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ISSN 1582-2559

QUALITY
Access to Success Vol. 20, No. 168/ February 2019
 CONTENTS
Vol. 20, No. 168 - February 2019

QUALITY MANAGEMENT  Petr REHACEK,

 Peter MADZÍK, Ľudmila LYSÁ, Pavol BUDAJ,
Determining the Importance of Customer Requirements
in QFD – A New Approach based on Kano Model
and its Comparison with other Methods
 Alexandr GUGELEV, Anastasia GRISHNEVA,
Anzhelika SEMCHENKO, Margarita LUKYANENKO,
Modern Methods of Quality Control in Educational
Services based on ТQM
 Tatyana ODINTSOVA, Nataliya KOCHERJAGINA,
Olga GORDASHNIKOVA, Olga RYZHOVA,
Formation of Logistics Services Quality Management
Model
 Miriam ANDREJIOVA, Anna GRINCOVA,
Zuzana KIMAKOVA,
Quality Assessment of the Rubber-Textile
Conveyor Belts at the Dynamic Impact Loading
 Kirill Igorevich PORSEV, Marat Fatyhovich BULATOV,
Method to improve Information Assurance Quality
for Research and Development at Knowledge-based
Enterprises
 Gabriela PASCU (POPESCU),
Lavinia COSTAN (POPA),
Preventive Financial Control in Public Entities
 Shrikant Krupasindhu PANIGRAHI,
Hatem Mahmoud AL-NASHASH,
Quality Work Ethics and Job Satisfaction:
An Empirical Analysis
 Komal MALIK, Harsh VARDHAN, Vinitendra P. SINGH
Evaluating the Affect of Harmony between Consumer
Psyche and Brand on Customer Loyalty
in the Insurance Sector
 Nila TRISTIARINI, St. Dwiarso UTOMO,
Yulita SETIAWANTA,
The Capability of Risk as a Corporate Reputation
Driver to increase Market Value
 Egwu U. EGWU, Ama A. UDU, Livinus Okpara ONU,
Effects of Entrepreneurial Innovativeness on Firm
Performance
 Irina PCHELINTSEVA, Olga GORDASHNIKOVA,
Anastasia VASINA,
Methodologies and Tools of a Two-Phase Rating
System for Innovation Project Value Assessment
 Jaahnavi KOLA, Praseeda CHALLAPALLI,
A Study on Relationship between Emotional Intelligence,
Ethical Ideology, Job Performance and Employee
Engagement in Telangana Autonomous Engineering
Colleges
 Isfenti SADALIA, Ira Erminda DAULAY,
Lisa MARLINA, Iskandar MUDA,
The Influence of Intellectual Capital towards Financial
Performance with Brand Value as an Intervening
Variable
 Ika Nurul QAMARI, Julitta DEWAYANI,
Augusty FERDINAND,
Strategic Human Resources Roles and Knowledge
Sharing: How do Enhancing Organizational Innovation? 86
Risk Management as an Instrument
of the Effectiveness of Quality Management System 93
 MASKUDI, Christantius DWIATMADJA,
3 Ahyar YUNIAWAN,
The Mediating Effect of Commitment Team Goals
and Team Solidarity Capital in the Team Cohesiveness
toward Team Performance: At Book Publishing
Company in Central Java and Special Region of
16
Yogyakarta, Indonesia 97
 Naqib DANESHJO, Erika DUDÁŠ PAJERSKÁ,
Mirwajs DANISHJOO,
Energy Industry and Risk Management 103
21
ENVIRONMENTAL MANAGEMENT
 Daniela IVANOVA, Anelia HARADINOVA,
28 Elka VASILEVA,
Eco-Innovations in Bulgarian Companies
with Pro-Environmental Policy 107
 Iskandar MUDA, Elisa WAHYUNI,
33 An Analysis on the Effect of Environmental
Performance and the Implementation of Environmental
Management System (ISO 14001) on the Issuer
38 Financial Performance 113
 Amie KUSUMAWARDHANI, Kardison Lumban BATU,
Diana AQMALA, ANDRIYANSAH,
How Green should Trust, Norm
41 and Attitude be Colored? An Empirical Research
in Asian Market Consumers 118
 Leila BAKTASH, Muzalwana Abdul TALIB,
Enrica Donia, Selenia Piampiano,
48 Green Marketing Strategies: Exploring Intrinsic and
Extrinsic Factors towards Green Customers’ Loyalty 127
 Doina I. POPESCU,
Social Responsibility and Business Ethics.
54 IX. Green Management and Sustainable Development
of the Firm 135
62 FOOD SAFETY MANAGEMENT
 Erica VARESE, Alessandro BONADONNA,
Food Wastage Management: The “Una Buona
Occasione - A Good Opportunity” Contribution 139
69
 Maurizio LANFRANCHI, Agata ZIRILLI, Salvatore
ALFANO, Francesco SARDINA SPIRIDIONE,
Angela ALIBRANDI, Carlo GIANNETTO,
The Carob as a Substitute for Cocoa in the Production
of Chocolate: Sensory Analysis with Bivariate
73
Association 148
OCCUPATIONAL HEALTH AND SAFETY
MANAGEMENT
79  Zahra POURSAFAR, Sriram K.V.,
Lewlyn L.R. RODRIGUES, Nandineni Rama DEVI
Evaluation of Psychological Influences of Colour,
Lighting and Form in Office Buildings for Enhancing
Productivity 154

2 Vol. 20, No. 168/ February 2019 QUALITY

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 QUALITY MANAGEMENT

Determining the Importance of Customer Requirements in QFD

– A New Approach based on Kano Model
and its Comparison with Other Methods

Peter MADZÍK1*, Ľudmila LYSÁ1, Pavol BUDAJ1

1Department of Management, Catholic University in Ruzomberok, Poprad, Slovakia
*Corresponding author: Peter Madzík, Assistant professor, Department of Management, Catholic University in Ruzomberok,
Nabrezie Jana Pavla II., c. 15, 058 01 Poprad, Slovakia; E-mail: peter.madzik@gmail.com

Abstract

Quality Function Deployment (QFD) is currently one of the most popular tools to use when designing a new product
or improving an existing one through its attributes. Within the set of matrices that make up QFD, one of the first steps
is to identify customer requirements and determine their importance. The methods that are used most frequently to
determine the importance of customers’ requirements are those that operate with crisp numbers – point direct scoring
(PDS) and analytical hierarchy process (AHP). There are also several well-known approaches based on the Kano
Model which usually achieve greater accuracy –Tan and Shen method (TSM) or Berger index modified by Tontini
adjustment factor (BITAF). The present paper presents a new way of determining the importance of customer
requirements – the T4 approach. The new approach take account of the effect of fulfilment or non-fulfilment of a
particular requirement on customer satisfaction or dissatisfaction as well as the class of individual requirements and
their effect on the improvement ratio. The approach is validated by questionnaire-based research. In conclusion, the
paper compares the results achieved by five methods for determining the importance of customer requirements –
PDS, AHP, TSM, BITAF and T4.

Keywords: quality function deployment; customer requirements; importance; methods; product design; quality
engineering.

1. Introduction steps in QFD. A comparison of the results of the application of

The Quality Function Deployment (QFD) method was first
introduced in the late 1970s (Akao, 1990) and it is now ranked
as one of the most extensively used integrative approaches
supporting a better understanding of customer requirements.
This somewhat technocratic approach is intended to determine
the parameters of a “better product” – a product that meets
customer requirements in a greater extent. It is a method which
allows the psychological/non-technical aspects of quality (voice
of customers) to be linked to the technical aspects (voice of
engineers) (Violante, 2015). One of the crucial factors for the
proper use of QFD is the correct identification and under-
standing of importance of customer requirements. Practical
experience also shows that the determination of importance is
the most critical step in adequate QFD utilization because it
influences all the following steps (Nahm, 2013). Several
methods have been developed for the explicit and implicit
determination of the importance of customer requirements with
varying levels of accuracy. Accuracy is important because the
less inaccuracy there is in determining customer requirements
importance, the higher the probability that QFD will not only be
verified but validated as well. Although the literature includes
several studies comparing different methods for determining the
importance of requirements in QFD, they nearly always com-
pare just two at a time. It is only possible to assess the accuracy
of the methods that are included in the given study. At the same
time, accurately expressing the importance of customer
requirements is a critical factor that affects all the subsequent
multiple methods would ensure better-informed decisions when
selecting appropriate methods for determining the importance of
customer requirements in the design or the redesign of pro-
ducts. The present paper sets out to fill this research gap and
discusses the methods for determining the importance of re-
quirements with the aim of understanding voice of customer
better. This study includes a comparison of four existing me-
thods for determining the importance of customer requirements
alongside one newly developed method.
2. Literature Overview
2.1. Quality Function Deployment
The original Japanese name for QFD was “hin shitsu ki no
ten kai”, in which hin shitsu means quality or feature/attributes,
ki no means function or mechanization and ten kai means
deployment, diffusion, or development (Chaudha, 2010). This
method became popular after its successful application in the
automobile industry in the 90s and was gradually refined in the
areas of product design improvement, achievement of maximum
customer satisfaction or support for decision-making processes
(Kuo, 2012). QFD is a method which helps translate customer
requirements (CRs) into technical requirement (TRs). This
translation is realized by four sets of matrices. The first matrix –
product planning matrix – translates CRs into TRs, the second
one – part planning matrix – translates important TRs into
product/part characteristics, the third one – process planning

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 QUALITY MANAGEMENT
matrix – translates important product/part characteristics into
manufacturing operations and the fourth one – production/
operation planning matrix – translates important manufacturing
operations into day-to-day operations and controls (Delice,
2013). The first matrix is sometimes called the House of Quality
(Hauser, 1988; Song, 2014). It consists of seven phases.
Identification and assessment of requirements within QFD
has two aspects. The qualitative aspect – voice of customer is
handled in phase 1, where customer requirements (needs and
expectations) are identified using a range of techniques. The
quantitative aspect – voice of customer includes determination
of the priority level (phase 2) usually by simple calculations
considering competitive performance (phase 3) (Tan, 2000).
Phases 4 to 7 focus on technical requirements and their rela-
tionships with each other and with the CRs. Determination of the
overall importance of CRs is very demanding because it
depends on the psychometrical evaluation of the internal state
of a customer which is typically vague and inaccurate (Nahm,
2012; Chen, 2008; Lee, 2008). Assessment of importance is
rather like “estimation of one’s own feeling” and it cannot be
stated unambiguously that a customer can assess the
importance of CRs (Afshan, 2013). Some studies have shown
that that customers consider almost everything to be important
or even very important (Garver, 2003; Tontini, 2007; Wang,
2012) and in the end, there are only minimal differences
Figure 1. Standard calculation of CRs’ importance in QFD; Source: (Tan, 2000)
Since its establishment, QFD has undergone various mo-
difications, some of which have been aimed at increasing the
accuracy with which the method determines importance.
Methods that have proved themselves to be feasible (from the
point of view of the demands for calculating a CR’s importance)
include, besides the established point direct scoring method
(Hauser, 1988; Griffin, 1993), analytical hierarchy process
(Chuang, 2001; Li, 2009; Li, 2010), and several methods based
on the principles of the Kano Model (Tan, 2000). These methods
will be summarised below.
It should be noted that apart from the above mentioned
methods there are other sophisticated approaches to deter-
mining importance but their application is more complicated – so
it is possible to meet with methods based on fuzzy logic (Chen,
2005; Chen, 2008; Kwong, 2011), on various modifications of
linear programming (Delice, 2013; Ji, 2013), outranking method
(Franceschini, 1995; Ji, 2014), maximal deviation method (Li,
2010), rough set theory (Song, 2014), or competitive priority
4 Vol. 20, No. 168/ February 2019
between the values determined for CRs’ importance. From the
methodological point of view, however, determination of CRs’
importance is a critical factor since all the subsequent phases of
QFD take it into consideration and it influences the determi-
nation of target TRs’ values (Nahm, 2013).
2.2. Determination of CRs’ importance in QFD
The standard QFD methodology calculates CRs’ importance
by combining several factors, the first of which is the explicit
determination of a particular CR’s importance, which is some-
times referred to as “raw importance” (Tan, 2000) or “basic
importance ratings” (Nahm, 2013). Next, a customer carries out
a competitive analysis, where they assess the “quality” of our
product and those of our competitors, usually on an integer
scale from 1 to 5. Based on this competitive benchmarking, a
target value is determined, which represents the level of
fulfilment of a specific CR, again on a scale from 1 to 5
(Chaudha, 2010; Nahm, 2013). Then an improvement ratio is
calculated by dividing the company target by the current
company score. Final importance is determined by combining
the raw importance with the improvement ratio (Tan, 2000;
Chaudha, 2010; Afshan, 2013). Final importance is usually
converted to relative importance, which represents the CRs’
importance differences more clearly – Figure 1.
ranking methods like sales point method (Li, 2009) or entropy
method (Chan, 1999). However, having regard for the aims and
scope of the present paper, it was decided to limit our research
to the methods described below, which work with crisp numbers.
2.2.1. Explicit determination of CRs’ importance
based on raw importance
In these approaches, the customer gives an explicit assess-
ment of the importance of each CR. The data resulting from this
assessment are then processed according to various methods
to determine final importance.
Point direct scoring (PDS)
This is one of the most frequently used methods for deter-
mining a CR’s importance. This method is based on utilization of
a numerical or sometimes a verbal scale, on which customers
directly assess the importance of each CR. The higher
importance a customer gives to a CR, the higher the value that
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 QUALITY MANAGEMENT
it is assigned on the scale. The usual range of such a scale is
from 1 to 5 points (Baki, 2009; Kuo, 2012), but there is also a
more finely detailed scale 1 to 7 (Lai, 2007; Delice, 2011). The
average score of each CR is its raw importance value. Final
importance is then calculated using the competitive analysis
described above.
Analytical hierarchy process (AHP)
This method was developed in the 1980s (Saaty, 1980) and
reflects the assumption that individuals are better able to
determine importance of an item when they compare just two
items with each other and not the whole set at the same time
Figure 2. Determination of CRs’ importance using AHP
Source: modified by (Song, 2014)
2.2.2. Explicit-implicit determination
of CRs’ importance using the Kano Model
Several of the aforementioned methods assume indirectly
that if fulfilment of a CR with high importance goes up, customer
satisfaction will also rise notably with this CR. But in fact, this
assumption is wrong (Nahm, 2013). The opposite of high
satisfaction is not high dissatisfaction but low satisfaction, as
was empirically demonstrated by Herzberg Mausner and
Snydrman (1959) in one of their best-known studies. This idea
was developed by a group of Japanese authors into the Kano
Model (Kano, 1984). The Kano Model explains the relation
between customer dis/satisfaction and a specific CR’s degree of
fulfilment. Graphically the model represents three main cate-
gories of requirements – attractive, one-dimensional and must-
be. “Attractive” CRs strongly affect satisfaction (they do not
affect dissatisfaction), “one-dimensional” CRs influence both
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(Bhattacharya, 2005; Dai, 2012). As the number of items rises,
the number of couples goes up rapidly, and therefore, this
method is better suited to situations with a relatively low number
of items. To assess the importance of individual couples, AHP
uses a numerical linguistic scale from 1 (Equally important),
through 3, 5, 7 to 9 (Extremely important) (Ji, 2014). An example
can be seen in figure 2. This method and variants have been
used in several studies of the determination of the importance of
CRs in QFD (Lee, 2010; Nahm, 2012). As with PDS, AHP and
its variants are usually used to determine a raw importance
score for further processing in later steps of QFD.
satisfaction and dissatisfaction equally and “must-be” have the
strongest effect on customer dissatisfaction. Since its first
publication, the Kano Model has gone through several modi-
fications and another three categories have been added:
reverse, indifferent and questionable (Shahin, 2013). A “reverse”
CR is an unwanted requirement (the opposite of one-
dimensional), an “indifferent” CR is a requirement which has
absolutely no effect on dis/satisfaction and “questionable” is
assigned when a respondent gives an invalid response.
Without understanding this non-linearity between the rate of
CR fulfilment and customer satisfaction, practitioners of QFD
may take a wrong decision as to which CR should be improved
or offered to increase customer satisfaction (Afshan, 2013). This
is one of the reasons why more recent studies have sought to
integrate the Kano principle into QFD for developing a new
product or redesigning an existing one (Baki, 2009; Yeh, 2012;
Kuo, 2012). They mostly combine an explicit form of raw
Figure 3.
TSM approach to
the determination
of CRs’
importance
Source:
(Tan, 2000)
5
 QUALITY MANAGEMENT
importance determination with an implicit one based on Kano
principle with the aim of calculating a CR’s total importance. The
Tan and Shen Method is the most frequently used of these.
Tan and Shen Method (TSM)
One of the first studies to integrate the Kano principle into
QFD was developed by Tan and Shen (2000). This integration
was achieved by modifying the procedure used to calculate the
improvement ratio (IR). The authors of this study suggested the
calculated IR should be adjusted to reflect the Kano category of
the requirement; IRadj = (IR0)1/k, where IRadj is the adjusted
improvement ratio, IR0 is the original improvement ratio and k is
an adjustment factor – called the “Kano parameter” (Tan, 2000;
Chaudha, 2010). The value of k is subjective and is left to the
discretion of design engineers (Afshan, 2013), but the creators
of the method suggested a value of 0.5, 1 and 2 for must-be,
one-dimensional and attractive CRs respectively (Tan, 2000) –
Figure 3. They thus added an additional element in the evalua-
tion of CRs’ importance.
Later modifications of this approach used similar discrete
values for the k parameter (Tan, 2001; Tontini, 2007). The logic
of the approach remained unchanged since the requirements of
must-be type raise the value of IRadj against IR0, requirements
of one-dimensional type preserve IR and requirements of attrac-
tive type cause IRadj to fall compared to IR0.
2.2.3. Implicit determination of CRs’ importance
based on the Kano Model
It is also possible to determine CRs’ importance indirectly
using an approach based on the consequences resulting from a
requirement’s fulfilment or non-fulfilment. The Berger Index is
among the best-known approaches and was further developed
in Tontini’s work on implicit importance determination.
Berger Index and Tontini Adjustment Factor (BITAF)
Requirements are categorised per the Kano Model
methodology using an “evaluation sheet” which allows a total of
Figure 4. Example of SI/DI plot and Tontini adjustment factor
Source: own
2.3. Development of the Kano Model
and its potential in QFD
The logic of the Kano Model is based on the different effects
of fulfilment or non-fulfilment of a CR on customer satisfaction.
For this reason, utilization of the Kano principle is nowadays
considered to be the more accurate way to determine the
importance of a CR (Tan, 2000; Tontini, 2007). On the other
6 Vol. 20, No. 168/ February 2019
5 valid categories of requirements (must-be, one-dimensional,
attractive, reverse and indifferent) and one invalid category
(questionable), which is irrelevant. Of the five valid categories of
requirements there is one that has a negative character –
reverse – and is not taken into consideration in product de-
velopment (Shahin, 2013). The four remaining categories were
used by Berger (1993) to calculate two indexes – Satisfaction
Index (SI) and Dissatisfaction Index (DI) for each CR.
Ai + Oi
SIi = (1)
Ai + Oi + Mi + Ii
Mi + Oi
DIi = - (2)
Ai + Oi + Mi + Ii
where A, O, M and I stand for the count of attractive, one-
dimensional, must-be and indifferent CR (Violante, 2015).
Values of SI can range in the interval <0;1>, where the higher
the value, the stronger the effect of a specific CR on customer
satisfaction. DI values range in the interval <-1;0>, whereby the
lower is DI value the stronger is the effect of a specific CR on
customer dissatisfaction. A CR which achieves 0 value is
indifferent and its fulfilment or non-fulfilment does not affect
either customer satisfaction or dissatisfaction (Chaudha, 2010;
Violante, 2015). The literature includes cases where an SI/DI
plot is constructed (Figure 4), which depicts the level of
satisfaction/dissatisfaction resulting from the fulfilment/non-
fulfilment of individual CR using a graph. Tontini’s work (2007)
develops the Berger index by incorporating an Adjustment factor
enabling determination of the importance of CR – formula 3.
Adjustment factor (importance of CR) = Max (|SI| ; |DI|) (3)
In this approach, different categories of CRs can be awarded
same weightage. For example (0.75 , 0.25) will fall under must-
be category and (0.75 , 0.65) will be under the one-dimensional
category, but in both of these cases the adjustment factor and
also the importance of the CR will be the same 0.75 (max. of
SI/ DI) (Chaudha, 2010).
hand, studies dealing with the Kano Model point out one
characteristic which influences the overall accuracy of this
method. A weakness of the Kano Model is that it categorises
each CR to one of the five categories (A, O, M, I, R) based on
the mode. A recent study looking at this methodological
weakness proposed a solution in the form of the “Type 4 Kano
Model” – Figure 5.
In this variant of the model, it is possible to calculate the
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 QUALITY MANAGEMENT
Figure 5. Kano Model – a) standard Kano Model; b) Type 4 Kano Model
Source: own
precise effect of a specific CR on customer satisfaction, and
based on this calculation also determine the position of the CR
in a system of coordinates for performance/satisfaction. In this
way, specific CRs are not limited to five possible positions (A, O,
M, I, R – decision based on mode), but have an infinite number
of potential positions. It allows requirements to be prioritised and
the performance of further processing. The position of individual
requirements can be determined based on the kr coefficient
(Kano raw coefficient), whose value is in the range <-2;3>. The
kr coefficient is calculated as a weighted average, which is
applied to all requirements (Madzík, 2016).
Utilization of the Kano Model in determining CRs’ importance
provides greater accuracy even though the standard Kano
Model has the aforementioned deficiency in accuracy. The Type
4 Kano Model eliminates this fault and so it is reasonable to
hypothesise that integration of this principle into QFD can
increase the overall accuracy in the determination of CRs’
importance. Before this can happen, two key elements affecting
accuracy must be addressed. The first one is the determination
of raw importance and the second one is the Adjusted
improvement ratio.
The aim of the present study is to consider the two elements
in a comprehensive proposal of a new way to integrate the Kano
Model into QFD and compare this way to other commonly used
approaches for determining CRs’ importance.
3. Research methodology
The present research can be divided into 5 phases, each of
which is summarized in an individual section (2 to 6). The project
began with a review of relevant literature on the topic of
determining importance in QFD; this was summarised in section
2 together with the analysis of the main methods used to
determine CRs’ importance. The present section 3 describes an
approach for integrating the Type 4 Kano Model into QFD focu-
ssing on two main areas – the determination of raw importance
and determination of the improvement ratio. Subsequently,
section 4 describes the design of a case study including a data
collection method for empirical research. The case study was
designed to allow the collection of all information necessary for
utilization of the most frequently used methods for determining
CRs’ importance. An analysis of the results including a com-
parison of the proposed approach with existing methods for
determining CRs’ importance is presented in section 5. The
results of the analysis opened opportunities for their interpre-
tation – discussed in section 6. For the purposes of the present
paper, the proposal based on the Type 4 Kano Model is referred
to as the “T4 approach”.
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Access to Success Vol. 20, No. 168/ February 2019
3.1. Proposal for determining raw importance
under the T4 approach
Whether a QFD implementation utilizes the Kano Model
principle or not, the determination of CRs’ importance is vital for
execution of the subsequent QFD phases. This importance is
often determined explicitly by a customer. As mentioned above,
such self-assessment is often imprecise and the result is often a
finding that “all CRs are important for a customer” (Tontini, 2007;
Wang, 2012). Nevertheless, the integration of the Kano Method
into QFD requires the determination of CRs’ raw importance.
But if the logic of the Berger index used to determine raw
importance is combined with the Type 4 Kano Model, it becomes
possible to determine the importance of specific CRs, without
their direct assessment by a customer. Because the Berger
index indirectly uses the assumption that what is important for
customers is what has major effects on their satisfaction or
dissatisfaction. This means importance can be derived from the
maximum size of the effect of a specific CR on customer
satisfaction or dissatisfaction. Figure 6 illustrates this logic in
graph form.
If the system of coordinates, in which the Kano Model is
plotted, is displayed in terms of standard x/y plotting, then limits
of the system on the x axis are determined by the interval
< Fmin ; Fmax > and the limits of the system on the y axis by
interval < Dmax ; Smax >, where F is the degree of fulfilment of
the CR; S is customer satisfaction and D is customer
dissatisfaction – Figure 6 part a). The value of raw importance is
determined by the content of the area which is made by a curve
of a given CR and the zero level (zero satisfaction and at the
same time zero dissatisfaction). The principle here differs
slightly from the case of the Berger index. While requirements in
the Berger index have the same weight in the numerator
(formula 1 and 2), the present work proposes that their effect on
the satisfaction or dissatisfaction index should be different. The
resultant effect of a type of requirement on satisfaction or
dissatisfaction is defined by the total area (sum of individual
areas) which is covered for a specific CR by all responses. If the
system of coordinates was divided into 4 quadrants, then the
rate of satisfaction is located in quadrants Q1 and Q2 and the
rate of dissatisfaction in quadrants Q3 and Q4. The area made
by a specific CR and zero level can be calculated. An indifferent
CR (part a) of figure 6) is placed on the zero level and has no
effect on customer satisfaction or customer dissatisfaction. An
attractive CR takes the whole of quadrant Q2 and a part of the
Q1 quadrant. An attractive CR does not cause any customer
dissatisfaction and that is why the area for dissatisfaction is
equal to zero for this type of requirement. An identical approach
can be followed for a one-dimensional CR, for which the area of
the space between it and the zero level in quadrant Q2 is a
7
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Figure 6. Proposed logic of determination of CR raw importance;

Source: own

quarter of the whole space of customer satisfaction (Q1+Q2).
The logic for determining area remains unchanged also for a
reverse CR. A must-be CR has no effect on customer satis-
faction but has quite a strong effect on customer dissatisfaction.
The total effect of a requirement on both satisfaction (S) and
dissatisfaction (D) is calculated according to formulas 4 and 5.
(4)
(5)
Examples of various types of requirements are shown in
parts a) b) c) d) and e) of figure 6 (different kr) together with the
area that they cover. Calculating the raw importance of a CR by
this method does not require direct assessment of the CR’s
importance for the customer. This means that it is an implicit
approach to determining the value of an individual CR’s
importance. The presented process eliminates the risk that all
CRs will have very similar raw importance values. The process
does not depend on direct (subjective) consideration of
importance from the customer’s point of view but is based on an
evaluation of the overall effect that the degree of fulfilment of the
CR has on customer satisfaction or dissatisfaction.
3.2. Determining the adjusted improvement ratio
under the T4 approach
The integration of the Kano Model into QFD in Tan and Shen
(2000) depends on what the authors refer to as the Kano

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parameter k. All attractive requirements have a value of k=0.5,
all one-dimensional requirements have k=1 and all must-be
requirements have k=2. This Kano parameter is then used as
an exponent to calculate the adjusted improvement ratio in the
formula: IRadj = (IR0)1/k, as was presented earlier. Tan and Shen
(2000) underline that the given values are only a suggestion and
that other researchers may set different values of the k parameter.
However, the new approach to categories calculation proposed
by the Type 4 model assumes that there are not just 3 or 4
strictly determined categories but that requirements can take
any position in the Kano Model. This position is defined by the
kr parameter. If the k parameter were replaced in the formula for
IRadj by the kr parameter, it would provide two benefits for
accuracy. The first one would be more accurate determination of
IRadj. Since the kr values of each requirement usually vary, the
effect of a requirement on satisfaction is given very precisely
when kr is used. The second benefit is avoiding extreme effects
resulting from must-be requirements. Using the parameter k=0.5
means that a CR of must-be type has an exponential effect on
IRadj. The calculation of the adjusted improvement ratio begins
with the step shown in formula 6 (Madzík, 2016).
(6)
where kr is the value of the ‘raw’ Kano parameter k for the CR;
i is the number of Kano categories, ni is the number of valid
responses which put a requirement into a given category, l is the
categorisation parameter (for A l = 3, for O l = 2, for M l = 1, for
R l = -2, for I l = 0), and n is the overall number of valid
responses (respondents). The kr parameter is incorporated into
the formula for calculating the Adjusted improvement ratio (IRadj)
as follows:
IRadj = (IR0)2/kr (7)
where IR0 is a standard Improvement ratio between the target
and actual value of a given CR and kr is the Kano raw
parameter. The difference between the standard TSM approach
and this method is in the exponent which is used for the IRadj
calculation. The steep incline of the Attractive requirement is
reduced and at the same time the incline of Must-be
requirements is made steeper, an approach that has been
applied in previous studies (Tan, 2001; Terzakis, 2012).
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4. Case study
This section describes a case study which was used to
validate the T4 methodology. Several previous studies which
dealt with integration of Kano methodology to QFD were used in
the “good web pages” example (Tan, 2000; Chaudha, 2010).
This example has already been shown to be illustrative enough
to enable trouble-free data collection from respondents and to
be adequate for analytical options. For this reason, a similar
case study was selected. It employs a universal procedure that
can be applied in any manufacturing or service industry.
The case study designed to validate the method is based on
the assessment of CRs for “e-shops web pages”. The list of CRs
to be analysed was partly inspired by previous studies but was
extended by other CRs relevant to the specific issue. The final
list for the study consisted of 14 CRs:
• CR_no.01: Sufficient necessary information on e-shop
web page
• CR_no.02: Graphic design of e-shop web page
• CR_no.03: Appropriate placement of information on
e-shop web page
• CR_no.04: Appropriate animations on e-shop web page
• CR_no.05: Links to producers’ sites, expert portals, etc.
• CR_no.06: Quick loading of e-shop web page
• CR_no.07: Attractive first impression of the web page
• CR_no.08: Multilanguage support
• CR_no.09: Appropriate advertisement on e-shop web page
• CR_no.10: Legibility of text on e-shop web page
• CR_no.11: E-shop web page containing customers’
reviews
• CR_no.12: Appropriate display of e-shop web page on a
mobile phone
• CR_no.13: Discount opportunities for the e-shop’s loyal
customers
• CR_no.14: Interaction of e-shop web page with social
networks
Data was collected using a questionnaire that combined
items from Kano Model-based questionnaires (Witell, 2007) and
standard questionnaires for the measurement of customer satis-
faction (Hrnčiar, 2014). The questionnaire consisted of four parts
– figure 7.
Figure 7.
Questionnaire
integrating
reviewed
methods –
illustrative
example
Source: own
9
 QUALITY MANAGEMENT
Part I of the questionnaire consisted of 14 pairs of questions
(functional, dysfunctional) – one pair for each CR. This part was
used to determine the CRs’ requirement categories. This is a
necessary step in the BITAF, TSM and T4 methods. Part II of the
questionnaire contained 14 questions using the procedures of
the PDS method for determining importance. The data collected
in this part was used in applying the PDS method and a portion
of TSM. Part III was the most extensive one and included a total
94 pairs of CRs in which the respondents determined impor-
tance using the AHP method. Part IV of the questionnaire
focused on determining customers’ satisfaction with the three
most frequently used e-shops in the author’s country of origin.
Apart from their overall satisfaction with the e-shop web pages,
the respondents expressed their attributive satisfaction with each
of the 14 reviewed CRs. This part is necessary to determine the
improvement ratio, which is one of the elements used in
determining an attribute’s importance. The questionnaire as
described above provided uniquely comprehensive information
enabling the application of all the reviewed methods for de-
termining the importance of individual CRs. The target group
was people who shop on the Internet and are familiar with
existing e-shops so the results are relevant.
After processing the results for part IV of the questionnaire
(Figure 7) it was possible to identify performance in individual
CRs, own company (company1), and competitors (company 2
and company 3) and then determine the improvement ratio.
Figure 8 shows how the proposed T4 method can be
incorporated into a QFD planning matrix for determining the
importance of CRs.
The results obviously show that CR_no.08 – percentage
importance 14.1 – will have a critical effect on customer
satisfaction. The importance of the other CRs is lower and
ranges between 5.4 and 8.2. At the same time, it is evident how
IRadj differs from IR. In our case, the adjustment is relatively
small, but it can be explained because the kr of most
requirements was close to the value 2.0, which represents a
One-dimensional CR. A One-dimensional CR preserves IRadj
value because the rate of improvement is directly proportionate
to the rate of satisfaction.
In comparison to previous approaches, this approach is
relatively original because it does not require customers to
determine the importance of a specific CR themselves.
Importance is calculated based on the effects of fulfilment or
non-fulfilment of the CR. A clearer idea of the informative value
of the proposed approach can be obtained by comparing its
results with the results obtained using four other approaches
10
5. Results
Results were processed from a total of 74 valid respondents’
responses. When the results were processed, it was possible to
determine and compare the importance assigned to the CRs by
each of the reviewed approaches.
5.1. Determination of CRs’ importance
using the T4 approach
The method described in section 3 allows the raw im-
portance and adjusted improvement ratio to be determined only
in an implicit way. Table 1 shows the results of determination of
raw importance of individual CRs. Total valid responses included
all the responses apart from questionable CRs. The effect of a
requirement on satisfaction (S-area) or dissatisfaction (D-area)
was calculated using formulas 4 and 5. After that, the higher
value of effect was chosen according to the Tontini approach
and this became the nominal raw importance of the specific CR.
Due to the fact that in QFD raw importance is usually de-
termined on a scale 1 to 5, the values for raw importance were
converted to a 1 to 5 scale. The value of kr for calculation of the
adjusted improvement ratio was determined using formula 6.
Table 1.
Determination
of CRs’ raw
importance and kr
calculation
that have been proposed for determining CRs’ importance in the
past.
5.2. Comparison of results of determining CRs’
importance using the PDS, AHP, BITAF, TSM
and T4 approaches
It is very rare to find a comparison in the literature between
the results produced by several methods for determining CRs’
importance. The usual reason is that approaches must be
applied to the same case (product) and used with the same
target group (identical respondents). In this study, the barrier
was eliminated by designing a general questionnaire that
allowed all relevant information to be collected for application
not only of the proposed T4 approach but also another four of
the most frequently used methods – PDS, AHP, TSM and BITAF.
The results are shown in figure 9.
The results show that the proposed T4 approach produces
considerably different results from the other procedures.
Although in some requirements, the results show minimal
difference, in others the difference stands out strongly. Two
requirements are shown as example.
Under the T4 approach, the highest importance was calcu-
lated for CR_no.08, but another three approaches assigned
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Figure 8. Matrix for determination of CRs’ importance incorporating the T4 method; Source: own

Figure 9. Comparison of suggested T4 approach to other approaches; Source: own

relatively low values to this CR and TSM gave a value of zero,
since this requirement was classified as “Indifferent”. We will
take a closer look at requirement CR_no.08. The value of raw
importance based on the T4 approach was 3.98 (figure 8) but
this is not the reason for the sharp importance increase. The
comparison with competitors found that the second competitor
fulfilled this requirement much better (value 4.07, while the value
of our organization was only 2.03). This was reflected in the high
value in the Improvement ratio. But the overall importance value
was also affected by the requirement’s categorisation under the
Kano model. Under the T4 method, the requirement’s kr
coefficient is 1.61. It indicates a requirement somewhere in the
area between “Must-be” and “One-dimensional” – a requirement
whose (non-)fulfilment will have high effect on dissatisfaction
and a slight effect on satisfaction – the effect on dissatisfaction
is higher than on satisfaction. It logically follows from this that if
an organization does not assign high importance to this CR
(does not deal seriously with its fulfilment) the level of customer
dissatisfaction will remain practically unchanged compared to
current performance. Increasing performance for this CR will

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 QUALITY MANAGEMENT
reduce customer dissatisfaction. This is the logical reason why
this CR should have a high level of importance.
The second different result is CR_no.01. Its value of im-
portance was 5.8 under the T4 approach but the other four
methods gave higher values. We can look into the nature of this
requirement in more detail. The raw importance determined
using the T4 method was 3.81 (figure 7). The highest per-
formance in competitive analysis was achieved by the second
competitor (value 3.95), but performance in our organization
was comparable (value 3.86), which gave rise to a relatively low
Improvement ratio. The coefficient kr is 2.03, and it almost
exactly represents the category “One-dimensional” – so any
improvement in performance will achieve equivalent growth in
customer satisfaction (the effect on dissatisfaction is almost the
same as on satisfaction). Since our organization “almost
achieves” maximum performance in this CR, it is not necessary
to pay attention to it in product improvement (because it only
minimally affects satisfaction). This is the logical reason for the
assignment of relatively low importance to this CR under the T4
approach.
5.3. Testing the accuracy of methods
Accuracy is related to the deviation of the measured value
from the real value (Hrnčiar, 2014). The smaller this deviation,
the greater the accuracy. To make such a comparison, there
needs to be a benchmark (etalon) for the studied parameter – a
reference value against which the measured value can be
assessed. For parameters of a technical nature, establishing
Figure 10. Assessment of a method's accuracy (one customer and one e-shop); Source: own
Table 2. Main statistical characteristic of method's inaccuracy
12
such etalons is not so complicated, especially if very precise
measuring instruments are used. It is much more difficult to set
a etalon for the parameter of "satisfaction" because it is
necessary to know the actual value of satisfaction. This is a
parameter of a psychological nature and it is not possible to
"measure" it precisely. Some studies have approached the
determination of satisfaction indirectly, for example through linear
programming (Delice, 2013). In the present paper, the etalon is
taken as the value of the customer’s evaluation of overall satis-
faction. It is assumed that when customers express their overall
satisfaction, they express the aggregate of the extent to which
individual requirements have been satisfied (Hrnčiar, 2014).
Another approach that is used to measure satisfaction in
practice is the Customer Satisfaction Index (CSI) (Wang, 2016).
The CSI is calculated by aggregating the satisfaction levels and
importance levels of the individual attributes that combine to
make up customer satisfaction. When importance or satisfaction
changes for one of the attributes, the CSI also changes.
The present study determined overall satisfaction using a
single method, PDS (in part IV of the questionnaire). A CSI score
was determined using 4 existing methods and 1 newly proposed
method. By comparing the CSI value calculated by the various
methods against the etalon value (overall customer satisfac-
tion), it is possible to assess the accuracy of the different
methods. The lower the absolute value of deviation from the
etalon (overall satisfaction) of the CSI calculated using a deter-
mined value, the greater the accuracy of the given method. The
basic scheme for assessing accuracy is shown schematically in
Figure 10.
Figure 11. Distribution of CSI deviations from the etalon
(overall satisfaction); Source: own
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The respondents expressed their satisfaction with three
subjects. There were 74 respondents, which meant that a total of
222 inaccuracy values were obtained for each of the 5 methods.
Selected indicators of the extent and variability of their
inaccuracy in relation to the benchmark are set out in Table 2.
The indicator of average inaccuracy suggests that the T4
method is the most accurate. The more important measure of
standard deviation also supports this approach as being the
most accurate. The difference from the other methods is not
large though and therefore the distribution of data was
investigated. The results are shown in Figure 11.
As Figure 11 shows, all five methods had a normal dis-
tribution of deviations from the etalon. The BITAF method had
the largest number of "direct hits". An analysis based on des-
criptive statistics told a different story, however. To determine the
definitive status of the accuracy of all the methods, variability
was analysed in percentiles. The inaccuracy of all five methods
was analysed based on lower and upper percentiles. The lower
the difference between the upper and lower percentile, the more
accurate the method. In each round, a pair of percentiles were
calculated to determine the width of the method’s limits. For
example, the analysis of the inaccuracy calculated for PDS was
-41.78 in the 1st percentile and 25.33 in the 99th percentile. The
width between them was 67.11. The second pair calculated
were the 2nd percentile, where inaccuracy was 30.90 and the
98th percentile, where inaccuracy was 16.44, and therefore their
width was 47.42. This continued to the last pair of percentiles:
the 49th and the 51st. The same procedure was used to cal-
culate widths for AHP, BITAF, TSM and T4. The widths were then
compared and presented as a percentage graph – Figure 12.
The methods showed different accuracy at different
percentile intervals. The proposed method, T4, was the most
accurate of the tested methods between the 2nd:98th percentile
interval and the 30th:70th percentile interval (marked with a star
in Figure 12). After a short period of alternation between PDS
and BITAF, the BITAF method became the most accurate
method from the 37th:63rd percentile interval to the last possible
interval (49th:51st).
Figure 12. Distribution of CSI deviations from the benchmark
(overall satisfaction)
6. Summary and discussion
The professional literature does not include many examples
of experimental testing of the methods used to determine the
importance of customer requirements. It cannot be denied that
researchers have tried to find new ways to solve this problem
but validation of methods has always been somewhat lacking.
The aim of the present study is to present a new method for
determining the importance of CR and to compare its accuracy
with existing methods.
The main research limit is the sample size. The presented
results could be tested or made more accurate by follow-up
research based on a larger sample. Another limit is the content
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of the questionnaire, which focused on the evaluation of the
importance of CRs relating to e-shop websites. The research
included 14 CRs, most which were classed as One-dimensional
under the standard Kano method. It is possible that the accuracy
of the methods would differ if the composition of the CR group
were different. The following summary should therefore be read
with these limits in mind. It discusses first the proposed method,
then the overall findings regarding the accuracy methods and
some notes on the characteristics of the methods.
As can be seen, T4 approach has several features in common
with the TSM and BITAF methods, which take into consideration
Kano categorisation of requirements. It is also important to high-
light the main differences between them.
The T4 approach is based on the sequence of steps pro-
posed in TSM, but differs in two regards. The first one is the way
in which Raw importance is determined, which is calculated
implicitly based on the total effect of the given CR on customer
satisfaction or dissatisfaction (figure 6). The second difference is
the way in which the adjusted improvement ratio (IRadj) is
determined using the kr coefficient. The proposed method allows
finer tuning of the IR because kr values have a continuous
character while in TSM, the coefficient k had only three possible
modes (for example: 0.5; 1; 2).
The BITAF approach works with Kano categories but con-
tains several risky items which are eliminated by the proposed
T4 approach. In BITAF, all the requirements have the same
weight (formula 1 and 2). In fact, any requirement of a different
type has a different effect on satisfaction or dissatisfaction and
the importance of requirement should reflect this. At the same
time, BITAF does not take into consideration “reverse”
requirements. If, for example, a requirement was considered as
“reverse” by exactly half the respondents and as “one-
dimensional” by the other half, the final assessment of the
requirement should be “indifferent”, but BITAF would class it as
“one-dimensional”. In the proposed approach, it can be deduced
that three main factors affect determination of a CR’s impor-
tance:
 Size of effect of fulfilment/non-fulfilment of requirements
on total satisfaction/dissatisfaction of all customers (Raw
importance)
 Actual performance (rate of CR fulfilment) of our orga-
nization and performance of competition (Competitive
Analysis)
 Type of requirement in a continuous scale (kr), not based
on the mode (k) as in TSM
Looking at the aggregate results, an interesting observation
was that the greatest accuracy across nearly the whole studied
range (see Figure 12) was found in methods that assessed the
importance of CRs using the logic of the Kano Model (BITAF
and T4). This can be considered empirical proof that the
requirement type is a relevant factor in customer satisfaction
prediction (Kano, 1984). Although the differences in accuracy
between the different methods were relatively small, the results
suggest that the same effects could be observed with a larger
sample. There were also interesting findings concerning indi-
vidual models.
The test showed that the PDS method, which is relatively
frequently used in QFD (Baki, 2009), tended to "smooth out"
results for the determination of importance. This meant that the
differences in importance tend be relatively small and the result
is that all CRs are ranked as important or very important. The
levelling does not lead to relatively high accuracy for overall
satisfaction. The AHP method did not smooth out importance,
but it was the least accurate of the standard methods – those
that do not employ Kano logic. Another interesting finding was
that TSM, which was one of the first methods to integrate Kano
into QFD, was the least accurate of all the methods studied. It is
possible that this inaccuracy was due to the exponent used in
13
 QUALITY MANAGEMENT
the calculation of IRadj. The original creators of the method
themselves warned of this risk when they said that the exponent
need not follow their recommended values (Tan, 2000). The
most accurate results were achieved by BITAF and T4. The
latter of these showed the greatest accuracy in most spreads
between paired high and low percentiles. As the spread
between percentiles narrowed, however, the method became
less accurate. The investigation of this phenomenon and testing
of the overall accuracy of both methods on a larger sample
would be a useful follow-up.
The aim of the present study was to suggest a more
accurate way of determining CRs’ importance in QFD using a
method based on a Type 4 Kano Model. The presented T4
approach takes into consideration the effects of requirements on
customer satisfaction or dissatisfaction and partially eliminated
the drawbacks of older approaches. At the same time, the paper
points out to main advantages, disadvantages and differences
of earlier approaches to determining the importance of CR. The
study also tested the accuracy of the standard models for
determining the importance of CRs, which may be of practical
use when deciding which method to use for QFD. This study is
original in its use of a uniform procedure to compare several
methods against a single object and a single sample of res-
pondents.
Acknowledgement
This research was supported by grant VEGA 0663/18
“Requirements non-linearity and its integration into quality
management process”.

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doi:10.1002/hfm.20358

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 QUALITY MANAGEMENT

Modern Methods of Quality Control

in Educational Services based on ТQM

Alexandr GUGELEV1, Anastasia GRISHNEVA2, Anzhelika SEMCHENKO3, Margarita LUKYANENKO4

1Professor,
Saratov Socio-Economic Institute, Russian Economic University named after Plekhanov G.V., Saratov, Russia;
E-mail: Gugelev@ssea.runnet.ru
2Assistant professor, Saratov Socio-Economic Institute, Russian Economic University named after Plekhanov G.V.,
Saratov, Russia; E-mail: nastya_saransk@mail.ru
3Associate professor/ PhD, St. Petersburg State University of Economics, St. Petersburg, Russia; E-mail: seangelika@yandex.ru
4Assistant professor, Tambov State Technical University, Tambov, Russia; E-mail: lenochkami@yandex.ru

Abstract

The article comprises a set of theoretical and methodological statements and practical suggestions about the modern
methods of quality control in educational services of industrial countries. The main quality control methods include
surveys of students, collection of statistic data from a survey performed among students, in our opinion, it is advisable
to calculate the total current coefficient (for the particular moment) of student’s satisfaction, official monitoring and
others. But they all have their advantages and disadvantages discussed in the article.

Keywords: quality control; quality category concepts; students survey; National Assessment of Educational Progress;
areas of quality monitoring.

1. Introduction satisfaction, but we consider postinformational standpoint quality

Importance of research on the subject of contemporary me-
thods of quality control in educational services is high with
regard to adaptation of Russian educational institutions to
constantly changing market situation in the world. Changes within
political and economic elements of Russian organizations’ activi-
ties and strive to maintain competitiveness altogether requires
continuous improvement of methods in quality control. If sphere
of education should be taken as an example, it should be
considered that knowledge control is a cornerstone, as it leads
to correlation between achieved results and initially preset targets.
Testing students should reflect not only rightness and wrong-
ness of results, but it should also provide sufficient information
about our actions as well: whether they correlate with the
adequate phase of learning. Properly organized educational
process control lets the teacher to evaluate students’ knowledge
and skills and allows him to provide necessary assistance and
training in due time. This altogether creates favorable conditions
for the development of cognitive abilities of students and
enhance their independent work in the classroom. Well-organi-
zed control allows not only to properly evaluate the learning
curve, but also to see own achievements and shortcomings in
teaching methods [Bonyushko N.A. and Semchenko A.A.,
2015].
2. Methods
category means information interchanging, oriented to not only
analyzing retrospective and perspective consumer needs, but
also creation such needs while satisfying the requirements.
From the
Description
point of view
Quality category means significant certainty of an
object, according to which object is different from one
Philosophical another. Further, certainty of an object is defining by
standpoint certain characteristics or summation of them. In this
context characteristics stands for specific aspect of
quality exposure method, with whom it can interact.
Quality category means the stance of a person and
(or) the whole society to an object. In which case
Social
quality itself can be considered as category, which
standpoint
depends on level of culture, religious and
demographic personality and society factor.
Quality category is defined by technological common
Technical factors in education and trait of physical,
standpoint electromechanical and others technical characteristics
of an equal objects.
Quality category is defined by the set of
Legal
characteristics of an object eligible for normative legal
standpoint
documents.
Economic
standpoint
Quality category means consumer satisfaction.

Quality category means information interchanging,

Thus, the choice of methods for quality control of acquired Postinfor-
oriented to not only analyzing retrospective and
knowledge is an extremely important aspect of educational mational
activities at the university. perspective consumer needs, but also creation such
standpoint
As we can see from Table 1 [Gorbashko E.A., 2016] from the needs while satisfying the requirements.
economic standpoint quality category means consumer Table 1. Quality category concepts

16 Vol. 20, No. 168/ February 2019 QUALITY

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 QUALITY MANAGEMENT
Let us view some aspects of the educational process in
detail. Knowledge and education are socio-historical processes
of creative activity of humans, they form their knowledge and
opinions by means due to which motives and goals appear. This
way dispersed knowledge is being systematized into a greater
and socially viable structure. Under Quality Control of Educatio-
nal Services (further “control”) we tend to understand a system
which can test and evaluate results of training and tutoring
students and to evaluate their satisfaction with services pro-
vided. We should take into consideration the fact that
consumers of these services are also stakeholders, which
counts in state, society, parents and employers. However, in this
article we take as a basis for scientific research the satisfaction
of students themselves who may later on create different groups
of consumers. Different types of pedagogical control do
stimulate learning and behavior of students. In our opinion, any
attempt to completely, or partially withdraw from the control of
educational processes leads to reduction in the quality of
education and gives negative results [Bonyushko N.A. and Sem-
chenko A.A., 2014]. Despite the fact that the student satisfaction
as of a consumer of educational services can be measured by
different techniques, this article focuses on the control of the
knowledge obtained, because in fact the goal of educational
activities is to obtain the knowledge, skills, competencies with
goal of their further efficient implementation in practice.
3. Results
Historically the European education has resulted in forming
two traditions, two trends in the formation of pedagogical
knowledge control. A typical feature of one of these trends is
focus on oral forms of control. For example, a student is
preparing for an exam and verbally answers to two or three fairly
large questions. Meanwhile it is assumed that answers to these
questions are adequately representing the level of general
knowledge within the frame of the course [Gugelev A.V. and
Yashin N.S., 2004]. The course instructor or a commission of
several people is holding the exams. This approach can be
roughly described as "German practice". In another approach,
the basis is formed by written control, when the student is given
assessments related to topics of the course. At the same time
written responses are checked by different teachers than is the
course instructor. Sometimes even authorship of these res-
ponses is hidden or encrypted. This can be named as “English
practice”.
In pre-revolution Russia and later on in Soviet Union “Ger-
man Practice” of oral control was widely accepted. Note that in
Germany is a three-tier system of education: elementary
education of I and II level (junior and senior high school), higher
education. Additionally, further separation on preschool and
adult education is at place. Education Management is
decentralized [Gugelev A.V., Umnova M.G., Shmeleva A.N.,
2017]. The state, according to the German Constitution, has the
right of general control over higher education and of publication
of the guidelines and principles for such, yet coordination and
cooperation of central and regional education authorities is done
through the Constant Conference of Ministers of Education,
Culture and Science of the federal regions. In contrast with this
US and EU knowledge control gradually shifted to written
"English practice", which was fixed in documents of the Bologna
process. In Russia, after the accession to the Bologna Decla-
ration, have been taken immediate steps towards modernization
of the control system and its instruments [Gugelev A.V. and
Semchenko A.A., 2015]. Today institutions of higher education
are in transition towards European interactive teaching methods
and are the restructuring their control system, where the main
role is given to research and development activities.
System allows to increase objectivity, rhythm and generality
of control while considering distinctive traits and natures of stu-
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Access to Success Vol. 20, No. 168/ February 2019
dents. This is based on maximal usage in various universities of
different evaluation and rating systems and tests for knowledge,
skills and capabilities. This system considers changes in the
psychology of student for whom it is starting to be pragmatically
advantageous to work independently, proactively, rhythmically
throughout the whole semester. The teacher should be able to
use all the functions of control – diagnostic, training, educa-
tional, organizational. Such is important in order to improve the
quality of teaching and of various kinds of relationships, like
teacher-student, student-student, student-family, student-society
and others.
3.1. Forms of knowledge and skills control
The educational process at the university has various forms
of knowledge control and skills control (interview, examinations,
colloquiums, essays, seminars, self-control, laboratory and prac-
tical work, settlement and graphic works, course and diploma
projects, different kinds of educational field trips, tests, exams
and others), which are traditional and widely used while some of
them are the dominant ones in dependence of the profile of the
university, faculty, department or academic discipline.
For example, while teaching courses of specialized engi-
neering disciplines, workshops and seminars as a form of
knowledge control is almost never being used, but this form of
control is widespread in general education disciplines. Control
ensures the continuity of the process of upbringing, education
and training, while having four major interrelated functions:
diagnostic, educational, educational and organizational. Some
forms of control provide a dominant influence of one of functions
that reduce the effectiveness of the other [Semchenko A.A.,
2014]. So, the exam has a mostly educational and diagnostic
functions, seminar – diagnostic, educational and upbringing,
and defense of course projects include all four functions.
It is important that control is maintained as multi-functional,
while considering along with increasing level of knowledge and
skills also student’s activities, participation in conferences,
competitions, debates at various levels, etc. [Gugelev A.V. and
Semchenko A.A., 2015]. It is extremely difficult to objectively
evaluate academic and social activity of students while using the
traditional methods.
Using the most common forms of control today (oral and
written tests, essays, colloquiums, exams, etc.) for diagnosis of
knowledge requires a considerable amount of time of teachers.
Diagnosis of the level of knowledge and skills in this case is
related to the great psychological burden on both – students and
teachers.
In terms of credit-modular system of training are best suited
following types of control: preliminary, current, intermediate and
final. With the prior input control teacher discovers residual
knowledge of students in disciplines that ensure the study of the
relevant course. After defining the scope and level of knowledge
the teacher plans to organize educational process while taking
into account results of the initial control step [Gugelev A.V. and
Semchenko A.A., 2014]. Results of preliminary control are not
counted into final rating of relevant discipline. If the program is
coordinated with other disciplines and students have enough
knowledge, the input control may be waived. Its use is also
advisable in case of revision, clarifications and additions to the
program. Current, intermediate and final tests are required, they
should be implemented according to curriculum, and should be
included into final rating.
Results of current control teacher uses to assess the know-
ledge level of students, formation of their skills. Monitoring is
carried out after going through modules that have a logical
conclusion. For current control, along with results of per-
formance tests are also included results of workshops, course
projects, laboratory works and other activities within the program
of discipline.
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 QUALITY MANAGEMENT
3.2. Current knowledge control
Current knowledge control is conducted in accordance with
the substantive modules of discipline and therefore can have all
kinds of tests, but only those that are most relevant to the
content of the material to. The organization of the course as
modules and content modules is a challenge, which is solved by
a systematic analysis of the conceptual apparatus of discipline
[Popov M., Gugelev A., Korotkov E., Yashin N., 2006]. Content
module consists of subjects, it is formed by system of
educational elements of particular subject and it is viewed as a
separate structural entity within the discipline and at the same
time it is logically connected to other modules. Such approach
allows us to avoid the repetition within or between disciplines, it
allows to add to each module a list of recommended literature,
and also it allows to study more thoroughly, for example, not to
go through all disciplines of post-graduate course, but only
through some of its components.
Intermediate control is required only if the discipline is
studied for several semesters. Thus, if tutoring of the discipline
is stretched over two semesters intermediate control is carried
out in the first or in both semesters. While evaluating knowledge
during separate modules and based on the discipline as a
whole, it can be considered not only the quality of knowledge,
but also scores for the timely finished homework, calculation and
graphic works, course projects, laboratory works and other tasks
required by educational program. This way all kinds of work are
divided into stages with definition of terms of performance and
evaluation in rates. Therefore, it is important that teacher should
define each separate part of the interim control.
3.3. Final control
Final control defines the system and structure of student's
knowledge in general – it is the final one within the discipline.
Test includes questions related to the whole course. In order to
increase the value and importance of this step share of final
control can be up to 60 percent of the total evaluation rate in
particular discipline, while the share of current and interim
control can amount up to total of 40 percent. Such distribution
can be used for disciplines which require examination in the end
of it. If the curriculum prescribes pass-tests then share of final
control must not exceed 50 percent of total rate sum.
Nonetheless, portion of points allocated to the final test control
decreases with improvement of methodical support of discipline
and with increase in efficiency of independent work of students.
Teacher defines the maximal amount of points for each test
within module. Decisions like these should be based on
complexity of tasks and their significance in formation of
knowledge and skills. Artificially limited amounts of points in a
single outstanding test leads to difficulties in its formulation, it is
also limiting creativity of teachers, and it also leads to reduction
in the quantity of material which should be evaluated. There are
situations when score reaches 800-1000 points per semester,
and it does not result in additional shortcomings.
While transferring points earned by student into existing five-
point system, which is actually a four-point one, it is understood
that in order to pass a future specialist should comprehend at
least half of the necessary knowledge and skills [Gugelev A.V.
and Semchenko A.A., 2015]. Therefore we cannot apply formal
division of points into four or five equal parts and transfer them
into the existing format. From our standpoint, the key factor lies
within the minimal amount of points required for students to pass
which is set in its place by the teacher. For instance, in some
universities, student is considered as successful if he can obtain
at least 51 percent of the total amount of points, with mandatory
execution of all kinds of tasks which are included in the work
program.
If we should return to the subject of quality control of
educational services based on satisfaction of major part of con-
18
sumers (students), then the research of local and foreign
methods in organizing of similar processes shows to us that the
optimal system is the one which is based on calculation of total
group quality index which is based on a study of a number of
indicators of quality of educational services, list of which may
vary depending on the profile of the university or the specific
political and economic conditions in which it is located. Now we
will go briefly through this methodology.
It appears that basis for a list of these indicators should be
the following: how the training sessions promotes interest to the
chosen specialization and how it supports formation of
professional competencies, how well organized is the process of
tutoring, how students can discover their personal and business
skills within educational process, consistency, coherence and
relevance educational material, its practical applicability, the
organization provides a process in high school.
Within the framework of this method after collection of
statistic data from a survey performed among students, in our
opinion, it is advisable to calculate the total current coefficient
(for the particular moment) of student’s satisfaction
(S a point of satisfaction):
S a point of satisfaction = ATP satisfaction (1)
Based on weights of significance of quality indicators which
were proposed by experts, while also taking into account
reduction of the time factor T, weights AT are calculated.
Calculation results for AT are multiplied by level of current quality
P satisfaction. Bringing the weight by the importance in time
factor is important, because its value varies not only from course
to course, but even from semester to semester. For example, for
the first year students supporting services are an extremely
important topic (living conditions in hostel, organization of food
and beverage services, infrastructure etc.), while older students
usually are already adapted to the offered conditions and orga-
nization of internships and communication with their internship
supervisor is far more important to them, because in some cases
they can already afford to rent an apartment, leave the hostel.
They don’t feel the urge to utilize the university infrastructure
during their internship.
Thus, the offered formula (1) reflects the essence of method
of analysis of student satisfaction, but requires additional
preparatory work in the part of the suddenness of the survey,
leveling of various significant adverse effects, etc.
3.4. Quality Control
According to the Bologna process for control it is expected to
create special education accreditation agencies, which are
independent from national governments and international
organizations. Rating is placed due not to the duration or content
of education but to the knowledge, abilities and skills that gra-
duates have received. The European practice of assessing the
quality of education is going in the direction of creation of
specialized accreditation agencies which are public organi-
zations involved in the development of tools and methodologies
for assessment of quality, and also for checking the quality of
education. Their competence includes the selection and training
of experts involved in the assessment of quality as well as the
periodic publication of audits, analysis of performance, problems
and prospects of quality systems based on ТQM in education.
The independence of accreditation lies within autonomy of
organizations from interests of parties. In other words, they are
organizations which are not founded by stakeholders which are
involved in education process or system, but these organizations
are a way of expression of private initiative in the field of
educational services. Namely in the field of evaluation of quality
and quality assurance, including accreditation of universities and
educational programs, as well as monitoring and consulting in
Vol. 20, No. 168/ February 2019 QUALITY
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 QUALITY MANAGEMENT
individual elements and aspects of educational activities
[Gugelev A.V. and Semchenko A.A., 2012]. In some countries,
accreditation agencies have the status of authorized subjects;
they are not public, but the government recognizes the results of
their activities. While deciding about the state accreditation, the
State shall consider and recognize the accreditation decisions
which are being brought and carried out by these authorized
legal entities.
It is obvious that an effective consulting and audit in any sec-
tor of the market, including the market of educational services,
should have signs of independence. The independence of
accreditation agencies and accreditation procedures is one of the
principles of the Bologna process.
It should be emphasized that the independence of the
accreditation agency from external influence must be shown in its
relations with any stakeholders in the education market - not only
with the government but also with audited universities and their
partners and competitors, students and employers.
European Association for Quality Assurance in Higher Educa-
tion (ENQA), which includes 40 agencies from 20 countries,
characterized by a variety of political systems, higher education
systems, socio-cultural and educational traditions, so it is
impossible to approach the quality and standards from the
standpoint of a universal solution. In our opinion, while defining
standards and recommendations, preference should be given to
the general principles instead of precise requirements.
Note that within professional community engaged in quality
control, there are serious differences in opinions in regard to the
nature of relationship between universities and those who
organize an external evaluation. Basically agencies that accredit
educational programs or educational institutions, take the stand-
point that external quality assurance is usually a protection of
consumer’s interests, which requires establishment of a border
between the agency and the university which is being evaluated.
Other agencies see the principal purpose of external quality
assurance in providing advices and support in universities’
attempts to raise standards and improve the quality of
educational programs and the relevant qualification levels where
close cooperation is necessary between those who evaluate
and those who are evaluated. And third kind of agencies is trying
to take an intermediate position between these two approaches
and balance accountability and quality improvement. In our
opinion, not only the quality assurance agency should have
different views and approaches. Quite often, universities and
student representative bodies have different interests: the first
ones attempt to achieve a high level of autonomy with a minimal
level of external regulations or evaluations at the level of the
university as a whole, while others want them to be publicly
accountable through frequent checks on the level of educational
programs or qualifications.
In Russia, there are agencies that perform an independent
quality assessment. They interact with foreign systems of similar
kind and even become their members, but so far attempts to
create a national standard for evaluation of quality for higher
education have failed. Number of such agencies is also low. As
an example of such agency may pose AKKORK, which in March
2015 became a full-fledged member of ENQA.
In our opinion, monitoring is also an important method of
quality control in education. Well-coordinated system of educa-
tional monitoring allows us to trace the progress of students'
knowledge, to identify and analyze the factors affecting the
quality of the educational process, to implement the right policy
steps to improve education in the state. Today in Russia a
unified system of educational monitoring is at the stage of
formation (USE, OGE, GIA in various subjects, etc.), the dispa-
rate parts of which later might become a one entity. For
example, in many countries, such systems are already in place.
In United States, for instance, since 60’s of XX, century are
performed monitoring studies of NAEP (National Assessment of
Educational Progress), the results of which are reputable in
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Access to Success Vol. 20, No. 168/ February 2019
society, as it has proved itself as an independent arbitrary. Note
that the studies of methodology and principles of NAEP con-
tributed to creation of a national program of educational
monitoring and implementation. NAEP was founded according
to the decision of the US Congress in 1969 to carry out an
independent evaluation of success of the education system in
the country.
Those local universities, which were the first ones to recog-
nize such need, are targeting an immediate implementation of
urgent requests of parents and students in regard of quality of
education. The concept of "quality of education" in the narrow
sense, is the quality of results of the educational process, that is
the quality of education of students, the quality of knowledge,
skills, knowledge of procedures, creative activities, education
and etc. The quality of education in the broader sense - is a
quality and results of educational process and a quality of
implementation of pro-educational processes, and a quality of its
course.
3.5. Quality Monitoring
Monitoring is a continuous process of observation and
recording of process parameters compared to predefined
criteria. Monitoring the quality of education – this way is being
named a special system of collecting information about the state
of education, the prediction on the basis of objective data and
the dynamics of the main trends of its development, the de-
velopment of evidence-based recommendations for manage-
ment decisions to improve the quality of education and the
functioning of education.
Table 1 provides information on the Group performance
monitoring of the Ministry of Education and Science of the
Russian Federation for 2015 [Resolution, 2015].
The percentage of
Group monitoring indicators
the Indicators, %.
30 Features pre-school and general education
16 Supplementary education
40 Higher vocational education
The indicator characterizes the scientific activity
14
in the sphere of education
Table 2. Methodological framework of official Monitoring
As we can see from Table 2, the largest number of criteria is
focused on assessing the professional education of the country,
and it should be noted that special importance is played by
employers who assess the quality of vocational education, as
well as information about the integration of the Russian
educational space in the international educational space.
If we consider the quality of education at the university level
of the individual, it is the so-called institutional quality, where the
analysis is carried out on such indicators: quality of training of
graduates; quality of educational content; composition and
characteristics of human resources; material-technical base;
health indicators, and the like.
During the monitoring itself the following is analyzed:
activities – educational, labor, management; phenomenons –
education, skills etc.
From the standpoint of the accumulation of information, the
following types of monitoring are recognized: the informational,
comprising of collection, compilation, systematization and
spreading of information; management, which includes
compilation and generalization of information in dependence of
certain indicators in order to study specific educational problems
and make appropriate recommendations on the strategy and
tactics of management activities or making managerial
solutions.
19
 QUALITY MANAGEMENT
3.6. Levels of monitoring
Levels of monitoring are divided into: interuniversity; intra-
university and intragroup.
The monitoring object is the quality of education provided by
university, as a set of its properties, defines its ability to meet
demands of the society, needs and expectations of consumers
of educational services.
There are some areas of monitoring like: student (self-
monitoring of knowledge); Lecturer (self-monitoring of educa-
tional activities); educational and methodical department
(internal monitoring).
Therefore, monitoring of education is a modern method of
quality control of education, with which it is possible to monitor
and promptly update any process in education. But it should be
remembered that only one student who is clearly the purpose of
his education, can be motivated by a conscious action to po-
sitive dynamics of qualitative growth, and a teacher who is
interested in the result of which he will be constantly working on
his professional level and progress, will cultivate and introduce
effective methods in teaching, and only then it will provide such
services to students which will be in accord with contemporary
requirements. In our opinion, it is a prerequisite to ensure quality
education in the university.
4. Conclusions
Thus, the quality of education is the main reason for main-
taining a high level of economic development of professional
competence of the individual, as well as a high level of
development of the state [Gugelev A.V. and Semchenko A.A.,
2015]. Our state must exercise its national educational policy: in
parallel with participation in the Bologna process, to build their
national education system, based on local needs and interests,
and focusing on global trends.
Scientific research on methods quality control of education
allows us to formulate few important conclusions, among which
stands out the one that the correct organization of control has a
direct impact on the quality of education. The systematic control
of knowledge and skills of students is one of the main conditions
to improve the quality of education. In teacher's work should be
used not only conventional forms of control, but also new
methods should be systematically developed. As a result of non-
traditional methods of monitoring the quality of education
individual characteristics of students are revealed, the level of
quality of training is increasing, which allows to timely eliminate
shortcomings and improve educational activities. In addition,
while introducing methods of analysis of students' satisfaction
and of their opinions, it is necessary, among other things, to take
into account external evaluation, in particular, the opinion of
employers.
20
As a suggest applications and extensions of the research
should be determined further analysis of the specifics of the
application of quality monitoring of educational services in
Russia and European countries.
References
[1] Bonyushko N.A. and Semchenko A.A. (2015), Strategic Frame-
work for quality management in higher education: European
experience and prospects: monograph, St. Petersburg, Publishing
house "Cult-Inform-Press". pp. 141-148.
[2] Gorbashko E.A. (2016), Quality Management: Textbook – SPb.:
Publishing House Yurayt, pp. 464.
[3] Bonyushko N.A. and Semchenko A.A. (2014), Modern trends in
the development of higher education in Europe // Saratov:
Publishing House Ltd. "The letter" m. Scientific Review. No. 9 (2),
pp. 488-493.
[4] Gugelev A.V. and Yashin N.S. (2004), The competitiveness of
business entities: problems of maintenance and management
methods. Bulletin of Saratov State Socio-Economic University, No.
7, pp. 36-41.
[5] Shmeleva A.N., Gugelev A.V., Umnova M.G. (2017), Development
of the Methodology of Quality Evaluation and Quality Improvement
of Tourist Services in Territorial Subjects of the Russian Federa-
tion, Quality - Access to Success. Vol. 18, No. 156, pp. 89-97.
[6] Gugelev A.V. and Semchenko A.A. (2015), Experience of national
universities in international rankings as an incentive to increase
the competitiveness // Saratov: Publishing House SSSEU, then.
Bulletin SSEU, No. 2 (56), pp. 29-35.
[7] Semchenko A.A. (2014), Organizational-economic mechanisms of
quality management in educational institutions: monograph, (St.
Petersburg, Publishing house "Cult-Inform-Press").
[8] Gugelev A.V. and Semchenko A.A. (2015), Innovative component
in ensuring the competitiveness modern organization. Bulletin of
Saratov State Socio-Economic University. No. 1, (55), pp. 34-39.
[9] Gugelev A.V. and Semchenko A.A. (2014), Quality management
system of higher education in Japan // Saratov: Publishing House
SSEU, “Information security of regions”, February, pp. 65-71.
[10] Popov M., Gugelev A., Korotkov E., Yashin N. (2006), Improving
the quality of education – The basis of the development of the
University / Higher education in Russia. No. 8, pp. 96-104.
[11] Gugelev A.V. and Semchenko A.A. (2015), Experience of Russian
universities participate in the national and inter-national ratings as
a tool to improve their competitiveness. Bulletin of Voronezh State
University. Series: Economics and Management. No. 3, pp. 33-40.
[12] Gugelev A.V. and Semchenko A.A. (2012), The main directions of
modernization of education in Russia in the period of post-crisis
development of the economy of the Saratov. Bulletin of Saratov
State Socio-Economic University. No. 4(43), pp. 28-31.
[13] Resolution of the Government of the Russian Federation dated
August 5, 2013. No. 662 Moscow "On the implementation of the
monitoring of the education system".
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Formation of Logistics Services Quality Management Model

Tatyana ODINTSOVA1, Nataliya KOCHERJAGINA1, Olga GORDASHNIKOVA1, Olga RYZHOVA1

1Saratov State Technical University named after Yuri Gagarin, Saratov, Russia
E-mail addresses: Odintsova.tn@mail.ru; sstu_ko4@mail.ru, gordaolga@yandex.ru, helgaryzhova@gmail.com

Abstract

The situation in the retail trade of the Russian Federation is characterized by a number of negative trends: the lack
of logistics infrastructure and integrated logistics service, decrease in consumer demand, active development of
multi-format trade. The article explores the term "logistic service", which is a flowing process, the effective
management of which is proposed to be evaluated on the basis of the following indicators: total logistics costs,
logistics service quality, logistics cycle, productivity. Ignoring the problems of logistics services management by
Russian enterprises due to the lack of modern strategies, standards and effective models of quality logistics services
management leads to a loss of competitive advantages. Modeling of quality management of logistics services should
be considered from the position of a three-stage process: "before sale" – "at the time of sale" – "after-sales". The
result of the study was an integrated model of quality management of logistics services in retail, based on the Deming
Cycle and the Lean Production Concept. The model allows to evaluate the quality of logistics services in the following
system indicators: the probability of a deficit, the rate of saturation of demand, the completeness of the order
coverage, the degree of customer satisfaction, the flexibility and reliability, the level of complaints. The model
maximizes the synergy of the elements of the logistics service system, the functional coordination in the retail
network, the degree of involvement of personnel in improving the processes of servicing the business; and also
minimizes the level of costs.

Keywords: logistics services; quality management; model, retail; system, process; approach.

1. Introduction The conducted research shows that, despite a significant

contribution to the Russian economy, there are negative trends
Modern problems of logistics services quality management in the sphere of trade, which help to slow down its growth and
in the enterprises activities are relevant for a number of reasons: development. In these conditions, the logistics services quality
the significant importance of additional services for the con- management in the retail enterprises activities is possible due to
sumer that create an attractive for the product value; the factor the development of a formation models methodology for logis-
ensuring long-term competitive advantages for the manufac- tics services quality managing, justification of the indicators
turer; the need of the service business processes continuous evaluation system. In this aspect, the goal of the article is to
improvement – from the development of the concept of the develop formation methodology of an integrated model of
product to its launch into production and from acceptance of the logistics services quality organization and management.
order to delivery to the consumer.
Modern retail trade in the Russian
Federation is characterized by the
following trends: a high level of logistics
costs and a lack of a developed logis-
tics infrastructure; decrease in consu-
mer activity of the population due to
deterioration of the general economic
situation in the country; market con-
juncture and active development of
multi-format trading. The level of logis-
tics costs in the Russian economy
remains high (19% of gross domestic
product (GDP)), and the level of
logistics development (LPI) is low (90th
position in the international rating).
The contribution of retail in the
Russian economy is estimated by the
complex of indicators: contribution to
GDP, average annual consumer price
index, profitability of products/services
(see Fig.1) (Kotik, 2016). Figure 1. A set of indicators of retail trade in the Russian economy

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2. Materials and Methods
such as the efficiency of place, time, availability, form, ownership
The study of logistics service is conditioned by the fact that and use, etc. A review of scientific sources on logistics showed
it becomes possible to add new characteristics to the product, that there is no single definition of «logistics service» (Table 1).
No. The Definition The essence of the definition
Logistics service is inextricably linked with the process of distribution
Logistics service is provided by the supplier or a forwarding
1 and is a set of services provided in the process of the supply of
company which specializes in logistics services.
goods (Gadzhinskiy, A. 2013)
Service maintenance of products is a combination of functions and The service is inextricably linked with the distribution and is a set of
activities of all subsystems of the enterprise that provide an services provided in the process of ordering, buying, supplying and
"enterprise-consumer" connection in the context of each material further servicing the products.
2
and information flow according to the indices of the nomenclature, The service is carried out either by the manufacturing enterprise
quality, quantity, price, place and time of the delivered products in itself or by some separate independent enterprise that participates
accordance with market requirements (Anikin, B., 2013) in the production and sales process.
Logistics service is a set of activities performed in the process of Service creates an additional competitive advantage, affects the
3 fulfilling orders and aimed at meeting the needs of customers overall success of the company and is the key to lasting long-term
(Lukinskiy, V., Lukinskiy, V. 2012) relationships within the logistics channel.
Logistic service is the result of the activity of the logistics system,
It is considered as a factor of utility and additional value of the
4 reflecting its effectiveness in terms of the usefulness of the time and
product.
place of each product (Dybskaya, V., Sergeev, V. et al., 2014)
Logistics service is connected with material flow and logistics
infrastructure. Modern service is the desire for absolute quality through an
5
Logistics service is an integral part of the overall policy of customer individual approach to the client.
service in the company (Dybskaya, V. Sergeev, V.et al., 2014)
Customer service can be defined as a process between a buyer, a From the point of view of dynamics, customer service is the process
6 seller and a third party, the result of which is the added value of the of providing explicit additional benefits of the supply chain, at the
received product or the service provided (Stock, R., Boyer, S. 2009). expense of efficiently spent funds.
It is a strategic tool for managing consumer relations, integrated into
Logistics service is the balance between high-quality customer
7 the physical product in the form of a complex of services related to
service and associated costs (Bowersox, D., Closs, D. 1996).
the design, production, marketing.
Consumer service is the process of creating significant value-added
Customer service is also understood as a set of actions (operations)
8 benefits, provided that an effective level of costs is maintained in the
performed by the contractor to meet the needs of the consumer.
supply chain (Mirotin et al., 2002).
Logistical service is connected with management of economic flows
Logistics service stimulates the development of economic ties
and processes in economic systems and is directed on growth of
9 between producers and consumers of products, which plays an
the added cost due to the most effective interaction of logistical links
important role in the period of integration processes in the economy.
and stream optimization (Shekhovtsov, 2002).

Table 1. Essential characteristics of the definitions of «logistics service»

The generalization of the definitions of the logistics service
made it possible to identify two basic approaches to determining
its essence (Figure 2).
Problems in the logistics services management in Russia are
associated with the lack of effective modern strategies and lo-
gistics services quality managing standards. Indeed, in Russian
practice, logistics services is considered as a set of individual
tasks (training of service specialists, improvement of spare parts
supply, training of customers, post-sales service), not integrated
with the overall enterprise strategy. Ignoring by many enter-
prises of effective logistics services quality management models
leads to a loss of competitive advantages.
The solution of the logistics service management problem is
based on the application of the methodology of the system and
process approaches, allowing to view the object of research in
logistics as an integrated logistics system consisting of a set of
business processes of logistics services.

Figure 2. Approaches to logistics service research

The first approach defines «logistics service» as a set of
services of a certain level of quality. The second approach
involves the need to consistently perform the stages of the
customer service process, aimed at creating additional benefits
while maintaining costs at an effective level.
Integration of these approaches allows us to present the
«logistics service» as a flowing process, the effectiveness of
which is proposed to be evaluated on the basis of a important
indicators: general logistics costs, quality of logistics services,
logistics cycles, productivity, return of investment in logistics
infrastructure.
3. Results and Discussion
Modeling of logistics service quality management, according
to the authors, should be carried out taking into account its
specific features. The logistics service quality is considered as a
three-stage process: the logistics service quality «before sale»
(operations to ensure awareness, accessibility, personalization
of the service); logistics service quality «at the time of sale» -
directly providing logistics services (assortment flexibility,
convenience of work schedules, level of coordination with other
intermediaries, compliance with customer requirements, class of
service, complexity); quality of «post-sale» logistics service –

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provision of post-warranty service, insurance risks, loyalty pro-
grams, acceptance of complaints and others (Fernie, J., Sparks,
L. 2014).
It is necessary to agree with the rule 70/20/10 known in the
theory and practice of quality management. Indeed, 70% of the
logistics services quality is formed at the early stages of the
Figure 3. The structure of logistics service quality management
The first stage of logistics service quality management
involves the implementation of a system approach to this pro-
cess. At this stage, a general management center is formed,
which ensures the implementation of the following functions: the
choice of strategy and the formation of a unified quality policy;
the development of quality standards in accordance with the
requirements of ISO 9000; modeling of logistics service supply
chains; redistribution of costs between participants in the logis-
tics service system; training and staff development; formation of
a policy of relations with suppliers. The way to increase the
efficiency of the logistics service system is the acquisition of a
part of the suppliers' assets, which allows them to further
monitor the quality of their business processes (Yashin, N.,
Popova, L., et al., 2016).
The tasks of an average level of logistics service quality
management include: the line of integrated logistics service
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product life cycle or at the stage of the logistics service «before
sale»; 20% of quality is created in the process of direct logistic
services «at the time of sale»; 10% of the logistics service
quality is provided in the post-sales service of consumers. The
structure of logistics service quality management is presented in
Figure 3.
packages development a based on market monitoring and
consumers and suppliers segmentation by the criteria of price,
quality, reliability; building a unified «transparent» information
system for participants in the logistics service process; self-
assessment of the main criteria quality and conducting com-
parison with competitors, namely, benchmarking; planning the
logistics service quality.
The program for quality improvement should be the result of
the first stage of logistics service quality management. This
program defines the main business processes that are subject
to change, both in the current and in the strategic periods.
The second stage – Logistics service quality «at the time
of sale» includes the management of resources, the orga-
nization of planned changes, as well as quality control of
logistics services.
Relations with counterparties, suppliers, customers should
23
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be built taking into account modern logistics concepts:
 Forecasting and Replenishment (CPFR);
 Effective Customer Response (ECR);
 Suppliers Relations Management (SRM);
 Vendor Managed Inventory (VMI) (Odintsova, T.,
Kocherjagina, N., Ryzhova, O. 2018).
Building effective relationships with suppliers involves
providing them the certain advantages: flexible pricing, gua-
rantees of significant volumes of purchases on favorable terms,
long-term contracts and stable relationships, investments in
main suppliers, assistance in solving problems. On the other
hand, in the context of targeting several important suppliers,
complete control over their activities is required (quality control
and cost structures, the formation of a single coordinating center
based on a common computer database).
An important component of the second stage of logistics
service quality management is an effective motivating suppliers
system based on the flexible volume of contracts regulation with
each partner as a result of the performance of their contractual
obligations, the continuous process of training logistic service
personnel. Quality control of the logistics services current level
should be carried out using a statistical tools system that allow
to analyze the results of quality control and improve the logistics
services standards. The statistical tools system for quality
control includes a diagram of V. Pareto, checklists and maps, K.
Ishikawa's cause-and-effect diagram, histograms, graphs,
method of stratification, tabular results of control (Yashin, N.,
Figure 4. The parameters logistic service quality system
The quality of the logistics service is most objectively and
fully reflected, in our opinion, by the following system indicators:
the probability of a deficit, the demand saturation rate, the
completeness of order coverage, the degree of satisfaction of
the customer's expectations, the flexibility and reliability of the
logistics service, the level of complaints (Table 2).
The Deming cycle PDCA (Plan-Do-Check-Act) and the Lean
Production concepts, which consist in the business processes
continuous improvement (administrative, production and
auxiliary), became the basis of logistics service quality mana-
24
Andreeva, T., et al., 2015).
The third stage – "Quality of post-sale logistics service"
includes: the formation of a flexible interaction system with
consumers of services on the basis of "rapid response"
(feedback system); logistics services business processes im-
provement on the basis of an individual approach; redistribution
of the received profit between the basic participants of logistical
service system.
It should be noted that the system management of the above
described functions at each stage of the product life cycle allows
to form an integrated model of logistics service quality ma-
nagement in retail trade. The basis of this model is collegial
management solutions using a single information base, which
allows reducing the time of adoption and improving the quality of
solutions. The use of a real-time data collection system (RTD) is
a key condition for the effective application of this model. This
allows quickly collecting, process data and getting occurrence of
failures information in the logistics services supply chain.
The logistic service quality can be estimated on the basis of
the service parameters system – accessibility (territorial
accessibility, density and rationality of the distribution network),
stability and accuracy (reliability and timeliness of information
flows, service cycle, availability, reliability and flexibility of ser-
vice), communications (knowledge of the consumer, compe-
tence, responsiveness and goodwill of the staff), economic
feasibility (coefficient comrade execution orders according to the
specification, JIT concept). The proposed system of parameters
is shown in Figure 4.
gement integrated model in retail trade (Gordashnikova, O.
2016). This model has the following advantages: first, it takes
into account the relationship between resource flows (material,
information, financial, service) and consumer requests, and
secondly, it provides efficient logistics services quality mana-
gement based on the integration of business processes and
rapid response to changes in the external environment of retail
enterprises (Figure 5).
The implementation of the Deming cycle in the proposed
model begins with the "Plan" phase. At this stage, the goals,
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Table 2. Indicators of quality of logistics service

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Figure 5. Integrated Model of Logistics Service Quality Management in Retail Trade

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objectives and quality indicators of the logistics service are
defined. The ISO 9000 series should serve as the organizational
and methodological basis for planning the quality objectives of
the logistics service. This is because the basic concepts and
principles formulated in these standards are most consistent
with the market requirements.
ISO 9000 standards are based on the process approach and
describe the activities of the enterprise in the form of a network
of interrelated business processes. In accordance with this
approach, each process in the organization must have its owner,
who is responsible for the process, monitors and analyzes its
effectiveness, is responsible for its adjustment. This is the
essence of the second stage of the cycle (Do).
The third stage of Check is carried out through regular
monitoring (integrated internal audit, management review, feed-
back from consumers and other stakeholders), control and
identifying deviations in the quality objectives of the logistics
service from planned.
The final fourth stage of the Deming cycle (Act) ensures
continuous improvement of the business processes of providing
the logistic service based on the correction of the detected
deviations.
The integrated model of logistics service quality manage-
ment in retail trade ensures the optimization of overall costs by
achieving a high level of accessibility and quality of logistics
services. A model is regulating the logistics services quality for
each segment of consumers, the adequacy of the personnel
motivation system, clearly related to the results of business
processes measured on the basis of key quality indicators. It
should be noted that this model can serve as an effective tool for
managing the needs of not only end users, but also business
partners and stakeholders.
4. Conclusions
In conclusion, it is important to outline the following possi-
bilities of the proposed logistics services quality management
integrated model in retail trade. Firstly, the model maximizes
synergy of the system elements of logistics service, secondly,
the functional dissociation in network retail that occurs when
developing and implementing automated control systems is
minimized, by optimizing the number of internal and external
links; thirdly, a higher degree of involvement of personnel in the
improvement of business service processes is realized; fourth, a
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rational level of costs for the development, functioning and
certification of an integrated system is achieved.
References
[1] Kotik, S. (2016), On Shelf Availability in Russian retail: do not lose
sales. Journal Retail & Loyalty. 1(55), (in Russian).
[2] Gadzhinsky, A.M. (2013), Logistics: Textbook for higher education.
Moscow: Dashkov and Co. 420 p.
[3] Anikin, B.A. (2013), Logistics. Moscow: Prospekt. 406 p.
[4] Lukinskiy, V., Lukinskiy, V. (2012). Models and methods of the
logistics theory. Publisher St. Petersburg: SPbSUEE, Location (in
Russian).
[5] Dybskaya V.V., Sergeev V.I. at all. (2014), Logistics: integration
and optimization of logistics business processes for supply.
Moscow: EKSMO. 939 p.
[6] Stock R., Boyer S. (2009), Developing a consensus definition of
supply chain management: A qualitative study. International
Journal of Physical Distribution & Logistics Management, 39(8).
[7] Bowersox, D., Closs, D. (1996), Logistical Management. The
Integrated Supply Chain Process. Publisher N.Y.: The McGraw-Hill
Companies, Inc.
[8] Mirotin, L.B. (2002), Transport logistics. Publisher: Examen, 512 p.
[9] Shekhovtsov, R.V. (2002), Service logistics: problems of theory
and methodology. Rostov n/D: RTA. 115 p.
[10] Fernie, J., Sparks, L. (2014). Logistics and retail management:
emerging issues and new challenges in the retail supply chain.
Publisher 4th edition. London: Kogan Page Ltd.
[11] Yashin, N.S., Popova, L.F., Bocharova, S.V., Bagautdinova, N.G.
(2016). Customer Satisfaction Assessment in Management Quality
System of Industrial enterprises. International Business Manage-
ment, 10(24): 5720-5726.
[12] Odintsova T., Kocherjagina N., Ryzhova O. (2018). The
Development of Models of Supply Chain Management in Retailing.
Reliability and Statistics in Transportation and Communication.
RelStat 2017. Lecture Notes in Networks and Systems, vol. 36, pp.
320-326. Springer, Cham,
https://link.springer.com/chapter/10.1007/978-3-319-74454-4_31
[13] Yashin N.S., Andreeva T.A., Serebrjakov A.V., Bagautdinova N.G.
(2015). Implementation of the strategy: problems and solutions.
Mediterranean Journal of Social Sciences, Vol. 6, No. 1, pp. 475-
480.
[14] Gordashnikova O.Yu. (2016). Problems of the innovative potential
quality management system of software production development.
Heterogeneous magnetic microelectronics. Saratov: Publishing
SSU, (20). pp. 120-124. (in Russian).
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Quality Assessment of the Rubber-Textile Conveyor Belts

at the Dynamic Impact Loading

Miriam ANDREJIOVA1, Anna GRINCOVA2, Zuzana KIMAKOVA3

1Corresponding author, Faculty of Mechanical Engineering, Technical University of Kosice,
Letna 9, 04200 Kosice, Slovak Republic; E-mail: miriam.andrejiova@tuke.sk
2Faculty of Electrical Engineering and Informatics, Technical University of Kosice,
Letna 9, 04200 Kosice, Slovak Republic; E-mail: anna.grincova@tuke.sk
3Faculty of Mechanical Engineering, Technical University of Kosice,
Letna 9, 04200 Kosice, Slovak Republic; E-mail: zuzana.kimakova@tuke.sk

Abstract

Material transport by belt conveyors is an important element not only at mining and processing of mineral raw
materials, but it is also irretrievable at waste processing, in machinery industry, metallurgical industry, construction,
agriculture, etc. The conveyor belt is an important part of belt conveyors. In practice, the conveyor belt is subject to
the influence of much mechanical stress, which lowers its quality and operational life. This influence invokes the
process of the wearing and deterioration of the conveyor belt. Because the damage of the conveyor belt has far-
reaching consequences for its user, the issue of monitoring of the quality of conveyor belts, or the assessment of their
damage is very topical.
The article presents partial results of the experimental research at the Logistics Institute of the Faculty of Mining,
Ecology, Process Control and Geotechnology at the Technical University in Kosice. The main goal of the research is
to determine the influence of selected parameters (storage of conveyor belts, drop height of the material, type of
transported material) on the quality and damage of the rubber-textile conveyor belt. A model was created by means
of logistic regression for the assessment and analysis of the experimental tests and severity of the damage of
conveyor belts.

Keywords: rubber-textile conveyor belt; quality; damage; odds; logistic regression.

1. Introduction
For the reviewing of the quality of the belt transport it is
necessary to take into consideration several aspects. The most
important element of the conveyor is the conveyor belt. The
conveyor belt is an enclosed element running around end
pulleys, which fulfills the function of the transport of material or
persons on the transport length at its rotation and at the same
time it fulfills the function of the pulling element and it transmits
all resistances, which arise at its movement (Marasova, 2013;
Zur, 1979).
The conveyor belt lifetime is influenced by the design of the
conveyor belt, design parameters and characteristics of the
conveyor belt, character of the transported material (e.g. the
type and the temperature of the transported material, the pre-
sence of foreign objects in the transported material), solving of
the shifting, maintenance of the surface of the conveyor belt,
belt conveyor, space under the conveyor belt and repairs of the
conveyor belts (Marasova, 2013; Taraba, 2017).
During the operation the conveyor belt is subject to the effect
of several strains, which cause the process of wear and damage
of conveyor belts and thus they reduce their lifetime. It follows
from the operational experience that the most critical place
where 66 to 80% of all damages of the conveyor belt occur is the
place of the filling of the conveyor belt, so called chute.
According to (Marasova, 2013) the chute is the place where the
transported material is transferred from one conveyor belt onto
another one. The material at the fall onto the conveyor belt can
cause the damage of the conveyor belt by causing the punc-
turation of the belt itself through all its section, the damage of the
cover of the belt or the damage of the internal carcass of the
conveyor belt. These types of damage are frequent mainly du-
ring the transport of sharp-edged material and they usually
occur in the place of the fall of the material onto the conveyor
belt. The works (Ballhaus, 1980; Ballhaus, 1983; Hardygora,
1999; Komander, 2014; Lubrich, 1959) deal with the exami-
nation of the place of fall of material on the conveyor belt.
The places where conveyor belts are connected, create
further risky part concerning the damage of the conveyor belt. It
is often a critical place for the provision of the fluency of the
transport of the material by belt conveyors. Observance of the
proper working procedure of the linking of the conveyor belt and
the selection of the proper type of the joint and its quality is a
substantial agent influencing the reliability, quality, safety and
ultimately also the lifetime of the conveyor belt. Authors at work
(Temerzhanov, 2012) deal with the reliability of the joints of
conveyor belts. Mazurkiewicz (Mazurkiewicz, 2012; Mazur-
kiewicz, 2010; Mazurkiewicz, 2008) gathered findings on
operational characteristics of conveyor belts and their joints,
which were made by the use of various methods of adhesive
bonding.
The damage of the conveyor belts can arise along the whole
route of the belt conveyor or in certain points, which from the
point of the occurrence of the monitored deterioration can be

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assessed as particularly dangerous. According to (Taraba, Xi ,i = 1,2,...,k, is given by the formula
2017) also bad technical state and insufficient maintenance of (4)
the conveyor belt share a significant impact on the lowering of
the lifetime of the conveyor belt. One of the significant factors, The odds ratio determines how many times the odds for the
which influences the lifetime of the conveyor belt, is the way and event Y will increase, if the value of the independent variable Xi
the period of storing of conveyor belts. Long time storing, which increases in 1, whereas all the remaining variables remain
does not meet the corresponding standards, participates in the unchanged. If βi > 0, then OR(Xi) > 1. If βi < 0, then OR(Xi) < 1.
loss of the functional and operational characteristics of the For the quality assessment of the created logistic model, we
conveyor belt. It has an effect on the reduction of the resistance will use the association measures: Somer´s D and statistics c.
of the conveyor belt against the damage and thus also on the The higher the final value of the measure, the higher quality of
reduction of its lifetime. the model.
The issue of damage of conveyor belts has been dealt with
by many authors theoretically as well as experimentally.
Köttegen (Köttegen, 1958) dealt with the experimental research 3. Result
of the resistance of conveyor belts against dynamic stress.
3.1. Execution of the experimental research
Vierling (Vierling, 1972) elaborated the influence of the design of
the conveyor belt onto the impulse mechanical stress in places
Experimental research was carried out by means of testing
of shifting. Goldbeck (Goldbeck, 1997) monitors the lifetime and
device (Fig. 1), which enables to simulate the fall of the material
reasons of the damage of the conveyor belt. The issue of
onto the conveyor belt. The detailed description of the device is
optimum lifetime of conveyor belts through the renewal theory is
in (Fedorko, 2014). The idler set was used as a support system
analysed in works (Andrejiova, 2014; Knezo, 2016). Andrejiova
in the place of the drop (Fig. 2).
et al. (Andrejiova, 2014) uses logistic regression and relate risk
at monitoring of the significance of the damage of rubber-textile
conveyor belts. The conveyor belt damage, the lifetime and
quality of the conveyor belt were deal with by (Ambrisko, 2017;
Andrejiova, 2016; Fedorko, 2014; Fedorko, 2013; Gondek,
2014; Grincova, 2014; Hodkiewicz, 2013; Hou, 2008; Lihua,
2011; Lutynski, 2004).

2. Methods
The logistic regression is a method which is proper for the
modeling of a dependence among variables. Let Y be a dicho-
tomous dependent (output) variable, which gains two values
only: Y=1 (monitored event occurs), or Y=0 (event will not
occur). Let us mark the probability of the occurence of the event
by a symbol p, i.e. p = P(Y = 1). Odds is defined as the ratio of
probability that the event Y has occured (Y=1) and the
probability that the event Y has not occured (Y=0), which is
expressed by the relation:

(1)

The odds expresses how many times higher is the

probability that the event Y occurs rather than the probability that
the event Y does not occur. If the odds is higher than one, the Figure 1. Testing device
event occurs with higher probability.
The odds ratio of the occurrence of the event Y in the first
group A and odds of the occurrence of the same event Y in the
second group B is defined by OR (odds ratio). If the odds ratio
equals 1, then the odds that the event Y occurs in the first group
A is the same than the odds that the event occurs also in the
second group B. If OR > 1 (or OR < 1), then the odds that event
Y occurs in the first group A is higher (or smaller) than the odds
that the event occurs in the second group B. Figure 2.
The logistic model with k independent (explanatory)
Support system
variables (continuous or dichotomous) Xi ,i=1,2, ...,k, has the
general form
(2)
where β0 is the intercept, βi ,i = 1,2,...,k, is the i-th model para-
meter. The logit(p) is called a logarithm of the odds, i.e.

(3)

The statistical significance of the model is tested by means

of the likelihood ratio test. The significance of the estimated Figure 3.
model parameter is tested by means of the Wald test. Type of impactors
The odds ratio OR for the independent variable

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 QUALITY MANAGEMENT
Basic design features of the conveyor belt are the carcass
and textile plies, the thickness of which is influenced by the
characteristics of the transported material.
The carcass of the rubber-textile conveyor belt consists of
one or more textile plies (Fig. 4), which are impregnated fabrics
with requested resistance parameters. The carcass of the steel-
cord conveyor belts consists of steel cords of various diameters
and resistance. Some conveyor belts have a bumper to increase
the puncture resistance.
Figure 4. Rubber-textile conveyor belt
There were two types of the conveyor belts tested in the
experiment: stored and new (unstored) conveyor belt. Stored
conveyor belts have never been used in the operation but they
have been stored for 24 months. As new (unstored) conveyor
belts are considered those belts, which have never been used in
the operation, i.e. they came right from the production. Test
specimens were extracted from new and stored rubber-textile
conveyor belt type P 2500/4 with four textile plies and strengths
of 2500 N.m-1 from the same producer and with the same
design. The way of preparation of test specimen is described in
paper (Fedorko, 2014).
The drop hammer with the corresponding impactor (pyra-
midal impactor, spherical impactor, Fig. 3) was dropped in a free
fall only once onto the test specimen of the conveyor belt. The
fall of the sharp-edged material with the weight 82 kg (the design
of the drop hammer of 42 kg and 40 kg of additional weight) was
simulated by the pyramidal impactor. The fall of brittle, loose
Figure 5. Examples of reached damages of the samples of conveyor belts
(puncture, damage of the top cover layer by spherical impactor, disruption)
Conveyor Spherical impactor
belt
Height I Height II Height III
Insignificant Insignificant Significant
New, unstored
damage damage damage
Insignificant Insignificant Significant
Stored
damage damage damage
Table 1. Damage occurence – summary
30
material was simulated by the spherical impactor.
The drop height was changed in relation to the experiment,
i.e. from 1.2 m up to 2.6 m. Maximum drop height is given by the
height of the design of the testing device. At each experiment a
new test specimen was used. From the previous experimental
researches and measurings the drop height in case of the
pyramidal impactor changed from 1.2 m higher with the diffe-
rence 0.1 m. In case of spherical impactor the drop height
changed from 1.6 m.
3.2. Analysis of the damage of the conveyor belt
The fall of the transported material onto the conveyor belt
can cause puncture, scratches, cutting or disruption of the cover
or even the total damage of the conveyor belt. The detailed
classification of the damage is in paper (Andrejiova, 2014).
According to the level of the damage significance of the
conveyor belt at the fall of the drop hammer we differentiate two
categories of the damage: insignificant damage (puncture or
ruptures of the top or bottom cover, bulge on the bottom cover)
and significant damage (disruption, carcass damage, partial or
total damage of the bottom or top cover).
A disruption is considered to be when all layers (top cover,
carcass, bottom cover) of the conveyor belt are damaged
simultaneously. The resistance of the conveyor belts against the
disruption represents the ability of the conveyor belt to absorb
energy of material falling on the belt without its damaging
(Grincova, 2014). The examples of the damage of the conveyor
belt at the fall of the drop hammer are in Fig. 5.
Out of the set of 44 samples (experiments), 21 samples
(47.73%) were new conveyor belts and 23 samples (52.27%)
were stored conveyor belts. Spherical impactor was used in 20
experiments (45.45%) and pyramidal impactor was used in 24
experiments (54.55%). The drop height was divided into three
intervals: up to 1.7 m (Height I), from 1.8 to 2.1 m (Height II) and
from 2.2 m (Height III). 15 experiments (34.09%) were
performed in the interval Height I and 15 experiments (34.09%)
in the interval Height II. The number of the experiments
performed above 2.2 m was 14 (31.82%). The final summary of
the occurence of the significant damage of the conveyor belts is
in Tab.1.
Pyramidal impactor
Height I Height II Height III
Insignificant Insignificant Significant
damage damage damage
Insignificant Significant Significant
damage damage damage
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 QUALITY MANAGEMENT
3.3. Analysis of the quality of the conveyor belt variable, which represents the height of the fall of the drop
hammer onto the conveyor belt (in m). The variable IMPACTOR
We are looking for the model, which describes the relations represents a dichotomous variable, which has two categories:
between the occurrence of the significant damage of the pyramidal impactor, spherical impactor. The dichotomous
conveyor belt (variable DAMAGE, Y) depending of three variable CB can get two categories: new or stored conveyor belt.
independent input variables: drop height (variable HEIGHT, X1), The output variable DAMAGE is a dichotomous variable, which
the type of the impactor of the falling drop hammer (variable acquires the value 1 in case of the significant damage of the
IMPACTOR, X2) and the type of the conveyor belt (variable CB, conveyor belt, otherwise it acquires the value 0. The cha-
X3). The variable HEIGHT is an independent continuous racteristics of the variables are in Table 2.
Variables Description
Dependent Variables
DAMAGE (Y) 1 in the case of a significant damage, 0 in the case of no significant damage
Independent Variables
HEIGHT (X1) Impact height (meter)
IMPACTOR (X2) Type of impactor, 1 in the case of a pyramidal impactor, 0 in the case of spherical impactor
CB (X3) Type of conveyor belt, 1 in the case of a new conveyor belt,0 in the case of a stored conveyor belt

Table 2. Summary of variables

The equation of the considered logistic model is The tests of the statistical significance indicate that the
model and the model parameters are statistically significant
(5)
(p-value < α). It means that all independent variables affect
From there is significantly the occurence of the significant damage of the
conveyor belt.
(6) The point estimate of the odds ratio is given by the relation
(4). The point estimate of the odds ratio and their 95% confi-
The estimates of the parameters of the logistic model are in dence interval is in Table 4. For better clarity, the drop height is
Table 3. in new units (in dm).
Parameter DF Estimate Standard error Wald Chi-Square p-value
Intercept (β0) 1 -33.13 12.07 7.53 0.006
HEIGHT (β1) 1 14.77 5.35 7.62 0.006
IMPACTOR (β2) 1 4.37 1.95 5.02 0.025
CB (β3) 1 4.21 1.96 4.61 0.034

Table 3. Estimates of the parameters of the logistic model (α =0.05)

Estimate new conveyor belt at the same drop height and the same type
Parameter 95% Confidence interval
Odds Ratio of the drop hammer. The odds that at the fall of the drop hammer
Lower limit Upper limit a significant damage of the stored conveyor belt will occur is
HEIGHT * 4.38 1.53 12.51
exp(4.21) = 67.36 - times higher than in the case of new con-
veyor belt at the unchanged conditions.
IMPACTOR 79.04 1.73 3646.86 The Somer's D value (Somer's D = 0.95) indicates that the
CB 67.36 1.37 3337.31 model has sufficient quality. It follows from the statistics c
*Calculated values in new units (dm) (c = 0.97) that the total success of the model prediction is very
high, up to 97%.
Table 4. Estimate odds ratio and confidence interval

The model of the logistic regression indicates that if the 4. Conclusion

value of the variable X1 (HEIGHT) changes in one unit
(i.e. by 1 m), then the logit changes in the value of the parameter
of 14.77. The value exp (14.77) expresses the odds ratio of the
occurrence of the significant damage of the conveyor belt at the
change of the drop height by one meter (provided that the
values of other variables remain the same). The odds of the
occurrence of the significant damage of the conveyor belt at the
change of the value of the variable X1 by the differential 0.1 m is
exp(14.77*0.1) = 4.38 times higher.
The parameter for the variable IMPACTOR characterises the
change in the logit when we compare the drop hammer with the
spherical impactor with the one with the pyramidal impactor at
the same drop height and the same type of the conveyor belt.
The odds that a significant damage will occur at the fall of the
drop hammer with the pyramidal impactor is up to
exp(4.37) = 79.04 - times higher in comparison with the spherical
impactor.
The parameter for the variable CB characterises the change
in the logit when we compare the stored conveyor belt with the
From the analysis and assessment of the experimental
measuring follows that the occurrence of the significant damage
of the conveyor belt is statistically significantly influenced by the
type of the falling material, drop height and the type of the
conveyor belt (stored, unstored).
The results of experimental researches simulating the fall of
the sharp-edged material (pyramidal impactor) indicate that the
best results of the breakdown resistance tests and significant
damage were gained at the unstored conveyor belt. It follows
from the experiment tests simulating the fall of the crumbling
material (spherical impactor) that the tests results were about
the same at both types of the conveyor belts. The final su-
mmary:
 Increase in drop height increases the odds of significant
damage of the conveyor belt at unmodified other
conditions of the experiment.
 Type of impactor of the falling drop hammer with the

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 QUALITY MANAGEMENT
pyramidal impactor increases the odds of the occu-
rrence of the significant damage of the conveyor belt in
comparison with spherical impactor at the unchanged
other conditions of the experiment.
 The use of stored conveyor belt increases the odds of
the occurrence of the significant damage of the conveyor
belt in comparison with the new conveyor belt at the
unchanged other conditions of the experiment.
We can assume from the results that the stored conveyor
belt has a higher odds to have an occurrence of the significant
damage in case of the fall of the sharp-edged material. The
reason of this can be material ageing of the conveyor belt during
its storing. The temperature and its big amplitudes, solar radia-
tion, excessive humidity and improper environment conditions,
in which the conveyor belts are stored, have also negative
influence on the quality of conveyor belts. Due to this reason
several manufacturers warn that it is not proper to store con-
veyor belts for more than three years. Nowadays it is possible to
prevent many problems related to storing and to the modified
characteristics of the conveyor belts stored for a long time by the
use of the non-storage management system which effectively
solves not only problems with storing of the conveyor belts but it
also enables saving of the financial means for storing of the
conveyor belts and other range of goods.
Acknowledgement: This article is the result of the project
VEGA 1/0577/17, KEGA 009 TUKE-04/2016 and project APVV-
15-0327.
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Method to improve Information Assurance Quality

for Research and Development at Knowledge-based Enterprises

Kirill Igorevich PORSEV1, Marat Fatyhovich BULATOV2

1Assistant at the Department of Materials Technology, Standardization and Metrology, Yaroslavl State Technical University,
Yaroslavl, Russian Federation; Post-graduate Student at the Department of Metrology and Standardization,
Moscow Technological University, Moscow, Russian Federation; Corresponding author: Russian Federation, Yaroslavl,
Moscow Avenue 88, 150035; E-mail: ram_dva@mail.ru
2Ph.D., D.Sc. (Phys.-Math), Prof., Head at the Department of Metrology and Standardization, Moscow Technological University,
Moscow, Russian Federation; Director at the Scientific and Technological Center of Unique Instrumentation
(Russian Academy of Sciences), Moscow, Russian Federation; E-mail: bulatov_agu@mail.ru

Abstract

The article considers the need for improving the quality of knowledge-based enterprise information assurance at the
current stage of high-technology product manufacturing. It suggests the method to improve the quality of R&D
information assurance at knowledge-based enterprises based on advanced mechanisms of their production
organization system information assurance. The method was tried out on the basis of the Scientific and Technological
Center of Unique Instrumentation (Russian Academy of Sciences).

Keywords: information assurance quality; knowledge-based enterprise; information technologies; information system.

1. Introduction of companies. Such measures often give no desired result since

One of the priority areas of improving the activity of modern
knowledge-based enterprises is reaching the higher quality of
their information assurance (IA).
IA means the combination of information resources and
services required to solve management, creative and scientific-
technical problems in accordance with the stage of their
implementation (Brezhneva, V.V., Minkina, V.A., 2004). Latest
advances in the IA of knowledge-based enterprises should focus
on providing continuous information assistance for high-
technology production processes.
The quality of IA in accordance with the terminology adopted
in the fundamental ISO 9000-2015 standard for quality
management systems (ISO 9000:2015) means the degree of IA
specific features conformity to established requirements.
The existing specificity of high-technology production implies
a number of special requirements to the IA quality of knowledge-
based enterprises such as:
 The possibility to process large quantities of data by
personnel simultaneously in groups;
 High integratability of various information systems (IS)
and automated control systems (ACS) within the shared
information space (SIS) of an enterprise;
 The possibility to ensure continuous information moni-
toring of production processes by the top management of
an enterprise;
 Speed and timeliness of data acquisition by personnel at
any stage of high-technology production, etc.
Most existing measures taken to achieve the required IA
quality are based on the local informatization of structural units
they are not systematic enough and feature the following
problems associated with them:
 High risk of irrecoverable data losses in case of multiple
data transfer;
 Long time of data exchange between company per-
sonnel;
 Insufficient effectiveness of production process super-
vision and monitoring by the top management of the
company.
Such problems are mainly caused by the low efficiency of IA
mechanisms along with the insufficient systematization of
information management by company structural units. The low
level of certainty and the absence of existing mechanisms for
data exchange between the elements of the enterprise
production organization system adversely affect the IA quality.
The major factor in this process is that the issues of IA
integration with production organization systems of knowledge-
based enterprises have a relatively low theoretical and practical
coverage.
Despite a significant number of studies (Carlock, P.G.,
Fenton, R.E., 2001; Overby, E., Bharadwaj, A., Sambamurthy,
V., 2006; Grodzensky, S.Y., Grodzensky, Y.S., Kalacheva, E.A.,
2014; Asanov, A.N., 2013) focused on the comprehensive in-
vestigation of implementation and provision of effective
company information assurance, the issues related to improving
the IA quality and providing its high integratability through the
development of data exchange mechanisms are still virtually
unexplored. One can observe a general insufficiency of mea-
sures taken to develop effective informatization management
systems and methods for knowledge-based enterprises

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 QUALITY MANAGEMENT
(Litvinenko, O.A., 2011). All these facts lead to a conclusion
about the systematic nature of the problem considered within
the knowledge-based industry.
In this connection the studies focused on the development of
measures to improve the quality of information assurance at
knowledge-based enterprises become relevant, and these mea-
sures are based on the improvement of IA mechanisms. Since
the key feature of knowledge-based enterprises are their
advanced research and development (R&D) field, the primary
and most important measure within the entire chain of a
knowledge-based company is to improve the quality of R&D
information assurance.
The objective of this paper is to develop a method for
improving the quality of IA at the R&D stage of a knowledge-
based enterprise based on the improvement of IA mechanisms
for its production organization system.
2. Structural content of the method
to improve IA quality
The proposed method for improving the IA quality of R&D
includes 3 consecutive stages:
1. Displaying existing R&D IA mechanisms of a knowledge-
based enterprise and analyzing their effectiveness.
2. Reorganizing exiting information mechanisms of the R&D
stage based on the principles of systematic and continuous
personnel information interaction.
3. Practical implementation of improved IA mechanisms in
the R&D production organization system based on IS selection
and introduction.
Let's consider in more detail the stages included in the
proposed method.
2.1. Displaying the existing R&D IA mechanisms
An initial step of the method is to display the existing IA
mechanisms including personnel and communication channels
(information flows) used for data transfer.
Information flows within the production organization system
of an enterprise can be implemented as follows:
1. “Man / Man” flow – determines direct information
interaction among company employees using IT.
2. “Man / Process” flow – determines information interaction
consisting in technical and organizational management,
monitoring and supervision of ongoing processes by company
personnel using IT.
3. “Man / Process / Man” flow – determines reciprocal
information interaction consisting in technical or organizational
management, monitoring and supervision of processes by
company personnel and possible personnel teamwork using IT.
The “Man / Process / Man” information flow implemented in
a company is the most perfect form of information interaction
when running production processes and making management
decisions at any stage of knowledge-based production.
Existing IA mechanisms need to be displayed by modeling.
In our opinion, one of the most suitable modeling methods is the
structural algorithm presentation in a graphical form. Structural
algorithmic modeling methods are widely applicable in various
industrial activities of people such as production system auto-
mation, software development, multiple multiprocessor machine
engineering, corporate business process re-engineering, etc.
The structural algorithm presentation consists in successive
displaying of processes and operations required to achieve the
planned result.
Since structural algorithms in their initial forms are only
aimed at displaying the sequence of operations (processes), in
order to reflect as many as possible elements of the production
organization system, at the R&D stage as well as their specific
34
relationships, a typical block of each system process should
include the following items involved at this stage:
 Special equipment (if any);
 Documented information;
 Personnel (in a hierarchical sequence).
In order to visualize existing IA mechanisms, the structural
algorithmic model of the stage should also include graphic
representation of information flows.
Figure 1. Graphic representation of the composition
of a typical structural algorithmic model block
Fig. 1 shows graphic representation of the composition of a
typical structural algorithmic model block.
The final operation at the first stage of the method is the
analysis of existing IA mechanisms for their effectiveness and
the need for further reorganization.
2.2. Reorganizations of existing IA mechanisms
The second stage of the method is to reorganize of existing
IA mechanisms. It becomes possible based on creating a
system of interrelated and reciprocal information flows providing
the possibility of group information interaction between the
participants within each process implemented. In this case, a
significant number of information flows should be implemented
in the “Man / Process / Man” form. The result of the second
stage should be an improved R&D model with reorganized
information flows and perhaps an improved structure.
2.3. Practical implementation
of the improved R&D IA model
The third, final, stage of the method is the practical imple-
mentation of the improved R&D IA model based on selecting
and introducing IS with relevant software and hardware.
Currently, the global market of information technologies (IT)
is represented by a vast number of IS and software packages
with various functions that provide information assurance for any
kind of human activities. Such systems include: ERP (Enterprise
Resource Planning), CMS (Content Management System),
BPMS (Business Process Management System), etc.
Now it is quite difficult to ensure a comprehensive effec-
tiveness analysis of the introduction of all IS offered on the
market. Nevertheless, an IS that completely meets the re-
quirements of continuous information assurance of business
processes and electronic data representation can be imple-
mented in two most effective ways:
1. Implementing PLM system (Product Lifecycle Manage-
ment) as a basic component of CALS-technologies.
2. Implementing EDMS (Electronic Document Management
System) in combination with CAD system (Computer Aided
Design).
Table 1 shows a comparative analysis of the feasibility of
using PLM or EDMS + CAD depending on R&D stage features
of a specific production organization system at a knowledge-
based enterprise. Despite the limited nature of IS comparison
criteria, there is a number of attempts to create integrated
methods for IS selection and their introduction effectiveness
assessment depending on production organization system
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 QUALITY MANAGEMENT
features of knowledge-based enterprises (Porsev, K.I., Esaulov, Technological Center of Unique Instrumentation (Russian
N.P., Kuznetsov, V.V., 2016). Academy of Sciences) that has global priority in conducting
R&D stage
fundamental and applied research in the field of scientific
No.
feature
PLM EDMS + CAD instrumentation and optics (Neimark, V.М., 2002).
Number of The first stage of the method was to determine the structure
Most effective with Most effective with of the Scientific and Technological Center R&D and build a
1 employees
100 persons and more up to 100 persons model of the stage indicating existing information flows as
involved
Involves a significant Mostly oriented at shown in Fig. 2.
Process number of complex electronic document The analysis of the effectiveness of existing R&D stage IA
2 mechanisms allowed us to identify a number of the following
complexity level design and production flow with additional
processes design options features:
Minimum IS price on Minimum IS price on  There are no system-oriented mechanisms of si-
the Russian market the Russian market
3 Expenditures multaneous information interaction between all the
starts from RUB starts from RUB
participants.
900,000 480,000
 Information interaction between employees is limited to
Document flow
Most feasible at high Feasible at any two successively executed processes and features the
4 document flow document flow absence of practical implementation of “Man / Process /
volume
volumes volume Man” flows.
Table 1. Comparative analysis of the feasibility  The total time of the R&D stage (TR) is an aggregate
of IS introduction depending R&D stage features indicator of individual intervals of the time spent for
executing stage processes (Ti) and features a significant
of a knowledge-based enterprise
dependence on the single indicator T5. A negative
solution as a result of the cyclic process can determine
Once the most suitable IS is selected, it can be further multiple duplicating of time and, as a consequence,
introduced taking into account reorganized information economic expenditures at the R&D stage:
mechanisms by the company itself or a company providing IS
introduction services.

3. Example of practical implementation
of the proposed method
To exemplify the practical implementation of the provisions
composing this method it was tried out on the basis of the R&D
stage of the production organization system at the Scientific and
The features of the existing R&D IA mechanisms enabled us
to conclude about their relatively low efficiency in solving the
problems of continuous information assurance for the stage
process. A consequence of this is a significant excess of time
and economic expenditures for production. It becomes nece-
ssary to improve the existing IA mechanisms.

Figure 2. Structural algorithmic model of the R&D stage at the Scientific and Technological Center
of Unique Instrumentation (Russian Academy of Sciences) with existing information flows

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Figure 3. Improved model of the R&D stage at the Scientific and Technological Center of Unique
Instrumentation (Russian Academy of Sciences) with reorganized information flows and structure

At the second stage, the existing information flows were
reorganized and a system of interrelated and reciprocal
information flows was created to provide the possibility of group
information interaction between the participants during each
process. The model improved in this way is shown in Fig. 3.
The features of the reorganized IA mechanisms at the R&D
stage are as follows:
 Implementation of information flows in "Man / Process
/Man" form allows us to provide continuous information
support of the R&D stage processes based on the
possibility of simultaneous group work of personnel with
information.
 Ensuring effective R&D stage management and moni-
toring by the top management of an enterprise due to the
ability to obtain data on information flows quickly.
 The absence of a cyclical process of assessing the po-
ssibility of production in accordance with the developed
design requirements due to the continuous information
interaction between R&D participants reduces significantly
the risk of multiple duplication of time and economic
expenditures.
 Reduction of the total R&D stage time (TR) due to the
parallel implementation of research and development of
design documentation based on continuous information
interaction between them:
where kR is a factor describing a reduction in the time of process
implementation due to continuous information assurance and
electronic data exchange. The value of the kR factor depends on
the type of the IS implemented and the capacity of software and
hardware. It varies in the range between 0.4 and 0.8 for PLM
and between 0.6 and 0.8 for EDMS+CAD that is confirmed by a
number of empirical studies (Burtylev, I.N., 2013; Musman,
M.A., 2014).
The third stage consisted in IS selection. The existing fea-
tures of the R&D stage at the Scientific and Technological
Center of Unique Instrumentation (Russian Academy of Scien-
ces) were analyzed and it was found that the most feasible way
is to implement EDMS with a required CAD package oriented at
the manufacturing of a specific high-technology product.
4. Conclusion
Therefore, the tried out method allows us to conclude that it
is sufficiently effective in solving the issues of ensuring the
quality of IA and high-technology production processes. Along
with its practical importance, the method is clear and simple and
free to understand for both IT engineers and quality specialists.
The proposed method can serve as the development of the
global study and solution of the existing informatization problems
at knowledge-based companies and ensuring the required level
of quality of high-technology production processes.
As further ways of research aimed at improving the IA quality
of knowledge-based companies, one should note the need to try
out the method at other knowledge-based enterprises and
develop comprehensive IS selection methods considering all the
enterprise features.
References
[1] Brezhneva, V.V., Minkina, V.A. (2004), Information services:
products and services provided by libraries and information
services businesses, Profession, SPb.
[2] ISO 9000:2015 Quality management systems -- Fundamentals
and vocabulary.
[3] Carlock, P.G., Fenton, R.E. (2001), «System of Systems (SoS)
enterprise systems engineering for information-intensive
organizations», Systems engineering, No. 4, pp. 242-261.
[4] Overby, E., Bharadwaj, A., Sambamurthy, V. (2006), «Enterprise
agility and the enabling role of information technology», European
Journal of Information Systems, Vol. 15, No. 2, pp. 120-131.

36 Vol. 20, No. 168/ February 2019 QUALITY

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 QUALITY MANAGEMENT
[5] Grodzensky, S.Y., Grodzensky, Y.S., Kalacheva, E.A. (2014), «CALS-technologies resource to increase the quality and competitiveness of high
technology products», Standards and quality, No. 5, pp. 90-93.
[6] Asanov, A.N. (2013), «Information support of production of high-quality products», Actual problems of Economics and law, No. 3, pp. 39-46.
[7] Litvinenko, O.A. (2011), «Conceptual aspects of the management system informatization of enterprise», Scientific and Technical Journal of
Information Technologies, Mechanics and Optics, No. 1, pp. 120-123.
[8] Porsev, K.I., Esaulov, N.P., Kuznetsov, V.V. (2016), «Method of assessing the effectiveness of the transition from a paper based system to
electronic document management in the production of high technology products», Science Intensive Technologies, No. 5, pp. 61-64.
[9] Neimark, V.М. (2002), «Ten years of work CDB UI - STC UI RAS activity within the "AKADEMPRIBOR" Association, Scientific instrument
making, Vol. 12. No. 1, pp. 13-16.
[10] Burtylev, I.N., Mokhun, K.V., Bodnya, Y.V., Yukhnevich, D.N., (2013), «Development of Electronic Document Management Systems: Advantage
and Efficiency», Science and Technology, Vol. 3, No. 2A, pp. 1-9.
[11] Musman, M.A, Nariza, N., Arifin, M., Ali, A., (2014), «Study on the User’s Satisfactions of the Electronic Document Management System
(EDMS) at Centralised Utility Facilities (CUF)», Terengganu International Management and Business Journal, Vol. 4, No. 1, pp. 19-37.

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Preventive Financial Control in Public Entities

Gabriela PASCU (POPESCU)1, Lavinia COSTAN (POPA)2

1The Bucharest University of Economic Studies, Romania, Email: gaby.popescu@yahoo.com
2The Bucharest University of Economic Studies, Romania, Email: lavinia.n.popa@gmail.com

Abstract

This article is intended to investigate the importance of preventive financial control in Romanian public institutions.
This paper looks (in particular) at the efficiency of the preventive financial control in public entities and at the risks
involved if the preventive financial control does not work properly. The article shows that if the financial control does
not respect regulations, the public funds will be affected.
Understanding normative acts, training the employees involved in the process and management support are the main
factors that contributes to an efficient preventive financial control process.

Keywords: preventive financial control; public funds; risk; budgetary commitments; legal commitments.

I. Introduction nancial control activity in order to avoid the risks in spending

The preventive financial control refers to verification of the
draft operations which involve financial decisions in the public
institutions. The verification refers to the legality, regularity and
limitation within the established budgetary commitments of the
operations submitted to the control. This is shown by article no.
23 from law no. 500/2002 which states that preventive financial
control applies to operations that imply public funds and/or public
patrimony.
According to Boulescu (2008), financial control is integrated
to management and it has a triple significance for a company:
control for the entity itself (internal control), control for others
(external control) and control for state (public control).
Forms of preventive financial control are classified into two
main types (Boulescu, 2008):
a. There are three types of financial control dependent
upon the time when the control is performed versus the time of
activity or to the time of performing the operations that are
controlled:
 preventive control (anticipative);
 current-operative;
 post-operative.
b. There are two types of financial control related to
correlation with financial-economic purposes:
 financial control of the state;
 financial control of the entities.
These two types of controls are also preventive or post-
operative.
In this paper we will analyze aspects that involve the
preventive financial control in public institutions.
II. Legislation
Romanian public entities are service provider companies
that manage public funds and/or the public patrimony. The
manager of every public entity needs to take the necessary
measures to organize and develop an effective preventive fi-
public funds.
Ionescu (2009) states that the private and public entities
function at a maximum capacity based on efficiency and
breakeven criteria when using control methods.
Hopkins (2018) says that by adopting a proactive approach
to risk and risk management, organizations will be able to
achieve in the following four areas of improvement: strategy,
tactics, operations, compliance.
According to Bashkov (2017) risk management is creating a
framework to manage various risks, including procedures to
identify, measure and control the risks. Hurloiu et al. (2014)
mitigates that accounting procedures and documentation are
aimed at protecting the patrimony, managing and recording
compliance of financial transactions and financial documents.
The main regulation of the preventive financial control that
applies to the Romanian public entities are:
 Government Emergency Ordinance no. 119/1999
concerning internal audit and preventive financial control;
 Law no. 500/2002 concerning public finances;
 The order of the Minister of Public Finance no 1.792/
2002 related to methodological norms concerning
commitment, validation, authorization and payment of
expenditures of the public institutions, as well as
organization, keeping and reporting budgetary and legal
commitments;
 The order of the Minister of Public Finance no. 923/2014
for the approval of the General Methodological Norms on
the exercise of control of financial preventive and a
specific code of professional norms for people who carry
out their own preventive financial control activity;
 Order of the Minister of Public Finance no. 522/2003
concerning methodological norms concerning preventive
financial control.
III. Preventive financial control
– an overview of the main aspects
The aim of the preventive financial control is to prevent
negative phenomena and dysfunctionality in the economy by

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stopping financial and economic operations that are not legal,
opportune and necessary at a specific moment in order to
prevent spending public funds inefficiently.
Preventive financial control is aimed to verify operations in
terms of:
a) compliance with the legal system at the time of per-
forming the operations (legality control);
b) compliance with methodological and procedurals rules
(control of regularity);
c) compliance with value and destination of budgetary
and legal commitments (budgetary control).
The operations subject to the preventive financial control are
related to:
 legal and budgetary commitments;
 opening and distribution of budget finance;
 modifying the distribution on a quarterly basis and
subdivisions of budgetary classification of the budgets
approved;
 authorization of expenditures;
 revenues obtained from sales or rent of public patrimony
of the state;
 other types of operations established by the internal
decision of the management of the public entity and/or
Minister of Public Finances;
 payments from public funds;
 operations with cash.
The preventive financial control is performed in two ways:
The internal preventive financial control, performed in each
public institutions by a person nominated by the management
and approved by the Minister of Public Finances. The person
who grants the visa cannot be involved in doing the financial
operations that are subject to the control.
Delegate preventive financial control performed by the
Minister of Public Finances through a Delegate Controller which
operates as a distinct department within the Minister of Public
Finances.
The preventive financial control is exercised by granting, or
by refusing the visa. The person exercising the preventive
control cannot be forced to grant the visa if he/ she considers
that the operations are not in accordance with the regulations.
The visa refusal does not lead necessary to stopping or delaying
the operation. The operation can be carried out on the own
responsibility of the head of the institution. In this case, the
Minister of Public Finances is informed and the responsible
employee from the minister will evaluate the impact of per-
forming the operation without preventive financial control visa.
The only operations that cannot be performed solely by the
management without having the preventive financial control visa
are the cases in which there are exceeding legal or budgetary
commitments.
IV. Factors that reduce risk
in using public funds
This paper aims to demonstrate that there are at least three
factors that influence the efficiency of the preventive financial
control activity and reduce the risk in using public funds: under-
standing the normative acts, training the employees involved in
the process and the management support.
Specifically, a public institution shouldn’t spend money without
having legal commitments and/or budgetary commitments.
Otherwise, this means that the public funds have been used
improperly and the public institution is part taking in actions that
cannot be fulfilled (contracts with partners, payments that
cannot be performed). In every day activity of a public institution
there are situations when legislation is not interpreted correctly
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Access to Success Vol. 20, No. 168/ February 2019
by the people who work with legal/budgetary commitments. In
order to reduce this risk, the employees of the legal department
of the public institutions should know the regulations, the
updates and the way they are applied. Moreover, the public
entity should establish the main professional norms to be fulfilled
by the persons designated to exercise their own preventive
financial control and creating a unitary framework for the
appointment, suspension, change, dismissal and evaluation of
persons exercising the preventive financial control activity.
Article no. 71 from law 500/2002 states that there is a
violation of law that is punished by the legal system if public
funds and not spent properly.
Training the employees involved in the preventive financial
control activity is essential in reducing the risk of spending public
funds improper. The person responsible for the preventive
financial control activity must improve his/ her professional
practice by participating in professional training courses in the
field and not only the people that grant preventive financial
control should be trained, but also all persons involved in this
complex activity. They should be kept up to date continuously
with the regulations that concern the preventive financial control
process and any specific situations that may occur, in order to
be able to identify and refuse granting visa to the operations that
are not in accordance with law.
The manager of any public institution has an important role
in reducing the risks of spending public funds inadequately. He/
she should coordinate the public entity activity by issuing clear
and detailed procedures with the processes workflow and the
employees involved in each activity, clearly mentioning the
responsibly of each person.
The general framework of operations under preventive
financial control must be drawn up in relation to the specific
nature of the public entity and approved by the management of
the company.
The preventive financial control activity includes the drawing
up and signing of the reports by the preventive financial control
officer and the company's economic director and they should be
submitted in due time to the management of the public entity.
Quarterly reports should contain actual data from the preventive
financial control activity in accordance with the data reported
and the data entered in the register on the operations trans-
mitted to the preventive financial control visas.
The preventive financial control activity is reported to the
management of the public entity according to the models
presented in the legislation and it includes the statistical
statements of the operations concerned during the reporting
period.
Managing the appropriate flow of information between the
preventive financial control officer and the management of the
company will lead to risk mitigation through management invol-
vement.
V. Conclusions
The goal of the preventive financial control is to prevent
spending public money inefficiently, by stopping the performing
financial and economic operations that are not legal, opportune
and unnecessary at a specific moment.
The main factors that reduce risks in spending public funds
inefficiently are: understanding the normative acts, training the
employees involved in the process and the management su-
pport. When the manager of the public institution coordinates
the activity as a whole, integrates preventive financial control
over the entire activity of the organization, when the employees
are properly trained and the normative acts are correctly
interpreted with the support of the legal department, the
preventive control activity fulfills its objective, that of preventing
spending public money improper.
39
 QUALITY MANAGEMENT
References
[1] Boskov, Tatjana; Drakulevski, Ljubomir (2017), Addressing the Role of Risk Management and Digital Finance Technology on
Financial Inclusion, Quality-Access to Success, 18 (161), pp. 113-11.
[2] Boulescu, M. (2008), Financial-fiscal control, Foundation Romania de Maine, Bucharest, pp. 16-24.
[3] Hopkin, Paul (2018), Fundamentals of Risk Management: Understanding, Evaluating and Implementing effective risk
management, 5th Edition, Kogan Page Publishers.
[4] Ionescu, L. (2009), Financial-fiscal control and audit – Theoretical and practical fundaments, ARS Academica, Bucharest, pp.
8-9.
[5] Hurloiu, Lăcrămioara-Rodica; Burtea, Elena; Preda, Bianca-Florentina, (2014), Organizing Inspections Regarding Managerial
Internal Control and Preventive Financial Control, 21st International Economic Conference, IECS 2014, 16-17 May, Sibiu,
Romania, Procedia Economics and Finance 16 (2014), pp. 275-280.
[6] Otrusinová, M. (2016). Public sector accounting in the Czech Republic and Slovakia. Administratie si Management Public, (27),
30-45.
[7] Jarmila Sebestova, Ingrid Majerova, Irena Szarowska (2018). Indicators for assessing the financial condition and municipality
management. Administratie si Management Public, (31), pp. 97-110, DOI: 10.24818/amp/2018.31-07.
[8] Minister of Public Finances, (1999). Government Emergency Ordinance no. 119 concerning internal audit and preventive
financial control.
[9] Minister of Public Finances, (2002). Law no. 500 concerning public finances.
[10] Minister of Public Finances, (2002). Order no 1792 related to methodological norms concerning commitment, validation,
authorization and payment of expenditures of the public institutions, as well as organization, keeping and reporting budgetary
and legal commitments.
[11] Minister of Public Finances, (2003). Order no. 522 concerning methodological norms regarding preventive financial control.
[12] Minister of Public Finances, (2014). Order no. 923 for the approval of the General Methodological Norms on the exercise of
control of financial preventive and a specific code of professional norms for people who carry out their own preventive financial
control activity.

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Quality Work Ethics and Job Satisfaction: An Empirical Analysis

Shrikant Krupasindhu PANIGRAHI1, Hatem Mahmoud AL-NASHASH2

1Corresponding author, Faculty of Industrial Management, University Malaysia Pahang, Kuantan, Malaysia, 26300;
E-mail: psrikant@ump.edu.my
2Faculty of Industrial Management, University Malaysia Pahang, Kuantan, Malaysia, 26300; E-mail: temo.nasho@yahoo.com

Abstract

Quality is very crucial to understand how well an employee is doing. Quality of work shows how much an employee
value them. Thus, this study examines the impact of strong quality work ethics on job satisfaction among banking
employees in Jordan. There has been growing evidence supporting the association between quality work ethics and
job satisfaction of employees. However, it is not clear why such association exists. This paper argues that in order to
provide a clear understanding and convincing explanation of this association there is a need to improve the
theoretical and analytical framework. Quantitative method with survey questionnaire was administered to collect
information on quality work ethics and job satisfaction from 89 employees working in Jordanian banks. The finding of
the study revealed that quality work ethics are positively associated with job satisfaction. These findings imply that
quality work ethics is one of the key attributes to increase employee’s job satisfaction together with other
organizational outcomes. Most importantly, it is crucial for the managers to be aware that increasing employee’s job
satisfaction can lead to increased organizational commitment, lower labor turnover and improve productivity.

Keywords: quality work ethics; job satisfaction; hard work; work goals.

1. Introduction of the negative consequences associated with low levels of job

One of the most important activities in human life all day is
work, half of the people have responses and judgments. Alone
and distinct from his work and his need to work. Among others
who consider the work as a source of income for Improve the
standard of living, add property wealth, recognize or appre-
ciation and self-glory. Managers in the working environment are
messed with the ethical confrontation with others (Murtaza et al.,
2016b). This ethical dilemma makes them exposed to their own
engaged and integrated activities including fraudulent acts. The
honesty of managers become limited are unable them to diverse
the job filled with vagueness (Sun, Gergen, Avila, & Green,
2016).
For managers, it is difficult to get escaped from such ethical
dilemmas and the morals of the managers are always ques-
tionable in order to understand their behaviors with others.
Ethical dilemmas like the events of corruption charges, reject to
work honestly and other possible scandals are some of the
critical subjects that need to investigate in order to understand
work ethics (Forte & Hansvick, 1999). Moreover, it is sometimes
hard for the employees or managers to get escaped with such
ethical dilemmas, but if the individual is exposed to ethical
interactions and enrichments the behavior can change positively
resulting to positive job satisfaction.
Strong work ethics in the organization is the key to the
ethical behavior of employees. Organizations that focus on
developing strong work ethics relevant to the issues faced by
employees will lead to the employees behaving ethically
(Valentine & Barnett, 2007b). Beyond salary, strong work ethics
is able to influence human beings to commit or not to commit a
crime. Empowerment within the organization remains weak due
to lack of work ethics that are no longer able to enhance job
satisfaction of employees (Steinheider, 2006). Furthermore,
(Camp, 1994; Getahun, Sims, & Hummer, 2008) found that one
satisfaction includes lack of active participation in decision
making and often faces ethical issues stemming from employee
behavior. Thus it is important to consider employee working
conditions and the managers must be aware of the safety of
their employees in order to compensate them when they
perform the unusual or difficult task. The unethical working
condition leads to stress when there is no cooperation between
job needs and competencies.
With the vision of what motivates operatives, managers can
larger ascertain what makes the employees do their best job.
There is a need for the managers to understand what propels
their subordinates and colleagues in order to be competent
heads in the work place. The recommendations in this study will
enable managers to become the best presentation out of their
operatives and rise productivity in their departments.
2. Literature Review
2.1. Theoretical view on work ethics
When an organization employs the individuals they bring
work into not unique job skills but also his or her ethics. In
today’s business work ethics is very important due to changes in
employee behaviors that play a crucial role in the success of the
organization. According to Valentine and Barnett (2007a) the
crime committed by an employee results in the deterioration of
corporate image drastically. In any empirical research, there is a
need for a clear view of independent constructs. Theoretical
aspects help us to provide clear views on our independent
variables. Currently, there is a confusion on the selection of
dimensions of work ethics.
The organization always look for the employees who can
perform their job well. Employees with strong work ethics are
reliable, hardworking and use a great amount of efforts. There

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appear to be four broad categories of theory about work ethics
and more specific and concrete theories on satisfaction. The
four categories in relation to work ethics can be labelled as
deontology, utilitarianism, rights and virtues.
Deontological class of ethics
Deontological class states that people should oblige to their
duties and follow ethics while making decisions. Upholding duty
is what ethically correct. For instance, a deontologist must
always keep his promises following the law. Decisions will be
consistent if the individual follows the deontological theory. This
theory contains positive attributes to avoid conflicts. Individual
employees can play an important role in the welfare of others
with a clear ethical correct resolution.
Utilitarianism class of ethics
Utilitarian ethical theories are based on one’s ability to
predict the consequences of an action. According to utilitarian
the greatest benefit to the individual through the decision was
taken ethically is the best choice. Act utilitarian and rule
utilitarian are the two types of utilitarian class of ethics. Act
utilitarian refers to the act of the person benefiting to another
person. Whereas rule utilitarian refers to the benefit of people
with fair justice. Comparing the tangible gains like money and
intangible gains like happiness, utilitarian ethics is difficult to
quantify to a large extent. Thus an individual would not be
concerned of justice that leads to benefit the majority of the
people.
Ethical theory based on Rights
Rights of an individual are considered to be correct if the
majority of the population endorse them. In ethical theories,
rights are established to protect the society. Individuals have the
right if they have ability or resource to influence others. The
major complication of this theory is the lack of characteristics to
influence on a large scale. The rights must be upheld and
determined by the individuals based on their goals and ethical
priorities.
Ethics based on Virtue
The virtue based ethics focuses on the character of the
individual in order to judge his behavior. It views the individual
person’s reputation moral and motivation while rating the beha-
vior. A person who has reputation for misconduct is more likely
to be judged harshly.
2.2. Theoretical view on job satisfaction
There are many approaches and theories about satisfaction.
However, we have a specific theory related to explaining job
satisfaction often built on disciplinary perspectives like psy-
chology and performance. It is not an easy task to confirm the
theories. In the field of behavioral research, measurement of
satisfaction is often described as the key issue. We, therefore,
might be tempted to extend this to the study of employee job
satisfaction.
Neither the descriptive nor the strategic model are able to
provide much insight into how work ethics translates into
satisfaction. They sensibly view ethics as the only part of the
explanation for performance and suggests various sub system
that aligns and support each other for superior performance.
The right people will be in right place to do right things.
In the strategic version, the descriptive models give more
weightage to the active role of employees due to their employee
relation roots. In contract, more specific behavioral theories
focus on the organizational psychology with an assumption that
42
ethics increases motivation and commitment of employees. The
key factors that constitute satisfaction are derived from specific
theories of motivation, expectation and goal setting and so on.
The key features of this theories spell out the linkage between
work ethics and job satisfaction.
Starting with the latter in a broader level, the expectancy
theory of motivation provides a coherent rationale for the linkage
between ethics and satisfaction. This approach in relation to
ethics and satisfaction was adopted by (Alsop & Heinsohn,
2005; Apasu, 1986) who suggested that,
“Unethical employees operating in an ethical organi-
zation should experience a misfit and be more willing to
leave the organization. When employees possess
knowledge and skills that are absent in the manager,
employees are motivated to apply those skills and
knowledge in discretionary efforts”.
The expectancy theory to Victor, (1964), explains that “job
satisfaction on the basis that the procedure of satisfaction or
dissatisfaction transpires as a consequence of the analogy”.
Consequently, the theory basically describes an individual’s
understanding of the connection between efforts needed the
level of anticipated presentation and the anticipated level of
rewards.
Maslow promulgated with motivation and personality which
presented his theory on the satisfaction of people through their
personal requirements about how people satisfy various per-
sonal needs. It is often clear in many cases as a pyramid with
the survival need at the broad-based bottom and the necessity
of self-realization at the narrow top (Gawel, 1997). Maslow’s
(1970) hierarchy of needs theory in which needs have been
identified in the form of a hierarchical gradient is a five-level. The
least request comprised of the fundamental physiological needs,
for example, water, sustenance, and shelter. The second
request comprised of physical and money related security. The
third request comprised of social needs which included having a
place, affection, and acknowledgement of others. The fourth
request comprised of self-regard and acknowledgment by
companions. The fifth and most elevated request of necessities
comprised of self-completion; which included self-advancement,
independence, and self-bearing. On the premise of Maslow's
hypothesis, work fulfillment has been drawn closer by a few
analysts from the point of view of need satisfaction (Gui,
Barriball, & While, 2009).
2.3. Empirical evidence on work ethics
and job satisfaction
Previous research has shown that ethics is a humanistic
device to improve the quality of working life for police personnel
(Lincoln, Travers, Ackers, & Wilkinson, 2002). In addition, it
enhances the ability of an individual or group to make options
and transfer those options to the required procedures and
results (Alsop & Heinsohn, 2005). Indeed, a management
pattern which leads to employee motivation is the antithesis of
an authoritarian management style, where supervisors make all
key decisions (Gill, Flaschner, & Bhutani, 2010). Hence,
employee motivation and participation flows from the general
principle of participative management. Its aim is to achieve a
positive link between participation of employees, Job Satisfaction,
motivation and performance, personal commitment (Doughty &
Rinehart, 2004). In this regard, when they enjoy both the
participation of employees and leader support, they regularly
achieve their goals, either by improving Job Satisfaction or by
successfully introducing a quality-enhancing innovation; addition
improving employee’s morale and Job Satisfaction (Doughty &
Rinehart, 2004; Vacharakiat, 2008). Previous research has
shown that employee behavior is a form of freedom in which
police personnel makes decisions to ensure maximum Job
Satisfaction (Hunjra, Ul Haq, Akbar, & Yousaf, 2011). So, if
Vol. 20, No. 168/ February 2019 QUALITY
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certain guidelines are followed and its limitations are un-
derstood, Empowerment can be an effective tool (Nykodym,
Simonetti, Nielsen, & Welling, 1994).
Numerous studies have been conducted on the influence of
work ethics on job satisfaction and found a positive relationship
between them (Ali & Al-Kazemi, 2007; Hussein et al., 2010;
Okpara & Wynn, 2008). While other researchers found weak or
no significant influence of work ethics on job satisfaction (Elkins,
2007; Komari & Djafar, 2013). Thus it becomes crucial to
investigate the influence of work ethics on job satisfaction of
employees.
Relationship
Authors
between ethics and
(Hamilton-Attwell, 1998 Turnipseed, 2002)
Productivity
(Koonmee, Singhapakdi, Virakul, & Lee, 2010)
(Miller, Woehr, & Hudspeth, 2002) (Furnham,
Organizational
1982) (Petty & Hill, 2017) (Abdi, Nor, & Radzi,
performance
2014)
(Vitell & Davis, 1990) (Kowal & Roztocki,
Job Satisfaction
2015) (Mahembe & Chipunza, 2014)
(Thau, Derfler-Rozin, Pitesa, Mitchell, &
Behavior
Pillutla, 2015) (Fu, 2014)
Organizational
(Murtaza et al., 2016a) (Abdi et al., 2014)
commitment
Source: Prepared by the authors
Table1. Previous studies on ethics
There have been many studies investigated on the rela-
tionship between ethics and job satisfaction, however, the
studies investigating the impact of work ethics on job satisfaction
are limited. Research relating to ethics and organizational
performance (Miller et al., 2002); (Furnham, 1982); (Petty & Hill,
2017); (Abdi et al., 2014) productivity (Hamilton-Attwell, 1998;
Turnipseed, 2002); (Koonmee et al., 2010), job satisfaction
(Vitell & Davis, 1990); (Kowal & Roztocki, 2015); (Mahembe &
Chipunza, 2014), behavior (Thau et al., 2015); (Fu, 2014),
organizational commitment (Murtaza et al., 2016a); (Abdi et al.,
2014) were found to have significant positive relationships. A
critical review of these studies finds that while the relationship
between ethics and productivity, organizational performance
and job satisfaction behavior have been investigated in the
individual settings, the relationship between work ethics and job
satisfaction together have not discussed critically. Thus the
present study examines the relationship between work ethics
and job satisfaction among banking employees.
2.4. Work ethics enhancing job satisfaction
for research oriented work
The primary objective of ethics enhancing job satisfaction is
to create appropriate conditions for researchers who need the
motivation to get engaged in research oriented work. Work
ethics is a collection of values and morality that is used to
describe the action and behavior of people and compare them
by their culture (Geren, 2011). There are several components of
work ethics discussed and highlighted by previous studies. This
study focuses on components of work ethics like care, ethics
code, regulations, instrumental, independence, hard work, and
work as goal and time utilization. Measuring the concept of work
ethics, in reality, is a multi-dimensional concept that focuses on
work environment, focuses on a variety of subjects from leisure,
and morality.
Care is defined as the attitude of the employees towards
their colleagues and other people inside and outside the
organization. When the employees get additional benefits and
compensation from the company, they care for the company too
by obeying professional codes ethically.
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The ethics code is defined as the ethical code based on the
professions of the individual employee. For the ethical behavior
of the employees work ethics play an important role in the orga-
nization. Work ethics of the employee helps the organization to
understand the behavior of the employee ethically (Valentine &
Barnett, 2007a). Code of ethics have been considered by Elçi
and Alpkan (2009) that confirmed work attitude and job satis-
faction.
Rules set for the employees to obey visualizing their attitude
is considered as regulations. Increase in ethical behavior of
employees encourages work regulation in the organization
(Kaptein, 2008). Thus it is very important for the organization to
control the work behavior of employees that will eventually
improve their loyalty and satisfaction. Organizations that focus
on pay and employee participation increases the commitment of
the employees to the organizations.
Instrumental is defined as selflessness among employees
towards their colleagues in the organization. Victor and Cullen
(1988) investigated on the factors of work ethics like caring,
instrumentality, regulation and found that work ethics helps to
prevent issues that will be effective to the organization and
employees. In the recent research performed by Shacklock,
Manning, and Hort (2011) approach to the development and
measurement of instrumental ethics lead to work satisfaction.
They also defined instrumental as the degree to which employee
look out their own interest.
The degree to which employees are guided by their moral
beliefs personally is considered as independence (Shacklock
et al., 2011). Employees have the right to be guided by their own
interests in the organization. Each employee in the organization
confirms what is right and wrong. The dimensions associated
with independence with the principal of ethics are related to the
employee’s personal and moral beliefs. Employees focus on
themselves and are guided by their own personal ethics.
Employees that have the attitude to work hard in the or-
ganization is defined as hard work. Faithful involvement and
commitment to work lead to decrease unethical behavior like
begging, laziness, and a waste of time. Quality of work was found
to be more important than hard work with an integral component
of motivation and human life.
The behavior and the decision making of the employees
have been influenced in the work environment; operationali-
zation of the field of psychology includes distinguishing proof of
the set of highlights of the social environment. Koh and El'Fred
(2001) investigated the relationship between work values and
organization's responsibility taking into account a specimen of
employees in Singapore and found that inherent work qualities
relate more similar to organizational responsibility than extrinsic
work values.
While most of the empirical studies have focused on the role
of work values, involvement, motivation, attitude on ethical be-
havior, an important area of research is to examine the
consequences when work ethics of individuals are perceived to
improve their job satisfaction. Managers can favorably influence
organizational outcomes by supporting and rewarding ethics of
individual employees (Koh and Elfred, 2001). Thus, the hypo-
thesis tested in this paper can be stated as:
H1: Quality Work ethics (Care, Ethics code, Regulations,
instrumental, independence, hard work, and work as a goal) of
the individual employees are perceived to have a positive
influence on job satisfaction.
3. Methodology
The database consisted of front line executives (n = 89)
employed in three major commercial banks each of them
covering five branches in Amman Jordan. We distributed 100
surveys, out of which we are able to collect 93 responses. Four
responses were found to have incomplete information and
43
 QUALITY MANAGEMENT
therefore they were excluded. It was not an easy task to reach As shown in Table 3, all the correlations were significant at
out all the banking employees and thus the study sample was the 0.01 level. Thus the hypothesis of having significant co-
limited to 89 responses with the response rate of 89%. All the rrelations between dimensions of work ethics and job satis-
banks were in the metropolitan areas of Amman. 76% of the faction was high. Amongst the dimensions of work ethics,
respondents were male and most of them were having a gra- instrumental was found to have a high significant correlation with
duate degree. The mean age of the respondents was 33.8 (34) the job satisfaction. Instrumental stands for selflessness among
years (SD = 6.79 years). The mean experience level was 7.91 employees in the organization. Employees feel more satisfied
years (SD = 5.04 years). when they are concern more with the needs and wishes of
others than that of its own. The correlations between the work
3.1. Procedure ethics of the front line employees and their job satisfaction are
summarized in Table 3.
A self-administered survey questionnaire was delivered Dimensions of work ethics correlated
personally to the front line managers of Jordan banks with with job satisfaction of the employees Correlation
probability sampling technique. The survey was in English and Care 0.488**
Arabic in order to avoid any response bias. The survey included
Ethics code 0.495**
demographic information of the employees together with the
Regulations 0.531**
constructs of work ethics and job satisfaction. Measures of work
ethics and job satisfaction employed a 5 point Likert scale with Instrumental 0.535**
(1) indicating less important and (5) indicating high important. Independence 0.504**
Hard work 0.438**
3.2. Findings Work as goal 0.481**
N = 89. ** p<0.01; Two tailed
The analysis involved descriptive statistics and bivariate
correlations between each dimension of work ethics with the job Table 3. Bivariate correlations
satisfaction of the employees. The measures for the work ethics
was scored such that high score indicated high important. Thus,
positive correlation indicated support for the hypothesis:
increase in work ethics will lead to increase job satisfaction of
the employees.

4. Results
The mean, standard deviations and alpha coefficient of the
constructs analyzed in this paper are reported in Table 2. The
alpha coefficient for the constructs ranges from 0.68 to 0.89.
That is some of the variables was having less alpha coefficient
than the criteria of 0.70 (Hair et al, 1998). In particular work
ethics with instrument and independence have an alpha
coefficient of 0.68 and 0.65 respectively.
As suggested by previous referees like (Tavakol & Dennick,
2011; Vaske, Beaman, & Sponarski, 2017) the item inter-
correlation may be the reason for low reliability. It was found that
after dropping the third item from the independence dimension
of work ethics the alpha coefficient was improved from 0.65 to
0.72. Also dropping the second item from the instrumental
dimension of work ethics the alpha coefficient was improved
from 0.68 to 0.74. The cronbach’s alpha statistic was consistent
with the measures of other studies like (Khan, Abbas, Gul, &
Raja, 2015; Valentine, Fleischman, & Godkin, 2015) of job
satisfaction. When the level of job satisfaction in the workplace,
the analysis follows the weighted average of the employee’s
response in each workplace (de Menezes, 2012).
Variable Mean Standard Deviation Alpha coefficient
Care 3.97 1.43 0.79
Ethics code 4.28 1.12 0.77
Regulations 4.09 1.25 0.89
Instrumental 3.93 1.21 0.74*
Independence 4.73 1.16 0.72*
Hard work 3.95 1.01 0.81
Work as goal 4.42 1.05 0.82 Note: Extraction Method: Principal Component Analysis;
Job satisfaction 4.53 1.05 0.81 Rotation Method: Varimax with Kaiser Normalization; C - Care;
EC – Ethical code; IT – Instrumental; RE – Regulations; HW –
* Revised alpha coefficient after removal of one item from the Hard work; CG – Career goals; IN – Independence; JS – Job
original measurement. satisfaction
Table 2. Descriptive Statistics and alpha coefficient Table 4. Factor loadings

44 Vol. 20, No. 168/ February 2019 QUALITY

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Generally, the findings of the study were consistent with the
findings of previous literature studies on ethics. As compared to
the findings of previous literature Koh and Elfred (2001), the
current findings are stronger and possess a significant rela-
tionship between quality work ethics and job satisfaction. In
contrast, Viswesvaran et al (1998) found only one dimension of
ethics having a positive correlation on job satisfaction.
Quality work ethics and job satisfaction were found to be
separate factors as shown in Table.4. The factor loadings
ranged from 0.502 to 0.92 and the three care items caring of
people inside and outside the organization (0.55), good for all
employees (0.593) and best for everyone in the organization
(0.502) had low factor loadings. All the other measurements for
the constructs were in the range of factor loading.
4.1. Regression analysis
Hierarchal level regression analysis was conducted to test
the hypothesis 1. Hypothesis 1 suggested a positive influence of
quality work ethics on job satisfaction. The result presented in
Table.5 showed that factors of quality work ethics are positively
associated with employee job satisfaction. Employee
independence, hard work and work goal under quality work
ethics was found to have high integration towards employee job
satisfaction (p value <0.05).
Note: Dependent variable: Job satisfaction
N =89; *p <0.10; **p < 0.01; ***p < 0.001
However, there was no evidence found for ethical code,
regulations and instrumental influencing employee job satis-
faction. The link between quality work ethics and employee job
satisfaction was confirmed. It was worth noticing that Table 5
also shows weak interaction between care, ethical code,
regulations and instrumentals with employee job satisfaction,
which is the subject of investigation (p value > 0.05). This may
indicate that employees may experience unfit with the regu-
lations they are bounded within the organization and that makes
them uncomfortable. It is crucial for the organization to take
proper care of their employees.
5. Managerial Implications
Thus, favorable ethics is associated with job satisfaction with
important implications. Work ethics and job satisfaction go hand
in hand. Hard work and diligence are the examples of work
ethics. Thus the managers must provide the moral benefit to
work and ability to the employees. Ethics must be reliable, good
social skills and positive initiatives. An employee having good
work ethics is more eligible for selected positions, more
responsibility and promotion. Whereas, the employee who fails
to exhibit good work are not promoted or given greater res-
ponsibility.
The main purpose of this study was to assess the role of
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Access to Success Vol. 20, No. 168/ February 2019
quality work ethics on job satisfaction of employees. The result
of this study revealed that banking employee’s ethics influence
their job satisfaction potentially. Furthermore, it was also found
that commitment of the employees play a crucial role enhancing
the relationship between ethics and satisfaction. Employees are
willing to perform their task because they have positive feelings
and emotions towards the company. However, it will be
challenge to change work quality of an employee with the
implementation of policies of what economists calls them a
Pareto improvement.
This study helps the managers and individuals to understand
theoretically and practically how the work ethics with reference
to quality stimulate job satisfaction. Theoretically, many studies
have explored the influence of organizational ethics on per-
formance or satisfaction. Yet, seldom research has focused on
work ethics of employees in the banking sector. Practically this
study will help the organization to reduce their turnover and
would support their employees to develop strong ethical be-
havior. It is suggested to the management leaders that produ-
cing a constructive job attitude and organizational outcomes can
be fulfilled with work ethics. The result highlighted the impor-
tance of work ethics with emphasis laid on employees. The
findings of having independency and work goals as an important
factor of work ethics are very important for the banking pro-
fessionals to keep their workforce satisfied. It is the respon-
sibility of the employees and the organization to tackle ethical
issues in the workplace.
6. Conclusion
Quality work ethics is important for an individual wellbeing.
As employees reciprocate their efforts, retention and enga-
gement towards their work, they are highly satisfied in return.
Ethical concerns by individuals in the organization have been
the main focus of the study in recent years. Research examining
individual concern of work ethics postulated to affect job
satisfaction is almost nonexistent. Due to the globalization of
businesses, there is an urgent need to perform an empirical
investigation on quality work ethics towards job satisfaction of
the individuals. This study investigated the correlation between
quality work ethics dimensions and job satisfaction and the
result obtained from bivariate correlations indicated a significant
positive link between all the constructs. These findings imply
that work ethics is one of the key attributes that can increase
employee’s job satisfaction together with other organizational
outcomes. Most importantly, it is crucial for the managers to be
aware that increasing employee’s job satisfaction can lead to
increased organizational commitment, lower labour turnover
and improve productivity. This study used to care, ethical code,
regulations, instrumental, independence, hard work and work
goal as the dimensions of quality work ethics. However, the
quality work ethics program can go beyond these components.
The study found a significant contribution by work ethical di-
mensions like independence, hard work and work goals on job
satisfaction. Furthermore, it was also revealed that it is a big
challenge for the banks to maintain the satisfaction level of their
employees.
7. Emerging issues for future research
on work ethics and job satisfaction
Review of literature on ethics has noticed a surge in
research on ethical behavior. However, very little research has
focused on quality work ethics of employees as individual
consequences. A key issue identified is the lack of theory about
the nature of strong work ethics in the employees. Ethics is
concerned with working goals and time utilization to fulfil the
task wisely but a distinctive approach to this concern that
45
 QUALITY MANAGEMENT
matters is lacking. There is a little consensus on developing a
theory of ethics. This study proposed that focusing on something
like expectancy theory would provide a sensible rationale for the
ethical practices. Expectancy theory configures depending on
rewards and motivation indicating satisfaction can be
considered with high performance. The alternative approach is
to use the statistical method and to see what emerges from
factor analysis. We would also care of corporate social
responsibility associated with ethics and job satisfaction. Finally,
there is a need to be cautious about the validity assumption
while performing the data collection on the basis of different
corporate departments. Finally, future research should be
performed taking into consideration the consequences of quality
and strong work ethics at international level.

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APPENDIX
Code Measurement items
Care1 I take care of people inside and outside organization
Care2 Good for all the employees in the organization is most important concern
Care3 What is best for everyone is the major concern in this organization
Ethic code1 I make decision based on professional code of ethics
Ethic code2 Employees in this organization are expected to strictly follow legal standard
Ethic code3 First consideration for the organization is to check whether employee decision violates any law
Ethic code4 The law or ethical code of employee’s profession is major concern
Regulation1 I obey rules set for employee working attitude
Regulation2 Every employee must stick to organization’s rules and regulations
Regulation3 It is very important to follow organization’s rules and procedures
Regulation4 Organizational policies are strictly obeyed in this organization
Instrument1 I am instrumental among people within the organization
Instrument2 Employees protect other consideration rather than protecting their own interest
Instrument3 Organization’s interest is not hurt during the work consideration
Instrument4 Employees can do anything further to protect organization’s interest
Independent1 I consider moral beliefs based on principles
Independent2 Employees have right to decide what is right and wrong
Independent3 Own personal and moral beliefs of employees are followed
Hard work1 I am always willing to work
Hard work2 I have positive attitude towards work
Hard work3 Working efficiently is my major concern
Work goal1 I am always self-esteemed with the work I do
Work goal2 Employees always attempts to improve their efficiency
Work goal3 Employees are always highly motivated
Work goal4 Employees set their tasks and attempts to fulfill them
JS1 I am satisfied with remuneration provided by the organization
JS2 I am satisfied with the career opportunity provided by the organization
JS3 I am satisfied working with co-workers in the organization
JS4 Supervisor is able to provide technical assistance and support to me
JS5 Job is interesting to me
JS6 I am satisfied with the training provided to me

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Evaluating the Affect of Harmony between Consumer Psyche

and Brand on Customer Loyalty in the Insurance Sector

Komal MALIK1, Harsh VARDHAN2, Vinitendra P. SINGH3

1Corresponding Author, Assistant Professor, Amity Business School, Amity University Uttar Pradesh, Lucknow Campus, India;
Mob: +91 9335351308; E-mail: kmalik@lko.amity.edu
2Director Amity Business School and Amity School of Liberal Arts, Amity University Uttar Pradesh, Lucknow Campus, India;
Mob: +91 9810573713; E-mail: hvardhan@lko.amity.edu
3Professor, BBD University, Lucknow, India; Mob: +91 9839139762; E-mail: vinitendra.singh@gmail.com

Abstract

The study examines the linkage between the brand-consumer personality congruence and customer loyalty and
discerns the mediating roles of the perceived brand relationship quality and customer satisfaction in explaining this
linkage. The study employs an individual survey amongst 654 respondents (insurance service users) for data
collection using a structured questionnaire. The data has been analyzed using structural equation modelling.
The empirical findings establish the mediating roles of the perceived level of customer satisfaction and perception of
brand relationship quality in explaining the effect of brand-consumer relationship congruence on the customer loyalty
behaviour.
The study contributes in providing indicators for the advancement of supportive brands based on self identity theories.
It also enhances our understanding of brand personality thereby helping in an enhanced designing of marketing
communication and other related marketing activities. This paper explores the outcomes of various relationship
marketing activities in explaining quality of relationship in India (Lucknow, U.P.) and is a source of information to
insurance services marketers. This paper serves as one of the pioneer studies to analyze the outcomes of
relationship marketing activities in explaining the quality of the relationship in Indian context. It offers practical
guidelines to national and international marketers who are planning to woo the Indian insurance markets.

Keywords: brand-consumer personality congruence; relationship quality; customer satisfaction; customer loyalty;
mediation.

1. Introduction for customer retention under the relationship marketing approach.

Survival in highly competitive markets requires the business
organizations to maintain their market share by focusing on
customer retention as a high quality of customer-firm rela-
tionships can influence the consumption of services offered.
Amongst the Service sector, Insurance has been growing
relatively fast in India. Due to increasing awareness level of the
consumers and existence of intense competition in the markets,
consumers stand with a lot of choice and hence expect and
demand better service quality. The contemporary borderless
world is flooded with customers that have gradually become
demanding, knowledgeable and lesser attached which is a
challenge for the service companies. Post liberalisation of the
Insurance Industry, it is very well understood that sustainability
of the company and business enhancement, largely depends
upon excellent relationship management , Service Quality and
consumers perception of the insured amounts security, which
also happens to be its most crucial component of competitive-
ness and a differentiating factor. Relationship marketing
emphasises the development and maintenance of long-lasting
relationships between the firm and its customers (Parvatiyar &
Sheth, 2000). It has been established that acquiring a new
customer can be more costly for a company that retaining an old
one. Retaining 5% of its customers and establishing a prolonged
relationship with them can help a company increase its profit by
100% (Reichheld & Sasser, 1990). In order to make the
marketing efforts more productive, higher budgets are allocated
The study specifically intended to examine the linkage across
the various relationship marketing and branding activities
manifested through brand-consumer personality congruence in
explaining customer loyalty in Indian Insurance sector. It also
examines the role of customer satisfaction and relationship
quality as the mediators in this linkage.
2. Literature Review
2.1. Customer Loyalty
Intense competition in the service businesses and com-
plexity in the business environment has shifted the focus on
customers in the Insurance Sector. Insurance Companies can
create value by monitoring their interactions with customers, by
understanding their needs and providing them satisfaction.
Customer loyalty and retention is a major challenge faced by the
insurance players in the market. Relationship marketing is an
important tool through which customer loyalty can be achieved
by this sector. Parvatiyar & Sheth (2000) discussed relationship
marketing as a continuous process of engaging consumers of
the products and services in a number of collaborative and joint
activities and programs so as to build up mutual economic value
at a lower cost. Mishra & Li (2008) refer it to as all marketing
based activities that focus on laying the foundation, growth and
continuing successful exchange of relationships. Loyalty is an
important marketing construct as the repeat purchase decisions

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are dependent on the construed brand image the consumers
carry in their minds instead of the actual product or service
attributes.
Therefore marketers of insurance companies should focus
on the creation of the unique brand identity which in turn can be
instrumental for efficient brand equity management.
Brand personality which is a manifestation of brand identity
is a critical discerning factor that can help in differentiating a
brand from other competitive brands as it creates unique
affiliation with the consumers.
According to Jamal & Al-Marri (2007); Magin et al., (2003)
the customers loyalty towards the brand is also improved as a
result of the congruence between consumer personality and
brand personality. A better competitive edge and an enhanced
customer satisfaction can be achieved by companies through
Customer loyalty. The growth and survival of companies depend
on how loyal their customers are of which insurance is no
exception. Transforming a neutral opinion into a loyal one and
building a long term association with customers is vital for the
financial performance of the organisation. Further Khan (2012)
examined the importance of customer satisfaction and retention
on Customer Loyalty and concluded that customer satisfaction
has a significant while customer retention has an insignificant
impact on the customer loyalty. Taking the concept further, Rai &
Srivastava (2013) explored seven variables which are res-
ponsible for formation of customer loyalty and revealed that
service quality and commitment are the strongest predictors of
customer loyalty in the Indian insurance industry. Literature also
proves that customers intensions of repurchasing a product
largely depends upon their loyalty quotient. Particularly for the
Insurance Sector (Ombasa, 2015) recommended that an
efficient internal process, superior customer service, high quality
service delivery, good corporate reputation, higher returns leads
to an increase in the level of customer satisfaction. A sales
person’s ethical behaviour also helps in winning a customer’s
trust which in turn influences brand loyalty.
Owing to these developments, the present day marketers
have focused their attention to loyalty based repetitive pur-
chases and look for cross-selling opportunities rather than
targeting individual transactions.
2.2. Brand-consumer personality congruence
Developing the personality of a brand can be beneficial to a
customer. An insurance company can position each plan with a
unique personality. These perceptions of brand personality can
be directly or indirectly created as a result of various marketing
communications and consumers interactions with the consu-
mers (Ahmad & Tyagaraj, 2015). Companies try to develop
personalities that are similar with that of the consumers resulting
into formation of a bond between the consumer and the brand.
These strong relationships result in satisfaction and further
promote brand loyalty (Orth et al., 2010). The desire to express
once own self results into purchase of products and services
based on self-image congruency. Consumers feel motivated to
purchase the product when they find a consistency between
their self-image and the perceived product image. (Dwivedi,
2014). This congruence has an influence on consumer’s pre-
ference, purchase intension, ownership, usage and loyalty.
Brand Personality of an insurance plan represents product
related benefits. A brand’s personality can enable a specific
brand the opportunity to be more persuasive in promoting its
functional benefits which in turn influences consumers purchase
decisions. The personality of the consumer is also reflected from
the purchase of certain brands. Tuskej et al., (2013) through
their study showed that congruity of consumer and brand values
tends to have a positive influence on consumers identification
resulting into a stronger commitment to a brand.
Research shows that consumers, whose self-concept is
congruent to a brands personality and have a positive ex-
perience with the brand, develop emotional brand attachment
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and trust (Mann & Rawat, 2016) and this harmony develops
feelings towards satisfaction and consumer–brand relationships.
It also facilitates a positive attitude and a positive behaviour
towards the product.
Futher, (Ghantous, 2016) highlighted that Self-Congruity and
Brand Credibility play a pivot role in mediating the impact of
brand personality on satisfaction and loyalty in the service
sector. Rahi (2016) also conducted a study to find the empirical
relationship between Customer Value, perception of public rela-
tions and Brand Image and the impact of these variables on
customer Loyalty in Insurance Sector and found these variables
to have a positive significant impact on customer loyalty and can
bring about a change in the level of customer loyalty.
Kressmann et al., (2006) also contributed to the marketing
literature and indicate that self-image congruency positively
affects brand loyalty directly or indirectly through brand relation-
ship quality suggesting brand managers to identify the self-
concept of their targeted customers and build a clear brand
personality. Consumer brand relationship quality helps in in-
creasing customer loyalty particularly in products for which the
customer shows high involvement such as insurance. Literature
supports the fact that consumers show loyalty, commitment,
dependency trust and self-connection with the plans of life
Insurance corporation as compared to any other private players
in the market.
2.3. Relationship quality
Relationship quality is often based on the customers percep-
tion of various communication and behavioural parameters
shown by a particular service provider in terms of respect,
sympathy, warmth, affinity, and assistance. This involves indu-
cing feelings and emotional states through customer-employees
interactions. A number of studies focussing on relationship
marketing have been conducted on sectors like banking, insu-
rance, retailing, hospital, professional associations, and hotels.
Crosby et al., (1990) examined the quality of the relationship
in the selling of services and found that coordinated intensions,
collective disclosure and a comprehensive follow up with the
customers helps in building a strong and a stable buyer-seller
relationship. Brand relationship quality has also been recog-
nised as an important predictor of brand loyalty hinting brand
managers to create a positive consumer-brand interaction.
Literature further suggests greater involvement to enhance brand
relationship quality.
Research study conducted by (Ramaseshan & Tsao, 2007)
investigates the moderating effect of brand concept on the
relationship between brand personality and perceived quality
and revealed that amongst the five brand personality dimen-
sions, excitement and sophistication were most strongly
associated with perceived quality when the brands and symbolic
and experiential brand concepts. This proves that brand per-
sonality can be used by marketers as a cue to brand’s perceived
quality amongst their customers. Consumers share relation-
ships with many brands. It is the brand relationship quality that
makes a strong consumer brand relationship which in turn builds
up brand loyalty.
Fournier (1998) had introduced six dimensions of brand
relationship quality which were love and passion, self-
connectivity, interdependence, commitment, intimacy and brand
as a partner.
In his study (Ghantous, 2016) proposes service brand
personality’s role as a driver of brand relationship quality. The
brand personality indicator competence has a very strong
impact on relationship quality. There is a need for the brand’s
personality to be consistent with the brand’s positioning and
image.
Albert & Merunka, (2013) demonstrated through their study
that a strong relationship exists between the two antecedents
(trust and identification) and brand love and between brand love
and its consequences (brand commitment, positive word of
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mouth and propensity to pay a higher price for the brand. image and its relationship with brand loyalty have failed to
Caceres & Paparoidamis (2007) studied the mediating role address the issue adequately. In this study an attempt is made
of overall relationship satisfaction in the formation of loyalty. The to examine the effect of brand-consumer personality con-
overall effects of trust and commitment were also verified. gruence on customer loyalty with relationship quality and
Yen (2012) examined the relationship between life Insurance customer satisfaction as the mediators in the city of Lucknow.
Service providers’ attributes and consumers perception of the
relationship quality and found that service providers attributes
are positively related to consumers perception of the relation- 4. Conceptual Framework
ship quality.
Suki (2013) further examined the effects of the quality of the
service on customer satisfaction with delivery of services in the
insurance industry and found that assurance, tangibility and
empathy have a significantly positive relationship with customer
satisfaction with respect to service delivery. Moreover skilled
and experienced employees of the insurance companies and
dedicated agents provides more confidence to the customers of
the company. The study also highlighted that good commu-
nication skills and a pleasant atmosphere results in an increased
customer satisfaction and a better relationship with the brand.

2.4. Customer Satisfaction

Customer satisfaction is a critical factor for business growth
and sustainability in insurance sector (Robson & Sekhon, 2011)
leading to repeat purchase, customer loyalty with a competitive
advantage (Basir et al., 2012; Kesharwani & Shailendra, 2012).
Consumers build relationship with the brands after initially
using them and when they consider them as valuable. As per the
findings of Hennig-Thurau; Gwinner & Gremler (2002) customer
loyalty and a positive customer word-of-mouth communication
are referred to as key relationship marketing outcomes in the
marketing literature.
The constructs of customer satisfaction, commitment and
trust are dimensions of relationship quality and also directly
influence customer loyalty. Social benefits also have a special
relevance and are considered above technical quality of servi-
ces in influencing relationship marketing. Service companies
must communicate their offerings in a manner that they satisfy
the needs of the customers and also serve in building strong
relationship commitment. Agariya & Singh (2011) have given six
constructs, namely trust, customer satisfaction, service quality,
customer lifetime value, customer retention and customer
loyalty catering to the insurance sector. Customer Satisfaction
along with a strong bond, greater confidence and faith,
communication and commitment are confirmed as key dimen-
sions of relationship marketing orientation (Alrubaiee & Al-
Nazer, 2010).
The study by Ghantous (2016) shows that in the services
sector the relationship quality dimensions brand credibility and
self-congruity play a mediating role in the relationship between
brand personality and customer satisfaction and loyalty.
Customer satisfaction is the result of the experience the
customer has with the service provider. Satisfaction in the
insurance sector will lead to the avoidance of lapse rate,
cancellations and surrender of policies. Investment into life
insurance normally serve the long term needs of the customers
and can be into retirement plans, pension plans, medical,
education and health. The quality of services delivered, public
perception of the performance, operational efficiency and
matching the consumers expectations with service delivery
results into an increase customer satisfaction and subsequently
an enhanced customer loyalty.
3. Research Gap
Figure 1. Hypothesised model
The review of secondary data (previous research) helped in
the development of the proposed conceptual model (Fig. 1).The
model considers brand-consumer personality congruence,
brand-consumer relationship quality (referred to as ‘relationship
quality’), customer satisfaction and customer loyalty as the four
constructs in the study whose interrelationships are to be
ascertained using empirical evidence.
5. Objectives
(i) To analyze the effect of brand-consumer personality
congruence on customer loyalty among insurance-service users.
(ii) To analyse the effect of brand-consumer personality
congruence on customer loyalty among insurance-service users
with relationship quality as mediator.
(iii) To analyse the effect of brand-consumer personality
congruence on customer loyalty among insurance-service users
with customer satisfaction as mediator.
6. Study Hypotheses
H1: Brand-Consumer personality Congruence has a positive
effect on Customer
Loyalty mediated by Customer Satisfaction.
H2: Brand-Consumer personality Congruence has a positive
effect on Customer
Loyalty mediated by perceived brand-relationship quality.
7. Research Methodology
7.1. Research Design
The study employed a quantitative research design using
cross-sectional data and purposive sampling for data collection.
A structured questionnaire was used for the main phase of data
collection. The questionnaire used for the study was a modified
version of validated instruments used in previous researches.

Most of the previous research studies have been conducted
in developed countries and describe the role of either service
quality or relationship quality, customer satisfaction individually
on customer loyalty. Further, a number of studies on the
congruity between the perception of their self-image and brand-
7.2. Sample Unit
The individuals who had been using insurance products for
more than five years around the city of Lucknow have been
taken as samples for the study.

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7.3. Sample size The full fledged SEM (Figure 2 given below), which has been
used with AMOS data-fitting program, exhibits a support for the
673 survey forms were distributed out of which 654 were hypothesized relationships. The use of the maximum likelihood
finally used for the analysis after the omission and rejection of estimation for the proposed model yielded several noteworthy
the incomplete forms (the effective response rate was 93.4% results, which collectively supported the adequacy of the model.
which was extremely good). The chi-square test of overall model fit has resulted with a
statistically significant good fit between the hypothesized model
7.4. Sampling Technique and the empirical data (χ2 = 4.535, p = .104; CMIN/df = 2.268).
The other statistics for indicating the overall fit (RMSEA = .044;
The questionnaire was then administered to the identified NFI = .998; CFI = .999) also satisfies their respective thresholds
participants using a personal interview method. In order to which are important in a good fitted model. Tables 1 and Table 2
reduce the systematic biasness in sampling, a deliberate (displayed below) furnish a summary of the different fit indices
attempt was made to represent different age groups and and the model parameters respectively.
different insurance service providers as well as the respondents Recommended
from distinct backgrounds. Fit Indices Results
Criteria
Sources
This was followed by the preparation of a master chart and
Chi-sqaure/d.f. 4.535/2 = 2.27 Less than 3.00 Hair et al. (1995)
the data was punched into Excel sheets. The study tested the
adequacy of the hypothesized model using structural equation GFI 0.997 Greater than 0.90 Hair et al. (1995)
modeling (SEM) approach through the statistical software, AGFI 0.979 Greater than 0.80 Scott (1994)
AMOS, version 16. Browne and
RMSEA 0.044 Less than 0.08
The set of items corresponding to each theoretical construct Cudeck (1993)
was subjected to examination of item-to total correlation and
Table 1. Summary of Fit Indices
exploratory factor analysis. The chi-square test of overall model
fit has also been used. Further, Sobel’s test has been used for Unstandar-
Hypothesi
mediation analysis. Model Parameters dize S. E. t-value
testing
Estimates
7.5. Data Collection Brand-Consumer
Customer
Personality 0.070 0.037 1.882 Supported
Loyalty
Primary Data has been used with the help of purposive Congruence
sampling. A structured questionnaire was designed and used on Perceived
Brand-Consumer
654 insurance policy holders. The questionnaire comprised of Brand
Personality 0.660 0.037 17.702 Supported
items related to customer loyalty and customer satisfaction .For Congruence
Relationship
Brand-Consumer personality Congruence Big Five dimensions Quality
of personality (i.e. extraversion, agreeableness, conscientious- Perceived
Brand-Consumer
ness, neuroticism and openness to experience) were used. Level of
Personality 0.239 0.043 5.587 Supported
Certain questions were also related to Consumer- Brand Congruence
Customer
relationship quality. The responses of the policy holders were Satisfaction
recorded on a five point Likert scale: with 1 implying totally agree Perceived Brand
Customer
to 5 implying totally disagree. Relationship
Loyalty
0.320 0.025 12.831 Supported
Reliability of the scale was estimated by analysis of internal Quality
consistency and Cronbach alpha coefficient (Cronbach, 1951). Perceived Level
Customer
Cronbach’s alpha is most often used to test the reliability of a of Customer
Loyalty
0.486 0.026 18.984 Supported
multi-item scale. The cut-off point is generally 0.6 (Hair et al., Satisfaction
1992). For a measure to be acceptable, coefficient alpha should Table 2. Summary of Model Parameters
be above 0.7 (Nunally, 1978). The reliability coefficient for the
subscales ranged in between 0.798 and 0.983 and all above 0.7
8.1. Analysis 1
hence, the reliability of the scale comes out to be quite good and
the evidence suggested that our scale had adequate measure-
H1: Brand-Consumer personality Congruence has a positive
ment properties.
effect on Customer
Loyalty mediated by Customer Satisfaction.
It is observed that direct relationship between Brand-
8. Analysis Consumer personality Congruence and customer loyalty has
been significant (β =0.077, p < 0.05, Fig. 2). The standardised
regression weight for the direct relationship between Brand-
Consumer personality Congruence and perceived level of cus-
tomer satisfaction is also positive (β = 0.194, p < 0.05, Fig. 2)
indicating the support for the hypothesis that Brand-Consumer
personality Congruence has a direct positive effect on perceived
level of Customer Satisfaction. Further the satisfaction signifi-
cantly affects customer loyalty in positive manner too (β = 0.657,
p < 0.05, Fig. 2).
Thus the above analysis leads to the acceptance of
Hypothesis 1: Brand-Consumer personality Congruence has a
positive effect on Customer Loyalty mediated by Customer
Satisfaction.

8.2. Analysis 2

H2: Brand-Consumer personality Congruence has a positive

Figure 2. Result of Structural Equations Modeling Approach effect on Customer

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 QUALITY MANAGEMENT
Loyalty mediated by perceived brand-relationship quality.
The findings of Sobel’s test for the mediation analysis reveal
that the indirect effect of the consumer brand personality con-
gruence on the consumer loyalty through the mediator brand
relationship quality is significant thereby supporting the second
study hypothesis ( Sobel’s test statistic = 10.3996, p < 0.05).
In order to find out the mediating relationship owing to
perceived brand consumer relationship quality, we observe that
Brand-Consumer personality Congruence significantly affects
Perceived quality (β = 0.597, p < 0.05, Fig. 2). The possible
reason behind the significant impact of Brand-Consumer per-
sonality Congruence on Perceived Quality is that customer
today is more conscious of brands in the current scenario and
often ends up judging the quality of merchandise on the basis of
the affinity or congruence between his personality attributes and
the brand he is using. Further the impact of the perceived Brand-
Consumer relationship quality on customer loyalty has been
statistically significant (β = 0.067, p < 0.05, Fig. 2) too. The results
from the Sobel’s test reveal that when perceived relationship
quality is the mediating variable, the indirect effect of Brand-
Consumer personality Congruence on Loyalty via the perceived
relationship quality emerges to be significant (Sobel’s test
statistic = 5.3267, p < 0.0) thereby supporting the second study
hypothesis.
The above analysis leads to the acceptance of Hypothesis 2:
Brand-Consumer Personality Congruence has a positive effect
on Customer Loyalty mediated by perceived brand relationship
Quality through the effect is an indirect positive one.
9. Results and Findings
The results of the study show statistically significant path
coefficients, which implies that the following causal links are
present.
(i) Brand-Consumer personality Congruence impacts the
perceived level of customer satisfaction which in turn impacts
the customer loyalty.
(ii) Brand-Consumer personality Congruence impacts the
perception of brand-relationship quality which in turn impacts the
customer loyalty.
Based on the different indices shown in the tables, the
overall fit of the measurement model is also found to be
acceptable. The effect of Brand-Consumer personality Con-
gruence on the customer loyalty has been explored directly as
well as indirectly through perceived brand- consumer rela-
tionship quality and perceived level of customer satisfaction.
Three paths have also been traced (Fig. 2).
The results provides insights for the development of
favourable brands on the basis of self-identity theories. Brand
personality is said to be favourable to the consumer when his
personality matches with the brand’s personality. Consumers
also maintain relationships with their favourite brands and
marketers are advised to have an understanding of the identity
relationship the consumers share with their brands. Various
marketing activities can be designed to promote the brand if the
marketers understand the identity relationship the consumer
shares with the brand.
The results of the study reveals that Brand-Consumer
personality Congruence significantly influences customer
satisfaction and perceived quality. This finding indicates that to
develop a customer loyalty, the customer needs to have con-
fidence on the brand which is generated from the brand-
consumer personality congruence. Purchase decision involves
not just a financial risk but also social, emotional and at times
physical risk. Since, the brand- consumer personality Congru-
ence formed in the mind of the customer influences to some
extent his perception of the relationship quality he shares with
the brand and hence loyalty, it would be worthwhile for the firms
to project and sustain the brand image that gels with its target
customers.
52
Further, perceived quality has a mediating effect on
promoting loyalty. Brand-Consumer personality Congruence as
can be seen alone has no significance in generating loyalty
among the customers; however, with the mediating effect of
perceived quality, it translates into effective customer loyalty
behavior.
The findings suggest that the firms has to strive for a
superior and strong Brand-Consumer personality Congruence
and this in consonance with quality and loyalty can be converted
effectively into repurchase intention.
A well communicated brand based on high Brand-Consumer
personality Congruence is likely to produce more satisfied
customers, which will eventually lead to loyalty. Customers
today are looking for ways to save on time and to pack in as
much as possible in 24 hours. Innovative approaches by Insu-
rance companies to communicate how they can help the cus-
tomer achieve this impossible target can very well please the
customer. So, another effective way for enhancing the Brand-
Consumer personality Congruence and retaining loyal cus-
tomers is to constantly identify and seek to fill the gaps between
customer needs and expectation. The study exhibits that the
relationship marketing strategies represent an effective method
for improving both relationship quality and customer loyalty. The
customers who nurture a positive perception of the brand
relationship quality want to recommend service providers to
other people and to continue their services.
10. Limitations and Future Research
1) The study was conducted using the purposive sampling in
the study area hence it is believed the use of a bigger sample
would have yielded a better representation of the study popu-
lation.
2) The study was conducted in one city alone hence any
generalisations should be undertaken with due caution.
3) The results are reliable on the sample size as far as SEM
is concerned. In this study, the sample size is 654 and this
sample size was considered adequate on the basis of this
recommendation. Though the sample size was adequate for
statistical purposes, given the large number of insurance service
users, the sample was at best miniscule.
4) The model can incorporate more constructs such as the
repurchase intention of the respondents to comprehend the
behavior of the respondents better.
11. Implications of the Study
This article contributes to our understanding of relationship
marketing and the contexts in which it is implemented. It is
important for the insurance service providers to develop well-
designed customer satisfaction programs and the relationship
managers & executives need to be competent in the techniques
of relationship marketing for increased customer retention. This
paper is a useful source of information for the insurance service
marketers about what works with the customers and the out-
comes offer practical guidelines to insurance-service providers
regarding the manners in which they should pursue their
relationship marketing activities to nurture their relationships
and foster customer loyalty.
The study shows the importance of understanding brand
personality. Since there are a number of brands available in the
market, specifically in the insurance sector, a proper under-
standing of the brand personality helps in distinguishing one
brand from the other. Consumers also maintain relationships
with their most preferred brands and therefore marketers
through this study are advised to have an understanding of the
identity relationship that the consumer shares with the brand.
Insurance companies should position each of its policy plans in
such a manner that each depict a different personality through
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 QUALITY MANAGEMENT
their investment features and benefits that they provide to the
customers. People with different personality types can be
offered different investment plans. The paper shows the relative
importance of relationship quality that the company needs to
share with its customers and the application of policies such as
quality service, preferential treatment, personalised service,
adaption to customers needs for the retention of the customers,
reduction in the number of complains, reduction in the number
of policies surrendered resulting into customer satisfaction and
loyalty.
It is also helpful in designing the marketing communication
and development of various marketing activities.
12. Conclusion
Although many investigations and studies has been done in
the past to explain the antecedents and consequences of
relationship quality in insurance sector but this study further
extents an empirical evidences in Indian context and examines
the interrelationship between the aforementioned constructs.
This paper serves as one of the pioneer studies to explore the
effect of relationship marketing activities in explaining rela-
tionship quality in Indian context. It offers practical guidelines to
national and international marketers who are planning to woo
the Indian insurance markets.
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53
 QUALITY MANAGEMENT

The Capability of Risk as a Corporate Reputation Driver

to increase Market Value

Nila TRISTIARINI1*, St. Dwiarso UTOMO1, Yulita SETIAWANTA1

1Faculty of Economics and Business, Universitas Dian Nuswantoro, Semarang, Indonesia
*Corresponding author: Nila Tristiarini; E-mail: nila.tristiarini@dsn.dinus.ac.id

Abstract

This research is aimed at providing an empirical evidence of the capability of risk to mediate the relationship between
corporate reputation and market value. The samples of the research are firms listed in CGPI ranking conducted by
The Indonesia Institute for Corporate Governance and firms that report their corporate social responsibility
implementation in the course of 2013-2016. Based on purposive sampling method, 120 firms were taken as samples.
The originality of this research lies in its empirical evidence that a firm risk has the ability as a corporate reputation
driver to increase market value in a long term by regarding the firm’s sustainability, with an emphasis on the
stakeholders’ interests and monitoring mechanisms through corporate governance. The result of the analysis shows
that the corporate reputation measured by using corporate responsibility and corporate governance has a significant
influence to market value. Also, firm risk measured by using business risk, financial risk and market risk partially has
a significant influence to market value. Meanwhile, the mediating variables that influence the relationship between
corporate social responsibility and market value are business risk and market risk, and the mediating variable
influencing corporate governance and market value is business risk.

Keywords: corporate reputation; corporate social responsibility; corporate governance; risk management; market
value.

1. Introduction that industrial firms are believed to be able to grow. However,

Corporate reputation is an important asset that can be used
as a competitive advantage and a source of financial
performance. A “good” reputation is identified as an intangible
resource that can give a basis to a firm to maintain its valuable
competitive advantage and is the corporate characteristic (Hall,
1993). All companies are vulnerable to events that can influence
their reputation. These events may arise due to various factors,
such as the firm’s working practice, macroeconomic condition,
natural disaster, and bad governance or management. The
firm’s ability to maintain a good reputation is directly related to
its ability to maintain its stakeholders and business sustain-
ability. If management is able to manage the firm’s reputation,
the firm will in turn have a good stock value (Peterson, 2004).
Corporate sustainability has become an economic and strategic
imperative with the potential to create opportunities and risks for
businesses (Rezaee, 2017).
Indonesia is a developing country which has a big potential
since it has vast natural resources compared to other ASEAN
countries. As the industrial firms in Indonesia also grow, the
research employed go-public companies in Indonesia as sam-
ples. The rationale is that the number of industrial firms in
Indonesia gradually increases year by year, on the other hand
Indonesia’s economic growth decelerates, and there are
external and internal risks faced by Indonesian firms. Seen from
the production index, companies in Indonesia have grown. It is
shown from the production index that reached 1.43% in 2013
and increased to 4.10% in 2014. In 2015 it increased to 6.01%,
but in 2016 it decreased to 4.76%. From 2013 to the first quarter
of 2017 the growth of non-oil and gas industries has exceeded
the economic growth, and only in 2016 the growth of those
industries is slightly below the economic growth. This means
Indonesia’s economic growth in 2017 decelerated to 5.8%
compared to that of in 2016. From the external side, the
deceleration is mainly caused by the decrease in export due to
the decrease in the demand and the price of global co-
mmodities, as well as the raw mineral export limitation policy.
From the domestic demand side, the deceleration is driven by
the government’s limited consumption along with the budget
saving program.
Furthermore, there are several risks faced by companies in
Indonesia other than decreasing export demand and budget
saving for domestic government, such as the Asean Economic
Community (AEC). Seen from the competitiveness rank,
Indonesia is still in lower than Singapore, Brunei, and Malaysia,
and is slightly lower than Thailand. Besides, Indonesia’s trade
level is also lower than that of ASEAN countries. The total of
Indonesia’s export to the ASEAN countries is slightly over 20%.
Based on this condition, all Indonesian companies must be able
to compete internationally due to the agreements of goods free
flow, service free flow, investment free flow, capital free flow, and
workforce free flow for 10 countries involved in AEC. Therefore,
to be able to survive and grow, Indonesian firms need to have a
good reputation so that they can increase their values by
improving their abilities in facing external and internal risks.
Several studies on corporate reputation show that reputation
is a firm’s important asset (Flanagan and O'Shaughnessy, 2005;
Flanagan et al., 2011). Other studies also investigate the re-
lationship among firm’s reputation, financial performance, and
market performance, as well as investor’s behavior (Roberts
and Dowling, 2002; Sanchez and Sotorrio, 2007; Capehart et
al., 2010; Gatzert, 2015, Chou, et al., 2017). Researches on
reputation argue that a good reputation contributes to financial
and market performances, and for some reasons to distinguish

54 Vol. 20, No. 168/ February 2019 QUALITY

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the firm from its competitors and to encourage customers to pay
premium price, and to increase buyers’ trust (Gatzert, 2015 and
Garai, 2017).
In this research, corporate reputation is measured from the
firm’s ability to conduct corporate social responsibility (CSR) and
the ability of corporate governance (CG). CSR and GC are used
to describe corporate reputation since it is often found that
business failure is caused by the lack of understanding of the
environmental impact of business management or experience
that is limited to corporate governance (Carmeli and Tishler,
2005, Fombrun et al., 2000). Investors become the basis of CSR
implementation and governance ability is a form of corporate
reputation, in that they do not see corporate reputation from
financial point of view or firm’s brand. Instead, they see on how
the firm has a good reputation continuously (Jacob, 2012;
Piriyakul and Wingwon, 2013).
The previous studies look at the direct impact of corporate
reputation in enhancing financial and market performances.
They mostly focus on only one relationship, for example, one
between reputation and financial performance or between cor-
porate reputation and financial impact. Other studies also only
investigate whether reputation can partially reduce a firm risk
(Lange et al., 2011; Walker, 2010; Clardy, 2012; Tischer and
Hildebrandt, 2014). In this research, the ability of corporate
reputation is related to the firm risk management which in turn
will enhance the firm’s market value. Risk management can
maximize the relationship between corporate reputation and
performance. Risk management requires a deep understanding
of the relationship and interaction between corporate reputation
and financial consequences, as well as a consideration of
perspective and (key) behavior, i.e. stakeholder and corporate
management. All organizations are susceptible to all kinds of
risk. Risks are inherent in business, not only because they
operate in a risky environment, but also because the business’
nature that is constantly changing.
This research is aimed at investigating the problem further
by employing a more comprehensive approach which includes
empirical evidences of the relationship of three aspects, namely
corporate reputation, firm risk, and firm’s market value by con-
sidering stakeholders’ behavior and corporate governance in
creating reputation. The research also has a purpose to give an
insight in risk management, which needs a holistic consideration
from this relationship and what has been acknowledged from
empirical literature to assess and manage risks. The originality
of this research lies in its empirical evidence that a firm risk has
the ability as a corporate reputation driver to increase market
value in a long term by regarding the firm’s sustainability, with an
emphasis on the stakeholders’ interests and monitoring
mechanisms through corporate governance.
2. Literary Review
2.1. Theoretical Framework
In this research, the relationship between reputation and
performance is based on resource based view theory of a firm
(Peteraf, 1993) and the stakeholder theory (Freeman, 1994).
They argue that corporate reputation is a strategic asset since it
generates trust from stakeholders. Therefore, it influences the
firm’s business performance positively. The argument on re-
source based view of a firm claims that corporate reputation is a
valuable and rare intangible asset, and it has competitive
advantage. It also expects to obtain a sustainable superior
financial performance (Grant, 1991; Ambrosini dan Bowman,
2001).
One reason that explains the strategic value of reputation
deals with the concept of firm trust (Aqueveque, 2005). This
notion is closely related to the instrumental aspect of
stakeholder theory (Freeman, 1994). This theory assumes that
if the firm’s contract (through its manager) with stakeholders is
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Access to Success Vol. 20, No. 168/ February 2019
based on mutual trust and cooperation, the firm will have a
competitive advantage. In its practice, firm trust can increase
exchange opportunities available in a firm, compared with firms
that are not trusted (Barney and Hansen, 1994). Many writers
consider company reputation as an important signal. According
to this argument, reputation is an informative signal (Akerlof,
1970) and contract warrantor (Cornell and Shapiro, 1987).
Based on the theories above, in this research corporate
reputation is measured by using CSR disclosure and corporate
governance quality, since both variables are signals that the firm
can be trusted through stakeholders’ interest fulfillment. This is
based on social risk theory which states that CSR is a value of
corporate reputation (Jacob, 2012). Meanwhile, monitoring
effect theory explains that good corporate governance will
generate good monitoring function to managerial performance,
so that the firm can be trusted (Caers, 2006).
Reputation has an intrinsic value that forms stakeholders’
behavior to influence the firm’s future value. The perception and
opinion of the firm that are created, then and now, about an
organization lie on the stakeholders’ awareness. Risks are basic
elements of the firm’s sustainability strategy. Hence, identifying
the source and analyzing the risk are important. The relationship
between risks, the combination of various risks and their inte-
gration influence the risk that should be considered in managing
continuous and strategic risks. This is according to resourced
based view theory which states that reputation is an important
intangible asset and if it is ignored it will have an impact in
reputation damage risk (Regan, 2008).
2.2. Hypotheses Formulation
2.2.1. Corporate Reputation and Market Value
Finance theory supports the use of corporate reputation in
assessing a firm’s financial performance. Gatzert (2015) say
that corporate reputation has a value for investors since it
generate financial benefit to the corporation. The benefits of
corporate reputation are to decrease the mobility of competitors,
to support premium price, and to increase the access to capital.
Thus, it can be said that corporate reputation contributes to the
firm’s value (Cole, 2012). The previous studies demonstrate that
corporate reputation influences financial performance and
market performance (Sjovall and Talk, 2004; Flanagan and
O'Shaughnessy, 2005; Rhee and Haunschild, 2006; Mishina et
al., 2012; Nnenna and Carol, 2016).
The previous studies measure corporate reputation mainly
on the stakeholders’ perception to the firm’s image and past
performance achievements. In these studies, corporate
reputation is measured by using corporate social responsibility
and corporate governance quality since a firm that implements
CSR by doing monitoring process through corporate gover-
nance will give a more accurate reputation level, as explained by
Jacob (2012).
Other previous researches show that firms implementing
CSR as their good reputation identity can give a positive
influence to increase market value. These researches were
among others conducted by Luo and Bhattacharya (2006). In
their research, they found a positive influence on CSR imple-
mentation and the firm’s market value. This result is supported
by Derwall et al. (2005); Kempf and Osthoff (2007); Sharfman
and Fernando (2008); El Ghoul et al. (2010) and Zygadlo et al.
(2016).
Other researches on corporate governance and market
value also show that corporate governance has a significant
influence to the increase of market value. Bubbico et al. (2012)
also state that a firm that has good governance according to the
index relates with the high stock market valuation. These studies
are supported by Kempf and Osthoff (2007), Cole (2012). Based
on the above description, the following hypotheses can be
formulated:
H1 : Corporate Social Responsibility has influence to
market value
55
 QUALITY MANAGEMENT
H2 : Corporate governance has influence to market value
2.2.2. Corporate Reputation and Firm Risk
The firm’s ability to maintain good reputation directly relates
to the firm’s ability to maintain its stakeholders. Crises are risks
that must be faces by the firm. The management’s ability to
handle crises results in an active management, since its inability
will increase the chance of risks to occur. If management can
manage a crisis, it will be reflected in the stock price (Petersen
et al., 2007). Risks are important components of the firm’s
investment strategy. Hence, it is important to know the source of
risks, as well as to identify and to evaluate factors contributing
to risks. This research employs the relationship of various risks,
namely business risk, financial risk, and market risk.
A business risk is a variability of expected income (profit prior
to interest and tax) to the net sales total. An appropriate
management will result and create a balance between asset and
effect, which in turn will create low business risk so that it can
attract investor entities to consider fund investment in the firm’s
operation. Market risk is the return variability, the result of
fluctuation in overall market i.e. stock aggregate. Market risk is
the condition caused by the change in market that is beyond the
control of the firm. Market risk is also called comprehensive risk,
as its general characteristic is comprehensive and is
experienced by the whole firm. Meanwhile, financial risk means
how far a firm depends on external financing (including capital
market and bank) to support its ongoing operation. A firm that
relies on external parties for financing has greater risk than that
which not uses its own fund generated internally.
An organization’s ability is tested when crises occur (Sharma
and Narwal, 2006). Since a firm faces uncertainty during a
financial crisis, it tends to avoid the negative effects of repair
actions. The most common action is reducing the number of
employees, reducing consumption, and deferring investment
(Karaibrahimoglu, 2010). On the other hand, during a crisis
public demand on corporate transparence on CSR increases.
CSR becomes a new risk control factor to the firm, and if it s not
performed it will can make the firm lose its reputation. Thus, it
can be said that CSR can minimize the risk faced by the firm.
This is in line with the studies conducted by Bebbington (2007),
Lahrech (2011), and Jacob (2012).
Nowadays stakeholders do not only care about the profit of
their investment but also consider how the firm’s risk exposure
is distributed to them. Thus, the firm is expected to have good
governance instead of only caring about high profit. It is also
expected to be able to manage risks. The market does not have
enough power to control the firm’s operation. Therefore, good
corporate governance can control and monitor risks. This is in
line with the studies conducted by Tandelilin et al. (2007);
Lahrech (2011) and Sanusi, et al. (2017), who state that good
corporate governance can be used as a risk control.
Based on the explanation above, the following hypotheses
can be formulated:
H3 : Corporate Social Responsibility has influence on
business risk
H4 : Corporate Social Responsibility has influence on
financial risk
H5 : Corporate Social Responsibility has influence on
market risk
H6 : Corporate governance has influence on business risk
H7 : Corporate governance has influence on financial risk
H8 : Corporate governance has influence on market risk
2.2.3. Firm Risk and Market Value
Risks can be a threat to a firm’s financial health and its
opportunity to advance in the competition. Most analysts, when
referring to risk management, focus on the threat caused by
risks and emphasize on protecting against a threat namely risk
56
hedge (Damodaran, 2003). Gonzales (2010) shows that risk
management has a significant influence to the decision of
assessment, investment, and funding. The estimation on risk
management value, based on both cross-sectional and in time-
series test, is consistent with what is reported by Allayannis and
Weston (2001).
Generally risk drivers are highly relevant to risk management
because of their potential increase of risk level impact or events
that damage the firm’s financial performance (Gatzert, 2015).
The previous empirical studies on corporate risk mainly focus on
only one relationship, such as the relationship between risk and
financial performance or that between risk and financial impact.
Sabate and de Puente (2003), for example, conducted a survey
from a preliminary empirical literature on the relationship
between corporate risk and financial performance, whereas
Walter (2013) gives a brief description of risk impact to financial
performance by focusing on reputation risk. Similar studies were
also conducted by Tischer and Hildebrandt (2014), Lange et al.
(2011), Walker (2010), and Clardy (2012). Based on the
explanation above, the following hypotheses can be formulated:
H12 : Business Risk has influence to market value
H13 : Financial Risk has influence to market value
H14 : Market Risk has influence to market value
2.2.4. Firm Risks Mediates the Relationship
between Corporate Reputation and Market Value
The explanation of the previous hypotheses in this research
shows that the firm’s ability to manage risks will fix the
relationship between corporate reputation and market value. It is
assumed that when the firm can maintain its reputation, but it is
not able to manage risks, it will give negative impact to the firm’s
value and performance. This is because corporate reputation is
the firm’s competitive advantage and is a non-financial report,
while risks will give impact in the short and long term of the firm’s
continuity. Based on this explanation, this research proposes the
following hypotheses:
H15 : Business Risk mediates the relationship between
corporate social responsibility and market value
H16 : Financial Risk mediates the relationship between
corporate social responsibility and market value
H17 : Market Risk mediates the relationship between
corporate social responsibility and market value
H18 : Business Risk mediates the relationship between
corporate governance and market value
H19 : Financial Risk mediates the relationship between
corporate governance and market value
H20 : Market Risk mediates the relationship between
corporate governance and market value
3. Research Method
The population of this research consists of firms listed in the
Indonesia Stock Exchange in the course of 2013-2016. The
samples are firms that are included in CGPI rating performed by
The Indonesia Institute for Corporate Governance and firms that
report their corporate social responsibility implementations.
Since firms participate in CGPI voluntarily, the number of those
participating is different every year. Therefore, the samples in
this research were not taken by year consideration. In 2013
there were 33 firms, in 2014 there were 40, in 2015 here were
26, and in 2016 there were 34. Of the total of 133 firms (2013-
2016), the researchers selected the firms that conducted report
disclosure based on the research variables. The result of
sample calculation by using the above criteria reveals the num-
ber of samples used in this research that is 120 firms.
The exogenous variable in this research is corporate
reputation measured by using corporate social responsibility
index according to ISO 26000 and Corporate Governance
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 QUALITY MANAGEMENT
Perception Index (CGPI) measured by using a rating developed risk proxied by the debt to equity ratio is 3.54, and the market
by IICG in the form of Corporate Governance Perception Index risk proxied with beta share is 1.21. Furthermore, the average
(CGPI). The endogenous variable is Market Value which is market value is 2.50.
measured by calculating the number of outstanding stocks by
using closing prices. The mediating variable in this research is 4.2. Hypothesis Testing
risk consisting of three categories viz. business risk, financial 4.2.1. Test on the Influence of Corporate Social
risk, and market risk. Responsibility and Corporate Governance on Market
Business risk in this research was measured by using Value
operating leverage. Operating leverage measures how income
changes due to operating profit. By finding out the operating A path analysis was conducted before testing the hypo-
leverage level, a firm can estimate the change in operating profit theses to describe the causality between exogenous variables,
as a result of sales change. i.e. Corporate Social Responsibility Index (CSRI) and Corporate
DOL = (% EBIT change) / sales change Governance Perception Index (CGPI), and endogenous variable
In this research, business risk was measured by using stock (Market Value-MV). The run test shows the result of the path
beta. Stock beta shows the sensitivity of profit level of a security analysis as follows:
to market change and is a risk measurement resulted from the
relationship between stock return and market return. Stock beta
(β) is estimated by using a model of single index in the form of
a regression equation as follows:
Ri = α + β.RM + εi
where: Ri = stock return, Rm = market return, α = a constant
which is a point of intersection of the regression line and the
vertical line, and β = regression line slope.
Meanwhile, financial risk was measured by using debt to
equity ratio. This ratio was utilized to measure the part of own
capital that is used as a warranty of overall liabilities and debts.
Figure 1. The Path Analysis of CSRI and CGPI Influence
Debt to Equity Ratio = (current liabilities + long term liabilities)
on Market Value
/the amount of own capital
Source: processed data used in this research
The analysis was conducted by utilizing the Structural
Equation Modeling (SEM) tool with WarpPLS program version
The result of Path coefficients and P value analysis to find
2.00 to test the hypotheses. This statistic analysis tool was
out the coefficient and significance level is as follows:
chosen as it has several advantages such as its ability to
perform statistic tests using mediating variables without having Direct Effect
to perform repeated tests to answer the hypotheses (Kock, Path
2011; Latan dan Ghozali, 2012). Coefficients P-Value
CSRI  Market Value 0.44 < 0.01*
CGPI  Market Value 0.07 0.09**
4. Findings
Source: processed data used in this research
4.1. Descriptive Statistics
*significance level = 0.05
A descriptive statistic method is used to explain the **significance level = 0.10
characteristics of the research variables. The explanation on the CSRI : Corporate Social Responsibility Index
descriptive statistic of the variables in this research is as follows: CGPI : Corporate Governance Perception Index
N Min Max Mean SD Table 2. The result of Path coefficients and P value
CSRI 120 0.43243 0.94595 0.75747 0.09161 of the Influence of CSRI and CGPI on Market Value
CGPI 120 59.11 91.46 79.6878 7.35445
BR 120 0.00962 1.59 0.61724 0.47439 Figure 1 and Table 2 show the causal relationship between
FR 120 0.06883 20.1501 3.54393 4.03178 variables. Corporate Social Responsibility (CSRI) as the
independent variable influences market value (MV) as the
MR 120 0.031 5.339 1.2125 0.96428
dependent variable with 0.44 Path Coefficient value, < 0.01
MV 120 0.09 9.88 2.50442 1.85629 p-value, and 0.05 significance level. Corporate Governance
Source: the processed data of this research Perception Indexes (CGPI) as the independent variable
CSRI : Corporate Social Responsibility Index influences market value (MV) as the dependent variable with
CGPI : Corporate Governance Perception Index 0.07 Path Coefficient, 0.09 p-value, and 0.10 significance level.
BR : Business Risk The FV has 0.22 R square. These tests show that the first
FR : Financial Risk hypothesis can be accepted (H1 accepted). This means that
MR : Market Risk corporate social responsibility has a positive influence on the
MV : Market Value market value because the p-value is < 0.01, below the 0.05
significance level. The test conducted for the second hypothesis
Table 1. Descriptive Statistic Analysis of the Research also shows that H2 can be accepted (H2 accepted), which
Variables means that corporate governance has a positive influence on
Table 1 shows that the average value of CSRI is 0.76. This the market value with 0.09 p-value and 0.10 significance level.
means that most of the samples reveal 76% of CSR in The result of this research is consistent with that of Sjovall and
accordance with ISO 26000 standard. In addition, the average Talk (2004), Flanagan and O'Shaughnessy (2005), Rhee and
value of CGPI is 79.69, which means that most of the firms are Haunschild (2006), and Mishina et al. (2012) which states that
perceived as reliable. The average value of business risk the firm’s reputation has a positive significant influence on
proxied with the assets turnover is 0.62, the value of financial market value.

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Figure 2. Path Analysis on the Influence of Firm Risk Mediation on the Relationship among CSRI, CGPI, and Market Value
Source: processed data used in this research

4.2.2. Test on the Influence of Firm Risk Mediation on the with < 0.01 significance level (p < 0.05). This result indicates that
Relationship between CSRI, CGPI and Market Value the first requirement of being mediating variable has been
fulfilled (CGPI  MV coefficient is significant). It is also
A path analysis describing the causal relationship between confirmed that the coefficient of direct effect corporate
the mediation and variables was conducted to answer the governance (CGPI) on Market Value (MV) in model (1) is 0.07
research hypothesis. The result of run-test of the path analysis with 0.09 significant value (p < 0.10). This result suggests that
is presented in figure 2. the first requirement of being mediating variable is fulfilled, in
The second and third hypotheses need to be tested in order which the coefficient of CGPI  MV is significant.
to answer the hypothesis of the influence of mediating variables The result of indirect effect test indicates that CSRI path
(business risk, financial risk, and market risk) and their rela- coefficient on firm risk is as follows:
tionship with corporate social responsibility, corporate gover-
nance, and market value. The result of Path coefficients and P  CSRI coefficient value on Business Risk (BR) is 0.30 and
value can be seen in the table 3. the significant level is 0.01 (p < 0.05). Therefore, it can be
Direct Effect Indirect Effect concluded that the third hypothesis (H3) is accepted,
Path
Coefficients P-Value Coefficients P-Value
which means that CSR has a significant positive in-
fluence on business risk. It implies that the requirement
CSRI  BR 0.30 < 0.01*
of being the mediating variable is fulfilled, in which the
CSRI  FR -0.09 0.15 coefficient of CSRI  BR is significant;
CSRI  MR 0.24 0.02*  The coefficient value of CSRI on Financial Risk (FR) is
CSRI  MV 0.44 < 0.01* 0.34 < 0.01* -0.09 and the p-value is 0.15 (p > 0.05). This means that
CGPI  BR -0.26 0.01* the fourth hypothesis (H4) is rejected. In other words,
CSR does not have any significant influence on financial
CGPI  FR -0.11 0.11
risk. Thus, the requirement of being the mediating va-
CGPI  MR -0.15 0.24 riable is not fulfilled;
CGPI  MV 0.07 0.09** 0.11 0.03*  The coefficient value of CSRI on Market Risk (MR) is
BR  MV 0.25 < 0.01* 0.24 and the significant value is 0.02 (p < 0.05).
FR  MV 0.16 0.07** Therefore, it can be concluded that the fifth hypothesis
(H5) is accepted. This means that CSR has significant
MR  MV 0.12 0.05*
positive influence on market risk. Thus, the requirement
Source: processed data used in this research of being the mediating variable is fulfilled in which the
*Significance level = 0.05 coefficient level of CSRI  MR is significant.
**Significance level = 0.10
CSRI: Corporate Social Responsibility Index The result demonstrates that the firm risk variables sig-
CGPI: Corporate Governance Perception Index nificantly influenced by CSR are business risk and market risk.
BR: Business Risk In this case, business risk measured by considering total of
FR: Financial Risk sales shows how significant CSR application influences the
MR: Market Risk customers’ buying decision. Market risk is seen from how
MV: Market Value investors respond to CSR as one of the things that influences
their investment decision. On the contrary, financial risk does not
Table 3. The Result of Path coefficients and P value on the have any influence since CSR does not affect the firm’s decision
Influence of Mediation Firm Risk on the relationship among in deciding funding that comes from debt. This result is in line
CSRI, CGPI, and Market Value with the research conducted by Bebbington (2007) and Lahrech
(2011).
Figure 2 and Table 3 demonstrate that the coefficient of The result of indirect effect test shows that path coefficient of
CSRI direct effect on market value (MV) in model (1) is 0.44, CGPI to firm risk is as follows:

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 The coefficient value of CGPI on Business Risk (BR) is
-0.26 and the significance value is < 0.01 (p < 0.05). This
means that the sixth hypothesis (H6) is accepted, or that
CG has significant negative influence on business risk.
The requirement of being the mediating variable is ful-
filled with significant CGPI  BR coefficient value.
 The coefficient value of CGPI on Financial Risk (FR) is
-0.11 and the p-value is 0.11 (p > 0.05). It can be
concluded that the seventh hypothesis (H7) is rejected
because the CG does not have a significant influence on
financial risk. This shows that the requirement of being
the mediating variable is not fulfilled.
 The coefficient value of CGPI on Market Risk (FR) is
-0.15 and the p-value is 0.24 (p > 0.05). It can be
concluded that the eighth hypothesis (H8) is rejected
because the CG does not significantly influence the
market risk. This shows that the requirement of being the
mediating variable is not fulfilled.
The result reveals that firm risk variable that is significantly
influenced by corporate governance is business risk, whereas
financial risk and market risk are not. This means that the firm
has a good control in corporate governance only in its ability to
control sales level, but it hasn’t been able to control market and
financing resulted from debts. In contrast to the previous studies
conducted by Brogi and Sapienza (2005), Tandelilin et al.
(2007), Fisher (2010), and Kumah et al. (2014), stating that
good corporate governance can be used to control risk, this
research reveals that not all types of risk can be controlled by
the firm.
Furthermore, the path coefficients of firm risk on market
value (MV) are as follows:
 The coefficient value of Business Risk on Market Value
(MV) is 0.25 and the significance level is < 0.01 (p > 0.05).
It can be concluded that the ninth hypothesis (H9) is
accepted since business risk has a significant positive
influence on market value. This result proves that the
requirement of being the mediating variable is fulfilled in
which BR  MV is significant.
 The coefficient value of Financial Risk (FR) on Market
Value (MV) is 0.16 and the significance level is 0.07
(p < 0.05). It can be concluded that the tenth hypothesis
(H10) is accepted since financial risk has significant
positive influences on market value. This result indicates
that the requirement of being the mediating variable is
fulfilled in which FR  MV is significant.
 The coefficient value of Market Risk (MR) on Market
Value (MV) is 0.12 and the significance level is 0.05
(p < 0.05). It can be concluded that the eleventh
hypothesis (H11) is accepted since market risk has a
significant positive influence on market value. This result
indicates that the requirement of being the mediating
variable is fulfilled in which MR  MV is significant.
The above result is consistent with the findings of the studies
conducted by Tischer and Hildebrandt (2014), Lange et al.
(2011), Walker (2010), and Clardy (2012), stating that risks can
influence market value. This is in line with the principle of
investment, i.e. high risk means high return.
The test result of CSRI on market value (MV) shows that the
coefficient value of indirect effect is 0.34 and the significance
level is < 0.01 (p < 0.05). The result demonstrates that the
coefficient of indirect effect CSRI  MV decreases to 0.34 from
0.44 (direct effect) although it is still significant. It implies that
business risk (p-value < 0.01) and market value (p-value 0.15)
do not mediate the relationship between CSR and market value.
In addition, firm risk (p-value 0.15) does not mediate the
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relationship between CSR and market value. This shows that
the twelfth hypothesis (H12) can be accepted as business risk
does mediate the relationship between corporate social
responsibility and market value. Furthermore, the thirteenth
hypothesis (H13) is rejected because financial risk does not
mediate the relationship between corporate social responsibility
and market value. Finally, the fourteenth hypothesis (H14) is
accepted since market risk does mediate the relationship
between corporate social responsibility and market value.
The result of the test on the influence of CGPI on market
value (MV) reveals that the coefficient value of the indirect effect
is 0.11 while the significance value is 0.03 (p < 0.05). Although
the coefficient value of indirect effect of CSRI  MV has
increased into 0.11 from 0.07 (direct effect), it is still significant.
This means that firm risk does not mediate the relationship
between corporate governance and market value. Therefore, it
can be concluded that the fifteenth hypothesis (H15) is rejected
because business risk does not mediate the relationship
between corporate governance and market value. The sixteenth
hypothesis (H16) is also rejected because financial risk does not
mediate the relationship between corporate governance and
market value. Moreover, the seventeenth hypothesis (H17) is
accepted because the market risk does not mediate the rela-
tionship between corporate social responsibility and market
value.
5. Implication and Conclusion
Based on the empirical research model developed in this
research, the research problem proposed here can be justified
by the result of the test, i.e. corporate reputation measured by
using corporate social responsibility has a significant influence
to market value. In addition, in terms of risk capability, it can be
concluded that of the three risks proposed in this research
(business risk, financial risk, and market risk), business risk and
market risk have the ability to mediate the relationship between
corporate social responsibility and market value. This is
because if a firm implements CSR, it will spend more cost for the
implementation. High business and market risks are in line with
the theory of investment, that is, a high risk means a high return.
It means that if a firm has a high risk, it is assumed that it will get
a high return. In other words, having a high risk is considered to
give a high return. Thus, it will attract investors to buy the firm’s
stocks. This is what causes market value to increase.
The result of this research also demonstrates that the cor-
porate reputation, which was measured by corporate governance,
has significant influences on market value. By considering the
risk capability, it can also be concluded that only business risk
has the ability to mediate the relationship between corporate
governance and market value, while financial risk and market
risk do not. Business risk mediates the relationship between
corporate governance and market value. This proves that the
high quality of corporate governance can control the business
risk, and subsequently increases the market value.
The primary contribution of this research is the empirical
evidence that the implementation of corporate social respon-
sibility and the good quality corporate governance can control
the business risks and change those risks into something that
may benefit the firm. Even though there are many business
risks, the market value is still high because firms have a sense
of responsibility towards their stakeholders by implementing
CSR and corporate governance. This is in line with the business
investment theory, which states that a high-risk investment will
give a high return. The implementation of corporate social
responsibility and high quality corporate governance, business
risks can be controlled and can be directed to increase market
value.
59
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Effects of Entrepreneurial Innovativeness on Firm Performance

Egwu U. EGWU1, Ama A. UDU2, Livinus Okpara ONU3

1Special
Director, Entrepreneurship Development Centre, Ebonyi State University (EBSU), Abakaliki, Nigeria
2Correspondentauthor, Department of Business Management, Marketing and Entrepreneurship Studies, EBSU, Nigeria;
E-mail: uduama@yahoo.com
3Department of Business Management, Marketing and Entrepreneurship Studies, EBSU, Nigeria; E-mail: livinusonu@gmail.com

Abstract

Strategic and entrepreneurship literatures suggest that innovation improves firm performance, but empirical results
are mixed. In this article we investigate the effect of components of innovation by small businesses on firm
performance, and test the study hypotheses using AMOS 18 statistical package. We find that the three relevant
innovation dimensions (process, market and supply chain) are significantly correlated among one another and each
with firm performance. However, we find that the control variables of firm size and entrepreneur’s gender and
educational qualifications, have no significant relationship with firm performance, even when positive. This study has
lent a contextual voice to the body of knowledge relating to innovation and firm performance in entrepreneurship
literature. Implications of the study for policy and scholarly research are discussed.

Keywords: entrepreneurship; innovation; firm performance; small firms.

1. Introduction we introduce Supply Chain innovation which is a critical success

Conceptual and empirical studies have shown that Small
Businesses (SBs) play a major role in job creation, employment
generation and general poverty alleviation (ILO, 2015; Garikai,
2011; Gujarati, 2013). However, globalization has brought
fundamental changes in population demographics, Information,
Communication and Technology (ICT), and socio-economic
environments, leaving opportunities and challenges in its wake.
One of the challenges is high rate of business failure which has
tended to diminish SBs’ potential to sustain the socio-economic
advancement of countries. Among the responses to this problem
is an increased emphasis on entrepreneurship by governments,
organizations and individuals (Acs, Szerb, and Autio, 2015).
Lately, literature on business strategy and entrepreneurship
has linked Firm Performance (FP) and Entrepreneurial
Orientation (EO) (Miller, 1983; Lumpkin and Dess, 1996). EO
has been defined as the proclivity of firms to be proactive,
innovative, and taking of well-articulated risks in an effort to
identify, create and exploit environmental opportunities (Osoro,
2012; Tabora, 2015). Arguments have been raised that the
dimensions of EO may, in fact, vary independently and may be
studied separately (Lumpkin and Dess, 1996). Hence,
innovation, a critical component of EO, is the focus of this study.
Innovation has been found to cut across large and small
businesses. Reference is made to Schumpeter’s (1945) Mark I
and Mark II hypotheses. Innovativeness refers to a firm’s
propensity to creatively initiate and support new ideas. It
involves experimentation and creative processes that may result
in either new products/services, technological processes,
strategic supply chain management and the exploitation of new
markets (Taylor, 2013; Li, 2012). Innovation represents
entrepreneurs’ habits, life style and daily action for the purpose
of creating and retaining customers. Rosli and Sidek (2013)
decomposed innovation into; product/service, process and
market, although they admitted that a certain degree of overlap
might exist in reality. But, because table water is a generic
product, not much product innovation is expected. In its place,
factor for firms in that industry. Supply chain innovation is the
creative oversight of a system of organizations, people, activities
information and resources involved in moving a product or
service from supplier to customers (Paton and McLaughlin, 2008).
Process innovation on the other hand concerns the technology
of producing the product/service. It could be a transformation
from batch to automation production process, and may involve
skills and distinctive competencies developed by and unique to
firm employees who enhance efficiency and effectiveness.
Market innovation devolves around market segmentation/
development and deploying resources to create and retain
customers. However, the level of innovations may vary
depending on the industry of the firms and the stage in its life-
cycle (Fatoki, 2014; Anlesinya, 2015; Kusumawardhani, 2013.
Conversely, Firm Performance (FP) is a measure of the
‘health’ of a firm that does not only depend on its efficiency, but
also on the market where it operates and the activities of its
stakeholders. FP has been researched from objective (financial
results and ratios) and subjective (growth, survival, market
position, etc.) (Osoro, 2012; Santos and Britos, 2012).Now the
direction for measuring firm performance has gone beyond
perspective criteria to embed stakeholders’ consideration
(people, profit and planet). This is the triple-bottom line concept
enunciated by Elkington (1998).
Innovation and firm performance has been researched both
conceptually and empirically, but with mixed results (Covin, et al.
(1994) in Rauch, Wiklund, Lumpkin, and Frese, 2009; Hughes
and Morgan, 2007; Lim 2008; Fairoz, Hirobumi and Tanaka,
2010; Zainol and Ayadurai, 2011; Osoro 2012; Kusuma-
wardhani, 2013; Lee and Dedahanov, 2014). Rauch, et al.
(2009) had noted that empirical results of social science studies
are environment/context specific, and not culture invariant.
Therefore, it is hypothesized that a wholesale adoption of
measuring instruments developed in western countries may not
yield the same result in different cultures. Hence, there is the
need to contextualize measuring instruments, in order to
achieve greater validity and reliability.

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Therefore the objective of this study is to contextualize the
effect of innovation on Table Water Producing Companies
(TWPCs) in Abia, Ebonyi and Enugu states in South East,
Nigeria. The specific question is: Having decomposed innova-
tion into process, market and supply chain; how does each and
their combination there of, affect the performance of TWPCs in
the states of Abia, Ebonyi and Enugu in South East of Nigeria?
We also introduce some control variables namely; gender,
educational qualifications and firm size, and seek to investigate
their effects on firm performance. The aim is to achieve a more
robust result. To answer these questions, we used SPSS
Version 21 and Structural Equation Modeling (SEM), AMOS-18,
to first assess the independent (correlation) effects of each of
these variables, then the regressed (combined) effects of the
variables on firm performance using the survey design on
sampled TWPCs. This article adopts a uni-dimensional
approach wherein FP is not decomposed (Miller, 1983).
The article proceeds as follows: this section under review is
the introduction which discussed the statement of the problem,
the variables and the study objective. Section two is the
Literature review and hypotheses formulation, which raised the
issue of variables correlation and regression. Third, we describe
the research method including sampling, variable measures,
and analysis. Fourth, we test our hypotheses and state the
result of findings. Finally, we detail and discuss the results
including implications for policy and scholarly research,
limitations and conclusions.
2. Literature Review and Hypotheses
2.1. Innovation and Firm Performance
For Schumpeter (2002) cited in Basilgan, (2011), the “purest
type of an entrepreneur genius” is “the entrepreneur who
confines himself most strictly to the characteristic entrepre-
neurial function; the carrying out of new combinations”, in a
word: innovation. It “reflects an important means by which firms
pursue new opportunities” (Lumpkin and Dess, 1996). Firm
innovativeness reflects a fundamental willingness to depart from
existing technologies or practices and venture beyond the
current state of the art (Baker and Sinkula, 2009). Akin to
learning, innovation represents a continuum ranging from
willingness to try new innovations to a serious commitment to
innovation and continual evaluation of its effectiveness in
enhancing firm performance.
Despite agreement about the relevance of innovation in
entrepreneurship, previous studies have revealed inconsis-
tencies in conceptualizing and measuring innovation (Rosli and
Sidek, 2013). This implies that innovation means different things
to different people. This argument is supported by Coulthard
(2007) who reviewed previous EO studies in four different
industries within Australia and found that even though
innovativeness is considered important in determining firm
performance, it is not the most significant dimension. He argued
that innovation has been interpreted differently by respondents.
Some of them have related innovation with newness only, while
others have considered innovation to be not only new ideas but
also modifications as part of a continuous improvement pro-
gram. Likewise, Massa and Testa (2008) in Kusumawardhani
(2013), reported that in their study, the entrepreneurs, aca-
demics and policy-makers in Italy had different interpretations of
innovation. As a consequence, their behaviors associated with
innovation policy-making and innovation practices differed as
well.
It is important to appreciate the need to domesticate
innovation instruments since their interpretation and operatio-
nalization is firm and culture influenced. For example,
Kusumawardhani (2013) found that a sample of the firms
adopted the EO dimensions stated in the literature, but not in its
classical form prescribed by Lumpkin and Dess (1996). Our
preliminary study of the applicability of EO dimensions by the
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SBs yielded the same result as Kusumawardhani’s.
2.1.1. Process Innovation and Firm Performance
Process innovation refers to the improvement of internal
capabilities, including firm’s operations and capacities (Rosli
and Sidek, 2013). It concerns the technology of producing the
product/service. It could be a transformation from batch to
automation production process. It may involve skills and distinct
competencies developed by and unique to firm employees,
which enhance efficiency and effectiveness. Based on our pilot
study, we find that Table water companies adopt some process
innovations: use automated packaging machines as against
manual sealing for sachet water. Some larger firms have
acquired mono-bloc machines for producing bottled water; from
washing the pet bottles-filling-corking-wrapping and shrink
wrapping. The only human interface is to feed empty bottles into
the machine and carry out fully packaged cartons for storage.
The advantage of automation is increased output at a reduced
unit cost. It also improves hygiene in product handling, frees
management time for more productive endeavours and saves
cost on the long run. However, the initial cost of acquiring these
machines may be prohibitive. Some employees of TWPCs have
acquired processing speed such that one machine operator can
man two sachet water automatic packaging machines, thereby
reducing the cost of additional hand. Such staff is easily
poachable by other competitors and commands relative higher
pay.
Hypothesis 1: It is therefore, hypothesized that process
innovation would be positively related to firm performance.
2.1.2. Market Innovation and Firm Performance
Market innovation is an abstraction from marketing
management Kotler and Keller ()which deals with market
research to discover what customers need and want and
producing, making available at convenient places and com-
petitive quality and prices, requisite goods/services that meet
these demands. Market Innovation (MI) devolves around new
market segmentation/development (Rosli and Sidek, 2013). This
niche market must be adequately served. Small firms as defined
(National MSMEs Survey Report (2010) are price takers and
must adopt aggressive marketing to remain competitive. Our
pilot study indicates that they hire marketing team that often
receives commission on sales in addition to fixed salary. Mana-
gement must know all valued customers to obtain market
information concerning competitors, and feedback on how they
are being served. Such information includes seemingly pedantic
issues as own, wife and children’s birthdays and wedding
anniversaries, for purposes of improving personal relationship.
Other innovative marketing activities may include changing of
leaked nylon sachets and organizing annual sales competition
for most valued customers based on certain criteria. Aggressive
marketing positions the firm to take first-comer advantage in the
market place. Since the products of Table water companies are
generic, market innovation is usually channeled through
distinctive and differential service provision which creates brand
name loyalty and discipleship. For example, Aqua Ralpha Table
Water, produced by a Catholic Clergy, Rev. Father Mbaka, at 9th
Mile, Enugu state, Nigeria, has acquired spiritual essence that it
is sought for and sold throughout Nigeria and beyond.
Hypothesis 2: It is therefore, hypothesized that there would
be a positive relationship between market innovation and firm
performance.
2.1.3. Supply Chain Innovation and Firm Performance
Supply chain innovation is at the heart of service exchange
and customer service (Paton and McLaughlin, 2008), and
enhances avoidance of litigations arising from breach of
contractual agreements either from the raw materials or finished
goods/service end. For purchase of materials and spare parts, it
63
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involves strategic alliance with suppliers; location of suppliers,
bulk buying, warehousing and inventory management. The dis-
tribution of finished goods/services devolves around marketing
management, mode of delivery, type of vehicle and its
maintenance, time of delivery and security of life and property in
transit. From our pilot study, we observed that TWPCs ensure
timely receipt of raw materials in line with production schedules,
from reputable suppliers and at competitive prices. On the other
hand, appropriate distribution vehicles, motivated marketing
staff, secured arrangements for vehicle maintenance and loyal
customers are innovatively planned for and implemented to
achieve desired firm performance. Some of the innovative
strategies of SBs include; supplying goods at odd hours (late in
the night or early in the morning) when traffic is light, and law
enforcement agencies are off the road to reduce extortion of
money. Others open own depots in big markets from where they
retail at higher prices per bag, it also ensures product
availability.
Hypothesis 3: It is hypothesized that there would be a direct
positive relationship between supply chain innovation and firm
performance.
2.2. Control Variables (Gender, Size of Firm
and Educational Qualification) and FP
2.2.1. Gender, Educational qualification and FP
Empirical researches on personal factors and personality
characteristics relative to FP have yielded mixed results; most
times negative (Nadiri and Tanova, 2010; Akinbode, 2011;
Uzonwanne, 2014). Gender stereotyping is not helpful while
educational qualification may need to be combined with training
and experience to become effective.
2.2.2. Size of the Firm and FP
The size of a firm can be evaluated from many perspectives.
Some key ones include its share capital, number of employees,
balance sheet size, size of operations as to product line, type of
industry and competitors and market control. Also, it has
implications for strategy formulation, implementation and
control. Relative to SBs, large firms have greater resource
availability and access to finance to pursue opportunities, and
general employee development (Wiklund and Shepherd, 2005).
In SBs strategy formulation and possibly control may reside in
the domain of the owner/manager. Therefore the personality
traits of the owner/manager, the internal and external environ-
ments, no doubt, would influence the extent of innovative
practices in a given firm. Empirical studies have shown that the
size of a firm, most often as a moderating variable, may have a
relationship with firm performance (Rauch, 2009; Kusuma-
wardhani, 2013, Lumpkin and Dess, 1996).
Hypothesis 4: The effect of process innovation, market
innovation, and supply chain innovation on FP is positively
controlled by (a) gender (b) educational qualifications and (c) the
size of the firm.
Below is a hypothesized model of innovation and FP.
Figure 1. Hypothesized model of Innovation and Firm
Performance
64
2.3. Firm Performance
Firm performance has been researched from two per-
spectives: objective and subjective, or financial and operational.
The objective measurements are quantitative, based on accoun-
ting and secondary data, and include technological efficiency
ratios such as profitability, Return on Investment, Return on
Equity, Return on Assets, Market Price, etc. On the other hand,
the subjective measures are qualitative, based on respondent’s
perception or self-reported data, and may include firm’s survival,
growth, market position, customers’ and employees’ satisfac-
tion, etc.
Generally, subjective measurement is evaluated by com-
paring a firm’s performance between two independent periods
(present and previous) (Hosseini, and Eskandari, 2013). In
surveying SBs, subjective measure is recommended because it
elicits greater responses from respondents; when it is recog-
nized that SBs are private organizations and are not obliged to
disclose their financial records where such are available
(Andersén and Samuelsson, 2016)
Often times, one set of measures may not suffice, such that
the need for multiple and diversified measures becomes im-
perative (Osoro, 2012; Santos, and Brito, 2012). Whilst some
studies have used various dimensions to measure firm
performance, Lumpkin and Dess (1996) emphasized the need
to take into account the multidimensional nature of firm per-
formance related to entrepreneurial activity or process. In which
case, if the measurements that are commonly applied are not
suitable for the nature and characteristics of the object of study,
specific performance measurements should be developed. SBs
are not diversified; the different functions coalesce and are
being performed by the owner/manager. Under the circum-
stance, adopting a single measure of performance becomes
more appropriate in line with literature. Presently, FP has even
gone beyond a single measuring instrument. Emphasis has
shifted to triple-bottom line, which demands for consideration for
very important stakeholders’ needs such as the owners’
profitability, people and planet (Gross, 2015).
3. Research Method
3.1. Sample
The study adopted a survey design and semi-structured pilot
study interview. The sampling frame was taken from NAFDAC
Green Pages, (2013) which contained all the registered TWPCs
in Nigeria. The NAFDAC licensed TWPCs in the three
geographical areas of Abia, Ebonyi and Enugu states were 330,
divided as follows: 188 for Abia, 31 for Ebonyi and 111 for Enugu
states respectively. The data required for the study were gene-
rated from primary sources-self-administered questionnaire and
oral interview. The respondents were owner/manager per firm,
who actually understood the operations of the firms. The re-
quired sample size was 181.
Because of differences in the population of firms in these
states, we adopted both purposive and proportional sampling
methods to select the required sample sizes in each state.
Based on our preliminary survey, the number of NAFDAC
registered companies still operating in Ebonyi State is 12. In
view of the small size, we purposively adopted a census survey
of all the firms. Baker and Edwards (2012) advised that when
the population of a study is reasonably small, census survey is
appropriate. Accordingly, the sample sizes were, 106, 12 and
63, for Abia, Ebonyi and Enugu states respectively.
3.2. Pilot Survey
In line with previous research (Kusumawardhani, 2013), we
conducted a pilot survey which main objective was to empirically
investigate how TWPCs in Abia, Ebonyi and Enugu states
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 QUALITY MANAGEMENT
demonstrated EO dimension of innovation as identified in the
literature.
The specific objectives were to:
i. To domesticate and standardize the innovation dimen-
sions’ measuring instruments;
ii. Apply the validated measuring instruments in the main
study, after standardizing the instrument with Principal
Component (Factor) Analysis.
We carried out a pilot survey of 12 firms selected randomly;
4 each from the three states.
Both questionnaire and unstructured interview were admi-
nistered after explaining and agreeing with the respondents on
the local meaning of say; innovation, process, market and
supply chain innovations, and noting their own indices of firm
performance.
Fourteen (14) activities were identified under the innova-
tiveness EO and Eight (8) under firm performance indicators.
The innovativeness variables were factor analyzed under three
components of process, market and supply chain. In the final
study, the loaded pilot study instruments, along with other
standardized instruments were analyzed. Conclusion:The pilot
survey achieved its set objectives.
3.3. Variables and Measures
The study used management perception (5-Liket scale
dimensions: 1=Strongly Disagree; 2=Disagree; 3=Undecided;
4=Agree and 5=Strongly Agree) to measure the EO-perception
relationship. This is in line with Lyon, Lumpkin and Dess (2000)
suggestion that; “perceptual measures of EO may provide more
precise information.” The standard instruments for measuring
EO dimensions and FP by Covin and Slevin (1986, 1989);
Lumpkin and Dess (2001); Lumpkin (2009); Wiklund and
Shepherd, (2005) and Santos and Britos, (2012) were adopted.
The reliability tests showed the following satisfactory Cronbach
alphas: process innovation =0.74; market innovation=0.83 and
supply chain innovation=0.73.
3.3.1. Small business performance
FP was generally operationalized with five performance
indices: growth, customer satisfaction, survival, market position
and employee satisfaction. Business Growth was operatio-
nalized thus; “Our current business operations will enable us
hire more workers next year and expand our operations.”
Customer Satisfaction was operationalized thus; ”Compared to
last year, our customers’ complaints about our product and
employees have reduced” and “We have loyal customers who
have remained with us for the past three years. ”Business
Survival was operationalized with the questions; “Despite all
odds, our company is still up and running” and “Our cautious risk
taking propensity has guaranteed the firm’s survival.” Market
Position was measured with; “We are satisfied with the size of
the market our company now controls”. Employee Satisfaction
was measured with; “There is commendable cooperation among
the workers” and “Our staff turnover is relatively low”.
The responses were collected and analyzed accordingly
using PCA statistical tool with a Cronbach alpha of 0.91.
3.3.2. Process Innovation
Process innovation was operationalized with the following:
“Most workers’ remuneration is based on commission to en-
courage productivity”; “We use cylinder printed nylon rolls as
against rubber stereo to improve printing quality”; “In a proven
case of overloading a truck, the defaulting worker is surcharged
up to ten times the market price of the product and fine gradually
deducted from his monthly pay”; “We rely on mentor’s advice in
taking important decisions”; “Our firm engages causal workers
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Access to Success Vol. 20, No. 168/ February 2019
and run shifts during season” and “Our firm reduces its work
force off-season and re-engage them during season.”
3.3.3. Market Innovation
Market innovation was operationalized thus: ” We employ
marketers whose responsibility is to source customers and
receive commission”; “In addition to giving product discount, we
change leaked sachets for our valued customers”; “We give
valuable prices to different categories of our customers who
meet their sales target at the end of the year” and “We sell our
product outside our state.”
3.3.4. Supply Chain Innovation
Supply innovation was operationalized using the following
instruments: “We distribute products off -traffic hours to reduce
cost of production” and “We outsource/engage third parties to
distribute our products.”
3.4. Control Variables
Owner/managers were asked to indicate their gender; either
male or female. Respondents were asked their educational
qualifications ranging from; FSLC; School Cert; BSc/HND and
Higher Degree. Firms’ size was determined by asking the
respondents the number of their employees including owner/
managers as follows: Below 5 employees; 6-10; 11-15 and
above 16 employees. SBs employees range from.
4. Data Analysis
We tested the study hypotheses using the AMOS18
statistical program with minimization history, standardized
estimates, indirect, direct and total effects, covariances of es-
timates and correlations of estimates. An observed variable path
analytic framework was used because of the modest sample
size. The overall model fit was assessed by examining the
magnitude of the ratio of the chi-square to its degrees of
freedom. The significance of each path coefficient was de-
termined by the ratio of the unstandardized regression
coefficient to its standard error. The path coefficients presented
are the coefficients for the standardized solution.
Figure 2. Hypothesized model of Innovation
and Firm Performance
4.1. Results
Correlations for the study variables, along with the co-
rresponding means, standard deviations, and alpha reliabilities
are shown in Table 1. It can be seen from the zero-order
correlations in Table 1 that the three innovation dimensions are
significantly correlated among one another, and each form of
innovation is significantly correlated with firm performance.
Distinguished in this table of results is the non-significant
relationship between gender, firm size and educational
qualifications of entrepreneurs and firm performance. Results of
the path analysis indicated that our hypothesized model fit the
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Variables 1 2 3 4 5 6 7
1. Gender 1
2. Size .758** 1
3. Education .557** .847** 1
4. Process Innovation -.030 -.006 -.059 (.74)
5. Market Innovation .025 -.036 -.134 .738** (.83)
6. Supply Chain Innovation .054 .009 -.023 .722** .692** (.73)
7. Firm Performance .013 .001 -.083 .821** .802** .710** (.91)
Mean 1.26 2.55 2.57 17.37 8.01 11.20 17.35
Standard deviation .440 1.049 .797 8.713 4.418 5.719 7.614
N 161 161 161 161 161 161 161
Notes: Cronbach Alphas are shown in parentheses on the diagonal.
** Correlation is significant at the 0.01 level (2-tailed).

Table 1. Descriptive Statistics, Scale Reliabilities and Correlations of Study Variables

data quite well (χ2 = 36.39, d.f. = 12). A proposed model is
considered reasonable when the ratio of the chi-square to its
degrees of freedom goes as low as 5:1 (Bentler and Chou,
1987:91). An examination of the standardized path coefficients
(shown in Figure 2), however, indicated that not all the
hypothesized relationships were supported.
Variable Coefficient t-Value p<t>
Constant 3.872 2.731 0.007
Process Innovation 0.390 6.842 0.000
Market Innovation 0.661 6.088 0.000
Supply Chain Innovation 0.162 2.000 0.047
F-Statistic 83.714
p<t> 0.000
R 0.875
R-Square 0.765
Adjusted R-Square 0.756
R-Square Change 0.765
Table 2. Results of Regression of Process, Market
and Supply Chain Innovations against Firm Performance
The major hypothesized paths for this study were significant.
Specifically, Hypothesis 1, which stated that process innovation
would be positively related to firm performance, was significant.
The path estimate between these two variables was significant
and in the predicted direction (b = .39, p < .01), thus was
supported. Hypothesis 2 stated that there would be a positive
relationship between market innovation and firm performance.
The path estimate between these two variables was significant
and in the predicted direction (b = .66, p < .01), thus providing
support for this hypothesis. Hypothesis 3, which predicted a
direct positive relationship between Supply chain innovation and
firm performance, was also significant. The path estimate
between these two variables was significant and in the predicted
direction (b = .16, p < .05), thus providing support for this
hypothesis. The variability of the FP is explained to the tune of
76.5 percent by the three innovation variables.
Hypothesis 4; the controlled hypothesis: proposed positive
relationships between (a). Gender and the firm performance, the
path estimate between these two variables was negative and
not significant (b = -.32, p > .01), thus the hypothesis was not
supported. (b). Firm size and firm performance, also was not
significant, but was however positive. The path estimate
between these two variables was not significant (b = .62,
p > .01), thus the hypothesis was not supported. (c). Educational
qualification to firm performance was also negative and
insignificant. The path estimate between these two variables
was not significant (b = -.61, p > .01), thus the hypothesis was
not supported.
In sum, the overall pattern of results indicated that the
process innovation, market innovation and supply chain inno-
vations collectively and respectively influenced firm perfor-
mance directly. Whereas, controlled variables of respondents’
gender, size of the firm and educational qualifications do not
influence firm performance.
5. Discussion
Innovativeness as one of the entrepreneurial orientation
dimensions has been found to significantly affect firm per-
formance (Miller, 1983; Lumpkin and Dess, 1996; Rauch, et al.
2009). However, contextual factors have equally been noted to
mediate EO dimensions’effect on firm performance (Hughes
and Morgan, 2007; Lim 2008; Rauch, et al. 2009; Fairoz, et al.
2010; Zainol and Ayadurai, 2011; Osoro 2012; Kusuma-
wardhani, 2013; Lee and Dedahanov, 2014). Our findings are in
sync with this conceptual and empirical framework. Process
innovation is found to have significant and positive affect on FP.
The same applies to market and supply chain innovations
respectively. Apart from correlating positively with FP; they also
correlated positively amongst themselves. For small businesses
where the owner/manager almost alone takes strategic
decisions, a convergence of the variables may be expected.
This supports the notion of unidimensionality of the EO
dimensions (Miller, 1983).Also, Rosli and Sidek ( 2013), who
decomposed innovation into product/service, process and
market, noted that a certain degree of overlap might exist in
reality.
Though we found the variables positively correlated with FP,
their effects differ. When regressed, it is noted that market
innovation has the greatest effect on FP (r2 =0.661, p<0.000);
followed by process innovation (r2 =0.390, p<0.000) and the
least is supply chain innovation (r2 =0.162, p<0.047). Overall,
the dimensions of innovation explained the variability in FP by
76.5 percent. The remaining 23.5 percent may be caused by
other mediating/control variables. Extant empirical studies (Fatoki,
2014; Anlesinya, 2015; Kusumawardhani, 2013) had indicated
that innovativeness is not a major strength of retail and stable
firms generally, relative to technology oriented firms. Paucity of
fund due to collateral deficiencies may inhibit investment in
innovative activities.
All the control variables, except size of the firm, showed
either insignificant and/or negative correlation with FP. This
mixed result is in line with literature (Nadiri and Tanova, 2010;
Akinbode, 2011; Uzonwanne, 2014).It would appear that none of
these factors may fully explain innovative behavior of people. A
combination thereof, and other factors like family upbringing,
operating environment, among others need be considered.
Concerning the size of the firm, empirical studies have shown
that it may have a positive relationship with firm performance,

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 QUALITY MANAGEMENT
most often as a moderating/control variable, (Kusumawardhani,
2013; Rauch, 2009; Lim 2008; Morgan, 2007 and Lumpkin and
Dess, 1996). This agrees with our result.
5.1. Implications for Research and Management
Our findings have shown that innovation, as decomposed,
and as an EO dimension significantly and positively affected FP.
However, other dimensions of EO e.g. proactiveness, risk taking
propensity, competitive aggressiveness and employee auto-
nomy exist (Miller, 1983; Lumpkin and Dess, 1996). These could
either be researched individually or collectively for greater
elucidation of their effects on FP. Our study has further decon-
structed the innovativeness construct for easier application in
strategic management and policy decisions.
5.2. Limitations
The survey research design adopted in this study is limiting.
A snapshot approach to research omits the essence in lon-
gitudinal study where trends and events are captured. This
approach is recommended for further studies. Our study
covered only three out of the five states in south East Nigeria.
Anambra and Imo states may be included in future studies. This
approach would increase the sample size which would make for
better representative sampling and generalization of result with
greater validity and reliability. The need to further standardize
the innovation question items obtained during the pilot survey
need not be over-emphasized as to apply them in contextual
studies.
5.3. Conclusions
Small businesses have been noted as catalysts for the
economic development of countries. Therefore, research into
their performance is a wholesome scholarly venture. Consistent
with previous research, we found that process, market and
supply chain components of innovation affect small business
performance positively and significantly. It is also concluded that
the respondents’ gender and educational levels do not
significantly and positively affect small business performance.
But the size of the firm has positive though not significant effect
on SBs performance. More contextual, expansive and inte-
grative research on the other EO variables would further enrich
the body of knowledge in strategic management and entre-
preneurship literature.
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Methodologies and Tools of a Two-Phase Rating System

for Innovation Project Value Assessment

Irina PCHELINTSEVA1, Olga GORDASHNIKOVA2, Anastasia VASINA3

1Yuri Gagarin State Technical University of Saratov, Saratov, Russia; E-mail: irina.pchelintzeva@yandex.ru
2Corresponding author, Yuri Gagarin State Technical University of Saratov, Saratov, Russia; E-mail: gordaolga@yandex.ru
3Yuri Gagarin State Technical University of Saratov, Saratov, Russia; E-mail: nasty530@yandex.ru

Abstract

The paper considers the issues related with selecting innovation projects for their further implementation at industrial
enterprises. The developed methodology can be applied for innovation excellence assessment, which includes two
phases: estimation by the primary parameters, and estimation by the secondary parameters of a project. The
proposed methodology is based on calculation of the integral performance index of primary and secondary
parameters of an innovation project. The threshold values of the integral performance index of the innovation project
parameters are defined in terms of the first and second assessment phases. For effective utilization of the proposed
methodology applied to innovation project value assessment, we worked out a timeline to the key stages in the
assessment procedure.
When estimating the innovation project value, we propose to use the methods of analytical and comparative analysis,
expert analysis, and the Monte Carlo simulation of graphic and tabular data presentation. The provided test and
analysis results to the methodology for calculating the integral performance index of innovation projects refer to the
tests conducted at three industrial enterprises in Saratov region of the Russian Federation. Practical application of
the given methodology will help the management team of an enterprise in selecting high quality innovation projects
based on the integral index of its primary and secondary parameters, which proves the practical significance and
effectiveness of the proposed methodology.

Keywords: innovation project; innovation project value; quality rating; parameters of an innovation project value.

1. Introduction innovation project, it is critically important to take into account its

Since 2014, the Russian Federation has adopted import
substitution policies, which can be enforced through realization
of effective innovation projects. The current tendency has brought
up to date the issues related with selecting innovation projects
which suit the quality standards and might contribute to
achieving competitive advantages, and hence might be realized
at industrial enterprises in the future (Kuzina, E.D., 2013).
In practice it is not infrequent that industrial enterprises fail to
realize innovation projects due to the following reasons: external
risks, errors when making managerial decisions, overestimation
of innovation potential of an enterprise, bureaucratic hurdles and
legal obstacles, poor development of institutions supporting
innovation activities (Pchelinceva, I.N., 2017), lack of clear and
exact criteria for selecting innovation projects (Gordashnikova,
O.Yu., Semenov, D.S., 2015). Thus, as is pointed out by the
Government Expert Council, we are facing a shortage of
innovation projects satisfying the quality standards.
For effective implementation of innovation projects, we must
consider important constituents of innovation and provide exact
estimates for the future projects. In our view, an innovation
project is a specially designed and administered range of
events, activities and operations, characterized for a set of pa-
rameters restricted by the time-frame and other resources
targeted on achievement of particular aims related with de-
velopment, commercialization and diffusion of innovations
(Pchelinceva, I.N., Dmitrienko, A.V., 2014).
Under current conditions in order to successfully realize an
principle features, including quality, cost and effectiveness of
innovation output, resources needed to implement the project
(Erygin V., Pavlova E.O., 2014), the system of project mana-
gement, the timespan required to implement the whole project
and stages in the project, and the quality of business processes
(Yashin, N., Popova, L., et al., 2016), which can be estimated by
means of statistic tools for quality rating (Yashin, N., Andreeva,
T., et al., 2015).
The quality assessment procedure applied to innovation
projects is a pressing issue under conditions of several potential
projects planned to be realized (Zubenok, M.A., Nikonov, J. I.,
2017), in particular at enterprises having a set number of R&D
projects or several versions for resolving a single R&D problem
(Barsukov, D.P., Skorchelletti, D.S., 2012).
According to E.I. Sannikova, A.N. Tsivikova, and Yu.A.
Repina, the quality rate of a project is defined as an integrated
set of characteristics of an object, which refer to its ability to suit
the specified or anticipated needs (Sannikova E.I., Civikova
A.N., et al., 2014). T.Kh. Galeev assumes that the quality of a
project can be characterized by correspondence of the project
features to particular requirements (Galeev, T.H., 2016). To the
given requirements the author refers the commonly-known or
generally-accepted and documented needs, as well as cus-
tomer and consumer sentiments.
Therefore, the authors assume that it is important to
investigate the whole set of parameters (indicators) for each
individual innovation project in terms of their compliance with the
requirements of customers, investors and consumers. Additional

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emphasis should be placed on the assessment of competitive
advantages of a project compared to other projects of an
enterprise or an industry (Barsukov, D.P., Skorchelletti, D.S.,
2012).
2. Materials and Methods Classify
Assessment of the innovation project value would be
appropriate to conduct in the following sequence.
1. Select the option parameters of an innovation project
and assemble them in line with prioritization. Figure 1 shows the
set of parameters used for qualitative evaluation of an innova-
tion project: primary (basic or key) and secondary parameters.
Primary parameters are indicators of project excellence, and
the management team must place emphasis on the given fac-
tors, including economic effectiveness, timescale and costs
associated with implementation of a project. Secondary para-
meters ensure achievement of the target levels determined by
the primary parameters, and the management team must be
careful about preserving the standard level of these parameters
in order to realize the specified efforts and operations (e.g.
resource, material, industrial, and infrastructure parameters).
Figure 1.
Parameters
of an innovation project
(the author’s approach)
4. Calculate the integral performance index (ipi) for primary
and secondary parameters of an innovation project (IP) – IPipi
(formulas 1 and 2):
(1)
where Πi are primary parameters of innovation project value,
70
2. Specify the requirements to the parameters, which to a
biggest degree depend on innovative potential of an enterprise,
its financial and manufacturing capacities (Shhekoturova, S.D.,
2015).
3. Measure and estimate the primary and secondary
parameters of an innovation project, and determine its weight
coefficients by the following means:
 analytical approach (volume of needed resources, staff
size, product costs, payoff period, investment profitability,
net present value, internal revenue rate, cash flow esti-
mation, etc.);
 expert evaluation approach (estimation of future product
demands, inflation, resource costs, etc.).
The experts are offered to estimate each parameter of an
innovation project regarding its acceptability status:
 the project parameter suits the requirements – 2 scores;
 the parameter deviates from requirements, though
deviations are not critical – 1.5 scores;
 the parameter has significant deviations – 1 score;
 the parameter does not suit the requirements – 0 scores
(Table 1).
i = 1, … n.
n – number of primary parameters.
(2)
where Πj are secondary parameters of innovation project value,
j = 1, … m; m – number of secondary parameters.
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Table 1. Weighting Coefficients for Primary and Secondary Parameters to Innovation Project Value Assessment

5. Define the threshold values of integral performance

indices for the primary and secondary parameters of an 3. Results and Discussion
innovation project using the Monte Carlo simulation metho-
dology. The experts determine the maximum and minimum The two-phase methodology for innovation project value
values to the primary P1 – P5 and secondary parameters assessment has been tried and tested by three industrial enter-
P6 – P14 of an innovation project. The Monte Carlo simulation is prises in Saratov region of the Russian Federation (Table 2).
applied to find a feasible set of solutions to the equations. which
Values of integral performance indices for the
characterize dependence of variables on the innovation project Industrial parameters of innovation projects
value. enterprise
The possible values of the integral performance index to the Innovation project No. 1 Innovation project No. 2
primary parameters of an innovation project are as follows: IPipi (primary) = 6.5 IPipi (primary) = 8.5
Enterprise 1
IPipi (primary) = 9 IPipi (secondary) = 15
− IPipi (primary) = 0 – 1.5 – low quality rating of an IPipi (primary) = 5.5 IPipi (primary) = 5.5
innovation project; primary parameters do not meet the Enterprise 2
IPipi (secondary) = 9 IPipi (secondary) = 12.5
requirements;
− IPipi (primary) = 2 – 5 – the quality rating of an innovation IPipi (primary) = 1.5 IPipi (primary) = 6
project is lower than the average level; primary Enterprise 3 IPipi (secondary)
IPipi (secondary) = 11.5
parameters significantly deviate from the specified no data available
requirements;
− IPipi (primary) = 5.5 – 7.5 – the average quality rating of Table 2. The values of integral performance indices
an innovation project; primary parameters have certain to the primary and secondary parameters of innovation
deviations from the specified requirements; projects realized at industrial enterprises in Saratov region
− IPipi (primary) = 8 – 10 – high quality rating of an (the Russian Federation)
innovation project; primary parameters suit the specified
requirements. Taking into account high values of integral performance indi-
ces of primary and secondary parameters of a project. we can
If the integral performance index to the primary parameters focus on the projects with highest quality and competitive
of an innovation project is positive. then we can proceed to the advantages to be realized by the industrial enterprises under
second phase. The possible values of the integral performance investigation. Thus for Enterprise 1. it can be innovation project
index to the secondary parameters of an innovation project are 2. for Enterprise 2 – innovation project 2. for Enterprise 3 –
as follows: innovation project 2.
The test results of the proposed two-phase methodology
− IPipi (primary) = 0 – 3.5 – low quality level of an used in innovation project value assessment will allow the
innovation project; secondary parameters do not meet management team of an industrial enterprise select the needed
the specified requirements; project that is characterized for high values of integral indices.
− IPipi (primary) = 4 – 10.5 – the quality rating of an which in its turn proves the practical relevance and productivity
innovation project is lower than the average level; of the given methodology.
secondary parameters do not satisfy the specified
requirements;
− IPipi (primary) = 11 – 14.5 – the average quality rating of 4. Conclusions
an innovation project; secondary parameters have
certain deviations from the specified requirements; Innovative activity of industrial enterprises in the majority of
− IPipi (primary) = 15 – 18 – high quality rating of an cases is characterized for high risk potential and heavy financial
innovation project; secondary parameters meet the costs. In the process of development and realization of an
specified requirements. innovation project. the management team should focus spe-

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cifically on the first stage related with shaping the set of
parameters to the project. which characterize its high quality.
Then. on the second stage. the emphasis should placed on
monitoring the achieved values for each variable in the whole
set of parameters. including the fast changing internal and
external parameters.
Application of the proposed two-phase methodology for
estimating the integral performance index of an innovation
project value allows for selection of higher quality innovation
projects based on objective principles. since the selection
procedure is implemented in two stages. Moreover. classifying
the parameters into two groups depending on their prioritization
principle. helps to exclude the projects with high values for
certain insignificant parameters. but having low values for top
primary parameters.
The suggested two-phase methodology for innovation
project value assessment will allow the government entities
allocate responsibilities and make the management process
clearer and more ‘transparent’.
References
[1] Barsukov D.P., Skorchelletti D.S. (2012). Competitiveness of the
innovation project: content, factors, evaluation. Russian
Entrepreneurship. No. 4, pp. 49-54.
[2] Erygin. V., Pavlova. E.O. (2014). The Parameters of innovative
projects: definition and classification. Reshetnevskie chtenija. Vol.
2, No. 18, pp. 378-380.
[3] Galeev. T.H. (2016). Project quality management. Bulletin of
Science and Education. No. 2 (14), pp. 36-38.
[4] Gordashnikova O.Yu., Semenov D.S. (2015). Methods of
managing the system of parameters of the innovation project.
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Economics and Entrepreneurship. No. 10-1 (63-1), pp. 1028-1030.
[5] Kuzina E.D. (2013). Formation of the mechanism of an estimation
of competitiveness of innovative projects of the enterprise.
Economics, Statistics and Informatics. No. 5. pp. 59-62.
[6] Pchelinceva. I.N., Dmitrienko. A.V. (2014). Theoretical aspects of
strategic management of innovative projects. European social
science journal. No. 4-2 (43), pp. 412-417.
[7] Katkova M.A., Mityaeva N.V., Pchelintseva I.N., Sankova L.V.,
Yanchenko E.V. (2017). Exaptation of Institutes of Development
and Formation of Institutional Traps in the Russian Labor Market.
Contributions to Economics. 17 May. pp. 229-235.
[8] Sannikova E.I., Civikova. A.N., Repina Ju.A. (2014). Project quality
management. Effective management systems: quality, innovation,
sustainable development. No. 4. pp. 116.
[9] Semenov. D.S. (2013). Generalized system of parameters of
innovative design. Innovation. No. 4. pp. 59-65.
[10] Shhekoturova S.D. (2015). Analysis of innovative activity of
metallurgical enterprises using mathematical modeling by the
Monte Carlo method. Polytechnical network electronic scientific
journal of the Kuban State Agrarian University. No 108. pp. 904-
919.
[11] Yashin. N.S., Andreeva T.A., Serebrjakov A.V., Bagautdinova N.G.
(2015). Implementation of the strategy: problems and solutions.
Mediterranean Journal of Social Sciences. Vol. 6. No. 1. pp. 475-
480.
[12] Yashin N.S., Popova L.F., Bocharova. S.V., Bagautdinova N.G.
(2016). Customer Satisfaction Assessment in Management Quality
System of Industrial Enterprises. International Business
Management. No. 10(24). pp. 5720-5726.
[13] Zubenok M.A., Nikonov J.I. (2017). Development of the concept of
"10P" in the context of project management. Luchshaja nauchno-
issledovatel'skaja rabota 2017: jekonomika. politika. sociologija i
pravo: sbornik statej VII Mezhdunarodnogo nauchno-
prakticheskogo konkursa. pp. 122-126.
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A Study on Relationship between Emotional Intelligence,

Ethical Ideology, Job Performance and Employee Engagement
in Telangana Autonomous Engineering Colleges

Jaahnavi KOLA1, Praseeda CHALLAPALLI2

1Corresponding author, Department of Master of Business Administration, Vardhaman College of Engineering, Hyderabad, India;
E-mail: jaahnavikola@gmail.com
2Department of Master of Business Administration, SRM Institute of Science & Technology, Chennai, India;
E-mail: cpraseeda@gmail.com

Abstract

The business environment today is facing certain fundamental changes due to the dynamic socio-political factors
leading to demanding competitive environment. Organizations are in pursuit of innovative strategies to battle against
the rivals and gain competitive advantage. Similar challenges are seen replicated in the educational sector. The
Indian Education Sector is facing the similar conditions. Nowadays, numerous problems are being highlighted about
the performance of the teachers because of multitasking being done by them as against the dictates of the traditional
teaching role. Academicians are also facing issues related to emotional intelligence, ethical ideology, employee
engagement due to the raise in the expectations related to job performance of teachers especially in the area of
higher education. The crucial objective of an educational institute is to impart superior quality education which makes
their performance the most important key result area for the educational institution. The present research aims to
evaluate the interrelationship between emotional intelligence, ethical ideology, job performance and employee
engagement with the help of 73 teachers of Telangana Autonomous Engineering Colleges.

Keywords: emotional intelligence; job performance; ethical ideology; employee engagement.

I. Introduction positive energy in operationalizing learning. The present study

The bars of quality education are being raised higher and
higher with the increasing focus on employee performance by
the corporate. As the education sector is responsible for laying
the basic foundation for the subsequent performance of the
employee there is a need to understand the framework of the
education sector and the challenges being faced by its prime
movers who are the educators, in other words, the acade-
micians. Teachers have an important part to perform in forming
the students’ careers and they must perform superiorly if they
have to fulfill the rising expectations. There are many aspects
upon which the performance of teachers depends on and
emotional intelligence (EI) is one of them. EI assists a person to
gain success in both personal and professional fronts. More so
as the academicians are not bound by a single format of work
but have the professional freedom to shape their work as per the
requirements of the subject they teach and the student group
they cater to. Employee engagement has been described as an
emotional and intellectual commitment made by employees to
the organizations. (Baumruk 2004, Richman and Shaw 2005 as
quoted in Ashish, 2016) [1]. Therefore the need for emotional
intelligence as a personal characteristic to enhance professional
efficiency and improved workforce engagement cannot be
gainsaid. The skill to handle the emotions of a particular person
and the skill to control the people’s emotions in a positive way
have a crucial part to play in the employee engagement, more
so in the case of teachers. The teachers get a feeling of self-
confidence in their academic institution once they are engaged
emotionally leading to inspired performance and display of
aims to understand the linkages between EI, employee engage-
ment (EE) and Ethical Ideology (EId) of academicians.
Despite popular assumptions the teaching community
cannot be said to be devoid of work related pressures. The
present day pressures are more in terms of: problematic stu-
dents, student expectations, academic publications, plagiarism
issues, less competitive students and the like. (Salasiah Hanin
Hamjah et al.2015)[2]. This situation is more evident in the
private universities where academicians play the crucial role of
imparting education. The institutions expect the academics to
continuously update themselves through research and publi-
cations and thereby uphold the university image leading to
further student intake. (Pey, 2009 as quoted in Zakaria et al
2015) [3]. A study conducted by Jena and Mahanthi (2014) [4]
states that employees in the present academic environment also
face what they describe as ‘technostress’ caused due to need to
manage a smart classroom, usage to information technology
based tools, multitasking and so on. Increasing demands from
students, parents, and the organization itself on the role of the
teacher have also been cited as the reasons stress and burnout
in the academics. (Salami, 2010) [5]. Finally organizational
silence has been quoted as a major stressor for academics
leading to stress in academicians as it renders the academics
without any freedom of expression. (Akini and Ulusoyi). As
stress is considered to be major negative emotional response to
any environmental stimuli emotional intelligence may be used as
basic framework to understand stress and to gain emotional
stability. (Nikolaou and Tsaousis. 2002) [6].
The ability to recognize one’s own emotions and to

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 QUALITY MANAGEMENT
empathize with the emotions of others has been called as
emotional Intelligence by Salovey and Meyer (1990) [7]. Nowicki
and Duke (1992) [8] have provided a direct link between
emotional intelligence and academic achievement. Emotional
intelligence has also been referred to as an indicator of
performance in various fields like banking telecom and retailing
(Heffernan et al 2008 as quoted in Malik and Shahid 2016) [9].
The presence of emotional intelligence has also been consi-
dered as an indicator of substantial variation in a teacher’s
efficacy levels. (Sutton Wheatley 2003)[10] Thus emotional
intelligence is one undeniable component of a teacher’s
performance.
Today’s organizational environment is encrusted with ethical
dilemmas. This may also be the reason for inclusion of ethical
education in the management curriculum across the world
.Ethical Ideology refers to the process of questioning unethical
behavior and arriving at morally strengthened decision making
in organizational environment. (Henle et al, 2005) [11]. Ethical
ideology of an individual is considered to be an important factor
that influences ethical decision making process. (Forsyth & Nye
1990; Forsyth 1992; Barnett et al., 1996 as quoted in Gokce
(2016) [12]. Despite the existence of universal ethical principles,
the application of the same to all situations is strongly
questioned by relativist theorists thereby reinforcing the role of
individual differences and their role in ethical decision making
(Davis et al 2001) [13], Forsyth (1980) [14] one of the oldest
researchers in the area of ethical ideology developed Ethical
Positioning Questionnaire (EPQ) top identify the ethical quotient
of an individual which plays a major role in ethical decision
making. Forsyth (1981) [15] also presents a taxonomy of ethical
ideologies called situationist, absolutionist, subjectivist and ex-
ceptionist. Situaionists relate ethical decisions to situation,
absolutionists apply a common moral code to decisions, while
subjectivists rely on personal values; exceptionists are prag-
matically open to suggestions (ibid). An attempt to understand
the importance of ethical ideology of academics cannot be
gainsaid in view of the increasing rates of academic dishonesty
in relation to cheating and plagiarism (Meng et al 2014)[16]
Employee engagement is a third aspect being considered for
the research. Staff engagement is fast emerging as the major
differentiating factor in academic institutions (Alzyoud et al,
2015) [17]. Khan 1990 defined work engagement as “harnessing
of organizational members to their work roles”. The definition
was further fine-tuned by Schaufeli (2013) [18] who calls
engagement as the presence of “involvement, commitment, pa-
ssion, enthusiasm, absorption, focused effort, zeal, dedication,
and energy” in an individual and extension of the same to the
organizational environment may be referred to as employee
engagement. It may be inferred that lower absenteeism, lower
attrition rates, higher commitment and satisfaction lead to better
in-role and extra role performance which in other words is
engagement (Alzyoud et al 2015) [17].
Figure 1 shows numerous aspects having an influence on
the job performance of a teacher of higher education and
Emotional intelligence, employee engagement and ethical
ideology are among them which have to perform a crucial part
and jointly make a decision regarding the job performance of a
teacher. The study is crucial because if the study succeeds in
proving that there is a strong and positive connection among
these aspects then the companies can organize training &
development programs to inspire, preserve and improve
teachers’ performance.
A study on the work engagement of the South African
academic staff working in the higher education focuses on
impact of job demands and job resources on their work
performances reveals that job resources play a major role in
enhancing the work engagement of these employees
(Rothmann and Jordaan 2006) [19]. Thus employee engage-
ment levels of academics can be directly linked to the support
systems provided by the institution to the academic staff.
74
Figure 1. Dimensions of Employee Engagement
in Academic literature
Source: Self design
The present study aims to understand the interlinkages
between emotional intelligence, ethical ideology, employee
engagement and job performance.
II. Literature Review
According to the statement of Schmidt and Hayers (2007)
[20], employee engagement is associated with business
outcomes and numerous essential problems of engagement are
where the managers possess the considerable impact. The high
level of employee engagement is associated with the consumer
pleasure, profitability, and efficiency in a positive way. According
to the evaluation of Steve (2011) [21], engaged workforce
influences business performance and eventually the share-
holder worth too. The organizations which have the workers who
are more engaged have superior financial performance,
superior consumer pleasure, higher holding and more efficient
workers. The organizations which have more engaged emplo-
yees tend to do superior in comparison to others.
According to Henle et al (2005) [11], a structure of ethics
which is implied to form the moral judgments is called as ethical
ideology while Schlenker, Miller and Johnson stated that Ethical
Ideology is a combined structure of principles, ideals, morals
and self-assessments which tell about the focus of a person
towards the matters of right and wrong. Job performance is a
variable which is universally considered standard in organi-
zational behaviour and HRM literature (Bommer et al, 1995)
[22]. Emotional Intelligence is described by Mayer (1990) [7] as
a subcategory of social intelligence which comprises the
capability to observe feelings and emotions of others, finding
differences between those and to make use of it to provide
guidance to somebody’s view and activities. With the help of
some evaluation, it was seen that the emotional intelligence
assists in recognizing the issues. A four brand model of EI was
formed by Mayer, Salovey and Caruso (2004) [23] and due to
the mode, EI was considered as the capability to recognize the
emotions, to understand emotions along with the emotional
knowledge and to control the emotions thoughtfully so that the
emotional and rational development can be encouraged. Model
was modified on the basis of the ability to reason in four regions:
a) Observe emotions
b) Simplifying thinking
c) Evaluating emotions
d) Handling emotions
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According to Goleman (1995) [24], Emotional Intelligence C. Selected Research Methodology
involves knowledge, emotional management, encouragement, In order to collect the data, sample size of 73 teaching
compassion and social skills. After 6 years in 2001, the skills employees of in Telangana Autonomous Engineering College
were renamed to: were taken. For the selection of samples, convenience sampling
method was used. Standardized questionnaire was used to
a) Self-awareness measure the relationship between Emotional Intelligence,
b) Relationship management Ethical ideology Job performance and Employee Engagement.
c) Self-management Anova, Independence t test and Correlation were used as
d) Social awareness statistical tools through SPSS.
In 1998, he stated that emotions in a company are directly
related to the emotional intelligence though there are few
necessities such as: self-reflection, wish to be aware of other IV. Results
people’s feelings, increase the emotional control, wish to learn
Demographic Data
more listening skills, etc. As per Lanser (2000) [25], the people
The demographic attributes of the respondents in the
using emotional intelligence to back their thinking and actions
studied populace and variables like age and designation are
have belief in the relationships; can bring the energy together
analysed and presented. Post graphical representation of the
and the capability to make safe decisions. Gabel et al (2005)[26]
variables reliability of the data has been checked.
also evaluated that EI dissipates the variances between the
traditions of host and home nations that have a significant part 1. Age
to perform in the cross cultural changes and in helping the According to the respondents, significant respondents
foreign managers so they can be more relaxed in new atmo- (90.4%) falls under the age group of 25 to 35 Years. 43.8%
sphere. Morrison (2005) [27] stated that EI helps an individual to respondents are from 25 to 30 years of age group and 46.6%
deal with the social encounters. Improving EI can result in the respondents are from the age group of 31 to 35 years.
improvement of capability to manage conflict in a positive Remaining respondents (6.8%) are from the age group of 36 to
method as it will help an individual to know which thing is right 40 years and 2.7% respondents are from the age group of more
and which is wrong along with providing the skills to form than 40 years.
appropriate decisions to settle the encounters. According to
Sewell (2011) [28], EI is universal and because of that its Characteristics Variations Total % Cont. Valid % Cum. %
capabilities have an impact on the flexibility and it also improves 25 to 30 years 32 43.8% 43.8% 43.8%
the mental fitness.
31 to 35 years 34 46.6% 46.6% 90.4%
Age
36 to 40 years 5 6.8% 6.8% 97.3%
III. Research Methods > 40 years 2 2.7% 2.7% 100.0%
Source: Primary Data Collected
A. Objectives through Questionnaire
73 100% 100%
1. To inspect the relationship between Emotional intelligence
and Employee Engagement. Table 1. Respondents of age in contribution of study
2. To survey the relationship between Emotional intelligence
and Ethical Ideology.
3. To analyse the relationship between Employee Engage-
ment and Ethical Ideology.
4. To weigh the impact of Emotional Intelligence on Job
Performance.
5. To check out the impact of Employee Engagement on
Job Performance.
6. To investigate the impact of Ethical Ideology on Job
Performance.

B. Hypothesis
H01: There is no significant relationship between Emotional
intelligence, Ethical Ideology and Employee Engagement.
Figure 2. Age wise count of respondents
H02: There is no significant impact of Emotional Intelligence,
Ethical Ideology and Employee Engagement on Job Perfor-
mance. Hypothesis on the Age and their biasness
Null Hypothesis
Characteristics Variations Total % Cont. Chi_Square Chi Square Cal P Values
Remarks
25 to 30 years 32 6.5% 0.14
31 to 35 years 34 6.9% 0.13
Age 0.74 0.39 H0 Rejected
36 to 40 years 5 1.0% 0.23
> 40 years 2 0.4% 0.24

Table 2. Hypothesis on the Age and their biasness

Inference: From the table 1 and 2 and with a figure 2 infers
that there is no significant impact of age on the relationship
between Emotional Intelligence, Ethical Ideology Job Perfor-
mance and Employee Engagement in Telangana Autonomous
Engineering Colleges.
2. Designation
According to the respondent’s significant percentage
(38.4%) of the respondents are Assistant Professors followed by
senior assistant professors (35.6%). 16.4% respondents are the
associate professors and remaining 9.6% respondents are
professors in Telangana Autonomous Engineering Colleges.

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 QUALITY MANAGEMENT
Characteristics Variations Total % Cont. Valid % Cum. %
Professors 7 9.6% 9.6% 9.6%
Associate Professors 12 16.4% 16.4% 26.0%
Designation
Senior Assistant Professors 26 35.6% 35.6% 61.6%
Assistant Professors 28 38.4% 38.4% 100.0%
Source: Primary Data Collected through
73 100% 100%
Questionnaire

Table 3. Respondents designation in contribution of study Figure 3. Designation wise count of Respondents

Hypothesis on the designation and their biasness

Null Hypothesis
Characteristics Variations Total % Cont. Chi_Square Chi Square Cal P Values
Remarks
Professors 7 9.6% 0.09
Associate Professors 12 16.4% 0.03
Designation 0.24 0.62 H0 Rejected
Senior Assistant Professors 26 35.6% 0.05
Assistant Professors 28 38.4% 0.07

Table 4. Hypothesis on the designation and their biasness

Inference: From the table 3 and 4 and with a figure 3 infers conduct the research.
that there is no significant impact of designation on the
relationship between Emotional Intelligence, Job Performance, H01: There is no significant relationship between Emotional
Ethical Ideology and Employee Engagement in Telangana Auto- intelligence, Ethical Ideology and Employee Engagement.
nomous Engineering College. To analyze the significant relationship between emotional
intelligence, ethical ideology, job performance and employee
Testing of the Hypothesis engagement, Pearson bivariate correlation analysis has been
In order to analyze the significant impact of relationship done on to calculate the relationship between all the parameters
among Emotional Intelligence, Job Performance, Ethical with job satisfaction among all the respondents in Telangana
Ideology and Employee Engagement, in Telangana Autonomous Autonomous Engineering College. The outcome of Pearson
Engineering College following hypothesis has been set to bivariant correlation analysis is shown below.
Employee Emotional Job
Ethical Ideology
Engagement Intelligence Performance
Ethical Ideology Pearson Correlation 1 .448** -.129 .478**
Sig. (2-tailed) .000 .278 .000
N 73 73 73 73
Employee Engagement Pearson Correlation .448** 1 .010 .469**
Sig. (2-tailed) .000 .931 .000
N 73 73 73 73
Emotional Intelligence Pearson Correlation -.129 .010 1 -.094
Sig. (2-tailed) .278 .931 .428
N 73 73 73 73
Job Performance Pearson Correlation .478** .469** -.094 1
Sig. (2-tailed) .000 .000 .428
N 73 73 73 73

**. Correlation is significant at 0.01 level (2-tailed).

Table 5. Correlation of variables to Job Satisfaction

Extrapolation: From table 5 the Positive significant
Correlation is being found between ethical ideology, employee
engagement and job performance at 0.01 level (2-tailed).
Results of the above results indicates that the Pearson bivariant
correlation coefficient is 0.478 for ethical ideology and job
performance and 0.469 is for employee engagement and job
performance. This indicates that a week positive correlation
exists between the calculated score of ethical ideology and
employee engagement on job performance in Telangana
Autonomous Engineering College. Results also tells that the p-
value of the correlation coefficient is less than 5% level of
significance, therefore with 95% confidence level, we can
conclude there is a significant positive week correlation between
ethical ideology and employee engagement on job performance
in Telangana Autonomous Engineering Colleges.
However, this doesn’t hold true for the association between
emotional intelligence and job performance. Negative significant
Correlation is being found involved to emotional intelligence and
job performance at 0.01 level (2-tailed).Culmination of the above
table also indicates that the Pearson bivariant correlation
coefficient is -0.094 for job performance and emotional intelli-
gence. This indicates that a negative correlation exists between
the calculated score of emotional intelligence on job perfor-
mance in Telangana Autonomous Engineering College. Results
also tells that the p-value of the correlation coefficient is less
than 5% level of significance, therefore with 95% confidence
level, so we conclude that there is no significant correlation
between emotional intelligence on job performance in Telangana
Autonomous Engineering College.
H02: There is no significant impact of Emotional Intelligence,
Employee Engagement and Ethical Ideology on Job Perfor-
mance.

76 Vol. 20, No. 168/ February 2019 QUALITY

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 QUALITY MANAGEMENT
Test of Homogeneity of Variances Ethical Ideology on Job Performance among the staff in
Levene Statistic df1 df2 Sig. Telangana Autonomous Engineering College with F
value of 5.4 and 5.3 at 95% confidence level.
Ethical Ideology 2.111 4 68 .009
6. There is insignificant impact of Emotional Intelligence on
Employee Engagement 8.776 4 68 .000 Job Performance among the faculty in Telangana Auto-
Emotional Intelligence 6.349 4 68 .000 nomous Engineering College with F value of 1.5 at 95%
Table 6. Test of Homogeneity of Variances confidence level.

ANOVA
Sum of Mean V. Conclusion
df F Sig.
Squares Square
The study has surveyed the relationship between Emotional
Ethical Between
37.918 4 9.479 5.463 .001 intelligence, Employee Engagement, Ethical Ideology and job
Ideology Groups
performance. There are many issues which have come to light
Within these days regarding the performance of teachers due to their
118.000 68 1.735
Groups multiple roles at work such as emotional intelligence, employee
Total 155.918 72 engagement and ethical ideology as all these three have a direct
Employee Between connection with the job performance. The ultimate goal of every
24.770 4 6.193 5.384 .001
Engagement Groups educational institute is to provide better quality of education to
Within their students and that totally depends upon the people who
78.216 68 1.150 have to impart knowledge to students. So their Performance is
Groups
utmost important to the organization. This study has examined
Total 102.986 72
inter-dependence between emotional intelligence, ethical
Emotional Between ideology, job performance and employee engagement. The
14.849 4 3.712 1.574 .191
Intelligence Groups
study shows that there exist a relationship between the said
Within
160.411 68 2.359 factors have impact of one factor on the other.
Groups
Total 175.260 72
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The Influence of Intellectual Capital towards Financial Performance

with Brand Value as an Intervening Variable

Isfenti SADALIA1, Ira Erminda DAULAY2, Lisa MARLINA3, Iskandar MUDA4

1Corresponding author, Department of Management Faculty Economics and Business, Universitas Sumatera Utara, Medan,
North Sumatera, Indonesia; E-mail: isfenti@usu.ac.id
2Department of Management Faculty Economics and Business, Universitas Sumatera Utara, Medan, North Sumatera, Indonesia;
E-mail: iraerminda@usu.ac.id
3Department of Management Faculty Economics and Business, Universitas Sumatera Utara, Medan, North Sumatera, Indonesia;
E-mail: lisamarlina@usu.ac.id
4Department of Accounting Faculty Economics and Business, Universitas Sumatera Utara, Medan, North Sumatera, Indonesia;
E-mail: iskandar1@usu.ac.id

Abstract

This study aims to analyze and provide empirical evidence of the effect of intellectual capital on the financial
performance using brand value as an intervening variable. The hypothesis is (1) Intellectual Capital a significant effect
on the financial performance, (2) Intellectual Capital has a significant effect on brand value, (3) Brand Value
significantly influences the company's financial performance, and (4) Intellectual Capital significantly influences the
financial performance with the brand value as an intervening variable. The population in this study is a company that
includes the Top 100 Most Valuable Brand from Swa Magazine. This study used method purposive sampling and
obtained a sample of 76 companies with the observation period from the year 2014 to 2016. This study used
secondary data companies listed in Indonesia Stock Exchange. The data analysis technique used was path analysis.
Analysis of the data in this study using 3.0 SmartPLS program. Results showed that intellectual capital has a
significant positive effect on financial performance. Intellectual capital has no significant positive effect on the brand
value. Brand value is also positive and not significant to the financial performance. Intellectual capital positively
affects financial performance through brand value, but the impact is not significant. Brand value as an intervening
variable in this study was a partial mediating variable.

Keywords: intellectual capital; brand value; financial performance.

1. Introduction the training of employees in some companies (Muda and

Dharsuky, 2015). But unfortunately this is not matched by
In conjunction with the performance, financial reports are corresponding financial reporting. During this time the com-
often used as the basis for assessing the company's per- pany's financial reporting focuses only on financial performance.
formance. From the financial statements, it can be calculated in There is some other information that needs to be delivered to
various financial ratios, which in turn can be concluded if the users of financial statements, which is about the value of the
company's performance is good or bad. Companies that con- company. The added value in the form of innovation, discovery,
sistently have a good financial performance of the company can knowledge, and the development of employees are often termed
be said to be good or healthy financial. If the company's good as Intellectual Capital.
performance, investors will not hesitate to invest, the lenders do Industrial Era Knowledge Era
not hesitate to give credit to the company, and the government
Customer Driven Production Driven
will submit its projects to be done by the company (Lutfi et al.,
2016). Therefore, as much as possible the company must Functional Process (Integrated)
maintain its financial performance and display it consistently Physical capital Intellectual Capital
even increased in the financial report. (Tangible Assets) (Intangible Assets)
To maintain and improve its financial performance is Bottom Up Bottom
certainly not easy. Companies must be able to maximize every- Management Leadership
thing he had. In this globalization era, to win a business
competition, the company cannot rely solely on tangible assets. Table 1. The shift from the Industrial Age
Recognizing the importance of the intangible assets that to the Age of Knowledge
contribute significantly to the competitive advantage, business Source: Chareonsuk and Chansa-ngavej (2008)
people began to try to manage and utilize it effectively and
efficiently (Dalimunthe et al., 2016; Lubis et al., 2016 and
Gusnardi et al., 2016). It is characterized by the increasing Based on Table 1, it shows that there has been a change
investment in intangible assets such as a budget increase from the traditional economic or industrial era to the knowledge-
Research and Development and an increase in the budget for based economy or the information age. The competitive advan-

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tage of this new business has shifted from physical capital to IC.
IC enables modern companies to increase their competitive ad-
vantage through knowledge management, engineering organi-
zations, professional skills, relationships and customer expe-
rience. Therefore, the IC has become the most powerful factor
for all companies, especially those based on knowledge-based
economy, the success of the company. With the management of
intellectual capital performance as an added value in the
company, it can influence the performance of the company.
Performance of the company itself can be divided into financial
performance and non-financial performance. In this study,
researchers conducted a performance measurement using the
company's financial performance. The financial performance in
this study uses three (3) indicators that are Return on Assets,
Return on Equity and Earnings per Share.
Research on the intellectual capital is still not consistent,
especially in conjunction with the company's performance. Firer
and William (2003) states that physical capital is the most
significant factor that affects the performance of the company,
so they did not find any positive impact between intellectual
capital and company’s performance. But there are also some
studies that show the results where there is a positive effect
between intellectual capital and company’s performance. Among
the research conducted by Nouri and Parker (1998), Chen et al.
(2009), Tan et al. (2007), Iswati and Anshori (2007), Wei (2009),
Ting et al. (2009), Zeghal et al. (2010), and Ulum (2016) stated
that the results of previous studies were inconsistent directing
the next research to use the intervening variables. It is also
disclosed by Govindarajan (1986) that in order to overcome
inconsistencies results of previous studies required contingency
approach. Through a contingency approach, other variables
were included in the study. Other variables may affect the IC and
fundamental relationship to financial performance. The variables
that indicate the situational factors in contingency approach are
known as moderating variable and intervening variables.
This study examines the effect of intellectual capital on the
financial performance by using an intervening variable that is
brand value. Intellectual capital will affect the company's fi-
nancial performance in running the business. If the management
of intellectual capital properly, it will affect the brand value of a
company and improve company performance. The use of an
intervening variable is expected to provide an overview of the
effect of intellectual capital on the financial performance. This
study is an extension of previous research and empirical.
The difference of this study with previous research is the
research object. The objects used in this research are Top 100
Swa Magazine version with the highest value brand. The reason
is because the company of Swa Magazine's Top 100 is a
relatively large-scale enterprise and has a high degree of
industry competition. With a high degree of industry competition
course, a company needs a competitive edge so that it can
compete with other companies. One form of such a competitive
advantage is intellectual capital. In addition, the expected results
of this study can provide input for potential investors who want
to invest their shares in those go public companies, especially
companies which included the Top 100 most valuable brands of
Swa Magazine.
1. Literature Review
1.1. Theoretical Review
2.1.1. Resource Based Theory
According to the Resource Based Theory (RBT), companies
gain competitive advantage and achieve superior performance
by having, acquiring, and using strategic asset effectively.
Strategic assets in question include tangible assets in the form
of physical assets, and intangible assets that were owned,
developed, and used by companies in maintaining a competitive
80
and profitable strategy (Wernerfelt 1984 in Komnenic and
Pokrajcic, 2012). Physical assets such as land, machinery and
buildings is very easy to obtain on the free market and very easy
to imitate, making it difficult for the company if only relying on
physical assets alone. Therefore, the company should also
make use of its intangible assets in order to compete amid
increasingly fierce industry competition. Barney (1991) says that
the intangible assets may be treated as a strategic asset that
can provide a sustainable competitive advantage for the
company because it is valuable, difficult to imitate, rare and
difficult to be substituted with anything else.
a. It is valuable: it is precious (valuable) which means it is
economically, intangible assets have a value that is profitable for
the company.
b. Difficult to duplicate: By having an intangible asset that
is hard to duplicate (hard to imitate), companies can maximize it
to increase profits, because this cannot be done by other
companies.
c. Rare: rare intangible assets (rare) that is possessed
only a handful of parties only. Moreover, if an intangible asset
that is rare value or benefit, the company can have a monopoly
for the benefit of the company.
d. Difficult to be substituted (non-substitutable) so even
though the company's competitors also have a similar intangible
assets, but still not the same.
2.1.2. Intellectual Capital
Intellectual Capital is a crucial factor for the company to
provide competitive advantage and added value. The concept of
Intellectual Capital identifies five categories of resources which
can be used as a framework to facilitate the identification of
strategic resources all companies (Roos and Roos, 1997 in
Komnenic and Pokrajcic, 2012). According Komnenic and
Pokrajcic (2012), the intellectual capital in the company is not
only knowledge, but also human capital, organizational, and
relationships. Human capital includes the competence and
ability of employees to organize, apply their knowledge and
skills to perform certain activities.
Capital organization is an extension and manifestation of
human capital in the form of systematization of knowledge,
innovation, organization structure, corporate culture, intellectual
property, business processes, physical structure and financial
structure of the company. While including relational capital is the
ability to build quality relationships with external stakeholders
such as customers, suppliers, investors, state, and society in
general. Therefore, the concept of intellectual capital is a
detailed explanation of the concept of key capabilities and stra-
tegic resources as the focus of interest of the resource and
knowledge-based theory. Intellectual capital provides the basis
to generate the information necessary to make strategic and
operating decisions regarding the company's key capabilities.
In general, the previous researchers classified Intellectual
Capital into three main elements, namely:
a. Human Capital
By Abeysekera (2008) (in De Silva et.al, 2014), Human
Capital can be defined as a skill that is owned by
employees of the company and can increase the creation
value for the company. This capability can be knowledge,
experience in working and employee loyalty to the
company.
b. Relational Capital
Relational Capital or Customer Capital includes all of the
resources associated with outside parties, such as
customers, suppliers, and stakeholders where the
relationship with these parties also affect the viability of
the company (Riahi-Belkaoui, 2003; Lubis et al., 2016;
Sadalia et al, 2016; Muda et al., 2016 and Muda et al.,
2017).
c. Capital Organizational
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 QUALITY MANAGEMENT
According to Muda et al., (2017), it is the knowledge of
the organization as a whole, such as technology,
organizational structure, data, publications, standard pro-
cedures, and corporate culture.
This study uses measurement monetary Pulic's VAIC Model
(Pulic, 1998, 2000), to measure the intellectual company's
capital. The reason of choosing this method is because many
previous studies used this method. Moreover the data
necessary for this method is also relatively easy to obtain.
2.1.3. Value Added Intellectual Capital Coefficient (VAIC)
Pulic, a professor of Austrian Intellectual Capital Research
Center (AICRS), developed a method used to measure the
efficiency of the company of the three types of input are known
as methods VAIC (Value Added Intellectual Capital Coefficient)
(Komnenic and Pokrajcic, 2012). The value of this VAIC indi-
cates how efficiently the company in utilizing and managing
strategic resources it has. The higher the value, the more
efficient the result is. Three types of input or inputs that are
components of VAIC are Value Added Human Capital (VAHU),
Structural Capital Value Added (STVA), and Value Added
Capital Employed (VACA).
1. Value Added Human Capital (VAHU)
Value Added Human Capital (VAHU) is an indicator that
shows how much added value that can be obtained from the
funds issued to employees or labor. This indicates that human
capital has a relationship with added value in which this relation
is the HC can produce VA (Tan et al., 2007).
2. Structural Capital Value Added (STVA)
Structural Capital Value Added (STVA) is an indicator of
structural capital (SC) against the value in the company. This
indicator conveniently indicates how much the role of the SC in
generating added value for the company. However, the SC is not
a measure that is independent as HC. It is dependent on the
value creation (Pulic, 1999). That is, according Pulic (1999), the
greater the contribution of HC in value creation, the less con-
tribution of the SC in this regard.
3. Value Added Capital Employed (VACA)
Value Added of Capital Employed (VACA) is an indicator of
capital employed (capital employed) or CE to the value in the
company. The relationship between CE with how much VA is
produced by one unit of physical capital. Pulic (1998) assumes
that if one unit of CE generate return a larger than any other
company, then that company is better to utilize its CE which is a
part of the IC company (Tan et al., 2007).
2.1.4. Financial Performance
The financial performance of the company is one of the
factors seen by potential investors to determine investment
shares. For a company, maintain and enhance financial perfor-
mance is a must that these shares still exist and remain
attractive to investors. The financial performance is one of the
factors which demonstrate the effectiveness and efficiency of an
organization in order to achieve its objectives (Nurzaimah et al.,
2016). Financial performance variables used in this study are
Return on Assets (ROA), Return on Equity (ROE) and Earnings
per Share (EPS).
a. Return on Assets (ROA)
Return on Assets (ROA) is a ratio used to measure the
profitability of the company. Profitability reflected on how
efficiently the company generates net income from its
assets. The higher the ROA shows that the company's
performance is getting better.
b. Return on Equity (ROE)
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Return on Equity (ROE) represents a payback to the
stakeholder, and is generally regarded as one of the
important financial indicator for investors (Chen et. al,
2005). ROE is obtained by dividing net income by
shareholders' equity. The greater the value of ROE, the
return of capital to shareholders will be great, and of
course this will attract investors to further invest in the
company.
c. Earnings per Share (EPS)
Earnings per Share measure the profits to be given to
shareholders. The higher EPS has given the greater
profit to shareholders. This shows the company's
performance is increasing.
2.1.5. Company Fundamental
Fundamental companies in this study is the control variable.
Fundamentals of the company are all factors that affect the
company. These factors were divided into two: macroeconomics
and microeconomics. Macroeconomics and Microeconomics
are the two main branches of the economy. Microeconomics is
a branch that focuses on how individuals, households, and
organizations make their decisions to distribute limited re-
sources, usually in markets that see the trade in goods or
services (Sirojuzilam et al., 2016 and Tarmizi et al., 2017).
Microeconomics studies how these decisions affect the general
supply and demand for commodities and services. As we know,
supply is one of the factors that determine the price, which in
turn, determines the supply and demand of goods and services.
Ordinary microeconomics is also referred to as a "bottom-up
economy" view, or how people deal with money, time, and re-
sources available (Tarmizi et al., 2016). Microeconomics
focuses on supply and demand and other forces that determine
the price levels seen in the economy. For example,
microeconomics will see how a particular company can
maximize that production and capacity so as to lower prices and
be better able to compete in its industry. Micro Economy is a
branch of economics that studies the behavior of individual
economic units such as households (Yahya et al., 2017), And
industrial structure. Microeconomics discusses the allocation
and efficiency of market resources. Fundamental company in
this study uses microeconomic variables. Microeconomic
variables come from within the company, so it is also called the
internal factors (Tarmizi et al., 2016 & Muda et al., 2017). Micro
fundamentals or the company's fundamentals may be a com-
pany policy and scale of the company. Fundamental company in
this study is the size of the company, debt to equity ratio, age of
the company, and PC.
a. Company size
Company size directly reflects the level of a company's
operating activities. Generally, the larger a company is, the
greater the quality. Thus the size of the company can be
attributed to the amount of property owned by the company.
Referring to research conducted Muda et al. (2017), the size of
the company is expressed by the formula Log total assets.
b. Debt to Equity Ratio
Debt to equity ratio (DER) is the ratio between total debts to
total capital of the company. Total debt as defined in the formula
is the calculation of the total debt of the company, which is the
sum of short-term debt and long-term debt in the accounting
period (Muda et al., 2016). While the total capital is the total
capital of the company, which is the sum of its own capital and
the existing share capital.
c. Age Company
Age Company is considered investors in the capital because
of the age of the company reflect the survival (Sadalia et al.,
2017). The higher the age of the company shows that the better
81
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performance in the face of obstacles means the ability of a management, and can be used as an indicator in assessing the
company is good enough and can increase the confidence of performance and risks of the company.
investors. H3: Intellectual capital significantly influences on brand
value.
d. PC
PC is a comparison of fixed assets owned by the company 4. The Influence of Intellectual Capital on Performance of
with total assets (Sadalia and Syahyunan, 2016). This ratio is Finance and Brand Value as an intervening variable
used to see how big the company's assets are fixed assets. In this study, it will be tested to see how intellectual capital
indirect effect on financial performance. If intellectual capital led
2.1.6. Brand Value to increased brand value and brand value increase also led to
increased financial performance, then through brand value will
Brand has an important role for the company. It used to be increase the influence of intellectual capital on the financial
only as a distinctive brand to identify a product produced by a performance.
particular manufacturer as well as to protect both the customers H4: Intellectual capital significantly influences the finan-
and suppliers of other competitors who try to produce similar cial performance of the brand value as an intervening
products. Currently the brand is not only seen as a brand, but is variable
recognized as a life. In a simple measurement of brand value is
to look at the acquisition price of a company's net book value.
The brand value in this study was measured using the Premium 2. Method
Price Method.
3.1. Type of Research
1. The influence of Intellectual Capital Against Financial
This research was conducted by using quantitative research
Performance
method. This research resulted in descriptive data. Descriptive
Financial performance is very important, both for the
method is a research method that focuses on the problem or
company itself as well as for stakeholders who have diverse
phenomenon that is actual at the time of the research
interests. With good financial performance means the company
conducted, then describes the facts about the problems
has managed to utilize all its resources so well that generate
investigated which is followed by a rational and accurate
profits for the company. For employees, financial performance
interpretation (Gusnardi et al., 2016).
indicates that the company is unable to meet the needs of them
such as salaries and benefits. So they do not have to worry
3.2. Measurement of Variable
about their future viability. Employees can work in peace. For
3.2.1. Intellectual Capital Method
investors, financial performance indicates that the company has
been to utilize the funds they invest (Sadalia and Syahyunan,
Intellectual capital is knowledge that provides information
2016). So that investors do not have to worry if the funds they
about the intangible value of companies which can affect the
invest will be misused. Whereas for creditors, financial
durability and contribute to the company's competitive
performance implies that the company has managed to utilize
advantage.
the funds they borrowed from creditors well. With so lenders do
VAIC = VAHU + VACA + STVA
not have to if the company fails to return or fails to repay the
funds they lend (Sadalia et al., 2016). Research conducted by
3.2.2. Brand Value
Chen et al., (2005), showed that intellectual capital has a
positive effect on financial performance. Therefore, the
Brand value is often defined as the amount of money ready
management of intellectual capital that both companies can
to pay the other party to a company's brand. (Sadalia and
create value added which is useful in improving the financial
Syahyunan 2016)
performance of the company.
H1: Intellectual capital significantly influences financial
performance.

2. The Influence of Intellectual Capital Against Brand

Value
A strong brand will generate demand to many times and
ensure buy-back by consumers in the future. In other words, the
brand has also contributed significantly to the process.
Company’s Value Creation. Therefore the researchers used a
brand value to see their considerable influence relationship
between intellectual capital and the company's brand power.
With the management of intellectual capital performance as an
added value in the company will increase the brand value of the
company, and that it can also influence the performance of the
company.
H2: Intellectual capital significant influences brand value.
3. The Influence of Brand Value Against Financial
Performance
This study is to analyze the effect on the performance of the
company's brand value. Investors prefer to hold stock in well-
known companies, and measure the performance of the
company to evaluate the indicators, including brand awareness,
research and development intensity, advertising intensity, the
profitability (Sadalia et al., 2017). The brand value is also a key
indicator for investors. The brand value is an important tool for
3.2.3. Financial Performance
The financial performance is an indicator that describes the
circumstances that occurred in the company in terms of
economics. The financial performance in this study was
measured by ROA, ROE, and EPS.
Return on Assets (ROA) = Net Profit / Total Assets
Return on Equity (ROE) = Net Profit / Total Equity
Earnings Available for Common Stockholders
EPS =
Number of Shares of Common Stock Outstanding
3.2.4. Control Variables
3.2.4.1. Fundamental Company
Fundamental company in this study is the size of the
company, debt to equity ratio, age of the company, and PC.
Size = Ln Total Assets, DER = Total Liability/Total Equity
Age = Ln Age Company, PC = Fixed Assets/Total Assets
Data used is secondary data is data obtained from the other
party in the form of published reports. Data used in the form of

82 Vol. 20, No. 168/ February 2019 QUALITY

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financial statements of companies traded publicly including Top  Indirect Effect
100 Most Valuable in Indonesia. Data collection method used is
the documentation that is getting data from the financial sta- Indirect effect is the amount of influence through the variable
tements derived from the Indonesian Stock Exchange. The intermediaries. The indirect effect of intellectual capital on fi-
population in this study is a company that includes the Top 100 nancial performance through brand value equal to 0206 x 0.047
Most Valuable per year from 2014 to 2016 and on the basis of = 0.010. The results of the indirect effect will be summarized in
reliable data sample was obtained by 76 companies. Table 5 below.
Indirect
3.2.5. Data Analysis Techniques Effect
Intellectual Capital-> Brand Value -> Financial Performance 0.010
Research used Partial Least Square (PLS) as an analytical
tool by using software Smart PLS 3.0. In this case, intellectual Table 5. Indirect Effect
capital, the company's performance, and brand value are Source: Output SmartPLS 3.0 (2017)
treated as latent variables with each indicator. PLS is one
method for implementing the model Structural Equation Based on Table 5, the amount of the indirect effect in this
Modeling (SEM). Model analysis of all lines in the latent variable study amounted to 0.010.
PLS consists of two models, namely inner and outer models.  Total Effect
Effect of total revenue generated from the analysis of the
4. Results and Discussion structural model is equal to the number of driving direct
influence ng and indirect influence. Thus, in the model used in
4.1. Results
this study, the effect of the resulting total is equal to 0723 + 0010
= 0733.
P-Value
VACA 0.015  Hypothesis Testing
VAHU 0.123
The hypothesis was tested using 3.0 SmartPLS program.
STVA 0.368
DER 0.680
SIZE 0.680
PC 0.164
AGE 0.422
BRAND 0.000
ROA 0.677
ROE 0.024
Figure 1. Hypothesis Testing
EPS 0.663 Source: SmartPLS 3.0 Output (2017)
Table 2. Significance of Weights
Source: SmartPLS 3.0 Output (2017) Testing the hypothesis 4 which is an indirect influence is
presented in Table 6 below:
Original Sample St. T P
Table 2 shows that VAHU, STVA, DER, SIZE, PC, AGE, Sample Mean Dev Statistic Values
ROA, and EPS do not have a significant weight. Therefore,
Intellectual Capital ->
these indicators should be excluded from the model. For 0.010 0.014 0.030 0.325 0.745
Financial Results
variable control, it is no longer used in the model because there
is no indicator that has significant weight. Therefore, the Intellectual Capital ->
indicator did not experience multicolinearity. Table 3 below is the Brand Value
indicators for each construct. Brand Value ->
Financial Performance
Indicators Construct
VACA Intellectual Capital Table 6. The Influence of Intellectual Capital
BRAND Brand Value against Financial Performance through Brand Value
ROE Financial Performance Source: SmartPLS 3.0 Output (2017)

Table 3. Indicators and Construct No. Hypotheses

Original T P-
Conclusion
Sample Statistic Values
Intellectual Capital
 Direct Effect H1 significantly influences 0723 5849 0000 Received
the financial performance
Direct effect between the variables can be viewed through Intellectual Capital
path coefficient on the structural model. Value path coefficient H2 significantly influences 0206 1680 0094 Rejected
between variables can directly be seen in the picture below. The the Brand Value
direct effect would be seen in Table 6 below. Brand Value significantly
H3 influences the financial 0047 0480 0631 Rejected
Direct Effect performance
Intellectual Capital -> Financial Performance 0.723 Intellectual Capital
Intellectual Capital -> Brand Value 0.206 H4 significantly influence the 0010 0325 0745 Rejected
financial performance
Brand Value -> Financial Performance 0.047 through the Brand Value

Table 4. Direct Effect Table 7. Results of Testing whole Hypothesis

Source: Smart PLS 3.0 Output (2017) Source: SmartPLS 3.0 Output (2017)

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 QUALITY MANAGEMENT
Table 7 shows the results of testing whole hypothesis. Based
on the results obtained, the form of structural equation as
follows:
KK = 0.723IC + 0.047BV + e1
BV = 0.206IC + e2
 Coefficient of Determination
The coefficient of determination is a value that indicates how
much the independent variables can explain the dependent
variable.
R Square
Brand Value 0029
Financial Performance 0527
Table 8. Results of determination coefficient
Source: SmartPLS 3.0 Output (Data processed)
Table 8 can be seen intellectual capital is able to explain the
brand value of 2.9%, and the remaining 97.1% is explained by
other variables outside of this study. Intellectual capital is able to
explain the financial performance of 52.7%, and the remaining
47.3% is explained by other variables.
4.2. Discussion
4.2.1. The Influence of Intellectual Capital
against Financial Performance
Based on the results showed that intellectual capital has a
significant impact on financial performance with a positive
direction, which means that if the value of intellectual capital
increases will lead to the increased company performance.
Intellectual capital has a major role in business processes.
Perspective Intellectual capital can provide a holistic view of the
enterprise, because its main purpose is to create a framework
that allows explaining all the company's resources and how
these resources interact to create value. With good financial
performance, the company has managed to utilize all its
resources so well that generate profits for the company. The
results are consistent with studies of Chen et al. (2005) using a
sample of a public company in Taiwan in 1992- 2002. The re-
sults show that the intellectual capital has a positive effect on
financial performance. Therefore, the management of intellec-
tual capital of the companies can create added value which is
useful in improving the financial performance of the company.
Additionally, Pirayesh and Khojasteh (2016) also state that
intellectual capital has a significant positive effect on financial
performance.
4.2.2. The Influence of Intellectual Capital
against Brand Value
Based on the results, it shows that intellectual capital does
not have a significant positive effect on brand value which
means that the increase in intellectual capital will increase the
brand value. In this case the human capital, structural capital,
and costumer capital has increased, it can match many science
or thinking power that is owned by company, so that company
will yield establishment of business process which produce
quality and innovative product. This surely will increase the
value of the brand owned company. Strong brands will generate
repeated requests and future customer warranties. The results
of this study are in line with research X (2015) which states that
intellectual capital has a positive effect on brand value.
4.2.3. The Influence of Brand Value
against Financial Performance
The result of the research shows that brand value does not
have a positive effect to financial performance which means that
84
the increase will happen in the performance too. In this case a
strong brand will generate repeated queries and future
buybacks by consumers in the future. This will increase the
return on equity, return on assets, and earnings per share also
increase so that the company's performance will be better.
Investors prefer stocks in the company, and performance mea-
sures with indicators, including brand awareness, R & D intensity,
ad intensity, profitability. Brand value is also a key indicator for
investors. Brand value is an important tool for management, and
can be an indicator in performance appraisal and corporate risk.
The results of this study are in line with the research of Feng Jui
Hsui, et al. (2013) which states a positive brand value to
financial performance.
4.2.4. Intellectual Capital Effect on Performance
with Added Value as Intervening Variable
Based on the results of research indicate that intellectual
capital has no significant positive effect on financial performance
through brand value. This means the increase of intellectual
capital will increase the brand value that improves financial
performance. In this case when intellectual capital increases,
then it can be interchangeable the more knowledge or power
controlled/owned by the company, so the company will produce
the establishment of business processes that produce quality
and innovative products and this will certainly increase the
strong brand. Thus, the firms will generate repeated queries and
back warranties by consumers in the future. Surely this will
increase the company's profits that may lead to have a good
financial performance. According to Feng Jui Hsu1 research, et
al. (2013), it is stated that a brand value can be an indicator in
performance appraisal and corporate risk.
5. Conclusions
1. Intellectual Capital has a positive effect on financial
performance. That is, the more efficient the company that
builds its intellectual capital, the financial performance
will increase.
2. Intellectual capital has no significant effect on brand
value. From the elements of the VAIC component, only
the physical and financial assets (CEE) are positively
energized in the product, while the two components of
intellectual capital do not show any influence. That is,
companies are more utilizing technical things, namely
the operational activities that create the brand.
3. Brand value has no significant effect on financial perfor-
mance.
4. Intellectual capital has no significant effect on financial
performance through brand value.
The suggestions based on the results of the research:
1. For further researchers it is expected to use intervening
variables other than brand value to be more varied and
comparable, and use longer observation periods to make
the results more accurate.
2. For companies that become the object of research is
expected to be more. This is very important for the
company, because it can show how much the ability of
the company in its performance capacity from year to
year.
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Strategic Human Resources Roles and Knowledge Sharing:

How do enhancing Organizational Innovation?

Ika Nurul QAMARI1, Julitta DEWAYANI2, Augusty Tae FERDINAND3

1Corresponding author, Ph.D student at Diponegoro University, Semarang, Indonesia, Associate Professor at Department
of Management, Universitas Muhammadiyah Yogyakarta, Indonesia; E-mail: ika_nr@umy.ac.id
2Ph.D student at Diponegoro University, Semarang, Indonesia
3Professor at Faculty of Economics and Business, Diponegoro University, Semarang, Indonesia

Abstract

The aims of this research are to empirically verifying the strategic roles of human resources in the contribution on
organizational innovation with the mediating variable of knowledge sharing. This research was conducted in an
organizational scope engaged in higher education services, which is Universitas Muhammadiyah Yogyakarta (UMY)
which has implemented e-learning model education. Unit of analysis of this research was lecturers at Universitas
Muhammadiyah Yogyakarta Indonesia. This research use quantitative approach with purposive sampling as its
sampling technique. Questionnaires were distributed to 150 lecturers who have applied the e-learning process as the
respondents. The findings show that strategic human resources roles positively influence on knowledge sharing,
while knowledge sharing has insignificant effect on organizational innovation. Furthermore, perceived organization
support positively effects on organizational innovation.

Keywords: strategic human resources roles; knowledge sharing; organizational innovation; perceived organizational
support; e-learning.

1. Introduction (Laursen and Foss 2013). It requires special trainings, new

The effectiveness of strategic human resources roles and
organizational innovation capability has become a crucial topic
for a business competition. A research finding has indicated that
human resources management and organizational capacity to
innovate are the resources in attaining competitive advantage
(Jime´nez-Jime´nez and Sanz-Valle 2008). Innovation is
assumed as a strategic instrument to build and enhance the
organizational capacity. Strategic human resources manage-
ment is the center of all development planning and the
implementation program. Another finding stated that no plan or
program could be designed and implemented effectively without
strategic thinking (Farazmand 2004). Existence of organization
is also defined by the human resources who have strategic roles
in the organization. Besides, with the rapid changing of
organizational environment, an organization is demanded to
always innovate.
Becker and Matthews (2008a) stated that innovation and
human resources are the important factors of an organization.
Both interact in improving the organizational performance. Or-
ganizational performance here refers to e-learning process in a
higher education conducted by the lecturers. E-learning is an
abbreviation for electronic learning, i.e. a learning process that
utilizes electronic media and internet. Advances of information
technology have urged higher education institutions to innovate
in learning processes to be widely accessed and flexible as well.
The relationship of human resources and innovation reflects
trend in the business world which encourage the integration of
human resources and innovation. The companies today are
increasingly adopting open innovation models and engaging
with external knowledge sources; they found that a new group of
employees is needed to bring into the process of innovation
performance indicators, new rewards, and new ways to
communicate with and among employees. In short, it is the
demands of human resources efforts to become active. Hence,
knowledge sharing is required to accommodate human
resources strategic role for the organizational innovation. This
study aims at explain the mediating role of knowledge sharing
as a strategic instrument in improving the effect of human
resources strategic roles towards organizational innovation.
2. Literature Review
and Hypothesis Development
2.1. Knowledge Sharing
The popularity of knowledge management is increasing
rapidly since 1995 and has become a major topic of
management philosophy and management tool. This popularity
is reflected through the increasing number of articles and books
on this topic (Edvardsson 2004; Nonaka et al. 2000). Knowledge
management focuses on the creation and distribution of
knowledge within an organization through new technologies
such as internet, intranet, and email; although there are also
which concentrate on social relationship and interaction
(Alvesson and Karreman 2001). Knowledge is dynamic for it is
created within a social interaction between individuals and
organization. Knowledge is a specific context for it depends on
certain time and space. Without being inserted into a context, it
is only information but not knowledge.
There are two kinds of knowledge: explicit and tacit
knowledge. Explicit knowledge are expressed in the forms of:
book, manual, procedure which are printed and guideline which

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expresses information clearly through languages, images,
sounds, or the communication means. It can be processed,
delivered, and stored relative easily. In contrast, tacit knowledge
is highly personal and difficult to formalize. Subjective insights,
intuitions, and presentiments are included in this category of
knowledge. Tacit knowledge stems in actions, procedures,
routines, commitments, ideas, values, and emotions which
comprehensively lie on human’s mind and body awareness. To
communicate tacit knowledge to other individuals requires ana-
logue process with simultaneous processing (Kim and Lee
2006).
Knowledge sharing creates opportunities to maximize
organization’s capability in meeting the needs of knowledge and
produce solutions and efficiencies that provide business with
competitive excellences (Reid 2003). In this research, know-
ledge sharing is defined as social interaction culture which
engages the exchanges of employees’ knowledge, experiences,
and skills through the entire departments or organizations.
Knowledge sharing consists of a set of common understanding
intertwined to provide accesses for employees to relevant
information and framework by utilizing knowledge network within
the organization. Knowledge sharing occurs at individual and
organizational levels.
For individual employees, knowledge sharing is to talk with
colleagues to assist them in gaining things in order to contribute
better, faster, or more efficient. For the organization, knowledge
sharing is to capture, manage, reuse, and transfer experience-
based knowledge within the organization and make the
knowledge available to others in the business (Lin 2007). The
success of knowledge sharing network requires method for: 1)
motivating members to participate and openly share their
valuable knowledge, 2) preventing free riders, and 3) reducing
costs associated by starting and accessing various types of
valuable knowledge (Dyer and Nobeoka 2000). In this research,
the knowledge sharing is at individual level, which is the sharing
of knowledge by playing strategic human resources roles
adopted from Ulrich (1998).
2.2. Strategic Human Resource Roles
The view of human resources today is to create an entirely
new role and agenda for the fields that do not focus on
traditional human resources activities, like on staff and
compensation, but on the results. Human resources should not
be defined by what is done, but focuses on something that gives
results, which enriches the value of organization to the
customers, investors, and employees (Ulrich 1998). Here, we
can see that organizational value is determined by the available
human resources. The role of human resources gives a high
impact on how an organization provides superiority on business
competition. According to Ulrich, human resources can help to
deliver organizational excellences in four ways, namely: 1)
human resources must become partner for senior managers
and line managers in the implementation of strategy and assist
in realizing the plan from the boardroom to the market, 2) human
resources must become experts in the ways of working
organized and conducted by providing administrative efficiency
to ensure that costs are reduced and quality is maintained, 3)
human resources must become a champion for employees
vigorously representing the employees to senior managers and
at the same time working to raise employees’ contributions;
namely, employees’ commitment on organization and their
capability to deliver results, 4) human resources must become
agents of constant process transformation and establish culture
to enhance organizational capacity for together changes. These
explanations have yielded new predicates for human resources
roles as: 1) Strategic Partner, 2) Administrative Expert, 3)
Employee Champion, and 4) Change Agent.
There are at least two human resources strategies related to
knowledge management, where it is defined as an effective and
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creative strategy. An effective strategy aims at effectiveness and
low costs, while creative strategy aims at innovation and new
capability. Human resources strategy and common strategy of a
company create common knowledge management strategy.
Innovative knowledge management characteristics are know-
ledge personalization, relationship of work and high confidence,
risk-taking courage, collaboration, ideas exchange, and long
term commitment.
A research by Chen and Huang (2009) criticizes the
association of human resources management critical roles and
knowledge management during the innovation process. The
research suggests that managers need to actively manage
human capital owned with various strategic roles to stimulate
their capabilities in managing the knowledge acquisition,
sharing, and application. The research highlights on the critical
role of human resources management and knowledge mana-
gement in the innovation process. A research conducted by
Francis and Keegan (2006) mentioned that the current function
of human resources role is leaner and more strategic with a new
designation of “the thinking performer”. It asserts that the
strategic human resources role is vital to contribute knowledge
in an organization. Some researches prove that knowledge
management mediates the relationship of human resources
management and innovation (Chen and Huang 2009; Tan and
Nasurdin 2011).
Based on those explanations, it is clear that the role of
strategic human resources is crucial in providing contributions to
gain, share, and apply knowledge in an organization. Strategic
human resources role may encourage and promote conducive
organizational environment to conduct integrated knowledge
sharing activities. Thus, it is expected that the positive rela-
tionship of strategic human resources roles on knowledge
sharing is available.
Hypothesis 1. The more intense the strategic human
resources roles will increasingly drive the success of
knowledge sharing process.
2.3. Organizational Innovation
Innovation is a necessity for an organization to be always
competitive and able to adjust to the environmental changes.
For an organization, human resources factor is the main factor
that should be considered in order to implement innovation. This
human resources role possesses responsibility in a department,
unit, function, and other divisions of an organization that
contribute to the realizations of innovation. Nevertheless, to be
able to realize innovation often raises different views and
several matters that need to be integrated. There, knowledge
sharing is required.
A study by Becker and Matthews (2008b) defines innovation
into four aspects, namely: (a) reference for new things, it
indicates a new thing for the organization; but at certain point in
a certain period, for the organization, it is considered as new; (b)
implications of the new things existence, but it does not mean
that the differences between ‘old’ and ‘new’ must be radical; it
does not refer to innovation lost, but also the incremental or
constant innovation; in other words, it illustrates the available
talent and ability in conducting much better things or something
different; (c) this definition emphasizes the importance of
innovation results, not on the rise of new ideas and generations
but on the creation of values through commercialization for the
organization. It can be supported by the innovation management
process, processing of signal, strategy, resources, and imple-
mentation; (d) refers to the sustained values, it does not mean
the economic profit alone. The values may relate to the results
in financial, social, environmental, or others that eventually will
enhance organizational values.
An organization must be able to learn quickly and constantly,
innovate continuously, and take new strategic moves faster and
more convenient (Ulrich 1998). An empirical study from
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Nasiripour et al. (2013) suggests that knowledge sharing
variable positively influences innovation. It shows that know-
ledge sharing variable can handle business matters. It is in line
with Naghavi et al. (2014) who verify the positive significant
process of knowledge management on organizational inno-
vation.
An inevitable matter for an organization is to encounter
constant changes; it means that the organization must create
discomfort with status quo, capability to detect tendency of the
rapid occurring competition, capability to make quick decisions,
and agility to seek new ways of doing business. It is unlikely to
be realized in the absence of harmonization of all parties with
strategic roles. Therefore, the positive relationship between
knowledge sharing and organizational innovation is expected.
Hypothesis 2. The better knowledge sharing, the better
implementation of organizational innovation.
2.4. The Relationship of Strategic HR Roles
with Organizational Innovation
People are not product, they are the main asset of an
innovative company (Gupta and Singhal 1993). Human re-
sources are involved in the entire process of innovation,
because 1) they assume that innovative capacity of a company
lies in intelligence, imagination, and creativity of the employees
(Mumford 2000), 2) their implications and supports are required
in developing and implementing innovation (Vrakking 1990).
Several studies (Jiang et al. 2012; Jime´nez-Jime´nez and
Sanz-Valle 2008; Tan and Nasurdin 2011) have elaborated the
positive relationship of human resources and innovation. A
research done by Sanders et al. (2010) shows that satisfaction,
in the human resources and work content practices, has positive
relationship with innovative behavior; however, satisfaction on
the primary rewards indicates negative relationship with the
innovative behavior. Based on the existing gap, this research
comes with knowledge sharing as the mediating variable. With
reference to the previous studies, it is expected that the
relationship between strategic human resources roles and orga-
nizational innovation is positive.
Hypothesis 3. The more intense strategic human re-
sources roles, the better implementation organizational
innovation.
2.5. Perceived Organizational Support (POS)
Human resources management should be responsible for
the orientation and training of line management on the im-
portance of high working spirit and to achieve it. Moreover, the
new human resources should heed the voice of the employees
during the management discussions, offering employees the
opportunities for personal and professional growths, and provide
resources to assist them in meeting their demands. Thus, it will
be more constructive for communication openness that gives
impact on the better perceived organizational supports. Indi-
viduals tend to “form beliefs about the extent to which an
organization values their contributions and cares about their
well-being” (Eisenberger et al. 1996). Some individuals may
base the perceived organizational supports on factors like the
desire of the organization member to provide special assistance
or special equipments to complete an activity. Others may
develop a strong sense based on the willingness of the or-
ganization members to provide opportunities for interesting
additional trainings for them. In addition, employees are often
sensitive against related environmental and organizational
constraints that may limit the organization capability in providing
them with the desired rewards.
Hypothesis 4. The better perceived organizational su-
pport will increasingly enhance knowledge sharing.
Perceived organizational support is associated to the belief
that the organization will fulfill its obligations to give rewards to
88
the employees (Settoon et al. 1996). There are two aspects to
determine the conditions of organizational support perceived by
the employees. The two aspects comprise: 1) organizational
rewards on employees contributions, 2) organizational attention
on employees’ welfare.
The need for innovations within an organization has yielded
the new focus on the role of leader in shaping the nature and
success of creative efforts (Mumford and Licuanan 2004).
Meanwhile, creative ideas at individual level of employees do
not always lead to the success of the creative ideas at the
organizational level. However, it at least provides a starting point
for the organizational innovation (Zhou and George 2001). For
individual employees, the perceived organizational support will
motivate to the implementation of knowledge sharing. Hence,
perceived organizational support will positively correlated with
the organizational innovation.
Hypothesis 5. The better perceived organizational su-
pport will encourage the implementation of organizational
innovation.
Based on the theoretical framework and review of previous
studies, it is explained that knowledge sharing concept is able to
share knowledge that must be conducted by an organization so
that in the implementation of organizational innovation in every
unit of work synergizes for the integrity of innovation building
developed by the organization. Based on those descriptions, a
research model is developed as follows (Qamari and Dewayani
2015):
Figure 1. Conceptual Model
This research leads to the realization of organizational
innovation that engages both organizational and individual
factors. Here, the organizational factor is strategic human
resources roles of organization and the individual factor is how
individuals with strategic roles possess positive attitudes
towards the organization by possessing pride over the achieve-
ments attained, understanding that the organization cares about
employees’ well-being, appreciating employees’ contributions,
considering employees’ goals and values, providing attention to
employees, and willing to assist when employees require
special assistance (Eisenberger et al. 2001). The complete
model is illustrated in Figure 1. The figure explains that
knowledge sharing is the variable that is able to mediate the
relationship of strategic human resources roles and
organizational innovation variables and the relationship between
perceived organization support on organizational innovation.
3. Research Method
3.1. Research Approach
This research was tested in an organizational scope en-
gaged in educational services, which is Universitas
Muhammadiyah Yogyakarta (UMY) which has implemented
e-learning model processes. Unit of analysis in this research
was lecturers of Universitas Muhammadiyah Yogyakarta (UMY),
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Indonesia. This research employed quantitative approach with
purposive sampling as its sampling technique. Questionnaires
were distributed to 150 lecturers who have conducted e-learning
processes as the respondents.
3.2. Operational Definitions
and Variable Measurements
There were four variables here. First, strategic human
resources roles; perceptions of lecturers on the strategic roles of
institutional leader in the implementation of e-learning.
Indicators implemented adopted Ulrich (1998) which covers the
leaders’ roles as a) Strategic Partner, b) Administrative Expert,
c) Employee Champion, and d) Change Agent. Second,
knowledge sharing; perceptions on the willingness and capa-
bility of lecturers to share in the implementation of e-learning.
Knowledge sharing variable includes four indicators where three
indicators were adopted from Mathuramaytha (2012) and one
additional indicator in this research was willingness to coo-
perate. Thus, the knowledge sharing indicators comprise: a)
willingness to cooperate, b) willingness to share, c) capability to
learn, and d) capability to transfer knowledge. Third, organiza-
tional innovation, lecturers’ perceptions on learning innovation
with e-learning. Indicators were adopted from Noruzy et al.
(2013) with modifications, hence, the indicators became: a) The
organization has developed e-learning process, b) implemen-
tation of a well-run e-learning in the organization , c) The
organization has developed the latest e-learning process, d) The
organization has been far more innovative, e) The organization
keeps abreast on information technology development. The final
variable, organizational support, which was measured with
Eisenberger et al. (2001) that comprise: a) The organization is
proud of my achievement, b) The organization really cares about
my welfare, c) The organization appreciates my contributions, d)
The organization highly considers my purposes and values, e)
The organization shows little attention to me, f) The organization
is willing to assist when I need special assistances. All of the
variables were measured with indicators using Likert scale with
1 for strongly disagree to 5 for strongly disagree.
3.3. Sample and Data Collection
A survey has been carried out by disseminating ques-
tionnaires to 150 lecturers at Universitas Muhammadiyah
Yogyakarta, Indonesia, with purposive sampling technique. The
criteria as respondents were permanent lecturers who have run
the e-learning processes. Characteristics of respondents were:
1) characteristics by sex: 89 males (59.33%) and 61females
(40.67%); 2) by age: below 30 years old: 25 people (16.67%), 30
to below 40: 45people (30%), 40 to below 50: 56 people
(37.33%), and above 50: 24 people (16%); 3) by academic
position: no position: 46 people (30.67%), assistant expert: 35
people (23.33%), lector: 43 people (28.67%), associate
professor: 26 people (17.33%), professor: unavailable; 4) by
period of work: less that 2 years: 17 people (11.33%), 2 to less
than 5 years: 34 people (22.67%), 5 less than 10 years: 22
people (14.67%),10 to less than 15 years: 13 (8.67%), above 15
years: 64 people (42.67%).
3.4. Construct Validity and Reliability Testing
Data testing of this research employed Structural Equation
Modelling (Semmer et al.) analysis with AMOS program. This
approach was performed by testing parameters yielded from
goodness of fit and soon testing the research hypotheses on the
causality relationship developed in the model.

Reflective scale names and items (measured on 1 –5 point Likert Scale indicating the extent to Standardized
which respondent agrees with following statements) factor loading

Strategic HR Roles (Cronbach’s α =0.770)

- The leader is my strategic partners. 0.794
- The leader is expert in administration. 0.571
- The leader is a role model. 0.722
- The leader is an agent of change. 0.660
Knowledge Sharing (Cronbach’s α =0.832)
- willingness to cooperation in conducting e-learning. 0.800
- willingness to share in conducting e-learning. 0.847
- capability to learn with e-learning. 0.652
- capability to transfer knowledge through e-learning 0.692
Organizational Innovation (Cronbach’s α =0.738)
- The institution has developed academic learning by employing e-learning. 0.615
- Introduction to e-learning process in this institution has run well. 0.658
- The institution has developed the latest e-learning technology innovation. 0.507
- The institution is far more innovative. 0.623
- The institution keeps following advancement trend of technology and innovation development. 0.628
Perceived Organization Support (Cronbach’s α = 0.756)
- The leader appreciates subordinates’ achievements. 0.816
- The leader provides facilities for e-learning process. 0.759
- The leader appreciates contributions performed by subordinates. 0.782
- The leader respects purposes and values of subordinates. 0.771
- The leader shows little attention to subordinates. 0.058
- The leader is willing to help when the subordinates need special assistance. 0.682

Table 1. Scale Items for Measures

The result of validity and reliability tests showed that the
Strategic HR Roles construct with the second indicator, namely
the leaders are experts in administrations have loading factor at
0.571 (loading factor < 0.6) which indicated that the indicator is
statistically invalid. Similarly, the result for the Perceived
organization support construct with the fifth indicator, namely the
leaders showed little attention to the subordinates have loading
factor value at 0.058 (loading factor < 0.6) which means that the
indicator is statistically invalid. Likewise, the result of validity and
reliability tests indicated that the organizational innovation
construct with the third indicator, namely the institution has
developed the latest technology innovation of e-learning has
loading factor value at 0.507 (loading factor < 0.6) which depicts
that the indicator is statistically invalid.
Further testing was conducted with maximum likelihood
estimation technique. The samples used here were 150
samples based on the grounds that the number of the samples
have met the criteria for the sample adequacy recommended for

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4. Research Findings

the maximum likelihood estimation (MLE) technique and criteria
average error variance of indicator (AVE) criteria in which the
minimum sample size is 150 the required standardized loading
estimated is less than 0.7 and the communality score equals to
0.5.
The next testing was done by assessing the questionnaire
items by using confirmatory factor analysis to test the rela-
tionship between constructs and the indicators. For the reliability
test, cronbach alpha (Cronbach’s α) was used. The test results
are shown in Table 1.
Hypotheses testing of this research were assisted with
Structural Equation Modeling (Semmer et al.) analysis program
of AMOS program. The results of the Structural Equation Mode-
ling (Semmer et al.) analysis in full model are illustrated in
Figure 2. Meanwhile, Table 1 exposes the assumption test re-
sults in developing Structural Equation Modelling (Semmer et
al.). Good results are indicated by full model confirmatory test as
it has met the criteria of goodness of fit. The model structure is
used to depict the research causality models with a tiered
relationship.

Figure 2. Full Model of Relationship between Strategic HR Roles, Perceived Organization Support,
Knowledge Sharing, and Organization Innovation

Standardized
Hypothesis t value Prob. Result
path coefficients
H1 Strategic HR Roles → Knowledge Sharing 0.472 3.620 0.000 Significant
H2 Knowledge Sharing → Organizational Innovation 0.299 1.616 0.106 Not Significant
H3 Strategic HR Roles → Organizational Innovation 0.325 2.022 0.043 Significant
H4 Perceived Organization Support → Knowledge Sharing 0.399 2.852 0.004 Significant
H5 Perceived Organization Support → Organizational Innovation 0.355 2.176 0.030 Significant

Note: *Significant at p ≤ 0.05; if (t) ≥ 1.96

Table 2. Results of Path Coefficients Test of Relationship between Strategic HR Roles, Perceived Organization Support,
Knowledge Sharing, and Oragnizational Innovation

The testing results indicate that criteria of goodness of fit
have been fulfilled as shown with Chi-Square at 94.284 and
probability value at 0.208. The two assumptions are completed.
The scores of TLI were at 0.983, GFI at 0.911, AGFI at 0.872,
and RMSEA was at 0.031 which show that the scores have met
the predetermined cut-off. It implies that the research model is
accepted and met the predefined criteria.
Figure 2 indicates standardized path coefficients of relation-
ship between strategic HR roles, perceived organization support,
knowledge sharing, and oranizational innovation. The findings of
this research are also shown in Table 2 which formulate 5
hypotheses. The five hypotheses developed here were the
relationship between strategic HR roles and knowledge sharing
and inovasi organisasi, perceived organization on knowledge
sharing, and the relationship of knowledge sharing on organi-
zational innovation.
Table 2 illustrates the relationship of Strategic HR Roles,
Perceived Organization Support, Knowledge Sharing, and Or-
ganizational Innovation. The scores of t value and probability
depict positive and significant relationship of each variable. For
the discussions of each variable relationship are as follows:

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 H1: Strategic HR roles affect on knowledge sharing.
Table 2 shows the structural path model which explains
the relationship between HR strategic roles and
knowledge sharing. The review of the goodness-of-fit
measures indicates that they are well exceeded the cut-
off values. The structural path findings indicate that there
is a significant and positive relationship between the
strategic HR roles and knowledge sharing (t = 3.620 >
1.96) with significance value (0.000 < 0.05). Hypothesis
1 is accepted.
 H2: knowledge sharing gives insignificant effect on
organizational innovation. Table 2 shows the model of
structural relationship between knowledge sharing with
organizational innovation. The structural path findings
indicate that there is no significant relationship between
knowledge sharing on organizational innovation (t =
1.616 < 1.96) with significance value (0.106 > 0.05).
Hypothesis 2 is not supported.
 H3: HR Strategic roles affect on organizational
innovation. Table 2 depicts the structural relationship
model of HR Strategic roles and organizational inno-
vation. The structural path findings indicate that there is
a significant relationship between the HR Strategic roles
on organization innovation (t = 2.022 > 1.96) with sig-
nificance value (0.043 < 0.05). Hence, Hypothesis 3 is
accepted.
 H4: Perceived organization support on knowledge
sharing. Table 2 indicates the structural relationship
model between perceived organization support and
knowledge sharing. The structural path findings indicate
that there is a significant relationship between the
perceived organization support on knowledge sharing
(t = 2.852 > 1.96) with significance value (0.004 < 0.05).
Thus, Hypothesis 4 is accepted.
 H5: Perceived organization support gives effect on
organizational innovation. Table 2 shows the model of
structural relationship between perceived organization
support and organizational innovation. The structural path
findings indicate that there is a significant relationship
between Perceived organization support on inovasi
organisasi (t = 2.176 > 1.96) with significance value
(0.030 < 0.05). Therefore, Hypothesis 5 is accepted.
5. Discussion
This research is designed to empirically verify the rela-
tionship of strategic human resources roles in the contributions
on organizational innovation through the mediating variable of
knowledge sharing. The findings provide evidences that the
strategic HR roles give effect on knowledge sharing. This is in
line with the previous researches done by Chen and Huang
(2009) in relation to the critical roles of Human Resources
management and knowledge management during the innova-
tion process. A similar study has also been done by Francis and
Keegan (2006) which mentioned that the function of human
resources roles today is much slimmer (leaner) and more
strategic with a new designation of “the thinking performer”.
Several other researches also found similar findings in which
knowledge management mediates the relationship between
human resources management and innovation (Chen and
Huang 2009; Tan and Nasurdin 2011).
Another finding of this research proves that knowledge
sharing does not significantly influence organizational innova-
tion. This finding does not support the previous researches
which stated that an organization should be able to learn quickly
and constantly, innovate continuously, and take new strategic
moves faster and more convenient (Ulrich 1998). This research
is also different with Nasiripour et al. (2013) who found that
knowledge sharing positively affects innovation. The finding also
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Access to Success Vol. 20, No. 168/ February 2019
does not support Naghavi et al. (2014) which proved the positive
and significant relationship of knowledge management process
on organizational innovation.
The next finding indicates that strategic HR roles affect on
organizational innovation. This finding is similar with the pre-
vious researches done by (Jiang et al. 2012; Jime´nez-Jime´nez
and Sanz-Valle 2008; Tan and Nasurdin 2011) which revealed
the positive relationship between human resources and
innovation. A similar study by Sanders et al. (2010) found that
satisfaction in the practices of human resources and work
content has a positive influence with innovative behavior.
Perceived organization support affects knowledge sharing
positively. The result is in accordance with the previous findings
which concluded that to build openness of communication that
give impact on the organizational support perceived better.
Individual tend to “create beliefs about the extent to which the
organization values their contributions and cares about their
well-being” (Eisenberger et al. 1996).
Perceived organization support influences the organizational
innovation. This finding is in line with the previous findings which
revealed the need of innovation within an organization has be-
come a pivotal role in establishing characteristics and success
of creative efforts (Mumford and Licuanan 2004). This is also in
line with another study which gave conclusion on creative ideas
at individual employees level do not always lead to the success
of the creative ideas across the organizational level. Never-
theless, it provides a starting point for organizational innovation
(Zhou and George 2001).
6. Managerial Implications
and Future Research
The managerial implications suggest the need of harmo-
nization and cohesiveness in knowledge sharing that in realizing
the innovation synergized at various levels of the organization,
from the lowest to the top level of organization. Besides, when a
problem occurs in a work unit, with knowledge sharing can be
quickly resolved.
The findings indicate that knowledge sharing insignificantly
influences organizational innovation. It indicates that the know-
ledge sharing process performed by the lecturers are not
optimal yet in terms of efforts to cooperate among lecturers in
conducting the e-learning and sharing the e-learning process
with other lecturers to be able to lift the innovation performance.
Future researches may refer this research in developing the
realization of organizational innovation, which is by considering
both organizational factor and individual factor. This is important
because an organization comprises of various units of work and
individuals with potential contributions on organizational chan-
ges. Even though there are several available possibilities that
can be developed for the future researches.
The managerial implication of this research explains that
universities need to consider how the implementation of the e-
learning process. The program is conducted in conjunction with
organizational innovation to improve the quality of learning ser-
vices. This study has proved that there is a significant positive
influence of the role of strategic human resources towards
organizational innovation. But the sharing of knowledge done by
the lecturers has not proven the improvement of organizational
innovation.
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Risk Management as an Instrument of the Effectiveness

of Quality Management System

Petr REHACEK

Department of Systems Engineering, VSB, Technical University of Ostrava, Czech Republic; E-mail: perehacek@gmail.com

Abstract

The purpose of risk management is the creation and protection of value. It improves performance, encourages
innovation and supports the achievement of objectives. Managing risk is iterative and assists organizations in setting
strategy, achieving objectives and making informed decisions. Managing risk is part of governance and leadership,
and is fundamental to how the organization is managed at all levels. It contributes to the improvement of management
systems.
ISO 31000:2018 delivers a clearer guide that will help organizations use risk management principles to improve
planning and make better decisions.

Keywords: consequence; event; likelihood; risk; stakeholder.

1. Introduction
The principles provide guidance on the characteristics of
effective and efficient risk management, communicating its
value and explaining its intention and purpose. The principles
are the foundation for managing risk and should be considered
when establishing the organization’s risk management frame-
work and processes. These principles should enable an organi-
zation to manage the effects of uncertainty on its objectives.
ISO 31000:2018 provides a risk management framework
that supports all activities, including decision making across all
levels of the organization:
 Review of the principles of risk management, which are
the key criteria for its success;
 Focus on leadership by top management who should
ensure that risk management is integrated into all
organizational activities, starting with the governance of
the organization; Figure 1. Principles
 Greater emphasis on the iterative nature of risk
management, drawing on new experiences, knowledge
and analysis for the revision of process elements, actions and proportionate to the organization’s external and internal
and controls at each stage of the process; context related to its objectives.
 Streamlining of the content with greater focus on d) Inclusive
sustaining an open systems model that regularly Appropriate and timely involvement of stakeholders enables
exchanges feedback with its external environment to fit their knowledge, views and perceptions to be considered. This
multiple needs and contexts. results in improved awareness and informed risk management.
e) Dynamic
Effective risk management requires the elements of Figure 1 Risks can emerge, change or disappear as an organization’s
and can be further explained as follows: external and internal context changes. Risk management anti-
cipates, detects, acknowledges and responds to those changes
a) Integrated and events in an appropriate and timely manner.
Risk management is an integral part of all organizational f) Best available information
activities. The inputs to risk management are based on historical and
b) Structured and comprehensive current information, as well as on future expectations. Risk
Structured and comprehensive approach to risk management explicitly takes into account any limitations and
management contributes to consistent and comparable results. uncertainties associated with such information and expecta-
c) Customized tions. Information should be timely, clear and available to
The risk management framework and process are customized relevant stakeholders.

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 QUALITY MANAGEMENT
g) Human and cultural factors
Human behaviour and culture significantly influence all as-
pects of risk management at each level and stage.
h) Continual improvement
Risk management is continually improved through learning
and experience.
2. Risk Management Process
The risk management process involves the systematic appli-
cation of policies, procedures and practices to the activities of
communicating and consulting, establishing the context and
assessing, treating, monitoring, reviewing, recording and repor-
ting risk. This process is illustrated in Figure 2.
Figure 2. Risk Management Process
The risk management process should be an integral part of
management and decision-making and integrated into the
structure, operations and processes of the organization. It can
be applied at strategic, operational, programme or project levels.
There can be many applications of the risk management pro-
cess within an organization, customized to achieve objectives
and to suit the external and internal context in which they are
applied.
The dynamic and variable nature of human behaviour and
culture should be considered throughout the risk management
process. Although the risk management process is often pre-
sented as sequential, in practice it is iterative.
3. Communication and consultation
The purpose of communication and consultation is to assist
relevant stakeholders in understanding risk, the basis on which
decisions are made and the reasons why particular actions are
required. Communication seeks to promote awareness and un-
derstanding of risk, whereas consultation involves obtaining
feedback and information to support decision-making. Close
coordination between the two should facilitate factual, timely,
relevant, accurate and understandable exchange of information,
taking into account the confidentiality and integrity of information
as well as the privacy rights of individuals. Communication and
consultation with appropriate external and internal stakeholders
should take place within and throughout all steps of the risk
management process (Verboncu and Mihai, 2016).
Communication and consultation aims to:
 bring different areas of expertise together for each step
of the risk management process;
94
 ensure that different views are appropriately considered
when defining risk criteria and when evaluating risks;
 provide sufficient information to facilitate risk oversight
and decision-making;
 build a sense of inclusiveness and ownership among
those affected by risk.
4. Scope, context and criteria
The purpose of establishing the scope, the context and
criteria is to customize the risk management process, enabling
effective risk assessment and appropriate risk treatment. Scope,
context and criteria involve defining the scope of the process,
and understanding the external and internal context.
4.1. Defining the scope
The organization should define the scope of its risk
management activities. As the risk management process may
be applied at different levels (e.g. strategic, operational,
programme, project, or other activities), it is important to be clear
about the scope under consideration, the relevant objectives to
be considered and their alignment with organizational objec-
tives.
When planning the approach, considerations include:
 objectives and decisions that need to be made;
 outcomes expected from the steps to be taken in the
process;
 time, location, specific inclusions and exclusions;
 appropriate risk assessment tools and techniques;
 resources required, responsibilities and records to be
kept;
 relationships with other projects, processes and acti-
vities.
4.2. External and internal context
The external and internal context is the environment in which
the organization seeks to define and achieve its objectives. The
context of the risk management process should be established
from the understanding of the external and internal environment
in which the organization operates and should reflect the
specific environment of the activity to which the risk mana-
gement process is to be applied.
Understanding the context is important because:
 risk management takes place in the context of the
objectives and activities of the organization;
 organizational factors can be a source of risk;
 the purpose and scope of the risk management process
may be interrelated with the objectives of the orga-
nization as a whole.
4.3. Defining risk criteria
The organization should specify the amount and type of risk
that it may or may not take, relative to objectives. It should also
define criteria to evaluate the significance of risk and to support
decision- making processes. Risk criteria should be aligned with
the risk management framework and customized to the specific
purpose and scope of the activity under consideration. Risk
criteria should reflect the organization’s values, objectives and
resources and be consistent with policies and statements about
risk management. The criteria should be defined taking into
consideration the organization’s obligations and the views of
stakeholders.
While risk criteria should be established at the beginning of
the risk assessment process, they are dynamic and should be
continually reviewed and amended, if necessary.
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To set risk criteria, the following should be considered:
 the nature and type of uncertainties that can affect
outcomes and objectives (both tangible and intangible);
 how consequences (both positive and negative) and
likelihood will be defined and measured;
 time-related factors;
 consistency in the use of measurements;
 how the level of risk is to be determined;
 how combinations and sequences of multiple risks will be
taken into account;
 the organization’s capacity.
5. Risk assessment
Risk assessment is the overall process of risk identification,
risk analysis and risk evaluation. Risk assessment should be
conducted systematically, iteratively and collaboratively, drawing
on the knowledge and views of stakeholders. It should use the
best available information, supplemented by further enquiry as
necessary.
5.1. Risk identification
The purpose of risk identification is to find, recognize and
describe risks that might help or prevent an organization achie-
ving its objectives. Relevant, appropriate and up-to-date
information is important in identifying risks (Kerekes and
Csernátoni, 2016).
The organization can use a range of techniques for iden-
tifying uncertainties that may affect one or more objectives. The
following factors, and the relationship between these factors,
should be considered:
 tangible and intangible sources of risk;
 causes and events;
 threats and opportunities;
 vulnerabilities and capabilities
 changes in the external and internal context;
 indicators of emerging risks;
 the nature and value of assets and resources;
 consequences and their impact on objectives;
 limitations of knowledge and reliability of information;
 time-related factors;
 biases, assumptions and beliefs of those involved.
The organization should identify risks, whether or not their
sources are under its control. Consideration should be given that
there may be more than one type of outcome, which may result
in a variety of tangible or intangible consequences.
5.2. Risk analysis
The purpose of risk analysis is to comprehend the nature of
risk and its characteristics including, where appropriate, the
level of risk. Risk analysis involves a detailed consideration of
uncertainties, risk sources, consequences, likelihood, events,
scenarios, controls and their effectiveness. An event can have
multiple causes and consequences and can affect multiple
objectives (Diana, Mirela and Sorin, 2017).
Risk analysis can be undertaken with varying degrees of
detail and complexity, depending on the purpose of the analysis,
the availability and reliability of information, and the resources
available. Analysis techniques can be qualitative, quantitative or
a combination of these, depending on the circumstances and
intended use.
Risk analysis should consider factors such as:
 the likelihood of events and consequences;
 the nature and magnitude of consequences;
 complexity and connectivity;
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Access to Success Vol. 20, No. 168/ February 2019
 time-related factors and volatility;
 the effectiveness of existing controls;
 sensitivity and confidence levels.
The risk analysis may be influenced by any divergence of
opinions, biases, perceptions of risk and judgements. Additional
influences are the quality of the information used, the a-
ssumptions and exclusions made, any limitations of the
techniques and how they are executed. These influences should
be considered, documented and communicated to decision
makers.
Highly uncertain events can be difficult to quantify. This can
be an issue when analysing events with severe consequences.
In such cases, using a combination of techniques generally
provides greater insight.
Risk analysis provides an input to risk evaluation, to
decisions on whether risk needs to be treated and how, and on
the most appropriate risk treatment strategy and methods. The
results provide insight for decisions, where choices are being
made, and the options involve different types and levels of risk.
5.3. Risk evaluation
The purpose of risk evaluation is to support decisions. Risk
evaluation involves comparing the results of the risk analysis
with the established risk criteria to determine where additional
action is required. This can lead to a decision to:
 do nothing further;
 consider risk treatment options;
 undertake further analysis to better understand the risk;
 maintain existing controls;
 reconsider objectives.
Decisions should take account of the wider context and the
actual and perceived consequences to external and internal
stakeholders.
The outcome of risk evaluation should be recorded,
communicated and then validated at appropriate levels of the
organization.
6. Risk treatment
The purpose of risk treatment is to select and implement
options for addressing risk.
Risk treatment involves an iterative process of:
 formulating and selecting risk treatment options;
 planning and implementing risk treatment;
 assessing the effectiveness of that treatment;
 deciding whether the remaining risk is acceptable;
 if not acceptable, taking further treatment.
6.1. Selection of risk treatment options
Selecting the most appropriate risk treatment option(s) in-
volves balancing the potential benefits derived in relation to the
achievement of the objectives against costs, effort or disadvan-
tages of implementation.
Risk treatment options are not necessarily mutually exclu-
sive or appropriate in all circumstances. Options for treating risk
may involve one or more of the following:
 avoiding the risk by deciding not to start or continue with
the activity that gives rise to the risk;
 taking or increasing the risk in order to pursue an oppor-
tunity;
 removing the risk source;
 changing the likelihood;
 changing the consequences;
 sharing the risk (e.g. through contracts, buying insurance);
95
 QUALITY MANAGEMENT
 retaining the risk by informed decision.
Justification for risk treatment is broader than solely
economic considerations and should take into account all of the
organization’s obligations, voluntary commitments and stake-
holder views. The selection of risk treatment options should be
made in accordance with the organization’s objectives, risk
criteria and available resources.
When selecting risk treatment options, the organization
should consider the values, perceptions and potential in-
volvement of stakeholders and the most appropriate ways to
communicate and consult with them. Though equally effective,
some risk treatments can be more acceptable to some stake-
holders than to others.
Risk treatments, even if carefully designed and implemented
might not produce the expected outcomes and could produce
unintended consequences. Monitoring and review need to be an
integral part of the risk treatment implementation to give assu-
rance that the different forms of treatment become and remain
effective.
Risk treatment can also introduce new risks that need to be
managed. If there are no treatment options available or if
treatment options do not sufficiently modify the risk, the risk
should be recorded and kept under ongoing review.
Decision makers and other stakeholders should be aware of
the nature and extent of the remaining risk after risk treatment.
The remaining risk should be documented and subjected to
monitoring, review and, where appropriate, further treatment.
6.2. Preparing and implementing
risk treatment plans
The purpose of risk treatment plans is to specify how the
chosen treatment options will be implemented, so that arran-
gements are understood by those involved, and progress
against the plan can be monitored. The treatment plan should
clearly identify the order in which risk treatment should be
implemented.
Treatment plans should be integrated into the management
plans and processes of the organization, in consultation with
appropriate stakeholders.
The information provided in the treatment plan should
include:
 the rationale for selection of the treatment options,
including the expected benefits to be gained;
 those who are accountable and responsible for appro-
ving and implementing the plan;
 the proposed actions
 the resources required, including contingencies;
 the performance measures;
 the constraints;
 the required reporting and monitoring;
 when actions are expected to be undertaken and com-
pleted.
7. Monitoring and review
The purpose of monitoring and review is to assure and
improve the quality and effectiveness of process design, im-
plementation and outcomes. Ongoing monitoring and periodic
review of the risk management process and its outcomes should
be a planned part of the risk management process, with res-
ponsibilities clearly defined. Monitoring and review should take
place in all stages of the process. Monitoring and review
includes planning, gathering and analysing information,
recording results and providing feedback. The results of
monitoring and review should be incorporated throughout the
96
organization’s performance management, measurement and
reporting activities.
8. Recording and reporting
The risk management process and its outcomes should be
documented and reported through appropriate mechanisms.
Recording and reporting aims to:
 communicate risk management activities and outcomes
across the organization;
 provide information for decision-making;
 improve risk management activities;
 assist interaction with stakeholders, including those with
responsibility and accountability for risk management
activities.
Decisions concerning the creation, retention and handling of
documented information should take into account, but not be
limited to: their use, information sensitivity and the external and
internal context.
Reporting is an integral part of the organization’s gover-
nance and should enhance the quality of dialogue with stake-
holders and support top management and oversight bodies in
meeting their responsibilities.
Factors to consider for reporting include, but are not limited
to:
 differing stakeholders and their specific information
needs and requirements;
 cost, frequency and timeliness of reporting;
 method of reporting;
 relevance of information to organizational objectives and
decision-making.
9. Conclusions
Based on this article we can understand risk management
as the "effect of uncertainty on objectives", which focuses on the
effect of incomplete knowledge of events or circumstances on
an organization's decision making. This requires a change in the
traditional understanding of risk, forcing organizations to tailor
risk management to their needs and objectives. A risk ma-
nagement has an influence on all activities in organisation,
including decision-making across all levels of the organization. A
risk management and its processes should be integrated with
management systems to ensure consistency and effectiveness
of management control across all areas of the organization. This
would include strategy and planning, organizational resilience,
IT, corporate governance, HR, compliance, quality, health and
safety, business continuity, crisis management and security.
References
[1] Diana, C., Mirela, I., Sorin, M. (2017). Approaches on the
relationship between competitive strategies and organizational
performance through the total quality management, Quality -
Access to Success, Volume 18, S1, pp. 328-333.
[2] Technical Committee ISO/TC 262 (2018). ISO 31000 Risk
management – Guidelines.
[3] Kerekes, L., Csernátoni, Z. (2016). News on the implementation of
quality management systems according to ISO 9001:2015. Quality
- Access to Success, Volume 17, S2, pp. 7-13.
[4] Verboncu, I., Mihai, M. (2016). The role of the methodology-based
approach to management and in the effectiveness of the
organisation. Quality - Access to Success, Volume 17, No.150, pp.
93-96.
Vol. 20, No. 168/ February 2019 QUALITY
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The Mediating Effect of Commitment Team Goals

and Team Solidarity Capital in the Team Cohesiveness
toward Team Performance: At Book Publishing Company
in Central Java and Special Region of Yogyakarta, Indonesia

MASKUDI1, Christantius DWIATMADJA2, Ahyar YUNIAWAN3

1Corresponding author, Student in Management Science of Doctorate Program Faculty Economics and Business Diponegoro
University, Semarang, Indonesia and Assistance Professor at Faculty of Economics and Business Wahid Hasyim University,
Semarang, Indonesia; E-mail: maskudiundip@gmail.com
2SE, Ph.D., Professor Doctorate Program Faculty of Economics and Business UKSW, Salatiga, Indonesia
3Associate Professor Doctorate Program Faculty of Economics and Business Diponegoro University, Semarang, Indonesia

Abstract

The main purpose of this study was to test and analyze the impact of team cohesiveness toward team performance
with mediated commitment team goals and team solidarity capital.
This research was conducted at book publishing company in Central Java and Special Region of Yogyakarta,
Indonesia. Target population of research as many as 476 teams, and the number of samples taken as many as 161
teams with 483 respondents. Data was collected in 2015.
Hypothesis test is done by using structural equation model (SEM). The result of hypothesis testing shows that team
cohesiveness positively influences commitment team goals and team solidarity capital, furthermore commitment team
goals and team solidarity capital positively affects team performance.

Keywords: team cohesiveness; commitment to team goals; team solidarity capital; team performance.

1. Introduction
Many organizations develop employee cooperation by
forming teams. The team is seen as an appropriate instrument
for implementing strategy, influencing, shaping and changing
employee attitudes (Luthans, 2011). In addition, the quality of
teamwork is better at developing collective knowledge in a
structured way (Peter Curseu et al., 2010).
Many antecedents affect the performance and dynamics of
the team, but the most influential increase in team effectiveness
is team cohesiveness (Campion et al., 1996). Cohesiveness as
the totality of forces that push individuals to survive in a group
(Kleinert et al., 2012). Individual work changes to work in teams
or groups generally improve overall organizational performance
(Becker, B. E., M. A. Huselid, et al. 2001). Team cohesiveness
is positively correlated with organizational effectiveness and
efficiency (Hoegla Martin, 2003). However, there is not only a
positive relationship between the team's cohesiveness and team
performance, the relationship between team cohesiveness and
team performance can also occur in a negative relationship.
Some researchers have found evidence that the relationship
between team cohesiveness and team performance may also
occur in negative relationships, such as Rovio et al. (2009) that
high team cohesiveness does not always have an effect on high
performance, because it is also influenced by the situation.
Researchers looked at differences in research results con-
ducted by previous researchers associated with team cohe-
siveness relationships with team performance needs further
research. This is intended to find answers to the differences in
their research findings. Furthermore, the researchers propose in
this study two constructs, namely the commitment team goal
and the team's solidarity capital as a new construct can mediate
the relationship of team cohesiveness with team performance.
Organizations will find it difficult to achieve their goals when
not supported by members of the organization. Therefore, the
commitment of employees in achieving organizational goals
becomes an important thing for the organization in maintaining
its survival. A cohesive team will commit to team activities,
attend meetings and be happy when teams succeed, while
members of low cohesive teams tend to have less concern for
other team members Shaw (2011). Other experts such as
Robbin & Judge (2011) who claim that the more cohesive a
group, the members will be stronger to achieve the goals and
can further improve team performance.
On the other hand, groups or teams whose members are
more cohesive will facilitate and develop the team's solidarity
capital in the form of willingness to share resources, willingness
to accept others' opinions, willingness to work together and
willingness to take precedence to solve team problems. As
Cartwright argued, 1968 that cohesive team members tend to
motivate each other to work together in a better job. Beal et al.
(2003) argue that cohesive team members tend to use more
efficient team resources because they are intimate and
motivated to accomplish tasks and solve problems in earnest.
Kidwell et al. (1997) concluded his research results that group
cohesiveness significantly predicts constructive co-operation
behavior.
Starting from the description of previous research results,
the researcher considers the need to conduct more in-depth
study related to the cohesiveness and team performance
relationships, with the role of commitment to the objectives and
the solidarity of the team in mediating the relationship of team

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 QUALITY MANAGEMENT
cohesiveness to team performance. The purpose of this study, members will give each other and get more help when
therefore, is to obtain a constructive commitment role answer to compared with the group that is not cohesive. Ostroff (1992)
the objectives and capital of team solidarity in mediating the states that in a cohesive group they feel comfortable with their
relationship of team cohesiveness to team performance. approaching colleagues and help to solve the problem. This
This research proposes a team cohesiveness model in de- suggests that a more cohesive team of members will help each
veloping the commitment team goals and team solidarity capital, other, in other words there is a positive relationship between
which in turn can improve team performance. An empirical study cohesiveness and helpful behavior or sharing willingness. M.
of book publishing companies in Central Java and Yogyakarta Chishol M and Nielsen (2009) stated that the quality of relations
(DIY) Provinces in Indonesia. among members is significantly related positively to the mutual
support behavior among team members. Openness and
willingness to exchange information helps individuals access
2. Literature Review organizational resources and to develop their own knowledge
and skills. The company's external social capital is related to the
A. Kohesvitas team, commitment goals and team relationship between the company and the outside company,
solidarity capital e.g. relationships with customers, suppliers, and external
organizations such as universities, banks, venture capitalists
Group cohesiveness is the interest among the group mem-
and government agencies enabling achievement of goals that
bers which causes members of the group to wish to remain in
should not be attainable and achievements ending up at more
the group, as well as the attraction between individuals and their
low.
groups or organizations. Groups that have high cohesiveness
Barker et al., 2010 concludes his research findings that
are characterized by a commitment to set group goals and a
group cohesiveness is a strong predictor of the behavior of
desire to achieve their goals well (Beal et al., 2003)
helping others and positively reinforcing the principle of team
Groups whose members are compact in performing the task
members. Another researcher Van Dyne et al., 2008, obtained
will be more adaptive in behaving environment. (Weingarten and
evidence that his cohesiveness influenced OCB in particular of
S.Chisholm 2009). While other researchers Sanchez &
helping behaviors. Other researchers such as Organ and Ryan
Yurrebaso (2009) stated that organizations that have cohesive
(2001) found evidence from their research that togetherness
members in general will foster commitment to its members to
had a positive effect on OCB. According to Moorman and
work together (Sánchez & Yurrebaso, 2009). Mulvey & Klein
Blakely (1995) concluded his research results, that group values
(1998) obtained evidence from his research that cohesiveness
are significantly predictors of organizational citizenship beha-
is positively related to commitment team goals.
vior. Cloud, 2015 states that good relationships among team
Teams whose members are cohesive will commit to team
members have a tendency to foster a helpful behavior to other
activities, attend meetings and be happy when teams succeed.
members.
While members of the low cohesive team tend to have less
On the other hand groups or teams whose members are
concern for other team members Shaw (2011). Other experts
more cohesive will make it easier and can develop better
such as Robbin & Judge (2011) who claim that the more
cooperation compared to less cohesive working groups. As
cohesive a group, the members will be stronger to achieve the
Cartwright argued, 1968 that cohesive team members tend to
goal.
motivate each other to work together in a better job. Beal et al.
Gibson et al. (2003) states that cohesiveness will encourage
(2003) argue that cohesive team members tend to use more
members to stay together in their group and join the organiz-
efficient team resources because they are intimate and
ation to make a person feel a sense of belonging and feeling
motivated to accomplish tasks and solve problems in earnest.
together. In line with Gibson's thinking, Robbins and Judge
Kidwell et al. (1997) concluded his research results that group
(2011) argue that the more cohesively a group, the more commi-
cohesiveness significantly predicts constructive co-operation
tted members are to the organization's goals.
behavior.
The statement supported by Robbins and Judge (2011)
Hypothesis 2: Team cohesiveness positively affects the
states that the more cohesive a group, the more members are
team's solidarity capital.
toward the goal. It is also reinforced by Beal et al. (2003) which
Several studies have shown that organizational commitment
suggests that cohesiveness can enhance leadership behaviors
is positively related to Organizational Citizenship Behaviors
such as commitment to individual goals and interests (Beal et
(OCB). As described in the previous chapter, the team's
al., 2003).
solidarity capital is built on the synthesis of the concept of
Hypothesis 1: Team cohesiveness positively affects
solidarity and networking concepts. The concept of solidarity is
Commitment team goals.
derived from OCB theory, in which OCB theory is derived from
Team solidarity capital is an intangible assets asset, i.e.
Social Exchange theory.
willingness to share more resources owned, willingness to
Ambrose & Kulik, 1999; Locke & Laitham, 1990 found evi-
receive thoughts and ideas from other members, actively
dence from his research that commitment team goals would
participate in developing teamwork and seriously solve team
motivate group members to improve team effectiveness through
problems so as to support to the interests of individual roles and
teamwork and networking with external partners. Morrison,
responsibilities within the team. The team's solidarity capital
1994; Munene, 1995; and O'Reilly & Chatman, 1986 suggest a
construct is built from the synthesis of the concept of solidarity
positive relationship between commitment team goals and OCB.
and network concept. The concept of solidarity is derived from
Baig et al. (2012), Allameh et al., (2011), Pitaloka and Paramita
OCB theory, in which the theory of OCB derived social exchange
(2014) obtained evidence of research that commitment to
theory. The concept of network is derived from the concept of
objectives positively affects the OCB. Since solidarity capital is
social capital which is the dimension of the theory Resource
built on OCB theory, it indicates that commitment team goals is
Based View (RBV).
positively related to the team's solidarity capital.
Several previous studies support the relationship between
Hypothesis 3: Commitment team goals positively affects
team cohesiveness and solidarity team capital solidity indicator,
the team's solidarity capital.
Blau (1964) which states that the working group operates in a
social exchange system. The theory of social exchange shows B. Commitment team goals, team solidarity and team
the existence of mutual interactions between individuals performance
depending on social beliefs and ethics. Said by Kidwell, Moss-
holder and Bennet (1997) states that in a cohesive group the Commitment is a strong belief in the acceptance of orga-

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nizational goals and values, willingness to exert sufficient effort
on behalf of the organization, and a definite desire to maintain
organizational goals (Mowday, Steers, & Porter, 1979).
Employee commitment has the ability to encourage increased
work productivity (Baig et al., 2012). Schlechty and Vance
(1983); Rosenhaltz (1987) states that there is a positive
relationship between participation in decision-making and team
performance.
Scholl (1981) said the commitment of the organization as a
force that maintains the direction of one's behavior remains on
the path that supports the achievement of organizational goals,
when expectations or conditions of expected justice do not occur
and not fit its normal function. This illustrates that commitment
team goals will help team members to perform activities in
accordance with predetermined objectives. Achieving goals des-
cribes the strength of the team's confidence to achieve its goals.
Achieving team goals draws team success, teams with low
commitment team goals have a low impact (Dutra et al., 2016).
Locke & Latham, 1991 (in Nahrgang et al., 2013), concludes
his research findings that more difficult and specific team goals
generally lead to better task performance, since the types of
goals manage individual enterprises to complete their work and
motivate individuals to achieve high performance standards.
When team goals are established, the team members will
attempt to accomplish the task constructively in accordance with
the objectives to be achieved. Commitment to goals will mo-
tivate group members to improve team effectiveness through
teamwork and networking with external partners (Steers &
Mowday, 2004). Klein et al. (1999) obtained evidence of his
research that employees who are committed to achieving better
outcomes than low-committed employees. In line with Ambrose
& Kulik, Locke & Laitham, Aube and Rousseau (2005) found
evidence from his research that commitment to goals positively
affects team performance. Dutra et al., ( 2016); (Baig et al.,
(2012) find evidence from their research that commitment to
goals positively affects team performance, where high-goal
teams will achieve high results (Dutra et al., 2016).
Hypothesis 4: Commitment team goals positively affects
team performance.
The concept of team solidarity capital is a synthesis of two
theories, namely resource-based view theory and social ex-
change theory). Team solidarity capital is a novelty concept in
this research, which the novelty of this concept is intended as an
effort to bridge the differences of research results by some
previous researchers who have been described in the research
gap. In the research gap it was suggested that some resear-
chers concluded that there was a positive correlation between
team cohesiveness and team performance, while some others
concluded that there was a negative relationship between team
cohesiveness and team performance.
Marks et al. (2001) obtained evidence from his research that
pro social behavior as an important variable in the development
of team performance. There are several reasons that pro social
behavior will have a positive impact on team performance. First,
pro social behavior will increase the effectiveness of team
members (Podsakoff & MacKenzie, 1997). Bachrach (2000)
presented his findings that altruism was positively and signifi-
cantly correlated with the effectiveness of the working group /
team. Zaccaro et al., (2002) concluded the results of his
research, a strong positive correlation between the quantity and
quality of pro social behavior (helping behavior) with team
performance. Sabine Sonnentag et al. (2008) explains that OCB
can improve organizational performance. To be able to share
insights people must build social networking relationships with
others. The ability to build social networks is what is called social
capital. The more widespread a person's interaction and the
wider the social net working network the higher the value of a
person (Coleman, J. 1990).
Hypothesis 5: Team solidarity capital positively affects team
performance.
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3. Research Model
Based on the description of introduction and literature review
and some of the proposed hypotheses that have been described
above, it can be presented image empirical research model as
follows:
Figure 1. Empirical Research Model
4. Research Design
a. Population, Sample and data collection
The population in this study are managers and two creative
team members in book publishing company in Central Java with
134 companies and 98 publishing companies in Daerah
Istimewa Yogyakarta (2015).
The sample taken as the respondent is the manager and two
of the team members. the number distributed to the respondents
was 483 sets of questionnaires and returned as many as 439
sets of questionnaires. The questionnaires received by the
researchers were examined for feasibility and there were 25
sets of broken cassette. With the AMOS analysis, the outlier
data were identified as 99 or 23, 91%. The number of samples
used as many as 315 has met the requirements of using SEM
analysis tools with AMOS (Hair Jr, et al, 1998).
b. Measures
Team cohesion is measured by adopting the indicators used
by Forsyth (2010) that have been modified. Team cohesiveness
constructs are measured by four indicators, namely (1) cohesi-
veness in performing team duties, (2) team members' social
attractiveness, (3) freedom of expressing personal feelings, and
(4) a sense of unity and teamwork.
Decision making participation is measured by adopting the
indicators used by Stephen Condrey (2005) that have been
modified. Participation in decision-making will be measured by
four indicators, namely (1) decision-making initiatives, (2) deci-
sion- making capabilities, (3) availability of time for decision-
making, and (4) decision-making relevance.
Commitment team goals is measured by adopting the indi-
cators used by Meyer and Allen (2006) that have been modified.
The commitment constructs on team goals are measured by 6
indicators of the Allen and Meyer concept specifically on affec-
tive commitment, namely (1) care (Loyal) on team goals, (2)
willingness to integrate individual goals with team goals, (3)
proud team goals achieved, (4) willingness to perform tasks to
achieve goals, (5) maintain team goals, and (6) willingness to
sacrifice to achieve goals.
Team performance is measured by adopting the indicators
used by Olori & Mark (1996) that have been modified. The team
performance constructs are measured by 4 indicators, namely
(1) the quantity of program achievement, (2) the quality of pro-
gram achievement, (3) the timeliness of the program's achieve-
ment, (4) the use of resources, and (5) the team's reliability.
c. Data Analysis
The research data were analyzed by means of Structural
Equation Modeling (SEM) model analysis using AMOS tool (Hair
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 QUALITY MANAGEMENT
et al., 1998). Hair et al., (1988) divides the steps of (a) modeling ficance level of p-value <0.05. Thus there is no reason to reject
estimation stage and (b) estimation of the model. hypothesis 1 (H1), meaning that Team Cohesion variable has a
positive effect on commitment to the goal has been proven
d. Data Quality Test significantly. Hypothesis 1 is consistent with the results of
Hackman (1987), Allen and Meyer (1990), Gibson et al. (2003),
The quality of research data can be seen from the validity Robbins and Judge (2011), Donald et al., (2007).
and reliability of data. Based on result of data analysis by value The result of statistical test on hypothesis 2 shows that the
of factor loading from all indicator of exogenous and endo- parameter of estimation of test of the influence of team co-
genous variable above 0.5, and in reliability test all variable have hesiveness variable to team solidarity capital (β2) shows
value of cronbach alpha above 0.7 mean research data have significant result with standardized estimate value (β2) = 0.277;
fulfilled validity test criterion and reliability test so feasible use in critical ratio (CR) = 3.795 is greater than 1.96 at the 0.05
this research process. significance level and p-value = *** is less than 0.005. The
In addition to meeting the evaluation of the level of validity magnitude of these values has met the requirements of ac-
and reliability, research data has met the criteria as data that ceptance of the hypothesis, ie CR> 1.96 at the significance level
normally distributed, it is seen that the value of c.r. is below of p-value <0.05. Thus there is no reason to reject hypothesis 2
between the values -2.58 and 2.58. (H2), meaning that the team's cohesiveness variable has a
positive effect on the team's solidarity capital has been proven
e. Goodness-of-fit model significantly. This study supports the findings of previous
researchers' research on individual interactions, cohesiveness
Evaluation of goodness of fit criteria; Chi Square, goodness and pro social behavior by Blau (1964), Kidwell, Mossholder and
of fit index (GFI), adjusted goodness of fit index (AGFI), root Bennet (1997), Cartwright (1968); Weaver et al. (1997), Grano-
mean square error of approximation (RMSEA) and comparative vetter (1973), Fararo & Doreian (1998), E. Durkheim (1954),
fit index (CFI). The results of the analysis can be seen in Table 1. Guildford JP (1966), Coelho et al., (2011).
The result of the statistical test on the third hypothesis shows
No. Goodness of fit model Value Cut Of Value Statement that the test estimation parameter of the influence of
1 Chi Square 130,332 225,059 Fit Commitment variable on team goals on the team performance
(β3) shows significant result with standardized estimate value
2 Probabilities 0,156 > 0.05 Fit (β3) = 0.280 and critical ratio (CR) = 4.207, and p-value = ***.
3 GFI 0,954 > 0.90 Fit The magnitude of these values has met the requirements of
4 AGFI 0,938 > 0.90 Fit acceptance of the hypothesis, ie CR> 1.96 at the 0.05
significance level and p-value <0.05. Thus there is no reason to
5 TLI 0,99 > 0.90 Fit reject hypothesis 3 (H3), meaning that the commitment variable
6 CFI 0,992 > 0.90 Fit on team goals has a positive effect on team performance. It has
7 Cmin/df 1,132 <2 Fit been proven significantly. This study supports the findings of
previous research findings on the attitudes of employee commit-
8 RMSEA 0.021 RMSEA< 0,08 Fit
ment, employee job satisfaction and individual achievement and
Table 1. Goodness of Fit Model team performance performed by A. Locke and P. Latham (2009),
Source: Primary data is processed Rousseau, & Savoie, in Locke & Latham (1990) O'Leary-Kelly,
Martocchio, & Frink (1994), Weldon & Weingart (1993), Weldon
From table 1 it is known that the model has fit, meaning the & Weingart (1993), Manogran (1997), Aube '& Rousseau (2005).
model can be used in this research process. The result of the statistical test on the fourth hypothesis
shows that the test estimation parameter of the influence of the
team's solidarity capital variable on the team performance (β4)
5. Discussion shows significant result with standardized estimate value (β4) =
0.323 and critical ratio (CR) = 4,576, and p-value = ***. The
Results of data processing with AMOS 21 obtained magnitude of these values has met the requirements of
standardized regression weight CFA Full Model as shown in acceptance of the hypothesis, ie CR> 1.96 at the 0.05 sig-
table 2 below. nificance level and p-value <0.05. Thus there is no reason to
reject hypothesis 4 (H4), meaning that the team's solidarity
Variable β CR P Statement capital variable has a positive effect on team performance has
Goal Commitment <--- Team Cohesion 0,297 4,146 *** Received been proven significantly. This study supports the findings of
Team Solidarity previous researcher's research on employee solidarity attitude
<--- Team Cohesion 0,277 3,795 *** Received
Capital to help each other, cooperation, solute behavior and perfor-
Goal mance and individual achievement and team performance
Team Performance <---
Commitment
0,280 4,207 *** Received performed by Emile Durkheim (1954), Carsten K.W. De Dreu
and Bianca Beersma (2005), Ryan (1995), Organ (1997),
Team Solidarity
Team Performance <--- 0,331 4,736 *** Received Marks, Mathieu, & Zaccaro, (2001), Dickinson & McIntyre (1997)
Capital
and Marks et al. (2001), Podsakoff & MacKenzie (1997),
Table 2. Bachrach (2000), Marks, Sabella, Burke, & Zaccaro (2002),
Regression Weights: (Group number 1 - Default model) Brehm and Rahn (1987), Cohen and Prusak (2001).
Source: Primary data is processed

Based on table 2, the results of statistical tests on hypothesis
1 show that the estimation parameters testing the influence of
team cohesiveness variables to team solidarity capital (β1)
showed significant results with the value of standardized
estimate (β1) = 0.297; critical ratio (CR) = 4.146 is greater than
1.96 at the 0.05 significance level and p-value = *** is less than
0.005. The magnitude of these values has met the requirements
of acceptance of the hypothesis, i.e. CR> 1.96 at the signi-
6. Conclusion, limitation and future research
6.1. Conclusion
After the empirical analysis is proved all hypotheses are
accepted. The first hypothesis, there is a positive relationship
between team cohesiveness with commitment to team goals,
the results of this study in accordance with views Mulvey and
Klein (1998), Friedkin, NE (2004), Matthew S. Prewet (2006),

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 QUALITY MANAGEMENT
Barker et al., (2010 ). The second hypothesis is that there is a
positive relationship between team cohesiveness and team
solidarity capital, the results of this study are in accordance with
the views of Kidwell et al. (1997), Podsakoff et al. (1997), Yee K.
NG (2005), Heuze et al. (2006), Barker et al., (2010). The third
hypothesis, there is a positive relationship between commitment
to team goals and team solidarity capital, the results of this study
in accordance with views Ronit Bogler & Anit Somech (2004),
Allameh et al., (2011), Jasmin-Olga Sarafidou and Georgios
Chatziioannidis (2012) , Baig et al., (2012), Azizi et al., (2014),
Amin et al. (2016). Fourth hypothesis, there is a positive
relationship between commitment to team goals and team
performance, the results of this study in accordance with views
Mowday et al., (1979), Aube C. and V. Rousseau. (2005), Chen
et al. (2009), Mazayed et al. (2014). The fifth hypothesis, there
is a positive relationship between team solidarity capital and
team performance, the results of this study in accordance with
views Dickinson & Mc.Intyre (1997), Barnes, Hollenbeck, Wag-
ner, et al. (2007), Chen, Tang and Wang, (2009), J. Burtscher
(2011), Güven Özdem, (2012), Salajegheh Sanjar (2013).
6.2. Limitation
Limitations of a research activity need to be submitted in
each study result, this is because there are still many that can
not be captured in the research model (Chad Perry, 1988, 2002).
Limitations in this study include: Statistically the antecedent
variables have not acted as perfect predictors. The calculation
result shows that the value of R square (R2) of the commitment
variable on the goal is 0.110, meaning that the team cohesi-
veness and decision-making variables are only able to explain
against the commitment variable at the goal of 11%. And the
value of R square (R2) of 11% gives an idea of the contribution
of antecedent variable from the commitment variable on the
stated objective is weak (R2 <20%).
Furthermore, the R square (R2) value of solidarity team's
commitment to the goal is 0.088, meaning that team cohesi-
veness and commitment variables are only able to explain to the
team solidarity capital variable of 8.8%. And R square value (R2)
equal to 8,8% gives picture of contribution of antecedent vari-
able from team solidarities capital variable expressed weak (R2
<20%). In this model the variables that together give the effect
to the team performance value (KT) is 0.219, meaning the
contribution of 2 variables that explain the team performance
variable that is team solidarity capital and commitment to the
goal of 21.9%. The magnitude of the antecedent contribution of
the team performance variable in this study was stated mode-
rate (21% <R2 <40%).
The value of R square (R2) is the greater the contribution of
the antecedent variable explained to a variable is stronger, and
contribute perfect when the value of R square (R2) = 1. To
achieve the value of R square (R2) = 1 required many antece-
dent variables, variables which many are very relative and
difficult boundaries. Thus, the built model has not reached R
square (R2) = 1, then the model can be declared imperfect.
6.3. Future Research
Departing from the research results and limitations of
research can be taken wisdom improvement and refinement for
future research activities on the same theme, namely:
First, future research should broaden the characteristics of
the research object, ie the samples not only come from the
publishing company alone, but can be derived from other types
of creative endeavors.
Second, future research needs to review the solidarity
capital team proposition as a mediating construct. This can be
seen from the low R square (R2). The value of R square (R2) will
be greater when more exogenous variables occur.
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7. Implication
Team performance can be increased indirectly through team
cohesiveness strengthening. Team cohesiveness affects team
performance through team solidarity capital and commitment to
goals. The cohesiveness of the team is essentially the strength
of team members to stay on the team and maintain team
integrity. By shifting the team's cohesiveness, it will strengthen
the team's solidarity capital and commitment to the goal, further
increasing the team's solidarity capital and commitment to goals
will impact the team's performance even indirectly. Strategies
that can be done improve the cohesiveness of the team,
including:
a. Understand as much as possible about the team's goals,
by understanding the team's goals, then the team
members know what to do.
b. Integrating individual goals with teams, this will make the
team members' action agenda aligned with the program
and team goals.
c. Building a useful job description and job requirements,
giving clear and non-confusing reference to action.
d. Establish a communication network that will facilitate
interaction among team members.
e. Develop inter-team competition as a strategy to develop
conflict management to enhance the team's sense of
unity and cohesiveness.
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Energy Industry and Risk Management

Naqib DANESHJO1, Erika DUDÁŠ PAJERSKÁ2*, Mirwajs DANISHJOO3

1Associate professor, University of Economics in Bratislava, Faculty of Business Economics with seat in Kosice,
Kosice, Slovak Republic
2Assistant professor, University of Economics in Bratislava, Faculty of Business Economics with seat in Kosice,
Kosice, Slovak Republic
3Enter price, Fredericksburg Rd Apt San Antonio, San Antonio, Texas, United States of America (USA)
*Corresponding author: pajerska.erika@gmail.com

Abstract

Risk management is one of the basic tools for preventing undesirable events and is an effective and supportive tool
in the quality management process. However, its disadvantage is the need to understand and be aware of the context
in identifying threats, knowledge of methods and procedures for analysis and risk assessment, and, last but not least,
to support and secure resources to achieve defined quality objectives.
There are a number of legislative regulations supporting and requiring – in a documented form – the estimation of the
risks in different industrial activities and at different levels of management of business activities. For the sake of the
company's long-term prosperity, the energy industry requires both external and internal aspects of threats to its
stability, seeking alternative options for using new resources, and also to manage its day-to-day operations reliably,
safely and effectively in order to maintain quality. Risk assessment, as a part of the day-to-day management and
decision-making process, enables new solutions to develop and improve practices to achieve long-term goals of the
company and the satisfaction of employees, customers and the public.

Keywords: energy industry; risk management; risk assessment; crisis management.

1. Introduction 2. Risk management and risk assessment

Rapid industrialization has brought a number of problems.
One of these is "industrial risk" which is constantly in new forms.
The industrial world is surrounded by mechanical, electrical,
chemical or radiation hazards, and therefore, in this economic
activity, it is a common phenomenon that the health and life of
employees and assets are at risk. The risk is present almost
everywhere. Industrial hazards may occur during material
handling, storage, and malfunction or security breaches.
Industry must therefore always be ready.
The transport of gas, oil, transmission and distribution of
electricity enable the company to develop requirements and
regulations, on the basis of both European and national
legislative. The energy system operators are obliged to ensure
their reliable and safe operation over the long term. However,
current problems in finding and maintaining energy related to the
ongoing increase in energy consumption force operators to seek
optimal solutions at the lowest economic and security risks.
Photovoltaic’s, solar – thermal, wind and biomass energy
require consideration of all aspects of both standalone and
combined energy sources. Finding alternative solutions,
creating appropriate measures for running new technical
solutions or for combining them with old resources and solutions
– these requires analyzes and risk assessment procedures.
These risks, like new untraditional technical solutions used to be
called as "emerging risks". They either do not have a clearly
identifiable scenario of a possible accident or they are the
hazards that the parameters of this solution change significantly
over time.
Risk management can be understood as a culture, pro-
cesses and structures aimed at effectively managing potential
opportunities and unwanted effects.
The objective of risk management in the quality manage-
ment process is to eliminate or minimize the different types of
risks pertaining to a given area (system) to a socially acceptable
level. This is an integrated approach of managing the risks
arising from different types of threats such as the environment,
technology, human or political situation.
Risk is therefore an important element that affects the safety
of systems. Defining the term risk from both historical and
current perspective is not clear. It offers a wide range of
approaches and specific interpretations that are based on the
place of origin, purpose and environment of the envisaged use.
In a number of scientific studies, in literature and in legal
standards, as well as in various dictionaries, the term risk is
defined by a whole range of terms. It depends on the field of
activity for which the term is defined but also on the purpose of
the definition and its intended use. As an example, we have
several different definitions:
a) Terminology of Crisis Management of Slovak Republic –
Risk is a potential disruption of system, object, or process
security. It is a probability of occurrence of the crisis
phenomenon and its consequences.
b) Directive EU Seveso II – The risk is the probability of
specific impacts that occur during a specific period or under
specific conditions.

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 QUALITY MANAGEMENT
c) Terminology Dictionary of Intelligence Services USA – The
risk is the probability that the hostile organization will success-
fully use the news content of communication system.
Industrial risk may affect several areas of the plant or may
cause serious injury, loss of life, extensive property damage or
production disruption. Such risks can arise in any industry
despite efforts to overcome them. Damage caused by an acci-
dent is determined by the potential loss surrounding the event
itself. In any case, the risk can be greatly minimized by
introducing effective measures in the form of planned practices
by using both internal resources of the plant and external
emergency services.
3. Risk assessment
From a general perspective, there is a risk of occurrence of
an undesirable event with undesirable consequences. The risk
can therefore be described through probability and the
consequences of the emergence of the crisis phenomenon [3]:
{ ( i i ) } R ∈ P,D for i =1,...n
or
R ∈{( P1 , D1) ,... (Pi , Di) ... (Pn , Dn) }
where: Pi – probability of crisis,
Di – consequence of the crisis phenomenon (in monetary or
physical units)
R∈{(P,D ,V)} for i =1,...n
Vi – the significance of the threat posed by the relevant risk.
The mathematical expression of risk takes place through the
degree of risk that is the multiplying of possible probability of
occurrence of the crisis phenomenon and possible extent of
consequences:
Ri= Pi x Di
The probability of a crisis occurrence can be determined as
a proportion of the crisis phenomena to the total number of
events at a given time. Risk assessment is a part of quality
management and is the basic algorithm for specifying value in
order to manage the risk arising from the hazard, respectively
from the threat. The risk management process can be defined
as follows (Figure 1):
Figure 1. Risk management processes
a) system description, determination of its limits;
b) identification of types of threats;
c) estimation of probabilities and possible consequences of
individual threats;
d) estimation of risk and its evaluation;
104
e) setting of appropriate risk mitigation or elimination
measures;
f) verifying the outcome of risk assessment and documen-
ting it;
g) evaluation of the effectiveness of the adopted measures,
updating – iterative risk management process.
4. Risk management in power engineering
In the area of health and safety at work in the Slovak
Republic, the risk assessment is a basic requirement of Act n.
124/2006 Coll. on Health and Safety at work (Council Directive
89/391/EEC). For practical use, different methods are applied,
but most often the so-called risk matrix. This matrix may take a
different form according to the depth of the risk parameter level.
Frequently in its form includes risk assessment and assess-
ment, Table 1.
In the gas field, the philosophy of so-called "Pipeline Integrity
Management (PIMS)" is used for risk management of pipelines.
It uses risk theory as a tool for assessing the safety and
reliability of their operations, including the consequences of
pipeline integrity failure, property, population safety, the
environment, etc., Table 2.
The threat to integrity stems from identified sources such as:
 external corrosion;
 internal corrosion;
 corrosion cracking under tension;
 production errors;
 welding errors;
 errors in technical equipment;
 impact of the third old – mechanical damage;
 operating errors;
 external influences of the environment.
5. Risk assessment in RES
The use of new types of energy, "Renewable Energy
Sources (RES)" (Fig. 2) is challenging both in terms of mining,
creation and maintenance of these resources, in terms of
applied new specific technology, as well as in terms of frequently
unpredictable human, environmental or economic losses. One
of the most advanced technologies is biomass processing,
which is estimated to have 30% of energy in the SR by 2014.
More than 90% of biomass is used in Europe for heat pro-
duction.
The process of risk assessment – for example for the use of
biomass – requires system breakdown from source point of view
(Fig. 3):
 agriculture – risks of failure to deliver the crop, quality of
the crop delivered;
 forestry – the quality risks and the supply of solid
biomass (higher energy intensity, flammability);
 domestic and industrial waste – risk of quality and supply
of wet biomass (toxicity, flammability, explosiveness).
Each resource requires the application of specific processing
technologies. The failure of parts of the technology, the ope-
rator's error in the applied technology can create new threat
scenarios that result not only in the loss of use but also in the
loss of life, health, environment or property of the company.
From the point of view of the risk assessment it is necessary to
take account of the quantity of processed raw material, the
reliability of the technology and its location (distance from the
river, city, etc.).
An integrated approach to managing all types of risks at the
different levels of the biomass processing technology would
make it possible to optimize both the financial and security
aspects of this RES.
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Table1. Risk matrix by Nohl

Table 2. Risk matrix for assessing the integrity of pipelines

Figure 2.
Current situations in Slovak Republic, 2017

Figure. 3. Simplified scheme to convert different types of biomass into energy

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 QUALITY MANAGEMENT
6. Geographic information systems
as a tool for risk assessment
The future in the area of risk assessment should be a
geographic information system (GIS). GIS should be based on
accurate geographic data obtained from satellite imagery and
supplemented by up-to-date information from stakeholders. The
GIS should become a key intelligence tool for crisis mana-
gement at the level of central government authorities as they are
an ideal tool for centralizing and presenting all the relevant and
up-to-date data needed in decision-making processes to enable
competent workers from different sectors and professions to
collaborate on the same work environment and exchange of
information. The undisputed advantage of GIS for the crisis staff
should also be a possibility of modeling of the crisis phenomena
and then the simulation of their development.
Spatial models created in GIS can be used in crisis ma-
nagement in the form of natural models that can describe the
development of tectonic, topological or meteorological pro-
cesses threatening the human environment as well as socio-
economic models focused on the political, military, economic,
social sphere. These models have a deterministic form (they
describe processes based on unambiguous physical laws), or a
stochastic form (they describe complex natural processes
whose development is influenced by a number of internal as well
as external factors which brings with it a great degree of
indeterminacy).
In particular, the identification and analysis of hazards on the
territory of the units often requires maps to enable the relevant
experts to find the necessary data on location and types of risks
(radiation leakage, forest fires, floods, landslides, avalanches,
etc.) and possible consequences of extraordinary events,
caused by the sudden development of the identified risk into the
crisis phenomenon (eg spreading direction and expected range
of fire, direction of cloud cover with hazardous substances and
assumed infestation zone, radiation infestation zone, etc.). Due
to these reasons, GIS could be defined as a powerful tool in the
process of risk assessment.
7. Conclusion
Risk management is an effective tool for identifying and
assessing risks, thus becoming an integral part of the process of
increasing both comprehensive security and quality manage-
ment. We can say that it has a significant share in the protection
of person, material values but also cultural and spiritual values
and, last but not least, the environment from the effects of the
negative consequences of crisis events.
Crisis Management uses more and more permanent
geographical information to manage risk. Their quality and
performance, as in any other environment, is clearly reflected in
the decision-making level and the results achieved. GIS are
used in the process of monitoring and statistical processing of
underlying data and subsequent modeling, crisis and emer-
gency planning, and also in the management process.

References
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[2] Čarnogurská, M., Příhoda, M., Lázár, M. (2015). Theoretical and experimental determination of a velocity profile under turbulent air flow in
pipework. Manufacturing Technology. Volume 15, No. 5, pp. 777-781.
[3] Dobrucky, B., Luskova, M., Simak, L., Pirnik, R. (2007). Management of specified threats and environmental risk events using information and
communication support tools. The 11th World Multi-Conference on Systemics, Cybernetics and Informatics, Jointly with the 13th International
Conference on Information Systems Analysis and Synthesis, ISAS 2007. Proc. Volume 4, pp. 255-258
[4] Minciuc, E., Pătraşcu, R., Diaconescu, I., Tanasiev, V. (2016). Energy management for local communities. Quality - Access to Success. Vol.
17, No. 155, 2016, pp. 106-110.
[5] Ristvej, J. - Ondrejka, R., Šimák, L., Loveček, T., Hollá, K., Lacinák, M., Šurinová, L., Jánošíková, M. (2016). Simulation technologies in risk
prevention within crisis management. 30th European Simulation and Modelling Conference, ESM 2016. Las Palmas, Spain, 26 - 28 October
2016. Code 125225.
[6] Ristvej, J., Zagorecki, A., Hollá, K., Šimák, L., Titko, M. (2013). Modelling, simulation and information systems as a tool to support decision-
making process in crisis management. 27th Annual European Simulation and Modelling Conference, ESM 2013. Lancaster, United Kingdom;
23 - 25 October 2013. Code 104385.
[7] Zimon, D., Gajewska, T., Bednárová, L. (2016). An influence of quality management system for improvement of logistics distribution. Quality -
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Eco-Innovations in Bulgarian Companies

with Pro-Environmental Policy

Daniela IVANOVA1, Anelia HARADINOVA2, Elka VASILEVA3

1Corresponding author, Assistant Professor, PhD, University of National and World Economy, Sofia, Bulgaria;
E-mail: danielai@unwe.bg
2PhD, University of National and World Economy, Sofia, Bulgaria; E-mail: aharadinova@unwe.bg
3Assistant Professor, PhD, University of National and World Economy, Sofia, Bulgaria; E-mail: elkav@unwe.bg

Abstract

The innovations play a significant role in accomplishing economic growth and bring additional potential for
improvement of the business competitiveness. In the last years the innovations related to environment preservation
are subject to ever growing interest by the companies and the society. In the same time the EU ecological policy
through Environment Management systems (EMS) approach encourage and stimulate the companies to invest in
eco-innovations. Therefore, the present paper analyses the relationship between EMS and the activity of the
Bulgarian companies in development and introductions of ecological technologies in the recent years. The
conclusions are based on the results of a direct-individual-interview study conducted among Bulgarian companies
from different sectors with implemented and functioning environmental management systems according to the
international standard ISO 14001 and/ or EMAS. The obtained data revealed that the implementation of eco-
innovations is in direct dependency of the economic sector and the market where the company operates as well as
of the introduced regulatory requirements and the activities of the control bodies.

Keywords: eco-innovations; ecological technologies; environmental management system; EMS; Bulgaria.

1. Introduction 2. Literature review

The industrialization and the expansion of the world trade in
the recent decades requires the extraction, processing and use
in production of more and more resources, leading to significant
negative impact on the environment. Thus, defining and im-
posing the need for transformation in the existing economic
model. Alternatively written – the business should find a way to
produce and provide the goods and services in a way that is
more sustainable and environment-friendly.
Innovation and entrepreneurship are at the very heart of
such change. They are the real engine of the regional de-
velopment and the reason for the increase of the company
competitiveness. The long term sustainability of the economic
system does not depend only on the ability of the quantitative
growth but also on ecological aspects of this growth and on the
ways to achieve it. Therefore, in the recent years the term
environmental innovation or eco-innovation has emerged and
has found wide popularity. As a new term in the economic
literature there are still a lot of definitions for eco-innovations
(Sanchez and Deza, 2015; Sarkar, 2013; Carrillo-Hermosilla et
al., 2010). In the Programme “Competitiveness and Innovations
2007 – 2013” the European Parliament defines the eco-
innovation as a form of innovation aiming at significant progress
towards sustainable development, through reducing envi-
ronment impacts or through achieving a more efficient and
responsible use of natural resources (European Parliament,
2006).
The determinants of the eco-innovations have been subject
of various and extensive researches worldwide analysing the
different elements that contribute to triggering firms’ eco-
innovation activities (Foxon, 2003; Horbach, 2008; del Río
González, 2009; OECD, 2011; Costantini et al., 2015; Verde,
2015). Various classifications distinguish between:
 demand-pull and technology-push instruments (Hoppmann
et al., 2013, Costantini et al., 2015);
 quantity-based policies (like targets and quotas) and
price-based support policies (like tax exemptions)
(Requate, 2005; Kemp and Pontoglio, 2011);
 prescriptive instruments (mandatory schemes like taxes
or subsidiaries, pollution standards, etc.) and voluntary
approaches (so called "soft instruments") (Costantini et
al., 2015).
However, what is essential and what lays beneath all
definitions is the fact that eco-innovations provide significant
opportunities for creation, introduction and application of such
technologies that lead to actual reduction of the negative impact
caused by the economic and production activities of the com-
panies on local as well as on global level. The EU policy defines
them as one of the key instruments that should support and
facilitate the transition towards resource-efficient economy.
As a result of the application of the policy for eco-innovations

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 ENVIRONMENTAL MANAGEMENT
encouragement in the EU, a significant sector of eco-
productions is formed (European Commission, 2011). In
Bulgaria a working group for Applied research and commu-
nication Foundation points out in their report on green inno-
vations that despite the commitment for green growth in the
economic and ecological policy in compliance with the EU
membership, the progress in this direction is relatively slow
(ARCF, 2015). The macroeconomic indicators that are
monitored in this field are related to the transition towards
economics with low carbon intensity. They include reduction of
the greenhouse gases in the transport sector, in the industry and
in the energy sector and increase of the energy efficiency in the
residential parks. In the recent years, the energy productivity of
Bulgaria is improving, however, it still remains the lowest in the
EU (Blok et al., 2015). Key sectors like "Manufacturing industry"
and "Energy production" are lagging significantly behind with
regard to the introduction of green technologies that would result
in energy savings. The low levels of energy efficiency are also a
problem for the households, as the majority of them are heating
their homes in a quite inefficient way. Therefore, it is relevant to
be stressed that the energy poverty among the population is
high.
The outdated and old vehicle park in the country is yet
another contributor to the greenhouse gases formation. Despite
that the ratio of the vehicles is increasing, the electric cars or the
hybrids are still rare sight to be seen (EEA, 2016). Meanwhile, a
decreasing number of people are using the public transport –
both railway and buses. A fact that questions the financial po-
ssibilities for their maintenance.
The decrease of the greenhouse gas emissions requires the
use of cleaner energy sources. Bulgaria has already fulfilled the
goals related to their numbers. However, they are mainly used
to produce electricity. The share of the gross consumption of
energy produced by renewable energy sources is increasing in
the last decade (EUROSTAT, 2015). Unfortunately, the share of
the coals-produced energy is also growing. All those facts
clearly show that the country is facing significant challenges in
the field of green growth innovations.
However, the eco-innovations are not only about new and
specific technologies. They also include new organizational me-
thods, products, services and knowledge-oriented innovations
(Gonzalez – Benito and Gonzalez – Benito, 2006). Therefore,
the eco-innovations are neither a sector nor technology specific
and can happen in any economic area and are not confined to
the so-called "eco-industry" sectors.
The current article focuses on the voluntary environmental
approaches and their influence on the eco-innovation introduc-
tion. The investments in new technologies and the development
of ecological innovations are mainly done by companies
following pro-active ecological policy. Such policy can be
distinguished by the introduction of Environment management
system (EMS). In particular, the main subject of the current
research is the environment management systems (EMS) and
their impact on the capacity for eco-innovations in the small and
medium-sized companies in Bulgaria.
These systems provide the possibility to respond to the ever-
growing pressure of the stakeholders for more ecological and
cleaner production alongside with the need to strengthen the
corporate image in front of the clients (Cainelli etal., 2010),
Murillo-Luna et al., 2011). The most commonly used EMS in
Bulgaria is the one according to the international standard ISO
14001. The reason behind lays in the fact, that this particular
standard is acknowledged and recognizable among companies,
organisations and customers worldwide. According to a
research conducted by the International Standardization Orga-
nisation, Bulgaria ranks 14th in Europe based on the number of
certified EMS following the requirements of the international
standard ISO 14001. In 2013 a total of 1376 organisations have
been registered a certified EMS in Bulgaria. The research data
reveals significant increase in these numbers after the
108
accession to the EU – the growth is 132 % from 2006 to 2007
(ISO, 2014).
The other applied EMS in the country is the EU Environment
Management and Audit Scheme (EMAS). This is an instrument
of the EU public authorities that builds on the requirements of
ISO 14001 and requires continuous improvement of the
company’s environmental performance (Neugebauer, 2012).
According to Guerrero-Baena et al. the large companies place
great importance on their relationships with external stake-
holders choose EMAS because it leads to maximization of their
market value (Guerrero-Baena et al., 2015). On the Bulgarian
market, there are only 3 companies in 2014 with introduced and
registered EMS according to the requirements of EMAS (MEW,
2014).
The main aim of the current article is to analyze the
relationship between the EMS application and the capability of
the companies in Bulgaria to develop and implement eco-
innovations in the recent years.
3. Methodology
The research has been conducted through the use of pre-
liminary and specifically designed questionnaire with 40 questions
aiming to encompass the most essential aspects and specific
characteristics of the problem. As far as the questionnaire struc-
ture is concerned, it consists of the following parts:
 introduction – where the main objectives are presented in
short along with examples of the way the questionnaire
should be filled-in;
 main part – related to the applied ecological measures,
actions and innovations;
 third part – with general information on the main
characteristics of the company.
The information has been gathered through a direct inter-
view with a person from the company – a representative of the
management team with authority to take decisions for actions
regarding the environment protection or a manager who is
directly engaged with the conduction and implementation of the
ecological policy in the company incl. company manager, mana-
ger responsible for the ecological policy, production manager,
environment protection specialist, etc.
The determination of the sample for the companies to take
part in the research has undergone three stages:
 Stage 1: Identification of the company-polluters in
Bulgaria – this has been done through the use of publicly
available information in the Register for entities with documents
for conduction of activities with waste materials of the
Information system for reporting to the European register for
emission and transfer of polluters (ERETP) at the Environment
Executive Agency of the Ministry of Environment and Waters
(Environmental Agency, 2014). The companies included in the
sample are taken from the pubic register with data for reporting
at ERETP based on the declared data for the annual amount of
emitted polluters based on the type of the polluter. For each type
of polluter all companies with permit for its emission have been
identified. Afterwards, there has been calculated what kind and
what amount of polluters are permitted for emission for each
participating company. The list is finalized by sorting the com-
panies in descending order by the number of allowed polluters.
 Stage 2: Identification of the companies with certified
environment management systems (EMS) according to ISO
14001. Aiming to obtain as complete data as possible, two
separate lists have been combined:
• The list of all certified Bulgarian companies with
environment management system according to the
requirements of the international standard ISO 14001,
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 ENVIRONMENTAL MANAGEMENT
published on the website of Ciela Soft and Publishing
JSC (2014);
• The list of certified Bulgarian companies with environ-
ment management system according to the requirements
of the international standard ISO 14001, provided by the
organization "Club 9000"(2014).
The two lists are merged and all duplicates are deleted.
 Stage 3: Identification of the companies to be included
in the research – All companies from stage 2 has been checked
in the information system of Ciela Soft and Publishing JSC. The
current number of the employees (by July 2014) for each
company has been identified based on the published data from
the National Social security Institute. Afterwards, all companies
have been sorted in descending order according to the number
of the employees.
has been 1 376 organizations according to the data provided by
the International Standardization Organization.
The programme IBM SPSS („Statistical Package for the
Social Sciences“) has been used for the scientific analysis of the
data. The correlation interdependencies are defined based on
the Cramer coefficient (V) (Phi and Cramer’s V), normed
between 0 and 1. It has been accepted that if it is below 0.3, the
interdependency is low; if it is between 0.3 and 0.7 – the
interdependency is medium; if it is above 0.7 – the interde-
pendency is strong. The coefficient has been considered
relevant only if it has been statistically significant with level of
significance set at less than 0.05 (Haralampiev, 2012; Manov,
2002). Within the article below are discussed only strong and
medium correlations.

This list has been merged with the list of the companies- 4. Results
polluters at stage 1. All companies with less than 10 employees
have been excluded. And those with ISO 14001 certificate have 4.1. Eco-innovations
been marked as priority. in the surveyed Bulgarian companies
Furthermore, the companies with developed and registered
environmental management system under the EU Eco- Approximate half of the interviewed companies allocate
Management and Audit Scheme (EMAS) by July 2014 have funds from their annual budgets for research and development
been added to above-mentioned list. Thus, there has been in environmental activities. Around 40% spend up to 5% of their
created a list of all companies with EMS certification based on annual budget for ecological R&D works. Additional 10% of the
the number of their employees in descending order. These respondents allocate even more than 5% of the money they
companies that have also a permit for polluters’ emission have have on annual base. (Figure 2).
been marked as priority.
The research has started by targeting the first 160 com-
panies according to the number of the employees. Afterwards,
the next from the polluter's list have been included until 137
filled-in questionnaires have been achieved. This approached
enabled the authors to encompass the major company-polluters
and the prevailing part of the respondents to come from those
industries that contribute mostly to the environmental pollution in
Bulgaria.
The sample method is a random selection of the companies
with introduced EMS according to the requirements of the
international standard ISO 14001 or of the EU Eco-Management
and Audit Scheme (EMAS) with more than 10 employees.
The survey has been conducted through September –
October 2014 and 137 companies (out of 150 planned) from
Bulgaria have taken part. The distribution of the participating
companies according to the number of the employees is shown
on Figure 1 where small enterprises are with 50 employees, Figure 2. Funds allocated from the budget of the company
medium – with 51 up to 250 and large – with above 250 for R&D activities in the environmental field
employees.
More than one third of the companies (37 %) have
introduced innovative technologies in the last three years in
order to respond to the requirements of the EMS. Approx. one
quarter of the survey participants has implemented 1 or 2 such
technologies. Furthermore, 13% of the respondents’ number
has applied 3 or more ecological innovations (Figure 3).

Figure 1. Number of the employees in the companies (% of

the participating companies)

The general pool of companies with certified EMS according Figure 3. Number of innovation technologies implemented in
to the requirements of ISO14001:2004 in the country in 2013 the last 3 years as a result of EMS application

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The correlation analyses of the received results reveal that
the companies with larger number of employees are more active
in the process of innovative technologies introduction. The graph
clearly shows that the percentage of the companies with eco-
innovations is increasing with the increase of the number of the
employees. For the large companies with more than 250 em-
ployees this number reaches 40%. Approx. 1/3 of the medium
enterprises have also made such an investment. The results
clearly indicate that the small and micro-companies lack
significantly behind (Figure 4).
4.2. Eco-innovations and industrial sector
of economic activity
The companies in the research are separated in three
groups according to their industrial sector and the extent of their
impact on the environment (Murillo-Luna et al., 2011). Based on
those criteria the participants are divided as follows:
 Sector large polluters – paper, print, art; chemical pro-
ducts; metallurgy, oil and gas manufacturing;
 Sector medium polluters – food, beverage and tobacco;
textile; timber and cork; machinery constructions; applian-
ces and electronics; transport vehicles constructions;
other manufacturing sectors;
 Sector small polluters – all remaining sectors.

The companies with introduced and certified EMS are di-

Figure 4. EMS with and without introduced innovative
technologies based on the number of employees (V = 0.300)
vided according to their field of business activity in 20 sectors.
The introduction of eco-innovations dominates in 11 of them
namely Rubber and plastics manufacturing, Pharmacy, Chemi-
cals and chemical products manufacture, Oil and gas manufac-
turing, Textile, Machinery, Electrical appliance manufacture,
Waste recycling, etc. In five of those sectors, all participants in

Figure 5. EMS with or without introduced innovative technologies according to the sector of economic activity
divided in according to the degree of the emitted pollutants (V = 0.541)

the survey have introduced eco-innovation as results of

operational EMS in the last three years (Figure 5). The major
part of the companies with implemented eco-innovations is from
sectors of large or medium polluters.
The reasons for EMS introduction have also been re-
searched during the survey. The companies that have pointed
"Introduction of new ecological technologies" as major or
significantly important motif for EMS implementation are more
active in the real time application of such innovative techno-
logies. Between 37% and 55% of the companies with imple-
mented innovations have indicated them as main motif for EMS
introduction. Only 15% of the companies declare that the inno-
vations have not been a factor in their decision regarding the
EMS. However, all of these companies have implemented at Figure 6. Introduction of new ecological technologies as motif
least one new and ecological technology within the last three for EMS introduction and real-time application of innovations
years (Figure 6). (V = 0.364)

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4.3. Eco-innovations and regulatory requirements
and control
The introduction of eco-innovations is impacted also by the
number of received complaints against the company for
environmental pollution. The companies that have received
such complaints show significantly higher percentage of
introduced innovation technologies (71%). Significantly less
active in the eco-innovations implementations are the
companies that have no registered complaints (Figure 7).
Figure 7. Correlation between received pollution complaints
and EMS with and without introduced innovative technologies
(V = 0.336)
The correlation analysis demonstrates that interdependency
exists between the imposed administrative penalties in the last
three years and the introduction of ecological technologies. All
companies that have been fined more than 3 times in this period
have applied ecological innovation. The companies with im-
plemented innovations that have up to 2 fines are more than half
of the participants (56%). As confirmation of this trend, the
number of companies with innovation technologies related to
environment protection that have not received administrative
fines are twice lower than those of the companies without eco-
innovations (Figure 8).
Figure 8. The interdependency between administrative fines
and EMS with and without innovation technologies (V = 0.312)
The results of the survey reveal that the market, on which the
company operates, influences the use of eco-innovations.
Approximate 81% of the companies operating on the global
market have introduced at least one innovative technology in the
last three years. They form 26% of all eco-innovative compa-
nies. Out of all respondents working on the European market
innovations are implemented in 55%. The number of orga-
nisations operating on national and regional market that have
introduced eco-innovation in the last three years is significantly
lower – only one out of 4 companies working on national market
and one out of 5 companies functioning on regional market
(Figure 9).
The results of the current survey and the performed analysis
have clearly demonstrated that more than a half of the com-
panies with EMS in Bulgaria locate resources from their annual
budgets for research and development activities in the field of
environment protection. Where the enterprises with larger
number of employees are more active. The introduction of eco-
innovations is influenced by the sector of the economy and the
market where the company operates.
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Access to Success Vol. 20, No. 168/ February 2019
Figure 9. Distribution of the companies with and without
introduced eco-innovation operating on different markets
(V = 0.410)
The state policy with its control instruments has strong in-
fluence over the eco-innovations implementation. The combi-
nation of active ecologic policy through EMS introduction,
institutional and public pressure can explain the interest towards
eco-innovations among large and medium companies. The
companies with EMS are good examples for the advantages
that the introduction of ecological standards brings. Those com-
panies can be flagmen of the idea for more active participation
and engagement of the business in the environment protection
activities.
5. Conclusions
The survey has clearly demonstrated that the investment in
new technologies and the innovation development in the field of
environment protection are performed mainly by companies that
have realized their environmental impact and follow pro-active
ecological policy. The more comprehensive the introduced EMS
is and the more actively involved the ecological aspect is in the
development strategy of a company, the more inclined and
willing is the company to invest in the development and
implementation of eco-innovations.
The stimulation and encouragement of ecological innovative
technologies should be given a significant priority in the national
policy and all responsive administrative bodies and stakeholders
should coordinate their efforts and activities in this direction.
Because it is exactly the eco-innovations that will help and
facilitate the Bulgarian enterprises to discover working and sus-
tainable solutions that will enable them to make much better use
of the valuable resource, to decrease the negative impacts of
the business on the environment and to pursuit more eco-
logically sustainable economic growth.
The survey results can be used during the development of
motivational programmes and for the design and application of
incentives for more active introduction of eco-innovations by the
business. The encouragement of ecological innovative techno-
logies should be placed as a priority of the national policy.
However, it can be achieved only through the coordinated efforts
of all responsible governmental bodies and stakeholders.
5.1. Limitations and recommendations
for future studies
The current research is bound by some restrictions as the
survey participants are only companies with implemented and
certified EMS. This instrument is applied voluntarily by the
business without administrative or regulatory enforcement.
Therefore, its application is an indicator for the recognised
necessity for additional efforts for improvement of the ecological
performance of the company. Therefore, in the current research
the EMS is regarded as evidence for the conduction of pro-
active ecological policy.
111
 ENVIRONMENTAL MANAGEMENT
Within the research it is reviewed and analysed the
application of the environment management system according
to the international standard ISO 14001:2004. At the time of the
preparation and the conduction of the marketing research this
was the current version of the standard.
Acknowledgments
The financial support provided by University of National and
World Economy – Sofia (Project “The application of voluntary
information tools of environmental policy in Bulgaria”) is
gratefully acknowledged.
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Vol. 20, No. 168/ February 2019 QUALITY
Access to Success
 ENVIRONMENTAL MANAGEMENT

An Analysis on the Effect of Environmental Performance and the

Implementation of Environmental Management System (ISO 14001)
on the Issuer Financial Performance

Iskandar MUDA1*, Elisa WAHYUNI2

1,2 Universitas Sumatera Utara, Jl. Prof. TM Hanafiah No.12 USU Campus, Medan, 20155, North Sumatera, Indonesia
*Corresponding author: Iskandar Muda; E-mail: iskandar1@usu.ac.id

Abstract

This study aims to examine and analyze the impact of Environmental Performance as measured by the result of
PROPER (Pollution Control Evaluation and Rating) assessment and the implementation of ISO 14001 environmental
management system (EMS) to the financial performance, based on the value of Earning Per Share in manufacturing
companies which are listed in Indonesia Stock Exchange and being PROPER participants from 2012 to 2016. The
results of this study indicated that simultaneously environmental performance and the Implementation of
Environmental Management System (ISO 14001) has no significant effect on the financial performance. The
Environment Performance partially has significant effect on the financial performance while the Implementation of
Environmental Management System (ISO 14001) partially has no significant effect on the financial performance.

Keywords: standardization; earning per share, environmental performance; PROPER, ISO 14001; financial
performance.

1. Introduction measuring instruments in Indonesia is PROPER. The Pollution

In September 2015, the United Nations officially introduced
the SDG (Sustainable Development Goals), after a grand
meeting in the United Nations headquarters in New York, USA,
attended by the representatives of 193 countries. Sustainable
Development Goals (SDG) is a continuation of the Millennium
Development Goals (MDG) project that has been conducted
since 2005 until the end of 2015. SDG has 5 (five) main
foundations: human, planet, welfare, peace and partnership, to
achieve three main objectives including ending poverty,
achieving equality, and addressing climate change, which is
expected to be realized in 2030 (Demirel et al., 2018; Castika
and Balzarova, 2018 and Wiengarten et al., 2018). Currently, the
leaders of the nation are encouraging their society to care and
contribute to the implementation of SDG, especially in de-
veloped countries. They continuously develop the latest
innovations for a better world realization by 2030. In July 2016,
the United Nations announced 3 (three) countries with the best
index of SDG realization. They are Sweden, Denmark and
Norway. Not only the governments and communities, but also
the companies, especially the multinational companies, are
required to participate in the realization of SDG. The World Bank
states that at least nearly 50% of the world’s waste is produced
by corporations, not including the amount of pollution, and other
destructive factors. It is only natural for the corporation to
participate in the handling. Environmental performance is the
companies’ activity which is directly related to the natural
environment (Albertini et al., 2001; Hui et al., 2001; Watson et
al., 2004; Zutshi and Sohal, 2004; Watson et al., 2004; Darnall
and Edwards, 2006; Eng and Wahid, 2006; Lozano and Valles
et al., 2007; Gonzales and Diaz, 2009; Iraldo et al., 2009; and
San et al., 2016). One of the environmental performance
Control Evaluation and Rating or PROPER is one of the
alternative means of compliance instruments employed by the
government since 1995. In this case, the Ministry of Environ-
ment encourages the compliance and concern of the companies
for environmental management through the performance level
information of corporate compliance dissemination to the public
and stakeholders. Thus, it is expected that the community and
stakeholders can respond to the environmental management
performance of the companies which are participants of
PROPER in accordance with its capacity. The company per-
formance assessment is derived from the serial monitoring data
analysis that is required in the regulation of environmental
pollution control. To facilitate the communication with the stake-
holders in addressing the performance results of each
company’s structuring, the company’s performance rating is
grouped into five colors: gold, green, blue, red, and black.
The ISO 14001 Environmental Management System (ISO
14001 EMS) was published by the International Organization for
Standardization (ISO) in 1996 in Geneva, Switzerland. This
system is believed to help create an integrated mechanism for
continuous improvement of environmental performance that is
applied to everyday production activities (Kumar et al., 2017 and
Thayer et al., 2017). The problem is that not all companies are
willing and able to implement the ISO 14001 EMS. In addition to
being voluntary, some studies reveal that the certification of ISO
14001 EMS requires a large cost depending on the
characteristics and facilities of each company that includes
investment costs and routine audit fees (Ionașcu et al., 2017;
Testa and D’Amato, 2017; Qian et al., 2018 and Wiengarten, et
al., 2018). In 2015, more than 300.000 companies worldwide
were certified ISO 14001 EMS. The high participation in the
implementation of ISO 14001 EMS is because the ISO 14001

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Access to Success Vol. 20, No. 168/ February 2019 113
 ENVIRONMENTAL MANAGEMENT
EMS provides benefits such as: providing cost and resource
efficiency, expanding market opportunities, increasing
reputation and profitability, reducing the government’s coercive,
avoiding conflict and increasing stakeholder satisfaction.
Company performance is often associated with the financial
condition of the company. Financial performance is a general
measure of a company’s overall financial health at a given time
or subjective measurement of how well a company can use or
manage its assets from the main operational activities of its
business in accordance with the policies made by the
management to be the income of the company itself at a certain
time. The company financial performance can be measured by
evaluating and analyzing the financial statements. Company
financial performance can be measured by analyzing and eva-
luating the financial statements. There are several categories of
company financial performance measurement according to Lu,
et al., (2018); Finger et al., (2018); Wong et al., (2018) and Blasi
et al., (2018) they are:
1. Earnings Measures: earning per share (EPS), return on
assets (ROA), return on net assets, return on capital
employment and return on equity,
2. Cash flow Measures: free cash flow, cash flow return on
gross investment, cash flow return on investment, total
shareholder return and business return,
3. Value Measures (economic value added (EVA), market
value added (MVA), cash value added (CVA) and
shareholder value (SHV).
In this study, financial performance is measured using
Earning Per Share (EPS), in which EPS shows the amount of
money to be earned on every common share outstanding in the
period. EPS or earnings per share is calculated by dividing the
net income available to ordinary shareholders (residual net
income) by the weighted average number of ordinary shares
outstanding during the period (Muda, 2017 & Leyva et al., 2018).
EPS is only shown for the calculation of common stock. The
greater the net income of a company, the greater the EPS will
be. As the EPS of a company increases, the greater the net
income will be distributed in the form of cash dividend to the
common shareholders.
2. Research Methods
This study was conducted in 2012-2016. The samples were
obtained from the PROPER database from Indonesian Ministry
of Environment and Forestry and Indonesia Stock Exchange.
There were as many as 20 companies with a total of 100
observations with criteria that the company experienced
fluctuations in PROPER ratings and did not get black rating on
PROPER during the study period. The method employed was
Regression Generalized Least Square using E-Views Software.
3. Results and Discussion
3.1. Result
3.1.1. Goodness of Fit (Hausmann Test)
Hausmann test was performed to decide the best regression
model used in this study. The model is selected based on:
1. If the p-value of Hausmann Test is less than 0.05, thus
the approach model to be used is the Fixed Effect Model.
2. If the p-value of Hausmann Test is more than 0.05, thus
the approach model to be used is the Random Effect
Model.
The estimation result shows that p-value is 0.4222 or more
than 0.05 which means the approach to be used is Random
Effect Model (REM).
114
Correlated Random Effects – Hausman Test
Equation: Untitled
Test cross-section random effects
Test Summary Chi-Sq. Statistic Chi-Sq. d.f. Prob.
Cross-section random 0.644138 1 0.4222
Table 1. Hausmann Test
Source : Eviews Result Test (2017)
3.1.2. Hypothesis testing
3.1.2.1. Coefficient of Determination Test (R2)
Coefficient of determination test was done to see the
proportion of Y dependent variable total variances which are
explained by X independent variable.
R-squared 0.053418 Mean dependent var 64.13814
Adjusted R-squared 0.033901 S.D. dependent var 219.1842
S.E. of regression 215.4370 Sum squared resid 4502069.
F-statistic 2.736970 Durbin-Watson stat 0.959285
Prob(F-statistic) 0.069771
Table 2. Coefficient of Determination Test
Source: Eviews Result Test (2017)
The regression result using Random Effect Model (REM)
shows that the coefficient of determination (R2) is equal to
0.053418, or in other words, 5.34%. Variations or changes in
Earning Per Share (EPS) can be explained by both variables
namely environmental performance and ISO 14001 Environ-
mental Management Implementation. Meanwhile, the rest of
94.6% is explained by other variables and factors not included
in this study model.
3.1.3. Simultaneous Significance Test (F-Test)
F-test is performed to evaluate the effect of independent
variable to the dependent variable individually. Based on F-test
results it can be seen that p-value is 0.069771. The hypothesis
for the F-test is as follows:
H0: There is no influence of environmental performance and
environmental disclosures variables simultaneously on the
financial performance
Ha: There is an influence of environmental performance and
environmental disclosure variables simultaneously on the
financial performance
Based on the F-test criteria, it is concluded that:
 If Prob (F-Statistics) < 0.05 thus H0 is rejected (Muda et
al., 2018), and
 If Prob (F-Statistics) > 0.05 thus H0 is accepted.
The result of Prob (F-Statistics) is 0.069771 > 0.05.
Therefore, it can be concluded that H0 is accepted. It shows that
simultaneously both independent variables, namely environmen-
tal performance and ISO 14001 Environmental Management
System Implementation, have no influence on the dependent
variable, namely financial performance (EPS).
3.1.4. Partial Significance Test (T-Test)
The t-test was performed to evaluate the effect of the two
independent variables on the dependent variable separately.
The t-test result shows that the environmental performance
variable has a t-statistic value of 2.162842 and p-value of
0.0330. This probability result is smaller than the level of α = 5%
or in other words partially independent variable of environmental
performance has a significant impact on the financial per-
Vol. 20, No. 168/ February 2019 QUALITY
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 ENVIRONMENTAL MANAGEMENT
Dependent Variable: EPS
Method: Panel EGLS (Cross-section random effects)
Sample: 2012 2016
Periods included: 5
Cross-sections included: 20
Total panel (balanced) observations: 100
Swamy and Arora estimator of component variances
Variable Coefficient Std. Error t-Statistic Prob.
C 353.4890 290.2348 1.217941 0.2262
PROPER 96.65838 44.69045 2.162842 0.0330
ISO14001 -333.5370 314.9511 -1.059012 0.2922
Table 3. T-Test
Source : Eviews Result Test (2017)
formance and has a positive relationship. The t-test result also
shows that the t-statistic value of Environmental Management
System Implementation variable is -1.059012 and the p-value is
0.2922. The result of this probability is greater than the level of
α = 5% or in other words partially ISO 14001 Environmental
Management Implementation independent variable does not
significantly affect the financial performance.
3.2. Discussion
Increased competition increasingly awaken the company for
quality. The more critical the customer in responding to the
quality of the product increasing the company need to improve
the quality. ISO 14001 has become one of the requirements in
world trade as one form of guarantee on the quality of products
that consider the environmental aspects (McMillan et al., 2017;
Tuczek et al., 2018; Albertini, 2018 and Salim et al., 2018). This
requirement becomes an absolute requirement from customers
of developed countries especially America, Europe and Japan.
This is a challenge for companies in increasing customer sa-
tisfaction. The market demand for the application of international
standards is intended to provide good and safe goods or
services to the wearer and to meet the requirements of security,
safety and environmental sustainability as well as competitive
prices to consumers of the goods or services purchased. Thus,
the development and application of environmental manage-
ment, occupational safety and health systems need to be given
attention. The development of companies and industries today
has caused an environmental and energy crisis. Impact of
industrial development, organizations and industries are re-
quired to increase accountability to the environment. Under
these conditions, the demands of the world's rules on the
accountability of organizations and industries in environmental
management are increasing. Environmental conservation has
become the demand of developed country customers who
consciously see the importance of protecting the environment
early on to minimize future environmental damage, according to
international agreements in 1996 The International Organization
for Standardization launched a standard for managing the envi-
ronment professionally within the organization and industry, the
standard is called the ISO 14001 Environmental Management
System (Graafland, 2018; Albertini, 2018; Wiengarten et al.,
2018; Murmura et al., 2018; Heras et al., 2018; Castka and
Balzarova, 2018 and Salim et al., 2018). The business trans-
formation process undertaken by the company has the potential
to have an impact on the environment, both positive and ne-
gative impacts. Environmental management system standards
are not actually an international standard for environmental
management systems as termed. This ISO in no way regulates
the absolute requirements of environmental performance that an
Organization must satisfy. This ISO Standard is more appro-
priate if it is considered as a framework to assist the
Organization in developing its own environmental management
system, managing environmental aspects and improving its
QUALITY
Access to Success Vol. 20, No. 168/ February 2019
environmental performance. Organizations can integrate ISO
14001 standards with other management functions to achieve
environmental goals or economic goals. The impacts that arise
can be grouped into two parts, namely physical impact and
social impact (Fura and Wang., 2017; Peršič et al., 2018;
Weidema et al., 2018; Greenland et al., 2018 and Gauthier and
Wooldridge, 2018). When the company implements ISO 14001,
the company has committed to continually improve its
environmental performance. ISO 14001 is a standard that com-
bines and balances business interests with the environment.
Efforts to improve performance are tailored to the resources in
the form of human, technical, or financial resources. Financial
factors in the form of return on Earning Per Share is a reflection
of management's success in managing the value of the
company as reflected in the share price of the company
concerned and after being divided from the company's net profit
in Capital Market and Financial Market. Improvement of
environmental performance takes a short time due to limited
capital and financial. Liquid waste that pollutes the environment
around the company can be reduced if it already implements
ISO 14001. Financial Internal factor is the determining factor in
managing its waste so as to reach the specified threshold.
Sufficient sewage treatment facilities can be built within certain
periods of time. If before the period is achieved then the
company will never meet the environmental quality standards.
However, if the company develops an environmental manage-
ment system that meets the requirements of ISO, the company
may obtain the ISO 14001 certificate. Another company, whose
environmental performance meets the quality of raw materials
but does not meet the requirements will not obtain ISO 14001
certificate. ISO 14001 is developed from the concept of Total
Quality Management (TQM) based on Plan-Do-Check and
Action activities (Maceno et al., 2018; Muñoz et al., 2018; Ayuso
et al., 2018 and Zhou et al., 2018). The environmental policy
should be documented and communicated to all employees and
made available to the community, and includes a commitment to
continuous improvement, pollution prevention, and compliance
with regulations and a framework for goal setting and objectives
(Demirel et al., 2018; Tuczek et al., 2018; Yuriev et al., 2018 &
Latan et al., 2018). environmental aspects of the organization's
activities, identification and access to regulatory requirements,
the existence of objectives and targets that are documented and
consistent with the policy, and the existence of programs to
achieve the planned goals and objectives. In the documentation
and communication phases of roles and responsibilities,
adequate training, the assurance of internal and external co-
mmunications, written documentation of the environmental ma-
nagement system and good document control procedures,
documented operational control procedures and documented
procedures of emergency action are essential to the achieve-
ment of the Environmental policy in the form of development of
environmental commitment of an organization. This policy will
be used as a framework for the preparation of environmental
plans.
4. Conclusions and Suggestions
4.1. Conclusions
1. Environmental Performance and Environmental Mana-
gement System Implementation (ISO 14001) do not
simultaneously affect the Earning Per Share.
2. Company Environmental Performance measured from
PROPER of Indonesian Ministry of Environment and
Forestry rating partially has significant effect on the
Earning Per Share.
3. Environmental Management System Implementation as
measured by ISO 14001 certification ownership partially
has no significant effect on the Earning Per Share.
115
 ENVIRONMENTAL MANAGEMENT
4.2. Suggestions
1. Companies are suggested to increase the environment
awareness inside and outside the company so that it will
give a positive impact for the surrounding that will affect
the investor in investing.
2. It is suggested for further researches to add other
variables especially related to the environment that has
influence on financial performance, either EPS or other
variables such as ROA and ROI.
3. This research only employed manufacturing sector com-
panies as the samples, it is suggested for the future
researchers to expand the scope of study.
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 ENVIRONMENTAL MANAGEMENT

How Green should Trust, Norm and Attitude be Colored?

An Empirical Research in Asian Market Consumers

Amie KUSUMAWARDHANI1, Kardison Lumban BATU1, Diana AQMALA2, ANDRIYANSAH3

1Department of Management, Faculty Economics and Business, Universitas Diponegoro, Semarang, Indonesia;
E-mail: amiekwardhani@live.undip.ac.id; kardisonlumban@yahoo.com
2Corresponding author, Sekolah Tinggi Ilmu Ekonomi Totalwin, Semarang, Indonesia; E-mail: diana.aqmala@gmail.com
3Department Management of Faculty Economics, Universitas Indonesia, Cabe Raya, Pondok Cabe, Tangerang Selatan,
15418, Indonesia; E-mail: andri@ecampus.ut.ac.id

Abstract

The current research is to fill the phenomenon of insignificant growth in green concept in some Asian consumer
markets. This study is to investigate the determinant factors that triggering some Asian customers conduct green
purchase intention. Using Structural Equation Modeling with AMOS software, the study develops a model involving
functional value, emotional benefit and green subjective norm as exogenous variables and green consumer trust and
green attitude as intervening variables, green purchase intention become endogenous variable. The findings showed
that, functional value, emotional benefit as well as green subjective norms are truly the antecedents of green
consumers trust. Green subjective norm has positive impact on green consumer trust as well as on green purchase
intention. The impact to use green attitude to use is significant on green purchase intention.

Keywords: green consumers trust; green subjective norm; green attitude to use; green purchase intention.

1. Introduction processes (Luzio and Lemke 2010); drivers for green

The importance of green concept has been highlighted since
the late 1990s. The researchers elaborated by examining the
greening of services matrix, greening of services, intangibility,
perishability, heterogeneity, and simultaneity of product and
consumption (Grove, 1996); the portrays of an important aspect
of green concept, green consumers going green (Grove et al.
1996); cleaner manufacturing processes and green promotion
(Menon & Menon, 1997); Consumer’s intention to buy
environment friendly products (Kalafatis, 1999); Green marketing
and Ajzen's theory of planned behavior (Kalafatis et al. 1999).
The concept of green customer behavior is becoming more
popular world-wide as the years went by. Mention among,
attitude towards green advertising (Souza, 2003); Customer’s
corporate perception, reducing pollution and regulatory
protection, perception toward green products, labels, packaging,
and ingredients (Souza, 2003); investing green shares,
environmental awareness (Getzner & Grabner-kra, 2004);
consumer preferences and green shares (Getzner and Grabner-
Krauter 2004); Green brand positioning, brand attitude,
functional and emotional dimensions, green positioning strategy,
functional attributes and emotional benefits (Hartmann, 2005);
Green products and corporate strategy (D’Souza 2005); Green
advertising (D’Souza 2005). (Jones et al. 2008); Green branding
on attitude (Hartmann et al. 2005); green marketing tools (Lee
2008); Green consumers and sustainability (Pedro 2008);
sustainable consumption (Jones, 2008).
Moreover, more studies concerned on green concept, to
mention perceived environmental responsibility (Lee, 2008);
exploring green consumers’ product demands and consumption
purchasing (Khidir ElTayeb et al. 2010); Eco-label, eco-brand,
awareness of green products attributes and characteristics,
attitude, subjective norms, perceived behavioral control, (Wan,
2010); moral norms and convenience (Rahbar, 2011); Green
organizational identity (Chen 2011); green competitive advan-
tage (Chen, 2011b); green perceived value, green trust, green
purchase intentions (Chen, 2011a); Enhance customer green
purchase intentions (Chen and Chang 2012); Origins of green
innovations (Chen et al. 2012); Perception of green brand
(Mourad et al. 2012); Recycling attitude and behavior (Wan et al.
2012); Re-examining green purchase behavior and the green
consumer profile (Akehurst et al. 2012); green product com-
petitiveness (Wong 2012); Green innovations: proactive and
reactive green innovations, environmental leadership, envi-
ronmental culture, and environmental capability (Chen, 2012);
Environmental slogans and labels green awareness and green
brand preference (Mourad, 2012). Towards green trust (Chen
and Chang 2013).
Furthermore, the green concept is strongly related with
customer behavior towards green. Among them are
Psychographic perceived consumer effectiveness (PCE) and
altruism, socio-demographics, green purchase intention
(Akehurst, 2012). Green Purchase, Customer Pressure,
Expected Business Benefit, Social Responsibility, (Eltayeb,
2009); Green product process innovations and green new
product success (Wong, 2012) green perceived quality, green
satisfaction, green trust, green perceived risk (Chen, 2013).
The higher demand in the green products has led to shift
consumers buying behavior. Industries has contributed to
shifting within the firms structure in order to fulfill and meet

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 ENVIRONMENTAL MANAGEMENT
consumer’s green product needs by becoming more envi-
ronmentally concern and responsible. Procurement of green
brands and products in the market is to fulfill consumer
demands and needs allowing green marketing to emerge and
appear into a multidimensional strategic and behavior, since
consumers intend to consume environment friendly green
products (Peattie 2001), there will be sharp increased in
environmental adds aligning with the increased of consumer
interest in the environment (Kangun et al., 1991).
Donaton and Fitzgerald, (1992) stated that many consumers
are more concern about environment and even started labeling
green orientation. In fact, Gutfield, (1991) conducted a survey,
where the result showed that as many as eight out of ten
American consumers currently claim that they are environ-
mentalists, to our surprise, then, that many companies have
attempted to capture and capitalize on the public’s interest in
green issues by positioning themselves as environmentally
responsible organizations (Jay, 1990). However, in contradiction
with the reality, business’ commitment to the environment has
often been more evident in their communications or even it is
only a jargon than in their actual practices (Gutfield 1991). Yet,
to familiarize the concept of green rather than buzz-phrase is a-
compulsory which can be seen that in recent years as many
firms have aimed at environment conscious consumer (Davis
1991) and/or have started to respond to the increasing likelihood
of stricter environmental regulations (Polonsky, 1991; Alonge,
Codd, & Delaney, 2017; Aqmala, 2017).
Nowadays, green consumer has been the central character
in the development of green marketing, as businesses attempt
to understand and respond the external pressures to improve
their environmental performance (Peattie 2001). One way to
look at these efforts is that the companies have attempted to
respond to the growing environmental concern of consumers by
introducing a variety of environmentally friendly products or
mostly categorized as green products or ecological products
(Kangun et al., 1991).
In fact that green products are now available to consumers
ranging from wood, pesticides, foods, cosmetics, Electronics
utensil, textiles, advertisements, packaging, and ingredients to
laundry detergents and household cleaning products. Even
though the existence and the variety of these environmentally
friendly products have been well-known all over the world, but
seemingly there is no a significant consumption growth espe-
cially in some Asian markets. To mention one of reasons is the
weak environment consciousness of consumers. Chan & Lau
(2000) suggested that to have a better comprehensive under-
standing, investigating the perception of consumer on environ-
mental issues and the implementation in consumer behavior.
Thus, the present study attempts to fill up this gap by examining
Asia consumers’ attitudes towards green products and in turn,
its impact on green purchase intention.
In attempting to Enbridge this issue, the present study will be
restricted to some Asian Consumers. The sequences of this
study firstly, investigating the impact of functional value,
emotional benefit as well as green subjective norm on green
customers trust. Secondly, the impact of green consumer trusts
on green attitude to use. Lastly, how do green subjective norm
and green attitude to use influence green purchase intention.
2. Literature review
and hypothesis development
2.1. Functional value
Firms should notice that the consumers are not seemingly
compromise on product functionality, though the consumers
have to care about whether consumers perceive the greenness
of products offered. Green products must possess and own the
origin product functionality compared with non green products to
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enhance and trigger green purchase intentions.
In addition, implementing green marketing can raise cus-
tomer purchase intentions. The expectation of green products
sometimes lead to misperception that such products are low
quality or do not really deliver in to real practices on their
environmental promises. The marketers ought to care about
whether consumers perceive greenness of their products, and
must remember that consumers are unlikely to compromise on
traditional product attributes, such as value, quality, price, and
performance.
In enhancing consumer purchase intentions the companies
need to develop products which possess both of greenness and
high-value attributes since credibility is one of the key elements
for green marketing strategy. To ease customer Skepticism and
to raise customer trust marketers should decrease customer
perceived risk about greenness of products. Hamner (2006)
summarized some basics green product activities such as
Product content requirements, Product content restrictions and
Product content labeling or disclosure. This study proposed
hypothesis mentioned below:
H1. The higher the rate of functional attributes, the
higher the degree of green consumer trust.
2.2. Emotional benefits
Kotler, (2000) stated that brand positioning is considered as
a key tool for brand implementation in competitive markets. This
study suggested that a set of strategic choices for green brand
positioning, available to marketing planners and brand mana-
gers, in accordance with functional brand attributes or emotional
benefits. Literature reviews on green marketing reveals and
exposes different opinions and statements regarding the ade-
quacy of cognitive as well as emotionally oriented persuasion
strategies.
Blankson and Kalafatis, (2000) conducted an experiment
designed to allow the selection and control the exposure of
participants on the ads stimuli aimed to implement distinguishes
brand positioning strategies. Even, there is a general agreement
on the strategic relevance positioning of green brand positioning
in modern marketing management, the concept of positioning
still considered lacks of a coherent meaning. Brand positioning
has been analyzed both from a strategic standpoint (Hooley et
al., 1998) and an analytical perspective (Caroll and Green,
1997; Hair et al., 1998). Kalafatis et al., (2000) demonstrated
that imagine or conceive of positioning as a cautionary process,
consisting of deliberate or accurate and proactive actions inten-
ded at the definition of distinct consumer perceptions.
Aaker and Joachimsthaler (2000) also defined brand po-
sitioning as the process to identify brand and proposed value
proposition which should be communicated intensively to the
targeted audiences. As a result, the bases of brand positioning
is all the interaction of marketing tools, with an accentuated or
emphasized role for marketing communications due to its rele-
vance in the process of forming distinct consumer perceptions.
Further, positioning a brand as a green brand entails or
requires an intense communication and distinguished brand
from its competitors though it’s environ-mentally sound
attributes. Green brand attributes could only be successful
through effective communication and as well as ecologically
sustainable products (Pickett et al., 1995). Coddington (1993),
Meffert and Kirchgeorg (1993) claimed that green positioning as
an inherent and essential factor in the success of green bran-
ding strategies. The dative classification of generic positioning
strategies (Tomczak et al., 1997), a brand can be placed by
functional attributes and/or by emotional benefits.
Delivering and offering information on environmentally sound
product attributes is one of the green positioning strategies
which are based on functional brand attributes aims to build
brand associations. This positioning strategy should be aligned
with relevant environmental advantages of the product against
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conventional products, and also may refer to procedure of
production processes, product consumption and/or disposing
product (Peattie, 1995). (Roozen and De Pelsmacker, 1998)
addressed the value perception of selected and executed
environmental product attributes
The evidence that by reducing the impact of environmental
care will not bring individual benefits to consumer as the suc-
cess of a brand strategy relies on functional attributes. Further,
the perceived customer benefit perhaps is scarce as a mo-
tivating factor to purchase brand (Belz and Dyllik, 1996). Every
consumer would eagerly experience functional benefits such as
improvement concern of environmental quality if only gene-
ralized or equalized environmentally sound consumer behavior.
Yet, functional positioning strategies can trigger some general
disadvantages such as imitable, assuming of rational buyer
decisions and the flexibility of brand differentiation reduction
(Aaker, 1996).
As an optional or complementary strategy, green positioning
should be derived from the conceptual different types of
emotional brand benefits such as, Contribution and sharing the
greenness as well as conscious care on environmental,
eagerness to exhibit environmental consciousness, Emotional
affinity towards nature and Evoking and eliciting vicarious nature
experiences as emotional brand benefits. Based on aforemen-
tioned previous finding, current study proposed the following
hypothesis:
H2. The higher the rate of emotional benefits, the higher
the rate of green consumer trust.
2.3. Green consumer trust
Perceived value is definitely claimed as a consumer’s
holistic evaluation on the net benefits of a product or service
based on a consumer’s appraisal and as assessment (Patterson
and Spreng, 1997). It has been explored and studied at the prior
research that perceived value had a positive effect on marketing
performance (Sweeney et al., 1999).
It is becoming more crucial nowadays; firms could enhance
and improve consumer purchase intentions by delivering added
product value (Steenkamp and Geyskens, 2006). Deliver and
offer value to customers by providing benefits and by distinguish
product from their competitors’ (Zeithaml, 1988; Aaker, 1996).
Firm’s excellent product value could lead to product
differentiation against competitors’ (Kim et al., 2008; Czibere &
Rácz, 2015).
Perceived value was not only be a crucial determinant factor
in maintaining and sustaining long-term customer relationships,
but also play a key role in affecting and triggering purchase
intentions (Zhuang et al., 2010). In addition, perceived value is
also necessary to influence customer trust (Kim et al., 2008;
Mulatsih et al., 2017)
Due to its prevalent and commonness, consciousness in
environmental dragged more attention nowadays. Patterson
and Spreng proposed a novel construct, green perceived value
which refers to describe a consumer’s overall appraisal and
assessment of the net benefit gained from product and service
between received and given in accordance with consumer’s
environmental desires, sustainable expectations, and green
needs.
Trust is obviously could be defined as a level of the
willingness to depend and sustain on one object through the
expectation of its ability, reliability, and benevolence or phi-
lanthropy (Hart and Saunders, 1997). Meanwhile Lin et al.,
(2003) claimed that trust is the desire to receive vulnerability and
perishable based on positive expectations of the integrity and
capability of another one. Chen (2010) also defined green trust
as a willingness and loyalties to depend on one particular object
in accordance with belief or expectation coming out from the
credibility, benevolence, and ability about environmental per-
formance.
120
Eid (2011) posited that there was a significant positive
relationship between perceived value and customer trust, due to
the ability of high level of perceived value could increase post-
purchase confidence of the product. This case lead the many
firms overstate and exaggerate the environmental value offered
in their products made their customers no longer distrust
(Kalafatis and Pollard, 1999). Based on the previous study, this
research hypothesizes that green customer trust is associated
with green purchase intention which mediated by green sub-
jective norms and proposes the following hypothesis:
H3. The higher the degree of green customer trust, the
higher the degree of green purchase intention.
H4. The higher the degree of green customer trust, the
higher the degree of green attitude toward use.
2.4. Green subjective norm
Recent years, researchers have begun to empirical inves-
tigate the norm in regards of green environment behavior, and
resulted was known as a new one. (Nilsson et al., 2004) claimed
that the norm construct refers to the trust which is trustworthy
referents (individual or groups) though that one should
accomplish out the behavior and the motivation to comply or
agree with these referents). Aligning with (Rhodes and
Courneya, 2003) suggested that subjective norms assess the
social pressures on the individual to conduct or not to conduct
some certainly behavior.
The green subjective norm is usually rooted from superior or
salient beliefs, called normative beliefs, concerning on whether
certainly referents might ask the respondent should or should
not implement the action in query. Seemingly, expected values
of this influencing referent can be noticed by two measures:
firstly likelihood that the referent holds or grasps the normative
belief and secondly the motivation to comply with the views of
the referent.
Subjective norm hedges behavior that instigated or nega-
tively invited by the desire to act as others forces us to act as we
should. Commonly, socially worthy acts, such as papers and
bottles recycling, triggering internally generated feelings of self-
respect or pride, meanwhile when failure is occurred to do the
way it should, perhaps invoke feelings of shame or self-reproach.
Subjective norm is therefore can be claimed as internally con-
trolled, which is not force to external reinforcement operational
such as adjusting others mistakenly.
Others involving and influencing in the Subjective Norms
could be close friends, folks, doctors, midwives, nurses, political
parties, religious organizations or respected local leader . Take
for example; in buying toiletries products, consumers might be
influenced and awarded by the messages of environmental
pressure groups who claim that packaging and product
formulations and process could bring seriously damage or
devastate affect the environment. The Subjective Norm is called
subjective due to what the leader’s opinion and norm refers to
leader’s understanding of what others people though should be
done or not (East 1997). In accordance with previous findings,
the current study proposed the following hypothesis:
H5. The higher the degree of green subjective norm, the
higher the rates of green consumer trust.
H6. The higher the degree of green subjective norm, the
higher the rates of green purchase intention.
2.5. Green attitude to use
Attitude is one of the most persistent concepts in all of
marketing. It plays a crucial role in the major models describing
consumer behavior, and is included, in one form or another, in
most marketing researches. Attitude plays this vital role mainly
because it is believed to strongly influence behavior (Churchill &
Labocci, 2005). A number of past studies have made accom-
plishments to identify the relationship between consumers’
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 ENVIRONMENTAL MANAGEMENT
environmental attitudes and behavior (Fraj & Martinez, 2007;
Stern, 2000) and comparing consumers’ environmental attitude-
behavior in the different setting of cultures (Laroche et al., 2002;
Oreg & Katz-Gerro, 2006). Similarly, Cook et al., (2002) have
conducted attitude-behavior research regarding the purchase of
genetically modified food products, which was developed based
on the Theory of Planned Behavior. The results revealed that
purchase intention of genetically modified food products were
positively influenced by attitude, subjective norms, perceived
behavioral control, and self-identity. Among the four ante-
cedents, it was indicated that attitude had the greatest impact on
purchase intention.
The finest distinction has been produced by researches in
categorizing the type of greenness (Banerjee, 1994), meanwhile
Shrum et al., (1995) claimed that green consumer is any party
whose buying behavior is influenced by environmental con-
cerns.
Mostafa (2006) has conducted research on consumers’
green purchase intention. He investigated the influence of a
variety of attitudinal and psychographic factors on consumers’
green purchase behavior by applying the hierarchical multiple
regression method. He argues that the use of this approach
allows researchers to focus on the variables forming the
hypotheses, and meanwhile, also separately treat the influence
of the control variables that might have moderating effect on
consumers’ green purchase decision.
Lobb et al., (2007) conducted research concerned on
subjective norms, perceived behavioral control, attitudes, risk
perception, trust, and alia or other variables such as socio-
demographic factors. The proposed model presented the
interaction between these components towards intention to
purchase. The study results demonstrated that purchase
intention is mainly driven by attitudes. Hence, the finding implies
the fairly positive support to attitudes as the most important
determinant of purchase intention.
Several findings have also been fairly support the
proposition that when the consumers’ attitude to environmentally
friendly or green products is positive, the consumer’s purchase
intention will be more likely to be positive (Mostafa, 2006; and
Mostafa, 2007b) and in the most cases, attitude is found to be
the most influence factor in predicting intention (Bagozzi et al.,
2000; and Cook et al., 2002). Based on aforementioned
findings, thus, the following hypothesis is to be addressed
H7. The higher the degree of green attitude to use, the
higher the rate of green purchase intention.
2.6. Green purchase intention
Many researchers agreed that demographics are not playing
important role to describe green ecological consumer behavior
compared with psychographic variables such as attitudes and
knowledge, values, and the behavioral variables (Getzner and
Grabner-Kruter, 2004). Meanwhile (Schwartz and Bilky, 1990)
stated that values are relatively stable criterion that usually use
to assess their own and others' behavior in different situations.
Schwartz (1992) breaks down the values domain into self-
enhancement self-transcendence, conservation, openness to
alter the value. Follows and Jobber (2000) changed the
openness to change value, and included remaining three
values. However including conservation, self-transcendence,
and openness to change value except self-enhancement are
based upon the results of factor analysis on the market values
from Schwartz’s (1992) typology. Furthermore, postulating
openness to change value is an important factor that explains
consumer’s green environmental behavior.
The current study proposes a novelty related with green
purchase intentions which is refers to Netemeyer et al., (2005)
that defined it as the likelihood or probability that a consumer
willing to pay and buy some certainly product which is derived
from environmental requirements and needs (Ramón, 2013).
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Trust derived from three beliefs firstly integrity, secondly
benevolence, and last ability. Trust is also an expectation waited
by an individual in regards of word, promise, or statement of
another party can be leaned on and relied on (Schurr and
Ozanne, 1985). In additional, trust is a confident extension of
another party promise to behave as expected (Hart and
Saunders, 1997).
Customer trust is also essential determinant of long-term
consumer behavior (Lee et al., 2011). Therefore, consumer
purchase intentions are affected by consumer trust (Harris and
Goode, 2010). Previous literature claimed that customer trust is
a determinant factor on consumer purchase intentions
(Schlosser et al., 2006). Van der Heijden et al., (2003) described
that once consumers have had a trust experience with the seller,
higher level of purchase intentions would be possess. There-
fore, green consumer trust becomes the antecedent of customer
purchase intentions.
Previous research showed that green customer trust would
positively influence customer purchase intentions (Schlosser et
al., 2006). Sometime consumer judgment is often derived from
incomplete information; perceived value of products would
positively influence their green purchase intentions (Kardes et
al. 2004).
Green consumer trust is a set of attributes which relates with
consumer perception on a product’s value, which is finally
expected to build up a positive word-of-mouth effect and raise
green purchase intentions (Sweeney et al., 2001; Ashton et al.,
2010). Unexpectedly any companies conduct a promotion by
means of deceptive claims concern in the environmental value
of products, this will lead customers are reluctant or averse to
repurchase or repetitive buying (Kalafatis and Pollard, 1999).
Hence, green consumer trust currently plays a crucial role in the
environmental era. Green consumer trust is one of the most
significant factors affecting purchase intentions (Zeithaml 1988).
Furthermore, previous literature claims that green consumer
trust is positively related to consumer purchase intentions
(Gounaris et al., 2007) Poor trust can result in loss of consumer
purchase intentions (Sweeney and Soutar, 2001). Once
consumers put trust on high value of a product, they are more
likely to purchase the product (Chang and Chen, 2008). Others
studies which demonstrates that green consumer trust positively
impact their purchase intentions (Cronin et al., 1997; Patterson
and Spreng, 1997; Brady and Robertson, 1999; Eggert and
Ulaga, 2002; Tam, 2004). In the rise of the nowadays, green
consumer trust is very crucial to green purchase intentions since
the rise of environmental consciousness.
Figure 1. Empirical Research Model
Source: developed for this research
3. Method
Measurement
A self-administered questionnaire was developed in this
current research based on existed scale in robust theory.
Current research sampling covers female and male consumers
as in some Asian Countries. Female and male consumes are
considered to have awareness on environmental and pro-
environmental behavior.
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 ENVIRONMENTAL MANAGEMENT
3.1. Research method
Sampling and data collecting procedures
Sampling frame consists of experienced female dan male
consumers who conducted repetitive buying and understand
green product concept or green marketing. To increase the rate
of respondent participation, call back is conducted for both mail
survey and field visiting. 1000 questionnaires were sent and 800
return, 578 used for further analysis.
Table 1.
Descriptive statistics
and correlation matrix
Note:
**Correlations is significant
at the pb.01. level (2-tailed)
Estimated model Confirmatory Factor Analysis [CFA]. Fit
statistics indicated a close fit to the data (χ2 = .89.504, pb.10;
χ2/d.f.=.176; Good Fitness of Index [GFI=.92; [AGFI] =.904; [TLI]
= .953, and root mean square error of approximation [RMSEA]
=.035). For all measurement items, standardized loadings
output from CFA analysis is considered huge and significant,
and providing the convergent validity evidences. Extracted was
conducted to assess construct reliability with the estimation of
Table 2. Measurement Scales, Confirmatory Factory Analysis Results and Reliabilities
122
3.2. Analysis and findings
Validation of measurement
To asses internal consistency scales, the combination of
exploratory factor analysis and item-to-total correlations de-
ployed Gerbing dan Anderson (1988), the finding demonstrated
that total correlation or loaded on high multiple factors. The
following table showed the descriptive statistic and correlation
matrix used for current study.
Cronbach's alpha coefficient, composite reliability score, and
average variance extracted. Table 2 showed that all the con-
structs that alpha and composite score reliability are same and
more than 0.7. Besides, extracted variance average for all
constructs are the same or bigger than 0.5, as suggested by
Bagozzi (1988). Therefore, all measurement scale has a good
reliability.
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 ENVIRONMENTAL MANAGEMENT
3.3. Structural model estimation
The statistical output demonstrated that functional value and
emotional benefits successfully as the key drivers for green
consumer trust. This could be menat that consumer gained trust
from the functional value and perceived emotional beefits.
Figure 2. Full Structural Model
Note: Fit statistics for structural model
Table 3. Standardized path coefficients for the structural model
4. Conclusion remarks
The current findings are strongly support that customer
green trust will lead to green purchase attention. Look at green
consumer behavior in the new millennium (Straughan and
Roberts 1999); Compulsive buying behavior (Shoham and
Brencic 2003); Green consumer behavior (Tadajewski and
Wagner-Tsukamoto 2006); Associations of unethical; consumer
behavior and social attitudes (Callen-Marchione and Ownbey
2008); Consumer behavior in food consumption (Miljkovic and
Effertz 2010); Multiple-channel and cross-channel shopping
behavior Role of consumer shopping orientations (Chatterjee
2010); The consumers’ perception, demographic characteristics
and consumers’ behavior towards in visiting restaurant (Rahman
2012); Consumer behavior and purchase intention for organic
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Furthermore, green subjective norm also contributed significant
role on building green subjective trust. Green consumer trust
build consumers green attitude significantly as well as a positive
impact on green purchase intention. Green subjective norms
and green attitude also showed significant impact on building
green purchase intentiaon. As shown at the following figure.
food (Paul and Rana 2012); The impact of ethical fashion on
consumer purchase behavior (Bin Shen et al. 2012).
Functional Value and Emotional Benefit showed a significant
impact to convince green consumer trust. The higher the
functional value and emotional benefit perceived by consumer in
Asia market will lead to the higher rate of trust as hypotheses
one and two are accepted. The role person and the norms
legalized in some places also play a crucial impact. Social
norms have a very significant impact to increase green con-
sumer trust, as hypothesis three is also accepted.
Once the consumers pay a high trust on consuming goods,
they are turning in to have green attitude as hypothesis four
cannot be rejected. Green attitude and green subjective norm
are noticed to be the determinant factors for green purchase
intention as hypotheses five and six are accepted.
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 ENVIRONMENTAL MANAGEMENT
All current findings is aligned with previous works of Bagozzi
et al., (2000) which demonstrated thatSubjective Norms were
found to be considerably support respondents’ decisions. By
proposing green subjective norms for present study brings no
insignifiant finding to the previous ones with only subjective
norms. Furthermore, in accordance with Chen (2007) indicated
the positive of subjective norms with customer’s attitudes on
organic foods and control on perceived behavoral, these were
claimed to have significant impact on purchase intention.
The second strongest antecedent depicted in the model is
green attitude to use, this could be meant that customer green
attitude do support to increase green purchase attention. A well-
considered attitudes does influence customer behavior due to
the level of their experiences, knowledge, high involvement,
product preferences, awareness and trustworthiness on eco-
labelling. Meanwhile, green customer trust is also shown as the
predictor of green purchase intention.
Having customers in some Asian Market (Indonesia,
Singapore, Malaysia, Japan, China, India, Philipine, Vietnam,
Thailand) as the respondents, current study revealed that the
awareness of Asian customers on the implementation green
concept leads to the green purchase intention with the green
subjective norm as the strongest driver of green purchase
intention.
4.1. Managerial implication
In accordance of the acceptance of all hypotheses proposed
to increase the rate of green purchase intention as depicted in
the full model, current study highlighted some important impli-
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Green Marketing Strategies: Exploring Intrinsic and Extrinsic

Factors towards Green Customers’ Loyalty

Leila BAKTASH1, Muzalwana Abdul TALIB2

1Corresponding author, Department of Applied Statistics, Faculty of Economic & Administration, University of Malaya, 50603,
Kuala Lumpur, Malaysia; E-mail: leila_baktash64@yahoo.com
2Senior Lecturer, Department of Applied Statistics, Faculty of Economic & Administration, University of Malaya, 50603,
Kuala Lumpur, Malaysia; E-mail: wana_am@um.edu.my

Abstract

Over last decades, rapid urbanization in many developing countries like Malaysia, has caused severe harm to the
environment. Therefore, sustainable consumption offers a solution to environmental degradation through the use of
eco-friendly products provided by marketers. The lack of prior studies on influential factors towards green products
purchase attitude and customers loyalty has been urged to conduct a study in this regard. As a result, current study
seeks to identify the intrinsic (green product quality and green trust) and extrinsic factors (age, education and
employment status) influencing customer’s attitude (as a moderating factor) and loyalty towards green product
consumption. A survey was conducted to collect data from 192 Malaysian consumers in Klang Valley and structural
equation modeling was employed. The findings indicate the significant impact of quality and trust towards’ customers
attitude and loyalty. In addition, age and education significantly impact on customers’ attitude towards quality of green
products. The finding of this study is useful for marketers to help them in implementing green purchase strategies and
developing “sustainable” consumption among Malaysian customers.

Keywords: marketing strategies; customer’s loyalty; customer’s attitude; green product quality; green trust; Malaysian
consumers.

1. Introduction costs whilst gaining long-term competitive benefit through

For the last few years, environmental concerns such as
global warming and limited energy sources have been greatly
debated. Worse still, the concern extends to the harmful effect
of most human activities towards the environment and the
consumption of more non-durable products by consumers. As a
result, customers tend to pay greater attention to the eco-
friendly products with an environmental advantage and con-
sumer awareness and attitudes toward green products have
increased dramatically (Yang, 2017). In the case of Malaysia,
speedy urbanization and Malaysian consumption lifestyles have
step up the resource-waste problems (Haron and et al, 2005).
From the aspect of production, lack of proper waste mana-
gement can cause pollutions and reduce the amount of energy
available for future generations. Hence, many industries have
implemented various strategies such as eco-friendly practices to
preserve the environment and encourage people to consume
products which cause less damage to the surroundings. The
concept of sustainable consumption would help to change the
consumers’ lifestyle (Gotschi et al. 2010) and green marketing
has become part of the new marketing approaches and provide
a significantly different perspective to achieve human needs’
and satisfaction with minimal damages on the environment
(Polonsky, 1994). Therefore, by providing environmental pro-
ducts or services which could meet the customer necessities,
the customer would prefer to purchase such product or service
and companies would be able to efficiently adopt green
marketing (Alshural & Zabadi, 2016).
Green practices could help organizations to reduce their
reputation and loyal customers (Chen, 2008). In Malaysia, the
government has launched several projects, such as developing
“green technology”, “green business” and promoting “green
consumerism” (WBCSD, 2008). The role of new technology has
greatly led to solve the problem of unsustainable consumption
across different industries through promoting eco-friendly
products which adds trustworthiness among the consumers.
Green product is defined as an original grown product which is
reusable, consists of natural elements and approved chemical
that would not pollute the environment (Selvanathan et al.
2004). Recycled and biodegradable products, organic food,
non-toxic cleaning products, energy efficiency products are
among the examples of green products.
There are several factors which may influence customer’s
attitude towards purchasing green products. This study focused
two intrinsic determinants namely; green trust and product
quality. Green trust is defined as reliance on something accor-
ding to consumer expectations on its effect on environmental
performance (Terenggana, et al. 2013) which could be identified
from its ability to fulfil customer’s expectations and needs. To the
researcher’s best knowledge, there are very few studies that
consider the intrinsic factors in green purchase and customers’
loyalty towards green products. Many of the studies did not take
into account factors that motivate consumers to purchase green
products. Therefore, current study put forward several hypo-
theses on consumers’ attitudes toward green purchasing and
their loyalty to repurchase green products by developing a
theoretical framework to better explain customers’ green
behaviors. This study also identifies the green intrinsic attributes

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which are product quality and green trust that influence
customers’ attitude and loyalty. As a result, this study
underlines five objectives: (1) to examine whether green
product quality and green trust significantly impact customer’s
attitude towards green purchase, (2) to evaluate whether green
product quality and green trust significantly impact customer’s
loyalty to repurchase green products, (3) to explore whether
positive attitude towards eco-friendly products enhance
customers’ loyalty to repurchase green products, (4) to identify
the moderating effect of demographic factors on attitude
towards green product quality and (5) to identify the moderating
effect of demographic factors on attitude towards green trust.
2. Literature review and hypotheses
2.1. Green marketing studies
“Green marketing” includes all marketing practices which are
developed to sustain environmentally-friendly behavior among
consumer. The concept of green marketing practically and
academically has been accepted to reach customers’ needs and
expectation towards green products in a beneficial and
sustainable approach (Lin et al. 2017; Khare & Pandey, 2017).
Understanding consumer attitude and loyalty towards green
product is extremely important and this had been extensively
investigated by many authors such as Chan and Lau (2000),
Bisschoff and Liebenberg (2016), Yang (2017) and Chrisjatmiko
(2017). But, A few studies had been conducted in Malaysia with
regards to this matter. Although many scholars in Malaysia
agreed on the tremendous growth of green consciousness
among the Malaysian consumers, the purchasing behaviors are
largely unobserved (Kong et al. 2014). Aman et al in 2012,
stated that insufficient information about eco-friendly products
and customers’ green purchase intention have become a
stumbling block in the development of marketing strategies for
green products in Malaysia. The findings of this study showed
that environmental knowledge significantly impacts customers’
green purchase intention and customers’ attitude plays a
facilitation role between “environmental concern” and “green
purchase intention”. However, “environmental knowledge” have
no significant impact on attitude. Chang and Fong (2010) found
that “green product quality” is significantly associated with
“green customer satisfaction and loyalty”.
2.2. Customer’s loyalty
“Loyal customers” commonly are less pressured to purchase
a particular product and they are “willing to pay more” (Rundle-
Theile and Bennet, 2001). According to Fournier and Yao
(1997) indicated that “marketing strategies are the development
of consumer loyalty”. The firms with high level of customer’s
loyalty have bigger market share as well as profit (Jensen and
Hansen, 2006). Customer loyalty helps to develop competitive
strategies (Nawaz and Usman, 2011) and lead to consistently
repurchase of a product in the future (Oliver, 1997). According to
Martínez (2015), increase in consumer perceptions of green
trust could significantly rise customer loyalty to purchase green
products. This finding reveals the relationship between en-
vironmental matters in the business context which requires
company’s management strategies and policies towards green
marketing (Suki. 2016; Chew & Conejos. 2016). In this study, it
is assumed that loyal customer is a person who repurchases
same products and recommends these products to others and
sustains a positive attitude towards the green products. This
positive attitude would gain by understanding customers’ needs
and expectations.
2.3. Customer’s attitude
Various theoretical and empirical studies have been
conducted on customer’s attitude towards green products during
128
last decade (Lin & Huang, 2012). Attitude is defined as the level
of satisfactory and unsatisfactory evaluations of a person who
feelings on an object (Armstrong et al. 2009). They described
the attitude as a person’s consistently favorable or unfavorable
evaluations toward an object or an idea”. Chen (2009) in a study
seeks to predict the Taiwanese consumer’s attitude toward
organic foods which categorized as green or environmentally
friendly products. Previous studies suggested a positive
association among environmental attitude and “customers’
behavior” toward “green purchase” (Straughan & Roberts,
1999). According to a study by Teng and Wang (2015) cus-
tomers’ attitudes towards “organic foods” significantly impact on
consumer choices. Many other researchers also believed that
the customers with higher environmental attitude have higher
utility of green product consumption (Lin & Huang, 2012).
However other studies such as Solomon et al. 2010 showed that
consumers may have positive attitude towards green purchase,
but they will not purchase the green products (Akbar et al.
2014). Therefore, this study seeks to examine the following
hypothesis:
H1: Positive attitude towards eco-friendly products
enhance customers’ loyalty to repurchase green products.
2.4. Product quality and green trust
Today, as the competition between firms in the market place
increases, consumers have experienced a wider choice of
alternative products and thus, it is essential for marketers to
distinct their products from the others (Bennett & Rundle
–Thiele, 2002). The one crucial factor which differentiates
products is the quality. Based on the definition by “The American
Society for Quality Control”, quality is “the totality of
characteristics of a product or service” which is able to satisfy
customer ‘s expectations" (Armstrong et al. 2009). Consumers
are reluctant to purchase low quality products even with low
harmful impact on environment, therefore the product quality,
such as green products, positively impacts on customer’s
purchase intention (Tseng & Hung, 2013). Many researchers
evaluated that “product quality” had a positive influence on
“product performance” regarding to “customer satisfaction and
loyalty” to repurchase green products (Chang & Fong, 2010).
Tseng and Hung (2013) also stated in the model that the
essential factor for green purchasing decision is product quality.
This model represents a function of assurance and reliability.
Alshura and Zabadi. (2016) suggest that manufacturers ought to
arise ecological awareness regarding environmental protection
and sustainability among customers, and produce high quality
green products at reasonable prices to fulfill needs and
expectations of customers.
Moreover, trust recognize as a fundamental factor in sus-
tainable development and business which raises long-term
relationship between the managers and customers’ behavior
(Haruna Karatu, et al. 2015). Many researchers such as Chan
(1999), admitted that a green trust is a strong determinant in
purchase intention, consequently, companies need to decrease
the green perceived risk through trusty information to customers
and enhance green perceived trust among customers toward
purchasing green products. In addition, Chrisjatmiko (2017)
developed a framework to analyze the impact of “green per-
ceived risk, green image, green trust and green satisfaction to
green loyalty”. The result shows that that green image, green
trust and green satisfaction has positive effects to green loyalty.
Teng and Wang (2015) explained that government and organic
food marketers should provide trustworthy information regarding
organic foods to improve consumer knowledge. Thus, increased
in consumer trust, would develop positive attitudes towards
organic foods. As a result, this study identifies the following
hypothesis:
H2: Green product quality enhance customers’ attitude
to purchase green products.
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 ENVIRONMENTAL MANAGEMENT
H3: Green product quality enhance customers’ loyalty to
repurchase green products.
H4: Green trust enhance customers’ attitude to pur-
chase green products.
H5: Green trust enhance customers’ loyalty to repur-
chase green products.
2.5. Green consumers and green purchase
The dawn of green concepts has carved the footprints
towards environmental protection, sustainable life style and
sustainable development. The green culture need to be instilled
and the customers’ current habitual consumption behavior that
are unsustainable need to be changed (WBCSD, 2008). Since
the nations have been developed sustainable consumption
during last decades, significant economic improvement has
sparked environmental degradation which also has affected the
quality of life of citizens (Sata et al., 2008). In green concept, a
person who avoid to purchase the product which is made of
chemical materials that is proved to be severely dangerous for
human health and also natural environment, is called green con-
sumer. Green consumers focus on products with eco-friendly
labels and packaging such as organic products to practice the
fair trade (Euromonitor, 2008).
Green purchase is normally identified as buying behavior of
products by consumers which are environmentally beneficial
(Mainieri et al. 2010). Purchasing decision are often made
based on socio-economic aspects and personal options which
might impact sustainability and green consumption (Sueyoshi &
Wang, 2014). Therefore, in the market, acknowledgment of
various available sectors of green consumers is crucial for
effective green marketing. Many researchers have applied de-
mographic and psychological variables to identify green
consumers in terms of different profiles (Chan et al. 2008). Such
variables include age, gender, occupation, and education, if are
significant, suggests efficient processes for marketers to identify
green consumers (Straughan & Roberts, 1999). He illustrated
that demographic factors such as age and gender were signi-
ficantly related to customers’ attitude towards green purchase.
Hai and Mai (2013) explored the environmental awareness
and customer’s attitude towards green purchase and found that
consumers with a high level of education and more sufficient
knowledge about green products have positive attitude on green
purchasing and more willing to practice green purchase in the
future. However, the income had no significant impact on cus-
tomers’ attitude. Besides, many researchers claimed that elder
people are more concerned about environmental issues. For
instance, Abeliotis et al (2010) illustrated that the age of con-
sumers is positively related to their green purchase decision and
they pay more attention to save the environment. While other
studies namely Han et al (2010) believe that young generations
commit greener consumer behaviors than older ones. In terms
of education, the positive association with the green purchase
had been approved by many researchers. In addition, previous
studies have shown the direct association between green
purchase behavior and their income or career (Shabani et al.
2013). According to above explanation, this study aims to
evaluate the following hypothesis:
H7: Demographic characteristics significantly impact on
customers’ attitude to purchase green products as modera-
ting factors.
2.6. Proposed research model
Current research model was inspired from Chen and
Chang’s (2012) and basically examine the impact of “green
perceived trust”, “green perceived quality” on “consumer green
purchase attitude and loyalty” as well as the impact of “green
purchase attitude” on consumer loyalty. Schlegelmilch et al,
(1996) claimed that attitude is the most consistent predictor
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towards environmental repurchasing behavior. Therefore, this
study added attitude in the proposed research model to estimate
the effect of attitude as the mediating factor, since a few studies
have paid attention to customer’s attitude and some valuable
elements such as products quality and trust. This study seeks to
fill this research gap and develop the conceptual framework
based on research objectives of current study: (See Figure 1)
Figure 1. The conceptual framework
3. Methodology
3.1. Data collection and data analysis methods
Based on the objectives of this study, a structured questio-
nnaire was designed to collect data from Malaysian consumers
who live in Klang Valley, Malaysia and purchase eco-friendly
products in their daily life. The questionnaire has been
distributed randomly to university students and staff in university
of Malaya who come from Klang Vallay such as Petaling Jaya,
Subang Jaya, Kuala Lumpur, Puchong, Kajang and Klang. From
244 completed questionnaires, 52 respondents who were
international residents were excluded from data analysis and
therefore sample of 192 respondents were used for analyzing
the research objectives of this study.
The questionnaire consist of five sections include 1-
“demographic characteristics” of respondents (such as gender,
age, group ethnicity, income and education), 2- “customers’
attitude towards green purchase” (Morel, 2012; Swait and
Sweeney, 1999) , 3- “green product quality” (Jaffar et al, 2013),
4- “green trust” (Chen, 2010; and Dehghanan and Bakhshandeh,
2014 and 5- “customers’ loyalty to repurchase green products”
(Morel, 2012; Sondoh et al, 2007; and Alodini, 2008). The ques-
tionnaire was constructed according to previous studies and
necessary modifications have done based on current objectives.
The questionnaire was designed based on 5-point Likert scale;
“1 = strongly disagree, disagree = 2, neutral = 3, agree = 4,
5 = strongly agree”. Moreover, quantitative methods were applied
in order to analyze research objectives by applying several
statistical methods namely; descriptive analysis, reliability and
validity test, exploratory factor analysis (EFA), confirmatory
factor analysis (CFA), Pearson correlation and structural
equation modeling (SEM) technique.
4. Findings
4.1. Profile of respondents
From the descriptive analysis result, the 192 participants
provide useful d for this study. Majority of respondents (36%) live
in Kuala Lumpur and Petaling Jaya (34%), followed by Klang
(17.2%), Puchong (5.7%), Subang Jaya (4.2%) and Kajang
(3%). The range of participants’ age is from 18-25 years old
around (41.1%), 26-35 years old (43.2%) as the major group
age. Additionally, over half of participants (65%) were female
and (35%) were male. Approximately three quarters of res-
pondents (74%) were single while (26%) married. Majority of
respondents, above half, were Malay (59.4%) followed by
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Chinese (25.5%) and Indian (15%). As for educational level,
majority of participants (44.3%) had degree followed by (37.5%)
masters and PhD, and for the monthly income, (28.1%) of
respondents have no income, which is the same percentages as
those with RM2001-4001monthly income, near (19%) above
RM6000 per month, around (14.6%) stated their salary were
less than RM2000 and approximately (10.4%) have RM4001-
RM6000.

Table 1. Descriptive statistics of items measurement

*** significant at
p < 0.001

Table 2. Results of Measurement Model

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4.2. Descriptive statistics and reliability
The reliability of measurement item was examined by the
“Cronbach’s alpha” to illustrate the consistency between
variables (Shiu et al. 2009). The level of internal consistency
(Cronbach’s alpha value) for the four constructs ranged from
.650 to .852 (Table 1), which exceeded the minimum require-
ment of .60 for an exploratory study (Shiu et al. 2009). The result
of mean and standard deviation values for all determinants were
presented in details (See table 1).
In addition, CFA was employed to evaluate the structure of
model to check whether the measured variables are statistically
fit with the model (Doroodian et al, 2014). Since the “chi-square”
value solely, is not a good indicator of model fit due to its
“sensitivity to sample size”, thus this study evaluated several fit
indices for measuring the model fit. According to modification
indices (GFI (0.805), AGFI (0.754), CFI (0.860), RMSEA (0.08)
and SRMR (0.046)), model fits the data adequately. From the
RMSEA and the SRMR, it is clear that there was a minimal error
related to the estimated model (Byrne, 1998) and the “standard
errors of the estimates” are small and indicate that the estimates
are comparatively precise. Moreover, loading factor from CFA
result which are greater than 0.4 are significant (Cua et al. 2001)
and results of composite reliability ranged from 0.834 to 0.920,
exceeding the threshold level of 0.7 (Bagozzi & Yi, 1988). In
addition, the” square root of average variance expected (AVE)”
for each latent variable ranged from 0.625 to 0.812 which are
Figure 2. Path Model
*** significant at p < 0.001
Table 4. Result of Path Coefficient
According to table 4, regarding demographic factors as mo-
derating factors, age of respondents shows a significant impact
on customer’s attitude towards green trust and product quality
with β = 0.093 and p-value = 0.000 < 0.01 and with β = -0.136
and p-value = 0.027 < 0.01, respectively. However, occupation
does not show any significant impact on customer’s attitude
towards green trust and product quality with β = -0.027 and
p-value = 0.354>0.01 and with β= -0.062 and p-value = 0.194 >
0.01, respectively. In terms of education, there is a negative
significant association regarding attitude and green quality
(β = -0.211 and p-value = 0.001 < 0.01). People with higher level
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greater than the correlations between the latent variables
(Fornell & Larcker, 1981). (See table 2). Besides, the correlation
coefficients between constructs in the path model based on
Pearson test were significantly related. Thus, it is appropriate to
proceed with structural equation modeling analysis (See table 3).
Table 3. Results of Pearson Correlation
4.3. Result of SEM
To explore the factors influencing customer’s attitude and
loyalty towards green purchase, structure equation modeling
was employed. Overall, this model has an adequate predictive
power as shown by the R-square statistic which is approximately
41% from the standard model towards attitude and 43% from
the second path towards loyalty (See figure 2). The goodness of
fit statistics for the proposed model (Chi-Sq = 13.05 with DF = 9
and P-value = 0.16 > 0.05, GFI = 0.981 > 0.90, IFI=0.986 > 0.90,
CFI = 0.986 > 0.90 and RMSEA = 0.049 < 0.10) indicate that the
model reasonably fit the data.
of education, believe that green products are low in quality
compared to their conventional once. Besides, no significant
relationship has achieved in regard with green trust and
customers’ attitude based on level of education. Regarding the
intrinsic factors, it is shown that there are significant association
between trust and attitude with β = 0.291 and p-value = 0.000 <
0.01, quality and attitude with β = 0.392 and p-value = 0.000 <
0.01, quality and loyalty with β = 0.199 and p-value = 0.002<
0.01, trust and loyalty with β = 0.276 and p-value = 0.000 < 0.01
and attitude and loyalty with β = 0.334 and p-value = 0.000 < 0.01
(See table 4).
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5. Conclusion to the different levels of the education, as well as to work with
the business community and build up customer’s positive “green
5.1. Discussion purchase attitude” through the social network such as internet,
television, newspaper and books. As, indicated by the results,
According to the result of this study, good quality product
“green trust” has significant relationship with green products
directly impacts the customers i.e. the customers would have a
purchase attitude and loyalty. Thus, it has suggested that the
positive attitude towards purchasing green products. This
marketer should increase the level of customers’ trust in the
finding is similar to the previous study by Hai and Mai (2013).
green market. To do this, green marketers should acquire
However, according to Morel and Kwakye (2012), consumers
several types of certificates on products trustworthy. This would
like to purchase green products but they would also think that
help customers to feel more confident in purchasing green
the conventional products have better quality compared to the
products. Additionally, “product performance” also is an impor-
green products. In addition, high level of trust towards green
tant factor for consumer to repurchase the green products in
products directly impact the customers i.e. the customers would
terms of “quality of green products” related to “conventional
have a positive attitude towards purchasing green products.
counterparts”. To succeed in the green marketing, marketers
These findings are similar in some previous studies such as
should enhance the benefits of the green products for consu-
Akbar (2014). Based on the results, good product quality directly
mers which is considered as valuable and durable products. It is
impacts the customers’ loyalty i.e. the customers would repur-
also appropriate to follow the regulation for controlling the pro-
chase green products. Thus, with the higher quality of products,
duct life cycle (producing, packaging, contributing, and recycling)
the loyalty of customers will be dramatically increased. This is
and make sure that products are environmentally protected. It is
also supported by previous studies like Chang and Fong (2010).
also suggested to make green labeling which could help people
Additionally, this finding reveals that if the customers trust the
to understand better the difference between green and non-
green products, the goal of marketers which is customers’
green products. Thus, consumers should increase their level of
loyalty will be achieved as supported by Vaishnavi et al, 2014.
awareness on environment as well as their crucial role to protect
From the result, positive attitude toward green products, leads to
environment through altering their purchasing habits.
customers’ loyalty in purchasing more environment friendly pro-
ducts.
5.3. Limitations and further studies
Many studies have attempted to explore the impact of demo-
graphic variables on green consumers toward green purchase
This study, has faced several limitations which needs to be
attitude and loyalty (Chan et al. 2008). These variables include
addressed. It also provides feasible suggestions for further stu-
age, gender, occupation, and education. According to Straughan
dies that can be discussed accordingly. Since the sample of
& Roberts (1999) the significant relationship among those varia-
respondents in this study are the people who live in Klang Valley
bles with green purchase attitude, help marketers to section
area with various cultural background and lifestyles (Malay,
consumers and identify green consumers. From the result of this
Chinese, Indian) therefore, there is a possibility of a cultural bias
study, age of respondents, significantly and directly affects on
playing a crucial role in analysis and the final results. To solve
customer’s attitude towards green purchase regarding green
this problem, it is recommended for researcher to analyze se-
trust. It shows that elder people care more about environment
parately the data based on ethnicity group and then compare
and buy green products more than younger people. This result
the findings. Another limitation of this study is the small sample
is supported by Morel and Kwakye (2012). However, according
size. With large sample size, it is more accurate to identify the
to other studies, young consumers purchase more green pur-
population of the study which is more reliable. To extent the
chase than older people (Straughan & Roberts, 1999). In addi-
study for further research, it is highly recommended for resear-
tion, the negative impact of age on customer’s attitude towards
chers to explore the customers’ attitude and actual behavior
green product quality should not be neglected. This shows that
towards purchasing green products in different countries and
elder people believed that green product may not have the good
compare the result. In addition, as this research solely focused
quality compared to the conventional ones. Employment status
on general category of green products, further studies further
has not a significant impact on customer’s attitude towards green
study would be recommended to perform based on specific
purchase neither quality of products, nor green trust. According
green product such as food or cleaning products. Besides that,
to the results, education play an important role in attitude
to understand the customers’ expectations regarding green pro-
towards green purchase in terms of customers’ attitude towards
ducts, it is suggested that to find out green customers’ satis-
quality of green products. This result is supported by other
faction as an important factor in repurchasing those products.
studies such as Diamantopoulos et al. 2003; which found a
positive association between education level and green attitude.
Generally speaking, consumers nowadays are more con-
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Social Responsibility and Business Ethics

IX. Green Management and Sustainable Development of the Firm

Doina I. POPESCU

Bucharest University of Economic Studies, Romania

E-mail: doinaipopescu@yahoo.com

Abstract

The article presents the concept of green management and the different environmental approaches that
organizations can adopt. Also, examples of company actions are presented for each of the four types of green
approaches (legal approach, market approach, stakeholder approach and activist approach). Within the article are
presented the ways to evaluate "green" actions of companies, as well as the companies that lead in the Global 100
list of the world's most sustainable corporations in 2018.

Keywords: green management; sustainability; green approaches; ISO 14000; consumerism.

1. Introduction Kahneman has identified a major paradox of our lives: life

In the article "Designing Better Choices" (2008), Richard H.
Thaler and Cass R. Sustein argue that all people are "architects
of choice", there being many parallel between the architecture of
choice and more traditional forms of architecture. The two authors
have stated since 2002 that a crucial parallel is that there is no
such thing as a "neutral" design, underlining that:
 cognitive psychology and behavioral economy have shown
that small and seemingly insignificant contextual details
can have a major effect on people's behavior;
 public and private institutions have many opportunities to
provide free choice, while taking real steps to improve
people's lives;
 any free market system will include a kind of architecture
of choice;
 the most important social goals are often better achieved
not by ban, but by the tools of choice consisting of easy
push to action to gain attention or give a signal.
In 2003, a Nobel Prize winner for economics won in 2002,
psychologist Daniel Kahneman, interested in building a science
of experience which building on experience, says there is still
much to study until we find a really good scientific measure of
well-being. Kahneman has studied hedonic psychology, respec-
tively the study of what makes life and experiences be pleasant
or unpleasant, wondering if we are able to predict the evolution
of our tastes, given that this is a serious matter for welfare
science; we have a different way of accessing the immediate
nucleus of our experience and our past experiences, the worst
or best moment depending on the tip of the experience and the
end of the experience (and if you do their average we can have
a very good prediction of what people will tell us that they have
experienced in general without taking into account how long the
experience has been); what we really have in mind is not how
we think about ourselves or how we evaluate ourselves, but it is
more about the quality of our experiences, with implications for
measuring well-being (http://www.abc.net.au/radionational/
programs/ allinthemind/nobel-laureate-daniel-kahneman-toward
-a-science-of/3546434 , August 2003).
satisfaction does not follow after improvements in the standard
of living (improvements in their ability to make economic choices
of consumption), even though many people would like to be
wealthier than they are and I think that if they were richer they
would consume things that they now deny what would make
their lives better. It seems that we are not going anywhere
because we only adapt to things as they are improve and we
need to understand to what pleasures we can adapt to and
which we do not.
In April 2008, Howard Bloom, the author of the "Global
Mind," in the article "In Praise of Consumerism – It Appeals to
the Thoreau in You" (2008), provokes our assumptions, going
anti-conventionally, and beyond what consumerism has done -
(to us and to planet). In fact, Bloom was asking, are we or not
consumerists, we are pursuing new spiritual and intellectual
goals, higher meanings in everything we do?
Who owns to whom in the context of material possession?
The traditional answer was that our things and those who do
them manipulate us and we must escape the tyranny of things.
To open minds and to lift spirits is a strange business, spirit and
mind depend on a bunch of what we supposed to hate and give
up (material possessions, consumer goods, and devices marke-
ted by multinational companies). Bloom reminds us that feeding
curiosity and opening new insights involves credit cards and
cash, with the human spirit dancing with each generation on
ever higher scenes. He sends us back in time, in 1842, when
Henry David Thoreau (the author of Walden Pond and On Civil
Disobedience) pleaded for renouncing the way of life, pointing
out that: "A man is rich in proportion the number of things he can
afford to dispense with". Evolutions allowed Thoreau to think,
"It's an interesting question how far they would keep their rank
relative to people if they were stripped of their clothing". Bloom
further highlights the spiritual contributions of the one who wrote
one of the key documents in the evolution of anti-consumerism,
the pro-nature feelings we see today, underlining that only a
man who is sure of having food, clothing and shelter every day
can to say, "The finest qualities of our nature, such as the flower
on the fruit, can only be preserved through the most delicate
treatment. As we do not yet know how to treat ourselves, others

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 ENVIRONMENTAL MANAGEMENT
will not do it in a gentle way ". Also, we must "thank God that
man does not yet know to fly and deposit waste in heaven as on
earth" The consumerism, concludes Bloom, is the way in which
nature naturally expresses itself in men and women,
consumerism being not the creation of humanity but a strategy
developed by mother Nature, which should be continued with
moderation and taste.
It is hard to accept that – in the context in which markets and
individualism govern – everything is potential for sell, anywhere
and anytime, the abnormality becomes normality as the
enormous growth of avenue of greed is recorded, and the
material progress does not bring moral progress in the city's
market. Do not we know the proper proportion between
creativity and order? Do we not understand that the necessity
for capitalism of character comes not only from an ethical
perspective but also from an efficiency one? Does anyone doubt
that people lose their trust in the capitalism without character?
Does not the leaders know that the "author of the invisible hand"
has claimed that in order not to collapse and not to lead to
anarchy, must they also see the public interest and not only their
private interest? (Purcărea, Th. V., Ioan-Franc, V., 2009). The
challenge in this era of increasing individualisation – in opinion
of Jonas Ridderstrale and Kjell Nordstrom (2004) – is the
development of a society with circular qualites. Mankind is left,
said Jonas Ridderstrale and Kjell Nordstrom, with the choice
between capitalism with a cause or with a nuisance.
In this context, the need to identify durable, intelligent
solutions for new opportunities of industry and services has led
to the foundation and implementation of business strategies that
create new complex functional economic systems which would
permit a more restrained use of resources and the responsible
consumption (Popescu, D., I., Popa, I., Ştefan, S., C., Vlăsceanu,
C., 2016, Popescu, D., I., Bagu, C., Popa, I., Hancu, D., 2009,
Ceptureanu, E., G., Ceptureanu, S., I., Popescu, D., I., 2017,
Banciu, D., Alexandru, A., 2009).
The implications and consequences of environmental
factors’ actions on the reconfiguration of company strategy are
rendered in the works “Competitive advantage assuring within
clothing manufacture companies in Romania” (Popescu, D., I.,
2009), “The importance of innovative clusters’ proliferation for
sustainable economic growth of Romania” (Popa, I., Popescu,
D., I., 2013), “A Pilot Study on Management Systems Imple-
mented within Romanian Organizations” (Popa, I., Ştefan, S.,
C., Popescu, D., I., 2015), “Economic recovery strategies for an
innovative Romanian industrial sector” (Popescu, D., I., 2012),
“The correspondence between workforce skills and company
needs” (Popescu, D., I., 2013), “An Exploratory Study on Know-
ledge Management Process Barriers in the Oil Industry”
(Ceptureanu, S. I., Ceptureanu, E. G., Olaru, M., Popescu, D. I.
2018) “Two Stage Analysis of Successful Change Imple-
mentation of Knowledge Management Strategies in Energy
Companies from Romania” (Ceptureanu, E., G., Ceptureanu, S.,
I., Popescu, D., I., Vlad, L., V., 2017), “Empirical Study on Sus-
tainable Opportunities Recognition. A Polyvinyl Chloride (PVC)
Joinery Industry Analysis Using Augmented Sustainable
Development Process Model” (Ceptureanu, E., G., Ceptureanu,
S., I., Orzan, M., C., Bordean, O., N., Rădulescu, V., 2017) şi
“ICT Challenges and Issues in Climate Change Education”
(Alexandru, A., Ianculescu, M., Tudora, E., Bica, O., 2013).
Until the late 1960s, few people (and organizations) paid
attention to the environmental consequences of their decisions
and actions. Although some groups were concerned with
conserving natural resources, about the only reference to saving
the environment was the ubiquitous printed request “Please
Don’t Litter.” However, a number of environmental disasters
brought a new spirit of environmentalism to individuals, groups,
and organizations. Increasingly, managers have begun to
consider the impact of their organization on the natural envi-
ronment, this being called green management in the literature
(Robbins, S. P., Coulter, M., 2016).
Green management is about becoming aware of how human
behavior, working practices or production methods impact the
136
environment, and, about making changes that reduce the
environmental “footprint” and make the business more
sustainable. This often includes measures to reduce the
consumption of raw materials, water and energy and to minimize
the waste (https://www.mindtools.com/pages/article/green-
management-tips.htm, retrieved on August 31, 2018).
Green management is the new branding strategy for esta-
blishing a reputation for one self in the dog-eat-dog world of
businesses. The reliance on expertise, quality of the products,
and quality of the product service is no longer enough.
Businesses nowadays are downplaying the message of profit-
hungry and communicating the message of being environ-
mentally conscious. In other words, businesses are expressing
through actions that not only being environmental friendly is
necessary, but also preserving the environment is paramount.
The concept of green management consists of three
components: green building, green energy, and green waste
(Pedraza Morales, J., https://www.researchgate.net/post/What
_is_your_concept_of_green_management, retrieved on August,
31, 2018).
2. How Organizations go Green
Managers and organizations can do many things to protect
and preserve the natural environment (Lubin, D. A., Esty, D. C.,
2010, Pfeffer, J., 2010). Some do no more than what is required
by law; that is, they fulfill their social obligations. However,
others have radically changed their products and production
processes. For instance, Fiji Water uses renewable energy
sources, preserves forests, and conserves water. Carpet-maker
Mohawk Industries uses recycled plastic containers to produce
fiber used in its carpets. Google and Intel initiated actions and
efforts to get computer makers and customers to adopt tech-
nologies that reduce energy consumption. Paris-based TOTAL,
SA, one of the world’s largest integrated oil companies, is going
green by implementing tough new rules on oil tanker safety and
working with groups such as Global Witness and Greenpeace.
UPS, the world’s largest package delivery company, is going
green by retrofitting its aircraft with advanced technology and
fuel-efficient engines.
Since 2014, one of consumers' trends launched by analysts
from TrendWatching London is Made Greener for/by China.
Thus, from 2014, perceptions about China have changed
significantly in the context of China becoming the epicenter of
truly innovative, superior green consumer innovations, too.
Alongside leading Chinese brands in sectors such as mobile
tech, luxury and fashion, this trend will address large-scale
efforts that the country faces in areas like energy, transport,
construction and more.
In fact, the presumption that many consumers around the
world were saying that Chinese brands and businesses are
lagging behind when it comes to ecological thinking was
perhaps only one of the last major competitive advantages
enjoyed by “Western” brands.
When this preconception was overturned in 2014, one of the
last barriers that kept Chinese brands and global consumers at
a distance was lifted. It was just another crucial moment in the
remapping of world consumerism.
Examples for this trend invoked by the analysts from
TrendWatching are: Beijing Subway, Nike (Shanghai store made
entirely from trash), Tianjin Eco- City, intelligent street lighting in
Chinese cities realized by Philips&CEC and ‘Smart’ window
created by Scientists at the Chinese Academy of Science.
In May 2013, the Beijing Subway introduced 40 reverse
vending machines, which enable passengers to offset their
travel costs by recycling plastic bottles. For every empty plastic
bottle recycled using the machines, commuters receive
discounts of between CNY 0.05 and 0.10 on their travel pass.
Opened in Shanghai in August 2013, Nike’s concept store is
entirely constructed from trash, including drinks cans, water
bottles and old CDs and DVDs. The store can be adapted to
Vol. 20, No. 168/ February 2019 QUALITY
Access to Success
 ENVIRONMENTAL MANAGEMENT
different retail layouts and the no-glue construction ensures all
materials can be reused.
Tianjin Eco-City is a sustainable city initiative developed by
the governments of Singapore and China. Located 150 km from
Beijing, the city is designed to be socially harmonious and
resource-efficient. Pedestrians, non-motorized vehicles and
public transport take priority alongside green urban spaces. Due
for completion in 2020, the Tianjin Eco-City will house around
350,000 residents.
Regarding street lighting, the Philips and China Electronics
Corporation (CEC) partnership, announced in July 2013,
marked an attempt to develop and implement intelligent road
and street lighting in cities across China. Thus, the joint venture
will focus on LED fixtures and lighting management, including
Philips CityTouch, a web-based system that allows streetlights
to be used when and where they are needed.
Scientists at the Chinese Academy of Science have unveiled
a ‘smart’ window that can save and generate energy. Coated
with temperature-sensitive vanadium oxide (VO2), the window
can regulate the amount of solar energy entering a building and
store light energy in solar cells within the window frame
(http://trendwatching.com/trends/7trends2014/#globalbrain,
retrieved on August, 28, 2018).
Although interesting, these examples don’t tell us much
about how organizations go green. The model shown in figure 1
uses the terms shades of green to describe the different
environmental approaches that organizations may take.
Figure 1. Green Approaches
Source: Freeman, R. E., Pierce, J., Dodd, R.,
Shades of Green: Business Ethics and the Environment,
New York, Oxford University Press, 1995
The first approach, the legal (or light green) approach, is
simply doing what is required legally. In this approach, which
illustrates social obligation, organizations exhibit little environ-
mental sensitivity.
As an organization becomes more sensitive to environ-
mental issues, it may adopt the market approach and respond to
environmental preferences of customers. Whatever customers
demand in terms of environmentally friendly products will be
what the organization provides. For example, DuPont developed
a new type of herbicide that helped farmers around the world
reduce their annual use of chemicals by more than 45 million
pounds. By developing this product, the company was res-
ponding to the demands of its customers (farmers) who wanted
to minimize the use of chemicals on their crops.
In the stakeholder approach, an organization works to meet
the environmental demands of multiple stakeholders such as
employees, suppliers, or community. For instance, Hewlett-
Packard has several corporate environmental programs in place
for its supply chain (suppliers), product design and product
recycling (customers and society), and work operations
(employees and community).
When an organization pursues an activist (or dark green)
approach, it looks for ways to protect the earth’s natural
resources. The activist approach reflects the highest degree of
environmental sensitivity and illustrates social responsibility. For
example, Belgian company Ecover produces ecological clea-
ning products in a near-zero-emissions factory. This factory (the
QUALITY
Access to Success Vol. 20, No. 168/ February 2019
world’s first ecological one) is an engineering marvel with a huge
grass roof that keeps things cool in summer and warm in winter
and a water treatment system that runs on wind and solar
energy. The company has chosen to use such a construction
because of its deep commitment to the environment (Robbins,
S. P., Coulter, M., 2016).
3. Evaluating Green Management Actions
As businesses become “greener”, they often release de-
tailed reports on their environmental performance. Almost 6,000
companies around the globe voluntarily report their efforts in
promoting environmental sustainability using the guidelines
developed by the Global Reporting Initiative (GRI). These
reports, which can be found on the GRI Web site (www.
globalreporting.org), describe the numerous green actions of
these organizations (Robbins, S. P., Coulter, M., 2016).
GRI is an independent international organization, based in
Amsterdam, Olanda, that has pioneered sustainability reporting
since 1997. GRI has a global audience through their regional
hubs in Brazil, China, Colombia, India, South Africa and the United
States. GRI reports are produced in more than 100 countries.
GRI helps businesses and governments worldwide under-
stand and communicate their impact on critical sustainability
issues such as climate change, human rights, governance and
social well-being. This enables real action to create social,
environmental and economic benefits for everyone. The GRI
Sustainability Reporting Standards are developed with true
multi-stakeholder contributions and rooted in the public interest
(https://www.globalreporting.org/information/about-gri/Pages/
default.aspx, retrieved on August, 28, 2018).
In June 2018, standards on reporting practices in occu-
pational health and safety management (GRI 403) and water
and effluent management (GTI 303) were updated.
With updated GRI 403: Occupational Health and Safety
2018, companies are now better able to measure how they
contribute to the health, safety and general wellbeing of their
workers. The Standard has been revised to focus on the pre-
sence of robust occupational health and safety management
systems, and the processes and programs that prevent harm
and promote worker health. Also, GRI 403 will assist companies
in driving improvements in occupational health and safety and in
the lives of millions of workers through transparency.
The new Standard aligns with key international instruments
from the International Labour Organization (ILO) and with ISO
45001. And, in accordance with due process, the update was
carried out by a diverse group of stakeholders that brought a
combination of knowledge and experience in occupational
health and safety. Chaired by Dr. Sharron O’Neil, from the
University of New South Wales, Australia, the Project Working
Group included representatives from businesses, labor, civil
society, mediating institutions and investors. The involved orga-
nizations include Heineken, the Institution of Occupational
Safety and Health (IOSH), ILO, the US Occupational Health and
Safety Administration, the Canadian Labor Congress, and the
Center for Safety and Health Sustainability (CSHS).
The updated Water and Effluents 2018 Standard introduces
a holistic framework for collecting information about an
organization’s water use, the associated impacts, and how it
addresses them. Companies and their stakeholders are now
better able to understand the impacts of their actions and of
climate changes on freshwater resources, particularly in areas
where the ability to meet the human and ecological demand for
water is already under stress (https://www.globalreporting.
org/information/news-and-press-center/Pages/GRI-Standards-
update-OHS-water.aspx, retrieved on August, 28, 2018).
Another way organizations show their commitment to being
green is through pursuing standards developed by the
nongovernmental International Organization for Standardization
(ISO). Although ISO has developed more than 18,000 inter-
137
 ENVIRONMENTAL MANAGEMENT
national standards, it’s probably best known for its ISO 9000
(quality management) and ISO 14000 (environmental mana-
gement) standards. Organizations that want to become ISO
14000 compliant must develop a total management system for
meeting environmental challenges. In other words, it must
minimize the effects of its activities on the environment and
continually improve its environmental performance. If an
organization can meet these standards, it can state that it’s ISO
14000 compliant – an accomplishment achieved by organiza-
tions in over 155 countries.
Another way to evaluate a company’s green actions is to use
the Global 100 list of the most sustainable corporations in the
world (www.global100.org). To be named to this list – announced
each year at the renowned World Economic Forum in Davos,
Switzerland – a company has displayed a superior ability to
effectively manage environmental and social factors (Robbins,
S. P., Coulter, M. 2016).
In 2018, the United States led the list with 18 Global 100
companies. France followed with 15 companies, and the United
Kingdom with 10. Emerging markets Brazil and China accoun-
ted for 5 companies, respectively 2 companies on the index.
The first places on the 2018 list are occupied by Dassault
Systemes SE (France, sofware industry), Neste Oyj (Finland,
oil, gas & consumable fuels industry), Valeo SA (France, auto
components industry), Jcb SA (Belgium, pharmaceuticals
industry), Outotec Oyj (Finland, construction), Cisco Systems
Inc. (United States, Communications Equipment).
It is worth noting that there are companies that have been in
the Global 100 list since 2010 until the present , such as: Cisco
Systems Inc. (United States, Communications Equipment),
Natura Cosmeticos SA (Brazil, personal products), Intel Corp.
(United States, semiconductors) –http://www.corporateknights.com/
reports/global-100/#requestReport, retrieved on August 28, 2018.
4. Conclusions
Within the article it is underlined that the need to identify
durable, intelligent solutions for new opportunities of industry
and services has led to the foundation and implementation of
business strategies that create new complex functional econo-
mic systems which would permit a more restrained use of
resources and the responsible consumption. Businesses now-
adays are downplaying the message of profit-hungry and co-
mmunicating the message of being environmentally conscious.
In other words, businesses are expressing through actions that
not only being environmental friendly is necessary, but also
preserving the environment is paramount. Also, the article
emphasizes the importance of minimizing the impact of com-
panies' activities on the environment and continuously improving
their ecological performance by meeting the requirements of
ISO 14000.
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Vol. 20, No. 168/ February 2019 QUALITY
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 FOOD SAFETY MANAGEMENT

Food Wastage Management:

The “Una Buona Occasione – A Good Opportunity” Contribution

Erica VARESE1, Alessandro BONADONNA2

1Assistant Professor, Department of Management, University of Turin, Italy; E-mail: erica.varese@unito.it
2Assistant Professor, Department of Management and NatRisk – Research Centre on Natural Risks in Mountain and Hilly
Environments, University of Turin, Italy; E-mail: alessandro.bonadonna@unito.it

Abstract

Food waste is a global problem involving all supply chain stages. This phenomenon is on the increase and leads to
negative economic, environmental and social issues. Numerous underlying factors may contribute to increasing the
production of food waste. There are technical factors such as food perishability, food safety, storage and preservation;
deterioration of the product or its packaging; spatial and temporal factors e.g. transport and transformation;
consumers’ choice of flavours, preferences and food consumption habits. The economic factors include waste
collecting and recycling costs. However, lost foodstuff and waste can be limited with the implementation of a correct
management approach.
In this context, the Piedmont and Valle d’Aosta Regions (North West Italy) have been involved in setting up the project
“Una buona occasione” (“A good opportunity”). This initiative aims at promoting consumer awareness through a
variety of tools i.e. a new design for rural economy to eliminate surplus production and, when necessary, the reuse
of this surplus. Hopefully, all these activities will lead to a better management of the crucial relationship between
production and distribution operators, which includes education on food consumption in order to reduce waste in food
services.

Keywords: food wastage; “Una buona occasione” project; Piedmont and Valle d’Aosta; food waste reduction.

1. Introduction
The phenomenon of food wastage is a global problem,
showing a dimensionally increasing trend. Data provided by
FAO (Gustavsson et al., 2011) indicate that one third of the food
produced globally every year, about 1.3 billion tons, goes lost or
is wasted along the food chain. In medium-high income
countries, food waste mostly takes place at the end of the food
chain, i.e. at the time of sale and/or consumption, while in low
income countries it mainly occurs during the first phases of the
food chain. The quantity of food scrap observed at consumer
level in more advanced countries is 222 million tons, which
amounts to nearly the total net foodstuff production of sub-
Saharan Africa, adding up to 230 million tons. Pro-capita gar-
bage generated by consumers amounts to 95-115 kg/year in
Europe and North America and to 6-11 kg/year in sub-Saharan
Africa and in South/South-East Asia. Wastage along the chain in
Europe and North America amounts to 280-300 kg/year, in Africa
and in South/South-East Asia to120-170 kg/year. Other
estimates suggest that the quantity of unused food might add up
to 1.6 billion tons of primary produce (EU, 2014) or even to 2
billion tons, ending up in garbage for reasons connected with
inefficiencies in the process of production and moving up to the
final consumption phase (Lundqvist, 2009; IME, 2013).
In the EU (EU, 2012) in 2011 food scrap observed in the 27
Member States amounted to 89 million tons a year, about 179
kg per capita. These figures do not take into consideration
losses in agricultural production or fish dropped back into the
sea. The responsibility for these wastes can be ascribed for 42%
to families (of which, 60% is unavoidable), 39% to producers,
14% to the catering industry and 5% to retailers. If nothing is
done, waste might increase by 40%, reaching the amount of 126
million tons. Produced and not consumed food takes up nearly
1.4 billion hectares of agricultural land, which is 30% of the world
agricultural surface (EU, 2014).
Wastage volumes in the early parts of the chain, including
production, post-harvest management and storing, add up to
54%; those in the final parts, with transforming, distribution and
consumption phases, are the remaining 46%. Agricultural
production weighs on the total volume of food wastage by 33%
(FAO). Losses in the early parts are rather homogeneous in the
various geographic areas, covering about one third of total
wastage, while downstream we can observe larger differences.
In societies with a higher average income, waste in the final
parts covers 31-39% and is determined by consumer behaviour
or by excessively strict supply chain quality standards. Losses in
the final parts are lower for developing countries, only about 4-
16%. In these countries waste is observed significantly in post-
harvest phases, being caused by financial, structural, storage
and transport obstacles. In this context, the need to analyze the
phenomenon properly is evident; the scope is to find out and
plan suitable strategies in order to contain its expansion and
gradually reduce it. The “Una Buona Occasione” (“A Good
Opportunity”) project, resulting from joint efforts among bodies
operating in Piedmont and in the Aosta Valley respectively, is
embedded into this context and pursues the aim of filling some

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 FOOD SAFETY MANAGEMENT
gaps with a view to a reduction of the problem. Particularly, the
main issue discussed is the one related to designing a strategy
and its instruments in order to stimulate better understanding of
this phenomenon.
This research is organized as follows:
Section 2 presents a literature review and the related con-
cepts of food waste and similar ones.
Section 3 describes European and Italian initiatives to fight
the food waste phenomenon.
Section 4 indicates a six-phase model defining the
implementation process of the “Una Buona Occasione” project.
Section 5 presents the “Una Buona Occasione” case.
Finally, the last paragraph mentions implications and limi-
tations of this study and identifies topics for future research.
2. Literature review
According to the European Union, “food wastage” is gene-
rally understood to mean «all the foodstuffs discarded from the
food supply chain for economic or aesthetic reasons or owing to
the nearness of the ‘use by’ date, but which are still perfectly
edible and fit for human consumption and, in the absence of any
alternative use, are ultimately eliminated and disposed of, gene-
rating negative externalities from an environmental point of view,
economic costs and a loss of revenue for businesses» (EU,
2012).
Given the definition of wastage in the EU, it is however
possible to draw a further distinction between “food losses” and
“food waste”, meaning by these terms respectively food losses
«happening in the phases of agricultural production, after-
harvest and foodstuff transformation and processing» and food
waste «referring to the final part of the food chain, and therefore
to the phases of sale and consumption», highlighting that by
“food wastage” one can mean “food losses and food waste
together” (Parfitt et al., 2010; Gustavsson et al., 2011; FAO, 20141).
According to Segrè and Falasconi (2011) the expression “food
wastage” indicates «products perfectly fit for use, but which for
the most various reasons may not be sold any more, and which,
in the absence of any alternative use, are ultimately eliminated
and disposed of».
WRAP (2009) suggests a possible classification of food
losses according to the possibility of avoiding them, making a
distinction between avoidable i.e. foodstuff which is still fit for
human consumption, potentially avoidable i.e. food consumed
only by some people or food requiring particular treatment to
become consumable, and unavoidable i.e. part of food which is
not fit for human consumption.
Slow Food offers a definition of a qualitative nature, pointing
out that food wastage is «the result of the lack in value bestowed
upon food production and upon food itself across all the various
phases of the agricultural- and food chain» (Hudson and Messa,
2014). Indeed, food wastage starts in a phase even preceding
primary agricultural production, because the quantity of food
products obtained in the present economic system is organized
according to commercial agreements which do not always en-
counter the real needs of demand (Stuart, 2009).
But wastage can also be understood as «food products
discarded from the agro-food chain, which have lost commercial
value, but which are still fit for human consumption» (Barilla,
2012) because they keep their food quality requirements unal-
tered (Peri, 2006). In industrialized countries, according to Smil
(2004), food wastage can appear as excessive nutrition of indi-
viduals, i.e. the difference between how much a person consumes
and how much (less), in reality, a person should consume.
The genesis of food wastage involves all those who, in
different ways, take part in the production, transformation, mani-
1 FAO. Definitional framework of food loss, 2014. Available online
http://www.fao.org/fileadmin/user_upload/savefood/PDF/FLW_Definition_and_Scope_2014.pdf (accessed on 26 March 2018).
140
pulation, distribution and consumption of food products, and
more generally in the food chain (Eriksson et al., 2012; Nahman
et al., 2012; Verghese et al., 2013; Lebersorger and Schneider,
2014; Fiore et al., 2015; Jörissen et al., 2015; Cicatiello et al.,
2016; Mondéjar-Jiménez et al., 2016; Beausang et al., 2017;
Eriksson and Spångberg, 2017; Calabrò and Vieri, 2017;
Lanfranchi et al., 2018; Peira et al., 2018; Porat et al., 2018). It
is made up of various processes, and Gustavsson et al. (2001)
suggest a chain in five steps: agricultural production, post-
harvest management and storage, processing, distribution and
consumption.
On the one hand, causes leading to wastage are various:
damage from parasites and sicknesses, adverse meteorological
conditions, lack of conformity with quality specifications (primary
production); lack of conformity with quality and/or aesthetical
specifications, damage from parasites, losses from manipulation
and biological degradation (post-harvest management and
storage); scraps and residues from food processing, inefficient
production line, wrong batches, inadequate remaining duration
(processing and packaging); damage during transport/storage,
product deterioration, inadequate remaining duration in the
distribution phase, residues from food processing, bad stock
management, improper foodstuff manipulation, foodstuff deterio-
ration, excessive quantity of food being prepared, confusion on
expiry date and minimum durability date in catering and home
consumption (Pierson et al., 1982; Buzby et al., 2014; Newsome
et al., 2014; Göbel et al., 2015; Franchetti, 2016; Amato and
Musella, 2017; Canali et al., 2017; De Hooge et al., 2017;
Hermsdorf et al., 2017; Lanfranchi and Giannetto, 2017; Wilson
et al., 2017; Riverso et al., 2017; European Commission, 2018).
On the other hand, some solutions are identified and implemen-
ted e.g. initiatives dedicated to the integration of circular eco-
nomy concept (McDonough and Braungart, 2002; Ellen
MacArthur Foundation, 2013; Barba and Díaz-Ruiz, 2015;
Scuderi et al., 2015; Borello et al., 2016; Jurgilevich et al., 2016;
Andreopoulou, 2017; Borrello et al., 2017; Geissdoerfer et al.,
2017; Cantino et al., 2017).
3. The European and Italian initiatives
As stated by the European Commission (EU, 2014), food
wastage might increase by 40% by the year 2020, reaching the
amount of 126 million tons including avoidable and unavoidable
wastage, if a prevention policy is not enacted. Among proposals
brought forth to reduce waste there are first of all some
sensitization campaigns aimed at informing the public on how to
avoid wastage. On top of this, the European Union published 10
tips to reduce food waste, save money and protect the
environment. According to this document, the advice is to or-
ganize shopping by planning a weekly menu, to check food
durability (best before date) and know the difference between
the wordings “use by” and “best before date”, to consider one’s
budget because wasting food means wasting money, to care for
fridge maintenance checking seals and temperature, to take
instructions on food preservation into account and try to rotate
foodstuffs positioning those with longer durability (Marklinder
and Erikkson, 2015). The document further advises to serve
small amounts of food and to recycle leftovers for new meals or
transform food residues into compost. Finally, it suggests
freezing food in order to have it ready when one does not have
much time (European Commission, 2018).
A few tools for more transparency as to distribution and
catering have also been proposed. More specifically, on the
distribution level the introduction of a labelling system with
double date marking has been suggested, foreseeing a co-
mmercial date marking to indicate the date by which the product
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 FOOD SAFETY MANAGEMENT
may be sold, and a further date marking indicating by when the
product should be consumed, as well as the possibility of selling
products discounted when close to their expiry date. Further-
more, the opportunity of producing packaging with various net
quantities has been taken into consideration, in order to help
consumers purchase the needed quantity.
In Italy, the initiative which in its own right can be defined as
the one coordinating activities directed at fighting food waste is
the “Piano Nazionale di Prevenzione degli Sprechi Alimentari
(PINPAS)” (“National Plan for Food Waste Prevention”). In June
2014 the Environment Ministry, with organizational coordination
by Last Minute Market, promoted the First Board for PINPAS
Articulation (MINIAMBIENTE), which was joined by all operators
acting within the agro-food chain in any way i.e. firms, producer
and consumer associations, industry organizations, as well as
FAO and Expo. The meeting brought several aspects into
Table 1. European and Italian initiatives concerning food waste
Source: own processing on information websites dedicated to the food waste initiatives
Below follows a brief description of the initiatives in Europe
and in Italy taken into consideration, which have as their main
objective waste relocation and relocation of the unsold.
Main European Initiatives
Association Nationale de Développement des Épiceries
Solidaires (ANDES) i.e. National Association for the Develop-
ment of Ethical Groceries, is an association gathering ethical
groceries operating in France. ANDES was set up with the aim
of enabling economically disadvantaged people to have access
to quality foodstuffs, on the one hand, and to suggest activities
based on users’ competences, on the other, in order to re-
construct persons up to their social rehabilitation.
The FoodCycle association started in the United Kingdom in
2008, inspired by the U.S. project “The Campus Kitchens
Project”. This association’s main objectives concern reducing
food scarcity by providing nutritious meals to the more
vulnerable social groups; reducing food waste by recuperating
the unsold; creating communities capable of remarkably
reducing the phenomenon of social isolation by organizing
common meals; forming volunteers able to develop compe-
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Access to Success Vol. 20, No. 168/ February 2019
evidence, which led to defining 10 priority measures, i.e. 1.
Education and formation. 2. Communication, sensitization and
sharing. 3. Documentation and data. 4. Research and legal
interventions. 5. Donations and devolutions. 6. Purchases
(Green Public Procurement). 7. Voluntary agreements. 8.
Transformation. 9. Enterprise social responsibility. 10. Social
innovation (PINPAS, 2014).
European and Italian initiatives aiming at reducing and/or
eliminating food waste are numerous. Based on the chosen
philosophy and the identified strategy, it is possible to focus on
some common characteristics leading to a possible classifica-
tion of initiatives implemented up to now (Table 1). It is thus
possible to underline how the leading aspects in the majority of
initiatives concern using the unsold (avoidable waste),
collaboration with FSOs (Food System Operators) and sensi-
tization on food waste.
tences and support positive social change in their community.
Stop Wasting Food (SWF) is the most important Danish
consumer movement against food waste and actively
cooperates with the European Union and the United Nations. Its
objective is sensitization of the public opinion on issues
concerning environment and food waste. Specifically, it
organizes information campaigns and events, mobilises press
and media, stimulates discussion with the final aim of
significantly reducing the quantity of food waste (Juul, 2015).
Waste & Resources Action Programme (WRAP) is a charity
founded in the year 2000, operating in the United Kingdom
(England, Scotland, Wales and Northern Ireland) with the scope
of supporting waste reduction, the development of sustainable
products and, more in general, efficient resource management.
WRAP promotes consumer campaigns and operates in synergy
with food and packaging producers, distributors, public
administrations, touristic and hotel operators, in order to
promote food waste reduction (Quested et al., 2013).
Fareshare is a British charity focused on redistribution of
food surplus to charitable bodies, with the intent to reduce the
phenomenon of hunger in the United Kingdom. Fareshare
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 FOOD SAFETY MANAGEMENT
collects supermarket surpluses, still packed and labelled, and
even refrigerated, as long as they have not surpassed the date
appearing on the packaging (Caplan, 2017).
Main Italian Initiatives
Banco Alimentare i.e. Food Bank, is a foundation esta-
blished in 1989 with the main objective of collecting surplus in
the various phases of the agro-food chain and foodstuffs in the
large-scale retail trade and in subsequent redistribution. This
virtuous behaviour enables to obtain social benefits, free
assignment of unsold foodstuffs to institutions caring for needy
people, economic benefits, a reduction in waste disposal and a
contribution to the community in natural terms, environmental
benefits, reduction in the quantity of waste which can potentially
be a source of pollution (Vittuari et al., 2017; Foti et al., 2018).
The initiative Last Minute Market (LMM) started in 1998 from
a spin-off of Bologna University. The Last Minute Market project
consists in connecting and coordinating those who are inte-
rested in foodstuff exchange (firms, institutions, third sector,
citizens), making it possible for any unsold or untradeable good
to be recuperated. Furthermore, LMM has activated numerous
collateral activities, such as the multi-year campaign “A year
against waste”, aimed at sensitizing the public opinion on
causes and consequences of wastage and on ways to reduce it
(Vittuari et al., 2017).
In 2005 the Turin Municipality started the Buon Samaritano
project i.e. Good Samaritan, which involves AMIAT i.e. Multiser-
vice Environmental Hygiene Firm Turin, several schools in the
Turin area and some welfare bodies. The project pursues the
objectives of reducing wastage of food and organic waste and
involving the support of local welfare bodies and charities. The
initiative was inspired by National Law nr. 155/2003, called of
the “good Samaritan”. This Law enables to collect some
foodstuffs (bread and fruit) which were not consumed in school
meals and address them to canteens run by welfare bodies and
charities in the Turin area.
Within the numerous solidarity activities set up by Coop, the
Buon Fine project i.e. good purpose or ugly but good or useful
waste, is designed to recuperate and use to purposes of
solidarity foodstuffs which cannot be traded any more (for
example, crushed packaging), while keeping all their hygienic
and nutritional characteristics unaltered. These products are
given for free to voluntary associations which provide in several
ways for distributing them to underprivileged and needy people.
Last Minute Sotto Casa (LMSC) i.e. Last Minute Corner-
shop, is an initiative in the Turin area aiming at reducing surplus
in food products; it is directed mainly at proximity shops and
consequently at customers living in the area. The site managers
offer an online system which enables to connect shop-owners
and potential customers. The project makes it possible to put on
the market products which are still fresh but need to be con-
sumed soon (for example bakery goods, fresh confectionery) to
the benefit both of shop-keepers, who reduce the unsold, and
customers, who can purchase fresh products at a convenient
price.
The project Il buono che Avanza i.e. Good things left over, is
an activity promoted by the Milan voluntary association Cena
dell’Amicizia Onlus, which has for a long time been contrasting
food wastage by promoting a sustainable lifestyle and sensi-
tizing as to the problem of homeless people. The objective is to
create a network of food-selling businesses (restaurants,
canteens, bistros, catering etc.) offering the possibility of taking
home left over food and/or drinks (doggy bag).
Buta stupa i.e. in Piedmontese language literally “corked
bottle of precious wine”, was established in Piedmont in the year
2000 with the scope of reducing wine wastage in catering by
offering consumers an additional service enabling them to take
home wine bottles which have not been emptied. A similar
initiative is proposed by the Italian Association of Sommeliers
(AIS) since 2011 with the Portami via (Take me away) project.
142
This initiative foresees that all participating businesses are given
wine bags in order to enable clients to carry not completely
consumed wine bottles home.
Finally, the Fa bene (It’s healthy) project is a system action
activated in 2016 with the objective of recuperating in local
markets food surpluses which have not been sold by traders as
well as spontaneous donations by buyers, and to manage their
redistribution to economically disadvantaged families, against
“restitution” activities within the local community.
4. Research gap and design project
Projects concerning management of the unsold and of food
waste are many all over the European Union. However, not
always there is active participation by public bodies, or at least
it does not seem to be so evident. From the information above,
one can notice a wide dissemination of tools and initiatives
meant to reduce the phenomenon; they act on several variables:
communication and sensitization, collection and distribution of
the unsold, social inclusion, equal access to primary resources,
formation and volunteering. In this sense, in the North-West of
Italy initiatives are numerous and they satisfy most of these
aspects. However, the regional bodies of the Aosta Valley and of
Piedmont noticed lack of communication on good eating habits
and proper food management.
Consequently, two Research Questions (RQ) have been
formulated:
− RQ. 1: which is the best method to communicate the food
waste phenomenon?
− RQ. 2: which are the tools needed for teaching the best
way to manage food waste?
In order to attain the scope of study, the project was planned
towards the implementation of a model structured in several
phases. This model was divided into six phases: the Initiation
phase is dedicated to exploring and elaborating the idea as well
as evaluating its feasibility; the Definition phase defines the
requirements to attain the scope of project; the Design phase
provides and develops one or more designs to achieve the
scope of project; the Development phase provides and collects
everything needed for the implementation of the project; the
Implementation phase involves the “making” to transform the
design into the product and to give visibility to the project. In this
phase the requirements of the Definition phase must be met; the
Follow-up and improvement phase involves evaluation and
inspection of the project outcome and, where needed, its
improvement.
5. “Una Buona Occasione” initiative
The Piedmont and Valle d’Aosta Regions (North West Italy)
have been involved in the set-up of the “A GOOD
OPPORTUNITY (Una Buona Occasione)” project. The scope of
this initiative is promotion of consumer awareness through a
variety of tools i.e. a new design for rural economy to eliminate
surplus production and, when necessary, the reuse of this
surplus. Hopefully, all these activities will lead to a better
management of the crucial relationship between production and
distribution operators, which includes education on food
consumption to reduce food waste in food services. On the
basis of information collected through literature review and of
several European and Italian initiatives in this field, the “Una
Buona Occasione” project was implemented as follows.
Initiation phase: core of the project
The project has been centred on the necessity to
communicate and dispel the myth of the minimum durability date
as an absolute border between what is good before it and then
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 FOOD SAFETY MANAGEMENT
suddenly is not good any more. The activity is therefore directed
at working out means of communication suitable for dissemi-
nating good eating habits among citizens by: clarifying some
obscure aspects of food rules; carrying out studies apt to
produce useful information for conscious food consumption;
sharing information and results obtained by third parties aiming
at conscious food consumption.
Definition phase: structural requirements
In this phase, factors negatively affecting knowledge transfer
on principles connected to the phenomenon of food wastage
have been singled out and analyzed. In particular, some factors
determining this phenomenon have been focused on; they can
be subdivided into: technical factors, such as foodstuff perisha-
bility, enforcement of legislation on food safety, food storage and
preservation techniques; space and time factors, such as the
Graph 1. Flow chart of the “A Good Opportunity” project
Source: Authors’ elaboration
Development phase. This phase has been structured into
three parallel activities directed at the creation of a collection of
information to be used in the following phase of implementation.
In practice, an analytical deepening in the chemical, statistical
and sociologic field has been carried out.
Laboratory analyses. A series of laboratory analyses have
been made, aimed at clarifying what happens to foodstuffs when
they reach their expiry date or the date by which, according to
producers, they should ‘preferably’ be consumed. For this test
the choice fell on foodstuffs which may raise some problematic
aspects as far as preservation is concerned (UHT milk, puff
pastry, strawberry yoghurt, pasteurised milk, stuffed fresh pasta,
cooked ham in cubes); 5 out of 6, in fact, are under a deadline
regime of exclusively public matrix. The results achieved by the
study show that during the shelf-life period foreseen by the
producer nearly all examined products, though showing up a
more or less marked chemical-physical, microbiologic and
consequently sensorial evolution, keep their compositional,
pleasantness and purchase attraction characteristics practically
unaltered in time. This evolution shows strict correlation first of
all with the producing firm, and therefore with the various
technologic-productive aspects. Secondly, the compositional
evolution is obviously correlated with the type of product, and
therefore with its greater or smaller intrinsic “resistance” to
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Access to Success Vol. 20, No. 168/ February 2019
transport phase and preparation processes; socio-economic
factors, such as tastes, preferences and consumers’ individual
meal habits, costs undergone in order to recuperate and change
the destination to another use. Once the causes have been
identified, criteria are set in order to define solutions useful for
attaining the project scope.
Design phase: Flow chart
In order to reach the objective set by the project, a flux
diagram has been defined, i.e. a conceptual map for identifying
the various activities to be carried out. More specifically,
following have been highlighted: the potential causes of the
phenomenon, the various operational fields oriented by labo-
ratory analysis, statistical survey, sociological analysis, and the
possible actions to be implemented in order to intervene in the
identified channel, i.e. information and promotion tools (Graph 1).
preservation. The positive results obtained by the study also
need to be related to the perfect preservation conditions the
products have undergone, which are a fundamental element for
keeping the compositional and sensorial characteristics even at
the end of the shelf-life foreseen by the producer.
Statistical survey. The statistical survey aims at verifying the
actual behaviours of Piedmontese and Aosta Valley consumers
at the time when they purchase and consume foodstuffs. The
survey on a random sample of Piedmontese and Aosta Valley
families had the objective to define different profiles in the
behaviour of purchasing and consuming foodstuffs. The results
obtained indicate that there is not yet adequate knowledge
concerning the two different wordings «Use by» and «Best
before»; in the first case, 61.9% of the panel think that after the
stated date this foodstuff might harm health; in the second case,
on the contrary, there is no predominant reply: after that date the
foodstuff might harm health according to 17.9% of the panel,
might have lost nutritional value according to 23%, might have
lost taste or aroma according to 26.6%; 22.1% of the panel
replied other, while 10.5% does not know. Furthermore, 36% of
the interviewed people declare that they will not consume a
product after the indicated date even if the product has good
appearance, smell and taste; 25% consume it only if just a few
days have passed, and 18.5% consume it without considering
143
 FOOD SAFETY MANAGEMENT
the time gone by.
Sociologic analysis. The sociologic analysis was dedicated
to the matter of home food waste. This phenomenon was exa-
mined in the light of the post-growth model, which postulates a
rethink on consumerism by modifying consumers’ lifestyles and
behaviour. In this perspective, the role of the economic crisis in
transforming consumption, the change of values in terms of
ethics and sustainability, the nature of waste on a national level
were analysed. The results obtained evidenced that actions
aimed at reducing home waste involve all actors in the chain,
including institutions and organizations operating in the field of
food education and responsible consumption. They can disse-
minate knowledge of good practices to be followed and can side
their implementation by impacting on consumer behaviour and
thus on the amount of wastage. Furthermore, the analysis high-
lights how economic need, value orientation addressed at ethics
and sustainability and individual interest for allocating one’s
income in the best way may stimulate application of waste
reducing practices. Consequent policies should concern sensi-
tization to the environmental and ethical issues of solidarity,
availability of information and “techniques” facilitating waste
reduction for consumers, evaluation of the consumption work
needed to reduce wastage, the individual interest and the
activation of mechanisms enabling individuals to pursue it with
greater rationality, operating the choices which are best for
themselves.
Implementation phase. In this phase the sensitization and
promotion campaign was carried out; it was structured in three
different communication instruments.
The first, called “Alla ricerca del risparmio virtuoso - In
search for virtuous saving” was designed by involving Large
Distribution. During the spring/summer 2014 period, in fact,
following indications from the Retail Forum for Sustainability
2012 on actions Large Distribution should apply in order to
reduce food waste (promotional offers for products close to their
expiry date; informative tools dedicated to consumers on the
exact meaning of expiry dates), “Una Buona Occasione” started
an initiative which 275 large sale structures participated in (263
in Piedmont and 12 in the Aosta Valley); these structures were
characterised by 10 trademarks from Federdistribuzione i.e.
Distribution Companies Association, 2 cooperative trademarks
and one biologic product trademark, and they reduced the price
of food products close to their expiry date by at least 30%.
Within this initiative, information materials on correct label
reading and sensitization materials on the appropriateness of
wasting less food (and on how to do it) were distributed. With
reference to correct label reading, brochures were prepared for
following products: tomato puree, milk, eggs, oil, ice cream; the
symbols on the labels were of voluntary character. In 2015 “bio”
shops, specialized in selling biological products, and “botteghe
del mondo - world corner shops”, dedicated to Fair Trade
products, were involved.
The second, named “UBO App”, is a mobile application
providing advice on the appropriate storage conditions for
products, portioning and cooking leftovers. In addition, it pro-
vides information about seasonality, historical and geographical
origins of products, zero waste recipes and the possibility to
write down one’s own shopping list. UBO App analyses more
than 500 products (raw and cooked, pre-packaged and
unpackaged, fresh and frozen) and is unique on a national and
possibly international level. The target is composed of digital
natives, whose knowledge about household economy has often
decreased. Piedmont and Aosta Valley have decided to charge
the Zoo-prophylactic Experimental Institute (very active against
BSE) to collect the main database information in order to
enhance the project’s reliability and credibility. The app is
available for free on Android and IOS devices.
The third was about making a film able to rapidly and clearly
communicate concepts connected with the necessity to reduce
waste. In particular, at first a video titled “Zerøspreco - Zerø
144
Food Waste” has been shot: it is a 7’’ cartoon on food waste
made by the National School of Cinema and addressed to
primary and middle school students. The protagonists are two
dogs facing the problem of food waste in ordinary life, who
decide to analyse the phenomenon’s main causes. This cartoon
pursues the objective of rising an educational debate on the
topic. As a second step, a film named “Water Hunters” was
implemented. It is dedicated to water waste.
Follow-up and improvement phase. The initiatives de-
veloped during the three-year-period 2014/2016 have been
monitored and improved and/or renewed over time. Examples
are the activity carried out in the asset “Alla ricerca del risparmio
virtuoso”, which has been modified and extended to different
categories of stakeholders year by year, and the shooting of a
new film concerning a particular kind of wastage, i.e. water
waste. The “Una Buona Occasione” website is the real time
coordination and communication instrument for updates and
ongoing upgrades brought to the initiative in a view of con-
tinuous improvement.
6. Conclusion, limitations
and future research
Food wastage is an issue generating various kinds of crucial
issues, shared by the various chain phases. Several factors
(USDA, 2014) can impact with a multiplier effect on food waste
production: however, losses and waste generated along the
production chain can be reduced by using correct expedients.
At present time, what seems to be missing is full awareness
of the phenomenon’s dimensions: FSOs (Food System
Operators) and consumers are not always able to coherently
evaluate their actions within respect for the environment and the
society (La Barbera et al., 2014; Lanfranchi et al., 2016; Bollani
et al., 2017; De Hooge et al., 2017; McCarthy and Liu, 2017). At
the same time, as seen, estimates produced on this phenomenon
are unable to dispel doubts on the true entity of the problem. The
present way of living seems to be unsustainable and anthropic
activities directly or indirectly represent a growing quota of the
impacts generating a negative effect on the environment. These
activities are mainly not voluntary, proving that present infor-
mation and education means are inefficient (Thøgersen, 2014).
It is also proven that, at least with reference to the consumption
phase, implementation of a row of strict devices, such as tax-
ation, regulation and services, as well as less strict ones, i.e.
changes in behaviour, can lead to important results in terms of
waste reduction (Fell et al., 2010).
Studies directed at finding out one or more alternatives for a
significant food wastage reduction are numerous. For instance,
Halloran et al. (2014), based on in-depth analyses carried out in
Denmark, remind that possible solutions to waste reduction can
be found, with reference to the more downstream chain phases,
through better communication, more efficient packaging and
deeper awareness of the information offered on labels; with
regard to the more upstream phases, a different production
philosophy, supporting farming systems characterized by in-
creased sustainability and market integration, would be desirable.
In general, in any case, integrated collaboration between the
various FSOs and final consumers would be appropriate.
Quested et al. (2013) highlight the importance of organizing a
public campaign able to trigger virtuous behaviours concerning
home food wastage reduction and management in the United
Kingdom.
The various European proposals presented above also show
that several paths can be followed towards the ultimate end of
managing food wastage. Other kinds of projects, however,
suggest how to prevent wastage. In this context, the “Una
Buona Occasione” initiative synthesizes a full row of useful
devices, such as the importance of relocating the agricultural
economy against overproduction, of the reuse of surplus in order
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 FOOD SAFETY MANAGEMENT
to limit criticalities in contractual bonds between production and
distribution, of consumption formation and education in order to
avoid wastage both in catering (doggy bag) and in home use.
The limits of the initiative are however evident: while it is useful
for reducing the phenomenon, it cannot be considered the
“solution”.
It is worth underlining, on a different note, that the former
criticality of the initiative deriving from promotion and disse-
mination mainly on an inter-regional level (Regions Piedmont
and Aosta Valley) has been remedied by the national award
“Vivere a spreco zero (Living at zero waste)” which was
bestowed upon the project in 2014 by the Italian Minister of
Environment, Gianluca Galletti. This recognition enabled the
project to obtain visibility and resonance on a national level.
According to the information presented in this study, the
need for a structural intervention apt to change the mechanisms
of the conventional agro-food system seems clear. Hudson and
Messa (2014) talk in favour of designing policies aimed at
reducing the food waste problem at its origin, suggesting an
entirely “value related” vision of the agro-food business; the
various institutional initiatives should be oriented in this sense.
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 FOOD SAFETY MANAGEMENT

The Carob as a Substitute for Cocoa in the Production

of Chocolate: Sensory Analysis with Bivariate Association

Maurizio LANFRANCHI1*, Agata ZIRILLI1, Salvatore ALFANO1, Francesco SARDINA SPIRIDIONE1,

Angela ALIBRANDI1, Carlo GIANNETTO1
1University of Messina, Italy
*Corresponding author, University of Messina, Department of Economics, Messina, Italy (Via dei Verdi);
E-mail: mlanfranchi@unime.it

Abstract

This research evaluates the degree of consumer acceptance, and or preference, for the carob, a substitute product
for cocoa in the production of chocolate. It also assesses its potential as a “functional food” for celiacs, diabetics and
for those intolerant to caffeine. In order to assess the degree of consumer preference for the consumption of
chocolate made using carob, sensory analysis coupled with face-to-face surveys of 192 Sicilian consumers, who ate
chocolate on a regular basis, were conducted, from March to May 2017. The data were processed using bivariate
association analysis. 12.7% of the subjects described the aftertaste of chocolate made using carob as unpleasant
and the aftertaste of chocolate made using cocoa, as pleasant or very pleasant. However, 7.1% declared that the
aftertaste of the chocolate containing cocoa as unpleasant, defining the aftertaste of the carob, as pleasant or very
pleasant. Some subjects also expressed a liking for both types of chocolate, declaring that they were pleasant
(16.7%) or very pleasant (38.9%). Chocolate made using carob flour offers several potential health benefits compared
to traditional chocolate and could find use as a functional food. This has social and economic implications for
agriculture and for the cultivation of carobs. The scientific studies on this transformed product are very few. No
previous research has conducted a sensory analysis on such a large sample of subjects. This research work could
help to encourage the consumption of a “new chocolate” and consequently lead to the production of carob chocolate
by those companies that use the fruit for other purposes.

Keywords: chocolate; carob; cocoa; sensory analysis; bivariate association.

1. Introduction the constituents of carob pulp. Fibres, polyphenols and tannins

Carob is an important component of the Mediterranean flora.
In the Mediterranean area, the Carob plant assumes importance
from an environmental point of view, because of its ability to
consolidate the ground avoiding landslides and the erosion of
the soil. The cultivation of the carob tree, from an economic
point of view, represents an important production in southern
Italy, especially in Sicily, favouring to some extent the develop-
ment of rural areas.
Carob is tolerant to heat and drought and adapts well to the
Mediterranean climate (Correia et al., 2017. Turfani et al., 2017).
The fruit is used both as human and animal food. It contains a
high amount of carbohydrates, proteins and low levels of fat and
significant amounts of potassium, calcium and polyphenols
(Arribas et al., 2017). Therefore, it can play a significant role in
human health (Custódio et al., 2009. Goetzke et al., 2014).
Carob is used for pharmaceutical, food and cosmetic purposes
(Kumazawa et al., 2002). In recent years, the scientific interest
of research has focused mainly on the study of the properties of
the carob pod, which is a significant source of dietary fibre,
polyphenols and a surprising amount of calcium, more than
three times the amount present in a cocoa pod (Kotrotsios et al.,
2011. Yuceer et al., 2014). In addition, carob pods can be used
as cocoa substitutes as they do not contain caffeine or theo-
bromine (Bahry et al., 2017. Bengoechea et al, 2008). The
copious research in the medical-pharmaceutical field has
highlighted rather interesting results related to the bioactivity of
have been the reason of scientific interest (Martin-Diana et al.,
2017. Migliore et al., 2017). These bioactive compounds have
been linked to health enhancement by recognizing beneficial
carob effects in different therapeutic areas, such as anti-cancer
and anti-diabetes (Bates et al., 2000. Berk et al, 2017). Based
on the above scientific studies, carob has been recently
considered an excellent ingredient for the development of
functional foods and plant supplements (Kraus, 2015. Öztürk,
2012. Pecorino et al., 2016). Carob pod, also called “carcao”, is
indicated in the diet of obese subjects (Petkova et al., 2017.
Tounsi et al., 2017). Furthermore, some experiments conducted
on guinea pigs have detected the cancellation of the physio-
logical effects that lead to atherosclerosis (Sánchez-Segado et
al., 2012. Valero-Munoz et al., 2014).
2. Analysis of the context
The major carob producing countries, as shown in the table
1, are located in Europe. According to the data provided by the
2012 FAO research, Italy and Spain have respectively a
production of 23.8% and 20.4% respectively of the total amount
produced. The production of carob in Italy has changed in time.
In table 2 the evolution of the production of carob in Italy,
particularly in Sicily is highlighted. The average carob production
per plant varies depending on the soil composition and the
individual production stations. In the table 3 it is possible to see

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Table 2. Evolution of carob production in Italy and Sicily
Source: Pecorino, 2001CAREX Carob Exploiters – Bioethanol Production from carob pulp
Table 3. Annual average production per plant and in individual production stations
Source: Paolo Spina, 1986
this evolution. In relation to the productivity of the production, the
factor “work” is worth of attention. On average, a worker can
collect up to 3 tons of fruit per day, but the introduction of
mechanical innovations for the collection gives much higher
collection rates (Spina, 1986. Dale et al., 2016). The carob has
left indelible traces in the history of the Sicilian territory and
therefore even in its culture. The carob pulp is used in livestock
zoo-technics and in the human food sector, plain or as carob
flour, as an impalpable substance with a maximum moisture
content of 2%. It is also used: in distilleries, for the preparation
of alcohol and bioethanol; it is used in the pharmaceutical
industry for its therapeutic action (anti-diarrhoea and anti-
catarrhal); and even as an anti-vomit supplement. It is also used
in honey extraction; human nutrition; sugar extraction; for the
production of carob syrup, in the making of caramelized sugar;
and even in the preparation of sorbets. The objective of this
research is to focus exclusively on the use of carob as a
substitute for cocoa in the preparation of “chocolate” (Spina,
1986. Monotti, 2008). Carcao is a by-product of carob flour, it
used instead of cocoa in desserts, because it is cheaper and
easily amalgamated with other ingredients. It is very low in fat
and sodium and has almost no theobromine or caffeine (table
n.4). It is widely used in the confectionery and ice cream
industries (Šebečić et al., 2007. Spina, 1986). Table 4 shows
that carob powder has a very low percentage of raw fats, around
0.7% compared to the 23.7% of cocoa powder. In carob powder
there is a high percentage of natural sugars about 46%, which
makes it a much healthier and a valid nutritious alternative to
white sugar. It has 7% of raw fibre, which is essential for good
health in the human diet. It has important percentages of iron
and potassium, respectively 50 (mg/100g) and 100 (mg/100g).
There is a remarkable presence of calcium, up to 300 mg per
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Table 1.
Areas and
Production of carob
in major producing
countries
Source: FAO 2012
*Algeria, Israel,
Jordan, Lebanon,
Mexico
100g. A portion of carob contains a quantity of calcium equal to
that contained in a cup of cow milk (Singh et al., 2007). It also
has small quantities of sodium 100 (mg/100g) compared to 700
(mg/100g) of cocoa. In carob powder, caffeine and the obromine
are almost absent, which could hypothetically lead to excessive
consumption and to “hyperactivity” problems, especially in
children. The typical process for the production of carob powder
is similar to that used for cocoa, with the omission of the
fermentation phase (cocoa is typically fermented to produce
chocolate flavours) (Poelmans et al., 2016). The carobs are
washed, seeded, roasted and ground into powder. The roasting
is fundamental because it further reduces the pH of the carob
pod, unroasted carobs have a much higher pH (pH = 6.0) than
roasted carobs (pH = 4.8). The toasting temperatures can vary
between 80° C to 400° C, but generally, a temperature of 150 °
C is used for about 60 minutes. Carob is rich in nutrients and
less caloric than cocoa and is suitable for those suffering from
problems of intolerance or allergy to chocolate, because it does
not contain psychoactive substances. The high content of
dietary fibre makes carob a food with satisfying properties and
for this reason its intake is recommended in weight losing diets.
Carob pulp flour has a high-energy content, which makes it very
suitable for nourishing children and sportsmen (Chinnici et al.,
2015. Lanfranchi et al., 2014). This product is also suitable for
vegans. Table 5 shows the “percentage price” for traditional
chocolate and carob. The average price of a traditional
chocolate bar of 100 g is about 3 Euros. Expressing the price
data in percentages, both that of traditional chocolate and that of
carob chocolate, we can see how carob chocolate has costs that
are higher than cocoa chocolate, especially in the use of raw
materials and labour. Carob chocolate processing involves a
greater use of time than traditional chocolate. The margin should
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therefore be reduced to keep the average price constant.
Although the processing is more complex, because it is difficult
to mix cocoa paste and carob flour, the cost of labour does not
significantly affect the price, the average sales price remains
constant. The average selling price of a carob chocolate bar is
also around € 3.
Table 4. Comparative evaluation between the cocoa powder
and carob powder
Source: Paolo Spina, 1986
Table 5. Price comparison between the traditional chocolate
and carob
3. Objectives of the research
The interest in functional food in recent years has greatly
increased; not only from the point of view of pure research, but
also the market analysis has emphasized a particular interest
from consumers towards these products (Lanfranchi et al., 2017).
In fact, functional food, is part of the increasingly numerous
category of products that possess properties capable of produ-
cing a beneficial effect for the consumer who eats it frequently
(Schnettler et al., 2016). The definition of the European Food
Information Council (EUFIC) has also contributed to the de-
velopment and scientific research towards the discovery of new
products belonging to the functional food category, which has
defined them as foods that produce positive effects in the human
organism that go beyond the classic nutritional effects that are
part of the information on the label of the item In this study on
chocolate made from carob flour, the intention is to consider this
product as a possible “functional food” due to the positive effects
on the consumer’s health determined by the intrinsic properties
of the carob. These positive effects have been highlighted by
various scientific research over the years (Goulas et al., 2016).
Therefore, this work analyses the carob in the food sector, as a
substitute product for chocolate. The main objective of the
research is to understand, by means of the sensory analysis
conducted, if the chocolate of carob pulp flour can be con-
sidered a possible substitute for traditional chocolate made of
150
cocoa, based on the characteristics perceived by the groups of
people to whom it was given in the test. The collected data was
processed using the statistical method of the bivariate asso-
ciation analysis. Our goal was further encouraged by the fact
that Italy, and in particular the South of Italy, holds the record for
carob cultivation. This could make a sizeable contribution to the
local economy by exploiting the fruit in all its potential uses,
cosmetics, pharmaceuticals and food. Chocolate is the most
popular confectionery product in the world (Brečić et al, 2017).
Switzerland holds the world record for its consumption, with an
average of nine kilos a year per person, equivalent to 209
standard bars; Germany is in second place, Austria in third
place, Ireland in fourth place, and United Kingdom in fifth place
with slightly growing values. Northern Europe, with Norway,
Finland and the Netherlands, shows lower performances, while
in the Eastern European markets and Russia, the performances
are better. Even Italians consume chocolate in large quantities.
The annual “per capita” consumption of chocolate in Italy is 4 kg
a year, or roughly about 11 grams a day. Data on “per capita”
consumption of chocolate is added to the many motivations that
drive us to promote carob and its potential use as a substitute
for chocolate made with cocoa (De Pelsmaeker, et al., 2017).
4. Materials and methods
The study concentrated on a region of Southern Italy, pre-
cisely Sicily. In particular, the answers were obtained from the
distribution of a questionnaire written ad hoc, with the face-to-
face method, which involved 192 people randomly chosen, who
had different habits but who habitually consume chocolate
and who lived in the territory of Modica (Sicily) (Gary, 2017.
Lanfranchi et al, 2015).
The questionnaire was distributed to a sample of subjects
aged between 18 and 52 years old (average 29 years); they
were 47.6% females and 52.4% males, 61.1% had a secondary
school diploma, 23.8% had a university degree, and 15.1% had
only a middle school diploma.
The period chosen was between March and May 2017. With
the questionnaire, the team tried to understand if the consumer
perceived, through his own senses, the differences between a
sample of carob chocolate and a sample of cocoa chocolate.
The questionnaire was handed out after a panel test in which the
consumer was asked to taste several times both traditional
cocoa chocolate and the experimental carob chocolate, spe-
cially made by a pastry chef for this research (Lanfranchi et al.,
2016). The chocolate samples were presented in different sizes
shapes, and in anonymous packaging; the first sample
consisted of 50% carob pulp flour and the remaining 50% of
bitter cocoa paste, the second sample was composed
exclusively of cocoa paste. The cards considered valid were 126
(the remaining 66 cards were considered unreliable because the
responses were incomplete). Since the examined variables
were “category”, an association analysis was used in order to
study the possible relationships among them. The organoleptic
characteristics that affected the sensory analysis were the
following:
1. Looks: colour (brown or reddish), gloss (opaque or glossy)
and appearance (porous or uniform).
2. Smell: Aroma (noticeable or intense).
3. Feel sensations: roundness (normal or high), fineness
(dusty or flowing).
4. Taste: sweetness, bitterness and acidity (excessive,
normal, low).
5. Final aftertaste: little, medium or very pleasant
A Statistical analysis was performed using SPSS Statistical
Software for Windows (version 17).
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5. Survey results
Choice of the sample
Sampling was performed as follows: the researchers used a
“filter question” (do you usually consume chocolate?) that allowed
them to identify the usual chocolate consumers. To these
subjects only a simple random sampling, based on the well-
known “Head or Cross” technique, was applied in order to
ensure that all the subjects had the same probability of inclusion
in the sample. This technique consists simply in associating
beforehand the two possible choices on the two sides of the coin
(head = inclusion, cross = not inclusion), then in launching it and
considering extracted the choice relating to the face shown by
the coin.
Contingency tables and chi-square test
Contingency tables were realized in order to jointly analyse
the distribution of respondents according to the organoleptic
characteristics of the two substances (carob and cocoa); the
same were made for the comparison between males and
females, for the comparison between qualifications and for the
comparison between the two age groups (<30 years; ≥30 years)
and for all the other variables detected.
For each contingency table, the Pearson Chi-square test for
Table 6, which shows the contingency and p-value tables of
the comparison between the organoleptic characteristics of the
carob and cocoa, highlighted some important results. In particu-
lar, there was no difference in colour, appearance, fineness and
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association was estimated.
Chi-Square Test for Association was applied in order to de-
termine whether the two categorical variables were associated.
That is, to determine whether the distribution of observations for
one variable differs depending on the category of the second
variable. This analysis was used when data was arranged in a
contingency table. The null hypothesis H0 assumes that there is
no association between the variables (in other words, one
variable does not vary according to the other variable), while the
alternative hypothesis H1 claims that some association does
exist. The alternative hypothesis does not specify the type of
association, so close attention to the data is required to interpret
the information provided by the test. The chi-square test is
based on a statistic test that measures the divergence of the
observed data from the values that would be expected under the
null hypothesis of no association. This requires the calculation of
the expected values based on the data.
Assigned the threshold value α = 0.05 we have:
1) If α < 0.05 refuses H0;
2) If α ≥ 0.05, H0 is accepted.
The smaller the p-value, the greater is the evidence against
the null hypothesis.
Table 6.
Contingency tables and P-value
of the comparison between the
organoleptic characteristics of
the carob and cocoa
sweetness between the carob and the cocoa, for which these
characteristics, attributed to the two substances, can be
considered superimposable (P>0.005). Significant differences,
however, emerged in relation to the comparison of the other
151
 FOOD SAFETY MANAGEMENT
characteristics examined, such as gloss (P<0.001), aroma
(P=0.044), roundness (P=0.003), bitterness (P<0.001), acidity
(P=0.020), aftertaste (P=0.006). Most of the subjects who
responded to the proposed questionnaire in fact considered the
cocoa to be glossy and the carob, opaque, they defined the
aroma of cocoa more intense than that of the carob and the
roundness of the carob higher than that of cocoa. Regarding
bitterness, 24.66% of the subjects defined the carob too bitter
while 96.1% defined cocoa with a normal or even low bitterness.
All this implies an evaluation of the carob as excessively bitter.
In addition, the acidity highlighted there are significant diffe-
rences in the judgments: no subject defined excessive the
acidity of cocoa or carob, while 11.9% of the respondents
considered low the acidity of cocoa and normal that of the carob.
Evaluating the final aftertaste, it is possible to see that there are
significant differences. There were, in fact, subjects that define
the aftertaste of carob not nice and the aftertaste of cocoa, on
average, pleasant or very pleasant (12.7%). On the other hand,
7.1% declare the aftertaste of the cocoa unpleasant, defining
the aftertaste of the carob, on average pleasant or very
pleasant; there is also a conspicuous percentage of subjects
that expressed a consensus for the two substances (16.7% on
average pleasant and 38.9% very pleasant) (table 6).
Subsequently, the comparison between the sexes (Table 7)
highlighted significant differences between males and females
in the evaluation of the characteristics of both the carob and
cocoa. As for the carob, the brightness is the only characteristic
Table 8.
Comparison between the
various titles of study in the
evaluation of characteristics
of the carob and cocoa
6. Conclusions
This research has shown that in relation to the degree of
consumer preference of chocolate obtained from carob flour, as
a potential functional food, not only has this product been asso-
ciated with positive effects on health, but also the respondents
have shown significant appreciation for the product. The results
showed a potential use of this fruit as a possible substitute for
traditional chocolate. Many consumers appreciate chocolate but
they cannot eat it because of problems related to health, food
intolerance or its hypocaloric characteristics. The carob, how-
ever, unlike cocoa, is richer in nutrient properties, is less caloric,
contains no psychoactive substances, is rich in vitamins (ribo-
flavin) and minerals (calcium, potassium, copper and manga-
nese), helps the metabolic functions and supports the nervous
system. Therefore, it represents a valid substitute for traditional
chocolate, especially categories such as sportsmen, who can
appreciate the energizing properties, children and pregnant
women and above all the celiac, because it is gluten-free in
contrast to cocoa. Unfortunately, to date, the carob is under-
estimated but it remains a fruit with a great history and it could
be used to advantage to contribute to the revitalization of the
local economy being a native production, especially in Sicily.
The enhancement of carob cultivation could in time benefit the
local Sicilian economy to leading to the reduction of cocoa
152
for which males and females differ significantly in their judgment
(P=0.007): the majority of female respondents (80%), in fact,
define the carob as opaque. The other organoleptic characte-
ristics examined, on the other hand, did not highlight different
evaluations in the two sexes (P>0.050). The opinions of males
and females related to cocoa differed significantly only in re-
lation to the aroma (P=0.023): in fact, 53.3% of the women in the
sample examined defined the aroma of cocoa as quite noti-
ceable, while 66.7% of the males considered it intense. For the
other variables, there is a homogeneity of judgment (P>0.050).
The organoleptic characteristics of the carob and cocoa were
subsequently examined taking into consideration the different
qualifications of the respondents to the questionnaire (Table 8).
From the results obtained in regards to the evaluations ex-
pressed by the subjects in reference to the carob, distinguished
on the basis of the different cultural level, there are no significant
differences, except for the brightness of the carob (P=0.010). In
particular, it would seem that as the cultural qualification in-
creases, there is a greater percentage of subjects that define it
as opaque. In reference to cocoa, no organoleptic characte-
ristics seem to be linked to the different cultural level of the
respondents (P>0.050). Not even the distinction of subjects
based on age (<30 years; ≥30 years) provided significant
differences in the answers related to the properties of cocoa and
carob (P>0.050): for this reason it is possible to conclude that
age it is not a factor that conditions the perception of the
appreciation of one for the two substances.
Table 7.
Comparison between the sexes
in the evaluation of characteristics
of the carob and cocoa
imports, becoming a raw material for artisan pastry, therefore
reducing the production costs of sweets and consequently increa-
sing the margins of profits of small companies that characterize
the entrepreneurial structure of these rural areas.
Acknowledgements
The work is the result of a full collaboration of the authors.
The study is the result of a research project, carried out in the
field of scientific activities of the Chair of Economics and the
Rural Policy at the Department of Economics at the University of
Messina and ELSA (European Law Students Association) of
Messina. The research was carried out under the coordination
and with the contribution of the Academic Supervisors Prof.
Maurizio Lanfranchi and Prof. Carlo Giannetto. The authors
thank prof. Frank Rotondo and Serena Sippelli for their help with
the draft of this paper. Thank also to Prodotti Tipici Iblei s.r.l. for
helping to supply the chocolate samples needed to perform the
sensory analysis on the sample of consumers.
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 OCCUPATIONAL HEALTH AND SAFETY MANAGEMENT

Evaluation of Psychological Influences of Colour, Lighting

and Form in Office Buildings for Enhancing Productivity

Zahra POURSAFAR1, Sriram K.V.2, Lewlyn L.R. RODRIGUES3, Nandineni Rama DEVI4,

1Assistant
Professor, Department of Architecture, Fouman and Shaft Branch, Islamic Azad University, Fouman-Iran, Iran;
E-mail: z.poursafar@yahoo.com
2Corresponding author, Associate Professor, Department of Humanities & Management, Manipal Institute of Technology,
Manipal Academy of Higher Education, India; E-mail: kvsriram@yahoo.com
3Professor & Head, Department of Humanities and Management, Manipal Institute of Technology,
Manipal Academy of Higher Education, India; E-mail: rodrigusr@gmail.com
4Professor, Faculty of Architecture, Manipal Institute of Technology, Manipal Academy of Higher Education, India;
E-mail: ramaank@gmail.com

Abstract

Environmental psychology dwells into to the insights of how people interact with building and spaces around them.
This subject has been of interest of psychologists and architects alike. Comfortable work environment is the basic
requirement for enhancing productivity. A good architecture provides quality of work space. Vibrant offices have
psychological impact on people. This research establishes a link between two important domains of the study;
Psychology and Architecture that contributes to Productivity. Architects play a key role in designing ambiences that
influence minds. Architects’ Offices employ creative minds hence it is imperative that their offices are designed to suit
their mind-set. The relationship between Psychological contents, particularly Personality types and Architecture -
especially colour, lighting and form of the furniture in the Architect's offices that influences productivity and employee
motivation to work is studied in this research. The data collected based on representative sampling techniques and
data analysis was through Structural Equation Modelling (SEM) using SmartPLS approach to analyse the inter-
relationships between the variables involved in the study. The result revealed there is a significant relationship
between Psychology and Architecture which affected the Productivity of the organization.

Keywords: psychology; architecture; productivity; architects’ offices.

1. Introduction individuals are to the greatest outcome of groups and

Physical environment at work has a direct implication on job
satisfaction and performance (Vischer, J. C. 2007). Time spent
inside work spaces are increasing and work ambiences have
impact on employee stress level (Evans, G. W., & McCoy, J. M.
1998) which in turn influences the productivity of an employee.
Architects play a vital role in designing spaces that motivate
people to work. The success of a design project relies on the
ability of designers to find answers for the complex problem
within the place. Designers and architects need to consider the
psychological specifications of the occupants of the space, in
addition to the practical demands of the specific buildings. Archi-
tecture is connecting with different feelings of humanity, thus the
designer must develop the spaces based on psychological
principles of human’s mind, which helps to create more com-
fortable lives in regard to art, lifestyle, sociology and appearance
(Rush 2008).
The significance of architectural elements (their definitions
and attributes) in addition to their psychological factors in-
fluences the way individuals communicate with office interior
spaces. The study of the office interior within the psychological
framework, enables a designer to understand the behaviour of
individuals under the impact of physical conditions. As a result of
this interaction, social connection is acknowledged, and pro-
fessional actions are improved. The health and wellbeing of
organizations policies. The office is an important aspect of a
person's life that impacts his or her lifestyle and the well-being
of the society (Campbell et. al., 1976).
This study attempts to identify the significance of relationship
between the physical aspects of interior spaces to achieve
maximum Productivity with attention to psychological state of
the employees. Physical aspects refer to three architectural
elements-colour, lighting and form – and the psychological
parameters directed to personality types of employees. By
establishing a relationship between these three variables the
design process would be more effective as the opinion of the
clients will be known to the designers well in advance.
2. Objectives of the study
To investigate the above relationship and achieve the best
results with respect to research variables, the following ob-
jectives have been formulated:
1. To identify the employees’ personality types according to
Myers Briggs theory in the sample group,
2. To determine the association between employee’s per-
sonality and architectural elements (colour, lighting and
form of the furniture),

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 OCCUPATIONAL HEALTH AND SAFETY MANAGEMENT
3. To assess the influence of architectural elements (colour,
lighting and form of the furniture) on employee’s pro-
ductivity.
3. Literature Review
The physical attributes of design such as light, colour and
form influences minds of people. This is the very reason why
architects choose different colour for different design spaces.
Colour is one of the easiest material to change the environment
characteristics and it is visible dominantly (Nurlelawati et. al.,
2012). Colour and other attributes influence the emotional state
of mind of an individual. People with different psychological traits
react differently to these design attributes. In a study Kamarulza-
man et.al., (2011) concluded that indoor environments in an
office has a great influence on employees‘ attitudes, behaviours,
satisfaction and work performance. In another research Küller,
Rikard, et. al., (2006) came to a conclusion that light and colour
in work environment have a significant impact and in the be-
haviour and emotions on people. Many studies have contributed
a lot to the physical attributes of work space to improve pro-
ductivity but personality consideration has been completely
neglected in studies relevant to productivity improvement in
interior design
Psychology is a science, which studies mental factors which
affect actions and psychologists apply psychology towards the
arrangement of issues in different settings in various confi-
gurations such as educational institutions, medical facilities and
companies (Brody & Ehrlichman 1998). Personality is an impor-
tant concept in psychology. It would identify as thoughts,
feelings, desires, intentions, and action tendencies that contribute
to important aspects of individuality (Hogan & Holland 2003).
The personality identification has become significantly preferred
among organizations since it can be a strong predictor of job
performance (Tieger & Barron-Tieger 1992).
Different personality types are much better in some career,
which depend on their abilities, skills, occupational and leisure
interests, values and goals. Career development process will be
influenced by employees’ preferences (Hammer 2010). The
present research focuses on personality identification according
to Myers-Briggs Type Indicator (MBTI), which is suitable for hiring
the employees, training and development purposes (Gifford
2007). The present study is investigating the significant in-
fluence of personality types (defined by MBTI) in the office
interior, on employees’ preferences regarding colour, lighting and
form, which can be an indicator of environmental (architectural)
psychology in office interior design. Environmental psychology
investigates the inter-relationship between individuals and their
physical surrounding (Gifford et. al., 2011). According to this
definition architectural psychology can be defined as a branch of
the Environmental psychology, due to the fact that Architecture
is concerned with the built and physical features of the
surrounding.
In the relationship between people and built environment,
they can modify their physical surrounding, and also their
experiences and behaviour may change within this connection
(Mazumdar 2000; Fischl 2004). This might happen through the
processes of sensation, perception, and cognition (Ameed &
Amjad 2009).
Productivity is a ratio to measure how well an organization
(or individual, industry, country) converts input resources (labour,
materials, machines, etc.) into output (goods and services) (Brill
et.al., 1984). The present study investigating the Productivity in
terms of quantitative output in Architects’ Offices, which refers to
the amount of work, which can be measured by numbers, like
the drawing sheets.
There are many factors, which influence the individual's
Productivity, stress, and satisfaction at work. Psychologists have
realized that the physical layout of workplace is an important
factor, which has influences on employees’ Productivity
(Mazumdar 2000). The comprehensive studies found that
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improving the physical layout of offices may lead to Productivity
improvement for organization. (Gifford 1992). In another
interesting study Knight & Haslam (2010) negates the idea of
lean work space and adds that decorated offices with employee
inputs increases productivity and well-being.
3.1. The Hypotheses
The psychological part of the study deal with the personality
types introduced by Myers-Briggs model. The MBTI (Myer-
Briggs Type Indicator) tool was developed by Isabel Briggs
Myers and Katharine Briggs and is based on Carl Jung’s theory
of psychological types (Hammer 2010). This model is based on
four preferences (Myers et. al., 1998):
E or I (Extraversion or Introversion)
T or F (Thinking or Feeling)
S or N (Sensing or intuition)
J or P (Judgment or Perception)
The official Myers-Briggs Type Indicator test includes 93
questions. There are only two choices for each question, which
consists of word pairs and short statements. The words and
statements are not polar opposites, rather they are chosen to
reflect dichotomy preference (Brommer, 2010).
According to Myers Briggs Educator Danielle Poirier, the
dominant mental function is the most distinctive marker of a
person’s Personality type. Following this principle, she organizes
the 16 Myers Briggs Personality Types in four clusters, describe
in Table 1.
Dominant Intuitive Types (DIT) INFJ, INTJ, ENFP, ENTP
Dominant Sensing Types (DST) ISFJ, ISTJ, ESFP, ESTP
Dominant Thinking Types (DTT) ISTP, INTP, ESTJ, ENTJ
Dominant Feeling Types (DFT) ISFP, INFP, ESFJ, ENFJ
Table 1. Personality groups
Learning about the team’s personality type will help to
understand how the team functions. Successful teamwork
doesn’t often come naturally; it takes commitment, skill, time,
and effort.
In the context of Architecture, and since it intends to improve
the Productivity of employees with help of Psychology, the study
proposes the hypotheses which are tested the relationship
between indicators of three domains of study; Psychology,
Architecture and Productivity.
3.2. Research Framework
As Architectural Psychology is relatively new science and
Productivity would refer to both aspects of qualitative and quan-
titative outcome, some limitation and boundaries were defined in
case of three major domains of the study.
In the scope of Architecture, this study focuses on office
interior space and studies the elements of design in the
psychological framework. These elements can be listed as lines,
shape, forms, space, light, colour and texture, which help to
define a visual design or artworks (Gordon 2004). In this study
only three out of six elements of interior design namely Lighting,
Colour and Form were considered, thus; for further research,
other elements can be investigated.
There are four important concepts in psychology; behaviour,
motivation, cognition and personality. Among all these, the present
investigation has focused on the personality as human’s basic
asset (figure 2), thus other concepts can be examined by other
researchers. Personality is one of the psychological factors,
155
 OCCUPATIONAL HEALTH AND SAFETY MANAGEMENT

Figure 1. Hypotheses formulated for PLS analyses

Figure 2. Research framework

which has effects on the employees’ mental and emotional
condition of workplace and thereby influences Productivity. This
research among all the factors involves with work and worker’s
Psychology, investigates the influence of personality types on
respondents’ selection regarding elements of office interior and
in the second part reveals the influence of these selections on
productivity components.
The research studies the influences of physical condition of
workplace (particularly colour, lighting and form of the furniture)
on Architect’s Office production in case of quantitative output of
the employees (figure 2). The quantitative output refers to the
number of tasks achieved which are often important measure of
progress.
4. Methodology
The approach of the study is primarily qualitative in nature,
but it also involves quantitative analysis and drawing of impli-
cations through the interpretation of both qualitative and

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quantitative data. This is basically an “Ex post facto” kind of
research where a researcher has no control over the variables,
but can only report what has happened and what is happening
(Kothari 2008).
The method used in this study, following the Kerlinger’s
(1977), concept and technique of examining quantitative infor-
mation acquired from observation samples, in an effort to
analyse and evaluate the group of different variables, to enable
researchers to make choices to accept or reject hypothesized
relationships among the variables, and assist in case of
generating efficient implications from scientific observations
(Chin, W. W1998).
The universe of the study is employees of the Architects’
Offices, distributed in the six cities, in Iran (Tehran, Semnan and
Rasht) and India (Bangalore, Mangalore and Udupi). The re-
presentative random sampling techniques were applied to
ensuring that the group consisted of individuals’ representative
Figure 3. Independent and dependent variables of the study
4.2. The Research Instrument
A web-based survey was adopted as the research in-
strument targeted to employees in the Architects’ Offices in Iran
and India. This method was selected considering the time
constraints, convenience, online access, economic viability and
the standardized method of collecting data. The survey has
been implemented in order to test the hypothesis. For this pur-
pose, a self-administered questionnaire had been administered
with respect to the five variables: Psychology, colour, lighting,
form of the furniture and Productivity, which including five parts:
1. The demographic information of the 202 employees;
2. The standard questions of Myers-Briggs scale, identi-
fying the personality types of the employees;
3. Psychological Domain; including 3 questions concerning
with the respondent’s state of mind in work environment;
4. Architectural Domain; in this part their evaluations regar-
ding physical factors are asked. Colour: 3 questions
about their colour preferences, Lighting: 3 questions
about their light preferences, Form: 3 questions about
their form preferences;
5. Productivity Domain: contains 3 questions (Likert scale),
help to increase the quantitative output of the work.
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Access to Success Vol. 20, No. 168/ February 2019
of all sixteen personality types introduced in Myers Briggs
model. The data, which is basically qualitative in nature, is
converted into the quantitative form through Likert type 5-point
scale. It is then processed using statistical packages SmartPLS
version 2.0 and SPSS version 17.0. The results obtained
through analysis are used to test various hypotheses.
4.1. Variables
In this study, there are two groups of independent and two
groups of dependent variables. When the research investigates
the relationship between personality groups and architectural
elements, the personality groups are independent, while in an
approach to assess the connection between architectural ele-
ments and Productivity, these elements are independent, which
are clearly shown in Figure 3.
The data which is collected through the survey is based on
the workers’ opinions about the workplace and its impact on
their quantitative output of Productivity. Further, while develop-
ing the questionnaire, the following points were taken into
consideration:
 The categories of respondents competent enough to
provide the necessary information,
 The chosen items of each questionnaire truly measure
the dimension to which they correspond.
The reliability of a self-administered questionnaire of
Psychology of Architecture, and also the validity of measuring
employee’s Productivity by a few questions, were investigated
on 85 employees from both the countries to evaluate and
finalize the research instrument. Practicality of a measuring
instrument is judged in terms of economy, convenience and
interpretability, as mentioned before. This is one of the reasons
for retaining a maximum of 15 questions in the questionnaires
taking care to give a maximum coverage of the study topic. The
questionnaire was designed to be self-administrative in nature
and clear guidelines were given in the instrument itself, so that
there would be the minimum number of queries regarding how it
has to be filled.
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 OCCUPATIONAL HEALTH AND SAFETY MANAGEMENT
5. Findings
The demographics of the survey concern with the cha-
racteristics of a population such as gender, age and education.
The biggest part of the research population were females (64%).
In age categories there were 46% attendees with 25 to 34 years
old and only 5% of respondents were older than 45. Employees
in Architects’ Offices had different educational level including;
Diploma, Bachelor’s degree, Master’s degree and Professional
degree. In the research sample, around 52% of the respondents
had Bachelor’s degree (UG) which is the populated group.
In the second part of the questionnaire, respondents’ per-
sonality types were identified through standard questions of
Myers-Briggs theory. All of 16 personality types of MBTI (Myers-
Briggs Type Indicator) were identified in the sample. ESTJ with
frequency of 48 was the dominant Personality type, and DTT
(Dominant Thinking Type) was the populated personality group
with the frequency of 88.
The findings form the three last parts of the questionnaire
were used to analyse and test the 24 hypotheses of the study.
The statistical result of this study was outlined via SmartPLS,
which is one of the prominent software applications for Partial
Least Squares Structural Equation Modelling (PLS-SEM).
Structural Equation Modelling (SEM) is a second generation
multivariate data analysis method that can test theoretically
supported linear and additive causal models (Haenlein &Kaplan
2009). It is also a series of statistical methods that allow com-
plex relationships between one or more independent variables
and one or more dependent variables. This research focuses on
SmartPLS® because it is freely available to the research
community across the globe.
The set of hypotheses that were tested within this study, as
presented in Table 2 and significance of t-values at corres-
ponding p-values. The calculations for significance of the path
coefficients were determined using t statistics of the bootstrap
technique used in SmartPLS®.

Path coefficients Path Hypothesis

Hypothesis Description of Path t-value*
(Beta Values) Significance Testing

H1 DFT -> Colour 0.652 6.610 Significant Supported

H2 DFT -> Lighting 0.672 5.342 Significant Supported
H3 DFT -> Form 0.588 3.304 Significant Supported
H4 DIT -> Colour 0.671 5.690 Significant Supported
H5 DIT -> Lighting 0.744 8.815 Significant Supported
H6 DIT -> Form 0.735 8.109 Significant Supported
H7 DST -> Colour 0.301 1.987 Significant Supported
H8 DST -> Lighting 0.518 5.133 Significant Supported
H9 DST -> Form 0.466 4.304 Significant Supported
H10 DTT -> Colour 0.666 6.955 Significant Supported
H11 DTT -> Lighting 0.735 10.853 Significant Supported
H12 DTT -> Form 0.677 8.705 Significant Supported
H13 Colour -> Productivity (DFT) 0.396 1.675 Significant Supported
H14 Lighting -> Productivity (DFT) -0.004 0.185 Not Significant Not Supported
H15 Form -> Productivity (DFT) 0.359 1.758 Significant Supported
H16 Colour -> Productivity (DIT) 0.128 0.785 Not Significant Not Supported
H17 Lighting -> Productivity (DIT) 0.585 2.890 Significant Supported
H18 Form -> Productivity (DIT) 0.229 1.535 Not Significant Not Supported
H19 Colour -> Productivity (DST) 0.340 2.605 Significant Supported
H20 Lighting -> Productivity (DST) 0.433 3.046 Significant Supported
H21 Form -> Productivity (DST) 0.152 1.015 Not Significant Not Supported
H22 Colour -> Productivity (DTT) 0.236 1.693 Significant Supported
H23 Lighting -> Productivity (DTT) 0.044 0.322 Not Significant Not Supported
H24 Form -> Productivity (DTT) 0.542 3.333 Significant Supported

Table 2. Results of hypotheses testing for 24 hypotheses (N=202)

The results of the structural model assessment indicated five
out of the 24 hypotheses were not supported. For DFT group,
there was no significant influence of lighting on Productivity, also
same results were obtained for DTT group. But for these two
groups, Productivity was affected by colour and form selections
in work environment. The result indicates that all the links
between Personality groups exhibit high significance with their
dependent variables, preferences regarding architectural ele-
ments (colour, lighting and form).
Personality types in all four groups of DFT, DIT, DST and
DTT had significant influences on respondent’s preferences
regarding to colour, lighting and form, in office environment.
Except for DIT group, colour selection would have impacts on
Productivity for all groups. Totally, the results of the present
study also demonstrate significant relationship between colour,
lighting and form – as independent variables – and Productivity
as a dependent variable.
6. Implications
Due to the empirical study in the field of Psychology of
Architecture, the following implications may be drawn for
architects, psychologist and researchers which are working on
Productivity improvement.

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 OCCUPATIONAL HEALTH AND SAFETY MANAGEMENT
I. The Architects’ office is a place for thinking, creating, and
developing designing concepts relevant to Architectural
design. In this scenario, creativity has a great role to play,
to exchange the concepts to plans. As per the literature,
the office spaces would have effects on occupant’s
feelings and perception, so the physical layout of
workplace would have effects on employee’s creativity
and innovativeness. Designer must be aware about
features of the individual workstation and overall layout
of work area, in case of visual and psychological
convenience.
II. Personality type as a psychological factor, is an impor-
tant parameter in architectural design project, especially
interior design. Any living places dealing with occupants,
so their needs and characteristics should be considered,
to expand the fulfilment and pleasure in the spaces. The
findings of the study reveals that personality types have
impacts on their selections regarding physical features of
workplace, particularly in case of colour, lighting and form
of the furniture. Then designers need to pay attention to
these differences to create the proper environment for
employees.
III. Architectural condition of Architects’ office is important,
because people who will work in this place, fully
understand about the design and architectural elements,
and are aware about weakness and strength of space
design. The study advice designer to avoid any blind
designing and make a connection between residents and
design elements to increase the level of satisfaction,
pleasure and efficiency.
IV. Architecture in form of interior design has a great impact
on overall response of occupants. In Architects’ office,
any managerial or environmental strategy applies to
increase the efficiency or Productivity of the office. The
study suggest that application of physical factors must
follow the standards and operational policies, along with
the user’s psychological state. Comfortable and ergo-
nomic office design encourages the workers and
improves their Productivity substantially.
7. Conclusion and Future Scope
During the course of this research, a strong relation was
observed between Architecture, Psychology and Productivity, in
the Architects’ Offices. The conclusion of this research work was
drawn relying upon the research framework and the samples,
collected from two countries under the study. These analyses
verified the connection between interior design and its
components-colour, lighting and form – and the personality of
the employees, at the office interior space, which helped to
enhance the Productivity. The result was based on the user’s
subjective impression and personal opinion in case of colour,
lighting and form of the furniture.
Hence, there is an opportunity to extend this work by
determining the impact of the architectural sector in any type of
offices, and evaluating their influences on extraneous factors
such as behaviour and motivation of employees in a situation of
one particular activity. Furthermore, the area of the study could
cross the boundaries and cover other countries, in case of
concept development in the field of architectural Psychology.

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