Problems of Management in The 21st Century, Vol. 2, 2011

Problems of Management in the 21st Century, ISSN 2029-6932 VOLUME 2, 2011
ISSUES IN MANAGEMENT
RESEARCH – 2011
Scientific Methodical Center „Scientia Educologica“, Lithuania,

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Science (ESHS) and International Council of Associations for Science Education (ICASE)
Editor-in-Chief
Prof.dr. Vincentas Lamanauskas, Scientific Methodical Centre „Scientia Educologica“, Republic

��
of Lithuania
Editorial Board
Prof., dr. Constantin Bratianu, Academy of Economic Studies, Romania

Assoc. prof., dr. Tsai-Hsin Chu, National Chiayi University, Taiwan
Assoc. prof., dr. Dana Egerova, University of West Bohemia, Czech Republic
Prof., dr. Ivars Muzis, Riga Teacher Training and Educational Management Academy, Latvia
Prof., dr. Stephen Nzuve, University of Nairobi, Kenya
Prof., dr. Sonia Teresinha de Sousa Penin, University of Sao Paulo, Brazil
Prof., dr. Chris Rensleigh, University of Johannesburg, South Africa
Asst. prof., dr. Nikhil Chandra Shil, American International University, Bangladesh
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issued by the SMC „Scientia Educologica“ in cooperation with Scientia Socialis, UAB.
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ISSN 2029-6932 © SMC „Scientia Educologica“, Lithuania, 2011

problems
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Volume 2, 2011
Contents
Editorial
THE QUALITY OF STUDIES: MANAGEMENT ASPECT

Vincentas Lamanauskas ............................................................................................... 5
Articles
THE DISSEMINATION OF FRANCHISING ALL OVER THE WORLD: AN ATTEMPT TO

ASSESS THE SCALE OF THE PHENOMENON
Alicja Antonowicz ..................................................................................................... 8
MANAGING PROCUREMENT OF FOOD WITH ADDED VALUE: A CASE STUDY OF

BEEF IN THE CATERING SECTOR
Hanna Astner, Ingrid Stigzelius, Hans Andersson, Cecilia Mark-Herbert ...................................... 19
PILOT STUDY OF TEACHER BURNOUT IN GEORGIAN CONTEXT

Maya Bitsadze, Marine Japaridze .................................................................................... 36
KNOWLEDGE LIFE CYCLE AND ITS APPLICATION IN AUTOMOTIVE INDUSTRY

Jana Ďurišová ........................................................................................................... 45
PROJECTME: A FILMED LIVE-STUDIO SELF-DEVELOPMENT LEARNING EVENT

INFORMED BY EMPIRICAL RESEARCH INTO HUMAN RESOURCE
PRACTITIONERS’ LEARNING-FOR-TRANSFORMATION NEEDS
Lesley Gill, Christine McConnell, Steve Atkins ................................................................... 54
COMPARISON OF BEST PRACTICE BENCHMARKING MODELS

Barbora Jetmarová ..................................................................................................... 76
AN EXPONENTIAL AND LOGARITHMIC UTILITY APPROACH TO EIGENVECTOR

METHOD IN THE ANALYTIC HIERARCHY PROCESS: THE IDEA VALIDATION
WITH EXAMPLE LOGISTIC APPLICATION
Pawel Tadeusz Kazibudzki ........................................................................................... 85
DOES OWNERSHIP MATTER? A STUDY OF FAMILY AND NON FAMILY FIRMS

IN PAKISTAN
Muhammad Nauman Khan, Fawad Khan ........................................................................... 95
COMPETENCE REQUIREMENT DETERMINATION AND DEVELOPMENT IN

SUPPLY CHAINS
Zoltán Kovács, Beáta Pató, Noémi Elbert ..........................................................................110
THE FACETS AND ECONOMIC BENEFITS OF THE INFORMATION COMMUNICATIONS

TECHNOLOGY AND INNOVATIONS USED BY COMMERCIAL BANKS IN KENYA
Peterson Obara Magutu, Nixon Onchara Muganda, Gladys Monchari Ondimu ...............................121
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APPLICATION OF INTERMEDIATE DOCUMENT MESSAGE IN THE PROCESS OF

ENTERPRISE RESOURCE PLANNING AND MANUFACTURING EXECUTING SYSTEM
INTEGRATION
Simon Oman ........................................................................................................... 141
A MAIN SOLUTION FOR PROBLEMS OF MANAGEMENT IN THE 22ND CENTURY

Mirko Pečarič .......................................................................................................... 157
STUDENT FACTORS INFLUENCING CHEATING IN UNDERGRADUATE

EXAMINATIONS IN UNIVERSITIES IN KENYA
David Kiptanui Ruto, Lydia Cheruto Kipkoech, Daniel Kimutai Rambaei .................................... 173
3D VISUALIZATION OF A CASE-BASED DISTANCE MODEL

Péter Volf, Zoltán Kovács, István Szalkai .......................................................................... 182
Information
INSTRUCTIONS FOR AUTHORS ............................................................................. 198

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THE QUALITY OF STUDIES:
MANAGEMENT ASPECT
Vincentas Lamanauskas
University of Šiauliai, Lithuania
E-mail: v.lamanauskas@ef.su.lt
In recent years attention to quality of studies is not decreasing. Lots of different level and
type articles have been written, books and other literature have been published. On the other
hand, over the last few years different national, regional and international science conferences
and symposiums took place. Some of them can be mentioned. In November, 2000, “International
Conference on Quality Assurance in Higher Education: Standards, Mechanisms and Mutual
Recognition” took place in Thailand. One of the main accents in this conference was the
question on how to establish new mechanisms of quality assurance and quality improvement
(Harman, 2000). In October, 2010, an international conference took place on Quality Assurance
in Higher Education in Africa: Setting a Sustainable Agenda for a New Decade (http://www.
unesco-bamako.org/conferences/). In February, 2001, 10th International Research Conference
on Quality, Innovation & Knowledge Management (http://www.buseco.monash.edu.au/mgt/
qik-conference/) took place in Malaysia. There’s no purpose in mentioning all conferences
that were held. All of them were significant in their own way. After all, different events on
university study quality questions are regularly organised by international organisations such
as, for example, European University association (http://www.eua.be/Home.aspx). One of
the mottos of EUA organisation is – strong universities for Europe. So, it is obvious, that the
concern in the university study quality is really huge. However, the essence of the matter lies
somewhere deeper. The main goals, formulated in Bologna declaration, had to be implemented
by 2010. However, now it becomes clear, that some of the vitally important things were not
realised and there are more and more doubts if they will, on the whole, be carried through.
The Bologna process itself is not sought to be analysed. What interests us firstly, is the quality
of studies’ management question. Various researches reveal that the university study quality
in some countries has significantly decreased even measuring according to the most minimal
criteria. First of all, this is because most universities are oriented into providing service. It is
known, that service University is not capable to ensure the proper quality of the studies and
of provided education at the same time. Mass universities meant for mass usage. University
education is more and more “Mc.Donaldized” (Lamanauskas, 2011a).
Going back to Bologna process, it is worth to notice that the question of quality in the
mentioned declaration is not the basic. In the declaration it is said, that Bologna process members’
cooperation is important seeking to evaluate the quality on the basis of inter-comparative criteria
and methods. During the period after the announcement of Bologna declaration, negative,
opposing ideas were in fact, getting stronger as well. It is natural in this sense, that every
country is peculiar, social-cultural and political-economical context of the countries is rather
distinctive. In such different contexts, complex functional links and various patterns exist. It is
likely, that this is one of the reasons why Bologna process was not going and is not going so as
it was believed. Both students and teachers regularly, in different forms express dissatisfaction
with the current situation. For example, a new law on science and studies came into force in
Lithuania as far back as 2009. A new study fee system – student’s basket - was legitimated. In
other words, students, entering state higher schools, having received state financing, so-called
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“study basket”, don’t have to pay any other fees related with the studies. In Lithuania, in 2009,
about 21thousand of freshmen were admitted to study in the places financed by the state: 11
thousand –to universities, 10 thousand – to colleges. In the later years political attitudes were
changing. The number of financed places at state universities is consecutively diminishing. It is
paradoxical, however, in the preamble of a new mentioned law it is written that “The mission of
science and studies is to help assure the prosperity of the country society, culture and economy”
http://www3.lrs.lt/pls/inter3/dokpaieska.showdoc_l?p_id=343430&p_query=&p_tr2=).
However, it is impossible to implement such mission without strengthening universities
in all possible ways, and not devoting proper attention to them. It is urgent not only to Lithuania
but to smaller European states as well. For the universities of such countries it is difficult indeed
to survive in global and aggressive market, where quite often money determines everything. It
can be stated, that quite often some universities complete the number of students not according
to their knowledge and abilities, but according to their financial power. Thus, the student who
brings money to university is expected. And it doesn’t matter in what form –whether it is
study basket or any other. The most important is to survive in market. Thus, in this respect
study quality becomes a subject of minor importance. It is clearly understandable, that study
quality directly depends on science quality. The studies have to be based on the newest science
achievements. Unfortunately, in many cases there is not so. Universities become very ordinary
schools where relatively not bad teachers work, conveying the truths of the textbooks. Free
attitude to studies, free attendance of the lectures, orientation only to student needs (sometimes
pseudo needs) almost don’t leave place for fundamentality, which is the basis of good education.
The duration of studies is being diminished, claiming that education can be acquired during the
shorter time. And where are these limits of cleverness and rationality? This is management
question. One of the aspects is study quality mythologization. In some European countries,
especially in post-soviet ones, a stereotypical thinking is still vital, isn’t it? This reveals itself in
different ways. Study programmes are assessed, old study programmes are re-written, naming it
improvement, different self-appraisals and reports are arranged, development is imitated and so
on. On the other hand, it can be seen, that practically funds are not allotted for raising teachers
and scientists’ qualification, for the renewal of scientific research base (equipment, laboratories
and other). Students also very often choose higher education only for diploma; they are not
motivated to seek professional development. A lot of examples could be presented, however
this is not the aim of this article. It is obvious, that a rather wide disparity remains between
modern declarations and current practice. The lack of systemic thinking in higher education
management sphere is not only real, but it becomes even dangerous (Lamanauskas, 2011b).
The other aspect is risk management in higher education. The quality of studies can’t
be analysed separately from all university and other processes taking part in it. The quality of
conditions, processes and results is a universal very resiliently related triad. In other words,
university work is specific in many respects and here classical risk management patterns quite
often don’t suit or don’t function properly. For example, rather often employers complain
that contemporary university preparation is not proper, that young people, having finished
universities, hardly adapt themselves in the labour market, preparation is very theoretical, so
enterprises and other organisations are made to re-teach specialists in their working place.
For this, undoubtedly, extra investments are necessary. This is one of the risks for a concrete
enterprise fail to achieve necessary productivity due to insufficient qualification of the workers.
University education importance can be discussed in many ways however the fact is obvious,
that universities are still estranged from today’s labour market. Here is one example. Let’s say,
in recent years quite a lot of lawyers have been trained in Lithuania. Law study programmes are
almost in all universities and in some colleges. However, when more serious judicial problems
arise, government looks for law specialists behind the boundaries of the country. This tendency
is observed not only in Lithuania, but in some other European countries as well. Without doubt,
Vincentas LAMANAUSKAS. The Quality of Studies: Management Aspect
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there are a lot of other risks. Therefore, it is important, that risk management ensuring the
quality of studies remains very urgent.
Thus, good higher education is really very expensive and is hardly achievable. It is
paradoxical, that it is less and less valued. The power of “attraction” between universities and
employers is changed by the power of “repulsion”. The latter is getting stronger and stronger.
How to reduce this always growing distance between two sides? How to escape the produce
of “fault” for always growing price? Good examples occur. How to coordinate very different
interests of the employers? Quite often universities are blamed for preparing the youth too
academic, “bookish”, almost not having any practice. The middle and small business sectors
need people, having bigger practical experience, after all, such employers are content with the
cheaper working force. On the contrary, large business representatives require high qualification
workers with big theoretical and creative power, capable to create (generate) and realise ideas.
Thus, the problem of the quality of studies remains the key problem in nowadays
university work. It is understandable, that different countries have different experience in this
field both in horizontal and vertical sense. The quality of studies conception despite all efforts
remains diverse and has multiple meanings. Paraphrasing a familiar soviet times’ statement
(“from everyone - according to possibilities, for everyone – according to demands”),one can
state, that higher education can’t be provided according to demands, and it can’t be required
from graduates according to their abilities and possibilities. Massification of higher education
in a direct way negatively affects the quality of studies (process), as well as higher education
quality (result). This is the essential risk in university management.
References
Harman, G. (Ed) (2000). Proceedings of the International Conference on Quality Assurance in Higher
Education: Standards, Mechanisms and Mutual Recognition (Bangkok, Thailand 8-10 November
2000). Bangkok. Available on the internet: http://unesdoc.unesco.org/images/0012/001278/127860e.pdf
(Retrieved 22/112011).
Lamanauskas, V. (2011a). The ”McDonald‘s-ization“ of Education: Search for Fast Results. Problems of
Education in the 21st Century (Recent Issues in Education - 2011), Vol. 34, p. 5-8.
Lamanauskas, V. (2011b). Perspective Management: Systemic Thinking and Value Synergy Necessity.
Problems of Management in the 21st Century (Topical Issues in Management - 2011), Vol. 1, p. 5-6.
Received: October 29, 2011 Accepted: November 28, 2011
Vincentas Lamanauskas Professor, Siauliai University, Natural Science Education Research Centre, 25-
119 P.Višinskio Street, LT- 76351, Siauliai, Lithuania.
Phone: +370 687 95668.
E-mail: lamanauskas@projektas.lt
Website: http://www.lamanauskas.projektas.lt
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THE DISSEMINATION OF FRANCHISING
ALL OVER THE WORLD: AN ATTEMPT TO
ASSESS THE SCALE OF THE
PHENOMENON
Alicja Antonowicz
University of Gdansk, Sopot, Poland
E-mail: alicja.antonowicz@wp.pl ��
Abstract
Nowadays, franchising is one of the fastest developing forms of business in the world. It is used in
economic processes on all the inhabited continents of the Earth. Unfortunately, it is very difficult to assess
the scale of this phenomenon. Assessment of the volume of franchising all over the world is made difficult
mostly by the fact that none of the official international statistic institutions gathers data as regards
the frequency of entering into franchising agreements. Information on the number of businesses in a
given country or on a given continent is available, but enterprises operating on the basis of franchising
agreements are not educed from them. The purpose of the article is to specify the directions and scale of
expansion of franchising all over the world. To do it, franchising related information was used, possessed
by organizations which promote the idea of franchising in various countries. For this purpose, a few
dozen of franchising associations were identified, representing 6 continents; each of these associations
represents the franchising market of one country. As a result of direct interviews via e-mail or telephone,
it was possible to obtain the basic data characterizing franchising markets of more than 70 countries.
The data obtained concern, among others, such aspects as the number of franchising networks and
establishments, as well as employment and turnover generated by franchising.
Key words: franchising expansion, franchising agreement, franchising networks (chains), franchising
establishments (units).
Introduction
Franchising as a legal or marketing concept was not new, when its wide use commercially
started to develop in late 1940s and 1950s (Mendelsohn, 2005). At the present time franchising
is one of the fastest developing forms of business in the world. Accordance with the European
Code of Ethics for Franchising “franchising is a system of marketing goods and/or services
and/or technology, which is based upon a close and ongoing collaboration between legally
and financially separate and independent undertakings, the Franchisor and its individual
Franchisees, whereby the Franchisor grants its individual Franchisee the right, and imposes
the obligation, to conduct a business in accordance with the Franchisor’s concept. The right
entitles and compels the individual Franchisee, in exchange for a direct or indirect financial
consideration, to use the Franchisor’s trade name, and/or trade mark and/or service mark,
know-how, business and technical methods, procedural system, and other industrial and/or
intellectual property rights, supported by continuing provision of commercial and technical
assistance, within the framework and for the term of a written franchise agreement, concluded
between parties for this purpose” (European Code of Ethics for Franchising, 2011)��
. Two levels
of people are involved in a franchise system: the franchisor, who lends his trademark or trade
name and a business system; and the franchisee, who pays a royalty and often an initial fee for
Alicja ANTONOWICZ. The Dissemination of Franchising all Over the World: An Attempt to Assess the Scale of the Phenomenon
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the right to do business under the franchisor’s name and system. So the franchisee is the owner
the franchise establishment (unit) and the franchisor is the organizer of the franchise network
(chain). Franchising at its best is a partnership which establishes trust, opens communications,
and accrues benefits to both the franchisor and its franchisees. Franchisee success means both
growth and enhanced profitability for the franchisor (Perry, 1998).
Franchising plays an important role not only within internal markets of individual
countries, but occupies more and more important position in international trade. In the opinion
of the International Franchise Association (IFA) [1] “franchised businesses continue to grow in
all corners of the world. Domestic franchisors in many countries are increasingly establishing
franchises across borders. International franchising has been successful because consumers
around the world recognize famous brands as symbols of quality, consistency, service, and
value” (The International Franchise Association, 2011). In scientific publications in the field of
economics and management, more and more space is devoted to the internationalization of that
form of economic cooperation. In a stratification of forms of internationalisation of enterprises,
franchising is classified among cooperative connections of the second degree of intensity (Wach,
2005). B. Pokorska (2003) points out that in strategies of international corporations, a trend
of development of franchising networks can be clearly seen, not only because entrepreneurs
choose the option of development through franchising or decide to transform their business
into a franchise system after a few years on the market, but more and more often franchising is
used as a remedy for recession and economic breakdown. Selection of the franchising formula
allows the entrepreneur to combine his/her own development priorities with requirements of
international markets and, first of all, it permits market expansion with relatively low capital
investments [2]. Therefore, for many entrepreneurs, franchising became one of the key elements
of their development strategy, which not only permits diversification of the product and service
offered, but makes it significantly easier to enter market niches and makes it possible to acquire
geographically new areas (Antonowicz, 2010).
The presence, during the last few years, in scientific literature and economic press, of
numerous statements concerning an unusually dynamic international expansion of franchising
with the simultaneous lack of global statistics which would confirm that proposition, have made
the author of this article try to estimate the scale of that phenomenon. The basic objective of the
research is to answer these three essential questions:
1) How wide is the expansion of franchising? Is it possible to talk about “worldwide
franchising boom”? If so, has franchising actually encompassed all continents?
2) How many franchising agreements are entered into all over the world, i.e. what is
the total number of operating franchising networks and establishments in the global
scale and per a continent?
3) What employment and income does franchising generate?
Methodology of Research
Difficulties in the Assessment of the Scale of the Phenomenon
Assessment of the scale on which the franchising formula is used all over the world is
a complicated task. It is made difficult mostly by the fact that none of the official international
statistical institutions gathers data as regards the frequency of entering into franchising
agreements in the world or within a continent or country. General information on the number
of businesses in a given country or on a given continent is available, but enterprises operating
on the basis of franchising agreements are not educed from them, as nobody is counting the
number of franchising cooperation agreements that are entered into.
As a result, researchers who want to assess the scale of the franchising phenomenon in
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10 a given area are forced to use franchising-related information possessed by organisations that
promote the idea of franchising in individual countries. These institutions usually keep a record
of franchising networks or are able to approximately estimate the number of entrepreneurs who
operate on the basis of franchising agreements in the area subject to them. A vast majority of
these organisations are associations or unions, the members of which are participants in franchise
systems or entities cooperating with them and sometimes also scientific or research institutions.
Among these associations, it is possible to find both official, state-supported organisations,
comprising as many as several thousand members, and less official unions, gathering together
only a few organisers of franchising systems. However, it should be pointed out that the manner
of documenting phenomena within the field of franchising by those institutions is unfortunately
not uniform, as a result of which information on franchise markets in individual countries
vary both as regards its scope and level of detail. However, due to the lack of global studies
mentioned earlier, reports prepared by the institutions in question are at this moment the only
source of information on the development of franchising in individual countries. That source
was also used for acquisition of data used for research, the findings of which will be discussed
in this article.
The Manner in which Research was Conducted
In order to acquire data for research, the first step consisted in an attempt to identify
as many country-wide institutions representing the franchising environment of individual
countries as possible. As a result of efforts taken, it was possible to identify (name and contact
data) as many as 71 franchising institutions��
��
(list in the
��
Appendix),
��
each of which represents
the franchise market of a different country. It turned out that among the institutions identified
are representatives of as many as 6 continents, which makes it possible to point out at the very
beginning that franchising is already employed on all the inhabited continents of the world. As
the sample, (71 countries) 20 European countries were used first, the franchising institutions
of which are associated into the European Franchise Federation (EEF) [3]. The other group
comprised 24 countries [4] from outside of Europe, associated into the World Franchise Council
(WFC) [5]. The remaining 27 countries which were included into the sample, were countries
in which there is an official, country-wide institution connected with the franchise market, but
it is not associated into any of the supranational franchising organisations (such as the EEF or
WFC).
The scope of the sample used for the research was forced by the availability of worldwide
data concerning franchising. However, it does not mean that outside the 71 countries that were
analysed, franchising is not present at all. There are countries in which franchising agreements
are entered into, but no country-wide institution that would represent the franchising environment
has been established yet. Due to the fact that there is no such institution, identification of such
a country is very difficult and it is surely not possible to assess the number of entities operating
within its area on the basis of franchising agreements. Apart from that, the lack of institution
representing interests of participants in franchising agreements means that franchising is
employed on a small scale in a given country, as a result of which, not taking such a country
into account in the analysis should not affect the findings achieved to a significant extent [6].
Another step in the research consisted in contacting the identified franchising institutions
in order to conduct a direct interview with them. The interview was conducted via telephone or
e-mail. All institutions were asked to answer the same questions, concerning the development
of franchising within the area subject to them. The most important questions included:
1) How many franchising networks and establishments operate in the country?
2) What employment does the franchising sector generate?
3) What income does the franchising sector generate?
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As a result of numerous attempts to establish cooperation with the abovementioned 11

associations, the author finally managed to obtain information characterizing the franchise
markets of all 71 countries. For the research, the latest statistical data were used where possible,
i.e. data from the years 2008-2010. However, it was very difficult to ensure a uniform time
criterion for the analysis as the franchising organisations in individual countries prepare reports
and statistical compilations at various time intervals. Some franchising institutions representing
countries covered by the analysis conduct research concerning the number of franchising
agreements every 3-5 years. Therefore, due to the fact that, in case of some countries, it was
not possible to obtain data for the same moment in time for the entire sample, data for years
preceding the 2008-2010 period were used for research, which are the latest statistical data
available for these countries [7].
Results of Research
Number of Franchise Networks and Establishments
Analysis of aggregated data, characterising the franchise markets of 71 countries showed

that within their area, 40,200 franchising networks existed, which used more than 3 million sales
establishments. At the same time, the analysis showed that the number of franchise networks
and establishments is different on different continents (Fig. 1).
16 000 1 600
Number of establishments
Number of networks
12 000 1 200
(thousands)
8 000 800
4 000 400
0 0
Europe Asia North South and Africa Australia
America Central
America
Franchise networks Franchise establishments
Figure 1: The number of franchise networks and establishments.
As regards the size of the franchise market, measured by the number of businesses that
entered into franchising agreements, Europe and Asia are the leaders. The highest number
of franchising networks (14,600) operates in Europe, and within their confines, 540,700
establishments operate. Asia in turn is the leader as regards the number of franchising
establishments: in 13,900 registered networks operate as many as 1,300,000 establishments.
South and Central America��
occupy
��
the next place; in
��
the period subject to analysis, 5,500
franchising networks operated, using 208,800 establishments. The next is North America
where, in the period subject to analysis, 843,700 franchising units operated, associated into
3,400 franchising networks. Australia occupies the penultimate place, the franchising sector in
Australia creates 1,400 networks and 93,500 franchising establishments. Definitely the lowest
number of franchising agreements is entered into on the African continent, on which in that
period there were only 1,200 franchising networks, which used 31,700 establishments.
Analysis of the figures shown in Fig. 1 reveals that the number of franchise networks
operating on a given market does not directly translate into the number of franchising
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12 establishments present in that area, which is confirmed by the situation in Europe and North
America. Whereas in North America, within the confines of 3,400 networks operated, in the
period subject to analysis, 843,700 franchising units; on the European market, on which the
number of networks was four times higher (14,600), there were only 540,700 franchising
establishments. It is the consequence of the average size of franchising network on an individual
continent, measured by the number of establishments it includes. On average, in the period
subject to analysis, the largest franchising networks operated in North America (on average
248,200 establishments per network), whereas the smallest ones were in Africa and Europe,
where the average network operated on the basis of 26.2 and 36.9 franchising units, respectively.
The average size of a franchise network for the entire sample of countries subject to analysis
was at the level of 73.9 sales units.
An Attempt to Assess the „Degree of Saturation” of Individual Continents with Franchising
The comparative analysis conducted so far made it possible to rank the continents per
the absolute number of businesses using franchising agreements. However, the potential of
development of franchising in a given area may depend, to a certain extent, on the degree of
saturation of the market with this form of economic activity. In order to determine the saturation
in a simplified manner, data concerning the number of franchising networks and establishments
were supplemented with information on the population size (Population Reference Bureau,
2011).
60 3 600
Average number of networks
establishments per million of

per million of inhabitants
Average number of
45 2 700
inhabitants
30 1 800
15 900
0 0
America Central
America
Franchise networks Franchise establishments
Figure 2: The number of franchise networks and establishments per million of

inhabitants.
Analysis of the quotient of these values (Fig. 2) shows that, with reference to the
population size, statistically the highest number of franchise networks and units operated, in
the period subject to analysis, in Australia, in which per million of inhabitants were, on average,
53 franchising chains and 3,450 establishments. A relatively high number of franchising units
per million of inhabitants also characterises North America (2,437 establishments). Potentially
the most difficult access to businesses operating on the basis of franchising agreements had,
in the period subject to analysis, the inhabitants of the African continent, where per million of
inhabitants were only 4 networks and 97 franchising units. A relatively low level of the rates
subject to analysis also characterises the Asian continent (383 establishments and 4 chains)
and South and Central America (386 establishments and 10 chains). For the entire sample, the
discussed rates were as follows: 560 establishments and 8 networks per million of inhabitants.
Summing it up, the analysis shows a very high degree of variation in the number of
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Volume 2, 2011
franchising entities per million of citizens on individual continents, which indicates different 13
degrees of development of franchise markets in various parts of the world. Areas characterized
by a low degree of saturation surely have a large potential for the development of franchising,
in particular for franchise networks interested in international expansion.
Employment and Income Generated by Franchising
Analysed also was the volume of employment and income generated by businesses
cooperating on the basis of franchising agreements in various world areas. A research conducted
in this field shown that in all the countries in question, franchising created, in the period subject
to analysis, 25,400,000 jobs and generated income in the amount of USD 1,935,100,000 (Fig.
3).
10 000 1 000
Employment (thousands)
Income (billions USD)

7 500 750
5 000 500
2 500 250
0 0
America Central
America
Employment Income
Figure 3: Employment and income generated by franchising.
As regards the continents subject to analysis, the highest level of employment in the
field of franchising showed Asia (9,700,000 people) and North America (8,600,000 people)
and the lowest: Africa (496,300 people) and Australia (770,400 people). Income generated by
the franchising sector trends similarly to the employment: the highest value was recorded in
North America (USD 806,600,000,000) and Asia (USD 450,000,000,000), and the lowest in
Africa (USD 37,000,000,000) and South and Central America (USD 116,600,000,000). At the
same time, it is visible that the level of generated employment and income is to a significant
extent correlated with the number of franchise networks and establishments operating on a
given continent.
Figure 4: Share of income generated by franchising in the GDP.�

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14 In order to relativise the findings obtained and at the same time to illustrate the role which
franchising plays in the economic system, quotient of the turnover generated by the franchising
sector and the GDP (Word Bank, 2011) of the countries subject to analysis was used (Figure 4).
The analysis that was carried out shown that the total income obtained by franchising networks
and establishments in the period subject to analysis constituted from as little as 1.9% (Europe)
to as much as 13.5% (Australia) of the total GDP of a continent. Only in the case of Australia,
the analysed rate was a two-digit value.
At the same time one should notice a significant convergence between the obtained
continent ranking and the ranking of saturation of franchise markets which was presented
before. The share of franchising income of the entire sample was at the level of 3.3% of the
global GDP, which permits drawing a conclusion that the importance of the franchising sector
to the global economy is yet relatively low.
Conclusions
Research findings presented in the article show that franchising agreements are widely
used around the world; it was possible to identify as many as 71 countries in which franchising
is present. The world franchise market is comprised of 40,200 franchising networks and more
than 3 million franchising establishments, which create 25,400,000 jobs and generate income in
the amount of USD 1,935,000,000. Spatial grouping of the countries identified made it possible
to conclude that the dynamic expansion of enterprises using the franchising formula, called as
franchising boom, has covered all the inhabited continents: Europe, Asia, North America, South
and Central America, Australia and Africa. However, visible is the various level of development
of franchise markets on individual continents. The largest franchise markets are in Europe and
Asia, whereas the highest level of saturation with franchising is in Australia. A simplified
rate of saturation of continents with franchising, i.e. the quotient of the number of business
employing franchising in their activities and the number of inhabitants of a given area, shows a
significant convergence with the share of turnover generated by franchising in the total GDP of
the continents. The level of employment and income generated by the franchising sector is in
turn directly dependent on the number of enterprises that entered into franchising agreements
in a given area, which is to a large extent a derivative of the degree of dissemination of the idea
of franchising and the length of the period of use of franchising agreements in trade on a given
continent.
Summing it up, the findings obtained permit drawing a conclusion that there still is a
large potential of development for franchising in the world economy and differences in the
degree of development of franchise markets on individual continents will gradually disappear
with time. Comparison of the findings obtained with the findings of previous analyses (carried
out by the author of this article in the years 2007-2008) confirm the opinion expressed in
scientific literature and economic press that in recent years, an increasing interest has been
evoked by Asia and South America among grantors of franchising licences. According to L.N.
Swartz (Franchising Director working for Arthur Andersen Consulting) the „hottest” regions
of the world are now Asia, South America and Africa. This opinion also is shared by B. Keddy
(Director for International Affairs in the International Franchise Association), according
to whom Asia and South America present the strongest potential for growth of franchising
(Gowen, 2006).
Notes
[1] International Franchise Association (IFA) was established in 1960 to build and maintain a favorable
economic and regulatory climate for franchising. It is the only association serving as the voice
for franchising in the United States and is a major participant in the international franchise arena.
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IFA’s mission is to enhance and to safeguard the business environment for franchising worldwide. 15
IFA’s membership and network encompass some 1,000 franchisors, 350 suppliers, and over 7,000
franchisee members (International Franchise Association, 2011).
[2] According to French experts, franchising is the most flexible formula, allowing enterprises to
perform both accommodative and developmental activities (Franchise: une formule souple dans une
économie en crise, 2003)�.
[3] European Franchise Federation was established in Belgium, in 1972. Its members are national
franchising associations or federations from Europe. Tasks of the EFF include conducting research on
various franchising-related issues, coordination of actions of its members, franchising promotion and
in particular, protect interests of parties to franchising agreements (European Franchise Federation,
2011).
[4] When the research was conducted, WFC comprised 44 countries, 20 of which represented the
European continent and as such, they were qualified for the research due to the fact that they were
members of the EEF, the remaining 24 countries were from outside of Europe.
[5] World Franchise Council was established in France, in 1994, as a voluntary union of franchising
associations. The overriding goal of the WFC is mutual support in the sphere of development of
the institution of franchising on the native market and representing the common standpoint on
the international arena. Tasks of the WFC also include propagation of information on franchising
agreements and promotion of the idea of franchising all over the world (World Franchise Council,
2011).
[6] The sample which was adopted covers nearly 80% of the whole population of Earth, measured by the
number people living in the selected 71 countries in relation to the global population.
[7] In the case of 76% countries subject to the research, data came from the years 2008-2010 and in the
case of the remaining 24%, data were collected earlier, in the years 2003-2007.
References
Antonowicz, A. (2010). Franchising - uwarunkowania i perspektywy rozwoju. Gdynia: Novae Res, p.

66.
European Code of Ethics for Franchising (2011). Retrieved: 09/11/2011, from: http://www.eff-franchise.
com/spip.php?rubrique13.
European Franchise Federation (2011). Retrieved: 11/10/2011, from: http://www.eff-franchise.com.
Franchise: une formule souple dans une économie en crise (2003). Libre Service Actualités, No. 1805,
p. 55.
Gowen, A. (2006). Franchisors go South in Asia, Africa, Americas. Franchise Magazine, Retrieved:
6/09/2006, from: http://www.franchisetimes.com.
International Franchise Association (2011). ��

Retrieved: 10/11/2011, from: http://www.franchise.org.
Mendelsohn, M. (2005). The guide to franchising. Bedford Row: Thomson Learning, p. 1.
Perry, R. L. (1998). The Franchise Cooperative Handbook. Washington: International Franchise

Association, p. 13.
Pokorska, B. (2003). Franchising w rozwoju procesów integracji w handlu. Handel Wewnetrzny, No. 4-5,
p. 99.
Population Reference Bureau (2011). 2011 World Population Data Sheet. Washington, p. 6-13.
Wach, K. (2005). Dzialalnosc gospodarcza w Unii Europejskiej. Wybrane zagadnienia. Krakow:

Akademia Ekonomiczna w Krakowie, p. 50.
Word Bank (2011). Data by country: Countries and Economies, Retrieved: 12/10/2011, from: http://data.
worldbank.org/country.
World Franchise Council (2011). Retrieved: 11/10/2011, from: http://www.worldfranchisecouncil.org.

problems
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Volume 2, 2011
16 Appendix
List of franchise associations
Mem-
Member
No. Country Association Web page ber
WFC
EFF
Argentine Association of Franchis-
1. Argentina www.aafranchising.com YES NO
ing
2. Australia Franchise Council of Australia www.franchise.org.au YES NO
3. Austria Austrian Franchise Association www.franchise.at YES YES
4. Bangladesh Bangladesh Franchise Association - NO NO
5. Belgium Belgian Franchise Association www.fbf-bff.be YES YES
6. Brazil Brazilian Franchise Association www.abf.com.br YES NO
7. Bulgaria Bulgarian Franchise Association www.bulgariafranchise.com NO NO
8. Cameroon Cameroon Franchise Association - NO NO
9. Canada Canadian Franchise Association www.cfa.ca YES NO
10. Chile Asociacion de Franchising de Chile - NO NO
China Chain Store & Franchise
11. China www.ccfa.org.cn YES NO
Association
12. Colombia Colombia Franchise Association www.centercourt.com/acolfran NO NO
13. Costa Rica Costa Rican Franchises Association - NO NO
14. Croatia Croatian Association for Franchising www.fip.com.hr YES YES
15. Cyprus Cyprus Franchising Association www.cyprusfranchising.com NO NO
16. Czech Republic Czech Franchise Association www.czech-franchise.cz YES YES
17. Denmark Danish Association of Franchising www.dk-franchise.dk YES YES
Dominican Dominican Republic Franchise
18. - NO NO
Republic Association
19. Ecuador Ecuador Franchise Association www.aefran.org YES NO
Egyptian Franchise Development
20. Egypt www.efda.org.eg YES NO
Assoc.
21. Finland Finnish Franchising Association www.franchising.fi YES YES
22. France Fédération française de la franchise www.franchise-fff.com YES YES
23. Germany German Franchise Association www.franchiseverband.com YES YES
24. Great Britain British Franchise Association www.thebfa.org YES YES
25. Greece Franchise Association of Greece www.franchising.gr YES YES
Asociación Guatemalteca de
26. Guatemala www.guatefranquicias.com NO NO
Franquicias
27. Hong Kong Hong-Kong Franchise Association www.franchise.org.hk YES NO
28. Hungary Hungarian Franchise Association www.franchise.hu YES YES
29. Iceland Icelandic Franchise Association - NO NO
30. India Franchising Association of India www.fai.co.in YES NO
31. Indonesia Indonesian Franchise Association www.franchiseindonesia.org YES NO
www.irishfranchiseassociation.
32. Irland Irish Franchise Association NO NO
com
Israel Franchise & Distribution
33. Israel www.franchise.org.il NO NO
Association
34. Italy Italian Franchise Association www.assofranchising.it YES YES
35. Japan Japan Franchise Association www.jfa-fc.or.jp YES NO
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Association de franchise du 17
36. Kazakhstan - YES NO
Kazakhstan
37. Latvia Baltic Franchising Association www.franchising.lv NO NO
Franchise Development Services
38. Lebanon www.lfalebanon.com YES NO
Lebanon
39. Macedonia Macedonian Franchise Association - NO NO
40. Malaysia Malaysian Franchise Association www.mfa.org.my YES NO
41. Malta Franchise Association of Malta - NO NO
42. Marocco Morocco Franchise Association www.fmf.ma YES NO
43. Mexico Mexican Franchise Association www.franquiciasdemexico.org YES NO
44. Netherlands Netherlands Franchise Associstion www.nfv.nl YES YES
Franchise Association of New www.franchiseassociation.
45. New Zealand YES NO
Zealand org.nz
Franchise Development Assoc. of
46. Nigeria www.nigerianfranchise.org NO NO
Nigeria
47. Norway Norwegian Franchise Association - NO NO
Asociación Paraguaya de Franqui-
48. Paraguay - NO NO
cias
49. Peru Peruvian Franchise Association - NO NO
50. Philippines Philippine Franchise Association www.pfa.org.ph YES NO
51. Poland Polish Franchise Organization www.franczyza.org.pl YES YES
Portuguese Association of Fran-
52. Portugal www.apfranchise.org YES YES
chising
53. Romunia Romanian Franchise Association www.francizor.ro NO NO
54. Russia Russian Franchise Association www.rusfranch.ru YES NO
55. Serbia Serbian Franchise Association - YES YES
Singapore Franchising and Licens-
56. Singapore www.flasingapore.org YES NO
ing Assoc.
Slovenská Franchisingovà
57. Slovakia www.sfa.sk NO NO
Asociàcia
58. Slovenia Slovenian Franchise Association www.franchise-slovenia.net YES YES
Franchise Association of South
59. South Africa www.fasa.co.za YES NO
Africa
60. South Korea South Korean Franchise Association www.ikfa.or.kr YES NO
61. Spain Spanish Association of Franchising www.franquiciadores.com NO NO
62. Sweden Swedish Association of Franchising www.franchiseforeningen.se YES YES
63. Switzerland Swiss Association of Franchising www.franchiseverband.ch YES YES
Taiwan Chain Store and Franchise
64. Taiwan www.franchise.org.tw YES NO
Assoc.
65. Thailand Thailand Franchise Association www.thaifranchisecenter.com NO NO
National Franchise Association of
66. Turkey www.ufrad.org.tr YES YES
Turkey
67. Ukraine Ukrainian Franchise Association www.franchising.org.ua NO NO
United Arab Franchise Development Services
68. - NO NO
Emirates UAE
69. Uruguay Uruguay Franchise Association - NO NO
70. USA International Franchise Association www.franchise.org YES NO
71. Venezuela Venezuela Franchise Association - NO NO
problems
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18 Advised by Vincentas Lamanauskas, University of Siauliai, Lithuania
Received: September��
16, 2011 Accepted: November 12, 2011
Alicja Antonowicz PhD, Lecturer (Assistant Professor), Faculty of Management, University of

Gdansk, Armii Krajowej 101, 81-824 Sopot, Poland. �
E-mail: alicja.antonowicz@wp.pl
Website: http://www.ug.gda.pl/en/
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MANAGING PROCUREMENT OF FOOD 19
WITH ADDED VALUE:

A CASE STUDY OF BEEF IN THE
CATERING SECTOR
Hanna Astner
Swedish University of Agricultural Sciences, Uppsala, Sweden
E-mail: Hanna.Astner@slu.se
Ingrid Stigzelius
Stockholm School of Economics, Stockholm, Sweden
E-mail: Ingrid.Stigzelius@hhs.se
Hans Andersson, Cecilia Mark-Herbert

Swedish University of Agricultural Sciences, Uppsala, Sweden
E-mail: Hans.Andersson@slu.se, Cecilia.Mark-Herbert@slu.se
Abstract
Consumers have limited options to choose food with added values in the catering market.
Management challenges include making informed product portfolio decisions of what to
offer the consumers. These decisions are based on procedures for procurement. The public
procurement process is influenced by political objectives and a different set of laws compared
to commercial procurement. This research project explores the management of procurement
conditions for food products with added values; with a particular interest in beef in public and
private restaurants. The results show that personal values of professional purchasers play a
key role in the procurement decision. In the commercial sector, marketing of food with added
values can provide opportunities for differentiation. In public procurement, opportunities for
food with added values are influenced by politics and legislation. Main management obstacles
perceived by catering units purchasing beef with added values are associated with lack of
volumes, ineffective distribution and higher prices.
Key words: locally produced, meat, organic, private, public, procurement, purchase,
restaurant, Sweden, value chain.�
Introduction
Considerable interest is being directed toward growing awareness of creating added

values in the food marketing chain. These added values are associated with a number
of choices made in the value chain, for example with regard to the processing, production
methods, geographical origin, packaging, aesthetics, marketing channels and other profiling
properties. The production and consumption of food in general and beef in particular (Swedish
Environmental Protection Agency, 2007) is constantly a topic for public debate, since it has
been negatively associated with animal welfare, environmental effects, food safety and human
health. In the public debate, organic beef production has been promoted as a more sustainable
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20 alternative to conventional beef in terms of reduced environmental impact and improved animal
welfare (KRAV, 2009). Geographical origin, in this case Swedish beef production, has also been
promoted as contributing to an open landscape with positive effects on biodiversity (Swedish
Environmental Protection Agency, 2008) and is often associated with stringent regulations
on food safety and animal welfare (SLV, 2009). In this context organic as well as Swedish
production constitutes production related grounds for added value for the Swedish consumer.
Research Problem
Beef production is one of the major food industries in Sweden and it is linked with the
dairy industry (Delfi, 2006). In addition, the Swedish beef consumption has increased with
39 percent over the years 1995-2005 (Swedish Board of Agriculture, 2008). However, the
imported share of beef has also increased and now constitutes 46 percent of the total market,
which means that the increase in consumption does not correspond to an increase in national
production (Delfi, 2006, 54). Imported beef is especially common in the commercial catering
sector, where approximately 75 percent of the beef is imported (Delfi, 2006, 54). Despite the
fact that nearly 70 percent of the Swedish consumers express a preference for Swedish food
(SOU, 2005, 54) they are somehow unable to make the preferred choices in a restaurant or
catering situation. The same situation applies to the catering market of organic food.
A majority of the Swedish consumers have positive attitudes towards organic food
(Magnusson et al., 2001). In 2007 the organic food consumption increased with up to 30 percent
(Swedish Ecological Farmers, 2008, 2) which amounts to around 3 percent of the total market.
Political goals have been formulated to increase organic production and public consumption
of organic products (Swedish Government, 2005). Thereby, the public sector is attempting
to serve as a driving force for market development through its own consumption in public
catering (Li & Geiser, 2005). Nevertheless, the catering sector represents a rather limited share
of the overall organic food market (17,5 percent) whereas the retailing sector has the largest
market share (71 percent) (Swedish Ecological Farmers, 2008, 2). Hence, consumers have
relatively limited options to choose food with an added value associated with environmental
impact, animal welfare or geographical origin within the catering sector. This is a somewhat
contradictive situation, since organic food and eating away from home represent two parallel
trends in Sweden, where nearly half of all the meals are consumed outside the home (Post et
al., 2008).
Recent studies reveal that consumers’ ability to change food habits largely depend on the
professional purchasers’ decisions to provide alternatives (Bergström et al., 2005; Grankvist &
Biel, 2007; Inwood et al., 2009; Post et al., 2008). The available products to choose from for the
professional purchaser are in turn determined by decisions in the wholesale sector (Grankvist &
Biel, 2007). In order to understand the conditions for purchasing food with added values in the
catering sector, it is of vital importance to study the exchanges between buyers and suppliers in
the catering-wholesaler relation. Nevertheless, relatively limited research has been conducted
on the procurement conditions for supplying food with added value within the catering sector,
including comparisons between conditions for public and commercial procurement (Walker et
al., 2008).
Research Aim
The aim of this paper is to explore the procurement conditions for food products with
added values offered in the catering-wholesaler relation. The paper focuses on obstacles and
opportunities in promoting added values in beef products in the commercial and public catering
sector. Two research questions of particular interest are: Which factors influence the procurement
Hanna ASTNER, Ingrid STIGZELIUS, Hans ANDERSSON, Cecilia MARK-HERBERT. Managing Procurement of Food with Added
Value: A Case Study of Beef in the Catering Sector
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of beef? And, how do these factors differ between the public and commercial catering sectors? 21
The results may be used to facilitate the understanding of the required conditions for promoting
food products with added values, associated with, for example, the production method or the
geographical origin.
Theoretical Perspectives
Conditions for procurement is determined by a large number of factors (Walker et al.,

2008), both related to the relationship between the buyer and supplier (Easton, 1992) and the
context in which they operate (Pfeffer & Salancik, 2003). The selected perspective focuses on
the buyer-supplier relationship, but it also offers explanatory value for external factors that
neither of the actors control.
The Market-As-Network (MAN) approach offers a theoretical framework that focuses
on the exchange relationship between industrial actors as an important mechanism for
understanding buying behaviour in the supply chain (Turnbull et al., 1996). According to MAN,
organizations are linked by short-term exchange episodes and long-term relationships (Ward
& Webster, 1991). Through the study of exchange relationships, it is possible to identify the
network of actors that form the industrial system, and thereby examine the domain of recourses
that are required and are subject to control by the actors. These resources are also used by the
actors to add value in the process. Instead of the term supply chain Porter (1985) introduced
the value chain concept to put focus on the value that a firm is creating for its customers.
In a macro-business perspective the value chain concept is broadened to incorporate whole
industries and all value-adding activities undertaken by the ‘partners’ in the network (Walters
& Lancaster, 1999), e. g. the value network (Pitta & Laric, 2004). There are both horizontal
and vertical networks in the food sector (Gellynck & Kühne, 2010). However the main focus
in this study is on vertical networks, where the terms value chain and value network are used
synonymously to describe the relationships and value-adding activities throughout the network,
which incorporates the company, suppliers, distributors and consumers.
Johanson and Mattsson (1992) distinguish the industrial system into two levels: 1) the
network of exchange relationships between actors and 2) the production system where resources
are used by the actors in production (Figure 1). The model offered by Johanson and Mattsson
(1992) illustrates the two folded nature of the industrial system. The exchange relationships
between actors are to be regarded as structures that govern the production system (Johanson
& Mattsson, 1992). Each of these actors controls certain resources in the network. However,
interdependencies of the resources pose constraints on the individual actors (Easton, 1992).
These constraints may also originate from pressures external to the organizations, which affect
the negotiation powers in actor relationships (Pfeffer & Salancik, 2003). The interdependencies
create a network structure, which is characterized by bonds between the actors (Easton, 1992),
e.g. economic, social, legal, political, technical and logistical bonds. Stable networks are
characterized by strong social bonds where economic factors are somewhat less important.
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22
Exchange Exchange
relationships relationships
NETWORK
GOVERNANCE
Actor Actor Actor
Control Control Control
PRODUCTION
SYSTEM
Resources Resources Resources
Interdependence Interdependence
Figure 1: Network governance in the production system (Johanson & Matts-

son, 1992, 208).
The structures of industrial systems are heterogeneous, since there are varying needs
that could be met in different ways by multi-dimensional resources (Easton, 1992). A firms’
ability to transform the resources to meet the needs depends on factors that are specific to the
firms’ structure, e.g. history, investments, available resources, employee preferences and skills.
Networks are therefore viewed as embedded in a local setting that is interactive with the society
at large, e.g. politics and government (Mattsson & Johanson, 2006). Pfeffer and Salancik (2003)
also emphasize the importance of studying the external environment of organizations in order
to fully understand the decision process. This study specifically examines the structure of the
Swedish beef value network and its external environment, which provides a foundation for
understanding the procurement decisions within catering organizations.
A study of conditions for procurement in a commercial and public setting offers several
possible research perspectives. The chosen focus for this study is that of the relation between
catering organizations and wholesalers in the procurement process. Given the relatively
unexplored empirical field, especially in terms of comparisons of conditions for public and
commercial procurement (Walker et al., 2008), the study is based on an exploratory approach
using a flexible research design that allows for the research procedures to “unfold as the research
proceeds” (Robson, 2002, 5).
Research Design
In a pilot study industry experts with expertise in management of procurement provided

the starting points for developing an interview guide, which was complemented by a literature
review and survey of public documents. The interview guide was semi-structured with open-
ended questions and was focused around the four themes discussed below: 1) geographical
origin of a product, 2) production methods, 3) product properties and 4) delivery services. The
guide was adjusted to better fit the perspectives of the different interviewees in the main study.
The selection criteria for interviewees were:
 Organizations representing both public and commercial catering organizations and
wholesalers for beef products
 Catering organizations and wholesalers with different profiles and interests in food
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with added value 23

 Individuals responsible for procurement at municipalities and persons managing selling
and purchasing decisions at wholesalers and catering organizations
Although the catering sector consists of many different actors, the study was limited to
find representatives from: day care��
centers��
, schools and homes for elderly; lunch catering and
á la carte restaurants (Table 1). A variation in profiles and interests in food with added values
was one of the key criteria in selecting procurement units. A division between lunch catering
and á la carte was conducted in order to consider different price ranges. In total, 33 specialist
stakeholders representing commercial and public catering organizations in the four largest cities
in Sweden (Stockholm, Göteborg, Malmö and Uppsala) were interviewed.
Table 1. Sources
��
of information in gathering empirical material.
Procurement units (actors) Number of interviewed actors (pronounced profile)

Commercial catering
- Lunch restaurants 5 (3 organic and local food)
- Á la carte restaurants 7 (2 health, 1 towards Swedish meat)
Public catering
4 (no clear profile, but all try to attain the goal for organic food and
- Municipality procurement department
facilitate for the possibility to buy Swedish food)
3 (1 health & environment, thought all favours Swedish and organic
- Day care centres
beef)
- School canteens 5 (1 organic and 1 towards Swedish meat)
- Homes for elderly 4 (none with a pronounced profile)
Wholesaler 3
Experts 2
Total 33
Interviewees were given an opportunity to validate and clarify misunderstandings during

the interview in a ‘continuous validation procedure’ (Robson, 2002). Despite of a delicate and
careful validation process, the results are to be regarded as primary results. The study does
not represent a statistically representative analysis of the entire catering sector as such, but
rather provides a deeper understanding of specific conditions, which warrants some caution in
generalizing the conclusions of the study.
Institutional Context
Previous studies of the beef value network have detected different quality attributes
affiliated with the production and processing system, which contribute to an increased value of the
product (Boland & Schroeder, 2002). Meat products are fresh produce, which are characterized
by direct links between primary production and the final products’ quality attributes (Ziggers &
Trienekens, 1999). These links enhance the level of interdependence between different actors
in the value network.
Consumers are increasingly demanding beef products associated with multiple quality
attributes, e.g. organically grown beef or beef that is produced on small, local farms (Boland &
Schroeder, 2002; Grunert et al., 2004; Krystallis & Chryssohoidis, 2005). Production method
and geographical location of the farm thus serve as grounds for differentiation in a value network
(Ziggers & Trienekens, 1999; Boland & Schroeder, 2002).
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24 The Value Chain for Beef in Sweden
The value chain for beef is integrated into a simplified single strand chain that goes
‘from farm to fork’ (Figure 2). It focuses on actors that create quality attributes, i.e. value,
through the transformation of resources. The figure illustrates the resources that are already
transformed and thus constitute an input to the next actor in the value chain. The total value of
the final product, i.e. the meal, is therefore closely connected to the resources that each actor in
the value chain controls. In what follows, the actors and resources in the beef value chain are
briefly described with comparisons between conventional and organic beef.
Farmer Catering
-conventional production Slaughter- Wholesale/ (Public/ Consumer Actors
- production towards house Supplier Commercial)
added values agent
Production methods Processed Delivery Processed Differentiated Resources

Geographical origin product service meal needs
properties
Created value
External environment (legal conditions, politics, institutional expectations, culture etc.)
Figure 2: A simplified model of actors and resources in a value chain of beef

products for the public and commercial catering sectors. The focal ex-
change relationship, wholesale-catering, is marked with the shaded
box.
In the value chain for beef products, the farmers control two important recourses
for creating value in the beef product, that of the geographical origin and that of production
method. Whether or not these attributes are communicated in the continued value chain is
decided by the perception of creating value. In the value chain, consumers´ perceptions serve
as the guide lines for creating value. For example nearly 70 percent of the Swedish consumers
display a great confidence in Swedish food production and consider it important that the food
is produced in Sweden (SOU, 2005, 54). However, the country of origin is rarely revealed to
the consumers within the catering sector where share of import is around 75 percent, whereas
the import share rarely exceeds 30 percent in the retail sector (Delfi, 2006, 54). Nearly all of
the consumed organic fresh meat in Sweden is also produced in Sweden (Swedish Ecological
Farmers, 2008).
Another resource that is controlled by the farmer is the choice of production method
(Figure 2). In Sweden, the market differs between conventional and organic production.
Organic beef production is based on grazing and organic coarse feed produced without the use
of pesticides and commercial fertilizers (KRAV, 2009). In contrast conventional beef production
does not have to be based on organic course feed, and therefore mostly includes additional
concentrates (Swedish Environmental Protection Agency, 2008). These different production
methods can not only create product properties that could be perceived through taste, but also
add psychologically perceived values associated with animal welfare and environmental aspects.
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In Sweden, KRAV (Association for Control of Organic Production) holds the most well-known 25
organic production standard and has set up rules for the whole value chain from production
to marketing with consumer oriented labels (KRAV, 2009). Certifications and private market
oriented standards, such as KRAV, can invoke additional consumer trust for the farmer (Higgins
et al., 2008).
The slaughterhouses control the product processing, where slaughter and tenderizing
techniques are important for the quality of the product (Figure 2). In Sweden, one slaughter
firm dominates the fresh meat market and accounts for 57 percent of the slaughtered volume.
About 75 percent of the slaughtered organic beef is also channelled through this slaughterhouse
(Swedish Ecological Farmers, 2008).
Wholesalers or more specialized suppliers control the deliveries of the processed product
to the catering sector (Figure 2). These deliveries can be regarded as a service through which
not only the product, but also knowledge of the product properties, is transferred to the catering
sector. Swedish wholesaling is characterized by a high degree of concentration where a few
actors dominate the market (Swedish Competition Authority, 2005; Delfi, 2006). Wholesale
distribution is thus increasing at the expense of individual suppliers where direct distribution
typically is losing ground. However, some producers supply directly to restaurants and retailers
in an attempt to diversify and add values associated with for example organic and/or local
production.
Public and commercial catering organizations control the meal processing of the beef
product, which aims to fulfil the differentiated consumer needs (Figure 2). The public catering
sector is managed by local and regional authorities and serves meals within schools, hospitals
and homes for elderly (Bergström et al., 2005). It is characterized by relatively large production
units and small serving units (Delfi, 2006, 32). The commercial catering sector is managed by
entrepreneurs and has a wide spectrum of lunch and á la carte restaurants (Bergström et al.,
2005). It is constituted by many small production and serving units (Delfi, 2006, 32).
Given this review of the beef value chain we are able to identify four major resources
that, in addition to price and availability, potentially could affect the catering organizations’
buying decisions: 1) geographical origin, 2) production methods, 3) product properties and 4)
delivery services (Figure 2). The relative importance and influence of these resources in the
buying decision are further examined in the context bound empirical analysis.
External Environment
The external environment (Pfeffer & Salancik, 2003) such as legal conditions and
institutional expectations constitute a framework for the value network of beef production
(Figure 2). Swedish food legislation is regulated in the Food Act (SFS, 2006:804) that applies
to all stages of production, processing and distribution of food (SLV, 2009). In addition to
Swedish food legislation, the public catering sector adheres to the European directive on public
procurement with the objective of providing firms the same competitive conditions throughout
Europe (Swedish Competition Authority, 2008).
Political guidelines also provide an external influence on the actors (Bergström et
al., 2005). The Swedish government has defined a goal to reach 25 percent organic public
consumption before year 2010 (Swedish Government, 2005), which directs the public actors
towards increasing purchases of organic food. However, each municipality or county council
is responsible for implementing the goals by their own means. Such political goals do not
exist concerning country of origin and locally produced food; if it did it would be considered
an offence according to EC regulations. Nevertheless, use of environmental information in
procurement has increasingly been recognized as an important factor for the choice of food
products among professional purchasers (Grankvist & Biel, 2007; Bergström et al., 2005).
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26 These institutional expectations influence the exchanges between catering organizations and
their suppliers.
Wholesale-catering Exchange
The relative interdependencies between a buyer and a supplier (Easton, 1992) are visible
in the procurement process (Bergström et al., 2005). In public procurement, many small catering
units conduct procurement agreements collectively through the municipality or county council,
which normally involve large volumes over several years (Swedish Competition Authority,
2008). It enables the catering units to benefit from lower prices. While large scale wholesalers
and catering units enter into business agreements, small scale food suppliers (that more often
offer differentiated products with added value) are at disadvantage. Large volumes are typically
required in answering to public food enquires and smaller companies may therefore not be able
to enter the competitive bidding process. Nevertheless, it is legally possible for small scale food
companies to enter the bidding process by splitting the enquiry so that several suppliers are able
to respond (Swedish Competition Authority, 2008).
The commercial catering organizations have less bargaining power compared to the public
sector (Delfi, 2006) and therefore face a weaker position relative to the large wholesalers. On
the other hand, commercial catering units are not obliged to sign long term contracts to the same
extent as in the public sector. Hence, they are more flexible in the choice of wholesalers and
can also purchase directly from the producer. For the wholesaler, efficiency and reliability of
the deliveries become important aspects of competitiveness (Ziggers & Trienekens, 1999). The
ability to collaborate with others could also be used to build up competitiveness. Partnerships in
the food value network may be developed by interdependent firms that exchange information,
people and resources in order to realize superior customer value.
Results of Research
The interviews with the catering and wholesaler organizations focused on four identified
themes (geographical origin, production methods, product properties and delivery services) in
order to determine their relative importance for the purchase decision (Appendix 1 provides
more empirical details). A continued empirical analysis focused on identifying factors that are
important for catering procurement of beef, with a particular interest in beef with added values.
Conditions for procurement in the public and commercial catering are associated with a number
of obstacles and opportunities in purchasing beef with added values (Table 2).
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Table 2. Procurement conditions, obstacles and opportunities for beef with 27

added values.
Commercial catering
Public catering
(á la carte/lunch segments)
Procurement con- - Large volume - Large volume to get even quality

ditions for beef - Low prices - Varied price segments
- Preferences for Swedish beef - Preferences for imported beef
- Forequarter carcass of beef - Hind/forequarter of beef depending on prize
- Pre-cooked and ready cut beef segment
- Adjusted package sizes - Use of raw materials or pre-cooked and
- Few & punctual deliveries ready cut beef depending on prize segment
- Wide assortment wholesalers - Frequent & flexible deliveries
- Specialized suppliers or wide assortment
wholesalers depending on profile
Obstacles for beef - Offered in small volumes - Offered in small volumes

with added values - Relatively high price - Relatively high price
- Public procurement regulations limit the - Current perceived lack of consumer demand
ability to request beef of a certain geo- - Inefficient distribution of organic beef
graphic origin - Swedish beef is sometimes perceived to
- Lack of processed beef, where cooking have less quality because of a too short
facilities and time for food preparations are tenderizing period
limited - Often provided by specialized suppliers,
- Lack of right package size, especially for where some restaurants favour large wholesal-
organic beef ers.
- Inefficient distribution, especially of
organic beef
- Often provided by specialized suppliers,
where public procurement favour large
wholesalers
Opportunities for - Preference for Swedish beef - Food with added value provide grounds for
beef with added - Positive attitude towards organic food due differentiation
values to governmental goal - Á la carte restaurants use high quality beef &
- Possible to require organic beef as an al- have no need for processed food
ternative & supply information of geographi- - Organic beef are perceived to have a high
cal origin in the framework agreement quality
- Public procurement can get lower prices - Possible to use both hind and forequarter of
due to large volumes beef to get lower prices
- Possible for suppliers to cooperate in - Possible for suppliers to cooperate in order to
order to supply larger volumes supply larger volumes
- Possible to divide the procurement - Strong relations to specialized suppliers can
requirement into smaller volumes to include help to guarantee volumes
smaller suppliers in the bidding
- Possible for smaller producing units to
cook from raw material
The findings that are presented in Table 2 are more closely analyzed and discussed in the
following analytical discussion.
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28 Discussion
This study set out to analyze factors that influence the procurement of beef, with an
interest to compare these factors between the commercial and public catering sector. The
relation between a seller and a buyer is part of a value chain in a cultural, legal and social
context. Added value is created in series of choices made along the way by many actors in the
value chain (Figure 2). Some choices are conscientiously expressed in the procurement process
(production methods, processing methods, product offer including deliveries and other services).
Other choices are more tied to legal and political obligations. Grounds for adding value, which
in turn may lead to differentiation, in the value chain for public and commercial catering are
further discussed as conditions for production, processing and delivery and catering.
Conditions for Production
The organic production method serves as a strong basis for differentiation. It involves
a third party control in the certification process and it also requires substantial investments for
farmers that lead to economic bonds (Easton, 1992). Certifications, such as KRAV, can be used
by farmers that are involved in direct marketing to achieve additional consumer trust, but can
also be used to market their products more broadly (Higgins et al., 2008).
For the farmer, a condition for changing to organic methods is that it needs to represent
a safe investment, which requires other actors in the value network to collaborate (Ziggers
& Trienekens, 1999). In this study, lacking large volumes was used as an argument for not
buying organic and Swedish beef (Table 2), despite the fact that the full potential in Swedish
and organic beef production is not utilized (Swedish Ecological Farmers, 2008). Partly, this
situation is explained by a preference for delicate cuts by most commercial catering units where
the forequarter carcass is less desirable, which on the other hand is preferred by the public
catering units (App. 1).
Swedish consumers reveal a preference for Swedish food products (SOU, 2005) and a
positive attitude towards organic food products (Magnusson et al., 2001). However purchasers
in the commercial sector currently perceive a lack of consumer demand for both Swedish beef
and organic beef. Professional purchasers tended to associate organic production with Swedish
production standards, which points to the fact that local production is often integrated with
organic production (Figure 2). The two production systems are interdependent in terms of
legal enforcement (Easton, 1992), e.g. national regulations on animal welfare and food safety.
However, the social bonds between the producer and catering organization seem stronger in
organic production than Swedish conventional production. Due to the differentiated production
method of organic beef, the structure of the organic beef value network is heterogeneous
(Easton, 1992; Johanson & Mattsson, 1992); withholding a limited number of actors who are
involved in the production and processing of organic beef. This poses constraints on the ability
to choose potential actors to collaborate with and creates interdependencies, which require the
actors to gradually adjust to each other.
Conditions for Processing and Delivery
Grounds for differentiation (Ziggers & Trienekens, 1999) in the processing and delivery
are partly dependent on powerful actors controlling resources in the processing of beef (Figure
2). Technical bonds (Easton, 1992), in terms of tenderizing techniques, were found to play a
crucial role for the final quality of the beef. Swedish beef was perceived not to be sufficiently
tenderized, whereas the tenderizing of organic beef already is associated with high quality
(Table 2). An increased period for tenderizing Swedish beef appears to be an opportunity for
increased value of the product.
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The personal contact between sellers in wholesaler organizations and purchasers 29

in catering organizations is important, since wholesalers are carriers of knowledge about
the product properties and the connection to production method, geographical origin and
processing (Inwood et al., 2009). This study observes that there is room for strengthening the
communication with wholesalers, which could function as a social link between the producer
and consumer. Strong social bonds are a condition for stability in the network of the supply
chain (Easton, 1992). An opportunity for organic beef can be identified in preserving the local
identity of the organic farms throughout the slaughtering process by strengthening the resource
tied interdependencies (Figure 1) with actors further down the value chain.
Conditions for Catering
The procurement process sets the scene in a process that could be labelled as differentiation.
The needs for the catering organizations, commercial as well as public, to differentiate the
product offers vary. In commercial catering, a market segment is in part selected in the catering
offer. Commercial catering businesses appear to have unlimited opportunities to differentiate
their offers, and thereby select suitable market segments. In the public market, however, the
alternatives for many customers (at schools, hospitals etc.) are limited. Since they often have
only one restaurant to eat at, the choices in the procurement process are primarily related to
ensuring health and dietary aspects while satisfying the budget constraint. Public catering is
also more heavily influenced by political objectives that are defined on a national basis and as
such do not serve as grounds for differentiation.
Professional purchasers play a key role in supplying the catering market with the perceived
needs in order to accommodate to customers’ preferences (Bergström et al., 2005; Grankvist
& Biel, 2007; Inwood et al., 2009). In both commercial and public catering organizations,
the personal commitment of individual purchasers has shown to be an important factor that
determines the profile of the catering organization (Inwood et al., 2009; Walker et al., 2008).
Conditions in Public Catering
Wholesale distribution to the public catering sector is characterized by few and punctual
deliveries of a wide assortment of products (Table 2). It is also manifested in legally binding
purchasing contracts that may last up to three years, which supports the notion of legal bonds
(Easton, 1992). This practice tends to limit the competition for smaller scale companies that
are unable to meet prize constrains as well as volume and delivery requirements (Swedish
Competition Authority, 2008). There is an opportunity to let smaller scale companies enter
the competition, such as organic and local suppliers, by dividing the procurement bid into
smaller volumes (Table 2). It is also legally possible for smaller scale companies to cooperate
by supplying a portfolio of complementary products that normally cannot be supplied in the
required volumes by an individual firm.
Post et al. (2008) point to a dilemma in the public food sector in the choice between
industrialized production systems and ideological concerns for organic food that is associated
with using fresh raw materials. Commonly, public catering depends on ready-made meals
from “central kitchens” since only a small number of catering units cook the food themselves.
Therefore, most kitchens do not have the capacity to cook based on raw materials (Table 2).
Nevertheless, some producing catering units cooked from raw material and used lesser amount
of beef in order to afford beef with added value. They could thereby also more effectively reach
the political goal. Opportunities to increase the use of food with added value could either be to
increase the supply of ready-made food products in the requested package sizes, or to integrate
the systems of producing and serving units in public catering (Delfi, 2006).
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30 Legal restrictions and societal objectives influence the procurement conditions and thereby
the development of a market for food with added values. For example political objectives have
shown to be an important external influence (Pfeffer & Salancik, 2003) and an opportunity for
increasing the procurement of organic food in the public sector. On the other hand procurement
with requests of the geographical origin is legally prohibited.
Conditions in Commercial Catering
Commercial catering may use added values in differentiating their offers. The procurement
process presupposes quality, frequent deliveries and flexibility, for the restaurant to handle a
competitive market. Restaurants select their consumers in strategic choices related to profile and
price. These profiles may be related to one or several added values, such as geographical origin
of the food, health or environmental concern (organically certified). Yet, the perceived lack of
consumer demand for added values is given as a reason not to differentiate a catering business.
But naturally, added values need to be marketed to consumers in order to make them aware of
what differs the company from its competitors. This need for consumer awareness is identified
by Arfini and Mancini (2010, 149). “Only when the end market is aware and properly informed
can it reward credence goods through higher consumer willingness to spend”. However, small
food companies, often found in commercial catering, have previously shown weaknesses in
their marketing management capabilities (Banterle et al., 2010).
The social bonds between the wholesaler, or supplier acting as an agent for the farmer,
and the commercial restaurant with a profile towards food with added values has proven to
be especially important (Inwood et al., 2009), where long term interactions characterized the
relationship (Table 2). The need for strong social bonds can be an effect of the limited supply
of beef with added values in the market. Organic certification showed to be less important for
locally produced beef, where the interdependencies are well developed. However, the logistical
bonds are weak. An opportunity for purchasing food with added value in larger scale could be
to strengthen the distribution channels in collaboration with already established wholesalers as
a step in market development. These findings are supported by Ziggers and Trienekens (1999)
and Post et al. (2008). This would reinforce the need for a trusted certification with retained
producer identity, since the direct social bonds would tend to weaken as the market grows
(Higgins et al., 2008). Nevertheless, the current need for more efficient distribution channels
remain, especially in the commercial restaurants that require flexible and frequent deliveries
(Table 2).
Conclusions
In public catering the main obstacles in offering food with added values are associated with
the professional purchasers’ perceived nature of the procurement process, which is influenced
by political goals, budget constraints and procurement legislation. Public procurement is
characterized by long-term contracts, precise orders, large volumes and low prices. This limits
the number of producers that may make an offer. Additionally beef with added values often
comes in smaller volumes and at higher prices. Opportunities for food with added values in the
public sector are mainly connected to political objectives.
In commercial catering the obstacles in offering beef with added values are also
somewhat associated with the lack of large volumes and higher prices. Moreover lacking
product properties (tender meat and particular cuts) along with ineffective distribution may also
be important constraints. However, commercial catering has more options for differentiation
given less legal constrains and private interests that determine the budget. The commercial
market is also more exposed to competitive pressures which would support the opportunity to
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differentiate the offers. However, a differentiation strategy needs to be reinforced by marketing 31

to the consumers.
The findings also show that procurement conditions for food products with added values
are intimately tied to how the professional purchaser in the catering organization perceives
consumer values. This study supports the notion of how personal values of the professional
purchaser play a major role, given room to interpret the task, the objectives and the long-term
strategy in the catering organization. Consumers are dependent on communication relating to
values in the product offer as well as choices made to substantiate these values.
Suggestions for continued research include focusing on how political objectives
influence the development of markets for products with various added values. The development
of markets for organic products is especially interesting regarding political objectives and how
they influence the public sector’s own procurement. A practical matter of major importance,
given the time constrains in most public and commercial kitchens, is that of the management
of a product offer that is processed. What is needed? And offered? Last but not least, what are
consumer perceptions of values in product offers and catering profiles? These questions may
serve as starting points for continued studies.
Acknowledgements
The study has been financed by the Foundation for Strategic Environmental Research
(Mistra) as part of the research program FOOD 21 (MAT 21) at SLU. The compilation of this
article was also financed by The Swedish Research Council Formas.
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34 Appendix 1. Factors influencing the purchase of beef.
��
RESOURCES
Production meth-
Origin of product Product properties Delivery services
ods
ACTORS
Public catering
Buys mostly minced
20-26% organic and cubed meat. Firm
Day care centers Wide assortment, few
Preference for due to animal meat, no tendons
purchasing or- deliveries, personal
Swedish welfare at transport bones or grey colour,
ganic products contact, right products
& slaughter smell/taste, ready cut
sizes, food safety
Preference for Cannot buy
Buys mostly minced
Swedish because organic due to Price, package size,
meat. Look at the
of animal welfare & lack of volumes, wide assortment, food
appearance, firmness,
Schools food safety. Some although they see safety, punctuality, right
no tendons, bones
thought that Ameri- a connection with temperature and prod-
or collagen, smell,
can meat have animal welfare and ucts when delivered
durability
higher quality. product quality
35 % organic &
only organic meat Organic important,
Assurance of sufficient
Schools purchas- due to animal wel- but should never be
Preference for organic volumes.
ing organic fare and support prioritized before qual-
Swedish Deliveries according to
products of grazing cattle & ity. ��
Uses as much raw
contract.
connection to meat food as possible
quality
Buys most pork, but
Right products, price,
Preference for Rarely buys or- also minced, cubed
punctuality, wide as-
Swedish because of ganic meat due to and sometimes more
sortment with varied
animal welfare, food budget constraints delicate beef cuts.
Homes for elderly package sizes, few
safety and support and lack of interest Look for firm meat
deliveries, varied
of the Swedish from the consum- with no tendon or
preference for personal
agriculture ers collagen, even quality
contact & internet use
& size
Commercial catering
Buys cubed sized,

Does not affect
minced and some deli-
purchase decision, Price, product quality,
cate beef cuts. Two
buys mostly from wide assortment, good
unit cuts from whole
Europe and South Does not affect contact, flexibility, de-
Lunch pieces to guarantee
America. ��
One unit purchase decision liveries two-three times
quality. Looks for
buys Swedish a week, one unit had
fresh, tender meat
due to consumer deliveries everyday
with dark red colour in
demand
good cuts
Mainly buys fillet of

Use both wholesalers
beef, entrecote etc.
and fresh produce sup-
Rarely buys organ- Looks for firm meat,
pliers. Product quality,
Origin does not ic due to high price tender/well hung,
Á la carte sufficient volumes,
affect decision and lack of interest marbled with a cap,
price/bonuses, trust/
from consumers well cut, even quality.
contact, flexibility, fast
Cooks mainly from
deliveries
raw materials
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35
Animal should
not be stressed,
since it affects Long term contacts,
the meat quality. should be trustworthy
Preference for Tender, well hung,
Á la carte with an One unit prefers about organic, suf-
Swedish, locally marbled, prefer old
organic profile local produce over ficient volumes, price
produced Swedish meat races
organic, while the and logistics (current
other prefers the problem)
opposite if they
have to choose
Advised by Vincentas Lamanauskas, University of Siauliai, Lithuania
15, 2011 Accepted: October 28, 2011
Hanna Astner Msc, PhD Student, Swedish University of Agricultural Sciences, Depart-
ment of Economics, P.O. Box 7013, 750 07 Uppsala, Sweden.
E-mail: Hanna.Astner@slu.se
Website: http://www.slu.se/ekonomi
Ingrid Stigzelius Msc, PhD Student, Stockholm School of Economics, Department of

Marketing and Strategy, P.O. Box 6501, 113 83 Stockholm, Sweden.
E-mail: Ingrid.Stigzelius@hhs.se
Website: http://www.hhs.se/se
Hans Andersson Professor, Swedish University of Agricultural Sciences, Department of

Economics, P.O. Box 7013, 750 07 Uppsala, Sweden.
E-mail: Hans.Andersson@slu.se
Cecilia Mark-Herbert Associate Professor, Swedish University of Agricultural Sciences, Depart-

ment of Economics, P.O. Box 7013, 750 07 Uppsala, Sweden.
E-mail: Cecilia.Mark-Herk@slu.se
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36
PILOT STUDY OF TEACHER BURNOUT IN
GEORGIAN CONTEXT
Maya Bitsadze, Marine Japaridze
Ilia State University, Tbilisi, Georgia
E-mail: maia.bitsadze@iliauni,.edu.ge, marine_japaridze@iliauni.edu.ge
Abstract
Modern schools have multiple demands to teachers causing prolonged stress often resulting in professional
burnout. Research on teacher burnout is conducted at various countries of the world. Taking into account
the significance of such research, two pilot research studies were conducted in Georgia. The objectives
of the studies were to test the hypothesis that the majority of Georgian teachers are experiencing high
burnout and simultaneously to test the adopted translated instruments for measuring burnout and
proactive coping strategies. The first study surveyed 85 subjects and the second study - 193 subjects.
For conducting pilot surveys an abridged version of Maslach–Burnout Self Test in combination with
Greenglass’s 4 point-scale Proactive Coping Inventory and Maslach Educators Survey (MBI-ES)
translated into Georgian language were used.
The results of the first pilot study, in contrary to the hypothesis expecting to identify high burnout among
Georgian teachers, showed that teachers have little signs of burnout and have high and moderate coping
skills. In the second pilot study the hypothesis was partially confirmed in the Emotional Exhaustion
aspect of burnout. For Emotional Exhaustion subscale the majority of the surveyed teachers showed
moderate and high burnout. Teachers showed high scores on Personal Accomplishment subscale and low
burnout on Depersonalization subscale.
Key words: burnout, coping, distress, stress, teacher.
Introduction
Syndrome of burnout, first identified in 1970’s by clinical psychologist Herbert

Freudenberger and almost simultaneously by Maslach and her colleagues at the University
of California, Berkeley, seems to be more characteristic for the employees working in human
services professions, e.g. nurses, social workers, teachers etc. From one dimensional model of
burnout Maslach developed the multidimensional construct and identified its three aspects, such
as emotional exhaustion, depersonalization, and reduced personal accomplishment (Maslach,
Jackson, Leiter, 1996).
There is not one unanimously accepted definition for burnout concept (Gold, Roth,
1993). In scientific literature one can encounter multiple definitions for burnout emphasizing
its different dimensions. Burnout is defined as a state of physical, emotional, and mental
exhaustion caused by long-term involvement in situations that are emotionally demanding
(Pines & Aronson, 1988). It is identified as a syndrome of physical and emotional exhaustion
containing the development of negative job attitudes, and loss of empathic concern for clients
(Maslach, Pines, 1984). Burnout is defined as “a persistent, negative, work-related state of mind
in ‘normal’ individuals that is primarily characterized by exhaustion, which is accompanied
by distress, a sense of reduced effectiveness, decreased motivation, and the development of
dysfunctional attitudes and behaviors at work” (Schaufeli, Enzmann, 1998). „It represents an
erosion in values, dignity, spirit, and will — an erosion of the human soul. It is a malady that
spreads gradually and continuously over time, putting people into a downward spiral from
which it‘s hard to recover“ (Maslach, Leiter, 1997). Some authors connect it to loss of idealism,
Maya BITSADZE, Marine JAPARIDZE. Pilot Study of Teacher Burnout in Georgian Context
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or loss of the ability to understand students, or role estrangement and identify as “a syndrome 37
resulting from teachers’ inability to protect themselves against threats to their self esteem and
well being” (Kyriacou, Sutcliffe, 1978). Haberman uses a behavioral definition of burnout and
defines it as a condition in which teachers remain as paid employees but stop functioning as
professionals. They go through the motions of teaching with no emotional commitment to the
task and no sense of efficacy. They have come to believe that what they can do will make
no significant difference in the lives of their students and see no reason to continue caring
or expending any serious effort. They have become detached job-holders who feel neither
responsible nor accountable for students’ behavior, learning, or anything else. Their only goal
is to do the minimum required to remain employed (Haberman, 1995).
More than 6000 books, dissertations and journal articles have been published about this
concept. Despite the fact that burnout is not a recognized disorder in DSM, it is listed in
ICD -10, Z73.0 in chapter seven, under the problems related to life–management difficulty.
Burnout prevention and overcoming its results for teachers is one of the most important issues
in education. For motivating students teachers need to maintain positive attitudes towards their
jobs, colleagues and students. Modern schools have multiple demands to teachers causing
prolonged stress often resulting in professional burnout. The nature and organization of teacher
work, pressure to do more with fewer resources, role conflicts, ambiguity and overload, constant
potentially stressful interaction with students, parents and administration make teachers easily
susceptible to burnout damaging teacher health and wellbeing at the same time decreasing
quality of teaching. As research shows, the burnt-out teachers are more prone to dogmatic
teaching practice and rigidly rely on structure and routine (Cunningham, 1983) thus slowing
down school reforms. Therefore, research on teacher burnout and its deeper understanding
seems to be very interesting and valuable for the policy and decision-makers at national and
school levels.
Problem of Research
Burnout researchers can be distinguished by their approach to the solution of the

problem. Psychological direction researchers suggest to help the burnout victims by obtaining
and strengthening stress coping strategies (Cedoline, 1982; Swick, Hanley, 1983; Gold, Roth,
1993; Pines1993; Tuebsing, Tubesing, 1982), whereas sociological direction researchers
suggest to look for the burnout causes within organizational systems (Dworkin, 1986; Dworkin,
1997; LeCompte, Dworkin, 1991; Dworkin, Townsend, 1994) and introduce changes in school
management style and administration practices. Both approaches seem to give valuable insights
in the study of burnout syndrome.
Burnout studies originating in the USA is conducted at many countries of the world
showing various degrees of burnout among teachers starting from 10% - to 40% in west and
east Europe and about 50% in some Asian countries (Maslach, Schaufeli, Leiter, 2001). Despite
some problems with international studies related to burnout survey instrument translation and
cultural issues, still it is considered to be the most reliable tool (Schaufeli, Leiter, Maslach,
2008).
Research Focus
The main purpose of the present study was to make initial steps in the study of burnout
among Georgian teachers and conduct small-scale pilot studies in order to select a proper
research instrument and prepare the background for a larger study in the scale of the whole
country. In particular, the goals of the conducted two small-scale studies were the following:
to obtain initial data about the degree of Georgian teacher background and test the hypothesis
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38 that majority of Georgian teachers experience high burnout, to translate MBI into Georgian and
adopt the most popular instruments for burnout study.
General Background of Research
For conducting research on burnout many instruments have been developed. Among them
is Maslach Burnout Inventory (MBI), which has been widely used in investigating teachers’
burnout syndromes and consistently found to be a reliable instrument (e.g., Beck and Gargiulo,
1983; Anderson and Iwanicki, 1984; etc). The MBI dominated the field and by the end of 1990s it
was used in 93 per cent of journal articles and dissertations (Schaufeli, Leither, Maslach, 2008).
Later were developed some alternative instruments such as Copenhagen Burnout Inventory and
Oldenburg Burnout inventory (Kristensen, Borritz, Villadsen, Christensen, 2005; Demerouti,
Bakker, Vardakou, Kantas, 2002). For conducting the studies in Georgia MBI inventory was
preferred.
Burnout studies have focused on burnout causes which are assumed to be in connection
with teachers personality types, locus control (McIntyre (1981), coping skills, neuroticism, etc
as well as with the causes existing independent of teacher perceptions and are more managerial
type problems: such as ambiguous role expectations (Kyriacou, Sutciffe, 1977); unreasonable
time demands (Lortie 1975); large classes (Coates, Thoresen,1976); poor staff relations (Young
1978); inadequate buildings and facilities (Rudd, Wiseman 1962); salary considerations (Gritz,
Theobold, 1996; Tye, O’Brien, 2002); lack of resources, isolation and fear of violence (Brissie,
Hoover-Dempsey, Bassler,1988); and disruptive students (Dunham 1977; Friedman 1995).
Howard and Johnson classified the causes of teacher stress into the following categories:
poor teacher-student relationships, time pressure, role conflict, poor working conditions,
lack of control and decision making power, poor colleague relationships, feelings of personal
inadequacy, and extra-organizational stressors (Howard, Johnson 2004).
The need for administrative support is also frequently cited as a critical condition of work
(Tapper 1995). Lack of administrative support is a category that includes but is not limited to the
following teacher perceptions: principals are “not supportive” if they do not handle discipline to
the teachers’ liking; do not understand the instructional program the teachers are trying to offer;
do not provide the time and resources the teachers believe necessary; do not value teachers’
opinions or involve them sufficiently in decision making; do not support them in disputes with
parents; or fail to listen to their problems and suggestions (Haberman, 2004).
When confronted with so many stressors teachers’ coping mechanisms are activated
to deal with demands. When those coping mechanisms fail to stem the demands then stress
increases and threatens the teachers’ mental and physical well-being ultimately leading to
teachers quitting or burning out.
Sample of Research
Two small-scale pilot surveys were conducted in Georgia. In the first pilot survey a
random sample of 85 teachers from Tbilisi and Georgia’s regions were used who filled out
Maslach Burnout Self Test (abridged inventory) in combination with Greenglass’s 4 point-scale
Proactive Coping Inventory. In the second pilot survey a full version of Maslach Educators
Survey (MBI-ES) was used filled out by 193 randomly selected Tbilisi secondary school
teachers.
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Instrument and Procedures
For conducting the first pilot study Maslach Burnout Self Test (5 point-scale) was used
in combination with E. Greenglass – Proactive Coping Inventory (4 point-scale). The survey
was filled out at teacher training sessions.
Full version of Maslach Educators Survey (MBI-ES) consisting of 22 item 6 point-scale
was administered with individual teachers. In both cases teachers’ participation was voluntary
and anonymous.
Data Analysis

Descriptive and correlational research analysis was used in the current study. For data
analysis was used Excel for the first pilot study and SPSS 19 for the second pilot study.
Results of Research
The results for the first pilot study are given in Table 1 and Table 2 below.
Table 1. Results for Burnout Self Test.
N of No sign of Little signs of At risk of At severe risk At very severe

subjects burnout burnout burnout of burnout risk of burnout
85 3 (4%) 50 (59%) 32 (37%) 0 0
Table 2. Results for Proactive Coping Inventory.
N of High level skills of coping Medium level skills of cop- Low level skills of coping
subjects with stress N/% ing with stress N/% with stress N/%
85 61 (72%) 24 (28%) 0

According to Table 1 the majority of the surveyed teachers showed little signs of burnout
(59%) or showed that they are at risk of burnout (37%). No cases of being at severe burnout
risk or at very severe burnout risk were revealed. 4% of the surveyed teachers consider that they
have no signs of burnout.
Table 2 shows that 72% of the surveyed teachers have high level skills of coping with
stress. 28% consider that they have medium level skills of coping with stress. Correlation was
revealed between the stress coping ability and burnout. The majority of teachers have proactive
coping skills and correspondingly they have little signs of burnout.
To receive more accurate results the second pilot survey was conducted with full version
of Maslach Educators Survey (MBI-ES). MBI was filled out by 193 teachers. The survey had
22 item scored with 6 point-scale. MBI measured burnout according three subscales: Personal
Accomplishment (PA), Emotional Exhaustion (EE), and Depersonalization (DP). Each subscales
had defined high, moderate and low frequencies.
The main findings of the second survey were as follows: on Personal Accomplishment
subscale 62.7% of teachers showed high personal accomplishment, 24.4 % - moderate, and
13% of teachers low personal accomplishment; On Depersonalization subscale 92.1% showed
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40 low, 6.7% showed moderate and 1% of teachers showed high level of burnout. As for Emotional
Exhaustion subscale 18.7 % of teachers showed high level of burnout, 28.5 % showed moderate
burnout and 52.8% showed low burnout. See Below Figures 1, 2, and 3.
Figure 1: Personal Accomplishment Figure 2: Emotional Exhaustion Sub-

Subscale results. scale.
Figure 3: Depersonalization Subscale results.
y = 0,5533x + 30,483
R2 = 0,3606
R = -0,6005
Figure 4: Correlation between Emotional Exhaustion and Personal Accomplish-

ment.
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Figure 4 above shows the high correlation between Emotional Exhaustion and Personal 41
Accomplishment, R2=0.3606, R=-0.6005.
Discussion

The received results from the first pilot study did not prove the stated hypothesis that
the majority of teachers in Georgia are experiencing high levels of burnout. Prior conducting
of the first survey the expectation was that teachers in Georgia will be at moderate or severe
burnout risk because of the conditions they have to work. In particular: they are involved in
carrying out complex and multiple reforms at schools, have meager salaries and are under stress
due to forthcoming teacher certification exams. Also they have to deal with job insecurity due
to school merging and short contracts, little support available from the professional unions,
mentoring, large volume of new teaching materials and new methodology, and overcrowded
classes. The results of proactive stress coping strategy test were much higher than expected.
The results of the second study using MBI –ES partially proved the initial hypothesis.
According the received results Georgian teachers mostly suffer from Emotional Exhaustion
aspect of burnout. 18.7 % showed that they have high burnout and 28.5% moderate burnout. It
means that 47.2 % of teachers are experiencing medium and high burnout. On PA and DP scales
teachers reported high personal accomplishments and low depersonalization.
It should be noted that some inconsistencies were found in teachers’ answers to the
survey questions and their responses in informal conversations when teachers talked about
the symptoms that can be considered to be burnout symptoms. E.g. difficulty to concentrate
on tasks, feeling that they are overloaded, that the requirements are inadequate, that they are
constantly exhausted and will retire if the pensions are not so small, do not know how to act in
various critical situations, that their work is underestimated by students, parents, administrators
and society, they have lost their health to the profession that has such low status today, etc.
To explain such inconsistencies it can be questioned whether it is a case when the
forthcoming exams, fear to loose a job, stress to be perceived as incompetent becomes the reason
for over mobilization. Strain makes them to assess themselves inadequately or makes them to
be insincere while filling out questionnaires. Another issue is whether it is the accumulation
effect. The data may correctly depict the reality at this moment but will have long-term results
leading to burnout. The first pilot survey that identified that teachers were at risk of burnout
preceded in time to the second survey which identified moderate and high burnout (in EE
subscale). Only longitudinal study will have answers to these questions.
To remedy teacher burnout prevention of burnout rather fighting with its results seems
to be the best strategy. Remedies can include a variety of approaches: awareness raising
campaigns about burnout, informing teachers and Principals about the dangers of burnout for
teachers themselves, their families and students, physiological trainings, learning cognitive
coping strategies, offering time management, stress management, problem solving skills
development trainings, changing environment, introducing teacher mentoring mechanisms
etc. As in most cases many stressors have managerial aspect, that‘s why changes should be
made on organizational level towards teacher empowerment, their inclusion in decision-
making processes, changing traditional, rigid bureaucratically administered schools resulting
in low teacher commitment and job satisfaction to more flexible school organizations that use
collaborative problem solving strategies and which promote greater teacher affiliation with the
school raising teacher morale. In the more flexible schools teachers believe they can contribute
to positive school change and that their ideas will be sought after and used (Macmillan, 1999).
Principal’s role in this process is very important in the aspects of providing strong supportive
leadership, rewarding good teaching, improving existing resource management, breaking down
teachers’ isolation and encouraging team teaching and joint planning, and helping teachers to
function as continuous learners.
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42 The further research will benefit from using a mixture of qualitative and qualitative
methods giving more accurate picture of the real situation. Also, other tools, such as school
environment questionnaire, principal’s leadership style, etc., will be used in combination with
MBI-ES that proved to be an effective tool in measuring burnout in order to analyze the stressors
that can be rooted in teacher personal traits and/or in work related stressors.

Conclusions
The article examined the results of two pilot studies. The first pilot study demonstrated
teachers’ high coping skills and low burnout, though showed small signs of being at risk of
burnout. The second pilot study identified moderate and burnout aspect such as emotional
exhaustion as more characteristic to Georgian teachers. MBI-ES proved to be an effective tool
to measure burnout. Further studies will benefit from longitudinal approach as the accumulation
effect seems to be the taking place especially in the period of major education reforms in the
country.

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Advised by Natela Imedadze, Ilia State University, Tbilisi, Georgia
Received: July��
Maya Bitsadze Assistant Professor, Ilia State University, 3/5 Cholokashvili Ave, Tbilisi
Georgia.
E-mail: maia.bitsadze@iliauni.edu.ge
Website: http://www.iliauni.edu.ge
Marine Japaridze Associate Professor, Ilia State University, 3/5 Cholokashvili Ave, Tbilisi
Georgia.
E-mail: marine_japaridze@iliauni.edu.ge
Website: http://www.iliauni.edu.ge
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KNOWLEDGE LIFE CYCLE AND ITS 45
APPLICATION IN AUTOMOTIVE INDUSTRY
Jana Ďurišová
University of Pardubice, Pardubice, Czech Republic
E-mail: Jana.Durisova@upce.cz
Abstract
Knowledge management (KM) is attracting considerable attention as many organizations realize that
they compete in a knowledge economy. Therefore, a key source of sustainable competitive advantage
relies on managing knowledge. The vast majority of the existing frameworks in KM efforts focus on
knowledge processes that takes place during the so-called “knowledge life-cycle” (KLC). Analysis of
knowledge flow should always cover the entire life cycle of knowledge, from its formation, through saving
and using, to its end. Companies that want to develop and use knowledge most effectively and profitably
should begin to treat it differently according to the stages of the knowledge life-cycle. The purpose of
this paper is to compare main concepts of the knowledge life cycle and to introduce a possibility of
analyzing knowledge flow in practice, particularly in the automotive industry. The first section introduces
knowledge management in organizations. Thereafter, a list of main concepts of knowledge life cycle is
presented. Most of the concepts are similar and describe KLC as a process that consists of several stages
in hierarchical order. Authors usually add particular steps that differ from others, such as individual and
group learning from knowledge, obtaining value from knowledge, or knowledge disposal at the end of the
process. Although KLC models have already been usefully developed as a tool for thinking about products
and technology, a case study presenting knowledge flow during all stages of life cycle in automobile
industry is missing. Therefore, the potential of analyzing knowledge flow in automotive industry is outlined
as this field is the subject of author’s research. The final section summarizes important contributions and
insights for future research.
Key words: knowledge, knowledge management, knowledge life cycle, automotive industry.
Introduction
Over the last few decades the market place has completely changed with market
boundaries having been eliminated by internet capabilities, advancements in technology, e-
commerce and globalization. Moreover, companies face other challenges such as shortened
product lifecycles and global competition. These factors have introduced rapid changes in
competitive strategy development. All companies make decisions that affect their competitive
position, effectiveness and profitability in the long run.
Attention to knowledge management is growing as many organizations are realizing that
they compete in increasingly knowledge-intensive markets (Probst, 1998). Traditional resources
related to the industrial period such as land, labor and capital, are not the only resources relevant
in the transition to a knowledge driven society and knowledge economy (Bureš, 2005). In the
knowledge economy, a key source of sustainable competitive advantage relies on the ability to
create, share, and utilize knowledge (Wu, 2007); therefore, knowledge is becoming one of the
strategic resources of organizations for the 21st Century.
The following critical aspects must be borne in mind when considering knowledge
management according to a senior IT manager in an automotive company, in 1997 (Siemieniuch,
1999):
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46 “In 50 years’ time, we will be designing products we don’t know, incorporating materials
which haven’t been invented, made in processes yet to be defined, by people we have not yet
recruited. Under these circumstances, all we can carry forward is our knowledge, and our
knowledge of how to improve our knowledge.’’
According to Nonaka (1995), in an economy where “the only certainty is uncertainty, the
only reliable source of lasting competitive advantage is knowledge”. Moreover, it is the only
resource, whose value does not decrease, but increases with usage (Glaser, 1998), a factor that
ensures stable growth performance and competitive advantage.
The purpose of this paper is to compare main concepts of the knowledge life cycle and to
introduce a possibility of analyzing knowledge flow in practice, particularly in the automotive
industry.
The paper is structured as follows: the first section introduces knowledge management in
organizations. In the next section, a list of main concepts of knowledge life cycle is presented.
Thereafter, a possibility of analyzing knowledge flow in the automotive industry is discussed.
Finally, the conclusion summarizes important contributions and insights for future research.
Theoretical Background
The goal of knowledge management (KM) is to provide the right information to the right
person at the right time. Knowledge management includes those efforts designed to convert and
connect KM capabilities (O’Leary, 1998): converting individual to group-available knowledge,
converting data to knowledge, converting text to knowledge, connecting people to knowledge,
connecting knowledge to knowledge, connecting people to people, and connecting knowledge
to people. Organizations use KM for a number of reasons, including environmental pressures,
technological advancements, and the ability to create valuable information (O’Leary, 1998).
Managing knowledge is a core competence of the “smart” organization, hence managers should
know where to find it and what to do with it (Mezgár, 2006).
There are different perceptions of the term of knowledge and its different classifications,
which bring number of definitions. It is therefore essential to make a proper distinction between
the terms data, information, knowledge, and wisdom. These terms are described and examples
are given in table 1.
The most common categorization of knowledge is that according to Polanyi (2009), where
the knowledge is divided into two groups – explicit and tacit. Explicit knowledge is formal,
systematic, expressed externally, and thus easy to capture, store, and communicate. It can be
packaged as information and can be found in the documents of an organization, e.g. reports,
articles, manuals, patents, pictures, images, video, software (Borghoff, 1997). Tacit knowledge
is personal knowledge, a combination of individual experience and intuition, and cannot be
expressed externally. Therefore, the organization’s ability to capture and communicate it is
heavily dependent on the individual owner’s commitment to the organization (Mezgár, 2006).
Sometime wisdom is considered as a tacit knowledge (Draghici, 2008). Also implicit knowledge
definition should be defined. Implicit knowledge is knowledge that can be expressed externally
when needed, but currently exists internally (in the worker’s head).
Jana ĎURIŠOVÁ. Knowledge Life Cycle and Its Application in Automotive Industry
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Table 1. Data, information, knowledge, wisdom. 47
Terms Description1 Guide Examples

Car sales figures during several years
Data are independent, isolated
We know that we have and period of economic crisis.
Data measurements, characters, numerical
something. (We have basic elements with no ex-
characters, and symbols.
plicit context, their purpose is unclear.)
We know how to evaluate figures using

Information is data that are included in We know what we charts.
Information a context that makes sense; it is data have and how to (We know what to do with basic ele-
endowed with relevance and purpose. use it. ment, we can use manual, recipe etc.;
context is more specific.)
We can say that during the economic

Knowledge is information combined with We know what we
crisis car sales decreased significantly.
Knowledge experience, context, interpretation, and have, how to use it, (Knowledge is a coordinated process,
reflection. and we can do it.
has concrete result.)
We know exactly why it is evaluated that
Wisdom is knowledge combined with
way. We also know that it is possible to
learning, insights, and judgmental abili- We know what, how,
slow down this decrease in sales using
Wisdom ties. It cannot be created like data and we can, and we know
“scrap page incentive” etc.
information, and it cannot be shared with why we do this.
(We know exactly why this and why we
others like knowledge.
do it this way.)
Companies that want to develop and use knowledge most effectively and profitably,
should begin to treat knowledge differently according to the stages of its life cycle. The analysis
of the knowledge life cycle should determine the main flow of knowledge, its direction, and
place of origin, strength and the participants involved in the flow. This should always cover
the entire life cycle of knowledge, from its formation (creation, purchase, acquisition), through
registration/saving, sharing/use, to its end (updates/replacement of new knowledge, retirement).
Knowledge process then creates a circle around mentioned steps (see figure 1).
Figure 1: The knowledge process.

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48 Due to the fact that there are plenty of models for KM implementation, each organization
can choose the most suitable model. It must be mentioned, that knowledge-management tools
are not universally applicable; different tools are required at different stages of the knowledge
life cycle (Birkinshaw, 2002).
As knowledge moves through the life cycle, the speed of progress varies enormously from
one case to another. Birkinshaw (2002) determined factors that can accelerate or slow down the
rate at which knowledge passes through the life cycle. Those factors that can speed up the rate
are: ability of competitors to obtain the knowledge, natural leakage when sharing knowledge,
and deliberate codification and diffusion by a company. On the other hand, the extent to which
intellectual property rights are established, and the tacit nature of some knowledge (which
resists codification) are factors which slow down the rate of transmission.
Concepts of Knowledge Life Cycle
The vast majority of the existing frameworks in KM efforts focus on the knowledge
processes with stages in hierarchical order. According to Probst (1998), directly knowledge-
related activities are represented by “the building blocks” of knowledge management��
;��
these
are: identification, acquisition, development, distribution, preservation, and use of knowledge.
According to Wiig (1997), KM is split into four core activities: review, conceptualize, reflect,
and act. Acting consist of developing knowledge (buying it, learning programs, machine
learning on databases), distributing (to the points of action, manuals, network connections),
combining (find synergies, reuse existing knowledge), and consolidating (prevent knowledge
from disappearing, tutoring programs, knowledge transfer programs). APQC (1997) depicts the
knowledge life cycle within organization and identifies key factors that support it. According to
this work, the knowledge life cycle starts with finding and gathering knowledge and ends with
their adaptation and application of knowledge to new situations. Fischer (2001) considers KM
as a cyclic process involving three related activities: creation, integration, and dissemination.
Becerra-Fernandez et al. (Sağsan, 2006) present stages of knowledge as knowledge discovery,
capture, sharing, and application. Ribière (2008) assesses knowledge flows through knowledge
creation (discovery, capture), knowledge storage (retention, organization), knowledge transfer
(sharing, distribution), and knowledge use/maintenance. Draghici (2008) describes KLC
as creation, codification, transfer, and use of knowledge. Apostolou (1999) prefer four core
processes of KM, namely: generating, organizing, developing and distribution. Awad and Ghaziri
(2004) present their Knowledge Life Cycle as “4-processes view” as well, which consists of
knowledge capturing (data entry, scanning, voice input, interviewing, brainstorming), organizing
(cataloguing, indexing, filtering, linking, codifying), refining (contextualizing, collaborating,
compacting, projecting, mining) and transfer (flow, sharing, alert, push). Alavi (2001) presents
also 4 stages of KLC which are knowledge creation, storage/retrieval, transfer and application.
Sağsan (2006) defines 5 basic steps of KLC in hierarchical order: creating, sharing, structuring,
using, and auditing knowledge.
Bergeron (2003) adds to KLC last step, which is knowledge disposal. Stages if his
KLC are: creation/acquisition,
��
modification, immediate use, archiving, transfer, translation/
repurposing, user access, and disposal.��
Each phase of the KMLC is associated with issues,
input data, support mechanism, and output data.
& Mc Elroy (2003) o-called “New KM” which focuses on people,
Firestone ��
��
represent s��
��
These KM implementation methodology could be: KM Toolkit, Building blocks, P2-KSP, Standardized
KM Implementation, APQC Road Map, Nabla Per Partes, K-Stream, Ibermatica, Prorad, On-To-Knowledge,
Corma, Know-It (Bureš, 2005), and the one created at University of Hradec Králové KM-Beat-It (Bure,
2007). In KM-Beat-It methodology, “the analysis phase” defines the initial state of the knowledge processes.
The output of this activity is a list of knowledge processes covering the entire life cycle of knowledge from
formation to its end.
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processes and social activities��

;��
they believe that knowledge
��
processing in human social systems 49
is emergent��
. Stages of their KLS are: knowledge claim formulation, information acquisition,
knowledge integration, knowledge validation, individual and group learning.
Birkinshaw �� a simple S-curve. Along
& Sheehan��
(2002) suggest KLC represented as ��
the curve, knowledge progresses through 4 stages: creation, mobilization, diffusion and
commoditization.
Du Preez (2008) presents KLC that, besides above mentioned steps (creation,
dissemination, identification, collection, application), includes also obtaining value from
knowledge (user obtains value).
Nonaka and Takeuchi (1995) proposed the SECI model which explores knowledge
creation through interaction of tacit and explicit knowledge. KM cycle is described as a
knowledge spiral that depends on the interaction of tacit knowledge and explicit knowledge
leading to 4 modes of knowledge conversion: socialization (S), externalization (E), combination
(C), and internalization (I). Socialization converts new tacit knowledge (e.g. shared mental
models, technical skills, and shared experience). Externalization transfers tacit knowledge
into explicit concepts. Combination converts explicit knowledge into more systematic sets.
Internalization embodies explicit knowledge into tacit knowledge.
O’dell et al. (Sağsan, 2006) argue that main steps in KM are organizing, sharing, adapting,
using, creating, defining, and collecting of knowledge. However, each of the stages depends on
the other and not only exhibit in hierarchical order but also interact between each other (they
are interdependent).
The main KLC concepts mentioned above are listed and briefly described in table 2.
Table 2: Knowledge Life Cycle Concepts.
Author Stages of KLC

Probst In hierarchical order: Identification, acquisition, development, distribution,
(1998) preservation, use of knowledge.
Bergeron Knowledge creation/acquisition, modification, immediate use, archiving, trans-
(2003) fer, translation/repurposing, user access, and disposal.
Firestone & Mc Elroy “New KM”: knowledge claim formulation, information acquisition, knowledge
(2003) integration, knowledge validation, individual and group learning.
Birkinshaw & Sheehan
(2002), S-curve: creation, mobilization, diffusion and commoditization.
Du Preez & Louw Create knowledge (R&D), identify & collect, disseminate, apply, and obtain
& Lutters (2008) value from knowledge.
Nonaka & Takeuchi SECI model (4 modes of knowledge conversion): socialization, externalization,
(1995) combination, and internalization.
O’dell et al. Interdependent steps: organizing, sharing, adapting, using, creating, defining,
(Sağsan, 2006) and collecting of knowledge.
The concepts
��
differ according to how their authors identify individual process steps of
KLC. Nonaka & Takeuchi (1995) formed the SECI model that depends on the interaction of tacit
knowledge and explicit knowledge. This approach differs greatly from others. Mostly, authors
describe KLC process as an addition to particular steps in contrast with the others. For example,
Firestone and Mc Elroy (2003) include individual and group learning, Bergeron adds disposal
of knowledge, and Du Preez et al. stresses that the user obtains value from knowledge.
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50 Discussion on Possibility of Analyzing KLC in Automotive Industry
Only few industries rely on knowledge management more than the automotive sector.
This field is growing rapidly as globalization continues to introduce new opportunities and
increases competition among companies. Companies try to differentiate themselves in
product development and diversification, innovation, and decreasing product life cycle times
etc. (Thiebus, 2006). As Sukumaran (2009) argues, “cars fitted with best designs, precision
engineering, use of the state of the art technology, IT-driven, heightened safety standards,
economically produced, reliability and robustness in performance, high fuel efficiency and eco-
friendliness, are no longer a taste of luxury”.
If a company is to maintain its success in any market, especially a global one, it is necessary
that its processes are among the best available. For supply chains in the automotive industry is
specific “knowledge sharing”. To ensure effectiveness of shared knowledge it is necessary to
apply not only fractional best practices, but the “packages of knowledge” (Švarcová, 2008) as
was shown in case studies from the field of automotive industry (MacDuffie, 1995); (Milgrom,
1992); (Sako, 1996).
Although companies can generate value for themselves at every stage, no company can
realistically aim to be active in all stages of the KLC. Despite this fact, KLC models have already
been usefully developed as a tool for thinking about products and technology. Moreover, the
idea that knowledge changes form as it diffuses through a population is also well established.
(Birkinshaw, 2002). Nevertheless, there is a need to propose and develop the concept of the
KLC in detail as the practical implications of the KLC have not been discussed sufficiently
yet. Defining the stages of knowledge life cycle helps to structure the knowledge management
process in logical phases. It also suggests effective points for interventions and provides a
tested framework for diagnosing the sources of knowledge problems.
Designing a new car requires high levels of expertise and knowledge. It is extremely
difficult to codify it due to the fact, that a car is made up of multiple interdependent systems,
and the way they interact cannot be entirely predicted. Moreover, in the automotive industry,
it is usual for companies to have several vehicle design projects running in parallel, with some
degree of stages in their delivery times (Siemieniuch, 1999) and hence it is obviously crucial
to manage knowledge during all stages of “product life cycle” (PLC). The life cycle of a car
represents the whole process from extraction and processing of raw materials, production of
materials and the vehicle, its sale and use, to its disposal, which represents the end of the life
cycle of a vehicle. Most of the activities during product life cycle are performed in isolation
with few information exchanges. The motivating factor to consider this issue is the fact that data
from this process can be exploited in the generation of valuable knowledge to help managers in
improving specific aspects of their activities for products of the same family (Bufardi, 2008).
Conclusions
In this article, the attention is focused on the “knowledge life cycle” approach and
concepts that deals with it. Most of the concepts are similar and describe KLC as a process
that consists of several stages; only Birkinshaw & Sheehan (2002) present KLC as a simple S-
curve. However, authors usually add particular steps that differ from others, such as individual
and group learning from knowledge, obtaining value from knowledge, and knowledge disposal
at the end of the process. Moreover, Nonaka & Takeuchi (1995) formed the SECI model that
depends on the interaction of tacit knowledge and explicit knowledge. The concept of KLC
can be a powerful tool for understanding how ideas are transformed into commercial products
and services, and in view of this, it is desirable to propose and develop a concept of the KLC
in detail. Therefore, possibility of KLC analysis was discussed as this industry is the subject of
author’s research.
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On one hand, the automobile industry is a source of economic growth and prosperity 51
(due to manufacturing thousands of new cars per year). On the other hand, a problem arises
concerning handling used and insufficient cars, which are great in numbers. It is deemed
essential to consider not only how to dispose of the old vehicles, but also how to design the
vehicle in the research & development stage so that it would be possible to recycle it to 95%
recycle quota. Thus, managers and designer need to manage knowledge effectively during its
life cycle. Therefore it is particularly important to consider, besides KLC approach, also so
called “product life cycle” (PLC) as was discussed previously.
Currently, environmental considerations are factored into every aspect of a product’s
sustainability and as the pressure of thinking ‘green’ increases; the automotive industry is no
exception. It is deemed essential to consider not only how to dispose old vehicles, but also how
to design the vehicle in the research & development stage so that it would be possible to recycle
them to 95% recycle quota, a factor that should be adopted in 2015 by EU countries. Including
KM tools in company environmental management could give rise to “environmental knowledge
management” (EKM). EKM systems use knowledge to improve corporate environmental
performance by lowering the information barrier (e.g. reduction of search costs involved in
finding information) that prevents organizations from realizing environmental opportunities
(Wernick, 2003). Environmental consideration is associated with “materials flow analysis”
(MFA) and “life-cycle assessment” (LCA) that identify the stocks and flows of physical
resources, and thus formalize industrial ecology in a business setting. LCA is a measurement
tool used to provide information about the environmental performance of products over their
life cycle, from the very first step, where the raw materials are extracted, to the last step, where
the product is finally disposed off. Companies, however, still do not deal systematically with
non-desired outputs (pollution of land, air, water...) and what happens to the products after
their expiry time, and the information provided often do not correspond to reality. In view of
the above, it would be challenging to come up with a proposal for a study that would focus
on monitoring the energy and financial requirements of automobile production in the Czech
Republic, starting from the extraction of natural resources, including the actual industrial
production and consumption during operation, to disposal of the car wreck.
Acknowledgements
The article was supported by the “Student Grant Competition” at University of

Pardubice - the project “Science and research activities supporting the program Economics and
Management” - SGFES03/2011.
Footnotes
1 Adapted
��
from Gottschalk (2005).
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Advised by Peter Mikulecký, University of Hradec Králové, Hradec Králové, Czech Republic
Jana Ďurišová Ing., PhD. Candidate, University of Pardubice, Studentská 84, 532 10
Pardubice 2, Czech Republic.
E-mail: Jana.Durisova@upce.cz
Website: http://www.uni-pardubice.cz
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54
PROJECTME: A FILMED LIVE-STUDIO
SELF-DEVELOPMENT LEARNING EVENT
INFORMED BY EMPIRICAL RESEARCH
INTO HUMAN RESOURCE
PRACTITIONERS’ LEARNING-FOR-
TRANSFORMATION NEEDS
Lesley Gill, Christine McConnell, Steve Atkins

Otago Polytechnic, Dunedin, New Zealand
E-mail: lesleyg@op.ac.nz, Christine.McConnell@op.ac.nz, Stephen.Atkins@op.ac.nz
Abstract
It is important that the investment managers make into the self-development of their employees identifies
and targets the actual needs, and that real learning occurs that is observable in positively changed
behaviours. This research identifies the self-development priorities of Human Resource (HR) managers
and presents the findings from an innovative learning event called ProjectMe; a filmed innovative
learning experience that involved project teams, an expert panel, presenters, live audience participants
and live-streamed on-line participants in real-time. This involved using a recent organisational issue
which was presented to two project teams to solve, presenting their recommendations ‘live’. Over-laying
the organisational issue was a self-development issue, in this instance, “The right amount of ego”, which
aimed to highlight the role of ego in individuals and teams, and challenge everyone to evaluate how
that impacted on self. The multiple perspectives represented by the different learners provided excellent
refractions of understanding, because so many perspective-giving vantage points offered learning
opportunities for using reflective feedback which raised accountability, thereby taking people to the last
step of transformation: action. As part of ascertaining what self-development HR practitioners needed,
the results of a survey that asked them what it was they wanted to develop in themselves towards achieving
their personal and/or professional goals are presented. The survey was sent via the Human Resource
Institute of New Zealand (HRINZ) website to 790 practitioners, with 90 responses. Additionally, so
as to make a methods contribution via this study, an expert panel of six was engaged in a role-play and
statistical simulation (adapting Q methodology for a mock training needs analysis).
Key words: learning, Q methodology, self-development, transformation.
Introduction
The challenge that managers face today is ensuring that the investment they make in
terms of training and development, is effective. All too often, employees undertake training that
‘ticks the box’, which may be acceptable when a technical skill is being taught, but much less
satisfactory when the development is aimed at changing attitudes and behaviours, particularly
when those behaviours are having a detrimental effect on the workplace. The challenge is
assisting those with problematic behaviours to ‘see’ the negative impact of their behaviour in a
way that maintains their dignity but brings about positive and enduring change.
Investigating and reflecting on how employees engage in effective self-development
Lesley GILL, Christine McCONNELL, Steve ATKINS. ProjectMe: A Filmed Live-Studio Self-Development Learning Event Informed by
Empirical Research into Human Resource Practitioners’ Learning-for-Transformation Needs
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resulted in the development and delivery of an innovative learning event called ProjectMe: 55
a filmed learning experience that involved project teams, an expert panel, presenters, live
audience participants and live-streamed on-line participants, all of which happened in real-
time. A key success dynamic of ProjectMe was the combination of an organisational issue/
problem overlaid with a self-development issue. The array of learning dimensions exemplified
the authenticity and complexity that is needed to fully engage the mind and emotions in effective
self-development. Perhaps the winning strategy was in the integration more than just that both
were undertaken. For example, once the Project Teams had presented their recommendations,
and the self-development issue was introduced, the project teams were then asked to reflect on
and discuss how that self-development issue (ego, which is discussed later on) impacted within
the groups, and indeed, the individual. Every learning event needs elements of the uncharted;
that’s what makes it exciting, engaging and fertile for individual transformation. All of the
people present were ‘learners’; even the experts. Underpinning the event was the conception
that everyone contributes to the learning of others as well as themselves. The learning events
also offered many touch-points for personal reflection in which to assimilate this learning. But it
doesn’t stop there; learning has to lead to action. That’s what makes it transformational. It could
be argued that transformation does not need to involve action, i.e. thinking differently about self
in an ascendant direction is transformation. However, thinking upwardly differently about self
will result in transformed behaviours. Transformation is defined here as the observable change
resulting from confronting existing behaviours with intervention.
The ProjectMe concept, the organisational issue, and the self-development topic are
discussed along with the theoretical justification that underpinned this project. Feedback from
participants is presented which reveals the personal impact of the ProjectMe learning. This
section is qualitatively rich and captures the true value of first-person voice and experience.
In conjunction with developing a transforming learning process, it was important to
ensure that the topics for self-development were relevant and needed. A survey was sent via
the Human Resource Institute of New Zealand (HRINZ) website to 790 practitioners, with 90
responses. Additionally, so as to make a methods contribution through this study, an expert
panel of six was engaged in a role-play and statistical simulation (adapting Q methodology
for a mock training needs analysis). The relevance of findings to social science is hopefully
enhanced by the strongly qualitative and transparent nature of this paper.

Backdrop for the Research: Identifying the Professional-Development Milieu
If there was ever a time for managers to invest in effective professional development, it’s
now. In the midst of economic, environmental and personal constraints, managers deal daily
with all kinds of problems and stresses in the workplace. Staying on top of it all requires an
increasing awareness and understanding of self, and how that self interacts with others in dealing
effectively with the strategic and operational activities of the organisation. Straddling these
problems are the increasingly complex dynamics of workplace relationships. If managers are
defined by ‘getting things done through people’ (Gill & Pio, 2007) then it follows that relating to
others is a major activity for managers. This is often overlooked in the course of ‘getting things
done’ which competes for the manager’s time and energy, and thus the effectiveness of ‘through
people’ is compromised or left unattended. The point here is people. While managers generally
ensure they have the most advanced equipment and technology, employee development is
sometimes overlooked, or put in the too-hard, too expensive, too time-consuming, and even
too touchy-feely basket. The challenge of finding innovative ways to assist managers to access
affordable and effective professional development is, to an extent, resolved in the innovative
transformative learning experience, ProjectMe.
After an in-depth search of the scientific information sources it was concluded that there
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56 is no other research on the ProjectMe learning concept. The challenge and opportunity this
created was that there was nothing to benchmark it by, yet also no cognitive or other constraints;
thus “if we could dream it we could do it”. Although there were some fiscal restraints, the
creativity within the team overcame most of those obstacles. Some desk research largely in
the form of on-line searches from a marketing perspective, identified the following key points:
increased company training budgets have occurred in response to a recognised skill shortage
in many areas and a general increase of buy-in to the talent management concept; increased
outsourcing of the training function in organisations facilitated by rapid growth of e-learning;
and a major focus on leadership and management education as companies find themselves lean
in middle management. There is a necessity to train staff from within the organisation, due to
the lack of available personal/interpersonal skills at this level in the labour market; and the
continued evolution of e-learning into a mainstream mode, enables staff to learn from a wide
variety of sources and influencers. These trends are significant and were a driving force for
the team of training developers pacing themselves at the forefront of innovation in modes of
delivery and content.
Research into factors that make for effective professional development identified several
key components. These were: increasing learning engagement and generational impact on
learning, which informed the question, “How does a 21st manager and/or employee learn?”
The ever-developing role of technology, transformation and change, and relevant teaching
philosophies were also considered for best learning environments. As a result of the research the
following practices in the studio learning event were adopted: problem solving in experiential
learning situations, using mystery to increase learner engagement. Thus the inquisitiveness
to know the unknown opens the learner up to new experiences, which creates rights-of-way
for new knowledge acquisition towards transformation, reflective practice that uses learning
as ‘mirrors’ (taking responsibility for self-perceptions and own behaviours), not ‘windows’
(seeing the problems associated with others, and not self), and learning media that stir all the
senses.
So whilst there has already been progress in multi-media training techniques, the
unique proposition for this self-development training concept was that it would simultaneously
combine several media in the delivery as well as developing content that was uniquely relevant
for business managers.
Through the secondary research it has become evident that there is a huge range of ‘off
the shelf’ business and HR training programs. Many falls into the clichéd space of ‘new age
self-development’ and many appear to be lacking practical business application. Further, many
of the training products in the market appear to be inflexible and fixed in their content and
delivery. This concept provided a multi-faceted learning platform for personal improvement
with robust business application that was, most importantly, uniquely tailored around managers’
requirements, organisationally and developmentally.
Research Focus
The focus of the research was underpinned by the notions of learner engagement, learner
accountability, the value of entertainment in learning, and the taxonomy of flexible learning
which are discussed in turn.
Learner Engagement
Learner engagement refers to a psychological process that captures the “attention,

interest, investment and effort [learners] expend in the work of learning” (Marks, 2000, p. 155).
Engagement mandates the intellectual, affective and behavioural participation of the learner in
the learning event.
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Learner engagement occurs when “learners develop an interest in and form a bond with 57
a topic that lasts beyond the short-term” (Schussler, 2009, p. 115). Cates and Bishop (2003)
describe learner engagement in terms of being spontaneously absorbed and carried away in the
task at hand. Learner engagement as a concept is based on the constructivist assumption that
the level of participation of the learner influences the learning outcome (Coates, 2005). Dean,
Christensen, Spector, Sioutine, and McCormack (2000) found that collaboration with other
learners enhanced learner engagement. Haidet, O’Malley, and Richards (2002) undertook a study
with teachers from Baylor College of Medicine in team exercise that required them to define,
argue and defend the concepts to their peer teams, in contrast to a typical lecture-style learning
scenario. In a post-survey, they were asked to rate their engagement. The results showed that
their interest, engagement and staying on-task was very high (8.5 ± 1.6) which led the current
researchers to conclude that team learning may be a powerful pedagogic tool to maintain learner
engagement and engender a positive attitude to learning. The active engagement of the trainer is
also identified as a key factor in learner engagement (Chen, Lattuca, & Hamilton, 2008).
Focus on Learner Accountability
This section highlights the relevance of terminology in reference to teaching vis-à-

vis learning. The authors take a Strength-Based approach (Anderson, 2005; Blundo, 2001;
Waterhouse & Virgona, 2008) which differentiates between ‘power over’ and ‘power with’. It
changes the focus from teaching to learning and learner engagement, resulting in autonomy and
personal responsibility for learning resting squarely on the learner (Chavez, 2007). Learning
takes place through the active ‘ready and willing’ behaviour of the learner. It is what he or she
does that is learnt, not what the trainer does (Biggs, 1999). This is exemplified in the aphorism
that people can change only themselves. The epistemology of constructivism reinforces this
assumption in that people take the building-blocks of experience and learning events to “build
their own understanding and knowledge of the world” (Educational Broadcasting Corporation,
2004, p. 1). Learners construct their own paradigms of thinking and acting based on learning
from their experience and reflection on that. These are catalysts for transformation, in a way
that mere knowledge transmission cannot be. Thus learning becomes the focus, not teaching.
In lifting the shroud of motive in self-development, the missing link for managers is the need
to be directive in the focus of the learning. Thus the term focussed-constructivism is proposed
because it acknowledges that no matter what self-development is determined and offered
by management or some other authority or decision-maker (focus) learners still choose the
learning they will take on board and use (construction) towards transformation. This does not
take away from the focus of learning that managers put in place; rather it highlights that learning
is assimilated subjectively, despite the focus.
Kirk (2011) refers to this process of change or transformation in Chaos Theory which
describes how inputs such as learning upset the status quo (or system) and are distilled through
the previously constructed world of the learning which creates dis-order. Once this ‘perturbance’
reaches explosion point (referred to as the bifurcation point) that is a catalytic opportunity where
one of two things occurs: the person either embraces the change which brings transformation, or
refuses to change and thus returns to their previous state of stability, so no positive change takes
place (Kirk, 2011). The point being made here is that managers need to strive to find new ways
to enhance the process of learning so that learners choose transformation over stability. As an
aside, in furthering Kirk’s contention (2011) it is highly likely that the former state of ‘stability’
actually declines, because the constant change process results in resistance, superiority and fear
of future learning events.
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58 The Value of Entertainment in Learner Engagement
The professional development market is very well contested, presented in traditional

forms such as lectures, seminars and workshops, as well as a growing trend towards webinars
which have proven to be popular and cost effective, both to run and to participate in. Webinars
are indeed a new step in flexible learning but a limited one, in contrast to what the ProjectMe
concept of learning offers, i.e. multiple perspectives on a topic presented, and rolled out to
learners at multiple levels of engagement at the same time.
There is evidence that the latest generation of learners wants to be entertained, not
just informed, so that learning engages all of their senses. “Sociologists refer to these as new
generations of the human kind with high intellect, a multitasking nature and high awareness of
their environments. At present, they are getting into the education stream with a high eagerness
for creativity, flexibility and entertainment” (Perera, 2010, p. 72).
Recently, unprompted anecdotal evidence was gained when an Educational Textbook
publisher stated that the focus on visual material such as DVD case studies to supplement
textbooks has now switched insomuch that the textbook is becoming the supplement to learner
engagement with visual technologies taking main stage. Entertainment as a tool for learning
is difficult, if not impossible to replicate through traditional learning environments (Forney,
2004).
Kolb’s Experiential Learning Cycle (Boyatzis & Kolb, 1991) includes four stages of
experience: the feeling dimension, reflective observation, abstract conceptualization, and
experimentation (Kolb, 1984). The use of entertainment media for learning addresses all of
these pedagogical considerations. Film now reaches beyond the educational offerings of the
past in that it “is an integral part of our culture, a mirror in which we see ourselves” (Wedding
& Boyd, 1999, as cited in Forney, 2004, p.5).
Figure 1: Experiential Learning Cycle (Kolb, 1984).
ProjectMe provides a basis for personal and organisational reflection; and seeing oneself
reflected on film provides objective data on which to evaluate performance and identify strengths
(Hodges & Clifton, 2004; Schreiner & Anderson, 2005). “Making media use an active rather
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than a passive experience for students is important” (Forney, 2004, p. 8). It assists learners to 59
see what they don’t see from looking from the inside-out, but offers another reflective vantage
point: from the outside-in (Boud, Keogh, & Walker, 1985; Dewey, 1933). In addition, another
feature of learning through entertainment is the relaxation and fun element it brings thereby
reducing stress that can inhibit learning (Tokcan, 2009).
“Technologies shape individuals and societies by framing what we see and how we see
it. Fundamentally, media shape our patterns of perception” (McLuhan, 2003, p. 31). Thus media
is a very compelling tool for learning.
Flexing the Taxonomy of Flexible Learning
Although flexible learning is a term often understood to refer to on-line learning, this
definition is too narrow in this instance because ‘flexibility’ is also a strategy that addresses
situational complexities. Tuovinen (2000) agrees in that on-line learning may involve a time-
disjunction between the trainer and the learner, the on-line material having been uploaded some
time previously, and available at the discretion of the learner. There are other programmes
such as Elluminate (Chasen, 2011) that engage learners more fully in the learning. While
flexible learning frees learners from potential barriers to participation, i��
t also offers��
learners
the right to decide how, when, and where learning can occur and be accessed thereby providing
adaptability to individual needs and circumstances (Bowles, 2004). The caution is that if on-
line learning were the absolute domain of the use of ‘flexibility’, while it might be flexible
for one trainee, it may prove inflexible for another (Willems, 2005). For example, whereas
members of Generation Y are very tech-savvy, it can be a cause of fear and frustration for Baby
Boomers. Multi-media designers for distance educators work to ensure that interaction involves
eight levels of learner involvement:
1. Access which is passive; there is two-way control but not in real-time

2. The learner works through a hierarchy of choices predetermined by the trainer
3. The trainer can update information
4. The learner involvement – interactivity to achieve learning objectives
5. The learner participates in a simulated exercise
6. The learner navigates freely through hyperlinked information. This however still
denotes trainer control (in setting up the precise hyperlinks)
7. The learners operate in a micro world of the actual environment
8. Learners are involved in designing multi-media (Chasen, 2011).
One of the downfalls in this taxonomy of multimedia interactions is that it requires a

highly structured learning environment which, granted, reduces somewhat, but still remains
regulated within the parameters of the on-line content (Tuovinen, 2000). The ProjectMe live
learning event overcomes this malaise by encouraging the unpredictable contributions of
participants, thus learning really is constructed in the ‘now’ even though content knowledge is
pre-determined, learner responses, including the panel of experts is deliberately not pre-sought,
for the explicit purpose of creating authenticity and concentrated engagement.
Generation X and Y learners are digitally advanced and learn best in a learning
environment that presents learning in highly advanced technological approaches (Prensky,
2001, as cited in Gill & McConnell, 2010; Roehling, Vander Kooi, & Dykema, 2011). Dolezalek
(2007) advises that development sessions should ensure that each generation has some of its
learning preferences presented in the learning event.
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60 Methodology of Research
The first thing to establish for any research effort is the aim. The School of Applied
Business, Otago Polytechnic continues to respond strategically to the needs of its stakeholders
in aspiring to lead in business education and professional development. External forces such
as those created by economic and political factors impact the School, resulting in the need to
respond proactively by finding ways to embrace technological advances and create ease of
access for professional development that is innovative, timely, relevant, and that adds value to
the individual and their organisation by way of enduring positive self-development. The idea
of running a multi-media live event, while not new in social science has an added edge: the
cameras and the mix of experts, learners and media people created an vibrant environment and
enough tension for change to occur in learners, and particularly in those who have historically
relied on predicting the learning because they have been ‘trained’ before and may be resistant
to it. The likelihood of an expressed Hawthorne Effect is acknowledged (Gill & Pio, 2007).
However in response, learners who have taken express time out to participate in a learning
event should be the focus. Awareness that the learning is being recorded as it happens may also
create a behaviour-moderating effect, as learners are likely to want to be captured (archived) in
their best light.
The ProjectMe idea encompasses the notions of experiential learning (Baker, Jensen,
& Kolb, 2005; Hubbs & Brand, 2005; Kolb, 1984) and lifelong learning (Aspin & Chapman,
2000; Flemming & Panizzon, 2010; Kirkpatrick & Garrick, 2001; Merriam & Leahy, 2005;
Staron, Jasinki, & Weatherley, 2006) at a conceptual and pragmatic level, while providing a
vehicle for establishing a hub of personal and organisational professional-development within
the School of Applied Business. The branding ProjectMe was the inventiveness of a third-year
Otago Polytechnic Design student who undertook research on finding a name that represented
the learning concept while simultaneously implicitly articulating something about what the
learning was about, from the name. He came up with ProjectMe which encompasses the ‘me’
paradigm, that there is something to work on in self. But also ProjectMe benefits from the use of
the verb form, to project, with an easily recognised connection to moving forward, transitioning
from a present state to a different, preferably better one. ProjectMe comes with a sense of
‘putting oneself out there’. It suggests a tacit meaning of enduring transformation as well, i.e.
once ‘projected’, there’s no ‘going back’, as development implies forward momentum.
Sample of Research
The research sample was made up of two groups of participants. Firstly, access to the
Human Resource Institute of New Zealand (HRINZ) provided the researchers with an ideal
pool of people whose intentional focus is professional development, and who work on behalf
of managers to address the problems that occur in and between people in an organisation. A
survey was sent via the HRINZ website to 790 practitioners, with 90 responses. Superficially,
this amounts to a technical response rate of only 11.4 per cent (see footnote).
��
It would appear that the response rate here was only a slight improvement over what HRINZ reports
being typical for their own online surveys. However, in reality, the response rate may very well be upwards
of 100 percent. This is because most HRINZ members would not be expected to respond to a single question
like this, unless four conditions are all simultaneously satisfied: 1) They have to notice the query. 2) They
have to be conscious of having articulated, in their own thoughts, a primary or dominant personal development
goal, such that this particular sort of HRINZ query would be sufficiently relevant to them to prompt a response.
3) They have to be willing to reveal this personal desire (or more typically a personal inadequacy to overcome)
to researchers that are very likely strangers at some distance. 4) They have to choose to make space in their
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HRINZ personnel advised that the typical response to on-line surveys through the HRINZ 61
website rate is 10%. Secondly, the people who participated in the 2-hour ProjectMe event in
June 2011 were invited to participate in an on-line Feedback Questionnaire. The questionnaire
was sent to 35 participants with 15 responses, a response rate of almost 43%. Although it
was a small survey, it was sent to 100% of the participants. Apart from the first question, the
questionnaire collected authentic descriptive data and is presented verbatim. The validity of
these results is upheld because all of the responses are by people who actually participated,
i.e., none were observers only, so each descriptive comment is taken from their direct personal
experience, and the setting was the actual setting for the event, and not (say) a laboratory
setting, and is therefore “accurately representing what is happening in the situation” (Hussey &
Hussey, 1997, p. 173).
Instruments and Procedures
Human Resource Practitioners On-line Survey
The survey used a simple progressive on-line process, where participants answered one
question and then progressed to the next screen by pressing ‘next’ on the screen. There were
three demographic questions (two forced answers) and one descriptive question. Awareness
of the discipline provided insight into the design which was to get to the point as quickly as
possible. The forced demographic questions related to gender and age-group, and the free-choice
demographic question asked for information about current position, role and organisation. The
forced descriptive question asked, “What is the one thing in yourself that you want to overcome
to achieve your personal/professional goals?” The purposeful use of ‘in yourself’ aimed to
personalize the question while removing the likelihood of answers such as “more money” or
“more time”. The survey was open for four weeks with a reminder email sent one week prior
to close-off.
One premise here was that HR managers, in industry, would see value in trying to address
their own goals for personal development. As business schools are increasingly competing in
the HR consultancy sector, an unfolding premise was that an HR manager’s priorities for goals
to target, would likely differ from the priorities of business academics. This led to the utilization
of Q Sorts methodology to identify likely priorities in the HR practitioner community and how
those may be distinct from the priorities that business academics might assume. In deciding
which goals to target, arguably, both perspectives are worthy of strategic consideration,
but should not just be arbitrarily summed. Hence, the attempt here was to make a methods
contribution.
Q methodology, in its simplest sense, applies the logic of dimension reduction to the
clustering and comparative analysis of sample subsets (sub-samples), these typically being
subsets of human raters with, presumably, differing perspectives. Like its data-analytical cousin,
exploratory factor analysis (EFA), Q methodology has become much easier to accomplish as
high-capacity computing power has become more affordable. While EFA is most typically
used to “factor” components or clusters of items on a sociological, political, or psychological
questionnaire, Q methodology instead “factors” or sorts clusters of humans, typically, based on
these human clusters’ competing perspectives, attitudes, or viewpoints. Thus, while EFA treats
busy electronic lives to respond to the query. The technical calculation of response rate would more likely be
the proportion of the total noticing the query (point 1) and choosing to make time for it (point 4). If points 2)
and 3) were of no consequence, then this response rate of 11.4 percent, would, indeed be far too low. In other
words, it would suggest that the responders were peculiar, and possibly of very limited interest. But, in fact,
this study presumes that these responders are distinct; specifically, they are the respondents of interest, because
they have articulated a primary or dominant personal development goal, and in responding, show that they are
capable of making the first steps towards achieving it.
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62 humans as cases, each typically responding with varying degrees of affinity or agreement with
each survey item, Q methodology turns this on its ear, treating humans as EFA treats items, and
treating items (or goal statements in the present study) as cases.
While one might attempt an EFA in anticipation of two or three factors, and employing a
six-item survey, with as few as ninety human participants (i.e., fifteen or more participants per
item, thirty or more participants per factor), a Q sort can produce a raw data matrix of the same
size (six by ninety cells) with the inverse rules-of-thumb (e.g., six raters prioritizing ninety goal
statements). This was exactly the analytical scenario engaged in this role-play simulation.
Expert Panel Analyses
Phase One: Dimension reduction via expert panel qualitative review
The cleaned data were sent to an expert panel of six people made up of five females
and one male who were identified as having HR management experience and/or educational
teaching/learning experience. The panel was asked to identify what they considered were the
top six self-development themes. They were told they didn’t have to use specific words from
the survey (although they could), i.e. they could use a theme that incorporated what it was they
interpreted from what participants had said. A non-related example, so as not to be considered
leading, was included to clarify the instruction. Secondly, the panel were asked to rank their
six themes based on what they considered the data indicated occurred most frequently with 1
meaning most important to 6 meaning least important.
The qualitative dimension reductions (or theme identifications) from this first expert
panel were then iteratively summarized by two of this article’s authors. After four electronically-
communicated iterations, complete consensus was reached on the six fundamental themes (see
Table 1) conveyed in the 90 responses from the sample.
Table 1. Main recurring themes in original data set.
Main recurring themes in original data set

1. Confidence /courage
2. Self-management/accountability
3. Influence/persuasiveness
4. Conflict management/conflict resilience
5. Insight-fuelled strategic leadership
6. Front-stage communication capability
Phase Two: Dimension reduction applied to role-play simulation
The above data-set presented an opportunity to make a methods contribution to this

arena. In tight financial times, business schools are increasingly under-pressure to augment their
normal revenue streams with consultancy revenues derived from serving industry clients. The
original data set potentially supports the analysis of two competing perspectives on prioritizing
training topics likely to succeed in attracting new training contracts with industry clients.
Logically, the two competing perspectives relevant here are the “anticipated view of
an HR manager” versus the “anticipated view of a business school lecturer” (presuming both
would be reasonably aware of what the business school in question could deliver in a training/
learning intervention in this arena). Success in getting this role-play simulation to “play out”
this way was achieved by an adaptation of Q methodology (McKeown, 1988).
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Participants: Six business school lecturers, three of whom were HR specialists in
the New Zealand polytechnic sector (all six were females between the ages of 30 and 60
holding postgraduate qualifications, and each having over a decade of degree-level teaching
experience).
Instrumentation: The ninety items in the original data set presented in an Excel worksheet,
with a column added for the six participants to enter a prioritization score (0 = lowest or nil
priority; 10 = highest possible priority).
Procedure: These six participants were assigned to one of two sub-panels of three lecturers
each. The HR lecturers were asked to assign priority scores (between 0 and 10) to each of the
ninety goal statements, silently role-playing as if they were, actual HR managers in industry
(but with “insider” insights into training-delivery competencies of the business school). The
three non-HR lecturers made up the sub-panel, and they were asked to assign priority scores
(between 0 and 10) based, on purely pedagogical grounds (i.e., each goal statement’s suitability
for being addressed by a short-course intervention).
ProjectMe Participants On-line Feedback Survey
The first section of the survey was initiated with a question that asked participants to
rate the effectiveness of the learning event using a 6-point Likert Scale, and the next eight
questions invited a descriptive response to delve into the rating participants had given to the
previous question. The next section asked participants to comment on the different participant
groups, including which group they belonged to. Participants were then asked to comment on
and identify which environment they were in: physical or on-line. The next question reported
on focused on ascertaining participants’ views on the self-development issue, ‘the right amount
of ego’. Finally participants were asked if there was anything else they wished to add. For each
descriptive question several qualitative descriptions have been selected and presented verbatim
in the data analysis section. Questions progressively became more personal in an effort to
ascertain the deeper and affective responses of participants.
Results of Research
As mentioned above, this second phase of this study adapted Q methodology

(McKeown, 1988) to the mission of assessing competing perspectives in prioritizing targets
for a training intervention. The modern computer-based technologies employed today in Q
methodologies present the analyst with choices, sometimes daunting. As with Pedhazur and
Schmelkin (1991), where one is dealing with latent concepts (like a rater’s priorities) and where
competing factors are likely to have overlapping components (i.e., non-orthogonal dimensions
or correlated factors), then the dimension extraction method of choice is principal axis factoring
allowing oblique rotations (e.g., PAF/direct oblimin in SPSS). In the current study, some overlap
in the sub-panels’ perspectives, was likely given the panelists’ shared knowledge of the school’s
training-delivery competencies.
The freeing-up of rotations in PAF/direct oblimin typically gives the SPSS algorithm the
greatest flexibility in successfully “spearing” a component or cluster of items with its presumed
factor axes. (See the two axes successfully “spearing” the two subsets of raters in Figure 2).
Here, of course, we again note that EFA is typically focused on grouping subsets of items, not
subsets of raters or panel members as we have just done in this adaptive Q sorting.
Initial (i.e., raw) expert sub-panel ratings predictably presented with substantial noise, or
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64 “likely outlier” ratings. This is especially so, given this was a simulation (via silent “role-play”)
where the HR lecturers were assuming HR practitioner-managers roles (i.e., not academic role),
and where the non-HR lecturers were more reasonably acting as business pedagogy experts.
Both of these small sub-panels were acting as if reasonably knowledgeable about the training
and industry-consulting capacities of the small business school.
Given that each panel’s rating set typically presented a “majority view” it was straight-
forward to identify the “wild” rating occurring within this, so long as the majority was reasonably
congruent (and where this congruency allowed the researchers to see how the two sub-panels’
competing perspectives could be forced to evince in such a simulation). Fortunately, in the
present instance, it was uncommon for a reasonable congruence (between at least two members
of a sub-panel) to not clearly manifest. But it must be emphasized that the data set should not
be viewed as empirical evidence standing-alone; given outlier ratings were liberally replaced
with each sub-panel’s average for that statement (i.e., using “mean” replacement on roughly
one-fourth of the simulated ratings in a way that amplified what could otherwise have been
subtle distinctions). This is consistent with the goal of making a methods contribution whereby
Q methodology is adapted to multiple paradigm (or “competing perspective”) panel ratings of
nearly a hundred qualitative responses to a single item.
An actual empirical view of these competing perspectives would likely require panels of
at least twice this size, such that outliers generally would have little distorting impact. In that
improved situation, extreme outliers, should they evince, could be discarded by conventional
data-cleansing methods, as opposed to the convenient one we have applied to this role-play
simulation. Furthermore, a valid empirical panel study would not only engage a pair of much
larger sub-panels, but the “HR manager” panel would ideally be made up of practitioners
from industry, not HR lecturers. So, this methodological advice, and the attempted methods
contribution, would need to be adjusted somewhat for other applications.
In accordance with the “simulations-convenient” data cleansing protocol, i.e., replacing
each peculiar or outlier expert rating with the average of its panel ratings (e.g., 2, 1, 6, becoming
2, 1, 1.5, etc.), the competing perspectives of an HR manager versus a business school lecturer
can become salient via a Q-sort procedure engaging even the smallest panels. Predictably,
given such a liberal data-cleaning, the Q-sort produces a logical and salient set of factor loads
(see Table 2 and Figure 2), and very respectable Bartlett’s (Pedhazur & Schmelkin, 1991) and
KMO omnibus results (Tabachnick & Fidell, 2001) (See Table 3).
Table 2. Pattern Matrixa.
Pattern Q sort perspectives

Matrixa 1 2
HR1 0.915
HR2 0.889
HR3 0.808
BS1 0.981
BS2 0.785
BS3 0.756
Key: HR1, 2 & 3 = HR manager perspective, BS1, 2 & 3 = Business School lecturer perspective
Extraction Method: Principal Axis Factoring
Rotation Method: Oblimin with Kaiser Normalizations
a. Rotation converged with 5 iterations
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Q-sort perspective 2
Figure 2: Q Sort Perspective Plot in Rotated Factor Space.
Both sub-panel perspectives are strong, and similarly so. However, Q-sort perspective
1 (the apparent perspective of HR managers - - measured and conveyed horizontally left-to-
right in Figure 2) seems to be slightly more uniform or consistent in this strength, i.e., with less
variance in its three Q-sort loadings.
Table 3. KMO and Bartlett’s Test.
Kaiser-Meyer-Olkin Measure of Sampling Adequacy. 0.739
Bartlett’s Test of Sphericity Approx. Chi-Square 323.381

df 15
Sig. 0.000
So, as would be reasonably expected in this simulation, the competing perspectives of

business school academics, versus HR managers manifest with cleanly discernable perspectives
on how best to respond to HR staff’s personal goals (noting that in Table 2, printer suppression
has been applied to factor loads smaller than 0.3). The liberal data-cleansing efforts (i.e., having
each “outlier rating replaced by optimal rater averages” ensured that the simulation would
yield stable structure in a Q methodology), thus collectively producing the clean clustering of
“like-minded” experts seen in Figure 2. In other words, in the psychological or mental space
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66 conveyed in this figure, each rater is seen to be high on only one “perspective-conveying”
factor, and very low on the other. However, as anticipated when choosing to allow oblique
rotations (via PAF/direct oblimin), these two competing perspectives are somewhat correlated
(r = .28) (see Table 4), possibly reflecting that both sub-panels had roughly equal knowledge of
the training-delivery capabilities.
Table 4. Q Sort Perspective Correlation Matrix.
Q Sort 1 2
1 1.000 0.284
2 0.284 1.000
ProjectMe Participants On-line Feedback Survey Analysis
The survey consisted of 20 questions and was sent to all of the 35 participants via email
(See Table 5).
Table 5. Analysis of Participant Responses to Feedback Questionnaire.
Analysis of Participant Responses to Feedback Questionnaire

TP TR %
MC and Webmaster 3
ProjectMe team members 8 5 33.3
Expert team 3 1 6.7
Audience participants 7 3 20
CEO of focus organisation 1
On-line participants 6 2 13.3
ProjectMe team 5
Media personnel 2
Presenters 3
Skipped question 4 26.7
Total = 38.5% RR 35 15 100
Key: TP = Total Participants; TR = Total Responses.
An analysis of ProjectMe participants’ responses follows, beginning with their rating

of the effectiveness of the learning (See Table 6).
Table 6. Effectiveness was the learning experience.
Relative Frequency
How effective was the learning experience? Absolute Frequency
(%)
Very effective 1 8
Effective 5 42
Somewhat effective 5 42
Somewhat ineffective 0 0
Ineffective 0 0
Very ineffective 1 8
Skipped question 3
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Six of the twelve responses stated they found ProjectMe was effective with one stating 67
‘very effective’. One participant stated it was very ineffective. This comment came from an
on-line participant. It is acknowledged that there were teething problems with the technology
which on-line participants found understandably frustrating. Interestingly, only eight people
received access to the URL, but there were 39 reported users. It is uncertain whether these were
the six people who participated logging on or off, or if the interest in the event resulted in the
original people giving the URL to others. (For future events we will include user passwords, and
make all questions forced.) Not everyone commented on everything and not every comment
is presented here for sake of expediency and avoiding repetition. Comments are recorded
verbatim, although spelling and grammar have been corrected.
After rating the effectiveness of ProjectMe, participants were asked “What made it effective?”
• It was not a static presentation of ideas from one source, but the combination of the two
project teams, the reflection from the panel and the audience participation
• Real examples of practice and the participants knowledge
• Diverse group, interesting and intelligent conversations, problem solving
• Varied programme. I usually find it difficult to hold attention for over an hour but the
audience experience was varied enough. Good number of different people to watch
and listen to and well hosted. Links between segments were effective. I felt it was
directed well
• Listening to a number of different perspectives from a theoretical and practical focus.

Observing others dealing with an issue and the way/s in which they reached an outcome
and reflecting on that during the session
• The novelty of the setting was certainly useful and the calibre of the panel / project
teams helped make it real learning
• The pressured environment of the live session actually allows a more authentic result
to occur
Next they were asked, “What made it less effective?”
• There was a major technical glitch with bandwidth that severely impacted the online
experience. I suspect that this was an internal network problem. [which we fixed during
the event, but had start-up problems]
• Case study was not deep enough. In depth prior knowledge of the organisations was
required by the teams all commented that 18 minutes was not enough time to analyse
what was the problem and how and what change was necessary
• More audience activities would be good. Not being very knowledgeable of the case
study subject myself, I think that some audience members including me struggled to
understand what the project groups were working on
• Some of the panel members’ observations, comments, and responses to questions drifted
off the issue. Whereas I would have liked to hear the views of some of the project team
participants
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68 • Nothing
• The technology was poor at first and I had no idea what I was supposed to be doing - I
felt ignored, as if I was standing on the pavement looking in the window at a party in a
restaurant...everyone looked like they were having fun but I was excluded
Participants were then asked, “How could it be more effective?
• It might be possible to trim the time off the length of the session? Or break it into
two sessions? There was discussion at the DVD presentation of the two project teams
having tight deadlines to work in, and whether an offline pre-recorded session would
have allowed more thorough work
• The interactions and the result between the team members will be more honest (a la the
sorts of questions where you say the first response to verbal prompts etc. (Sorry, I lack
the knowledge/concepts for a more succinct answer!) I feel a more considered answer
could feel more scripted. OR a pre-recorded session could be countered with "live"
response from the teams
• I would also agree that maybe the compere could have announced the structure/format
of the session. I admit to taking 10 minutes or so to catch on initially!
• I think that there could have been more participation from the audience groups
throughout the entire session, rather than the couple of discrete Q & A moments
• Ensure that the studio audience can hear the project teams when they are working on
the issue
Participants were then asked to comment on the most enjoyable experience of ProjectMe:
• I enjoyed the whole shebang! But the final hour summary and discussion was very
interesting - in fact I was quite surprised at how interested I was, and have to admit
that my preconceptions of this maybe being a slightly waffly topic were pleasantly
dashed! :-)
• Enjoyed the opportunity of being involved
• Watching how the production all came together
• Meeting others of similar minds
• The whole lot. It was a really great experience and good to be part of it
• Being part of the project, meeting new and interesting people
• Listening to what the expert panel had to say. They shared a lot of insight
• Talking to the other people online
• Being part of a new way of learning, listening to peoples viewpoints on egos and
managing them. The variety of mediums used in the learning experience
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• I enjoyed the whole thing 69
They were then asked what was the least enjoyable experience to which they commented:
• Probably the only real criticism of the content that I have is lack of an outline at the
start. But I have no major reservations about the way that ProjectMe was done. In
fact I think that places like [another department] could learn a lot from how this was
done!
• Not being sure of what the process was
• Not knowing exactly what my role was
• Nothing
• As a studio audience member, hoping not to be asked for a question when I didn't have
one
• Enjoyed it all but a lot of time given to panel members and some of their input not as
useful or as valuable as I had hoped.
• Being on camera without having a proper briefing of what was expected of us was very
disconcerting
The following question was, “What was the most significant thing (learning or moment) you
took away?”
• The analysis of ego and what that really means to me and how it affects what I do and
react
• The sincere reflection around the ‘concept of self-image’ that people have and how it
manifests itself in the world of business was very interesting. I could watch that part
of the DVD [filmed version of live event] again. Problem solving on the spot with little
background information or detail
• Insights into other people’s views
• Some good stuff on EGO
• I was part of a panel. The exercise was very good and valuable to the organisation in
question
• How important [panel member] regards listening in his leadership and management
skills
• Describing egos!
Delving yet further, we asked, “What are you committed to change as a result of the
learning?”
• Taking a step backward before moving forward so I can clearly see what is happening
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70 • Hmm. I'm certainly more mindful of the role of ego at the moment
• Use my EGO to perform better
• Keeping ego in check!!!
• Greater self-belief and I will ask people more questions to hear what they have to say
• Nothing
• Reflecting on my own ego and how to manage it
Participants were then asked to comment on the topic, ‘the right amount of ego’:
• Obviously this was aimed at people in a management role (I guess!?) however it had
broader ideas that anyone could identify with and use to reflect on. For instance the
topic of humility was mentioned, and again, I was struck by the group's "popular"
conception of what that meant. But if you look deeper, then you see that humility is
quite a different beast. (I.e. being humble or having humility is not concordant with a
lack of conviction, or poor self-image, being retiring, etc.).
• Good lord I could almost want to do a management paper at SAB! [School of Applied
Business]
• Good topic
• Could have had some strong take-away points for the watchers at the end.
• Very valuable.
• Particularly relevant. Many perspectives alerted the participants to diverse views
• Very good topic and very relevant in my work as an HR Advisor
Finally, participants were asked if there was anything else they wanted to add:
• I thoroughly enjoyed participating in the pilot for ProjectMe. I think that it's the
blend of the ‘live’ format with the audience participation that makes this format work
effectively. I do not think this would have been as effective if this had just been a "clip-
show" of pre-recorded segments with a panel of talking heads.
• In my mind this perfectly encapsulates a solution to the problem with the bulk of online
blended training. Most of that is just stuff dumped online with the expectation that
people can trawl though it and "learn". This is the equivalent of simply uploading a
textbook, yet somehow it's thought to be more effective. The bulk of proponents for this
have forgotten that there is a dynamic, human dimension to learning that is as important
to students success as having well-made books and resources. I think [name given] and
her team have grasped that perfectly and they deserve to be fully commended for their
hard work and success.
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• This is definitely an idea worth pursuing and with fine tuning I can imagine this being 71
used to present training to staff as well as students
• I feel compelled to make the observation that I have never seen anything as effective as
this
• The ProjectMe session was a great thing to be part of. I would relish the chance to be
a participant in the future
• Thanks for inviting me to take part, [Name given-this was an anonymous survey]
• Appreciated the opportunity to be part of the workshop. I think there is a lot of value
in this learning and whilst there are considerable resources involved I think that with
some tuning, the right mix of people and subject matter there is a lot of untapped value
learning in this way.
• Good pilot and well done – some things to improve but well worth the session
Discussion
Key insights from the ProjectMe participants suggest that the sophisticated use of
technology, live filming of the learning event, live-stream on-line participation, pre-filmed one-
week-old organisational case study, supporting DVD clips, and power points, integrated with
a diversity of participants and participant roles, was an effective way of learning, and that real
learning took place. Participants appreciated that theory was backed up by real examples of
practice from people who were ‘doing it’, which reinforced the learning.
The multiple participant groups brought different perspectives which were used to judge
and moderate personally-held perspectives/values/beliefs that resulted in participants challenging
their own pardigms. The learner-centric environment gave all participants (including the
experts) the opportunity to challenge long-standing paradigms about the self-development issue,
and adjust that thinking in a non-judgemental way. Having multiple perspectives of thinking
around a managerial problem, together with the self-development issue, allowed participants
the freedom to explore the deep-level beliefs and values that inform their thinking, thereby
providing excellent refractions of understanding. This in turn gave opportunities for individuals
to construct new learning. The multiple perspectives of thinking within the different groups and
across the groups was observable. Furthermore, there was visual information available ‘in the
now’, that gave rise to other discernible factors such as attitudes, aggressiveness, compliance,
depth of belief, confidence, and personality. Not only did participants have information, they
also had behavioural cues to use in processing the incoming information.
The comments from the participants also reinforced the literature in that engaged
learners are fully involved, attentive and absorbed in that learning. ProjectMe appears to have
achieved that, as evidenced in the participants’ words: “attention-holding”, “varied”, “novel”,
“new way”, “never seen anything so effective as this”, “relish the chance to be involved again”,
“enjoyed participating”, and “a lot of untapped value”.
The decision to focus on The right amount of ego was appropriate given the results of
the HR practitioner questionnaire with confidence/courage rated the highest self-development
need. The organisational issue offered complexity for learning and opportunity to observe ego
in action. After the presenters had completed relating how ego is observable, project teams
were asked to discuss and share what role ego had played in their project work in addressing
the organisational issue. The audience participants were also asked to discuss what they had
observed.
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72
Conclusions
��
The value of this research is three-fold. Firstly, it describes an authentic way of self-
discovery, which not only benefits the learner, but also provides rich information that assists
others’ learning in a vibrant, authentic environment. For example, not only did participants hear
what the expert panel had to say, they were also privy to the panellists’ behaviour and attitudes
which either reinforced what they were saying, or refuted it. In so doing, it challenged learners
to make changes that led to transformative action. The multiple learning opportunities of the
ProjectMe event seem to have encouraged that desired change. The ProjectMe event offered not
only an alternative to traditional learning processes, but also participation in integrated content
(organisational and self-developmental) in a live situation. Thus, opportunity to challenge
attitudes and/or behaviour was brought about through explicit reflective practice and feedback
from others and in turn offered ways to address self-development training issues facing 21st
century managers. The mode of filming the event caught people being themselves (mostly)
and also provided an archive with which to reflect on their actions after the event, and indeed
provided managers with evidence of the learning of their employees.
This then raises the issue of ethics. We obtained ethics approval from the Otago
Polytechnic Research Ethics Committee. Furthermore each person including the film crew was
given an Information Sheet, and if in agreement, signed the Media Release form. Only one
person chose to participate but did not sign the form (although this person did give written
permission for their contribution to be used for student learning). Upon reflection, persons who
do not sign will not be able to participate in future iterations.
Secondly, six topics were identified by HR practitioners as the most significantly
needed areas of self-development. These topics not only inform Consultants and Trainers as to
where the need for training lies, but also identify where organisations could target future self-
development. Future research could focus on each of these topics in other experiential studies.
Finally, the attempted research methods contribution facilitates other interested
organisations who wish to identify appropriate targets for training interventions or consultancy.
The qualitative findings reinforce the value of learning that influences cognitive and affective
dynamics towards achieving real and deliberate learning leading to transformation. As mentioned
above, the quantitative analysis is preliminary using a role-play simulation. Further research
could focus on investing in resourcing a larger panel of practitioners. This study also suggests
the utility of a single-question descriptive questionnaire (plus demographic information), in that
targeted sample may be more likely to participate; it confirms the self-development focus of
ProjectMe, and has also demonstrated through adapted Q methodology, that a single-question
data-set is worthy of quantitative analysis.
Acknowledgements
We wish to acknowledge the willingness of all the participants who in essence were
guinea pigs (in the truest social-scientific sense of course!). We also want to thank Phil Ker,
CEO, Otago Polytechnic for his financial support, confidence in us and encouragement for the
ProjectMe concept. We also acknowledge Richard Joseph (Richard Joseph and Associates),
Michael Ferrari (Business Solutions), and John Christie (Dunedin Chamber of Commerce) for
their very helpful advice and support. We also acknowledge and thank Matt Norrish (Otago
Polytechnic Masters Design student) who designed the ProjectMe title and Joe Gallagher
(Otago Polytechnic newSplash Design School) who filmed and edited the case study. We also
acknowledge Russell Garbutt (Co-Coordinator, Media Production) and his team who assisted
with all of the technology involved in filming the event, and producing high DVD quality.
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The ProjectMe team was made up of a multi-disciplinary team from Otago Polytechnic and 73
included: Kay Lion (Head of School, School of Applied Business), Christine McConnell
(Principal Lecturer), Marje Schaddelee (Senior Lecturer), John Llewellyn (Human Resources
Services Manager), John Grant (Lecturer), Lynda Henderson (newSplash Studio Manager),
Ross Buchan (Senior Facilitator) and Lesley Gill (Principal Lecturer).
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76
COMPARISON OF BEST PRACTICE
BENCHMARKING MODELS
Barbora Jetmarová
University of Pardubice, Pardubice, Czech Republic
E-mail: barbora.jetmarova@upce.cz
Abstract
A review of benchmarking literature exposed that due to the development there are different types of
benchmarking and different benchmarking models. There are universal models, but also models uniquely
developed for particular benchmarking types. Each model varies in terms of the number of phases
involved, number of steps involved, application, etc. The research focuses on one of the most popular
benchmarking types: best practice benchmarking. Best practice benchmarking describes the comparison
of performance data obtained by studying similar processes or activities and identifying, adapting, as
well as implementing the practices that revealed the best results. The research intends to propose best
practice benchmarking model after reviewing existing benchmarking models in literature. Implementing
successful benchmarking project requires more than abidance to the step-wise models. Factors, which
have an impact on the adoption of best practices benchmarking models will be highlighted, because
many companies are involved in benchmarking, but adoption of best practices is not as height as might
be expected.
Key words: benchmarking model, best practice benchmarking, benchmarking cycle.

Introduction
In today’s rapidly changing business word, managers, owners and investors need to
know the current situation of the enterprise, business environment and competitors, in order to
promote and maintain its position in the market. Appropriate knowledge allows them to take
the right decisions when obtaining financial resources, in determining the optimal financial
structure, in allocation of available funds, in the provision of trade credit, in the distribution of
profits, etc. In addition, enterprises must be better, faster, and cheaper than their competitors.
Enterprises have to consider and in many cases adapt or implement a wide range of innovative
management philosophies, approaches, tools and techniques. One such management tool, that
has been widely used is benchmarking.
Benchmarking is influenced by development of management systems, statistical
methods and information technology. Benchmarking procedures improve constantly. Scientific
information sources reveal that there are several ways to classify types of benchmarking.
Different benchmarking methodologies have been developed and applied in various settings,
all with varied phases and steps of the process. There
��
is a large number of benchmarking models
and orientation in them is not easy. This
��
research focuses on best practice benchmarking and its
models. Choosing the right methodology is an essential key in making benchmarking a success.
Because implementing a successful benchmarking programme requires more than adherence to
the step-wise programmes, the most critical factors are also subject of this investigations.
Barbora JETMAROVÁ. Comparison of Best Practice Benchmarking Models
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Benchmarking 77
Benchmarking presents a continuous process of measuring systems, processes and

products within the enterprise and its comparison with enterprise that is doing best practice.
The aim of such measuring is to learn new practices and procedures and in particular to obtain
information to improve business performance. There are many other definitions, which have
been proposed for benchmarking by different authors. Only selected definitions will be focused
on.
Modern benchmarking practice is aimed at importing and implementing best practices
across the organization. The American Productivity and Quality Center (1996) defines
benchmarking as: “The process of identifying, understanding, and adapting outstanding
practices and processes from organization anywhere in the world to help your organization
improve its performance.” The simpler definition of benchmarking, which is widely
accepted is: “The search for and implementation of best practices” (Camp, 1989). He also
states: “Benchmarking is your key to become the best of the best.” Yasin (2002) describes
benchmarking as a technique that can be utilized to identify operational and strategic gaps,
and to search for best strategies that would eliminate such gaps. According to Hyatt (2001) ��&
Ramabadron et al. (1997) benchmarking is the process of identifying superior performance or
practices of other organizations and internalizing such knowledge for competitive advantage.
Benchmarking is the activity of finding, learning, exchanging and adapting best practices, which
makes benchmarking a positive, proactive process to change operations in structured fashion to
achieve superior performance. Benchmark is performance objective, which incorporates best
practice – the standard of excellence (Camp, 2004). Benchmarking becomes a process that
establishes the ground for creative breakthrough, a process of identifying the highest standards
of excellence for products and services, and then making the improvements necessary to reach
those standards by addressing the management and operational skills responsible for production
(Bhutta and Huq, 1999; Kozak and Nield, 2001). The key philosophy of benchmarking is the
ability to recognize and acknowledge that someone is doing a better job, learn how it is being
done and implement it in one’s field of business (APQC, 1996). As evidenced in literature,
most authors have provided almost similar view on benchmarking. Benchmarking definitions
focuses on following major areas: measurement via comparison, identification of best practices,
implementation, continuous improvement and systematic process in carrying out benchmarking
activity (Sarkis, 2001; Ramabadron et al., 1997; Cooper et al., 1996; Maire 2002; Anand and
Kodali, 2008) etc. Therefore, it is believed that these areas encompass pertinent aspects of any
benchmarking process. Analysing various definitions, benchmarking can be simply describes
as: a management tool for attaining or exceeding the performance goals by learning from best
practices and understanding the process by which they are achieved.
Classification of Benchmarking
Benchmarking procedures improve constantly, because they are influenced by the

development of management systems, statistical methods and information technology. There
are various identifiable trends in the epistemology of benchmarking and several ways to
classify types of benchmarking, depending on the focus of the benchmarking process. Types of
benchmarking reflect what is compared and what the comparison is being made against. The
fontal types involves comparisons of performance, process and strategic benchmarking; while
the later involves internal, competitive, functional and generic comparisons (Barber, 2004).
Anand and Kodali (2008) summarized classification
��
schemes��
of types of benchmarking
from 13 different authors (Spendoliny, 1992; Codling, 1992; Partovi, 1994; Malec, 1994;
Fong at al., 1998; Maas & Flake, 2001, etc.).��
According
��
to them ��
there are following types of
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78 benchmarking:��
��
internal, competitive, functional, process best
��
practice��
,��
��
best-in-class, generic,
external, strategic,��
��
operational, business-management, consultant study��
��
benchmarking, reverse
engineering, product,��
relationship,
��
performance, result,��
diagnostic,
��
hooded, open, etc. Though�
we have such classification for benchmarking, there ��
are different definitions that exists for
each classification��
��
type of benchmarking. A��
n explanation for each��
type
��
seems to overlap with
one another and thus seems to be inconsistent. ��
A clear evidence to state that there is still lack
of consensus about the classification of benchmarking. According to Bhutta ��
&��
Hug (1999)
types of benchmarking are rather complementary than being exclusive. They can be chosen and
combined for a specific purpose.
According to Mann (2010), there are two main categories: informal and formal
benchmarking. Formal benchmarking is divided in two categories: performance benchmarking
and best practice benchmarking (sometimes called process benchmarking by other authors). Best
practice benchmarking is searching for the best way or solution by studying other organisations
that are high performers in particular areas of interest. The gained knowledge is then analysed
and in cases that the practice is feasible and appropriate, it will be adapted and incorporated in
the organisation’s own process (Mann et al., 2010). Against that performance benchmarking
compares the performance level of a specific process to identify opportunities for improvement
and to set performance targets. Performance benchmarking, which tents to be financially
dominated and historically based provides little in the way of prediction. This type almost never
tackle growth creation, innovation, and learning – key initiatives in today’s information and
intelligence-based economy and the source of new products, services and markets. Zairi (1994)
identifies essential types of benchmarking in his taxonomy: internal benchmarking, competitive
benchmarking, functional benchmarking and generic benchmarking. All four mentioned types
can be classified under performance or process benchmarking.
Best Practice Benchmarking
Best practice benchmarking is the most powerful type of benchmarking. It describes

the comparison of performance data obtained by studying similar processes or activities and
identifying, adapting, as well as implementing the practices that revealed the best results. It is the
process of finding and using ideas and strategies from outside particular enterprise and industry
to improve performance in any given area. Best practice benchmarking focuses on “Action”
– i.e. doing something with the comparison data and working out why other organisations are
achieving higher levels of performance (Mann et al., 2010). Seeing best practices in actual
operation elsewhere is the most convincing approach to silencing the disbelief (Camp, 2004).
During the evolution of benchmarking, there have been distinct phases of increasing
interest in best practice benchmarking in last 15 years. (Camp, 2004). Phases include the search
for performance benchmarks, the interest in process proficiency, the understanding and mastery
of best practice, and the development of best practice models. It shows a great development
in this area. Companies need to understand the shortcoming of the first phase – performance
benchmarks and its measures, which tent to be financially dominated and historically based.
Today’s best practice models should be constructed to guide organization to the future - to be a
key to understand, manage and face business challenges.
Benchmarking Approaches/Models
In order to get useful results from benchmarking it is necessary to keep a systemic

approach. The methodology for best practice study is critical. Over time, different benchmarking
models were developed, to explain and guide benchmarking process. Some of them have been
evolved from the original ten-step, four-phase model developed by Xerox. The number of
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reported benchmarking models is extremely large. Watson (1993) cited 69 different models 79
outlining the process of benchmarking. Kozak and Nield (2001) identified approximately 40
different models. Some models originates from organizations and others from researchers and
consulting agencies. Anderson and Moen (1999) identified 60 different existing models, while
he was identifying new model – the benchmarking wheel. Zairi & Leonard (1994) benchmarked
14 different benchmarking models. Later on Anand & Kodali (2008) benchmarked 35 different
frameworks against each other in a search for a single, exemplary framework. Many organizations
have their own guides, success stories, and benchmarking methodologies e.g. AT&T, The Post
Office, American Express, Xerox, Schmidt, Alocoa, APQC/IBC, TNT, McKinsey & Company,
BBC, Rover Oroup, Texas Instruments, and IBM (Al-Mashari, 2005).
It is obvious there is a large number of benchmarking models and orientation in them
is not easy. The research intends to propose best practice benchmarking model after reviewing
chosen benchmarking models.
Best Practice Benchmarking Model
Developing best practice through benchmarking is a critical activity in the business

word. That is why the best practice benchmarking is the most powerful type of benchmarking.
After reviewing, the published works related to benchmarking models, selective key models,
which are possible to use for best practice benchmarking, were identified, chosen and subjected
to more detail study. All chosen model are possible to use for best practice benchmarking. Most
of the selected models is defined by consultants. This is not surprising, since benchmarking
originated in the private business sector. Academic community is lagging in terms of providing
and advancing benchmarking models. These ten models are classified in Table 1. Table 1
provides ten chosen models defined by different authors. The number of phases and steps
of each model, the year of publication and also categorization under which was the model
developed is mentioned.
Table 1: Benchmarking models.
Number of Number of
Authors Year Category
steps phases
Camp R.C. 1989 Consultant based 12 5
Codling 1992 Consultant based 12 4
Yasin & Zimmerer 1995 Academic based 10 5
Xerox Model 1996 Organisation based 10 4
Harrington & Harrington 1996 Consultant based 8 5
Finningan 1996 Consultant based 21 5
Fong et al. 1998 Academic based 15 6
Andersen & Moen 1999 Academic based 8 5
Longbottom 2000 Academic based 11 4
Maas & Flake 2001 Consultant based 10 5
The steps of each model were critically analyzed and it was proof that each model differs
not only in number of steps and phases, but also in content of these steps. However, the basics are
usually very similar. Therefore, the number of phases and steps is not fundamental. Depending
on which model enterprise use, benchmarking study is usually including following: identifying
benchmarking subject, data collection, determining current gap, projecting future performance,
communication findings, establishing goals, developing action plan, implementation. These are
the main activities during benchmarking study. The question, which followed after exploration
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80 of mentioned models, was: “Is there the need for so many frameworks?” There may need to be
only one basic model, which could every enterprise apply and adapt it to its conditions. After
studying these specific models, the new model was created.
Figure 1 shows proposed model and its specific benchmarking cycle. It displays four
phases of benchmarking - planning, data collection, analysis and adaptation. These phases
fade into one another. On the left side of the picture, it is shown what happens within the
own enterprise – where the benchmarking study is provided. The right side shows the steps
happening within the competitor‘s enterprise which is doing best practices.
Figure 1: Best practice benchmarking cycle.
Finding appropriate answers to the questions: “What to benchmark?” and “Who is the
best?” are regarded as critical factors of success. Motive power of benchmarking is to find
answers to the questions: “How they do it?” and “How we are going to do it?” Recommended
model consist of four phases, which are illustrated in Figure 1. These four phases includes 17
steps, which are stated in Table 2.
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Table 2. Benchmarking phases and steps. 81
Phases Steps
the subject of benchmarking defining, depth of benchmarking defining, objectives defin-
Planning
ing
internal data collection, external data collection, finding a benchmarking partner, contact
Data Collection partner to ensure their consent and cooperation, gathering detailed data from bench-
marking partner, aggregate data about the partner from other sources
converting data to information, sorting, organizing and monitoring the information and
data, removal of irregular factors (if any), detection performance difference with proven
Analysis
best practices, discretion of the causes of the results, identification of processes which
can be improved, formulation of new goals, identification of plans for changes
Adaptation plan creation, implementation of best practices, connecting new plan with current plan
Factors of Successful Benchmarking Application
Successful implementation of benchmarking is not without difficulties. With a standard

process framework – metrics, definitions, and best practices – the models are key to understanding
and manage the challenges business has to face (Camp, 2004). For effective implementation
of benchmarking is necessary to respect the benchmarking model, but simply applying certain
approach will likely be insufficient according to Francis and Holloway (2007). Implementing
a successful benchmarking programme requires more than adherence to the step-wise model.
The most critical factors with a positive effect on the success of a benchmarking project are as
follows:
• The support of top management is a crucial factor regarding the success of

benchmarking project. In many situations, benchmarking teams faces obstacles within
benchmarking projects that can only be solved with the help of a higher authority. The
lack of support and involvement from the top management or even fellow colleagues
is often caused due to a lack of benchmarking-understanding. Therefore, the promotion
of benchmarking-knowledge is needed to launch a smooth project.
• High level of employee involvement in a benchmarking project is necessary. It is clear
that if enterprise performs benchmarking projects in a professional manner, the gains
from both the financial and non-financial perspective can be large.
• Benchmarking may be unsuccessful due to lack of managerial planning. Therefore, the
preparation before the start of a benchmarking project and the evaluation at the end of
a benchmarking project is important. (Mann et al., 2010)
• According to Francis and Holloway (2007) previous implementation experience, good
interdisciplinary working, top management commitment and realistic resources are
characteristics associated with benchmarking implementation success.
• Huq et al. (2008) reported that failure to priorities internal situation before seeking
exemplars elsewhere considerably increased the risk of implementation failure.
Discussion
Based on the rewiev of the benchmarking literature, which examined the curent
benchmarking approaches, types and models, the following conclusions are derived. Large ��
number of benchmarking models shows that benchmarking is popular management tool. It
is obvious that the development and utilization of benchmarking practices continue to grow.
Despite the increasing scope of benchmarking ativities and the number of organisations utilizing
benchmarking, there is not an unifying theory in the field of benchmarking. Different autors
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82 proposed ��
different benchmarking types and different definitions exists for them. A��
n explanation
for each��
��
type seems to overlap with one another and thus seems to be inconsistent may be an�
evidence to state that there is still lack of consensus about the classification of benchmarking.
Many consultant based models was selected. This is not surprising, since benchmarking
originated in the private business sector. Academic community is lagging in terms of providing
and advancing benchmarking models. Indeed, it is necessary to emphasize the importance of
both approaches.
Conclusions
Benchmarking has become almost obligatory for any organization wanting to improve
its products, services, or processes to better serve customers and improve business results.
Especially best practice benchmarking will be strategic need for organizations as it is pursued to
find and emulate best practices wherever they exist to close the gap and attain superiority. In this
research, benchmarking definitions, types and models were reviewed. There is a large number
of benchmarking models and orientation in them is not easy. Recent articles on the models
of benchmarking are reviewed and used to construct a four-step benchmarking model. The
proposed four-step model is advised to be use in facilitating and guiding benchmarking, thereby
enabling enterprises to gain the full potential of benchmarking application. The proposed model
consists of 4 main phases which includes 17 steps. Further research will be taken up in regards
to develop a model which will contain factors of successful benchmarking application.
Acknowledgements
The article was supported by the “Student Grant Competition” at University of

Pardubice - the project “Science and research activities supporting the program Economics and
Management” - SGFES03/2011.
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84 Spendolini, M. (1992). The Benchmarking Book. New York��

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Advised by Michaela Stříteská, University of Parubice, Pardubice, Czech Republic
Barbora Jetmarová Ing., Ph.D. Student, University of Pardubice, Studentská 85, Pardubice,
Czech Republic.
E-mail: barbora.jetmarova@upce.cz
Website: http://upce.cz
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AN EXPONENTIAL AND LOGARITHMIC 85
UTILITY APPROACH TO EIGENVECTOR

METHOD IN THE ANALYTIC HIERARCHY
PROCESS: THE IDEA VALIDATION WITH
EXAMPLE LOGISTIC APPLICATION
Pawel Tadeusz Kazibudzki
Jan Dlugosz University in Czestochowa, Poland
E-mail: emailpoczta@gmail.com
Abstract
Thorough inventory control, planning and coordination, wise and thoughtful selection of warehousing
and means of transport are necessary for efficient decisions making in logistics. In order to make optimal
decisions, it is necessary to deliberate many options from the perspective of different criteria. It was
empirically verified that such problems are difficult to solve without methodological support as they
exceed humans’ perception capabilities. However, there are some techniques which can facilitate the
process of decision making when successfully applied. One of the most commonly used technique for
structured problems solving is the Analytic Hierarchy Process. It is popular because its prescribed
procedure supports sophisticated mathematical theory called the Eigenvalue Method which is accurate
and unique. It does not mean that there are not other methods that can support the Analytic Hierarchy
Process although their application has pros and cons. Two relatively novel methods were proposed
recently and their validation studies are the essential part of this research. In comparison with others,
their simplicity and compliance with the Eigenvalue Method are their most crucial but not exclusive
advantages. At the end of the research, the example logistic problem was solved with their application,
and the results of all methods were compared.
Keywords: Analytic Hierarchy Process, eigenvalue method, optimization models, decision support
techniques, selection of transportation modes.
Introduction
Obviously problem solving activities pervade many aspects of human life and its levels.
Additionally, due to the interdependent nature of most problems, they can also influence and
be affected by other problems what constantly takes place in the real life at different levels of
human activity. Generally, problem solving process is considered to be a multi-stage process
and although many models and frameworks have been proposed in a literature, one of the
most popular is Herbert Simon’s (1960) categorization assuming its three phases: intelligence,
design, and choice. The intelligence phase concerns the problem identification. In this stage the
problem is recognized and information are gathered in order to formulate a problem definition.
Design phase refers to the identification of alternative solutions to the problem. In the choice
phase, the solution alternatives are selected and implemented. From the three different phases
of problem solving mentioned above, the act of decision making (i.e. choice) has received the
most attention in the academic literature. It is so, probably because we as the human beings, are
unable to analyze simultaneously many different competing factors and then synthesize them
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86 for the purpose of rational decision. There is overwhelming scientific evidence showing that the
unaided human brain is simply not capable to do it. That is why one needs some decision support
tools which can provide him/her with the required assistance. Psychologists have proven that
the human brain is limited in both its short term memory capacity and its discrimination ability.
It was scientifically verified that a human being will give inaccurate answers when forced to
choose from a range of twenty alternatives, because the range exceeds man’s bandwidth of
perception channel (Martin, 1973). It has been demonstrated that humans are not capable of
dealing accurately with more than about seven things at a time. It is crucial to notice that results
of numerous psychological experiments, including the well known Miller’s study (Miller, 1956)
verified this notion.
Example Techniques for Decision Making Facilitation
Advantage-Disadvantage Procedure to Decision Analysis
This technique is perhaps the most simple and fundamental of all the evaluation
methods. On the other hand, it is also the approach that probably is used most frequently
what does not necessarily mean that it is used effectively. The process typically uses a list of
all alternatives, which are then separately examined from the perspective of their strengths
and weaknesses against certain criteria. Finally, it is chosen the one that best fits the problem
objective. The choice is made either on the bases of greatest number of advantages or largest
net number of pros over cons (Van Gundy, 1981). Obviously, the primary limitation of the
technique lies in the assumption that all criteria must have the same weights what seems very
unlikely and constitutes the significant simplification of the whole problem.
Weighting System Approach for Decision Making Support
In order to avoid the main drawback of the previous method, this commonly used
procedure involves assigning weights to the different evaluation criteria. Since not all criteria
are probably assigned the same weights, the weighting system approach provides a systematic
method for assessing the strengths and weaknesses of each alternative. The general steps this
method entails constitute: creating an evaluation criteria list, assigning weights to the criteria,
rating each alternative against the criteria and selecting the alternative that best satisfies the
criteria on the bases of total points (Van Gundy, 1981). Obviously, at the end of the process the
question arises, whether the attempt undertaken in order to quantify value preferences for both
criteria and alternatives was valid. Let us remember that any measurement system is only as
useful as the criteria applied to develop it and the information credibility, the ratings were based
on. Moreover, there are two basic kinds of judgments: absolute and relative. However, it seems
that humans can make much better relative judgments than absolute ones. It is so because they
have the better ability to discriminate between the members of a pair than compare one thing
against some recollection from their long term memory (Saaty, 2000).
The Analytic Hierarchy Process
It seems that making pairwise comparisons is for human being as natural as binary
counting is for computers. It is so because humans have limited, so called bandwidth of their
channel for perception. As it was indicated (Martin, 1973, p. 334), we can deal simultaneously
only with about seven units of information, and this is our optimal performance as far as complex
problem solving is concerned. Fortunately, there are some ways to improve our efficiency.
Pawel Tadeusz KAZIBUDZKI. An Exponential and Logarithmic Utility Approach to Eigenvector Method in the Analytic Hieararchy
Process: The Idea Validation with Example Logistic Application
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The first is to enable a man making rather relative than absolute judgments. The second is 87
to organize tasks into groups in order to make several judgments in succession. All of this is
just the reason why the Analytic Hierarchy Process (AHP) uses pairwise comparisons. The
method was developed at the Wharton School of Business by Thomas Saaty (1980) and since
its creation has been applied to numerous decisional problems (Saaty, 2001). It has substantial
theoretical and empirical support including the studies of human judgmental processes by
cognitive psychologists. It overcomes the weaknesses of advantage-disadvantage procedure to
decision analysis and the weighting system technique by using a hierarchical structure of the
decision problem, pairwise relative comparison of the elements in the hierarchy, and a series of
independent judgments. The AHP method reduces in this way possible inaccuracy of human’s
judgments and provides a measure of their consistency. The first stage in AHP model building
is to decompose the overall problem into a hierarchy consisting, minimally, of a goal, criteria,
and alternatives. Each element, or level, in the hierarchy can be delineated further into another
set of manageable components. For example, criteria can be decomposed into subcriteria. The
hierarchical structuring continues down to the most specific component of the problem, which
usually involve specific alternatives or courses of action available to the decision maker. There
are many possible hierarchical models that can be applied to a wide variety of problems. The
following ones may be included as some of them (Dyer et al., 1991, p. 89):
– goal, criteria, alternatives;
– goal, criteria, subcriteria, alternatives;
– goal, criteria, subcriteria, scenarios, alternatives;
– goal, actors, criteria, alternatives;
– goal, criteria, levels of intensities, many alternatives;
The second stage in this process is to establish priorities among the elements at each
level of the hierarchy. The decision maker evaluates (in a pairwise manner) the relative
importance, preference, or likelihood of each set of elements with respect to elements at the
immediately higher level in the hierarchy. First pairwise comparisons of the relative preference
for the alternatives are made with respect to each of the lowest level (sub) criteria. Next,
pairwise comparisons are made about the relative importance of the subcriteria with respect to
each criterion, and then for the relative importance of the top level criteria with respect to the
goal. The process of making pairwise comparisons uses nine-point scale in order to evaluate
preferences for each pair of items. The scale provides both numerical and corresponding verbal
expressions for each judgment and is commonly available in the literature (Saaty, 2001, p. 26).
Finally, the last stage involves synthesising
��
according to a well-prescribed procedure��
(standard
AHP aggregation
��
based on weighting and adding) and calculation of so called inconsistency
ratio that reflects the degree of judgments inconsistency.
Recapitulating, that what makes AHP so different and effective from other similar methods
is that (A) it enables making judgments in the verbal way, and (B) it entails mathematical
analysis performed on the judgments which provides relatively very accurate results and the
measure of their inconsistency.
However, it is the mathematical analysis i.e. the eigenvalue method, which the AHP
applies, that despite of its popularity, has as well its share of criticism. For instance some
authors have noticed that Saaty’s procedure does not optimize any objective function, what
entails it cannot be interpreted in statistical or optimization fashion. In particular, solutions
obtained with the application of the eigenvalue method in the AHP cannot be compared to other
ones received with an application of different commonly known methods (Choo et al., 2004;
Crawford et al., 1985). Besides, unlike many optimization models, the method applied by the
AHP does not allow a decision maker for introduction of additional constraints that might be
seemed necessary according to his/her point of view (Lam et al., 1995). Moreover, the method
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88 commonly applied to the AHP is supposed to operate only with, so called, reciprocal pairwise
comparisons matrices what entails a limited range of application. Another drawback of the
analyzed procedure was revealed quite recently (Bana e Costa, 2008), and proved that the
eigenvalue method, commonly applied to the AHP, does not satisfy a so called condition of
order preservation.
The Eigenvector Method in the AHP
In order to derive priorities from pairwise comparisons AHP uses a principal Eigenvalue
Method (EM) which has been recently a subject of more detailed analysis (Kazibudzki, 2011a).
Generally speaking a problem of deriving priority weights from so called ��
pairwise comparison
matrix (PCM) denoted as A=[aij]nxn with elements aij=ai/aj is to estimate a priority vector (PV)
w = [ w1 , w2 , w3 ,, wn ]T on the bases of the matrix A which comprises a decision maker (DM)
pairwise comparisons judgments concerning the importance of a
given binary set of alternatives. Commonly the priority weights wi , i=1,…,n, are chosen to be
n
positive and normalized to unity: ∑ wi = 1 , and the elements aij of the matrix A are then the
DM judgments about the priority i ratios wi /wj , i,j=1,…,n, where n is the number of
all alternatives being considered. In a perfect judgment case then, one has:
A x w = n x w [1]
and in this situation the PV w can be computed by solving that so called eigenvector equation. It
is so because the number n in the perfect case (matrix A is consistent) is the principal eigenvalue
of A, i.e. the largest solution of the characteristic equation:
det (A–lambda x I) =0 [2]
where I denotes identity matrix of order n. In this case it is also the only nonzero eigenvalue. On
the other hand, when the case is not perfect (matrix A is inconsistent) an estimate of the true PV
is normalized right eigenvector associated with the largest eigenvalue. Thus, in order to obtain
the estimate one needs to solve general eigenvector equation:
A x w = lambdamax x w [3]
where lambdamax denotes the principal eigenvalue which��
is not smaller than n, is simple and its
existence is guaranteed by Perron’s Theorem (Saaty, 1994), while other lambdas are close to
zero.
If the elements of a matrix A satisfy the condition aij=1/aji for all i, j=1… n then the
matrix A is said to be reciprocal (RPCM). If its elements satisfy the condition aikakj=aij for all i,
j, k=1… n and the matrix is reciprocal, then it is called consistent. Finally, the matrix A is said
to be transitive if the following conditions hold: (A) if for any l=1,…,n, an element alj is not less
than an element alk then aij ≥ aik for i=1,…,n, and (B) if for any l=1,…,n, an element ajl is not
less than an element akl then a ji ≥ a ki for i=1,…,n. Obviously, in the case of the
reciprocal PCM the two conditions (A) and (B) are equivalent.
An Exponential and Logarithmic Utility Approach to EM in the AHP
It has been already deduced (Grzybowski, 2010) that instead of solving the eigenvalue
equation [3] one may seek a vector w which best estimates the equation [1]. So, in order to
satisfy the equation [1] as perfectly as possible it has been recently proposed (Kazibudzki,
2011a) to estimate the PV by solving one of the following constrained optimization problems:
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89
2
n   n  
min ∑  exp ∑ aij w j − nw  
i  − 1
i =1   j =1  

[4]
subject to:
∑ wi = 1, wi ≥ 0, i, j = 1,  , n
i =1
or respectively (Kazibudzki, 2011b):
2
n  n aij w j 
min ∑  ln  ∑  
 [5]
i =1   j =1 nw i   subject to:
∑ wi = 1, wi > 0, i, j = 1,  , n
i =1
Because the utility of both methods decreases exponentially or logarithmically, inversely

proportionally to the inconsistency ascend, it seems natural that they can be commonly identified,
respectively as the Exponential Utility Approach (EUA) and the Logarithmic Utility Approach
(LUA) to the problem of priorities weighting. The basic concept of the above two methods is to
minimize a distance between an ideal unknown PV giving consistent PCM and a PV resulting
from a DM judgments, typically involving inconsistent PCM. The quest for this solution with
the application of commonly known constrained optimization procedures results with the PV
which best fits to the ideal one delivering consistent PCM. In the next section EM will be
compared to the two approaches with the application of computer simulations.
The Validation Studies of EUA and LUA to EM in the AHP
In the simulations with the help of sophisticated mathematical software the following
types of random inconsistent PCMs were generated: reciprocal and transitive (RTPCM), only
reciprocal (RPCM), and only transitive (TPCM). In order to compare results obtained from
EUA and LUA with results given by EM, firstly ten thousands of RTPCMs were generated, in
order to find out if there is any possibility of rank reversal phenomena between the methods,
and secondly one thousand matrices from each of remaining types (RPCM and TPCM). For
every matrix the PVs: wEUA, wLUA, and wEM were calculated with the application of EUA, LUA
and EM, respectively. Next were computed: Pearson correlation coefficient (PCC) between the
priority vectors and Spearman rank correlation coefficient (SRCC) between the priority ranks.
The considered number of decision alternatives n was: 3, 5, 7, 9, 11 in the case of RTPCMs and,
for variety reasons: 4, 6, 8, 10 in the case of remaining types of PCMs, i.e. RPCM and TPCM.
For the purpose of preference ratios evaluations, which entail the scope of elements in PCMs,
the standard AHP scale was applied, i.e. integers: 1,…, 9 and their inverses. Table 1, 2, and 3
show the mean correlation coefficients between priority vectors and priority ranks generated
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90 with the application of the two novel methods (EUA, LUA) and EM, on the bases of the whole
set of data in relation to a given type of PCM and number of alternatives.
Table 1. Simulation results of comparative studies EUA and LUA versus EM for
RTPCMs.
RTPCM
Number of
LUA EUA
alternatives “n”
PCC SRCC PCC SRCC
n=3 1 1 0,999965 0,9999116
n=5 0,999997 1 0,999891 0,999742
n=7 0,999991 1 0,999874 0,999841
n=9 0,999991 1 0,999906 0,999924
n=11 0,999997 1 0,999887 0,999876
Table 2. Simulation results of comparative studies EUA and LUA versus EM for
RPCMs.
RTPCM
Number of
LUA EUA
PCC SRCC PCC SRCC
n=4 0,996699 0,995 0,993527 0,974122
n=6 0,980279 0,956914 0,950362 0,905241
n=8 0,961772 0,929262 0,873306 0,741204
n=10 0,944564 0,930303 0,796861 0,630861
Table 3. Simulation results of comparative studies EUA and LUA versus EM for TPCMs.
RTPCM
Number of
LUA EUA
PCC SRCC PCC SRCC
n=4 0,998773 0,998779 0,99882 0,997528
n=6 0,998479 0,998992 0,999181 0,997989
n=8 0,998619 0,998911 0,999238 0,99563
n=10 0,998844 0,999044 0,99934 0,997083
As it can be seen from tables 1, 2 and 3 the validation studies of EUA and LUA versus
EM can be successfully perceived. The very essential result of them is the score of the RTPCMs
simulations for LUA which prove that this method fully complies with EM giving the same
rank order in all ten thousands cases of simulated matrices (SRCC=1) and for every studied set
of alternatives (n=3, 5, 7, 9, 11). Amazingly close relation between studied methods can be also
found in the case of RPCMs and TPCMs, however let us remember that in this case one has to
be conscious that EM is designed only for the application with reciprocal matrices and because
of that in the case of matrices which are nonreciprocal the EUA and LUA have their advantage
over EM, what may also certify that they have much broaden range of applications and can be
adopted in cases where EM simply fails. Together with other important findings concerning
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EUA (Kazibudzki, 2011a) and LUA (Kazibudzki, 2011b) it can be concluded, that there is 91
at least one valid method for deriving the priority vector from a pairwise comparison matrix,
particularly when the matrix is inconsistent, which is equally satisfying as eigenvalue method and
sometimes it is even better. This method is LUA and it is so because it fully complies with EM,
it can be applied to both reciprocal and nonreciprocal matrices, it is computationally simpler and
what is most important it does not violate condition of order preservation (Kazibudzki, 2011b).
Obviously, analyzed here approach needs further studies and analysis to be strengthen.
Further, both presented and analyzed above methods will be used for the purpose of
logistics application.
Selecting Transportation Modes – an Example of EUA and LUA Application
It is a fact that physical distribution of goods can represent a major cost category for
many companies. Due to poor planning, lack of coordination and lost or damage shipments
additional costs must be unnecessarily incurred. However, it is possible to avoid this burden
through thorough inventory control, planning and coordination, wise and thoughtful selection
of warehousing and means of transport. Undoubtedly, during transportation modes selection,
the cost constitutes the most important criterion for decision makers. However, there are also
other criteria that can affect an overall customer service which are recklessly neglected in the
selection process. In order to overcome this situation, it is proposed to apply in such cases the
AHP model presented below which offers a means of reviewing alternatives from different
perspectives on the bases of different criteria. It seems worth to notice, that slight adaptation of
this model can also assist in the evaluation of the more general modes of transportation like for
instance rail, air, water and trucking, including formerly selected specific carriers within each
mode (Kotler, 1988, p. 747). The model is the simple one. Under the overall goal (the optimal
mode of transportation selection), there are four criteria: c1 (delivery time), c2 (availability), c3
(cost of shipments), and c4 (conformance with package size and weight requirements). Under
each criterion, there are four alternatives: a1 (carrier no.1), a2 (carrier no.2), a3 (carrier no.3),
and a4 (carrier no.4), which are the same for all the four criteria. The example judgment matrices
and corresponding estimation of PVs, as well as overall PV, obtained with the application of
EM, LUA, and EUA, respectively, are provided below:
with respect to the GOAL:
with respect to criterion c1:

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92

After synthesis, the following overall ranking is obtained:
It is easy to notice that all three methods: the Eigenvalue Method, Logarithmic Utility
Approach and Exponential Utility Approach, provide the same overall alternatives ranks,
resulting: a4>a2>a3>a1. Obviously, it means that in this hypothetic example “carrier no. 4”
should be the ultimate choice of a decision maker.
Conclusions
Thorough inventory control, planning and coordination, wise and thoughtful selection of
warehousing and means of transport are necessary for efficient decisions making in logistics. In
order to make optimal decisions, it is necessary to deliberate many options from the perspective
of different criteria. It was empirically verified that such problems are difficult to solve
without methodological support, as they exceed humans’ perception capabilities. However,
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one has already got techniques which application can help. One of the most commonly used 93
for structured problems solving is the Analytic Hierarchy Process. It is so popular because its
prescribed procedure supports sophisticated mathematical theory called the Eigenvalue Method
which is accurate and unique. However, two new and relatively novel methods were proposed
recently. Their simplicity and compliance with the Eigenvalue Method are their most crucial
but not exclusive advantages which proved the validation studies provided in this research. At
the end of the paper, the example logistic problem was solved with their application, and the
results of all methods were compared as well.
Acknowledgements
I would like to express my gratitude to Andrzej Z. Grzybowski for his support during the
phase of article preparation, and especially for designing the sophisticated software, without
which validation studies of the methods being the research subject of this paper, would not be
possible.
References
Bana e Costa, C. A., Vansnick, J. C. (2008). A critical analysis of the eigenvalue method used to derive
priorities in AHP. European Journal of Operational Research, Vol. 187, p. 1422-1428.
Choo, E. U., Wedley, W. C. (2004). A common framework for deriving preference values from pairwise
comparison matrices. Computers & Operations Research, Vol. 31, p. 893-908.
Crawford, G., Williams, C. A. (1985). A note of the analysis of subjective judgment matrices. Journal of
Mathematical Psychology, Vol. 29, p. 387-405.
Dyer, R. F., Forman, E. H. (1991). An analytic approach to marketing decisions. Prentice Hall, New
Jersey.
Grzybowski, A. Z. (2010). Goal
��
programming approach for deriving priority vectors – some new ideas.
Scientific Research of the Institute of Mathematics and Computer Science, Vol. 1(9), p. 17-27.
Kazibudzki, P. T. (2011a). ��
An exponential utility approach to eigenvector method in the analytic hierarchy
process: an idea intro. Problems of Management in the 21st Century, Vol. 1, p. 60-66.
Kazibudzki, P. T. (2011b). A��
scenario based analysis of a logarithmic utility approach for deriving priority
vectors in the analytic hierarchy process. Scientific Research of the Institute of Mathematics and Computer
Science, [submitted to Journal].
Kotler, P. (1988). Marketing Management: Analysis, Planning, Implementation, and Control. 6th Ed.,
Prentice Hall, Englewood Cliffs, New York.
Lam, K. F., Choo, E. U. (1995). Goal programming in preference decomposition. Journal of Operational
��
Research Society, Vol. 46, p. 205-213.
Martin, J. (1973). Design of Man-Computer Dialogues. Prentice Hall, Englewood Cliffs, New York.
Miller, G. A. (1956). ��
The magical number seven, plus or minus two: some limits on our capacity for
information processing, Psychological Review, Vol. 63, p. 81-97.
Saaty, T. L. (2000). The Brain: Unraveling the Mystery of How it Works. RWS Publications, Pittsburgh,
pp. 3-24.
Saaty, T. L. (2001). Decision Making for Leaders. The Analytical Hierarchy Process for Decisions in a
Complex World. RWS Publications, Pittsburgh, pp. 93-251.
Saaty, T. L. (1980). The Analytic Hierarchy Process. Mcgraw Hill, New York.
problems
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94 Saaty, T. L. (2001). Decision Making with Dependence and Feedback. The Analytic Network Process.
RWS Publications, Pittsburgh.
Saaty, T. L. (1994). Fundamentals of the Analytic Hierarchy Process. RWS Publications, Pittsburg.
Simon, H. A. (1960). The New Science of Management Decision. Harper & Brothers, New York, pp. 40-
43.
Van Gundy, A. B. (1981). Techniques of Structured Problem Solving. Litton Educational Publishing, Inc.,
New York, pp. 147-188.
Advised by Andrzej Z. Grzybowski, Technical University of Czestochowa, Czestochowa,

Poland
Received: July 10, 2011 Accepted: September 25, 2011
Pawel Tadeusz Kazibudzki Dr., M.B.A., Assistant Professor, The Faculty of Social Sciences,
Jan Dlugosz University in Czestochowa, Waszyngtona 4/8, 42-200 Czestocho-
wa, Poland.
E-mail: emailpoczta@gmail.com
Website: http://www.ajd.czest.pl/p993,Kazibudzki
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DOES OWNERSHIP MATTER? A STUDY OF 95
FAMILY AND NON FAMILY FIRMS IN

PAKISTAN
Muhammad Nauman Khan, Fawad Khan

Institute of Management Sciences, Peshawar, Pakistan
E-mail: mohdnaumankhan@gmail.com, fawadday@yahoo.com
Abstract
Researchers have been trying to find out whether ownership makes any difference to a firm’s performance.
The purpose of this article is to analyse whether family or non-family firms perform better. It focuses on
comparison only and does not indulge in finding out reasons of the results. A sample of 100 randomly
selected��
firms from Karachi Stock Exchange (KSE), Pakistan were examined for six years (2004-2009).
Ownership variable is taken as a dummy variable besides two other independent variables: age and size.
Return on Asset (ROA), Return on Equity (ROE) and Tobin’s Q are used to measure firm performance.
Fixed Effect Model along with statistical analysis were used to examine the effects of the variables.
The statistical analysis showed that non-family firms had greater mean values for performance variables.
Correlation matrix showed that the size of a firm will be small in case a family is running it. The correlation
coefficient between family ownership and age is also negative. Family ownership had a negative β in
every regression. Log of asset and log of age had positive βs in every model.
The results thus obtained from empirical data of firms listed on KSE clearly reflect that non-family
firms outperform family firms with every performance variable included in the study. This can serve as a
guideline in determinig ownership structure for firms in Pakistan.
Key words: family and non family firms, Karachi Stock Exchange (KSE), ownership structure,
performance of firms.
Introduction
It has been noted that the most common type of a firm with concentrated ownership is the
one that is run by an individual or a family (Favero, Giglio, Honorati and Panunzi (2006)) where
the ultimate ownership rests with the individual or a family. Previously numerous researches
were done with the widely held firms (i.e. firms that do not have an identifiable “single” owner
and are jointly run by all shareholders who appoint directors to run the firm) in the spotlight.
The trend started with Berle and Means (1932). However, since the early 1980s, the spotlight
has moved on to firms with concentrated ownership. The recognition of the fact that most
developed countries (US, UK and Western Europe) have overwhelming percentage of firms
with concentrated ownership, has greatly contributed to the increase in number of researches
on firms with concentrated ownership.
Most of the firms around the world have a dominant shareholder who runs the firm (Sraer
& Thesmar (2006)). The dominant shareholder becomes the face of the firm. The firm, its
successes and failures, its highs and low, become associated with that dominant shareholder.
That dominant entity can be an individual, Government, a foreign investor or a family.
A firm run by a family is the one where the family is the dominant shareholder who owns
and/or controls the firm. The family may own the firm because one of the family members
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96 founded the firm, or the family took it over from someone else (as a result of an acquisition
or merger). Every type of firm has certain traits and characteristics. One of the traits that are
normally associated with family firms is that they ruin the firm value (Holderness and Sheehan
(1988)). This is one view; there are others who think otherwise like Anderson and Reeb (2003)
who believe that presence of family in the firm leads to an improved performance.
Research has shown that firms with concentrated ownership are not only prevalent in US,
UK, Western Europe and other developed economies but are also very common in developing
economies like Thailand (Wiwattanakantang(2001)) and Pakistan (Ghani and Ashraf (2005)).
Pakistan, as stated, is a developing economy and it has also experienced the surge in firms with
concentrated ownership. The term that is predominantly used to describe the family controlled
firms is “Business Groups” as described by Ghani and Ashraf (2005). Numerous reasons have
been put forward to justify the existence of firms with in groups. One reason that is put forward
by them is that groups are good at eliminating the threat posed by imperfect market information
and that they stay united and adopt a portfolio approach that allows the constituent “sister”
firms to benefit under the “Group Umbrella”.
Society can be big factor in countries like Thailand (Wiwattanakantang, 2001) and
Pakistan (Ghani and Ashraf, 2005) where family marriages along with kinship, community,
race and religion play an important role in shaping the organizational structure of a firm.
Wiwattanakantang (2001) has shown that Thai firms form linkages keeping in view a number
of factors prominent amongst which is inter-family marriages. Pakistani society is not much
different because race, religion and political affiliations play an important (sometimes decisive)
role in determining a firm’s outlook and hierarchy.
As mentioned earlier family firms in Pakistan operate as “Groups”. These Groups act as a
single entity that has a number of constituent firms which the group has acquired either through
merger, acquisition, cross-shareholdings and interlocked directorships (Ghani & Ashraf (2005)
and Naqvi & Ikram (2004)).
Problem of Research
The study intends to undertake a comparison between family and non-family firms.
The study aims to distinguish family run firms from non-family firms by comparing their
performances over a period of time (i.e. 2004-2009). It investigates the effects that a controlling
shareholder (family or non-family) can have on firm value.
The most fundamental and vital aim of the research is to determine whether type of
ownership has any effect on the firm value. The term “ownership type”, in this study, refers to
only family and non-family ownership. The main purpose of the study is to draw a line between
family and non-family firms by comparing and contrasting their performances.
There are several factors that the study intends to correlate with performance of a firm.
The effect of each of those factors on performance of family and non-family firms is analyzed.
It is pertinent to mention that size of a firm is a factor that can have an impact on the firm’s
overall performance. Another aspect that the study examines is whether age has any thing to do
with firm performance.
Research Focus
Research on effect of family ownership and control on firm performance has garnered
great interest around the globe. The curiosity around the relationship between family control
and ownership and firm performance has attracted a number of researchers to try their hands
at this topic. The first question that comes into consideration is whether family firms are any
different, in terms of financial performance than non-family firms. The question is important
Muhammad Nauman KHAN, Fawad KHAN. Does Ownership Matter? A Study of Family and Non Family Firms in Pakistan
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to answer because if there is no difference then the study becomes useless. There is ample 97
evidence to suggest that there are striking differences between the two types of firms i.e. family
and non-family controlled firms.
Previous researches on the topic have been mixed. There are both positive and negative
results relating to the family effect on firm performance.
Wiwattanakantang (2001) came up with a positive analysis of family firms while doing
research on non-financial firms listed on Thai Stock Exchange. A similar picture was painted
of Norwegian family firms by Mishra, Randhoy & Jensssen (2001). Barontini and Caprio
(2006) have found positive relation between family control and firm performance. A research
on family firms from S&P 500 by Anderson & Reeb (2003) shows that family control doesn’t
affect minority shareholders in a negative way.
A research conducted in France by Sraer & Thesmar (2006) reports that family firms
outperform other type of firms that were part of the research. A similar research conducted by
Favero, Giglio, Honorati & Panunzi (2006) for the Italian family firms shows that family firms
outweigh other firms with their performance.
On the contrary, there are research papers that highlight the negative relationship between
family control and firm performance. For example, Perez-Gonzalez (1999) came up with a
negative relationship between family ownership and firm performance while conducting a study
in US. Holderness & Sheehan (1988) and Faccio & Lang (2002) also found results that depict
an injurious relationship between family ownership and firm performance. Sciascia & Mazzola
(2008) have also found a negative relationship between family involvement in management and
firm performance.
There are still others like Amit & Villalonga (2006) who propose conditional positive
relationship between the two variables i.e. family ownership and firm performance. According
to them, family control will be beneficial if the founder of the firm is serving as Chief Executive
Officer (CEO) or if he is the Chairman with an outside CEO.
There is another class of researchers who initially found positive results for family firms
which then takes a U-turn and becomes negative. Fama & Jensen (1983), Morck et al (2000)
and Schleifer & Vishny (1997) report a similar pattern.
Studies regarding family ownership and control and its subsequent effect on firm
performance has been a touch different in Pakistan. The researchers in Pakistan use the term
“family group” to classify firms controlled by a family. For example, Ghani & Ashraf (2005) and
Naqvi & Ikram (2004) have used the term Family Business Groups for family-run businesses.
Naqvi & Ikram (2004) suggest that large family run businesses are more profitable as compared
to small family businesses or non-group firms. Ghani & Ashraf (2005) have come up with
both positive& negative results with ROA (profitability variable) showing a positive sign while
Tobin’s q showing a negative relation with family control.
In the wake of above discussion and divergences amongst the various researches
conducted on the topic, it was felt necessary to see the relationship between family control and
ownership and firm performance for firms listed on KSE.
In the light of the literature discussed in the previous section, the following hypotheses
have been made that the research attempts to test:
H01: Family firms perform better than non-family firms
H02: Size of a firm i.e. its assets, has a positive affect on its performance
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98 H03: Age of a firm has positive affect on its performance

Different researchers have defined family control and/or general control (necessary for
ownership) quite differently.
Wiwattankantang (2001) quotes the Thai Stock Exchange that owner is an entity that
holds more than 25% of shares directly or indirectly. Ownership, in that case, is based on voting
rights and does not take into account the cash flow rights.
Favero, Giglio, Honorati & Panunzi (2006) state that 20% of voting shares are enough
to ensure control, therefore any firm where a family holds 20% or more voting shares will be
considered a ”family firm”.
Anderson & Reeb (2003), for the identification of family firms, used the fractional
equity ownership of the founding family and/or the presence of family members on the board of
directors to identify family firms. They resolved the descendent issue by examining corporate
histories for each firm in their sample.
According to Amit & Villalonga (2006) a firm is a family firm where founder or any
member of the family, by blood or marriage, is a director or the owner of at least 5% of the
firm’s equity, individually or as a group. Javid & Iqbal (2008) have also followed the same
definition of family firm as proposed by Amit & Villalonga (2006). The difference here is that
Favero, Giglio, Honorati & Panunzi (2006) used a threshold of 20% while Amit and Villalonga
(2006) have reduced that threshold to 5%.
Sraer & Thesmar’s (2006) definition of family firm is mostly based on Amit & Villalonga
(2006) and Anderson & Reeb (2003). A firm is a family firm, as per Sraer & Thesmar (2006),
when the founder or a family member of the founder’s family holds more than 20% of the
voting rights.
Taking the above literature into consideration, the study has crafted a criterion to
pronounce a firm as family firm if members of a family are present on the board of directors
and for an entity (family, individual or group) to be called a block holder, it should own 20%
or more in the firm.
Sample of Research
The sample is derived from KSE that has ample number of firms with concentrated
ownership and are run by dominant shareholders. Presence of firms with concentrated ownership
can be delineated by considering the fact that majority of firms (belonging to manufacturing
sectors) listed on KSE have a dominant shareholder who can either be a Family (family owned
firm), Government (State owned firm) or a Foreign investor (foreign company holding majority
of shares in a local firm). In order to keep things simple, the sample is selected such that only
one firm from each “Group of Companies” is included.
The study is limited to non-financial firms listed on KSE. The sample consists of family
and non-family controlled firms from Cement, Chemicals, Engineering, Textile, Sugar and
other manufacturing sectors. The study has excluded firms from banking, insurance and mutual
fund sector. The sample is selected keeping in view what previous researchers’ sampling.
Wiwattankantang (2001), Sraer and Thesmar (2006), Favero, Giglio, Honorati & Panunzi
(2006), Mishra, Randhoy & Jensssen (2001), Ghani and Ashraf (2005) and Anderson and Reeb
(2003) have all excluded financial firms.
The sample consists of a total of 100 firms: 50 family owned firms and 50 non-family
firms. The firms were selected randomly. Six year data (2004-2009) was collected for the
firms.
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Data Sources 99
A data source was needed that could give information regarding the firm’s Board of
Directors (BoD), its assets, liabilities, profit, loss, ordinary share capital and market value of
share. All information (except market value of share) was collected from annual reports of the
firms. Information about firms that did not have Annual Reports were collected form a detailed
“Balance Sheet Analysis” of State Bank of Pakistan from where information about balance
sheet, profit and loss accounts, and general company information regarding BoD for 2004-2009
was obtained. Market price of share for all firms (of 30th June of each year) was obtained from
business recorder.
It was a research requirement that both accounting measure of performance as well as

market measure of performance be taken into account. Following previous researches done on
this topic (as explained in literature review) the study employs two accounting measures and
one market performance measure. To measure the firm profitability ROA and ROE are used
while Tobin’s q was taken as a market performance measure. The research followed Anderson
and Reeb’s (2003) definition of ROA and ROE. The definition of ROE has also been supported
and used by Favero, Giglio, Honorati & Panunzi (2006). In order to use Tobin’s q, the study
complies with Wiwattanakantang’s (2001) definition of Tobin’s q. The aforementioned variables
are the most used variables in studies where performance of firms is measured. The objective to
employ all three measures of performance was, firstly, to follow previous methodologies and,
secondly, to adopt a measuring mechanism that leaves no loopholes and covers every aspect of
a firm’s performance. There is a need to analyze the effects of the independent variables on all
three performance measures separately. The idea is to test whether the results of performance
variables differ or not.
In order to see whether a firm’s performance is affected by elements other than ownership
by family that are integrally related to the firm’s nature and constitute a characteristic of the
firm, two control variables namely firm age and firm size were picked.
Age is a factor that was quite an integral part of all researches done on the topic, so,
in order to see whether an ageing firm performs better than younger firms; the study required
taking their respective ages into account. Firm age is also used by Wiwattanakantang (2001),
Amit and Villalonga (2006), Favero, Giglio, Honorati & Panunzi (2006), Sraer and Thesmar
(2006) and Anderson and Reeb (2003). Size ultimately affects the outlook of a firm because
a greater size means more assets which in turn can be used to show how a firm uses these assets
via ROA.
Since the study comprises of data for 100 firms, for a period of 6 years, it was necessary
to have 99 dummy variables for firms and 5 dummy variables for the number of years to capture
the fixed effects. Moreover, there is a dummy for family ownership as well. So, a total of 105
dummies were taken to accommodate all the variables and thus get a wholesome picture of
the situation. The rationale behind employing dummy variables was to increase the overall
predictability element of the model.
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100 Table 1. Description of Variables used in the Study.
Variable Description
1. ROA Ratio of profit before tax to total assets
2. ROE Earnings before tax divided by the book value of shareholder equity
3. Tobin’s q Ratio of firm’s market value of share to book value of share
4. Size Log of total assets
5. Age Log of number of years since incorporation
6. Ownership Dummy A dummy variable that equals 1 if firm is a family firm and 0 otherwise
7. Year Dummy A dummy variable that equals 1 for a particular year and 0 for other years
8. Companies Dummy A dummy variable that equals 1 for a particular company and 0 otherwise
Econometric Models
Since the aim is to compare performance of the family and non-family firms along with
control variables like age and size, an equation was prepared much like the one used by Favero,
Giglio, Honorati & Panunzi (2006).
The Equation is:
Performance = f (size, age and ownership)
This means that performance is a function of (or depends upon) size, age and ownership (family
or non-family). The study covers three different types of performance measures; therefore, the
equation is used separately for each measure.
For ROA, elaborating the equation:
ROA = α0 + α1D1i + α2D2i + …. + α99D99i + β�2 X2it+ β
�3 X3it + β
�4 DF4it +�� µ
�it
where:
X2 = size of the firm
X3 = age of the firm
DF4 = dummy variable that takes a value of 1if it’s a family firm and 0 otherwise
“i” and “t” in the subscript denote the firms and years respectively.
i = 1, 2, 3…100 (showing 100 firms in the study)
t = 1, 2, 3,4,5,6 (showing 6 years as period of study)
For ROE, the equation becomes:
ROE = α0 + α1D1i + α2D2i + …. + α99D99i + β
�2 X2it+ β�3 X3it + β
�4 DF4it +
�� µ
�it
For Tobin’s q, the equation is:
Tobin’s q = α0 + α1D1i + α2D2i + …. + α99D99i + β
�2 X2it+ β
�3 X3it + β
�4 DF4it + �� µ
�it
Data Analysis

The data collected was required to undergo a statistical analysis so that it could give
an insight into what the preliminary results suggest. Statistical analysis would give a hint as
to what would be the result of regression and can strengthen or weaken the result. The model
selected for the study is a Fixed Effect Model. The idea was to capture the effect that control
variables and ownership variable may have on performance measures.
The sample that was picked suggests that Textile, sugar and cement sectors are dominated
by family firms, a fact acknowledged by Ghani and Ashraf (2005).
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Results of Research 101
Descriptive Analysis
Table 2. Statistical Summary for the Sample.
Descriptive Statistics
Vari-
N Minimum Maximum Sum Mean Std. Deviation
ance
ROA 600 -3.74623267028E-1 0.49250573091 3.08301473051E1 0.1027671576837 0.12984094673657 0.017
ROE 600 -1.281382978723E1 1.371960091457E0 4.531501029369E1 0.15105003431231 0.843311926056011 0.711
Tobin’s q 600 -2.223317972350E0 7.514035708867E1 9.233149876967E2 3.07771662565557E0 8.312956039402067E0 69.105
Log of
600 7.781755374652E0 1.079722805772E1 2.797616564302E3 9.32538854767209E0 0.666637158729936 0.444
assets
Log of
600 4.771212547197E-1 1.838849090737E0 4.428280263817E2 1.47609342127249E0 0.237776847015710 0.057
age
From Table 2 above, the standard deviation of 0.12984094 for ROA shows that the ROA
of sample varies by 12.98% from mean (average). The standard error of mean value is compared
with the true value of β (which is unknown). For ROA the value is 0.00749637055502, which
shows how far ROA is from the true value of β.
Table 3. Summary Statistics for Family Firms in the Sample.
Mean Median Standard Deviation Max Min

Log of assets 9.162137466 9.086377574 0.687494796 10.59528233 7.781755375
Log of age 1.530262947 1.585130858 0.190802264 1.838849091 1.113943352
ROE -0.018325547 0.134374068 1.126425756 0.676036543 -12.81382979
ROA 0.046502277 0.039089664 0.09914812 0.380734795 -0.324509433
Tobin’s q 1.331152032 1.092949511 1.175753733 7.661303191 -2.223317972
Table 4. Summary Statistics for Non-Family Firms in the Sample.
Mean Median Standard Deviation Max Min

Log of assets 9.488639629 9.379738901 0.604552836 10.79722806 8.458335626
Log of age 1.488624213 1.454778015 0.24112208 1.792391689 0.84509804
ROE 0.320425616 0.308330672 0.317059554 1.371960091 -0.742089552

ROA 0.159032038 0.137881203 0.132763594 0.492505731 -0.374623267
Tobin’s q 4.824281219 1.644228926 11.45207191 75.14035709 0.363356428
Tables 3 and 4 above clearly show that the mean of log of assets, ROE, ROA and Tobin’s
q of non-family firms is greater than that of family firms. The maximum values of ROA, ROE,
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102 Tobin’s q and log of assets for non-family firms is also greater than that of family firms. This
goes on to give a hint that non-family firms are bigger in size (greater log of assets) and are
better performers than family firms (greater ROA, ROE and Tobin’s q for non-family firms).
This is the first instance where the study gives an indication that non-family firms are better
performers than family firms. The firms run by non-family directors seem to be proficient and
more profitable than firms run by families.
Another set of tables that gives an even clearer picture of the situation is when the firms
and their ROA, ROE, Tobin’s q and log of assets are sorted in descending order. There is a “top
5” table for each performance measure for firms included in the sample.
Table 5. Top 5 firms According to ROA and ROE (6 year average 2004-2009).
Average
Firm Name Type Firm Name Type Average ROE
ROA
Agri Autos Ltd NF 0.41477437 Unilever Pakistan Ltd NF 1.2304376
Unilever Pakistan Ltd NF 0.351480886 Pakistan Tobacco Company NF 0.717775534
Pakistan Tobacco Company NF 0.298326688 Mari Gas Ltd NF 0.574192066
GSK Pakistan Ltd NF 0.29151044 Agri Autos Ltd NF 0.54088303
Abbott Pakistan Ltd NF 0.284782024 Pak Refinery Ltd NF 0.507761623
F = Family Firm, NF = Non – Family Firm
Table 5 shows that the top slots are occupied by non-family firms according to both ROA
and ROE which further confirm what was illustrated in the descriptive statistics.
Table 6. Top 5 firms According to Tobin’s q and Log of Assets (6 year average
2004-2009).
Average Average Log

Firm Name Type Firm Name Type
Tobin’s q of Assets
Unilever Pakistan Ltd NF 61.43413788 Hub Power Company Ltd NF 10.69433303
Wyeth Pakistan Ltd NF 20.31131955 Fauji Fertilizer Bin Qassim Ltd NF 10.46152644
Gillette Pakistan Ltd NF 7.91416605 Nishat Textiles Mills Ltd NF 10.45004822
Pak Tobacco Company NF 6.082009863 Dewan Salman Fibre Ltd F 10.33420626
Abbott Pakistan Ltd NF 3.774057473 Dawood Hercules Ltd F 10.26805307
F = Family Firm, NF = Non – Family Firm
Table 6 reinforces what was described in the previous tables: non-family firms are better
performers than family firms even when it comes to market measure of performance.
Correlation Results
The correlation matrix employed had to check the relationships between 107 variables
that included 99 dummy variables for firms, 5 for years of observation, a family ownership
dummy, log of assets and log of age. A few results of correlation are quoted below that would
give a hint about the relationships.
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Table 7. Correlation Results of ROA, ROE, Tobin’s q, Age, Log of Assets, Log of 103
Age and Family Ownership.
Family Owner-
ROA ROE Tobin’s q Age Log of Assets Log of Age
ship
ROA 1 0.470** 0.311** 0.088 0.110 0.049 -0.434**
ROE 0.470** 1 0.143* 0.053 0.047 0.032 -0.201**
Tobin’s q 0.311** 0.143* 1 0.183** 0.118* 0.146* -0.210**
Age 0.088 0.053 0.183** 1 0.042 0.956** -0.893
Log of Assets 0.110 0.047 0.118* 0.042 1 -0.050 -0.182**
Log of Age 0.049 0.032 0.146* 0.956** -0.050 1 -0.102
Family Ownership -0.434** -0.201** -0.210** -0.893 -0.182** -0.102 1
**. Correlation is significant at the 0.01 level (2-tailed)

*. Correlation is significant at the 0.05 level (2-tailed)
Important amongst the independent variables were family ownership, log of assets and
log of age. In Table 7, the correlation coefficient between family ownership and log of assets
is -0.182 which means that, on average, the size of a firm will be small in case a family is
running it. This means that the opposite will be true for non-family firms. The correlation
coefficient between family ownership and age is negative. An inverse relationship between
family ownership and age indicates that older a family firm gets, the poorer will it perform. The
correlation coefficient between family ownership and age is -0.893. The relationship of dummy
variables of family firms reacted the same way when they were regressed against log of assets
and log of age. Family firm dummies were found to have a negative relationship with log of
assets while dummies of non-family firms had, on average, a positive relationship.
Regression Results
The dependent variable, ROA, was regressed against independent variables, including
log of assets, log of age, a dummy variable of family ownership, 5 dummy variables for years
of observation and 99 dummy variables for the firms in the sample.
Table 8: Model Summary when ROA is the Dependent Variable.
Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate Durbin-Watson
1 0.859a 0.739 0.666 0.07503451158424 1.996
Only those variables that are important and whose coefficients lend a meaning to the
study are shown above in Table 8. The overall model is significant because the value of R-
square is 73.9% which goes on to show that the model is predictable and significant. So the
element of uncertainty is removed, at least for the model used to measure performance via
ROA. Since the value of Durbin-Watson test is fractionally below 2, the model is also free of
autocorrelation.
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104 Table 9. Coefficients of independent variables when ROA is dependent vari-

able.
Coefficients
Unstandardized Coef- Standardized 95% Confidence Interval
ficients Coefficients for B
Model t Sig.
Lower Upper
B Std. Error Beta
Bound Bound
1 (Constant) 1.770 0.614 2.884 0.004 0.561 2.979
Log of assets -0.159 0.054 0.816 2.930 0.004 -0.266 -0.052
Log of age -0.194 0.243 -0.356 -0.798 0.056 -0.673 0.285
Family ownership -0.008 0.109 -0.030 -0.072 0.042 -0.222 0.206
From Table 9, ROA has a negative relationship with family ownership, a result that
further reinforces the statistical analysis. The β of log of assets is 0.816 which means that greater
the size (log of assets indicates size), greater will be the ROA. The value is also significant as it
has a significance value of 0.004. Log of age, however, has a negative relationship with ROA.
More precisely, if age increases by 1 year, the ROA decreases by Rs. 0.356 million.
A similar regression was run with ROE (dependent) against same independent
variables.
Table 10. Model Summary when ROE is the Dependent Variable.
Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate Durbin-Watson
1 0.598 0.357 0.179 0.764251360237857 2.617
The coefficients of ROE model (Table 10) also followed a similar pattern that was
exhibited by the previous model. The model showed that log of assets and log of age had a
positive β while family ownership had a negative β. Durbin-Watson value of the model is 2.617
which is fairly close to 2 thus rendering the model somewhat free of autocorrelation. The value
of R-square is 35.7% for the model.
Table 11. Coefficients of Independent Variables when ROE is a Dependent

Variable.
Coefficients
Unstandardized Coef- Standardized
95% Confidence Interval for B
Model ficients Coefficients t Sig.
B Std. Error Beta Lower Bound Upper Bound
1 (Constant) -3.154 6.250 0.505 0.014 -15.468 9.159
Log of as-
0.317 0.552 0.250 0.574 0.047 -0.771 1.405
sets
Log of age 0.393 2.478 0.111 0.159 0.074 -4.489 5.274
Family
-0.412 1.108 -0.244 -0.372 0.011 -2.594 1.771
ownership
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The negative β of family ownership in Table 11 shows that ROE will decrease for firms 105
that are run by family members. The p-value is significant as well since it is less than 0.05 (a
rule of thumb for significance of p-value). Log of age has a positive β. Log of assets also has a
positive β and is significant.
Table 12. Model Summary when Tobin’s q is Dependant Variable.
Model Summary
Adjusted R Std. Error of the
Model R R Square Durbin-Watson
Square Estimate
1 0.974a 0.950 0.936 2.109587967033781E0 1.467
The overall model in table 12 above is quite significant and predictable as the value of
R-square is 95% (the highest amongst the three models). The Durbin-Watson value is 1.467
which is acceptable and suggests that it is safe as far as autocorrelation is concerned.
Table 13. Coefficients of Independent Variables when Tobin’s q is Dependant

Variable.
Coefficients
Unstandardized Standardized 95% Confidence
Coefficients Coefficients Interval for B
Model t Sig.
Upper
B Std. Error Beta Lower Bound
Bound
(Constant) 47.959 17.252 2.780 0.006 13.969 81.949
Log of assets -2.127 1.525 0.171 1.395 0.164 -5.130 0.877
1 Log of age -14.380 6.839 0.411 2.102 0.037 -27.854 -0.905
Family own-
-1.529 3.058 -0.092 -0.500 0.017 -7.554 4.495
ership
The coefficients in Table 13 are showing the same results that were observed in the previous two
models. Log of assets had a positive β. Log of age also had a positive and a significant β. However, the β
of family ownership is negative and significant.
Discussion
Family firms differ from other type of firms because these firms are owned and/or controlled by
families. A family may exercise its powers to take advantage of the resources at its disposal for their own
benefit, leaving out the minority shareholders. This, however, is just one possible way in which a family,
ultimately, ruins the firm (Faccio & Lang, 2002). On the other hand, a family can add a lot to the firm. A
family is a distinct phenomenon which binds different views, aspirations and goals and forges all these
into one single ambition which is to achieve a much better performance than competitors.
The first analysis of the data above suggests that non-family firms are profitable, as per
accounting measure of performance as well as market measure of performance. The analysis
also implies the fact that non-family firms are bigger in size, since the log of assets of non-
family firms is higher than that of family firms. One factor that goes in favor of family firms
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106 is the “age factor”. Family firms, on average, are older than non-family firms, which is evident
from the higher value of log of age of family firms as compared to that of non-family firms.
For a company to have a greater value of ROA, it should have greater profits before tax.
Since non-family firms on average have greater values of ROA, it is easy to assume that non-
family firms, in general, have higher profits before tax than family firms. For the value of ROE
to be high, a firm must have higher earnings before tax. Since non-family firms, on average,
have high ROE, this means that they have higher earnings before tax as compared to family
firms.
So, non-family firms out-perform family firms not only with the accounting measure of
performance but also with the market performance measure. The higher value of Tobin’s q for
non-family firms is because their market value of share is greater than their book value. This
shows that the market share price of non-family firms is greater than that of family firms. Greater
market price of share and consequently higher Tobin’s q value indicates that non-family firms,
on average, are viewed positively by investors and view their shares valuably as compared to
those of non-family firms.
Although there are a few family firms in the list of log of assets yet it is dominated by
non-family firms. This means that non-family firms are bigger in size than family firms. This
can be because of the fact that most of the non-family firms are incorporated as local subsidiary
of a foreign firm or they may have been incorporated as a result of an ordinance or Government
regulation. Most of the non-family firms are bigger in size because they are sponsored by bigger
investors like Government and Multi National Companies which inject a lot of funds in the
corporation.
The correlation coefficients are strengthening and supporting the statistical findings
found before the regression was run. This further adds to overall correctness and credibility of
results.
When firms were sorted in descending order, the top slots were occupied by non-family
firms. So what was discovered as a result of the regression of the first model was that non-
family firms do have higher ROA than family firms. This also falls in line with what was
described in table 6 where non-family firms ruled the roost due to their greater size (assets).
With increasing age, the ROA decreases.
ROE model has given the same findings i.e. family ownership is negatively related to
performance. This underlines the previous findings and the statistical analysis where there were
a few family firms that had a better ROE than non-family firms. As firm’s age increases, its
ROE also increases. Also if the size of the firm increases, the ROE will also increase.
Increase in size will better the firm’s market performance. As a firm grows older, the
performance just gets better and better but if a firm is run by family members, the performance
will be lower as compared to a firm which is being run by unrelated directors (non-family
directors). This is in line with the statistical analysis that showed that non-family firms, on
average, have a higher Tobin’s q as compared to family firms.
Non-family firms have higher ROA than family firms. This is in conformity with the
findings of Perez-Gonzalez (1999), Sciascia and Mazzola (2008) and Amit and Villalonga
(2006). As far as Pakistan is concerned, the ROA results of this study is not in conformity with
Ghani & Ashraf (2005) who came up with a positive sign between ROA and family ownership.
The reasons for such differences can be analyzed in future research over the topic.
The ROE model clearly shows that family firms have negative relation with ROE. There
is ample support for this result in the literature where firms with more assets performed better
than those with lesser assets. However, these results are not in conformity with what Anderson
and Reeb (2003), Sraer and Thesmar (2006) and Favero, Giglio, Honorati & Panunzi (2006)
found in their studies regarding the behavior of ROE with respect to family ownership. This non
conformity can be addressed in future research.
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As found by Ghani and Ashraf (2005), the results for Tobin’s q showed a negative sign 107
The first hypothesis which stated that family firms perform better than non-family firms
is, thus rejected. Hence, in this case the opposite is true as non-family firms performed better
than family run firms. The second hypothesis was that whether size affects firm performance.
The results show that size not only affects firm performance but affects it positively. The third
hypothesis tested the relation between age and firm performance. The results of the regression
show that age has a positive relation with performance and the relation is significant as well.
Results of this study closely resemble a study done in US where a negative relationship
was found between family ownership and firm performance by Perez-Gonzalez (1999). This can
be due to the similar conditions found in both the countries and thus can pave a way for further
research to examine the macro economic variables in US and Pakistan. Same results were found
by Faccio & Lang (2002) and Holderness & Sheehan (1988). Another negative relationship
was found by Sciascia & Mazzola (2008). Possible reason, as discussed above, for this strong
and repeated result can be due to the fact that family’s involvement in management makes it a
domestic issue and thus hampers its performance. Wiwattanakantang (2001) has raised serious
issues of rivalry between siblings which can be a major reason for negative results.
A recommendation as to the conditional positivity between family ownership and
performance has been given by Amit & Villalonga (2006). This would mean a combination of
family and non family control over the firm so that there is a strict check and balance.
In future, research can be conducted where reasons of this and previous research can be
looked into. This can involve a descriptive or qualitative research on family ownership.
Conclusion
The study is about comparison of family firms and non-family firms listed on Karachi
Stock Exchange. Previous results and literature are mixed with both types of results: some say
that family run firms perform better while others are of the opinion that the presence of family
destroys the firm value.
The statistical analysis provided a first hand idea of what followed in the regression.
It showed that non-family firms had greater mean values for ROE, ROA and Tobin’s q. That
was the first indication of what was to follow. Then sorting the firms in descending order, it
was observed that, on average, non-family firms were amongst the top performing firms. This
process was repeated for all three performance variables and log of assets and the results were
the same. It’s a clear indication that non family firms perform better than family firms.
Fixed Effect Model was selected to carry out a regression for the variables. Regression
was run thrice with each performance variable taken as a dependent variable. The results of the
regression were in conformity to what was observed in the statistical analysis. All the models
were significant since the R-square value for all three models was quite high. It showed that
the fitted models explain the relationship between the performance variables and independent
variables. Family ownership had a negative β in every regression showing that presence of
family greatly impedes the performance of firm. Log of asset and log of age had positive βs in
every model which suggests that performance of firm increases when assets and age of firm
increases.
The results thus obtained clearly reflect that non-family firms are better than family
firms, at least in Pakistan. The non-family firms outperformed family firms with every
performance variable that was included. Family firms, it seems, are more prone to indulge in
private benefit extractions at the expense of minority shareholders. This is quite evident from
the findings of the regression and the statistical analysis. There can be several reasons for the
inferior performance of family run firms in comparison with non-family firms which can be
researched in the future.
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108 References
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Journal of Financial Economics, Vol. 80, pp. 385-417.
Anderson, R., Reeb, D. (2003). Founding-Family Ownership and Firm Performance: Evidence from S&P
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MacMillan Co.
Barontini, R. and Caprio, L. (2006). “The Effect of Family Control on Firm Value and Performance:
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Faccio, M., Lang, L. (2002). The Ultimate Ownership of Western European Corporations. Journal of
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ECGI-Finance Working Paper No. 127/2006.
Ghani, W., Ashraf, J. (2005). Corporate Governance, Business Group Affiliation and Firm Performance:
Descriptive Evidence from Pakistan. Paper presented in LUMS-SEC Conference on “Corporate
Governance in Pakistan: Regulation, Supervision and Performance”. Lahore: Lahore University of
Management Sciences, May 29-30.
Holderness, C., Sheehan, D. (1988). The Role of Majority Shareholders in Publicly-Held Corporations.
Journal of Financial Economics, Vol. 20, pp. 317-346.
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Evidence from Pakistan. 24th Annual General Meeting and Conference of the Pakistan Society of
Development Economists, Pakistan Institute of Development Economics.
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Corporate Governance. Journal of International Financial Management and Accounting, Vol. 12, pp.
235-259.
Morck, R., Stangeland, D. A., Yeung, B. (2000). Inherited wealth, corporate control, and economic
growth: The Canadian disease. In R. Morck (Ed.). Concentrated Corporate Ownership, National Bureau
of Economic Research Conference Volume, University of Chicago Press: Chicago, IL.
Naqvi, S. S. A., Ikram, A. (2004). Group Affiliation, Firm Performance and Corporate Governance in
Pakistan: Evidence from the Textile Sector. Paper presented in LUMS-SEC Conference on “Corporate
Governance in Pakistan: Regulation, Supervision and Performance”. Lahore: Lahore University of
Management Sciences, May 29-30.
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Sraer, D., Thesmar, D. (2006). Performance and Behavior of Family Firms: Evidence from the French
Stock Exchange. MIMEO, ENSAE and CREST.
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Muhammad Nauman Khan MS (Management), Assistant Professor, Institute of Management Sciences,

1-A, Sector E-5, Phase VII, Hayatabad, Peshawar, Pakistan.
E-mail: mohdnaumankhan@gmail.com
Fawad Khan MBA (Finance), Research Assistant, Institute of Management Sciences, 1-A,
Sector E-5, Phase VII, Hayatabad, Peshawar, Pakistan.
E-mail: fawadday@yahoo.com
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110
COMPETENCE REQUIREMENT
DETERMINATION AND DEVELOPMENT
IN SUPPLY CHAINS
Zoltán Kovács , Beáta Pató

University of Pannonia, Veszprém, Hungary
E-mail: kovacsz@gtk.uni-pannon.hu, patog@vnet.hu
Noémi Elbert
Continental Teves, Frankfurt, Germany
E-mail: Noemi.Elbert@gmx.de
Abstract
While production of products became more focused, activities at other location in supply chains are getting
to be more complex, diverse. It means that work requires more competencies than before. This paper
focuses on two issues of human resources: (1) Individual competence requirements in supply chains.
There are more sources for identification competence need: determination from tasks, asking employers,
national regulation of professional exams (learning outcome requirements), existing job descriptions.
Authors give examples for all. Results show that general competencies have greater importance than it
was expected. (2) Case studies available for training purposes in order to develop competencies. They
present the related results of three EU projects. During NOVALOG project they redefined jobs, indentified
competencies, worked out innovative training case studies. ITS-IT project resulted case studies on
operation intermodal terminals. The presently running CENTRAL project updates NOVALOG’s results
and go further when works out concrete training modules.
Findings also give an overall picture of the dominant activities and tasks on different hierarchical levels
and areas of supply chains in Hungary.
Key words: case study, CENTRAL project, competencies, HR in logistics.
Introduction
The basic nature of market economy is competition. There is a competition between

individuals, products and companies. The playfield of competition has become larger, the
competition is often global. According to Martin Christopher: “supply chains compete, not
companies” In these circumstances competencies are important factors for success.
Competencies
There are many competence approaches and models. McClelland (1973) regards
competencies as significant predictors of employee performance and success, where academic
aptitude and knowledge content are equally important From a practical point of view competency
is the capability of applying or using knowledge, skills, abilities, behaviours, and personal
characteristics to successfully perform critical work tasks, specific functions, or operate in a
given role or position. Personal characteristics may be mental/intellectual/cognitive, social/
emotional/attitudinal, and physical/psychomotor which attribute vitally to perform the job
(Dubois, 1993; Lucia & Lepsinger, 1999). Boyatzis (1982) and Fogg (1999) added internal and
Zoltán KOVÁCS, Beáta PATÓ, Noémi ELBERT. Competence Requirement Determination and Development in Supply Chains
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external constraints, environments, and relationships to this definition. 111

In the literature there are different classifications. One of the most commonly used
grouping is where competences consist of knowledge, skills, abilities (KSAs) (Veres, Locklear
& Sims, 1990). Also there are studies related to competence requirements, competence profiles.
(Bergenhenegouwen, Horn & Mooijman, 1997; Meiner, 2001, Sandbeg, 2002, Sanghi, 2004,
Halasz, de Mola & Carterd, 1993).
Different competence profiles for specific jobs are also published. APICS published
specific supply chain manager and material manager competency models. (APICS, 2011)
However not only the correctness, but efficiency of competency analysis is also
important. It requires gathering information, judging importance of factors and formulating
the profile. All of these activities are time consuming. Chong, Ho, Tan. & Ng, (2000) suggest a
model for competency analysis, which provides a resource-effective approach to HR planning,
facilitates training and development, and sets objective industry competence standards that can
raise overall professionalism. Their approach is first to understand what constitutes work, to
articulate a standard taxonomy of knowledge, skills and attitudes (KSAs), and then to develop
scaled measures for each set of KSAs. These would be matched to each job component of work
to make the link between required competencies and nature of work explicit. They use visuals
(a kind of radar diagram, they named it C-plot) to present the competence profiles. (Figure 1.)
Benchmark
Individual
�eading
6 Present Industry Level
5
Decisive 4 Writing
3
2
1
0
Conceptual
Perceptive
Thinking
Law Language
Figure 1: A competence profile. (Chong, Ho, Tan. & Ng, (2000).
Requirements in Supply Systems
In last decade the most prominent trends in supply systems were the followings:
Enforcement of supply chain approach. This means that participants need to have
more focus on the whole process than they did in the past. In this context the objective is not
only the successful movement, storage and supply of receiver but the business success of the
whole system. There is sensitive task, activity, cost and risk sharing between organisations and
individuals along the chain.
Restructuring of jobs. As a consequence of the above mentioned trend, the content of
jobs is changing. New jobs were created and the content of traditional jobs were changed.
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112 As low vertical integration was manufacturing firms’ basic trend, other players in supply
chains became more divers. For example labelling, finishing, customization activities were
added to warehousing function. The growing complexity of work resulted more demanding
jobs with new, sometimes more competency requirements. (Kovács, Nagy & Pató, 2005)
Jobs in Supply Chains
There are many classifications for jobs and occupations such as: NACE, SOC, ISCO.
Rosetti & Dooley (2010) give a classification of jobs in supply chain. They used cluster
analyses based on similarity of job descriptions which indicate eight different types of SCM
jobs, differentiated by associated tasks as well as industry characteristics. Their second analysis
shows that supply chain management is most closely aligned with sourcing and operations
management
A consortia of European organisations (universities, consulting companies, professional
organisation, union) developed a job structure which fits better to the existing tasks in supply
chains with focus on transport. This CENTRAL nomenclature can be seen in Table 1.
Table 1. Central nomenclature.
Group 1: Formulating & implementing supply and waste chains strategy

Supply Chain Manager
Logistics Manager
Logistics Analyst
Logistics Engineer
Logistics Controller
Logistics IT-Specialist
Logistics Supervisor
Group 2: Resource Management
Materials Manager
Packaging Manager
Purchasing/ Procurement Manager
Purchasing Officer
Purchasing Clerk
Stock/ Inventory Controller
Group 3: Production Planning and Control

Operations Manager
Production Planner and Controller
Group 4: Warehousing
Warehouse Management
Warehouse Manager
Warehouse Supervisor
Warehouse Operations
Warehouse Operator
Forklift Driver
Order Picker
Administrative Operations
Order Processing Clerk
Warehouse Supporting Activity (examples)
Maintenance Supervisor
Maintenance Operator
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Group 5: Conceiving transport solutions 113
Transport manager/supervisor
Transport analyst
Transport IT specialist
Group 6: Managing and monitoring transport solutions
Transport agency manager
Operations manager/supervisor
Traffic planner
Fleet manager
Consignment manager
Dispatcher
Transit officer
Group 7: Haulage
Driver
Group 8: Vehicle maintenance
Maintenance planner
Maintenance manager
Workshop supervisor/ foreman
Mechanic
Car body repairer\painter
Group 9: Compliance functions
Quality manager /advisor
Security advisor
Custom agent / broker
Contract officer/contract and procurement agent
Group 10: Other administrative functions
Clerks for administrative management of transport/logistics
Group 11: Freight forwarding
Freight consolidator
Charterer
Cargo agent
Forwarding agent/Multimodal transport organisator
Group 4: Warehousing
Derivation of the Necessary Competencies
When one tries to determine the necessary competencies the starting point is the set of
objectives which is supposed to be achieved by the organisation. This analytical logic can be
seen in Figure 2.
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114
Figure 2: Competencies are generated from tasks.
This hierarchical approach is not unknown in the literature. Asimakopoulos, Dix, &
Fildes, (2011) use hierarchical task decomposition (HTA). However the application field is
quite different, the principle is applicable. In their application HTA is used to describe what the
expert literature has identified as the stages in producing sales forecasts. In order to evaluate
this against reported scenarios and observations of actual use, they apply an approach that uses
a parallel to the grammar of everyday language to represent user activities.
Other – more practical - way is to ask the managers about their competence expectations
in connection with logistics jobs. Therefore authors developed a questionnaire which was filled
in by 80 logistics managers.
The third method is document analysis. Authors collected more than 600 job descriptions
and examined their contents.
Competency requirements can be found in different governmental documents which
prescribe the required outcomes of training programs. They can be seen as elements of quality
assurance. Good example for this is Halasz, de Mola & Carterd (1993) and the Hungarian
National Register of Professions.
Competence Requirements
In a local – Hungarian - study we have asked logistics managers – who are key players
in supply chains - about their requirements related to managerial and subordinate competencies.
Ranked results can be seen in Table 2.
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Table 2. Necessary competencies in logistics. 115
Managerial competencies
1 reliability
2 fairness
3 cultivated appearance
4 firmness
5 independency
6 communication skills
7 organisational skills
8 problem solving ability
9 elaborateness
10 result orientation
Subordinate competencies
1 reliability
2 fairness
3 cultivated appearance
4 firmness
5 independency
6 communication skills
7 organisational skills
8 problem solving ability
9 elaborateness
10 result orientation
Results show that in the educational system we have to give more emphasize on the
general competencies. (In a previous study we analysed not only the necessary, but those
competencies which are not needed for logistics jobs. Results were consistent: the overlapping
of mostly less required and less frequently required competencies was large. (Kovács & Pató,
2006).
Researches were carried out on competency requirement of specific jobs. Results
were used during the transformation of Hungarian vocational training system. A summary of
competences for two selected jobs can seen be as an example in Table 3.
Table 3. Competency requirements from the National Register of Professions.
Warehouse operator Freight forwarder

Professional knowledge (traffic geography, logistics, cost-
Vocational knowledge:
Material management basics, procurement,

and risk sharing/INCOTERMS, insurance, custom proce-
receiving, placing, picking, packaging, consoli-
dures, pricing, international trade, documents, bank related
dating, shipment - procedures, tools, machines
operations, transport modes, law, contracts, quality assur-
and equipment, quality/conformity inspection,
ance, knowledge of goods, packaging, warehousing tech-
waste management, knowledge of goods.
nology, routeing, logistics centres and services, logistics
controlling and decision making.
Idiomatic and professional speaking, and un-

Skills, attitude
derstanding, calculation, sense of quantities,

Ability to make decisions, ability to organise, creative way
interpretation of symbols. accuracy, reliability,
of thinking, firmness, appropriate usage of knowledge and
physical strength, managebility, ability to be
competencies
motivated, systematic work, keeping the envi-
ronment clean, ability to overview.
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116 Available Cases for Competence Development
There are many ways to develop competencies. One effective method is using case
studies. They are also good for sharing ideas among training organisations and disseminating
results. In Hungary we were involved in two projects (NOVAG and IT-ITS) in which we
developed case studies. The third (CENTRAL) project is under implementation.
Innovation cases in logistics training
During a previous European (called NOVALOG) project we gathered cases from different
European countries. The structure of cases are the following:
• Title of the case
• Country
• Innovation type
• Job / Function
• Innovative elements
• The innovative elements.
During the project innovation was interpreted in a broad term. Innovations can be
a. Organisational innovation. This category refers to organisations facilitating the execution
of a job / function studied, specific structures of training supplied or to specific conditions that
relate to its development.
b. Political innovation. Political innovations refer to policy initiatives in the field of employment
and training by social partners, national, regional or local policymakers or other public bodies.
These policies facilitate the execution of the jobs/functions studied, support or create training
provision.
c. Technical innovation. These are distinguished on the basis of the tools used for training
purposes.
d. Training contents and / or pedagogical approach. Training contents refers to the subjects and
area covered by the training. By the pedagogical approach we refer to the way the educational
process is organised.
e. Other types of innovation.
Cases from NOVALOG project and more information about the whole project can be found at
www.novalog-project.org.
Intermodal transport case collection
The ITS-IT (Intermodal Transport Services - Information Tool) project objectives were:
• Targeted and reliable information for the development of an efficient and sustain-able
transport system.
• Presenting intermodal transport services supply.
• Development of planning and decision making tools for transport operators and
shippers.
• Support training (trainers’ database, curricula development).
In the frame of ITS-IT we presented cases for intermodal transportation.

Training modules dedicated to intermodal transport are designed for the dispatchers on
one hand, and the logistics and transport managers on the other hand in relation with training
organisations and universities. Innovative cases and good practices of European shippers and
carriers experiences already had been described.
Outcomes of this work are:
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• Best practice collection 117

• Trainers database
• Training modules
The structure of best practices:
• Identification of the best practice
• Alternative all (clearly) road solution
• Technical aspects
• Economic aspects
• Environmental aspects
• Lessons learnt
We worked out best practices in Hungary about:
• Baja Harbour
• Gönyü Harbour
• Budapest Intermodal Logistics Center
• Kombisztár
• Intermodal Terminal at Szeged
More about ITS-IT project can be seen at http://www.viacombi.eu/its-it_eng.pdf.

Further cases from other projects are at: http://www.eia-ngo.com/category/best-practices.
Training database
During NOVALOG project we also set up a database describing the available programmes
in different countries.
For each programme, the available information are:
• Country
• Title of programme
• Brief listing of subjects
• Job/Function
• Type of training:
o Target group
o Conditions for entry
o Objectives of course
o Duration/length
o Conditions of issue of diploma/certification
o Level of qualification
o Language of delivery
o Format of course
o Company placement
o Course fee
• Contacts
Training database operates on internet at http://www.novalog-project.org.
The CENTRAL project
Central project can be seen as a kind of continuation of NOVALOG project. Although

only two of the original partners – the coordinator AFT and University of Pannonia – participate,
this consortium is also based on a wide European cooperation. It is true for both the countries
and the nature of participants. Consulting firms, research institutes, trainers and universities
participate.
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118 Transport and logistics companies, mostly small to medium-sized companies, are present
in every European country and employ more than 4% of the active population. Most European
countries have an integrated concept of logistics and consider transport and logistics as a sector
in its own right, whose scope needs to be defined. The changes occurring in this sector give
rise to increased demand for new skills. The existing certifications and training do not meet
demands in all cases, they need further development.
Programmes do not always provide a satisfactory response to the needs of employers and
training bodies.
Under AFT’s coordination we aim to respond to these issues within the framework of
the CENTRAL project, in co-operation with European and multi-actor partners: ITL in Italy,
DEKRA in Germany, the University of Pannonia in Hungary, FOREM in Belgium, Economic
High School Ion Ghica in Romania, and Skills for Logistics in the UK.
Overall objectives:
− Draw up an inventory of logistics and transport jobs in Europe
− Prepare common job definitions
− Extend the NOVALOG approach, the result of a previous LEONARDO project,
to all transport and logistics
− Better define the skills required for the most representative jobs
− Set up a European certification reference for the selected jobs
− Develop a training course design based on the above skills certification process
which is linked to the ECVET system
Operational objectives:
1. Update the existing NOVALOG nomenclature for the representative logistics jobs
2. Extend the nomenclature to the representative transport jobs
3. Convert the nomenclature into an online database
4. Certify skills for a series of jobs by trying out the ECVET system and thereby provide
a better response to the needs of employees and employers
5. Develop European training modules to increase skills in key jobs where the existing
training offer has gaps
6. Transfer these innovations to the whole of the transport and logistics sector and to new
countries
Expected results:
− NOVALOG nomenclature to be improved, extended to transport jobs, and
converted into an online database. (This can be seen in Table 1.)
− An European certification reference, testing the ECVET system
− European training modules using transferrable credit points
Expected impact:
− Structuring of logistics and transport jobs in Europe
− Establishing the correspondences between jobs in the various countries
− Harmonising the definitions of trades in Europe
− Improving the training offer in our sector
− Cooperation, sharing of experiences and best practices between professionals
Europe-wide
− Owing the harmonisation of definitions of jobs and skills and European
certification, the transnational mobility of professionals can be facilitated
At present we are after the competency analysis of transport related jobs.

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Conclusion 119
Like in the other areas, human factor is vital in supply chains. As supply activities become
more complex, job requirements widen. Beside the vital professional competencies, general
competencies are getting more emphasized. There are several ways to determine the profile of
necessary competencies such as task analyses, questionnaires, analysis of job descriptions and
governmental regulations. Our recommendation is to apply all of them.
European level projects aim at working out common framework of competencies. Ready to
use competence profiles can be found, however they need adaptation to local circumstances.
Case studies are effective tools for competency development. They are available from
many sources on internet.
References
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to map actions in context: Application to forecasting systems in supply chain planning. International
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APICS (2011). Retrieved: September 18, 2011. from http://www.apics.org/sitefiles/forms/apics_supply_
chain_manager_competency_model.html
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Chong C. L., Ho, Y. P, Tan, H. H., & Ng, K. K. (2000). A Practical Model for Identifying and Assessing
Work Competencies. Management Development Forum, Vol. 3, No. 1.
Dubois, D. D. (1993). Competency-based performance improvement: A strategy for organizational
change. Amherst, MA: HRD Press, Inc.
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sustainable change. New York: American Management Association.
Halasz, I., de Mola, A.L., & Carterd, D. (1993). Competency Profile of Public Information Officer. U.S.
Department of Justice National Institute of Corrections, Retrieved 18/09/2011, from http://static.nicic.
gov/Library/004615.pdf
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Operations and Competitiveness EUROMA Conference, Budapest, June 19-22, 2005.
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Industrial Engineering 50.k.1.sz.
Pató Gáborné Szűcs, B., Kovács, Z., & Pató, G. (2006). Competencies: Required and Non-required.
Studia Universitatis Babes-Bolyai, Oeconomica, LI, 1, 2006, p. 123-133.
Lucia, A. D., & Lepsinger, R. (1999). The art and science of competency models: Pinpointing critical
success factors in organizations. New York, Pfeiffer.
McClelland, D. C. (1973). Testing for competence rather than for intelligence. American Psychologist,
28, pp. 1-14.
Rossetti, C., & Dooley, K. (2010). Job Types in The Supply Chain Management Profession. Journal of
Supply Chain Management, 46, 3, p. 40-56,
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of Management Journal, 43(1), p. 9-25.
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120 Sanghi, S. (2004). The Handbook of Competency Mapping. Sage India, 2004.
Veres, J. G., Locklear, T. S., & Sims, R. R. (1990). Job analysis in practice: A brief review of the role of
job analysis in human resource management. In G. R. Ferris, K. M. Rowland, & M. R. Buckley (Eds.)
Human resource management: Perspectives and issues. Boston: Allyn and Bacon. p. 79-103.
Advised by Edit Komlósi, University of Pannonia, Veszprém, Hungary
Zoltán Kovács PhD, Professor, University of Pannonia, Faculty of Economics, Department of

Management, Egyetem u. 10, Veszprém, H-8200, Hungary.
E-mail: kovacsz@gtk.uni-pannon.hu
Website:� http://wiki.gtk.uni-pannon.hu/mediawiki_en/index.php/Department_of_Ma-
nagement
Beáta Pató PhD, Associate Professor, University of Pannonia, Faculty of Economics, Depart-
ment of Management, Egyetem u. 10, Veszprém, H-8200, Hungary,
E-mail: patog@vnet.hu
Website:� http://wiki.gtk.uni-pannon.hu/mediawiki_en/index.php/Department_of_Ma-
nagement
Noémi Elbert New Product Coordinator, Continental Teves, Frankfurt, Germany.

E-mail: Noemi.Elbert@gmx.de
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THE FACETS AND ECONOMIC BENEFITS 121
OF THE INFORMATION
COMMUNICATIONS TECHNOLOGY AND
INNOVATIONS USED BY COMMERCIAL
BANKS IN KENYA
Peterson Obara Magutu, Nixon Onchara Muganda

University of Nairobi, Nairobi, Kenya
magutumop@yahoo.com, nixon.muganda@gmail.com
Gladys Monchari Ondimu

Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
gladysondimu@yahoo.com
Abstract
The recent developments in the Information Communication Technology (ICT) have been received with
great interest in research and practice by the banking community the world over. There began to appear
theoretical arguments regarding the role of information technology (IT) in creating the value chain
at firms and this opened up new lines of inquiry. This paper was a survey on the business value of
information communication technologies in the financial departments of commercial banks in Kenya. In
recognizing the significance of ICT in economic stability and growth of a country, it should not be lost
on the consumers of the technologies that risks abound in every opportunity. It has also been noted that
the pace of legislating the sector much of the time is overtaken by technological advancements that are
directly linked to the banking sector. The research findings and recommendations are therefore expected
to assist in building into the ICT and business value at departmental level, as a body of knowledge. Data
was collected from a population that comprised of forty-four commercial banks incorporated and, or
licensed to operate in Kenya by 2007. It was found that the two commonly used technological tools in
cash management in the finance department are the financial software and e-banking. Also, the five key
economic benefits of the information communications technology and innovations that have accrued
to the commercial banks in Kenya at their finance departments include: ICT use has ensured proper
management of account balances at value dates; ICT has helped in the monitoring and optimization of
the sales-cash circuit; ICT has led to system responsiveness to changing user needs; and ICT has helped
in the coverage of exchange-rate risk.
Key words: facets, benefits, information communications technology, commercial banks and Kenya.
Introduction
Banking business has changed from paper and branch banks to digitized and networked
banking services. The internal accounting and management systems of banks have already
changed. It is now fundamentally changing the delivery systems banks use to interact with their
customers (Magutu et al., 2009). All over the world, banks are aiming to find a technological
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122 solution to meet the challenges of today’s dynamic business environment. It is clear that the
internet and other related technologies and applications are changing the banking industry.
Banks with the ability to invest and integrate information technology are therefore bound to
dominate the highly competitive global market. Investing in ICT is thus critical. Its potential and
consequences on the banking industry future is enormous, especially with m-Banking. Mobile
telephone communication providers inaugurated and support mobile financial services ranging
from personal account monitoring to mobile banking and money transfers: m-Banking. Other
products include payments of utility bills like electricity and water. The commercial banks have
further embraced the Visa service feature in their debit and credit cards; enabling customers
to carry out transactions over the internet. Magutu et al (2009) assert that Kenya has achieved
significant success in the implementation of electronic banking; it is on the top of the emerging
markets in this area and even outpaces the achievements of some developed countries.
The IT industry has grown exponentially in a push-pull fashion over recent years. On one
hand, demand is being placed on businesses to operate and compete in the global marketplace,
for vast opportunities created by the increase of Information systems in the business place. On
the other hand, the continual advances in IS technologies, both in hardware and software, are
often seen to be forcing businesses to modify the way they do business in order to accommodate
the new technology to implement. The problem that many businesses face, after having made
the decision to implement a new Information System, is subsequently deciding the optimum
level of technology for them. Today’s marketplace is intensely competitive and information
delivery is so critical to successful business operations and management (Teo and Too, 2000).
However, it is not just the information alone that is important, it is the effective and timely
processing of information that enables a business to increase its value.
Venkatesh, (2000) identified that information is necessary for many different functions
of an organization including “day-to-day operations, planning, controlling, organizing and
decision-making”. The use of computers in managing information has brought about the area
of ‘Information Systems’ and it is stated by Venkatesh, (2000) that this is “concerned not only
with the development of new information technologies but also with questions such as: how
they can best be applied, how they should be managed, and what their wider implications
are”. The word ‘system’ is a commonly used term and can be associated with “almost every
conceivable field of activity”. Research has made it clear that assumptions are made about
people’s understanding of the term.
Technology in banks originally was meant to reduce costs and to enhance different
functions, but the biggest dilemma, however, is to how to maintain a satisfactory number of
face-to-face interactions with the customers (Smith, 1987). According to Leire et al., (2009)
ICT includes financial software, e-banking, and the Internet and is considered one of the most
common means of increasing revenue, achieving economies of scale, and reducing unit costs.
ICT also enables larger volumes of up-to-date information to be readily obtained (Vasarhelyi
and Greenstein, 2003) and it facilitates efficient management of treasury positions (Shon
and Swatman, 1998). It also improves financial forecasts and planning; optimizes financing
and investment of treasury deficits and surpluses; identifies financial risks that can then be
monitored or hedged rapidly and systematically; and allows simulations to compare contracting
of different hedging products (Loderer and Pichler, 2000).
According to Koh et al., (2007) the five key practical achievements of technological
developments in any financial institution are the removal of repetitive, time consuming tasks,
reduction in human error and extended access to banking related facilities. This is celebrated
in the provision of customer information that it would be much more expensive to provide on
a person-to-person basis. The terms personal computer (PC) banking, Internet banking, virtual
banking, online banking, home banking, remote electronic banking, and phone banking are used
to describe the various types of electronic banking are often used interchangeably (Zeithaml,
2000).
Peterson OBARA MAGUTU, Nixon ONCHARA MUGANDA, Gladys MONCHARI ONDIMU. The Facets and Economic Benefits of the
Information Communications Technology and Innovations Used By Commercial Banks in Kenya
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Leire et al., (2009) further examined the relationships within financial departments of 123
firms with respect to their use of ICT in cash management, perceptions of the importance of
cash management to unit performance, and perceptions of ICT’s usefulness to this performance.
They developed and tested an explanatory model of factors explaining the perceived importance
of ICT to the performance of financial departments of organizations. Cash management entails:
liquidity management, banking management, management of treasury deficit financing and
investment of treasury surpluses, and management of financial risks. As a management tool, ICT
is used in all operations involving financial decision making. Use of ICT within the financial
department of a firm typically incorporates an information and communication process that
draws on many technological tools (financial software, e-banking, and the Internet).
Continuous software improvements in the information technology have enabled banks
to provide their services in a more direct manner to adjust their products better to the clienteles’
needs. Although banking has always been an information business, until now information
technology was mainly used to automate administrative processes. The shift from automating
to informating-using information and its flow to inform managers provides opportunities to
track a customer’s behavior and respond at the right time. By making effective use of these
opportunities, banks are able to transfer a great deal of transactions from branch offices to
a call-centre (Yang and Fang, 2004). Accessibility has been extended through technological
developments as well as the introduction of new service delivery methods that allow consumers
to do business with service firms from the home and office.
According to Zhang and Prybutok, (2005) electronic banking technology is a set of
instructions and procedure designed to respond to situations and process cases to achieve the
results specified in the mandate of the agency. This is therefore an aspect of the design of process
for transforming materials to finished products. It does not refer to machines and equipment
only. Utilization of technology today, offers dramatic and enduring improvements in enhacing
organizational performance (Port, 1993).
According to Dabholkar, (1994) internet banking allows customers to perform tasks at a
time and in a place convenient to them. Direct contact with such technology also gives customers
a feeling of greater control. Internet banking is predicted to transform and revolutionalize
traditional banking industry (Leire et al, 2009). Banking services are easily digitalized and
automated and, thus, from an operational perspective, lend themselves to the internet (Adrienne
et al., 2003) the potential competitive advantage of the internet for banks lies in the areas of cost
reduction and satisfaction of consumer needs.
Automated Teller Machines (ATMs) are also known as electronic cash machine: an
electronic machine that enables customers to withdraw paper money or carry out other banking
transactions on insertion of an encoded plastic card (msn.encarta). Automated teller machines
(ATMs) are nothing new, but not all cardholders make full use of all the facilities that ATMs
offer. Due to ignorance or technophobia, many clients still opt for more cumbersome and costly
methods of banking (Stanley and Roach, 2000). Bank clients, who hate waiting in long queues
at the bank, prefer ATM banking. It offers the customer the convenience of being able to do
most of their banking from a machine often situated outside the bank, so that they have access
to their bank account 24 hours a day.
Problem of Research
An interest in analyzing changes from ICT dates back to Galbraith’s (1973) study
of the role of information in organizations. In the initial stages, studies of ICT use in firms
were descriptive with findings focused on improvements that technology brings to the
various information and management systems of companies, including: external and internal
logistics and mechanization processes (Davenport and Short, 1990; Mulligan and Gordon,
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124 2002), marketing operations, human resource management (Rayport and Sviokla, 1995), and
information and management processes (Vasarhelyi and Greenstein, 2003). Instead of viewing
business as a collection of independent, specialized functions, the value chain approach views
business as a series of activities that create value. The value chain recognizes IT as a critical
component because IT provides necessary linkages among the disparate value chain activities
that require coordination. The relationship between IT investment and productivity has been a
source of debate.
In Kenya specifically, developments in IT has developed in leaps and bounds; from e-
Banking to m-Banking with. Just before m-Banking, a number of commercial banks allowed
their customers to monitor their accounts over the internet: e-Banking. Some of the key
aspects associated with e-commerce on banks business process management are retail transfer
e-payments (ATM transactions, card-based e-money and cash withdrawals); there is use of
electronic ID; security of operations has been enhanced, internet has been enhanced, there has
been improved management of retail e-payments (credit and debit cards); electronic signatures
are now stored and can be shared, with a lot of mobile applications. There is an increased
wholesaler’s e-payment (large value transfer systems, automatic clearing and credit transfers).
There is also electronic document management, electronic registration process for customers,
e-procurement and certification for security of payment (www.cbk.co.ke). There is need for a
research to delineate the extent to which various facets of ICT are used and perceived as useful
to commercial banks in Kenya at departmental level.
The impact of ICT on productivity was originally researched at the economic, industrial,
and national level (Goss, 2001; Stiroh, 2002). Scholars have also addressed the productivity
question at the organizational level (Brynjolfsson and Hitt, 2000; Chan, 2000; Nájera, 2005).
One of the local surveys by Gichuhi, (2009), on the value of ICT in the banking industry in
Kenya did not address commercial banks and the narrow perspective of finance department.
Although a number of studies have been done, there is no evidence of the business value
or usefulness of ICT at departmental level in commercial banks, particularly in Kenya. ICT
helps organizations by providing information that is critical to making and evaluating decisions.
ICT is used intensively in financial departments because it facilitates management of treasury,
optimizes short-term decisions of financing and investment, and facilitates identification of
financial risks. There is little to no supporting research of its value at this level, an issue which
this study intends to address. Accordingly, it is important to assess and explain the perceived
usefulness of ICT in cash management, which is the focal activity of the financial department
of commercial banks in Kenya.
This paper therefore sought to delineate the business value of the rapid developments in
information communications technology and innovations used by commercial banks in Kenya
at their finance departments. The main objective of the paper was to investigate the business
value of the rapid developments of information communication technologies in the financial
departments of commercial banks in Kenya. The specific objectives were: to delineate the
extent to which various facets of information communications technology (ICT) are used by
the commercial banks in Kenya; and to investigate the economic benefits of the information
communications technology and innovations used by commercial banks in Kenya at their
finance departments.
Research Focus
According to Leire et al., (2009) the business value of ICT in the banking industry
especially the finance department focuses on three indicators of commercial bank performance:
cost savings, improvements in the quality of the information, and enhancements in the use of
scenario simulations for decision making.
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In Leire et al., (2009) assessment of the performance of an organization’s finance 125

department, they used three indicators important to treasury managers: cost savings,
improvements in information quality, and enhancements in the use of scenario simulations
in decision making. This study uniquely contributed to the debate about ICT “pays offs” and
the growing number of studies that report ICT impact across various measures and levels
(Brynjolfsson and Hitt, 2000) in that it examines ICT’s perceived impact on productivity at
the departmental level - that of the finance department. Moreover, they provided and tested an
explanatory model of this influence.
Information Communication Technology (ICT) has seen developments that have been
specifically geared towards to customer satisfaction, growth of business for the bank and the
employee all for the purpose of lessening the cost of doing business and raising profits. Presently,
the banking sector in Kenya has grown to be more sophisticated and the focus has turned to the
business process management and the quality of service offered to the customers (Magutu et
al., 2009). The sector has essentially metamorphosed from manual paper work in the banking
halls; long lines at the tellers’ cabins; and large sums in cash out of the banks and back into the
banks to Automated Teller Machines (ATM), plastic money, electronic transactions involving
transfers of large sums of money from via Remote Banking (one of the most important modern
banking services enabling the customer to make payments from any place in the world and at
any time via a Personal Computer (PC), fixed or mobile phone while assured of security of the
transaction over the internet (www.swedbank.lv). This has been referred to as e-Business or e-
commerce by various researchers. The significance of e-commerce in economic development
the world over cannot be gainsaid. ICT has greatly lessened the cost of doing business and
spurred profits for investments. This in turn has led to increased Direct Foreign Investments
(DFIs) especially in the developing economies, Kenya included.
Of late, the latest drive towards innovation has motivated the industry into looking
towards IT and ecommerce as a vital tool for simplifying the complexity of the banking process
(Magutu et al., 2009). Among the benefits of these developments is massive cost cutting
measures that has seen shoring up of profits for the sector. In equal measure, the sector has
witnessed untold fraud perpetuated by techno-savvy entrepreneurs that has led to losses to
private individuals, investments and even government agencies. This is not only a problem
in Kenya but the world over. However, this study will focus on these implications and others
within the Kenyan market.
IT productivity has been measured at different levels, including that of nation, sector,
and organization although some of this research reported no relationship between IT investment
and performance (Strassmann, 1985), while others reported positive associations (Brynjolfsson
and Hitt, 1996).
The banking industry is deriving business value from their technology and innovations.
Substantial cost savings can arise because applications that use the internet and the internet-
based technologies like intranets and extranets are typically less expensive to develop, operate
and maintain than traditional systems (O’brien and Marakas, 2008). Although studies of 1980s
and into the 1990s did not find significant productivity gains associated with IT investment,
often presenting inconclusive results (Berndt and Malone, 1995; Oliner and Sichel, 2000).
Jorgenson and Stiroh, (1995) suggested that IT contributed more to productivity growth than
ordinary capital.
Further according to O’brien and Marakas, (2008) other primary sources of business
value include attracting new customers with innovative marketing and services, and retaining
present customers with improved customer service and support. And of course generating
revenues through electronic commerce applications to summarize most banks are building e-
business e-commerce websites to achieve six major business values; Generate new revenues
from online sales, reduce transaction costs through online sales and customer support, attract
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126 new customers through via web marketing and advertising and online sales, increase the loyalty
of existing customers via improved web customer service an d support, develop new web based
markets and distribution channels for existing services and develop new information-based
services accessible on the web.
Computer based financial management systems support business managers and
professionals in decision s concerning the financing of business and the allocation and control
of financial resources within business. Major financial management system categories include
cash management (forecast and mange cash position), investment management [manage short-
term and other securities), capital budgeting (evaluate risk and return of capital expenditures),
financial forecasting, and financial planning (forecast financial performance and financing
needs). For example, the capital budgeting process involves evaluating the profitability and
financial impact of proposed capital expenditures. Long-term expenditure proposals for facilities
and equipment t can be analyzed using a variety of return on investment (ROI) evaluation
techniques.
According to Leire et al., (2009) this application makes use of spreadsheet models that
incorporate present value analysis of expected cash flows and profitability analysis of risk to
determine the optimum mix of capital projects for a business.
Financial analysts also typically use electronic spreadsheets and other financial planning
software to evaluate the presentt and projected financial performance o f a business. They also
help determine the financial needs of business and analyze alternative methods of financing.
Financial analysts use financial forecasts concerning the economic situation, business
operations, types of financing available, interest rate and stocks and bond prices to develop
optimal financing plan for the business alternatives (O’brien and Marakas, 2008).
Electronic spreadsheet packages, DSS software, and web-based groupware can be used
to build and manipulate financial models. Answers to what-if and goal-seeking questions can be
explored as financial analysts and mangers evaluate their financing and investment t alternatives
(O’brien and Marakas, 2008 & Leire et al., 2009).
Much of this study will therefore focus on O’brien and Marakas, (2008) studies and
Leire et al., (2009) the business value of ICT in the banking industry based on three indicators
of commercial bank performance: cost savings, improvements in the quality of the information,
and enhancements in the use of scenario simulations for decision making.
According to Nájera (2005), several studies have been done on the impact of ICT
application on organizational performance, which have drawn upon theoretical frameworks
from economic theory to explain proposed relationships between ICT investment and various
performance indicators, including: productivity, market value, and profitability. The major
conclusion or worry is “why the contribution of ICT is so difficult to measure”, that is
despite significant technological advances and increasing organizational investment in these
technologies, the problem of underutilized systems plagues businesses (Venkatesh, 2000).
Today, management’s embrace of new technology is a crucial indicator of how
successfully ICT will be diffused throughout an organization to improve business performance
(Koh, Nam, Prybutok, and Lee, 2007). The Primary contributions of ICT to performance can
be measured at the operational level within a firm (Barua et al., 1995). Though ICT is used
extensively in financial departments, there is little to no supporting research of its value at this
level, an issue which this study intends to address.
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Methodology of Research 127
This study was conducted using a descriptive survey design. This type of design involves
a study of a phenomenon at its present being. Mugenda and Mugenda, (1999) pointed out that
a survey research design attempts to collect data from members of a population to describe
an existing phenomenon by asking individuals about their opinions, attitudes, behaviours or
values. This therefore makes this survey design appropriate for this study because the researcher
intends to collect data and opinions to ascertain the business value of the rapid developments of
information communication technologies in the financial departments of commercial banks in
Kenya for their enhanced overall performance advantage.
Sample of Research
The study targeted all the commercial banks in Kenya. The population of the study
comprised of forty-four commercial banks incorporated and, or licensed to operate in Kenya.
The unit of analysis was all the finance departments’ officers in the commercial banks operating
in Kenya. From the forty-four financial departments of the mainstream banks in Kenya, at least
three respondents (financial managers, financial administrators, ICT managers and treasury
managers) were chosen. The respondents (persons responsible for treasury management) were
chosen using simple random selection. A sample size of hundred respondents was to be used.
Mugenda and Mugenda, (1999) pointed out that a sample size of 30-100 is representative
enough to make valid scientific and business inferences and conclusions.
To guarantee the highest possible number of replies, research respondents were made
aware of the study in advance by means of a letter indicating the purpose and importance
of the research. The main instruments for data collection were questionnaires and document
analysis. Questionnaires were used to obtain information from the commercial banks’ treasury
management. They were preferred in this study because those taking part in the study will
be literate and quite able to answer items asked adequately. The questionnaire items of the
instruments have some overlapping elements. This type of questionnaire requires yes/no
answers, filling in blank spaces, explaining, ticking the applicable answers. The questionnaires
were made up of three parts: part I had the personal information and the Bank information. This
section collected information related to demographic data such as age, gender, qualifications,
experiences etc. Bank information include the Customer base, Bank type and size. Part II had
the information communication technologies used in the financial departments of commercial
banks in Kenya, to answer the first research objective. Part III had questions on the business
value of the rapid developments of information communication technologies in the financial
departments of commercial banks in Kenya to answer the second objective.
Data Analysis

Business value in any organization is the cumulative increase in one or more of the
following: direct benefits (increased revenue or reduced costs); indirect benefits (customer
relationships; flexibility increases, increased agility in response to market changes; and risk
reduction) (Gliedman, 2000). The conceptual framework below depicts the business value at
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128 the finance department (Dependent Variable) as generating new revenues from online sales,
reduce transaction costs through online sales and customer support, attract new customers
through via web marketing and advertising and online sales, increase the loyalty of existing
customers via improved web customer service and support, develop new web based markets
and distribution channels for existing services and develop new information-based services
accessible on the web.
Figure 1: Conceptual Framework.
That the independent variables revolve around the formative constructs of indicators
of financial software, the Internet and e-banking (internet banking). Thus overall value flows
are dependent on these three constructs, which are by no means exhaustive but are considered
as representative in this study. These relationships are captured in the conceptual framework
above. The net business value is charged against: short-term banking forecasts, at least
monthly; the establishment of an optimum cash level; optimization of liquidity; monitoring
and optimization of the purchase-payment circuit; monitoring and optimization of the sales-
cash circuit; monitoring of banking positions at the value date; day-to-day control of banking
positions; maximization of returns on treasury surpluses; minimization of costs of short-term
borrowing; coverage of exchange-rate risk and coverage of interest-rate risk.
The process of data analysis involved several stages. Completed questionnaires were
edited for completeness and consistency. The data was then be coded and checked for any errors
and omissions (Kothari, 1990). Frequency tables, percentages and means were used to present
the findings. Responses in the questionnaires were tabulated, coded and processed by use of a
computer Statistical Package for Social Science (SPSS) - version 12.0 programme to analyze
the data. The response on open-ended questions were reported by descriptive narrative. The
results of the study were compared with literature review to establish the business value of the
rapid developments of information communication technologies in the financial departments of
commercial banks in Kenya to enhance their performance.
Results of Research
Functions of Finance Departments of Commercial Banks
The finance departments in commercial banks have specific key functions that are
supposed to perform. These activities may require the use of ICT, while others may not. Before
assessing the ICT used in finance departments of commercial banks, there was need to check
the specific key functions that are performed by finance departments of commercial banks. The
respondents were asked to extent to which their banks have emphasized a number of activities
that constitute the functions of finance departments of commercial banks using a five-likert
scale where 5 = Very high extent; 4 = High Extent; 3 = No Effect; 2 = Low Extent & 1 = Very
Low Extent. The descriptive results are as in table 1 below.
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From the research data in table 1 below, the three key functions (Mean ≥ 5 = Very 129
high extent , with a significant standard deviation) that are performed by finance departments
of commercial banks are to perform or give short-term banking forecasts, at least monthly,
secondly, to exercise day-to-day control of banking positions and lastly to cover the interest-
rate risk. The above three activities are the only ones that the study will focus on when checking
on the applicability of ICT used in finance departments of commercial banks and the resultant
the economic benefits of the information communications technology and innovations used by
commercial banks in Kenya at their finance departments in performing the three key functions
which are now absolute.
Table 1. The Functions of Finance Departments of Commercial Banks
Functions of Finance Departments of Commercial Banks Descriptive Statistics

Rank
Mean Std. Deviation
Short-term banking forecasts, at least monthly 5.0000 0.00000 1
Day-to-day control of banking positions 5.0000 0.00000 2
Coverage of interest-rate risk 5.0000 0.00000 3
Maximization of returns on treasury surpluses 4.7294 0.44690 4
The establishment of an optimum cash level 4.6706 0.47279 5
Coverage of exchange-rate risk 4.6706 0.47279 6
Minimization of costs of short-term borrowing 4.4000 0.49281 7
Monitoring and optimization of the sales-cash circuit 4.3294 0.47279 8
Monitoring of banking positions at the value date 4.2706 0.44690 9
Optimization of liquidity 4.0000 0.00000 10
Monitoring and optimization of the purchase-payment circuit 4.0000 0.00000 11
Source: Research Data (2010)
The other functions ranked 4-11 (Mean ≥ 4 = High Extent , with a significant standard
deviation) that are performed by finance departments of commercial banks from the research
data in table 1 above, are to maximization of returns on treasury surpluses, the establishment
of an optimum cash level, coverage of exchange-rate risk, minimization of costs of short-
term borrowing, monitoring and optimization of the sales-cash circuit, monitoring of banking
positions at the value date, optimization of liquidity, and monitoring and optimization of
the purchase-payment circuit. Most of these functions are policy issues given by the central
bank of Kenya, which are not within the control of commercial banks. This makes it hard for
commercial banks to apply any ICT on management the dimensions of maximization of returns
on treasury surpluses, the establishment of an optimum cash level, coverage of exchange-rate
risk, minimization of costs of short-term borrowing, monitoring and optimization of the sales-
cash circuit. But the function of monitoring of banking positions at the value date is an ignored
function which commercial banks can automated and they should be seen to be doing it. This
factor is expected to be among the three key functions, as it affected by short-term banking
forecasts, at least monthly, day-to-day control of banking positions and the interest-rate risk. It
can be taken as a moderating function in the subsequent analysis. These other functions ranking
4-11 will not be considered in the following discussions in 4.4 and 4.5.
Given that there are fewer than two cases, at least one of the variables has zero variance
(ranking 1-3, 10 & 11), there is only one variable in the analysis, and correlation coefficients
could not be computed for all pairs of variables. Therefore, no further statistics will be computed
on functions of finance departments of commercial banks.
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130 Facets of ICT Used In Finance Departments of Commercial Banks
ICT is used to automate processes and to augment the skills of the organization’s
staff. The first objective of the study was to delineate the extent to which various facets of
information communications technology (ICT) are used by the commercial banks in Kenya.
This was measured at three levels:
In the first level, the respondents were asked to give their opinion on how they see their
finance department of their banks, and the results are as follows in table 4.2.
Table 2. Opinion on the Finance Departments of Commercial Banks
Percentages
Opinion
Frequency Percent
As a service centre which have an only objective, collections and payments 57 67.1
As a centre that with its activity offer to the firm profits because the management is
28 32.9
efficient
Total 85 100.0
From the research data in Table 2 above, in the opinion of the respondents, the majority
(67.1 %) view the finance department as a service centre whose only objective is collections and
payments. This is actually in line with the two among the three functions established above as
perform or give short-term banking forecasts and day-to-day control of banking positions. The
issues of profits which received 34% is more strategic than a functional issue at departmental
level.
In the second level, the respondents were asked to give extent to which the commercial
banks used a number of technological tools in cash management in their finance department
using a five – likert scale where 5 = Usually; 4= Several times; 3 = Many times; 2 = Sometimes
& 1 = Never and the results are as follows in table 3.
Table 3. The Technological Tools in Cash Management
Technological Tools In Cash Management
Mean Std. Deviation Rank
Financial Software 4.7294 0.44690 1
E-banking (Internet Banking) 4.4000 0.49281 2
The Internet 3.8706 0.81340 3

From the research data in table 3 above, the two commonly used technological tools
(Mean ≥ 4.4 = usually, with a significant standard deviation) in cash management in the finance
department are the financial software and e-banking. This is in line with studies done by Leire
et al., (2009), Vasarhelyi and Greenstein, (2003) and Shon and Swatman, (1998) which had
noted that ICT in the banking industry includes financial software and e-banking as the most
common means of increasing revenue, achieving economies of scale, and reducing unit costs.
In the third level, the respondents were asked to give the level of ICT use in cash
management in its finance department in performing a number of activities using a five – likert
scale where 5 = Usually; 4= Several times; 3 = Many times; 2 = Sometimes & 1 = Never and
the results are as follows in table 4.
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From the research data in table 4, the above two ICT tools (the financial software and e- 131
banking) have been fully applied (Mean ≥ 4.5 = usually, with a significant standard deviation)
in the management of cash peaks, in the management of account balances at value dates, and
in the management of interest & exchange rate risks. This concurs with Shon and Swatman’s,
(1998) observation that technological tools enables commercial banks to handle larger volumes
of up-to-date to facilitate efficient management of treasury positions and improve financial
forecasts and planning.
Table 4. The Level of ICT Use in Finance Department
The Level of ICT Use In Finance Department
Mean Std. Deviation Rank
Management of cash peaks 4.6706 0.47279 1
Management of interest & exchange rate risks 4.6706 0.47279 2
Management of account balances at value dates 4.6000 0.49281 3
Management of payments made and received 4.3294 0.47279 4
Monitoring of liquidity of banking operations 4.2706 0.44690 5
Short-term cash forecasts 4.0706 0.85619 6
Management of cash deficit funding 3.9412 0.77694 7
Negotiation with other banks 3.6706 0.47279 8
The tools are equally useful in the management of payments made and received,
monitoring of liquidity of banking operations, short-term cash forecasts, management of cash
deficit funding, and negotiation with other banks. Issues related with negotiation are dominated
with people and not ICT. Deficits, liquidity and payments are equally policy issues which are
handled by the central bank.
Discussion
The business value of ICT in the finance department of the banking industry is multi-
faced, but it was not clear on which ones accrue to commercial banks. The second objective
of the paper was to investigate the economic benefits of the information communications
technology and innovations used by commercial banks in Kenya at their finance departments.
The respondents were asked to score the business value of the use of ICT in their bank’s
financial departments on a five – likert scale where 5 = Very high extent; 4 = High Extent; 3 =
No Effect; 2 = Low Extent & 1 = Very Low Extent. The descriptive and factor analysis output
are as in table 5 and 6 below.
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132 Table 5. Business Value of ICT Used In Finance Departments
Business Value of ICT Used In Finance Departments Std. Devia-
Mean Rank
tion
ICT use has ensured proper management of account balances at value
4.7765 1.00447 1
dates
ICT has helped in the monitoring and optimization of the sales-cash circuit 4.6471 0.48072 2
ICT has led to system responsiveness to changing user needs. 4.5882 0.58338 3
ICT has made more and more up-to-date information 4.5529 0.83817 4
ICT has helped in the coverage of exchange-rate risk 4.4941 0.82554 5
ICT has helped in the establishment of an optimum cash level 4.4235 0.82197 6
ICT has led to prompt processing to requests for change to the existing
4.4118 0.49507 7
system.
ICT has helped in the maximization of returns on treasury surpluses 4.3059 1.03537 8
ICT has enabled ease of access for users to computing facilities. 4.2824 0.88118 9
Users’ willingness to find time to learn the system. 4.2706 0.44690 10
ICT use has ensured proper management of payments made and received 4.2235 0.77730 11
ICT use has ensured proper negotiation with other banks 4.2235 0.77730 12
ICT use has ensured proper management of cash peaks 4.2118 1.01294 13
ICT has enabled fast respond time from finance department 4.2000 0.98561 14
ICT has increased the ability to improve personal productivity. 4.2000 0.92324 15
ICT has enabled provision for disaster recovery. 4.1882 0.82367 16
ICT has helped in the monitoring and optimization of the purchase-payment
4.1882 0.90625 17
circuit
ICT has helped in the day-to-day control of banking positions 4.1529 1.35845 18
User confident in system. 4.1412 0.62016 19
ICT has helped in the coverage of interest-rate risk 4.1176 1.37505 20
ICT has led to savings in costs 4.0000 0.88641 21
ICT has helped in the minimization of costs of short-term borrowing 4.0000 1.06904 22
ICT has led to flexibility to produce professional reports (e.g. graphics and
3.9882 0.91929 23
desktop publishing).
ICT has enabled short-term banking forecasts, at least monthly 3.9882 0.91929 24
ICT use has led to sound monitoring of liquidity of banking operations 3.9412 1.00419 25
ICT use has led optimization of liquidity 3.8824 0.99297 26
ICT has increased the quality of the report delivered to the user. 3.8000 0.66904 27
ICT has helped in the monitoring of banking positions at the value date 3.8000 0.94868 28
Flexibility of the system with regards to both data reports. 3.7176 0.45282 29
ICT use has ensured proper management of cash deficit funding 3.7176 0.45282 30
From the research data in table 5, the five key economic benefits of the information
communications technology and innovations (Mean ≥ 4.5 = Very high extent, with a significant
standard deviation) that have accrued to the commercial banks in Kenya at their finance
departments include (Rank 1-5): ICT use has ensured proper management of account balances
at value dates. Financial management software and e-banking has indeed enabled the ATM
machines and over the counter transactions to be kept up to date. Secondly, ICT has helped in
the monitoring and optimization of the sales-cash circuit. The circulation of money within the
bank is equally well managed with financial software, given that banks are like cash sellers.
Thirdly, ICT has led to system responsiveness to changing user needs. The financial software
and e-business tools give flexibility to the financial department when dealing with the ever-
changing customer needs. Fourthly, ICT has made more and more up-to-date information
since most banking transactions are real-time processing system. Lastly, ICT has helped in the
coverage of exchange-rate risk
The other seventeen key economic benefits of the information communications
technology and innovations (Mean ≥ 4.0 = High Extent, with a significant standard deviation)
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that have accrued to the commercial banks in Kenya at their finance departments to high extent 133
include (Rank 6-22): ICT has helped in the establishment of an optimum cash level; ICT has
led to prompt processing to requests for change to the existing system; ICT has helped in the
maximization of returns on treasury surpluses; ICT has enabled ease of access for users to
computing facilities; Users’ willingness to find time to learn the system; ICT use has ensured
proper management of payments made and received; ICT use has ensured proper negotiation
with other banks; ICT use has ensured proper management of cash peaks; ICT has enabled fast
respond time from finance department; ICT has increased the ability of the system to improve
personal productivity; ICT has enabled provision for disaster recovery; ICT has helped in the
monitoring and optimization of the purchase-payment circuit; ICT has helped in the day-to-
day control of banking positions; User confident in system; ICT has helped in the coverage of
interest-rate risk; ICT has led to savings in costs; and ICT has helped in the minimization of
costs of short-term borrowing.
The remaining eight economic benefits that have not been realized by the financial
department of commercial banks include: flexibility to produce professional reports (e.g.
graphics and desktop publishing); short-term banking forecasts, at least monthly; sound
monitoring of liquidity of banking operations; optimization of liquidity; the quality of the report
delivered to the user; the monitoring of banking positions at the value date; flexibility of the
system with regards to both data reports; and proper management of cash deficit funding
The factors were far too many and factor analysis was performed on the economic
benefits of the information communications technology and innovations used by commercial
banks in Kenya at the finance departments, in order to reduce the factors into some meaningful
number.
The results of the factor analysis using principal component analysis as an extraction
method led to eight (8) components extraction in table 6 a. From the output in table 6a, where
total variance is explained, only eight components/factors were extracted and this explains
88.395% (on the extraction sums of squared loadings) of the economic benefits of the information
communications technology and innovations used by commercial banks in Kenya at the finance
departments.
Table 6a. Total Variance Explained: Business Value of ICT Used In Finance
Departments
Compo- Initial Eigenvalues Extraction Sums of Squared Loadings

nent
Total %of Variance Cumulative % Total % of Variance Cumulative %
1 8.491 28.303 28.303 8.491 28.303 28.303
2 4.277 14.256 42.559 4.277 14.256 42.559
3 3.918 13.061 55.620 3.918 13.061 55.620
4 3.054 10.179 65.798 3.054 10.179 65.798
5 2.283 7.609 73.408 2.283 7.609 73.408
6 1.858 6.194 79.602 1.858 6.194 79.602
7 1.442 4.808 84.410 1.442 4.808 84.410
8 1.196 3.985 88.395 1.196 3.985 88.395
9 0.897 2.990 91.386
10 0.823 2.745 94.131
11 0.630 2.098 96.229
12 0.444 1.480 97.710
13 0.252 0.838 98.548
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134 14 0.185 0.615 99.163

15 0.122 0.406 99.569
16 0.083 0.276 99.845
17 0.034 0.115 99.960
18 0.012 0.040 100.000
19 7.794E-16 2.598E-15 100.000
20 4.726E-16 1.575E-15 100.000
21 3.269E-16 1.090E-15 100.000
22 2.799E-16 9.331E-16 100.000
23 2.003E-16 6.675E-16 100.000
24 7.415E-17 2.472E-16 100.000
25 -4.981E-17 -1.660E-16 100.000
26 -1.643E-16 -5.475E-16 100.000
27 -2.929E-16 -9.763E-16 100.000
28 -3.767E-16 -1.256E-15 100.000
29 -4.875E-16 -1.625E-15 100.000
30 -1.054E-15 -3.514E-15 100.000
Extraction Method: Principal Component Analysis.
Source: Research Data
Table 6b. Component Matrix (a): Business Value of ICT Used In Finance De-
partments.
Business Value of ICT Used In

Component
Finance Departments
1 2 3 4 5 6 7 8
ICT has enabled ease of access for
0.935 -0.109 -0.055 -0.081 -0.049 0.168 0.139 0.030
users to computing facilities.
ICT has led to prompt processing to
requests for change to the existing 0.850 0.044 0.249 -0.100 0.138 -0.060 -0.238 -0.002
system.
ICT has increased the ability of
the system to improve personal 0.844 -0.078 -0.165 -0.136 0.248 0.019 -0.007 -0.105
productivity.
ICT has led to flexibility to produce
professional reports (e.g. graphics 0.772 0.273 0.217 0.394 0.107 0.076 0.252 -0.167
and desktop publishing).
ICT has enabled short-term banking
0.698 -0.243 0.555 0.124 -0.274 0.111 0.159 0.077
forecasts, at least monthly
ICT has helped in the monitoring of
0.690 0.024 -0.161 0.448 -0.115 0.463 -0.231 -0.014
banking positions at the value date
ICT has made more and more up-to-
0.673 0.157 -0.257 -0.064 -0.360 -0.273 -0.056 .250
date information
ICT use has ensured proper man-
0.651 0.032 -0.080 0.335 0.288 -0.224 .149 -0.193
agement of cash deficit funding
0.629 0.508 0.034 0.182 0.091 0.253 -0.414 0.090
agement of cash peaks
Users’ willingness to find time to
0.625 0.278 0.623 -0.137 0.134 -0.192 0.142 .042
learn the system.
ICT has led to system responsive-
0.619 -0.522 0.145 -0.356 0.269 0.060 -0.024 -0.035
ness to changing user needs.
ICT has enabled provision for disas-
0.591 -0.170 -0.253 0.385 0.269 0.054 0.299 0.318
ter recovery.
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ICT has helped in the monitoring and 135
optimization of the purchase-pay- 0.575 0.338 -0.358 -0.089 -0.203 0.113 0.142 -0.395
ment circuit
ICT has helped in the minimization of
0.562 0.490 -0.024 0.024 0.117 0.192 -0.536 0.047
costs of short-term borrowing
User confident in system. 0.527 0.248 0.513 -0.329 0.222 -0.223 0.169 0.060
agement of payments made and -0.126 0.749 -0.402 0.448 -0.154 -0.070 0.082 -0.061
received
ICT use has ensured proper negotia-
-0.126 0.749 -0.402 0.448 -0.154 -0.070 0.082 -0.061
tion with other banks
ICT use has led optimization of
-0.100 0.599 0.298 -0.447 0.226 0.098 -0.326 -0.100
liquidity
ICT has helped in the coverage of
-0.251 0.583 0.524 0.196 -0.041 -0.337 0.190 -0.029
exchange-rate risk
ICT has helped in the day-to-day
0.074 0.537 -0.318 -0.375 -0.051 0.395 0.472 -0.175
control of banking positions
Flexibility of the system with regards
-0.158 0.218 0.737 0.328 0.121 0.266 0.144 -0.013
to both data reports.
ICT use has ensured proper
management of account balances at -0.218 0.020 0.518 0.565 0.250 0.086 -0.031 0.273
value dates
ICT has helped in the maximization
0.254 -0.623 0.066 0.314 -0.510 0.355 0.058 0.058
of returns on treasury surpluses
ICT has led to savings in costs 0.349 -0.310 -0.644 0.082 0.281 -0.005 -0.036 0.187
ICT has enabled fast respond time
0.204 0.266 -0.431 -0.256 0.443 0.008 0.355 0.480
from finance department
ICT has helped in the coverage of
-0.569 0.240 -0.027 0.021 0.016 0.600 0.063 0.294
interest-rate risk
ICT use has led to sound monitoring
-0.562 0.280 0.202 -0.337 0.278 0.420 0.059 0.181
of liquidity of banking operations
ICT has helped in the monitoring and
0.336 0.047 0.167 -0.641 -0.406 0.372 0.158 -0.103
optimization of the sales-cash circuit
ICT has helped in the establishment
0.245 0.191 0.036 0.002 -0.736 -0.127 0.383 0.355
of an optimum cash level
ICT has increased the quality of the
0.284 0.383 -0.294 -0.430 -0.338 -0.281 -0.130 0.397
report delivered to the user.
Extraction Method: Principal Component Analysis.
Source: Research Data
From the results in table 6b of the factor analysis using principal component analysis as
an extraction method, the above eight (8) components/factors can be explained as follows:
Component/Factor one: Financial Planning and Customer Satisfaction. Sounding
financial planning and customer satisfaction is one of the business values of ICT used in finance
departments. This can be explained by the ease of access for users to computing facilities;
prompt processing to requests for change to the existing system; increased the ability of the
system to improve personal productivity; flexibility to produce professional reports (e.g.
graphics and desktop publishing); short-term banking forecasts, at least monthly; monitoring
of banking positions at the value date; up-to-date information; proper management of cash
deficit funding; proper management of cash peaks; responsiveness to changing user needs;
provision for disaster recovery; monitoring and optimization of the purchase-payment circuit;
minimization of costs of short-term borrowing; and user confident in system.
Component/Factor Two: Proper Management of Payments. Proper management
of payments is the second business value of ICT used in finance departments. This can be
explained by: proper management of payments made and received; proper negotiation with
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136 other banks; optimization of liquidity; coverage of exchange-rate risk; and day-to-day control
of banking positions.
Component/Factor Three: Proper Management of Account Balances. Proper management
of account balances is the third business value of ICT used in finance departments. This can be
explained by: flexibility of the system with regards to both data reports; and proper management
of account balances at value dates
Component/Factor Fourth: Cost Savings. This is the fourth business value of ICT used
in finance departments. This can be explained by: the maximization of returns on treasury
surpluses; and savings in costs
Component/Factor six: Proper Monitoring and Optimization of Banking Operations.
Proper monitoring and optimization of banking operations is the sixth business value of ICT
used in finance departments. This can be explained by: sound monitoring of liquidity of banking
operations; and the monitoring and optimization of the sales-cash circuit.
Component/Factor Fifth, Seven and Eight is explained by: fast respond time from
finance department; the establishment of an optimum cash level; and increased the quality
of the report delivered to the user. This is because ICT has enabled fast respond time from
finance department; ICT has helped in the establishment of an optimum cash level; and ICT has
increased the quality of the report delivered to the user.
The following eight economic benefits that have not been realized by the financial
department need to be addressed within the commercial banks in Kenya: flexibility to produce
professional reports (e.g. graphics and desktop publishing); short-term banking forecasts, at
least monthly; sound monitoring of liquidity of banking operations; optimization of liquidity;
the quality of the report delivered to the user; the monitoring of banking positions at the value
date; flexibility of the system with regards to both data reports; and proper management of cash
deficit funding. This is because the banking sector complexity and technological change should
be the composite measure of perceived value of ICT in the banks’ ICT planning process.
Areas of further research that were identified include a similar study to be carried out
on other sectors of micro - financial sector, A study on the relationship between ICT planning
intensity and financial performance should be done to determine how the relationship between
ICT planning intensity and financial performance can be managed for optimization in the
turbulent environment and to what extent can the non-financial benefits if any be quantified by
the organizations.
Conclusions
��
Conclusions��
Based on the results from data analysis and findings of the research, the
paper can safely conclude the following, based on the objective of the paer.
Firstly, the finance departments in commercial banks have specific key functions that
are supposed to perform. These activities may require the use of ICT, while others may not.
The three key functions that are performed by finance departments of commercial banks are to
perform or give short-term banking forecasts, at least monthly; to exercise day-to-day control
of banking positions and lastly to cover the interest-rate risk.
Secondly��
, ICT is used to ��
automate��
processes and to augment the skills of the organization’s
staff. In view the finance��
��
department as a service centres whose only objective is collections
and payments; the two commonly used technological tools in cash management in the finance
department are the financial software and e-banking. The above two ICT tools have been fully
applied in the management of cash peaks, in the management of account balances at value
dates, and in the management of interest & exchange rate risks.
Thirdly, the business value of ICT in the finance department of the banking industry
is multi-faced, but it was not clear on which ones accrue to commercial banks. The five key
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economic benefits of the information communications technology and innovations that have 137
accrued to the commercial banks in Kenya at their finance departments include: ICT use has
ensured proper management of account balances at value dates; ICT has helped in the monitoring
and optimization of the sales-cash circuit; ICT has led to system responsiveness to changing
user needs; and ICT has helped in the coverage of exchange-rate risk.
Fourth, the factors were far too many and factor analysis was performed on the economic
benefits of the information communications technology and innovations used by commercial
banks in Kenya at the finance departments. Only eight (8) components/ factors were extracted
in factor analysis on the economic benefits of the information communications technology and
innovations used by commercial banks in Kenya at the finance departments.
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Advised by Dana Egerova, University of West Bohemia, Czech Republic
Peterson Obara Magutu Lecturer, Department of Management Science, School of Busi-

ness, University of Nairobi, BOX 22427 – 00100, Nairobi, Kenya.
E-mail: magutumop@yahoo.com
Nixon Onchara Muganda Lecturer, Department of Management Science, School of Busi-

ness, University of Nairobi, Nairobi, Kenya.
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Gladys Monchari Ondimu Part – Time Lecturer, Jomo Kenyatta University of Agriculture and
Technology, Nairobi, Kenya.
E-mail: gladysondimu@yahoo.com
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APPLICATION OF INTERMEDIATE 141
DOCUMENT MESSAGE IN THE PROCESS

OF ENTERPRISE RESOURCE PLANNING
AND MANUFACTURING EXECUTING
SYSTEM INTEGRATION
Simon Oman
Polycom Škofja Loka, Poljane, Slovenia
E-mail: simon.oman@polycom.si
Abstract
It is well established that the ERP systems represent transaction processing systems and are thus as
such not suitable for controlling and monitoring the production in real time. Hence, a comprehensive
solution proves the most efficient, ensuring connection between the process level, representing collection
of actual measurements (cycle time, temperature, pressure, etc.), and business level which facilitates
decision-making. The present paper focuses on the development of a comprehensive integration between
the Enterprise Resource Planning (ERP) and Manufacturing
��
Executing System (MES) system, which
enables data refreshing in real time irrespective as to which the information system the change has been
triggered in. Integration is performed on the basis of the Intermediate Document (IDoc) message, which
enables data exchange between two databases. A new model of numbering is introduced for following
cost-effectiveness of production activities. Said model allows for an efficient inspection and overview of
the entire process from the design to implementation.
Key words. enterprise resource planning, manufacturing
��
executing system, intermediate document
technology, integration.
Introduction
Although the experts define a number of different integrations (Kul’ga and Gil’fanov,
2008), only a few of such integrations prove well implemented in practice. The literature (e.g.
Themistocleous et al., 2001, Tarn, et al., 2002, Gulledge, 2006, Mertins et al., 2008, Metaxiotis,
2009) provides evidence that cooperation between individual departments is regarded as
integration. The word integration is mostly used in the literature on business systems (Gulledge,
2006), while individuals define the word differently. Generally, there is an agreement dictating
that integration represents a joint operation of different applications (Gulledge, 2006). ��
Pursuant
to the publication of Oracle Corporation (2002) a clear appeal was launched that the integration
is represented by two notions, namely “Big I” and “Little I”. Integration “Big I” indicates that
all relevant data pertinent to business processes is located on one place or is processed in the
same software application. Application modules thus reflect updating of information without
any complex interfaces. In such a way the information is only stored once and is available
online (Gulledge, 2006) to all business processes which actually indicates the modularity of
the ERP (Enterprise Resource Planning) system. The second alternative, i.e. “Little I”, results
from the fact that many companies do not want to integrate all their data in a common business
information system due to different reasons. Integration “Little I” actually embodies a more
relevant form of integration which may be named system integration (Gulledge, 2006) whereat
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142 focus is made on the implementation of business processes. Many forms of integrations were
acknowledged as described in more details by Thomas Gulledge in his research:
− integration between two points,
− integration between two bases,
− integration of data warehouse,
− integration between companies,
− integration of applications.
A review of the existing literature on examined issue taking into consideration different
sources represents an important step of our research. This is followed by an analysis of relevant
facts where focus is made on the review of concepts (conceptual models) and standards
provided for ensuring a comprehensive (integrated) information support of a manufacturing
company. Models, standards, good praxis and technical solutions for the integration of business
and production information systems represent the core of our analysis. A research follows,
representing a concept development of interconnection of two databases which in the concrete
environment ensures efficient and reliable connection between business and process flow of
information. With the aim of implementing the concept the ERP system Microsoft Dynamics
NAV and MES system HYDRA are applied. Finally, conclusions and recommendations for
further work are presented. Developed concept enables simultaneous planning with the help of
interactive planning table, which in praxis means that different departments (e.g. production,
tool-making department, technology, maintenance department) use joint planning table, while
at the same time each department independently plans its own resources. The solution enables
a transparent solving of eventual conflicts arising during the planning process of production.
Consequently, a new thinking dimension is brought into companies. Such dimension is based
on the fact that a company no longer deals with a hierarchal decision-making yet focuses on the
buyer as its customer.
Literature Framework
Development of Information Systems to Support Business Processes
In introducing information systems, companies tend to adopt different approaches to

integrations. At the same time the said companies strive towards introducing information
technology through logistic processes, since they were focusing on the business process
integration from the mid to the end of the 1990s. Development of the ERP systems has undergone
different development stages (Figure 1) and nowadays boasts closer and closer integration. As
indicated by the authors (Marnewick and Labuschagne, 2005) they recognised also the fifth
stage (the so-called ERP II or extended ERP) in the development of the ERP system. At the
same time, new development solutions of the ERP systems enable diversification of business
process and thus open new ERP III architecture (Stadtler, 2004).
Simon OMAN. Application of Intermediate Document Message in the Process of Enterprise Resource Planning and Manufacturing
Executing System Integration
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143
Figure 1: Stages of ERP system development (Source: Sammon, Adam 2005).
The authors (Kakouris and Polychronopoulos, 2005; Beheshti, 2006; Djassemi, 2009)
state that most of the production companies boast an implemented module of the ERP system;
however, a lot of them fail to have an implemented production module for monitoring and
controlling the production given that the precondition for monitoring the production requires
reading of the attributes (energy, temperature, pressure, and suchlike) from different devices
and instruments, as well as data exchange between the control and the system of Supervision
Control Alarm Data Acquisitions (SCADA). The ERP II system contains six elements which
integrate business, applicative and technological strategy (Møller, 2005), namely:
− its role,
− its business domain,
− system architectures which support these processes,
− required types of processes within envisaged tasks,
− envisaged tasks within these domains,
− the method of monitoring data within these architectures.
On the basis of proposed strategies, it may be established that the exceptions of the system
architectures of the ERP II represent nothing else but the traditional ERP. Generally, it may be
concluded that the ERP II represents a modular scheme which includes e-business and co-
operation within the supply chain. Actually, nowadays almost all companies adopt the concept
of the ERP II system; some companies have adopted the system fully, others adopted the ERP
II system only partially. In all the aforementioned, the Business Intelligence (BI) represents one
of the examples of the ERP II, which facilitates different business analyses of data gathered in
the information system and simple preparation and conveying of reports. Business Intelligence
is a tool for Extended Mark-up Language (XML) represents another example with which its
strategy bases on electronic business. The consequences of all fast-growing technologies are
samples of generic applicative architectures (Møller, 2005). The fundamental framework of the
ERP II, demonstrated in Picture 2 encompasses four stages (Møller, 2005):
− basic components,
− central components,
− business components,
− co-operation components.
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Figure 2: Fundamental framework of the ERP II system (Source: Møller,

2005).
Basic components represent the fundamental level of the ERP II system and contain its
basic architecture. One of the basic components is an integrated database which does not need
to be standardized yet it should be dispersed (Møller, 2005). By spreading the base, dispersed
systems appear, thus enabling modularity and indicate a computer integrated company.
Applicative tool represents the second component of the fundamental level.
Central components envisage process level, reflecting business events in the past and
represent transactional system. The ERP II system is based on the online architectures which
are opened and modular and, at the same time, suitable for dispersed online services. In fact, the
traditional ERP is a central component of the ERP II tool since the usual ERP modules, such as
finances, sales, purchase, logistics, production and human resources, still represent the backbone
of the ERP system, including additional modules intended for quality, project management and
maintenance (Møller, 2005). The ERP II system is based on (Møller, 2005) Business Process
Management (BMP) and thus represents technology helping to model, automate, manage and
optimise business processes.
Business components rest upon the analytical level and increase the functionality of the
central ERP system with the purpose of ensuring support in decision-making process. Business
components presented here below do not necessarily need to be aligned with the integrated base
(Møller, 2005):��
− Supply Chain Management (SCM),
− Customer Relationship Management (CRM),
− Supplier Relationship Management (SRM),
− Product Lifecycle Management (PLM),
− Employee Lifecycle Management (ELM).
Co-operation components represent the ERP II portal intended for electronic business
(Møller, 2005). Electronic business enables companies to integrate their internal and external
processes more efficiently and flexibly. The introduction of electronic business into a company
does not only suggest the purchase of information and communication technology but also a
number of new changes in its performance. Electronic business influences the development of
new business models, reform of business processes and suchlike. In reality, systems for Supply
Chain Management and Customer Relationship Management are formed.
Changes in the business management as a reflection of the introduction of electronic
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business have resulted in new business models. The model of electronic business is a business 145
method which helps an organisation to achieve value added on the basis of the internet. Models
of electronic business may be divided in many different ways. Professional literature suggests
division pursuant to the approaches, objectives and purposes of electronic models (Stadtler,
��
2004)��
. Co-operation with suppliers and business partners is becoming closer which represents
integration between the ERP II system and external factors (Møller,
��
2005) such
��
as:
− Business-to-Consumer (B2C),
− Business-to-Business (B2B),
− Business-to-Employee (B2E),
− Enterprise Application Integration (EAI).
In industrial manufacturing the companies are surrounded with numerous software

solutions classified pursuant to their functionality (Djassemi, 2009). Suppliers and purchasers
represent an external implementation of processes which in a way depend on internal processes
and include different fields as to their tasks. Generally, the internal processes may be divided into
technical and commercial (Stadtler, 2004), or organisational-planning and technical (�� Campos
and Miguez��
, 2011), which rest upon mutual co-operation (Figure 3).
Commercial processes Abbreviation legend:

CAD – Computer Aided Design
E�P
CAE – Computer Assisted Engineering
fIN CAM – Computer Aided Manufacturing
DIS – Distribution
Purchasers
DIS PPS
Suppliers
MES DMS – Document Management System

SCM Production C�M ERP – Enterprise Resource Planning
CAM/NC FIN – Finance
DMS CAD/CAE
MES – Manufacturing Execution System
PDM
NC – Numerical Control
PLM PDM – Product Data Management
Technical processes PLM – Product Lifecycle Management
PPS – Production Planning and Scheduling
Figure 3: Co-operation of applicative fields within a company (Source: Kletti,

2005, pp. 67).
Reference Models and Standards for Integrating the ERP and MES Systems�
The function of integration between business and production processes is represented by

applicative interfaces. Business information systems (ERP) ensure comprehensive information
on managing finances, sales, purchase, warehouse and material flow, production and human
resources and supports e-commerce. State-of-the-art business information system (ERP) is
oriented primarily towards global planning, business processes and implementation of processes
throughout the entire supply chain (Barry et al., 1998; Hori et al., 1999; Zhou et al., 2005). At the
same time these same authors point out two functional areas which need to ensure integration in
the manufacturing environment.
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146
Figure 4: Information flow in integrated MES system (Source: Zhou et al.,

2005).
As to the content of information, business and process information are integrated in

a real manufacturing environment; however, this information needs to be interconnected
via a system which is not only an on-line information system but it also needs to provide
feedback and enable control over the production. The system focused on gathering information
on planning production resources, ensuring quality and providing the required workforce is
called Manufacturing Execution System (MES). A quality integrated MES system leads to a
competitive advantage in the manufacturing environment and facilitates tactical decisions to be
made in real time. In different publications, the authors believe that the integrated MES system
(Figure 4) encompasses many functions and tasks (Barry et al., 1998; Hori et al., 1999; Zhou
et al., 2005):
− organisation of resources and their status,

− detailed organisation of operations,
− product organisation,
− maintenance activities,
− process management,
− monitoring of products and their family of products.
Requirements of the ERP and MES Environment
In the ERP environment, such as what used to be the SAP, it was recognised at the
beginning of 1990 that a simple system should be launched onto the market which should
provide feedback and should serve as nothing else but a data gatherer (��
Liu and Barrar, 2009)��.
The system was named Production Data Acquisition (PDA) and later the MES system.
Frequently these systems contained or contain more or less complex feedback units which are
combined with an applicative interface. Consequently, a subordinated system was designed
with the purpose of moving closer to the manufacturing environment and thus improving the
quality and reliability of the process.
In order to move closer to the manufacturing process, a transparent review of the actual
situation needs to be carried out on the basis of information provided by the ERP system
(delivery date, final quantity, scheduled cycle, production time, setting time and suchlike) while
the results need to be reported back to the ERP. These results trigger activities which help us
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answer the question on information reliability. Technically, this is represented with information 147
technology which ensures information flow from the ERP into the MES system and vice versa.
At the same time it proves important that the ERP and MES systems are separated in order
to prevent eventual errors of results. The MES system needs to be flexible enough to enable
adjustability of differently managed organisations and, at the same time, to support different
types of production; however, it still needs to be sufficiently uniform to ensure integration
of the central ERP system. To sum up, it is important to ensure organisation of production or
departments in the manner where production may be monitored in one location in real time when
other functionalities are not required or only the functionality of the ERP system is available
(��
Harjunkoski et al.,��
2009).
Integration of the ERP and MES Systems
Generally, integration of the ERP and MES systems represents an exchange of information
between two applications, e.g. SAP envisages exchange of data between the Production Planning
(PP) and the MES system. As emphasised by the author (��
Liu and Barrar, 2009��
) the application
SAP, for example, ensures individual module or ERP interface which is based on NetWeaver
technology where the MES system sends obtained data to the ERP system via ERP interface and,
at the same time, receives all necessary information for the MES system operation. The same
author adds that the applications in the ERP system are connected via applicative interfaces, e.g.
mySAP and MES system Hydra. These interfaces provide information exchange between two
systems which practically represent a connection between two processes (process and business),
which operate completely independently. The umbrella organisation Manufacturing Execution
System Association (MESA) has been striving to align a list of consistent MES solutions into a
uniform functional system C-MES (collaborative MES).
However, MES does not serve only as an intermediary between the process and business
level but also as an integrated hub (Wicks and Dewar, 2007) within a company. Considering
the fact that companies have invested substantial funds into the ERP systems and process
technology in past years, they now wish to harvest the fruits of their investments. However, the
integration gap between business and process information may be observed since the field of
computerisation of business processes is becoming ever more important for the companies. In
1990, the organisation Instrumentation Systems Automation Society (ISA) decided to develop
a standard which would provide a bridge between business and process functions (��
Campos and
Miguez, 2011��
). For this purpose ISA S95 standard was developed, which does not represent an
automated system between the ERP and MES systems, yet it encompasses methods, working
methods, reasoning and communication. The said standard was developed with the purpose
of reducing costs and eliminating risks and errors in the development and implementation of
interface between the ERP and MES systems. As demonstrated in (Figure 5), standard ISA S95
encompasses a multi-level structure which begins at Level 0 and rises up to Level 4. Functional
hierarchical model is presented with two domains, namely business domain which begins at
Level 4 and production domain which begins at Level 3 and drops down to Level 0, and which
represents physical processes in real time.
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148 Level 4
Strategic planning
(planning of sales and material requirements) ERP
ver
Ser Business network
Level 3
Detailed planning
(control and monitoring of work orders) MES
Co
m
con pute
tro r
l Industrial network
Level 2 Control and monitoring of automated manufacturing process
Batch Continuous Discrete

SCADA
PLC
Level 1 Control and monitoring of actual process
Level 0 Process in real time
Figure 5: Multi-level functional model according to the ISA S95.
MES as an Integration System
The researches (Kirsilä et al., 2007; Wicks and Dewar, 2007; Panetto and Molina A.,
2008; Zhao et al., 2011) revealed that in process organisation of companies the information
technology proves the least developed, the problem being a lack of integration between different
non-integrated databases, since process-oriented organisation results in process approach to
thinking and orients towards a wider organisation of information, processes and people which
are based on integration. Computerisation of business processes requires adequacy of data
sources which need to be gathered in a single database available to different applications. On
the other hand, constant changes on the market force the producers to reduce prices and provide
a high level of flexibility whereby computer and information technologies play an important
role by constantly providing new options. Consequently, companies opt for a comprehensive
MES system, which enables monitoring and execution of production in real time. It has been
established lately that the hierarchical informing of employees does not suffice for an efficient
and up-to-date monitoring of production any more; however, it needs to be complimented with
tactical decisions made in real time thus breaching the gap between business and process level.
In such a way, the companies applying the MES system ensure:
− work order implementation,

− work operations organisation,
− detailed planning and scheduling,
− machinery management,
− process data acquisition,
− efficiency indicators, and suchlike.
The purpose of integration is to improve manufacturing processes and ensure greater

transparency of the machinery operation which consequently increases the quality of production
lines, since the informatics and automation in manufacturing process connect hardware and
software, control of machinery, robotisation, testing, quality monitoring and control, thus
enabling the companies to integrate computer automated units. Only a comprehensive MES
system provides modularity of the system and, as such, ensures support to monitoring and
managing not only mass but also made-to-order production (��
Zhou��
et al., 2005). We should
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not, however, forget about the software interface which facilitates close co-operation between 149
the manufacturing environment and business information system. The fact remains that the
key to success rests upon computer integrated production oriented pursuant to a strict and
well-structured philosophy. Reciprocal functions within the information integrated model are
integrated information which represents dispersed systems. Huge amounts of data within a
company, i.e. technical and organisational-planning data, result in the use of dispersed systems
(��
Campos and Miguez, 2011)��
. The concept is based on the integration of central technical
and production information with a possibility of integrating the data on marketing, orders,
maintenance, accountancy and finances, as well as the distribution of products (Patel and
Sanyal, 2008).
The underlying significance of data integration is a simultaneous planning and scheduling
with the help of an interactive planning table whereby all participants in the production process
develop such a plan together. This means that different departments (e.g. manufacturing,
tool-making, technology, and maintenance departments) use a common planning table where
each department independently plans its resources and thus enables an organised approach
to managing production processes within a company. As a result, a company boasts a new
dimension which is based on the fact that the company is no longer involved in hierarchical
decision-making yet shifts its focus to the purchaser as a customer.
Research�
A great importance in implementing new integration between the ERP and MES system is
placed in numerous phases, where each phase represents a completed unit. Activities envisaged
within each phase are described on the basis of GAMP (Good Automated Manufacturing
Practice) methodology, which has been representing the basis for validation of control systems
(Scholten, 2011) for some years now. The initiative for developing the GAMP methodology
came from the ISPE (International Society for Pharmaceutical Engineering). One of the known
models of the GAMP methodology is the V-model (Figure 6) which clearly indicates that the
projects of production information systems contain different phases of introduction.
V e r ifica t ion
an d
V a lida t ion
Users
Performance
Requirments
Qualification
Specification
Functional Operational
Sprecification Qualification
De
Installation
at d
n
Design
te an
f in
io
Specification Qualification
it i
in es t
gr
on
I m pl em ent at i o n
I m pl e m e nt a t i on
Figure 6: GAMP methodology (V-model).
The ISPE developed the GAMP methodology with the purpose of obtaining an appropriate
standard explanation for the concept of GxP (Good x Practice). In introducing the MES system
the GxP concept represents GMP (Good Manufacturing Practice), or in other words, general
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150 guide to good practice in manufacturing. Functional requirements are identified in the User
Requirements Specification (URS) phase, placing importance on traceability of implementation
and validation of implemented activities by both the principal as well as the provider. This is
followed by Functional Specification (FS), where the operation of final system and its final
tasks are described. Design Specification (DS) comprises of a detailed technical description of
proposed solution and is indented for people whose task is to build and install the solution.
After the definition of the project is complete, the implementation of the project follows,
including both the hardware and software implementation, followed by configuration of the
entire developed solution. After the configuration has been completed, this if followed by
integration and different phases of testing, which help determine the proficiency of a particular
phase. Proficiency of each particular phase is represented by the assessment defined in the
project’s definition. This means that each phase is tested with regard to prescribed requirements,
while verification and validation of each particular phase is performed at the end of testing. It
proves extremely important for the Installation Qualification (IQ) phase to meet all necessary
specifications as set forth in the Design Specification phase. All hardware and software enabling
cooperation with other components need to be provided and installed. At times, the phase of
installation assessment is called also the Factory Acceptance Test (FAT). The result of Functional
Specification (FS) phase reflects in Operational Qualification (OQ) phase. With the phase the
target hardware is verified and validated at the principal’s. Such target hardware needs to prove
that the system operates on the basis of requirements set forth in the Functional Specification
(FS) phase. The process is concluded with the Performance Qualification (PQ) phase which
needs to ensure that all requirements set forth in the User Requirements Specification (URS)
are successfully implemented in the production information system.
Results of Research�
Due to the complexity of global business operations, organisations need a standardised

concept of number series which provides information support in tracking a product throughout
its entire life cycle. The fact remains that the information support is the development process
brings the development of highly-functional products, which ensure value added and are based
on technological knowledge and systematic manufacturing approach. Control over the technical
elements and their typing are important. Fundamental concept supported by ISA S95 standard
is used as the basis for developing a model of integrated unit. Such concept helps creating a
functional model which will represent a bridge between the business and process functions.
It is, however, important to emphasise that ISA S95 standard does not embody an automated
system which could be bought and would function as such. Yet it encompasses methods,
process of work, thinking and communication which strive to help companies to reduce costs
of implementation and development of integration. The basic requirement of the ERP and MES
integration is the provision of a comprehensive information support of internal processes in
the company. As mentioned hereinabove, the processes are usually divided into commercial
and technical processes for which cooperation proves extremely important. The commercial
process is characterized by the fact that most orders and call-offs are received with the help
of software which facilitates computer data exchange. All orders and call-offs are stored in
business information system and provide the company with forecasts, which need to be drawn
up. An interface, enabling data exchange, is produced in the ��
Microsoft Dynamics NAV business
information system��
for the purposes of data exchange��
. For the purposes of data exchange an
integration model (Figure 7) is produced, enabling two-way exchange of information.��
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151
Figure 7: Model of integration between the ERP and MES system.
Integration model shown hereinabove is based on the developed interface which facilitates
integration between the Microsoft Dynamics NAV ERP system and HYDRA MES system. Such
interface is developed as an add-on to the Microsoft Dynamics NAV ERP system and represents
the focus point of our research. The interface is actually a programme code which ensures
cooperation of two databases, whereat specifics of both information systems are taken into
consideration. The programming language C/AL (Client/Application Language) applied serves
as a tool for creating business rules for stored data in tables, with interface having a function
of translator, which converts the ERP Meta data into an IDoc file. Beside the basic function of
transformation, the interface also converts data into a suitable form required by the information
system (Microsoft
��
Dynamics NAV ERP system and HYDRA MES system)��
. As a matter of fact,
the Meta data encompass orders, material requirements, production tallies, different production
resources (workforce, machinery, devices, etc.) and manufacturing specifications necessary for
successful management of production flow. The IDoc file or message represents a structured
record enabling data exchange between two databases thus facilitating the integration of the
ERP and MES systems.
A production procedure encompassing planned time of production is required for
each order so as to monitor cost effectiveness of manufacturing activities. The planned time
dimension is entered into the ERP system and encompasses planning from the start to finish.
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152 Each planned start and finish contains date and time of planned production. In such a way the
production order is furnished with planned time attribute and represents the basis for the MES
system. The cost dimension is primarily oriented towards costs arising from material needs
and resources making a part of the production. On the basis of the time and cost dimensions
described hereinabove, it may be concluded that each order requires unique identification
number demonstrating the order’s position throughout the project. Hereafter a concept of umber
series is described, which was developed for the purposes of tracking order starting from its
design and all the way through the business and production information system.
Table 1. Concept of number series.
No. Field Name Filed Length No. of positions

1 Type of work order 2 1-2
2 Year 2 3-4
3 Reserved symbol 1 5
4 Number of work order 5 5-10
5 Reserved symbol 1 11
6 Designation of position 3 12-14
7 Number of position 3 15-17
8 Number of operation 3 18-20
Table 2. Record of standardised number series.
No .of positions 1-2 3-4 5 5-10 11 12-14 15-17 18-20

Value RP 10 - 00001 - POZ 007 010
Value RP 10 - 00001 - E01 007 010
Value DN 10 - 00001 - POZ 001 010
An Example of Standardized Number Series for Transfer into the MES System
Final result of number series which is transferred into the MES system is as follows:
− RP10-00001-POZ007010�,
− RP10-00001-E01007010�,
− DN10-00001-POZ001010�.
Discussion
Modern manufacturing companies need to establish an efficient strategic cooperation

with the purpose of improving their competitiveness on the market (Humphreys et al., 2001). In
the previous decade the attention was focused on the optimisation of production processes, while
now the time is right to bring inline the supply chain from the suppliers to customers (Abele
et al., 2006). The optimisation of supply chain may be improved with the computerisation of
operations since possibilities for system improvements and simplification are thus gained. A
good information system brings a number of cumulative information on product demand and
company’s capacities. Since the exchange of information among partners in the supply chain
influences positively on the resource planning, a company can improve control of its processes.
Tracking customer’s order throughout the entire supply chain and at the same time, monitoring
costs as per individual dimension is made possible with the demonstrated model of integration
and the concept of number series.
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153
Figure 8: Commercial process monitoring.
As evident in (Figure 8) calculation of basic production planning and planning of material

requirements is performed on the basis of a forecast. Based on the calculated plan, sales orders
(intended for destocking) are drawn up. At the same time work orders are drawn up, which
are then transferred into the production information system. A loopback serves for reporting
on the state of work orders. It proves essential for the technical process that the development
tallies, drawn up on the basis of one of the CAD/CAM/CAE systems, are converted into the
business information system (Figure 9). Each development tally contains component parts of
tools presented in the ERP system as a semi-manufactured product described with the status of
ordering or status of work order.
Production
order
ERP system
MES system
CAD/CAM /CAE Microsoft Dynamics
Hydra
NAV
-development
part list
State of production
order
Figure 9: Technical process monitoring.
On the basis of statuses of each semi-manufactured product a calculation of material

requirements and cooperation is performed. The calculation serves as the basis for producing
work orders (cooperation and material requirements). This is followed by technology processing,
which actually represents development of technical procedures and work instructions.
Production of work orders follows, which are also transferred into the MES system. A loopback
serves for reporting on the state of work orders or state of the production of semi-manufactured
product. It is, however, necessary to emphasise that the technical process envisages the control
of data on numerous levels, which includes the production of electrodes for a particular semi-
manufactured product and cooperation.
Steps of further researches should focus on collaborative computing, composed of
technologies and techniques which at the same time facilitate cooperation among people,
software and hardware. Numerous known technologies, which contribute to the appearance
of this new paradigm in computing, allow large and small companies to join computing in
the clouds. Services in the clouds facilitate interoperability of database and represent a part
of information infrastructure which enables companies and organisations to move or integrate
a particular quantity of data onto the location in the cloud. Question thus arises on how to
improve cooperation among companies which use different software.
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154 Conclusions
On the basis of our research a conclusion is made that there are no standard application
interfaces yet only standard records, which allow integration, serve for communication.
Undoubtedly, the IDoc message represents one of these standard records since it enables data
exchange between two databases. The purpose of IDoc message is to integrate business and
production information systems which operate independently. At the same time, we establish
that the data exchange is a two-way process for which an integration model demonstrated
in Figure 7 is developed. The aforementioned model of integration encompasses developed
application interface which facilitates data exchange between the ERP and MES system. In
order to ensure traceability of the information flow, a concept of number series is developed,
enabling monitoring of order from the start to its exploitation.
Integration facilitates an efficient planning of manufacturing processes which proves
necessary for the optimisation of the entire supply chain. Demonstrated integration model
between the ERP and MES system brings as follows:
− monitoring of the market and forecasting needs,

− immediate consideration of resources in the planning process,
− checking availability in real time,
− simulation of production system response and support in decision-making process.
Integration of business and process information via IDoc message enables different
departments to plan their resources simultaneously yet ensure their independent operation. The
purpose of managing business processes is a simultaneous planning of the entire chain, whereat
all involved develop the plan together, namely with the purpose to reduce stocks and set more
competitive prices of their products.
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Advised by ��
Andrej ��
Kovačič��
, ��
University of Ljubljana��
, Slovenia
Received: August��
Simon Oman Organisation and Management Specialist, IT Manager,

Polycom Škofja Loka, Poljane nad Škofjo Loko 76, 4223 Poljane, Slovenia.
E-mail: simon.oman@polycom.si
Website: http://www.polycom.si/
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A MAIN SOLUTION FOR PROBLEMS OF 157
MANAGEMENT IN THE 22ND CENTURY
Mirko Pečarič
University of Ljubljana, Slovenia
E-mail: mirko.pecaric@fu.uni-lj.si
Abstract
Article researches the capacity of national and supranational levels for the governing and managing of
global problems. Consumerism and profit per se have brought the world into the collision with nature and
people’s ability to cooperate with each other, disregarding their selfish and personal interests. Today’s
inability to rule the world is shown in national interests: states still manage their affairs regardless of the
interests of other states. Global problems are beyond that; better sooner than latter, one has to respond
to Nietzsche’s question of managing the whole world with the formal proposition to strengthen the United
Nations that is better than an arbitrary coalition of powerful states, other global power structures, or
corporation elites. We should not wait for the new world war to bring more effective ways for solving
global problems, because their current negative effects speak themselves in favour for the new global
order. Paper is based on thoughts of great thinkers and favours the path to global constitution and
federation of states, which could be possible to achieve if the UN will put democratic elements in most of
its operations at first in its institutions.
Key words: global problems, national states, United Nations, cosmopolitan state.
Introduction
National states in evermore flexible and interconnected world still mostly operate in
stable orbits of classical separation of powers and democratic rule over the apparently “ignorant
people of the 18th century”, along with the ideas worth (to be already in practice) of the 21st
century.1 Management of public affairs is very much the same as it was after the French
revolution, but the notion of “public” in the prevailing capitalistic system has changed during
the centuries mainly in one direction – ignorant people have been transformed into Fromm’s
homo consumens (Fromm, 1976, 1981, 1997). If the “ignorant people” were alienated from the
power of state, the consumers are more and more alienated from themselves and from the state;
the things belong less and less to us, but we more and more belong to them, while states are
more and more dependent on global power structures.
In several cases (rich companies, interest organisations, lobbies, informal nets, elites) the
equal treatment has been only formally applied, while the effective implementation of rights
is still based on the wealth of an individual or an organisation (from the French Declaration
of the Rights of Man and of the Citizen that proclaimed property as the sacred right), while
politicians spend public money for maintenance of their political base (pork barrel or patronage)
and familial connections (nepotism) reign among other forms of abuse of public power for
personal gain (illegality, corruption). When alienation and search for profit and personal gain
prevail in national states, how can they be prevented on a global scale, where big corporations
and powerful states operate without regard for national borders and states defend only their
national interests? What are global interests and who will defend them? Law is indispensable
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158 for every society, following the legal maxim ubi societas ibi ius. Some basic legal principles
may also help on the global level, because in the past they were helpful for individuals and
national institutions. The emergence of the European Union as the supra-state organisation is
also governed by the rule of law that is based on several general principles of law2 that are of
the utmost importance for the efficient management of all kinds of formal structures.
In the extreme case only revolution3 can change the state’s management – which other
measure can be appropriate for changing management of the whole world with the exception of
permanent menace of devastating war? The global warming and consequential rising sea level,
changes in ocean currents and other weather phenomena (storms, tornadoes, earthquakes);
scarcity of natural resources and their wasteful use, pollution, public health and (incurable or
massive) population diseases, deepening inequality between states, migrations, unemployment,
ageing of population and other risks of global proportions can bring mass destruction or
drastic decline in population and have similar consequences as war. This forces us to take a
common stand in addressing such problems by using green energy, decreasing concentrations
of greenhouse gases in the atmosphere (decreasing an individual’s carbon footprint, recycling
and re-using eco-friendly materials, solar, wind and other forms of eco-energy) and sustainable
use of pesticides. With mutual help of migrant workers we can build social politics with win-
win effects (e.g. public-private partnerships, administrative contracts, social work), promote
science and technology, research and development of human-friendly products, materials and
services that would lead to new jobs, resulting in dignified living conditions, personal dignity
and natural sustainability.
With time everything becomes much more complex also in areas that are not yet
»mature enough« for their individual legal protection (e.g. micro parts of pesticides that are
or could be harmful to human health in combination with other causes). In “mature cases”
the states can build effective and efficient legal mechanisms for elimination of irregularities,
while in immature cases the individual state is almost helpless and inadequate: ‘‘[T]raditional
institutions are incapable of addressing the growing list of complex global issues’ (Rischard,
2002: 17), ‘[f]rom the destruction of the twin towers on 11 September 2001 to the failure
of trade discussions at Cancun in September 2003, issues are raised which not only concern
large swathes of the world’s population, but can only be adequately resolved by increased
coordination and cooperation across borders’ (Held, 2005, p. 240), ‘all prevailing forms of
governance are increasingly becoming “dead ends”, unable to perform changing crucial
functions’ (Dror, 2002, p. x), ‘unfortunately, the ability of the UN to function as an independent
international organization has been hampered to a great extent, because the neo-colonizing
global power structure has turned away from the UN as a legitimating institutional instrument
for its interventionist policies’ (Farazmand, 2004a, p. 10).
Alienation, consumerism, inadequacy of existing government methods in addressing
global problems in connection with human dignity, natural sustainability, and general legal
principles are the platform that requires different responses from the past ones. They still have
to answer to the Nietzsche’s question about managing the world: ‘[T]here is approaching
unavoidably, slowly, terribly, as fate Itself, the great task and question: How shall the Earth
As a whole be managed (Nietzsche, 1991; [fragment No. 957])? This paper is focused
on the possibility to govern and direct the future problem solving by improvements of
structures on the level of states and the supra-state, for democratic global governance and not
for the half-informal international networks or forces of global capital partnerships that have
subjugated states by their fear of loosing existent business arrangements, credibility, or respect
in international community. Cosmopolitanism originally descends from ancient Greek Stoicism
meaning, “living as a citizen of the cosmos” that ‘would be nothing more than a metaphor for
living in agreement with the right reason that pervades nature’ (Brown, 2006, p. 1). Nowadays
the same metaphor could be used for describing states in global surroundings, where the
Mirko PEČARIČ. A Main Solution for Problems of Management in the 22nd Century
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established conventions are based on the willingness of the powerful states to dis/respect them 159
and are adversely (insufficiently) equipped for the global nature of common problem(s). What
does common reason tell us about global circumstances?
Old-new solutions to Cosmopolitanism
Notwithstanding the fact that many years have passed since the book Il Principe was
published, Machiavelli is still partially right about the two ways of fight: ‘the first with the laws,
other by force … whereas the first is often insufficient, man has to resort to another’ (Machiavelli,
1990, p. 63). New economic and social processes represent a new threat to economic and global
stability and also a new possibility for different global order. The process of globalisation that
has gained momentum through the removal of the iron curtain and with modern communication
technology has begun in the 15th century with the formation of colonies. Today with globalisation
of economy and technology it actually creates huge global problems, which directly affect the
ability of states to provide public goods and services. The capitalism can be a “culprit” (Klein,
2007; Federici, 2004; Steinbeck, 1992; Moore, 2010; Zizek, 2010) for the global crises, but
the same could happen in other cultures where the system overuses its main idea (“Nothing
too much” and “Know Yourself”4 could be helpful self-restraints), because it forces just the
opposite to happen, for instance communism does not include proportionately greater rewards
for better skilled individuals in comparison with common people, while merits are distributed by
public power; the capitalism with a desire to earn as much as possible doesn’t include efficient
control mechanisms and authoritative proportional redistribution of merits to individuals with
smaller capacity than the best. Both systems have differentiated and evolved themselves in their
handling of property that has almost always been the source of power, exploration, submission,
and war. Since the negative global consequences of our actions can be almost equal as the
consequences of war, it is useful to equate them. A war is a constant companion of the most
significant changes in development of humanity; it causes new organisations and serves as a
sobering result for past actions. All pre-war stages and the war itself were already built in the
political philosophy of Jean Jacques Rousseau: his theory of federation of nations deserves to
be mentioned again, because his ideas have not received thorough investigation (wars are the
constant even today, with many potential eruptions that are mostly based on exploitation of
foreign natural sources – of course under the “labels” of democracy, freedom, etc.).
Rousseau in his The Social Contract has shown a path toward exploration: ‘[M]an was
born free, and he is everywhere in chains’ (Rousseau, 2001, p. 13); the notion of chains has
been also used by other authors.5 He described the relation between slavery and freedom in
Discourse on the Origin and Basis of Inequality among Men [1754] and in The Social Contract
[1762]. According to him (and to rational thinking) the state of nature was a primitive condition
without law. Human beings left this primitivism for the common benefits and necessity of
cooperation, but the emerging property robbed people of their ability to distinguish between
the right and wrong, between real and potential interest – in fact – it caused one of the most
perverse frauds in the name of the good.
The rich, in particular, must have felt how much they suffered by a constant state of war, of
which they bore all the expense; and in which, though all risked their lives, they alone risked
their property … the rich man, thus urged by necessity, conceived at length the profoundest
plan that ever entered the mind of man: this was to employ in his favour the forces of those
who attacked him, to make allies of his adversaries, to inspire them with different maxims, and
to give them other institutions as favourable to himself as the law of nature was unfavourable
(Rousseau, 1993, p. 66).
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160 The evolution of division of labour has increased efficiency in production and property
and also increased the desire for “more” that is above personal needs, the man has put on
chains, which are becoming increasingly hard to wear. Rousseau tried with his social contract
to eliminate ‘the advantage of a few ambitious individuals [which] subjected all mankind to
perpetual labour, slavery, and wretchedness’ (Rousseau 1993, p. 67). By joining people into
civil society through the social contract and abandoning their claims to natural right, individuals
can both preserve themselves and remain free. This is because ‘submission to the authority of
the general will of the people as a whole guarantees individuals against being subordinated to
the wills of others’ (Rousseau, 2001, p. 23). The social contract ‘rather than destroying natural
inequality ... substitutes a moral and legitimate equality for the physical inequality that nature
may have created amongst men. So even though they may be unequal in strength or intelligence,
they become all equal through convention and law’ (Rousseau, 2001, p. 29). The introduction
of private property can prevent misery among the poor only by political institutions backed by
the law that is founded on general will. In the future social order would also be accomplished
through conventions and law, in the same manner on the global and national levels, but it shall
also prevent what was already happening in the time of Rousseau and is still present today: the
insatiable desire for more of everything (property, power, functions, wealth, fame, etc.) that
proliferates itself like a sin.6
Rousseau therefore considered the individual’s natural state of freedom and equality that
had existed before the advent of states, because continuing struggles over the emerging property
and the consequent desire for peace replaced it with civil society, where they had sacrificed a
part of their freedom in order to be free in the rest. This had happened through an agreement,
in which ‘the general will alone can direct the State according to the object for which it was
instituted, i.e., the common good’ (Rousseau 2001, p. 31). So man had left the state of natural
liberty and peace and had entered into the state of oppression and war that was natural among
nations. Rousseau already talked about it in the Discourse on the Origin and Basis of Inequality
among Men, where he indicated the solution in the direction of ‘great cosmopolitan spirits,
who, breaking down the imaginary barriers that separate different peoples, follow the example
of our Sovereign Creator, and include the whole human race in their benevolence’ (Rousseau,
1993, p. 69). He further developed this “solution” in A Lasting Peace through the Federation
of Europe [1756], where he offered remedy for the misery and waste of war between nations in
Federation that would operate on grounds of humanity, justice, and common force.
There is no doubt that such a Federation, by giving to the existing bond the completeness which
it now lacks, will increase all its advantages and compel all the parts to unite for the benefit of
the whole body. But, before this result can be brought about, the Federation must embrace all the
important Powers in its membership; it must have a Legislative Body, with powers to pass laws
and ordinances binding upon all its members; it must have a coercive force capable of compelling
every State to obey its common resolves whether in the way of command or of prohibition; finally,
it must be strong and firm enough to make it impossible for any member to withdraw at his
own pleasure the moment he conceives his private interest to clash with that of the whole body
(Rousseau, 1917, p. 59-60).
In his mind, sovereignty plays the same role in relations among states as property does
in relations among individuals;7 what is the social contract between people in the state is also
between states in the global world.8 The other great thinker on global state was Immanuel Kant.
In his Idea for a Universal History from a Cosmopolitan Point of View [1784] he stated that ‘the
history of mankind can be seen, in the large, as the realisation of Nature’s secret plan to bring
forth a perfectly constituted state as the only condition in which the capacities of mankind can
be fully developed, and also bring forth that external relation among states which is perfectly
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adequate to this end’ (Kant, 1963). Nature directs people in direction of a cosmopolitan solution, 161
in direction of world citizenship; man must strive to achieve enlightenment, to make the good
that ‘he clearly understands, must step by step ascend the throne and influence the principles
of government’. Kant in this article philosophically (in ninth thesis) ‘attempts to work out a
universal history according to a natural plan directed to achieving the civic union of the human
race [that] must be regarded as possible and, indeed, as contributing to this end of Nature’.
His main work on peace was Perpetual Peace [1795] in which he stated six preliminary
propositions for a perpetual peace among states.9 In the light of today’s global problems that
endanger existence of the human race, the idea that ‘human nature is so constituted that we
cannot be indifferent to the most remote epoch our race may come to, if only we may expect
it with certainty … even faint indications of approach to it are very important to us’ (Kant,
2003, p. 42), is not only correct, but must serve as a principle of development of society. Kant’s
rational conclusion on impacts between nations and related cosmopolitan right leads (not only)
to peace (that would guarantee our freedom and life, but to our existence):
‘[S]ince the narrower or wider community of the peoples of the earth has developed so far that a violation
of rights in one place is felt throughout the world, the idea of a cosmopolitan right is not fantastical,
high-flown or exaggerated notion. It is a complement to the unwritten code of the civil and international
law, necessary for the public rights of mankind in general and thus for the realisation of perpetual peace’
(Kant, 1957: 105).
Kant considered a law on world citizenship as an indispensable condition for human

rights and perpetual peace. Making a league of nations was the inevitable result of social
evolution. The answer to existence and peace lies in the order, which can be brought through
education. This enlightenment requires a commitment of heart to the good that is clearly
understood. Kant predicted that the ever-growing war debt would eventually make war
economically impractical; this fact and the value of interstate commerce would prepare the way
for an international government, even though there has never been one in world history. Kant’s
six propositions are similar to Rousseau’s effort for the Federation of European nations with
a common Parliament, Government and Tribunal (all having a supranational character) in five
articles (permanent Congress, settling issues through arbitration or judicial pronouncement,
number of votes, presidency, guaranty to property, conditions for the joint ban on confederate,
standing powers).
Although in their lifetime no league of nations was established, the idea was not forgotten.
The idea was far from reality and out of time in which it arose. Colonial rivalry between great
national powers and wars for the liberation of nations that filled the other half of the XIX and
beginning of the XX century were the basic obstacles for any kind of organization of states on
a broad political basis, while economic and technical cooperation between states developed
much faster; major economic development forced the states to subordinate themselves to the
common discipline, so that already in the second half of the XIX century existed bodies with
a permanent international administration��
(the International Telegraph Union - 1865; Universal
��
Postal Union - 1874, International Bureau of Weights and Measures - 1878, International Union
for the Protection of Industrial Property – 1883...). Cooperation in economic and technical
fields has gradually made possible broader cooperation between the countries. The formation
of the first general political organisation with a much more complex mechanism took place
with the establishment of the League of Nations after the First World War in 1919. Catastrophic
events during the Second World War have shown that the maintenance of the world peace and
security required a stronger organisation. Allied forces expressed their willingness to join in
the formation of the universal world organisation after the war. It was their intention to make
it a political power of the international community that would also act as a pivotal centre for
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162 all other (administrative, economic, technical and political) international organisations. These
ideas come to life in June 1945 with the establishment of the United Nations.
International organisation is obviously formed when certain objectives cannot be achieved
through domestic facilities (including diplomatic means). New emergent organisations change
the structure of the international community and reduce the power of each individual country.
Although countries continue to be major factors in the international community, they’re no
longer sole and exclusive actors; this fact clearly indicates the beginning of a new phase in
global development that reflects the new map of a future world, but there must be more to
it. The idea of the European Union of Nations hasn’t therefore been created ex nihilo from
the United Nations or the current European Union (which is its nearest approximation with
permanent institutions), but has roots way back in the Treaty of Westphalia (1648). United
Nations and European Union were both created to ensure peace by practicing tolerance and
promoting economic and social advancement of all nations (UN), while the Treaty establishing
the European Coal and Steel Community (1952) was based on world peace through establishment
of an economic community. Both of them follow the leitmotif of the Treaty of Westphalia
that was successful, because its principles contain “forgiving the sins of the past”, mutually
beneficial economic development, and the “benefit of the other’’ (The Treaty of Westphalia,
1648). Political values are not generated within the states, but in the particular context of
underlying political philosophy.
Global Political Philosophy
The benefit and advantage in taking care for the other and not oneself (and thus
diminishing self-interest) is to replace competition with care and cooperation.10 It seems that
man achieves the best results in caring for others, when he is engaged in work, for which
he knows that other people also receive benefits. It is a kind of legal fairness, elimination of
conflict of interests in daily activities of people that is per se aimed at future generations. It is
obvious that behind every successful agreement stands strong will and determination, an idea
that deserves attention, time, and invested energy. The formal act is always lagging behind its
actual base, which it wants to sanctify, while intellect gives meaning to it, thus ensuring the
fullest participation of people. The idea is before the practice. Idea without practice is only a
pious wish, while practice without idea is only an event without meaning. Forthcoming idea of
the development of the society should evolve in the ethical direction as in “old days”: ethics of
Aristotle is most closely connected with the political sciences, in particular with the theory of
practice and legislation. Goal is to establish the highest ethical good, which is in eudaimonia
or human flourishing, happiness in ‘engaging of the soul in accordance with virtue’ (Aristotle,
1994, p. 59 [1098a]). Since old virtues are never really old, they can also serve as the base for
the ‘new ethics, new attitude towards nature, human solidarity and cooperation and are also
due to pure economic reasons necessary, if the Western world doesn’t want to be completely
destroyed; this appeal to the mind, even without the emotional and ethical considerations, can
mobilise the spirits not only a small number of people’ (Fromm, 1980, p. 243). Global problems
can be viewed from ‘a central difference between a liberal democratic and a quasi-Confucian
or classical Greek “substantive morality” view of governance … of good life. In the first, every
individual should decide what is for him or her “good life”; whereas in the second, some given
value system or collective choice postulates the nature of good life’ (Dror, 1994, p. 15). The
state of nature for a person is not a passive, but an active one; both Vita activa (Arendt 1996;
[1958]) and Active Being (Fromm, 1980, p. 138) mean that a human uses his mind for critical
evaluation of present forms and productively engages in new valuable changes for the good
of entire society. Political philosophy must from the global point of view a fortiori start from
critical, rational standing point and actors must not in their mind look for personal pleasure,
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hedonism, consumerism, and taking, but prosperity of collective, human flourishing, solidarity, 163
activism, and giving. It seems that everything is in our human nature and various perspectives
on life.
The natural state between nations is only the “state of war” and every rational person
would agree with Plato, Rousseau, Tocqueville … that no one is strong enough that would be all
the time stronger then all the others.11 In the short run the colonisation has also brought prosperity
(at least to the colonialist states), but in the long run it has been bad, especially for the colonised
country. Rousseau built his philosophy on the basis of reason, which can be very limited as
psychoanalysts, psychiatrists, and psychologists have already found out. Kant and Rousseau
based the union of nations in prevention of war and misery that resulted from armed conflicts.
The waste of war can be measured by those who are killed and by those who aren’t born – in
fact the second case is even more precious – ‘a loss far more serious and more irreparable than
that of those who die [is]: a loss due to those who are not born, to the increase of taxes, to the
interruption of trade, to the desertion of the fields, to the neglect of their cultivation’ (Rousseau,
1917, p. 77). After the end of WW II these horrors of war affected the preamble of the Charter
of the United Nations, that starts with: ‘to save succeeding generations from the scourge of war,
which twice in our lifetime has brought untold sorrow to mankind’ (Charter, 1945). But today a
sorrow to mankind can appear without a war – in global threats that endanger nature and entire
humanity. ‘We the people’12 of the world are becoming our worst enemy.
People usually become aware of consequences when they already occur; only the horrors
of World War II led to the founding of the United Nations; increased flooding gave attention to
measures for their prevention, earthquakes gave greater attention to better building construction,
car accidents to greater caution. Despite the fact that humans do not always have sound
character, that they break promises in proportion to the elapsed time from the unpleasant event,
human mind can predict consequences in advance and sustain actions that could bring serious
damages to mankind. Great forces understand that the major impact of nuclear weapons would
threaten the existence of a large part of humanity and that’s why they try to ban use of nuclear
weapons. The nuclear accident in Fukushima (through increased awareness of the dangers of
nuclear energy) gave greater attention to the safety of nuclear power plants; Germany even
decided to completely stop producing nuclear power by 2022 (USA Today, 2010). Prevention
of war and possible consequences of nuclear energy or nuclear weapons that would have global
consequences have led to a reasonable decision to avoid the consequences before they arise,
i.e. by eliminating their causes. Today’s awareness of the consequences is present because we
still have in front of our eyes past horrors that can be repeated or may occur in a very short
time. At admission of the Charter of the United Nations the states had probably before their
“eyes” past horrors that can happen again in the lifetime of their generation or their children’s
generation, but the “sight” has been lost for all other forthcoming generations. Technology and
development have brought the convenience of goods and humans are very reluctant to give
them away. It takes considerable efforts for humans to disregard their own comfort in favour of
not yet born generations. The world is too big to be retained by force in long-term. Old values
and new actions will be necessary to prove that violence isn’t solution for current problems.
Contemporary literature of the last few decades speaks of global problems that cannot
be resolved in present time, but are even more present. They can be found in all global areas
where the model of perfect competition cannot be well applied and has negative side effects
(incomplete markets, insufficient information on the side of supply, externalities, unemployment,
macroeconomic imbalances, disproportionate gains in public services, paternalism, etc.). When
they grow to the global dimension, it is necessary to regulate them globally. Reason for legal
intervention can be called by the common name – the “tragedy of the commons,” which is
described in Garret Hardin’s The Tragedy of the Commons (1968). This »tragedy« could ��
be
traced back to Aristotle (384-322 BC) that has argued against common goods of the polis of
Athens.
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164 That all persons call the same thing mine in the sense in which each does so may be a
fine thing, but it is impracticable; or if the words are taken in the other sense, such a unity in
no way conduces to harmony. And there is another objection to the proposal. For that which is
common to the greatest number has the least care bestowed upon it. Every one thinks chiefly
of his own, hardly at all of the common interest; and only when he is himself concerned as an
individual. For besides other considerations, everybody is more inclined to neglect the duty
which he expects another to fulfil; as in families many attendants are often less useful than a
few (Aristotle, 1885, 1261b).
This reason serves a contrario for public law in all areas where competition doesn’t work.
Back to present time.13 The global dimension is already on agenda of school curriculum in some
schools,14 while political leaders still cannot agree on the importance of global problems.15
Zizek (2010) identified those problems as the four horsemen of the apocalypse in near future:
the worldwide ecological crisis, imbalances within the economic system, the biogenetic
revolution and exploding social divisions and ruptures, Jean-François Richard (2002) stressed
that the current international system is not effective, accountable, or fast enough to solve many
of the big issues we face, issues of our planet (global warming, biodiversity and ecosystem
losses, depletion of fisheries, deforestation, water deficits, maritime safety and pollution), of
our humanity whose size and urgency require a global commitment (massive step up in the
fight against poverty, peacekeeping, conflict prevention, combating terrorism, education for
all, global infections, digital divide, natural disaster prevention and mitigation), and issues in
our rulebook that need global regulatory approach (reinventing taxation for the twenty-first
century, biotechnology rules, global financial architecture, illegal drugs, trade, investment,
and competition rules, intellectual property rights, e-commerce rules, international labour and
migration rules). It is known that drastic change in circumstances leads to profound changes in
behaviour (Zimbardo’s and Milgram’s experiments). It would be preferable that humanity will
not have to experience these horrors, although they are almost inevitable, because people will
not give up their pleasures that lead to destruction.
What everyone understands in theory is more complex in praxis, but the practical level
sufficiently shows enough facts that it could be taken seriously. What is (currently) out of sight
is also far from the heart. Great efforts will be needed to raise awareness of the people about
the problems of others that may soon become our problems too. The actual situation is critical
enough that we should discuss the basic global ideas of political philosophy, which are based
on common problem solving, because it is obvious that current premises are not adequate for
solving some of the aforementioned problems. A platform could be placed on a number of
common denominators. The first two could be the Westphalian principles: “forgiving the sins
of the past” and “benefit of the other”, while ‘global dimension can be understood through eight
key concepts: global citizenship, conflict resolution, diversity, human rights, interdependence,
social justice, sustainable development, values and perceptions’ (DFID 2005:4). Further eight
concepts – the “cosmopolitan values” – can be found in Held (2005, p. 264-265): 1) equal
worth and dignity; 2) active agency; 3) personal responsibility and accountability; 4) consent;
5) collective decision-making on public matters through voting procedures; 6) inclusiveness
and subsidiarity; 7) avoidance of serious harm; and 8) sustainability. Principles 1-3 set down the
fundamental organisational features of the cosmopolitan moral universe, principles 4-6 form
the basis for translating individually initiated activity or more broadly privately determined
activities into collectively agreed or sanctioned frameworks of action or regulatory regimes,
while principles 7-8 lay down framework for prioritising urgent needs and conservation of
resources.
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Global Constitution without the Global State 165
A universal world constitution beyond the nation-states has been so far unsuccessful.
This is also true for legal efforts to see the United Nations Charter as the constitutional law of
the international community (Fassbender, 1998; Dupuy, 1997), while for others ‘a constitution
with a claim to bindingness, legitimacy and enforceability, as some international lawyers seek
to do, is a mere illusion’ (Teubner, 2004). Teubner’s thesis refers to the constitutionalisation
without the State: ‘emergence of a multiplicity of civil constitutions. The constitution of world
society comes about not exclusively in the representative institutions of international politics,
nor can it take place in a unitary global constitution overlying all areas of society, but emerges
incrementally in the constitutionalisation of a multiplicity of autonomous subsystems of world
society’ (ibid). He favours so called “societal constitutionalism” of David Sciulli, which connects
the possibility of a non authoritarian social order under modern conditions with ‘the presence
of institutions of external procedural restraint’ and institutionalisation of procedures by the
“collegial formations”, that is, in the specific organisational forms of the professions (Sciulli,
1992, p. 56, 80). The thesis on exclusion, profession and its autonomy refers to nothing else
but well-known codes of conduct for organisations or professions. Teubner somehow forgets
that digital communication as his example of ‘self-regulation of the internet as an autonomous
system [which] takes on dramatically more value’ (ibid) [than the difficulties in reaching
intergovernmental consensus] can’t be automatically transferred to other global problems. In
time when many people still don’t have enough food and water, some “electronic code” that has
the ‘electronic means of constraint’ is irrelevant. Who will give the “professional autonomy”
to the nature? “State must give us a break – we are professionals – and we know what we are
doing” - is a good statement for fields that need autonomy for their development, but complete
autonomy of nature is possible only without people. Behind every norm is some kind of force,
because a norm becomes irrelevant in the case of non-reaction to its transgression. Teubner calls
constitutional lawyers as witnesses (quoting Uerpmann 2001, p. 566; 2004) for confirmation
‘that international politics can at best pursue its own constitutionalisation, but not that of the
whole world society … [because] the constitutional quality is established in any emergence of
a legal system’. Yes, but we must differentiate between the basic arrangement of the state and
professional organization. Quod licet Iovi, non licet bovi. Constitutional arrangement for state’s
activities in the fields of public services and public interest for enabling or limiting public
power is different from activities of any professional organization (e.g. Dental Association)
that can self-regulate its profession – but what if some member violate professional norms and
continues his practice? Who will take care for the rule of law? Then the public power must step
in. How the professional associations behave to their customers, citizens, is not entirely left to
the profession, but also to the other side (and to the third side, if consensus is not possible); by
the same argument the privatisation, digitisation and globalisation must be answered by some
higher order through cooperation and communication among interested professions. Because
power is missing (public coercion) and special interests are limited, I agree with Dobner (2009,
p. 619) that ‘transnational constitutionalism may remain not more than an utopian idea which in
reality either falls short of a sufficient account of reality or of the standards of democracy’.
Reasons for Global Constitution and the “Global State”
After the disastrous World War III, in 2150 World Government, United Earth was formed that included
virtually all of the old nation states on Earth. The Earth with other planets established The United
Federation of Planets that is founded under the Charter of the United Federation of Planets of 2161.
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166 In the quote mentioned “Federation” from the Star Trek television series is, with its
permanent political institutions and division of power, the closest approximation to the
Rousseau’s idea of Federation that is established under the auspices of war. The federation is a
rational conclusion as long as there are global problems that must be answered by public law,
which is based on power. Every law is based on force and it would be superfluous to say that this
would not be so in this case. International law that is related to mutual behaviour of sovereign
states and other formations with their relative autonomy of decision-making could be described
as a work of equal partners without the use of following concepts: the state, public power,
coercion, peace, war, neutrality, etc. In short, without state’s concepts and central managing
of common affairs that go beyond the borders of members states. That’s why the international
law, as it exists now, is inadequate for solving global problems, because states will have to give
up part of their sovereignty, freedom, and decision making to the supranational institution that
will act directly by applying the principle of subsidiarity, which is also true for the EU. For the
energy conservation, increased efficiency and effectiveness, cost, speed, responsiveness and
accountability, the only rational conclusion is construction of a cosmopolitan state.
Yearbook of International Organizations provides the most extensive coverage of
international organizations available today and includes international non-governmental
(INGOs) and intergovernmental organizations (IGOs). Yearbook reflects dynamism of
international arena; it contains (on 12 July 2011) entries on 64587 (34995 active) civil society
organizations in 300 countries and territories, in every field of human endeavor (Yearbook,
2011). ��
International organisations are beginnings of the cosmopolitan state; all major
international organisations, particularly IGO-s, have established specific divisions of powers,
which basically reflect the three branches of government on the national level. As the times are
changing, so recipes for new diseases are emerging. The principle of legality was the major
cornerstone for the rule of law at the transition to democratic regimes from previous absolutistic
ones, but its glorification on the other hand led to dysfunctions that were already described
by critics in the time of Max Weber. The principle of legality includes working “by the book”
and also activity, which is located in the cognitive perception of new situations, anticipation of
future trends and elimination of potential problems. States are slowly becoming aware of it and
participate in various formal relations within the international treaties, agreements (UNCLOS,16
FAO,17 ICSID,18 IMO,19 ISA,20 WMO,21 IMF,22 WB23 etc.), and informal clubs, which are taking
increasingly more and more binding decisions, although they are not formally adopted (G7
– FATF,24 G8, G20, the Basel Committee on Banking Supervision, etc.) and are perceived as the
“global administrative law” (Kingsbury, Kirsch and Stewart, 2005).
Such in/formal gatherings are not enough; every day practice unveils more problems that
must be solved in global manner. One nation, organisation, its organ, or some eminent public
figure should step forward and bring out the first draft of global constitution. No matter what
the concrete content of the draft will be, it will have to include the principles that will justify
the constitutional structure of the global community and will sanctify relationships between
the global state and its constituent units. Principle of primacy, attribution of competences,
subsidiarity, duty of co-operation, direct effect of rules, relations between the institutions of
global community (e.g. division of power, institutional balance) are similar to those that are
integrated in the EU. They will probably get more concrete content with the operation of a global
court, in a similar way that the Court of Justice has defined the constitutional structure of the
EU. These constitutional principles will most likely contain the rule of law, of proportionality,
legal certainty, legitimate expectations, human rights, and similar rules that will regulate the
relationship between individuals and community. Substantive principles will have to regulate
specific fields, like access to water, green energy, public order, global crime, etc.
Like the “Rome wasn’t built in a day” so many modern institutions take time to be erected.
The UN (from 1945 to present) and EU (from 1958 to present) can be taken as examples (higher
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popularity of EU than UN is a sign that economic reasons are still prevailing over humanitarian 167
ones). We expect something similar in building the global state, but its longevity cannot prevent
it to be built step by step. At this point in time it is rather utopian idea, although it may be
useful in the near future, when the circumstances will be different from today. More realistic
view would be to strengthen the UN ‘as a facilitating and enforcing body in a wide range of
global governance partnerships’ (Farazmand, 2004b, p. 88) or in changing its structure more
in the “state-way”: General Assembly as the Parliament, Security Council not as the Executive
Council (Dror, 1994, p. 191), but as the upper house of Parliament, as the Global Council, the
Economic and Social Council (ECOSOC) as Executive Council (Secretary-General as the prime
minister or the president),25 International Court of Justice as��
the Supreme or Constitutional
court and specialized agencies as the ministries or public agencies. This could be one of the
future paths, but the UN itself must show its preparedness to challenge practices and initiate
the reforms in its existing institutions (e.g. in the Security Council, in ways that the General
Assembly communicates with states, economy and civil society).
In the above-mentioned Rome there is the state of the Vatican City that is a sovereign
city-state within the city of Rome and which represents its global dimension. The Vatican City
State is distinct from the Holy See, which dates back to early Christianity. ‘Ambassadors are
officially accredited not to the Vatican City State but to “the Holy See”, and papal representatives
to states and international organizations are recognized as representing the Holy See, not the
Vatican City State’.26 The Holy See, not being a country, issues diplomatic and service passports,
while Vatican City State issues normal passports;27 it is ‘the main Episcopal see of 1.2 billion
Latin and Eastern Catholic adherents around the globe’,28 that is between the number of people
in China (approx. 1.25 billion) and India (1.1 billion).29 The organization of Holy See is the
closest example of how would look the state with global dimensions, because it is globally
interconnected with all Christian churches around the world. The institutional arrangement of
the Holly See is similar to presidential system of government. Renovated UN can use the Holly
See as an example of a formally arranged institution, guided by strong will and hope for better
future.
Although the global governance is inevitable, we should not miss the arguments for the
importance of sovereign states in protecting the values of individual liberty and autonomy that
are the hallmark of the Western political tradition. Rabkin, for example, sees global governance
in conflict with a commitment to the ideal of democratic, constitutionally constrained self-
government: ‘[g]lobal governance rests on the quite different premise that legislative consent
to law is not so important to the authority of law ... Systematically left out is the power of a
legislature to determine a state’s own law’ (Rabkin, 2005, p. 41). This is really no hard argument,
because praxis in EU speaks for itself. Individual state joins with other state(s) like an individual,
if it cannot solve bigger problems. State’s law is determined by other entities, but the state gives
its consent. Self-government is based on the principle of subsidiarity, so the nation-states can
base their alliances on the same principle. Nevertheless previously mentioned warnings must
not be overlooked, because they help creating a better form of global governance.
Conclusion
The above-mentioned science fiction Federation of the 22nd century need not be only a
fiction. It will eventually become reality with an increasingly rapid development and its even
bigger consequences on the global level. The word “management” implies an entity, an institution
that decides on the objectives and the means to achieve these objectives. To address the problems
of management that are based on a whole century, at the beginning of new one at which we
are now and on a larger, global part of the world, it is more appropriate the word “strategy”
that shows the procedures, methods of planning and management of large (primarily military)
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168 operations to reach wider goal.30Every generation redefines its objectives, values, normalities,
and also its orientation for the future. Future decisions will also depend on present decisions.
The world has not any kind of strategy for future global development at all. Pessimistic view
claims that the world needs war every few decades to sober, while the optimistic view claims
that the world needs energy from charismatic people, persuading our “natural” reason into the
course of nature. The long-run “higher-order” tasks for managing global problems are related
to the strategy – to survive. The fight for survival between states will change into the very
struggle for survival of mankind. Darwinian principle of natural selection will not be reflected
in the survival of the most capable, but – applying critical mind – will use the most appropriate
resources at the global level, thus causing local effects and vice versa. National interests and
relations of power between states will play a secondary role in the light of global problems.
States know that solution of global problems in the short run brings only monetary obligations
and coercion for non-compliance; the emergence of powerful transnational connections is
therefore unlikely to happen, if there is no serious global threat to which the world should
respond. In complex and globally oriented situations the idea of integration and cooperation
is gaining momentum, while the old bureaucratic working models are still carried on. Global
political philosophy demonstrates the old tension between The Great Transformation (Polanyi)
and The Road to Serfdom (Hayek), but a powerful Leviathan is needed to push changes in
social structure and to mitigate side effects of competitive capitalist economy. With this we
must be aware of the danger of tyranny that can result from governmental control of economy
and central decision-making. It would be preferable to abandon the selfish individualism for
cooperation and solidarity for those that cannot help themselves. The principles of subsidiarity,
proportionality, rule of law, human rights and obligations will accompany mankind in the future
– but greater emphasis must be given to the last one. What must happen that the world will
come to its “Independence Day”? I hope that the question about our being will never be like
Hamlet’s, but our existence depends on us and foremost on our actions, on us – in one voice.
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Notes
1 Ideas like the wider public participation in public matters via Internet.
2 The Court [the Court of Justice and the Court of First Instance] has recognized, among others, the
following as general principles of Community law: the principle of equal treatment or non-discrimination, of
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proportionality, of legal certainty, of the protection of legitimate expectations, of fundamental rights and the 171
rights of defense (Tridimas, 2000, p. 4).
3 Recall on the so-called Arab Spring as the revolutionary wave of demonstrations and protests that
has been taking place in the Arab world since December 2010 (revolutions in Tunisia, Egypt, a civil war in
Libya, civil uprisings in Bahrain, Syria and Yemen, major protests in Algeria, Iraq, Jordan, Morocco and
Oman, along with other minor protests (see Bowen, 2011).
4 They were the mottos in the Delphic Oracle (Plato, 2010).
5 The chains are also used in Fromm as the metaphor for our items of property: ‘Although they in
themselves aren’t »bad«, they turn bad. In fact, when we attach ourselves to them, they become chains, they
impede our freedom’ (From, 1980, p. 113).
6 Sin creates [an inclination] to sin; it engenders vice by repetition of the same acts. This results
in perverse inclinations, which cloud conscience and corrupt the concrete judgment of good and evil. Thus
sin tends to reproduce itself and reinforce itself, but it cannot destroy the moral sense at its root. Para. 1865,
Catechism of the Catholic Church, 1994. They all can be encompassed also with seven deadly sins: wrath,
greed, sloth, pride, lust, envy, and gluttony. Opposing virtues can be humility, generosity, love, kindness, self-
control, faith and temperance and zeal.
7 I must here ask my readers to distinguish also between public economy, which is my subject and
which I call government, and the supreme authority, which I call Sovereignty; a distinction which consists in
the fact that the latter has the right of legislation, and in certain cases binds the body of the nation itself, while
the former has only the right of execution, and is binding only on individuals (Rousseau, [1755], 2004, p. 4).
8 If the equality sign is put between state and sovereignty, a person and property and pairs are cross-
compared, the relation between the state and property is shown as public property or public good, relation
back from the property to the state is shown as state’s legal system that protects property with public authority,
between the person and sovereignty result is in basic human rights, while the sovereignty (people as a whole)
act on the person as the public interest or public service. If from the pair sovereignty = state is removed the first,
people are without power, but they have merit to claim for it, while in the second case the state has no merit for
obtaining power. Because people have value per se (state doesn’t), they can claim power to be arranged in some
other form that is present in the state without sovereignty. Here is the place for social contract that can be also
applied in global arrangements.
9 1. No treaty of peace shall be held valid in which there is tacitly reserved matter for a future war.
2. No independent states, large or small, shall come under the dominion of another state by inheritance,
exchange, purchase, or donation. 3. Standing armies shall in time be totally abolished. 4. National debts shall
not be contracted with a view to the external friction of states. 5. No state shall by force interfere with the
constitution or government of another state. 6. No state shall, during war, permit such acts of hostility which
would make mutual confidence in the subsequent peace impossible: such are the employment of assassins,
poisoners, breach of capitulation, and incitement to treason in the opposing state (Kant, 1957, pp. 85-89).
10 The 1648 Westphalia Peace only succeeded because of an economic policy of protection and
directed public credit—dirigisme—aimed to create sovereign nation-states and designed by French Cardinal
Jules Mazarin and his great protégé Jean-Baptiste Colbert. Colbert’s policy was to undertake and fund, from
the royal coffers of Louis XIV, all forms of industry, mining, infrastructure canal building, city building,
beautification of the land … including the promotion of all aspects of science through the creation of the
Royal Academy of Sciences under the leadership of Christian Huygens. Thus, clearly, Colbert’s idea of
“the Advantage of the other” was aimed at benefitting future generations. It precluded primarily the idea of
competition, a politically correct term for enmity (Beaudry, 2003).
11 [I]f the princes who are accused of aiming at universal monarchy were in reality guilty of any such
project, they gave more proof of ambition than of genius. How could any man look such a project in the face
without instantly perceiving its absurdity, without realizing that there is not a single potentate in Europe so
much stronger than the others as ever to have a chance of making himself their master? … In a word, as all
the sources of power are equally open to them all, the resistance is in the long run as strong as the attack; and
time soon repairs the sudden accidents of fortune, if not for each prince individually, at least for the general
balance of the whole (Rousseau, 1917, pp. 52-53).
12 In preamble to the US Constitution.
13 Today authors also warn of many global problems (see e.g. Dolšak and Ostrom, 2003; Committee
on Stabilization Targets for Atmospheric Greenhouse Gas Concentrations Board on Atmospheric Sciences and
Climate, 2011).
14 Although economic advances have brought huge improvements that have changed the lives
of millions of people, one in five of the world’s population still lives in extreme poverty, lacking access
to basic healthcare, education and clean water, with little opportunity to improve their condition. Global
poverty impacts negatively upon us all. The actions of all people impact on others throughout the world …
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172 The solutions to many global problems, whether climate change or inequality, are more likely to be realized
through genuine understanding of our mutual interdependence, and of that between humans and the natural
world (DFID 2005, p. 4).
15 The UN Secretary-General Ban Ki-Moon has spoken about humanitarian crisis in Africa where
‘UN agencies have asked for $1.6 billion dollars to pay for essential life-saving programs in the region, but
have only received half that amount. We cannot afford to wait. I urge Member States to support our appeal
fully, and without delay’ (UN News Centre, 2011).
16 United Nations Convention on Law of the Sea.
17 Food and Agriculture Organization.
18 Centre for the Settlement of Investment Disputes.
19 International Maritime Organization.
20 International Seabed Authority.
21 World Meteorological Organization.
22 International Monetary Fond.
23 World Bank.
24 Financial Action Task Force.
25 ECOSOC with its functional, regional and standing commissions, ad hoc bodies, expert bodies
composed of governmental experts, of members serving in their personal capacity and other related bodies is
closer to classical functions of governmental ministries. See http://www.un.org/en/aboutun/structure/index.
shtml
26 See http://en.wikipedia.org/wiki/Holy_See (12. 5. 2011).
27 Holy See is institutionally consisted of the Holy Father and the Roman Curia (Secretariat of State,
Congregations, Tribunals, Pontifical Council, Synod of Bishops, offices, Pontifical Commissions, Swiss
Guard, Institutions connected with the Holy See, Labour Office of the Apostolic See, Pontifical Academies).
See http://www.vatican.va/phome_en.htm
28 See http://en.wikipedia.org/wiki/Vatican_City (12. 5. 2011).
29 See http://www.blurtit.com/q709433.html (14. 5. 2011).
30 Management - in the 17th and 18th centuries the development of meaning was influenced by
association with Middle French, French †mesnagement (French ménagement) household economy (1551),
measure in one’s actions (17th cent.), consideration and constraint toward others (1665): compare French
ménager. Originally: the working or cultivation of land (Oxford English Dictionary, 2011). Strategy - the art
of a commander-in-chief; the art of projecting and directing the larger military movements and operations of a
campaign; in (theoretical) circumstances of competition or conflict, as in the theory of games, decision theory,
business administration, etc., a plan for successful action based on the rationality and interdependence of the
moves of the opposing participants. Retrieved from
http://www.oed.com/view/Entry/191319?rskey=cMzZUk&result=2&isAdvanced=false#eid20537745 (24. 6.
2011).
Advised by Nikhil
��
Chandra Shil, American International University, Dhaka, Bangladesh
Received: September 12, 2011 Accepted: November 02, 2011
Mirko Pečarič PhD., Assistant Professor for Administrative Law and Public Administration,
Faculty of Administration, University of Ljubljana, Gosarjeva ulica 5, 1000
Ljubljana, Slovenia.
E-mail: mirko.pecaric@fu.uni-lj.si
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STUDENT FACTORS INFLUENCING 173
CHEATING IN UNDERGRADUATE
EXAMINATIONS IN UNIVERSITIES
IN KENYA
David Kiptanui Ruto, Lydia Cheruto Kipkoech, Daniel Kimutai Rambaei
Moi University, Eldoret, Kenya
E-mail: davidkrutocheribo@gmail.com, cherulk@yaho.com, dkrambaei@yahoo.com
Abstract
University examinations form the final and most integral part of assessing any student’s acheivement,
knowledge, skills, and attitudes. However, there has been a public outcry over the rise of irreqularities in
primary, secondary, and even university examinations. The purpose of this research was to investigete the
student factors which influenc cheating in the undergraduate university examinations. The study design
was a descriptive suvey. A sample of fifty students and ten lecturers was selected using random sampling
technique. Data were collected using a questionnaire, structured interview, and document analysis. A
pilot study was carried out in the school of education in one of the public universities. Data were analyzed
using descriptive statistics generated with the help of Statistical Package for Social Sciences (SPSS)
programme, and were presented by use of frequency tables. The results revealed that majority of the
students do not attend lectures, and factors such as lack of preparedness for examinations, peer influence,
pressure from work place, and students’ lack of confidence were some of the factors contributing to
cheating in examinations. Effective procedures and policies for management of examinations are also
recommended to be put in place, strictly observed, and effective deterrrent measures be implemented. It
was recommended that employers give off-days or study leave to staff who enroll for various courses.
Key words: cheating, dishonesty, exam irregularity, integrity, management of examinations, university
examinations.
Introduction
University examinations form a very important part in assessing the knowledge, skills,
and attitudes of students who have reached the highest academic institutions in any country.
The management of national examinations for primary and secondary schools in Kenya
is largely the responsibility of the Kenya National Examinations Council, which lays out the
rules and regulations governing the conduct of examinations.
Each university in Kenya has its rules and regulations governing the management of
examinations. For example, in Moi University, there are rules and regulations that govern the
management and conduct of undergraduate and postgraduate examinations (Moi University,
2009). In the rules and regulations are stipulated categories of examination irregularities,
procedures for dealing with examination irregularities, and the penalties for various categories
of examination irregularities such as: one or a combination of actions like giving a warning,
cancellation of examination results, suspensions for a given period of time, or expulsion from
the university, depending on the nature of the irregularity committed. The rules and regulations
highlight areas that constitute an examination irregularity, and hence, warn students against
committing the stated offences.
Despite of the fact that examinations are important in primary school, secondary school,
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174 and university assessments of achievement, there have been increasing cases of irregularities
reported before, during, and after administration of the examinations. This has raised a public
outcry especially as a result of cases of reported examination leakages, sale of examination
papers prior to examination periods, and cancelled examination results. Cheating in examinations
occurs in every country in the world (Harold & Max, 2001). In a European context, according to
a study by Newstead, Franklyn-Stolles, and Armstead (1996), there were high rates of cheating
with only 12% of the participants indicating they had not cheated, and that goal-motivated
cheating was reported among college students in the United Kingdom. This was supported in
the literature that examination malpractice was a global issue (Ikupa, 1997).
Problem of Research
Curry, the government and the parents are spending a lot in financing education in
Kenya. At the same time, the education sector is responsible for producing the manpower that
will be expected to propel the government towards realization of vision 2030. The government
and parents are concerned about the kind of graduates produced in the learning institutions
especially after several cases of examination cheating were reported. Cheating in examinations
should be discouraged since it has a negative influence on the future of society. According to
Alutu and Alutu (2003), examination malpractice is undesirable behavior and should be sternly
discouraged. The negative impact of examination cheating on society is supported by Becker,
Connoly, Lentz, and Morrison (2006) who established that dishonesty in the work place is
influenced by dishonesty while attending university. This then suggests that those students
who cheat were likely to cheat after studies and while in their work places. Since a number
of factors may influence the decision to cheat, Kisamore, Stone, and Jawahar (2007); and
McCabe, Trevino, and Butterfield (2001) found that personal factors and situational factors
affect intentions to cheat. The purpose of this research was to investigate student factors which
influenced cheating in undergraduate university examinations.
Research Focus
This study focuses on factors that are attributed to students that influence them to cheat
in examinations. This concern is as a result of a number of cases of reported examination
irregularities and general concern from the government, parents and members of the public.
Past studies and literature have pointed out various concerns about academic integrity.
Whitley and Keith-Spiegel (2002, pp. 4-6), based on a number of studies, pointed out the
following as reasons that educators should be concerned with academic integrity:
Equity: Students who cheat may be getting higher grades than they deserve. That, in
addition, when student grades are assigned on the basis of average score in the class, students
who do not cheat may get less than they deserve whenever cheaters raise class average.
Character development: Students who see that no action is taken against those who cheat
take academic dishonesty as acceptable, thus, influencing their character.
The mission to transfer knowledge: Students who cheat in exams in higher education
may not acquire the knowledge to which their degrees are supposed to attest as it diminishes
the intellectual and moral capital required by society for its development.
Student morale: cheating discourages, kills the morale, and frustrates students who do
not cheat if they see those who cheat going unpunished. Some students may be discouraged
from working hard and may also resort to cheating.
Faculty morale: The staff members become stressed dealing with cases of cheating, and
feel personally violated and mistreated by the students who cheat.
David Kiptanui RUTO, Lydia Cheruto KIPKOECH, Daniel Kimutai RAMBAEI. Student Factors Influencing Cheating in Undergraduate
Examinations in Universities in Kenya
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Students’ future behaviour: Students who cheat can easily cheat in their professional 175
careers, hence, become a disservice to the academic community and the society at large.
Reputation of the institution: Massive cheating that attracts media or widespread coverage
may bring the name of the institution into disrepute, hence tarnishing its future reputation.
Public confidence in higher education: if academic dishonesty is not addressed, may lead
to loss of confidence from the members of the public, and employers lose confidence on the
quality of the graduates, and hence, their employees.
Causes of Cheating
Many researchers have pointed out a number of factors that influence students to cheat
in examinations. Davis, Drinan, and Gallant (2009) reported that the situations that students
find themselves in are to blame for cheating. These situations include stress and pressures for
good grades. They further reported that students also willingly enter into collusion with other
students to cheat, while large crowded classrooms also fostered cheating.
McCabe and Trevino (1997) examined individual-level variables and found that, students
with lower GPAs report more cheating than those with high GPAs. They also reported that
students who engaged in inter-college athletics and other extra-curricular activities self-reported
more cheating. This reflects time demands on the part of students, hence, attempt to take short
cuts to remain competitive in their performance.
In another qualitative study, McCabe, Trevino, and Butterfield (1999) identified factors
that influence cheating such as pressure to get high grades, parental pressures, a desire to excel,
pressure to get a job, laziness, lack of responsibility, lack of good character, poor self-image,
lack of pride in the job well done, and a lack of personal integrity.
In this study, the study design used was a descriptive survey. According to Cohen,
Manion, and Morrison (2000: 169), surveys are used to gather data at a particular point in
time, with the intension of describing the nature of existing conditions, or identifying standards
against which existing conditions can be compared’ or determining the relationship between
specific events.
Sample of Research
A sample of 50 students and 10 lecturers was selected using simple random sampling
technique. The participants were chosen from those in the regular and school-based programmes,
while the lecturers were those who teach all programmes.
Data were collected by the use of a questionnaire and a document analysis. A pilot study
was carried out in the school of education in one of the public Universities in Kenya. The
questionnaire w a preferred tool for this study because it enabled the researcher to get views
from a larger number of participants within a short time. The questionnaire contained both open-
ended and closed-ended questions. A structured face-to-face interview was carried out with
some of the lecturers. The interview items were unstructured in order to encourage participants
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176 to respond open-endedly and to answer in their own terms (Scott & Morrison, 2006).
The third method used in data collection was the document analysis. Robson (2002)
defines document analysis as a social research method and is an important research tool in its
own right. It involves reading lots of written materials and relating to some aspect of the social
world. These include public records, books, media, manuals, guides etc. Robson (2002) points
out the advantages of document analysis. And advantage is that documents are unobtrusive and
can be used without imposing on participants; they can be checked and rechecked for reliability.
The documents analyzed included reports on examination irregularities from schools, and
reports of action taken on students involved.
Ethical Considerations
According to Kombo and Tromp (2006), the researcher must maintain privacy and
confidentiality of the respondent at all times. In doing this research the researcher respected
the respondents’ privacy. The participants were not expected to write their names on the
questionnaires. The participants were assured that the information given would be treated with
a lot of confidentiality and for the purpose intended only. The participants were also given the
freedom to withdraw from the study at any point or time. The name of the institution was also
not disclosed due to the sensitivity of the research problem.
Data Analysis

Data were analyzed using descriptive statistics generated with the help of the Statistical
Package for Social Sciences (SPSS) programme to generate frequencies, percentages, means,
and standard deviations. Data were presented in form of tables.
Results of Research
The results of the research obtained from questionnaires were as explained in this
section.
Table 1. Students involved in examination irregularities during the last one

year.
Male Female Total

Frequency Percentage Frequency Percentage
47 63.5 27 36.5 74
In Table 1 above based on the results from the documents found at the Academic Office,
it was revealed that in the last one year alone, 74 cases of examination irregularities were
recorded. It was further revealed that majority of those involved in the irregularities were male
(63.5%), while females involved were lower (36.5%).
It was also revealed that among the factors cited by students for cheating in examinations
included poor preparation for examinations, confusion that made students enter examination
rooms with written papers, pressure from parents, place of work pressures, delayed fees
payments, late clearance to do the examinations, and reported parental illnesses.
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Table 2. Ranking of Student factors that influence cheating based on the mean 177
of the responses.
Channel Mean Rank Standard Deviation

Inadequate preparation 2.9900 1 1.1561
Influence by colleagues 2.9369 2 1.0767
Poor attendance of lectures 2.5814 3 1.0851
Lack of confidence 2.3522 4 1.1086
Pressure from work place 1.9668 5 0.9232
Table 2 above reveals that majority of the students ranked as first inadequate preparation
for examination as the main factor that contributed to cheating in examinations, with a mean
of 2.99 on a 1-5 scale. This was followed by reasons such as influence by colleagues, poor
attendance of lectures, lack of confidence from the student, and pressure from work place in
that order respectively.
Table 3. Suggestions to minimize cases of cheating in examinations.
Response Frequency Percentage

Provide large examination rooms 31 62
Sign attendance lists in all lecture to avoid absenteeism 11 22
Invigilators should be in exam room all the time 11 22
Search for unauthorized material before beginning of exams 7 14
Sitting arrangement should be far apart 6 12
Severe punishment to those caught cheating 6 12
Expel those who cheat 5 10
Avoid over drinking 4 8
NB: the frequency is more than 50 due to more than one response from some participants
As in Table 3 above, majority of the students indicated that, to minimize cheating in

examinations, there was need to provide large examination rooms (62%). This was flowed by
the suggestion that students should sign attendance registers whenever they attended lectures
(22%) and that invigilators should be in the examination rooms all the time (22%). In the fourth
place was searching students before start of examination (14%), followed by placing students
far apart in the examination room (12%), severe punishment to those caught cheating (12%),
expelling those who cheat (10%), and students avoiding overdrinking (8%).
Discussion
The results of the study revealed that majority of the students involved in examination
irregularities were mae at 63.5%. this could be attributed to the high population of male students
in public universities. This agrees with the Ministry of Education, Science & Technology’s
(2004) report that female students in public universities constitute only 33% mainly in arts
based courses. The affirmative action where female students are admitted one point lower than
that of males may have slightly raised the female ratio.
The results also showed that most students ranked in first position the lack of preparation
for examinations as a factor that contributed more to cheating in examinations. This could be
supprted by the fact that some students do not attend most of the lectures, hence, feel that they
are not adequately prepared to do the examination. They therefore resort to getting into the
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178 examination rooms with unauthorized materials. Students may also not adequately prepare for
examinations if they know from past experience that they can walk into the examination room
with unauthorised material and use the in examinations without being caught due to weak
invigilation. This corroborates with a study by ��
Davis and Ludvigson (1995) who established
in a study that those who cheat during their university-level studies are the ones who have also
cheated in earlier studies or examinations.
Peer influence was anothe factor that students and lectures cited as contibuting to
cheating. This could be a result of lack of strict invigilation which allows those who cheat
not to be noticed. This make other students feel that one can cheat and still go unpunished.
This corroborates with previous research studies that revealed the existence of many university
lectures who hesitate to take action against cheating behavior of students because of stress and
discomfort that follows (Murray, 1996).
It was also revealed that poor attendance of lectures and lack of confidence on the
part of the students was a contributor to cheating in examinations. This could be attributed to
some students who misuse their time in the university or do not take their studies seriously.
Other researches have confirmed this and revealed that, low self control among students at
the University of Oklahoma was also another factor in academic dishonesty(Cochran, Wood,
Sellers, Wilkerson, & Chamlin, 1998), and that cheating at an Australian university occured due
to low levels of commitment by students (Caruana, Ramaseshhau, & Ewing, 2000).
The results reveal that pressure from work place as well as pressure from parents made
some students resort to cheating. These could be attributed to situations were some parents
demand better grades from their childred. These findings corroborate with the findings of Davis,
Grover, Becker, and McGregor (1992) who reported that pressures for good grades, stress, and
ineffective deterrents were some of the determinants of cheating, while Wolfolk (2004) found
that cheating can occur if students are in a situation that demands high achievement while the
opportunity for it is less. On the other hand, some employers do not want to release their staff
for studies, hence, expect them to be in their work stations all the time. This may create work
pressure on the part of the affected staff. According to Lipson and MacGavern (1993), student
workload was an important facting explaining cheating in examinations.
In oder to minimize cases of cheating in examination, the lecturers and students
recommended provision of large examination rooms, students to strictly sign lecture attendance
lists, thorough searching before entering examination roomes, and giving severe punishments
to those found cheation. This corroborates with the fact that most universities in Kenya lack
adequate teaching facilities such as lecture halls and other facilities. This results in congestion
and the situantion worsens during examination periods where more space is required. This
result relates to Earthman’s (2004) view that students acheivement was linked to the quality of
facilities. On the severity of deterrents, it is evident that those found with serious examination
irregularities get away unpunished or are given lighter punishments. This view is in agreement
with past research where it was evident that punishments were mild and frequently not supported
by the university administration (Bailey, 2001).
Conclusions
The literature reveals that academic dishonesty is a global issue (Ikupa, 1998) and needs
to be addressed in order to improve the credibility of examination grades and certificates that
students get at the end of each educational level. It was concluded from the study that, student
factors that contributed to cheating in examinations include; poor attendance of lectures, lack
of preparedness for the examinations, peer influence, pressure from work place, and students’
lack of confidence. It is therefore recommended that employers give off-days or study leave to
their staff that enroll for various degree courses. Further, large examination rooms should be
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set in order to enable students sit far apart during examinations in order to minimize cheating 179
incidences.
It is also recommended in this study that effective measures should be taken by those
in charge of administration of examinations in public universities to discourage students from
cheating in examinations. All examination procedures, right from setting to sitting of the
examinations, should be observed. This is supported by the fact that procedures for examinations
can prevent cheating (Kerklvit & Sigmund, 1999, in Howell, 2006). Students should also be
given frequent reminders that cheating in examination may lead to severe consequences, as
noted also by Kilber (1993), that there was need to talk with students about academic dishonesty
and ethics.
Situations that students find themselves in should be detected so that proper guidance and
counseling could be provided to avoid stressful environments during examinations. University
administrators through the respective deans of students should be able identify and handle
student problems that may lead to stressful situations.
It is further recommended that heads of schools in both primary and secondary schools
should ensure that proper procedures that discourage cheating are established or strictly followed
to inculcate ethical behavior amongst their students. This will limit students from transiting to
university with cheating behaviors. This agrees with Whitley’s (1998) finding that those who
cheated in high school were likely to cheat in college.

References
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Becker, D., Connoly, J., Lentz, P., & Morrison, J. (2006). Using Business Fraud Triangle to Predict
Academic Dishonesty Among Business Students. Academy of Educational Leadership Journal, 10, (1),
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Caruana, A., Ramaseshau, B., & Ewing, M. (2000). The Effect of Anomie on Academic Dishonesty
Among University Students. The International Journal of Educational Management, 14, 23, 23-30.
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Self Control: An Empirical Test of a General Theory of Crime. Deviant Behavior: An Interdisciplinary
Journal, 19, 227-255.
Cohen, L., Manion, L., & Morrison, K. (2000). Research Methods in Education. London: Routledge
Falmer.
Davis, S. F., Drinan, P. F., & Gallant, T. P. (2009). Cheating in School. Wiley-Blackwell Publishing.
Davies, S., Grover, C., Becker, A., & McGregor, L. (1992). Academic Dishonesty: Prevalence,
Determinants, Techniques, and Punishments. Teaching of Psychology, 19, 1, s. 16-20.
Davis, S., & Ludvigson, H. (1995). Additional Data on Academic Dishonesty and Proposal for
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Earthman, G. I. (2004). Prioritization of 31 Criteria for School Building Adequacy. Americal Civil
Liberties Union Foundation of Maryland, Baltimore, MD.
Harold, J., & Max, A. (2001). Fraud and Education. The Norm in the Apple. Lanham, MD: Ronman and
Litlefied.
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180 Howell, C. (2006). Contextualizing Cheating Research: A Modest Proposal: AERA Proposal - Moral
Development SIG. 1.
Ikupa, J. C. (1997). Causes and Cure of Examination Malpractices. The Business Administrator, 1 (1):
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Kibler, W. (1993). Academic Dishonesty: A Student Development Dilema. NASPA Journal, 30, 252-
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Kisamore, J., Stone, T., & Jahawar, I. (2007). Academic Integrity: The Relationship Between Individual
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Kombo, K. D., & Tromp, A. L. D. (2006). Proposal Wand Thesis Writing: An Introduction. Nairobi:
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Publishing Africa.
Lipson, A., & MacGavern, N. (1993). Undergraduate Academic Dishonesty at MIT. Results From a
Study of Attitudes and Behavior of Undergraduate, Faculty, and Graduate Teaching Assistants.
McCabe, D. L., Trevino, L. K. (1997). Individual and Contextual Influences on Academic Dishonesty.
Research in Higher Education, 38, 379-396.
McCabe, D. L., Trevino, L. K., & Butterfield, K. D. (2001). Cheating in Academic Institutions: A. Decade
of Research, Ethics and Behavior, 11, 219-232.
McCabe, D. L., Trevino, L. K., & Butterfield, K. D. (1999). Academic Integrity in Honor Code and Non-
Honor Code Environment: A Qualitative Investigation. Journal of Higher Education, 70, 211-234.
Ministry of Education, Science & Technology (2004). Development of Education in Kenya. Nairobi:
MOE.
Moi University (2009). Common Rules and Regulations for Undergraduate Examinations (Revised).
Murray, B. (1996). Are Professors Turning a Blind Eye on Cheating? Schools Facing a Plaque of cheating.
Beware the “A’’ Student: Overachievers can be Cheaters. The APA MONITOR, 27, 1, p. 1, 42.
Newstead, S. E., Franklyn-Stolles, A., & Armstead, P. (1996). Individual Differences in Student Cheating.
Journal of Educational Psychology, 88, 229-241.
Robson, C. (2002). Real World Research, 2nd Ed. Oxford: Blackwell.
Scott, David, & Morrison, Marlene (2006). Key Ideas in Educational Research. London/New York:
Continuum International Publishing Group.
Whitley, B. E., & Keith-Spiegel, P. (2002). Academic Dishonesty. An Educator’s Guide. London:
Lawrence
Erlbaum Associates Inc. Publishers.
Wolfolk, A. (2004). Educational Psychology. NJ: Prentice-Hall Inc.
Advised by Vincentas
��
Lamanauskas��
, ��
University of Siauliai��
, Lithuania
problems
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in the 21st century
Volume 2, 2011
15, 2011 Accepted: October 30, 2011 181
David Kiptanui Ruto Doctor of Philosophy in Educational Administration and Planning, Adminis-
trative Officer, Moi University P.O. Box 3900-30100 Eldoret, Kenya. �
E-mail: davidkrutocheribo@gmail.com
Dlydia Cheruto Kipkoech Doctor of Philosophy in Educational Administration, Moi University P.O.
Box 3900-30100 Eldoret, Kenya, Administrative Officer, Master of Arts in
Economics. �
E-mail: cherulk@yahoo.com
Daniel Kimutai Rambaei Master of Arts in Economics, Moi University P.O. Box 3900-30100 Eldoret,
Kenya, Administrative Officer. �
E-mail: dkrambaei@yahoo.com
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182
3D VISUALIZATION OF A CASE-BASED
DISTANCE MODEL
Péter Volf, Zoltán Kovács, István Szalkai

University of Pannonia, Veszprém, Hungary
Email: volfpeter@gtk.uni-pannon.hu, kovacsz@gtk.uni-pannon.hu,
szalkai@almos.uni-pannon.hu
Abstract
Regarding to the conveyance of materials the assignment of stock-keeping units (SKUs) is one of the
most important tasks in a warehouse. The units in the interest of their easier handling can be sorted
into groups. To classifying SKUs the most frequently used method is the ABC analysis. The traditional
approach implements a simplified scheme, which is mostly based on annual dollar usage. Classifying
units according to one characteristic can lead to rushed result, because the assignment of stock-keeping
units might be influenced by other factors, like number of orders, weight or lead time. In recent years
a number of decision models have been developed in order to make it possible to consider more than
one criterion in the same time. In general, in the case of representing a model the introduction of the
algorithm is more preferable than the visualization of data. However the visualization of results can
relieve the comprehension of the given problem and the way, how the model works, even in relation
to sorting problems. The aim of this research is to introduce a plotting method which visualizes the
results coming from the Case-based distance model developed by Chen, Kilgour and Hipel. This method
strengthens the classification by providing separating nonlinear surfaces.
Key words: case-based distance model, inventory management, visualization.
Introduction
Many obstacles can emerge during decision making and support. It can frequently occur
that besides the large amount of data the decision has to be made by considering more than one
factors or characteristics. For instance, the sorting problem in inventory management where
thousands of stock-keeping-units have to be sorted into groups based on their characteristics.
Concerning this problem numerous methods have been developed to simplify, analyze and
relieve the multicriterial decision making situation in recent years. Visualization techniques can
also help the decision support procedure by making the sort of problem more understandable.
The traditional ABC analysis is the most frequently used approach to classify SKUs. The
traditional approach implements a general, simplified scheme, which is mostly based on annual
dollar usage. Besides its simplicity one of its advantages is the ease of representation of the
results in the Pareto-chart (Harry, Mann, De Hodgins, Hulbert & Lacke, 2010), which is based
on the famous Pareto-observation (Marshall, 2007). The most important lack of this method is
that it cannot take more than one criterion into account at the same time.
In recent years a number of multi-criteria decision models have been developed in order
to compensate this defect of the traditional approach using methodologies such as the weighted
linear optimization (Ramanthan, 2006), the genetic algorithm (Guvemir & Erel, 1998), the
analytic hierarchy process (AHP) (Partovi & Burton, 1993), the fuzzy set theory (Chu, Liang &
Liao, 2008), the fuzzy-AHP (Cakir & Canbolat, 2008), etc.
On one hand these models can serve as management tools for solving complex decision
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situations (Vetschera, Chen, Hipel, & Kilgour, 2010), on the other hand the expansion of the 183
number of dimensions might cause confusion in interpretation of the results. Not understanding
or misunderstanding the decision context is one of the main problems (Ma, 2011) that can lead
to mistakes. In general, the visualization of data can relieve the comprehension of the given
problem and its environment surrounding it.
Previously Tufte (1983) emphasized the importance of graphical representation analyzing
the spread of cholera epidemic. He stated that the graphical analysis was more efficient than
the calculation. Meyer (1991) examined the role of visual data in the concept of organizational
research and suggested research questions, where visual data can be more meaningful to verbal
one. Condon, Golden & Wasil (2003) proposed a methodology based on Sammon map for
AHP. They analyzed the group decision procedure and relative judgment of the members. They
claimed that using graphical assistant can raise the objectivity of collective decision making.
Adler & Raveh (2008) introduced a graphical method for data envelopment analysis (DEA) using
Co-plot, which can help to identify efficient units and outliers. Ma (2011) made up a screening
methodology supported by graphical visualization based on the concept of multidimensional
scaling (MDS).
On the field of inventory management concerning the analyses of SKUs one of the main
problems is that the large number of units can lead to impracticable data set that can make the
employ of the given model for decision makers (DMs) more complicated and can hinder the
appropriate interpretation of the results. In this sense the Case-based distance model developed
by Chen, Kilgour & Hipel (2008) excels from other models considering the structure of the
model, because it involves an untapped opportunity in the view of interpretation of results.
Namely the process of determining the parameters of surfaces separating each group of SKUs
is built in the model and visualizing these surfaces can help to discover the magnitude of groups
and the relationships between them.
The main purpose of the research is to give a graphical support to Multicriterial ABC
Analysis based on Case-based distance model. Hence first of all the process of the initial dataset
generation will be discussed. It is followed by an introduction into the visualization of the
model, which is needed to explain the main findings of the research. A 2000-point illustrative
example serves as demonstration of the plotting method step by step.
The main aim of the visualization is to demonstrate, how the Case-based distance model
works and to present its results. The necessary dataset was generated on random basis in a
controlled model. In this sense the control model means that the intervals were created in order
to represent the most analised criteria like unit value, weight and lead time. On the other hand the
three criteria are reasonable because of the representation of the model in three dimensions.
Data Analysis
The main goal of the Case-based distance model is to sort the stock keeping units into
groups based on characteristics of the units as the set Q of criteria (Chen, Kilgour & Hipel,
2008). Let T be the set of the units A( )being analyzed,

i i
where A ∈ Tg ⊂ T | g = A, B, C
based on q j ∈ Q | j = 1,2,..., m .
The minimum c j ( ) and the maximum (c ) values taken up in positions

min max
j A − and
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184
A+ form an interval (Chen, Kilgour & Hipel, 2008). The Euclidean distances taken from these
points determine the position of the given unit on criterion q j , i.e. the distance from the
extreme values of the interval.
Let the set Z repg ⊆ Tg | g = A, B, C be a subset of Tg that involves the units which
r
principally represent the set Tg and z repg ∈ Tg | g = A, B, C is one of these units, where
c min
j ( ) ( )
r
A − ≤ c j z repg ≤ c max
j ( )
A+

(Chen, Kilgour
& Hipel, 2008).
The Case-based distance model is constructed for n dimensions, which adopted on three
criteria becomes capable to be plotted as a three dimensional system of co-ordinates defined by
the three elements of Q, where respectively radius vector q1 represents the x , q 2 the y and
q3 the z axis. In the system of co-ordinates the radius vectors can be

P P
given by the co-ordinates of their end, so if the co-ordinates of a P point are q1 , q 2
P P P
and q3P , then the radius vector heading towards the P point is q ( q1 ; q 2 ; q3 ) .
0
r
In this sense we find that the coordinates of radius vector q belonging to z repg ∈ Tg
rj
on criterion q j :
- If the upper limit of the interval is the point of comparison:
( ( ) ( ) r
q r1 c1max A + − c1 z repg ; 0; 0 ; )
( ( ) ( ) ) r
q r 2 0; c 2max A + − c 2 z repg ;0 ;
( ( ) ( )) r
q r 3 0; 0; c3max A + − c3 z repg .
- If the lower limit of the interval is the point of comparison:
(( ) r
q r1 c1 z repg ( )
− c1min A − ; 0; 0 ; )
( ( ) r
q r 2 0; c 2 z repg ( ) )
− c 2min A − ; 0 ;
( ( )r
q r 3 0; 0; c3 z repg ( ))
− c3min A − .
Péter VOLF, Zoltán KOVÁCS, István SZALKAI. 3D Visualization of a Case-Based Distance Model
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185
max
After launching the normalization factor d j the distance between the lower and upper
bounds of the intervals changes to unit, i.e. (Chen, Kilgour & Hipel, 2008)
1. Equation
)= (c (A )− c (A ))
max + min − 2
d max
j (A +
;A − j j
= 1 | j = 1,2,3
d max
j
Since the distance between the lower and upper bound of interval is equal to the absolute
value of radius vector on criterion j, therefore the Euclidean distances taken from the points of
comparison can be identified as the length of the radius vectors belonging to each unit. So the
r
distance of z repg ∈ Tg from the upper limit of the interval on the second criterion is:
( r
d 2+ A + , z repg )= (c (A )− c (z ))
max
2
+
2
r
repg
2
=
(q (0 ; c (A )− c (z ); 0)) =
+
r2
max
2
+
2
r
repg
2
d max
2 (q (0 ; c (A )− c (A ); 0))
max
2
max
2
+ min
2
−
2
 ( ( ) ( ))
 0 2 + c max A + − c z r 2
+ 0  2
max + r
( ( ) ( )) , 2
 = c 2 A − c 2 z repg
2 2 repg
=
q 2max q 2max
where
2. Equation
( ) = (c (A )− c (A )) = (q (0 ; (c (A )− c (A )); 0)) = (q )=q

2 2 max 2 max 2
d 2max = c 2max − c 2min max
2
+ min
2
−
2
max
2
+ min
2
−
2
max
2
Based on Chen, Kilgour & Hipel (2008) the weighted aggregation formula of distances are:
3. Equation
(q (x(z ); y(z ); z (z )))

2
+ r r r
( ) ( ) ( ) = ∑w
j repg repg repg
= ∑ w +j ⋅ d j z repg
r r r +
D + z repg = D + A +j ; z repg +
j ⋅
j∈Q j∈Q q max
j ,
4. Equation
(q (x(z ); y(z ); z (z )))

2
+ r r r
( ) ( ) ( ) = ∑w
j repg repg repg
, A −j = ∑ w −j ⋅ d j z repg
r r r −
D − z repg = D − z repg −
j ⋅
j∈Q j∈Q q max
j
respectively.
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186 Note, that depending on the point of comparison we get two different sorting problems.
Based on this fact the visualization has to be separated likewise:
-
min
If c j (A ) is the point of comparison, then we talk about minimum transformation
−
in the minimum (distorted) space;
-
max
If c j (A ) is the point of comparison, then we talk about maximum transformation
+
in the maximum (distorted) space.

In this sense the attribute “distortion” means that the values created by the value function
( )r
d j z repg from the original values are linear and nonlinear distorted and this value transformation
affects the sets and the shape of their separating surfaces, too.
The main aim is to plot the surfaces (ellipsoids) bounding the sets in the original space. To
achieve this goal the linear and nonlinear transformations together with their effects have been
discovered and are introduced it in the following section. The softwares, Lingo and MATLAB
were used to calculate the necessary model parameters and to plot the surfaces.
Linear and nonlinear transformations and their effects on the visualization

i 3
Space 0: Let P ∈ R be the point belonging to a SKU with the co-ordinates
(
P i = p1i , p 2i , p3i ) , where i = 1,2,..., D and
m1 ≤ p1i ≤ M 1 ,
m2 ≤ p 2i ≤ M 2 ,
m3 ≤ p3i ≤ M 3 .
where (m1 , m2 , m3 ) and (M 1 , M 2 , M 3 ) are the minimum and maximum values of the original
c o - ordinates, i.e. (
c min c1min ; c 2min ; c3min ) and
(
c max c1max ; c 2max ; c3max . )
Space 1: Linear transformation:,
where
i.e. in the case of i = 1,2,..., D

problems
of MANAGEMENT
in the 21st century
Volume 2, 2011
5. Equation 187

consequently the linear distorted co-ordinates are:
As a result we get a unit cube placed in „o” origin.
Space 2: Minimum world (nonlinear transformation):

Let
6. Equation
so in the case of i = 1,2,..., D
Note, that for i = 1,2,..., D

that is the transformed points are in the same unit cube.
Space 3: Maximum world (nonlinear transformation):

Let
7. Equation
so in the case of i = 1,2,..., D
Note, that in the case of i = 1,2,..., D

problems
of MANAGEMENT
in the 21st century
Volume 2, 2011
188 that is the transformed are also in the unit cube.
It is easy to state that the relation between Space 2 and 3 is:
8. Equation
i
Depending on which space we are analyzing the position of the points P the parameters
searched are the followings (Chen, Kilgour & Hipel, 2008):
Space 2:
- ( )
weight vector: w − = w1− , w2− , w3− ;
−
- radii: R B and RC− .
These parameters are given by the optimization model A − MCABC expressed by the
introduced transformation ( Ξ ) based on (Chen, Kilgour & Hipel, 2008):
9. Equation
where the conditions are:

9b. Equation
9c. Equation
9d. Equation
9e. Equation
where
9f. Equation
problems
of MANAGEMENT
in the 21st century
Volume 2, 2011
Space 3: 189
- (
weight vector: w + = w1+ , w2+ , w3+ ; )
+ +
- radii: R A and R B .
Parameters are given in the case of A + MCABC by the following model
expressed by the introduced transformation ( Η ) based on (Chen, Kilgour & Hipel, 2008):
10. Equation
where the conditions are:

10b. equation
10c. Equation
10d. Equation
10e. Equation
where
10f. Equation
Plotting method of linear and nonlinear separating surfaces
The nonlinear transformation implied by the value function ( )r

d j z repg on
r i
z repg = Prepg | i = r transformed the ellipsoids separating the set g into planes. In this way the
planes separating the sets in the distorted spaces can be given by the following formula:
Space 2:
problems
of MANAGEMENT
in the 21st century
Volume 2, 2011
190 11. Equation
− −
where g = B , C .
Space 3:
12. Equation
+ +
where g = A , B .
Note that due the transformations above the assumed relation between Space 2 and 3
cannot be assessed in distorted spaces. The DMs have to return back to the original space in
order to determine the interaction of the two classifications in the same space.
To get the three groups of SKUs and the ellipsoids separating them in the original space,
executing the inverse transformation is needed. Since
i
a n d are monotone transformations of P we can determine
the ellipsoids separating the sets in the following way:
Space 2:
The equation of planes dividing the sets in Space 2 is:
which can be reformed using the 6. equation into following formula:
(p3 − m3 )2 1  − (p − m1 )2
 R g − w1− 1 − (p 2 − m 2 )
2

,
=  − w 
(M 3 − m3 )2 w3−  (M 1 − m1 )2 2 (M 2 − m2 )2 
expressing p3 can we find the equation of the ellipsoids:
13. Equation
(M 3 − m3 )2  − − (p1 − m1 )2 − (p 2 − m2 )2  ,
p 3 = m3 + R − w −w
w3− 
g 1
(M 1 − m1 )2 2
(M 2 − m2 )2 
− −
where g = B , C .
Space 3:
The equation of planes dividing the sets in Space 3 is:

problems
of MANAGEMENT
in the 21st century
Volume 2, 2011
which can be reformed using the 7. equation into following formula: 191
(M 3 − p3 )2 1  +
 R g − w1+
(M 1 − p1 )2 + (M 2 − p 2 )2 
,
= +  −w 
(M 3 − m3 )2 w3  (M 1 − m1 )2 2 (M 2 − m2 )2 
expressing p3 can we find the equation of the ellipsoids:
14. Equation
(M 3 − m3 )2  + + (M 1 − p1 )
2
+ (M 2 − p 2 )
2

,
p3 = M 3 −  R − w − w 
w +
3 
g 1
(M 1 − m1 )2 2
(M 2 − m2 )2 
+ +
where g = A , B .
Note, that in this case the centre of ellipsoids is the upper limit of the available values,
i.e. the maximum value.
i
Since the position of the points P representing the units in n dimensional space is
determined by the same criteria, therefore the sets are able to be plotted in the same space,
where their sections can be identified as the nine sets before the reclassification.
The linear and nonlinear transformations employed by the value function d j z repg kept( ) r
the relations between sets, that is why applying the 14. equation the reformed shape o f
the planes separating the sets in Space 2 is
15. Equation
− −
4/4 surface („eggs”), where g = B , C .
Respectively the reformed shape of the planes from the Space 3 can be given in Space 2
by the following formula:
16. Equation
+ +
This surface is 4/4 surface („eggs”) likewise, where g = A , B .
problems
of MANAGEMENT
in the 21st century
Volume 2, 2011
192 Results of Research
The results show that limitation of the n dimensional model into three dimensions made
it possible to visualize the model in operation. The mathematical background of plotting method
with the requisite formulas has been briefly introduced above. The following illustrative example
supports to demonstrate the main findings of research concerning the visualization of Case-
based distance model developed by Chen, Kilgour & Hipel (2008) step-by-step in figures.
The illustrative example consists of 2000 units. Each unit has three parameters represented
on the three axes of a three dimensional coordinate-system, unit value (x), ranges from 1,002 to
17,385; weight (y) ranges from 9, 59 to 99,111 and lead time (z) ranging from 0,014 to 4,999
assuming that the lead time is a continuos variable, which indicates the average of the regular
lead times and in this sense it is not needed to be discrete. The intervals of unit value and weight
were generated based on normal distribution, in the case of lead time a shorter interval was
determined based on uniform distribution.
Fig��
ure 1 illustrates the 2000-point dataset in three dimensional coordinate-system. The
distribution of the unit value consists of three normal distributions with different parameters.
Hence it is separated into three parts in order to make the movement of the dataset in the model
to be traceable.
i
( i i i
)
Visualization of points P = p1 , p 2 , p 3 | i = 1,2,...,2000 in Space 0
Figure 1:��
(original co-ordinates).
Applying the parameters of the results of A − MCABC and A + MCABC each group
can be represented in three dimensional
coordinate-system. The model parameters are the followings:
Space 2 (Minimum world):
weight vector: w = (0,1840; 0,7241; 0,0919 );

−
-
−
- radii: R B = 0, 2956 and RC− = 0, 1508.
Space 3 (Maximum world):

weight vector: w = (0,1990; 0,7420�� 0,0590 );
+
-
+ +
- radii: R A = 0, 2348 and R B = 0, 4119.
problems
of MANAGEMENT
in the 21st century
Volume 2, 2011
Note, that both in the minimum and maximum worlds the centre of the comparison is 193
the “o” origin, but the order of sets is converse (see Figure 2). The converse order of these sets
has been caused by the effect of linear and nonlinear transformations (introduced briefly in 6-7
equations).
Figure 2:��
Visualization of groups in Space 2 and 3 (marking: Black – group A,
Grey – group B, Light grey – group C).
Substituting the coordinates and the parameters above into equations 11 and 12 makes
it possible to plot the surfaces separating each group from the others (see Figure 3). In both
distorted spaces the separating surfaces quested for are planes.
Figure 3:��
Visualization of groups and planes separating them in Space 2 and
Space 3.
The A, B and C groups can be plotted in the original spaces after executing the inverse
transformation indicated as ( ( )) = (p , p , p )= P
Ξ Τ Pi
−1 i
1
i
2
i
3
i
and
( ( )) = (p , p , p )= P . The bounding surfaces belonging to each group can be

Η Τ Pi
−1 i
1
i
2
i
3
i
represented by substituting these reformed coordinates with changeless model parameters into
equations 13-14 (see Figure 4). These surfaces in the original space are ellipsoids – nonlinear
surfaces in accordance with the initial assumptions.
problems
of MANAGEMENT
in the 21st century
Volume 2, 2011
194
Figure 4:��
Visualization of groups of SKUs and ellipsoids bounding them based on
the minimum and maximum world using the co-ordinates of
( ( ))
X T Pi
-1
( ) ( ( ))
= p1i , p 2i , p 3i = P i and H T P i
-1
( )
= p1i , p 2i , p 3i = P i .
Due to the inverse transformation the results of the two classifications can be represented
in the same original space (see Figure 5).
Figure 5:��
Visualization of classification based on minimum and maximum worlds
in one space (Space 0) – bottom-view and side-view.
Since the implied linear and nonlinear transformations are monotonic, that is why the
representation of the results of classifications keeps the relations between the groups in distorted
spaces as well. The minimum and maximum worlds can be completed by using equations 15-16
respectively (see Figure 6).
problems
of MANAGEMENT
in the 21st century
Volume 2, 2011
195
Figure 6: The reformed shape of the planes from Space

��
2 in Space 3 and from
Space 3 in Space 2.
Figure 6 shows that the shape of the surfaces in one world is oval (“egg”) in the other
world intercepting the planes.
Discussion
The adage “A picture is worth a thousand words” refers to the idea that a complex problem
can be modeled in the way that managers can overview easily. The models like presented above
can support every stages of decision making. Based on this managers will be able to make faster
the process to get to the right decision. It increases the responsiveness of organizations.
Visualization is extremly important in the case of Multicriterial decisions, when more
factors are supposed to be taken into consideration at the same time. The ��
plotting method
proposed in this paper is a managerial tool to demonstrate, how the magnitude of groups varies
caused by changing in the selected criteria. Knowing the linear and nonlinear transformations
and the formulas of each surfaces the effect of criteria selection to the classification or the effect
of switching from one criterion to another keeping the other criteria stable can be studied, which
is one of the main contribution of the plotting method.
In this sense the visualization can support not only the DMs but also the developers of
the model to discover the opportunities in the model and to avoid the occurring problems. The
visualization highlighted, what happens to the original data during the model that can make the
explanation of results much easier.
Discovering the movement and the distortion of the original dataset in each spaces could
lead to the observation of the real relation between the two classification approaches (minimum
and maximum worlds). Using formulas (equation 13-14) gained from the model allowed to
produce Figure (4) which illustrates the position of the categories in the way as original model
developers (Chen, Kilgour & Hipel, 2008) assumed. Furthermore, only the representation of
the surfaces (ellipsoids) in the original space could help to determine the relationship firstly
between the distorted spaces and secondly between the groups.
On the other hand the visualization of the groups and surfaces in a three dimensional
coordinate-system revealed that the rule of reclassification proposed by Flores & Whybark
(1987) and used as a basis of reclassification in Case-based distance model (Chen, Kilgour
& Hipel, 2008) is not unambiguos. Plotting the categories of SKUs from the two different
approaches in one space still does not result in the final classification. The method of regrouping
of the nine groups has to be reconsidered and can form a subject of further research.
problems
of MANAGEMENT
in the 21st century
Volume 2, 2011
196 Conclusions
In recent years a number of models for Multi-criteria ABC analysis have been developed
in order to make it possible to take more than one criterion into account at the same time.
But in general, in the case of representing a model the introduction of the algorithm is more
preferable than the visualization of data. However the visualization of results can relieve the
comprehension of the given problem and the way how the model works even in relation to
sorting problems based on Case-based distance model.
The difficulty with interpretation of the results of classification is that the original
data have been transformed by the value function employed in the model which affected the
position of the groups and the shape of the surfaces bounding them. During the analysis of the
mathematical background we contribute to the Case-based distance model with a graphical
extension which is a proposal to the representation of the final classification of the groups of
SKUs in one space.
References
Adler, N., & Raveh, A. (2008). Presenting DEA graphically. Omega, Vol. 36, Nr. 5, 715-729.
Cakir, O., & Canbolat, M.S. (2008). A web-based decision support system for multi-criteria inventory
classification using fuzzy AHP methodology. Expert Systems with Applications, 35, 1367-78.
Chen, Y., Li, K. W., Kilgour, D. M., & Hipel, K. W. (2008). A case-based distance model for multiple
criteria ABC analysis. Computers & Operations Research, 35, 776 - 796.
Chu, Ch.W., Liang, G. S., & Liao, Ch. T. (2008). Controlling inventory by combining ABC analysis and
fuzzy classification. Computers & Industrial Engineering, 55, 841-851.
Condon, E., Golden, B., & Wasil, E. (2003). Visualizing group decisions in analythic hierarchy process.
Computers & Operations Research, 30, 1435-1445
Flores, B. E., & Whybark, D. C. (1987). Implementing multiple criteria ABC analysis. Journal of
Operations Management, 7 (1-2), 79-85.
Harry, M. J., Mann, P. S., De Hodgins, O. C., Hulbert, R. L., & Lacke, C. J. (2010). Practiotioner’s Guide
to Statistics and Lean Six Sigma for Process Improvements. Hoboken, Jew Jersey, John Wiley & Sons.
Guvemir, H. A., & Erel, E. (1998). Multicriteria inventory classification using a genetic algorithm.
European Journal of Operational Research, 105, 29-37.
Ma, L. C. (2012). Screening alternatives graphically by an extended case-based distance approach.
Omega, Vol. 40, Nr. 1, 96-103.
Marshall, A. J. (2007). Vilfredo Pareto’s sociology, a framework for political psychology. Ashgate, UK,
Aldershot.
Meyer, A. D. (1991). Visual Data in Organizational Research. Organization Research, Vol.2, No. 2, 218-
236.
Partovi, F. Y., & Burton, J. (1993). Using the analytic hierarchy process for ABC analysis. International
Journal of Production and Operations Management, 13, 29-44.
Ramanathan, R. (2006). ABC inventory classification with multiple-criteria using weighted linear
optimization. Computers & Operations Research, 33, 695-700.
Tufte, E. R. (1983). Visual Display of Quantitative Information. Chesire, CT, Graphics Press.
Vetschera, R., Chen, Y., Hipel, K. W., & Kilgour, D. M. (2010). Robustness and information levels in
case-based multiple criteria sorting. European Journal of Operational Research, 202, 841-852.
problems
of MANAGEMENT
in the 21st century
Volume 2, 2011
197
Advised by Zsolt T. Kosztyan, ��
University of Pannonia, Hungary
Péter Volf Ph. D. Candidate,��

��
University of Pannonia, H-8200 Egyetem Street 10, Veszprém,
Hungary.
E-mail: volfpeter@gtk.uni-pannon.hu
Website: http://wiki.gtk.uni-pannon.hu/mediawiki_hu/index.php/Volf_
P%C3%A9ter_adatlapja
Zoltán Kovács Professor, University of Pannonia, H-8200 Egyetem Street 10, Veszprém, Hungary.
E-mail: kovacsz@gtk.uni-pannon.hu
Website: http://wiki.gtk.uni-pannon.hu/mediawiki_hu/index.php/Dr._
Kov%C3%A1cs_Zolt%C3%A1n_adatlapja
István Szalkai Assistant Professor��

,��
��
University of Pannonia, H-8200 Egyetem Street 10, Veszprém,
Hungary.
E-mail: szalkai@almos.uni-pannon.hu
Website: http://math.uni-pannon.hu/~szalkai/
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Problems of Management in the 21st Century, ISSN 2029-6932 VOLUME 2, 2011

Scientific Methodical Center „Scientia Educologica“, Lithuania,

Prof.dr. Vincentas Lamanauskas, Scientific Methodical Centre „Scientia Educologica“, Republic

Prof., dr. Constantin Bratianu, Academy of Economic Studies, Romania

Address: Address: Scientific Methodical Centre “Scientia Educologica”

ISSN 2029-6932 © SMC „Scientia Educologica“, Lithuania, 2011

THE QUALITY OF STUDIES: MANAGEMENT ASPECT

THE DISSEMINATION OF FRANCHISING ALL OVER THE WORLD: AN ATTEMPT TO

MANAGING PROCUREMENT OF FOOD WITH ADDED VALUE: A CASE STUDY OF

PILOT STUDY OF TEACHER BURNOUT IN GEORGIAN CONTEXT

KNOWLEDGE LIFE CYCLE AND ITS APPLICATION IN AUTOMOTIVE INDUSTRY

PROJECTME: A FILMED LIVE-STUDIO SELF-DEVELOPMENT LEARNING EVENT

COMPARISON OF BEST PRACTICE BENCHMARKING MODELS

AN EXPONENTIAL AND LOGARITHMIC UTILITY APPROACH TO EIGENVECTOR

DOES OWNERSHIP MATTER? A STUDY OF FAMILY AND NON FAMILY FIRMS

COMPETENCE REQUIREMENT DETERMINATION AND DEVELOPMENT IN

THE FACETS AND ECONOMIC BENEFITS OF THE INFORMATION COMMUNICATIONS

 APPLICATION OF INTERMEDIATE DOCUMENT MESSAGE IN THE PROCESS OF

A MAIN SOLUTION FOR PROBLEMS OF MANAGEMENT IN THE 22ND CENTURY

STUDENT FACTORS INFLUENCING CHEATING IN UNDERGRADUATE

3D VISUALIZATION OF A CASE-BASED DISTANCE MODEL

INSTRUCTIONS FOR AUTHORS ............................................................................. 198

THE QUALITY OF STUDIES: 

Received: October 29, 2011 Accepted: November 28, 2011

Difficulties in the Assessment of the Scale of the Phenomenon

The Manner in which Research was Conducted

As a result of numerous attempts to establish cooperation with the abovementioned 11

Number of Franchise Networks and Establishments

Analysis of aggregated data, characterising the franchise markets of 71 countries showed

Figure 1: The number of franchise networks and establishments.

An Attempt to Assess the „Degree of Saturation” of Individual Continents with Franchising

establishments per million of

Figure 2: The number of franchise networks and establishments per million of

Employment and Income Generated by Franchising

Income (billions USD)

Figure 3: Employment and income generated by franchising.

Figure 4: Share of income generated by franchising in the GDP.�

Antonowicz, A. (2010). Franchising - uwarunkowania i perspektywy rozwoju. Gdynia: Novae Res, p.

European Franchise Federation (2011). Retrieved: 11/10/2011, from: http://www.eff-franchise.com.

International Franchise Association (2011). �����������������������������

Mendelsohn, M. (2005). The guide to franchising. Bedford Row: Thomson Learning, p. 1.

Perry, R. L. (1998). The Franchise Cooperative Handbook. Washington: International Franchise

Wach, K. (2005). Dzialalnosc gospodarcza w Unii Europejskiej. Wybrane zagadnienia. Krakow:

World Franchise Council (2011). Retrieved: 11/10/2011, from: http://www.worldfranchisecouncil.org.

List of franchise associations

18 Advised by Vincentas Lamanauskas, University of Siauliai, Lithuania

Alicja Antonowicz PhD, Lecturer (Assistant Professor), Faculty of Management, University of

MANAGING PROCUREMENT OF FOOD 19

WITH ADDED VALUE:

Hans Andersson, Cecilia Mark-Herbert

Considerable interest is being directed toward growing awareness of creating added

Conditions for procurement is determined by a large number of factors (Walker et al.,

Control Control Control

Figure 1: Network governance in the production system (Johanson & Matts-

In a pilot study industry experts with expertise in management of procurement provided

with added value 23

Procurement units (actors) Number of interviewed actors (pronounced profile)

Interviewees were given an opportunity to validate and clarify misunderstandings during

24 The Value Chain for Beef in Sweden

Production methods Processed Delivery Processed Differentiated Resources

External environment (legal conditions, politics, institutional expectations, culture etc.)

Figure 2: A simplified model of actors and resources in a value chain of beef

Table 2. Procurement conditions, obstacles and opportunities for beef with 27

APPLICATION OF INTERMEDIATE DOCUMENT MESSAGE IN THE PROCESS OF

THE QUALITY OF STUDIES:

International Franchise Association (2011). ��

Bergström, K., Solér, C., Shanahan, H. (2005). ��

Grunert, K. G., Bredahl, L., Brunsø, K. (2004). ��

processes and social activities��