Inasmuch as it has the
notable factors of enhancing employee loyalty, retention and productivity but it is much
pertinent to know that employee engagement has a linkage with customer satisfaction,
stakeholder values and company reputation. Organizational war for talent is creating
an employee well-being environment for commitment because employees with highest
commitment level tend to out-perform better and leaving the company is at minimal.
Appropriate management of talents in the area of engagement has been identified for
profit generation to the organization and cost reduction as well.

3.0 CONCLUSION

The modern business organizations have generated the importance of talent

management because of the appearance of modern economy and human resource has
enormous entrants from new generations. The increment needs for a business
organization to be more competitive and strategic, generated the significance and
unquenchable taste for talent management which connotes the contemporary ways of
managing the human capital and resources (Chitsaz-Isfahani, & Boustani, 2014). It has
been clarified the impact and determinant of employee engagement in the private
companies in Nigeria. Employee engagement is one of the contemporary issues that
relates to talent management and dealing it appropriately determines how far the
organization will maintain its competitive advantage. The most desire of any
organization is attracting, selecting, developing, retaining and engaging its employees
for the high performance and profitability. The building of organizational brand image
starts from inside the organization through appropriate talent management. This also
means effective management of their employees and engaging them in their workplace.
Managerial leadership contributes immensely towards achieving employee
engagement while instituting effective communication, corporate and social
responsibility, and SHRM practices and policies. The correspondence between
employee engagement and how managerial leadership differs from it is of a greater
impact. Though, Leadership-Engagement model relationship is still new talent
management determinant but it provides the pathway for developing and nurturing
employee well-being and organization relations within the workplace. When

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organizations invest more on their employee engagement, it is pertinent to conclude
that their employees will in re-turn invest in their work and enhance toward achieving
organizational objectives and goals.

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future research directions. Journal of world business, 49, 173-179
Allen, T., Johnson, C., Kiburz, M.,& Shockley, K. 2013. Work-family conflict and
flexible work arrangements: Deconstructing flexibility. Personnel Psychology,
66, 345–376.
Bal, M., De Jong, B., Jansen, W., & Bakker, B. 2012. Motivating employees to work
beyond retirement: A multi-level study of the role of I-deals and unit climate.
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Brad, S and Thomas G. 2014.Employee engagement and well-being: A moderation
model and implications for practice. Journal of Leadership & organizational
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Chitsaz-Isfahani, A and Boustani,H. 2014. Effects of talent management on employees
retention: The mediate effect of organizational trust. International journal of
academic research in economics and management sciences. Vol. 3, (5), 144- 128
Collings, D and Mellahi, K. 2009. Strategic talent management: A review and research
agenda, Human resource management review.
De Lange, A and Bal,P .2015. From flexibility human resource management to
employee engagement and perceived job performance across the lifespan: A
multisample study. Journal of occupational and organizational psychology.
Vol.88, 126.154
Deery, M. 2008. Talent management, work-life balance and retention strategies,
International journal of contemporary hospitality management. Vol. 20(7), 792-
806
El Badawy, T. 2014. Employee engagement as a mediator between transformational
leadership and intention to quit.CF Vol. 12(1),152-160
Griffin, M., Parker, S. and Mason, C. 2010. “Leader vision and the development of
adaptive and proactive performance: a longitudinal study”. Journal of Applied
Psychology. Vol. 95 No. 1, pp. 174-82.
Gruman, J and Saks, A. 2014. What do we really know about employee engagement?
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Leslie, M., Manchester, F., Park, T., & Mehng, A. 2012. Flexible work practices: A
source of career premiums or penalties? Academy of Management Journal, 55,
1407–1428.
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the evidence and directions for future research. Journal of Organizational
Behavior, 35, S139–S157.
McDonnell, A. 2011. Still fighting the "war for talent"? Bridging the science versus
practice gap. Journal of business and psychology, Vol. 26(2), 169-173

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Pandita, M and Bedarkar, D .2014. A study on the drivers of employee engagement
impacting employee performance.Social and behavioural science. Vol. 133, 106-
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emploee engagement and organization citizenship behaviour on quality
performance.Total quality management. Vol. 25(11), 1280-1294
Popli, S and Rizvi, A .2015.Exploring the relationship between service orientation,
employee engagement and perceived leadership style: A study of managers in the
private service sector organizations in India. Journal of service marketing. Vol.
29(1) 59-70
Saks, A. M. 2006. Antecedents and consequences of employee engagement. Journal of
Managerial Psychology. Vol. 21(7) 600-619.
Shuck, B and Alagaraja, M. 2015. Exploring organizational alignment-employee
engagement linkages and impact on individual performance: A conceptual
model. Human resource development review. Vol. 14(1) 17-37
Shuck, B. & Wollard, K. 2010. Employee engagement and HRD: A seminal review of
the foundations. Human Resource Development Review, 9, 89-110.
Shuck, B., Twyford, D., Reio, T. G., & Shuck, A. 2014. Human resource development
practices and employee engagement. Examining the connection with employee
turnover intentions. Human Resource Development Quarterly, 25, 239-270.
Townsend, K., Wilkinson, A and Burgess, J. 2014. Routes to partial success:
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Wang, D and Hsieh, C. 2013. The effect of authentic leadership on employee trust and
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 TRACK C:
STRATEGIC
MANAGEMENT

101
 ARTICLE C1

Influence of Context on Strategic Flexibility – A Critical Review

Meghdad Ahmadi
Mohammad Hasan Mohammad Osman

ABSTRACT
This paper critically reviews the Strategic Flexibility literature, with laying emphasis on its dimensions
and role of context. Because of strategic flexibility being identified as a black box with its various
definitions and dimensions, and pervasiveness of contextual variables contributing to strategic flexibility
featured within the literature, it is necessary to conduct a comprehensive review to organize the
literature to prepare insight for future research. The purpose of this literature review is: first, to critically
review the strategic flexibility literature to highlight the underlying dimensions and; secondly to identify
the conditions or context for its performance, which can be used for future theory development. Strategic
action flexibility and resource reconfiguring flexibility are found as the main dimensions of strategic
flexibility. The Context found to influence on strategic flexibility is divided to two types including external
context of environmental dynamism, and internal context of modular reconfigurable structure design.

Keywords— Strategic Flexibility, Action Flexibility, Resource Reconfiguring Flexibility, Modular

Structure Design, Environmental Dynamism.

1.0 INTRODUCTION

Strategic flexibility is reported to make significant contributions to firms by

implementing changes enabling the firm to adjust it to changes. Thus, it is stated to
function in making the company more proactive leading to gaining competitive
advantage and being beneficial to firm performance [25]. However, it is found that
although flexibility is considered as an important dynamic capability [30] which is
driver of firm competitive advantage in turbulent environments, existing studies show
controversial results regarding the relationship between Strategic flexibility and firm
performance [9]. On one side, some practical studies support the idea that strategic
flexibility improves firm performance [18]. On the other hand, a group of studies,
however, suggest that strategic flexibility also is related with some shortcomings [9].
For example, it is argued that applying strategic flexibility may result in high costs and
preventing the firm from emphasizing on strategic goals. Besides, empirical studies
such as Kapasuwan et al, [12] have not been able to establish a high connection
between strategic flexibility and higher performance in firm [9]. As can be seen, there
is not mutual agreement on relation between strategic flexibility and firm performance.

The Issue of facing Controversial results in relationship between strategic

flexibility and firm performance can be related to two reasons. The first reason is that
despite the attention paid to strategic flexibility in the literature, previous studies have

102
mostly taken into consideration flexibility with different dimension variable in
investigating its effect on performance. In fact, there is not common understanding on
identity of Strategic Flexibility. Different researchers have adopted single dimension
flexibility as a one dimensional indicator of Strategic flexibility, while every type has
its own applications. In fact, some studies undermine the importance of some
dimensions of Strategic Flexibility [19, 34]. Some researchers such as Hai Guo [9]
incorporate the Resource Flexibility as the only indicator, while some other studies [3]
have taken the Diversity of strategic actions and the Speed of Responsiveness as the
indicator of strategic flexibility. Some other studies [17] consider Strategic Flexibility
as a combination of Resource Deployment and Competitive Strategic Actions
flexibility as the proactive and reactive actions taken by management. Thus, there
should be empirical studies examining the effect of different dimensions of strategic
flexibility on firm performance, with which the risk of making partial conclusion can
be minimized [19].

The second reason is related to the fact that having the dynamic capability of
strategic flexibility is not sufficient for gaining sustainable completive advantage and
the impact of strategic flexibility on firm performance is context-dependent. In fact,
another existing gap in literature regarding role of flexibility is related to the fact that
strategic flexibility alone cannot be the source of competitive advantage. According to
Wang et al [2], there should be studies investigating the conditions under which
Dynamic Capabilities can perform better. This is supported by the point that although
many companies have dynamic capabilities such as strategic flexibility, they are not
benefiting from that [29]. However, in spite of importance of context, it is found that
the conditions or the context under which strategic flexibility should work is not fully
studied. Most existing studies have adopted an incremental approach to theory
development, and focused only on a limited number of contextual variables [31]. In
fact, most studies have considered the external context, while few studies have taken
the internal condition or context into consideration [9].

Lack of a systematic treatment of dimensions and contextual variables related to

strategic flexibility has resulted in ‘an incomplete, and perhaps inaccurate picture of
Strategic flexibility. This has resulted in a fragmented understanding, and left scholars
unable to identify the key contextual influences. Inconsistencies among existing studies
highlight the need for future research to pay closer attention to dimensions and context
related to strategic flexibility [31]. This research aims to firstly determine the
dimensions of strategic flexibility from a dynamic oriented view, and secondly find
both the external and internal contextual factors contributing to enhancing the effect of
Strategic flexibility. Thus, Strategic Flexibility research on dimensions and context is
of great importance because it reveals insights that can help to reconcile such
contradictory results in the relationship between strategic flexibility and performance.
Besides, the insights that it provides can improve the effectiveness of Strategic
flexibility to be used by executives, which ultimately contribute to the success of
organizations.

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2.0 THEORETICAL MODEL

2.1 Contingency Theory; External and Internal Alignment

The importance of considering the internal context can be explained by referring to the
concept of fit. The concept of fit has been seen differently stated. Two levels of strategic
alignment (fit) have been found to be considered: the fit or alignment of the
organization’s strategy to the external environment (external alignment) and the
alignment or fit between the strategy and the organization itself as the Internal
Alignment. External alignment supposes that during the strategy development,
organizations take into consideration external variables that can positively or
negatively affect them. Such variables are, for example, market opportunities, product
life cycle, market growth rate, and the relative competitive position of the organization.
On the other hand, internal alignment supposes that internal variables such as
organizational structure and management system should match and back up the
organization’s strategy. Thus, based on the concept of alignment, context can refer to
the top management team, the external environment and firm characteristics such as its
structure [31].

2.2 Capability and Structural Design View

It is found that Strategic flexibility should be considered as a combination of

Managerial Tasks and Structural Design [19, 34]. In fact it deals with the question
whether executives are able to take proper actions at the right time and if the
organization design is capable of taking such managerial actions. Studies on
organizational design attribute flexibility to structures that facilitate managerial focus
and control, where flexibility comes from minimizing coordination costs of adaptation.
In fact, strategic flexibility is seen as the firm’s ability to rapidly reconfigure its
structure [1].On the other hand, studies considering strategic flexibility from an action
oriented view consider it as the ability of the firm to take Proactive Strategic Actions
at a high speed. In fact, in the capabilities-based view, responsiveness arises from the
flexibility of underlying resources and managerial practices [30]. Both organizational
structure changes and managerial activities are theorized as influencing strategic
flexibility, but these theoretical streams have evolved as independent literatures .Thus,
in order to have a comprehensive examination of the conditions under which flexibility
can contribute to firm performance, it is essential to take in to consideration the
simultaneous effect of dynamic capability orientation and organization design view
[34].

3.0 Dimensions of Strategic flexibility

Strategic Flexibility is considered as the ability of the firm to analyze the external
environment and internal environment leading to appearance of different strategic

104
actions with which the firm can be more proactive against a changing business
environment [17]. Besides, flexible firms should be able to rapidly change from one
action to another course of action [14]. In fact strategic flexibility is considered as the
diversity of the strategic actions or options and the speed at which the firm can adopt
these strategic options [17, 35]. For firms to be able to quickly shift between options,
they also need the capability to combine different resources and deploy suitable amount
of resources for specific strategic actions, which is called resource flexibility. Thus, it
is believed that Strategic flexibility depends jointly on Action flexibility and the
company’s organizational flexibilities in applying resources to alternative courses of
action which is referred as resource flexibility [14, 35].

3.1 Strategic Action Flexibility

Strategic flexibility is implied as the ability of a firm to modify its strategy when it
encounters opportunities, threats, and driving forces of change in business environment
[28]. In fact, in dynamic environments, a company should be capable of recalibrating
its strategies in order to achieve sustainable competitive advantage. Considering the
capability of firms in showing various strategic actions is considered as the indicator
of strategic flexibility in this study, which is aligned with the previous studies [17, 34,
35]. However, there are a number of studies [9, 29] which have considered resource
flexibility and coordination flexibility as indicator of strategic flexibility. It is believed
that although classification in terms of resources flexibility and coordination flexibility
does help in narrowing down the broad scope of the strategic flexibility concept, it does
not emphasize the strategic nature of flexibility. The problem with this approach is that
it makes sense for different functions of an organization to be less rigid and more
prepared for a change in the organization. However, such a classification into resource
and coordination flexibility does not provide any insights into how an organization
might be able to initiate changes in their competitive environment and shape their
environment [32].

Necesity of Diversity of stratagic actions and Shifting between them inorder to

deal with the dynamic envirnment is highlighted by Thomson,Gamble and
Strickland[27]. There are three stratagic postures. The company can react to change,
anticipate change or lead the change. Reaction as one of the stratagic options is
considered as a defensive stratagy and may include actions such as redesigning its
product to response to the rivals with better new product. The second option which is
called Anticipation entails analysis of the the likely coming events and preparing for
them. For example it can be done through investigating the buyers needs and
expectation and eqiuiping the firm for the ecpected productions and distribusions.
Anticipating stratagies are also considered as defensive stratagies. The third type of
strtagic actions considered as Leading change requires being first to market by coming
up with a new product and being the market or technological leader.Thus, in such fast
changing envirnment, the capability of the firm to shift between these stratagisc options
is vital for its sustainable competitive advantage.

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 The firm’s analytical capability in matching the internal capabilities with the
driving forces of change and competitors’ situation providing the firms with diversity
of strategic actions is necessary to gain competitive advantage. In fact, Strategic
Flexibility results from processes that intend to evaluate the company’s external
environment in order to provide the firm with appropriate information for decision
making. There are several concepts considered as the strategically relevant components
of a company’s external environment including the company’s industry and
competitive environment. In order to come up with diversity of strategic options,
certain questions are to be answered.

The first question seeks information on the industries dominant economic

features Such as the market size and growth rate, degree of product differentiation,
demand supply condition and economy of scale. Regarding the market size and growth
rate, a flexible firm will be able to find out about the industries position in the product
life cycle which can give insight on the volume of production which can help to develop
flexibility [27].Through analyzing the demand supply condition, a firm can find out
whether there is surplus of capacity diminishing the price and profit margin so that it
can adjust the offering of the product to market, which is regarded as an enabler of
flexibility. The second question which is answered deals with identifying driving forces
of change and their impact on industry. In fact only considering the product life cycle
is considered to be insufficient in monitoring the causes of change in industry. There
are strong forces in any industry making the participants to change their actions. So,
understanding these forces would help the firm to be more flexible in facing the
customers. During Driving Force analysis, there are 3 steps. In first step, the forces are
identified, then they are examined if are likely to make the industry more or less
attractive, and finally any likely future strategy changes are anticipated which can
prepare the firm for facing the impact of change.

Some of the most common driving forces of change include product innovation,
change in who buys the product and how they use it, in fact shift in the way products
are used needs for new orientation in competition as it influences on the way customer
make purchasing decision. Anticipating all these questions are likely to help the firm
in coming up with a new product development that is regarded as an indicator of
strategic flexibility [27]. The third question which can be answered is related to the
market position of the rivals. In order to find out about it, one of the most commonly
techniques used in the process of scanning is the strategic group map. Strategic group
map gives insight on the positions which are more attractive to the competitors who are
located in the same strategic group regarding several areas including the offering of
same product to appeal the customer. Strategic group map gives insight on the positions
which are more attractive .Thus, for the firm to approach to attractive position; he will
know how to satisfy the customer.

Internal analysis and value chain analysis as a main component of strategic

planning can prepare the ground for emergence of strategic flexibility. The analysis
starts with identifying the distinctive capabilities of firm. This is done by evaluating
the value adding activities including the primary and supportive activities. The aim is
to evaluate whether these activities are done cost competitively compared to rivals. The
industries’ value chain and rivals’ value adding activities are also assessed to see if the
company does these activities better or not. Having done this analysis, the firm can

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come up with the idea whether the firm is suffering cost disadvantage or not. By then,
the firm can have strategic options to remedy the cost disadvantage which derives from
four main areas.

In some cases, the cost disadvantage is due to internal cost disadvantage or doing
the internal value adding activities at a higher cost, in which case, the company can
start implementing the best practices or can start to remove some cost producing
activities by revamping the value chain [27]. As can be seen these strategic options
considered as strategic flexibility refer to the ability of firm in changing its strategy in
response to opportunities, threats, and changes in the external environment, in fact
strategic flexibility conjures up as the ability of the firm to come up with diversity of
strategic options [28, 34]. It refers to capabilities related to the changes in the nature of
organizational activities. Empirical evidences have suggested that having a variety of
strategic actions and shifting between actions affects business performance positively
[17, 34]. Considering the variety of strategic actions and shifting among them gives a
more dynamic and active definition of Strategic flexibility. It is believed that an active
and dynamic view of flexibility is a characteristic of an organization that makes it able
to respond successfully to unforeseen environmental Change by variety of strategic
options and speed of shifting between them [17].

The importance of diversity of strategic action is highlighted in the studies done

by Nadkarni [17], Nadkarni and Herrmann [18], Mom etal [16] and Cincoz [3].
Strategic flexibility is considered as the capability of the firm to be responsive to
environment by showing different strategic actions at a high speed. It is argued that
Firms with strategic flexibility tend to effectively and successfully manage economic
risks by responding in a proactive manner to market threats and opportunities .In fact
Strategic flexibility is stated to be a critical organizational competency that makes the
firms more proactive since it gives firms the ability to control outside environment
effectively. The assumption is that the more control firms have over their competitive
landscape, the better their competitive position.

3.2 Resource Reconfiguring Flexibility

In dynamic Environment, building sustainable competitive advantage is difficult

because firms cannot long protect existing products and processes. Firms cannot sustain
above-average profits based on a single established innovation or advantage in these
environments. To survive in such business environment, firms must carry out frequent
strategic and organizational change. In order to show quick response, the company
should own the capability of making shift in its resource allocation[17].This is related
to the fact that different strategies require different type and amount of resources .The
Company needs to marshal the resources behind the strategy critical activities which
are required to follow the new strategic initiatives, and establish the appropriate level
to the right place in the organization, which is likely to contribute in implementation of
the strategy [24]. Thus, flexibility of resource deployment is likely to countribute in
enabling the firms to gain higher profit [17].

It is believed that modifying the resource allocation can lead to higher

performance of strategic flexibility since it is capable of eliminating the high cost which

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is one of the reported disadvantages of strategic flexibility [17, 25]. The stable and
persistent pattern of resource deployment may not work in fast Changing Environment,
where products, processes and competitive actions are changing rapidly and
competitive advantage is short lived. Stability in resource deployment may lock
company resources into products and processes that may become outdated, adversely
affecting performance [20, 27]. The need for having a dynamic view toward resource
flexibility and introducing resource deployment modification comes from the idea that
adopting new strategic action requires the firm to modify its budgeting as new strategy
critical activities should be addressed more seriously, and the activities or units that are
not any more the main block of the new strategy should not receive resources as before
[27].

The studies done by Nadkarni and Narayanan [17] and Cincoz [3] have provided
evidence to support necessity of modifying the resource deployment as an essential
condition for strategic flexibility. The study referred to dynamism of the business and
industry environment and addressed the attention for new strategic directions for
strategic flexibility. In this study, strategic flexibility is considered as the ability to
adapt to environmental changes through continuous changes in current strategic
actions, resource deployment, and investment strategies. Such conceptualization is
supported by Suchil [35]. Resource flexibility and competitive strategic action
flexibility are viewed from a new point of view, in which in addition to diversity of
actions and resources, the need for shifting in actions and resource use is addressed. In
fact, strategic flexibility is referred as a dynamic capability of having various strategic
actions and making shifts in strategic actions, which requires to be complemented by
managerial activity of making shifts in resource allocation to work properly.
Considering such relation is supported by Thomson etal[27].

The study done by Nadkarni and Narayanan [17] has a shortcoming. It is

concerned with not considering the capability of the firm to have organizational
structural changes for strategic flexibility. It is argued that Strategic flexibility is also
implied as the ability of the firm to restructure itself quickly [21]. According to
Thomson [27], specific type of structure is needed for carrying out a certain type of
strategy in a firm. In fact the companies which are planning to carry out new strategic
options and strategy driven activities have found that improving the operation is
prohibited by some organization arrangements. In fact such arrangements have
prevented firm from fulfilling the execution of new strategic directions. It is believed
that attempting to try new strategy with the old structure would lead to problems for
performance. So, it is believed that every new strategy needs its own structure to be
fitted with that [27].For example, for firms active in one business, a traditional
functional structure is suggested, while for pursuing the strategy of Vertical Integration,
there is need for Divisional Units which perform one or more major processing steps
along the value chain. Thus, the firm which has the capability of structural flexibility
in addition to Strategic Action flexibility can be more successful in execution of the
newly designed strategic option [3].

The moderating effect of resource flexibility as an internal contextual factor

enhancing the relation between strategic flexibility and performance is emphasized by
Hai Guo [9]. Considering the contingency view, he argues that the impact of strategic
flexibility on firm performance should not be only contingent on the industrial

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environment. In fact the researcher believes that taking into consideration the external
condition is not sufficient in investigating the effect of flexibility. In fact, if the
organization is taken granted as an open system, the effectiveness of an organization is
related to both external and internal condition. The study has viewed strategic
flexibility from a dynamic oriented point of view. It is stated that Dynamic capability
is implied as the capability of the firm to bundle and remodel the internal and external
competences in order to face the changes in environments. The study has criticized the
previous studies as they had taken in to account the interaction of dynamic capability
of flexibility with external conditions. Therefore, it demonstrated that the exploiting
the dynamic capabilities should also be based on the internal activities in a firm. The
researcher investigated the effect of interaction of resource combination activities and
developing managerial ties as the managerial activities.

4.0 INTERNAL CONTEXTS (MODULAR RECONFIGURABLE

STRUCTURAL DESIGN)

Strategic flexibility is affected by the ability of the firm to restructure itself quickly
[21]. However, there is a distinction between flexible structure and structural
flexibility. Flexible structure is considered as the potentiality of the firm in having
organic Decision making Process. However this is different from structural flexibility
as the capability of having different structures which can be used and based on the need
of new strategy. It is believed that firms possessing structural changes in a well
organized form are likely to face less organization problems compared to the firms that
have no ordered changes [10]. The important role of structural flexibility derives from
the fact that specific type of structure is needed for carrying out a certain type of
strategy in a firm. In fact the companies which are planning to carry out new strategic
options and strategy driven activities have found that improving the operation is
prohibited by some organization arrangements [27].

Such arrangements have prevented firms from fulfilling the execution of new
strategic directions. It is believed that attempting to try new strategy with the old
structure would lead to problems for performance. So, it is believed that every new
strategy needs its own structure to be fitted with that .For example, for firms active in
one business , a traditional functional structure is suggested, while for pursuing the
strategy of Vertical Integration, there is need for Divisional Units which perform one
or more major processing steps along the value chain. Thus, the firm which has the
capability of structural flexibility in addition to Strategic flexibility can be more
successful in execution of the newly designed strategic option [27].

Structural flexibility cannot be effective and facilitative unless it increases the

level of communication, control and coordination inside and outside of the firm [19].
This is related to the fact that sometimes pieces of activities are done separately in
different functional departments and the organization is so complex that Strategic
flexibility cannot work. So for the flexibility to work out, it is important to reduce the
complexity of the organization and decrease the cost related to coordination [1]. That’s
why there should be a more dynamic orientation toward this concept .In order to
remove such issue in implementation of strategy, many firms have tried to use

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Structural Changes that reduce coordination costs and enhance cooperation among
organizational units [16].

Structure change reconfiguration can be regarded as activities contributing to

enhance the effect of flexibility. In a broad sense, Structure Reconfiguring includes
the addition of units to the firm, Deletion of units from the firm, and Recombination of
units within the firm [11]. However, in the study done by Block etal [1], Structure
Change or Reconfiguration is referred to as Delegation, Consolidation and
Recombination of units within the firm such that resources and activities are still
retained by the organization.

In fact reconfiguring the structure is taken as a process of simplifying the

structure complexity. This phenomenon is important to study because reconfiguring
structures and their resources makes it possible for firms to use resources in new
combinations, improving the effectiveness of resources and improving performance.
Structure reconfiguring toward simplification can focus managerial attention on
solving problems and identifying opportunities arising from changing environments
[4]. It is believed that reducing design complexity enhances attention to strategy
critical activities and leads to more flexibility: In fact, this reconfiguring activity
expands the strategic fit between strategy and structure [27].Thus, Structure change
reconfiguration are regarded as activities contributing in the effect of strategic
flexibility. Thus, structural reconfiguring can be regarded as a factor enhancing the
flexibility and approaching the company to operational excellence. Thus in this study ,
having such capability gives the chance to firm to be able to shift quickly between
various types of structure, so it is likely to increase the adaptability of organization
through increasing the coordination leading to strategic flexibility.

The Contribusion of structure as an internal context to stratagic flexibility and

the necesity of the fit between structure and stratagy has been addresed in the study
done by Demirbag [15]. In fact a dynamic capability oriented view toward fit is also
taken by Demirbag as having considered the contingency perspective, he argues that
the notion of strategic fit or alignment generally refers to the efficiency with which the
organization's resources and capabilities are aligned with the key opportunities and
threats the environment presents, and also the effectiveness with which the organization
executes a chosen strategy in certain environments. Demirbag argues that although it
is a common belief in strategic management literature that in order to compete
successfully, organizations must fit or align themselves with their environment,
Uncertain environments characterized by continuous and turbulent change, for
example, associated with changing customer preferences and technological innovation,
makes the achievement of strategic fit highly problematic . Thus, the writer adopts a
dynamic view toward fit and believes that fit cannot be seen to be in a fixed state, rather,
achieving fit is a continuous process. In fact the writer is emphasizing on existence of
conditions and infrastructures in firms, in which existing capabilities can be meshed
with new capabilities in order to realign the organization with its environment. To adapt
to a changing environment, organizations must redesign themselves in order to fit that
environment and in doing so create the necessary organizational capabilities.

Strategic planning and environmental turbulence and dynamic structure as the

contingency factors are brought in to a DEA model to examine the intensity of these

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inputs enabling the researcher to test the efficiency of the practice of proposed model
in SMEs. The result coming from the study shows that there is a positive relation
between practicing strategic planning in firms with dynamic structure and higher
performance in turbulent environment. The study is valuable since not only has shown
the relation between strategic planning and performance, but also has identified the
intensity of the variables and efficiency of the practice, in fact in contrary to previous
studies which have considered performance; this study has done groundbreaking
research on measuring the efficiency of strategic planning. However, there are some
shortcomings related to this article. Although the writer emphasized on necessity of
considering the internal capabilities as the indicator of implementation enabler, he
confined the internal context to introducing the dynamic structure in firm. In fact, the
dynamic capabilities and managerial activities recommended are not considered. The
second shortcoming is related to considering a direct relation between strategic
planning and performance. However Rudd [10] argues that there should be indirect
relation between strategic planning and performance. In fact the capabilities and
contextual factors can mediate the relation between strategic planning and
performance.

The necesity of considering the structural design when talking about stratagic
flexibility is also emphasised in the study done by Niels P [19] and Soplena etal [34].
They criticize the previous studies as believe that many of the studies of organizational
flexibility have not taken into account the distinction between managerial capabilities
and design as the required infrastructure for flexibility. In fact it is stated that both
managerial capabilities and organization design variables are interrelated dimensions
[34]. The conceptual model of the study is oriented from systems theory of control, in
which flexibility is regarded as result of an interaction between the dynamic capability
of executives and responsiveness of the organization.

As an executive task, achieving flexibility includes the development or

reconfiguring dynamic capabilities with which a firm’s resource can be expanded or
remodeled. Such dynamic capabilities are likely to enhance management’s ability to
show responsive actions [7, 34]. Regarding flexibility as a managerial capability, it is
important to see if executives can show reaction at the right time. For example how
managers shorten the time to bring a new product to market by which there will be
operational flexibility. But in case of addressing the design, it is essential to find out if
the company possesses the required infrastructure to fulfill the expected result from
flexibility. for example in order to be able to introduce the product mix to market as a
sign of operational flexibility , the organization should be equipped with technological
designs making it able to implement necessary changes[19].

The study done by Block et al [1] gives insight on what is exactly meant by a
dynamicly reconfigurable structure. In fact reconfiguring the structure is taken as a
process of simplifying the structure complexity. In this study, structure change or
reconfiguration is referred to as delegation, consolidation and recombination of units
within the firm such that resources and activities are still retained by the organization.
These activities are intended to enable the firm to make quick changes in internal and
external structure. For example, strategic alliances, use of third-party operating utility,
onshore outsourcing, shared services, major project-based contracting and offshore
outsourcing are considered as forms of loosely coupled external coordination which

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are stated to be beneficial for SMEs, compared to fixed and strict integrations such as
mergers.

The study took a dynamic view toward structure flexibility by regarding it as

modular simplification process in the organization. The concept of modularity has been
found appropriate to support simplifying reconfiguring actions as indicator of structural
flexibility as presented below. However the scope of modularity is scoped down to
modularity in Organization Structure and the modular product is disregarded[4]. An
organizational architecture is modular to the extent to which architecture (modules)
interfaces between modules (such as the way they adjust and communicate with each
other). It is generally agreed that a modular organizational structure should be
composed of autonomous loosely coupled organizational units. Effects of modular
organizational structure include simultaneously reconciling flexibility and cost
efficiency [8].

The adoption of a modular organizational design is stated to ensure the

opportunity to recombine autonomous organizational units and resources to meet
business opportunities in dynamic markets. Studies of organizational design modularity
maintain that adopting a modular organizational structure allows firms to achieve inter
temporal economies of scope with a low degree of coordination between business units
[7; 11]. Modularization enables organizations to manage complex systems by
decomposing them into smaller pieces with limited interdependence. Hence, modular
design allows for decoupling of components and systems and creates an information
structure that can provide embedded coordination, thereby providing the company with
increased strategic flexibility [22].

5.0 EXTERNAL CONTEXT OF ENVIRNMENT DYNAMISM

Strategy of the firm should be aligned and fitted with the type of the business
envirnment and intensity of the competion the firm is facing. In fact, Stratagic
flexibility is considered important as a dynamic capbility enabling the firm to confront
with the dynamism of the envirnment.The business Envirnment is more turbulent
compared to past. The challenges of managing a successful business today are more
complex and difficult than any other time in the recent history. Manufacturing
innovations and intense international competition have created threat for the
management of companies. Academics agree that business environments have been
dramatically complicated leading to existence of environmental turbulence.
Environmental turbulence has been considered as one of the drivers of strategic
directions. It is argued that turbulent and fast changing markets are chractrised by
fast technological changes, short product life cycles , competitive proactive actions of
the rivals and flactuations in taste of customers.

The influence of external context has been extensively studied in the litreture .
Kapasuwan et al., [12]; Nadkarni and Narayanan[17], Ayse Cingoz[3] have taken into
account the moderating effects of eternal environmental factors on relation between
flexibility and performance. The envirenmental contextual factors considered in
prvious studies showing to be critical for organizational survival include industry

112
clockspeed, Environmental munificence, environmental dynamism, and environmental
complexity.

The first external factor is environmental dynamism which refers to changes that
occur in the task environment due to absence of established prior patterns. In the study
on moderating effect of dynamism on relation between flexibility and performance
which is done by [6], fit between external environment and elements of strategy is
stressed. In fact, the strategic effectiveness of an organization is said to be dependent
on fit, which is the compatibility of structures and processes both within the firm, and
with the environment in which it operates. Referring to Miller and Friesen, dynamic
environments are mentioned to be consisting of two distinct characteristics, ‘rate of
change’ (velocity or volatility), and ‘unpredictability of change’. The writer makes a
distinction between alignment pattern of volatility and unpredictability as a volatile
environment calls for centralized and mechanistic structures, while an unpredictable
environment requires organic and flexible structures.

In the study done by Nadkarni[17], the industry clock speed as the indicator of
rate of change of the environment is the dimension that is considered. He identified
three facets of industry clock speed: product, process and organization. Product
clockspeed indicates new product introduction and product obsolescence rates. For
example, the aircraft industry shows slow clock speed, while the automobile industry
shows fast clock speed. Process clock speed refers to the speed of replacing the process
technologies such as the production line technologies. Finally, organizational clock
speed shows the speed of change in strategic actions such as mergers and acquisitions
.It is clear that all three dimensions happen at industry level. The writer has made
distinction between rate of change, turbulence and magnitude of change.

In order to fill the gap, rate of change is chosen as the environmental contextual
factor. It is argued that in fast clock speed industries, the potential for sustainable
competitive advantage and the feasibility of feedback-based learning is low. In fact, in
fast-clock speed industries, building sustainable competitive advantage is difficult
because firms cannot long protect existing products and processes. Second, fast-clock
speed industries severely limit the potential for feedback-based learning. Firms cannot
learn from past experience because strategic actions that have proven effective in the
past become outdated quickly, so similar actions no longer produce similar outcomes.
The result is in agreement with previous studies as Strategic flexibility is found to be
positively related to firm performance in a fast clock speed industry.

The second dimension of environment named munificence is referred as the

feature of the environment showing the ability of environment to support sustained
growth by providing the firms with more resources and opportunities. It is believed to
increases strategic degrees of freedom" through the accumulation of slack within the
organization [14]. Among the studies focusing on how environmental munificence
interacts with strategic flexibility, there is not clear consensus. While Goll and Rasheed
[33] show that strategic flexibility coming from rational strategic planning leads to high
levels of organizational performance in munificent environments, Hai Guo [9] reports
that strategic flexibility is most likely to result in higher performance in environments
with low levels of munificence, because in munificent environments, firms do not have
to frequently change strategies since resources and opportunities supporting existing

113
strategies can be easily identified, acquired, and exploited. In other words, the effect of
strategic flexibility on firm performance is not quite evident in highly munificent
environments.

Environmental complexity defines the extent to which a firm's environment is

competitive and heterogeneous [14]. Dynamic capability perspective suggests that
strategic flexibility is more efficient in improving firm performance in competitive
environments [30]. Strategic flexibility enables firms to respond to competitors’ actions
through deploying new strategies agilely and launching technological or business
model innovations more quickly and efficiently [14;30]. In contrast, when competitive
actions are fewer and more predictable, firms can make a better living with existing
strategies than with changing strategies because the potential of strategic flexibility
may not be fully exerted and the benefits of strategic flexibility may not offset its costs.

It is believed that when there are fewer competitors, rules are relatively well
established and there is not much need for strategic alternatives, while in highly
complex environment, the top management team will be able to explore a more
extensive range of activities and also require greater information processing and
cognitive abilities to understand how various environmental sectors interact. The
moderating effect of intensity of competition on strategic flexibility performance
relation has been tested by Hai [9].The result is consistent with the general believe
showing that in the more complex and intense environments , there is a higher need for
strategic flexibility and shifting among strategic alternatives.

Based on the work of Kroll and Wright [13], three factors contribute to creating
high levels of environmental complexity. One, technical complexity is the degree to
which technical requirements characterize an industry. This generates environmental
complexity because a firm must have a greater range of knowledge to participate
successfully in the industry. Two, product diversity suggests that industries that have
several product categories creates complex environments because of the increased
range of critical success factors that must be understood and mastered, and the potential
for interdependence across product infrastructures and input requirements. Three,
geographic dispersion of operations contributes to environmental complexity because
a wider scope of operations requires organizations to adjust their mental maps to take
into account an increasing number of suppliers, customers, and competitors.

6.0 CONCLUSIONS

The contingency theory and concept of fit is used in this study as a basis to propose the
model. This review has highlighted the underlying, issues, Dimensions and conditions
in the strategic flexibility literature regarding the moderating influences of context.
This review recommends expanding the scope of strategic flexibility by doing future
empirical research on the active dynamic oriented dimensions of strategic flexibility.
The two dimensions of strategic flexibility proposed in this study include strategic
action flexibility and resource reconfiguring flexibility. In fact, it is necessary to expand
the scope of dimension of resource flexibility by classifying it into resource deployment
or resource reallocation capabilities and resource combination activities. In case of

114
finding the internal context which is potential to enhance the influence of strategic
flexibility, this study recommends to examine the effect of a modular reconfigurable
structural design. In fact this review recommends combining the dynamic capability
view and organizational design view regarding the strategic flexibility to come up with
answers for vague points regarding the effectiveness of strategic flexibility as a
strategic direction to face dynamism of environment. The modular reconfigurable
Structure design can be referred to as a structure with delegation, consolidation and
recombination of units within the firm such that resources and activities are still
retained by the organization. For example, strategic alliances, use of third-party
operating utility, onshore outsourcing, Shared services, Major project-based
contracting and offshore outsourcing are considered as form of loosely coupled
external coordination which is stated to be beneficial for SMEs compared to fixed and
strict integrations such as mergers. In case of the external context, the strategic
effectiveness of an organization flexibility is found to be dependent on the dynamism
of environment consisting of two distinct characteristics of ‘rate of change’ (velocity
or volatility), and ‘unpredictability of change’.

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 ARTICLE C2

Relationship of Charismatic Leadership and Organizational Change

on Business Transformation among Malaysia Small and Medium
Enterprises (SMES)

Ng Rui Wei
Mas Bambang Baroto
Zarina Abdul Salam
Azri Usman

ABSTRACT

Growing challenges in the business environment has required businesses to make faster responses to the
rapid changes and undergo business transformation to survive and remain competitive. This study
attempts to fill in the gap in examining the business transformation relationship with important
determinant from the organization and leadership perspective. Charismatic Leadership has been an
important driver in achieving organizational change. However, existing study lacks the research into
the relationship between charismatic leadership in organizational change and business transformation,
therefore research gap exist in the area in terms of its conceptual testing and theoretical development.
Through utilizing charismatic leadership strategy, and developing a relationship with the aspect of
organizational change, this study proposes a model that promotes business transformation. This
research intends to identify the mediating effect of organizational change in the relationship of
charismatic leadership and business transformation. This research intends to prove that charismatic
leadership and organizational change has a positive significant relationship with business
transformation.

Keyword: Business Transformation; Charismatic Leadership; Organizational Change; Small and

Medium Enterprises (SMEs).

1.0 INTRODUCTION

Today’s business world is complex and characterized by uncertain global competition

(Bititci, 2007), which operates under constant change (Reinstein, 2007). Many
businesses have chosen to transform their business operation or business nature, to stay
relevant and to survive. Business transformation can assist business to achieve
improvements such as higher efficiency, higher market value and financial
sustainability through making fundamental changes (Pratono & Mahmood, 2013).
Over the last three decades, the primary job of leaders has mainly focus on executing
change to maintain and enhance organizational performance (Yukl, 2010).

Private sector has been given larger emphasis with an expected private sector
investment amounting up to 92% of the Malaysia’s investment (Menon, 2012) under
the current administration. To create a successful economic transformation, national
policy must facilitate the SMEs (SME Corp, 2013), for their contributions in social

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economy such as economic growth, jobs creation and poverty reduction (Arinaitwe,
2006). Business transformation can help improve economy performance of a region
through improving the business performance of existing businesses (Worall, 2007).
The Treasury Board of Canada Secretariat also introduces Business Transformation
Enablement Program (BTEP) to assist departments and agencies to achieve business
transformation in a more reliable and standardized manner (Treasury Board of Canada
Secretariat, 2010).

In the past decades, numerous methods have been developed in supporting

business transformation (Kettinger, Teng & Guha, 1997). However, a staggering 70
percent change initiatives failed to produce expected outcomes (Higgs & Rowland,
2000), which the underlying factor is attributed to the nature of leadership (Kotter,
1996). In addition, Haug, Graungaard, & Stentoft (2011) pointed out that 40% of IT-
enabled business transformation are abandoned while 90% of them do not achieved
their goals.

Unsuccessful, large-scale organizational change was mainly due to the fact that
organization was unable to establish readiness for change (Kotter, 1996), when the
leaders fail to convey the new vision, and the existing fear of change within the
organization. Meanwhile, the nature of SME provided that the leader with greater
influence over the member of the organization and also the organization as a whole
(Baum, Locke, & Smith, 2001), therefore the leadership characteristic would have
more influence in SME (Matzler, Schwarz, & Harms, 2008).

The main struggle of business transformation is attracting key components of the

organization to venture into a new vision, for which it involved uncertainty and higher
risk, thus the leader must be able to steer the transformation through turbulence; on
which it must be supported by full faith, trust and commitment of the members
(Creamer & Amaria, 2012). Miceski, Nikoloski, & Stojovska (2014) argued that
charismatic leadership is the key factor for business success and it is required to lead
the employees to achieve mission, vision and goals of SMEs. Charismatic leadership
can lead to successful organizational change (Conger & Kanungo, 1998), which could
effectively provide the right setting for business transformation. Nevertheless, Parry
(2011) also argued that leadership and organizational change are inevitable connected
and more research is needed in this area.

Study has also proved that charismatic leadership contributes positive effect
within the organization such as employment modes and perceived job security through
a moderating effect (Wang, Zhou & Wen, 2014). It is crucial to construct changes in
organizational unit’s current state towards the desired future state (Ashurst and Hodges,
2010), for which the ability to adept and transform become critical to the organization
success. Meanwhile, charisma is proven to have the strongest relationship with leader
effectiveness, compare to other leadership dimensions (Lowe, Kroeck &
Sivasubramaniam, 1996). Charismatic leaders are able to stimulate followers
intellectually and articulate a realistic vision of the future that can shared among
followers which become important factors that steer changes of organization (Bass,
1985). Therefore, the logic to study charismatic leadership relationship with business
transformation and organizational change as mediator is justifiable; with the attempt to

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fill in the research gap existed in this area. The objectives of the present study thus
are:

(1) To identify the relationship between charismatic leadership and business

transformation,
(2) To determine the relationship between charismatic leadership and
organizational change,
(3) To determine the relationship between organizational change and business
transformation,
(4) To determine the significance of charismatic leadership on business
transformation through the mediator of organizational change.

This research is expected to contribute significantly in theory and practice with

the verification of the few relationships among the variables. This study also includes
literature related to the constructs and developed hypotheses, which give some
direction to future research.

2.0 THEORETICAL BACKGROUND

2.1. Business Transformation

In the past decades, business transformation became global phenomenon with

researches conducted in many countries such as Korea (Choe & Pattnaik, 2007), United
Kingdom (Herbert, 2009), Russia (De Vries, Shekshnia, Korotov, & Florent-Treacy,
2004), and in Hong Kong (Yu, & Kwan, 2015). Business transformation consist of
different sets of competitive strategies to improve the business performance of the
organization, which includes business process re-engineering, total quality
management, organizational development and information technology (McKeown &
Philip, 2003). Business transformation can be the answer to the survival in the
competitive environment of rapid changes (Uhl & Gollenia, 2012). Business
transformation is defined in a two-dimensional concept as: “ A fundamental change in
organizational logic which resulted in or was caused by a fundamental shift in
behaviors (Muzyka , De Koning, & Churchill, 1995).

Firstly, it involves transformation of firm’s strategies and management processes.

This measure must be based on the introduction of “new concept of opportunity” rather
than short-term response measure (Philip & McKeown, 2004) such as cost reduction
through reduction in employee, improvement in return of investment, or re-engineer
processes through technologies. Secondly, it involves leadership and new vision.
Leaders in the organization must be able to lead with new identification and new
directions, based on a new perception of the firm’s opportunity (Doz, & Kosonen,
2010). Thirdly, it involves fundamental changes. Transformation can only be achieved
with fundamental changes to the old perceptions, practices, attitudes and behaviors of
the organization (Uhl & Gollenia, 2012). Fourthly, it involves retraining the employees
with new skills to address the changes in the new market, new business or new
approaches in sustaining competitive advantage (Philip & McKeown, 2004). Finally, a

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new set of management processes is required to achieve transformation. Proper
incentives can encourage employees to participate in the business transformation. For
example, better pay or enhanced career opportunity (Philip & McKeown, 2004).
Pascale, Millemann & Gioja (1999) suggested that a transformation could only last
when individual and organizational activity, creativity and responsibility can be
revitalize continuously.

Transformation source for business organization can potentially come from

exogenous changes such as sustainability, technological innovations, globalization,
economic conditions and changing nature of the workforce (Arthurs & Busenitz, 2006;
Eisenhardt & Sull, 2001). On the other hand, endogenous changes such as product
innovation, restructuring and new business model adoption also potentially result in
large-scale transformation and eventually causing disruption in the workplace
(Eisenhardt & Tabrizi, 1995).

Davenport (1993) and Galbraith (1983) also pointed out that each transformation
process is fragmented, consisting of various elements. Feldman & Pentland (2003)
described transformation as a meta-routine which representing a set of routines that
must be joined in order to function fully. Such assumption is relevant with the idea of
dynamic capabilities, which described the set of practices, and processes that can
recombine and revitalize the organization (Helfat, Finkelstein, Mitchell, Peteraf, Singh,
Teece, & Winter, 2009). Thus there is a distinction between managing business
transformation and traditional change as the later only focus on behavioral changes and
consider only a small sets of clearly defined goals whereas business transformation
involves a holistic view of the entire organization, considering complex changes to the
business (Uhl & Gollenia, 2012).

Many researchers have suggested different dimensions for business

transformation, such as dynamic capabilities (Daniel & Wilson, 2003; Lin and Hsia,
2011), ability to develop organization resources (Barua, Konana, Whinston, & Yin,
2001; Bhatt, 2000; Cohn, Khurana, & Reeves, 2005), alignment of short-term programs
with long-term vision (Barua, Konana, Whinston, & Yin, 2001; Lin and Hsia, 2011),
and integrated use of change enablers (Lin and Hsia, 2011; Sigala and Marinidis, 2009).
Table 1 below is developed to select the dimension use for this research.

Table 1: Business Transformation Dimensions used in various literatures

Dimension
Dynamic capabilities
Ability to develop
organization resources
Researchers
Lin and Hsia (2011)
Rindova and Kotha (2001)
Daniel & Wilson (2003)
Barua, Konana, Whinston, & Yin (2004).
Safrudin, Recker, & Rosemann (2011)
Morgan, Cole, Johnson & Johnson (2010)
Wu, & Hisa (2008).
Walker (2007)
Barua, Konana, Whinston, & Yin (2001)
Kotter (1995)
Cohn, Khurana, & Reeves (2005)

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 Dimension Researchers
Bhatt (2000)
Morgan, Cole, Johnson & Johnson (2010)
Chakrabarti, Vidal, & Mitchell (2011)
Alignment of short-term Lin and Hsia (2011)
programs with long-term Barua, Konana, Whinston, & Yin (2001)
vision Kotter (1995)
Morgan, Cole, Johnson & Johnson (2010)
Yu, Strohmaier, & Deng (2006)
Bosilj-Vuksic, Stemberger, Jaklic, & Kovacic (2002)
Integrated use of change Lin and Hsia (2011)
enablers Venkatraman (1994)
Morgan, Cole, Johnson & Johnson (2010)
Sigala and Marinidis (2009)
Linder, Cole, & Jacobson (2002)
Molla & Bhalla (2006).
Kumar Basu (2015)
Safrudin, Recker, & Rosemann (2011)
Source: Developed for this research.

2.2 Organizational Change

There has been an increasing focus on change in private businesses, while

organizational change is largely perceived as a critical factor that contributes to
organizational success (Drucker, 1999; Ford & Gioia, 2000; Friedman, 2005;
Johansson, 2004; Kuhn, 1970). Organization must make flexible consideration with the
unique characteristic of organization in planning for organizational change (Herold &
Fedor, 2008, Karp & Helgo, 2008).

Organizational change is mainly attribute to the idea of the change activity from
one organization situation to another (King & Anderson, 1995; Burke, 2002).
Herscovitch and Meyer (2002) suggested that organization experience changes from
time to time and organizational change are mostly unplanned and evolutionary (Burke,
2013). Planned organizational change involved intentional and purposive activities that
are designed to fulfill certain organizational goals while unplanned organizational
change comprise of changes in the organizational activities that is beyond
organizational control and due to external factor (Child, 1997).

Surprisingly, researches shown that organization change rarely achieve the

desired outcome with evidence that the failure rate of change is high (Beer, Eisenstat,
& Spector, 1990) with some reported up to 80% to 90% (Burns, 2004; Cope, 2003).
Gill (2002) believes that the main reason of high failure rates of organizational change
is due to lack of effective leadership. Leaders continue to lack the ability to successfully
engage their members in change implementation despite the proliferation of research
in organizational change (Armenakis & Harris, 2002). There are two perspectives to
look in organizational change, which are the decision triggered by the leaders, and the
response of firms to the ever-changing business environment (Chen, Suen, Lin &

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Shieh, 2001). Leadership behavior is crucial in determining successful organization
change as it has direct influence on actions in the organization culture and environment
that constitute to the change (Drucker, 1999; Gilley, 2005; Howkins, 2001). Leaders
become the agent of change by identifying the needs for change, implementing rules
and policies, formulating strategies and leading the organization towards the desirable
outcome by creating visions and objectives (Kanter, Stein, & Jick, 1992).

The complexity of organizational change is discussed through the internal and

external forces or elements involved during the changes (Tavakoli, 2014; Heller, 1998).
Huber, Sutcliffe, Miller & Glick (1993) suggested that the frequency of change in the
organization becomes higher when the surrounding environment became more
complex and turbulent. Table 2 below included the dimensions used for organizational
change in previous researches.

Table 2: Dimensions of Organizational Change

No Author(s)/Source Organizational Change Dimension

1 Leavitt (1965) -People
-Structure
-Technology
-Task
2 Tichy (1983) -Technical
-Culture
-Politic
3 Meyer, Brooks & Goes (1990) -External environment
-Internal environment
4 Damanpour (1991) Internal environment/contextual
variables
-Specialization
-Professionalism
-Managerial attitude toward change
-Managerial tenure
-Technical knowledge resources
-Slack resources

Content variables
-Functional differentiation
-Formalization
-Centralization
-Administrative intensity
-Vertical differentiation

Process Variables
-Internal communication

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No Author(s)/Source Organizational Change Dimension
-External communication

5 Kelly & Amburgey (1991) -External environment

-Age of organization
-Organizational size
-Experience in change
-Changes in product-market strategy
6 Burke & Litwin (1992) -External environment
-Mission and strategy
-Leadership
-Management practices
-Work unit climate
-Task requirement and individual skills
-Organizational culture
-Structure
-Systems
-Individual and needs and values
-Motivational Level
-Individual and organization performance
7 Huff, Huff & Thomas (1992) -Organization inertia
-Experience in change
-Strategy
8 Haveman (1992) -External environment
9 Sastry (1997) -Strategic orientation
-Inertia
-Perceived performance by top managers
-Pressure for change
10 Hage (1999) -Division of labor
-Organic structure
-High risk strategy
11 Chen, Suen, Lin, & Shieh -Environment
(2001) -Leader
12 Battilana & Casciaro (2012) -Network closure
-Divergent from organizational status quo
Source: Developed for this research.

This research has selected the dimensions from Burke & Litwin (1992) model as
it is a comprehensive diagnostic model and has been used intensively for measuring
organizational change (Alexander Di Pofi, 2002; Armenakis & Bedeian, 1999; Filej,
Skela-Savič, Vicic & Hudorovic, 2009; Martins & Coetzee, 2009). This model
differentiates transformational change and transactional change, which can be use in
the research of business transformation (Safrudin & Recker, 2014). Transactional

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capabilities is more important, and being the fundamental for business transformation
(Aspara, Lamberg, Laukia, & Tikkanen, 2011), while transactional capabilities also
support transformational capabilities, therefore transactional capabilities can
independently exist without the need of transformational capabilities. This research
uses the dimensions of transactional organizational change (Martins & Coetzee, 2009)
such as: (1) structure; (2) management practices; (3) systems; (4) work unit climate;
(5) task requirements and individual skills; (6) individual needs and values; (7)
motivation.

2.3 Charismatic Leadership

Leadership has long been studied and proved closely related to the success of
organizational strategy and performance (Ireland & Hitt, 1999). Theories focus on
exceptional leaders has been widely studied under different references such as
“charismatic”, “transformational”, “visionary” and “inspirational” (Shamir, House &
Arthur, 1993). Many researches have included the topic of charismatic leadership in
the management literature since some 20 years ago (Bass, 1985; Burns, 1978; House,
1976; Shamir, House & Arthur, 1993; Yukl, 1998).

Charismatic Leadership theory is mainly divided into two major categories

whereby consisted of “Charismatic Theory” introduced in the 1970s and “Neo-
Charismatic Leadership” introduced in the 1980s (Higgs, 2002). The first category of
charismatic theory constructed leadership towards the focus on the ability to transform
organization through the ability and charismatic behaviors of leaders (Burns, 1978;
Bryman, 1992; Conger & Kanungo, 1988; House, 1976). While on the Neo-
Charismatic Leadership, distinct leadership from the management whereby required
leaders to have more than charisma alone, and needed also a transformational focus,
that include sets of characteristics and behaviors (Alimo-Mecalfe, 1995; Avolio &
Bass, 1995; Bass, 1985; Bennis & Nanus, 1985; Conger & Kanungo, 1988; Shamir,
1992). Charisma is regarded more as a form of influence rather than official authority
(Weber, 1924), which originated from the subordinates acknowledgement towards
their leader’s outstanding ability.

Starting the 1980s, a more generalize origin of leader’s charisma has been widely
accepted arising from earlier discussion, which is from the process of interaction
between the leader and followers (Bass, 1985; Conger & Kanungo, 1987; Trice &
Beyer, 1993; Willner, 1984). Charisma is considered as part of transformational
leadership as suggested by Bass (1985). Charisma is identified as the most important
element of leaders’ behavior in transformational leadership (Lowe, Kroeck &
Sivasubramaniam, 1996).

House (1976) viewed that charisma is the extraordinary capability in leader, for
their ability to garner loyalty amongst the followers with unconditional devotion and
sacrifices in attending the vision of their leaders. The immense psychology impact
permits the leaders to effectively initiate a societal change. House (1976) theoretical
framework, which covers the area of leaders characteristic, behavior, influence and
settings; proposed that: (i) Charismatic leaders must possess quality leadership
character that command confident in their followers with their decision making skill,

125
for it is the decision made by the leaders that influence the outcome of the organization;
(ii) Charismatic leader must demonstrate external qualities and leadership behavior
which include impression management, goal articulation, role modeling, expressing
strong expectation and confident in followers and motive arousal; and (iii) Charismatic
leader’s influential effect on followers.

Bass (1985) introduced transactional leadership and transformation leadership

that based on Burns (1978) model of transforming leadership. In the study of
Multifactor Leader Questionnaire (MLQ), Bass (1985) proposed that transformational
leadership are constructed by 4 major elements: (1) Idealized influence - leader act as
role model to their followers; (2) Individualized consideration - leaders treat each
follower individually; (3) Inspirational motivation – leaders articulate vision, appeal
and inspire the followers; (4) Intellectual inspiration – Leaders encourage followers to
innovate for new ideas and be creative by questioning the existing theory, norms and
beliefs.

Shamir, House and Arthur (1993) contributed to the explanation on how

charismatic leaders motivates and bring changes to the followers’ values, goals, needs
and aspirations from self-interest to collective interest. Motivation drives followers to
be highly committed to the leader’s mission, to make significant personal sacrifices and
perform for the duty. Charismatic leadership effects are: (1) Emotional attachment to
the leader on the part of follower; (2) Emotional and motivational arousal of the
followers; (3) Enhance of follower valences with respect to the mission articulated by
the leader; (4) Follower self-esteem, trust and confidence in the leader; (5) Follower
values; (6) Follower intrinsic motivation.

Conger & Kanungo (1998) review the origin of charismatic leadership theory and
identified that in answering to the discussion of charisma origin, some researchers
attributed it to the society and history, of promoting its existence. Willner (1984) stated
that it should be attributed to the interaction between leaders and followers. It is the
followers’ acceptance of leaders ability that creates charisma. The table 3 below
provides the summary of dimensions from Charismatic Leadership literatures.

Table 3: Summary of the dimensions of Charismatic Leadership

Author Personal Sensitive to Sensitive to Unconventional Articulate Empower Self Encouraging
Risk environment members’ behavior Vision followers confidence
need

House X X X
(1976)

Bass X X X X
(1985)

Bass & X X X X X
Avolio
(1993)

Shamir, X X X X
House &
Arthur
(1993)

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 Conger X X X X X X X
&
Kanungo
(1988)
Source: developed for this research.

Based on the dimension available from charismatic leadership literature, Conger

& Kanungo (1998) scale (C-K Scale) is selected as it has proven to be a valid measure
of charismatic leadership in other research and has been widely used (Conger and
Kanungo, 1998; Halverson, Murphy & Riggio, 2004; Rowold & Kersting, 2008). Yukl
(1999) through comparison among charismatic leadership model suggested that the C-
K scale based on Conger and Kanuno (1998) having good support for overall
measurement of charismatic behavior and the validation indicated that the correlation
of subscale in C-K scale is much lower than other model such as MLQ model by Bass
(1985). Therefore the dimensions that are selected for the measurement of the
charismatic leadership construct are as such: (i) Sensitivity to environment: (ii)
Strategic vision and articulation; (iii) Personal risk; (iv) Unconventional behavior; (v)
Sensitivity to member’s needs

2.4 Conceptual Framework

As mentioned earlier, charismatic leadership is found to be influential in business

transformation. Numerous researches prove that charismatic leadership is the most
influential component among other leadership dimensions in a transformational
process (Avolio, Bass, & Jung, 1996; Bass, 1985; Bass & Avolio, 1993; Lowe, Kroeck,
& Sivasubramaniam, 1996). Business transformation required the capability of the
leader in the opportunity discovery, and preparing against threat (Pratono & Mahmood,
2013). There are research linking successful transformation process to the forces of
leadership that exhibits inspiration, implementing creative approaches to shape a
vibrant and proud organization culture and its performance success (Appelbaum,
Berke, Taylor & Vazquez, 2008; Griffith-Cooper & King, 2007).

Charismatic leaders quality such as greater accountability through expectations,

building competencies for taking responsibility for change (Bass & Stogdill, 1990;
Rost, 1993), ability to see the need to change (Kotter, 2008) and creating open dialogue
(Barrett, Thomas & Hocevar, 1995) all contribute to create the right climate for
transformation process. Further more the participants of transformational process
required inspiration besides financial motivation (Tennant & Roberts, 2003). Business
transformation requires strong leadership not only in leading the change but instills “the
need to change” (McKeown & Philip, 2003) with charismatic leadership through its
vision articulation that is highly discrepant from status quo but achievable (Yukl,
1998). Therefore this study proposed that there is a significant positive relationship
between charismatic leadership and business transformation.

On the other hand, Nadler and Tushman (1989) have already put forward the
relevance of charismatic leadership and organizational change where he positioned the
charismatic leadership after the anticipatory strategic re-orientation as the fundamental
factor to achieve organizational change. Organizational change required the

127
participation from the member (Jex & Britt, 2014), for which are led by the leader.
Researchers also linked leadership to the success of organizational change efforts
(Herold & Fedor, 2008; Herzig & Jimmieson, 2006; Karp & Helgo, 2008). Charismatic
leaders also proved to be able to induce organizational change through creating a more
committed workforce (Kahtani, 2013).

Meanwhile, Cannella & Monroe (1997) identified that charismatic relationship

of the leader and followers can promote the effective implementation of strategic
decision initiated by top management. Therefore, there are strong indications of the
relationship between charismatic leadership towards the organization change. Besides,
Charismatic Leader is able to provide new idea to the existing practices and inspire the
followers to make changes in order to achieve goals (Bass, 1991). Charismatic
leadership is also capable to deliver remarkable changes in the organization systems
such as operation (Kakavogianni, 2009).

Research suggested that members of the organization experienced feeling such

as anxiety, uncertainty and job insecurity during organizational change (Jex & Britt,
2014). A large-scale organizational change can also affect the psychological and
physical well being of its member (Pollard, 2001). Lamm and Gordon (2010) found
that empowerment given by leader helped reduce the stress level of organization
member during organizational change. Research suggested that charismatic leader is
found to be able to make the followers to trust in them and want to be identified with
the leader (Bass, 1991; Judge & Piccolo, 2004). Charismatic leadership is also related
with the positive work organizational citizenship behavior and perception of job
security (Wang, Zhou & Wen, 2014). Charismatic leadership nevertheless can
contribute positively to the followers’ sense of work-group collective identity (Conger,
Kanungo, & Menon, 2000).

More importantly, researcher also pointed out that charismatic influence can be
more significant in a smaller organizational context, with which leader are able to yield
greater impact on the organization members (Lubatkin, Simsek, Ling, & Veiga, 2006).
Therefore it is reasonable to research influence of charismatic leadership on
organization among SMEs and this research propose that there is a significant
relationship between charismatic leadership and organizational change.

Under the current business environment development, business transformation

can only be achieved when the condition towards organization change is fulfilled
(Weerakkody, Janssen, & Dwivedi, 2011). Researchers suggested that for a business
transformation through e-business to be successful, organization must undergone
radical organizational change in core process (Kim, Pan & Pan, 2007; Weerakkody &
Dhillon, 2008). Lin & Lee (2005) also indicated that organizational change factors such
as organizational learning and knowledge management process is closely related to the
level of e-business transformation.

Moreover, business transformation involved radical change that creates new and
different way of working (Herold and Fedor, 2008). Empirical study suggest that such
transformational change process requires strong and effective charismatic leadership
(Avolio, Bass, & Jung, 1996) to deliver successful transformation through
organizational wide collaborative process which involve stuff from all members of

128
organization (Crawford, Cooke-Davies, Hobbs, Labuschagne, Remington, Chen,
2008). In addition, previous literature found evident that there is a positive direct
relationship between charismatic leadership quality and transformational process
(Appelbaum, Berke, Taylor & Vazquez, 2008; Griffith-Cooper & King, 2007). With
this, the researcher propose that organizational change mediates the relationship
between charismatic leadership and business transformation. Based on the literature
review this study proposed hypothesis as below:

Hypothesis 1: There is a significant relationship between Charismatic Leadership

and Business Transformation.
Hypothesis 2: There is a significant relationship between Charismatic Leadership
and Organizational Change.
Hypothesis 3: There is a significant relationship between Organizational Change
and Business Transformation.
Hypothesis 4: Organizational Change mediates the relationship between
Charismatic Leadership and Business Transformation.

Figure 1: Path Diagram of Conceptual Framework

Charismatic Organizational Business

Leadership Change Transformation

Dimension: Dimensions: Dimensions:

1. Sensitive to opportunity and
constrains in the environment
2. Sensitive to member’s needs
and preferences
3. Promulgate and inspiring
visions
4. Engage in personal risk to
inspire followers through role
modeling
5. Demonstrate unconventional
behavior
1. Structure
2. Management practices
3. Systems
4. Work unit climate
5. Task requirement and
individual skills
6. Individual values and needs
7. Motivation
1. Dynamic capabilities
2. Ability to develop
organizational resources
3. Alignment of short-term
mission and long-term vision
4. Integrated use of change
enablers.

Source: Developed for this study.

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 Figure 2: The Proposed Hypotheses among the Study Variables

H1

Charismatic Organizational Business

Leadership Change Transformation
H2 H3

H4: Charismatic Organizational Business

Leadership Change Transformation

Source: Developed for this study.

3.0 CONCLUSION

From the above discussion, it is logical to conclude that charismatic leadership is

significantly related to organizational change and business transformation. The
mediating effect of organizational change also exists in the relationship of charismatic
leadership and business transformation. Various literatures have supported the
existence of such relationship however contextual validation is needed to verify the
conceptual framework.
Typically charismatic leadership are very effective in delivering changes thus
enabling organizational change, which construct the basis towards achieving business
transformation. At the meantime, Malaysia SMEs are in a critical state whereby the
country’s economy is shaded by negative prospects and much challenges await ahead.
It is therefore crucial for SMEs to move quickly in adopting business transformation
and better positioned in confronting future challenges. This research will not only fill
in the research gap exist in the theoretical and managerial aspects, but also shed some
lights on the business transformation study, which are hoped to help provide some
ground knowledge and information to the SMEs practitioners. It is hoped that this
research not only served to add on to the current literature but it also helps lay the
foundation for future research to be conducted.

130
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 ARTICLE C3

Comparison between Western and Islamic Spiritual Leadership

Azri Usman
Nomahaza Mahadi
Farzana Quoquab
Ng Rui Wei

ABSTRACT
When the concept of spirituality begins to thrive, many questions are asked why the interest in this topic
has gained so much interest. The answer is because people are seeking for spiritual solutions to face
their challenging life in and outside workplace. Many organizations are taking part in the emergence
growing of spirituality by focusing on employee’s spirituality at work. The research in spirituality is
growing and more researchers have contributed to the rising number of publications that lead to various
concepts of spirituality. In the context of organizations, more holistic leadership that includes spirituality
is vital in order to encounter chaotic and turbulence economic change. However, most of the studies are
from western perspectives whereby the concepts are built upon personal interests and preferences to
their own religions. Therefore, it is important to differentiate between the western and Islamic concept
of spiritual leadership. This article aims to highlight about the comparison between western and Islamic
spiritual leaderships.

Keywords- Spirituality, Workplace Spirituality, Spiritual Leadership.

1.0 INTRODUCTION

The increasing research on spirituality has resulted studies to shift the focus to the
relationship between spirituality and leadership. Previous studies from Fairholm
(1998), Sanders, Hopkins, and Geroy (2002), Fry (2003), and Benefiel (2005) are some
examples of research on spiritual leadership. In fact, Bass (2008) has stated that there
are positive relationships between most leadership theories with spirituality for
examples, Servant Leadership (Greenleaf, 1977), Charismatic Leadership (Kanunga
and Mendonca, 1996), and Transformational Leadership (Sanders, Hopkins, and
Geroy, 2002). Many multinational organizations have participated in the emergence
growing of this topic that focusing on employee’s spirituality (Mitroff and Denton,
1999) thus becoming an important trend of organizations in the 21st century
(Shellenbarger, 2000). In fact, Duchon and Plowman (2005, p. 808) have stated that
“ignoring spirit at work may mean ignoring a fundamental feature of what it means to
be human”. In organization, every leader can help to promote and liberate spirit thus
enliven people (Moxley, 2000). Leaders who practise or destruct spirituality at work
can have a significant impact on organizational life and organizational success. This
article is mainly focusing in differentiating between the western and Islamic concept

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of spiritual leaderships. Furthermore, this article will propose the need to conduct
further research on Islamic spiritual leadership.

2.0 LITERATURE REVIEW

Before focusing on spiritual leadership, it is important to know the root and background
of this field. Therefore, this article starts the discussion by emphasizing the root of the
word spirit and then later discusses spirituality, workplace spirituality and spiritual
leadership. Each discussion is divided into two categories which are from western and
Islamic perspectives.

2.1 Spirit

The evolution of this topic occurs during the industrialization year back in the 1930s.
Most of Hawthorne studies realize that humans are not just physical extension of the
machine they work on but they are also human and social beings (Mayo, 1933). Since
then, people are studying about the importance of relationship between human spirits
in the workplace (Neal, 2013).

2.1.1 Western Perspective

According to Pfeffer (2010), the definition of spirit comes from the Latin word spiritus
which means “breath” (p. 29). Meanwhile, Fairholm (2000) described it as “a state of
intimate relationship with our inner self of higher values and morality including our
recognition of the truth of our inner nature” (p. 111). Life is about spirit therefore, a
person’s spirit is important because it is considered as life affirming forces within
individual and all other human beings (Anderson, 2000). Most of the western authors
describe spirit as an important component in an individual life that has a relationship
with the person’s inner self.

2.1.2 Islamic Perspective

As from the Islamic perspective, the root of the word spirit found in the discussion took
place between people and God. The word spirit is known as ruh in Islam. It is a common
word known as ‘ein’ in Arabic. The word ruh appeared in the Quran several meanings.
Therefore, the word such as spirit or spirituality is used to articulate the effect of the
creator (Adnan, 2009).

2.2 Spirituality

The emergence growing on spirituality among the western scholars, researchers, and
practitioners has resulted wide views and definitions of spirituality. These views and
definitions are derived from western to eastern perception, from people who do not
aware of the true definition of spirituality, and to the extent where it has been studied
vigorously.

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2.2.1 Western Perspective

For example, Gibbons (2000) defined spirituality as a search for meaning, direction,
inner wholeness and connection to others, non-human, and transcendence. Another
example is from Emmons (2000) who stated spirituality as the personal expression of
ultimate concern. Most of the definitions are likely to favor only to a particular person,
group, or organization’s religion or culture.

2.2.2 Islamic Perspective

In Islamic perspective, spirituality is described as the linking of actions in every

Muslim’s purpose of life (Adnan, 2009). The main purpose of every Muslim’s life is
to worship Allah, hence spirituality acts as a medium that links the action of an
individual to the purpose of his/her life. For example, when a Muslim prays his/her
salat without understanding the kalimah, he/she recites and all the kalimah has no
impact on him/her, this prayer cannot be described as spirituality because it has become
an action without purpose. Therefore, every action in every Muslim must seek the
pleasure of Allah so that it can be considered as spiritual because he/she links the
material action in this world with the purpose of life.
Furthermore, the religion of Islam not only focuses on the spiritual development
of its followers but also endows them with a complete guidance in all facets of their
lives such as religion, cultural, ethical, political, and so on (Shams, 2008). The
comprehensive guidelines are built upon complete submission to Allah and the
teachings or Sunnah of Prophet Muhammad. Islamic concepts focus on human well-
being and good life as it stresses on socio-economic justice, brotherhood, and
emphasizes the balance between satisfaction of material and spiritual needs (Rice,
1999). In addition, Adnan proposed two types of matter in Islamic spirituality, namely
the reality or the created. According to him, it can be the ruh, also known as soul or
who created all the creations and the relationship between the created and the creator.

2.3 Workplace Spirituality

The concept of spirituality has been discussed in a variety of contexts such as the
workplace, organizational, leadership, education, and health (Dehler and Welsh, 2010).
From the literature, most of the researchers focus on workplace spirituality.

2.3.1 Western Perspective

According to the western perspective, the foundation of workplace spirituality lies

within the context of spirit and spirituality (Giacalone and Jurkiewicz, 2010). More
specifically, it was derived from the body of knowledge of organizational and social
psychology, management, and ethics (Giacalone, Jurkiewicz, and Fry, n.d). For
example, Giacalone and Jurkiewicz, (2010) defined workplace spirituality as a
framework of organizational values evidence in the culture that promotes employees’
experiences of transcendences through the work process, facilitating their sense of
being connected in a way that provides feelings of compassion and joy”. Another
example from Milliman, Czaplewski, and Ferguson (2003) who recognized workplaces
spirituality as a complex and multi-faceted construct that involves meaning and

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implication in the workplaces. It is important to know that work is part of human life
therefore people always bring whatever is inside into their personal life to work. Hence,
having spiritual workplaces is important to help workers to overcome such problem
and at the same time can achieve individual and organization success.

2.3.2 Islamic Perspective

Spirituality in Islam can be attained through daily activities and living everyday life.
Therefore, Muslims can also gain spirituality at workplaces. For example, many
components such as concern of social value and justice, building community, and
equality are already being the basic themes of Islam (Kriger and Seng, 2005).
According to Kriger and Seng, such components like surrendering life, humility, truth,
charity, value of service, love, faith, courage, kindness, thankfulness, compassion,
hope, and patience as mentioned in the literature have already found in Quran and other
Islamic literature.

2.4 Spiritual Leadership

The study of workplace spirituality has now shifted to relate between leadership and
spirituality or what most researchers called spiritual leadership.

2.4.1 Western Perspective

There are several researchers who have contributed most of their work on spiritual
leadership. Not to mention, there are also various definitions and dimensions in the
development of spiritual leadership. For some researchers, the combination of the terms
spirituality and leadership can result the definition process to become more
complicated as the two terms are independent on one another (Dent, Higgins, and
Wharff, 2005). For instance, the word leadership may possibly be a manifestation of
specific group behaviour whereas spirituality may possibly be a characteristic of a
person (Drath and Palus, 1994).

Fairholm (2000) suggested that spiritual leadership will help followers to strive
for personal success as spiritual leaders provide values to system and technique; ratchet
performances by displaying a good relationship with workers; create awareness,
integrate diverse perspectives, self-starters by embracing the work environment with
their spirit; and keep corporation sharp by solving problem and create opportunity.
Fairholm described spiritual leadership as virtual environment of transformation of
self, others, and group that relates with individual beliefs, dreams, and values.
Moreover, the virtual environment of spiritual leadership is focus and shaped by values
and soul of a leader.

Fry’s (2003) definition on spiritual leadership was based on motivation-based

leadership theories. According to Fry (2011), the purpose of spiritual leadership is “to
tap into the fundamental needs for both leaders and followers for spiritual survival so
that they are becoming more organizationally productive and committed” (p. 694).
Fry’s theory is incorporated within intrinsic motivation models that combine vision,
hope/faith, altruistic love, workplaces spirituality, spiritual survival, organizational

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commitment, and productivity. Furthermore, this theory includes theoretically relevant
leaders and followers’ culture, their higher order needs, and organizational
effectiveness into a causal model framework.

Benefiel (2005) does not specifically define spiritual leadership but rather
propose a conceptual framework for spiritual transformation by addressing the
challenges which are “the critique on the existing studies of spirituality” and “the need
for more robust understanding of spiritual aspect of spiritual leadership”. The
conceptual framework helps leaders in finding their path for spiritual journey and
understanding the process of spiritual growth. But the author does mention about three
theories of spiritual leadership that provide a solid foundation for leadership aspect of
spiritual leadership. The three theories were based on Fairholm (1997), Fry (2003), and
Sanders, Hopkins, and Geroy (2002). According to Benefiel, the limitation is because
of the author’s articulation of the spiritual aspect of spiritual leadership. First example,
Fairholm (1998) proposed his own concept of spirituality and leadership based on
Jacobson (1995). The definitional characteristic of spirituality was based on 19
graduate students. Benefiel then suggested that Fairholm needed to include a wider
sample by comparing his finding with existing literature while arguing on the
dimensions. Second example, Fry (2003) proposed his theory of spiritual leadership
based on Horton (1950), Smith (1992) and (indirectly) the Christian New Testament
(Benefiel, 2005). Benefiel stated that “Horton’s and Smith’s understanding on
spirituality is naïve and outdated by half a century of discussion in the academic
literature” (p. 727). Additionally, she also added that Fry’s theory assumed that all
leaders are willing to undergo the process of spiritual transformation but does not
mentioned how this spiritual transformation occurs. The last example, Sanders,
Hopkins, and Geroy (2002) proposed a concept that is broader than Fry (2003) which
is based on Wilder (1977), Fowler (1981), and Parks (2000). Nevertheless, according
to Benefiel, the concept is still at the early stage and they have not gone deeper beyond
any range of theorist. Thus, they need to include more theories and resolve any
contradictions among all spiritual theories upon which they rely on (Benefiel 2005, p.
727).

From their empirical review of 87 academic articles, Dent, Higgins, and Wharff
(2005) explained that the various definitions available are sometimes overlapping,
separate, contradictory, and sound personal. No definition on spiritual leadership was
mentioned by the authors. But, they derived a spiritual leadership definition from Fry
(2003) by stating that it may provide a necessary link between both leadership and
spirituality.

Finally, Reaves (2005) conducted a review for over 150 studies on spirituality
and leadership and found that there is a positive relationship between spiritual practices
and values and effective leadership. No pre-determined definition was mentioned, but
the authors do define spiritual leadership based on Fry (2003). The author proposed
spiritual values such as honesty, integrity, and humility show positive impact on
leadership success. Moreover, a leader may embody most of the values and practices
that are related to spirituality.

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2.4.2 Islamic Perspective

Meanwhile, the concept from the Islamic perspective highlighted Muslim leaders and
followers as one group that operates under similar beliefs, practices, and guidelines in
their everyday life (Shams, 2008). Shams defined Islamic leadership as “a social
process in which leaders seek to achieve certain organizational goals by garnering the
support from relevant stakeholders-primarily followers- while fully complying with
Islamic teachings and principles” (p. 26). This concept of Islamic leadership has made
each Muslim operates under the same platform thus reduces the conflict of interest and
the relationship between leaders and followers to become more effective and efficient.
Leadership in Islam is a selective person who was chosen by Allah to perform
responsibility given. Leadership in Islam also emphasizes the importance of providing
services to all people and at the same time looks after his followers with the sense of
humility and sincerity (Shams, 2008).

Furthermore, although there are some authors who argued Islam does not provide
a comprehensive guideline in management, but still one cannot ignore the set of
guidelines that has been provided to be applied in management (Abuznaid, 2006). The
Islamic leadership perspective gives an entirely different view of leadership when
comparing to the western perspective. It adds dimension such as surrendering
completely to Allah and following all His orders. Leadership in Islamic perspective
provides a positive attribute to all Muslims leader.

The most distinctive dimension when comparing the western and Islamic
leaderships is that Islamic leadership focuses on the dimension called “surrendering to
Allah”. This dimension helps the person to become more responsible because when the
individual completely worships to Allah, at the same time, he will follow and accept
Allah’ commands and understand that Allah is watching all his actions all the time.
This element brings the appreciation of accountability in all actions that the person
does.

3.0 RESULTS

From the discussion we can identify lot of differences between western and Islamic
point of views regarding spirit, spirituality, workplace spirituality, and spiritual
leadership. The first point is regarding religion and spirituality. Some authors treat both
as different construct and cannot be combined but some stated that it is overlapping.
For example Fry (2003) has stated spirituality and religion are not connected. Someone
can be spiritual without being religious. The relationship between the concept of
spirituality and religion remains unclear in the field of workplaces spirituality and
spiritual leadership from the western perspective. This is against the Islamic concept
because in Islam spiritual and human life is connected in daily life. Secondly is about
the lack of conceptual definition of spiritual leadership. Most of western views define
the term based on personal interest and relate to their own religion. This is not suitable
when it comes to discuss about Islamic perceptive as the meaning might not be
appropriate. Thirdly is regarding inadequate measurement tools. There are several
measurements offered from some of western researchers but again, it might not be
suitable for Islamic context as the meaning might not be the same. In addition, most of

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the Islamic concepts are at conceptualized level whereby the study only proposed a
meaning and definition without developing a scale to measure.

4.0 CONCLUSION

To recap, this article has discussed from the beginning the root of spirituality to the
emergence topic of spiritual leadership. We can notice the sequence whereby most of
the studies start from spirituality then emerge to workplace spirituality and finally focus
on spiritual leadership. From the literature, we can notice that there is less work related
to Islamic spiritual leadership. There is still loots of room to be investigated to the
development of the theory. The acceptance and the emergence of this topic become an
opportunity for individuals, groups, and societies to express and practise their spiritual
belief without having doubt and confusion between the western and Islamic practices.
Finally, there is a need to conduct a study to develop and conceptualize spiritual
leadership concept and also scale development from an Islamic perspective.

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 ARTICLE C4

A Literature Review on Historical and Conceptual Evolution of

Emotional Intelligence

Nasser Mohammed Al-Hamami

Wan Khairuzzaman Wan Ismail
Shadiya mohamed S.Baqutayan
Ahmad Rahman Songip

ABSTRACT
Emotional Intelligence (EI) refers to “group of the capabilities that allow all individuals, particularly
leaders, to utilize their emotions to guide thinking and action, to regulate impulse, one’s moods, feelings
and others’, to think and to hope”. With this in mind, research on EI has progressed significantly over
the past decade. Therefore, the objective of this paper is to review the historical and conceptual evolution
of emotional intelligence, and its distinction with other constructs, especially emotional competence.
This paper attempts to review the definitions and models proposed by authors of emotional intelligence
such as Salovey and Mayer, Bar-On and Daniel Goleman and finding a close definition which predicts
high performance in the workplace. This paper also attempts to highlight on the importance of emotional
intelligence. The conclusion, thus, reaffirms that although emotional intelligence is popularized and
widely studied, it remains lively and timely useful concept and a key element for gauging the capability
of individuals to understand, monitor and control one’s own and other feelings. It is also found that
Goleman’s definition and model have connections with high performance. Therefore, this paper
recommends more extensive investigations on emotional intelligence to be undertaken, particularly its
relationships with organizational psychology – related most studied concepts in organizations once it
serves as the antecedent to high performance.

Keywords: Emotional Intelligence, Historical and Conceptual Evolution, Emotional Competence

1.0 INTRODUCTION

With a growing body of knowledge and trend of recent studies, it is reaffirmed that
emotional intelligence is” “array of emotion-based capabilities and competencies” and
a set of mental capabilities. Therefore, the understanding of emotions does not only
become an urgent necessity for psychologists, topologists, philosophers, scientists and
researchers, but also for organizations as they are the key in physiological and
psychological changes and behaviors of individuals (Mayer, Salovey, Caruso, 2000a).

Based on the streamline of this increased interest, the debate has raged to the final
point about the understanding of emotional intelligence and its historical contributions,
but the central issue as it is agreed among social scientists and philosophers is that
understanding emotion and its effects on human behavior. Therefore, it is imperative
to elaborate further about emotions and how we can understand or feel about emotions.
They are not just how we touch with our fingers, but how we feel, taste, and more
importantly, how we feel about what we touch with our imagination. In the other words,
in order for people to be successful, they must move from one side to another, thus,

147
emotions are how to apply this move through motivating oneself to get one’s struggle
more successful (Salovey, Mayer & John , 1990).

However, researchers have paid more attention to both moods and feelings as
they play a central role in human affairs and the behaviors of people in their daily life
activities. But what makes someone feel the difference between moods and feelings is
the intensity of feelings. Thus, if the feelings are strong, emotions are created, but if
the feelings are low intensity, moods are created (Mayer, Roberts, & Barsade, 2008),
(Salovey & Mayer, 1990) and this intensity is normal and does not interrupt the
activities (Forgas, 1992 cited in (George, 2000).

On the other hand, fear and desire are other types of emotions, but are the
strongest ones since they raise the degree of feelings and sense in one’s mind and heart.
There is an emotional state that can direct us and be influenced by people’s behaviors
such as happiness, anger, sadness and hopelessness, but they could not be controlled
by people and they could be sometimes in outside and against people. Therefore, it can
be said that people can keep talking or behaving on a positive manner in order to
enhance their positive thoughts and thereby improve their positive emotional states
such as confidence, creativity and enthusiasm (Hughes & Bradford, 2012).

From a different point of view, Emotions play a very important role in human
behaviors, for instance, the troubles and chaos in the workplace, especially in situations
of emergency, have gained more interest from scholars such as Goleman (1995) as he
tackled the active approach rather than emotion itself. Emotions have been defined by
Daniel Goleman as” the desires to behave, the ongoing tactics and ideas for people to
handle their life (Goleman, 1995). Another point of view has come from (Kaplan,
2007) that “emotions can be learned based on evaluations of responses” (Kaplan,
2014).

It has to be stressed that the brain is the main source of all emotions. Therefore,
those who think positive, they are successful at work (Gardner & Stough, 2002).
However, with the growing importance in the role of emotions in organizations, the
prevailing assumption is that emotions have not received much attention in the
psychology of work and the process of decision-making and the focus was on cognition
and rationality (Abraham, 1999; Barrett et al., 2001; Becker, 2003; Ciarrocchi et al.,
2001; Huy, 1999; Goleman, 1995; Mathews et al., 2002; Sternberg & Kaufman, 1998)
as cited in (Bachkirova & Cox, 2007).

Individuals who experience anger would have to face tough times in their
workplace in building relationships with others and their confidence will fade away
over time. Emotions are the engine of daily activities and dealing with others. Emotion
and mood are overlapping and each one has a meaning and description, but the best-
accepted way of identifying them is they both have positive and negative effects.
Therefore, emotions and moods can be described by the following terms: distress and
hostile, excitement, and enthusiasm (Jones & George, 1998).

Emotions play a vital role in the experience of oneself trust for some
justifications. The first one is that the trust generates certain effects whether it is
emotions (strong feelings) or moods (slight feelings). For instance, when you meet

148
someone for the first time, you feel nervous or afraid because he/she is an untrusted
party, but when you meet someone you know, you would feel happy and excited
because it is a trusted party. The second one is the trust can be identified by behavior.
For instance, a manager is in a negative mood, when the follower talks to him/her, the
reaction would be negative due to negative behavior, thus, any decision or judgment
would be negative and against the follower. The third one is that expectations can shape
trust and the trust is herein emotional. For instance, when the expectations are broken,
strong feelings (emotions) are created, therefore, the violation of trust is prevailing and
the relationship would be an untrusted (Jones & George, 1998).

Emotions must be under control whatever complicated situations are. Thus, in

order to have more highlights, the good example to show that emotions can save life is
the story of James Dozier. When James was kidnapped by a terrorist group and stayed
for two months in a jail. He was worried about his life due to the irrationality of his
kidnappers but emotions helped him to be calm. He remembered that one day he learnt
how emotions help a person to control feelings and save life from the danger of fear.
He could manage his emotions and be calm and noticed that his kidnappers also were
calm due to his behavior. His kidnappers realized his calmness and started to be
rational. He finally realized that this calmness helped him and save his life (Cherniss,
2000).

The need for understanding emotions is becoming largely necessary in order to

have good communication and then manage the leadership skills (Katherine, 2006).
Additionally, understanding emotions of people helps us also to understand their
human behavior (Larsen et al , 2006). Once the emotions are defined as “internal
facets, thus, they help leaders manage coordinating several psychological internal
functions and the most important by coordinating physiological responses, cognitions,
and conscious awareness” (Mayer et all , 2000). Emotions can be developed over time
and keep changing based on the relationships.

1.1 Historical and Conceptual Evolution of Emotional Intelligence

The explanations of different perspectives have been the central focus of studies on
human intelligence and rational thinking over the past years (Mayer, Roberts, &
Barsade, 2008). Emotional intelligence, therefore, has been linked to the word”
intelligence” and has been connected with the person who has certain components of
intelligence. The word” intelligence”, therefore, has been linked to cognition and
intellect. Building on this streamline of this idea, it was believed that IQ through which
a person could be assessed and measured is difficult to be changed and even developed
to gain other components of intelligence (Gardner, 1998).

But because of the ever-changing nature of intelligence, it has gained different

definitions. One of them claimed that intelligence is “the capability to take advantage
form experience, gain knowledge, think conceptually, perform purposefully, or
acclimatize to different conditions of life in the environment” (Wade, Tavris, & Perdue,
2005). Therefore, according to Wechsler (1958), intelligence is” The total or global
capability of the individual to perform purposefully, to think wisely and to deal
effectually with working setting”.

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 Intelligence is also “group of emotional or intellectual capabilities” through
which a form of information can be recognized, memory can be developed, gaining the
capability to think (Mayer, Roberts, & Barsade, 2008). The central basics of the concept
of “emotional intelligence (EI)” , however, traces its history back to the social
intelligence invented by E.L Thorndike (1920) to denote the capability to comprehend
people and make them well-managed and organized in order for them to be successful
in human relations (Petrides, Fredericksonb & Furnhamb, 2004).

Since then, the concept has emerged with more understanding on intellects as
cognitive capabilities of General Intelligence by David Wechsler (1940). Therefore,
with growing of research, the evolution of emotional intelligence has gained a lot of
interest and the research continues to trace the history and the real emergence of the
term (Gardner, 1998). It is also said that emotional intelligence has been introduced
and used in the 1960s as critics of literature (Van Ghent, 1961 confirmed the study and
treatment of mental illness (Leuner, 1966) cited in (Mayer, Salovey & Caruso, 2004).

Further explanations have been made in the way of acknowledging Intelligence

Quotient (IQ) in a person when IQ tests disappear from this world. Furthermore, an
important question has been raised by saying “will it be then possible to identify a
person as intelligent or otherwise? This question, however, has left the door open for
further discussions and debates. Consequently, much research has been undertaken
since then to figure out the innate capabilities of an individual before we could gauge
intelligence in character (Gardner, 1998).

The early origins of the concept of emotional intelligence dates back to the early
work done by Charles Darwin in his approach known as “the expressions of emotions
in men and animals. Furthermore, it has been found by Darwin that in order to get the
sound adaptation of types, emotional expressions must be the key element.
Consecutively, the good questions come to surface on why do we have emotions? What
is the key role emotions could play?

These questions have been answered by Charles Darwin by arguing that emotions
are the central key of living in men and animals. Furthermore, it has been debated that
emotions play a larger role in general life. Building on the streamline of this idea,
emotions vary from one person to another, but they can be developed over time.
Therefore, it can be said that people become successful in life due to the development
of their emotions and motivation they get as a result (Darwin, 1872).

In 1920, the ability to comprehend and manage other people, men and women,
boys and girls has been described through the notion of social intelligence which has
been introduced first by Edward Thorndike. Furthermore, he has gone beyond this
notion by proposing that many types of intelligences are owned by humans and one of
the important intelligences is social intelligence. Additionally, he has emphasized that
human relations among people and understanding their wishes, needs and wants can be
handled wisely through social intelligence (Bar-On, 2006).

In 1940, the idea of non-intellective and intellective components of intelligence

has been described by the test “the Wechsler Adult Intelligence Scale (WAIS) which
has been developed by David Wechsler who has hypothesized that intelligence is an

150
outcome and not a reason. He also has asserted that in order for a person to understand
one’s capability to be successful in life, he /she can develop the non-intellective
components such as influence, personal and social. On the other hand, he has asserted
that the non-intellective elements must be fully described in order to measure the
general intelligence (Canivez & Watkins, 2010).

In 1950s, humanistic psychologists such as Abraham Maslow has argued that

when people recognize their emotional needs and become satisfied with the outcomes,
their emotional states become stronger. However, it has been found over time by
evolutionary psychologists that the matter of survival depends on emotions which are
the key element of living. Consecutively, non-intellective dynamics of intelligent
behavior such as psychological thinking, awareness, and human emotional conditions,
have been receiving much attention by prominent researchers and scholars in the 1990s;
therefore, literature review has documented this significance of these factors
(Matthews, Roberts & Zeidner, 2004).

In 1966, research has been undertaken thoroughly to lock onto human

intelligence. As a result, a number of concepts have been raised which have overcome
only by concentrating on the term” EI” to include social intelligence. Building on these
findings of research, it is said that the first usage of the term” EI” has appeared as part
of a study published in German by Leuner and translated into English as” Emotional
Intelligence and Emancipation”. This study, which has been conducted on women, has
found that the separation of women in the childhood from their mothers has caused
difficulties to them and this phenomenon has grown with them and inherited with the
way they think and behave in social life (Matthews, Roberts & Zeidner, 2004).

In 1983, following to the roots of the concept, it has been found that the view of
multiple intelligences which has been presented by Howard Gardner in his book”
Frames of Mind: The Theory of Multiple Intelligences has been widely discussed by
scholars and practitioners alike who have not only documented it, but they have tested
and applied it to organizational development. This view of multiple intelligences
includes intrapersonal intelligence which is the capability to understand and appreciate
one’s feelings, fears and motivations, and interpersonal intelligence which is the
capability to understand the other’s intents, motivations and needs (Gardner, 1983)
cited in (Gardner & Hatch, 1989). However, building on this streamline of view, the
cognitive ability of people has not been explained completely by IQ as it is one of the
traditional types of intelligence (Smith, 2002).

The literature review also documented that the term” EI “has been used in 1985
by Wayne Payne as part of his doctoral thesis, which has been undertaken on a study
of emotions: development of emotional intelligence (Payne, 1985). But the research
has continued on emotional intelligence. With this in mind, EI has gained rapt attention
in the academic research as well as the industry research, particularly developing
leaders to be effective and inspiring others (Charbonneau & Nicol, 2002; Ciarrochi,
Deane, & Anderson, 2002; Mayer, Salovey, & Caruso, 2000; Palmer, Donaldson, &
Stough, 2002; Petrides & Furnham, 2003; Roberts, Zeidner, & Matthews, 2001;
Saklofske, Austin, & Minski, 2003) cited in (Petrides, Fredericksonb, & Furnhamb,
2004).

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 In 1990s, the concept of emotional intelligence has been developed by John
Mayer and Peter Salovey who both suggested that physiological reactions, perceptions,
and understandings are controlled by emotions which are internal functions (Salovey
& Mayer, 1990). However, although the fast and wide evolution of emotional
intelligence, it could have not synthesized and shaped if vehemence, fanaticism
continues to be the master of this life and as a result, communities would have lived in
chaotic situations in which people have no access to basic demands of normal life.
Irritation, uneasiness, hopelessness and loneliness would have also prevailed and life
will be destroyed as a result. With the fruitful efforts, a glimpse of hope has come with
emotional intelligence in changing life to better as it holds potential opportunities for
the future (Gayathri, & Meenakshi, 2013).

The concept of emotional intelligence has gained momentum in the lay

(Goleman, 1995) and scientific areas (Mayer & Salovey, 1997); (Salovey & Mayer,
1990) . Therefore, it has been studied widely, particularly its importance in
organizations, as it measures the whole emotions and feelings of individuals in the
workplace. With this in mind, emotional intelligence has been used as a framework for
the arrangement and assessment of every day’s performance of individuals in
organizations (Caruso & Salovey, 2004; Barrett, & Salovey, 2002). Emotional
intelligence has been simplified because of its extensive dissemination, especially in
organizations. Therefore, results anticipated from the concept have gone beyond the
scientific results to be lively and particularly data available (Matthews, Roberts &
Zeidner, 2004).

It has also to be stressed that although the concept of emotional intelligence has
been coined for the first time in 1990 by Mayer and Salovey, it is still lively enjoys a
flood of interest, especially after the best –selling book of Goleman “emotional
intelligence: why it can matter more than IQ” has been disseminated widely (Bar-On
R. , 2010). Therefore, it can be concluded that by no means it is new construct
(Dulewicz, V., Higgs, M., & Slaski, M., 2003), (Chopra, P. K., & Kanji, G. K., 2010),
(Mayer, Roberts, & Barsade, 2008), (Rojas, 2014).

2.0 MODELS OF EMOTIONAL INTELLIGENCE

Since its appearance in 1990 (Salovey & Mayer, 1990), and then its popularity
(Goleman, 1996), emotional intelligence has not been defined only once, but many
researchers have been doing so, therefore, similar definitions recently have come up
which linked EI to the compilation of applied psychology (Bar-On, 2006). With this in
mind, it is little surprising that Salovey and Mayer have not labeled the concept by their
names, especially, if they would have known that the concept would become popular
by Goleman in his bestselling book in 1995 (Mersino, 2013). The following is the
models of emotional intelligence:

2.1 Ability Model

It has been a long time since emotional intelligence has received much interest;
however, since then, many theorists have different perspectives and ways to deal with
its relationships with the ability. With this in mind, Thorndike and Gardner have been

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the early theorists who touched on emotional intelligence and have come up with two
perspectives: ability and mixed model and both models have different approach
towards emotional intelligence. Therefore, the model in which emotional intelligence
has been identified as a reasonable element of mental ability and thus as a reasonable
intelligence. The second model, mixed model in which emotional intelligence come as
“the combination of mental abilities and personal features or optimism and well-being”
(Mayer , 1999).

It is noted clearly that ability model of emotional intelligence has been first
identified by Peter Salovey and John Mayer in 1990 as “integral part of social
intelligence” and the systematic usage of the term has the capability to manage and
understand emotions and feelings of others and one’s own and to identify one another
(Salovey & Mayer, 1990). They also have come up with the whole definition of
emotional intelligence in 1997 as “The capability to observe and express emotion,
absorb emotion in thinking, comprehend and reason own and others’ emotion” (Mayer
& Salovey, 1997).

This model has been highly accepted in academia field and has been
acknowledged by other two prominent authors “Goleman and Bar-On, who also
defined emotional intelligence by saying” this model did not contradict with their
model once it is only the basis for cognitive and non-cognitive elements (Mersino,
2013). The abilities which mirror the vision emphasized by Salovey and Mayer appear
clearly in the figure below (Giorgi, 2013).

Figure 1: Four Branch model which includes abilities

According to this model, it seems that emotional intelligence echoes more traditional
and cognitive intelligence, spotlighting in the same time that individual’s ability can be
developed over time and can be assessed through performance-based tests (Silong, A.
D et all, 2012), or ability-based tests (Bar-On, 2006).

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2.2 Mixed Model

Reuven Bar-On (1997) has defined emotional intelligence as “a group of non- cognitive
capabilities, competencies and skills that make people influenced to succeed in dealing
with the demands and pressures in a work setting”. With this in mind, emotional
intelligence is correlated with understanding in one’s and others, connection to people,
and to dealing with the demands in the work environment (Bar-On, 1997). He stressed
that emotional intelligence echoes more personal traits, personal and social
competencies and their application to personal prosperity and not cognitive constructs
of intelligence. Like Salovey and Mayer, Bar-On has underlined that emotional
intelligence can be also developed over time through training, programming, and
therapy (Bar-On, 1997).

Furthermore, during the 105 the annual convention of the American

Psychological Association in the state of Chicago of United states of America, he has
presented his mixed model of emotional intelligence. The figure below details the
model of Bar-On (2006) in which five dimensions of the model arrayed into fifteen
sub-competencies.

Table 1 Bar-On (2006) model of five emotional intelligence competencies

Dimension Competencies
Intrapersonal Self-Regard, Emotional Self-Awareness,
Confidence, Independence, and Self-
Actualization.
Interpersonal Empathy, Social Responsibility and
Interpersonal Relationship.
Adaptability Reality Testing, Flexibility and Problem
Solving
Stress Management Stress Tolerance and Impulse Control
General Mood elements Optimism and Happiness.

Due to the fast and wide trend of research on emotional intelligence and its connections
with other constructs, the term” emotional –social intelligence has been coined by Bar-
On, Maree, and Elias (2007) which has added another trend of understanding. The
figure below details this trend of understanding in which some competencies are clearly
defined (Bar-On., Maree, K., & Elias, M. J., 2007) cited in (Rust, 2014).

154
 Figure 2 Emotional –Social Intelligence Competencies

According to the figure above, it seems that the proposed model explains that
those people who, have the capability to realize, and get their emotions interpreted by
others, and effectively deal with the demands of every day’s activities of life, are
emotionally and socially intelligent (Bar-On R. , 2010). However, as this model seems
to give definition like others, the difference has been made by Bar-On between
personal-based understanding and regulation of the correlations between inter and
intrapersonal affairs.

2.3 Competence-based Model

Although emotional intelligence has been studied and debated considerably, recent
articles and researches to date stated that the concept has been popularized by Daniel
Goleman, who made it widely known in his bestselling books since 1990s, particularly
the approaches and definitions, he has made in his famous book “Emotional
Intelligence: why it can matter more than IQ? According to Daniel Goleman (1995),
emotional intelligence is “the ability to motivate oneself and persist in the face of
frustrations; to control impulse and delay gratification; to regulate one’s moods and
keep distress from swamping the ability to think; and to empathize and to hope”
(Goleman, 1995).

He has proposed a mixed model of emotional intelligence, particularly its

connection with performance, concentrating on one’s capabilities and personality and
how performance in the workplace is affected directly (Bennis, 2003). He has defined
emotional intelligence in connection to capabilities and skills that are in line with job
performance. He has also reviewed the ability-based model of emotional intelligence
that has been developed by Mayer, Salovey, and Caruso and incorporated important
personal traits such as diligence and enthusiasm (Mayer, J. D., Salovey, P., & Caruso,
D. R., 2008), digesting their findings and finalizing the conclusion that emotional
intelligence is the antecedent by “closely and always” 90 % of the measurement to

155
 distinguish between low performers and high performers (Goleman D. , 1998). He also
added personal –based traits like innovation, group player and trust (Gayathri,N and
Meenakshi, K, 2013). However, Goleman’s model is different than Salovey and
Mayer’ model which the latter has been only on ability-based-traits (Zeidner, M.,
Matthews, G., & Roberts, R. D, 2012).

The model of emotional intelligence that has been popularized by Daniel

Goleman comprises five emotional and social competencies which are self-awareness,
self-regulation, motivation, empathy, and social skills (Goleman D. , 1998). The table.
1 below details these five main competencies.

Table 2 Goleman’s five main emotional competences

The Emotional Competence Framework

Self-awareness
The ability to recognize one’s emotions, internal sates, preferences and
Personal skills (how we manage ourselves).

resources.
Emotional Identifying one’s emotions and effects
awareness
Accurate self- Identifying one’s strengths and limitations.
assessment
Self-confidence Recognizing one’s self-worth and capabilities.
Self-regulation
The ability to manage recourses, and internal capabilities.
Self-control Checking always emotions and capabilities.
Trustworthiness Keeping standards of honesty and integrity high
Conscientiousness Maintaining the responsibility of individual
performance
Adaptability Flexibility in keeping change
Innovation The ability to innovate and creating new ideas.
Motivation
Emotional states that help or facilitate accomplishing aims
Achievement drive Struggling to improve or meet a standard of
excellence
Commitment Working closely with the aims of a group or
organization.
Initiative The ability to work on opportunities.
Optimism Insisting on achieving goals despite obstacles and
setbacks.
relationships.)
(how we manage

Empathy
The ability to be aware of other’s feelings, worries and needs.
Understanding other’s feelings, senses, perspectives
Social skills

The ability to
understand others. and concerns.
The ability to Developing other’s capabilities and sensing of their
develop others needs.
Service orientation Taking care of customers’ needs.

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 Leveraging diversity Taking advantage of opportunities through a wide
range of different people.
Political awareness Understanding people’s affiliations, perspectives and
their relationships.
Social skills
The ability to instill confidence and trust in others.
Influence A strong ability to leave influence on others and
persuade them.
Communication The ability to listen and deliver convincing messages.
Conflict Conducting better negotiations and resolving
management disagreements.
Leadership Inspiring and leading individuals and groups.
Change catalyst The ability to manage changes.
Building bonds Building effective relationships.
Collaboration & The ability to work with others to achieve shared
cooperation goals.
Team capabilities Keeping solidarity and group work high to follow up
collective aims.
Source: Goleman, 1998, working with Emotional Intelligence

Therefore, because of emotional intelligence is the lively key construct on many

fronts, especially its connection to performance in the workplace, Goleman and his
colleagues have undertaken extensive investigations (Dearborn, 2002) and abridged
this model in the latest book into four dimensions with explicit capabilities (Goleman
D, Boyatzis R, McKee A, 2004). The table below details the four dimensions and the
groups of the capabilities that are associated with the main dimensions.

Table 3 Daniel Goleman’s simplified model of four emotional intelligence competencies

Dimension Competencies
Self-Awareness Emotional self-awareness. Reading one’s own
emotions and recognizing their impact; using ‘gut
sense’ to guide decision.
Accurate self-assessment; knowing one’s strengths
and limits.
Self-confidence; a sound sense of one’s self-worth and
capabilities.
Self-Management Emotional self-control: Keeping disruptive emotions
and impulses under control. Transparency: Displaying
honesty and integrity; trustworthiness.
Adaptability: Flexibility in adapting to changing
situations or overcoming obstacles. Achievement: The
drive to improve performance to meet inner standards
of excellence.
Initiative: Readiness to act and seize opportunities.
Optimism: Seeing the upside in events.

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 Social Awareness Empathy: Sensing other’s emotions, understanding
their perspective, and taking active interest in their
concerns.
Organizational awareness: Reading the currents,
decision networks, and politics at the organizational
level.
Service: Recognizing and meeting follower, client, or
customer needs.

Relationship Inspirational leadership: Guiding and motivating with

Management a compelling vision. Influence: Wielding a range of
tactics for persuasion.
Developing others: Bolstering others’ abilities
through feedback and guidance.
Change catalyst: Initiating, managing, and leading in
a new direction.
Conflict management: Resolving disagreements.
Building bonds: Cultivating and maintaining a web of
relationship.
Teamwork and collaboration: Cooperation and team
building.

3.0 CRITIQUES OF EMOTIONAL INTELLIGENCE

Although, the different definitions of emotional intelligence, the concept remains

relatively and lively most studied construct in the scientific and lay fields. Therefore,
the trend of research on the concrete conceptualization of emotional intelligence
remains debated and argued (Bar-On, 2006) Groves, & Shen, 2007, Mersino 2007;
Lievens & Chan, 2010; (Silong, A. D et all, 2012), McEnrue, Giorgi, 2013; and (Rojas,
2014). Consequently, two models of emotional intelligence as “ability model and
mixed model” have emerged (Rosete & Ciarrochi, 2005), (Silong, A. D et all, 2012);
(Giorgi, 2013).

For the purpose of this paper, the critics of each definition of emotional
intelligence have been reviewed with the objective of finding the gaps each model of
emotional intelligence has from one hand, and the critics of the concept as a whole
from other hand. Therefore, it is found that the concept echoes multiple intelligences
and it is a set of intelligences (Scarr, 1989, Matthews et al., 2002, Locke, 2005) cited
in (Saberi, 2012). The second and more general criticism is the claim that the concept
is like “the old wine bottle” which coins the concept of emotional intelligence as” the
same as personality traits and the theories of motivation” (Davies et al., 1998, Mayer
et al., 2000a, Caruso et al., 2002, Van Rooy & Viswesvaran, 2004, Locke, 2005, Joseph
& Newman, 2010a) , and mental capabilities ( Matthews et al., 2002), Conte, 2005,
Joseph & Newman, 2010a). Furthermore, the critics have gone beyond by arguing that
the concept is the same as the idea of Thorndike (1920) which claimed that emotional
intelligence is “part of social intelligence” (Matthews et al., 2002 and Landy, 2005;
(Saberi, 2012).

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 The third line of criticism has been embedded in the multiple emotional
intelligence measurement tools (Mayer et al., 2000b, Daus, 2005; Conte, 2005,
(Zeidner, M., Matthews, G., & Roberts, R. D, 2012) which are found to have been
tended to be different in content and in the technique of measurement (Conte, 2005).
The fourth line of criticism is that emotional intelligence is culturally-based concept.
With this claim in mind, it has been concluded that emotional intelligence is influenced
by western culture and experience, particularly the debate among emotion, purpose and
mind, thus, it only fits the western environments (Matthews, Roberts & Zeidner, 2004),
(Gredler, 2005), (Mayer, J. D., Salovey, P., & Caruso, D. R., 2008).

The other claim is that the models and measurements of emotional intelligence
have concentrated only on cross-cultural differences and similarities (Conte, 2005),
grasping on culturally specific and general tools (Sharma, S. et al, 2009). But this claim
has been refuted by recent research undertaken in 2010 by Karim and Weisz, who
focused on their research on the reliability and validity of the Mayer-Salovey-Caruso
Emotional Intelligence Test (MSCEIT) between western culture and eastern culture.
The general findings reported to have been found agreeably by both western and eastern
cultures (Karim, J., & Weisz, R., 2010). However, the findings have been denied
because the generalization on both western and eastern cultures is not valid and reliable
and more investigations have to be undertaken (Côté, S., et al, 2010).

The last and fifth line of criticism is that after having reviewed the major three
definitions of emotional intelligence, it has been observed that the authors themselves
have modified their own definitions (Van Rooy, D. L., & Viswesvaran, C., 2004).
Based on this view, emotional intelligence remains unclear concept (Locke, 2005),
(Druskat, V.U., Sala. F., and Mount, J., 2013). Furthermore, researchers such as Locke
(2005) have challenged that the concept of emotional intelligence is “ineffectively
defined, inconsistent, distracted, and unclear. He has gone beyond that by arguing that
whatever the concept of emotional intelligence was labeled or defined, it has become
so wide-ranging and the dimensions are diversified, and it is no longer an
understandable concept cited in (Mahadi, 2011).

After having reviewed the critics of the concept, each model of emotional
intelligence has received specific criticism. For instance, although, Mayer and
Salovey’s model (Mayer & Salovey, 1997) has been the best model to inform facts, it
has been criticized that it highlights more on scientific definitions than dictionary
definitions. The operational definitions are also applied more to components of
emotional intelligence than dictionary definitions, particularly when it has been
described by psychological scientists such as Bridgman in 1927. It is also said that the
Mayer and Salovey’s definition of emotional intelligence sounds the same as definition
of social intelligence which has been presented by Thorndike in 1920 (Cherniss, 2010).
Therefore, it has been summed up that Mayer and Salovey’s model focused more on
the concept of emotional intelligence as “form of intelligence” (Druskat, V.U., Sala.
F., and Mount, J., 2013) , Druskat, (Mo, 2010).

In terms of the Bar-On model (2007), although, it has been popularized for a
period of time, it has tricky hypotheses as it has utilized emotional intelligence the same
as the capability, or skill, or potential and this can be measured and examined through
employing self-report questions. However, this type of self-report questions is not

159
sufficient to measure the emotions because these questions can only gauge self-
opinions rather than capabilities (Petrides, 2010). Furthermore, this model has been
criticized as it is invalid and unpopular (Grubb and McDaniel, 2008). This model
focuses only on personality, success of life, personal prosperity (Druskat, V.U., Sala.
F., and Mount, J., 2013) , (Mo, 2010).

In terms of the Daniel Goleman model, although it has been popularized, it has
also been criticized as it is complex to be assessed scientifically and its reliance on
inaccurate terms, unreliable proofs, and unconfirmed assumptions (Goleman, 1995). It
is worth noting that although, the claims that this model is lacking, it has been utilized
widely. This model has also been labeled as a scientific publication, thus it is not
reliable to be assessed form one-side viewpoint (Petrides, 2010). But with growing of
research, it has been found that the model of Goleman and Boyatzis focused on the
competencies that predict high performance in the workplace.

4.0 IMPORTANCE OF EMOTIONAL INTELLIGENCE

Although the critiques of the concept of emotional intelligence entirely and each of
three mentioned models in this paper, recent body of knowledge on emotional
intelligence has shown that the concept remains lively and timely essential element.
Moreover, it is still a valid construct as it has dynamic effects on behaviors of
individuals, organizations and the way individuals think, behave and feel. It is also
stressed that emotional intelligence is also influenced by the warmness and much care
received from parents (J. D. Mayer, D. R. Caruso, & P. Salovey, 1999), (Mayer, J. D.,
et al, 2001).

Emotional intelligence has been grasped considerably by organizations as it

serves as determinant of high performance in the workplace (Jayan, 2006).
Furthermore, emotional intelligence has been recognized as it is “array of competencies
that can help individuals to utilize their emotions properly, to monitor one’s own and
others’ feelings, to assist potential results such as job satisfaction (Alnidawy, 2015),
and work-related positive attitudes (Fisher, 2000), and leadership performance
(Trabun, 2002), strengthening the usefulness of training programs, (Saberi, 2012),
work performance (McKinley, 2014), organizational management (Rojas, 2014).

It has also been noted based on extensive investigations that those individuals
who have high emotional intelligence are successful at work environments, and they
are observed as “star performers”, whilst those individuals who have low emotional
intelligence are troubled and chaotic individuals and problem-makers through their
personal behaviors at their work environments (Mayer J. D., 2002).

5.0 EMOTIONAL INTELLIGENCE AND EMOTIONAL COMPETENCE

The confusion between emotional intelligence and emotional competence has appeared
recently as the trend of research on emotional intelligence has peaked highly and
extensively in debate and discussion. At the same time, a flood of interest in the
scientific and lay fields has hit the organizations to find ways to distinguish between

160
two terms. Based on the streamline of this confusion, it seems that the two terms are
like apples and apple sauces (Bennis, 2003). In other words, while emotional
intelligence is the whole group of the concept, emotional competence is the part or
single competence of emotional intelligence.

Furthermore, based on empirical studies that have been undertaken on the

concept of emotional intelligence, another definition has been found to explain
explicitly that emotional intelligence is “array of competencies that establish the four
constructs as self-awareness, self-management, social awareness and social skills at
suitable times and methods or behaviors in satisfactory occurrence to be effective in
the situation” (344) (Boyatzis et al, 2000). In this context, it seems clearly that
emotional intelligence is “a set of competencies, while emotional competence is “a
single construct or cluster which individual enjoys and leads to performance”
(Boyatzis, 1982) cited in (Seal, C. R. et all, 2009).

Clearly, emotional competence is different than emotional intelligence because

the former is one of the capabilities that have to be part of and learned from the latter,
which are a group of the capabilities and the result of outstanding and high performance
in the workplace (Goleman D. , 1998). To further understanding, emotional
competence is generated after emotional intelligence is highly found in an individual.
With this in mind, it is found that attempts by individual for learning is enhanced by
emotional intelligence, while the capabilities at work is viewed and explored by
emotional competence (Goleman D. , 1998). The best evidence that emotional
intelligence is different than emotional competence is that the characteristics of
emotional intelligence claim that an individual has the ability for learning task
competencies at work, not that the competencies that can be learned at work (Young,
B. S., Arthur Jr, W., & Finch, J, 2000). It has also to be stressed that if the person has
the capability to show off the whole group of competencies of emotional intelligence
at suitable times and ways in satisfactory behavior, it can be said that he/she is
emotionally intelligent.

6.0 DISCUSSION AND CONCLUSION

Although its appearance in 1990 as “the concept of emotional intelligence (EI)”, it has
been traced as far back into the social intelligence, personality traits and theory of
intelligence to its popularity in 1995. EI has harvested since then a flood of interest.
Therefore, the body of knowledge and the trend of research have not been only
appealing the interest of the scientific and the lay fields, but they have reached to the
normal individual and the community as well as the organizations. The models of
emotional intelligence, on the other hand, have created another line of criticism through
utilizing them in different contexts. But although, they are observed as unclear and
inconsistent, each one has a benefit and has been used in many areas.

After having reviewed plenty of studies and articles, it seems that with different
definitions and models, there is a challenge facing the theory of the concept, but it is
considered, from the other hand, that it is a positive perspective for more investigations
and studies in different areas of life. Another confusion is that the distinction between
emotional intelligence and emotional competence which the study attempted to make

161
it clear that emotional intelligence is “ array of competencies”, while emotional
competence is a single competence and part of a group of competencies that comprises
“ emotional intelligence. In other words, if the person only can show that he/she has
one competence such as self-awareness or optimism, he/ she is not emotionally
intelligent, but if he/she can show array of competencies , it is clear that he/she
emotionally intelligent.

The conclusion, thus, reaffirms that although emotional intelligence is

popularized and widely studied, it remains lively and timely useful concept and a key
element for gauging the capability of individuals to understand, monitor and control
one’s own and other feelings. It is also found that Goleman’s definition and model have
connections with performance. Therefore, this paper recommends more extensive
investigations on emotional intelligence, particularly its relationships with
organizational psychology – related most studied concepts in organizations once it
serves as the antecedent to high performance.

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 TRACK D:
MARKETING
AND
ENTREPRENEURSHIP

167
 ARTICLE D1

Halal Food Choice Process by the Non-Muslim Consumers in

Malaysia

Mas Wahyu Wibowo

ABSTRACT
The Islamic principle of Halalan-Toyyiban (wholesome and safe to consume), which is applied in the
food processing mechanism, has resulted in a healthy, clean and high-quality food that attracts the non-
Muslim consumers. Past studies have documented the positive respond by the non-Muslim consumers
toward Halal food in Malaysia. Malaysia is also a multicultural country with three main ethnicities, and
the interaction between these cultures that exist in Malaysia could be one of the reasons why the non-
Muslim consumers have the positive respond toward Halal food. However, the study regarding on how
non-Muslim consumers’ process to accept Halal food products is under-researched, particularly in the
Halal business and Islamic marketing literature. As such, this paper attempts to identify the non-Muslim
consumers’ variables in accepting Halal food product acceptance. Based on the literature, ethnic
identity, Halal logo, food values and acculturation are identified as the variables. Consequently, the
non-Muslim consumers would weigh and negotiate in determining which variables have the strongest
influence to simplify the decision making. The result of such process is a habitual behavior in accepting
Halal food products.

Keywords— Halal branding, food choice process, habit.

1.0 INTRODUCTION

Halal industry has become the economic force in Malaysia since its inception in 2006
to drive the country’s wealth and economic growth (Ambali and Bakar, 2013). The
industry includes the production of various product and services ranging from food and
beverages, cosmetics, tourism, and financial institution (Alserhan, 2010). The driving
force in the Halal industry is the growing demand from the global Muslim consumers
with relatively strong spending power that shaped this industry to become a lucrative
business (Alserhan, 2010). Malaysia has become the forefront initiator to establish a
standardized Halal certification requirement, which fully supported by the government,
to ensure that all products and services are consistent with the Islamic law (Abd Latif
et al., 2014; Golnaz et al., 2015). Islamic Development Department of Malaysia
(JAKIM) are the certification issuer and the regulatory body of Halal in Malaysia and
considered as the strictest certification body globally (Abd Latiff et al., 2014). Although
Halal food products are processed and handled with strict adherence to the Islamic law
and principles, it is not intended for Muslim consumers only. As documented by past
studies, the non-Muslim in Malaysia have positive respond toward Halal food (Golnaz
et al., 2010, 2012; Aziz and Chok, 2012; Haque et al., 2015). The Islamic principle of
Halalan-Toyyiban (wholesome and safe to consume) encompasses the aspect of
hygiene, safety, animal welfare, environmentally friendly and fair trade across food

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processing and handling mechanism (Golnaz et al., 2015). These values from the
Islamic principles have attracted the non-Muslim in Malaysia to consume safe food
with the growing concern of food poisoning (Abd Latiff et al., 2014; Haque et al.,
2015). Thus, Halal food products which are certified by JAKIM offer a quality
guarantee as well as a marketing tool (Marzuki et al., 2012). Past studies also suggested
that the Halal logo is more important to the customers than other quality certification,
such as ISO and HACCP, although the Halal certification is accompanied by these
quality certifications (Mohd Nawi and Mohd Nasir, 2014). Therefore, the certification
indicates that for Muslim consumers, Halal logo serves as both religious and quality
cue; whereas for the non-Muslim consumers, the Halal logo serves only as a quality
cue in food products.

Past studies have suggested that the hygiene and safety values offered by the
Islamic principles of Halalan-Toyyiban are the main reasons for non-Muslim
consumers to consume Halal food products. Although these values which represented
by the Halal logo may provide security and quality aspects, the fact that Malaysia is a
multicultural country should be considered (Mohd-Any et al., 2014). Three main
ethnicities reside in Malaysia: Malay, Chinese and Indian (Golnaz et al., 2012). The
indigenous Malays are considered as Muslims and comprised of 62 percent of the total
population, which dominated the Malaysian culture (Aziz and Chok, 2012; Haque et
al., 2015). While the rest of the population (38 percent) are non-Muslim which
dominated by the Chinese ethnic (Haque et al., 2015). Given by the different ethnics
that shapes the Malaysian society, the contact and relationship between these various
ethnics and cultural backgrounds create a multicultural society that lives in coexistence
while maintaining peace and harmony (Jamal, 1996). Furthermore, in its endeavor to
be able to fit in with the dominant culture of Malay Muslims, the non-Muslims have to
go through a process of adaptation (Berry, 1997; Hui et al., 2015). The adaptation
process is accompanied with the negotiation process, that is, the interaction with the
dominant culture while maintaining their culture in the process (Laroche et al., 1999).
Such process is referred to acculturation, and as documented by past studies,
immigrants, sojourners and refugees in various countries undergo the acculturation
process to be able to cope (socially), survive (economically) and reduce the stress level
(psychologically) with the dominant culture (Berry, 1997). Thus, to be able to fit in
with the dominant or the larger society will depend on the level of acculturation that is
undertaken by the ethnic minority.

Some indicators of acculturation include language used, the number of friends in

the host culture (social participation), mass media preferences, music preferences,
movie preferences, festival celebrations, and food preferences (Laroche, 1999; Verbeke
and Lopez, 2005; Gupta, 2013). The latter becomes the focus of discussion for this
paper. Similar to the other indicators, food preference requires the weighing and
negotiation of values that is salient to a person in a particular situation (Furst et al.,
1996). A person would tend to use their ideas or anchors in assessing his/her food
choice based on the cultural influence. Consequently, after weighing and negotiating
their values against the larger societal food system in their food choice, people would
develop a strategy to simplify their food choice (Furst et al., 1996; Sobal et al., 2009).
Eventually, by implementing the developed strategy repeatedly, the food choice would
become a habitual process (Bamberg and Schmidt, 2003; Honkanen et al., 2005;
Verplanken, 2006). In this sense, the positive respond of Halal food by the non-Muslim

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consumers is assessed and evaluated through their cultural perspective and
acculturation process. As such, the cultural influences and acculturation process of non-
Muslim consumers would add another dimension to Halal industry and Islamic
marketing literature. However, the culture and acculturation variables are under-
researched in this domain, with the non-Muslim consumers in particular. Therefore, to
fill this gap, this paper will develop propositions regarding the non-Muslim Halal food
acceptance.

Based on the discussion, the rest of the paper will discuss the theories of culture,
attitude, habit, and acculturation. Next section will discuss the development of
propositions. Finally, the conclusion section will close this paper.

2.0 LITERATURE REVIEW

This section discuss the theorical basis for the research. The literature review on culture
attitude, habit and acculturation will be discussed. The theories will be integrated to
develop propositions.

2.1 Culture

Culture defines as shared attitudes, beliefs, categorizations, expectations, norms, roles,

self-definitions and values that utilized to interact by shared language, historical period
and geographic region (Triandis, 1993). It is also considered a shared standard
operating procedures, unstated assumptions, tools, norms, values, and habits about
sampling the environment (Triandis and Suh, 2002). Consequently, culture provides
conventions for information selection and determine how much to weigh the selected
elements from the environment (Triandis and Suh, 2002). Such conventions shaped the
way people perceive and understand the world that is constrained by the patterns of
social interaction characteristics of a particular culture (Markus and Kitayama, 1991).
These conventions, in turn, provide a set of guidelines for what people should be doing
with their lives which primarily determined by the divergent conceptualization of self,
other and interdependence of the two, and thus developed the understanding of an
individual’s place in society (Markus and Kitayama, 1991). Therefore, culture
determines the degree to which goals, cooperation, competition, relationship, and
individualism are emphasized (Noordin and Jusoff, 2010). As such, a person’s beliefs,
attitude, norms, and values are influenced by culture.

With the divergent of self-conceptualization, Triandis (1989) and Triandis and

Suh (2002) categorized the divergence as the dimensions of culture; they termed the
dimensions as individualist and collectivist. While Markus and Kitayama (1991), in a
similar fashion, categorized this dimensions as independent and interdependent self. In
Individualist/independent cultures the ties between individuals are loose and priorities
on him/herself and his/hers immediate family is of primary concern. This culture also
tends to use rational analyzes over the benefit in engaging with others. On the other
hand, in collectivist/interdependent cultures people are closely linked and see
themselves as parts of one or more groups (family, co-worker, tribe, and nation).

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Consequently, people in this culture prioritize groups’ goals over personal goals and
emphasize the connectedness with the members of the groups (Dirani, 2008). The
categorization has an impact on the widely accepted notion that Eastern people fall
under the category of collectivist/interdependent society while the Western counterpart
fall under the class of individualist/independent (Noordin and Jusoff, 2010). The
difference between the dimensions of cultures lies primarily in the tendency to give
priority of personal interests versus in-group interests, and the tendency to value
independence, emotional assertiveness, personal achievement, and competition versus
interdependence, emotional closeness, group achievement and cooperation (Dirani,
2008). Table 1 summarizes the different between culture dimensions.

Culture dimensions Characteristics Source

Individualist Ego-focused, autonomous, (Markus and Kitayama,
self- assertive, many in- 1991; Triandis and Suh,
groups, loose 2002)
Collectivist Other-focused, inter- (Markus and Kitayama,
relationship, few in- 1991; Triandis and Suh,
groups, tight 2002)
Table1 Difference between individualist and collectivist

Although the Malaysia society comprised mainly of three different ethnicities

with its own religious, rituals and symbolic expressions, there lie similarities of
collectivist values, such as respect for elders, harmony, relationships, and religious
orientation. Several researchers have suggested the collectivist culture of Malaysia. For
example, in a study conducted by Fontaine and Richardson (2005) using Schwartz
cultural values found that the only significant differences between the three main
ethnicities were on the dimension of religiosity. In other words, the cultural perception
of religion is the only major difference. Another study, conducted by Noordin and
Jusoff (2010) found that even though there is a slight shift toward individualism at work
environment, Malaysians (regardless of ethnicity) are collectivist in their social life.
Hence, it shows that, as a nation that comprises three main ethnicities, Malaysia is
regarded as a collectivist culture. Nevertheless, the perspective of culture in the national
or country level only views the similarity of values, norms, and rules that are nationally
embraced by its people (etic). This perspective would disregard the unique attributes
of cultures within a country (emic). As foreigners came to a particular country, they
brought along their culture which consequently shaped an identity that differentiates
them with the host nation (Laroche et al., 1999). The identity differentiation thus
formed the sub-culture within the dominant or host culture (Malaysian-Chinese,
Malaysian-Indian) (Fontaine and Richardson, 2005). Therefore, culture is defined as
norms, rules and roles that set up boundaries which are derived from cultural values to
guide its members to act in the social settings.

With such boundaries that shaped by culture, the people from the ethnic minority
thus form the ethnic identity. Through the share a common historical background
(ancestry, nationality, religious affiliation, and language) to differentiate between one
culture and another (Berry, 1997; Laroche et al., 1999; Chattaraman and Lennon,
2008). Ethnic identity serves as an individual’s base of affiliation with an ethnic group
and signifies an individual’s culture retention. As a result, the difference between one’s
ethnic group (in-group) and another ethnic group (out-group) is contrasted within the

171
boundaries and enable its members to characterize in-groups from out-groups (Gupta,
2013). Therefore, in conducting a particular behavior which interaction occurred with
the out-groups the behavior of individuals is an extension of their ethnic group or in
groups values. As such, ethnic identity is defined as a group of people (typically the
ethnic minority) that share the common boundaries and guidance and act accordingly
in the multicultural social settings (Chattaraman and Lennon, 2008).

2.2 Attitude

According to Ajzen (1991), attitude toward the behavior refers to the extent to which a
person has a favorable or unfavorable evaluation in performing the behavior in
question. Further, he asserts that the when a person evaluation is resulting in a favorable
condition and generating the favorable attitude to a particular behavior, thus it is most
likely that the person will perform the behavior under consideration. In this view,
attitude act as a function of beliefs (behavioral beliefs) as the psychological tendency
that dictates the behavior in question (Bonne et al., 2007; Haque, 2015). In line with
the expectancy-value model, attitude toward a behavior is determined by the total set
of accessible behavioral beliefs (Alam and Sayuti, 2011). Therefore, attitude is
considered as an important antecedent in predicting consumer behavior.

For Muslim consumers the underlying factor of behavioral belief is their degree
of religious commitment in performing a behavior (Razzaque and Chaudry, 2013).
Muslim’s way of life is ruled by Islamic law (Sharia) that guides the Muslim’s belief
of whether performing a certain behavior is halal (permitted) or haram (prohibited)
(Muhamad and Mizerski, 2013; Amin et al., 2014). The higher the degree of religious
commitment of a Muslim, it is expected that they are risk-averse and tend to discern
and involve in high-involvement behavioral traits in evaluating a certain behavior
(Wilson and Liu, 2011). The Sharia also ruled the Muslims to follow the food
prescriptions in that Muslims must only consume halal food intended to improve their
well-being (Muhamad and Mizerski, 2013). The halal concept transcends beyond the
religious values of food product. That is, under the Sharia law, it encompasses all
related operation procedures in food product preparations and handling. The
procedures are performed to ensure health, cleanliness, safe and environmental
friendliness aspects of halal food products (Bonne et al., 2007; Abd Latif et al., 2014;
Golnaz et al., 2015). In the case of Malaysia, the halal requirements by Islamic
Development Department of Malaysia (JAKIM), with the full support from the
government, is the strictest Halal certification body among the nine studied by Abd
Latif et al. (2014). Therefore, halal food products are considered as one of the healthy
food product available in the market.

Based on the strict requirements by JAKIM in ensuring the wholesomeness of

the halal food products, the hygienic, health and environmental friendliness principles
have attracted the non-Muslim consumers (Golnaz et al., 2010; Golnaz et al., 2012;
Aziz and Chok, 2012; Abd Latif et al., 2014; Golnaz et al., 2015; Haque et al., 2015).
The main reason is not only on health issues, but also that halal food products are free
from toxic additives (Golnaz et al., 2015). Health and food safety are very sensitive
issues for Malaysian consumers (both Muslim and non-Muslim consumers), as food

172
poisoning is one of the most common issues of food safety (Haque et al., 2015). Given
the health and food safety issues that occur in Malaysia, Halal food products provide
extra guarantees on food safety and quality (Haque et al., 2015). Past researchers have
suggested that health, cleanliness, safety and environmental friendliness are the factors
that are considered by the non-Muslim consumers in consuming halal food products
(Golnaz et al., 2012; Aziz and Chok, 2012; Abd Latif et al., 2014; Golnaz et al., 2015;
Haque et al., 2015). Past studies have reported the food preferences of the Chinese that
view health as the main concern in their daily diet (Prescott et al., 2002; Yang et al.,
2014), whereas the Indian counterpart value highly on fresh food compare to the
processed ones (Yun and Pysarchik, 2010). Therefore, despite the difference in
ethnicity health and freshness are preferred and by the Islamic principles of Halalan-
Toyyiban. Therefore, non-Muslim consumers’ behavioral beliefs on health and food
safety principles of halal food products which influenced by culture would determine
the favorable or unfavorable attitude towards accepting halal food products (Golnaz et
al., 2012; Aziz and Chok, 2012; Haque et al., 2015).

2.3 Halal logo

Brand credibility derived from the brand signaling literature which stated that
companies can utilize the brand as signals to convey their information in a marketplace
that is characterized by imperfect and asymmetric information (Erdem and Swait,
1998). The asymmetric information is described as the inability of the consumers to
evaluate the product quality. A firm’s brand credibility comprised of two dimensions:
(1) expertise; and (2) trustworthiness (Erdem and Swait, 1998; Erdem and Swait,
2004). The uncertainty for consumers toward Halal food products is the invisible and
intangible quality characteristics (credence attribute) that can hardly be assessed or
ascertained by individual consumers even upon or after consuming the product (Bonne
and Verbeke, 2008). Consumers have to rely on the Halal logo credibility to trust the
conveyed information. In this sense, the brand credibility of the Halal logo represents
the coordination mechanism of the Halal industry to ensure the Halalness of food
products which not visible to the consumers. Halal logo credibility is the facilitating
condition that allows an individual to perform the behavior in a convenient manner.
The role of the facilitating condition is very much related to perceived behavioral
control in TPB.

Halal industry researchers have related the control factors with a halal logo that
signifies the food quality which complies with the sharia law (Golnaz et al., 2010, 2012;
Aziz and Chok, 2012; Haque et al., 2015; Golnaz et al., 2015). The benefits above of
halal values in assuring clean and hygiene environment of food processing have
resulted in the positive responds from the non-Muslim consumers, as the growing
concern on food safety issues (Abd Latif et al., 2014; Golnaz et al., 2015; Haque et al.,
2015). The positive response is translated into confidence and trust, whereby the non-
Muslim consumers could make an informed choice upon purchasing halal products and
that they have established a positive relationship with the products (Marzuki et al.,
2012; Aziz and Chok, 2012; Haque et al., 2015). Apart from its quality assurance factor,
Marzuki et al. (2012) added that halal logo also serves as a marketing tool, as it
generates demand from the non-Muslim consumers.

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 The recognition of Malaysia as a reputable halal hub among OIC countries has
established JAKIM as the trustworthy and reputable halal certification issuer as well
(Abdul Rahman et al., 2013). Consequently, the monitoring and controlling activities
with adherence to Malaysian Standard on halal food (MS 1500: 2004), HACCP and
GMP in assuring halal criteria facilitate for both trust and competence among
consumers and JAKIM (Abd Latif et al., 2014; Golnaz et al., 2015). For this reason,
the halal logo is viewed as marketing tools and have significantly gained trust among
non-Muslim consumers in Malaysia (Marzuki et al., 2012). Moreover, the halal logo
itself is the brand of the product and with the high quality perceived by non-Muslim
consumers, it is expected that the quality is not compromised (Golnaz et al., 2010;
Ambali and Bakar, 2013). As such, a Halal certification that issued by JAKIM is the
both the quality cue and marketing tool in conveying the Halalness of food products
which encompass the principles of Halalan-Toyyiban in its processing mechanism.

2.4 Acculturation

Acculturation is a continuous contact between two or more group of individuals with

different cultural backgrounds with subsequent changes in the original culture patterns
of either or both groups (Jamal, 1996). Berry (1997) proposed two fundamental
dimensions of acculturation: (1) cultural maintenance; (2) contact and participate in the
larger society. He further suggests that the intersection of these two dimensions have
resulted four forms of acculturation: (1) integration (participate in both culture); (2)
assimilation (participate in host culture but not the heritage culture); (3) separation
(maintain the heritage culture but not participate in host culture); (4) marginalization
(neither participate heritage nor host culture). Among the four forms of acculturation,
integration is the most favored form of the participation in both cultures would be more
likely to predict the likelihood of Halal food product acceptance (Hui et al., 2015). The
most common indicators of acculturation are (1) language used; (2) social participation
and interaction; (3) mass media preference or usage; (4) dietary acculturation. (Laroche
et al., 1999; Bonne et al., 2007). In this study, acculturation is regarded as non-Muslim
consumers’ value negotiation with the larger society (Malay Muslim) in making the
food choice. Therefore, identifying which form of acculturation the non-Muslim
consumers will determine the level of acceptance of the Halal food product (Ayyub,
2015; Hui et al., 2015).

According to Laroche et al. (1999) and Gupta (2013), there are two processes for
acculturation namely the unidirectional and bidirectional process. The former also
referred as the assimilationist, suggest that the individual lost his/her culture of origin
(ethnic identity) towards the foreign culture. The assimilationist only views the newly
acquired skills (adaptation) that are necessary to function within the host culture.
Whereas the latter, suggest that while acquiring new skills that is required to survive
individuals also retain aspects of their culture of origin. In this process, individuals
could undergo acculturation without losing their culture of origin. Therefore, the
bidirectional process is a well-suited approach for studying acculturation in a
multicultural society of Malaysia. In addition, such approach would accurately predict
the level of adaptation in a particular environment (Cleveland and Laroche, 2007).

174
 The distinction between acquiring new skills (adaptation) and culture of origin
retention are further determined as the dimensions of acculturation (Gupta, 2013). Past
studies on acculturation posits that language used, the number of friends in the host
culture (social participation), mass media preferences, music preferences, movie
preferences, festival celebrations, and food preferences are the behavioral dimension
of acculturation (Gentry et al., 1995). On the other hand, identity, values, and beliefs
are regarded as the attitudinal dimension of acculturation (Gentry et al., 1995; Kim et
al., 1999). The authors further suggest that the foreign culture would less influence the
attitudinal dimension. Whereas the behavioral dimensions would significantly affect
the foreign culture because the individuals acquire cultural behaviors of the dominant
group more rapidly than their cultural attitudes or values. Thus, it is suitable to suggest
that non-Muslim consumers would use their cultural backgrounds in assessing the
benefits that are offered by the halal food. Therefore, non-Muslim consumers’ ethnic
identity (attitudinal) and participation in the dominant culture (behavioral) would
determine the acceptance level of halal food products.

2.5 Habit and heuristic decision-making

Habit is referred as learned sequences of acts that have become automatic responses to
specific cues and utilized to obtain a particular goal (Honkanen et al., 2005). It is a
behavior that is performed without awareness, difficult to control, mentally efficient,
and yielded from the repetition of experiences (Verplanken, 2006). Past studies have
argued that past behavior (behavioral frequency) is crucial in defining habit (Thompson
et al., 1991; Chang and Cheung, 2001). Hence, the authors have not include habit in
predicting a behavior due to time constraint in acquiring data of past behaviors
(Bamberg and Schmidt, 2003). However, habitual behaviors require less thought and
less emotion to perform compare to non-habitual behaviors. Moreover, it could be
performed in parallel with other unrelated activities (Verplanken, 2006). Although the
consumers may make their food choice based on past behaviors, it is the ease or
automaticity which such thing reoccurs is the crucial marker of a tendency to choice a
certain food. Thus, habit is the psychological experience of automated behavior
(Verplanken, 2006).

According to food choice process proposed by Furst et al. (1996), people would
develop a personal system based on the repeated experience in making their food
choice. The personal system comprised of two components, namely: (1) value
negotiations that involved the weighing of different considerations and (2) strategies
that involved choice patterns based on previously experiences related to food choices
that become habitual (Furst et al., 1996). As described earlier, the value negotiation
occurs during the acculturation process in which a person would use his/her cultural
background against the dominant culture in assessing the food values (Sobal et al.,
2009). As for strategies, people would develop a set of rules to simplify their food
choices (Conner, 1993; Furst et al., 1996; Sobal et al., 2009). Such strategy would
involve ignoring some of the information to make the decision more quickly and
accurately compare to using complex methods (Gigerenzer and Gaissmeier, 2011).
This implies that people usually operate on fewer attention bases in making their food
choice to save their mental resources for important decisions (Conner, 1993).

175
Therefore, in making their food choice people make their decision based on habitual
behavior.

In this case, non-Muslim consumers would tend to assess the hygiene and clean
aspects of halal food offerings with their understanding of such aspects in making the
food choice (Cleveland and Laroche, 2007; Chattaraman and Lennon, 2008). The
participation of the larger society of Malay Muslims would likely to increase their
knowledge of halal food and its underlying principles (Jamal, 1996; Berry, 1997;
Ayyub, 2015; Hui et al., 2015). Consequently, they developed a set of rules to ignore
any irrelevant information to simplify their food choice (Honkanen et al., 2005;
Verplanken, 2006; Gigerenzer and Gaissmeier, 2011). As such, ideals (attitude), value
negotiation (attitudinal acculturation), participation with the larger community
(behavioral acculturation) and developing heuristic strategies in their food choice
(habit) are the main variables in determining non-Muslims’ acceptance of halal food
choice process.

3.0 PROPOSITION DEVELOPMENT

Attitude would be the important variable in choosing the Halal food by the non-Muslim
consumers, which influenced by their culture of origin (Ajzen, 1991; Laroche et al.,
1999). In evaluating and assessing the Islamic value of halal food, non-Muslim
consumers would utilize their values and beliefs in the form of ethnic identity
(Cleveland and Laroche, 2007; Chattaraman and Lennon, 2008). The attitude construct
captures the general evaluative beliefs about halal food, and it is the psychological
tendency that is expressed by evaluating such products with some degree of favor or
disfavor. Therefore, attitude is the non-Muslim consumers’ responses to halal food
products. As such, the following proposition is postulated:

P1: Non-Muslim consumers’ attitude will affect the halal food acceptance

Non-Muslim consumers’ participation in the large society of Malay Muslims would

determine their level of adaptation to the foreign culture and acquire the necessary
knowledge on halal food. Such process is the value negotiation; weighing and
accommodating values that are salient according to the non-Muslim consumers (Furst
et al., 1996; Sobal et al., 2009). Through the acculturation process, it is likely the non-
Muslim consumers’ knowledge of halal food principles of healthy, safe, animal welfare
and environmental friendly will be enhanced. The cultural features of interaction in the
form of language, the number of friends (from the host country), and food preferences
are therefore necessary to convey the values of halal principles behind the halal food
products. Based on the discussion, the following proposition is postulated:

P2: Non-Muslim consumers’ of acculturation will affect the halal food

acceptance

JAKIM Halal logo represents the Islamic principles of the safe and clean process in
assuring the halalness of the food (Abd Latiff et al., 2014; Haque et al., 2015). It also
serves as the quality cue and marketing tool in conveying the Islamic principles of
Halalan-Toyyiban of the food products (Marzuki et al., 2012). Moreover, consumers

176
use the halal logo as a symbol of trust with the industry in processing, transferring, and
packaging the food that they consume to be accordance with the Islamic principles
(Erdem and Swait, 1998, 2004; Bonne and Verbeke, 2008). Based on the discussion,
the following proposition is postulated:

P3: Halal logo will affect the halal food acceptance of the non-Muslim
consumers’

The result of value negotiation is the retaining of the values offered by the Islamic
principles that are fit with the non-Muslim consumers’ cultural background in their
food choice (Cleveland and Laroche, 2007). The retained value would be the base for
developing the set of rules to simplify their food choice and become a habitual behavior
accordingly (Furst et al., 1996). This habitual behavior would require less thinking and
less emotion to perform thus would be performed automatically (Honkanen et al., 2005;
Verplanken, 2006; Gigerenzer and Gaissmeier, 2011). Therefore, a stronger habit
would reduce a person’s awareness and control of the behavior. Based on the
discussion, the following proposition is postulated:

P4: Non-Muslim consumers’ level of habit in consuming halal food will moderate
the relationship between attitude and halal food acceptance, attitudinal acculturation
and halal food acceptance, behavioral acculturation and halal food acceptance and
halal logo and halal food acceptance.

The proposed relationship are shown in figure 1

Habit
Attitude

Acculturati Halal
on food
choice

Halal
logo

Figure 1: Proposed relationship between variables in this study

4.0 CONCLUSION

The study aims to identify variables that predict the halal food acceptance by the non-
Muslim consumers. Based on the literature review, attitude, acculturation, halal logo,
and habit are the identified predictors of the acceptance. In a multicultural society of

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Malaysia, when the interaction of culture occur in everyday lives of its people the
cultural difference is tolerated and blend. Such society setting provides the opportunity
for people from different ethnic to understand each other through various food
selections that are abundant (Mohd-Any et al., 2014). Malaysians, both Muslims and
non-Muslims are exposed to this various food selection. For the non-Muslim
consumers (Chinese and Indians) this various food selection means that they also
accustomed to the halal food in their daily diet (Mohd-Any et al., 2014). Therefore, the
variables identified in the study would reflect non-Muslim consumers’ food choice for
halal food. In fact that they encounter with halal food every day, it would be a habitual
behavior for them to choose a halal product which needs less complex methods in
consuming halal food product. The habit establishment in their halal food choice
process is the main focus of this study as the strength level of habit will determine the
specific predictor that significantly influence non-Muslim consumers’ halal food
choice (Honkanen et al., 2005).

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 ARTICLE D2

Conceptual Study on Malaysian Male Consumption Behaviour

towards Skin Care Products

Tan Chun Eng

ABSTRACT
The emergence of metrosexual trend in the recent decades, growing awareness and concerns of self-
image or external appearance in male populations nowadays have not only created impetus for
researchers to explore more in this new research segment, but attentions have also garnered over those
companies which engaging themselves in the production of personal grooming, cosmetics and skin care
products toward this booming niche market. Hence, the primary purpose of this study is to implement a
conceptual review in assessing the factors that predict Malaysian male consumption behaviour in
purchasing skin care products. There are limited studies found in Malaysia context which focused on
men's consumption behaviour towards skin care products thus far, therefore the findings able to deliver
new knowledge and insights for fellow researchers and marketing practitioners as well. Besides, the
prominent findings could also provide brand new views or angles for related companies to formulate
their marketing strategies effectively and strategically to well serve this lucrative niche market.

Keywords - Self-Image, Attitudes, Normative Influences, Purchase Intention, Purchase Behaviour

1.0 INTRODUCTION

The globalisation era with the rapid advancement of information technology, science,
social science, economy and education has led people in this world to have better
enjoyment in their livings and lifestyles. Along with the huge improvement of
consumption power and market trend, people are more conscious of hygiene and beauty
nowadays and subsequently this improvement has delivered opportunity and a brand
new market for beauty care industry (Souiden and Diagne, 2009). In former days,
beauty care, cosmetics usage and skin care are all witnessed to be the "privileges" of
women. Nevertheless, with the emergence of “Metrosexual” trend, it has drawn the
huge attention for men to aware of their self-image, how to improve their external
appearance and how to maintain their own handsomeness at all times. Men had started
to pay close attention towards the latest development of men’s beauty care products,
sensitive yet high receptivity towards product alternatives and deliberate thoroughly
before making their purchasing decision (Moungkhem and Surakiatpinyo, 2010).

The men’s beauty care or skin care market instead is a relatively new and
emerging market, it is growing and it is very attractive to study in this niche market
(Moungkhem and Surakiatpinyo, 2010). Skin care products have been understood as
the kind of products which able to deliver the functions of cleansing, moisturising,

182
maintaining and treating the hygienic problem of human's skin within the optimal
conditions (Draelos and Thaman, 2006). According to McDougall (2011), various
beauty care or skin care products’ manufacturers started to diversify their focus and
manufacture different products to well-serve on this fast-growing niche market. This
emerging yet growing niche market is blooming and it can be a very high attractiveness
industry with great potential to develop and keep expanding in future (Euromonitor,
2007). L’Oreal France had forecasted that the number of male user on beauty care
cream and lotion will achieve 50% or one in every two men will be the user for the
previously mentioned products during the year of 2060 (Moungkhem and
Surakiatpinyo, 2010).

From the statistical point of view in observing this niche market worldwide, the
overall global market value for male grooming products is approximate $35 billion, for
instance in India, men accounted for 44% of total skin care consumption while in the
United States, men also accounted for almost 33.4% of total consumption. Asia Pacific
region has been recognised as one of the regional markets with the highest growing rate
for men’s skin care products, whereby almost 60% of total men’s skin care product
sales for 2011 are generated from this regional market (Industry Report Store, 2014).
In addition, the trend of metrosexual had spread along with the Japanese Pop and
Korean Pop trends throughout every corner of this world lately, even the Malaysian
market.

Due to a scarcity of research in studying the skin care products’ purchasing

behaviour of male consumers in particularly the Southeast Asia region, plus there are
lots of distinctiveness and differences existed in between men's and women's skin care
products and markets, cosmetics and skin care manufacturing companies certainly need
to be detailed yet comprehensive information about this new and booming market
segment, hence this study would like to commence within the national context, draw
the research focus and context in Malaysia.

Pertaining to this study, the potential target respondent of Malaysian male

consumers will be focused on the age group of 15 to 64. This is due to according to
Worldbank (2015), this age group of individuals are those who could potentially be
economically active, in other words, they are the group of individuals who may possess
better earning capability and stronger consumption powers as compared to other age
groups of 0 to 14 and 65 and above (refer Table 1). Besides, they are also the potential
group of consumers who would spend and consume on skin care products. Meanwhile,
in relative to this study, skin care products will be referred to those products such as
cleanser, facial foam, facial scrub, toner, moisturising cream, sun block cream, eye
cream, shaving foam, anti ageing and anti wrinkle products.

Table 1 : Overall Malaysian and Malaysian Male Populations as at the year 2014
Malaysian
Population (2014) Male Population Male Population
(2014) (15 to 64 years old) (2014)
29, 901, 997
14,801,488 Appx. 10,104,589
Source: Databank.Worldbank.org (latest database update: 31 December 2014)

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 Beauty care or skin care market in women has been long established and
continuously growing throughout times. Most of the beauty care products are
conveying an implicit yet personal message to their consumers to have well cared for
their hygiene, beauty and healthiness through employing their products regardless of
their gender (Moungkhem and Surakiatpinyo, 2010). In past perception, women will
be the only consumer who uses beauty care or skin care products. However in recent
years, emergence of metrosexual trend and influences from Korean pop as well as
Japanese pop cultures toward the world, men are more aware and conscious in their
external appearance, their desires and demands for handsomeness, beautifulness,
aesthetics, youthfulness, healthiness and fitness, had eventually introduced and opened
up the new emerging market for men’s grooming or beauty care market lately
(Moungkhem and Surakiatpinyo, 2010).

In this contemporary era, men’s grooming or beauty care industry has not only
been termed as new emerging market but it has also been recognised as one of the core
prospect products sectors by Euromonitor (2007) due to its growth dynamism.
According to Industry Report Store (2014), the global market value for male grooming
products is approximate $35 billion and the men’s skin care market is growing at a
higher rate in Asia as compared to the more mature women’s market. In Blanchin,
Chareyron and Levert's (2007) study, they illustrated the fact that male populations
nowadays are very concern on their self-appearance since younger age to old age; in
their mindsets, they see youthful and charming appearance able to assist them in
boosting their popularity in workplace, during client meetings, social dating and in their
daily lives and it was statistically discovered that 64.4% of men take extreme care
towards their skin condition. But the question arises, is the fact able to postulate the
male populations' motivation in various countries of this world in applying skin care
products? The brief review made on past researches, several countries for instance
Japan, Canada and French have been targeted in the past studies of men's cosmetics
consumption while research study on herbal cosmetic products has also been
implemented in Thailand. Furthermore, the more appealing studies related to men's
skin care products' consumption are also evidenced only in Sweden and Thailand thus
far. The studies are respectively from Moungkhem and Surakiatpinyo (2010) and
Sukato and Elsey (2009). Moungkhem and Surakiatpinyo (2010) have also discussed
in their study that male's skin care market is definitely a niche market in which skin
care products manufacturers striving so hard and perform their best in research and
development to well-serve this new and lucrative market segment whereby they have
been identified as the underserved market segment by those mainstream providers who
always serve the women's market.

Hence, this study will be aimed towards male consumers in Malaysia, in which
there is no specific or related research study has been undertaken in Malaysia to
investigate their purchasing behaviour on skin care products thus far. Through this
research, the investigation launched on those variables and prominent results would
definitely benefit and delivered novel knowledge and pragmatic insights towards
marketers in designing, producing, formulating and implementing feasible marketing
strategies especially in the aspect of advertising and promotion; in addition, more
choices, variants or functions of quality skin care products able to be manufactured to
cater the needs of this high-growth potential market. The emergence of this new niche

184
market and great company initiative in servicing the men’s market will also help in
boosting Malaysia’s economic development via high consumptions incurred by
citizens.

The following research questions are posed to specify the scope of this study and
will further assist in the implementation of the research.

1) Is there any relationship between self-image and attitudes toward applying skin
care products?
2) Is there any relationship between self-image and normative influences toward
applying skin care products?
3) To what extent attitudes and normative influences toward applying skin care
products affect purchase intention?
4) Is there any relationship between purchase intention and purchase behaviour?

2.0 LITERATURE REVIEW

This section will review and explain on the relevant theory which will be employed in
this research study, the relevant past studies which adopted the theory and the rationale
of why this research study will leverage Theory of Reasoned Action as the main
theoretical framework.

2.1 Theory of Reasoned Action (TRA)

Theory of Reasoned Action (TRA) was jointly coined by Martin Fishbein and Icek
Ajzen during the year of 1975 (Sukato and Elsey, 2009). This is one of the most
prevailing and strongly underpinned consumer behaviour theories (refer Figure 1).
Meanwhile, it is also an effective causal model which developed to well-elaborate
influences towards behaviours that involve cognitive processes or conscious yet
rational decision making processes (Greene, 2009). This theory drew its concentration
on all voluntary behaviours which phased-out any behaviours that are routine in basis,
scripted and spontaneous in nature (Greene, 2009). According to Abou-Shouk (2012),
TRA is a theory that explains a person's behaviour or action is determined and
ascertained by their behavioural intention, or in other words it is also a theory that
predicts a person's behaviour based on the person's behavioural intention. Nevertheless,
TRA's core structure is formed by several constructs, namely attitudes, subjective
norms, behavioural intention and behaviour or action (Fishbein and Ajzen, 1975).
Sukato and Elsey (2009) described that a person's behaviour can be influenced by his
or her personal attitudes over the behaviour (attitudes), how the person feels others
think or view about him or her (subjective norms) and with the existence of this two
critical constructs, they helped to build-up the person's behavioural intention which
subsequently transform into real action or behaviour.

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 Figure 1 : Theory of Reasoned Action (TRA)

However, there are several critiques have been pointed out by fellow scholars toward
the comprehensiveness of TRA. In accordance to Greene (2009), she mentioned that
there were questions challenged by past researchers over TRA. Firstly, incertitude
arises over the adequacy of attitudes and subjective norms to predict behavioural
intention and behaviour, some researchers proposed to assert previous behaviours or
prior behaviours to join along with attitudes and subjective norms to explain the
intention and action; second, researchers also questioned on to what degree of variation
in behavioural intention and behaviour can be explained well by these constructs; last
but not least, due to limited scopes of behaviours in which TRA can be applied, this
critiques have drawn the attention and efforts from Fishbein and Ajzen to develop and
extend TRA into its next theory called Theory of Planned Behaviour (TPB). Besides,
Bohner and Wanke (2002) expressed that TRA has missed their focuses from other
determinants such as personality traits and demographic antecedents which might
deliver indirect impacts toward intention and behaviour.

2.2 Rationale for adopting TRA

Pertaining to this study, researcher will adopt and apply Theory of Reasoned Action as
the theoretical framework which serves as the foundation that rooting or underpinning
entire study. Subsequently, researcher will also propose and incorporate other variables
in this framework which eventually the conceptual framework for this research. The
main rationale for adopting TRA is due to this theory has been widely examined and
one of the most prevailing consumer behaviour theory that has applied in myriad
research studies for instance communication, marketing, public health and social
psychology (Greene, 2009).As supported by Fagerstrom (2005), Manstead (2004) and
Olson and Zanna (1993), he agreed that TRA is one of the most appropriate theories
which could be employed to well predict and explain consumer behaviours. In recent
decade, TRA has been applied in various research studies which covered different
industries, business contexts and even across national boundaries, such as online
commerce, telecommunication service, commercial bank industry, food consumption
and studies in diverse cultural settings like behavioural research undertaken in
Australia, Hong Kong, Norway, Taiwan, United States and etc (Sukato and Elsey,
2009).

Apart from rationale above, several justifications of why researcher would like
to adopt and apply TRA in this research study. Firstly, consumers who involve in skin
care products consumption are under their rational choice and volitional control; and

186
second, consumption on skin care products is a very specific and narrow research
context which is very suitable and appropriate to be studied and predict for specific
consumption behaviour (Lee, Qu and Kim, 2007). Greene (2009) has also emphasised
that TRA able to deliver very detailed information in aiding the planning of marketing
strategies and programmes which uniquely targeted on a specific population for
instance Malaysian male who purchase skin care products in this study. Hence, TRA is
the most appropriate theory to be referred and adopted in predicting Malaysian male
consumption on skin care products.

2.3 Self-Image and Attitudes

Although a lack of research has been undertaken to explore the consumption behaviour
of skin care products, nevertheless in the past, consumer behaviour studies have
extended its coverages into various contexts, for instance garment or clothing industry,
personal care products, grooming products, cosmetics, and etc. In one of the studies
conducted by Beaudoin, Moore and Goldsmith (1998) in which they revealed the
finding that attitudes toward clothes purchasing are strongly associated with self-image
and self-identity. As they concluded that every favourable consumptions made by an
individual will definitely bring satisfaction towards the person’s needs.

Attitude is an internal feeling, belief or favourableness an individual may hoard

throughout his or her life towards performing a specific behaviour. Thus, an individual
will engage themselves in consuming the product or service if they believe such product
or service will be useful, functional or even bring changes to their existing life, merely
based upon their attitudes toward that particular product or service. As Belk (1978)
mentioned that customer will have proper attitudes in purchasing cosmetics mainly due
to they have the internal belief that cosmetics able to bring influences or changes over
their external appearance. Emphasis has been given by Souiden and Diagne (2009) in
their research study, they posited that self-concept which includes of self-image can be
influenced significantly by an individual’s attitudes and beliefs.

Self-image has been tested to have a significant association with the attitudes
towards applying skin care products in Sukato and Elsey’s (2009) study. In Coulter,
Feick & Price (2002) study, they found out that self-image has an influence towards
the attitudes of applying and buying cosmetic products for women in Hungary.
Meanwhile, in accordance with Souiden and Diagne’s (2009) study, they had indicated
that grooming products not only able to improve a man’s external appearance instead
it may enhance his psychological image via the improvement of his confidence level
about his self-image, hence because of their good self-image, they tend to have
favourable attitudes towards applying skin care products. Moreover, the men’s
favourable attitude towards applying skin care products has been significantly
associated with the creation, development and maintenance of their self-image
(Sturrock & Pioch, 1998).Reviews above has led to the following proposition.

Proposition 1: Self-image is significantly related to attitudes toward applying skin care

products.

2.4 Self-Image and Normative Influences

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As mentioned by Childers and Rao (1992), every individual will perform their
behaviour in a particular manner with reference to the social group that they identified
and joined. They also further decomposed that normative influences could be from
various social groups or reference groups, namely family-based and non-family based
which comprised of friends, buddies, colleagues and etc. Similar explanation witnessed
in Sukato and Elsey’s (2009) study, they had included spouse or partners, friends,
family and colleagues as the potential group of normative influences.
There is evidence proven the significant relationship between self-image and
normative influences in Bangkok’s male consumers (Sukato & Elsey, 2009). Souiden
and Diagne (2009) have concluded in their research study that opinions and feedbacks
from family and friends able to influence Canadian and French men in consuming
cosmetic products and provide them with the positive words in maintaining their
external appearances. An individual will act in a certain way, for instance make
purchases which complied with influences from others whereby they may have the
belief that adoption or application of a product able to enhance their individual’s self-
concept or self-image (Hu & Jasper, 2006).Besides, research result from Webster’s
(2000) study has also ascertained that normative influence from husband to wife’s
consumption behaviour. Thus, the following proposition is based upon discussions
above.

Proposition 2: Self-image is significantly related to normative influences toward

applying skin care products.

2.5 The Relationship between Attitudes and Normative Influences toward

Applying Skin Care Products upon Purchase Intention

Fishbein and Ajzen (2012) discussed that TRA has the capability in predicting
individuals' intentions to perform a specific behaviour or even involve themselves in
certain behaviour. They also stated given that all measures on attitudes and normative
influences are highly compatible with behavioural intention, those measures will
certainly able to predict precisely the behavioural intention. TRA possessed the
capabilities to make behavioural intention salient enough to be noticed and predict
accurately on ultimate behaviour of an individual based on attitudes and normative
influences these two constructs (Fishbein and Ajzen, 2012).

Nevertheless, some research studies in the past have held differ opinions or
arguments on whether attitudes are more predictive towards behavioural intention or
subjective norms (normative influences) are better in prediction. For instance, research
launched by Ryan and Bonfield (1980) in pertaining to credit unions influence towards
customers' behavioural intention, both of them revealed that attitude construct is more
predictive than normative influences. The identical finding is also witnessed in Chung
and Pysarchik (2000) study which concentrated in Korean customers' intention to
purchase branded consumer goods. In contrary, another study implemented by Bonfield
(1974) to test customers' buying intentions toward branded products has showcased the
result of normative influences are more predictive than attitudes construct. Although
different opinions held by fellow researchers as illustrated earlier, Choo, Chung,

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Pysarchik (2004) still supported that attitudes and normative influences are both
significant contructs which able to accurately predict behavioural intention.

Attitudes and normative influences from friends, colleagues and family have
significantly influenced the behavioural intention of consumers in adopting Internet
banking in Taiwan, as demonstrated in Shih and Fang’s (2004) study. In a research
study that examined on business travellers' intention to revisit the previously stayed
hotel in their next business trip in Seoul, South Korea, ultimate finding of this study
has concluded attitudes and normative influences have significantly related to such
behavioural intention (Buttle and Bok, 1996). In connecting back to this study context,
the research study was undertaken by Sukato and Elsey (2009), they revealed that the
association among attitudes towards applying skin care products and normative
influences are positively and significantly affected the Bangkok’s male consumers’
purchase intention. Consumers with more favourable attitudes towards a particular
product, they may have higher intention to purchase it as compared to those with less
favourable attitudes. The similar finding has been found in McNally’s (2002) study as
well. Based on the reviews above, the following propositions have been developed.

Proposition 3: Attitudes toward applying skin care products is significantly related to

purchase intention.

Proposition 4: Normative influencestoward applying skin care products is significantly

related to purchase intention.

2.6 Purchase Intention and Purchase Behaviour

Myriad empirical supports in the past have demonstrated the relationship between
behavioural intention and behaviour, for instance in Hrubes, Ajzen and Daigle (2001)
study, they would like to predict hunting intentions and the behaviour itself, the results
shown a significant relationship between these two constructs; another studies
performed by Conner and McMillan (1999) with the intention to use marijuana and the
usage behaviour as well as study made by Giles and Cairns (1995) for intention to
perform blood donation and the behaviour of blood donation have all shown significant
correlations between these two constructs. In Lee et al. (2007) study on the impact of
Korean travellers' personal innovativeness towards online travel shopping behaviour,
the research findings revealed that intention to search for information and intention to
purchase is significantly related to the behaviour of information searches and
purchases.

Purchase intention has been associated and significantly related to actual

purchase behaviour in the research study which conducted by Sukato and Elsey (2009).
The similar finding has been underpinned by Choo et al. (2004). In Choo et al.’s (2004)
study, they had concluded that purchase intention is possible to predict the actual
purchase behaviour of consumers. Within the context of Sukato and Elsey’s (2009)
study, purchase intention has been acted as a mediator amongst beliefs in product
attributes, self-image, the attitudes towards applying skin care products and normative
influences to predict actual purchase behaviour of consumers in Bangkok. All four
variables have ascertained the mediation impact from purchase intention which may

189
eventually affect the actual purchasing behaviour on skin care products. Therefore, the
following proposition has been proposed for this study.

Proposition 5: Purchase intention is significantly related to purchase behaviour.

2.7 Proposed Conceptual Framework

The chief purpose of this research study is to explore and investigate comprehensively
on Malaysian male's consumer behaviour in purchasing skin care products. As such,
the Fishbein and Ajzen’s theory of reasoned action has been referred and leveraged as
the main theoretical framework along with assertion made by incorporating the self-
image construct which has been proven in Sukato and Elsey’s research study in the
year of 2009 that it could deliver positive impact towards the attitudes and normative
influences which affect the consumers' purchase intention and actual purchasing
behaviour.

Past studies have indicated that self-image able to deliver influence to the
consumers' attitudes towards applying skin care products, meanwhile it is also
significantly associated with normative influences. Besides, the association of attitudes
and normative influences towards applying skin care products will jointly influence or
affect consumers' purchase intention on skin care products as well. In Ryan and
Bonfield's (1975) study, they had mentioned that one of the major merits of reasoned
action model was this model able to well explain and well predict the consumption
behaviour by leveraging purchase intention as a mediator in the research study. Hence,
the proposed conceptual framework for this research study is presented as follow (refer
Figure 2).

Figure 2 : Proposed conceptual framework

3.0 CONCLUSION

The primary purpose of this conceptual study is to assess the factors which predict the
Malaysian male consumers in their consumption pattern toward skin care products. All
the above conceptual reviews and arguments are leveraged to develop proposed
research hypotheses in which these proposed assumptions able to attain the research

190
study’s objectives. Throughout the rigorous review of past literature, it enables
researcher to understand more and gain better insight towards the relationships between
self-image, attitudes, normative influences, purchase intention and purchase behaviour,
simultaneously the applicability in Malaysia national context could be examined as
well. An extended empirical research paper will be developed to well assess the
propositions formed in this study and several theoretical and practical implications
would be provided based on the prominent findings in future.

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 ARTICLE D3

Factors that cultivate youth intention to be social entrepreneur

Renne Pramila Punadi

Adriana Mohd Rizal

ABSTRACT
This paper reviews the intention pattern of youth in Social Entrepreneurship. Various studies in past
have been carried out in the context of business entrepreneur as opposed to social entrepreneur.
Findings from social entrepreneur literature revealed that social entrepreneurs’ intentions are triggered
by internal and external factors similar to that of business entrepreneurs. Nevertheless, social
entrepreneurs and business entrepreneurs are different in many ways. The prominent difference is the
explicit social mission that social entrepreneurs uphold. Further research is required to address the
youth intention to be a social entrepreneur. Young social entrepreneurs tend to be engaged in social-
oriented activities as compared to their older counterpart who get involved in charities. The objective
of this study is to review the contributing factors that influence young social entrepreneurs’ intention to
be a social entrepreneur. This study proposes a conceptual model of insight factors that triggers the
intention to be a social entrepreneur. The paper is concluded with future study.

Keywords: Social Entrepreneur, Young Social Entrepreneur, Intention, Personal Trait, Social Trait,
Support and Guidance and Opportunity Creation.

1.0 INTRODUCTION

Youngsters play a crucial role in the development of a community and country as a

whole. Their involvement can be beneficial or detrimental to the society. They are
recognized as the key participants in a decision-making process and as an active change
agent. Active participation of youth in social venture in is vital as it energizes and
sustains the civic consciousness of a community (Hancock, 1994) in addressing various
social issues. Lately, significant social entrepreneurship growth is observed due to
rising interest and attempts in the field (Miller, Grimes, McMullen & Vogus, 2012).
Individual involvement in social enterprise is on the rise and evolving over time
(Volery, Mueller & Siemens, 2013). On the other hand, social issues such as drug-
trafficking, criminal offence, violence and sexual offense among youth are on the rise.
These are not social issues related to specific ethnic, religious group or culture but the
youth in general. Their action imposes serious threat to the nation.

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 In helping youth to restrain from unhealthy activities, they need to be engaged
with activities led by youth to raise their self-worth. This will encourage them to decide
the goals that needed to be accomplished (Davis, 2002) and to be in-charge of their
own life. Appropriate holistic programs and platform should be designed for youth to
initiate this transformation. This mission is mirrored through the emerging
involvement of non-governmental youth organizations and government-initiated
programs. For instance, the National Expert Survey (NES) indicated that the Malaysian
government has been supporting and providing assistance in terms of infrastructure and
funds to encourage young social entrepreneurs to be involved in social venture (Digital
News Asia, 2015).

The Malaysian Prime Minister had launched the Malaysian Social Enterprise
Blueprint 2015-2018, a three-year strategic plan for developing social enterprises
through the formation of MAGIC SE, to mandate social economic growth in Malaysia
with a fund of RM20 million (Digital News Asia, 2015). Another foundation is the
Social Enterprise Alliances Malaysia (SEA), under the wing of MAGIC SE, with its
own incubating program, fosters the connection between social entrepreneurs and
experts from industry. This blueprint supports the potential growth of social
entrepreneurs in Malaysia. This assistance and funding is believed to encourage more
young entrepreneurs to be involved in social missions in the future (Yeoh, 2015).
According to Roberts (2005), many programs, trainings and education have been
carried out for the betterment of the country.

In fact, social enterprise in Malaysia is a blooming sector and at present, it is

estimated that about only hundred social-oriented or hybrid enterprises existing in
Malaysia (Yeoh, 2015). These social entrepreneurs engage in social causes such as
education, environmental sustainability, rural development and poverty. Surprisingly,
social commitment in Malaysia is lower compared to Thailand, which is Malaysia’s
bordering country, which has 120,000 social enterprises within its community (Yeoh,
2015). Social entrepreneurship in Malaysia requires several accelerator programs aced
by the right mind-set of youth.

Social entrepreneurship studies for Malaysia still is lacking, but surveys found
that majority Malaysian youth are inspired to be social entrepreneurs (Digital News
Asia, 2015). Omorede (2014), in his studies, have suggested that motivational factor
drives people to be engaged in social entrepreneurship but often overlooked and
requires new researches to gain more insights as to why some social entrepreneurs
strives on despite facing challenges. Besides that, Krueger, Schulte and Stamp (2008)
found limited knowledge on factors that influence social entrepreneur intentions and
action.

There is a need for new research to reflect on potential perspective that may drive
graduates to start social enterprises (Nabi, Holden & Walmsley, 2010). However,
youth’s involvement remains a question mark since the nature of motivation is
subjective and personal. This leads to in-depth study on intentions of social
entrepreneurs’ among youth. Sharfman et al (2006) stated that more rigorous empirical
studies need to be validated as the findings could benefit both practitioners and
academicians in identifying factors that encourage youth to be involved in social

197
enterprises. Hence, the objective of this study is to review the social entrepreneur and
entrepreneurship literature to identify young social entrepreneurs’ intention to be social
entrepreneur. The study also proposes a conceptual model to further understand factors
that trigger youth’s intentions to be social entrepreneur.

2.0 LITERATURE REVIEW

2.1 Social Entrepreneur

Social entrepreneur literature is rooted in entrepreneurship. Social entrepreneurs are

believed to possess noble heart and mind that sense the responsibilities towards
community needs. Social entrepreneurs existed from a long time ago in various
identities like visionaries, humanitarians, philanthropies, reformers, saints and great
leaders (Bornstein & Davis, 2010). Social entrepreneurship is fueled by high profile
industrialist (Cukier, Trenholm, Carl, & Gekas, 2011). For instance owner and
chairman of Microsoft. Bill Gates who established “Bill and Melinda Gates
Foundation” generated wealth through commercial activities to help and support
various communities (Boluk & Mottiar, 2014). The founder of Ashoka, Bill Drayton,
claimed that social entrepreneurship is an approach that renders support for growth in
forming a sustainable growth in a country. On the other hand, founder of Skoll
Foundation, Jeff Skoll termed social entrepreneur as an individual who promotes social
and economic growth and meets the need of the marginalized (Cukier, Trenholm, Carl
& Gekas, 2011).

Social entrepreneurs have been acknowledged as the change agent seeking for
social rationality by maximizing social values (Kim & Yoon, 2012). Social
entrepreneurs tend to be proactive in learning and developing additional skills, taking
risks, being innovative, confident, comfortable with diversification and collective in
helping the needy (Bargsted, Picon, Salazar & Rojas, 2013). Riquelme (1992),
postulated that entrepreneurial spirit itself is not sufficient, but great idea is required
that turns dream to reality.

Davis and Peake (2014) urge more studies on variables that influence graduates’
intention in business start-ups. Social entrepreneurs are capable in instigating potential
solutions to social problems (Sebba et al., 2009) but studies are lacking in youth’s
commitment in pursuing the intention. According to Khosroshashi et al. (2006), youth
abandon the social intention due to limited knowledge and collective efforts or support
in social venture. In addition to that, Mair, Battilina and Gardenas (2012) believe there
is a need to explore the conditions where social entrepreneurial model can be made
successful. Young people are capable of addressing social problems and drafting
strategies to bring about social empowerment.

2.2 Definition of young social entrepreneur

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The definition of young differs and determined by the subject matter, setting and
objective of classification (Khosroshashi et al, 2006). Sebba et al (2009), defines youth
as individual at a biological life stage who progresses from the phase of dependent to
independent. The United Nations defined youth as individuals between the age group
of 15 to 24 (Youth and United Nations, 2010). The Government of Malaysia defined
youth as individual between the age of 15 to less than 40 (DOSM, 2014). Hence, in this
paper, youth is defined between ages of 18 to 30.

Manifestation of social entrepreneurs’ intention take place over the time, but it is
believed that it may begin in tertiary level and it is necessary to study what enlightens
the undergraduates to be a social entrepreneur. Young individual are keen than middle-
aged individual in social endeavors (Prabhu, 1999) and this interest adds greater value
to society in long run. Their views are often different than many older adults. They are
intuitive, creative and energetic; engaging themselves into meaningful initiatives that
make them an asset of a country and the change agent for community well-being
(Davis, 2002). Apparently, only few studies examined undergraduate students towards
social venture attempt (Davis & Peake, 2014). Young social entrepreneurs grow from
their own interest, participation, thoughts and decisions to define their skills, attitude,
knowledge and commitments instead of being told or forced on picking up a social
mission. Youth are often spontaneous, imaginative and swift; different than older
adults. Apparently, activities led by youth provide an opportunity to the society in long
term (Davis, 2002).

2.3 Definition of Intention

The process of forming intentions is an established field in entrepreneurship studies.

Azjen (1991) classified intention as the motivational factors that influence individual
attempt to perform. In the case of planned, purposive and goal-oriented behavior,
intention is an influential predictor (Bagozzi, Baumgartner & Yi, 1989). Krueger and
his associates, Krueger and Carsrud (1993), Krueger and Brazeal (1994) and Krueger
et al (2000) developed a model called entrepreneurial intention model. The model
illustrates social venture intention achieved through perceived feasibility and
desirability. The model proposed by Krueger and his associates was drawn closely from
the work of Ajzen and Fishbein (1975) on the theory of planned behavior. According
to Shapero and Sokol (1982), entrepreneurial venture is influenced by events that
resulted from interacting with environment.

Apparently, an intention permits individual to perform certain behavior grounded

by their own belief (Krueger & Casey, 2009). Intention proved to be the utmost
predictor of individual behavior, predominantly when the behavior is rare and hard to
observe or involves unpredictable time gap (Krueger & Brazeal, 1994). Further
investigation is needed to identify what manifests the intention (Bargsted, Picon,
Salazar & Rojas, 2013), especially among the youth. On the other hand, Quan (2012)
classified intention into two categories which are (1) impulsive entrepreneurial
intention (IEI), influenced by personal characteristic and cultural background as the
reason for one’s desire to form a start-up and (2) deliberate entrepreneurial intention
(DEI), which is influenced by prior experiences and active social network which
identify resources available to venture out. The author suggested for the most recent

199
data to understand further on the application of these two levels of entrepreneurial
intention. Moreover, what truly leads to actual intention towards social venture is
unclear and requires better understanding on what really cultivates the youth intention
to be a social entrepreneur.

3.0 FACTORS CONTRIBUTING TO SOCIAL ENTREPRENEURIAL

INTENTION AMONG YOUTH

3.1 Personal Trait

Social entrepreneurs are believed to possess certain special traits and abilities to pursue
a social mission. Being innovative, proactive and daring to take risk are considered the
central traits of social entrepreneurship (Weerawardena & Mort, 2006). Social
entrepreneurs also possess significant values such as high credibility, integrity and the
ability to influence followers (Borins, 2000). These values come from leadership skills
(Thompson, Alvy & Lees, 2000), through building social networks and gaining support
from external community.

Boyd and Vozikis (1994) extended Bird’s (1988) model on entrepreneurial

intention, proposing “self-efficacy” as an important determinant in entrepreneurial
intention formation and it is likely to be translated into actions. According to Ajzen
(1991), self-efficacy influences individual attitude and intention. Self-efficacy is
enhanced through entrepreneurial education and observation of a role model or known
as vicarious learning (Bandura, 1997).

Another important factor in social entrepreneurship is being alert Kirzner (1997),

a vital element in the Kirzner’s theory. Baron and Ensley (2006) agree that cognitive
capacity such intelligence and creativity rely on individual alertness and when the
alertness is high active search is least required. In fact, more comprehensive and real-
time study is required to provide an empirical evidence on how and why individual
undertake social venture (Diochon, Durepos & Anderson, 2011) and pursue the
opportunity (Mair & Marti 2006). Another factor that is associated with alertness is
being proactive. Proactive people are unrestrained by situational forces, discover
opportunities and sustain until significant transformation forms (Crant, 2000). Being
proactive is also known as the tendency to act as per entrepreneurial intentions (Segal
et al, 2005) that fuel initiatives improving current situation or creating a new one.

Furthermore, Mair and Noboa (2006) presented the social entrepreneurial

intention formation model, where the actual behavior stays undiscovered and
unexplored in reality, which raised a question on why some individuals embark on the
intention after being triggered to do so while others do not. Omorede (2014) explained
in his article, that there should be an extended research to study and gain more insights
on why social entrepreneurs continue the social activities despite the difficulties faced
in creating social change. His studies also suggested that factors that drive people to be
engaged in social entrepreneurs are still overlooked. Although there are other personal
traits that influence individual intention, in this research, only the relevant key traits
related to youth are studied. Harnessing and enriching the right skill among youth

200
would lead to a positive change in community. In this study, Personal Trait refers to
self-efficacy, alertness and being proactive.

3.2 Social Trait

People who possess well-developed social skills tend to experience more favorable
outcome from participating in community service compared to those who are not
(Lamine, Mian & Fayolle, 2014). Social network plays a leading role in providing
information, experience and support for youth to be involved in social
entrepreneurship. In personal, social network, family and friends support influences the
decision of an entrepreneur to proceed bravely into social venture (O’Leary et al.,
2014). On the other hand, a dynamic social network fosters acceptance, increases self-
confidence and credibility. Nevertheless, Baron and Shane (2005) argued that
networking is an important social skill to build entrepreneurs’ competence level or
distinct skills to interact with others (Saayman & Klerk, 2012). A good network
practice creates access to new sources of funding, potential problem solving approaches
and information sharing opportunity (Farr-Wharton & Brunetto, 2007). Researchers are
yet to investigate the influence of anti-social behaviors in social network which might
lead to unfavorable result in societal development.

Political Skill is adapted from business environment ground. The term political
is associated with self-interests, manipulation, and dishonest behavior of an individual
(Ahearn et. al, 2004; Ferris et al, 2004). Nevertheless, politically-skilled entrepreneurs
use their propriety knowledge to innovatively exploit opportunities. Individuals who
possess high political skill are perceived to know how to influence investors and make
positive moves in handling people and resources effectively (Davis & Peake, 2014).
Therefore, new studies are being made to examine entrepreneurs’ political skills in new
venture creation during the start-up process. Qualitative case analysis may assist in
gaining more details and understanding political skills (Neil et al., 2012). In this study,
Social Trait refers to social skill and political skill.

3.3 Support and Guidance

Education guides youth to seize opportunities from surrounding and to avoid early
failure in business (Kerka, 2005). Knowledge is the key to identify entrepreneurial
opportunities and individuals tend to acquire knowledge through interactions (Kirzner,
1997). As stated by Gregson (1994), effective mentoring from experienced individuals
guides and supports the less-experienced ones. It was observed that, due to lack of
educational exposure, entrepreneurs are left without guidance in strategic planning
(Roberts & Woods, 2005). However, limited literatures were published on the success
of curriculum outcome towards social entrepreneurship formation (Krueger & Brazeal,
1994). Othman and Wahid (2015) asserted that there are still insufficient literatures on
social entrepreneurship with regards to educational issue. It is clear that education
instills social entrepreneurial activities.

201
 Social entrepreneurs are not as much financially rewarded as business
entrepreneurs. A greater challenge among social entrepreneurs is the resource
acquisition (Roundy, 2014). Santos (2012) stated social entrepreneurs with sufficient
support and resources strengthen and encourage innovative solutions in social sphere.
Financial support and funding in initiatives led by youth is still insufficient (Aujla &
Redding, 2013). In several countries, government targets the educational initiatives on
primary, secondary and tertiary level students with the purpose to enhance youth’s
personal development and positive behavior (Hytti & O’Gorman, 2004). An
individual’s intention to be engaged in social entrepreneurship activities needs to be
supported with guidance and opportunity (Othman & Wahid, 2014). In this study,
support and guidance refers to government funding and educational support.

4.0 SOCIAL ENTREPRENEUR INTENTION LEAD TO OPPORTUNITY

CREATION

A social entrepreneur discovers opportunity under situation that they understand (Paul,
2005). Hsieh, Nickerson and Zenger (2007) claim that opportunity is led by unexpected
events and followed by an intentional search. Dutta and Crossan (2005) view
entrepreneurial opportunities as: (1) opportunity existing in the environment waited to
be discovered and: (2) opportunity existing through entrepreneurs’ perception and
environmental observable. Ardichvili et al. (2003), depicted factors affecting the
opportunity identification through: (1) entrepreneurial alertness, (2) prior knowledge,
(3) discovery versus intentional search, (4) social network and, (5) personality trait (risk
taking, optimism and self-efficacy and creativity) that triggers the process of
entrepreneurial opportunity recognition.

The nature of opportunity and individual differences draws thought towards

opportunity discovery (Shane & Venkataraman, 2000). Likewise, different scholars
have varying views and opinion on entrepreneurial opportunity. There are limited
indications on which of these aspects began first; the discovery, identification or the
creation in “entrepreneurial formation phase”. The entrepreneurial intention is what
one fosters in his or her mind. An individual initiates the entrepreneurial actions when
his or her entrepreneurial perceived belief on opportunity is higher. However, intention
is influenced by various factors that are likely to play a significant role in social
endeavor and it requires more thorough research (Mohamad, 2015).

5.0 CONCEPTUAL FRAMEWORK

The conceptual framework is developed based on factors that lead to social

entrepreneurs’ intention as discussed earlier in section 3.4. The social entrepreneur
intention among youth is categorized into Personal Traits, Social Trait and Support and
Guidance. The Personal Trait among young social entrepreneurs refers to self-efficacy,
alertness and proactive. Where else, Social Trait refers to social skill and political skill.
Support and Guidance, refers to government and educational support. This led to the
formulation of factors that cultivate youth’s intention to be social entrepreneur
framework as depicted in Figure 1.

202
 Personal Trait
Self-efficacy, alertness and
proactive

Social Trait
Social skill and political skill Intention

Support and Guidance

Government funding and
Educational support

Figure 1: Factors that cultivate youth intention to be a social entrepreneur

6.0 CONCLUSION AND FUTURE RESEARCH

Youngsters are considered as the force that drives the wheel of social entrepreneurship.
Given the opportunity and support, the younger generations is capable of addressing
societal problem and react positively. In addition, entrepreneurial intention leads to
recognition and formation of opportunity (Sarasvathy, 2003). The young and
experienced social entrepreneurs can guide and motivate youth to participate in social
activities. In another word, youth must be coached by young social entrepreneurs who
are passionate about changing the community. As youth are the leaders of tomorrow,
identifying the source of such social entrepreneurial intention and enriching them in
specific ways will flourish a better society and future. However, there is a lack in
empirical studies to demonstrate the actual determinant of social entrepreneur
activities, in both quantitative and qualitative nature and further studies should be
carried out to identify other underlying factors motivating the intention to be social
entrepreneur (Aileen & Mottiar, 2014).

203
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ARTICLE D4

Strategic Entrepreneurship in Family Business

Norshamsiah Ibrahim
Adriana Mohd Rizal
Batiah Mahadi

ABSTRACT
The uncertainty market becomes a crucial issue for most business players particularly in Malaysia. They
often rely on their strategic and entrepreneurial skills to sustain in the market. Both skills play a vital
role to ensure the successful of a business. The complementary issues between strategic management
and entrepreneurs have led to the development of strategic entrepreneurship research. Previous studies
on strategic entrepreneurship have emerged over the past few years in different perspectives and context.
However, there is a lack of study concerning strategic entrepreneurship implementation in family firms
even though family firms give a big impact towards economic growth. Therefore, the objective of this
paper is to review the literature related to the strategic entrepreneurship, importance of strategic
entrepreneurship and strategic entrepreneurship in family firms.
Keywords - Strategic entrepreneurship, family firms, exploration and exploitation, resources, wealth
and value creation.

1.0 INTRODUCTION

The business atmosphere in twenty-first century can be portrayed as a new competitive

landscape. It includes the higher risks, fluid firms and industry boundaries, new
structural forms, innovative mindset and the inability to forecast due to uncertainty
issues such as policies changes (Kuratko & Audretsch, 2009). According to the
Malaysian Small Medium Enterprise (SME) Annual Report 2014/2015, the economic
condition in 2015 is under pressure with the volatile environment given by the
anticipated monetary tightening in the United States (US) and the slowing down of the
economy in the People’s Republic of China (PR China). In fact, the firms’ performance
in Malaysia decreased from 49 percent in the third quarter of 2014 to 39 percent in the
first quarter of 2015. A survey among 2,062 SME corporations in Malaysia found that
63.9 percent of the respondents are facing increases in operational cost due to the
government policy changes such as the subsidiary rationalization, minimum wages and
the implementation of Government Services and Tax (GST) (SME Annual Report,
2014/2015).

The uncertainties and competitive environment nowadays has prompted firms to

become more strategic in their management. Kyrgidou and Hughes (2010) define

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strategy as a planning process to enhance decision making by managing the resources
within the framework of structures, systems and processes. In other words, strategy
involves several activities such as planning, leading, organizing and controlling
activities in the firms. It is considered as the firms’ primary advantage to increase
performance and profitability. Strategy is an essential part in the entrepreneurial firms’
activities which rely on the internal asset and the combination of resources which
consist of human, social, financial, physical, technological and organizational
resources (Brush, Greene & Hart, 2001). However, most of the entrepreneurs tend to
give more attention to opportunity identification and risk-taking activities but show less
concern for the firms’ strategy (Klein, Mahoney, McGahan& Pitelis, 2013). As a result,
the firms become incapable of acquiring the competitive advantage due to the lack of
ability in managing their resources strategically (Hitt, Ireland, Camp& Sexton, 2001).

Strategic management research focuses on the advantage-seeking of how firms

create change while the entrepreneurial action focuses on opportunity-seeking to create
wealth (Hitt et al., 2001; Ireland, Hitt& Sirmon, 2003; Webb, Ketchen Jr& Ireland,
2010).The complementary issues between strategic management and entrepreneurship
field have given rise to the emergence of these studies among the scholars. Some of the
scholars have started to explore the intersection between the strategic management field
and the entrepreneurship field (Mintzberg, 1973; Schendel & Hofer, 1979; Meyer &
Heppard, 2000; McGrath & MacMillan, 2000; Hitt et al., 2001; Ireland, Hitt, Camp&
Sexton, 2001) which it refer to strategic entrepreneurship. Hitt et al. (2001) define
strategic entrepreneurship as an entrepreneurial action with the strategic management
perspective by integrating the knowledge of strategic management and
entrepreneurship. In contrast, Agarwal, Audretsch and Sarkar (2010) describe strategic
entrepreneurship as the initiatives to create competitive advantage by introducing a new
product, processes or market. The successful combination of entrepreneurial activities
and strategic actions enhance the ability of the firm to grow consistently and lead to
wealth creation (Ireland et al., 2001; Hitt et al., 2001).

Extant works of strategic entrepreneurship focuses primarily on large and well

established firms (Ireland & Webb, 2007; Ketchen, Ireland & Snow, 2007), public
firms (Luke & Verreynne, 2006; Luke, Kearins & Verreynne, 2011; Klein et al., 2013)
and small medium enterprises (; Obeng, Robson& Haugh, 2014). However, there is a
lack of study focus on family firms (Webb et al., 2010; Lumpkin, Steier& Wright,
2011; Kansikas, Laakkonen, Sarpo& Kontinen, 2012). Family firms are described as
businesses which consist of family involvement and ownership (Sharma & Salvato,
2013), have some strategic control on the firms’ resources and process (Barbera &
Moores, 2013) and shared commitment to the future success (Hoy & Sharma, 2009).
Family firms involving family members in the firms’ management and the managerial
controls are transitioned from one generation to the next generation (Dalpiaz, Tracey
& Philips, 2014).

According to SME Bank Report (2014), Malaysia ranked third highest

concentration in family firms amongst ASEAN after Thailand and Indonesia. SME
family firms contribute the largest profit to the economic growth (Amran, 2011;
Abdullah, Hamid & Hashim, 2011). In fact, 70 percent of business operations in
Malaysia are controlled and owned by family firms. Most of the family firms’ owners
wish to see their business being transferred to the next generation but family firms have

209
a short life span (Abdullah et al., 2011; Buang, Ganefri& Sidek, 2013). It is estimated
that 70 percent of the family firms will not make it to the second generation and 90
percent will not survive to the third generation (Walsh, 2011). Therefore, it is essential
to develop a comprehensive strategy for the family firms be successful. Research on
strategic entrepreneurship is important as a new approach in managing the firms
especially in family firms (Webb et al., 2010). The objective of this study is to review
the literature related to the strategic entrepreneurship, the role of strategic
entrepreneurship and how strategic entrepreneurship can be implemented in family
firms.

2.0 LITERATURE REVIEW

2.1 The Origin of Strategic Entrepreneurship

The concept of strategic entrepreneurship started from the economic field (Schumpeter,
1942) and later expanded to the management field (Van Rensburg, 2013). According
to Schumpeter (1942) theory, entrepreneurship relates to the creation of new product
through the combination of productive resource and continuous innovation. Shane and
Venkataraman (2000) argue that entrepreneurship is the process of discovering and
exploiting new opportunities in the markets. Entrepreneurship concept strengthens the
importance of opportunity identification to create firms’ wealth and value (Kyrgidou
& Hughes, 2010). Nevertheless, without a good strategy, entrepreneurs might lead to
the unnecessary opportunity exploration. Therefore, there is a need to integrate the
opportunity identification within strategic framework (Kyrgidou & Hughes, 2010;
Kraus, Kauranen & Reschke, 2011; Van Rensburg, 2013) to ensure the business be
successful.

The concept of entrepreneurial strategy-making was first introduced by

Mintzberg (1973), which lead to many researchers to focus on entrepreneurship and
strategic management field together (Schendel & Hofer, 1979; Meyer & Heppard,
2000; McGrath & MacMillan, 2000; Hitt et al., 2001; Ireland et al., 2001).
Entrepreneurial decision making is the heart of the strategic management concept
(Schendel & Hofer, 1979). It is a key decision to attain firms’ goal, sustain their vision
and achieve a competitive advantage (Rauch, Wiklund, Lumpkin and Frese, 2009).

A few years later, Burgelman (1983) proposed the concept of strategic corporate
entrepreneurship. It integrates the concept of administrated economic activity and
entrepreneurial economic activity by determining the association between strategic
management and entrepreneurship activity in larger firms. He suggests a guideline to
implement strategic corporate entrepreneurship in firms which consists of strategic
behavior (entrepreneurs) and strategic context (strategic management). However, the
study is concerning the larger company which involves more bureaucracy compared to
small firms (Yang, Zheng, & Zhao, 2014).

Covin and Slevin (1989) posit that firms need to change their orientation from
the conventional management to entrepreneurial orientation. Entrepreneurial
orientation is defined as entrepreneurial strategy-making process that concerns
“methods, decision-making styles and intentions of key players functioning in a

210
dynamic generative process” (Lumpkin and Dess, 1996:136-137). The performance of
the firms relate to the firms’ strategic structure, competitive tactics and firms attitude
which refer to entrepreneurial strategy (Covin and Slevin, 1989). Entrepreneurial
strategy is the firms’ ability to identify the new business opportunities and exploit the
opportunities through its structured and well-planned strategy (Kansikas et al., 2012).

The concept of exploration and exploitation coined by March (1991) support the
formation of the strategic entrepreneurship construct (Ireland & Webb, 2009).
Exploration is defined as the process to develop or create the innovative products and
services while exploitation is improving the existing operational processes through
firms’ production, modification and implementation (March, 1991). In other words,
exploration can facilitate firms to change their direction and bend forward while
exploitation can help firms to stay strong in their current activities (Blindenbach‐
Driessen & Ende, 2014). Similarly, the concept of ambidexterity is vital in exploration
and exploitation resources. Firms’ ambidexterity refers to firms’ ability to balance the
exploration and exploitation in its management (Blindenbach‐Driessen & Ende, 2014)
and becomes the most critical element in strategic entrepreneurship (Kansikas et al.,
2012; Shirokova et al., 2013). A year later, McGrath & MacMillan (2000) proposed
the concept of entrepreneurial mindset which later also becomes an important element
in strategic entrepreneurship (Ireland et al., 2003). Entrepreneurial mindset is described
as being passionate in exploring new opportunities as well as the need to pursue the
best opportunities and align it with strategic management (McGrath & MacMillan,
2000).

Studies on strategic entrepreneurship were started many years ago but only
recognized when Hitt et al. (2001) published a special issue on strategic
entrepreneurship in the Strategic Management Journal, ‘Strategic Entrepreneurship:
Entrepreneurial Strategies for Wealth Creation’. Hitt, et al. (2001) viewed strategic
entrepreneurship as the entrepreneurial action with a strategic perspective. In strategic
entrepreneurship, both entrepreneurial behaviors (opportunity-seeking) and strategic
behavior (advantage-seeking) have been integrated to give benefit in decision making
which led to wealth creation. The field of strategic entrepreneurship gained academic
legitimacy and status only when the Strategic Entrepreneurship Journal (SEJ) was
created in 2007 (Foss & Lyngsie, 2011; Shirokova et al., 2013). This has promoted
studies on strategic entrepreneurship to emerge rapidly in the few years onwards.

2.2 Strategic Entrepreneurship

Strategic entrepreneurship has been devoted to explore the complementary issues

(Boone, Wezel, & Van Witteloostuijn, 2013) and the interdependent relationship
between strategic management and entrepreneurship fields. Both fields enhance the
understanding of firms’ abilities in creating wealth and value (Ireland, et al., 2003;
Ireland & Webb, 2009). In fact, strategic management and entrepreneurship have the
same interest in determining firms’ adaptation to the environmental changes. It also
assists on how the firms identify and exploit the opportunities resources created by the
volatile environment (Hitt, et al., 2001; Ireland & Webb, 2007).

211
 In the entrepreneurship view, resources are not limited to the existing resources
and the firms’ possessions while in the strategy, it focuses on how to manage, leverage
and coordinate resources (Luke et al., 2011). Firms need to leverage entrepreneurial
resources to sustain their competitive advantage (Foss & Lyngsie, 2011). Managing
resources is the key dimension in the strategic entrepreneurship framework (Ireland et
al., 2003; Ireland & Webb, 2007). It is essential for firms to attain strategic resources
and develop expertise with the core skills in leveraging the resources to create new
product or services (Kyrgidou et al., 2010).

The research on strategic entrepreneurship focus on both strategy and

entrepreneurship fields such as wealth and value creation (Hitt et al., 2001; Ireland et
al, 2003), the formation of new business, the foundation and development of firms
capabilities (Klein et al., 2013), strategic renewal efforts along with the dynamics of
innovation and macroeconomic growth (Agarwal, et al., 2010). During the emergent
construct over the past decade, Luke et al (2011) claimed that many inconsistent
theories and different dimensions of strategic entrepreneurship have been developed.
For example, Hitt, et al. (2001) describe strategic entrepreneurship as the concept which
focuses more on how the firms adapt the business environment uncertainty and exploit
the opportunities to create wealth. Boone, Wezel and Van Witteloostuijn (2013)
indicate that strategic entrepreneurship research had identified a large set of variables
that may derive from both fields. For example, the phrase of ‘firms-level
entrepreneurship’ was borrowed from the strategic management field and the phrase
‘entrepreneurial orientation’ was adopted from the entrepreneurship field.

There are also some arguments regarding the conceptual framework among
scholars. The first conceptual framework is proposed by Ireland et al (2003) which
consist of four sections – entrepreneurial mindset, entrepreneurial culture, managing
resources and applying creativity and developing innovation. Webb et al (2010) claim
strategic entrepreneurship begins with an appropriate mindset among executives which
will shape the exploration and exploitation processes for the continuous innovation.
Kyrgidou and Hughes (2010) argue that the major concept of strategic entrepreneurship
is similar to the entrepreneurial orientation characteristic by Lumpkin and Dess (1996)
due to the many characteristics which parallels the entrepreneurial orientation
construct. For example, entrepreneurial orientation in a firm lead to wealth creation in
term of firms’ profitability (Lumpkin & Dess, 1996), as well as strategic
entrepreneurship is posited to influence wealth creation (Hit, et al., 2001; Ireland, et
al., 2001, 2003; Ireland & Webb, 2007; Kyrgidou & Hughes, 2010; Hitt, et al., 2011).
In fact, entrepreneurial orientation is a concept that is used as an entrepreneurial
mindset in a framework developed by Ireland et al. (2003). Then, Hitt, Ireland, Sirmon
and Trahms (2011) emphasize the model by proposing the new model called an input-
output model which explains the process of strategic entrepreneurship and describes
the outcomes to give a complete picture of strategic entrepreneurship. Over the years,
the study on strategic entrepreneurship has emerged in the different areas (see
Appendix A).

2.3 The role of Strategic Entrepreneurship

212
Over the years, numerous researches concerning strategic entrepreneurship have
answered the inquiry pertaining to how firms develop and sustain competitive
advantage, besides identifying and exploiting new resources to sustain in the market
(Ireland et al., 2003; Hitt et al., 2011; Luke et al., 2011; Sirén, Kohtamäki, & Kuckertz,
2012; Shirokova et al., 2013). The importance of strategic entrepreneurship is to create
wealth (Ireland et al., 2001; Hitt et al., 2001, 2002; Ketchen et al., 2007; Lumpkin et
al., 2011;Obeng et al.,2014, Awang et al., 2015), increase firms’ values (Ireland et al.,
2003, Ireland and Webb, 2007; Hitt et al., 2011; Kraus et al.,2011; Klein et al., 2013),
enhance firms’ growth (Obeng et al., 2014) and improve firms’ performance
(Shirokova et al., 2013; Awang et al., 2015; Dogan, 2015).

These, in fact, are aligned with the concept proposed by Hitt et al., (2001) that
strategic entrepreneurship enhances the understanding on how firms create wealth by
exploiting competitive advantage. Strategic entrepreneurship encourages firms to
continuously search for new sources of competitive advantage (Dhliwayo, 2014).
Wealth creation depends on the ability of the firms to generate sustainable income
based on both human and social capital resources (Obeng et al., 2014). Klein et al.
(2013) emphasized that wealth creation is not automatic, but it is a result that derives
from entrepreneurial activity with creative thinking. Entrepreneurs are more concerned
on entrepreneurial efforts to attain temporary advantages to create wealth instead of
searching and creating a single and sustainable competitive advantage (Foss & Lyngsie,
2011). Therefore, according to Hitt et al., (2011), it is a necessity for the emergence
studies on both fields; entrepreneurship (opportunity-seeking behavior) and strategic
management (advantage-seeking behavior), in the field of strategic entrepreneurship.
Moreover, strategic entrepreneurship is a relevant strategy to any commercial
organization pursuing profit and wealth creation in both public and private sectors
(Luke et al., 2011; Dogan, 2015).

Despite of that, strategic entrepreneurship promotes the increase of values in

firms. The value creation is similar to the wealth creation concept. However, value
creation consists of the flexibility portrayed by the firm in considering anything that
offers value to the firms, instead of money, such as a better image for the firm. Ireland
et al., (2003) posited that resources function as the driver of value creation in strategic
entrepreneurship and proposed resource-based value as the theory in managing
resources. The combination of entrepreneurs’ actions and strategy perspectives helps
firms to create wealth and value, besides assisting firms to achieve long-term success
in the dynamic and competitive business environment (Kuratko, & Audretsch, 2009).
Effective strategic entrepreneurship can provide opportunities to firms to further
multiply the set of stakeholders, as suggested by Hitt et al., (2011), which could also
increase the value of a firm.

In addition, strategic entrepreneurship can strengthen the knowledge of firms’

growth by providing further description of entrepreneurial mindset and activity process
in strategic management (Obeng et al., 2014). The characteristic of entrepreneurs as
well as resources and strategy of firms, in the strategic entrepreneurship framework
support the growth of the firms. In fact, firms with more resources would grow rapidly
compared to firms with limited resources (Yang et al., 2014). Klein et al. (2013) suggest
that firms need to focus on entrepreneurial strategy for the firms’ growth.

213
 Strategic entrepreneurship also describes the entrepreneurial activities from the
strategic perspectives to assist the performances of firms (Shirokova et al., 2013;
Awang et al., 2015; Dogan, 2015). The measurement of a good performance includes
wealth creation and social values. Thus, the strategic entrepreneurship field emerges
from the necessity to link both entrepreneurial and strategic perspectives (Boone et al.,
2013) for successful performance. The role of strategic entrepreneurship discussed
above makes strategic entrepreneurship as an important construct that needs to be
focused on. This is because; most researches have failed to look into strategic
entrepreneurship practices amidst family firms or to treat them equally with non-family
firms. As a result, more studies are needed to conceptualize strategic entrepreneurship
in family firms.

2.4 Strategic entrepreneurship in Family Firms

The essential to develop a comprehensive strategy for the successful of family firms
has been highlighted by many empirical studies (Webb, et al., 2010; Lumpkin, et al.,
2011; Kansikas, et al., 2012). In fact, researches concerning strategy have suggested
that family firms must consider their strategic choices in the context of the owning
family’s complexities (Astrachan, 2010; Moog, Mirabella, & Schlepphorst, 2011).
Family firms’ strategies encompass the internal dynamics of the business and its
external environment, as well as the family’s interests, goals, succession issues, culture,
and relationships between siblings (Goel, Mazzola, Phan, Pieper, & Zachary, 2012).

Family involvement and influence in strategies do alter the goals set by firms,
such as the importance of incorporating sustainability (Brewton, Danes, Stafford, &
Haynes, 2010), and the relative importance of business. Although the importance of
strategy entrepreneurship has been highlighted, only a few scholars have focused on
the strategic entrepreneurship in family firms (Webb et al., 2010; Lumpkin et al., 2011;
Kansikas et al., 2012). The role of family business to economic growth is indeed
important, especially in Malaysia, as it contributes to the largest profit in economic
growth (Amran, 2011; Abdullah et al., 2011).

The first framework of strategic entrepreneurship within a family firm is

developed by Webb et al. in 2010. The framework is adapted from Ireland et al. (2003)
which consist of entrepreneurship mindset, balancing exploration and exploitation
activities and continuous innovation. The study discussed on how family involvement
affects the implementation of strategic entrepreneurship in firms. They proposed four
elements in entrepreneurship mindset such as identity, justice, nepotism and conflict.
Other than that, Lumpkin et al (2011) adopt the framework by Hitt et al. (2011) by
discussing the multilevel input-process-output (IPO) model in the context of family
firms. They further identified three themes for strategic entrepreneurship, which were
innovation as the central for entrepreneurship, opportunity identification as the
antecedents, and growth (financial and non-financial) as the outcome.

Meanwhile, Kansikas et al., (2012) suggested familiness as a resource for

strategic entrepreneurship in family firms. Familiness is a unique bundle of resources
where it involves the interaction between family members (Irava, & Moores, 2010;
Kansikas et al., 2012) and multigenerational participation in operating the business

214
through ownership (Dalpiaz et al., 2014), management, and governance (Irava, &
Moores, 2010). Moreover, familiness is a source of unique resources and competencies
that both provide and sustain competitive advantage (Memili, Eddleston, Kellermanns,
Zellweger, & Barnett, 2010; Barney, Ketchen, & Wright, 2011). Therefore, family
involvement plays an important role to determine the mindset and the actions of firms
(Webb et al., 2010).
On top of that, entrepreneurial mindset in family firms is a critical element to
ensure that the strategic entrepreneurship is implemented successfully in family firms
(Ireland et al., 2003; Ketchen et al., 2007; Webb et al., 2010; Kyrgidou, & Hughes,
2010; Hitt et al., 2011). Having entrepreneurial mindset is important in family firms
because it supports in managing firms and in capturing business opportunities in the
uncertain market. Moreover, Mc Grath and MacMillan (2000) posited that
entrepreneurial mindset consisted of alertness, real options reasoning, and opportunity
recognition in facilitating rapid sensing to both identify and exploit opportunities even
in highly uncertain market. However, Hitt et al., (2011) claimed that being alert is
insufficient to engage in strategic entrepreneurship. Besides, firms need to respond and
act quickly to economic changes and uncertain environment.

In fact, firms need to reflect their entrepreneurial culture to ensure proper

implementation of strategy, which involves exploring and exploiting the opportunities
(Kraus et al., 2011). “Entrepreneur culture is one in which new ideas and creativity are
expected; risk taking is encouraged; failure is tolerated; learning is promoted; product,
process, and administrative innovations are championed; and continuous change is
viewed as a conveyor of opportunities” (Ireland et al., 2003: 70). Therefore,
entrepreneurial culture is an important element in family business due to the unique
characteristics of family firms, which differ from the non-family firms (Lumpkin et al.,
2011; Kraus et al., 2011; Kansikas et al., 2012). Family firms are more likely to evade
the external financial resources and rely on their own capital (Barbera, & Moores,
2013).

According to Moss, Payne, and Moore (2014), family firms are more concerned
on their businesses continuity and more long-term orientation in their strategic
decisions compared to non-family firms. Nevertheless, family firms have been found
to face more challenges due to conflict of interest, nepotisms, issue of fairness, and
family identity itself (Kansikas et al., 2012). Therefore, as far as family firms are
concerned, familiness has been proven to give an impact to the strategic
entrepreneurship process by the ways it acquires and manages the resources (Kansikas
et al., 2012).

On the other hand, context is the main aspect of the firms’ success and survival
(Hitt et al., 2011; Lumpkin et al., 2011). Similarly, other studies carried out, for
instance, by Wright, Chrisman, Chua, and Steier (2014), also stated that the context
influenced stakeholders’ behaviors in family firms. In fact, four contexts applicable to
strategic entrepreneurship implementation in family firms had been identified,
including institutional environment or family as an institution, local conditions or
national culture and geography, ownership regimes or multigenerational involvement
and succession, and lastly, temporal considerations or planning horizons and business
life cycles (Lumpkin et al., 2011; Wright et al., 2014). Thus, contextual factors had

215
intensely influenced the strategic entrepreneurship process because they tend to be
unique to family firms.

The implementation of strategic entrepreneurship is different based on the size

of the firms. Ireland et al. (2003) states that resource constraint in small firms change
the strategic entrepreneurship process quite intensely. The resource constraints give the
different challenges for SMEs where they are facing more pressure in balancing the
exploration and exploitation resources compared to the larger firms (Ketchen, et al.,
2007; Kyrgidou & Hughes, 2010; Yang et al., 2014).Therefore, Yang et al (2014)
suggest small firms to ally with larger firms in exploiting the opportunities to achieve
high performance.

Nonetheless, a theory should be integrated in a strategic entrepreneurship

perspective for the development of family firms. As has been suggested by Barney
(1991), the resource-based view (RBV) has the potential in identifying new and
existing resources, as well as capabilities to ensure the family firms successfully sustain
in the market (Benavides-Velasco et al., 2013). Moreover, the RBV of the firms
features good performance to the capabilities and the resources owned by the firms.
Each firm has a different set of capabilities and resources to enhance superior
performance compared to others. Strategic entrepreneurship provides a way for settling
the issues faced by family firms and in encouraging for open and shared decision-
making. It is useful to determine how well the integrated dynamic resource capabilities
could enhance the competitive advantage of firms (Irava, & Moores, 2010).

3.0 CONCLUSIONS AND FUTURE RESEARCH

From the current research on strategic entrepreneurship, limited studies have focused
on the context of family firms. Studying family firms is vital as they contribute to the
largest profit in the Asian economic development. The literatures have presented the
emergence of strategic entrepreneurship, its importance, and how strategic
entrepreneurship is implemented in family firms. Since there are some distinctive
characteristics between family firms and non-family firms, strategic entrepreneurship
cannot be implemented equally between them. Hence, the paper reviews strategic
entrepreneurship and its relation to family firms. In the context of family firms, the
study on strategic entrepreneurship provides vital information to entrepreneurs and
educators to further enhance understanding on strategic entrepreneurship and to be able
to sustain in the market. For future research, the study should be further extended by
employing multiple case studies to increase more knowledge and understanding
pertaining to strategic practices in family firms.

216
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APPENDIX A

COMPARISON OF STRATEGIC ENTREPRENEURSHIP FRAMEWORKS

Ireland et al. Hitt et al. Ireland et al. Ireland & Web Ketchen et al. Kraus and Webb et al. Kyrgidou et al. Luke et al. (2011)
(2001) (2001) (2003) (2007) (2007) Kauranen (2010) (2010)
(2009)
Innovation Innovation Innovation Applying Continuous Collaborative Continuous Creativity and Combination of
creativity innovation innovation innovation innovation innovation
developing -Continuous
innovation flow
- Networks
Networks/ Networks External Variations in
Alliances Access to networks and organizational
resources Alliances activity, e.g.
Alliances
Mergers and
acquisitions
Internalization Internalization Internalization
Expansion

Resources/ Organizational Resources Managing Organizational Resources and Manage Developed

organizational learning Organizational resources structure capabilities resources expertise,
learning -Transfer of learning strategically -Decentralized strategically leveraging from
knowledge -Bundling routines core skills and/or
-Developing resources - Flexibility resources
resources -Leveraging - Learning transfer and
Capabilities resources application of
those skills
/resources to
create new
products, services,
markets
Growth Growth
-Stimulates
success and
change
Entrepreneurial Top Managerial Entrepreneur Entrepreneurial
leadership management mindset for leadership

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 teams and broader
governance capabilities -
-Effective Distinction
strategies between small
vs large firms
Entrepreneurial Entrepreneurial Organizational Organizational Entrepreneurial
culture culture and culture structure (as a culture
leadership -Valuing reflection of
-Innovation experimentation culture)
-Risk-taking -Acceptance of
-Vision uncertainty
-Tolerating
failure
Entrepreneurial Entrepreneurial Balancing Strategic Entrepreneurial
mindset mindset opportunity entrepreneur mindset
-Recognizing seeking and ial mindset
opportunity advantage (within
-Flexibility to seeking family
use appropriate behavior (Must control)
resources do both)
Exploration and Balancing Balancing Learning
exploitation opportunity of explorative and
seeking and exploration exploitative
advantage and
seeking exploitation
behavior
-Emphasis on
research and
development
Environment Environment
(as a reflection
of opportunities
identified)

Strategy Strategy
Competitive Competitive Competitive
advantage advantage advantage
Creating value/ Firm wealth Wealth creation Value creation Value creation Wealth creation
wealth

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Firm Firm
Performance performance
Context Family state-owned
business enterprise, New
Zealand

Kraus et al. Lumpkin et al. (2011) Wright et al (2012) Shirokova et al. (2013) Klein et al. Obeng et al Awang et al.
(2011) (2013) (2014) (2015)
Innovation Continuous
innovation
Resources/ Resources Individual, family and Select, structuring, bundling Internal resources, Public resources Firm resources Organization,
organizational capabilities organization resources and leverage resources knowledge-related Capabilities individual,
learning (input) (resource orchestration) resources and environment
Resource orchestration organizational learning
(process) (exploitation)
Growth Firm growth
Entrepreneurial Entrepreneur
leadership leadership
Entrepreneurial Organization
culture structure
Entrepreneurial Entrepreneur commitment Entrepreneurial - Entrepreneurial Entrepreneurial
mindset orientation and value mindset mindset
(exploration)
Exploration and Opportunity recognition - Balancing
exploitation exploration
Strategy Environment Development and Firm strategy
transitional changes
Competitive Strategy Credibility and Competitive
advantage/ sustainability advantage
sustainability
Creating Economic value and Value creation Wealth and value
value/wealth socioemotional wealth creation
Firm Create value Firm performance Economic
Performance transformation
Context Institution/family, Spin off university Russian SME Public Small firm, SME, Malaysia
national culture and organization Ghana
geography. Ownership,
temporal considerations

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